by Sarah Glazer
U.S. commodity regulators on Tuesday approved sweeping new curbs on speculative trading in food commodities, the most aggressive anti-speculation move by a government since food prices began to rise in recent years. But the vote may not be the end of the story.
The latest rules will limit trading by banks and investment funds, which consumer groups blame for the rising food prices. But after heavy lobbying by Wall Street, the rules passed Tuesday by the Commodity Futures Trading Commission were watered down significantly.
In addition, the commission-- aware that Wall Street could challenge the action in court -- agreed to delay many of its new rules for at least a year.
The European Union is considering similar rules but faces strong opposition from London, a major trading center. France had pledged to curb food speculators when the G-20 summit meets Nov. 3-4, but political leaders’ ardor has cooled in recent months, as we report in this week’s CQ Global Researcher on “Rising Food Prices.” Whether the American regulators’ latest action will influence Europe’s approach remains to be seen.
U.S. Cracks Down – Sort of -- on Food Speculators
Will Greece Suffer Without Strauss-Kahn at IMF Helm?
No one really knows what effect the resignation of IMF head Dominique Strauss-Kahn following his shocking arrest on sex charges will have on the fate of debt-ridden Greece.
So far, everyone involved in the Brussels crisis talks this week has been acting out their expected roles: Germany has insisted that Greece should get no more help unless it does something in return (like selling off its public companies and land, which it’s been loathe to do), while the European Central Bank adamantly resists talk of a default.
Yet many experts expect their ceremonial dance to end with Greece defaulting on its debts — even if it’s called by another name. The latest euphemism to surface: “reprofiling” or a “soft restructuring.” According to the latest iteration (subscription to Financial Times required), bondholders of Greek debt would have to wait longer than originally promised for their bonds to mature.
The alternative would be “a drip-feed” of endless loans to Greece -- something that’s “hard to imagine Europe’s taxpayers accepting,” the Economist magazine said last week. In an editorial, it called for the IMF, experienced with restructuring governments’ debt, to unite with Germany against the Central Bank in demanding an extension on the maturity date of Greek government bonds -- a move that would protect German banks, which are big holders of Greek government bonds.
Strauss-Kahn -- or DSK, as he’s known -- was an old hand at persuading governments to do this sort of thing and was considered instrumental in negotiating the bailouts within the past year not only of Greece, but also of Ireland and Portugal. But he was just as insistent as the central bankers that countries like Greece adhere to what now looks like a failing policy: drastic austerity plans coupled with loans from the EU/IMF at interest rates considered punitive by the bailed out countries.
While many have said this past week that Strauss-Kahn was responsible for reviving the IMF, others are not so sanguine. American Enterprise Institute scholar Desmond Lachman says in the Financial Times (subscription to Financial Times required) that Strauss-Kahn will be remembered as the man who put the IMF “on the road to decline by his misguided handling of the eurozone crisis.” The failures of the bailouts in both Greece and Ireland, Lachman says, risk blackening the IMF’s reputation in Europe in the same way as its similar policies in Asia and Latin America “rendered the fund a pariah in the 1990s.”
With the leadership of the IMF in doubt, will Greece fare better or worse?
Better, speculated one trader in the Financial Times’ Alphaville blog on Monday. The IMF will be more lenient toward Greece, and maybe Ireland, which also wants a reduced interest rate, because of the “black eye” it received from the weekend’s arrest.
Worse, other experts predicted, because it will shift the IMF’s focus away from Europe, where DSK had it firmly fixed.
Some think that’s a major risk, particularly if Asian and Latin European members succeed in getting a non-European appointed as head of the institution, which traditionally has been headed by a European. British bookmaker William Hill was putting the best odds May 18 on Kemal Davis, former Turkish Finance Minister, for IMF successor. Davis is from an “emerging” economy, still European but perhaps more sympathetic with other countries on Europe’s so called “periphery,” such as Greece and Ireland.
French Finance Minister Christine Lagarde had been near the bottom of the bookies’ lists with 14 to 1 odds. By this morning, she was the front-runner. The latest odds showed Agustin Carstens, governor of the Bank of Mexico, at the bottom with 25 to 1 odds against him.
But then again, maybe a Latin American would know what it felt like to be Greece, deep in a hole, with the IMF seemingly asking for impossible cutbacks.
-Sarah Glazer, author, “Future of the Euro,” CQ Global Researcher, May 17, 2011
Can EU nations still afford expensive welfare programs?
To follow is an excerpt from the Overview of the CQ Global Researcher on "Social Welfare in Europe" by Sarah Glazer, August 2010:
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Gema Díaz, 34, counted on a range of benefits to supplement her relatively low salary when she 
took a job as a purchasing agent with the city of Madrid. Now, as Spain initiates a fiscal austerity campaign, she is seeing those benefits eaten away. Her $2,000 a month salary, like those of all public employees, is being cut by 5 percent; her pension is likely to be frozen instead of growing with the cost of living as guaranteed by Spanish law; her subsidized child care will cost more. Even the $3,300 baby bonus she was depending on when her second child is born in August is being eliminated.[Footnote 1]
Governments across Europe are expected to cut back on their legendarily generous social welfare programs as they attempt to deal with the current economic crisis, most notably mounting deficits that threaten the integrity of the euro. Joining Spain recently in announcing cutbacks and higher taxes are Greece, Italy, Ireland, Portugal, Denmark, France and Great Britain.
Europe's cradle-to-grave welfare provisions — from universal health insurance and subsidized child care to generous unemployment and retirement benefits — have often been proudly touted as “social Europe” — a place where social solidarity and protection from poverty are assured, compared to the more individualistic sink-or-swim philosophy of America.
Conservative economists have long argued that generous welfare states are a drag on European economies, making them less dynamic and less productive than the United States. In exchange for a less secure system for those down on their luck, they argue, the United States provides greater mobility up the income ladder and a more flexible labor market. Historically, people are fired more easily in the United States than in Europe but also hired back more quickly following economic recessions.
Unemployment benefits, which are typically more generous and last longer in Europe, can be followed by welfare payments with no fixed time limit in countries like Britain, Germany and the Netherlands. “The more you spread the safety net, the easier it is to be unemployed and the more people will be unemployed longer,” says Vincent R. Reinhart, a resident scholar at the American Enterprise Institute (AEI), a conservative think tank in Washington. “Those economies that have more elaborate safety nets are ones that grow a little slower.”
Although the American economy grew faster than Europe's devastated nations in the aftermath of World War II, much of that growth in total national income, or gross domestic product (GDP), was due to America's expanding population and immigration. If measured on a per-person basis, most rich countries actually enjoyed their highest growth rates in the era of the big welfare state, 1975–2006.[Footnote 2]
Studies of the last 15 years show “European welfare states grew just as fast if not faster than the United States,” says Timothy Smeeding, a professor of public affairs and economics at the University of Wisconsin-Madison and coauthor of the new book Wealth and Welfare States. Smeeding and his coauthors argue that welfare programs plus capitalism “make nations rich.” When public education — not usually considered welfare — is counted along with health care and Social Security, the United States is one of the nations that has benefited from its welfare programs, though tilted heavily toward public education.[Footnote 3]
And going from rags to riches, long a staple of the American dream, turns out to be easier in welfare-state Europe than the United States, judging from recent international comparisons of men's ability to move out of their father's economic class. Although America boasted greater economic mobility than Europe in the postwar economic boom, since 1975 those at the bottom of the income ladder have had a harder time climbing up as the economy slowed.[Footnote 4]
One reason may be that the United States has lost its historic lead in education, including the percentage of citizens with college degrees. European countries, many of which offer free preschool education and free university education, have caught up and surpassed the United States, measured by college degrees and test performance.[Footnote 5]
“The well-to-do in America can afford to do anything they want for their kids (including paying for college). Others can't. We have less mobility in the United States because the main system for mobility — education — doesn't work as well,” Smeeding says. And almost all of the growth in income recently has been limited to those Americans with college educations.[Footnote 6]
Ron Haskins, a conservative champion of American welfare reform at the Brookings Institution think tank, used to believe that Europe was “socialist and soft” on unemployed welfare recipients, he says, but his recent research on work requirements has revealed that Europe “really wants to get people back in the labor force as fast as possible; that's the focus of their policy.” Recent trends suggest some European countries are more successful than the United States in getting adults back to work. Since 2002, the United States has dropped from first place in the share of its population that's employed to third behind the Netherlands and Britain, according to Organisation for Economic Co-operation and Development (OECD) data.
