More on our situation

More on Demand Side economics We've seen how this lousy economic situation happened. We've gone from people earning money and spending money, a demand based economy, to people's taxes being doubled under Reagan, the money being given to the wealthy where in most cases they are either saving it, sending it to China or maybe buying new ivory backscratchers. Either way the idea of it trickling down doesn't seem to be on their minds.

For people to maintain lifestyles they had from the late 40's throughout the 70's had to start borrowing and now we're all tapped out. So where do we go now? Dick Cheney said "One thing Ronald Reagan taught us is that deficits don't matter." From the Sunday paper insert "Parade" "For sale, U.S. roads, some of America's cash strapped states and cities are leasing public roads to the higest bidder who are often foreign investors. Chicago's Skyway is controlled by the Spanish-Austrailian Investment Group, an Italian firm operates the Dullus Greenway outside of Washington DC." You want to get to the nation's captital's airport you have to get on a greenway that is owned by a company that is out of Italy!

Abu Dhabi is poised to drop their connection to the dollar, why? Because the dollar is inflating like mad. They are experiencing 11% inflation in the UAE, because they don't fiddle with their inflation numbers. Kevin Phillips says our inflation numbers are total nonsense! A whole series of things happened, The Clinton Administration changed them, in 1994 the Bereau of Labor Statistics said if you work for less than half a year, you're now a "discouraged worker" and won't be counted as unemployed so right away 4 million people fell off the unemployment rolls. Looked good for the Clinton economy but really wasn't so good for us. They also thinned the economic sample by a sixth, it went from 60,000 families to 50,000 and guess who the 10,000 people they didn't samply anymore was, the inner city! So we no longer look at the areas where unemployment is highest in the United States, bottom line, we've got totally phony numbers. Now we can thank Clinton for that, but when we look at what was going on at the time with political pressure from the newly elected Republican majority in Congress coming into office we can probably attribute that to Clinton being weak knee'd in the face of what appeared to be a mandate from the people for Republicans on economic issues when in fact the Gringrich Revolution was mostly based on the culture war and the fear that things were going too far away from societal norms than fiscally.

According to Kevin Phillips, one of the top economists, and top conservatives in America says here's the real numbers, get this, today's unemployment rate is actually between 9 and 12%, our infaltion rate is actually between 7and 10%, our economic growth rate, once we take out the already rich and the super rich is not even there, we're creeping into recession, and that's Keven Phillips.

Meanwhile because our dollar has fallen so far, who won this battle between Bush and bin Laden, to the extent that it was a battle, not sure it ever was because Bush never went after him really. Nonetheless in 1998 Osama bin Laden said in an interview that one of the things that was really wrong with the world was the fact that we were "stealing oil from Saudi Arabia" his holy land. We were paying $11.00 per barrell in '98 as you may recall. How much did he say it should be? He said it should be about $144.00 per barrell. Guess what the price went to last summer, you guessed it folks, $144.00 per barrell. I would say that Osama bin Laden has effectivley won the economic war against the United States. He is bankrupting us. But really it's not so much bin Laden that's doing it, it's Bush and Republican policies, that's the bottom line, it comes down to that.

On top of that we've just seen the biggest job loss number come in for 2008, the biggest seen for FIVE AND A HALF YEARS actually at 159,000 jobs LOST!! That's NINE MONTHS IN A ROW OF JOB LOSS, and HUGE job losses at that every month!! Nobody's mentioning the fact that even if there were no jobs lost, there would still arguably be jobs lost due to the fact that on average we've got over 100,000 people coming into the job market every month as young people graduate from high school and college coming into the job market at higher numbers than people are retiring or dying. So we have to have 115,000 jobs a month just to keep even. At least during the 8 years of the Clinton administration for all of it's faults, over thirty million jobs were created, during the almost 8 years of the Bush administration, three million jobs have been created. Now granted under Bush economics and the second half of Clinton economic policies if you got lost your good paying full time union job and you took a part time job working at Wal Mart and another part time job working at a gas station, you are now considered to be 2 employed people.So according to statistics, things went up! That's how bad the book keeping is.Now it's cracking down into the 401k's, all the while the neocons have been saying we need to privatize Social Security and put it into a 401k type of system, forget pensions, that's so outdated, people want a fixed amount of money, not a pension that pays every month for the rest of their lives no matter how long like Social Security does, which is a pension, instead they want a defined benefit plan where if you put in 100,000 dollars, you get out 100,000 dollars plus intrest. The problem is, most 401k plans are based in the stock market and what's happening to the stock market now? It's going south! You hear anyone promoting privatization of Social Security now? Even John McCain flipped his flop from for it, to against earlier this month. I'm telling you folks, the Republicans have destroyed our economy for everyone.

