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The Fiscal Myth That’s Killing The Economy, In 7 Steps

Saturday, August 13th, 2016

RichardEskowA new economic working paper reinforces an important reality: We need more government spending to repair the economy for millions of working Americans. Unfortunately, our political debate is being held back by an economic myth – one that has yet to be challenged in political debate, despite an ever-growing body of evidence against it.

The paper, by L. John Bivens of the Economic Policy Institute, is called “Why is recovery taking so long – and who’s to blame?

The myth is called “austerity,” and it can be roughly defined as “the persistent but false belief that government spending cuts are always a good idea.”

Here are seven things about austerity worth knowing:

1. Our current recovery is too slow, and isn’t reaching everybody it should.

As Bivens points out, employment took longer to reach its pre-recession levels this time around than it did in the previous three recovery periods. Perhaps even more significantly, the rate of job creation remained slower after the recession officially ended.

What’s more, the jobs created after the 2009 crisis were weighted heavily toward lower-income professions. Labor force participation for people of working age remains low, even though it has improved somewhat.

And, as the Center for Economic and Policy Research recently reported, the percentage of people who are involuntarily working part-time rather than full-time is 25 percent higher now than it was before the recession.

As CEPR’s Nick Buffie notes, “Over 6 million people are working part-time involuntarily, and on average they work 23 hours per week. Because full-time workers are typically employed 42–43 hours per week, this is effectively a wage cut of almost 50 percent for the affected workers.”

2. The weak recovery affects a lot of full-time workers.

It is not just the unemployed and underemployed who are affected by the weak recovery. Many full-time workers are earning less than they would be if the economy had rebounded at a faster pace, creating more and better jobs than it has.

The American middle class needs a raise. But millions of people won’t get their raises until the economy is stronger and the demand for workers goes up. And demand will remain low until there are more jobs to fill.

3. We know what to do about it.

Government has two tools at its disposal in situations like this: monetary policy and fiscal policy. Monetary policy was promptly deployed after the latest crisis, both to bail out Wall Street and to improve the overall economy. The Federal Reserve should have been more attentive to the Main Street economy, using some of the creativity it used to rescue the financial sector, but it did cut interest rates and that helped.

Unfortunately, fiscal policy, in the form of job-creating government spending initiatives, was used only sparingly at the federal level. Over the past seven years there have been spending cuts at the federal, state and local levels. That’s the opposite of what’s needed, especially in an economy like this one.

As Bivens points out, it’s necessary to increase demand under conditions like those we see today. A simplistic overview of the process: The government creates jobs, the people who get those jobs spend more, the economy’s “pump” is primed and growth follows.

We aren’t talking about radical, far-left ideas here. This approach has been mainstream economic thinking for many decades, and was successfully applied under Democratic and Republican administrations alike.

4. We relied on the myth of austerity instead.

But recent years have seen the rise of different ideas – ideas that were tended and nurtured by right-wing institutions like the Peterson Foundation, and by conservative economic thinkers too numerous to mention. “Austerity economics” – the belief that governments can cut their way to growth – became conventional thinking in the halls of academe and the halls of power. It is obsessed with deficit spending, to the exclusion of other concerns that are often more pressing.

Austerity-driven cuts have hurt the U.S. economy. Austerity’s done even more damage in Europe. When the global financial crisis of 2008 struck, multilateral decision-makers (including the European Central Bank and the International Monetary Fund, or IMF) imposed a harsh austerity regimen on Greece and other struggling European economies. The result, as we now know, was disastrous.

To its credit, the IMF conducted an internal review of its actions during this period. The report found that IMF officials ignored a number of warning signs and had a “strongly optimistic bias” about the effects of austerity. The report also agreed with an earlier investigation that found “a high degree of groupthink, intellectual capture … and incomplete analytical approaches.”

That’s pretty much what happened here, too.

The crisis of 2008, and the events that followed, disproved austerity economics and other hallmarks of conservative economic thought. But it remains popular in powerful circles – perhaps because, as Upton Sinclair said (in the gendered language of his time): “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

5. It’s mostly a Republican problem …

Despite ample evidence to the contrary, Republicans remain steadfast in their opposition to government spending – even for government jobs like teaching, firefighting, and emergency management.

As Bivens explains:

“We are enduring one of the slowest economic recoveries in recent history, and the pace can be entirely explained by the fiscal austerity, particularly with regard to spending, imposed by Republican policymakers, members of Congress primarily but also legislators and governors at the state level.”

The Republican Congress can even take much of the blame for state-level spending cuts, since transfers from the federal government account for more than 20 percent of state and local spending.

Bad economies aren’t an act of God. They are a result of human action – or inaction.

6. … but a lot of Democrats have bought into the myth, too.

