investment

Collapsing Bridges, Sinking Levees. It’s (Past) Time to Invest

Eric Lotke — Thu, 31 Jul 2008 10:47:02 -0400

Last year on August 1, the I-35W bridge in Minneapolis collapsed during rush hour. Thirteen people died and more than 100 were wounded. A school bus carrying 52 children teetered on the brink but did not fall.

This bridge is not alone. Our nation’s infrastructure is deteriorating, dying of old age and neglect.

Making Sense Alert:
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Bridges and roads. The U.S. Department of Transportation reports that nearly 25 percent of bridges in the U.S.—over 152,000 bridges—are “structurally deficient or functionally obsolete.” Heavier vehicles, like school buses and delivery trucks, are forced to take lengthy detours for safer bridges. Nearly one in four miles of urban interstate is in “poor” or “mediocre” condition.

Levees and waterways. Earlier this year, thousands of homes and millions of acres of crops were destroyed after heavy rains overwhelmed obsolete levees along the Mississippi River. In 2007, the American Society of Civil Engineers found more than 150 levees to be at high risk of failing due to poor maintenance. Over a quarter of the dams overseen by the Corps of Engineers have exceeded the lifespan for which they were designed and need major repairs to ensure their safety.

Water and steam. A steam pipe explosion in Manhattan last year launched a tow truck 12 feet in the air, killing one person and injuring dozens more. The blast opened a 40-foot-diameter crater and spread toxic asbestos, closing off 40 square blocks for five days. Almost every state—from California, Hawaii, and New York to Alaska and North Carolina—has reported record breakdowns in water infrastructure. In the words of one expert, “an epidemic of breaking pipes is causing unprecedented havoc.”

These are just illustrations of the deadly danger of letting our infrastructure go unmaintained. America’s electric power grid, dams, water treatment plants, airports, and railways are all in dire need of repairs and improvements.

The solution is obvious. Repair and rebuild. Rebuilding our infrastructure provides jobs—good jobs that can never be outsourced—and an economic shot in the arm that we desperately need. The U.S. Department of Transportation estimates that every $1 billion in federal highway investment creates 47,500 new jobs and generates more than $2 billion in economic activity.

The “greatest generation” built the Interstate Highway System and laid the groundwork for decades of economic expansion. Now it’s our turn to rebuild the highways and add high-speed rail to boot. We’ll be faster, safer and more efficient. Yes, it will cost money, and yes, we’re running deficits. But this is no time to run scared. These are long-term investments and they will pay off over time.

Don’t fall for the “pay as you go” trap or fear the “tax and spend” label. Real people are smarter than that. A new poll by Time Magazine and the Rockefeller Foundation finds 83 percent of the public supports “increasing government spending on things like public works projects to help create jobs.” Support is at 83 percent among the baby-boom generation who built the interstates, and a surprising 90 percent among the young generation Y who are watching them fall apart.

Let’s invest now to turn the economy around.

Myths, Scares, Lies, and Deadly Innocent Frauds, Updated: Part Three

Joseph M. Firestone — Thu, 22 Dec 2011 11:44:04 -0500

(Author's Note: This post updates Part Three of a series reviewing Warren Mosler's book: The 7 Deadly Innocent Frauds of Economic Policy. The updating is prompted by a post by Hannah at DailyKos offering a “. . . a Review Sort of” of Warren's book.

Hannah's post begins by stating Warren's “7 deadly innocent frauds” (DIFs), and then goes on to point out that they are not innocent and to make a number of claims about Warren's beliefs which clearly indicate that she neither read his book, nor researched his actual positions stated frequently on his web site, nor bothered to note Warren's economic truths that his book counterposes to his DIFs. So, in this series, and because of the importance of his easily accessible book, I'm presenting a more detailed discussion of the frauds and the corresponding truths.)

In the previous two posts

in this series I've examined four ideas that Warren Mosler has called “deadly innocent frauds,” (difs) and that others have variously referred to as myths, scares, and lies. Three of the difs -- that Government deficits create a debt burden for future generations, take away non-governmental sector saving, and that social security is broken are all “deadly innocent frauds,” supporting the idea that deficits must be avoided, even if we have to suffer through extreme economic downturns to avoid them. These frauds, like the fourth dif that Government spending is operationally limited by the need to tax and borrow, all serve to reinforce the idea that Government can’t do anything about a bad economy without doing more harm than good.

The contrapuntal truths that: Government can create money, and is not operationally limited by the need to tax and borrow; there is no debt burden on future generations that limits production or consumption; deficits don’t subtract from, but add to non-governmental savings; and Government checks including Social Security checks don’t bounce; all reinforce the idea that Government deficit spending is not to be avoided, but, on the contrary is something we can and need to do to avoid the economic and human waste of unnecessary economic recessions and depressions. In this final part of the series, I'll review the remaining three of Warren Mosler's difs and discuss their political implications.

Beware the Trade Deficit?

Mosler's fifth dif is:

“The Trade Deficit is an unsustainable imbalance that takes away jobs and output.”

The normal arguments for this dif, in my view, are that if other countries give us more in goods and services than we give them, then we 1) build up unsustainable monetary debts and 2) lose jobs and outputs because we are not producing those goods and services here in this country. As trade imbalances accumulate over time, our monetary debt grows larger and we, as a nation, lose industries that have been producing the goods and services we get from abroad, and therefore continue to lose jobs and output until, eventually, we may become de-industrialized and our workers, in increasing numbers find themselves out of jobs, careers, and all that depends upon them.

Warren Mosler opposes this line of argument by noting that “the real wealth of a nation is all it produces, plus all its imports, minus all its exports.” This is basic economics. But it's important to stop for a moment and reflect on why it makes sense.

Real wealth is the sum total of valued goods and services possessed by an entity. It is not money, which is only the medium of exchange. We produce goods and services, i.e. real wealth. We also import goods and services, also real wealth, from abroad. But when we export real goods and services, what we are doing is sending real wealth abroad. So we are subtracting from our net real wealth when we export.

So why export, one might ask? For some nations, it's because they need the foreign currency they would gain from exporting in order to import. But what happens when other nations want to export to a specific nation so badly that they let that nation import even though it doesn't have their currency to pay for it, and they allow it to owe them for what it buys in their own currency? This, of course, is the enviable situation of the United States and other nations that are sovereign in their own currencies.

So, specifically for the United States, the answer is that they are giving us real wealth on credit, and agreeing that we can pay them for that wealth using our own currency at some future time. Which means, in other words, that they are sending us their wealth, and are agreeing that we can pay for it with a medium of exchange that our Government can create at will, and that is not real wealth, but only a warrant, backed only by the value of the current and future economic output of the United States of America.

