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‘Predicting the Fiscal Cliff–Why A Deal Will Happen’ by Jack Rasmus

November 20, 2012 by jackrasmus

While both candidates in the recent election period were busy telling voters about their fictional economic programs, the real economic program that would emerge post-election was being formulated and debated by the elites of both parties and their corporate benefactors. Behind the scenes for months before the election, heads and CEOs of multinational and other large corporations were developing their recommendations. As the election day approached, their voice became louder and then was carried across the media in the week following the national election. Wall St. Journal, New York Times, Barron’s, and all the other pro-corporate media outlets gave preferred coverage, as the real policymakers took increasing control of the policy agenda post election.

Two years ago almost to this date the Obama-appointed Simpson-Bowles Commission released its report calling for $4 trillion in deficit cuts. The midterm 2010 elections disrupted and delayed their implementation, as the right wing injected its ‘all or nothing’ proposals into the national political equation. The next year would bring incremental deficit cutting, culminating in the August 2011 ‘debt ceiling debacle’ deal, for which the House radicals got $2.2 trillion in all spending cuts and Obama and Democrats gave up all their primary proposals in exchange for merely an agreement of no more debt ceiling brinksmanship until after the 2012 elections. As part of the August debt ceiling deal, the notorious ‘Supercommittee’ was established and mandated to deliver its version of an additional $1.5 trillion of deficit cutting by year end 2011. All that was a year ago, November 2011. But like the ‘get me re-elected first’ politicians they are, the Supercommittee House and Senate politicians of both parties agreed to ‘kick the can down the road’ one more year. The US economy moved sideways in terms of recovery for yet another year, 2011-12. Then the recent national election. The election period fantasy economic proposals of both candidates. And now the re-emergence of the real economic program the media calls the ‘Fiscal Cliff’.

Prediction #1:
Unlike in November 2010 and again in November 2011, this time a deal will be concluded over the next 90 days between the Obama administration and the Republican dominated US House, teapublicans and all.

So why this time? The fundamental reason is that Corporate America has aligned itself firmly behind the Obama administration on the matter of the deficit. Together they will force the necessary votes from the US House to close a deal. But the even more fundamental question remains. Why are Corporate CEOs firmly on board this time, and on the side of Obama? As this writer wrote when the Supercommittee kicked the can down the road a year ago, “it’s the tax cuts, stupid”. Corporate CEOs are blocking with Obama because an integral part of the coming ‘fiscal cliff’ deal will include more major tax cuts for big corporations.
For some time now, Obama has been making it clear that he proposes to cut the top corporate tax rate from current 35% to 28%. His position on that issue was virtually the same as Romney’s during the election campaign. Obama’s positions on more largesse for corporate America also include major changes in the foreign profits tax. The media has not emphasized these long standing Obama positions, however, preferring to talk about token tax loophole closings like the oil company tax and use of jet aircraft. But that’s all diversion from the real issue of further big corporate tax cuts coming, especially for the Fortune 500 largest businesses and multinational corporations.

It should be noted that these further corporate tax breaks will come despite corporations now paying the lowest effective tax rates in more than a quarter century. Corporate taxes as a percent of corporate profits in the past two years have averaged about 12.4% of profits. That compares to the annual average of corporate taxes as a percent of profits from 1989 to 2007 of 24.7%. Moreover, large corporations are also currently sitting on more than $2.5 trillion in cash and multinationals more than $1 trillion. With all that excess cash, and record low taxation as a percent of profits, how are still more corporate tax cuts justified? They aren’t, but they will be part of the coming deal—and that’s the fundamental reason why Corporate America is blocking with Obama and they together will wring a deal from the now chastised US House radicals.
The following are additional predictions concerning the coming fiscal cliff deal—i.e. a term that will soon become clear really means ‘Austerity American Style’:

Prediction #2:
The coming deal will include deeper cuts in Medicare, Medicaid, Social Security, Education, Vets benefits, postal services, and social safety net programs like unemployment insurance and food stamps than have been publicly indicated so far.

In the summer of 2011, as Obama attempted to cut a ‘grand bargain’ with House leader Boehner, he offered to cut $700 billion in each, Medicare-Medicaid, and several hundred billion more in social security and other programs. When the deal fell through in July 2011, reference to the proposed cuts was quickly dropped by the press. On the Meet the Press NBC TV show this past November 2012, Washington Post editor Bob Woodward announced he had obtained a memo with the original offer by Obama to Boehner to make such cuts. Woodward was wrong in one aspect, though. It was no secret, even in 2011. Elements of the deal were revealed at the time in July 2011 piecemeal in the press, and were summarized in this writer’s April 2012 published book, “Obama’s Economy”, chapter 7, for those interested.

What form specifically then will the social spending cuts take in the coming ‘deal’? Medicare benefits won’t be reduced, but the out of pocket cost for parts B (doctor services) and D (drugs) will rise significantly. Obama will agree to partially let the states decide on Medicaid spending. Social security benefits will be cut by reducing the cost of living formula, raising the retirement age in steps to 69, and by slashing social security disability eligibility and thus benefit payments.

