Congress: Worry about Unemployment, not the Deficit

Unemployment is our Nation's Problem, not the Deficit

In June 2011, the United States’ economy continues to sputter and the nation’s people are suffering. Official unemployment hovers just over 9% (nearly 14 million officially unemployed) and millions more are jobless but omitted from the official count because they are not looking for work. Additional millions are working part time while wanting full-time work. In total, nearly 30 million people (more than one in six potential workers) are either jobless or working too few hours. Particularly hard hit are people of color and young workers who will face lower wages and constricted job opportunities for decades.(1) At the same time, the number of foreclosures continues to grow and, in many locations, home prices continue to fall. The unemployed report being stressed, depressed, anxious, angry, and feeling hopeless; experts report the country is experiencing a mental health epidemic.(2) Nearly one in six people are receiving food stamps.(3) Retirements are postponed.

But the economic and personal pain is not evenly shared. While millions suffer, corporate profits (4) and CEO pay (5) have regained their pre-crisis levels. Many stock prices are above their pre-recession peak.(6)

The economic collapse of 2007 was the fruit of nearly three decades of deregulation, erosion of regulatory oversight, greed, unchecked corruption, and growing corporate power particularly in the financial sector.(7) Another factor was the loss of countervailing power to offset the rise of corporate influence. The labor union movement, traditionally an important institution standing against corporate power, has been decimated by forty years of corporate attacks, weak legal protections for the internationally-recognized human right to organize and join unions, and lax enforcement of the protections for organizing that do exist. Changes in the laws governing the financing of political campaigns and increasingly concentrated wealth that can be invested in campaigns have eroded democratic institutions and debased the political system. Even the judicial system, never completely free of political influence, has been politicized in new ways.

But even prior to the Great Recession, the U.S. economy was in trouble. A 40-year transformation was underway characterized by growing inequality between the very rich and everyone else, erosion of the middle class, and, in the past 15 years, the worsening of poverty. Since 1970, the United States economy has growth tremendously. If the gains had been evenly shared, income in each household in 2008 could have been nearly 30% larger.(8) A family with an income of $31,000 could instead have received $40,000. But this has not happened. Instead, all the income growth between 1970 and 2008 has been captured by the top 10% of households,(9) primarily the top 1%.(10) Among the bottom 90% of households, average income in 2008 (the last year for which there is data) was slightly lower, adjusted for inflation, than in 1970. Income among the top 1% has risen three-fold over the last 40 years, from $379,021 to $1,137,684.(11) See chart. These changes in pre-tax income do not include the gains from tax reductions for wealthy households and corporations that occurred over that same period, further widening the gaps in income and wealth. 

The growing inequality is largely due to the loss of good jobs, and wages and salaries that have been stagnant, growing very slowly, or even declining. Driving these changes is the loss of union jobs, privatization (leading to the degradation of jobs: lower wages, fewer benefits), globalization, and trade agreements that privilege corporations over workers in both the U.S. and around the world. In the United States, one-quarter of jobs pay poverty wages, so low that a full-time worker cannot lift a family of four above the meager poverty line.(12) In the late 2000s, the two fastest-growing occupations were home health care and food preparation and serving; they both paid close to the federal minimum wage of $7.25 per hour.(13)

During the economic collapse that began in 2007, millions lost their jobs and millions continue to be unemployed. Most people who don’t work have little income. With little income, they pay few taxes. Government revenues fell just as costs were also rising as more people were forced to rely on safety net programs like unemployment insurance, food stamps, and Medicaid, the health insurance system for the poor. In addition in 2009 Congress passed the $787 billion Stimulus Bill that has saved or created 1.3 to 3.5 million jobs (14) and kept 4.5 million people out of poverty.(15) The federal government also spent billions bailing out the big banks and saving the auto industry.

The economic crisis came on top of the huge Bush tax cuts of 2001 and 2003 that were skewed to benefit the wealthy. Add in the wars in Iraq and Afghanistan which were paid for with borrowed money, not taxes, and the federal government was running a deficit even before the recession began. So when the recession hit, the deficit ballooned.