As Mosler says: “. . . a trade deficit increases our real standard of living. How can it be any other way? And the higher the trade deficit the better!” Or to put this in terms of his counterpoint to the fifth dif:

”Imports are real benefits and exports are real costs. Trade deficits directly improve our standard of living.”

So, the greater our trade deficits, the more wealth other nations are shipping us, without us having to ship them real wealth in return. Well, what about the monetary debts that are accumulating say, obligations to China, and others? Those debts are all in US currency. And we, or our children, can make as much of that as we want without producing anything to send to China in return. So where is the debt burden, and the unsustainability in these accumulating debts?

The answer is that there is none. Well, what about the problem that by our importing goods and services from China in such a profligate way, we are hollowing out our own industries and productive capacity, and destroying jobs and the lives of our workers over here? Isn't this an unsustainable burden on us? I think there are two points to be made about this. One made by Warren Mosler and one of my own.

Warren's is that we can always use fiscal policy to develop new industries and to keep our people working so that we are using our full productive capacity to create wealth, while also importing whatever China or other nations are willing to export to us on credit. So, to amplify his view, the fact that we accept imports that drive us out of certain industries doesn't have to mean de-industrialization or unemployment here. It's all up to us.

We can take foreign imports at the expense of domestic productive activity, or we can take them, and ramp up our own economic activity in areas where there are no imports that are less expensive than what we can make ourselves. In particular, in our current situation there is all kinds of work to be done in re-building our infrastructure, re-inventing our industries along green lines, fighting climate change, cleaning up the environment, and educating our ourselves.

If other nations can free our labor force to do this kind of work, while they export to us various goods and services on credit, then we only get richer and suffer not at all. To have things work this way however, we have to have a fiscal/economic policy that will keep our people working and moving forward, we cannot afford to have periods in which people are unemployed when there is important work to be done.

My own point about the possibility of long-term unsustainable burdens, or at least negative consequences from a trade imbalance is that imports of certain kinds can, indeed, be harmful to the United States. But the harm, in this case, doesn't come from the short-term economic effects of those imports on productive activity, which remain beneficial, but rather from their effects on certain other values, such as our ability to provide for our national security, or our ability to produce certain components such as computer chips that are important to industry and manufacturing across the board, or our ability to keep our environment clean, or our energy foundations strong, regardless of the choices made by external parties to continue or refrain from trading with us, or their choices about what they want us to pay fpr products we cannot provide for ourselves.

To the extent that, because of imports, we lose the capability to manufacture certain materials and products, and need to rely on other nations for these, that may not be friendly to us in times of conflict. We allow these imports to hurt our military self-sufficiency and also, our industrial and economic self-sufficiency. While I haven't studied this link between imports acquired on credit, and a declining industrial foundation for supporting military capability, closely, I have the impression that the trends since the 1980 have been toward increased external contracting of military production, and the weakening of our industrial base in national security-related areas of manufacturing. In addition, the more the industrial capacity to make computer chips and other products is shifted overseas, the more reliant we are on continued favorable trading relationships with other nations who may not always be friendly, to maintain our own economy.

The significance of this point is that while the general economic principle that “Trade deficits directly improve our standard of living”, is correct, nevertheless with respect to certain products and industries we may not want to follow this principle because of political, security, moral, or long-run economic considerations, even though we know that not doing so will cost us economically in the near term, at least.

Do We Need to Save First to Accumulate the Funds for Investment?

Mosler's sixth dif is

“We need savings to provide the funds for investment.”

To see what's wrong with this dif, we have to pay attention to the difference between macro and micro levels of the economy. At the individual level, saving is one way for someone to accumulate enough money to make a capital investment. It's not the only way since individuals can also seek and get grants and loans for investment, but, nevertheless saving money and later using it for investment is a very common pattern and clearly underlies this dif.

At the macro level, however, savings get us into the Keynesian paradox of thrift. Since if spending doesn't equal all income, some of what is produced in the economy will remain unsold. Thus, at the macro level savings detract from consumption and create a slackening of demand, which, turn, can lead to less profits and investment and future production of wealth, and greater unemployment, unless there are compensating factors.

One possible compensating factor is using credit. When someone saves, someone else can absorb the slack demand created by savings, by borrowing money in order to consume existing products. If that happens to the same extent as savings, then economic output is fully consumed. Another possible compensating factor for savings in lifting demand is Government deficit spending which immediately adds to private sector savings, that, in turn, can be consumed, and so lift demand. Regardless of these compensating factors, however, we can see that, whatever the situation at the micro or individual level, at the macro or societal level, savings has a depressive effect on economic activity and investment, which is why we have ourselves a dif here.

The counterpoint to this dif is that far from savings being necessary for investment,

“investment adds to savings.”

To see why this is true, we have to reflect on what nominal capital investment really is. Namely, it is the use of money to produce instruments or tools, that play a part in producing valued goods and services (i.e. real wealth). Since this is the case, the investment in the capital goods comes first, and these goods are then used along with paid labor to produce output. But it takes time to produce output. So before there is output, there is labor, and pay for the labor, which can't be used to consume the output because it is not yet there. So, the pay given to labor leads to savings, until those savings can be consumed by spending them on the future output.

This reasoning may seem a little convoluted because workers receiving pay can consume any number of other things even though the immediate products of their labor are not yet available. But viewed from the macro perspective, somewhere in the system, the time lag between production and consumption has an effect resulting in those earning money saving for goods and services that they want which are not yet available. So, the counterpoint that

“investment adds to savings”

holds.

Warren Mosler points out that belief in the dif that “we need savings to provide the funds for investment”, is very damaging because it has led modern economies to divert real resources away from productive sectors of the economy to the financial sector. And he says that this dif:

” . . . drains over 20% annually from useful output and employment- a staggering statistic unmatched in human history.”

In fact, government deficits are much less inflationary in the US than they would otherwise be, because they are compensating for the slack demand created by increasing diversion of resources to the financial sector. Pension funds, IRAs, and other tax advantaged savings institutions, are harmful to the macroeconomy because their net effect is to remove a substantial part of the aggregate demand we need to fully consume our industrial output and our imports. Then we need greater private sector credit expansion and Government deficit spending to fill the gap created in aggregate demand by our misplaced emphasis on savings because we think it is necessary for investment.

Nor, is this all the damage done to our economy. In addition, the existence of “massive pools of savings,” has led to the creation of a sub-industry of thousands of pension fund managers and more thousands of brokers, bankers, and financial managers to service them. In itself this is a great diversion of people and human resources away from the productive portion of our economy, to the segment devoted to financial manipulation.

Public Sector Deficits and Taxes

Mosler's final dif is yet another one directed at the harm caused by Government deficit spending. It is:

“higher deficits today, mean higher taxes tomorrow.”