In the current economic crisis, to what extent will European governments rethink the generosity of their welfare systems? So far most of the attention has focused on freezing pensions and delaying retirement ages. Europe faces a growing retiree population, but declining fertility rates mean there will be a relatively smaller work force that won't be able to support social security systems funded by current workers' payroll deductions. Even France, whose government avoids the mention of fiscal austerity, has proposed raising the legal retirement age from 60 to 62.
Despite some proposals to cut other programs, like benefits for children, most experts think it unlikely that European governments will remove the foundations of the welfare state. “So far, I don't think you could find any cutbacks that are in any serious way undermining the cornerstones of the welfare state as such,” says Gøsta Esping-Andersen, a prominent welfare expert and sociologist at Pompeu Fabra University in Barcelona. He calls the cutbacks in Spain “desperate measures conceived of as a temporary stopgap” in response to pressure from international markets. “I don't think any of these reforms are aimed at long-term erosion of the welfare state.”
But the crisis has revived the long-standing debate over whether welfare states detract from economic growth or contribute to it by providing healthier, better educated, better paid workers. As the recent street protests in Greece, France and Spain indicate, changes to the welfare system could threaten social peace within European countries.
Tougher economic times could lead so-called Eurozone countries to turn against the more marginal members of their society who benefit from the generosity of welfare benefits. Denmark recently capped its monthly per-child cash benefits, a political move aimed at immigrant families with large numbers of children, Danish-born Esping-Andersen says. Denmark's coalition center-right government depends on the anti-immigrant Danish People's Party for support.
“The debate is pretty intense pitching to a rather strong electoral group that thinks we shouldn't coddle immigrants as much as in the past — that they are sucking too much out of the welfare state,” he says. The Social Democrats, Denmark's party of the welfare state, “see this as a direct threat to the basic values of solidarity and universalism,” he notes.[Footnote 7]
The European Union's economic interdependence, demonstrated by the current euro crisis, means rich European countries could become more like the United States — less willing to redistribute welfare benefits to poorer, failing countries outside their own homogenous “tribe,” Richard Burkhauser, professor of economics at Cornell University, predicts. “My sense is the Swedish tribe thinks they have enough moral cohesion to control all members of their tribe, so they don't have to worry about the behavioral consequences of a guaranteed income in Sweden,” he says. Employed Swedes are comfortable paying cash transfers to fellow citizens who don't work, because they attribute it to bad luck, not laziness, most experts agree. But as some countries face mounting debt and unemployment, “even the Swedes won't be willing to do that for the Spanish, let alone the Slovenians,” Burkhauser predicts.
Still others say the welfare states are crucial to keeping peace among the bloc's diverse countries. As the recent protests against welfare cuts suggest, if countries like Greece, Spain and Portugal find the violation of their social contract too disruptive, they could defect from the European Union, potentially threatening the euro and the common economic bloc. For some on the Left and much of the French political class, the fear is that “the high-cost social welfare model” can't be maintained by small individual countries in the face of global competition without the combined economic power of the EU, The Economist magazine recently noted.[Footnote 8]
The Issues:
*Do Europe's generous social welfare programs make its economies less productive than the United States?
*Do European welfare states have less social mobility than the United States?
*Can European welfare states afford their generous benefits?
For more information see the CQ Researcher report on "Social Welfare in Europe" [subscription required] or purchase the PDF
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Footnotes:
[1] Suzanne Daley, “Safety Net Frays in Spain, as Elsewhere in Europe,” The New York Times, June 27, 2010.
[2] Irwin Garfinkel, Lee Rainwater and Timothy Smeeding, Wealth and Welfare States: Is America a Laggard or Leader? (2010), pp. 32–34.
[3] Ibid., p. v.
[4] Julia B. Isaacs, “International Comparisons of Economic Mobility,” Chapter III, p. 1, in Isaacs, et al., “Getting Ahead or Losing Ground: Economic Mobility in America,” Brookings and Pew Economic Mobility Project, February 2008.
[5] See Garfinkel, et al., op. cit., pp. 80–84 and Organisation for Economic Co-operation and Development.
[6] Thirty-eight percent of 55-64-year-olds have an associate degree or higher-a higher percentage than most European countries for that age group. But for 25-34-year-olds, Norway, Ireland, Belgium, Denmark and France have a higher percentage of college graduates, and Spain and the United Kingdom have the same percentage-39.2 percent; “Education at a Glance,” Organisation for Economic Co-operation and Development, 2008; “Percentage of Adults with an Associate Degree or Higher by Age Group,” data from Timothy Smeeding.
[7] Denmark's ruling center-right Liberal Party governs Denmark in a coalition with the Conservative Party and the anti-immigrant Danish People's Party. The Social Democratic Party, Denmark's second largest, has been a strong supporter of redistribution under Denmark's welfare state. See “Denmark Freezes Welfare Payments,” Ice News, May 30, 2010.
[8] “Staring into the Abyss,” The Economist, July 10, 2010, pp. 26–28.
Was unethical behavior by bankers a major factor in the economic crash?
To follow is an excerpt from the CQ Researcher report called "Financial Industry Overhaul" by Marcia Clemmitt on July 30, 2010
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Some observers are convinced that financial markets are hotbeds of unethical conduct, but others point out that seeking profit is not only legal but is what the public demands that financial firms do.
