Obama Puts Faith in Private-Sector, as Corporate America Goes on Investment Strike
Each day, President Obama and his surrogates spread out across the land, singing the praises of the "private sector" job growth for which they desperately hope. Treasury Secretary Timothy Geithner is even proclaiming that the "recovery" is actually advancing much more rapidly than the eye can see.
Geithner's carefully-crafted boast is a tone-deaf insult to the intelligence of American voters. Fully 20 percent of households have watched their family incomes drop by 25% or more since the beginning of the recession.
If the White House keeps on telling people that they are better off than they think they are, the Democrats will be severely punished in November, just as they were in 1994.
But the administration's reliance on corporations to provide jobs may be even more fatal.
Coming at a time when private sector jobs grew by a pathetic 71,000 last month, the mantra of "private-sector job growth" is starting to sound as delusional as Ronald Reagan's infamous faith in "magic of the marketplace."
Bob Herbert of the New York Times summarized the miserable job-producing performance of the much-vaunted private sector:
We've got more and more people in our working-age population and fewer and fewer jobs to go around. [Charles McMillion, the president and chief economist of MBG Information Services in Washington] tells us that there are now 3.4 million fewer private-sector jobs in the U.S. than there were a decade ago. In the last 10 years, we've seen the worst job creation record since 1928 to 1938.
CORPORATE AMERICA GOES ON STRIKE
It's as if Corporate America has gone on a general strike on investment, hiring and loans in the midst of the most severe economic downturn in 80 years. This strike is unplanned, but very real.
With consumer purchasing power so weak because of real unemployment that is near Great Depression levels, and with wages and hours have been slashed for much of the remaining workforce, there is little incentive to undertake the risk of expanded investment and production of goods that are likely to sit on the shelves. Thus "the new normal" for major corporations happens to be headed in the same direction of maximized profits with minimized investment, hiring, or loaning of capital.
Just as workers withhold their labor during a strike, corporations are withholding the purchase of new equipment and hiring workers, as discussed in previous posts, cutting back on wages by $122 billion while profits rose $572 billion in the first quarter period. Corporations are successfully cutting into their existing workforces and wringing more work out of the badly-scared survivors.
To the extent that production in high-value jobs is being increased, it is happening in repressive low-wage sites like China or Mexico. Fortune 500 firm Johnson Controls, for example, is planning on adding 10 new plants to the 40 it already has set up in China.
Meanhile, mega-banks, especially those who were bailed out with public money, are aalso waging their version of the strike by withholdidng loans. Because the banks fear the amount of toxic loans still within financial system, they have found that they can safely stash their money within interest-bearing accounts while loaning out a tiny share of the former volume of loans.
VIRTUAL FREEZE ON LOANS
As Nomi Prins, author of It Takes A Pillage, has documented,
In September 2008, the top banks were required to keep $43 billion in reserve at the Fed, and placed $59 billion in extra reserves. Today, banks are required to keep $63 billion in reserves, but parked an extra $1.2 trillion at the Fed.
At one point in early winter, economcs writer Ellen Brown calculated that loan volume is a small fraction of its normal level:
Chartered banks are allowed to create credit on their books equal to many times their deposit base, but lately they haven't been doing it. In more normal times, one dollar in base money has been fanned by the banks into $8.50 in loans. Today, one dollar in base money produces only one dollar in loans. Although the Fed has been frantically pushing cash into the banks, it can't make them lend to consumers.
This means that small businesses cannot create jobs because they can't get lt routine loans to replenish their stock or meet a payday if receipts fall a little short.
INNER CIRCLE AGAINST STIMULUS
Does any of this look like a major problem for the geniuses providing economic advice to President Obama? Geithner, Lawrence Summers, and Robert Rubin-who earned $100 million at Citibank after leaving as Clinton's treasury secretary and helping to saddle the nation with Wall Street deregulation-are all unwilling to push for a second, much more vigorous stimulus.
Obama's inner circle of Wall Street wise guys have spent their entire lives safely insulated from the realities of Detroit or Youngstown or other communities where the long-term jobless are suffering.
As a result, they see no urgency to a strong new stimulus plan, and certainly feel no inclination to lean on the revered private sector-specifically, big corporations and banks-to actually start creating jobs in the U.S. Obama, in part because of the spinelessness of so many congressional Democrats, has allowed his administration to be backed into a corner by the Republcians' incessant attack on government spending to stimulate the economy.
While speaking vaguely of the need for more government stimulus, there is no large-scale plan to offer a halt the state-level bleeding. The beneficial effects of the first stimulus are now being undermined by unprecedented state level cuts in expenditures and staffing, which are further reducing already-lagging consumer demand and reducing the nation's current and future productivity.
Street lights are being blacked out in some cities, massive teacher layoffs loom, some states are imposing shorter school weeks and inferior education, libraries are being closed in New Jersey, and roads are being downgraded from pavement to gravel because maintenance costs are so much lower.
SLIVER OF HOPE
Presently, the only sliver of hope comes from a scaled-down stimulus bill that would allocate $26 billion to the states for rehiring teachers and other public employees, and other legislation on child nutrition, which has been one of the victims of the recession and upward re-distribution of income.
Yet even this bill, [which was passed by the House and signed by President Obama on Tuesday night], contains some unpalatable concessions to "centrist" Democrats and the Republicans:
Officials say that House objections [were also] raised over the child nutrition bill because it would receive funding from future cuts in the food stamp program, which was already taking a hit to pay for the state aid.
As a result, the House may wind up considering just the $26 billion bill, which both the White House and most Congressional Democrats see as a big win given that it protects jobs and does not add to the deficit.
At this point, the Democrats seem set on a course of belatedly trying to blame George W. Bush for the current mess (something that they failed to do forcefully enough in early 2009), working at convincing Americans that they are better off than their own actual experience tells them, and surrendering to the Republicans on the deficits vs. stimulus issue.
AN ALTERNATIVE APPROACH
An alternative course is also possible: relentlessly targeting corporations and banks for their strike against investment and hiring and creation of jobs only in low-wage nations outside the U.S.
This approach would also champion--rather than back away from--the vital role that only government can play in an economic downturn: restoring consumer demand through deficit spending to create and maintain public-sector jobs because of the abject refusal of the private sector to do so.
Unfortuantely, there are few indications that Obama and the Democrats are giving any such boldness even a moment's consideration.