An Economy Driven By Debt

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Don't Confuse the Jobs Hype with the Facts
By Paul Craig Roberts - Counterpunch/Lew Rockwell (http://counterpunch.org/roberts12032005.html)

The November payrolls job report was announced Friday with the usual misleading hype. Spinmeisters made the most out of the 215,000 jobs. Looking beyond the glitter at the real facts, this is what we see. 21,000 of those jobs were government jobs supported by taxpayers. There were only 194,000 new jobs in the private sector.

Of those new jobs, 37,000 are in construction and only 11,000 are in manufacturing. The bulk of the new jobs--144,000--are in domestic services.

Wholesale and retail trade account for 20,000. Food services and drinking places (waitresses and bar tenders) account for 38,000.

Health care and social assistance account for 27,000. Professional and business services account for 29,000. Financial activities gained 13,000 jobs. Transportation and warehousing gained 8,000 jobs.

Very few of these jobs result in tradable services that can be exported or help to close the growing gap in the US balance of trade.

The 11,000 new factory jobs and the 15,000 of the previous month are a relief from the usual loss. However, these gains are more than offset by the job cuts recently announced by General Motors and Ford.

Despite the gain in jobs, total hours worked declined as the average workweek fell to 33.7 hours. The decline in the labor force participation rate, a consequence of the shrinkage in well-paying jobs, masks a higher rate of unemployment than the reported 5 percent. The ratio of employment to population fell again in November.

Average hourly earnings (up 3.2 percent over the last year) are not keeping up with the consumer price index (up 4.3 percent). Consequently, real incomes are falling.

This is not the picture of a healthy economy in which growth in high productivity, high value-added jobs fuel the growth in consumer demand and provide savings to finance Washington's red ink. What we are looking at is an economy that is coming unglued from the loss of jobs that provide ladders of upward mobility and from massive trade and budget deficits that are resulting in unsustainable growth in indebtedness to foreigners.

The consumer price index measures inflation at 4.3 percent over the past year. Many people, experiencing household budgets severely impacted by fuel prices and grocery bills, find this figure unrealistically low. PNC Financial Services has a Christmas price index consisting of the gifts in the song, "The 12 Days of Christmas." The index reports that the cost of the collection of gifts has risen 6 percent since last Christmas. Some of the gifts have risen substantially in price. Gold rings are up 27.5 percent, and pear trees are up 15.4 percent. The cost of labor (drummers drumming, maids-a-milking) has remained the same.

Populations are hard pressed when the prices of goods rise relative to the price of labor, because this makes it impossible for the population to maintain its standard of living.

The US economy has been kept alive by low interest rates, which fueled a real estate boom. Consumers have kept growth alive by refinancing their home mortgages and spending the equity in their houses. Their indebtedness has risen.

Debt-fueled growth is qualitatively different from economic growth that results from an increase in high value-added jobs. Economists who look at the 3+ percent economic growth rate and conclude that things are fine are fooling themselves and the public. When the real estate boom ends, what will be the source of new spending power?

Paul Craig Roberts has held a number of academic appointments and has contributed to numerous scholarly publications. He served as Assistant Secretary of the Treasury in the Reagan administration. His graduate economics education was at the University of Virginia, the University of California at Berkeley, and Oxford University. He is coauthor of The Tyranny of Good Intentions.

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Ford to close five North American plants, cut 7,500 jobs
World Socialist Website (http://www.wsws.org/articles/2005/dec2005/ford-d03.shtml)



Ford Motor Company plans to close at least five plants and eliminate 7,500 jobs, or 6 percent of its total North American work force, according to a report in the Wall Street Journal Friday. The job-slashing by Ford follows last month’s announcement by General Motors that it would eliminate 30,000 jobs and shutter 12 facilities in the US and Canada before the end of 2008.

The job-cutting in North America is part of a massive retrenchment of Ford’s global auto operations. The number two US automaker also plans to cut 1,470 jobs at its Volvo division, primarily at plants in Sweden and Belgium, and could sell the historic Browns Lane Jaguar plant near Coventry in central England.

Ford’s cuts are part of a worldwide attack on jobs in the auto industry, which is plagued by over-capacity. Volkswagen is said to be planning the elimination of 14,000 jobs, including 10,000 in Germany. On Thursday, 10,000 workers marched in Barcelona, Spain to oppose plans by Volkswagen subsidiary SEAT to cut nearly 1,500 jobs.

