July employment preview

- by New Deal democrat

First of all, if Jimmy Hoover Obama has any honor, he will do as LBJ did in March 1968 and announce that he is no longer seeking renomination to a second term. One-and-fifteen football coaches typically do not spend a lot of time telling the fans how they hope to improve their record in the next season. In researching pre-WW2 economic indicators, I came across a quote by Prof. Geoffrey Moore that the 1937 recession came on very fast with little warning. Politically-induced contraction can strike literally overnight. Beyond that, I have little to say beyond what Profs. Thoma, Krugman, and DeLong, and Armando, Digby, and Riverdaughter have already said.

In the meantime, since I haven't spent much time on this lately, let me bring you up to date on some employment metrics, in anticipation of this Friday's July jobs report.

First, here is an updated scatterplot graph showing the relationship between initial jobless claims and private nonfarm payrolls for the last five years. Red is the descent into the recession, blue is from the monthly nadir for jobs in March 2009, and pink is the last two months :


Currently expectations are for 75,000 private jobs to have been added in July. Initial jobless claims did decline in July, but if we are descending into a double-dip, expect the pink line to be extended to the left over the next few months.

In a similar vein, here is the updated Thumbcharts graph comparing the YoY 6-month average of initial jobless claims with the YoY average of jobs (i.e., comparing 0-6 months ago with 12-18 months ago). This relationship has held up rather well in the last few months:



Since this graph tells us that the YoY jobs metric is likely to remain very positive, it suggests that outright negative numbers should not be expected yet.

Next, here are updated comparisons of real retail sales and GDP with nonfarm payrolls.

Here are real retail sales:



Real retail sales have not made significant improvements in the last few months, but they haven't turned negative either. As they have a 60 year record of leading the jobs numbers, I would not expect anything worse than a stall in job growth at this time.

Here is the YoY% comparison, to the same effect:



But on the other hand, here is GDP compared with jobs:



GDP also has a well-known relationship with jobs, for example see Prof. Menzie Chinn's discussion of Okun's law as applied to the recent GDP revisions. The GDP numbers predict an entirely different, and worse, scenario, of continued deterioration in the jobs picture (Note: since this graph measures YoY% change, deterioration might just mean "less positive" numbers than a year ago, vs. outright losses.)

In fact, since the beginning of the year a very sharp divergence between GDP and real retail sales has developed. Here is the graph:



It is difficult to reconcile this divergence, but I suspect it has to do with energy costs and with the sudden stall in manufacturing after the Japanese tsunami.

The above relationships give us differing results. I would put the range of reason anywhere between about -60,000 jobs to +140,000 based on what we know now, with the most likely range between 0 and +80,000.

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Wow. Just wow.

- by New Deal democrat

Via Not Atrios and Sideshow, yesterday this astonishing exchange between departing White House economic advisor Austan Goolsbee and Steven Colbert came to light:

Goolsbee: [00:25] The fact is, we've known about these long run fiscal issues for forty years. We should address them, we must address them. But don't forget that the most important problem we face as a country is that we grow. And so cutting the things we need so that we can remain the richest country in the world five years from now...

Colbert: [00:40] But the government's never created one job.

[Pause, Goolsbee looks down, he does not respond but gives a slight shake of the head.]

Colbert: [00:44] The government can't create jobs. That's an accepted maxim.

Goolsbee: [00:48] O.K., that maxim -- we're not objecting in Phase II...

Colbert [surprised, speaking quickly]: You agree? You agree with that?

Goolsbee: In Phase II as we move out of the rescue phase...

Colbert [continuing to be surprised]: You're agreeing that the government has never created one job.

Goolsbee: In rescue mode, we saved a lot of jobs.

Colbert: So you didn't create one.

Goolsbee: Uh, look, what I will say is in Phase II our...

Colbert: [01:05] No, no, they never created any jobs.

Goolsbee: ...our providing incentives to get the private sector to stand-up. We want the private sector to stand-up. We want the private sector to do the creation of the jobs.

Colbert: That's what they always do.

Goolsbee: That's what we want them to do.

In case you missed it, that was the chief economic advisor to a "democratic" President refusing to disagree that government programs never created even one job, to the sputtering incredulity of his comic interlocutor.

Amazing. FDR must be spinning in his grave. Apparently the 6 million CCC and WPA jobs that helped lower the Great Depression unemployment rate from 24% to 10% were illusory.

Which reminded me of one of the most jarring quotes I've ever read from Barack Obama (h/t nada lemming ), which is found on this transcript from the official White House website of an Obama speech to Congressional democrats in February 2010:

[L]et me start by saying we always knew this was going to be a difficult year to govern -- an extraordinarily difficult year to govern. We began 2009 with a financial system on the brink of collapse, an economy bleeding nearly 700,000 jobs per month, a $1.3 trillion deficit, and two wars that were costly in every sense of the word. We knew that solutions wouldn't come easily or come quickly. We knew that the right decisions would be tough and sometimes they would be unpopular. And we knew that we might have to make them sometimes without any help from our friends on the other side of the aisle.

