We just got a glimpse of the future and it ain't pretty.
Over the past decade Wall Street went on a reckless betting spree that nearly ruined us. First, they gambled their way into enormous riches based on absurd financial instruments that turned toxic, They paid themselves lavishly, went bust, and then forced the taxpayers to cover all their bad bets. After begging for and receiving the largest welfare package in history, their record profits and bonuses are miraculously returning, while the (BLS U6) jobless rate hovers over 17 percent. Thankfully, that's over and done with.
Or is it? Too-big to fail is now our official policy: The nineteen largest financial institutions that comprise two-thirds of our banking system have been declared permanent fixtures. Our leaders talk of reining them in and of collecting fees to help pay the cost of future bailouts. But, talk is cheap and campaign contributions are always welcomed.
Clearly, we've got a tough decade ahead. What will be our greatest economic challenges?
The Jobs Shortfall
The Wall Street crash tore a gaping hole in the economy, destroying more than eight million jobs. The unemployment rate is likely to remain painfully high for years. If Krugman and Stiglitz are correct about a possible double dip recession in second half of 2010, then more job loss is coming. Right now there are about 30 million Americans who want full-time jobs that aren't there. (Remember you are not counted as unemployed if you work as little as one hour a week).
Unfortunately, we are relying on trickle down economic growth to produce jobs, and it is failing us. The theory goes like this: First we resurrect the financial sector by giving it all the cash it wants. After the banks are solvent again they are supposed to lend money to jobs-creating buisnesses. To kick-start the engine, we also provide a stimulus program. Then it all comes together to create growth, and jobs will trickle down to those who need them.
It is much more likely that coming decade will show the highest average unemployment rate since the Great Depression. I hate to make predictions but here's one you should find a bookie to cover: to save face the government will redefine full-employment from four percent to more like six or seven percent. Full-employment will be a dream deferred.
We need to face up to the fact that the private sector may never again provide sufficient jobs for all who are willing and able to work. Perhaps an even bigger challenge is to support the idea that the government (state, local, federal) should become the employer of last resort. We are going to need something like a Works Progress Administration (a "Caulkers Corps"?) to put our people to work.
The Greening of the Economy
There's a lot of loose talk about how we can create millions of new jobs by switching over to renewable energy and toxic-free production. Certainly, we've taken baby steps with mandatory renewable portfolios and by encouraging energy efficiency. But we're nowhere near a green renaissance and we're in danger of shipping many of these jobs abroad.
So far it seems that jobs involving installation and maintenance of renewable energy systems - grids, wind mills and solar installations will be performed by U.S. workers. Similarly, jobs relating to weatherizing homes and businesses also should remain local. But unless we take specific steps to nurture green industries, most of the manufacturing of wind mills and solar panels will take place in low wage countries. This could cost us millions of potential jobs.
The challenge is whether we can master the "free trade-protectionism" conundrum. Virtually every other nation in the world finds ways to protect its vital jobs-producing industries. Why not us?
Re-building the Middle Class
Not only do we need millions of new green jobs, but also we need jobs that pay well. Over the past three decades the average real wage of the non-supervisory production worker (a group that includes about 70 percent of all American workers) declined by 18 percent. With this decline has come a progression of increases in work and increases in household debt - from one wage-earner families to two wage earners to increased work hours to increased debt. The incomes of the average worker must be increased. But how?
It once was the case that that productivity increases inevitably led to real wage increases. That's no longer true. Those two trends have split apart starting in the mid-1970s, and now the lions share of the productivity increases go to the super rich (See The Looting of America Chapter 2).
Supposedly, our great hope, we are told, is to become more educated so that we can move up to new higher wage jobs in advanced technology industries. That seems to be working well for perhaps the top 10 percent of us. But even those jobs are in danger of being transferred to low-wage economies that also have well educated workforces. The sad fact is that the more we rely on market forces alone, the more we will get a hollowed out middle class.
We should encourage rising wages through increasing the minimum wage and through facilitating unionization. But, the greatest challenge will be to create an industrial policy (as all other countries do) that actually supports our most promising and vital industries.
Wall Street Madness
Unless you're Rip Van Winkle, you've probably noticed that Wall Street is up and running again, and up to its usual tricks. The bankers are creating new fantasy finance securities. They are speculating on every market they can rig. They are engaged in barely lawful, high speed trading schemes. Record profits and outrageous bonuses are returning and yet banks still aren't lending to the real economy. Meanwhile they have deployed an army of lobbyists to water down each and every proposed regulation that might disrupt their elaborate casino games and outrageous profits.
During the upcoming decade we've got to put an end to this mess or we'll be bailing them out again and again. Wall Street is fundamentally broken. Fixing it will require a heavy hand. Relying a Rube Goldberg-like regulations pieced together under the watchful eyes of bank lobbyists won't work. Our fundamental choice is to break up the nineteen largest financial institutions into much smaller entities or to nationalize them.