Prediction #3:
The Tax Base will be ‘broadened’. That coded phrase means cuts in provisions like the mortgage deduction and other exemptions and itemized deductions. The payroll tax cut will almost certainly be phased out. In short, the middle class will thus clearly pay more. The top personal income tax rate will be raised to 39.6% but so too will the threshold, from Obama’s pledge of $250k to $500,000 or even $1 million. Other personal income tax provisions on upper income groups will also be raised, but slowly in steps over decades to come.

Prediction #4:
Defense spending cuts indicated by the sequestered agreement of August 2011—some $500 billion scheduled to take effect starting January 2013—will be suspended. If readers listened closely to Obama during the debates, he clearly indicated the $500 billion in defense cuts was ‘Congress’s proposal, not mine’. So defense spending reduction will be less than half that previously projected, mostly realized by troop pullouts from Afghanistan, veterans benefits cuts, and attrition of old equipment purchase programs.

Prediction #5:
The ‘mix’ of spending cuts to tax hikes will be no less than 6 to 1—i.e. for every dollar in tax hikes there’ll be $6 in spending cuts. Once again, history is the best indication of the parties’ future positions. In June 2011, Vice-President Biden had offered Boehner a ‘mix’ of 87% in spending cuts and a token 13% in tax loophole closings. Obama reportedly offered Boehner the same. Simpson-Bowles called for 4 to 1. The end result will be somewhere between.

Prediction #6:
The deficit cuts will be largely ‘backloaded’, taking effect in 2014 or even starting 2015 and growing in magnitude annually thereafter. Politicians will thus avoid equal annual cuts out of fear the US economy remains fragile and chance of recession in 2013 remains a distinct possibility. The US economy has been growing at a 1.7% annual rate, slightly higher in the 3rd quarter of 2012, and will grow slightly less than the third in the current fourth quarter. Whatever the final ‘deal’ on the fiscal cliff, it will not be a stimulus program in any sense but an austerity program. At first ‘austerity-lite’, then an even more austere in out years. The only question is how austere, and how much austerity ‘up front’ as opposed to back loaded. The ‘loading’, will be in out years.

Prediction #7:
There are three scenarios: A partial deal before year end 2012 to accommodate the need to raise the debt ceiling limits again before year end, followed by another bigger deal within 90 days. It is possible a one-two year deal for 2013-14 will occur by February, followed by a bigger deal focusing on major changes in the US tax code in exchange for bigger cuts in social security, Medicare, Medicaid long term over the next two decades. Alternatively, scenarios 2 and 3 may be combined.

Whatever the case, a final deal will be concluded within 90 days. It will be marked by big corporate tax cuts, higher personal income taxes including middle class taxes, the end of the 2% payroll tax cut, bigger cuts than announced for Medicare-Medicaid-Social Security-Vets-Unemployment and Food Stamp benefits, and so on. The mix will be weighted heavily toward spending cuts, except for Defense spending, and most of the impact will be backloaded beyond 2013.

Whether front or backloaded, however, the impact on the US economy will not prove positive, at a time during which the economy will show further signs of weakening in 2013, and as the global economy continues to slow and the recessions in Europe, Japan, and elsewhere continue to deepen.

Jack Rasmus

Jack is the author of ‘Obama’s Economy: Recovery for the Few’, April 2012. He hosts the radio show, ‘Alternative Visions’, at PRN.FM. His blog is jackrasmus.com. Website: http://www.kyklosproductions.com, and twitters at #drjackrasmus.

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Is an Independent Political Labor-Community Party on the Agenda Today?

November 14, 2012 by jackrasmus

Join in to hear host Dr. Jack Rasmus today, November 14, at 2pm (eastern) time on his radio show, Alternative Visions, to discuss with union guests the possibilities of independent labor political action. The discussion will be archived on prn.fm/shows/alternative-visions/

“Dr. Jack Rasmus discusses long time AFL-CIO union activists, Alan Benjamin and Donna Dewitt, the potential for independent labor political action in 2013 and beyond. Now that the November elections are over, voters will be surprised, Dr. Rasmus predicts, how harshly the new economic program called the ‘fiscal cliff’ will result in deep cuts in programs like Medicare, Social Security, Education and middle class tax hikes—while big corporations will be given even more tax cuts and subsidies. Is this the time to begin independent political action, led by union and community activists? Is it the time to consider building a third party? Jack will discuss those questions with Benjamin and Dewitt.

Donna Dewitt is the just recently retired, former president of the South Carolina state AFL-CIO federation of labor. Donna has been involved in South Carolina union and labor politics for 45 years. An activist in her union, the CWA local 3719, for thirty years, she then served as a member of the board of the South Carolina AFL-CIO, subsequently thereafter elected as the first woman to head the state’s AFL-CIO in 1996.

Alan Benjamin is a member of the Executive Board of the San Francisco Labor Council, AFL-CIO, a member and delegate from OPEIU Local 3. He’s a member of the National Steering Committee of US Labor Against the War, the International Coordinating Committee of the International Liaison Committee of Workers and Peoples, and a past organizer for Labor Party Advocates and the Labor Party in the US, as well as editor of ‘The Organizer’ labor newspaper. Both Ms. Dewitt and Mr. Benjamin are members of the recently organized, ‘Emergency Labor Network’ of grass roots local union leaders in the U.S.”

