The Phantom Recovery and What To Do About Jobs

In his Saturday radio address, President Obama acknowledged the White House is exploring "additional options to promote job creation." It's about time. This is the worst job market in seventy years -- including the longest duration of steep job losses.

If anyone had any doubt that something far more dramatic must be done, listen to former Federal Reserve Chairman Alan Greenspan. He warned Sunday against further stimulus because "we are in a recovery, and I think it would be a mistake to say the September numbers alter that significantly." Greenspan has turned into an inverse soothsayer. After his cataclysmic error about where the economy was headed before the meltdown, his views about the future should be carefully noted as being the exact opposite of what's likely to be in store.

The economy may be in a technical recovery but this is not a real recovery and the "green shoots" or "positive signs" that Wall Street cheerleaders love to shout about are phantoms of their ever-optimistic imaginations. The stimulus is working but it is far from adequate. Before the stimulus, we were losing more than 500,000 jobs a month. Now that 40 percent of the stimulus has been spent, we are losing more than 250,000 jobs a month.

What to do? With the debt ceiling approaching and the gravitational pull of the 2010 elections increasing, the White House can't go back to Congress with a formal bill to enlarge the stimulus package. Four simpler moves would be to:

1. Use existing authority under both the stimulus package enacted earlier this year and the nefarious TARP bailout fund -- extending and combining them into a fund to make up for state and local cuts in public school budgets, childrens' health, public health (we need workers to administer swine flu vaccine) and public transportation. Instead of bailing out banks and giant automakers, we should switch to bailing out public services that average people need.
2. Propose a one-year payroll tax holiday on the first20,000 of income. Republicans as well as Blue Dog Dems could go along with this, and it would be a highly progressive tax cut since 80 percent of Americans pay more in payroll taxes than they do in income taxes.
3. Give small businesses a "new jobs tax credit" for every net new job created over the next year. Granted, under normal circumstances this sort of jobs credit doesn't have much effect, and it's difficult to separate hires that would have happened anyway from net new ones. But we're not in normal circumstances; small businesses, which are responsible for most new jobs, still aren't hiring. They need a boost.
4. Dramatically expand the Small Business Administration's lending programs and have the Fed buy up the SBA's debt. Big banks are not lending to small businesses. TARP has been an utter failure in this regard. The SBA and the Fed should circumvent them and help small businesses get the capital they need, so they can start hiring again.

The politics of these four steps aren't difficult. It would be hard to get a new stimulus package through Congress, but no member who's up for reelection next year when unemployment is likely to be in double digits wants to be accused by rivals of voting against steps to help small businesses, public schools, childrens' health, and average working people who need a tax cut.

Cross-posted from Robert Reich's Blog.

 

Comments

[azphoenixwolf]

Has anyone heard the expression: guns or butter? We are in TWO wars and there is expansion in Afganistan (The Pres. just oked 13,000 more troops). We now have Viet Nam II and Viet Nam III. Don't forget, when the Russians invaded Afganistan, the economic strain helped lead to the collapse of their empire. History is repeating itself. Those who do not remember the past are doomed to repeat it. How is the economy going to "recover" and people go back to work if the jobs are GONE. Think of all the thousands of snailmail postal jobs and media print jobs, and overseas transfer jobs that are gone and never coming back. USA Today circulation is down 17%. A lot of their papers were bought by business travelers who are no longer traveling. I got a foreign national the other day when I tried to get information from my cell phone company. These sectors are in a permanent depression.

[azphoenixwolf]

Many TARP borrowers aren't repaying their billions in loans and the FDIC reserve recently went billions in the red because of bank failures & bankruptcies (they are the people insuring your bank deposits - lol - sleep well tonight). Some of the banks weren't even on their watchlist, but had dramatically fast collapses because of the worsening economy. There have been a lot of articles lately about endowments and pension funds that have lost major portions of their investments in the recession (some 30-40%: some of it due to speculation in derivatives that had the meltdown) just like many of us. Many may be unable to meet their obligations to their retirees which will be a long term problem. Tax revenue is down 17%, so expect more government job layoffs. Just like the alcoholic that has another binge to postpone a hangover, we have just delayed the day of reckoning by adding all this stimulus money, bailout money, & borrowing from China to our national debt.

