economy – Page 33 – Hank Kalet

Jobs must be job No. 1for new president

A Rutgers report issued yesterday confirms the obvious: We are in an economic sinkhole that appears to have no bottom.

According to the Sitar-Rutgers Regional Report, the state has been hemorrhaging private sector jobs all decade, a reality that is unlikely to change anytime soon.

Given current national and state economic trend lines, this could turn out to be New Jersey’s lost employment decade. It could be — and we stress could be at this point in time — the first time since the 1930s’ Great Depression that we may have fewer private-sector jobs at the end of a decade than at the beginning. Thus, in the understatement of the moment, this has not been the decade of employment growth in New Jersey. To put this understatement in perspective, during the final two decades of the twentieth century — 1980-1990 and 1990-2000 — New Jersey gained on average 437,000 private-sector jobs per decade. Labor market gains in the current post-2000 decade pale in contrast.

The report breaks the decade into three phases, the first — December 2000 through March 2003 — saw a loss of 84,800 private-sector jobs. The next 57 months — through last December — saw the state recoup 88,600 private-sector jobs, enough to offset the earlier losses but what the report calls “very modest and below-average employment growth”.

The most recent nine-month period, however. (ending in September), has not exactly been kind to the state.

Starting in December 2007, employment began a steady retreat, with 18,700 private-sector jobs lost through September 2008. Overall, the combination of two contractionary phases and one expansionary phase resulted in the loss of 14,900 private-sector jobs — between December 2000 and September 2008—with significant additional losses expected to occur over the next 18 months or so.

That’s obviously not good news for New Jerseyans, though we are not alone in this. The current downturn — which has featured not only the meltdown of the financial and housing sectors, but a crisis for the auto industry and the manufacturing sector as a whole — has driven unemployment up to its highest rate in 14 years, with the total “number of unemployed Americans” jumping by 603,000 in October to 10.1 million — “the largest number since 1983.”

The American economy lost another 240,000 jobs in October, the government reported Friday, as cash-strapped consumers pulled back and businesses hunkered down, intensifying the distress gripping much of the country.

The unemployment rate spiked to 6.5 percent from 6.1 percent, the highest level since 1994. Many analysts now expect unemployment will reach 8 percent by the middle of next year.

Coupled with revisions to September’s data — which now show a loss of 284,000 jobs, down from an initial estimate of 159,000 — the economy has shed 1.2 million jobs since the beginning of the year. More than half the job losses have been in the last three months.

“The economy is slipping deeper into a recessionary sinkhole that is getting broader,” said Stuart G. Hoffman, chief economist at PNC Financial Services Group in Pittsburgh. “The layoffs are getting larger, and coming faster. We’re likely to see at least another six months of more jobs reports like this.”

The unemployment rate, however, does not provide a full picture of how bad things have gotten.

The so-called underemployment rate — which includes people working part-time for lack of full-time positions and those who have given up looking for work — rose to 11.8 percent, up from 8.4 percent a year earlier.

“What you see now is this cascading of unemployment moving from hours cut to hiring freezes to layoffs,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington. “At this point, we have a very toxic combination of all of the above. There’s almost no economic activity out there that’s going to generate jobs right now. This is the front edge of the deeper trough of the recession. It’s going to get worse before it gets better.”

And it’s not like people are finding work quickly.

More than 22 percent of all unemployed people have been out of work for six months or longer — another level not reached in a quarter-century.Only 32 percent of all unemployed people were drawing state benefit checks in October because of restrictions on eligibility for part-time workers and those who were not in their jobs long enough to qualify. More than half of all unemployed people drew benefits in the 1950s, and about 45 percent received state checks during the last recession in 2001.

“It’s a national shame, the state of our safety net,” said Andrew Stettner, deputy director of the National Employment Law Project in New York. “We need to be helping these families avert financial disaster, and help make up for the loss of consumer demand, and the best way we can do that is to get people unemployment checks.”

Then there is the other side of the ledger. Even as workers see their incomes stagnate or shrink, they are also being forced to spend more on necessities. Time reported that the year-to-year change in “weekly wages for rank-and-file workers — those not in supervisory or managerial positions — grew 2.9 percent from October 2007,” while a Times story from mid-October pegged the year-to-year increase in consumer prices at 4.9 percent — a figure that could have been higher had fuel prices not dropped sharply in recent months.

