economy

Will Workers Survive State Budget Belt-Tightening?

Susan Ozawa — Tue, 13 Jan 2009 15:30:36 -0500

Executing the Main Street Economic Recovery Program Equitably

Susan Ozawa — Mon, 22 Dec 2008 16:14:25 -0500

Given the male dominated nature of construction and heavy manufacturing involved in infrastructure projects Eileen Appelbaum, at the School of Management and Labor Relations and Director of the Center for Women and Work recommends that proposals pushing infrastructure investment include construction of child care centers and additional space to accommodate expanded pre-K programs. Appelbaum also recommends including in this investment funds targeting training historically marginalized workers and incentives alongside other mechanisms to ensure these jobs are distributed equitably.

A petition along these lines can be signed here. Progressive economists highlight the importance of the quality of the jobs created, pushing for those receiving recovery funds be held accountable to create jobs with livable wages, health insurance, paid sick days, paid holidays and vacations. Monitoring and oversight to ensure transparency is fundamental. Provisions are outlined by the National Partnership for Women & Families here.

Endorser of the Main Street Recovery Program, Randy Albelda, professor of economics and Senior Research Fellow at the Center for Social Policy at University of Massachusetts Boston, highlights the need to address our severe deficits in social infrastructure as well as physical infrastructure. The Main Street Economic Recovery Program emphasizes spending on education, health care and child care, recognizing these should be down payments on larger reforms in our domestic budget priorities.

Signatory, Robert Drago, Professor of Labor Studies and Women's Studies at Penn State University further highlights the economic benefit of child care funding. The multiplier effect embodied in services is stronger than pure construction partly because child care workers earn less, but also because infrastructure investment is capital intensive and can involve foreign inputs although the Main Street Recovery Program emphasizes procuring domestic supplies. You can find Drago’s full argument here.

Following this lead, the Direct Care Alliance has laid out a series of recommendations to President-Elect Obama here. To avoid the kinds of jobs created after Katrina, to begin to set in order our ailing economy and to redirect our comprehensive infrastructure priorities these recommendations offer sound guidance on executing a progressive Main Street Economic Recovery Program that can benefit us all.

Change.gov Discussion on the Main Street Recovery Program

Susan Ozawa — Mon, 15 Dec 2008 11:44:00 -0500

Participate in the discussion about the Main Street Recovery Program on Change.gov.

Collapsing Bridges, Sinking Levees. It’s (Past) Time to Invest

Eric Lotke — Thu, 31 Jul 2008 10:47:02 -0400

Last year on August 1, the I-35W bridge in Minneapolis collapsed during rush hour. Thirteen people died and more than 100 were wounded. A school bus carrying 52 children teetered on the brink but did not fall.

This bridge is not alone. Our nation’s infrastructure is deteriorating, dying of old age and neglect.

Making Sense Alert:
Invest in America Now
How to talk about the need
for investment in our
common assets in tough
economic times.

Bridges and roads. The U.S. Department of Transportation reports that nearly 25 percent of bridges in the U.S.—over 152,000 bridges—are “structurally deficient or functionally obsolete.” Heavier vehicles, like school buses and delivery trucks, are forced to take lengthy detours for safer bridges. Nearly one in four miles of urban interstate is in “poor” or “mediocre” condition.

Levees and waterways. Earlier this year, thousands of homes and millions of acres of crops were destroyed after heavy rains overwhelmed obsolete levees along the Mississippi River. In 2007, the American Society of Civil Engineers found more than 150 levees to be at high risk of failing due to poor maintenance. Over a quarter of the dams overseen by the Corps of Engineers have exceeded the lifespan for which they were designed and need major repairs to ensure their safety.

Water and steam. A steam pipe explosion in Manhattan last year launched a tow truck 12 feet in the air, killing one person and injuring dozens more. The blast opened a 40-foot-diameter crater and spread toxic asbestos, closing off 40 square blocks for five days. Almost every state—from California, Hawaii, and New York to Alaska and North Carolina—has reported record breakdowns in water infrastructure. In the words of one expert, “an epidemic of breaking pipes is causing unprecedented havoc.”

These are just illustrations of the deadly danger of letting our infrastructure go unmaintained. America’s electric power grid, dams, water treatment plants, airports, and railways are all in dire need of repairs and improvements.

The solution is obvious. Repair and rebuild. Rebuilding our infrastructure provides jobs—good jobs that can never be outsourced—and an economic shot in the arm that we desperately need. The U.S. Department of Transportation estimates that every $1 billion in federal highway investment creates 47,500 new jobs and generates more than $2 billion in economic activity.

The “greatest generation” built the Interstate Highway System and laid the groundwork for decades of economic expansion. Now it’s our turn to rebuild the highways and add high-speed rail to boot. We’ll be faster, safer and more efficient. Yes, it will cost money, and yes, we’re running deficits. But this is no time to run scared. These are long-term investments and they will pay off over time.

Don’t fall for the “pay as you go” trap or fear the “tax and spend” label. Real people are smarter than that. A new poll by Time Magazine and the Rockefeller Foundation finds 83 percent of the public supports “increasing government spending on things like public works projects to help create jobs.” Support is at 83 percent among the baby-boom generation who built the interstates, and a surprising 90 percent among the young generation Y who are watching them fall apart.

Let’s invest now to turn the economy around.

GOP Threat: Cut Social Security and Medicare or we'll kill the economy. Americans say NO to both.