But we made those decisions. We led. Those actions prevented another Great Depression; they broke the back of a severe recession. The economy that was shrinking by 6 percent a year ago is now growing at nearly 6 percent one year later.
….
So the point I'm making -- and [Senator] Blanche [Lincoln] is exactly right -- we've got to be non-ideological about our approach to these things. We've got to make sure that our party understands that, like it or not, we have to have a financial system that is healthy and functioning, so we can't be demonizing every bank out there. We've got to be the party of business, small business and large business, because they produce jobs. We've got to be in favor of competition and exports and trade. We don't want to be looking backwards. We can't just go back to the New Deal and try to grab all the same policies of the 1930s and think somehow they'd work in the 21st century.

So Blanche is exactly right that sometimes we get ideologically bogged down. I just want to find out what works ....

That is as explicit an embrace of "trickle down" economics as you are ever going to see. Well, eighteen months later, it isn't clear that the Obama policies have "worked" or "broken the back" of Hard Times at all. So exactly why does Obama believe that "grabbing ... New Deal policies," and in particular a new WPA (that Bonddad and I were the first to propose, before the idea was endorsed by Profs. Reich, Thoma, or Krugman) wouldn't work?

That "New Deal policies" were rejected out of hand, and neoliberal conservative talking points endorsed, is exactly why Obama's economic performance is being rejected by the majority of Americans, and his Administration is on the verge of failure.

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ISM Index suggests ~+57,000 new manufacturing jobs in February

- by New Deal democrat

As Calculated Risk pointed out yesterday, the ISM manufacturing report was an upside blowout, the strongest such report in several decades by some measures (the contrary "poor analysis" mentioned by CR was almost certainly the spin by the Doomorons at Zero Hedge. Google it if you feel you must). And Bonddad and I have separately written recently that the manufacturing sector has been exceptionally strong.

An important question is, how much does that translate to in terms of jobs? The ISM report is a diffusion index, meaning it measures expansion vs. contraction. Any number above 50 in any of its indexes means expansion, and visa versa. But like any data, it has shortcomings. All else being equal, with a population increase from 200 million to 300 million, an equivalent reading ought to suggest 50% more monthly hiring in the latter period than the former. But on the other hand, we know that due to efficiency and offshoring, the number of persons employed by manufacturing has fallen by 40% since the peak in 1979, as shown in this graph:



These crosscurrents suggest that the "real" effect of an equivalent ISM number on employment over time would look something like this graph, in which the number of manufacturing employees is multiplied by population (with 1979 = 1):



(BTW, admittedly this is not a true representation, since we would want to visit an alternate universe where either population was held constant or there were no efficiency gains or offshoring, but presumably you get the drift)

When I went to look at the data, I expected there to be both more hiring and firing over time, due to population increases, compared with equivalent ISM readings. That wasn't the case. In fact, since the ISM started publishing data in 1948, up until about 1999, the amount by which an ISM reading exceeded 50, multiplied by 6 (thousand), gave you an excellent idea of what manufacturing job gains were during the same month. Here is the period of 1948 through 1970:


Here it is for the severe recessions of the 1970s and 1982:



And here it is from 1989 to the present. Note that the red line (manufacturing jobs gained/lost per month, in thousands) no longer keeps up with the blue line (the ISM manufactuing index with equilibrium reset from 50 to 0 for easy comparison) after 1998:



In fact, there is an excellent fit since 1998, but it involves resetting the equilibrium point at 55 instead of 50. In other words, subtract 55 (instead of 50) from the ISM reading, and multiply by 6 (thousand) and for the last 10+ years that will give you a very close approximation to the number of manufacturing jobs added that month:



February's ISM manufacturing index reading was 64.5. This is 9.5 above 55, multiplied by 6000, tells us that about 57,000 manufacturing jobs were probably added last month. This is an excellent number compared with the last decade, but before 1999 it would have suggested an increase of 87,000 manufacturing jobs. (Note: using a different analysis, Calculated Risk estimates ~+60,000 manufacturing jobs were added in February. Great minds think alike, etc.)

(As a side note, using the ISM manufacturing employment sub-index yields the same result).

I'm not sure what the underlying fundamental reason for the change is. There certainly were both offshoring and efficiencies taking place before 1999. China did not accede to the WTO until 2001, so that is an incomplete explanation at best. It is also possible, given the last few months' strong manufacturing employment data, that the decade long aberration is abating. Finally, relative strength in manufacturing jobs, even though substantial, is still only a minority part of the overall jobs picture. I'll deal with construction, government, and non-government services separately. In that regard, the ISM non manufacturing index will be released tomorrow.

