(The Intelligence Daily) -- Despite much talk about a “jobless recovery” many signs in the US economy are pointing towards a protracted upturn and expansion, if at all. U6 unemployment is about 20 percent and companies are still letting workers go. The Institute for Supply Management (ISM) publishes statistics monthly regarding the health of the manufacturing and non-manufacturing sectors and, while both have shown improvement in recent months, employment is not increasing.
Due to the financialization and deindustrialization of the US economy over the last 20+ years, employment prospects in manufacturing are not as promising as those in non-manufacturing: an indicator of a US manufacturing industry in decline for decades as employers have taken advantage of outsourcing to countries with supplies of cheaper labor. Non-manufacturing, to be sure, does still include noteworthy services and goods, such as arts, entertainment, recreation, accommodation, food service, finance and insurance. According to ISM, however, businesses in these categories are still struggling.
Why are these areas of the US economy doing so poorly? Some analysts point to the decline of the dollar, which, whilst improving manufacturing competitiveness, has hurt other areas. Against a number of currencies, the dollar has lost approximately a third of its value over the last eight years and around 10 percent of its value over the last 12 months. Comparatively, the Brazilian Real has gained roughly 30 percent in value. This does not necessarily benefit Brazil, which is among some of the most closed economies in the world, for a falling dollar and economic recovery increases demands for their assets and overwhelms central banks. While US exports improved demonstratively in the third quarter of 2009, imports shot up at an even quicker rate, negating the argument that the dollar’s value has played the keystone role in the market corrections currently underway.
What’s more likely, is that the manufacturing ISM survey speaks more to global rather than US economic conditions by painting a portrait of world trade, still dominated by manufacturing. Sure enough, the recovery in the US manufacturing parallels the recoveries charted in similar analyses for Europe.
One explanation for the improvement in the state of global manufacturing may be a shift in the centers of global demand. Although merely small players a generation ago, the emerging nations of today, due to in some cases very rapid, and ultimately unsustainable growth, are major players on the world stage. In contrast to developed nations, many of these nations spend their money on investment goods instead of consumer goods; although consumption of consumer goods is on the rice; for example, in Brazil. [1]
One symptom of the current market correction is the increase in savings among US consumers. Consumption makes up approximately 70% of the US economy. With the threat of unemployment, consumers are growing weary, creating a cycle of firings and declines in consumer spending. However, the dollar’s 12 percent decline since March and rising demand from Asia and Europe will increase exports, placating some of the weakness in households.
“Consumers face a lot of headwinds, and rising unemployment is the No. 1 worry,” said David Sloan, a senior economist at 4Cast Inc. in New York. “The recovery, in its early stages, will be led by increases in manufacturing rather than by consumers. Markets in Asia are rebounding quite nicely.”
US Treasury Secretary, Timothy Geithner, as well as other finance ministers at the Asia-Pacific Economic Cooperation forum in Singapore this week vowed to further stimulus efforts “until a durable recovery in private demand is secured.”
Real joblessness, however, will weigh on consumers this holiday shopping season. Macy’s Inc. is but one of many retailers showing a decline in sales as consumers continue to spend only on essentials such as food and clothing.
The index of consumer expectations for six months from now, a more accurate projection of where consumer spending is heading, dropped from 68.6 to 63.7. [2]
Despite Geithner’s pronouncement, recent enunciations from the Obama Administration hint at a change in monetary policy. Perhaps this change is, at the moment, undesirable. The administration plans to announce in next year’s State of the Union address a newfangled focus on cutting the federal deficit in 2010.
Although a spike in interests rates in the US is still unlikely, such a shift in policy would most likely portend cuts in Medicare, Medicaid, Social Security and other social safety net spending. “Fiscal responsibility,” therefore, is being championed at the expense of Social Security. Where is, for example, the spending on green job programs? Is protecting the dollar and cutting the federal deficit the jugular of the economic issues we face? Or is intelligent investment in progressive industry—what would be a monumental shift away from the speculative economy—the key issue?
According to the Economist:
"This dollar declinism is overblown. It exaggerates the scale of the slide and misunderstands its cause. Much of the recent weakness simply reverses the earlier safe-haven flight to dollars, a sign of investors’ optimism about riskier assets rather than their fears about America’s currency. On a trade-weighted basis the dollar today is close to where it was before Lehman failed. Yields on Treasuries have not risen and spreads on riskier dollar assets continue to shrink. If investors were growing leerier of dollars, the opposite should have occurred." ("The Diminishing Dollar", The Economist)
Supporting the Economists’ argument is the reality that, at the outbreak of the crisis two years ago, investors flocked to the dollar regarding it as a safe haven. [3]
And indeed, the emerging nations have, in part, their focus on infrastructure projects to thank for pulling them out of the crisis faster than developed nations.
