Reports from the Economic Front

a blog by Marty Hart-Landsberg

Monthly Archives: June 2010

AmericaSpeaks—If Only It Were So

National Town Hall meetings to discuss our economic problems and, even more importantly, provide feedback to our national policy-makers—sounds great, doesn’t it?  That is what AmericaSpeaks, a Washington DC non-profit organization, promised.

Unfortunately, things are not always what they appear.  This initiative is far more about shaping public opinion in ways that do not serve the public interest than it is about engaging the public.

On June 26, Town Hall meetings took place in 19 different locations, including Portland, Oregon.  This was a well funded and organized initiative.  Those interested in participating were interviewed and carefully selected to ensure a diverse, but politically “open” audience.  Those selected received educational materials highlighting what organizers believe are the main economic challenges facing our nation and offering possible responses to them.

At the meetings, participants were assigned to predetermined groups and encouraged to discuss responses to the highlighted challenges.  Experts were provided to answer technical questions.  The various sites were connected live via satellite video and webcast. Finally, responses were recorded with the aim of generating consensus positions to be communicated to those shaping our national policies.

So, what could be wrong with this?  Well, as it turns out, plenty.

Let’s start with some context.  In brief, we are still suffering from the effects of the Great Recession.  The Great Recession was decades in the making, a consequence of the interplay of many trends, including globalization, financialization, deregulation, militarism, and inequality.  Appropriately, many people have argued that rebuilding our economy will require significant structural changes in the way we organize economic activity.  For example: a takeover, shrinkage and restructuring of the finance sector; an end to free trade agreements; a massive public stimulus tied to the creation of a new green economy; labor law reform; and a transformation and strengthening of social programs.

Sadly, those with power have successfully resisted all of these changes.  As a consequence, our economic recovery has been unacceptably weak.  Moreover, as state and local governments move ahead with their planned cuts in spending, things are likely to get worse.

A new battle has now been joined.  Having lost the fight over structural change, many people are regrouping around a call for additional federal spending to avoid a double-dip recession.  But those in power are resisting this as well.  They prefer austerity—more specifically, new cuts in social spending.  An illustration of their continuing strength is the recent failure of the Senate to pass a bill extending unemployment payments and providing additional aid to states.  Those who opposed the bill argued that it would add too much to our national debt and thus represented a danger to our economic future.

Of course, our economic elite well understand that this is a difficult time to advocate austerity.  In fact, if conditions remain bad it is even possible that popular demands for real structural change might be renewed.  Therefore they are doing what they can to discredit any alternatives to their own position.

With this context in mind, we can now appreciate the significance of the AmericaSpeaks initiative.  The guidebook provided to participants at the Town Hall meetings has one main theme: we face a growing national debt crisis that will destroy our economy.

How does AmericaSpeaks justify its fear of a national debt crisis?  It begins by making estimates of future national deficits and, by extension, the national debt.  To do this it makes assumptions:

On the spending side, we incorporated President Obama’s fiscal year 2011 request for defense spending for the next five years and extended it for later years. On the tax side, we extended all of the 2001 and 2003 tax cuts as well as other expiring provisions of tax law (known as “the extenders”) – all of which is considered “current policy.” . . . After 2020, the last year for which CBO has yearly figures, we assume, as CBO does, that spending and revenues grow at the same rate as the economy.

These assumptions produce a yearly deficit equal to 9% of GDP in 2025 and a staggering 22% in 2050, and a national debt equal to 114% of GDP in 2025 and a record 316% of GDP in 2050.

The situation in 2050 is clearly an attention grabber and AmericaSpeaks uses it to make the case that we need a change in policy long before then to avoid the worst.  The guidebook therefore challenges its participants “to focus on the year 2025 and choose spending or revenue options, or both, to reduce [the deficit] by $1.2 trillion.”

There is a lot of fancy footwork behind these assumptions which tend to bias the results in favor of a larger debt problem.  Here is what the Center for Economic and Policy Research (CEPR) has to say about this:

The baseline seems deliberately designed to make the 2025 problem as bad as possible. It effectively assumes nothing has been done to rein in the budget between now and 2025, including items that have already been put forward by President Obama, most notably allowing the tax cuts for high-income taxpayers to expire at the end of this year. The cumulative effect over 15 years (including interest) of allowing for the changes to income taxes already proposed by President Obama would reduce the 2025 debt by more than $1 trillion.  This implies an interest burden that it is $40-50 billion less than what is assumed in the guide. Of course it is virtually certain that other changes will be made between now and 2025 that will prevent the deficit from growing as large as projected in the guide. However, the expiration of the Bush tax cuts for high earners is already in current law and is explicitly supported by the President and the congressional leadership. There seems no obvious reason for assuming that these tax cuts will be extended, as the guide does.

In other words, if we assume that the government allows the Bush tax cuts to expire as planned, we have already reduced the deficit by roughly the amount targeted by AmericaSpeaks.

There are many other problems with the way issues are presented in the guidebook.  For a more detailed look at some of them, check out the excellent CEPR critique, which goes issue by issue.

