The first group includes national telecoms like Verizon and AT&T that need a prosperous America because most of their sales are here. Same with finance companies like Bank of America and Travelers Insurance whose business strategy has been built around U.S. consumers. Ditto certain giant chains like Home Depot. Naturally, all these companies were especially hard hit by the Great Depression and its devastating impact on American consumers.

The second group includes companies like Coca Cola, Exxon-Mobil, Hewlett-Packard, Intel, and McDonalds, that get substantial revenues from their overseas operations. Increasingly this means China, India, and Brazil. Ford and GM are still largely dependent on US sales but becoming less so. GM sold more cars in China last year than in the US. Not surprisingly, American companies that are less dependent on American consumers have been showing the biggest profits.

So what does this mean for politics? Big companies hedge their bets and support both Republicans and Democrats. But in my experience, companies in the first group are more responsive to tax, spending, and monetary policies that cause unemployment to drop and wages to grow, and less obsessed by inflation and deficits, than are companies in the second group. The former are also more supportive of new investments in infrastructure and education, which improve U.S. productivity over the longer term.

The problem is, more and more big companies are moving into the second category because that's where the markets and the money are. Years ago groups like the Business Roundtable consisted mostly of large American corporations that were indubitably American, and took largely progressive positions on U.S. jobs and wages. I remember working with the National Association of Manufacturers on measures to improve U.S. education and job training. The American Electronics Association pushed the Reagan Administration for an industrial policy to preserve the nascent industrial base of U.S. computing.

No longer. Large American corporations are going global as fast as they can. That's good for their shareholders. But in a Washington ever more susceptible to their money and influence, that's not necessarily good for most Americans.

Read the original post here.

Duh.

But the Fed is quick to point out the economy overall is still growing -- even though it's growing more slowly than in the spring.

Can we have a moment of realism here, please?

After a typical recession, growth surges until the economy reemerges from whatever hole it fell into and returns to its normal growth path. Usually that surge isn't difficult to accomplish once the upswing begins because all the assets the economy needs to get back to its old path are readily available -- lots of people who have been laid off or have come into the job market and been unable to find work, unused office and retail space, factories and equipment that had been idled. After the economy returns to normal and almost all these people and physical assets are back to work, growth slows to its normal pace.

But this time it's not happening that way. More than two and a half years after the Great Recession began, many months after we hit bottom and when in a normal "recovery" we'd expect growth to surge, the opposite is happening. Growth is slowing.

We may or may not fall into another hole, but a so-called "double dip" isn't really the worry. The worry is we're not getting out of the giant hole we fell into. Growth is slowing when it should be surging. Think of a tortoise trying to get out of a deep ravine, who's just begun to scale the wall when he gets tired and goes to sleep.

As I keep saying, this isn't your ordinary business cycle. But we're debating fiscal policy as if it were.

Democrats and Republicans are battling over whether the Bush tax cuts should be extended to the richest 2.7 percent of Americans next year. They shouldn't be, of course. The rich don't spend nearly as much of their incomes as everyone else, and the $36 billion windfall they'd otherwise get could be better spent saving the jobs of teachers, fire fighters, and police officers who do spend almost all their incomes.

Yet even if Democrats win this one, the tortoise might wake up and move several inches up the wall before falling asleep again. Even if Congress were to go further and enact Obama's $50 billion infrastructure bank -- another proposal in the right direction -- the tortoise might move another few inches.

The underlying problem is structural, not cyclical. There will be no return to normal because normal got us into the hole in the first place. And the normal kind of prescriptions can't possibly get us out. Until the economy is restructured so more Americans share in its gains, the economy won't make many gains. We'll be forever trying to scale a wall that can't be, because the vast majority of Americans lack the purchasing power to move upward.

If you'll permit me a commercial, I explain all this in detail -- as well as what must be done -- in AFTERSHOCK: The Next Economy and America's Future, which will be out in two weeks from Knopf.

Read the original post here.

One would expand and make permanent the research and experimentation tax credit, at a cost of about $100 billion over the next ten years. The other would allow companies to write off 100 percent of their new investments in plant and equipment between now and the end of 2011 at a cost next year of substantially more than $100 billion (but a ten-year cost of about $30 billion since those write-offs wouldn't be taken over the longer-term).

The economy needs two whopping corporate tax cuts right now as much as someone with a serious heart condition needs Botox.

In any event, small businesses don't have enough profits against which to use these tax credits and deductions, and large corporations are sitting on over a trillion dollars of profits and don't need them.

Republicans and corporate lobbyists have been demanding tax cuts on corporate investments for one reason: Big corporations are investing in automated equipment, robotics, numerically-controlled machine tools, and software. These investments are designed to boost profits by permanently replacing workers and cutting payrolls. The tax breaks Obama is proposing would make such investments all the more profitable.

