The Economy: Sustainable Jobs

If we are serious when we talk about democracy, which is a system whereby the people who have to live with certain decisions should be able to participate in making them, why have we always limited democracy to the political sphere and excluded it from the economic sphere? After all, the place we spend most of our creative lives, 9 to 5 Monday to Friday, is the place where we work. And if we’re not going to have democracy there, then how much of it can we have anywhere else? So the business organization ought to be democratically responsible to the people who work there, at least on a fundamental proposition.

If elected to Congress I will introduce the necessary enabling legislation to bring about true democracy in the economic sphere.

(NB Reading the complete page will give you a much better grasp of the issue than the Democratic or Republican Parties offer.  To see my recommendations scroll down to short term and long term fixes towards the end of the page.)

THERE IS NO RECOVERY

It is important at the outset to note that, at this writing early in March of 2012, regardless of what the politicians and the media are saying; there is no recovery nor does it seem likely that there will be one. To be more accurate however, there is a recovery for a very few. They fall into three groups:

• Banks
• Large Corporations
• the Stock Market

But it should be of no great surprise that these few saw a recovery since the government poured trillions of dollars into them with the understanding that they should spread it around. But they did not spread around. They did not share the benefits of the taxpayer rescue of their failed institutions. They used it to shore up their own balance sheets. But there was no recovery for the rest of us. There were 30 million unemployed last year; there are 30 million unemployed this year.

While I am on the subject of accuracy, after one year of being out of work the unemployed are no longer counted in government statistics.  If unemployment were computed the way BLS did it prior to the Clinton administrations’ new math in 1994, the true unemployment rate would be 23%! That's how the 30 million is calculated instead of the underreported 12.8 million reported in the media! I will not speculate why the corporate owned, mainstream media feels compelled to only present stories that support the corporate owned government’s statistics. 

INTRODUCTION TO THE CURRENT CRISIS

The current economic crisis is neither temporary nor fleeting nor short. In fact it is not even a "financial crisis", even though that is the typical term used by the media and the government. It is a crisis which comes out of the entire economic system we have in the United States. It did not start with banking. It did not stay in the realm of banking. It will not be limited at any time and any significant way to the credit markets or to banking or insurance companies. The crisis is both systemic and structural.

Capitalism as a system has spawned a deepening economic crisis alongside its bought-and-paid for political establishment. Neither one serves the needs of our society. Whether it is secure, well-paid and meaningful jobs or a sustainable relationship with the natural environment that we depend upon, our society is not delivering the results people need and deserve.

We do not have the lives we want and our children’s future is threatened because of social conditions that can and should be changed. One key cause for this intolerable state of affairs is the lack of genuine democracy in our economy as well as in our politics. One key solution is thus the institution of genuine economic democracy as the basis for a genuine political democracy as well. That means transforming the workplace in our society.

WHAT CAUSED THIS CRISIS

Perhaps a few pictures will save a few thousand words (or not).

This little picture describes an immense amount of economic history. From about 1890 and even before, wages for American workers (the orange line) continued to rise every decade even through the Great Depression. But by 1980 they began to go flat. Real wages have not increased in the United States in the last 32 years! The yellow line indicates productivity. Until the mid-70s wages and productivity kept pretty much in pace. As productivity increased so did wages for American workers. By 1980 that all ended.

Essentially, from 1820 to 1980 as workers became more productive they got something for their extra hard work and their greater productivity. They got a rising standard of living. It changed and shaped the United States, and it is important to see how because it will explain the crisis in which we now find ourselves.

Not surprisingly, a population like ours, that enjoys a rising standard of living, begins to define life – success in life – in terms of something that is actually within reach. Americans, as a people, began to internalize this remarkable historical experience. Therein lay the roots of the belief sometimes called American Exceptionalism – that there is something unique about America.

The quantitative difference between wages and productivity is profits. Note how corporate profits grew dramatically from the mid-70s until today while wages remained flat and even began to decline. Essentially by 1980 the history of United States stopped! Real wages stopped rising and they have never resumed. This is a fundamental change in the United States with which the majority of our people have not come to terms.

Since Americans would not give up a rising standard of consumption and since they no longer have the wages to maintain it, they must find some other way. Corporate America will show them that way.

WHY REAL WAGES WENT FLAT

There are four sets of events that help explain why productivity increased and wages went flat:

• First was the rapid use of computers by business which threw large numbers of people out of work therefore creating an excess supply of labor.

• Second, at the same time, Japan and Europe had recovered after World War II and now began to give the United States a powerful level of competition. American manufacturers began to say "if you can't beat them, join them". This begins a massive exportation of jobs.

