September 28,
2011
The New York Times
By PHILIPPE DOUSTE-BLAZY
Paris
IT has been three years since the collapse of Lehman Brothers and the start of a
financial crisis that still casts a dark cloud over the global economy.
Governments, both rich and poor, urgently need a way to calm speculation in the
financial markets and to raise revenue. On Wednesday, the European Commission
president, José Manuel Barroso, proposed a tax on financial transactions. Such a
measure, already supported by the German chancellor, Angela Merkel, and the
French president, Nicolas Sarkozy, is long overdue.
Indeed, a tax of just 0.05 percent levied on each stock, bond, derivative or
currency transaction would be aimed at financial institutions’ casino-style
trading, which helped precipitate the economic crisis. Because these markets are
so vast, the tax could raise hundreds of billions of dollars a year globally for
cash-strapped governments and could increase development aid.
The global economic storm may have sprung from the high-pressure trading rooms
and overheating economies of developed countries, but its effects have also been
felt far away. Any additional revenue raised by a financial transaction tax
should therefore be devoted not only to shoring up slumping economies in rich
nations but also to helping the world’s poorest countries.
While the rich world remains preoccupied with its own economic problems, the
World Bank estimated last year that 64 million people in low- and middle-income
countries had been forced into extreme poverty — living on less than $1.25 a day
— as a result of the food, fuel and financial crises. And poor countries have
been hit by their own budgetary pressures. Cuts to life-saving health services,
schools and support for poor farmers are already taking place. Research for
Oxfam last year suggested that 56 low-income countries faced a combined budget
shortfall of $65 billion as a result of lower domestic tax revenues, export
earnings and aid. If the world economy dips for a second time, the consequences
are likely to be devastating.
At the time when poor countries need outside assistance the most, aid budgets
are shrinking, damaging progress toward the Millennium Development Goals of
reducing avoidable deaths, hunger and poverty.
Traditional donors must stand by the poorest in bad times as well as good. And
we must move beyond the old paradigm of aid to a 21st-century solution. A new
architecture of development assistance should provide stable, reliable and
robust revenue streams that can weather global economic storms and changing
political landscapes.
The financial markets themselves can provide such solutions. In 2006, Unitaid,
an international agency based at the World Health Organization in Geneva,
introduced the world’s first innovative tax for development — a small levy on
airline tickets, usually about $2, that in its first five years has raised
around $2 billion to help save lives by providing treatment for H.I.V./AIDS,
malaria and tuberculosis.
There is an urgent need to expand such solutions. It is fair, given its role in
precipitating the economic crisis, to look to the largest and most profitable
industry in the world — the financial sector — to play its part.
Calls for an international F.T.T., or financial transactions tax, are now
increasing in Europe. Germany, Spain, Portugal and Belgium publicly support it.
And Mr. Sarkozy has made it a priority for France’s presidency of the Group of
20, ahead of its crucial November meeting.
Fears about the feasibility of an F.T.T. are overblown. Indeed, more than 40
such taxes have already been put in place around the globe. Britain, for
example, has a very successful F.T.T. on shares — known as the stamp duty —
which raises more than $6 billion a year and has not had a significant impact on
the competitiveness of London’s finance sector. Other countries could likewise
institute this tax without harming major financial firms.
If more countries introduce F.T.T.’s, it is essential that the tax be used not
only to plug holes in European budgets. A financial crisis that began in the
trading rooms of New York and London has pushed farmers in Nepal below the
poverty line and cost young girls in Zambia their schooling. The problem is
global, and our response must be global, too.
We must seize the opportunity to ensure that some of the financial sector’s
extraordinary wealth is harnessed to protect and benefit the world’s poorest
people.
Philippe
Douste-Blazy, the French foreign minister from 2005 to 2007, is the chairman of
Unitaid and a special adviser to the United Nations secretary general on
innovative financing.
This article has
been revised to reflect the following correction:
Correction: September 29, 2011
An earlier version of this Op-Ed misstated the usual levy on airline tickets.
September 29,
2011
The New York Times
By EDWARD WYATT
WASHINGTON —
Like Americans trying to raise quick cash by unloading their unwanted goods, the
federal government is considering a novel way to reduce the deficit: holding the
equivalent of a garage sale.
Deep within President Obama’s proposals to raise revenue and reduce the deficit
lies a method that has garnered bipartisan support, something rare in Washington
these days. It involves selling an island, courthouses, maybe an airstrip,
generally idle or underused vehicles, roads, buildings, land — even the airwaves
used to broadcast television.
Among the listings: Plum Island, N.Y., off the North Fork of Long Island, which
the government has already begun marketing as 840 acres of “sandy shoreline,
beautiful views and a harbor.” As former home to the federal Animal Disease
Center, it may need a bit of “biohazard remediation,” making it a real
fixer-upper.
Many conservatives — including Representative Paul Ryan of Wisconsin, chairman
of the House Budget Committee, and the budget experts at the Cato Institute —
support the broad idea of shrinking the government by selling parts of it.
Democrats like the idea of virtually painless revenue-raising. Whether Congress
can pass any bill in the current atmosphere, however, is far from certain.
“This is something that we can have bipartisan agreement on,” said
Representative Jeff Denham of California who, as one of the most conservative
House Republicans, almost never agrees with the president.
Fire sales of unused government property will not come close to closing the
deficit, of course, and there are plenty of bureaucratic obstacles in the way
even if Congress approves.
But the proposals could make a modest difference. With the government owning
more than a million properties, the sales possibilities are plentiful,
supporters say. Senator Jon Kyl of Arizona, the No. 2 Republican in the Senate
and a member of the special Congressional deficit-reduction panel, has said that
property sales is one area where the committee can probably agree.
The White House figures it could raise up to $22 billion over the next decade,
though there are plenty who doubt the government could raise anywhere near that
amount. More than 80 percent of that figure might come from the auction of
public airwaves now dedicated to broadcast television which the Obama
administration believes can be better used for wireless broadband.
The idea behind that plan, which is supported by both parties and the Federal
Communications Commission, is to reclaim and sell a public asset that previously
was given away. But it also could generate some serious opposition from the
nation’s broadcasters, which have a powerful lobby.
The other $4 billion would come from selling buildings and property. The
Pentagon and the Postal Service have both sold buildings and generated a lot of
cash. Sales of 350 closed military installations have produced $1.5 billion over
the last 20 years, according to the Congressional Budget Office.
The Postal Service raised $180 million from the sale or lease of properties last
year alone, and postal authorities have identified an additional 3,653 post
offices for closure or consolidation. In New York, the historic Farley Post
Office Building in Midtown Manhattan was sold to New York State in 2002 for $230
million for potential use as a passenger train terminal.
Post office sales are kept on a different set of books and do not reduce the
federal deficit, but plenty of potential sales would. Moffett Federal Airfield,
a decommissioned air strip near San Francisco that now houses a NASA operation,
has been long aimed at for sale and could bring in millions. Moffett has
embarked on a small privatization effort: Google’s founders pay $1.3 million a
year to park their three private jets there.
Like a lot of things in Washington, selling federal property is tangled in red
tape. To sell airwaves, for instance, Congress would need to pass a law. Selling
off property requires a multistep process that includes other agencies looking
it over to see if they could use it, and another check to see if it might be a
good candidate for a homeless shelter or some other public purpose. Only if it
fails various tests is property finally offered to the public.
Mr. Denham of California has a bill that, along with a similar Senate bill
sponsored by Scott Brown, a Massachusetts Republican, would streamline the
property sale process by creating a commission like those used by the military
to close surplus bases. Both bills are similar to an idea that President Obama
sent to Congress in his 2012 budget.
When the Obama administration first proposed a property review more than a year
ago, it came up with a list of more than 12,000 properties ripe for sale. But
only about 1 percent of those were actually available for sale at the time.
Many attractive properties were not on the list, including the sprawling grounds
of the Veterans Administration Medical Center in West Los Angeles. The property
also has long been coveted by local groups, both for development and for
continued use as open space, and small parts of the 387 acres, sandwiched
between Beverly Hills and Brentwood, already are leased for private use.
But in a letter this year to President Obama, Representative Henry A. Waxman,
the influential Democrat whose district includes the V.A. center, and both
California senators likened the idea to building high-rises on the National
Mall. “It would be a tremendous disservice to our veterans and would violate the
terms of the 1888 deed” that conveyed the property to the government, the letter
said.
The Congressional Budget Office, the Government Accountability Office and the
Congressional Research Service all are skeptical on the administration’s sales
estimates, largely because of the spools of red tape.
Theresa A. Gullo, deputy assistant director for budget analysis at the C.B.O.,
told a House committee in July that a review of the president’s plan found that
it “was not likely to significantly increase receipts from sales of federal
property.”
In selling broadcast spectrum, the F.C.C. wants small urban television stations
to give up space on the spectrum in exchange for part of the proceeds from an
auction of the airwaves to wireless telephone companies. The commission also
would move other stations around on the dial to use airwaves more efficiently.
But broadcasters, who spread a fair amount of political largess on Capitol Hill,
are less enthusiastic — one reason the plan hasn’t happened so far.
“It’s a very compelling initiative that has very broad national support,” Julius
Genachowski, chairman of the F.C.C., said. “It’s market oriented, it contributes
to deficit reduction, and it gets big things done that really everyone
supports.”
September 29,
2011
The New York Times
By TARA SIEGEL BERNARD and BEN PROTESS
Bank of
America, the nation’s biggest bank, said on Thursday that it planned to start
charging customers a $5 monthly fee when they used their debit cards for
purchases. It was just one of several new charges expected to hit consumers as
new regulations crimp banks’ profits.
Wells Fargo and Chase are testing $3 monthly debit card fees. Regions Financial,
based in Birmingham, Ala., plans to start charging a $4 fee next month, while
SunTrust, another regional powerhouse, is charging a $5 fee.
The round of new charges stems from a rule, which takes effect on Saturday, that
limits the fees that banks can levy on merchants every time a consumer uses a
debit card to make a purchase. The rule, known as the Durbin amendment, after
its sponsor Senator Richard J. Durbin, is a crucial part of the Dodd-Frank
financial overhaul law.
Until now, the fees have been 44 cents a transaction, on average. The Federal
Reserve in June agreed to cut the fees to a maximum of about 24 cents. While the
fee amounts to pennies per swipe, it rapidly adds up across millions of
transactions. The new limit is expected to cost the banks about $6.6 billion in
revenue a year, beginning in 2012, according to Javelin Strategy and Research.
That comes on top of another loss, of $5.6 billion, from new rules restricting
overdraft fees, which went into effect in July 2010.
And even though retailer groups had argued that lower fees were important to
keep prices in check, consumers were not likely to see substantial savings. In
fact, they are simply going to end up paying from a different pot of money.
Or as Jamie Dimon, chief executive of JPMorgan Chase, put it after passage last
year of the Dodd-Frank Act, “If you’re a restaurant and you can’t charge for the
soda, you’re going to charge more for the burger.”
Chase is now charging customers for a paper statement. It also, like many other
banks, scrapped its debit card rewards program. And customers that Chase
inherited from Washington Mutual no longer enjoy free checking accounts.
The bank is also exploring a number of other fee increases, including for online
banking, according to people with knowledge of the matter.
Bank of America’s debit fee is steeper than most of its competitors’, reflecting
the broader challenges the bank is facing after the financial crisis. The bank
has introduced an online-only account that charges customers for doing business
at a local branch. It also plans to apply its new debit card fees to anyone who
uses the card to make recurring payments like gym fees or cable bills.
Citibank is one of the few that said it would not introduce a charge for debit
card use. “We have talked to customers and they have made it abundantly clear
that ‘if you charge me to use my debit card, I would find that very irritating,’
” said Stephen Troutner, head of Citi’s banking products. Still, the bank has
made it more difficult to qualify for free checking, among other moves.
Earlier this year, Wells Fargo estimated that the Durbin rules would cost the
bank $250 million in revenue every quarter. It hopes to make up half that gap
with a variety of new products and customer fees, including the monthly debit
card fee of $3. The change is part of a “pilot program” the bank will begin on
Oct. 14 in five states across the country, including Washington and Georgia. As
of Saturday, the bank will discontinue its debit card rewards program.
Meanwhile, HSBC said that it recently increased an A.T.M. fee — to $2.50 from $2
— for certain customers when they used a competitor’s A.T.M. It also recently
introduced a debit transaction fee of 35 cents, though the first eight
transactions are free.
And at TDBank, customers will now have to pay $2 for using A.T.M.’s outside
their network.
“Durbin essentially moves the cost of debit away from merchants, and now it’s
more focused on consumers,” said Beth Robertson, director of payments research
at Javelin. “There are all sort of things happening where banks are saying,
where can we put fees in place for our service to generate revenue or how can we
reduce our costs?”
Over the last few years, consumers have increasingly shifted their spending to
debit cards from credit cards, in large part to curb their spending. But some
analysts predicted that the new fees could prompt consumers to return to credit
cards — a more lucrative alternative for the banks.
Consumers have already begun to react to the changes.
Patrick Shields, 48, said he had decided to leave Citibank, where he has held a
small-business account for his residential window cleaning business since 1986.
He was contemplating opening a personal checking account, but realized he could
do better at a credit union.
“At the credit union, they opened it free of charges, which Citi could not and
would not do,” said Mr. Shields, who noted that a personal checking account
would have cost more than the one he uses for his New York business. “Now I have
both accounts covered, and I am fee-free.”
The so-called Durbin rule quickly emerged as one of the thorniest provisions of
Dodd-Frank, touching off a long and furious fight in Washington. Wall Street
dispatched an army of lobbyists to tame the rule, ultimately yielding mixed
results.
In June, the Senate defeated a measure that would have delayed the new rule. But
just three weeks later, the Federal Reserve decided to cap the fees at 21 to 24
cents for each debit card transaction, a much lighter blow than once expected.
In a statement on Thursday, Senator Durbin, Democrat of Illinois, said that
small businesses would benefit from the new limits. “Swipe fee regulation will
still allow banks to cover the actual costs of debit transactions but will rein
in the banks’ excessive profit-taking.”
The world has
barely dug out of recession and the global economy is again slowing dangerously.
Most leaders seem eager to make things even worse.
Instead of looking for ways to reignite growth, Europe’s leaders — and
Republicans on Capitol Hill — are determined to slash public spending. Europe’s
fixation on austerity is also compounding its debt crisis, bringing the
Continent even closer to the brink. Meanwhile, China’s government, which is
struggling to contain inflation without letting its currency rise, has been
trying to slow domestic demand, allowing its trade surplus to balloon.
Each of these policies is wrong. In combination, they are likely to tip the
world into a deep recession.
The International Monetary Fund has cut its forecast for global growth this year
to 4 percent, from the 4.3 percent it had forecast in April. It expects rich
countries to grow by only 1.6 percent. That may be too optimistic.
The I.M.F. forecasts that the United States will grow by 1.5 percent this year
and 1.9 percent in 2012. But that assumes Congress will continue payroll tax
cuts and extended unemployment insurance, as President Obama has called for.
Mark Zandi of Moody’s Economy.com warns that if Congress fails to do so, the
country will probably slip into recession.
Europe is in even worse shape. Rich nations that could afford to spend more to
increase growth, like Germany and Britain, are instead slashing spending.
Germany and its rich neighbors are also insisting that Greece, Portugal and
other debtor countries accept even stiffer doses of austerity to regain the
confidence of investors. Sending these economies into near collapse means that
they will never be able to dig out or pay off their creditors.
While the German Parliament is expected to approve a new $600 billion bailout
fund on Thursday, many European leaders already admit it is too small to deal
with turmoil that now also threatens Spain and Italy.
It is true that many countries do not have the money to pay for policies to
promote employment and growth. The United States, Britain, Germany and China
could boost global demand by spending more at home and buying more from weaker
countries that cannot stimulate their own economies.
The United States government must cut its budget deficit, but the economy must
recover first. According to Mr. Zandi, President Obama’s $450 billion jobs plan
could add 1.9 million jobs in 2012 and cut the unemployment rate by a percentage
point. With interest rates so low, the government could easily pay for a bigger
program.
The British government has similar room to maneuver. And its stubborn insistence
on fiscal austerity is already causing havoc. But the countries that could do
most to assist global growth are China and Germany.
China today makes 14 percent of the world’s economic product but consumes only 6
percent of it. Allowing its currency to rise would help combat inflation by
lowering the domestic price of imports, while increasing the spending power of
the Chinese people.
Germany’s export model is also failing, producing little growth while sucking
demand from its neighbors. Germany could easily raise money at low cost to
stimulate its own consumption. Yet not only has it refused stimulus spending, it
is imposing austerity on the rest of Europe — forcing weak countries to contract
their economies in exchange for its aid.
Economic policy makers have made similar mistakes before. That is what caused
the Great Depression. There is not a lot of time left to get this right.
It was not
just two mismanaged wars and trillions of dollars in misconceived and poorly
supervised weapons contracts that drove Pentagon spending to unsustainable
levels over the past decade — about $700 billion for last year alone. Military
pay, benefit and retirement costs rose by more than 50 percent over the same
decade (accounting for inflation). Leaving aside Afghanistan and Iraq, those
costs now account for nearly $1 out of every $3 the Pentagon spends.
Much of that is necessary to recruit and retain a high-quality, all-volunteer
military. The men and women who risk their lives to keep us secure deserve
decent pay while they serve and ample benefits once they retire. But current
military pay, pension systems and retiree health care benefits are unsustainable
and ripe for reform.
President Obama has proposed two changes that would save $27 billion over 10
years: increasing co-payments for some prescription drugs for retirees and
dependents of active-duty soldiers and charging a modest fee for policies
supplementing Medicare coverage for retirees. That would still leave insurees
paying substantially less than most other Americans.
Working-age military retirees also pay too little for basic family coverage. The
current annual premium of $460 has not been increased since 1995. The Pentagon
hopes to raise that to $520 for new enrollees once Congress approves financing
bills for the new fiscal year that starts on Saturday. That is still barely a
tenth of what federal civilian workers pay for comparable insurance.
Another $45 billion to $50 billion could be saved by adjusting the formula for
pay increases to take account of special allowances and benefits worth about
$5,000 a year.
The retirement system is both unfair and increasingly expensive. Most veterans,
including many who have served multiple combat tours, will never qualify for
even a partial military pension or retiree health benefits. These are only
available to those who have served at least 20 years. Those who do qualify can
start collecting their pensions as soon as they leave service, even if they are
still in their late 30s, making for huge long-term costs.
Mr. Obama called for a commission to study possible reforms. But the change the
Pentagon reportedly has in mind, phasing in a 401(k)-type plan for future
retirees, is the wrong way to go. Military pensions should not be held hostage
to stock market gyrations. Partial pensions should be made available to those
serving less than 20 years. Payments should begin at normal retirement age.
The Pentagon needs to contribute at least $400 billion in 10-year budget savings
if the Congressional deficit panel does reach an agreement by December and as
much as $900 billion if it does not.
To find those savings, the Pentagon must also sharply prune the tens of billions
it spends every year on building new versions of cold war weapons systems ill
suited to America’s 21st-century military needs: aircraft carriers, nuclear
attack submarines, stealth destroyers and manned aerial combat fighters. The
United States already has a comfortable margin of dominance in all these areas.
The Pentagon’s ambitions expanded without limit over the Bush era, and Congress
eagerly wrote the checks. The country cannot afford to continue this way, and
national security doesn’t require it.
The White House and Congress must find the courage to proceed. Reforms of pay,
benefits and pensions must be phased in fairly and commitments already made must
be honored. But they, too, cannot be deferred any longer.
September 26,
2011
The New York Times
By ROBERT PEAR
WASHINGTON —
President Obama has not been particularly successful in fostering the creation
of jobs. But he thinks he has found a way to pry open doors in the workplace for
many of the unemployed, especially those who have been out of work for a long
time.
Mr. Obama’s jobs bill would prohibit employers from discriminating against job
applicants because they are unemployed.
Under the proposal, it would be “an unlawful employment practice” if a business
with 15 or more employees refused to hire a person “because of the individual’s
status as unemployed.”
Unsuccessful job applicants could sue and recover damages for violations, just
as when an employer discriminates on the basis of a person’s race, color,
religion, sex or national origin.
White House officials see discrimination against the unemployed as a serious
problem. In a radio interview last month, Mr. Obama said such discrimination
made “absolutely no sense,” especially at a time when many people, through no
fault of their own, had been laid off.
Mr. Obama’s proposal would also prohibit employment agencies and Web sites from
carrying advertisements for job openings that exclude people who are unemployed.
The Equal Employment Opportunity Commission has received reports of such
advertisements but has no data to show how common they are.
Republicans and some employers criticized the White House proposal. They said
that discrimination was not common and that the proposed remedy could expose
employers to a barrage of lawsuits.
“We do not see a need for it,” said Michael J. Eastman, executive director of
labor law policy at the U.S. Chamber of Commerce.
Already, Mr. Eastman said, the Civil Rights Act outlaws employment practices
that have “a disparate impact on the basis of race, color, religion, sex or
national origin,” unless an employer can show that a particular practice is “job
related for the position in question and consistent with business necessity.”
Representative Louie Gohmert, Republican of Texas, said the president’s proposal
would, in effect, establish the unemployed as a new “protected class.”
Mr. Gohmert said the proposal, if passed, would encourage litigation by sending
a message to millions of Americans: “If you’re unemployed and you go to apply
for a job, and you’re not hired for that job, see a lawyer. You may be able to
file a claim because you got discriminated against because you were unemployed.”
“This will help trial lawyers who are not having enough work,” Mr. Gohmert said.
The Labor Department reports that 14 million people are unemployed. About 43
percent of them — six million people — are classified as long-term unemployed,
having been out of work for 27 weeks or more. Of that group, nearly 4.5 million
have been unemployed for a year or more. The average duration of unemployment is
40 weeks, the longest in more than 60 years.
Charges of employment discrimination tend to increase in a sluggish economy with
a high jobless rate. In the 2010 fiscal year, which ended last Sept. 30, job
bias charges filed with the employment commission reached a record of nearly
100,000, up 20 percent from 2007.
In many cases, lawyers said, it may be difficult for job applicants to show that
they were turned down because they were unemployed. On the other hand, lawyers
said, some employers and recruiters have posted job openings on the Web with the
message that “no unemployed candidates will be considered.”
Mr. Obama’s proposal is modeled, in part, on bills introduced by two Connecticut
Democrats, Senator Richard Blumenthal and Representative Rosa DeLauro. The top
Democrat on the House labor committee, Representative George Miller of
California, supports the legislation.
“In a tough job market, where workers are competing against tens and sometimes
hundreds of people for every available job opening, it is unjust for employers
to discriminate against those who are unemployed,” Ms. DeLauro said.
Skills often atrophy when a person is out of work, and White House officials
said that discrimination could worsen the problem, creating a class of people
who could be left behind as the economy recovers.
Under Mr. Obama’s proposal, the employment commission would be given new power
to enforce the proposed ban on discrimination against the jobless.
Chai R. Feldblum, a member of the commission, said: “This seems like a perfectly
reasonable policy step for the administration to suggest. It would allow people
to bring a claim directly under this provision if they have been refused a job
because of being unemployed, without having to go through the whole ‘disparate
impact’ analysis.”
Helen L. Norton, an associate professor at the University of Colorado Law School
in Boulder, said: “There are many reasons why one might be unemployed in a tough
economy. Current employment status serves as a poor proxy for successful job
performance.”
But Lawrence Z. Lorber, a labor law specialist who represents employers, said
the president’s proposal “opens another avenue of employment litigation and
nuisance lawsuits.”
Mr. Obama’s proposal would give employers some leeway. In deciding whether to
hire a person who is unemployed, they could consider the person’s work history
and examine why the person is unemployed if that was relevant to ability to
perform a job.
September 26,
2011
The New York Times
By MICHAEL COOPER
When the
unemployment rate rose in most states last month, it underscored the extent to
which the deep recession, the anemic recovery and the lingering crisis of
joblessness are beginning to reshape the nation’s economic map.
The once-booming South, which entered the recession with the lowest unemployment
rate in the nation, is now struggling with some of the highest rates, recent
data from the Bureau of Labor Statistics show.
Several Southern states — including South Carolina, whose 11.1 percent
unemployment rate is the fourth highest in the nation — have higher unemployment
rates than they did a year ago. Unemployment in the South is now higher than it
is in the Northeast and the Midwest, which include Rust Belt states that were
struggling even before the recession.
For decades, the nation’s economic landscape consisted of a prospering Sun Belt
and a struggling Rust Belt. Since the recession hit, though, that is no longer
the case. Unemployment remains high across much of the country — the national
rate is 9.1 percent — but the regions have recovered at different speeds.
Now, with the concentration of the highest unemployment rates in the South and
the West, some economists and researchers wonder if it is an anomaly of the
uneven recovery or a harbinger of things to come.
“Because the recovery is so painfully slow, people may begin to think of the
trends established during the recovery as normal,” said Howard Wial, a fellow at
the Brookings Institution’s Metropolitan Policy Program who recently co-wrote an
economic analysis of the nation’s 100 largest metropolitan areas. “Will people
think of Florida, California, Nevada and Arizona as more or less permanently
depressed? Think of the Great Lakes as being a renaissance region? I don’t know.
It’s possible.”
The West has the highest unemployment in the nation. The collapse of the housing
bubble left Nevada with the highest jobless rate, 13.4 percent, followed by
California with 12.1 percent. Michigan has the third-highest rate, 11.2 percent,
as a result of the longstanding woes of the American auto industry.
Now, though, of the states with the 10 highest unemployment rates, six are in
the South. The region, which relied heavily on manufacturing and construction,
was hit hard by the downturn.
Economists offer a variety of explanations for the South’s performance. “For a
long time we tended to outpace the national average with regard to economic
performance, and a lot of that was driven by, for lack of a better word,
development and in-migration,” said Michael Chriszt, an assistant vice president
of the Federal Reserve Bank of Atlanta’s research department. “That came to an
abrupt halt, and it has not picked up.”
The long cycle of “lose jobs, gain jobs, lose jobs” that kept Georgia’s
unemployment rate at 10.2 percent in August — the same as it was a year earlier
— is illustrated by Union City, a small city on the outskirts of Atlanta.
It suffered a blow when the last store in its darkened mall, Sears, announced
that it would soon close. But the city had other irons in the fire: a few big
companies were hiring, and earlier this year Dendreon, a biotech company that
makes a cancer drug, opened a plant there, lured in part by state and local
subsidies.
Then, Dendreon announced this month that it would lay off more than 100 workers
at the new plant as part of a national “restructuring.”
Union City, with a population of 20,000, now calls itself the place “Where
Business Meets the World” and has been trying to lure companies by pointing out
its low business taxes, various incentive programs and proximity to
Hartsfield-Jackson Atlanta International Airport.
Steve Rapson, the city manager, said that the challenge there, as in much of
America, has been to get employers to hire again. “It’s hard to get your mind
around what can you do as a city to encourage future jobs and jobs growth,” he
said.
The reordering of the nation’s economic fortunes can be seen in the Brookings
analysis, which found that many auto-producing metropolitan areas in the Great
Lakes states are seeing modest gains in manufacturing that are helping them
recover from their deep slump, while Sun Belt and Western states with sharp
drops in home values are still suffering. The areas that have been hurt the
least since the recession, the study said, rely on government, education or
energy production. Places that were less buoyed by the housing bubble were less
harmed when it burst.
In Pennsylvania, the analysis found, the Pittsburgh area — which is heavily
reliant on education and health care — is weathering the downturn better than
the Philadelphia area. In New York, areas around long-struggling upstate cities
like Buffalo and Rochester are recovering faster by some measures than the New
York City metropolitan area. And the rate of recovery in Rust Belt areas around
Youngstown and Akron, two Ohio cities that were hit hard, has outpaced that of
former boomtowns like Colorado Springs and Tucson.
In a sign of how severe the downturn has been, the Brookings analysis found that
only 16 of the nation’s 100 largest metropolitan areas have regained more than
half of the jobs they lost during the recession.
The toll on the nation’s millions of unemployed people has been harsh, with the
Census Bureau reporting that the United States had more people living in poverty
last year than in any year since it began keeping records half a century ago.
Joblessness is taking a toll on states, too. This month, 27 states will have to
pay $1.2 billion to the federal government in interest on the $37.5 billion that
they borrowed in recent years to keep paying unemployment benefits.
What is most striking about the high unemployment rates, several economists said
in interviews, is how they continue to afflict wide parts of the country.
“It just seems to be so pervasive across the country — except for the
breadbasket area — that it’s hard to pick out anybody who is bouncing back,”
said Randall W. Eberts, the president of the W. E. Upjohn Institute for
Employment Research in Michigan.
Dr. Eberts pointed to another feature of the downturn: people are much less
likely to leave their jobs voluntarily.
Before the recession, he said, about three million people voluntarily left their
jobs each month. Now, around two million people do — leaving fewer openings for
job seekers.
So what happened in South Carolina? Richard Kaglic, a regional economist with
the Federal Reserve Bank of Richmond, Va., said the state’s lingering troubles
reflect what happened when its once-thriving construction and manufacturing
industries were hit hard by the recession. Mr. Kaglic, who is also a pilot, used
an aviation metaphor to explain what he meant.
“If your nose is high, if you’re climbing faster and your engine cuts out, you
fall farther and it takes you a longer time to recover,” he said. “The
conditions we experienced in late 2008, 2009, are as close as you come to an
engine-out situation in the economy.”
But Mr. Kaglic said that the recent return of manufacturing jobs was giving him
hope, and that one reason for the high unemployment rate was that more people
were now seeking work.
“I would look at it as our dreams are delayed,” he said, “rather than our dreams
being denied.”
September
24, 2011
The New York Times
By MARK BITTMAN
THE “fact”
that junk food is cheaper than real food has become a reflexive part of how we
explain why so many Americans are overweight, particularly those with lower
incomes. I frequently read confident statements like, “when a bag of chips is
cheaper than a head of broccoli ...” or “it’s more affordable to feed a family
of four at McDonald’s than to cook a healthy meal for them at home.”
This is just plain wrong. In fact it isn’t cheaper to eat highly processed food:
a typical order for a family of four — for example, two Big Macs, a
cheeseburger, six chicken McNuggets, two medium and two small fries, and two
medium and two small sodas — costs, at the McDonald’s a hundred steps from where
I write, about $28. (Judicious ordering of “Happy Meals” can reduce that to
about $23 — and you get a few apple slices in addition to the fries!)
In general, despite extensive government subsidies, hyperprocessed food remains
more expensive than food cooked at home. You can serve a roasted chicken with
vegetables along with a simple salad and milk for about $14, and feed four or
even six people. If that’s too much money, substitute a meal of rice and canned
beans with bacon, green peppers and onions; it’s easily enough for four people
and costs about $9. (Omitting the bacon, using dried beans, which are also lower
in sodium, or substituting carrots for the peppers reduces the price further, of
course.)
Another argument runs that junk food is cheaper when measured by the calorie,
and that this makes fast food essential for the poor because they need cheap
calories. But given that half of the people in this country (and a higher
percentage of poor people) consume too many calories rather than too few,
measuring food’s value by the calorie makes as much sense as measuring a drink’s
value by its alcohol content. (Why not drink 95 percent neutral grain spirit,
the cheapest way to get drunk?)
