Forty Top Economists Urge More Spending Not Less

The Daily Beast

Economists Manifesto

Fourteen million unemployed represents a gigantic waste of human capital, an irrecoverable loss of wealth and spending power, and an affront to the ideals of America. Some 6.8 million have been out of work for 27 weeks or more. Members of Congress went home to celebrate July 4 having failed to extend unemployment benefits.

We recognize the necessity of a program to cut the mid- and long-term federal deficit but the imperative requirement now, and the surest course to balance the budget over time, is to restore a full measure of economic activity. As in the 1930s, the economy is suffering a sharp decline in aggregate demand and loss of business confidence. Long experience shows that monetary policy may not be enough, particularly in deep slumps, as Keynes noted.

The urgent need is for government to replace the lost purchasing power of the unemployed and their families and to employ other tax-cut and spending programs to boost demand. Making deficit reduction the first target, without addressing the chronic underlying deficiency of demand, is exactly the error of the 1930s. It will prolong the great recession, harm the social cohesion of the country, and continue inflicting unnecessary hardship on millions of Americans.

The original signatories were:


Alan Blinder
Alan Blinder was vice chairman of the Federal Reserve and served on Bill Clinton’s Council of Economic Advisers; he’s the Gordon S. Rentschler Memorial Professor of Economics and Public Affairs at Princeton University.

Daniel Kevles
Daniel Kevles is the former faculty chair at California Institute of Technology and serves as a professor of history at Yale University.

David Reynolds
David Reynolds is an international history professor and fellow at Christ’s College in Cambridge. His latest book is America, Empire of Liberty: A New History of the United States.

Derek Shearer
Derek Shearer served as the ambassador to Finland from 1994-1997. He is now a diplomacy and world affairs professor at Occidental College in Los Angeles.

Jim Hoge
Jim Hoge is editor of Foreign Affairs and the former editor of the Chicago Sun-Times, which won six Pulitzer Prizes under his tutelage. He is co-editor of How Did This Happen? Terrorism and the New War.

John Cassidy
A journalist and author of the book How Markets Fail: The Logic of Economic Calamities, John Cassidy has been a staff writer at The New Yorker since 1995, covering economics and business.

Joseph Stiglitz
Joseph Stiglitz is the former chief economist of the World Bank, and a recipient of the Nobel Prize and the John Bates Clark Medal; currently, he’s a professor at Columbia University. He is most recently the author of Freefall: America, Free Markets, and the Sinking of the World Economy and The Stiglitz Report: Reforming the International Monetary and Financial Systems in the Wake of the Global Crisis.

Laura Tyson
Laura Tyson served as the chair of Council of Economic Advisers and the director of the National Economic Council during the Clinton administration. She is a professor at the Haas School of Business at the University of California, Berkeley.

Lizabeth Cohen
Lizabeth Cohen is the Howard Mumford Jones Professor of American Studies in the History Department at Harvard University, and author of Making a New Deal: Industrial Workers in Chicago, 1919-1939.

Harold Evans
Sir Harold Evans is a journalist and former editor of The Sunday Times and the Times, who was knighted in 2004 for his services to journalism. His award-winning book, They Made America, chronicled the country’s most important innovators and inventors.

Nancy Folbre
Nancy Folbre won a MacArthur Genius Award, is a professor of economics at the University of Massachusetts-Amherst, and recently wrote the book Saving State U: Fixing Public Higher Education.

Richard Parker
Richard Parker, a former congressional consultant, is a public policy lecturer and senior fellow at the Shorenstein Center at Harvard’s Kennedy School of Government. He is the author of The Myth of the Middle Class, Mixed Signals: The Future of Global Television News, and John Kenneth Galbraith: His Life, His Politics, His Economics.

Robert Reich
A professor of public policy at the University of California at Berkeley, Robert Reich was the 22nd secretary of Labor under President Clinton. He is the author of 12 books, including his most recent Supercapitalism: The Transformation of Business, Democracy, and Everyday Life.

Sean Wilentz
Sean Wilentz is the Sidney and Ruth Lapidus Professor in the American Revolutionary Era at Princeton. His book, The Rise of American Democracy: From Jefferson to Lincoln, won the 2006 Bancroft Prize.

Sidney Blumenthal
Sidney Blumenthal is a former senior adviser to President Bill Clinton and advised Hillary Clinton during her 2008 presidential campaign. His books include The Clinton Wars and The Permanent Campaign.

Simon Schama
The author and host of the BBC documentary A History of Britain, Simon Schama is a historian who teaches at Columbia University.

The 16 additional signatories include:

– Marshall Auerback
Senior fellow ?at the Roosevelt Institute

– Clair Brown ?
Professor of economics, director of ?Center for Work, Technology, and Society, ?University of California, Berkeley

– Jim Campen
Professor of economics, Emeritus, University of Massachusetts-Boston

– Susan Feiner
Professor of women’s and gender studies and professor of economics, the University of Southern Maine

– Heidi Shierholz
Economist at Economic Policy Institute

– Michael D. Intriligator
Professor of economics, political science, and public policy, UCLA senior fellow, The Milken Institute, University of Western Sydney

– David I. Levine?
Eugene E. and Catherine M. Trefethen Professor, Haas School of Business, University of California, Berkeley

– Victor D. Lippit
Professor of economics, University of California, Riverside

– Robert Lynch?
Professor of economics, ?Washington College?, Chestertown, Maryland

