Smoking the Green Shoots
Question for the day: Where is the economic recovery going to come from?
We are still at the stage of the recession where economic downdrafts are producing more downdrafts. Reduced purchasing power leads to fewer retail and factory sales and more layoffs, further reducing consumer demand. The Obama stimulus package, about 2.5 percent of GDP for each of two years, doesn't make up enough of the difference. But the federal deficit, caused mainly by falling revenues and not by increased public spending, is alarming the budget hawks. The administration worries, correctly, that deficits will be high for several years to come and wonders who will keep lending Uncle Sam the money. Yet cutting back spending before recovery comes would be suicidal.
In addition, the financial sector has not yet returned to health, despite outsized profits (and bonuses) reported by the likes of Goldman Sachs. This is the kind of purely financial engineering that caused the collapse. The fevered activity at Goldman is a sign of lingering economic illness, not economic health. The rest of the economy, which depends on the financial sector for real investment capital, is still deeply depressed.
Louis Uchitelle's piece in Sunday's New York Times provides some instructive numbers.
Every major sector that reflects the purely private economy has been losing jobs, the only exception being energy extraction plus a tiny increase in computer systems design and management consulting. All of the other expanding sectors that are actually adding jobs reflect government spending - education, health, general government. But the declines in the workhorse parts of the private economy such as manufacturing, construction, and retailing are huge.
With purchasing power still declining and unemployment still rising, where will the recovery come from? White House economic chief Lawrence Summers, in a major speech at the Peterson Institute July 17, emphasized the good news.
"We were at the brink of catastrophe at the beginning of the year but we have walked some substantial distance back from the abyss," he said. And, ever the empiricist, Summers reported that a Google search revealed that "hits for economic depression have returned to baseline levels." That's nice, but what Summers did not forecast was a robust recovery.
And if we stay on the present path, recovery will not come for a long time. Federal deficits will be large enough to raise questions about who will keep lending us the money - but not large enough to power a real recovery that increases real incomes and provides good jobs. The last time we had a massive financial meltdown like this, it took the hyper-stimulus of a war - World War II - to recapitalize industry and re-employ workers.
What, then, is the moral equivalent of war for the 21st century? Let's think way, way outside the box.
We might begin with a serious strategy for rebuilding American manufacturing. American corporations and politicians have been cavalier about just letting manufacturing go. Uniquely among advanced and developing nations, we have no national strategy for nurturing manufacturing at home. There's even an office in the Commerce Department that helps companies outsource.
As a result, even a modest uptick in purchasing power will not produce enough American jobs because there are so many things that America no longer makes.
We could start with clean energy, and move on to mass transit, and reclaim America's capacity to make things. Right now, even if we massively shifted to wind and solar energy, other nations would get most of the production jobs because most solar panels and wind turbines are not made here, while Americans would just get the temporary installation jobs.
We could also get serious about insisting that other trading nations not coerce or bribe our manufactures to locate facilities overseas as a condition of doing business - a flagrant violation of trade law. We could start having a real industrial policy for commercial industry in the way that we have long had a tacit industrial policy for products deemed essential to the military.
The administration is confused about how to reconcile industrial goals with trade law. It had to do a lot of backing and filling so that tens of billions of taxpayer dollars to modernize the auto industry didn't end up subsidizing more outsourcing of jobs to China. If trade law interferes with our ability to revive American manufacturing, then there's something wrong with trade law and let's change it.
For a fine summary on how to revive domestic manufacturing, take a look at the new book, Manufacturing a Better Future for America, edited by Richard McCormack and written by some of America's best experts on reviving manufacturing.
The book is published by the Alliance for American Manufacturing.
After manufacturing, we need to get serious about investing in a new generation of public infrastructure - everything from smart-grid electrical systems to broadband and modern water and sewer and transportation systems. That will produce lots of good jobs, and make for a more efficient and productive economy.
As far as the deficit is concerned, it will probably need to get bigger before it gets smaller. During World War II, when the nation was a lot poorer and nearly half of our national output went to defeat the Axis powers, my parents and grandparents and tens of millions of Americans like them bought war bonds.
We didn't depend on foreign borrowing, even though the deficits were far larger. Today, the government should create Recovery Bonds and market them to Americans, so that we can finance our own social investment and cease to be financial wards of foreign dictatorships.
The good people at Goldman Sachs can demonstrate their patriotism - not by offering to make money as financial middlemen - but by buying the first issue of these bonds as an investment. The government needs no investment bankers to market these bonds. It can sell them directly to citizens
Gentle reader, we are in a national economic emergency. This is not just about talking up the economy by emphasizing good news. The administration needs to stop smoking its own green shoots and offer strategies equal to the magnitude of the crisis.