Besides, that argument, even if we all needed to gain weight, is not always
true. A meal of real food cooked at home can easily contain more calories, most
of them of the “healthy” variety. (Olive oil accounts for many of the calories
in the roast chicken meal, for example.)In comparing prices of real food and
junk food, I used supermarket ingredients, not the pricier organic or local food
that many people would consider ideal. But food choices are not black and white;
the alternative to fast food is not necessarily organic food, any more than the
alternative to soda is Bordeaux.
The alternative to soda is water, and the alternative to junk food is not
grass-fed beef and greens from a trendy farmers’ market, but anything other than
junk food: rice, grains, pasta, beans, fresh vegetables, canned vegetables,
frozen vegetables, meat, fish, poultry, dairy products, bread, peanut butter, a
thousand other things cooked at home — in almost every case a far superior
alternative.
“Anything that you do that’s not fast food is terrific; cooking once a week is
far better than not cooking at all,” says Marion Nestle, professor of food
studies at New York University and author of “What to Eat.” “It’s the same
argument as exercise: more is better than less and some is a lot better than
none.”
THE fact is that most people can afford real food. Even the nearly 50 million
Americans who are enrolled in the Supplemental Nutrition Assistance Program
(formerly known as food stamps) receive about $5 per person per day, which is
far from ideal but enough to survive. So we have to assume that money alone
doesn’t guide decisions about what to eat. There are, of course, the so-called
food deserts, places where it’s hard to find food: the Department of Agriculture
says that more than two million Americans in low-income rural areas live 10
miles or more from a supermarket, and more than five million households without
access to cars live more than a half mile from a supermarket.
Still, 93 percent of those with limited access to supermarkets do have access to
vehicles, though it takes them 20 more minutes to travel to the store than the
national average. And after a long day of work at one or even two jobs, 20 extra
minutes — plus cooking time — must seem like an eternity.
Taking the long route to putting food on the table may not be easy, but for
almost all Americans it remains a choice, and if you can drive to McDonald’s you
can drive to Safeway. It’s cooking that’s the real challenge. (The real
challenge is not “I’m too busy to cook.” In 2010 the average American,
regardless of weekly earnings, watched no less than an hour and a half of
television per day. The time is there.)
The core problem is that cooking is defined as work, and fast food is both a
pleasure and a crutch. “People really are stressed out with all that they have
to do, and they don’t want to cook,” says Julie Guthman, associate professor of
community studies at the University of California, Santa Cruz, and author of the
forthcoming “Weighing In: Obesity, Food Justice and the Limits of Capitalism.”
“Their reaction is, ‘Let me enjoy what I want to eat, and stop telling me what
to do.’ And it’s one of the few things that less well-off people have: they
don’t have to cook.”
It’s not just about choice, however, and rational arguments go only so far,
because money and access and time and skill are not the only considerations. The
ubiquity, convenience and habit-forming appeal of hyperprocessed foods have
largely drowned out the alternatives: there are five fast-food restaurants for
every supermarket in the United States; in recent decades the adjusted for
inflation price of fresh produce has increased by 40 percent while the price of
soda and processed food has decreased by as much as 30 percent; and nearly
inconceivable resources go into encouraging consumption in restaurants:
fast-food companies spent $4.2 billion on marketing in 2009.
Furthermore, the engineering behind hyperprocessed food makes it virtually
addictive. A 2009 study by the Scripps Research Institute indicates that
overconsumption of fast food “triggers addiction-like neuroaddictive responses”
in the brain, making it harder to trigger the release of dopamine. In other
words the more fast food we eat, the more we need to give us pleasure; thus the
report suggests that the same mechanisms underlie drug addiction and obesity.
This addiction to processed food is the result of decades of vision and hard
work by the industry. For 50 years, says David A. Kessler, former commissioner
of the Food and Drug Administration and author of “The End of Overeating,”
companies strove to create food that was “energy-dense, highly stimulating, and
went down easy. They put it on every street corner and made it mobile, and they
made it socially acceptable to eat anytime and anyplace. They created a food
carnival, and that’s where we live. And if you’re used to self-stimulation every
15 minutes, well, you can’t run into the kitchen to satisfy that urge.”
Real cultural changes are needed to turn this around. Somehow, no-nonsense
cooking and eating — roasting a chicken, making a grilled cheese sandwich,
scrambling an egg, tossing a salad — must become popular again, and valued not
just by hipsters in Brooklyn or locavores in Berkeley. The smart campaign is not
to get McDonald’s to serve better food but to get people to see cooking as a joy
rather than a burden, or at least as part of a normal life.
As with any addictive behavior, this one is most easily countered by educating
children about the better way. Children, after all, are born without bad habits.
And yet it’s adults who must begin to tear down the food carnival.
The question is how? Efforts are everywhere. The People’s Grocery in Oakland
secures affordable groceries for low-income people. Zoning laws in Los Angeles
restrict the number of fast-food restaurants in high-obesity neighborhoods.
There’s the Healthy Food Financing Initiative, a successful Pennsylvania program
to build fresh food outlets in underserved areas, now being expanded nationally.
FoodCorps and Cooking Matters teach young people how to farm and cook.
As Malik Yakini, executive director of the Detroit Black Community Food Security
Network, says, “We’ve seen minor successes, but the food movement is still at
the infant stage, and we need a massive social shift to convince people to
consider healthier options.”
HOW do you change a culture? The answers, not surprisingly, are complex. “Once I
look at what I’m eating,” says Dr. Kessler, “and realize it’s not food, and I
ask ‘what am I doing here?’ that’s the start. It’s not about whether I think
it’s good for me, it’s about changing how I feel. And we change how people feel
by changing the environment.”
Obviously, in an atmosphere where any regulation is immediately labeled “nanny
statism,” changing “the environment” is difficult. But we’ve done this before,
with tobacco. The 1998 tobacco settlement limited cigarette marketing and forced
manufacturers to finance anti-smoking campaigns — a negotiated change that led
to an environmental one that in turn led to a cultural one, after which kids
said to their parents, “I wish you didn’t smoke.” Smoking had to be converted
from a cool habit into one practiced by pariahs.
A similar victory in the food world is symbolized by the stories parents tell me
of their kids booing as they drive by McDonald’s.
To make changes like this more widespread we need action both cultural and
political. The cultural lies in celebrating real food; raising our children in
homes that don’t program them for fast-produced, eaten-on-the-run, high-calorie,
low-nutrition junk; giving them the gift of appreciating the pleasures of
nourishing one another and enjoying that nourishment together.
Political action would mean agitating to limit the marketing of junk; forcing
its makers to pay the true costs of production; recognizing that advertising for
fast food is not the exercise of free speech but behavior manipulation of
addictive substances; and making certain that real food is affordable and
available to everyone. The political challenge is the more difficult one, but it
cannot be ignored.
What’s easier is to cook at every opportunity, to demonstrate to family and
neighbors that the real way is the better way. And even the more fun way: kind
of like a carnival.
September 23,
2011
The New York Times
By THEODORE R. MARMOR
and JERRY L. MASHAW
IN the face
of nothing but bad economic news, Americans often take heart in remembering that
we have been here before — during the Great Depression, when conditions were far
worse than they are today — and we survived.
But there is a crucial difference between then and now: the words that our
political leaders use to talk about our problems have changed. Where politicians
once drew on a morally resonant language of people, family and shared social
concern, they now deploy the cold technical idiom of budgetary accounting.
This is more than a superficial difference in rhetoric. It threatens to deprive
us of the intellectual resources needed to address today’s problems.
Turn back the clock to June 1934. Millions of Americans are out of work, losing
their homes and facing more of the same. President Franklin D. Roosevelt
responds by creating the Committee on Economic Security. To Congress, he
stresses that he places “the security of the men, women and children of the
nation first.” All Americans, he emphasizes, “want decent homes to live in; they
want to locate them where they can engage in productive work; and they want some
safeguard against misfortunes which cannot be wholly eliminated in this man-made
world of ours.”
Roosevelt asks the committee to propose “sound means” to secure against “several
of the great disturbing factors in life — especially those which relate to
unemployment and old age.” Those “sound means” eventually emerge as the programs
of Social Security pensions, old-age assistance and unemployment insurance.
Fast forward to February 2010. With millions of Americans out of work, home
foreclosures at historic highs and little prospect of relief for those in need,
President Obama acts, establishing a National Commission on Fiscal
Responsibility and Reform. The commission’s task is to “improve the fiscal
situation,” to “achieve fiscal sustainability over the long run” and to address
“the growth of entitlement spending.” The commission recommends, true to its
charge, cuts in entitlement spending — that is, the programs established in 1935
and later years to aid the unemployed, aged, disabled and sick.
In August 2011, Congress acts, not to aid those in distress but to cut federal
spending. The stated goal of its new “super committee” is to create fiscal
balance by recommending measures “to reduce the deficit” by at least $1.5
trillion over the next decade.
Thus is the desperate situation of many Americans reduced to the clinical
language of budgetary accounting. Social insurance programs that protect
Americans against the common hazards of a market economy are “entitlements” that
need to be revamped (read: cut) in the name of fiscal balance and deficit
reduction.
As an economic policy matter, we view cutting entitlement programs as a very bad
idea. But we wish to make a more fundamental observation about language and the
collective imagination that language reflects.
In 1934, the focus was on people, family security and the risks to family
economic well-being that we all share. Today, the people have disappeared. The
conversation is now about the federal budget, not about the real economy in
which real people live. If a moral concept plays a role in today’s debates, it
is only the stern proselytizing of forcing the government to live within its
means. If the effect of government policy on average people is discussed, it is
only as providing incentives for the sick to economize on medical costs and for
the already strapped worker to save for retirement.
From the 1930s to the 1960s, as the Princeton historian Daniel T. Rodgers
demonstrates in his recent book, “The Age of Fracture,” American public
discourse was filled with references to the social circumstances of average
citizens, our common institutions and our common history. Over the last five
decades, that discourse has changed in ways that emphasize individual choice,
agency and preferences. The language of sociology and common culture has been
replaced by the language of economics and individualism.
In 1934, the government was us. We had shared circumstances, shared risks and
shared obligations. Today the government is the other — not an institution for
the achievement of our common goals, but an alien presence that stands between
us and the realization of individual ambitions. Programs of social insurance
have become “entitlements,” a word apparently meant to signify not a
collectively provided and cherished basis for family-income security, but a
sinister threat to our national well-being.
Over the last 50 years we seem to have lost the words — and with them the ideas
— to frame our situation appropriately.
Can we talk about this? Maybe not.
Theodore R.
Marmor is a professor emeritus of public policy, and Jerry L. Mashaw is a
professor of law, both at Yale. They are co-authors of “America’s Misunderstood
Welfare State: Persistent Myths, Enduring Realities.”
September 23,
2011
The New York Times
By MARK LANDLER and BINYAMIN APPELBAUM
WASHINGTON —
The Obama administration, increasingly alarmed by the spillover effects of
Europe’s financial crisis, has begun an intensive lobbying campaign to persuade
Chancellor Angela Merkel of Germany and other leaders to act decisively to stem
any contagion from the Greece debt crisis.
In phone calls and meetings over the last week, President Obama urged Mrs.
Merkel and President Nicolas Sarkozy of France to take coordinated measures to
prevent Greece’s debt woes from spreading to its neighbors. The American
pressure will be on display again Friday and this weekend at a gathering of the
world’s finance ministers in Washington.
Yet administration officials played down the likelihood of concerted action
emerging from these meetings of the International Monetary Fund and the World
Bank. At best, they said, the ministers might lay the groundwork for a bolder
response in November, when leaders of the Group of 20 industrialized nations
meet in Cannes, France.
The lack of global action comes even amid the growing recognition that Europe’s
debt crisis is now perhaps the largest shadow hanging over the global economy.
Although trade with Europe represents only a small share of the American
economy, Europe’s problems have repeatedly rattled Wall Street over the last
year and a half, eroding confidence and exacerbating fears of businesses and
consumers.
“The biggest single risk to the United States today is that the European
situation will spiral out of control,” said Edwin M. Truman, a former Treasury
official who is now at the Peterson Institute for International Economics.
“Europe is not going to save the U.S. economy, but it could be the straw that
breaks it.”
Kenneth Rogoff, a Harvard economist who has written about the history of
financial crises, puts Europe’s effect on the United States in blunt political
terms. “The downside scenario is awful,” he said, “and if it happens before the
U.S. election, it would turn a toss-up election into one in which the president
is a huge underdog.
“The administration’s hope is that the Europeans will kick the can down the road
far enough that it gets past the election,” said Mr. Rogoff, who has advised Mr.
Obama and Republicans.
The administration has trained much of its attention on the figure who may have
the greatest ability to influence the outcome in Europe: the German chancellor.
Mr. Obama has met or spoken with Mrs. Merkel 28 times — a pace befitting someone
who may have as much influence on his fortunes as his rivals in Washington.
In their most recent call, on Monday, Mr. Obama implored Mrs. Merkel to throw
more financial firepower at the crisis. The conversation delved into technical
details, as well as the risk of financial contagion, a senior administration
official said.
Mrs. Merkel faces daunting political obstacles — which Mr. Obama fully
recognizes, this official said — in persuading the German public to spend
hundreds of billions of euros to bail out Greece and potentially other
Mediterranean countries.
While the United States is offering lessons drawn from its own crisis in 2008,
Treasury Secretary Timothy F. Geithner and other officials are treading
carefully to avoid antagonizing Europeans who complain the United States has no
business lecturing them.
The administration’s lobbying effort takes two main forms. One is to press the
argument, supported by many economists, that Germany benefits enormously from
preserving the euro in its current form rather than abandoning it or standing by
as it unravels.
By combining its Deutschmark with the currencies of poorer countries, like
Greece, Germany has been able to have a cheaper currency than it would on its
own and to export far more than it otherwise might. And exports, which account
for a larger share of the German economy than the American economy, have been
the main engine of Germany’s recovery.
“There’s a growing narrative that this is a morality play, that this is all
about fiscal profligacy in southern Europe,” said Austan Goolsbee, a former top
economic adviser to Mr. Obama, speaking on a panel Thursday at the International
Monetary Fund. “But if the Germans are saying, ‘We don’t like the spending by
southern Europe,’ they must also recognize that they’ve been the great
beneficiaries.”
The second part of the American effort involves pushing European leaders to
strengthen the institutions at the center of their response to the crisis: the
European Financial Stability Facility, which is the Continent’s main bailout
fund, and the European Central Bank.
There is widespread agreement among outside observers, including Americans like
Mr. Goolsbee, that the current bailout fund of 440 billion euros — about $600
billion — is not large enough. But there is also doubt about the political and
financial ability of some countries to increase their contributions. Officials
are focusing instead on ways to leverage its power.
In a communiqué issued by the Group of 20 in Washington on Thursday, finance
ministers noted that European governments were taking actions regarding the fund
to make it more flexible and “maximize its impact in order to address
contagion.”
“We need the right firewall to prevent contagion,” Francois Baron, the French
finance minister, said on Thursday. “We can discuss how to give it the necessary
strength.”
One option for making the fund more flexible, suggested by American officials,
is a program in which governments use their pooled resources to guarantee loans
for investors who buy the debt of troubled countries. The loans would be made by
the European Central Bank, but the finance facility would absorb any losses,
leveraging its resources because it could guarantee bonds with an aggregate
value many times larger than its available funds.
Such a program would be a variant on an American effort, the Term Asset-Backed
Securities Loan Facility, or TALF, that was operated with mixed results by the
Treasury and the Federal Reserve in the wake of the 2008 crisis.
American officials have also emphasized the Fed’s outsize role in responding to
the financial crisis here and urged Europe to view the Fed as a model. It made
trillions of dollars in loans so that investors remained able to buy and sell a
wide range of financial products.
The Fed also has pressed down repeatedly on interest rates to reduce the cost of
borrowing for businesses and consumers. The European Central Bank has been more
cautious, actually raising interest rates earlier this year.
“The set of solutions and methods to address the situation is quite well
known,” said Christine Lagarde, the managing director of the I.M.F., at the
start of the meetings. The challenge, she added, was “pushing the leaders into
the direction where they have to take much-needed, more action than what has
already been done.”
September 22,
2011
The New York Times
By PAUL KRUGMAN
This week
President Obama said the obvious: that wealthy Americans, many of whom pay
remarkably little in taxes, should bear part of the cost of reducing the
long-run budget deficit. And Republicans like Representative Paul Ryan responded
with shrieks of “class warfare.”
It was, of course, nothing of the sort. On the contrary, it’s people like Mr.
Ryan, who want to exempt the very rich from bearing any of the burden of making
our finances sustainable, who are waging class war.
As background, it helps to know what has been happening to incomes over the past
three decades. Detailed estimates from the Congressional Budget Office — which
only go up to 2005, but the basic picture surely hasn’t changed — show that
between 1979 and 2005 the inflation-adjusted income of families in the middle of
the income distribution rose 21 percent. That’s growth, but it’s slow,
especially compared with the 100 percent rise in median income over a generation
after World War II.
Meanwhile, over the same period, the income of the very rich, the top 100th of 1
percent of the income distribution, rose by 480 percent. No, that isn’t a
misprint. In 2005 dollars, the average annual income of that group rose from
$4.2 million to $24.3 million.
So do the wealthy look to you like the victims of class warfare?
To be fair, there is argument about the extent to which government policy was
responsible for the spectacular disparity in income growth. What we know for
sure, however, is that policy has consistently tilted to the advantage of the
wealthy as opposed to the middle class.
Some of the most important aspects of that tilt involved such things as the
sustained attack on organized labor and financial deregulation, which created
huge fortunes even as it paved the way for economic disaster. For today,
however, let’s focus just on taxes.
The budget office’s numbers show that the federal tax burden has fallen for all
income classes, which itself runs counter to the rhetoric you hear from the
usual suspects. But that burden has fallen much more, as a percentage of income,
for the wealthy. Partly this reflects big cuts in top income tax rates, but,
beyond that, there has been a major shift of taxation away from wealth and
toward work: tax rates on corporate profits, capital gains and dividends have
all fallen, while the payroll tax — the main tax paid by most workers — has gone
up.
And one consequence of the shift of taxation away from wealth and toward work is
the creation of many situations in which — just as Warren Buffett and Mr. Obama
say — people with multimillion-dollar incomes, who typically derive much of that
income from capital gains and other sources that face low taxes, end up paying a
lower overall tax rate than middle-class workers. And we’re not talking about a
few exceptional cases.
According to new estimates by the nonpartisan Tax Policy Center, one-fourth of
those with incomes of more than $1 million a year pay income and payroll tax of
12.6 percent of their income or less, putting their tax burden below that of
many in the middle class.
Now, I know how the right will respond to these facts: with misleading
statistics and dubious moral claims.
On one side, we have the claim that the rising share of taxes paid by the rich
shows that their burden is rising, not falling. To point out the obvious, the
rich are paying more taxes because they’re much richer than they used to be.
When middle-class incomes barely grow while the incomes of the wealthiest rise
by a factor of six, how could the tax share of the rich not go up, even if their
tax rate is falling?
On the other side, we have the claim that the rich have the right to keep their
money — which misses the point that all of us live in and benefit from being
part of a larger society.
Elizabeth Warren, the financial reformer who is now running for the United
States Senate in Massachusetts, recently made some eloquent remarks to this
effect that are, rightly, getting a lot of attention. “There is nobody in this
country who got rich on his own. Nobody,” she declared, pointing out that the
rich can only get rich thanks to the “social contract” that provides a decent,
functioning society in which they can prosper.
Which brings us back to those cries of “class warfare.”
Republicans claim to be deeply worried by budget deficits. Indeed, Mr. Ryan has
called the deficit an “existential threat” to America. Yet they are insisting
that the wealthy — who presumably have as much of a stake as everyone else in
the nation’s future — should not be called upon to play any role in warding off
that existential threat.
Well, that amounts to a demand that a small number of very lucky people be
exempted from the social contract that applies to everyone else. And that, in
case you’re wondering, is what real class warfare looks like.
September 21,
2011
The New York Times
By GRAHAM BOWLEY and CHRISTINE HAUSER
A day after
the Federal Reserve announced another measure to bolster the economy, world
financial markets tumbled Thursday on fears that governments around the globe
collectively still were not doing enough to stimulate growth.
Several factors contributed to the heightened gloom, including new signs of
political paralysis in Washington, Europe’s continued failure to resolve its
debt crisis and indications of economic stress in developing countries that had
been strong.
While the Fed’s measures to lower interest rates could increase growth a bit,
some economists worry that the scale of the problems call for more stimulus
efforts globally, but other countries are not cooperating.
With investors so nervous, the markets may rebound over the next few days, as
volatility and big swings of 3 and 4 percent have become more common. On
Thursday a downcast mood appeared across the board. Stocks plunged about 5
percent across Europe and in Hong Kong, and more than 3 percent in the United
States.
“Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper,
head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their
exposure low and watch from the sidelines.”
The Standard & Poor’s 500-stock index flirted with a bear market, generally a 20
percent decline from a recent peak, but recovered in the final hour and closed
down 17 percent to 1129.56 from a late April high. The MSCI All-Country World
Index, a grouping of 45 countries, however, fell more than 20 percent, pushing
it into bear territory.
Financial markets beyond stocks also reflected growing anxiety. Commodities like
oil fell, and even gold dropped sharply in price. As investors continued to seek
havens, United States bond prices soared for a fifth consecutive trading
session, pushing the 10-year benchmark yield to a new low of 1.72 percent.
The cost of insuring the government bonds of Western European nations against
default rose to a record high. The extra yield investors demand to hold Italian
government debt also rose, pointing to lingering worries about debt levels in
the euro currency region. Despite steps taken last week by central banks to help
banks in Europe borrow dollars, there were signs of rising borrowing costs for
these institutions.
It is not only economies in the United States and Europe that are faltering.
Financial markets in developing countries are showing levels of stress last seen
during the financial crisis, a senior World Bank official said Thursday.
The official said that problems in the developed world increasingly were shaking
the economies of developing nations, not because of a drop in trade flows or
capital investment, but because a sense of gloom was spreading around the world,
shaking the confidence of domestic investors.
“We are increasingly worried about the possibility of global contagion,” said
the official, who shared the World Bank’s assessment of the global situation on
condition of anonymity.
“At some point the global mood changes. Just like the realization that even big
banks are vulnerable” shook world markets in 2008, the official said, “the idea
that even the U.S. is vulnerable means that many investors have lost an anchor.”
The market downturn was set in motion on Wednesday after the Fed announced that
a complete economic recovery was still years away, adding that the United States
economy has “significant downside risks to the economic outlook, including
strains in global financial markets.”
The Fed also announced it would buy long-term Treasury bonds and sell short-term
bonds to help stimulate lending and growth.
Some analysts were disappointed the Fed did not act more forcefully and they had
little faith that policy tools like lower interest rates were encouraging
consumers and businesses to spend more or to start creating jobs.
“The initial and follow-up reaction from the equity market is likely the
realization that the Fed has little left to offer, that Washington is a mess,
and their only hope is to ‘ride it out’ over a long period of time,” said Kevin
H. Giddis, the executive managing director and president for fixed-income
capital markets at Morgan Keegan & Company.
The policy conundrum is illustrated by the fact that despite lower rates people
are not taking up new mortgages or refinancing existing ones. Rates on 30-year
fixed mortgages dropped after the Fed’s announcement, falling to 4.05 percent
from 4.21 percent on Wednesday, according to HSH.com, which publishes mortgage
and consumer loan information.
But the number of new mortgage applications is running at the lowest level since
August 1995, according to the Mortgage Bankers Association. Guy Cecala of Inside
Mortgage Finance, which monitors mortgage activity, said the volume of new
mortgages this year would probably be about $1 trillion, down from $1.5 trillion
in 2010, which was already anemic.
Companies, too, are holding back on spending even though they have built cash
reserves to 6 percent of their total assets, the highest level since at least
1952, according to Credit Suisse.
The proportion of United States companies’ cash flow being spent on new
equipment and other investments has not rebounded since the financial crisis and
is stuck at the lowest level since the late 1950s, said Doug Cliggott, an
analyst at Credit Suisse. A survey by the bank of 60 large American companies
published Thursday found that two-fifths actually planned to cut spending in the
next six months.
In what may be a bellwether trend, FedEx, the logistics company, on Thursday cut
its expectations for earnings for the entire fiscal year, citing a slowdown in
global growth and sending its stock down 8 percent.
The markets on Thursday homed in on a darkening economic outlook in the euro
zone and concerns that China’s growth rate would start to slow. A closely
watched gauge of private sector activity from the euro zone — the composite
purchasing managers’ index — fell to 49.2 points in September from 50.7 in
August, according to Markit, a financial data provider.
Analysts said the fall in the euro area index reflected a combination of slowing
global growth, significant belt-tightening in the euro area and growing concern
about the escalating sovereign debt crisis.
A review on Thursday by Standard & Poor’s showed that the market capitalization
of publicly traded equities worldwide had fallen by more than 17 percent, or
$9.2 trillion, since July 1.
In the United States, without greater stimulus, the dollar headed sharply higher
on Thursday, catching investors off guard and causing rapid selling of
investment positions, like gold, that had relied on a cheaper currency.
“I think that the market had performed so bullishly across all the precious
metals that a correction was probably in the offing,” said James Steel, an
analyst at HSBC. “And it may have been used as a convenient place for some
profit-taking.”
When the price of gold moved so quickly below $1,800, he added, it encouraged
further selling. With sustained losses in stocks, investors could be using gold
as it was meant to be used — to raise cash.
“This might sound perverse but gold is actually fulfilling its traditional role
allowing you to raise cash in uncertain times,” Mr. Steel said.
Matthew
Saltmarsh and Binyamin Appelbaum contributed reporting.
September 22,
2011
The New York Times
By SABRINA TAVERNISE
GREENWOOD,
S.C. — The Greenwood Mills Matthews Plant once employed three generations of
Frances Flaherty’s family. Her grandmother, father and brother made textiles
there — denim for jeans and khaki for military uniforms.
But it all but closed in 2007 when the economy soured, pitching dozens of
workers into the ranks of the unemployed, and the plant now functions mainly as
a bleak backdrop to Ms. Flaherty’s restaurant, the Southside Cafe, where diners
gaze out at its red brick walls.
“It’s what held this town together, all the mills,” Ms. Flaherty said, watching
another thinly attended lunch hour go by. “They just slowly but surely dwindled
out.”
The falloff of the economy of Greenwood County, a district of almost 70,000
people that once pulsed with busy factories and mills, was the steepest in the
country by two counts.
According to an analysis of Census Bureau figures made public on Thursday, its
poverty rate more than doubled to 24 percent from 2007 to 2010, the largest
increase for any county in the nation.
The decline also engulfed the middle class. Median household income plunged by
28 percent over the same period, shaving nearly $12,000 off the annual earnings
of families here during the recession, according to the analysis, by Andrew A.
Beveridge, a demographer at Queens College.
The numbers tell the story of a painful decade in Greenwood, which began with
poverty levels that were close to the nation’s, and ended far above — after
layoffs in textile mills, a foundry, restaurants and construction companies
pummeled the county’s residents.
The number of workers in manufacturing alone fell by a quarter in the county
from 2005 to 2009, according to a census survey of employers.
Those new facts are just sharp reminders to people here about what they have
lived through.
“There just aren’t any jobs in Greenwood anymore,” said James Freeman, 58, a
former textile mill worker. “My son can’t even get a job flipping burgers.”
Mr. Freeman worked for years in the textile mills, including the Matthews plant.
He lost his last mill job in 2007 and was unable to find another. The work at
one of the mills that employed him went to Argentina, he said, because the
fabric was cheaper to produce there. Those workers were paid less, he was told,
and got no benefits.
“That made me feel kind of bad,” said Mr. Freeman, who now collects disability.
The mill’s closing “hurt a lot of people here in Greenwood.”
Disappointment like Mr. Freeman’s has welled up in areas of deep economic
decline, infusing this election season with a blend of exhaustion and
bitterness.
“Until we bring the companies back from overseas and stop protecting the world,
we’re not going to be anything,” said Sam Stevenson, a retired construction
worker, who could summon only expletives when asked about President Obama’s job
plan.
In many ways, Greenwood is a typical American county. More than a quarter of its
residents had at least some college education in 2009, roughly the same as the
27 percent nationally. It has a public university, which grants four-year
degrees, a museum and a shopping mall.
But education has not seemed to ease the economic pain in an area whose fortunes
were tied so closely to the textile industry that is now in such steep decline.
Signs with the words “space available” are posted outside vacant factories on
the road between here and Columbia, 80 miles to the east.
A red brick Baptist church on the outskirts of town commanded on its marquee,
“Have your tools ready, and God will find you work.”
Apache Pawn and Gun, a pawn shop in town, is packed with items sold by people
trying to make ends meet. Televisions, chain saws, bicycles and guitars are
stacked from floor to ceiling. Chris Harris, the owner, said more middle-class
people had come in to buy since the recession began.
“They’re saying, ‘Why should I buy a new chain saw when I could buy a used one?’
” Mr. Harris said.
Ms. Flaherty said her cafe —its walls adorned with black-and-white photographs
of mill workers and residents from happier times —is barely making it. When she
opened in 2007, lunch used to bring lines out the door from workers at the plant
and other businesses. Now it draws only a few diners. On Wednesday around 1:30
p.m., there were two.
And while housing prices have picked up — now a median of about $120,000 for the
current listings compared with $109,000 in 2009 — the economy this year does not
seem to be getting any better.
“It’s been bad this year,” said Kathy Green, owner of the Garden Grill, who said
business was down significantly since the start of the recession. People order
less, she said, and come in for the specials — $6 for a hamburger, fries and a
drink.
Ms. Green said, “People just don’t have the money anymore.”
Barclay Walsh
contributed reporting from Washington,
September 20,
2011
The New York Times
By ROBERT C. McFARLANE
and R. JAMES WOOLSEY
OUR country
has just gone through a sober national retrospective on the 9/11 attacks. Apart
from the heartfelt honoring of those lost — on that day and since — what seemed
most striking is our seeming passivity and indifference toward the well from
which our enemies draw their political strength and financial power: the
strategic importance of oil, which provides the wherewithal for a generational
war against us, as we mutter diplomatic niceties.
Oil’s strategic importance stems from its virtual monopoly as a transportation
fuel. Today, 97 percent of all air, sea and land transportation systems in the
United States have only one option: petroleum-based products. For more than 35
years we have engaged in self-delusion, saying either that we have reserves here
at home large enough to meet our needs, or that the OPEC cartel will keep prices
affordable out of self-interest. Neither assumption has proved valid. While the
Western Hemisphere’s reserves are substantial and growing, they pale in the face
of OPEC’s, which are substantial enough to effectively determine global supply
and thus the global price.
According to senior executives in the oil industry, in the years ahead that
price is going to rise beyond anything we’ve seen — well above the $147 per
barrel we experienced three years ago. Such a run-up in the price of oil has
been predicted as a consequence of an event like an attack on a major Saudi
processing facility that takes production off line. But such a spike would be
more likely to be caused by the predictable increase of demand in China, India
and developing countries, alongside the cartel’s strategy of driving up prices
by constraining supply. While OPEC sits on 79 percent of the world’s
conventional oil reserves, it accounts for only one-third of global oil supply.
There is, however, a way out of this crisis. Ultimately, electric cars may
become the norm, but for the near and middle term, the solution lies in opening
the transportation fuel market to competition from sources other than petroleum.