[azphoenixwolf]

There are the commercial real estate and the FHA bubbles that are collapsing. I have two friends who are losing their houses and are having to do short sales. The one was a mortgage broker (business dried up and he let his license go) whose downtown condo went from $400K to $150K and the other had his ARM house loan reset $400/mo. higher and is short selling from $260K to $129K, sadly, after putting his $60K inheritance in as a down payment which he will lose. There are waves of these ARM reset mortgages coming soon like a tsunami. Three friends have had their hours cut from 5 to 4 days/week. No one is talking of restoring their hours. Two friends now have to work from home as their bosses are trying to save money. One boss/owner lost a 40K client and can save $30K by not having a central office. My other friend who is a commercial loan officer is now working from home and says that this is a major trend as a way for companies to save money. These rentals are never coming back for the commercial real estate sector. These sectors are in a permanent depression, not a recession.

[tdpubs]

This all sound like the room full of philosophers who debated the chicken/egg origin theories. You are all right but the major factor is figuring out how to balance an increase of income to average Americans with stimulating demand for goods and services without using the famous Ronald Reagan credit card principle.

Demand has to be stimulated for small business to even think of spending money on employees. Tax cuts never make up the difference unless Government hires the the small businesses in the first place. We need to begin the process of manufacturing and throwing lots of money at Alt energy. Require existing businesses to retrofit for Green economics and have government cover the cost of the retrofits.
Increase the tax on dividend income to 40% and cut the loopholes with an exemption for reinvestment in small business with a solid definition of what a small business really is. Get the public option done right and allow small business to benefit from the program. That will be a start. It's not perfect but that's my contribution.

[arktig]

Mr Reich, none of your proposals will work. To find out what to do, we have to first understand the causes of the current crisis. For you and your readers, I am listing the most important points below. I hope that you can use your erudition and scholarly grants to improve upon them:

CAUSE OF DEPRESSION
1) Failure of unbalanced trade aka "globalization"
2) Failure of bank regulation (New Deal repeal)
3) Bailout of corrupt institutions which further depressed the honest ones

WHAT THE GOVERNMENT SHOULD DO
* Financial reform: return Glass-Steagall, TAX DERIVATIVES
* Balance the trade - import/export certificates
* Control health care cost (Single payer)
* Stop the wars (can be first)
* Balance the federal budget
* Reduce red tape and monopolization in the economy

WHAT YOU SHOULD DO, FIX THE REAL PROBLEM: ***CORRUPTION***
It's the responsibility of the public to solve it. The government has become utterly corrupt along with many large private institutions. The checks and balances have been overwhelmed by corporate corruption. Getting rid of corruption is YOUR duty. Criticize both sides, remove corporate personhood, reform campaign finance and lobbying. Keep corporate money and jobs away from elected officials. Lots of work for YOU!

[rbenjamin]

Reich 's proposals are sensible, even obvious, but we need to face up to the fact that our Government is basically dysfunctional. Not exactly California dysfunctional, but pretty freakin' close. The end product of last year's meltdown seems to be fewer banks that are even too bigger to fail. Race you to the bottom!

