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Tuesday, July 12, 2011

What's to Become of our Economy?

In a recent New York Times article, warning sirens flashed:

In this article we learn some very important facts about our undead economy:

Close to $2 of every $10 that went into Americans’ wallets last year were payments like jobless benefits, food stamps, Social Security and disability, according to an analysis by Moody’s Analytics.

Of course these weren't really payments, they were TRANSFER payments. IE, people were simply being given money that was taken from others, for 1/5 of all the country's income. This doesn't mean that everyone in America earns 8 dollars and is given 2 more by the government. It means some people are living purely off transfer payments, perhaps 1/5 of all Americans, while the others are receiving nothing from the government, working their tails off, and then paying high taxes to support the other 1/5. 1/5 of Americans equals 310 million / 5 = 62 million people. The idea that we could cut these handouts to 62 million people and just leave them to starve in the streets is ridiculous. 62 million people aren't going to politely just lay down and die. They would riot and go to war first. The idea that private charity could support 62 million people is also ridiculous. Therefore the federal spending must go on, there is no one else big enough to support such an enormous mass of people.

But suddenly we learn that the federal spending is slated to NOT go on any longer:

By the end of this year, however, many of those dollars are going to disappear, with the expiration of extended benefits intended to help people cope with the lingering effects of the recession.

Unless hiring picks up sharply to compensate, economists fear that the lost income will further crimp consumer spending and act as a drag on a recovery that is still quite fragile. Among the other supports that are slipping away are federal aid to the states, the Federal Reserve’s program to pump money into the economy and the payroll tax cut, scheduled to expire at the end of the year.

So we're going to raise taxes on the poor (regressive payroll taxes), stop supporting state support for the poor like medicaid and welfare, stop the unemployment benefit payments, stop quantitative easing, and simply throw the poor to the wolves. Brilliant! The government's stimulus program will end this year too, a stimulus program that mostly went to tax cuts and relief payments to provide basic goods like health care and education to the poor. Every single measure that was meant to tide people over during the recession is going away -- but the recession hasn't gone away yet!

This is a fascinating mode of decision making. The poor urgently need our help, the recession has caused massive unemployment -- quick, let's give them money. Two years later, the recession continues, captain, average savings, especially among the poor, are down drastically, unemployment is higher than ever, everyone is in foreclosure and their situation is totally hopeless -- we need to cut spending and throw these people to the wolves. The answer is diametrically opposite to our original answer when the crisis began. Why? What changed in the meantime?

Job growth has remained elusive. There are 4.6 unemployed workers for every opening, according to the Labor Department, and Friday’s unemployment report showed that employers added an anemic 18,000 jobs in June.

In Arizona, where there are 10 job seekers for every opening, 45,000 people could lose benefits by the end of the year, according to estimates from the state Department of Economic Security. Yet employers in the state have added just 4,000 jobs over the last 12 months.

The ridiculous belief that people on unemployment benefits are just refusing to get a job, even though there are plenty of jobs available, is shown for the lie it is by the above statistic. There are 5 unemployed people for every job opening. Even if everyone tried to get a job, unemployment would only decrease 20%. The lion's share of unemployed people have NO CHOICE but to stay unemployed. It's a game of musical chairs. There simply aren't enough jobs, period, to employ everyone. For 80% of the unemployed, they can't do anything at all.

Approved by Congress last December, the final extension of jobless benefits — for a maximum of 99 weeks for each unemployed person — is scheduled to conclude at the end of this year. A handful of states, like Wisconsin and Arizona, have already cut off weeks 80 through 99 for their residents. Meanwhile, more of the long-term unemployed are bumping up against the 99-week limit.

Consumers account for an estimated 60 to 70 percent of the country’s economic activity, but two years into the official recovery, businesses are still complaining that people simply are not spending enough.

Here we have the inanity of setting a time limit to unemployment benefits instead of a conditions limit. If you recall, the Republican party vociferously objected to a timetable in the Iraq war, saying a war ends when conditions are right, not when an arbitrary date is passed. Then they turn around and contradict themselves by setting a time limit to unemployment benefits, instead of a conditions limit. For instance, "unemployment benefits will end once businesses have enough open hiring job positions as there are unemployed people in America." This would be a rational standard. We can't blame people for being unemployed so long as no one's hiring, but we could resent them for staying unemployed when there's an available job right in front of them. But saying people can only receive 80 weeks, or 99 weeks, of unemployment benefits, regardless of the outside economic conditions, is head in the sand economics. It's magical thinking.

But as the article explains, this doesn't just spell doom for the unemployed. If no one's able to buy the goods in your store, you'll go bankrupt too. Then people who do have jobs and are being productive will lose their business too, be unable to spend money buying other people's products, which will in turn bankrupt them, and so on. It's the downward spiral, a mathematical certainty, since 60-70% of the economy is based off of consumer spending. If you cut consumption, you attack 60-70% of the economy's well being, which will end up cutting consumption even further, which will hurt the economy even more, and so on. We absolutely must hold the line when it comes to consumption, because without consumption we'll lose more jobs and start an avalanche that will take our whole country down with it.

Because benefit payments tend to be spent right away to cover basic needs like food and rent, they provide a direct boost to consumer spending. In a study for the Labor Department, Wayne Vroman, an economist at the Urban Institute, estimated that every $1 paid in jobless benefits generated as much as $2 in the economy.

