[A-List] Why the Big Lie About the Job Crisis?

[Tony B.]

Why the Big Lie About the Job Crisis?

By Les Leopold

September 03, 2010 "Huffington Post" -- The August unemployment numbers are 
ugly, yet again. Nearly 30 million Americans are still jobless or forced 
into part-time jobs. The Bureau of Labor Statistics official unemployment 
rate is 9.6%. It's borader and more telling jobless rate (U6) of 16.7% 
confirms that we're stuck in our own version of the Great Depression. We'll 
need more than 22 million new jobs to bring us back to full-employment. 
Happy Labor Day.
To get out of this quagmire we'll have to face up to two fundamental facts:
1. We really are in the midst of a horrific jobs crisis. All the happy talk 
about the economy being on the road to recovery is just plain old denial. 
We'll never find jobs for all the people who desperately need them until we 
recognize that this employment crisis poses a clear and present danger to 
our republic. Modern capitalist societies require full employment. When we 
don't have it for long periods of time, chaos ensues. What's missing in 
Washington is a sense of urgency. Denial is dangerous -- and an insult to 
the unemployed.
2. We must face up to the real causes of this mess. Unfortunately, a lot of 
Americans are succumbing to a wrong-headed narrative that has been pushed 
into our heads:
"We Americans sank ourselves in debt. We consumed more than we produced. We 
bought homes we couldn't afford and used them as ATMs. Of course Wall Street 
did its part by offering us mortgages they knew we couldn't really afford. 
The government also contributed mightily by pushing Fannie and Freddie, the 
giant housing agencies, to underwrite "politically correct" loans to 
low-income residents who shouldn't have been buying homes at all. In short, 
we all are to blame."
>From a flawed narrative always comes a flawed policy prescription:
"The era of excess is over. We need to cut back on spending and borrowing. 
We need to reduce government debt by raising the Social Security retirement 
age and cutting social programs We've got to streamline our public sector by 
laying off public employees and cutting back their lavish pensions. And all 
workers will have to adjust to an era of intense foreign competition: We've 
got to reduce our wage and benefit demands if our companies are going to 
compete globally. We have to live within our means."
In short, we gorged ourselves until the economy crashed. Now we've got to 
tighten our belts and accept less to get it going again. It's simple and 
logical and.....dead wrong.
Collective guilt is always seductive. It may even be programmed into our 
genes. It's possible that prehistoric homo sapiens survived by sharing blame 
in difficult times. But that soothing instinct does not serve us well today. 
We need to know the truth behind this crisis if we're going to come close to 
solving it.
For starters, "we" didn't create this mess. Wall Street did, with the help 
of politicians who pushed through financial deregulation and an increasingly 
regressive tax structure that put outrageous sums of money in the hands of a 
few. Freed from regulations and flooded with money, Wall Street bankers went 
crazy. And before long, our economy crashed.
It really is that simple. Starting in the late 1970s our country embarked on 
a grand real-time experiment to "unleash" the economy from government rules 
and oversight. The theory was that to end the era of "stagflation," we had 
to cut taxes on the super-rich, freeing them to lead a gargantuan investment 
boom that would of course lift all boats. At the same time, the financial 
sector was liberated from its New Deal-era shackles. Yes, those constraints 
had prevented a financial crash for more than 40 years. But now, argued the 
best and the brightest, the new world order required a more nimble financial 
sector. Naturally, the markets could police themselves.
In retrospect it seems like a very bad joke.
Actually, the plan did work beautifully for the top one percent of us. In 
fact, these excessively wealthy people laughed all the way to the bank. 
America's distribution of income, which had been reasonably equitable during 
the post WWII era, flew apart. In 1970 the top 100 CEOs earned about $45 for 
every dollar earned by the average worker. By 2008 it was $1,081 to one.
With so much wealth in hand, the super-rich literally ran out of tangible 
goods and service industries to invest in. There simply was too much capital 
seeking too few real investments. And what a honey pot that proved to be for 
Wall Street's financial engineers! Freed from any limits on constructing 
complex new financial products, hedge funds and too-big-to-fail banks and 
investment houses created an alphabet soup of new securities with the 
sky-high yields the super-rich craved. The rating agencies abetted the crime 
by blessing these flimsy products with AA and AAA ratings.
Wall Street built this flim-flam of finance out of junk debt -- like 
sub-prime mortgages -- which it could pool, slice, and resell for enormous 
profits. In fact, selling these bogus securities was the most profitable 
enterprise in the history of Wall Street. Wall Street wrapped credit default 
swaps and collateralized debt obligations into pretty packages so that they 
