Tuesday, October 28, 2014

[NJFAC] How Fed Policy Contributed to Inequality

How Quantitative Easing Contributed to the Nation's Inequality Problem

By William D. Cohan October 22, 2014 Yellen Issues a Warning on the Risks of Rising Inequality (Oct. 18, 2014)

Janet L. Yellen, the chairwoman of the Federal Reserve, is regarded as a person of the highest integrity. And that is what's so utterly confounding about the speech she gave in Boston last week about inequality. She did a wonderful job highlighting the growing disparity between rich and poor and how it is beginning to impinge upon what it means to be an American, but she ignored the fact that, in many ways, the Fed's policies have compounded the problem.

There is no question that her remarks were a real shocker. We have been conditioned not to expect anything so honest, and in such clear and unequivocal language, from any top government official, let alone from the sitting head of the Federal Reserve.

That's why it's worth repeating a few of Ms. Yellen's conclusions. "The extent of and continuing increase in inequality in the United States greatly concern me," she said. "The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then. It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity."

Ms. Yellen's speech seemed heartfelt. Yet, she has endorsed the Fed's policies, started by her two immediate predecessors, Alan Greenspan and Ben S. Bernanke, that drove down interest rates to historically low levels – policies that have actually exacerbated the problem that she says she wants to correct.

She is failing to appreciate how Mr. Bernanke's extraordinary quantitative easing program, started in the wake of the financial crisis, has only widened the gulf between the haves and have-nots. ....

Quantitative easing adds to the problem of income inequality by making the rich richer and the poor poorer. By intentionally driving down interest rates to low levels, it allows people who can get access to cheap money on a regular basis to benefit in extraordinary ways.

The first beneficiaries are the big Wall Street banks, the so-called group of 22 primary dealers, which can borrow directly from the Fed, essentially free. Because banks are in the business of making money from money, they use the Fed's money to make more money by trading with it, investing it in government debt and pocketing the profit or by lending it out at wide spreads. Thanks to the Fed's low-interest rate policy, the big banks also make a lot of money by taking our deposits, which they also pay us virtually nothing for – my savings account pays me an annual interest rate of 10 basis points, or one-tenth of one percent — and lending them out at wide spreads. No other business on the face of the earth gets its raw material so cheaply. No wonder bank profits have soared.

Then there is the gift the Fed has given to Wall Street's traders and investment bankers. The traders benefit because they know – and have known for years, thanks to the Fed's telegraphing of its quantitative easing program – that the Fed will be a continuing buyer of their risky securities at (ever-rising) market prices. Since the onset of Mr. Bernanke and Ms. Yellen's policy, the Fed's balance sheet has grown to $4.5 trillion, from around $800 billion before the crisis. That's a whole lot of securities bought at high, profitable prices and paid directly to Wall Street traders. The Fed might as well have been paying the traders' seven-figure bonuses directly.

The Fed's low-interest rate policies have also been a bonanza for Wall Street's investment bankers – and their bonuses — as companies around the world race to raise debt capital at low rates. Wall Street, of course, takes a cut of every dollar of debt raised. The steadfastly low interest rates have also propelled the stock market to new highs. That, in turn, has also led to a bonanza of new equity being raised and more fees being paid to Wall Street.

Private equity firms also have benefited wildly from the low-interest rate environment. That allows them to borrow money cheaply and leverage the billions of dollars in equity – said to be $3.5 trillion these days — to buy and sell companies. The buyout firms, and of course Wall Street, also get fees from all this deal activity. The investors in private equity funds have benefited too, and this often includes state-employee and teacher pension funds. The endowment funds of colleges and universities have also benefited from the low-interest rate environment. But it is the fund managers, not the pensioners, who really rake in the money from this arrangement.

What if you are one of the millions of Americans trying to get by on a fixed income? Or is trying to live off savings? Ms. Yellen claimed in her Boston speech to understand the problem these Americans face.

"The lower half of households by wealth held just 3 percent of wealth in 1989 and only 1 percent in 2013," she said. "To put that in perspective…the average net worth of the lower half of the distribution, representing 62 million households, was $11,000 in 2013. About one-fourth of these families reported zero wealth or negative net worth, and a significant fraction of those said they were 'underwater' on their home mortgages, owing more than the value of the home."

And yet in the past five years or so, the Fed's low-interest rate policies have buried savers and those on a fixed income because they can't get a return without taking an inordinate amount of risk, by either investing in the stock market, which as we were reminded again last week can also go down, or by "reaching for yield" by investing in risky debt securities that are increasingly overpriced. Either way, Ms. Yellen's policies are crushing these 62 million American households.