In sum, Obama's proposed corporate tax cuts (1) won't generate more jobs because they don't put any cash in worker's pockets (as would, for example, exempting the first $20,000 of income from the payroll tax and making up the difference by applying the payroll tax to incomes over $250,000); (2) will subsidize companies to cut even more jobs; and (3) will cost $130 billion -- money that could better be spent helping states and locales avoid laying off thousands of teachers, fire fighters, and police.

So why is Obama proposing them? To put Republicans in a bind. If they refuse to go along he can justifiably say they have no agenda other than obstruction. After all, the only thing they've been arguing for is lower taxes. On the other hand, if Republicans agree to support these corporate tax cuts, Obama can claim a legislative victory that will help Democrats neutralize their opponents in the upcoming elections.

The proposals also make it harder for Republicans to argue the Bush income tax cuts should be extended for the richest 3 percent of taxpayers because small businesses need it. Obama's corporate tax cuts would appear to do the trick.

The White House probably figures even if Republicans agree to the proposed tax cuts, nothing will come of it. Congress will be in session for only about two weeks between now and the midterm elections so it's doubtful these proposals would be enacted in any event.

But this cynical exercise could backfire if Republicans call Obama's bluff and demand the corporate tax cuts be put on a fast track and get signed into legislation before the midterms.

More troubling, Obama's whopping proposed corporate tax cuts help legitimize the supply-side dogma that the economy's biggest obstacle to growth is the cost of capital, rather than the plight of ordinary working people.

Read the original post here.

Face it: The national economy isn't escaping the gravitational pull of the Great Recession. None of the standard booster rockets are working. Near-zero short-term interest rates from the Fed, almost record-low borrowing costs in the bond market, a giant stimulus package, along with tax credits for small businesses that hire the long-term unemployed have all failed to do enough.

1. The Origin of the Crisis

This crisis began decades ago when a new wave of technology -- things like satellite communications, container ships, computers and eventually the Internet -- made it cheaper for American employers to use low-wage labor abroad or labor-replacing software here at home than to continue paying the typical worker a middle-class wage. Even though the American economy kept growing, hourly wages flattened. The median male worker earns less today, adjusted for inflation, than he did 30 years ago.

But for years American families kept spending as if their incomes were keeping pace with overall economic growth. And their spending fueled continued growth. How did families manage this trick? First, women streamed into the paid work force. By the late 1990s, more than 60 percent of mothers with young children worked outside the home (in 1966, only 24 percent did).

Second, everyone put in more hours. What families didn't receive in wage increases they made up for in work increases. By the mid-2000s, the typical male worker was putting in roughly 100 hours more each year than two decades before, and the typical female worker about 200 hours more.

When American families couldn't squeeze any more income out of these two coping mechanisms, they embarked on a third: going ever deeper into debt. This seemed painless -- as long as home prices were soaring. From 2002 to 2007, American households extracted $2.3 trillion from their homes.

Eventually, of course, the debt bubble burst -- and with it, the last coping mechanism. Now we're left to deal with the underlying problem that we've avoided for decades. Even if nearly everyone was employed, the vast middle class still wouldn't have enough money to buy what the economy is capable of producing.

Where have all the economic gains gone? Mostly to the top. The economists Emmanuel Saez and Thomas Piketty examined tax returns from 1913 to 2008. They discovered an interesting pattern. In the late 1970s, the richest 1 percent of American families took in about 9 percent of the nation's total income; by 2007, the top 1 percent took in 23.5 percent of total income.

It's no coincidence that the last time income was this concentrated was in 1928. I do not mean to suggest that such astonishing consolidations of income at the top directly cause sharp economic declines. The connection is more subtle.

The rich spend a much smaller proportion of their incomes than the rest of us. So when they get a disproportionate share of total income, the economy is robbed of the demand it needs to keep growing and creating jobs.

What's more, the rich don't necessarily invest their earnings and savings in the American economy; they send them anywhere around the globe where they'll summon the highest returns -- sometimes that's here, but often it's the Cayman Islands, China or elsewhere. The rich also put their money into assets most likely to attract other big investors (commodities, stocks, dot-coms or real estate), which can become wildly inflated as a result.

Meanwhile, as the economy grows, the vast majority in the middle naturally want to live better. Their consequent spending fuels continued growth and creates enough jobs for almost everyone, at least for a time. But because this situation can't be sustained, at some point -- 1929 and 2008 offer ready examples -- the bill comes due.

2. What We Learned and Didn't Learn From the Great Depression of the 1930s

This time around, policymakers had knowledge their counterparts didn't have in 1929; they knew they could avoid immediate financial calamity by flooding the economy with money. But, paradoxically, averting another Great Depression-like calamity removed political pressure for more fundamental reform. We're left instead with a long and seemingly endless Great Jobs Recession.

