Economy

This month’s off year elections sent one message to Washington that has been heard loud and clear. Voters expect Congress to focus on the economy, especially employment, and take decisive and affirmative steps to deal with both the causes and ravages of the greatest economic downturn in the U.S. since the Great Depression. As the Obama administration considers a variety of new proposals to help bring down the unemployment rate, one key constituency is raising its voice and asking for a return on the investment it made in his presidency.

Members of the Millennial generation, born between 1982-2003, who were eligible to vote in 2008 went for Barack Obama over John McCain by a 2:1 margin and made up over 80% of the President’s winning margin. They continue to support his presidency and identify as Democrats by similar margins. A late October Pew survey indicates that Millennials identify as Democrats over Republicans by almost 20 percentage points (52% vs. 34%), well above the 8-point Democratic advantage among older generations. In the latest Research 2000 weekly tracking survey conducted for Daily Kos, 80% of Millennials had a favorable opinion of the president; only 14% of everyone in this generation viewed him unfavorably. This compares with a 55% vs. 39% favorable/unfavorable ratio among the entire electorate in both the Research 2000 survey and in a series of November surveys conducted by organizations ranging from ABC News and the Washington Post to Fox, although some other polls put the President’s job performance ratings closer to 50%.

But despite the clearly stronger support the President has among their generation, Millennials are increasingly restive about the lack of action in Congress to address the economic problems they face – both now and in the future.

Recent Pew research studies underline the major impact that the recession has had on individual Americans and their families. Thirteen percent of parents with grown children told Pew researchers that one of their adult sons or daughters had moved back home in the past year. Pew found that of all grown children living with their parents, 2 in 10 were full-time students, one-quarter were unemployed and about one-third had lived on their own before returning home. According to the census, 56 percent of men 18 to 24 years old and 48 percent of women were either still under the same roof as their parents or had moved back home.

The lack of jobs was particularly acute among adult members of the Millennial Generation (18-27 year olds), 61% of whom said that they or someone close to them was jobless recently. A clear plurality (46%) says that the “job situation” rather than rising prices (27%), problems in the financial markets (14%) and declining real estate values (7%) is their major economic worry.

As a result, the number one concern among Millennials is the state of the economy and the need for jobs, but they have a unique perspective on how to deal with this issue.

Millennials believe there is a clear link between education and employment and are increasingly concerned that the pathway through the educational system into the world of work is becoming increasingly more difficult and expensive to navigate. Last week, about one hundred of the nation’s top private sector and government leaders gathered for the Wall Street Journal’s CEO Council also identified education as the nation’s top economic priority.

For Millennials, the problem is personal. A smaller share of 16-to-24-year-olds – 46 percent – is currently employed than at any time since the government began collecting that data in 1948. A job market with Depression-level youth unemployment (18.5%) and a wrenching transformation in the types of jobs America needs and produces makes the implicit bargain of education in return for future economic success harder for Millennials to believe in every day.

Recently Matt Segal, Executive Director of the Student Association for Voter Empowerment (SAVE) and Founder and National Co-Chair of the “80 Million Strong for Young Americans Job Coalition” presented some ideas to the House Education and Labor Committee on what Congress could do to address this challenge. He advocated increased entrepreneurial resources be made available to youth; more access to public service careers through internships and loan forgiveness programs; and the creation of “mission critical” jobs in such fields as health care, cyber-security and the environment that would tap the unique talents of this generation. Since two-thirds of Millennials who graduate from a four-year college do so with over $20,000 in debt, debt, his testimony also urged immediate Senate approval of the student debt reform bill recently passed by the House.

There is more that can be done beyond these excellent recommendations. This summer, the President's Council of Economic Advisors released a report outlining the importance of community colleges in making America's workforce more competitive in the global economy. "We believe it's time to reform our community colleges so that they provide Americans of all ages a chance to learn the skills and knowledge necessary to compete for the jobs of the future." The report urged Congress to pass House Democratic Caucus Chairman John Larsen’s bill, The Community College Technology Access Act of 2009, in order to help meet President Obama’s goal of graduating five million more Americans from community colleges by 2020.