To put that in real terms, one just needs to consider the “The Real Cost of Living in 2008: The Self-Sufficiency Standard for New Jersey,” a report issued by the The Legal Services of New Jersey Poverty Research Institute. The standard attempts to quantify what it takes to live in different counties and cities in the state, accounting for housing and child-care costs, taxes and tax credits, transportation, food, health care and some miscellaneous expenses. The cost to live, according to the report, was $1,283 per week in Middlesex County and $1,332 in Mercer County — which works out to $66,713 in spending for the year in Middlesex and $69,241 in Mercer.

Let’s assume, for a minute, that we have a South Brunswick family earning $78,000 a year, or $1,500 a week, while spending at the level identified by the report. That would leave $217 in the bank at the end of the week. If the family saw its wages increase by 2.9 percent and its costs by 4.9 percent, the same family would be left with $197 — and that assumes a rather ascetic lifestyle.

The reality is far worse for most families, with companies instituting wage freezes and worse.

These numbers make it imperative that we put in place policies that aid workers and those who now find themselves out of work and people facing foreclosure.

President-elect Barack Obama seems to understand as much, having made his commitment to a new economic stimulus package clear to President George W. Bush on Monday:

President-elect Barack Obama yesterday urged President Bush to support immediate aid for struggling automakers and back a new stimulus package, even as congressional Democrats began drafting legislation to give the Detroit automakers quick access to $25 billion by adding them to the Treasury Department‘s $700 billion economic rescue program.

Bush, speaking privately to Obama during their first Oval Office meeting, repeated his administration’s stand that he might support quick action on those bills if Democratic leaders drop their opposition to a Colombia trade agreement that Bush supports, according to people familiar with the discussions.

The discussions raised the stakes for a lame-duck session of Congress that could begin next week and came as fears about General Motors‘ financial condition yesterday pushed the company’s stock price to its lowest level in about 60 years. Obama said last week that passage of the economic stimulus package and help for American car companies are his top priorities. The Bush administration has steadfastly pushed for trade deals before he leaves office.

Rahm Emanuel, Obama’s new chief of staff, told ABC’s “This Week” that the new president plans an aggressive agenda on the economy. Obama, he said, “plans to push ahead with a middle-class tax cut” early in his administration. He also plans to “expand health-care coverage, revamp energy policy and make education more affordable.”

“The middle class must be the focus of the economic strategy,” Emanuel said.

The Financial Times, the European financial daily, reported that Emanuel “brushed aside concerns that an Obama administration would risk taking on too much when it takes office in January.”

He said Mr Obama saw the financial meltdown as an historic opportunity to deliver the large-scale investments that Democrats had promised for years.

Tackling the meltdown would not entail delays in plans for far-reaching energy, healthcare and education reforms when all three were also in crisis, he said. “These are crises you can no longer afford to postpone [addressing].”

Mr Emanuel, Mr Obama’s first appointment after his emphatic victory over John McCain last week, added that Mr Obama would push hard during the 11-week transition before he is inaugurated for early assistance to the collapsing US car industry, which he described as “an essential part of our economy.”

Obama, himself, “emphasised the urgency both of passing a fiscal stimulus package, which could include a middle-class tax cut, and of moving swiftly ahead on long-term public investments,” FT said.

“We can’t afford to wait on moving forward on the key priorities that I identified during the campaign, including clean energy, healthcare, education and tax relief for middle-class families,” said Mr Obama. “We also need a rescue plan for the middle class that invests in immediate efforts to create jobs and provides relief to families watching their paychecks shrink and their life savings disappear.”

Given President Bush’s likely opposition to bold, progressive action, we may have no choice to wait. After all, it remains Bush’s show for another 70 days.

Bail out the workers

The auto companies are coming to the feds hat in hand as the economy tanks and their own bad decisions over time come back to haunt them. As Matthew Ysglesias says, GM, Ford and Chrysler’s failure “would cause a lot of hardship for a lot of people.”

And arguably the federal government should do something to help those people. But whatever volume of help you think would be appropriate should be targeted to people in need not handed out to firms as a favor to shareholders and managers who brought the companies to this place.

I’m afraid, however, we’re looking at a repeat of the Wall Street rescue. I know Barack Obama is talking about a stimulus package featuring public works projects, extended unemployment benefits and aid to state and local governments, but I am left to wonder how he plans to deal with Detroit.

According to The New York Times, Obama “pledged to find ways to help the struggling automobile industry.”

Still, there are positive signs that Obama plans to do what he says and focus on aiding the middle and working classes.

