Jack Rasmus

Today, January 28, 2014, President Obama will address the nation in his State of the Union (SOTU) speech to Congress. A major theme of the address will be the growing income inequality in the US.

His speech represents an echo of similar themes and talks that have been presented this past week at the World Economic Forum (WEF) in Davos, Switzerland. That’s where every January the big capitalists of the world gather to discuss amongst themselves the major issues of the past year and what to do about them—in between being entertained by various cultural celebrities and performers who have been allowed into their club as junior partners in wealth. The annual Davos cultural events are not unlike the small venue side-shows held in the big Las Vegas casinos: the entertainers strut and sing while the real betting and dice-rolling discussions involving future capitalist policy initiatives go on behind ‘invitation-only’ doors requiring tickets for entry costing hundreds of thousands of dollars to attend ( the typical ticket price of entry for a Corporate CEO and his entourage at Davos, for example, exceeds $500,000).

This year the WEF and global capitalists have ‘discovered’ income inequality, now accelerating and intensifying worldwide to a dangerous degree, and especially in the US. The dimensions of the inequality problem have grown so severe in recent years it may, they themselves are now warning, result in unwanted ‘social unrest’ in the near future.

Now that it has become an ‘acceptable’ discussion theme, Obama and Democrat party politicians (and a few clever Republicans) have also discovered income inequality. Together they plan to raise the rhetoric on the topic in upcoming midterm and 2016 national elections. Therefore, in Obama’s SOTU speech today we’ll hear some basic facts about the problem, some vague proposals that are never intended get to the earliest legislative stages, and a lot of general talk about how improving ‘opportunity’ is the only answer to reducing inequality—all of which means let’s not do anything significant in the short run but instead focus on very long run solutions like improving childhood education, creating long run opportunities, and other very long term solutions.

The politicians’ new discovery of inequality follows liberal academics discovery of the same in recent years. Well known fellows like Paul Krugman, Robert Reich, Joe Stiglitz, James Galbraith and others have all written their books on the topic in recent years. But they too, like the politicians they support, have been very careful about recommendations for resolving the problem, mostly repeating time-worn, mushy old liberal proposals involving ‘education and opportunity’ once again.

The growing income inequality in the US goes back at least to the late 1970s, accelerating during the 1980s and early 1990s, and then again after 2000 under George W. Bush. It’s grown the worst under Barack Obama, with latest figures showing the wealthiest 1% households accruing for themselves since 2009 nearly all (more than 90%) of all the income gains during the so-called ‘recovery’.

More recent, damning revelations about the extent of growing inequality go back to 2002 at least—long before the politicians and the more well known liberal economists acknowledged it. In 2002 University of California, Berkeley economist, Emmanuel Saez, began publishing his analyses of IRS income data, since all pre-existing sources of income inequality by the government and business more or less obfuscated the true picture. Saez has updated his ground-breaking results periodically ever since. Most of what is reported and published about the income gains of the wealthiest 1% are from his researches.

This writer relied heavily on Saez’s data in his 2004 book, ‘The War At Home: The Corporate Offensive From Ronald Reagan to George W. Bush’, which attempted to identify the various policies since the late 1970s that have been largely responsible for the inequality shift that Saez so well documented in 2002. Saez’s hard data—then and ever since—is irrefutable. However, the political implications behind Saez’s data were not spelled out, except for some suggestions concerning the tax structure.

But Income inequality in the US is no accident. It has conscious, deliberate origins, to be found in the policy initiatives of corporate America since the late 1970s, and the willingness of the politicians Corporate America elects in Congress, Presidents, and at State levels—Democrat and Republican alike—to implement those policy initiatives.

There’s the tax restructuring in favor of the rich and their businesses, the free trade and offshoring, the atrophying of the real minimum wage, the dismantling of real pensions and employer contributions to healthcare, the shift from full time permanent jobs to part time and temp work, the destruction of unions and higher paying union jobs, the displacing of higher paid jobs with technology, substitution of credit for lack of wage growth, failure to invest in the US by corporate America, so on and so on.. That’s why jobs, real wages, and incomes for the vast majority of American households has stagnated at best, and declined in real terms for most. That’s why wage earners’ income of the bottom 80% households have contributed to income inequality.

But all that’s still only half the story of income inequality. The other ‘half’ of the story is why the incomes of the 1% have risen so sharply as well. Both their rise, and the stagnation-decline of the bottom 80%, are jointly responsible for the income inequality.

Corporate America and their politicians, and the policies they’ve initiated and implemented, are responsible for the accelerating capital incomes of the rich (1%), very rich (0.1%), and mega-rich (0.01%). And much of that has to do with the enabling of financial asset speculation and financial securities inflation that has been the defining characteristic of the US (and global) economy since at least the 1980s. Reagan unlocked that door. Clinton opened it. And George W. kicked it in. And Obama has done nothing to repair the entry.

Real solutions to income inequality would have to include proposals not only to enable the recovery of incomes of the middle working class, and the working and non-working poor, but would have to include proposals to reign in the runaway income accumulation of the very rich, the mega-rich and their friends. But you won’t hear the latter even suggested in Obama’s SOTU speech. What you’ll hear are token long run proposals to slow the decline in income growth for the working poor perhaps, and a lot of vague suggestions about the middle class.

What the middle class needs is decent jobs and tens of millions of them, just to restore what has been lost in the past 15 years. There are still 20 million unemployed in the US, and more than 5 million more have left the labor force. 60% of the jobs that have been created since 2009 have been low paid, while 58% lost have been high paid. Retirement systems are broken and retirees income for tens of millions are in freefall. Obamacare has meant those with insurance now have to pay more for less. Tens of millions of students are effectively indentured and can’t find jobs. If Obama and his politicians want to do something about income inequality, let’s hear concrete legislative proposals to address these issues now, immediately, in the short run.

It took the Krugmans, Reichs, and Stiglitzes only a decade to ‘discover’ their academic colleague, Saez’s, significant work. Better late than never, I suppose. However none of the liberal economists bother to point the finger at the politicians responsible, especially their Democratic party friends, for the inequality trends. But if anything serious is going to be done about income inequality in the US, it will have to include not only real, short term solutions to raise the incomes of the many but also serious, real measures to take back the excessive income gains of the rich and super-rich as well.
For the latter will be necessary to fund and restore decent jobs and wages, to revitalize a crumbling retirement system, to save a collapsing healthcare system, and, yes, even to provide affordable education opportunities for all.