– Arthur MacEwan?
Professor emeritus, Department of Economics?, senior fellow at the Center for Social Policy, University of Massachusetts-Boston

– Richard MacMinn?
Edmondson-Miller Chair?, College of Business at the ?Illinois State University

– Eric Maskin
Nobel laureate in Economics, A.O. Hirschman Professor of Social Science, Institute for Advanced Study, Princeton

– Daniel McFadden?
Recipient of the 2000 Nobel Prize for Economics and 1975 John Bates Clark Award, University of California, ?Berkeley

– Walter W. McMahon
Professor of Economics (Emeritus), University of Illinois

– Peter B. Meyer?
Professor emeritus of urban policy and economics?, director emeritus of the Center for Environmental Policy and Management, University of Louisville

– Michael Nuwer?
Professor of economics,? SUNY Potsdam

– Erik Olsen?
Assistant professor?, Department of Economics, ?University of Missouri

– Dimitri Papadimitriou?
President, The Levy Economics Institute

– Bruce Pietrykowski?
Professor of economics, University of Michigan-Dearborn

– Robert Pollin?
Professor of economics? and co-director of the Political Economy Research Institute at the University of Massachusetts-Amherst

– Malcolm B. Robinson
Professor of economics,? Thomas More College

– Mary Huff Stevenson?
Professor of economics, ?University of Massachusetts-Boston

– Peter Skott?
Professor, University of Massachusetts-Amherst

– Mark Zandi
Chief economist and co-founder, ?Moody’s

Comments of signatories:

Richard MacMinn, Edmondson-Miller Chair, Illinois State University:

If we have learned anything from Keynes then it is that it takes a massive investment to restart a floundering economy. Given the aging infrastructure and the underinvestment in education as well as so many other fields including energy, the potential for large returns from those investments and to the economy seems clear. It is also clear that inaction will yield large losses in economic activity. This is not the time to let fear of a deficit create inaction. Rather the opposite is called for.

David I. Levine, Trefethen Professor, Haas School of Business, University of California, Berkeley:

We all agree the United States has a serious deficit problem over the next generation. This medium-term problem is largely due to the rising expected cost of paying for health care for the elderly. It is crucial we learn how to deliver quality care without ever rising prices. At the same time, the serious problem of exploding health-care costs is no excuse to ignore the urgent short-run need to get Americans back to work.

• The Original Reboot America Manifesto We know how to fight unemployment: Support the purchasing power of the unemployed with extended unemployment insurance, give states more assistance so cities and states do not keep laying off teachers and firefighters, and so forth. My description of the root cause of our long-term problem suggests one particularly useful way to fight recession: Research into how to provide high quality health care at lower cost is a great investment in creating in jobs today, ensuring fiscal soundness for the next generation, and improving the lives of Americans.

Victor D. Lippit, Professor of Economics, University of California, Riverside:

There are only four sources of aggregate demand in the economy: consumption, private investment, government spending, and net exports. With high levels of unemployment characterizing the U.S. economy and household and retirement savings devastated by the fall in the stock market since 2008, the fall in house prices on which many households relied as their “store of savings,” and the sudden realization on the part of many that household debt must be repaid and savings levels rise, the U.S. is in for an extended period of subpar consumption increases. Business investment to produce consumer goods and services will, therefore, remain modest as well. And weak economies in Europe and Japan limit export demand.

For some time, then, government spending will be needed to provide stimulus to the economy and aid to the unemployed, who can scarcely be faulted when jobs are unavailable. Over the medium and long term, government deficits must be addressed, but the time to do that is after a more substantive recovery has taken place and jobs are again available. Those refusing to support an extension of unemployment insurance at this time without government cutbacks elsewhere betray a deep ignorance of the fundamentals of economics, creating serious injustice to those who have lost their jobs and deep harm to the economy as well.

Michael Nuwer, Professor of Economics,? SUNY Potsdam:

In early 2009, when the economic stimulus was being debated, many economists expected that the spending amounts under consideration where not enough to lift the economy out of the Great Recession. And sure enough, they were right. The unemployment rate remains unacceptably high, state and local government budgets are in crisis, and there are no signs of improvement in the economy. Now is the time for Congress to get the economy back on track and the American people back to work.

Source: The Daily Beast

Was the Social Security Money “Borrowed” or “Stolen”?

By Allen W. Smith
Dissident Voice

In December, the Obama deficit-reduction commission will make recommendations for budget cuts that will then be voted on, with an up or down vote, by the lame-duck Congress. Already, there is much speculation that Social Security will be one of the big targets. The rationale for cutting Social Security seems to be that, during such difficult economic times, everything should be a candidate for the chopping block, and that the public should support such cuts out of a sense of patriotism.

The flaw in this argument is that Social Security has not contributed a dime to the budget deficits or the soaring national debt. Social Security is funded exclusively by payroll taxes (also known as FICA taxes), paid into the fund by working Americans. In 1983, the payroll tax was increased substantially in response to the recommendations, the previous year, of the Greenspan Commission on Social Security Reform.

Prior to 1983, Social Security had operated on a “pay-as-you-go” basis with each generation responsible for paying for the benefits of the generation that preceded them. The 1983 legislation changed the nature of Social Security funding. In addition to paying for the benefits of the preceding generation, as was customary, the baby boomers were also required to pay additional taxes to partially pre-fund their own retirement. The net result is that the baby boomers have paid more into Social Security than any other generation. Yet they are often made scapegoats and blamed for the Social Security funding problem. I am not a baby boomer, but I am very sympathetic to them. They are getting a bum rap.

