Robert Reich's Blog: Obama, China, and Wishful Thinking About American Jobs

Robert Reich's Blog: Obama, China, and Wishful Thinking About American Jobs

President Obama says he wants to "rebalance" the economic relationship between China and the U.S. as part of his plan to restart the American jobs machine. "We cannot go back," he said in September, "to an era where the Chinese . . . just are selling everything to us, we're taking out a bunch of credit-card debt or home equity loans, but we're not selling anything to them." He hopes that hundreds of millions of Chinese consumers will make up for the inability of American consumers to return to debt-binge spending.

This is wishful thinking. True, the Chinese market is huge and growing fast. By 2009, China was second only to the U.S. in computer sales, with a larger proportion of first-time buyers. It already had more cell-phone users. And excluding SUVs, last year Chinese consumers bought as many cars as Americans (as recently as 2006, Americans bought twice as many).
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So this will mean millions of American export jobs, right? No.

In fact China is heading in the opposite direction of "rebalancing." Its productive capacity keeps soaring, but Chinese consumers are taking home a shrinking proportion of the total economy. Last year, personal consumption in China amounted to only 35% of the Chinese economy; 10 years ago consumption was almost 50%. Capital investment, by contrast, rose to 44% from 35% over the decade.

China's capital spending is on the way to exceeding that of the U.S., but its consumer spending is barely a sixth as large. Chinese companies are plowing their rising profits back into more productive capacity—additional factories, more equipment, new technologies. China's massive $600 billion stimulus package has been directed at further enlarging China's productive capacity rather than consumption. So where will this productive capacity go if not to Chinese consumers? Net exports to other nations, especially the U.S. and Europe.
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The dirty little secret on both sides of the Pacific is that both America and China are capable of producing far more than their own consumers are capable of buying. In the U.S., the root of the problem is a growing share of total income going to the richest Americans, leaving the middle class with relatively less purchasing power unless they go deep into debt. Inequality is also widening in China, but the problem there is a declining share of the fruits of economic growth going to average Chinese and an increasing share going to capital investment.

Both societies are threatened by the disconnect between production and consumption. In China, the threat is civil unrest. In the U.S., it's a prolonged jobs and earnings recession that, when combined with widening inequality, could create political backlash.

Digging out of a deep hole - washingtonpost.com

Digging out of a deep hole

Op-Ed Columnist - The Phantom Menace - NYTimes.com

Op-Ed Columnist - The Phantom Menace - NYTimes.com

... today, the reigning doctrine in Washington appears to be “Be afraid. Be very afraid.”

What happened? To be sure, “centrists” in the Senate have hobbled efforts to rescue the economy. But the evidence suggests that in addition to facing political opposition, President Obama and his inner circle have been intimidated by scare stories from Wall Street.
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In December 2008 Lawrence Summers, soon to become the administration’s highest-ranking economist, called for decisive action. “Many experts,” he warned, “believe that unemployment could reach 10 percent by the end of next year.” In the face of that prospect, he continued, “doing too little poses a greater threat than doing too much.”

Ten months later unemployment reached 10.2 percent, suggesting that despite his warning the administration hadn’t done enough to create jobs. You might have expected, then, a determination to do more.

But in a recent interview with Fox News, the president sounded diffident and nervous about his economic policy. He spoke vaguely about possible tax incentives for job creation. But “it is important though to recognize,” he went on, “that if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession.”

What? Huh?

Most economists I talk to believe that the big risk to recovery comes from the inadequacy of government efforts: the stimulus was too small, and it will fade out next year, while high unemployment is undermining both consumer and business confidence.

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And it’s this latter claim that Mr. Obama echoed in that Fox News interview. Is he right to be worried?

Well, spikes in long-term interest rates have happened in the past, most famously in 1994. But in 1994 the U.S. economy was adding 300,000 jobs a month, and the Fed was steadily raising short-term rates. It’s hard to see why anything similar should happen now, with the economy still bleeding jobs and the Fed showing no desire to raise rates anytime soon.

A better model, I’d argue, is Japan in the 1990s, which ran persistent large budget deficits, but also had a persistently depressed economy — and saw long-term interest rates fall almost steadily. There’s a good chance that officials are being terrorized by a phantom menace — a threat that exists only in their minds.

And shouldn’t we consider the source? As far as I can tell, the analysts now warning about soaring interest rates tend to be the same people who insisted, months after the Great Recession began, that the biggest threat facing the economy was inflation. And let’s not forget that Wall Street — which somehow failed to recognize the biggest housing bubble in history — has a less than stellar record at predicting market behavior.

Still, let’s grant that there is some risk that doing more about double-digit unemployment would undermine confidence in the bond markets. This risk must be set against the certainty of mass suffering if we don’t do more — and the possibility, as I said, of a collapse of confidence among ordinary workers and businesses.

And Mr. Summers was right the first time: in the face of the greatest economic catastrophe since the Great Depression, it’s much riskier to do too little than it is to do too much. It’s sad, and unfortunate, that the administration appears to have lost sight of that truth.

Payback Time - Wave of Debt Payments Facing U.S. Government - Series - NYTimes.com

Payback Time - Wave of Debt Payments Facing U.S. Government - Series - NYTimes.com

WASHINGTON — The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.
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With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.

The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.

The surge in borrowing over the last year or two is widely judged to have been a necessary response to the financial crisis and the deep recession, and there is still a raging debate over how aggressively to bring down deficits over the next few years. But there is little doubt that the United States’ long-term budget crisis is becoming too big to postpone.

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Multimedia

Graphic

The Debt Buildup ...

New Consensus Views Stimulus as Worthy Step - NYTimes.com

New Consensus Views Stimulus as Worthy Step - NYTimes.com

Now that unemployment has topped 10 percent, some liberal-leaning economists see confirmation of their warnings that the $787 billion stimulus package President Obama signed into law last February was way too small. The economy needs a second big infusion, they say.
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The legislation, a variety of economists say, is helping an economy in free fall a year ago to grow again and shed fewer jobs than it otherwise would. Mr. Obama’s promise to “save or create” about 3.5 million jobs by the end of 2010 is roughly on track, though far more jobs are being saved than created, especially among states and cities using their money to avoid cutting teachers, police officers and other workers.

“It was worth doing — it’s made a difference,” said Nigel Gault, chief economist at IHS Global Insight, a financial forecasting and analysis group based in Lexington, Mass.