Jack Rasmus,

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FOR MY MOST RECENT ASSESSMENT OF THE BUDGET DEAL OF 2013 AND THE US ECONOMY HEADING INTO 2014, ACCESS THE VIDEO OF MY TV INTERVIEW OF JANUARY 9, 2014, AT THE ULR NOTED BELOW.

Dr. Jack Rasmus on ‘The US Congress’ 2013 Budget (Mis)Deal’
Other Voices TV, Palo Alto, California
January 9, 2014 (58 min 25 sec)

Access this 58min. Video at: http://www.kyklosproductions.com/videos.html
(also available on Youtube)

Jack Rasmus is interviewed by host, Paul George, as guest on the TV show, Other Voices, and explains in detail the terms of the US Congress December 2013 budget deal. Defense spending remains untouched while pensions, unemployment benefits and food stamps are cut, contrary to the various ‘spin’ reports in the press. Austerity American Style is explained, contrasted to European versions. Dr. Rasmus predicts big corporate tax cuts coming after the November 2014 midterm national elections in the US, explains his idea of ‘epic’ recession which forecasts continued long term US ‘stop-go’ recovery, and explains how the $15-$20 trillion Federal Reserve bank-investor bailout under departing chairman, Ben Bernanke, has left the rest of the US economy still struggling.

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Alternative Visions – Save Our Unions’ Book Interview with Author, Steve Early – 01/22/14

Jan 22nd, 2014 by progressiveradionetwork

Jack interviews author, Steve Early, on the release last week of Steve’s new book, ‘Save Our Unions’. An important book providing numerous cases and examples of specific union worker efforts over the past four decades to defend their unions and interests. Jack discusses with Steve, in the attempt to glean from the book’s many case examples what lessons it suggests for union labor’s current strategic impasse in bargaining, organizing, and political strategy—a continuing theme of recent Alternative Vision shows and interviews. Jack and Steve discuss the strategic implications of the past four decades of partial victories, and numerous defeats, suffered by union labor in America, and what ‘needs to be done’ going forward if unions are to rise again to play the economic and social role in the future they once did in the past. Jack argues more ‘thinking out of the box’ by unionists is needed in order to resurrect union labor, including revising internal union structure and organizational practices—locally, nationally, and globally.

This interview is available at http://www.alternativevisions.podbean.com

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In a blog post this past November 2013, this writer offered a contrarian analysis of the October 2013 government jobs report. That report indicated a jobs gain of 204,000 for October. While others heralded the number, claiming it was evidence that the US jobs market had (yet again) ‘turned the corner’, this writer forewarned the October job gains would prove temporary. My contrarian view was that the October job gains reflected a temporary surge in 3rd quarter U.S. GDP, which was itself based largely on a short term surge in business inventory accumulation that Qtr., with a lagged October hiring effect. The October jobs numbers were therefore “nothing to get excited about” and “can disappear quickly from the economy and may in fact do so by December should consumer spending come in well below expectations.” (see my ‘False Positives’ piece on this blog, of November 12, 2013).

It appears that ‘disappearance’ is what has happened, as last week’s December jobs report showed a net job gain of only 74,000. So what’s going on?

Last month’s jobs report shows not only that job creation has relapsed once again, but that weak job creation is not the only problem with the US labor market. While only 74,000 jobs were created, the labor force in the US shrunk by a further 347,000 workers in December as well. Hundreds of thousands of workers have been dropping out of the labor force in recent months. Both indicators—weak job creation and massive labor force exiting—reflect a labor market in deep trouble still, after nearly five years of so-called recovery.

The 347,000 exits from the labor force in December follow another, even greater exodus of 700,000 in October. Even if half of that number may be due to the government shutdown event of that month, it’s still another 350,000 exits. What the last three months shows, therefore, is that at least as many workers are leaving the labor force, as there are jobs are being created. A kind of a ‘churn’ is therefore taking place.

During the first six months of 2013, about two thirds of all the jobs created were ‘contingent’ jobs—i.e. part time and temp jobs—paying well below the average hourly rate. So in the first half of 2013 another kind of ‘churn’ was also taking place: full time jobs were being lost while part time and contingent jobs were being created. That also meant that higher paying jobs were being replaced by lower paying—a trend that has been going on for several years now.

That contingent hiring trend in the first half of the year has moderated somewhat in the second half of 2013, and replaced by the new trend of an accelerating exodus of workers from the labor force.

So it is not just stop-go, month to month job creation , but low-paid contingent job creation, and the massive number of workers leaving the labor force that together represent the major defining characteristics of the US labor market over the past year. It’s not a pretty picture.

The fact that between 700,000 and 1 million workers have left the labor force in just the last three months makes the unemployment rate as an indicator of the health of the jobs market an irrelevant statistic. Because of the way the US erroneously calculates the unemployment rate, a massive drop in the labor force results in a convenient fall in the unemployment rate. Those who leave the labor force are not included in the determination of the unemployment rate. They may be jobless, but aren’t included as unemployed in the government’s oxymoronic method for calculating unemployment. Consequently it is the mass exodus—not a big increase in actual jobs—that is lowering the unemployment rate.

Most serious economists know the unemployment rate is misleading, and don’t put much trust in the unemployment rate as an indicator. They supplement it by looking at other indicators: job openings, turnovers, quit rates, average work week, jobless claims, duration of unemployment, etc. But most of these are short term indicators, and can be volatile and unpredictable month to month.

A better indicator of the long term declining health of the US labor market is the labor force participation rate, and the related employment-to-population ratio. They show how well the US economy has been producing jobs longer term and as the population grows. And both these indicators continue to show a deep malaise in the US job market.
The labor force participation rate has steadily declined for years in the US, starting before 2008 and accelerating after. In June 2009, the declared official ‘end’ of the current continuing recession for the bottom 95% of us, the civilian labor force in the US totaled 154,926,000 workers. This past December 2013 the total labor force was 154,408,000. At first this appears as if there’s been no change in the labor force. However, one must include in this the estimate that, on average, about 100,000 to 150,000 new workers enter the labor force each month. Taking the low end 100,000 figure, it means in the four and a half years since June 2009, no less than 5.4 million workers have left the labor force. (100,000 x 12 months x 4.5 yrs). That’s about the same number of jobs created in the 4.5 year period.

In June 2009 approximately 139,800,000 workers were employed in the nonfarm labor force in the US. In December 2013, that number had risen to 144,400,000. So about 5 million new jobs have been created in the past 4.5 years, averaging 93,000 a month, while about 100,000 a month on average have also been leaving the labor force. (Numbers for both the labor force and nonfarm jobs above are from the US Labor Department’s ‘Current Population Survey’).