The intent of the 1983 legislation was to generate large Social Security surpluses for the next 30 years that were supposed to be saved and invested, in order to build up a large reserve in the trust fund that could later be drawn down to pay benefits to the baby boomers. The 1983 payroll tax hike has generated more than $2.5 trillion that is supposed to be in the trust fund. If the trust fund actually held this amount in real assets, full Social Security benefits could be paid until at least 2037 without any changes. Unfortunately, none of the surplus revenue was saved or invested in anything. It was all spent by the government on wars and other government programs without making any provisions for repaying the money.

Over the past 25 years, five presidents, and the members of Congress, have participated in the great Social Security scam. All Social Security contributions made by working Americans, except the amount which was needed to pay current retirement benefits, has been funneled into the general fund and used for non-Social Security purposes. Some like to say that the government just “borrowed” the money during the time period when it was not needed to pay benefits.

But borrowing implies repayment, and no provisions for repayment have been made. The government did not enact future tax increases that would automatically kick in when the Social Security money was needed. Neither did they enact legislation that would end other spending programs once the Social Security money was needed so the money could be transferred to the trust fund. The government spent the Social Security money, pure and simple, without making any provisions for future repayments. The IOUs in the trust fund are not marketable, and they could not be sold to anyone even for a penny on the dollar. The Social Security trustees confirmed the worthlessness of the IOUs in the 2009 Social Security Trustees Report with the following words:

“Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.”

In order for Social Security to pay full benefits after 2016, it will be necessary for the government to begin repaying the money it has spent on other things. This will mean increased taxes and/or additional borrowing. Neither of these is politically popular, and there is no assurance that future politicians will be willing to raise taxes to pay for the irresponsible behavior of past politicians. If the money is not repaid in full, with interest, it will have been stolen by the government from working Americans who paid into the fund.

Since Social Security would be fully funded until at least 2037 if the government had not used the money for other things, the only reason that politicians are advocating cuts in Social Security benefits is the fact that the government does not have the money with which to pay its debt to Social Security. Given the fact that Section 13301 of the Budget Enforcement Act of 1990 made it a violation of federal law to use Social Security revenue for non-Social Security purposes, it is hard to justify using the word “borrow” to refer to any of the Social Security money spent after 1990, even if it is eventually paid back.

Dr. Allen W. Smith is a Professor of Economics, Emeritus, at Eastern Illinois University. He is the author of seven books and has been researching and writing about Social Security financing for the past ten years. Read other articles by Allen, or visit Allen’s website,

Source: Dissident Voice

Which Would You Rather Cut: Social Security, or Interest for Foreign Governments and Rich Bondholders?

By letsgetitdone

Alan Simpson and Erskine Bowles, the Co-Chairs of “the National Commission on Fiscal Responsibility and Reform,” would have us believe that a deficit and debt crisis threatening the fiscal future of the United States is upon us, that “This debt is like a cancer,” and that unless we begin to make across the board cuts in expenditures, and also raise taxes in a way that distributes the pain across all segments of the population, there is no way we will return to fiscal sustainability. This view is false and also alarmist for many reasons. One is that Bowles’s view that: “We could have decades of double-digit growth and not grow our way out of this enormous debt problem”, is ridiculous, even if one thinks there is “a debt problem.” I’ve shown elsewhere, that all the US needs to do to “grow our way out of the problem” is to return to the historical average decade-long growth rate we experienced between 1940 and 2000 to begin producing surpluses by 2017 and bring the public debt-to-GDP ratio down to 37% by 2020.

A second reason is that there is no “debt problem,” if someone means by that, that our debts can grow so large that there is a solvency risk for the US Government. As I and others, have written before, there is no solvency risk, and so there is no “debt problem.” A third reason why the views of Simpson, Bowles, and other deficit terrorists on the “Catfood Commission,” are false and alarmist is that their conclusion that we are in a crisis, is based on assumptions, that will only be true if we choose to make them so. There are two kinds of assumptions, that, if true, would account for large deficits, and, also, the “debt problem” that is scaring our co-Chairmen out of their wits sufficiently that they want to take a hatchet to Social Security and other entitlement programs, such as Medicare and Medicaid. The first kind of assumption relates to revenue projections. The second kind relates to interest costs.

Revenue assumptions first. Revenue projections are a function of assumptions about future US GDP growth and also the percentage of projected GDP that will be tax revenues. The “Catfood Commission” seems to be relying on CBO’s assumptions used in its recent projections of the Federal Government’s fiscal state from 2010 – 2020. The Commission is then extending projections based on these assumptions out further to 2025, and probably even further to 2050. I’ve pointed out numerous times in previous posts that such long-range projections are just a fairy tale. However, it’s still worthwhile to show how the ending of this fairy tale is dependent on assumptions that have no basis in evidence or valid economic modeling.

