economy

Will Workers Survive State Budget Belt-Tightening?

Susan Ozawa — Tue, 13 Jan 2009 12:30:36 -0800

Executing the Main Street Economic Recovery Program Equitably

Susan Ozawa — Mon, 22 Dec 2008 13:14:25 -0800

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 08:44:00 -0800

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 07:47:02 -0700

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.

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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.

Obama’s Home And The Report Is Out: China Takes Us To School

Eric Lotke — Thu, 19 Nov 2009 08:04:38 -0800

President Obama is home from China and the U.S.-China Economic and Security Review Commission today releases its 2009 report to Congress. What have we learned? That we need to pay attention because we’re getting schooled.

While Obama posed for photos on the Great Wall and talked about a relationship “at an all-time high," China continues to take our lunch money. Hopefully, there were serious back-room negotiations over currency manipulation and illegal subsidies … because if not, we’re in trouble.

Don’t take my word for it. The official, bipartisan China commission held hearings, traveled to China and received closed briefings on classified information. They reported back about expansion of the Chinese navy, China’s stepped-up espionage and cyber-warfare capabilities, and the world’s most sophisticated web filtering and Internet control systems.

But the economy is behind it all. China is quite literally eating our lunch. Since 1980, the U.S. has accumulated a trade deficit with China of nearly $2 trillion. The biggest piece of this trade deficit is in manufactured goods, once the wellspring of American prosperity. And a big piece of that comes from China subsidizing industries and manipulating currency in a way that gives their exports a competitive edge. China then takes our money and lends it back to us, creating both national indebtedness and a destabilizing excess of liquidity that helped fuel our asset bubbles.

This year's report reflects the commission's concern that despite its accomplishments and growing sense of confidence, China may be moving in the wrong direction and that this affects the U.S.-China relationship. China has yet to embrace the challenge first issued in 2005 by the United States that it become a "responsible stakeholder" in world affairs (p. 15).

The report reads like an indictment of Chinese behavior and American compliance. The most glaring problem is the subsidies.

China continues to employ a wide range of subsidies to favored companies and industries within China and to control the value of its currency and provide massive loans from state-owned banks to industries producing over capacity. This approach gives Chinese exporters a substantial price advantage in international markets and disadvantages U.S. companies hoping to export to China.(p. 15).

The report itemizes subsidies in the form of land grants, discounted electricity, and loans from state banks at below market interest rates or “without expectation of repayment” (p. 59). As a whole, the commission concludes that the subsidies and special treatment of Chinese-owned companies “violate China’s obligations as a member of the World Trade Organization” (p. 59).

The report goes on to describe export restrictions (p. 62), currency manipulation (p. 68), double-standards on domestic content (p. 52, 64) and China’s failure to enforce its laws on forced labor, child labor and environmental standards (p. 67) that were key to gaining international investment and foreign government support. The findings go far to explain why products made in China are so much cheaper than products made in America, and the incentives behind our gargantuan and growing imbalance in trade.

The report also explains how the imbalance goes beyond the trade in goods, and helped bring the whole system down. The commission places responsibility for the global economic meltdown “partially on the United States as the world's biggest spender and borrower and partially on China as the world's biggest saver and lender.” But it’s not because Chinese are inherently parsimonious or frugal. “China pursues policies that have the effect of increasing Chinese savings, restraining consumption, and keeping the RMB (renminbi) undervalued” (p. 3). The saving was as out of balance as the spending.

The imbalance extends all the way to the banks. China had hundreds of billions of American dollars, and needed something to do with them all, so they lent them back to us. “The policies that China adopted generated a huge flow of liquidity —or money that can be easily lent to borrowers — into U.S. markets. This excess liquidity created perverse incentives in the United States that encouraged banks to make risky loans to U.S. households, which in turn grew ever more indebted. High U.S. demand for imports allowed China to save even more, creating a vicious cycle and laying the foundation for the current crisis” (p. 4).

So it collapsed. The unstable structure tumbled down.

