Washington Ignores the Real Cliff–Unemployment

by Matthew Payne on January 5, 2013Comments Off

So, after the predictable anti-climax to the engineered crisis known as the fiscal cliff (essentially a political ploy by both American political parties to engineer their preferred policy outcomes through crisis management), the data on December’s (and, indeed 2012’s) employment makes it quite clear where the real cliff is. From the estimable blog, Calculated Risk (which is very good at keeping its eye on the ball) on prime-age labor force participation (25-54):

c/o Calculated Risk c/o Calculated Risk

 

And so, the famous “graph of doom” continues to look pretty damn doomish.  At this rate, we should recover from the Great Recession sometime around Rick Santorum’s second administration (or not–a fresh recession is not out of the offing, see below):

c/o Calculated Risk c/o Calculated Risk

 

This grim employment picture has quickly become the “new normal” and the best liberal democrats can do to address it is propose an extension of long-term unemployment benefits–very much a Band-Aid for a sucking chest wound. In fact, no one in the political class or even in the liberal punditocracy seems all that concerned with these statistics–President Obama was even willing to negotiate away his very modest request for stimulus to settle the fiscal cliff issue in a very regressive manner (more on this below). A vast and horrible jobs crisis has become the “new normal” and even liberal allies of the White House in the liberal punditocracy scold folks that we are simply going to have to accept such austere conditions:

JONATHAN ALTER: Well, you know, they‘re right. We are going to have to accustom ourselves to some higher than, you know, old normal percentage of unemployment. You know, I don‘t know whether it‘s seven percent, six percent, whatever. We
could have an argument about that. But clearly 9.7 percent is not tolerable.

“Seven percent, six percent, whatever” (!!)–note that Alter casually dismisses the fate of millions with this ignorant resort to statistics.

From my perspective, this “new normal” is perfectly understandable–it is a species of class war. Again, a great graph from Calculated Risk explains this dynamic:

c/o Calculated Risk c/o Calculated Risk

 

Note, those with a college degree have unemployment rates far lower than even those with some college education. Not surprisingly, this is the very class making policy–things that make you say “hmmm.”

I should note that contrary to President Obama’s campaign promises, his recent fiscal tax deal is highly regressive and recessionary. In fact, taxes have been raised for 77% of American households. “How so?!” the observant reader might ask, as said observant reader has been hearing through two presidential campaigns and from the media that the political battle was over raising rich people’s taxes and insulating the middle class (and just parenthetically, isn’t it interesting that the “middle class” now includes those making 400k a year–in other words those in the top 2% of the income distribution. Hmmm, indeed). But the weird convention of not considering “payroll taxes” (i.e., social security and Medicare deductions) part of “income taxes” (though, oddly, they are taxes on income) allows this sleight of hand. Yes, yes, yes, I know that these payroll taxes are dedicated to social security which is supposed to be excluded from the general revenues as they are allegedly dedicated to procuring social security benefits. But this is errant nonsense–the social security surplus has been funding the U.S. government for more than three decades and the endless efforts of “deficit scolds” to “strengthen” social security by cutting its benefits indicates the political establishment would like to keep that surplus intact, thank you very much).

So, a very odd thing happened during the “fiscal cliff” deal–income lower than 113k was taxed at a higher rate (2% increases in payroll taxes) and income higher than 400k saw an increase in the top marginal income tax rate (450k for couples!). So, the “sweet spot” was 114-400k–in other words, the income level of America’s highly educated professional class (lawyers, doctors, etc.) and those most likely to be making policy. Again, things that make you go hmmm. (And I should note that the general feeling that these folks voted Romney is not actually true–there was a split with the bicoastal rich voting Obama and the heartland rich voting Romney).

So class is not so invisible in American economic policy–you just have to be the right class! Or put more succinctly, the unemployed are largely invisible to the policy makers because these people are largely invisible to those who control our political, cultural and social narratives–the “middle class” (those making 113-400k!!). I should also note the other major stake-holders, corporations, did very well indeed from the fiscal cliff negotiations. In a plan designed to obtain $600 B in new revenues over the next decade, $204 B in tax giveaways were granted to well-connected corporations such as GE, NASCAR, Disney, Goldman Sachs (!) and other assorted special interests. So, Joe Schmoe gets a tax increase and Lloyd Blankenfein gets a tax cut!