Fully 98% of the projected 2012 federal deficit of $1.1 trillion is due to one of three factors: the economic downturn and recovery efforts, the Bush tax cuts of 2001 and 2003, and the wars in Afghanistan and Iraq.(16) Just 2% of the deficit is due to other factors.
 
These figures provide guidance on ways to address the deficit. End the wars. Raise taxes on wealthy households and corporations that have benefited from the past 40 years of economic growth, and put people back to work (and back to paying taxes). In the short run, these policies would provide funding for a major jobs program. In the longer term when unemployment is reduced and the economy is sound again, these measures will shrink the deficit. At this time, large cuts in federal spending are not only unnecessary but also harmful since cuts will further depress the already struggling economy and prolong the pain of millions. These policies will not, however, solve the problem of federal deficits in the coming decades. Those will be largely due to the high costs of health care and will be reduced only after we overhaul the way we pay for health care in both the private and public (government) insurance systems.

The U.S. needs jobs, jobs, and more jobs.(17) We also need to raise taxes on wealthy households and corporations, end the wars in Iraq and Afghanistan and reduce military spending. These are our national priorities.

June 2011, revised


Endnotes

(1) Luo, Michael, “Years After Layoffs, Many Still Struggle to Match Old Salaries.” New York Times, August 4, 2009, A1. Kahn, Lisa B. 2009.“The Long-Term Labor Market Consequences of Graduating from College in a Bad Economy
(2) Deprez, Esmé E. “Study Shows Psychological Impact of Unemployment,” Business Week, September 3, 2009 Lapin, Nicole, “The link between financial trouble and mental illness,” USA Today January 27, 2011
(3) 44 million people in Feb 2011 out of roughly 290 million potential recipients, or 15%. See data from the US Department of Agriculture. Accessed through USDA
(4) Mishel, Lawrence, “We’re not broke nor will we be,” Economic Policy Institute, May 19, 2011. 
(5) Costello, Daniel, “The Drought is over (at least for C.E.O.s),” New York Times, April 10, 2011 
(6) Hulbert, Mark, “A new high for the stock market?” February 9, 2011  Accessed 5/31/11.
(7) See the report of the Financial Crisis Inquiry Commission and a New York Times summary.  Also see Morgenson, Gretchen and Joshua Rosner, Reckless Endangerment, Times Books, 2011; and Joseph E. Stiglitz, Freefall: America, Free Markets, and the Sinking of the World Economy; W.W. Norton and Co., 2010. 
(8) Author’s calculation based on data from Thomas Piketty and Emmanuel Saez, Table A3 at http://www.econ.berkeley.edu/~saez/TabFig2008.xls  Data is for tax paying units. Accessed 5/31/11.
(9) Economic Policy Institute, “When income grows, who gains,”  Accessed 5/31/11
(10) Economic Policy Institute chart.  http://www.stateofworkingamerica.org/charts/view/146 Accessed 5/31/11
(11) Piketty and Saez, Table A6. 1970 and 2008 includes capital gains. http://www.econ.berkeley.edu/~saez/TabFig2008.xls Accessed 5/31/11.
(12) Economic Policy Institute. See graph 
(13) Filion, Kai and Andrea Orr, “Jobs … but low pay,” Economic Policy Institute, August 26, 2010, Accessed 5/23/11. 
(14) Congressional Budget Office, “Estimated Impact of the American Recovery and Reinvestment Act on Employment and Economic Output from January 2011 Through March 2011,” Table 1, May 2011. Accessed 5/31/11
(15) Sherman, Arloc, “Despite Deep Recession and High Unemployment, Government Efforts — Including the Recovery Act — Prevented Poverty from Rising in 2009, New Census Data Show,” Center on Budget and Policy Priorities, January 5, 2011. 
(16) Thiess, Rebecca, “What goes into a budget deficit?” Economic Policy Institute, May 18, 2011. Accessed 5/31/11
(17) See Justice and Witness Ministries' Jobs, not Deficit Reduction, Are Our National Priority and options for additional funding Funding a Program of Job Creation 




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Ms. Edith Rasell, Ph.D.
Minister for Economic Justice
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raselle@ucc.org