Goldman Sachs is “a great vampire squid wrapped around the face of humanity … little better than a criminal enterprise that earns its billions by bilking the market, the government, and even its own clients in a bewildering variety of complex financial scams,” fumed financial reporter Matt Taibbi.[Footnote 14]
In 2006, Goldman sold $76.5 billion in mortgage-backed investments, of which about $59.1 billion — more than three-quarters — consisted of hundreds of home loans that either were made to people with very bad credit or had other serious problems, such as risky terms like a no down-payment requirement, Taibbi said. Then, “some Dutch teachers' union that a year before was buying ultra-safe U.S. Treasury bonds … runs into a Goldman salesman who offers them a different, ‘just as safe’ AAA-rated investment that, at the moment anyway, just happens to be earning a much higher return than Treasuries. Next thing you know, a bunch of teachers in Holland are betting their retirement nest eggs on a bunch of meth-addicted ‘homeowners’ in Texas and Arizona…. This isn't really commerce, but much more like organized crime … a gigantic fraud perpetrated on the economy that wouldn't have been possible without accomplices in the ratings agencies and regulators willing to turn a blind eye,” said Taibbi.[Footnote 15]
“It is unacceptable to continue allowing Wall Street to put their short-term gambles ahead of the long-term prosperity of Main Street America,” said Sen. Jeff Merkley, D-Ore., who sought to ban so-called “proprietary trading” — banks trading securities for their own profits rather than on behalf of customers — but secured only minor limitations on such trades. “We've seen how proprietary trading can cause conflicts of interest when firms bet against securities they help put together for their clients,” Merkeley said.[Footnote 16]
Sen. Carl Levin, D-Mich., who cosponsored Merkeley's proposal, labeled many bankers' primary motivation “extreme greed.”[Footnote 17]
In many cases, both sellers and buyers of the complex investments called “derivatives” are “cheaters,” charged Frank Partnoy, a professor of law and finance at the University of California, San Diego, and a former associate at the New York City-based financial services firm Morgan Stanley. Some derivatives allow people to avoid taxes by making their investment portfolios appear to have a different mix of risks and assets than they actually do, he said. In a so-called “equity swap,” a “bank that sells the swap makes money, and the purchaser … makes money because they effectively get to liquidate a portion of their stock position without paying tax. They both win,” but the public loses a legitimate part of the tax base, Partnoy said.[Footnote 18]
“Ethical rot” and “perverse incentives … caused the ongoing financial crisis,” said William K. Black, an associate professor of economics and law at the University of Missouri who was a federal bank regulator during the savings and loan meltdown of the late 1980s. For example, “executive compensation and the compensation systems used for appraisers, accountants and rating agencies were designed” to create a business climate in which “fraudulent and abusive lending and accounting practices drove good practices out of the marketplace.”[Footnote 19]
“I don't think those who went into finance are greedier or more deficient in moral scruples than others,” but the incentives in the way financial markets currently operate “led them to behave” as if they were, said Joseph E. Stiglitz, co-winner of the 2001 Nobel Prize for economics and a professor of economics at Columbia University. The idea that “you have to pay me more if I succeed in increasing profits” became “conventional wisdom,” leading bankers to neglect the fact that banks “are a means to an end” in the economy, “not an end in themselves.”[Footnote 20]
“A good financial system” manages risk, allocates capital and runs the economy's payment system “at low transaction costs,” said Stiglitz. “Our financial system created risk and mismanaged capital, all the while generating huge transaction costs” — financial firms' outsized profits compared to other industries. While bankers claim that products like derivatives created real value in the economy, “it is hard to find evidence of any real growth associated” with these “so-called innovations,” Stiglitz said.[Footnote 21]
“So deceptive were the systems of creative accounting” employed in pursuit of large returns that bankers “didn't even know their own balance sheets, and so they knew that they couldn't know that of any other bank,” Stiglitz said. No wonder then that lending between banks — which allows bankers quick access to cash they can then loan to businesses — froze up in a crisis of trust that helped topple the world's economy, he said.[Footnote 22]
Financial-industry executives mostly reject such charges.
Far from ignoring obligations to society, most bankers embrace their social purpose, said Goldman Sachs Chairman Lloyd Blankfein. “I know I could slit my wrists and people would cheer,” but accusers don't realize that the bank does “God's work,” Blankfein said. “We help companies to grow by helping them to raise capital…. This, in turn, allows people to have jobs that create more growth and more wealth. It's a virtuous cycle.”[Footnote 23]
Some bankers have exhibited a “failed moral compass” by “hiring people and promoting people based simply … on commercial productivity” rather than the “many other criteria that could be used,” acknowledged Brian Griffiths, vice chairman of Goldman Sachs International. Nevertheless, “my reading of [Scottish philosopher and economist] Adam Smith is that self-interested actions,” though “they may sometimes be selfish,” produce social good, he said. (Smith's 1776 treatise An Inquiry into the Nature and Causes of the Wealth of Nations theorizes that an “invisible hand” guides the free market to produce and price things correctly, despite seeming chaos.) “I think that the injunction of Jesus to love our neighbors as ourselves is a recognition of self-interest” as a positive social force, said Griffiths.[Footnote 24]
Banks do only what society asks of them, says Amy Sepinwall, an assistant professor of legal studies and business ethics at the University of Pennsylvania's Wharton School. “We live in a get-rich-quick culture, and we ask people [in the financial industry] on our behalf to make as much money as possible in as little time as possible, so in a way we're sort of licensing this.”
“Individuals prefer to spend rather than save, and, as a result, demand the kind of financial alchemy that can transform one's house into a virtual ATM or one's exceedingly modest savings into a fiscal cushion that can sustain a long, comfortable retirement,” Sepinwall said. Thus, the risk that crashed the system “is the inevitable price of our preferences for leisure over toil and consumption over savings.”[Footnote 25]
The Issues:
* Will the new law avert another crisis?
* Are tougher rules for financial firms needed?
* Was unethical behavior by bankers a major factor in the economic crash?
* Should big banks be broken up?
For more information see the CQ Researcher report on "America at War" [subscription required] or purchase the PDF
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Footnotes:
[14] Matt Taibbi, “Will Goldman Sachs Prove Greed is God?” The Guardian [UK], April 24, 2010.
[15] Matt Taibbi, “The Greatest Non-Apology of All Time,” The Smirking Chimp blog, June 19, 2009.
[16] “Merkley-Levin Amendment to Crack Down on High-Risk Proprietary Trading,” press release, Office of Sen. Jeff Merkley, May 10, 2010.
[17] Ibid.
[18] Joe Kolman, “The World According to Frank Partnoy,” DerivativesStrategy.com, October 1997.
[19]. William K. Black, “The Audacity of Dopes,” Huffington Post blog, May 28, 2010.
[20] Testimony before House Committee on Financial Services, Jan. 22, 2010.
[21] Ibid.
[22] Ibid.
[23] Quoted in John Arlidge, “I'm Doing ‘God's Work.’ Meet Mr. Goldman Sachs,” London Times online, Nov. 8, 2009.
[24] Regulation, Freedom and Human Welfare, St. Paul's Institute panel discussion, transcript, Oct. 20, 2009.
[25] Quoted in “‘A Race to the Bottom’: Assigning Responsibility for the Financial Crisis,” Knowledge at Wharton newsletter, Dec. 9, 2009, .
Housing the Homeless
Below is an excerpt from the "Overview" section of the CQ Researcher report on "Housing the Homeless" by Peter Katel, December 18, 2009
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Leida Ortiz was getting by. She lived with her sister and both of their children in an apartment in Worcester, Mass. 
Then, in the spring of 2007, her factory-worker father was diagnosed with stomach cancer, so Ortiz moved back into the home her parents owned to help her mother care for her father.
After he died, in December of that year, Ortiz and her mother couldn’t afford the mortgage payments on the house. A move back to her sister’s didn’t work out, so Ortiz and her two children began sharing an apartment with a roommate. But she wasn’t making enough from her part-time job as a nursing assistant to kick in her $400 share of the rent.
The roommate asked her and her 11-year-old son, Joseph, and 5-year-old daughter, Angelina, to leave.
“I became homeless in July,” Ortiz said. “I cried every night, wondering if my kids were going to end up in different schools somewhere else. We were living out of our bags. We didn’t know where we were going to end up next. The kids, they see that you’re stressed, they get stressed. They see you putting yourself to sleep every night crying.”
Speaking at a Capitol Hill briefing held by an advocacy group in early December, Ortiz recounted a happy ending to her family’s two-week stay at a motel. She urged the assembled housing advocates and congressional staffers to work to expand the “prevention and rapid rehousing” program that she credited for her family’s rescue.
Now working three part-time jobs, the 30-year-old Ortiz hardly fits the picture of “homeless” that hit the national consciousness in the early 1980s – seemingly unemployable people suffering mental illness or addiction or both. But in an economic climate shadowed by massive unemployment, some experts see working families facing threats to their housing stability that easily can escalate into homelessness, as in Ortiz’s case. “When you’re going into a recession starting with a limited supply of affordable housing, with families who are precariously housed and at risk, it’s the perfect storm for families,” says Mary K. Cunningham, a housing specialist at the nonpartisan Urban Institute think tank.
In 2008, homelessness among people in families rose by 9 percent over the number from the previous year, the U.S. Department of Housing and Urban Development (HUD) reported in an annual survey on homelessness.