While there is a good chance that this is often literally true, it is not true because, as deficit hawks would have it, we need to have the higher taxes to pay borrowed money back to reduce the national debt. Instead, we may well have higher taxes because we need them to moderate a booming economy that, in part, resulted from greater Government deficit spending.

In other words, if Government increases spending to create greater demand in the private sector, and to create the conditions where our output and imports can be consumed, and we have full employment, then we may reach the point where we begin to see demand-pull price inflation in the economy. At that point, higher taxes ought to be imposed by the Government to prevent over-heating of the economy. In other words, Mosler's counterpoint is:

”Higher deficits today when unemployment is high will cause unemployment to go down to the point we need to raise taxes to cool down a booming economy.”

So, while the dif suggests that the burden of debt repayment resulting from deficits, is a bad thing; the counterpoint suggests that there will be higher taxation only after our economic woes are over, and everyone is experiencing prosperity, a good thing, and a price we may all be willing to pay, except those among the 1% whose greed and lust for control and extreme inequality knows no bounds.

Conclusion: Why The 7 Deadly Innocent Frauds of Economic Policy is So Important

The common thread in the three difs I've discussed in this part, is that they're all beliefs that counsel false economy and that, to the extent we follow them, lead to less national prosperity and wealth than we would otherwise enjoy. The sixth and seventh difs both lead to less economic activity and higher unemployment; and the fifth dif, in effect, counsels us to forgo opportunities to increase our national wealth through trading. The seventh dif, also, is like the first four in that it is another support for deficit hawkism, and a counsel against deficit spending, that is sorely needed in a time of slack demand and high unemployment.

Taking all 7 of Warren's difs together, we see the outline of an ideology whose effect is to cripple American potential in both the immediate and the longer term. The 7 difs together constitute a 19th century economic ideology appropriate for a nation with a commodity monetary system, rather than a 21st century economic ideology appropriate for a nation with a fiat monetary system. Partisans of this ideology often call it neoliberalism. But there is nothing “liberal” or progressive about it. Instead, it is an instrument of elite control, emerging oligarchy, and impoverishment of the 99%.

On the other hand, Warren's 7 truths counterposed to the 7 deadly innocent frauds, together lead us to an economic ideology that fully supports progressive actions to solve existing problems and to collaborate through the Government to realize the equality of opportunity and the right to a decent life that is very American's birthright. His 7 truths tell us that we can have full employment, provide for our children and grandchildren making life better for them, strengthen out entitlement safety net protecting the old and the sick, enjoy real wealth other nations are prepared to send us, enjoy savings at the micro-level while we have investment at the macro-level, pay more in taxes only when the economy is operating at full capacity and we can afford it, and do all of this without worrying about our government becoming insolvent.

All we have to do to make these things happen is to cast aside the false beliefs of neoliberalism and embrace the economic wisdom of the MMT deficit owls, and Franklin Delano Roosevelt's economic bill of rights. As someone once said “the truth will make us free,” if only we have the courage to put aside our fears of some new thinking and embrace it. What do we have to lose? The neoliberal things we're doing aren't working. We may as well try MMT-based economic and fiscal policies and reach, once again, for human progress.

Beyond Hysteria: Common Sense about Deficits

Robert Borosage — Mon, 14 Feb 2011 07:18:49 -0500

With the submission today of the President’s proposed budget for next year (FY 2012), Washington descends further into the furious debate about less. How much less will government do? The president pledges to freeze domestic spending for five years, reducing it to a portion of the economy not seen since Eisenhower, while investing in areas like infrastructure vital to growth.

“More big spending,” cry Republican leaders, promising to slash non-security spending by over 15% in the remaining seven months of this fiscal year.

“Broken promise,” cries Michelle Bachman and the Tea Party right. Now driving the House caucus, they roll their leaders, forcing agreement on a full $100 billion cut -- more than one fifth of the total annually appropriated domestic budget in less than seven months – requiring nearly 22% cuts across the board.

But since many agencies like the FBI will be protected, and personnel costs are difficult to cut quickly, the result becomes open season on programs conservatives don’t like -- AmericaCorps, national service, will be zeroed out; community development block grants eviscerated; poor students will lose $800 or 15% on their Pell grants, poor women, infants and children will lose support, poor schools will lose thousands of teachers, everything from Head Start to food safety inspections will suffer.

All of this takes place in atmosphere of hype and hysteria, with politicians resorting to the age-old tactic of scaring the hell out of the American people to achieve their ends. The choices we make in budgets are moral choices. As the Bible puts it, “Where your treasure is, there your heart will be also.” But they also should involve common sense, much of which is scrapped in the current debate.

So what follows is a citizens’ guide to common sense about deficits and the debate, a handbook to help sort out who is making sense and who is not.

1. Don’t amputate on a patient still struggling to recover from a stroke

Or it’s still jobs and the economy, Sherlock. The economy is still struggling to revive from the worst downturn since the Great Depression. Nearly 25 million people are still in need of full time work.

The current halting growth is not gaining much ground. As Federal Reserve Chair Ben Bernanke noted, . we have gained over a million jobs since Obama and the Fed saved the economy from free fall, but that’s barely enough to cover the new entrants to the workforce. We’ve not begun to catch up on the 8 and 3/4 million jobs lost in the calamity. (That’s one reason why an alarmed Federal Reserve is engaged in qualitative easing, an extraordinary action reflecting the Board’s fear that the recovery could falter, and the economy plunge into deflation or another recession, and why Bernanke, a former Bush economic advisor, warns against raising taxes or cutting spending immediately).

Cutting spending costs jobs. Teachers, police, FBI agents, social workers, food and drug inspectors, AmericaCorps kids get laid off. That costs the Federal government money. Spending on the unemployed rises -- unemployment insurance, food stamps and the like -- while tax revenues decrease.

Republicans intone the ditty that “government can’t create jobs,” although defense workers, post office employees, cops, teachers and other government employees can’t figure out what they mean. They also seem oblivious to the notion that cutting spending cuts jobs, glibly asserting that slashing spending will create jobs. The only conceivable way that would be true is if spending cuts would reduce the deficit and lower interest rates. But interest rates are already effectively below zero (that’s what the Federal Reserve’s qualitative easing means). And businesses are already sitting on trillions waiting for demand to pick up. Even if spending cuts lift the gloom in country club chatter, it is hard to imagine why that would make CEOs hire more people. In January, we lost a net of 12,000 public employee jobs. That number will go up dramatically as states and localities continue to face dire budget deficits, and if Republicans in fact roll back federal spending.

Yet every budget projection – including those of Republicans – assumes that growth will continue and that unemployment will decrease slowly. If the Congress did nothing, allowing the Bush tax cuts to expire as agreed, according to the Congressional Budget Office’s baseline, growth alone brings the deficit down from the current alarming 9.8% of GDP to a quite manageable average 3.1% of GDP from 2014-2021. (If Republicans succeed in making the Bush tax cuts permanent, it cuts revenue by nearly two percent with a corresponding increase in annual deficits).