A number of top Democrats echoed the rhetoric of austerity, too. That led to weaker political support for the spending we needed, and probably clouded the judgment of Democratic leaders when it came time to make the case for needed spending increases.

President Obama spent far too much time fighting for a “grand bargain” on spending with congressional Republicans that was rooted in austerity thinking, and too little time challenging that thinking. He also had the habit, especially in his first term, of echoing the false economic tropes of the austerity crowd by saying things like “just like every family in America … the Federal government has to live within its means …”

National budgets don’t work like family budgets at all – that is, unless the family in question issues its own sovereign currency.

There are strong hints of austerity-oriented thinking in Hillary Clinton’s rhetoric, too. That puts her at odds with enthusiastic backer Paul Krugman, who wielded a poison pen on her behalf during the Democratic primaries but is currently making the case for borrowing and spending.

Austerity thinking was highlighted at last month’s Democratic National Convention when Gene Sperling, a senior economic advisor to former presidents Clinton and Obama, was featured in a humor-oriented anti-Trump video produced by “Funny or Die.” Whether or not hilarity ensues must remain a matter of personal opinion, but the video clearly relies on austerity economics – specifically, an exaggerated fear of deficits – to scare viewers.

There has never been a better time for the federal government to borrow money and invest in the economy. It can obtain very low interest rates, the economy would respond very well to job creation, and we urgently need to spend money on repairing and expanding our national infrastructure. (The American Society of Civil Engineers says we need to spend $3.6 trillion by 2020.)

7. We need a national debate about austerity economics.

Hillary Clinton has proposed modest levels of infrastructure investment and other government spending – modest, but better than nothing. President Obama put forward similar spending proposals. But these proposals suffer from a fatal flaw that renders them useless in today’s climate: They’re too large to get past the Republicans in Congress and too small to change the political debate.

Democrats have not directly challenged Republicans on government’s proper role in the economy. Too often, they have tried to co-opt the rhetoric (and sometimes the policies) of austerity instead.

Republicans, on the other hand, offer a clearly articulated and internally coherent (if utterly fallacious) economic perspective. Democrats can also offer a coherent perspective, too – one with the added advantage of having been proven by experience. That perspective can make life better for millions of people.

This is the economic debate this country needs. But we won’t get it until someone challenges austerity economics and the conservative philosophy behind it – directly, unambiguously and fearlessly.

This article originally appeared at Ourfuture.org on August 12, 2016. Reprinted with permission.

Richard Eskow is a Senior Fellow with the Campaign for America’s Future and the host of The Zero Hour, a weekly program of news, interviews, and commentary on We Act Radio The Zero Hour is syndicated nationally and is available as a podcast on iTunes. Richard has been a consultant, public policy advisor, and health executive in health financing and social insurance. He was cited as one of “fifty of the world’s leading futurologists” in “The Rough Guide to the Future,” which highlighted his long-range forecasts on health care, evolution, technology, and economic equality. Richard’s writing has been published in print and online. He has also been anthologized three times in book form for “Best Buddhist Writing of the Year.”

What Is “Economic Freedom,” And Who Is It For?

Wednesday, February 3rd, 2016

Terrance Heath

The Heritage Foundation has released its annual “Index of Economic Freedom.” As America enters an election season increasingly influenced by anger at an economy rigged in favor of the wealthy, maybe it’s time to ask: What is “economic freedom,” and who is it for?

What does economic freedom mean to you, personally? Given that we only recently recovered from a serious national bout of “Powerball Fever,” it’s a safe bet that for most people it means not having to worry about having enough money. It means earning a livable wage; enough to meet basic needs, like food, shelter, transportation, and medical care. It means earning enough to support your family, and having leisure time to enjoy your family. It means being able to educate your children — or yourself — without putting yourself in hock with debt. It means having a fair shot at reaching the next rung on the economic ladder, and securing a better future for your children. It means being able to retire with a decent standard of living.

For the Heritage Foundation, “economic freedom” is “the fundamental right of every human to control his or her own labor and property.” Who’d disagree with that? However, the Heritage definition quickly moves from a focus on the individual to a society in which “governments allow labor, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.”

It sounds good, until you realize we’re not talking about the rights or freedoms of persons like you and me, but wealthy people and “corporate persons.” Heritage breaks “economic freedom” down into four pillars: “Rule of Law,” concerning property rights and “freedom from corruption”; “Limited Government,” concerning “fiscal freedom” and government spending; “Regulatory Efficiency,” concerning “business freedom”, “labor freedom”, and “monetary freedom”; and “Open Markets,” concerning “trade freedom”, “investment freedom,” and “financial freedom.” They repeat the word “freedom” as often as possible, but what do all of those things mean in reality?

