Operation treason

Thursday, Sep 22, 2011 13:01 ET

Operation treason?

Why markets are tanking: The Fed's new plan admits the economy is in trouble but doesn't come close to fixing it

By Andrew Leonard

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Reuters

U.S. Federal Reserve Chairman Ben Bernanke

If the stock market reaction is any indicator, the early reviews of Ben Bernanke's latest scheme to juice the economy, "Operation Twist," are negative. At 1 p.m. ET, the Dow Jones industrial average was down nearly 360 points.

Deciphering investor psychology is never straightforward, and particularly so recently, when there are so many potential reasons for fear and panic: our amazingly dysfunctional U.S. Congress, the ongoing European drama, and the steady drumbeat of negative economic indicators. But today's tremors can be tied to the Fed's announcements on Wednesday fairly easily.

The statement released by the Federal Open Market Committee was the most downbeat of the entire year to date. After months of telling us that the slowdown was caused by temporary factors that would ameliorate before the end of the year, the Fed was forced to acknowledge that there are "significant downside risks to the economic outlook."

So the Fed took action, and while the steps it unveiled were more aggressive than most people expected, and certainly constituted a rebuke to GOP congressional leaders who were telling it not to do anything, the strategy isn't going to be enough to make a significant difference. That's a downer: When you acknowledge seriously deteriorating conditions but take insufficient action to address them, you inject more fear into the markets.

So what exactly did the Fed do? What is Operation Twist?

There are two key elements.

First, the Fed announced that, over the next nine months, it would sell $400 billion worth of short-term government securities and buy $400 billion worth of long-term government securities. This doesn't change the overall Fed balance sheet, so it can't be caricatured as "printing money." But what it does do is change the average length of duration of the securities that the Fed is holding.

And that, in turn, means that there will be fewer long-term securities available on the open market for other investors to buy. Scarcity will increase demand, and in consequence, the yields on those bonds -- the interest rates that the U.S. government has to offer to attract buyers -- will fall. This will effectively lower borrowing costs throughout the entire country. And theoretically, that should stimulate economic activity.

Second, the Fed announced that it would reinvest the cash from expiring mortgage-backed securities into new mortgage-backed securities. This represents a reversal of the Fed's previous strategy, which was to allow its huge portfolio of mortgage-backed securities to gradually shrink. The result of this reversal should be downward pressure on mortgage interest rates, which would, again theoretically, result in an upsurge in refinancing and a boost to the housing market.

Economists generally agree that these moves will have some impact. The problem is that they just don't expect it to be very large. Borrowing costs are already very low, but gunshy banks just aren't willing to make loans, no matter how cheap the cost of capital. The main problem afflicting the U.S. economy is a massive shortfall of demand, and tinkering at the margins with interest rates isn't going to change much. As Paul Krugman pithily put it, the Fed's action is like "using a water pistol to stop a charging rhino."

However, the fact that the Fed felt compelled to make these moves, even after receiving a letter from the Republican congressional leadership demanding that it take no "extraordinary interventions" in the economy, and in the context of Republican presidential candidates declaring that such intervention is "treason," is all the proof we need that the U.S. economy is in trouble.

What the Fed announced yesterday is hardly "treason," by any sane interpretation. One could even argue that it doesn't measure up to the level of "extraordinary."

But it's also not enough to cure what ails us, and that's why markets are plummeting.

• Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More: Andrew Leonard

AlterNet.org

AlterNet / By Sarah Jaffe

Inside the Trillion-Dollar Underground Economy Keeping Many Americans (Barely) Afloat in Desperate Times

The underground economy isn't just drugs and sex work--and it touches all of our lives.

September 16, 2011 |

The United States continues to suffer from mass unemployment, and people have had to adjust their lifestyles to the new reality—fewer jobs, lower wages, mortgages to pay that are now more than their homes are worth. Millions have dropped out of the job hunt and are trying to find other ways to sustain their families.

That's where the underground economy comes in. Also called the shadow or informal economy, it's not just illegal activity like selling drugs or doing sex work. It's all sorts of work that doesn't get regulated by the government or reported to the IRS, and it's a far bigger part of the economy than most of us are aware—in 2009, economics professor Friedrich Schneider estimated that it was nearly 8 percent of the US's GDP, somewhere around $1 trillion. (That makes the shadow GDP bigger than the entire GDP of Turkey or Austria.) Schneider doesn’t include illegal activities in his count-- he studies legal production of goods and services that are outside of tax and labor laws. And that shadow economy is growing as regular jobs continue to be hard to come by—Schneider estimated 5 percent in '09 alone.

The Young Women's Empowerment Project [PDF] describes what they call the “street economy” as “... any way that girls make cash money without paying taxes or having to show identification. Sometimes this means the sex trade. But other times it means braiding hair, babysitting, selling CDs/DVDs, drugs or other skills like sewing and laundry.”

D.A. Barber explained:

“This underground economy goes beyond the homeless collecting aluminum cans or clogging day labor halls. It includes the working poor getting cash for all forms of recycling: giving plasma, selling homemade tamales outside shopping plazas, holding yard sales, doing under-the-table work for friends and family, selling stuff at pawnshops, CD, book and used clothing stores, and even getting tips from restaurants and bars--to name a few.”

That means nearly all of us have participated in some way in the underground economy.

Yet little is known or discussed about this section of our lives, even though it touches each of us as we try to make ends meet.

