FDR Tackled a Jobs Crisis By Putting Americans to Work -- Not Handing Out Pinkslips

Aug 15, 2011David B. Woolner

History shows that we can effectively respond to high unemployment. But the real deficit in the U.S. today is leadership.

History shows that we can effectively respond to high unemployment. But the real deficit in the U.S. today is leadership.

"Our greatest primary task is to put people to work. This is no unsolvable problem if we face it wisely and courageously. It can be accomplished in part by direct recruiting by the Government itself, treating the task as we would treat the emergency of a war, but at the same time, through this employment, accomplishing great -- greatly needed projects to stimulate and reorganize the use of our great natural resources."

~Franklin D. Roosevelt, March 4, 1933

The economic news of the past few weeks -- highlighted by the debt ceiling debacle; the downgrade of US credit worthiness; the wild gyrations in the stock market and the wholly inadequate growth in the US job market in June and July -- all seem to point to one thing: the economic crisis that began in 2008 is far from over.

Worse still, given the political gridlock in Washington and the inability and/or unwillingness of the leadership on both sides of the political aisle to face the real crisis we face today -- the jobs crisis -- the prospects for a meaningful recovery seem remote at best. Many economists predict that the US will slide back into a recession. This is bad news for the millions upon millions of Americans who are out of work; bad news as well for the millions of young people just entering the work force. For the first time since the Great Depression, we face the ugly prospect of the loss of skills that often comes with long term unemployment or the lack of meaningful career opportunities for our youth.

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One would think that in the face of such a calamity our government would do everything within its power to expand or at least maintain the workforce. But with the current Administration having embraced the mantra of deficit reduction and budget slashing, and with one branch of Congress ideologically opposed to government intervention in the economy, government layoffs, especially at the state and local level, are actually pushing up the rate of unemployment.

Over three quarters of a century ago, when faced with a similar jobs deficit, Franklin Roosevelt used the power of the federal government to do just the opposite -- to put people to work. Under the auspices of such New Deal programs as the Civilian Conservation Corps (CCC) or the Works Progress Administration (WPA) millions of Americans found meaningful employment restoring our nation's forests and watersheds and building the economic infrastructure we needed to grow the economy well into the future. Equally important, the skills required to build the 1000s of bridges, roads, schools, airports, dams and other key pieces of economic infrastructure necessary for a modern economy were not lost to that generation.

FDR did this because -- as he said in his first inaugural -- the most immediate and primary tasked needed to meet the economic emergency was to put people to work. This not only led to a significant drop in the unemployment rate (by more than 10 percent in his first term), it also helped fuel a period of economic expansion that would average 14 percent per year for the next four years.

Thanks to these efforts, the American people could look to the future with confidence rather than fear. Yes, times were hard. But under the leadership of the Roosevelt Administration, the federal government was engaged in an active effort to provide real jobs -- not handouts -- to millions and the industrial expertise we needed to meet the challenges of the Second World War were in place at the critical hour.

The national unemployment rate has now been at roughly 9 percent for more than two years. By any measure such a statistic -- which tells us little about the millions of under employed or those who have given up looking for work -- constitutes a national crisis. Yet all we hear about these days in Washington is the need to cut government spending (including federal aid to states) and reduce the deficit. Following this false logic will lay off more workers in the midst of the worst economic crisis since the Great Depression. Given the dire state of affairs, the American people are right to fear the future. In addition to a jobs deficit, we now face a deficit of leadership at a time when we can least afford it.

David Woolner is a Senior Fellow and Hyde Park Resident Historian for the Roosevelt Institute.

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Real News Network: Rob Johnson and Tom Ferguson talk about Austerity

Aug 12, 2011

In back-to-back recent appearances on The Real News Roosevelt Senior Fellows Rob Johnson and Tom Ferguson both made compelling cases for government spending aimed at job creation, not austerity, during times of economic distress such as we currently experiencing.

In back-to-back recent appearances on The Real News Roosevelt Senior Fellows Rob Johnson and Tom Ferguson both made compelling cases for government spending aimed at job creation, not austerity, during times of economic distress such as we are currently experiencing.

In his appearance, Johnson paints a bleak picture of a world economy where we are so interconnected that one country failing can cause the world economy to spiral out of control. He speaks to the political failing of Obama to argue for more (and more effective) job-creating government spending.  He also speaks to the way that the very wealthy (think billionaires) can benefit from this crisis by buying everything at "half-off" while their competitors, who are not quite as liquid as them, begin to fail. Ultimately, he exhorts progressive politicians to stand their ground and advocate for government spending programs that create jobs instead of towing the austerity line. Johnson worries that if they don't we may fall into another deep recession.

Similarly, Ferguson argues that the problem is one of Keynesian economics.  He points out that when people are uncertain of the markets and are not investing, government becomes the most important source of spending that stimulates the market and aggregate demand.  But what do we see happening now? Ferguson asks. Austerity throughout the west. The government is one of the biggest spenders in each of these economies, and as each government pulls back its spending, each economy must contract as well.  So it makes perfect sense, Ferguson notes, that we would see economic recessions under these circumstances. The only workable response, Ferguson argues, is the Keynesian one -- namely to increase government spending on job creation which will increase aggregate demand.

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Johnson and Ferguson both make clear now is a time for government-sponsored job creation, not austerity. Their appearances are must-watch TV.

Rob Johnson:

Tom Ferguson:

Also, if you want to see them on the Real News you can press here for Tom Ferguson and here for Rob Johnson.

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What Drives the Stock Market: Innovation, Speculation, or Manipulation?