None of the amputations under discussion has a comparable effect on the deficit. So if you care about people, you’ll focus first on jobs and growth. If you care about the economy, you’ll focus first on jobs and growth. And if you really care about deficits, you will focus first on deficits and growth. No one in the rabid Republican caucus seems to have realized this simple reality.

2. Don't fall for the hype: The budget deficit isn’t our most debilitating deficit

The budget deficit – nearly 10%of GDP this year – is serous and unsustainable. But it is inflated by the recession which lowered tax revenues and raised spending dramatically. Continued growth will bring it down. The US isn’t, contrary to conservative rants, about to become Greece, a fact reflected in the price of our bonds which conservatives assume reflects perfect knowledge about the economy (except when they disagree with it).

The budget deficit, in fact, isn’t our most destructive deficit. The investment deficit – as President Obama has noted – saps our ability to compete globally. It also kills people and threatens lives – as those who perished when the bridge in Minnesota collapsed found out. Every year, 19 million Americans become ill from drinking contaminated water; millions have been exposed to cancer producing contamination. As residents in New Orleans discovered, extreme weather will make investments in core infrastructure – from dikes, to bridges, to tunnels – even more essential.

Our trade deficit is back over $1 billion a day, with the deficit with China is setting new records. This deficit has risen when the budget was in surplus, as it was under Clinton, or in deficit under Bush. It only fell when the economy plunged into recession. A broad international consensus agrees that these extreme imbalances are destabilizing, and unsustainable. As the president has argued, redressing this deficit requires, among other things, greater investment in areas vital to our future, as well as a trade and industrial policy that makes sense.

The initial Republican leadership plan called for slashing spending on transportation and HUD by 25% for the remainder of the year. The ultras’ plan cuts even deeper. It also slashes spending on research and development, on schools, on education and training, on fast trains and new energy. As Senator Harry Reid noted, you’ll lose weight if you cut off your legs and arms, but no one rational would recommend it.

3. If you are going to cut, cut the fat first, not the muscle and bone

Thus far the entire debate about spending cuts has focused on the forlorn less than 15% of the budget that is annually appropriated domestic spending. Republicans vow that increasing taxes is off the table. Defense spending continues to go up. The big stuff- - Medicare and Medicaid for example – isn’t in the discussion yet.

The result is deep cuts slashing muscle and bone and vital organs mostly from programs for the poor, rather than from poor programs. This is truly perverse. Why not focus on cutting fat?

For example, we spend about as much the rest of the world combined on our military. The Pentagon and its contracting process is a mess; its records so fouled up that not one branch of the services can be audited, much less pass one. It is the largest source of waste, fraud and abuse in the federal government, bar none.

Pentagon spending is now over 40 % higher in inflation adjusted dollars than it was under Reagan at the height of the Cold War. The US polices the world, but as former Chief of Staff Colin Powell once stated, is “running out of enemies.” We’re down to hunting a few hundred al Qaeda zealots with drones, fighting an endless war with a corrupt ally in Afghanistan, and chasing agile Somali pirates. Even China has only begun even to build a blue water navy.

The president has announced a five year freeze on domestic spending, exempting the Pentagon. Republicans want to slash the domestic spending budget starting this year, while adding $8 billion to the security budget (the military and homeland security). But any common sense budget cut would start with the Pentagon. .

4. Get the money back from where the money went

George Bush inherited a budget that was in surplus. He then squandered that surplus on tax cuts, skewed to the already rich, two wars, and a prescription drug benefit, sculpted by the drug lobby that did nothing to control prescription drug prices.

We now suffer a concentration of wealth and income not seen since the eve of the Great Depression. During the years of the Bush “recovery,” the top 1% captured fully 2/3 of the rewards of growth. They now capture nearly ¼ of the nation’s annual income. They control more wealth than 90% of Americans.

In 1980 under Reagan, the top tax rate was 60%; it is now 35%. The tax rate on capital gains or income from investment was 28%; it is now 20%. Meanwhile the marginal tax rate on a medium income family of four was 20% from 1955 to 1975 and has averaged 30% since 1986.

The result, as Warren Buffett has famously noted, is that the wealthiest Americans pay a lower tax rate than their secretaries.

Any sensible program for deficit reduction must include increases taxes on the wealthy to make moral or practical sense. Instead, of course, the Republicans extracted a deal to extend the Bush tax cuts for those making over $250,000 a year for two more years, at the cost of about $40 billion a year, which will far exceed what they end up cutting from public schools, health research, food and safety, workplace safety and environmental protection this year.

5. Tax bad practrices, don't cut good programs

Excessive financial leverage and gambling of Wall Street drove the economy off the cliff. The national debt held by the public went from $6 trillion and 40% of GDP in 2009 before the collapse to $9 trillion and 62% of GDP by the end of 2010. Wall Street excess blew up the economy and ran up the debt. The big banks then got bailed out by taxpayers, and now are back paying out multi-million dollar bonuses. You’d think maybe taxing them for the pain they caused would make sense.

The gambling is back, driving by computerized trading. The average stock is held 22 seconds; the average foreign currency position for 30 seconds.

This isn’t investing; it’s gambling – and we need less of it. So let’s put a small tax – less than one half of one cent – on every transaction. It would over $ 100billion a year, and put a little drag on computer driven financial casino.

6. Take on the powerful, not the poor

Each year, the president has called for rolling back lavish subsides to big Oil, the drug companies, the health insurance companies and Agribusiness. Each year, he has been stymied in Congress, opposed by Republicans and conservative Democrats catering to powerful lobbies. Want to tell if Republicans are focused on cutting poor programs or cutting programs for the poor? Check to see how the subsidies for these predator interests fare in the process.

7. Focus on the disease, not the symptoms

Once the debate starts in full, you are going to hear a lot of alarm about America’s “entitlement crisis.” Forget it. We don’t have an entitlement crisis. We have a broken health care system. The blood curdling projections of long term, rising deficits and debt come entirely from rising health care costs. These are expressed in the budget largely by Medicare, Medicaid, and the Veteran’s Administration. But those are the merely the budgetary symptoms. The crippling disease in a broken health care system, dominated by powerful corporate complexes – the drug industry, the insurance companies, the hospitals – that have succeeded in having the US pay two and one half times more per capita on health care than the average of other industrial countries with worse results.

Turning Medicare into a voucher or Medicaid into a limited block grant will reduce the budget symptoms, by passing more costs on the elderly, the disabled and the poor. But it won’t stop the hemorraghaing that will continue to bleed business, states and localities and families.

