Jack Rasmus

COMMENTARY: Within a week the Supercommittee will release its recommendations for massive budget cuts targeting predominantly medicare, medicaid, social security, and raising taxes on the middle class in order to fund tax cuts for the rich and their corporations. Even if there is no joint recommendation forthcoming from the Supercommittee, the separate groups will issue their own reports and Congress will then take up the deficit cutting in any event. The attached just published essay, ‘The 8 Real Causes of Deficits and the Debt’, provides documented numbers showing how medicare-medicaid-social security and other social programs are not the cause of deficits or the debt. It is an excerpt from my forthcoming book, OBAMA’s ECONOMY: RECOVERY FOR THE FEW, to be published by Pluto Press and Palgrave-Macmillan this coming February 2012. For a further detailed consideration of alternatives to the Supercommittee’s forthcoming recommendations, see my just published 35pp. pamphlet, AN ALTERNATIVE PROGRAM FOR ECONOMIC RECOVERY, which can be ordered for $5 from my website, http://www.kyklosproductions.com, that is accessible from this blogsite from the sidebar to the right.

‘The 8 Real Causes of Deficits and the Debt’ by Jack Rasmus, copyright 2011

In less than two weeks the congressional Supercommittee is scheduled to release its recommendations to cut $3 to $4 trillion or more from the U.S. budget, as the U.S. blindly plunges into a Greek-like austerity program based on the erroneous economic view that budget cutting leads to economic recovery. At the heart of the cuts will be historic gutting of Medicare and Medicaid. Already Democrats have proposed a minimum of $500 billion–just about what Vice-President Biden offered to Republicans last June and President Obama last July. Not to be outdone, the Republicans countered in October with $760 billion. Supercommittee recommendations for cuts in social security retirement programs may increase that amount to more than a $ trillion.

One of the main arguments claiming to justify the cuts in Medicare-Medicaid is that their costs are contributing significantly to unsustainable budget deficits and federal debt levels and must therefore be reduced. But the real causes of the deficits and the debt are hardly addressed by those calling for massive cuts in Medicare-Medicaid-Social Security. So how much is U.S. deficits and debt and what are their true causes?

The total US federal government debt rose between 2000 and 2011 by approximately $9.2 trillion, from $5.6 trillion in 2000 to $14.8 trillion today, according to the Federal Reserves Flow of Funds reports.

There are basically eight causes of the $9.2 trillion rise in the US federal debt over the past decade: excess inflationary defense-war spending; the Bush tax cuts from 2001-2011; the direct Congressional funded bailouts of banks and corporations following the banking crash of 2008; Bush and Obama’s successive fiscal (tax cuts and spending) stimulus packages of 2008-11; price gouging by health insurance companies and health services providers; and simple interest on the debt for all the above. The amounts and calculations for each are summarized in Table 1 as follows:

TABLE 1
Eight Major Causes of $9.2 Trillion U.S. Debt Increase

Debt Contributing Factor    Addition to Debt     Percent of $9 Trillion Debt

1. Pentagon-War Spending     $2,100 billion                          22.9%

2. Bush Tax Cuts 2001-12      $3,150 billion                           34.2%
& Extensions

3. Direct Bank & Other                $900 billion                              9.8%

4. Bush-Obama Stimulus       $1,896 billion                            20.6 %

5. Non-funding of Part D           $450 billion                               4.8%
Prescription Drugs Plan

6. Excess Inflation Costs for
Medicare-Medicaid                    $180 billion                                1.9%

7. Lost Tax Revenue from       $255 billion                         2.7%                                       18 million additional unemployed

8. Interest on the $9 Trillion     $270 billion                                 2.9%

____________                                                                                                                      $9,201 billion ($9.2 trillion)

Sources: (1)Office of Management & Budget historical tables & BLS for CPI change; (2) Center for Budget and Policy Priorities, June 28, 2010, based on Congressional Budget Office and Joint Tax Committee of Congress data; (3) U.S. Treasury, TARP Report; (4) (5), Medicare Trustees Report for 2011, (6) Wall St. Journal, New York Times, Economic Policy Institute, Center for Budget and Policy Priorities articles and analyses; (7) Federal Reserve Bank, Flow of Funds Report, July 2011 and authors calculations.

Explaining each of these eight causes in turn:

The $2.1 trillion in Pentagon and War spending as a contributing factor to the $9 trillion debt run-up over the decade represents just the excessive inflation in Defense and Contingency Operations (CO=direct spending on Iraq and Afghanistan) above the normal average consumer price index (CPI) rise of about 2%. War and Defense spending rose annually on average by 8.2% over the decade. The $2.1 trillion thus represents just that increase in War and Defense spending in excess of the 2% average CPI. The $2.1 figure is actually very conservative, since it does not include additional long-term indirect war costs associated with military construction, department of energy, veterans benefits, and the like. It also excludes arguable defense costs in the military and counterinsurgency elements of spending by the CIA, FBI, NASA, State Department, Foreign Aid, and Homeland Security. Also excluded are black or off budget secret project military weapons development spending that doesn’t show up in public budget data. The latter are estimated at around $50-$75 billion a year. Homeland Security is another $40 billion a year. In total, the US Defense spending is, at minimum, conservatively around $900 billion to $1 trillion a year. The inflation in these additional costs over the decade would easily increase the $2.1 trillion allocated to the $9 trillion debt run-up by another $200-300 billion or so.

The Bush Tax cuts contribution to the total debt includes a basic $1.7 trillion estimate for the Bush era 2001-2003 tax cuts from 2001 to 2008, and the Center for Budget and Policy Priorities estimate of another more than $1 trillion for 2009-10, plus the two year extensions of the Bush tax cuts agreed to by Congress for 2011 and 2012 costing about $450 billion more. These are also conservative estimates, since they don’t include major oil and energy industry corporate tax cuts enacted in 2004-05 by the Bush administration. Nor do they account for the $1.2 to $1.4 trillion that multinational corporations are hoarding in cash in their offshore subsidiaries today to avoid paying the normal 35% tax rate in the U.S. If the latter were included, the total tax cuts for corporations and investors would add another $400 billion or so to the Bush tax cuts of $2.9 trillion.

The $900 billion in bank and corporate bailouts refers only to the $700 billion TARP (Troubled Asset Relief Program) passed by Congress in October. It also includes the roughly $200 billion separately passed by Congress to bailout the government mortgage agencies, Fannie Mae and Freddie Mac. They too went broke as a result of the financial collapse of the housing sector in 2007-08 and were bailed out in July 2008. It is important to note that this $900 billion direct bailout does not include the roughly $9 trillions of dollars injected into the banks by the Federal Reserve, which was the true source of the bailout of the banks since 2008. The Federal Reserve has a separate set of books that do not add to the US deficit and total debt of the federal government.

Then there is the three main Bush and Obama fiscal stimulus packages in 2008, 2009 and 2010, which together amount to $1.89 trillion in tax cuts and spending that have failed to date to bring about economic recovery. They include the Bush April 2008 stimulus of $168 billion; Obama’s February 2009 stimulus of $787 billion and subsequent $84 billion in supplement spending and tax cuts in 2009-10; and Obama’s December 2010 package worth another $857 billion, of which a massive $802 was tax cuts.

The escalating health care cost, consisting mainly of unfunded Part D of Medicare and the excessive inflation in health care services well above the average national inflation rate contributed approximately $630 billion to that $9 trillion US debt run-up from 2000 to 2011. Most of that $630 billion was the $450 billion in Congress’s failure to fund the Part D prescription drug program, requiring the program be paid totally out of deficit spending. The remainder cost is attributable to the excess inflation for health insurance and services directly impacting Medicare and Medicaid costs.

Another $255 billion is from lost tax revenue due to chronic unemployment for the past three years. Before the recession began in December 2007, there were 7.1 million unemployed. For the past three years that number has been 25-26 million without change, or about 18 million. Assuming a median annual earnings of $47,000 for the 18 million, an unemployment period of 6 months on average, and an average income tax rate for the group of 20%, the total lost for the past three years in federal income tax revenue is $255 billion. And that does not count lost payroll tax or corporate income tax revenue associated with the layoffs.

The final item, interest on the debt is calculated based on a simple assumption of non-compounded interest over the decade, which comes to $270 billion for the $9.2 trillion.

In summary, the true causes of the deficits and therefore the $9.2 trillion run-up in the federal debt are wars and runaway Pentagon equipment spending, the Bush tax cuts, the bailouts of banks and corporations, the fiscal stimulus packages of Bush-Obama that didn’t result in economic recovery, the chronic three year long 25 million jobless situation, and price gouging by health insurance and health services providers.

Jack Rasmus

Jack is the author of An Alternative Program for Economic Recovery, Kyklos Productions, October 2011; Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave-Macmillan, May 2010; and the forthcoming Obamas Economy: Recovery for the Few, same publishers, February 2012.

Read Full Post »

SPECIAL NOTE: Greetings to those of you signed up for this blog. I have been delayed since September providing new entries to this blog due to work completing my most recent book, OBAMA’s ECONOMY: RECOVERY FOR THE FEW, Pluto Press and Palgrave-Macmillan, due out February-March 2012, as well as an item excerpted from the intro and concluding chapters of the book–a 35 pp. pamphlet entitled: ‘AN ALTERNATIVE PROGRAM FOR ECONOMIC RECOVERY’, which was produced for several labor unions. I will share with you selections from both of these in coming weeks. The first selection is a segment of the book and pamphlet concluding chapter involving 13 Specific Proposals for how to ‘tax the wealthiest 1%’ and their corporations. The recent movement to ‘Occupy Wall St'(OWS)emerging around the U.S. and world has raised the appropriate slogan, the 99% (us) vs. the 1% (them). But the slogan now needs specific content. The attached blog entry, ’13 Ways to Tax the Rich’ offers some initial suggestions in that regard.

COMMENTARY: The following proposals to Tax the Rich are excerpted from the recent pamphlet by Jack Rasmus, ‘An Alternative Program for Economic Recovery’, recently produced (October 2011) for various Teamsters Unions in the bay area and New York. The longer pamphlet also includes proposals to restructure the banking and retirement systems in the U.S., create 17 million jobs, save 11 million homeowners, and stabilize state and local government finances. For more information re. the pamphlet, contact the author, Jack Rasmus at: rasmus@kyklos.com or call 925-209-3933. The pamphlet may also be ordered from the website, http://www.kyklosproductions.com.

’13 WAYS TO TAX THE RICH’ by Jack Rasmus, copyright 2011

Tax Program #4.1: PROFESSIONAL INVESTORS’ OFFSHORE TAX HAVEN REPATRIATION TAX.

About $4 trillion today is held in offshore tax havens by US investors, individuals and institutions, in island nations like Cayman islands, Vanuatu, Seyschelles, Isle of Man, Cyprus, etc., and in more traditional havens like Switzerland, Lichtenstein, and so forth. The IRS has identified 27 of these, which it calls special jurisdictions. If just $2 trillion of that $4 trillion was required to be redeposited in US banks, those investors would have to pay the 35% top tax bracket personal income tax on the $2 trillion in the first year, raising about $700 billion. Future earnings on the remainder would also be taxed in the second to fifth years, yielding another $200 billion a year. Refusal to repatriate could result in a 10% penalty after 90 days, followed by similar penalties. Countries that refused to cooperate should have their US based assets frozen and then taxed until compliance.

Tax Program #4.2: MULTINATIONAL CORPORATIONS OFFSHORE PROFITS RECOVERY TAX.

Multinational corporations today are hoarding between $1 and $1.4 trillion in their offshore subsidiaries, refusing to pay the required 35% corporate tax rate. If they were required to repatriate that lower amount of $1 trillion, it would raise in the first year a sum of $350 billion and another $140 billion a year in each of the next four years. Refusal to repatriate could result in a 50% tariff on the re-importing of their offshore products to the U.S. until they repatriated.

