5/9/2012 5:54 PM ET|
What the 99% are getting right
The causes of the malaise are numerous, complicated and interconnected -- from excess indebtedness to the festering wound that is the housing market to the predatory, unfair trade policies of mercantilists like China -- and have been the subject of many of my columns. Now, new problems are approaching -- such as America's structural deficit, which is driven by an aging population fueling out-of-control health-care inflation. Meanwhile, the job market for the young -- even college grads with good degrees -- is dismal.
Welcome to austerity, courtesy of the financial meltdown. But it's been a selective austerity.
When the housing bubble collapsed in 2007 and 2008, the central bankers and policymakers scrambled to put our Humpty Dumpty financial system together again with multiple doses of stimulus aimed at the banks, and benefiting mostly the 1% (really the 0.1%, but let's not split hairs).
The big banks that gorged on risky mortgages and got in trouble got tons of help -- capital injections and ultralow-cost loans -- in a rescue of historic proportions. Homeowners who took out risky mortgages? Not so much.
The banks also got the velvet glove treatment when it came to new financial regulations. The Dodd-Frank Act, despite virulent protestations from the right, is a far cry from what's really needed to end the too-big-to-fail problem.
Big corporations have benefited from a desperate workforce and strong export markets. Costs were slashed and wages frozen. Labor productivity zoomed higher. Employees were squeezed.
But something surprising happened as profits soared to record highs. The market cheered as earnings surprised to the upside. Executive salaries soared -- something my colleague Michael Brush has documented in his "One-Percenter of the Week" series. But a lot of stockholders were left disappointed, as 401k's simply scratched back to the levels of 2007 and 2008 -- capping the worst decadelong performance for the stock market since the Great Depression.
By the one metric that matters above all others, the benefits of this massive rescue did not trickle down. This is a jobless recovery.
Gluskin Sheff economist David Rosenberg notes that if the labor participation rate had stayed at levels seen just as the recession was ending in the summer of 2009, the current unemployment rate would be north of 11% (versus 8.1%). Normally, as an economic rebound brightens job market prospects, people re-enter the workforce in droves; the opposite is happening this time.
2 options, neither good
And now, with stimulus tapped out, interest rates still near zero and fresh signs the economy is slowing again (the United Kingdom and much of the rest of Europe are already in a technical recession), people are wondering what kind of recession follows a jobless, mediocre recovery -- a recovery that's alive only because of massive doses of fiscal and monetary policy stimulus. We can't pull the same trick twice.
If the economy dips down now, from a much weaker economic footing than our 2007 pre-recession highs, the debt/deficit problems faced by much of the rich-world governments would seem to prevent another round of stimulus via tax cuts and spending hikes.
As for monetary policy, the cost-benefit balance of the Federal Reserve's efforts to bring down the value of the dollar, lower the debt and stimulate growth is growing increasingly negative. We're seeing little growth at the expense of too much inflation. The Fed will probably do a third round of quantitative easing or "QE3" this summer. The financial markets will love it and fuel a big stock market rebound rally, no doubt.
But it won't fix the jobs problem. And resurgent food and fuel price inflation will only tighten the noose around household budgets as stagnant wages lag behind a rising cost of living.
The opposite course is austerity in the hopes it restores confidence. As I discussed recently, fiscal tightening of as much as 4% of gross domestic product is due in early 2013 when a set of tax hikes and spending cuts takes effect -- unless Congress can do something about them. Even if it does, America's credit rating could take further damage beyond losing its AAA status last August.
But austerity didn't work when it was tried in 1936 and 1937. And it's unlikely to work now. Austerity in Europe is pushing the continent into recession amid political turmoil. In the U.S., even the supposedly debt-wary Tea Party started with seniors chanting "keep your hands off our Medicare," so it likely won't fare well here, either.
Thus, the protests and political venom.
Eat the rich?
Against this background, the calls to shift the burden from the 99% to the 1% are growing louder. Call the movement "share the austerity."
Polling suggests that of all the options being considered in Washington to close the budget deficit, taxing the rich enjoys much more support than cutting military spending or government benefits. A recent report by the Boston Consulting Group (.pdf file) suggests using a one-time wealth tax to solve our indebtedness problem by funding mortgage principal write-downs, sovereign debt restructurings and a nationalization of the banking system.
Is there any merit to indulging these eat-the-rich fantasies? Actually, according to the International Monetary Fund, there is.
Researchers there have found (.pdf file) the share of economic growth captured by laborers has been falling precipitously since the early 1980s. During the Great Recession and the rebound that followed, American workers lost a big piece of the proverbial pie as profits soared. In fact, only Spanish and Greek workers suffered more on this measure. The IMF research has also found that high income inequality limits overall growth and contributes to high indebtedness as the 99% borrow heavily from the 1% to stay afloat.
This dynamic, it is believed, was responsible for both the 1929 start of the Great Depression and 2008 financial crisis.
The takeaway here is that -- while I don't condone the violence of May Day, the delinquent behavior of the Occupy movement, or the rise of fringe European political parties and some of the other groups flying the banner of the 99% -- I do have to agree with the overall theme of their message.
After all, austerity aimed only at the 99% sounds a lot like "let them eat cake."
We need to stress short-term growth initiatives that benefit everyone, not simply harsh tax hikes and spending cuts; consider write-downs and restructuring for excessive public and private debts; address the regulatory gaps in the financial system that got us into this mess; and look at ways to close the inequality gap and let more people share in economic growth. Reform of tax, trade and labor policies would be good places to start.
The IMF's Andrew Berg and Jonathan Ostry, who have been exploring the inequality issue, use a classic analogy to drive home their point: "A rising tide lifts all boats, and our analysis indicates that helping raise the smallest boats may help keep the tide rising for all craft, big and small."