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Who Really Won the November 2012 Election?

November 9, 2012 by jackrasmus

On the surface, it appears why Obama won a second term is that he carried nearly all the ‘swing states’. But the deeper question is why did he carry those swing states? The consensus of press and pundits in the days immediately following the election is Obama carried the minority, youth (18-29), and to a lesser extent the women vote. But that still doesn’t answer the even more fundamental question why he carried these groups in those swing states? And Press and pundits stop at that point.

As the voting began on Nov. 6, I predicted Obama would win the electoral vote, in a range 280-291 to 248-257. (see my blog, jackrasmus.com, entry of early morning Nov. 6). That range of electoral votes was predicated on the assumptions that Obama-Romney would split Ohio and Florida, leaving the remaining key states being Virginia and Colorado. Obama needed to win one, I argued, and Romney both of these two states as well as several of the smaller states of New Hampshire and Iowa. As it turned out, Obama won both Virginia and Colorado, as well as all three of the smaller states. That put his total at 303 in fact,–i.e. just above the 291 high end range that I estimated he’d get had he lost Virginia and a couple of the smaller states. All the other states’ electoral votes turned out, however, much as I had predicted (Florida still pending). So it was a moderately close prediction.

So why did Obama win the swing states? Why did he carry the minority and youth vote so convincingly? And what can those groups, who clearly put him in office for a second term, expect in return with regard to policies and programs the next four years?

To begin, the Hispanic vote clearly made the overwhelming difference in Colorado, Nevada, and, together with the black vote, in Virginia (in retrospect it probably played an important role as well in Iowa). But describing it as ‘Hispanic’, African-American, and even the youth vote, leaves out a more fundamental dimension: this was a ‘working class vote’ even though the press refuses to define it as such. That point is important, given that throughout the election campaign the past two years Obama’s team of advisers and he himself repeatedly indicated the key voting bloc that would make the difference in the election was the ‘independent voter’ and the ‘middle class’, especially the upper income urban professionals.
The minority groups that made the big difference in the swing states of Virginia, Colorado, Nevada and Iowa—especially Hispanics—represent the major force that put Obama in the White House for a second term. They are not the much heralded ‘middle class’ households making $100,000 a year incomes that the Obama team said was their primary target during the election campaign. Nor are they the ‘independent urban professionals’, who almost all earn more than $100,000, that Obama’s advisers kept saying was the key to winning the White House the past two years.

71% of Hispanics voted for Obama and turned out in even greater numbers than in 2008. That bloc is solid working class, the vast majority of whom earn less than $50,000 a year. The same can be said for African-American voters who probably made the difference in Virginia, turning out big in the southeastern part of that state.

In start contrast, the ‘independents’ and ‘urban professionals’ earning $50-$100k a year stayed home or reduced their vote for Obama. Their Obama vote fell from 52% in 2008 to 45% in 2012. Some post-election polls estimate only 24% of this group bothered to vote. So it wasn’t the independents or middle class, it was the minority working class that had the biggest impact on Obama’s re-election.

The key point that it was workers who put Obama back in office also applies the equally important swing state of Ohio and the neighboring key states of Michigan and Wisconsin. In Ohio-Michigan-Wisconsin union workers made the difference in carrying those important states. Union labor certainly gave Obama Ohio, and just as probably prevented Michigan-Wisconsin from going Republican. In these states union workers are overwhelmingly manufacturing, construction, industrial and public employees and not ‘independents’ or ‘urban professionals’. Outside the Ohio to Wisconsin ‘arc’, however, union households’ vote for Obama fell somewhat, as the same households vote for Obama increased significantly in those Midwest swing states.

Yet what is heard repeatedly by the press and media pundits is that the ‘working class’ vote in general has gone Republican. That’s only true if one believes that the millions of Hispanics, blacks, and the majority of the 18-29 working class youth, who made the key difference in several of the key states, are somehow not in fact ‘working class’. Or that those voters in the key arc of Ohio-Michigan-Wisconsin, a majority of which were ‘white’ by the way, were also not working class.

So it was minority workers, young workers, and union workers in the northwest that carried the swing states that put Obama in office—and not the upper middle class, independents, and professionals. So why did they do it? And what can they expect in return from Obama during his second term?

First, despite deporting more undocumented workers than George Bush, Obama did an about face before the election and endorsed the ‘Dream Act’ for immigrant (hispanic) youth. In contrast, Romney talked about how they should ‘self-deport’ themselves to solve the so-called immigration problem. The student segment of the youth vote was captured by Obama by his shift to hold the line on the cost of student debt and Obamacare provisions to continue health insurance coverage. Romney’s position was students should borrow more from their parents and repeal all of Obamacare. And the Great Lakes region union vote no doubt was influenced by the bailout of the auto industry and the Obama teams’ successful spinning of the event, even though only 157,000 or the 340,000 lost auto jobs have been recovered and much of the latter at two-tier, low paid $14/hr. jobs. Romney argued the auto companies and jobs should ‘go bankrupt’ (and let the private equity vultures like his ‘Bain Capital’ pick their economic bones, no doubt).