CBO’s annual GDP change ratios (not adjusted for inflation) between 2010 and 2020 ranged from a low of 1.027 to a high of 1.060 and averaged 1.044 over the period. These are considerably below historical averages over the decades since 1940 which are about 1.07 – 1.08. So, the CBO economic growth projections are very conservative, taken in historical perspective. Also, tax revenues taken as a proportion of GDP, from 2011 to 2020, vary from a low of 0.164 to a high of 0.196, and are either virtually the same, or increase by a small amount throughout the decade, with an average increase from 2010 to 2020 of 0.003. That is, the CBO projections of tax revenue as a percent of GDP constantly increase from 2011 to 2020.

Now, even though the “Catfood Commission’s” own projections haven’t been released yet, it’s pretty clear, given their limited budget, and their reliance on the Peter G. Peterson Foundation for staff funding that they’ll have to rely on extensions of CBO projections already calculated by staff from other Peterson organizations, such as AmericaSpeaks. However, we already know something about the projections AmericaSpeaks has made because they used these in their recent “Our Budget, Our Economy” national event.

AmericaSpeaks, claiming its projections are an extension of CBOs and are based on them, projects a deficit of $2.46 Trillion in 2025, and says that is 9% of GDP. This means that their GDP projection is roughly $27.33 Trillion, compared to CBO’s 2020 projection of $22.544 Trillion. In turn, interpolation of the intervening year GDP projections between 2020 and 2025, yields estimates of $23.423 T, $24.337 T, $25.286 T, $26.297 T, and $27.331 T. This projects an average annual GDP growth ratio of 1.039 from 2020 – 2025, which is a bit more conservative than the 1.044 that CBO projected from 2010 to 2020. This small difference translates to an expectation of about $125 Billion more in revenue in 2025, improving the deficit picture a bit relative to the $2.46 Trillion projection.

Why does AmericaSpeaks project an average annual growth rate slightly less than CBO’s own very conservative average? I don’t know. But I do know that they claim their projections are based on CBO’s, so they ought be explaining any deviation from the CBO pattern. They don’t explain this one, of course.

When we look at tax revenues as a percentage of GDP, we find that there, also, the AmericaSpeaks projections deviate from CBOs in a direction that makes the projected deficit and national debt worse in 2025. Specifically, the CBO ratio of tax revenue to GDP in 2020 is 0.196, if we were to continue the trend of increase in this ratio to 2025, we’d get something like 0.198, 0.200, 0.202, 0,204, and 0.206 in 2025, an average increase 0.002 per year. Using the AmericaSpeaks GDP projection at $27.33 T, the 0.206 ratio translates to revenue of $5.63 T in 2025, a difference from the AmericaSpeaks projection of $870 Billion in revenue in 2025. When we interpolate the revenue ratios that AmericaSpeaks must have developed for the years 2021 – 2025 in order to get their very low estimate of $4.76 T in tax revenue in 2025, the picture looks something like this: 0.191, 0.187, 0.183, 0.178, and 0.175 for 2025. This means that their estimates of the tax revenue as a proportion of GDP declines over the 5 year period and the decline is an average of 0.004 per year, a much larger average decline than the CBO average increase of 0.003 during 2010 – 2020, and a much larger decline than my assumption that the average increase in the tax revenue proportion would be 0.002

What accounts for this change in both the magnitude and direction in the proportion of tax revenue collected? AmericaSpeaks doesn’t say, but it is clear that this difference in assumptions needs to be explained because 1) it departs from CBO’s projections, and 2) this departure results in an $870 Billion increase in the deficit projected for 2025 than would otherwise have been the case if they had followed the CBO pattern. Also, the higher deficits resulting from both deviations from the CBO pattern I’ve covered, total nearly $ 1 T in projected revenue in 2025, meaning that if AmericaSpeaks had followed the CBO pattern strictly, it would have projected a deficit of roughly $1.465 T, rather than $2.46 Trillion, which, of course, would make those 2025 projections look a lot better than they do now. Also, even though I haven’t troubled to compute the annual deviation of the AmericaSpeaks projection from a CBO-based projection during 2021 – 2024, it’s also pretty clear that the sum of these deviations would total about $2 T, added to the $1 T for 2025, that’s a total of $ 3 T. The Peterson Foundation allied organizations including AmericaSpeaks have been using a national debt to GDP ratio of 114% in 2025 to underline the seriousness of the US’s debt problems. However, taking the $27.33 T estimate for GDP and multiplying by 1.14 gives us a projected national debt figure of $31.15 T, and subtracting $3 T from that gives us a new debt-to-GDP ratio projection of 103%, somewhat less scary than the earlier figure, I think.

So, in short, this analysis suggests that a sizable part of the big “debt problem” the ”Catfood Commission” and its allies see for 2025, is due to assumptions that, without explanation, depart from the pattern of CBOs projections. Whether these are due to errors, or to a deliberate bias toward pessimism even greater than CBO’s, I cannot say. But when the leaders of a National Commission are so committed to the idea that there is a “deficit problem,” one has to assume that any analysis produced by allies of that Commission is likely to make assumptions that produce the kind of results that those leaders want to hear. That, in fact, is what has happened here.

Now, let’s move on to the question of interest costs. CBO estimated that interest costs from 2011 – 2020 would total $5.64 T, extending its projection to 2025 using an annual rate of increase of 1.1, roughly the rate used by CBO in 2019 and 2020, we get AmericaSpeaks projection that interest costs will be $1.49 T in 2025. We also get total interest costs from 2011 to 2025 of $11.8 T. Without these costs, and assuming we take into account the roughly $3 T difference resulting from using CBOs assumptions rather than AmericaSpeaks’s, the projected national debt in 2025 would be projected at: $16.35 T in 2025, not $31.15 T, or even $28.15 T. And even assuming the very pessimistic GDP figure of $27.33 T, we come out with a public debt to GDP ratio of about 60% in 2025, not very different from what we have now. Also, the projected deficit of $1.465 T in 2025 is completely wiped away and turns into a small surplus if we have no interest costs at all. So, where’s the “deficit problem”?