Roger Hickey — Sun, 06 Jan 2013 19:25:51 -0500

Here we go again. Republicans are very clear about their latest extortion threat to the American people: Unless you cut Social Security and Medicare benefits, within the next two months we will throw the US economy back into recession - by refusing to allow the US raise the debt ceiling and pay our bills - or by pushing the economy over another fiscal cliff of deep spending cuts and tax increases - or by shutting down the government by refusing to pass a continuing budget resolution.

But it is very important for progressives and politicians to remember that most Americans hate what the Republicans are doing here. Who but Right Wing terrorists could support pushing the economy back into recession, throwing millions of Americans out of work? That's what Republicans are threatening. And huge majorities also hate the price Republicans are demanding to prevent their threat of manufactured chaos: the idea of cutting Social Security and Medicare benefits.

Republicans can get their way only if Democrats fail to realize they have the American people on our side. And once Republicans are clear about their proposals, Americans turn against them.

During the election, Paul Ryan's plan to turn Medicare into a voucher was so unpopular that candidate Mitt Romney ran away from his Vice Presidential nominee's proposal. Democrats won the election.

Now, Tennessee Republican Senators Bob Corker and Lamar Alexander have dared to unveil a proposal (called their "dollar-for-dollar plan") that would only allow the debt ceiling to be raised by the amount we allow them to cut what they term "entitlements." How many Americans would embrace these changes?:

They would privatize Medicare by creating competing private options giving seniors greater choice of healthcare plans. Shades of the plan Mitt Romney endorsed and then ran from.
They would also give states more flexibility to cut Medicaid programs.
And they would gradually raise the Social Security retirement age and immediately impose the "chained CPI" formula to cost-of-living adjustments - a cut to retirement benefits of today's seniors.

"Unfortunately for America, the next line in the sand is going to be the debt ceiling," Corker told The Hill, laying out his leverage strategy for negotiations with Democrats. These guys couldn't be more explicit

Over the next two months, everyone who loves our country must rise up and say NO to this Republican nihilistic extortion. We must isolate them, ridicule and shame them. And we must force the Democrats to have the backbone to stand with us and reject Republican extortion and economic terrorism.

President Obama campaigned for reelection on his pledge to repeal the Bush tax cuts for people making more than $250,000, but he backed down and agreed to raise taxes only on people making more than $400,000. In return, he got an extension of unemployment benefits and important low income tax provisions. But he could only get Republicans to postpone for two months the Fiscal Cliff tax increases and spending cuts known as "sequestration." And he failed to get them to give up the threat to destroy the full faith and credit of the United States that their refusal to raise the debt limit ceiling would bring on. Their refusal to support the once-routine legislation insuring we can pay our debts is already causing the Treasury Department to juggle accounts and will reach crisis stage by the end of February.

President Obama has pledged that he will not bow to Republican extortion over the debt limit:

"I will not compromise over ... whether or not Congress should pay the tab for a bill they've already racked up. If Congress refuses to give the United States the ability to pay its bills on time, the consequences for the entire global economy could be catastrophic. The last time Congress threatened this course of action, our entire economy suffered for it. Our families and our businesses cannot afford that dangerous game again."

But remember that President Obama did negotiate the last time Republicans threatened to crash the economy by refusing to raise the debt limit, in September 2011. Obama was willing to offer up Social Security benefit cuts (in the form of a new "chained CPI") and a change in the Medicare eligibility age (from 65, when many people are forcibly retired, to 67). It was only because Republicans refused to accept tax increases that Obama's dangerous offer was not accepted. Instead, in return for Republican votes to lift that last debt ceiling, the draconian fiscal cliff sequestration budget cuts scheme was created (now postponed until early March).

So while President Obama may refuse to negotiate with Republicans over their latest manufactured debt limit crisis, he could end up negotiating to avoid the threat of sequestration. And Social Security and Medicare cuts could be on that table.

A Powerful Coalition Reminding Democrats What Americans Want - And Don't Want.

President Obama and other Democrats need to listen to the voices of the groups who helped get them elected in 2012 - unions, community organizations, groups representing women, African Americans and Hispanics, and online activist groups like MoveOn and the Campaign for America's Future.

On November 8, many of these groups placed an ad in the Washington Post making a set of demands on the President and Congress. These demands have served as unifying principles for a powerful organizing and outreach coalition. Signed by organizations including the AFL-CIO, SEIU, Center for Community Change, Leadership Conference on Civil Rights, and the Campaign for America's Future, the ad was accompanied by an open letter to the White House and Congress signed by 146 national organizations.

If the President and the Democrats in Congress listen to these principles - and to these groups who have been communicating with them before and after the election - they will refuse to cut Medicare and Social Security in response to the Republicans' threat reject the debt ceiling and tank the economy. And they will discover they have the vast majority of Americans on their side.

Here what the ad said, in part:

To the President and The Congress.

As you face urgent budget decisions, you must keep the election results in mind and resist budget cuts that slow our economy and hurt families. The best way to reduce the deficit is to put people back to work and get our economy going again. That's why we are calling on national leaders from both parties to stand up for the middle class and demand that any budget agreement:

Asks all Americans to pay their fair share of taxes.

Prioritizes job creation first. It's time to grow--not slow--the economy.

Does not cut Medicare, Medicaid, or Social Security benefits and does not shift costs to beneficiaries or the states. Voters loudly and clearly spoke up for these programs.

Protects the safety net and vital services for low-income people.

Stops the sequester. The scheduled automatic budget cuts threaten our fragile recovery and put huge numbers of people out of work while cutting education, child care, job training and dozens of vital services people and communities need.

The groups involved have helped the American Majority of working families communicate these demands to the President and the Congress. So far, we have kept Social Security, Medicare and Medicaid off the chopping block. We are redoubling our efforts to prevent Democrats from capitulating to Republican hostage-taking and extortion. And we are turning our campaign to opposing conservative austerity - and fighting for jobs and robust economic growth.

