A Populist Backlash?

Now that the crisis is spreading to the real economy, you can feel the anger and resentment starting to build. Robert Reich thinks we may be "courting a populist backlash":

Are We Courting a Populist Backlash?, by Robert Reich: The government is doing a lousy job helping distressed homeowners. And according to ... the Comptroller of the Currency, the little that's been done has had surprisingly little effect. Nearly 36 percent of homeowners holding mortgages whose terms were adjusted to give them more leeway defaulted on payments within three months, and almost 53 percent were behind on payments by six months.

What's going on? It's hard to know for sure, because the homeowners who have qualified for help so far were supposed to have been fairly good credit risks.... My guess is the worsening economy is making it harder for just about all homeowners to pay their mortgages, and those who were teetering on the edge months ago ... are now way under water. Two of the biggest culprits: Layoffs and fewer working hours. ...

It wouldn't surprise me if many of these Americans were starting to look at the size of the bailouts of Wall Street and the bailout of the Big Three -- at the executives, well-paid professional employees, upscale creditors and shareholders, and even well-paid blue-collar workers, who are the major beneficiaries of this federal largesse -- and conclude that a fundamental principle of fairness is being violated.

These Americans aren't revolutionaries. To the contrary, they're deeply conservative. They've worked hard, but their hard work hasn't paid off. Some have tried to save, only to see their savings disappear. They're worried about the future and about their kids' futures. They never expected anything like this.

This is the angry soil in which populist backlashes can take root.

We may be able to do a better job of sorting out which homeowners to help now that we have some experience with the program, so the 53% number may be improved upon going forward. But if the goal is to prevent a certain number of foreclosures, and if the number cannot be improved, we could also help twice as many people. That might help with the backlash problem.

On the populist backlash, maybe that was part of the reason for this?:

Deal to Rescue American Automakers Is Moving Ahead, by David M. Herszenhorn, NY Times: The White House and Democratic Congressional leaders said Monday that they were close to agreeing on the terms of a $15 billion government rescue of the American automobile industry that would be directed by one or more appointees of President Bush and would impose expansive federal oversight of the auto companies.

The House speaker, Nancy Pelosi, said she hoped that Mr. Bush’s appointee — or car czar, as the position has come to be known — would not need to be replaced by President-elect Barack Obama, raising the prospect that the outgoing and incoming administrations would cooperate in selecting someone.

The president’s designee would disburse the short-term emergency loans to General Motors and Chrysler, which are at risk of financial collapse, and would directly supervise the reorganization plans that the auto manufacturers have agreed to carry out in exchange for government aid. The government also could receive warrants that would give it equity stakes in the companies.

The Ford Motor Company announced Monday evening that it would not seek short-term federal aid, denying that it faced the same “near-term liquidity issue” as G.M. and Chrysler. ...[O]fficials expressed optimism that they would reach a deal and that Congress would vote on the package this week.

The progress in the Washington talks helped lift the stock markets...

By Jan. 1, according to the draft bill, the car czar would be required to develop benchmarks for assessing the automakers’ progress in carrying out the restructuring plans. The car czar would also have the power to convene meetings of an array of interested parties in the auto companies, including unions, creditors, suppliers, auto dealers and shareholders. ...

The White House had earlier proposed that the auto czar reside within the Commerce Department with the title of “financial viability adviser.” The Democrats’ draft would seem to allow the administration to do just that, and would not require Senate confirmation for the post. The Democrats’ draft legislation includes an array of stringent taxpayer protections. ...

Will Americans be more likely to buy cars from GM and Chrysler if they are part owners in the companies? Market share will be critical as car sales decline in coming months - output will have to fall - so will foreign carmakers move to protect themselves with offsetting subsidies, etc. of their own? I'm not comfortable with this for a variety of reasons, but losing that many jobs right now is not an attractive option, so there doesn't seem to be much of a choice.

One question to ask is how we ended up putting ourselves into a position where we could not allow firms to fail. There are lots of reasons, but if we had better social insurance, good enough so that the health and welfare of workers and their families was not threatened by the failure of the automakers, it would be a lot easier to avoid a bailout.

Comments

[Sven Brendel]

I really liked your conclusion:

"but if we had better social insurance, good enough so that the health and welfare of workers and their families was not threatened by the failure of the automakers, it would be a lot easier to avoid a bailout."

That has been my opinion since this whole bailout business began. Our lack of a social saftey net has forced us to give out market distorting bailouts. Thanks for pointing that out!

[a]

"One question to ask is how we ended up putting ourselves into a position where we could not allow firms to fail. There are lots of reasons, but if we had better social insurance, good enough so that the health and welfare of workers and their families was not threatened by the failure of the automakers, it would be a lot easier to avoid a bailout."

Well, not too many firms are allowed to fail in Europe, even with its better safety net. No matter how good a safety net one has, employment is almost always better than unemployment, and the bigger the firm, the more employees there usually are.

[a]

As to, "Are We Courting a Populist Backlash?", I'd reply, "I would hope so." What's wrong with a populist backlash? Can't have the hoi polloi dictating policy?

[mmckinl]

As layoffs skyrocket the situation will only get worse.

What was needed was the bankruptcy law to be changed so that cram downs could be used on houses ... as well as vehicles and credit cards. The 2005 bankruptcy law changed all that. They saw this coming and believed they could hang the sins of the banks around the necks of consumers. Boy were they wrong.

People are rightfully angry. Not so much about the Big Three but the Wall Street Banks. And yes there will be a backlash now that college grads are being laid off in the hundreds of thousands. It is not the poor that carry out revolutions, it is the educated class.

[reason]

Mark T,
I sympathise. But why don't you draw the obvious conclusion about monopoly, anti-trust and merger and takeover finance. Basically the world looked at wage inflation in the 1970s and said "what we need is more competititon". So tariffs were cut and unions were gutted. Europe even accepted a common currency. It worked for a while, but then global markets started to concentrate.
Now I'm not sure what shape production functions have, and whether there really are predominantly increasing returns to scale or not. I suspect that IT has ENABLED increasing returns to scale by making the burocratic part of large enterprises more scalable (because complexity increases as the square of the amount of information). That is I suspect why we never have found the IT productivity pay-off - it has been hiding in plain sight. (The pay-off is that we can take advantage of more economies of scale elsewhere).
What we do about this market concentration seems to me an unanswered question. And remember that a lot of justifications for high CEO pay are couched in terms of the increasing scale of enterprises they head (as though delegation never works).
But one thing I'm sure suspicious of the leveraged hostile takeover. I see no justification for giving merchant bankers power to tell experienced managers how they should run their business. The argument that it throws out bad managers seems to me self-serving - so does bankrupcy.

[Lisa]

Social safety nets are one of the main reasons we are in this financial mess today. "Social safety net" Do you even realize what you are saying??