Mr. Gault added: “I don’t think it’s right to look at it by saying, ‘Well, the economy is still doing extremely badly, therefore the stimulus didn’t work.’ I’m afraid the answer is, yes, we did badly but we would have done even worse without the stimulus.”

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Even the $787 billion price tag overstates the plan’s stimulus value given changes made in Congress, economists say. Nearly a tenth of the package, $70 billion, comes from a provision adjusting the alternative minimum tax so it does not hit middle-income taxpayers this year. That routine fix, which would do nothing to stimulate the economy, was added in part to seek Republican votes. But to keep the package’s overall cost down, provisions that would stimulate the economy — like aid to revenue-starved states and infrastructure projects — got less as a result. ...

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“Many contractors across the nation have been able to sustain, if not add to, their work force,” he said.

That sort of impact is what makes federal aid to state governments rank high in economists’ reckoning of the stimulus value of various proposals. Every dollar of additional infrastructure spending means $1.57 in economic activity, according to Moody’s, and general aid to states carries a $1.41 “bang” for each federal buck.

Even more effective are increases for food stamps ($1.74) and unemployment checks ($1.61), because recipients quickly spend their benefits on goods and services.

By contrast, most temporary tax cuts cost more than the stimulus they provide, according to research by Moody’s. That is true of two tax breaks in the stimulus law that Congress, pressed by industry lobbyists, recently extended and sweetened — a tax credit for homebuyers (90 cents of stimulus for each dollar of tax subsidy) and extra deductions for businesses’ net operating losses (21 cents). ...

The One Thing That Will Help Restore U.S.-China Trade Balance | OurFuture.org

The One Thing That Will Help Restore U.S.-China Trade Balance | OurFuture.org

Have you heard of the U.S.-China Economic and Security Review Commission? Their job is to assess the national security implications of the trade and economic relationship between the United States and the People's Republic of China. Actually, that’s a big deal, especially now.

I joined a conference call today as the Commission today released its 2009 report to Congress. Here is a link to the audio of today's conference call.

Eric Lotke summarizes the report, in the post, Obama’s Home And The Report Is Out: China Takes Us To School

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One thing that came up in the call—featuring Carolyn Bartholomew, the chair of the U.S.-China Economic and Security Review Commission, and Clyde Prestowitz, the president of the Economic Strategy Institute—is that there is always an excuse not to do something about China's protectionism and the resulting trade imbalances. Today the excuse is that they loan us so much money (because of the Reagan/Bush debt and because we don't make things we used to make, and have to borrow money to buy them from China now) and if we make them mad they will stop loaning us money.

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The idea that we need to develop a national policy or strategy or whatever you want to call it is essential to our future. And this is something that we aren't doing for ourselves, not something that someone else is doing to us. The first part of this is the language problem. If we try to call it an "industrial policy," the idea is immediately attacked as "the government shouldn't be picking winners and losers." This is, of course, just the usual anti-government nonsense, because by doing nothing the government is currently picking China as the winner and the people of the United States as the losers.

Unfortunately, name-calling seems to be an effective tactic for blocking government action. Some have suggested variations on the wording "economic strategy" or "innovation strategy." Whatever you want to call it, we need to do it. need to have some sort of national economic and innovation policy and strategy that helps Americans organize and helps us figure out how to respond to some of these things," Bartholomew said.

Listen to the call and read the report. We are losing manufacturing, and with it we are losing our ability to compete in the future! We are putting our national security at risk. By losing manufacturing we also lose the supply chain that supplies the manufacturers. And of course we lose the ability to make things which we then sell in order to obtain the money with which to buy things. If you don't make things to trade with you have to borrow.

The worst thing, though, that we lose is the research and development capability that drives the manufacturing. This is the very thing the right and the free-traders said we would keep if we let the outsourcers have their way. They said outsource what someone else does cheaper, and keep the intellectual property. But as Bartholomew points out, we are losing the research and development, and the high-tech, and the manufacturing processes -- the things that people with enough education and skill would be able to do, which are the drivers of the supposed information economy. Right.

"As China is moving up the value-added chain, it's luring r&d, so the research and development is following the manufacturing, and once you've lost your research and development capacity as well as your manufacturing capacity, you lose your innovation capability, you lose your innovative edge," Bartholomew said. "So I think how we talk about this issue moving forward is going to be very important."

Cost Estimates Of Afghanistan Troop Buildup Vary Widely

Cost Estimates Of Afghanistan Troop Buildup Vary Widely

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In addition to the debate over how to fund the war there remains the question of just what a troop buildup of the kinds proposed will cost. As theLA Times noted Monday, the Obama administration and the Pentagon have produced significantly different price tags for how much it will cost to add troops to Afghanistan. The Pentagon has previously released estimates saying that the cost would be $500,000 per year for each service member, putting the total price tag for an increase of 40,000 troops -- which is what Gen. Stanley A. McChrystal has requested -- at an additional $20 billion a year.

The White House, meanwhile, has recently put the figure at twice that much -- a cost of $1 million per new solider. Interestingly, as the L.A. Times notes, an estimate from a Pentagon comptroller earlier this month, produced a number much closer to the Office of Management and Budget's estimate than that of the Pentagon. 



A helpful explanation of how the numbers were arrived at, via the LA Times:



White House officials included in their estimate everything they consider necessary to wage war, including troop housing and equipment.[...]



The Pentagon arrived at its much lower estimate by dividing its war funding request by the number of troops throughout the region: 68,000 in Afghanistan and up to 95,000 in supporting roles elsewhere, such as on nearby ships or in surrounding countries.

The Pentagon cost includes higher combat wages, extra aircraft hours and other operations and maintenance costs, but omits such items as new weapons purchases -- one-time costs that vary by year -- and support equipment like spy satellites and anti-roadside-bomb technology.

Impact of Layoffs: ABC News-Washington Post Poll - ABC News

Impact of Layoffs: ABC News-Washington Post Poll - ABC News

Three in 10 Americans in the latest ABC News/Washington Post poll say they or someone in their household has lost a job in the past year -- a new high. And the impacts can be devastating: Beyond financial hardship, large numbers report anger, stress and depression as a result.

Click here for PDF with charts and questionnaire.

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Other emotional responses range higher: Nearly all – 90 percent – report personal stress as a result of the layoff. Sixty-two percent, anger. And 58 percent, depression. As percentages of the full population, those compute to 27 percent of all Americans with stress, 19 percent angry and 17 percent suffering depression in response to the loss of a job.

