In 2010, two Harvard economists published an academic paper that spoke to the world’s biggest policy question: should we cut public spending to control the deficit or use the state to rekindle economic growth? Growth in a Time of Debt by Carmen Reinhart and Kenneth Rogoff has served as an important intellectual bulwark in support of austerity policies in the US and Europe. It has been cited by politicians ranging from Paul Ryan, the US congressman, to George Osborne, the UK chancellor. But we have shown that several critical findings advanced in this paper are wrong. So do we need to rethink austerity economics more broadly?
Their research is best known for its result that, across a broad range of countries and periods, economic growth declines dramatically when a country’s level of public debt exceeds 90 per cent of gross domestic product. In their work with a sample of 20 advanced economies in the postwar period, they report that average annual GDP growth ranges between about 3 per cent and 4 per cent when the ratio of public debt to GDP is below 90 per cent. But it collapses to -0.1 per cent when the ratio rises above a 90 per cent threshold.
In a new working paper, co-authored with Thomas Herndon, we found that these results were based on data errors and unsupportable statistical techniques.
We are not suggesting that governments should borrow and spend profligately. But judicious deficit spending remains the single most effective tool we have to fight against mass unemployment caused by severe recessions. Recent research by Prof Reinhart and Prof Rogoff, along with all related arguments by austerity proponents, does nothing to contradict this fundamental point.
This is big news because this is what many of the so-called VSP’s (very serious people) have been using for years to justify austerity policies. Another way to say this is that Keynes is still right. Here’s Paul Krugman’s take, The Excel Depression.
Ms. Reinhart and Mr. Rogoff had credibility thanks to a widely admired earlier book on the history of financial crises, and their timing was impeccable. The paper came out just after Greece went into crisis and played right into the desire of many officials to “pivot” from stimulus to austerity. As a result, the paper instantly became famous; it was, and is, surely the most influential economic analysis of recent years.
In fact, Reinhart-Rogoff quickly achieved almost sacred status among self-proclaimed guardians of fiscal responsibility; their tipping-point claim was treated not as a disputed hypothesis but as unquestioned fact. For example, a Washington Post editorial earlier this year warned against any relaxation on the deficit front, because we are “dangerously near the 90 percent mark that economists regard as a threat to sustainable economic growth.” Notice the phrasing: “economists,” not “some economists,” let alone “some economists, vigorously disputed by other economists with equally good credentials,” which was the reality.
For the truth is that Reinhart-Rogoff faced substantial criticism from the start, and the controversy grew over time. As soon as the paper was released, many economists pointed out that a negative correlation between debt and economic performance need not mean that high debt causes low growth. It could just as easily be the other way around, with poor economic performance leading to high debt. Indeed, that’s obviously the case for Japan, which went deep into debt only after its growth collapsed in the early 1990s.
Like other things in the recent past – ahem..Irag…ahem – this study fit well in to the VSP’s pre-determined outcome. So it became the de facto study to prove austerity works. Now that it’s been debunked let’s hope austerity policies will die with it.
Because we have a much, much bigger problem then debt and deficits – Jobs. The Jobless Trap.
But while debt fears were and are misguided, there’s a real danger we’ve ignored: the corrosive effect, social and economic, of persistent high unemployment. And even as the case for debt hysteria is collapsing, our worst fears about the damage from long-term unemployment are being confirmed.
So we are indeed creating a permanent class of jobless Americans.
And let’s be clear: this is a policy decision. The main reason our economic recovery has been so weak is that, spooked by fear-mongering over debt, we’ve been doing exactly what basic macroeconomics says you shouldn’t do — cutting government spending in the face of a depressed economy.
It’s hard to overstate how self-destructive this policy is. Indeed, the shadow of long-term unemployment means that austerity policies are counterproductive even in purely fiscal terms. Workers, after all, are taxpayers too; if our debt obsession exiles millions of Americans from productive employment, it will cut into future revenues and raise future deficits.
Our exaggerated fear of debt is, in short, creating a slow-motion catastrophe. It’s ruining many lives, and at the same time making us poorer and weaker in every way. And the longer we persist in this folly, the greater the damage will be.
Hey, just because virtually everyone who has been arguing the case for deficit reduction for years has been shown to be a crank, a charlatan or shockingly bad at arithmetic is no reason to question your beliefs. Of course austerity is sane! It just must be! Clearly the problem isn’t that austerity is the wrong prescription, it’s that now only bloggers will be making the case and they won’t dominate the debate like the long, long line of discredited analysts and economists who history has proven to be asses. It’s tough times for austerians.
There is an astounding level of confusion surrounding the current US deficit. There are three irrefutable facts about the deficits:
First, the United States has large deficits because the collapse of the housing bubble sank the economy.
Second, if we had smaller deficits the main result would be slower growth and higher unemployment.
Third, large projected long-term deficits are the result of a broken health care system, not reckless government “entitlement” programs.
Of course this is nothing new. Economists like Baker and Paul Krugman have been saying this for a while, Kick That Can.
The key point is this: While it’s true that we will eventually need some combination of revenue increases and spending cuts to rein in the growth of U.S. government debt, now is very much not the time to act. Given the state we’re in, it would be irresponsible and destructive not to kick that can down the road.
Right now the central challenge is to reignite the economy — getting jobs back, improving wages, and restoring growth.
