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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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First Impressions of the 1st Presidential Debate

October 3, 2012 by jackrasmus

A more detailed analysis of the 1st presidential debate will be soon forthcoming, but my initial impressions may be expressed by means the following boxing metaphor:

Tonight Romney pushed Obama around the ring, throwing 10 times the number of punches of his opponent, while the president politely jabbed, and (replacement) referee Lehrer allowed the challenger to repeatedly violate the rules without a single warning”.

For more brief commentary remarks, follow me on twitter, accessible from my main blog page or @drjackrasmus

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The Coming Obama-Romney Economic Debate-Economic Program Similarities and Differences

September 30, 2012 by jackrasmus

This week the first presidential candidates’ debate will be aired on television. A good part of the topic of the first debate will focus on economic programs of the respective candidates. They will say they represent fundamental differences. This is in part true. But equally true is that their positions on the economy in many important aspects are strikingly, and disturbingly, similar. Read the following except from my just published article on this topic in Z magazine.

This week the first televised debate between the two presidential candidates will be held and a good part of the debate will address programs for economic recovery for the next four years. Both parties and candidates are now proclaiming there are historic, stark differences and choices between them; that this election will mean choosing two fundamentally different paths for the country for years, and perhaps decades, to come with regard to the future of the economy in terms of jobs, taxes, deficits, housing, state and local governments, and other economic indicators. A closer examination reveals, however, that while there are some clear differences between the two candidates on economic matters, the similarities in their economic proposals are both striking and disturbing.
JOBS
OBAMA
Upon entering office in 2009 Obama promised to create 6 million jobs if his $787 billion stimulus bill of (mostly business) tax cuts and spending subsidies to states and unemployed were passed. But after 18 months neither the tax cuts nor subsidies resulted in any appreciable job creation. Between June 2009 when the recession was officially declared over, and 18 months later in December 2010, an additional 1.1 million private sector jobs were lost. By year end 2010 the president had to resort to the claim he had at least had ‘saved’ further millions of jobs. With the effects of the $787 billion stimulus mostly spent, his job creation strategy then shifted mid-2010. A second recovery program passed late 2010 composed totally of an additional $800 billion in tax cuts—including $450 billion in extended Bush tax cuts Obama promised in 2008 he would not do.
This $800 billion more in tax cuts was supplemented by a new policy focus on manufacturing and promoting exports as the primary program to create jobs. Multinational corporate CEOs , like General Electric’s Jeff Immelt, were put in charge of his job creation program. That meant more free trade agreements, more deregulation for business, and more subsidies for U.S. export companies.
In 2011-12 still more business tax cuts were proposed as the way to create jobs. In 2011 tens of billions more for small business to hire unemployed and a so-called ‘JOBS’ (Jump Start Our Business Startups). JOBS was nothing more than a cover for more tax breaks and financial deregulation for start up companies, but Obama praised it as ‘a game changer’ for employment. More subsidies to the states to hire teachers and emergency responders, now being laid off in the hundreds of thousands, was also proposed but never passed Congress.

