Radio commentary, January 21, 2010
In the economic news, more stumbling along the bottom. On Thursday morning, the Labor Department (not, by the way, the Bureau of Labor Statistics, the main source of data in that agency, but in this case the Employment and Training Administration, another division within the Department—sorry to go all geeky on you) reported that first-time claims for unemployment insurance, filed by people who’ve just lost their jobs, rose by a sharp 36,000 last week. The Department said, however, that this rise was mostly the result of a holiday-related processing delays and not a sign of labor market deterioration. We shall see. The decline in initial claims had been one of the brighter spots on the economic landscape, so if this isn’t just a blip, there’s reason to worry.
The count of those continuing to draw jobless benefits, the so-called continuing claims series, extended the downtrend it’s been in since June. While that’s good news, cheer must be tempered by the fact that this regular count doesn’t include those drawing emergency and extended benefits. If you add them in, there’s hardly been any decline at all. The share of the unemployed accounted for by the very long-term jobless is at record levels, which underscores that this is more a systemic crisis than a merely cyclical one.
In happier news, the Conference Board’s index of leading indicators, which forecasts trends in the economy three to six months out, rose for the ninth consecutive month in December. That’s further confirmation that the recession is over and a weak recovery is underway. But I’m still thinking that we’ve got a rough year still ahead of us.
The economy isn’t the only thing suffering from a structural, and not merely cyclical, crisis. Our political system is as well. I quickly got tired of hearing all the liberal anguish over the result of the Senate race in Massachusetts. The Democrats brought the problem on themselves. A year of trying to seduce the Republicans into bipartisanship and giving the conservative wing of the Democratic party everything they want has brought Obama nothing but disrepute. For hardened streetfighters like the GOP, conciliation is a sign of weakness which only makes them bolder.
Of course, the liberal instinct is to blame this urge to compromise on the lack of brains or backbone or some other crucial bodily organ. I think that’s wrong. The fundamental problem of the Democrats is that they’re a party of capital that has to pretend for electoral reasons that it’s something else. So they make progressive noises to satisfy the base, but once in power, do the bidding of their funders. Sometimes these contradictory tendencies can be seen in one figure, like Obama himself, and sometimes in the wings of the party (e.g. the Progressive Caucus vs. the Blue Dogs). But in both cases, the more conservative faction, whether of personality or party, almost always prevails. That’s especially the case when there are no popular movements pushing them in a better direction. Those popular movements were partially disarmed by Obama’s victory. Maybe they’ll start coming to their senses now, especially as the Dems move right in response to the Massachusetts outcome.
But that’s not the whole story. Although a lot of liberals, and even more serious leftists, don’t like to admit it, there’s a deeply conservative streak in the American electorate. The “common sense”—the unschooled instincts imparted by upbringing and inherited ideology—of people in this country is individualist and self-reliant. That common sense has become increasingly dysfunctional. The U.S. reminds me in many ways of a startup company that’s grown so big that it needs a serious overhaul but is incapable of the necessary transformation. In the corporate example, you frequently see that the founders don’t want to turn things over to professional managers. They want to keep running the show on instinct and animal spirits. But those aren’t working anymore.
So too the U.S. The dog-eat-dog model of social Darwinism worked well (on its own terms—it was often horribly brutal) while the U.S. was growing rapidly in the 19th and early 20th centuries, but ever since growth slowed down in the 1970s, we’ve been in need of a rethink of the old model. But we’re incapable of it. Instead, we’ve tried ever more reckless applications of debt to keep things going. The recent financial crisis looked like the crisis of that approach, but we’re now emerging from the crisis phase without things having changed all that much. Obama’s making some hostile noises about breaking up large banks and putting their speculative activities on a leash, but I’ll believe it when I see it.
Taking on the fat cats
Obama playing golf with Robert Wolf, chair of UBS (far right).
The country seems to be rotting from within but the political and ideological systems are incapable of recognizing that fact, much less trying to deal with it. I wish I could detach myself from the consequences and find it all amusing, in the style of H.L. Mencken. But I can’t. And now I’ve got a kid who was born into this nuthouse, so I take it all far more personally. I hope we can get our act together and make this a less brutal place. But it’s hard to get hopeful. I guess this is what it’s like to live in the midst of imperial decline.
No money?
The Metropolitan Transportation Authority (MTA), which runs the transit operations in and around New York City, is facing a budget shortfall of around $400 million. There are likely to be deep cuts to subway and bus service in New York City. There is, of course, “no money” to deal with the problem.
