The Deal

Frankly, need time to read the summary, get information on the various back stories, and think about this before I post. Look for some Monday-morning-quaterbacking.

Right now, really need a shower.

Later,

Late Night Listening with Albert King

I was in awe of this man. Still am. If you don’t know his artistry, start here – Albert King bio

This is one of his best-known pieces, and we could use a little of this empathy right now:

“I’ll Play the Blues for You.”

Later,

NYT has several handy graphics explaining the mess

This one’s a reminder of who spent what, and who is owed what:

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Tick, Tick, Tick . . . .

All right, so we’re edging closer to the precipice. As I write, we’re about 3 1/2 hours from a Senate vote on the Democratic debt ceiling bill, which has already been put to a show-trial vote in the House, where it failed. August 2nd was the target date Treasury set a few months ago as the last day America would have enough money to pay its bills. There is talk it could be extended, with further financial legerdemain, to August 10th. No one can say with absolute certainty – well, okay, the TeaHeads are absolutely certain nothing will happen – what our financial landscape will look like after that, but warnings are all over, from the ratings agencies, the IMF, and the business sector. Now, I find the handwringing by the raters and business in general to be bitterly ironic, as they helped create this debacle, but more on that another time.

First, some thoughts on the basics:

1. The Republicans, driven by their far Right, picked this fight. The debt ceiling has been raised many times, under both Republican and Democratic presidents, with Republican and Democratic majorities in Congress. We’ve never been driven to the brink of default by ideology before. The debt ceiling was raised 17 times under Ronald Reagan, 4 times under George Bush Sr., 5 times under Bill Clinton, and 7 times under George Bush the Younger. In Clinton and Bush-the-Younger’s cases, Congress had Republican majorities for nearly their entire tenure. Reagan had a Republican Senate majority for most of his terms, as well as a working majority in the House. And a quick check will show that many in the Senate and the House who are now blocking an increase in the debt ceiling have routinely supported it in the past. This time, however, they see a means to hit Barack Obama (remember, Mitch McConnell made Obama’s defeat in 2012 the Republicans’ top priority) and a chance to make a full-frontal attack on domestic programs, particularly Social Security, Medicare, and Medicaid.

2. And they have, for the most part, already won. If some kind of deal is reached, it will surely be composed almost entirely of spending cuts, and those will come almost entirely from domestic, non-military spending, although the Democratic thinking includes reducing the money spent on military actions in Afghanistan and Iraq. It is likely there will be “reforms” to the Big 3, as well. And it is just as likely no increased revenue will be part of the deal.

3. The deficit, and by extension, the national debt, are not the result of runaway domestic social spending. Not to sound like a broken record, but we had a more-or-less balanced federal budget on January 20th, 2001. Between then and 2008, we backtracked, running about $200 billion into the red. The main drivers were tax cuts, two wars put on the national credit card, and the Republican-driven changes to Medicare, particularly the bar against Medicare negotiating prescription drug prices. But then, as Dean Baker notes – Baker on the deficit – the housing bubble collapsed, setting off a chain reaction in financial markets that ended up sending the economy over a cliff and costing millions of Americans their jobs. (Let it not be forgotten that the housing bubble was created in part by the de-regulation of the financial industry at the end of Bill Clinton’s term and the headlong push for low-income homeownership driven by the Bush administration.) The Center on Budget and Policy Priorities CBPP, and the Pew Center Pew offer some useful analyses. Oh, and if those are too “liberal” for you, consider the observations of Bruce Bartlett, former Treasury official under Bush Senior and domestic policy advisor to Ronald Reagan – Bartlett.

So, even if we get a deal, we will not address the causes of the deficit, we will not make the necessary investments to get the economy running again (investments that would pay off in higher employment and additional revenues down the road), and we will cripple our ability to provide a modest measure of security for millions of our people.

Nice job, guys.

Later,

Harry Belafonte

Just in case you haven’t seen or heard this, the legendary singer, actor, and social activist gave a certain President a piece of his mind this week – Belafonte on Obama\'s failure

Would that Barack Obama listened to the likes of Belafonte as carefully as he listens to Wall Street.

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Happy Birthday, Medicare

Ironic that we should mark the 46th birthday of the Medicare program the same weekend as we’re watching Republicans – abetted, it appears, by the Obama administration – make their strongest push to kill it (along with Social Security, Medicaid, and a host of other social programs).

President Johnson signs Medicare into law

Medicare covers more than 35 million people, with administrative costs in line with, or even below, those of the private sector. The Republicans moved to cripple the program by sending costs higher in 2003, when, in the middle of the night, with much arm-twisting, they passed a “reform” bill that, in the provision for prescription drugs, specifically forbade Medicare from negotiating prices with drug companies. This, of course, adds to the current deficit, the thing Rs used to claim didn’t matter but is now their lever for destroying America’s social safety net.