Tax Program #4.3: ONE YEAR 15% SURTAX ON $2 TRILLION CORPORATE CASH HOARD

Companies refusing to invest one third of their current cash hoard within 6 months in the U.S., and create jobs as a consequence of such investment, would be taxed at a 15% surtax rate for the remaining six months of the first fiscal year. That raises an additional $300 billion in tax revenue the first year. Repeated in subsequent years for corporations still not hiring, at a rate of 15% + 5% on the remaining balance.

Tax Program #4.4: FINANCIAL TRANSACTIONS TAX ON STOCKS, BONDS, AND DERIVATIVES TRADES

Another $150-$200 billion a year, at minimum, is raised by implementing a financial transactions tax as follows: $1.00 per every common stock trade for stock value traded $10,000 or less. Add $100.00 for stock trades valued $10,000 to $100,000. 1% on all trades worth more than $100,000. $1.00 per each $1000 value for all forms of corporate bond sales, both investment and junk grade bonds. Similar charge for commercial paper transactions. And $1 per $100 notional value for all interest rate, currency and other derivatives trades, levied on each of the counter-parties. 1% tax of notional value for all credit default swaps derivatives trades.

Tax Program #4.5: CAPITAL GAINS, DIVIDENDS, AND ESTATE TAX RESTORATION

This proposal raises taxes on capital gains and dividends from current 15% to the 35% rate that is currently levied on all top bracket personal incomes. It would also tax carrying interest at the same rate and require all hedge fund managers to pay 35% instead of their current 15%. Estate Tax rates and thresholds are restored to 1980 levels. These measures raise at minimum $125 billion in the first year, and potentially more, as well as an additional $125 billion per year for the next four years.

Tax Program #4.6: IMMEDIATE EXPIRATION OF BUSH TAX CUTS

Bush tax cuts passed in 2001-04 cost over the last decade approximately $2.9 trillion. Their extensions alone in 2010-11 cost the U.S. budget about $270 billion a year. For the next decade the cost would be an additional $2.7 trillion. Tax program #4.5 above is included in the total Bush tax cuts. Not addressed in 4.5, however, are the additional Bush tax cuts involving top bracket rates for individual and corporation income taxes as well as numerous additional deductions, exemptions, and credits worth collectively more than another hundred billion a year. Restoring the top marginal rates to 2000 levels of 39.6% raises additional tens of billions of dollars a year in revenue with which to balance the budget or other uses.

Tax Program #4.7: RESTORE TOP BRACKET PERSONAL AND CORPORATE TAX RATES TO 1980 LEVELS

Top marginal individual and corporate tax rates are proposed by this program to restore to 1980 levels, which were 50% each for both individual and corporate tax rates.

Tax Program #4.8. BUSINESS-TO-BUSINESS 2% VALUE ADDED TAX (VAT)

This proposal was in part addressed in Jobs Program #1.6 above, as a means to fund an increase in social security early retirement benefits in order to make available new job opportunities for young workers. #1.6 identified and earmarked 1% of the 2% VAT for B2B sales on intermediate goods. The other 1% of the VAT is allocated to States as a major measure for restoring their revenues and fiscal stability as well.  Once again, the justification for this #4.8  tax proposal is, if consumer households can pay an up to 10% sales tax on final goods and services, then Business should pay at least a 2% tax on their inter-sales to each other.

Tax Program #4.9: STATE-TO-STATE BUSINESS RELOCATION TAX

This program was also previously described elsewhere in this pamphlet as a means to re-stabilize State revenues and budgets.

Tax Program #4.10: INCREASE THE 12.4% PAYROLL TAX ON WAGES & SALARIES(Earned Incomes)to $250,000 OVER NEXT 5 YEARS

Currently less than 85% of all wage earners pay up to the current top annual limit of $106,800 because wage income at the top wage levels above $106,800 has risen faster than the social security base increase. If this was adjusted to prior levels where 100% of wage income was captured by the 12.4% payroll tax, the increase would more than cover any potential shortfalls in social security benefits until 2085. However, this proposal recommends paying the social security payroll tax on all forms of income, wages and salaries (i.e. earned income), and all other forms of income up to $250,000 a year. A large social security surplus would result as a consequence, and could be applied toward raising monthly social security benefit payments by as much as 20%, as described in the next Tax Program #4.11.

Tax Program #4.11: INSTITUTE A 6.2% PAYROLL-EQUIVALENT TAX ON ALL CAPITAL INCOMES (capital gains, dividends, interest, etc.)

An even larger social security surplus would result if a 6.7% tax were levied on all incomes, whatever the form and with no ceiling limit. This would transform social security from a payroll tax, or quasi payroll tax (#4.10) to a true social insurance tax. The tax revenue raise would amount to additional hundreds of billions of dollars a year to permit a 20% raise in monthly social security benefit payments for the 48 million current and future retirees. That 20% income boost would enable a major improvement in household consumption fragility.

Tax Program #4.12: INCREASE MEDICARE PAYROLL TAX BY 0.25%.

An initial 0.25% in the payroll tax for the next ten years provides all necessary funding to stabilize the Medicare system for ten years. That’s a combined 0.5% for employee and employer. Starting the eleventh year, 2022, another 0.25% each tax increase is necessary. Thereafter, the 77 million baby-boomers begin to decline as a cost factor, the costs of Medicare level off, and then decline. So a total tax increase of 0.5% over 20 years for both worker and employer totally covers the Medicare cost shortfalls. Those who consider this mere 1.7% tax for the next ten years unacceptable, should consider that the typical employer insured health care plan costs the equivalent of 30-35% of a workers take home pay today.

Tax Program #4.13: LEVY EXCESS PROFITS TAX ON THE ‘BIG 4’ PARASITE INDUSTRIES

There are four industries that are sucking the economic life blood from the U.S. economy, at the expense not only of their workers, the bottom 80% households, but also at the expense of millions of smaller businesses. These industries suck super-profits out of the economy, away from wages and other businesses income. They are the most powerful in terms of both economic and political influence. They are the banks, the oil companies, the health insurance companies, and the big pharmaceutical companies. They charge excess prices, rising at double digits now for decades, and thus reap super-profits at the expense of everyone else. An excess profits tax equivalent to a minimum 10% of the gross profits or net income of the companies in these industries should be levied on the biggest companies in these industries. Those excess profits should be returned to consumers and small businesses as offsets for health care costs and gas and electric utility costs and mortgage interest in the form of credits on annual federal tax returns.

Jack Rasmus,
October 2011
Contact info for PAMPHLET: ‘Alternative Program for Economic Recovery’ rasmus@kyklos.com
925-209-3933
925-828-0792 (fax)

Read Full Post »

COMMENTARY: On Monday President Obama again announced his target goal of a minimum $4 trillion in budget cuts by year end, plus the cost of his $447 billion tax-cut heavy jobs bill. What he didn’t indicate, however, is that $4 trillion in future budget cuts is just about equal to the $4 trillion in tax cuts handed out over the last decade, mostly to corporations, bankers, investors and the top 10% wealthiest households. So we now will have to cut $4 trillion to make up for that $4 trillion tax loss. $4 Trillion is a further interesting number: it’s just about what multinational corporations, bankers, and US big businesses are hoarding in cash and refusing to spend on investment and jobs. It’s also about equal to the amount added to the U.S. debt this past decade in excessive war spending, excessive health care cost inflation undermining medicare and medicaid, the bailouts of banks and corporations, and the Obama stimulus of 2009-10 that didn’t result in economic recovery. $4 trillion from ‘us’ to pay for $4 trillion to ‘them’. Here’s an excerpt from my forthcoming book, ‘Obama’s Economy: Recovery for the Few’, by Pluto Press, available soon.

“$4 Trillion in Tax Cuts = $4 Trillion in Budget Cuts” by Jack Rasmus, copyright 2011.

This past Monday, September 19, President Obama revealed his proposals for how to pay for his $447 billion tax cut/jobs bill announced last week. In the same speech, he announced a goal of cutting the deficits and debt by $4.4 trillion. But what he didn’t tell us is that the $4 trillion plus in deficit and debt reduction is almost exactly the amount of tax cuts that have been enacted over the past decade, 2001-2011, roughly three-fourths of which have gone to corporations, banks, investors and the wealthiest 10 percent households.

$4 Trillion Budget Cuts to Pay for $4 Trillion Tax Cuts

Here’s how the $4 trillion tax cuts stack up:
· Bush tax cuts, 2001-2010 $2,900 billion · Bush 2008 stimulus tax cuts $90 billion · Obama 2009 stimulus tax cuts $313 billion · AMT tax “fix” for high income households $70 billion · Supplemental tax cuts June 2009-October 2010 $50 billion · Obama December 2010 tax cuts $802 billion · Obama September 2011 “jobs” bill tax cuts $270 billion ___________ Total tax cuts $4,495 billion ($4.49 Trillion)

Approximately 75 percent of the $4.482 Trillion in tax cuts accrued to corporations, bankers, investors and the wealthiest 10 percent households. Today, the consensus of policy makers from Obama to the Deficit Commission to the Supercommittee is that the appropriate mix of budget cuts should be 75 percent spending reductions and 25 percent tax hikes. Most of the spending cuts will be social programs benefiting seniors; retirees (Medicare, Social Security); the working poor and children (Medicaid, CHIP); students (loans, assistance to schools); and just about every other social program aiding the least fortunate.

In his September 19 speech, Obama “threatened Monday to veto any bill that cuts Medicare benefits without increasing taxes on corporations or the wealthy,” according to the front page story in the September 20 Wall Street Journal.

Among those experienced in bargaining, that statement means, “I am signaling I will cut Medicare if you, Republicans, agree to raise taxes,” but not until you do. In other words, folks, bigger Medicare cuts are not “off the table” by any means. In fact, as a sweetener, Obama has already agreed to start with $320 billion in Medicare and Medicaid cuts out of the gate, which he already announced. Once again, a “freebie” concession up front for nothing in return, which is the president’s negotiating style, it appears. Republicans get an initial pass from agreeing to any tax increase, in exchange for Obama’s first down-payment of $320 billion in Medicare cuts as a prelude to a later final deal in December.

The $4 Trillion Consensus

For some time now there’s been a clear consensus among Democrats and Republicans alike, Obama and Boehner, Deficit Commission, Gang of Six, Supercommittee of 12, and all the rest. That consensus is to cut $4 trillion minimum from the budget.

The original Simpson-Bowles deficit commission report issued last December 2010 called for about $4 trillion in deficit reduction over the coming decade. Then, last spring, Republicans demanded that same amount. Even Tea Party Congressman Paul Ryan’s budget last spring proposed $4 trillion in cuts. It’s just that he wanted the lion’s share taken out of the hides of seniors and Medicare. After that, in June, Vice President Joe Biden held his then secret backroom negotiations with Republican leaders on behalf of the Obama administration. When news of the negotiations leaked out, it was reported Biden had agreed to a $3 trillion deficit reduction, with 87 percent composed of spending cuts, including Social Security and Medicare, and 13 percent in tax loophole closings. The Democrat Party base choked when it found out what was going on. The negotiations blew up and Republican House Leader John Boehner walked out. In July, the magic number of $4 trillion was once again quickly reintroduced by the gang of six senators. President Obama then directly jumped into the public negotiations in July and proposed his grand deal of $4 trillion of deficit cuts, composed of 75 percent spending reduction and 25 percent tax loophole closing. And now, most recently, the magic number of $4 trillion in budget cuts is offered up again by Obama.

