Austerity economics will undermine recovery

A month ago the Milwaukee Journal Sentinel ran a column by Sheldon Lubar arguing:" The Age of Austerity is also what lies ahead for all of us today, not our grandchildren. This is the painful reality."

Putting aside the fact that tens of millions of working and middle class Americans, including the fifteen million who are unemployed and fifty million without health care insurance, have already been subject to the austerity of declining real wages, stagnate family incomes and soaring medical, education and real estate prices (until recently), Lubar is prescribing exactly the wrong medicine for what ails the U.S. economy.

Nobel Prize winning economist Paul Krugman repudiates Lubar and the austerity crowd:

For the last few months, I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity. That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.

This conventional wisdom isn’t based on either evidence or careful analysis. Instead, it rests on what we might charitably call sheer speculation, and less charitably call figments of the policy elite’s imagination — specifically, on belief in what I’ve come to think of as the invisible bond vigilante and the confidence fairy.

Krugman concludes:... the next time you hear serious-sounding people explaining the need for fiscal austerity, try to parse their argument. Almost surely, you’ll discover that what sounds like hardheaded realism actually rests on a foundation of fantasy, on the belief that invisible vigilantes will punish us if we’re bad and the confidence fairy will reward us if we’re good. And real-world policy — policy that will blight the lives of millions of working families — is being built on that foundation.

Krugman's column is worth reading and is linked here.

The Milwaukee Journal editorial Board also weighs in today with an editorial that explains why focusing on deficit reduction is not only wrong, but likely to undermine the recovery and revive the worst recession since the Great Depression.

Recession causes deficit to grow

The While House released an updated estimate of the federal budget deficit, which shows it now totals $1.6 trillion or 11.2% of gross domestic product. This is $262 billion less than what was estimated in May. The Congressional Budget Office showed a smaller improvement.

The new numbers confirm that the recession has caused the deficit to increase significantly.

Lower incomes, higher unemployment, and reduced business activity have combined to produce the lowest level of federal revenues – as a portion of GDP – in more than 50 years.

Policy measures aimed at stabilizing the economy have also added to the deficit, though to a much smaller extent: Stimulus investments made under the American Recovery and Reinvestment Act account for only about one-eighth of the deterioration in the 2009 deficit relative to pre-recession estimates.

Some will use this report as an opportunity to call for immediate action to reduce the deficit, or to suggest that we need to abandon or delay major policy initiatives, like investments in green technologies and two year colleges and health care reform. But given that the current deficit is largely caused by the recession, any efforts to reduce the deficit would choke off a recovery. That would be self-defeating and irresponsible.

World unemployment greatest threat to U.S. security

The New York times reports that unemployment is soaring worldwide.

• Worldwide job losses could hit 50 million by the end of 2009


• Even highly skilled, white collar workers are being laid off


• The International Monetary Fund expects global economic growth to reach its lowest point since the Great Depression


• High unemployment rates have already led to protests in Latvia, Chile, Greece, Bulgaria and Finland and strikes in Britain and France.


• The United States Director of Intelligence, Dennis C. Blair, informed Congress that the instability caused by the global recession has become the nation's biggest security threat, outpacing terrorism.

Yet, none of the House Republicans and only three Republican Senators voted for the $787 billion stimulus package designed to stop or at least slow the job loss and stimulate economic growth. And the price of those votes was reducing the size of the package and cutting needed aid to the states and to public schools, two-year colleges and universities.

It's hard to take the Republicans' new found fiscal conservatism seriously since the 2001 tax cuts they enacted cost $1.3 trillion and the preemptive war they unanimously supported is projected to cost $3 trillion, significantly more the stimulus package.

In 2003 anyone who opposed the invasion of Iraq was accused of being unpatriotic.

What does this say about those who voted against the stimulus package now that the greatest threat to U.S. security is rising unemployment?

Senate "compromise" cuts over a million jobs

The Senate's "compromise" on the federal stimulus plan is a betrayal of the nation's commitment to its people and the well-being of our economy.

The deal slashes job creating investments in the nation's economy by $140 billion. But it leaves in tact between $300 and $350 billion in ineffective tax cuts.

This plan is irresponsible because we know that tax cuts create many fewer jobs than direct government investment. (see CBO chart above)

The multiplier for stimulus spending generally ranges between 1 and 2.5, meaning for every $1 spent between $1 and $2.50 in additional GDP is generated. In contrast, the multiplier for tax cuts for the wealthy is 0.5 -- or less. (See the last page of this pdf from the Congressional Budget Office for their full list.)

