CNBC (May 20,2015) Why the US economy can’t shake Great Recession:
Former Treasury Secretary and White House economic advisor Larry Summers, in late 2013, advanced the argument that the unspectacular recovery from the Great Recession in the U.S. is due to "secular stagnation" ... which points to a shortfall in aggregate demand relative to supply, leading to a dearth of growth-producing investment behavior on the part of businesses, because of major changes to the underpinnings of the economy. Former Federal Reserve chairman Ben Bernanke has since chimed in, expanding upon his view that persistent low interest rates and low inflation are due to a global savings glut (also a factor in secular stagnation).
Key realities: (a) The U.S. economy is under unprecedented competition from both the billions of new workers in emerging nations and, now, from its fellow developed economies; and (b) it is unlikely that U.S. private sector investment will recover meaningfully enough to boost labor utilization and firm up real wages as long as the enormous global imbalances between the U.S. and the emerging/under-consuming world persist ... In this world of unprecedentedly cheap money that has emanated from the savings glut, we need to completely rethink the role of government fiscal spending in closing the U.S. investment gap through high levels of job producing infrastructure spending ... The vast majority of U.S. workers will not see this nation escape the gravitational pull of historically unprecedented global competition.
[* I'm not sure why CNBC uses the term "global competition". Who is the U.S. competing against, and in what way? What are U.S companies competing for? Could it be for more customers who have jobs that pay living wages; competing for people who are employed and earning enough money to engage in more discretionary spending — creating more "demand" so that businesses will invest to create more "supply"?]
Janet L. Yellen, Chair Federal Reserve: Speech at the Providence Chamber of Commerce (May 22, 2015):
The unemployment rate today probably does not fully capture the extent of slack in the labor market. To be classified as unemployed, people must report that they are actively seeking work, and many people without jobs say they are not doing so--that is, they are classified as being out of the labor force. Most people out of the labor force are there voluntarily, including retirees, teenagers, young adults in school, and people staying home to care for children. But I also believe that a significant number are not seeking work because they still perceive a lack of good job opportunities. In addition to those too discouraged to seek work, an unusually large number of people report that they are working part time because they cannot find full-time jobs, and I suspect that much of this also represents labor market slack.
Many years of a weak job market and slow wage gains seem to have induced many people to double-up on housing, and many young adults continue to live with their parents.
The pace of business investment has also been only modest during this recovery, and some of the reasons might persist a while longer. Businesses seem not to have had sufficient confidence in the strength and durability of the recovery to undertake substantial capital expenditures. Moreover, some analysts have suggested that uncertainty, not only about the strength of the recovery but also about economic policy, could be a significant factor. And the fact that many businesses seem to be holding large amounts of cash may suggest that risk aversion is playing a role.
The most important factor determining living standards is productivity growth, defined as increases in how much can be produced in an hour of work. Over time, sustained increases in productivity are necessary to support rising incomes. Here the recent data have been disappointing.
The growth rate of output per hour worked in the business sector has averaged about 1-1/4 percent per year since the recession began in late 2007. This rate is down from gains averaging 2-3/4 percent over the preceding decade. I have mentioned the tepid pace of wage gains in recent years, and while I do take this as evidence of slack in the labor market, it also may be a reflection of relatively weak productivity growth.
Productivity depends on many factors, including our workforce's knowledge and skills and the quantity and quality of the capital, technology, and infrastructure that they have to work with. We should be pursuing policies to support longer-run growth in productivity. Policies to strengthen education, to encourage entrepreneurship and innovation, and to promote capital investment, both public and private, can all be of great benefit.
But looking back over the past 40 years, has any increase in productivity equated to a proportional raise in wages? No. We could have a service economy full of burger-flippers with Ph.D.s and the "job creators" will pay them the minimum wage because they know that, with an over-saturated labor market, they can hire high school grads (or dropouts) for the same wage.
To date Americans corporations have hoarded over $2.1 trillion in overseas profits stashed offshore (that we know of). American corporations are also currently paying historically low "effective tax rates". And last year the U.S. merger-and-acquisitions market saw the number of deals (worth at least $1 billion each) rise 43% from the year before.
American corporations have also spent nearly $1 trillion (just last year alone) on stock buybacks and dividends — and almost every big American company uses this strategy. CNBC: "McDonald’s use of stock buybacks and dividends fits with an overall trend in which corporate finance has changed from a system of getting money into productive enterprises and building them to a system for getting money out of enterprises."