If you’re an average worker, it means little to no “regulations concerning minimum wages.” So employers can pay you as little as they like. If you can’t live on what they pay, you’re free to try to earn more elsewhere. Good luck with that, because who gets rich paying higher wages than their competitors? Several of the countries in the Heritage’s “economic freedom” top 10 had the lowest hourly minimum wages, including Chile ($2.20) and Estonia ($2.70). Others have no minimum wage.

There are some developed countries with no minimum wage on Heritage’s index, like Switzerland (number 4) and Denmark (number 12, just behind the U.S.), but they tend to rely on strong trade unions to negotiate fair wages for workers.

If you’re an American worker, it means driving down wages with trade agreements like the Trans Pacific Partnership (TPP), that institute what Heritage calls “trade freedom,” defined as “the absence of tariff and non-tariff barriers” on imports and exports of goods and services. The top 10 on Heritage’s index is almost a membership list of TPP countries, including Singapore, New Zealand, Chile, Australia and Canada.

It means there are few, if any, labor laws prescribing maximum working hours. There’s no limit on how many hours your employer can require you to work. It means you don’t even have a right to a two-day weekend.

It means there are few, if any, “laws inhibiting layoffs,” “severance requirements,” or “measurable regulatory restraints on hiring and hours worked.” In other words, forget about “right to work” states. It’s a “right to work” world, in which you have the right to work harder and longer for less.

It means no Social Security as we know it. In fact, it means no government programs, as Heritage’s index uses zero government spending as a benchmark. (So underdeveloped countries with little governmental capacity may receive “artificially high scores” for government spending.) The government won’t have anything to spend anyway, because “fiscal freedom” means a low top marginal income tax rate, and a low top marginal corporate tax rate. The lower the rates, the higher the “fiscal freedom” score. Serving as a tax haven for corporations and wealthy individuals seeking to avoid taxes back home, under the banner of “investment freedom,” can earn countries like Ireland (number eight on Heritage’s index) high “economic freedom” scores.

How does all this “economic freedom,” mostly for the wealthy and “corporate persons,” work out for the rest of society? According to Heritage, more “economic freedom” is supposed to mean less inequality. Yet, some of the highest ranking countries on Heritage’s index have the highest rates of inequality.

? Despite being number one on Heritage’s index, Hong Kong’s yawning gap between rich and poor has fueled protests, despite increasing minimum wages.
? Number two on Heritage’s index, Singapore has one of the highest rates of inequality, leading to calls for the government to take action.
? The “miracle of Chile” (number seven on Heritage’s index), so christened by conservative economist Milton Friedman, has lost its shine as Chile’s plantation economy has made it one of the countries with the most serious inequality problems.

Every year Heritage comes out with a new “economic freedom” index, and every year the questions behind the numbers is the same: What is economic freedom, and who is it for? The answer remains the same, too. Heritage’s “economic freedom” is freedom for the wealthy and giant corporations to further consolidate their wealth and power, and not much else.

This blog originally appeared in ourfuture.org on February 2, 2016. Reprinted with permission.

Terrance Heath is the Online Producer at Campaign for America’s Future. He has consulted on blogging and social media consultant for a number of organizations and agencies. He is a prominent activist on LGBT and HIV/AIDS issues.

The Economy: The New Normal Isn’t

Wednesday, December 9th, 2015

Robert-Borosage_The November jobs report – 211,000 jobs with the headline unemployment rate staying at 5 percent – met “expectations.” It is now virtually inevitable that the Federal Reserve will begin raising interest rates at its December 15-16 meetings, as Fed Chair Janet Yellen indicated in her congressional testimony yesterday.

The Federal Reserve action essentially declares this economy the new normal. The unemployment rate has dropped from its 10 percent depths in the Great Recession to 5 percent. The economy has enjoyed a record 69 months of private sector jobs growth. Fed Chair Janet Yellen suggests the U.S. economy has sufficient momentum to continue to grow.

While inflation remains far below the Fed “target” of 2 percent, Yellen anticipates that the dollar won’t continue to rise in value and oil won’t continue to fall, suggesting that inflation might pick up in future months. So, she argues, it is time for the Fed to begin – in baby steps and very cautiously – to raise interest rates.

But the new normal is neither normal nor acceptable. Nearly 16 million people are still in need of full-time work. The percentage of the civilian population working or actively looking for work remained virtually unchanged at 62.5 percent, near a 40-year low (back to when women began entering the workforce in large numbers).

African-Americans suffer unemployment rates at 9.4 percent, almost twice the national average. Only one in five of young African-Americans – ages 16 to 19 – are employed.

We still haven’t returned to the same levels of employment, counting new entrants, that we enjoyed before the recession in 2007. Wages are still stagnant, up barely over 2 percent for the year for non-supervisory workers, not close to keeping up with the cost of health care or college or child care.

