Will There Be Another "Jobless Recovery"?

Lunch conversation with some of my work mates last week was on the issue of hiring.

People were hoping that with an uptick in holiday spending more people would be hired to help out with the work. Folks are tired from working long hours through the summer and into the peak Christmas season. Even part time workers have been pressured into cranking up their hours. Yes, it's good for paying the bills, but hard on the families--particularly parents that do not have much flexibility with childcare arrangements.

My friends were hoping that the company would hire some of the temps brought on for the seasonal rush as permanent full time employees.

My guess is that they will not.

Why do I think that? History.

The bounce back from recession of the early '00's has been called "the jobless recovery". Economic activity increased but hiring did not.

The company that we work for is a good reflection of what goes on in the country at large.

During the recession of the '00's sales remained flat. To increase profits the company decided to increase market share--to go out and grab business from their competition.

Before this time labor costs--the wages and benefits that workers receive--had made up more than half of the company's annual budget. The company decided to bring labor cost down and shift their budget toward marketing and advertising.

They made this shift by laying off employees, increasing production quotas and decreasing benefits for those who remained.

After the layoffs the budget for advertising and marketing was well over 50% and labor costs were well below 50% of the budget.

Accrual of vacation and sick pay was reduced. Employees picked up larger percentages of health insurance costs.

The government reported in the next year that US productivity increased but that families were working longer hours to maintain the same standard of living which they had previously enjoyed.
That was no surprise to me. That was what I and my fellow employees were doing.

This trend has continued through the current period. All of this is consistent with "supply side" economics as advanced by the Regan administration in the 1980's.

The widespread corporate strategy of laying off workers of course did nothing to stimulate the economy. Though some of our competitors went out of business, company sales remained flat.

As the economy increased a little in the middle of the decade economists began to worry about "the jobless recovery". They knew that a strong recovery could not happen without either an increase in wages or an increase in employment and neither was happening.

This still remains a concern of most economic analysts.

Will the recent increase in sales and profit cause our company--and others--to hire new employees?

Most stockholders are looking for larger profits and more return on their investments to make up for their losses in the Great Recession of 2008-9. There is still great fear about the future of the economy.

Companies will be much slower I think to hire.

What incentive to they have to hire? With unemployment high labor costs are low--they have a pool of people desperate to work under any conditions.

I think companies are going to play it conservatively--still shifting their attention toward increasing market share, being competitive, rewarding stockholders and reducing labor costs.

Yes, hiring would stimulate demand and lift the economy but what corporate leader is going to go down that road? Our current version of capitalism encourages the short-term gain over the overall good.

In fact a report today reveals that US companies have created more jobs overseas than they have domestically. Labor is cheaper there and with the infusion of new cash flowing into foreign investments the rate of growth of those economies exceed that in the US.

This does not bode well for the worker or for the economy. The gap between the wealthy and the working class will continue to grow until we whose labor generates those profits organize and demand a greater share of the wealth which we create.

Will there be another "jobless recovery"? I do not think such a thing is possible.

What's in Your Wallet?

U.S. corporations earned profits at the highest annual rate ever in the third quarter of this year.

Wow!

This is kind of making supply side economics look bad, don't you think? Where is the trickle down?

Well, Bill Gates and Warren Buffet are urging their fellow billionaires to give $600 billion dollars, or half their wealth away to charity. There's some trickle down. See, The Giving Pledge http://www.givingpledge.org

But wait? Isn't that 600 billion pretty close to the 700 billion that the top 2% of the US wealthy will get with the extended tax cuts? Hmmn. Even with all of that generosity there's a 100 billion net gain still going from the bottom to the top of the economic spectrum, by my reckoning.

Why not just tax the earnings of these folks?

I know, its just my opinion, but I think those earnings are a bit excessive. Let's just say that is not the way I was raised.

My co-workers and I have worked hard, built the reputation of many a company by the quality of our work and the most we ever got was $15.00 an hour.

Or the billionaires could back a living wage for their employees and those of their vendors and associates?

It would be interesting to know how many of the companies that experienced increased profits got those profits by cutting their work force this year, sending them onto unemployment and leaving the rest of their employees to work harder.

And how do you feel about receiving charity? Would you rather have a raise? Job security?

Or how about universal health insurance? It is said that 70% of Americans are for it.

Or perhaps they could dump their billions into our pension funds that have been shrunk by collapsing stock prices that came about through deregulation of securities. It would be nice to know in retirement that your pension was secure. Well, hell, most of us don't even have pensions any more. And, boy, did those 401k's take a hit in the last couple of years.