This means that the Senate's "compromise" plan will generate between 1 million and 2.5 million fewer jobs than the House's original proposal. It will delay the renovation and modernization, including technology upgrades and energy efficiency improvements, of the nation's deteriorating public schools, colleges and universities. It cuts funds for Wisconsin's technical colleges whose current capacities are strained by the large number of dislocated workers and veterans who are enrolling for retraining. It shortchanges special education students by failing to fund their educations. It will deprive millions of already struggling American families of health care and nutrition.

The nation has lost 3.6 million jobs since the recession began. A record number of American are now collecting unemployment compensation. We should not allow the very supply side ideologues whose economic polices created this recession, the most severe since the Great depression, to play politics with the nation's economy and the health and well-being of its people.

Congress should restore the $40 billion federal investment in reeling state governments that the Senate cut. If it does not, and state and local governments are forced to slash their budgets to balance them, the recession will turn into a full fledged depression as government employees, teachers and health care providers get laid off.

If the $40 billion reduction is not restored, other states will follow California which is furloughing 200,000 state employees for two days a month. Such cuts will only exacerbate the recession, increasing unemployment and reducing wages and consumption. Under these conditions even well-designed business tax cuts have little impact because firms do not invest when no one if buying their goods or services.

Congress should also restore the $19.5 billion investment in higher and public education that the Senate cut. If it does not, other colleges and universities will be be forced to layoff personnel like Louisiana State University which is planning to furlough 2,000 employees, eliminate dozens of courses and shut down research programs.

This isn't a compromise. It is a recipe for disaster.

In his address on Saturday, President Obama criticized the failed approach of his opponents when he said:

Let's be clear: We can't expect relief from the tired old theories that, in eight short years, doubled the national debt, threw our economy into a tailspin, and led us into this mess in the first place. We can't rely on a losing formula that offers only tax cuts as the answer to all our problems while ignoring our fundamental economic challenges – the crushing cost of health care or the inadequate state of so many schools; our addiction to foreign oil or our crumbling roads, bridges, and levees.

Congress should follow the President's lead -- this is a time to be bold, not cautious. This is a time to invest in America's people and future. This is the time to do something that works, not cave in to the failed ideas of the past.

President Obama's weekly address 2/7/09

National Bureau of Economic Research declares recession began in December 2007

The U.S. economy entered a recession a year ago this month, the panel that dates American business expansions said today.

The official declaration was made by the cycle-dating committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts. The last time the U.S. was in a recession was from March through November 2001, according to NBER.

“The committee determined that the decline in economic activity in 2008 met the standard for a recession,” the group said in a statement on its Web site. The 1.2 million drop in payroll employment so far this year was the biggest factor in determining that start of the contraction, the group said.

The 73-month economic expansion, lasting from November 2001 to December 2007, was well short of the previous cycle that lasted a record 10 years. At 12 months, the current contraction is already longer than the last slump that covered the eight months from March to November 2001.

Although a recession is conventionally defined as two quarters of successive contraction in gross domestic product, the private committee doesn’t require supporting GDP data to make a recession call. Its members focus on month-to-month changes in the economy.

The U.S. economy shrank at a 0.5 percent pace in the third quarter after expanding 2.8 percent in the previous three months. Economists at Goldman Sachs group Inc. and Morgan Stanley in New York are among those projecting the economy will contract at a 5 percent pace this quarter.
Members of the committee are Stanford University professor Robert Hall; Martin Feldstein of Harvard University; Jeffrey Frankel, also of Harvard University; Northwestern University economics professor Robert Gordon; NBER president James Poterba; David Romer of the University of California at Berkeley; and Conference Board economist Victor Zarnowitz.

MJS's wrong on Big 3, auto workers & the UAW!

The Milwaukee Journal Sentinel (MJS) is nothing but consistent when it comes to editorializing on labor relations. While it expresses regret over the loss of family supporting jobs and Milwaukee's nationally high and very stubborn poverty rate, it has never missed an opportunity to push for wage or benefit concessions for unionized workers.

A year and one half ago, when the economy was expanding with corporate profits the highest since the Gilded Age and labors’ take the lowest, the editorial board urged three separate groups of local employees to agree to concessions.

First, County employees were urged to be “realistic”and praised for accepting higher health care premiums and scaled back pension and sick leave benefits.

