Friday, July 2, 2010

Structural Reform down at the temple

The unemployment rate fell again, pointing out what little meaning that indicator really carries as the real number out of work continues to climb. The method for computing the rate of unemployment has gone through forty years of political tinkering to make each subsequent President’s policies look better than they really were. The Bureau of Labor Statistics also compiles the U6 rate that you’ve never heard of from prior administrations and that includes people who aren‘t registered with job service. That number is 16.5 percent or 30 million Americans and even this number is not as inclusive as it was in the good old days when they thought eight percent unemployment was a scandal, now its twice that and it isn‘t likely to improve.

Federally-funded extended benefits have given the unemployed additional weeks during eight recessions since the 1950s. The Republicans refusal to allow Congress to reauthorize the current round of extra jobless aid marks the first time since ever that extended benefits have been allowed to expire when the national unemployment rate is above 7.2 percent. Remember the real rate is well over 16%, the worst it has been since the last Republican Great Depression. 55% of adults have been impacted by the economy in the last two years, personally experiencing a layoff, job loss, a pay cut or more hours for the same pay and of course if you’re an adult male there is a one in five chance that you are currently unemployed. That’s a lot of men selling apples on the corner with the new “no benefits for the deadbeats” plan from the Republicans.

The popular phrase that Wall Street is pushing in Washington is “
structural reform”. This is Wall Street jargon for reducing what is often called the "social wage" for working people. They mean to do this in every way possible: increasing the retirement age to 70 and cutting Social Security benefits if you aren‘t worked to death by then, cutting government employment and benefits, eliminate funds for public education, eliminate all defined benefit pensions in favor of pensions you pay into but never see any return from, and the elimination of health care expenditures entirely.

The first accomplishment for this “structural reform” program was eliminating extended unemployment benefits. The Senate's refusal, yet again, to extend unemployment for millions laid-off workers is not just a random bit of mean spiritedness from Republicans. Their instinctual response in an election year would be to play it both ways by complaining about the cost and then bragging back home about securing relief for their suffering constituents. All of these Senators come from states that are the hardest hit with double digit unemployment even using the rigged numbers.

Supposedly, the desired outcome from these "reforms" is to reduce public debt while making the labor market more "flexible" so that employment and wages can rise and fall quickly in response to shifting supply and demand. This "freer" labor market reduces the employer's cost of hiring workers, which will according to their theory trigger a major jump in private sector employment.

Just the opposite is true of course, driving down wages just reduces demand as workers have less money to spend and the economy shrinks putting more people out of work. It has always worked this way throughout history and no example can be shown where gravity was defied with conservative magic. But wait! Wages have been declining ever since Reagan declared war on the unions and we still had low unemployment. Of course they were lying about the numbers, it was twice as high in real terms all along. It was the high unemployment that allowed them to drive down wages. The only way they were able to maintain enough demand for goods to keep the economy going while wages were kept low was by creating staggering amounts of debt both public and private.

The Republicans rail about Keynesian economics as being a failure and how we can’t run up debt to stimulate the economy, we need “structural reform” instead. In fact the Republicans in the person of Allan Greenspan had been stimulating the economy for thirty years with debt. The Reagan Recession in the 1980’s would have been known as the end of the Republican Party once and for all if not for trillions in deficit spending.

The thing that few people understand is that this kind of debt is not anything real. The debt was not legitimate to begin with but just a mechanism to balance demand with production by creating money out of thin air. They understood this in Biblical times and that was why every so many years they simply wiped out all debt in order to return to the economy to balance and thereby increase their chances of survival, they didn‘t really depend on miracles.

In more modern times, Progressives figured out that you could balance the economy by taxing the rich and regulating their money making schemes. Unfortunately this wisdom has been lost and instead of being chased from the temple, it looks increasingly like the money changers are going to implement “structural reform” instead. We really need a “miracle“.


shawtreen said...

So how long is it going to be before people who are barely hanging on - decide "ENOUGH!"?

A few more weeks (months?)of BS about the unemployment benefits and there will be a tipping point. Then the "Powers that be" will be proclaiming that they didn't see it coming . . .


prairie2 said...

The Wall Streeters will try to time this crisis to make the Democrats look bad for the election. The Democrats are hoping the tone deaf Republicans are asking for enough rope to hang themselves.