For example, the guidebook does acknowledge that most of the growth in our future budget deficits is due to rising health care costs and the aging of the population.  But having done so, it doesn’t encourage any serious discussion of health care reform options–such as single payer or a public option–which would greatly reduce those deficits.  As CEPR notes:

The guide instead offers participants a menu of options that accept the structure of the existing health care system. As a result, the options mean either charging people more money for the same care or requiring that they get by with less care. The options that could hurt the profits of the insurance industry, pharmaceutical industry or other powerful special interest have been excluded from the list.

The guide also provides no sense of the interaction between the budget and the economy.  Although AmericaSpeaks relies on economic projections to estimate our future deficits, the guidebook includes no discussion of the ways in which changing spending priorities might change growth rates and, by extension, our budget situation.  Is there a difference between spending on infrastructure or the military in terms of employment and growth?  Will cuts in spending on critical programs negatively affect investment and production decisions?  The guidebook ignores these kinds of questions.

Moreover, one would never know from reading the guidebook that CBO estimates suggest that average hourly wages will be 20 percent higher in 2025 than they are today.  As the CEPR points out: “This knowledge might affect how people view things like tax increases. For example, if we know that people will be on average 20 percent richer in 2025 than today, we might be less concerned if their tax rate were to rise by 1-2 percentage points.”

In sum, the entire structure of the Town Hall is designed to focus popular attention on “out of control” government spending and the need for us to make unpopular cuts in government programs.  In this way, concern with our current real crisis is replaced by fears of a possible future one.  And discussions of structural change are replaced by debates over spending levels of existing programs.

Significantly, one of the government programs in the spotlight is Social Security.  It is telling that Social Security is on the Town Hall agenda because it is a fully self-funded program; it generates its own revenue from a dedicated tax and spends only the money it has accumulated.  It is not part of our overall budget and certainly is not part of our budget deficit.  It was put on the Town Hall agenda for one reason—to build support for its dismantling and privatization.

This is not accidental.  The underlying political agenda of this initiative is largely driven by the agenda of one of its main financial sponsors: Peter G. Peterson.  Peterson is the leading underwriter of AmericaSpeaks.  He has spent decades demonizing Social Security and “some $12 million among economists, think tanks, foundations and assorted front groups to sell his case. . . . that Social Security somehow contributes to the swollen federal deficits and that cutting benefits will address this problem.”

Peterson has also been working closely with the National Commission on Fiscal Responsibility and Reform that was recently created by President Obama.  That commission is headed by two co-chairs appointed by President Obama–Senator Alan Simpson and Erskine Bowles—both of whom have long advocated slashing Social Security benefits and privatizing the system.  It should come as no surprise, then, that the results of the Town Hall are to be transmitted to this commission.

In sum, the AmericaSpeaks project offers a case study in how power operates in this country to set the national agenda.  The popular support it has received also reveals how little we understand power and how to fight for our own agenda.

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Labor Struggles In China

Unemployment remains high in the U.S. and the Senate appears unable or unwilling to pass an extension of unemployment benefits.  As the New York Times reports: “Since June 1, when federal unemployment benefits began to expire, an estimated 325,000 jobless workers have been cut off. That number will swell to 1.25 million by the end of the month unless Congress extends the benefits.”

Tragically this situation seems to evoke little more than hand-wringing.  Growing numbers of workers are losing hope in the government but that shouldn’t keep us from taking direct action in our own defense.

Interestingly, in China–where we often dismiss workers as passive puppets of the government and its controlled trade union–workers are beginning to take just such actions.  Perhaps instead of blaming China for most of our economic problems, we should begin taking inspiration from their efforts.

The struggle is China that got has received the most recent attention took place at a Honda owned transmission factory in Foshan.  On May 17, 2010, more than 1800 Honda workers at the facility decided to go on strike. By May 27, all four Honda assembly plants in China had been forced to stop production because of a lack of transmissions.

The Honda transmission workforce is divided into two groups, regular workers and so-called “intern” workers.  The latter also work full time but are still classified as “students” since they remain formally enrolled at technical schools whose mission is to produce workers for the big factories.  Pre-strike, the regular workers took home approximately 1200 yuan (US$175) a month on average, while the intern workers—who made up 80% of the workforce—earned 900 yuan (US$131) a month.  The intern workers are not protected by the national Labor Contract Law and are not covered by any social insurance. This dual labor system is a big reason foreign companies in China are able to keep costs low and export so successfully.

The workers at the plant struck demanding a significant increase in wages.  You can read a statement that was issued in support of their strike by a number of scholars here.

The company sought to negotiate with the interns separately from the regular workers but the workers stayed united, demanding a large increase that would be given equally to both groups, meaning a much larger percentage increase for the interns than for the regular workers.  The workers also elected their own representatives to negotiate with the company.

Their demands were as follows:

(1) an increase in wages of 800 rmb per month (roughly 75% raise) for all workers.
(2) additional cash bonuses based on duration of employment—a cumulative wage increase of 100 rmb every year for ten years.
(3) an immediate return of worker ID cards to workers upon resumption of work; workers cannot be fired or pressured to resign after returning to work; those already fired will be reinstated; a promise that workers will not be held legally or financially responsible for the strike.
(4) all wages lost, dating from May 21st up until the resumption of work, will be repaid to workers.
(5) within a month of returning to work management shall respond to the various suggestions posed by workers on May 17th.
(6) a reorganization of the local trade union; reelections should be held for union chairman and other representatives.