[kharris]

This may be a stretch, but speaking of populist backlash, does anybody else see parallels with New Orleans after Katrina? Emergency managers were clueless, initially disinterested, failed to heed warnings. When help arrived, it came for rich neighborhoods in greater measure than poor neighborhoods. The problem dragged on long after the water receded. Smarty-pants types back then argued that efficiency and moral hazard were big deals. Local folks had simply chosen to live in the wrong place and if they didn't receive encouragement to stay, they'd make better choices next time. The nation stood watching, aghast at the preventable suffering that had been allowed, and blamed our leaders.

If we put more resources into building financial dikes, there is a good chance that far fewer homeowners, banks and car companies would be underwater now. We wouldn't have to decide whether to let the US economy continue to live in a high risk financial and industrial neighborhood, because the neighborhoods wouldn't be high risk.

We have a habit of pretending to mitigate risk. We build dikes and SECs and Moody's, but we don't keep them up. People in a position to know may realize the dikes and the SECs won't hold up when trouble comes, but they leave them in place for show. When they fail, people who got rich off of the status quo blame the people who suffer for believing the show and cry 'moral hazard' at every effort to help them after the fact.

[kharris]

There are two problems, as I see it, with populist backlash. One is that "populist" implies a regular-Joe kind of person, not very sophisticated and likely to demand societal arrangements that bring serious unintended consequences. The alternative, as we have undertaken it, is to allow sophisticated types make decisions, while explaining to the regular Joes of the world that these decisions really are in their best interest. Sadly, the sophisticated types also seem often to make decisions with seriously bad unintended consequences.

The other is that "populist" implies people of middling means or less, who want more of the nations resources directed their own way. The alternative, as we have undertaken it, is to allow connected people to direct more of the nations resources their own way.

So why is populism bad?

Populism is bad because the very same bastards who have run the show under the banner of neo-liberalism will do so under populism. They'll simply jump in front of the new parade, turn it into crap and leave everybody else holding the bag again.

[Steven Earl Salmony]

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[BJ Feng]

What lack of social safety net forced people to take out equity lines of credit and purchase as much house as they could allowing for zero leeway? So I guess if we had universal health care, people would have figured out that buying a house with a mortgage payment of $1500 a month and then renting it out at $800 a month would be a bad investment idea?

And Europe with all its safety nets are in the same position. Spain is in even worse trouble.

But wait! They have the ideal social contracts and tons of regulations and regulators! How could it be that Europe is in trouble too? Didn't their multiple layers of regulators stop it from happening there?

Oh, I guess that regulators have to see it coming to stop it, humm, I guess that's a failing, gee who'd ever guess that regulators could be incompetent or lazy?

[ken melvin]

... and the carnival played on.

[BJ Feng]

Most of this outrage is being mis-characterized by the media as usual. People are pissed that banks and other companies are getting taxpayer money, they don't want taxpayer money to be used to bail ANYONE out.

They are NOT pissed that homeowners in default are not being bailed out. Most feel those folks don't deserve it, the vast majority of homeowners are not in default and renters avoided getting into a bad situation by renting instead of taking on a mortgage they couldn't afford. Back in the day, anyone could have bought a house with near 0% down. The vast vast majority were responsible, they're angry they have to bail out the irresponsible.

[ken melvin]

Other the two-job illiterate who bought a house for three times its worth with a not understood mortgage, I suspect many the other foreclosure falls to the working underclass who owned (were making payments on) a $150k house for which the price ballooned to $450K, so they borrowed $200-300k that they have absolutely no hope of ever being able to pay back. Their fault, you say? TV was full of ads to do this, so the post. They were openly being hustled, carnied, ...

[Dunc]

"They've worked hard, but their hard work hasn't paid off. Some have tried to save, only to see their savings disappear"

That's what the real world is like. The American dream is a myth and no we can't all be astronauts. Rich buggers mostly don't deserve it and your parents' wealth is a much better indicator of your success than your own effort. I hope a few of these people are finally realising this, because until they do no fairer system will be put in place. Not that I'm holding my breath, mind.

[OhNoNotAgain]

"The vast vast majority were responsible, they're angry they have to bail out the irresponsible."

Of course, BJ, and you're more than happy to keep pushing the lie that everyone who experiences financial trouble is doing so due to their own faults and failings, and not due to a systemic issue with financial predation and excessive risk foisted upon the individual. Keep the lower classes fighting with each other and then they'll be too pre-occupied to see the looting taking place, right ? Look over there !!! A brown person that is getting something they don't deserve !!!

[save_the_rustbelt]

"may be"

The auto makers have two sets of problems;

long-term problems, self-inflicted by the Big 3 and the UAW, there has been substantial progress in fixing these problems in the past 5 years

short-term problems, the total meltdown of the auto market (domestic and foreign) caused by the greedy clowns on Wall Street.

IF, IF the Big 3 can survive the short-term crash, the firms might survive in the long term (they did sell 8M vehicles in 2007).

With every passing day, even with help, surviving the next two years is iffy. If nothing positive happens, I'm guessing US auto sales might be cut in half next year, which is an auto depression. Toyota and Honda will need help from the home country.

[save_the_rustbelt]

"good enough so that the health and welfare of workers and their families was not threatened by the failure of the automakers, it would be a lot easier to avoid a bailout."

Since we no longer seem to be able to create quality blue collar jobs, are we going to just put former auto workers on permanent welfare? Train them for non-existent jobs? Subsidize their Wal-Mart jobs?

Answers anyone?

[Dunc]

I'm not convinced a bailout will of itself help Detroit. The big three were struggling even during the boom and if they couldn't make money then, there's something more than a short term liquidity crisis wrong with them. If the bailout comes with the right strings attached (such as demanding GM et al build vehicles somebody actually wants) it may not be all bad.

[RangerTurtle]

..Populist backlash...

The Gov.Illinois' comments (CNN video) about Bank of America getting billions of bailout bucks, but pulling lines of credit that hurts small businesses and its employees, DEFINITELY is populist backlash.

This is just the start; when the public starts getting upset about their personal lines of credit getting pulled, their credit card rates at 7 times their savings rates, etc. the proverbial 'all hell' will be cut loose.

[RangerTurtle]

..Populist backlash...

The Gov.Illinois' comments (CNN video) about Bank of America getting billions of bailout bucks, but pulling lines of credit that hurts small businesses and its employees, DEFINITELY is populist backlash.

This is just the start; when the public starts getting upset about their personal lines of credit getting pulled, their credit card rates at 7 times their savings rates, etc. the proverbial 'all hell' will be cut loose.

[bakho]

It is easier to stir up outrage against the least bad option (because it is bad) that to get support.