One trillion dollars is already in the bag, as they say. This past August’s “debt ceiling deal” between Obama and Republicans amounted to roughly $1 trillion in immediate cuts and required a further minimum $1.2 trillion to $1.5 trillion guaranteed cuts by end of this year from the Supercommittee in Congress that will make its proposals public on November 19. So, that adds up to a guaranteed minimum $2.5 trillion. But wait! Obama’s recent proposed $447 billion jobs bill will raise that $2.5 trillion to $2.95 trillion, since Obama has publicly said the Congressional Supercommittee should add that amount to $1.5 trillion additional cuts mandated by year end. That same Supercommittee is already talking about cutting more than the $1.5 trillion, however. So, to the $1 trillion cuts this past August will be increased, at minimum, by another $2 trillion and possibly more. This writer predicts the eventual final deficit cutting package by year end will add at least another $1 trillion. That adds up to the consensus $4 trillion number.

$4 Trillion Tax Cuts and 25 Million Jobless

The $4 trillion in 2008-2011 tax cuts were supposed to create jobs, but they didn’t. Nor will Obama’s $447 billion “jobs” bill – composed of 60 percent of tax cuts – create jobs. We had 25 million jobless when Obama came in office. After $420 billion in tax cuts in 2009 and another $802 billion in tax cuts in 2010, we still have 25 million jobless today. By what logic does anyone think another $270 billion in tax cuts will create jobs when more than $1.2 trillion did not? Whether another $270 billion in Obama’s “jobs” bill or more (which is likely after Republicans take a whack at it), six months from now, there will still be 25 million jobless – as the US and global economies continue to drift inexorably toward a double-dip recession.

$4 Trillion Tax Cuts and $4 Trillion Corporate Cash Hoard

But wait, there’s still more. That $4 trillion in deficit cuts for tax cuts is also just about the amount that big business, multinational corporations and banks have been hoarding in cash since they were bailed out during 2009-10.

According to various sources and estimates, large US corporations – not small businesses – are sitting on a cash hoard of $2 trillion and refusing to invest it and create jobs in the US. Multinational corporations are reportedly hoarding another $1.2 trillion to $1.4 trillion in their offshore subsidiaries, refusing to return it to the US and pay the normal 35 percent corporate income tax rate. And US big banks are sitting on an excess cash reserves hoard of at least another $1 trillion. That’s all just about … guess what? Four trillion dollars.

$4 Trillion Tax Cuts and $9 Trillion US Debt

In 2001 the total federal debt as George W. Bush entered office was approximately $5.5 trillion. That total debt accelerated to $14.5 trillion today. So, the run-up in the total federal debt over the last decade was about $9 trillion. As already noted, about $4 trillion attributable to tax cuts. Another $1 trillion in lost revenue due to chronic joblessness. That leaves … $4 trillion of the $9 trillion debt run-up due to excess spending over the decade. So, where does this $4 trillion in excess spending derive from?

The amount of $2.1 trillion was from escalating defense spending and wars. Defense spending rose at an annual rate of 8.2 percent over the decade. If it had just risen at the normal consumer price rate over the decade of roughly 2 percent, instead of the 8.2 percent, it would have lowered the deficits over the past decade by $2.1 trillion. Add at least another $400 billion to $500 billion in the Medicare Part D prescription drug program introduced by Bush that was not funded, but paid for by borrowing; add another $200 billion in excess inflationary health care cost increases that have pushed government Medicare and Medicaid payments through the roof; add the $700 billion cost of the TARP bailouts of banks in 2008 plus $140 billion in bailout costs for the government housing agencies, Fannie Mae & Freddie Mac; and then add $589 billion in non-tax spending provisions in Obama’s 2009-10 stimulus packages. The total in spending contributing to the $9 trillion debt now comes to roughly … $4.179 trillion. And that’s before any interest charges on the debt from the $4.179 trillion.
Summing it all up, about $4.495 trillion of the $9 trillion debt added since 2000 has been due to tax cuts that didn’t create jobs. And another $4.179 trillion of the $9 trillion is the product of inflationary defense spending, inflationary health care costs, unfunded prescription drug plan, bank bailouts and stimulus spending that didn’t create a sustained economic recovery. (The remaining $500 billion to $1 trillion is a consequence of three years of 25 million unemployed and lost income tax revenue and interest on the $9 trillion debt.)

Some Simple Alternatives to $4 Trillion Budget Cuts

If the consensus budget cut target is $4 trillion, why not just reverse the $4 trillion tax cuts? Or address the four major causes of deficit spending: wars, health care cost inflation, bank bailouts and poorly targeted stimulus spending? Or why not tax the $4 trillion cash hoard big corporations, multinational companies and banks are sitting on and refusing to spend to create jobs after we bailed them out? Or, while we’re at it, how about taxing the $4 trillion that US wealthy investors have squirreled away in offshore tax havens from the Cayman islands to Cyprus to Vanuatu to Seychelles … and, of course, Switzerland?

So, why are politicians, Republican and Democrat alike, Obama and Tea Partyers, liberals and libertarians, all so focused on cutting $4 trillion at the expense of seniors and retirees, students and middle-working class households when they had nothing whatsoever to do with the deficits and $9 trillion debt run-up? They didn’t cause the economic crisis and weren’t bailed out even to this day. They are the 25 million unemployed. They are the 11 million foreclosed homeowners. They are the 20 million with homes “under water.” They are the 44 million seniors who will soon have to pay twice as much for their Medicare and receive no cost of living increases in their Social Security checks. They are the tens of millions of children of the poor who will soon be denied Medicaid. They are the millions of students now facing decades of financial indenture due to accelerating college debt.

Who will speak for them, as the politicians this coming December 23, 2011, cut another $3 trillion from social programs, and as we are offered yet another tax-cut bloated jobs bill from the president that won’t create jobs and only add to corporations’ cash hoarding? Don’t count on the politicians in Washington, whatever their party affiliation or ideological stripe. It’s time to take to the streets and be heard.

Jack Rasmus, September 21, 2011

Read Full Post »

COMMENTARY: Despite the contentious debates over deficit cutting in Congress, all parties are in agreement with the deficit reduction target of a minimum $4 trillion. The following article explores the ‘magic number’ of $4 trillion, showing how it is not only the consensus deficit target but also the amount by which taxes have been cut for the rich and corporations. $4 trillion is also the amount big banks, multinational corporations, and large businesses in general have been hoarding in cash since the bailouts and not using to invest and create jobs. $4 trillion is also the approximate cost over the last decade in extra war spending, runaway healthcare cost run-ups for medicare-medicaid, bailouts of banks and businesses, and interest on the debt for the same. Who’s going to pay the next $4 trillion, according to Obama-Deficit Commission-Supercommittee-Republicans, is the central issue in US politics as the ruling elites see it today. It’s not jobs, foreclosures,broke states and cities, students indentured with debt for life, or seniors struggling to stay alive.

‘The $4 Trillion Income Shift’ by Jack Rasmus, copyright September 2011

With national elections less than a year away, corporate elites and their political representatives in government are at each others throats as never before over how much to cut deficits and the federal debt. But at a deeper, more fundamental level there is virtual agreement between them. They may be fighting over the details of where and what to cut, but they are in virtual agreement over how much to slash deficits and the debt. Their consensus, magic number is $4 trillion, give or take a few hundred billion $ here or three. And that’s been that number for more than a year now.

Whats the evidence there’s a consensus $4 trillion? Consider the original Simpson-Bowles deficit commission report issued last December 2010. It called for about $4 trillion in deficit reduction over the coming decade. Then last spring, Republicans demanded that same amount. Even Teaparty Congressman Paul Ryan’s budget last spring proposed $4 trillion in cuts. It s just that he wanted the lions share taken out of the hides of seniors and Medicare. After that, in June, Vice-President Joe Biden held his then secret backroom negotiations with Republican leaders on behalf of the Obama administration. When news of the negotiations leaked out, it was reported Biden had agreed to a $3 trillion deficit reduction, with 87% composed of spending cuts, including Social Security and Medicare, and 13% in tax loophole closings. The Democrat Party base choked when it found out what was going on. The negotiations blew up and Republican House leader, John Boehner, walked out. In July, the magic number of $4 trillion was once again quickly re-introduced by the gang of six senators. President Obama then directly jumped into the public negotiations in July and proposed his grand deal of $4 trillion of deficit cuts, composed of 75% spending reduction and 25% tax loophole closing.

Chronologically, this brings us to the debt ceiling deal this past August. That agreement amounted initially to $1 trillion in immediate cuts with a further minimum $1.2 to $1.5 trillion guaranteed cuts by end of this year. Thats $2.4 trillion. But wait! Obamas recent proposed $450 billion jobs bill will raise that $2.4 to $2.85 trillion, since Obama has publicly said the Congressional supercommittee (now gang of 12) working on the coming December deficit cuts must add his so-called jobs bill cost of $450 billion to the $1.2 to $1.5 trillion cuts mandated by year end. The same supercommittee, moreover, is already talking about cutting more than the additional $1.2 to $1.5 trillion. So to the $1 trillion cuts this past August will be added at minimum another $2 trillion by December and possibly more. This writer predicts the eventual final deficit cutting package agreed upon by year end will add another $1 trillion. So here we are, back to the magic $4 trillion number.

But the magic $4 trillion has several other dimensions to it. Its not just the approximate deficit cutting target number well see by year end. It is also roughly equal to the $4 trillion in tax cuts that have been passed by Congress since the current crisis erupted in 2008the lions share of which went to business, corporations, investors, and the wealthiest 10% households.

For example, there was $90 billion in tax cuts in Bush spring 2008 stimulus package. There was another $300 billion minimum in Obama’s February 2009 original stimulus package. Add at least another $30 billion in supplemental tax cuts and corporate subsidies that were added to the $300 billion subsequently in 2009-10. Then there was last December 2010s additional $802 billion in Bush tax cut extensions, estate tax and investment tax cuts, and the initial 2% payroll tax cut. Now, September 2011, Obama is again proposing as part of his mis-named 2011 jobs bill another minimum $270 billion in tax cuts. That’s a total $1.5 trillion tax cuts passed in just the past three years. To this add the $3.1 trillion in Bush tax cuts between 2001-10, 80% of which accrued to the wealthiest 20% households and corporations. That 80% amounts to roughly $2.4 trillion. Now add it up: $2.4 trillion under Bush and $1.5 trillion since Obama. Voila!just about $4 trillion.

The $4 trillion approximate target in deficit-debt reductions agreed by Simpson-Bowles, Paul Ryan, Gang of Six, Biden-Obama, and the Supercommittee is therefore really just about equal to the $4 trillion in tax cuts introduced over the past decade, almost half of which was introduced in just the last three years.

The $4 trillion in 2008-2011 tax cuts were supposed to create jobs but they didn’t. We had 25 million jobless when Obama came in office. We have 25 million jobless today. Those aren’t my numbers; they’re the US labor departments U-6 unemployment rate number from its latest, August 2011 report.

But there’s still more. That $4 trillion in deficit target and tax cuts is also just about the amount that big business, multinational corporations and banks have been hoarding in cash since they were bailed out during 2009-10.

According to various sources and estimates, large US corporations–not small businesses–are sitting on a cash hoard of $2 trillion and refusing to invest it and create jobs in the U.S. Multinational corporations are reportedly hoarding another $1.2 to $1.4 trillion in their offshore subsidiaries, refusing to return it to the U.S. and pay the normal 35% corporate income tax rate. And U.S. big banks are sitting on an excess cash reserves hoard of at least another $1 trillion. That’s all just about…guess what? $4 trillion.

There’s still another way to look at the $4 trillion magic number.

In 2001 the total federal debt as George W. Bush entered office was approximately $5.5 trillion. That total debt accelerated to $14.5 trillion today. So the run-up in the total federal debt over the last decade was about $9 trillion. As already noted, about $4 trillion attributable to tax cuts. Another $1 trillion in lost revenue due to chronic joblessness. That leaves$4 trillion of the $9 trillion debt run-up due to excess spending over the decade. So where does this $4 trillion in excess spending derive from?