Arm Yourself For Fiscal Cliff Arguments

Dave Johnson — Mon, 19 Nov 2012 13:27:53 -0500

I joined Campaign for America's Future's Richard Eskow to talk about the "fiscal cliff" scare, austerity, Social Security, Medicare and how we WON the election so we really should be talking about jobs instead.

This was a GREAT hour, and hold the information you need to arm yourself to win holiday-dinner conversations with your right-wing brother-in-law.

The conversation refers to my post, Fiscal Cliff Scare Talk Follows Shock Doctrine Script as well as several posts by Richard Eskow including, Wall Street Finds a ‘Third Way’ to Plunder Our Wealth, The “Fiscal Cliff” Is a Hoax … and a Mel Brooks Routine, The Grand Swindle – Veterans on a Cliff, After the Election, a New Mandate – and New “Fiscal Cliff” Math

Click here to listen, or listen using the widget below:

Listen to internet radio with Jay Ackroyd on Blog Talk Radio

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Hey check out what happens when you click these:

Cuts and Consequences - How Budget Cuts Hurt The Economy

Dave Johnson — Fri, 09 Mar 2012 10:25:14 -0500

Is smaller government really better for the economy?

Conservatives chant that taxes and government "take money out of the economy" and we need to "cut and grow," meaning if government spending is cut way back the economy will grow as a result. Europe's conservatives are also forcing cuts in the things their governments do for regular people, claiming "austerity" will bring "confidence" that grows their economies.

How is this experiment working out? What are we learning about the effect on the larger economy when government is cut?

What Does Government Do?

Almost everything the government does is because it needs to be done. We need roads, bridges, schools and colleges, dams, courts, police and fire departments, water management, etc. (We can discuss the need for military spending another time.)

These are all needed and contribute to the functioning of the economy. So if government is cut back and doesn’t do something that is needed, then how does it get done? Or does it just not get done?

Either way, the real question we should be asking is what is the effect on the larger economy when our government cuts back on or stops doing needed things? If you save the “government” a bit of money but cost the economy a lot of money, are you saving money? Or are cuts in government really just shifting and even increasing the costs in the larger economy of doing these things?

Who Is Our Government For?

In the United States, our Constitution says that government is supposed to be of, by and for We, the People. The country was established after the colonists rebelled against the aristocracy of England, a few people who had all of the wealth and power and would not let the colonists have a say in how things were run and who would benefit. So they fought the Revolutionary War and established a country where "We, the People" all have an equal say, and to "promote the general welfare." In other words, a country that aspires to be of, by and for the good of all of us.

So cutting back on government means cutting back on We, the People doing things for the good of all of us. It means cutting back on the things we have a say over. It means relinquishing the wealth and power that we hold in common to ... well, just where does our common wealth and power go if our government is cut back?

Medicare, For Example

Republicans say we need to cut back on what the government spends on Medicare. But if you cut Medicare the health problems of elderly people and the larger problem of fast-rising health care costs in the larger economy don’t disappear. In fact, both problems just get worse.

The "Ryan Budget" that Congressional Republicans voted to approve actually converts Medicare into a program that gives seniors a voucher that pays for part of a private medical insurance policy that seniors have to shop for. The Center for Economic and Policy Research (CEPR), in Cost of Medicare Equivalent Insurance Skyrockets under Ryan Plan, took a look at that plan and explains what happens to the cost of health care. Summary: it shifts the costs to us, except each of us ends up paying as much as seven times more than we would save under Medicare. From the CEPR explanation:

[The Republican] plan to revamp Medicare has been described as shifting costs from the government to beneficiaries. A new report from the Center for Economic and Policy Research (CEPR), however, shows that the [Republican] proposal will increase health care costs for seniors by more than seven dollars for every dollar it saves the government, a point missing from much of the debate over the plan.

... In addition to comparing the costs of Medicare to the government under the current system and under the [Republican] plan, the authors also show the effects of raising the age of Medicare eligibility. The paper also demonstrates that while [the Republican plan ] shifts $4.9 trillion in health care costs from the government to Medicare beneficiaries, this number is dwarfed by a $34 trillion increase in overall costs to beneficiaries that is projected ...

Repeat, the Republican plan to cut Medicare would cost the larger economy seven times as much as it cuts government spending.

Social Security, For Example

Conservatives have been trying to cut or gut Social Security for decades. While this might mean government has to pay out less of what is owed to seniors, such cuts would have a negative effect on the larger economy.

Social Security allows working people to retire with at least a minimal income. If this is cut, many could not retire for many more years (if ever), which would increase the unemployment rate because their jobs would not open up. The same is true when the retirement age is increased: fewer job openings. If Social Security is cut, the spending (on cat food) at local grocery stores and other necessities is reduced by the same amount. And the effect on children of retirees is increased if they contribute to make up the difference.

This is why cutting Social Security or raising the retirement age only shifts costs onto the larger economy, dragging it down (and cruelly hurting our elderly).

Cutting Disease Control, For Example

One of the clearest examples of the way government helps us all, rich and poor, is the government's Center for Disease Control (CDC).

One of the jobs of the CDC is to help prevent the spread of infectious diseases. If an epidemic is spreading and killing people it doesn't matter if those people are rich or poor. And if a serious outbreak spreads this can damage the economy as people are too sick to, or decide not to show up for work. So of course cutting back the budget of the CDC could cause damage to the economy in any given year and is certain to cause damage eventually. (The CDC budget was cut back 11 percent last year.)

