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In his reply to my just published article, ‘What’s Wrong with Government Job Statistics’, Doug Henwood, a ‘left’ New York intellectual who has for years accepted without question government reported stats as ‘gospel truth’, has taken the opportunity to challenge my analysis.

The nub of our differences is that Henwood accepts government Labor Dept. definitions, assumptions, and methodologies as near sacrosanct, whereas I do not. And when I challenge them, he engages in nasty personal attacks to carry his critique. I’ll not engage in that kind of exchange, but will address his various points here as follows.

For Henwood doesn’t like my most recent view that government job stats reported may not reflect a labor market as sanguine and booming, as official government and business commentary suggest. And he apparently doesn’t appreciate anyone challenging his friends over at the Labor Dept.

So let’s take a look at our latest disagreement.

In his blog today, May 6, he starts out with his first lightweight critique that in my article I refer to the two labor department jobs surveys, the CES and CPS, as two reports instead of two surveys; there being only one report, the Labor Dept.’s monthly ‘Employment Situation Report’.

Yes, there’s one umbrella ‘Situation’ report but the CES and CPS are really separate reports that are then combined but kept separate in the single ‘Situation’ report. They are indicated as ‘Tables A’ and ‘Tables B’ in the ‘Situation’ Report. This is just a semantic difference as to what’s a report and what’s a survey. But if Doug thinks that’s significant, OK. He can have that one.

What is significant is that Henwood thinks the CES (Current Employment Survey) is more important and accurate than the CPS (Current Population Survey). But the CES is not really a survey; it’s a partial census and thus a statistical population that gathers data from, as Henwood admits, 142,000 establishments. As a group the 142,000 send in their data to the government every month. But because, according to Henwood, the CES 142,000 compares to the CPS ‘only’ 60,000 monthly interviews of households (actually 110,000 individuals interviewed), he argues “the CES is much larger (than the CPS)…it’s far more accurate”.

But the CPS is not just a “household survey”; it is also a survey of employment conditions of millions of smaller businesses through the survey of worker households. In fact, it can be argued that, in surveying 110,000 individuals each month, and then rotating and adding more households throughout the year, (roughly doubling the number contacted) the CPS in fact reflects a much larger body of business hiring, layoffs, and thus total employment, than does the CES.

Henwood further argues that the CES 142,000 is more accurate because it is checked against the unemployment insurance system. But unemployment insurance has nothing to do with the numbers of employed or unemployed. And checking it is done to determine, among other things, if the 142,000 are not cheating the system by underpaying unemployment payroll taxes. Contrary to Henwood’s point referencing it, saying the CES is checked against unemployment insurance rolls adds nothing to the idea that the CES misses coverage—i.e. job creation or decline—for 9 million small and medium businesses.

Henwood is confused about the CES and CPS in another important way. There are more than 9 million businesses in the US economy. The 60,000/110,000 CPS survey is a statistically significant survey of employment in those 9 million. The comparison therefore should be 142,000 businesses vs. 9 million businesses. Henwood thus erroneously compares a population (CES 142,000) to a sample (60,000), when the comparison should be a business population (CES 142,000) to a business population (CPS 9 million businesses).

In short, it makes little sense to argue as Henwood does that 142,000 is more accurate than 9 million based on number of businesses compared. If it’s just a question of the size of total businesses addressed, the CPS makes more sense. But comparing size to size makes little sense as well. The two sources look at different things. My point is don’t defend one at the exclusion of the other. Look to both for a more comprehensive view of the condition of the labor market. And the CPS suggests perhaps the 263,000 jobs may not be all that accurate.

But Henwood would have readers believe the CES, with 142,000 businesses, and the 263,000 jobs created last month in that group, is all that matters. Forget the other roughly 9 million businesses where, as even most economists admit, most of the job creation in the US occurs (or does not). Like the business press and government politicians, to believe Henwood we should take the 263,000 as the final word of the state of the US job market and forget all the rest.

For years I’ve been arguing there is a problem with government job stats that rely on two different, often conflicting populations to determine employment/unemployment: the job gains (or losses) and unemployment rate should be calculated from the same survey, but aren’t. Instead we get jobs created by large businesses (CES) and unemployment from the 9 million population of all businesses. This problem leads to often conflicting data reported by the two sources, CES and CPS.

This problem gives us the 263,000 jobs created in the CES from a survey of larger businesses, while it gives us the 191,000 full time jobs decline in the CPS, and in the preceding month, an even larger 228,000 full time jobs decline, from the CPS survey of the 9 million businesses. Which is correct? How does Henwood choose to explain this? By simply claiming the reported 191,000 full time job loss in the CPS in April is just normal short term volatility—which, by the way, is the typical government excuse one hears whenever there’s a contradiction in the numbers.

Henwood further assumes the role of slavish apologist of government stats by defending the U-3 unemployment rate as the best and final word on the state of the US labor market. He does refer to the U-6 unemployment rate, but unquestionably accepts the government’s current (and chronic) low estimates for the U-6.

The U-6 picks up ‘involuntary part time’ employment. (U-4 and U-5 reflect what’s called ‘marginally attached’ and ‘discouraged’. These latter numbers too are grossly underestimated in the official stats). Henwood disputes my claim that the U-3 is essentially an estimate of ‘full time’ jobs and says “No, it refers to work of any kind, not just full-time”. But if that were true, why add on ‘part time’ as the U-6 category separately? If there were part time unemployed in the U-3 and part time in the U-6 there would be likely ‘double counting’ of part time unemployed. No, U-3 is mostly full time and excludes all involuntary part time. Either that or there is indeed double counting. Maybe he means the U-3 includes voluntary part time. Even if so, however, the overwhelming number of the 162.5 million in the labor force is still full time jobs.

But this does not in any way contradict the anomaly of the CES reporting April’s 263,000 (mostly full time) jobs gain, while the CPS reports 191,000 (and 228,000 in March) full time jobs declines. And if the CPS reports 155,000 part time job creation, should it not mean that only 108,000 full time jobs were created in the CES report? How do you square the 108,000 full time jobs created in the CES with the 191,000 full time jobs lost in the CPS, Doug? What’s your explanation?

And if you say this contradiction is just a short term statistical volatility problem, how then do we know if the 263,000 is also not just a short term inaccurate statistically volatile (and inaccurate) number?