could literally sell the same underlying junk assets again and again. It was 
through these marvelous feats of financial engineering that a $300 billion 
sub-prime crisis turned into a multi-trillion dollar catastrophe. (Check out 
The Looting of America for all the gory details.) And that's how, the big 
bankers -- not us -- pumped up the biggest housing bubble in history. Wall 
Street didn't need Fannie or Freddie or low-income homebuyers. It just 
needed deregulation, a lot of super-rich people with money to burn, and junk 
debt it could spin into AAA gold.
The whole scheme worked just fine as long as the underlying collateral (our 
homes) appreciated year after year. But as soon as housing prices peaked, it 
was game over. The upside-down pyramid of debt and junk financial 
instruments came crashing down. The entire credit system froze, tearing a 
gaping hole in the real economy. Eight million jobs were destroyed in a 
matter of months.
The cause of the crash is no mystery. The Great Depression happened the same 
way: a skewed distribution of income combined with a deregulated financial 
sector created a big bubble, and it burst. The only way to break the cycle 
is to attack those fundamental causes -- we need to move money from the very 
top of the income ladder to the middle and the bottom, and we need to tie 
Wall Street up in regulatory knots.
Through steep progressive taxes on the super-wealthy, fair income taxes on 
hedge funds and transaction fees on Wall Street's proprietary trading, we 
can keep that bubble from reinflating -- and in the process raise the money 
we need to put America back to work. With the revenue we collect, we can 
hire millions of people to weatherize homes and buildings and rebuild our 
infrastructure. Instead of laying off teachers we can hire more, and provide 
them with better training and support. We can expand universities and 
colleges too, and allow people to go to college for free, which will improve 
our peoples' skills -- and keep young people off the unemployment rolls.
Of course all this would be costly in the short run. But progressive taxes 
on the super-rich and a windfall tax on Wall Street profits and bonuses 
would pay for it all, and then some. The American people would understand 
that it's only fair to require the super-rich (whom we just bailed out) to 
fund the jobs they helped destroy through their reckless financial gambling. 
And in the long run, investing in infrastructure and education will make our 
country richer. Just look at the GI Bill: Giving returning WWII vets a free 
college education was expensive -- but Congress later found that every 
dollar spent on the program yielded a return to our economy of $6.90.
Are we really justified in reclaiming this wealth from Wall Street? Well, 
it's our wealth, isn't it? We just gave it to them. I'm talking about the 
nearly $10 trillion (not a typo) we shelled out to financial institutions in 
loans, asset guarantees, market supports, low-interest loans and a myriad of 
other forms of assistance as part of our rescue of the financial system. 
Now, thanks to our largess, the bankers are back to making record profits 
and bonuses again. Even President Obama, who helped engineer the whole deal, 
is apparently aghast. In his new book Capital Offense, Michael Hirsch quotes 
Obama at a White House meeting in December 2009:
"Wait, let me get this straight. These guys are reserving record bonuses 
because they're profitable, and they're profitable only because we rescued 
them."
During 2009, the worst economic year since the Depression, the top ten hedge 
fund honchos averaged $900,000 an hour (that's $1.8 billion each per year). 
And they did it only because we saved their butts from total collapse. Now 
it's payback time. The bankers owe the American people hard cold cash, not 
just the promise of a great trickle down in the distant future.
Incredibly, Wall Street executives are howling over every proposal to limit 
their profits or, god forbid, stick them with part of the bill for all the 
damage they've caused. They refuse to admit that they've done anything 
wrong. In fact they feel victimized. They seem to believe that skimming 
billions from our financial system via taxpayer bailouts is a good thing for 
everyone. Can they really believe that if we just left them alone, new jobs 
would flow like wine?
Wall Street billionaire Steve Schwarzman got apoplectic when someone 
suggested that we close his favorite tax loophole (carried interest which 
allows him to pay a much lower tax rate than the rest of us). That would be 
"like when Hitler invaded Poland in 1939," he fumed.
Let's stay with his regrettable analogy. Surely Schwarzman knows that Hitler 
rode to power in 1932 on the back of Germany's massive unemployment crisis. 
And surely he knows that a massive jobs programs funded by taxes on the 
ultra-rich is a far better alternative.
It's time to say "the end" to the "We're all to blame" fairytale. Let's 
start a new story this Labor Day. It's called, "Put our people back to 
work."
Les Leopold is the author of The Looting of America: How Wall Street's Game 
of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We 
Can Do About It Chelsea Green Publishing, June 2009.