Budget Cuts Hurt The Economy

The above are only a few examples.

A government budget cut is like a huge tax increase on regular people because it increases what each of us pays for the things government does—or forces us to go without. This is because cuts in government spending don’t actually cut the costor the need for those things, they just shift those costs onto the larger economy.

But because these shifts attack the economy-of-scale, transparency, integrity and public-good management that government provides, they almost always increase the costs and harms to the larger economy.

As government health care is cut (or not provided in the first place) each of us must take on those costs on our own, and as demonstrated, pay up to seven times what the same care would/could have cost.
As infrastructure maintenance and modernization is cut, our economy becomes less competitive, unemployment increases and our wages and spending power fall.
As spending on education is cut, our costs of educating ourselves and our kids increase. College costs soar. And the overall education level of our people will decrease, making our country less competitive in the world.
As environmental regulation and enforcement is cut the costs of the resulting health problems and cleanups increase and our quality-of-life will decrease.
As enforcement of labor laws is cut, our wages and protections fall.
As etc. is cut, the costs of etc. are shifted to the larger economy, and the total costs of accomplishing etc. actually increase.

As budgets are cut, the costs are increased and shifted to the larger economy.

Austerity In Europe

Several countries in Europe are severely cutting budgets. The result is that the economies in those countries are slowing. Reuters reported in "Euro zone's slump in late 2011 points to recession".

A collapse in household spending, exports and manufacturing sucked the life out of the euro zone's economy in the final months of 2011, the EU said on Tuesday, showing the scope of the downturn that looks set to become a fully fledged recession.

... The European Commission forecasts a recession of the same magnitude this year. That would be the euro zone's second contraction in just three years as the bloc's debt crisis drags on a region that generates around 16 percent of the world's economic output.

[. . .] The battle between austerity and growth was already evident in the fourth quarter. Euro zone government expenditure fell 0.2 percent, while industry contracted 2 percent and imports were down 1.2 percent, making for some of the worst readings since the world was dragged into the 2008/2009 financial crisis.

The austerity experiment is making the case: cutting government budgets just shifts costs and hurts the larger economy.

Who Benefits From Cuts?

Governments dance with the ones that brung 'em. Whoever controls government is naturally going to direct government to benefit them – and only them. We-the-People democracies do things for We, the People; plutocracies do things for plutocrats. So when, as now, plutocrats are running government, you will get a government that only does things that benefit plutocrats. And when We, the People were running government, we did things that benefit We, the People -- all of us.

The plutocrats now demanding government budget cuts obviously understand that this will result in slowing economies, but don't care -- they are already fabulously wealthy. What they want is reduced taxes and increased power. They say that cuts will bring growth, in order to persuade people to accept cuts. Blocking governments from providing things that don't directly benefit them and only them is a means to that end. And cutting government cuts government's ability to reign them in.

What We, the People Want

When We, the People are running government we insist that government increases overall prosperity. We demand laws and regulations that bring us good wages, benefits and safe working conditions. We demand good public schools & colleges, parks, safety and opportunities for our smaller businesses to fairly compete. We insist on a clean environment, consumer protections, regulations on business behavior, rules against monopolies and (after learning the hard way) rules that keep banks from taking risks that threaten the economy. And we want controls and limits on the use of wealth and power by the 1%ers.

Plutocrats -- the 1%ers -- of course see all of these protections of regular people as hindering their power and ability to make as much for themselves as they can grab. Plutocrats just don’t see how public parks benefit them. They just don’t see why they should have to pay for public schools. What good do public schools do them, today? Plutocrats don’t see why it should be anyone else's problem if old people don’t have health care -- health care for seniors certainly isn't their problem.

They explain that things for anyone other than themselves and their interests just “wastes money.” Things for regular people are not their problem. And when plutocrats run government, it isn't their problem.

The fact is a public park “costs money.” Schools and infrastructure are just more “government spending.” Things like that just "redistribute income" because taxes on the income of plutocrats is used to build that park or school that anyone can use. The basic message of the plutocrat is, "Why should I pay for anything that benefits you?"

You and I might argue that this kind of austerity, cutting schools, Medicare, infrastructure, etc. slows the larger economy, hurting the plutocrats, too. But that doesn’t hurt the ones who are already rich, which is the definition of plutocrat. It puts more in their pockets, today, by lowering their taxes. They want out of taxes and they don't want government (We, the People) interfering with their power.

What We, The People Need

Democracies where We, the People make decisions demand things that are good for regular people and their small businesses: pensions, health care, modernized infrastructure, good schools & colleges, child care, regulations on the behavior of giant corporations... This is why strong democracies have proven to be more prosperous for regular people and for longer than other forms of government that leave people on their own against the wealthy and powerful and drive all of the income and wealth to a few at the top. This is why so many regular working people in our country were so much more prosperous in the decades before the plutocratic 1%-favoring policies of Reagan steered us toward plutocracy.

Understand what is going on here. Demands for budget cuts and austerity are really about shifting from democracy to a system where regular people -- the 99% -- are on their own, up against the wealthy and powerful. This is about shifting from a system where regular people can be prosperous together, to a system where a few -- the 1% -- have all the wealth and power.

We, the People need democracy restored. We need to be in charge again, before the economy can really serve us again.

The Job Guarantee and the MMT Core: Part Three, A Reply to John Carney

Joseph M. Firestone — Fri, 06 Jan 2012 18:52:50 -0500

Parts One and Two

In the first two parts of this series, I analyzed views on the Job Guarantee (JG) idea offered by Cullen Roche and Peter Cooper in conjunction with a post by John Carney which kicked off an explosion of blogosphere posts and commentaries on the JG. In this post, I'll analyze John's take on the JG. He says:

“There are at least three reasons the Jobs Guarantee cannot work.” it's: “. . . massively inflationary”; “. . . . a bureaucratic nightmare; and “. . . economically stagnating.”