Economist Edgar Feige estimated in 2009 that unreported economic activity was costing the US government $600 billion in tax revenues, and the growth in that number—from the Internal Revenue Service's 2001 estimate of $345 billion—indicates the growth of the informal economy. Reporting on Feige's work, Dennis Chaptman noted, “As the recession deepens and regular employment opportunities decline, unreported activities tend to grow, thereby swelling the tax gap and worsening the government's budget deficit.”

Workers in the underground economy can also be vulnerable to exploitation; the Monthly Review pointed out that workers, especially undocumented immigrants, are pushed into off-the-books work out of desperation and have no officials to appeal to when their conditions are horrific or their pay substandard; wages are pushed downward and expectations lowered.

Labor economist Mark Price agreed. He told me, “People enter such arrangements because of their difficulty finding formal employment. Think of undocumented immigrants that work as housecleaners or in the construction industry.”

He continued, “Employers or consumers who use workers in this way are doing so to boost profits or lower prices. Of course documented workers also can end up choosing to work in the underground economy but that choice, like the choice for the undocumented, has the same basic driver--the inability to find formal paid employment that meets a worker's needs.”

Alfonso Morales, a professor at the University of Wisconsin at Madison, told the Christian Science Monitor that off-the-books work “is probably neutral to good.” He pointed out that it is impossible to separate the informal economy from the formal. “People who make their money in unregulated businesses probably spend it in regulated ones.”

Price compared the growth of the underground economy to payday lending; “a typically undesirable practice that develops and thrives because it fills a need created by the failure of public policy to address societal needs.”

The informal economy, though, does not only consist of low-wage workers. Saskia Sassen, Robert S. Lynd Professor of Sociology at Columbia University, pointed out in her book Cities in a World Economy that there is also an informal economy of creative professionals. In an article titled “Cities Today: A New Frontier for Major Development” she wrote:

“In brief, the new informal economy in global cities is part of advanced capitalism. One way of putting it is that the new types of informalization of work are the low-cost equivalent of formal deregulation in finance, telecommunications, and most other economic sectors in the name of flexibility and innovation. The difference is that while formal deregulation was costly, and tax revenue as well as private capital went into paying for it, informalization is low-cost and largely on the backs of the workers and firms themselves.”

She points out that by keeping creative professional work informal, these workers avoid the corporatization of creative work, and maintain the freedom to be innovative and self-sufficient.

While these creative workers prize independence, Lisa Dodson stressed the way communities came together to help one another through tough times, often through off-the-books economic activity, in her book The Moral Underground: How Ordinary Americans Subvert an Unfair Economy.

In one passage, she tells the story of arriving in a small-town farmer's market in Maine, only to overhear a discussion between locals on “neighbors and the market erosion of common fairness.” She wrote:

“Just then a middle-aged woman, who had been talking to friends, suddenly turned around to face other shoppers and asked, 'What’s happening to us? Why doesn’t the government do something?' A local farmer, sorting vegetables nearby, responded immediately, 'The government is the same as the oil companies. There’s no difference. We can’t wait for them to do anything.' A young mom holding a baby as she stood in line said, 'So what do we do?' There was no single response, but they were looking at each other to find it.”

Without solutions coming from Washington or local governments, it continues to be up to working people to find a way to negotiate the rough economy. Price argued, “People shouldn't have to give up fundamental human rights like access to income in retirement or safety on the job because they need work. But in a society like ours, which tolerates high levels of unemployment, the underground economy is often the next best alternative to starving.”

While some have been able to flourish working underground, it's important to remember that most workers are not off the books to dodge paying taxes or because they prefer it that way. As we see more and more people dropping out of the formal labor market altogether in despair, the informal economy will remain a destination of last resort—and will keep growing.

Sarah Jaffe is an associate editor at AlterNet, a rabblerouser and frequent Twitterer. You can follow her at @seasonothebitch.

The Election of 2012: Why the Most Important Issues May Be Off the Table (But Should Be On It)

Published on Sunday, September 18, 2011 by Robert Reich's Blog

The Election of 2012: Why the Most Important Issues May Be Off the Table (But Should Be On It)

by Robert Reich

We’re on the cusp of the 2012 election. What will it be about? It seems reasonably certain President Obama will be confronted by a putative Republican candidate who:

Believes corporations are people, wants to cut the top corporate rate to 25% (from the current 35%) and no longer require they pay tax on foreign income, who will eliminate capital gains and dividend taxes on anyone earning less than $250,000 a year, raise the retirement age for Social Security and turn Medicaid into block grants to states, seek a balanced-budged amendment to the Constitution, require any regulatory agency issuing a new regulation repeal another regulation of equal cost (regardless of the benefits), and seek repeal of Obama’s healthcare plan.

Or one who:

Believes the Federal Reserve is treasonous when it expands the money supply, doubts human beings evolved from more primitive forms of life, seeks to abolish the Internal Revenue Service and shift most public services to the states, thinks Social Security is a Ponzi scheme, while governor took a meat axe to public education and presided over an economy that generated large numbers of near-minimum-wage jobs, and who will shut down most federal regulatory agencies, cut corporate taxes, and seek repeal of Obama’s healthcare plan.

Whether it’s Romney or Perry, he’s sure to attack everything Obama has done or proposed. And Obama, for his part, will have to defend his positions and look for ways to counterpunch.

Hence, the parameters of public debate for the next fourteen months.

Within these narrow confines progressive ideas won’t get an airing. Even though poverty and unemployment will almost surely stay sky-high, wages will stagnate or continue to fall, inequality will widen, and deficit hawks will create an indelible (and false) impression that the nation can’t afford to do much about any of it – proposals to reverse these trends are unlikely to be heard.