Obama’s Jobs Programs over the past 42 months therefore amount to the following:
• Tax cuts and more tax cuts for businesses
• Manufacturing-centric policies driven by more Free Trade agreements, more manufacturing export subsidies, and more business deregulation
• More subsidies to the states to hire teachers and emergency responders
These programs have proved pretty much a total bust, however: After $3 trillion in tax cuts and spending, total private sector employment has risen by only 2 million, or about 50,500 per month, which is well less than half that needed just to even absorb new entrants to the labor force. Total unemployment, as measured by the labor department’s U-6 rate, has fallen by a mere 1.3 million—from 24.6 million in June 2009 to 23.3 million in July 2012. Between June 2009 and July 2012 a paltry 200,000 manufacturing jobs were created, for an average of a mere 5,000 per month. And Obama’s much vaunted recovery of the Auto Industry has produced 157,000 auto jobs, which is still 180,000 fewer than existed at the start of the recession in December 2007.
Despite this embarrassing record on job creation, the President in his September 6 convention speech indicated clearly he would ‘stay the path’ with this business tax cuts + manufacturing promotion + free trade as his basic approach to job creation. He made it clear his second term’s strategy would be to “export more products” and that he would continue to work with business leaders to “create 1 million more manufacturing jobs over the next 4 years”. In his speech he also proudly proclaimed he had signed free trade agreements “bringing jobs back” and declared he would sign still more—a clear reference to his proposal for creating a ‘Trans-Pacific Partnership’ (TPP), a free trade agreement with all the countries of the pacific rim which Obama has been promoting for several months and an even bolder goal than George W. Bush’s Free Trade of the Americas that was proposed in 2005 to create a free trade zone throughout all of north and south America. In other words, in terms of jobs creation programs don’t expect much different from his first term in either job creation programs or results in an Obama second term.
ROMNEY
Romney’s view on how to create jobs focuses even more heavily on tax cuts as the primary approach. Romney proposes to create 12 million jobs by 2017. The primary engine would be extending the entire $3.4 trillion in Bush tax cuts of the last decade as is for another decade (minus extending the cuts for those households earning less than $40,000 a year). Obama would extend the Bush tax cuts for all but the top 3% households. So Obama cuts out part of the ‘top tier’ of households from the Bush tax cuts extension, while Romney cuts out the ‘bottom tier’ of households. (Both support, however, reducing the top corporate tax rate from current 35%, as noted below).
To create the 12 million, however, Romney proposes more than just extending the Bush cuts: he calls for even more tax cuts for corporations (as does Obama), reduced business regulations and more Free Trade agreements (ditto Obama), but adds more oil drilling and some token worker retraining as addenda to his jobs program.
However, Romney’s 12 million jobs goal is somewhat of a sham. It amounts to creating only 180,000 jobs a month on average, i.e. just 50,000 more than needed for new entrants to the labor force each month. That means reducing the current 23 million jobless by only 50,000 a month, which would leave 20 million still unemployed by 2017. So the Romney program is not really a program to eliminate the massive jobless overhang today—apart from the question of whether more business tax cuts, free trade, oil subsidies, etc. will even create the 12 million jobs in the first place.
In short, the relationship between job creation programs and business tax cutting is just a matter of degree between the two presidential candidates. Romney advocates ‘Bush tax cuts on steroids’ to create jobs, while Obama exempts the top 3%. Both strongly propose Free Trade and more business deregulation as job creation measures. Obama proposes subsidies to states to hire teachers and firefights, while Romney doesn’t and proposes token job retraining. Romney wants still more cuts and subsidies to oil companies; Obama does not. Both support multiple handouts to small businesses. But all these programs have been proven failures to date, so the unemployed have little to expect from either candidate once elected.

