Mish's Global Economic Trend Analysis |
| Labor Day Insanity from Clinton's Secretary of Labor Posted: 06 Sep 2010 11:20 AM PDT It's Labor Day. The markets are closed. Those working for government, banks, schools etc have the day off. All totaled, 17.3 million citizens do not have a job today nor a job they can return to on Tuesday. Another 8.9 million will not work as many hours as they would like, this week, next week, or the week after that. How NOT to End the Great Recession In a New York Times Op-Ed, Robert B. Reich, a secretary of labor in the Clinton administration, and professor of public policy at the University of California, Berkeley comes to all the wrong conclusions about where we are, how we got here, and what to do about it. Please consider How to End the Great Recession Reich: THIS promises to be the worst Labor Day in the memory of most Americans. Organized labor is down to about 7 percent of the private work force. Members of non-organized labor — most of the rest of us — are unemployed, underemployed or underwater.Mish Comment: When organized labor is at 0%, both public and private, we will be on our way to prosperity. Organized labor in conjunction with piss poor management bankrupted GM and countless other manufacturing companies. Now, public unions, in cooperation with corrupt politicians have bankrupted countless cities and states. Reich: The Labor Department reported on Friday that just 67,000 new private-sector jobs were created in August, while at least 125,000 are needed to keep up with the growth of the potential work force.Mish Comment: Consumers no longer have the purchasing power because of a number of factors. 1. Loose monetary policies at the Fed that encouraged asset speculation, including housing. 2. Rampant property price escalation (until the crash) and rampant property tax increases even though wages did not keep up. 3. A sinking dollar because of inane amounts of government spending. The US has troops in 140 countries around the globe, and a military budget as nearly big as the rest of the world combined. Quite literally we are spending ourselves to death, with absolutely nothing to show for it.  The above chart from The FY 2009 Pentagon Spending Request - Global Military Spending It's not what one makes that matters, it's how far the dollar goes. Our policies ensure the dollar does not go very far. Reich: This crisis began decades ago when a new wave of technology — things like satellite communications, container ships, computers and eventually the Internet — made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.Mish Comment: The crisis started when Congress perpetually spent more money than it took in, when social engineering and regulation made it undesirable to do business in the United States, when tax policy encouraged flight of jobs and capital. The internet was an enabler, it is not to blame. Reich: Eventually, of course, the debt bubble burst — and with it, the last coping mechanism. Now we're left to deal with the underlying problem that we've avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn't have enough money to buy what the economy is capable of producing.Mish Comment: The underlying problems still remain. Unfortunately Robert Reich is clueless about what the underlying problems are. Reich: THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures — Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage — leveled the playing field.Mish Comment: Payment for the absurd policies of FDR are now coming due. Social Security is broke, there is no "lock box" demographics are unfavorable, and acts like Davis Bacon and collective bargaining have wrecked many cities and states. When it comes to jobs creation, we need to get the most done for the cheapest amount and the way to do that is scrap the Davis-Bacon act. Please see Thoughts on the Davis Bacon Act for details. Socialists like Robert Reich point out alleged benefits of FDR's policies. The Fact of the matter is FDR's policies were extremely destructive. The baby boom following WWII is what got the economy humming, not inept policies or unions. We recovered in spite of piss poor policies, not because of them. Indeed unions sewed the seeds of their own destruction which is exactly why only 7 percent of the private work force is unionized. We need to celebrate this fact, not bemoan it. In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America's middle class shared more of the economy's gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.Mish Comment: Once again Reich does not understand what it takes to create jobs in the real world. Reich lives in academia, insulated in his womb of academic theory, theories that anyone living in the real world can easily see are fatally flawed in today's world. It would behoove Reich to read Small Business Trends - Yet Another Disaster From the NFIB ... The expiration of the Bush tax program and the implementation of the health care bill represent the two largest tax increases in modern history. Add to that serious talk of a VAT and passing cap and trade. Nothing here to create optimism about the future for business owners or consumers. Top that off with government borrowing of $1.8 trillion last year and $1.5 trillion this year and on into the future, it is no surprise that owners are fearful and pessimistic. What's missing from the "debate" is logic. Policies should not violate common sense and logic, if they do, they are misleading and disguising a hidden agenda. Arguing that more government spending and taxes are needed to re-establish optimism, confidence and growth doesn't meet the common sense test. Saving bankrupt companies to preserve union jobs doesn't make sense either. The list of these "policy inconsistencies" is long. Bottom line, owners remain pessimistic and nothing is happening in Washington to provide encouragement. Confidence is lost. Plight of Small Businesses I have written extensively about the plight of small businesses. Here are some examples Reich needs to consider.