Well, of course, this analysis has shown that it is partly in shading the CBO assumptions so that they are even more conservative than CBO’s, without even telling people that’s what you’re doing. And it has also shown that the heavy majority of the problem is in the interest costs the US would pay on its debt instruments. So how do we get rid of this ‘deficit problem.” Well, first, we need to quit making assumptions that shade the CBO’s assumptions in an even more pessimistic direction simply because we want to believe that there really is a deficit problem. And second, the Federal Government must stop issuing debt instruments when it spends money. If it does the latter, Federal interest costs will approach zero percent of GDP in a very short time, and we can avoid spending that $11.8 T over the next 15 years.

Alan Simpson, Erskine Bowles, Alice Rivlin, and our other deficit terrorist friends are fond of talking about how we all have to make sacrifices to solve our “deficit problem,” and that entitlements, among other expenditures, will have to be cut in order to solve our problem. But, even if we believe (which I don’t), along with them, that there is, or may one day be, a deficit problem that we need to bring under control, there is no need to solve that fantasy problem either by raising taxes, or by cutting entitlement programs like Social Security, Medicare, and Medicaid. If you insist on believing in either the fantasy of solvency risk, or the fantasy of the bond markets imposing high interest rates on the United States, then the solution to both of these fantasies is the same. It is to stop issuing debt instruments, and, consequently, paying foreign nations and rich investors needing a safe harbor for their funds, interest that we need not pay on debt that a country, sovereign in its own currency, like the United States need not incur.

If you believe that cuts must be made to bring the deficit problem under control, then see clearly the real choice here. Would you rather cut Social Security and other entitlements, as well as other valuable Federal programs, and also raise taxes; or would you rather take care of the whole “crisis” by ceasing to issue debt and stopping interest payments to the wealthy, the Chinese and other foreign creditors who are parking their USD in Treasury Securities rather than spending them on American products? Whose side are you on — the side of the American people who need their social safety net programs to remain in place for themselves, their children, and their grandchildren, or the side of the wealthy, and the foreign nations who want us to continue to pay them interest?

Source: FDL

Cut Social Security? Are they crazy in Washington, DC?

The National Commission on Fiscal Responsibility and Reform is sounding the alarm around deficit spending. While many economists are calling for more spending to energize the economy, this commission is using exaggerated rhetoric to heighten deficit fear. They are talking about cuts to Social Security, Medicare and middle class benefits like the home mortgage deduction.

The time is now to build opposition to these recommendations and urge Congress and the administration to cut programs that will not make the economy worse for most Americans. When I testified before the commission I urged:

* Cuts in military spending as this makes up half of U.S. discretionary spending and is filled with waste and bloat.

* Cuts to corporate welfare, especially to the oil and gas industry which is scheduled to received billions in tax breaks despite massive profits.

* Taxes on the purchase of stocks, bonds and derivatives where even a tiny micro tax could raise tens of billions annually.

* Taxes on the estates of the wealthiest 2.5% of Americans which could raise more than $10 billion annually.

Read my full testimony

These are just a few of the areas where cuts in spending and taxes on wealth could balance the budget and avoid the need to cut Social Security and Medicare or tax the middle class. Social Security is in good financial shape for upcoming decades and merely raising the cap on Social Security taxes will make the program secure for the 21st Century. Medicare’s challenge is not the Medicare program but the cost of health care. Cuts to Medicare will make health problems and the cost of health care more expensive. The real solution for health care is ending the waste of the private insurance industry by making improved Medicare available to all Americans.

Please write to President Obama and your representatives in Congress now!

In addition, please share this message with everyone you know.

The commission is preparing its report for after the election. But, with the mid-term elections coming this is the time when voters have the most power. We need to ask elected officials to protect Social Security and Medicare by cutting spending for weapons and war, and tax dollars to corporations first. We also need to urge them to consider taxes on wealth before considering taxes on workers.

We need to build this movement now. We cannot wait until after the election.

Please take action today.

And, please support our ongoing efforts by making a donation today.

Thank you for your support.

5 places to look for the next financial crisis

By Ezra Klein
Washington Post

Financial reform has passed. The sprawling legislation is meant to be an air bag protecting us from the next major crash, which of course raises the question: Will it work?

“We would have loved to have something like this for Lehman Brothers,” said Hank Paulson, who served as Treasury secretary when the financial system melted down in 2008. “There’s no doubt about it.”

And he’s right: The next time there’s a financial crisis, regulators will say a quick prayer of thanks to Barney Frank and Chris Dodd for giving them the power and information to quickly figure out what’s happened and how to respond.

The legislation ushers derivatives out of the darkness and onto exchanges and clearinghouses, gives regulators the power to oversee shadow banks and dismantle failing firms, convenes a council of super-regulators to watch the mega-firms that pose a risk to the financial system, and much more.

That’s not the same, however, as averting crises in the first place. It might make them less likely, but think of the difference between public health and medicine: The bill is medicine — it’s primarily about helping the doctors who figure out when you’re sick and how to make you better. It doesn’t dramatically change the conditions that made you sick in the first place.

