Struggle of Every Day People

Statement on New Economic Data Released by the Commerce Department

Today, NDN issued the following press release:

Statement from Dr. Robert J. Shapiro, Chair of NDN’s Globalization Initiative, on new economic data released by the Commerce Department:

“While this week’s news on the economy growing in the third quarter is welcome, most of those gains came from the President’s stimulus, so we’re still a long way from a self-sustaining recovery.  And today’s news of falling personal incomes last month and a sharp downturn in consumer spending shows how hard this recession has been for most Americans,” said Shapiro, former Under Secretary of Commerce for Economic Affairs in the Clinton Administration. “These developments come on top of what happened to most people in the last expansion – when their wages stagnated even as the economy was growing.  Political leaders in Washington shouldn’t let wishful thinking cloud their planning for 2010 – the economy still needs help, and the American people need a government prepared to make serious long-term investments in their future prosperity.”

The Dire Data on Permanent Job Loss

Via Mark Thoma, Atlanta Fed Senior VP and Research Director David Altig weighs in on the high likelihood of a jobless recovery. He brings to light an interesting number on the permanence of job losses, and the whole post is a good round up what will be a very scary subject:

The percentage of employee separations labeled permanent is at a recorded high.

Underneath the usual total unemployment numbers are the reasons an individual is unemployed: You are on temporary layoff; you quit your job; you have reentered the labor market and have yet to find a job; or you are entering the job market for the first time and have yet to find a job. Or, finally, you have been permanently separated from your previous employer, who has no expectation of hiring you back.

The last category is the dominant reason for unemployment at this time. That might not seem surprising, but it actually is. Never, in the six recessions preceding the latest one, did permanent separations account for more than 45 percent of the unemployed. The current percentage stands at 56 percent as of September and appears to be still climbing:

Job Loss

As Dr. Rob Shapiro tells us, the concept of a jobless recovery is scary, but even worse is that the term may overstate the case. We could be in for what is technically a recovery in which the economy actually loses jobs. 

Friedman on a 21st Century Agenda for Worker Skills

Today, Thomas Friedman writes about the "education breakdown" in America:

“Our education failure is the largest contributing factor to the decline of the American worker’s global competitiveness, particularly at the middle and bottom ranges,” argued Martin, a former global executive with PepsiCo and Kraft Europe and now an international investor. “This loss of competitiveness has weakened the American worker’s production of wealth, precisely when technology brought global competition much closer to home. So over a decade, American workers have maintained their standard of living by borrowing and overconsuming vis-à-vis their real income. When the Great Recession wiped out all the credit and asset bubbles that made that overconsumption possible, it left too many American workers not only deeper in debt than ever, but out of a job and lacking the skills to compete globally.”

This problem will be reversed only when the decline in worker competitiveness reverses — when we create enough new jobs and educated workers that are worth, say, $40-an-hour compared with the global alternatives. If we don’t, there’s no telling how “jobless” this recovery will be.

A Washington lawyer friend recently told me about layoffs at his firm. I asked him who was getting axed. He said it was interesting: lawyers who were used to just showing up and having work handed to them were the first to go because with the bursting of the credit bubble, that flow of work just isn’t there. But those who have the ability to imagine new services, new opportunities and new ways to recruit work were being retained. They are the new untouchables.

That is the key to understanding our full education challenge today. Those who are waiting for this recession to end so someone can again hand them work could have a long wait. Those with the imagination to make themselves untouchables — to invent smarter ways to do old jobs, energy-saving ways to provide new services, new ways to attract old customers or new ways to combine existing technologies — will thrive. Therefore, we not only need a higher percentage of our kids graduating from high school and college — more education — but we need more of them with the right education.

As the Harvard University labor expert Lawrence Katz explains it: “If you think about the labor market today, the top half of the college market, those with the high-end analytical and problem-solving skills who can compete on the world market or game the financial system or deal with new government regulations, have done great. But the bottom half of the top, those engineers and programmers working on more routine tasks and not actively engaged in developing new ideas or recombining existing technologies or thinking about what new customers want, have done poorly. They’ve been much more exposed to global competitors that make them easily substitutable.”

There is no doubt that our education system is badly in need of an upgrade, but we also must be cognizant of fact that much of the current workforce just does not posses the skills to succeed in the globally interconnected, idea-based economy. This isn’t just a phenomenon of this recession; everyday Americans spent much of the Bush era falling behind due to the inability of their government to respond to their struggle and find a way to make the inextricably powerful forces of globalization work for all Americans. 