TAXES
OBAMA
As previously mentioned, Obama proposes to discontinue the Bush tax cuts for the wealthiest 3%. The top marginal tax rate for individuals would be allowed to rise from 35% to the 39.6% level of the Clinton years, impacting wealthiest households earning more than $250,000 a year. Taxes on the wealthiest 1% (earning more than $600,000 a year) would rise $93,000 a year. (For millionaires a tax hike of $296,000 a year). The tax on capital gains, now at only 15%, would also increase to 20% under Obama proposals. Oil and gas industry tax breaks would be reduced.
But what Obama proposes to ‘taketh away’ from the top tier of the personal income tax he proposes ‘to giveth’ to their corporations. His proposals include reducing the top corporate tax rate from current 35% to the 28% it was under Reagan. This shift is proposed despite the fact that in 2011 corporate taxes amounted to only 12.1% of profits—compared to the 1987-2008 period when corporate taxes averaged 25.6% of profits. For all businesses, corporate and non-corporate, the super-generous ‘bonus depreciation’ provision of the past two years, in which businesses can write off the cost of all capital investment in the first year of purchase, would also be continued despite its costing a whopping $55 billion a year.
Obama also favors changing the taxing of U.S. multinational corporations, reducing taxes on their offshore profits, even though that group today is hoarding $1.4 trillion of in their offshore subsidiaries and refusing to pay US taxes on it. In exchange for this tax reduction, Obama proposes to raise taxes in a yet unspecified way on those multinationals that offshore jobs.
ROMNEY
Romney’s tax program is once again an extreme version of Obama’s but with many content similarities. In addition to extending all the Bush tax cuts of the past decade, for yet another decade, which would cost the US Treasury another $4.6 trillion according to the Congressional Budget Office research arm, Romney proposes the following tax changes:
• Cut the personal income tax rate for the rich even further than Bush, by 20% across the board.
• Cut the top corporate tax rate from 35% to 25% (vs. Obama’s 28%)
• Introduce a ‘territorial tax’ for US multinational corporations, which would in effect end the current foreign profits tax they pay (or in fact now refuse to pay)
• Repeal the Medicare 2.9% additional tax on the wealthy contained in Obama’s 2010 ‘Affordable Care Act (Obamacare) by repealing the entire Act.
• Allow tax credits for those earning less than $40,000 a year to expire (i.e. earned income, child care, and other tax credits).
• End all taxation on capital gains, dividends and interest income for households earning less than $200,000 a year.
• Keep the capital gains, dividends and interest income taxed at current 15%.
• Bigger tax cuts for business research and development
• End the Alternative Minimum Tax (AMT) altogether, which impacts those earning around $150,000 a year and above
• End the Estate Tax altogether
In summary, apart from their respective positions on extending the Bush tax cuts, both Obama and Romney are largely in synch on introducing more massive cuts in corporate income taxes, reducing corporate taxes to the 25%-28% range from current 35%–despite corporations today paying the smallest share of taxes from profits. Both have plans as well to provide multinational corporations even more tax concessions. Romney differs in proposing to give upper middle class households bigger incentives to invest in stocks, bonds and other interest bearing securities—an ultimate boon to his stock-bond market buddies. He also proposes to give the wealthy big tax bonuses by ending the Estate, Alternative Minimum, and forthcoming Medicare 2.9% taxes. Both propose more tax cuts that will not reduce the projected US budget deficits over the coming decade, but actually make them worse—and much, much worse in the case of Romney—leading in both cases to even more massive cuts in spending programs than either candidate is so far admitting to.
BUDGET DEFICITS
OBAMA
Obama’s policy with regard to US deficits is his pledge to reduce the deficit by $4 trillion over the next decade. That has been Obama’s stated goal since the deficit debates in 2011 leading up to the debt ceiling crisis of August 2011. That $4 trillion goal, moreover, is the same as proposed by his Deficit Commission (Simpson-Bowles), Paul Ryan in the House of Representatives, and various other Senate and ex-government officials. Details of the president’s $4 trillion deficit reduction plan are to be found in his 2012 budget. It is perhaps of some interest to note that Obama’s budget projections include a $5.8 trillion bill for defense spending over the decade, an amount which is 23% greater on an annual average than defense spending during the Bush years, 2001-2008.