Many of the weaknesses and imbalances that led to the financial crisis escaped this regulatory response. The most glaring omission: Fannie Mae, Freddie Mac and the crazed housing market that led to the crash. That issue is slated to come before Congress next year, but here are five that aren’t:

— “The global glut of savings.” “One of the leading indicators of a financial crisis is when you have a sustained surge in money flowing into the country, which makes borrowing cheaper and easier,” says Harvard economist Kenneth Rogoff. This crisis was no different: Between 1987 and 1999, our current account deficit, the measure of how much money is coming in vs. how much is going out, fluctuated between 1 and 2 percent of the gross domestic product. By 2006, it hit 6 percent.

Ben Bernanke — a man not known for his vivid turns of phrase — called the hundreds of billions of dollars that emerging economies were plowing into our financial system every year “the global glut of savings.” It was driven by emerging economies with lots of growth and few investment opportunities — think China — funneling their money to developed economies with less growth and lots of investment opportunities. Think, well, us. The result was cheap money and fast growth that made our economy seem healthy when it really wasn’t.

But we’ve gotten out of the crisis without fixing it. China is still roaring forward, accelerating exports and pouring money into the U.S. economy. And we’re happily taking it. With our economy weak and our deficits high, we need it. So after falling to 3 percent after the crisis, our current account deficit is back to 4 percent and rising.

Rogoff thinks that’s a problem.

“One or 2 percent would be more sustainable,” he says.

— The indebted American. The fact that money is available to borrow doesn’t explain why Americans borrowed so damn much of it. Household debt (mortgages, credit card balances, etc.) as a percentage of GDP soared from a bit less than 60 percent in the early 1990s to a bit less than 100 percent in 2006.

“This is where I come to income inequality,” says Raghuram Rajan, an economist at the University of Chicago. “A large part of the population saw relatively stagnant incomes over the ’80s and ’90s. Credit was so welcome because it kept people who were falling behind reasonably happy. You were keeping up, even if your income wasn’t.”

Incomes, of course, are even more stagnant now that unemployment is bumping up against 10 percent (and underemployment is nearer to 15 percent). And that pain isn’t being shared equally. Inequality has actually grown since before the recession — joblessness is proving sticky among the poor, but recovery has been swift for the rich. Household borrowing is still above 90 percent of GDP, and the conditions that drove it up there are, if anything, worse.

— The shadow banking market. The Great Depression was visually arresting: long lines of desperate families trying to get their money in hand before the bank collapsed. The financial crisis started out similarly severe, but aside from some despondent-looking traders, there was little to look at. That’s because this bank run wasn’t started by families. It was started by banks.

Regular folks didn’t pull their money out of the banks, because our deposits are insured. But large investors — pension funds, banks, corporations and others — aren’t insured. They use the “repo market,” a short-term lending market in which they park their money with other big institutions in exchange for collateral, such as mortgage-backed securities. This is the “shadow banking system” — it’s a real banking system, but it’s young, and until now largely unregulated. As such, it’s been vulnerable to the sort of problems we ironed out of the traditional banking system decades ago.

When institutional investors hear that their deposits are endangered, they run to get their money back. And when everyone panics at once, it’s like an old-fashioned bank run: The banks can’t pay off everyone immediately, so they unload all their assets to get capital. The assets become worthless because everyone is trying to sell them at the same time, and the banks collapse.

“This is an inherent problem of privately created money,” says Gary Gorton, an economist at Princeton University. “It is vulnerable to these kinds of runs. It took us from 1857, which was the first panic really about deposits, to 1934 to come up with deposit insurance.”

This year, we’re bringing this shadow banking system under the control of regulators and giving them all sorts of information on it and power over it, but we’re not creating anything like deposit insurance, where we simply made the deposits safe so that runs became a thing of the past.

— The “It’s so little money!” problem. In the 1980s, the financial sector’s share of total corporate profit ranged from 10 to 20 percent. By 2004, it was about 35 percent. That’s a lot of money in a few hands.

Simon Johnson, an economist at MIT, recalls a conversation he had with a hedge fund manager. “The guy said to me, ‘Simon, it’s so little money! You can sway senators for $10 million?’ ” Johnson laughs ruefully. “These guys don’t even think in millions. They think in billions.”

This financial crisis will stick in our minds for a while, but not forever. When it fades, the finance guys will begin nudging. They’ll hold fundraisers for politicians, make friends, explain how the regulations they’re under are onerous and unfair. And slowly, surely, those regulations will come undone.

And they’ll have plenty of money with which to do it. After briefly dropping to less than 15 percent of corporate profits, the financial sector has rebounded to more than 30 percent.

— Can regulation fix, well, regulation? The most troubling prospect is the chance that this bill, if it had passed in 2000, would not have prevented this financial crisis. That’s not to undersell it: It would’ve given regulators more information with which to predict the crisis. It would have created a consumer financial protection agency that might have intercepted the subprime boom. But plenty of regulators had enough information, and they did not act.

Bubbles always fool the regulators with the powers to pop them; otherwise they would have been popped.

In 2005, with housing prices running far, far ahead of the historical trend, Bernanke said a housing bubble was “a pretty unlikely possibility.” In 2007, he said Fed officials “do not expect significant spillovers from the subprime market to the rest of the economy.”