Given the CPS number showing full time job decline (191,000), and the otherwise CPS rise in part time jobs last month (155,000), in my prior article I suspected that there are more workers taking on second and third jobs. Henwood pooh poohs this and trusts the government numbers on ‘multiple job holders’ showing little change. Once again, trust the government numbers!

Official government stats show multiple job holders as of December 2018 at 7.7 million. Comparing that to December 2006, the last full year before the great recession,the number was 7.9 million. Does anyone out there really believe this number? That folks working part time second and third jobs has actually declined, given all the low paid service jobs, part time work, temp work, Uber, Taskrabbit, gig economy jobs created since the great recession, now accelerating? Doug does. Government bureaucrats can do no wrong and always report the facts.

Henwood provides charts that show that Temp jobs (almost always part time) have not been changing for at least the past two decades. As he says, temp jobs have been steady as a percent of the total work force for the past two decades, peaking at 2% of total jobs. “It’s barely changed for five years.” Sure, Doug. No one’s been hiring attempts except through agencies. That’s all the government data you slavishly offer as a rebuttle show. If you were more ‘skilled and knowledgeable’ (an insult you direct to me) you would know the Labor Dept. data you cite refers only to Temp Agency hiring. I suggest you try talking to your local auto worker and ask him how many temps have been hired since 2009. It’s about at least a third of the auto work force today. It’s the same throughout manufacturing, and other sectors as well. But trust the government stats, Doug. They’re always right and never misleading or wrong.

The Labor Dept. has been covering up the growth of temp jobs since the 1990s. It produced three one-off reports, then George Bush stopped it. Too volatile. (There’s that word). Henwood says “It’s nowhere big a deal as Rasmus would have you believe”. The basis for his comment is, of course, you guessed it: the government’s data and reports.

How the government purposely underestimates labor stats that are embarrassing to it was clearly revealed, yet again, last year in its report on ‘precarious jobs’ (meaning temp, part time, gig, otherwise contingent, etc.). I and others have dissected that official report which claimed the gig economy was insignificant. But it turned out what the report defined as ‘gig’ was only full time uber/lyft drivers. Drivers as second and third jobbers were left out. There are many ways to lie. One is to simply redefine it away. Another to quietly omit data and facts. Another to insert false data and facts. Another to change the causal relation between facts and propositions. And more.

As far as my suggestion that the April jobs numbers may reflect hiring of census workers, it is true the government to date has not indicated how many hired. I simply suggested it may explain some of the 155,000 part time job gains in the CPS report. My suggestion was based on past practice by the government during census years. By April 2009 the government had hired 154,000 for census work. By April 1999, it had hired 181,000. If the hiring is really negligible to date in government reports, either Trump is not planning to do the census properly (another of his violations of the US Constitution), or the hiring is in fact underway but not yet reported, or, if not, excess hiring will soon have to occur. Trump likely wants to create chaos in the census, which suits his political purposes. Again, my point here was only a suggestion that census workers were part of the hiring, not a claim they were.

Henwood does give a backhanded concession to me that maybe my point of the 646,000 ‘Not in the Labor Force’ reported number indicates something is going on with the government data underestimating the total actually unemployed by having left the labor force in recent years. But he just can’t let himself admit it. It would not be in keeping with his personalized attack style or nasty comments that pepper his critique.

My point concerning the ‘Not in the Labor Force’ numbers (646,000 rise last month) is that it likely corroborates that more workers are long term dropping out of the labor force because they can’t find decent full time jobs and the part time jobs pay less and less in real terms (requiring taking on second and third jobs?). Once again, he gives a backhanded comment that a point is made but says ‘the bigger point eludes me’(Rasmus).

Really? I’ve only been writing about the collapsing labor force participation rate and how it’s not being properly picked up in jobs numbers since 2005 and especially since 2013. A drop in the labor force participation rate from 67.3% of the total labor force in December 2000 to the latest participation rate of 62.8% represents more than 7 million workers either leaving or not entering the labor force. And if they’re not counted in the labor force, that reduces unemployment rates.

They should be added to the ‘unemployment’ rolls. They’re not working. The labor force today should be 170 million not 162.5 million. Maybe they’re not working because they can’t afford to live on the part time, temp, contingent jobs that have been steadily replacing full time jobs that have been stagnant or declining, while part time/temp/gig has been accelerating? But given his commitment to government stats, Henwood could never agree to that interpretation, could he?

Here’s another difference on the veracity of government labor stats he and I have. In 2006 the labor force was approximately 152 million. It has grown by roughly 10 million–not including the dropping out of 7.3 million represented by the falling labor force participation rate. Henwood accepts as accurate the Labor Dept’s estimate of discouraged workers (U-5) as accurate. In November 2007 just prior to the great recession the discouraged workers category represented only .2 of 1% of the labor force. Given the 10 million increase in the labor force since then, it is today still .2 of 1%. Can it be true that the percentage of discouraged workers has not risen at all in the intervening years–given the impact of the great recession, lagging economic recovery for years, and the fact of 7 million have dropped out of the labor force? It makes no sense that there should not be a corresponding increase in the percent of discouraged workers given the changed conditions of the last decade. The government data must be underestimating the discouraged worker category of unemployed (defined as out of work but having given up looking for the past year).

Yet Henwood once again sees no problem here at all with this category of U-4, discouraged worker unemployment. All he can do is defend his buddies at the Labor Dept. and agree with their stats. Accept all their assumptions, definitions, and methodologies as absolutely correct. Reproduce all their graphs based on those definitions, assumptions and methodologies. And then use them as evidence to attack my alternative interpretations of the data.

Doug, you should spend less time performing his task of defender of government data and stats that Americans know increasingly contradict the reality they face.

You can show all the graphs you want. But they’re graphs based on data (and the definitions, assumptions and methods behind the data) that are sometimes erroneous. And while not all government data is incorrect or inaccurate, to slavishly defend it as you do is a gross disservice to the truth. You defend your positions by employing the very government data that I am arguing is not always truthful. It may be factual, but facts are selective and not necessarily truthful.

You can attack me personally all you like, Doug, but your attack shows one irrefutable conclusion: You believe unconditionally in the government’s data instead of challenging it when called for. In that regard you are an apologist and, when it comes to government data, you are clearly in the camp of the bureaucrats and other government conscious mis-representers of the truth. Misrepresentation by clever statistical manipulation, by omission of facts and alternative interpretations, and by obfuscation based on methodologies that are intended to conceal rather than reveal—-all of which you defend.