Look, as long as we refuse to admit that Reagan didn't actually save us from the economic woes of the late 70's and early 80's and as long as we don't admit that it was all a fantastic illusion based on borrowed money that was never totally paid back (both with Republicans Reagan, Bush I and Bush II as well as the Democratic President Clinton) and the real problem of jobs and wages were never solved, only worsened during this time over the past 30 years, we'll only see our intrests fall to below the poverty line and our aspects of doing better seriously hobbled.

Remember, if Gen X is the first American generation to not do better than their parents did then the boomers will be the fist American generation to leave the country worse off than their parents left it to them, after all the country was coming back from the Depression by the end of Roosevelt's 2nd term though it would be until around 1953, '54 before the stock market had totally recovered some quarter century after the crash of '29, at least they spent that quarter century fixing the real problem. Now that we're more than a quarter century away from the end of the Vietnam war, and the resulting effect that the money borrowed for it had come due by the late 70's (considering it ended totally in '75) we never fixed the problem, only deluded ourselves about how well we had done and how far we had come.

Don't you think it's time to change, don't you think it's time for honesty in assesing the situation and actually fixing a thing or three that's wrong?

Dean Baker: The Recession and the Freedom to Organize

The Recession and the Freedom to Organize

By Dean Baker

Co-Director of the Center for Economic and Policy Research

As Congress and the president hammer out a stimulus package to counter the recession, it is worth asking how we got into this mess. While the suppression of workers' right to organize may appear to have little direct relationship to the collapsing housing bubble that is the cause of this recession, ..r examination they are closely linked.

To see the relationship, we have to go back to the period before 1973, when the economy was experiencing strong growth, which produced rising wages and growing prosperity for the vast majority of the country's workers. During this period, the economy saw strong productivity growth, which meant workers were producing more. The gains in productivity were passed on to workers in the form of higher wages. Profits also rose, with workers and businesses each getting their share of a growing pie.

Wage growth led to increased consumption demand, which in turn led firms to produce and invest more. Additional investment spurred productivity growth, maintaining this virtuous cycle.

This cycle collapsed over the past three decades. While productivity has continued to grow, most workers have seen little benefit from these gains as wages have been virtually stagnant for most workers over this period. There are many reasons for this wage stagnation. The deregulation of such major industries as airlines, telecommunications and trucking placed downward pressure on the wages of the millions of workers in these sectors. International trade has been an important force suppressing the wages of many workers.

However, the suppression of unions also has been a major factor preventing workers from getting their share of productivity growth. During the past three decades, management at many companies has adopted a posture of unmitigated hostility to unions. Employers have been willing to use a wide variety of tactics, both legal and illegal, to prevent workers from organizing.

To a large extent, the government has tolerated these abuses, with lax enforcement of the already weak laws designed to protect the right to organize. John Schmitt and Ben Zipperer, my colleagues at the Center for Economic and Policy Research (CEPR), estimate that one in five workers actively involved in an organizing drive can expect to be fired for their union activity. Firing a worker for trying to form a union is a clear violation of the law, but because the penalties are so minor, such firings are now a standard management practice.

With wage-driven consumption growth no longer possible in an era in which most workers do not see rising wages, the economy needed a different engine for growth. The alternative to wage-driven growth was bubble-driven growth. We had a growth cycle spurred primarily by the stock bubble in the 1990s and by a housing bubble in the current decade.