Deficit reduction moves us in the opposite direction. That’s because most consumers (whose spending is 70 percent of economic activity) are still losing ground, and businesses won’t expand and hire without more consumers.
So government has to be the spender of last resort.
Under these circumstances, increasing taxes on the middle class (as, for example, Republican legislators and governors are eagerly doing by raising sales taxes, and as the federal government did last month by raising Social Security taxes) makes it even harder for consumers to spend. Which means slower growth and fewer jobs.
Likewise, cuts in government spending, such as occurred in the fourth quarter of 2012, cause the economy to contract — as it did in the fourth quarter.
In other words, we’re still having the wrong discussion. It shouldn’t be how to cut the budget deficit. It should be how to bring back good jobs and economic growth.
Deficit hawks and government-haters are still framing the debate. That bodes ill for all of us.
“It is difficult to get a man to understand something, when his salary depends upon his not understanding it!”
- American author Upton Sinclair
There has been a whole bunch of economic mis-information, related to the Great Recession, going around in the MSM for years now. Much of it has to do with anti-Keynesians out there that was exposed when Paul Krugman appeared on Joe Scarborough’s show this week.
If anyone wants to blame the greater severity of the donwturn on the stimulus they would have a hard story to tell. Most of the hit was before a dollar of the stimulus was spent. Employment in March of 2009 was 5.4 million before its year ago level.
Of course CBO was overly optimistic about the pace of the turnaround. It predicted that employment would rise by 1.7 million in 2010 even if we did nothing. Someone may have a story about how this increase would have happened had it not been for the stimulus (lower interest rates?), but it is difficult to envision what that story would look like.
The other point that this chart makes nicely is that the predicted gains from the stimulus were small relative to the size of the downturn. CBO predicted that the maximum benefit from the stimulus would be in 2010 when employment would be 2.4 million higher than without the stimulus. This needs to be repeated a few hundred thousand times the stimulus was only projected to create 2.4 million jobs.
That is not rewriting history or making it up as we go along. This is a projection from an independent agency made at the time the stimulus was passed. The economy ended up losing over 7 million jobs. At its peak impact, the stimulus was only projected to replace 2.4 million of these jobs. And after 2010 the stimulus’ impact quickly went to zero as the spending and tax cuts came to an end.
How can anyone be surprised that the stimulus did not bring the economy back to full employment? No one expected it to be large enough to reverse the impact of a slump of this magnitude.
President Obama and his team deserve lots of criticism for failing to recognize the severity of the downturn. They deserve even more blame for not acknowledging this fact, and that their stimulus was inadequate for the task at hand.
But their errors do not change the reality. The stimulus was not designed to create 7 million jobs. Why would Joe Scarborough or anyone else be surprised to see that it didn’t?
Why? See the quote at the top.
And finally another these pieces of misinformation, that government spending and the size of government has ballooned since President Obama took office. Government spending is at it’s lowest point since the 1950′s, Government outlays rising at slowest pace since 1950s.
f all the falsehoods told about President Barack Obama, the biggest whopper is the one about his reckless spending spree.
As would-be president Mitt Romney tells it: “I will lead us out of this debt and spending inferno.”
Almost everyone believes that Obama has presided over a massive increase in federal spending, an “inferno” of spending that threatens our jobs, our businesses and our children’s future. Even Democrats seem to think it’s true.
Government spending under Obama, including his signature stimulus bill, is rising at a 1.4% annualized pace — slower than at any time in nearly 60 years.
But it didn’t happen. Although there was a big stimulus bill under Obama, federal spending is rising at the slowest pace since Dwight Eisenhower brought the Korean War to an end in the 1950s.
Even hapless Herbert Hoover managed to increase spending more than Obama has.
By this measure, the era since the Great Recession began has been marked by unprecedented fiscal austerity.
How big a deal is this? Government consumption and investment is about $3 trillion; if it had grown as fast this time as it did in the Bush years, it would be 12 percent, or $360 billion, higher. Given a multiplier of more than one, which is what the IMF among others now thinks reasonable under current conditions, that ends up meaning GDP something like $450 billion higher, which is 3 percent — and an unemployment rate 1.5 points lower.
So fiscal austerity is the difference between where we are now and an unemployment rate not much above 6 percent. It’s a policy disaster.
What all of this shows is that our economic policy since the Great Recession has been all wrong. First a stimulus plan that was way too small, and then austerity and a focus on the deficit.
This could change with a new stimulus, rehiring teachers, and rebuilding our country’s infrastructure, as a start. But nothing will change until more Americans understand it doesn’t have to be like this. See the reality of our recent failed economic policies and demand their government focus on putting people back to work. Until then this depression will continue.
Paul Krugman’s been taking a lot of undeserved s&#t for years now. Mainly because he’s been right about the economy. This has come up again because he was on “Morning Joe” on Monday and they didn’t like what he had to say.
Paul Krugman went on Morning Joe and challenged the Grand Wisdom of the Austerians. Joe Scarborough went and had aconniption fit worthy of a medieval prelate being confronted with heliocentrism for the first time. In Scarborough’s world, to believe that the deficit is anything less than a sword of Damocles is to be insane and unworthy of polite society. And yet, Krugman’s understanding of the economy is widespread, basic Keynesianism that has been proven right time and time again.
How is it that Scarborough lives in such an ideological bubble that standard Keynesianism is so shocking?
Here at Hullabaloo we call it the Kool Kids Table, a pathway to power and social acceptance inaccessible to those who don’t hold the “right” views.