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"Holy Grail" update

- by New Deal democrat

Over a year ago I identified real (inflation-adjusted) retail sales as the "Holy Grail," i.e., best single leading indicator for job growth. With Monday's retail sales and yesterday's inflation reports, we can update the graph comparing real retail sales and jobs.

First, here are the absolute numbers (note in this first graph I am using private jobs rather than full payrolls to take out the census distortions):



As of October, real retail sales have made up more than half of their losses during the Great Recession.

Here are the year over year percentage comparisons:



In 4 of the last 7 months, real retail sales have been up over 6%. Based on 65 years' worth of data, this translates into, at minimum, 2% (or about 2.5 million jobs) year over year job growth, sometime soon. Whether "soon" is more like 6 months or 24 months is impossible to tell, but the trend is unequivocally positive.

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Were the Luddites Just Too Early?

Introduction from Bonddad: I have asked Silver Oz to contribute to the site. I have known his work for the last few years and have always been impressed with the depth of his research and analysis. He has been posting here for the last year in the comments section and his points are always well-thought out and thought provoking. I will post the market wrap in the morning so you can enjoy this well written piece.

There seems to be more and more talk about our decline in manufacturing prominence and its relation to outsourcing/off-shoring, but these arguments always gloss over (or skip entirely) the relationship of technology/efficiency to the losses in manufacturing employment and every one of these arguments always begins with the assumption that we produce less than in the past (some usually undefined past, but most often refers to sometime between 1950 and 1973). I am going to use this essay to demonstrate how the infamous Luddites may very well have been correct in their fear of technology, but were almost two centuries too early in their conclusions.

First, I want to define that I am going to end my data in 2007 (ie before the recent recession), as the data dramatically skews during the “Great Recession” and it is difficult if not impossible to infer much through this period of time in the data (however, it is my belief that once we emerge from recession, nothing substantial will have changed economically that will alter my conclusions herein).

To begin, I want to state emphatically that industrial production (in actual units of stuff, not dollar value) has continued to increase in the post war period, right up until our most recent recession. We do in fact produce as much (actually quite a bit more) than we ever have and thus the “nothing is made in America anymore” argument is bunk. Remember, that a car or ton of steel counts a lot more than a toothbrush or My Little Pony in the industrial production equation (as it should).

So, now that we know industrial production (in units of stuff) was at an all-time high at the end of 2007 what do we know about jobs in goods producing industries (ie manufacturing)? Well, those jobs are at about the same level they were at the beginning of 1992, and although they saw a slight rise during the 90’s (about 11%), they fell again during the 2001 recession and remained around the 1992 level since then. During this same span of time we saw industrial production increase by 50% during the 90’s (so for every one percent rise in jobs we saw a 5% rise in industrial production) and after a shallow drop during the 2001 recession, industrial production moved back to all-time highs while jobs stagnated. Thus, industrial production at the end of 2007 was 65% higher than in 1992, while manufacturing jobs had essentially stagnated since then.

The gap between manufacturing jobs and industrial production is even more evident when we look at the time period between the start of the 2001 recession and the start of the 2007 recession, as manufacturing jobs declined by 10% while industrial production increased by about 10%.

The numbers are even more stark when we look at the value of goods through the personal consumption expenditures component of GDP (in chained 2005 dollars) and back out all imports (this is goods only for both). Doing the simple calculation (http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=6&Freq=Qtr&FirstYear=2007&LastYear=2009) shows us that the difference in inferred domestic output between 2000 and 2007 was an increase of 24% (again during a period in which manufacturing jobs declined by 10%).

Concluding, the information above seems to imply that we have reached a point where industrial production can increase at a rate much faster than the need for jobs to produce the goods. In fact, during the period between the 2001 recession and the 2007 recession manufacturing jobs actually declined while industrial production increased substantially. Coupling this data with recent (and by recent I mean at least the last 10 years) productivity increases, which grew at an average annual pace of 3.71% between 2001-2007 (a total increase of 29% during that period) and we can see that perhaps we have indeed reached a point where our ability to improve output with technology is now increasing at a pace faster than new demand can create a need for new manufacturing jobs. If this conclusion is correct then not only were the Luddites right in their fears (albeit 200 years too early), but that we need to begin rethinking all of our economic policies, as they are not designed for a world in which technology can displace jobs faster than new innovation and demand can create them.

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More On Employment

From Mish:

Now that housing is dead I keep asking "what is the next big source of jobs?" No one has yet come up with an answer.

It clearly is not Wall Street, financials, credit card growth, consumer spending, retail, commercial loans, leveraged buyouts, or capital spending. Whatever it is (if it is indeed anything at all) can it possibly make up for expected declines in housing, financials, credit card growth, consumer spending, retail, commercial loans, and capital spending?

Health care has been strong. But can it make up for declines in all the other areas? It does not take a genius to figure out the answer to that question is no. We all can't get rich off Medicaid and Medicare can we?

I agree. There is no segment of the economy that has clearly demonstrated it can be the next big wave of jobs growth. And that should concern a lot of people.

