Terrance Heath

Nothing for the 99ers (And Not Much for Anyone Else)

Filed By Terrance Heath | December 09, 2010 1:00 PM | comments

Filed in: Politics
Tags: Obama tax compromise, tax, unemployed workers, unemployment benefits

The deal is done – regarding tax cuts and unemployment benefits extensions — and while we all have a stake in it, most of us won’t get anything of long-term value out of it. Least of all the 99ers — the people who have 99ers_logo.jpgreceived benefits for 99 weeks, or more.  I’ve read at least one bit of analysis that the 99ers are basically hung out to dry because there is no extension beyond 99 weeks.

Just to outline this framework: under the deal, the Bush tax cuts for all rate levels would be extended for two years. The estate tax, in a monstrous deal, will be lowered from 2009 levels, with a $5 million dollar exemption and a 35% rate, for two years as well. And, the deal adds what is now an annual patch to the alternative minimum class so it doesn’t hit people in the middle class. In exchange, extended unemployment benefits between 26 and 99 weeks will be continued for 13 months, to the end of December 2011 (costing around $65 billion). …

Given the rate of job creation, it looks like a significant number of Americans will be in the same boat as the 6 million current 99ers.

Even as Congress debates whether to extend emergency unemployment checks for more than six million Americans who are approaching the 99-week limit, some four million others are facing the certain end of their benefits over the next year, unless an entirely new program is crafted.

This is the sobering conclusion of a report released by the President’s Council of Economic Advisers on Thursday. The study forecast that the exhaustion of unemployment benefits for so many will curb spending power enough to significantly impede an already weak economic recovery.

The typical household now receiving emergency unemployment benefits would see their income fall by a third should they lose their checks, according to the report. Among the roughly 40 percent of households in which the person receiving a check is the sole breadwinner, income would fall by 90 percent.

Without (a) spending to create jobs and (b) extending unemployment benefits further, we are looking at millions of Americans sliding into destitution and privation, with almost no way out. But a plan that will add some $900 million to the debt thanks to the revenue lost to tax cuts means there probably won’t be much spent on job creation. (And I’m willing to bet this is the last unemployment benefits extension we see from this government for the next two years.)

We have long talked of “two Americas” — and now “two societies” — but this deal does nothing to stop and actually seems to make inevitable the creation or expansion of a third America: that of a large and permanent economically desperate class. Many former middle-class Americas will slide into the ranks of the third America, from cul-de-sac to tent city. The rest will find their grasp on middle class status grow more tenuous as the gravitational pull of the desperate class pulls down wages, etc.

It’s a temporary shot in the arm, which will do nothing in the long term. The wealthy, I understand from Moody’s and Paul Krugman, make their spending decisions based on the state of the stock market. Middle- to low-income families, however, make their spending decisions based on their income and how much they expect to make. In the long term, if nothing is done to create jobs beyond “cut-taxes-and-hope-for-the-best” the boost from the middle class tax cut will shrink along with the middle class. The boost from unemployment insurance benefits will be gone when those benefits expire.

I’ve read at least some analysis that it would have been “political suicide” for Obama not to have extended the tax cuts.  But this seems like a slower form of economic suicide for the country.

What they — the White House and the GOP — done on unemployment is essentially reset the clock. If we do nothing more than what we’ve done now, we won’t create jobs at a rate anywhere near sufficient to reduce unemployment. With this compromise we’ve extended tax cuts that have a track record of not creating jobs. The CBO has said tax cuts offered the “lowest bang for the buck” in terms of job creation and economic growth. Moody’s recently released study results showing that the rich do not spend their tax cuts, but tend to save them instead.

We’ve essentially decided to spend the next two years doing what we’ve been doing and what hasn’t been working. (Of course, that depends on what you think needs to happen. Maybe zero job growth is just fine.) In two years, if we haven’t done anything else, millions of Americans will still be unemployed and will plunge into poverty when their benefits run out — after 99 weeks. Beyond that there will be no boost.

On the middle class tax cuts, the only thing I can say is that there will be fewer middle class to spend those tax cuts. Granted they’ll have unemployment benefits to spend, but only for 99 weeks. Beyond that there will be no boost, from spending tax cuts or unemployment benefits.

This is a band-aid on a cut to a major artery.

Or maybe there’s some nuance I’m missing somewhere. But if this is indeed the last unemployment benefits extension we get out of this government, the problem is it doesn’t keep Americans from going over the side of a cliff (economically speaking). It just extends the cliff.

