Weekly Audit: Can Elizabeth Warren Save the Economy?

by Zach Carter, Media Consortium blogger

President Barack Obama’s decision to appoint Elizabeth Warren to set up the new Consumer Financial Protection Bureau (CFPB) couldn’t have come at a more critical time.

Over 44 million Americans were living in poverty last year. That’s the highest number on record. The Great Recession is taking a terrible toll on everyone outside the executive class, but policymakers have been reluctant to pursue an economic agenda that improves the lives of ordinary Americans.

The uniqueness of Warren’s new post raises plenty of questions, but it puts a fierce defender of the middle class in office at a time when the middle class most needs help.

So what exactly will Elizabeth Warren do?

As Annie Lowrey emphasizes for The Washington Independent, it’s not entirely clear what Warren’s new job will be or how long she will have it.

Consumer advocates have pushed hard to get Obama to name Warren the first director of the new CFPB. Obama, citing Senate confirmation hurdles, has instead charged Warren with setting up the agency as an adviser to both the Treasury Department and Obama himself. The post allows Warren to get to work setting up the agency, but not the power to start drafting regulations. It’s good to see her get a post on the Obama team, but we do not yet know how influential she will be.

Tim Fernholz sums up the pros and cons of Warren’s appointment in a piece for The American Prospect. There are very real drawbacks to the move. Confirming Warren for a permanent post as director of the CFPB will be harder next year—Democrats are likely to lose Senate seats in November.

It’s not impossible, but if confirmation was Obama’s chief worry, he’s only made it harder on himself by kicking the nomination down the road. This is true for whoever Obama picks—the bank lobby is going to scream about anybody other than a bank lobbyist, and Republicans are filibustering almost everybody Obama nominates to any post, including critical economic policy positions at the Federal Reserve.

Getting to work

But the new role also gets Warren on the economic policy team right away, and allows the agency to begin staffing up under her stewardship, even if it can’t draft regulations until a permanent director has been confirmed. There will finally be a strong voice on Obama’s economic team prioritizing household financial security above all else. That’s very good news.

Whatever the formal powers of Warren’s new post, we can be sure she’ll have a significant impact on policy making. Her current role as chair of the oversight panel for the Wall Street bailout was given almost no power at all by Congress, yet Warren has transformed it into the only real source of economic accountability in Washington, D.C. That’s no easy task, and we can expect similar courage and creativity from her as a member of Obama’s economic team.

What will the CFPB look like?

Warren herself seems to be pleased with the appointment. In a piece for AlterNet, Warren says that she “enthusiastically agreed” to take on the new position, and explains the vision for the CFPB:

“The new consumer bureau is based on a pretty simple idea: People ought to be able to read their credit card and mortgage contracts and know the deal. They shouldn’t learn about an unfair rule or practice only when it bites them — way too late for them to do anything about it. The new law creates a chance to put a tough cop on the beat and provide real accountability and oversight of the consumer credit market.”

Sea change

That sounds common-sense, but it’s exactly opposite to the past three decades of deregulation. Reversing the damage caused by that anti-regulatory fervor has been extremely difficult. The Obama administration needs Warren’s voice now more than ever. In the early days of his presidency, Obama pushed through a stimulus plan that has prevented the middle class from falling completely off the map. But those efforts are expiring, and they haven’t been enough to prevent millions of families from sinking into poverty.

Alarming poverty rate

In a harrowing piece for The Nation, Kai Wright notes that more people are now impoverished than at any time since the government began tracking poverty data. The poverty rate rose to 14.3 percent, with 44 million Americans—roughly one in seven—living in poverty. More than one-third of black and Latino children are growing up impoverished.

So it’s no surprise that income inequality is also at its most severe in decades. As Kevin Drum notes for Mother Jones—for the past thirty years, more and more American wealth has been concentrated among  the richest citizens. The richest 1 percent of U.S. earners are raking in 10 percent more of the national income today than they were at the start of the Reagan administration, while the poorest 95 percent have seen their share of the national income decline.