Harry and Bess Truman, at Johnson’s left in this photo, were the first two Americans to enroll in the program. Wonder what Give-`Em-Hell Harry or LBJ might have done to the Rs were either of them president now.

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How the Very Serious People helped boost the Loonies

Jonathan Chait has a very good piece on TNR’s blog about how a crowd of serious, sober, influential people helped lay the foundation for the mess we’re in – Chait on the Lunacracy

It’s useful, from my point of view, to remember that anyone who has any real say in how this turns out will probably be insulated from the worst effects of what’s about to happen. After all, from Barack Obama, to John Boehner, to Mitch McConnell, to the big nabobs of the chattering class, they’re all millionaires. Remember that. Our future is not being decided by people like us. The median wealth of the current membership of the House is in excess of half a million dollars. In the Senate, it’s more than $3 million. None of these people, nor their children, (okay, maybe Dead Beat Dad Joe Walsh’s – Hypocrite ) will ever have to rely on Social Security, will have many comfortable opportunities the rest of their lives, and will never face the level of anxiety the rest of us will as we fall farther down the economic ladder.

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Late Night Listening with Dr. John

There are lots of videos available of one of the great hoodoo/funk tunes ever, including one with Eric Clapton on guitar. Feel free to look those up, but even if this clip doesn’t have much visual appear, I still think this – the original – is the best version of “Right Place, Wrong Time.”

Enjoy:

Later,

More good news for America’s workers

The National Employment Law Project – NELP – has a new issue paper out, The Good Jobs Deficit: A Closer Look at Recent Job Loss and Job Growth Trends Using Occupational Data. Much of what they report is either known to, or at least supposed by, a lot of us, but they present the data in a compelling way.

NELP jobs report

Among the findings:

During the recession, employment losses occurred throughout the economy, but were concentrated in mid-wage occupations. Of the net employment losses between the first quarter of 2008 and the first quarter of 2010, fully 60.0 percent were in mid-wage occupations, 21.3 percent were in lower-wage occupations, and 18.7 percent were in higher-wage occupations.

In the weak recovery to date, employment growth has been concentrated in lower-wage occupations, with minimal growth in mid-wage occupations and net losses in higher-wage occupations. From the first quarter of 2010 through the first quarter of 2011, lower-wage occupations grew by 3.2 percent, with retail salespersons, office clerks, cashiers, food preparation workers and stock clerks topping the list. Mid-wage occupations grew by only 1.2 percent and higher-wage occupations declined by 1.2 percent.

The net result is that the current U.S. jobs deficit is not evenly distributed. It is largest among mid-wage occupations (8.4 percent below pre-recession employment), compared to higher-wage occupations (4.1 percent below pre-recession employment) and lower-wage occupations (0.3 percent below pre-recession employment).

In addition, workers’ real wages have shown no growth since the start of the recession. Of greatest concern, workers in lower-wage occupations have seen a significant 2.3 percent decline in real wages – precisely the occupations that are generating the bulk of recovery employment growth.

Even before the Great Recession, the U.S. labor market was already seeing inadequate growth in mid-wage occupations. From the first quarter of 2001 to the first quarter of 2008, lower-wage and higher-wage occupations saw significantly higher net employment growth than did mid-wage occupations.

Falling wages, greater inequality, fewer opportunities, less security. Yes, sir, deregulation and tax cuts did wonders for the American worker.

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The Disposable Worker

That’s right. Most of us are “disposable.”

Very good, if exceedingly depressing, piece by David Wessel in the Wall Street Journal:

What’s Wrong With America’s Job Engine?
Wary Companies Rely on Temps, Part-Timers, Hire Overseas
By DAVID WESSEL

Over the past 10 years:

• The U.S. economy’s output of goods and services has expanded 19%.

• Nonfinancial corporate profits have risen 85%.

• The labor force has grown by 10.1 million.

• But the number of private-sector jobs has fallen by nearly two million.

• And the percentage of American adults at work has dropped to 58.2%, a low not seen since 1983.

What’s wrong with the American job engine? As United Technologies Corp. Chief Financial Officer Greg Hayes put it recently: “Sales have come back, but people have not.”

That’s largely because the economy is growing much too slowly to absorb the available work force, and industries that usually hire early in a recovery—construction and small businesses—were crippled by the credit bust.

Then there’s the confidence factor. If employers were sure they could sell more, they would hire more. If they were less uncertain about everything from the durability of the recovery to the details of regulation, they would be more inclined to step up their hiring.

Something else is going on, too, a phenomenon that predates the recession and has persisted through it: Changes in the way the job market works and how employers view labor.