You help them maintain the fiction that the economy is doing great, that jobs are plentiful and well-paid, and we’re all better off than we think. That makes you an ideologist, not an economist. I think you’d be great writing editorials for the Wall St. Journal. Given your style and content, you really have more in common with those guys. I’ll write them on your behalf and see if they’re interested.

Jack Rasmus
May 7, 2019

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The just released report on April jobs on first appearance, heavily reported by the media, shows a record low 3.6% unemployment rate and another month of 263,000 new jobs created. But there are two official US Labor dept. jobs reports, and the second shows a jobs market much weaker than the selective, ‘cherry picked’ indicators on unemployment and jobs creation noted above that are typically featured by the press.

Problems with the April Jobs Report

While the Current Establishment Survey (CES) Report (covering large businesses) shows 263,000 jobs created last month, the Current Population Survey (CPS) second Labor Dept. report (that covers smaller businesses) shows 155,000 of these jobs were involuntary part time. This high proportion (155,000 of 263,000) suggests the job creation number is likely second and third jobs being created. Nor does it reflect actual new workers being newly employed. The number is for new jobs, not newly employed workers. Moreover, it’s mostly part time and temp or low paid jobs, likely workers taking on second and third jobs.

Even more contradictory, the second CPS report shows that full time work jobs actually declined last month by 191,000. (And the month before, March, by an even more 228,000 full time jobs decline).

The much hyped 3.6% unemployment (U-3) rate for April refers only to full time jobs (35 hrs. or more worked in a week). And these jobs are declining by 191,000 while part time jobs are growing by 155,000. So which report is accurate? How can full time jobs be declining by 191,000, while the U-3 unemployment rate (covering full time only) is falling? The answer: full time jobs disappearing result in an unemployment rate for full time (U-3)jobs falling. A small number of full time jobs as a share of the total labor force appears as a fall in the unemployment rate for full time workers. Looked at another way, employers may be converting full time to part time and temp work, as 191,000 full time jobs disappear and 155,000 part time jobs increase.

And there’s a further problem with the part time jobs being created: It also appears that the 155,000 part time jobs created last month may be heavily weighted with the government hiring part timers to start the work on the 2020 census–typically hiring of which starts in April of the preceding year of the census. (Check out the Labor Dept. numbers preceding the prior 2010 census, for April 2009, for the same development a decade ago).

Another partial explanation is that the 155,000 part time job gains last month (and in prior months in 2019) reflect tens of thousands of workers a month who are being forced onto the labor market now every month, as a result of US courts recent decisions now forcing workers who were formerly receiving social security disability benefits (1 million more since 2010) back into the labor market.

The April selective numbers of 263,000 jobs and 3.6% unemployment rate is further questionable by yet another statistic by the Labor Dept.: It is contradicted by a surge of 646,000 in April in the category, ‘Not in the Labor Force’, reported each month. That 646,000 suggests large numbers of workers are dropping out of the labor force (a technicality that actually also lowers the U-3 unemployment rate). ‘Not in the Labor Force’ for March, the previous month Report, revealed an increase of an additional 350,000 added to ‘Not in the Labor Force’ totals. In other words, a million–or at least a large percentage of a million–workers have left the labor force. This too is not an indication of a strong labor market and contradicts the 263,000 and U-3 3.6% unemployment rate.

Bottom line, the U-3 unemployment rate is basically a worthless indicator of the condition of the US jobs market; and the 263,000 CES (Establishment Survey) jobs is contradicted by the Labor Dept’s second CPS survey (Population Survey).

For a more detailed discussion and explanation of these, and other, contradictory facts about the current US labor market, released by the Labor Dept., listen to my May 3, 2019 Alternative Visions radio show podcast accessible below at the end of this print contribution.

GDP & Rising Wages Revisited

In two previous shows, the limits and contradictions (and thus a deeper explanations) of US government GDP and wage statistics were featured: See the immediate April 26, 2019 Alternative Visions show on preliminary US GDP numbers for the 1st quarter 2019, where it was shown how the Trump trade war with China, soon coming to an end, is largely behind the GDP latest numbers; and that the more fundamental forces underlying the US economy involving household consumption and real business investment are actually slowing and stagnating. Or listen to my prior radio show earlier this year where media claims that US wages are now rising is debunked as well.

Claims of wages rising are similarly misrepresented when a deeper analysis shows the proclaimed wage gains are, once again, skewed to the high end of the wage structure and reflect wages for salaried managers and high end professionals by estimating ‘averages’ and limiting data analysis to full time workers once again; not covering wages for part time and temp workers; not counting collapse of deferred and social wages (pension and social security payments); and underestimating inflation so that real wages appear larger than otherwise. Independent sources estimate more than half of all US workers received no wage increase whatsoever in 2018–suggesting once again the gains are being driven by the top 10% and assumptions of averages that distort the actual wage gains that are much more modest, if at all.

Ditto for GDP analysis and inflation underestimation using the special price index for GDP (the GDP deflator), and the various re-definitions of GDP categories made in recent years and questionable on-going GDP assumptions, such as including in GDP calculation the questionable inclusion of 50 million homeowners supposedly paying themselves a ‘rent equivalent’.

A more accurate ‘truth’ about jobs, wages, and GDP stats is found in the ‘fine print’ of definitions and understanding the weak statistical methodologies that change the raw economic data on wages, jobs, and economic output (GDP) into acceptable numbers for media promotion.

Whether jobs, wages or GDP stats, the message here is that official US economic stats, especially labor market stats, should be read critically and not taken for face value, especially when hyped by the media and press. The media pumps selective indicators that make the economy appear better than it actually is. Labor Dept. methods and data used today have not caught up with the various fundamental changes in the labor markets, and are therefore increasingly suspect. It is not a question of outright falsification of stats. It’s about failure to evolve data and methodologies to reflect the real changes in the economy.

Government stats are as much an ‘art’ (of obfuscation) as they are a science. They produce often contradictory indication of the true state of the economy, jobs and wages. Readers need to look at the ‘whole picture’, not just the convenient, selective media reported data like Establishment survey job creation and U-3 unemployment rates.

When so doing, the bigger picture is an US economy being held up by temporary factors (trade war) soon to dissipate; jobs creation driven by part time work as full time jobs continue structurally to disappear; and wages that are being driven by certain industries (tech, etc.), high end employment (managers, professionals), occasional low end minimum wage hikes in select geographies, and broad categories of ‘wages’ ignored.

