Columnist Karen Rubin: Observations on depressed job mart

The Island Now

Before the September jobs report came out showing unemployment rate dropped to 7.8 percent, I had a conversation with a couple, both in their late 50s. 

He is an electrical engineer who has been out of work for three years; she is a project manager who has been out of work for months. Both got jobs that same week – she even had half a dozen job interviews. I knew then that something was afoot, that this was no coincidence or luck, but rather that this was a clear sign that employers were hiring again, seeing the economy improving and wanting to move swiftly to take advantage of getting the pick of the crop at low salary rates before competition to hire workers actually pushes up salaries again.

7.8 percent is a significant number – more significant, in fact, than the 114,000 jobs added – since it marks the lowest rate of unemployment since Obama took office and below that magical “threshold” of 8 percent that is supposed to guarantee defeat for an incumbent president.

Republican presidential candidate Mitt Romney, though, was apoplectic in denouncing the rate – as well as the 32 months of increases in jobs – as being inadequate and a clear demonstration of Obama’s inadequacy to command a full-blown recovery. He said that the only reason the rate dropped was because more people dropped out of the market, even though that premise was contradicted by fact: these were actual job increases, and what is more, the hiring figures for the prior two months were also increased.

But Romney, who has based his entire campaign on a weak economy and suffering households – with a Republican Congress doing its best to keep it so – was disbelieving. Republicans like former GE CEO Jack Welch accused the Obama Administration of somehow manipulating the statistics, a widely dismissed charge by anyone who knows how the rates are produced, who produces them and how the data is released. 

The ones doing the complaining, ironically, are not people who have been struggling in the Great Recession, but those who have been most insulated from the economic downturn

Most people, however, do see an improvement in their daily lives – there is less panic over massive layoffs, less fear of losing a home to foreclosure, and yes, families have greater economic security addressing health issues.

And there are other measures that point the way for jobs growth and an economy that is better than those with a political motive will allow: salaries and hours worked are edging up, housing prices are edging up again; and Wall Street is doing booming business, with the Dow up some 7000 points – more than twice what it had crashed to – from when Obama came to office.

“College graduates enjoy best job market in years,” USA Today  proclaimed.

 “The class of 2012 is leaving US. colleges with something that many graduates since the start of the Great Recession have lacked: jobs.,” wrote By Michael L. Diamond, Asbury Park (N.J.) Press. “To the relief of graduating seniors — and their anxious parents — the outlook is brighter than it has been in four years. Campus job fairs were packed this spring and more companies are hiring. Students aren’t just finding good opportunities, some are weighing multiple offers.”

National Association of Colleges and Employers’ Job Outlook 2013 survey is showing that employers anticipate hiring 13 percent more Class of 2013 college graduates than they hired from the Class of 2012.

But part of the cycle of the stagnant economy and persistent high unemployment has less to do with what Romney says the weakness is due to tax hikes (that don’t exist) and debilitating regulations (also not true). In business surveys, the more significant factor stymieing hiring is the lack of consumer demand, and this has a lot to do with perception of the economy and confidence and something that is more pernicious: uncertainty.

Republicans have done their level best to stoke that fear and uncertainty, especially now as Republicans seem content to let the country fall over a fiscal cliff  by refusing to address the expiration of low tax rates combined with sequestration – the automatic cuts that will hit all government spending including defense spending. This is a crisis that is completely within the control of Congress,  just as the fabricated credit crisis and threats to shut down government were in 2010 and 2011 which caused the economic recovery to stall. That action is considered to have shaved 1-2 points from GDP growth, and hitting that fiscal cliff can shave another 4 points – meaning that the US would be plunged once again into recession.

Obama, whose American Jobs Act has languished in Congress for more than a year, has appealed to Congress to extend the Bush tax rates for 98 percent of Americans and 97 percent of small businesses, letting the rate expire and return to Clinton-era rates (remember, when the economy boomed and the nation created 23 million jobs and the budget was in surplus) only on taxable income above $250,000. This would give more assurance to consumers who would be confident of having about $3,600 more in their pocket to spend, and give assurances to businesses anticipating the consumer demand.

Indeed, if you look at the trajectory of how the hemorrhaging of jobs that were taking place by the hundreds of thousands on a monthly basis during Bush’s years (with absolutely no outcry by Republicans or anyone else, in fact, the stock market rejoiced with every announced major layoff), it instantly reverses when Obama gets into office, builds steam as a direct result of his much maligned stimulus, but then slows (still improves) after the stimulus dries up and hundreds of thousands of teachers and other public workers faced the layoffs that Obama’s stimulus had averted.