Do I believe that everyone in Joe Scarborough’s sphere of influence knows that Keynesianism is accurate and that Krugman is right, but chooses to say otherwise because it pads their bank account? Of course not. It takes a conspiracy theorist and an idiot to believe that. Washington is corrupt, but it’s not that corrupt.
No, most of these people believe what they say. I don’t doubt that Scarborough’s perplexed shock is genuine. Just like I believe that most of the conservative theologians who burned Giordano Bruno at the stake believed that our solar system was the only one of its kind. After all, anyone who believed otherwise wasn’t taken seriously and didn’t advance in the Church hierarchy. Everyone who was anyone knew better, and since Bruno refused to accept the conventional wisdom he had to be shunned and ultimately silenced. Bruno’s ideas were unserious and dangerous. The man had his head in the sand and couldn’t see what seemed obvious to everyone else.
Perhaps one day the Church of the Austerians will belatedly apologize to Keynes, Krugman, Stiglitz and all the other great economists whose names have been dragged through the mud. But not likely soon, and not during their lifetimes. In our own sordid lifetimes, Popes Simpson and Bowles will continue to bestow favors upon their cardinals, giving communion only to the Kool Kids who deserve it.
Krugman’s and the Keynesian argument is that most immediate issue we have is to put people back to work, not the deficit. Once the unemployment rate is back down to around 5% then it’s time to start working on the deficit. In other words were in a Depression – not a great one but one nonetheless – and if we don’t put people back to work will stay in it, or as today’s news shows, fall back into recession. (See this from a few years back from Robert Reich, My Father and Alan Greenspan).
The thing is Joe Scarborough and his friends at the Kool Kids Table can scoff at Krugman all they want. But that doesn’t change the fact that he is, and was, right.
Krugman was also on Washington Journal this morning, watch it then you’ll understand what’s going on.
As he’s so good at historian Rick Perlstein explains things so well. An excerpt from his latest post, Our Obama Bargain.
We’ve arrived at a question of character, or deep psychological disposition. I’ve always thought of Barack Obama’s obsession with a “Grand Bargain”—Democrats give something on spending, Republicans give something on taxes—as having very little to do at all with concrete policy questions. After all, the austerity Obama seems to want has more and more been revealed as bad policy. Bad politics, too, of course. More and more, in fact, I wonder whether in some deep wellspring of his being this isn’t ultimately the point: if it’s bad, then it must be good. After all, he’s always said such deals should “hurt.” In the rhetoric of hurt lives the magic thinking: that the pain in itself makes for noble transcendence. In itself—not in the policy outcome. [Emphasis added]
There’s something so arbitrary about it, so cliché: pick the one thing that Republicans are supposed to cherish most (tax cuts!). Pick the one thing Democrats are supposed to cherish most (spending!). If you get both to give up what they cherish, something transcendent has occurred; something mystical; something deep, deep inside America’s soul—healing!
It’s almost as if, were the Democrats’ most cherished nostrum was that the sky is blue; and if the Republicans’ most cherished nostrum were that the sky is red, Obama somehow imagines that if he can somehow get both to agree that the sky is purple, lo and behold, America will finally be a warm and conciliatory place.
But guess what! The sky is blue!
To cash out the allegory: Guess what! Spending more during a recession, and keeping faith with Medicare and Social Security, which are not in imminent crisis anyway, is great for the well-being of the country!
And guess what! Even if feckless Democrats are glad to entertain the notion that the sky just might be purple, pronouncing themselves as eager to cut spending as Republicans (vitiating, by the way, the very premise that big spending is some sort of hard-shell Democratic shibboleth), insane, Leninist Republicans will never, ever, ever, ever, ever stray from their conviction that it is red—in other words, that tax cuts magically create prosperity, always and everywhere, every time. Why, here’s Rush Limbaugh braying that very thing the other day.
And yet, for Obama work goes on, the cause endures, the hope still lives and the dream shall never die—that we can, all of us, some day, agree about things that are not true, that really help no one, but that, by mere virtue of the agreement, will render us no longer Red America and Blue America but the United States of American. And the sky? Everyone will say it is purple. And this will be counted as a great victory.
To be continued. Next time I write about Barack Obama’s biography—and try to puzzle through where this perverse conception of the ways of the world comes from.
I’m not entirely sure that’s what the election is about. It certainly wasn’t about the primacy of The Deficit among our various economic problems. Every time The American People getpolled about the issues that are most important to them, including in the exit polling done in real-time during the election the president just cited, The Deficit finishes pretty far up the track behind unemployment and a generic category called The Economy. What becomes important is in what way is that generic category defined. The general public seems to think that The Economy is defined by how many people are working and how many people are not. The political elite, including the president, and the courtier press that services that elite, all seem to define the economy through the deficit. The cognitive dissonance in Washington is about how best to deal with an economy defined by the deficit. The cognitive dissonance in the country is about how best to deal with an economy that is being defined at the highest levels of the government in a way that the rest of the country finds odd and inadequate. So when the general public hears the president say this…
As I said on the campaign, one component to growing our economy and broadening opportunity for the middle class is shrinking our deficits in a balanced and responsible way. And for nearly two years now I’ve been fighting for such a plan, one that would reduce our deficits by $4 trillion over the next decade, which would stabilize our debt and our deficit in a sustainable way for the next decade. That would be enough not only to stop the growth of our debt relative to the size of our economy, but it would make it manageable so it doesn’t crowd out the investments we need to make in people and education and job training and science and medical research — all the things that help us grow.