Henry Liu stated:
"An economy that has collapsed under the burden of excessive debt cannot recover until such debt has been extinguished. And debt can only be extinguished by wealth creation, not by creating more debt with easy credit. And wealth can only be created by employment and not by financial manipulation." (Federal Reserve Power Unsupported by Credibility; part 1 "No Exit" Henry Liu)
In the midst of a credit crunch, banks are hoarding and rationing credit leaving companies searching for ways to their cash flow in difficult times. Jobs will continue to be lost and demand will continue to fall.
A big question facing the United States is whether or not it will continue to be a leading player in new industries, in this case renewable energy and other clean technologies, or play a second tier role to Germany, China and Japan. Currently, the nation lacks a lucid renewable energy policy, leaving states and cities to fend for themselves. The main strategy has relied on requiring utilities to purchase a set percentage of their energy—called a renewable portfolio standard—from renewable resources, invest some of that money into research, offer subsidies to attract companies, and perhaps provide worker training.
On average, states have gained anywhere from a few hundred to a couple of thousand jobs. But, even if states and cities execute such measures perfectly, there is little guarantee of an ideal turnaround. And so therefore, what would a national strategy look like? The American Recovery and Reinvestment Act of 2009 invested $112 billion in green technologies, and earmarked $2 billion for renewable energy research. President Obama, to be sure, proposed to add another $15 billion annually in renewable energy research, to be funded by the proposed cap-and-trade system.
China, on the other hand, allocated $221 billion of its $585 billion 2009 stimulus package to renewable energy and other clean technologies, putting them in a position to lead Germany and Japan as the world’s largest alternative energy producer. Moreover, a 2007 policy requires large utilities to produce 3 percent of their power from renewable sources by 2010 and 8 percent by 2020, excluding hydroelectric (In the Clean Energy and Security Act 20 percent by 2020 is proposed). China’s five-year plan, beginning in 2011, entails even stricter standards and higher subsidies to support the development of clean energy.
China’s coherent industrial policy is contrasted by the fragmented initiative of the US. China noticed early on that the real economic development potential in renewable energy is in manufacturing; accounting for 70-75 percent of the jobs in solar, and now has more than 100 solar companies that account for one-third of global solar component production. [4]
The United States has few options to improve the economy during these rough times. If Washington were to adopt the policies suggested by those who believe Quantitative Easing ought to be maintained, then a majority of investments must be into new (peaceful) technologies, green energies, public programs, as well as subsidies to local, independent farmers all over the country. This would lessen the hyperinflationary, and perhaps eventually deflationary, tendencies of the Quantitative Easing program.
A considerable part of the US economy is its infamous entertainment industry, historically dominated by Hollywood. However, Hollywood’s output is expected to fall by one-third as the major studios struggle against a credit crunch and the digital revolution. In part a result of piracy, some studios have seen the sale of their DVD’s fall by 25%. Thankfully, at the same time, a number of alternatives are available. [5]
Youtube and similar sites allow users to create their own content. Moreover, sites such as Max Keiser’s PirateMyFilm www.maxkeiser.com allow users to fund the projects they would like to see made, where after they themselves share a piece of the profits generated. The arts will be important for individuals to weather economic turmoil. There should also be growth in the following sectors: healthcare, hard sciences, sustainable living, agriculture, high technology, and the aforementioned green movement.
The next stimulus could even include public-funded arts programs, an idea first tested in this country in the 1930’s during the Great Depression. The New Deal comprised a multitude of different programs to aid various economic sectors and update infrastructure in order to recover from the Great Depression. In 1932 an estimated 10 percent of the US population was unemployed. Remember, official unemployment statistics, as a rule of thumb, underestimate the reality. [6]
Artists were hit hard both by the economic downturn and by technological changes in the arts-related industries; a similar situation to the present. The Depression happened at the same time as a rise in cinematic movies forced a decline in live theater. Live theatres offering live entertainment were indeed in decline.
Many programs were initiated in order to employ artists in the 1930s. The best known and longest lived were categorized under the “WPA” or Works Progress Administration. Started in 1935, the WPA was a part of the “Second New Deal.”
The programs designed for arts projects comprised of five divisions, known as the Federal Art Project, the Federal Music Project, the Federal Theatre Project, the Federal Writers Project and the Historical Records Survey. The programs employed collectively more than 40,000 artists by the end of 1935; the population in those days was approximately a third of what it is today.
The purpose of these programs was jobs, jobs, jobs. To help solve high levels of unemployment through original and cultural development.
Are there other ways, besides Quantitative Easing, in which the US could raise money to support such overdue infrastructure projects? Yes, and it is a quite simple solution: A tax on heretofore untaxed financial transactions.