Ford’s plan, called the “Way Forward,” is not due to be released officially until January and may still be revised. The leak to the press was likely aimed at gauging the response of Wall Street investors, who have been punishing the company’s stock—which is down to around $8 a share—and demanding a major restructuring of Ford. {snip}

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Merck announces 7,000 layoffs: Continued attack on jobs and wages in US
World Socialist Website (http://www.wsws.org/articles/2005/dec2005/jobs-d02.shtml)

The pharmaceutical company Merck announced on November 28 that it would lay off 7,000 workers over the next three years, closing down 5 of its 31 production plants. The cuts, half of which will be in the US, represent more than 10 percent of the company’s global workforce. The move is only the latest in a series of announcements of layoffs and wage cutting at major American companies.

The 7,000 jobs are unlikely to be the last to be eliminated. Richard Clark, who took over as the company’s CEO earlier this year, said that the cuts are “an important first step in positioning Merck to meet the challenges the company faces now and in the future.” Merck has not yet released all the details on its cost-cutting plan; however, it has announced that plants in New Jersey, Georgia and Pennsylvania, as well as in Japan and Canada, will be scaled back, sold or shut down.

Merck’s difficulties are a manifestation of broader problems plaguing the entire pharmaceutical industry. The company faces the end of patent protection on a number of its key, “blockbuster” drugs, particularly the cholesterol-reducing drug Zocor. According to US law, other companies can produce generic versions of a drug after it has been on the market for a certain period of time. Pharmaceutical companies rely on their patented blockbuster drugs, which they spend billions of dollars to market, for the bulk of their revenues.

The company is also facing numerous lawsuits over its last major blockbuster, Vioxx, which it was forced to recall in September 2004. Much evidence exists demonstrating that Merck attempted to cover up the connection between use of Vioxx and an increased risk for heart attacks. The company has already lost one lawsuit, while another was found in its favor. Before it was recalled, Vioxx was heavily marketed and was used by millions of people for whom it was no more effective than much cheaper over-the-counter medications. {snip}

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The Joyless Economy

By PAUL KRUGMAN

12/05/05 "New York Times (http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html?inline=nyt-per)" -- -- Falling gasoline prices have led to some improvement in consumer confidence over the past few weeks. But the public remains deeply unhappy about the state of the economy. According to the latest Gallup poll, 63 percent of Americans rate the economy as only fair or poor, and by 58 to 36 percent people say economic conditions are getting worse, not better.

Yet by some measures, the economy is doing reasonably well. In particular, gross domestic product is rising at a pretty fast clip. So why aren't people pleased with the economy's performance?

Like everything these days, this is a political as well as factual question. The Bush administration seems genuinely puzzled that it isn't getting more credit for what it thinks is a booming economy. So let me be helpful here and explain what's going on.

I could point out that the economic numbers, especially the job numbers, aren't as good as the Bush people imagine. President Bush made an appearance in the Rose Garden to hail the latest jobs report, yet a gain of 215,000 jobs would have been considered nothing special - in fact, a bit subpar - during the Clinton years. And because the average workweek shrank a bit, the total number of hours worked actually fell last month.

But the main explanation for economic discontent is that it's hard to convince people that the economy is booming when they themselves have yet to see any benefits from the supposed boom. Over the last few years G.D.P. growth has been reasonably good, and corporate profits have soared. But that growth has failed to trickle down to most Americans.

Back in August the Census bureau released family income data for 2004. The report, which was overshadowed by Hurricane Katrina, showed a remarkable disconnect between overall economic growth and the economic fortunes of most American families.

It should have been a good year for American families: the economy grew 4.2 percent, its best performance since 1999. Yet most families actually lost economic ground. Real median household income - the income of households in the middle of the income distribution, adjusted for inflation - fell for the fifth year in a row. And one key source of economic insecurity got worse, as the number of Americans without health insurance continued to rise.

We don't have comparable data for 2005 yet, but it's pretty clear that the results will be similar. G.D.P. growth has remained solid, but most families are probably losing ground as their earnings fail to keep up with inflation.

Behind the disconnect between economic growth and family incomes lies the extremely lopsided nature of the economic recovery that officially began in late 2001. The growth in corporate profits has, as I said, been spectacular. Even after adjusting for inflation, profits have risen more than 50 percent since the last quarter of 2001. But real wage and salary income is up less than 7 percent.

