This coming Friday, February 4, the latest jobs figures will be released by the US Labor Dept. Once again, professional economists are predicting significant improvement in the jobs markets. Once again, as in the previous four out of five months, they will most likely be proven wrong. Last week, for example, initial claims for unemployment benefits rose by 51,000 more than economists were forecasting, the largest weekly increase since September 2005.
The December 2010 drop in the official Labor Dept. unemployment rate, from 9.8% to 9.4%, was the result of a worsening labor market. It was totally attributable to hundreds of thousands of unemployed dropping out of the labor force because they gave up on finding a job. To the extent jobs were created in the private sector, they were mostly holiday period part time and temp jobs, most of which will soon be shed in early 2011 once again.
The lack of real job growth, the major failure of the ‘Obama Recovery’, in turn exacerbates the other two great failures of the recovery: the continual rise in home foreclosures and the steadily deepening fiscal crisis of states and local governments and the likely impact of the latter precipitating an implosion in the $2.8 trillion municipal bond market.
Lack of jobs translates directly into more foreclosures and currently is the number one cause of continued foreclosures, now more than 7 million and predicted to rise to more than 10 million this year at an even faster rate than 2010. With foreclosures come falling home prices, a second round of which is already underway. The current ‘second dip’ fall in home prices now underway is predicted to lower home values by 20% or more. Housing construction in the U.S. has been, and still remains, in a condition of economic depression, not recession, with home construction off 75% from previous highs.
Lack of jobs also means a continuation of state and local government tax revenue falloff. That means continued fiscal budget crises. In turn it provides excuses for Republican and Democratic governors alike to take the budget crisis out on the wages, jobs and especially pensions of public employees, even though they did not create the recession, the tax revenue falloff, or the deficits. Instead of taxing the banks—who precipitated the financial crisis that led to the recession and revenue collapse—the victims of that collapse are being targeted to pay instead. In other words, even though they are sitting on excess reserves of more than $1 trillion the banksters are not even on governors’ agenda for covering even part of state budget deficits.
It is noteworthy that Obama in his recent State of the Union Address said absolutely nothing about these three great failures: jobs, foreclosures, and state-local government fiscal crisis. Without a definitive resolution to these three ‘crises within the general crisis’ there can be no sustained economic recovery. And the longer the failure to resolve these three problems, the more likely the eventual drift toward a renewed economic collapse within the next 2-3 years.
What Obama did clearly signal in his address, however, was that giving even more tax cuts to corporations was his new strategy for creating jobs this year. Specifically, his target is corporate tax cuts in general and multinational and export companies in particular. Exports are supposed to get the economy growing again. That strategy assumes, however, that business tax cuts create jobs—which the history of the past decade, and before, shows is not the case. The U.S. had the biggest business and investor tax cuts in history under George W. Bush and it produced the weakest investment in business spending in 2002-06 in the US and weakest creation of jobs on record. For example, following the Bush tax cuts of 2001-04, it took 46 months after 2001 just to get back to the same level of jobs in the US in 2001. More than $3 trillion in business tax cuts and four years to just get back to the start point! Moreover, it can be argued the vast majority of jobs created under Bush were driven by housing and financial industry speculation, both of which had little to do with Bush’s business tax cuts and more with the prevailing 1% interest rates at the time.
Obama’s new focus on manufacturing exports and multinational corporations’ tax cuts further assumes that stimulating US manufacturing, which is by far the largest contributor to exports, will result in jobs here in the U.S. But there is no direct relationship between stimulating manufacturing production and job creation in manufacturing in the U.S. In fact, the correlation is clearly negative. That is, as manufacturing output has risen sharply in the U.S. the last 30 years (spurred in large part by repeated tax cuts for manufacturing corporations), the employment levels in manufacturing have collapsed. For example, from 20 million workers in manufacturing in 1979, the number today is only 11.6 million. Since 1995 the employment levels have been in virtual freefall. In contrast, manufacturing output over the same period has risen from about $800 billion to $1.7 trillion today. In other words, tax cuts for U.S. manufacturers and exporters results mostly in new equipment investment that displaces jobs and causes more unemployment.
One of the great hallmarks of the past two years and the Obama administration’s failed jobs policy is that government at all levels has refused to directly create jobs to offset the collapse of jobs between 2008-2009 and the refusal of the private sector to create jobs in any reasonable number since mid-2009. Despite sitting on a cash hoard of $2 trillion, US corporations have refused to spend to invest in the US and create jobs here. The approximately 1 million jobs created in 2010 by the private sector were mostly temp and part time jobs. The second great hallmark of the jobs market the past two years has been the steady net decline in government job creation, which is the opposite of government response in prior recessions in the US since 1945 during which government net created jobs instead of cutting them. For example, after growing about 2% per year from 2004 to 2007, since Obama assumed office government job creation has steadily plummeted every year. It is now at its lowest point around – 2.% and is still falling.