$2.1 trillion was from escalating defense spending and wars. Defense spending rose at an annual rate of 8.2% over the decade. If it had just risen at the normal consumer price rate over the decade of roughly 2%, instead of the 8.2%, it would have lowered the deficits over the past decade by $2.1 trillion. Add at least another $500 billion in the Medicare Part D prescription drug program introduced by Bush that was not funded but paid for by borrowing plus runaway, double digit, annual health care cost increases that have pushed government Medicare and Medicaid payments through the roof. Add the $700 billion cost of the TARP bailouts of banks in 2008, and the $500 billion in non-tax spending provisions in Obama’s 2009 stimulus package. Now include about $300 billion in interest on the debt from the $9 trillion total debt increase over the decade. The total in spending to the $9 trillion debt comes to roughly $4.1 trillion–the magic number.

Summing it all up, about 55%-60% of the $9 trillion debt run-up since 2001 is the result of tax revenue loss–i.e. mostly tax cuts that were supposed to create jobs but didn’t. Not under Bush; and thus far not under Obama either. The remainder of the $9 trillion is the result of wars and escalating Defense spending over a decade, the failure to control runaway health care costs, the recent bailouts of banks and big businesses, and interest payments on it all.

So why are politicians, Republican and Democrat alike, Obama and Teapartyers, liberals and libertarians, all so focused on cutting $4 trillion at the expense of seniors and retirees, students, and middle-working class households when they had nothing whatsoever to do with the deficits and $9 trillion debt run-up? They didn’t cause the economic crisis and weren’t bailed out even to this day. They are the 25 million unemployed. They are the 11 million foreclosed homeowners. They are the 20 million with homes under water. They are the 44 million seniors who will soon have to pay twice as much for their Medicare and receive no cost of living increases in their social security checks. They are the tens of millions of children of the poor who will soon be denied Medicaid. They are the millions of students now facing decades of financial indenture due to accelerating college debt.
Who will speak for them, as the politicians cut their $4 trillion from social programs by year end and as we are offered yet another tax-cut heavy jobs bill that wont work?

The past decade has witnessed at minimum a $4 trillion income shift from 2001 to 2010. The beneficiaries have been defense contractors, health insurance companies, big banks, large corporations (in particular big multinational corporations), their CEOs and stock and bond holders, and the wealthiest 10% households who have received the lions share of more than $4 trillion in tax cuts. Now another $4 trillion is on the table today, 2011, to determine who will pay for the past two and a half years of bailouts, more tax cuts, continuing wars, incessant runaway healthcare costs, the deficits, and the debt.

Jack Rasmus,

Jack is the author of the book, Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave-Macmillan, May 2010; and the forthcoming Obama’s Economy: Recovery for the Few, same publishers, 2011. His blog is jackrasmus.com and website: http://www.kyklosproductions.com.

Read Full Post »

COMMENTARY: On September 8 Obama proposed to Congress his ‘fourth program’ in as many years to get the economy going and create jobs for the 25 million who have remained unemployed since he entered office. The latest Jobs Proposal, which should be renamed the ‘Business Tax Expansion Act of 2011’, will cost $447 billion–about half of what has been spent to date on economic stimulus programs since 2009. The latest proposals repeat the reasons why Obama’s prior recovery programs have failed to produce jobs: poor composition (too much tax cuts), bad timing (long term infrastructure spending), and too little in terms of magnitude of spending. Obama’s latest jobs proposal will prove no more effective in creating jobs than his prior proposals. What it will do is give an entry for business and Republican interests to take the tax cut proposals and drive them deeper, giving corporate America even more tax cuts. Meanwhile, Obama is now being led by the nose on two corporate agenda priorities: deficit cutting and more tax cuts. What’s needed is jobs now, that is possible only by direct government job creation patterned on a 21st century Works Progress Administration (WPA) of the 1930s–paid for by a major tax restructuring to take back the trillions the wealthiest households, investors, and corporations have diverted to themselves.

“Obama’s ‘Jobs Act’: Why Less is More of the Same” by Jack Rasmus, September 9, 2011

Last night President Obama proposed a $447 billion Jobs Act. What we got from Obama was a 2009 Stimulus Light proposal, with all the problems of the prior 2009 stimulus package in the form of inadequate magnitude of spending, wrong composition and targets, and bad timing.

First, on the matter of the magnitude of spending in the proposal. Some think it was bold. But put it in context. $447 billion just wont achieve the job creation it claims. Its once again too little for an economy the size of the US, for an economy in as deep an economic hole as it is, and in an economy facing growing downward momentum at home in the context of a global economy also rapidly slipping.

In February 2009 President Obama proposed $787 billion in economic stimulus. Unemployment was about 25 million. More than two years later, after the $787 billion has been spent, unemployment (measured by the Labor Departments U-6 rate) is still around 25 million. Why therefore should Obama’s latest proposals to create jobs, consisting about half the size of the 2009 stimulus, expect to create jobs when the larger stimulus did not?

Even more important than Obama’s jobs acts insufficient magnitude, the composition is also seriously deficient–just as was the 2009 stimulus. Like the stimulus in 2009, it is once again overloaded in tax cuts. In fact, a greater percentage (60%) of the total Jobs Act is composed of tax cuts than was the 2009 stimulus (38%). Then, and now, tax cuts simply cannot and will not create jobs, given the kind of epic recession in which the US economy now finds itself entrapped.

The 38% tax cut mix in 2009 amounted to about $300 billion in total tax reduction. That $300 billion followed a $90 billion tax cut less than mine months before in spring 2008. Another $50 billion in tax cuts was further added later in 2009-10 in various bills and administrative actions. That’s a total of $440 billion in tax cuts. There’s more. Add to that $440 billion another $270 billion in Bush tax cut extensions in late 2010 for 2011, plus another $100 billion in this years payroll tax cut. Now add the Job Acts tax-heavy $270 additional billion. Now were well over a $1 trillion in tax cuts in just the past two years. And whats been the result in jobs? Still 25 million unemployed today as in June 2009.

If someone needs still further evidence that tax cuts dont create jobs in todays environment, just step back a decade. In 2001-04 George W. Bush passed another $3 trillion in tax cuts, overwhelmingly biased again toward the rich and their corporations in the form of capital gains, dividends, inheritance, business depreciation, and other corporate largesse. Over 80% of the $3 trillion went to the wealthiest 20% households and most of that to the wealthiest 5% and 1%. And what kind of job creation resulted? We had the longest jobless recession in US history up to that point. It took 46 months just to recover to the level of jobs we had before the first Bush recession in 2001.

Furthermore, most of the jobs that were created under Bush were in the Finance and Housing sectors of the economy at the time, which were both undergoing a boom due to speculative excesses before an eventual bust. The jobs mostly created in Finance and Housing had little to do with Bush’s tax cuts of 2001-04, however. Instead, millions of jobs were being lost in manufacturing while the tax cuts were taking effect last decade.

In 2004 Bush also pushed through a bill to allow multinational corporations to repatriate their then $700 billion hoard of cash they were keeping offshore in their subsidiaries in order to avoid paying the US 35% corporate tax rate. The multinationals blackmailed Congress to let them pay only 5.25% instead of 35%. In exchange, they said they’d bring back the money (saving 29.75% for themselves) and use it to create jobs. Did they? No. They money brought back was used to buy back their stock, payout more dividends, and to use for mergers and acquisitions that in fact resulted in fewer jobs. Now the same game is being proposed in Congress, except this time their offshore cash hoard is $1.2 trillion.

The historical record of the past decade is clear: tax cuts simply don’t create jobs, especially tax cuts for the rich and corporations. So why has Obama given them $1 trillion in tax cuts the past two years and is now proposing more?

Neither Bush nor Obama policies of tax cuts have created jobs. Big corporations today are sitting on a cash hoard of $2 trilliona result in large part of the nearly $1 trillion in tax cuts of the past two yearsand they arent using it to create jobs. How much more will Corporate America have to be given in tax cuts to finally create jobs? Will another $1 trillion do it? $500 billion? Will the roughly additional $270 billion proposed by Obama yesterday suffice? Whats the magic number in more tax cuts that will finally result in job creation?

But the tax-heavy proposal once again by Obama is not the only problem with his Jobs Act. The Jobs Act shares another similar deficiency with the Presidents prior 2009 stimulus. Its too heavily weighted as well in favor of subsidies to the states. The 2009 stimulus provided $263 billion in subsidies to the states. It was supposed to create jobs. It didn’t. Local government laid off hundreds of thousands of workers since June 2009 despite the $263 billion. What guarantees are there that wont be repeated this when they’re given the added subsidies? Will they get the subsidy only if they first prove they’ve added the jobs? Don’t count on it.

Another problem with the composition of yesterdays Jobs Act announcement by the President is it once again repeats the promise of the 2009 stimulus that infrastructure spending will quickly create jobs. In 2009 about $100 billion was allocated to infrastructure related spending that was supposed to create 4 million jobs. That didn’t happen. There were 6.4 million construction workers employed in June 2009. There are 5.5 million today. Nearly a million fewer construction jobs was the result. There just weren’t as many shovel-ready jobs as was claimed. Construction and infrastructure jobs are long term. What is needed today is immediate job creation. Infrastructure programs just wont cut it. Especially when of the minimal magnitude in Obama’s recent proposal.

Obama yesterday promised his proposals would focus on small business by subsidizing their hiring of workers for each job they create. But for small business to create jobs it needs more than a partial hiring subsidy. It needs funds in addition to cover all the other costs of production. For that small business needs bank loans. And for two years now they just cant get the loans from the big banks. Bank lending to small business declined for 15 consecutive months after June 2009 and its not much better today. Obama and the Federal Reserve bailed out the big banks to the tune of $9 trillion in recent years, in the expectation they would start lending. They didn’t. They still are’nt. Like the big corporations hoarding their $2 trillion and not creating jobs, the big banks are hoarding their cash reserves as well and lending to small business that might create jobs if they could get the loans. Obama would have done better to propose the Federal government bypass the banks and directly loan to small business at 0.25%. After all, that’s the interest rate at which the Fed today loans to the big banks? No, I take that back. Actually its only 0.1%, and then the Fed pays the banks 3% to temporarily park the free money with the Fed in the interim. What a deal: the Fed pays the big banks to take its free money.

In summary, what we got from Obama’s Jobs Act last night was more of the same in terms of poor composition (i.e. excessively tax cut heavy), poor timing (long term infrastructure projects), and too little magnitude spending in any event.

Theres no reason to believe that the Obama jobs package that repeats the problems of poor composition and bad timing of the 2009 stimulus–which didn’ t create jobs–is going to do any better when its also half the size of the stimulus.

Of course, the proposed Jobs Act wont pass anyway because the Teapublicans will oppose it. At best, they might try to cherry-pick out the business tax cuts proposed by Obama, and then add even more tax cuts to the Jobs Act–a proposal which anyway should be appropriate renamed The Business Tax Expansion Act of 2011.

Just a day before the presidents address, the Teapublican candidates gathered to hold their latest debate. They stumbled all over each other to see who could promise Corporate America even greater tax cuts. Rick Perry even promised to end all corporate taxes. Rick Santorum promised to lower capital gains and dividends taxes to zero. Others proposed no income taxes whatsoever for earners of $200,000 income a year. Grovel for those campaign contributions, fellas. These same candidates, after proposing cutting hundreds of billions a year in tax cuts for the rich and corporations, will turn around and cry about the budget deficits and demand equivalent cuts in social security, medicare and Medicaid to make up for their ever-generous handouts to the wealthy.

But this kind of mercenary, Robin-hood in reverse, policy of No taxes whatsoever for the rich and their corporations is expected from the radical right. Yet it seems Obama is being drawn into their tax cut for the rich frenzy with his proposal last night for yet another $270 billion in cuts. He just agreed, less than nine months ago, to give them $270 billion by extending the Bush tax cuts last December. Now hundreds of billions of dollars more. This past year witnessed the Presidents adopting their central agenda demand to cut deficits. Could he now be tailing the Teapublicans once again down the Cut more taxes for Corporate America road as well?