So here’s a common sense guide. If the debate is focused on putting a lid on Medicare and Medicaid spending, you are about to get shafted. If it is focused on empowering Medicare to negotiate bulk discounts on drugs, or a public option to compete with health insurance companies, or mandates to require insurance companies to spend more on health care and less on administration, then small sensible steps are underway.

8. If it ain’t broke, don’t fix it

Social Security is lumped in as part of the faux “entitlements crisis.” The clownish Alan Simpson, unfortunate co-chair of the President’s deficit commission, the relentless billionaire Pete Peterson, and many more in the beltway establishment keep issuing alarms about Social Security. Don’t fall for it. Social Security is not part of the deficit problem; and not be part of the solution.

Social Security is in surplus. According to the CBO, it will remain in surplus throughout the decade. Both parties promise that any reforms to Social Security won’t kick in until those currently aged 50 or 55 retire, so Social Security isn’t part of the deficit solution either.

Over the long term, divorced from the hysteria about deficit reduction, Social Security will need minor adjustments to insure that it continues to pay out its promised benefits in full. It also should increase, not decrease, its benefits for more vulnerable retirees, for widows, for those over 80 among others. How much will be required will depend, in part, on whether the economy grows and whether workers’ wages rise or continue to stagnate. Much of the reform can be achieved simply by lifting the cap on the payroll tax so that Paris Hilton pays the same percentage on her income as Wall Mart employees. If they are talking about cutting Social Security benefits or lifting the retirement age, you can be certain that while Wall Street got the gold, you are getting the shaft.

Obama’s Infrastructure Proposal: A Step Forward

Eric Lotke — Tue, 07 Sep 2010 15:51:42 -0400

On Labor Day, President Obama rediscovered his roots. He traveled to the LaborFest rally in Milwaukee, Wisconsin and proposed $50 billion in infrastructure spending to “create jobs” and “make our economy hum over the long haul.” Everything was on target — from the substance to the politics. The only thing off was the size.

Start with the substance. Obama recognized that our country is falling apart, and proposed some sensible fixes.

• Roads. Rebuild 150,000 miles of roads, the backbone of our transportation system.

• Rail. Construct and maintain 4,000 miles of track, and overhaul Amtrak’s fleet. Continue to develop national high-speed rail, and support transit in metropolitan areas.

• Air: Rehabilitate 150 miles of airport runways, and update our air traffic control systems.

It’s a six-year plan and tied to the surface transportation bill scheduled for reauthorization — but front-loaded to create jobs sooner rather than later. It continues the work of the 2009 Recovery Act, with less emphasis on “shovel-ready” than on long-term growth. It also offers some creative new funding proposals:

• Infrastructure Bank. A National Infrastructure Bank has a bipartisan history and an ability to leverage government dollars with private investment. It can focus on infrastructure of national and regional significance that falls in the gap between agencies, or transit projects that cross state lines or metropolitan boundaries. Europe has had a European infrastructure bank for longer than it has had the Euro.

• Closing tax incentives to ship jobs overseas. Obama renewed a campaign pledge to close “these ridiculous tax loopholes that actually rewarded corporations for shipping jobs and profits overseas.”

Obama also noticed that it’s an election year. In this relatively safe space and with a base that feels forgotten, he drew the contrast with the Republicans.

• Obama assailed the Republican Party of No. Republicans would deny it if Obama said “the sky was blue” or “fish live in the sea.” They oppose everything Obama proposes, even if they’ve proposed it in the past. Representative John Mica (R-Fl.) a strong proponent of infrastructure investment came out against the President’s proposal (and reinvented the history of the Recovery Act while he was at it).

• Obama assailed the rebirth of trickle-down economics. People say “we can move this economy forward with just a few folks at the top doing well, hoping that it’s going to trickle down to working people who are running faster and faster just to keep up. [Y]ou’ll never see it.”

• Obama accused Republicans of making the same mistakes all over again. “They’re betting that between now and November, you’re going to come down with amnesia. They figure you’re going to forget what their agenda did to this country. They think you’ll just believe that they’ve changed.”

“These are the folks whose policies helped devastate our middle class. They drove our economy into a ditch. And we got in there and put on our boots and we pushed and we shoved. And we were sweating and these guys were standing, watching us and sipping on a Slurpee. And they were pointing at us saying, how come you’re not pushing harder, how come you’re not pushing faster? And then when we finally got the car up — and it’s got a few dings and a few dents, it’s got some mud on it, we’re going to have to do some work on it — they point to everybody and say, look what these guys did to your car. After we got it out of the ditch! And then they got the nerve to ask for the keys back! I don’t want to give them the keys back. They don’t know how to drive.”

It’s nice to see the fight. It’s nice to see the contrast message. It’s nice to see Obama do something that his base wants and may be willing to fight for — rather than bending over backwards to appease people who won’t vote for him anyway.

Yes, I would have liked to have seen this fight six months ago. Or even eighteen. Yes, I would have liked to see the ideological contrast stated clearly over time.

And most importantly, I’d like to see it bigger. The American Society of Civil Engineers says $2.2 trillion is needed over five years to put our infrastructure back into satisfactory condition — and that’s only satisfactory. It doesn’t include that new high speed rail. As I’ve said in the past, the proposals are off by orders of magnitude.

None of this is going to pass anyway. The Republicans won’t give Democrats a victory just before the election. At this point it’s purely political, a chance to draw a contrast and point in a new direction. Obama might as well spell out the whole vision and give us something to aim for.

Roads don’t build themselves. Schools don’t fix their own roofs and high-speed trains don’t lay their own tracks. We need our public sector to step in. That’s what it’s for.

Obama can use his great gifts of oratory to explain what’s needed and how long it will take. He can talk truthfully about the deficit, and close it with proposals like top end taxation, financial transaction taxes, and ending a range of subsidies from oil companies to agriculture

Monday’s speech was a step in the right direction. It’s definitely too little. We’ll see if it’s too late.

Bravo To Congress' Making It In America Push -- What It Still Needs

Dave Johnson — Wed, 28 Jul 2010 15:04:04 -0400

House leaders deserve praise for fighting for working people by launching a "Make It In America" initiative which they officially unveiled today. The country still badly needs an immediate job-creation effort, but this is a very important longer-term initiative for reviving America's manufacturing base and restoring our competitiveness in the world economy. Good work!

Manufacturing is the core of our country's income. Making things that we sell is how we earn money to buy things that others make. This is why it is so important to restore America's manufacturing base and the infrastructure that supports it. People want to go into a store and have a choice to buy things that are made here.

This week these important bills made it to the House floor: (click through for details)

National Manufacturing Strategy Act

Clean Energy Technology Manufacturing and Export Assistance Act

End the Trade Deficit Act

As the Congress rolls out this initiative here are important components it should include:

Buy American

Public money should be going to our people. This is what other countries, like China, are doing with domestic preferences and "indigenous innovation" policies.