Our money to the poor is not really a benefit to the poor. It's a benefit to the massive middle class above them which can keep their jobs by receiving the consumer spending of the poor for their work. Every dollar we spend on the poor is translating into two dollars spent keeping the middle class afloat. If we rescind all of our stimulus and transfer payments, like we've planned, at the end of this year, we're going to be sucking 40% of the economy away in one fell swoop. Follow the math. Transfer payments are 20% of all money in America, and for every dollar of transfer payments, we are generating 2 dollars in the larger economy. What happens if America overnight loses 40% of its economy?

The best way to increase employment is to increase consumer spending. If people have enough money to buy products, this incentivizes other people to produce and retail these products and services. That creates jobs, and it also increases GDP, because people are doing something of real value for others instead of sitting around helplessly because no one can afford their goods or services. For the last 4 years we have been stealthily aiding consumer spending by giving 1 out of every 5 dollars in America directly to people who didn't earn it, telling them to go out and spend for all they're worth. But that stealth program is all coming to a halt, due to Republican budget hawks who are no longer interested in reality and prefer magical thinking. "The economy will take care of itself," (It hasn't, or else the 2007 recession never would have happened, would it?) "People will find work if they ever wanted it," (They can't, there are 5 unemployed people for every job opening in America.) "Private charity can take care of 62 million people," (Just what kinds of private charity have that much money?) "Cutting deficits will improve the economy," (Not if it means reducing consumer spending, the single most important driver of our economy!) "What we really have to fear is inflation and high interest rates," (You mean our historically low inflation and interest rates, that's what we really have to fear, instead of our historically high unemployment rates?????)

I hate debating with Republicans because they live in their own magical world that follows its own laws, in complete violation of all known facts. They know what their formulas decree and they don't need to consult the actual empirical reality of the economy to ever check their formulas, they're right in abstract and that's all that matters.

There is one way out of this coming disaster, however: Turn these stealth transfer payments into a principled, established, permanent law. I've been asking for a citizen's dividend that would take up 25% of the GDP. $12,000 a year, $1,000 a month, per citizen in America. ((This would also be a great deterrent to illegal immigrants, huh? No more handouts to non-citizens.)) People have complained about how expensive this is, but I already showed that the government was spending 50% of the GDP, not just 25%, so it can't possibly be too expensive. Then people complain that it's unfair for people to earn unearned money without working for it -- only now we've just learned that for the past 4 years, that's exactly what we've been doing. We have been giving out 20% of the GDP as free, unearned, transfer payments, just exactly like the citizen's dividend would do. So if the last four years didn't destroy the U.S., clearly the citizen's dividend wouldn't do so either. The only difference is that the citizen's dividend is vastly more efficient at delivering real help to those in need, because it cuts out all the middlemen and lets people spend their money on what they please, and it's vastly more fair because it gives money to everyone, not just the elderly and the unemployed. It gives money to young people who can't find work, it gives money to married couples with children, it gives money to entrepreneurs trying to found a business, it gives money to everyone. It's a basic contract with America, saying, we will not let a single person fall through the cracks. We won't leave anyone stranded. Everyone will have a decent life in this, the richest country on Earth.

This sudden influx of dollars into every consumer's pocket would create the biggest investment and spending spree in history. It would be a true stimulus program which would revive the American economy. Once everyone has money to spend again, people have a reason to start producing again, which creates jobs. Jobs, sweet jobs, as far as the eye can see. Not only would this permanently take care of people affected by the recession, it would also end the recession once and for all. There is no other program which can promise this. Only the citizen's dividend is a silver bullet that solves everything.

Best of all, it doesn't require any additional taxes or spending. We could pass the citizen's dividend and cut the deficit and keep taxes the lowest they've been in 60 years. This is because with the citizen's dividend, other federal spending programs are no longer necessary, like social security, medicaid, medicare, welfare, food stamps, unemployment insurance, HUD housing, and so on. Everything can be paid for directly by the citizen's dividend. People can buy all the health insurance, pay all their rents, and buy all the food they want with the citizen's dividend. $12,000 per person per year can cover all costs, it's a really sizable sum of money. If you combined this with a massive cut to the military, which has no business invading other countries half a world away now that Osama bin Laden is dead, we could pay off our national debt in no time, all the while not hurting a single poor American. The rich would make more money than ever, because they'd finally be receiving a benefit for the taxes they pay ($12,000 when before they received practically nothing), and because their businesses would boom if there were more customers. The middle class would finally have the security they crave, and the poor would have a stable source of income for the first time in their lives. No one suffers from the citizen's dividend because it is flat out the most efficient government program ever imagined. We've already spent twice as much money trying other, failed alternatives like medicare to support the poor. It would be painless, free, to substitute the failed alternatives for the successful one. It would still achieve all the goals we originally set for our War on Poverty, and it would be cheaper for everyone involved.

If Republicans succeed in ending the stealth citizen's dividend, the 20% of our GDP dedicated to transfer payments, at the end of the year, the need for a real citizen's dividend will only become ever-more-apparent. We cannot turn our backs on 62 million people in need. That would be a national catastrophe, it would lead to riots and crime and terrorism and civil war that completely undoes the federal government. It's unthinkable what would happen next. Therefore the need for a citizen's dividend will become apparent even to the most dimwitted of morons in Congress, and even to the magical cloud fairy thinkers that infest the Republican party. As this recession continues and we run out of failed alternatives, the citizen's dividend, the one policy we have never tried, will become obvious just through order of elimination. Eventually, just by blind chance, it will have to be seized upon at least once. And if it is given just one opportunity, it will succeed so brilliantly, that it will become the new agreed-upon policy of the whole world.

And then? And then, the whole world will never suffer again.

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