His reasoning, and my interleaved replies from an MMT perspective are below. All my replies assume that the JG would not be “paid for,” but would occur through deficit spending.

Would the JG Be Massively Inflationary?

”While employing the unemployed may not create upward pressure on wages, it dramatically increases demand. The national income is increased by the amount the government pays those laboring in JG jobs.”

Actually, GDP is increased by even more than that, because there would be a fiscal multiplier attached to the JG wages similar to the multiplier associated with unemployment insurance, probably in the neighborhood of 1.6 – 1.7. In addition, unlike UI, JG jobs would carry benefits, including access to Medicare, so one would have to add Medicare-related payments and their multiplier onto the multiplier associated with UI. The fiscal multiplier attached to the initial introduction of the JG is one of the arguments for it, since it would represent increased private sector activity and expanded private sector hiring.

”That income is entirely from newly created money, so the money supply is expanding.
That additional demand is not matched by additional supply, however.”

I think this part of John's argument is really weak. Since the output gap is now between 25 -30% of what our economy is capable of, we can expect business to respond to the new aggregate demand with increases in supply, not with increased prices. This will depend on what people want to buy, of course. But there's no reason to assume that people living on a JG wage will want to buy goods and services that are scarce. If John thinks they will, then he needs to amplify that part of his theory about the impact of the JG.

"The people working in JG jobs are not producing goods that the market needs. Their work product is largely waste. Which means that demand increases without the supply of desired goods increasing. The result: inflation."

We can look at the people in JG jobs as supplying demand that the market needs. How do we know this is true? Because of the huge output gap between our capacity to supply and what we're selling. The idea that supply will not increase, as demand increases only makes sense when our capacity to supply is exhausted. But, of course, we have that gigantic output gap telling us that supply will increase and that inflation is not something we have to worry about until that gap is closed.

But when it is closed, JG inputs to the economy will be largely gone, because nearly all of the JG workers will have been hired back by the private sector, and the Federal payrolls will be reduced to its normal complement plus a maintenance staff for the JG program to safegaurd its capacity to ramp up once again, when the next private sector downturn hits.

Also, on what basis is John claiming that JG work products and services are largely "waste"? Is health care for the old and infirm waste? Is building solar and wind power capacity waste? Is work in public schools waste? Is mentoring children lacking parents waste? Is child crae assistance waste? Is the outcome of cultural projects waste? Is repair of public facilities, infrastructure and public spaces waste? Is training people in new skills waste? Is working on entrepreneurial projects waste? Whether, JG work products are waste or not, depends on whether JG workers produce valued goods and/or services that improve the quality of life for other Americans. It doesn't depend on whether “the market” needs those goods and services in the sense that it judges that a profit can be made by producing and selling them.

The story of the US economy in recent years is the story of market failures. It is the story of pharmaceutical companies failing to produce drugs that would actually make people healthier. It is the story of financial services companies sitting on cash and speculating in a massive international gambling casino, rather than using money in a way that is productive for the economy. It is the story of energy companies failing to invest the money needed to bring the cost of alternative sources of energy down and leaving us dependent on fossil fuels. It is the story of the failure of insurance companies to provide affordable health insurance, and the failure of private health care providers to contain costs.

In short, the track record of the market as a mechanism for assessing and producing value for society has not been good for the past 40 years. It has not been adaptive for society at large. Greed has been bad for the market, because it has led business people to try to overturn its workings, to manage it, and even to control it in certain industries. The truth about the market is that works efficiently when it is free, but no business endeavor that is already established wants it to remain free.

In its own area of endeavor a business wants to manipulate the market, to control it, and to create a managed market. Businesses are not for free markets. They are against Government regulations. They are for their own domination of their own market sectors, without Government regulations impeding that domination.

In the past 40 years big business has been very successful at regulating wages in the labor market in a way that benefits them. So, the truth is that the market has largely been a mechanism for seeing to it that the financial benefits of productivity gains largely go to a very small percentage of Americans and an emerging global elite. It hasn't been a mechanism that has increased the real wealth of most Americans by very much over that period.

Will the JG Be A Bureaucratic Nightmare?

John arrives at this conclusion by pointing out that there are 13.5 million people unemployed in the US today, and that an effort to employ all of them would make the JG huge, and implies that the Government couldn't employ all those people without a huge bureaucracy. He claims that:

The JG is a creature of happier times and smaller economies. Bill Mitchell explains that he thought up the idea while he was a student at the University of Melbourne. The total employed population of Australia is only about 11.5 million. Australia currently has an unemployment rate of around 5.3 percent, which translates into 635,800 jobless people. In other words, a jobs guarantee in Australia might be workable. But it doesn't scale to fit the United States.

OK, first John isn't estimating the scale of the problem in a reliable way. It's off the top of his head based on U3 unemployment numbers. To do a better projection you have to recognize, first, that, since dis-employment is at about 28 million, about 25 million full-time jobs are needed to get the unemployment rate down to 2%, which is the MMT full employment goal. In other words, there's an unemployment problem much bigger than 13.5 million to handle. On the other hand, not all of this is necessarily a problem for the JG to handle.