Robert Kuttner is co-editor of The American Prospect, and a Senior Fellow at Demos. His latest book is Obama's Challenge.
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The economy at this point is basically a mental construct. Our money is based on and backed by debt, with over 95% of our currency existing only in computers. The value of things is constantly fluxuating, and our own government acts like money doesn't exist and debt doesn't have to be paid. We are essentially running the entire country on less than nothing, a paradox in itself. Yet here we are. So as long as we are going to use a giant mental construct as the basis for our economy, why not level the field a little? Give everyone credits and a government stipend so that people can buy the things they need and also the things that keep our economy afloat. Since money is as imaginary as our "deficit" we might as well share the wealth. After all, if the economy were to crash down into nothing we would still be here, still needing food and water and shelter and we'd have to create some kind of new economy or currency to trade with. So why not transition it into something that is equitable while we still can? There's enough to go around. Based on our governments' actions, there is no end to the money supply and no need to worry about debt.
From http://edupreneursvkleptobankers.wordpress.com/
"Canonical research findings suggest that American entrepreneurs who establish popular online markets for customized education will catalyze the creation of many good jobs in America, and will end the reign of America’s kleptobankers. Some of the researchers: Clayton Christensen, Paul Romer and Paul Krugman."
When goldman Hacks' Summers, Geithner, and Obama speak, the world listens.
Question.... Who have the most power to bring about real change the American people need to improve their lives. Such as .....Jobs...Health Care...... Education......... Congress or the President?
PHASE THREE: As the U.S. began to experience the effects of globalization trade deficits soared, the savings rate declined steadily from around ten percent in the early-80s to near zero by 2005, and borrowing - government, corporate and consumer - soared to unprecedented levels. Today the total outstanding credit of the U.S. fast approaches 400 percent of GDP, by far an all-time high. Most importantly perhaps, the consumers who drive the economy are not only burdened with debt but losing their jobs at the highest rate since the 1930s (which was the last time the unemployment rate increased over three percent, year-over-year). Personal Consumption Expenditures, which had risen steadily throughout every recession since the second world war, have literally fallen off a cliff during this one (see the chart on the St. Louis Fed's website).
Clearly the present crisis is not merely a financial one. On the contrary, the financialization of our economy - just as its steady loss of manufacturing - is more a symptom of a larger, historical process than a cause in and of itself. The question is, having traveled this far along this path, how do we now alter course? I suppose the silver lining might be that we're not in this predicament alone. European banks make ours seem downright healthy, Japan's fiscal mess dwarfs our own and China faces imminent collapse if the U.S. consumer market does not soon recover. Perhaps we should simply wipe out everyone's debt and start over?
A truly excellent post, Mr. Kuttner. Although it seems we are caught between a rock and a hard place in the grip of historical forces from which there may be little escape...
PHASE ONE: We ended the second world war with two-thirds of the world's known gold reserves, our industries accounted for fifty percent of the total global output, our citizens held a truly enormous store of savings from rationing combined with the purchase of war bonds and we were the only modern industrial nation on earth whose infrastructure remained thoroughly intact. That we experienced a generation of unprecedented economic prosperity is probably not surprising.
PHASE TWO: By the 1970s the rest of the world had recovered enough to begin providing U.S. corporations, many of which had stagnated into unresponsive oligopolies, with a little good ole fashioned competition. As our imports subsequently increased our industries began tapping into a cheaper (i.e., less affluent) global pool, which perhaps explains why many economists point to the mid-70s as the high water mark for U.S. middle class prosperity. Not coincidentally, the last year that our nation enjoyed an actual trade surplus - $12.7 billion - was 1975.
And added to my previous comment, President Bush added 20 BILLION A MONTH to the deficit. We didn't hear a word about that. The fact is that if President Obama can get people to cooperate with us again, to remake our image, this WAR that we thought would never go away. And if we had another republican President right now we would be escalating that war with no end in sight. This is not about the President, it is about the people who are hurting. Not war, not Goldman, not how much rich people are going to make off of Goldman. I guarantee that the deficits we run up are going to look like nothing compared to 10 years of WAR at 20 billion a month that we were borrowing from the Chinese. Remember when Clinton was President? George the first handed him a deficit that looks like what we have now. He paid it off in no time. Deficits are just paying the bills. If the bills get a little high there are a million ways that the President can pay those deficits down.