In that spirit, NDN’s Rob Shapiro has proposed a program to provide free computer training to all Americans, which can be found here and recently passed the House of Representatives in H.R. 3221, the Student Aid and Fiscal Responsibility Act.

What's Happening With Wages?

A couple of interesting notes out on wages today: As background, we've long argued that getting wages and incomes up was the primary governing challenge of the day, going back to the Bush economy that saw wages stagnate and incomes decline. 

David Leonhardt from the New York Times points out that wages are actually increasing in the recession for those who are employed. But those who aren't are having an incredibly hard time finding a new job. Employment churn seems to be at quite the low.

Mark Thoma excerpts the latest Economic Outlook from the San Francisco Federal Reserve, which sees "anemic recovery" and "weakness in wage growth." Not good.

For more on the politics of incomes and wages, take a look at Simon's recent essay on focusing national attention on creating a new economic strategy for America. 

New Poll: Everyday Americans Continue to Feel Economic Pain

A new Washington Post-ABC News poll says a few things about the politics of the economy that are important to know as we head into the fall. A few points:

Painful personal experiences over the past year continue to dampen the outlook of many Americans. About two-thirds of those polled say they have been hurt financially by the recession, with extensive reports that job losses and pay reductions are hitting home. 

Nearly six in 10 Americans are now concerned about job or pay losses in the coming months, little changed since February, and there has been no increase in the percentage who see the federal government's stimulus efforts as having an impact, even as the pace of layoffs has eased in recent months. 

Americans feel like their incomes have decreased because they, in fact, have. So what does this polling data mean? As Simon recently wrote:

Getting incomes and wages up in this new economy of the 21st century is in fact the most important domestic challenge facing the country, and one the American people are demanding a new national strategy for. This fall is the time for the President to make it clear to the American people that he understands their concerns, has a strategy to ensure their success in this new economy, and will make their success the central organizing principle of his Administration until prosperity is once again broadly shared.

Things may be headed that direction. The President spoke Monday about new financial regulations, and, with more and more of the funds from the stimulus being obligated everyday, it shouldn't be too heavy of a lift to increase the number of those who see the stimulus as having a positive impact.

Everyday Americans Now Earning Less Than a Decade Ago

NDN has long pointed out that median household income dropped by roughly a thousand dollars during the Bush era, creating a middle class that was weakened even prior to the great recession. Now, Census Bureau data tells us that household income has again dropped, meaning that everyday Americans have taken a loss over the last decade. From the New York Times:

In another sign of both the recession and the long-term stagnation of middle-class wages, median family incomes in 2008 fell to $50,300, compared with $52,200 the year before. This wiped out the income gains of the previous three years, the report said.

Adjusted for inflation, in fact, median family incomes were lower in 2008 than a decade earlier.

"This is the largest decline in the first year of a recession we've seen since the Census Bureau started collecting data after World War II," said Lawrence Katz, an economist at Harvard University, referring to household incomes. "We've seen a lost decade for the typical American family."

Coupled with rising costs, specifically in health care (I'm sure you've heard about this recently), energy, and pensions, dropping incomes mean that the economic wellbeing of everyday Americans is significantly worse than a decade ago. Add in all the wealth destroyed by the systemic financial meltdown and the collapse of the housing market, and we're talking about an economically crippled American middle class.

Still Must do More to Keep People in Their Homes

From the Financial Times, the slumping economy is causing more trouble for the housing market:

More than one in every eight homeowners with a mortgage was behind on home loan payments or in some stage of foreclosure at the end of the second quarter, as mounting unemployment aggravated the housing crisis, the Mortgage Bankers Association said on Thursday.

The percentage of loans that were in foreclosure or at least one payment past due rose to 13.16 per cent, the highest increase since the MBA began keeping records in 1972 and a jump of more than a percentage point since the first quarter.

Jay Brinkmann, chief economist at the MBA, said signs were growing that mortgage performance is being affected more by unemployment than by the structure of risky home loans, indicating a new stage in the foreclosure crisis that may not be easily addressed by government loan modification programmes.

While the proportion of foreclosures started on borrowers with subprime adjustable-rate mortgages fell dramatically in the second quarter, foreclosure starts on traditional prime fixed-rate loans saw a dramatic increase. Prime fixed-rate loans accounted for one in three foreclosure starts at the end of the second quarter. A year ago they accounted for one in five.

"There has been a shift in the problem from one driven by the types of loans to one driven by macro problems in the economy and drops in house prices," said Mr Brinkmann.

It seems like we still must, as NDN has argued since last September, do more to keep people in their homes.