• Third, compounding the first two, in the 1960s and 70s large numbers of women began to enter the workforce.  Jobs were already becoming scarce; this huge influx of new workers makes them even more scarce.

• Finally, we began to experience a substantial wave of new immigrants further contributing to the scarcity of jobs and diluting the bargaining power of labor. This created the perfect recipe for flattening real wages.

COPING WITH FLAT WAGES

When wages went flat business institutions as well as people, real live human beings, had to cope with something that had not happened during the previous 150 years of American economic history.

When wages went flat Americans decided that they would simply have to work more! Make sure that you push everyone out of the house working for more and more hours. Yes, that is what the American working class did!

Between the mid1970s and today, the average number of hours worked per year by an American rose by about 20 percent. We worked 20 percent more hours on the job than we did thirty years ago. The hope of the American family was to send everyone in the house out to work as many hours as possible to allow the family to continue rising consumption. The social problems created by this coping technique proved disastrous to the American people in terms of the social problems created. Moreover it turns out that doing more work has costs attached to it that undercut the whole point of it which was to bring in more money. It turns out that there are more costs!

Since working more hours and putting everybody in the house to work didn't solve the problem of flat wages the American working class, starting in the mid-1970s, went on a borrowing binge unprecedented by the working class in any country at any time in history.

At first, of course, we borrowed in the way that the lender prefers. We offered collateral. So the basic way we solved the problem was to borrow against the house – to borrow a lot against the house. Keep in mind that the crisis exploded around something called a mortgage – the sub-prime mortgage.

Let's return to those corporations for a moment who are now making all these huge profits and productivity increased while real wages went flat. What were they going to do with all that money? Whenever you don't know what to do with your money the place you usually put it is in the bank.

Working-class Americans could never have increased their consumption simply by borrowing against their house. They just didn't have that kind of wealth. Something else had to be invented. There had to be some way that Americans could borrow large amounts of money with no collateral.

All of this drive to consume more and more and the borrowing that it spurred, produced, by the early years of the 21st Century, a working class exhausted by the amount of work it does. A working class with a collapsing personal life born of the strains and stresses of sending everyone in the home out to work themselves sick.  Add to that the anxiety afflicting a population whose average level of debt now exceeds its annual income. Stressed, exhausted, anxiety-ridden; this is a population that has reached its limits. It cannot carry more debt and it cannot do more work. That is why this is not a temporary problem. We have reached the limits of capitalism.

To understand the American economy in the last thirty years amounts to this:

• Employers no longer raised the wages of their workers.
• Instead, they leant them the money through their bank investments at incredibly high interest rates.  

That’s why it was an employer’s fantasy come true. Instead of raising worker’s wages, business loaned him the money, which he has to pay back with interest. So the American business community became excited that the money they got from the wages they didn’t have to pay could now be doubled. They not only got more output from the worker without paying him, but they could lend him money at high interest on top of it. And the working class was desperate to borrow. Perfect for business on Wall Street or Main Street!  They had the money to lend. Workers were desperate to borrow.

This is insane! This is out of control!
But if you create an abnormal situation of exploding profitably on the one side, and a desperate exhausted population wanting and needing and measuring its own self in terms of rising consumption, you get a lethal combination. And so, we should not have been surprised that they ended up lending to people who could not pay it back. The history of capitalism is punctuated by booms and busts.
Boom and bust is built into this system.

WHAT WON’T WORK

I. REDUCING THE DEFICIT

The economy has one major problem right now and that is a serious lack of jobs. We still have more than 30 million people unemployed. Untold numbers underemployed, or who have given up looking for work altogether because there are no jobs.

This should be the issue that everyone in Washington is talking about. Instead, many politicians and pundits want to distract people's attention from unemployment by complaining about the deficit. They have deceived many people into thinking that the economy would somehow be stronger and there would be more jobs if the deficit was reduced, either due to spending cuts or increased taxes.

This view makes no sense. There are no businesses that are going to hire additional workers because the government has laid off school teachers or firefighters and we cut back spending on food stamps. BUSINESSES HIRE MORE WORKERS WHEN THEY SEE MORE DEMAND FOR THEIR PRODUCT. All of these actions that reduce the deficit, either on the spending or tax side, translate into less demand and therefore less employment. In short, those who want to cut the deficit now are lobbying for fewer jobs and higher unemployment.

II. TAX CUTS FOR THE WEALTHY AND CORPORATIONS

Some politicians and “pundits” are pushing the idea that cutting taxes on the rich will somehow magically create more jobs. They argue that if we reduce taxes on businesses and the wealthiest Americans, they will have more money to spend on creating jobs; many candidates campaigned on this platform, “lower taxes for the rich equals more jobs”.