MMT proposals for the JG usually occur in the context of $700 Billion worth of additional deficit spending in full payroll tax cuts for employees and employers, and State Revenue Sharing of $1,000 per person, with a fiscal multiplier of perhaps 1.3 that would kick in before the JG funds really started to flow. It's likely that this deficit spending would cut back the full time unemployed to about 6.5 million, but still leave an additional 8 million part-time employees looking for full-time jobs.

Then, as the JG jobs kicked in after 3 months of ramp-up time at a multiplier of 1.6 – 1.7, private sector hiring would start to accelerate. I think this would make the initial size of the JG problem more like 5 million rather than 13 million. But, please note, I'm not presenting this estimate as anything more than a guess.

Obviously we need some good modeling on this to estimate the dynamics over time and the interactions between different components of the MMT program in ramping up demand and the private sector response. What is clear is that John Carney's estimate of the necessary size of the JG program isn't thought through and is perhaps double or triple its likely actual peak size.

Also, as the JG demand began to hit, it's likely that we'd get a private sector response to it in the form of increased supply and hiring of full time workers within six months. We might very well have a JG program down to less than 500,000 employees within 9 months of the date the JG begins hiring.

In short, I see the JG as a permanent program with a temporary peak size of about 5 million, very quickly falling to 500,000 and eventually to less than a 100,000. If the Federal Government enlists the help of non-profits, State and local Governments to staff it up to the necessary short-term peak, and then relies on individual JG workers and the private sector to staff it down by hiring willing workers away, I don't see the creation of a large permanent Federal bureaucracy coming out of this. John's notion of a bureaucratic nightmare is way overblown, and we certainly can't accept the mere assertion that this would be the result as plausible.

Will the JG Lead to Economic Stagnation?

John also says:

Unemployment encourages those who went into trades that turn out to lack adequate demand to give up those trades and seek another. This is economically productive because it brings stagnate resources—people who can do things no one will pay for—out of stagnation.

The Jobs Guarantee would eliminate this process. The government would buy the labor of people who hold skills not demanded by the market, preventing those people from seeking out new skills. Stagnant human capital would just continue to stagnate.

This argument would be a much stronger one if we weren't in the midst of a balance sheet recession. In this downturn, people may be unemployed because their companies had sales problems due to decreased demand. Their skills may be very much needed by the market as the balance sheet recession eases and then ends. Also, in this particular recession, those in the building industry have experienced a crash. There's no reason to believe that when housing recovers and building starts again that their skills will not be needed. The same, of course, applies to the auto industry and related businesses in its supply chain.

The question of which jobs, and in what quantity, would be coming back in the wake of an MMT anti-recession job creation program is unanswered. But there's no reason to believe that a disproportionate number of people who lost their jobs have obsolete skills and would be unemployable as the recession ends. We need some numbers to see to what extent this is a JG problem. Insofar as it's not a problem, it would simply give the otherwise unemployed a wider range of skills to draw on.

But suppose that 1-2 million people now dis-employed were unemployable in the market when the economy recovered, then who ever said that the JG program would not contain training programs for helping people to acquire new skills. MMT writers have been very clear that the JG would contain such a component. If it's managed well in collaboration with business sectors that need those skills, then those people who lost their jobs due to skill obsolescence would be able to join the private sector again.

Let's Go beyond Talking Points

To the MMT claim that a JG can bring and maintain full employment, John Carney replies: it's: “. . . massively inflationary”; “. . . . a bureaucratic nightmare; and “. . . economically stagnating.” I hope I've shown here that all three risks are overblown, and aren't yet really beyond the stage of talking points. Fundamentally, John's objections seem to follow a script from Austrian economics, echoing Schumpeter and Hayek, while claiming favorability to MMT. Of course, pointing this out doesn't speak to the validity of his points, but it does suggest that he hasn't yet really internalized the full MMT perspective.

He offers these as three risks of the JG program, but in arguing for them he provides no thinking acknowledging that we're in a balance sheet recession where many people are unemployed because demand has collapsed, rather than due to skill obsolescence. He also assumes a likely size for the JG program without considering or thinking through its MMT context. For him, it's just: since we have 13.5 million U3 unemployed, the JG program will employ them all, conveniently forgetting the other elements in the MMT anti-recession program, and the dynamics of its two other legs, which would reduce the need for JG employment and the size of the program.

Finally, his failing to recognize that we're in a balance sheet recession and have a huge output gap indicates that in claiming that there will be “massive inflation” as a result of the deficit spending on the JG, he hasn't thought through the really basic insight that there won't be demand-pull inflation until we've reached full employment and that by that time JG spending will be greatly reduced and won't be a factor in causing any such inflation.

John Carney has written a new post, in addition to the one I've critiqued here. In my next post in this series, I'll critique that one, as well.

On Helping Republicans, Or, Next Time You Need A Bad Idea, Try These

fake consultant — Mon, 19 Dec 2011 13:38:55 -0500

I have spent a number of years complaining about the interactions between Democrats and Republicans, but after the recent events involving the Keystone XL and civil liberties cave-ins, I’ve decided it’s time to stop complaining and embrace the madness.

But I also feel like there’s an ugly edge to all this…that hasn’t really been fully exploited.

I mean, Republicans have tried to force through a lot of disgusting ideas this Congress as they’ve held various bills hostage, but it seems like, if they really tried, they could do so much more.

But I’m not here to complain, I’m here to help; that’s why today we’ll be trotting out a few ideas of our own that Republicans can attach to bills throughout 2012, with the assistance of certain errant Democrats.

It’ll be fun, it’ll be festive, but most of all…it’ll be an exercise in Civic Responsibility, and in these difficult times, that’s some thing we could sorely use.