Executives call it “structural cost reduction” or “flexibility.” Northwestern University economist Robert Gordon calls it the rise of “the disposable worker,” shorthand for a push by businesses to cut labor costs wherever they can, to an almost unprecedented degree.

Looking back at the percentage of Americans with jobs in the 1990s (rising) and the 2000s (falling), Princeton University economist Alan Krueger estimates that 70% of today’s job shortage is simply cyclical, the result of a disappointing recovery from a deep recession. But he attributes 30% to changes in the job market that began a decade or more ago.

Consider these clues:

In the most recent recession and the previous two—in 1990-91 and 2001—employers were quicker to lay off workers and cut their hours than in previous downturns. Many also were slower to rehire. As a result, the “jobless recovery” has become the norm.

In the past, when business slumped, employers cut work forces and accepted less work per employee. During the deep recession of the early 1970s, the output of goods and services in the U.S. fell by 5% and employment by 2.5%. Economists puzzled over “labor hoarding,” or the tendency of companies to hold on to unneeded workers.

No one talks about that any longer. Between the end of 2007 (when American employment peaked) and the end of 2009 (when it touched bottom), the U.S. economy’s output of goods and services fell by 4.5%, but the number of workers fell by a much sharper 8.3%. Today’s puzzle: How and why employers managed to boost productivity, or output per hour of work, like never before during the worst recession in decades?

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In an earlier era, when more Americans worked on assembly lines, many layoffs were temporary. When business bounced back, workers were recalled, often because of union-contract guarantees.

At the worst of the 1980-82 recession, 1 in 5 of the unemployed were “temporary layoffs.” In the recent recession, the proportion of temporary layoffs never exceeded 1 in 10. In part that’s because fewer Americans work in factories, where production can be stopped and restarted; if a restaurant doesn’t have enough customers, it goes out of business.

“When layoffs are temporary, subsequent recalls can take place quickly,” say economists Erica Groshen and Simon Potter of the Federal Reserve Bank of New York. When layoffs are permanent, job recovery is slower, they say. If the employer wants to hire, there’s the time-consuming chore of sifting through applications.

Corporate employers, their eyes firmly fixed on stock prices and the bottom line, prize flexibility over stability more than ever. The recession showed them they could do more with fewer workers than many of them previously realized.

In a survey of 2,000 companies earlier this year, McKinsey Global Institute, the think tank arm of the big consulting firm, found 58% of employers expect to have more part-time, temporary or contract workers over the next five years and 21.5% more “outsourced or offshored” workers.

“Technology,” McKinsey says, “makes it possible for companies to manage labor as a variable input. Using new resource-scheduling systems, they can staff workers only when needed—for a full day or a few hours.”

Temporary-help agencies are playing an ever-larger role—from providing clerical and factory workers to nurses and engineers.

Black & Veatch, a Kansas City, Mo., engineering firm, which shrank from 9,600 employees before the recession to about 8,700 today, is hiring about 100 workers a month. About 10% of its workers are temps, says Jim Lewis, the firm’s human-resources chief. “That’s a quick way to bring people in, and gives you a little time to see if growth is going to hold or not,” he says.

It also makes it easier to cut back in tough times. Workers, in short, now can be hired “just in time.” And many employers apparently don’t think it’s time yet. Because they can hire temps almost instantly, there’s little need to hire in anticipation of a pickup in business.

When they do hire, big U.S.-based multinational companies are more able and more willing to hire overseas, both because wages are often cheaper there and because that’s where the customers are.

In the 1990s, those multinationals added nearly two jobs in the U.S. for every new job overseas; in the 2000s, they cut their U.S. work forces by 2.9 million and increased them abroad by 2.4 million, according to the Commerce Department.

Hal Sirkin of Boston Consulting Group says rising wages in China are dulling its edge as a low-wage nirvana. In 2000, wages of Chinese production workers averaged 3% of what their American counterparts made. Today, they are at 9%. BCG expects the figure to reach 17% by 2015. Mr. Sirkin predicts that will prompt some manufacturers to move jobs back to the U.S.

How many? He is still working on an estimate. But one thing is clear, though, “These are $15-an-hour jobs,” he says, “not $30-an-hour jobs.”

Even though the government counts 4.68 unemployed workers for every job opening, some employers insist they can’t find workers with the skills they need at wages they can afford.

Federal Reserve surveys of local economies find employers from Boston to Kansas City to San Francisco reporting difficulty in hiring workers “with specialized technical skills, particularly in the health-care and technology sectors.”

But workers without college degrees find well-paying jobs scarce in the modern U.S. economy. The Bureau of Labor Statistics says there are 25.3 million Americans over age 25 without high-school diplomas: Only 9.8 million, or less than 40% of them, were working in June. About 1.6 million said they were looking for work; the rest weren’t even looking.

Write to David Wessel at capital@wsj.com

Later,