#129

sent to press October 9, 2010

Social Security’s crisis, and ours

INSIDE
When LBO last took on the Social Security problem with some depth, the Trustees of
the system, who work out its official annual forecasts, had recently reported their very
Is Social Security really the gloomy view of the future. The Trustees vision was of extremely slow economic growth
and the insolvency of the system. The 2010 edition continues in the same vein. This is red
thing that’s going bust? meat for the austerity party.
In 1981, consumed with fear that the Social Security system would go bust in two years,
2009: not a good year for the Ronald Reagan appointed a commission led by Alan Greenspan, a recidivist hack, to “fix”
things. The fix consisted of boosting taxes, delaying cost-of-living adjustments, raising the
American masses retirement age, and taxing the benefits of better-off
Social Security:
recipients. This rejiggering of income and outgo 60 years to projected
MONEY  Recession over, allowed the system to run big surpluses, parked 55 exhaustion
in Treasury bonds, to finance the retirement of the 50 by year of Trustees report
but is that enough? baby boomers, then a prospect more than three 45
decades in the future. 40
MISCELLANY Globaliza- That surplus crossed 1% of GDP in 1990 and 35
has averaged just over that ever since. It’s kept in
tion & gender; parasitism ain’t the form of special-issue Treasury bonds, ones
30
25
what it used to be that aren’t tradable in normal financial markets. 1988 1993 1998 2003 2008
This arrangement is sometimes portrayed as the
government “raiding” this Trust Fund, which it isn’t. The Treasury, which is spending the
money now, is nonetheless meant to pay Social Security back as the boomers retire. To do
More unequal that, the government will have to raise taxes, divert spending from elsewhere, or borrow in
.525 normal markets. Should the government fail to do this, it would cast a pall over the credit-
Gini index, 1913–2009 worthiness of U.S. Treasury bonds, which are still, despite all our troubles, regarded as the
.500 soundest securities in the world. But the underlying economics are weird: though it makes
liberals uncomfortable to admit it, it’s more than a little strange that any entity, even the U.S.
.475 government, can borrow from itself.
As the boomers retire, this surplus will, according to the Trustees, gradually evaporate
.450 as it’s drawn down—and then the system will be in a serious pickle. It will have enough
income to cover only about three-quarters of its benefits—a shortfall of about 1.2% of GDP.
.425
That’s getting close to the 1.8% gap that Greenspan supposedly fixed almost 30 years ago.
.400 Apparently there’s just no getting ahead in life.
After Greenspan’s fix, the Social Security gap disappeared from official discourse for
.375 a few years, as the Trustees’ annual reports successively proclaimed the system to be in
1913 1928 1943 1958 1973 1988 2003 “actuarial balance.” With the 1988 report, though, the funding gap returned: the Trust Fund
was now projected to run out of money in 60 years, in 2048. (See nearby graph for the his-
The Gini index, a measure of income tory.) Ten years later, the date with insolvency had been pushed forward by 16 years, to
distribution that ranges from 0 (perfect 2032. That was as close as doomsday would get for a while—come 2002 we had 39 years to
equality) to 1 (perfect inequality), is near a go before coming up dry. By the middle of the decade, the pace of gloom had accelerated,
70-year high. More on p. 3. reaching an all-time low of 27 years—2037—in this year’s report (released in August).
2 Left Business Observer