The Congressional Budget Office has issued a different estimate of the likely budget deficits over the next decade. Given current tax cuts and spending projections, the CBO estimates the Obama deficits will amount to $6.4 trillion from 2013-2022. In January 2013 government spending will decline by $1.2 trillion over the coming decade, based on the debt ceiling deal agreed upon by Obama and the Republican House of Representatives in August 2011. Raising the debt ceiling once again will therefore become a major issue in early 2013. That means major tax increases and/or further spending cuts will be on the agenda immediately after the November 2012 elections regardless who is elected president (the challenge sometimes referred to as the coming ‘fiscal cliff’ by the media). Republican insistence on no tax increases and on raising defense spending even higher than projected by law or in the Obama budget, will mean an historic confrontation between deficit reduction and massive cuts in social program spending, including not only Medicaid but Medicare, Education, Social Security, and other discretionary spending programs. As this writer has been predicting, the confrontation will start immediately, within days, of the upcoming November 2012 elections—again regardless of who is elected president.
ROMNEY
As frightening as the upcoming budget deficit confrontation following the elections will be with the Obama budget as starting point, the Romney budget-deficit proposals represent a deficit crisis of even far greater magnitude.
Romney tax cut proposals include the major elements of a continuation of the Bush tax cuts for another decade, at a cost of $4.6 trillion, plus adding trillions more in business-investor tax cuts. The result is deficits for the next decade equivalent to approximately $10 trillion! To address this massive deficit Romney proposes cutting federal spending from its current 24% of GDP to 18%-20%. That 6% of GDP in 2013 equals an immediate reduction in spending and/or increase in working poor and middle class tax cuts amounting to $300 billion. By 2015 the estimate is $500 billion, presumably rising further thereafter. In addition, he proposes to reverse the sequestered scheduled $500 billion in defense spending cuts agreed to in Congress in August 2011. The increases in working poor and middle class tax cuts were noted above. The spending cuts would mostly come from discretionary non-defense spending on items like education, transportation, healthcare, etc., for which Romney proposes a 5% cut across the board. The 5% represents no more than $60 billion a year. As others have pointed out, the Romney proposals do not add up and it is unclear how the 5% discretionary cuts, no defense cuts, retaining Bush tax cuts, adding trillions more in corporate-wealthy individual tax cuts can cover the $10 trillion. Proposing to reduce federal spending by 6% of GDP means spending cuts and/or tax increases totaling at least $900 billion a year. It can only mean unmentioned additional massive cuts in Medicaid-Medicare-Social Security and historic reversals in middle class tax breaks that are left conveniently unmentioned.
The Romney deficits therefore mean not only massive social spending cuts but hundreds of billions more in middle class tax increases as well. High on the list of the latter would have to include the elimination of tax deductions for health care and pension contributions by workers, virtually ending the mortgage interest and state income tax deductions, new taxation on Medicare benefits, and ending most of the earned income tax deduction for the working poor. Sharply reducing, or even ending, these deductions would be necessary to accommodate Romney’s proposed business and investor tax cuts. Romney would additionally end Obama’s Affordable Healthcare Act, reducing the deficit by another $.9 trillion. The rest presumably would come from other spending cuts in education, Medicaid, Medicare, and Social Security.
In summary, whoever wins the election, get ready for massive social spending cuts and a fight over how little to raise taxes. The deficit reduction proposals of both candidates envision historic cuts in social spending. Both envision more tax cuts for corporations that would additionally have to be made up from spending cuts and/or middle class tax hikes. Obama’s deficit reduction plan envisions some tax increases on the wealthiest individuals, while Romney’s envisions trillions of dollars more tax cuts for the wealthy, paid for by tax hikes by the poor and middle class as well as historic cuts in social spending of even greater magnitude than Obama’s.
FREE TRADE
There is virtually no difference between the two candidates on trade policy, and free trade agreements in particular. Both strongly supported recent free trade agreements with Panama, Columbia, and South Korea. And Romney supports Obama’s current drive to implement the biggest expansion of free trade with the ‘Trans-Pacific Partnership’ (TPP) pacific rim free trade policy, a development that will dwarf in scope and magnitude even Bill Clinton’s passage of NAFTA and his opening of China trade. According to the Economic Policy Institute, China trade alone has cost the US 2.7 million jobs just in the past decade. NAFTA millions more. Neverthless, both candidates unreservedly advocate accelerating free trade agreements.
The battle between Romney and Obama on trade amounts to token differences on how to show they are ‘tough on China’. Romney accuses Obama of being ‘too soft’ on China and demands more punitive action. Both candidates talk in vague generalities about the ‘offshoring’ of US jobs that has occurred by the tens of millions in recent decades, but neither offers any specific proposals for addressing the issue.