Overall, about 1.6 million people slept in homeless shelters or other temporary housing in the United States in 2008, the report said. Whether that rough estimate shows an increase or decrease from the 1980s can’t be determined, Cunningham says, given the vast differences in methodology from then until now.
Whatever the case, housing advocates are united in the belief that government action can eliminate homelessness once and for all. Conservatives tend to be more skeptical, though ideology isn’t a reliable guide to views on homelessness.
“It is immoral,” Cheh Kim, a staff member for Sen. Christopher Bond, R-Mo., told the Capitol Hill briefing. “People need to understand that anybody can slip into homelessness. Just go into shelters and talk to people and realize that a lot of them were middle-income, or owned small businesses, and because of one little thing in their life, they just fell down.”
To be sure, Kim’s overall view was that Congress has been responding effectively to the persistence of homelessness. A major piece of evidence: a $1.5 billion appropriation in mid-2009 for a new Homelessness Prevention and Rapid Re-Housing Program (HPRP).
But Joel Segal, a staffer for Rep. John Conyers, D-Mich., argued at the briefing that congressional attitudes remain an obstacle to a definitive solution to homelessness. “A majority of people in Congress do think that homeless people want to be homeless,” Segal told Kim and the rest of those present. “That’s who they see in the streets pushing the baskets. Trust me on this – they do not know who’s in those shelters, because most members of Congress are raising money from very wealthy donors.’ “
Notwithstanding the staffers’ emphasis on shelters, the growing consensus among advocates for the homeless is that a danger exists of policy makers focusing too heavily on shelters. That approach, they say, would effectively mean continuing to channel mentally unstable and chronically homeless people into shelters instead of expanding a newer strategy of building permanent facilities designed to meet their needs. And families in unstable housing situations – perhaps “doubled up” in relatives’ homes – should be kept out of shelters in the first place.
“What we’ve learned over the past 10 years is that building up a bigger shelter system is a sort of self-fulfilling prophecy,” says Nan Roman, president of the National Alliance to End Homelessness.
A number of sources report rising housing instability among families. HUD experts studying present-day trends see a link between the economic crisis and the growing number of families in shelters. The National School Boards Association said in January 2009 that 724 of the country’s nearly 14,000 school districts had already served 75 percent or more of the number of homeless students they’d served during the 2007-2008 school year.
Districts track the trend because the Education for Homeless Children and Youth Act requires schools to provide the same level of education to students without fixed addresses as to all other children and youth. Schools can also use grants made under the law to provide homeless students with medical and dental care and other services.
A constellation of other laws authorizes programs designed for the “chronically” homeless, for households who can’t afford decent housing and for veterans without homes.
This year, Congress added new forms of assistance, including the Homeless Emergency Assistance and Rapid Transition to Housing (HEARTH) Act for families facing imminent loss of housing or recently made homeless. The law also promotes the construction of so-called “supportive housing” for the long-term homeless, who need mental health services and similar services along with roofs over their heads.
Meanwhile, about 2 million families nationwide receive substantial help in paying their rents under the Section 8 Housing Choice Voucher Program, in place since 1974 and revamped in 1998. For many housing advocates, Section 8 vouchers represent a speedy way to expand the supply of affordable housing, the lack of which they view as a major contributor to homelessness.
Some conservative policy experts say the problem isn’t a shortage of affordable housing but deeply rooted poverty – a condition they call ill-suited for resolution by housing subsidies. “The idea that housing is unaffordable and that we’ve done nothing about it – give me a break,” says Howard Husock, vice president of the Manhattan Institute for Policy Research, a New York think tank. “What we’ve done to make housing more affordable over the past 30 years is so extensive that I would inquire of advocates what more they would have government do.”
Even so, HUD, which administers three of those programs, calculates that a family with one full-time, minimum-wage worker can’t afford a two-bedroom apartment anywhere in the country.
As a practical matter, a one-earner family means a household headed by a single mother – the population segment that by all accounts is the most economically and socially vulnerable to deep poverty. The HUD annual report says that families in shelters are typically headed by a single mother.
Ortiz, the once-homeless single mother in Worcester, Mass., says that she was able to start turning her life around only after her city’s housing program helped her find an $850-a-month apartment, which she pays for with the help of a $700 monthly subsidy from the “rapid rehousing” program.
Before that, she says. “I couldn’t get more work hours because of my kids getting out of school at 4:10. I didn’t have anybody reliable enough to drop them off for me or pick them up if I did get a full-time job, and after-school programs cost so much.”
Once she and her family got a place of their own, she found a friend who could pick up the children twice a week, allowing Ortiz to work two part-time jobs as a nursing assistant, and one in a party-supply store. In addition, she’s studying for the GED, planning to then enroll in medical-technology training.
“Things are slowly falling into place for me,” she says. “A shelter would have been no way for my kids to live. It’s not the same as having your house.”
The Issues
* Can government end homelessness?
* Should the definition of homeless include people in unstable housing situations?
* Are housing subsidies the best way to help families facing homelessness?
For more information see the CQ Researcher report on "Housing the Homeless" [subscription required] or purchase the CQ Researcher PDF.
State Budget Crisis
Are permanent changes in spending needed?
By Alan Greenblatt, September 11, 2009
State budgets always fall out of balance during recessions, but in the current downturn states are facing the worst budget crunch since the Great Depression. 
Over the past two years, states have had to close budget gaps exceeding $300 billion. Many have raised taxes, but they've mainly dealt with the challenge by cutting spending. State workers are facing layoffs and unpaid furloughs. Social services, including health insurance for children, are being cut dramatically. Even normally sacrosanct areas such as K-12 education and public safety are taking hits. The federal stimulus package included fiscal relief for states, but that money will soon run out. And states expect to face continuing problems. Their revenues will grow more slowly than they've come to expect over the past 30 years, leading some observers to wonder whether states have to make fundamental changes in the scope and scale of the services they provide.
The Issues
* Should states raise taxes?
* Are public-sector workers' benefits too generous?
* Will the recession force states to make fundamental changes?
To view the entire report, login to CQ Researcher Online [subscription required], or purchase the CQ Researcher PDF
Straining the Safety Net
Is joblessness overwhelming aid programs?
by Peter Katel, July 31, 2009
As unemployment keeps mounting, millions more Americans are being forced to rely on a network of federal and state programs to meet their basic needs.
The added pressure on the so-called safety net has prompted increases in unemployment insurance payments and expanded food-stamp and welfare caseloads, authorized under this year's $787 billion stimulus package. Budget crises, however, are forcing some states to cut back on safety-net programs, including health care and meals for disadvantaged children. At the same time critics say welfare reforms enacted in 1996 requiring aid recipients to work don't mesh with the reality of today's job shortage. But supporters of the reforms say the extra spending on benefits shows the system is working. With employment growth unlikely any time soon, a renewed debate on government responsibility to the disadvantaged is gathering force.
The Issues:
* Are safety nets working?
* Are fundamental changes needed in the federal welfare program?
* Is more job training needed?
To read an excerpt of the report click here.
To view the entire report, login to CQ Researcher Online [subscription required], or purchase the CQ Researcher PDF.
Rethinking Retirement
Can Americans afford to retire?
By Thomas J. Billitteri, June 19, 2009
Prospects for a secure retirement are more imperiled now than at any time since before the creation of the Social Security program in 1935. 
Low savings rates and credit abuse have contributed to the problem, but the recent economic crisis, which has led to massive layoffs and a collapse of the stock market, is forcing even those who have prepared and saved to rethink their retirement strategies. The entire retirement structure, including the shift away from traditional guaranteed pension plans toward 401(k) accounts, is under scrutiny, and Congress has called for greater transparency in the way such accounts are administered. Meanwhile, retirement experts are counseling workers to stay on the job longer to ensure their retirement security, and some economists are calling for reductions in Social Security benefits to shore up the entitlement system and accommodate the impending wave of retirements among the post-World War II baby-boom generation.