    TO LISTEN TO the May 3 SHOW On The Jobs Report for April, GO TO

http://prn.fm/alternative-visions-accurate-april-jobs-numbers/

OR GO TO:

http://alternativevisions.podbean.com

    RADIO SHOW ANNOUNCEMENT

Dr. Rasmus dissects the latest jobs numbers released today showing 263,000 new jobs created and a 3.6% unemployment rate. Looking behind the assumptions and comparing both jobs surveys—the Current Establishment Survey (CES) & Current Population Survey(CPS)—a different picture of the US labor market appears. First, the 263,000 new jobs indicated by the CES includes 155,000 part time jobs from the CPS, which aren’t included in the 3.6% unemployment rate (called the U-3) that considers only full time jobs. Second, Rasmus notes that the CPS shows full time employment actually falling by 200,000 in each of the last two months (Table A-9). So part time jobs are behind the 263,000 while full time jobs are declining? Moreover, preparing for the 2020 census has raised government jobs last month by 112,000 after declining all last year. Rasmus explains these and other contradictions between CES and CPS suggest the labor market is not as strong as the ‘selective’, heavily reported stats of 3.6% and 263,000 suggest. In the second half the show discusses economic events of the past week involving infrastructure spending, the Fed v. Trump and global central banks, financial imperialism and failed coup in Venezuela, and growing currency problems again in Argentina and emerging markets. The show concludes with Rasmus’s analysis of the Mueller-Barr ‘affair’ and how it reflects the US drift toward a Constitutional Crisis.

Earlier last month I was interviewed by the FNA international news agency on the income inequality trend in the US and asked whether Trump policies have been contributing to it. The following is the verbatim transcript of the interview published April 6, now in English translation.

Below is the full text of the interview conducted by FNA:

Q: The US has been experiencing higher GDP under President Trump in the last 2 years. Is this economic growth shared with average or low-paid Americans?

A: The Trump tax cuts passed in early 2018 amounted to more than $4.5 trillion over the decade to wealthy households, businesses, investors and corporations, which have been ‘front-loaded’ in 2018. Offsetting this are $1.5 trillion in tax hikes for wage earners, that begins to hit this year and accelerates after 2022. Assumptions about 3% GDP growth for another decade, with no recession, produces a further offsetting of $1 or more. The result is the $1.5 trillion reported by the press. The $4.5 trillion cuts for business and investors have not gone into real investment and generated the Trump 2017-18 GDP growth rates.

Real investment in structures and equipment declined steadily over 2018 as the Trump tax cuts took effect: measured in percent terms compared to the preceding quarter, residential construction was negative every quarter in 2018. Commercial construction, with a lag, turned negative in the second half of 2018. And equipment spending fell from 8.5% in the first quarter to 3.4% by October 2018.

So if the Trump tax cuts did not go into real investment, creating real employment or real GDP, where did it go? It went into stock buybacks, dividend payouts, and M&A activity. Several US banks’ research departments estimate buybacks plus dividends for just the Fortune 500 largest companies in the US will reach a record $1.3 trillion in 2018. Add the largest 2000 or 5000 companies and its close to $2 trillion. Hundreds of billions more for M&A. This diversion of the Trump tax cuts to financial markets is the main determinant driving stock markets (even after corrections) and other financial asset markets.

The government grossly over-reports wage gains for the average and low paid workers in the US. An independent source reports show that more than half of US workers received no wage gain at all in 2018. The official reported wage gains of 3% are skewed to the top 10% of the labor force and, moreover, the data is for full time employed only. So average workers at best stagnated, with most experiencing a decline in real wages. The rate of inflation in the US is under-estimated for median worker family households, and inflation is rising for rents, medical, education, and other major items in household budgets. So the immediate future will mean even less real wage gains for the majority of US workers. If they were doing so well, as Trump and even the press report, why is it that 7 million of them have defaulted on their auto loans? And why is credit card, auto loans, and education loan debt now all over $1 trillion each?

Q: The US has a population of over 325 million people with undocumented immigrants estimated to be somewhere around 10 to 12 million people who are mainly the lowest paid workers. Do you believe in President Trump’s claim of immigrants’ invading American economy?

A: Immigrants are certainly not invading. The 10-12 million number has been stable for several years. And for immigrants for some countries, like Mexico, the numbers are in sharp decline. It is true that more immigrants are coming from Central American countries like Honduras, Salvador and Guatemala. But that is due to the economic crises and violent breakdown of the social order in those countries, which is due largely to US support for the corrupt elites of those countries who encourage the gang violence in their countries and do nothing about the economic crises. If there is a problem with immigration in the US, it is a problem of highly educated tech workers being brought in on H1-B and L-1 visas, and rich Asians who can buy themselves a ‘green card’ residency by promising to spend $50,000 when they come. These groups are taking the real jobs, the high paying tech and other professional jobs and have been since the 1990s. But Trump is agreeing with the US tech companies to keep bringing them in, taking jobs US workers should and could get. Trump’s immigration policy and draconian action against immigrants from Latin America and elsewhere is about his re-election plans in 2020. By creating ‘enemies’ within and outside the US, he diverts his political base from the real problems of America. Blame the foreigner in our midst has always been a useful fascist argument. And Trump is marching down that road, as witnessed in his latest Constitutional power grab by declaring national emergencies to build his Wall and invoking phony national security to justify his trade wars.

Q: Donald Trump represents the capitalist economy, which has not worked well for the majority of Americans. Do you believe the widening gap between the rich and the poor in his era can boost Americans’ interest in socialism?

A: The income and wealth gaps in the US are not only widening but doing so at an accelerating pace. US neoliberal policy under Obama was to subsidize capital incomes through Federal Reserve cheap money and by extending and expanding his predecessor, George W. Bush, tax cuts for business and investors. Trump policy has accelerated the tax cuts and now stopped the Fed from raising interest rates. The direct consequence is booming stock and corporate bond markets, fed by $1 trillion annual stock buybacks and dividend payouts every year since 2011 (now at record $1.3 trillion in 2018). As wage incomes for the 90% of Americans remain stagnant, barely rise, or decline, the direct consequence is accelerating income inequality and wealth gaps.