HEALTHCARE-MEDICARE/MEDICAID
OBAMA
The heart of Obama’s Healthcare policy is, of course, the retention of his 2010 Affordability Care Act. Costing nearly $1 trillion over the rest of the decade, the Act does provide a number of meaningful benefits for the general populace. However, it has two great flaws: first, it amounts to a health insurance company subsidy bill. Health insurers will receive hundreds of billions of dollars of extra business. The second flaw is that it fails fundamentally to control health insurance and other health care costs. The problem of runaway healthcare costs will thus re-emerge and continue under the ACA, a problem which has already emerged as health insurance premiums and other costs have once again begun surging in 2011-12.
On the positive side, the ACA raises taxes on the wealthy by another 2.9%–which is the real source of much of the opposition to the ACA by the wealthy, transmitted through their manipulation of the Teaparty on the issue. But it also includes a reduction in payments to doctors and health providers in the amount of more than $700 billion. That will inevitably lead to doctors and providers refusing increasingly to provide services to Medicare patients. The ACA is thus a form of income shift that promises to reduce health care access. That is the price to be paid for the subsidization of health insurers and coverage extension to the tens of millions without any coverage.
It should further be noted, that Obama has signaled in July 2011, as he sought desperately an agreement with Republicans on the debt ceiling debate, that he was willing to cut Medicaid and Medicare by $700 billion despite the proposed expansion of Medicaid in his ACA. That public proposal provoked a near revolt by Democrats in Congress and was withdrawn. Nevertheless, it remains ‘on the table’, as they say, and will most certainly arise again immediately after the November elections. Voters will not hear of this during the election campaign, but will most certainly once the election is over.
ROMNEY
Romney’s program with regard to health programs and policy top priority is to repeal Obama’s health care act of 2010. Next in priority is his complete embracing of his Teaparty Vice President, Paul Ryan, view for Medicare. The Ryan plan is to voucherize Medicare, provide payments to senior to then go and buy private health insurance—an even bigger windfall for insurance companies than Obama’s subsidies to insurers in his ACA. Ryan has projected this will ‘save’ the federal government $700 billion. However, not all seniors will receive the same voucher payment. Some will get less than others, thus creating a kind of ‘two tier’ voucher system. Moreover, there are no assurances the value of vouchers will increase annually with the rising cost of healthcare services, thus requiring seniors to increasingly pay more out of pocket for healthcare insurance. The main beneficiary from this, apart from health insurance companies, is the federal government which Ryan estimates will save $700 billion in government spending over the next decade. The Romney-Ryan Medicare voucher plan thus represents an income transfer of hundreds of billions from seniors to both insurers and the government.
Romney-Ryan are also major proponents of massive reductions in the Medicaid program, proposing to cut federal and state Medicaid costs by turning it into block grants to the States—many of which would refuse to participate or would take the money in the block grant and spend it elsewhere.
SOCIAL SECURITY
Proposals by both candidates are almost identical with regard to social security. Both are purposely saying little before the election about how they would address social security. Romney proposes vaguely that the age for eligibility for retirement benefits should be raised, as does Obama. Neither say raised to what or how quickly. Both suggest cost of living adjustments annually should be lowered. Obama implies by changing the way the consumer price index is applied. Romney goes further and recommends the creation of a ‘two tier’ system in the future (similar to Medicare) in which seniors with a certain level of retirement income would receive less social security benefits. What’s left unsaid by both is their agreement to target social security disability benefits for major reductions.
HOUSING CRISIS
OBAMA
Apart from the failure to create jobs, the next greatest economic policy failure of Obama’s first term has been his reluctance to direct confront the housing crisis. The housing sector has languished in a veritable depression for three and half years, with home building and jobs stuck at only a third to half of pre-recession levels. More than 12 million of the 54 million mortgaged homeowners in the US have been forced into foreclosure, often illegally by the banks. More than 8.5 million on Obama’s watch, while than 10 million similarly languish with mortgages in ‘negative equity’.
From the beginning in 2009 Obama’s policies have focused on subsidizing mortgage lenders and mortgage servicers (big 5 banks), to help them move foreclosed homeowners out of their homes and to resell to new buyers. Early 2009 Obama programs like HAMP (Home Affordability Modification Program) are acknowledge failures, providing tens of billions of dollars of subsidies to banks and homebuilders and token assistance to homeowners.