Millennials, like their GI Generation great grandparents in the 1930s, are facing economic challenges that caught them by surprise and for which no one prepared them. But Millennials aren’t looking for a handout or sympathy. Instead, in the “can do” spirit of their generation, they are organizing to overcome the challenges created for them by their elders. It’s time for the Democrats who control Congress to recognize these concerns and to act decisively on their behalf.

This essay was cross-posted at New Geography.

Last night I joined Richard Trumka, President of the AFL-CIO, and Robert Kuttner, the co-editor of the American Prospect, on a panel in front of the House Democratic Caucus.  Each of us offered our thoughts about what a new economic strategy for America could look like.  After our presentations, a passionate and intense discssion broke out about the struggle of every day people in America today.  Several members spoke eloquently, and with great feeling, about the pain and suffering they are seeing in the eyes of their constituents, and the simple desire Americans have for their government to act definitively on their behalf in a time of national struggle.

You can feel the sensibility of Washington transitioning now from the many issues discussed this year to a single central focus - doing something about the increasingly difficult struggle of every day people in this more competitive global economy and in the midst of the Great Recession.  As readers of this blog know, developing a new economic strategy for America in this new economic era has been the central obsession of NDN these past few years, and we have offered more than a few essays, events and posts addressing it all.  We welcome this turn and stand ready to work with policymakers here in Washington to develop this new strategy, and then see it through in the years to come.

Over the weekend I wrote this essay about the rise of China and other developing nations and what it means for the US.  Jake Berliner, deputy policy director for our Globalization Initiative, just put together this comprehensive summary of our major work over the past few years.

And, as always, interested in hearing from you with your thoughts about the economy and what just might go into this new economic strategy for America.  It is long past time we had this debate about economic future in the face of fast changing domestic and global economies in earnest.

Thanks to Rep. John Larson and his very able team for putting together the excellent conversation.  A debate began last night that I think will be echoing through the halls of Congress for months to come.

Update - The briefing book the Members of Congress received last night included this recent NDN essay, "The Key to the Fall Debate: Staying Focused on the Economy."

Update 2 - The Hill reports on the meeting last night, and the new "jobs" strategy emerging from the House.

As national attention pivots toward the economy and employment, I'd like to present some some key analysis and narrative from NDN on the breakdown in job and wage creation in America:

• Health Care's Raw Deal for Middle-Class Families by Dr. Robert J. Shapiro, 11/11/2009 - Shapiro argues that if the American middle class knew how adversely incomes were being impacted by health care costs, a political upheaval on the level of the 1970’s tax revolt might take place in America. This dynamic makes containing health care costs one of the great political and economic challenges of the day. 

• Sifting Through the Economic Messages From the Elections Last Night by Simon Rosenberg, 11/4/2009 - Exit polls show that the most important factor to voters is the economy, as the old, 20th century economy is not working for everyday Americans anymore. To have electoral and governing success, policymakers must make a the creation of a new, 21st century economy their central focus. 

• What Washington Should Understand and Do to Create Jobs by Dr. Robert J. Shapiro, 10/8/2009 - Even the term "jobless recovery" understates how dire America's economic situation is, as the economy now faces structural problems to create jobs and wage growth. With no silver bullet in sight, policymakers must set their sites on creating an agenda and conversation around long-term, broad based prosperity. 

• The Key to the Fall Debate: Staying Focused on the Economy by Simon Rosenberg, 9/3/2009 - The summer months were not good ones for Democrats, but Rosenberg argues that there is a roadmap for how they can get back on track: staying relentlessly focused on the economy and the struggle of every day people.  

• Noticing and Solving the Problem with Jobs and Wages by Dr. Robert Shapiro, 7/23/2009 - The ability of the American economy to create jobs and wage growth, even in times of productivity and GDP growth, has broken down. Policymakers must adjust to this new economic reality.