What we have therefore is a ‘great jobs churn’ going on in the US labor market since 2010—new entrants coming in at low pay, often contingent, service jobs while roughly the same number of workers leave the labor force who were once higher paid. And because the labor force drop outs aren’t counted as unemployed, it appears as if the labor market is improving since the unemployment rate is declining.

The December picture is even more dismal than the numbers above indicate. Both the 74,000 jobs and -347,000 drop in labor force that occurred in December 2013 are ‘statistics’. That is, they are not the actual numbers. Statistics are manipulations on raw data and actual numbers. They are ‘operations’ on the data, in most cased designed to smooth out the swings and fluctuations in the raw data that occur due to seasonality and other factors.

The raw data on jobs created and labor force exits for December show an even worse picture than that reported by the ‘stats’. The raw data show total nonfarm jobs actually fell by -246,000 instead of growing by 74,000, and the labor force declined by -502,000.

Whether statistically smoothed or the actual raw data, the jobs numbers for December were disastrous. Some argue the abysmal December numbers reflect a correction to the excessively high, 200,000 plus numbers for October and November. Others argue that the bad December numbers result from bad weather. But weather metaphors aren’t an explanation; they are an excuse for those without an explanation for what’s going on. And if the US government is consistently that inaccurate estimating jobs month to month—i.e. widely over-reporting one month and under-reporting another—then that should raise red flags about its methods to being with.

It may very well be that the Labor Department’s established methodologies for estimating jobs are today out of whack and unable to account for the fundamental changes in the labor markets that the recent deep recession has caused—such as the accelerating rise of contingent labor, the massive swings and exits from the labor force, the shift of millions from employment to disability insurance, a growing urban shadow economy that is mis-estimated in terms of jobs, methods for accounting for new business formation effects on job creation, the diversion of job creating investment from the US to offshore emerging markets and/or into financial asset speculation, the hoarding of trillions in cash by big multinational corporations, the increasing job displacement effect of capital investment, the negative effects of expanding free trade on jobs, and so on.

All this is not to say the December job statistics are purposely ‘falsified’ by the government in some conspiratorial fashion. The methods are perhaps just outdated. The Labor Department does report the raw data for jobs, for example. It is just that the capitalist media simply chooses to report the less severe statistical data as the sole ‘truth’, ignoring the raw data, and saying nothing about how changes in the real economy may be undermining the accuracy of the old statistical methodologies. Or the press hypes the weather as the cause of the poor job numbers, or suggests temporary technical factors are responsible.

However, neither technical factors nor bad weather are necessary to explain the poor December jobs numbers. In my initial ‘False Positives’ piece written in early November, it was suggested that the big surge in 3rd quarter 2013 GDP in business inventory accumulation likely explains much of the lagged big surge in October-November jobs. Business bulked up on inventories in the 3rd quarter, in what has proven to be an erroneous expectation of a big consumer spending surge over the recent holiday season. The production of those inventories, and expectations of follow-on retail sales in the closing months of 2013, explain the brief hiring surge in October-November—as well as the subsequent sharp slowdown (seasonally adjusted) or actual decline (raw data) in December jobs. The ‘False Positives’ piece predicted that the anticipated retail sales at year end would not follow the 3rd quarter inventory buildup—and that would all result in a major reduction in job creation by December.

Data for December just reported show an overall growth of retail sales of only 0.2%–which is a decline from a prior, already weakening, November number of 0.4%. In fact, retail sales have been consistently weak since the September ‘back to school’ event. Sales have slipped ever since. Sales this past holiday season were the worst since 2009, according to a ‘Market Watch’ business research review of the data, as of the week ending December 28.

At the heart of the December slowdown in retail were auto sales. Autos have been the major force holding up consumer spending throughout the past year. However now it appears the US auto market, after several years of historic discounting to boost auto sales, is now becoming relatively saturated. For example, GM’s auto sales declined 6% in December from the prior year and its truck sales even more.

While others note that non-auto retail sales rose in December, non-auto sales also reflected weak economic conditions as retailers introduced large discounts in the final weeks of the month as it appeared consumers were reducing their expenditures. Those discounts will soon result in lower retail profits, and in turn therefore disappear in January-February 2014. Thus both autos and non-auto retail are therefore set to slow or even decline in coming months. In turn, the job creation picture could weaken still further in early 2014.

To summarize, what lies behind the December jobs slowdown, and the accelerating exodus of jobless workers from the labor force, is the likely pullback in business inventory spending at year end and the weak prospects for retail sales. Hiring slowed significantly at year end, and many of those that were hired in the fall—as inventories bulked up and big retail sales were anticipated—will soon be laid off once again.

Entering 2014, the picture will likely be one of further retreat in business inventory accumulation, more softness in retail sales, fewer hires, and a continuing slowdown in auto sales, and in turn fewer hires and more layoffs.

But the raw jobs numbers for early 2014 may be ‘smoothed out’ once again by the statistical changes forthcoming in early 2014, as the government is scheduled to change its ‘benchmarks’ for estimating jobs that could ‘statistically’ boost jobs by several hundred thousand. That statistical adjustment could effectively ‘drown out’ a continuing weak jobs creation picture when measured by the actual raw jobs data. It may appear the jobs picture is not as bad as it actually is in fact—when the raw data will show otherwise. But you won’t hear that from the mainstream press.

Jack Rasmus, 11-13-14

Jack is the author of the book, ‘Obama’s Economy: Recovery for the Few’, Pluto press, 2012 and ‘Epic Recession: Prelude to Global Depression’, Pluto, 2010. He is the host of the weekly radio show, ‘Alternative Visions’, on the Progressive Radio Network. His website is http://www.kyklosproductions.com, his blog, jackrasmus.com, and twitter handle, @drjackrasmus.

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This past weekend, more than 30,000 union workers at Boeing Corp. in Seattle, were forced to accept deep concessions in their union contract, gutting their pensions, future healthcare benefits, wages, and other benefits. Their contract with Boeing had not even expired but they were forced into concessions nonetheless. Nor was the company, Boeing, in any financial distress. It had registered record profits in consecutive years, and had in November 2013 bought back $10 billion in stock from its shareholders and paid another $2 billion in dividends to the same. Nevertheless Boeing demanded concessions, having received communication from Union (IAM) International leadership beforehand of their willingness to grant the same. The combination of Union International leadership pressure, countless Democratic Party politicians, and the Company’s new offensive, proved too much for local workers to resist. The new concessions will effectively end workers’ defined benefit pensions, cutting retirement benefits to the bone, and allow the company to end its healthcare insurance benefits by 2018 in accordance with the Obama new health care plan. Wages for new hired workers are projected to decline to levels of minimum wage or less over the next 11 years of the new contract term.