Numbers like these aren’t a fluke—they’re a direct result of policies that put the interests of Wall Street and other powerful corporate players ahead of the well-being of households. Nor were these policies adopted in a vacuum– Wall Street lobbied hard for the right to pillage our pocketbooks, and when it couldn’t rewrite the rules, it simply broke them while bank-friendly regulators looked the other way. Elizabeth Warren can’t fix all of this on her own, and she’ll surely face opposition from some members of Obama’s inner circle. But families couldn’t ask for a better advocate, and her appointment couldn’t come at a better time.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

Weekly Audit: Congressional Inaction Feeding Unemployment Crisis

by Zach Carter, Media Consortium Blogger

After months of modest gains, the U.S. economy lost 125,000 jobs during June. That’s the worst jobs-related news this year. Without serious action soon, the struggling U.S. economy is going to get even uglier. Unfortunately, President Barack Obama’s economic team was slow to recognize the severity of the jobs crisis, and now seems unable to get Congress to actually do something about it.

As David Corn notes for Mother Jones, the recent jobs data is actually much worse than the 125,000 figure implies:

“The economy needs about 150,000 new jobs a month to keep up with population growth and new entries into the jobs market. It needs a lot more than that to make up for the 8 million or so jobs lost in 2008 and 2009.”

Recession 2.0

Although the economy sluggishly recovered from the catastrophic events of late 2008, economists are warning of a “double-dip” recession in which mass layoffs return. So why is Congress refusing to deal with the jobs crisis in the face of such terrible economic conditions?

Part of the problem, Corn notes, is that Obama didn’t do a very good job selling his economic stimulus package to the public. The bill, which Obama pushed through in early 2009, really did improve the economy—it’s the only reason why the unemployment rate is hovering around 10 percent instead of 12 percent or 13 percent. But by refusing to counter Republican attacks on so-called “wasteful spending” included in the package, Obama failed to show the public how much good the stimulus has done. Instead, the bill is widely perceived as another wasteful giveaway to special interests and akin to the bank bailout.

Spending is stimulus

In reality, government spending is the best way to stimulate the economy during a deep recession. It makes up for the shortfall in spending from consumers who have lost their jobs.

There are all kinds of ways the federal government can spend money to create jobs, including extending unemployment benefits to laid-off workers, providing funding to states to allow them to hire more teachers and cops, and hiring people to build roads and buildings. The government did all of these things with the stimulus package from early 2009, but it didn’t do enough of any of them. The stimulus package was simply spread to thin.

Roots of recession

As Robert Reich explains for The Nation, the recession itself was created by deep economic inequality. By 2007, the wealthiest 1 percent of Americans made 23.5 percent of the nation’s total income. Figures like that had not been seen since 1929, when the richest 1 percent made 23.9 percent of the nation’s total wealth. All of this concentration at the top means that the elite enjoy a disproportionate share of economic gains, but it also sets the entire economy up for massive shocks.

When the rich have all of that money, they have to invest it somewhere. When the majority of citizens are seeing sluggish wage growth, or even a drop in wages, as the U.S. experienced during the Bush years, there aren’t enough valuable assets out there that can absorb that investment. As a result, rich people put their money in speculative asset bubbles. When those bubbles burst, the entire economy can come crashing down, as it did in both 1929 and 2008.

Rampant inequalities around the globe

As Melinda Burns highlights for AlterNet, rampant inequality in not unique to the U.S. More than half of the world’s population lives on less than $2 a day, and decades of conservative economic policies have been unable to reverse that hardship.

One of the best ways to relieve global poverty is also one of the most intuitive—give money to the poor. Brazil has made an aggressive push to cope with widespread poverty by providing $31 billion in pensions and grants to the poor every year. As a result, the nation’s poverty rate has declined from 28 percent in 2000 to 17 percent in 2008, while child malnutrition was cut in half. These policies make good economic sense. When poor people have money to spend, they spend it and fuel growth that benefits the entire economy.