Worse, the Fed is tightening against the threat of future inflation that exists only in its imagination. And it does so in a world dangerously close to global downturn. Europe verges on deflation, with the European bank extending extraordinary measures to fend off decline. China is slowing faster than expected or admitted. Japan is back in recession. Brazil is suffering the deepest downturn since the Great Depression, with other emerging market countries in decline.

The U.S. economy is not strong enough to be the buyer of last resort for a world desperate to export its way to recovery. The U.S. dollar has already dramatically increased in value, with the Euro and other currencies weakening. This makes imports cheaper and exports more expensive. Already U.S. manufacturing is getting hit.

The Fed is understandably eager to begin raising rates after keeping them near zero for seven years. Free money feeds the bankers’ casino, inflates bubbles, and makes it easier for corporations to doctor their balance sheets. What is missing is any sensible policy from the Congress to get this economy going. Corporations are parking over two trillion abroad to avoid paying taxes. If Congress weren’t ruled by ideologues and bounders, it would force them to pay their fair share of taxes and use that money to rebuild the country, putting people to work in work that needs to be done.

Both the Fed Chair Yellen and the IMF have been calling for action from the Congress without success. Instead, Congress turns itself inside out to pass a modest highway bill that won’t come close to addressing the continued decline in our infrastructure.

This world is closer to a global recession than to healthy normal economic growth. The Fed’s likely action will be modest. But at a time when we need far bolder action across the globe, the Fed is signaling success when it ought to be raising warning flags.

This blog originally appeared at OurFuture.org on December 4, 2015. Reprinted with permission.

About the Author: Robert Borosage is the Co-Director of the Campaign for America’s Future.

 

Why the Sharing Economy is Hurting the Economy - and What Must Be Done

Sunday, November 29th, 2015

Robert ReichIn this holiday season it’s especially appropriate to acknowledge how many Americans don’t have steady work.

The so-called “share economy” includes independent contractors, temporary workers, the self-employed, part-timers, freelancers, and free agents. Most file 1099s rather than W2s, for tax purposes.

It’s estimated that in five years over 40 percent of the American labor force will be in such uncertain work; in a decade, most of us.

Already two-thirds of American workers are living paycheck to paycheck.

This trend shifts all economic risks onto workers. A downturn in demand, or sudden change in consumer needs, or a personal injury or sickness, can make it impossible to pay the bills.

It eliminates labor protections such as the minimum wage, worker safety, family and medical leave, and overtime.

And it ends employer-financed insurance – Social Security, workers’ compensation, unemployment benefits, and employer-provided health insurance under the Affordable Care Act.

No wonder, according to polls, almost a quarter of American workers worry they won’t be earning enough in the future. That’s up from 15 percent a decade ago.

Such uncertainty can be hard on families, too. Children of parents working unpredictable schedules or outside standard daytime working hours are likely to have lower cognitive skills and more behavioral problems, according to new research.

What to do?

Courts are overflowing with lawsuits over whether companies have misclassified “employees” as “independent contractors,” resulting in a profusion of criteria and definitions.

We should aim instead for simplicity: Whoever pays more than half of someone’s income, or provides more than half their working hours should be responsible for all the labor protections and insurance an employee is entitled to.

In addition, to restore some certainty to people’s lives, we need to move away from unemployment insurance and toward income insurance.

Say, for example, your monthly income dips more than 50 percent below the average monthly income you’ve received from all the jobs you’ve taken over the preceding five years. With income insurance, you’d automatically receive half the difference for up to a year.

It’s possible to have a flexible economy and also provide workers some minimal level of security.

A decent society requires no less.

This blog was posted at RobertReich.org at November 23, 2015. Reprinted with permission.

About the Author: Robert B. Reich, Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century.

Economists React to October Jobs Report

Monday, November 16th, 2015

Jackie TortoraOctober provided good news for the economy. The economy added 271,000 jobs, according to the U.S. Bureau of Labor Statistics, a big increase over September’s number of 137,000 jobs. The unemployment rate also fell fractionally from 5% to 5.1%.

Average hourly private-sector earnings were up 9 cents, which, if sustained, will finally start producing real wage gains for ordinary working Americans.

In response to the October jobs report, AFL-CIO Chief Economist William E. Spriggs said:

While this month’s numbers are good, job growth has yet to deliver sustained wage gains that working people need to lead better lives. This means we face the deeper challenge of fashioning policy changes to create the institutional structure for shared prosperity; aggressive, progressive solutions, not corporate driven trade deals. Unfortunately, while our economy remains fragile, the now public TPP text proves our fears of just how damaging it could be to our economy. The fight for full employment and rising wages starts with rejecting this bad deal and embracing economic policies that put people and families first.