Neither party’s presidential candidate will propose to tame CEO pay, create more tax brackets at the top and raise the highest marginal rates back to their levels in the 1950s and 1960s (that is, 70 to 90 percent), and match the capital-gains rate with ordinary income.

You won’t hear a call to strengthen labor unions and increase the bargaining power of ordinary workers.

Don’t expect an argument for resurrecting the Glass-Steagall Act, thereby separating commercial from investment banking and stopping Wall Street’s most lucrative and dangerous practices.

You won’t hear there’s no reason to cut Medicare and Medicaid – that a better means of taming health-care costs is to use these programs’ bargaining clout with drug companies and hospitals to obtain better deals and to shift from fee-for-services to fee for healthy outcomes.

Nor will you hear why we must move toward Medicare for all.

Nor why the best approach to assuring Social Security’s long-term solvency is to lift the ceiling on income subject to Social Security payroll taxes.

Don’t expect any reference to the absurdity of spending more on the military than do all other countries put together, and the waste and futility of an unending and undeclared war against Islamic extremism – especially when we have so much to do at home.

Nor are you likely to hear proposals for ending the corruption of our democracy by big money.

Although proposals like these are more important and relevant than ever, they won’t be part of the upcoming presidential election.

But they should be part of the public debate nonetheless.

That’s why I urge you to speak out about them – at town halls, candidate forums, and public events. Continue to mobilize and organize around them. Talk with your local media about them. Use social media to get the truth out.

Don’t be silenced by Democrats who say by doing so we’ll jeopardize the President’s re-election. If anything we’ll be painting him as more of a centrist than Republicans want the public to believe. And we’ll be preserving the possibility (however faint) of a progressive agenda if he’s reelected.

Remember, too, the presidential race isn’t the only one occurring in 2012. More than a third of Senate seats and every House seat will be decided on, as well as numerous governorships and state races. Making a ruckus about these issues could push some candidates in this direction — particularly since, as polls show, much of the public agrees.

Most importantly, by continuing to push and prod we give hope to countless Americans on the verge of giving up. We give back to them the courage of their own convictions, and thereby lay the groundwork for a future progressive agenda — to take back America from the privileged and powerful, and restore broad-based prosperity.

© 2011 Robert Reich

Robert Reich is Professor of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton. He has written twelve books, including The Work of Nations, Locked in the Cabinet, and his most recent book, Supercapitalism. His "Marketplace" commentaries can be found on publicradio.com and iTunes.

Dare We Question Capitalism?

Dare We Question Capitalism?

by Jack A. Smith / September 17th, 2011

Between 1900 and 2011 there have been 24 recessions in the United States (including the Great Depression), about once every 4.6 years — some decades more, some less — largely from inevitable overproduction and greed.

Yes, capitalism’s highly productive and has made many Americans rich and facilitated Washington’s global rule. It’s also an unstable system responsible for extreme inequality, poverty and stagnant wages at home and aggression abroad to advance U.S. economic interests. And yet, how frequently in the mass media, government or in progressive or liberal circles is the system itself criticized, even given the mess that it is creating today for a majority of Americans?

Until recent years, practically never, but a bit more now. The June 27 issue of The Nation was devoted to articles “Reimagining Capitalism,” all about reforming the existing system not replacing it, but a step forward. Also in June, the Dalai Lama told 150 Chinese students studying at the University of Minnesota that “I consider myself a Marxist…. But not a Leninist.” The current Time magazine reports “Marxism has been trending high on Google.”

What has made capitalism so sacrosanct in our society? It wasn’t always that way. For about 65 years to the start of the Cold War following World War II in 1945 there had been lot of talk about socialism in the U.S. and criticism of capitalism among immigrant and native workers. A number of labor leaders and unions identified as socialist. The great union leader Eugene V. Debs (1855-1920) obtained almost a million write-in votes as the 1920 Socialist Party presidential candidate while in Atlanta Federal Penitentiary for having opposed World War I. The Communist Party is said to have had 100,000 members around 1940.

The major factor in the virtual silence today about the shortcomings of capitalism as a system is that five generations of Americans, starting in the late 1800s and accelerating wildly since the Bolshevik Revolution in 1917, have been trained by their rulers and institutions throughout their entire lives that socialism is an existential danger to the “American way of life” and to democracy and freedom.

This was accompanied by several periods of red hunts, mass jailing, deportations and severe political repression, culminating in 1945-1960 with the purge of socialists and communists from the trade union movement and political witch hunts, the imprisoning of communist leaders, and firings of teachers, writers, actors, directors, and ordinary workers from tens of thousands of jobs. Workers in millions of occupations had to sign loyalty oaths.

Anti-communism became the watchword throughout America but the actual target always was and remains much wider, including all the many varieties of socialism from Marxism-Leninism to mild democratic socialism, extending even to non-socialist social democracy, and implicitly to everyday progressivism and liberalism when reforms are contemplated.

The word “progressive” practically dropped out of the language in the 1950s for a couple of decades since it was suggested by Cold War liberals as well as run-of-the-mill reactionaries, politicians and bosses that those so designated were “soft on communism.” The word “liberal” itself began to disappear for about a decade around the 1990s (remember the “L” word?), mainly because Republican name calling and the Democratic Party’s definitive moves away from liberalism.