Will this boost interest in socialism? It already has. A clear majority, well over 60%, of people aged 34 and younger in the work force, have indicated in various recent polls that they prefer socialism over capitalism. It’s not by accident, therefore, that Trump and the US business press has been launching an offensive to attack the idea of socialism once again. This shift in public opinion will continue as the Trump policies continue to create a growing gap in income, wealth and opportunity in America.

A recent reader of this blog raised an important question. He asked: “In what year did the US Treasury begin to raid the Social Security Trust Fund, and Why”.

This question is of such importance that I am reproducing it, and my reply, here as well as having done so to the reader:

“I don’t know the exact year, but I’m sure it was soon after the 1986 changes to the Social Security Act were enacted. (The chair of the commission that recommended the changes, supported by Democrats and Republicans in Congress alike, was none other than Alan Greenspan. For his ‘loyal work’ for Reagan, he was then appointed Federal Reserve chair as James Baker, who was then running the government de facto as Reagan mentally deteriorated, pushed out prior Fed chair, Paul Volcker. Volcker refused to cut interest rates dramatically in order to puff up the stock market and he was removed.)

So much for ‘central bank independence’ once again.

Greenspan went on to provide increasingly excess liquidity and free money to bankers for the next 20 years. That fueled ultimately the financialization of the US and global economy by the 21st century that led to increasing financial asset bubbles and financial instability, culminating in the 2008-09 global financial crash. (Bernanke, Yellen and now Powell–after a brief 2 yr. reversal in 2017-18–now continue that tradition of free money and subsidization of capital incomes by means of monetary policy.

The 1986 social security act changes dramatically raised the payroll tax for social security (retirement, SSDI, etc.) and indexed the rate rise to inflation, and raised the retirement age to 67. But it continued to place a ‘cap’ (subject to the indexing) on the highest incomes that would have to pay the payroll tax hike. This was done in order to protect those with even higher incomes from capital or the highest wages (high income professionals, managers, etc.) from paying the tax once a high threshold in their wage incomes was reached.

As a result of these 1986 changes, the social security trust fund began to accumulate a surplus every year. That surplus would reach $4 trillion by the 21st century first decade. The ideological argument made to justify the payroll tax hikes was that it would be needed when the 78 million baby boomers began to retire after 2010-12. But the US government ‘borrowed’ the real wage tax payments deposited in the trust fund from the payroll tax hike every year nevertheless. It ‘replaced’ the borrowed funds with special issue Treasury Bonds. (It did the same borrowing from federal workers’ pension funds). This ‘borrowing’ is what the phrase ‘the government borrows from itself’ to finance the debt means. Of the current $21 trillion or so US federal debt, between $5-$6 trillion I believe is what the government has ‘borrowed from itself’. The other $15-$16 trillion has been borrowed from private investors, banks, corporations, foreign central banks, investors, etc. etc.

This massive theft from the social security trust fund (and it is theft because, in a crisis, the government cannot convert the sale of those special bonds deposited in the fund back to real dollars with which to continue to make retirement payments) enabled the US government to create ever larger US government budget deficits by cutting taxes repeatedly on the rich, investors, corporations and businesses, while simultaneously spending trillions of dollars on wars in the middle east, and, thirdly, while allowing the big pharma and health industries to gouge medicare and other government health programs with chronic excess price increases. These three sources are the primary contributants to the national debt.

One should think of the social security program and social security monthly benefit payments as a form of workers wages. It is what I call the ‘social wage’. It is deductions from wages to be paid back in the form of social wage, retirement benefits upon retirement. By borrowing and spending the trust fund surplus on tax cuts for capital and war spending, the government is in effect acting as a redistributor of wage incomes back to capital incomes (in the form of tax cuts and war spending and pharma-health industry subsidization). You won’t find that in government stats on estimating wage levels or wage change. Nor in considerations of causes of income inequality that keeps accelerating in the US. But the atrophying of the social wage is a major factor in growing income inequality, since wages (actual or social) are workers’ primary source of income.

Since the 2008-09 crash the US government has been ‘borrowing down’ the trust fund, or else using it (as did Obama) to divert the payroll tax in part to try to boost wage incomes and consumption by households during his abysmal ‘recovery’ period after the crash. But all Obama did was accelerate the decline of the social security trust fund. Nonetheless, today it’s still positive around $3 trillion. But at the current rate is expected to be used up by 2035 or so. After that social security payments will be financed roughly 80% and only out of current payroll taxes. That could last until 2075 or so.

Therefore, at some point another Greenspan-like Social Security Commission will be tasked to save social security again, a la 1986. It will then likely raise the minimum retirement age eligibility to 70 years (and early retirement to 65 or more from the current 62). Disability and survivor benefits will also be likely reduced. These changes were already proposed in 2013 by the (Senator) Simpson report and recommendations. They were prepared to restructure it along the above lines back then, but the changes didn’t make it into the so-called ‘fiscal cliff’ deal signed by Obama and the Republicans in December 2013.

But it will soon be ‘dusted off’ and proposed again, soon after the 2020 election regardless who wins. As in 1986, once again they’ll say they’re ‘saving’ social security by gutting it. They’ll also likely try to legally allow the fund to invest in stock markets, which they’ve been trying to enact since 1997. (Making the bankers happy, who will manage it all).

What capitalists have wanted since Reagan is to privatize social security, in effect destroying it as a social retirement system and converting it to a private pension program, as they previously have done with business-union defined benefit plans converted to phony 401k private contribution pensions. Privatizing of course means bankers and their buddies get their hands on the fund to invest to their benefit.

Social security could, and should be reformed, but without privatization. This can be easily done by simply raising the ‘cap’ on earned incomes (now about $125k a year or so). Applying the payroll tax to all earned (e.g. wage incomes without a cap). And applying it to forms of capital incomes (interest, rent, royalties, dividends, capital gains, inheritance, etc.) as well. And of course, any reform must stop the government from ‘borrowing’ from the fund annually. That absolute prohibition of government borrowing from the Fund would make force government to reduce its business tax cutting and war spending.

My previous studies showed that these proposals could raise trillions of dollars for the Social Securityi Retirement Fund. The retirement age could be lowered, not raised. Or benefits increased, not reduced. Or in lieu of lowering retirement age or raising benefits, there might even be even hundreds of billions left over–to fund ‘medicare for all’ in large part. Medicare is also part of Social Security but paid for out of other funds, Parts A,B, D. If what’s left over in tax revenue is insufficient, the rest of the cost of Medicare for All could be funded by a financial transaction tax, as I’ve proposed and estimated elsewhere as well.

