A Business Look At The Post-Crisis World

The G-20 meeting was marked by self satisfaction—the world’s leaders took turns congratulating themselves for having averted a global collapse.  Apparently there is now no need for new major structural reforms.

Big business, rejoicing in this outcome (which means that it has successfully blunted any popular efforts to transform the economic system), understands well the consequences of its victory: a future of poverty, insecurity, and homelessness for many.  And it is well prepared for it:

American Girl, best known for their high quality, ethnically diverse dolls representing various periods in American history, has just introduced a “limited edition” doll representing the plight of the homeless. The back story of the “Gwen Thompson” doll is that she lives in a car with her mother; the actual doll with the accompanying paperback book retails for $95, accessories not included.

One can only wonder what accessories will be available for purchase.  One doesnt have to wonder about the kind of class society big business is counting on.

Not A Good Decade For College Grads

Here is a depressing one for the start of the new academic year.  It is by Michael Mandel and it comes from BusinessWeek, the September 28, 2009 issue.

College: Rising Costs, Diminishing Returns

This hasn’t been a good decade so far for young college grads. Full-time workers ages 25 to 34 with only bachelor’s degrees saw a sharp 11% decline in their real earnings between the end of the tech boom in 2000 and 2008. That’s according to income statistics released on Sept. 10 by the U.S. Census Bureau. The drop in pay for young college grads looks even worse when compared with the continuing rise in college costs over the same stretch (chart below). Adjusted for inflation, tuition, fees, and room and board rose 23% at private four-year schools and 36% at public institutions. The final blow: Young college grads saw a bigger pay drop, on a percentage basis, than peers with only an associate degree.

The Oregon Economic Experience

It is often hard to know how our fellow Oregonians are doing — for a good look check out “Survey shows how recession has hit Oregon households” by Richard Read in The Oregonian, September 17, 2009.

The articles makes clear that there is a lot of suffering going on in Oregon, even more than in the nation as a whole.  Some highlights:

• “Almost a third of Oregonians polled recently say they or a family member in their household have been laid off or lost a job in the past year.”

• “Forty-one percent say they or a family member at home have had work hours cut during the recession. Nearly a third have housed a family member or friend because of money.”

• “In other responses, 40 percent of Oregonians interviewed say they worry all or most of the time that their total family income will not be enough to meet expenses. That’s 6 percentage points higher than nationally and 9 points higher than last year, when the question was asked in Oregon during a similar survey.”

• “More than a quarter of Oregonians say they or a household member have had problems paying for necessities such as mortgage, rent, heating or food during the past 12 months. Fifty-six percent say that if they were suddenly unable to pay for necessities, they wouldn’t know where to go for help from the government or a charity.”

City Budget Woes

City budgets are only now feeling the weight of the recession.  Overall city revenues declined in fiscal 2009 for the first time since 2002 (see chart below).

As bad as the last fiscal year was–with overall city revenues down 0.4% while expenses were up 2.5%–the Wall Street Journal reports that “city officials expect steep drops in tax collections in the next two years, making for the worst outlook in the 24 years the [National League of Cities] has been surveying its members. Western cities were particularly downbeat.”

The article goes on to add that “Because employee wages, health care and pensions are a major component of municipal budgets, two-thirds of the cities reported hiring freezes or layoffs.”

It is getting pretty hard to know what policy makers and economists mean when they speak of economic recovery.

State Budget Woes and the Double Dip

There are danger signs pointing to the real possibility of a double dip recession—a short “recovery” followed by another recession.  One of the most important is the terrible labor market conditions (little job creation and short hours and low pay for those with jobs).  Unfortunately, while public employment had helped to offset the collapse in private hiring, a crisis in state government financing is forcing major cutbacks in the public sector as well.

Facing huge budget deficits, states are laying off growing numbers of workers and furloughing even more. This not only makes it difficult for people to get needed services, it also threatens to undermine any (stimulus driven) recovery impulses—you know those famous green shoots.

As the Wall Street Journal reports:

The furloughs, which basically act as salary cuts for state workers, are the latest response to plunges in tax revenue because of the recession. State legislatures have struggled to cover shortfalls that have ballooned to $168 billion, or 24% of their general-fund budgets, for the current fiscal year, which for most began July 1, according to a report released Thursday by the left-leaning Center on Budget Policy Priorities.

State governments have cut some 33,000 jobs over the last year with more to come.  Furloughs, where workers are told to stay home for several days a month without pay—resulting in significant wage cuts—are growing even faster.  Hundreds of thousands of workers are currently affected, more than 200,000 in California alone.  Slashing the public sector may help balance the budget in the short run, but such a strategy only intensifies our long term economic and social problems.

The chart below (taken from the above cited WSJ story) highlights the size of the problem.

Why The Status Quo Is Unacceptable

The table above comes from the Oregon Center for Public Policy report by Joy Margheim entitled Labor Day Woes and Wishes.

Consider the table carefully—among other things it shows that over the period 2000-2007, the bottom 60% of state income earners actually lost money (in real terms).  Only the top 20% gained, and most of that gain went to the top 1%.  This outcome represents a sharp challenge to our media and elected officials who talk about overcoming the Great Recession and returning to “normalcy.”  Is a return to a political economy in which the majority actually suffers an income loss really our goal?

Clearly, we need to transform the way our economy works and our economic policies should be judged accordingly.  At the same time, a look at the enormous gains enjoyed by those at the very top of the income distribution speaks volumes about the source of resistance to the needed changes.

The Myth of US Superiority

The myth of US superiority remains strong.  No need to make structural changes in our system or learn from others.  We enjoy the very best of everything–the envy of the world.  Well, not according to the data in the 2009 edition of the OECD’s Social Indicators.

Doug Henwood, editor of Left Business Observer, sums up the data as follows:

The general picture of the social and physical health of the U.S. isn’t pretty. In a summary table at the beginning of the volume, countries are rated with a red, yellow, or green symbol, depending on whether they fall in the bottom, middle, or top of the rankings on eight crucial indicators. The U.S. scores a yellow on six (among them employment, reading skills, the gender wage gap, and life expectancy), and a red on two (inequality and infant mortality). But we are near the top in income.  Far poorer countries, like Hungary and the Czech Republic, do a lot better than this imperial colossus. Maybe it’s not so bad to have a Commie past.  And not only does the U.S. turn in an awful performance—we’ve been getting worse on six of the eight.

To see a more in-depth examination of some of the indicators, complete with charts highlighting the relative performance of the US visit THIS PAGE.