I thought it was bad enough when Larry Summers, the director of the National Economic Council, declared last December 13 that the Great Recession of 2007 was "over" simply because GDP grew minimally in the second quarter of 2009 following several quarters of decline. This despite the fact that GDP growth became a thoroughly discredited stand-alone measure of economic vitality fully two decades ago when globalization began to expose the weaknesses in our top-down, supply side-driven economy.
But Treasury Secretary Timothy Geithner, from an even higher administration perch, has consistently evidenced the same proclivities as Mr. Summers, and over an even broader range. Two weeks ago, Geithner had the temerity to say:
- "Business investment and consumption -- the two keys to private demand -- are getting stronger, better than last year and better than last quarter.
- "Even the surge in imports, which lowered the rate of increase of GDP, actually reflects healthy and growing American demand.
- "American families are saving more, paying down their debt and borrowing more responsibly.
- "The auto industry is coming back, and the Big Three -- Chrysler, Ford and General Motors -- are now leaner, generating profits despite lower annual sales.
- "The White House and Congress helped save 8.5 million jobs."
This is egregious 'spinning' -- and it's out of control.
Almost every day, Mr. Geithner gilds the economy's lily in inappropriate attempts to delude American workers into believing that: business investment is in fine shape when in fact businesses are sitting on an unprecedented $2 trillion of cash precisely because of 'uncertainty'; the "surge in imports" is "healthy" when in fact it is an ongoing nightmare (i.e., just in June the overall U.S. trade deficit in goods and services surged 19% to a 21-month high of $49.9 billion); income inequality is not so unequal when in fact it is at its highest level since 1928; the "auto industry is coming back" when in fact most of its vigor is coming from cutting domestic employment in favor of offshoring; and "8.5 million" jobs have been saved by the White House when just a few weeks ago Geithner himself used the figure of "3 million" for jobs created and saved.
These several assertions of Geithner's aren't just disingenuous and disrespectful -- they're also dangerous, especially his implicit suggestion that consumers should once again feel comfortable 'borrowing and spending'. If they become commonly embraced by the American people before there are significant economic reforms and successful major job creation initiatives, then that double-dip recession that many of us fear may be coming will arrive in a very big way and it could turn into the second longest L-shaped recession in our country's history.
Here are some additional truths about our economy, over and above the sad income inequality truths that now hang over our nation like a plague:
- The real unemployment rate is 18.3%, not the 9.5% official rate the administration uses.
- The number of real unemployed workers in all four categories of unemployment is 29.3 million, not the administration's one-category-only figure of 14.6 million.
- Since the start of the Obama administration, the number of real unemployed workers has increased by 4.6 million. By contrast, the economy needs to add around 150,000 new jobs each month simply to keep up with population growth.
- In real terms the all-important "jobs gap" is 21.3 million new jobs.
- The average number of weeks unemployed is at least 34.2, and the number of workers unemployed a half year or longer is at least 10.1 million.
Mr. Geithner's rhetorical deceptions mask the ineffectiveness of the only two potentially meaningful job-creation initiatives -- aid to the states and the bailout of Detroit -- that he and Summers largely put together, while letting him ignore the several initiatives, including trade reform, which could actually create, relatively quickly, millions of jobs.
In early 2009, Geithner and his colleagues promised that the stimulus package would materially help turn around the states' crushing budget woes, which is critical because the states remain the foundation of much of America's job stability and significant job creation. Yet even with the $26 billion of emergency aid just approved by Congress, for the years 2009 to 2012 the states will have had to confront around $275 billion in budget deficits. For the fiscal year ending next June, 46 of them will have to close budget shortfalls aggregating $100 billion or so. Without significant further federal intervention, in the amounts originally contemplated, the states' bleak fiscal and unemployment positions will "continue to erode and hurt the U.S. economy through 2060", according to a recent report by the U.S. Government Accountability Office.
A much needed promise, yes, but actual, meaningful assistance, not so much.
Then there is Treasury's bailout of Detroit. Or better said, its bailout of 'Detroit-cum-Mexico'.
The bailout of the U.S. auto industry by Treasury was indisputably appropriate. But what was indisputably inappropriate was the almost complete absence of any meaningful "quid" for the massive financial "quo" we gave the industry. Despite the staggering $85 billion bailout of General Motors and Chrysler, U.S. automobile production will actually decline over the next decade because of further offshoring, mostly to Mexico, by the two rescued automakers and by Ford -- even now, the three U.S. automakers and their associated parts manufacturers have a $46 billion trade deficit with the rest of the world.
Congressman John Dingell of Michigan has written that, "the U.S. automakers benefitted greatly from federal largesse and they should feel morally compelled to retain and create as many domestic jobs as possible." Obviously the automakers don't agree, nor, when it had the opportunity, did Treasury demand that they do so. Here are a few more truths:
- GM has invested a staggering $4.1 billion in Mexico over just the last four years, and after quickly shedding thousands of American jobs in the 'bailout', it recently announced a further $500 million investment in its Ramos Arizpe, Mexico plant to produce a new vehicle and a new line of engines there.
