The August unemployment numbers are ugly, yet again. Nearly 30 million Americans are still jobless or forced into part-time jobs. The Bureau of Labor Statistics official unemployment rate is 9.6%. It's broader and more telling jobless rate (U6) of 16.7% confirms that we're stuck in our own version of the Great Depression. We'll need more than 22 million new jobs to bring us back to full-employment. Happy Labor Day.
To get out of this quagmire we'll have to face up to two fundamental facts:
1. We really are in the midst of a horrific jobs crisis. All the happy talk about the economy being on the road to recovery is just plain old denial. We'll never find jobs for all the people who desperately need them until we recognize that this employment crisis poses a clear and present danger to our republic. Modern capitalist societies require full employment. When we don't have it for long periods of time, chaos ensues. What's missing in Washington is a sense of urgency. Denial is dangerous -- and an insult to the unemployed.
2. We must face up to the real causes of this mess. Unfortunately, a lot of Americans are succumbing to a wrong-headed narrative that has been pushed into our heads:
"We Americans sank ourselves in debt. We consumed more than we produced. We bought homes we couldn't afford and used them as ATMs. Of course Wall Street did its part by offering us mortgages they knew we couldn't really afford. The government also contributed mightily by pushing Fannie and Freddie, the giant housing agencies, to underwrite "politically correct" loans to low-income residents who shouldn't have been buying homes at all. In short, we all are to blame."
From a flawed narrative always comes a flawed policy prescription:
"The era of excess is over. We need to cut back on spending and borrowing. We need to reduce government debt by raising the Social Security retirement age and cutting social programs We've got to streamline our public sector by laying off public employees and cutting back their lavish pensions. And all workers will have to adjust to an era of intense foreign competition: We've got to reduce our wage and benefit demands if our companies are going to compete globally. We have to live within our means."
In short, we gorged ourselves until the economy crashed. Now we've got to tighten our belts and accept less to get it going again. It's simple and logical and.....dead wrong.
Collective guilt is always seductive. It may even be programmed into our genes. It's possible that prehistoric homo sapiens survived by sharing blame in difficult times. But that soothing instinct does not serve us well today. We need to know the truth behind this crisis if we're going to come close to solving it.
For starters, "we" didn't create this mess. Wall Street did, with the help of politicians who pushed through financial deregulation and an increasingly regressive tax structure that put outrageous sums of money in the hands of a few. Freed from regulations and flooded with money, Wall Street bankers went crazy. And before long, our economy crashed.
It really is that simple. Starting in the late 1970s our country embarked on a grand real-time experiment to "unleash" the economy from government rules and oversight. The theory was that to end the era of "stagflation," we had to cut taxes on the super-rich, freeing them to lead a gargantuan investment boom that would of course lift all boats. At the same time, the financial sector was liberated from its New Deal-era shackles. Yes, those constraints had prevented a financial crash for more than 40 years. But now, argued the best and the brightest, the new world order required a more nimble financial sector. Naturally, the markets could police themselves.
In retrospect it seems like a very bad joke.
Actually, the plan did work beautifully for the top one percent of us. In fact, these excessively wealthy people laughed all the way to the bank. America's distribution of income, which had been reasonably equitable during the post WWII era, flew apart. In 1970 the top 100 CEOs earned about $45 for every dollar earned by the average worker. By 2008 it was $1,081 to one.
With so much wealth in hand, the super-rich literally ran out of tangible goods and service industries to invest in. There simply was too much capital seeking too few real investments. And what a honey pot that proved to be for Wall Street's financial engineers! Freed from any limits on constructing complex new financial products, hedge funds and too-big-to-fail banks and investment houses created an alphabet soup of new securities with the sky-high yields the super-rich craved. The rating agencies abetted the crime by blessing these flimsy products with AA and AAA ratings.
Wall Street built this flim-flam of finance out of junk debt -- like sub-prime mortgages -- which it could pool, slice, and resell for enormous profits. In fact, selling these bogus securities was the most profitable enterprise in the history of Wall Street. Wall Street wrapped credit default swaps and collateralized debt obligations into pretty packages so that they could literally sell the same underlying junk assets again and again. It was through these marvelous feats of financial engineering that a $300 billion sub-prime crisis turned into a multi-trillion dollar catastrophe. (Check out The Looting of America for all the gory details.) And that's how, the big bankers -- not us -- pumped up the biggest housing bubble in history. Wall Street didn't need Fannie or Freddie or low-income homebuyers. It just needed deregulation, a lot of super-rich people with money to burn, and junk debt it could spin into AAA gold.
The whole scheme worked just fine as long as the underlying collateral (our homes) appreciated year after year. But as soon as housing prices peaked, it was game over. The upside-down pyramid of debt and junk financial instruments came crashing down. The entire credit system froze, tearing a gaping hole in the real economy. Eight million jobs were destroyed in a matter of months.
