WPA 2.1: Obama-Biden's New Deal

[leveymg]

When George W. Bush nationalized the U.S. banking system, he may have had no notion where this would lead America. Just as Hoover led to Roosevelt, Obama is about to take the U.S. into the next stage of the New Deal.

To put it all up front, the U.S. is about to embark on a new era of government-centered economic reconstruction. This will focus on raising incomes of middle-class families impacted most by globalization. It will modernize domestic infrastructure and create an energy grid that is more efficient, lower carbon-emitting, and domestically self-sustaining.

There's another delicious irony here. This is the end of Global Free Trade, as we’ve known it. Multinational corporations, which have politically dominated Washington, are fading from view as concerns for American workers take center stage.

Successful management of the economic emergency is essential to the political survival of the Obama Administration and the incoming Democratic Congress. Meeting that Challenge will be Job One in Washington during the next four to eight years.


Within weeks of its first announcement, the Obama economic stimulus package has already expanded to the most ambitious federal civilian jobs creation program since FDR’s Works Progress Administration (WPA) of 1935.

The Obama Administration now expects that some 3.5 million additional jobs will be shed by the private sector in 2009, driving unemployment rates up from 6.7 percent to above nine percent. This prompted Obama to gear up with a more aggressive strategy, the Washington Post reported. The package is expected to amount to at least $750 billion with some advisors calling for up to $1.3 trillion in federal stimulus spending in the next two years. As it is evolving, the current plan calls for funds to be allocated into three funds: (1)

• Roughly $350 billion would be invested to rebuild roads and bridges, modernize schools and help hospitals and doctors switch to computerized patient records. That category also would include projects aimed at improving energy efficiency, such as weatherizing buildings, as well as aid to the poor through expanded unemployment and food-stamp benefits.

• at least $100 billion going to the states, primarily to cover the rising cost of health care for the poor.

• Obama's team has also laid out a substantial tax-cutting agenda that will include a $1,000 tax credit for working families, Obama advisers said, a provision that congressional sources said is estimated to cost about $140 billion over two years. Other tax provisions could include tax breaks for businesses, an expansion of the earned-income tax credit for the poor and new credits for tuition and alternative energy.

That accounting leaves between $150 and $700 billion in unspecified funds that can be put to these or other uses. Given the projected rise from current BLS unemployment numbers from 7.9 to over 11 million, one should expect that much of the remainder will go into the largest federal works program since the Great Depression.

The Post further reports that the Obama economic "team is looking into public-private partnerships as a way to make the money stretch" to deal with the expanded number of jobless.

Another clue that this will not just be another pork barrel stimulus package is the fact that "Democratic leaders, meanwhile, have agreed to ban earmarks."

***

There are three major initiatives that Obama and Congress have already announced they will pursue: "green" domestic jobs creation (2); debt remediation (3); and fair trade (4). This is almost certainly going to come at the expense of the large multinational corporations that have come to dominate the U.S. economic landscape in recent decades. This will require a change in the way that many companies do business.

Among the many concessions and sacrifices they should anticipate will be strong disincentives to offshoring referenced in the Obama-Biden website. Under Trade issues there is the vow to: "stand firm against agreements that undermine our economic security". The particulars are as follows (5):

• Fight for Fair Trade: Obama and Biden will fight for a trade policy that opens up foreign markets to support good American jobs. They will use trade agreements to spread good labor and environmental standards around the world and stand firm against agreements like the Central American Free Trade Agreement that fail to live up to those important benchmarks. Obama and Biden will also pressure the World Trade Organization to enforce trade agreements and stop countries from continuing unfair government subsidies to foreign exporters and nontariff barriers on U.S. exports.

• Amend the North American Free Trade Agreement: Obama and Biden believe that NAFTA and its potential were oversold to the American people. They will work with the leaders of Canada and Mexico to fix NAFTA so that it works for American workers.

• Improve Transition Assistance: To help all workers adapt to a rapidly changing economy, Obama and Biden will update the existing system of Trade Adjustment Assistance by extending it to service industries, creating flexible education accounts to help workers retrain, and providing retraining assistance for workers in sectors of the economy vulnerable to dislocation before they lose their jobs.

• End Tax Breaks for Companies that Send Jobs Overseas: Barack Obama and Joe Biden believe that companies should not get billions of dollars in tax deductions for moving their operations overseas. Obama and Biden will also fight to ensure that public contracts are awarded to companies that are committed to American workers.