[Pulladigm]

There is an old saying, " if you bear the name, you might as well play the game."
The right wingnuts are fond of caloing Our President 'socialist.' Why, then, don't we implement some socialist solutions.
I would also like to propose a plan to deal with lost jobs because of corporate failure and corporate abandonment. If the local government cannot find an employer to hire those displaced workers, at comparable wages, the local government and Industrial Development Agency(IDA). should show the displaced workers how to form an employee owned corporation. A corporation that gives each worker and executive one share. Where the directors and management is chosen by a majority vote of the shareholders. Where the shareholders make or at the very last approve policy. Where the ultimate goal is meeting payroll and, at the very least, breaking even. Not making profit for stockholders that have little or nothing to do with the operation of the company. Or paying exhorbitant executive salaries. If and when there is a profit it can be shared equally among the shareholders.
The local IDA can help the newly formed corporation to find financing. The plant could be siezed by right of imminent domain and sold to the employee owned corporation.
I realize that this is a radical solution. However, these are radical times. This is a radical situation that calls for radical solutions.
~;^}>

[texfly]

Some say why aren't others converting to renewables? They are - as much as their local resources can tolerate. Otherwise they are investing in solar in the Shara in a big way.

We have all the renewable resources we can use for centuries to come. Just have to collect it. Build the infrastucture. Build the grid ( an easier task that running gas pipelines to heat the nation as we didi in the 50's

Why don't big cats do it? Up-front investment is so high that it will take a commitment from us all. They want the same sweet deals they got for oil, coal and natural gas - subsidies (an upfront and ongoing to payment by you and me to allow to start making profits from day one without expended much up-front risk) and depletion allowances in case the sun doesn't shine nor the wind blows on some days. Ask Boone Pickens. He's investing big-time but still wants YOU to subsidize him.

WE can accpet the risk (believe me it's a sure thing) as a large group of individuals. Ultimately, YOU will, whether you want to or not. Sooner or later. But, now is the time where "We the People" can get in on the ground floor, make very small investments as individuals of a very large group, then sell the energy an dreap the profit. The "sooner": we own it,; the "later", they own it, but YOU STILL pay for it either way. Take your pick.

[adoseofsanity]

Couple of questions:

I see in alot of comments, alot of anger directed at people and companies because they "make too much money".

1) Why do you care? Clearly a lot of you do.

2) How do you determine what "too much" is?

And, along with the anger is arguement that government needs to "punish" this income by taking it.

1) What do you think government should do with it then?

2) Do you think there are any economic consequences caused by what you propose, that is to punish/take away income from individuals and corporations?

[gabemill]

Insurances executives make more in an hour than the average American makes in a year.

My question to you is, are these executives that good? Is anyone that good? Is exorbitant compensation, that comes as a result of denying legitimate claims, realistic and fair for you?
Rational compensation, coupled with the streamlining of administrative costs that seek denial of claims, could economically impact the county through lower premiums for all. This will only happen through a public option that would force insurance companies to compete. Unless you are one of the executives described above, I fail to see how you couldn't "care" about such issues.

[adoseofsanity]

An insuranc executive, or any executive can make 100K or perhaps 1 + Million(S) or more.

Does this affect me? NO

Does this impact my bills? NO

Does this affect my work? NO

Does this affect my decision to do ANYTHING? NO

So I should care WHY AGAIN?????

Perhaps I should get into that industry and work to climb the ladder, that is if it is OK to achieve personal and financial success in this country anymore.

I care a whole lot more about government CONTROLLING every aspect of my life. Including MY healthcare. I fail to see how you you don't care about that.

[tdpubs]

You seem to think that the income that executives and major corporations make come from some invisible fund. That money you say they deserve come from the pockets of you and me. Just as you love to rail against the "overburdensome tax system". That money they shelter from the tax system and use against "we the people" are the reason we are in the present situation we are in.

You may idolize the predators and shun the people who are pushing hard to make it but this country is about banding together and fighting for freedom and equality for all. The motto of our country is not In "God We Trust", it's "Out of Many, One". That means we work together for the common good. Corporatism is about taking advantage of any resource you can to make a profit for the company regardless of the consequences.

The conservative maxim is not e Pluribus Unum, it is "I got mine, screw you". Sorry, real Americans don't roll with that game. We find a way to make everyone rise above and leave no one behind. That's the America I learned about in public school.