A real job program today would be proposals and programs to re-create, in 21st century form, of a Works Progress Administration–paid for not by giving the rich and their corporations still more tax cuts but by taxing their $2 trillion cash hoard, their $1 trillion in excess free Fed money bank reserves, their $1.2 trillion held in offshore subsidiaries, and by taxing the more than $6 trillion they’ve all stashed away in their tax havens around the globe from the Cayman islands to the Seychelles to Vanuatu and, of course, Switzerland.

Politics in America today sadly is not about what will ensure true economic recovery and give the 25 million Americans a job. Its about how to extend tax cuts for Corporate America and its shareholder beneficiaries; its about how to ensure the Great American Tax Shift of recent decades is never rescinded and instead further extended; and its about how to make everyone else in American pay for their bailouts so that the corporations and wealthiest themselves do not have to.

Jack Rasmus, September 9, 2011

Read Full Post »

Commentary: While attention is focused on US domestic economic conditions, markets and investors are obsessively focused on the upcoming public speeches by President Obama and Fed Chairman, Ben Bernanke, this coming thursday, September 8, in the hope either, or both, will deliver a magic policy bullet to reverse somehow the trajectory of the US economy toward double dip recession. Meanwhile, the global economy itself continues to unravel and drift toward worldwide economic contraction. What will the effects of each–recent US and global economic developments–have on the other? What will both mean for US stock market and economic volatility this coming friday and the weeks to come? This writer has consistently argued that economists should predict the future, not the present–as most contemporary economists are content to do. So here’s my ‘going out on a limb’ and offering some predictions about the future, in the context of predictions made in the past about the inevitability of a financial crisis in Europe and the global economy.

‘Predicting Global Economic Volatility’ by Jack Rasmus, September 5, 2011

This coming week, September 6-10, may prove one of the most volatile economically and financially since the global banking panic of September 2008both in the US and worldwide.

At the end of last week, stock markets in the US and around the world staggered on the news of the US August jobs report. That report showed zero jobs created last month, according to one of the Labor Departments jobs survey. The same Labor Departments second job survey–the one that didn’t gain much attention in the press–was even worse. It showed more than 212,500 jobs lost. Stocks plummeted.

What was overlooked with the big stock market drop-off at the close of last week was a growing instability in the bond markets, both government and corporate, that has also been emerging. Bond markets are far more important economically than stock markets. They dwarf the size of all world stock markets combined by several magnitudes of trillions of dollars.

Not just government bonds but corporate bonds as well. And not just bond markets in the US but in Europe, where it appears that the most recent bail out of Greece once again is about to collapse, just a few weeks after it was announced. This is the third Greek bailout. Or is it the fourth? Depends on your definition. However defined, the Greek default crises are now coming faster and more furious. There is no way the Eurozone can save Greece now from default and they are just beginning to realize that fact. The key question is, as the French say, ‘apres le deluge, quoi’ (after the fall what/who?)

The bankers and their politicians in Europe, UK and the USA would no doubt prefer to allow Greece simply to leave the Eurozone. But they cant. They are uncertain of its impact on the Euro currency, which would likely collapse below parity with the US dollar. That would wipe out trillions of Euro-denominated securities overnight, a terrifying thought for bondholders and other Euro and global investors. So they stumble along with bailout to bailout for Greece. And the bond markets begin to quiver.

Then there’s Italy and maybe Spain, and maybe even thereafter Belgium and France. If either of the four candidates enter a sovereign-bank crisis, then almost certainly another Lehman-event reminiscent of the crash of the Lehman Brothers investment bank back in 2008 will likely occur.

This was all foreseen by this writer back in late 2009, when the book, Epic Recession: Prelude to Global Depression (Pluto Press and Palgrave May 2010) was completed by this writer. To quote some of my predictions of two years ago:

“The Obama 2009 recovery program will, at best, result in a drawn-out economic stagnation, a period of weak and short recoveries followed by short and shallow declines; i.e. a W shaped or double dip recovery scenario. Or, at worst, will result in an eventual further collapse of the economy following a renewed financial crisis event.”  (Epic Recession: Prelude to Global Depression, p. 314)

Or, the following prediction in January 2010 of a second banking crisis sometime 2011-14:

“The Euro financial system will be shaken in 2010 by one or more defaults on its periphery…The possibility of a second banking crisis and panic in 2011-14 is high.” (Z magazine, January 1, 2010).

A year later, in 2011, this same theme was taken up once again, where this writer predicted further:

“The Eurozone sovereign debt crisis will spread beyond the current four economies (Ireland, Portugal, Spain, Greece) and engulf Italy, Belgium, and potentially (though less likely France)…A restructuring of the EU currency system will result in a kind of two-tier euro currency.” (Z Magazine, January 1, 2011)

And then this past spring,

“The US and other major global economies are once again on the cusp of a significant slowdown. “(Truthout Blog, June 5, 2011)

And two weeks ago,

“The big economic engines of Europe (France, Germany, UK) are all about to tip into recession themselves in the coming quarter. ..If Italy, or even Spain, are among the two (Euro sovereign defaults), it is almost certain one or more French or Swiss Banks will become the next Lehman.” (Znet blog, August 29, 2011)

The coming week of September 5-10 may prove to be the most economically volatile in some time. In the Eurozone, unions are finally stirring in Italy. The reason: Prime Minister Berlusconi’s austerity package was abruptly changed after promises made to labor to include austerity for all, including the wealthy. Their taxes were to be raised. Then he reneged. No tax increases for the rich, but austerity for workers and the rest. Understandably the Italian workers felt betrayed. Promises of sharing of equal sacrifices were shown to be a sham. Berlusconi was no doubt told by his rich supporters he had to change the terms over the weekend.

This backtracking by Berlusconi reveals the central fundamental issue in all the austerity programs being launched across the globe–in the US (called deficit cutting here) and Europe. These programs are fundamentally about two things:

First, imposing austerity is so that bondholders and their banks don’t have to take any losses. Make the people pay for the bailouts of those same banks and investors who, by the way, caused the crisis in the first place. Banks and bondholders refuse to take any losses.

Second, austerity means cutting social programs, wages, benefits only–without any tax hikes. In other words, once again, make everyone else pay but dont touch the tax cuts of the rich. That was clear in Berlusconi’s reversal over the weekend. Its also abundantly obvious in US Republican and Teaparty politicians refusal to accept any form of tax hike for the rich and corporations. Austerity is for the bottom 95% households; not for the top 5%.

So watch Italy this week, the Italian unions, and the rest of the Eurozone bondholders and banks. Watch Greece. Watch what happens in the capitols of Paris, Berlin, and London in response to coming events this week. As that crisis deepens in Europe this week and next, the financial instability will deepen further in Europe. It will have repercussions for US stock and bond markets, without a doubt. Stock market swings of 300-500 points a day will occur in response, in part, to the Eurozone crisis.

The Eurozone crisis comes at an inopportune time, as instability in the US also ratchets up this week for domestic reasons. All ears are on what Obama will announce on Thursday, September 8. But dont hold your breathe. It will prove under-whelming. And the markets will react accordingly.

The President will rummage into his policy bag of two years ago, dust off what he didn’t offer then, and announce it later this week–just about when the crisis in Europe intensifies. What were likely to see are: an infrastructure bank financed by private interests, more tax cuts for business, more deregulation of business, more payroll tax cuts, call to conclude new free trade agreements. In short, the stuff his corporate advisers have been recommending to him.

How the stock and bond markets will react this week to the deepening Euro crisis and to the Obama jobs proposals will prove interesting. How bank stocks respond will be especially interesting. Already Bank of America and Citigroup, two of the biggest, are experiencing a freefall in their stock price. Both banks have been technically insolvent for the past two years. The upheaval in Europe and US domestic events may push their stock prices down further, to low single digit levels. That collapse in their capitalization means eventually the need for more bailouts.

If stocks tank at this coming Friday after Obama’s jobs announcement, or earlier due to the Euro-Italy-Greece crisis, all eyes will then turn to the Federal Reserve once again in the mistaken hope it can prevent the economy from sinking further. Investors will expect another Quantitative Easing (QE) program. But this time they may not get the money injection they expect. The Fed has an internal revolt of its own now underway. At best it may provide a QE 2.5, which will boost stocks a little for a short while. But that will soon fade as well, as the stock markets realize there is no further injection of hundreds of billions of dollars coming from the Fed this time around. The last short-lived stock boomlet of earlier this year was driven largely by the Feds preceding QE2, initiated last October 2010 and concluded this past June 2011. It pumped up stocks and commodities speculation in oil, metals, cotton, food grains, which has translated into rising gasoline and food prices for the general consumer and falling real wages in turn. But QE2 did nothing for housing or jobs recovery. The same results can be expected from any new version of QE 2.5 as well.

Capitalist policymakers from Washington to Berlin to Paris to Rome are fast running out of policy bullets to contain a crisis that is once again beginning to show early signs of spinning out of control. The bullets to date have aimed only at social programs, wages, benefits, and John Q. Taxpayer. None have been intended for bondholders, investors, bankers, or big multinational corporations. All austerity programs to day everywhere–US, Europe, etc., have targeted everyone but the bond holdings of the rich, their tax rates, loopholes, and tax havens, or their record accumulated cash on hand. That may soon prove impossible to continue.

How soon their privileged exclusion from paying for the crisis depends on how much those targeted–workers, consumers, unions–resist and how hard they push back. Perhaps what happens in Italy and Italian unions this coming week will be an early sign.

There are only three ways to resolve the global financial crisis with its mountain of bank, corporate, and government debt. One is to grow out of the crisis. But economic growth is not on the horizon. In fact, quite the opposite. The second is to squeeze the taxpayer, the worker, the consumer, the retiree and make them pay. But that just may radicalize folks and push them out of the electoral orbit of the dominant political parties and into the arms of the new parties that challenge their old control. The third is to make the bond and debt holders take their losses, expunge their debt, pay them the pennies on the dollar their bad assets are worth, or none at all, and move on. The latter, third option is the quickest and most certain. But investors, wealthy, bondholders, and corporations will fight to the finish to prevent it.

Its all about who pays. Austerity solutions mean the rich get to keep their tax cuts and the rest have to pay the bill for their excesses that caused the crisis. Austerity never resolved a financial or economic crisis, however. It only makes it worse. Just look at Greece today.  Italy and Eurozone tomorrow.  And USA thereafter.

In the meantime, get ready for an economic volatility roller-coaster this coming week and the weeks and months immediately ahead.

Jack Rasmus
September 5, 2011

Read Full Post »

Commentary: The following is an analysis this labor day of last friday’s August Employment Report by the US Labor Department. Most press accounts of the report focus solely on the more conservative ‘Establishment Report’ Survey (CES) by the US Labor Department, including last friday’s. It showed a zero increase in jobs last month. But the CES ‘zero’ is the best of the job indicators, not the worst. The more accurate Current Population Survey, CPS, jobs report released simultaneously with the CES report showed much worse data concerning jobs. The CPS covers small business much better than the CES, which is over-represented by large businesses. Large corps may not be creating jobs, but smaller businesses–the source of more than half of jobs created or lost–are showing more job losses. The following shows how, and gives a preview of Obama’s likely ‘jobs initiatives’ in his speech later this week–his ‘fourth’ jobs plan announcement since taking office. But don’t hold your breathe. This latest won’t be any more successful than the previous programs in creating jobs.

‘August Jobs–Worst Than Zero’ by Jack Rasmus, copyright 2011

Last Friday, September 2, 2011, the latest jobs report was released by the US Labor Department. It showed no jobs created for the month of August. Zero. Zip. The report confirmed the growing evidence that the US economy was on a track toward a serious economic relapse, at minimum, or a possible even worse double dip recession. The stock market went into another tailspin. Bond markets globally reeled.

