We seem to have a way of regularizing the pain felt by working people—worsening living conditions become little more than background noise to business as usual. 

The situation for the unemployed is a case in point.  We have a complex, but comparatively miserly, unemployment compensation system. 

Workers are generally entitled to 26 weeks of unemployment benefits.  However, there are two programs that potentially extend the benefit period for the unemployed. The first is the Emergency Unemployment Compensation (EUC) program, which was enacted in 2008 in response to the economic crisis.  As the table below shows, the EUC offers workers in states with high rates of unemployment up to 53 additional weeks of benefits. 

Workers who exhaust both their regular unemployment insurance and EUC benefits can receive additional support through the second program, the permanent federal-state Extended Benefits (EB) program.  As the table above shows, that program offers a maximum of 20 extra weeks of benefits depending on state unemployment rate levels.  However, there is an additional provision to the EB program that is now coming into play with negative consequences.  

As Hanna Shaw, of the Center on Budget and Policy Priorities, explains: 

A state may offer additional weeks of UI benefits through EB if its unemployment rate reaches certain thresholds . . . and if this rate is at least 10 percent higher than it was in any of the three prior years.  But unemployment rates have remained so elevated for so long that most states no longer meet this latter criterion (referred to as the “three-year lookback”). 

Because of this lookback provision hundreds of thousands of unemployed workers are now losing benefits, not because conditions are improving but because they are not continuing to worsen. The table below highlights the 25 states that have been forced to stop providing EB benefits this year and the number of workers in each state that have been cut adrift as a result.  Look at California–more than 95,000 workers have lost their benefits so far this year despite the fact that the state unemployment rate is almost 11 percent.

This is no accidental outcome.  In fact, according to Shaw,

Policymakers could have addressed the “lookback” when they extended federal UI at the beginning of the year, but they didn’t.  Instead, Congress not only allowed EB payments to fade out, but it also made changes that over the course of the year will reduce the number of weeks of benefits available in the temporary Emergency Unemployment Compensation (EUC) program, which provides up to 53 additional weeks to the long-term unemployed based on the unemployment rate in their state.

How serious is the long term unemployment problem?  Check out the chart below.  As it shows, the share of the labor force that is unemployed for more than 26 weeks is higher than at any point in the last six decades.  Perhaps even more striking is the fact that 41.3 percent of the 12.5 million people who were unemployed in April 2012 had been looking for work for 27 weeks or longer.

In terms of the master narrative, this is just another of the necessary adjustments required to stabilize the “system;” no need for alarm.  Makes you wonder about the aims of the system, doesn’t it?

Cross-posted at Reports from the Economic Front.

“Too big to fail” — that was the common explanation voiced at the start of the Great Recession for why the Federal Reserve had no choice but to channel trillions of dollars into the coffers of our leading banks. But, the government also pledged that once the crisis was over it would take steps to make sure we would never face such a situation again.  

The chart below shows the growing concentration of bank assets in the hands of the top 3 U.S. banks. The process really took off starting in the late 1990s and never slowed down right up to the crisis.  It was the reality of the top three banks controlling over 40 percent of total bank assets that gave meaning to the “too big to fail” fears.    

But what has happened since the crisis?  According to Bloomberg Businessweek, the largest banks have only gotten bigger:

Five banks — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, and Goldman Sachs — held more than $8.5 trillion in assets at the end of 2011, equal to 56 percent of the U.S. economy, according to the Federal Reserve. That’s up from 43 percent five years earlier.

The Big Five today are about twice as large as they were a decade ago relative to the economy, meaning trouble at a major bank would leave the government with the same Hobson’s choice it faced in 2008: let a big bank collapse and perhaps wreck the entire economy or inflame public ire with a costly bailout. “Market participants believe that nothing has changed, that too-big-to-fail is fully intact,” says Gary Stern, former president of the Federal Reserve Bank of Minneapolis.

Not surprisingly, this kind of economic dominance translates into political power.  For example, the U.S. financial sector is leading the charge for new free trade agreements that promote the deregulation and liberalization of financial sectors throughout the world.  Such agreements will increase their profits but at the cost of economic stability; a trade-off that they apparently find acceptable.

The recently concluded U.S.-Korea Free Trade Agreement is a case in point.  Leading financial firms helped shape the negotiating process.  As a consequence, Citigroup’s Laura Lane, corporate co-chair of the U.S.-Korea FTA Business Coalition, was able to declare that the agreement had “the best financial services chapter negotiated in a free trade agreement to date.”  Among other things, the chapter restricts the ability of governments to limit the size of foreign financial service firms or covered financial activities.  This means that governments would be unable to ensure that financial institutions do not grow “too big to fail” or place limits on speculative activities such as derivative trading.  The chapter also outlaws the use of capital controls.

These same firms are now hard at work shaping the Transpacific Partnership FTA, a new agreement with a similar financial service chapter that includes eight other countries.  Significantly, although the U.S. Trade Representative has refused to share any details on the various chapters being negotiated with either the public or members of Congress, over 600 representatives from U.S. multinational corporations do have access to the texts, allowing them to steer the negotiations in their favor.