[BocaMom]

Finally, someone is talking about the economy and getting America back to work! I hope Obama and the Congress will finally quite helping line the pockets of their friends and financial supports and start helping the people who got them elected. As President Clinton clearly put it, "It's the economy stupid!"

[Estreet1964]

This plan does nothing to ease the suffering corporate America.

It's positively un-American!

[indy100]

"small businesses, which are responsible for most new jobs, still aren't hiring." Small businesses aren't just responsible for most new jobs, THEY RUN THE ECONOMY. My husband is a small business owner, and my father is self employed. Corporations get all the tax breaks and all the write offs, while small business and the self employed pay the lions share of taxes and employ far more people. Small business and the middle class are systematically being destroyed and that has got to change if the US economy is going to turn around. The top 1% do not support the economy, and if they don't start paying their share, they along with the rest of us are going to continue to suffer!

Alan Greenspan is an old man and out of touch with reality. He only knows Wall Street. He knows nothing about main street and middle America. We need new blood and NEW IDEAS.

[disgustedwithall]

A. Review and correct the "fair trade treaty(s)". AKA Hummer H3 FOB China is $130K, USA $30K. Ford plant China $500M investmetn is taxed.Start to export USA products, not jobs. Tax offshore investment funds.
B. Increase TARP rates at same rate banks increase Credit Cards, add fees to TAPR as banks do to CC.
C. Tax break for new jobs that create products, not "services".
D. Tax windfall profits.
E. TAX LOBBY funding, do not allow lobby dollars as "cost of business".
F. Tax lobby funds obtained by ANY politician at 50% rate. Transfer to states UI programs.
E. Forbid congressional cola, raises etc if Unemployment over 3.5%.
F. Congress to pay for own retirement and medical, as do we.
TOSS OUT ANY past second term in any political office, local to DC.

[indy100]

I'll second that!

[masher]

Nobody seems to want to address the role the federal government plays in directly manipulating the US labor markets with work visas. These work visa programs are full of fraud. They were supposed to be for "critical" skills but I have never met anyone on an H-1B that was more than passing.

I have seen corporations fire Americans and replace them with guys from India on B1 "training" visas.
I have seen entire projects staffed with teams on these B1 training visas. There is no enforcement and no checks. So we need to just end these programs completely. We can't trust the federal government to use these regulations fairly. So we need to just end them.

If you can't get a job in America as a technical worker then you need to move to India because I only get resumes from India. Doesn't matter how great you are, the system is rigged so that I won't see your resume.

[Bub]

Bob knows, the real problem is lack of demand (purchasing power from the masses).

Some ideas for increasing demand in the short/medium run.

Double/triple the stimulus, pay for it with windfall profits tax on banks, executives, and Eisenhower era tax rates on the rich. Build new schools, bridges, sewers, libraries, run fibre optics up to the house, bullet trains between cities, light rail/street cars within a half mile walk of most urban and inner suburban dwellers - make usingit free (pay for it with increased property taxes that occur near the stops).

Pass single payer, universal health insurance. The OECD says our government already spends more per person on healthcare than France. It is so efficient that we'll get a tax cut from it. It will lower the cost of employment, it will increase the competitiveness of American industry. Allow people who have private insurance to keep it if they want - it will be redundant, but it's their "private option." Everyone else can go to work, have their benefit monetized into their paycheck. The resulting increase in purchasing power will walk us out of the recession all by itself in a fortnight - to say nothing of the tax cut and increased competitiveness that comes with it.

Pass card check for publicly traded companies or force companies to implement widespread tenure (as the Japanese do).

Find ways to make higher education free or almost free. College debt is a hit on purchasing power.

[indy100]

All good ideas. Which means they will never happen.

[DSimpson]

There still is no such thing as FREE lunch. Never has been, never will be.

[DAE]

Except for the banksters and other corporate crooks.