Those trying to downplay the August jobs report noted the August numbers included 45,000 Verizon telephone workers who were on strike and who subsequently have returned to work. That would mean, apologists argued, there were actually 45,000 jobs created last month. Big deal. It takes 150,000 new jobs a month just to absorb new entrants into the labor force.

It is important also to note that the zero number was the very best of the various job numbers that might have been reported, not the worst. Other data show the August jobs situation was not stagnant, with no jobs created, but actually much worse. Here’s why.

The zero jobs number for August is taken from just one of the two Labor Department jobs surveys–what is called the Current Establishment Survey (CES) which focuses mostly on large companies and doesn’t pick up smaller companies very well, where more than half of all jobs are either created or lost. The other Labor Department jobs survey, the Current Population Survey (CPS), is typically not mentioned in the press commentary on the jobs situation. That was true last August once again. The CPS, however, is a more accurate reflection of the condition of jobs today, Labor Day, June 5 in the U.S.

The CPS shows, for example, how many workers are leaving the labor force because they cant find jobs. The CPS also shows a truer more accurate unemployment rate, called the U-6 rate, which includes jobless workers that are discouraged or missing from the labor force and workers being converted from full time jobs to involuntary part time jobs. It also shows the duration of the long term unemployed. In short, it provides a deeper and more comprehensive picture of the condition of jobs in the U.S. last month

So, lets look at just a few of the interesting facts about August jobs from the CPS survey for last month.

To begin with, in August an alarming additional 430,000 workers were hired as involuntary part timers, bringing their total to more than 8.8 million. That sharp rise in involuntary part time work means several things. First, it means employers are reducing workers on full time status to half time status in growing numbers. That conversion of full time to part time work typically represents the first step many companies take before reverting to direct layoffs in greater numbers. A huge increase in part time jobs occurred in 2008, as a prelude to eventual massive layoffs that followed. Last months major rise in part time employment, in other words, may just be the canary in the mineshaft indicating mass layoffs to come in a few more months.

Second, the rise of 430,000 part time jobs represents an actual reduction of up to 215,000 jobs, as hundreds of thousands of workers are converted from full time to part time work involuntarily. The August job numbers were therefore less than zero–i.e. up to a loss of potentially 215,000 jobs. It s not that no jobs were created in August. More accurately, up to 215,000 jobs were lost in August.

Third, last months jobs data also showed a growing dangerous trend. Over the last three months there has been a significant rise in the number of discouraged and marginally attached workers in the labor force. In fact, 266,000 have left the labor force the past three months alone–in addition to the 430,000 converted to part time work last month.

Rising numbers of discouraged workers leaving the labor force is often the first sign of a deteriorating labor market and more actual layoffs to come down the road. In addition, rising numbers of involuntary part time work is often the next, further indication of coming layoffs as companies convert full time to part time jobs as an interim step to full layoffs about to occur in the near future.

Thus, these two indicators–rising discouraged workers numbers and rising part time employment–are both canaries singing in the mineshaft, i.e. giving off warnings of worst to come in direct layoffs. And both are getting worse.

Both the discouraged and involuntary part time numbers are reflected in the Labor Departments more accurate U-6 unemployment rate that isn’t often reported by the press, which always de-emphasizes the severity of the jobless situation by referring to the more conservative U-3 jobless numbers that ignore the discouraged and part time employment trends.

The more accurate U-6 jobless numbers rose by 212,520 in August. That means instead of Zero jobs created in August, there were actually 212,520 jobs lost in August.

Furthermore, since May 2011 the U-6 jobless numbers have risen by 598,734. In short, nearly 600,000 more workers have become unemployed the past three months alone.

For non-supervisory workers still with jobs this past August, the recent Labor Department shows their average hourly wage and average weekly pay both declined, and that decline was in absolute pay levels–i.e. before even further adjustment downwards to account for inflation. If you were fortunate enough to hold onto your job in August, you nonetheless had a significant reduction in pay.

To summarize, the numbers of importance in the August jobs report are not the Zero jobs growth reported in August. The numbers that reflect the real condition of jobs today are the 212,500 increase in the unemployed; the 430,000 shifted to involuntary part time employment; the escalating number of 598,000 discouraged and marginally attached workers in recent months; and the sharp decline in real pay levels in just one month.

All these numbers are called forward looking–that is all are a harbinger of much worse employment conditions in the months to come. It is important to focus on future indications of trends, not just one month current data like the zero jobs created number reported in the most conservative of the Labor Departments data survey (CES) and U-3 unemployment rate.

In a few days, Obama will address the nation and presumably offer a program for jobs. However, his past track record shows clearly his proposals will likely be more of the same. That means more tax cuts for business in the hope they will create jobs, despite the fact business is now sitting on $2 trillion and refusing to create jobs anyway. So, lets give them a couple hundred billion dollars more and maybe they will change their minds. Obama’s proposals will also likely include some long-term infrastructure job creation, most of which wont take effect until after the next election in order to satisfy the deficit cutters in both political parties. That also wont do much for the jobs crisis now deepening further. Cutting business regulations will purport to represent another way to create jobs, as the presidents current stable of ex-corporate advisers have been demanding. Pass the free trade bills will parade as another false job creation proposal, when it is clear free trade has devastated jobs not created them.

Missing will be the necessary proposal for a 21st Century direct government jobs creation program patterned on the experience of the 1930s Works Progress Administration. Or how to pay for that direct job creation program with a fundamental restructuring of the tax system in the US to make wealthy investors, households, and their corporations pay for it all.

Jack Rasmus
September 5, 2011 (Labor Day)

Jack is the author of the book, Epic Recession: Prelude to Global Depression, by Pluto press and Palgrave-Macmillan, 2010; and the forthcoming Obama’s Economy: Recovery for the Few, same publishers, January 2012. His blog is jackrasmus.com and website: http://www.kyklosproductions.com.

Read Full Post »

COMMENTARY: The following is an article on the history and evolution of concession bargaining in the US that is perhaps appropriate this labor day 2011. It briefly traces how concession bargaining at the shop level has, since the late 1970s, evolved, transitioned recently to the public sector, and now is morphing into an attack on the ‘social wage’ (social security, medicare, etc.) at the grand ‘political’ level as the economic class war in the US intensifies and moves into every ‘nook and cranny’ of the economy. We are witnessing in Congress and the Obama administration today (political) ‘management’ decisions to cut (social) wages just as for decades corporate management cut wages and benefits at the shop or company level. Of course, it’s the same ‘corporate management’ that has been driving both. Having accomplished much of their concession bargaining goals at the shop level in recent decades, they are now-through their political managers-attempting the same at the social level.

‘Concession Bargaining At the Crossroads’ by Jack Rasmus, copyright August 7, 2011

The history of collective bargaining since the Second World War has consisted of several stages or phases. The first phase was roughly from 1947 to 1979. During it collective bargaining was expanded both in terms of its scope and its magnitude. Scope refers to new areas of bargaining, such as cost of living adjustments, supplemental unemployment benefits, pensions and health care benefits, union and worker rights, etc. Magnitude refers to increasing the dollar value of wages and benefits. Up to 1979 both expanded.

In contrast, from the mid-1970s to 2007, concession bargaining became the growing practice. But it was concession bargaining focused on giving back magnitude gains of the previous decades, not necessarily the scope of bargaining. Workers in the private sector gave ground on wages and benefits in a decades-long attempt to protect their jobs.

First Stages of Concession Bargaining

Among the first to feel the effects were workers in the construction sector, starting in the 1970s. Employers formed early in the decade the Construction Industry Users Roundtable. Its strategy was to undermine the then powerful building trades unions by a new tactic: the double breasted operation. This simply put was a way to undermine the construction unions by setting up parallel, non-union companies. The unions ignored the threat more or less, since the double breasted operations were set up in the suburbs and outlying regions. The urban bastion of unionization in construction wasn’t immediately impacted. Employers progressively then moved jobs and work to the non-union operations. The loss of jobs in the unionized operations eventually forced workers and unions to start granting concessions in an attempt to prevent their work shifting to the non-union companies. Concessions soon expanded. Saving jobs in exchange for givebacks on wages and benefits eventually became the norm.

In the late 1970s the strategy of forcing workers to give up wage and benefit gains to keep their jobs leap-frogged into the manufacturing sector. The pilot and defining event was the Chrysler bailout of 1979. It worked so well the model was planned for application to manufacturing in general. By then the Construction Industry Users Roundtable had expanded into what is now known as perhaps the most formidable and effective Big Business organization today, the Business Roundtable. Big manufacturing and service companies joined with the Construction employers. The construction industry union-busting model was transported to other sectors of the economy.

The tactic of double breasted operations took on a new form. Alternative union-free operations were set up. But not across town, as in construction. It was now across borders. The manufacturing analog of the double breasted operation was the runaway shop, as manufacturers moved operations offshore.

In this they were aided by the most pro-business President since Coolidge–Ronald Reagan–and a compliant Congress.  Manufacturers were provided generous economic incentives to set up offshore. Tax incentives were generously granted. Deregulation was introduced. Then in 1988 and 1993 free trade agreements were established with Canada and Mexico to facilitate the movement of US capital to those countries to set up operations. Free trade is not just about export-import of goods and services; it is even more about negotiating favorable conditions for US foreign direct investment in those countries. Tax for investing offshore plus free trade plus deregulation devastated jobs in the US beginning in the early 1980s, and continuing ever since. Under pressure of losing jobs, workers in manufacturing began the long, dead-end road toward concession bargaining in an attempt to save their jobs. But it didn’t. More than 10 million jobs have been offshored ever since.

The pressure to grant wage concessions intensified in the 1990s. In addition to the threat of job loss, now escalating double-digit annual increases in health care costs provided a second hammer. That ushered in what was called maintenance of benefits bargaining. Now desperate to maintain their health care coverage, workers now gave up more wages in exchange for keeping health benefits. But that too did not last long. Health care cost shifting accelerated by 2000 and into the next decade.

To assist in paying for rising health care premiums and costs, the federal government permitted companies to drag surplus funds from workers defined benefit pension plans to cover rising health costs. Up to 20% of health cost increases were subsidized in this manner. But that represented giving up wages–i.e. concessions–in order to maintain benefits as well. Only this time it was workers deferred wages that went into their pension funds instead of their immediate paychecks. But a wage is a wage, whether immediate or deferred. And concessions on nominal (immediate) and deferred wages became the increasing rule by the late 1990s.

This evolving concession bargaining since the late 1970s into the last decade represents the second phase of the history of collective bargaining in the US. The first, as noted above, was the phase during which collective bargaining expanded both in terms of scope and magnitude, that is, in terms of new areas of bargaining added to negotiations as well as in terms of advances in wages and benefits. The second phase of bargaining in the US, from the late1970s to around 2000, represents the first stage of concession bargaining.

Stage Two: From Magnitude to Scope Concession Bargaining

This first stage of concession bargaining (1975-2000) began to change for the worst in the past decade, shifting to a new stage during which workers and their unions have been forced to grant concessions not only in terms of magnitude or levels of wages and benefits, but now in terms of scope and entire areas of bargaining as well. Defined benefit pensions were abandoned for 401k personal pension plans at an accelerating rate. Not only were pensions increasingly privatized, but the de-collectivization of health insurance plans also accelerated under George W. Bush with the introduction of what were called health savings accounts–the analog on the health benefits side to 401ks on the pensions side.

Employer provided health insurance benefits were now dropped in growing numbers altogether. Or they were dumped onto the union, as in the Auto Industry, in the form of VEBAs (voluntary employment benefit agreements). Employers removed in effect any negotiating over companies paying for health care for workers from union collective bargaining agreements. In a similar fashion, once widespread Cost of Living clauses in collective bargaining agreements were stripped from union contracts. Ditto for supplemental unemployment benefits (SUBs). More and more companies simply discontinued unilaterally retirees health care coverage from bargaining, aided now by court decisions that ruled such were not bona fide subjects of bargaining any longer. Union rights were increasingly circumscribed in agreements, as management rights clauses were expanded. In other words, concession bargaining was no longer simply about magnitudes–i.e. how much wages or benefits would be reduced in order to keep jobs or the companies from moving offshore or from being outsourced and reduced to mere skeleton crews. Not entire key areas of union contracts were being conceded and thus wiped out, removed from the very subject of bargaining altogether.