This kind of attack on pensions and healthcare–or what this writer calls the ‘social wage’ was predicted in this writer’s article, ‘Concession Bargaining at the Crossroads’ two years ago in 2011. That article is reproduced here in its original draft form once again.

CONCESSION BARGAINING AT THE CROSSROADS, by Jack Rasmus

“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 these 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.

What’s 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 who’s 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

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Recently this blog posted an excellent review of my theoretical book, ‘Epic Recession: Prelude to Global Depression’, that appeared in the summer issue of Heterodox Economic Newsletter. That review summarized my main theoretical arguments that explain the financial crash and recession of 2008-09, and the historical sub-par recovery since 2009 to date. The book was written late 2009 and appeared early 2010. This past spring I updated and summarized the theoretical arguments of the book in ’20 basic propositions’. Those 20 propositions are posted once again here as follows, for those readers interested. A further development of the ideas will appear in my forthcoming works in 2014, ‘What’s Wrong with Economists, Vols. 1 and 2’, and in 2015 in my ‘Transitions to Global Depression’.

20 BASIC PROPOSITIONS ON FINANCE AND ECONOMIC CRISIS

Proposition 1:

Deep capitalist cycle contractions (depressions and epic recessions) are driven by endogenous forces, both real and financial, that mutually determine each other, with different relative magnitudes and directions of causality that vary with the phase of the long run boom-bust cycle.

Proposition 2:

The key endogenous Independent variable is not profits but Investment—the latter comprised of two fundamental components: real asset investment (Ig) and financial asset investment (If).

Proposition 3:

Over the boom phase of the cycle, the composition and relative weight of total investment shifts from Ig to If. In the early boom phase, financial assets are created as a one-to-one representation of the market value of real assets. A mortgage is equivalent to the original market value of a new structure, for example. But as the boom phase of the cycle progresses, If expansion becomes increasingly independent of Ig—driven by excess money liquidity, proliferating forms of credit decoupled from money, increasingly leveraged debt financing, and the increasing demand driven character of financial asset price inflation over the boom phase of the cycle.

Proposition 4:

Money may serve as credit; but credit is not limited to the money form. Credit is simultaneously money and more than money. Money may function as ‘outside credit’, but credit is also created ‘inside’ and autonomous of money. Money and autonomous credit are key to understanding the relative shift from Ig to If over the boom phase of the cycle.

Proposition 5:

The relative and absolute shift from Ig to If over the boom phase of the cycle creates destabilizing asset price bubbles and financial crashes that in turn produce deeper and more durable contractions of the real economy than typically occurs in the case of ‘normal’ recessions that are not precipitated by, or associated with, financial instability events. Depressions and epic recessions are not normal recessions ‘writ large’, but reflect the outcome of unique qualitative forces associated with financial cycle volatility.

Proposition 6:

An explosion of both money credit and autonomous credit has been occurring since 1945—the process accelerating with the collapse of the Bretton Woods International Monetary System after 1973; with the global ending of international capital flow controls in the 1980s; with the digitization of financial transfers in the 1990s; and with the global expansion of shadow banking institutions, very high net worth professional investors, highly liquid secondary financial markets, and the proliferation of multiple new forms of financial asset instruments.

Proposition 7:

Decades of excessive liquidity and autonomous credit creation has resulted in a shift to greater debt and growing debt-leveraged financing, which accelerates If forms of investment more than Ig, and short term speculative financial forms of If in particular. Rising debt leveraged financing results in more frequent, larger, and more globalized asset price bubbles and corresponding financial instability.

Proposition 8:

There is no such thing as ‘the’ capitalist price system. There are several price systems. They do not behave alike. The system of financial asset prices is more volatile, in terms of both inflation and deflation, than product or factor (e.g. wage) input prices. Unlike the latter, financial asset prices are driven increasingly by speculative demand over the course of the boom phase of the cycle, and late boom phase in particular. Financial asset prices are subject to little or no supply force constraints during the boom phase, unlike product or factor prices. As financial asset inflation occurs, demand drives prices higher, invoking still more demand, until further price increases are unsustainable and the asset price bubble collapses. Asset price deflation following the financial bust in turn drives product and factor (wage) deflation. All three price systems mutually determine each other in a negatively reinforcing way during the initial stage of the bust phase of the cycle. Asset and product price deflation together dampen Ig, leading to employment declines, wage deflation, and falling household income and consumption. Business and household defaults follow, in turning provoking more asset, product, and factor price deflation that result in rising real debt levels. A generalized downward spiral of debt-deflation-default sets in, resulting in a deeper and more durable contraction of the real economy. The capitalist price mechanism thus plays a central role in destabilizing the system—both in the boom and bust phase—contrary to prevailing mainstream economic ideology that the price system works to restore equilibrium and stability.

Proposition 9:

The forces driving financial asset investment, If, slow real asset investment, Ig, during the late boom phase by diverting financing from Ig to If, and thereafter subsequently accelerating the already declining Ig during the initial bust phase. The growing frequency, magnitude, scope, and duration of financial investment, bubbles, and crashes over the long run thus have a combined negative impact on Ig—i. e. more slowly during the boom phase (a structural effect) and more rapidly during the bust phase (a cyclical effect). This long run decline of Ig relative to If due to both structural and cyclical causes convinces successful real asset investment companies to shift more toward If forms of investment. Thus, a company like General Electric, for example, perhaps the largest manufacturer in the world, increasingly shifts to and relies upon portfolio (e.g. financial asset) investing over the longer term.

Proposition 10:

This overall ‘Financial Shift Effect’ further results in non-financial capitalist enterprises seeking to reduce labor and other factor input costs over the longer term by various measures—i.e. reducing labor costs by moving to offshore markets, demanding further tax concessions and subsidies from the state, reducing inter-capitalist competition costs (free trade), shifting operating cost burden to workers and consumers (industry deregulation), and restructuring labor costs in the home market (de-unionization, more part time-temp labor, cutting social security-medicare and private pension ‘deferred’ wages, shifting medical costs to its workforce, reducing paid time off, delaying minimum wage adjustments, etc.), to name but the most obvious.

Proposition 11:

Income for the ‘bottom 80%’ primarily wage earning households progressively stagnates and declines over the boom phase of the cycle, as operating income for both financial and non-financial corporations in contrast rises. To offset declining real income for the 80%, consumer household credit and debt grow—especially mortgage, student loan, credit card, and installment loan forms. Terms and conditions of debt repayment are typically ‘lenient’ during the boom phase, thus serving to accelerate credit and debt accumulation. Financial institutions are more than willing to extend credit and debt to such households, charging interest that in effect represents a claim on future, not yet paid wages.