Social insecurity

And yet in the U.S., Obama is seriously considering cutting Social Security in order to reduce the federal budget deficit. As Margaret Smith emphasizes for In These Times, Obama has created a bipartisan “debt commission,” and packed it full of ideologues from both political parties who have been fighting for years to slash Social Security.

This doesn’t really make sense, because Social Security is funded by its own dedicated tax revenue, and is sitting on a multi-trillion-dollar surplus created by those taxes. It really can’t do much to reduce the deficit. With interest rates at record lows, lawmakers do not currently have any reason to be worried about the deficit. But if they wanted to take action on it, they’d have to deal with long-term issues like the rising cost of health care, the bloated defense budget and absurdly low tax rates on the rich. Cutting off income for senior citizens won’t help.

Blocking economic stimulus won’t help

And neither will efforts to block short-term economic stimulus. But Obama’s emphasis on the budget deficit plays into the hands of Congressional opportunists who want to block his economic recovery efforts. If we’re told over and over again that the real economic problem is the budget deficit, no money is going to be dedicated to problems like jobs—even if that money would actually help the government’s fiscal position by fueling economic growth.

The American economy is in the middle of an absolute employment crisis. Without strong federal action, it’s going to get worse.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

Weekly Audit: After Health Care, the Economy

By Zach Carter, Media Consortium blogger

Now that health care reform has finally been enacted, a host of critical economic issues are taking center stage, including financial reform, unemployment and deeply rooted economic inequality. But it’s important to note that with its health care vote, the U.S. House of Representatives actually approved a very important, and often overlooked financial reform: Student lending.

Pedro de la Torre III of Campus Progress explains the current student loan nightmare in an interview with The American Prospect’s Rebecca Delaney. For years, the U.S. government has paid massive subsidies to some of the worst-run companies in the country.

Thanks a lot, Sallie Mae

As de la Torre notes, instead of directly making loans to students, the government spent years funneling money to firms like Sallie Mae to actually make the loans. When things went sour, taxpayers covered the lender’s losses from student loans that ultimately went bad.

Taxpayers were also footing the bill for the loans and taking on the risk, while private companies and their executives enjoyed the benefits. The executives made quite a haul. In 2008 alone, Sallie Mae CEO Albert Lord took home an astonishing $46 million. Even among CEOs, that’s a princely sum—more than double what Halliburton CEO David Lesar made the same year. All of that money could have financed a lot of college educations.

Fortunately, the student loan landscape is almost certain to change as a result of the health care vote. The House bill included a provision to end student loan subsidies and boost funding for direct grants from the government to students.

Since the student loan reform and health care were both eligible for reconciliation in the Senate (meaning only 51 votes are needed for passage instead of the 60 to clear a filibuster), House Democrats decided to move on both at the same time. It’s a significant reform, and one that will soon become law with President Barack Obama’s signature.

What would an overhaul of the consumer finance industry entail?

The student loan system is just one aspect of the consumer finance industry that needs a major overhaul. On mortgages, credit cards, overdrafts, and payday loans, the banking status quo is one of outright predation. As Heather McGhee of Demos explains to The Nation’s Christopher Hayes, there’s a reason why federal agencies do a lousy job regulating consumer banking abuses.

Right now there is no agency responsible for consumer protection alone. Every regulator also focuses on making sure banks don’t fail, which generally means that regulators support anything that increases short-term profits. Egregiously predatory practices generally lead to big short-term gains in banking.

A new consumer financial protection bureau

Last week, Senate Banking Committee Chairman Chris Dodd (D-CT) introduced a bill that would create a new bureau of consumer financial protection, with no constraints from bank profitability. It’s a step in the right direction, but as McGhee notes, there are plenty of problems with Dodd’s proposal. Most problematically, the bill gives existing agencies a veto power over any new consumer protection rules. That’s a terrible loophole. Existing regulators have actively opposed consumer protections in the past, and there is every reason to expect that practice to continue.