Stage Three: Concession Bargaining Extends to the Public Sector

In the past two years this second phase of concession bargaining–i.e. cutting levels of wages and benefits and giving up entire areas of bargaining–is now being applied to public sector workers as well, in a vicious attack now unfolding throughout the country. Politicians of both political parties, public sector employers, and wealthy billionaires and millionaires who pay for the elections of these same politicians, are in the process of imposing concession bargaining on public workers.

Furthermore, concession bargaining is occurring in an especially compressed form. Both magnitude and scope are occurring simultaneously and in a matter of just a few years instead of the few decades in which it was deepened in the private sector of the economy. The entire process is effectively telescoped and thus taking place is a particularly intense form. All across the country today, in state after state, politicians are declaring bargaining over pensions and health care no longer will be the practice. They are unilaterally discontinuing defined benefit pensions and replacing them with 401k plans.. They are moving to eliminate union and agency shop agreements with the open shop, placing caps on wage negotiations, and in general attempting to return to the days of civil service rules and regulations in lieu of bona fide collective bargaining.

Stage Four: Concession Bargaining’s New Target: Social Wage Reduction

Concession bargaining is morphing still further, however. It is now moving from the level of taking back money wages and benefits at the shop-floor level–both in the private and public sectors–to the level of social wage concession bargaining.

The social wage is money wages that workers give up in exchange for pay they will receive at a later date. Social wages are thus deferred wages. Social wages are most notably Social Security and Medicare taxes that workers pay in the form of payroll taxes, in order to receive the wage paid upon retirement in the form of social security pension and medicare health care benefits. The focus since the 2010 midterm elections in the US is now on austerity, a codeword for cutting so-called entitlements like social security and medicare. But social security and medicare represent wages paid by workers in the past for claims in the future. Not content with concessions from current wage and benefits, Corporate America–the rulers behind the throne of Congress and the Presidency and Courts–now want reductions in the social wage as well. Why? So they can maintain their historic tax cuts enacted over the past three decades and not have to pay the costs of the bailouts and economic crisis that they themselves caused.

The dimensions of the Great American Tax Shift of the past three decades, still on-going and expanding under Obama and the Democrats (and about to expand further still) are the subject of another analysis. But briefly, a tip of the iceberg view is: In the 1960s corporations paid 30% of total federal tax revenues; today they contribute 6.6%. In the 1960s the top income brackets paid 45% of total federal tax revenues; today the effective top bracket tax paid by the wealthiest individuals is only 16%.

The latest phase of concession bargaining now emerging in the past year– concessions giving back the social wage–is historic. It represents concession bargaining over workers income that is shifting to the political level on a grand scale. It is grande scale concession bargaining. Not content with concessions in money and benefits at the shop level in the private sector, not even content with extending that in intensified form today to the public worker sector, corporate interests now demand concession bargaining over social wages at the political level.

Whats especially onerous about the new concession bargaining is that politicians are making the decisions. Workers don’t even have the option of voting on the concessions, or striking in opposition, as they might when undertaken in cases of earlier concession bargaining at the shop level. They now have virtually no say in the process short of taking to the streets to have their voices heard, which appears increasingly as the only alternative. Moreover, the dollar value of the concessions being, and about to be, offered are now also immensely greater. As the recent debt ceiling debate illustrates clearly, the coming attack on Medicare represents social wage concessions approaching half a trillion dollars. Concessions involving social security retirement that will soon follow in 2012 will amount to a like amount, at minimum, with even more Medicare cuts. In just a few short years, several times the value of total givebacks in concessions in wages and benefits at the shop level since 1979 may occur. It is a massive transfer and shift of income from working and middle class America to the wealthiest households and their corporations.

Behind the facade of Washington politics are the same corporate interests, however. Only now instead of directing their managers at the bargaining table, they now direct their political managers by means of their immense, and growing, campaign contributions and billion dollar lobbying efforts.

Occasionally an example slips through the veil of confusion about whos behind it all. The veil drops revealing the Wizards of Oz pulling the levers and the curtains. Witness the notorious relationship between Wisconsin governor, Walker, and the billionaire Koch brothers. But there are Koch brothers lurking everywhere behind the veil, in Ohio, in New Jersey, Connecticut, Massachusetts, Georgia, and even California. They are driving the fundamental strategy, directing the elected politicians in exchange for campaign contributions and day to day lobbying largesse.

The Empty Legacy of Concession Bargaining

What concession bargaining has proven over the past three decades–whether at the political level or the shop floor level–is that concessions only result in demands for more concessions.

Concessions in the private sector over the past three decades haven’t saved jobs. What they have achieved is a stagnation and decline in the income for 100 million families that is choking off consumer spending and economic growth and therefore economic recovery. The second phase, concession bargaining in the public sector, will now add to this consumption decline. And the now emerging third phase, expanding concession bargaining to the level of social wages, about to begin with the direct attack on social security and medicare will not save those programs any more than concession bargaining in the past saved jobs.

Concession bargaining will only result in a deepening crisis in those programs and lead, inevitably in turn, to more demands by corporate interests for still further cuts (i.e. concessions) in those programs. Calls by politicians for shared sacrifices are really concession bargaining by another name: to reduce the social wage represented by social security and medicare.

Nothing positive whatsoever has come from concession bargaining the past three decades in the private sector. Good jobs have continued to disappear by the tens of millions. Wages and earnings for the 100 million non-supervisory workers in the US have stagnated and fallen. Giving up wages to maintain health and retirement benefits have fared no better. Pensions have nearly disappeared and employer provided health care coverage has declined by the millions of companies, and will not last out the current decade. Nor will anything beneficial come from the intensification of concession bargaining now penetrating the public sector. Union leaders will give up wages and benefits, but that will not stop the millions that are slated for layoffs in the public sector over the next few years–at minimum 500,000 in the year ahead alone! The extension of concession bargaining to the public sector, now accelerating at a pace far worse than that which previously occurred in the private sector, will produce the same results, only now telescoped into a much shorter time period. Not least, nothing positive will come from granting concessions over social wages-i.e. agreeing to reduce social security and medicare benefits. Those programs will not be saved by concessions. They will be destroyed by them. The only way to stop concession bargaining in any of its forms, including the most virulent now attacking the social wage, is to refuse any and all concessions. No cuts and No Concessions is the only effective bargaining demand.

And just as, at the shop floor, when union leaders cave in to employer demands for concessions, they should be thrown out and replaced with leaders who will refuse to do so and stand firm, so too should any politician who agrees to concessions from social security and medicare be thrown out. Indeed, any politician who fails to actively resist such concessions should be thrown out. Not in the next election. But by immediate recall.

Finally, any political party that allows its elected to members to agree to concessions in social security and medicare, or whose elected members stand by silently while the fight to defend the social wage takes place, should be replaced by another political party whose members consider the social wage non-negotiable.

Unfortunately, it appears the political party, the Democrats, who introduced and once championed social security and medicare are now becoming participants in its destruction. Not only President Obama, but Senate leader Harry Reid and House leader Nancy Pelosi, have all publicly indicated this past summer they are prepared to concede and to cut medicare before year end 2011 in some form. Next it will be social security retirement. And medicare again.

But once starting down that road of initial concessions, it will only lead to further concessions, as the history of concession bargaining at the shop floor over the last three decades sadly shows.

If that happens, and the leadership of the Democratic Party abandon social security and medicare to concession bargaining, as it appears they will, the only answer to stopping concession bargaining is to create a new party of labor, every member of which must solemnly pledge to expand the social wage, to defend and expand social security and medicare, to stand firm on the question of concession bargaining. There can be no Bi-Partisan compromise. It is time to raise the flag, with the motto boldly proclaiming across it: No Concessions! No Retreat!.

Jack Rasmus, August 7, 2011

Jack is the author of the book, Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave-Macmillan, 2010, which predicted the coming double dip recession in late 2009. He is also author of the forthcoming book, Obama’s Economy: Recovery for the Few, same publishers late 2011. His blog is jackrasmus.com and website:
http://www.kyklosproductions.com.

Read Full Post »

COMMENTARY: Well-known liberal economist, Dean Baker, recently wrote that those predicting a double dip recession are wrong. Beginning with an argument that those seeing a double dip coming today are the same crew who, back in 2007, were saying there would be no crisis or recession, Baker goes on to provide selective data in support of his argument that a double dip is not possible. In this reply to Baker, I address each of his data points and challenge his erroneous assumption conflating all those predicting double dip today (including yours truly) with those who denied recession coming back in 2007.

“No, Dean Baker, a Double Dip Recession is Quite Likely”, by Jack Rasmus, copyright August 2011

In a blog today, August 28, on Znet, liberal economist, Dean Baker, argued that Double-Dip Recession is Unlikely. In his piece Baker maintains that everyone who is now predicting double-dip are the same forecasters who, back in 2007, were erroneously predicting there would be no economic crisis or recession in 2008. Baker then makes his main point: There is no reason to believe that forecasters are any more knowledgeable about the economy today than they were four or five years ago.

But contrary to Bakers rhetorical point, not everyone forecasting a double dip today were predicting no crisis back in 2007.

Baker conveniently forgets that some of the most prescient economists who predicted the recession and financial collapse back in 2007 are also now predicting that a double dip in the coming months is increasingly likely. In other words, not everyone forecasting double dip today were the polyannas predicting no recession back in 2007. How about Nouriel Roubini, Dean? An economist who famously predicted the financial collapse and recession back in 2006-07, and who now believes double dip is more than 50% likely? I would add myself, Jack Rasmus, to that short list as someone who also publicly predicted the recession back in 2008, and has been predicting a double dip as increasingly likely ever since last April 2011. In fact, I predict its more than a 50% chance with the odds rising weekly.

Baker goes on to define a recession as meaning the economy is actually shrinking. Presumably he means that gross domestic product, GDP, the overall measure of the economy, must turn negative for a recession or double dip to happen. But if he means GDP must decline for a double dip to occur, he should reconsider. GDP is not the indicator by which a recession is defined, whether initially or in the case of double dip. In fact, there is no official definition of recession, including the popular but incorrect view of two consecutive negative quarters of GDP decline.

A recession is determined by the National Bureau of Economic Research (NBER) group of economists. They loosely consider a host of indicators to determine whether a recession has occurred. That includes industrial production, sales, exports, stock market shifts, employment and potentially other factors. So, the economy doesn’t necessarily have to shrink according to any single indicator, and that includes GDP. In fact, some indicators may actually still rise and a recession may still occur, so long as some (undefined) collective weight of other factors are in retreat.

To show a double dip is not on the horizon, Baker then looks at the condition of several economic indicators as they exist in the present. To support his view of no double dip coming, he argues that housing and car sales are already so low that it is hard to envision them falling further. That’s true. Housing is, and has been, in a veritable depression–not a recession–for four years now. All indicators–home prices, housing starts, mortgage loan applications, home sales, etc.–are 50%-75% off their peak. Housing did experience a very short and shallow upturn for one quarter in early 2010, but then it declined again. But all that means is that housing and construction in general, which make up about 9% of the economy, have already entered a double dip months ago. To say they cant fall further is not much of an argument against double dip. They’re already there.

Baker looks next at consumption, 70% of the economy, and notices that it at present is growing slowly and there’s no reason to see how it will not continue to do so. He adds that 117,000 jobs were created last month, a weak but nonetheless positive statistic revealing some growth.