Sure it's great to put money into homeless shelters but how about a nationwide freeze on job layoffs? That would take care of a lot of homelessness. It would also add tax dollars to fight the deficit. 600 billion could go a long way to making that happen. All we are saying is that we want to keep working. Paying taxes is fun compared to unemployment. Let us, please.

The idea of 600 billion in my wallet just got my mind racing. Let me get back to what I started with--I will ask your opinion of charity in a future post.

I will let columnist Bob Herbert have the last word on the current economic situation:

"Recessions are for the little people, not for the corporate chiefs and the titans of Wall Street who are at the heart of the American aristocracy. They have waged economic warfare against everybody else and are winning big time.

The ranks of the poor may be swelling and families forced out of their foreclosed homes may be enduring a nightmarish holiday season, but American companies have just experienced their most profitable quarter ever. As The Times reported this week, U.S. firms earned profits at an annual rate of $1.659 trillion in the third quarter — the highest total since the government began keeping track more than six decades ago."

What Would You Do with $700 Billion?

The Republican Party bludgeoned President Obama with the national debt figures and managed to scare the hell out of enough people to take back the Congress of the United States.

But was that just a political ploy? 'Cause now they want to add 700 billion to the debt in tax savings for the wealthiest two per cent of Americans. Hmmn.

A friend sent me this link to Vermont Senator Bernie Sanders' reaction to the new deal being forced on President Obama in a trade for extensions of benefits to unemployed workers.

Even the first three minutes of this video will highlight the crux of the issue.

http://sanders.senate.gov/newsroom/media/view/?id=b2332112-a527-4986-8d56-3f02723f4c5f

Not Just Me

As a follow up to my last post: I read in the paper today that the nonpartisan Congressional Budget Office (US) says, regarding the extension of tax cuts for the weathly, "increasing the after-tax income of businesses typically does not create much incentive for them to hire more workers."

They go on to say that demand is the principal driver of those decisions.

Basic blue collar economics. A factory worker can tell you that.

But if you need to hear it from the "neckties", there you have it.

US Unemployment Rises

An announcement today that US unemployment is up .2%. Republicans are going to hold up extensions of unemployment benefits until Democrats agree to give tax breaks to the most wealthy Americans.

Ending unemployment payments is not going to create the demand that the economy needs to get moving. It will only deepen the crisis.

This is basic blue collar economics.

The only news that the people at the top seem to be paying attention to is the stock market. It has gone up in the last week. And those who earn their income from stocks would really like a tax break. Perhaps they have some sense that todays' market value of their stocks is not exactly money in the bank.

Snap quiz for students of blue collar economics: Which is the most important driver for the economy, the price of a share of stock or the amount of money in the wallet of the average American?

Take your best guess.

Extend the Bush Tax Breaks for the Wealthy?

"Supply Side Economics" came along with Ronald Reagan. The idea was that if we take care of the wealthy they will take care of us.

Supposedly if we lowered their taxes they would invest their extra money and that would provide jobs for the rest of us. "A rising tide raises all boats." was the saying.

What actually happened was that--little known fact--the Reagan tax cuts ran up the largest deficit since the debt that funded World War Two. Social programs for working class families and poor were cut, unemployment began to be taxed and workers began to be taxed more and more for the cost of Social Security. Social Security retirement age was increased.

The first big layoffs of my career happened with the stock market crash at the end of the Reagan era.

And since Reagan took office families are working more hours to maintain the same levels of income they once enjoyed and the gap between the richest and poorest in the nation has widened considerably. Rates of indebtedness have increased and savings decreased for the average US family.

It was called trickle-down economics but so far the movement in wealth has been the other way-- from those that produce the wealth on the front lines of industry to those who control it at the top. Executive wages have increased and bonuses gone through the roof while average families work harder to make ends meet.

The tax burden falls more and more on working and middle class families as the wealthy get tax breaks and shelters for investment income.

Extending tax cuts for the rich will not provide more jobs.

Why? Because the problem is demand. There is none. The working and middle class do not have the cash to create demand. There is no demand for goods and services and there won't be until the average family has money in its pocket.

Companies will not hire workers when there is no demand. They are not going to hire people just to be good guys. That is not what capitalists do.

They want to get the price of their stock high and that is what they will do. They will try to grab market share, increase advertising, pay off debt, but they will not be creating jobs until the working and middle class have money to spend.

