September 2012, Week 2


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Sun, 9 Sep 2012 20:33:24 -0400
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7 Ways to End the Deficit (Without Throwing Grandma
Under the Bus)
A new study suggests that ending the deficit doesn't
have to hurt, just as long as we cut in the right
places. John Cavanagh finds seven places where budget
cuts can create a more just, more secure, and more
sustainable country.
Yes! Magazine
by John Cavanagh
September 05, 2012

This fall, the U.S. Congress is going to wage a pitched,
dragged-out battle over cutting roughly $120 billion a
year to solve the so-called deficit crisis. Vital things
like teachers' jobs and Medicare could well get cut.

The Right is already launching new coalitions to push
for an austerity budget, calling for cuts in "wasteful
government spending," including key safety-net programs
like Medicare, Medicaid, Social Security, and food
stamps. America has overspent, they say. America is
broke. But at the same time, they are calling for an
extension of the Bush tax cuts and ruling out cuts in
military spending-both policies that will increase the
deficit. America has overspent, they say. America is
broke. But at the same time, they are calling for an
extension of the Bush tax cuts and ruling out cuts in
military spending.

It doesn't have to be this way. My colleagues at the
Institute for Policy Studies (IPS) have identified seven
steps that, together, more than eliminate the deficit
while making the country more equitable, green, and

These proposals, from the IPS study called "America is
Not Broke," would also address the two deficits that
author David Korten says do more to erode our society
than the fiscal deficit does: our social deficits
(rising poverty and inequality) and environmental
deficits (starting with the climate crisis). More
Fairness, Less Deficit

Our first three proposals could bring in $329 billion a
year; this alone would solve the deficit problem while
helping to close the yawning inequality gap.

    1. Tax Wall Street: $150 billion per year. A tiny
    tax on stock and derivatives transactions, which
    several European countries are on track to adopt,
    would discourage Wall Street speculation, fill the
    hole in the deficit left by the Bush tax cuts, and
    leave plenty left over to fund lots of programs. The
    National Nurses Union and many other allies are
    fighting hard for this.

    2. Tax Corporations and Stop Tax Haven Abuse: $100
    billion per year. The Financial Accountability and
    Corporate Transparency coalition has pointed out
    that one of the main ways that corporations avoid
    paying taxes is by declaring their profits in
    overseas tax havens like the Cayman Islands.

    3. Tax the Wealthy Fairly: $79 billion per year.
    Our rigged tax code lets CEOs pay a lower tax rate
    than their secretaries do (as Warren Buffett keeps
    pointing out). The proposed Fairness in Taxation Act
    (HR 1124) would address this by adding five
    additional tax brackets for incomes over $1 million.

The United States is now off the charts in terms of
wealth and income inequality. It doesn't have to be that

These three policy changes would go a long way toward
making our society more equal, and that means better
health, too. There is a terrific body of global
evidence, a lot of it compiled by British researchers
Richard Wilkinson and Kate Pickett, that more equal
societies are much healthier. People at all income
levels live longer; they are more fulfilled; and there
is less violence. The United States, a relatively equal
society as recently as the 1970s, is now off the charts
in terms of wealth and income inequality. It doesn't
have to be that way. Just as we created a more just and
vibrant economy and a strong middle class through fair
taxes between 1940 and 1980, we can do it again through
progressive taxation. More Green, Less Pollution

The second source of revenue would make the economy more
green, a key imperative in a world where the
environmental crisis is now as deep as the economic one.
We found two simple ways to raise revenues and help save
the environment.

    4. Tax Pollution: $75 billion per year. A tax on
    the carbon content of fossil fuels would reduce our
    dependence on oil while cutting air pollution and
    emissions of greenhouse gases. And, as economist
    Robert Frank pointed out on August 25 in The New
    York Times, "News that a carbon tax was coming would
    create a stampede to develop energy-saving

    5. End Fossil Fuel Subsidies: $12 billion per
    year. This call should unite left and right. Why
    would anyone want to maintain a giant government
    subsidy to an industry that is the world's major
    contributor to fossil-fuel emissions? 350.org has
    made this a centerpiece of their work. We should be
    able to win this.

More Savings, Less War

Finally, there are simple ways to cut the military while
making the country and the world more secure. More than
half of government discretionary spending now goes to
the military. Congress has long avoided cuts, in part
because they equate military spending with jobs, but IPS
has pointed out that almost every other industry employs
more workers per dollar than the military. Plus, there
is now bipartisan support for two sets of significant

    6. End Military Waste: $109 billion per year. A
    broad spectrum of experts has found over $100
    billion a year in waste that could be eliminated
    with no sacrifice in security. Three recent
    commissions, two of them bi-partisan, have
    recommended roughly $1 trillion in military cuts
    over 10 years.