First, he called extended unemployment insurance benefits an “urgent priority” and, as part of his economic advisory team, he appointed two of the strongest populist voices out there.

Standing to one side of the President-elect was David Bonior, the former congressman from Michigan who clashed frequently and unapologetically with both Bill Clinton and George Bush on trade policy. Bonior, one of the truest allies of organized labor ever to gain a leadership role in Congress, has continued to work closely with unions — especially those in the manufacturing sector — since leaving the House. Going into the 2008 election season, he aligned himself with the campaign of John Edwards. While it is true that Edwards turned out to be something of a disappointment as a candidate — and as an individual — he was more right on economic issues than any of the other contenders. And it is reassuring, indeed, to see that he is in the room as discussions about an Obama administration’s approach to questions of whether and how to stabilize the domestic auto industry, in particular, and manufacturing in general. Notably, the President-elect signaled his support at the press conference for federal investment in the renewal of the auto industry.

Also appearing with Obama was Robert Reich, the economist who served with some frustration as Secretary of Labor during the early years of Clinton’s presidency. Since leaving the last Democratic administration, Reich has renewed his progressive commitments, steering toward a far sounder position on the issues than many of his former colleagues. During the Wall Street bailout debate of late September, he was a voice of reason who gave meaning to the often vague discussion about how to respond to the needs of Main Street. During his 2002 campaign for governor of Massachusetts, Reich scoped out a distinctly progressive vision for economic development — emphasizing investment in the renewal of urban areas and the development of new uses for old factories. Long before others were speaking seriously about a green economy — and the industrial policies that might make it work — Reich was talking these ideas up.

We have two months before he takes office and, as I’ve said repeatedly, it is important that the people who voted for Obama keep hammering at these points, that we are interested in a populist agenda, that we believe it is the job of the incoming administration to protect Americans as the economy continues its brutally steep fall.

Memo to the next president: Think big

Paul Krugman makes the case for a new progressive era — and should be on teh short list for treasury secretary. The guy’s got a Nobel Prize in economics, you know.

Anyway, here are the basics of his argument:

Right now, many commentators are urging Mr. Obama to think small. Some make the case on political grounds: America, they say, is still a conservative country, and voters will punish Democrats if they move to the left. Others say that the financial and economic crisis leaves no room for action on, say, health care reform.

Let’s hope that Mr. Obama has the good sense to ignore this advice.

About the political argument: Anyone who doubts that we’ve had a major political realignment should look at what’s happened to Congress. After the 2004 election, there were many declarations that we’d entered a long-term, perhaps permanent era of Republican dominance. Since then, Democrats have won back-to-back victories, picking up at least 12 Senate seats and more than 50 House seats. They now have bigger majorities in both houses than the G.O.P. ever achieved in its 12-year reign.

Bear in mind, also, that this year’s presidential election was a clear referendum on political philosophies — and the progressive philosophy won.

That’s something Obama and his minions need to remember.

Mr. Obama ran on a platform of guaranteed health care and tax breaks for the middle class, paid for with higher taxes on the affluent. John McCain denounced his opponent as a socialist and a “redistributor,” but America voted for him anyway. That’s a real mandate.

As for backtracking in the face of deficits, Krugman reminds us that “standard textbook economics says that it’s O.K., in fact appropriate, to run temporary deficits in the face of a depressed economy.” Responding to the crisis offers “a chance to advance the progressive agenda,” a chance to remind America that “conservative ideology, the belief that greed is always good, helped create this crisis” and “”good morals are good economics.”

Helping the neediest in a time of crisis, through expanded health and unemployment benefits, is the morally right thing to do; it’s also a far more effective form of economic stimulus than cutting the capital gains tax. Providing aid to beleaguered state and local governments, so that they can sustain essential public services, is important for those who depend on those services; it’s also a way to avoid job losses and limit the depth of the economy’s slump.

So a serious progressive agenda — call it a new New Deal — isn’t just economically possible, it’s exactly what the economy needs.

The bottom line, then, is that Barack Obama shouldn’t listen to the people trying to scare him into being a do-nothing president. He has the political mandate; he has good economics on his side. You might say that the only thing he has to fear is fear itself.

Thoughts on an economic meltdownand a rebirth of the New Deal

I know we’ve seen some upward bumps in the stock market in recent days, but the reality is they are anomalies and do not really give an accurate picture of the economy. News like this, however, does:

a government report released Thursday showed that the economy contracted in the third quarter as consumer spending dipped for the first time in 17 years.