BigAuto has been living on the edge for a long time by betting against an oil shock. Oil shocks happen and BigAuto has no good contingency plans. There is not even a least good option. GM tried to get rid of some of the risk by spinning off Delphi. But the crisis hit before that deal was finalized. A problem for the Big3 is the number of cars they have to sell in order to turn a profit is too large. Reducing production, therefore, does not stem the losses.

Cerberus does not add much at all to the US economy and should not get a dime of bailout. If Snow and company won't pony up their own money, taxpayers should not either. If Chrysler cannot be saved, their owners, not the taxpayers deserve the hit for their failed wheeler-dealer strategy.

says...

B.J. Feng: "So I guess if we had universal health care, people would have figured out that buying a house with a mortgage payment of $1500 a month and then renting it out at $800 a month would be a bad investment idea?"

OhNoNotAgain: "Look over there !!! A brown person that is getting something they don't deserve !!!"

B.J., you need to stop being so racist. Racism by word substitution and random accusation is just as serious as other forms of racism.

http://www.qwantz.com/archive/001339.html

says...

"...if we had better social insurance..."

Yes, national health care like all other advanced nations. Propping up outdated companies reduces the standard of living.

[me]

Yup. I'm backlashed.

Want to buy me off? Buy my 401k at its January 2008 value, put the money into another 401k in actual insured money, and let it sit for the four or five years remaining before I have to draw on it at retirement.

I'll be a happy voter.

Or I'm going to make my retirement hobby focus on backlashing for the rest of my life. Why not? It's inexpensive compared to anything else I had hoped to do after retirement.

It's affordable, it'll be the best amusement I can afford.

And I just might take some of the banksters down.

What have I got to lose, after all?

I don't agree folks thinking like this are conservative.
I think this is what "the tree of liberty must be fertilized by the blood of patriots" was calling for, in today's terms.

[La Grand Fromage]

Mr. Reich might also consider another reason. Homeowners that received aid may merely be acting rationally. If the value of your home is far lower than the amount borrowed in your mortgage, why make the payments? Why should the homeowner take the capital loss? I suspect that is a non-minor contributor to foreclosures in general as well as those mentioned in Reich's article. Home prices have not yet bottomed and attempts to forestall their fall are likely to fail; you can argue with economics, but you will eventually always lose the argument.

[jason voorhees]

Mark - can you comment in a post on your opinions about a fiscal intervention that was directed at the housing market itself, rather than the financial sector? I've heard a lot of talk about around my department about the federal government buying up houses to prop up the price. Then we address the solvency issue directly, and help home owners. I've also heard some ingenious suggestions like letting foreigners have US citizenship (after a security check clears them) in exchange for buying up the excess inventory of housing stock - possibly requiring 100% cash down, or something along those lines to inject liquidity. Why aren't these ideas any good? I'm assuming economists have considered them and dismissed them, but I don't understand why. They seem straightforward, they have obvious welfare advantages in terms of directing transfers to home owners, and isn't based on nearly the sketchy conjectures that TARP seems based on (TARP worries me because it seems to speculative as to whether these things are really going to get at the root of the problem).

[Jas Jain]

--
Calling genuine outrage and anger "Populist Backlash" shows the moral blindness of the economics profession, a profession dominated by intellectual whores and lightweights. The problem lies with the system:

Tax his land,
Tax his bed,
Tax the table
At which he's fed.

Tax his tractor,
Tax his mule,
Teach him taxes
Are the rule.
...
What in the hell happened??? Can you spell 'politicians?'

Can you spell ‘democracy?’! Only a genuine born-and-bred American dope blames politicians, or the other party, and not the process, or the system, that places unlimited power over the economy in the hands of politicians and political appointees (many far worse than the elected politicians). Bad system guarantees bad outcomes and America and India are ripe for very bad outcomes. Property rights have been so diluted, or narrowed down, that the whole founding principles are down the toilet.

Partisan American dopes are the worst offenders in the blame game. Their prejudice is what keeps them dopes and they are bred, via partisan propaganda apparatus, to remain prejudiced dopes-for-life. Political parties in America are organized gangs. And so are most of the public corporations. Gangistan rules over the Dopeland. This game is going to end sooner than most think.

Jas

[baileyman]

"A Populist Backlash?"

Let us all hope. Be audacious.

[Bruce Wilder]

There should be a populist backlash. Behind the financial ruin, behind the national humiliations of the Bush years, lies a seriously dysfunctional elite.

The people at the top are self-serving, sure, like always, but this bunch are also incompetent bunglers. And, that incompetence has been on full display for a generation -- and it has been getting worse and worse.

The most visible parts of the elite -- the Media and its celebrity Star culture is a series of train wrecks. The news Media, which is part of the entertainment Media, is one long horror show, from Matt Lauer playing Waldo on the Today to the ancient Barbara Walters leading the Ladies of the View to Rush Limbaugh and Sean Hannity to the always breathless Wolf Blitzer. I watched a little bit of Neil Cavuto on CNBC the other day at a friends' house -- I'd never seen it before -- and it was one long, stupid, supremely ignorant political rant. Have you looked at the NY Times op-ed page? Maureen Dowd? Gail Collins? William Kristol? Tom Friedman? It's not a question of Left v. Right -- they are all ridiculously, horrifyingly bad! Ill-informed and ill-considered flakes.

The politicians, who occasionally waltz across my t.v. screen are not particularly impressive, and they certainly haven't behaved like they know what they are doing -- Iraq, Katrina, China. Like most people, I don't hang out in corporate board rooms or drop in much at the Yale Club, but I have a sneeking suspicion that it doesn't get much better. It sure as heck doesn't filter down to the customer service desk at Best Buy or the help line at AT&T.

[btg]

Mark:One question to ask is how we ended up putting ourselves into a position where we could not allow firms to fail. There are lots of reasons, but if we had better social insurance, good enough so that the health and welfare of workers and their families was not threatened by the failure of the automakers, it would be a lot easier to avoid a bailout.

Mark - I am unclear - are you saying:

1. With a better social safety net, bankruptcies and job losses don't matter as much, or
2. With a better social safety net, the companies would not need the bailouts.

If it is the former, then I think you are dead wrong... the loss of manufacturing capacity will have long term consequences for the US - less competition, loss of r&d jobs to Japan, more imports to make up for the loss of US production capacity (making the trade deficit worse), etc.

[Alex Tolley]

MT: "we had better social insurance, good enough so that the health and welfare of workers and their families was not threatened by the failure of the automakers, it would be a lot easier to avoid a bailout."

Interesting that the gutting of the US safety net in the 1990's now requires even larger government intervention now.

Having lived through the 1980's recession in the UK, it is pretty clear that the more generous safety net in the UK at the time did not help a lot. The social backlash as the north of England's economy went into the toilet was only deflected by a populist war in the Falklands.

