Volume 7 Issue 10…Dedicated to the Dialogue on Race…March 12, 2004

By John Burl Smith

Reading tea leaves for prognostications, George W. Bush administration's gurus seem baffled by the persistent listlessness in the US economy. Using words like "confusing, unclear and/or uncertain" to describe the latest economic numbers, supply-side mystics wonder, if the economic situation is far worst than claims.

In 1981, Dot Smith, a graduate student studying welfare loss among slave descendants, realized that along with "last hired first fired, "technological unemployment" was a looming crisis for black workers. Considering the implications of her research, this reporter believes a fundamental economic change is occurring in the US.

Retrospectively, fueled by Adam Smith's laissez-faire and David Ricardo's comparative advantage models, President William McKinley launched America's imperialistic voyage. Irrational exuberance boomed until supply-side economics went bust in 1929. Asleep at the helm, Calvin Coolidge exemplified what Bush amplifies, "The business of America is big business." Refusing to jettison supply-side bilge, Bush emulates Herbert Hoover. Convinced nothing could sink the mighty US, Hoover stayed the course and steered the Titanic American economy into the "Great Depression" iceberg.

Following a prolonged and painful period, John Maynard Keynes' model of "government spending to put Americans back to work" proved essential in saving the economy. Teaching that unemployment, like boom and bust business cycles, is unavoidable, classical economists ignored Smith's Automation and Technological Unemployment (1981). Warning of storms on the horizon, she pointed to rapid "technological changes" as a growing source of structural unemployment.

Today, forecasters have started to recognize that technology has swamped Ricardo's model. Ipso facto, "technological unemployment" today results not only from automation's high productivity but e-commerce, relocation of manufacturing plants overseas and outsourcing jobs to countries like China and India. Shipping the US' manufacturing base overseas has left its economy awash in joblessness. All Bush's supply-side gurus offer is, 'outsourcing is good in the long-run.'

Economists and workers want to know, where will the jobs to replace 3 million manufacturing and maybe as many as 9 million small business downstream jobs lost due to outsourcing, plant closings and workforce reductions come from? Throwing out a lifeline, Smith suggested training as a minimal response to ameliorate the impact of "technological unemployment." Viewing the current economic morass through the prism of her research, getting a handle on the magnitude of the problem will require more than a "New Deal" program.

Government must first identify the numbers of workers affected by outsourcing and relocating plants overseas. It must target and deliver assistance, such as education and training, for real jobs for those displaced by "technological unemployment." Moreover, it must create mechanisms that get dislocated workers back into the economy without long delays. Having missed the lifeboat provided by Smith's early forecast, American workers should not be forced to go down with the ship because they were blind-sided by a supply-side globalism iceberg. If they cannot look to manufacturing for jobs, which industry should Americans planning their future expect to absorb millions of workers now?

The Dark Knight-Batman/White Ninja/Zorro will soon be eleven. He is making mad plans for a birthday bash, including a sleepover. When informed he must be frugal and spend his limited resources wisely, the Dark One/Ninja/Zorro declared, "Grandma, I need a job! Do you have any paying chores?"

Outsourcing Bush's CEA

The Employment Act of 1946 created, within the Office of the President, a Council of Economic Advisers (CEA). The President appoints its three members with the advice and consent of the Senate and designates the CEA chairman. In addition to the three-member council, there is a staff of professional economists, primarily academicians, that provide analysis and advice on the development and implementation of a wide range of domestic and international economic policy issues.

Because it was created during the Keynesian era, the CEA has historically been expected to advise the President on the use of fiscal policy to achieve and maintain full employment. Obviously, since the CEA serves at the pleasure of the president, it must necessarily reflect his philosophy. No other CEA more exemplifies the change from demand to supply-side fiscal policy than the current CEA chaired by N. Gregory Mankiw.

Mankiw recently created a firestorm of criticism from Democrats and jobless workers over statements that seemed to favor outsourcing. Jobs have become a political hot potato for George W. Bush. Since his inauguration more than 2.5 million jobs have been lost, many in manufacturing due to outsourcing. Mankiw's "Outsourcing is a growing phenomenon but it's something that we should realize is probably a plus for the economy in the long run," was labeled "insensitive," and viewed as a failure on the part of the current administration to address the loss of jobs.

In response to Mankiw's statement, Democratic National Committee Chairman Terry McAuliffe suggested, "A positive step for American economic policy would be for the president to outsource Mankiw immediately. Americans want an economic team in the White House working for them, not multinational corporations" that improve their profit margins by outsourcing jobs from the United States to low-wage Third World nations. Democratic presidential candidates, labor unions and business leaders, including the National Association of Manufacturers, have been critical of Mankiw and the Bush administration.