New Jobless Numbers Worse than Expected

The Washington Post's Ticker blog reports on new jobless claims:

New jobless claims last week jumped to 576,000, a figure higher than economists expected, the Labor Department reported moments ago.

The new jobless claims number was up 15,000 from the previous week's revised numbers. Economists expected a drop of about 11,000 last week.

The figure wiped out stock futures gains that had been promising a higher market opening today.

It also suggests more job losses to come this month. The official national unemployment rate stands at 9.4 percent, but most economists -- and the White House -- expect the figure to peak at more than 10 percent.

Analysts suggest that the economy needs to see fewer than 500,000 new jobless claims per week for several weeks in a row before an unemployment bottom can be called.

More data suggesting that the underlying economic situation is less sound than many believe. The economy didn't fall off the cliff, but it seems like we're still sliding down that mountain. Also, Nouriel Roubini wants us to stop asking when the recession will end.

What Does a True Recovery Look Like?

John Plender in the Financial Times says that the way global finances look now certainly isn't it:

To escape from the global imbalances that are at the root of this financially induced recession, creditor countries need to stimulate their economies while the mainly Anglophone debtor countries moderate their excesses.

Japan, China and Germany, the biggest surplus countries, have, in the event, embarked on greater domestic stimulus than some had expected. Yet the US stimulus remains disproportionately large, while investors are looking to the already heavily indebted American consumer to do more to drag the world out of recession.

This does not amount to a sustainable exit strategy and in policy terms looks curiously like a re-run of the early 1930s in reverse. Then, countries that adhered to the Gold Bloc matched deflation in the US with their own deflationary response. Today, an exchange rate regime where many Asian currencies are pegged to the dollar means that asset price inflation in the US is being matched by asset price inflation in Asia.

There is an echo here of the debate at Bretton Woods, where the postwar international financial architecture was thrashed out in 1944. In the negotiations, John Maynard Keynes for the UK tried to secure an international adjustment mechanism that was as tough on countries that ran persistent surpluses as on countries that ran persistent deficits. Such was the weakness of the UK's economic position that Harry Dexter White, the US Treasury secretary, prevailed.

The US was the world’s biggest surplus country and expected to continue that way. So the Bretton Woods agreement incorporated no sanctions on surplus countries and no real incentives for adjustment by countries that persistently piled up reserves. Bretton Woods did not last very long. Current exchange rate regimes look no more durable. Meantime, the risk that mercantilist exchange rate policies will prompt trade retaliation remains high, as does the risk of investor disappointment if US consumers choose to continue to rebuild their savings. They have no obligation, after all, to embark on a further binge purely to justify share prices that have run ahead of events.

The issue of how American consumers were going to act following the Great Recession is one we at NDN have written about quite a bit. For more, take a look at:

President Obama Begins Hard Economic Conversation with America

In his speech yesterday announcing the American Graduation Initiative, President Obama sounded a new, tougher tone about the past and future of the American economy. NDN has long argued that, prior to the Great Recession, everyday Americans – faced with declining incomes, stagnating wages, and rising healthcare, energy, and pension costs – had been in a recession for nearly a decade. In his speech, the President discussed that fact, noting that we have to do more to ensure broad based American prosperity.

Here's what the President said about how we got here and the New Foundation we must create (emphasis added):

…the hard truth is, is that some of the jobs that have been lost in the auto industry and elsewhere won't be coming back.  They're the casualties of a changing economy.  In some cases, just increased productivity in the plants themselves means that some jobs aren't going to return.  And that only underscores the importance of generating new businesses and new industries to replace the ones that we've lost, and of preparing our workers to fill the jobs they create.  For even before this recession hit, we were faced with an economy that was simply not creating or sustaining enough new, well-paying jobs.

So now is the time to change all that.  What we face is far more than a passing crisis.  This is a transformative moment.  And in this moment we must do what other generations have done.  It's not the time to shrink from the challenges we face or put off tough decisions.  That's what Washington has done for decades, and it's exactly why I ran for President -- to change that mindset.  Now is the time to build a firmer, stronger foundation for growth that will not only withstand future economic storms, but that will help us thrive and compete in a global economy. 

As Simon wrote a few weeks ago, if the President can build a new narrative around the argument that the economic direction of the United States was untenable prior to the Great Recession, pieces of the President's agenda – reforming health care and energy policy and enabling future growth by creating a 21st century workforce (amongst many, many other pieces) – become crucial. It also allows the President to lead a badly needed national conversation about how we are going to remake a saner, more prosperous American economy that goes beyond recovery to respond to the great challenges of globalization.

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