Proposition 12

Systemic Fragility grows over the boom phase, accelerating in its later stages, composed initially of both business Financial Fragility and household Consumption Fragility. Fragility is a ratio and a function of three elements: rising indebtedness, declining liquid income, and the terms and conditions for which payment on incurred debt is made. Mainstream economics bifurcates this ratio: the Hybrid Keynesian wing considers income but largely disregards finance, credit and debt as equivalently important variables; the Retro Classicalist wing considers credit and debt but de-emphasizes the role of income. Both minimize the importance of ‘terms and conditions’ of repayment by focusing only on a subset—the interest rate—of this third element determining fragility.

Proposition 13:

Over the boom phase, rising household indebtedness amidst stagnating and declining household income represents rising ‘Consumption Fragility’ (CF) within the system. Similarly over the boom phase, rising financial institution (banks, shadow banks, and portfolio operations of large corporations) indebtedness that occurs with the increasing shift to debt-leveraging financing of If, represents ‘Financial Fragility’ (FF). Financial fragility during the boom phase is obscured by rising financial asset inflation. Consumption fragility is obscured by the continuing growth of consumption driven by debt. Both obscured effects disappear with the onset of the boom phase, revealing the true condition of fragility deterioration during the boom.

Proposition 14:

During the boom phase, a third form of fragility—Government Balance Sheet Fragility (GBSF)—also grows, as successive financial instability events of growing intensity require repeated government bailouts of financial institutions and as fiscal stimulus policies are introduced in successive (normal) recessions to assist recovery of non-financial corporations. In addition to these cyclical contributions to GBSF, structural causes also contribute to GBSF, as legislated tax cuts and subsidies for corporations adds further to government debt and thus GBSF. Thirdly, in the particular case of the United States, the policy choice since the 1980s to run annual and growing trade deficits adds still further to total deficits and debt levels. Dollars accumulate abroad due to the trade deficits and US trading partners agree to recycle the dollars back to the US by purchasing US Treasury bonds. Knowing the bond purchases will continue, the US federal government cuts taxes and increases spending further still, thus raising the deficit and total government debt. Federal debt consequently grows from less than $1 trillion to more than $15 trillion in the process. GBSF rises due to rising debt and falling (tax revenue) income.

Proposition 15:

During the initial bust phase following a financial crash, financial asset prices collapse and financial fragility accelerates, with its consequent effects on real Ig, employment declines, and the debt-deflation-default processes previously noted. Simultaneously, Consumption Fragility—already rising during the boom phase—deteriorates even more rapidly, driven by income declines due to mass layoffs, wage-benefit reductions, shorter hours of work and weekly earnings, and negative wealth effects as savings levels and rates of growth collapse. The financial crash thus precipitates a further ‘fracturing’ of both financial and consumption fragility. By means of the price system and the debt-deflation-default process, Financial and Consumption Fragility thus exacerbate each other in the course of the downturn. Just as the financial side of the economy causes a deterioration of real side conditions, the latter in turn cause a further deterioration of the financial side. The internal transmission mechanism of this mutual feedback is the debt-deflation-default process, which also contains its own inter-causal feedback effects.

Proposition 16:

Rising real debt, deflation across the three price systems, declining cash flow and disposable income, and the corresponding collapse of available credit transmits to the real economy in the form of a rapid decline in business and consumer spending, which in turn feedback upon each other. A faster, deeper and more protracted recession results, not a ‘normal’ recession precipitated by external demand or supply shocks, but an ‘epic’ recession precipitated by a financial crash and accelerated by an endogenous condition of extreme ‘systemic fragility’.

Proposition 17:

As the bust phase of the cycle continues and recession deepens, Government Balance Sheet Fragility—already growing per forces noted in proposition #14 above—rises further as well, as government fiscal-monetary stimulus policies attempt to halt the downturn. However, GBSF is not without limits. Under particularly severe conditions of Financial and Consumption Fragility, attempts to halt the momentum of decline by means of tax cuts and spending may prove insufficient while nonetheless adding to GBSF. The result is an extended period of ‘stop-go’ recovery, with short and brief real economic growth punctuated by repeated relapses, and even double dip recessions. This ‘stop-go’ recovery trajectory may continue for years, and even decades, should Systemic Fragility rise or remain high.

Proposition 18:

Systemic fragility in its three basic forms, and their mutual amplifying feedback effects, transmit to the real economy by means of reductions in fiscal and monetary multiplier effects. In the attempted recovery phase, the State engages in fiscal stimuli to bail out banks, corporations and investors. However, Systemic Fragility means business tax cut multipliers have sharply declined, to less than 1.0. State fiscal stimulus consequently results in business, and especially Multinational Corporations, cash hoarding. Cash hoarded is then diverted to corporate stock buybacks and dividend payouts, diversion of real asset investment to offshore emerging markets, and into new financial asset speculative investing in an effort to resort collapsed asset values and corporate balance sheets. Real investment and thus job creation subsequently lags and a stagnant stop-go recovery results.

Proposition 19:

Systemic fragility and its amplifying effects also serves to reduce money multipliers. Massive money supply injections by central banks are initially hoarded, then redirected to lending offshore, to financial speculation, and to ‘safer’ large corporations. Banks reduce lending to ‘less safe’ smaller businesses and households, further reducing investment, jobs and consumption demand. Money demand and money velocity thus offset money supply injection by central banks. Central bank QE and zero interest policies provoke instead new financial bubbles in stocks, junk bonds, real estate, foreign exchange and derivatives trading. Currency wars erupt as money injection policies depress currency exchange rates. Banks and financial markets become increasingly addicted (dependent upon) central banks money injections. Globally, financial speculation raises the specter of further financial instability on a real economy base further weakened by the preceding cycle of economic contraction. The risk of bona fide global depression rises in time.

Proposition 20:

In the context of conditions noted above—of systemic fragility and growing feedback amplitude effects—traditional fiscal-monetary policy tools attempting to expand the economy are rendered increasingly ‘inelastic’ (i.e. less sensitive or effective) in generating a sustained economic recovery. Conversely, when such tools are employed to contract the economy, via austerity fiscal policies and/or central bank raising of interest rates, the effects are more ‘elastic’ (i.e. more sensitive and effective) in contracting the real economy. Fiscal-monetary policies are therefore not simply increasingly non-productive but, over time, become counter-productive in generating recovery. Solutions to recovery consequently lie in the necessity of a major restructuring of the economy along multiple key sectors including, but not limited to, the tax system, banking system, retirement and healthcare systems, labor markets and public investment—with the purpose of redistributing income while simultaneously reducing debt. That is, reducing systemic fragility in aggregate as well as its mutual amplifying effects.