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More On Employment

From Mish:

Now that housing is dead I keep asking "what is the next big source of jobs?" No one has yet come up with an answer.

It clearly is not Wall Street, financials, credit card growth, consumer spending, retail, commercial loans, leveraged buyouts, or capital spending. Whatever it is (if it is indeed anything at all) can it possibly make up for expected declines in housing, financials, credit card growth, consumer spending, retail, commercial loans, and capital spending?

Health care has been strong. But can it make up for declines in all the other areas? It does not take a genius to figure out the answer to that question is no. We all can't get rich off Medicaid and Medicare can we?

I agree. There is no segment of the economy that has clearly demonstrated it can be the next big wave of jobs growth. And that should concern a lot of people.

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Health Care Jobs

This chart is from Business Week. The author argues:

Basically, the non-health job market is in free-fall. I suspect that when the BLS issues the next round of revisions to the job numbers, the picture will look even worse.

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Payrolls Increase 132,000

From the BLS:

Nonfarm payroll employment increased by 132,000 in June, and the unemployment rate was unchanged at 4.5 percent, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment rose in several service-providing industries, while manufacturing employment continued to decline. Average hourly earnings rose by 6 cents, or 0.3 percent, over the month.

However, the BLS revised the two previous reports higher by 75,000.

There are some big areas of concern in this report.

1.) Manufacturing lost 18,000. Most of the manufacturing indicators (such as the ISM and the various regional Federal Reserve reports) have given a positive signal for manufacturing. Yet the sector continues to shed jobs. Part of this is the increased productivity of the sector. However, I have to wonder if there is something else going on as well.

2.) Construction jobs increased 12,000. It appears commercial construction projects are absorbing the loss of jobs in the residential construction area.

3.) Retail lost 24,000 jobs. This is further confirmation of a slowdown in consumer spending. Here is a chart of chained 2000 dollar month over month increases in personal consumption expenditures for the last 7 months. Notice that sales have slowed the last three months.



4.) Education/health services added 59,000 and leisure/hospitality added 39,000. Neither of these areas are considered high-pay areas. Regarding health services, note where the jobs were created:

Health care employment grew by 30,000 in June, with gains in hospitals (+14,000) and in nursing and residential care facilities (+8,000).

5.) Professional and business services lost 9,000 jobs. The report notes the slowdown in this area:

Professional and business services employment was little changed in June. During the first 6 months of 2007, job growth in the industry averaged 13,000 per month compared with an average of 42,000 per month in the last half of 2006.

Employment growth is one of the bullish arguments for the economy going forward. If the headlines focus only on top-line growth, this report should help although it is not a blockbuster. However, looking at the details a different picture emerges: Slowing retail and professional services growth, the continued decline in manufacturing and a big addition of lower-paying jobs.

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Stronger Labor Laws Needed to Address U.S. Income Equality

Paul Krugman

Those on the reactionary side of the political spectrum are big proponents of equal opportunity-the outcome, whether you make a decent living, live high off the hog or suffer in poverty-is up to the individual.

In today’s U.S. economy, such reasoning is flawed, says economist Paul Krugman. Instead, the nation’s increasingly unequal distribution of wealth translates into unequal opportunity-a principle even conservatives should oppose. An array of forces-including growing imports, the falling real value of minimum wage and slower unionization-have contributed to this growing gap.

Krugman, a professor of Economics and International Affairs at Princeton University, delivered the keynote speech today at the second briefing of the Agenda for Shared Prosperity, a network of more than 50 progressive U.S. economists, policy analysts and academics sponsored by the Economic Policy Institute (EPI). Today’s event, held on Capitol Hill in Washington, D.C., featured top-name leaders spearheading the fight for workers and their families. Although they spoke on a variety of topics, their comments shared a common theme: The American dream is slipping away for many hard-working families, and one of the key ways to restore that dream is by enabling workers who want to join unions to do so.

Krugman, also a columnist for The New York Times, said a powerful union movement bolstered the middle-class economy of the post-World War II decades but, in recent years, a political climate that encourages or at best winks at corporate union-busting has meant fewer workers who want to join unions can do so.

In fact, as professor Harley Shaiken writes in one of the four reports the Agenda for Shared Prosperity released today: “The yawning gap between robust demand to join unions and anemic membership numbers reflects the fact that for many Americans joining a union has become a risky proposition. Twenty-three thousand people a year are disciplined or fired for union activity resulting in a big chill on labor’s numbers and a ‘democracy deficit’ for the entire society.” Shaiken, a professor in the Graduate School of Education and Department of Geography at the University of California, Berkeley, writes in “Unions, the Economy and Employee Free Choice”:

An effective way to address the “democracy deficit” is through the Employee Free Choice Act....It allows workers to form a union if a majority of people in a workplace sign up for one. In addition, it provides meaningful penalties for those who would violate workers’ rights and insures that if workers choose a union collective bargaining actually results. The act restores balance to a system that currently is driven by aggressive employers, anti-union consultants, coercion and fear.