Backstory. As LBO has noted many Trustees’ labor force predictions are some- handing it over to Wall Street.
times in the past, these projections are what more gloomy than the Bureau of Yet, that aside, maybe these implausibly
based on very gloomy economic assump- Labor Statistics’. They’re not implausible: gloomy prognostications are an expression
tions. Specifically, the Trustees forecast that other rich countries have seen population of the bourgeoisie’s unconscious worries.
growth in per capita GDP (the total value growth slow to a crawl—and if the ugly Publicly, we must revere our economic
of goods and services produced in the U.S. attitude towards immigrants persists, then model as the envy of the world; as the Presi-
divided by the we won’t be getting much fresh blood from dent implausibly said recently, there isn’t
population) will abroad. Besides, a a country in the world that wouldn’t trade
7% Social Security: income & outgo
average 1.7% a year percent of GDP country in the grip places with the U.S. The Great Recession
from now through 6% of economic stag- came not merely from the normal mecha-
2085. The long- outgo nation isn’t a very nisms of the business cycle, but some seri-
term U.S. average— 5% appealing place to ous structural pathologies—the lack of any
long-term meaning income move to. dynamic leading industries since the burst-
4%
over the last 140 What to ing of the 1990s tech bubble; a vast polar-
years—is 2.0%. But 3% make? In any ization between rich and poor that left the
that projected aver- case, these low middle ranks dependent on debt to keep
age is boosted by 2% growth numbers— themselves and the wheel of consumption
a decent recovery 1960 1980 2000 2020 2040 2060 2080 in overall GDP, going; the looting of the productive sector
they expect over per capita GDP, by financial interests and the upper classes;
the next few years. From 2015 through and population—would mark a profound and the constriction of public spending
2035, the fat years of boomer retirement, transition for a country that has long known on physical infrastructure, education, and
they foresee per capita GDP growth of far more rapid rates of growth. When social well-being, just to name a few. Maybe
1.5%. There are few decades in U.S. history LBO first started doing these analyses, we these projections, however nastily appro-
in which we saw growth rates this low (the thought that the numbers were implausibly priated by the belt-tighteners, are some-
1930s were stronger), and no twenty-year low. They still seem that way. More on that thing of an admission of serious problems
period. That 1.5% growth rate, as the nearby in a bit. But even if they are true, the gap that can’t be described as such.
graph shows, is close to what France and between Social Security’s income and outgo Several issues ago, this newsletter wrote
Germany have experienced over the last is in the realm of what the Iraq war has been up the projections of economist Robert
three decades, countries the U.S. elite used costing us (as a percentage of GDP). It’s Gordon, forecasting GDP and productiv-
to patronize for their stagnant ways, and about half the increase in the Pentagon’s ity growth numbers pretty similar to the
less than that of Japan over the same period, share of GDP since 2000. It’s about a quarter Social Security Trustees. Gordon’s reason-
a country the U.S. elite used to think of as of the annual income of the richest 130,000 ing was that corporate investment is low,
a basket case (until it started looking like a households in per capita GDP growth technological
portent of our future). The Trustees do see the country. historical and projected innovation has
growth perking up a bit by the end of the In other slowed, and the
U.S. France Germany Japan
century—all the way up to 1.7% by 2085. words, the gap, younger people
1870– 2014– 2035– 1980– 1980– 1980–
The major reason for the slow growth should it materi- 2.5% are failing to
2010 2035 2085 2010 2010 2010
rate in GDP is that the Trustees anticipate alize, is entirely 2.0% surpass their
productivity growth to be very slow from manageable elders in educa-
1.5%
now through 2085—1.7%, well under the and not cause tion (the U.S. is
very long-term average of 2.0%. And com- for the slight- 1.0% one of the few
bine that with what they project for labor est alarm. But 0.5% countries in the
force growth—0.6%, less than half the aver- our Austerians, world where
0.0%
age of the last 50 years, and less than popu- as some wit that’s the case).
lation growth—and you get aggregate GDP named them If it weren’t
growth of 2.2% a year, more than a third (combining “Austrians,” who besides being for that persistent thing called ideological
below the average since 1870, and worse a nationality are also a school of right-wing hegemony, the real debate would be over
than any decade in U.S. history except the economists who believe in minimal gov- why our economy may not be up to filling a
1910s. And this is a growth rate that’s sup- ernment, with “austerity,” which makes basic need—keeping the elderly in a decent
posed to prevail for something like the life for a potently toxic mix) want to use fear of retirement—rather than hacking away at
expectancy of someone born today. Social Security’s bankruptcy as an excuse to this immensely successful and popular pro-
These population projections are pretty hack away at social spending and promote gram. But the hegemons prefer austerity,
much in line the Census Bureau’s. The the privatization of the system—meaning which will only make things worse. o
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Number 129 3