There's also, of course, financial hardship: Among those who've sustained a job loss in the household, 86 percent report money trouble, and 62 percent say it's been serious.

RE-HIRE – There are some positive (or at least less negative) outcomes: Among people who report a job loss in the last year, just fewer than four in 10 say the person who'd been axed has been able to find a new job. The flipside: Of them, 51 percent say it's for less pay.

Just 15 percent report finding a better-paying job; the remaining third lined up new work for about the same money.

Thomas Friedman Explains Causes Of America's 'Sub-Optimal Solutions' (VIDEO)

Thomas Friedman Explains Causes Of America's 'Sub-Optimal Solutions' (VIDEO)

New York Times columnist Thomas L. Friedman is worried that America is producing "sub-optimal solutions" to big problems like global warming, an education system in decline and a weak economy.

The author of Hot, Flat, and Crowded appeared on The Charlie Rose Show on Friday night to discuss President Obama's recent trip to Asia, and more specifically China. Friedman lamented the failure of US governance and the "forces of paralysis" that surround President Obama. He is worried that China's streamlined, one-party system will be in a better place to implement solutions to large global problems more quickly than the US.

Holding us back, Friedman argues, is a political system too closely connected with money and well-funded interests. Gerrymandering on the part of politicians makes it so that our leaders practically pick us, not the other way around. Friedman also thinks cable news television distorts the truth and that the internet (at its worst) can be a terrible thing for our nation's politics. He also says American businesses have gone AWOL, and hover over America, participating only when it suits their industry's needs.

Friedman says that better citizens--not politicians--can solve our nation's problems.

Friedman lists

WATCH: ...

Here is a picture of the decline of America in one graph: - Democratic Underground

Here is a picture of the decline of America in one graph: - Democratic Underground



Wage growth, benefits, length of the work week, proportion of GDP owned by the working and middle classes--all kept moving in worker-friendly directions as long as unionization was on the increase. Then came 1980, and the election of Ronald Reagan, who broke the air traffic controller's union (PATCO), and set the trend for a downward spiral ever after. Note that the election of Clinton in 1992 may have slightly slowed the decline for a brief while, but certainly didn't reverse it. The joke is not just on the blue-collar work force; the fortunes of the white-collar crowd have pretty much followed the same trajectory, although all too few of them realize the link between their own welfare and that of the people they see as professionally "beneath" them.

Global Poll: Widespread Dissatisfaction with Free-Market Capitalism | CommonDreams.org

Global Poll: Widespread Dissatisfaction with Free-Market Capitalism | CommonDreams.org
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In the global poll for the BBC World Service, only 11% of those questioned across 27 countries said that it was working well.

Most thought regulation and reform of the capitalist system were necessary.

There were also sharp divisions around the world on whether the end of the Soviet Union was a good thing.

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More than 29,000 people in 27 countries were questioned. In only two countries, the United States and Pakistan, did more than one in five people feel that capitalism works well as it stands.

Almost a quarter - 23% of those who responded - feel it is fatally flawed. That is the view of 43% in France, 38% in Mexico and 35% in Brazil.

And there is very strong support around the world for governments to distribute wealth more evenly. That is backed by majorities in 22 of the 27 countries.

If there is one issue where a global consensus seems to emerge from the survey it is this: there are majorities almost everywhere wanting government to be more active in regulating business.

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Opinion about the disintegration of the Soviet Union is sharply divided.

Europeans overwhelmingly say it was a good thing: 79% in Germany, 76% in Britain and 74% in France feel that way.

But outside the developed West it is a different picture. Almost seven in 10 Egyptians say the end of the Soviet Union was a bad thing and views are sharply divided in India, Kenya and Indonesia.

Editorial - Jobless Recovery - NYTimes.com

Editorial - Jobless Recovery - NYTimes.com
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Unemployment surged from 9.8 percent in September to 10.2 percent last month, its highest level since 1983. At the same time, the economy lost 190,000 more jobs. That means employers have eliminated 7.3 million positions since the recession began in December 2007.

As dreadful as they are, the headline numbers understate the severity of the problem. They also obscure an even grimmer fact: Unless there is more government support, it will take several years of robust economic growth — by no means a sure thing — to recoup the jobs that have been lost.

The unemployment rate includes only jobless people who have looked for work in the past four weeks. The underemployment rate — which also includes jobless workers who have not recently looked for work and part-timers who need full-time work — reached 17.5 percent in October. And the long-term unemployment rate — the share of the unemployed population out of work for more than six months — also continues to set records. It is now 35.6 percent.

The official job-loss data also fail to take note of 2.8 million additional jobs needed to absorb new workers who have joined the labor force during the recession. When those missing jobs are added to the official total, the economy comes up short by 10.1 million jobs.

Taken together, the numbers paint this stark picture: At no time in post-World War II America has it been more difficult to find a job, to plan for the future, or — for tens of millions of Americans — to merely get by.

... The country also needs a program that would create jobs for teenagers — ages 16 to 19 — whose unemployment rate is currently a record 27.6 percent. Deep and prolonged unemployment among the young is especially worrisome. It means they do not have a chance, and may never get the chance, to acquire needed skills, permanently hobbling their earnings potential. ...

notes that the administration faces $9 trillion in budget deficits over the coming decade, nearly all of which he blamed on policies Obama inherited:

Obama budget director: We can cut the deficit - The Oval: Tracking the Obama presidency
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The 2011 budget President Obama submits in February will include "a number of proposals" to cut the $1.4 trillion federal deficit, his top budget aide says.

In a speech delivered this morning at New York University, Office of Management and Budget director Peter Orszag offers few clues about the administration's deficit-cutting proposals. But he makes it clear they will be a priority.

"To bring deficits down to a sustainable range ... will require more action once the economy is into a recovery," Orszag says. "We are currently considering a number of proposals to put our country back on firm fiscal footing, and to cut the deficit we inherited in half by the end of the president's first term.

Orszag notes that the administration faces $9 trillion in budget deficits over the coming decade, nearly all of which he blamed on policies Obama inherited: $4 trillion in tax cuts implemented by George W. Bush; $3.5 trillion in lower revenue and automatic spending increases, such as food stamps and unemployment insurance, due to the recession; and $700 billion in Medicare prescription drug costs. Only 10% of the $9 trillion comes from the economic stimulus package passed in February, he says. ...