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Access the following url to watch my video presentation on Russian TV, commenting on the 100th anniversary of the Fed and its primary historical role and function of providing bank bailouts, and why talk about the Fed as a source of real economic recovery is a myth.

http://kyklosproductions.com/video/131224_rasmus_RT/

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As the global economy appears to be slowing once again, reader interest in my 2010 book, ‘Epic Recession: Prelude to Global Depression’, has been growing. One of the most comprehensive and accurate interviews of the book was recently written this past summer, published in the Heterodox Economics Newsletter, by Dr. Ying Tang, of Denison University. This book is my initial theoretical explanation of the origins, and continuation, of the global economic crisis (which will be followed up in 2015 by my future book, ‘Transitions to Global Depression’.) Readers interested in the my 2010 ‘Epic Recession’book may find the following review by Dr. Tang of interest. (The book may be ordered online at Amazon and elsewhere, as well as from the author’s blog and website. For my abbreviated summary of the theses of the book, read my article and blog entry, ’20 Propositions’, posted earlier this year).

“Heterodox Economics Newsletter

EPIC RECESSION: PRECLUDE TO GLOBAL DEPRESSION, by Jack Rasmus, New York, NY: Pluto Press, 2010. 340 pages; ISBN 978-0-7453-2999-7.
Reviewed by Yiqing Tang, Denison University

In Epic Recession, Jack Rasmus introduces the term “Epic Recession” to analyze various economic crises, including the Great Recession that started in 2007. The author’s analysis is based on a presentation of a debt-deflation-default relationship in Epic Recessions in the context of financial and consumption fragility. Rasmus concludes the book by pointing out the flaws in the stimulus policy that the Obama administration employed, and provides alternative methods to promote economic recovery. The book is organized in three main parts. Part I introduces the analytical framework that Rasmus uses to identify the quantitative and qualitative characteristics of Epic Recessions and their dynamic impact on the economy. Part II is a historical analysis of Epic Recessions in which Rasmus takes a closer look into U.S. Depressions of the 19rh century and identifies two types of Epic Recessions: “Type I” (1907-14) and “Type IT (1929-31). In Part III, Rasmus critically assesses the Bush-Obama policies in the wake of the 2007-2010 Epic Recession and provides an alternative route towards economic recovery. Incidentally, the book’s analysis stops in 2010, but its main argument is still valid in 2013.

According to Rasmus, unlike normal recessions, which are usually caused by temporary supply and demand shocks (p. 9), Epic Recessions are “precipitated by financial instability and crisis” (p. 24). Quantitatively, Epic Recessions usually fall in certain ranges of several economic indicators that the book specifically identifies, such as GDP and unemployment.

Qualitatively, the formation of Epic Recessions is accompanied by close interaction among three factors: debt, deflation, and default, which create fragilities both in the financial and consumer markets. The author particularly argues that global liquidity explosion and speculative investing are great contributors to financial fragility, and to a certain extent, to consumption fragility as well.

Rasmus then analyzes several major economic crises in U.S. history. He divides Epic Recessions into two types. “Type I” Epic Recessions are financial crises followed by contraction of the real economy and long-term economic stagnation (p. 145). Here, monetary policy plays a huge role in stabilizing the economy and preventing future deterioration. The 1907-1914 recession is an example of “Type I” Epic Recession. “Type II” Epic Recessions are more severe. In these recessions, monetary policy can only temporarily stabilize the economy. Debt-deflation and default, together with financial and consumption fragilities, act upon each other, causing the real economy to constantly decline. The Great Depression is an example of “Type II” Epic Recessions. In both types, monetary policy can at most serve to stabilize rather than tackle the fundamental problems of the economy.

The Great Recession that started in 2007 is, according to Rasmus, an Epic Recession in which real assets did not absorb the explosion in global liquidity, which drove excessive speculation. Debt and leverage rose significantly, eventually leading to the financial crisis (p. 219). It is still not clear which type this crisis will become; the result depends on the policies the federal government implements. Furthermore, in Rasmus’ opinion, the Obama administration’s policy of injecting liquidity into the market only serves to offset the crisis temporarily, yet does not cure the fundamental problems of the current financial system. As a result, Rasmus offers an alternative program for economic recovery. He proposes govenunental programs that promote long-term structural economic change in order to achieve the recovery. These programs address issues such as job creation, income inequality, and regulations of financial institutions.

The book thoroughly explains the causes of the current economic crisis through the theory of the debt-deflation-default relationship. This theory draws heavily on the works of John Maynard Keynes, Irving Fischer, and Hyman Minsky (p. 16). Rasmus argues that his work “fills the gaps” left in the works of these authors, including: (1) a focus on total debt (consumer and public) rather than just business debt; (2) an analysis of deflation based on a three price system: asset, product, <7??r/wage; and (3) a focus on debt and deflation affect defaults.

The last chapter of the book is a 28-point economic recovery program addressing a wide variety of economic issues including the foreclosure crisis, job creation and retention, taxing offshore profits, and regulating banking and other speculative activities. Taking a Keynesian approach to economic recovery, Rasmus puts a lot of faith in the federal government's capacity to carry out such programs. The author does not give too much thought to the influence of special interest groups on public policy. Given the close relationship between big financial institutions such as Goldman Sachs and the government, aggressive regulations on financial institutions are more likely to be implemented.

Overall, the book provides an excellent assessment of the causes of the 2007 economic crisis and provides a solid historical and analytical framework for understanding Epic Recessions. The book is a great resource for undergraduate students and readers with basic economic knowledge. Heterodox economists working in the economic traditions of Keynes, Fisher, and Minsky will find this book engaging and thought-provoking.

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This past week the US House of Representatives voted 332 to 94 in favor of changes to the federal budget for 2014. The House vote in effect adopted the proposals of the ‘Joint Congressional Committee’, chaired by Teaparty House leader, Paul Ryan, and Senate Democrat, Patty Murray, set up in October as part of the interim agreement between the two parties to end the more than two week shutdown of the federal government that month.

The October interim agreement called for the Ryan-Murray committee to provide budget change proposals by December 2013 for a Congressional vote by December 13, 2013. Last week 169 Republicans and 163 Democrats in the House voted for the Ryan-Murray proposed changes to the 2014 budget; 62 Republicans voted no, as did 32 Democrats. The measure now goes to the Senate for what will likely be a formal vote of adoption, and then in January to a Congressional Appropriations committee in time for meeting the mid-January 2014 deadline date agreed to last October for changes to the federal budget.