The Bank for International Settlements estimates that in 2008 annual accounting in over-the-counter derivatives amounted to a total of $743 trillion dollars globally; that is, greater than ten times the gross domestic product of the world. [7]
The Bank for International settlements arose out of the 1929 Young Committee, formed to create a program for the settlement of German reparations payments that were a part of the Versailles Treaty. The committee was head by Owen D. Young, founder of Radio Corporation of America (RCA), a subsidiary of General Electric. He also served as President and CEO of GE from 1922 until 1939, was a co-author of the 1924 Dawes Plan, a member of the Board of Trustees of the Rockefeller Foundation, and Deputy of the New York Federal Reserve Bank in 1929.
The Committee created the Young Plan, whose terms were unpayable and damaging to the weak Weimar economy. Part of the plan, which went into effect in 1930, was the establishment of an international settlement organization, now known as the Bank for International Settlements. A secondary function of this new bank was to act as “a coordinator of the operations of central banks around the world.” The BIS “is a private institution with shareholders but it does operations for public agencies. Such operations are kept strictly confidential so that the public is usually unaware of most of the BIS operations.” The primary function of the organization was to facilitate payments of Weimar Germany to Allied powers.
In 1933, President Franklin Roosevelt wrote in a letter to Edward M. House, “The real truth .. is, as you and I know, that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson - and I am not wholly excepting the administration of W[oodrow]. W[ilson]. The country is going through a repetition of Jackson's fight with the Bank of the United States - only on a far bigger and broader basis.” [9]
97% of the US derivatives market is owned by five Wall Street banks: JPMorgan Chase $ Co., Goldman Sachs Group Inc., Bank of America Corp., Citigroup Inc. and Well Fargo & Co.
Wall Street traders benefit from computer programs that can move many trades in just microseconds, enabling them to manipulate markets for private gain. Goldman Sachs admitted to this last summer, when the bank sued an ex-computer programmer for taking proprietary trading software. In Bloomberg, Assistant US Attorney Joseph Facciponti was quoted as saying: “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways.” Obviously, Goldman Sachs operates programs which allow it to manipulate markets.
Reports claim that in September Goldman Sachs held $167 billion in cash. Surveys of state finances, on the other hand, painted a grim picture for states that faced a budget shortfall for fiscal 2010 of $168 billion.
In 2008, Goldman Sachs paid only 1% in income taxes. The stated reason for the bailouts of the last year was so that these banks could continue making loans, take deposits, and protect our savings. Today, however, there is far-too-much profit to be made from short-term speculation in currency transactions, commodities, stocks and derivatives.
The sales tax on such trades are nonexistent. Wall Street trades in and profits from some of the only products on the entire planet that do not have a sales tax. In California, parents currently pay 9 percent sales tax on their children’s back-to-school goods. Winnings from the race track and other gambling have taxes of up to 25 percent.
Nobel Prize winning economist James Tobin first proposed the idea of taxing speculative trades in the 1970’s. Today, arguments for a “Tobin Tax” are growing in popularity: most proposals suggest a tax of .005% to 1% per trade. One of the main vehicles of speculation to be taxed would be the derivative, essentially a bet on whether a currency, commodity, stock, government bond or nearly any other product will rise or fall. Bets on derivatives can shift general market size reaching $40 trillion on some days. Promoters of international development maintain that a .005% tax could raise anywhere from $30 billion and $60 billion per year. This could go towards reeling in the speculative market resulting in a more secure financial system. The income could be split between federal and state governments.
Justin O'Connell blogs at The Handshake Times. He can be reached at: joconne@linfield.edu.
Read other articles by Justin, or visit Justin's website.
- Stephen King. Developing Economies Show the Way for the US and EU to Recover, The Independent 9 November 2009.
Accessible at: http://www.independent.co.uk/news/business/
comment/stephen-king-developing-economies-show-the-way-
for-the-us-and-eu-to-recover-1817379.html
- Kate Anderson Brower. Obama Says US Must Reduce Debt, Spur Job Growth, Bloomberg 2 November 2009.
- Mike Whitney, Audacity of Failure: The Four Year Presidency of Barack Obama. Dissident Voice, 18 November 2009.
- Suranjana Roy Bhattacharya. China Focuses on Clean Renewable Technology. Gulf News, 9 November 2009.
- Ed Pilkington. Hollywood Film Output Likely to Fall By A Third. Guardian, 18 October 2009.
- Arlene Goldbard. The New New Deal 2009: Public Service Jobs for Artists? Community Arts Network.
Accessible at: http://www.communityarts.net
/readingroom/archivefiles/2008/12/the_newnew_deal.php
- Ellen Brown. Shifting the Burden from Main Street to Wall Street, Truthout 7 November 2009.
Accessible at: http://www.truthout.org/110709C
- Andrew Gavin Marshall. Origins of the American Empire: Revolution, World Wars and World Order. Global Research, 28, July 2009.
Accessible at: http://www.globalresearch.ca
/index.php?context=va&aid=14552
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