The debate over federal government action to promote jobs has been plagued by a number of false assumptions that are encapsulated in the word "stimulus." More confusion has been added under the banner "timely, targeted, and temporary" - a supposed formula for a successful "stimulus." The idea behind the slogan was that the financial collapse could be quickly undone in two steps: first, a bailout to quell the financial panic so banks would lend and then the stimulus to get consumers spending again.
In reality, the U. S. economy will falter for many years unless a government-led reform recognizes new economic and environmental realities and confronts the challenges before us. We can return to full employment by creating jobs that lay the foundation for shared prosperity, or we can wait for the captains of capitalism to rescue us under the same trickle-down paradigm that has failed so spectacularly. Facing peak oil and global competition for scarce natural resources, we must repair and reform the physical and intellectual undergirding of our economy to build a broad base of prosperity.
Why the Old Economy Can't and Shouldn't Be Revived
False optimism for a quick recovery ignores the fact that U. S. economic growth from the Reagan era through 2007 was built on weak foundations. That economy could best be described as "bubble-licious." The media touted periods of rapid growth of GDP, but most workers knew that their own economic situation was stagnant or sinking. Instead of good times, we actually experienced a series of overvalued assets leading to bailouts, including:
(Note: A bailout occurs when rich people get money to cover losses they would otherwise absorb based on their market transactions. They may be owners or employees of the collapsing corporation or they may be creditors of that corporation. Usually, the cost of the bailout is at least partially off-loaded to the poor and middle classes.)
To a large extent these debt-driven bubbles arose from two main trends:
1. Deregulatory fever that heated up under President Reagan, burned through Bush I and Clinton, and blazed in a frenzy of self-parody under Bush II. All these years of unrelenting propaganda about the benefits of completely free markets masked an orgy of tax giveaways and corporate welfare (think Halliburton).
2. Speculation caused by mounting inequality. After a quarter century of this deregulatory excess, the top 1% of earners in the U. S. had 23.5% of the income in 2007,[6] a rate last seen in 1928, just before the Great Crash. Plainly put, the rich didn't know what to do with the fabulous sums they accumulated. Greed caused many of them to borrow money in order to multiply profits on risky investments. The insatiable drive for ever higher returns diverted investment in the "real economy" (physical assets, factories, and service delivery processes) in favor of ever-more Byzantine financial assets. (As a result, the share of GDP attributed to the finance sector rose from 4% to 8%.)[7] When the investments went bad, the chain of debt broke, and a financial panic ensued. The financial collapse led to further concentration of banking,[8] leaving us more vulnerable in the long-term to another financial panic.
A major reason the old U. S. economy cannot easily be revived is that various mountains of debt - mortgages ($14.5 trillion), consumer borrowing ($2.7 trillion, up from $1.7 trillion in 2000), trade deficits ($7.0 trillion since Reagan was inaugurated, of which over two-thirds is attributable to Bush II[9]), leveraged buyouts, and government ($10.6 trillion when Obama took office) - cannot just be piled higher.[10] It is especially tragic that government borrowing during the Reagan and both Bush presidencies was wasted on wars and profligate defense buildups, corporate welfare, and tax giveaways to the rich. Ironically, government borrowing is the primary tool needed now to rebuild a just and productive economy. Thus, we must use government borrowing judiciously for projects that enhance sustainable capacity and ruthlessly eliminate waste and subsidies for unproductive activity.
A second aspect of unsustainability is that the infrastructure upon which real economic wealth is built has been allowed to decline. The decaying transportation, water, and educational foundations of our economy will not sustain prosperity unless we take the time and energy to rebuild them. The American Society of Civil Engineers estimates that it would take an investment of $2.2 trillion over five years to bring 15 categories of infrastructure into good repair. The categories cover water and sewage, waste disposal, energy, parks, and school facilities. [11]
Thirdly, the U. S. economy cannot continue the trend of wasteful spending and massive increases in health costs. While U. S. health costs amount to 16-18% of GDP, no other developed nation spends more than 12%.[12] Worse, the share is continually rising while producing no health benefit. We are wasting nearly $1 trillion every year in the health sector. Furthermore, U. S. reliance on employers to contribute to premiums for about 59% of the population[13] creates an incentive to move jobs to other countries. The high and rising cost of health care has replaced wage increases for many millions of workers over the last several decades. No wonder U. S. workers feel that their standard of living is declining. Finally, while there is an abundance of high-tech care and some excellent care provided in the U. S., the health system as a whole and the health of the U. S. population rank low among developed nations.