 AFL-CIO Senior Economic Policy Adviser Thomas Palley added:

This report is strong, which is good news. But the report also reveals the contradictions in our economy. Good news for Main Street is interpreted as bad news by Wall Street. The challenge for the Federal Reserve, and the standard by which it will be judged, is to ensure this type of news becomes ‘normal’ and not a one month exception that is used to justify hitting the brakes.

This blog originally appeared at AFL-CIO on November 10, 2015. Reprinted with permission.

About the Author: Jackie Tortora is the blog editor and social media manager at the AFL-CIO.

Taking Pope Francis’ Message Seriously Means Pushing for Worker-Owned, Green Cooperatives

Wednesday, September 23rd, 2015

in these timesThe Pope’s visit to the USA this week comes just two months before pivotal UN climate talks that could lead to a global climate agreement. Climate change will be high on his agenda in planned addresses to the UN and Congress, and it is likely that one of his central concerns will be the economy. Pope Francis did not mince words in his recent encyclical on the theme of climate change and one of the main targets of his searing critique was our current economic system. He bemoaned that “the earth’s resources are … being plundered because of short-sighted approaches to the economy, commerce and production.” He chastised the dominance of the speculative finance sector over the economy, and the folly of looking to market growth to solve all social ills.

His core message is that we are currently locked in an economic growth model based on the premise we have an inexhaustible planet. The way the global economy is currently run will not ensure our long-term physical survival. There are some glaring signals that it won’t ensure our economic survival either. For starters, the financial crisis of 2008 and evidence that patterns of growing inequality are stunting economic growth. Recent admissions from the International Monetary Fund (IMF) that economic trickle down theory doesn’t work have further cast doubt on the logic of the current system.

Alongside experts such as the Nobel laureate Joseph Stiglitz and established economic institutions such as the IMF, the Pope is not alone in raising the alarm on “unbridled capitalism.” So in order to solve the greatest challenges of our time, climate change and inequality, we need an economic system that serves us better. However, it seems that beyond identifying and agreeing upon the problem, we often stop short at imagining solutions.

But there are signs that the seeds of a stronger and more responsible economy may already be taking root. Interest in existing models of enterprises, banks, cooperatives and networks that put social and environmental principles before profit is growing. These businesses have a strong emphasis on collective ownership, management and decision-making. Financial decisions are not left to the power of a few, whether government bureaucrats or corporate CEOs, but overseen more democratically by the main generators and beneficiaries of economic activity: the workers and customers.

This rich and diverse tapestry of economic activity witnessed around the world has been called a number of things: social economy, solidarity economy, local economy, new economy, the next system. Interest in the promise of these approaches has even spurred the UN to form a task force to investigate the potential of the social and solidarity economy in contributing to global development goals.

Sounds like a nice idea, but is this really economically viable? Surprisingly yes, and in many cases these enterprises are much more resilient and successful than current models that can result in job losses, bankruptcy and financial crashes. A recent UN report concluded that worker- and customer-owned banks made less risky decisions and outperformed investor owned banks during the recent global financial crisis. Research reveals that worker-owned cooperatives also have similar economic and social benefits that make them a better business model for communities and the economy as a whole.

One well-known example is that of Mondragon Cooperative Corporation, a highly successful worker-owned company of over 70,000 employees based in Spain. The company operates internationally and has a diverse portfolio, including the manufacture of industrial machinery. The 10th-largest company in Spain in terms of asset turnover, Mondragon had lower levels of unemployment compared to the rest of Spain during the 2008 recession and still remained globally competitive. Instead of firing staff during the economic downturn, employees voted to take pay cuts and top managers took their share of the burden. The Spanish cooperative is not alone. Over 2008, in the midst of the financial crisis, the combined turnover of the world’s 300 largest cooperatives was an impressive $1.6 trillion, comparable to the GDP of the ninth largest economy in the world.

Action to fight climate change could benefit from new economic approaches. Take the two sectors that contribute the most to global carbon emissions: energy and agriculture. In Germany, community-owned energy cooperatives are booming, supporting the rapid uptake of renewable energy without having to depend on the patronage of reluctant utility companies. The impressive success of wind power in Denmark is due largely to the rapid spread of community-owned wind turbines. In the United States, the move away from utility-scale power plants is also happening. Recent studies show that levels of solar power generation in the U.S. have been underestimated by as much as 50 percent. This is due to the exponential growth in rooftop solar, which is not yet systematically recorded. The opportunity to magnify the potential of small-scale energy producers could be immense.