But I would suggest demographics do play a role in the fall of the unemployment rate, just as demographics have been playing a role in the persistently high rates. After the stock market collapse of 2008, the Baby Boomers approaching retirement age found their IRAs and pensions cut in half and simply couldn’t afford to retire, leaving fewer openings for the newly minted college graduates.

Now, with the stock market rebounding, it is conceivable that those older workers, in their late 50s and early 60s, laid off and effectively unemployable at their current status or salary, are no longer desperate to find work or stay in the workforce. And because of the shift in demographics, the country needs to generate some 90,000 new jobs a month, instead of 150,000, to keep up with population growth – hence the lowering unemployment numbers.

It is remarkable to consider, though, at a time when Wall Street is near record heights, corporations are pocketing record profits (and hoarding some $2 trillion in cash rather than invest or hire). tax rates are at the lowest level in generations and tax revenue, as a percentage of GDP, at the lowest rate in 50 years, that the fattest cats are bitching and giving so generously to assure Romney’s election, when it is the Obama policies that have enriched them.

Well, of course, it has to do with Obama’s promise to restore opportunity for the middle class, and Romney’s promise to cut taxes a further 20 percent – when the top 1 percent received 93 percent of the income growth in 2010 helping continue a trend that has made the United States have has the highest rate of income inequality since the Gilded Age and the highest rate of inequality of any industrialized nation with the least opportunity for upward mobility (American Dream a myth). 

It also to do with Romney’s pledge to end estate taxes (the six Walton heirs control more wealth than the bottom 150 million Americans), and cut capital gains from the ridiculously low 15 percent to virtually nothing (that way, Romney, instead of paying 14 percent on $20 million of income that he did not actually work for, would pay less than 1 percent).

During the debate Romney echoed George W Bush’s tactic when he seemed to pivot from his declared plan to cut taxes for the wealthiest when he said that the wealthiest would pay the same percentage of taxes. Everyone listening was shocked to think they heard him say he would not cut taxes for the wealthiest – but what he said was he would not cut their share of overall taxes collected by the Treasury. You better believe they will pocket an extra $250,000 windfall- the equivalent yearly before-tax pay of five families of four.

But it is more than that: it has to do with ending the party that the Masters of the Universe have had, where they felt unfettered by any measly “rules” or “regulations.” Obama’s themes, “fair shot, fair share,” have the repugnant smell of Socialism, rather than the American Dream of equal opportunity.

To the contrary, progressives were infuriated when Obama entered office refusing to hold accountable any of the banksters who crashed the economy – causing millions to lose their jobs, homes, retirement savings. He wanted to move on, move forward. The failure for any individual person to be held accountable has been a theme and source of deep resentment of Occupy Wall Street protests.

In fact, that should change. New York State’s Attorney General Eric Schneiderman, co-chair of the Residential Mortgage Backed Securities (RMBS) Working Group, just announced their first legal action since Obama formed the working group earlier this year. Schneiderman has filed a Martin Act lawsuit against J.P. Morgan Securities LLC (formerly Bear Stearns & Co. Inc.), JP Morgan Chase Bank N.A., and EMC Mortgage LLC for making fraudulent misrepresentations and omissions to promote the sale of residential mortgage-backed securities (RMBS) to investors, resulting in $22.5 billion in losses to date.

 “This lawsuit will bring accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy,” said Schneiderman. “Our lawsuit demonstrates that there is one set of rules for all – no matter how big or powerful the institution may be – and that those rules will be enforced vigorously. We believe that this is a workable template for future actions against issuers of residential mortgage-backed securities that defrauded investors and cost millions of Americans their homes. We need real accountability for the illegal and deceptive conduct in the creation of the housing bubble in order to bring justice for New York’s homeowners and investors.” Scheniderman said that other cases will be forthcoming.

Justice is also moving to hold individuals and financial institutions accountable for the LIBOR rate-making scandal – the rate that establishes the interest on mortgages and college loans and the earnings for pension funds and municipality’s accounts. Banks already are on the hook for billions of dollars in fines.

The answer becomes clearer why billionaires like Sheldon Adelson and Koch Brothers and Wall Street mega-millionaires are giving so generously to Romney and dissing Obama, in face of record stock prices and corporate profits, and why they came out en masse in London to fete him. Their political contributions are investments against much, much higher costs due to the penalties they will pay for the accountability that is coming around – in some cases even keeping their asses out of prison altogether.