Then Milwaukee’s Harley Davidson workers were urged to accept lower wages for new employees and changes in their health and pension plans even as Harley generated record revenues and rewarded its executives with huge compensation increases.

Shortly afterwords, the editorial board urged Kenosha’s Chrysler Engine Plant employees, members of UAW Local 72, to "be realistic" and accept “painful concessions” from the company's new owner, the private equity firm, Cerberus, even though Cerberus hadn't even asked for them.

More recently, it has supported eliminating firefighter and Milwaukee County jobs and opposed requiring employers to provide their employees with paid sick days. But its recent editorial that advocates letting the U.S. auto industry with its 3 million middle class jobs go out of business takes the cake. It blithely ignores that the U.S automobile industry is:

• the backbone of America's manufacturing sector


• responsible for 1 out of every 10 private sectors jobs and $150.7 billion in personal income


• critical to America's national defense

The editorial also ignores that failure would cost $156.4 billion in government revenues over just three years at a time when the economy is reeling, unemployment soaring and the deficit approaching one trillion dollars.

Not only does the MJS editorial advocate allowing the Big Three to go bankrupt, but it targets the United Auto Workers Union (UAW) and its middle class members for unjust criticism. It is so loaded with tired, inaccurate and anti-labor rhetoric it could have easily have been cut and pasted from a 1970s' Heritage Foundation report.

Here's what the MJS editorial writers alleged about the UAW and its members and the facts:

A second bailout won't make up for decades of mismanagement and union intransigence...

The U.S automobile industry has been mismanaged. Congress has responded by appropriating $25 billion to assist the industry in developing a new generation of energy efficient vehicles and green technologies. But the industry's current crisis is driven by the credit markets collapse and the resulting recession. One million three hundred thousand (1.3 million) private sector jobs have been lost causing consumer spending to decline for the first time since the early 1970s. As a result, car sales for all auto companies including Toyota have plummeted.

The Big Three are seeking a bridge loan to help it deal with the most severe economic downturn since the Great Depression.

The UAW has been anything but intransigent. The 2003 and 2007 contracts cut billions of dollars in costs for the Detroit 3. In 2007, new hire wage rates were halved to $14 per hour, new hires got reduced health care benefits and were not included in the existing defined benefit health plan. In addition the creation of the VEBA for retiree health care saved the companies $33 billion in future health care obligations.

The UAW has also allowed many sub assembly operations traditionally done in-house to be outsourced to suppliers and has agreed that certain non-core functions like housekeeping could be contracted out to lower paid workers.

The Detroit 3 and the UAW have been operating as if they were in bankruptcy for the last several years. One hundred thousand (100,000) autoworkers have lost their jobs in just the last two years as auto companies have closed plants and reduced capacity.

The overhaul should include severe cost reductions and the end of onerous union rules that hamper productivity.

The UAW long ago recognized that world class quality and high levels of productivity are essential. The UAW at plants like the Chyrsler Engine Plant in Kenosha and the GM Assembly Plant in Janesville have worked in partnership with management to improve quality and productivity. The Chrysler Kenosha Engine plant has been recognized as an industry leader in team based manufacturing techniques modeled on the same operating systems used by Toyota.

But bankruptcy is a system for reorganization - companies continue to operate in Chapter 11. Jobs would be lost, lots of jobs, and a bankruptcy for any of the three companies would be painful. But all 3 million jobs tied to the industry would not vanish. Other companies have emerged from bankruptcy stronger. The airlines repeatedly have foundered only to re-emerge.

The truth is, the Big Three would most likely face a Chapter 7 liquidation not a Chapter 11 reorganization. It is highly unlikely that the Detroit 3 could get debtor in possession financing to continue operating or that consumers would buy cars, the 2nd largest consumer purchase, from bankrupt companies.

It's astounding that the MJS would suggest that the U.S. airline industry is a model. That industry has been a basketcase for almost thirty years. It is currently hemorrhaging billions of dollars and tens of thousands of middle class jobs while reducing routes and capital investment and increasing fares. It is a model for the failure of deregulation.

