Wall Street seems to be suggesting that the economy may be bottoming out. According to the New York Times today, although this was a quarter of "steep decline," there are some glimmers of hope in consumer spending and home sales and the expectation that the stimulus spending will start soon to have a real impact nationally. See U.S. Economy in Second Straight Quarter of Steep Decline, New York Times, Apr 29, 2009.
The bad news, of course, is that while bankers and corporate CEOs seem to be generally doing okay, and banks that took government money are even making their case for paying their same old bonuses, ordinary Americans are hurting pretty badly, with no quick upturn in sight. The same article warns about increases continuing in job losses, and of course the bankruptcy of one or more of Detroit's Big Three will have harsh repercussions on workers, even beyond the draconian concessions demanded of labor.
Economists warned that job losses are likely to continue through the rest of the year. The current unemployment rate of 8.5 percent is expected to rise as high as 10 percent as businesses reduce their costs and put off hiring, buckling down for more bad times.
I am heartened that there are some economic signs of improvement that might point to a leveling off of the economic spin, if not a real upturn, before the end of the year. That is, after all, the reason that stimulus spending and bank bailouts are ultimately justified--to save the overall economy as a functioning institution that can serve the American people.
But I am concerned that we haven't yet taken action on some things that seem necessary to restore a workable equilibrium. I think they include:
1) We need to make a number of changes specifically related to financial institutions and instruments:
a. Financial institutions need to be downsized, and anti-trust rules renewed, so that no one institution is allowed to grow so big that its failure can cause a significant market disruption.
b. Both wayward financial instruments (derivatives) and wayward financial institutions (hedge and private equity funds) need to be brought into the fold of increased and carefully targeted regulation to limit the speculative betting;
c. Rewards need to be integrally tied to risks to ensure greater accountability. that likely means that compensation mechanisms need to be adjusted and leverage limits need to be imposed on financial companies (commercial banks, investment banks, hedge/private equity funds, insurance companies) to prevent the incentive of taking bigger and bigger bets with "other people's money" to win the chance of a gigantic bonus payday;
d. The levers of financial power need to be adjusted--student loans need to be funded directly, without the "pass-through" that lets banks rip off a spread for no risk; mortgage loans must be made modifiable in bankruptcy; and usurious credit arrangements must be banned for credit card issuers. Congress is too easily swayed by bankers on Wall Street, and needs to start listening to workers on Main Street.
2) The power of labor needs to be developed to help counter the inordinate power of capital that pushes towards unstable levels of inequality. It's time for undoing some of the harms of the Taft-Hartley anti-labor laws that give employers most of the cards in the deck. Employers today can treat their workers as a captive audience for anti-labor rhetoric, but labor organizers are very restricted in access. These rules need to be changed. The Employee Free Choice Act would be a start--employers shouldn't have the right to dictate to workers the method by which workers will express their views. Congress has to toughen up and quit listening so devotedly to the WalMarts and other aggressively anti-labor big businesses.
3) Tax laws need to be made more progressive, from the estate tax, to the payroll tax, and the income tax. It's interesting to compare now to the early twentieth century for reasons other than the Great Depression. Back then, there was a push for a national sales tax instead of an income tax. Andrew Mellon as Treasury Secretary pushed insistently for tax laws that placed the burden of taxes on workers and left capitalists to enjoy their wealth, finally getting a law more to his liking in the 1926 Revenue Act . We've been in a similar situation, with considerable effort being expended in a campaign to convince Americans to accept a regressive consumption tax while eliminating or reducing drastically the estate tax. The aggressive corporatist agenda has pushed for lower and lower rates on corporations and income from capital. It's time to push back.
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