THE Great Depression and its aftermath demonstrate that there is only one way back to full recovery: through more widely shared prosperity. In the 1930s, the American economy was completely restructured. New Deal measures -- Social Security, a 40-hour work week with time-and-a-half overtime, unemployment insurance, the right to form unions and bargain collectively, the minimum wage -- leveled the playing field.

In the decades after World War II, legislation like the G.I. Bill, a vast expansion of public higher education and civil rights and voting rights laws further reduced economic inequality. Much of this was paid for with a 70 percent to 90 percent marginal income tax on the highest incomes. And as America's middle class shared more of the economy's gains, it was able to buy more of the goods and services the economy could provide. The result: rapid growth and more jobs.

By contrast, little has been done since 2008 to widen the circle of prosperity. Health-care reform is an important step forward but it's not nearly enough.

3. What Else Should Be Done

What else could be done to raise wages and thereby spur the economy? I don't pretend to have all the answers but some initiatives seem worthwhile.

[Pause for a commercial announcement. These points, and others, are developed at length in my upcoming book, "AFTERSHOCK: The Next Economy and America's Future," out in two weeks from Alfred Knopf.]

We might consider, for example, extending the earned income tax credit all the way up through the middle class, and paying for it with a tax on carbon. The carbon tax would raise the prices of goods and services especially dependent on carbon-based fuels, which is appropriate given that the social costs of carbon-based fuels should be included in their prices. Consider how much our society now spends on such things as foreign wars designed to secure our sources of oil, as well as oil cleanups. But the wage subsidies would more than make up for these price rises, at least for most Americans in the middle and below.

Another step would be to exempt the first $20,000 of income from payroll taxes and paying for it with a payroll tax on incomes over $250,000. This, too, seems reasonable, given that under current law only the first $106,000 of income is subject to the Social Security portion of the payroll tax - a particularly regressive system. Most higher-income people, who get good medical care, live longer and collect far more in Social Security benefits, than do lower-income people.

In the longer term, Americans must be better prepared to succeed in the global, high-tech economy. Early childhood education should be more widely available, paid for by a small 0.5 percent fee on all financial transactions. Public universities should be free; in return, graduates would then be required to pay back 10 percent of their first 10 years of full-time income.

Another step: workers who lose their jobs and have to settle for positions that pay less could qualify for "earnings insurance" that would pay half the salary difference for two years; such a program would probably prove less expensive than extended unemployment benefits.

These measures would not enlarge the budget deficit because they would be paid for. In fact, such moves would help reduce the long-term deficits by getting more Americans back to work and the economy growing again.

Here's the point. Policies that generate more widely shared prosperity lead to stronger and more sustainable economic growth -- and that's good for everyone.

The rich are better off with a smaller percentage of a fast-growing economy than a larger share of an economy that's barely moving. That's the Labor Day lesson we learned decades ago; until we remember it again, we'll be stuck in the Great Recession.

Read the original post here.

The Labor Department reports this morning that companies created ony 67,000 new jobs in August. That's down from the 107,000 they created in July. And because the government laid off temporary Census workers, the economy as a whole lost 54,000 jobs.

To put this into perspective, we need 125,000 net new jobs a month just to keep up with the growth of the population and the potential workforce.

Think of it this way. The number of Americans willing and able to work but who cannot find a job hasn't stopped growing since the start of 2008. All told, about 22 million Americans are now jobless. Add in those who are working part-time who'd rather be working full time, and we're up to 25 million.

And because most families depend on two paychecks, the practical impact is almost double.

As a result, more and more businesses decide to lay off workers (or refrain from adding them) because they can't sell the goods and services they produce.

The last time we saw anything on this scale was in the 1930s. The last time we did anything about this on the scale necessary to reverse the trend was in the 1930s and 1940s.

It is not that America is out of ideas. We know what to do. We need massive public spending on jobs (infrastructure, schools, parks, a new WPA) along with measures to widen the circle of prosperity so more Americans can share in the gains of growth (exempting the first $20K of income from payroll taxes and applying the payroll tax to incomes over $250K, for example).

The problem is lack of political will to do it. The naysayers, deficit hawks, government-haters and Social Darwinists who don't have a clue what to do would rather do nothing. We are paralyzed.

If there was ever a time for bold government action it is precisely now. Obama should be storming the country, demanding the largest responses to the jobs emergency in history. He and the Dems should be giving Republicans hell for their indifference to all this.

Instead, Obama is all over the map -- a mosque controversy, an Israeli-Palestinian peace talk (that may take years to complete if ever), a symbolic withdrawal from Iraq, and lots of little tax-cutting ideas.