American oil companies have come around to understanding the wisdom of
introducing competition, as a matter of their own self-interest. But doing so
means rapidly ramping up production of the alternative fuels, and that is the
challenge. As an example, before investors will expand production capacity for
cellulosic ethanol from plant life, or for methanol from natural gas — which on
a per-mile basis is significantly cheaper than gasoline — they want to see that
a sufficient proportion of the cars and trucks on America’s roads can burn these
fuels.
Here too, however, a solution is at hand; it lies in Detroit’s making more
flex-fuel cars — cars able to use gasoline, ethanol, methanol or any mixture of
these. And because this flex-fuel option costs less than $100 per car, making
such a change is not exorbitant. Indeed, some 90 percent of all cars sold in
Brazil last year are flex-fuel cars, and many of them were made by Ford,
Chrysler and General Motors. That gives Brazilian drivers the option to purchase
the most cost-effective fuel, and they can easily switch from one type to
another.
But here’s the rub. Although the American manufacturers have stated publicly
their willingness to make flex-fuel vehicles up to 50 percent of their
production, they’re just not doing it. Hence the need for Congress to require
that new vehicles allow the use of alternative fuels. In some corners of
Washington, that raises a cry against “mandates.” Of course the response to that
is: Doing nothing is equivalent to mandating a monopoly by a single fuel (whose
price is set by a foreign cartel).
Competition is a bedrock of our American way of life. It’s time to introduce it
into our fuel market.
That is the purpose of the United States Energy Security Council, a bipartisan
group being introduced to the public today in Washington, which includes former
Secretary of State George P. Shultz and two former secretaries of defense,
William J. Perry and Harold Brown, as well as three former national security
advisers, a former C.I.A. director, two former senators, a Nobel laureate, a
former Federal Reserve chairman, and several Fortune-50 chief executives
(including a former president of Shell Oil North America, John D. Hofmeister).
The time has come to strip oil of its strategic status. We owe it to those who
lost their lives on 9/11 and in its aftermath, and to those whose fate still
hangs in the balance.
Robert C.
McFarlane was the national security adviser from 1983 to 1985. R. James Woolsey,
chairman of the Foundation for Defense of Democracies, was the director of the
Central Intelligence Agency from 1993 to 1995.
Re “President’s Plan on Deficit Mixes Cuts and Taxes” (front page, Sept. 19):
Republicans like Representative Paul D. Ryan of Wisconsin have branded President
Obama’s proposal to have the wealthy pay modestly more in federal income taxes
“class warfare.” But what are Republicans willing to ask of the affluent to help
resolve our fiscal problems?
I can’t come up with one thing. Not one.
When Mr. Ryan and his colleagues say we face fiscal collapse and ask sacrifice
of everyone except those who make the most and have the most, that is class
warfare. And it’s being waged by his own party.
DANIEL A. SIMON
New York, Sept. 20, 2011
To the Editor:
Should we increase taxes during a recession? Probably not, but are we in a
recession? That depends on which economy we are looking at, because we have two
now.
The upstairs economy is flying high. Wealth is piling upon wealth, and luxury
goods are flying out of the boutiques.
But the economy down here is seriously hemorrhaging, and needs help badly. Our
course should be clear: Increase taxes on the upstairs economy, and cut taxes
downstairs.
ALLAN R. SHICKMAN
St. Louis, Sept. 20, 2011
To the Editor:
Re “Obama Confirms New Hard Stand With Debt Relief” (front page, Sept. 20):
Just once, I’d like to hear an honest discussion of taxes.
Just once, I’d like a Democrat to acknowledge that there is a progressive income
tax in this country, and that many of the so-called rich pay the highest
marginal rate every year.
I’d also like to hear an admission that a shockingly large number of the middle
class pay little or nothing.
Just once, I’d like to hear a Republican acknowledge that the tax code is
riddled with corporate and individual tax breaks that make no sense, and that
the favored treatment for hedge fund profits and carried interest is nothing
short of outrageous.
Just once, I’d like to hear any politician call for simplification of the tax
code and really mean it. I’d like an admission that the impenetrable mass of
current tax law is a paean to lobbyists, and guaranteed job security for an army
of lawyers, accountants and Internal Revenue Service bureaucrats.
Just one time.
CHUCK OKOSKY
Saratoga Springs, N.Y., Sept. 20, 2011
To the Editor:
Speaker John A. Boehner’s response to President Obama’s speech typifies the
disconnect between the reality I and many of my friends inhabit and the land
where corporations get welfare without waiting in a single line.
Mr. Boehner referred to “this administration’s insistence on raising taxes on
job creators.” Job creators? Those of us who pay attention to the monthly
unemployment reports would beg to differ.
President Obama has finally shown some of the leadership and spark that captured
the imagination of the American public. His comment “This is not class warfare.
It’s math” resonates with the strength he displayed in his run for the
presidency. Welcome back, Mr. President. We’ve missed you sorely.
GRETCHEN S. ADAMEK
East Hartford, Conn., Sept. 20, 2011
September 20,
2011
The New York Times
By THE ASSOCIATED PRESS
The
International Monetary Fund sharply downgraded its outlook for the United States
economy through 2012 because of weak growth and concern that Europe will not be
able to solve its debt crisis, the organization said Tuesday in its economic
outlook.
The fund said it expected the American economy to grow just 1.5 percent this
year and 1.8 percent in 2012. Its June forecast was 2.5 percent in 2011 and 2.7
percent next year.
The organization also lowered its outlook for the 17 European Union countries
that use the euro. It predicted 1.6 percent growth this year and 1.1 percent
next year, down from its June projections of 2 percent and 1.7 percent,
respectively.
The gloomier forecast for Europe was based on worries that Greece would default
on its debt and destabilize the region.
“Fear of the unknown is high,” said Olivier Blanchard, the organization’s chief
economist. “Strong policies are urgently needed to improve the outlook and
reduce the risks.”
Over all, the International Monetary Fund predicted global growth of 4 percent
for both years. Stronger growth in China, India, Brazil and other developing
countries should offset weaker output in the United States and Europe, it said.
American and European policy makers need to act more decisively to cut budget
deficits, the report said, and European officials need to ensure that the
region’s banks have enough capital to withstand the debt crisis.
The United States economy grew at an annual rate of just 0.7 percent in the
first six months of the year. The unemployment rate has stayed above 9 percent
for all but two months since the recession officially ended two years ago.
Financial turmoil and slow growth are feeding on each other in both the United
States and Europe, fund officials say. Europe’s debt crisis is causing banks to
reduce lending and hold onto cash. Sharp stock market drops in the United States
over the summer hurt consumer and business confidence and will probably reduce
spending. That slows growth, which leads many investors to shift money out of
stocks and into safer investments, like Treasury bonds. In Europe, slower growth
will make it harder for troubled nations to get their debt under control.
President Obama’s proposal to cut taxes and spend more on infrastructure could
provide much-needed short-term stimulus, the report said. But that initiative
needs to be paired with a longer-term plan to reduce the deficit, the report
said. The timing of the budget cuts is crucial, Mr. Blanchard said.
Budget cuts “cannot be too fast or it will kill growth,” he said in a statement.
“It cannot be too slow or it will kill credibility.”
The 187-nation International Monetary Fund conducts economic analysis and lends
money to countries in financial distress. It will hold its annual meetings with
the World Bank later this week in Washington.
September
19, 2011
The New York Times
By JACKIE CALMES
WASHINGTON
— With a scrappy unveiling of his formula to rein in the nation’s mounting debt,
President Obama confirmed Monday that he had entered a new, more combative phase
of his presidency, one likely to last until next year’s election as he battles
for a second term.
Faced with falling poll numbers for his leadership and an anxious party base,
Mr. Obama did not just propose but insisted that any long-term debt-reduction
plan must not shave future Medicare benefits without also raising taxes on the
wealthiest taxpayers and corporations.
He uncharacteristically backed up that stand with a veto threat, setting up a
politically charged choice for anti-tax Republicans — protect the most affluent
or compromise to attack deficits. Confident in the answers most voters would
make, Mr. Obama plans to hammer on that choice through 2012, reflecting the fact
that the White House has all but given up hopes of a “grand bargain” with
Republicans to restore fiscal balance for years to come.
“I will not support — I will not support — any plan that puts all the burden for
closing our deficit on ordinary Americans. And I will veto any bill that changes
benefits for those who rely on Medicare but does not raise serious revenues by
asking the wealthiest Americans or biggest corporations to pay their fair
share,” Mr. Obama said. “We are not going to have a one-sided deal that hurts
the folks who are most vulnerable.”
Mr. Obama also seems to have given up on his strategy of nearly a year,
beginning when Republicans won control of the House last November, of being the
eager-to-compromise “reasonable adult” — in the White House’s phrasing — in his
relations with them. He had sought to build a personal relationship with Speaker
John A. Boehner of Ohio, a man the White House saw as a possible partner across
the aisle, in the hopes of making bipartisan progress and simultaneously winning
points with independent voters who disdain partisanship. Even if the efforts
produced few agreements with Republicans, the White House figured, independents
would give Mr. Obama credit for trying.
Instead, the president was unable to close his deal with Mr. Boehner and has
only lost independents’ support and left Democrats disillusioned, raising doubts
about his re-election prospects.
So after his initial two years of dealing with an economic and financial crisis
while pursuing an activist social agenda with Democrats in control of the House
and Senate, and then a frustrating third year sharing power with Republicans,
Mr. Obama now begins writing a third chapter for his final 15 months that is not
the one he had in mind.
“It is fair to say we’ve entered a new phase,” said Dan Pfeiffer, Mr. Obama’s
communications director. But he disputed what he called the conventional wisdom
behind the president’s shift.
“The popular narrative is that we sought compromise in a quixotic quest for
independent votes. We sought out compromise because a failure to get funding of
the government last spring and then an extension of the debt ceiling in August
would have been very bad for the economy and for the country,” Mr. Pfeiffer
added. “We were in a position of legislative compromise by necessity. That phase
is behind us.”
In this new phase, Mr. Obama must solidify support among Democrats by standing
pat for progressive party principles, while trusting that a show of strong
leadership for the policies he believes in will appeal to independents. Polls
consistently suggest that perhaps the only thing that unites independents as
much as their desire for compromise is their inclination toward leaders who
signal strength by fighting for their beliefs.
“The president laid down a marker today that is true to his beliefs,” said Jacob
J. Lew, director of Mr. Obama’s Office of Management and Budget. In response,
Mr. Boehner said in a statement that Mr. Obama by his deficit-reduction plan
“has not made a serious contribution” to the work of a bipartisan joint
Congressional committee, which has two months to reach agreement on cutting
deficits by at least $1.5 trillion in 10 years.
“The administration’s insistence on raising taxes on job creators and its
reluctance to take the steps necessary to strengthen our entitlement programs
are the reasons the president and I were not able to reach an agreement
previously,” Mr. Boehner said. “And it is evident today that these barriers
remain.”
Mr. Obama’s plan to reduce annual deficits up to $4 trillion over a decade does
call for subtracting $320 billion from Medicare and Medicaid, building on
savings required in his health care law.
But those proposals are far from the overhaul and reductions that Republicans
are demanding in the two popular entitlement programs, whose growth because of
the aging of the population and ever-rising medical costs is driving the
long-term projections of unsustainable debt.
And Mr. Obama removed Social Security from the table, as well as a proposal to
slowly raise the eligibility age for Medicare to 67 from 65. He put both forward
in July, to the chagrin of many Democrats, in private negotiations with Mr.
Boehner that fell apart when the speaker balked at agreeing to higher revenues.
Administration officials say Mr. Obama is not ruling out either proposal if
Republicans were to show significant give on taxes.
But the White House does not expect Republicans to do so. Indeed, Mr. Obama’s
new tack in pressing the deficit-reduction framework and $447 billion
jobs-creation plan that he wants — not trimmed to draw Republicans’ votes —
reflects the conclusion he has drawn from the past 10 months: Republicans will
oppose almost anything he proposes, even tax cuts. And Mr. Boehner is unable to
deliver his uncompromisingly anti-tax Republicans for any compromise that
includes tax revenues.
Mr. Obama believed he had built a good working relationship with Mr. Boehner
based on a shared desire for a deal modeled on proposals of past bipartisan
panels, which called for a mix of new revenues and changes in entitlement
programs.
But their relationship was severely strained after Mr. Boehner abandoned their
budget talks in July, came back and then walked out a second time. And after
what the White House saw as a third strike this month — Mr. Boehner’s
humiliating public rejection of Mr. Obama’s requested date for an address to a
joint session of Congress — the Obama team called Mr. Boehner out.
Their breach was evident in Mr. Obama’s remarks. He singled out Mr. Boehner in
his criticism of Republicans as unwilling to compromise, a break from the past
when Mr. Obama typically criticized Republicans in general but mentioned Mr.
Boehner only to praise him as a constructive partner. Not this time.
“Unfortunately, the speaker walked away from a balanced package,” Mr. Obama
said, referring to their earlier talks. “What we agreed to instead wasn’t all
that grand.”
Then he mocked Mr. Boehner for a speech last week in which the speaker said only
spending cuts could be part of a budget deal.
“So the speaker says we can’t have it ‘my way or the highway’ and then basically
says, ‘My way — or the highway,’ ” Mr. Obama said. “That’s not smart. It’s not
right.”
September
19, 2011
The New York Times
By HELENE COOPER
WASHINGTON — President Obama called on Monday for Congress to adopt his
“balanced” plan combining entitlement cuts, tax increases and war savings to
reduce the federal deficit by more than $3 trillion over the next 10 years, and
said he would veto any approach that relied solely on spending reductions to
address the fiscal shortfall.
“I will not support any plan that puts all the burden for closing our deficit on
ordinary Americans,” he said. “And I will veto any bill that changes benefits
for those who rely on Medicare but does not raise serious revenues by asking the
wealthiest Americans and biggest corporations to pay their fair share.
“We are not going to have a one-sided deal that hurts the folks who are most
vulnerable,” he continued.
His plan, presented in a speech in the Rose Garden of the White House, is the
administration’s latest move in the long-running power struggle over deficit
reduction. It comes as a joint House-Senate committee begins work in earnest to
spell out, at the least, a more modest savings plan that Congress could approve
by the end of the year in keeping with the debt deal reached this summer. If the
committee’s proposal is not enacted by Dec. 23, draconian automatic cuts across
government agencies could take effect a year later.
Mr. Obama is seeking $1.5 trillion in tax increases, primarily on the wealthy
and corporations, through a combination of letting Bush-era income tax cuts
expire on wealthier taxpayers, limiting the value of deductions taken by high
earners and closing corporate loopholes. The proposal also includes $580 billion
in adjustments to health and entitlement programs, including $248 billion to
Medicare and $72 billion to Medicaid. In a briefing previewing the plan,
administration officials said on Sunday that the Medicare savings would not come
from an increase in the Medicare eligibility age.
Senior administration officials who briefed reporters on some of the details of
Mr. Obama’s proposal said that the plan also counts a savings of $1.1 trillion
from ending the American combat mission in Iraq and the withdrawal of American
troops from Afghanistan.
Mr. Obama’s threat to veto any legislation that seeks to cut the deficit through
spending cuts alone without raising taxes puts him on a collision course with
the House speaker, John A. Boehner, who said last week that he would not support
any revenue increases in the form of higher taxes. But the White House has
compromised several times over the last year after making stern demands of
Congress that were not met.
Mr. Obama’s proposal is certain to receive sharp criticism from Congressional
Republicans, who on Sunday were already taking apart one element of the proposal
that the administration let out early: the so-called Buffett Rule. The rule —
named for the billionaire investor Warren E. Buffett, who has complained that he
is taxed at a lower rate than his employees — calls for a new minimum tax rate
for individuals making more than $1 million a year to ensure that they pay at
least the same percentage of their earnings as middle-income taxpayers.
That proposal, which was disclosed on Saturday, was met with derision Sunday by
Republican lawmakers, who said it amounted to “class warfare” and was a
political tactic intended to portray his opponents as indifferent to the
hardships facing middle-class Americans.
But Mr. Obama spent much of his talk in the Rose Garden making an impassioned
plea for what he called fairness in taxation, on the premise that “middle-class
families shouldn’t pay higher taxes than millionaires and billionaires.”
“This is not class warfare,” he said. “It’s math.”
Nonetheless, Republicans made clear on Sunday that higher taxes on the wealthy
were not acceptable to them. On NBC’s “Meet the Press,” Senator Mitch McConnell
of Kentucky, the Republican leader, said: “It’s a bad thing to do in the middle
of an economic downturn. And of course the economy, some would argue, is even
worse now than it was when the president signed the extension of the current tax
rates back in December.”
Under Mr. Obama’s proposal, $800 billion of the $1.5 trillion in tax increases
would come from allowing the Bush-era tax cuts to expire as scheduled for
wealthier taxpayers, while extending them for individuals making less than
$200,000 a year and families making less than $250,000. He won election on that
promise and tried, but failed, to get Congress to go along with that earlier in
his term. Now, it appears that he wants to campaign once again on that
difference with Republicans.
Treasury Secretary Timothy F. Geithner said after Mr. Obama spoke that the scale
of his proposal — $3 trillion, on top of $1 trillion already agreed to in the
summer debt deal — was not an arbitrary figure, but was just big enough to be a
real turning point in the deteriorating fiscal trends that otherwise portend a
long-term crisis in the making.
“That’s what you need to bring the deficit down to a level we can sustain over
time, to a level where the debt as a share of the economy as a whole is no
longer growing, stabilizes, starts to come down,” Mr. Geithner said.
Jacob J. Lew, the White House budget director, said that letting some Bush tax
cuts expire while extending others — part of what the White House calls its
“balanced” approach — could bring the annual deficit and the cumulative national
debt into a reasonable range as a percentage of the economy.
“A balanced approach will give you the ability to let the middle-class tax cuts
continue and, if you enact the entire program that we’ve proposed, bring our
deficit down to the low twos, like 2.3 percent of G.D.P., at the end of this
period, and keep the debt as a percentage of G.D.P. in the low 70s instead of
climbing up into a very dangerous range.”
Mr. Obama’s plan will hover over Congressional budget-cutting negotiations that
are under way over the next two months. A bipartisan Congressional committee is
charged with coming up with its own proposal by Nov. 23; unless passed by
Congress by Dec. 23, $1.2 trillion in cuts to defense and entitlement programs
will go into effect automatically in 2013.
Mr. Obama, however, is challenging the Congressional committee to go well beyond
its mandate, which is to find $1.2 trillion to $1.5 trillion in savings. “He’s
showing them where they could find the savings,” one administration official
said.
The Obama proposal has little chance of becoming law unless Republican lawmakers
bend. But by focusing on the wealthiest Americans, the president is sharpening
the contrast between Republicans and Democrats with a theme he can carry into
his bid for re-election in 2012.
Mr. Obama’s proposal is also an effort to reassure Democrats who had feared that
he would agree to changes in programs like Medicare without forcing Republicans
to compromise on taxes. Indeed, Roger Hickey, co-director of the Campaign for
America’s Future, a progressive center, warned in a statement that the president
should not raise the Medicare eligibility age, advice that Mr. Obama, so far,
seems to have heeded.
Brian
Knowlton contributed reporting.
This article
has been revised to reflect the following correction:
Correction: September 19, 2011
An earlier version of this article, and a headline on the Web, mistakenly
referred to a figure of more than $3 trillion as the amount of federal
government spending that President Obama's plan would cut. The $3 trillion
figure should have referred to the amount the plan would reduce the deficit over
10 years; $1.5 trillion of that deficit reduction will come from tax increases,
not spending cuts. The article also gave an incorrect date for the deadline for
the bipartisan Congressional committee to come up with its own cuts. It is Nov.
23, not Dec. 23. The article also included a reference to the scale of the
proposal that incorrectly described it as a $3 billion plan on top of the $1
billion cut over the summer — the figures should have been $3 trillion and $1
trillion.
September
18, 2011
The New York Times
By PAUL A. VOLCKER
IN all
the commentary about Ben S. Bernanke’s recent speech in Jackson Hole, Wyo.,
little attention has been paid to six crucial words: “in a context of price
stability.” Those words concluded a discussion by Mr. Bernanke, the Federal
Reserve chairman, of what tools the central bank could consider appropriate to
promote a stronger economic recovery.
Ordinarily, a central banker’s affirming the importance of price stability is
not headline news. But consider the setting. There is great and understandable
disappointment about high unemployment and the absence of a robust economy, and
even concern about the possibility of a renewed downturn. There is also a sense
of desperation that both monetary and fiscal policy have almost exhausted their
potential, given the size of the fiscal deficits and the already extremely low
level of interest rates.
So now we are beginning to hear murmurings about the possible invigorating
effects of “just a little inflation.” Perhaps 4 or 5 percent a year would be
just the thing to deal with the overhang of debt and encourage the “animal
spirits” of business, or so the argument goes.
It’s not yet a full-throated chorus. But remarkably, at least one member of the
Fed’s policy making committee recently departed from the price-stability script.
The siren song is both alluring and predictable. Economic circumstances and the
limitations on orthodox policies are indeed frustrating. After all, if 1 or 2
percent inflation is O.K. and has not raised inflationary expectations — as the
Fed and most central banks believe — why not 3 or 4 or even more? Let’s try to
get business to jump the gun and invest now in the expectation of higher prices
later, and raise housing prices (presumably commodities and gold, too) and maybe
wages will follow. If the dollar is weakened, that’s a good thing; it might even
help close the trade deficit. And of course, as soon as the economy expands
sufficiently, we will promptly return to price stability.
Well, good luck.
Some mathematical models spawned in academic seminars might support this
scenario. But all of our economic history says it won’t work that way. I thought
we learned that lesson in the 1970s. That’s when the word stagflation was
invented to describe a truly ugly combination of rising inflation and stunted
growth.
My point is not that we are on the edge today of serious inflation, which is
unlikely if the Fed remains vigilant. Rather, the danger is that if, in
desperation, we turn to deliberately seeking inflation to solve real problems —
our economic imbalances, sluggish productivity, and excessive leverage — we
would soon find that a little inflation doesn’t work. Then the instinct will be
to do a little more — a seemingly temporary and “reasonable” 4 percent becomes
5, and then 6 and so on.
What we know, or should know, from the past is that once inflation becomes
anticipated and ingrained — as it eventually would — then the stimulating
effects are lost. Once an independent central bank does not simply tolerate a
low level of inflation as consistent with “stability,” but invokes inflation as
a policy, it becomes very difficult to eliminate.
It is precisely the common experience with this inflation dynamic that has led
central banks around the world to place prime importance on price stability.
They do so not at the expense of a strong productive economy. They do it because
experience confirms that price stability — and the expectation of that stability
— is a key element in keeping interest rates low and sustaining a strong,
expanding, fully employed economy.
At a time when foreign countries own trillions of our dollars, when we are
dependent on borrowing still more abroad, and when the whole world counts on the
dollar’s maintaining its purchasing power, taking on the risks of deliberately
promoting inflation would be simply irresponsible.
It is that conviction that underlies Mr. Bernanke’s six words. Let’s not forget
them.
President Obama has now set out new proposals to support economic growth. I hope
he will be able to work with a responsible Congress to find the common ground
that is urgently needed to deal with the economic challenges before us,
restoring a healthy economy “in a context of price stability.” I also hope they
will reach agreement early next year on a strong program to deal responsibly
with our huge budget deficit over the years ahead.
Paul A. Volcker was chairman of the Federal Reserve from 1979 to 1987.
September
18, 2011
The New York Times
By PAUL KRUGMAN
Doctors
used to believe that by draining a patient’s blood they could purge the evil
“humors” that were thought to cause disease. In reality, of course, all their
bloodletting did was make the patient weaker, and more likely to succumb.
Fortunately, physicians no longer believe that bleeding the sick will make them
healthy. Unfortunately, many of the makers of economic policy still do. And
economic bloodletting isn’t just inflicting vast pain; it’s starting to
undermine our long-run growth prospects.
Some background: For the past year and a half, policy discourse in both Europe
and the United States has been dominated by calls for fiscal austerity. By
slashing spending and reducing deficits, we were told, nations could restore
confidence and drive economic revival.
And the austerity has been real. In Europe, troubled nations like Greece and
Ireland have imposed savage cuts, even as stronger nations have imposed milder
austerity programs of their own. In the United States, the modest federal
stimulus of 2009 has faded out, while state and local governments have slashed
their budgets, so that over all we’ve had a de facto move toward austerity not
so different from Europe’s.
Strange to say, however, confidence hasn’t surged. Somehow, businesses and
consumers seem much more concerned about the lack of customers and jobs,
respectively, than they are reassured by the fiscal righteousness of their
governments. And growth seems to be stalling, while unemployment remains
disastrously high on both sides of the Atlantic.
But, say apologists for the bad results so far, shouldn’t we be focused on the
long run rather than short-run pain? Actually, no: the economy needs real help
now, not hypothetical payoffs a decade from now. In any case, evidence is
starting to emerge that the economy’s “short run” troubles — now in their fourth
year, and being made worse by the focus on austerity — are taking a toll on its
long-run prospects as well.
Consider, in particular, what is happening to America’s manufacturing base. In
normal times manufacturing capacity rises 2 or 3 percent every year. But faced
with a persistently weak economy, industry has been reducing, not increasing,
its productive capacity. At this point, according to Federal Reserve estimates,
manufacturing capacity is almost 5 percent lower than it was in December 2007.
What this means is that if and when a real recovery finally gets going, the
economy will run into capacity constraints and production bottlenecks much
sooner than it should. That is, the weak economy, which is partly the result of
budget-cutting, is hurting the future as well as the present.
Furthermore, the decline in manufacturing capacity is probably only the
beginning of the bad news. Similar cuts in capacity will probably take place in
the service sector — indeed, they may already be taking place. And with
long-term unemployment at its highest level since the Great Depression, there is
a real risk that many of the unemployed will come to be seen as unemployable.
Oh, and the brunt of those cuts in public spending is falling on education.
Somehow, laying off hundreds of thousands of schoolteachers doesn’t seem like a
good way to win the future.
In fact, when you combine the growing evidence that fiscal austerity is reducing
our future prospects with the very low interest rates on U.S. government debt,
it’s hard to avoid a startling conclusion: budget austerity may well be
counterproductive even from a purely fiscal point of view, because lower future
growth means lower tax receipts.
What should be happening? The answer is that we need a major push to get the
economy moving, not at some future date, but right now. For the time being we
need more, not less, government spending, supported by aggressively expansionary
policies from the Federal Reserve and its counterparts abroad. And it’s not just
pointy-headed economists saying this; business leaders like Google’s Eric
Schmidt are saying the same thing, and the bond market, by buying U.S. debt at
such low interest rates, is in effect pleading for a more expansionary policy.
And to be fair, some policy players seem to get it. President Obama’s new jobs
plan is a step in the right direction, while some board members of the Federal
Reserve and the Bank of England — though not, sad to say, the European Central
Bank — have been calling for much more growth-oriented policies.
What we really need, however, is to convince a substantial number of people with
political power or influence that they’ve spent the last year and a half going
in exactly the wrong direction, and that they need to make a U-turn.
It’s not going to be easy. But until that U-turn happens, the bleeding — which
is making our economy weaker now, and undermining its future at the same time —
will continue.
September
18, 2011
The New York Times
By HELENE COOPER
WASHINGTON — President Obama will unveil a deficit-reduction plan on Monday that
uses entitlement cuts, tax increases and war savings to reduce government
spending by more than $3 trillion over the next 10 years, administration
officials said.
The plan, which Mr. Obama will lay out Monday morning at the White House, is the
administration’s opening move in sweeping negotiations on deficit reduction to
be taken up by a joint House-Senate committee over the next two months. If a
deal is not struck by Dec. 23, cuts could take effect automatically across
government agencies.
Mr. Obama will call for $1.5 trillion in tax increases, primarily on the
wealthy, through a combination of closing loopholes and limiting the amount that
high earners can deduct. The proposal also includes $580 billion in adjustments
to health and entitlement programs, including $248 billion to Medicare and $72
billion to Medicaid. Administration officials said that the Medicare cuts would
not come from an increase in the Medicare eligibility age.
Senior administration officials who briefed reporters on some of the details of
Mr. Obama’s proposal said that the plan also counts a savings of $1.1 trillion
from the ending of the American combat mission in Iraq and the withdrawal of
American troops from Afghanistan.
In laying out his proposal, aides said, Mr. Obama will expressly promise to veto
any legislation that seeks to cut the deficit through spending cuts alone and
does not include revenue increases in the form of tax increases on the wealthy.
That veto threat will put the president on a direct collision course with the
House speaker, John A. Boehner, who said last week that he would not support any
legislation that included revenue increases in the form of higher taxes.
Mr. Obama’s proposal is certain to receive sharp criticism from Congressional
Republicans, who on Sunday were already taking apart one element of the proposal
that the administration let out early: the so-called Buffett Rule. The rule —
named for the billionaire investor Warren E. Buffett, who has complained that he
is taxed at a lower rate than his employees — calls for a new minimum tax rate
for individuals making more than $1 million a year to ensure that they pay at
least the same percentage of their earnings as middle-income taxpayers.
That proposal, which was disclosed on Saturday, was met with derision Sunday by
Republican lawmakers, who said it amounted to “class warfare” and a political
tactic intended to portray his opponents as indifferent to the hardships facing
middle-class Americans.
Representative Paul D. Ryan, chairman of the House Budget Committee and a
leading proponent of cutting spending on benefit programs like Medicare, said
the proposal would weigh heavily on a stagnating economy.
On “Fox News Sunday,” Mr. Ryan said it would add “further instability to our
system, more uncertainty, and it punishes job creation.”
“Class warfare,” he said, “may make for really good politics, but it makes for
rotten economics.”
Administration officials said Sunday night that they were not including any
revenue from the Buffett Rule in Mr. Obama’s overall $3 trillion proposal,
adding that it was more of a guiding principle the president will adopt as
budget negotiations with Congress advance.
Mr. Obama has been citing Mr. Buffett as he promotes his separate $447 billion
jobs-creation plan. He proposes to offset the cost of that plan and to reduce
future budget deficits through higher taxes on the wealthy and on corporations
after 2013, when the economy will presumably be healthier.
Nonetheless, Republicans made clear on Sunday that higher taxes on the wealthy
were not acceptable to them. Appearing on the NBC program “Meet the Press,”
Senator Mitch McConnell of Kentucky, the Republican leader, said “it’s a bad
thing to do in the middle of an economic downturn. And of course the economy,
some would argue, is even worse now than it was when the president signed the
extension of the current tax rates back in December.”
Under Mr. Obama’s proposal, $800 billion of the $1.5 trillion in tax increases
would come from allowing the Bush-era tax cuts to expire. The other $700
billion, aides said, would come from a combination of closing loopholes and
limiting deductions among individuals making more than $200,000 a year and
families making more than $250,000.
Mr. Obama’s plan will hover over Congressional budget-cutting negotiations that
are under way over the next two months. A bipartisan Congressional committee is
charged with coming up with its own cuts by Dec. 23; otherwise $1.2 trillion in
cuts to defense and entitlement programs will go into effect automatically in
2013.
Mr. Obama, however, is challenging the Congressional committee to go well beyond
its mandate. “He’s showing them where they could find the savings,” one
administration official said.
Liberal-leaning organizations were rallying behind Mr. Obama’s proposals on
Sunday.