The Official ‘Spin’

The deal agreed to this past week by both wings of the single Party of Corporate America (POCA)—aka Democrats and Republicans—has been hailed as a pragmatic, albeit ‘narrow’ agreement that shows the two wings can once again agree on fiscal changes and deficit cut matters, thus ending an era of dysfunction that has characterized US government since 2010. The narrow budget deal, amounting to only $85 billion over the next two fiscal years, 2014-2015, is also being defined as the end of efforts to reach a ‘grand bargain’ on taxes and deficit cutting, as well as the end of the Republican wing Teaparty faction’s ability to disrupt government to promote its own interests and Teaparty candidates in Republican primaries. However, none of these arguments ‘spinning’ the budget deal are accurate.

The dysfunctionality may have ended for the interests of corporations, investors, and wealthy Americans, i.e. the 1%, but it hasn’t for the remainder of households, as the details of the recent deal below clearly illustrate. Last week’s Ryan-Murray deal clearly promotes the interests of defense corporations, the Pentagon, and the wealthy—at the direct expense of millions of US government workers, millions more unemployed, veterans, retirees, and tens of millions of Americans on food stamps.

The deal furthermore represents not the reversal of ‘austerity’, as is claimed, but rather a clever restructuring and continuing of austerity in new forms. It reflects a ‘grand bargain’, but a bargain achieved in stages, piecemeal, rather than in an ‘all in’ form that might generate more severe and resentful public political reaction.

Not least, the deal just concluded represents not the ‘taming’ of the Teaparty faction in the Republican wing, but instead the realization by the rest of the two traditional wings of POCA that, in the 2014 midterm Congressional election year about to begin, they had better go slower on austerity in 2014—as they had previously during the 2012 national elections year. The deal is thus a ‘politicians deal’, and neither a fiscal stimulus nor a deficit cutting exercise.

Restoring the Sequester Defense Cuts

In 2011 House Republicans and the Obama Administration agreed to cut $1 trillion in discretionary social spending programs, mostly education, plus another $1.2 trillion of discretionary cuts deferred until 2013 called the ‘sequester’, about half of which represented defense spending cuts.

The 2012 election year that followed was a hiatus in terms of austerity and new deficit cutting. However, once the November 2012 elections were over, both wings of the POCA immediately proceeded to the ‘fiscal cliff’ deal of January 2, 2013, which raised taxes on wage earners while allowing $4 trillion in Bush tax cuts to continue for another decade. However, the fiscal cliff deal of January 2013 conveniently left the matter of the ‘sequester’ spending cuts for a later date, including the $600 billion in defense cuts. That segmenting of tax issues from spending issues, and especially defense spending, was necessary to enable the full passage of the $4 trillion in tax cuts for the rich. A more complicated deal, including spending reductions, would have risked the passage of the tax cuts.

Beginning March 1, 2013, the $1.2 trillion ‘sequester’ spending cuts were allowed in 2013 to take full effect for non-defense spending, while defense spending cuts called for in the sequester were shielded and offset in various ways by the Obama administration, with the concurrence of Congress, during 2013. Pentagon spending this past year continued at the $518 billion level (not counting another $100 billion or so for ‘overseas contingency operations’—i.e. direct war spending). That both the House Republicans and Senate controlled Democrats had every intention throughout the past year to restore the Defense spending cuts called for in the sequester, was evident in the House Budget and Senate budget proposals, both of which called for increasing Pentagon spending to $552 billion in 2014, according to a New York Times front page article of December 11, 2013.

The just concluded Ryan-Murray budget deal is also primarily about addressing (and reversing) those defense spending cuts and continuing to shield defense from current and future spending reductions. Were the sequester defense spending cuts allowed to go into effect in 2014, Pentagon spending would have declined from current $518 billion in 2013 to $498 billion in 2014. The Ryan-Murray budget deal sets Pentagon spending for the coming year at $520.5 billion.

As the Washington Post indicated in a lead article on December 12, with the recent budget deal the US House has temporarily retreated from deficit cutting “in favor of Republican concerns about the Pentagon budget”, with the Wall St. Journal adding on December 13 that the budget deal is “nearly erasing the impact of sequestration on the military”.

That the budget deal is primarily about restoring defense cuts was further evident in that the same day the budget deal was passed by the House, it immediately voted to pass the National Defense Authorization Act, NDAA, thus locking in the restoration of Pentagon spending in 2014 at a level above 2013.

Domestic Non-Defense Spending: Smoke & Mirrors

While the proposed sequester defense cuts have been essentially restored for 2014-15, and effectively removed from further deficit spending cuts in the future (as had tax hikes on the rich with last year’s fiscal cliff deal), the cuts to discretionary non-military spending programs have not fared as well.
The budget deal calls for restoring $63 billion in total scheduled sequester cuts for the two years, 2014-15. Non-defense program spending restoration is reportedly $31 billion of that. It thus appears that a $31 billion increase in non-defense spending is part of the deal. But domestic spending the past two years, 2011-2013, has declined from a total of $514 billion to $469 billion, or $45 billion. The budget deal raises that to $492 billion. That’s $23 billion, not the reported $31 billion.

Moreover, the $31 billion restoration is predicated on the continuation in the budget of the reductions in payments to Medicare doctors and health providers. If the reductions in payments are rescinded, as they have been every consecutive year thus far for more than a decade, then the $31 billion non-defense spending restoration might very well also be taken away or significantly reduced. $31 billion may not in fact, in other words, actually occur.

Apart from the possible $31 billion reduction, what Congress and Obama appear to restore in in the $31 billion discretionary social spending on the one hand, they are taking away—plus more—with the other. This will occur two ways: first by raising $26 billion in fees (i.e. de facto taxes) on consumers and by taking money from federal workers and veterans pensions; second, by taking $25 billion from the unemployed. So the net effect is a reduction of -$20 billion, not a restoration of $31 billion.

The budget deal directly includes increasing ‘fees’ by $26 billion. $6 billion of that comes in the form of raising federal employees’ pension contributions and another $6 billion by cutting military cost of living increases for military pensions. Another $12.6 billion comes from raising government taxes on airline travel. Thus retirees, government workers, and middle class households will pay $26 billion more as part of the budget deal. But that’s not all.

The budget deal cleverly does not include the $25 billion in cuts to unemployment benefits in its calculation of spending $31 billion more in domestic spending. When deducted from the $31 billion, it’s only a net $6 billion in domestic spending. And when the $26 billion in fees (taxes) are added in, that’s a total of -$20 billion in domestic spending.