Cutting taxes for the rich will mean cutting government which will mean laying off workers which will mean less income tax revenue for governments which will lead to more layoffs which will necessitate more government cuts and less tax revenue again--a downward spiral.

All of the government layoffs will mean less demand for products and services because unemployed people do not have money to spend.

Cutting off unemployment insurance will have the same effect. No money in your pocket, no spending it--less demand for goods and services.

A downward spiral.

The supply siders said, "A rising tide raises all boats." The reality was that "a rising tide raises all yachts." Wages are the engine of the economy and this is not where the money was going.

Or as they say in the factory about the "trickle down", "I have been trickled on enough, thank you."

The economy will not rebound until the flow of wealth from those that produce to those who hoard it is reversed. The money needs to flow back into the hands of the people who create it--the working class--the frontline workers of our economic system. We are not expendable, to be ignored. We are the people who support the economy and make it strong, not those at the top.

Overheard in the Aiport

Overheard the following conversation in the airport. A guy was talking on his cell phone to a business associate.

"No one cares about quality anymore. No one cares about the company. All they care about is the price of the stock.

"I called up ATT customer service before I left home and asked them where the hot spot in the airport is. She told me to ask someone at the airport.

"Ask someone at the airport?! Which one of the 1000 employees?

"I called Verizon, same thing. So I just walk around asking people? The company can't tell me?!

Unbelievable."

Not so unbelievable. It has become the rule. I can back this up from my experience in the factory.

It used to be that the people in charge were product or service oriented. They had come up through the ranks and knew the business from top to bottom. If something wasn't right they could see it on a walk-through and they knew what to do to fix it.

Now the folks in charge are the number crunchers. Their figures show that if we leave out step x in the process we can save $10,000. So we leave it out. No matter that half the orders get in the wrong queue. No matter that front line workers have to push twice as hard to make up for the increased error rate. No matter that customers are irate. We're showing good profits. We just pushed the price of the stock up.

You can see this on all levels. The corporate mentality has spilled over to government as well. Donald Rumsfeld lost his job as Defense Secretary because he thought he was smarter that the folks with the boots on the ground. How many soldiers lost their lives due to inadequately armored personnel carriers?

So finally the push-back from the front lines--and from the concerned parents of soldiers--forced him from his position. A rare exception to what nowadays is the rule.

Values are lost. Morale suffers. Quality is secondary. At what point do we as a society lose our integrity? The quality of our work? Pride? What will it take to get it back?

A Fable

In my previous post I talked about what happens when an economy takes money from the consumer and concentrates it in the hands of those at the top of the economic spectrum.

Simple math--you can't run a consumer economy when consumers have no money to spend.

I also talked about the flaws within a system which relies on growth based on speculative investment with no inherent value other than its market worth. (Can we say "junk bonds", "hedge fund", "derivatives"?)

Pick your decade of the last several. There was a financial instrument in that decade driving the market that crashed and burned. The tech bubble saw 100 fold increases in stock prices for companies that had not yet put a product on the market. Hhmm.

You don't need to understand what these financial instruments were. You do need to know that if you had a 401k that you probably had your money invested in them. Or at least you need to know that when they collapse they bring the rest of the market (and your 401k) down with them.

So think twice before you jump on an offer that looks too good to be true. Maybe it is. As I said recessions represent a cyclical transfer of wealth from those who earn it (you and me) to those who accumulate it (the oh, so precious few).

I felt stupid in the 80's when my friends were scoring big in stocks while I stuck to bonds. Then not so stupid in the 90's and 00's when my friends lost big chunks of their life savings in a series of market crashes. Now they think I am a genius to have barely lost a cent in all of those years. I wouldn't come to that conclusion but here's a fable for those that think they are too stupid to understand economics:

A peasant saves the life of a king in what could have been a horrible accident. In gratitude the king offers to give the peasant his golden carriage.

The peasant says, "I cannot afford to keep a horse so I have no need for your carriage your highness."

The king offers him 1000 acres of fertile farmland. The peasant says that he can barely maintain the small plot that he already works and has no need for more land.

The king makes several more offers of extravagant gifts. The peasant turns down all of them.

Finally the king, in exasperation, cries, "Well, you have saved my life, I feel I owe you something. What would you like?".

The peasant thinks it over for a moment. He asks the king if he has a chess board.

The king says, "Yes."

