Tuesday, March 15, 2005

The Dollar, Dropping, Takes Us Down With It.

The Burden of Social Security Taxes and the Burden of Wage Inequality
By Dean Baker
The Center for Economic and Policy Research

Monday 14 March 2005

Numerous politicians and commentators have claimed that the prospect of higher Social Security taxes in the future will threaten the living standards of our children and grandchildren. A new report by the Center for Economic and Policy Research (CEPR) economist Dean Baker, entitled "The Burden of Social Security Taxes and the Burden of Wage Inequality" shows that wage inequality poses a much larger economic burden on most workers than any tax hikes that may be needed to keep Social Security solvent. The tax increases that the Social Security trustees and the Congressional Budget Office project would be needed to maintain Social Security's solvency would have far less impact on the living standard of a typical worker than the rise in wage inequality the nation has experienced over the last quarter century.

A typical worker lost an amount equal to 9 percent of their wages due to the increase of wage inequality over the last decade. By contrast, the Social Security trustees and the Congressional Budget Office project the size of the tax increase needed to keep Social Security fully solvent over its 75-year planning period as 1.9 percent and 1.0 percent, respectively.

The amount of money that typical wage earners have lost in the last year alone, due to the upward redistribution of income, is comparable in size to the tax increases that would be needed to maintain Social Security's solvency for the next seventy five years. If recent trends in inequality persist into the future, it will pose a much greater threat to the living standards of most young workers than the prospect of paying higher Social Security taxes to keep the program solvent. If wage gains are more or less evenly shared, then future generations of workers would experience large increases in living standards regardless of what happens to the Social Security tax rate.

Given the large amount of attention devoted to the prospect of a higher Social Security tax, it is striking that recent trends in wage inequality - which have a much larger impact on most workers' welfare - have passed largely unnoticed.

For the full paper see: http://www.cepr.net/publications/social_security_wage_inequality_2005_03.pdf.

The Center for Economic and Policy Research is an independent, non-partisan think tank that was established to promote democratic debate on the most important economic and social issues that affect people's lives.

© Copyright 2005 by TruthOut.org

Where Did My Money Go?

The Boom That Feels Like a Bust
By Stirling Newberry
t r u t h o u t | Perspective

Tuesday 15 March 2005

You'd have to have sharp eyes to notice it, but it's true - last year, Bush's popularity began to slide, even as hiring picked up for the first time since employment reached its bottom in 2003. And it is happening again: last month, seasonally adjusted private payrolls grew by 229,000, according to the Bureau of Labor Statistics, and according to the irreplaceable and irrepressible Dr. Pollkatz's "Bush Index," the popularity of the executive dropped to 47.5%.

That's because this is the boom that feels like a bust.

If you listen to the right-wing commentators on cable, things should be coming up roses for the President who saved us from Saddam's terrorism and Clinton's recession. They crow over the Dow reaching three-year highs, an unemployment rate that is just over 5%, along with good GDP numbers and low inflation. And yet, people don't feel good about this economy, or have much faith in Bush's judgment: a CBS/New York Times poll said that a stunning 58% of Americans feel that "the White House doesn't share their priorities on foreign policy."

So what is going on? Are the numbers lying? Or perhaps fibbing a bit?

Let's start with what is supposedly a Republican strong point: the stock market. Republicans are constantly talking about how important business is, and they collect a great deal of their political money from the big investors. The most trusted measure of the stock market is the Standard and Poor's 500, composed of the 500 largest American corporations. Right now, that index stands a bit over 1200, well below its Clinton-era high of almost 1600, but far above the bottom, in 2002, of just under 800. It seems to be doing well.

Or is it really? During that time, the dollar has dropped like a stone against currencies that aren't pegged to the dollar itself. What good is having something worth more dollars, if each dollar is worth less and less? If one takes the price of the same stocks in Euros or Great British Pounds, two major currencies not tied to the dollar, one gets a different picture: instead of a strong rebound from a bottom, the stock market has been virtually flat the last two years, crawling up only slowly. Priced in Euros or Pounds, the S&P 500 has gone nowhere slowly since September of 2003. If making money is what you like to do, you could have dumped American stocks and bought Eurobonds a long while ago.

