Les Leopold

Author, "The Looting of America"

Posted: July 2, 2010

Wall Street's Answer to Unemployment

Take a hard, cold look at June's tragic unemployment numbers. The Bureau of Labor Statistics rate is 9.5 percent, roughly where it's been for more than a year. The BLS jobless rate (U6) is 16.5 percent -- nearly 30 million people are without jobs or forced into part-time work. More than 6.7 million workers have been unemployed for more than 27 weeks. The administration can spin these numbers like a top, but Americans know in their bones that no one in Washington has a real plan to get our people back to work.

But Wall Street has a plan and a new logic that is quietly infiltrating the media and policy circles. It's called "structural reform." Although it is likely to involve some additional pain and suffering, it's being sold as the new the magic bullet for our ailing economy. The story goes like this:

1. Banks and consumers took on too much debt during the housing boom (largely because of misguided government policies that enabled people who really couldn't afford homes to buy them).
2. When the bubble burst, the government had to bail out the financial system to avoid a devastating collapse. This essentially moved debt from the books of private banks (and consumers) to the government (mostly the Treasury, the Fed, Fannie and Freddie).
3. But there's a real limit to how much debt the government can absorb. Look how markets and voters around the world have reacted to rising deficits. (Think Greece, Germany, the Tea Party...)
4. This signals that the Keynesian moment is over. The government just can't keep spending its way out of this mess by shouldering bank debt or passing huge stimulus programs.
5. That leaves only one last viable option: Structural Reforms!

Structural reform is Wall Street speak for reducing what is often called the "social wage" for working people in every way possible: increasing the retirement age and cutting Social Security benefits, government employment and benefits, funds for public education, defined benefit pensions, and health care expenditures....and of course, extended unemployment benefits as well. (The Senate's refusal, yet again, to extend unemployment for 1.3 million laid-off workers comes straight from the "structural reform" playbook.)

Allegedly, the net result of these "reforms" is to reduce public debt while making the labor market more "supple" so that employment and wages can rise and fall quickly in response to shifting supply and demand. This "freer" labor market reduces the employer's cost of hiring workers, which is supposed to trigger a major jump in private sector employment.

And if all that cutting doesn't cause a jump in hiring, then cut more. Like Ireland. It hasn't worked yet--but surely someday soon....

Political cannibalism is the new normal. Unfortunately "structural reform" brings out the worst in us, with brothers and sisters turning on each other all across the land ("Don't cut us--cut them!"). And then there are those who've given up the fight altogether and now think austerity is a good thing, as Steven Greenhouse documents in his chilling piece in Monday's New York Times ("Labor's New Critics: Allies in Public Office"). Former labor leaders and labor friends, from LA's Mayor Villaraigosa to New York's Governor Paterson are going to war with unions ...and proud of it. These former allies believe that unions just have to face reality: revenues are down, so we've got to cut public workers' wages, benefits and jobs. Let's all join in the downward spiral, brothers and sisters!

In truth, "structural reforms" don't even touch the heart of the crisis--tragically, they'll only make it worse. The real heart of the problem is too much wealth in the hands of the few and too much power and wealth controlled by Wall Street. (Please see The Looting of America.) And unfortunately the new financial reform bill does little to limit this power and wealth. Our too-big-to-fail banks are still with us--and cockier than ever.

Very few commentators or policy officials have the nerve to call for restoring taxes on the super-rich to the levels they paid from the 1930s through the 1970s. (Back then, their tax rate was up to 91%. Now they pay as little as 15% because they can claim their booty as "capital gains.")

The 10 leading hedge fund managers each "earn" an average of $900,000 an hour (not a typo). Public officials and pundits should be calling such wildly excessive incomes a disgrace to democracy--especially given that without taxpayer bailouts the financial elites would have earned nothing at all. Instead we are told to admire the robbery as if it were a sign of entrepreneurial genius.

The fiscal crisis is not an act of God. Nope, it was caused by a reckless Wall Street gambling spree gone bad, and years of lost revenue from super-rich people who should have been paying taxes . Our already depleted public coffers are now running on empty because of bank bailouts and the cost of helping people who lost jobs in the Wall Street-induced collapse.

We do indeed need structural reforms, but not the kind that Wall Street is talking about. First, we need to reattach the truly wealthy to planet Earth. Right now the uber-rich live in their own cosmos where they just can't imagine what it's like for working people who struggle to make ends meet--or for jobless people who can't make ends meet at all. The super-rich truly believe that their debts are sacred and must be repaid at all costs, even if we have to bail out every major bank and lay off millions of workers to do it. Wall Street comes first. The investor comes first...always. Equality of sacrifice in hard times? Don't be a chump!

We need a structural reform that would make Wall Street pay reparations for the damage it has caused, kind of like the $20 billion compensation fund BP was forced to create, only bigger, much bigger. We allowed the financial wizards to waltz off with $150 billion in bonuses derived from taxpayer bailouts. Instead, we should have used a windfall profits tax to redirect that money into a fund help states and localities preserve and create jobs.

But we can't get from here to there unless we dramatically expand our sense of what is possible. We just can't be satisfied with a porous financial reform bill that doesn't even include a tiny tax on the big banks and hedge funds that have just milked us dry. And we can't keep pretending that the private sector is ever again going to provide sufficient, sustainable jobs for all who need them. We've got to face up to the obvious: Wall Street is at war with the rest of us. And the stakes include the most fundamental aspects of the economy and our democracy. It's about how we create and distribute wealth, how we create and distribute costs, and who should decide.

Is there a way out? Maybe. But first we have to realize that minor policy fixes won't get us there. Let's stop fooling ourselves with this tinkering around the edges, passing watered down reforms and praying that the private sector will miraculously create millions of new jobs (and green ones!) - all on its own.

We'll need something close to a mass upheaval if we're going to get our political leaders to pay attention to us instead of the all-powerful market gods. That financial markets now have an instant veto over any and all economic policies is an insult to democracy. Whenever the politicians hear the distant rumble of unhappy bond markets they rush to the floor to vote for the latest austerity measure.

And unfortunately, this isn't just an American affliction. A financial Catch 22 has engulfed the leadership of Europe, Japan and the US: If they fail to cut deficits, the markets will react badly. And if they do cut deficits and drive their economies further into the ground, the markets also will react badly. Escaping from this structural reform trap won't come easy.

Americans are growing more cynical by the day as we watch our elected leaders groveling before the gods of Wall Street. So far much of the anger has been channeled by the right, which tries to persuade working people that the no-government, no-taxes approach is actually good for them. But that's going to change. Sooner or later more and more of us will realize that the brave new world of "structural reforms" favored by Wall Street and the right really means that we'll be working longer, harder and for less -- if we're lucky enough to work at all. No one knows when that moment will arrive. But it will. And with it may come a new American progressive movement with the staying power to put our people to work.

Les Leopold is the author of The Looting of America: How Wall Street's Game of Fantasy Finance destroyed our Jobs, Pensions and Prosperity, and What We Can Do About It Chelsea Green Publishing, June 2009.