Actually, that depends on what your definition of “no” is. The mayor of New York City, Michael Bloomberg, who also happens to be the city’s richest resident, could comfortably write a check to solve the problem. Forbes estimates his net worth at $17.5 billion—meaning that the MTA’s gap is less than 3% of his personal fortune. He spent $102 million of his own money on his recent re-election campaign, and $159 million on his first two campaigns, for a total of $261 million. That’s two-thirds of the MTA’s gap.
Maybe it’s unfair to expect just a single plutocrat to cure the MTA’s budget ills. The twenty-three members of the Forbes 400 who live in New York City have a combined net worth of just under $130 billion. The MTA’s $400 million problem is all of 0.3% of their net worth.
So it’s not that there’s “no money.” There’s plenty of money. It’s just off limits.
Dennis Brutus memorial
There’s going to be a memorial for Dennis Brutus, the South African poet and activist, at the Brecht Forum, 451 West Street, between Bank and Bethune Streets, NYC, Sunday, January 17, at 2 PM.
For my interview with Brutus (a rebroadcast of a show first aired in July 2008), see my Radio archives.
Audio links
It was just pointed out to me that I don’t always include audio links to the original shows on which the commentaries were delivered. They’re all here: Radio archives. I often post the file before updating that page, so for the quickest fulfillment of your radio needs, subscribe to the podcast (info on how to do that on the archives page).
Radio commentary, December 31, 2009
Some Janus-y observations at the turns of the year and decade.
I apologize for quoting a Facebook status update; it always annoys me when CNN quotes Twitter feeds as if they were news. But this is relevant, I swear.
Last week, a friend and colleague of mine whom I have a lot of respect for conceded some political disappointments over the last year in his status update, but concluded that things were basically going in “our” direction.
What ever was he talking about? Let’s take stock for a moment.
• We’ve just been through the worst financial and economic crisis in two or three generations. Things are stabilizing now, but hardly turning around. Over 15 million people are officially unemployed, and another 11 million are unofficially so. Yet little has changed in policy or thinking. Hundreds of billions of public funds, and trillions of Federal Reserve magic money, have been deployed essentially to restore the status quo ante. Wall Street’s economic and political dominance, which looked to be teetering just a year ago, now looks restored. The president may huff and puff a bit about “fat cat bankers,” but he wrote them big checks to aid the return to business as usual.
• Something similar is happening with health care reform. Despite a lot of inflated rhetoric coming from the Dems and their loyal pundits, insurance company power and wealth will be enhanced, not overturned—not even challenged. For a taste of the inflated rhetoric, here’s what House communications director Dan Pfeiffer wrote this on the official Oval Office blog, in reaction to the GOP’s efforts to repeal the health bill before it’s even been enacted: “[M]any opponents of reform…appear to think that insurance companies can do no wrong. [E]veryone should be very clear what is being called for here. At a time when insurance companies are finally about to be reined in, and when American families are finally about to be given control over their own health care, opponents of reform are advocating that insurance companies once again be allowed to run wild.”
Pfeiffer’s view isn’t shared by the inscos themselves. A few weeks ago, Politico’s Ben Smith reported that “an insurance industry insider who has been deeply involved in the health care fight email[ed] to declare victory”:
We WIN. Administered by private insurance companies. No government funding. No government insurance competitor.
That’s not “our” direction, is it? Nor is it “reined in.”
• And abroad, U.S. imperial power, instead of being pared back, only intensifies. The war in Afghanistan is being escalated, and now we’re opening a fresh front in Yemen. Civilians are already being killed, and more will be, in pursuit of what? An utterly chimerical victory over “terrorism,” whatever that is? The policy that most excites hatred of the U.S., our almost unconditional financial and military support of Israel’s savage occupation of the West Bank and the Gaza Strip, continues. But that’s not all. As we heard on this show last week, Obama’s approach to the Copenhagen climate conference was as arrogant and unilateral as anything the George W Bush did. This provoked the economist Jeffrey Sachs, once famous for torturing countries in Latin America and Easter Europe with shock therapy but who has apparently been born again into something like a critic of imperial power, to say that Obama could end up being more damaging to international environmental law than Bush.
What’s this all mean? It’s as if we’ve now developed a pattern of alternation. First, a reactionary and subliterate Republican president—Reagan, Bush the younger—launches a profound assault on the living standards of the population to enrich the very richest and an assault on civilized standards of discourse and behavior. Then the troglodyte is succeeded by an urbane Democrat—Clinton, Obama—who consolidates those transformations while disarming the liberal intelligentsia with high-flown rhetoric and by his refreshing capacity to speak in complete, grammatical sentences. I’ll abstain from quoting Marx’s cliché about first time tragedy, second time farce, because this second time is sad and tragic and we should know better.