- Chrysler announced in February that it will spend $550 million to retool its Toluca, Mexico factory to assemble the subcompact Fiat 500 model.
- Ford has announced $3 billion in new investments throughout northern Mexico just since 2008.
Driving all of this home is the statement two weeks ago from Ed Whitacre, the Chairman and CEO of General Motors. Whitacre, it is said, is so eager to rid GM of the "stigma" of being government owned that he wants Treasury to sell its entire stake in the company during GM's upcoming initial public offering of stock. "We want the government out, period," he has said.
When Mr. Whitacre speaks of "stigma" I think he means that he doesn't want any scrutiny of his company's ongoing offshoring moves, which should have been largely prohibited by Treasury in return for the massive government aid which saved his company's bacon. He probably also means he doesn't want Congress scrutinizing the company's embarrassing purchase three weeks ago, for $3.5 billion, of AmeriCredit, a subprime lender which, at a time of unprecedented 'financial illiteracy' and continuing financial chicanery, is committed, as the New York Times wrote, to "extending loans and leases to [GM] customers with questionable credit".
After recently visiting three auto plants in a single week, President Obama told workers at a Ford plant, "I wish [the adversaries] could see the pride you take in building these great American-made cars. Don't bet against the American worker; don't lose faith in the American people; don't lose faith in American industry." Yet the way Tim Geithner put the auto bailout together, the future of the domestic automobile industry won't only be about American workers and American-made cars. In fact, Mexico's share of North American auto production will rise to 19% over the next decade, from an average of 12% from 2000 to 2009, while the U.S. will lose these 7 percentage points.
No one smart lacks confidence in American workers. What I lack is confidence in a Treasury Department that, with little advice from industry experts, used tens of billions of dollars of taxpayer monies to bail these companies out, but didn't restrict them from offshoring American jobs and buying shady subprime lenders while still owing money to the government.
Mr. Geithner should also have been using his office to advocate for jobs programs for the five million or so out-of-school unemployed youth and for large-scale infrastructure spending using a "national infrastructure bank" that could fund infrastructure improvements away from the annual federal budget.
Other than youth jobs programs and trade reform, the benefits of which would be very quickly realized and instantly accredited to the economy, the biggest near-term job creation opportunity is in rebuilding old and building new infrastructure, of which we need a staggering $3 trillion worth. And for each $1 billion devoted to this need we would create at least 25,000 and up to 45,000 permanent, mostly high quality jobs.
The impetus for what needs to get done in infrastructure was the collapse, three years ago, of a major bridge in Minneapolis which killed 13 people. Yet in those three years -- 18 months under Bush and now 18 months under Obama -- the number of "structurally deficient" bridges in Minnesota has actually increased from 1,156 to 1,206. Nationwide, there are a staggering 71,000 substandard and thus dangerous bridges, virtually the same number as in 2007, which the Federal Highway Administration says will alone take $100 billion to bring up to par.
However, last year's stimulus package, which Geithner and Summers largely designed and shepherded, earmarked a meager $3.1 billion for bridges and only de minimus amounts for the other '$3-trillion-minus-$3-billion' of needed work. And, notably, it provided no foundation funding for that all-important national infrastructure bank.
So, as in baseball, here's my box score on Tim Geithner: two pop ups to the catcher re: the States and Detroit, and then two swinging strikes on infrastructure and youth unemployment. (As you can see, I gave him the benefit of two more swings at the ball even after his two early outs.)
The Ur Union of Unemployed (UCubed) repeated its call for Secretary Geithner to resign following the news that in June and July hundreds of thousands of additional jobs were lost. "These figures are the very best we can expect from a Geithner-led economy - stumbling and uncertain job growth for years," said Rick Sloan, Acting Executive Director. "America's jobless simply can no longer afford his slow-as-molasses approach to job creation."
UCubed and I don't expect Mr. Geithner to create the millions of jobs we need today in order to again be fully employed -- as Harry Truman would have said, that's the President's job, plus Congress'. But we and countless others committed to a fully employed economy do expect him as Treasury Secretary to completely understand the issue and embrace its importance and to frame effective, U.S. advantaged solutions for the President.
And since he doesn't seem to be able to do any of this, I agree with Mr. Sloan that he should resign -- immediately.
Leo Hindery, Jr. is Chairman of the US Economy/Smart Globalization Initiative at the New America Foundation and a member of the Council on Foreign Relations. Currently an investor in media companies, he is the former CEO of Tele-Communications, Inc. (TCI), Liberty Media and their successor AT&T Broadband. He also serves on the Board of the Huffington Post Investigative Fund.