Wall Street Still Near Full-Employment: How Can That Be?

Unemployment rose to 9.5 percent of the workforce according to the BLS. But, the effective jobless rate is 18.7 percent, if we use more exacting data formulated by Leo Hindery, chair of the Smart Globalization Initiative at the New America Foundation, with more than 30 million of us out of work or forced into part time work because of the lack of jobs.

We got into this mess because of a gigantic failed experiment that began in the late 1970s. The idea was to deregulate the financial sector and cut taxes on the super-wealthy. The sales pitch in favor of these changes was that we'd create an investment boom and improve jobs and incomes for everyone. Part of the experiment worked: Money gushed to the top fraction of one percent and certain kinds of investing did increase. But average wages after inflation actually declined so that today they are 18 percent lower in buying power than in 1973.

Instead of creating more and more investments in the real economy--the kind of investments that actually promote improvements in living standards--the money accumulated by the super-rich flowed into Wall Street and fueled an enormous fantasy finance bubble. Wall Street created synthetic derivative securities, often based on junk debt, that sucked up the wealth and added little or nothing to the real economy. But the bubble made Wall Street filthy rich. When markets finally realized how hollow the bubble was, prices collapsed and the banking sector froze. The real economy was starved for credit and pushed into a free-fall unseen since the 1930s. (See The Looting of America).

Not only did all boats fail to rise on the way up, but all boats are not sinking as fast on the way down. Contrary to media portrayals, Wall Street is still doing quite well compared to other sectors. We all know about the million-dollar bonuses financial management is paying itself out of taxpayer bailouts, but also consider the unemployment situation. According to the latest BLS data, the unemployment rate for "Financial Activities" was only 5.5 percent--that's the kind of unemployment rate most of us associate with boom times, not deep recessions. Meanwhile, construction workers face a 17.4 percent unemployment rate (and this is the building season), while 12.6 percent of all manufacturing workers were out of jobs. Even the "information" sector is suffering with a 11.1 percent unemployment rate. (Table A-11, http://www.bls.gov/news.release/pdf/empsit.pdf)

So why hasn't the crash devastated employment in the financial sector? One big reason is that we put the entire sector on welfare. We pumped in several trillion dollars of cash and asset guarantees to keep the entire sector afloat. You would think Wall Street would be thanking us all for taking the hit while they roll along. Nope. Instead they are doing all they can to gut each and every regulation that might protect us against their fantasy finance schemes. They are even mounting a full scale attack (using our resources) against the proposed Financial Consumer Protection Agency. (See "Redefining Chutzpah: Wall Street Uses Bailout Money to Kill Financial Consumer Protection Agency" at http://www.huffingtonpost.com/les-leopold/redefining-chutzpah-wall_b_224493.html)

When you step back and look at the arc of this, it makes you wonder about what our nation has become. We give the financial sector the keys to our economy, and they literally crash it so badly that we start to slide into a depression. Our real economy collapses and nearly 30 million workers suffer joblessness to greater and lesser degrees. We then are forced to bail out the financial sector and they are spared not just the worst of the suffering, but almost any degree of suffering at all. Then they take our money and fight against regulations that might protect us.

And yet the biggest protests we've seen so far come from the tea-bagger's brigade, shrilly decrying miniscule tax increases on the very, very rich. What's wrong with this picture?

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.

Follow Les Leopold on Twitter: www.twitter.com/les_leopold

Comments

[sabredance]

Great post, as usual. Perhaps it's time to start busing in HUGE numbers of really ticked off ordinary Americans to Wall Street and Washington.

[JBS]

Yeah, that's gonna work ...

http://www.eyewitnesstohistory.com/snprelief4.htm

[Hiphopcrates]

Time for the unemployed accompanied but other outraged Americans to march on Wall Street! Shut it down until an honest system of finance can be established. Bankers have screwed the pooch!

[hark]

Dream on. It's about the only thing the powerless can do.

[Hiphopcrates]

I can't even sleep, let alone dream!

