Home Economics The Economy, the Stimulus and Coming Out of the Recession

The Economy, the Stimulus and Coming Out of the Recession


Economists like to say that the current recession began in December of 2007. But things had not been going well for the average American for some time before that. The recession only made things worse for the average American household. Long before the recession began, things had been in a gradual decline for the average American family.

Since 1989, the bottom 90% of Americans experienced only a 16% income growth. In that same period, the top 1% of Americans earned about 56% all income growth. That was an increase in wealth of three and one-half times that of the bottom 90%. It gets better. The top one-tenth of one percent, that is, the top one out of a thousand increased their income by 33%. That was twice as much as the bottom 90%.

Nine out of ten Americans lost ground economically in the 1990s, even with good economic times. Things got worse in the 2000s. But the people at the very top increased their already very high incomes by an enormous amount…top 1% with 56% of all income earned. CEOs make a certain amount more than the average employee…300 times, 400 times. So a company with an average wage of $40,000 saw its chief executive take home $12,000,000 or more…annually. Is there a justification for an executive in a financial company, for example, to make $12,000,000 per year? That is a question for society to answer. Or should we have a society in which we allow individuals to earn unlimited income for making decisions that make their stockholders wealthier?

We give very little thought to the incomes of emergency room doctors and nurses who save people’s lives every day, or firemen who rush into burning buildings not knowing if they will come out, or American soldiers who know…for certain…that some of them will not be coming home. But for some reason we show great concern that we not restrict the upward mobility of people who trade securities on Wall Street and then drive home in their Porsches to the North Shore of Long Island.

The great income growth for the top 1% was not an accident. Nor was it a natural course of economic events. It was a well planned economic program begun with Ronald Reagan and continued by both Bush Presidencies. This was a planned outcome by those who have controlled government for most of the last quarter of the 20th Century and nearly the entire first decade of the 21st. It wasn’t sinister and it was not meant to keep the average American in his or her place. It was merely greed. It was all about “me” and what “I” get. That’s all it was. But you can see how far that attitude can go, when people who make $14,000,000 per year on average (CEOs of the health insurance companies) will spend, literally, hundreds of millions of dollars to make sure that those same average Americans stay on their health plans at exorbitant rates, but can also deny services at will…to keep those fabulous incomes.

Some say of course that we are becoming more productive as a nation. That is why the income increases are happening the way they have. Those who are most productive have become most rewarded. But workers create productivity. The largest single cost in almost any enterprise is labor. So why weren’t workers better rewarded as productivity increased?

Actually the rates of compensation for hourly workers has been flat since around 1980. And so there has been a growing gap between productivity and compensation. Part of the reason workers compensation has been flat is that the political power transferred to corporations. Unions declined or were run out of town. Huge public relations campaigns were launched against unions, who are a formidable force for the average man or woman. Unions were discredited and membership fell as the laws prevented unions from organizing. Even as unions gave away privileges and then essentials, and while major industries floundered from blind, idiotic, shortsighted management, they were demonized by the Chamber of Commerce, Cato, and the American Enterprise Institute.

More recently, from 2000 to 2007, before the current big recession started, income for all groups high school through college educated stayed flat, while the cost of living went up. It is no coincidence that during that same period people:

a. borrowed more from their credit cards to keep up, or
b. borrowed against the equity in their homes, or
c tried desperately to afford a home so that, as home values escalated, they could build some equity or so that they could, in fact, ever afford to own a home.

This recession is now officially the worst since the Great Depression, surpassing all others, most by a wide margin. We are at 9.8% unemployment, or about 15 million people unemployed. While that is a far cry from the 25% unemployment…without any safety nets…of the 1930s, it is much higher than anyone who was born after 1950 could ever have imagined.

The Bureau of Labor Statistics of the Labor Department says that we have 16.8% underemployment, if you include the measurable number of people who would like to be employed but now only find part-time work. That figure would come to about 26 million people. Still a far cry from one out of four as we saw in the Great Depression, but still a long, long way from the 4 to 5%  employment days of  the Clinton era.

The average unemployment rate may be approximately 10%. but for African-Americans it would be something like 50% higher, 15% or so. For Hispanics about a third higher or about 13%. And for what we call blue-collar workers and for men the average is about 10% higher than the average. While college graduates have an unemployment average of only 4.7%, people would be surprised to know that this is the highest unemployment among college graduates on record.

The longer the recession goes on the longer and more complicated and impoverished society will become. For example, we have long fought against childhood poverty in this country. It has all kinds of accelerated effects on the economy. That will climb to 27% because of the fact that not all people are out of work at the same time. So the person who is part of the 9% unemployment in January  may find a job and then the person who is laid off in June becomes part of the 9% in  June. But that is two different families having great financial difficulty during the same year. For African-American children, it is projected by some that this effect will result in about 50% of African-American children falling into poverty, up about 20% over 2007.

For low income workers, average wages will be less in the next few years once they do become employed. The bottom fifth of the employment scale is projected to have incomes that will be about 7% lower and middle income workers about 5% lower. This is simply the effect of the depth of the recession and the downward pressure on wages.