• Not Taking the Presidential Eye Off the Economic Ball by Simon Rosenberg, 7/2/2009 - The economy is the singular dominant issue in American politics today, and the administration must craft a response to that, understanding that few want a recovery that takes America back to the Bush economy.

• Time to Face the Facts: The Economy Probably Won’t Get Better For Quite a While by Dr. Robert Shapiro, 4/9/2009 – Shapiro's most recent economic analysis says that the economy could be stuck in the Great Recession for long period of time, and that a v-shaped recovery is unlikely.

• A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.

• Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.

• Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay on the economic need to stabilize the housing market.

• Making the Struggle of Every Day People the Central Focus of the National Debate by Simon Rosenberg, 8/17/2008 - As the 2008 presidential campaign entered a crucial phase, Rosenberg argued that political leaders must focus on raising the wages and incomes of Americans.

• Poll: Economic Strategies and Globalization conducted by Pete Brodnitz, Benenson Strategy Group, 11/8/2007 - This poll of attitudes toward the economy and globalization found that Americans understand the modern nature of globalization, want government to give them the opportunity to succeed through investment, and believe innovation is a key strength of the American economy. Americans also saw the economy getting much worse, and they were right, as the recession officially began just a month later.

• The New Landscape of Globalization: The Real Foundations of American Prosperity in the 21st Century by Dr. Robert Shapiro, 6/20/2007 – Shapiro offers this forward-looking paper on the state of globalization, the structural problems facing the American economy, and a road map to prosperity in this new economic era.

• Voters Deliver a Mandate for a New Economic Strategy by Simon Rosenberg, 11/10/2006 - In analysis of exit polls from the 2006 elections, which chased Republicans from power, NDN argued that the most important factor, even in an election most thought was decided on the war in Iraq, was the economy. 

• Meeting the Challenges of the 21st Century: Crafting a Better CAFTA by Simon Rosenberg, Dr. Robert Shapiro, and Joe Garcia, 6/9/2005 - NDN calls on policymakers to face squarely a vision of how globalization can and should work, and how rapid economic liberalization, generally a positive for America and the world, must be accompanied by a commensurate investment in the economic well-being of everyday Americans, who have not seen the expected wage gains despite strong productivity and GDP growth. 

Yesterday morning NPR featured a segment on a study highlighted by The New Republic that shows that the poverty rate among Hispanics/Latinos has jumped at a rate much higher than for any other demographic.  The number of Hispanic children now living in poverty has swelled by 12%, while that number actually fell among other minorities.  Income has also gone down for Latinos more than for any other group - decreasing by an average of 5.6% for Latinos, while income only decreased about 2.3% for non-Hispanic whites and among blacks.  This data suggests serious demographic concern. 

Almost exactly one year ago, I wrote about the economic plight of Latinos in honor of Hispanic Heritage month.  As this month begins anew, it is evident that things have not gotten any better for Latinos, rather the economic situation among this demographic has worsened, which in turn will have a ripple effect on all communities. 

Drop by or watch on-line noon today for the first in a series of new events we will be holding this fall on the global and American economies.  We launch today with Rob Shapiro and the reknown Dr. Jagdish Bhagwati.  Hope you will join us in person or over the web. 

In an essay I released last Thursday, The Key to the Fall Debate: Staying Focused on the Economy, I make the case that the most pressing domestic challenge facing the nation today is to get people working again, and incomes and wages rising.

A Times editorial today asks a question we've been asking for sometime:

Without job growth and pay raises, consumer spending will not revive substantially because alternative sources of spending power — home equity and credit cards — are largely tapped out. And without an upsurge in spending, businesses will not add workers, and so on, in a decidedly unvirtuous cycle.

It has become commonplace to explain each dismal job report by saying that a resurgence in employment always lags general economic recovery. But with the job market severely wounded, and with consumer spending expected to be weak for a very long time, it could easily take until 2014 for employment to recover. It’s safe to say that five years or more of subpar job growth is not what most people have in mind whenthey think of a “lag.”