[TraderMark1]

Great post
Been saying the same things on my blog for a few years but if you dare breath such comments you are branded a "socialist" - ironically socialism in America means taking from the middle and giving to the rich. Lol.

p.s. curious where you got this
"But average wages after inflation actually declined so that today they are 11 percent lower in buying power than in 1973."

I've seen stagnating wages since 2000, but havent seen your data point - would love to source it.

[Les Leopold - Huffpost Blogger]

My apologies, that's a typo. It's an 18 percent drop for the average non-supervisory production worker. It comes from a graph we put together for "The Looting of America," (p 14-15). The wage data comes from the BLS. Then we deflated it using the CPI. In 1973 the average non-supervisory production worker wage was $746 per week (calculated in 2007 dollars). By 2007 it dropped to $612 per week. There are about 94.6 million non-supervisory production workers in the country today. Feel free to use "The Looting of America" as your source. It's been vetted by several fact checkers.

[NHGranite]

Bush had the perfect plan. Wall Street aka Big Banks are all OK because he bailed them out without questions or accountability before the election. Many of those who ran Wall Street are now working for us in the Capitol. Unions have been busted. The truly rich can buy more property with "bad assets" dragging down the rest of the real estate market, making for some good deals. Many people who have been laid off are older execs, so he saved Social Security too - these workers won't have the full benefits because they are not working till 65 and they have to pay 100% of COBRA medical benefits themselves. And finally, who is going to look worse by the next elections? Dems who are struggling to keep the boat from sinking, or Repubs who have been swept out to sea and will be swept back in? Sounds like a plan.

[jmpurser]

Great article.

[Idytme]

"But average wages after inflation actually declined so that today they are 11 percent lower in buying power than in 1973."

Thank you, thank you for putting this info in this article. I only read one site that constantly reminds people of this, there is no mention of this at all in the MSM. The theme is that people have gotten to greedy and spend out of their means which is just a part of the story, but the truth is that wages have not kept up with inflation and people have to work more (or borrow more) just to have the same purchasing power of 35 years ago.
" Increased productivity" as reported in the business section, a *good* thing for Wall Street, really means people are working harder for less money, not a great thing for main street.

[MeDonut]

Very well said Les.

I'm a Democrat. I gave $2K to Obama during the election. I really, really wanted him to win. I bouhgt into "Change you ccan believe in." Now it kills me to see how quickly Wall Street got saved and at the same time there has been zero progress in either creating jobs or stopping foreclosures.

The government literally guaranteed their 2008 bonuses and is even now giving them billions of more bonuses for 2009. At the same time, all that working Americans have received are empty promises. Today's HuffPost home page says it all: Unemployment is up; Foreclosures are up; and here's the kicker: Wall street bonuses are back!

Effectively, the only thing the government has done so far is to insure that the money that was stolen from the middle class for the last 30 years never, ever gets returned to the middle class.

You say, "Oh, come on you can't expect change over night." OK, let's talk about longer term. That's even more depressing. This proposal for a Consumer Financial Protection agency is a total farce. It's 1970's thinking. It doesn't get at any of the root causes. Frankly, it's fine by me if the banking industry kills it because it won't do anything anyway.

I'm like Paul Krugman -- I feel despair. There will be no reforms. There will be no justice. The USA that I was born into 50 years ago no longer exists. It's a terrible shame.

[02bmw76]

Well said.

[aofh]

Dispair won't fix things either. Neither will giving up. Deregulation was a change in thinking that didn't happen overnight. Wall Street regained its preDepression prominence about the same time. At the core are ideas about how the economy operates that have become received wisdom and prescribe how people think about how the economy should and does work. Those ideas need to be identified and challenged. The real battle is in dethroning those ideas. If those ideas aren't successfully challenged, nothing will change because people won't see other ways of doing things. That won't happen this summer and may not happen over the next four years. Indeed, if people like Krugman and you and I don't challenge those ideas in conversation with our peers, there won't be any change.