Corporate profits are up and the economy is allegedly starting to grow. But the unemployment rate remains painfully high and wages are stagnant.
At least the CEOs are getting paid.
It’s been more than two years since the economy cratered and we still have no explanation as to what happened.
Calls for a “modern version of the Pecora Hearings — the Senate Banking Committee hearings in the 1930s that laid bare the inner (and rotten) workings of the biggest financial firms” — have fallen on deaf ears.
But there’s still a chance we can get to the bottom of the mess — if we listen to Simon Johnson. The economist and MIT professor is calling for confirmation hearings for Elizabeth Warren as the official head of the new Consumer Financial Protection Bureau.
A proper Senate confirmation hearing would be the perfect platform for Ms. Warren to explain, (a) not only do “too big to fail” banks now constitute and hugely dangerous government subsidy scheme, but (b) based on these subsidies, they are becoming larger and acquiring more market power that can be — and has been — used to abuse consumers in a nontransparent fashion.
All attempts so far to construct some form of Pecora Hearings have failed — partly because the issues are complex and partly because of partisan fighting. The Financial Crisis Inquiry Commission made some progress but could reach no consensus (or bring anyone to justice). Senator Levin’s hearings into Goldman Sachs grabbed attention and were most helpful in the Dodd-Frank reform debate but again no one is going to jail — and few people even grasp what were the real issues at stake. And the Department of Justice has preferred to pursue insider trading cases, perhaps taking the view that these are easier to explain to juries.
But Elizabeth Warren cuts through the complexity and offers a message that — outside of Washington — plays well across the political spectrum.
Her message is simple: the consumer “market” for financial products does not operate like a proper market because leading firms (bigger banks and also nonbanks, like some payday lenders) have figured out how to make a great deal of money by confusing their customers.
Will the president make the nomination? We can hope, but we shouldn’t get our hopes up.
It was Warren Buffet who said that America is involved in a class war, “but it’s my class, the rich class, that’s making war, and we’re winning.”
The numbers are staggering, as Robert Scheer points out today on Truthdig:
In one of the best studies of this growing gap in income, economists Emmanuel Saez and Thomas Piketty found that during Clinton’s tenure in the White House the income of the top 1 percent increased by 10.1 percent per year, while that of the other 99 percent of Americans increased by only 2.4 percent a year. Thanks to President Clinton’s deregulation and the save-the-rich policies of George W. Bush, the situation deteriorated further from 2002 to 2006, a period in which the top 1 percent increased its income 11 percent annually while the rest of Americans had a truly paltry gain of 1 percent per year.
The upshot is that the top 1 percent of Americans control 40 percent of the wealth. But few are talking about it.
Instead, we have a debate over how best to cut programs for the middle class and the poor so that we can plug a hole in our budget and not whether to ask the rich to pay. From Scheer, again:
Instead of taxing the superrich on the bonuses dispensed by top corporations such as Exxon, Bank of America, General Electric, Chevron and Boeing, all of which managed to avoid paying any federal corporate taxes last year, the politicians of both parties in Congress are about to accede to the Republican demand that programs that help ordinary folks be cut to pay for the programs that bailed out the banks.
President Barack Obama is blaming political games for the budget stalemate, refusing to accept responsibility for his enabling of the so-called budget hawks. He should have been fighting hard for a real stimulus that could have jump-started the economy and not just a stop-gap designed to avert disaster. And rather than touting his accomplishments at a time when unemployment remains unacceptably high, he should have been pushing hard for aid to states to keep public workers employed while also empowering labor.
The Republicans make no bones about their priorities. They want to slash spending and gut what’s left of the social safety net. And they want to do this even as they find ways to give money to the people who already have it.
And they are likely to win, thanks to the timidity of the Democrats.
Despite the alarming projections of how the House Republican budget would harm the country, it’s the Democrats who have been on the defensive during the budget debate, principally because President Obama has declined to seriously engage in the discussions or outline an alternative narrative on the economy that is distinct from the GOP. Though they hold only one house of Congress, House Republicans act like they’re in control of the entire government, with little pushback from the White House or Senate Democrats. Both parties now endorse the idea that spending cuts are the best cure for our ailing economy, even though there is no evidence that is the case.