With regards to agriculture, the UN advocates ecologically friendly methods based around small-scale farming, with more local production and consumption. This could lead to higher yields, better protect food systems from the impacts of climate change and reduce emissions from this sector. Agricultural cooperatives are critical to the success of smallholder farming, allowing independent farmers to remain competitive through collective purchasing and distribution networks. Climate action that supports agricultural cooperatives and low-emission, climate-proof farming methods could have positive economic, food security and climate outcomes.

Action on climate change could both support and benefit from a more stable and democratic economy. Climate finance and subsidies currently being swallowed by the fossil fuel industry could be redirected to promote locally owned and managed energy and farming, using socially responsible financial institutions to manage these funds. The result could be a stronger economy that works better for both people and the climate.

In his encyclical, the Pope entreated us to “seek other ways of understanding the economy and progress”. A framework for a more democratic, collectively owned and managed economy could be part of this. The re-imagination of the economy is already in motion. It’s time for the climate movement to get on board.

This Blog originally appeared on In These Times on September 23, 2015. Reprinted here with permission.

About the Author: Gaya Sriskanthan has over a decade of experience working on climate change, environmental protection, and sustainable development with a range of organizations including the United Nations and the UK Department for International Development. She currently focuses on indigenous peoples’ rights and civil society inclusion in climate change action. Follow her on Twitter: @gayasktn.

Unemployment Drops To Lowest Rate Since April Of 2008

Sunday, September 6th, 2015

Bryce CovertThe economy added 173,000 jobs in August while the unemployment rate fell to 5.1 percent, according to the latest data from the Bureau of Labor Statistics. Analysts had expected 220,000 jobs to be added. That’s the lowest unemployment rate since March of 2008.

August jobs reports are frequently unreliable, however, and tend to get revised upward in later reports. The initial report tends to get an extra 90,000 jobs on average in later months, more than double the jobs added from revisions in other months. And revisions for June and July added an additional 44,000 jobs compared to what was originally reported.

August job growth was led by 56,000 in health care, 33,000 in professional and business services, 26,000 in food and drink services, and 19,000 in finance.

Wages rose by 8 cents in August following a 6-cent rise in July, but have risen just 2.2 percent over the last year, in line with record low rates.

This blog originally appeared at ThinkProgress.org on September 4th, 2015. Reprinted with permission.

About the Author: Bryce Covert is the Economic Policy Editor for ThinkProgress. She was previously editor of the Roosevelt Institute’s Next New Deal blog and a senior communications officer. She is also a contributor for The Nation and was previously a contributor for ForbesWoman. Her writing has appeared on The New York Times, The New York Daily News, The Nation, The Atlantic, The American Prospect, and others. She is also a board member of WAM!NYC, the New York Chapter of Women, Action & the Media.

The Upsurge in Uncertain Work

Thursday, August 27th, 2015

Robert ReichAs Labor Day looms, more Americans than ever don’t know how much they’ll be earning next week or even tomorrow.

This varied group includes independent contractors, temporary workers, the self-employed, part-timers, freelancers, and free agents. Most file 1099s rather than W2s, for tax purposes.

On demand and on call – in the “share” economy, the “gig” economy, or, more prosaically, the “irregular” economy – the result is the same: no predictable earnings or hours.

It’s the biggest change in the American workforce in over a century, and it’s happening at lightening speed. It’s estimated that in five years over 40 percent of the American labor force will have uncertain work; in a decade, most of us.

Increasingly, businesses need only a relatively small pool of “talent” anchored in the enterprise –  innovators and strategists responsible for the firm’s unique competitive strength.

Everyone else is becoming fungible, sought only for their reliability and low cost.

Complex algorithms can now determine who’s needed to do what and when, and then measure the quality of what’s produced. Reliability can be measured in experience ratings. Software can seamlessly handle all transactions – contracts, billing, payments, taxes.

All this allows businesses to be highly nimble – immediately responsive to changes in consumer preferences, overall demand, and technologies.

While shifting all the risks of such changes to workers.

Whether we’re software programmers, journalists, Uber drivers, stenographers, child care workers, TaskRabbits, beauticians, plumbers, Airbnb’rs, adjunct professors, or contract nurses – increasingly, we’re on our own.

And what we’re paid, here and now, depends on what we’re worth here and now – in a spot-auction market that’s rapidly substituting for the old labor market where people held jobs that paid regular salaries and wages.

Even giant corporations are devolving into spot-auction networks. Amazon’s algorithms evaluate and pay workers for exactly what they contribute.

Apple directly employs fewer than 10 percent of the 1 million workers who design, make and sell iMacs and iPhones.

This giant risk-shift doesn’t necessarily mean lower pay. Contract workers typically make around $18 an hour, comparable to what they earned as “employees.”

Uber and other ride-share drivers earn around $25 per hour, more than double what the typical taxi driver takes home.