2009: income down, poverty up, more uninsured

Every September brings the release of the Census Bureau’s larger than the change itself. But the overall number was helped
annual income, poverty, and health insurance figures. Even in considerably by a near-6% rise in incomes for households headed
the best of times, they can make for sad reading—but 2009 was a by someone 65 or over. Under-65 households saw their income
real bust for the American masses. Incomes were down, poverty fall by 1.3%, and this did pass the test of statistical significance.
was up, and millions fell off the insurance rolls. It’s not the worst Especially hard hit were the young, foreign born non-citizens, and
performance blacks. So-called Hispanics held their own.
surrounding a 70,000 real median incomes (A few parenthetical words on the “head of
recession in household” concept. Officially, the Census Bureau
modern his- 60,000 2008 dollars, 1947–2009 dropped it in 1980, in favor of “householder.” The
tory—that honor 50,000 newer name reeks less of patriarchy, but it still
belongs to the has a lot in common with the older one’s mean-
downturn of the 40,000 household ing. The householder is typically the person’s
early 1980s. But name on a lease or deed. In the case of property
that carnage was 30,000 jointly owned by a married couple, either may
spread out over family be the householder. Though the newer term has
20,000
five years, by the dropped the assumption that the head is a man,
official Census 10,000 it does assume at least some hierarchy within the
count. We’re 1947 1957 1967 1977 1987 1997 2007 family. But given common age and racial/ethnic
only two years difference between spouses, not to mention the
into this mess, increasing diversity of families with adopted chil-
and while the recession is formally over (for now), there’s little dren and the rising prominence of “blended” families, these clas-
doubt that 2010 and 2011 will be miserable years. sifications are more than a little spongy. So when we talk about
Before proceeding, a few words on where the stats come “black” or “over-65” households, there could be plenty of non-
from. They’re drawn from a special edition of the Bureau’s
monthly Current Population Survey (CPS). The regular 325,000 real annual income of
survey, which covers about 60,000 households, is what the 300,000 poor, middle class, and
monthly unemployment figures, among other things, are 275,000 rich households, 2009 richest 5%
250,000 dollars, 1967–2009
based on. This special survey, done every March, covers
225,000
100,000 households. This is a very large sample, and 200,000
though it’s far from perfect, it provides an excellent view of 175,000
monetary well-being. It’s different from the yearly Ameri- 150,000
1973–2009 2000–2009
can Community Survey (ACS), whose results were released 125,000 poor +5.4% poor –8.7%
in late September, which covers many similar topics in great 100,000 middle +9.6% middle –4.8%
75,000 rich +64.9% rich –6.0% middle 20%
detail, and is comparable to the decennial Census (the one 50,000
done every ten years). The ACS’s history doesn’t go back 25,000 poorest 20%
anywhere near as far as the CPS, making it difficult to ana-
lyze long-term trends consistently. The right has it out for 1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007
these surveys—ostensibly because, unlike the decennial
Census, it’s not specifically authorized by the Constitution, but blacks and under-65s in the mix.)
more likely because they’re ignorant dopes who hate the truth. (And also a few parenthetical words on racial terminology. As
And now a closer look at 2009. Adolph Reed argued in LBO #121, the entire taxonomy of Ameri-
Incomes: flat poorest 20% can racial difference is extremely problematic, conceptually and
to down. The real household politically. If we were poststructuralists, we might want to use
next 20% income growth the terms “under erasure”: they have some meaning, but deeply
median income of
middle 20% by group, questionable ones. There’s a certain kind of liberal that gets far
all households—
next 20% 1989–2009 more exercised about racial inequality than the nonracialized
the income level at
middle of the dis- top 20% kind. It’s a disgrace that black people are three times as likely
tribution, meaning top 5% to be poor as whites, but there are still more poor whites than
that half the popu- poor blacks—and racializing poverty can obscure the breadth
lation is richer, and white of the problem. We’d be the last to argue that this is a post-racial
half, poorer— fell black
society, but it’s still important to make the point that racial clas-
by almost 1% last sification—not to mention the term “Hispanic,” which, as offi-
Hispanic
year, but the move cialdom always points out, is a category unrelated to race—is
-10% 0% 10% 20% 30% a problem more complex than a parenthetical note, or even an
was deemed not
large enough to entire newsletter article, can untangle. It’s not clear, for exam-
be statistically significant. That is, the likely error in the estimate is ple, what purpose is served by lumping together a dark-skinned
4 Left Business Observer