The stimulus is working to get jobs back, but it is slow. The reason it is slow is that when President Obama took over, the economy in the first quarter of 2009 was projected to have given him an unemployment rate of about 6.9%. It turned out that the residual unemployment rate for the 1st Quarter of 2009 was, like most things in the Bush Administration, much worse than was reported. It was 8.1% and job losses were still pouring out of the economy at an alarming rate. The stimulus package was put into effect. It reduced the downturn. The stimulus did several things but it basically took the unemployment numbers down within a few months from an average loss of 4% to only 1%,  That saved about 750,000 jobs for fire, police, emergency medical workers, teachers and other essential services that the states were in the process of laying off.

The stimulus package basically did two things. It gave each state funds to hold the structure of society in place and practically this meant keeping people in jobs. For those laid off in private jobs, the stimulus made direct cash payments to seniors and extended unemployment benefits. For payroll workers, there was an immediate tax decrease that they felt as a slight increase in the net income in their paychecks.

The federal government also began a huge series of public works projects, like roads and highways and bridges and schools that needed to be upgraded. And money is still going out and will continue to go out from the first stimulus over the next year. It is very important to note that there is a reporting requirement for those jobs. So, for those who say than nothing has been done, they will very soon find out the reality. October 2009 is the first month that project reports are due. But on top of the initial 750,000 jobs that were filled…which were easy to determine because states reported back exactly how many jobs were kept…there now will come a monthly tally of the jobs involved in the numerous road and other transportation projects we hear about.

Why doesn’t it seem that the stimulus has had a great effect? Number one, many of the jobs are ones that were not lost but would have been lost without the stimulus. That has been clearly documented. Number two, even if we have added or kept one million jobs, that is the amount that was lost in an average of only two months in the last half of 2008. We were losing 500,000 jobs per month!

So…how will we come out of the recession? First, we must accept the fact that we are still losing jobs. Even in a bad economy we would be gaining some jobs. We are still losing jobs, even though that gap is being closed rapidly. When you have 15 million unemployed and you are still losing jobs…does that sound like things are “beginning to turn around”? The fact is that policies are in the works and more planned to get the economy back on track.

It won’t happen in months. We have become a versatile society. We have adapted to the loss of manufacturing jobs…sent by big corporations overseas…and become more of a service economy. But a service economy is derivative. It needs an employed person to whom it can direct its fast food, lawn care, dry cleaning, pest control or other services. The question is: who will be that initial employed person when we have very little manufacturing left in this country? When the rust belt gave way to the green belt down south and manufacturing cut its costs by going for non-union, cheap southern labor, those displaced workers often went into services businesses…appliance or other retail sales. But there was no one to buy those products, now assembled in the south. So wages went down.

Next, corporations found cheaper labor in Korea, Singapore, and Hong Kong. So the entire country became vulnerable, including previously safe IT and consumer service jobs, now outsourced because of the availability of near-instant worldwide communications.

Now, simply to restore the pre-recession employment numbers plus the normal job increases for population growth, we would need over 9 million new jobs. Where will we get them? New government investment in underwriting certain projects will most certainly create many new jobs. Republicans did not vote for the stimulus and do not agree with further stimulus to create jobs to get the economy moving. In order that we not simply ignore one whole segment of the population who voted in the last election, Republicans must offer some sensible–and one would hope…imaginative–proposals to enhance job growth. They offer the same policies that have no meaning. They offer only the idea of tax cuts. Tax cuts do not create jobs. We have tried that consistently since 1980 and that policy has not only failed, it has given us super-rich individuals, as mentioned before, and huge government debt.

We need rational proposals from the Right. Certainly, if there are any patriotic individuals left in corporations, we should have numerous opportunities for job development from the private sector. The financial team in the White House and the Cabinet, despite all the wild accusations from Right Wing Republicans are the best economic and financial minds in the country. They have learned, as we all are learning from the current Congress and the various lobbying groups spending hundreds of millions to defeat health care reform, that the government should and will be very careful in underwriting jobs through private industry without strong protections for the American taxpayer.

We will need to tax some of those people in the top 1% of Americans at least in some kinds of surtaxes. During war time, as we have now been in for 8 years, we have always asked citizens to respond with higher taxes. Even during World War I, we asked for people to pay a surtax to pay for war, and removed it afterwards. It is time to put the surtaxes on those who made money on war and pay now for the Bush-Cheney wars. They maintained their popularity cutting taxes, pushing war costs off to the next generation. We need to reverse that policy and tax this generation, especially the very wealthy, not our grandchildren.

We need to levy some small taxes on American products made abroad and brought in to this country. That tax alone, just on the kinds of cheap crap that is made abroad for companies like WalMart and Target and all the other manufacturers who no longer employ American workers, could generate $20 billion to $30 billion per year without increasing prices noticeably and without causing hardship to our foreign trading partners.

This is where we are and these are the kinds of things we must do. Our economy is in great difficulty. Our citizens are in great hardship. Those Americans who are doing well must now respond to these simple measures that will turn this country around and get this economy growing again.

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