Some 233 co-sponsors are backing the Employee Free Choice Act, introduced in the House earlier this month as H.R. 800, and working families and their unions are taking part in a week of action in more than 100 cities thanking lawmakers who support the bill and urging others to sign on.

In a paper analyzing polling and survey data, economist Richard Freeman from Harvard University further made the case for the need to change the nation’s labor laws that currently are tilted in favor of Big Business. In his report, “Do Workers Still Want Unions? More than Ever,” Freeman concludes that:

In 2002 the proportion of workers who said they would vote for a union rose above the proportion that said they would vote against a union for the first time in any national survey: a majority of nonunion workers now desire union representation in their workplace.

America’s workers know that by joining unions, they can significantly improve their livelihoods, job security and future for their families. As Tom Kochan and Beth Shulman note, millions of America’s working families fail to have the necessary means for basic self-sufficiency—and it looks no better for the next generation. In their report, “A New Social Contract: Restoring Dignity and Balance to the Economy,” they write:

In 2000, the average high-school educated workers age 25–29 started out earning about $5,000 less real income and could expect slower growth in earnings than those who entered the labor force in 1970. Workers with some college started about $3,500 behind their 1970 counterparts.

Kochan is co-director of the Institute for Work and Employment Research at the Massachusetts Institute of Technology and Shulman authored The Betrayal of Work: How Low-Wage Jobs Fail 30 Million Americans and Their Families. They find the decline in middle-class living standards, the elimination of institutions that support a growing middle class and the dramatic increase in income equality experienced in recent years is not the result of some invisible hand.

It is the direct result of policy choices that have undermined the bargaining power of every-day Americans. Instead of instituting policies in this global economy to ensure a broadly shared prosperity, we have made choices that benefit the few.

The implicit social contract that governed work for many years—the norm that hard work, loyalty, and good performance will be rewarded with fair and increasing wages, dignity, and security—has broken down and been replaced by a norm in which employers give primacy to stock price and short term gains at the expense of America’s workers.

As a result, the American Dream is slipping away from millions of Americans and their families. A majority of Amer­icans now worry their children will not be able to improve on the standard of living they experienced growing up. If this is not the legacy we want to leave the next generation, then we need to start now to put in place forward-looking policies and labor market institutions to build a new social contract tailored to today’s workforce, families, and economy.

Throughout the year, the Agenda for Shared Prosperity will address the economic issues facing working families and offer solutions through reports on jobs, the economy, health care and more. In January, the Agenda for Shared Prosperity launch highlighted economist Jeff Faux’s “Globalization that Works for Working Americans” and Jacob Hacker’s “Health Care for America: A Proposal for Guaranteed, Affordable Health Care for All Americans Building on Medicare and Employment-Based Insurance.” In setting out a course of action for coming years, the Agenda for Shared Prosperity seeks to steer a stronger course for the nation’s economy—which some opinion-makers in the Democratic Party deny is headed in the wrong direction. As economist Tom Palley writes this week on TomPaine.com:

This denial was recently on display in a report, "The New Rules Economy," issued by Third Way, an influential new Democrat think tank in Washington. The report denies America’s working families have been shortchanged. In doing so, it misrepresents economic reality, undercuts working families and gives comfort to supporters of corporate excess. That makes the Third Way the wrong way.

Palley goes on to point out how such groups as the Third Way deny that family income has stagnated and that there is no problem with excessive CEO pay, the massive trade deficit or household debt.

In another TomPaine article, Palley offers a “memo” to presidential contenders in which he suggests a road map for progressive Democrats to reverse the laissez-faire extremism of the past 30 years. Read it here.

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America's Workers: Boxed In

Committee hearings on Capitol Hill focusing on the abuse of taxpayer funds, Iraq re-construction process and wrangling in the Senate over non-binding resolutions on Bush’s Iraq war have understandably taken center stage in recent media coverage. But there’s another set of congressional hearings under way equally as important for America’s workers.

Rep. George Miller, head of the House Committee on Education and Labor, on Jan. 23 launched hearings on Strengthening America's Middle Class: Finding Economic Solutions to Help America's Families.

The committee is considering three main items:

• Creating a competitive economy that includes good new jobs that pay well.
• Restoring workers' rights—including their freedom to bargain for better wages and benefits.
• Making health care more affordable and accessible.
  

Or, as AFL-CIO Secretary-Treasurer Richard Trumka summarized when the hearings reconvened Feb. 7:

Why, in the richest country in the world, is it so difficult for so many families to make a living by working?

It’s safe to say that in the Republican-controlled Congress of recent years, this committee—which under Republicans was renamed the Committee on Education and Economic Opportunities, in a deliberate slap at unions—never considered the growing economic distress of the middle class.