dishwasher of Dominican origin in the Bronx with a light-skinned cially striking over the longer term, with women’s earnings rising
Cuban-American banker in Miami under the common rubric “His- from 65.5% of men’s in 2000, and 56.9% in 1990. The narrowing of
panic” or even “Latino,” but that’s what the officially sanctioned the gap is a joint product of a fall in men’s and a rise in women’s;
name does.) since 2000, for example, women’s real earnings are up 3.1% while
(Ok, end of parentheses) men’s were off 5.8%.
Taking a longer-term look, median household income in 2009 But, and this is a very important point, the narrowing of the
was just 2% above where it was in 1989, even though real GDP gender gap has a lot to do with more women working full time,
was up 63% over the same and more gaining advanced degrees. The gender gaps
period. Of course, population is 80% median household incomes, for full-time, year-round workers actually rose 0.1 per-
up about 25% over the period, percent of non-Hispanic whites centage point in 2009, and the narrowing of the gap
75%
and not all of GDP takes the since 2000 for these fully employed workers was about
form of personal income— 70%
half as impressive as the narrowing for all workers
some of it goes to corporations, (including part-timers, that is). The gap is narrowing
some to government. But real Hispanic within educational and occupational groupings, but
65%
disposable income per capita— less impressively so than the overall gap is.
the total of income after taxes 60% Still, the male advantage in the labor market con-
throughout the entire economy black tinues to erode—and the educational trends suggest
divided by the population—is 55% that this is almost certain to continue. The number of
up 40% over the last twenty women with bachelor’s degrees or higher surpassed
50%
years. So, on paper, or its silicon that of men for the first time in 2008, and women’s lead
1972 1979 1986 1993 2000 2007
equivalent, were things being widened in 2009. The number of women with master’s
distributed equally, the average degrees surpassed that of men in 1998. Men still domi-
household would have gained about 20 times more income than nate doctoral and professional degrees, but their advantage is nar-
it has in reality. rowing. As a result of this, younger women’s earnings are begin-
The reason for this huge disparity, of course, is that the rich ning to exceed men’s, especially in major metropolitan areas. That
have gotten most of the benefits of economic growth over the advantage erodes once women take time off to have kids, alas.
last few decades. The top 5% of the population, Overall, the
according to the Census numbers (which badly 90% women’s incomes as percent of men’s U.S. income dis-
understate things, for technical reasons we’ll go tribution, as mea-
80%
into in a moment) has gotten 25% of the growth in sured by the Gini
income over the last twenty years—and the top 20% 70% index (see graph,
year-round,
altogether has gotten 54%, nearly three times what p. 1) rose in 2009
full-time workers
would have been an equal share. 60% to within a hair of
A few other notes on income. The average its highest level
50%
black household’s income fell to just below 60% since 1940, and to
everyone with income
of the average white household’s, down nearly 2 40% just about where
percentage points from last year, and extending a it was in 1929. It’s
downtrend that began when the boom of the 1990s 30% interesting that
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006
burst in 2001. At its 2000 peak, the average black things got more
household hit 65% of the white average. The aver- unequal during
age Hispanic household’s income was just below 70% of its white the early years of the Great Depression, with the Gini peaking
counterpart—down a couple of points from a few years ago, but in 1932 and then beginning a long decline into its 1968 low. You
basically in the neighbor- have to wonder if the Great Recession is repeating that history
hood it’s been in for years. Gini index by race/ethnicity, 2009 in muted form. For a detailed explanation of the Gini index,
The average Asian house- (higher = more unequal) see the LBO website.
hold’s income was 120% of all It’s even worse. For several reasons, the Census num-
the white average last year, bers understate incomes at the top. One is that the very rich
also more or less where it’s white can’t be bothered answering questionnaires from pesky
been for several years. enumerators. And another is that the Census Bureau treats
Progress on gender black all incomes over a certain amount—it rises over time, but it’s
gaps was mixed in 2009. around a million dollars now—as if they were that amount.
Hispanic
More men lost their jobs The stated reason for this is to protect confidentiality, since
than women, so the gap the records are available for public use. Maybe. But the effect
Asian
between male and female is seriously to understate how well the very rich have done.
earnings narrowed, with 0.400 0.425 0.450 0.475 0.500 That limitation can be overcome by looking at tax records
all women workers earn- (which also understate things, given the propensity of the rich
ing 71.6% as much as to hide their income). The economists Thomas Piketty and
men—up 1.5 points on the year. The narrowing of the gap is espe- Emmanuel Saez have done that in great detail, putting together a
Number 129 5