What personally rankles me is that the executive class has become so blatant at feeding from the public trough. Huge bonuses being paid for failure using public money are just plain looting. ML's CEO wanted a $10M bonus for his failure. It has been written that as much as 10% of the bank bailout money - $60-70B - was being used to pay bonuses. Yet as been pointed out in other threads, social programs that cost a few billion for the poor or disadvantaged were deemed "to expensive".

[save_the_rustbelt]

Apparently the Governor of Illinois developed a new revenue enhancement program - selling a senate seat.

Always sweep for bugs before asking for a bribe - basic crime school 101.

[ndd]

This may not qualify as Hell Freezing Over, but it's a Cool Front in Purgatory:

B.J. Feng:

What lack of social safety net forced people to take out equity lines of credit and purchase as much house as they could allowing for zero leeway?

What forced the banks and investment houses to grant those equity lines of credit, etc?
And yet the Banksters of Wall Street are being Bailed Out - and they get to keep their $$$multimillion past bonuses that turned out to be for ficitious profits too.
While the lower class schlub get the back of the hand.

Explain the equity behind that.

People are pissed that banks and other companies are getting taxpayer money, they don't want taxpayer money to be used to bail ANYONE out.
They are NOT pissed that homeowners in default are not being bailed out. Most feel those folks don't deserve it, the vast majority of homeowners are not in default and renters avoided getting into a bad situation by renting instead of taking on a mortgage they couldn't afford. Back in the day, anyone could have bought a house with near 0% down. The vast vast majority were responsible, they're angry they have to bail out the irresponsible.

{pause, deep breath} This I generally agree with. Between the Knowing Banksters and the Ignorant Rabble, the Ignorant Rabble deserve far more help. But at the same time, probably the majority of Americans fit into neither category, and what they are getting out of these Bailouts is -- the bill.
_________
BTW, as others have pointed out, "Popular outrage" would be just as accurate as "Populist outrage" except that nowadays "populist" is usually meant by the Beltway crowd to mean "the ignorant masses who should stfu and deserve to be ignored" as opposed to "the majority of American citizens."

[Alex Tolley]

If the bank bailout was supposed to ease the "liquidity/solvency" crisis and maintain lending, isn't it expected that when the lending decreases and loans are not being made that people will ask why the bailout was done in the way that it was?

[macquechoux]

European safety net? Humph! It looks like to me that if you want to have a safety net like Europe than you have to settle for European like unemployment. According to the press the USA's economic world is collapsing and the current unemplyment rate is under 7%. (And rising.) France's unemployment rate from 1995-2005 ranged from 8.4% to 11.8% In 2007 the range was 8.2% to 9.1%

Germany's rate from 1995 to 2005 ranged from 7.8 to 11.2%. In 07 is ranged from 8.1% to 9.3%

Italy, 7.8% to 11.5% from 1995 to 2005 and in 2007 the range was 6.1% to 6.4%

How about Sweden? 5.0% to 10.1% In 2007 the range was 5.9% to 6.4%. I might add the Swedish government has thousands of unemployed citizens in "job training" that it does not count as unemployed. Many a citizen has been "training" for years. This sort of statistical trick is common in the EU.

Everything has a price and EU type job stability and safety nets come with high employment rates.

[cent21]

I think the intent behind mortgage accomodations is basicly to support the price of homes NOT under foreclosure. That makes most sense only if home prices are aligned with wages.

Are they aligned yet? I think they're still higher than long term norms, but then again, I haven't looked at the numbers for a couple months.

[Callahan]

In today's climate, could it be that a golden parachute might be preferable to a safety net?

Pass the Pop-ulist Corn please.

A new age a comin.

[Walt]

save_the_rustbelt, your crime school 101 joke is very funny.

[Ronny]

"One question to ask is how we ended up putting ourselves into a position where we could not allow firms to fail."

Good question, though I'm not sure that what followed it really applies. I do wonder, though, whether avoiding the creation of companies that are "too big to fail" needs to be incorporated by law into the FTC's oversight of mergers and acquisitions. I'm sure that such a rule would be fraught with difficulty to implement, but the current situation is problematic as well.

says...

What was needed was the bankruptcy law to be changed so that cram downs could be used on houses

NO.NO. That would be against the market and freedom and everything Milton Friedman wanted. When reality does not go along with Milton's kool-aid, we should dump reality and go with kool-aid. Milton is God. Hallelujah.

BJ Feng: What lack of social safety net forced people to take out equity lines of credit and purchase as much house as they could allowing for zero leeway?

Nothing. Nothing forced anybody to lend also. If the lenders find that they can't get blood out of stone, why, tough luck. That is the free market - ye pay yer money and ye take yer chances.

Write down debts. The lenders should eat their losses. The middle class who comment here, who are seeing their 401K and home values disappear - should really get it handed to them. For so long they have been pretending to be the capital elite, thumbing their noses at the welfare-eaters, the union bums, and the riff-raff et al.

Guess what? What you though was your money, your wealth - was all blood-out-of-stone claims on those very people you sneered at. The real elite sold you that fraud to feed your pretensions of wealth, while they actually enjoyed the power and the wealth. You were, are and will be pretenders.

[don]

macquechoux - The high European unemployment numbers may have more to do with union strength and generous unemployment benefits than the with social safety net in general.

[S Brennan]

macquechoux,

Either you are either fool or a shyster:

"Kevin Phillips, the political commentator and former Republican Party adviser who has become something of a muckraking critic of the “excesses” that he helped set in motion. The book is entitled, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism Phillips summarizes some of his main conclusions in an article in the current issue of Harper’s Magazine.

The article focuses primarily on three measures: the monthly Consumer Price Index (CPI), the quarterly Gross Domestic Product (GDP), and the monthly figure for the unemployment rate. Phillips convincingly demonstrates that the real unemployment rate in the United States is between 9 and 12 percent, not the 5 percent or less that is officially claimed.

Phillips’s background makes his statements all the more significant. He was a prime strategist for Nixon’s 1968 presidential campaign

[im1dc]

baileyman says... "A Populist Backlash?"...Let us all hope...Be audacious.

I agree and it can't come too soon.

CalculatedRisk reports this morning that "Treasury OKs another $1.4B for SunTrust" and this after "SunTrust applied for the previous $3.5 billion on Oct 27th, and received the funds on Nov 17th - less than a month ago!"

CalculatedRisk

Everything for the Big Cats but nothing for the kittens.

And the DEMS, all of them, remain silent, as if they can do nothing.

Shameful.

[calmo]

"a populist war in the Falklands"...yes, like the current one in Iraq...are there any wars that are not populist? Any wars that don't manufacture politicians masquerading as heroes?

And instead of "upper class", "executive class"...yes, let's get rid of those dated tags: "lower, middle, upper".
And "class" too is no longer accurate..."tribe" maybe.