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"Without (a) spending to create jobs..."

Government "spending" doesn't create jobs. It buys jobs and that simply defers the problem. The $1 trillion in "stimulus" simply delayed the problem for a year.

Innovation is the only thing that "creates" jobs. There was a time when Americans solved problems, produced products and created real, sustainable demand. Now, we lazily look to government to fix everything. WE need to fix it.

None of the current dispute between the two political parties - or how you frame it, as the "haves" and "have nots," does anything to solve our economic problems. For the last few decades Americans have been lulled to inaction with the false promise that government would solve our problems - it hasn't and it can't.

*looks at the Great Depression's job programs*

History disagrees, but most of what you say tends to disagree with reality.

That's odd. Unemployment was the same after the New Deal as it was before. Government money doesn't create jobs - it buys them, temporarily.

It seems to me that is understandable, even without studying history. It's simple. Give it a try.

Unemployment in 1933: 24.9%
Unemployment in 1937: 14.3%
Unemployment in 1940: 14.6%
Unemployment in 1942: 4.7%
Unemployment in 1945: 1.9%

(Table 2)

Would you like me to go further?

Please do.

The "New Deal" programs were from 1933-1936.

WWII ended the Depression, not the New Deal.

Unemployment was reduced from 14% in 1940 to less than 2% in 1943 as the labor force grew by ten million.

The New Deal did fund a bunch of valuable projects, but it didn't "create" jobs - it bought them. It was a similar giveaway to last year's $1 trillion stimulus package with had no effect on unemployment. It may have deferred the problem for a year, but money doesn't create jobs.

Andrew, is 14% unemployment higher or lower than 25%? The number from 1940 was after the programs and before the US entered the war. And look at the link, other economic factors, like GNP, also increased. When GNP increases, that's not buying jobs, that's an actual increase in productivity and work.

Well, how do we "fix it" then? I agree, innovation is important, but .... OK. What do we do about it? There are certainly things we can do as individuals, but I'm at a loss as to what I can do personally about unemployment in my area, for example. I'm not an employer, and I don't have anything I need to hire anyone to do.

I'm not an inventor, nor do I have any great business plans lying around, or an idea for the "next big thing." Really, I'm basically just a writer.

What I know about innovation is this — it usually arises to meet a need or demand. It may be a need or demand that we don't even know that we have. If I did have a great idea for a good or service, I'm not sure right now would be the best time to pursue it, because demand for goods and services that already exist is low and bound to get lower as more as more people lose jobs and spend less, or lose unemployment  benefits and stop spending much of anything at all.

It's not for lack of capital that businesses are not hiring and not expanding. Corporate profits are the highest on record. Businesses aren't hiring because there's less and less demand for goods and services. In cities and towns across America small businesses are feeling the pinch as fewer people come through their doors, and then have to let go of workers because there's less work for them to do.

In the meantime, there's work that needs doing in this country, especially in terms of infrastructure, that we could be paying people to do and support. It's work that's worth doing, though maybe it doesn't yield huge profits. Instead we're ending programs that did put people to work who didn't have work before, and letting people slide off of unemployment benefits into oblivion while we extend tax cuts that have yet to create much in the way of jobs at all.

If you want to say government can't create jobs, fine. Maybe we think of jobs differently. I think it the government pays someone to do work that needs doing, that's a job. But if you like, I can cough it differently. What the government can do is stimulate or support demand, either by extending unemployment benefits, or creating programs that put people to work doing work the country needs done or support that work, until demand is sufficient to spark private sector to start hiring again and start expanding again.

Putting money in the hands of middle- and working-class Americans ensures that it will be put back into the economy through the purchase of goods and services. Thus sustaining jobs and if demand rises high enough sparking growth and hiring in the private sector.

And we don't need to stimulate demand permanently. As job openings increase in the private sector, it's possible that much of what I'm talking about could be phased out or downsized as efforts shift to help people find positions in the private sector.

What we're looking at now is a crisis, and in a crisis I think there is a role for government to act.

The problem is that we've accepted the right-wing view of government as something separate and foreign from ourselves. It's "the government" instead of "our government." I don't see it as an entity separate from ourselves, though it can become just that if we allow it to because we don't stake a claim to it. Certainly it looks like it's in the process of being auctioned off to the highest bidders. But ideally, government is the way we do things that we agree need to be done, but that are far beyond the scope of any of us individually or even smaller groups and entities.

In other words, it's how we solve big problems together, when nibbling away at the edges won't do.

Thank you for your response Terrance.