The cause of the crash is no mystery. The Great Depression happened the same way: a skewed distribution of income combined with a deregulated financial sector created a big bubble, and it burst. The only way to break the cycle is to attack those fundamental causes -- we need to move money from the very top of the income ladder to the middle and the bottom, and we need to tie Wall Street up in regulatory knots.
Through steep progressive taxes on the super-wealthy, fair income taxes on hedge funds and transaction fees on Wall Street's proprietary trading, we can keep that bubble from reinflating -- and in the process raise the money we need to put America back to work. With the revenue we collect, we can hire millions of people to weatherize homes and buildings and rebuild our infrastructure. Instead of laying off teachers we can hire more, and provide them with better training and support. We can expand universities and colleges too, and allow people to go to college for free, which will improve our peoples' skills -- and keep young people off the unemployment rolls.
Of course all this would be costly in the short run. But progressive taxes on the super-rich and a windfall tax on Wall Street profits and bonuses would pay for it all, and then some. The American people would understand that it's only fair to require the super-rich (whom we just bailed out) to fund the jobs they helped destroy through their reckless financial gambling. And in the long run, investing in infrastructure and education will make our country richer. Just look at the GI Bill: Giving returning WWII vets a free college education was expensive -- but Congress later found that every dollar spent on the program yielded a return to our economy of $6.90.
Are we really justified in reclaiming this wealth from Wall Street? Well, it's our wealth, isn't it? We just gave it to them. I'm talking about the nearly $10 trillion (not a typo) we shelled out to financial institutions in loans, asset guarantees, market supports, low-interest loans and a myriad of other forms of assistance as part of our rescue of the financial system. Now, thanks to our largess, the bankers are back to making record profits and bonuses again. Even President Obama, who helped engineer the whole deal, is apparently aghast. In his new book Capital Offense, Michael Hirsch quotes Obama at a White House meeting in December 2009:
"Wait, let me get this straight. These guys are reserving record bonuses because they're profitable, and they're profitable only because we rescued them."
During 2009, the worst economic year since the Depression, the top ten hedge fund honchos averaged $900,000 an hour (that's $1.8 billion each per year). And they did it only because we saved their butts from total collapse. Now it's payback time. The bankers owe the American people hard cold cash, not just the promise of a great trickle down in the distant future.
Incredibly, Wall Street executives are howling over every proposal to limit their profits or, god forbid, stick them with part of the bill for all the damage they've caused. They refuse to admit that they've done anything wrong. In fact they feel victimized. They seem to believe that skimming billions from our financial system via taxpayer bailouts is a good thing for everyone. Can they really believe that if we just left them alone, new jobs would flow like wine?
Wall Street billionaire Steve Schwarzman got apoplectic when someone suggested that we close his favorite tax loophole (carried interest which allows him to pay a much lower tax rate than the rest of us). That would be "like when Hitler invaded Poland in 1939," he fumed.
Let's stay with his regrettable analogy. Surely Schwarzman knows that Hitler rode to power in 1932 on the back of Germany's massive unemployment crisis. And surely he knows that a massive jobs programs funded by taxes on the ultra-rich is a far better alternative.
It's time to say "the end" to the "We're all to blame" fairytale. Let's start a new story this Labor Day. It's called, "Put our people back to work."
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
With a government like what the Americans have, they don't need any enemies!
Fair enough I guess. But there's still a case for fiscal indiscipline amongst the populace. Pure greed tends to be in the neighborhood of financial messes, be it excessive borrowing, purchase of unneeded goods or merely living large. There's that inherent need to acquire what we've never had before or live it up, all of which are starting points to financial ruin.
Of course there's a major case for the rich (elite) seeking newer ways to consolidate their wealth. This was itself an avenue for fraud, embezzlement and bonuses, not to mention investment vehicles and ponzi schemes.
Blame began at Eden and so is not unusual. Each person though is ultimately culpable, to whatever extent. That though is not the point as it will take all of us to pull through. While laying blame correctly at certain feet, the blame game as a whole has to stop. Time to grit our teeth, roll up our sleeves, work towards the up and stop all bullshit from those in power, whoever they be.
....was amazed this otherwise solid analysis left out the structural change that's occurred in our "mature" economy. Titans of industry exported our mfg. jobs to cheap foreign workers. (I propose a chain of stores named U.S. R Us, with only US-made consumer goods. But where do you find any stuff for it?)
With the computer/internet boom past-peak and the housing bubble still deflating, what can save this economy? Energy self-sufficiency (including grid-independent systems for individual homes) would seem the obvious answer, but not feeling it. Not feeling it at all.
Fanned.
"We need to know the truth behind this crisis if we're going to come close to solving it" said Leopold. He also said, of Michael Hirsch's quoting Obama: "Wait, let me get this straight. These guys are reserving record bonuses because they're profitable, and they're profitable only because we rescued them."
For THESE GUYS, so-called patriots and wealthy, there is no crisis. It's FIDDLING WITH THE ECONOMY AS THEY SEE FIT FOR THEMSELVES. It's the same old same old since July 4, 1776.