Rapid tax refunds scam the poor

It’s late March, which means tax season is getting into full swing. All over the country, mascots from Liberty Tax are spilling into the streets wearing goofy costumes, trying to win your business. But millions of Americans don’t realize that Liberty, along with H&R Block, Jackson-Hewitt and hundreds of smaller businesses are engaged in a monstrous scam disguised as a complicated accounting service.

As Alexander Zaitchik emphasizes for AlterNet, these tax preparers have used deceptive advertising and slick salesmanship to con people into taking out “refund anticipation loans,” also known as “rapid refunds” and a handful of other pleasant euphemisms. It’s a simple gimmick: H&R Block does your taxes, and then presents you with your tax refund, right away, no waiting. But the check you receive is not actually your tax refund—it’s your tax refund minus a truckload of fees that you didn’t realize were being deducted. This is the tax-time equivalent of payday lending.

When the government sends in your actual, larger tax refund one-to-two weeks later, you won’t see it—it goes straight to H&R Block’s bank partner. Those banks are making big money taking from your tax returns. Here’s Zaitchik:

“In 2008, more than eight million Americans spent nearly a billion dollars paying interest and fees on RALs—often based on misleading or incomplete information—swelling the profits of tax preparers and their partner banks.”

The one break low-income people get under the U.S. tax code is the Earned Income Tax Credit (EITC), the nation’s largest anti-poverty program. Only about 16% of taxpayers qualify for the EITC, but as Zaitchik notes, nearly two-thirds of the people who take out refund anticipation loans receive the credit. Tax preparers are making a concerted effort to prey on the poor, making the EITC program more expensive and less efficient for all taxpayers—not just those who go to H&R Block or Liberty Tax.

More action needed on jobs

Beyond finance, the U.S. economy has a serious jobs problem. Last week, Congress approved an $18 billion jobs package that is simply far too small to make a serious dent in the nearly double-digit unemployment rate. As Art Levine explains for Working In These Times, the package will create 250,000 jobs at best. That number shouldn’t be acceptable to anyone watching the U.S. economy, which has shed about 7 million jobs since the recession began.

There are much stronger options available than the $18 million bill the Senate approved. Rep. George Miller (D-CA) has introduced a bill in the House that would quickly save or create one million jobs, and the House has already passed a separate $154 billion jobs package that would prevent 900,000 lay-offs. If the Senate moved on either one, the result would be a major economic boost.

The link between poor economies and poor health

All of these problems—unemployment, student loan scamming, refund anticipation loan sharking and other forms of financial predation—reinforce economic inequality in the United States, which is at levels unseen since before the Great Depression. That inequality is ultimately actively damaging to public health, as epidemiologist Richard Wilkinson explains in an interview with Brooke Jarvis for Yes! Magazine. Rampant economic inequality in the United States is literally making us sick.

“We looked at life expectancy, mental illness, teen birthrates, violence, the percent of populations in prison, and drug use,” Wilkinson says. “They were all not just a little bit worse, but much worse, in more unequal countries.”

With health care finally finished, Congress and the administration have an opportunity to make serious headway on the economy. They’ve got plenty of work to do.

This post features links to the best independent, progressive reporting about the economy by members of The Media Consortium. It is free to reprint. Visit the Audit for a complete list of articles on economic issues, or follow us on Twitter. And for the best progressive reporting on critical economy, environment, health care and immigration issues, check out The Mulch, The Pulse and The Diaspora. This is a project of The Media Consortium, a network of leading independent media outlets.

 

 

 

Real, Uglier American Unemployment

Real, Uglier American Unemployment

 

Joel S. Hirschhorn

 

Can you trust national averages?  As bad as the jobless data you hear are, you have not been told the whole truth.  If you think the terrible impact of America’s Great Recession is shown by an official unemployment rate of about 10 percent, think again.