So some minimalist concessions to their direct interests were made prior to the election. Nothing like the $13 trillion bail out of the banks, of course. But nevertheless something. In contrast, Romney made it clear to them their future would be ‘far less than something’.

Post-election November 2012, the biggest question remains: will Obama deliver for these working class groups that put him in office a second time? Or will it be ‘concession time’ again, with those who put him in office a second time asked to pay the lion’s share of deficit cutting?

With the election over, the real economic program for the next four years is about to be revealed. It’s concealed behind the fascade called ‘fiscal cliff’. The economic promises of both candidates during the election was only talk, both candidates telling their constituencies what they thought they wanted to hear. Now the real thing—the real economic program—is about to appear. Will ‘fiscal cliff’ mean those who put him in office pay the biggest price, while the wealthy, corporations, defense companies, bankers, stock and bond traders, and all the rest of such get yet another mostly ‘free ride’, as has been the case the past four years? With only three days since the election, Obama has publicly invited House Speaker, Boehner, to restart negotiations on the so-called ‘grand bargain’ that was postponed in the summer of 2011. Signaling willingness to once again engage in major concessions, Obama publicly declared he was not wedded to his prior stated economic program or objectives. Stay tuned for the next few weeks, as the political fog called US national elections slowly burns off and the true outlines of real economic program being cooked behind the scenes the past several weeks by the powerful economic and political elites of both parties becomes increasingly clear.

Jack Rasmus, November 9, 2012
Jack is the author of the recent book, ‘Obama’s Economy: Recovery for the Few’, 2012, and host of the radio show, ‘Alternative Visions’ on the progressive radio network, PRN.FM. His blog is jackrasmus.com, website http://www.kyklosproductions.com, and his twitter account, #drjackrasmus.

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A Prediction for the Electoral Vote for President

November 6, 2012 by jackrasmus

This morning the polls opened for the election. Before exit polls start their estimation, I offer the following prediction this morning, Nov. 6, for the eventual election results as follows:

Obama: 281-290 electoral votes
Romney: 248-257 electoral votes

Should Obama win, don’t expect anything different for the US economy, besides more ‘stop-go’ recovery at best and a growing liklihood of a double dip in 2013, given industrial production and real income (and thus consumption) again beginning to weaken, and government spending virtually certain to join the relapse again in the first quarter of next year.
While at it, I will predict yet another ‘jobs relapse’ in the first quarter of next year, and more ‘bumping along the bottom’ for construction spending (except for apartment building).

Watch for my year-end assessment of last year’s (Jan. 2012) predictions for the US and global economy (much of which has turned out to be accurate), and predictions for the coming 2013-14 period. The article will appear in Z magazine’s Jan. issue, and will be posted on my website, http://www.kyklosproductions.com, as well as discussed on my radio show, Alternative Visions, on the progressive radio network in coming weeks (PRN.FM).

With the election about over, the ‘real economic program’ of the two wings of the single party system in the US will be revealed. It’s called the ‘Fiscal Cliff’, and it will contradict most of what the two presidential candidates have been feeding the public to date. More on this as well in coming weeks.

Dr. Jack Rasmus

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Predicting the Presidential Election: The Real ‘Swing States’

October 31, 2012 by jackrasmus

With less than a week to go to the November national elections, popular polls show Obama and Romney are either in a dead heat tie or Romney slightly ahead in the popular vote. What counts, of course, is not the popular vote but the archaic US system of electoral college votes—a legacy of one of the most undemocratic procedures borne from the US Constitution.

Much focus by the press in recent days has been on the so-called ‘swing states’ which will decide the election outcome. Apart from the swing states with their potential electoral votes, our this writer’s estimate is that Romney has 204 electoral votes firmly in hand while Obama has 224. Romney’s total includes states like Arizona (10) and Montana (3) that some pollsters erroneously indicate as swing but will go, as they always have, to the Republican candidate. Obama’s total includes Pennsylvania (21), Michigan (17), Minnesota (10) and Oregon (7), all leaning comfortably toward Obama.
That leaves the true swing states with electoral votes as follows:

Virginia 13, Colorado 10, Ohio 18, Florida 29, North Carolina 15, Wisconsin 10, Iowa 6, Nevada 6, and New Hampshire 4.
Pundits have identified Ohio and Florida as the key swing states. Whoever wins the two, easily wins the election. But Ohio and Florida are not the key. That’s because it appears increasingly that Romney and Obama will split these two largest states. Obama is ahead in Ohio, giving him 18 more votes and Romney in Florida, giving him 29 more.
The tally then is Obama with 242 and Romney with 233.

Of the remaining swing states, this writer predicts Nevada (6), Iowa (4) and even Wisconsin (10) will go to Obama—the latter the home state of Republican VP Ryan. That gives Obama another 20 electoral votes, for a total of 262. 270 are needed to win. Should Romney prevail in North Carolina (15) and New Hampshire (4),where he is ahead, he would have 252 total electoral votes.