"banksters" is an improvement on "bankers", but somewhat generous, gentrified, genial...something. "bangsta", too commercial.

Full agreement with *a*: As to, "Are We Courting a Populist Backlash?", I'd reply, "I would hope so." What's wrong with a populist backlash? Can't have the hoi polloi dictating policy?
Full puzzlement with Lisa:Social safety nets are one of the main reasons we are in this financial mess today. "Social safety net" Do you even realize what you are saying??
Full backlash against Awarness Steven, the Earnest..who refuses to respect us as individual persons. Do you want me to get on your case Stevie? Alright. This:I want to at least try to gain your quick help. is not the way to do it. And don't McCain us with Dear Friends of the Economist's View community, This is a group...gathering porous net of underemployed over-skilled real people who refuse to become just another member of some "community" that purports to represent our interests. Do I make myself clear? Waiting to hear from the non-official, everyday person behind Steven Earol...the non-sincerely one Steve.
Ok, warming up to the backlash...

[The Baron]

The complaint about the first 'stimulus' plan was that people didn't actually use the money to buy stuff, they instead saved most of it (or used it to pay down debts, which equates to the same thing).

So, just to be clear, that initial multi-billion dollar stimulus, got deposited in banks (banks being both the holders of the debt being paid down and the savings accounts)? You mean just like the $700 billion for the TARP, only in the first case it actually helped out main street in the process of recapitalizing the banks, as opposed to just giving essentially free money to the banks while main street gets nothing as in the TARP? Seriously?

I still can not fathom how economists can say that banks are too big to fail and so must be given free money, out one side of their face, and out the other say that the man on the street can't be trusted with free money, because he will only put it in a bank, and not spend it like a good little consumer should. I'm disgusted.

[kthomas]

Not yet. We're at least another year away and another 1 millions jobs from any real backlash. It's coming. Sooner or later, Hoovervilles....make that, Bushvilles, will start popping up in DC. Heck there might even be a few Obamavilles. In either case, those will be the little spots that become the flashpoints.

I'm interested in who the next Huey from Louis is. Now THAT would be populist. Perhaps it will be a woman? Where's anne?

[The Baron]

kthomas:
Ontario, CA
Reno, NV

The relatively tony city of Santa Barbara, California, has given over a parking lot to people who sleep in cars and vans. The city of Fresno, California, is trying to manage several proliferating tent cities, including an encampment where people have made shelters out of scrap wood.

In Portland, and Seattle, homeless advocacy groups have paired with nonprofits or faith-based groups to manage tent cities as outdoor shelters. Other cities where tent cities have either appeared or expanded include include Chattanooga, Tennessee; San Diego, California; and Columbus, Ohio.

[Fred]

I'm interested in who the next Huey from Louie is. Now THAT would be populist. Perhaps it will be a woman?

We already have a woman, Sarah Palin, the "voice of the prairies", as "real American" as they come. Team her up with with Mike Huckabee and you have the resentful rube dream team of 2012. Blame everything on the illegal immigrants and Community Reinvestment Act. Lots of talk about zero tolerance, death penalties, massive government spending on family-oriented tax credits, vouchers, pay increases for soldiers mixed in with some rhetoric about balanced budgets and a return to the gold standard. Could get pretty ugly though. The press, Wall Street and Treasury/Fed are all dominated by Jews, if you get my drift. Talk about blow-back...

My own feeling is that the American middle-class is to blame for the mess, for having abdicated their civic responsibilities to think and vote intelligently (including voting for the boards of directors of corporations) as well as their responsibility to manage their personal financial affairs prudently. But the middle class are as selfish and irresponsible as little children and they don't like being blamed, and they especially don't like being told they'll have to accept a lowered standard of living for some time to come, so you can expect them to start looking for scapegoats if the recovery doesn't happen soon.

[Ronny]

"The middle class who comment here, who are seeing their 401K and home values disappear - should really get it handed to them."

Really? Including those who followed seemingly sound financial advice by purchasing modest homes appropriate to their means and investing their retirement portfolios in a diverse mix of stocks and bonds? They, too, should "really get it handed to them?"

[OhNoNotAgain]

"B.J., you need to stop being so racist. Racism by word substitution and random accusation is just as serious as other forms of racism."

Two things:

1) That was me, not BJ.

2) You're right, the last sentence was a little over the top and not particularly worthy of the comments here. My apologies to BJ and everyone else.

However, my point still stands: BJ is using the exact same talking points that the Republicans always use to try and shift blame from those that have the power and money to those that do not. If you really think that this hasn't been part and parcel of the Republican political strategy over the last few decades, then you're not paying attention. For Christ's sake, the McCain campaign *just did this very thing* this year. They tried to blame the housing mess on loans granted under the umbrella of the CRA (read "minority loans"). Of course, as pointed out already by others, the fact that the lenders didn't execute due diligence is conveniently ignored. If you want to know who is causing a financial mess in this country, then all you need to do is follow the money and power and you'll find your answer. Those that are blaming those without either are shilling for those that have both.

[im1dc]

CNBC just reported that today's US Treasury auction of 4 week T-Bills was bought at a YIELD of 0%.

This morning the CNBC ticker showed that 1 mo and the 3 mo T-Bills were BOTH Yielding 0.01%.

This shows Investors are stampeding to SAFETY.

FEAR is rampant.

The world believes, rightly or wrongly, that the current Administration CANNOT be trusted, but Obama can be.

If the DEMS had cajones they'd immediately IMPEACH SoT Paulsen and look into IMPEACHMENT of both Bush/Cheney to send a message to the markets that Bush is no longer a threat.

[Worker]

"European safety net? Humph! It looks like to me that if you want to have a safety net like Europe than you have to settle for European like unemployment."

More unpalatable, European like taxation, which differs from the US in that it is heavily focused on consumption. Sales and gas taxes. The costs and benefits of the welfare state are shared. This is not what we are talking about here. Our pols promise us the "rich" will pay for everything we need.

Populism, in its most likely and common manifestation here, is an ignorant search of something for nothing. When that doesn't work, it will blame a foreigner, a minority (including the "rich"), or a conspiracy.

[im1dc]

im1dc says...

CNBC just reported that today's US Treasury auction of 4 week T-Bills was bought at a YIELD of 0%.

This morning the CNBC ticker showed that 1 mo and the 3 mo T-Bills were BOTH Yielding 0.01%.

This shows Investors are stampeding to SAFETY.

FEAR is rampant.

The world believes, rightly or wrongly, that the current Administration CANNOT be trusted, but Obama can be.

If the DEMS had cajones they'd immediately IMPEACH SoT Paulsen and look into IMPEACHMENT of both Bush/Cheney to send a message to the markets that Bush is no longer a threat.