The economy may be failing to create jobs but leading financial firms certainly don’t seem to have any reason to complain.

Cross-posted at Reports from the Economic Front.

While the press cheers on every sign of private sector job creation, little attention is being paid to public sector job destruction.  As the Economic Policy Institute reports, while there has been an increase of some 2.8 million private sector jobs since June 2009, public sector employment (federal, state, and local governments combined) has actually fallen by approximately 600,000.  As the figure below reveals, this is a very unusual development .

According to the Economic Policy Institute, if the percentage growth of public sector employment in this recovery had followed past recovery trends, we would have an additional 1.2 million public sector jobs and some 500,000 additional private sector jobs. A separate reason for concern about this trend is that lost public sector jobs generally means a decline in the services that we need to sustain our communities.  The withering away of our public sector during a period of expansion should worry us all.

It is common around election time to hear politicians talk about how they are standing up for ”America,” as if we all had similar interests and were well served by the same policies.   Sounds nice.  The problem is that it is just not true.  

Want evidence?  Look at the distribution of gains from our current economic recovery.  According to a New York Times summary of a recent study of inequality: 

In 2010, as the nation continued to recover from the recession, a dizzying 93 percent of the additional income created in the country that year, compared to 2009 — $288 billion — went to the top 1 percent of taxpayers, those with at least $352,000 in income. That delivered an average single-year pay increase of 11.6 percent to each of these households.

Still more astonishing was the extent to which the super rich got rich faster than the merely rich. In 2010, 37 percent of these additional earnings went to just the top 0.01 percent, a teaspoon-size collection of about 15,000 households with average incomes of $23.8 million. These fortunate few saw their incomes rise by 21.5 percent.

The bottom 99 percent received a microscopic $80 increase in pay per person in 2010, after adjusting for inflation. The top 1 percent, whose average income is $1,019,089, had an 11.6 percent increase in income.

Moreover, ”the top 1 percent has done progressively better in each economic recovery of the past two decades. In the Clinton era expansion, 45 percent of the total income gains went to the top 1 percent; in the Bush recovery, the figure was 65 percent; now it is 93 percent.”

It is hard to celebrate economic expansion when we have an economy structured in such a way that the income generated by our collective efforts ends up in the pockets of a very few.   

Cross-posted at Reports from the Economic Front.

The Great Recession ended in June 2009, which means we have been in economic expansion for almost 3 years.  Lately the news has been filled with reports of positive economic trends, but how seriously should we take these reports?

One indicator worth looking at is median household income (the red line below).  Unfortunately its trend suggests little reason for cheer. In January 2012, median household income was $50,020.  That was 5.4% lower than it was in June 2009.  Even worse, as the chart below reveals, after a brief uptick it headed back down again.

It is true that employment is finally growing, a development reflected in the decline in the unemployment rate (the blue line above).  Unfortunately, this has done little to boost wages.  In fact, real wages actually fell in 2011.  The first chart below highlights the downward turn.  The second chart reveals just how far per capita earnings remain below historical trend.

This situation helps to explain why growth has been so anemic.  As the Wall Street Journal wrote:

Many economists in the past few weeks have again reduced their estimates of growth.  The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012.  The economy expanded just 1.7% last year.  And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate.

Without a dramatic change in median household income, growth will remain slow and even the limited employment gains we currently celebrate will likely prove impossible to sustain.  Given the current political climate, it is hard to see how this expansion will be either long lasting or bring meaningful improvements in majority living and working conditions.

The Bureau of Labor Statistics recently published its employment/wage projections for the years 2010-2020.   The following table lists the 30 occupations that the BLS believes will have the largest numerical growth in employment over the period.  

The table is worth a long look.  Among other things it challenges the assertion that more education is the key to a better employment future.  More education is, of course, generally a good thing.  But given BLS projections, it appears that our corporations have little interest in creating jobs requiring (and thus paying) a more highly educated workforce.

Of the 30 occupations with the largest projected numerical employment growth, 10 require less than a high school education and an additional 13 require only a high school diploma or its equivalent.  Only 4 require a bachelor’s degree or higher.

The following table, which comes from the same report, shows the distribution of projected job openings by education level for all occupations: 79.7% of all projected jobs will require less than a bachelor’s degree.

Cross-posted at Reports from the Economic Front.

There is big trouble brewing in Europe.  John Ross, in his blog Key Trends in the World Economy, highlights this brewing crisis in a series of charts, some of which I repost below.

This first chart shows the extent of the recovery from the recent economic crisis in the U.S., the EU, and Japan.  While the U.S. GDP has finally regained its past business cycle peak, the same cannot be said for Europe (or Japan).  As of the 3rd quarter 2011, EU GDP was still 1.7% below its previous business cycle peak.  The Eurozone was 1.9% below.

Recent GDP estimates for the 4th quarter show European GDP once again contracting, which strongly suggests that the region is headed back into recession without having regained its previous business cycle peak.  This development implies that Europe faces serious stagnationist pressures.

This chart looks at the growth record for the 5 largest European economies.  Germany has regained its previous GDP peak.  France is making progress toward that end.  These two countries account for 36.2% of European GDP.  However, things are quite different for the UK, Italy, and Spain.  These three countries account for 34.7% of European GDP and not only do they each remain far below their respective previous GDP peaks, their economies are once again heading downward.