Economists said the drop in economic activity — with the gross domestic product shrinking at a 0.3 percent annual rate — presages more bad news in the months ahead. The impacts of a now-global financial crisis are continuing to squeeze companies and impede investment, prompting more layoffs and another wave of austerity.

“The economy has taken a turn for the worse, big time,” said Allen Sinai, chief global economist for Decision Economics, a consulting and forecasting group. “Consumption literally caved in. It is a prelude to much worse news on the economy over the next couple of quarters. The fundamentals around the consumer are all negative, and there are no signs of any help anytime soon, from anywhere.”

The story continues:

Thursday’s government report showed that consumer spending — which makes up more than 70 percent of American economy activity — dipped at 3.1 percent annual rate between July and September, after growing at a 1.2 percent annual rate in the previous three months.

That was the largest three-month drop since the second quarter of 1980, a contraction that was in some sense artificial: the Carter administration, seeking to suffocate inflation, imposed limits on bank borrowing. Putting that episode aside, this year’s drop represents the sharpest decline in consumer spending since the end of 1974.

Floyd Norris, chief financial correspondent of The New York Times and The International Herald Tribune, wrote on his blog earlier today that “Consumers are clearly in retreat, and the economy is suffering,” with the nation’s gross domestic product increasing by its lowest amount for “any four-quarter period since 2001.”

Real personal consumption spending is estimated to have fallen a tiny bit (0.04 percent) over the four-quarter period. That is the first decline for that segment since 1991.

Another number worth noting is final sales to domestic purchasers, whether businesses, consumers or governments. That leaves out gains from exports, and it ignores changes in business inventories. It is down 0.1 percent on a year-over-year basis. Again, that is the first decline since 1991.

This recession, in other words, is already deeper than the 2001 downturn. And there are clear signs it is, or soon will be, worse than the 1990-91 recession as well.

If only consumer purchases were counted in G.D.P., it would have fallen at a 3.1 percent annual rate in the quarter. That is the worst quarterly performance in that regard since the second quarter of 1980. Then, in a desperate attempt to control inflation, the Fed imposed credit controls. Now we have credit controls imposed despite every attempt by the Fed to stimulate the economy.

A partial solution to what is happening may be contained in the numbers. Norris says that government spending kept the “overall quarterly decline … small” because it “added 1.1 percent to the growth rate.” Other factors — nonresidential construction and net exports — also helped, but neither are expected to keep up.

Government spending may be the key to keeping us from falling from a deep recession into a depression, but it will take a massive infusion of cash into state and local budgets, along with federal spending to jump start things.

That’s the point Govs. Jon Corzine and David Paterson made yesterday (see my post) and that the Star-Ledger made today in an editorial. Sending checks to taxpayers, which may have some political benefit, does little to prime the pump; what works best, as the Ledger writes, is public works projects and spending on healthcare.

The first economic stimulus plan — not to be confused with the recent $700 billion bailout constructed for the financial market — consisted primarily of sending checks to taxpayers over the summer. Now Congress is talking about another round. We agree with Corzine: Directing federal funds into infrastructure is the best way to stimulate the economy on a long-term basis. Creating jobs is preferable to another one- shot jolt that won’t last after the month’s bills are paid.

New York Gov. David Paterson asked Congress to increase the federal portion of Medicaid, the health program for the poor. Paterson appealed for more direct aid to states. The cash that Paterson asked for will be needed as states like New Jersey and New York struggle against projected multibillion-dollar deficits. As credit tightens, as layoffs increase and tax revenues dwindle, more citizens will need help that the states will be hard- pressed to provide.

Paterson’s plea has merit. But so does Corzine’s.

If there is going to be a new economic stimulus package, investing in infrastructure projects — with at least $300 billion, Corzine says — will quickly provide jobs and kick-start the economy in ways that will deliver long-lasting benefits.

It’s not about “make-work” projects (the Ledger’s phrase) — though, those may become necessary at some point — but about “making up for the infrastructure needs that have been left untended, and dangerously so, for far too long.”

We’re talking about road and bridge repairs, mass-transit expansion, new schools and libraries, broadband installation in areas not currently served and investments in green technologies. All of these things cost money, but all of them also put people to work and some will create new industries that will serve the nation well into the future.