Both words are back for now, though liberal/progressive influence seems negligible, mainly because of the implosion of the USSR and the end of the Cold War. Of course, there are small communist and socialist organizations and left publications in the U.S., but criticism of America’s laissez-faire form of capitalism or capitalism as a system is considered out of bounds in the rest of our society. If this doesn’t change, nothing much is going to change in terms of gross economic inequality and distortions of democracy because anticommunism, in essence, has come to mean pro-capitalism-no-questions-asked.

We think Joel Kovel made a good point, at the very end of his important 1994 book “Red Hunting in the Promised Land,” when he wrote: “The capitalist order, with all its brilliant accomplishments, had not succeeded; it has only won [the Cold War]. There can be no future worthy of human beings unless the existing system is challenged. For this, the overcoming of anticommunism is indispensable.”

Americans may live in the richest country in the world, but it is in a society where about 10% of the population possesses nearly 90% of the nation’s assets. In a country of 312 million people the entire ruling class can fit comfortably into Yankee Stadium, with room left over to generously pass out free tickets to thousands of the 46.2 million Americans living below the poverty line.

Democracy can never fulfill its potential under such circumstances, and the vaunted “American dream” is fast fading for the working class/middle class as the U.S. economic system seems headed into a second recession and the weakening of Social Security, Medicare and Medicaid. Isn’t it time for the American people to directly question what’s wrong with capitalism, or at least inquire, in the words of an old saying: “Where are we going and what are we doing in this hand basket?”

Jack A. Smith is editor of the Activist Newsletter and a former editor of the Guardian (US) radical newsweekly. He may be reached at: jacdon@earthlink.net. Read other articles by Jack.

This article was posted on Saturday, September 17th, 2011 at 8:01am and is filed under Capitalism, Communism/Marxism/Maoism, Socialism.

AlterNet.org

Democracy Now! / By Amy Goodman

New Census Report Says 1 in 6 Americans Live in Poverty; Real Numbers Even Higher

According to the US Census, 46.2 million people lived in poverty last year in the United States. Economist Heidi Shierholz explains why the real number is even bigger.

September 14, 2011 |

A new U.S. Census Bureau report reveals the number of people living in poverty last year surged to 46.2 million—one in six Americans—the highest number since the Bureau began tracking such data more than 50 years ago. According to the report, blacks and Hispanics together accounted for 54 percent of the poor, with whites at 9.9 percent and Asians at 12.1 percent. Children under 18 suffered the highest poverty rate. Meanwhile, the number of Americans with employer-provided health insurance has also continued to decline, and the ranks of the uninsured now hovers just below the 50 million mark, the most in more than two decades. Analysts say the numbers would have been worse if not for government assistance programs, including extended unemployment compensation, stimulus spending, Obama’s health reforms, and Social Security. We speak with Heidi Shierholz, labor economist at the Economic Policy Institute.

NERMEEN SHAIKH: We turn now to look at the devastating financial reality now facing many Americans. A new report from the U.S. Census Bureau reveals the number of people living in poverty last year surged to 46.2 million. That’s one in six Americans, the highest number since the Bureau began tracking such data more than 50 years ago. The report reveals that in 2010, the U.S. poverty rate rose for a third consecutive year to hit 15.1 percent. Overall, children under 18 suffer the highest poverty rate. The report also showed that blacks and Hispanics together accounted for 54 percent of the poor, with whites at 9.9 percent and Asians at 12.1 percent.

AMY GOODMAN: Meanwhile, the number of Americans with employer-provided health insurance has also continued to decline. The Census Bureau reports the ranks of the uninsured hovered just below the 50 million mark, the most in more than two decades. Analysts say numbers would have been far worse if not for government assistance programs, including extended unemployment compensation, stimulus spending, Obama’s health reforms, and Social Security. The Census report coincides with Obama’s push for a close to $450 billion job creation package.

For more, we turn to Heidi Shierholz in Washington, D.C., labor economist at the Economic Policy Institute, member of the board of directors of the D.C. Employment Justice Center.

Heidi, welcome to Democracy Now! Talk about these figures.

HEIDI SHIERHOLZ: Thank you for having me.

AMY GOODMAN: One in six Americans are poor.

HEIDI SHIERHOLZ: Yeah, you know, when I look at a report like this, what it tells me is that it shows the real human consequences of the economic downturn that we’ve seen. One in six Americans are poor. One in five kids are living in poverty. Here’s another stat that I think is just stunning: one in 10 kids are living in deep poverty. So, deep poverty is defined as half of the poverty threshold. And just to give you an idea of where that is, it’s $11,000 for a family of four. So, one in 10 kids in this country is living in a family that makes—if they have a family of four, that makes less than $11,000. So it is just a really severe problem.

It shows that the job loss that we have seen over the last three years, it permeates out, it hits everyone. And the other thing this report shows is that when I say it hits everyone, it wasn’t just people at the bottom that have taken big hits. We saw declines across the income distribution. If you look at the median income, the middle family, the sort of typical family, they also saw substantial declines in income. Something as big and long-lasting as the Great Recession, it’s just—the feelers of that are just really still hitting our population.

NERMEEN SHAIKH: Heidi, what would you say the main causes of this are?

HEIDI SHIERHOLZ: Yeah, it’s a good question, and at this point, when you look at the changes over the last three years, it’s crystal clear the main causes are job loss due to the Great Recession. So, over the—at this point, taking into account both the jobs we’ve lost since the start of the recession plus the jobs that we should have gained just to keep up with natural—the natural expansion of the working-age population, the jobs deficit our country is in is 11 million. Families take hits because of lost jobs and unemployment. They also are taking income hits due to reductions in hours and wage cuts. The persistent high unemployment keeps wage growth really low. So all of those things, the weakness in the labor market, translates into losses for families.