Aug 11, 2011William Lazonick

stockmarket-1500001In the latest installment of his “Breaking Through the Jobless Recovery” series, economist William Lazonick exposes the financial engineering that's far more in style than good old fashioned product

stockmarket-1500001In the latest installment of his “Breaking Through the Jobless Recovery” series, economist William Lazonick exposes the financial engineering that's far more in style than good old fashioned products.

During the 1980s and 1990s, Americans fell in love with the stock market. The "go-go years" of the 1960s had produced decent stock yields. But households still viewed investment in corporate stocks as a risky business, as would be confirmed by the negative performance of the stock market in the stagflation of the 1970s (see the table below). Then 1982 to 2000 witnessed the longest "bull run" in US stock market history with double-digit average annual real stock yields.

lazonick-chart-1

The terrible performance of the stock market in the first decade of this century, however, made even the 1970s look good, especially since inflation could no longer take the blame for negative real stock yields. The financial crisis of 2008-2009 was, of course, a big part of that sorry story. In the recovery of 2010, it looked like the market might be back on track as the S&P 500 registered a real yield of 20.6% (or in other words, 20.2% price yield + 2.0% dividend yield - 1.6% rate of inflation). Indeed, the market was sailing along on an even keel during the first seven months of 2011 -- until, in the wake of the debt ceiling crisis, it tanked this month.

So going forward, what's the prognosis for the stock market's long-run performance? It has always resembled a legalized gambling casino. That's even true of "blue chip" stocks, issued by well-established companies that have long records of profitability and solid growth. The term "blue chip," which came into use during the stock market boom of the 1920s, was taken from the color of the highest value counter in a poker game. And, of course, in the stock market crash of 1929, many people learned that they could lose their shirts even with their portfolios heavily invested in blue chips.

Nevertheless, stock price movements are not the same as a lucky draw of the cards. Except in cases of outright fraud, publicly listed shares are issued by companies that employ people to come to work on a regular basis to produce goods and services to sell to people who might want to consume them. When a particular company figures out how to produce a good or service that is higher quality and lower cost than those of its competitors -- that is, when it learns how to innovate -- it can capture a significant share of the product market and generate substantial profits. Its stock price will eventually rise, not because of blind luck, but because it is an innovative enterprise that has experienced sustained growth. When innovation is the driver of the stock market, a company's stock price increase occurs after innovation, when the stock trading public has the evidence of success.

Innovation is, however, just one of three drivers of stock price movements. The second driver is speculation, with traders moving into and out of stocks in attempts to beat the market. These days, high-speed traders grab short-run speculative gains before ordinary traders even know that the gains are there. In the longer run, however, speculation typically occurs on the back of innovation. A company succeeds in the product market and then gets discovered by stock market traders, who start bidding up the price of its stock well beyond the level warranted by the company's innovative performance.

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Take, for example, the case of Cisco Systems, the world's leading Internet equipment company. Largely on the basis of innovation, its stock price increased by about 200 times from its initial public offering in March 1990 to mid-1998 (see the chart below), during which time Cisco became the fastest growing company in US history. Yet in the very first sentence of a Stanford Business School case on Cisco published in October 1998, the author, Charles O'Reilly, could write: "Cisco Systems is a $6 billion high technology stealth company, largely unknown to the general public." Less than a year and a half later, Cisco had clearly emerged from stealth mode as speculators bid up its stock price to the point where in March 2000 it sported the highest market capitalization of any company in the world.

lazonick-chart-2

It is inherent in speculation that at some point the bubble will burst and a sky-high stock price will fall back to earth. So it was with Cisco Systems. From a high of $79.48 on March 27, 2000, its stock price fell 89% to a low of $8.54 on October 8, 2002. Yet in fiscal year 2002 (ending on July 27th) Cisco had recorded profits of $1.9 billion on $18.9 billion in sales, virtually identical to its revenues in the boom year of 2000.

With its stock price in free fall but with $6.9 billion in cash and short-term securities at the end of fiscal year 2001 and $12.7 billion at the end of fiscal year 2002, Cisco's executives turned to the third way of increasing a company's stock price -- manipulation. To boost its stock price, they began large-scale stock repurchases, rising from $1.9 billion in 2002 to $10.2 billion in 2005 and averaging $7.6 billion per year from 2006 to 2010. In all, during 2002-2010 Cisco poured $65 billion into buying back its own stock, equivalent to 129% of the company's earnings and 173% of its R&D expenditures.

Currently Cisco is terminating 6,500 employees to save perhaps $1.5 billion in costs. In April 2011, CEO John Chambers sent a memo to Cisco employees that the company had "lost some of the credibility that is foundational to Cisco's success." Yet the company spent $5.6 billion buying back its stock during the first nine months of fiscal year 2011. My research on Cisco suggests that its obsession with manipulating its stock price over the past decade is an important reason why the company has lost its way.

The transitions over the past two decades from innovation to speculation to manipulation as the main driver of Cisco's stock price are typical of many other leading American high-tech companies. Over the past decade, total stock repurchases have been $110 billion at Microsoft, $89 billion at IBM, $54 billion at Hewlett-Packard, and $48 billion at Intel. Apple, Inc. is a notable exception. For all the companies in the S&P 500 Index, which make up about 75% of the market capitalization of all US corporations, the amount spent on buybacks over the past decade was in excess of $2.5 trillion.

Market manipulation is the enemy of industrial innovation. In a well-known book, Stocks for the Long Run, Jeremy J. Siegel argues that historically US corporate stocks have been "clearly the asset of choice for investors seeking long-term growth." Yet even in the most recent edition, published in 2008, Siegel mentions stock buybacks only in passing, and with no hint of the massive manipulation of the stock market that they represent. Back in 1924, another student of financial markets, John Maynard Keynes, observed: "In the long run we are all dead." Unless something is done to bring the financialized corporation under control, a decade or two hence Keynes' quip may be a fitting epitaph for many of America's leading technology companies.

