[A-List] Why the Big Lie About the Job Crisis?
tal1 at cogeco.ca
Sun Sep 5 12:16:22 MDT 2010
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
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
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
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
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.
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