In 2010 Obama then ignored the ‘robo-signing scandal’ that broke that summer, leaving it to state attorneys general to deal with. However, when it appeared legal suits would cost the banks potentially hundreds of billions of dollars, only then did the Obama administration intervene in 2011. That intervention was designed to help the banks—not homeowners—by limiting banks’ liability to homeowner and state legal suits. As part of that compromise, banks’ liability from legal suits arising out of robo-signing illegal foreclosures was capped at a mere $25 billion. Payments to homeowners illegally foreclosed have averaged only $1,500 each in the settlement and less than a billion of the $25 billion. Recent reports are that the $20 billion is not going to reducing loan balances for homeowners in ‘negative equity’ but is being deducted by banks against the $25 billion in the form of charges against short sales of homes in negative equity. In other words, homeowners are not being assisted to remain in their homes, but assisted in vacating them—which the banks then resell to new buyers at still further profit.
In exchange for the limits on liability, the banks were ‘encouraged’ to participate in latest OBAMA housing recovery program, his 2012 program called HARP 2.0. The HARP program was a ‘quid pro quo’ for relieving from pending massive liability action by the States. But HARP 2.0 is, in final analysis, just another ‘banker subsidy’ program. Not only are the big mortgage banks protected from further legal suits, but they are profiting nicely from the program. In exchange for refinancing homeowners in negative equity, the banks involved receive a commission of 5 ‘points’ (each point=1% of the value of the mortgage) from the quasi government mortgage agencies, Fannie Mae and Freddie Mac. Five points on a $500,000 mortgage refinancing amounts to a generous $25,000 fee paid to banks by the federal government for each refinancing. In turn, these costs incurred by Fannie and Freddie will have to be restored with funding from Congress and thus the taxpayer. HARP 2.0 remains as Obama’s latest centerpiece program for rescuing the millions of homeowners illegally foreclosed or in negative equity.
ROMNEY
Romney’s program for ending the Housing crisis includes the following measures: first, to sell the 200,000 estimated local government owned homes. Somehow that is supposed to help raise home values, according to Romney, but will actually increase the excess supply of homes on the market and thus further depress home prices in most cases. Another Romney proposal is a vague demand to ‘restart lending’ to credit worthy borrowers. How to force banks to lend to homeowners, when they have been clearly reluctant to lend to small-medium businesses, is not explained in the Romney proposals. Romney’s Housing solution also calls for major reform of the Fannie Mae-Freddie Mac government mortgage institutions as well as still further deregulation of mortgage lenders and banks—i. e. two long time conservative demands designed to further privatize and deregulate the housing market.
CONCLUSIONS
While there are several dramatic differences between the Obama and Romney economic programs, there are also several almost identical programs shared by both. Both favor major reductions in corporate taxes. Both advocate hundreds of billions in social spending cuts, including entitlement programs. Both are almost identical in their positions on Free Trade.
Concerning tax policies, both propose to extend much of the Bush tax cuts—Obama suspending the cuts for the top 3% and Romney eliminating tax credits for the working poor and lower middle class. Obama has proposed some minor tax loophole closings, while Romney proposes additional, massive tax cuts for investors and businesses on top of the Bush tax cuts. Obama’s deficit over the decade amounts to a sizeable $4-$6 trillion but Romney’s more than $10 trillion. Both mean massive cuts in social programs coming immediately after the November elections, with Romney requiring major middle class tax hikes as well. Obama’s budget is very generous to Defense, and Romney’s even more so. A big difference between the two exists with regard to healthcare programs, including Medicare and Medicaid. Romney wants to destroy Obama’s ACA immediately and Medicare eventually. Both appear quite willing to gut Medicaid spending, with Romney cutting other discretionary spending by additional trillions over the decade.
These comparisons mean that, regardless who is elected president, an historic reduction in social program spending is on the agenda for the weeks immediately following the November 2012 elections. Defense spending will be either totally or partly protected from the cuts. And taxes will be further reduced for corporations, tokenly raised for wealthy individuals, and most likely significantly raised for middle class and the working poor. Nothing of any significance will be done to address the Housing crisis and programs to create jobs will continue to fail to have much impact.
It is this scenario that has prompted this writer repeatedly to predict the likelihood of a double dip recession in 2013, especially if the Eurozone crisis continues to deteriorate and China and the rest of the global economy continue on a path to an economic ‘hard landing’. It is possible, if Obama is re-elected, the fiscal austerity coming in early 2013 may be delayed a year and effectively ‘back loaded’ to start taking its greatest effect a year later in 2014. But if Romney is elected and Republicans control either, or both, houses of Congress the more draconian austerity programs will take effect earlier in 2013. That alone will ensure a double dip recession. And if the Eurozone slides deeper in recession and banking instability, virtually guarantee a double dip.
Dr. Jack Rasmus
Jack is the author of the new book, “Obama’s Economy: Recovery for the Few”, April 2012, and host of the radio show, ALTERNATIVE VISIONS, on the Progressive Radio Network, PRN.FM, in New York, on Wednesdays at 2pm. His website is http://www.kyklosproductions.com and blog, jackrasmus.com. Copies of the book can be purchased at the website or blog bundled with a DVD and a 66 slide powerpoint slideshow on the current state and future direction of the US economy.

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