You can read about their strategy here.

Honda was eventually forced to capitulate, granting a 700 rmb wage increase (close to what the workers sought)  and promising to meet the other conditions.  This victory has encouraged workers at other Honda plants and other companies to launch their own strikes.  This development is described in a New York Times article headlined–Power Grows for Striking Chinese Workers.

Increasingly the strikes are becoming part of a broader challenge to government efforts to promote growth at all costs.  Several former high ranking party officials have issued an open letter to the government, which seeks to expand the agenda from defending labor rights, or even the establishment of independent unions, to one that encompasses the entire trajectory of the country’s political-economy.  For example, in point five of their letter they say: “we call for the restoration of the working class as the leading class of our country and the re-establishment of socialist public ownership as the mainstay in our national economy.”

The letter can be read here.

We shall see what all this will bring—but it is inspiring to see people struggling openly and directly in the own defense.  For more on worker tactics you might want to read the New York Times article here, which reports on how workers are using cell phones to coordinate actions, web sites to share pictures and demands, and bulletin boards to debate strategies.

Business Week has also taken note of the new militancy of Chinese workers.  A recent article highlights an evening at which “The New Labor Art Troupe, a performance group with a cast of laborers, ran a graphic photo of a Foxconn worker who had just killed himself. Poems were read commemorating the hard lives of migrant workers in electronics factories and on construction sites. A guitar and harmonica were hauled out and songs were sung with titles like Marginalized Life, Industrial Zone, Working Is Our Glory and Our Hell, Get Back Our Wages, and Fighting in Solidarity.”

The last paragraph of the article includes the following:

It may be a long summer for Chinese officials trying to contain this unrest. On June 3 more than 20 women workers were detained when police tried to shut down a two-week strike at a formerly state-owned cotton mill in Pingdingshan, Henan. Thousands of workers had stopped operating the looms to express their anger at their factory’s privatization and to demand higher wages, reports the Hong Kong-based China Labour Bulletin. Although workers are back on the line at the Honda transmission plant that strikers had shut down, their language is anything but conciliatory. “We call all workers to maintain a high degree of unity and not to allow the capitalists to divide us,” the Honda workers declared in a statement released on June 3. “We are not simply struggling for the rights of 1,800 workers, but for the rights of workers across the whole country.”

I wonder what Chinese workers would think if they read U.S. papers to learn about how we are dealing with our own problems?

Immigrants and English

A common thread in many anti-immigrant arguments is that immigrants today, especially Spanish speaking ones, refuse to assimilate–in particular, that they refuse to learn English like earlier immigrants did.

Well, there is reason to reject that particular claim.   The figure below compares the rate by which immigrants in two key periods–1900-1920 and 1980-2000–learned English.

picture11.png

Quoting from the blog Sociological Images:

The bottom line [of the above figure] represents the percentage of English-speakers among the wave of immigrants counted in the 1900, 1910, and 1920 census. It shows that less than half of those who had been in the country five years or less could speak English. This jumped to almost 75% by the time they were here six to ten years and the numbers keep rising slowly after that.

Fast forward 80 years. Immigrants counted in the 1980, 1990, and 2000 Census (the top line) outpaced earlier immigrants by more than 25 percentage points. Among those who have just arrived, almost as many can speak English as earlier immigrants who’d been here between 11 and 15 years.

If you look just at Spanish speakers (the middle line), you’ll see that the numbers are slightly lower than all recent immigrants, but still significantly better than the previous wave. Remember that some of the other immigrants are coming from English-speaking countries.

The Employment Problem in Perspective

The chart below (from the New York Times) provides perspective on just how bad the employment situation is this cycle.  In short, it was a terrible recession and the so-called recovery has brought little job creation.

As a consequence, according to Business Week, the number of long-term unemployed (those out of work 27 weeks or more) is approaching 7 million.  “That’s more than 45 percent of all jobless, a situation not seen since data began being compiled in 1948.”

This is a problem for workers in a variety of occupations—for example, the long term unemployed as a share of all jobless workers (in 2009) was 41.2 percent for those in architecture and engineering, 39 percent for those in management, 36.1 percent for those in community and social services occupations, and 33.4 percent for those in production occupations.

Making matters worse, it appears that the business community has now united around a strategy of federal deficit reduction which (in a period of state and local government retrenchment) will only ensure that things get worse rather than better for working people.

employment-trends.jpg

Working Blues

The Employment-to-population ratio is a statistical ratio which measures the proportion of the country’s working-age population that is employed.  In many ways it is a more accurate barometer of employment conditions than is the unemployment rate.

As the chart below shows, the U.S. employment-to-population ratio has been in decline for approximately a decade—a reflection of the economy’s weakening ability to generate jobs (even poorly paying ones).  Said differently, our economic problems have a real structural basis.

employpopfeb2010.jpg