The question, then, is how bad does it have to get before the Obama administration and Congress make job creation a priority.

Will administration officials and lawmakers fight for new laws to make it easier to form unions, which are especially important in elevating and protecting the jobs of low-income workers? How will professed support for green jobs be translated into a manufacturing policy that promotes good jobs? Will efforts to improve the educational system also include serious efforts to train and retrain people for new jobs?

On Thursday I released a memo, The Key to the Fall Debate: Staying Focused On The Economy, which made the case that getting people back to work, and wages and incomes up, is the most important domestic challenge facing our government today.

David Roche in the FT tomorrow:

When Volker walked into the Fed 30 years ago, the US national savings rate had been relatively static for decades at around 20 per cent of GDP and total US debt to GDP was about 160 per cent. Household debt was 47 per cent of national income. When the credit bubble burst in August 2007, the national savings ratio had fallen to 14 per cent of GDP and debt had risen to 350 per cent with household debt at just under 100 per cent of GDP. Even today, household debt in the US, although now contracting, still exceeds the level at the beginning of this crisis.

The disinflationary forces that drove the switch from thrift to leverage are over. This means the next decade will be one of replacing leverage with thrift. That will hurt retail spending.

The latest increase in the savings rate may be a positive trend in itself. But so far it has only been possible because of the Obama stimulus package. That has accounted for all the 5 per cent growth in household income so far this year. All that has happened is the consumer has saved and not spent the fiscal handouts financed by the Obama debt splurge. From now on, the impact of the stimulus measures will slowly wane and that means any rise in household savings will hit consumption directly.

This will set off feedback loops between the real economy and financial one, in the opposite direction to that we have been experiencing. It will cause consumer incomes and employment to deteriorate, along with the real economy, giving rise to increased defaults on consumer credit, commercial real estate and other loans, as well as, of course, housing mortgages. The default ratio on prime mortgages is already well above the US treasury’s stress test limit set for the banks. And the default rates on consumer debt, including credits, are rising very fast. The credit crisis hit to banks’ balance sheets is far from over.

I am still not yet on the economist optimist's bandwagon.  At the core of so much now is understanding how weak this decade was for the average consumer in America before the Great Recession kicked in.

In a post a few weeks ago I argued that policymakers were going to have to attack our core economic challenges we face with much more creativity and vigor than we have seen so far.   The Times today has an excellent op-ed by Daniel Alpert which offers up some such next generation thinking about how to get out of the mortgage mess - a critical part of any emerging national economic strategy - equal in size and scope to the problem itself.   

It begins: 

BY providing financial institutions with enough capital to survive (and even thrive) over the past year, the federal government prevented the global economy from grinding to a halt. But it may also have unwittingly encouraged banks to slow the resolution of delinquent, defaulted and underwater loans secured by homes and commercial real estate. Such “extend and pretend” behavior does little except delay losses — which helps explain the recent crop of prediction-beating, market-rallying bank earnings reports — while prolonging and worsening the damage done by bad loans.

Just this week, the White House met with a gaggle of mortgage company executives to discuss why their loan modification programs have been so ineffective. In fact, a recent study by the National Bureau of Economic Research illustrates that these programs haven’t been ineffective so much as unused: only 8 percent of seriously delinquent borrowers have received any form of mortgage modification and fewer than 3 percent of such borrowers received a concession on principal or interest payments from their lender. By contrast, about 50 percent of those seriously delinquent loans had foreclosure proceedings initiated against them. That’s a record rate of 1.9 million foreclosure filings in the first half of this year.

Banks, of course, typically lose more money by foreclosing on a home than by renegotiating the principal of a loan — but, as foreclosure timelines often run 12 to 18 months, that loss takes far longer to show up on their balance sheets. As a result, banks are pushing the mess (and the attendant additional losses) well into 2010 while they maintain the fiction that borrowers will be able to repay severely underwater loans in full. Banks are even beginning to turn down borrower requests for immediate “short sales,” in which homeowners sell for whatever they can get and then give all proceeds to the lender, because this, too, means that the bank must record a principal loss at once, rather than down the road.