William Lazonick is director of the UMass Center for Industrial Competitiveness and president of The Academic-Industry Research Network. His book, Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Upjohn Institute 2009) was awarded the 2010 Schumpeter Prize.

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Who Makes Capitalism Work? Adam Smith Would Disagree with Today's Conservatives

Aug 8, 2011John Paul Rollert

adam-smithThe hero for fiscal conservatives warned that it's those at the bottom of the economic pyramid who are the real engines for growth.

adam-smithThe hero for fiscal conservatives warned that it's those at the bottom of the economic pyramid who are the real engines for growth.

To hear the Republicans tell it, even more than paying down the national debt, the key to solving our current economic woes is to make way for the "job creators," a motley crew of Americans who appear to share no more in common than their membership in the top tax bracket.

The reasoning is relatively straightforward and was summed up recently by Texas Governor Rick Perry: "America is not going to move forward until we remove restrictions of over-taxation, over-regulation and over-litigation on the job creators and free them so the jobs can be created." This is a familiar refrain, one that makes progressives shake their heads at a seeming indifference to hard choices and economic history. Still, by now it should be clear that the refrain is far more than convenient rhetoric. It is founded on a bedrock belief about the free market, one that answers What makes capitalism work? by addressing a different question: Who? For that is what is at stake in the term "job creators," a vision of capitalism's essential players, one very different from the original account provided by Adam Smith. His account of who makes capitalism work is at odds with the one we are used to. The essential players are found at the base, not the apex, of the economic pyramid.

Near the beginning of The Wealth of Nations, Smith calls our attention to what, for him, is one of the fundamental qualities of human experience: helplessness. "[M]an has almost constant need for the help of his brethren," he says, for unlike animals, we cannot tend to even our most basic needs on our own. How exactly do we gain the help of others? The answer, says Smith, lies somewhere between the fawning cocker spaniel and the commands of an all-powerful king.

Let's hold the king aside for a moment. When a cocker spaniel wants to be fed, Smith says, "it has no other means of persuasion but to gain the favour of those whose service it requires." It wags its tails, licks its master's hand, and appeals to him with puppy dog eyes. The cocker spaniel will occasionally succeed, and so too will the fawning beggar, but such an approach is obviously not an optimal way to get what you want. Indeed, most times people will simply pass by you, leaving you hat in hand.

Thankfully, says Smith, human beings have a natural propensity to negotiate or, as he describes it, to truck, barter, and exchange. "Give me that which I want, and you shall have this which you want" is not only the manner in which we acquire most things in this world, but it is the building block for an economically advanced society. Thus, Smith declares in his most famous passage:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.

People who read this passage and nothing else of Smith tend to regard it as an affirmation of the virtue and efficacy of selfishness over and against the relative impotence of altruism. But that isn't its significance for Smith. Yes, our personal interests act as a sharper spur to action than the interests of others, but the same may be said for the cocker spaniel. The difference is not that we have selfish interests, but that only by understanding the interests of others are we able to fulfill our own.

Indeed, the passage attests to the human capacity for empathy, the focus of Smith's other great work, The Theory of Moral Sentiments. It is because of our natural tendency to stand in the shoes of others and see the world through their eyes that we can appeal to their interests. The commercial effect of this practice is that we individually learn how to make the kinds of exchanges that, in the aggregate, lead to the wealth of a nation.

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This brings us back to the all-powerful king. Fundamentally, he is no different from the rest of us. Regardless of the scepter and pomp, set him down on a deserted island and he would be just as helpless. Still, when he is seated on the throne he can remedy his helplessness by ordering others to attend to his needs. He can also force them to attend to the needs of one another. In this respect, he provides an alternative way of thinking about how we might distribute the resources of society apart from relying on the dull instinct of altruism or the even the organizational force of self-interest guided by empathy.

And yet, says Smith, if we consider those cases where, because of assumed wisdom and/or threatened force, a single person directs considerable resources, we will soon see that this third way fails to match the decentralized power of truck, barter, and exchange. Reflecting on the creature comforts that even the meanest person enjoys in a developed society, Smith says, if we

consider what a variety of labour is employed about each of them, we shall be sensible that without the assistance and co-operation of many thousands, the very meanest person in a civilized country could not be provided, even according to, what we very falsely imagine, the easy and simple manner in which he is commonly accommodated. Compared, indeed, with the more extravagant luxury of the great, his accommodation must no doubt appear extremely simple and easy; and yet it may be true, perhaps, that the accommodation of an European prince does not always so much exceed that of an industrious and frugal peasant, as the accommodation of the latter exceeds that of many an African king, the absolute master of the lives and liberties of ten thousand naked savages.

If the contrast Smith makes is not necessarily marked by cultural sensitivity, it underscores his broader point about who makes capitalism work. Not the all-powerful king, however wise and mighty, but "the assistance and co-operation of many thousands." The butcher, the baker, and the brewer, the countless men and women who support and extend the division the labor -- these are the people who ensure the increasing efficiency, growing complexity, and continued development of society. They are the base of the economic pyramid, and their actions ensure the bounty of the Invisible Hand.