massive and wonderful history of income distribution in the U.S. an emergency measure taken when a family hit a crisis, not some-
going back to 1913. thing to live on indefinitely. No, they needed something in a hurry
The conclusion from comparing that work to the Census num- and went with that. And the Census Bureau just adjusted that line
bers: by missing the seriously rich, the Census understates things for inflation ever since, with no notice paid to rising GDP or aver-
by almost 2/3: Piketty and Saez have the top 5% gaining almost age incomes, or the changing nature of household budgets (like
75% from 1989 to 2007, compared with 29% for the Census survey. the relentless rise in medical care and college tuition or a need for
(Sadly, 2007 is as child care that didn’t exist in the days of the
far as their data 60% one-paycheck family).
poverty rates by race, 1960–2009
goes, but it prob- So, conceptually, a poverty income
ably wouldn’t 50% today is exactly the same as it was almost
change much if 50 years ago, even though average
you took it out 40% incomes risen. For example, the pov-
another couple of erty line for a family of three was 43% of
years.) The reason 30% black median family income in 1959, the year
for the difference is Hispanic the poverty stats begin; it was 29% in
all
the intense action 20% 2009—and that doesn’t even adjust for
at the very high the fact that families are smaller now than
end. The top 1% 10% they were 50 years ago. But since the aver-
was up more than white age family’s income has grown far more
100% over those 0% slowly than GDP over the last fifty years,
18 years. Take 1960 1970 1980 1990 2000 the gap between the poverty line and GDP
them out of the top is even sharper. In 1959, the poverty line
5%, and look just at the 95th to 99th percentiles, and they were for a family of three was 81% of per capita GDP; fifty years later, it
up a mere 38%—still well above the Census measure, but at least was 37%. A more honest poverty line—like the one used by many
approaching life in the same universe. academic researchers, half the median
Even within the top 1%, the real action was household’s income—would produce
at the high end: the top 0.01%—our 12,000 all poverty rates numbers nearly twice what officialdom
richest households, with incomes averaging by household reports.
$35 million a year—were up 215%.That almost types, Yet despite these undemanding stan-
families 1989 & 2009
30 times the increase that Piketty and Saez dards, nearly 44 million, or 14.3% of
report for the bottom 90% of the population. In Americans, were officially poor in 2009,
other words, an enormous portion of the gains female- up from 13.2% in 2008, the highest level
headed
of economic growth have gone to just a few since the early 1990s. It’s almost certainly
thousand hyper-rich. up this year, since it tracks the unemploy-
unrelated 1989
All that said, the Census numbers are a individuals ment rate pretty closely, and this 2010’s
2009
good measure of broad trends, even if they jobless rate is higher than 2009’s. The rate
miss life in the stratosphere. The story they tell, 0% 10% 20% 30% 40% among white households was just over
supplemented with the Piketty-Saez numbers, 9%; for black and Hispanic households,
is this. For the last two decades, the very rich have really raked it over 25%, or nearly three times the white rate. It was almost that
in, the merely rich have done quite well, the upper middle class high for households of any race with children under 6—yes,
has done more or less OK, the middle ranks have merely held nearly one in four young kids in the USA is officially poor.
their own, and the bottom As with income, the elderly have done
40% of the population has 40 better than the rest of the population. In 2009,
poverty rates by age, 1959–2009
been lucky to tread water, 35 20.1% of all people under 18 were officially
if that. And there’s no sign 30 poor, rising for the third consecutive year to a
65+
that any of this is about to 25 level at the high end of this demographic’s his-
under 18
change. 20 torical range. The poverty rate for those aged
Poverty: up. Before 15 18–64 rose for the second consecutive year
discussing official penury, 10 to 12.9%, its highest level since the early mid-
it’s important to say that 5 18–64 1960s. But the poverty rate for those over 65
the U.S. poverty line is an 0 fell sharply, to its lowest level in the fifty-year
extremely stingy thing. It’s 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 history of the series.
based on research done That must not be read, however, as a fur-
in the 1950s that showed that the average household spent a third tive call to generational warfare. It’s a very good thing that elderly
of its income on food. So, the Johnson administration, eager for poverty continues to decline even in a crappy economy—though
metrics in its war on poverty, decided that a poverty line would be the Austerity Party, which has it out for Social Security, wants
three times the minimal food budget computed by the Agriculture you to believe otherwise. Austerians, as they say, love to cloak
Department. Never mind that that food budget was considered cont. on p. 7
6 Left Business Observer