Senate and House Democrats, meanwhile, are on the defensive. Polls even suggest Dems may lose the House and possibly even the Senate in November.

Business leaders have either gone silent or gone reactionary, as they did in the 1930s.

But the pain and suffering of tens of millions continue. Government revenues continue to drop, and the safety nets and public services they rely on are subject to even more cuts.

Ever wonder why the nation is turning isolationist and xenophobic? Why we're lashing out at undocumented immigrants, even though fewer are here now than a few years ago; why the rise of anti-Islam feeling now, although 9/11 was nine years ago? Why the virulence and hate-mongering on right-wing radio, and the surliness in the blogosphere?

The practical choice we face is this: Either major action to reverse the jobs emergency or years of intolerably high unemployment coupled with demagoguery and scapegoating.

Read the original post here.

Pay no attention. The stock market has as much to do with the real economy as the weather has to do with geology. Day by day there's no relationship at all. Over time, weather and geology interact but the results aren't evident for many years. The biggest impact of the weather is on peoples' moods, as are the daily ups and downs of the market.

The real economy is jobs and paychecks, what people buy and what they sell. And the real economy -- even viewed from a worldwide perspective -- is as precarious as ever, perhaps more so.

Why should an obscure measurement on the other side of the world cause stock markets in New York, London, and Frankfurt to rally? Because China is so large and its needs seemingly limitless that its growth has been about the only reliable source of global demand.

Many big American companies have been showing profits because they're doing ever more business in China while cutting payrolls at home. American consumers aren't buying much of anything because they've lost their jobs or are worried about losing them, and are still trying to get out from under a huge debt load (the latest figures show more consumer debt delinquent now than last year and a surge in personal bankruptcies). The U.S. housing market is growing worse, auto and retail sales are dropping, and the ranks of the jobless continue to swell.

Europe is in almost as much a mess. The problem there isn't just or even mainly that Greece and other nations on the "periphery" have too much public debt. A bigger problem is European consumers aren't buying nearly enough to generate more jobs. Unemployment remains high, and the trend is bad. Manufacturing growth there has slowed to its weakest pace in six months. Yet bizarrely, Europe's large economies - Britain, Germany, and France - are paring back their public budgets. It's exactly the wrong time, and a recipe for disaster.

Germany's so-called "job miracle" (as Chancellor Angela Merkel calls it) is more mirage than miracle. Most of the gains in employment there have come from part-time jobs, often at low pay. Average annual net income per German employee continues to drop. This explains why domestic demand there is so sluggish and why Germany is desperately dependent on its exports of machinery and manufacturing components to Asia, especially China.

Meanwhile, Japan, now the world's third-largest economy, is a basket case. Japanese consumers aren't buying much of anything, and why would they? The country is still in the grip of a deflationary cycle that shows no end. Japanese consumers reason if they can buy it cheaper next week there's no reason to buy now. Basically the only thing keeping Japan's economy going are its exports of cars and electronic components to China.

Australia is booming, but look closely and you see the same buyer. Australia is making a boatload of money selling its minerals and raw materials to China (Australia is fast becoming one big Chinese mine shaft). The Brazilian economy is soaring. Why? Exports of wheat and cattle to China. Middle East oil producers are getting richer. Why? China's insatiable thirst for oil.

Elsewhere around the globe the picture is as uncertain. Much of Pakistan is under water. Much of the rest of the Middle East is under tyrannical or corrupt regimes. Russia has suffered such a dry spell it's hoarding wheat. Despite its wealthy few, India's masses are still terribly poor.

The stock market could plunge tomorrow or the next day because the world's economic fundamentals are so precarious.

The global economy cannot be sustained by one big, voracious nation - especially one that's suffering bouts of civil unrest, actively repressing dissent, suffocating under a blanket of pollution and coping with other environmental hazards, and whose biggest companies are run by the state.

Read the original post here.

Tonight it was Harvard Professor Robert Barro, who opined in today's Wall Street Journal that America's high rate of long-term unemployment is the consequence rather than the cause of today's extended unemployment insurance benefits.

Yet moral hazard lurks in every conservative brain. It's also true that if we got rid of lifeguards and let more swimmers drown, fewer people would venture into the water. And if we got rid of fire departments and more houses burnt to the ground, fewer people would use stoves. A civil society is not based on the principle of tough love.

In point of fact, most states provide unemployment benefits that are only a fraction of the wages and benefits people lost when their jobs disappeared. Indeed, fewer than 40 percent of the unemployed in most states are even eligible for benefits, because states require applicants have been in full-time jobs for at least three to five years. This often rules out a majority of those who are jobless - because they've moved from job to job, or have held a number of part-time jobs.

So it's hard to make the case that many of the unemployed have chosen to remain jobless and collect unemployment benefits rather than work.