Arthur M. Okun (1928-80)

Arthur M. Okun received his B.A. and Ph.D. from Columbia University. He taught at Yale University, where he was professor of economics. From 1961-62, Okun served on the staff of President John F. Kennedy's Council of Economic Advisers (CEA).

As the CEA developed empirical evidence to convince Kennedy that the macroeconomic gains of lowering unemployment were greater than previously thought, Okun's law was discovered. It became a major part of Kennedy's justification for cutting taxes.

Using unemployment and gross national product (GNP) data from WWII to 1960, Okun found that as the unemployment rate fell, real GNP rose. Even with the caveat that Okun's law held only for unemployment rates from the 3 to 7.5 percent range experienced during the observed period, Yale's James Tobin calls it, "one of the most reliable empirical regularities of macroeconomics."

In 1965, President Lyndon B. Johnson appointed Okun to the CEA. He served as its chairman from February 15, 1968 to January 20, 1969. A senior fellow at the Brookings Institute, Okun wrote numerous papers dealing with macroeconomic theory, forecasting and fiscal policy. In the '70s, he devised the "misery index," which combined inflation and unemployment rates.

Okun's Equality and Efficiency: The Big Tradeoff explored the pros and cons of income redistribution through government tax policy using a "leaky bucket" metaphor to describe the redistribution process. All the money transferred from the rich does not reach the poor. Administrative costs consume some of it. Moreover, the process is ripe with disincentives for the poor and rich to work and pay taxes.

For the poor receiving welfare, transfer payments are decreased as wages earned reduce eligibility. Since marginal tax rates take a larger fraction of each additional dollar earned, the rich have less incentive to work. The relatively rich also have more incentive to spend on tax-deductible items and tax shelters to avoid paying taxes. Okun wrote, "High tax rates are followed by attempts of ingenious men to beat them as surely as snow is followed by little boys on sleds."

Okun edited "The Battle Against Unemployment" (1972), which examined the socioeconomic ramifications of unemployment and the public policy challenges. He is the author of The Political Economy of Prosperity (1970). (Sources: www.econlib.org, www.townhall.com and Macroeconomics Robert J. Gordon (1978))

Protest Overtime Pay Changes

On April 1, 2004, the craftily passed overtime pay rule changes take effect, unless Congress acts. Last fall the Senate voted to deny the Labor Department funding to implement the new rules. The Bush administration threatened to veto the omnibus appropriation bill, if the Senate blocked the new rules. On approving the spending measure, the changes passed.

Under Secretary of Labor Elaine Chao, the Bush administration will deny millions of workers, including first responders, such as nurses, policemen and firefighters, overtime pay. Ironically, military training will disqualify veterans in some fields from overtime pay coverage. Even non-management sales representatives, secretaries, and medical and legal workers will no longer quality to receive time and a half when they work more than 40 hours a week. By expanding the definition of what counts as professional training, the new rules will deny a host of workers overtime pay.

At www.saveoverimepay.org, you can sign a petition asking Congress to act to save premium pay for American workers. To learn more about the new rules' impact on veterans and others, see www.aflcio.org.

Keeping the Promise of Social Security

On February 25, 2004, Federal Reserve Chairman Alan Greenspan testified before the House Budget Committee. He agreed with George W. Bush that the $1.5 trillion in tax cuts be made permanent. To offset the revenue, Greenspan recommended drastic cuts in Social Security and Medicare benefits to reduce the projected future federal deficits and relieve the upward pressure deficits are likely to exert on interest rates. His recommendations included raising the retirement age from 65 to 67 and using a new method to compute lower annual cost-of-living adjustments (COLA). Among retirees, baby boomers approaching retirement, organizations representing the elderly and members of Congress running for reelection, Greenspan's recommendations were met with vocal opposition.

Like state and local sales taxes, the Social Security tax is regressive. A tax rate of 6.2 percent is applied to wages up to a maximum of $87,000 for 2003 and $87,900 for 2004. For the working poor and most black workers that earn less than this maximum, every wage dollar is taxed. Yet, when it comes to actually receiving benefits, poor and black workers, whose life expectancies are well below the national average, die before retirement age or shortly thereafter. On average, black retirees receive more than $20,000 less than their white counterparts. Ironically, like affirmative action, white women tend to benefit more from Social Security than any other demographic group.

Despite its regressive drawbacks, Social Security remains the sole source of retirement income for poor and black Americans. Raising the retirement age and reducing benefits disproportionately harm these groups.

In 2000, George W. Bush ran for election on a promise to put the Social Security surplus in a lockbox to protect the program and make good on the government's promise of retirement security for millions of workers. Every dollar of the surplus is used as part of the general revenues to fund the government.