Alan Greenspan, looking back at the financial crisis, admitted that regulators “have had a woeful record of chronic failure. History tells us they cannot identify the timing of a crisis, or anticipate exactly where it will be located or how large the losses and spillovers will be.”

But this bill leans heavily on regulators: According to the U.S. Chamber of Commerce, the bill includes 533 rules and calls for 60 studies and 94 reports. Regulators will be in charge of all of them.

Greenspan, in that same speech, expressed a preference for rules that “kick in automatically, without relying on the ability of a fallible human regulator to predict a coming crisis.” The bill contains precious few of those, at least for now.

“In history,” Princeton’s Gorton says, “it always takes us a long time to get financial regulation right, and I expect it will this time, too. Maybe we’re done for this year, or the next couple. But we can’t possibly be done.”

Source: Washington Post

Presenting The Wall Of Worry: The 50 Ugliest Facts About The US eCONomy

By Tyler Durden
Zero Hedge

As we close on another week replete with ugly economic data and the usual bizarro counterintuitive market, here is a summary of the 50 most underreported facts about the state of the US economy, courtesy of the Coto report [1]. After reading these it almost makes sense that the market has become completely desensitized to the sad reality now pervasive in this country. Readers are encouraged to add their own observations to this list. Surely if the list is doubled, the market will go up to 72,000 instead of just 36,000.

#50) In 2010 the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined [2].

#49) It is being projected that the U.S. government will have a budget deficit of approximately 1.6 trillion dollars [3] in 2010.

#48) If you went out and spent one dollar every single second, it would take you more than 31,000 years [4] to spend a trillion dollars.

#47) In fact, if you spent one million dollars every single day since the birth of Christ, you still would not have spent one trillion dollars [3] by now.

#46) Total U.S. government debt is now up to 90 percent [5] of gross domestic product.

#45) Total credit market debt in the United States, including government, corporate and personal debt, has reached 360 percent of GDP [6].

#44) U.S. corporate income tax receipts were down 55% [2] (to $138 billion) for the year ending September 30th, 2009.

#43) There are now 8 counties in the state of California that have unemployment rates of over 20 percent [7].

#42) In the area around Sacramento, California there is one closed business for every six that are still open [8].

#41) In February, there were 5.5 unemployed Americans for every job opening [9].

#40) According to a Pew Research Center study [10], approximately 37% of all Americans between the ages of 18 and 29 have either been unemployed or underemployed at some point during the recession.

#39) More than 40% [11] of those employed in the United States are now working in low-wage service jobs.

#38) According to one new survey, 24% of American workers say that they have postponed their planned retirement age [12] in the past year.

#37) Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008 [13]. Not only that, more Americans filed for bankruptcy in March 2010 [14] than during any month since U.S. bankruptcy law was tightened in October 2005.

#36) Mortgage purchase applications in the United States are down nearly 40 percent [15] from a month ago to their lowest level since April of 1997.

#35) RealtyTrac has announced that foreclosure filings in the U.S. established an all time record for the second consecutive year [16] in 2009.

#34) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in March 2010 [17], an increase of nearly 19 percent from February, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005.

#33) In Pinellas and Pasco counties, which include St. Petersburg, Florida and the suburbs to the north, there are 34,000 open foreclosure cases [18]. Ten years ago, there were only about 4,000.

#32) In California’s Central Valley, 1 out of every 16 homes is in some phase of foreclosure [19].

#31) The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period. That was a record high [20] and up from 9.1 percent a year ago.

#30) U.S. banks repossessed nearly 258,000 homes nationwide [21] in the first quarter of 2010, a 35 percent jump from the first quarter of 2009.

#29) For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States [22] than all individual Americans put together.

#28) More than 24% of all homes with mortgages in the United States were underwater as of the end of 2009 [23].

#27) U.S. commercial property values are down approximately 40 percent [24] since 2007 and currently 18 percent of all office space in the United States is sitting vacant.

#26) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent [25] in the first quarter of 2010. That was almost twice the level of a year earlier.

#25) In 2009, U.S. banks posted their sharpest decline in private lending since 1942 [26].

#24) New York state has delayed paying bills totalling $2.5 billion [27] as a short-term way of staying solvent but officials are warning that its cash crunch could soon get even worse.

#23) To make up for a projected 2010 budget shortfall of $280 million, Detroit issued $250 million of 20-year municipal notes in March. The bond issuance followed on the heels of a warning from Detroit officials that if its financial state didn’t improve, it could be forced to declare bankruptcy [28].

#22) The National League of Cities says that municipal governments will probably come up between $56 billion and $83 billion short [28] between now and 2012.

#21) Half a dozen cash-poor U.S. states have announced that they are delaying their tax refund checks [29].

#20) Two university professors recently calculated that the combined unfunded pension liability for all 50 U.S. states is 3.2 trillion dollars [30].

#19) According to, 32 U.S. states have already run out of funds to make unemployment benefit payments [31] and so the federal government has been supplying these states with funds so that they can make their payments to the unemployed.

#18) This most recession has erased 8 million private sector jobs [32] in the United States.

#17) Paychecks from private business shrank to their smallest share of personal income in U.S. history [32] during the first quarter of 2010.

#16) U.S. government-provided benefits (including Social Security, unemployment insurance, food stamps and other programs) rose to a record high [32] during the first three months of 2010.