There are some wealthy Americans who derive a large share of their income from dividends and capital gains on stocks, and therefore benefit more or less directly from soaring profits. But these people constitute a small minority. For everyone else the sluggish growth in wages is the real story. And much of the wage and salary growth that did take place happened at the high end, in the form of rising payments to executives and other elite employees. Average hourly earnings of nonsupervisory workers, adjusted for inflation, are lower now than when the recovery began.

So there you have it. Americans don't feel good about the economy because it hasn't been good for them. Never mind the G.D.P. numbers: most people are falling behind.

It's much harder to explain why. The disconnect between G.D.P. growth and the economic fortunes of most American families can't be dismissed as a normal occurrence. Wages and median family income often lag behind profits in the early stages of an economic expansion, but not this far behind, and not for so long. Nor, I should say, is there any easy way to place more than a small fraction of the blame on Bush administration policies. At this point the joylessness of the economic expansion for most Americans is a mystery.

What's clear, however, is that advisers who believe that Mr. Bush can repair his political standing by making speeches telling the public how well the economy is doing have misunderstood the situation. The problem isn't that people don't understand how good things are. It's that they know, from personal experience, that things really aren't that good.

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[Partridge: Soup kitchens in the richest country in the world. Something is seriously wrong with this picture, no?]

Going hungry in Ohio and Michigan: Soup kitchens find need outpaces resources - Charities' budgets strain from rising requests for food
Toledo Blade (http://www.toledoblade.com/apps/pbcs.dll/article?AID=/20051204/NEWS08/512040323)

SANDUSKY - Ed Brutsche used to have a full-time job at a plastics factory and dreams of a middle-class life.

"Then my car broke down and I missed a couple days and got fired," the Sandusky man said while eating a lunch of beef pot pie, sweet potatoes, and broccoli at the Victory Temple Soup Kitchen.

Mr. Brutsche, 50, now works part-time as a janitor and shares an efficiency apartment with a friend, Ted David, who is a part-time restaurant dishwasher. Without the soup kitchen, Mr. Brutsche said, "I don't know what I'd do. Live on peanut butter and jelly sandwiches, I guess."

Mr. Brutsche and Mr. David, 43, both regular visitors to the Hayes Avenue soup kitchen, said they've noticed bigger crowds in the past several months.

"I see more and more people here," Mr. Brutsche said. "We kind of cry on each other's shoulder and share fellowship."

Operators of Victory Temple and other soup kitchens and food pantries in northwest Ohio say a loss of factory jobs and surging utility costs are sending growing numbers of people to their doors. The increase in demand, coupled with a drop in donations, is straining some of those charities' budgets.

"We're doing our very best to manage what we've got and hold these doors open," said Nancy Walters, who directs the Victory Temple kitchen with her husband, the Rev. Lonnie Walters.

The couple reduced the soup kitchen's lunch schedule from five days a week to three in October because of spiraling expenses for heat, electricity, and food. The kitchen also stopped paying its full-time secretary.

Mrs. Walters said a $100,000 donation to the charity four years ago has sustained operations since then, but that money is almost gone. Just $11,000 is left to support the facility, which has an annual budget of $114,000.

Donations have dropped because of Ohio's continuing economic woes and competition for donations from charities assisting victims of Hurricane Katrina. "We feel the ripple effect of it," she said. "The same thing happened after 9/11. Everything went to New York."

Recession still stings
The recession that gripped the nation after the Sept. 11, 2001, terror attacks is still being felt among the region's emergency food providers and their clients.

While overall unemployment in the region seems to be easing, Ohio and Michigan continue to bleed factory jobs, and poverty remains high.

Ohio's unemployment rate fell from 6.2 percent in October, 2004, to 5.9 percent in October, 2005. In Lucas County, the jobless rate dropped from 6.7 percent to 6.2 percent.

In Michigan, unemployment stood at 6.1 percent in October.

But from 1998 to 2003, 16 northwest Ohio counties and three southeast Michigan counties together lost nearly 23,400 manufacturing jobs, or 13 percent of their factory work, the U.S. Census Bureau reported.

From 2001 to 2004, Ohio's poverty rate rose from 11 percent to 12.2 percent. In Michigan, poverty increased from 9.4 percent to 13.5 percent.