Obama has said that he was perceived as too much of a “tax and spend liberal Democrat” in the last election, so his administration has moved to the right as a result—despite the fact that poll after poll shows that the public believes the unemployment rate is a far more pressing problem than the deficit. “The White House, in particular, has effectively surrendered in the war of ideas,” New York Times columnist Paul Krugman wrote recently. “It no longer even tries to make the case against sharp spending cuts in the face of high unemployment.” Throughout this budget fight, we’ve been having the wrong economic debate, as my colleague Katrina vanden Heuvel noted this week. Both our political and media class are guilty of focusing obsessively on spending cuts while ignoring the public’s overriding priority: jobs.
But then, the Democrats long ago ceased to represent workers and the middle class. They are beholden to the same money men as the Republicans. The class war is over and the rich have won.
Dean Baker explains what the national business press is unwilling to explain: Why Friday’s announcement that the U.S. economy created 216,000 jobs does not feel like the good news the media is making it out to be.
Those who know arithmetic were a bit more sceptical. If the economy sustained March’s rate of job growth, it will be more than seven years before we get back to normal rates of unemployment.
Furthermore, some of this growth likely reflected a bounceback from weaker growth the prior two months. The average rate of job growth over the last three months has been just 160,000. At that pace, we won’t get back to normal rates of unemployment until after 2022.
That’s a long time to make ordinary workers suffer because the folks who run the economy are not very good at their job.
In addition to the job growth numbers, the March data also showed that the unemployment rate slipped down by another 0.1 percentage point. It now stands at 8.8%, almost a full percentage point below its year ago level of 9.7%. This, too, was treated as cause for celebration. While that may sound like progress, a more careful look at the data makes this number less impressive. The percentage of the population that is employed has actually fallen by 0.1 percentage point over the last year.
In order to be counted as unemployed, you have to say that you are looking for work. The unemployment rate did not fall because the unemployed had found jobs; rather, the unemployment rate fell because people have given up looking for work. Only in Washington would this be hailed as good news.
Consider this evidence that the major media and the political classes live in a very different world than the rest of us.
President Barack Obama appears to be turning his attention to creating jobs.
One might think that, given the state of the American economy and the pain being felt by the American worker, that it would have been a prime focus of the first two years of his administration. I would argue that it was, though he was unsuccessful largely due to an unwillingness to buck the Washington consensus or castigate Republicans, creating a stimulus that was too small and too focused on tax cuts to actually do much good.
So now, as Paul Volcker steps down as an “outside” economic adviser (not exactly sure what that means, unless it refers to the fact that Volcker was basically ignored), Obama is creating a new panel that will be charged with creating jobs.
And at its helm will be General Electric CEO Jeffrey Immelt.
Mr. Immelt will be chairman of the new Council on Jobs and Competitiveness that Mr. Obama intends to create by executive order. In a statement issued shortly after midnight, Mr. Obama said he wanted the council to “focus its work on finding new ways to encourage the private sector to hire and invest in American competitiveness.”
Immelt said that the panel will include a broad range of economic players, including labor, but it is unclear what role the people who actually do the heavy lifting will have. It seems unlikely, for instance, that the panel or the president will do much if anything to address the serious power imbalance that has developed in recent decades between labor and management or the decline in union membership that has plagued workers for years, an imbalance highlighted in a column by David Leonhardt in yesterday’s Times (and the focus of an upcoming column by me in The Progressive Populist). The “basic structure of the American economy,” which has led to three jobless recoveries in the last 20 years, is “an important factor,” he says — and one made all the more devastating by the imbalance of power between labor and management.
Relative to the situation in most other countries — or in this country for most of the last century — American employers operate with few restraints. Unions have withered, at least in the private sector, and courts have grown friendlier to business. Many companies can now come much closer to setting the terms of their relationship with employees, letting them go when they become a drag on profits and relying on remaining workers or temporary ones when business picks up.
Just consider the main measure of corporate health: profits. In Canada, Japan and most of Europe, corporate profits have still not recovered to precrisis levels. In the United States, profits have more than recovered, rising 12 percent since late 2007.For corporate America, the Great Recession is over. For the American work force, it’s not.
I’m hoping that Immelt and his panel can help, but unless labor has more than a token seat at the table I just don’t expect much to happen.
Hank Kalet 