But maybe 2010 will bring about the productive disillusionment I’ve been hoping for. The better portion of the liberal intelligentsia may finally shed its remaining illusions about Obama’s phantasmic inner progressive. And the millions of regular people who were energized by his candidacy and are now disappointed by his embrace of business as usual might be energized into something more radical. A good start would be fighting for single-payer and a serious international attempt to address the climate crisis. And increasing pressure to withdraw from our wars in the Middle East. That’s going to take independent action, not vague hopes for leadership from Washington or obeisance to reigning notions of the possible. There’s just enough chance that something like that might happen that it could put the happy back into happy new year.
Radio commentary, December 24, 2009
Just a few words on the economic news today because we’re jam-packed with interview material.
Iceland, whose economy collapsed when its bubble burst last year, is getting the full IMF treatment. At first, I’d wondered if a Nordic country would get some special ethnic exemption from the typical austerity program, imposed on desperate countries in exchange for loans from the Fund. It hasn’t. On the “advice” of the IMF, the country is raising its sales tax to 25.5%. Low-income taxpayers will get a break on their income taxes as partial recompense, but this is a brutal treatment for a country whose economy has fallen into something between deep recession and depression. This medicine will only worsen the economic damage. The IMF fell into some disrepute—not among radicals and other malcontents, where it’s always been in bad repute, but even among more orthodox types—after it prescribed this sort of treatment for much of Southeast Asia after that region’s 1997 financial crisis. During the economic expansion of the mid-2000s, the IMF was sort of marginalized, since there were few countries facing the sort of crises it’s usually called on to “solve” (there are quotation marks around solve which may not come across well on radio). But with the crisis and recession of the last couple of years, the IMF is back on the scene—and little changed.
Well, not exactly—there is one change. Lately it’s been urging the bigger, richer countries not to impose austerity programs on themselves; instead, it’s called for continued fiscal and monetary stimulus. Example: “Premature exit from accommodative monetary and fiscal policies is a particular concern because the policy-induced rebound might be mistake for the beginning of a strong recovery.”
For the rulers of the world, when their economies hit a wall, the appropriate reponse is stimulus; when the economies of the ruled run into trouble, the appropriate response is bloodletting.
Radio commentary, December 17, 2009
Happy Beethoven’s baptism day.
Fed begins to withdraw some indulgence
On Wednesday, the Federal Reserve held one of its regular policy-setting meetings, which happen every six weeks or so, and decided to do nothing, for now. That is, it left the interest rate under its direct control, the so-called federal funds rate, the interest rate that bank charge each other for overnight loans, unchanged at 0. Ok, it’s averaged 0.12% for the last few weeks, which is pretty close to 0. It also said in the statement accompanying the decision that it intends to keep it in this neighborhood “for an extended period,” whatever that means. The Fed described an economy that is slowly mending, but one that has a lot of recovering to do yet, which justifies this level of indulgence.
In the analytical paragraph of their statement, the Fed pointed to improvements throughout the U.S. economy—notably an “abating” deterioration in the labor market, a slower rate of cutback in business investment, and some signs of improvement in the housing market. Most of the evidence they point to is of the less bad but not yet good variety that’s been dominating the news for the last several months.
The Fed also announced that it will be phasing out a number of its extraordinary “liquidity facilities,” which is a fancy way of referring to their recent habit of spending trillions of dollars created out of thin air to support various forms of lending. Now they think that things are healing enough that they can start stopping. We’ll see how well this works. The Fed has been about the only major institution that’s been lending to private borrowers. They’ve even bought about a quarter of the bonds that the U.S. Treasury has issued so far in 2009—foreign investors, it seems, don’t have quite the appetite for lending to Uncle Sam that they did in earlier years. Will this withdrawal of the Fed’s indulgence lead to a relapse of the credit market seizures that characterized 2008?
parsing recovery (cont.)
On Thursday morning, the Labor Department reported that first-time applications for unemployment insurance, filed by the unlucky souls who’ve just lost their jobs, rose last week, the second consecutive rise in this sensitive indicator, which had been in an encouraging downtrend. The weekly figures are noisy, however, and the four-week average, which smoothes out all the week-to-week volatility, continues to drift lower. Continuing claims, the count of those already drawing unemployment insurance benefits, rose a hair, and their four-week average also continued in its downtrend. All this says that the job market is improving, but slowly—which is what all the other evidence suggests as well.
And the Conference Board’s leading economic index, designed to forecast turns in the economic trend three to six months out, rose nicely in November, its eighth consecutive rise. While this is encouraging, the economy still faces fiendish headwinds, most notably the continuing lack of job creation, without which the recovery can’t pick up enough steam to be self-sustaining. Much of the recovery so far reflects the government’s efforts to revive the economy—all the indulgence from the Federal Reserve I talked about earlier, as well as the $787 billion stimulus program that passed earlier this year.