[This post got lost by Typepad???]

says...

Really? Including those who followed seemingly sound financial advice by purchasing modest homes appropriate to their means and investing their retirement portfolios in a diverse mix of stocks and bonds? They, too, should "really get it handed to them?"

Really. As Fred says "the American middle-class is to blame for the mess, for having abdicated their civic responsibilities to think and vote intelligently (including voting for the boards of directors of corporations)"

Since when did they become capitalists, rather than labor? Since when did they start putting on airs and look down on the hoi-polloi, unions, and the value of labor? The best that was possible, was to _save_, but foolishly, they all though they could be rentier capitalists and investors.

Two bit of stock in your 401K and you start thinking profit maximization is the raison d'etre of the corporations? Screw the workers?

Since when did you start thinking that you, possibly, could be an executive, and so the execs deserve their loot?

You deserve it.

[rufus]

MT: “One question to ask is how we ended up putting ourselves into a position where we could not allow firms to fail. There are lots of reasons, but if we had better social insurance, good enough so that the health and welfare of workers and their families was not threatened by the failure of the automakers, it would be a lot easier to avoid a bailout.

Better social insurance would involve sufficient taxes relative to the wealth (production) of a nation to fund such provisions. However, in US current history the choice has been to offer more favorable tax structures to firms rather than promote doctrines of consumer/social welfare.

http://www.cbo.gov/ftpdocs/69xx/doc6902/11-28-CorporateTax.pdf

Taxes on Corporate Income in OECD
Countries in 2002 as a Percentage of Gross Domestic Product

Country/ Percentage of GDP
Austria 2.3
Australia 5.3
Belgium 3.5
Canada 3.4
Czech Republic 4.6
Denmark 2.9
Finland 4.3
France 2.9
Germany 1
Greece 3.8
Hungary 2.4
Iceland 1.1
Ireland 3.7
Italy 3.2
Japan 3.1
Republic of Korea 3.1
Luxembourg 8.6
Mexico *
Netherlands 3.5
New Zealand 4.2
Norway 8.2
Poland 2
Portugal 3.6
Slovak Republic 2.7
Spain 3.2
Sweden 2.4
Switzerland 2.7
Turkey 2.2
United Kingdom 2.9
United States 1.8

Unweighted average 3.4
Weighted average 2.5

Social insurance is necessary to provide for the consumer/social welfare eroded by free market capitalism. Taxes must be sufficient to retain (transfer back) consumer (social) welfare/surplus transferred to the firm as producer surplus/welfare through the course of economic activity.

says...

"If you want to know who is causing a financial mess in this country, then all you need to do is follow the money and power and you'll find your answer."

Who received more money from the financials? Dems or Reps?

[JLS]

"And Europe with all its safety nets are in the same position. Spain is in even worse trouble.

Spain has not a lot safety net. It's not Germany or Sweden.

But wait! They have the ideal social contracts and tons of regulations and regulators! How could it be that Europe is in trouble too? Didn't their multiple layers of regulators stop it from happening there? "

There a few regulation in Spain adn Great Britain, a british could have a loan making 99% of his wages.
I'm french and in Frecnh it's 30%, maybe 40% if you have a high wages, not more, and rate loan are mostly 90% fixed-rate.

[gordon]

Prof. Thoma: "...there doesn't seem to be much of a choice".

Really? What about this proposal from McWop in the comments thread under this post at Angry Bear: "I still do not understand why a tax credit is not given to anyone buying a GM, Chrysler or Ford. Credit can be progressive topping out at $12,000 for cars that get 30mpg or higher, and lower for less fuel efficient ones. $25 billion in credits used would equate to 2.5 million cars. The credit could be spread over 2 or 3 years. IMO this will protect more jobs as they will need to actually keep lines running to meet demand."

[im1dc]

It's official, the economy is irreparably damaged beyond our worst fears:

Economic meltdown finally hits NFL: layoffs

More than 10 percent of league's headquarters staff will lose their jobs

"Commissioner Roger Goodell said Tuesday that the league is cutting more than 10 percent of its staff in response to the downturn in the nation’s economy that could put a dent in ticket sales for next season.

"Goodell announced the cuts in a memo to league employees. The NFL is eliminating about 150 of its staff of 1,100 in New York, NFL Films in New Jersey and television and Internet production facilities in Los Angeles."

NFL Announcement

[Patricia Shannon]

Lisa
If someone can't get a job, do you think they will go sit in a field with their children and politely starve to death? Of course, since all land is owned by someone, they couldn't even do that.

[Patricia Shannon]

Shades of Alice in Wonderland. What influence does the middle class have over the board of directors of the companies they own a very minority amount of stock in, much less mutual funds?

[kthomas]

@MsPatricia "What influence does the middle class have over the board of directors of the companies they own a very minority amount of stock in, much less mutual funds?"

Thanks for pointing that out. I know that I own a good deal of stock, and consistently vote AGAINST the boards. Still, everytime I hear someone on this board rant about how cowardly stockholders have been, I feel like saying something like this: "Fool! The majority owners are the same type of do-nothings sitting on the board."

[Patricia Shannon]

macquechoux
You have been reading this blog long enough that you should know that the U.S. "unemployment rate" is bogus. I'm having a connection problem, so I can't get on McClatchy (don't even know if this comment will be saved), but I think that is where I saw a good explanation of the real unemployment problem this morning or yesterday.

[Patricia Shannon]

http://www.mcclatchydc.com/331/story/57379.html

School health experts warn of growing hunger
By James Rosen | McClatchy Newspapers

WASHINGTON — Carolyn Duff, the nurse at A.C. Moore Elementary School in Columbia, S.C., doesn't need to follow news reports to know the nation is in economic crisis.

Duff told a Senate committee Monday that she sees signs of the financial distress every day in the kids she treats.

"More and more of the working poor are entering the ranks of unemployed, impoverished and homeless families," Duff testified before the Senate Agriculture Committee.
...
For the 55 percent of the 340 kids at the Rosewood neighborhood's A. C. Moore Elementary School who get free or reduced-price lunches — and 62.2 percent in all of the Richland 1 District — eating school meals is essential, Duff said.

"They're dependent on it, to tell you the truth," she said. "Most children who get free and reduced (price) meals do not eat those meals at home."

Mariana Chilton, a children's-nutrition researcher at Drexel University in Philadelphia, said the number of children under 6 who sometimes are forced to go hungry has doubled in recent years to 8 percent of all youngsters.

[Juanita de Talmas]

If these "deeply conservative" workers voted for Bush and the Republicans in 2000 and 2004, they are reaping what they sowed.

Several states tried enforcement of predatory lending regulations in 2004 and 2005 (New York in particular) and were preempted by Federal Government action,
specifically by the OCC during George Bush's Presidency.