The nation, unfortunately, has been mired in an intellectual morass, its political, financial and media elites wed to old ideas, to a conventional wisdom that appears to be in flux. People may still be skeptical of the government, but I sense that they are less skeptical of government than “the government” and that they have learned over the last eight years what happens when you let government atrophy and that a vibrant, well-functioning public sector is not only important but necessary for our health and well-being.

They are, I think, interested in a kind of Rooseveltian rebirth of the public sector, one that acts as a watchdog over the corporate order, provides a safety net for those who fall on hard times and steps in when the system is failing.

Roosevelt put people to work, but he also electrified the Tennessee Valley. He got the Hoover Damn built and hundreds and thousands of smaller projects (the Princeton Arts Council building was a WPA project). Government gave us the railroads, the highway system, bridges, tunnels — well, you get the picture.

It can do the same now, if we only let it.

Trickle-down budget problems

Gov. Jon Corzine is in Washington, hat in hand, hoping the federal government will step up to the plate and help states deal with the effects of the federal economic meltdown. Appearing before the House Transportation and Infrastructure Committee, the governor echoed comments made by New York Gov. David Paterson saying “state governments will face devastating cutbacks if they do not receive assistance” from the federal government.

Appearing before separate congressional committees on Wednesday, Mr. Paterson and Mr. Corzine said their states, like many others, have already moved to address their budget deficits. Their actions alone would not be enough, they said.

Some will dismiss the governors’ predictions or say that the states brought these problems on themselves. And, make no mistake, New Jersey is in the terrible fiscal shape that it’s in because of the actions taken by state legislators and governors of both parties dating back to the early 1990s. (Corzine, however ineffectively, is the first governor to attempt to honestly address the mess.)

But the state’s inability to handle simple math has not been the only problem. Federal budget policies enacted over the last eight years under President George W. Bush have also cut into state revenues — less federal money has been making it into state coffers in recent years, money that has not been replaced.

The brewing recession paralyzing us now has only made matters worse and cries out for federal invtervention. That’s why the two governors are seeking “assistance to support infrastructure projects like bridges and roads, and for assistance to prevent social programs like unemployment insurance from running out of money.”
“The federal government ignores state and local governments at serious peril,” Mr. Corzine said.

The type of legislation they called for would probably be in the range of hundreds of billions of dollars. Congressional Democrats have said they would like to see such legislation approved quickly, but there is doubt that President Bush would agree.

Gov. Paterson, however, in written testimony said that the reluctance on the part of the president as foolish.

“I firmly believe that if it took only two weeks for the federal government to find $700 billion to bail out Wall Street and bank executives,” he said, “then we ought to be able to find a fraction of that amount to help preserve essential services at the state level.”

He added, “The results of federal inaction could be devastating in every corner of our nation.”

How bad are things for the state? Gov. Corzine announced today that “(m)ounting state budget troubles may force New Jersey to delay plans for a $350 million expansion of public pre-school programs.”

“We’re going to fight to hold our education funding,” Corzine told about 500 delegates at the New Jersey School Boards Association’s annual workshop in Atlantic City. “That doesn’t mean there won’t be any cuts. That doesn’t mean there won’t be any freezes. But it means it will be the last thing on the table.”

Corzine is grappling with a budget shortfall of at least $400 million in the current state budget and a forecast shortfall of up to $4 billion in the spending plan he will present to lawmakers next March. That has led, he acknowledged, to concern the state will defer providing $50 million for an expansion of preschool to communities with high concentrations of needy students next year.

“I know there’s some consternation the timing of this initiative will be delayed, but certainly not the commitment,” he said. Asked if he was suggesting the preschool initiative would be postponed Corzine said: “We’ll look at it. It’s not a big budget item next year.”

And then, consider this:

Economic troubles are forcing states to scale back safety-net health-coverage programs — even as they brace for more residents who will need help paying for care.

Many cuts affect Medicaid, which pays for health coverage for 50 million low-income adults and children nationwide, including nearly half of all nursing home care. The joint federal-state program is a target because it consumes an average 17% of state budgets — the second-biggest chunk of spending in most states, right behind education.

“Medicaid programs across the U.S. are going to be severely damaged,” says Kenneth Raske, president of the Greater New York Hospital Association. He expects some hospitals nationwide may drop services and some hospitals and nursing homes may lay off employees.

The fact is that funneling money to the states for infrastructure projects, healthcare and education creates jobs, saves existing jobs and helps improve quality of life. That’s where we should be focusing our money right now — not on a quagmire of a war or on bailing out rich bankers.