So what happened to Smith's account? Consider Andrew Carnegie's perspective on who makes capitalism work in his essay "The Gospel of Wealth." Writing a century after Smith's death, the steel magnate describes the decisive moment when human beings began to favor a model of free competition that saw the separation of "the drones from the bees," a process that allowed for the "accumulation of wealth by those who have the ability and energy that produce it." Carnegie says of such people (who happen to look a lot like him) that they are so essential to society's development that those who object to the inequalities of a free market system might as well "urge the destruction of the highest existing type of man." In the same spirit, roughly 75 years later, Ayn Rand, in her aptly titled "What Is Capitalism?," focuses on the "the innovators" who promote a society's development. They are an "exceptional minority," she says, "who lift the whole of a free society to the level of their own achievements." What does everyone else contribute? On Rand's account -- nothing. "The man at the top of the intellectual pyramid contributes the most to all those below him," she says, "but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contribute nothing to those above him, but receives the bonus of all their brains."

This is a striking alternative to Smith's vision. Instead of "the assistance and co-operation of many thousands," it is an elite caste that provides the vision, brains, and organizational savvy that ensure a thriving economy. They are the Visible Hand of capitalism, and for Carnegie, Rand, and others like them, if you want to know who makes capitalism work, simply stand at the base of the economic pyramid and look up. You'll find the 'job creators' at the very top.

Smith would be highly skeptical of such claims. In the final edition of the Theory of Moral Sentiments, written over a decade after The Wealth of Nations, he added a chapter in which he describes the "disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition." This disposition, Smith says, colors the way we view the world, leading us to conflate wealth and greatness with virtue and poverty and weakness with vice.

It also leads to confusion in thought. Who makes capitalism work? is a very different question from For whom has capitalism worked best? We should guard against presuming the answers are necessarily one and the same.

John Paul Rollert is a doctoral student at the Committee on Social Thought at the University of Chicago.  His essay, "Does the Top Really Supportthe Bottom? - Adam Smith and the Problem of the Commercial Pyramid," was recently published by The Business and Society Review.

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Obama: The President Who Wouldn't Make the Louisiana Purchase

Aug 5, 2011Jeff Madrick

Bold leaders do what's right at big moments rather than what's popular.

Of course, it's all about jobs. But why did the president ever think differently? Elizabeth Drew and others write that the White House believed the message of the 2010 losses was that Americans believed government spending was out of hand. Thus, cutting government spending -- or at least balancing the budget at some future date -- dominated Obama's political thinking. So it wasn't what the president thought. Rather, it was all about what the people thought -- or thought they thought.

Bold leaders do what's right at big moments rather than what's popular.

Of course, it's all about jobs. But why did the president ever think differently? Elizabeth Drew and others write that the White House believed the message of the 2010 losses was that Americans believed government spending was out of hand. Thus, cutting government spending -- or at least balancing the budget at some future date -- dominated Obama's political thinking. So it wasn't what the president thought. Rather, it was all about what the people thought -- or thought they thought.

He sadly seems to be a follower, not a leader.

But one reason the surveys kept showing that government spending was a key concern was Obama himself. No one with sufficient influence in Washington was saying differently. No one was really talking with urgency about jobs, which was what really concerned Americans. Obama the Law Professor, doesn't seem to want to be President Obama the Educator if it means going against public opinion, no matter how ephemeral that opinion may be. Stimulus -- not spending cuts -- could have created jobs. The wonderful thing about being president is the bully pulpit. But Obama doesn't use it to persuade Americans about much of anything.

So there was no discourse about government spending, only a monologue. There were occasional voices in the media crying otherwise. But for the most part, reporters, especially on TV, went along with the importance of balancing the budget sooner than later. Stimulus seemed just silly.

More recently, the supposedly far-seeing stock market couldn't see past its nose -- as usual. It could only focus on the debt ceiling talks, not the faltering economy. The moment the agreement was signed, the focus turned to the economy and stocks began their plunge -- compounded, of course, by events in Europe. It's as if everyone was complaining about how the rain was blinding the driver of the car, and finally when the windshield wipers were turned on, it became alarmingly obvious the car wasn't even on the road!

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Keep in mind, America's slowing economy is also adding to the world financial crisis. If the dollar falls and American demand for imports dries up, where will growth come from across the globe?

Today's New York Times poll shows that by a two to one majority, Americans now believe that creating jobs should be a higher priority than reducing government spending. To be sure, however, more Americans said the spending cuts should have gone further -- by a large margin -- than thought they went too far. The myth lies deep in the American psyche. But it is now secondary.

So, at last, Obama has decided to talk about jobs. But what is he going to do now that he has hamstrung himself in on government spending?

Here's the key issue -- and it's genuine cause for alarm. The American job machine is badly broken. This is a much bigger issue than balancing the budget. The president should be telling the American people he understands that. But he seems, for all his talk, to be unaware of the pain in the nation. The outlook is now pretty bleak.

For the moment, the President seems to have won the public opinion battle with Congress in the debt ceiling battle. A large majority blame Congress, not him. That was his goal.

But it was classic short-termism. He came across as the mild-mannered centrist, but unemployment is not going down. Today's employment data were weak if not dire. The bottom line is that many left the work force and the proportion of the work force now working is tied with its recent recessionary low.

Had he been something of a risk-taker, or even a bit of a visionary, Obama would have realized he could lose some short-term popularity points, take a far harder stand on cuts, and demand some stimulus. He could have done these things with the idea that they would actually help the economy and perhaps give him a chance to win come November, 2012.

He might even have pulled the Constitution card and said Congress had no right to set a debt ceiling in the first place, according to the 14th amendment. He said his lawyers told him that was a weak argument. But Thomas Jefferson bought the Louisiana Territories in 1803 knowing full well that it was probably unconstitutional for him to do so. There were also concerns back then about whether America could afford it. But that's what great presidents do in the big moments. They do what's right rather than abiding by minor niceties. Jefferson's is but one example.

Consider Obama the president who would not have made the Louisiana Purchase.