Goldman Sachs CEO Henry Paulson, now Treasury Secretary, personally appeared in front of the SEC and Congress to ask that leverage limits on investment banks be removed. He was turned down in 2000 under Clinton's SEC and came back under Bush's in 2004 and got what he asked for. Every one of the institutions that has failed in this debacle was running leverage in excess of the previously-mandated limits by a factor of two or more and the last, terminal phase of the housing bubble could not have happened without this change in the law. For this Henry Paulson is DIRECTLY AND PERSONALLY RESPONSIBLE.

Greenspan's Fed (along with the CFTC, also under government control) permitted the writing of unregulated derivatives over-the-counter with absolutely no capital or margin supervision. Essentially-unlimited leverage was thus permitted, and AIG's explosion (along with Lehman and Bear) was the result. The Republican Congress allowed this outrage, praising it as "financial innovation", when in fact it was nothing other than bank robbery (literally) by deceit.

Gramm-Leach-Bliley dismantled the separation of investment and commercial banking that was put in place after The Depression precisely to prevent the interconnections that led to overuse of leverage and stupidity in lending that resulted in the crash of the economy of '29 and into the 1930s!

[ken melvin]

First, ye must believe. Ye must believe that the role of government is to protect the interest of the property holders as in times of yore, and that, as in times of yore, the government will use the poor for this task. Understand ye that, for reasons of 'in return for services rendered' or for any other reason, the government has no responsibility to protect the poor from outside or inside threats to their well being.

[Merry-will-go-round]

Are We Courting a Populist Backlash? Robert Reich may have the worry right, but he's dead wrong on associating it with bailouts of corporate America in lieu of bailouts of American mortgage holders. During this year, polls have shown that popular opinion trends towards no gov't bailouts...of either companies or of individuals. This is not to to say that popular opinion does not sway towards strong social welfare programs. But there is a difference between gov't programs established by legislative fiats that operate according to rules and regulations with great transparency and bailouts that either veer towards the illegal spectrum or are established outside of legislative channels / oversight with little-to-no transparency, rules, or regulations. If populism shall gain ground again, it will reflect the American disaffection with a corrupt, "two-party" system, gov't failures at corporate regulation, the demonizing and demoralizing of American labor, attacks on social welfare programs, gov't and corporate actions that have allowed the concentration of wealth with the class of haves, socialization of corporate losses, ubiquitous propaganda sponsored by the government-corporate system and the horrific environmental destruction emanating from the global corporate-government beast.

[dirtyal]

Unfortunately, there is plenty of blame to go around. The great middle class has, admittedly, been living over their heads since they came into existence. But is that the real cause of the current economic crisis? Do you mean to tell me that it was the great middle class that created, purchased and traded all the toxic assets?

The real problem was that the "counterparties" to the toxic asset bets were making bets that they could not pay off if they lost. Most of the toxic assets, while based on the housing market, were not based on pools of mortgages. Rather, they were "synthetc" meaning that they were simply backed by a supposedly strong financial counterparty (like AIG, ML, Lehman Bros) who were betting either on the housing bubble growing or the housing bubble popping. It didn't matter which side they were on. The point is that when the bets became losers, the "counterparties" could not cover their bets.

Now, shouldn't us dumb middle class rubes at least be able to expect that the people making the bets should have enough money to pay off the bets when they lost? That's what the credit freeze is all about. No trust between the "counterparties" anymore.

And why should we taxpayers pour hundreds of billions of dollars into the banks in order to restore their faith in their "counterparties"? Because, we are told, that if we don't do it things will get even worse. And what's happened so far, nothing. That is, the banks now have $350 billion of our money, the credit market is still frozen, and nobody is being served by the financial system.

If this is all true, and I submit to you that it is, why wouldn't a backlash happen?

Our politicians were bought and paid for by the people who brought us the failed system. Why wouldn't we want to put some politicians in who wouldn't go there again?

[Patricia Shannon]

Did the term "neo-liberal" get coined so when it all fell apart, the people who got hurt would blame the liberals instead of those who really were to blame?

[calmo]

So the transnationals' actions in manipulating nations to extract the labor arbitrage...sell, rather than protect the interests of the property holders, yes?
I did not see that insight ken, but the emergence of transnationals is not likely to disappear, izit?

Thank you for that post Juanita de Talmas.
And im1dc for your humor and mo:It's official, the economy is irreparably damaged beyond our worst fears:

Economic meltdown finally hits NFL: layoffs Anso without Monday Night Football it could be Monday Night Riots in the Streets...like Greece?

[Patricia Shannon]

Since BJ never learns that whoever he gets his info from is lying to him, no matter how many times he is shown that, it is especially funny when he condemns other people for not knowing things.

[Patricia Shannon]

I found the place with the info on reality-base unemployment figures:

http://www.mybudget360.com/

According to a measure called U-6, the current unemployment rate should be more accurately rated as 12.5%

"The rate has jumped from 8.4% to 12.5% in one year, an increase of 48%."

This site has a lot of helpful graphs.

[gordon]

The My Budget site says that it includes "Discouraged works [sic] who are a subset of marginally attached. These folks have essentially given up looking for work because of the job market".

The Shadow Govt. Statistics site, which is where I usually go for less-manipulated US stats. shows an unemployment rate of over 16% after adding discouraged workers to U6. I wonder whether John Williams (who runs the Shadow site) has added discouraged workers twice, or the My Budget site hasn't really added them, or what.

[Patricia Shannon]

Gordon, thank you for the link.

Could be a mistake in calculation as you said, but also one might be more recent, or based on a different way of asking a question. It would be interesting to know.

[BJ Feng]

I'll repeat what I've said before. I only support the financial bailouts because they are necessary to prevent a total collapse of our economy into another Great Depression with 25% unemployment and breadlines everywhere. Is it fair that financial institutions get bailouts while others don't? No, that's why I think some special tax or fee should be assessed in the future ONLY for financial firms because they are the ones who must be bailed out. They should pay for this privilege, and they should be subject to regulations that other sectors don't have. These regulations have to be sensible and efficient of course.

To sum it up, no one but financial firms should get bailout money, and those firms that do get bailout money should, and will, have to pay in the future. If this crisis was less severe, then I would oppose bailout for anyone. I'm not sad that Lehman received nothing, if it is at all possible to allow firms to go under without destroying our economic system, then they should be allowed to go under. Of course it's hard to figure out what will be the final straw, but I believe letting Lehman fail was the right thing to do because it taught financial sector companies that they were immune and that they should worry just like every other company, even if the vast majority do get bailed out.