As this graph shows, cutting taxes on the rich will not create jobs. In 2010 with taxes on the rich at their lowest in 60 years, gob growth is essentially ZERO!
Interestingly when taxes on the wealthy were at the 75% - 80% level, job growth was at its highest level (back in 1960).

You do not need to be a Nobel Prize winning economist to understand that jobs are not created simply by putting more money in the pockets of business executives and the wealthy. What creates jobs, as I mentioned above, is increased consumer demand for goods and services.
 
Reducing taxes on the upper-income brackets only puts more money in the pockets of the wealthy few. Ok, some of these “fortunate few” might use their tax refunds to buy new luxury cars or yachts or add new wings to their estates, but they are much more likely to use the win-fall to pay down existing debt (on the luxury “toys” and vacation homes they already own) or invest in some off-shore tax shelter or hedge fund. Those activities do not create jobs (at least, not in this country).

Corporations are not lacking cash, thus, a tax cut, which is aimed at freeing up more money to allow them to expand their workforce, would do little help unemployment. In fact, companies are sitting on trillions in cash, yet are still refusing to hire.

III. THE MYTH OF FREE MARKETS AND BALANCED BUDGETS

This is just a little side note – a kind of warning. Beware of anyone who tries to tell you that a "balanced budget" would help the economy or that there is some kind of a "free market" solution to our problems. Anyone who believes in that crap at this stage of the game is a practitioner of bonehead economics. You should offer to sell these people some Enron stock along with a bridge in Brooklyn.

Once you force the government to "balance its budget" you prevent it from ever acting in any kind of economic downturn and force the economy of austerity one working-class Americans while the wealthy continue to live their affluent lifestyle.

IV. WHY RE-REGULATION WON’T WORK

In the first 30 years after World War II we lived in a regulated economy. Coming out of the Great Depression FDR put all kinds of regulations in place. Those regulations primarily covered what banks could and couldn't do; what board of directors of corporations could do. While putting those regulations in place, social security and unemployment insurance were introduced. Those regulations were enforced right through the 1970s. Beginning with Ronald Reagan those regulations were ended and the age of "deregulation" began.

So, it would seem logical that if we could reregulate the economy we might get it back on track after the devastation of Reagan, Bush I, Clinton, Bush II and Obama. But the regulations that were put in place by Roosevelt (and some even by Truman, Kennedy and Johnson) kept in place one of the primary organs that they were intended to regulate – the boards of directors.

These regulations gave corporate boards of directors and immense and instantaneous incentive to defeat those very regulations and to evade them and weaken them. Finally, when the political conditions were possible, they got rid of them altogether. The last 30 years is an amazing success story for the corporate boards of directors. In other words passing regulations while leaving in place the very boards of directors of private corporations is a strange policy that ultimately guarantees that you have left in place the absolute sworn enemy of those regulations!

SHORT TERM FIX: WHAT MIGHT WORK FOR A WHILE

You may recall that the Great Depression began pretty much the same way as this current long-term recession/depression that started in 2007. The Great Depression didn't start out as a banking crisis either but as a crisis within the economy itstself. Back then, it was the agricultural industry that was being replaced by the manufacturing industry and a failure of the system to react properly or timely.

FRANKLIN ROOSEVELT KNEW WHAT TO DO. He increased government spending and put millions back to work but by 1937 the deficit hawks, like the balanced budget looney tunes and deficit hawks of today forced him to cut back on the stimulus efforts with disastrous results. The banking crisis compounded all those problems but any analysis of financial disruption has to begin with what started the chain reaction.

While there were efforts to stabilize agricultural prices back in the 1930s while cutting back on production, it was not until GOVERNMENT SPENDING soared in preparation for global war that America started to emerge from the Depression.

It is important to grasp THIS SIMPLE TRUTH: it was government spending—a Keynesian stimulus, not any correction of monetary policy or any revival of the banking system—that brought about recovery. The long-run prospects for the economy would, of course, have been even better if more of the money had been spent on investments in education, technology, and infrastructure rather than munitions, but even so, the strong public spending more than offset the weaknesses in private spending.