That leaves Virginia (13) and Colorado (9) as the remaining key states. And they are in a statistical dead heat toss up. Both states polling show 47.8% popular support for both candidates in both states.

Obama has to win at least one of the two, Colorado or Virginia. Romney has to win both. That means a slight advantage to Obama, but with a dead heat in both and momentum in the final week going to Romney, Obama could easily lose both states.

The coming election promises to be the tightest not only in terms of popular vote but also electoral votes, with margins of less than 20 and even as little as 10 between the two candidates. This writer has noted since 2011 that the outcome will depend upon whether Obama can turn out the vote for those who supported him in 2008 but who have become deeply discouraged and disappointed in his pro-corporate policies and constant concessions to business and Republicans since the summer of 2010. If these erstwhile supporters vote with their backsides and stay home, Obama will lose. That raises the ironically strange outcome of the US electing a financial speculator-banker, Romney, four years after the same crowd of banker-speculators brought us the banking crash of 2007-08 and the chronic no-recovery economy (for us, not them) of the past four years. The choice for the US electorate in this strange national election year has been to vote either for a set of policies that have not brought general economic recovery (Obama) and that will likely not do so for another four years, or to vote for a set of policies (Romney) that will make conditions still worse and return the US to yet another reshuffled version of Bushonomics-Reaganomics that has contributed much to the current continuing economic crisis.

It’s all the more strange, given that a national Gallup poll recently showed that 61% of independents are in favor of another political party, neither Democrat or Republican, and even 60% of liberals and conservatives say the same.
What the current election debates and the past decade together have shown is that there isn’t a two party system in America. There’s a one-party system with two wings. Time to create a true alternative, is it not?

Dr. Jack Rasmus
October 31, 2012
Jack is the author of the 2012 book, ‘Obama’s Economy: Recovery for the Few’, and host of the radio show, ‘Alternative Visions’, on the Progressive Radio Network, PRN.FM. He blogs at jackrasmus.com and can be followed on twitter at #drjackrasmus. His website is http://www.kyklosproductions.com.

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US 3rd Quarter GDP: Short Term Myopia vs. Long Term Realities

