Category Archives: The destruction of the middle class

The Wages of Destroying Labor Bargaining Power: Nearly 30% of Job Losses Due to Management Cutting Pie in Favor of Capital

Yves here. This short piece by Robert Gordon is important because it seeks to quantify the impact of a phenomenon that economists have noticed a bit late in the game: that the benefits of GDP growth, which used to go mainly to labor (via increased hiring and better wages) now benefit capitalists fare more than ordinary workers. The shift towards increases in GDP favoring corporate profits at the expense of labor became pronounced in the weak Bush expansion (we commented on it in a 2005 article) and Gordon’s effort to try to translate that into the impact on unemployment levels is a useful step forward in the debate.

By Robert Gordon, Professor in the Social Sciences and Professor of Economics at Northwestern University. Cross posted from VoxEU

The US is missing millions of jobs. This column argues that the total is 10.4 million. It claims that 3 million of these can be traced to the weakened bargaining position of labour and the growing assertiveness of management in slashing costs to maintain share prices. Moreover, this employment gap is not shrinking because of the ‘double hangover’ effect—an excess housing supply and besieged consumers unwilling to spend.

Michael Hudson: The State and Local Budget Crisis

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College

The cost of the 2011 cutbacks in federal spending will fall most directly on consumers and retirees by scaling back Social Security, Medicare, Medicaid and social spending programs. The population also will suffer indirectly, by lower federal revenue sharing with U.S. states and cities. The following chart from the National Income and Product Accounts (NIPA, Table 3.3) shows how federal financial aid has helped cities shift the tax burden off real estate, although the main shift has been off property taxes onto income – and onto consumption (sales) taxes.

Michael Hudson: The Case Against the Credit Ratings Agencies

By Michael Hudson, a research professor of Economics at University of Missouri, Kansas City and a research associate at the Levy Economics Institute of Bard College

In today’s looming confrontation the ratings agencies are playing the political role of “enforcer” as the gatekeepers to credit, to put pressure on Iceland, Greece and even the United States to pursue creditor-oriented policies that lead inevitably to financial crises. These crises in turn force debtor governments to sell off their assets under distress conditions. In pursuing this guard-dog service to the world’s bankers, the ratings agencies are escalating a political strategy they have long been refined over a generation in the corrupt arena of local U.S. politics.

Why “Business Needs Certainty” is Destructive

This is the start of my final guest post in Glenn Greenwald’s slot at Salon:

If you read the business and even the political press, you’ve doubtless encountered the claim that the economy is a mess because the threat to reregulate in the wake of a global-economy-wrecking financial crisis is creating “uncertainty.” That is touted as the reason why corporations are sitting on their hands and not doing much in the way of hiring and investing.

This is propaganda that needs to be laughed out of the room.
Read more...

Rob Johnson and Tom Ferguson on the Real Meaning of the S&P Downgrade and the Market Reaction

I feel as if I am too often making excuses for coming across good material on the late side, but between being distracted by the market gyrations of last week and figuring out how to write to Salon readers, I’m even more behind the eight ball than usual. But our initial reader comments confirm our instincts that this material is very relevant.

Readers have responded well in the past to Tom Ferguson’s cut-to-the-chase, curmudgeonly style, but I also wanted to call your attention to Rob Johnson’s observations. Rob, by contrast, is a very measured speaker, so on his scale of discourse, his remarks about Obama are remarkably blunt.

“Freedom Versus Markets”

Yves here. Blogger Sell on News echoes an argument made in ECONNED, namely, that “free markets” are a contradictory and incoherent construct, albeit from a different perspective. He also advocates another view near and dear to our heart, namely getting rid of economists (actually, that is overkill and will never happen. Keynes had it right: “If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.”)

By Sell on News, a macro equities analyst . Cross posted from MacroBusiness

Probably the most wicked intellectual subterfuge of the last three decades — and goodness knows there have been many — has been the pretence that democracy and markets are two sides of the same coin.

Marshall Auerback: A Beer(s) Hall Putsch From the Rentiers?

