Friday, July 17, 2009

From The Email

It's good to have smart people putting me on their email lists. First, the chart come from RLK, late of the city council. The commentary comes from da Mayor, &, IMO, our community's greatest loss since they knocked down the Knight Hotel.
The graph you sent out hits the nail on the head and explains in clear terms why the stimulus pack age has not worked and will not work (in terms of stimulating economic growth). The real issue is not unemployment, but unemployment and lost of wages. This current economic crises has its roots in the economic shifts that took place during the last thirty years. Let me explain:

It is clear that if one were to "run the numbers", by adding the officially unemployed persons to those who had unsuccessfully attempted to get a job in the last 12 months to those that only have part-time employment status (below 40 hours per week) , the true measure of unemployment is closer to 17%, not 9.10% as reported by the BLS in June. But there is an over-emphasis, in my opinion, by this current administration on unemployment.

The unemployment figures (whether you use BLS numbers or Real Unemployment as calculated above) only show a small picture in terms how we as a nation need to address the economic crisis That is because I do not think the problem is unemployment, but rather underemployment. Consider for moment the possibility that the real unemployment rate is close to 20%. What that means then is the real employment rate is 80%. So, while life is tough for the 20%, we still have a significant number of people working and doing well financially. Therefore, as a nation we should be doing o.k. economically. If that were the case, why isn't the economy, in terms of GDP, growing? Because the 80% are NOT doing well financially. In fact, a significant number of them are underemployed - working in menial jobs, for lousy wages and even worse benefits. The underemployed coupled with the unemployed means that a significant number of Americans (about 45% to 60% in my opinion) do not have enough money to keep the economy growing. This is a critical point to understand as the underemployment problem has been vexing America for over 30 years and it has been consistently swept under the carpet. The problem is not just lack of jobs, the bigger problem, in my opinion, is the 30 year loss in real income compared to cost of living for a majority of Americans. Your graph clearly show this.

Consider, for a moment that real wages, when figured for inflation, have not risen since 1979 for the bottom 60% of Americans. That is an astounding statistic. Simultaneously, wages for America's top 1% of have increased by a whopping 23% since 1979! Working class America addressed this loss of wages in three ways:

First, in the 1970's and 1980's we, as a nation, threw all of our working age women into the economy. That bumped-up household earnings, but did not increase individual earnings. Today, as compared to the early 1970's, most working age women MUST work.

Two, we went back to school and got trained for the service economy. The mass lay-offs in the early 1980's forced a whole slug of workers back to school to get an AA or BS degree. These degrees were a base-line requirement to work in America's burgeoning service-based economy. So, we increased our education, but this strategy provided only nominal increases for the great majority of Americans. Most American got better educated only to maintain their wages, not significantly increase them over past earnings. Put another way, I made $16.34 per hour at A.O. Smith assembling automobile sub-components in 1984 as a high school graduate. My son, 25 years later makes $17.00, with an AA degree in HVAC. So, in real dollars, not figured for inflation, my son makes 0.66 cents more an hour than I did 25 years ago and he is college educated!

Third, we took out home equity loans to supplement the loss in wages and increases in cost of living that we were facing. These loans should have been used solely for home improvement purposes, but were used instead to off-set day-to-day living expenses. A significant problem is that the housing bubble has burst and left a whole lot of people with loans that are now greater than the values of their homes, couple that will declining wages, increasing health care costs, and job insecurity and we have a problem that is not directly related to unemployment.

Please do not misunderstand me here Richard, unemployment is certainly a problem. I do not want to give the impression that it is unimportant. But, unemployment exasperates the underemployment problem, in my opinion, not the other way around. My concern is an over-focus on the unemployed while we continue to ignore the bigger problem which is underemployment, loss of wages and increased cost of living. If we really want to stimulate the economy, (growth in GDP) we need to get more dollars into the hands of working people. We can do that by reversing the trend of having only the top 30% of Americans realizing wage increases. There is plenty of money. It is just currently distributed in a fashion will not stimulate economic growth. Giving more money to the rich and hoping it will stimulate economic growth (the trickle down theory) has proven false. The rich have enough and they tie-up their money in investments that will not promote the same GDP growth as putting these dollars into the hands of working people.

I do not want to sound like a conservative here, but the republicans are on to something with providing tax breaks to stimulate the economy. Unfortunately, they have the wrong execution of the right idea, as they do often. Average working class Americans need more money. period. However, providing them with a measly $600 dollar tax rebate is nowhere near enough. Remember that the average American Household is carrying over $14,000 in credit card debt alone!

That is why the $600 dollar tax rebate we got last summer did not work, people used it to pay-down debt. So, Americans will need to have at least a $14,001 dollar tax rebate to begin spending. Well, the government can’t afford that kind of rebate. Furthermore, rebates are a one-shot deal, like a bonus, they do not build enough confidence in consumers to go out and make big, long-term purchases that require a long pay-back. Working people need to make a hell of a lot more money, they need to be a hell of a lot more secure in their jobs, and they need to be a hell of a lot more secure in their health care if we are to stimulate this economy.

Sorry about the length of this e-mail but the point here is people like me, who got hung-up in the lay-offs of the early 1980’s put our wives to work, we went back to school and took out home equity loans to improve our economic condition. Now that the housing bubble has popped, the economy is feeling the effects of a 30 year down-turn in workers wages all at once. Working people have no way currently to substantially improve their income. So, you are absolutely right; the current economic crisis does have historical roots.

Hope it didn't bore you.

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