Have I misunderstood Econ 101, or did someone else? - Democratic Underground

Have I misunderstood Econ 101, or did someone else? - Democratic Underground
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Is there something about the fundamentals of economics -- and by that I mean economics of any political persuasion -- that is simply lost on the majority of human beings, including more than a few DUers? Or have I been operating on a flawed premise all this time?

It seems to me that economies, all economies, start with three basics:

1. Agriculture and other food production (including fishing, hunting, raising crops, gathering berries, whatever)
2. Mining and other resource extraction (including timber cutting)
3. Manufacturing of all objects not found naturally.

The first is essential to human existence at any economic level, even paleolithic.

The second is essential to progressing beyond #1 to #3 and the creation of transferable wealth.

All of these require the addition of human labor in order to make them useful to the human creature. Homo sapiens sapiens has to pick the berries or grab the fish outta the water in order to eat. That's labor. The addition of labor makes the resource usable.

There is no value to anything without the addition of labor.
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And capitalism was born. The Berrys didn't do any work. They added nothing in Labor to the production of the fruit they were selling. They owned the land and they hired some Harvesters to do the real work, and they kept the profits.

And the next year it was six fish a bucket. And the Berrys bought out the family who made the village's leather. The Tanners retired and the Harvesters brought in some immigrants to run the tannery, but the Newcomers didn't control the price of the product or the quality. They didn't own the tannery the way the Tanners had; they just sold their labor to the Berrys. The Berrys paid them way less than the Tanners had made, but the Berrys were able to lower the price and still took the profit. And they used that profit to buy out the tannery in the next village and the next. The people in the villages had nowhere else to buy their leather, and they knew the new stuff wasn't nearly as good quality as when they were buying from the people who actually owned and ran the business with their own LABOR, but hey, the prices were cheap and what could you do?

Next thing you know, the price of berries is eight fish a bucket. The Berrys are getting richer all the time, but they are producing nothing. And the priests who make all the after-death promises are saying the Berrys are perfectly right in what they do, so all the people who live in misery as a result of the Berrys are told to shut the fuck up!

The Berrys and all of their ilk eventually create the whole banking and "insurance" industries, all of which create no wealth; they simply facilitate the transfer of it, sometimes for good, sometimes for not so good, and either way th bankers and the insurers take their cut.

What too many of us have not realized -- or not been taught -- is that without productive LABOR, the kind that produces the transferable wealth, there can be no economy. Banks are not an economy. Insurance companies are not an economy. Stock markets are not an economy. Labor is. Labor that produces useful goods and services (such as health care and teaching that facilitate labor to produce physical goods) is the foundation of any and all Economies.

We need the Boatwrights and the Spearmakers. We need the Carters and the Fishers and the Farmers and the Miners and the Tanners and the Shoemakers. It's possible to have an economy without the Bankers; it's not possible to have an economy without Labor.

Until more of our people understand this, we won't be able to turn this catastrophe around. And sadly, there are a whole bunch of people on DU even who don't get it.

Or else the one person who REALLY doesn't get it is ....

Keeping IT Workers Happy - Careers

Keeping IT Workers Happy - Careers: "

According to the latest survey from Dice.com, salaries just keep dropping. But that doesn't mean that employers can't incentivize their geeks to work hard. Dice recently polled workers about what employers can offer beyond salary to keep them happy."

Dave Lindorff: Blaming the Workers

Dave Lindorff: Blaming the Workers

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This fellow I was arguing with about the Philly transit strike, said, "It's not like this is the 1920s or '30s, when unions were really needed because people were being exploited."

"Oh really?" I said. "You don't think the workers at Wal-Mart or in your local supermarket are being exploited?" The truth is that working conditions for American workers have been getting progressively worse in recent years, while pay has actually been falling in real dollars, because union representation has been falling for several decades from a high of over 35% back in the early 1950s. Those unions, like the transit workers union in Philadelphia, which are still fighting the good fight, are really all that stands between ordinary American workers and a truly nightmarish return to a Dickensian era.

Does anyone believe that the type of manager that we have seen pillaging the economy on Wall Street, or stealing jobs and already earned pay from workers at Republic Window & Door in Chicago, is an exception to the rule? Hell no. American managers are congenitally ruthless exploiters of human beings constrained only by unions or their fear of unions, and by the protective legislation, such as minimum wage laws, occupational safety and health laws, etc., which Congress has grudgingly passed because of the pressure from unions and their workers. ...

Op-Ed Columnist - A Recovery for Some - NYTimes.com

Op-Ed Columnist - A Recovery for Some - NYTimes.com

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We’ve been hearing that there are six unemployed workers for every job opening in the U.S., but even that terrible figure is deceptive. There are 25 unemployed construction workers for every job opening in their field, and more than a dozen for every opening in the durable goods industries, according to the Center for Labor Market Studies at Northeastern University in Boston.

This was not a normal recession, and we are not on the cusp of anything like a normal recovery. The unemployment rate for black Americans is 15.7 percent. The underemployment rate for blacks in September (the latest month for which figures are available) was a gut-wrenching 23.8 percent and for Hispanics an even worse 25.1 percent. The poverty rate for black children is almost 35 percent.

Wall Street can boast about recovery all it wants, much of America remains trapped in economic hell.

It will take a monumental leadership effort by the administration and Congress to spark the kind of changes necessary to transform this wretched employment landscape. Ross Eisenbrey of the Economic Policy Institute has written: “By itself, the private sector is unable to create jobs in the numbers the United States needs to obtain a robust, full economic recovery.”

If that’s true, and I have long believed it to be the case, then we need to rethink our entire approach to employment. Conventional efforts to kick-start economic growth are dwarfed by the vast scale of the problem. Bold new efforts — creative efforts — are needed.

A recent survey for the policy institute found that one in four families had been hit by a job loss during the past year and 44 percent had suffered either the loss of a job or a reduction in wages or hours worked. Economic insecurity has spread like a debilitating virus through scores of millions of American families.

What kind of recovery are we talking about if blue-collar workers, and men and women without college degrees, and large percentages of ethnic minorities and the young and the poor are not part of it? And how can any recovery be sustained if economic insecurity is a permanent feature of even middle-class life?

The financial elites have flourished in recent decades to a great extent because they have had government on their side, with the politicians working diligently to ensure that rules, regulations and tax policies established an environment in which the elites could thrive. For ordinary Americans, it has been a different story, with jobs shipped overseas by the millions and wages remaining stagnant, with labor unions under constant assault and labor standards weakened, with the safety net shredded and the message sent out to workers everywhere: You’re on your own. ...