The problem is workers don’t know when they’ll earn it. A downturn in demand, or sudden change in consumer needs, or a personal injury or sickness, can make it impossible to pay the bills.

So they have to take whatever they can get, now: ride-shares in mornings and evenings, temp jobs on weekdays, freelance projects on weekends, Mechanical Turk or TaskRabbit tasks in between.

Which partly explains why Americans are putting in such long work hours – longer than in any other advanced economy.

And why we’re so stressed. According to polls, almost a quarter of American workers worry they won’t be earning enough in the future. That’s up from 15 percent a decade ago.

Irregular hours can also take a mental toll. Studies show people who do irregular work for a decade suffer an average cognitive decline of 6.5 years relative people with regular hours.

Such uncertainty can be hard on families, too. Children of parents working unpredictable schedules or outside standard daytime working hours are likely to have lower cognitive skills and more behavioral problems, according to new research.

For all these reasons, the upsurge in uncertain work makes the old economic measures – unemployment and income – look far better than Americans actually feel.

It also renders irrelevant many labor protections such as the minimum wage, worker safety, family and medical leave, and overtime – because there’s no clear “employer.”

And for the same reason eliminates employer-financed insurance – Social Security, workers compensation, unemployment benefits, and employer-provided health insurance under the Affordable Care Act.

What to do?  Courts are overflowing with lawsuits over whether companies have misclassified “employees” as “independent contractors,” resulting in a profusion of criteria and definitions.

We should aim instead for simplicity: Whatever party – contractor, client, customer, agent, or intermediary – pays more than half of someone’s income, or provides more than half their working hours, should be responsible for all the labor protections and insurance an employee is entitled to.

Presumably that party will share those costs and risks with its own clients, customers, owners, and investors. Which is the real point – to take these risks off the backs of individuals and spread them as widely as possible.

In addition, to restore some certainty to peoples’ lives, we’ll need to move away from unemployment insurance and toward income insurance.

Say, for example, your monthly income dips more than 50 percent below the average monthly income you’ve received from all the jobs you’ve taken over the preceding five years. Under one form of income insurance, you’d automatically receive half the difference for up to a year.

But that’s not all. Ultimately, we’ll need a guaranteed minimum basic income. But I’ll save this for another column.

This post appeared in Our Future on August 24, 2015. Originally posted at RobertReich.org. Reprinted with permission.

About the Author: Robert B. Reich, Chancellor’s Professor of Public Policy at the University of California at Berkeley and Senior Fellow at the Blum Center for Developing Economies, was Secretary of Labor in the Clinton administration. Time Magazine named him one of the ten most effective cabinet secretaries of the twentieth century.

Why the Hollowing Out of the Middle Class Matters

Tuesday, June 30th, 2015

david madlandFor the past several decades, the idea that high levels of inequality were good for the economy dominated political and economic thought. Politicians believed the trickle-down theory that enabling “job creators” to get richer would help us all, and economists provided cover for this line of thinking because they thought there was a tradeoff between growth and equity.

But, as inequality has risen to extreme levels in the United States, the foundations of the economy have weakened, and America is now experiencing the kinds of problems that plague less-developed countries. The United States now must confront high levels of societal distrust that make it hard to do business, governmental favors for privileged elites that distort the economy, and fewer opportunities for children of the middle class and the poor to get ahead—wasting vast quantities of human potential.

Fortunately, a new class of economists and policymakers are now challenging the old, flawed, ideas about inequality. Academics have begun to rethink their views about the decline of the middle class, and progressive politicians are finally starting to openly contest the logic underlying supply-side after years of failing to do so. There is a growing realization that a strong middle class is not merely the result of a strong economy—as was previously thought—but rather a source of America’s economic growth.

The new direction on economic policymaking cannot arrive soon enough, because our economy continues to suffer deeply from a financial crash caused in large part by high levels of inequality. Rebuilding the middle class is critical, as a strong middle class performs four vital functions in the US economy.

First, a strong middle class helps society run relatively smoothly, with higher levels of trust among its citizens. People need to be able to trust one another enough to do business with one another. When there is little trust, the cost of doing business shoots up—or, as economists put it, transaction costs increase.

Second, a strong middle class leads to better governance. A thriving economy depends on a well-functioning government that provides critical services, such as roads and schools, with relatively little corruption. As the middle class has weakened and inequality has risen, the wealthy have gained excessive political power and the middle class has become less civic-minded, leading to a host of governmental dysfunctions.

Third, the middle class is a source of stable consumer demand, which enables businesses to invest in new products and hire additional workers—thereby fueling growth. As consumer demand in the years prior to the Great Recession was based heavily on middle-class debt, the economy was unstable. And now that the middle class is so weak—burdened by stagnant incomes, high debt levels, and underwater mortgages—it can’t consume enough to keep the American economy going.