…it thinks the president has his priorities in the wrong order. When he talks about The American People, and the Middle Class thereof, he ought not to convince himself that he was re-elected because he’s the guy who’ll best bring down The Deficit. He got re-elected because the other guy convinced America that he wouldn’t much care if people ate grass by the side of the road. The people who voted for this president did not do so because they wanted a balanced program to bring down the deficit. They did so because they thought he was less likely to make their everyday lives harder than they already are. Because, as the blog’s First Law Of Economics states: Fk The Deficit. People Got No Jobs. People Got No Money.
As Atrios says, “..if you fix the jobs problem you largely fix the deficit problem. The reverse is not true. If you “fix” the deficit you kill the jobs.” It’s really that simple put people back to work and the economy will be fine. No a SCGB that’s neither grand or a bargain for the people of this country.
Last night former President Bill Clinton in his speech to the Democratic National Convention, did what he as always done so well. Clinton laid the case out very simply for reelecting President Barack Obama. Using “arithmetic” and simple lines like this to show why Obama must get another term.
In Tampa, the Republican argument against the President’s re-election was pretty simple: we left him a total mess, he hasn’t cleaned it up fast enough, so fire him and put us back in.
That is just so simple and true – the GOP should not be allowed to have the keys back. Of course the true fix for our economy is jobs, but not just any ‘ol jobs, but well paying jobs. But it’s become harder and harder to create those kind of jobs because one party is in an “alternative universe”, as Clinton said last night. Corey Robin explains so well in this post, We’re Going To Tax Their Ass Off!, how the Democrats and the GOP have shifted rolls on deficits over the last 40 years. Here’s an excerpt, on how the GOP changed.
What was the takeaway for Friedman? In Newsweek, he wrote: “I have concluded that the only effective way to restrain government spending is by limiting government’s explicit tax revenue—just as a limited income is the only effective restraint on any individual’s or family’s spending.”
Greenspan made a similar claim before the Senate Finance Committee in 1978: “Let us remember that the basic purpose of any tax cut program in today’s environment is to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending.”
But it was probably Wanniski, more than anyone, who best understood the political ramifications of a shift away from deficits and balanced budgets. With an almost Schmittian attention to what he called “the political tension in the marketplace of ideas,” Wanniski insisted that conservatives frame the Glaubenskrieg of the two parties as a struggle “between tax reduction and spending increases.” Without that stark choice, he wrote, the Republicans would forever play the part of the disappointed, disapproving, and ultimately powerless parent: “As long as Republicans have insisted upon balanced budgets, their influence as a party has shriveled, and budgets have been unbalanced.”
From that came things like “no tax” pledges, and intransigence. And we know that the new mantra from the GOP, but cynically only when they’re in power is, deficits don’t matter. But while deficits don’t matter to the GOP anymore, neither do good paying jobs that are the foundation of the middle class. And, unfortunately, the Democrats aren’t focusing enough on them either. This recent post from Dan Froomkin lays out the issue pretty well, Obama, Romney and the Low-Wage Future of America.
To the extent that there has been any attention paid to public policy issues amid all the mud-slinging in the 2012 presidential campaign, the most frequent subject has been jobs — and which candidate can create more of them over the next four years.
So far, that debate mostly involves attacking the other guy, rather than advancing any real solution. The Obama campaign has been trying to define Mitt Romney as an effete champion of outsourcing (with some justification) while the Romney camp has dwelled on Barack Obama’s failure to reignite the job market (also with some justification, though in some significant part the failure is because of GOP obstruction).
Their descriptions of their own plans are no more edifying. As the incumbent, Obama has to run on his record — and despite his talk of bold solutions, that means either exaggerating his successes or making a lot of excuses.
Romney, meanwhile, offers little more than a collection of vague allusions to the wholly disproven theory that tax cuts lead to hiring.
The fact is that there is no Democratic jobs plan, if Republicans are able to keep either their control of the House or their ability to paralyze the Senate, or both. And there is no Republican jobs plan at all.
So what’s the press to do? There’s some value in differentiating between the two positions, which in this case has the added advantage of exemplifying each party’s central weakness (in one case a failure of will, in the other a departure from reality).
Froomkin goes on to quote from several recent books on the issues of wages, jobs and poverty. They all come to the same conclusion as to why none of this is likely to change soon.
Neither party, Jeff Faux argues, is addressing the economic realities that make this the most likely future for our country — because changing course would require massive government intervention. There’s a pretty strong consensus among all but the most ideologically conservative economists that the solution would involve considerable public investment in education, infrastructure, and green energy, new policies to promote domestic manufacturing, more activist regulation of the financial industry in particular, and a more progressive tax structure.
But no matter who wins the election, Faux said, the governing elite has pretty much already ruled out that agenda, in favor of light regulation and governmental austerity.
“I think Romney and Ryan are reactionary disasters. But the last four years should have told us something, and that is the power of big money to intimidate the Democrats,” he said. “The deal has already been made … Government over the next 10 to 15 years will be starved for revenue.”
Still, Faux argues, someone should be making the argument to the public that “Hey, this is a big country. It needs a big government to solve its big problems.”
He ended by asking several questions that are not being answered.