High Costs Weigh on Troop Debate for Afghan War - NYTimes.com

High Costs Weigh on Troop Debate for Afghan War - NYTimes.com

While President Obama’s decision about sending more troops to Afghanistan is primarily a military one, it also has substantial budget implications that are adding pressure to limit the commitment, senior administration officials say.

The latest internal government estimates place the cost of adding 40,000 American troops and sharply expanding the Afghan security forces, as favored by Gen. Stanley A. McChrystal, the top American and allied commander in Afghanistan, at $40 billion to $54 billion a year, the officials said.

Even if fewer troops are sent, or their mission is modified, the rough formula used by the White House, of about $1 million per soldier a year, appears almost constant.

So even if President Obama opts for a lower troop commitment, Afghanistan’s new costs could wash out the projected $26 billion expected to be saved in 2010 from withdrawing troops from Iraq. And the overall military budget could rise to as much as $734 billion, or 10 percent more than the peak of $667 billion under the Bush administration.

Such an escalation in military spending would be a politically volatile issue for Mr. Obama at a time when the government budget deficit is soaring, the economy is weak and he is trying to pass a costly health care plan. ...

Op-Ed Columnist - Free to Lose - NYTimes.com

Op-Ed Columnist - Free to Lose - NYTimes.com

Consider, for a moment, a tale of two countries. Both have suffered a severe recession and lost jobs as a result — but not on the same scale. In Country A, employment has fallen more than 5 percent, and the unemployment rate has more than doubled. In Country B, employment has fallen only half a percent, and unemployment is only slightly higher than it was before the crisis.

Don’t you think Country A might have something to learn from Country B?

This story isn’t hypothetical. Country A is the United States, where stocks are up, G.D.P. is rising, but the terrible employment situation just keeps getting worse. Country B is Germany, which took a hit to its G.D.P. when world trade collapsed, but has been remarkably successful at avoiding mass job losses. Germany’s jobs miracle hasn’t received much attention in this country — but it’s real, it’s striking, and it raises serious questions about whether the U.S. government is doing the right things to fight unemployment.

Here in America, the philosophy behind jobs policy can be summarized as “if you grow it, they will come.” That is, we don’t really have a jobs policy: we have a G.D.P. policy. The theory is that by stimulating overall spending we can make G.D.P. grow faster, and this will induce companies to stop firing and resume hiring.

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Alternatively, or in addition, we could have policies that support private-sector employment. Such policies could range from labor rules that discourage firing to financial incentives for companies that either add workers or reduce hours to avoid layoffs.

And that’s what the Germans have done. Germany came into the Great Recession with strong employment protection legislation. This has been supplemented with a “short-time work scheme,” which provides subsidies to employers who reduce workers’ hours rather than laying them off. These measures didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses.

Should America be trying anything along these lines? In a recent interview in The Washington Post, Lawrence Summers, the Obama administration’s highest-ranking economist, was dismissive: “It may be desirable to have a given amount of work shared among more people. But that’s not as desirable as expanding the total amount of work.” True. But we are not, in fact, expanding the total amount of work — and Congress doesn’t seem willing to spend enough on stimulus to change that unfortunate fact. So shouldn’t we be considering other measures, if only as a stopgap?

Now, the usual objection to European-style employment policies is that they’re bad for long-run growth — that protecting jobs and encouraging work-sharing makes companies in expanding sectors less likely to hire and reduces the incentives for workers to move to more productive occupations. And in normal times there’s something to be said for American-style “free to lose” labor markets, in which employers can fire workers at will but also face few barriers to new hiring.

But these aren’t normal times. Right now, workers who lose their jobs aren’t moving to the jobs of the future; they’re entering the ranks of the unemployed and staying there. Long-term unemployment is already at its highest levels since the 1930s, and it’s still on the rise.

And long-term unemployment inflicts long-term damage. Workers who have been out of a job for too long often find it hard to get back into the labor market even when conditions improve. And there are hidden costs, too — not least for children, who suffer physically and emotionally when their parents spend months or years unemployed.

So it’s time to try something different. ...

[Government of the people, for the people ? ed.]

What computer science can teach economics

http://web.mit.edu/newsoffice/2009/game-theory.html

...

Of course, most games are more complicated than the penalty-kick game, and their Nash equilibria are more difficult to calculate. But the reason the Nash equilibrium is associated with Nash’s name — and not the names of other mathematicians who, over the preceding century, had described Nash equilibria for particular games — is that Nash was the first to prove that every game must have a Nash equilibrium. Many economists assume that, while the Nash equilibrium for a particular market may be hard to find, once found, it will accurately describe the market’s behavior.

Daskalakis’s doctoral thesis — which won the Association for Computing Machinery’s 2008 dissertation prize — casts doubts on that assumption. Daskalakis, working with Christos Papadimitriou of the University of California, Berkeley, and the University of Liverpool’s Paul Goldberg, has shown that for some games, the Nash equilibrium is so hard to calculate that all the computers in the world couldn’t find it in the lifetime of the universe. And in those cases, Daskalakis believes, human beings playing the game probably haven’t found it either.

...

The argument has some empirical support. Approximations of the Nash equilibrium for two-player poker have been calculated, and professional poker players tend to adhere to it — particularly if they’ve read any of the many books or articles on game theory’s implications for poker. The Nash equilibrium for three-player poker, however, is intractably hard to calculate, and professional poker players don’t seem to have found it.

Washington's Blog

Shiller: "Look up 'Bubble' in an Economic Textbook and It's Not There. [People] are Living in a 'Pretend-and-Extend' Environment"

Robert J. Shiller is one of the most prominent American economists and is one of the 100 most prominent economists in the world.

Shiller recently confirmed two points that alternative financial writers have been making for years:

(1) Mainstream economists don't pay any attention to bubbles - even though bubbles always burst, causing recessions or depressions

and

( 2) People are in an extend-and-pretend environment, trying to paper over the severity of economic problems and kick the can down the road

At the Buttonwood economics conference a couple of days ago, Shiller said:

"Look up 'bubble' in an economic textbook and it's not there." (Referring to the shortcomings of the traditional economic curriculum.).

People "are living in a 'pretend-and-extend' environment, waiting for the economy to recover." (Referring to the precarious state of the commercial real estate market and the wave of resets coming due between 2011 and 2013.)