It’s not only the broad macroeconomy that’s gotten a kick from what’s officially known as the American Recovery and Reinvestment Act of 2009. An analysis of that stimulus program, one of the few good things the president and the Democratic Congress have done, by the Center for Budget and Policy Priorities finds that it’s kept more than 6 million Americans from falling into official poverty in 2009, and lessened the sting of poverty for another 33 million. The reasons include tax credits for all workers and especially for working parents, emergency unemployment benefits, a one-time check for $250 sent to Social Security and disability recipients, and an increase in food stamp benefits. Their state-by-state analysis shows that about 419,000 New Yorkers and 844,000 Californians were lifted above the poverty line by bill’s provisions, and 2.4 million poor New Yorkers and 5.9 million poor Californians had their poverty eased. The benefits average out to about $1,000 per affected person per year—not an enormous amount, but since a poverty income is anything below $14,000 for a couple and $22,000 for a family of four, a thousand bucks can make a big difference.
two months’ Pentagon spending could end poverty
On that point, a reminder of how little it would take to end poverty in the USA. The so-called poverty gap, the amount of money necessary to bring everyone whose household income is below the offical poverty line up to that line, was about $138 billion in 2008, less than 1% of GDP. Or, to put it more bluntly, about what the Pentagon spends in two months. Or 3% of the total income of the richest fifth of American households. Or roughly what we spent bailing out AIG. But Wall Street and the war machine really need the money, you see.
Obama snubbed by his bosses
Finally, what a bunch of ingrates. Our president invited a lot of top bankers to the White House early this week to urge them to lend money to actual people and businesses instead of hoarding it, or speculating with it, which is what they’ve been doing. Three of them, Lloyd Blankfein of Goldman Sachs, Richard Parsons of Citibank, and John Mack of Morgan Stanley, didn’t bother to show up, claiming that bad weather kept them from getting to DC. [In an early version of these comments I replaced Blankfein with JPMorgan’s Jamie Dimon. I was wrong. Sorry.] What nonsense. Their banks would have failed without Washington’s assistance, and this is the thanks that Washington gets? And how did our president react to this snub? Instead of denouncing them as the hoarders and ingrates they are, he welcomed them when they phoned in. And I’m sure they’ll continue hoarding their money or speclating with it rather than lending to real people and businesses.
To steal and paraphrase a line from Adolph Reed, from many years ago and a very different set of circumstances, Obama more and more reminds me of George Bush but without the courage of his convictions.
Radio commentary, December 5, 2009
[Not retrieved from the future. Most of this was delivered on WBAI last night, but the bits about the employment report and liberal disillusionment were written for tomorrow morning’s KPFA version.]
Things today…
Two stories on the front of Thursday’s Financial Times tell you a lot about life in today’s USA. Above the fold—a phrase that probably doesn’t mean that much to anyone under the age of 35—the lead story tells us that the Bank of America is about to pay back the $45 billion the U.S. government lent to it when it was on the verge of collapse last year. The bank finds those mild pay restrictions and government snooping too onerous and just can’t wait to slip the yoke. About two-thirds of the money will come from the bank’s healthy stream of profits, and the balance will come from the sale of new stock to the public. The price of the stock rose on the news, suggesting healthy appetites for a security that wasn’t desirable even with the intervention of the proverbial 10-foot pole as recently as March, when you could buy a share for $2.50, not much more than you’d pay for a cash withdrawal at an ATM. Now it’s trading at over six times that price. What remarkable powers of resilience.
What this means, among other things, is that the government bailout worked, in some sense. That is, throwing hundreds of billions at the financial system kept things from going totally down the drain. Still, the unemployment rate is over 10%, jobs continue to disappear, and nothing serious has been done to prevent future crises of this magnitude. The Bush–Obama scheme to restore the status quo ante has been pretty successful on its own terms.
Further proof of that can be seen in the failure of the markets to begin a fresh journey towards oblivion with last week’s news of Dubai’s debt default. I noticed that some of the more fevered corners of the Internet commentariat were convinced that this week’s trading would bring a relapse of last year’s crisis, but that hasn’t happened. I’d never say that a relapse is impossible. But it does look like we’ve moved onto a new phase of thie melodrama—financial stabilization followed by some kind of economic recovery. I still expect it to stink. But Armageddon has been postponed.
