Posts Tagged ‘crisis’

Economic News: Voices We Can Trust

If you hear these voices on television, on the radio, in print, online, sit up and listen. These are voices we can trust, voices that are on our side.

They’re on a new page with its own tab above, so they won’t get buried under new posts. I’ll add to the list as I discover more. And I’m sure there are more.

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More Stories: “Employees Are Our Partners”

I just posted a new “recession story,” with many more to come, so check the More Stories section often in the coming weeks and months.

First up: Meet Margi Brownfield Swett, Vermont business owner who reacted to a calamitous drop in sales in an unexpected way: Instead of laying off employees, she gave them a 10 percent raise.

Margi and Steve image

Margi and Steve Swett

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“Our Middle [Class] Is Collapsing”

In an interview on PBS NewsHour tonight, Senator Bernie Sanders made a passionate plea on behalf of the middle and working classes, many of whom have become impoverished in the wake of the economy’s crash two years ago.

“The top 1 percent today earn more income than do the bottom 50 percent,” he pointed out. “They earn about 22 percent of every dollar earned in America. And that gap is growing wider. Meanwhile, what this budget includes are massive tax breaks for millionaires and billionaires.”

Then I looked up his Web site, and wow, does he ever “get it.” Just this Monday, he published a collection of “recession stories” called Struggling through the Recession:  Letters from Vermont, which you can download from his site. From the twentysomething who can’t earn enough to pay her student loans, to “older workers, who have depleted their life savings, [and] are worried about what happens to them when they retire,” these testimonials cover the full spectrum of the life we live now.

Cover image for Struggling through the Recession booklet

You can download Sen. Bernie Sanders collection of recession stories.

I give you Senator Bernie Sanders, Independent of Vermont:

“This year, ExxonMobil, the most profitable corporation in the history of the world, is not paying a nickel in federal income taxes, despite having made $19 billion last year. In 2005, one-quarter of corporation — large corporations in America making a trillion in revenue didn’t pay a nickel in taxes. You have got a military budget which in many ways is still fighting the old Cold War.

“So, I believe that we have to move toward significant deficit reduction, but you don’t do it on the backs of the middle class and working families who are already suffering as a result of this Wall Street-caused recession.

“You want to know the way to raise money? Put a transaction fee on Wall Street, so maybe we can curb some of the speculation and raise some money.”

Well said.

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Corporate Profits Are Flush…So Why Aren’t They Hiring?

I keep hearing this in the business news, and I heard it again in President Obama’s speech to the national Chamber of Commerce on Monday, February 7: corporations are sitting on mountains of cash, and yet they’re not hiring.

How much is “mountains” of cash? In the neighborhood of, say, $2 trillion. With a T.

In fact, while the rest of us have been stuck in the dried-up job market, corporations have raked in record profits at the fastest rate ever after a recession.

Aren’t higher profits a sign of higher demand? And don’t businesses hire more when demand goes up?

So what gives?

I’ve yet to see a business reporter focus on that question, so I did a little research. Still not much out there. The best piece I found was not written by a reporter but by a common-sense economist I’ve mentioned before: MIT’s Simon Johnson. He addressed this very issue on a January 27 post to a blog he co-founded, The Baseline Scenario, which is passionately dedicated to explaining how “too big to fail” got us into this mess and cannot be allowed to continue or we’ll never get out of it.

In his clearly written piece, Johnson points out that “the link between corporate performance — measured in terms of profit or executive pay for U.S. companies — and domestic employment has fundamentally changed in recent decades,” and as a result, employment takes longer to recover after a recession.

Then he points to this astounding chart, from Calculated Risk blog, showing how much longer job losses have dragged on in this recession compared to all others in the last 60 years. After three years, we’re still at the bottom. Yikes!

CalculatedRiskblog.com chart showing percent job losses for recessions since WWII

CalculatedRiskblog.com chart showing percent job losses for recessions since WWII

While Johnson acknowledges, with refreshing honesty, that economists don’t yet fully understand this phenomenon, he throws out two of the usual suspects: cheaper labor abroad (think: outsourcing], and job hunters don’t have the needed skill mix (so, G.E.’s of the world, use some of that $2 trillion to train us – hel-lo!!).

But then he adds another fresh possibility: “Or perhaps … companies can effectively keep out new entrants [by not hiring] – thus keeping profits artificially high and, at the sectoral level, limiting employment.”

This scenario has at least two implications: (1) that companies might still feel badly stung by the sudden and severe credit crunch that started the mass layoffs in 2008, and maybe they’re scared it might happen again – and soon – and maybe they know something we don’t; and (2) that there is a new emphasis on “keeping profits artificially high,” most likely for stock market purposes. Either one would be a very bad thing, because it would mean no hiring of workers – specifically, no permanent-full-time-with-benefits hiring of U.S. workers – for a long, long time.

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Cliff Notes Version of the Banking Crisis (that Lives On, and On, and On)

I’ve followed the financial meltdown closely these past four years, and I’ve been glad I studied economics, because without it I wouldn’t begin to understand the modern ways of Wall Street. Even with it there are aspects that I find impossible to follow.

So what about the 99 percent of citizens who didn’t study economics? How are they to get their heads around what happened to us?

Enter Gretchen Morgenson, a New York Times reporter with such a clear writing style and strong moral compass that, I promise you, you will learn a lot and understand a lot about this ongoing mess, many times more than you ever have before. There are other experts with integrity, such as MIT economist Simon Johnson and Harvard law professor and Treasury advisor (who should have been Treasury Secretary) Elizabeth Warren, who can articulate the complex issues pretty well and very truthfully, but none surpass Gretchen’s written reports that I have seen.

For an understandable overview of what happened to us, see her recent article on the government’s report of the crash’s origins. She makes no bones about the fact that the Wall Street perpetrators have still not been reined in, and so we are still at grave risk.

Read it here: In Bank Crisis Report, a Whodunit with Laughs and Tears, by Gretchen Morgenson of the New York Times.

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It’s Just a Matter of Scale

It’s a funny feeling to hear someone say she can’t possibly live on $2,000 a month – which used to be my take-home pay when I was working. I had to remind myself that she has a large house to maintain, and two kids and a dog to support, and had just $200 left for the last week of January, which she was counting out in twenties. She was debating whether to spend several of those twenties on another doctor’s visit for a sore that wasn’t healing. At this point she was more than willing to try the salt-water compresses I suggested.

It’s also a funny feeling to hear someone say, at around the same time last month, that she might lose her rent-controlled apartment after 20 years if she can’t scrape up $650 for rent in a week’s time – forget that her computer doesn’t work and so she can’t easily post anything on Craigslist for quick sale. I felt badly that I couldn’t send cash, but I did have a $20 phone card I bought at a 2-for-1 sale, so I mailed one to her.

Then I realized we’re all in the same boat, really. I was counting out the rest of my month’s expense money in dollars, while my “$2,000” friend was counting hers in twenties. and my friend on the edge was counting hers in quarters, nickels, pennies.

Despite the difference in scale, we’re all counting, we’re all downsizing, we’re all having to make terrible trade-offs, we’re all in the same sinking boat.

How the Wall Street Meltdown Happened

Most of us are still mystified about how our economy collapsed to violently last year, its force bringing down huge, steadfast, centuries-old companies like Lehman Brothers and General Motors. If you’re one of us, check out this “60 Minutes” rerun from last year, which explains what Warren Buffet called “financial weapons of mass destruction” – credit-default swaps – as clearly as anyone can.

Click to watch “60 Minutes” episode: “Financial WMDs.”