While criticism of American economists' blind spot towards bubbles may be news to Americans, even BIS and the head of the World Bank have previously slammed the Federal Reserve for blowing bubbles and then trying to clean up the mess once they burst. ...

Washington's Blog

What is the current American economy: capitalism, socialism or fascism?

Socialism

Many people call the Bush and Obama administration's approach to the economic crisis "socialism".

Are they right?

Well, Nouriel Roubini writes in a recent essay:

This is a crisis of solvency, not just liquidity, but true deleveraging has not begun yet because the losses of financial institutions have been socialised and put on government balance sheets. This limits the ability of banks to lend, households to spend and companies to invest...

The releveraging of the public sector through its build-up of large fiscal deficits risks crowding out a recovery in private sector spending.

Roubini has previously written:

We're essentially continuing a system where profits are privatized and...losses socialized.

Nassim Nicholas Taleb says the same thing:

After finishing The Black Swan, I realized there was a cancer. The cancer was a huge buildup of risk-taking based on the lack of understanding of reality. The second problem is the hidden risk with new financial products. And the third is the interdependence among financial institutions.

[Interviewer]: But aren't those the very problems we're supposed to be fixing?

NT: They're all still here. Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. Butthe government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren. What is the effect? The doctor has shown up and relieved the patient's symptoms – and transformed the tumour into a metastatic tumour. We still have the same disease. We still have too much debt, too many big banks, too much state sponsorship of risk-taking. And now we have six million more Americans who are unemployed – a lot more than that if you count hidden unemployment.

....

....

Nobel prize winning economist Joseph Stiglitz calls it "socialism for the rich". So domany others.

Fascism?

Some, however, argue that the economy is more like fascism than socialism. For example, leading journalist Robert Scheer writes:

What is proposed is not the nationalization of private corporations but rather a corporate takeover of government. The marriage of highly concentrated corporate power with an authoritarian state that services the politico-economic elite at the expense of the people is more accurately referred to as "financial fascism" [than socialism]. After all, even Hitler never nationalized the Mercedes-Benz company but rather entered into a very profitable partnership with the current car company's corporate ancestor, which made out quite well until Hitler's bubble burst.

And Italian historian Gaetano Salvemini argued in 1936 that fascism makes taxpayers responsible to private enterprise, because "the State pays for the blunders of private enterprise... Profit is private and individual. Loss is public and social" (page 416).

This perfectly mirrors Roubini's statement about the American government's bailout plan.

....

Looting

As Examiner.com pointed out in May (it is worth quoting the essay at some length, as this is an important concept), looting has replaced free market capitalism:

Nobel prize-winning economist George Akerlof co-wrote a paper in 1993 describing
the causes of the S&L crisis and other financial meltdowns. As summarized
by the New York Times:

In the paper, they argued that several financial crises in the 1980s, like the Texas real estate bust, had been the result of private investors taking advantage of the government. The investors had borrowed huge amounts of money, made big profits when times were good and then left the government holding the bag for their eventual (and predictable) losses.

In a word, the investors looted. Someone trying to make an honest profit, Professors Akerlof and Romer [co-author of the paper, and himself a leading expert on economic growth] said, would have operated in a completely different manner. The investors displayed a “total disregard for even the most basic principles of lending,” failing to verify standard information about their borrowers or, in some cases, even to ask for that information.

The investors “acted as if future losses were somebody else’s problem,” the economists wrote. “They were right.”

The Times does a good job of explaining the looting
dynamic:

The paper’s message is that the promise of government bailouts isn’t merely one aspect of the problem. It is the core problem.

Promised bailouts mean that anyone lending money to Wall Street — ranging from small-time savers like you and me to the Chinese government — doesn’t have to worry about losing that money. The United States Treasury (which, in the end, is also you and me) will cover the losses. In fact, it has to cover the losses, to prevent a cascade of worldwide losses and panic that would make today’s crisis look tame.

...

Bottom Line

So what do we really have: socialism-for-the-giants, fascism or an economy which calls itself "capitalism" but which allows looting?

Ultimately, it doesn't matter. They are just different brand names for the same basic type of economy. All three systems allow giant businesses which are friendly to the government to keep enormous private profits but to pass the losses on to the government and ultimately the citizens.

Whether we use the terminology regarding socialism-for-the-giants ("socialized losses"), of fascism ("public and social losses"), or of looting ("left the government holding the bag for their eventual and predictable losses"), it amounts to the exact same thing.

Whatever we have, it isn't free market capitalism.

Washington's Blog

The Real Reason That - For the First Time Ever - More Women are Working Than Men

For the first time ever, at least half of all American workers are women. In addition, mothers are the primary breadwinners or co-breadwinners in nearly two-thirds of families.

...

As Wendy Norris, an investigative reporter based in Denver pointed out in a recent interview, the "equality" of women in the workforce is the result of the severity of the financial crisis and the resulting unemployment among men. Specifically, it is well-known that men have suffered the majority of job losses from the rising tide of unemployment hitting America.

Norris also points out that these are lower-paying jobs, as women typically earn less then men.

So what is being celebrated as a sign of progress and equality is actually an indication of the severity of the unemployment crisis in America.

Washington's Blog

An article by economist James K. Galbraith contains a chart - based on information from Moody's and congressional testimony - showing the most bang for the buck from government stimulus programs:

What a dollar of stimulus puts back into the economy when spent on...

(Click here for full image).

OpEdNews - Article: Defense Spending Creates Fewer Jobs Than Other Types of Spending

OpEdNews - Article: Defense Spending Creates Fewer Jobs Than Other Types of Spending

Yesterday, I pointed out that a study by one of the leading economic modeling companies shows that military spending increases unemployment and decreases economic growth.

I have located a paper by economist Robert Pollin published in 2007 by The Political Economy Research Institute at the University of Massachusetts, Amherst - entitled "The U.S. Employment Effects of Military and Domestic Spending Priorities" - which concludes:

...

[Click image for larger version]

The table first shows in column 1 the data on the total number of jobs created by $1 billion in spending for alternative end uses. As we see, defense spending creates 8,555 total jobs with $1 billion in spending. This is the fewest number of jobs of any of the alternative uses that we present. Thus, personal consumption generates 10,779 jobs, 26.2 percent more than defense, health care generates 12,883 jobs, education generates 17,687, mass transit is at 19,795, and construction for weatherization/infrastructure is 12,804. From this list we see that with two of the categories, education and mass transit, the total number of jobs created with $1 billion in spending is more than twice as many as with defense.