The only rational conclusion from all this is: if the private sector won’t invest in the US and create jobs beyond just part time and temp jobs, if the new focus on manufacturing and exports will result in more job loss, and if government jobs on net are continuing to fall—then the only solution to the jobs crisis is a sharp turn to government direct job creation on a massive scale before it’s too late and an even worse economic crisis erupts that would almost certainly result in a bona fide depression.
In this author’s forthcoming February article in Z magazine, entitled ‘How to Create 15 Million Jobs’, a massive jobs creation program is outlined. How to raise $3 trillion in new funding over the next five years to pay for such a program (by a major restructuring of the US tax system) is described in the Table 1 in the article. That Table 1 is listed below.
Not listed in the forthcoming ‘Z’ magazine article, but offered here in Znet as a further addendum, is a subsequent Table 2. It describes seven specific new government jobs creation programs that would spend the new tax revenue to create the 15 million jobs, expenditures totally financed from new taxation on wealthy households, investors, and corporations that would not increase the current federal budget deficit by a cent.
Restructuring the tax system might take months, or even years, is a reasonable objection. Therefore to expedite the process of job creation even faster than the proposed tax restructuring provides, the federal government could quickly borrow up front an initial $1 trillion from the U.S. Federal Reserve Bank. This $1 trillion ‘bridge loan’ would also not raise the US budget deficit a penney. It could be used to jump start the creation of jobs and setting up the programs, to be repaid once the new tax revenue inflows proposed in Table 1 started to occur.
For those who might object that the Fed loaning the US government $1 trillion a bit unlikely, consider this: A report released by the New York district of the Federal Reserve last year revealed that the Federal Reserve had lent more than $9 trillion to banks during the recent financial crisis (more than $2 trillion of which has not been repaid). More eye-popping still, at least $1 trillion of that $9 trillion was loaned by the Federal Reserve to foreign banks. If the Fed can loan $9 trillion to the banksters that caused the crisis—and even $1 trillion to the foreign based banksters—why can’t it not extend $1 trillion as a bridge loan to finance programs to create 15 million jobs for US citizens?
In other words, the money is there to launch a historic ‘21st Century New Deal’ jobs creation program. What’s lacking is political will by politicians of both parties who, it is growing increasing apparent, are ‘owned, rented and mortgaged’ to corporate America in general and to its financial-banking sector in particular.
ADDENDA ON A 21st CENTURY NEW DEAL JOBS PROGRAM
TABLE 1
Financing for Creation of 14.7 Million Jobs
Financing Source New Tax Revenues Raised Jobs Created
(1st Year) (2nd to 5th Year)
U.S. Multinational Corps $350 bil. $140 bil. 3.5 million
Offshore Profits Tax
Avoidance & Repatriation
Wealthy Investors Tax $500 bil. $200 bil. 5.0 million
Havens Repatriation
10% Corporate Surtax $300 bil. None 3.0 million
on $3 Trillion Cash
Hoarding
12,4% Payroll Tax On $170 bil. $680 bil. 1.7 million
All Incomes
Financial Transactions $150 bil. $150 bil. 1.5 million
Tax on Stocks, Bonds,
and OTC Derivatives
TOTAL $1.470 trillion $1,620 trillion 14.7 million
How many ($50,000 per year average) jobs could be created by the seven specific programs, assuming ($845 billion) of the $1.470 trillion is dedicated to direct job costs (the remaining for other programs costs), is summarized in Table 2 as follows:
TABLE 2
Program Specific Job Creation
PROGRAM JOB SPECIFIC FINANCING JOBS CREATED (1)
1. Alternative Energy $250 billion 5 million
Public Investment Corp + additional revenues
from sales
2. Civilian Reconstruction $125 billion 2.5 million
Corp. (CRC)
3. Community Health $100 billion 2 million
Services Corp (CHSC) + additional revenues
4. 21st Century Works $100 billion 2 million
Progress Administration
5. Involuntary Part Time $50 billion 1 million
Employee Wage Subsidy
6. Social Security Benefits $170 billion 1.2 million
at 2/3s level in exchange
for full retirement
7. Manufacturing Jobs $50 billion 1 million
Repatriation to U.S. Wage
Subsidy
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