 

Economic inequality and the myth of Reagan trickle down logic are shown by new data from the Center for Labor Market Studies at Northeastern University in Boston.  The report noted: “What has been missing from the public debate over the labor market crisis is an honest and detailed analysis of which American workers have been most adversely affected by the deep deterioration in labor markets.”  The researchers found a correlation between household income and unemployment rate in the last quarter of 2009:  Look carefully at these numbers and see how unemployment rises as income drops:

 

$150,000 or more, 3.2 percent

$100,000 to 149,999, 8 percent

$75,000 to $99,999, 5 percent

$60,000 to $75,000, 6.4 percent

$50,000 to $59,000, 7.8 percent

$40,000 to $49,000, 9 percent

$30,000 to $39,999, 12.2 percent

$20,000 to $29,999, 19.7 percent

$12,500 to $20,000, 19.1 percent

$12,499 or less, 30.8 percent

 

Ten times worse unemployment in the lowest class than in the highest class!  Truly amazing and disheartening, don’t you think?  And you can also infer that in some hard hit geographical areas the poorest people and people of color are being even more adversely impacted.  And don’t think for a minute that things have really improved in 2010.

 

The report summed up the situation: “A true labor market depression faced those in the bottom…of the income distribution; a deep labor market recession prevailed among those in the middle of the distribution, and close to a full employment environment prevailed at the top.”  People at the top remain winners no matter how bad the whole economy.  Why?  The wealthy Upper Class controls so much of the political system and benefit from countless government policies.  They may lose something in an economic meltdown but not enough to suffer significantly.

 

Conversely, those at the bottom of the economic system with no political power are experiencing something as bad as the Great Depression, with no end in sight.

 

What pundits don’t emphasize is that government policies that do not target lower income groups are a failure and disgrace.  Worse than destroying the middle class, we are creating a Lower Class like that found in third world countries.  Indeed, compared to places like China and European nations, America’s poor are suffering about as badly as anyone on the planet, except for a few dismal places like Haiti.  Needing food handouts, losing homes, missing health insurance, and lacking jobs mock the American Dream.

 

Wait; there is even more bad news.  When underemployment is factored in — part time workers that want to work full time, and those who have stopped looking but want a job — the picture gets even worse.  In the lowest group, the underemployment rate was 20.6 percent, compared with just 1.6 percent in the highest group.  So the total in the lowest class is 51.4 percent (3.7 million people) compared to 4.8 percent in the wealthy class (530,000 people).  Also consider that last November nearly 20 percent of all men between 25 and 54 did not have jobs, the highest figure since the labor bureau began counting in 1948.

 

Now you know why the constantly noted official jobless rate for the nation of 10 percent and 17 percent when underemployment is counted are a joke, or is it a purposeful deception, like a truth bubble?

 

How can jobs be created for the lower economic classes?  You hear very, very few new ideas from politicians.  It comes down to federal spending that better targets job creation to the lower income groups, and waiting for more general consumer spending, especially by the more affluent, to create more low level jobs, mostly in service areas.  But we need specifics and better legislation.

 

Consider this green energy fiasco.  A huge amount of federal stimulus money provided for building wind farms.  It is creating jobs in Chine to build wind turbines, not in America.  In fact, 80 percent of such federal funding is going overseas.  All because Congress and the White House did not ensure a made-in-America requirement.  Was a backroom deal made to keep China happy so that they would keep loaning us money?

 

When the poorest people suffer so disproportionately as compared to the wealthiest, perhaps only violent revolution will fix America’s dysfunctional, broken and delusional democracy.  Will President Obama cite the above frightening data in any public forum to make the case for stronger federal efforts?  What do you think?

 

The high numbers for the lower income people mean that no amount of government action, in even five years or more, will solve jobless problem, because no amount of economic growth can possibly create enough new jobs.  The US would have to produce 10 million new jobs just to get back to the unemployment levels of 2007 - impossible for many years.  So, politicians will keep making things look better by citing the national average.

 

[Contact Joel S. Hirschhorn through delusionaldemocracy.com.]

Working Poor Unready to Revolt

Once upon a time when governments no longer served most of their citizens it was the most economically disadvantaged that could be counted on to rebel against tyranny and injustice.  Times have changed, for the worse, despite the spread of democracy.

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