The truth is, the government has delayed this day of reckoning for years. It bailed out Chrysler in the late 1970s, imposed quotas on Japanese imports in the 1980s, and for decades let the Detroit automakers build gas guzzlers under sham federal fuel-efficiency standards. For its part, the UAW kept fighting for expensive benefits and embracing a 1950s worldview even as the automakers were crashing

The Chrysler bail out was an unmitigated success story. When the federal government offered its help, Chrysler was responsible for one out every one hundred private sector jobs, most located in urban areas. The loans were repaid in full ahead of schedule. A viable Chrysler continued to exist providing family supporting jobs, health care and pensions to tens of thousands of workers and retirees around the nation and in Wisconsin.

Quotas were never imposed on foreign automobile competitors, although Japanese companies adopted voluntary trade restraints in the early 1980s.

Perhaps the MJS editors are confusing the Big Three with Harley Davidson which successfully restructured under the protection of actual quotas.

It is also untruthful and irresponsible to maintain that the UAW embraced a 1950’s mentality as the automakers were crashing. As a result of the 2003 and 2007 contracts the cost gap between the Detroit 3 and Toyota will be eliminated.

Anyone who has been inside a UAW represented Ford, GM or Chrysler plant recently will attest to the strong union commitment to streamlined work rules designed to build high quality vehicles at low cost.

According to the authoritative Harbour Report, the UAW represented Chrysler Belvidere assembly plant was the most productive car assembly plant in the United States in 2007 topping every foreign owned plant. Another UAW plant, a Chrysler joint venture engine plant in Dundee, Michigan was the most productive engine plant in this country last year.

Wisconsin is the home to hundreds of automotive supplier firms such as Johnson Controls, Dana Holding Company, Charter Wire, and Stratech. Tens of thousands are employed at these companies. We have begun to see the impact of GM's shutdown in Janesville which now has the highest unemployment rate in the state. We simply cannot afford to allow this critical industry to go bankrupt. Congress should provide the Big Three with a bridge loan to help it survive the current recession and retool for the next generation of green vehicles and middle class jobs. The MJS should listen to our new President. It needs to reexamine its blind faith in market fundamentalism with its anti-labor animus and support policies that actually promote the middle class and family supporting jobs.

John Drew, UAW Local 72 President (1996-2004), UAW International Representative Region 4

Michael Rosen, Professor of Economics, MATC

Now is not the time to worry about the deficit

Noble Prize winning economist and New York Times columnist Paul Krugman writes that now is not the time to worry about deficits.

One can only hope Congressman Paul Ryan, an unrepentant deficit hawk, and the Milwaukee Journal Sentinel editors are paying attention.

The engines of economic growth, consumer spending, fueled by private debt through most of the last two decades, and private investment are stalled. The only way to get the economy moving is to increase government spending.

But state and local government are legally required to balance their budgets. They cannot increase spending. They will be forced to cut it which will make the downturn worse.

Last year state and local government spending was one of the only engines of economic growth and job creation, increasing by $40 billion. Now Wisconsin is facing a $3 billion deficit. California just slashed its budget by $7 billion. Next year states will be forced to cut their spending by at least $60 billion, and that number is rising. That amounts to a $100 billion reduction in demand that will make what is shaping up as a nasty recession worse.

Interest rates are already extremely low. They need to be cut again. But that won't be enough. The only policy left is to use deficit spending to jump start the stalled economy.

Here's what Krugman has to say:

It’s now clear that rescuing the banks is just the beginning: the nonfinancial economy is also in desperate need of help.

And to provide that help, we’re going to have to put some prejudices aside. It’s politically fashionable to rant against government spending and demand fiscal responsibility. But right now, increased government spending is just what the doctor ordered, and concerns about the budget deficit should be put on hold...

...there’s a lot the federal government can do for the economy. It can provide extended benefits to the unemployed, which will both help distressed families cope and put money in the hands of people likely to spend it. It can provide emergency aid to state and local governments, so that they aren’t forced into steep spending cuts that both degrade public services and destroy jobs. It can buy up mortgages (but not at face value, as John McCain has proposed) and restructure the terms to help families stay in their homes.

And this is also a good time to engage in some serious infrastructure spending, which the country badly needs in any case. The usual argument against public works as economic stimulus is that they take too long: by the time you get around to repairing that bridge and upgrading that rail line, the slump is over and the stimulus isn’t needed. Well, that argument has no force now, since the chances that this slump will be over anytime soon are virtually nil. So let’s get those projects rolling.

Will the next administration do what’s needed to deal with the economic slump? Not if Mr. McCain pulls off an upset. What we need right now is more government spending — but when Mr. McCain was asked in one of the debates how he would deal with the economic crisis, he answered: “Well, the first thing we have to do is get spending under control.”