Pass "Made in America" policies in every phase of any manufacturing plan, boosting domestic content requirements in federal procurement, (state and local government should do the same with their procurement policies).

Trade policies

(Is "trade" even the right word for making the same things in other countries that we used to make here.)

We are doing very little to combat the mercantilist nations, in particular China and Germany. China manipulates its currency and will not match its exports with imports. Germany is limiting domestic consumption -- the resulting trade surplus is out of balance.

End tax incentives to move production overseas; create incentives to keep production at home. Current laws allow corporations to defer taxes on income earned overseas, which almost forces companies to develop schemes to make goods outside the country.

Require tariffs on goods from countries that manipulate currency, to overcome the pricing advantage this creates.

What about a "democracy tariff?" This is a tariff on imports to counter the advantages that come from moving factories to countries where the people don't have the power or opportunity to insist on fair wages and worker and environmental protections.

Encourage the "Green Economy"

Stimulate American manufacture of wind turbines, solar panels, biofuels, etc. This creates jobs and makes us competitive in the new green economy that will replace the carbon economy.

Create a domestic non-carbon energy market with a strong Renewable Energy Standard (RES) and a direct carbon tax (since the Senate has blocked cap-and-trade).

Use government procurement to help trigger this market. Phase in purchases of non-carbon energy, creating a strong market, triggering increased investment. Procurement should require American-made components. For example, wind-power purchases should require American-made turbines are used.

Infrastructure

Our roads, bridges, rail, water and electrical systems, etc. are the backbone of a competitive economy. The infrastructure enables business to thrive. If it is not kept in good working order and up-to-date (and it has not been), businesses do not thrive (and they aren't).

We need the Congress to create a National Infrastructure Investment Bank, capitalized with public money to lure private capital for investment in rebuilding key components of America's infrastructure. Stop the obstruction - we need this!

Rebuild existing, crumbling infrastructure. This "spending" investment earns the money back many times over.

Pass the surface transportation reauthorization bill. This will boost American industry as while creating jobs, saving energy and incentivizing green development.

Build new infrastructure-for-the-future like high-speed internet and high-speed rail and a national electric "smart grid".

Require companies to make the infrastructure components in America.

This is a brief outline of some of the needed components in a Make It In America strategy. These are things that Congress can do. Congress must not back away from bold reforms in the face of resistance from the right-wing monopolist business lobbyists, who speak for the job exporters, and their "free-trade ideologue" allies.

Third Way ConservaDems Get it Wrong: Progressives Are The Champions Of Growth and Wealth

Roger Hickey — Sun, 09 May 2010 16:58:01 -0400

Anne Kim and Jonathan Cowan of Third Way took to the Politico Arena op ed page (and url) on Thursday with the hoary slander that progressives care only about "expanding the entitlement state" and have no interest in economic growth or expanding wealth. Apparently blind to the worst economic downturn since the Great Depression, they then replay New Democrat staples from the 1990s as if they were somehow new or relevant. They get it wrong.

As Barack Obama took charge of an economy in free fall, progressives urged the new administration to undertake the largest investment-led stimulus in our history. Third Way Democrats worked to make it smaller and weaker. Despite that, the recovery act did stop the fall and begin to pull the country out of recession. With unemployment still nearly at 10%, progressives continue to push for more job creation and aid to the states to forestall brutal cuts in teachers and police and other vital services.

Looking towards the new economy that we must build out of the ruins of the old, the president has it right. We can’t go back to the old bubble-bust economy built on debt and speculation. We need to build on a new foundation. That includes public investment in areas vital to our future: education and training, a 21st century infrastructure, research and development, new energy. It includes a new global strategy and industrial policy to insure that we make things in America once more. And it should include an extension of our basic social contract, insuring retirement security, affordable health care and education, a living wage and safe working conditions, first rate public education to all Americans. On that foundation, we can build an economy – as we did after World War II – that works for working people, and revives America’s broad middle class.

Kim and Cowan recycle the conservative canard that progressive support for the Obama health care plan is motivated by a desire to turn the US into (gasp!) Denmark, where (they think) everyone lives on "entitlements." Apparently these Third Way Democrats reject the argument advanced by their Democratic president that health care reform, in addition to being a matter of economic justice, is also the first step toward getting control of health care costs -- which every economist agrees is the real driver of long term public deficits. (Denmark, with a more comprehensive public healthcare system spends only 9.8 percent of it's GDP on health care. The US spends 16 percent. Far from luxuriating on entitlements, the Danes have the most extensive worker training program in Europe, successfully sustaining a high wage economy that enjoys a trading surplus with its neighbors. Denmark has also outpaced the US in exports. They have a 2.2 percent trade surplus compared to the 5.2 percent US chronic trade deficit.

There is one thought in the Kim-Cowan op ed that every progressive completely agrees with: they say we can deal with growing deficits "only if we generate the kind of supercharged economic growth we had in the 1950s and mid-¹60s." Exactly.

But how do these Third Way Democrats propose to achieve that kind of growth? Their program is austerity for the paycheck class (cutting spending on vital domestic investments) and tax cuts for business and the wealthy.

Right now, conservative Democrats, especially in the Senate, are resisting efforts to invest in more job growth – and efforts to help the states who are cutting back spending and firing public workers, making the economy worse.

Progressive Democrats are pushing for more spending on jobs. But Third Way austerity advocates in the Congress (and in the President’s deficit commission) want to slash spending (and cut Social Security and Medicare). All this threatens to choke off a still-fragile economic recovery. Their tax cuts for the wealthy reflect a trickle down economics that led us into our present straits, and ignore the reality of a tax code in which Warren Buffett, one of America’s wealthiest men, admits he pays a lower tax rate than his secretary. Kim-Cowan might want to check the tax rates of the 50-60s (which included a 90% upper tax bracket) before touting that as their model.

You would think Third Way Democrats, who post "growth and wealth creation" on their op ed banner would spend a little time explaining the economic crisis that has just seen massive and dangerous economic contraction -- and destroyed several generations of wealth. Instead they blame progressives who pushed for "entitlements."

For three decades, government economic policy has been dominated by a conservative ideology that is not so much pro-business as obsequious to a set of business interests that ultimately had little to do with the long-term health of the national economy. It was an ideology that said we could send much of our manufacturing base overseas; see millions of living-wage jobs disappear and not be replaced with other secure, living-wage jobs; and still somehow prosper on a economy largely based on finance, information and services. It was an ideology that has given us an historic concentration of wealth at the very top — 65 percent of the income growth since 2000 has gone to the wealthiest 1 percent of the population, while median household incomes have dropped 4 percent when adjusted for inflation.