When hearings opened Jan. 23, William Spriggs, an economics professor at Howard University in Washington, D.C., told committee members the economic recovery, which began six years ago, has not benefited working families. Instead it has meant more money for the rich while working people and the poor have seen their standard of living stall or drop.

One cause of the widening gap, says Spriggs, is the failure to raise the minimum wage for 10 years. But that’s only one source of the problem. Says Spriggs:

The other source is the redistribution of corporate income, from wages to capital income. The latest data from the Bureau of Economic Analysis shows that the share of corporate-sector income going to wages is down to its lowest share in over 25 years….The latest CBO [Congressional Budget Office] figures show that almost 60 percent of capital income goes to the top 1 percent in the U.S. income distribution.

Behind the unequal distribution of the nation’s wealth is a much more fundamental change in our country’s economic policies, according to Trumka. He told the committee:

The shift in economic policies in the late 1970s from a “Keynesian consensus” to what George Soros has called “free market fundamentalism” explains much, in my view, about changing corporate behavior, the imbalance of power between workers and their employers, stagnating wages and the growing divide between productivity and wages.

Describing “free market fundamentalism” policies as a box that systematically weakens the bargaining power of America’s workers and drives the growing inequality of income and wealth in our country, Trumka continued:

On one side of the box is “globalization,” unbalanced trade agreements that force American workers into direct competition with the most impoverished and oppressed workers in the world, destroy millions of good manufacturing jobs and shift bargaining power toward employers who demand concessions under the threat of off-shoring jobs.

On the opposite side of the box are “small government” policies that privatize and de-regulate public services and provide tax cuts for corporations and the wealthy, all to “get government off our backs.”

The bottom of the box is “price stability.” Unbalanced macro-economic policies that focus exclusively on inflation and ignore the federal government’s responsibility to “maximize employment,” even out the business cycle and assure rapid economic growth.

The top of the box is “labor market flexibility,” policies that erode the minimum wage and other labor standards, fail to enforce workers’ right to organize and bargain collectively and strip workers of social protection, particularly in the areas of health care and retirement security.

Climbing out of this box won’t be easy.

Bottom line, Trumka told committee members: We need to follow three important economic values that resonate powerfully with all Americans:

• Anyone who wants to work in America should have a job.
• Anyone who works every day should not live in poverty, should have access to quality health care for themselves and their family and should be able to stop working at some point in their lives and enjoy a dignified and secure retirement.
• American workers should enjoy the fundamental freedom to associate with their fellow workers and, if they wish, organize unions at their workplace and bargain collectively for dignity at work and a fair share in the value they help create.
  

We took a step in recent days toward achieving the last goal with the introduction of the Employee Free Choice Act in the House, which I discussed here in detail last week.

And in coming weeks, we are looking forward to a robust discussion on creating policies that encourage family-supporting jobs stay in this country and developing new strategies for ensuring working families have access to quality, affordable health care. Economists in a new progressive network, the Agenda for Shared Prosperity, will publish issue papers on these and other critical topics for America’s working families.

In its debut media conference, the Agenda for Shared Prosperity, a project spearheaded by the Economic Policy Institute (EPI), highlighted a paper by EPI economist Jeff Faux on globalization and economist Jacob Hacker’s plan for health care reform. The next series of papers will be released Feb. 22 in an event that may include New York Times columnist Paul Krugman, and we’ll be back here with the details.

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Globalization Barreling Down the Highway Toward America's Middle Class

When Muhammad Yunus accepted the Nobel Peace Prize last month, the Bangladeshi banker who invented the practice of making small, unsecured loans to the poor, said the globalized economy was becoming a dangerous “free-for-all highway.” According to The New York Times:

Its lanes will be taken over by the giant trucks from powerful economies… Bangladeshi rickshaws will be thrown off the highway.

Further, as The Times paraphrased Yunus as saying:

While international companies motivated by profit may be crucial in addressing global poverty…nations must also cultivate grassroots enterprises and the human impulse to do good.

Yunus has accomplished untold good for his nation’s impoverished citizens, even as he and others for years have sounded the alarm about the negative impact of globalization on the world’s most impoverished. But more and more, it’s not only the poor who are being run off the road. America’s middle class increasingly finds itself faced with the effects of globalization—and seemingly no way to stop the collision. And white-collar professionals are among those now in the headlights.

The United States always has traded with other nations—but until the 1970s, the international share of the U.S. economy was modest, and exports and imports were generally in balance or showed a small surplus. As Economic Policy Institute (EPI) economist Jeff Faux notes:

...in the last 25 years, foreign trade has risen 700 percent, more than doubling as a share of gross domestic product to 28 percent. In 2006, the excess of imports over exports will reach some $900 billion—7 percent of GDP [gross domestic product].

Faux’s briefing paper, “Globalization That Works for Working Americans,” was released Jan. 11 at the launch of a new network of progressive economists, the Agenda for Shared Prosperity. In it, he continues:

This dramatic shift reflects more than simply an increased movement of goods and services between the United States and other nations. It reflects an unprecedented economic integration with the rest of the world that is blurring the very definition of the "American" economy.