MONEY
federal funds [%] money supply growth
5 20%
4 15%
3
10% M1
2
5%
1 M2
0 0%
Oct Dec Feb Apr Jun Aug Oct Sep Nov Jan Mar May Jul Sep
2009 2010 2009 2010

Despite the drumbeat coming from the austerity party, Fed chair Ben Bernanke says the central bank is ready to stimulate as necessary should the economy start
falling apart again. And despite all the professions of worry about an inflationary threat and/or other credit risks, long-term interest rates have fallen pretty hard in
recent months, and the dollar remains surprisingly strong.

For a supposedly dynamic thing, the
U.S. economy goes through long phases
of just doing the same thing over and over.
In the 1990s, it was an often implausibly
strong expansion that was eventually
revealed as the unsustainable byproduct of
a bubble. In the 2000s, it was a moderately
long post-bubble bust followed by the
weakest expansion in recorded history,
accompanied by a preposterous hous-
ing bubble (and, at first, a bull market in
empire). And then it was the Great Reces-
sion, followed by the Awful Recovery.
Which, among other things (like a depress-
ing political stasis), makes writing this
page an occasional exercise in “as we’ve
been saying for some time….’
So, as we’ve been saying for some time,
recoveries from financial crises, as the
works of the Carmen Reinhart, Kenneth
Rogoff, and the IMF have shown, are gen-
erally miserable things. Typically, even if
GDP growth recovers, employment takes
years to return to its old levels.
In September, the U.S. lost 95,000 jobs.
Strip away the temporary workers hired
to do the 2010 Census over the summer,
and we lost 18,000. But state and local
government also shed 39,000, a very large
loss, and the worst in percentage terms
since 1982—with much of the loss coming
in education. Their fiscal crises are really
starting to bite. The private sector hired
64,000, about a third what they’d do in an
average recovery. Among the top gain-
ers: health care and bars and restaurants,
which together contributed 90% of the pri-
vate sector gain. It’s very much like what
was going on back in 2006: overeat, over-
drink, and check into the hospital.
Over the last year, we’ve added 344,000
jobs, a number that would have been a
pretty good month in the old days. At this
rate of job gain, it would take about seven
years to make up for all the jobs lost since
the recession began.
Official interruption. Of course,
the recession is over! In late
September, the Business Cycle
110 US dollar indexes
100
Dating Committee of the
90
National Bureau of Economic
80
Research—a panel of eight major
economists who are the official 70
arbiters of recession and recov- 60 Sep 08
ery for the U.S. economy—
declared that the Great Recession ended
in June. Not June 2010, but June 2009.
This may surprise a civilian audience in at
least two ways. First, what took them so
long? The answer is that they really really
want to be sure, and a 15 month delay is
actually about average. And second, the
news that the recession is over may strike
some people as strange. There were over
439,000 fewer jobs last month than when
the recession officially ended in June 2009, work, and so aren’t counted as officially
the unemployment rate is a tenth of a point unemployed. But that’s also happening in
higher, and the share of the adult popula-
tion with a job is off by almost a full per-
centage point.
But, you know, GDP. Real GDP, that
is the total value of goods and services
produced in the U.S adjusted for inflation,
stopped shrinking in the middle of last
year and is up a miserable 1.7% since then. crisis recession. And with so many young
And since, to a bourgeois economist, the
economy is about money and not people,
the recession is over.
Some recovery. But for many
people, it’s not. Much of the recovery in
employment, such as it is, has come in
the form of part-time work, and not by
worker choice. The number working
part time only because they couldn’t find
full-time work—part-time for economic
reasons, in the jargon—rose to a record
level, when measured as a percentage of
those employed. The broadest measure
of unemployment, the
so-called U-6 rate, which
broad includes those unwill-
ing part-timers along
with those who’ve given
1973=100 up the job search as
Sep 09 Sep 10 hopeless, rose to 17.1%,
matching the year’s high
and not far from a record.
Huge numbers of people have just
dropped out of the workforce or never
entered. Younger people took it espe-
cially hard in the downturn—in fact, the
further you go up the age ladder, the less
the damage. Long-term unemployment set
records during the recession, and it hasn’t
come much off those highs. After a long
while, people often give up looking for
record numbers: almost 35% of August’s
unemployed dropped out of the labor
force in September, an all-time high since
these numbers began in 1990.
Although it doesn’t look like we’re
entering a second leg of recession, we’re
still deep in the long slog out of a financial
people not finding work, and so many
former workers languishing outside the
labor force, the population’s skills are
either remaining undeveloped or deterio-
rating. Combine that with cutbacks in edu-
cation and you have a potent prescription
for social decay. o
Number 129 7