With so much at stake, journalists have good reason to go beyond the empty sound bites and, at the very least, ask people who talk about creating jobs: What sorts of jobs?
But beyond that, it’s worth exploring the question of why a much bigger government response to the jobs crisis is so far off the political agenda of the governing class? How did that happen? Who benefits? And who loses? Those are certainly more intriguing things to ponder than whose zinger zinged the most.
Clinton made the case for that last night.
It turns out that advancing equal opportunity and economic empowerment is both morally right and good economics, because discrimination, poverty and ignorance restrict growth, while investments in education, infrastructure and scientific and technological research increase it, creating more good jobs and new wealth for all of us.
Yes the only way out of our current state will be to increase short-term deficits a little more, in order to put Americans back to work, and educate our youth. By ending the Bush Tax Cuts and the two wars he got us into, which are the main sources of our deficit, we can take care of a good chunk of it. The rest will go away once our return on the investments in our country reignite our economy.
Those investments should be along the lines of what this Demos report recommends, Millions to the Middle. In it they lay our 14 policies that should be advanced to firmly re-establish the middle class in America.
Our policy agenda is based on the three broad pillars of middle-class opportunity and security: investments in human capital and education; support for growth, job creation, and career development; and helping Americans build assets.
We have a choice in November as Clinton stated last night.
People ask me all the time how we delivered four surplus budgets. What new ideas did we bring? I always give a one-word answer: arithmetic. If they stay with a 5 trillion dollar tax cut in a debt reduction plan – the – arithmetic tells us that one of three things will happen: 1) they’ll have to eliminate so many deductions like the ones for home mortgages and charitable giving that middle class families will see their tax bill go up two thousand dollars year while people making over 3 million dollars a year get will still get a 250,000 dollar tax cut; or 2) they’ll have to cut so much spending that they’ll obliterate the budget for our national parks, for ensuring clean air, clean water, safe food, safe air travel; or they’ll cut way back on Pell Grants, college loans, early childhood education and other programs that help middle class families and poor children, not to mention cutting investments in roads, bridges, science, technology and medical research; or 3) they’ll do what they’ve been doing for thirty plus years now – cut taxes more than they cut spending, explode the debt, and weaken the economy. Remember, Republican economic policies quadrupled the debt before I took office and doubled it after I left. We simply can’t afford to double-down on trickle-down.
President Obama’s plan cuts the debt, honors our values, and brightens the future for our children, our families and our nation.
The only choice for getting our country where it needs to go is by reelecting Barack Obama.
Unemployment in Texas rose for the second consecutive month to 7.2 percent in July despite continued job growth, according to state jobless data released Friday.
Texas Workforce Commission figures show that the state added 17,800 nonfarm jobs in July. But that wasn’t enough to keep up with rising population, causing the jobless rate to tick up from 7 percent in June.
Austin’s unemployment rate stayed steady last month while the state rate went up slightly.
Austin’s unemployment rate was at 6.4 percent in both June and July.
“All in all it’s not a bad picture but we are at a bit of a loss to explain some of the job losses that occurred during July, especially at the same time where we saw an increase in the numbers of the civilian labor force – which, again, is attributable to population growth,” says Capital Area Workforce Solutions Executive Director Alan Miller. ”But some of the numbers just don’t quite make sense. And they’re going to require us to dig a little deeper and find out what was going on in July.”
Much of the reason for Texas’ jumble is similar to the reason it’s jumbled at the national level. The cutbacks in public sector workers because of austerity, State cut more than 6,000 employees.
A state auditors report just released shows that the state has eliminated about 6,145 jobs in the past year. Most of those cuts have come in state agencies, but colleges and universities also report that they have cut 336 faculty posts and 580 staff members.
The Legislature slashed state spending last year to deal with a multi-billion shortfall. The numbers of job lost don’t reflect public school teaching jobs, where nearly 11,000 positions were cut.
Texas is eligible for $31 million from the unspent earmark pot, Transportation Secretary Ray LaHood said today. The money can be spent by Texas and other states on any eligible highway, transit, passenger rail, or port project.
“We’re releasing these funds so Texas can get down to the business of moving transportation projects forward and putting our friends and neighbors back to work,” LaHood said.
If public sector jobs were at the same level they were now, as they were during the Bush years, the unemployment rate and economy would be in much better shape. And the same can be said for Texas, we wouldn’t be in this jumble if The Lege had not cut so many teachers from the payroll. As good as Texas’ economy is doing, if it was for the austerity measures put in by the regressives last year, the economy would be humming along.
A couple of weeks ago the Washington Post (a.k.a. “Fox on 15th Street”) gained notoriety for running a major news article based on a study funding by military contractors that warned of large job losses from cuts in military spending. Of course folks who know economics realize that in a downturn cuts in any type of government spending will lead to job loss. In fact, cuts in most forms of government spending will lead to larger job losses than cuts in military spending. In other words, there was no real news in this study, except that the numbers were likely exaggerated.
In keeping with this spirit, the Post published a news article today that warned that allowing the Bush tax cuts to expire for the richest 2 percent would be “placing an enormous strain on the already sluggish economic recovery” according to another business financed study. This assertion badly misrepresented the study’s findings.
The lead plaintiff in the U.S. Supreme Court challenge to the Patient Protection and Affordable Care Act, the National Federation for Independent Business (NFIB), is a highly partisan front group masquerading as the “nation’s leading small business association,” critics say. The nation’s highest court is expected to rule on the federal health care law Thursday.