The sheer magnitude of the debt bubble — doubling to $11 trillion in home loans and adding tens of trillions in total American debt in the past decade — along with the collapse of real estate prices, make it extremely unlikely that any of these houses will recover their value soon enough to mitigate the losses embedded in banks’ balance sheets. And by stretching out the time over which banks will continue to have their capitalization hit by losses, banks cannot soon fulfill their mission of providing new capital for the recovery and growth of the economy. Fearing for their own solvency, banks are instead salting away enormous, record-setting reserves.

To put the bubble behind us, we need to place mortgage lenders on a path to settling up with underwater homeowners. One of the few viable ways to do this is for banks to accept the voluntary surrender of deeds and then lease the homes back to their former owners. The former homeowners should then retain a right to purchase their homes back at fair market value, after, say, five years, during which time they would need to get their financial affairs in order.

Congress could pass legislation, within the bounds of constitutional protection of contracts, that would require lenders to provide such a lease-back arrangement to any borrower who wants one. The former homeowners would pay rents set in accordance with local rates (which in almost all cases would be considerably lower than the total of their former bubble-era mortgage payments, taxes and insurance premiums).

Count me as one of those who believe that for the national to see broad-based prosperity in the years ahead the banks will have to take some kind of "haircut" on consumer debt. Restructuring, deleveraging, or whatever we are going to call the process of lessening the debt load of consumers will at some point become seen as a requirement for the future success of the American economy and not some malevolent form of "moral hazard."  Until American consumers can get back in the economic game "recovery" will be more wish than reality. 

Having worked in Washington for 16 years now, I've learned a bit about how an idea moves from the periphery of the debate here to its center.  And this week you could feel that happen for the rising concern about our economy.  Despite the President's emphasis on health care and climate change of late, there is a new and growing sense of urgency here about the worsening economy and whether the government's response so far has been adequate or effective.  

Unemployment in Michigan is over 15 percent now, and the US unemployment rate is now higher than the EU's.  In a Senate hearing on Thursday Chris Dodd publically criticized the President's mortgage foreclosure plan as not having delivered on its promise.  A new study finds dramatic drops in state government revenues, which foreshadow both what will happen at the federal level later this year and significant troubles again with state governments themselves.   While there was what appeared to be good news with the financial sector, a deeper analysis predicts significant troubles ahead even for banks who showed profits in the 2nd quarter.   Twice as many banks have failed this year already as failed in all of 2007 and 2008 combined.   Many friends of ours have talked in alarming terms about what is likely to happen to the commercial real estate market later this year, a coming crisis which could also devastate local and regional banks who have escaped the worst of the financial crisis so far.  Add to that what could our first national flu pandemic in a generation, which if it is virulent as some predict, could slow economic activity and productivity even further.

The President is clearly paying attention to all this, and has begun to address these growing concerns head on.  Last Saturday he devoted his weekly address to the economy.  On Sunday he offered up a thoughtful op-ed on the economy in the Washington Post.  On Tuesday the President proposed a compelling new community college plan which spoke directly to the struggle of existing American workers.   On Friday NEC chief Larry Summers gave a speech reviewing the Administration's economic progress so far, and where it hopes to go in the months ahead.   And next Wednesday night the President will hold a prime time press conference where one can be certain he will address the growing concerns about the economy to a national audience.  

As he prepares for his remarks next Wednesday, he would be wise to heed the warning from a new letter offered up by 21 freshman Democratic House members this week.  The NYTimes provides this summary: 

Representative Jared Polis, a freshman Democrat from Colorado who voted against the bill approved Friday in the Education and Labor Committee, said he worried that the new taxes “could cost jobs in a recession.”