income, poverty, etc. (cont. from p. 5)

their meanness under a false sense of from the ranks of those enjoying insurance very volatile, and a mere snapshot can be
generational equity, but they shouldn’t be from their jobs. Last year, only a bit over misleading.
allowed to get away with it. Decent social half—55.8%—of Americans were covered So, a bad year for the mass of the Ameri-
policy could extend this trend to the rest of by employer-based insurance, down from can population, following two decades
the population, but this isn’t on offer right 58.5% in 2008, and 64.2% in 2000. The of struggle, and it’s likely that 2010 was
now. Medicaid share rose, from 14.1% of the equally bad or worse. And this news will
Health insurance. And the percent- population in 2008 to 15.7%, in 2009, as be reported for a day or two, and then
age of people people lost forgotten, as the TV moans about the suf-
without 35% share of population without health insurance their jobs and ferings of the rich, who desperately need
by age, 1988–2009 slipped into
health insur- 30% their tax breaks renewed. o
ance for the 18–34 poverty.
25%
entire year— A few
and not just 20% words about
35–64
a spell, so whether
15% miscellany (cont. from p. 8)
these are these are
10%
lowball num- under 18
lowball num- Facing complaints from what today are
bers—rose 5% bers. Some called “savers,” Charles Bean, the deputy
65 and over
more than 0%
researchers governor of the BoE, is telling them to
a percent- 1988 1992 1996 2000 2004 2008
assert that suck it up. His advice: “Savers shouldn’t
age point, to Note: the drop between 1998 and 2000 was mainly because of this survey necessarily expect to be able to live just off
16.7%—or technical changes to the underlying survey. The Census Bureau significantly their income in times when interest rates
51 million doubted the numbers were so high, so they became more overstates are low. It may make sense for them to eat
persistent in their questioning. the number into their capital a bit.”
people. Since
people over of people Time was that eating into capital was
65 are covered by Medicare, giving them without insurance for the entire year. practically a sin. An old friend of LBO’s,
near-100% coverage, it’s worth looking at Maybe. It is true that people cycle in an the issue of a long line of Presbyterian
the under-65 crowd: almost 19% of them out of insurance—employer to nothing to ministers, said that his father was once
were without insurance for the whole year. Medicaid—and they may not be reporting approached by a suffering congregant
The share rises to 30% for young adults, their status correctly. But it’s also likely who confessed, with palpable anguish,
those under 35. that in a given year, half again as many that he’d been dipping into principal. Now
Much of the decline came, of course, people—meaning nearly a quarter of the we have the deputy governor of the BoE
nonelderly population—spend at least a urging people to do just that.
Chart details, facing page: Fed funds and money few months uncovered. Over the course Britain, once the workshop of the
supply: Fed data. The fed funds rate is the interest rate
banks charge each other for overnight loans; it is the most of a decade, more than half the popula- world, makes next to nothing these days.
sensitive indicator of Fed policy. Dollar indexes are two tion experiences some time without health But they practically wrote the book on
of the Fed’s indexes of the dollar’s value;”broad” is com-
posed of 26 currencies, and the “major,” of seven. Data insurance. (By the way, similar things are living off one’s capital. Who could ever
through 7/21/10. true of poverty.) Life in America can be have imagined it would come to this?