Environmental damage, resource depletion, and climate change comprise a fourth reason why the U. S. economy cannot and should not be "stimulated" back into its old patterns. The U. S. continues to engage in massively wasteful energy and land use patterns compared with other developed nations while Congress continues to subsidize unsustainable crop practices and industrial livestock management techniques that befoul land and sea while providing a diet that undermines public health.
Environmental damage throughout the world affects the U. S. because, in a globalized economy, we are so dependent on raw materials from other countries. Continued unabated, the global pattern of resource use and pollution - driven disproportionately by U. S. economic hegemony - threaten to undermine economic growth. In addition, the U. S. and the rest of the developed world face increasing pressure from the developing world to compensate them for environmental damage - such as resource depletion, species extinction, droughts, flooding, shrinking glaciers, desertification, and exported toxics -caused by the developed world. Surprisingly, the cost to repair environmental damage worldwide (not including the cost of projected damage due to climate change) is estimated by Lester Brown of the Earth Policy Institute at only $110 bn per year - less than the yearly cost of the Iraq war! This would provide for planting trees to sequester carbon and protect waters, restoring farmland and rangeland, protecting fisheries, stabilizing water tables, and conserving endangered species.
On top of ongoing environmental damage, the entire Earth faces a dire threat from climate change, which will be the topic of the Copenhagen conference in December 2009. We have experienced a 1° F increase of a possible 10-11° F projected by scientists, yet dramatic changes are already noted in glaciers, coastlines, desertification, and the frequency of extreme weather events. The costs of continued climate emissions are an externality that are not included in market calculations but that will soon grow to sufficient physical and political magnitude to force some accountability mechanism. Despite the clout of the coal and petroleum industries, there is a mounting tendency to see the need to reduce carbon emissions as an economic opportunity. Thus, international pressure is mounting on the U. S. to contribute to worldwide environmental cleanup and to drastically reduce carbon emissions.
Implications of the Physical and Financial Legacy of the Old Economy
When we consider the waste in the health sector, the costs of environmental repair and climate change mitigation, and the massive amounts wasted on war and military procurement[14], it is difficult to see how the U. S. can remain competitive unless drastic reforms are successfully implemented. In general, U. S. multinational corporations can survive and even flourish by moving jobs overseas, but the vast majority of U. S. citizens are stuck with declining economic prospects unless major reforms are undertaken at least on the scale of the New Deal.
Without a "New New Deal," we are headed for many years of "L-shaped recession" featuring continued high unemployment and further deterioration in standard of living for most Americans. While the record of our federal government at managing projects may not seem encouraging, it offers the only alternative. Economic output consists of three components - consumer spending, business investment, and government spending. Consumers are not spending and will not return to previous levels any time soon because of unemployment and the credit squeeze. It makes sense for households to cut back in order to pay down that $2.7 trillion in consumer debt. In addition, the character of consumer spending over the past several decades has exacerbated environmental problems. With consumer spending down, there is not likely to be any rejuvenation fueled by business investment unless there is a government-driven push from revamped energy, agriculture, and health care incentives as well as direct government investment.
The use of the term "stimulus" to describe government job creation and the incantation of "timely, targeted, and temporary" to describe a proper "stimulus" are obfuscations. They keep us from confronting the gargantuan task before us.
Creating and Financing and New, Sustainable Economy
On the other hand, the opportunity exists to move forward into a more just and sustainable future - to create jobs that build a new economy. The biggest obstacles are the government debt of $10.7 trillion and the hue and cry from moneyed circles to raise interest rates to fight inflation, even while inflation hovers around 0%. The federal debt comes to about 70% of the U. S. GDP. Further increases in the debt ratio threaten to impede the government's ability to sell bonds at low interest rates. For this reason, President Obama seems to be rejecting Congressional initiatives toward further job creations:
'There is no discussion of a package like a second stimulus, but we are working closely with Congress and consulting with outside experts to determine the right policies and the right steps,' said White House deputy press secretary Jennifer Psaki. (Wall Street Journal, 11/22/09)
In addition, in the same article the Wall Street Journal reports that the White House rebuffs a new source of revenue that not only could raise substantial sums but that could suppress some of the speculative investment and borrowing that fueled the financial crisis.
"House Speaker Nancy Pelosi last week said ideas under discussion in the House included a tax on a variety of financial transactions. Democrats estimate such a tax could raise as much as $150 billion a year, a pool of money that could help offset the cost of a job-growth package.
The White House isn't keen on that proposal: Treasury Secretary Tim Geithner has said he hasn't seen a version of that tax that would be appropriate for the U.S."