1) Above all, the needs of the army need to be taken into consideration. For instance, it will scarcely be possible to avoid, here and there, leaving behind some trade Jews who are absolutely essential for the provisioning of the troops, for lack of other possibilities. But in each case the proper Aryanization of these enterprises is to be planned and the move of the Jews to be completed in due course, in cooperation with the competent local German administrative authorities.

--From a planning document written in 1939 by Reinhard Heydrich, as reported in the book “Documents of the Holocaust”, edited by Yitzhak Arad, Israel Gutman, and Abraham Margaliot

So let’s start with the economy: the Census Bureau tells us that nearly half the population is now poor or near-poor, and something needs to be done. With that in mind, I’d propose the “Economic Freedom and Upward Mobility Act” (HR 4377), which would establish a series of military catapult sites along the US border where carefully selected poor folks would be given, literally, economic freedom and upward mobility, even as we instantly reduce the number of impoverished persons in the United States.

Civil rights are important, but not at any cost; that’s why the “Election Cost Control Act” (HR OU812) would allow States to empower local officials to preselect winners in various elections, saving the taxpayer the time and expense of having to count the votes for all those losing candidates.

Messaging matters, and there’s no reason Republicans have to be the bearers of all the bad news: Mississippi Congressman Hatesem Lotsabunch confirmed to me in a phone call yesterday that he will take my suggestion and introduce the “Voter Education Act”, which would require President Obama to wear a giant red, white, and blue dog whistle on a thick silver chain every time he appears in public between the date of passage and November of 2012. (For the record, I actually suggested a gold chain; he thought that was a bit “uppity”.)

We have a serious immigration problem, but I think we can take a page from the Newt Gingrich playbook and introduce the “Guest Worker Protection and Identification Act” (GWIPA).

Here’s the idea: Gingrich has proposed creating a class of persons (“worker residents”?) who are allowed to live and work in the USA, but are never going to be allowed to have US citizenship. The problem is that it will be impossible to quickly tell who is a legal worker resident and who isn’t. Under GWIPA, government-issued armbands would be provided for all legal worker residents to hold their photo ID; as long as they always wear the armband, they’ll be protected from having to show papers to law enforcement officials as they go about their daily business.

Governors as diverse as Rick Perry, Jan Brewer, and Robert Bentley have demanded that the Federal Government finally get serious about “securing the border”; the “Nuclear Assault Mine/Border Legislation Act” (NAM/BLA) is my “if you’re crazy enough to support Rick Santorum, why not this?” proposal to make that happen. The new law would order the Department of Energy and the Department of Defense to work together to develop, manufacture, and deploy small “assault-sized” nuclear land mines along the Mexican border as a way to deter illegal immigration.

"Well you look perfectly idiotic in those clothes!"
"These aren't my clothes!"
"Well, where are your clothes?"
"I've lost my clothes!"
"Well, why are you wearing these clothes?"
"Because I just went GAY all of a sudden!"

--Cary Grant, as David Huxley, from the 1938 movie “Bringing Up Baby”

Finally, let’s take a moment and consider one of the vital social issues of the day.

It is apparently still possible to lock down some GOP votes by going “hard negative” on the LBGT community, if what I’m hearing from the candidates is to be believed (I was particularly struck by Mitt Romney’s ability to twist on this issue: in the last GOP debate, in one single sentence, Romney said he felt there should be no discrimination against the LBGT community…but that there should be no same-sex marriages), and I have a proposal that allows the GOP to appear to be moving to a better place while ensuring that nothing ever changes at all:

The “Mitt Romney Legal Access Beyond Intimidation Act” (MRLABIA) would do two things: it would repeal the Federal Defense of Marriage Act – and, in the Mitt Romney tradition, it would also add a new provision into law that prevents same-sex couples from entering into contracts for the purposes of marriage, thus ensuring “a perfect flip-flop, every time”, as they might say on an infomercial somewhere.

So there you go: instead of relying on the usual “poison pills”, I’m challenging the GOP to try out a few of these ideas – and I’m also challenging much of the American media to try and tell the difference between some of these ideas and the present reality; just at the moment that won’t be easy, and, all humor aside, I think that might actually be the saddest part of this whole exercise.

On Punishing The Job Creators, Or, “The Poor Have It So Good Today”

fake consultant — Thu, 10 Nov 2011 07:54:40 -0500

You know what the problem is with America?
The poor don’t get just how great they have it.

I’ve been hearing this a lot lately; the basic thrust of the discussion is that all those cars, TVs, DVD players, refrigerators, and stoves that have found their way into the homes of the economic underclass are proof there’s really no such thing as “poor” in America.

If they were truly poor, the argument goes, well…think recycled corn.

And if the poor want things to get better, let ‘em pull themselves up by their own bootstraps – and if they can’t, then let ‘em rot, because that’s the best thing for the economy.

But I don’t buy all that, and by the time we’re done today, I hope to have given you a whole new perspective on how jobs get created in this country.

There isn't a rich man in your vast city who doesn't perjure himself every year before the tax board. They are all caked with perjury, many layers thick. Iron-clad, so to speak. If there is one that isn't, I desire to acquire him for my museum, and will pay Dinosaur rates.

--From the letter "A Humane Word From Satan", by Sam Clemens

We must have completely misjudged how many Americans live here about 15 years ago, because everywhere I go I see vacant buildings.

Empty retail space, empty office buildings, empty factories, and all of it apparently just thrown up for no reason whatsoever.

But then I recently saw some historical pictures from the 1990s, and it turns out a lot of those buildings used to have businesses operating within their now-abandoned walls – businesses which have since gone away.

And that’s when I began to get confused.

You see I’ve always known, just as you have, that it’s all about capital; that’s why it’s only the very wealthiest people who can create jobs in this country.