“The report that the president is planning to ask millionaires and billionaires
to pay taxes at a higher rate than their secretaries pay is welcome news that
will be wildly popular with voters,” said Roger Hickey, co-director of the
Campaign for America’s Future, a progressive center, in a statement. “We applaud
the president for heeding the advice from progressives that he go big on his
jobs plan.”
The Obama proposal has little chance of becoming law unless Republican lawmakers
bend. But by focusing on the wealthiest Americans, the president is sharpening
the contrast between Republicans and Democrats with a theme he can carry into
his bid for re-election in 2012.
Mr. Obama’s proposal is also an effort to reassure Democrats who had feared that
he would agree to changes in programs like Medicare without forcing Republicans
to compromise on taxes. Indeed, Mr. Hickey warned in his statement that the
president should not raise the Medicare eligibility age, advice that Mr. Obama,
so far, seems to have heeded.
September
16, 2011
The New York Times
By CHARLES M. BLOW
The
American political discussion has finally turned to the right target: jobs.
Even so, the president’s jobs bill is already being nickeled and dimed from the
right — and the left — even though it is only throwing nickels and dimes at the
problem to begin with. But at least it’s a start, even if a long-overdue one.
To understand just how overdue it is, one need look no further than the
absolutely dreadful data issued this week by the Census Bureau about the
increasing numbers of people falling into poverty. No matter how you slice it,
it’s bloody.
There are now 46.2 million poor Americans.
Of those, 2.6 million fell into poverty last year.
At 15.1 percent, the poverty rate is at its highest since 1993.
Bloody, bloody, bloody.
But even those numbers somewhat obscure the true historic nature of the crisis
and the effect that the recession, falling wages and chronic joblessness have
had on those living in poverty. If you remove children and the elderly and just
look at working-age adults — those 18 to 64 — the picture is even more bleak.
The percentage of that group that is in poverty is the highest recorded since
President Lyndon B. Johnson declared a “war on poverty” during his first State
of the Union address in January 1964.
And it’s not that most of these people don’t have jobs. It’s that they don’t
have good jobs that pay enough to push them out of poverty. Three out of four of
those below the poverty line work: half have full-time jobs, a quarter work part
time. Only a quarter do not work at all.
This raises an important distinction — not only do we need to create more jobs,
we need to increase the number of good jobs. And we can’t see that quest for
good jobs as an internal skirmish between warring political ideologies. It’s an
international war. At least that is the way Jim Clifton, chairman of Gallup,
frames it in his fascinating — and frightening — new book, “The Coming Jobs
War.”
According to Clifton, “the coming world war is an all-out global war for good
jobs.”
(He defines a good job, also known as a formal job, as one with a “paycheck from
an employer and steady work that averages 30-plus hours per week.”)
In the book he makes this striking statement, drawing from all of Gallup’s data:
“The primary will of the world is no longer about peace or freedom or even
democracy; it is not about having a family, and it is neither about God nor
about owning a home or land. The will of the world is first and foremost to have
a good job. Everything else comes after that.” The only problem is that there
are not enough good jobs to go around.
Clifton explains that of the world’s five billion people over 15 years old,
three billion said they worked or wanted to work, but there are only 1.2 billion
full-time, formal jobs. Therefore his conclusion “from reviewing Gallup’s
polling on what the world is thinking on pretty much everything is that the next
30 years won’t be led by U.S. political or military force.”
“Instead,” he says, “the world will be led with economic force — a force that is
primarily driven by job creation and quality G.D.P. growth.” And guess who is
vying for the lead? That’s right: China.
And I must say, we don’t appear to be poised to fight this war. In education
we’ve gone from leading to lagging, our infrastructure is literally crumbling
around us, ever-expanding health care costs threaten to suffocate us and our
politics have succumbed to paralysis.
A widely-cited 2009 study by the consulting firm McKinsey & Company, “The
Economic Impact of the Achievement Gap in America’s Schools,” found that the
recent American educational achievement gaps — between black and Latino students
and white ones; between low-income students and the rest; between low-performing
states and the rest; and between the United States as a whole and
better-performing countries — not only cost the economy trillions of dollars,
they also “impose on the United States the economic equivalent of a permanent
national recession.”
According to a recent report by the Urban Land Institute and Ernst & Young,
China has “about 9 percent of G.D.P. devoted to infrastructure, compared with
less than 3 percent in the United States.” And the Report Card for America’s
Infrastructure graded by the American Society of Civil Engineers in 2009 was so
full of C’s and D’s that it looked like Rick Perry’s college transcript. The
group estimated that $2.2 trillion of investment over five years was needed to
bring conditions up to par. We’re not even close to that.
Furthermore, Clifton points out that 30 percent of America’s students drop out
or do not graduate on time. He concludes, “If this problem isn’t fixed fast, the
United States will lose the next worldwide, economic, jobs-based war because its
players can’t read, write or think as well as their competitors in a game for
keeps.”
And, a Rand Corporation study released last week found that “between 1999 and
2009, total spending on health care in the United States nearly doubled, from
$1.3 trillion to $2.5 trillion. During the same period, the percentage of the
nation’s gross domestic product devoted to health care climbed from 13.8 percent
to 17.6 percent. Per person health care spending grew from $4,600 to just over
$8,000 annually.”
We simply can’t sustain that sort of growth.
Clifton enumerates 10 “demands” that America will have to master to “lead the
new will of the world” — from drastically increasing exports, to having
investments follow “rare entrepreneurs versus the worldwide oversupply of
innovation,” to something as basic as doing a better job of identifying where
likely customers are. But at the top of the list is understanding that the world
has a shortage of good jobs and every decision of every leader must be informed
by increasing the share of those jobs.
He puts it this way:
“The war for global jobs is like World War II: a war for all the marbles. The
global war for jobs determines the leader of the free world. If the United
States allows China or any country or region to out-enterprise, out-job-create,
out-grow its G.D.P., everything changes. This is America’s next war for
everything.”
September
15, 2011
8:30 pm
The New York Times
By TINA ROSENBERG
School
went badly last year for José, Angel and Estefani. The 8-year-old twins and
their 7-year-old sister are recent immigrants to the Washington Heights
neighborhood of Manhattan. In part because they didn’t speak much English, late
in 2010 all three were notified they were in danger of failing.
But their fortunes changed in January. They began going to the Fort Washington
Library every Saturday for two hours of one-on-one tutoring from Elayne
Castillo-Vélez, her sister, Sharon Castillo, and their grandmother, Saturnina
Gutiérrez. The children had lost confidence and didn’t feel that more hours
spent with school books would produce anything, said Castillo-Vélez. “There were
times when all they wanted to do was talk about their week,” she said.
“But once we started working one-on-one it triggered something in them,” she
said. “They were enthusiastic.” Castillo-Vélez would ask José’s teacher what he
should work on, and the teacher would write back — work on vowel sounds, or
subtraction strategies. The children began to take books out of the library
every week. Their grades improved. When June came, they all passed, and won
certificates for academic improvement and achievement.
The two families met because of a bank — a time bank, where the unit of currency
is not a dollar, but an hour. When you join a time bank, you indicate what
services you might be able to offer others: financial planning, computer
de-bugging, handyman repairs, housecleaning, child care, clothing alterations,
cooking, taking someone to a doctor’s appointment on the bus, visiting the
homebound or English conversation. People teach Mandarin and yoga and
sushi-making. Castillo-Vélez earns a credit for each hour she spends tutoring
José. She spends the credits on art classes.
Time banks — more than 300 of them — exist in 23 countries. The largest one in
New York City is the Visiting Nurse Service of New York Community Connections
TimeBank.
It has more than 2,000 members and is most active in three places — Upper
Manhattan (Washington Heights and Inwood), Lower Manhattan (Battery Park City,
Chinatown and the Lower East Side) and parts of Brooklyn (Sunset Park and Bay
Ridge). Members come from all over New York City, but exchanges are easiest when
people live in the same neighborhood — like Castillo-Vélez and José.
There is something old fashioned about a time bank. Home repair, child care,
visiting shut-ins and taking someone to the doctor are now often commercial
transactions; a time bank is a return to an era where neighbors did these tasks
for each other. But a time bank is also something radical. It throws out the
logic of the market — in a time bank, all work has equal value. A 90-year-old
can contribute on an equal basis with a 30 year old. Accompanying someone to the
doctor is as valuable as Web design.
The idea comes from Edgar Cahn, a legendary anti-poverty activist. (Cahn and his
late wife, Jean Camper Cahn, established the Antioch School of Law to train
advocates for the poor, and were instrumental in founding the federal Legal
Services Corporation.) In his book “No More Useless People,” Cahn writes that
time banks were a response to cuts in social programs during the Reagan years.
Cahn wrote: “If we can’t have more of that kind of money, why can’t we create a
new kind of money to put people and problems together?”
Time banks also owe much of their development to Ana Miyares, who in the 1980s
gave up a lucrative position in international banking to join the time bank
movement in its infancy. She has founded time banks in various countries, and
today is the manager of the Visiting Nurse Service’s time bank. Miyares sees
time banking a little differently than Cahn does. “I would like to see social
justice — but in a different way, using social capital, energizing social
capital to be responsible citizens,” she said.
The value of a time bank during a time of high unemployment is obvious. It is a
way for underemployed people to put their skills to work to get things they
need. (During the Great Depression, a group of men living in a Hooverville of
unlaid sewer pipe in California began a barter exchange that eventually had
100,000 members.) Forty percent of the members of the Visiting Nurse Service’s
time bank, for example, have an annual income of less than $9,800. Many time
banks have a large percentage of members who are older and living on a fixed
income. “The difference it makes to have a handyman come out and do a repair for
the cost of materials could be the difference between being able to purchase
medicine or not,” said Barbara Huston, the president and chief executive of
Partners in Care, a time bank based near Baltimore. “Getting a ride to the
doctor and saving $30 to $50 in transport costs might mean being able to buy all
their vegetables.”
But a time bank it is more than a barter Craigslist. Mashi Blech, the director
of the Visiting Nurse Service time bank, said that only 10 percent of members
bother to consistently record the hours they put in. In what industry would 90
percent of wage workers not care about recording their hours?
Castillo-Vélez, for one, doesn’t always record hers. She knows the Fort
Washington Library well, because she used to go there as a child. Her
grandmother is an avid reader in Spanish, and Castillo-Vélez inherited her love
of books. Now a graduate of Stony Brook University, Castillo-Vélez tutors José
because she remembers her own journey. “I know how it is to have to learn
another language and have no one really there. I also overcame my shyness —
sitting in class without speaking up. I saw myself in them,” she said.
Several TimeBank members told me that activities gradually cease being services
performed and become instead hours with friends. When Regina Gradess was 56, for
example, she met Doris Feldman, who was 80. She began to drive Feldman places in
her car. Technically, Gradess was providing companionship to an elderly woman.
But that’s not what it felt like. “I would take her to the duck pond, or a
unique thrift shop, or libraries,” she said. “We’d ride the bus to a museum and
talk about all the architecture we saw. Every time I was with her we had tons of
things to talk about. It was wonderful for me and wonderful for her.” They saw
each other at least every other week. When Feldman died in July at the age of
84, Gradess said she felt like she had lost her soul mate.
A time bank is a way to make a small town out of a big city — something
especially important for retired people, who might go for days without human
contact. The Visiting Nurse Service TimeBank has group gatherings — birthday
parties, potlucks, trips — in addition to the work exchanges. A survey of
members over 60 years old in 2009 found that 90 percent had made new friends, 71
percent saw those friends at least once a week, and 42 percent saw their
TimeBank friends a few times a week. By overwhelming margins, the members
reported that they felt more a part of a community, and their trust of others
had increased — especially of other people who were different from them. The
vast majority of pairings in the TimeBank bring together very different people –
in ethnicity, income level, or especially, age; in Castillo-Vélez’s family, her
grandmother, mother, aunt, sister, brother, husband and sister-in-law also are
active in the TimeBank. Many pairings also cross language barriers. Members
speak 29 different languages, and for just under half the members, English is
not one of them.
Despite its size — or perhaps because of it — New York City offers people many
different groups to join and many different ways to make friends. What makes a
time bank different is that the purpose of the connection is ostensibly to give
help — something that makes a lot of people more comfortable and confident. “I’m
a shy person and I have a problem with receiving,” said Gradess. Even if you
happen to be the one receiving services in any particular transaction, you know
you will be giving help to someone else.
Blech tells a story from an earlier time bank experience about Betty, a member
in her 70s who suffered from several serious medical conditions and had been the
caregiver for her mother for 15 years. When Betty’s mother died, “people were
thinking now she’ll be less stressed,” said Blech. “I was concerned that she’d
be depressed — she was losing her role in life.”
Blech called one afternoon two weeks after the mother’s death and found Betty
very depressed. “Later, I found out that she had barely gotten out of bed in two
weeks, and that the bottle of antidepressants she was prescribed was still
sitting on her table, unopened,” she said.
They talked for a while, and then Blech said, “I need you.” Betty was a skilled
crocheter. “I was going to an international conference and needed a baby gift,”
Blech said. Would Betty make a baby blanket?
“I don’t think I’m up for that,” Betty said. Blech asked her to think about it.
Five minutes later Blech’s phone rang. “Should it have a hood?” said Betty. “How
about a matching crocheted hippo or dog?”
Blech invited her to the next time bank gathering to show off her crocheting.
She left with 10 orders.
This is a story many of us can relate to. People like to cook for others, to
make things for others, to teach what they know, to use their skills to do a job
for someone who needs it. People need to feel valued.
On Wednesday I’ll respond to comments and explain one of the mysteries of time
banks — why does the Visiting Nurse Service run one? Why do so many hospitals?
Being with and giving to others, it turns out, are good for your health.
September
15, 2011
The New York Times
By CHRISTINE HAUSER
The rate
of inflation in the United States slowed slightly in August, when a rise in food
prices was tempered by easing prices for gasoline and automobiles, according to
government statistics released Thursday.
The Labor Department said the Consumer Price Index rose 0.4 percent last month,
a slight deceleration compared with the 0.5 percent rise in July. The index,
although it reflects just one month of data, is a closely watched indicator that
guides analysts in assessing the economy. Other reports released Thursday showed
weakness in the jobs market and an uncertain outlook for manufacturing.
“The story is very much the same: that economic growth is slow,” said Kurt J.
Rankin, economist for PNC Bank, about the day’s data.
The inflation figures for August reflected the volatility in prices for items
such as food and energy. Prices for gasoline moderated, with a 1.9 percent rise
in August after a 4.7 percent jump in July. Food prices rose 0.5 percent
compared with 0.4 percent in July.
When those components were stripped from the index, the core C.P.I. showed that
prices rose in August at the same rate as in July, 0.2 percent. That was in line
with analysts’ forecasts in a survey compiled by Bloomberg News.
On a year-over-year basis, the core C.P.I. was up 2 percent in August compared
with 1.8 percent in July.
Paul Ballew, a former Federal Reserve economist and now chief economist at
Nationwide, said that the August C.P.I. number was consistent with expectations
set earlier by such things as automobile prices, which were basically flat in
August.
“Those pockets of weakness were in areas already expected and known,” he said.
Of more importance to investors were events in the European debt crisis and
speculation as to what Federal Reserve policy makers would say after a meeting
next week, Mr. Ballew said. Although the chairman of the Fed, Ben S. Bernanke,
has given no sign that there would be fresh stimulus measures, market watchers
were weighing the possibility of any measures that would promote the economic
recovery in the United States.
With the year-over-year core C.P.I. at 2 percent, it was bumping up against the
top limit of the Fed’s unofficial target rate. But the Fed also relies on
another closely watched measure of inflation, the price index for personal
consumption expenditures, which was up 1.6 percent in the 12 months that ended
in July, the latest government data shows.
“It definitely gives him room under the ceiling, if they want to ease policy,”
said Kevin Logan, senior economist at HSBC. One such move would be for the Fed
to shift bonds in its portfolio to bring down longer-term interest rates. But
the central bank cannot raise rates, Mr. Rankin of PNC Bank said, because it
would slow economic activity.
In addition, the latest figures show that inflation is set to outpace wage
growth, which would be a “significant blow” to potential economic growth because
70 percent of the economy is based on consumer spending, Mr. Rankin said.
“Even those with jobs are not able to put that money back into the economy in a
way that would create jobs,” he said. “Now we are getting to the point with this
inflation number, even those with jobs are less capable of driving economic
activity.”
Steve Blitz, the senior economist for ITG Investment Research, also said that
the latest data did not add any impetus to notions that the Fed would respond
with policy action at its meeting on Sept. 20-21.
“I think because of the headline number and all of the conservative politics
behind it, this certainly does not give Bernanke any cover towards doing
anything big,” Mr. Blitz said. “The only thing that is going to give him the
cover is what is going on in Europe.”
Mr. Blitz said the C.P.I. data reflected more of a shift in prices rather than
inflation, because there was no accompanying rise in wages, and some elements of
the data suggest the possibility of future economic activity in specific sectors
as capital is directed more efficiently.
For example, rents are a factor pushing the index higher, Mr. Blitz said, but
that could be positive for the economy if it continues because it can spur
construction in multifamily homes and rental housing.
In addition, a weaker dollar is also pushing up the C.P.I., which means imported
goods are more expensive. Domestic producers might see an opening to compete
with imported products.
“Here what you have is an interesting mix of price signals that could very well
help growth going forward,” Mr. Blitz said.
A weekly report from the Labor Department showed that for the second consecutive
week, initial claims for jobless benefits rose, increasing by 11,000 in the week
ended Sept. 10 to 428,000. That was up from the previous week’s 417,000, which
was revised up from 414,000.
Economists generally take any level over 400,000 as a continued sign of weakness
in the labor market.
In addition, the Federal Reserve reported that industrial production increased
0.2 percent in August after having advanced 0.9 percent in July.
Total industrial production for August was 3.4 percent above its level of a year
ago, the Fed said.
In “How to Really Save the Economy”
(Sunday Review, Sept. 11), Robert J. Barro urges a tax on consumer spending and
elimination of the corporate income tax, among other ideas.
Consumption taxes are highly regressive and depress consumer spending (as they
did in Japan). By coddling shareholders and raising their expectations of high
dividends, low corporate taxes encourage short-term thinking and further
outsourcing of jobs to low-wage countries.
It is clear that America faces long-lasting unemployment. Employee expenses are
paid for with pretax income, which means that hiring more employees lowers a
company’s taxes. Businesses will be disinclined to invest if the public is not
buying their products and services, which requires the public to have more
disposable income, not less.
My prescription would be nearly the opposite of what Professor Barro proposes:
raising both corporate taxes and the taxes of high-income people to encourage
pretax investments such as hiring, upgrading of facilities, on-the-job training,
and state and municipal bonds.
KAREN SANDNESS
Minneapolis, Sept. 11, 2011
To the
Editor:
I disagree with Robert J. Barro on many counts, but let me address just one, his
recommendation to create a federal value-added tax (VAT).
The poor spend most of their income on VAT-eligible purchases, meaning that they
would be taxed at close to the 10 percent that Mr. Barro recommends, while the
wealthy, who spend a small portion of their income on such purchases, would be
taxed at a fraction of that.
He adds that a 10 percent VAT would yield roughly 5 percent of gross domestic
product, apparently a worthwhile goal, while from 2000 to 2008 corporate taxes
were “only 1.9 percent of G.D.P.,” apparently so inconsequential that, according
to him, they should be abolished.
Can Mr. Barro give the number between 1.9 and 5 percent that divides the
worthwhile from the inconsequential?
JACK HERSCHLAG
Upper Montclair, N.J., Sept. 11, 2011
To the
Editor:
In advancing the classical supply-side argument for how to solve our current
economic problems, Prof. Robert J. Barro states, “Today’s priority has to be
austerity, not stimulus.”
Were he to seek some empirical data, he might consult the British prime
minister, David Cameron, and ask, paraphrasing Sarah Palin, “How’s that
austerity thing workin’ out for ya?”
The latest figures from the Census Bureau show the devastating cost of the
recession and why putting Americans back to work must be Washington’s top
priority.
The bureau reported on Tuesday that the number of people living in poverty
swelled by 2.6 million between 2009 and 2010 to 46.2 million. That is a shocking
15.1 percent of the population — the highest share since 1993.
The middle class is also hurting. Last year, the income of the typical American
household fell 2.3 percent to $49,445 — it’s third consecutive annual decline —
capping a lost decade of stagnating earnings. Median household income hit its
lowest level since 1996 — $3,800 a year less than its peak in 1999.
The poverty numbers are even bleaker for minorities. According to the bureau,
26.6 percent of Hispanic households and 27.4 percent of black households lived
below the poverty line last year, compared with 13 percent for white households.
Almost a third of families led by a single mother were below the poverty line,
while 22 percent of children subsisted in poverty.
Poverty levels are even worse by historical standards. The government considers
a family of four to be poor if it earned less than $22,314 in 2010 — about 30
percent of the median income. The original poverty line, introduced in the
1960s, was almost 50 percent of median incomes. Using that formula, 22 percent
of Americans are now poor, about the same share as a half-century ago.
These numbers should jolt Washington into addressing the real economic crisis.
The deficit must be addressed over time. But right now the problem is too few
jobs, not too much government spending. Indeed, government safety-net programs —
so often sneered at by Republicans — are all that is keeping millions from
falling into complete despair. Food stamps helped feed 40 million families in
2010, 50 percent more than in 2007. Slashing such spending now will only put
more people out of work and drive more families below the poverty line.
It took too long, but President Obama is now pushing back. His new proposals to
extend unemployment insurance benefits for millions of people, invest in public
infrastructure and provide incentives for employers to increase their payrolls
should add jobs and help the jobless make ends meet. Congressional Republicans,
predictably, are complaining about the cost and about raising taxes on the
wealthy to pay for it.
With 14 million Americans out of work and 46 million living in poverty, the real
human cost of more obstruction and inaction is undeniable and inexcusable.
President
Obama has often trimmed his ideas to what he thinks he might possibly get from
an opposition that intends to give him nothing. So it is a relief to see him
demanding that Congress do what the country really needs.
On Sept. 8, Mr. Obama proposed a $447 billion job-creation initiative, and on
Monday, he proposed a sensible package of tax increases to pay for it — saying,
in essence, that a sane fiscal policy requires more careful government spending
now and eventually higher taxes.
Congressional Republicans initially offered a cautious reaction to the jobs
bill. But once Mr. Obama talked about taxes, they lost all restraint. For all
the caterwauling from Republicans about the budget deficit, the House majority
leader, Eric Cantor, said paying for the plan would amount to a tax on “job
creators.” The Senate minority leader, Mitch McConnell, said the tax proposals
were dead on arrival — his reaction to anything Mr. Obama has proposed since
Inauguration Day.
Now it is up to Mr. Obama to sell the public on his approach, something the
White House has not done well. It will be a test of whether Mr. Obama will
aggressively take on his opposition as the 2012 elections approach.
The president is offering job-creation policies to take effect as soon as
Congress passes the bill, paired with tax increases, mostly on the top 2 percent
of households that make more than $250,000 a year, starting in 2013.
Broadly, the package offers a weak economy stimulus in the short run and deficit
reduction in the longer run. It is also sound in its particulars. By targeting
the tax increases on high-end earners, any hit to economic growth can be offset
by using the new revenue to pay for programs that have a bigger impact on
economic activity than leaving the money in richer Americans’ pockets.
When he laid out his jobs plan last week, Mr. Obama powerfully presented a
series of choices — a status quo of high unemployment, deteriorating human
capital and crumbling infrastructure or a renewed push for recovery and relief
measures to get the economy moving again.
That means choosing between a tax system that coddles the rich or reorienting
the code in favor of the middle class. The tax increases Mr. Obama has
recommended are a step in the direction of middle-class prosperity.
The largest part would raise some $400 billion over 10 years by capping the
value of itemized deductions and other tax breaks at 28 percent. That would mean
higher taxes for the minority of taxpayers who will be paying 36 percent and
39.6 percent when the Bush tax cuts expire at the end of 2012. The majority of
taxpayers, who pay a top rate of 28 percent or less, would be unaffected.
Republicans can object all they want. But the proposed cap is much less
stringent than the ones proposed by prominent deficit reduction panels,
including the bipartisan Bowles-Simpson committee.
It is also fair tax policy. Under current law, the largest subsidies go to
people who need them least — for such things as mortgage interest and charitable
giving — because the value of tax breaks rises as income and tax rates rise.
Capping such breaks helps to ensure that subsidies are focused on Americans who
need them most.
The other parts of Mr. Obama’s proposed tax increases would raise money while
making the code more fair: $41 billion by ending tax breaks for oil and gas
companies; $18 billion by not letting private equity partners pay tax on most
earnings at about the lowest rate in the code; and $3 billion by curbing breaks
for corporate jets.
Mr. Obama’s proposals, including the taxes to pay for them, could not be more
urgent. There is a crater in the economy where the job market used to be.
September
13, 2011
The New York Times
By SABRINA TAVERNISE
WASHINGTON — Another 2.6 million people slipped into poverty in the United
States last year, the Census Bureau reported Tuesday, and the number of
Americans living below the official poverty line, 46.2 million people, was the
highest number in the 52 years the bureau has been publishing figures on it.
And in new signs of distress among the middle class, median household incomes
fell last year to levels last seen in 1997.
Economists pointed to a telling statistic: It was the first time since the Great
Depression that median household income, adjusted for inflation, had not risen
over such a long period, said Lawrence Katz, an economics professor at Harvard.
“This is truly a lost decade,” Mr. Katz said. “We think of America as a place
where every generation is doing better, but we’re looking at a period when the
median family is in worse shape than it was in the late 1990s.”
The bureau’s findings were worse than many economists expected, and brought into
sharp relief the toll the past decade — including the painful declines of the
financial crisis and recession —had taken on Americans at the middle and lower
parts of the income ladder. It is also fresh evidence that the disappointing
economic recovery has done nothing for the country’s poorest citizens.
The report said the percentage of Americans living below the poverty line last
year, 15.1 percent, was the highest level since 1993. (The poverty line in 2010
for a family of four was $22,314.)
The report comes as President Obama gears up to try to pass a jobs bill, and
analysts said the bleak numbers could help him make his case for urgency. But
they could also be used against him by Republican opponents seeking to highlight
economic shortcomings on his watch.
“This is one more piece of bad news on the economy,” said Ron Haskins, a
director of the Center on Children and Families at the Brookings Institution.
“This will be another cross to bear by the administration.”
The past decade was also marked by a growing gap between the very top and very
bottom of the income ladder. Median household income for the bottom tenth of the
income spectrum fell by 12 percent from a peak in 1999, while the top 90th
percentile dropped by just 1.5 percent. Overall, median household income
adjusted for inflation declined by 2.3 percent in 2010 from the previous year,
to $49,445. That was 7 percent less than the peak of $53,252 in 1999. Part of
the income decline over time is because of the smaller size of the American
family.
This year is not likely to be any better, economists said. Stimulus money has
largely ended, and state and local governments have made deep cuts to staff and
to budgets for social programs, both likely to move economically fragile
families closer to poverty.
Minorities were hit hardest. Blacks experienced the highest poverty rate, at 27
percent, up from 25 percent in 2009, and Hispanics rose to 26 percent from 25
percent. For whites, 9.9 percent lived in poverty, up from 9.4 percent in 2009.
Asians were unchanged at 12.1 percent.
An analysis by the Brookings Institution estimated that at the current rate, the
recession will have added nearly 10 million people to the ranks of the poor by
the middle of the decade.
Joblessness was the main culprit pushing more Americans into poverty, economists
said.
Last year, about 48 million people ages 18 to 64 did not work even one week out
of the year, up from 45 million in 2009, said Trudi Renwick, a Census official.
“Once you’ve been out of work for a long time, it’s a very difficult road to get
back,” Mr. Katz said.
Median income fell across all working-age categories, but was sharpest drop was
among the young working Americans, ages 15 to 24, who experienced a decline of 9
percent.
According to the Census figures, the median annual income for a male full-time,
year-round worker in 2010 — $47,715 — was virtually unchanged, in 2010 dollars,
from its level in 1973, when it was $49,065, said Sheldon Danziger, professor of
public policy at the University of Michigan.
Those who do not have college degrees were particularly hard hit, he said. “The
median, full-time male worker has made no progress on average,” Mr. Danziger
said.
The recession has continued pushing 25-to-34-year-olds to move in with family
and friends to save money. Of that group, nearly half were living below the
poverty line, when their parents’ incomes were excluded. The poverty level for a
single person under the age of 65 was $11,344.
“We’re risking a new underclass,” said Timothy Smeeding, director of the
Institute for Research and Poverty at the University of Wisconsin, Madison.
“Young, less-educated adults, mainly men, can’t support their children and form
stable families because they are jobless,” he added.
But even the period of economic growth that came before the recession did little
for the middle and bottom wage earners.
Arloc Sherman, a senior researcher at the Center on Budget and Policy
Priorities, said that the period from 2001 to 2007 was the first recovery on
record where the level of poverty was deeper, and median income of working-age
people was lower, at the end than at the beginning.
“Even before the recession hit, a lot of people were falling behind,” he said.
“This may be adding to people’s sense of urgency about the economy.”
The suburban poverty rate, at 11.8 percent, appears to be the highest since
1967, Mr. Sherman added. Last year more Americans fell into deep poverty,
defined as less than half the official poverty line, or about $11,000, with the
ranks of that group increasing to 20.5 million, or about 6.7 percent of the
population.
Poverty has also swallowed more children, with about 16.4 million in its ranks
last year, the highest numbers since 1962, according to William Frey, senior
demographer at Brookings. That means 22 percent of children are in poverty, the
highest percentage since 1993.
The census figures do not count noncash assistance, like food stamps and the
earned-income tax credit, and economists say that as a result they tend to
overstate poverty numbers for certain groups, like children. But rises in the
cost of housing, medical care and energy are not taken into account, either.
The report also said the number of uninsured Americans increased by 900,000 to
49.9 million.
Those covered by employer-based insurance continued to decline in 2010, to about
55 percent, while those with government-provided coverage continued to increase,
up slightly to 31 percent. Employer-based coverage was down from 65 percent in
2000, the report said.
This article
has been revised to reflect the following correction:
Correction: September 13, 2011
An earlier version of this article gave an incorrect figure for the number of
people the Census Bureau found to be in poverty in the Unites States. The number
is 46.2 million people, not 56.2 million.
September
13, 2011
The New York Times
By SABRINA TAVERNISE
The
portion of Americans living in poverty last year rose to the highest level since
1993, the Census Bureau reported Tuesday, fresh evidence that the sluggish
economic recovery has done nothing for the country’s poorest citizens.
An additional 2.6 million people slipped below the poverty line in 2010, census
officials said, making 46.2 million people in poverty in the United States, the
highest number in the 52 years the Census Bureau has been tracking it, said
Trudi Renwick, chief of the Poverty Statistic Branch at the Census Bureau.
That figure represented 15.1 percent of the country.
The poverty line in 2010 was at $22,113 for a family of four.
“It was a surprising large increase in the overall poverty rate,” said Arloc
Sherman, senior researcher at the Center on Budget and Policy Priorities. “We
see record numbers and percentages of Americans in deep poverty.”
And in new evidence of economic distress among the middle class, real median
household incomes declined by 2.3 percent in 2010 from the previous year, to
$49,400. That was 7 percent less than the peak in 1999 of $53,252.