And then, obviously, when you’re talking about the health insurance numbers, the health insurance coverage numbers, which also came out, when you have people losing jobs when they have employer-sponsored health insurance, that goes out the window. So that also is directly related to the loss of jobs.

One thing I think is important to note, this report was about 2010. We actually were in a recovery, in an official recovery in 2010. But the losses that we saw through 2009 were so severe, and the very modest growth that we saw in 2010 wasn’t enough to make up for that. And so, the labor market actually deteriorated between 2009 and 2010, which is why we see these big hits in the 2010 numbers that just came out.

AMY GOODMAN: Talk about the racial divide, Heidi Shierholz. One in six people are poor, more than half of them black and Latino.

HEIDI SHIERHOLZ: Yeah. So I think that’s a really important thing that comes through in these numbers, that racial and ethnic minorities started out with higher levels of poverty, started out with lower levels of typical income, and they’ve gotten hit harder by the Great Recession. They’ve seen bigger increases in poverty, bigger declines in income for typical families. And you see that is also very related to labor market outcomes. Racial and ethnic minorities have seen much larger increases in unemployment over the last three years. So it all fits together in this really clear story of, the weakness in the labor market is at the heart of all this. The key thing we need to do right now is get jobs back.

NERMEEN SHAIKH: Heidi, can you say a little about how poverty is defined in this study? What constitutes poverty?

HEIDI SHIERHOLZ: Yeah, that’s a really good point, and it’s controversial. So the poverty threshold is, by anyone’s measure, extremely low. So, to give you an idea, for a family of four, the poverty threshold is just over $22,000. So anyone thinking about trying to live on $22,000 with a family of four will immediately realize that that’s not a really reasonable cutoff for material deprivation. And poverty researchers actually use, in many cases, twice the poverty line to have a more reasonable idea of what the—a sort of cutoff for material deprivation, for, you know, below this—above this number, you have what you need to make ends meet—below this, you don’t. So there really is—by alternative measures of poverty that take those things into account, the poverty rates are even higher than the numbers that we saw yesterday.

AMY GOODMAN: Well, Heidi Shierholz, we want to thank you so much for being with us, with the Economic Policy Institute in Washington, D.C. Thanks so much.

Amy Goodman is the host of the nationally syndicated radio news program, Democracy Now!.

AlterNet.org

ECONOMY

AlterNet / By Michael Thornton

11 Reasons Why the Unemployment Crisis Is Even Worse Than You Think

Here are 11 unemployment facts that mass media underreport or ignore completely.

September 14, 2011 |

President Obama recently addressed the nation during a joint session of Congress and the main theme of that address was the need to create jobs, lots of jobs, millions of jobs. The Great Recession has cost US workers millions of jobs and those jobs have not come back as quickly as they disappeared and in many cases those jobs will never return. According to the Economic Policy Institute, “In total, there are 6.9 million fewer jobs today than there were in December 2007.”

That is only a small part of the jobs-hole story, a story that is often ignored, overlooked and oversimplified by mass media.

The media has failed to present the unemployment problem, with all its associated economically devastating consequences, in the manner it deserves. It’s possible that unemployment facts and figures don’t translate well for advertisers, or they are too cumbersome to present in a two-minute segment. Whatever the reason, the mass media seem to avoid unemployment details as they would avoid describing and filming fresh road kill during a dinnertime newscast. While some excellent blogs clearly explain unemployment data, such as Mish’s Economic Trend Analysis, Calculated Risk and Economic Populist, mass media sites are absent.

The unemployment rate remained at 9.1 percent for August. Unemployment to the mass media generally centers on that single point within the Bureau of Labor Statistics (BLS) monthly employment report. There is passing mention of discouraged workers and the underemployed, but the true scale of the jobs crisis is given scant attention considering the magnitude of the problem.

What follows are 11 unemployment details that mass media underreports or ignores completely. This list will not be recalled fondly as a top-10 list of best quarterbacks or favorite vacation retreats would, but it’s where the REAL unemployment crisis is exposed.

1. The jobs deficit: That is the total number of jobs lost PLUS jobs that should have been created since the recession began in December 2007; as mentioned above, there are 6.9 million fewer jobs today than at the start of the Great Recession, but that tells only half the tale of the jobs deficit. There is also the matter of creating jobs to keep up with the increase in workforce population. Those new workers include high school and college graduates, and immigrants. The number of jobs that need to be created each month to accommodate new entrants into the workforce ranges from 120,000 - 150,000. Adding together the jobs lost since the recession and the new jobs needed for population growth, the total jobs deficit is estimated to be 11.3 million. A few tax breaks, some targeted workforce retraining and some regulatory relief for businesses are not going to be the forces behind the creation of more than 11 million jobs. A massive effort is required to fill that gaping jobs hole.

2. Filling the jobs deficit: According to EPI: “To fill that gap in three years – by mid-2014—while still keeping up with the growth in the working-age population—would require adding around 400,000 jobs every single month. To fill the gap in five years—by mid-2016—would mean adding 280,000 jobs each month. By comparison, over the last three months, the economy added just 35,000 jobs, on average.”

It’s striking that the economy has created only 105,000 jobs during the past three months. When considering only the new entrants to the workforce, such as recent college graduates, that three-month span produced a shortage of 270,000 or more jobs.