Bankrolled By Big Donors, Not Small Business
A recent analysis by Public Campaign and Alliance for a Just Society shows that the NFIB and its Legal Center received an influx of big dollar donations in 2010 and 2011 as their challenge to the federal health care law moved forward — suggesting the challenge is bankrolled by deep-pocketed special interests. The NFIB pocketed more than $10 million in six figure contributions in 2010 and 2011, with $8.5 million coming from just four contributors. As a non-profit, NFIB is not required to disclose its donors, but it is known that the organization received $3.7 million in 2010 from Karl Rove’s 501(c)(4) political group Crossroads GPS. In contrast, in 2009, the year before the healthcare lawsuit, the largest donation NFIB received was $21,000.
“Small businesses don’t give multi-million dollar contributions, like the ones NFIB has recently received without disclosing their sources,” says Rep. Raul Grijalva (D-AZ), the co-chair of the Congressional Progressive Caucus. Grijalva and Rep. Keith Ellison (D-Minn.) have asked the organization to disclose who is bankrolling their health care lawsuit. “If NFIB is determined not to say where its money comes from or who its members are, we must ask what the group is hiding,” Grijalva said.
The NFIB joined with 26 states in a lawsuit against the 2010 Affordable Care Act (better known as “Obamacare”), but is funding the challenge entirely on its own. “I’m not sure most voters understand that a lawsuit by their states is being funded by an ideological organization with an issue ax to grind,” said Ethan Rome, executive director of Health Care for America Now.
“This type of thing raises all kind of red flags,” Florida state Rep. Mark Pafford (D) told the Palm Beach Post last year. “My concern is, if it’s a lawsuit on behalf of the people of Florida, then I would believe it should be the people of Florida footing the bill. When you have an outside party paying, then every aspect of the [state Attorney General's] office might be up for sale.”
NFIB Ties to Right-Wing, ALEC
While NFIB’s funding has recently swelled with its crusade against Obamacare, its partisan affiliations run deep. Ninety percent of its campaign contributions over the past fifteen years have gone to support GOP candidates — and it is safe to say that ninety percent of small business owners are not Republican. The NFIB’s president, Dan Danner, is a longtime lobbyist who has never been a small businessman. The rest of the NFIB’s leadership consists of right-wing veterans.
For example, NFIB Senior Vice President for Federal Policy, Susan Eckerly, was previously the director of regulatory policy for the David Koch-founded Citizens for a Sound Economy, which split into Freedomworks and Americans for Prosperity. She also previously served on the board of the right-wing Heritage Foundation, where she voiced support for the Cato Institute’s push to repeal the Civil Rights Act, the Americans with Disabilities Act, and Community Reinvestment Act.
The NFIB is currently a private sector member of ALEC and has had representatives on the ALEC Civil Justice Task Force, the Health and Human Services Task Force, and the Tax and Fiscal Policy Task Force. In August 2011, an NFIB lobbyist received ALEC’s “Private Sector Member of the Year” award. ALEC’s Civil Justice Task Force legal adviser, Mark Behrens of Shook, Hardy & Bacon, is on the advisory board of NFIB’s Legal Center. NFIB representatives have also been presenters at ALEC meetings and workshops, and Jonathan Williams, director of ALEC’s Tax and Fiscal Policy Task Force, has spoken at NFIB events. ALEC, for its part, proudly displays an NFIB endorsement of its 2011 Koch-funded report on state competitiveness, Rich States, Poor States, with a quote from NFIB Vice President Steve Woods exclaiming “Kudos to ALEC, Laffer, and Moore.”
ALEC also filed an amicus brief in the challenge to the health care law and has also been focused on repealing “Obamacare” with state resolutions and bills to undermine the federal law.
Who Represents Small Business?
In other words it’s a bogus study, done by a corporate lobby group, like ALEC, that wants to scare average people that if the rich don’t get to keep all their money then you’re going to lose your job. The question is, how much money do they need? Via David Cay Johnston,Idle corporate cash piles up.
IRS data suggests that, globally, U.S. nonfinancial companies hold at least three times more cash and other liquid assets than the Federal Reserve reports, idle money that could be creating jobs, funding dividends or even paying a stiff federal penalty tax for hoarding corporate cash.
The Fed’s latest Flow of Funds report showed that U.S. nonfinancial companies held $1.7 trillion in liquid assets at the end of March. But newly released IRS figures show that in 2009 these companies held $4.8 trillion in liquid assets, which equals $5.1 trillion in today’s dollars, triple the Fed figure.
From the companies’ point of view, it makes perfect sense these days to hoard cash.
First, Congress lets overseas profits accumulate untaxed, so long as offshore subsidiaries own the cash. Second, companies have a hard time putting cash to work because fewer jobs and lower wages mean less demand for products and services. Third, a thick pile of cash gives risk-averse CEOs a nice cushion if the economy worsens.
Given the enduring hard times, you might think that corporations have used up their cash since 2009. But real pretax corporate profits have soared, from less than $1.5 trillion in 2009 to $1.9 trillion in 2010 and almost $2 trillion in 2011, data from the federal Bureau of Economic Analysis shows.
Yes, our economic problems are a demand problem and have been since 2008. The only way to fix the demand (and deficit) problem is to put people back to work – grow the economy. And the only way to do that is, since cash hoarding corporations won’t, is for the government to do so. And the best way to pay for it is to raise taxes on the wealthy, like we used to.