The Issues:
*Will most Americans be able to afford a secure retirement?
*Should Social Security benefits be cut to strengthen the system?
*Are new rules needed to foster greater private retirement savings?
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GM files for bankruptcy protection
Thomas J. Billitteri, 6/2/2009
To much fanfare but little surprise, General Motors has filed for bankruptcy reorganization, and the auto giant’s biggest shareholder—the federal government—will have a huge task in getting the company back into the hands of private investors.
The bankruptcy filing, the biggest on record for an American industrial company, is aimed at downsizing GM and putting it on a stronger footing. GM, which is $173 billion in debt, has already received $20 billion in federal loans and will get another $30 billion in help from the Treasury Department, plus aid from Canada. The federal government will take a 60 percent ownership stake in the reorganized automaker.
President Barack Obama praised GM’s restructuring plan as “credible” and “full of promise,” but said the government’s aim “is to get GM back on its feet, take a hands-off approach, and get out quickly.” That won’t be easy. The longer GM takes to recover from years of bad management and a flagging global market for new cars, the harder it will be for Washington to keep from micromanaging GM’s business decisions and shed its ownership stake.
What do you think? Should the Obama administration have pushed GM toward bankruptcy reorganization? Will GM survive in the long run?
For more background on the auto industry’s travails, see Thomas J. Billitteri, “Auto Industry’s Future,” CQ Researcher, Feb. 6, 2009.
See also
>President Obama’s remarks on GM”s restructuring.
>Legal documents on the case
Posted by Thomas J. Billitteri on 6/2/2009
Business Bankruptcy
Seven weeks after Lyondell Chemical filed for Chapter 11 in early January, the judge in the case approved an $8 billion “debtor-in-possession,” or DIP, loan to the Houston-based company, one of the largest bankruptcy loans in U.S. history. Such loans are “the fuel that keeps companies 
going through bankruptcy, allowing them to continue paying their suppliers and their employees as they try to become profitable again,” according to Thompson Financial News. Exit financing, another class of bankruptcy loans, is needed at the end of the process when the company is ready to emerge from Chapter 11.
But despite the record-setting size of Lyondell’s loan, most companies are struggling to find bankruptcy financing, and the consequence is, essentially, death. “Without bankruptcy financing, you can neither keep the company alive long enough to fix it or to sell it,” says Jeffrey Wurst, a bankruptcy lawyer in Uniondale, N.Y. Experts estimate that as recently as a year and a half ago as many as 30 companies were vying to provide bankruptcy financing, and today there are fewer than five.
Historically, financial institutions have been eager to provide the cash necessary for firms to survive the bankruptcy process because these loans are the first to be paid back, command high interest rates and fees and rarely default. “I get e-mails every day from lenders saying they are looking to make DIP loans,” says Wurst. But they can no longer find borrowers that look like a good risk, he says.
Companies entering bankruptcy these days already have pledged so many of their assets as collateral for earlier loans that there’s nothing left to pledge to a new lender. Not only have companies put up their inventories, accounts receivable, equipment and plants as collateral, oftentimes they have put up intangibles like intellectual property as well, long before bankruptcy was even contemplated.
Even when unencumbered assets can be found that could be pledged for a DIP loan, their value keeps dropping and is difficult to determine in this economic climate. “It’s comparatively easy to value an asset if the business is going to be running a year from now, but it’s hard to know that will be the case now,” says David Skeel, a professor of corporate law at the University of Pennsylvania Law School. “And it’s comparatively easy to value an asset if you know there is an active market for the assets of companies,” he adds, “but there aren’t liquid markets for much of anything right now.”
With traditional providers of bankruptcy financing stepping back, companies in Chapter 11 have had to turn to their existing lenders. And the interest rates, fees and conditions those lenders are imposing are often onerous. “The interest rates for DIP financing are astronomical now,” says William Lenhart, national director of business restructuring services for BDO Consulting. “In addition, the post-petition financing may only be for 60, 90 or 120 days,” he adds, which often leaves no time to reorganize and forces the debtor into a sale or liquidation.
Many times the DIP loan doesn’t actually include much fresh money. Lenders roll their pre-bankruptcy loans into the DIP financing, garnering higher interest rates and fees in the process. In addition, as the value of a debtor’s assets continues to decline, lenders will often restrict the amount it can borrow even further. After Circuit City’s bankruptcy filing last November, it arranged DIP financing with a face value of $1.1 billion from its existing bank group. But Circuit City’s lawyers told the bankruptcy judge that when all was said and done, there would only be $50 million of fresh money available to the retailer, at a cost of $30 million in fees and expenses. A little more than three months after filing, Circuit City shut down, selling its assets and letting its 34,000 employees go.
Some bankruptcy experts argue the credit markets are simply broken and that the federal government may need to step in. “My bottom line is that I would much rather have the government provide DIP financing in a bankruptcy than bail out an industry,” says Skeel. Providing DIP financing would be cheaper, he says, because “all a bankrupt company needs is enough cash to fund its operations; it doesn’t have to pay its general creditors.”
Choosing which industries to help would be tricky. “The government would have to prioritize industries,” says Skeel, “based on which would have the most devastating consequences if companies filed for bankruptcy and could not find financing.” Altman of New York University says that if General Motors ends up in Chapter 11, the federal government should step in and provide the necessary DIP financing, which he estimates could amount to as much as $50 billion.
But Altman is not prescribing the same medicine for other companies. “There are not too many companies like GM,” he says. Rather than provide bankruptcy financing directly to other companies in Chapter 11, he recommends government arm-twisting of traditional lenders of DIP and exit loans — many of whom received bailout money themselves — to get back in the game.
Or the government, he says, could set up a DIP fund and arm-twist the country’s largest banks and corporations, like General Electric, which have financial subsidiaries, to contribute a total of $40-$50 billion.
On second thought, he says, the government could be a contributor as well. “Why not,” he asks, “if that would get it going, since DIP financing is usually a pretty good investment?”
But other bankruptcy experts say this multibillion-dollar corner of the credit markets is not broken and needs no government intervention. “Bankruptcy financing is a way in which the market imposes discipline on businesses,” says Williams of the American Bankruptcy Institute. “If the market itself will not provide financing because it’s not confident that the business will generate enough revenue to cover the cost and return on that investment, then if the government provides that financing instead, it’s doing so for reasons that have nothing to do with economic reality.”
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Vanishing Jobs
By Peter Katel, March 13, 2009
Will the president’s plan reduce unemployment?
The news is grim and getting grimmer. The jobless rate recently hit 8.1 percent – the highest level in a quarter-century. American workers lost 651,000 jobs in February alone. All told, more than 12.5 million Americans are jobless – including 2.9 million who have been unemployed for at least 27 weeks. The nation is banking on the Obama administration’s newly enacted, $787 billion “economic stimulus” bill to spark job growth through government spending on infrastructure projects and other programs.
Conservatives argue that the spending won’t help, and some liberals say the magnitude of the crisis calls for still more stimulus money. The huge spending measure also includes funds to encourage states to expand eligibility for unemployment insurance, though some governors are resisting on the grounds that their states will wind up footing future bills. With no quick turnaround predicted, creating or saving jobs will remain the top priority for President Barack Obama and the millions of citizens counting on his administration’s rescue plan.
* Will the economic stimulus bill create or save 3.6 million jobs, as promised?
* Is retraining for new skills the best option for laid-off workers?
* Should unemployment insurance be extended beyond what the recovery act allows?
Overview from the CQ Researcher on "Vanishing Jobs"
By Peter Katel, March 13, 2009
A layoff last year knocked Duane Simmons’ life off its foundation.. “I don’t hold it against nobody,” the 62-year-old machinist says, without apparent bitterness, “because the same thing is happening everywhere.”