Mr. Brutsche and Mr. David said full-time jobs are getting harder to find in Sandusky, which has been hit with a wave of plant closings and layoffs. "The way it is around here, everything's part-time right now, because all the factories have closed down," Mr. David said.

Despite the kitchen's money troubles, Mrs. Walters and her husband restored the old lunch schedule last week.

"We decided that with the weather being the way it is, that we were going to open up five days a week," she said. "The donors we have, they expect us to be open five days a week."

As for the future, Mrs. Walters said she and the facility's volunteers are relying on the kindness of donors to keep them in business. "We know if the Lord's willing, everything's going to get back to normal," she said.

Aid cut to focus on food
James Caldwell, director of the Toledo Northwestern Ohio Foodbank, said demand for groceries is surging at the 330 agencies he works with in the food bank's eight-county service area.

"The feedback that we get from those agencies is that the need is pervasive, and that a lot of people have lost their jobs or are fearful of losing their jobs," he said.

At Helping Hands of St. Louis in East Toledo, the program's staff has been forced to cut some aid programs to focus on providing food to needy families.

"We're staying afloat," said charity director Paul Cook, who has worked for Helping Hands since 2001. "When I first started here, we had funds that we could sometimes help people with their utilities. That's no longer available. Now, it's just about keeping food on the table and keeping the facility open."

Helping Hands is busy enough just providing meals. From December, 2004, through last month, the east-side kitchen served 72,000 meals, up from 65,000 meals for the same period a year earlier, Mr. Cook said.

"The number's been escalating every year," he said. "We see people losing their jobs or their benefits being cut. We have a lot of working poor in the area who are just barely getting by."

At noon Wednesday, Kenny Johnson, 4, joined his grandmother, Dawn Case, and great-grandmother, Joyce Doss, for a meal of spaghetti, green beans, applesauce, and bread in St. Louis' basement dining room.

Kenny lives with Ms. Doss, 66, who supports herself, the boy, and his 7-year-old sister on her Social Security benefits and some small child-support payments. Ms. Doss said her income is just over the cutoff for food stamps, and that she brings Kenny to St. Louis to ensure he gets a healthy lunch. Otherwise, she said, "He would just have snacks in the afternoon. He wouldn't have a real meal."

Mr. Cook said Helping Hands has sustained its food-service program, which includes lunch on weekdays and breakfast three times a week, because of private donations and federal grants.

Other charity food distributors haven't been so lucky.

Lisa Hamler-Fugitt, executive director of the Ohio Association of Second Harvest Foodbanks, said some of the food pantries that work with her organization have closed after running out of money and food. Most are in rural areas such as southeast Ohio.

"Once you get outside of the well-resourced areas, the urban areas, you really start to see significant food shortages," she said. "A lot of us who have been doing this work for a number of years keep saying it can't get any worse, and every time we turn around it gets worse."

Angie Franklin knows all too well the challenges of trying to feed poor people from rural communities. Ms. Franklin is program director at the Northwestern Ohio Community Action Commission, which operates the Richland Place/PATH Center soup kitchen in Defiance.

It's the only such facility in Defiance, Fulton, Henry, Paulding, and Williams counties.

Ms. Franklin said that before this year, meal crowds averaged 25 to 30 people but lately those numbers have nearly doubled.

Surveys of agency clients in 2003 and this year showed nutrition topping their list of needs.

"People in our community are really struggling with food," she said. "What many of them told us is that after they finish paying their bills, there's not enough money left to buy food."

Ms. Franklin said the soup kitchen has met the demand because of generous food donations from its service area and government funding.

At the Good Samaritan Outreach Center in Toledo's south end, individual cash donations are down more than 25 percent this year.

"There's been a definite drop-off," said Greg Shapiro, president of the center's board of directors. He attributed the donation decline to last year's Asian tsunami and Hurricane Katrina: "I think people are getting tapped out."

Good Samaritan serves breakfast and lunch weekdays to about 200 people a day. "We put out a hot meal twice a day, and people are lined up at our door when we open," he said.

Mr. Shapiro said he expects demand to keep rising, but he has faith his center can meet the need. "It's certainly challenging, but we're doing what the Bible tells us to do, which is to feed the poor," he said. "So God always provides. Somehow, we keep the doors open."