You might think that low interest rates might help those looking to get a mortgage to buy a new home, or those who want to borrow money to start a new business or expand an existing one. Unfortunately, as Ms. Yellen pointed out in her speech, this dream remains elusive for many Americans.

Thanks to the credit pendulum swinging back in the wake of the financial crisis, both home mortgages and small business loans are harder to get than ever. If you're General Electric or Kohlberg Kravis Roberts, getting a loan from a bank is no problem; if you want to buy a new house in Peoria, good luck to you.


Let's face it, until the Fed acknowledges the role it has played – and continues to play – in widening the gulf between rich and poor in this country, you'll forgive me if I find speeches like the one Ms. Yellen gave in Boston last week to be more than just a little bit ironic.

William D. Cohan is a former senior mergers and acquisitions banker who has written three books about Wall Street. His latest book is "The Price of Silence: The Duke Lacrosse Scandal, the Power of the Elite, and the Corruption of Our Great Universities."

National Jobs for All Coalition

This list is only for announcements, so you may not post.
You received this message because you are subscribed to the Google Groups "goodjobs" group.
To unsubscribe from this group and stop receiving emails from it, send an email to goodjobsforall+unsubscribe@googlegroups.com.
For more options, visit https://groups.google.com/d/optout.

Tuesday, October 21, 2014

[NJFAC] How Human-Robot Teamwork Will Upend Manufacturing

How Human-Robot Teamwork Will Upend Manufacturing

Robots are starting to collaborate with human workers in factories, offering greater efficiency and flexibility.

Sometime in the next couple of years, if everything goes to plan, workers at BMW's manufacturing plant in Spartanburg, South Carolina, will be introduced to an unusual new teammate—a robot arm that will roll around handing them tools and parts as they assemble the German carmaker's luxury vehicles.

Once isolated behind safety fences, robots have already become safe and smart enough to work alongside people on a few manufacturing production lines. By taking over tiresome and repetitive tasks, these robots are replacing some people. But in many situations they are augmenting the abilities of human workers—freeing them to do tasks that require manual dexterity and ingenuity rather than extreme precision and stamina. These robots are also increasing productivity for manufacturers and giving them new flexibility.

BMW introduced robots to its human production line at Spartanburg in September 2013. The robots, made by a Danish company called Universal Robots, are relatively slow and lightweight, which makes them safer to work around. On the production line they roll a layer of protective foil over electronics on the inside of a door, a task that could cause workers repetitive strain injury when done by hand, says Richard Morris, vice president of assembly at the Spartanburg plant. Existing industrial robots could perform this work, and do it much more quickly, but they could not easily be slotted into a human production line because they are complicated to program and set up, and they are dangerous to be around.

While the prospect of increased automation will inevitably cause worries about disappearing jobs, BMW's Morris can't foresee a day when robots will replace humans entirely on the factory floor. "Ideas come from people, and a robot is never going to replace that," he says.

Reduction in workers' idle time when they collaborate with robots

Still, robots on human production lines at BMW and other manufacturers promise to transform the division of labor between people and machines as it has existed for the past 50 years. The more traditional robots that apply paint to cars, for example, work with awesome speed, precision, and power, but they aren't meant to operate with anyone nearby. The cost of setting up and programming these robots has helped ensure that plenty of small-batch manufacturing work is still done by hand. The new robots, with their ability to work safely next to human coworkers, let manufacturers automate parts of the production process that otherwise would be too expensive. And eventually, by collaborating with human workers, the robots will provide a way to combine the benefits of automation with those of human ingenuity and handcraft.....

National Jobs for All Coalition

This list is only for announcements, so you may not post.
You received this message because you are subscribed to the Google Groups "goodjobs" group.
To unsubscribe from this group and stop receiving emails from it, send an email to goodjobsforall+unsubscribe@googlegroups.com.
For more options, visit https://groups.google.com/d/optout.

Saturday, October 11, 2014

[NJFAC] Unemployment and one effect: Lost Output [see clock]

The Magical Shrinking Unemployment Rate

  on October 3, 2014

The September current population survey unemployment report dropped to 5.9% and all sing hallelujah the job crisis is over.  The unemployment rate hasn't been this low since July 2008.  The unemployment rate dropped two tenths of a percentage point in a month, but why it dropped is more interesting.  The main reason is the decline in those participating in the jobs market.  The labor participation rate is the lowest rate in 36 years, not seen snce February 1978.  The ranks of the employed has increased 2.3 million in the last year while those not in the labor force has swelled by almost 2 million. 

This article overviews and graphs the statistics from the Employment report Household Survey also known as CPS.  This survey tells us about people employed, not employed, looking for work and not counted at all.  The household survey has large swings on a monthly basis as well as a large margin of error.  Yet, it is our only real insight into what the overall population is doing for work, or not.