GOVERNMENT SPENDING UNINTENTIONALLY SOLVED THE ECONOMY’S UNDERLYING PROBLEM: it completed a necessary structural transformation, moving America, and especially the South, decisively from agriculture to manufacturing. Americans tend to be allergic to terms like “industrial policy,” but THAT’S WHAT WAR SPENDING WAS—A POLICY THAT PERMANENTLY CHANGED THE NATURE OF THE ECONOMY. Massive job creation in the urban sector—in manufacturing—succeeded in moving people out of farming. The supply of food and the demand for it came into balance again: farm prices started to rise. The new migrants to the cities got training in urban life and factory skills, and after the war the G.I. Bill ensured that returning veterans would be equipped to thrive in a modern industrial society. Meanwhile, the vast pool of labor trapped on farms had all but disappeared. The process had been long and very painful, but the source of economic distress was gone.

Since the private sector only hires new employees when demands for its products or services increase then we clearly cannot look to the private sector for solution to the unemployment problem. The only institution that exists which is able to spend money without worrying about debt at this time is the federal government

The private sector by itself can not undertake structural transformation of the magnitude needed—even if the Fed were to keep interest rates at zero for years to come. The only way it will happen is through a government stimulus designed not to preserve the old economy but to focus instead on creating a new one.

We have to transition out of manufacturing and into services that people want—into productive activities that increase living standards, not those that increase risk and inequality. To that end, there are many high-return investments we can make. Education is a crucial one—a highly educated population is a fundamental driver of economic growth.

Support is needed for basic research. Government investment in earlier decades—for instance, to develop the Internet and biotechnology—helped fuel economic growth. Without investment in basic research, what will fuel the next spurt of innovation? Meanwhile, the states could certainly use federal help in closing budget shortfalls.

LONG-TERM ECONOMIC GROWTH AT OUR CURRENT RATES OF RESOURCE CONSUMPTION IS IMPOSSIBLE, so funding research, skilled technicians, and initiatives for cleaner and more efficient energy production will not only help us out of the recession but also build a robust economy for decades. Finally, our decaying infrastructure, from roads and railroads to levees and power plants, is a prime target for profitable investment.

THE LONG TERM FIX

Suppose instead of trying to reregulate corporate boards of directors, an idea it doomed to failure as mentioned above, we had a new system of regulations designed for a different type of business organization. Suppose further that it was not a board of directors responsible to shareholders which ran the business but instead the people who actually worked in the business running the business. This way you would have people on the inside of every business partnering with the government to make sure that the objectives of the regulations were realized instead of a group of people whose primary function was to undo and block the entire purpose of the regulations.

Neither the Democratic nor the Republican Parties are even coming anywhere close to making such a proposal!  I demand that we have a high-level conversation about such a structure even though it would make our elected officials uncomfortable. It would be a daring move but we live in daring times! We face some really heavy problems in our society. We don’t have many choices.  

If we are serious when we talk about democracy, which is a system whereby the people who have to live with certain decisions should be able to participate in making them, why have we always limited democracy to the political sphere and excluded it from the economic sphere? After all, the place we spend most of our creative lives, 9 to 5 Monday to Friday, is the place where we work. And if we’re not going to have democracy there, then how much of it can we have anywhere else? So the business organization ought to be democratically responsible to the people who work there, at least on a fundamental proposition. If elected to Congress I will introduce the necessary enabling legislation to bring about true democracy in the economic sphere.

This new way of organizing the business enterprise offers us a better chance to deal with the level of severity with which our current economic crisis presents, than anything else. If we don’t take basic steps of this sort to deal with a crisis that has built over this length of time in the depths and breaths of our economy, if we keep tinkering at the edges with our monetary system, because we need to call this a financial crisis, rather than a crisis of capitalism, which is what it is, we will all be very sorry.

BEYOND FREE MARKETS AND REGULATION

For the last 50 years American economists have oscillated between two incarnations of capitalism. The first are those who believed that an unregulated economy, with free markets and private enterprise as the magic road to prosperity and growth. That has certainly been the moonlight howl of the conservative economists over the last 30 years.  But no one in their right mind would even whistle that tune now!  That model is gone forever!

On the other side have been those that have said, “You have been wrong, and there needs to be government intervention and control.” They typically go by the name Keynesian economists, in honor of that British economist from the 1930s who came up with recipes for what the government should do, monetary and fiscal policy, to stimulate the economy and end the Great Depression.

They both may have made a terrible mistake, by not asking about the underlying structure of our economy that renders both of them inadequate to deal with what really happens in a capitalist system that operates as ours, bringing us to the position of a bankrupt business community on the other side of the barricades from an exhausted and anxiety-ridden working class. This presents us with a surefire formula for social disaster. If we fail to deal with it in a serious way, we are going to have to live through some of the hardest times that this nation has ever had to face. At a time when the rest of the world will need to deal with its own versions of this problem, we can expect very little help from any other quarter.

So it is up to us!  Will we have the strength – and the daring – to look at these problems in new ways and face the possibility of making radical changes?