Roosevelt Institute Senior Fellow Jeff Madrick is the author of Age of Greed.

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Welcome to the (Wageless) Recovery

Aug 4, 2011Bryce Covert

On top of high unemployment, we're suffering from a drop in wages in the aftermath of the recession.

This week's credit check: Wage growth fell from 3.8% in May 2007 to 1.8% in May 2011. Wage growth over the past decade was below Great Depression levels.

On top of high unemployment, we're suffering from a drop in wages in the aftermath of the recession.

This week's credit check: Wage growth fell from 3.8% in May 2007 to 1.8% in May 2011. Wage growth over the past decade was below Great Depression levels.

It was a year ago this week that Treasury Secretary Tim Geithner welcomed America to its recovery. "We suffered a terrible blow, but we are coming back," he assured us, and he had a lot of "good news to report": businesses in a "strong financial position," banks "strong and more competitive," and American families saving more. But that last point may tell a slightly different story. While corporations are seeing nice profits again and banks are back to their usual wheeling and dealing, Americans are still scrimping and saving, even a year later. This recovery period hasn't felt like a recovery for the average worker, who is still struggling desperately to make ends meet. And beyond the fact that this is clearly a jobless recovery, another reason all of us are still wounded from the crash is that this is also a wageless recovery.

An analysis from the Economic Policy Institute shows that we're not just suffering from high unemployment in the aftermath of the recession. We're also experiencing falling pay for those who are lucky enough to have work. It reports that "wage growth has tumbled in the recession and its aftermath, falling from an annual growth rate of 3.8% in May 2007 to a rate of 1.8% in May 2011." Even the employed are worse off, bringing in less pay for their work.

And wages were pathetic even before the crash. While there are many parallels between our era and the Great Depression, that time period beats us in wage growth. As Jed Graham puts it, "Over the past decade, real private-sector wage growth has scraped bottom at 4%, just below the 5% increase from 1929 to 1939, government data show." So as wages fall after the Great Recession, they come on top of the fact that we had less to begin with heading into the financial crisis than people living under Hoover.

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Fittingly, then, income is also falling during the "recovery." Total income was down about 15% between 2007 and 2009.  New tax data that came out yesterday showed that in 2009, average income fell 6.1% to $54,283, losing $3,516 since 2008. That's the lowest level since 1997.

All of this comes on top of the trillions in wealth Americans lost in the crash -- little of which has been recouped. According to figures from the Federal Reserve, US household wealth fell by about $16.4 trillion of net worth from just before the recession to the worst of it in the beginning of 2009. Since then, Americans have regained only a little more than half of that, or $8.7 trillion. That stands in contrast to GDP, which has regained all of its losses. The picture is far, far bleaker for people of color. According to Census Bureau data, the median wealth for Hispanic households fell by 66% from 2005 to 2009 and by 53% for African Americans.

If wages continue to stall and unemployment remains outrageously high, we'll likely stay in this weak "recovery." When asked what's holding back the US economy, Deutsche Bank economist Carl Riccadonna responded, "It's the weakness in consumer spending." Workers spending their hard-earned paychecks (aka consumer spending) accounts for 70% of our economy.

As millions continue to look for work and employed workers bring less home, Americans should be able to turn to a government increasing job growth and promoting wages. But with unionization down and the government fixated on austerity, few are championing the needs of workers. Where will they turn instead when in need of cash to pay for the basics? Credit card companies, who will be glad to lend them money for outrageous fees and interest rates.

Bryce Covert is Assistant Editor at New Deal 2.0.

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Apple's Jobs: A Rebirth of Innovation in the US Economy?

Aug 4, 2011William Lazonick

jobs-letters-150In the latest installment of his "Breaking Through the Jobless Recovery" series, economist William Lazonick explains how a company like Apple has benefited from government investment and subsidies -- and what i

jobs-letters-150In the latest installment of his "Breaking Through the Jobless Recovery" series, economist William Lazonick explains how a company like Apple has benefited from government investment and subsidies -- and what it might do to return the favor.

In his State of the Union address back in January, President Barack Obama invoked the need for the United States to engage in innovation no fewer than 11 times. He emphasized the critical role of the government in supporting the basic research that makes innovative enterprise possible:

"Our free enterprise system is what drives innovation. But because it's not always profitable for companies to invest in basic research, throughout our history, our government has provided cutting-edge scientists and inventors with the support that they need. That's what planted the seeds for the Internet. That's what helped make possible things like computer chips and GPS. Just think of all the good jobs -- from manufacturing to retail -- that have come from these breakthroughs."

Yes! The government has a big role to play in creating the knowledge base for an innovative economy. But how does the "free enterprise system" turn the basic research that government funds into innovative goods and services? And what impact can innovation have on the quantity and quality of jobs available to the US labor force?

Let's check out a case study: Apple.

Right now, the most financially successful innovative enterprise in the United States, if not the world, is Apple, Inc. In fiscal 2010, this iconic American enterprise had sales of $65.2 billion and profits of $14.0 billion. And in the first nine months of fiscal 2011 (through June 25), Apple saw its sales rise to $80.0 billion (equivalent to about $107 billion on an annual basis), up an extraordinary 78% from the same nine-month period a year earlier.

A look at the strategic, organizational, and financial conditions that have underpinned Apple's success can tell us a lot about how innovative enterprise coulld help the US break through the jobless recovery,

In exercising strategic control over the allocation of Apple's resources, the key figure has been Steve Jobs, who co-founded the company in 1976. By 1980, Apple's successful design, assembly and marketing of a personal computer impelled the mainframe leader IBM, a company with 350,000 employees, to enter what would become known as the PC industry. The result in the 1980s was a revolution in information technology that set the stage for the commercialization of the Internet in the 1990s and the integration of IT with mobile telephony in the 2000s.