The same thing can be said about the Gross Domestic Product, or GDP. Is the GDP up? Or is it just that the dollar is down? With oil having nearly doubled since its low just after the invasion of Iraq, it seems likely that it is more of the latter than the former.

But realistically, most of us don't make our money on the stock market, we make it by working and selling our labor, so what about employment? Isn't 5.4% as an unemployment number respectable?

The answer is that the headline number that the Bureau of Labor Statistics puts out, the "Unemployment Rate," isn't a very good measure of the job picture right now. Not because the numbers are wrong, but because most people don't know what the Unemployment Rate actually measures: it is the one of the numbers that tells the central bank, in our case the Federal Reserve, the amount of wiggle room it has in setting interest rates. It is important if you work for a bank, but for the rest of us, there are more important measures: real wages, labor under-utilization, and labor slack.

Not surprisingly, the Bureau of labor statistics doesn't trumpet the numbers of underutilization it does compile, which show that 9.3% of the people who want to work either can't work, or are working part time when they want to work more.

But even better is to ask why the headline number is so low. It isn't because people are finding work in large numbers, it is because people are leaving the workforce in large numbers. Bush has presided over one of the two times in post-war history during which people have left or stayed out of the workforce without a recession to push them out. The other time was under the end of Eisenhower's two terms. If people were looking for work in the same numbers as in 2000, we would have an unemployment rate of not 5.4%, but close to 7.5%. And that is a number that would worry most people.

With so much slack in the job market, it is no surprise that real wages have been flat, and show no signs of going up any time soon.

And this isn't even the end - going down the supposedly good economic numbers, each and every one of them conceals the bad news beneath a number which seems good. So what is the story they do tell? Who is doing well in this economy? It's a good time to be among the very, very rich. Tax rates are low, inflation is almost dead in the water: which means there is no reason to take risks and invest, no competition from up and coming rich people. It is true that gasoline is up in price, but the things that rich people care about - buying companies and paying taxes - haven't been cheaper, relative everything else, in a very long time. That's why merger-mania is gripping Wall
Street: there has never been a better time to sell out and cash out than right now. It is no wonder that the percentage of wealth held by the top one percent of America is now higher than it has been since the Crash of 1929.

So if you are wondering why Bush's popularity is sinking, even as his supporters are trumpeting how well he is doing, now you know: the numbers may not be lying, but they aren't telling the whole truth either. That means if someone tells you "stocks are up, unemployment is down, taxes are low," just tell them that "the dollar is down, the job market is out, and Bush's poll numbers are lower."

Because if the numbers are telling the truth, very soon, discontent is going to be busting out all over. Why is this? Because right now the United States isn't creating real economic growth, but using federal borrowing - now leaving the billion dollars a day of deficit in the rear view mirror - and easy monetary policy of the fed to get more to happen now, rather than later. This inefficient approach is generating inflation, inflation in basic commodities, particularly oil, which has reached the $50 a barrel mark, a level that OPEC says it is happy with. This credit boom, and not economic progress, is what is driving the US economy.

Because much of what has happened in the world economy over the last few years has been a credit boom, when there is a bit more activity, there is a bit more inflation. The people who have jobs are not getting wage increases, and so they feel the inflation pinch. Every new job in the Bushconomy is paid for by other people working, people who have to pay higher prices, higher prices for gasoline and other necessities that they cannot easily cut back on. This is why, when the economy hires, it often hurts, rather than helps, George Bush. As Dr. Stuart Eugene Thiel noticed, "Bush popularity is, in fact, a gas."