By Marshall Auerback, a hedge fund manager and portfolio strategist

So the ratings agencies have reared their ugly heads again. David Beers, head of S&P’s government debt rating unit, announced Friday night that S&P has downgraded the U.S. credit rating for the first time, from AAA to AA+. It’s a sham: S&P’s whole analytical framework reflects ignorance about modern money. If the US government, Treasury, and the Federal Reserve, capitulate to this outrageous act of economic extortion, it will effectively be sanctioning a beer hall putsch by the rentier class.

ECB Considers Massive Purchases of Italian and Spanish Bonds (Update: Eurobazooka Armed)

Even thought the US media has been fixated on the downgrade of Treasuries to AA+ by Standard and Poor’s, the real risk to the markets is continuing decay in Eurozone sovereign debt. The BBC’s Robert Peston said today that the failure of the ECB to buy Italian bonds would be a Lehman moment. As our Ed Harrison stresses, while some countries like Greece have a solvency crisis and need to have their obligations restructures (as in written down), the stress on Spanish and Italian bonds looks like a classic liquidity crisis. And the concern has spread to the core, as French sovereign debt (remember, rated AAA) was trading at a 90 basis point premium to German bunds. As Ed noted:

Will S&P Downgrade Be Another Y2K Scare?

Remember Y2K? The world was gonna end because there was tons of legacy code that couldn’t accommodate the rollover to the new century. I know people in who went into survivalist mode, stocking up months of supplies, and others who took less extreme precautions, like having lots of cash on hand in case ATMs were disrupted.

As we now know, January 1, 2000 came in without major incident, since the widespread publication of this software threat to End the World as We Know It led to lots of preventive action. Perversely, the big effect of the Y2K scare was that it accelerated tech spending, since many firms bought new systems and upgraded hardware as part of their overhaul. That increased the severity of the post-bubble economic downturn. Remember, Greenspan dropped Fed fund rates to negative real interest rate levels and held them there for an unprecedented amount of time, which many argue helped stoke the housing bubble. So while Y2K’s direct effects were greatly overestimated, its indirect impact (on how long the former Maestro kept rates down) may not have been fully acknowledged.

It isn’t yet clear what the impact of the S&P downgrade of the US to AA+ will have. There are good reasons to believe, despite the media hyperventilating, that it won’t add up to much, and may perversely hit wobbly stock markets more than Treasury yields.

But there is a much bigger issue, namely S&P’s highly questionable conduct, the lack of any analytical process behind this ratings action, and the political implications.

Small Business Owners Using Pawnshops to Make Payroll

One of the reasons the economy continues to be mired in high unemployment is the lack of hiring by small businesses, which have been the engine of job growth in the US for the last decade. In the last expansion, the largest companies shed jobs, and that trend has gotten only worse as a result of the crisis. Not only are giants like Cisco cutting headcounts, but the heretofore-insulated-from-bad-things-by-your-tax-dollars big banks are following suit. And not surprisingly, recent surveys of new businesses show they remain cautious about hiring.

Needless to say, if companies can’t afford to hang on to the staff they have, that certainly isn’t a plus for the economy. The use of pawn shops by small enterprises to make ends meet is likely to be one step before the end of the rope.

Randy Wray: The Budget Compromise – Congress Creates a Rube Goldberg Doomsday Machine

By Randy Wray, Professor of Economics at the University of Missouri-Kansas City and Senior Scholar at the Levy Economics Institute of Bard College. Cross posted from EconoMonitor

Don’t you feel relieved? After weeks of threats, hostage-taking, and other forms of deficit terrorism, our two political parties have finally “compromised” on what was always a foregone conclusion. (As I write, we still await the Senate vote—but it looks like a done deal.)

Washington got what it wanted—a down payment on destruction of the last remnants of progressive policy. Soon, it will be 1929 all over again. We can make believe that the New Deal and Great Society programs never existed, and go back to the good old days when it was every “man” for himself.

Software Outsourcer Infosys Sued for Alleged Large Scale Visa Fraud

Corporate miscreance takes so many forms that readers may wonder why I am highlighting the allegations against Infosys, the second biggest IT outsourcing company in India. The answer is that this case provides a window into a much bigger problem, namely, the lack of anything resembling coherent US industrial policy.