American business is steadily moving finance, technology, production, and marketing beyond our borders. Some 50 percent of all U.S.-owned manufacturing production is now located in foreign countries, and 25 percent of the profits of U.S. multinational corporations are generated overseas—and the shares are rapidly growing.

As EPI economist Larry Mishel puts it, more trade, regardless of its terms, is not better for all of us. For many working Americans, the huge growth in foreign trade has resulted in the loss of family-supporting jobs, downward pressure on wages and increased inequality: From 2000 to 2005 alone, 3 million manufacturing jobs disappeared, at least one-third because of our trade deficit. But the greatest damage has been to wages— Mishel estimates as much as a loss of $2,000–$6,000 annually for the typical household. The doubling of trade as a share of our economy over the past 25 years has been accompanied by a massive trade deficit, directly displacing several million jobs.

Mishel, who testified Tuesday before the House Committee on Ways and Means, told lawmakers:

That trade will make the distribution of income worse is embedded in fundamental economic logic. When American workers are thrown into competition with production originating from low-wage nations, both those workers employed directly in import-competing sectors and all workers economy-wide who have similar skills and credentials will have their wages squeezed. In fact, at the same time as trade flows with low-wage nations have increased, the distribution of income and wealth in the U.S. has grown more and more unequal.

Such a view is not confined to progressive think tanks. David Autor, an economist at the Massachusetts Institute of Technology The New York Times yesterday:

The consensus until recently was that trade was not a major cause of the earnings inequality in this country. That consensus is now being revisited.

After years of thinking the nation’s economic gains were passing primarily by manufacturing workers, middle-class professional and technical workers are recognizing the oncoming car wreck is headed in their direction as well.

Discussing a recent Center for American Progress study, White Collar Perspectives on Workplace Issues, Jim Grossfeld and Celinda Lake wrote on The America Prospect online that “many young, white collar workers are now as bewildered by the ‘new economy’ as manufacturing workers have been for a generation.”

As a 20-something techie in the once bustling Silicon Valley told us: "I think a lot of people, you know, 30 years ago, could get a job that was relatively stable, but, here I am, five years out of school, and I've had four jobs. It's not because I'm not good because I've gotten praise from every single job I've been at. It's just that the fact that the companies don't seem stable."

But it's not just that these workers' future career prospects look murkier. The quality of their work lives is tanking, too. It is difficult to overstate the importance of this decline. Technical and professional employees share a profound conviction that their work ought to be intellectually satisfying—even an expression of their values. However, when employers press for cost savings and workloads soar, psychic wages take a plunge. Echoing the sentiments of many of the workers we spoke to, when asked to describe her office, one San Jose woman answered: "Busy, overworked, under staffed, not enough people in the group to do all the work we need to do so everyone's doing a lot of work and just running around like a chicken with a head cut off."

In fact, new data compiled by EPI show employment growth in the past five-year post-recessionary period has been subpar due to a weak economy. This conclusion is supported by the fact that employment rates, which some thought were at the demographically set peaks, have risen sharply in response to job growth and falling unemployment in 2006.

The union movement doesn’t oppose trade and globalization. In fact, it’s precisely because we recognize we live in a global economy that we see a lot of policy changes that should be made at the federal level to enhance the quality and stability of jobs in this nation. And when trade deals are negotiated, they need to do more than line corporate pockets—they need to ensure workers don’t get run off the road.

Faux offers many solutions in his issue paper on globalization, one of many the Agenda for Shared Prosperity will issue in coming months in advance of the 2008 elections on topics such as pension, health care and more. One solution he offers: Eliminate perverse tax incentives.

By law, corporations that invest in the United States pay taxes when they are earned. But corporations that invest overseas can delay the payment of taxes until they repatriate their profits—which can take a long time. In 2005, in order to get some short-term relief to the fiscal deficit, the Congress voted to offer corporations that brought their money back that year a 5.25 percent tax rate, a much lower rate than they would pay on profits made in the United States.

This loophole might have been justified after World War II as a way of helping Europe and others get back on their feet. But it has long outlived its rationale and should be eliminated.

Indeed, U.S. integration into the global economy requires us to rethink our whole approach to taxation. Other nations, for example, use "border-adjustable" value-added taxes (VATs) to favor exports over imports. A progressive VAT is some-thing that ought to be considered as an instrument to level the playing field.

In contrast to the Hamilton Project, which supports unfettered globalization, Faux offers many other options to making globalization work for working people. It’s all here.

As AFL-CIO President John Sweeney wrote recently in a USA Today op-ed:

Without dramatic changes in trade policy, we will continue to hemorrhage good jobs, while corporations take advantage of workers whose basic human rights are violated daily.

