Radio commentary, August 8, 2009
[WBAI is fundraising this week and next. My fundraiser is next week—be sure to pledge during my slot, details to follow!—and I was pre-empted on August 6. My KPFA show for August 8 is mostly a rerun, but it did contain this fresh commentary.]
If you’re an American taxpayer, you’re an owner of AIG, the failed insurance company. According to a piece in Thursday’s Wall Street Journal (which did the research itself—God, I’m going to miss newspapers), AIG and the Federal Reserve, a branch of the U.S. government, will be paying Wall Street investment banks—familiar names like Morgan Stanley, Deutsche Bank, and, of course, Goldman Sachs—around $1 billion in fees to break the company into pieces and sell them off. More public money going to investment banks to break up a corpse that was done in because of lax regulation.
I hate to keep rubbing this in, but if this is change we can believe in, then I’m Marie, Queen of Romania.
And how about that cash for clunkers program? Almost everyone purports to hate governmment spending, but if it involves a $4,500 subsidy to buy a new car, well that’s ok! Estimates are that the first installment of the program, which cost $1 billion, moved about 180,000 units off dealers’ lots, and stimulated fresh orders from carmakers. Presumably another $2 billion, the amount of a second installement that Congress passed quicker than you can say “Free Money!,” will move twice that many. To what effect?
Not much, probably. First of all, it’s quite likely that some large but unquantifable prooportion of these sales were just moved forward from future months. But aside from the economic stimulus, getting old gas guzzlers off the road and replacing them with fresh, fuel-efficient vehicles is supposed to be good for the environment. Well, barely, if at all. According to estimates by the Associated Press, the first installment of the program is likely to save altogether the equivalent of an hour’s greenhouse gas emissions by the U.S. And that doesn’t adjust for the fact that making new cars emits a lot of greenhouse gasses into the atmosphere. It may take five or more years of post-clunker lower emissions to make up for that effect.
How will our cash-strapped leaders pay for Cash for Clunkers, the sequel? By raiding the funds for a new Energy Department loan guarantee program designed to stimulate innovative clean energy technologies. Created as part of the stimulus package, that $6 bilion program will now be a $4 billion program. So they’re diverting funds from something with considerable economic and environmental promise to finance something of dubious value. More change we can believe in!
And finally, some comments on the July U.S. employment report, released on Friday morning. It may seem a little odd to take the loss of a quarter of a million jobs last month as good news, but this is the best employment report we’ve seen in nearly a year. About half the 247,000 decline was in goods production, with construction leading the way, and manufacturing not far behind. The other half was in private services, with retail leading the way down. About the only plus signs were in health care, as usual, and leisure and hospitality rose by 9,000, thanks to performing arts and spectator sports and amusements, gambling, and recreation (suggesting that people are seeking diversion from their woes?).
Despite the improvement in July’s tone, longer-term measures still look dreadful. We’ve lost almost 7 million jobs since the recession began in December 2007, almost 6 million of those over the last year. In percentage terms, we’ve lost one and a half times as many jobs in this downturn as we did in the 1981-82 affair, which is widely regarded as the worst in modern times. Yes, the rate of deterioration in the yearly measures is slowing, but we’re not yet seeing less negative annual numbers (or, to put it more geekily, we’re not yet in the realm of the positive second derivative).
Those figures come from a huge survey of employers. The Bureau of Labor Statistics does a simultaneous huge monthly survey of households as well. That looked pretty bad. While the unemployment rate fell by 0.1 point to 9.4%, the first decline since April 2008, it looks like a lot of people have given up the job search as hopeless, meaning they’re no longer counted as officially unemployed. And the ranks of the unemployed are increasingly dominated by people who’ve been jobless for half a year or more—people whose prospects for re-employment in the future are usually quite damaged by these long spells outside the labor force.
So while there are some signs that the recession is drawing to a close—an impression confirmed by the drop in first-time claims for unemployment insurance last week—the job market is still awful, and the recovery that’s likely to follow the end of the recession sometime later this year will almost certainly be very weak and not very joyful. The U.S. economy has some serious structural problems that aren’t even being discussed, much less addressed.