    7. Close a third of our overseas bases and our Iraq
    operations: $21 billion per year. Over two decades
    after the Cold War ended, the United States still
    maintains roughly 1,000 military installations in
    other countries. A majority of the President's own
    deficit commission, which includes three Republican
    senators-the National Commission on Financial
    Responsibility and Reform-backed a proposal to close
    one third of our overseas military bases.

This plan could help erase the nation's dangerous social
and environmental deficits.

These seven simple steps would raise close to $550
billion a year. They would quickly erase the fiscal
deficit and return the country to a healthy budget
surplus. There would be hundreds of billions left to
invest in key sectors that could make the country more
secure, more green, and more equitable: care jobs, green
jobs, infrastructure jobs.

In other words, this plan could help erase the nation's
dangerous social and environmental deficits.

Many groups-from Jobs with Justice to National People's
Action to the AFL-CIO-are organizing to counter a push
by the Right to use the deficit crisis to shred social
programs and our nation's safety net. Let's up the ante
and spread the message. America is not broke. We have
plenty of resources to rebuild shared prosperity in the

John Cavanagh wrote this article for YES! Magazine, a
national, nonprofit media organization that fuses
powerful ideas and practical actions. John is director
of the Washington-based Institute for Policy Studies,
co-chair of the New Economy Working Group, and a co-
author of IPS's study: America Is Not Broke, where
citations for this article can be found.

The Public Sector has Cut 680,000 Jobs Over the Last Four
By Heidi Shierholz
Economic Policy Institute (EPI)
September 7, 2012

The employment report from the Bureau of Labor
Statistics released today showed 96,000 jobs were added
in August, a drop from the average growth rate of the
first seven months of the year, 145,000. Given month-to-
month variability in the data, it is likely that the
underlying growth rate is closer to the latter.

The unemployment rate declined to 8.1 percent in August,
but that was due to workers dropping out of the labor
force, not to an increase in the share of potential
workers finding jobs. The employment-to-population ratio
- a broad measure that is simply the share of the
working-age population with a job - declined by a tenth
of a percentage point, to 58.3 percent. (However, my
preferred measure - the employment-to-population ratio
of 25-54 year-olds - increased by a tenth of a
percentage point, to 75.6 percent. An explanation of why
it is my preferred measure can be found here.)

Following the job loss of the Great Recession, the labor
market has now been adding jobs for two-and-a-half
years. However, while the current pace of growth is
roughly what's needed for the unemployment rate to hold
its ground as the population grows, we need much faster
job growth to meaningfully bring the unemployment rate
down in a reasonable timeframe. For example, we'd need
to add around 350,000 jobs a month to get back to the
pre-recession unemployment rate in three years.

For a comprehensive examination of not just jobs,
unemployment, and wages, but also income, wealth,
poverty, and economic mobility, see the forthcoming
State of Working America, 12th Edition, which will be
released on Tuesday, Sept. 11.

MORE: Sort through updated graphs using data from
today's report

The public sector has now been losing jobs for four

While overall the labor market has added jobs for the
last two-and-a-half years, it's actually just the
private sector that's adding jobs; the public sector is
losing them. In August, the public sector lost 7,000
jobs. Since the peak of public-sector employment four
years ago in August 2008, the public sector has shed
680,000 jobs. Through ripple effects, the loss of
public-sector jobs also causes job loss in the private
sector, amplifying the drain on the recovery. Long- term
unemployment remains near record highs

The share of unemployed workers who have been unemployed
for more than six months decreased to 40.0 percent in
August, but is still not far off its record high of 45.5
percent in March 2011, as the figure shows. Further, the
decline is likely in part due to workers exhausting
unemployment insurance benefits, as the requirement to
look for work in order to maintain benefits kept some
long-term unemployed actively seeking work and therefore
counted as unemployed. The fact that jobseekers continue
to get stuck in unemployment for such long periods is
unsurprising given that there have been three or more
unemployed workers per job opening for nearly four

Weak hiring means long-term unemployment remains high,
while wage growth and labor force participation are low

Because hiring remains very weak, at least three things
are happening: In addition to the fact that unemployed
workers continue to face long spells of unemployment,
labor force participation remains depressed, and wage
growth is very poor because employers know workers lack
good outside options.