“A full year into recovery, there were no signs of it affecting the well being
of a typical American family,” said Lawrence Katz, an economics professor at
Harvard. “We are well below where incomes were in the late 1990s.”
According to the census figures, the median annual income for a male full-time,
year-round worker in 2010 — $47,715 — was virtually unchanged from its level in
1973, when the level was $49,065, in 2010 dollars, said Sheldon H. Danziger,
professor of public policy at the University of Michigan.
“That’s not about the poor and unemployed, that’s full time, year round,”
Professor Danziger said. Particularly hard hit, he said, have been those who do
not have college degrees. “The median, full-time male worker has made no
progress on average.”
The youngest members of households — those ages 15 to 24 — lost out the most,
with their median income dropping by 9 percent. The recession continued to push
Americans to double up in households with friends and relatives, especially
those ages 25 to 34, a group that experienced a 25 percent increase in the
period between 2007, when the recession began, and 2011. Of that group, 45.3
percent were living below the poverty line, when their parents’ incomes were not
taken into account.
“We’re risking a new underclass,” said Timothy Smeeding, director of the
Institute for Research and Poverty at the University of Wisconsin, Madison.
“Young, less educated adults, mainly men, can’t support their children and form
stable families because they are jobless.”
This article
has been revised to reflect the following correction:
Correction: September 13, 2011
An earlier version of this article gave an incorrect figure for the number of
people the Census Bureau found to be in poverty in the Unites States. The number
is 46.2 million people, not 56.2 million.
September
12, 2011
The New York Times
By RON NIXON
WASHINGTON — The Obama administration is investing billions of dollars to
promote economic development in rural areas by bringing broadband service and
small-business financing to regions with chronic poverty and high unemployment.
But critics say the administration has little to show for its efforts, which
highlight the difficulties of creating jobs in remote areas. They say the money
has gone to areas where it is not needed, to promote broadband where it already
exists and for industrial parks designed to attract business and jobs that may
never materialize.
The Agriculture Department said it had provided more than $6.2 billion to help
nearly 10,000 small and emerging rural businesses expand, creating or saving
more than 250,000 jobs since 2009.
“Rural areas are important to our economic future,” said Agriculture Secretary
Tom Vilsack, who heads the White House Rural Council, established in June to aid
job creation by increasing the flow of capital to rural areas. “It is important
that people understand that a large portion of America gets its water, food,
fuel from these areas.”
The government’s figures for job creation or preservation are difficult to
verify. Still, economists like Lionel Beaulieu, the director of the Southern
Rural Development Center at Mississippi State University, said financing for
rural programs might have prevented even deeper levels of poverty and
unemployment.
“The truth is,” Mr. Beaulieu said, “we don’t know how much worse it would have
been if not for this funding.”
Either way, the government program underscores the slow, expensive work of job
creation at a time when the administration is trying to make rural development a
part of its economic recovery policy. While the nation suffers from high
unemployment and a weak economy, rural areas have been especially hit hard. The
latest Census Bureau figures show that 16.6 percent of rural Americans are
living in poverty, compared with the national average of 13.9 percent.
Last month, President Obama took a three-state rural bus tour where he held
town-hall-style meetings and spoke with local leaders. Also last month, the
White House released a report, “Jobs and Economic Security for Rural America,”
which promotes jobs creation efforts in rural areas and highlights spending on
roads and bridges, broadband and small-business loans.
One project, in rural Mississippi, is a proposed industrial park for aerospace
companies. The project has been highlighted by the administration because it
focuses on regional development, rather than singling out a county or town.
With more than $30 million in federal grants and loans over the past two years,
Lowndes County, Miss., has bought land and built roads and water and sewer lines
to lure some of the largest companies in the world to the Global Industrial
Aerospace Park in eastern Mississippi. Local officials say they hope the
project, when completed, will employ up to 2,100 people and spread benefits into
neighboring Alabama.
“Our goal is to bring in the kinds of high-paying jobs that you normally don’t
see in rural areas,” said Joe Max Higgins Jr., an economic development official
in Columbus, Miss.
The county wants to expand an existing park that houses several industries,
including three aerospace companies.
“The Global Industrial Aerospace Park will be appealing to the many companies,
both domestic and foreign, that work in this industry,” Trina George, state
director of the Agriculture Department Rural Development office in Jackson,
Miss., said when the loan was announced in June. “This will be a growing and
important source of jobs.”
But critics like Tad DeHaven, a budget analyst with the Cato Institute, a
conservative research organization in Washington, say industrial parks rarely
fulfill their promise.
Mr. DeHaven said that as a budget official in Indiana he saw similar efforts to
build industrial parks or to get businesses to expand and add jobs with
government loans.
“And a lot of the time you ended up with empty fields and buildings and the jobs
never materialized,” he said. “It’s vote buying pure and simply.”
The president “is in trouble with a bad economy and wants to look like he’s
doing something,” Mr. DeHaven said.
He said that even if rural areas managed to get companies to relocate, they were
not creating jobs, simply moving them from one area to another with the help of
federal taxpayers.
Another highly promoted Obama administration project — to bring broadband to
rural areas — has also drawn criticism. In its report, the rural council said it
had expanded broadband service to more than seven million rural Americans,
including three million rural households and more than 350,000 rural businesses.
Under the stimulus act, $7.2 billion was allocated for expanding broadband to
unserved and underserved areas, most rural. A 2009 Agriculture Department
inspector general report found that the agency had made loans to provide
broadband in 148 communities “within 30 miles of cities,” including Chicago and
Las Vegas, and that 77 percent of all loans had gone to areas that already had
broadband access available through private companies.
A report the same year by Northwestern University found that expanding broadband
service to rural areas often did not offer the economic benefits promised or
contribute to increased salaries or the tax base or create jobs.
“That’s not to say there is no benefit; there is some modest growth” said Shane
Greenstein, a co-author of the report and a professor at the Kellogg School of
Management at Northwestern. “But when you look at the data, it shows that the
net benefit economically of bringing broadband to rural areas is small and
arguably negative. Rural communities have a lot of issues, and broadband alone
is not going to solve them.”
One of the biggest criticisms of rural development is that money may be going to
areas that do not need it. Last year, rural development financing came under
fire after the Indian tribe that runs the prosperous Mohegan Sun casino in
Connecticut, which had more than $1.3 billion in gross revenues in 2009, got a
$54 million loan from the Agriculture Department to build a community center and
tribal government office building. The Agriculture Department defended the loan,
saying it would create jobs.
Mr. Vilsack said the administration wanted to ensure that rural communities
could create jobs, attract businesses and provide necessary services to their
residents.
He added that critics might have some valid points, particularly around the
issue of bringing broadband to some rural areas where it would be too expensive.
But in those areas, Mr. Vilsack said, the government has opted to finance
cheaper means of Internet access like wireless or satellites.
“Still, broadband is essential to rural areas just as rural electrification was
in the 1930s,” he said.
Mr. Higgins, the economic official in Mississippi, said he was glad that the
administration was putting the spotlight on rural economic development. He said
he dismissed critics who say that government is wasting money by investing in
Lowndes County’s effort to attract aerospace companies.
“Companies that come in want to have land, water, sewer, everything ready to
develop,” Mr. Higgins said. “It helps us move to the front of the line of places
competing against us for the same companies.”
September
10, 2011
The New York Timesq
By ROBERT J. BARRO
Robert Barro
is a professor of economics at Harvard University
and a senior
fellow at the Hoover Institution.
Cambridge, Mass.
THE United States is in the third year of a grand experiment by the Obama
administration to revive the economy through enormous borrowing and spending by
the government, with the Federal Reserve playing a supporting role by keeping
interest rates at record lows.
How is the experiment going? By the looks of it, not well.
The economy is growing much more slowly than in a typical recovery, housing
prices remain depressed and the stock market has been in a slump — all troubling
indicators that another recession may be on the way. Most worrisome is the
anemic state of the labor market, underscored by the zero growth in the latest
jobs report.
The poor results should not surprise us given the macroeconomic policies the
government has pursued. I agree that the recession warranted fiscal deficits in
2008-10, but the vast increase of public debt since 2007 and the uncertainty
about the country’s long-run fiscal path mean that we no longer have the luxury
of combating the weak economy with more deficits.
Today’s priority has to be austerity, not stimulus, and it will not work to
announce a new $450 billion jobs plan while promising vaguely to pay for it with
fiscal restraint over the next 10 years, as Mr. Obama did in his address to
Congress on Thursday. Given the low level of government credibility, fiscal
discipline has to start now to be taken seriously. But we have to do even more:
I propose a consumption tax, an idea that offends many conservatives, and
elimination of the corporate income tax, a proposal that outrages many liberals.
These difficult steps would be far more effective than the president’s failed
experiment. The administration’s $800 billion stimulus program raised government
demand for goods and services and was also intended to stimulate consumer
demand. These interventions are usually described as Keynesian, but as John
Maynard Keynes understood in his 1936 masterwork, “The General Theory of
Employment, Interest and Money” (the first economics book I read), the main
driver of business cycles is investment. As is typical, the main decline in
G.D.P. during the recession showed up in the form of reduced investment by
businesses and households.
What drives investment? Stable expectations of a sound economic environment,
including the long-run path of tax rates, regulations and so on. And employment
is akin to investment in that hiring decisions take into account the long-run
economic climate.
The lesson is that effective incentives for investment and employment require
permanence and transparency. Measures that are transient or uncertain will be
ineffective.
And yet these are precisely the kinds of policies the Obama administration has
pursued: temporarily cutting the payroll tax rate, maintaining the marginal
income-tax rates from the George W. Bush era while vowing to raise them in the
future, holding off on clean-air regulations while promising to implement them
later and enacting an ambitious overhaul of Wall Street regulations while
leaving lots of rules undefined and ambiguous.
Is there a better way? I believe that a long-term fiscal plan for the country
requires six big steps.
Three of them were identified by the Bowles-Simpson deficit reduction
commission: reforming Social Security and Medicare by increasing ages of
eligibility and shifting to an appropriate formula for indexing benefits to
inflation; phasing out “tax expenditures” like the deductions for mortgage
interest, state and local taxes and employer-provided health care; and lowering
the marginal income-tax rates for individuals.
I would add three more: reversing the vast and unwise increase in spending that
occurred under Presidents Bush and Obama; introducing a tax on consumer
spending, like the value-added tax (or VAT) common in other rich countries; and
abolishing federal corporate taxes and estate taxes. All three measures would be
enormously difficult — many say impossible — but crises are opportune times for
these important, basic reforms.
A broad-based expenditure tax, like a VAT, amounts to a tax on consumption. If
the base rate were 10 percent, the revenue would be roughly 5 percent of G.D.P.
One benefit from a VAT is that it is more efficient than an income tax — and in
particular the current American income tax system.
I received vigorous criticism from conservatives after advocating a VAT in an
essay in The Wall Street Journal last month. The main objection — reminiscent of
the complaints about income-tax withholding, which was introduced in the United
States in 1943 — is that a VAT would be a money machine, allowing the government
to readily grow larger. For example, the availability of easy VAT revenue in
Western Europe, where rates reach as high as 25 percent, has supported the vast
increase in the welfare state there since World War II. I share these concerns
and, therefore, favor a VAT only if it is part of a package that includes other
sensible reforms. But given the likely path of government spending on health
care and Social Security, I see no reasonable alternative.
Abolishing the corporate income tax is similarly controversial. Any tax on
capital income distorts decisions on saving and investment. Moreover, the
inefficiency is magnified here because of double taxation: the income is taxed
when corporations make profits and again when owners receive dividends or
capital gains. If we want to tax capital income, a preferred method treats
corporate profits as accruing to owners when profits arise and then taxes this
income only once — whether it is paid out as dividends or retained by companies.
Liberals love the idea of a levy on evil corporations, but taxes on corporate
profits in fact make up only a small part of federal revenue, compared to the
two main sources: the individual income tax and payroll taxes for Social
Security and Medicare.
In 2009-10, taxes on corporate profits averaged 1.4 percent of G.D.P. and 8.6
percent of total federal receipts. Even from 2000 to 2008, when corporations
were more profitable, these taxes averaged only 1.9 percent of G.D.P. and 10.3
percent of federal receipts. If we could get past the political fallout, we
could get more revenue and improve economic efficiency by abolishing the
corporate income tax and relying instead on a VAT.
I had a dream that Mr. Obama and Congress enacted this fiscal reform package —
triggering a surge in the stock market and a boom in investment and G.D.P. — and
that he was re-elected.
This dream could become reality if our leader were Ronald Reagan or Bill Clinton
— the two presidential heroes of the American economy since World War II — but
Mr. Obama is another story. To become market-friendly, he would have to abandon
most of his core economic and political principles.
More likely, his administration will continue with more of the same: an
expansion of payroll-tax cuts, short-term tax credits, promises to raise future
taxes on the rich, and added spending on infrastructure, job training and
unemployment benefits. The economy will probably continue in its sluggish state,
possibly slipping into another recession. In that case, our best hope is for a
Republican president far more committed to the principles of free markets and
limited government than Mr. Bush ever was.
September
9, 2011
The New York Times
By MOTOKO RICH
The
dismal state of the economy is the main reason many companies are reluctant to
hire workers, and few executives are saying that President Obama’s jobs plan —
while welcome — will change their minds any time soon.
That sentiment was echoed across numerous industries by executives in companies
big and small on Friday, underscoring the challenge for the Obama administration
as it tries to encourage hiring and perk up the moribund economy.
The plan failed to generate any optimism on Wall Street as the Standard & Poor’s
500-stock index and the Dow Jones industrial average each fell about 2.7
percent.
As President Obama faced an uphill battle in Congress to win support even for
portions of the plan, many employers dismissed the notion that any particular
tax break or incentive would be persuasive. Instead, they said they tended to
hire more workers or expand when the economy improved.
Companies are focused on jittery consumer confidence, an unstable stock market,
perceived obstacles to business expansion like government regulation and, above
all, swings in demand for their products.
“You still need to have the business need to hire,” said Jeffery Braverman,
owner of Nutsonline, an e-commerce company in Cranford, N.J., that sells nuts
and dried fruit. While a $4,000 credit could offset the cost of the company’s
lowest-cost health insurance plan, he said, it would not spur him to hire
someone. “Business demand is what drives hiring,” he said.
Indeed, the industries that are hiring workers now — like technology and energy
— are those where business is strong, in contrast to the overall economy.
Administration officials and some economists, of course, say they believe the
president’s plan, if adopted, could help increase demand more broadly. The
proposed payroll tax cuts for individuals should spur consumer spending and in
turn, prompt companies to hire more people.
But the plan also includes incentives for companies to hire more workers,
including a payroll tax cut for businesses and a $4,000 tax credit for those
employers that hire people who have been out of work for six months or more.
To the extent these measures could be used, many employers said they would most
likely support people whom companies were planning to hire anyway.
Chesapeake Energy, one of the biggest explorers of oil and gas in shale fields
across the country, for example, said it had 800 positions open, and had already
received tax credits for hiring the long-term unemployed.
But Michael Kehs, vice president for strategic affairs and public relations,
said in an e-mail that the credit “does not drive our hiring.”
For others, the math just does not add up. Roger Tung, the chief executive of
Concert Pharmaceuticals, said the company, a privately held biotechnology firm
with 45 employees, would save $150,000 a year from the proposed corporate
payroll tax deductions.
But that is still not enough to cover the cost of hiring even one additional
employee at the Lexington, Mass., company, Mr. Tung said, once benefits and
other expenses besides salary are included. He can hire, he said, only when
investors become confident again and the company can raise more money.
Economists estimated that President Obama’s plan, costing an estimated $447
billion if it were ever fully adopted, could create anywhere from 500,000 to
nearly two million jobs next year.
Most of those jobs would be added, economists say, as workers spend the
additional take-home pay that would result from a proposed payroll tax cut for
employees. As consumers increase spending, that can prompt more hiring by
retailers, washing machine makers, restaurants and more.
Some of the new jobs would also probably come from measures like the proposed
$35 billion to retain or hire teachers, police and firefighters, as well as $30
billion to refurbish school buildings and $50 billion to build or repair
highways, railroads, transit systems and waterways.
Construction workers in particular are in dire need of work, as they were among
the hardest hit by the collapse of the housing market. More than a million
construction workers are still looking for employment.
“There are so many trades people sitting at home waiting for jobs, and we have
to turn them down because we don’t have work, ” said Syed Habib, secretary of
Falak Construction, a contractor in North Brunswick, N.J., that works on public
projects and is hoping that the school modernization measure passes.
Some analysts said the president’s proposal to cut payroll taxes for the first
$5 million of a business’s payroll taxes could give some companies a reason to
hire, though mostly at the margins.
In the pharmaceutical industry, for example, where tens of thousands of
employees have lost jobs in the last few years, a lowered payroll tax could
significantly affect labor costs, said Richard M. Gordon, a pharmaceutical
industry analyst at the University of Michigan’s Ross School of Business.
“So it’s a little less likely that people will be fired, and a little more
likely that people will be hired in pharmaceutical companies that are doing
well,” Mr. Gordon said.
President Obama’s jobs plan would actually have a detrimental effect on other
parts of the health care industry, some officials said. Hospitals warned that
the proposals could end up crimping their hiring if the president’s programs
were paid for with sharp reductions in the federal Medicare program.
Lloyd H. Dean, the chief executive of Catholic Healthcare West, a large health
system that employs some 55,000 people in California, Arizona and Nevada,
praised Mr. Obama’s efforts to promote job growth. But, he said in a statement,
“Approximately 65 percent of the people we care for are insured through Medicare
or Medicaid, and any further cuts in reimbursements from those programs will
severely impact our ability to hire and retain workers.”
Even some company officials among the president’s invited guests at the joint
address expressed concerns about how the government could pay for such a large
package.
David Catalano, who helped found Modea, a digital advertising company in
Blacksburg, Va., said that he was wary of the president’s pledge to ask the
“wealthiest Americans and biggest corporations to pay their fair share.”
His company was organized as an S Corporation, in which profits are passed
through to shareholders, so it would face higher taxes under the president’s
proposal, he said.
He added: “My partner and I have reinvested 100 percent of the profits that our
agency has made over the last five years back into the company. If the
government takes a bigger share of that from me, it directly impedes my ability
to grow the agency.”
Perhaps the most intractable problem facing the economy right now is the plight
of the long-term unemployed. More than six million people have been searching
for jobs for six months or longer. But with the growing stigma that employees
attach to this group of people, the president’s proposal to give employers
$4,000 tax credits for hiring the long-term unemployed is likely to be a hard
sell among companies.
Jen-Hsun Huang, the chief executive of the chip maker Nvidia, a Santa Clara,
Calif., designer of chips for smartphones and tablets, said that because of
growth in those markets, the company, which currently employs about 5,000 of its
7,000 global workers in the United States, expects to add about 20 percent more
people within the next year.
But he said the incentives would not influence the company’s hiring decisions.
“The people we hire tend not to be out of work for six months,” said Mr. Huang.
Instead, he said, the company recruits recent graduates from the country’s top
engineering schools. “The guys we hire are like sports stars,” he said.
Lucious Plant, work force development administrator in Montgomery County, Ohio,
where Dayton is the county seat, said companies were shortsighted for viewing
people who had been out of work for several months as somehow inferior. Given
today’s economy, he said, it was common for those who lost their jobs to stay
unemployed for six months or more, and that many of those workers were highly
skilled.
“I think it would be very easy to have six months of unemployment and still be a
top candidate,” Mr. Plant said.
But more people needing work than the current business climate warrants.
“If I get a $4,000 benefit for hiring you and I pay you $80,000 and you’re going
to sit at your desk and do nothing because there’s nothing to do,” said Marty
Regalia, chief economist of the United States Chamber of Commerce, “then the
businesses aren’t going to hire you.”
Reporting
was contributed by Steve Lohr, Duff Wilson, Damon Darlin, Reed Abelson and Robb
Mandelbaum in New York, Clifford Krauss in Houston and Andrew Pollack in Los
Angeles.
This article
has been revised to reflect the following correction:
Correction: September 9, 2011
An earlier version of this article mistakenly referred to Clean Line Energy
Partners
September
8, 2011
The New York Times
By CAMPBELL ROBERTSON
Enshrined
in the mythology of the American presidency, there is something called a moment
speech, an address to the nation so forceful and eloquent that it changes the
way the country feels about its leadership and even itself.
Long before Barack Obama took office, many of his supporters and even a few of
his critics thought he would be the kind of president who could give those kinds
of speeches. Ever since he took office there have been many wondering why these
kinds of speeches have not been coming, and whether the president’s hallmark
reliance on calm, rational explanation needs more fire to galvanize the nation
and persuade his adversaries. Thursday night’s address to Congress on job
creation, coming as the prospect of a double-dip recession looms, seemed to be
another chance for an address that would do those things.
But a moment speech is less about the speech than it is about the moment. And as
interviews with political historians and citizens around the country on Thursday
made clear, Mr. Obama was approaching the lectern in a moment that offered more
obstacles than opportunities for bringing about real change.
Even in the strictest sense, the timing of the speech was inauspicious. After a
partisan standoff over scheduling with the House speaker, Representative John A.
Boehner, who asked the president to move his address from Wednesday night, the
speech took place in a pre-prime-time slot shoved up against the start of the
N.F.L. season.
But in more momentous ways, the president was facing serious disadvantages, some
of his own making.
Speeches, said Kathleen Hall Jamieson, director of the Annenberg Public Policy
Center at the University of Pennsylvania, are about context. Some of the most
memorable and praised speeches — by Mr. Obama after the shooting of
Representative Gabrielle Giffords in Tucson, for example, or by President George
W. Bush after the Sept. 11 attacks — were delivered in moments of pronounced
national grief or anxiety, when the country longed for a voice of reassurance.
Thursday’s jobs speech, on the other hand, comes after a season of nasty
partisanship, a time where the country’s biggest threat seemed not to come from
outside enemies or natural disasters but the inability of its own political
leadership to get basic things done. The economy that the president is
addressing is in crisis, but a crisis that has been excruciatingly prolonged,
beaten out in a tiresome tempo of starts and stalls.
“The economy is a mess,” said Becky Wallard, 71, a retired teacher in Atlanta.
“There’s no speech that can hide that.”
Even Mr. Obama’s defenders acknowledge that the political reality in Washington,
with the committed opposition of a Republican Congress, makes the likelihood of
bold action on the president’s part very slim.
“At this point, his speeches haven’t really been earth-shattering or made a
major difference,” said Lily Wolk, 59, who was sitting at a Starbucks in Los
Angeles and who said she was hopeful nonetheless. “I think that he’s got his
hands tied.”
Some political historians and polling experts suggested that this was not a
problem particular to Mr. Obama and that anyone maintaining that the president
has lost some special magic, or was choosing not to use it, is simply misreading
history.
Despite the insta-polls insta-punditry that usually follow on a big speech,
there is plenty of evidence to suggest that addresses like this do not have a
major impact on public opinion over the short or long term. There has been
little major polling movement after other speeches in Mr. Obama’s presidency,
including the State of the Union addresses and his speech on health care, and
few think a speech on the economy would be an exception.
“It’s just illusory to think that presidents can provide a narrative that can
make unemployment sound acceptable,” said George C. Edwards, a professor of
political science at Texas A & M University and author of “On Deaf Ears: The
Limits of the Bully Pulpit.”
Professor Edwards pointed out further that the kind of people who have not made
up their minds about the president or his policies are the kind of people who
are least likely to watch speeches like this. These voters would be moved almost
exclusively by tangible results.
In this sense, Mr. Obama’s reputation as an orator could backfire among those
who believe that his word-action ratio was askew, or that his famed professorial
approach was unsuited to the dire times at hand.
“Supposedly the best way to convince Obama of anything is to say it’s the
consensus of experts,” said David Morrell, 62, a library custodian in Atlanta
who described himself as a dispirited Democrat, and who voted for Mr. Obama in
2008. “Everything that has been disastrous in this country has had a ton of
experts behind it.”
Mr. Morrell added, “It doesn’t seem to be in his nature to bring up anything
other than superficialities.”
Jean Garber, 75, a retiree in Denver put it more succinctly: “Too many speeches.
Every time you turn around!”
Still, there are others, mainly supporters of the president, who believed that a
strong voice of reassurance was more important than the policy details and that
Mr. Obama was capable of delivering that reassurance.
“I think he recognizes that the country is so worried right now,” said Jonathan
Lee, a physician from Norwood, Mass. “It’s more a matter of saying, ‘I recognize
there is immense trouble.’ ”
Dr. Lee said the would not change his opinion: he was a committed backer of the
president. Anyway, he added, he was probably going to watch the Red Sox game
instead.
Reporting
was contributed by Abby Goodnough, Ian Lovett, Dan Frosch, Robbie Brown, Emily
S. Williams and Adrienne Hilbert.
September
8, 2011
The New York Times
By BINYAMIN APPELBAUM
WASHINGTON — The centerpiece of President Obama’s job-creation plan, a proposal
to further reduce Social Security taxes, is emblematic of a package of modest
measures that some economists describe as helpful but not sufficient to lift the
economy from its malaise.
In his speech on Thursday night, Mr. Obama asked Congress to cut the amount that
workers must contribute toward Social Security benefits, extending an existing
measure, and to reduce, for the first time, the matching payments that employers
are required to make.
The cuts, which would deprive the government of about $240 billion in revenues
next year, are the largest items in the president’s $447 billion job-creation
plan, which includes payments to unemployed workers, incentives for companies
that hire workers and increased federal spending on infrastructure. All of the
measures will require the support of Congressional Republicans.
Cutting taxes is a time-honored strategy for stimulating growth. The formula is
simple: Workers will spend more money when their paychecks grow, and companies
will respond to that increased demand by hiring more workers, creating a cycle
that increases the pace of growth.
Preliminary analyses of the White House plan estimate that the tax cuts could
create more than 50,000 jobs a month, a significant boost considering that
employment climbed by 35,000 jobs, on average, in each of the last three months.
But even if Congress immediately agreed to pass the president’s entire plan, the
economy is likely to continue to struggle. Companies must increase payrolls by
about 100,000 people every month to keep pace with population growth.
Still, Joel Prakken, senior managing director at Macroeconomic Advisers, a
forecasting firm, said that the benefits of creating more than half a million
jobs next year should not be minimized. “It’s going to make the unemployment
rate lower than it otherwise would be,” he said.
The other elements of Mr. Obama’s plan, however, highlight the challenges of
doing more. Economists regard benefits for unemployed workers as among the most
effective means of increasing growth because people without jobs tend to spend
the money quickly. But Republicans generally oppose increased spending on social
programs.
Infrastructure spending, by contrast, enjoys bipartisan support, but breaking
ground on new projects can take a long time, delaying the impact on the economy.
The administration’s focus on payroll tax cuts, which became more ambitious in
the days leading up to the speech, is an exercise in the art of the possible.
While economists regard other kinds of measures as potentially more effective,
the cuts would put money directly in the hands of consumers, and Republican
leaders have indicated they are willing to consider the proposal.
Seeking to exploit that potential opening, the White House decided to
considerably expand the scope of the cuts in the latter stages of planning.
The Social Security tax is paid in equal shares by workers and their employers.
Both pay 6.2 percent of a worker’s annual income up to $106,800. The president’s
plan would reduce the amount that workers pay by half, a savings of $1,500 for
an employee who makes $50,000.
The current tax cut, set to expire in December, has reduced the tax to a rate of
4.2 percent. The new proposal would further reduce it to 3.1 percent in 2012.
In the present climate, however, there are significant reasons to doubt that
consumers are honoring the predictions of economic models by taking that money
and racing out to spend it.
Families are devoting a larger share of income to paying debts, which is
important for the economy’s long-term health but does nothing to stimulate
growth. Concern about future earnings also is weighing on many households,
reducing their willingness to spend. A recent study found that 62 percent of
households expect their income to stay the same or decline over the next year,
according to the Federal Reserve Bank of San Francisco, the lowest level of
confidence in 30 years.
“One striking aspect of the recovery is the unusual weakness in household
spending,” the Federal Reserve chairman, Ben S. Bernanke, said Thursday in
Minneapolis.
There is also broad disagreement among economists about the president’s
companion proposal to give companies a tax break, too.
The plan is divided in two parts. The amount employers must pay also would be
reduced by half on payrolls up to $5 million, a condition that the White House
said would focus the benefits on small businesses. And the plan would waive all
payroll taxes on increased spending on salaries — either for new hires or raises
— up to the first $50 million in increased wages.
The Congressional Budget Office estimated last year that a tax cut for employers
would have a greater impact than a tax cut for workers. The nonpartisan office
reported that every dollar in reduced taxes on employers would generate up to
$1.20 in economic activity, while every dollar in reduced taxes on workers would
generate up to 90 cents because workers tend to save a portion of their
additional income.
Some independent economists, however, doubt that the tax cut will persuade
companies to make significant hires because the primary issue remains a lack of
demand. If a company cannot sell more sofas, it does not need more workers to
make them, whether the cost of each new worker is $106,200, including employer
payroll taxes, or only $100,000, if the tax cut is enacted. As a result, they
argue, companies are even more likely than consumers to refrain from spending
the money.
Mark Thoma, a University of Oregon economist, said that company tax cuts should
be tied to hiring: “If they don’t spend the money on employees, you don’t get a
demand-side effect.”
Studies of similar tax cuts in other countries suggest the truth lies in
between. A 2008 study by the Government Institute for Economic Research in
Finland, for example, found that companies shared about half the money from a
payroll tax cut with workers in the form of higher wages.
The study also found, however, that there were “no significant effects on
employment.”
Cutting payroll taxes does not affect the government’s obligation to pay
benefits to older Americans. Indeed, the White House plan specifies that amounts
not paid by workers and companies must be paid to Social Security from other
sources of government revenue.
But some advocates, noting that temporary tax cuts have a history of becoming
permanent, worry that reducing direct Social Security revenues could undermine
political support for the program by making it seem more like a form of welfare.
The Social Security tax “creates a stake for every American working person in
the system,” said Nancy Altman, co-director of the Social Security Works
coalition. “If you start meddling with that you start to pull apart the
political contract.”
With more
than 14 million people out of work and all Americans fearing a double-dip
recession, President Obama stood face to face Thursday night with a Congress
that has perversely resisted lifting a finger to help. Some Republicans refused
to even sit and listen. But those Americans who did heard him unveil an
ambitious proposal — more robust and far-reaching than expected — that may be
the first crucial step in reigniting the economy.
Perhaps as important, they heard a president who was lately passive but now
newly energized, who passionately contrasted his vision of a government that
plays its part in tough times with the Republicans’ vision of a government
starved of the means to do so.
The president’s program was only a start, and it was vague on several important
elements, notably a direct path to mortgage relief for troubled borrowers. And
some of the tax cuts for employers may prove ineffective. Nonetheless, at $447
billion, the plan is large enough to potentially lower the unemployment rate and
broad enough to be a significant stimulus.
As Mr. Obama pointed out, virtually every proposal on his agenda has been
accepted over the years by Democrats and an earlier generation of Republicans
that was not reflexively opposed to a recession-fighting fiscal policy. This
generation is different, and the president’s challenge to purely partisan
resistance was forceful and clear.
“The question is whether, in the face of an ongoing national crisis, we can stop
the political circus and actually do something to help the economy,” he said.