And what is more ominous is that the credit boom is increasingly looking like a credit bubble that is ready to burst. In the language of the Financial Times: "Although corporate default rates remain low, some fear the legacy of recent private equity buy-outs and hedge fund investments in distressed debt will be a swath of over-leveraged companies ill-equipped to survive in less benign conditions." Shrill words indeed from the normally staid business press. And a warning to Americans that we are dancing on a volcano.

© Copyright 2005 by TruthOut.org

Being Broke in America

The Bankruptcy Bill: A Tutorial in Greed
By Robert Scheer
The Los Angeles Times

Tuesday 15 March 2005

Lesson No. 1 -- Campaign cash is worth more than family values.
Because they keep revamping and expanding the SAT, I'll propose a new economics puzzler for the test makers' consideration.

Question: What is the difference between a loan shark and a banker?

Answer: Not much. The former uses hired thugs to enforce repayment from the debtors; the latter employs the feds as paid muscle.

Even better would be to make the fast-tracked bankruptcy bill - already passed by the Senate and expected to be approved soon by the House and signed by president - the subject of one of the test's new critical thinking essays. Teens could trace the correlation between the massive campaign contributions of credit card companies and banks and the imminent passage of legislation making it much more difficult for the hopelessly indebted to find the kind of relief offered by enlightened societies for millenniums.

Of course, not many high school students have been taught the central place of class warfare in modern American politics, but the bill would provide an excellent classroom case study in the political economy of greed. Consider it an updating of that old staple of government classes, "How a bill becomes a law." It would accurately place the role of corporate money in clear ascendance over the interests of regular people.

This subject is not an academic one for young Americans, because after high school they will become prime targets for predatory lenders, plastic-peddlers who just love to offer easy lines of credit to kids without jobs or even degrees. Once a student has that first shopping spree at the college bookstore, he or she is often off and running in a cycle of unsecured debt that can last a lifetime.

This exploitation of the naive extends to many Americans who are plagued by seductive credit card offers, despite low or uncertain sources of income and other major risk factors. There is no cap on interest rates; the card companies simply harvest risky debtors, slam 'em with outrageous fees and rates and keep them for decades in indentured servitude because they can't afford to dent the principal.

Yet for the banks, the inevitable surge in bankruptcies caused by these immoral business strategies hasn't slowed this fantastically profitable industry a whit. For all of the whining about deadbeats ripping off the system, credit card companies' annual pretax profits have soared 2½ times in the last decade, and last year was their most profitable in more than 15 years.

So why gut the bankruptcy law now? Greed, pure and simple. And, pathetically, this bankers' dream is becoming a reality through the support of Republicans who have decided, as they often do with social issues, to selectively pick and choose when to follow the teachings of the Bible.

A key sponsor of the bill, Sen. Charles E. Grassley (R-Iowa), actively opposes abortion and same-sex marriage on biblical grounds yet believes the Good Book's clear definition and condemnation of usury is irrelevant. The Old Testament, revered by Jews, Muslims and Christians alike, mandates debt forgiveness after seven years, as was pointed out earlier this month by an organization of Christian lawyers in a letter to Grassley.

"I can't listen to Christian lawyers," said the senator, "because I would be imposing the Bible on a diverse population."

Sadly, when it comes to serving the prerogatives of banks, you can forget about those family values that folks such as Grassley prattle on about. The bill he wrote placed mothers and their children behind credit card companies in the line for a bankrupt ex-husband's paycheck, for example, which is positively Dickensian. Expected to sail through the House and onto the president's desk in the next few weeks, the bill turns the federal government into a guardian angel of an industry gone mad, placing no significant restriction on soaring interest rates and proliferating fees.

One extremely modest amendment that was rejected by the Senate would have blocked creditors from recovering debts from military personnel if the loans had annual rates higher than 36%. Also killed were sensible amendments designed to protect those ruined by a medical emergency, identity theft, dependent-caregiver expenses or loss of income due to being called to full-time military duty through the National Guard or the Reserve.