According to the AFL-CIO’s Executive Pay Watch: "CEOs of the nation’s largest corporations received a 16% pay increase in 2014, widening the CEO-to-worker pay gap to 373-1. On average, the CEOs of S&P’s Index 500 companies earned $13.5 million while the average worker brought home $36,000 in 2014." My Note: The "average" wage is greatly skewed by upper income earners. The AFL-CIO should use the "median" wage. Social Security wage data shows 50 percent of wage earners had net compensation less than or equal to the median wage, which is estimated to be $28,031.02 for 2013. (But the AFL-CIO uses a different methodology).
Bloomberg (April 30, 2015) Billionaires Hoard $100 Million Homes At Record Pace
But still, given all this, Janet L. Yellen said (but maybe doesn't believe) that "workers productivity" is a major cause for low wages and lack of jobs.
The TPP Trade Deal
Paul Krugman (May 20, 2015)
This White House has been remarkably clear and straightforward about what it’s doing and why — in every area, that is, except one: international trade and investment. The selling of the 12-nation Pacific Rim pact [TPP] has the feel of a snow job. Officials have evaded the main concerns about the content of a potential deal; they’ve belittled and dismissed the critics; and they’ve made blithe assurances that turn out not to be true. The Pacific trade deal isn’t really about trade. The main thrust of the proposed deal involves strengthening intellectual property rights — things like drug patents and movie copyrights — and changing the way companies and countries settle disputes. And it’s by no means clear that either of those changes is good for America. The deal would create a system under which multinational corporations could sue governments. These tribunals could be used to attack and undermine financial reform. Not so, says the Obama administration, with the president declaring that Senator Warren is “absolutely wrong.” But she isn’t. So you want reassurance that [the Obama administration] is serving the national interest rather than the interests of well-connected corporations. The fact that the administration evidently doesn’t feel that it can make an honest case for the Trans-Pacific Partnership suggests that this isn’t a deal we should support.
At the Roosevelt Institute Chief Economist Joseph Stiglitz sent a letter to House and Senate leadership raising concerns about the investor-state dispute settlement (ISDS) provision being considered as part of our trade negotiations. He notes that both progressives and conservatives have come out against this provision. The Nobel laureate writes, “There is much confusion about ISDS, but plain and simple: ISDS is about rewriting the rules of how our economy works, tipping the balance of power in favor of big businesses at the expense of workers and the public here and in partner countries."
The Export-Import Bank is about subsidies for U.S. exports. It is 180 degrees at odds with free trade. It means the government is effectively taxing the rest of us to give money to favored corporations, primarily folks like Boeing, GE, Caterpillar Tractor and a small number of other huge corporations ... The strongest proponents of the TPP are also big supporters of the Export-Import Bank. They apparently have zero problem touting the virtues of "free trade" while at the same time pushing an institution that primarily exists to subsidize exports.
Robert Reich (RE: TPP) How Trade Deals Boost the Top 1% and Bust the Rest:
Suppose that by enacting a particular law we’d increase the U.S. Gross Domestic Product. But almost all that growth would go to the richest 1 percent. The rest of us could buy some products cheaper than before. But those gains would be offset by losses of jobs and wages. This is pretty much what free trade has brought us over the last two decades.
Other News and Opinions
* If the NSA has access to all our emails, voice mails and internet activity (as well as that of all foreigners and their governments), then wouldn't the NSA also have copies of all of Hilary Clinton's data that she transmitted via her cell phone — data that she later deleted from the hard drive of her private server? If Hillary were engaged in financial activities with foreign governments on behalf of her foundation, one would think that the NSA would be all over that...and they would hold the key to all the controversy surrounding her deleted emails. Is there a supporter of Senator Bernie Sanders (or any Republican candidate) who works for the NSA that could shed some light on this matter?
* Nancy Pelosi and other Democrats were pushing the KOCH Act to require tougher disclosure rules for political TV ads. A newsletter yesterday from www.endcitizensunited.org says the GOP killed the bill earlier this week. When people complain that Democrats also use superPACS (etc.), they must understand that they are only fighting fire with fire. The Democrats can't unilaterally disarm, and only have the GOP raise money in this way. That's why we should have publicly funded elections, so the politicians will feel more inclined to do the bidding of the voters rather than their biggest campaign donors.
* After more than 200 years of operation, JPMorgan Chase recently became an admitted felon. CEO Jamie Dimon blamed it all on "one bad apple". Now that bad apple is the Chair of the Foreign Exchange Committee at the New York Fed. Yesterday’s sobering actions by the U.S. Justice Department will be meaningless unless Congress wakes up and breaks up Wall Street’s behemoth banks by restoring the Glass-Steagall Act.
* When asked about bridge-gate and other issues, governor Chris Christie said: "We don't give a shit about this or any of you". But he's only saying out-loud what MOST of our politicians already think.