Indeed, in February alone, a record 651,000 Americans lost their jobs, pushing the unemployment rate to 8.1 percent – the highest in 25 years – and the number of unemployed workers to 12.5 million. A whopping 4.4 million jobs have been lost just since the December 2007 start of The Great Recession – as The New York Times calls the current economic crisis.
Simmons’ troubles began when Kennametal, a global metalworking, mining and tool company, bought Manchester Tool Co. of New Franklin, Ohio, where Simmons had labored for 33 years – virtually his entire working life. Kennametal quickly closed the plant where Simmons worked.
He moved his family to Newton, N.C., but his hopes for a new job have failed to materialize. Back home in Ohio, Simmons’ $900-a-month home mortgage proved too heavy a burden, and soon the house was in foreclosure. The pressure of other debts forced Simmons and his wife into bankruptcy. And once his 26 weeks of unemployment insurance were exhausted, the couple began dipping into savings to pay rent and other expenses, with a little help from their son.
As the financial crisis last year expanded into all sectors of the economy, jobs and joblessness became the No. 1 issue for millions of Americans. A poll conducted for The Associated Press in mid-February showed that 47 percent of respondents were worried about losing their jobs, and 65 percent knew someone who had been laid off.
The pace and scale of layoffs accelerated in early 2009, with Jan. 27 an especially bleak day: Companies announcing big layoffs that day included Home Depot (7,000), Caterpillar (20,000), Texas Instruments (1,800) and Sprint Nextel (8,000). All in all, the first month of the year saw 598,000 jobs evaporate. Then in February General Motors eliminated 10,000 more jobs, even though struggling carmakers had already cut their workforce in 2006-2008 by 80,000, using buyouts and early retirements.
Each layoff announcement accelerates the economic decline that President Barack Obama and his team of economic advisers is struggling to reverse. “Without jobs, people can’t earn,” he said in mid-February at the signing ceremony in Denver for the $787 billion American Recovery and Reinvestment Act – the so-called economic stimulus bill – designed to “create or save” 3.6 million jobs. “And when people can’t earn, they can’t spend. And if they don’t spend, it means more jobs get lost. It’s a vicious cycle.”
Critics – even some liberals – say more needs to be done. “The Obama administration is . . . trying to mitigate the slump, not end it,” wrote Princeton University economist Paul Krugman, winner of the 2008 Nobel Prize in economics and an influential New York Times columnist. “The stimulus bill, on the administration’s own estimates, will limit the rise in unemployment but fall far short of restoring full employment.”
But White House Chief of Staff Rahm Emanuel dismissed the idea that a bill sized to Krugman’s satisfaction could have gotten through Congress. “How many bills has he passed?” Emanuel carped in The New Yorker.
In fact, despite Obama’s call for bipartisanship, every single Republican in Congress – save for three senators – voted against the stimulus legislation, which includes billions of dollars to finance public-works spending. Many GOP leaders are denouncing the sweeping measure on the grounds that increased government spending alone won’t end the job losses.
“It’s filled with social policy and costs too much,” said Mississippi Gov. Haley Barbour. “You could create just as many jobs for about half as much money.”
But other Republican governors, especially those in hard-hit states, backed the president. “I think he’s on the right track,” said Gov. Charlie Crist of Florida, which lost more than a quarter-million jobs last year.
Nationally, layoffs are eliminating jobs far beyond blue-collar workers like Simmons in the ever-shrinking manufacturing sector. The financial-services industry is shedding so many workers that in New York City – the nation’s financial capital – Mayor Michael Bloomberg has announced a $45 billion retraining program for pink-slipped investment bankers.
“I have competitors closing up shop and going to live with their parents,” says a financial software specialist in the New York area whose own contracts with banks and hedge funds have vaporized.
Newspapers and magazines, already reeling because millions of readers are going to the Web for free news, are laying off thousands of reporters and editors as advertising, the lifeblood of the news business, slows to a trickle. Newspapers have cut more than 3,000 jobs already this year, after slashing more than 15,000 in 2008, according to “Paper Cuts,” a layoff monitor.
“I’d like to stay in journalism,” says journalist William Triplett, who recently lost his job as Washington correspondent for Variety, the entertainment-news daily. “But I don’t know if I can make a sustainable living at it.”
Major law firms have laid off 6,598 lawyers and staff members since Jan.. 1, 2008 – more than half of them since the beginning of this year.
Health care is one of the only sectors of the economy adding jobs, according to the U.S. Bureau of Labor Statistics: It showed a 30 percent increase in employment between February 2008 and February 2009.
With few exceptions, the impact of the stimulus legislation has yet to be felt. In early March, state officials and politicians across the country were still drawing up lists of projects they planned to start with the new funds.
Meanwhile, Americans who have been laid off or who fear layoffs have cut back on shopping – forcing more layoffs in retail and manufacturing.. Consumer spending fell 4 percent in the second half of 2008 after rising steadily for more than 20 years, the Commerce Department reported in March, and savings rose to 5 percent of disposable income in January – a 14-year high.
“People who lose their jobs are going to be spending less,” says Heidi Shierholz, a labor economist at the Economic Policy Institute, a liberal think tank. “For people hanging onto jobs in this climate, there is enormous economic insecurity. If you have the opportunity to build yourself a little cushion, putting off big-ticket purchases, now is the time you’re going to do it – which further pushes out the recovery, until we get people feeling confident again.”
But economists say the vicious cycle of layoffs, reduced spending and business retrenchment or outright failure won’t wind down for some time. The Federal Reserve’s influential Open Market Committee, which sets interest rates, concluded in late January that unemployment will “remain substantially above its longer-run sustainable rate at the end of 2011, even absent further economic shocks.”
As the economic meltdown continues – worldwide as well as within the United States – references to the Great Depression of the 1930s are increasing. In late February, Mark Zandi, chief economist of Moody’s Economy.com, told The New York Times it was becoming more likely that the recession could turn into a “mild depression.”
His “mild” qualifier is rooted in historical reality. Americans haven’t reached anywhere near an early-1930s level of misery. By 1932, the year Franklin D. Roosevelt was elected president, the unemployed “lived in the primitive conditions of a preindustrial society stricken by famine,” a leading historian of the era wrote.
In fact, conservatives cite statistics showing that today’s 8.1 percent unemployment rate has not even reached the level of the 1981-1982 recession, when the jobless rate reached 10.1 percent. “We’ve had worse recessions,” says James Sherk, a labor policy fellow at the Heritage Foundation. “This is not the most painful, so far.”
But Heather Boushey – a senior economist at the liberal Center for American Progress, which has close ties to the Obama administration – points out that there are 5 million more people unemployed compared to a year ago. “This is the largest annual jump in the number of unemployed since the U.S. Bureau of Labor Statistics began tabulating this data just after World War II,” she writes.
Roosevelt ’s New Deal – a set of programs designed to stimulate the economy, create publicly financed jobs and regulate business and financial practices – dented unemployment but hardly ended it. By 1940, the year before the United States entered World War II, 14.6 percent of workers were unemployed – well below 1933’s catastrophic level of 25 percent but above the annual rates since then.
Economists and historians are still arguing about the New Deal’s effectiveness in countering the Depression. But not in dispute is the social safety net created by the Roosevelt administration, including unemployment insurance (UI).
In 2008, laid-off workers received more than $43 billion in UI payments, including $34 million in “extended benefits” designed to counteract the effects of unusually high unemployment. But only 37 percent of laid-off workers receive benefits, in part because some states exclude part-time and temporary workers. And some Republican Southern governors – including Bobby Jindal of Louisiana – say they’ll refuse stimulus money tied to expanding UI eligibility, which they claim will unfairly burden states in later years.