Anyone who bothered to step into the real world would see the absurdity of Barro's position. Right now, there are roughly five applicants for every job opening in America. If the job requires relatively few skills, hundreds of applicants line up for it. The Bureau of Labor Statistics says 15 percent of people without college degrees are jobless today; that's not counting large numbers too discouraged even to look for work.

Barro argues the rate of unemployment in this Great Jobs Recession is comparable to what it was in the 1981-82 recession, but the rate of long-term unemployed then was nowhere as high as it is now. He concludes this is because unemployment benefits didn't last nearly as long in 1981 and 82 as it they do now.

He fails to see - or disclose - that the 81-82 recession was far more benign than this one, and over far sooner. It was caused by Paul Volcker and the Fed yanking up interest rates to break the back of inflation - and overshooting. When they pulled interest rates down again, the economy shot back to life.

The Great Jobs Recession is far more severe. It's continuing far longer. It was caused by the bursting of a giant housing bubble, abetted by the excesses of Wall Street. Home values are still 20 to 30 percent below where they were in 1997. The Fed is powerless because consumers cannot and will not buy enough to bring the economy back to life.

A record number of Americans is unemployed for a record length of time. This is a national tragedy. It is to the nation's credit that many are receiving unemployment benefits. This is good not only for them and their families but also for the economy as a whole, because it allows them to spend and thereby keep others in jobs. That a noted professor would argue against this is obscene.

Read the original post here.

The sad reality is cheaper money won't work. Individuals aren't borrowing because they're still under a huge debt load. And as their homes drop in value and their jobs and wages continue to disappear, they're not in a position to borrow. Small businesses aren't borrowing because they have no reason to expand. Retail business is down, construction is down, even manufacturing suppliers are losing ground.

That leaves large corporations. They'll be happy to borrow more at even lower rates than now -- even though they're already sitting on mountains of money.

If Bernanke and company make it even cheaper to borrow, they'll be subsidizing a third corporate strategy for creating more profits but fewer jobs -- mergers and acquisitions.

The M&A wave has already started. Continental and United Airlines just got approval to merge. Biotech giant Genzyme is on the auction block after Sanofi-Aventis announced a $18.5 billion bid. On Friday, 3Par, a data storage company, accepted a $1.8 billion takeover offer from Dell - one day after Hewlett-packard raised its offer. Campbell Soup is eyeing parts of United Biscuits, BHP Billiton has put in a takeover bid for Potash, Oracle or H-P are likely to pay up to $1.5 billion for security software maker ArcSight. Bain Capital is expected to acaquire Air Medical Group for almost $1 billion. The insurance industry is headed for the biggest merger boom in recent history.

Who wins from all this? If history is a guide, shareholders of acquired companies do better than shareholders of companies doing the acquiring. Top executives who end up running bigger corporations get fatter pay packages. And Wall Street and big-name corporate law firms who engineer the M&As reap a bundle.

Who loses? Large numbers of ordinary workers will lose their jobs. After all, the purpose M&As is to create greater economies of scale and more "synergies." Translated: More pink slips.

Last week at the Fed's annual confab in Jackson Hole, Ben Bernanke insisted the Fed will do what's necessary to increase consumer and business spending in order to keep the economy growing. But cheaper money won't necessarily create the kind of spending that generates more jobs. In fact, right now it's having the opposite effect. When consumers and small businesses can't and won't borrow more, big businesses use cheap money to bid up the prices of corporate assets and cut payrolls.

What we need now is more jobs, not bigger corporations. And that means focusing on the demand side of the economy, not the supply side.

Read the original post here.

Republicans lack specific policies but they have a story. Obama and the Democrats have lots of specific policies but don't have a story. That spells even more trouble for Democrats.

The Commerce Department reported today (Friday) that the economy grew only 1.6 percent in the second quarter, which is a fancy way of saying what everyone on Main Street already knows. The economy has stalled. Unemployment is still in the stratosphere and shows no sign of improving. The housing market is worsening.

Why? What to do? The Republican story is simple. It's the fault of government. They say Obama's policies have bankrupted the nation and made businesses too uncertain to create jobs. The answer is less government. Cut taxes and spending, privatize, and deregulate.

Obama and the Democrats respond by defending their specific policies. The stimulus worked, they say, as did the bailout of Wall Street, because the economy is better today than it would be without them. If anything, we need more stimulus. And healthcare reform will protect tens of millions.

A large and growing segment of the public believes none of this. The public doesn't think in terms of specific policies. All it knows is the economy has stalled and there's only one story that explains why and points the way forward - and that's the Republican's.

What should the Democratic story be? How can they connect the dots?

Here's a clue. In times of economic stress, Americans lose faith in the nation's large institutions. They blame either government or its counterpart in the private sector - big business and Wall Street.