In the aftermath, the U.S. passed its own Recovery Act and led efforts for international collaboration. But what did China do? More of the same. The commission reports that China stimulated its economy by raising rebates to exporters and offering other advantages to see manufacturers through the downturn (p. 40). In the words of the Commission:

The fact that the government in Beijing is still pursuing an export-led strategy based on a wide variety of subsidies to export industries, including an RMB that remains substantially undervalued, is a cause for concern. If China continues to pursue huge trade and investment surpluses and to accumulate vast financial claims, it will hinder the necessary global economic adjustment, create excess manufacturing capacity, and lay the groundwork for the next crisis.” (p. 2)

We don’t need to watch it fall apart all over again. Cheap Chinese exports to distressed U.S. consumers are not the answer. The report advances 42 specific recommendations, from responding to currency manipulation to increasing our defenses against cyber-espionage. A crucial minimum is aggressive use of World Trade Organization trade remedies. We’ve started moving in that direction with cases on tires and steel pipes. The Commission recommends that the U.S. government preserve and use existing remedy laws “to respond to China's unfair or predatory trade activities” (p. 12).

Obviously, nobody wants to start a trade war and nobody thinks we can unwind the global economy. This isn't about protectionism or going backwards. It’s about building a global economy with agreed-upon rules of free trade that every country follows. From rugby to poker, rules make systems work. Following rules is what China agreed to when it entered the G-20 and was granted permanent normal trade relations with the U.S.

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There’s a purely domestic angle, too. Between the lines of criticism is a hidden story, implicit advice about fixing our own economy. Parts were illegal and parts were unfair, but China’s success shows how deliberate industrial policy helped it accomplish strategic goals. Indeed, a summary of China’s misdeeds reads almost like a “how-to” list for industrial policy: Subsidize strategic industries, especially energy (p. 57, 65). Enhance innovation by creating “industrial commons,” clusters of producers, suppliers and researchers in close proximity who support each other in uncovering problems and discovering solutions (p. 87). Build an infrastructure, especially on transportation, with domestically produced parts (p. 64).

Now the U.S. can’t be like China in every regard, and we wouldn’t want to be. But we might as well learn some lessons while we’re in school. As the Commission observes, “A widely shared goal in China is to make the country rich and powerful and to regain the nation’s former status as a great power that controls its own fate” (p. 56).

That’s their goal and they made a plan to achieve it. What’s our goal? How are we going to get there?

The Problem With A Jobs Bill – And Everything Else

Dave Johnson — Wed, 18 Nov 2009 11:57:55 -0800

The country needs a jobs program and needs it right now. Cash for Caulkers would be a good start. A new Civilian Conservation Corps would be another. But let's not allow a jobs program to cover over the need for real changes in the structure and core principles of our economy.

Yes, an effective jobs program can help people hold out a while longer - until necessary changes are made. It can make the unemployment rate will look better, for a while, and maybe the GDP will climb a little bit. But our low-wage, everything-to-the-top economy is not sustainable and needs to be redesigned and reregulated. The economy has to be changed so that it works for all of us, instead of just a few.

What if the government passes a jobs bill, and these new jobs follow the current American job model of paying too little with no benefits? What if the government uses contractors, as they now do for so many government functions, and the contractors “reduce costs” by paying very low wages and no benefits, sending the rest of the cash to a few at the top? Does it really help the economy and the country to provide a bunch of low-paying jobs with no benefits, and make a few wealthy executives even wealthier? Or suppose the government starts a massive infrastructure modernization project? Does it help the economy if they hire construction firms that pay as little as possible or use Chinese steel?

Even if a government jobs effort provides good-paying jobs with good benefits, this still won’t change the need to restructure the rest of our economy so that it, too, provides good pay and benefits to all of us instead of concentrating all wealth and income at the top.

As long as our economy is structured to pass everything up to a few at the top, stimulus can’t work well, jobs bills can't work well. Either can anything else. In the end things will just revert to the old ways and we'll need more bailouts, stimulus and jobs programs.

The problem is that there are two economies now. There is an economy for the top few and an economy for the rest of us. And this problem is global. The world’s economy is structured to send almost everything to a global top few.

Everything just goes to the top now. Companies are structured that way, jobs are structured that way, taxes are structured that way and now even our government is structured that way. Our economy has been turned into a machine that sends every dollar to an already-wealthy few. So efforts to stimulate economic recovery using traditional methods cannot work. It will just make a few at the top even richer.

We need a jobs bill because the economic system has broken down. We needed a stimulus package because the economic system has broken down. All the bailouts and jobs bills and stimulus are just one more stopgap effort to keep a broken system going, for the continued benfit of the few at the top. Changes must be made.