The American Recovery and Reinvestment Act represents a rare moment when Congress did the right thing (in part) and used the right vocabulary. However, the first ARRA was not large enough to reduce unemployment or address critical needs, such as:
How can we raise funds for this type of massive reinvestment and how can we muster the political will to implement such a program? Here are a few initial suggestions:
Activists and citizens must begin to build a movement among working people to demand jobs for a sustainable economy. This movement must try to take the momentum away from the finance industry and its lobbyists who are already screaming to fight inflation (i. e., raise interest rates) when inflation is currently at zero.
Such a movement would invoke the tradition of the suffragist, union, and civil rights movements, which rallied millions of people to demand reforms in the face of obvious inequality and injustice. Inequality in our society has been reinforced and magnified over the past quarter century by a strong alliance between right-wing politicians and corporate power. Most Democrats have either given in to the corporations or stood on the sidelines. Only the combined power of millions of people could have brought women the vote, opened industry to unions, and passed the voting and civil rights acts. Today, only a similar mass movement will force job creation in the face of the corporate power of the finance sector.
Charlie Cooper is a social justice activist in Baltimore. He is active in organizations that work on public education, child protection, climate change, and the economy. He is currently Chairperson of the Maryland Education Coalition. The views expressed in this article are his own.
[1] http://www.fdic.gov/bank/analytical/banking/2000dec/brv13n2_2.pdf.
[2] http://www.pbs.org/wgbh/pages/frontline/shows/crash/etc/cron.html.
[3] The decline of the Russian ruble led to the failure of a private U. S. hedge fund - Long-Term Capital Management. The Federal Reserve spent no money, but played a role in organizing a bailout of LTCM to protect its creditors, which included Bear Stearns, Merrill Lynch, and Lehman Brothers.
[4] http://www.politico.com/news/stories/0709/25164.html. Loans or shares purchased by the government may pay a return; however, the TARP Inspector General believes "it's unrealistic" to expect the government to get all its money back.
[5] http://wearechangecoloradosprings.org/blog/2009/10/more-bank-failures-115-this-year-alone/.
[6] Piketty and Saez, quoted by Center for Budget and Policy Priorities, http://www.cbpp.org/cms/index.cfm?fa=view&id=2908.
[7] http://www.bea.gov/scb/pdf/2009/05%20May/0509_indyaccts.pdf, Table E, p. 28.
[8] Economic Policy Institute, http://www.epi.org/economic_snapshots/entry/snapshot_20090909/. The 4 largest U. S. banks hold about 45% of all banking assets.
[9] http://www.census.gov/foreign-trade/statistics/historical/gands.pdf
[10] See also http://mwhodges.home.att.net/nat-debt/debt-nat-a.htm.
[11] http://www.infrastructurereportcard.org/
[12] http://www.kff.org/insurance/snapshot/chcm010307oth.cfm.
[13] http://www.americanprogress.org/issues/2009/05/insurance_loss.html.
[14] Incoming White House Chief of Staff Rahm Emanuel stated that military cost overruns amount to $300 billion annually, January 18, 2009, http://www.msnbc.msn.com/id/28719411/.
[15] Wall Street Journal, http://industry.bnet.com/financial-services/10005212/why-a-financial-transactions-tax-makes-sense/.
The fact that they exist in the first place needs an explanation that we can all understand.
A) The SEC is a "Government" created office that FAILED to protect investors (stop blaming "Capitalism")
B) Fannie Mae and Freddy Mac are "Government" created instituions that ROBBED, and CHEATED Taxpayers, with the assistance of Chris Dodd, and Barney Frank (stop blaming Capitalism)
Liberal Politicians made it easy to rob the Taxpayers by creating the housing feeding trough.
C) Banksters LOAN money to Governments in the form of BONDS. The Government FORCES the Citizens to PAY the Banksters for all the Government BORROWING and SPENDING
Government WORKS WITH The Banksters to RAID the Citizen's Treasury (this is not "Captialism") This is Government acting as the Banksters Loan Shark.
.
We have a global energy crisis and nothing short of a global solution will solve it.
We do not want to choke out investment into the labor market by increasing government spending. So if we are going to increase government spending it will have to be done in a way to increase private investment in labor. A lot of military spending was pretty good at this.
Trains in the US are worth considering but they are an unlikely solution in the short run because you would have to completely change the way we plan our cities and the way many cities are built. Not to mention the massive amount of money needed to make meaningful changes.
Bill and Hillary regularly attended church. Do they think the earth is 6,000 years old?
Obama spent 20 years in Rev. Wright's church, does he?
Does Jesse Jackson and Al Sharpton think Jesus walked with dinosaurs?