Twenty years ago, 42 percent of Americans said they trusted government to do what was right just about always or most of the time. Now, only 25 percent do. Twenty years ago 26 percent they had a great deal or quite a lot of confidence in big business; now, only 16 percent do. And almost no one trusts Wall Street. The drop in trust toward all major institutions has been most precipitous since the start of 2008.

The underlying political debate in America is which of these is most responsible for the mess we're in, and which can be most trusted to get us out of it - big business and Wall Street, or government.

It wouldn't be hard for Democrats to make the case that big business and Wall Street blew it. The Street's wild speculation took the economy off the cliff, caused the stock market to crash (and millions of 401(k)s along with it), and created a housing bubble whose burst has hurt millions more.

Big business has used the Great Recession as an opportunity to slash payrolls and cut wages and is now sitting on a $1.8 trillion mountain of cash it refuses to use to create new jobs. Instead, it's using the cash to build more factories abroad, buy back its own shares of stock, invest in more labor-replacing technologies at home, and do mergers that will lead to even fewer jobs.

Meanwhile, a parade of "public-be-damned" actions have threatened small investors (Goldman Sachs's double dealing), individuals trying to buy health insurance (WellPoint's double-digit premium increases), worker safety (the Massey mine disaster), the environment (BP), and even our food (Jack DeCoster's commercial egg operations).

And a gusher of corporate and Wall Street money has flooded Washington, exemplified by Big Pharma and the health-insurance lobby fighting heatlhcare reform, and Wall Street's minions fighting off stricter financial reform.

If Obama and the Democrats would connect these dots they'd have a story that would make Americans' hair stand on end. We're in this mess because of big business and Wall Street. Government is needed to get us out of it.

It's not that big business and Wall Street are evil. It's that they're out to make as much money as possible - which is what they're set up to do. That's why we need an activist government to stimulate the economy, create jobs, and protect the public from their excesses.

So why haven't Obama and the Dems succeeded yet? Big business and Wall Street have used their money and political clout to stop government from doing as much as needs to be done.

The story is clear, and it has the virtue of being the truth. Why won't Obama and the Democrats tell it? Is it because big business and Wall Street have the money and political clout even to prevent the story from being told?

In previous postings I've suggested ways to reverse course, including a "people's tax cut" exempting the first $20K of income from payroll taxes and making up the revenue loss with a payroll tax on incomes over $250,000.

Yet Democrats seem frozen in the headlights of conservative supply-siders, blue-dog deficit hawks, and pollsters who say the public doesn't trust anything government does.

As to Republicans, now comes John Boehner, capitalizing on this distrust by blaming the bad economy on government bureaucrats.

In an address billed as a major speech on economic policy, the House GOP leader yesterday (Tuesday) attributed our economic woes to the fact that "taxpayers are subsidizing the fattened salaries and pensions of federal bureaucrats who are out there right now making it harder to create private sector jobs."

What?

The pay gap is also due to the fact that the typical public-sector job requires more education. According to the Center for State and Local Government Excellence, 48 percent of state and local employees have a college degree while only 23 percent of private-sector employees do.

Blaming government workers for this bad economy is absurd, regardless. The Great Recession continues because consumers can't and won't spend. They're overwhelmed with credit-card debt, their mortgages are under water, their nest eggs have become chick peas, and they can't afford health insurance.

Rather than help alleviate all this, Boehner and his Republican colleagues have been busily voting against extending unemployment insurance, against reorganizing mortgages under bankruptcy, against forcing credit card companies to stop charging exorbitant interest, and against giving Americans affordable health insurance.

As far as I can tell, all Republican want to do is to privatize Social Security, extend the Bush tax cuts to the richest 3 percent of Americans, and deregulate. But none of this seems particularly relevant to the task at hand.

Privatizing Social Security would put retirees entirely at the mercy of the Wall Street casino.

Extending the Bush tax cuts to the richest 3 percent wouldn't stimulate demand because the very rich save rather than spend most of their extra cash.

And if anything we need more rather than less regulation. Just consider BP's oil spill, Massey's mine cave-in, DeCoster's rotten eggs, Goldman Sach's predations, and Wellpoint's double-digit insurance premium increases.

Boehner delivered his speech at the City Club of Cleveland, a safe distance from those government employees he says are on the make. But of course Boehner is a federal employee. He gets $193,400 a year along with generous retirement benefits. In fact, he has among the fattest salaries and pensions in Washington.

- Bush's ten-year tax cut was designed to end this year, so it's not a tax increase.

- Ending it for the rich simply returns them to the Clinton tax rate, which was hardly confiscatory (reminder: the Clinton years were damn good for business).