"Military Keynesianism" - the idea that war is the best economic stimulus - is false.

Update: Pollin published an updated version of his paper on October 20, 2009. The abstract summarizes their updated findings:

The authors compare the effects of a $1 billion military investment military and the same investment in clean energy, health care, education, or individual tax cuts. They show that non-military investments create a much larger number of jobs across all pay ranges. With a large share of the federal budget at stake, Pollin and Garrett-Peltier make a strong case that non-military spending priorities can create significantly greater opportunities for decent employment throughout the U.S. economy than spending the same amount of funds with the military.

And here are a chart and table from the updated study:

www.WashingtonsBlog.com

The Raw Story | US trade gap widens with import surge

The Raw Story | US trade gap widens with import surge

Surging imports pushed up the US trade deficit by 18 percent in September, official data showed on Friday in a sign of improving trade flows and a healing global economy.

The goods and services trade gap rose to 36.5 billion dollars, the highest since January, from a revised 30.8 billion dollars in August, the Commerce Department reported.

The figure was higher than anticipated by most economists.

The report showed a rise in both imports and exports, underscoring an improvement in trade flows that had fallen with the global economic slump.

Total September exports were up nearly three percent to 132 billion dollars while imports amounted to 168.4 billion dollars, rising by a hefty 5.8 percent in the biggest percentage increase since March 1993.

Data also showed that the politically sensitive US trade gap with China reached its highest level in nearly a year, at 22.1 billion dollars from the previous month's 20.2 billion dollars.

Daily Kos: Economic Outrage du Jour

Daily Kos: Economic Outrage du Jour

ves Smith at naked capitalism asks "Do Businesses Hate Their Workers?":

In America, it isn’t hard to answer the question in the headline "yes." The oft recited, "Our employees are our greatest asset" is pure Orwellian prattle; most companies treat employees as liabilities, doing everything they can to minimize labor costs, getting rid of workers whenever possible. And this now extends well up into the management ranks, with most people who are still on the corporate meal ticket assigned responsibilities that would have constituted 1.5 to two jobs a decade ago.

And before readers argue that this is a necessary response to globalization, the evidence does not support that view. If companies were simply responding to tougher competition (in this case, lower cost suppliers from overseas), you’d expect to pressure on wages AND profits. Instead, we’ve seen wage stagnation (save at the very top) with (pre bust) record profits.

If you look at past post-war expansion periods, the vast majority of GDP growth went to labor, in the form of increased hiring and higher wages. The post war average (pre the last upturn) was close to 60%; the low was 55%. The jobless recovery lived up to its billing, with under 30% of GDP gains going to workers. By contrast, the portion of GDP growth that went to profits was an all-time record.

masaccio at Firedoglake chimes in:

On Friday, a group of Trade Associations ran a full-page ad in the New York Times demonstrating their loathing for the employees of their members:

Expensive new mandates on businesses will result in lost jobs, lower wages, less flexibility and higher health care costs.

Let me translate that from scary talk to plain English. Business will dump every last cent of the costs of health care on employees. No business will give up a single penny of its profits to keep its workers healthy. Anyone who wants health care has to pay for it at whatever price the insurance companies want to charge, and business will cooperate in shifting costs to workers. And there is nothing you can do about it. The profits we suck out of your labor belongs to us, and you don’t get any. ...

t r u t h o u t | What the CBO Isn't Telling Congress: Climate Change Threatens Million of Jobs

This denial is rejected by most economists who have studied climate change. In a survey of 144 top climate economists released November 4, 2009, by the Institute for Policy Integrity at the New York University School of Law, 84 percent agreed that "the environmental effects of greenhouse gas emissions, as described by leading scientific experts, create significant risks to important sectors of the United States and global economies." A majority stated that sectors that will be negatively affected include agriculture, fishing, forestry, insurance and health services.

But the profound negative economic impact of climate change is being largely ignored or denied in the current public policy debate. This denial threatens to have a significant effect on public policy. For example, testimony October 14, 2009, by Douglas W. Elmendorf, the director of the Congressional Budget Office, states, "Most of the economy involves activities that are not likely to be directly affected by changes in climate." He claims that "a relatively pessimistic estimate for the loss in projected real gross domestic product is about 3 percent for warming of about 7 degrees Fahrenheit (F) by 2100." He cites only two studies, one published in 2004; the other, which he describes as "the most comprehensive published study," was published in 2000, a decade before current research on the impacts of climate change.

This testimony completely ignores the British government's 700-page "Stern Review," widely regarded as the most definitive study so far of the economic impact of global warming, released on October 30, 2006, by former World Bank chief economist Nicholas Stern. It states, "Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century."

...

Such denial leads to a deadly miscalculation of the economic cost of failure to counter global warming. The CBO acknowledges that "unchecked increases in greenhouse-gas emissions" would "probably reduce output over time, especially later in this century." However, the CBO concludes that the net effects on GDP of restricting emissions in the United States are likely to be negative over the next few decades. That conclusion results from a total failure to consider the devastating impact of climate change on the global and US economies, as revealed, for instance, in the "Stern Review."

How many epidemics and Katrinas will it take to expose the myth that the US economy is somehow exempt from the threats of climate change? And what terrible price will we pay if we shun the cost of climate protection, but not the far greater cost of climate change?

t r u t h o u t | Massive Defense Spending Leads to Job Loss

t r u t h o u t | Massive Defense Spending Leads to Job Loss

There is a major national ad campaign, funded by the oil industry and other usual suspects, to convince the public that measures to reduce greenhouse gas emissions (GHG) and slow global warming will result in massive job loss. This ad campaign warns of slower growth and the loss of hundreds of thousands of jobs, possibly even millions of jobs, if some variation of the current proposals being debated by Congress get passed into law.

...

However, the oil industry's scare stories about job loss never put it in any context. In these models, any government measure that interferes with market outcomes almost by definition reduces efficiency, leading to less economic growth and fewer jobs. Efforts to slow global warming fall in this category, but so does almost everything else, and many items in the everything else category have a much larger impact.

...

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq war.

Global Insight's model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the 9/11 attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-9/11 build-up was equal to 3.2 percentage points of GDP compared to the preattack baseline. This means that the Global Insight projections of job loss are far too low.