October 29, 2012 by jackrasmus

The third quarter (July-Sept.) U.S. GDP figures released last Friday, October 26, estimated the US economy grew by 2%. That compares to an average growth for the first nine months of 2012 of an historic low of 1.7%. The 2% reflects, at best, a continued stagnation of the economy and, in all likelihood, an actual continuing decline for the economy over a longer run.
Here’s why: to begin with, the 2% is an initial ‘advance’ estimate. Advanced estimates recently have tended to be reduced significantly in the 2nd and 3rd revisions. To recall, the previous 2nd quarter GDP also initially came in at 1.5% but was then reduced to 1.3%. It is quite likely therefore the third quarter’s 2% will be revised downward 0.1-0.2%, which will put it almost exactly at the past year’s 1.7% average.
Secondly, every four years just before national elections politicians typically turn on the spending spigots in the third quarter to get a brief boost just before the national election. And so it was this past third quarter. The Federal government in particular accelerated Defense spending. It appears this was done by deliberately holding back defense allocations in the previous quarters in order to have an especially large impact just before the national elections in the third quarter. Federal defense spending fell by-7.1% and -0.4% in the first and second quarters of this year. In other words, it appears defense spending was slowed in the first half of the year in order to get the bigger third quarter boost just before the elections. In fact, the third quarter’s big bulge in spending –attributable virtually all to defense—was the first time in two and a half years that government spending did not decline in every consecutive quarter! The two and half years of decline in federal spending, combined with the big declines in the same the first two quarters of 2012, suggests the third quarter’s inordinate surge in defense spending was consciously planned. Federal spending in the third quarter thus amounted to a a huge third, 0.7%, of the 2.0% reported GDP growth last quarter. It is highly unlikely any such additional surge in defense, or government spending in general, will follow this fourth quarter or subsequently in 2013. So this 0.7% is a one time event and the 2% (or revised lower) third quarter GDP number is actually less than 1.5% when the one time surge is backed out of the trend. That would mean the US economy continued to slow last quarter when considered in the context of a longer term trend.
The second big contributor to the third quarter’s 2% initial growth was consumer spending. It reportedly contributed 1.4% of the 2% total for the third quarter GDP. But one needs to look at the composition of such spending in order to determine if it too will be sustained, or whether temporary forces are at work here as well.
Consumer spending is being driven not by fundamentals of real household disposable income growth, but by temporary factors as well. This past year much of consumer spending has been driven by the top 10% wealthiest households, whose spending in turn is driven largely by stock market returns. And stocks have done extremely well in 2012, boosted in particular by the Federal Reserve’s early 2012 ‘operation twist’ quantitative easing program, and over this summer by investors’ anticipation that ‘quantitative easing 3.0’ would follow, which did. Federal Reserve QE is directly correlated with surges in stock prices, as banks and investors take advantage of the free Fed money and lend it to professional investors who in turn drive up stock prices by speculating. That brings more money into the stock markets, driving up stock prices and returns to wealthier households. Returns on corporate bonds have also boosted wealthy household earnings. It is not surprising then that the top 10% households, doing very well, are in turn driving much of consumer spending, or at least inordinately so. The remaining 90% households appear to be spending in the third quart—but not based on real income gains. Their spending is being driven by a surge in credit card issuance by banks, and usage, on the one hand, and by spending down savings on the other. Savings rates have fallen over this past summer. High on the spending list for the bottom 90% appears to continue to be auto sales, as auto companies, with bloated over production and inventories and still not fully recovered from the recent recession, compete more intensely with each other. Much of auto sales are due to deep discounting and purchase deals amounting to no interest loans stretched out over 60 months and more. But this kind of discounted sales, combined with credit and dissaving based spending cannot continue. Nor may even the stock market driven consumption of the top 10% households. In short, a scenario of declining consumer spending is likely, and this writer predicts it will begin in the present fourth quarter 2012 period once the national elections are over and the unnatural optimism of the US consumer hits a wall of reality immediately after the elections.
A third, much less important, contributor to the 2% GDP initial number is housing. Much is made of a nascent housing recovery. But there is little evidence of such. Housing will continue to ‘bump along the bottom’ for months to come, and likely for years. What indications of housing growth that has appeared last quarter is mostly ‘multifamily’ units, i.e. apartment building, as the 12 million homeowners foreclosed over the crisis are forced to rent.
Offsetting these ‘one time’ and weak factors behind the 2% GDP number are several serious negative areas in the economy that show every sign of getting worse.
After growing at a nearly 20% annual rate in the fourth quarter of 2011, business investment has declined precipitously every quarter. Spending on equipment and software in the third quarter collapsed to zero, and business spending on buildings turned a negative -4.4% last quarter. These figures represent a clear 12 month rapid decelerating trend. Fourth quarter will be no doubt negative again. Some pundits argue this is the business community registered its uncertainty and concern over the ‘fiscal cliff’ coming January 1, 2013. This writer disagrees. It is due to two factors: first, the rapid slowdown of the global economy now underway which is beginning to impact the US economy with a lag. That slowdown, moreover, shows all the signs of continuing. Second, it is due to an emerging ‘capital strike’ sending a message to Congress that business and investor tax cuts must be continued ‘or else’. Continuing, and deepening business tax cuts, of course will make the ‘fiscal cliff’ worse. So it is not a question of concern about the deficits; it is a question of business insistence upon more and more tax cuts.
Another negative area for the economy to come is reductions underway in business inventory spending. Still another is the sharp drop off in US exports (and thus manufacturing activity) as the aforementioned global economic slowdown continues to deepen. In the third quarter, US exports turned negative for the first time in more than three years—for the first time since the spring of 2009 in the midst of the last recession quarter. Something very serious therefore is now beginning to take place in global trade, US exports and therefore US manufacturing activity not seen for more than three years.
To summarize, the ‘positives’ in the third quarter GDP numbers are extremely tenuous and temporary, while the negatives in terms of business real investment, exports, trade, and global economic slowdown all appear to have long term ‘traction’ and staying power. It will be interesting to see if those politicians elected in November 2012 are able to accurately access the long term trends of importance to the US economy, or whether they are myopically intent on ensuring a collapse of consumer and government spending in 2013 while guaranteeing the wealthy continue to get their historically generous tax cuts for another decade.
Dr. Jack Rasmus, October 29, 2012
Jack is the author of the 2012 book, “Obama’s Economy: Recovery for the Few”, and hosts the radio show, ‘Alternative Visions’, on PRN.FM. He blogs at jackrasmus.com and can be followed on twitter at #drjackrasmus.

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What’s Next for Medicare?

October 22, 2012 by jackrasmus

Readers of this blog are invited to tune into my coming Wednesday, October 24, radio show, ‘Alternative Visions’, to listen to an important discussion between myself, Dr. Jack Rasmus, host of the weekly show, and my guests from the National Nurses United union. We’ll be discussing the coming attacks on the Medicare program in the US.

The show may be listened to live (and archived) on wednesdays, 2pm, New York time, online at PRN.FM (Progressive Radio Network). It may also be accessed from my blog page, jackrasmus.com, and website, http://www..kyklosproductions.com.

The following announces the topics and guests:

The following is for posting announcing this coming Wednesday (Oct 24) Alternative Visions radio show:

“This Wednesday Dr. Jack Rasmus will welcome guests from National Nurses United. The show topic will be the coming attacks on Medicare-Medicaid that will follow the November national elections. The discussion will raise questions, Is there really a Medicare crisis? How can Medicare be defended and expanded right now? How has Romney’s Massachusetts ‘Romneycare’ program really performed? What are the problems with ‘Obamacare’. How have Insurance companies and hospitals been exploiting the transition in 2012-13 to Obamacare? What’s ‘Medicare for All’?

Joining Dr. Rasmus will be Sandy Eaton and Donna Smith. Sandy is a retired RN with the Quincy Medical Center in Massachusetts, a member of the Board of Directors for the Massachusetts Nurses Association, affiliated with the union, National Nurses United, NNU, AFLCIO. Sandy is also a former chair of the Legislative Council of the NNU, a member of the national Steering Committee for the Labor Campaign for Single Payer Healthcare, and editor of the ‘Seachange Bulletin” addressing healthcare and labor issues. Donna Smith is a community organizer and legislative advocate for the National Nurses United and author of many essays on the healthcare crisis in America. Donna has appeared on the Bill Moyers show, in Michael Moore’s 2007 documentary film, SICKO, and on many national broadcasts and radio shows.”