The job numbers are out and they’re not good. We’re in a depression. That’s why Paul Krugman has written a book titled End This Depression Now! The basic premise of the book is that we’re in a depression, not as bad as the Great Depression, we know how to get out of it, and we’re not applying the known fix.
First the difference between a recession and a depression:
Joshua Holland: Let me ask you first about a somewhat provocative word in your title, the D-word. What makes this a depression rather than a so-called “Great Recession” that we’ve heard so much about?
Paul Krugman: A recession is when things are going down, when the economy is heading down. A depression is when the economy is down, and stays down for a long time. We have the Great Depression, which was more than a decade. There were two recessions in there and there were two periods that were recoveries in the sense that things were getting better, but not much better. The whole period was a period that was really terrible for America and for the world. We’re in a period like that right now. Not as bad as the Great Depression, but that’s not much to recommend it. It’s a sustained thing. We’re now in year five of very high unemployment with terrible prospects for young people. It’s a depression.
And next how to get out of a depression:
JH: I want to encourage people to read the book, but can you just give readers a sense of what you think is the most important thing policy makers should be thinking about doing right now?
PK: The moral of the book is: this doesn’t have to be happening. This is essentially a technical process; it’s a small thing. It’s like having a dead battery in a car, and while there may be a lot wrong with the car, you can get the car going remarkably easily, if you’re willing to accept that’s what the problem really is.
First and foremost, what we have is an economy that just doesn’t have enough spending. Consumers are hobbled by debt, corporations don’t want to spend if they don’t see consumer demand. Somebody has to step in and spend, and that somebody is the government. The government could – and by all means let’s talk about forward-looking, big projects — right away get a big boost in the economy just by reversing the big cutbacks that have taken place in state and local governments these past three years. Get the schoolteachers rehired and get the policemen and firefighters back on the beat. Fill those potholes that have been developing in New Jersey and I believe all over America. We’d then be most of the way back to a decent economy again.
A simpler way to say it is that when consumers can’t spend money (because they don’t have any), and business won’t (because of low, or no demand), then the government must. And if the government won’t spend money, because of politics, then we will languish in a depression until our government does.
The solution is out there and neither the Democrats or the Republicans appear willing to do what is needed to lower unemployment and fix our economy. Anyone worried about the debt should read this, My Father and Alan Greenspan.
When I was a small boy at the start of the 1950s, my father gave me my first economics lesson. “Bobby,” he said with obvious concern, “you and your children and your children’s children will be repaying the national debt created by Franklin D. Roosevelt.”
I didn’t know what a national debt was, but I remember being scared out of my wits.
Dad was wrong, of course. Even though the national debt then was a much higher percentage of the national economy than it is today, it shrank as the economy boomed. My children have never mentioned FDR’s debt. My granddaughter (almost 2) will never pay a penny of it.
Dad, now 96 and still in good health, recognizes how wrong he was then. He admits FDR’s deficit spending not only won World War II but it also got America out of the Great Depression.
The overriding theme of Krugman’s book is we’re in a depression, we were in one before, we know how to get out of one, and we’re not doing it. We have a demand problem that won’t be fixed until jobs return, and wages begin to rise. In times of trouble the government is supposed to act to help the people, it is not, and until it does the depression will continue. All that’s left is to wonder, what is it going to take for our elected representatives to figure this out?
Houston janitors will strike for the third day in a row. Already this week, janitors have gone on strike against one employer at Greenway Plaza buildings, another at 363 North Belt and tonight the strike will expand to two buildings against the employers charged with cleaning at Four Oaks Place, Wells Fargo Tower and 1330 Post Oak. These contractors have responded to employees’ efforts by interfering with their rights to engage in union activity protected by federal law.
Despite cleaning the offices of some of the richest corporations in the world, including JP Morgan Chase, Chevron, and ExxonMobil, janitors in Houston are paid as little as $9,000 a year, and many work two to three jobs just to survive. A janitor would have to work more than 2,000 years in order to earn what the Exxon and Chevron CEOs make in just one year, and 2,500 years to earn just what JP Morgan CEO Jamie Dimon took home last year.
“I am paid so little that I have to work two jobs just to make sure my family has what they need. I’m only able to see my two kids about an hour a day,” says Cirilo Solo, a janitor who works for Pritchard. “We spoke up for a better life and now they’re violating our rights.”
This is the second time janitors in Houston have gone on strike—this time to protest unlawful conduct. In 2006, janitors in Houston went on strike and touched off a flurry of activity including multiple days of civil disobedience, marches and rallies that propelled the plight of Houston’s low wage workers into the national spotlight.
Since 2006, the growing gap between the 1% and the 99% has become a pressing political issue as the number of low wage jobs increases, the middle class shrinks and corporations refuse to pay their share of taxes, create good jobs, and reward the hard work of their employees.
The problem is particularly poignant in Houston. Named the nation’s “No. 1 Millionaire City” for annual growth in millionaires; 1 in 5 people working in Houston make less than $10 an hour, and Texas is tied with Mississippi for the highest proportion of minimum wage jobs in the nation.
Texas Democratic Party Chair Gilberto Hinojosa recently released a statement in support of the janitors (via jobsanger).