#15) 39.68 million Americans [33] are now on food stamps, which represents a new all-time record. But things look like they are going to get even worse. The U.S. Department of Agriculture is forecasting that enrollment in the food stamp program will exceed 43 million Americans in 2011.

#14) Phoenix, Arizona features an astounding annual car theft rate of 57,000 vehicles [34] and has become the new “Car Theft Capital of the World”.

#13) U.S. law enforcement authorities claim that there are now over 1 million members of criminal gangs inside the country. These 1 million gang members are responsible for up to 80% of the crimes committed [35] in the United States each year.

#12) The U.S. health care system was already facing a shortage of approximately 150,000 doctors in the next decade or so, but thanks to the health care “reform” bill passed by Congress, that number could swell by several hundred thousand more [36].

#11) According to an analysis by the Congressional Joint Committee on Taxation [37] the health care “reform” bill will generate $409.2 billion in additional taxes on the American people by 2019.

#10) The Dow Jones Industrial Average just experienced the worst May [38] it has seen since 1940.

#9) In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one [39].

#8) Approximately 40% of all retail spending [11] currently comes from the 20% of American households that have the highest incomes.

#7) According to economists Thomas Piketty and Emmanuel Saez, two-thirds of income increases in the U.S. between 2002 and 2007 went to the wealthiest 1% of all Americans [40].

#6) The bottom 40 percent of income earners in the United States now collectively own less than 1 percent [41] of the nation’s wealth.

#5) If you only make the minimum payment each and every time, a $6,000 credit card bill can end up costing you over $30,000 [22] (depending on the interest rate).

#4) According to a new report based on U.S. Census Bureau data, only 26 percent of American teens between the ages of 16 and 19 had jobs in late 2009 which represents a record low [42] since statistics began to be kept back in 1948.

#3) According to a National Foundation for Credit Counseling survey, only 58% of those in “Generation Y” pay their monthly bills on time [10].

#2) During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter [43].

#1) According to the Tax Foundation’s Microsimulation Model [44], to erase the 2010 U.S. budget deficit, the U.S. Congress would have to multiply each tax rate by 2.4. Thus, the 10 percent rate would be 24 percent, the 15 percent rate would be 36 percent, and the 35 percent rate would have to be 85 percent.

Source: Zero Hedge

The Missing Words at the G-20 – or an absurd plan for the global economic crisis

Does the G-20 Show the Shape of things to Come — austerity and extreme police actions?

By Paul Jay
Real News Network

With all the public attention during G20 on the 1000 arrests and such, something critical was overlooked. That’s the paradox the assembled heads of governments created for ending the global economic crisis.

The G20 leaders recognize that “demand” needs to grow. That means people must have the means to buy stuff. Do a search in the G20 Toronto Summit Declaration and fourteen times you’ll find a reference to boosting or increasing “demand”.

Yet they want to halve their deficits by 2013. How are they going to cut government spending and increase demand at the same time?

They acknowledge that some stimulus spending may still be necessary to stop the world from sinking deeper into recession. But by 2013 they want government deficits to plummet. How will they pull it off? It’s already in the works; cut social-safety-net programs with a focus on social security and public pensions.

So the G20 wants to increase “private demand” and cut the deficit. Ok, there must be ways to do this without simply adding more government stimulus money.

Now do a search in the Declaration for the word “wages”. You’ll find it once. The document says “Reforms could support the broadly-shared expansion of demand if wages grow in line with productivity.”

Wow! An admission that over the last four decades productivity has skyrocketed while wages have remained stagnant? A recognition that the greatest transfer of wealth from working people to the rich in modern history might have led to a lack of real demand and is a root cause of the crisis?

Are we about to see a G20 agreement on promoting anti-strike breaking laws, or eliminating legislation that makes it difficult to impossible to organize unions in many places around the world, including the US and Canada?

Sorry. That one sentence is all there is. Not one recommendation or agreement on how wages will rise in line with increases in productivity. One wonders why they bothered to put the sentence in the document.

Let’s backtrack. If productivity is up, why can’t we afford social programs now that we could in the past? Higher productivity means more wealth, not less, right? Let’s just say the top five percent of income earners in the world have never had it so good.

So if the economic pie is bigger, there must be ways to lower deficits without cutting social spending, right?

Now do a search in the G20 Declaration for the word taxes. You will find zero. Not a single reference to taxing the riches the very few accumulated over the last decades of growth.

That says it all. If you don’t like it, we always have a nice detention cell ready for you.

Paul Jay is the CEO and Senior Editor of The Real News Network. He is an award-winning filmmaker, founder of Hot Docs! International Film Festival and was for ten years the Executive Producer of the CBC Newsworld show counterSpin.

Click here to see video

Source: Real News Network

Build your advocacy skills!

Are you still looking for a great summer activity? Here is one that will be fun and build your advocacy skills.

Our close colleague, the Backbone Campaign, is organizing a “Localize This! Action Camp” which will teach campaign strategy and creative, non-violent tactics and direct action. All sorts of useful skills from puppet making to rappelling and blockades will be taught. The event is being held in Washington State from August 8 to 14 with the main workshops from the 9th to the 13th. The camp is inexpensive, indeed, no one will be turned away and they are suggesting a $25 donation per day or $100-300 sliding scale for the week. There will be on-site camping and Backbone Campaign will be providing food.

Get more information and register at or