Another way of looking at it is that $25 billion in cuts to unemployment benefits is that the amount is just about the same amount of restored defense spending cuts. The unemployed are effectively paying for the defense corporations’ continuation of defense contracts at prior levels.

More than 1.3 million workers will immediately lose their unemployment benefits on December 28, 2013. Another 1.9 million who were projected to continue benefits in 2014 will also now lose them. Emergency benefits that up to now included extended benefits from 40-73 weeks, will now revert back to only 26 weeks. This occurs at a time when 4.1 million workers are considered long term unemployed, jobless for more than 26 weeks. Knocking millions off of benefits will likely result in 2014 in even more millions of workers leaving the labor force, which will technically also reduce the unemployment rate. That’s one way to manipulate statistics to formally reduce unemployment, but it’s not a true reduction of unemployment by actual jobs creation, the latter of which is increasingly a problem of the US economy for more than a decade now.

The budget deal conveniently disregards in its calculations the refusal to extend unemployment benefits. But it’s clearly part of the deal. The failure of the budget deal to extend unemployment benefits, and the net -$20 billion in unemployment benefit cuts plus fee hikes, is an indication of the budget deal’s continuing ‘austerity’ focus. But that’s not all.

Another ‘off track’ discretionary spending cuts about to occur involve cuts to food stamps for millions of recipients, scheduled to occur by February 2014. Today one in eight households now receive food stamps, the result of the deep decline in jobs since 2008, the failure to create jobs at a normal rate since then, and the fact that jobs that have been created since 2008 are predominantly low paid. The cost of the food stamp program, SNAP, has doubled to $80 billion during the so-called Obama economic recovery and the abysmal record of job creation the past five years. Both wings of the POCA are concurrently proposing cuts to SNAP, ranging from $24 billion for the Demo wing and $52 billion for the Teapublican (traditional republicans + Teaparty faction) wing. An increase in food stamps that was scheduled for November 1, 2013 has already been put aside. Further reductions are being negotiated that will conclude by February 2014 that will likely reduce food stamp spending by $8-$10 billion over the two year period, 2014-2015 of the recent budget deal period. As in the case of the $25 billion in cuts to unemployment benefits, the $8 billion more in food stamps spending cuts are conveniently ignored in the budget deal calculations.

The real budget deal thus amounts to $31 billion in domestic spending cuts restored from the sequester—offset by $26 billion paid for by government workers, retirees and vets, by another $25 billion paid for by the unemployed, and still another $8 billion by the poor and working poor in food stamp cuts. What the budget deal gives (+$31 billion) with one hand, it takes away double (-$59 billion) with the other. The net result is a -$28 billion reduction for workers, retirees, vets, and the unemployed, while the Pentagon and defense corporations get off free.

Strategic Significance of the 2013 Budget Deal

The budget deal just concluded fundamentally represents a continuation of deficit cutting for the rest of us, while letting defense corporations and spending off the sequester hook. The budget deal ‘narrowly defined’, at $63 billion restoration of sequester cuts, is misleading at best. While defense spending is restored in the budget deal, Republican and Democrat claims that domestic program spending is also restored is a cynical lie. The $31 billion in domestic spending does not include parallel cuts of $25 billion to unemployment benefits and an additional minimum of $8 billion to food stamps. And when the $26 billion in ‘fees’ are factored in—impacting retirees, vets, government workers, and consumers—the net effect is further spending reductions and continued austerity for the rest, while the Pentagon and corporate military contractors are now exempt.

Contrary to the media spin, there is a grand bargain in progress. It’s just dispersed, implemented over the course of several years since 2011 and in stages. It is being rolled out in segments and in phases. The August 2011 deal. The phony Fiscal Cliff deal. Now the budget deal of 2013, in which defense spending cuts area fully restored while a ‘smoke and mirrors’ game is being played with domestic discretionary spending.
With regard to the ‘smoke and mirrors’, politicians are using the ‘playbook’ of corporate management in union negotiations. They are simply ‘moving the money around’—i.e. restoring $31 billion, which is then taken away in other ways at the expense of government workers, vets, and unemployed.

In a broader strategic sense, what the recent December 2013 budget deal represents is that both wings of the single party of corporate interests (POCA) in the US have been pursuing a piecemeal grand bargain strategy. First $2.2 trillion in spending only cuts are enacted in 2011, leaving the issue of $4.6 trillion in Bush tax cuts to the ‘fiscal cliff’ tax deal of December 2012. Once the tax hikes on the rich were moved off the table with the fiscal cliff deal, the focus shifted to getting the defense spending cuts also ‘off the table’ and minimized. The rich got to keep $4 trillion of the $4.6 trillion with the fiscal cliff deal; the defense corporations and Pentagon now can avoid the $600 billion in previously scheduled defense spending cuts. In the meantime, $1 trillion in 2011 social program spending cuts went into effect and continue, the $500 billion in sequester defined social spending cuts also largely continue, and unemployment and food stamp cuts of hundreds of billions over the coming decade are also implemented. That all amounts to austerity continued via implementation of a grand bargain in stages.

And the game of smoke and mirrors is not over. More phases of the grand bargain in stages are yet to come. What remains is passage of a new tax code, which will include hundreds of billions more in corporate tax cuts. The fiscal cliff addressed tax cuts for wealthy individuals, not their corporations. Now the latter want their tax cuts as well. That potentially is on the agenda in 2014.

Then there’s the matter of ‘entitlements’ spending—i.e. social security and medicare. The official ‘spin’ of the current budget deal is that entitlements are not being touched and aren’t part of the deal. Republicans and the Teaparty faction have not demanded additional entitlement cuts in the current deal. That does not mean social security and medicare won’t be cut in 2014, however. Obama’s 2014 budget calls for no less than $620 billion in social security and medicare cuts over the coming decade. Apparently Republicans and Teapartyers considered that sufficient for a ‘first bite of the apple’. But they’ll be back for more in the final stage of the grand bargain by increments. But entitlement cuts will not be addressed further during an election year of 2014. That comes later, and after corporate tax cuts in 2014—which Obama and the Republicans have been both on record proposing for some time.

Jack Rasmus

Jack is the author of the 2013 book, ‘Obama’s Economy: Recovery for the Few’, Pluto Press, 2012, and host of the weekly radio show, Alternative Visions, on the Progressive Radio Network online at PRN.FM. His website is, http://www.kyklosproductions.com, and his blog, jackrasmus.com. His twitter handle, @drjackrasmus.

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