“If corporations want to be considered people, then they need to accept the belief that we are our brother’s keepers,” said Gilberto Hinojosa, the newly elected chairman of the Texas Democratic Party. “Hard working people in America should not be shamed. Honest work should receive honest pay, but Republicans want to repeal the minimum wage to make people work for $2 an hour. Then Republicans want to whine about paying for heath care for children of American parents who have jobs. It is shameful.”
“Grotesquely overpaid CEOs and upper management expect the men and women who work hard and play by the rules to be forced to beg for public assistance just to support themselves, much less a family. That is a disgrace not only to the America we love, but also to God,” Hinojosa stressed. “These striking workers are seeking a living wage for their work in cleaning the offices of Texas millionaires and one percenters, who not only refuse to pay a decent wage for honest work but are also enlisting Republican support to protect them from paying their fair share of taxes.”
“Democrats, along with labor unions, have been cleaning up corporate messes, both literally and figuratively, for far too long. Corporations are attempting to maximize profits at the expense of the taxpayers who must provide medical care and food assistance for workers’ families, even though the breadwinners are working full time. That is not the America we love,” Hinojosa continued, “and the workers and taxpayers in this country should be enraged about it.”
Chairman Gilberto Hinojosa and The Texas Democratic Party calls upon Texas Democrats and all Texans who support the right to a living wage to make a meaningful stand by helping on the picket line, signing the petition at http://1.seiu.org/page/s/houston-needs-a-raise.
I completely agree with what jobsanger writes:
I may have misjudged the new chairman of the Texas Democratic Party. I had thought he would continue the same old moderate to conservative policies of the last leadership. In the past, the state party leadership avoided any issue that might seem progressive and cost them conservative votes (votes they weren’t going to get anyway). A good example of that would be the union janitor strike in Houston (where the janitors are trying to get a livable wage).
But the new party chairman, Gilberto Hinojosa, has come down squarely on the side of the striking janitors, and he has done so publicly. This is a progressive stand, and one that I wholeheartedly support. I hope this is indicative of future actions Mr. Hinojosa will take. If so, the Texas Democratic Party might once again give Texas voters a real choice (instead of a parade of Republican-lite conservatives that have marked candidates in the recent past).
Texas taxpayer money is regularly given away to corporations that bring low paying jobs to the state of Texas. As Paul Krugman pointed out last year, The Texas Unmiracle. Texas is a cheap labor state, and corporations love that. It increases their profits, which they’re able to hoard because of the cheap taxes for corporations in Texas.
What Texas shows is that a state offering cheap labor and, less important, weak regulation can attract jobs from other states. I believe that the appropriate response to this insight is “Well, duh.” The point is that arguing from this experience that depressing wages and dismantling regulation in America as a whole would create more jobs — which is, whatever Mr. Perry may say, what Perrynomics amounts to in practice — involves a fallacy of composition: every state can’t lure jobs away from every other state.
Thankfully, the local debate over whether to grant Maruchan Inc. of Japan millions of dollars to pay people very little money to make noodles has transcended the mere question of how many workers it would employ.
And it’s heartening — in a depressing sort of way, of course — that some of us are actually worried.
We are worried because the people making the noodles would earn minimum wage: $7.25 an hour, less than a living wage.
At the risk of dampening anyone’s good cheer, here are a few more reasons for us to be worried.
Texas already ranks first in the nation for jobs at or below the minimum wage.
(Go Texas! We’re No. 1!)
In fact, 37 percent of all jobs added in Texas in 2010 paid minimum wage or less. Overall, about a third of all jobs in Texas fail to support a family of four.
Also, the gap between the rich and the poor in Texas is greater than the gap in 40 other states, and it’s increasing. Perhaps this is because Texas workers are more productive than the average American worker, yet they’re also less well-paid.
What are the consequences of a low-wage economy?
Here’s one: Texans carry more credit card debt, ranking among the highest in the nation in 2009 and 2010.
The American city saddled with the highest average credit card debt in 2010?
It was San Antonio, at $5,177
To be fair, Bexar County commissioners preparing to shell out $5.8 million in incentives to Maruchan Inc. are not purporting to lead a pep rally.
Precinct 2 Commissioner Paul Elizondo conceded the deal amounts to a “dilemma,” although he said, “A job is a job. We need to get as many of them as we can.”
And here’s where the American Dream — or the “Texas Miracle” — collides with reality.
“Everybody needs to work, particularly in Texas because the social safety net is so thin,” said Cal Jillson, a political science professor at Southern Methodist University. “And one of the reasons it’s so thin is so when jobs like this become available, there’s a lot of competition for them because Texans have no choice but to work, and to work at whatever job’s available.”
In other words: Low taxes not only create jobs, but also result in low services and low wages.
But low wages, low taxes, (on the wealthy that is), and low services also keeps poor, working, and middle class Texans fighting amongst themselves for an ever-shrinking piece of the pie. Which is an old trick.
Now, what does all of this mean in this great period of history? It means that we’ve got to stay together. We’ve got to stay together and maintain unity. You know, whenever Pharaoh wanted to prolong the period of slavery in Egypt, he had a favorite, favorite formula for doing it. What was that? He kept the slaves fighting among themselves. But whenever the slaves get together, something happens in Pharaoh’s court, and he cannot hold the slaves in slavery. When the slaves get together, that’s the beginning of getting out of slavery. Now let us maintain unity. - “I’ve Been to the Mountaintop” by Dr. Martin Luther King, Jr.