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An Addendum and Correction to My Previous Post on the September Jobs Numbers’ by Jack Rasmus

October 10, 2012 by jackrasmus

An addendum, and partial correction, is in order to my previous post on ‘Are the September Jobs Numbers Cooked Controversy’, as follows:
My reference to the Current Population Survey, CPS, surge in jobs by 870,000 last month, and my associating that surge with the labor department’s ‘Business Employment Dynamics’ model, was incorrect. The BED raw data on jobs are added to the labor department’s second jobs data source, the Current Establishment Survey, CES, and then together seasonally adjusted. Those numbers for CES in September were a lower than average 114,000 jobs created, as have been the CES jobs numbers throughout the summer months historically lower the past three consecutive years and subsequently higher the winter months.
For the past two years I had been pointing out that the BED raw jobs data were artificially boosting the CES jobs numbers in the winter months, November-January, and in turn likely artificially underestimating the numbers of jobs in the summer months, May-August. (See my blog, jackrasmus.com, for that argument in detail in my earlier postings on jobs this past winter and in previous winters. My recent book, Obama’s Economy: Recovery for the Few, also documents these excessive swings up and down in jobs for the past three years). I still think that is true and that the CES-BED is generating false seasonal jobs growth—inflated in the winter and deflated in the summer.
If so, what that means is that we will likely see an artificial surge in CES jobs numbers in the November-January months coming up, just as we’ve seen a collapse in job creation in the summers the past three years. That of course does not explain the 870,000 September CPS numbers. So what accounts for the CPS 870,000 is the obvious next question. Is the CPS now picking up numbers that the CES is underestimating in September? Or do we have some kind of parallel seasonality adjustment problems now going on with the CPS as well as the CES? My guess is that the inordinate surge in CPS jobs in September is related to the extraordinary surge of 582,000 involuntary part time jobs in September.
I noted this other possible explanation in my previous post briefly, but without elaborating. This kind of one month growth in involuntary part time is somewhat unprecedented. We haven’t seen a surge of such dimensions in involuntary part time job creation since the jobs crash of late 2008—as companies both laid off full timers in record numbers as they simultaneously converted more other jobs to part time. The 582,000 last month may therefore be a leading indicator of decline in employment in CPS jobs that could come in the next 3-6 months. That means a major ‘switching’ in the two jobs surveys, with CPS jobs contracting sharply in coming months while CES jobs artificially surge over the winter.
Whichever the case, the bigger picture beyond September worth considering is that we are apparently getting increasing divergences and magnitude swings between the two jobs surveys, the CPS and CES. That volatility is not an indicator of a stabilizing jobs market. Quite the contrary. Moreover, something is going on here with jobs calculations in both surveys worth further investigation. It could be that seasonality assumptions and adjustments being used for both surveys, CPS and CES, were perhaps more appropriate in a pre-2007 economy and not today’s very much altered employment market environments. Or it could mean we can expect to see a crash in the CPS numbers soon and a simultaneous moderate rise in the CES jobs numbers in coming months—i.e. the opposite of what’s been happening over the past summer and in September. In either case, the labor department’s jobs numbers will then appear even less convincing.
Jack Rasmus

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Invitation to Join Me on Twitter

October 6, 2012 by jackrasmus

I have just recently set up a twitter account, on which I will be posting daily choice quotes about the economy and related events that you might find interesting. You can ‘follow me’ from this blog by selecting the twitter button on the upper right hand corner of the main blogpage.

Here’s some tweets of the past two days on the presidential debate last wednesday and the recent jobs report on friday:

“Big corps sit on $2.5 trillion cash. Big banks another $1.7 trillion. Multinationals $1.4 trillion. They need more tax cuts to create jobs?”

(Quote by Obama during the presidential debate): “We both (Romney-Obama) agree corp taxes are too high” (Corp tax 2010: 12.1% of profits. Ave Corp Tax rate 1987-2008: 25.6%)

Two initial tweets on the recent presidential debate:

‘Neither candidate showed up. Romney sent his stand in who said the opposite and Obama sent an empty suit’

‘Romney pushed Obama around the ring while Obama politely jabbed and referee Lehrer failed to enforce the rules’

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Are the September Jobs Numbers ‘Cooked’ Controversy

October 5, 2012 by jackrasmus

With the release of today’s jobs report by the bureau of labor statistics, a public controversy has erupted over the veracity of the jobs numbers. Representatives on the extreme right claim the jobs numbers are being ‘cooked’ by the labor department. One of the two jobs report, the current population survey, reported some 870,000 new jobs were created last month. In contrast, the current establishment survey, the other labor department report, noted only 114,000 jobs were created. The right wing explains this by alleging outright falsification of the jobs report by the labor department. As is the tendency of the extreme right, they are not big on rational analysis. This writer does not buy the idea that outright falsification is the explanation. However, I do think there’s something wrong with the jobs numbers and have repeatedly been saying so on this and other public blogs for more than a year now.