Americans wait in TSA lines, Europeans and Japanese ride bullet trains. American cities are destroyed by failing Levi's. Europe built dikes on the north sea. American interstate bridges collapse. American ports use outdated equipment. Europe and Japan move products to market on efficient trains, American uses fuel guzzling trucks. European and Japanese school children consitently out score American children in standardized tests.
Is anyone seeing a pattern here?
It's time to put Americans back to work rebuilding America. Does anybody else agree we need to quit rebuilding Iraq and Afghanistan? What about America? We don't need more Carrier Battle groups, we need better highways. We don't need more Billion Dollar bombers, we need modern ports. We don't need jobs in Iraq, we need jobs in America. We have already spent over 1,000,000,000 (with a T) dollars in Iraq. Can someone tell me what we have to show for it? We are spending billions in Afghanistan, can you show me where it went?
Anybody got any ideas what we could have done with that Trillion Dollars if we had spent it on America? Maybe a nationwide high speed rail system? Maybe a new more efficiant electrical distribution system? I'm sure you can imagine some.
Let's all get to work, reducing unemployment and rebuilding America all at the same time.
How is it when the government does the "trickle down" it is OK but when tax cuts are implemented, the Libs say "trickle down economics doesn't work".
"High crime is Real Crime."
In other words, just as Article 2 Section 4 of our own Constitution plainly declared, "it is not okay" that the Members of Congress collectively receive ... and publicly acknowledge that they receive ... more than $3.5 Billion a year in what are euphemistically referred to as "campaign contributions," "lobbying," and (these days) "corporate freedom of speech."
What would -you- do with an income of $700 an hour, 24/7/365? (And this is just the tip of the unholy iceberg.)
You would, of course, "do anything that you were told to do." And you would do it faithfully, because you well know that the other face of bribery is extortion.
Today we have a group of less than 3,000 people (featuring less than 700) who daily betray(!) the interests of more than 308 million others, and who think nothing of it. We cannot have a nation this way.
Green jobs and reaching your full potential via education as contribution to your society is the only way this country is going to survive, if it is going to survive. The corporate thugs think only about themselves and the now because it is they who are enjoying all your money.
And how the republicans hate a society who are free thinkers and can see the injustices before their eyes. Deny education and keep them ignorant via propaganda is their method.
So it's the government's responsibility and not the people's?
Too many of your fellow countrymen are willing to stand in long lines to get the latest Wii-Wii or Apple product made in China.
Is the social justice euphemism for a ubiquitous poverty?
The interaction between individuals in an economy should not be planned out to a great degree. It should exist inside a set of fair laws and regulations, but beyond that, economic interactions should be on circumstances mutually agreeable to all participants, without government intervention.
What has warped our abilities to plan our economic direction has been the steady encroachment of debt and credit into our lives. By allowing people to 'have now, pay over time' we have predictably created a nation where people choose 'have now, pay later' over 'work today, buy tomorrow', because the first path is easier. Now, as a nation, we're a soft, bloated, debt-ridden international beggar. Very embarrassing. I'm glad our Founding Fathers can't see us.
But you are missing the point of my post. I am trying to draw attention to the fact that a few can destroy an entire economy without accountability. They have been making billions in profits (placing that in off-shore tax shelters), out-sourcing jobs to other countries. Or collect millions in bonuses, while their company lays off people to cut "costs". Or speculate with other peoples money without accountability, until the "papers" become worthless commodities. Or raise interest rates to loyal borrowers who make timely payments. All this without any restraints whatsoever.
When you drain all the money out of an economy, eventually there will not be enough money to sustain the economy. This is why, under these circumstances, strict laws must be passed to force these abusers of free enterprise to act responsibly.
Finally, let me remind you that optimism, not prudence was the direct cause for the collapse of this economy.
About govt spending, defense buildups and war have little to do with US fiscal situation. From 1980-2009, defense spending as percentage of GDP has been small compared to 1950s-60s, and 1970s. The budget has been blowing up because of entitlement programs. Are tax cuts really "tax give aways" when you're allowing people to keep their own money? The problem in 1980s and 2000s hasn't been govt revenues, which were high, but growth of entitlement and social programs.
About health care spending being wasteful, look at this graph
http://www.fxstreet.com/fundamental/economic-time-series/data/blsce/ces6562000001.aspx
If not enough, take into consideration that most data about US healthcare is dragged down substantially by low income inner city populations and hospitals. also note Americans take way more tests and take far more medications than necessary, particularly anti-depressants, plus seek counseling at rates unimagined by foreigners.
About infrastructure, spending has been higher this decade than the last two. Most infrastructure in recently developed areas in states like CA-NV-AZ, N VA, NM, FL are very new, while in the old industrial belts of Midwest and NorthEast its aged.