The third chart highlights the economic performance of the three countries which have received the most media attention because of fears that their governments will be unable to repay their respective debts.  They are clearly in trouble, adding to the downward pressure on European GDP.  However, despite all the attention paid to them, their combined economies are only one-eighth the size of the combined economies of the UK, Italy and Spain.

The next two charts highlight the fact that economic trends are also dire throughout much of Eastern Europe.

The take-away is that European economic problems are not limited to a few smaller countries.  Some of the largest are also performing poorly and apparently headed back into recession without ever having regained their past business cycle peaks.  It is hard to see Europe escaping recession.  And it is hard to see the U.S., Asia, and Africa escaping the consequences.

The Federal Reserve Bank recently released 1,197 pages of transcripts of its 2006 closed door meetings.  As the Wall Street Journal comments: “The transcripts paint the most detailed picture yet of how top officials at the central bank didn’t anticipate the storm about to hit the U.S. economy and the global financial system.”  

Federal Reserve officials suspected that housing prices were peaking (see chart below).  But since they didn’t believe that prices had been driven up by a well entrenched bubble, they were not very concerned that they were coming down. 

The Financial Times described the general Federal Reserve stance as follows:

Almost every Fed policymaker concluded that weaker housing would cause a slowdown in consumption and investment but expected that to offset strength elsewhere in the economy, leading to continued growth overall.

“Housing is the crucial issue. To get a soft landing, we need some cooling in housing,” said Ben Bernanke, Fed chairman, in his summing up of the economic situation in March 2006. “I think we are unlikely to see growth being derailed by the housing market.”

…

Indeed, a number of Fed officials saw the housing slowdown as welcome news that would help resolve a potential threat to the economy. “As to housing, we are in fact, as all have noted, squeezing out of that sector the speculative excesses that developed with the low interest rates of recent years — and doing so is unavoidable if we want to correct the sector,” said Thomas Hoenig, then president of the Kansas City Fed, at the September 2006 meeting of the FOMC. 

The transcripts show that the Federal Reserve was so confident that the economy was on solid footing that many officials were, according to the Wall Street Journal:   

…offering praise for outgoing Fed Chairman Alan Greenspan, who attended his final Fed meeting in January 2006. Timothy Geithner, then president of the Federal Reserve Bank of New York and now Treasury Secretary, playfully offered this forecast about Mr. Greenspan’s legacy: “I think the risk that we decide in the future that you’re even better than we think is higher than the alternative.”

…

The transcripts also suggest that Fed officials misgauged the potential for housing problems to spill over into the broader economy.

“Our recent financial-market data don’t, in my view, provide a convincing case for a substantial increase in the probability of a much weaker path for growth going forward,” Mr. Geithner said at a meeting in December 2006.  

So how did the best and the brightest get it so wrong?

Perhaps the major reason is because it served their interests to pretend there was no housing bubble.  The recovery from our 2001 recession was driven by consumption and that consumption was supported directly and indirectly by the housing bubble.  In other words stopping the bubble would have revealed the weakness in our economy and the need for serious structural change.  It was far easier and more lucrative for those at the top to just let the bubble go on expanding and pretend that it didn’t exist.

The following chart from the New York Times puts the movement in housing prices highlighted above into a longer term perspective, revealing just how strong speculative pressures were in the housing market.

As Dean Baker, one of the very few economists to warn about the dangers of the bubble, explains:  

First, what happened is very straightforward: we had a huge run-up in house prices that had no basis in the fundamentals of the housing market. After 100 years in which nationwide house prices just kept even with the overall rate of inflation, house prices began to sharply outpace inflation, beginning in the late 1990s.

By 2002, when some of us first noticed the bubble, house prices had already risen by more than 30 per cent in excess of inflation. By the peak of the bubble in 2006, the increase in house prices was more than 70 per cent above the rate of inflation.

This was a huge problem because this bubble was driving the economy. It drove the economy directly by creating a boom in residential housing construction. We were building housing at a near record pace in the years 2002-2006. This was in spite of the fact that we had an ageing population and record levels of vacancies at the start of that period.

The other way in which the bubble was driving the economy was through its effect on consumption. The bubble created more than US $8tn [trillion] in ephemeral wealth in housing. Homeowners thought this wealth was real and spent accordingly. The result was a massive consumption boom that sent the saving rate down to zero in the years from 2004-2006.

In reality, a lot of the consumer spending driving growth was financed by home refinancing, which helped many housholds compensate for stagnant wages and weak job creation at the cost of a sharp rise in debt.  As a Wall Street Journal blog post pointed out, “From 2000 to 2007, household debt doubled from $7 trillion to $14 trillion, with debt related to housing responsible for 80% of the increase. By 2007, the household debt to GDP ratio reached its highest level since 1929.”

As we now know only too well, the collapse of the housing bubble reverberated through the economy, including the financial sector, triggering the Great Recession.  Tragically, many of the “best and brightest” remain in leadership positions today, still arguing for the soundness of economic fundamentals.