Even some former full-time workers are excluded from extra benefits. In his new home state of North Carolina, machinist Simmons says he couldn’t get coverage past the standard 26 weeks because he had started withdrawing money from his 401(k) retirement fund. “I found afterward that I can’t get unemployment and the 401(k) at once,” he says. “It’s my fault.”
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Middle-Class Squeeze
by Thomas J. Billitteri, March 6, 2009
Is more government aid needed?
Millions of families who once enjoyed the American dream of home ownership and upward financial mobility are sliding down the economic ladder – some into poverty. Many have been forced to seek government help for the first time. The plunging fortunes of working families are pushing the U.S.. economy deeper into recession as plummeting demand for goods and services creates a downward economic spiral. A consumption binge and growing consumer debt beginning in the 1990s contributed to the middle-class squeeze, but the bigger culprits were exploding prices for necessities such as housing, medical care and college tuition, cuts in employer-funded benefits and, some say, government policies that favored the wealthy. President Barack Obama has promised major aid for the middle class, and some economists are calling for new programs – most notably national health coverage – to assist working Americans.
* Is a stable middle class a thing of the past?
* Is overconsumption at the root of the middle class’ problems?
* Are aggressive new government programs needed to bolster the middle class?
To read the Overview of this week’s report, click here.
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Overview from the issue on Middle-Class Squeeze (March 6, 2009)
By Thomas J. Billitteri
Cindy Dreeszen, 41, and her husband may have seemed like unlikely visitors to the Interfaith food pantry last month in affluent Morris County, N.J.., 25 miles from New York City. Both have steady jobs and a combined income of about $55,000 a year. But with “the cost of everything going up and up” and a second baby due, the couple was looking for free groceries.
“I didn’t think we’d even be allowed to come here,” Ms. Dreeszen told The New York Times. “This is totally something that I never expected to happen, to have to resort to this.”
Countless middle-class Americans are thinking similar thoughts these days as they ponder their suddenly fragile futures.
Millions of families who once enjoyed the American dream of upward mobility and financial security are sliding rapidly down the economic ladder – some into poverty. Many are losing their homes along with their jobs, and telling their children to rethink college. And while today’s economic crisis has made life for middle-class households worse, the problems aren’t new. Pressure on the middle-class has been building for years and is likely to persist long after the current recession – now 14 months old – is over.
The middle class “is in crisis and decline,” says sociologist Kevin Leicht, director of the Institute for Inequality Studies at the University of Iowa.
“Between wages that have been stagnant [in inflation-adjusted terms] since the middle of the 1970s and government policies that are weighted exclusively in the direction of the wealthy, the only thing that has been holding up most of the American middle class is access to cheap and easy credit.”
No official definition of the “middle class” exists. But most Americans – except perhaps the very richest and poorest – consider themselves in that broad category, a fact not lost on Washington policy makers.
Indeed, President Barack Obama announced a 10-year budget on Feb. 28 that takes direct aim at the challenges facing America’s middle class and the growing concentration of wealth at the top of the income scale. Key elements of the plan include shifting more costs to the wealthiest Americans and overhauling health care to make it more affordable.
In further recognition of the importance of the middle-class, Obama has named Vice President Joseph R. Biden to chair a new White House Task Force on Middle Class Working Families. It will examine everything from access to college and child- and elder-care issues to business development and the role of labor unions in the economy.
“Talking about the middle class is the closest that American politicians and maybe Americans are willing to go to emphasize the fact that we have growing inequality in this country,” says Jacob Hacker, a political scientist at the University of California, Berkeley, and a leading social-policy expert. “A very small proportion of the population is getting fabulously rich, and the rest of Americans are getting modestly richer or not much richer at all.”
What’s at stake goes far beyond economics and family finances, though, experts say. “A large middle class, especially one that is politically active, tends to be a kind of anchor that keeps your country from swinging back and forth,” says sociologist Teresa Sullivan, provost and executive vice president for academic affairs at the University of Michigan and co-author of The Fragile Middle Class: Americans in Debt. What’s more, she says, “there are typical values that middle-class families acquire and pass on to their children,” and those values “tend to be very good for democracy.”
Right now, though, the middle class is under threat.
In a study of middle-class households, Demos, a liberal think tank in New York, estimated that 4 million families lost their financial security between 2000 and 2006, raising the total to 23 million. Driving the increase, Demos said, were declines in financial assets, then-rising housing costs and a growing lack of health insurance.
“In America the middle class has been a lifestyle, a certain way of life,” says Jennifer Wheary, a co-author of the study. “It’s been about being able to have a very moderate existence where you could do things like save for your retirement, put your kids through school, get sick and not worry about getting basic care. And those kinds of things are really imperiled right now.”
In another study, the Pew Research Center found this year that “fewer Americans now than at any time in the past half-century believe they’re moving forward in life.”
Among the findings:
* Nearly two-thirds of Americans said their standard of living was higher than that of their parents at the same age, but more than half said they’d either made no progress in life over the past five years or had fallen backward.
* Median household income rose 41 percent since 1970, but upper-income households outperformed those in the middle tier in both income gains and wealth accumulation. The median net worth of upper-income families rose 123 percent from 1983 to 2004, compared with 29 percent for middle-income families.
* Almost eight in 10 respondents said it was more difficult now for those in the middle class to maintain their standard of living compared with five years ago. In 1986, 65 percent felt that way.
Lane Kenworthy, a sociology and political science professor at the University of Arizona who studies income inequality and poverty, says “the key thing that’s happened” to the middle class over the past three decades “is slow income growth compared to general economic growth.” Moreover, Kenworthy says a bigger and bigger portion of economic growth has accrued to the wealthiest 1 percent, whether the measure is basic wages or total compensation, which includes the value of employee-sponsored and government benefits.
Even the economic boom leading up to today’s recession has proved illusory, new Federal Reserve data show. While median household net worth – assets minus debt – rose nearly 18 percent in the three years ending in late 2007, the increase vanished amid last year’s drastic declines in home and stock prices, according to the Fed’s triennial “Survey of Consumer Finances.” “Adjusting for those declines, Fed officials estimated that the median family was 3.2 percent poorer as of October 2008 than it was at the end of 2004,” The New York Times noted.
A hallmark of middle-class insecurity reflects what Hacker calls “the great risk shift” – the notion that government and business have transferred the burden of providing affordable health care, income security and retirement saving onto the shoulders of working Americans, leaving them financially stretched and vulnerable to economic catastrophe.
“Over the last generation, we have witnessed a massive transfer of economic risk from broad structures of insurance, including those sponsored by the corporate sector as well as by government, onto the fragile balance sheets of American families,” Hacker wrote. “This transformation . . . is the defining feature of the contemporary American economy – as important as the shift from agriculture to industry a century ago.”
The challenge of solving the problems facing the American middle class will confront policy makers for years to come. Some experts say the key is growth in good jobs – those with good pay, good benefits and good, secure futures. Others argue that solving the nation’s health-care crisis is the paramount issue.
One thing is certain, experts say: Leaving the fate of the American middle class to chance is not an option.
“We’re believers in hard work, and we’re increasingly in a situation where the difference between whether or not a middle-class family prospers comes down to luck, says Amelia Warren Tyagi, co-author of The Two-Income Trap: Why Middle-Class Mothers and Fathers Are Going Broke. “And that’s an idea that makes us really uncomfortable.”
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Public Works Projects
by Marcia Clemmitt, February 20, 2009
Do they stimulate the economy more than tax cuts?