In 1983, a 28-year-old Jobs deemed it necessary to recruit an experienced professional manager to Apple, and he brought on Pepsico's John Sculley to run the business. By 1986, after conflicts with Sculley about the strategic direction of the company, Jobs resigned as Apple's chairman, leaving to form NeXT to produce sophisticated computer workstations. A decade later, Apple acquired NeXT, which, as it turned out, had developed software that would be critical for Apple's future. With the acquisition, Jobs rejoined Apple, first as a consultant, then in 1997 as interim CEO (with the company in the midst of sustaining huge losses), and in 2000 as permanent CEO.

Even then, with Jobs at the helm, Apple was struggling. It had just a small share of the computer market. In 2001 its sales of $5.3 billion were less than half what they had been six years earlier, and the company showed a small loss. But with the introduction of the iPod and the first Apple retail store in that year, Apple began to transform itself from a niche computer maker into a multimedia giant. In 2003 the online iTunes store debuted, giving a huge boost to iPod sales. In 2006, just before the launch of the iPhone, Apple had increased its total sales to $19.3 billion, with 50% coming from iPod and iTunes. Then came the iPhone in 2007, followed by the iPad in 2010. In the first nine months of fiscal 2011 iPhone sales were $36.1 billion and iPad sales $13.5 billion, accounting for 62% of Apple's total revenues.

Critical to Apple's growth has been the organizational integration of engineering professionals to develop consumer-oriented products with the company's signature graphical user interfaces. A study on jobs and wages in the global iPod value chain calculated that in 2006 Apple employed about 6,100 managers, engineers, and other professionals in iPod work at its Cupertino, California headquarters, representing 64% of Apple's US iPod labor force and 15% of Apple's worldwide total labor force. The study estimated that the professional employees averaged $85,000 in annual earnings, whereas Apple's non-professional US employees, predominantly working in Apple stores, averaged less than $26,000.

The $85,000 figure is significantly understated since it does not include the substantial gains that professional employees made from exercising stock options. According to my calculations, in 2006, across about 17,800 Apple employees worldwide, but excluding the five highest paid Apple executives (for whom we have direct information from proxy statements), the average gains per employee from exercising stock options was about $67,500. We can assume that the 6,100 professionals received some multiple of this average. We do know that the five highest paid Apple executives averaged $16.2 million in gains from exercising stock options in 2006.

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Virtually all of the production of Apple products is done by contract manufacturers in Asia. The big expansion in Apple employment in the United States has been in Apple retail stores. From 2006 to 2010, Apple increased its US stores from 147 to 233, and its US retail employees from an estimated 5,200 to 19,500, representing about one-half of Apple's total increase in employees worldwide from 2006 to 2010. These Apple jobs surely beat those at Wal-Mart, but the pay structure is designed to attract young singles. Prospects of long-term career paths remain to be seen.

How has Apple financed its growth? Backed as a startup by venture capital, Apple was already profitable when, in December 1980, it raised about $100 million in its initial public offering. Beyond that, virtually all of the company's financial commitment has come from retained earnings plus about $4.3 billion (most of it recently) from the sale of stock to employees as part of compensation plans. Indeed, far from raising more money from the public stock market, between 1986 and 1993, under CEO Sculley, the company wasted $1.8 billion buying back its own stock (another $191 million of buybacks were done under CEO Jobs in 1999-2000). Between 1987 and 1996, Apple also paid out $457 million in dividends, but has not paid any dividends since then. In the mid-1990s the company took on debt of almost $1 billion, in large part to cover losses. But since 2003 has been debt-free.

Currently, Apple's balance sheet shows $28.4 billion in cash and short-term marketable securities, plus another $47.8 billion in long-term marketable securities. Indeed, in the context of the US government's debt ceiling crisis, it was noted that Apple had access to more cash than the US Treasury!

What will Apple do with all its money? Of the $76.2 billion in cash and securities, $47.6 billion, or 63%, is held outside of the United States. Under current tax rules it will remain there (a tax loophole enables US companies to avoid paying the 35% corporate tax on foreign profits as long as these earnings are not repatriated to the United States). Apple could do a huge one-time special dividend like the one that Microsoft did for $37 billion in 2004. With its soaring stock price, Apple's executives are not interested in stock buybacks, but when the company's stock price comes down they may very well succumb to this American disease.

One hopes that Apple will find more creative uses for its cash. Like upgrading the capabilities of the more ambitious and talented of its store personnel so that they can pursue productive careers. Or supporting strategic spinoffs that combine the company's cash with its more entrepreneurial and experienced people to start new firms. And perhaps Apple will take a leadership position among US high-tech firms in collaborating with the US government to support national technology research initiatives.

As President Obama recognized, US government investment and subsidies played a major role in making it possible for a company like Apple to exist in the first place. Without that help, Apple would not have found such plumb opportunities for growth in the information and communication technology fields.

So how about returning the favor? Apple should allocate some of its accumulated wealth to upgrade and renew the nation's knowledge base so that other US companies -- some of them yet to be formed -- can benefit from similar government support for innovation and job creation.

William Lazonick is director of the UMass Center for Industrial Competitiveness and president of The Academic-Industry Research Network. His book, Sustainable Prosperity in the New Economy? Business Organization and High-Tech Employment in the United States (Upjohn Institute 2009) was awarded the 2010 Schumpeter Prize.

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Candidate Obama Vs. President Obama On Trade

Aug 4, 2011Zaid Jilani

question-mark-150What happened to the candidate in sympathy with human rights advocates and labor unions?

question-mark-150What happened to the candidate in sympathy with human rights advocates and labor unions?