If Barack Obama becomes president, he won’t have the same knee-jerk opposition to spending. But he will face a chorus of inside-the-Beltway types telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable

He should ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit.

Workers need jobs and a raise-not a psychiatrist

During the last eight years. almost all of the nation's income growth went to executives and investors. As a result, while the productivity increased and the economy grew to more than $13 trillion a year, most Americans fell further and further behind.

Between 1976 and 2006, the numbers of hours worked by the median two-parent household increased by 400 hours per year.

Productivity increased by 18% between 2000 and 2007 alone. Yet middle-income, working-age households—those headed by someone less than 65—lost ground over these years. Their median income, after adjusting for inflation, fell by $2,000 from $58,500 to $56,500 (2007 dollars).

In Wisconsin per capita income has fallen $2500 behind the national average and the gap is growing as Wisconsinites experience the first sustained period of decline in our median wage since the early 1980s.

All real income gains in the last eight years have gone to the richest 5%, those making more than $150,000.

There are several reasons for the growth in economic inequality.

Three of the most important are:

• the Bush era tax cuts that went almost entirely to the very richest Americans (52% went to the richest 1%, averaging $1.5 million a year);


• the systematic dismantling of institutions, public and private, that ensured shared prosperity;


• the Federal Reserve's one-sided focus on fighting inflation which helped keep prices low until recently by maintaining artificially high unemployment particularly in the nation's inner cities.

Republican Presidential candidate John McCain, who acknowledges he knows little about economics, promises to continue these policies. This is not surprising since his chief economic advisor and odds on favorite to be named Secretary of the Treasury, Senator Phil Gramm, recently denied the country was in a recession, arguing that Americans are "a nation of whiners" and that the recession is a figment of their imagination.

Despite McCain and Gramm's assertions, America and Wisconsin's economic problems are real!

Over 600,000 workers have lost their jobs since January. In Wisconsin major employers like Delphi, Midwest Express, GE Medical, General Motors and the New Page Corporation (Kimberly) are laying off thousands.

The nation's 6.1% unemployment rate, the highest since the recession of 1991, actually undercounts the number of unemployed because it does not include those who are working part time because they can't find full time work. If they are included the unemployment jumps to almost 11%.

Nine million Americans have lost their health insurance since President Bush took office. During the first six months of 2008, 343,000 Americans lost their homes, a 136% increase from the year before.

Gasoline, food, college education, heating and health care prices are soaring, increasing 2% faster than wages. The Bush administration's economic policies, including the high income tax cuts which McCain says he will make permanent, are imposing a 2% tax on the nation's working people.

Democratic Presidential nominee, Barack Obama, has proposed an economic program that includes federal aid to state and local governments, public works jobs programs and passing the Employee Free Choice Act. The former would ensure that budget cuts by state and local government, mandated by balanced budget statutes, won't reduce aggregate spending and make the recession worse. The latter would make it easier for workers to form unions which will ensure that productivity gains and economic growth, when they resume, are shared broadly. Public works investment is required to fix the nation's deteriorating infrastructure, a prerequisite to growth and prosperity.

McCain's economic program of more of the same will mean more layoffs, more rising prices, tax breaks for the very wealthy and greater inequality.

American workers and their families, contrary to McCain and Gramm, don't need a psychiatrist, they need jobs and a raise!

Recession deepens in Wisconsin

While economists debate whether the current economic slowdown is a recession, Wisconsinites are increasingly grappling with the nasty effects.

A total of 80,000 workers lost jobs in March.

Among these, were 7,100 Wisconsin workers, the third highest total in the nation, who were laid off in mass layoffs. Wisconsin also had the third highest 12-month increase in average weekly initial claims for these job losses behind only Pennsylvania and Ohio.

The Milwaukee area has been hard hit, losing 1300 over the past year. More layoffs are anticipated.

Partly as a result, bankruptcy filings in the Wisconsin increased by 29.5% in the first quarter of 2008! This increase was slightly higher than the national increase of 27%.

For the year, bankruptcy filings rose 39% in Wisconsin and 38% nationally.

Major medical expenditures are the single most important reason people file for bankruptcy followed by job loss and divorce. But as the recession deepens, job loss is becoming an increasingly important factor.

Buyers also vanished from the housing market in March, as sales of new homes plummeted to the lowest level since the housing recession of the 1990s.