As for TARP, what do you people expect, a magic spell that returns everything to normal? The goal is to prevent another Great Depression, not to prevent a recession. The second goal isn't possible, there is no way to avoid the severe downturn we are in. No plan, no amount of genius or wisdom can stop us from feeling pain. My only criticism of Paulson and Bernanke in this crisis is for their secrecy and lack of disclosure. Perhaps they are doing it for a reason, if people were told just how bad the balance sheets of banks are, and the amount of crap the FED has on its balance sheet, then the system could collapse just on that news alone.

[gordon]

Pagricia Shannon, I've left a query about the U6/discouraged workers at the Shadow Govt. Statistics site. If I get an answer I'll put it up here.

[Patricia Shannon]

BJ, well said.

says...

Thanks Gordon

[Patricia Shannon]

Thanks Gordon
(I don't know why my previous comment didn't have my name)

[calmo]

Ah, BJ, was this what you wanted to say?To sum it up, no one but financial firms should get bailout money...Or did you want me to edit the whole ting? Ok, I B your (pretty happy) Canto Servant:To sum it up, no one but financial firms should [NOT] get bailout money, and those firms that do get bailout money should, and will, have to pay[ it back] in the future. If this crisis was less severe, then I would oppose bailout for anyone. I'm not sad that Lehman received nothing, if it is at all possible to allow firms to go under without destroying our economic system, then they should be allowed to go under. Of course it's hard to figure out what will be the final straw, but I believe letting Lehman fail was the right thing to do because it taught financial sector companies [a lesson]that they were immune and that they should worry just like every other company, even if the vast majority do get bailed out.

As for TARP, what do you people expect, a magic spell that returns everything to nor[bel]? The goal is to prevent another Great Depression, not to prevent a recession. The second goal isn't possible, there is no way to avoid the severe downturn we are in. No plan, no amount of genius or wisdom can stop us from feeling pain.
My onlyvery constructive criticism of Paulson and Bernanke in this crisis is for their secrecy and lack of disclosure. Perhaps they are doing it for a reason, if people were told just how bad the balance sheets of banks are, and the amount of crap the FED has on its balance sheet, then the system could collapse just on that news alone.[Exactamento]

[Lafayette]

Too Important To Go Bankrupt

Article: My guess is the worsening economy is making it harder for just about all homeowners to pay their mortgages, and those who were teetering on the edge months ago ... are now way under water. Two of the biggest culprits: Layoffs and fewer working hours. ...

Normally, I would agree with Reich. He is one of the few press pundits who give economics a veneer or morality.

Nonetheless, on this one, as described above, I must go back to what economists call the "propensity to spend" and which has become factually the "propensity to go into debt".

How many of these people, who find themselves in dire straights financially, did not buy MacMansions that were, to begin with, way beyond their means to pay. I don't know about the US, but in France, the rule of thumbs is that if payments (rent or mortgage) are more than one third of your Net Income (after other credit payments are deducted), then a credit/mortgage will not be approved.

So, it all depends upon how the payment schemes were detailed in terms of monthly charges. Based upon what interest rate -- the "hooker rate" at lower levels, or the "ballooned rate" at higher levels 12/16/18 months into the contract?

If these are not SubPrime examples the Credit Crunched mortgagees, then the homeowners are ordinary Joes/Janes who just got in over their head by buying overpriced property in the midst of a bubble and they can't get out of it at currently depressed prices.

Do they deserve any real consideration or special treatment? After all, fifteen years ago, they would have been repossessed without a whimper to be heard. What we have here is not only an economic recession but a sociological phenomenon of people whose real estate appetites were larger than their ability to financially digest. Or is this an exaggeration of what is happening?

Are they also Too Important To Go Bankrupt? Since when was the Fedral gummint responsible for economic conditions that drove people into personal bankruptcy? Or, is what's good for the goose (bankers) good for the gander (homeowners).

Did we set a policy precedent when bailing out the banks? That we are retiring from as regards Detroit's Big3? But we should "do something about" for Joe/Jane.

Any enlightenment on this out there in BlogLand?

[Dunc]

re social security = high unemployment; There isn't a causal link there. High unemployment in France and Germany is caused by very high very capital intensive productivity. Ireland, England, Sweden, Denmark and Finland all have low unemployment. Spain and Italy have distorted economies as a result largely of their Eurozone membership which constrains their fiscal room for manouever. Levels of social security are pretty much irrelevant.

[Lafayette]

Dunc: High unemployment in France and Germany is caused by very high very capital intensive productivity.

Yes, so. That much is just the base reason old employment has left for points east and new employment is not being created. The period of time on unemployment benefits have almost doubled over a decade as a result.

Ireland, England, Sweden, Denmark and Finland all have low unemployment.

That's history. They are all in the same mess today. Thank you, Uncle Sam. Actually, the EU would have had a dampening of economic growth without the SubPrime Mess to make the outlook even grimmer.

But, we are being told to live with EU growth below 0.5% next year. That is not enough to keep jobs in the aggregate, let alone create them, so the shedding will continue.

Spain and Italy have distorted economies as a result largely of their Eurozone membership which constrains their fiscal room for manouever.

What's this?

Spain is in a mess because of a mono-dynamic surrounding over-committed real estate. They are throwing in a car to sell real estate there. Otherwise the economy was pretty well run. Fiscality had nothing to do with it. Spain used to be well within the European budget constraint of 3% of GDP.

Italy has been profligate for decades. They have no one to blame for their mess than themselves. Especially since they elected a dork as PM.

Levels of social security are pretty much irrelevant.

Not at all. Higher social security benefits are a cost that are considered necessary social protection. But, they do hamper new FDI that creates jobs. The China Price is always the gating factor for developing, at least, production jobs.

Which is why it is Service Jobs, that the Chinese cannot do, that are the employment builders. France does not even suffer from Indian competition of skilled IT work, as much as both Britain and Scandanavia.

[gordon]

Patricia Shannon (and any other interested parties), I've had a reply from Shadow Govt. Statistics re: the U6/discouraged workers issue. Here is the reply unedited. It incorporates my original query:

We add additional millions of discouraged workers that were defined way in 1994, and do not double count. Discouraged workers were redefined so as to include only those "dscouraged" for less than one year. Before that, there was no time limit. Best regards, John

You sent us following feedback on 2008-12-09 21:51:10:

I notice (following a reference at Economist's View in the comments under the post "A Populist Backlash?") that the My Budget site shows a U6 unemployment rate of just over 12%, and notes that this includes discouraged workers. The Shadow site shows unemployment at over 16% after adding discouraged workers to U6. Are you adding discouraged workers twice, or is the My Budget site wrong?

The implication seems to be that the Shadow site is making a larger correction for discouraged workers than the My Budget site is, with Shadow including "additional millions of discouraged workers that were defined way [sic] in 1994". I haven't tried yet (if I ever do) to find out exactly what that means.

[Patricia Shannon]

Gordon,

A belated thanks.