3. The Birth/Death Model: This is not births and deaths of people, but of businesses. The BLS estimates how many jobs were created or lost by business formations or closings. In August, the BLS estimated that 87,000 jobs were created by new businesses.

This is an often discussed employment barometer at many economy centered blogs, but mass media pays it meager attention. Why is that so? It’s a complicated model that can make the head spin of even the most astute employment expert. But there appears to be agreement that the model has a tendency to misread the economic cycle, as Calculated Risk points out, “A few years ago several people -- myself included -- pointed out that the birth/death model would miss turning points in employment. I thought the model would overstate the number of jobs added as the economy slid into recession (and understate the number of jobs lost monthly during a recession). Sure enough that is what the annual benchmark revision showed during the employment recession.”

To illustrate just how wide this model can be off the jobs mark, Bloomberg shows that 824,000 jobs “disappeared” after a birth/death model adjustment in February 2010. That adjustment is important because if it was known that job creation was weaker by 824,000 jobs during 2009, additional job creation efforts could have been considered. At present job creation is stagnant and we won’t know what role the birth/death model has on today’s job numbers until 2012. But if history is any guide, job creation may again be overstated.

4. JOLTS (Job Openings Labor Turnover Survey): This monthly BLS report gives an indication of the number of available jobs. On the occasion that it is mentioned by the media, it offers only a sliver of the issue, such as the number of unemployed per job opening, which stands currently at 4.3.

From the BLS, “The number of job openings in July was 3.2 million, little changed from June. Although the number of job openings remained below the 4.4 million openings when the recession began in December 2007, the level in July was 1.1 million openings higher than in July 2009 (the most recent trough). “

What is missing from that JOLTS report? Plenty. First, the 4.3 unemployed per job opening is limited to the 14 million U3 unemployed (the 9.1 percent). But those aren’t the only unemployed wanting a full-time job. There are the 2.6 million marginally attached workers, 8.8 million underemployed (those who want full-time work, but are working part-time). I’m not going to include the 3.9 million non-unemployed unemployed (explained later). When those 11.4 million workers are included with the 14 million U3 unemployed, there are 25.4 million workers and 3.2 million jobs, or 8 unemployed or underemployed workers per job opening.

The second issue with JOLTS is that it doesn’t distinguish whether the available jobs are full-time or part-time. According to a BLS representative “Part-time jobs are included in our job openings counts; however, we do not distinguish between full and part-time positions. We only ask if the position exists, not which type of position it is.”

It’s important to know how many job openings are part-time, since part-time jobs usually pay less and offer fewer, if any, benefits. Extrapolating from the BLS “Employed persons by class of worker and part-time status” data, there are 139,627,000 employed workers, of which 27,034,000 are part-timers. More than 19 percent of all workers work part-time. If nearly 20 percent of all available job openings are part-time, there are only 2.56 million full-time jobs for 25.4 million unemployed and underemployed who want full-time work, or 10 workers for each available full-time position; more than double the 4.3 workers per job opening touted by most media outlets.

5. The participation rate: Is, according to the BLS, “The labor force as a percent of the civilian noninstitutional population.” Or, more simply, the percentage of the working-age population that is working or is actively looking for a job. The participation rate rose 0.1 percent in August to 64 percent, which is slightly above the 27-year low recorded in July of 63.9 percent.

If more jobs were available would there be more participation? More than likely that would be the case. The mass media very seldom mentions this point, but the participation rate shows the potential number of people waiting on the sidelines for the job market to improve before they jump back in.

A couple of striking graphs of the historical participation rate can be seen at ZeroHedge and BLS.

6. Marginally attached workers: From the BLS, “These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.” I know, it’s not an easily digested description, but it’s a population of unemployed that want to work, but for various reasons have not looked for work recently. Currently 2.6 million workers are considered marginally attached. If they are included in the unemployment rate, that rate increases from 9.1 percent to 10.6 percent.

7. The underemployed: Who are the underemployed? “The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers). These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job,” states the BLS.

The August employment report indicated that underemployment increased from July by 400,000 to 8.8 million. Part-time jobs range in hours from one to 34, any job of more than 34 hours is considered full-time work. That might not be the case in the real world where a full-time job is considered 40 hours, but that is the case according to the BLS.

While some believe that part-time jobs eventually translate into full-time jobs, that hasn’t been the case during this recession, as the linked graph from Calculated Risk illustrates. From 2000 to 2008, the number of underemployed ranged between 3 and 4 million. There are currently 4 million more unemployed than at the start of the recession. Businesses would need to see a dramatic uptick in business to place 4 million more part-timers into full-time slots.

The “real” unemployment rate increases to 16.2 percent when the underemployed and marginally attached workers are considered.

8. The not-unemployed unemployed: Yes, there is a point at which the BLS stops considering an unemployed person unemployed. That point is reached when an unemployed person has not look for a job in the previous 12 months. When asked, the BLS replied, “The 3.9 million individuals not in the labor force that you are referring to responded that they wanted a job, but had not looked for a job in the last 12 months. They are not considered unemployed because they had not actively searched for work in the four weeks preceding the survey.” I recall no mention of these 3.9 million from any mass media outlet.

This 3.9 million are the most discouraged of discouraged workers, but if the jobs market was improving, these millions would start to become part of the unemployed once more. If these 3.9 million were added to the “real” unemployment rate (U6) the rate would increase from 16.2 percent to 19 percent. Nearly one in five American workers is either unemployed or underemployed. Why isn’t that disturbing fact in the media spotlight every day?