But he should take a second look at the job statistics. As this writer pointed out in a blog entry last month, the 117,000 purported job gains were from only one of the two surveys conducted by the Labor Department. The other survey, the one Baker ignores, and the one that picks up small business and self-employed much better, showed a decline of 198,000 total jobs last month. Moreover, like Housing, the jobs market already experienced a double dip last summer 2010. It is now headed for a triple dip.

And so far as consumption is concerned, Baker should again look forward–not at the present–if he wants to predict or deny the prediction of double dip. He should look forward, to where conditions are headed if he wants to make a forecast. Too many economists today typically forecast the present, not the future. Its safer that way. However, in so doing, in playing it safe, they are repeatedly incorrect. They miss the true shifts and turning points in the economy. And were at such a turning point once again.

Baker is also wrong that consumer spending will continue at its slow but positive rate of growth. Consumer sentiment, measured by the University of Michigan index, has been in free-fall the past few months. As the latest index reported last Friday showed, it is now at its lowest point since November 2008, which was the month that consumption fell through the floor in its worst collapse since 1945. OK, Baker will no doubt reply that consumer sentiment is volatile and doesn’t always reflect how consumers will actually spend. In answer, this is often, but not always, true. When the conditions are overwhelmingly negative, consumer sentiment does predict consumer spending. And conditions in the US and globally are now converging toward an overwhelming common outlook of economic slowdown. Time will tell in the next few months if this writers perspective on that is correct, or if Bakers is more accurate.

Economists are often so enamored with numbers they cannot assess the psychology and behavior of consumers and investors very well, especially at the turning points in the economy in which we have now entered. Psychological viewpoints–whether consumer, business, or investor–are not easily quantified. And most mainstream economists ignore what cant be put in numbers–another reason why they forecast and predict so badly when important economic shifts occur.

In further support of his view of no double dip coming, Baker also cites business equipment and software spending, and notes that it has been growing at a rate of 5%-10% and is not likely to turn down sharply in the near future. But much of the business spending on equipment and software has been slowing rapidly over the past year. From 23% it fell to 14% to 8% and in the second quarter of this year to barely 5%. The manufacturing sector has been the big buyer of equipment and software. Manufacturing has been driven in turn largely by US exports, purchased by Asia and Europe. But last month manufacturing indexes in the US and around the world both fell by their largest percent in decades. In other words, the global economy is slowing rapidly everywhere. Not just the periphery economies of Europe, already in recession, but the main economies of France, Germany and UK, all now show virtually flat and stagnant growth. The big economic engines of Europe are all about to tip into recession themselves in the coming quarter, this writer predicts. Ditto for China, India and even Brazil,  which are not in recession but whose economies are projected to slow by half. That means a sharp drop off in demand for US exports, which in turns means manufacturing in the US turns from the current flat to a future negative. And that means business spending on equipment and software will decline as well, continuing the already downward trend.

Again, one must look into the future to predict the future, not simply look at the present and crudely extrapolate forward to make a forecast. But that s the forecasting technique of mainstream economists, and apparently Baker as well.

Baker further underestimates how much the contraction underway in the government sector, both federal and state and local, will slow the US economy in the months to come. The government sector is responsible for about 20-22% of total US economic growth. Baker again looks at the present and sees only a 1% to 2% contraction today and he extrapolates that forward. He does not look beyond to see how the government sectors contraction will soon deepen further. Just look at the budget cutting that has occurred in recent months and will escalate in the coming months. There’s the $38 billion cut last spring by Congress, the $1 trillion cut in the August debt deal, and the guaranteed minimum additional $1.2 trillion in further cuts by the end of the year. That will add to the 1%-2% already occurring.

Indeed, this writer predicts the cuts due by December 23 will approach closer to $3 trillion, well beyond the August mandated $1.2 trillion, as Obama and the Republicans attempt to outdo each other in their competition to win the title of biggest deficit cutter.

That’s a total of $4 trillion plus cuts in government spending. Not all will occur the coming year, of course, but at least $200 billion will. Add to that another $50-$75 billion in projected state and local government cuts and the total is around $275 billion. Then throw in the government spending multiplier, which is about 1.5 times the original cuts, and the total cuts to spending impacting the economy next year could reach about $400 billion. That’s about double Bakers predicted 1.5% continuing government sector contraction.

Baker gives himself one small window of escape from his prediction of no double dip. He concludes by admitting double dip might occur if a collapse of the euro led to a Lehman-type financial freeze up.

As this writer predicted two years ago in a Z article, at least two sovereign defaults would occur in Europe and the euro will break up into a type of two tier currency. If Italy, or even Spain, are among those two it is almost certain one or more French or Swiss banks will become the next Lehman (an investment bank that precipitated the banking panic of September 2008 sending the global economy into recession within two months). And if the French banks implode, it will quickly spread to the US banking and financial sector. Credit will freeze up again across multiple markets and push the already slowing US economy, that grew less than 1% in the first half of this year, into a double dip. Contingency measures are already hurriedly underway in the US government, Federal Reserve, Treasury and among big US banks today to plan to contain this very scenario.

Baker cites this exception of a Euro crisis but then qualifies himself to argue such degree of blundering is difficult to envision. Well, its not really so difficult to envision. Just follow the European business press and the picture looks inevitable.

And envisioning is what forecasting and predicting is all about, isn’t it? Unless of course one is content, as most mainstream economists, and perhaps in this case Baker as well, to safely forecast the present instead of the future.

Jack Rasmus
August 28, 2011

Jack is the author of Epic Recession: Prelude to Global Depression, Pluto Press and Palgrave Macmillan, May 2010 (in which the double dip on the horizon was predicted); and the forthcoming Obama’s Economy: Recovery for the Few, January 2012, same publishers.

Read Full Post »

COMMENTARY: Last Friday’s July jobs report indicated 117,000 jobs were created last month. It was hailed as a ‘not so bad’ report, not great but not as terrible as expected after last week’s dismal manufacturing and consumer spending reports that forced stocks into a downward trajectory after the ‘debt deal’ did little to stimulate economic confidence. But the 117,000 reflects only one of the two Labor Department surveys of employment. In fact, the report dominated by larger companies. Job losses are more concentrated in medium to small companies. The second Labor Department jobs report that better reflects smaller businesses and self employed showed a different picture: jobs actually declined by 198,000 in July. Moreover, they’ve fallen by 901,000 in the last four months. Take another look. At the report the press is purposely avoiding any comment on.

‘Look Again–July Jobs DECLINED by 198,000’ by Jack Rasmus, August 6, 2011

On Friday, August 5, the employment numbers were released by the US Department of Labor for July jobs. The Current Establishment Survey (CES), referred to as the payroll report, indicated 117,000 jobs were created in July. That was more than the general forecast of 85,000 by economists, although still well below the 150,000 a month needed to absorb new entrants into the labor force. However, it was nonetheless heralded by the business press and politicians as not so bad, considering that earlier in the week reports for manufacturing activity and consumer spending were disastrous–indicating the worst performances in two years for those indicators since the economy’s 2009 lows.

But hold on. The 117,000 represent just one part of the Labor Departments monthly reporting of employment, what are called the B tables. Those tables reflect a reporting by establishments (businesses) to the Labor Department each month. The problem with the payroll report (CES) is that it is acknowledged to be biased toward larger establishments. Bigger corporations, with more than 500 employees. Many smaller to medium businesses are not included in the CES report and B tables. Nor are most of the millions of non-incorporated proprietorships; or the nearly ten million self-employed. The latter three groups are reflected in the Labor Departments A tables, in a second survey on jobs each month called the Current Population Survey, or CPS.

The CPS reflects best the job hiring and layoffs by small and medium sized businesses. Small business is generally acknowledged as responsible for more than half of all jobs created over the past decade. For job losses as well. And small business has been steadily reducing jobs this year and, furthermore, continues planning to do so in the second half of 2011, according to various business surveys.

For example, the National Association of Independent Business, NFIB, a trade group that surveys its membership of small businesses on a monthly basis, reported three months ago in May that small business was planning this summer layoffs at the highest rate since last September 2010. Those layoffs are now working their way through the economy this summer.

So why didn’t they show up in the July Labor Department jobs report? Well, they did. In the CPS report–i.e. where most small businesses and self-employed are recorded–in contrast to the payroll CES report where they aren’t. But not one business press story in a major business daily or weekly referred to the CPS reports results, except to note that the unemployment rate–a statistic from the CPS report–fell slightly to 9.1%.

So what did the jobs numbers for July show? Total net gains in employment, which is really what is important, declined by 198,000 in the July CPS report. In other words, there were 198,000 fewer non-agricultural workers employed in July than in the previous month of June!

More interesting still, the number of workers employed, according to the CPS, has fallen for four consecutive months by a cumulative total of 901,000.

The July drop of -198,000 was not as larger as the June decline of 526,000. But together, with April and May job declines, the total decline was -901,000. See Table A-5 of the Labor Departments Current Employment Situation Report released on August 5 for July. There you will find jobs data showing that in February 2011 a total of 137,738,000 non-agricultural employees were employed. In July, that number had declined to 136,837,000.

What the A tables in CPS also show is that full time employed workers total employment fell over the past four months by -926,000, including 48,000 last month. So why did the unemployment rate fall only to 9.1% last month, given that many lost jobs? Because there were 481,000 part time workers hired over the last four months while 579,000 workers were so discouraged in finding work they left the labor force altogether. The latter two statistics reduce and offset the 926,000 jobs lost, to make it appear a small net number of jobs were created. That adjustment then lowers the unemployment rate.

So what we have is a picture in July of continuing net job loss for the month, not job gain. Over the past four months its a scenario of a major churning of jobs. Better paying full time jobs are being destroyed, while less paid part timers are being hired and larger numbers of workers are giving up and leaving the labor force. All that translates into lower weekly take home pay and a steady drift lower of consumption and buying power.

Its the steady stagnating and declining real spendable income for 90% of the households in the US that underlies the faltering business confidence that conservatives and Teapublicans like to refer to so much. Business confidence has not recovered because few can afford to buy their products. Business wont invest and expand production and hire if it cant even sell the products it now has. And that’s a problem due to stagnating and declining incomes by the vast majority today, and the largest factor determining that decline is the related stagnation and decline in jobs.

As a consequence, big businesses continue to sit on their $2 trillion hoard of cash today, while small businesses cant get loans to expand and hire. The perpetual media drumbeat of excuses for their hoarding $2 trillion is that we need to give businesses yet more tax cuts to get their confidence up and invest. So whats the magic number? Will $3 trillion do it? $4 trillion? Or the pro-business apologists argue we need to get rid of regulations to improve business confidence. Or we need to cut trillions from spending (but dont raise their taxes) and then their confidence will return. The business confidence argument is nothing but a confidence game.

As the past weeks events since the passage of the debt ceiling bill last August 2 has shown, business confidence is impacted little by deficit cutting and phony debt ceiling crises. Its impacted by manufacturing reports showing record declines in manufacturing activity and consumer spending turning negative, both reported last Tuesday and Wednesday. The Friday, August 5, July jobs report was considered a moderate report by the business press, not too great but not as bad as the manufacturing and consumer reports earlier in the week.

But that’s only because the press carefully avoided reporting the CPS jobs decline estimates for July and chose to focus on the less negative CES payroll report. But job losses cannot be ignored. Nor can they be hidden or avoided. Soon to be added to the continuing decline of jobs by small businesses, moreover, will be the mass layoffs by large businesses that also began to appear in late July–i.e. before even the CES was able to pick them up. Those mass layoffs by big corporations–in banking, manufacturing, and services–will soon appear in the August jobs report that will be released the first Friday in September. Just in time for labor day.

Meanwhile, Congress will stumble toward another spending cuts crisis with the upcoming 2012 budget that is due by October 1, cutting more government jobs at an annual rate of 500,000 or more, while the private sector slashes jobs at an even higher rate.

The real crisis is not deficits or debt, but the crisis of job creation that is the number one reason for the chronic and growing deficits of the past two years.

Jack Rasmus
August 5, 2011

Read Full Post »