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State of the Union: A Nation Off Track

So, we’re all eagerly awaiting President Bush’s State of the Union address to hear the honest facts about the nation’s economy, among other key issues.

OK, not.

Looks like we’ll have to dig up the real deal on our own by taking a gander at some of the recent data and what they portend for us working types.

Tonight, Bush likely will talk about the great economic recovery we’ve seen in the past couple of years. But newly released data from two separate sources reveal just how skewed the distribution of economic growth has been in the current recovery, according to the Economic Policy Institute.

Data from the Bureau of Economic Analysis through the third quarter of 2006 show that a historically high share of corporate income is going into profits and interest (i.e., capital income) rather than employee compensation. And a newly released Congressional Budget Office (CBO) analysis of household incomes shows that a greater share of this capital income goes to the richest households than at any time since the CBO began tracking such trends. In other words, our economy is producing more capital income and that type of income is more likely to go to those at the very top of the income scale. Together, these dynamics are contributing to a uniquely skewed recovery.

That means those in the top 1 percent of the income scale received 59.4 percent of all the capital income in 2004 (CBO's latest data), up from 49.1 percent in 2000 and just 37.8 percent in 1979. The increase in the concentration of capital income to the upper 1 percent grew as quickly over the four-year period from 2000 to 2004 as over the preceding 11 years (1989–2000).

So, the economic recovery Bush will tout is mostly about the rich getting richer. And those tax cuts that Bush will call the shining star of his economic acumen? Guess what. They’re helping the rich more than the economy. As Citizens for Tax Justice puts it:

First, the tax breaks enacted since 2001 are heavily skewed toward the very wealthiest few. Second, because the tax cuts are being paid for with borrowed money, the cost of paying the added national debt more than wipes out any benefits from the tax cuts for 99 percent of residents in each state. Only the best-off one percent are net winners from the president’s fiscal policies.

But those tax cuts for the wealthy must do something for the overall economy, right? Indeed. According to the Center on Budget and Policy Priorities:

Congressional Budget Office data show that the tax cuts have been the single largest contributor to the reemergence of substantial budget deficits in recent years. Legislation enacted since 2001 has added about $2.3 trillion to deficits between 2001 and 2006, with half of this deterioration in the budget due to the tax cuts (about a third was due to increases in security spending, and about a sixth to increases in domestic spending). Yet the president and some Congressional leaders decline to acknowledge the tax cuts’ role in the nation’s budget problems, falling back instead on the discredited nostrum that tax cuts “pay for themselves.”

As the Center on Budget and Policy Priorities sums up:

A study by the president’s own Treasury Department recently confirmed the common-sense view shared by economists across the political spectrum: Cutting taxes decreases revenues.

The Bush administration ran the Clinton budget surplus into the ground after less than a year in office—and has kept adding to the national tab so that the United States is now more than $8 trillion in debt (that’s nearly $29,000 for every man, woman and child in the nation). Yet after all these years of draining the federal budget into oblivion, administration cronies now suddenly are sounding the alarm.

And they’re offering solutions. But they’re not suggesting the nation cut back on the $255 million a day Bush is spending on the Iraq war or back off those tax cut payoffs to wealthy donors. Instead, in a recent speech, Ben Bernanke, Federal Reserve chairman, used a warning about the growing deficit as the opening salvo to attack on what’s left of our country’s successful heath and retirement programs.

Warning against complacency over the federal deficit, Ben S. Bernanke, the Federal Reserve chairman, said Thursday that recent positive trends on the budget were a “calm before the storm” masking a long-term danger posed by looming deficits in Social Security and Medicare.

snip

Bernanke’s comments were consistent with his past warnings, and those of his predecessor, Alan Greenspan, about the unfunded cost of the postwar generation’s retirement. But his tone was more urgent, and it seemed aimed at the arrival of a new Democratic-led Congress that is just now setting its priorities.

Let’s see. The budget deficit is in the dumpster and the Bush administration wants to salvage it by cutting back on retirement and health care. Let’s look at retirement. Without Social Security, millions of retired Americans would struggle in poverty. Between 1960 and 2004, Social Security helped cut the poverty rate among seniors by more than two-thirds, from 35 percent to 10 percent. Social Security takes on more, not less, importance as we go forward, with fewer and fewer workers getting retirement benefits on the job. As AFL-CIO Secretary-Treasurer Richard Trumka said in testimony today before the House Ways and Means Committee:

Only half of American families have an employer-provided retirement plan of any sort, a proportion largely unchanged for decades. However, whereas 40 percent of workers participated in employer guaranteed “defined-benefit” pension plans in 1980, today only 20 percent have such plans. In substituting “defined-contribution” for defined benefit plans, employers are shifting the risk of retirement onto workers. And American workers are ill prepared to carry this risk.

There are a lot of reasons why Bush’s approval rating has tanked, according to recent polls. And it’s pretty clear that Iraq isn’t the only reason 71 percent are saying the country is seriously off track.

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