The bubbles have both a direct and indirect effect in spurring growth. The 1990s stock bubble spurred growth directly through the investment of tech start-ups that could raise hundreds of millions or even billions of dollars with new stock offerings. The housing bubble spurred growth with an explosion of housing construction, which rose to its highest levels in three decades.

Even more important than the direct growth spurred by these bubbles was the indirect growth. In the case of both the stock and housing bubbles, people spent heavily against the wealth created by the bubbles. This effect was especially important in the case of housing. Tens of millions of home owners borrowed heavily against the wealth in their homes, through home equity loans or by refinancing their mortgages. They used this money to buy cars or take vacations, or in many cases to pay the bills. This borrowing pushed the national savings rate down to nearly zero over the past three years, as households in aggregate spent an amount that was nearly equal to their income.

In effect, instead of consumption growth being driven by wage growth, it was driven by borrowing. The problem with this path of growth is that it is unsustainable. Financial bubbles inevitably burst. The stock bubble burst because they ran out of suckers who were willing to pay lots of money for nonsense start-ups that would never make a profit. The housing bubble burst because record construction rates eventually caused supply to outstrip demand. House prices are now plunging at double-digit annual rates. The current level of price decline in the housing market will destroy more than $3.2 trillion in housing wealth over the course of a year, almost $70,000 for every home owner in the country.

This price decline is the cause of the recession. Housing construction has already fallen back to half of its pace of two years ago. More important, families are starting to cut back their consumption because they no longer have equity in their homes against which they can borrow. The massive loss of equity from the collapse of the bubble is likely to lead to a substantial drop in consumption, which can fuel a long and severe downturn. The stimulus package being crafted by Congress will be helpful, but it is likely to be far too small to fully offset the impact of the collapsing housing bubble.

While it is important to devise measures like the stimulus package to boost the economy in the short term, it is also important to design policies to get the economy back on a healthy long-term growth path. Adopting policies, such as the Employee Free Choice Act, that restore the freedom to join a union, will be an important part of this story. If workers are able to form unions and get their share of productivity growth, it can again put the country on the path of wage-driven consumption growth. Restoring a wage-driven growth path will be a long-term project, but it will provide workers and businesses with much more stability than the current bubble-driven economy.

Dean Baker is co-director of the Center for Economic and Policy Research (CEPR) and author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer.

What Joe the plumber will find out.

As the owner of a small business I've got to say after watching the news this morning, people really don't seem to understand how this works.

Joe the plumber may buy a business that brings in $250k per year, but that doesn't mean Joe himself will be making 250k a year. Out of that 250k comes your operating cost, things like vehicles, equipment, taxes (both business and personal), licenses, liability insurance, employees pay, HALF of his employees Social Security tax, ALL of HIS own Social Security tax, etc, the list goes on and on.

The truth of the matter is that when politicians are out there talking about small business in general they usually mean those shops that are in the 50 to 250 employee range, the shops like Joe the Plumber and me that employee 2 to 5 people aren't even on their radars.

The truth is that if you're a business grossing around $250 grand a year, once you get done paying all the fees, deducting all of your material and overhead, pay your employees, pay your accountant, pay your taxes, and finally yourself you'll be lucky if you can clear $40k per year, and that's YOUR GROSS PAY. You'll still have to pay your personal income taxes out of that, and you'll have to pay BOTH the regular employee share of Social Security tax PLUS he'll find, he has to pay the employer share of the S.S. tax. They call that self employment tax.

So if Joe the Plumber has a good year and makes that big 250k gross for his tax return, he's going to find out that in the end, depending on his personal deductions, ol' Joe might get to keep anywhere from 20k to 30k for himself, and that's if and only if he's managed it very tightly.

So Joe, here's to you and all the other men and women out there that think they're going up into a higher tax bracket simply by being in business. When your company makes 250k, that doesn't mean you're going to keep anywhere near that.

So Joe, if you've got big dreams about big money by buying a business that makes 250k per year, don't worry who you vote for, you're going to get hosed by a lot more people than the president, and you probably would end up better off under Obama with your tax situation, especially the first year.