LBO News from Doug Henwood 
The number of newly laid-off US workers seeking unemployment benefits fell, but the number of US people continuing to claim benefits has risen to 6.3 million or so. When emergency extensions of unemployment are included, the total US jobless benefit rolls reached 9.35 million for the week ending July 18. Bear in mind that over the last month or so, more than half a million people dropped out of the labour force altogether, and that the total employed labour force has continued to shrink absolutely. Statistically, the employment and unemployment level is also subject to seasonality. Now it’s the summer holidays, and after that a lot of people go back to school. Job losses could ease somewhat in the next few months, but the unemployment level could well still reach 10%+ at the end of the year or in 2010Q1. It is true that a lot of new hirings depend simply on market confidence which the Govt tries to stimulate. But the current unemployment level in reality reflects a structural problem which will not go away for years; this recession is different. When they talk “recovery” they mean primarily net output and profits, not jobs. The whole unemployment discussion is biased against the worker, and eventually workers will be blamed for their own unemployment even although they did not cause the financial crisis.
Just to make what I said more precise: it would take an increase in net unemployment of circa 890,000 people without a job and looking for work, to raise the official unemployment rate of the labour force to the 10% level. Such a level could easily be reached within the space of half a year, even if the growth rate in the volume of unemployed tapered off, and, indeed, even if hirings picked up somewhat. If the 10% level of unemployed in the labour force is not reached,
the main cause could well be an increase in the number of people dropping out of the labour force, i.e. no longer looking for work or not entering it. Obviously on a broader measure of unemployment the underutilization of labour capacity is much higher than the official unemployment figure. The reality is simply that a segment of the workforce is being marginalized (in France, they refer to “les precaires”). The stock market jumped at the news that the unemployment rate had shifted 0.1% which is silly from an econometric point of view – but not silly insofar as in many cases profits have risen even as job losses increased.
Just to make what I said more precise: it would take an increase in net unemployment of circa 890,000 people without a job and looking for work, to raise the official unemployment rate of the labour force to the 10% level. Such a level could easily be reached within the space of half a year, even if the growth rate in the volume of unemployed tapered off, and, indeed, even if hirings picked up somewhat. If the 10% level of unemployed in the labour force is not reached,
the main cause could well be an increase in the number of people dropping out of the labour force, i.e. no longer looking for work or not entering it. Obviously on a broader measure of unemployment the underutilization of labour capacity is much higher than the official unemployment figure. The reality is simply that a segment of the workforce is being marginalized (in France, they refer to “les precaires”). The stock market jumped at the news that the unemployment rate had shifted 0.1% which is silly from an econometric point of view – but not silly insofar as in many cases profits have risen even as job losses increased.
Oops, should have mentioned great post! Waiting for the next post!
There’s also got to be a significant amount of bait-and-switch selling being facilitated by “cash for clunkers.” The TV ads I’ve seen imply that the program applies to any old vehicle, regardless of the mileage it gets. How many of the folks who step onto the lot with an old 20 m.p.g. jalopy wind up buying an SUV, after learning “clunkers” has rules and they don’t fit, but boy, do we have a deal for you? That number can’t be zero.
As an Obamabot I have to say they were lucky to avoid the economy falling of a cliff, with a stimulus package just big enough and taking a pass on nationalizing the banks.
And there has been a huge giveaway to Wall Street but on the other hand Lehman Brothers: gone; Bear Stearns: owned by JP Morgan, i.e. their bitches; Merril Lynch: owned by the pleebs at Bank of America, etc.
The new regulations will be where the rubber hits the road. And the government intrusion into the profitable health care industry. I’ll admit it doens’t look great, but the main thing is we avoided economi cataclysm.
Oh and as Doug says there are still huge strucural problems, like the ongoing forclures, the banks’ toxic assets, etc. etc. etc. etc.
you interviewed someone on your saturday show who talked about the special treatment the goldman sacks people got during the “1929”
stock market collapse ie they were the only
investment bank allowed to conduct the investigation and were NOT INTERVIEWED AND treated totally special
WHO DID YOU INTERVIEW THAT SATURDAY
I’VE BOUGHT ALL YOUR BOOKS AT MODERN TIMES IN SAN FRANCISCO
KEN 510 301 7949
You’re thinking of Michael Thomas.