Though he went on too long, he was authoritative in demanding that Congress pass
his plan quickly and in laying out its benefits for average Americans. He
directly, even mockingly, challenged the increasingly nihilistic Republican view
that government’s very presence is noxious. Just as Lincoln helped start the
transcontinental railroad and land-grant colleges, he said, the two parties must
together push the country past its economic crisis. Waiting for the next
election will waste valuable time, he said.
“The people who sent us here — the people who hired us to work for them — they
don’t have the luxury of waiting 14 months,” he said. “Some of them are living
week to week, paycheck to paycheck, even day to day. They need help, and they
need it now.”
At the core of his plan are two cuts in the payroll tax — one for employers and
one for employees — that have long been embraced by Republicans. The employee
cut would reduce the tax to 3.1 percent of income instead of the 4.2 percent
negotiated last year. (It was 6.2 percent originally.) Although it could have
been better targeted to low- and middle-income families, it will put money in
people’s pockets quickly and increase consumer demand.
For employers, the plan would halve the payroll tax for most small and
medium-size businesses and would provide an incentive for hiring by temporarily
removing the tax for new employees (and on raises for existing ones). Companies
would also get a $4,000 tax credit for hiring anyone out of work for more than
six months. Unemployment insurance would be extended for five million people.
Though Mr. Obama said more Americans would be able to refinance their homes at
low interest rates, he did not say how.
The plan would provide $35 billion in state aid to prevent up to 280,000 teacher
layoffs while hiring tens of thousands more, along with additional police
officers and firefighters. It would create jobs to modernize 35,000 schools
across the country. And it would accelerate $50 billion in improvements for
highways, railroads, transit and aviation.
Though the plan would be paid for by more deficit reduction, he left those vital
details until later. It was gratifying to hear him call for higher taxes on
corporations and the wealthy, but his warning of cuts to Medicare and Medicaid —
lifelines to the most vulnerable — raised concerns about trading one important
program for another.
We hope Mr. Obama keeps his promise to take his proposals all over the country.
The need to act is urgent.
September
8, 2011
The New York Times
By MARK LANDLER
WASHINGTON — Mixing politically moderate proposals with a punchy tone, President
Obama challenged lawmakers on Thursday to “pass this jobs bill” — a blunt call
on Congress to enact his $447 billion package of tax cuts and new government
spending, designed to revive a stalling economy and his own political standing.
Speaking to a joint session of Congress, Mr. Obama ticked off a list of measures
that he emphasized had been supported by both Republicans and Democrats in the
past. To keep the proposals from adding to the swelling federal deficit, Mr.
Obama also said he would encourage a more ambitious target for long-term
reduction of the deficit.
“You should pass this jobs plan right away,” the president declared over and
over in his 32-minute speech, in which he eschewed his trademark soaring oratory
in favor of a plainspoken appeal for action, stiffened by a few sarcastic
political jabs.
With Republicans listening politely but with stone-faced expressions, Mr. Obama
said, “The question is whether, in the face of an ongoing national crisis, we
can stop the political circus and actually do something to help the economy.”
Though Mr. Obama’s proposals — including an expansion of a cut in payroll taxes
and new spending on public works — were widely expected, the package was
substantially larger than predicted, and much of the money would flow into the
economic bloodstream in 2012. The pace would be similar to that of the $787
billion stimulus package passed in 2009, which was spread over more than two
years. Analysts said that, if passed, the package would likely lift growth
somewhat.
While Republicans did not often applaud Mr. Obama,, party leaders greeted his
proposals with uncharacteristic conciliation. Representative Eric Cantor, the
House majority leader, and other Republicans signaled a willingness to consider
at least some of the measures, reflecting what some have described as anger in
their home districts over the political dysfunction in Washington.
“The proposals the president outlined tonight merit consideration,” Speaker John
A. Boehner said in a statement. “We hope he gives serious consideration to our
ideas as well.”
Still, analysts said it was unlikely that the White House would win
Congressional approval for many elements of the package.
For Mr. Obama, burdened by the lowest approval ratings of his presidency, the
address crystallized the multiple challenges he faces, among them reviving a
torpid economy with a Republican House that, however receptive some of its
leaders appeared Thursday, has staked out a relentlessly confrontational course
with the White House. The president must also shake off a perception, after so
many speeches on the economy, that he has not delivered on the promise of his
oratory.
After weeks on the defensive, however, Mr. Obama seemed to get off his back
foot. He framed the debate over the economy as a tug-of-war between mainstream
American values and a radical, antigovernment orthodoxy that holds that “the
only thing we can do restore prosperity is just dismantle government, refund
everyone’s money, let everyone write their own rules, and tell everyone they’re
on their own.”
With a difficult re-election bid looming, Mr. Obama declared that his vision
would appeal to more voters. “These are real choices we have to make,” he said.
“And I’m pretty sure I know what most Americans would choose. It’s not even
close.”
At times, he edged into sarcasm. Promoting the extension in the payroll tax cut
to Republicans, Mr. Obama said: “I know some of you have sworn oaths never to
raise any taxes on anyone for as long as you live. Now is not the time to carve
out an exception and raise middle-class taxes, which is why you should pass this
bill right away.”
The centerpiece of the bill, known as the American Jobs Act, is an extension and
expansion of the cut in payroll taxes, worth $240 billion, under which the tax
paid by employees would be cut in half through 2012. Smaller businesses would
also get a cut in their payroll taxes, as well as a tax holiday for hiring new
employees. The plan also provides $140 billion for modernizing schools and
repairing roads and bridges — spending that Mr. Obama portrayed as critical to
maintaining America’s competitiveness.
The president insisted that everything in the package would be paid for by
raising the target for long-term spending cuts to be negotiated by a special
Congressional committee. He did not go through the arithmetic, but said he would
send a detailed proposal to Congress in a week. Senior White House officials
said the amount of increased spending cuts would hinge on how much of the plan
gets through Congress.
Mr. Obama said most of his proposals had support from both parties, a contention
that Republican leaders rejected. “There should be nothing controversial about
this piece of legislation,” he said. “Everything in here is the kind of proposal
that’s been supported by Democrats and Republicans.”
After a summer consumed by bitter debate over how to reduce the debt and
deficit, Mr. Obama kept his focus squarely on the need to create jobs. He
acknowledged that the government’s role in fixing the problem was limited, but
rejected the Republican argument that Washington’s major contribution would be
to eliminate regulations.
“Ultimately, our recovery will be driven not by Washington, but by our
businesses and our workers,” he said. “But we can help. We can make a
difference. There are steps we can take right now to improve people’s lives.”
Still, even if every one of the proposals were passed by Congress — something
that is extremely unlikely to happen — the measures would not solve the
economy’s problems, forecasters say, though they would likely spur some growth.
And that encapsulates the quandary for Mr. Obama: so long as there is no
evidence of improvement in the job market, his economic call to arms — backed by
a familiar list of proposed remedies — may not resonate with an American public
grown weary of stagnation and an unemployment rate stuck at 9.1 percent.
Even the scheduling of the speech set off a tempest when Mr. Boehner rejected
Mr. Obama’s request to address Congress on Wednesday, the night of a Republican
presidential debate. At Mr. Boehner’s request, the White House agreed to move
the date to Thursday, which meant Mr. Obama had to wrap up his remarks before
the New Orleans Saints and the Green Bay Packers kicked off the N.F.L. season.
As Mr. Obama was entering the chamber, microphones caught him assuring a
lawmaker that his speech would not interfere with the game.
In setting out his program, Mr. Obama was, in effect, daring Republicans not to
pass measures that enjoy support among independent voters and business leaders.
If the Republicans refuse to embrace at least some of the measures,
administration officials said, Mr. Obama will take them directly to the American
public, portraying Congress as do-nothing and obstructionist.
“Maybe some of you have decided that those differences are so great that we can
only resolve them at the ballot box,” Mr. Obama told the lawmakers. “But know
this: the next election is fourteen months away. And the people who sent us here
— the people who hired us to work for them — they don’t have the luxury of
waiting fourteen months.”
The following is a transcript of President Obama’s speech to a joint session of
Congress about jobs and the economy, as provided by the White House.
MR. OBAMA: Mr. Speaker, Mr. Vice President, members of Congress, and fellow
Americans:
Tonight we meet at an urgent time for our country. We continue to face an
economic crisis that has left millions of our neighbors jobless, and a political
crisis that’s made things worse.
This past week, reporters have been asking, “What will this speech mean for the
President? What will it mean for Congress? How will it affect their polls, and
the next election?”
But the millions of Americans who are watching right now, they don’t care about
politics. They have real-life concerns. Many have spent months looking for work.
Others are doing their best just to scrape by -- giving up nights out with the
family to save on gas or make the mortgage; postponing retirement to send a kid
to college.
These men and women grew up with faith in an America where hard work and
responsibility paid off. They believed in a country where everyone gets a fair
shake and does their fair share -- where if you stepped up, did your job, and
were loyal to your company, that loyalty would be rewarded with a decent salary
and good benefits; maybe a raise once in a while. If you did the right thing,
you could make it. Anybody could make it in America.
For decades now, Americans have watched that compact erode. They have seen the
decks too often stacked against them. And they know that Washington has not
always put their interests first.
The people of this country work hard to meet their responsibilities. The
question tonight is whether we’ll meet ours. The question is whether, in the
face of an ongoing national crisis, we can stop the political circus and
actually do something to help the economy. (Applause.) The question is -- the
question is whether we can restore some of the fairness and security that has
defined this nation since our beginning.
Those of us here tonight can’t solve all our nation’s woes. Ultimately, our
recovery will be driven not by Washington, but by our businesses and our
workers. But we can help. We can make a difference. There are steps we can take
right now to improve people’s lives.
I am sending this Congress a plan that you should pass right away. It’s called
the American Jobs Act. There should be nothing controversial about this piece of
legislation. Everything in here is the kind of proposal that’s been supported by
both Democrats and Republicans -- including many who sit here tonight. And
everything in this bill will be paid for. Everything. (Applause.)
The purpose of the American Jobs Act is simple: to put more people back to work
and more money in the pockets of those who are working. It will create more jobs
for construction workers, more jobs for teachers, more jobs for veterans, and
more jobs for long-term unemployed. (Applause.) It will provide -- it will
provide a tax break for companies who hire new workers, and it will cut payroll
taxes in half for every working American and every small business. (Applause.)
It will provide a jolt to an economy that has stalled, and give companies
confidence that if they invest and if they hire, there will be customers for
their products and services. You should pass this jobs plan right away.
(Applause.)
Everyone here knows that small businesses are where most new jobs begin. And you
know that while corporate profits have come roaring back, smaller companies
haven’t. So for everyone who speaks so passionately about making life easier for
“job creators,” this plan is for you. (Applause.)
Pass this jobs bill -- pass this jobs bill, and starting tomorrow, small
businesses will get a tax cut if they hire new workers or if they raise workers’
wages. Pass this jobs bill, and all small business owners will also see their
payroll taxes cut in half next year. (Applause.) If you have 50 employees -- if
you have 50 employees making an average salary, that’s an $80,000 tax cut. And
all businesses will be able to continue writing off the investments they make in
2012.
It’s not just Democrats who have supported this kind of proposal. Fifty House
Republicans have proposed the same payroll tax cut that’s in this plan. You
should pass it right away. (Applause.)
Pass this jobs bill, and we can put people to work rebuilding America. Everyone
here knows we have badly decaying roads and bridges all over the country. Our
highways are clogged with traffic. Our skies are the most congested in the
world. It’s an outrage.
Building a world-class transportation system is part of what made us a economic
superpower. And now we’re going to sit back and watch China build newer airports
and faster railroads? At a time when millions of unemployed construction workers
could build them right here in America? (Applause.)
There are private construction companies all across America just waiting to get
to work. There’s a bridge that needs repair between Ohio and Kentucky that’s on
one of the busiest trucking routes in North America. A public transit project in
Houston that will help clear up one of the worst areas of traffic in the
country. And there are schools throughout this country that desperately need
renovating. How can we expect our kids to do their best in places that are
literally falling apart? This is America. Every child deserves a great school --
and we can give it to them, if we act now. (Applause.)
The American Jobs Act will repair and modernize at least 35,000 schools. It will
put people to work right now fixing roofs and windows, installing science labs
and high-speed Internet in classrooms all across this country. It will
rehabilitate homes and businesses in communities hit hardest by foreclosures. It
will jumpstart thousands of transportation projects all across the country. And
to make sure the money is properly spent, we’re building on reforms we’ve
already put in place. No more earmarks. No more boondoggles. No more bridges to
nowhere. We’re cutting the red tape that prevents some of these projects from
getting started as quickly as possible. And we’ll set up an independent fund to
attract private dollars and issue loans based on two criteria: how badly a
construction project is needed and how much good it will do for the economy.
(Applause.)
This idea came from a bill written by a Texas Republican and a Massachusetts
Democrat. The idea for a big boost in construction is supported by America’s
largest business organization and America’s largest labor organization. It’s the
kind of proposal that’s been supported in the past by Democrats and Republicans
alike. You should pass it right away. (Applause.)
Pass this jobs bill, and thousands of teachers in every state will go back to
work. These are the men and women charged with preparing our children for a
world where the competition has never been tougher. But while they’re adding
teachers in places like South Korea, we’re laying them off in droves. It’s
unfair to our kids. It undermines their future and ours. And it has to stop.
Pass this bill, and put our teachers back in the classroom where they belong.
(Applause.)
Pass this jobs bill, and companies will get extra tax credits if they hire
America’s veterans. We ask these men and women to leave their careers, leave
their families, risk their lives to fight for our country. The last thing they
should have to do is fight for a job when they come home. (Applause.)
Pass this bill, and hundreds of thousands of disadvantaged young people will
have the hope and the dignity of a summer job next year. And their parents --
(applause) -- their parents, low-income Americans who desperately want to work,
will have more ladders out of poverty.
Pass this jobs bill, and companies will get a $4,000 tax credit if they hire
anyone who has spent more than six months looking for a job. (Applause.) We have
to do more to help the long-term unemployed in their search for work. This jobs
plan builds on a program in Georgia that several Republican leaders have
highlighted, where people who collect unemployment insurance participate in
temporary work as a way to build their skills while they look for a permanent
job. The plan also extends unemployment insurance for another year. (Applause.)
If the millions of unemployed Americans stopped getting this insurance, and
stopped using that money for basic necessities, it would be a devastating blow
to this economy. Democrats and Republicans in this chamber have supported
unemployment insurance plenty of times in the past. And in this time of
prolonged hardship, you should pass it again -- right away. (Applause.)
Pass this jobs bill, and the typical working family will get a $1,500 tax cut
next year. Fifteen hundred dollars that would have been taken out of your pocket
will go into your pocket. This expands on the tax cut that Democrats and
Republicans already passed for this year. If we allow that tax cut to expire --
if we refuse to act -- middle-class families will get hit with a tax increase at
the worst possible time. We can’t let that happen. I know that some of you have
sworn oaths to never raise any taxes on anyone for as long as you live. Now is
not the time to carve out an exception and raise middle-class taxes, which is
why you should pass this bill right away. (Applause.)
This is the American Jobs Act. It will lead to new jobs for construction
workers, for teachers, for veterans, for first responders, young people and the
long-term unemployed. It will provide tax credits to companies that hire new
workers, tax relief to small business owners, and tax cuts for the middle class.
And here’s the other thing I want the American people to know: The American Jobs
Act will not add to the deficit. It will be paid for. And here’s how.
(Applause.)
The agreement we passed in July will cut government spending by about $1
trillion over the next 10 years. It also charges this Congress to come up with
an additional $1.5 trillion in savings by Christmas. Tonight, I am asking you to
increase that amount so that it covers the full cost of the American Jobs Act.
And a week from Monday, I’ll be releasing a more ambitious deficit plan -- a
plan that will not only cover the cost of this jobs bill, but stabilize our debt
in the long run. (Applause.)
This approach is basically the one I’ve been advocating for months. In addition
to the trillion dollars of spending cuts I’ve already signed into law, it’s a
balanced plan that would reduce the deficit by making additional spending cuts,
by making modest adjustments to health care programs like Medicare and Medicaid,
and by reforming our tax code in a way that asks the wealthiest Americans and
biggest corporations to pay their fair share. (Applause.) What’s more, the
spending cuts wouldn’t happen so abruptly that they’d be a drag on our economy,
or prevent us from helping small businesses and middle-class families get back
on their feet right away.
Now, I realize there are some in my party who don’t think we should make any
changes at all to Medicare and Medicaid, and I understand their concerns. But
here’s the truth: Millions of Americans rely on Medicare in their retirement.
And millions more will do so in the future. They pay for this benefit during
their working years. They earn it. But with an aging population and rising
health care costs, we are spending too fast to sustain the program. And if we
don’t gradually reform the system while protecting current beneficiaries, it
won’t be there when future retirees need it. We have to reform Medicare to
strengthen it. (Applause.)
I am also -- I’m also well aware that there are many Republicans who don’t
believe we should raise taxes on those who are most fortunate and can best
afford it. But here is what every American knows: While most people in this
country struggle to make ends meet, a few of the most affluent citizens and most
profitable corporations enjoy tax breaks and loopholes that nobody else gets.
Right now, Warren Buffett pays a lower tax rate than his secretary -- an outrage
he has asked us to fix. (Laughter.) We need a tax code where everyone gets a
fair shake and where everybody pays their fair share. (Applause.) And by the
way, I believe the vast majority of wealthy Americans and CEOs are willing to do
just that if it helps the economy grow and gets our fiscal house in order.
I’ll also offer ideas to reform a corporate tax code that stands as a monument
to special interest influence in Washington. By eliminating pages of loopholes
and deductions, we can lower one of the highest corporate tax rates in the
world. (Applause.) Our tax code should not give an advantage to companies that
can afford the best-connected lobbyists. It should give an advantage to
companies that invest and create jobs right here in the United States of
America. (Applause.)
So we can reduce this deficit, pay down our debt, and pay for this jobs plan in
the process. But in order to do this, we have to decide what our priorities are.
We have to ask ourselves, “What’s the best way to grow the economy and create
jobs?”
Should we keep tax loopholes for oil companies? Or should we use that money to
give small business owners a tax credit when they hire new workers? Because we
can’t afford to do both. Should we keep tax breaks for millionaires and
billionaires? Or should we put teachers back to work so our kids can graduate
ready for college and good jobs? (Applause.) Right now, we can’t afford to do
both.
This isn’t political grandstanding. This isn’t class warfare. This is simple
math. (Laughter.) This is simple math. These are real choices. These are real
choices that we’ve got to make. And I’m pretty sure I know what most Americans
would choose. It’s not even close. And it’s time for us to do what’s right for
our future. (Applause.)
Now, the American Jobs Act answers the urgent need to create jobs right away.
But we can’t stop there. As I’ve argued since I ran for this office, we have to
look beyond the immediate crisis and start building an economy that lasts into
the future -- an economy that creates good, middle-class jobs that pay well and
offer security. We now live in a world where technology has made it possible for
companies to take their business anywhere. If we want them to start here and
stay here and hire here, we have to be able to out-build and out-educate and
out-innovate every other country on Earth. (Applause.)
And this task of making America more competitive for the long haul, that’s a job
for all of us. For government and for private companies. For states and for
local communities -- and for every American citizen. All of us will have to up
our game. All of us will have to change the way we do business.
My administration can and will take some steps to improve our competitiveness on
our own. For example, if you’re a small business owner who has a contract with
the federal government, we’re going to make sure you get paid a lot faster than
you do right now. (Applause.) We’re also planning to cut away the red tape that
prevents too many rapidly growing startup companies from raising capital and
going public. And to help responsible homeowners, we’re going to work with
federal housing agencies to help more people refinance their mortgages at
interest rates that are now near 4 percent. That’s a step -- (applause) -- I
know you guys must be for this, because that’s a step that can put more than
$2,000 a year in a family’s pocket, and give a lift to an economy still burdened
by the drop in housing prices.
So, some things we can do on our own. Other steps will require congressional
action. Today you passed reform that will speed up the outdated patent process,
so that entrepreneurs can turn a new idea into a new business as quickly as
possible. That’s the kind of action we need. Now it’s time to clear the way for
a series of trade agreements that would make it easier for American companies to
sell their products in Panama and Colombia and South Korea -– while also helping
the workers whose jobs have been affected by global competition. (Applause.) If
Americans can buy Kias and Hyundais, I want to see folks in South Korea driving
Fords and Chevys and Chryslers. (Applause.) I want to see more products sold
around the world stamped with the three proud words: “Made in America.” That’s
what we need to get done. (Applause.)
And on all of our efforts to strengthen competitiveness, we need to look for
ways to work side by side with America’s businesses. That’s why I’ve brought
together a Jobs Council of leaders from different industries who are developing
a wide range of new ideas to help companies grow and create jobs.
Already, we’ve mobilized business leaders to train 10,000 American engineers a
year, by providing company internships and training. Other businesses are
covering tuition for workers who learn new skills at community colleges. And
we’re going to make sure the next generation of manufacturing takes root not in
China or Europe, but right here, in the United States of America. (Applause) If
we provide the right incentives, the right support -- and if we make sure our
trading partners play by the rules -- we can be the ones to build everything
from fuel-efficient cars to advanced biofuels to semiconductors that we sell all
around the world. That’s how America can be number one again. And that’s how
America will be number one again. (Applause.)
Now, I realize that some of you have a different theory on how to grow the
economy. Some of you sincerely believe that the only solution to our economic
challenges is to simply cut most government spending and eliminate most
government regulations. (Applause.)
Well, I agree that we can’t afford wasteful spending, and I’ll work with you,
with Congress, to root it out. And I agree that there are some rules and
regulations that do put an unnecessary burden on businesses at a time when they
can least afford it. (Applause.) That’s why I ordered a review of all government
regulations. So far, we’ve identified over 500 reforms, which will save billions
of dollars over the next few years. (Applause.) We should have no more
regulation than the health, safety and security of the American people require.
Every rule should meet that common-sense test. (Applause.)
But what we can’t do -- what I will not do -- is let this economic crisis be
used as an excuse to wipe out the basic protections that Americans have counted
on for decades. (Applause.) I reject the idea that we need to ask people to
choose between their jobs and their safety. I reject the argument that says for
the economy to grow, we have to roll back protections that ban hidden fees by
credit card companies, or rules that keep our kids from being exposed to
mercury, or laws that prevent the health insurance industry from shortchanging
patients. I reject the idea that we have to strip away collective bargaining
rights to compete in a global economy. (Applause.) We shouldn’t be in a race to
the bottom, where we try to offer the cheapest labor and the worst pollution
standards. America should be in a race to the top. And I believe we can win that
race. (Applause.)
In fact, this larger notion that the only thing we can do to restore prosperity
is just dismantle government, refund everybody’s money, and let everyone write
their own rules, and tell everyone they’re on their own -- that’s not who we
are. That’s not the story of America.
Yes, we are rugged individualists. Yes, we are strong and self-reliant. And it
has been the drive and initiative of our workers and entrepreneurs that has made
this economy the engine and the envy of the world.
But there’s always been another thread running throughout our history -- a
belief that we’re all connected, and that there are some things we can only do
together, as a nation.
We all remember Abraham Lincoln as the leader who saved our Union. Founder of
the Republican Party. But in the middle of a civil war, he was also a leader who
looked to the future -- a Republican President who mobilized government to build
the Transcontinental Railroad -- (applause) -- launch the National Academy of
Sciences, set up the first land grant colleges. (Applause.) And leaders of both
parties have followed the example he set.
Ask yourselves -- where would we be right now if the people who sat here before
us decided not to build our highways, not to build our bridges, our dams, our
airports? What would this country be like if we had chosen not to spend money on
public high schools, or research universities, or community colleges? Millions
of returning heroes, including my grandfather, had the opportunity to go to
school because of the G.I. Bill. Where would we be if they hadn’t had that
chance? (Applause.)
How many jobs would it have cost us if past Congresses decided not to support
the basic research that led to the Internet and the computer chip? What kind of
country would this be if this chamber had voted down Social Security or Medicare
just because it violated some rigid idea about what government could or could
not do? (Applause.) How many Americans would have suffered as a result?
No single individual built America on their own. We built it together. We have
been, and always will be, one nation, under God, indivisible, with liberty and
justice for all; a nation with responsibilities to ourselves and with
responsibilities to one another. And members of Congress, it is time for us to
meet our responsibilities. (Applause.)
Every proposal I’ve laid out tonight is the kind that’s been supported by
Democrats and Republicans in the past. Every proposal I’ve laid out tonight will
be paid for. And every proposal is designed to meet the urgent needs of our
people and our communities.
Now, I know there’s been a lot of skepticism about whether the politics of the
moment will allow us to pass this jobs plan -- or any jobs plan. Already, we’re
seeing the same old press releases and tweets flying back and forth. Already,
the media has proclaimed that it’s impossible to bridge our differences. And
maybe some of you have decided that those differences are so great that we can
only resolve them at the ballot box.
But know this: The next election is 14 months away. And the people who sent us
here -- the people who hired us to work for them -- they don’t have the luxury
of waiting 14 months. (Applause.) Some of them are living week to week, paycheck
to paycheck, even day to day. They need help, and they need it now.
I don’t pretend that this plan will solve all our problems. It should not be,
nor will it be, the last plan of action we propose. What’s guided us from the
start of this crisis hasn’t been the search for a silver bullet. It’s been a
commitment to stay at it -- to be persistent -- to keep trying every new idea
that works, and listen to every good proposal, no matter which party comes up
with it.
Regardless of the arguments we’ve had in the past, regardless of the arguments
we will have in the future, this plan is the right thing to do right now. You
should pass it. (Applause.) And I intend to take that message to every corner of
this country. (Applause.) And I ask -- I ask every American who agrees to lift
your voice: Tell the people who are gathered here tonight that you want action
now. Tell Washington that doing nothing is not an option. Remind us that if we
act as one nation and one people, we have it within our power to meet this
challenge.
President Kennedy once said, “Our problems are man-made –- therefore they can be
solved by man. And man can be as big as he wants.”
These are difficult years for our country. But we are Americans. We are tougher
than the times we live in, and we are bigger than our politics have been. So
let’s meet the moment. Let’s get to work, and let’s show the world once again
why the United States of America remains the greatest nation on Earth.
(Applause.)
Thank you very much. God bless you, and God bless the United States of America.
(Applause.)
September
7, 2011
The New York Times
By DAVID LEONHARDT
If history
is a guide, the odds that the American economy is falling into a double-dip
recession have risen sharply in recent weeks and may even have reached 50
percent.
Economies have a strong self-reinforcing nature. When people are optimistic,
they spend, which begets hiring and then more spending. When people are anxious,
they pull back, which leads to a cycle of hiring freezes and further anxiety
that often lasts for months.
The United States appears to have entered some version of the vicious cycle.
Most ominously, job growth has slowed to a pace that typically signals the start
of a recession.
Over the last 50 years, every time that job growth has been as meager as it has
been over the last four months, the economy has been headed toward recession, in
a recession or in the immediate aftermath of one. From early 2010 through this
spring, by contrast, employment was growing fast enough to make the economy look
as if it were in a recovery, albeit a modest one.
“The chances that we are in something that is going to feel like a recession are
close to 100 percent,” said Joshua Shapiro of MFR Inc. in New York, who has
diagnosed the economy more accurately than many other forecasters lately.
“Whether we reach the technical definition” — which is determined by a committee
of academic economists and based on gross domestic product, employment and other
factors — “I think is probably close to 50-50.”
A double dip would present obvious political problems for President Obama, whose
approval ratings have already fallen below 50 percent and who is scheduled to
give a speech to Congress on Thursday outlining a new jobs plan. A weak economy
also could threaten incumbents of both parties in Congress, whose approval
rating has hovered around 15 percent in recent polls.
More immediately, the main significance of the recent slowdown is that the
economy may not merely be going through a weak phase that will soon pass, as
many policy makers hope. Instead, history seems to suggest that the situation
will probably get worse before it gets better.
In a recent research paper, Jeremy J. Nalewaik, a Federal Reserve economist,
described this concept as “stall speed”: once the economy slows markedly, it
often continues to do so. (He did not make a forecast.) In the other two severe
downturns of the last 80 years — in the 1930s and the early 1980s — the economy
suffered just such a stall and fell into a second recession not long after the
first.
Today, Europe’s troubles continue to weigh on banks and financial markets.
Consumers remain indebted, and the housing market remains depressed. State and
local governments continue to cut jobs, aggravating the problems in the private
sector. Congress is unlikely to pass a major jobs bill.
The economy could, of course, defy history and turn around soon. Eventually,
consumers will begin spending more on houses, cars, appliances and services, and
employers will begin hiring in large numbers. A further decline in gas prices,
which have generally been falling, would particularly help households.
But the latest indicators suggest that even if the economy does not continue to
worsen, it appears to be too weak to add enough jobs each month — roughly
125,000 — even to keep pace with population growth. Anything less, and the share
of the population that is employed will continue to fall.
Over the last four months, job creation has slowed to an average of just 40,000
jobs, or 0.1 percent, according to the Labor Department’s survey of employers.
The last time such a meager increase did not coincide with a recession came in
the 1950s.
The department’s survey of households presents a somewhat sunnier picture, but
it is a smaller and noisier survey. And even it shows an unemployment rate of
9.1 percent last month, up from 8.8 percent in March. In the past, an increase
of three-tenths of a percentage point has typically coincided with a recession.
James D. Hamilton, an economist at the University of California, San Diego, who
has studied forecasting, said he believed the most likely case was still that
the economy would avoid a double-dip recession. He also noted that the recent
job growth numbers were estimates still subject to revision, although the
unemployment rate is not.
“It’s extremely hard to predict recessions,” Mr. Hamilton said. The more
important point, he added, was that the economy remained very weak, and weaker
than people had expected.
Perhaps the best sign of how difficult it is to know the economy’s direction is
that, as a group, the nation’s professional forecasters have failed to predict
all the recessions since the 1970s, according to data kept by the Philadelphia
Fed. In the last 30 years, the average probability they put on the economy
lapsing into recession has never risen above 50 percent — until the economy was
already in a recession.
The forecasters, on Wall Street and elsewhere, are not blind to economic change;
they just tend to underestimate its severity. When the economy is on the verge
of recession, the average recession odds from forecasters tend to rise to about
30 percent. There has been only one occasion, in 1988, when the chances rose
above 30 percent and a recession did not follow.
And what do many forecasters say are the prospects of a double-dip recession
now? Somewhere between 25 and 40 percent.
September
6, 2011
The New York Times
By WILLIAM M. WALKER
PRESIDENT
OBAMA needs to go big. Jeffrey R. Immelt, chairman of the president’s Council on
Jobs and Competitiveness, may have suggestions, but considering that Fortune 100
companies have killed 2.9 million jobs in America over the past decade while
adding 2.4 million abroad, that may not be the best input. I’m an entrepreneur
and I’m creating jobs. Here are eight suggestions:
Significantly reduce Sarbanes-Oxley regulations for public companies with
revenues under $500 million. My company went public last year and spends $3
million to $4 million a year in additional insurance, accounting and legal costs
stemming from compliance with Sarbanes-Oxley financial reporting.
Reinstate Glass-Steagall and eliminate Dodd-Frank. Get commercial banks back to
being banks, and get investment banks back to raising capital and trading.
Reinstating Glass-Steagall would force the “too big to fail” banks to divest
assets, something Dodd-Frank does not address.