To battle the Great Depression, President Franklin D. Roosevelt put millions of unemployed Americans to work on New Deal projects such as repairing roads and building cabins in national parks. To stimulate today’s ailing economy, Congress has enacted a $787 billion package that includes tax cuts and spending on infrastructure, including expanding highway and rail systems and weatherizing buildings. But many conservatives argue that government spending does not create jobs and merely diverts money from the private sector, which they call the only true engine of job creation. Meanwhile, infrastructure experts worry that if federal public-works dollars are spent too quickly, the money will go to eco-unfriendly projects, such as additional highway lanes that encourage fossil-fuel use and suburban sprawl, rather than to more future-oriented “green” initiatives like expanding rail and public transit and upgrading the electrical grid to accommodate alternative power sources.
* Will federal spending on public works create jobs?
* Does infrastructure construction strengthen the economy?
* Is the Democratic public-works spending plan too big?
For a more in-depth summary, see the Overview of this week’s report.
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Overview from the issue on Public-Works Projects (2/20/2008)
by Marcia Clemmitt
Matthew Sinkovec, a truck driver for an excavation company in northeastern Ohio, used to have plenty of work hauling materials to home-construction sites. But as the economic crisis battered the Cleveland area, work dried up.
“Instead of four jobs lined up, I’d get one and then wait for another,” he said. Eventually, “the bottom just fell out,” and he was laid off last November. Now, he mostly stays home, trying to conserve money, and hopes to find another construction job before his unemployment checks end. “I try not to think about this lasting too long,” he said. “That is a real scary thought.”
The construction business was among the first to slow drastically as the United States entered a recession in December 2007, but most other industries now also have slowed – with accompanying layoffs. In January 2009 alone, 598,000 people nationwide lost their jobs, the biggest monthly total since 1974. And in some places, net job loss has been a long-term phenomenon. Hard-hit Ohio, for example, has lost nearly a quarter of its manufacturing jobs since 2000 and 5 percent of its jobs overall.
In response, President Barack Obama and congressional Democrats developed the American Recovery and Reinvestment Act and declared the so-called stimulus package their first major legislative priority of 2009. Enacted by Congress on Feb. 13 and signed into law by Obama on Feb. 17, the act is designed to pump additional demand for goods and services into the economy, partly by creating jobs and retooling infrastructure for the future. It is “the most sweeping economic recovery package in our history . . . putting Americans to work . . . in critical areas . . . that will bring real and lasting change for generations to come,” Obama said.
Parts of the bill’s economic-stimulus provisions are familiar – tax cuts and boosts in aid programs such as unemployment benefits and Medicaid. But it’s the first major economic-recovery plan to include federal spending for public works like highways and energy-efficiency upgrades for buildings since President Bill Clinton proposed, but ultimately dropped, such a proposal in 1993.
Conservative analysts and most congressional Republicans were quick to denounce the public-works spending provisions as a waste of taxpayer dollars that won’t help the economy.
“We have no evidence from recent or distant history” that public-works spending creates jobs or spurs the economy, says Ronald D. Utt, a senior research fellow at the conservative Heritage Foundation. The Obama plan is partly modeled on the Depression-era job-creation initiatives of President Franklin D. Roosevelt’s New Deal. “I don’t know that that many people were ultimately employed” by those 1930s programs, Utt says.
Obama says the programs will benefit the economy both in the current recession and long term. For example, grants to weatherize homes – modifying them to reduce energy consumption – will “immediately put people back to work,” he told CBS News. “And we’re going to train people who are out of work, including young people, to do the weatherization. “Not only are you immediately putting people back to work, but you’re also [helping] families on energy bills and . . . laying the groundwork for long-term energy independence.” Other projects would repair highways, create high-speed rail systems and make public buildings energy-efficient.
A stimulus package similar to the one Congress approved should create between 3.3 million and 4.1 million jobs over the next two years – around 1.3 million of them from public-works programs – according to Christina Romer, chair of the White House Council of Economic Advisers, and Jared Bernstein, chief economist for Vice President Joseph Biden. More than 90 percent of the jobs created will be in the private sector, about a third of them in construction and manufacturing.
Nevertheless, the plan can’t possibly create enough jobs to offset the losses the economy is suffering, Romer and Bernstein caution.
About 11.6 million people were unemployed in January – 4.1 million more than a year earlier – and job losses are expected to continue into 2010, according to the U.S. Bureau of Labor Statistics.
Our $15-trillion-per-year economy has taken at least a 5 percent hit – $750 billion – in the demand for goods and services that keeps business humming, says James K. Galbraith, an economist and a professor of government at the Lyndon B. Johnson School of Public Affairs at the University of Texas, Austin. “Infrastructure is not going to make up a $750 billion to $1 trillion hole in economic activity,” he says.
Infrastructure experts also caution that the country’s longtime neglect and underfunding of infrastructure maintenance and planning means that some public-works projects will suffer some delay before they’re up and running.
“Up to a point, public works are a good way” to stimulate job creation, says Richard G. Little, director of the Keston Institute for Public Finance and Infrastructure Policy at the University of Southern California. However, in the present workforce we don’t have the welders, the heavy equipment operators and other skilled workers we need, he says.
“A stimulus package with real sticking power should support training in the construction trades for the vast number of young and underemployed people for whom college is not the career solution,” Little said.
The key question for many is whether infrastructure spending that creates jobs quickly can also be visionary enough to strengthen the nation and economy long term.
Public-works spending can contribute toward stabilizing the economy in the short term, depending on how quickly the money can be spent, “but, much more important, the public works of today will redefine how we live in the future,” says Galbraith, noting that the Interstate Highway System launched by President Dwight D. Eisenhower in the 1950s created America’s suburbs.
When it comes to federal infrastructure spending, “forget about stimulating the economy over the next year,” says Robert P. Inman, a professor of finance and economics at the University of Pennsylvania’s Wharton School of Finance. “The rewards should be found in the project itself,” and, ideally, the benefits should be national, he says.
For example, “if you give money to Pennsylvania to invest in education, their kids will be more productive, and they’ll end up living everywhere in the country,” benefiting the whole nation, he says. In the best-case scenario, the dollars would go to inner-city and other poor schools, he says, thus aiding a cause “that we value but that wouldn’t have received help otherwise” – a good test for the worth of government spending, he adds.
There’s tension between projects that will give local economies a quick boost and those that would best serve future needs, says Anthony Shorris, a fellow at the liberal Century Foundation think tank and former executive director of the Port Authority of New York and New Jersey. “The fastest thing to build is a new road, but it’s the opposite of everything we want” in the long run, producing more sprawling development and more carbon-emitting automobiles, he says.
“If the wrong things are done, they may do damage with this [stimulus] bill,” says John Norquist, president of the Congress for the New Urbanism, a Chicago-based nonprofit that promotes walkable environments and sustainable development.
“It’s crucial to think beyond the current crisis,” says Guian A. McKee, an associate professor of history at the University of Virginia. “What do we want the structure of this economy to be 10 to 15 years from now? Do we want mass transit, alternative energy?” If so, then it’s time to focus on such projects, he says. “While we need the shovel-ready stuff for the crisis, we shouldn’t neglect the long-term things,” he says.
At present, though, “we haven’t really developed a vision of the 21st-century U.S. economy, so we don’t know what infrastructure we need to support it,” says Armando Carbonell, a senior fellow at the Lincoln Institute for Land Policy, a think tank in Cambridge, Mass. To create a vision for the transportation system, for example, “we need to know where the current system breaks down” and stymies important travels, he says. For example, highways and air travel are congested and frustrating in the Northeast Corridor, so we know that providing a rail alternative is a good possibility, he says.
“You need the target, and you need the vision, because tomorrow is going to be different from today,” Carbonell says.
“If we’re going to have an infrastructure feeding frenzy, make sure government builds public works that will make us more productive as a nation,” such as roads, bridges, mass transit, integrated information technology in public industries like health care, and military recapitalization, said New Hampshire Sen. Judd Gregg, top-ranking Republican on the Senate Budget Committee. “This is about bringing the nation out of this recession in a manner that makes us more competitive in the international market.”
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