As it turns out, there is nothing pro-growth about tax cuts that further enrich the wealthy but starve our schools and allow our infrastructure to crumble. There’s nothing pro-business about having regulatory agencies turn a blind eye to Wall Street greed, in the mistaken belief that addicted gamblers will police themselves amid the glittering lights of the Wall Street casino. There is certainly nothing pro-wealth in the decades-long effort by conservatives to weaken unions and otherwise disempower workers; the “experiments to eliminate teacher tenure” that Kim and Cowan apparently applaud are but one example of the effort to treat workers as disposable and suppress their wages.

And it is more than a little bizarre to recycle the New Dem 1990 agenda for the economy coming out of the mess. “Experiments to eliminate teacher tenure” is but idle chatter at a time when literally tens of thousands of teachers, tenured or not, are facing layoffs in the brutal budgets of states and localities. Kim-Cowan support affordable college—but fail to note that despite passing the greatest increase in student aid since the GI Bill, soaring tuitions are pricing college out of the reach of more and more students.

The old nostrums of the right have been tried and failed. The New Dem/Third Way conservative light program offers no remedy. This country must, as the president has stated, build on a new foundation. The Kim-Cowan call to go back to the 1990s won’t get us there.

This post is part of our ongoing "Virtual Summit on Fiscal and Economic Responsibility for People Who Did Not Wreck The Economy."

Reagan Revolution Home To Roost: America Is Crumbling

Dave Johnson — Wed, 05 May 2010 15:48:46 -0400

The conservative argument of the last 30-40 years boils down to this: "Hey look at this big pile of seed corn. Let's eat it!" Almost 30 years after the "Reagan Revolution" our infrastructure is crumbling around us. Since the Reagan-era tax cuts we have been deferring maintenance of (and never mind modernizing) our infrastructure, and as a result have become less competitive in the world economy.

Meanwhile our economic competitors, countries like China and India, have been building infrastructure like crazy. Other countries are investing, educating, improving public services because they know these things make the economy explode later. A major component of China's stimulus was infrastructure and public services - including public welfare - because of the economic benefits that come later.

Now for those countries it is later, while for us it's just becoming too late. Their investment is paying off while we're having trouble paying off the accumulated Reagan/Bush tax-cut debt.

How did we get here?

Public infrastructure is the roads, courts, education, etc. that enable an economy to prosper. We got ourselves out of the Great Depression with a big investment in public infrastructure. The government taxed the wealthy and built or improved modern roads, bridges, post offices, courthouses, shipyards, schools and other public structures that enabled business to take off.

And then business took off. The idea was, of course, that business would give back some of the returns to keep that process going. But instead the big companies and wealthy families funded a conservative propaganda machine that convinced people to let them just keep it. Look at this chart from 14 Ways A 90 Percent Top Tax Rate Fixes Our Economy And Our Country:

You can clearly see that the money that should have been invested in maintaining and modernizing our infrastructure instead has gone to a few wealthy people at the top of the food chain. (We're the food.) And of course, we all can clearly see the results of this in today's economy. They ate the seed corn, America is crumbling.

Now, here we are later and we are seeing the result of the Reagan Revolution. The American Society of Civil Engineers (ASCE) Infrastructure Report Card estimates that we are $2.2 trillion behind just on maintaining the existing infrastructure, never mind modernizing. Please click through and explore what ASCE is saying there. (Conservatives -- there are lots of pictures!)

What do we do?

The answer is obvious. It is called public investment. Ask the big companies, the banks and the wealthy to pay back some of the incredible amounts of money they have been piling up as a result of the past investment that We, the People made in building that infrastructure that enabled the economy to boom. Use that money to invest in maintaining and modernizing the infrastructure so that the economy can again thrive for all of us.

We can employ the unemployed and bring our infrastructure up to par at the same time. There is a lot of work that needs doing and we have a lot of people out of work.

The payback will be enormous. The economy will explode. And we can build sustainability into the process this time.

What is in the way?

The problem now is that the corporate/conservative propaganda machine has gone way past talking people into cutting taxes for the rich and cutting back on public spending for infrastructure and our people. Now they have become very extreme, convincing a number of people that government spending - We, the People spending on the common good - and government itself - We, the People making the decisions for ourselves - is the wrong approach. They believe that any government at all is "socialism" -- run for the benefit of all of us -- and that all public services must be "privatized" -- meaning run for the benefit of a few. They believe it is wrong, even immoral to have public schools, public transit, public health care, regulations that restrict what companies can do to consumers or the environment, etc.

They have the megaphone because they have the money. We have to confront this head on.

More to come!

This is another story of a wealthy few selling off the country's people and future. This is another story of gains for a few at the expense of the rest of us. These stories are becoming all too common. This is the Reagan Revolution coming home to roost, and I will continue to write about the terrible price we are paying and will be paying for a long time for the failed experiment in conservative ideology.

Previously: Finance, Mine, Oil & Debt Disasters: THIS Is Deregulation

Next: Reagan Revolution Home To Roost – America Drowning In Debt

See the Reagan Revolution Home To Roost series.

Create Real Jobs That Pay Off: Update Our 1970's Infrastructure

Dave Johnson — Sun, 21 Feb 2010 14:33:47 -0500

One legacy of the Reagan tax cuts is that we stopped maintaining - and never mind modernizing - our infrastructure. As a result there is a LOT of work that needs doing. And there are a very, very large number of unemployed people. Hmmm...

There are so many more ways our economy suffers as the consequences of Reagan-era choices come home to roost. The current economic doldrums are in great part the result of Reagan-era choices:

* The deferred infrastructure maintenance and modernization that resulted from the tax cuts mean that our economy is no longer world-class. Bob Herbert has been writing about this problem for a while. From his most recent,

Schools, highways, the electric grid, water systems, ports, dams, levees — the list can seem endless — have to be maintained, upgraded, rebuilt or replaced if the U.S. is to remain a first-class nation with a first-class economy over the next several decades. And some entirely new infrastructure systems will have to be developed.

So here we are with a massive infrastructure deficit that is harming our ability to compete economically in the world. Just one example: China has 42 high-speed rail lines coming into operation connecting their major cities, and we are just starting our first one connecting ... Tampa to Orlando?

* The education cutbacks then are really hurting now.

* Energy. Cancelling all of Carter's efforts to solve our energy problems has left the economy dependent on last century's expensive and polluting energy sources and the monopolistic giants that control them.

* Debt. Tax cuts creating "structural deficits" have built up tremendous debt and the accompanying burden of paying interest on that debt and dependence on those who fund our borrowing habit.

* Militarization. We spend more on military than every other country on earth combined. The big defense corporations keep us from doing anything about it. Historically this kind of military spending and the resulting debt has ruined empires and kingdoms, and here we are.