Republicans are going on and on about spending. They have terrified the independents about a little more spending and do you know why? Republicans make money when Goldman makes money. That's right. They LOVE it when Goldman is going strong because their stocks are going UP UP UP. Meanwhile they are on CNN and CBS and FOX and they don't want this recovery. The more the little guy doesn't make the more the shareholders have for themselves. So you go right on and fuss about Goldman. But if you want to help people, and you say you do, then tell them to insist that their repbulican elected officials give them jobs NOW. The republicans have one plan and ONE plan only and that is to win the next election. And do you want to know why? Then they can keep making the huge profits they made under Bush. What they are making now are NOTHING compared to the last eight years. They made huge fortunes. They made huge deficits and buying things like a fleet of jets that we weren't even using, that cost us more to maintain than fly. Teh President stopped that. Now please let him help average people. Two years ago rich people were making these profits on 10 companies like Goldman or 20. So the next time you see a republican tell him to quit trying to beat the President and let him help the people.
And consider this, every American employer must:
* Offer an Equal Employment Opportunity
* Ensure potential employees are Legal Citizens
* Ensure potential employees are at least 14
* Pay a minimum wage
* Fund State Unemployment Insurance
* Fund Worker’s Compensation Insurance
* Fund a Social Security-type program
* Insure a Safe Workplace
* Maintain Individual Employee Files
* Protect the Employee’s Privacy Rights
* Protect the Employee’s Whistle-blower Rights
* Allow Employees to Organize Unions
* Display Required Posters
* Respond to Employee Grievances
* Protect the employee from Wrongful Discharge
Do you think any of these requirements exist in China? What about Vietnam? We already have solar panels and windmill tubes being imported from these countries.
For the U.S. economy to thrive again, Americans will have to see a sustainable future for employment. If globalization is going to be part of that future, every product or service that comes into the USA (physically or digitally) must be assessed a tariff based on the treatment of the workers that create the product or provide the service.
Just a 3% tariff on each of the provisions above would add some 38% to the price of a product on most imports. Core benefits alone add up to more than 15%. Americans cannot compete against a 15% to 38% discount.
"What? No workers compensation certification? Well that’s a 4% tariff. No unemployment insurance either? Okay, that’s another 5% tariff. So what about a Social Security program certification? Don’t have one? Ouch,
Great article Mr. Kutner. I have been saying our government should be selling Recovery bonds since this economy has been sinking and jobs have been lost. We don't need to borrow from the Chinese when we have so many people willing to invest in our own country to rebuild it and modernize it. And, Recovery bonds would be a great way to do that.
Would it be off-subject to condemn the title of your piece for going after the mental functionality of anyone who prefers pot when you could have just as easily gone after those who kick back with alcohol - but you instead presumed that siding with the status quo regarding such an issue was essentially bulletproof? Would it be off-subject to express outrage whenever this form of rampant prejudice manifests, even in this hit-and-run form where I could be seen as off-subject for even noticing?
Probably... but point taken.
The government hasn't demonstrated the sound financial management required to merit such an investment. I recommend shorting the U.S. dollar.
Obama is NOT a puppet. The Congress is full of people who are determined that he fail. They will trick him, they will pull out all the stops to defeat him. Then, when they do they can finish the plan they had all along.... to get all the money in the hands of a very few and then takeover the government. Sound crazy? I would have thought so too except i've read a book by Michael Weinstein. He worked for Regan, he was in the JAG corps (military lawyer) and he and 4 sons were/are in the Air Force. Go to the website
www.militaryreligiousfreedom.org He is suing, and has been for years, the US Government to get FREEDOM TO WORSHIP as they please in the MILITARY. Then go to this video of the Rachel Maddow show and see what the Senators who live in the "C street house" are planning. Something is not right here. http://www.youtube.com/watch?v=_F3nDIdHcnE
"The good people at Goldman Sachs..." : define "good."
I hate to say this out loud but Obama is a puppet and if we expect him to do what we believe is right and necessary we will have a long wait. He has not put anyone in his immediate surroundings who doesn't have a banking connection. I doubt this is a coincidence. Many people will see my views as conspiracy theorist-like but facts are facts. Do a little googling and see where Obama ended up those 36 hours when he duped the press corp. This operation was planned and it's recovery is pre-determined as well. Unfortunately I don't think the economy will recover for most Americans. So, should we fight back? Sure, play into their hands. They already have internment camps set up. I think it is time to start looking at other ways of self-sustainability. We have reached the end of the US as we know it.
As for manufacturing all I can add is perhaps the workers can take back the plants, literally, and get them up and running again. We don't have a lot of options left. All the logic and good thinking isn't going to reverse what has been set in motion many, many years ago.
If at al interested and it may seem radical, google "intentional communities" and see where many people are headed.
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