Taxing billionaires to rebuild our infrastructure
Our most fundamental public systems, from education to the energy grid, will need to be rebuilt over the next decade. Where will the money come from?
It should come from the billionaire class that has more wealth than anyone could possible need or use. The point is not to do away with all inequality. That's part of the human condition. But our current distribution of wealth is the result of policies - from tax breaks for the super rich to the deregulation of the financial sector. For 30 years we've facilitated the accumulation of wealth in the hands of the few. Forgive me for repeating one of my favorite statistics: In 1970 the ratio of the compensation of the top 100 CEOs compared to the average production worker was 45 to 1. By 2006 it was an astounding 1,723 to one.
There is no rational way to justify that accumulation - no economic theory can account for it. It has no connection to education or skill or entrepreneurship. It's a debilitating distortion of our economy.
In the next few years the deficit hawks will rule the roost and tell us that we can't afford to rebuild our country. But we can if and only if we are willing to tax the wealthy.
How much money do billionaires have? More than we can possibly imagine. The top 400 richest Americans alone have a net worth of about $1.27 trillion (and that was after the crash and before the recent run-up of the stock market.) If we had the political will to reduce their net worth to only $100 million each, (Think they could get by on that?) you could raise about 1.2 trillion for our infrastructure - enough to provide free tuition for every American attending two or four year public colleges and universities --- in perpetuity!
Our challenge is to get over the idea that we're a pauper nation and can't afford new shoes. The money is here but in the hands of a tiny elite. Getting it deployed for productive uses for our society as a whole will be an enormous challenge.
Resurgent Republicans and Building a Progressive Economic Movement
If unemployment stays high, voters are likely to vote in a Republican Congress which means we get gridlock or more "market-oriented" economic efforts that are sure to fail. Progressives have to pick up the pieces and lead the challenge to the financial elites and the billionaire bailout society.
What will that take? It starts with the creation of a new economic agenda that speaks to mainstream Americans. What are we for? Do we want to break up banks? Nationalize them? Regulate them? Do we want to get rid of the Fed? Go back to gold standard? Eliminate fractional banking? Do we want caps on obscene salaries? Do we want the government to create jobs or do we want to subsidize business to do it? Do we want a wealth tax?
It's time that our progressive infrastructures (unions, churches, community organizations, environmental groups etc.) got together to formulated a common program, and then rigorously test it with the American public. Either we get our act together soon, or we will watch the Tea Party capture all of the pent up anger and frustration.
It's up to us to depict a compelling alternative to a world run into the ground by financial elites. Even trying and failing is better than leaving the decade as we started it: wards of the billion bailout society.
It's not a lost cause, only a very difficult one. Let's toast to our willingness to try.
Happy New Year!
Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It, Chelsea Green Publishing, June 2009. u
Follow Les Leopold on Twitter: www.twitter.com/les_leopold
Women’s International League for Peace and Freedom
Corporate control over our government, over "We the People", is a travesty, and to think that the rallying cry of the teabaggers plays straight into the hands of Corporate tyrants spawned by decades of "market solutions" ...? Frightening. I've long wondered how much money the top 1% must amass before there is no longer such a thing as "working poor"? Before capital can "afford" livable wages? 95% of the wealth in the hands of 1% of Americans, is an anathema to democracy, as is an unregulated "free market". And, apparently, STILL not enough to alleviate poverty amongst working Americans. A strong social safety net, public employment, regulatory structure that accounts for environmental and human costs, and taxation commensurate with wealth is so desperately needed. Voting is just the beginning. The government must be made to fear the people more than bankers, and to subjugate the interests of donors in favor of the basic human needs of the American people to live in simple dignity.
And outlaw all political contributions as the bribery they are!
Institute public campaign financing, at all levels.
Bring back serious regulation of private industry by government.
Redefine and protect the commons in the interests of the people.
If we don't do these simple and necessary things soon...
bend over and kiss it all goodbye.
1.Big money. Capital can flow freely and be applied wherever
it's most profitable, the returns enriching investors large or small.
2. Foreign workers, in this case Chinese. As they are now the new industrial machine that makes everything, their standard has risen admirably as they are "lifted out of poverty" by the hundreds of millions. They will become new consumers of the good they produce benefiting not only themselves but the investors as well who were rich and savvy enough to get on board.
But the failure of this model is in never addressing the conditions affecting Americans who are not part of this investor class but simple middle working class. It was assumed, wrongly, that they will adjust, use the legendary American spirit of innovation and bravado to find a place for themselves in this new global marketplace of opportunity, and that new high tech industries will spring up which would be not only profitable but green as well. This is quite questionable as realities prevent it at least for the time being. One of the biggest errors was forgetting that all the goods produced, even in China, need American consumers who make a living wage which allows them to buy. The idea to produce everything cheaply elsewhere sounds great until you realize that the workers are the consumers as well.