- Small businesses would barely be affected. Only 3 percent of small business owners earn over $250,000. And because it's a "marginal" tax, the Clinton rate would apply only to the portion of their incomes over $250,000.

- And it wouldn't even stimulate demand and jobs, because the very rich save (rather than spend) more of their disposable income than the rest of us.

- Finally, ending the Bush tax cut for the top is fair. Income inequality has become so grotesque that the top 3 percent of households rake in almost a third of total income (the highest portion since 1928).

But by the time Democrats explain all this, it's too late. The Republican furor over a "tax increase" has framed the debate.

Republicans understand the art of tax demagoguery: Put the other side on the defensive by forcing them to explain why a "tax increase" is warranted and they lose regardless.

So instead of playing defense, Democrats should go on the attack.

Accuse Republicans of being shills for the rich.

And don't stop there. Do tax jujitsu. In addition to ending the Bush tax cut for the rich, put forward another proposal for growing the economy that cuts taxes on lower-income Americans.

Democrats should propose eliminating payroll taxes on the first $20,000 of income, and making up the revenue loss by applying payroll taxes to incomes above $250,000.

This would give the economy an immediate boost by adding to the paychecks of just about every working American. 80 percent of Americans pay more in payroll taxes than they do in income taxes. And because lower-income people would get most of the benefit, it's likely to be spent.

It would also give employers an extra incentive to hire because they'd save on their share of the payroll tax. And most of the incentive would be directed toward hiring lower-income workers - who have taken the biggest hit on jobs and pay during the recession.

It wouldn't add to the deficit. Lost revenues would be made up by applying payroll taxes to income exceeding $250,000. This is certainly fair. As it is now, the Social Security payroll tax doesn't apply to any income over $106,000. Having the tax kick in again at $250,000 would draw on the top 3 percent of earners, who (as noted) now rake in a larger portion of total income than they have in more than 80 years.

Call it the People's Tax Cut, and let Republicans explain why they're against it.

Many Americans (and politicians who the polls) don't want a mosque at Manhattan's Ground Zero.

An increasing percent believe the President is a Muslim.

Most Americans approve of Arizona's new law allowing police to stop anyone who looks Hispanic and demand proof of citizenship.

Most would deny citizenship to children born in the United States to parents who are here illegally.

Where is all this coming from?

It's called fear. When people are deeply anxious about holding on to their homes, their jobs, and their savings, they look for someone to blame. And all too often they find it in "the other" - in people who look or act differently, who come from foreign lands, who have what seem to be strange religions, who cross our borders illegally.

Economic fear is the handmaiden of intolerance. It's used by demagogues who redirect the fear and anger toward people and groups who aren't really to blame but are easy scapegoats.

It has happened before.

Economic crises animated the pre-Civil War Know-Nothings and Anti-Masonic movements, the Chinese exclusion acts, the Ku Klux Klan in the economically-ravaged South, and the anti-immigrant movements of the early decades of the 20th century.

In different places around the world, mass economic stress has had far worse results. At its most extreme it has spawned genocide.

We are far from that. But it's important to understand the roots of America's growing intolerance. And to fight the hate-mongers and cynical opportunists who are using the fears unleashed by this awful economy to advance their own sordid agendas.

Over 1,400,000 Americans are now on active duty; another 833,000 are in the reserves, many full time. Another 1,600,000 Americans work in companies that supply the military with everything from weapons to utensils. (I'm not even including all the foreign contractors employing non-US citizens.)

If we didn't have this giant military jobs program, the U.S. unemployment rate would be over 11.5 percent today instead of 9.5 percent.

This isn't an argument for more military spending. Just the opposite. Having a giant undercover military jobs program is an insane way to keep Americans employed. It creates jobs we don't need but we keep anyway because there's no honest alternative. We don't have an overt jobs program based on what's really needed.

For example, when Defense Secretary Robert Gates announced Monday his plan to cut spending on military contractors by more than a quarter over three years, congressional leaders balked. Military contractors are major sources of jobs back in members' states and districts. California's Howard P. "Buck" McKeon, the top Republican on the House Armed Services Committee, demanded that the move "not weaken the nation's defense." That's congress-speak for "over my dead body."

Gates simultaneously announced closing the Joint Force Command in Norfolk, Virginia, that employs 6,324 people and relies on 3,300 private contractors. This prompted Virginia Democratic Senator Jim Webb, a member of the Senate Armed Services Committee, to warn that the closure "would be a step backward." Translated: "No chance in hell."

Gates can't even end useless weapons programs. That's because they're covert jobs programs that employ thousands.

He wants to stop production of the C-17 cargo jet he says is no longer needed. But it keeps 4,000 people working at Boeing's Long Beach assembly plant and 30,000 others at Boeing suppliers strategically located in 40 states. So despite Gates's protests the Senate has approved ten new orders.