These GUYS…
...have wrested away a system from a monarchy; put in place a Constitutional system with the illusion of a democratic government intended for an empire; they have played their roles in parties with conflicting ideologies; have been linked to all the major institutions they have designed themselves. Presidents, congressmen, judges, generals/admirals, CEOs, everywhere else with leadership structure work for/under them.
...didn't give a damn about slavery, weather or not it could survive. It was up to the manipulated society to decide.
...implemented the Monroe Doctrine to start ruling the world from their backyard, the rest of the Americas.
...made a bundle of money selling arms and servicing both the Union and the Confederates during the Civil War.
...fabricated stuff to seize land from Mexico, sent our youths to war against Spain, in the name of Patriotism, to expand the empire as far as Pacific Asia.
Continues in Part II
These GUYS...
...further compelled Americans to fight in WWI to establish their foothold as a world power.
...stepped in the Middle East to manipulate former satellite countries from the Ottoman Empire for oil and other minerals, and to further expand the empire.
...suffocated Americans in the Great Depression. They hated FDR because of his social policies.
...competed against the Axis power for world domination, then with the Soviets. They nuked Japan to show off to the world their macabre power.
...established Israel in Palestine to aghast the Muslims for purposes too complex to explain.
…devised a new form of fascism called Inverted Totalitarianism, after FDR.
...stretched their arms to Asia against Communism in the Koreas, Cambodia and Vietnam.
These Guys are now at their worst since they have been considered the sole superpower after the Soviet collapse. They became despised by many countries and groups from around the world, especially by the radical Islamists who retaliated directly through terrorism.
While the fight for world dominance continues against other powers like Russia and China, and towards an ancient power--Iran, the Americans, whom these Guys sophisticatedly manipulated, are divided over race, class, religions, social issues, economics, expressions, liberty, and etc.
Now, these Guys don't care if the American society turns into a third world, as long they have the military that keeps sucking the economy and American tax dollars just to keep going to wars and to loot the world.
The wrong headed thinking will soon be back in charge when the sheeple go out to vote republican this November and deregulation will once again be the law of the land. How these people can so obviously vote against their own interest is beyond me, just not paying attention I guess.
we have the net, people are working out of their homes., or apartments.
housing has flatlined, and many are fleeing the idea of owning.
thus.......zillions of jobs becoming diminished, if not demised.
rather than getting a BS degree, i wish i had gone to a tech school.
or to plumbing school, or a gutter cleaner out school.
people are even scooping their own dog's poop these days.
times are tough .
Let's see, (a) The founders believed an informed electorate was necessary for our democracy. However, between 1830-50 the richest 1% eliminated gov't printing income to newspapers. This made news survival dependent upon large advertisers, whose favored news providers were/are those which produce an angry and disinformed electorate. This because a mob is easier to manipulate than an informed electorate. This simple tactic has worked to get the American electorate to vote against their own interests, and for the interests of the richest 1%, about 3/4 of the time, for the past 175 years.
(b) FDR passed laws to control the richest 1%, including a 90% tax on them. It took 60 years to tear down FDR's laws. The richest 1% crashed the US economy soon after the Civil War, soon after WWI and soon after they finally tore down FDR's laws that partially controlled them.
(c) War is believed good for business, but is not. The reason it's believed good is because it has massive federal deficits. The richest 1% love wars for the massive deficits are spent on corporations they own. The richest 1% hate social programs for the deficits are spent on things they do not own.
(d) In '80 the richest 1% had 9% of national income and owned 20% of national wealth. Today the richest 1% has 20% of national income and owns 40% of national wealth.
Depression period was 'History'. If you expect high wages no body will employ you. If you have a restaurant charging for USD50.00 for a bowl of noddle no body will eat at your shop.
I share the authors call for a remedy. Now, how to convince the emotional electorate that MSM is BS-ing them right into cultural extinction?
One more thing - without a Generational Turnover in BOTH the House and Senate, this will not come to pass. I foresee another 8 years of pain.
Instead of putting people back to work creating more money for the vultures, stop working, do no work, start a garden, get some exercise, paint a sunset, and tell the rich that if they want more money they can do the work themselves.
Here's how to regulate. Hyper-regulate every company. Monitor them with total transparency, i.e., anybody can see all companies books on the internet anywhere anytime. Put them into a tiny, lead-lined box of utter regulation and transparency--then let them duke it out amongst themselves. Mark my words, somebody will remain in the box and duke. They always do. And don't forget draconian tariffs. That's how we built the railroads. (Nota bene: I have actually used a bona fide historical precedent. Stop reading books now!) By the way, I am not being facetious. The WTO/World Bank combine is just a privatized "market segment" tariff system. That's how they do it nowadays. Call it the opposite of what it is. Like "fair and balanced." Call "market segments" globalization and anti-tariff when it really does just the opposite.