9. The long-term unemployed: These 6.0 million are the jobless who have been looking for work for 6 months or more (this does not include the not-unemployed unemployed). Long-term unemployment receives occasional mass media recognition, but it scratches only the surface. There are subsets of the long-term unemployed that show the depth of the problem more clearly. The 6.0 million long-term unemployed represent 43.1 percent of all unemployed. Of that 6 million, 4.458 million have been jobless for 52 or more weeks and within that group 2.040 million, a record high, have been unemployed for 99 weeks or more (not to be confused with the “99ers” explained below). Even more startling than those numbers is the lack of response by lawmakers.

10. 99ers: These long-term unemployed have exhausted all unemployment benefits (not all unemployed collect unemployment benefits). The name “99ers” comes from the fact that some collected benefits for up to 99 weeks. It’s a misnomer in the sense that only about 25 states are eligible for the 99 week maximum; many unemployed exhausted benefits in as little as 60 weeks.

Official statistics are not kept for this unemployed population. When Mish Shedlock of Global Economics Trend Analysis was asked about the 99ers population, he contacted Tim Wallace. Wallace has been digging into long-term unemployment data to try and weed out the number of unemployed who have exhausted all unemployment benefits. His most recent efforts show that, “we can safely assume that 3,058,152 people have exhausted all benefits -- they are no longer covered on either sets of (unemployment) rolls.” But it doesn’t end there, using some additional Department of Labor data Wallace pries out another 2.0 million 99ers, for a combined 5.1 million.

Other 99ers estimates range from 1.5 to 5.0 million, but as the linked graph at Here come the '99ers at Calculated Risk illustrates; the number of unemployed that are exhausting unemployment benefits is rapidly increasing.

While there may be disagreement about the total population of 99ers, Wallace concludes, “There is absolutely NO EXCUSE for this to not be a readily accessible piece of data daily. After all, Walmart can tell you how many strawberry Pop Tarts they sold yesterday.” There is also no excuse for the mass media ignoring this vast unemployed population and not taking agencies to task for not reporting accurate 99ers data.

Millions of additional unemployed will become 99ers immediately unless extended unemployment benefits are renewed in December. A worker laid off today will be eligible for only 26 weeks of state benefits unless an extension is approved by a much divided Congress.

How can an economy function when so many are out of work and have exhausted unemployment benefits?

(To view Wallace’s report, go to, How Many Unemployed Have Exhausted All Benefits?)

11. How many unemployed collect unemployment benefits? It may seem reasonable to assume that all 14 million unemployed collect unemployment insurance benefits, but that is not the case. In September 7.17 million unemployed collected benefits, which is only 51 percent of all unemployed (U3, the 9.1 percent).

Surprisingly, on average just one third of all unemployed are eligible for unemployment benefits at the state level (2011 data). As an example, temporary staff, self-employed and recent high school and college graduates may be out of work, but not eligible for benefits. Eligibility rates range from 57 percent in AK and PA to TX at 21 percent. Each state can set its own guidelines regarding eligibility requirements. When someone tells you they are unemployed, it’s more than likely they are not collecting unemployment benefits.

Many pundits and some GOP lawmakers excoriate all unemployed for being lazy and enjoying life on the dole. Sen. Jim DeMint (R-SC)recently said, "People are gaming the system and refusing to take jobs because they get unemployment benefits and food stamps." That naïve and cruel assessment disparages all unemployed, but it’s particularly insulting to the majority of unemployed who aren’t eligible to collect or have exhausted unemployment benefits. If Sen. DeMint and his ilk want to see where the system is being gamed, he may want to look at Wall Street instead of Main Street.

What message can be taken from this list of realistic and discomforting unemployment figures? The bottom line is that unemployment is much worse than the 9.1 percent unemployment figure pushed by the media and many lawmakers; in fact it’s considerably worse.

Mass media’s inability to communicate the depth of the jobs crisis is one reason the response to it has been primarily weak and ineffectual. If the media mutes the crisis, lawmakers and corporations will continue to act slowly and impotently, forcing millions of American families to suffer needlessly.

Unemployment and jobs creation are national emergencies demanding focused attention with a wide-ranging and rapid response. This American jobs disaster will not vanish if neglected, but what will vanish are the hopes, dreams and financial well-being of millions of hard-working Americans.

Michael Thornton has been writing for the past two years about unemployment and workplace issues. He is the content author of the Rochester Unemployment Examiner, Layoff List, and NOFLAC.org, and is a contributing writer for AlterNet and the Huffington Post.

Are We Overtaxed?

Are We Overtaxed?

By David Sterman

September 02, 2011

Washington has a mess on its hands.

To close the budget gap and start paying down the nearly $15 trillion in debt we've already incurred, legislators will have to make some very tough choices regarding which programs to cut.

Defense. Education. Transportation. Social Security. Homeland security. None of these will be spared the budget cutter's repeated axe.

How many cuts take place will depend on changes in tax policy -- a subject that seems to rub everyone the wrong way, regardless of how they feel on the issue. The overwhelming consensus (or at least the loudest) is that corporations and individuals alike are already over-taxed.

The trouble is, history argues otherwise. If anything, taxes are at a multi-decade low thanks to major tax breaks granted by both the Bush and Obama administrations.

Don't believe me? Let's look at the numbers.

Corporations

Back in the early 1950s, corporate America paid enough in taxes to account for roughly 5% of the size of the U.S. economy. Not anymore. That figure now stands at 1%.