"I would like you to put a penny on the first square on the first day of next week. On the second day, double that amount on the next square. On the third day double that amount on the third square and so on until all the squares on the chess board have been used."

The king is confounded. "Are you sure that is all you want? I have many riches."

The peasant says, humbly, "No, I was pleased to have simply saved your life, but since you insist, this is all I ask."

The king shook his head and finally agreed.

The king put on penny of the first square on the first day, two pennies on the second day, four on the third, eight on the fourth and so on. By the end of the month he was forced to sell his team of horses. By the end of the chessboard wager he had surrendered all of his land and riches.

The peasant of course lived on a tight budget and understood simple mathematics. The king, may it be said, had so much wealth that he had rather lost sight of obvious economic principles.

According to the fable, that peasant lived a comfortable life, gave away much of his money, offered the king respectable work and people in the village were content for many, many years.

This fable illustrates the logical fallacy in chain letters that involve solicitations of money. If you do the math you run up to a very high number very quickly and the whole scheme becomes unsustainable.

In the economics world there is a financial device called a "Ponzi scheme" which has a similar rationale that goes against the logic of math. Ponzi schemes been ruled illegal (http://en.wikipedia.org/wiki/Ponzi_scheme) but the principle is not all that different, in my humble opinion, from our current mostly legal, if not logical, economy.

And Obama is having a heck of a time making some of the highly questionable practices that got us into the current mess illegal. Of course he can't even change the wall paper in the White House without being attacked by the people who benefit by keeping things they way they are.

There are many lessons in the fable. One of them is: Don't underestimate a peasant. Another is: Do your math.

Another is: Read Working Class Weekly for other valuable lessons in Blue Collar Economics.

Blue Collar Economics 101

Welcome to Working Class Weekly.

Let's get right down to it. It is 2010 and the world economy is still reeling from the dramatic crash of 2008. Economists have all kinds of ideas about what could be done but none of them can tell you with any certainty when--or if--things will take an upturn.

If the economists hint too strongly that there is something that is fundamentally wrong with our economic system, they will lose their jobs. Their job is to convince people like you and I that if we invest our labor and hard-earned dollars in this economic system we will come out ahead of the game.

Well, as a factory worker, I don't make those assumptions. I have seen things go south for workers for at least three decades now.

I will lose my job if I don't make my production and quality quotas and show up for work on time, but I won't lose my job if I tell you that the economic system is fundamentally flawed.

So, from the mind of a factory worker--Blue Collar Economics 101:

Many of you lost big chunks of money from your 401K. As a friend of mine said, "When you lose money in the stock market where does it go?".

Good question.

Let me share a little known fact about about this thing called a "Depression". Oh, OK, if you insist, I will call it a "recession". Not very convincing to those on the hurting end of it but I can work with it for now.

Depressions--or "recessions"--are accompanied by a dramatic transfer of wealth from those lower on the economic scale to those higher on the economic scale.

You could almost say that this transfer of wealth is one of the things that most characterizes a depression.

Before the Great Depression of the 1930's eighty per cent of farms were family owned. After the recession 30% were. This is a dramatic concentration of wealth transferred from those at the bottom of the economic scale to those at the top.

The current real estate foreclosures? Same deal. Corporate bail-outs? Same deal. More wealth being transferred--being moved away from people like you and I and concentrated in the hands of people at the upper levels of our economic system.

In the case of home foreclosures it is people's life savings being transferred. In the case of corporate bail-outs it is our tax money. No matter to those at the top where it comes from as long as they maintain their dominance in the economic system.

The A-student of Blue Collar Economics asks, "What about my 401k?". Go to the head of the class. And sorry you got burned in the recession. Same deal though. "Thanks for letting us play with your money at your expense. By the way you don't have as much as you used to before you let us invest it for you."

And don't blame yourself if you weren't the A-student. We had some of the "brightest minds" in the country telling us to invest our future in this booming economic engine.
The head of the Federal Reserve Alan Greenspan who was the nearest thing to a god in the financial world admits that he blew the call on the economy.

It is no wonder we were confused. We wanted to believe. The American dream dies hard. As well it should.

So just know--this current recession that is causing your depression is nothing new. It is the cyclical nature of a system that requires illogical growth and investment in financial instruments that have only speculative (and no inherent) value. It is the nature of an economy that relies on consumption and at the same time keeps the profits from getting into the hands of the consumer.

So the game grinds to a halt and the deck is reshuffled. Who will end up holding the cards this time? Who will rewrite the rules of the game?