Finally, a strong middle class creates more human capital. In the modern economy, a skilled, healthy, and entrepreneurial workforce is a driver of economic growth—at least as much as the physical capital of factories and machines. As inequality has risen and the middle class has weakened, America has not developed the full human potential of its middle and working classes.

To have strong and sustainable growth, the economy needs to work for everyone. That’s why we need to focus policy on rebuilding our economy from the middle out.

 

About the Author: The author’s name is David Madland. David Madland is the author of Hollowed Out: Why the Economy Doesn’t Work Without a Strong Middle Class and the Managing Director for Economic Policy at the Center for American Progress. Follow Madland on Twitter: @DavidMadland

 

What Is the Federal Reserve Doing?

Friday, June 26th, 2015

William Spriggs

Last week, the U.S. Bureau of Labor Statistics issued its numbers for inflation and for real wage movements. The numbers reflected the weak numbers of the first quarter for economic growth: Zero inflation and zero real wage growth in the past three months. The economy is showing signs that it is fragile. It can be spoofed by international developments that raise the value of the dollar and slow U.S. export growth, or by bad weather—events, the Federal Reserve cannot control or easily predict.

So what is the Federal Reserve doing? At its June Open Market Committee Meeting, where Federal Reserve policy is set, the Fed stayed put on interest rates.  Yet, it gave indications that it was considering giving in to the stampede for the Fed to act sometime this year to raise interest rates in a deliberate move to slow the economy. A policy to slow the economy is based on beliefs, not on the hard data before us on wages or inflation. This is regrettable.

The deeper reality is that the Fed took unprecedented moves to build up huge reserves of U.S. Treasuries. What is really going on is more that the speculators on Wall Street are nervous. They are afraid that somehow, from some unknown source, inflationary pressures will rapidly appear and the Fed will quickly unwind its position with, for some of them, disastrous consequences on bets they have placed on bond prices. They would prefer the certainty of having the Fed start to unwind its position now, slowly divesting itself of its bond reserves and easing the economy to higher interest rates. This has nothing to do with the economy, and everything to do with Wall Street speculation. Unfortunately, the press plays sycophant to these speculators, who are constantly quoted as giving “economic” advice when they state with certainty the need for the Fed to raise interest rates.

Sources of global instability abound. The discussions over the Greek debt, the Eurozone bankers and the International Monetary Fund are far from a workable solution. In the meantime, the Swiss Franc is rising uncontrollably in response to that uncertainty. Iraq, Syria, Yemen and the ongoing conflict with ISL make the Mideast equally unpredictable. And, if snows were the issue in the first quarter, the California drought, the Texas floods and Midwest tornadoes so far this quarter should not make anyone confident that the current hurricane season is going to be a sleeper. Further incidents in Charleston and now Charlotte with violent attacks on African American churches and the constant stream of discontent with the ongoing and unresolved issue of police misconduct make the domestic situation equally volatile.  With so many uncontrollable and unpredictable risk factors that could slow the economy, the fears of Wall Street speculators should and must take a back seat.

These risks are not all unrelated. A more robust U.S. economy will help the world economy and help reduce some risks associated with weak economic performance; especially in the Eurozone. And a more robust U.S. economy will hopefully speed job growth to reduce the economic tensions that overlay the raw social tensions domestically.

The Fed must expand its view of measures of full-employment. The Wall Street gamblers base their assumptions on full employment from a time gone by. For instance, economists today still persist in viewing the high African American unemployment rate as a “structural” issue, since African American workers are assumed to be so low-skilled they cannot find jobs in a modern economy. So, they ignore the warning signs that job growth is frail when the African American unemployment stalls, as it has, at around 10%.

In May, the unemployment rate for adult African American workers (those older than 25) with associate degrees was 5.6%, which was higher or about the same as the unemployment rate for white, Asian and Hispanic high school graduates. Those numbers are inconsistent with full employment. They indicate a market where employers are very free to pick and choose which workers they want. A faster growing economy will force employers to be less choosy.

The slow economy cascaded higher educated workers down into jobs that require less education. If the economy does not speed up, that misallocation of productive capacity could become permanent, as employers may continue to seek only college graduates to serve coffee. This costs us in loss productivity growth.  It is another sign of a labor market that is not at full employment.

Locking in high African American unemployment and college degree requirements for entry-level jobs is not in the economy’s interest. And covering Wall Street bets isn’t either.

This blog was originally posted on AFL-CIO blog on June 26, 2015. Reprinted with permission.

About the Author: The author’s name is William E. Spriggs. William E. Spriggs is the Chief Economist for AFL-CIO. His is also a Professor at Howard University. Follow Spriggs on Twitter: @WSpriggs.

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