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