* Government. Outsourcing/cutting/destroying/hating government and the commons has left us ill-equipped to catch up with China and others, and deal with monopolistic multinational corporate giants.

Schools, highways, power grid, ... everything. And all this work needs to be done on top of the need to retrofit all of our country's buildings to be energy efficient. Or we will just continue to fall forther behind. There is so much work that needs to be done. I wonder how the cost compares to the amounts that have been transferred to the very rich since the tax cuts started.

Hmmm... Let's see ... high unemployment ... lots of work that needs doing ... massive wealth accumulated at the very top ... hmmm... dot. dot. dot. And on top of that, there is all that evidence that past investment in infrastructure leads to great prosperity in the years following the investment ... dot. dot. dot. hmmm... Ideas are forming... connections are being made...

I can hear the shrieking from the "free market" conservative bunch now, just for thinking such thoughts: "But ... but .. that would be just WRONG to just ... give people jobs doing what needs to be done!!! and taxing the RICH -- the very beneficiaries of past infrastructure investment -- to pay for it? How can you even dare suggest such a thing???!!!"

Public works projects -- infrastructure. Example: In the 1950s, with top tax rates at 90%, we started the massive public works project that is the Interstate Highway System. How did that investment work out for our economy? How many companies benefitted from the ability to deliver trucked goods across the country in a short time? How did those top taxpayers do economically as a result of such investments?

Hmmm...

Job Creation? Not Without Worker Training

Armand Biroonak — Thu, 28 Jan 2010 07:38:30 -0500

President Obama’s State of the Union outlined a renewed commitment to job creation and focused on investing in the American people once more. For his initiatives to be successful however, the Administration and Congress must greatly invest in worker training if Americans are going to gain the skills needed to take advantage of emerging job opportunities. The Institute for America’s Future, in partnership with the National Skills Coalition, will release later today, “The Bridge to a New Economy: Worker Training Fills the Gap” a state-by state report highlighting the importance of worker training investments, and why community colleges, business and labor must also come to the table.

Looking forward, job creation initiatives that the President proposed will provide solid growth for middle-skill jobs. The middle-skill sector requires occupations with an associate’s degree or some form of post-secondary certification. They span various fields from nursing and construction to information technology. Much of the employment provided by the Recovery Act or ‘stimulus’ for instance, were in this category. And looking out through the next decade, as the economy begins to pick up speed and grow again, middle-skill jobs will be a significant portion of the job market according to the latest projections by the Department of Labor.

However, the current employment situation in America tells of a different story –we have a major skills gap. As shown in the graphic below, the U.S. has few low-skill jobs for too many low-skill workers. But on the flip side, middle-skill jobs outpace the supply of qualified middle-skill workers. This was just prior to the recession too, so the gap surely persists in light of current economic woes.

This is why, as President Obama emphasized, greater investments in Americans are needed to both revive the American economy and compete globally –worker training is a crucial part to this. Workforce development will allow workers to both gain or retool their skills for the new economy, especially as Congress and the Administration put forth initiatives in the health care, infrastructure and green energy sectors that will spur extensive demand. How else will we fill vacancies for a medical technician or solar panel installer, without providing a strategy for Americans to more easily attain the skills required?

And it is not just for workers to succeed, if businesses are going to grow, especially those in emerging, cutting-edge industries, they need qualified workers with reoriented skills to do the job.

A comprehensive worker training program will require our nation’s 1,000 community colleges to take a lead role, but partnerships with business, labor and community organizations are also important for skills development and career pathways. President Obama will begin to craft the 2011 budget the coming months, I call on him to make worker training an asset in his efforts to bring economic recovery.

For more details about worker training, how it works, and who is involved, please return to ourfuture.org later today.

New Unemployment, Old Solutions

Eric Lotke — Fri, 06 Nov 2009 12:09:34 -0500

Today’s unemployment data contain gloomy news. Gloomy, but expected. The interpretation of the data is even worse.

First, the data. Unemployment rose to 10.2 percent last month, breaking the double digit barrier. Most people expected it to happen, though the job loss (190,000) was a bit worse than most economic forecasts (175,000). We can maybe be happy that the October job loss wasn’t as high as September (263,000), but this modest deceleration doesn’t mean much to the 15.7 million people without work, the 9.3 million people working part-time but looking for full-time, or the 3.2 million people who are discouraged or marginally attached to the work force and barely even looking anymore. Nearly 20 percent of the workforce isn’t where it wants to be.

In other words, it’s bad. You don’t need me or the Bureau of Labor Statistics to tell you that.

The interesting part is where it’s bad and what to do about it.

The biggest job losses in October were in construction (62,000) and manufacturing (61,000). In the last year, these sectors have lost over 2.5 million jobs between them. Job losses in these sectors hurt worse than most other sectors. Manufacturing jobs have a bigger economic “multiplier” than other sectors, creating more jobs and more economic activity around them. Manufacturing creates jobs “downstream,” as production workers buy sandwiches from restaurants; and “upstream,” as steelworkers and coal miners work to provide raw material. The benefits of construction obviously count for more and last longer than just the construction itself. Anybody who doesn't live in a cave knows that.

But manufacturing and construction are losing more jobs than any other sector. Health care and temporary jobs are the only positive — if we can cheer sickness or a temp job.

Source: Bureau of Labor Statistics

This isn’t just a temporary blip. Construction is sinking from the burst of the housing bubble and general economic doldrums. Manufacturing is suffering from long term structural declines and a trade policy that favors imports over domestic production.

The solution leaps out from the data. These two sectors respond most clearly to public sector investment. During this downturn, we can build roads, rail lines and bridges. During this downturn, we can fix school roofs and turn temporary trailers for overcrowded schools into permanent classrooms for eager students. During this downturn, we can build the windmills and install the solar cells to move us towards energy independence. During this downturn we can rebuild a productive economy for the future.

Source: Bureau of Labor Statistics

Maybe a quarter of the 800 billion stimulus package pushed in this direction. We need more. First, we need more stimulus. Good old-fashioned Keynesian stimulus during the downturn. Put people to work laying those rail lines and fixing those school roofs.

Second, we need to make sure the money stays in our own economy. We can’t ask American taxpayers to foot the bill or expect American workers to cheer when the windmills of the new energy economy are imported from Spain. It’s no gift to our economy to fix the water main with pipes imported from China that were dumped in US markets at below market costs, driving our own domestic pipe industry out of business. We can do better. We need to do better.

I’ll close with the thing we don’t need, the interpretation I warned against in the beginning. The Associated Press story about today’s unemployment data put it this way: “A robust economic recovery won't be sustainable if consumers don't pick up their spending.”

Wrong wrong wrong. The debt-driven consumption economy was the problem. The solution is not for consumers without jobs to start spending again. The solution is to rebuild our economy. From the ground up. The old fashioned way.