The ranks of the employed increased by 232 thousand this month which is a great showing.  From a year ago, the employed has increased by 2.33 million and now tallies 146,600,000 as shown in the below graph.  These figures are good signs people really are getting jobs.....

The most frightening statistic of the household survey is the labor participation rate.  The labor participation rate is at 62.7%, a record low, and is shown in the below graph.

labor participation rate

These are not all baby boomers and people entering into retirement.  Below is a graph of the labor participation rate for those between the ages of 25 to 54.  These are the prime working years, so once cannot blame retirement and college on the declining participation rate.  As we can see, this 80.7% rate has dropped and is at lows not seen since the 1980's recession.


labor participation rate ages 25 to 54


This month's household survey, makes it seems like the job market is perfectly fine.  Yet if we look at labor participation rates, that is the reason the unemployment rate has dropped so much.   It is also true the job market has improved and more people are finding work.

NOTE: See also NJFAC report: Is the Decline in the Labor Force Participation Rate During This Recession Permanent?

United States Lost Output Clock

$5,994,539,791,160 [as of Oct11, 2014]

Lost National Income since the Financial Crisis of 2008.

Blue line = Potential GDP (if capital and labor are fully employed with adequate demand)
Red line = Actual GDP

GDP = Government Spending + Private Spending + Exports - Imports
GDP & Labor Employment => Positive Correlation (Okun's Law)

The Problem   We have a modern epidemic of unemployed and underemployed workers in the United States.

Since the 2008 financial crisis, the labor market has reached a tipping point, and the middle class has received its final blow.
Every time there's a business with machines or facilities idle due to low sales, or a worker unable to find a way to contribute, it's money being lost and wasted in our economy.
This untapped production from unemployed workers and unused facilities will never come back.
You can't go into a time machine and fix the misery caused over the years by unaddressed economic strife.
You can't put together families torn apart by broken careers and home foreclosures.
The pain can't be undone.

The Reason

If you are unemployed, seeking work and unable to find adequate fulfillment, or you're a business owner with sluggish sales and idle capital, it is not your fault.
Deregulatory policies and dismantling of public isntitutions under Ronald Reagan and Bill Clinton paved the way for a series of financial crises.
Bankers got drunk off cheap money from Fed chair Alan Greenspan, until they couldn't handle the debt load and risk and collapsed.
And once it popped, they used tax payer money to bail out the large financial institutions, with trillions in guarantees, loans, and equity purchases.
All this in the backdrop of decades of working Americans being shafted by free trade agreements and destruction of collective bargaining.
The result was a credit market and economy in shambles, and a government unwilling to plug the aggregate demand hole adequately with New Deal style public expenditures.

The Solution But we can reverse the bad policy which led to the crisis and do something about the unnecessary future pain. We need a large, $1.1 Trillion government stimulus jobs-directed spending program NOW.

For a detailed 20-page run-down of the nature of our current woes and the fix, click here.

This missed production/income, if spread evenly across all working Americans, amounts to lost accumulation of wealth per working American of: $38,550

National Jobs for All Coalition

This list is only for announcements, so you may not post.
You received this message because you are subscribed to the Google Groups "goodjobs" group.
To unsubscribe from this group and stop receiving emails from it, send an email to goodjobsforall+unsubscribe@googlegroups.com.
For more options, visit https://groups.google.com/d/optout.

Saturday, October 4, 2014

[NJFAC] War On Poverty, Or War On the Poor?

The following is a contribution by Frank Stricker, a member of our Advisory Board.

War On Poverty, Or War On the Poor?

The 1960s War on Poverty (WP) involved three approaches. The most publicized and least effective at lifting people out of poverty included Head Start, legal aid and other services. It emphasized training and psychological uplift through the Job Corps and Community Action Agencies. Evaluations showed that Job Corps graduates did no better than others. Community Action Agencies got mixed reviews. They involved poor people in community organizations and they supervised Head Start and other programs. Although some had naively pushed them as a way for poor people to take control of their communities and challenge local political machines, that did not happen, nor did poor people control business decisions to create jobs in their communities.

A second, often soft-peddled, approach worked better. The American safety net began with Social Security, welfare and unemployment insurance in 1935. In the '60s, old programs were improved and new ones (food stamps, Medicaid and Medicare) added. In the '70s, the Earned Income Tax Credit was created for the working poor. These programs counteracted market forces that created more poverty. Today, cash (such as Social Security) and near-cash benefits (food stamps) lift 40 million people out of poverty. In the pit of the recession in 2009, unemployment benefits kept 5 million people from slipping into poverty. 