Raise rates on short-term capital gains and lower rates on long-term capital
gains. Hedge funds and private equity investors should not be rewarded for
short-term capital gains that produce enormous market volatility. Raise the
short-term capital gains rate to 35 percent, and lower the long-term rate (over
one year) to 10 percent.
Provide companies with the confidence that if they invest in the United States,
they aren’t going to face increased wage and benefit costs. Businesses will not
invest if they don’t know the actual cost they will bear to comply with health
care, consumer protection, banking and environmental regulations. The president
has created a regulatory landscape that scares investors and is making chief
executives hoard cash.
Require any mortgage originator who sells a mortgage to Fannie Mae or Freddie
Mac to take a first-loss position, meaning that if the loan goes bad, the
originator, not Fannie or Freddie, is responsible for the first 5 percent loss,
and then shares losses with Fannie or Freddie up to 20 percent.
Means-test Social Security. Many wealthy Americans do not need benefits. Give
them a tax deduction to the value of their estate for their accumulated
contributions.
Make serious cuts in Medicare and Medicaid. The health care bill sent the
message that we will insure every American and cover every disease. We cannot
afford that type of health care. Americans need to take responsibility for their
health and realize that life choices (smoking, overeating, etc.) may produce
health conditions that are not covered.
Identify 100 major infrastructure projects that will put this country ahead of
our competition and put people to work building high-speed trains, highways,
water pipelines, irrigation canals and alternative energy sources. Borrow as
much money as the government possibly can to fund this investment. At 2 percent
interest, it’s a good investment.
William M.
Walker is chief executive of Walker & Dunlop,
a commercial real estate financing company.
September
6, 2011
The New York Times
By BARRY BLUESTONE
IN the face
of this economic crisis, the federal government has all but declared unilateral
disarmament. The Federal Reserve chairman, Ben S. Bernanke, has vowed to keep
real interest rates near zero, but even at that level few are borrowing. Over at
the White House and on Capitol Hill, the pursuit of deficit reduction has taken
on a religious fervor just when the economy needs a stimulus.
What can President Obama do? Many are suggesting another try at increasing
infrastructure investment, but that would do little to provide a quick boost.
Here is a wildly conservative, yet refreshingly liberal, alternative. Mr. Obama
should first call together the leaders of all public-sector unions and ask them
to pledge to a two-year freeze on federal, state and local public employee wages
and benefits in return for a commitment to no government layoffs.
The White House and Congress should then create a two-year, $100 billion program
of federal aid to state governments to help them and their municipalities
weather this economic storm. All of the money would be spent on keeping services
from disappearing and providing new infrastructure and public goods, rather than
increasing employee compensation.
To pay for the federal aid program, the White House and Congress should levy a
two-year, 5.5 percent “profits tax” on corporations operating in the United
States that earned more than $1 million in profits in 2010. Profits have
rebounded nicely from the Great Recession and now stand at close to $1.8
trillion, but very little of that is going into producing jobs. If half those
profits were made at companies with $1 million or more in corporate earnings,
this tax would raise the $100 billion we need to pay for the aid to states.
Finally, even with the economy in vast disarray, there are millions of
credit-worthy families who might buy a home if they were not so worried about
seeing their new homes lose value. So the Department of Housing and Urban
Development should create a “home price insurance” program that would insure
home buyers against catastrophic loss if home prices were to fall. For a $500
processing fee, the two-year program would allow applicants to purchase an
insurance plan covering 80 percent of any loss in home value. To benefit from
the program, a homeowner would have to keep the home for a minimum of three
years and maintain it in good order. The cost to the government is likely to be
minimal.
These steps will not bring full employment back by next Labor Day. But at least
we’d be putting up a fight.
Barry
Bluestone is the dean of the School of Public Policy and Urban Affairs
at Northeastern University.
September
6, 2011
The New York Times
By LAWRENCE F. KATZ
THE last
four years have been difficult for American workers. Employment collapsed in
2008-9 in the wake of the financial crisis. There are no signs of recovery in
the labor market. Public-sector employment fell in the last year and
private-sector employment growth remains tepid. The employment crisis has
exacerbated the longer-term trends of rising inequality and a decline in
middle-class jobs. Bold action by the federal government is needed.
First, a net job-creation tax credit for the next two years could provide a
powerful incentive for private-sector employers to speed hiring and create
momentum for a jobs recovery. Private employers who increase employment would
get a tax credit to cover a substantial share (say 40 percent) of the payroll
costs of net new hires; they would get a check even if they didn’t owe taxes.
Such a tax credit would focus the incentives on expanding businesses, where the
new jobs are more likely to persist, even after the subsidy expires.
Second, increased federal spending of at least several hundred billion dollars a
year for the next two years is needed to offset weak private-sector demand and
crumbling state and local government finances. I would emphasize aid to state
and local governments to prevent further layoffs and to increase spending on
infrastructure for public schools and community colleges. Recent research shows
that investments in public school infrastructure can raise property values and
student performance. The most promising transportation, research and development
and energy-efficiency investments should also be included.
Third, the work force investment and re-employment system needs to be revamped.
Re-employment services can be cost-effective in helping dislocated and
disadvantaged workers find employment more rapidly. The economic rewards from
community college and other postsecondary education remain high for young
workers and some dislocated workers. There is much evidence that
well-functioning training and education programs — like Job Corps, the National
Guard Youth Challenge and Career Academies — help disadvantaged youths.
Existing employment and job-training systems are fragmented and hard to
navigate. We need to make sure all workers have the resources and information to
invest in high-return training.
Unemployment insurance should be made more flexible so that employers have an
incentive to shorten workers’ hours instead of laying them off. Jobless workers
trying to start new businesses should be eligible for continued unemployment
insurance benefits. Wage-loss insurance should be granted to help buffer the
earnings losses of displaced workers who take new, lower-paid jobs.
Industry-specific training programs that prepare disadvantaged workers for
skilled jobs and help connect them to employers have been shown to raise
earnings and should be expanded.
These initiatives could start us down the road to a sustained jobs recovery with
more broadly shared prosperity.
Lawrence F.
Katz is an economics professor at Harvard
and was the chief economist at the Labor Department from 1993-1994.
September
6, 2011
The New York Times
By JOHN B. TAYLOR
WHEN he
introduced Alan B. Krueger, his new economic adviser, in the Rose Garden last
week, President Obama offered a few hints about his new economic plan. So far it
sounds much like the old plan, which is too bad because that plan didn’t work
very well.
One part of the new plan, the president said, is to “put more money in the
pockets” of people. That was tried in the 2009 stimulus, when the federal
government borrowed money and gave it to people in the form of one-time payments
or temporary refundable tax credits. The temporary transfers created little or
no increase in aggregate consumption or, in turn, in jobs.
Another part of the new plan would “put construction crews to work rebuilding
our nation’s roads and railways and airports.” That too was tried in the 2009
stimulus. My colleague John F. Cogan and I found that state and local
governments put most of the money in their coffers. The federal government also
undertook its own construction programs, but, with few shovel-ready projects, it
could only increase infrastructure spending by an immaterial 0.05 percent of
G.D.P.
In my estimation, those interventions and most others — cash for clunkers, the
first-time homebuyers’ tax credit, quantitative easing by the Federal Reserve
and the sharp increase in federal spending — have not only been ineffective but
have also lowered investment and consumption demand by increasing concern about
the federal debt, another financial crisis and threats of inflation or
deflation. Most businesses have plenty of cash to invest and create jobs.
They’re sitting on it because of those concerns.
Rather than more of such temporary interventions, the American economy needs a
new comprehensive economic strategy. A natural starting place is the debt-limit
cum spending-control agreement reached this summer. It reduces projected
increases in spending over 10 years by $2.1 trillion to $2.4 trillion. The
agreement reduces spending growth in a very gradual way, which is appropriate in
a weak economy.
But it does not fully deal with the debt and the deficit problem, which is why
it needs to be embedded in a broader economic strategy with the goal of closing
the rest of the budget gap through pro-growth reforms.
There are of course sharp differences of opinion about the reforms needed to
achieve that goal. The biggest differences of opinion will probably have to be
hammered out in the 2012 election. Entitlement reform, tax reform, regulatory
reform, monetary reform — indeed, the fundamental role of government in the
economy — should be part of that debate, but with a clear commitment to
America’s living within its means.
That strategy will take us toward a more stable and predictable economic policy
with less uncertainty about the future. It will thereby increase both demand and
supply and cause the economy to grow and create jobs again.
John B. Taylor
is an economics professor at Stanford
and served as the Treasury under secretary for international affairs from
2001-2005.
September
6, 2011
The New York Times
By MONICA DAVEY
LANSING,
Mich. — Stretched beyond their limits and searching for new corners of their
budgets to find spending cuts, states are now trimming benefits for residents
who are in grim financial shape themselves.
Some states, including Florida and Missouri, have decided to shrink the duration
of state unemployment benefits paid to laid-off workers, while others, including
Arizona and California, are creating new restrictions on cash aid for low-income
residents.
Here in Michigan, more than 11,000 families received letters last week notifying
them that in October they will lose the cash assistance they have been provided
for years. Next year, people who lose their jobs here will receive fewer weeks
of state unemployment benefits, and those making little enough to qualify for
the state’s earned income tax credit will see a far smaller benefit from it.
Some political leaders see these sorts of cuts as unfortunate necessities to
help bridge their state’s financial gaps. Others see them as overdue limits on
out-of-control government handouts — some lawmakers here fumed, for example,
that 30,000 college students, newly dropped from the state’s food stamp rolls,
should never have been allowed to collect such benefits in the first place.
Whatever the motive, such policy changes come as the downturn has left a growing
number of low-income families in worse financial trouble.
The percentage of children living in poverty rose during the last decade,
particularly once the recession hit and unemployment soared.
By 2009, about 2.4 million more children’s families lived below the poverty line
than in 2000, an increase of 18 percent, according to a recent analysis of
Census Bureau data by the Annie E. Casey Foundation, a child advocacy group. In
states like this, where Republicans took control of the capital this year, the
new cuts have helped resolve Michigan’s expected budget gap, once estimated at
$1.4 billion.
“Michigan can no longer afford to provide lifetime assistance,” said Sheryl
Thompson, an official with the state Department of Human Services, which
reported that of those being dropped from the state’s cash-assistance rolls,
some 1,200 families had been receiving payments for 10 years, more than 700
others for a dozen years, and an additional 400 families had been getting
payments for 14 years.
The pattern of new cuts around the nation leads some advocates to fear that the
number of low-income families will only grow in the next few years if programs
they can lean on shrink or vanish.
“We’re O.K. unless something — anything at all — goes wrong,” said Rachel
Haifley, who lives here in Lansing and said she works part-time making a little
less than $9 an hour and receives child support for her two young sons, 1 and 3.
Ms. Haifley said she has become an expert at seeking out giveaways, thrift shops
and bargains — for clothes, portable cribs, toys for the boys. “All I want is
for them to feel like everyone else,” she said. “I don’t want them to grow up
and ask me why they’re poor.”
In Dearborn Heights, Celia Kane-Fecay, another mother of two, said she has given
up on the job hunt for now and returned to college — with help from $597 a month
in cash assistance, Medicaid and any other aid she can track down with what she
has come to describe unhappily as her daily list of begging phone calls. “You
don’t ever want to be here,” she said.
Signs of new poverty are already evident. A project by the Annie E. Casey
Foundation Kids Count Data Book found that by 2010, nearly 11 percent of the
nation’s children, or 7.8 million children, had at least one parent who was
unemployed, when only about half as many were in such circumstances in 2007. And
since four years ago, the study found, at least 5.3 million children have been
affected by home foreclosures.
Meanwhile, around the nation, lawmakers have weighed new limits to tax credits
for low-income people; in Michigan, a proposal to throw out the earned income
tax credit entirely was dropped, but lawmakers shrank the benefit — to an
average of $138 a year for a Michigan family, advocates say, from $432 last
year.
Six states have approved reductions in the length of state unemployment
benefits. The notion appalls people like Jeananne Bishop, who has been
desperately searching for a job since July 2010 and found herself washing her
hair with laundry detergent at one point because she could not afford shampoo.
Ms. Bishop said her continuing benefits — now part of a federally financed
extension — are the only thing keeping her afloat. Michigan’s shortened
unemployment benefit limits will apply starting next year, but Ms. Bishop, 56,
of Benton Harbor, seemed skeptical that much will have changed in the job market
for them, cautioning, “No one calls back.”
And while at least three states, including Michigan, shortened the period during
which poor residents can receive cash assistance, other states began enforcing
stricter limits already on the books.
“We clearly recognize that states have huge deficits they’re dealing with, but
all of these things add up in certain states to very little safety net
protection for children,” said Patrick McCarthy, president of the Annie E. Casey
Foundation.
In Michigan — where 23 percent of children were living in poverty by 2009
(compared with 14 percent in 2000) and with an unemployment rate, at 10.9
percent, worse than the nation’s — state leaders defended their changes.
Sara Wurfel, a spokeswoman for Gov. Rick Snyder, a Republican in his first term,
said his efforts had focused on creating an economic climate in the state for
more and better jobs, while also protecting and even enhancing core safety-net
services like Medicaid, she said.
Ms. Wurfel added that the state had, for instance, hired hundreds of new child
welfare workers. And as part of their decision to cut state unemployment
benefits next year, Michigan lawmakers had accepted a federal extension of
benefits this year for residents.
“In this state, we are losing hard-working families and taxpayers and gaining
people who were moving here for our entitlement programs,” said Ken Horn, a
Republican state representative who introduced a bill setting strict limits on
cash assistance to those who have had it at least four years. That bill was
signed into law on Tuesday, even as state officials were newly carrying out
five-year lifetime federal limits on such assistance, which in Michigan averages
$415 a month for an eligible family.
“The bill is designed with the simple idea that there should be a safety net but
it should not be a lifestyle,” Mr. Horn added. “As we looked at it, it turned
out to be part of the budget solution.”
Republicans said that even the cuts to those who have been on cash assistance
the longest allow some exceptions (for those with disabilities, for instance),
and that the rest will get special attention from social workers.
But Fred Durhal Jr., a Democratic state representative from one of Michigan’s
poorest regions, said that will not be enough. He has begun calling Oct. 1 — the
start of cuts to cash aid — doomsday.
“Sometimes you’ve got what’s fiscally sound, and you’ve got what is morally and
ethically the right thing to do,” Mr. Durhal said. “Those don’t always jell well
together. You can’t take grandmas away and put them on the street, and you can’t
take milk from babies.”
September
4, 2011
The New York Times
By STEVEN GREENHOUSE
The United
States Postal Service has long lived on the financial edge, but it has never
been as close to the precipice as it is today: the agency is so low on cash that
it will not be able to make a $5.5 billion payment due this month and may have
to shut down entirely this winter unless Congress takes emergency action to
stabilize its finances.
“Our situation is extremely serious,” the postmaster general, Patrick R.
Donahoe, said in an interview. “If Congress doesn’t act, we will default.”
In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting
measures to erase the agency’s deficit, which will reach $9.2 billion this
fiscal year. They include eliminating Saturday mail delivery, closing up to
3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the
agency’s work force — despite a no-layoffs clause in the unions’ contracts.
The post office’s problems stem from one hard reality: it is being squeezed on
both revenue and costs.
As any computer user knows, the Internet revolution has led to people and
businesses sending far less conventional mail.
At the same time, decades of contractual promises made to unionized workers,
including no-layoff clauses, are increasing the post office’s costs. Labor
represents 80 percent of the agency’s expenses, compared with 53 percent at
United Parcel Service and 32 percent at FedEx, its two biggest private
competitors. Postal workers also receive more generous health benefits than most
other federal employees.
The Senate Homeland Security and Governmental Affairs Committee will hold a
hearing on the agency’s predicament on Tuesday. So far, feuding Democrats and
Republicans in Congress, still smarting from the brawl over the federal debt
ceiling, have failed to agree on any solutions. It doesn’t help that many of the
options for saving the postal service are politically unpalatable.
“The situation is dire,” said Thomas R. Carper, the Delaware Democrat who is
chairman of the Senate subcommittee that oversees the postal service. “If we do
nothing, if we don’t react in a smart, appropriate way, the postal service could
literally close later this year. That’s not the kind of development we need to
inject into a weak, uneven economic recovery.”
Missing the $5.5 billion payment due on Sept. 30, intended to finance retirees’
future health care, won’t cause immediate disaster. But sometime early next
year, the agency will run out of money to pay its employees and gas up its
trucks, officials warn, forcing it to stop delivering the roughly three billion
pieces of mail it handles weekly.
The causes of the crisis are well known and immensely difficult to overcome.
Mail volume has plummeted with the rise of e-mail, electronic bill-paying and a
Web that makes everything from fashion catalogs to news instantly available. The
system will handle an estimated 167 billion pieces of mail this fiscal year,
down 22 percent from five years ago.
It’s difficult to imagine that trend reversing, and pessimistic projections
suggest that volume could plunge to 118 billion pieces by 2020. The law also
prevents the post office from raising postage fees faster than inflation.
Meanwhile, the agency has had a tough time cutting its costs to match the
revenue drop, with a history of labor contracts offering good health and pension
benefits, underused post offices, and laws that restrict its ability to make
basic business decisions, like reducing the frequency of deliveries.
Congress is considering numerous emergency proposals — most notably, allowing
the post office to recover billions of dollars that management says it overpaid
to its employees’ pension funds. That fix would help the agency get through the
short-term crisis, but would delay the day of reckoning on bigger issues.
The agency’s leaders acknowledge that they must find a way to increase revenue,
something that will prove far harder than simply slicing costs.
In some countries, post offices double as banks or sell insurance or cellphones.
In the United States, the postal service is barred from entering many areas.
Still, the agency is considering ideas, like gaining the right to deliver wine
and beer, allowing commercial advertisements on postal trucks and in post
offices, doing more “last-mile” deliveries for FedEx and U.P.S. and offering
special hand-delivery services for correspondence and transactions for which
e-mail is not considered secure enough.
Mr. Donahoe’s hope is to cut $20 billion of the $75 billion in annual costs by
2015. To do that, he wants to close many post offices and slash the number of
sorting facilities to 200 from 500 and trim the agency’s work force by 220,000
people, from its current 653,000. (A decade ago, the agency employed nearly
900,000.)
The postal service has the legal authority to close facilities, although
community opposition can make the process difficult. To placate critics and cut
costs, officials say they would seek to run some postal operations out of stores
like Wal-Mart or to share space with other government offices.
Cutting the work force is more difficult. The agency’s labor contracts have long
guaranteed no layoffs to the vast majority of its workers, and management agreed
to a new no layoff-clause in a major union contract last May.
But now, faced with what postal officials call “the equivalent of Chapter 11
bankruptcy,” the agency is asking Congress to enact legislation that would
overturn the job protections and let it lay off 120,000 workers in addition to
trimming 100,000 jobs through attrition.
The postal service is also asking Congress for permission to end Saturday
delivery.
Given the vast range of stakeholders, getting consensus on a rescue plan will be
difficult.
Senator Susan Collins of Maine, like many lawmakers from rural states,
vigorously opposes ending Saturday delivery, which would trim only 2 percent
from the agency’s budget. Ms. Collins, the ranking Republican on the committee
overseeing the postal service, said the cutback would be tough on people in
small towns who receive prescriptions and newspapers by mail.
“The postmaster general has focused on several approaches that I believe will be
counterproductive,” she said. “They risk producing a death spiral where the
postal service reduces service and drives away more customers.”
The post office’s powerful unions are angry and alarmed about the planned
layoffs. “We’re going to fight this and we’re going to fight it hard,” said
Cliff Guffey, president of the American Postal Workers Union, which represents
207,000 mail sorters and post office clerks. “It’s illegal for them to abrogate
our contract.”
Senators Carper and Collins do back several of the postal service’s main ideas
to avoid default, including recovering around $60 billion that some actuaries
say the agency has overpaid into two pension funds. Although the Obama
administration is working closely with the senators to find a solution, it has
signaled discomfort with the pension proposals, questioning whether the postal
service really overpaid.
Meanwhile, Representative Darrell Issa, the California Republican who is
chairman of the House Oversight Committee, says the pension proposals would
amount to an unjustifiable bailout that would not solve the agency’s underlying
problems. He is pushing a bill that would create an emergency oversight board
that could order huge cost-cutting and void the postal service’s contracts — a
proposal that not just the unions, but Senators Carper and Collins oppose.
Fredric V. Rolando, president of the National Association of Letter Carriers,
warned of disaster if partisanship keeps Congress from acting.
“This is about one of America’s oldest institutions,” he said. “It survived the
telegraph, it survived the telephone, and we have to do everything we can to
preserve it and adapt.”
The August
employment report, released on Friday, is bleak on all counts, but at least it
leaves no doubt that the United States is in the grip of a severe and worsening
jobs crisis. That should lend a sense of urgency to the speech on jobs that
President Obama plans to deliver this week.
The economy added no jobs in August — zero — and the anemic numbers for June and
July were revised downward. The unemployment rate is stuck at 9.1 percent, but
it would be 16.2 percent if it included the swelling ranks of those who find
only part-time work and the millions who have given up looking for jobs that
simply do not exist.
In his speech on Thursday, Mr. Obama does not need to alert Americans to the
dire situation; they have been telling pollsters for months that job creation —
not budget cuts — should be policy makers’ top priority. This is his chance to
present a plan big enough to ramp up job growth in the near term, while
initiating long-term fixes to improve the economy and sustain employment.
He should not calibrate his policies to fit what he hopes will be acceptable to
his Republican opponents. The House Republicans are never going to give Mr.
Obama anything, and they are ideologically opposed to the government’s acting on
the scale that is needed.
The American people will understand if Mr. Obama makes his case clearly and
powerfully. The Republicans will refuse to, and the president should speak
candidly about their disregard for workers. (Last week, the Republicans showed
their disregard for the presidency by fighting over the timing of the address.)
The first step is to not make matters worse. The main cause of unemployment now
is a lack of consumer demand. Americans — unemployed, underemployed, underwater
in their debts, and understandably anxious about the future — are unwilling or
unable to spend. To counteract that, it is vital to extend federal unemployment
benefits and the temporary payroll tax cut for employees beyond year’s end, a
move that would put some $160 billion into Americans’ pockets and preserve some
1.5 million jobs.
The next step is to create jobs. The highway trust fund must be reauthorized
before it expires at the end of September, a step that would prevent furloughs
of current workers and create some 120,000 jobs a year over the next three years
via investments in transportation. In addition, a $50 billion school renovation
program would employ 500,000 workers, out of 1.5 million unemployed construction
workers, and could be easily scaled up.
The federal government must also stop the hemorrhaging of state budgets, which
has led to the elimination of nearly 700,000 teaching jobs and other government
positions in the last three years. Analysts estimate that for every government
job lost, at least one job is lost in the private sector, as laid-off government
workers stop spending and private contractors lose work. The fastest way to get
aid to states is to increase the federal Medicaid share. The states will then
have money to pay employees and contractors.
In August, joblessness was nearly 18 percent among Americans under 24. They need
more federal jobs in parks, community centers and on college campuses, as well
as in service programs like AmeriCorps.
It is vital that Mr. Obama push for mortgage relief, to boost consumer spending
and help repair household balance sheets.
Mr. Obama cannot order Fannie Mae and Freddie Mac, the government-run mortgage
companies, to refinance the mortgages of underwater borrowers in good standing.
But he can apply pressure by making it clear that it is profoundly in the public
interest that they do so. Mr. Obama should also support principal reductions for
troubled borrowers in bankruptcy, in legal settlements, and in other loan
modification efforts.
Immediate measures must be accompanied by long-term plans. In particular,
Congress should heed Mr. Obama’s call for an infrastructure bank, to combine
public and private investment in large-scale projects.
Mr. Obama should explain that the efforts will be paid for, over time, by tax
increases and spending cuts that will begin as the economy recovers. For now,
they will require more borrowing, which is prudent, given the need and today’s
low interest rates.
Republicans will insist that the nation cannot afford to do the things necessary
to create jobs. We can’t afford not to. Mr. Obama must be clear about that on
Thursday.
September
2, 2011
The New York Times
By SHAILA DEWAN
August
brought no increase in the number of jobs in the United States, a signal that
the economy has stalled and that inaction by policy makers carries substantial
risk.
The government report on hiring, released on Friday, prompted another round in a
relentless diminution of economic expectations. The unemployment rate, at 9.1
percent, did not change last month, and the White House said it was expected to
stay that high through at least 2012.
The optics of a giant zero in the jobs column — more symbolically powerful,
perhaps, than even a small decrease might have been — increase the pressure on
President Obama as he prepares to deliver a major address on job creation next
week, on Republicans who have a starkly different approach to economic revival
and on the Federal Reserve, whose policy makers have been divided over the
wisdom of using its limited arsenal of tools to get the economy moving again.
The White House immediately seized on the report to bolster the president’s
impending call to action. Republicans countered that the numbers were further
proof that the stimulus policies of Mr. Obama, whom they quickly dubbed
“President Zero,” were not working.
Mr. Obama, who instructed the Environmental Protection Agency on Friday to pull
back on more stringent standards on ozone emissions in response to complaints
that they would hurt hiring, is expected to propose tax incentives to promote
hiring and infrastructure spending. He also is expected to renew the payroll tax
cut and extend unemployment benefits, both of which are set to expire.
The Federal Reserve is expected to weigh whether to take steps to help lower
long-term interest rates to bolster the economy at its two-day meeting this
month.
The new data, a monthly snapshot from the Department of Labor, sent stocks
sliding. The Dow Jones industrial average fell 253.31 points, 2.2 percent,
Friday, closing at 11,240.26.
Some economists said the possibility of a double-dip recession was increasing.
“As long as payrolls are weak, you will continue to hear cries of not just
recession risk but cries that the United States is in a recession and we just
don’t know it,” said Ellen Zentner, the senior United States economist for
Nomura Securities.
This is not the first time that job growth, the most important measure of the
economy for many Americans, has ground to a halt since the recovery. It dropped
into negative territory in the middle of last year after three months of strong
showings. This time, the slowdown comes after the earthquake in Japan, a spike
in oil prices and the European debt crisis, in addition to political gridlock in
America.
Even if the economy does not contract, the projected growth rate is so slow it
will not be enough to absorb new people entering the labor market, much less the
unemployed.
“We have virtually the same number of jobs as we did in January 2000,” said
Patrick J. O’Keefe, the director of economic research at J. H. Cohn, an
accounting firm. “Were jobs to continue to grow at the 2011 monthly average, it
would take more than four years to return to the prerecession employment level.”
In August, the private sector added 17,000 jobs, a number depressed by the
Verizon strike. Some 45,000 Verizon workers were off the payroll when the survey
was taken. They will reappear in next month’s total. But even adding those
workers back to the total, the gain would have been the smallest since May of
last year.
The problem is less that companies are laying people off than that they are not
hiring. Consumers and employers alike seem almost frozen in place, with many
economists saying that they seemed paralyzed by uncertainty about the future
after the brinksmanship of the debt ceiling debate, the ensuing cut in the
United States credit rating by Standard & Poor’s, stock market whiplash and more
bad news from Europe.
“There is really a darkening cloud that seems to hover over the U.S. economy
because of the lack of progress being made,” said Bernard Baumohl, chief
economist at the Economic Outlook Group. “There is extreme frustration with
Congress and the administration not working together to address the fiscal
issues.”
Much of the movement that did appear in the jobs report went in the wrong
direction. Revised numbers showed that job growth in June and July was smaller
than previously indicated. In August, wages fell and the average number of hours
worked inched down — a sign that businesses had less for employees to do.
Governments continued to cut jobs, the Labor Department reported. Small gains at
the state level were attributed in part to the return of workers from the
government shutdown in Minnesota. Local governments lost 20,000 jobs as they
continued to struggle with budget shortfalls and the disappearance of federal
stimulus money.
Two of the bright spots in the economy over the last year, manufacturing and
retail, lost steam, falling by 3,000 and 8,000 jobs, respectively. The health
care sector added 29,700 jobs in August. Construction lost a net of 5,000 jobs.
The unemployed also seemed to be marching in place. Six million people have been
out of work for 27 weeks or more, about the same number as in July. The median
duration of unemployment, 21.8 weeks, increased slightly.
The general unemployment rate, which counts only people who looked for work in
the previous four weeks, held steady at 9.1 percent. A broader measure that
includes people who have looked for work in the last year and people who were
involuntarily working part time instead of full time increased slightly to 16.2
percent. The percent of working-age adults who were employed, already at its
lowest rate since 1983, was at 58.2 percent.
Overall unemployment is lower than it was a year ago, but those gains have been
among whites, Hispanics and Asians. For blacks, unemployment has increased, to
16.7 percent from 16.2 percent.
This
article has been revised to reflect the following correction:
Correction: September 3, 2011
An earlier version of this article incorrectly stated a broad measure of
unemployment. The percentage increased slightly to 16.2 percent. It did not
decrease to 16.1.
September
3, 2011
The New York Times
By ROBERT B. REICH
Robert B.
Reich is the former secretary of labor, a professor at the University of
California, Berkeley, and the author of “Aftershock: The Next Economy and
America’s Future.”
THE 5 percent of Americans with the highest incomes now account for 37 percent
of all consumer purchases, according to the latest research from Moody’s
Analytics. That should come as no surprise. Our society has become more and more
unequal.
When so much income goes to the top, the middle class doesn’t have enough
purchasing power to keep the economy going without sinking ever more deeply into
debt — which, as we’ve seen, ends badly. An economy so dependent on the spending
of a few is also prone to great booms and busts. The rich splurge and speculate
when their savings are doing well. But when the values of their assets tumble,
they pull back. That can lead to wild gyrations. Sound familiar?
The economy won’t really bounce back until America’s surge toward inequality is
reversed. Even if by some miracle President Obama gets support for a second big
stimulus while Ben S. Bernanke’s Fed keeps interest rates near zero, neither
will do the trick without a middle class capable of spending. Pump-priming works
only when a well contains enough water.
Look back over the last hundred years and you’ll see the pattern. During periods
when the very rich took home a much smaller proportion of total income — as in
the Great Prosperity between 1947 and 1977 — the nation as a whole grew faster
and median wages surged. We created a virtuous cycle in which an ever growing
middle class had the ability to consume more goods and services, which created
more and better jobs, thereby stoking demand. The rising tide did in fact lift
all boats.
During periods when the very rich took home a larger proportion — as between
1918 and 1933, and in the Great Regression from 1981 to the present day — growth
slowed, median wages stagnated and we suffered giant downturns. It’s no mere
coincidence that over the last century the top earners’ share of the nation’s
total income peaked in 1928 and 2007 — the two years just preceding the biggest
downturns.
Starting in the late 1970s, the middle class began to weaken. Although
productivity continued to grow and the economy continued to expand, wages began
flattening in the 1970s because new technologies — container ships, satellite
communications, eventually computers and the Internet — started to undermine any
American job that could be automated or done more cheaply abroad. The same
technologies bestowed ever larger rewards on people who could use them to
innovate and solve problems. Some were product entrepreneurs; a growing number
were financial entrepreneurs. The pay of graduates of prestigious colleges and
M.B.A. programs — the “talent” who reached the pinnacles of power in executive
suites and on Wall Street — soared.
The middle class nonetheless continued to spend, at first enabled by the flow of
women into the work force. (In the 1960s only 12 percent of married women with
young children were working for pay; by the late 1990s, 55 percent were.) When
that way of life stopped generating enough income, Americans went deeper into
debt. From the late 1990s to 2007, the typical household debt grew by a third.