But you won’t hear Democrats calling for any of that. The originators of Medicare itself in 1965, the Democrats no longer really support it–at least the Democrat Party leadership and their pundits and media outlets. Medicare for All for them has been reduced to the so-called ‘public option’ that is really a government insurance program that will leave private insurance companies on the health care field intact, to continue to do their damage. Except for the new progressive wing, the leadership and moneybag wing of the Democrat Party give Medicare token lip service but have no real plans to improve it. Their plan is to undercut the call for Medicare for All and propose the public option in order to minimize insurance company lobbying and opposition.

Of course, Medicare for All is anathema to Republicans and their bigger moneybags behind them. They’re the ones, not surprising, directly calling for cuts to Social Security or trying to label the program as ‘Socialism’–along with free public college tuition, green new deal, and tax recovery from the rich and their corporations. It’s the right wing’s new ideological offensive against social security now cranking up from Republican and right wing think tanks and their cable-radio news counter media.

But I’ve been predicting this ideological (and policy) offensive, now emerging, for some time. The massive subsidization of capital incomes that has been occurring, and accelerating, for at least two decades now by means of fiscal policy (tax cuts for business and rich) and monetary policy (free money from the central bank, the Fed) is creating its own fundamental contradictions. It’s not just income inequality that both produce. It’s that the use of fiscal-monetary policy for growing subsidization of capital incomes is creating a dangerous level of debt and eventually unsustainable level of interest payments on that debt. The elites plan to reduce the debt by attacking social security. It’s either that, or stop tax cutting on capital incomes or reduce war spending. They won’t do the latter; they plan to do the former.

Along with annual $1 trillion war spending, the $15 trillion in tax cuts for capital incomes since 2001 has now produced a $21 trillion plus government national debt. Projected $1 trillion a year or more further budget deficits will balloon the US national debt to $34 trillion by 2028. (Add another $5 trillion for state and local debt and the current $4 trillion in Federal Reserve debt plus other government agencies’ debt, and you have by the next decade around $50 trillion or so in total debt. And that’s not counting either the current $13.5 Trillion in household debt and nearly $10 trillion in corporate bond debt even today and going higher).

The Congressional Budget Office research staff has estimated that even at the conservative estimate of the rise in just the US government debt, the cost of interest on the national debt alone will exceed $900 billion a year by 2027. (More if there’s a recession, which there will be and sooner rather than later).

Neither wing of the Corporate Party of America (aka Republicans and Democrat party elites) will address this looming debt crisis. Republicans will keep cutting taxes for capital incomes and escalating war spending; Democrats will continue war spending and will enact (if Senate Republicans allow them) token hikes in capital income taxation. But don’t hold your breath or expect that any of the latter will ever go to address social security or the diverting of the $3 trillion remaining surplus to help offset the annual $trillion budget deficits and additions to the national debt.

Both wings of the CPoA will ‘address’ social security shortfalls by raising the retirement age dramatically to 70, reducing the annual inflation adjustments, cutting SS disability payments (already occurring), and–once again as under Greenspan–raising the payroll tax itself in order to continue diverting the surplus to service the rising US government budget deficits due to tax cuts and war spending).

But it could all be resolved simply by: 1. eliminating the ‘cap’ on taxable wage incomes; 2. taxing capital incomes at the payroll rate; 3. preventing the government from ‘borrowing’ from the social security fund. (By the way, the borrowing from the fund was disallowed in 1990 legislation, but Congress suspends that rule every year and grabs the surplus, replacing it with phony special issue Treasury bonds that can’t be resold to raise cash when the fund surplus runs out).

For more on all of this, which I’ve been writing on for years, see my chapter on Social Security in my 2006 book, ‘The War At Home’, as well as numerous magazine articles I’ve written on it thereafter now also located on my website (http://kyklosproductions.com) written during the Obama period. Since 2013 I have been commenting on this topic as well on this blog.The Social Security theft and financing topic is also addressed in my forthcoming book, ‘The Scourge of Neoliberalism’, Clarity Press, summer 2019, as an integral element of neoliberal industrial policy).

Jack Rasmus
April 29, 2019

US GDP for the 1st quarter 2019 in its preliminary report (2 more revisions coming) registered a surprising 3.2% annual growth rate. It was forecast by all the major US bank research departments and independent macroeconomic forecasters to come in well below 2%. Some banks forecast as low as 1.1%. So why the big difference?

One reason may be the problems with government data collection in the first quarter with the government shutdown that threw data collection into a turmoil. First preliminary issue of GDP stats are typically adjusted significantly in the second revision coming in future weeks. (The third revision, months later, often is little changed).

There are many problems with GDP accuracy reflecting the real trends and real GDP, that many economists have discussed at length elsewhere. My major critique is the redefinition in 2013 that added at least 0.3% (and $500b a year) to GDP totals by simply redefining what constituted investment. Another chronic problem is how the price index, the GDP Deflator as it’s called, grossly underestimates inflation and thus the price adjustment to get the 3.2% ‘real’ GDP figure reported. In this latest report, the Deflator estimated inflation of only 1.9%. If actual inflation were higher, which it is, the 3.2% would be much lower, which it should. There are many other problems with GDP, such as the government including in their calculation totals the ‘rent’ that 50 million homeowners with mortgages reputedly ‘pay to themselves’.

Apart from these definitional issues and data collection problems in the first quarter, underlying the 3.2% are some red flags revealing that the 3.2% is the consequence of temporary factors, like Trump’s trade war, which is about to come to an end next month with the conclusion of the US-China trade negotiations. How does the trade war boost GDP temporarily?

Two ways at least. First, it pushes corporations to build up inventories artificially to get the cost of materials and semi-finished goods before the tariffs begin to hit. Second, trade dispute initially result in lower imports. In US GDP analysis, lower imports result in what’s called higher ‘net exports’ (i.e. the difference between imports and exports). Net exports contribute to GDP. The US economy could be slowing in terms of output and exports, but if imports decline faster it appears that ‘net exports’ are rising and therefore so too is GDP from trade.

Looking behind the 1st quarter numbers it is clear that the 3.2% is largely due to excessive rising business inventories and rising net exports contributions to GDP.