President Barack Obama recently stood before the nation and addressed the dismal jobs report that showed unemployment was now hovering around 9.2 percent. As a part of his address, he called on Congress to "advance trade agreements [with South Korea, Panama, and Colombia] that will help businesses sell more American-made goods and services to Asia and South America, supporting thousands of jobs here at home."

Astute observers will note that Obama said these agreements would support thousands of jobs in the U.S. -- not that it would create them -- which is the traditional political parlance for supporting a policy. One reason the Obama administration has used this rhetoric around the trade agreements is because there is very little data to show that these three agreements will actually create a net surplus of jobs in the United States. In fact, the Economic Policy Institute estimated in 2010 that the Korean and Colombian trade agreements will result in 214,000 jobs lost in the United States.

What's interesting about the Obama administration (joined nearly at the hip by conservative business groups like the U.S. Chamber of Commerce and congressional Republicans) taking these positions on trade is they represent a significant departure from what candidate Obama campaigned on.

While it's true that candidate Obama never endorsed a complete about-face on U.S. trade policy -- the only candidate in the Democratic primary who did so was Rep. Dennis Kucinich (D-OH), who advocated for ending the North American Free Trade Agreement (NAFTA) and returning to bilateral trade -- he did engage in serious critiques and indicated that he would oppose the legacy of neoliberal trade policies.

While campaigning in the key battleground state of Ohio, Obama repeatedly called for reforming NAFTA, claiming that it cost the country up to a million jobs. By the spring of 2009, Obama's trade representative Ron Kirk openly admitted that the administration will not seek to renegotiate any part of NAFTA.

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But Obama's about-face on NAFTA isn't the only trade flip-flop the president has had. While on the campaign trail in April of 2008, then-Senator Obama said he would oppose a new free trade agreement with Colombia "because the violence against unions [there] would make a mockery of the very labor protections that we have insisted be included in these kinds of agreements."

While the administration is now busy downplaying concerns of human rights and labor advocates about the situation in Colombia, it's important to note that the levels of violence in the country now are actually no different than where they were when Obama made that statement. According to data from the International Trade Union Confederation's (ITUC) Annual Survey of Violations of Trade Union Rights, Colombia in 2010 had 49 assassinations of labor officials -- more than the rest of the world combined. That's a major jump over 2007, when ITUC numbers show that there were only  37 assassinations, and 2008, when there were also 49 assassinations.

One has to wonder if Obama would not think that these continued high levels of violence would not make a "mockery" of any labor protections that would be included in an upcoming Colombia trade deal.

Candidate Obama certainly did not promise to upend U.S. trade policies in ways that many Americans sympathetic to the global labor and human rights movements would want -- which would involve a more direct repudiation of the NAFTA and WTO trade regime models. Yet he was a sharp critic of unfair trade agreements and expressed sympathy towards human rights concerns. Candidate Obama appears to have vanished and President Obama appears to have more sympathy with the views of the U.S. Chamber of Commerce and congressional Republicans than human rights advocates and labor unions.

*Note: According to the latest news, the trade deals discussed in this piece may go up for a vote around September.

Zaid Jilani is a Reporter-Blogger for ThinkProgress and The Progress Report at the Center for American Progress Action Fund.

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Women Lost in the Debt Ceiling Deal

Aug 3, 2011Bryce Covert

Although the deal averts a painful default, many of the cuts will fall on the backs of struggling women.

The debt ceiling debate has finally come to a close. We are clearly all better off in a country that doesn't default on its debt because of self constraints and intense partisan bickering.

Although the deal averts a painful default, many of the cuts will fall on the backs of struggling women.

The debt ceiling debate has finally come to a close. We are clearly all better off in a country that doesn't default on its debt because of self constraints and intense partisan bickering.

But the deal that was struck and signed into law by President Obama that averted the default will have painful repercussions for many of the less well off and vulnerable. It calls for $2.4 trillion in spending cuts over the next 10 years, as well the creation of a bipartisan Congressional committee that will be charged with proposing another $1.5 trillion in deficit reduction. This is in exchange for a two-step increase in the debt ceiling, averting the chaos of a US default. These cuts will harm many groups, but there are a number of ways they'll hurt women specifically.

The first, immediate $1 trillion in cuts come from capping discretionary spending, with more than half non-defense -- i.e. mostly shielding the Pentagon. The White House has said these caps "will put us on track to reduce non-defense discretionary spending to its lowest level since Dwight Eisenhower was President" in the 1950s. But what falls under "non-defense discretionary spending"? While the category sounds amorphous, it funds real programs that women rely on. As the National Women's Law Center puts it,

The discretionary portion of the federal budget requires annual appropriations to fund programs that help women protect their health, obtain quality child care and higher education, and help them meet their basic needs during difficult times and as they age -- including Head Start, child care, K-12 education, family planning and other women's health services, domestic violence prevention, job training, Pell grants, and services for the elderly.

Specifically, some of the largest portions of this spending directly affect women. Education is the largest (16.3%), and cuts to this funding mean teacher layoffs among other things. The category that includes child care and education and nutrition assistance is quite substantial at 7.6%, hitting women who rely on subsidies as they struggle to raise their children.

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The next level of cuts will come from the so-called "super-committee" that will propose another $1.5 trillion in reductions over ten years. Those recommendations could very well include further cuts to discretionary programs, as well as cuts to entitlements and revenue increases. Beyond being hit by cuts to discretionary spending, women will get smacked by scaling back entitlement programs. They rely heavily on these programs: in 2007, they were about 70% of the elderly and 80% of younger adults who relied on Medicaid; they make up more than half of those with Medicare; and for nearly three in ten women 65 and older who receive Social Security, it's their only source of income.