Americans should celebrate these welfare state successes, but they should also support improvements. Fifty million people are still poor. The poorest fifth of black households have only $9,800 in cash per year. Social Darwinists, led by the Koch brothers, Republican Paul Ryan and Tea Partiers talk economic nonsense and want to eliminate social programs. Liberals sometimes make it easy for them. In the '60s, safety net programs were kept in the background and WP training and uplift programs were sold as a hand up, not a hand out. American attitudes trail collectivist reality. We live in a web of interdependencies but are still drawn to archaic forms of economic individualism.

Nor are most Americans comfortable with the third WP approach: deficit spending. In 1964 President Johnson won support for Keynesian tax cuts by promising to balance the budget for one year. Soon, due in part to the murderous war in Vietnam, spending and deficits soared. The economic impact at home was huge. Unemployment averaged 3.7% over four years, and the poverty rate fell from 22% to 12%.

In 1971-1972 President Richard Nixon used deficits to boom the economy and assure his re-election. That added to inflationary pressures coming from higher oil and grain prices around the world. Inflation soon seemed out of control. There weren't enough socialist economists to defend the working class. Mainstream economists urged high unemployment to cut inflation. In the early '80s, the brutal Volcker-Reagan recession cut prices and beat up on workers. The Reaganites cut income supports, attacked unions and re-enthroned the royalty of money. The WP was becoming the war on the poor. Imprisoning young people of color was the tool. Democrats moved to the right, and President Bill Clinton approved big welfare cuts.

Over time, conservatives made Republican social policies even more hostile to poor people. In our time, Republican governors deny Medicaid to millions of people. North Carolina's Thom Tillis wants people to look down on those "who choose to get into a condition" that requires government aid.

Yet despite the spread of poisonous ideas, in many places it is easier to talk about economic poverty. The anti-poverty paradigm has shifted. In the 1960s, the poor were imagined as outside the working class, a distinct underclass with bad values. They were often viewed ethnically or culturally: poor blacks and poor Appalachians were the poster people for the WP. But that kind of liberalism could slide into blaming the poor. Daniel Moynihan's 1965 Labor Department report, The Negro Family, emphasized unemployment but also the idea that black family structures were deranged. By the '80s, right-wing writers had pushed the poverty debate from attacking poverty to attacking poor black people as criminals and welfare cheats.

But now the working poor are at the center of the conversation, thanks to Occupy Wall Street; militant workers at McDonald=s, Amazon and Wal-Mart; and unions like SEIU and UFCW. And, thanks to terrible economic conditions:

  • the average real wage is still lower than in the early 1970s;
  • the income inequality gap is huge;
  • there's always sleaze and criminality in capitalist operations, but now there's not much trickle-down.

Bush tax cuts favored the rich but did little for job creation, even before the recession. Businesses routinely steal wages from employees. Apple stashes $100 billion abroad to avoid taxation. Wal-Mart donates to school privatization but advises underpaid employees to use Medicaid and the Earned Income Tax Credit.

These factors had a bigger impact because of the Great Recession of 2008-2014. The crash pushed millions into poverty and weakened confidence in the rule of the Robber Barons. But the power and vast wealth of capital, the conservatism of many Democrats, the resentments of white people and the absence of a vibrant Left promoting socialist values helps explain why our second worst depression did not generate a second New Deal.

What would a second New Deal on jobs and poverty look like? We need to improve the safety net, but we must also fix job markets by raising the minimum wage and by direct federal job creation. How do we pay for new jobs? [see Note] Tax the rich more; tax financial transactions. And borrow. Almost every job boom since the Great Depression has been fueled by federal deficits (often for war). Also, full employment with more good jobs means more tax revenues and fewer people needing food stamps and other benefits. That means the deficit can fall. And millions of people will be less insecure and, we hope, happier.

Frank Stricker, Emeritus Professor of History at California State University, Dominguez Hills and member of the National Jobs for All Coalition, wrote Why America Lost the War on Poverty (2007) and is completing a book: American Unemployment: Why We Have It and What To Do About It.

Note: NJFAC  member Philip Harvey has shown that jobs programs nearly pay for themselves, and that using the stimulus funds for direct job creation could have employed all the unemployed.  See also Harvey, Learning from the New Deal[Jobs Programs]
"A direct public jobs program is cost effective. $100 billion spent to directly hire American workers would create 2.6 million fulltime jobs over two years, compared to just 136,000 jobs for $100 billion in tax cuts or 714,000 jobs for $100 billion in benefit increases."
National Jobs for All Coalition

This list is only for announcements, so you may not post.
You received this message because you are subscribed to the Google Groups "goodjobs" group.
To unsubscribe from this group and stop receiving emails from it, send an email to goodjobsforall+unsubscribe@googlegroups.com.
For more options, visit https://groups.google.com/d/optout.