One barrier to fixing our broken economy problem is the structural corruption of our Congress. Every effort to help the people seems to get hijacked - and never mind working on the needed reregulating and restructuring. The recent extension of unemployment insurance, for example, included only $2.4 billion for the unemployed, but had more than $20 billion tacked on, going directly or indirectly to (owners of) big homebuilding companies. Another example, the health care reform bill is turning into a law ordering people to buy insurance from the big insurance companies. This year’s big stimulus package was watered down with even more tax cuts for the few, like getting rid of the Alternative Minimum Tax.

The biggest example, of course, was last year’s financial sector bailout. Taxpayer dollars saved the asses of the companies that caused the collapse and are now serving up $140 billion for financial-sector bonuses but 10% unemployment for the rest of us!

If we want to get out of this mess we have to restructure and reregulate the whole system. We have to change the structure of our economy so that regular people receive the benefits. It is time. There is no more getting around it.

Next post: some of the structural problems that must be changed.

What Chinese Currency Manipulation Looks Like

Eric Lotke — Thu, 12 Nov 2009 11:15:28 -0800

As President Obama packs for China, I thought I’d show him a picture of how China is manipulating its currency.

Source: Federal Reserve: Yuan, Broad dollar index.
Graphic idea compliments of AAM.

The dollar stays flat against the Chinese Yuan, even as it loses value against other major currencies. The dollar is down to $1.50 per Euro, compared to $1.27 at this time last year (sorry to folks daydreaming about summer in Italy). It's down against the Canadian dollar, the Japanese yen and the entire "broad dollar index" tracked by the Federal Reserve. But the dollar is unchanged against the Chinese Yuan (unless one considers 6.836 to 6.827 a drop).

Everyone knows this is happening. Treasury Secretary Timothy Geithner even used the word “manipulating” with the Senate Finance Committee mere hours before it voted to recommend his confirmation.

The dollar exchange with China “defies the laws of monetary physics.” During this U.S.-led global recession, dollars aren’t worth as much as they once were. The natural physics of exchange makes U.S. goods relatively less expensive for others to buy, but makes foreign goods more expensive for Americans to buy. In a free market for currency, that would help bring accounts back into balance.

But China treats those laws as optional. China’s deliberate policy of pegging the Yuan to the dollar makes American imports of Chinese goods artificially cheap and gives American companies opening factories in China an artificial subsidy. That’s good for China but bad for America, and helps explain our soaring trade imbalance with China. An extraordinary 83 percent of America’s non-oil trade deficit is with China. During the downturn, our trade deficit with other countries has been shrinking — but not with China.

The wheels of change are starting to turn. The Obama administration stood up to China when it imposed tariffs on Chinese tires and pipes dumped in the U.S. markets. The chattering class called it a trade war, but it’s not. It’s just applying the same rules of free trade that other countries respect, and that China agreed to when it entered the G-20 and was granted permanent normal trade relations with the US. Obama just blew the whistle.

The G-20 summit in Pittsburgh in September concluded with a joint statement to seek “more balanced growth as part of the global economic reconstruction.” The entire G-20 signed on — including China — but China’s name was in bold in the quest for “balance,” and everyone knew it.

Now America’s high level trip to Asia opens with a joint op-ed written by our own Timothy Geithner along with the finance ministers of Indonesia and Singapore. They repeat the goal of “strong and balanced growth” and expressly state that “Market-oriented exchange rates in line with economic fundamentals will be essential.”

China seems to be paying attention. In its third-quarter monetary policy report, the People's Bank of China suggested that it might consider other major currencies, not just the dollar, in guiding the exchange rate. That's not quite a free market float, but it's better than the dollar peg.

In the American heartland the issue isn’t exchange rates, of course. The issue is jobs. American workers can compete dollar for dollar against Chinese workers. They can’t compete dollars against manipulated Yuans.

America's economic future is intimately tied to China's. Let’s hope Barack Obama remembers who he’s working for.

New Unemployment, Old Solutions

Eric Lotke — Fri, 06 Nov 2009 09:09:34 -0800

Today’s unemployment data contain gloomy news. Gloomy, but expected. The interpretation of the data is even worse.

First, the data. Unemployment rose to 10.2 percent last month, breaking the double digit barrier. Most people expected it to happen, though the job loss (190,000) was a bit worse than most economic forecasts (175,000). We can maybe be happy that the October job loss wasn’t as high as September (263,000), but this modest deceleration doesn’t mean much to the 15.7 million people without work, the 9.3 million people working part-time but looking for full-time, or the 3.2 million people who are discouraged or marginally attached to the work force and barely even looking anymore. Nearly 20 percent of the workforce isn’t where it wants to be.