Sales fell in every region of the country, with the Northeast suffering the steepest drop, 19.4 percent. Sales in the Midwest and the West dropped about 13 percent and sales in the South fell about 5 percent.

Builders are now faced with the biggest backlog of unsold homes in more than a quarter century, a sign that home values may continue to drop and that worst days of the housing slump may lie ahead.

Normally a recession reduces pressure on prices. But because of soaring international demand, particularly in China and India, prices of crude oil, gasoline, and food, continue to soar.

The surging cost of necessities has also led to belt-tightening among consumers. Spending on food and gasoline is effectively crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

Sales plummeted 4.5 percent during the last three months, the largest decline since the 1990-91 recession.

Sales declined at department stores, clothing stores and furniture stores, as well as at auto dealers.

The consumer spending slump and tightening credit markets have unleashed a wave of bankruptcies in retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.

But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states, which may be forced to file for bankruptcy.

Retailers that can avoid bankruptcy are shutting down stores to preserve cash. Over the next year, Foot Locker plans to close 140 stores, Ann Taylor 117, and the jeweler Zales will close 100.

The downturn has even spread to discretionary spending. The New York Times reports that laser vision correction surgeries are expected to fall by 17% in 2008. Even spas, the ultimate in discretionary purchases, are cutting prices in an effort to keep customers.

As the economy has slowed so have tax revenues. So Wisconsin is now facing a $650 million deficit.

President Bush has refused to support legislation that would protect homeowners who were duped into taking out loans they could not afford from foreclosure. He has even refused to support extending unemployment benefits and increasing food stamp payments which are recognized as effective counter cyclical policies.

When the initial stimulus package was passed gas cost $3 a gallon. By the time the rebate checks arrive it could be up to $4. At that price most of the $100 billion will go to fill people's gas tanks and do more for oil producing economies than for our own.

Wisconsin's Congressional delegation should demand immediate action that helps those who are losing jobs and income and that helps revitalize the economy. A basic stimulus package should include:

* an extension of unemployment benefits

* an expansion of the food stamp program

* legislation that allows bankrupt homeowners to have their mortgages modified under court protection and provides them with financial assistance

* aid to states' experiencing deficits

The recession is deepening. More and more people are hurting. If states are forced to reduce spending to balance their budgets, the downturn will become more severe.

It is time for Congress to act!

President is wrong-this is a recession!

Dean Baker, co-director of the Center for Economic and Policy Research, writes:

President Bush says that the economy is not in a recession. He's wrong. According to the Bureau of Labor Statistics, the economy has lost jobs for three consecutive months while the private sector has lost jobs for four consecutive months. This has never happened except in periods associated with recessions. The private sector has now lost 320,000 jobs since November.

Need more evidence? The unemployment rate is up 0.7 percentage points from a year ago, residential construction continues to fall, and nonresidential construction is now falling as well. Consumption, which accounts for 70 percent of gross domestic product, has been flat since November. Despite all this, President Bush still doesn't think we're in a recession? I guess that's no surprise coming from someone who thinks that things are going well in Iraq.

Recession hits Milwaukee as firms lay off workers

The US economy has shed 300,000 private sector jobs over the past three months.

Wisconsin lost 8,600 manufacturing positions last year and 9,600 private sector jobs in total.

And things appear to be getting worse.

Yesterday, Harley Davidson announced it will lay off 730 employees, including hundreds at its Milwaukee facilities where just a few year ago workers agreed to concessions in an effort to secure work.

Midwest Express is eliminating 109 positions, 3.5% of its workforce.

Briggs and Stratton might halt the production of small engines in May if the market for lawn and garden equipment continues to sag.

For those left working, workweeks and wages are being reduced.

4.9 million workers are now employed in part-time positions because they cannot find full time employment!

The New York Times reports today that:

The gradual erosion of the paycheck has become a stealth force driving the American economic downturn. Most of the attention has focused on the loss of jobs and the risk of layoffs. But the less-noticeable shrinking of hours and pay for millions of workers around the country appears to be a bigger contributor to the decline, which has already spread from housing and finance to other important areas of the economy.

While official unemployment has risen only modestly, to 5.1 percent, the reduction of wages and working hours for those still employed has become a primary cause of distress, pushing many more Americans into a downward spiral, economists say...