To help finance coverage of the uninsured, the House bill would impose a surtax on high-income people and a payroll tax — as much as 8 percent of wages — on employers who do not provide health insurance to workers.

Mr. Polis said these taxes, combined with the scheduled increase in tax rates resulting from the expiration of Bush-era tax cuts, would have a perverse effect. “Some successful family-owned businesses would be taxed at higher rates than multinational corporations,” he said.

In a letter to the House speaker, Nancy Pelosi, Mr. Polis and 20 other freshman Democrats said they were “extremely concerned that the proposed method of paying for health care reform will negatively impact small businesses, the backbone of the American economy.”

There have been calls from some quarters for a 2nd stimulus plan, an acknowledgement that what the first stimulus has not done enough to stop the current economic deterioration.  This may be necessary, but I think what will need to be done is much more comprehensive than just a new stimulus plan.  Future action could include a much more aggressive action against foreclosures, a more honest assessment of the health of our financial sector, an immediate capping of credit card rates and a rollback of actions taken by credit card issuers in the last few months, a speeding up of the 2010 stimulus spending, a completion of the Doha trade round and a much more aggressive G20 effort to produce a more successful global approach to the global recession, the quick passage of the President's community college proposal, enacting comprehensive immigration reform which will bring new revenues into the federal and state governments while removing some of the downward pressure on wages at the low end of the workforce, and recasting both the President's climate and health care initiatives as efforts which will help stop our downward slide and create future growth.

The worsening economy has become the nation's number one problem.   We will need a new language to talk about it, moving beyond the words stimulus and recovery which no longer seem to speak to the gravity of the economic moment we are in.  This is the most important work in front of the government now, and I look forward to hearing the President on Wednesday night about his plans for the remainder of the year.

For more on this be sure to read this excellent Thursday essay from Rob Shapiro.

Over the past few days the Obama Administration has begun a new effort to re-engage on what is the most important subject for the American people today, the economy.  This is a welcome development from where we sit, and have been pleased at both the language and proposals coming from the White House.  As the President gears up for a sustained discussion on the economy, two issues will need to be woven into his evolving narrative - the role of both immigration and global trade flows in creating broad-based prosperity here at home and a more prosperous and safer world aboard.

We've written extensively on how immigration reform should be better woven into the core Obama economic argument (see here for a recent video presentation of our argument).  The NYTimes this weekend did a very good job at reminding us of the opportunity the nearly completed Doha trade round offers the President to reassert America's role as the main advocate for a global economic liberalization, and why it also matters to American workers here at home.  A quick excerpt:

There are few things that could do more damage to the already battered global economy than an old-fashioned trade war. So we have been increasingly worried by the protectionist rhetoric and policies being espoused by politicians across the globe and in this country.

Against this bleak backdrop, it is especially good news that the world’s leading developed and developing nations have committed to complete a stalled global trade agreement (the so-called Doha Round) by next year. For that to happen, leaders — especially in the United States, Europe, India, China and Brazil — are going to have to muster real sense and political courage.

The World Trade Organization forecasts that exports from developed countries will fall 14 percent this year, while exports from developing nations will contract 7 percent. The collapse is particularly damaging for poor countries that are heavily dependent on exports. But it is also intensifying the downturn in many rich countries. Reviving trade is essential for economic recovery.

The talks, begun in Doha, Qatar, in 2001, had long been in limbo. They broke down last year after big developing countries — China and India, in particular — rejected demands from the wealthy nations that they lower tariffs on imports of agricultural and manufactured goods and open service sectors to more competition.

But there are signs that the collapse in trade and the rising protectionist rhetoric have awoken many leaders to the advantages of strong international rules to keep trade channels open. This is particularly true of China, which has suddenly found its exports on the receiving end of tariff increases and antidumping suits.

There is no guarantee that a deal can be pulled off. President Obama will have to provide lots of leadership to convince developing countries to make serious offers on market access, and to convince reluctant members of the United States Congress — notably those within his own party — that they will have to make concessions, too.