In other words, it’s bad. You don’t need me or the Bureau of Labor Statistics to tell you that.

The interesting part is where it’s bad and what to do about it.

The biggest job losses in October were in construction (62,000) and manufacturing (61,000). In the last year, these sectors have lost over 2.5 million jobs between them. Job losses in these sectors hurt worse than most other sectors. Manufacturing jobs have a bigger economic “multiplier” than other sectors, creating more jobs and more economic activity around them. Manufacturing creates jobs “downstream,” as production workers buy sandwiches from restaurants; and “upstream,” as steelworkers and coal miners work to provide raw material. The benefits of construction obviously count for more and last longer than just the construction itself. Anybody who doesn't live in a cave knows that.

But manufacturing and construction are losing more jobs than any other sector. Health care and temporary jobs are the only positive — if we can cheer sickness or a temp job.

Source: Bureau of Labor Statistics

This isn’t just a temporary blip. Construction is sinking from the burst of the housing bubble and general economic doldrums. Manufacturing is suffering from long term structural declines and a trade policy that favors imports over domestic production.

The solution leaps out from the data. These two sectors respond most clearly to public sector investment. During this downturn, we can build roads, rail lines and bridges. During this downturn, we can fix school roofs and turn temporary trailers for overcrowded schools into permanent classrooms for eager students. During this downturn, we can build the windmills and install the solar cells to move us towards energy independence. During this downturn we can rebuild a productive economy for the future.

Source: Bureau of Labor Statistics

Maybe a quarter of the 800 billion stimulus package pushed in this direction. We need more. First, we need more stimulus. Good old-fashioned Keynesian stimulus during the downturn. Put people to work laying those rail lines and fixing those school roofs.

Second, we need to make sure the money stays in our own economy. We can’t ask American taxpayers to foot the bill or expect American workers to cheer when the windmills of the new energy economy are imported from Spain. It’s no gift to our economy to fix the water main with pipes imported from China that were dumped in US markets at below market costs, driving our own domestic pipe industry out of business. We can do better. We need to do better.

I’ll close with the thing we don’t need, the interpretation I warned against in the beginning. The Associated Press story about today’s unemployment data put it this way: “A robust economic recovery won't be sustainable if consumers don't pick up their spending.”

Wrong wrong wrong. The debt-driven consumption economy was the problem. The solution is not for consumers without jobs to start spending again. The solution is to rebuild our economy. From the ground up. The old fashioned way.

Green Shoots. For Whom?

Eric Lotke — Thu, 05 Nov 2009 09:43:58 -0800

Today’s “Productivity and Costs” data from the Bureau of Labor Statistics contain what looks like good news. Productivity increased at a 9.5 percent annual rate during the third quarter of 2009, the largest gain since 2003.

The Associated Press called it “sizzling.” The New York Times said we “surged.”

It’s good news and I’m happy about it. I especially like the 4.0 percent increase in outputs, led by a 12.4 percent increase in the manufacturing of durable goods. It almost starts to look like green shoots in a gray economy.

But keep the cork in the bottles. The hours worked last quarter dropped by fully 5.0 percent. The productivity gain came from doing more work in fewer hours. In the durable goods sector, the hours worked dropped a full 7.2 percent. The increase in productivity is fundamentally about people working harder.

And people aren’t getting paid for their hard work. Real hourly compensation rose only 0.2 percent last quarter. So if somebody is pocketing the gains from 9.5 percent increase in productivity, it isn’t the people working on the lines. Yes, they’re happy to have jobs. Yes, it’s nice to see any gain at all after a decade of decline in wages and income. But no, we don’t want to recreate the bubble that popped. We need to make sure these gains are widely shared and that the people doing the work reap their fair share of the benefit.

Source: BLS

Greenwald: WaPo thinks wars are more important than health care.

Michael Kwiatkowski — Sun, 25 Oct 2009 10:58:42 -0700

Glenn Greenwald reveals the depraved "logic" behind the beltway media establishment in his latest entry. According to the Washington Post, it's perfectly acceptable to be trillions of dollars in debt to finance the crumbling empire's wars abroad, but wholly unacceptable to invest in genuine health care reform because it would create massive debt.