Sunday, April 10, 2011

1997: The Great Budget Deal

Yes, a deal has been reached, but nothing is ever final in Washington, DC. And as Mark Twain may or may not have said, history may not repeat itself, but sometimes it rhymes:

So there do seem to be some signs of a healthier economy, and not just in Tucson. The stock market is humming along, and we have the lowest inflation and unemployment numbers in decades. Of course, those unemployment numbers can be a bit deceiving. The official Commerce Department rate doesn't calculate the number of discouraged workers and involuntary part-timers in its monthly data on who's out of work. If they did, our unemployment rate would be roughly double what's reported, a number pretty much in line with those of the European Community.

Still, things could be a lot worse... and for plenty of folks, they are.

While the stock market surges and corporate profits and CEO salaries hit new highs, wages for most nonsupervisory workers remain stagnant, just as they have since 1973. Anything more than modest improvements in wage levels is sure to be dampened by Federal Reserve policies. So while productivity is rising, America's workers aren't really taking in their share for the harder work they've been doing. This has contributed to some of the highest gaps between the wealthiest and poorest among us since the 1920's, an ominous sign if there ever was one.

Because with so much wealth concentrated in so few hands, there won't be enough left over to purchase the goods and services offered in today's wonder economy. This sort of situation has led to general economic contraction plenty of times before. Doesn't mean it necessarily will this time, but the scenario is being played out now on a global level. The massive outsourcing of labor and arbitraging of labor costs across the planet is leading to downward pressure on wages and living standards. At the same time, the corporations engaged in manufacturaing on a planetary level have an immense overcapacity of production on their hands.

With surpluses of both goods and labor, everybody is hoping that the eventual reckoning will be the other guy's problem– except that it doesn't usually work that way. Back here in the US of A, those jobs that can't be outsourced are being shrunk to part-time status, which is part of what makes the UPS strike so important. Dividing jobs in half and giving them to lower-wage, lower-benefit part-timers will be a much bigger growth trend in coming years if UPS is allowed to get away with it. And perhaps you've heard about the plan that the GOP Congress is considering, which would instantly redefine millions of workers as "independent contractors," thus ineligible for Medicare or Social Security contributions and other workplace protections.

Which brings us to that budget deal. Let's just leave aside the absurdity, lost on the White House and the Congress, of cutting capital gains taxes in order to stimulate the economy – during the biggest bull market in memory. Line item veto or no line item veto, the amount of corporate welfare left in, and added to the coming budgets truly staggers the imagination. If even a fraction of that were eliminated, there would be enough funds left over to put millions to work on rebuilding our infrastructure. This would create more demand for the oversupply of goods the world's corporations are sitting on.

But stimulating demand is the very last thing that Fed chair Alan Greenspan wants to see. So maybe some of that exuberance is a little irrational after all.

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