Last month, the hours worked by those on American payrolls dropped, compared with six months earlier, according to an index maintained by the Labor Department. The last time the index moved into negative territory was February 2001, when the economy was on the doorstep of recession. A similar slide emerged in August 1990, one month into what proved an even more severe downturn.

And on Wednesday, the government reported that average earnings slipped in March after accounting for the rising costs of food and fuel — the sixth consecutive month that pay failed to keep pace with inflation.

As people bring home paychecks that do not go as far, they are forced to economize, eliminating demand for goods and services that once captured their dollars, spreading pain to providers like auto dealers and lawn care providers. They, too, must trim their outlays on pay, shrinking working hours more and furthering the slowdown

Immediate federal action is required to help those who are losing jobs and income and to reinvigorate the economy.

A basic stimulus package would include extending unemployment benefits, which currently lapse after twenty-six weeks, and providing assistance to the twenty-five states that are facing budget deficits. The time to act is now!

Milwaukee Journal Sentinel calls for extending unemployment benefits

Only a few months ago, the Journal Sentinel editorialized that the Fed might need to raise interest rates.

It's good to see the Board has now recognized that the economy is in trouble and that the unemployed need additional assistance.

Extending unemployment benefits will help the long term unemployed and stimulate the economy.

Now the board should turn its attention to the twenty five states, including Wisconsin, that are facing budget deficits. These states also need federal assistance. Otherwise they will be forced to cut spending to balance their budgets which will only deepen the nation's economic malaise.

States need federal aid to avoid draconian cuts

Last week, before we learned about the loss of another 80,000 jobs, I wrote that at least 25 states are expecting budget shortfalls for the 2009 fiscal year. This is the largest number since 2002, when in the aftermath of the 2001 recession 37 states were forced to cut their budgets.

California is looking to fill a $14.5 billion hole for its next fiscal year, and Arizona’s $1.8 billion budget gap is 16 percent of its general fund, the largest percentage in the nation.

Wisconsin's deficit now stands at more than half a billion dollars ($527 million).

In response, most of these states are developing plans to cut state spending because they are required to balance their budgets. This will only make the recession worse!

The Washington Post updated these developments:

State budgets have been hit hard by a worsening national economy, including rising costs for energy and health care. In addition, fallout from the subprime mortgage crisis -- declining home sales, deflated property values and mounting foreclosures -- has caused a slide in states' anticipated tax receipts. Revenue from property taxes, sales taxes and real estate transfer taxes is affected.

At least half of the nation's states are facing budget shortfalls, some of them severe, and policymakers in most of the states affected are proposing and passing often-painful measures to trim costs and close the gaps.

Spending on schools is being slashed, after-school programs are being curtailed and teachers are being notified of potential layoffs. Health-care assistance is being cut for the elderly, the disabled and the poor. Some government offices, such as motor vehicle department locations, will start closing on weekends, and some state workers are receiving pink slips.

Some analysts worry that the impact is being felt disproportionately by the most needy. ..

A recent 50-state survey by the Associated Press showed that hundreds of thousands of poor children, the disabled and the elderly stand to have their health coverage eliminated as a result of budget cuts, and more than 10 million people would lose access to dental care, specialists and name-brand prescription drugs.

Budget experts said they see a repeat of the pattern that happened during the recession of 2001: States generally cut health services and medical benefits first, because these costs are often rising more rapidly than others, and the savings tend to be immediate.

Subsidies to higher education are also a favored target for budget cuts -- mainly because policymakers often believe that universities can find money from other sources, such as private donations or higher tuition.

Budgets for parks and recreation, and for natural resources and science, also stand to take a hit.

Over the past three months the nation has lost 300,000 private sector jobs. Yet, state governments are cutting back on services to the very people who have been hardest hit by the most severe recession since at least 1981 when unemployed peaked at 12%.

The states are required to cut spending because all of them except Vermont are required by law to balance their budgets.

These cuts will hurt our most vulnerable citizens, the unemployed, the poor, children and the elderly. They will undermine efforts to educate our children as pupil teacher ratios soar and art, music, technical education and physical education classes are eliminated. They will result in higher tuition and student fees, increasing the already spiraling costs of higher education and making it less accessible to the nation's working families..

The cuts will also make the recession worse by reducing the demand for goods and services at a time when private investment and consumption are declining.

There is an alternative-an additional stimulus package that includes aid to the distressed states. Such a package would be a twofer. It would allow the states to avoid imposing draconian cuts in education, healthcare and other areas and it would stimulate demand in our struggling economy.