In the end, these individuals are simply not powerful enough to earn the protection of our by-the-powerful, for-the-powerful government. Creditors can scam consumers, Enron can burn California, Halliburton can gouge the Pentagon, the rich can enjoy obscene tax cuts, our "conservative" president can run up the deficit like a drunken sailor - and none of it seems to faze our elected leaders. For them, "fiscal responsibility" is just a high-minded prescription appropriate only for the commoners.

© Copyright 2005 by TruthOut.org

Why Not Be Democrats? Krugman Asks a Good Question!

March 15, 2005
The $600 Billion Man

The argument over Social Security privatization isn't about rival views on how to secure the program's future - even the administration admits that private accounts would do nothing to help the system's finances. It's a debate about what kind of society America should be.

And it's a debate Republicans appear to be losing, because the public doesn't share their view that it's a good idea to expose middle-class families, whose lives have become steadily riskier over the past few decades, to even more risk. As soon as voters started to realize that private accounts would replace traditional Social Security benefits, not add to them, support for privatization collapsed.

But the Republicans' loss may not be the Democrats' gain, for two reasons. One is that some Democrats, in the name of centrism, echo Republican talking points. The other is that claims to be defending average families ring hollow when you defer to corporate interests on votes that matter.

Let's start with the case of the bogus $600 billion.

In his Jan. 15 radio address, President Bush made a startling claim: "According to the Social Security trustees, waiting just one year adds $600 billion to the cost of fixing Social Security." The $600 billion cost of each year's delay has become a standard administration talking point, repeated by countless conservative pundits - who have apparently not looked at what the trustees actually said.

In fact, the trustees never said that waiting a year to "fix" Social Security costs $600 billion. Mr. Bush was grossly misrepresenting the meaning of a technical discussion of accounting issues (it's on Page 58 of the 2004 trustees' report), which has nothing to do with the cost of delaying changes in the retirement program.

The same type of "infinite horizon" calculation applied to the Bush tax cuts says that their costs rise by $1 trillion a year. That's not a useful measure of the cost of not repealing those cuts immediately.

So anyone who repeats the $600 billion line is helping to spread a lie. That's why it was disturbing to read a news report about the deputy commissioner of the Social Security Administration, who must know better, doing just that at a pro-privatization rally.

But in his latest radio address, Mr. Bush - correctly, this time - attributed the $600 billion figure to a "Democrat leader." He was referring to Senator Joseph Lieberman, who, for some reason, repeated the party line - the Republican party line - the previous Sunday.

My guess is that Mr. Lieberman thought he was being centrist and bipartisan, reaching out to Republicans by showing that he shares their concerns. At a time when the Democrats can say, without exaggeration, that their opponents are making a dishonest case for policies that will increase the risks facing families, Mr. Lieberman gave the administration cover by endorsing its fake numbers.

The push to privatize Social Security will probably fail all the same - but such attempts at accommodation may limit the Democrats' political gain.

Meanwhile, the party missed a big opportunity to make its case against increasing families' risk by acquiescing to the credit card industry's demand for harsher bankruptcy laws.

As it happens, Mr. Lieberman stated clearly what was wrong with the bankruptcy bill: "It failed to close troubling loopholes that protect wealthy debtors, and yet it deals harshly with average Americans facing unforeseen medical expenses or a sudden military deployment," making it unfair to "working Americans who find themselves in dire financial straits through no fault of their own." A stand against the bill would have merged populism with patriotism, highlighting Democrats' differences with Republicans' vision of America.

But many Democrats chose not to take that stand. And Mr. Lieberman was among them: his vote against the bill was an empty gesture. On the only vote that opponents of the bill had a chance of winning - a motion to cut off further discussion - he sided with the credit card companies. To be fair, so did 13 other Democrats. But none of the others tried to have it both ways.

It isn't always bad politics to say things that aren't true and claim to support things you actually oppose: just look at who's running the country. But Democrats who engage in these tactics right now create big problems for a party that has been given a special chance - maybe its last chance - to remind the country of what Democrats stand for, and why.

E-mail: krugman@nytimes.com

Copyright 2005 The New York Times Company |