• Reward Companies that Support American Workers: Barack Obama introduced the Patriot Employer Act of 2007 with Senators Richard Durbin (D-IL) and Sherrod Brown (D-OH) to reward companies that create good jobs with good benefits for American workers. The legislation would provide a tax credit to companies that maintain or increase the number of full-time workers in America relative to those outside the US; maintain their corporate headquarters in America if it has ever been in America; pay decent wages; prepare workers for retirement; provide health insurance; and support employees who serve in the military.

In addition to trade, tax, and outsourcing, another area where large multinationals can expect to lose their competitive advantage in the American market is business immigration, particularly nonimmigrant work visas. They should, at the very least, expect delays in guest worker programs and H-1B expansion that had been a sweetener in previous Comprehensive Immigration Reform Act (CIRA) that didn’t clear Congress in 2004 and again in 2007. (6)

The current economic crisis provides convincing demonstration of the effects of off-shoring, rising unemployment and underemployment, and declining median wages. (7) On a macroeconomic level, the causes of the collapsing mortgage lending sector have been a severe hollowing out of the middle-class incomes during the past eight years. The "recovery" that followed the dot.com blowout and 9/11 was truly jobless, as outsourcing and off-shoring spread from large multinational manufacturers to small and medium sized companies. This resulted in some pretty nice savings in labor costs -- the benefits passed primarily to upper management and to shareholders -- but also resulted in widespread underemployment as millions of middle-class people lost well-paid full-time positions and either went P/T or were reduced to "consulting."

The impact of the loss of income was masked by borrowing against notional equity in residential values. But, that source of funds closed down last year. What we've seen thereafter is a lockup in credit, the result of a cascading freeze in lending that has spread out systemically from mortgage finance companies on Main Street to sink Lehman Bros. and others on Wall Street.

The big move by hedge funds in October that dropped the Dow 25 percent simply sucked out all the froth that was still churning in markets. Big fund investors have nowhere to go but into government securities, which now produced real net yields in negative numbers.

This whole thing happened because of a middle-class jobs and incomes crisis that nobody wanted to acknowledge because to do so would require reexamination of the dominant paradigms of our age: off-shoring, income inequality and consumer debt.

Policy responses to these problems seem likely to reverse several decades of governmental encouragement of globalization:

JOB 1 – Reemployment and Credit Reform

The federal government will work to re-create jobs in America, millions of full-time positions for middle-class Americans downsized and off-shored during the Bush years, and work to prevent further offshoring by multinationals. (8)

In addition to generating their own unemployment and income inequality, multinationals corporations have had the effect of driving their competitors out of business, further eroding the domestic jobs base. Both sets of destructive dynamics are illustrated by the case of what happened when Ford and GM spun off large component parts manufacturing, and these went offshore (9):

The spread of global sourcing is exemplified by auto-component giants Visteon and Delphi. Initially spun off from their respective parent companies, Ford and General Motors, Visteon and Delphi engaged in national competition. Last year, Ford and GM both announced that they were shifting to a global sourcing model and that their spinoffs would in future have to meet the China price if they wished to keep business. Given their higher union wages and benefits, both Visteon and Delphi have been shedding jobs and shifting production offshore, including to China. However, both have found it increasingly difficult to compete, and Delphi filed for bankruptcy protection last October.

Multinational corporations, having slain many of their domestic rivals, are moving abroad, seeking to dominate developing markets. Even in India, they have found a way to undercut local service companies and drive down wages (10):

Multinationals are able to offer lower prices than Indian companies, because the expectations of the financial markets about their profit margins are far lower than for Indian outsourcing companies . . . The margins expected for multinational service companies is less than 15 percent, while it is close to 30 percent for Indian outsourcing companies. As the scale of the offshore operations of multinational companies has increased, their costs have also dropped as they are amortized over a larger number of clients . . .

What has been the response of multinationals to the crisis in U.S. credit and assets markets? Believe it or not, they are planning on further off-shoring. A survey published in October of 66 large multinational companies shows that 42 percent planned to increase outsourcing as a way of containing costs and limiting exposure to inflation risks in their domestic operations. Only six percent anticipated an increase production in the U.S. in the coming year. (11)

This is contributing to fears that rising unemployment and declining incomes could lead to another Depression – all other considerations (budget deficits, WTO rules, financial industry pressure) are secondary to preventing collapse.

Employment creation will be by a combination of government stimulus and incentives to private companies, and by direct expansion of public sector hiring in regulatory agencies gutted out by the Bush Administration. The immediate goal is to reemploy and raise incomes among the large numbers of long-term laid off and underemployed in sectors hit hardest by globalization.