Plus ça change…. The other telling story on the front of Thursday’s FT reported on a survey by the FDIC—an entity rendered nearly bankrupt by rescuing failed banks over the last year—showing that 17 million adult Americans live without bank accounts, and another 43 million are “underbanked,” as they say, using pawn shops, payday lenders, check cashing joints, and other other shady operators to handle many of their financial transactions. The latter gang charge enormous fees and interest rates, making straight bankers—who aren’t shy about their fees and interest rates—look like pikers in comparison. The FDIC found huge racial disparities in underbankitude, with 3% of white households lacking bank accounts—but 22% of black households, seven times as many, so deprived.
So big finance thrives, while regular folks are squeezed. A serious financial reform would squeeze the financiers and force bankers to provide basic financial services at reasonable prices to everyone. But there’s nothing like serious financial reform on the horizon. In a lot of ways, Barack Obama is the best friend that Wall Street ever had. It’s one thing to coddle bankers in good times. It’s another entirely to give them a blank check to enable them to go back to making the mischief that got us in trouble in the first place.
Bubbly, busty Ben
Speaking of mischief, trouble, and first places, Fed chair Ben Bernanke’s renomination is making its way through the Senate. Some Senators, like Connecticut’s Chris Dodd, facing a tough re-election campaign in a state that is heaquarters to much of the hedge fund and insurance industries, made a show of tongue-lashing Bernanke, but I bet he ends up voting for him. Bernie Sanders is using a parliamentary technique that will require Bernanke’s confirmation to get 60, instead of the usual 51, votes to pass, but I bet he’ll get those.
Why is this guy getting reappointed? He let the bubble inflate, dismissed worries about the dangers of subprime mortgages and derivatives, said in mid-2008 that the recession was unlikely to get too serious (just as it was about to get very serious)—and then, when everything fell apart, set about writing big big big giant big checks to Wall Street. Yes, in a financial crisis, it’s essential that a central bank flood the system with money to keep things from imploding utterly. But he’s done so without any clear strategy or accountability, and absolutely no commitment to insuring that it doesn’t happen again. Truly the American ruling class is a rotting social formation.
November employment
And now an update specifically for the KPFA and podcast audiences. On Friday morning, we got the employment report for the month of November. It was something of a pleasant surprise. I’d been expecting job losses of around 150,000 and no change in the unemployment rate. What we got was a decline of 11,000 in employment and a 0.2 point decline in the unemployment rate. Of course, the report was still mildly negative, not robustly positive—but, as they say, flat is the new up.
Most of the job losses were in goods production, meaning manufacturing and construction. But the housing bust looks to be running its course, with most of the losses in construction coming from the nonresidential sector; the commercial real estate bust, part II of the whole real estate disaster, is really biting now. Private services gained 51,000, its best performance since the recession began in December 2007. Most of the rise came from increases in temp employment and in health care. Health care is almost always up, and most temp jobs aren’t the stuff of dreams, but over the long term, temp has led broader employment trends. Most other service sectors showed small losses.
The average hourly wage was up only a hair, and was unchanged in the service sector. With the job market as weak as it is, it’s no surprise that wage growth is almost nonexistent. But the average workweek rose a decent 0.2 of an hour. Since movements in the length of the workweek, like movements in temp employment, often presage broader employment trends, this too is encouraging news for the future.
Aside from the unemployment rate, the stats I’ve been quoting came from the monthly survey of about 300,000 employers. The survey of 60,000 households, done about the same time as the employer survey, showed mixed results. The household survey painted a mixed picture. As I said, the unemployment rate fell 0.2 point, its biggest decline in four years. At 10%, it’s still very high, and it’s quite likely it will rise again in the coming months, but this is one of the better bits of economic news we’ve gotten in a long time. The broadest measure of unemployment, the so-called U-6 rate, which adds to the official measure those who are working part time though they’d prefer full time work and those who’ve given up the job search as hopeless, fell 0.3 point. It’s still an astronomical 17.2%, but at least it’s heading in the right direction.
As I’ve been saying here for a long time, the savage declines in employment over the last couple of years have been driven more by an extreme reluctance on the part of employers to hire rather than very high rates of job loss. Friday’s report contained only the slightest hint that that is about to change. The probability of a person unemployed in October finding a job in November rose some over the previous month, but is still quite low—and below the levels of earlier this year, when the economy was bleeding jobs. But the rate of job loss did ebb between October and November, to the lowest level we’ve seen in a year and a half. (I should say that I borrowed the techniques for making these estimates from the economist Robert Shimer.)
Nothing in the November jobs report would lead me to change my expectation for only a weak and slow recovery in employment in the coming months. This looks more like the end of recession than the beginning of a strong recovery. Still, you take encouragement where you can find it, and there’s some to find here. Not much, but some.