I have been writing consistently about the problems in the jobs reports, pointing out that for last three years in a row, from 2010 to 2012, we see an interesting trend. Every fall and winter the jobs reports show extraordinary job gains well beyond averages, while every spring-early summer the jobs gains collapse. There is indeed something going on with the jobs numbers, though it’s not falsification.

Last month’s 870,000 CPS (current population survey), which determines the unemployment rate, included nearly 600,000 involuntary part time jobs created. That indicates either of two things: employers are laying off full time workers and hiring part timers; or hiring part timers instead of full timers because they, employers, do not see sustained economic recovery on the horizon and they are hiring more easily laid off in the future part time workers. The problem with part time hires is that the jobs reports considers them–for purposes of determining the standard U-3 unemployment rate–as full time workers. They may be working part time in fact but are considered fully employed when calculating unemployment rates. Hiring that many part timers, or even several hundred thousand less, represents a continuing very weak labor market and not an improving one. This view is supported by the more stable second labor department jobs survey, the establishment report, made up of 400,000 employers reporting each month (and thus not a real ‘survey’ in fact), which showed last month a continuing bare growth in jobs. In fact, 114,000 jobs growth is still well below what it takes to even absorb new entrants into the work force.

However there may be an even more accurate explanation why the 873,000 number is a gross aberration (but not falsification) in the jobs numbers. I’ve been warning about this for some months now. It has something to do with the repeated exceptional jobs gains coming every year the last three years in the fall-winter period, followed by a repeated collapse in the jobs numbers in spring-early summer also for the past three years.  The explanation goes something like the following (bear with me, it’s a bit wonkish):

The current population survey (the 873,000) represents a statistical operation on raw jobs data that adjusts that raw (i.e. actual) jobs data by means of several statistical operations–i.e. seasonality, etc.—to get to the 873,000.  But before the raw data is statistically adjusted, another source of raw data is added to the initial data and only after that is the statistical adjustment carried out. This second source is jobs data estimated from assumptions about New Business Formation that are lagged up to nine months.

Here’s how it works. The labor department assumes net new businesses are formed nine months previous. That would be last November-December 2011. These data on new business formation are very inexact. It’s not actual new businesses but an assumed historical average of new businesses. So the past years in which new business formation was high is substitute for the more recent period when new business formation is in fact low, or even negative. It’s really a  shaky estimation process.

However, that shaky estimation, up to nine months old, ends up as additional new jobs created data that is then added to the raw data for new jobs created collected last month from the population survey. The assumed jobs created from new businesses created nine months ago and the raw data for new jobs from last month’s survey are then added together. Only then are the statistical adjustments made on that combined raw data to come up with the reported number of 870,000. That all sounds a bit technical, and it is. But some economists are highly critical of this process of adding raw data from historically averaged, assumed new business formation nine months ago to raw data from the survey, and then adjusting it and rolling it up into the publicly reported numbers. This writer is one of many skeptics of the methodology.

For a further clarification of this, readers should read my various reports on the jobs numbers in 2011 and early 2012 on my blog’s archive (jackrasmus.com) and other public blogs.

So there is definitely something wrong with the numbers on jobs. I don’t mean only last month’s jobs report. When there is so much divergence between the two jobs reports (870,000 vs. 100,000) something clearly is amiss. But more importantly, evidence of something out of the ordinary happening is reflected in the three years running of inordinate jobs growth in fall-winter followed by jobs collapse in spring-early summer. One year such extreme aberration can be disregarded. But three years in a row now is another thing. Something is wrong.

But this is not the same as saying the numbers are being ‘cooked’. The irrational right wing should do its homework instead of relying on emotional outbursts to explain the obvious anomaly in the jobs numbers. Likewise, the liberal-Democratic Party center should stop trying to apologize for the obvious terrible jobs creation record of Obama for the past three years–notwithstanding last month’s extreme divergence in the two jobs reports–and stop trying to paint a picture that the labor market is now rapidly mending, which it definitely is not. There are still 23 million jobless. That means after trillions of dollars in tax cuts to investors and businesses since 2009, and trillions more in subsidies and government spending, plus more than $10 trillion pumped into the banks by the Federal Reserve—we got barely two million net jobs created since June 2009.  That’s a costly, and horrible, jobs creation record. Period.

In the recent presidential debate last Wednesday it was abundantly clear neither candidate has anything remotely representing a jobs program, besides just giving more tax cuts for businesses (that just get hoarded and not invested) and lying about how more free trade (with the Transpacific Partnership free trade proposal) will create jobs instead of destroying them. But that’s in a nutshell the same program for jobs creation being offered by both candidates.

Dr. Jack Rasmus
Jack is the author of the book, “Obama’s Economy: Recovery for the Few”, April 2012. His blog is jackrasmus.com and website: http://www.kyklosproductions.com. He is the host of the radio show, ALTERNATIVE VISIONS, on the progressive radio network, PRN.FM, in New York, every wednesday at 2pm.

 

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