As long as housing values continued to rise it seemed a painless way to get
additional money.
Eventually, of course, the bubble burst. That ended the middle class’s
remarkable ability to keep spending in the face of near stagnant wages. The
puzzle is why so little has been done in the last 40 years to help deal with the
subversion of the economic power of the middle class. With the continued gains
from economic growth, the nation could have enabled more people to become
problem solvers and innovators — through early childhood education, better
public schools, expanded access to higher education and more efficient public
transportation.
We might have enlarged safety nets — by having unemployment insurance cover
part-time work, by giving transition assistance to move to new jobs in new
locations, by creating insurance for communities that lost a major employer. And
we could have made Medicare available to anyone.
Big companies could have been required to pay severance to American workers they
let go and train them for new jobs. The minimum wage could have been pegged at
half the median wage, and we could have insisted that the foreign nations we
trade with do the same, so that all citizens could share in gains from trade.
We could have raised taxes on the rich and cut them for poorer Americans.
But starting in the late 1970s, and with increasing fervor over the next three
decades, government did just the opposite. It deregulated and privatized. It cut
spending on infrastructure as a percentage of the national economy and shifted
more of the costs of public higher education to families. It shredded safety
nets. (Only 27 percent of the unemployed are covered by unemployment insurance.)
And it allowed companies to bust unions and threaten employees who tried to
organize. Fewer than 8 percent of private-sector workers are unionized.
More generally, it stood by as big American companies became global companies
with no more loyalty to the United States than a GPS satellite. Meanwhile, the
top income tax rate was halved to 35 percent and many of the nation’s richest
were allowed to treat their income as capital gains subject to no more than 15
percent tax. Inheritance taxes that affected only the topmost 1.5 percent of
earners were sliced. Yet at the same time sales and payroll taxes — both taking
a bigger chunk out of modest paychecks — were increased.
Most telling of all, Washington deregulated Wall Street while insuring it
against major losses. In so doing, it allowed finance — which until then had
been the servant of American industry — to become its master, demanding
short-term profits over long-term growth and raking in an ever larger portion of
the nation’s profits. By 2007, financial companies accounted for over 40 percent
of American corporate profits and almost as great a percentage of pay, up from
10 percent during the Great Prosperity.
Some say the regressive lurch occurred because Americans lost confidence in
government. But this argument has cause and effect backward. The tax revolts
that thundered across America starting in the late 1970s were not so much
ideological revolts against government — Americans still wanted all the
government services they had before, and then some — as against paying more
taxes on incomes that had stagnated. Inevitably, government services
deteriorated and government deficits exploded, confirming the public’s growing
cynicism about government’s doing anything right.
Some say we couldn’t have reversed the consequences of globalization and
technological change. Yet the experiences of other nations, like Germany,
suggest otherwise. Germany has grown faster than the United States for the last
15 years, and the gains have been more widely spread. While Americans’ average
hourly pay has risen only 6 percent since 1985, adjusted for inflation, German
workers’ pay has risen almost 30 percent. At the same time, the top 1 percent of
German households now take home about 11 percent of all income — about the same
as in 1970. And although in the last months Germany has been hit by the debt
crisis of its neighbors, its unemployment is still below where it was when the
financial crisis started in 2007.
How has Germany done it? Mainly by focusing like a laser on education (German
math scores continue to extend their lead over American), and by maintaining
strong labor unions.
THE real reason for America’s Great Regression was political. As income and
wealth became more concentrated in fewer hands, American politics reverted to
what Marriner S. Eccles, a former chairman of the Federal Reserve, described in
the 1920s, when people “with great economic power had an undue influence in
making the rules of the economic game.” With hefty campaign contributions and
platoons of lobbyists and public relations spinners, America’s executive class
has gained lower tax rates while resisting reforms that would spread the gains
from growth.
Yet the rich are now being bitten by their own success. Those at the top would
be better off with a smaller share of a rapidly growing economy than a large
share of one that’s almost dead in the water.
The economy cannot possibly get out of its current doldrums without a strategy
to revive the purchasing power of America’s vast middle class. The spending of
the richest 5 percent alone will not lead to a virtuous cycle of more jobs and
higher living standards. Nor can we rely on exports to fill the gap. It is
impossible for every large economy, including the United States, to become a net
exporter.
Reviving the middle class requires that we reverse the nation’s decades-long
trend toward widening inequality. This is possible notwithstanding the political
power of the executive class. So many people are now being hit by job losses,
sagging incomes and declining home values that Americans could be mobilized.
Moreover, an economy is not a zero-sum game. Even the executive class has an
enlightened self-interest in reversing the trend; just as a rising tide lifts
all boats, the ebbing tide is now threatening to beach many of the yachts. The
question is whether, and when, we will summon the political will. We have
summoned it before in even bleaker times.
As the historian James Truslow Adams defined the American Dream when he coined
the term at the depths of the Great Depression, what we seek is “a land in which
life should be better and richer and fuller for everyone.”
September
2, 2011
The New York Times
By SHAILA DEWAN
The
nation’s employers failed to add new jobs in August, a strong signal that the
economy has stalled and that policy makers can no longer afford inaction.
The dismal showing, the first time in 11 months that total payrolls did not
rise, was the latest indication that the jobs recovery that began in 2010 lacked
momentum. The unemployment rate for August did not budge, remaining at 9.1
percent.
As President Obama prepared to deliver a major proposal to bolster job creation
next week, the report added to the pressure on the administration, on
Republicans who have resisted any new stimulus spending, and on the Federal
Reserve, which has been divided over the wisdom of using its limited arsenal of
tools to get the economy moving again.
The White House immediately seized on the report as evidence that bold action
was needed, calling the unemployment rate “unacceptably high.” Secretary of
Labor Hilda L. Solis said in an interview that she hoped the president’s
proposals would be embraced by Congress. “If they’re not supported, then he’s
going to take it out to the public,” she said.
Republicans, in turn, argued that the numbers were further proof that the
policies of Mr. Obama, whom they quickly dubbed “President Zero,” were not
working. The lack of growth in nonfarm payrolls was well below the consensus
forecast by economists of a 60,000 increase, which itself was none too
optimistic. It was a sharp decline from July, which the Labor Department on
Friday revised to show a gain of 85,000 jobs.
August’s stall came after a prolonged increase in economic anxiety this summer
that began with the brinksmanship in Washington’s debt-ceiling debate, followed
by the country’s loss of its AAA credit rating, stock market whiplash and
renewed concerns about Europe’s sovereign debt.
On Friday, Wall Street stocks indexes promptly lost more than 2 percent of their
value at the opening of trading, with the Dow Jones industrial average down
about 200 points by midday, and some economists upgraded their odds for a
double-dip recession.
The total employment figure, a monthly statistical snapshot by the Department of
Labor, appears slightly more negative because 45,000 Verizon workers were on
strike when the survey was taken and their jobs were not included. They will
reappear in next month’s total. But even factoring in the Verizon jobs, private
sector growth was the slowest it has been since May of last year. In addition,
the report showed that job growth in June and July was softer than previously
thought.
“As long as payrolls are weak, you will continue to hear cries of not just
recession risk, but cries that the United States is in a recession and we just
don’t know it,” said Ellen Zentner, the senior United States economist for
Nomura Securities.
Economists blamed both sluggish demand for goods and services and the heightened
uncertainty over the economy’s direction for the slow pace of job creation,
saying political deadlock was creating economic paralysis.
“There is really a darkening cloud that seems to hover over the U.S. economy
because of the lack of progress being made on economic issues,” said Bernard
Baumohl, the chief economist at the Economic Outlook Group. “There is extreme
frustration with Congress and the administration not working together to address
the fiscal issues.”
Government continued to shed jobs over all, though small gains were posted at
the state level, the Labor Department reported. Local governments, on the other
hand, lost 20,000 jobs.
Two of the bright spots in the economy over the last year, manufacturing and
retail, lost steam, falling by 3,000 and 8,000 jobs, respectively, in August.
The health care sector added 29,700 jobs.
The number of long-term unemployed — people out of work for 27 weeks or more —
remained about the same as in July, at 6 million , as did the median duration of
unemployment, at 19.6 weeks compared with 19.7 weeks in July.
The general unemployment rate, which counts only people who looked for work in
the previous four weeks, held steady at 9.1 percent. But a broader measure that
includes people who have looked for work in the last year and people who were
involuntarily working part-time instead of full-time, fell slightly to 16.1
percent. The percentage of working-age adults who were employed, already at its
lowest rate since 1983, ticked down to 58.5 percent from 58.6 percent.
Though unexpectedly low, the jobs report may not change the mainstream view
among economists that the economy will stay in growth mode, albeit at a level
that is barely perceptible, much less comforting, to Americans without jobs.
“We’ve got at least another 12 months of difficulty to go through,” said Steven
Ricchiuto, United States economist for Mizuho Securities USA. “I know that
doesn’t help politicians who are worried about the elections.”
It is unclear whether the report increases the chances that Congress will act on
any of the recommendations President Obama may make next week, such as a tax
incentive for companies to hire new workers. But several economists said that
given the fragility of the recovery, the payroll tax cut and extended
unemployment benefits, both set to expire at the end of the year, should be
renewed.
“It’s probably not the time for adding to fiscal drag,” said Jim O’Sullivan, the
chief economist for MF Global. He said that together the tax cut and
unemployment benefits account for 1 percent of the gross domestic product.
Some analysts had already downgraded their forecast for the jobs numbers on
Thursday based on new economic indicators including weaker online job
advertising, a rise in announced layoffs and a growing pessimism about the job
market by consumers. A major report on manufacturing showed slowing employment
growth and shrinking production and new orders.
But other indicators suggested that fears of recession have outstripped reality.
Consumer confidence dropped sharply and pending home sales dipped, but in July
retail sales increased and orders for durable goods — expensive items often
purchased on credit — were up 4 percent. A report on chain-store sales indicated
modest back-to-school shopping, somewhat slowed by Hurricane Irene.
September
2, 2011
The New York Times
By JENNIFER GONNERMAN
ON June 25,
2010, Frederick Deare punched out for the last time from his job driving a
forklift at the Old London factory in the Bronx. That summer, everyone at the
plant was being laid off: the oven operators, the assembly-line packers, the
forklift drivers, the sanitation workers. Total jobs lost: 228. Old London, the
snack manufacturer that invented the Cheez Doodle, was moving its operations to
North Carolina. At 53, Mr. Deare, known as Freddy or Teddy Bear to his
co-workers, would have to find a new job.
There was a time, not all that long ago, when the sound of factory whistles
could be heard throughout the five boroughs. In the Bronx, there were
Farberware, the pot manufacturer, which employed 700 people before shutting down
its plant in 1996; Everlast, the boxing glove maker, which closed its operation
in 2003; and Stella D’oro, the cookie-and-breadstick bakery that moved to Ohio
in 2009. A. L. Bazzini Company, the peanut factory that supplies snacks to
Yankee Stadium, will soon be leaving the city, too.
A century ago, about 40 percent of New York City workers held manufacturing
jobs, according to “Working-Class New York,” by Joshua B. Freeman. As Labor Day
rolls around again, that portion has shrunk to less than 4 percent, according to
the federal Bureau of Labor Statistics. And when Mr. Deare received his pink
slip, he joined a growing army of the unemployed in a borough that has been hit
hard by the nation’s financial turmoil. The Bronx has an unemployment rate of 12
percent, the highest in the state. For African-American men like Mr. Deare, the
city’s unemployment rate is even more disturbing: nearly 20 percent.
If getting a job is hard enough for a white-collar worker armed with a college
degree, then the challenge was even steeper for Mr. Deare, who has only a
G.E.D., lost 15 years to drug addiction and did a brief stint in prison. He had
reinvented himself at Old London, reporting to work day after day for a decade;
by the end, he was earning $16.61 an hour with health insurance. How does
someone with his background find a job in the new economy? Mr. Deare was about
to find out.
•
In those first weeks after he was laid off, Mr. Deare found that he liked
staying home — hanging out with his fiancée, Annette Amaro; eating her cooking;
zoning out in front of the television. With low rent and his three children all
grown, Mr. Deare was in better financial shape than many of his former
co-workers. And it helped that he had received a severance check of nearly
$5,000.
As the end of summer neared, he threw himself into job-hunting. He put in
applications everywhere he could think of, including Target and FedEx. He
contacted his former union to see if it could help. He asked everyone he knew
with a job to look out for him. The effort turned out to be an exercise in
rejection. Nobody offered to hire him; they didn’t even bother calling back.
To keep up his spirits, he called each morning into a 6 o’clock prayer line run
by his daughter, a minister in Massachusetts. Callers shared their worries, then
prayed together; some mornings, Mr. Deare revealed his job woes.
“The hardest part for him is not working, not being in the game,” Ms. Amaro
said. “He’s not a sit-around kind of guy.”
That fall, her mother came through with the best lead: somebody had told her
there might be an opening at one of the meat markets at Hunts Point in the
Bronx. Unsure which market needed help, Mr. Deare visited five or six. Most
wouldn’t even let him fill out an application — “Sorry, we’re not hiring” — but
he managed to leave his résumé at one place. When he returned the following
week, he talked his way into a job.
He started in October, working the midnight-to-8 a.m. shift. The job required
spending all night in frigid temperatures, moving in and out of freezers and
refrigerators, lifting 70-pound boxes. “I’m 53 years old, and this is some
strenuous work,” he said. “Everybody else is 23.”
When he got home in the morning, he would slide into a warm bath. The position
paid $15 an hour, but if he could hold on to it for a few months, he would move
up to $18 an hour, with benefits and a spot in the union.
•
Reese Grosett and Iraida Rivera had been two of Mr. Deare’s closest friends at
Old London. As of November, neither had a job, and one morning the two met up at
a McDonald’s near the Bronx Zoo. Ms. Rivera confessed that while she had enjoyed
her first five days out of work, Day 6 was different.
“I woke up in the morning, and when I looked at what time it was and I had
nothing to do, I literally cried,” she recalled. “I said, ‘What am I going to do
now?’ ”
Of all the people Mr. Grosett and Ms. Rivera knew from Old London, Mr. Deare was
one of the very few who had found work. He had become a source of hope to
everyone else, his good fortune reminding them that even in these bleak times,
it was still possible to find a decent job. But now, a month after he started
work at Hunts Point, Mr. Deare’s fortunes had changed.
“Did he tell you?” Mr. Grosett asked, between sips of orange juice. “They laid
him off.”
•
Mr. Deare had recounted to friends what the boss told him: “Business is very
slow right now. If it picks up, I have your number.” This conversation took
place at 5 a.m., and the boss asked if Mr. Deare could stay and finish his
shift. He was tempted to storm off, but considering the state of the economy, it
seemed a bad idea to anger any potential employer, even one who had just let him
go. So he completed the shift.
In many ways, this second layoff stung even more than the first. “I thought I
was on that track again to be a worker, and then — boom! — this happens,” he
said. “It was a low blow.” He was back where he had started: phoning friends for
job leads, filling out applications, waiting for calls. But by now his severance
was gone. He would have to survive on his unemployment benefits: $353 a week.
Some nights, he couldn’t sleep. Other times, he woke at 4 a.m., reached for his
cellphone and played video games for an hour or two, until he grew so tired that
the phone fell from his hand and he was dozing once again. It was hard to say
exactly what caused the insomnia — anxiety about unpaid bills, fear of never
finding another job, an internal time clock accustomed to working the night
shift — but it was a problem he shared with many of his former co-workers.
Once, he woke at 3 a.m. and groped in the dark for his phone. “Should be
sleeping,” he wrote on his Facebook page. “I guess there’s a lot on the mind.”
Dhyalma Diaz, a friend from Old London, responded, “Don’t worry teddy we all
have a lot in our minds.”
•
That winter, Mr. Deare jumped on every lead that came his way. A friend told him
about a laundry company looking for a truck driver. The job paid $10 an hour
with no benefits, but Mr. Deare reasoned that he was in no position to be picky.
So he pulled on his parka, headed over to the employment agency and spent an
hour in the waiting room, only to learn that the company wanted someone with
experience driving a truck, not a forklift.
Mr. Deare tried for months to get hired at a school for troubled children where
his cousin works, in Westchester County. Finally, he managed to land an
interview for a teacher’s aide position. It sounded as if the job was his, as
long as he didn’t fail a drug test. He urinated into a cup, passed the test,
then waited for the call. One week went by. Then two weeks. Then three weeks. He
left messages, but nobody phoned back.
He was not one to complain, but the strain of not having a job was starting to
show. His moods swung from frustration to depression to rage. To lift his
spirits, his fiancée would tell him: “You know the kind of worker you are — and
you know you’re out there putting in the applications; you’re doing the
footwork. It’s not you. This is what the country is going through.” She made
this point often, but it was hard not to take each rejection personally.
As week after week went by with no good news, his efforts became more
scattershot. In March, he applied for a job at a shoe store. He also filled out
forms for positions in health care and child care. At this point, he figured, he
would take just about anything. It was the attitude of a desperate man: there
was a certain logic to it, but, of course, finding a job in a field where you
have no experience or personal contacts can be next to impossible.
•
Mr. Deare had kept in touch with about 25 co-workers from Old London, and by
spring none had found new jobs. Still, he was determined to beat the odds.
“Somebody is hiring somewhere, and I’m going to find that person,” he told
himself.
He had stayed in touch with his former union, Local 1102 of the Retail,
Wholesale and Department Store Union. During one conversation with a contact
there in late March, he heard about a job opening: forklift driver at a coffee
warehouse in Yonkers.
He got an interview, and the supervisor he met with sounded optimistic about his
chances of being hired. But there was no formal offer. Day after day went by.
For three weeks the wait stretched on. This time, however, he got the job. And
it was a union job, with benefits. He started on April 11 — 290 days after Old
London laid him off.
“You’re speaking to a happy man,” he said after his first day. “I am in my
glory. I mean, today was wonderful.”
There was only one downside: The work paid $10 an hour, 40 percent less than he
had made at Old London. After taxes, his paycheck was even less than the
unemployment benefits he had been collecting. But he tried not to dwell on this.
“I don’t let it bother me that I’m getting less, because of the simple fact I
have something, and a lot of people have nothing,” he said. “You have to crawl
before you can walk.” Four and a half months later, he is still on the job.
September
2, 2011
The New York Times
By JAMES B. STEWART
Attacks on
the chairman of the Federal Reserve aren’t new. For years I’ve received a
well-organized volley of vitriolic e-mails every time I mention Ben Bernanke. I
dismissed them as missives from the lunatic fringe, at least until recently.
On Aug. 16, while speaking in Iowa, Gov. Rick Perry of Texas, a Republican
presidential candidate, took the demonization of Mr. Bernanke to a new level. He
declared in much-quoted remarks — and to appreciative laughter from the crowd —
that “we would treat him pretty ugly down in Texas,” and that Mr. Bernanke’s
monetary policy was “almost treacherous — or treasonous, in my opinion.”
The next day, in New Hampshire, Mr. Perry was less inflammatory but more
pointed. “They should open their books up,” he said of the Fed. “They should be
transparent so that the people of the United States know what they are doing.”
Despite getting in “trouble” for calling Mr. Bernanke a traitor, as Mr. Perry
subsequently put it, Mr. Perry vaulted to the top of polls and is now the
unofficial Republican front-runner. Representative Michele Bachmann, the winner
of the Iowa straw poll, has been burnishing her anti-Bernanke credentials, too,
criticizing the Fed as “opaque” and reminding voters in South Carolina that
she’s against “printing” money.
Nor are such sentiments confined to Republican presidential candidates looking
for quick political gain. Last week, I bumped into an acquaintance I’ve always
considered thoughtful and intelligent. He, too, lit into Mr. Bernanke and the
Fed with great fervor. He quoted the Austrian School, the once-obscure but newly
vocal group of zealous free-market economists who trace their roots to the
Hapsburg Empire, disdain the scientific method in economics and blame the Fed
for the financial crisis and the faltering recovery.
No one in government, including the quasi-independent Federal Reserve chairman,
should be above criticism. But if Mr. Bernanke is going to be the centerpiece of
such a heated debate, it should be conducted on the facts. And in that respect,
“The level of ignorance among some of the Republican presidential candidates
about monetary policy is stunning,” Mark Gertler, a professor of economics at
New York University, said this week. “Mr. Perry has been taken to task for his
choice of language, but not for the substance of his remarks, which is
outrageous.” (Mr. Gertler said he was a political independent but considered
himself a friend of Mr. Bernanke, a Republican.) Even President Obama was
curiously restrained in coming to Mr. Bernanke’s defense, saying in a CNN
interview only that Mr. Perry should be “a little more careful about what you
say.” Although the Fed only belatedly identified the banks that received many
billions of dollars of emergency loans during the crisis — for which it has
rightly been taken to task — the Fed could hardly have been more transparent
than it was recently about monetary policy.
It’s hard to believe the Fed’s critics have read the minutes of the Aug. 9 Fed
Board and Federal Open Market Committee meeting, which were released this week.
They may not read like a Robert Ludlum thriller, but they’re nothing if not
transparent. They spell out in great detail the Fed’s reaction to the latest
discouraging unemployment data, tepid economic growth and stock market
volatility, including specific measures that might be used to address these
problems.
Some members thought none of these measures would do any good. A majority
nonetheless thought that something needed to be done, and chose to announce that
the Fed would keep interest rates low for at least two years — “forward
guidance,” in Fed-speak — as a “possible way to reduce interest rates.” Others
wanted to peg the duration of low rates to a specific unemployment target,
something that the board deferred to an expanded two-day meeting in September,
when it will also consider other policy options.
The minutes provide a detailed portrait of a well-intentioned group of
economists struggling to eke the maximum benefit from a dwindling and largely
untested arsenal of monetary options, hardly a treasonous cabal bent on secretly
conspiring to inflate its way to — what? World domination?
The Fed has never in its history provided such explicit forward guidance, and so
far that has had exactly the effect the Fed hoped for. Longer-term interest
rates have dropped, with two-year rates dipping below 2 percent for the first
time in over half a century. This is significant, since it reduces borrowing
costs for consumers and businesses. The stock market seems to have stabilized,
at least for the moment. Though the Fed has been moving toward more openness for
some time, Mr. Bernanke “has been the most open and transparent Fed chairman in
history,” Mr. Gertler asserted.
It’s also hard to fathom what Mr. Perry means when he calls for the Fed to “open
its books up.” It publicly releases its current balance sheet every Thursday at
approximately 4:30 p.m., and it’s available on the Fed’s Web site. Mr. Perry’s
campaign didn’t respond to a request for comment.
The charge that the Fed is “printing money” seems to be shorthand for recklessly
risking or even seeking inflation. That notion “is complete nonsense,” Robert E.
Hall, a senor fellow at the conservative Hoover Institution and professor of
economics at Stanford, told me. “But it must be exciting to accuse him of things
he hasn’t done.”
As Mr. Bernanke noted in his recent policy speech in Jackson Hole, Wyo., “we
expect inflation to settle, over coming quarters, at levels at or below the rate
of 2 percent, or a bit less.” Inflation in July was 3.63 percent, almost double
the optimal rate, but this was largely because of higher oil prices stemming
from turmoil in the Middle East and supply shortages from the earthquake in
Japan, both transitory events. Inflation was barely over 2 percent before the
earthquake and was negative for nine months in 2009.
If the inflation rate doesn’t drop in the next six months or so, Mr. Bernanke
should be held accountable. But meanwhile, “the candidates have been trying to
tie low rates to higher inflation, but the facts just aren’t there,” Mr. Gertler
said. “With short-term rates near zero, there’s been no inflation to speak of
for the past three years.”
As for economic growth and employment, Mr. Bernanke has said repeatedly that
they have been disappointing. If anything, that’s an argument for further
monetary stimulus, a subject the Fed said it will revisit in September. No one
on the Fed’s board, not even the three members who dissented from the more
explicit forward guidance, proposed that the Fed actually tighten monetary
policy. “No one I consider a serious economist favors tightening” now, Mr. Hall
said.
“Our economy is suffering today from an extraordinarily high level of long-term
unemployment, with nearly half of the unemployed having been out of work for
more than six months,” Mr. Bernanke stressed at Jackson Hole — something worth
pondering this Labor Day weekend.
He also cautioned that the Fed could do only so much: “Most of the economic
policies that support robust economic growth in the long run are outside the
province of the central bank. To achieve economic and financial stability, U.S.
fiscal policy must be placed on a sustainable path that ensures that debt
relative to national income is at least stable or, preferably, declining over
time.”
In other words, our political leaders and those who aspire to replace them
should be debating the fiscal policies that will put Americans to work in the
short term and reduce the deficit in the long term — not bashing the Fed.
I fear it’s going to get uglier as the presidential campaign intensifies. Many
voters seem determined to find a scapegoat for the financial crisis and its
aftermath, and some candidates are only too willing to pander by serving up Mr.
Bernanke. He hasn’t commented publicly, and friends say he’s taking the attacks
in stride. Still, “as a human being, this has to be exasperating,” Mr. Gertler
said. “What he cares about is his place in history as a central banker.”
While debate continues about the Fed’s role preceding the collapse of Lehman
Brothers, during the crisis that followed “all serious economists think he did a
brilliant job in trying circumstances like no one else had ever seen,” Mr.
Gertler said, and Mr. Hall agreed with that assessment. “At the height of the
crisis he slept in his office,” Mr. Gertler continued. “He was working around
the clock. Can you imagine what it feels like now being called a traitor?”
September
1, 2011
The New York Times
By NELSON D. SCHWARTZ
The federal
agency that oversees the mortgage giants Fannie Mae and Freddie Mac is set to
file suits against more than a dozen big banks, accusing them of misrepresenting
the quality of mortgage securities they assembled and sold at the height of the
housing bubble, and seeking billions of dollars in compensation.
The Federal Housing Finance Agency suits, which are expected to be filed in the
coming days in federal court, are aimed at Bank of America, JPMorgan Chase,
Goldman Sachs and Deutsche Bank, among others, according to three individuals
briefed on the matter.
The suits stem from subpoenas the finance agency issued to banks a year ago. If
the case is not filed Friday, they said, it will come Tuesday, shortly before a
deadline expires for the housing agency to file claims.
The suits will argue the banks, which assembled the mortgages and marketed them
as securities to investors, failed to perform the due diligence required under
securities law and missed evidence that borrowers’ incomes were inflated or
falsified. When many borrowers were unable to pay their mortgages, the
securities backed by the mortgages quickly lost value.
Fannie and Freddie lost more than $30 billion, in part as a result of the deals,
losses that were borne mostly by taxpayers.
In July, the agency filed suit against UBS, another major mortgage securitizer,
seeking to recover at least $900 million, and the individuals with knowledge of
the case said the new litigation would be similar in scope.
Private holders of mortgage securities are already trying to force the big banks
to buy back tens of billions in soured mortgage-backed bonds, but this federal
effort is a new chapter in a huge legal fight that has alarmed investors in bank
shares. In this case, rather than demanding that the banks buy back the original
loans, the finance agency is seeking reimbursement for losses on the securities
held by Fannie and Freddie.
The impending litigation underscores how almost exactly three years after the
collapse of Lehman Brothers and the beginning of a financial crisis caused in
large part by subprime lending, the legal fallout is mounting.
Besides the angry investors, 50 state attorneys general are in the final stages
of negotiating a settlement to address abuses by the largest mortgage servicers,
including Bank of America, JPMorgan and Citigroup. The attorneys general, as
well as federal officials, are pressing the banks to pay at least $20 billion in
that case, with much of the money earmarked to reduce mortgages of homeowners
facing foreclosure.
And last month, the insurance giant American International Group filed a $10
billion suit against Bank of America, accusing the bank and its Countrywide
Financial and Merrill Lynch units of misrepresenting the quality of mortgages
that backed the securities A.I.G. bought.
Bank of America, Goldman Sachs and JPMorgan all declined to comment. Frank
Kelly, a spokesman for Deutsche Bank, said, “We can’t comment on a suit that we
haven’t seen and hasn’t been filed yet.”
But privately, financial service industry executives argue that the losses on
the mortgage-backed securities were caused by a broader downturn in the economy
and the housing market, not by how the mortgages were originated or packaged
into securities. In addition, they contend that investors like A.I.G. as well as
Fannie and Freddie were sophisticated and knew the securities were not without
risk.
Investors fear that if banks are forced to pay out billions of dollars for
mortgages that later defaulted, it could sap earnings for years and contribute
to further losses across the financial services industry, which has only
recently regained its footing.
Bank officials also counter that further legal attacks on them will only delay
the recovery in the housing market, which remains moribund, hurting the broader
economy. Other experts warned that a series of adverse settlements costing the
banks billions raises other risks, even if suits have legal merit.
The housing finance agency was created in 2008 and assigned to oversee the
hemorrhaging government-backed mortgage companies, a process known as
conservatorship.
“While I believe that F.H.F.A. is acting responsibly in its role as conservator,
I am afraid that we risk pushing these guys off of a cliff and we’re going to
have to bail out the banks again,” said Tim Rood, who worked at Fannie Mae until
2006 and is now a partner at the Collingwood Group, which advises banks and
servicers on housing-related issues.
The suits are being filed now because regulators are concerned that it will be
much harder to make claims after a three-year statute of limitations expires on
Wednesday, the third anniversary of the federal takeover of Fannie Mae and
Freddie Mac.
While the banks put together tens of billions of dollars in mortgage securities
backed by risky loans, the Federal Housing Finance Agency is not seeking the
total amount in compensation because some of the mortgages are still good and
the investments still carry some value. In the UBS suit, the agency said it
owned $4.5 billion worth of mortgages, with losses totaling $900 million.
Negotiations between the agency and UBS have yielded little progress.
The two mortgage giants acquired the securities in the years before the housing
market collapsed as they expanded rapidly and looked for new investments that
were seemingly safe. At issue in this case are so-called private-label
securities that were backed by subprime and other risky loans but were rated as
safe AAA investments by the ratings agencies.
In the years before 2007, “the market was so frothy then it was hard to find
good quality loans to securitize and hold in your portfolio,” said David Felt, a
lawyer who served as deputy general counsel of the finance agency until January
2010. “Fannie and Freddie thought they were taking AAA tranches, and like so
many investors, they were surprised when they didn’t turn out to be such quality
investments."
Fannie and Freddie had other reasons to buy the securities, Mr. Rood added. For
starters, they carried higher yields at a time when the two mortgage giants
could buy them using money borrowed at rock-bottom rates, thanks to the implicit
federal guarantee they enjoyed.
In addition, by law Fannie and Freddie were required to back loans to
low-to-moderate income and minority borrowers, and the private-label securities
were counted toward those goals.
“Competitive pressures and onerous housing goals compelled them to operate more
like hedge funds than government-sponsored guarantors, ” Mr. Rood said.
In fact, Freddie was warned by regulators in 2006 that its purchases of subprime
securities had outpaced its risk management abilities, but the company continued
to load up on debt that ultimately soured.
As of June 30, Freddie Mac holds more than $80 billion in mortgage securities
backed by more shaky home loans like subprime mortgages, Option ARM and Alt-A
loans. Freddie estimates its total gross losses stand at roughly $19 billion.
Fannie Mae holds $38 billion of securities backed by Alt-A and subprime loans,
with losses standing at nearly $14 billion.