What would be scary, though, is if the authorities and their associated pundits concluded from November’s employment report that, in Julian of Norwich’s words, “All shall be well, and all shall be well, and all manner of things shall be well.” (I’d always thought that that phrase originated with T.S. Eliot, but a little Googling set me straight.) Later in this show, we’ll hear from Heidi Shierholz of the Economic Policy Institute about their ambitious jobs program. We still need something like that, even if the labor market is beginning to heal. The economy is facing too many headwinds, and too many people are suffering, not to treat the current level of unemployment as a social emergency. Calls to cut spending and raise interest rates are getting louder every week. Fed chair Ben Bernanke was before the Senate just the other day urging Congress to cut Medicare and Social Security. I suspect that the upper reaches of American society are deeply interested in imposing an austerity program on most of us in order to pay the bills for the bailout and stimulus programs. It’s never too early to gear up for that fight.
And, finally, in noneconomic news, I see that the process of liberal disllusionment with Obama is well underway, somewhat earlier than I’d expected it to set in. Let me quote something I wrote for my newsletter, Left Business Observer, back in March 2008, just as Obama’s stock was really taking off:
As this newsletter has argued for years, there’s great political potential in popular disillusionment with Democrats. The phenomenon was first diagnosed by Garry Wills in Nixon Agonistes. As Wills explained it, throughout the 1950s, left-liberal intellectuals thought that the national malaise was the fault of Eisenhower, and a Democrat would cure it. Well, they got JFK and everything still pretty much sucked, which is what gave rise to the rebellions of the 1960s (and all that excess that Obama wants to junk any remnant of). You could argue that the movements of the 1990s that culminated in Seattle were a minor rerun of this [in response to the disappointments of Clintonism, that is]. The sense of malaise and alienation is probably stronger now than it was 50 years ago, and includes a lot more of the working class, whom Stanley Greenberg’s focus groups find to be really pissed off about the cost of living and the way the rich are lording it over the rest of us.
By the way, I searched the FCC’s website to see if it’s ok to use the phrase “pissed off” on the air. It is. According to a 2002 ruling, it is, because it’s a slang term for “angry with,” and doesn’t refer to an excretory function, and I’m not using it to pander or titillate. Nor is the phrase “repeated or dwelled upon.” So I’m in the clear.
Back to the analysis. In one of those historical ironies, I now see that none other than Garry Wills himself, the very writer I borrowed this notion of productive disillusionment from, wrote on the New York Review of Books website the other day that he’s had it with Obama. The escalation in Afghanstan was the final straw.
Onward to mass radicalization!
Seattle, ten years ago
A memory of a rather different time than 2009: http://www.leftbusinessobserver.com/Seattle.html
LBO 123 on its way
LBO issue 123 has been emailed to electronic subscribers, and is on press for the dead-tree crew.
Contents: throwing money at homeowners • regulating finance: newfangled schemes • the stimulus program: how much, who’s getting it, is the debt a problem? • what comes after the Great Recession? • Iraq oil • Mishkin talks more nonsense
Tastes of each: LBO 123 contents.
This is the fifth on-time issue in five months! If you don’t subscribe, repent and offer appropriate monetary sacrifices at LBO subscription info.
Radio commentary, November 28, 2009
Dubai melts
Iceland, only about 80 degrees warmer? The latest sovereign financial crisis is Dubai, whose national holding company declared on Thursday that it needed to stop servicing its debts for a few months. (Wouldn’t it be nice if all of us could do that?)
Dubai is a small country, less than 1600 square miles, on the Persian Gulf. It is one of the seven members of the United Arab Emirates. Its population is only about a million and a half, three-quarters of them male, and less than a fifth are citizens. Most of the population consists of imported workers, mainly from South Asia. Although the basis of its wealth is oil, its worldwide reputation has come from Dubai World, its government-owned investment company. One of its subsidiaries attracted a lot of ugly attention back in 2006 when it tried to acquire some port operations in the U.S. Washington loves free trade and capital flows when it’s calling the shots, but if an Arab entity is involved, demogogues quickly invoke national security.
Back to the current crisis. The first thing that Dubai World isn’t going to pay is about $4 billion owed by its real estate subsidiary that’s due next week. Like many so-called sovereign wealth funds, Dubai’s went wild during the bubble, investing both in a domestic building boom and a foreign acqusition spree. Dubai’s binge was exceptional, however. It built three artificial islands off the coast of the country, and is in the midst of creating a 300-island archipelago off its shore as well. It bought, among other corporate assets, the Queen Elizabeth II (the ocean liner, not the monarch); the MGM Mirage in Las Vegas; The Union Square W Hotel in New York and the Fountainbleu Hotel in Miami; Barney’s, the high-end New York department store; a bunch of luxury golf and ski resorts; and a 20% stake in Cirque de Soleil, the Canadian circus, or performance art troupe, or whatever it is exactly.