The impact of higher spending will not be directly proportionate in these economic models. In fact, it should be somewhat more than proportionate, but if we just multiple the Global Insight projections by three, we would get that the long-term impact of our increased defense spending will be a reduction in GDP of 1.8 percentage points. This would correspond to roughly $250 billion in the current economy, or about $800 in lost output for every person in the country.

The projected job loss from this increase in defense spending would be close to two million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to two million jobs in the long run.

For some reason, no one has chosen to highlight the job loss associated with higher defense spending. In fact, the job loss attributable to defense spending has probably never been mentioned in a single news story in The New York Times, Washington Post, National Public Radio, or any other major media outlet. It is difficult to find a good explanation for this omission. ...

Center for Economic and Policy Research (CEPR): Cash for Clunkers Drives 3rd Quarter GDP Growth | Facebook

Center for Economic and Policy Research (CEPR): Cash for Clunkers Drives 3rd Quarter GDP Growth | Facebook

GDP grew at a 3.5 percent annual rate in the 3rd quarter, driven by a 22.4 percent jump in car sales, the result of the Cash for Clunkers (C4C) program. This increase in car sales accounted for 42.0 percent of the growth in the quarter. Consumption as a whole, which grew at a 3.4 percent annual rate, added 2.36 percentage points to growth. Other components making large contributions to growth were inventories, which added 0.94 percentage points; national defense, which added 0.45 percentage points; and residential construction, which added 0.53 percentage points, its first positive number since the fourth quarter of 2005.

...

Defense spending continues to be an important factor pushing the economy as it has grown rapidly even as the economy has shrunk. Defense spending now accounts for 5.6 percent of GDP, the largest share since the first quarter of 1993. By comparison, it peaked at 7.6 percent in the 3rd quarter of 1986, at the height of the Reagan build-up. In its last pre-September 11th projections, the Congressional Budget Office projected defense spending for 2009 as 2.4 percent of GDP. ...

inequality-policy-2009-10.pdf (application/pdf Object)

inequality-policy-2009-10.pdf (application/pdf Object)
...
When workers do lose their jobs, the social safety net has many holes. Historically, only about 40 percent of unemployed workers receive unemployment insurance benefits and these are stingy by international standards.13

The large majority of U.S. workers also depend on their job (or their spouse’s job) for health insurance. With the typical employer-provided health insurance plan costing about $5,000 per year for individual coverage and about $13,000 per year for family coverage,14 higher wages alone will not go far in providing quality health insurance, particularly for lower- and middle-income workers. U.S. workers also suffer from a severe time squeeze, which is exacerbated by the lack of any legally required paid time off. U.S. law, for example, does not mandate any form of paid time off for any purpose. As a result, almost one-fourth of U.S. workers have no paid vacation or paid holidays, and the average U.S. worker has only nine days of paid vacation and six days of paid public holidays per year, with many having less than the average.15 Nor does U.S. law require employers to provide paid parental leave.16 In fact, the U.S. law that requires employers to provide 12 weeks of unpaid parental leave has exemptions for employer-size and job tenure that effectively remove a large share of the U.S. workforce from coverage.17 U.S. workers are not even legally entitled to paid (or unpaid) sick days.18 As a result, over 40 percent of U.S. private-sector workers have no paid sick days, and, given the “employment at will” doctrine, are at risk of losing their jobs if they miss work when they are sick. Higher wages alone would do little to give workers the time they seek to handle their many non-work responsibilities.

All of these non-wage issues – the lack of legal job protections, the lack of a safety net for most of the unemployed, the strong dependence of workers on their employers for health insurance, the lack of paid time off, and others – are major challenges for workers at almost all levels of wage distribution. But these problems are particularly acute for low-wage workers, who are not just the worst paid, but also the least likely to have union-representation, the least likely to have employerprovided health insurance (or insurance of any kind), and the least likely to have any form of paid time off.19

Conclusion

In the standard neoclassical economics framework, low wages are simply a symptom of low levels of skill. Wage levels, however, are also a function of unionization rates; the level of the minimum wage; the entire regulatory framework governing the terms and conditions of employment, from job security legislation to paid time off; the size and scope of the public sector; the degree of competition in national and international product markets; and other fundamentally political issues, all of which have little or nothing to do with workers’ skills.

The sharp and sustained increase in economic inequality in the United States over the last 30 years is not a reflection of a national preference for inequality (discussed more blandly as “flexibility”), and not the continuation of an inexorable increase in inequality from 1776 to the present. The last 30 years, in fact, mark a significant departure from a five-decade trend toward greater economic and social equality. What changed was not the demand for skilled workers, but the balance of power between workers and their employers.

Too Much: A Commentary on Excess and Inequality

Too Much: A Commentary on Excess and Inequality

A Do-It-Yourself Giant Does It to Workers

Amid double-digit joblessness, two top U.S. corporations cut still another mega merger deal that enriches executives and tosses workers, by the thousands, out onto the street.

November 9, 2009

By Sam Pizzigati

You don’t have to be a high-flyer in high finance to get a kick — and a fortune — out of wheeling and dealing. Greed and grasping, we need to remind ourselves every so often,are still thriving right down on the ground, in America’s oh-so pedestrian manufacturing sector.

The latest case in point: the just-announced $4.5 billion merger deal that will fold the 99-year-old Black & Decker tool-making powerhouse — the folks who brought us the world’s first pistol-grip power drill — into its chief tool-making rival, Connecticut's Stanley Works.

“It’s a match made in heaven,” Stanley flack Tim Perra told reporters last week.

Heaven for who? Not consumers. The new “Stanley Black & Decker” may soon have enough marketplace dominance, says Morningstar business analyst Anthony Dayrit, “to raise prices” on do-it-yourself gizmos that range from power tools to window locks.

And workers won’t find much heaven in the merger either. Black & Decker and Stanley together currently employ a workforce just over 40,000. The merger the two companies announced last week will eventually cost an estimated 10 percent of those workers their jobs, starting with staff at the Black & Decker headquarters just outside Baltimore.

No surprise there. In any big-time merger, at least some employees will always become “redundant.” A newly merged company, after all, doesn’t need two sets of headquarters staff.

But redundancies, after a big-time merger, never seem to show up in executive suites. Top execs at firms getting swallowed up either get cushy positions in the new firm or golden parachutes that ensure them a gentle landing when they leap out into the cold hard world.

Black & Decker CEO Nolan Archibald had to choose between the two. By contract, Archibald could have walked away from the new Stanley Black & Decker with a severance package worth $20.5 million. ...