Globalization is a colossal failure when measured against the welfare of the American middle class. Globalization's stated goals were admirable, and the results have been beneficial to some of the parts of the equation but the segment that got the shaft was the American middle class. The worker with average education who expected and was able to go to the nearest factory after High School and get a job paying a decent living wage assuring him of middle class existence in a single family home with a couple of cars in the driveway, is part of history--but it was exacyly this class of people that were the basis of America and it's institutions, and the fallout of its loss has yet to be determined as it reaches critical mass. CONTINUES:
Outlaw all political contributions as the Bribery they are,
Bring Democracy to the USA!
How do we get our bought and paid for reps to do this?
Wake UP!
We must get our citizens to stop voting against their best interests, to stop voting for conservatives, gop or DLC. To vote for the liberals, the Progressive Caucus, Kucinich, Dean and the like.
Stop listening to the Conservative war criminals like Cheney and Bush, it always propaganda, very cleverly designed to fool you, don't give them the chance. You KNOW they are Consummate liars.
Make all candidate take a pledge to outlaw contributions.
They are working smarter at PERAB than they are at the Fed or Treasury, likely because they have not been as influenced by the banks. They just last week advocated a return to community banking, creation of a national infrastructure bank, green jobs and other good things the network media has shunned.
Obama should be encouraged to fulfill his campaign promise to provide a tax credit directly tied to creating a new job. But maintaining jobs is important too.
Just as individuals receive tax breaks for actually working under the Earned Income Tax Credit, business should also receive generous incentives to produce tangible goods and services to help revive domestic manufacturing and service.
We must reduce the number of "paper-pushing" firms, who produce nothing and thrive off fees, hidden clauses and shell games.
But without complaining about Obama or the government, the American people could do this themselves, quite easily, in fact, by withdrawing their money and investments from these firms. There are bad banks and better banks (or credit unions).
Why do business with a bad bank? Inertia, apathy, disinterest?
Anti-trust laws are still on the books.
WHY isn't anyone enforcing them? Anyone like the Attorney General, for instance?
BTW, there is no such thing as too big too fail. No such thing. The bigger it is, the harder it falls. And fall it should!
Brake down the large banks and most of all the large corporations. What we need is a very strong base of small and medium sized businesses and a strong manufacturing base.
The small and medium sized businesses are the backbone of the economy. This where you create jobs and these companies provide more jobs than all corporations together (if we let small and medium sized companies flourish). That means we have to change the game! We need laws that provide for a fair playing field for small businesses meaning free access to consumer markets for example. A strong manufacturing base is essential for any economy because when you produce you create value like nowhere else. This is why Cap and Trade is frivolous and quite frankly criminal!
(see part 2 and 3 for more!)
What we have witnessed last fall is a complete and fundamental breakdown of our financial and economic system – period!
That means: Wall Street is over; Globalization is over, Corporatism and Capitalism as we know it has failed and is over!
Over the past decades we as a country had year by year budget deficits that have now accumulated to our overall debt to over 13 trillion (plus $$$$)! That is unmistakably proof that our overall financial and economic system is fundamentally broke!
That is why it is frankly criminal from the Obama administration to continue with that system and back it up by taxpayer’s money! What we need is serious change!
By now it must be clear to everyone that Obama is not change at all and that he made things worse, (by putting the tax payer on the hook!). Obama needs to go – now!
Bush/Cheney almost destroyed the planet!
Obama is treading water trying to salvage something.
Sure, he is doing a poor domestic job so far, pandering to the Money Interests.
But he's still better than the alternative offered by Republicans.
And if he had an intelligent Democratic Congress, rather than a mediocre incompetent bought-and-paid-for Democratic Congress, he could actually effect some change!
Put the blame where it truly lies.
Little of it with the president so far. Some. But little.
Most with Congress.
Much with Bush Admin.
Pitchforks and torches anyone? It's going to take something like that.
So don't think "resurgence" or "surge" or anything remotely fast. This will take decades. And it starts by taking over the local city council. And then you county, then state....
peace out,
don
The sad fact is that Obama is using H-1B to really crush the middle class. Democrats are determined that the middle class not recover.
Maybe not care. Maybe not help. Maybe not save. Maybe not work for. But that's due to incompetence and myopic vision.
WHY would they DESTROY their BASE?
Shrub and his gang of thugs used it viciously for 8 years to destroy the middle class.
Put the blame where it belongs and stop rewriting facts. (ie. Obama's terrorism response v Shrub's)
I am constantly amazed that someone a stupid as Shrub could have brought the Western world to its knees.