Policymakers have two choices: Heed the call or get out of the way.
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Anthony, you are exactly correct:
"We're not splurging. We're not reaching. We're coping. And we're angry about that".
Plus, we are working more hours for less money than we did five years ago!
The Fed, Wall Street and the large corporations think we are all idiots. I know better, but what can we do except write blogs like this?
Oh, as I've said all along: REMEMBER: November 06, 2012
Elect ALL new members of our County, State and Federal elected officials!
Nice, the article says, "most who want to work, are working" but fails to mention that most who are working, and I mean the real sweat and blood work, are doing it for far less that they should. Nice of them to imply that most who are not working, do it by choice.
The class war has been around forever, it's nothing new, but the wealthiest have always tried to stop the middle class from advancing. The real problem is that once you obtain a certain amount of wealth, it practically breeds by itself unless you invest unwisely or blow it all foolishly. The elite are an exclusive club and don't want newcomers.
The Banks and corporate elite decided long ago to stop allowing wages to go up at the same rate as their planned devaluation of our dollar(inflation) and instead, decided to just raise the credit limit of the working class and lend them more money so they could feel the illusion of success by affording to obtain nicer toys, while they in reality are just paying more for goods, making less money and making endentured servents of themselves.
There is no heart to big business. It has no empathy, morals or ethics and it is ran like a dictatorship. Now that they own our government, you can understand the problems within our government. They pretend to care about our citizens, while they plunder, overs spend, endorse and embrace the corporatism that wants to expand the Banking Cartels hold on the world economy, at any expense to us, including our lives, fighting illegal, unconstitutional wars.
What the 99% did wrong was trust that our government was working for us common men. Our checks and balances and constitution were destroyed by incompetance and greed.
What the 1% did right was use media and toys to distract us while they infiltrated our government and infuenced our leaders to opperate like a business instead of a governing system that is supposed to insure fairness and freedom to all.
Ron Paul is the only one who speaks of the real changes necessary to get us back on track.
But you can't hear him much since they shut him out of mainstream media.
Our government is not out of control, their doing exactly what they want, they're simply out of our control and in bed with corrupt greedy corporate warmongers who want to own and control the world.
When 80% og the population doesn't have "disposable income", demand for products and services drop. When they drop, people are laid off. If the 80% had more money in their pockets from the jobs THEY ARE WORKING AT, more jobs would be created, people would be back at work and things would start to turn around.
This isn't a problem for the government to fix. Companies have money. Companies pay their executives huge salaries. Companies are sitting on piles of cash because they don't know what to spend it on. How about this? Spend it on your damn employees!
Americans have watched as companies eliminated their pensions, fired their co-workers, raised their insurance premiums, reduced their time off and expected them to pick up the slack without compensation. Time for the American worker to grow a pair and demand their companies treat them right, with respect and pay them a wage that allows them to also enjoy their life to some extent.
Never thought of myself as a radical, but seeing how much the game is rigged against regular working people and how the wealthy just keep taking and taking and thinking they somehow deserve it has just about pushed me over the edge.
This is the first succinct article you have written that has real value in spelling out the current malaise of society on a global scale. I only hope and pray that the politicos world wide will heed the wakeup call being generated by the masses. Well done Anthony.
As Maggie Thatcher shared, socialism works until you run out of other people’s money. You now see the start of it i.e. Greece, they are a bad risk and if they want to borrow money they have to pay a huge risk premium and oh by the way their economy is primarily public sector so they create nothing, its left hand right hand. So austerity kicks in to reduce the deficit which shrinks the economy which brings in lower tax revenues which increases their debt to GDP which then fuels higher interest rates for them to borrow money to float their public sector economy - it’s the death spiral
America keep your eye on this slow train wreck, because we are on the same ride.
The need will overcome the greed. This is and has always been everyones planet. It was not built by the few but the many. It still is and will always be this way.
Obama says "Its not my fault, I inherited this from Bush". Yet, on his watch, he selectively bailed out Wall Street and forgot the american people - main street - and now he supports gay marriage because he is under pressure from his party to win more votes.
Bush bailed out Wall Street (TARP) in 2008 BEFORE his term was over. To hell with the stupid argument over civil vs. religious marriages. The US government should not recognize religious doctrine as law as stipulated in the US Constitution. If two people, or more for that mattter, want to form a social unit than they create a contract and that's that. Both political parties and all religions suck.
Nice sentiments, but totally irrelavant!
The 0.1% are globalized, not domestic. They are putting in Patriot Acts, surveillance cameras on streets, phone and internet trackers, while also increasing the police forces and providing bovine training to a public that re-elects their staged & paid legislators with uncanny regularity (and stupidity).
Orwell had it right, and we can just keep dreaming about the audacity of change...
By the way, the 0.1% are not "corporations". These are people who have names.
Most who want to work are working.
I think at least 9.9% of the 99% will disagree with you on this.
There is some truth here, but it's buried in the detritus. The OWS are on the right track, but it's not Wall Street that should be occupied, it's the officies of our elected officials. Protest what they are doing, bailing out the rich, adjusting the laws to suit the rich and not representing those people who elected them.
I've voted every year since I was 21, every election be it local, state or national. Not so much now. I look at the candidates in all parties, and say to myself, "It doesn't matter, nothing will change. They don't represent me." This year I'm going to write in Peter Griffith for President. Can't be worse than what we have now or have to chose from. I hope more people do the same.
Things to remember:
1) If they are to big to fail, they are to big to exist.
2) Of, by and for the people is now, of the rich, by the politicians and for the corporations.
3) Geithner (Secretary of the Treasury) had a big hand in the derivative mess
and spearheaded repeal of Glass-Steagall.
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