Reich: What else could be done to raise wages and thereby spur the economy? We might consider, for example, extending the earned income tax credit all the way up through the middle class, and paying for it with a tax on carbon. Or exempting the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000.Mish Comment: Small business owners and entrepreneurs are scared to death of the lunacy of Cap-and-Trade. It gives existing businesses the right to sell energy credits they "earned" because they are currently a polluter. New businesses will pay the price. Cap-and-Trade also opens up ridiculous financial trading of these credits and their derivatives for the benefit of Goldman Sachs and the other broker-dealers. Cap-and-Trade is preposterous, not only in theory but actual practice. For example, please consider Cap-and-Trade Carbon Credit Extortion Scam In Full Swing. Here is another example of the stupidity of Cap-and-Trade: Walmart, Costco, US Bank Profit From Energy Credits in US; Carbon Tax Thrown Out By French Court Reich: Another step: workers who lose their jobs and have to settle for positions that pay less could qualify for "earnings insurance" that would pay half the salary difference for two years; such a program would probably prove less expensive than extended unemployment benefits.Conclusion Reich, is blinded by academic theory. He does not understand business in the real word. He cannot distinguish between the problem and the solution. He never once discusses how the "haves" (overpaid unionized public workers), are destroying private ordinary taxpayers. Reich wants socialistic policies that will provide further incentives for businesses to move overseas. The one book Reich desperately needs to read is "Plunder" by Steve Greenhut. For a book review, please see Five Thumbs Up for Steve Greenhut's Plunder! There can be, nor will there be any recovery until the wage discrepancies and pension benefits of the public sector are brought in line with those of the private sector, not by increasing private sector wages but by reducing insane benefits of the public sector. In addition we need better tax policies and we need to rein in absurd military spending. Finally I would be remiss if I failed to point out the self-serving educational proposals of Reich. Education costs are soaring right now and there are cries for more to do it "for the kids". We are not doing it for kids, we do it for teachers and administrators. Wages and benefits are preposterous enough already. The irony is most professors seldom teach. Instead students are taught by substitutes while the professors entertain self-serving research projects to justify their inflated salaries and egos. Thus, Reich cannot possibly be further off in his solutions to the crisis. Such is to be expected from socialist academics living in self-serving academia instead of the real world. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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| Posted: 05 Sep 2010 11:23 PM PDT In response to Reflections on the "Recovery" reader "Thomas" has an interesting question regarding U6 unemployment that I would like to share. Thomas writes ... Dear Mish,Here is the chart in question once again.  One year ago the official unemployment rate was 9.7%. Today it is 9.6%.One year ago U-6 unemployment was 16.8%. Today U-6 is 16.7% For links to the actual numbers behind the percentages, please see Jobs Decrease by 54,000, Rise by 60,000 Excluding Census; Unemployment Rises Slightly to 9.6%; A Look Beneath the Surface. Essential Math Officially unemployed - 14.9 million unemployed Marginally Attached Workers - 2.4 million Part Time For Economic Reasons - 8.9 million The total is 26.3 million but not all of the above are destitute or in poverty, even though the vast majority of them are suffering in some way. Unfortunately, the total does not stop there because it does not include children or elderly. Both children and the elderly have been affected by the economic downturn, but neither reflects in unemployment stats. Food Stamps Most of the destitute are on food stamps (now called SNAP - Supplemental Nutrition Assistance Program to destigmatize the name). According to SNAP, there are 41,275,411 on food stamps. However, that total is understated because it does not include the homeless. In addition, one must factor in AFDC (Aid to families with dependent children), Head Start, and numerous other state programs. One cannot add them all up because of obvious overlap. Homeless The Coalition for the Homeless addresses the question How Many People Experience Homelessness? There are several national estimates of homelessness. Many are dated, or based on dated information. For all of the reasons discussed above, none of these estimates is the definitive representation of "how many people are homeless." In a recent approximation USA Today estimated 1.6 million people unduplicated persons used transitional housing or emergency shelters. Of these people, approximately 1/3 are members of households with children, a nine percent increase since 2007. Another approximation is from a study done by the National Law Center on Homelessness and Poverty which states that approximately 3.5 million people, 1.35 million of them children, are likely to experience homelessness in a given year (National Law Center on Homelessness and Poverty, 2007).That was written in July of 2009. It is safe to assume the number is higher now. For the sake of argument let's assume the count is 3.5 million. Dynamics of Poverty Here are a few snips from Income, Poverty, and Health Insurance Coverage in the United States: 2008 Approximately 31.0 percent of the population had at least one spell of poverty lasting 2 or more months during the 4-year period from 2004 to 2007.Median Household Income  Median household income was back at 1996-1997 levels for all but Asians. Bear in mind these numbers are for 2008! It is worse now. I find the above snip in red astonishing: Approximately 31.0 percent of the population had at least one spell of poverty lasting 2 or more months during the 4-year period from 2004 to 2000 Politics and the Upcoming Election All of the above stats are worse now than a couple years ago. Is it any wonder the population is madder than a hornet at politicians and the protected class of government workers and public unions, whose salaries and benefits have done nothing but go up, and up, and up, since 1996? Please consider Voters Strongly Favor Non-Incumbent GOP Newcomers in Midterm Elections The public is fed up with how beholden Obama is to unions. They are fed up with sacrifices they have to make that government workers don't. They are fed up with how well the political class has fared in this "recovery" vs. how well they have fared in this "recovery". They are fed up with never-ending wars.Returning to the original question, U6 does not directly translate to determining the number of frustrated, suffering, hopeless, and poverty stricken human beings affected by this economic slump. One must add up various numbers, taking care to not double count. One must also consider the fact that people go into and out of poverty, while others straddle the line, just beyond the threshold of being counted. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific. 
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