The highest priorities of Washington lawmakers are to keep people in their homes, and to reign-in predatory lending. The costs of household debt servicing are too high for many families, and lenders are being encouraged to restructure debt. Voluntary measures appear to have failed with the mortgage industry. Few lenders have thus far been willing to renegotiate terms with borrowers to avoid foreclosures (12). In the credit card industry, Congress also seems likely to take stronger action to lower interest rates, and to accelerate the implementation of a current Treasury reform plan, which will allow the credit card industry eighteen months to sort things out (13). If lenders can’t or won’t work quickly with borrowers to reset loans, they too will have to be restructured. But, any approach that does not raise middle-class incomes, bring debts in line with what people can pay, and prevent foreclosures is just part of the problem. Washington is finally beginning to recognize these facts of life. Far stronger measures to contain a spreading collapse of household credit seem imminent.

WPA is here again. Happier days may follow.

_____________________
END OF PART 1. 2008, Mark G. Levey.

(1) Washington Post, "Obama Expands Stimulus Goals", (December 20, 2008),
http://www.washingtonpost.com/...

(2)See, American Progress, "Green Jobs 101" (December 11, 2008),
http://www.americanprogress.org/...

(3)Overly indebted homeowners and consumers may have a range of options to cut their monthly expenses to more manageable levels. The federal government is already encouraging lenders to renegotiate loans. Debt remediation and debt settlement are two forms of these workouts. See, http://www.ftc-mortgage.com/...

(4)See, Obama-Biden, Plan to Strengthen the Economy, Trade subsection, http://www.barackobama.com/...

(5) Obama-Biden, Trade, Ibid.

(6) See, ILW.com, Comment, "Santa Arrives Late", (December 17, 2008), http://www.ilw.com/...

(7)Contradictory cost-benefit calculations for off-shoring have long been the stuff of dueling Washington think-tanks and academic journals. The spectacular collapse of Wall Street in 2008 provided a most convincing final argument against the Free Market/Free Trade orthodoxy that dominated politics since the early 1980s. It also dispelled the notion that Wall Street is the eternal center city of the global financial system. The collapse of global banks has gone a long way to kill the myth that globalization is inevitable and really a good thing, appearances to the contrary.

(8) See, "Multinationals Planning to Increase Off-shoring in Response to Global Uncertainties", (October 18, 2008), http://www.reuters.com/...

(9)See, Thomas Palley, AsiaTimes, "The U.S. and the Politics of Outsourcing", March 7, 2006, http://www.atimes.com/...

(10) See, John Ribeiro, InfoWorld "Indians Face Offshoring Competition from Multinationals ", http://www.infoworld.com/...

(11) See, Reuters, "Multinationals Planning to Increase Offshoring in Response to Global Uncertainties" http://www.reuters.com/...

(12)See, H.R. 5679, The Foreclosure Prevention and Sound Mortgage Servicing Act of 2008, ; also, see, testimony of Julia Gordon, Center for Responsible Lending, (April 28, 2008) http://www.responsiblelending.org/...

(13) See, NY State Dept of Consumer Affairs, "Federal Credit Card Reform Falls Short of the Mark" (12/18/2008), http://www.consumer.state.ny.us/...

[movonne]

1. But, but what about Warren thingy?

[SoCalDem]

2. "...to keep people in their homes..."

This is the only quibble I have.. MANY people "bought" houses they could NEVER afford to stay in..

I like the idea of aiding people who have been IN a house for a while, and who did NOT use it as an ATM, but for the $15 an hour person who "bought" a $400K house with zero down, intrerest only loan for 3 years..well, they need to find an apartment somewhere and start up a savings account for when they are truly ready to buy a house..

[cabluedem]

3. Ha-ha! You funny guy! You smoke too much loco weed? Ha-ha!!

[babylonsister]

4. Kick and recommend for an excellent post. Lots of hard work

and hard times ahead for many, but the work will be sorely appreciated.

This rebuilding will be very interesting to watch, and I hope the new admin is up to the task.

[EFerrari]

5. K&R

:kick:

[Judi Lynn]

6. There's so much at stake now. It does seem the shared hardship has brought a lot of us

a much closer sense of community, as we watch the moments count down to our first real chance to see an organized plan go into place to repair the horrendous damage done to the country since we went to hell in a handbag in the 1980's.

Thank you for spending the time and effort providing this thoughtful material here. Will definitely be looking for more of your comments from now on.

This was helpful.

[Judi Lynn]

7. Kicking.

:kick: :kick: :kick: :kick:

[bobthedrummer]

8. K&R#10

Thanks Mark.
:thumbsup:

[malaise]

9. Kick

for those who have not seen this

[ThomWV]

10. Its not "2.1", its "2.0" and like all new systems it too will require revision

Nothing comes out of the box right the first time around. There will be a 2.1, but for now we are entering 2.0.