Who’s going to take a hit on this? Mainly, it seems, European banks, though many are denying that they will. The amounts involved are far smaller than the trauma that the U.S. mortgage market inflicted on the world. But this is a reminder that the financial crisis is still with us, optimists’ longings to the contrary. Adding to the worries are concerns that Greece may have trouble servicing its government debt; its economy is a mess. I think we’re in for years of troubles.
I keep being struck by the continuing signs of economic trouble and the placidity of the political realm. In the U.S., despite an unemployment rate north of 10%—and likely to rise further before beginning a only painfully slow descent—the only disturbances are mainly coming from the teabaggy right, consumed as it is with delusions that Obama is turning the U.S. into a socialist state. If only.
Retail scene
Ah, returning to more familiar return, how’s this holiday shopping season going to be? Economic analysts always obsess over the results from Black Friday, the day after Thanksgiving, when the season traditionally begins (though I started seeing holiday promotions several weeks ago—and the Christmas lights are already up on some of the shopping streets around my neighborhood in Brooklyn). So far, retailers are looking scared, and have been very slow to do the usual November hiring. Early reports are that shoppers are out, but concentrating on necessities and bargains, with discounters in the lead, and luxury retailers only moving the cheaper stuff. What a change from a few years ago, when luxury, or at least aspirational, outlets like Tiffany were booming and Walmart was lagging. Now, Walmart is thriving as consumers trade down. Saks’s flagship store on Fifth Avenue in New York reported that people were buying deeply discounted Christmas ornaments and Godiva chocolates, but leaving the couture on the racks. It’s looking like only the deeply discounted stuff is moving.
This is all of more than immediate economic interest. Has this retail recession, the deepest in modern American history, changed the whole shopping culture in some structural way, or is it just a drawn-out cyclical affair? My guess is that something structural is going on, but you never know. At least I haven’t seen any reports of people being killed over $19 DVD players at doorbuster specials. Yet.
Employment notes
In other economic news, first-time claims for unemployment insurance, filed by those who’ve just lost their jobs, declined by 35,000 last week, and are now at their lowest level in nearly a year. And the count of those continuing to draw benefits, available only with a week’s delay, fell by 190,000 to its lowest level since March. The pace of layoffs continues to slow, but the rate of hiring has yet to increase.
Perspective on this can be obtained from a fairly obscure data series from the Bureau of Labor Statistics known as Business Employment Dynamics. The familiar monthly figures on job gains and losses are net results, the difference of a truly massive number of gross gains and losses. For example, in the first quarter of this year, we lost about 2.7 million jobs. But that loss was the result of 8.5 million jobs lost and 5.7 million gained. (That’s a little amazing: even at the nastiest spot in this recession, almost 6 million people got jobs. Of course, a lot more were losing them.) The losses were about 8% of total employment, and the gains, about 5%, a record low. But, amazingly, the loss rate is actually lower than it was in the 2001 recession. What’s really out of line is the low rate of gain. Even at the worst spot of that 2001 recession, gains were 2 percentage points higher. So the decline in claims for unemployment insurance has to be understood in this light: employers aren’t laying people off as harshly as they were early in the year. But there’s no sign that they’re about to start hiring in any quantity.
Radio commentary, November 14, 2009
[November 12 was the first new show I did on WBAI since the fundraising began in mid-October. Most of the opening commentary was a reprise of the previous week’s analysis of the October employment report, which the New York audience didn’t hear, though the California audience did. The following are the only fresh bits in this week’s punditry.]
Now, the usual words on the economic news. In general, we continue to see signs of stabilization, but no serious signs of a turnaround. I suppose that coming after such a deep recession, a period of feet-finding can be expected, but it’s still a long way from even an overture to anything resembling prosperity. And since there have been essentially no structural reforms of the U.S. economy, or even a serious discussion of same, I’m wondering if anything resembling prosperity is in our near future.
[October employment dissection redacted.—Ed.]
And now a few words on the stimulus. I’ll have more to say about all this in a few weeks, since I’m reserving the details for an article for my newsletter, Left Business Observer, and subscribers will get first dibs on it, but I’ll just say a couple of quick things for now. (All the stats are here.) One is that spending so far is quite small—about 1% of GDP has been actually disbursed and received. By contrast, the WPA during the 1930s spent about twice that much—and built thousands of schools, rebuilt thousands of hospitals, repaved 280,000 miles of road, etc. No one is even talking about anything like that now. And two, the spending by state is kind of amazing. Toward the top of the list, measured against total income in the state, are small places like Alaska, North Dakota, Montana, and South Dakota. Toward the bottom, a lot of big ones: New York, New Jersey, and Connecticut among them. California just missed making the bottom 10. Fascinating how Washington redistributes money away from states that are more liberal towards those that are most conservative—and most likely to rail against Washington. Can we just cut them off?