Any corporation with more than $100,000 in profit is supposed to pay a roughly 35% tax rate. But few companies actually pay that. Instead, the last few decades have seen an explosion of corporate tax loopholes for Research and Development (R&D), energy exploration and many other goodies.

In fact, Microsoft (Nasdaq: MSFT), Coca-Cola (NYSE: KO), Citigroup (NYSE: C) and Verizon (NYSE: VZ) all paid a tax rate below 20% in 2010 thanks to all the loopholes in place. And they were comparatively lucky. GE (NYSE: GE), Ford (NYSE: F), Morgan Stanley (NYSE: MS) and Pfizer (NYSE: PFE) paid less than 12% of their income to the tax man.

By collecting fewer taxes from corporations, other taxpayers must take up the slack. In 1934, individuals paid $420 million in taxes and corporations paid $364 million -- a roughly 54%/46% mix.

By 1950, individuals were paying 58%. In 1960, it had grown to 68%. In 1990, it was 77%. And Today, individuals pay 83%, meaning that less than a fifth of Federal taxes come from corporations. Looks like decades of corporate lobbying have really paid off.

Still, many legislators insist that companies are over-taxed, and repeatedly push for that 35% tax rate to drop to 25%. That can be accomplished, but only if many cherished loopholes such as the R&D tax credit, the ability to write off the expense of corporate jets, the capital gains tax rate (of 15%) on investment money managers, etc. are abolished.

Individuals

What about individuals? Are they over-taxed relative to history?

No way. For starters, roughly half the U.S. population pays no formal Federal income tax thanks to the Earned Income Tax Credit (though they are heavily taxed in terms of gas taxes, user's fees, state and local taxes, etc. so characterizing them as freeloaders is a bit unfair).

And thanks to tax cuts established under George W. Bush and maintained by President Obama, tax rates for both the upper and middle classes have been reduced since the 1990s. The top 1% in particular has seen a notably sharp drop in effective tax rates, thanks to a virtual explosion of tax shelters cooked up by accountants. According to a study conducted by the Detroit Free Press, the top 5% of earners in 2009 paid an effective rate of 20%.

So if the top earners and bottom earners are doing okay, what about the middle class? That seems to be the heart of the emotional debate about taxes. Many will tell you that it's getting harder by the year to make ends meet, and they instinctively assume that rising taxes are part of the problem.

According to the Brookings Institution, a family of four in the exact middle of the income spectrum paid only 4.7% of its income in federal income taxes in 2010, the third-lowest percentage in the past 50 years, after 2008 and 2009.

Here again, those in the median income range have gotten tax breaks, even when they don't notice it. When the Obama administration took office, it enacted a payroll tax holiday to boost the size of people's paychecks. But pollsters found that the majority of Americans had simply not noticed that their paychecks had suddenly grown larger.

The real squeeze on the middle class: income. Wages have been stagnating for nearly two decades, even as the cost of many items keeps rising. That's the flip side of a world where corporations are boosting record profit margins by keeping a tight lid on raises.

The Government

OK, so if corporations and most individuals are paying less than they used to (as a percentage of income), what does that mean for the government's income?

A February 2011 article in USA Today noted that "federal tax receipts will equal 14.8% of the gross domestic product (GDP), the lowest level since Harry Truman was president." Meanwhile, government spending, which averaged 20.8% of GDP from 1971 through 2010, is at its highest level since World War II, as this chart shows.



Social programs such as unemployment benefits, along with rising defense spending and an increasing number of people on Medicaid and Social Security get much of the blame.

The Solution

Not only do lawmakers need to close the taxation (14.8%) and spending gap (25.36%), but they also need to start paying back past borrowings.

Looking at all these factors, it's clear that everyone will need to pull their weight to help pull us out of this morass:

• As Warren Buffett suggests, the very rich need to stop standing by loopholes and pay their share (he specifically calls for a 35% tax rate on those earning $1 million or more and boosting the capital gains rate to the ordinary income tax rate).
  
• Companies need to be sure that they are paying salaries that can truly sustain a middle class family in these toughening times.
  
• Companies also need to start parting with vigorous tax breaks. (Do we really need to give ExxonMobil (NYSE: XOM) tax incentives to look for oil?)
  
• Individual taxpayers need to start accepting the reality of tougher health care and retirement cost structure.
  
• Defense hawks have to settle for a pullback in our vast military complex.

Of course, it all starts at the top. Washington needs to show leadership to help us see the tough choices we face.

So as we turn the corner to the upcoming election year, these are the questions you should be asking yourself and potential candidates:

If any tax hikes are out of the question, then what sacrifice will you make? A smaller military? Larger classroom sizes? Fewer police officers and fire fighters? Reduced medical benefits for the elderly, indigent and veterans? Bridges that operate long before the intended useful life?

Each of us is willing to identify specific sacrifices that others find unnecessary. For example, I have no children so I am not a fan of my ever-rising school taxes. (Then again, I want to live in a society where the next generation is as well-educated as my generation.) I live in a low-crime area and question why my town needs such a large police force. Then again, what would crime levels in my town be like if there were fewer police officers? I drive a lot, so strong bridges are important to me. If you live in a city, that's not as much a priority.

The InvestingAnswer: The real takeaway is that there is no free lunch. We simply can't afford to make our individual choices when it comes to taxes and spending. We must find a middle ground that (mostly) satisfies all of us.

One thing's for sure. Without a real solution -- and fast -- our fiscal mess gets only deeper.