I have never said government doesn't have a role - I believe it does, but to save our economy we need real jobs. As you have said those jobs come from "demand" and that is either existing demand or new demand that comes from innovation. When we make products better or services more efficient, or we make them more attractive or even more affordable we create real, sustainable demand. All of that is the result of innovation.

You asked what you could do and here's a thought. There is a huge conversation going on about our "economy" and it has been co-opted by politics even though NEITHER party has a solution. Tax cuts don't create jobs any more or less than stimulus funds do. It is a political conversation WITHOUT any solutions. That is the problem.

There are many problems in America - that if solved would create millions of jobs. Clean, affordable energy is one. Replacing our schools is another (most K-12 schools in America are +45 years old) and we still haven't solved "affordable housing." There are many problems and that should be our focus.

The $1 trillion in "stimulus funds" only invested 2% in innovation, but most of that was to politically connected institutions. Maybe we should have set aside some of that money as PRIZE MONEY for SOLUTIONS. Clean, affordable electricity should be worth at least $1 billion. Same for our numerous other problems. There wouldn't be any risk because we would only reward results. In today's political climate nobody trusts anyone and that isn't about to change, so let's just pay for results.

I understand how difficult it is for many people today and it is heart wrenching, but it is also frustrating to see people avoid discussing the fundamental problems with our economy. We have gotten lazy. We used to lead the world in innovation. We used to produce and export. China has a high-speed train that just tested at 302 MPH and we have AMTRAK.

I think we need to remember what built America - innovation and imagination. We have to get past politics and make an honest and objective effort to create solutions that create jobs. Not by purchasing jobs or cutting taxes, but by helping innovators and helping each other. We need to invest in each other and make a more concerted effort to solve our problems instead of looking only to government.

Interestingly enough, I don't think we're talking about entirely different things here. The demand vs. innovation question could turn into a chicken vs. egg discussion, but I don't think it necessarily has to. They seem to work hand in hand. Demand can spark innovation, if someone sees a market that's ready for a particular good/service. Likewise, innovation can spark demand.

But risk is inherent in innovation, and right now I doubt there are many people willing to take huge risks in this economy. (No matter how good an idea I have, I'm probably not going to quit my day job to work on it, if it means risking destitution in an economy where there are few jobs open and even fewer being created.

When I mentioned infrastructure earlier, I think that can apply to a broad range of things that can be considered investments in the public or common good. You mentioned replacing or rebuilding schools. That, to me is infrastructure. And while we're rebuilding them, let's make them more energy efficient. While we're at it, let's rebuild them to reflect what we've discovered about learning in the last few decades.

Affordable housing is another important infrastructure investment; especially if we want to avoid another real estate bubble. But it requires perhaps a bit of social engineering. Instead of just thinking in terms of affordable housing, let's think in terms of economically diverse communities, how we build them, and how we give people  incentives to be a part of them. Let's include schools in the plans. I can imagine communities where people can live and work in the same community, instead of what I see now where people who provide services (police, fire and rescue, teachers, etc.) in one community live in another community and commute between because they can't afford to live in the communities where they work.

If it works, it would go a long way towards reversing the increased economic inequality we see now as well as the economic isolation we live with today. Instead, living in more economically diverse communities might foster more understanding between us.

Like I said, I don't think we're that far apart in what we're thinking. Right now I think that we're in such a state of emergency that it's important for the government to step in and put people to work, if only temporarily, in order to spark the demand needed to start a recovery people can see and feel right where they live. But crisis also presents opportunities for just the kind of innovation and thinking you mention, on scales both large and small. In some instances the government might have to take the lead in getting some things going, but in others the government could use funding to incentivise just the kind of innovative thinking you have in mind at the community level and individuals as well.

It's clear that we can't go back to the old economy; as least not without dooming ourselves to another crisis like this one. Building a new economy is a big job, and will require lots of brainpower to figure out what it should look like, and lots of hand to build it. Right now, I think the government just needs to actively put people to work doing things that the country needs done, and that can be started right away. Not that innovation should take a back seat, but I think getting unemployment down a few points, as quickly as possible will create an atmosphere where people are more likely to innovate, if they don't have to worry about where they're going to live and how they're going to eat.

I agree that there is much work to be done. We need to learn to stop blaming and start working toward solutions.

There is plenty of money that is not being invested now, but I think it would if we changed the mood and conversation about the economy. As difficult as things have become, we can do anything if we focus on the problems and stop blaming each other or even believing either party is going to fix it. WE have to.

I love your comments.