What’s a hundred million in campaign contributions when you can reap a hundred billion?

My bet is that Wall Street titans expect Romney will do what George W. Bush did when he came to office – make unpleasant lawsuits disappear or agree to cut the settlements to a small fraction. That’s what Bush’s Attorney General Ashcroft did with the tobacco industry settlement that the Clinton Administration won – knocked it down to a fraction – and what he did in the antitrust suit against Microsoft.

Romney’s policies would not only return to the bad ol’ practices that caused the economic collapse and a culture that truly twists Adam Smith’s concept of free enterprise promoting investment.

The only measures that matter are that this quarter’s figures are higher than the prior quarter and that stock prices are up this quarter from the past one. And just to make sure, senior management compensation are tied in. As a result, companies don’t look for the long-term, they don’t invest, take risks, and don’t hire workers – there’s really no incentive to.

But there is a contrary approach. At the CGI, where sustainable development and social investment are key themes, there is a concept of the “Triple Bottom Line” – where you put into the cost-benefit analysis a measure that looks at the benefit or cost in social and environmental terms.

This focus, if applied at all, is applied to developing countries clawing and scratching their way out of poverty. Meanwhile, the United States now has the highest percentage of poverty, the lowest opportunity for upward mobility, and greatest income inequity of any developed country. And we are paying a dear price for carbon pollution and global warming which will be seen in the higher costs for food and energy.

“Organizations are capable of doing enormous amounts of good, but the biggest obstacle is the myth that a corporation is running well when it runs to maximize stock price,” Lynn Stout, distinguished professor of corporate and business law, Jack G. Clarke Business Law Institute – Cornell Law School said at the 2012 Clinton Global Initiative. “That’s not what the law says or requires. Directors, as long as don’t line their own pockets, have a responsibility to run the business in the best interest of firm…It is actually a new idea, that came in 1970s, 1980s, 1990s – that didn’t come from the business world, but from professors.

The pressure on managers to think short-term comes from investors who jump ship in a nanosecond. “In 1960,” Stout said, “the average holding period for stock was 8 years, today it is four months. very hard for people who run businesses to think for the long term, when look at shareholder base and their base is thinking short term – there are reasons why the holding period has declined – but until we can ix the problem of investor short-termism, will be hard for businesses to look long term and make the kind of sustainable decisions we want them to do.

“I am worried,” she said. “We now have had 25 years of asking people who run the corporations to run based on shareholder value. We know it’s not working out well – not working out well for employees, and not for shareholders either – returns declined significantly over last 30 years… not looking out for the companies. Public corporations are disappearing.”

The short term holding period is easy to fix, she says: impose a stock transfer tax on stock held for less than five years. “That’s not popular with Wall street but it would be good for investors and Main Street.”

Romney’s approach – as manifest throughout his career as a vulture capitalist who pitches new investment by saying that companies will be “harvested” after four or five years – is exactly opposite. It is exemplified in his condemnation of the Obama administration’s set aside of $90 billion, of which about $36 billion went toward stimulating new renewable energy industries 

The fact that Obama’s focus on developing a new, significant industry of clean, renewable energy has generated tens of thousands of new jobs and that for the first time in decades, America met more than half of its energy needs from domestic sources rather than imported oil, has no never mind to Romney. Perhaps equally importantly, is that Obama’s focus on clean energy would be a step in the urgently needed direction to shift our economy from carbon-emitting energy sources.

“My view is that we don’t know what’s causing climate change on this planet,” Romney said at the Consol Energy Center in Pittsburgh, in October 2011. “And the idea of spending trillions and trillions of dollars to try to reduce CO2 emissions is not the right course for us. My view with regards to energy policy is pretty straightforward: I want us to become energy secure and independent of the oil cartels.”

Romney has clearly sided with fossil fuel industry, making this the centerpiece of his campaign (thinking he will be able to tap those extra votes to tip Ohio, Pennsylvania and Virginia), using an economic argument that refuses to factor the “triple bottom line”: the cost to public health and to local communities who have to deal with the effects of pollution, the cost in higher food prices because of climate change, in fact, there is no calculation on Romney’s part for the true cost of carbon in the economy.

Romney has decided on his own triple bottom line – adding political power into the calculus – and an approach to free enterprise that can be summed up as “Greed is good” which he has said he would apply to his foreign policy, as well.

Obama has manifest the long-term, “triple bottom line” focus in his economic plan, under the broad theme of “an Economy Built to Last.”

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