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Country 129

Gendering liberalization. It’s been
something of a staple of antiglobalization
activism that trade liberalization is bad for
women, though evidence for the claim is
often lacking. In a recent working paper
from the National Bureau for Economic
Research, Ernesto Aguayo-Tellez, Jim
Airola, and Chinhui Juhn argue that
liberalization during the 1990s—the period
just before and after NAFTA took effect—
wasn’t a bad deal for Mexican women.
The authors look at two sets of surveys,
one of Mexican households and the other
of employers. They find little change in
the gap between men’s and women’s
wages over the period for full-time
workers. Adding in part-timers and the
self-employed shows a mild reduction in
this gender gap. The authors conclude
from this that liberalization—meaning
the lowering of tariffs and the opening to
foreign investment characteristic of the last
couple of decades—had little or no effect
on the gender gap (which, by the way, was
smaller than that in the U.S.).
But employment levels for women were
a different story. In 1990, 21% of working
age Mexican women were employed for
pay; ten years later, 35% were.
Economic theory suggests that an influx
of new, inexperienced workers should act
as a drag on their wages, so maintaining
wage parity could actually be a better-
than-expected result.
What happened? Liberalization led
to the rise of industries like clothing
and electronics, where women
workers predominate. The employing
MISCELLANY
establishments were larger and more
capital-intensive than average, which
suggests that the jobs were also generally
“better” than average.
Did rising employment make women
better off? To test this proposition, econo-
mists have looked at the composition
of household expenditures. The more
devoted to men’s clothing and “tobacco
and alcohol,” the more power men are
thought to have within the household; the
more to women’s clothing, education, and
children’s goods, the more power women
are thought to have. The authors find a
shift towards “women’s” goods during the
1990s, suggesting that expanding employ-
ment did increase women’s bargaining
power in the household.
Of course, work like this offers only one
take on a complex reality. Many Mexican
women might have preferred not to go
to work in factories, so these sorts of stats
tell us nothing about their happiness. The
conditions of their work could have been
appalling—exposed to toxic chemicals
or subject to sexual harassment. The
authors offer only indirect evidence of
what happened to the bargaining power
of women within their families: maybe the
consumption mix isn’t the last word on
power relations. And there’s no doubt that
the economic security and independence
of women could have been better served
in a more humane labor market—and the
general course of economic development
served by more rational planning—than
the market-driven one encouraged by
NAFTA. But all that allowed for, the notion
Brooklyn NY 11238
242 Greene Ave #1C
Left Business Observer (ISSN 1042-0134)
that globalization is bad for women has to
be more rigorously argued than it has been
by the likes of Vandana Shiva.
A footnote: Many on today’s left are in
love with small, local business. But has
LBO has often argued, small is frequently
not very beautiful: Aguayo-Tellez et al.
cite earlier work showing that gender gaps
are wider in small firms than large. Add
that to generally higher wage and benefit
levels and fewer workplace injuries in
larger firms than smaller and you have to
wonder what those infatuated by tininess
are thinking.
Sacrilege! Writing during the Great
Depression, John Maynard Keynes
advocated what he called “the euthanasia
of the rentier”—a state-imposed regime
of low interest rates designed to promote
real investment and snuff out the class of
people once known as coupon-clippers,
who lived only on the interest from their
investments. Needless to say, Keynes’s
suggestion was never embraced by the
governments of the world.
Until recently, that is. Because of the
deep sickness of the British economy,
the Bank of England (BoE) is considering
further reductions in interest rates from
already-low levels—that despite having
about the highest inflation rate of any rich
country. With deep budget cuts coming,
the outlook for a resumption of economic
growth in the UK is looking mighty grim,
which is why the Bank is contemplating
further monetary stimulus.
cont. on p. 7
129