Congress' original stimulus package of tax rebates was insufficient, the result of a compromise with the Bush administration's insistence on tax cuts as the only acceptable policy option. Now that it is clear that the recession is intensifying, Congress should immediately pass an additional stimulus package that extends unemployment benefits and provides temporary aid to the states.

US credit bubble bursts generating widespread economic problems

The New York Times reports today that the nation's economic problems have spread well beyond the collapse of the subprime housing market:

"'Subprime was a symptom of the problem,' said James F. Keegan, a bond portfolio manager at American Century Investments, a mutual fund company. 'The problem was we had a debt or credit bubble.'”

The bursting of that bubble has led to steep losses across the financial industry. American International Group said on Monday that auditors found it may have understated losses on complex financial instruments linked to mortgages and corporate loans.

The running turmoil is also stirring fears that some hedge funds may run into trouble. At the end of September, nearly 4 percent of prime mortgages were past due or in foreclosure, according to the Mortgage Bankers Association...

And it is not just first-mortgage default rates that are rising. About 5.7 percent of home equity lines of credit were delinquent or in default at the end of last year, up from 4.5 percent a year earlier, according to Moody’s Economy.com and Equifax, the credit bureau.

About 7.1 percent of auto loans were in trouble, up from 6.1 percent. Personal bankruptcy filings, which fell significantly after a 2005 federal law made it harder to wipe out debts in bankruptcy, are starting to inch up.

Read the entire article.

Main street's been in recession for years!

Barbara Ehrenreich writes that far removed from Wall Street, most Americans have been living in their own personal recession for years.

Read the entire Washington Post op ed.

Stiglitz explains how to stop the economic downturn

Joseph E. Stiglitz, 2001 Nobel prize winner, a professor of economics at Columbia and the author, most recently, of “Making Globalization Work,” has written a short, but excellent article describing the kind of economic stimulus policies that would be most effective.

He writes:

The country needs a stimulus, but anything we do will add to our soaring deficit, so it is important to get as much bang for the buck as possible...

In 2001, the Bush administration used the impending recession as an excuse to cut taxes for upper-income Americans — the very group that had done so well over the preceding quarter-century. The cuts were not intended to stimulate the economy, and they did so only to a limited extent. To keep the economy going, the Federal Reserve was forced to lower interest rates to an unprecedented extent and then look the other way as America engaged in reckless lending. The economy was sustained on borrowed money and borrowed time.

The day of reckoning has come. This time we need a stimulus that stimulates. The question is, will the president and Congress put aside politics to get the job done?

Read the entire article, "How to Stop the Downturn."

Free market ideology contributed to housing bubble and economy's free fall

Paul Krugman explains how Alan Greenspan and top Bush administration officials' rigid commitment to free market ideology contributed to the housing bubble and emerging recession.

In Friday's New York Times he writes:

...U.S. financial markets, it turns out, were characterized less by sophistication than by sophistry, which my dictionary defines as “a deliberately invalid argument displaying ingenuity in reasoning in the hope of deceiving someone.” E.g., “Repackaging dubious loans into collateralized debt obligations creates a lot of perfectly safe, AAA assets that will never go bad.”

In other words, the United States was not, in fact, uniquely well-suited to make use of the world’s surplus funds. It was, instead, a place where large sums could be and were invested very badly. Directly or indirectly, capital flowing into America from global investors ended up financing a housing-and-credit bubble that has now burst, with painful consequences.

... the next year or two could be quite unpleasant.

What should have been done differently? Some critics say that the Fed helped inflate the housing bubble with low interest rates. But those rates were low for a good reason: although the last recession officially ended in November 2001, it was another two years before the U.S. economy began delivering convincing job growth, and the Fed was rightly concerned about the possibility of Japanese-style prolonged economic stagnation.

The real sin, both of the Fed and of the Bush administration, was the failure to exercise adult supervision over markets running wild.

It wasn’t just Alan Greenspan’s unwillingness to admit that there was anything more than a bit of “froth” in housing markets, or his refusal to do anything about subprime abuses. The fact is that as America’s financial system has grown ever more complex, it has also outgrown the framework of banking regulations that used to protect us — yet instead of an attempt to update that framework, all we got were paeans to the wonders of free markets.

...let’s hope that when the dust settles a bit, Mr. Bernanke takes the lead in talking about what needs to be done to fix a financial system gone very, very wrong.