    * The labor force participation rate fell in August
    to 63.5 percent, its low of the downturn and far
    below the 66.0 percent level of December 2007. It is
    likely that around two-thirds of the workers who
    make up the drop in the labor force participation
    rate since the start of the recession would be in
    the labor force if job prospects were strong. This
    translates into about 4 million "missing" workers.
    Job growth is not yet strong enough to start drawing
    them in.

    * Average hourly wages for all private-sector
    workers decreased by 0.5 percent (annualized) in
    August. Average hourly wages grew 1.7 percent over
    the last year, a substantial decline from the pre-
    recession rate of wage growth. Average weekly hours
    were unchanged in August at 34.4, so average weekly
    wages tracked average hourly wages, with an
    annualized decrease of 0.5 percent in August.

Industry breakdowns

Manufacturing lost 15,000 jobs in August. However, the
drop was likely due to seasonal adjustment issues
related to auto plant retooling, so the average growth
of the last three months - +5,000 - probably provides a
more accurate picture of the underlying trend.
Construction was basically flat (+1,000 jobs) after
losing 5,000 per month for the first seven months of the
year, and retail added 6,100 jobs, after gaining 2,000
per month on average for the first seven months of the

Health care was relatively weak in August, adding 16,700
jobs after adding 25,800 on average for the first seven
months of the year. Temporary help services saw a
decline of 4,900, after adding 19,000 per month on
average for the first seven months of the year.

Restaurants and bars continue to show quite robust job
growth, adding 28,300 jobs in August, higher than the
industry's 20,000 average of the first seven months of
the year. As Dean Baker points out in his analysis of
today's report, the fact that jobs are growing faster
right now in low-paying sectors such as restaurants and
bars is not unexpected, since in periods of high
unemployment, low-paying jobs tend to account for a much
higher share of job growth than during periods of low

Demographic breakdowns

Unemployment in August was 8.8 percent for those age 25
and older with a high school degree but no additional
education, and 4.1 percent for those age 25 and older
with a college degree or more. Among workers younger
than age 25 who are not enrolled in school, unemployment
over the last 12 months averaged 20.9 percent for those
with a high school degree and 8.1 percent for those with
a college degree (annual averages are used here since
seasonally adjusted data are not available for workers
under age 25 by education). These numbers show that
young workers have been particularly hard-hit by
unemployment. They also show that workers with higher
levels of education have lower unemployment. However,
workers at all levels of education have seen their
unemployment rates roughly double since 2007, showing
that demand for workers has dropped at all levels of

Racial and ethnic minorities continue to be hit
particularly hard by unemployment. Unemployment in
August was 14.1 percent for African American workers,
10.2 percent for Hispanic workers, and 7.2 percent for
white workers. Racial and ethnic minorities have also
been disproportionately hard-hit by underemployment.

Men saw a much larger increase in unemployment than
women did during the recession, but have seen stronger
improvements in the recovery. The unemployment rate
reached its pre-recession low in late 2006 and early
2007, at 4.4 percent for men and 4.3 percent for women.
Male unemployment peaked at 11.2 percent in October 2009
and has since fallen to 8.3 percent. Female unemployment
continued to rise for about another year, when it peaked
at 9.0 percent in November 2010, and has since fallen to
7.8 percent.


The labor market still has a deficit of 9.8 million
jobs. The lack of demand for workers means unemployment
durations remain extremely high. If emergency
unemployment compensation (EUC) benefits are allowed to
lapse (as is currently scheduled to happen at the end of
this year), only around a quarter of all unemployed
workers would be receiving UI benefits, the lowest share
on record. Given the weakness of the labor market, this
would be premature and destructive, and would likely
cost about 430,000 jobs. Continuing emergency
unemployment insurance benefits should be part of the
continuing appropriations legislation that congressional
leaders are currently negotiating.


[Research assistance provided by Nicholas Finio, Natalie
Sabadish, and Hilary Wething]

[Heidi Shierholz joined the Economic Policy Institute in
2007. Her areas of research include trends in
employment, unemployment, and compensation, income and
wealth inequality, the low-wage labor market, the
minimum wage, and the gender wage gap. Shierholz is a
frequent contributor to broadcast and radio news
outlets, including: ABC, CBS, CNN and NPR, and is
regularly quoted in print and online media outlets,
including the New York Times, Washington Post and the
Huffington Post. She has repeatedly been called to
testify in Congress on labor market issues. She is also
a member of the board of directors of the DC Employment
Justice Center. She previously worked as an Assistant
Professor of Economics at the University of Toronto.]


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