Unlike Bush and Greenspan, who can disregard promises, the US government's credibility is at stake. Rather than engage in wars of choice, reckless military spending and tax cuts that disproportionately favor the wealthiest Americans, the promise made to baby boomers and other workers that have contributed to Social Security must be kept.

Disgruntled feels: Irresponsible! It is 24-7 blame game for GOP talking heads and Bush administration officials. As the failures become so obvious that even sheep notice, apologists are out in force blaming Bill Clinton. After all, the economic downturn began on his watch. And, Clinton supported regime change in Iraq. He thought Saddam Hussein had weapons of mass destruction. The US went to war because of what Clinton thought, so the failure to locate its weapons of mass destruction, which posed the imminent threat that justified the war against Iraq, is all Clinton's fault. Bush campaigned on a promise to bring integrity and personal responsibility to the White House. Rather than assume responsibility for his decisions to engage in endless wars of choice and to pursue fiscally irresponsible policies, Bush and company play the blame Clinton game.

Disgruntled wants to know: If the intelligence community correctly characterized Iraq's military capabilities, does sexing the information up to portray it as an "imminent threat" constitute an intelligence failure?

Disgruntled says: Based on reports by members of the congressional black caucus, Jean-Bertrand Aristide's ouster from Haiti was not a voluntary resignation. Aristide blames the US for withholding development aid and arming guerillas that destabilized the island nation. If true, Haiti joins a growing list of democratically elected leaders deposed with US assistance. Presidents Hugo Chavez of Venezuela and Robert Mugabe of Zimbabwe appear to be next in line for an infusion of funds to support the opposition and mercenaries to overthrow their governments. The interception of a cache of money headed to Venezuela and a planeload of mercenaries in Zimbabwe lend credence to charges of US interventions lodged by both governments.

On Jobless Recovery!

By Dot

In the US, the main source of income, and thus welfare, is employment. Given its pivotal role, the notion of a 'jobless recovery' is a non sequitur. At less than full employment, many suffer as the poverty level, crime, homelessness, etc., rise. While economists tend to view employment or the lack of jobs in statistical terms, there are human costs borne by the unemployed and the greater society that cannot be quantified.

The recently released February 2004 Employment Situation report by the Bureau of Labor Statistics (www.bls.gov/cps/) shows the national unemployment rate remained unchanged at 5.6 percent. Belying expectations, the creation of 21,000 non-farm jobs did nothing to affect the seasonably adjusted jobless rate. Although low by historical standards, it represents 8.2 million persons and their families. More important, the official unemployment rate does not include millions of discouraged workers, those not ‘actively’ seeking jobs, or millions more forced to accept part-time work.

According to the report, "Over the month, the civilian labor force decreased by 392,000 to 146.5 million, and the labor force participation rate fell to 65.9 percent." With more than 90,000 per week slated to lose unemployment compensation, since Congress did not pass another extension, the looming economic gloom is at odds with the Bush administration's sunny forecast of a robust economy that will create more than 2 million jobs this year. New jobs created in January were adjusted downward to less than 100,000, leaving an overly optimistic monthly job creation rate of more than 200,000 for March through December.

While the 'jobless recovery' with its hot stock market, low interest rates, high productivity and deficit spending that exceeds half a trillion dollars present an economic situation unlike any other in the nation's history, one thing remains certain, i.e., the pattern of unemployment. Through bad and good economic times, the black unemployment rate remains twice that of whites. In February, the black unemployment rate fell seven tenths of a percent to 9.8 percent. Predictably, the white rate was 4.9 percent. As usual, by far the greatest burden, in terms of welfare loss due to this 'jobless recovery,' is being borne by young black males.

From a humane perspective, gainful employment is crucial to individual and family welfare. As long as there are millions without the means to secure the goods and services essential to survival, the economy has failed to make a recovery, jobless or otherwise.

Email thefalloutshelter@yahoogroups.com Plugging Leaks --More details emerge on the Plame investigation, as Karl Rove's testimony is revealed for the first time. --by Murray S. Wass "President [sic] Bush's chief political adviser, Karl Rove, told the FBI in an interview last October that he circulated and discussed damaging information regarding CIA operative Valerie Plame with others in the White House, outside political consultants, and journalists, according to a government official and an attorney familiar with the ongoing special counsel's investigation of the matter. But Rove also adamantly insisted to the FBI that he was not the administration official who leaked the information that Plame was a covert CIA operative to conservative [Reichwing] columnist Robert Novak last July."

Email www.washingtonpost.com The Republican National Committee is warning television stations across the country not to run ads from the MoveOn.org Voter Fund that criticize Dictator Bush, charging that the left-leaning political group is paying for them with money raised in violation of the new campaign-finance law.

Email Yahoo News - George W. Bush and Tony Blair probably knew they were exaggerating the threat from Iraq when making the case for war, according to former chief U.N. weapons inspector Hans Blix.

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