And women will get hit one more way: in the trickle down effects from the deal. It doesn't call for immediate cuts to the federal workforce, but as government agencies and programs have to cope with smaller budgets, they may have to turn to furloughs or layoffs. On top of this, mayors and governors are anticipating far less aid from the federal government to help them cope with budgets ravaged by falling tax revenues and rising output for unemployment and other benefits caused by high unemployment. Their tight budgets have already lead to huge layoffs in public sector workers. Women make up over half of the public workforce -- and have lost 343,000 public-sector jobs, accounting for 70 percent of the cuts between June 2009 and June 2011. This is a big factor in why women are losing jobs during the recovery while men are making gains (even if they're small). Further shrinking government budgets will ensure women lose more jobs.

Overall, the country is better for a deal that averted a government default. In that scenario, everyone would have been hit by higher interest rates at the very least. But the deal itself hurts women at a time when everyone is already suffering.

Bryce Covert is Assistant Editor at New Deal 2.0.

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'Horrible Bosses': How the Job Crisis Affects You

Jul 29, 2011Adam Gluck

adam-smith

A Roosevelt Institute summer intern goes for a summer flick and gets a lesson in how high unemployment sucks for everyone -- except a few at the top.

adam-smith

A Roosevelt Institute summer intern goes for a summer flick and gets a lesson in how high unemployment sucks for everyone -- except a few at the top.

"This movie is a critique of capitalism!" were the words I had to hold back from saying to my libertarian friend.  But I didn't. Few people want to hear that sort of thing while watching a comedy. But, it is.  Really.  Horrible Bosses demonstrates why high unemployment affects all of us, even if we are lucky enough to have jobs.

That high unemployment is advantageous to capitalists and disadvantageous to the regular worker is an argument that Karl Marx made over a hundred years ago.  Before that, Adam Smith argued for the necessity of unemployment in a capitalist system. He made the case that high unemployment helps businesses because they can get more from workers for less, whereas low unemployment helps workers as it allows for them to argue for better pay (something to think about when one hears the argument that pro-business is pro-jobs).

Today, this debate is still alive.  However, it has grown more technical.  Much of the discussion centers around whether joblessness is 'natural' or 'structural' and how much is caused by the policy choices we make. The Roosevelt Institute's Arjun Jayadev and Mike Konczal have shown that today's high unemployment is not structural at all, as conservatives would have it, but a result of low aggregate demand.

Horrible Bosses draws its humor out of the reality of how high unemployment affects even the average employed worker.  The premise: three friends each have bosses who treat them horribly.  One boss is a controlling alpha male, the other is a sexual predator, and the last is the coke-addicted privileged son of the former, awesome, company owner.  So, why don't they quit?  In a hilarious scene, they ask themselves that question.  Then the awful reality sinks in. They run into a friend who graduated from Yale and went into Lehman Brothers -- only to lose his job in the economic crisis.  Unable to find a job for two years, he is living with his mother, and will do "anything for money" (and that 'anything' is not very dignified).

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The friends realize they are stuck with their bosses. So they decide to try to kill them.  Hilarity ensues.

The part that really got me thinking was one particular series of events where the alpha male boss tricks one of the characters into expecting a promotion. The boss kept him overtime.  Doesn't let him see his dying grandma.  Makes him work throughout the weekend. But in the end, he gives the promotion to himself. As a "token of generosity in these hard economic times", he only takes 85% of the salary that comes with the position.  When the character protests that he has been strung along, his boss responds, "Did you see how much harder you worked?"

It's all very funny. But you realize something: that really sucks.  And it is totally plausible.

Statistics suggest that this sort of thing is happening right now.  Productivity is up, by a lot.  It rose 6% from the first quarter of 2009 to 2010.  This is the highest productivity leap since 2002 (another recession), when unemployment jumped to an 8 year high.  Keep in mind that productivity increased from 2000 by 38 percent total. Which means that this last six percent increase represents a larger increase in productivity than during the 2000s. To be fair, this fact alone doesn't demonstrate that workers are being made to work harder. It could represent technological advances, for example.

But let's add a few more statistics.  McKinsey, one of the world's top consulting firms, notes that productivity has increased the most where jobs have been reduced the most.  And small business workers are working harder for less money.  Furthermore, a third of Americans want to quit their jobs up ten percent from 2005.  Altogether, 50% of employees are unhappy with their job.  And, 70% of millenials, people just out of college who are often worked the hardest in new positions, want to change their jobs, but feel they can't because of the economy.

Because of high unemployment, many more people suffer than just the jobless.  If you think this is just a "radical progressive position," think again.  As noted earlier, it is something agreed upon by both Adam Smith and Karl Marx -- two radically different thinkers.  If unemployment is high, employers can work their workers harder.  They know that employees are essentially trapped in their jobs. So for the ruthless employer, there is no economic incentive to decrease unemployment. They can get more and more labor out of their workers and pay them the same, or even less.

So remember this, even if you find work, you could get a horrible boss. And unless you are exceptionally talented, you are replaceable.  There are literally millions of people just waiting to take your position. You are trapped, with no means to save yourself from a bad situation.  If that makes you uncomfortable, it should.  It is the definition of exploitation.

Horrible Bosses is a hilarious movie.  It received a 93% approval rating from audiences on one website I looked at before decided to watch it. But for anyone who has studied comedy, you know that humor often derives from what is not only truthful, but tragic.

Adam Gluck is a rising Sophomore at The University of Chicago and the communications intern at The Roosevelt Institute.

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