Unfortunately, a national economy, as the IMF is belatedly admitting about its malign advice to the EU, is a unified ecology and these elitist liberals and conservatives cannot simply isolate themselves in their enclaves and not be affected by their policies. As mentioned, the increase of payroll taxes with nearly no stimulus will have a recessionary effect. In fact, the age of austerity has come to America. Obama’s 2013 budget actually cuts more from the budget than Cameron’s misguided austerity budget which plunged the UK back into recession (this is the right comparison since the UK, unlike Greece or Portugal, controls its own currency). A cut of 1.9% of GDP is no joke (Cameron cut 1.5 in 2011 and 1.6 in 2012) but will hardly satiate the deficit scolds baying for blood. Various political allies (dare one say “hacks”?) associated with the White House are demanding that the “debt-ceiling and sequestration latest manufactured crisis” be used to attack social welfare spending. Since this is the agenda of the White House’s key corporate allies (brought to you by the oh-so-disinterested “Fix the Debt” group–made up of corporate CEOs, of course), expect more “austerity.”

Here’s the thing, even the CBO scores the fiscal cliff deal as costing the economy about 1% of GDP growth, which in my opinion given the multiplier effect of such cuts that the IMF now admits is much more malign than proposed (“While economists expected that cutting a euro from the budget would cost around 50 cents in lost growth, the actual impact was more like 1.50 per euro.”), one can expect economic growth to stagnate in the United States. This is much more perilous territory than the advocates of deficit-slashing and the “meh” Obama status quo admit. As the charts above indicate, nothing like a jobs “recovery” has occurred while middle-class wealth has been hammered by this recession:

#9. Middle-Class Wealth declines by 35 percent

On July 18, 2012, the U.S. Bureau of the Census made it official: The middle-class is getting poorer. The median family — that family exactly at the mid-point of the wealth ladder  — saw its net worth collapse. (Net worth is all assets minus all liabilities.) In 2005, the median family’s wealth was valued at $102,844 (in inflation adjusted dollars.)  By 2010, the latest Census figures showed a drop of 35 percent to $66,740.

And, oh by the way, (as the great Charlie Pierce likes to say, “People got no jobs. People got no money.”), depressed wages are part of this story as well. Look at the pathetic numbers on wage growth (from the Washington Post):

c/o Washington Post c/o Washington Post

 

This anemic wage growth, while being touted as the best in a year and a half, is actually well below the inflation rate, i.e., most people’s purchasing power has significantly eroded even prior to the nice hit their paychecks will see care of Obama and company. At least some economics writers think the economy is “recovered” enough to deal with this hit to GDP but even these voices are cautious, “With fiscal policy now turning decisively contractionary, America had better hope the animal spirits of business have revived enough for growth to continue without the help of policymakers.” I’m guessing “not so much” with the animal spirits, but what do I know? (I ain’t a spiritualist)

So, this is the “new normal” (one highly beneficial to corporations and the professional class, for now) but we should keep in mind, I suppose, that it could and can be worse. The GOP is so deranged on deficit spending (well, for the other guys–when they’re in power, running up debt is just fine!), that even the modest stimulative effect of a paltry $ 9.7B in disaster relief (of, you know, helping people rebuild so they don’t have to live in their mini-vans) is off limits. Apparently Mr. Paul Ryan and his ilk have an even more malicious view of normality–let’s call it “Greece” (though, I confess the reversion to barter–which I well remember from Moscow, c. 1992 and which played a role in Argentina’s IMF-imposed depression of the 1990s–seems odd economic “progress” to me). Ti me, this looks like a plan–a move to a low-wage, low participation, low-benefit economy in the service of profit and upward economic redistribution (i.e., “shock therapy’) with a slight disagreement on how much misery should be imposed how quickly. But to be quite clear here–this is for the liberals in the crowd–Mr. Obama has chosen to increase that misery, not alleviate it, which should be expected from a guy who considers himself a “moderate Republican.”  Lesser evilism in economic practice–still evil!