Net exports contributed 1.03% to the 3.2% and inventories another 0.65% to the 3.2%. Even the Wall St. Journal reported that without these temporary contributions (both will abate in future months sharply), US GDP in the quarter would have been only 1.3%. (And less if adjusted more accurately for inflation and if the 2013 phony redefinitions were also ‘backed out’). US GDP in reality probably grew around the 1.1% forecasted by the research departments of the big US banks.

This analysis is supported by the fact that around 75% of the US economy and GDP is due to business investment and household consumption typically. And both those primary sources of GDP. (the rest from government spending and ‘net exports).

Consumer spending (68% of GDP) rose only by 1.2% and thereby contributed only 0.82% of the 3.2%. That’s only one fourth of the 3.2%, when consumption typically contributed 68%!

(Durable manufactured goods collapsed by -5.3% and autos sales are in freefall). And all this during tax refund season which otherwise boosts spending. (Thus confirming middle class refunds due to Trump tax cuts have been sharply reduced due to Trump’s 2018 tax act).

Similarly private business investment contributed only a tepid 0.27% of the 3.2%, well below its average for GDP share.

Business investment is composed of building structures (including housing), private equipment, software and the nebulously defined ‘intellectual property’, and of course the business inventories previously mentioned. The structures and equipment categories are by far the largest. In the first quarter 2019, structures declined by -0.8%, housing b y -2.8% and equipment investment rose only a statistically insignificant 0.2%.

This poor contribution of business investment contributing only 2.7% to GDP, when the historical average is about 8-10% normally, is all the more interesting given that Trump projected a 30% boost to GDP is his business-investor-multinational corporate heavy 2018 tax cuts were passed. 2.7% is a long way off 30%! The tax cuts for business didn’t flow into real investment, in other words. (They went instead into stock buybacks, dividend payments, and mergers and acquisitions of competitors). And they compressed household consumer spending to boot.

Sine Trump’s tax cuts there’s been virtually no increase in the rate of Gross private domestic investment in the US. It’s held steady at around 5% of GDP on average since mid-2017. Within that 5%, housing and business equipment contributions have been falling, while IP (hard to estimate) and inventories have been rising.

In short, both Consumer spending and core business investment contributions to US GDP have been slowing, and that’s true within the 3.2% GDP. First quarter GDP rose 3.2% due to the short term, and temporary contributions to inventories and net exports–both driven artificially by Trump’s trade wars.

The only other major contribution to first quarter GDP is, of course, Trump war spending which rose by 4.1% in 1st quarter GDP. (Conversely, nondefense spending was reduced -5.9% in the first quarter GDP).

Going forward in 2019, no doubt war spending will continue to increase, but business inventories and household consumption will continue to weaken.

Trump is betting on his 2020 re-election and preventing the next recession now knocking at the US and global economy door. He will keep defense spending growing by hundreds of billions of dollars. He’ll hope that concluding his trade wars will give the economy a temporary boost. And he’ll up the pressure on the Federal Reserve to cut interest rates before year end.

Meanwhile, beneath the surface of the US economy the major categories of US GDP–business structures, housing, business equipment, and household consumer spending (especially on durables and autos)–will continue to weaken. Whether war spending, the Fed, and trade deals can offset these more fundamental weakening forces remains to be seen.

Bottom line, however, the 3.2% GDP is no harbinger of a growing economy. Quite the contrary. It is artificial and due to temporary forces that are likely about to change. It all depends on further war spending, browbeating the Fed into further submission to lower rates, and what happens with the trade negotiations.

(For a further discussion of these trends, listen to my April 26, 2019 Alternative Visions Radio show).

GO TO:

http://prn.fm/alternative-visions-us-gdp-latest-release-preview-new-book-scourge-neoliberalism/

OR GO TO:

http://alternativevisions.podbean.com

    SHOW ANNOUNCEMENT

Dr. Rasmus provides his analysis of US GDP estimates for 1st quarter 2019 out today. 1st quarter GDP is over-estimated, he argues, due to boost in due to an excessive, one time boost in business inventory accumulation and decline in US imports, both of which are temporary events that will reverse soon in subsequent quarters. The real base of the US economy—i.e. business investment in structures, housing and equipment and household consumption (together 80% of GDP) show stagnation at best: Consumption grew only 1.2% annual rate in 1st quarter (with durables down -5.3%) and business investment slowed to only 2.7% (after hundreds of billions $ of Trump tax cuts for business a year ago). Rasmus predicts investment and consumption will continue to lag in 2019, while inventories and trade effects will dissipate quickly. Global economic developments are discussed in what’s behind rising oil prices and the re-emergence of currency instability, especially in Argentina and Latin America. The show concludes with Dr. Rasmus providing an overview of his forthcoming book, ‘The Scourge of Neoliberalism’, and why most contemporary accounts of Neoliberalism offer only a partial explanation of what it’s about and miss understanding Neoliberalism at capitalist restructuring, ideological justification, and political institutional change. (Next week: An excerpt from the book on Neoliberalism under Obama and now Trump).

Listen to my 15 minute interview with ‘Critical Hour’ radio on April 15 and the real facts about the Trump 2018 tax act, and how in 2019 it’s becoming increasingly clear that the middle class is paying more, while massive corporate-business-investor taxes are being cut by trillions. Why Supply Side economic theory used to justify tax cuts for corporations and the rich is not backed by empirical evidence. Why the mainstream corporate press, like the Washington Post, simply prints the misrepresentations of data on who’s paying taxes fed to it by the government. And why the massive tax shift underway since the 1980s, is now accelerating under Trump, and driving even greater income inequality.

To Listen Go To:

https://drive.google.com/file/d/178AQQYbWGvyaHa9k1YHIaV_ukRu2RKJJ/view

In 2016 Trump promised tax cuts for the middle class. Now it’s clear Trump’s 2018 tax cut is making the middle class pay for corporations, businesses, investors and the wealthiest 1% households historic tax cuts totaling no less than $4.5 trillion over the next decade.

A massive redistribution of income favoring the capitalist class–at the expense of everyone else–is underway. Only now approaching April 15 ‘tax day’ in the US are the dimensions becoming apparent.

Polls show 80% of the 170 million taxpayers in the US are saying they’re paying much more this year.

And 17% indicate they used to get refunds in the past but are now writing the IRS checks for $ thousands more this year. That’s 17% of 170M, or almost 30 million households no longer getting refunds! And 136 million saying they’re paying more! So that’s a middle class tax cut?