And I’ve always known that they can only do that when they are 100% certain that nothing was going to hurt their current economic condition, and that any sacrifice on our part, no matter how large, was crucially important to keep this very special source of economic vitality full and happy and creating jobs for America’s future.

And when I look at the statistics, I know we’ve been doing our part: the wealthy have been getting wealthier, faster, over the past 30 years than at any time in memory…and yet, for some reason, all those businesses were closing down.

So many, in fact, that I began to question whether America actually understands how jobs get created. It even began to cross my mind that maybe we’ve been coddling the wrong people.

I mean, what if the actual job creators…are the people who no longer work in those empty buildings?

It makes sense, if you think about it.

The common argument is that those with capital make investments, which creates jobs.

But why would anyone invest capital unless there was perceived demand for a product, or a need to do research to meet perceived future demands?

That seems to suggest demand drives investment; a good way to “prove” the point would be to consider what happens to capital without demand: building factories and ships and warehouses does no good if there are no buyers at the store.

Of course, I’m not the first to think workers drive demand: Henry Ford famously paid his workers double the prevailing wage; part of the idea was to create demand for all those Model Ts he was cranking out in his new factories.

So now that we know who the job creators really are, and we established years ago that we have to do every single possible thing on the face of the Earth to keep the job creators happy, happy, happy…how do we get started?

Well, here’s an idea: the Fed willingly gave more than $1.5 trillion to banks for bailouts, mostly by simply “creating” money; now I’m proposing we do the same for homeowners.

If you have a loan backed by Fannie Mae or Freddy Mac, let’s allow you to apply for a one-time $200,000 markdown on your mortgage – and let’s allow the first “tranche” of any markdown to apply to any back-due loan payments.

The amount of “haircut” (fancy technical term) you might impose on each loan could vary, but $1.5 trillion would allow 7.5 million writedowns at $200,000 each; if you limited the haircut to 50% of the loan value many would be less than $200,000. (It’s estimated that 11 million homes in the USA from are underwater; $2.5 trillion or less would cover all underwater loans.)

Since Fannie and Freddy back $10 trillion or so in mortgages, and you probably won’t be able to write down every loan, how would you decide who gets writedowns?

One way would be to create a “triage score” that incorporates things like the odds an applicant/borrower can pay off a restructured loan and the amount of foreclosed or underwater homes in any given community; the 7.5 million highest (or lowest) scores get the writedowns.

(One caveat: many who are having trouble today with home loans are also laid off; unless we can find ways to keep those folks in homes until they can find work, we’ll still have a substantial foreclosure problem.)

Writing down mortgages does several things: it quickly applies a “moral hazard cost” to those who deliberately lent to unqualified borrowers, it turns millions of “underwater” loans into homes with equity, it turns millions of “nonperforming” loans into “performing” loans, keeping millions out of foreclosure, it gives communities a chance to either stabilize or recover from “mass foreclosure-itis”, and it finally breaks the deadlock between banks and regulators over who will blink first on loan “haircuts” versus bank recapitalizations.

Wait? What was that last one?

Banks are scared to death that if they write down all these loans they will have to find new capital to make up the losses – and they probably won’t be able to raise that new capital by charging a $5 fee to have a debit card.

That could mean a few things: it could mean big banks are going to have to more sneakily raise lots of other fees and sell things to raise capital, or, perhaps, the Feds ease back a bit on capital requirements.

Or…it may mean that the banks end up having to get smaller. Consider this scenario: a forced haircut of significant size, followed by regulators who stand firm on capital requirements, followed by a less-than-stellar round of stock offerings or asset sales; next thing you know, “too big to fail” becomes “we have to spin off some part of the retail business for reasons related to the rules governing capital requirements”.

This could happen without the passage of new regulations or legislation beyond the initial bailout authorization – and even that might be within the power of Federal regulators already, since Fannie and Freddy, as the owners of many of these loans, have the power to forgive some or all of that debt, and capital requirements are not set by legislation.

And where does all that leave you?

Well, you’d have 7.5 million families that could more easily afford to make house payments than before, and those folks will probably take that money and spend it on things they haven’t been buying for several years: home improvements, cars, appliances, and the travel and entertainment markets could all see substantial bumps in sales.

Many, if not most of those families, would immediately go from being “underwater” to having equity, which always helps turn reluctant consumers into willing consumers.

Cities could begin to recover as well, as the number of foreclosures bottoms out; once banks are forced to write those properties down from “2006 value” to today’s market value they’ll be looking to sell ‘em at bargain prices; that’ll help soak up today’s housing supply “overhang”. All of this is good for beleaguered new home builders, who are today in a holding pattern.

And here’s the best part: if you get a handle on foreclosures, and put some cash back in some pockets, and start selling stuff…well, that looks like a bit of a jobs program, even if Congress might not be willing to sign up for one just at the moment.

So how about that?

If we make an effort to give to the actual job creators the same level of incentives that we gave to the “demand responders” since November of ‘08, we could actually find ourselves creating actual jobs with our money – and doing it by the millions, just when we need ‘em.

Considering how fast we were able to find ways to create TARP, QE1, QE2, an alternative auto industry bailout, and anything else a banker could ask for, including, I’m sure, partridges in pear trees…well, we should be able to knock this out over a weekend, assuming we can either make a really convincing argument – or do like the banks do, and lay out a million a day for lobbyists until it gets convincing enough to get things done.

Of course, if we have to we could also start Occupying the Offices of reluctant Members of Congress to help make the point; as long as the end result is some serious pampering of the real job creators, I’m all good.