LBO News from Doug Henwood 
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Posted on January 23, 2010 by Doug Henwood
Radio commentary, January 14, 2010
I’m going to keep the opening comments pretty short today. Though some of you have already heard my analysis of the December employment report, the WBAI audience hasn’t. So a quick reprise of that. In a phrase: quite disappointing. It looked for a bit like the labor market might finally be turning around, but those hopes were set back, though not thoroughly dashed, by the news that employers shed 85,000 jobs last month. Some of that might have been the result of terrible weather, even by the standards of Decembers. But there was little good news buried in the details of the report. And apparently many people have been giving up on the job search—a rational decision, given that employers just aren’t hiring. But dropping out means that they’re not counted as officially unemployed, so even the stability in the jobless rate isn’t encouraging on closer examination.
Worse, we learned on Wednesday that job losses last year were even worse than we knew. The monthly job reports are based on a survey of employers—a very large survey of around 300,000 establishments. (Click here for the FAQ on the survey.) But like all surveys based on subsamples of a large universe, this one’s not perfect, and it’s especially imperfect at times of rapid change or changes in trend. As a check on that, the Bureau of Labor Statistics periodically compares the monthly counts with the almost-complete coverage of the employment universe provided by the unemployment insurance records system. They do that quarterly, seven months after the end of every quarter, and also yearly, when they perform what’s called a benchmark revision on the employment numbers. I must underscore that there’s nothing sinister about these revisions—it’s just really hard to count something as big as the U.S. workforce with perfect accuracy.
Last October, the BLS told us that when they do the benchmark revision for 2009, they’ll mark down total employment by 824,000—a very large number as these things go. Specifically, this downward revision will be applied to the employment level for March 2009 at the beginning of next month, with the next employment release. But in addition to that annual exercise, they also report quarterly on this fuller picture. So we’ve just learned that job losses in the second quarter were even worse than we imagined—as of June, there were about 1.3 million fewer jobs than we knew, a half million more than the benchmark revision. That takes the number of jobs lost in this recession up to a stunning 8.5 million. This is nothing less than a social emergency—yet Washington is basically just diddling about it.
And on Thursday morning, we learned that retail sales declined modestly in December, surprising most analysts, who’d expected a modest gain. (These figures are seasonally adjusted, meaning that the normal surge around Christmas is removed in order to isolate underlying trends.) The October and November numbers were surprisingly strong. What does this all mean? I think it means that the economy—I’m going to personalize the abstraction for a moment, please forgive me—is trying to find its footing. But it’s still wounded and wobbly, and likely to look punch drunk for some time to come.
I’ve just been comparing the performance of the U.S. economy to fifteen earlier financial crisis-induced recessions, as identified by the IMF. While nothing is ever perfect in the social sciences, the U.S. economy does seem to be following the script pretty closely. The hit to GDP so far is pretty much in line with the averages—though there were some countries that did considerably better, and some that did considerably worse, than what we’ve been through. And employment is also following the script pretty well: steep, sustained declines giving way to a leveling out. But the script also suggests that this flatlining phase could last for a year or more. So the unemployment rate is likely to stay quite high, and economic life to feel quite crappy, for most of us throughout this year and maybe into next as well.
Finally, some Wall Street hawks are getting nervous about government debt and inflation—and some people on the left are even taking these worries seriously. That is, the worrywarts are afraid that all the borrowing the U.S. and other governments have been doing is going to lead to some sort of sovereign debt crisis among the richer countries—and that all the fiscal and monetary stimulus they’ve applied to keep everything from going down the drain is going to cause a rampant inflation. Both fears are wildly misplaced. There’s so much slack in the economy—unemployed people and physical resources—that it’s ludicrous to worry about price pressures. And the history of financial crises is one of declining, not rising, inflation. Worries about government debt are equally delusional. Yes, it’s a problem, and yes, servicing that debt will crowd out public pursuits more noble than interest payments, but the rise in public sector debt is a compensation for the shrinkage in private sector debt. Households and businesses have been pulling back—out of both prudence and necessity—and if it weren’t for the offsetting rise in public sector debt, we’d be heading down a deflationary vortex. And when the worst of all this is passed, assuming it will pass, then we can tax the rich to pay down the debt. Yeah, fanciful, but the money’s there.
[Note: the final point about dealing with the debt is explored in Left Business Observer #124, just out. To subscribe, visit: LBO subscription info. Can’t give everything away for free, after all.]
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