$4.5 Trillion to Capital Incomes

Conversely, capital incomes are getting a tax cut of no less than $4.5 trillion, under the Trump 2018 tax cut. Their big payday is due largely to cuts in corporate tax rates, the new 20% off the top business pass through deduction, the elimination of the Alternative Minimum Tax for corporations and reduction of the AMT for individuals, the halving of the Estate Tax, favorable changes in personal income tax brackets, levels and rates, more credits for private school tuition and child care costs, no upper limits on itemized deductions, and many other measures.

But the biggest tax break of all,more than $2 trillion over the next decade goes to US multinational corporations: the foreign profits tax and all territorial offshore taxation for US multinational corporations are now eliminated altogether. And if they repatriate their $4 trillion in profits held offshore they can bring it back at a 10% one time corporate tax rate instead of the prior 35%. The big beneficiaries of the $2 trillion tax cut for multinationals are the tech, banking, oil & energy, big pharmaceutical, and telecom companies. (See my blog, jackrasmus.com, postings during early 2018 where I previously documented these details of how much capital incomes will gain from the Trump tax cut).

The Ideological Cover-Up of 2018

The corporate press and media throughout 2018 refused to accurately report the $4.5 trillion historic income transfer. Instead, they fed the public the phony calculation that the cost of the Trump 2018 tax cut was ‘only’ $1.5 trillion over the coming decade. That calculation was made based on ignoring the $4.5 trillion in reporting, and the $1.5 trillion tax hike on the middle class, and estimating that the tax cuts would generate 3-4% economic growth annually for the next decade every year. And thus there would be no recession for another decade! The $4.5 trillion in this manner got reduced to the official, press reported $1.5 trillion. ($4.5 trillion for business and investors minus $1.5 trillion tax hike on middle class minus the phony growth assumption of $1.5 trillion more tax revenue = the phony $1.5 trillion hit to the US budget deficit and claim the Trump tax cut was only $1.5 trillion!)

In true supply side phony economic ideology, by giving investors and corporations trillions of dollars more, academic hacks for business argued corporations would invest it in the US, creating more jobs and production from which more government tax revenue would follow. This neoliberal argument has been used to justify tax cuts for corporations and rich investors since Reagan. And its been wrong ever since. There’s no shred of empirical evidence showing a direct causal relationship between business-investor tax cuts and economic growth or jobs. For example, in 2018 real investment (in plant, structures, equipment, etc.) in the US in 2018, after the introduction of the Trump tax cut in January, continued to decline over the course of 2018 by more than two-thirds, reaching a low point at the end of the year.

Instead of corporations investing in the US and creating jobs after receiving the tax cuts, the Trump tax cuts produced a windfall profits gain to their bottom line. How much?

The Trump tax cuts, it has been estimated, account for 22% of the 27% profits gain by the Fortune 500 companies alone.

The $1.5 Trillion Tax Hike on the Rest of Us

So where is the $4.5 trillion go in 2018? It didn’t go to the US Treasury. Corporate tax revenues alone are off by several hundred billions of dollars so far. The hundreds of billions tax windfall for corporate America instead has been diverted into financial markets, into merger & acquisitions of other companies, into offshore expansion by US multinational corporations and into speculation in foreign currencies, stocks, dollarized bonds, and derivatives markets. Or just hoarded on corporate balance sheets in anticipation of the next recession, now around the corner.

And how is the $1.5 trillion tax hike on the middle class occurring? Unlike the manner change in provisions benefiting capital incomes by hundreds of billions in 2018 (continuing to provide $4.5 trillion over the coming decade), middle class taxpayers are now seeing how much more taxes they are beginning to pay (to make up the $1.5 trillion over the decade).

The main changes and provisions that are now ‘whacking’ the middle class include ending the personal exemptions ($16,200 for family of four), eliminating more than a dozen deductions for those who itemize their taxes, changing the tax brackets and levels of the personal income tax, making singles pay more for the AMT, ending or phasing out at lower thresholds various tax credits, and so on.

So the middle class now finds itself writing larger checks to the IRS than they had in the past, much larger! Meanwhile, corporations, businesses, investors, and the wealthiest households enjoy a massive reduction in their tax.

While the Trump government, Congress, and media focus on the ‘Great Distractions’ (Trump on immigrants as cause of our problems; Democrat leaders on Russia intervention in US elections–neither of which the average American gives a damn about), Trump continues to ‘pick their pockets’–big time.

(For more discussion on this topic, listen to my April 12, 2019 radio show, Alternative Visions, on the Progressive Radio Network, where I discuss the dimensions of the greatest single redistribution of income to the rich from the rest in American history.

TO LISTEN GO TO:

Alternative Visions – Trump Whacks the Middle Class

OR GO TO:

http://alternativevisions.podbean.com)

RADIO SHOW ANNOUNCEMENT:

Alternative Visions – Trump Whacks the Middle Class

Apr 12th, 2019 by progressiveradionetwork

As Federal tax deadlines near on April 15 it’s becoming increasingly clear the middle class is paying more, not less, under the Trump 2018 tax cuts. Of the roughly 170 million tax households, news is now appearing that tens of thousands fewer are not getting refunds this year and 80% say they’re paying more, per polls. Rasmus explains in detail how the Trump tax cuts provided $4.5 trillion in total tax cuts over the next decade—offset by $1.5 trillion in middle class tax hikes (and making phony estimates of another $1.5 trillion in tax revenues from economic growth due to tax cuts). Rasmus describes how multinational corporations will get $2.1 trillion in tax cuts over the decade and how US corporations, non-corporate businesses, and the wealthiest 1% households and investors will enjoy another $2-2.4$ trillion by reducing the corporate rate from 35% to 21%, by eliminating the corporate AMT, by radically reducing the personal income AMT, by providing a flat 20% deduction for non-corporate businesses, by lowering personal income tax rates and brackets for the wealthy, by exempting most of the Estate tax, and by ending limits on itemized deductions for the rich while adding child care and private school deductions for them. How the middle class will pay another $1.5 trillion over the decade is also described, including ending the personal exemption, by changing personal income tax brackets for the middle class, and by eliminating or reducing middle class itemized deductions. In the bigger picture, it amounts to increasing subsidization of capital incomes—to be paid for by the earned wage incomes of the middle class.