That's still not enough to keep all those C-17 workers employed, so the Pentagon and Boeing have been hunting for foreign purchasers. The Indian Air Force is now negotiating to buy ten, and talks are underway with several other nations, including Oman and Saudi Arabia.

Ever wonder why military equipment is one of America's biggest exports? It's our giant military jobs program in action.

Gates has also been trying to stop production of a duplicate engine for the F-25 joint Strike Fighter jet. He says it isn't needed and doesn't justify the $2.9 billion slated merely to develop it.

But the unnecessary duplicate engine would bring thousands of jobs to Indiana and Ohio. Cunningly, its potential manufacturers Rolls-Royce and General Electric created a media blitz (mostly aimed at Washington, D.C. where lawmakers wold see it) featuring an engine worker wearing a "Support Our Troops" T-shirt and arguing the duplicate engine will create 4,000 American jobs. Presto. Despite a veto threat from the White House, a House panel has just approved funding the duplicate.

By the way, Gates isn't trying to cut the overall Pentagon budget. He just wants to trim certain programs to make room for more military spending with a higher priority.

The Pentagon's budget -- and its giant undercover jobs program -- keeps expanding. The President has asked Congress to hike total defense spending next year 2.2 percent, to $708 billion. That's 6.1 percent higher than peak defense spending during the Bush administration.

This sum doesn't even include Homeland Security, Veterans Affairs, nuclear weapons management, and intelligence. Add these, and next year's national security budget totals about $950 billion.

That's a major chunk of the entire federal budget. But most deficit hawks don't dare cut it. National security is sacrosanct.

Yet what's really sacrosanct is the giant jobs program that's justified by national security. National security is a cover for job security.

This is nuts.

Wouldn't it be better to have a jobs program that created things we really need -- like light-rail trains, better school facilities, public parks, water and sewer systems, and non-carbon energy sources -- than things we don't, like obsolete weapons systems?

Historically some of America's biggest jobs programs that were critical to the nation's future have been justified by national defense, although they've borne almost no relation to it. The National Defense Education Act of the late 1950s trained a generation of math and science teachers. The National Defense Highway Act created millions of construction jobs turning the nation's two-lane highways into four- and six-lane Interstates.

Maybe this is the way to convince Republicans and blue-dog Democrats to spend more federal dollars putting Americans back, and working on things we genuinely need: Call it the National Defense Full Employment Act.

But starting in the 1980s -- and increasingly since then -- the economy has made the rich far richer without doing squat for the vast middle. The median hourly wage has barely grown, if you take inflation into account. Indeed, it dropped in the last so-called "recovery" between 2001 and 2007. And health-care and pension benefits have declined; we've gone from defined-benefit pensions to do-it-yourself pensions, while health insurance premiums, deductibles, and co-payments have skyrocketed.

What happened? It wasn't just greed. It was also the systematic and ever cleverer manipulation of laws and rules by those able to pay lobbyists, legislators, lawyers, accountants to do their bidding. As income and wealth have risen to the top, so has the power to manipulate the system in order to acquire even more money and more influence.

To be sure, globalization and technological change have bestowed gains disproportionately on those with the education and connections to benefit most from them, while burdening Americans without the education and connections most needed.

But instead of enlarging the circle of prosperity so that the vast middle class could come out winners as well -- instead of strengthening trade unions, improving public education, deepening public investments, enlarging safety nets, and making the tax system more progressive -- the nation took direction from those at the top, and did the opposite.

It is not surprising America's middle class is increasingly frustrated and are venting their anger -- at politicians, the leaders of big business and Wall Street, as well as global traders, immigrants, and others who are easy targets of resentment.

A politics of audacious hope has turned into a politics of fear -- meaner spirited than at any time in recent memory.

I'm not a class warrior. Call me a class worrier.

Our choice in the years ahead is either demagoguery that turns Americans further against one another and the rest of the world, or genuine reform that enlarges shared prosperity. It is the responsibility of all of us to fight the former and work toward the latter. (Pause for commercial announcement: In my forthcoming book, "Aftershock: The Next Economy and America's Future," I discuss this choice in detail.)

12,000 new jobs in July -- when 125,000 are needed monthly just to keep up with population growth, when more than 15 million Americans are out of work, and when more than a half million more state and local jobs are on the chopping block.

With the worst jobs crisis since the Great Depression worsening, you might expect emergency action out of Washington. But the biggest upcoming debate there is whether to extend the Bush tax cuts for the richest 2 percent, or for everyone, or for no one. This is like debating whether to get a mousetrap when your home is sinking in quicksand.

We need a response proportional to the crisis. Obama, Pelosi, and Reed should summon Congress back to Washington for action on the jobs emergency.

First item on the agenda: establishing a federal bank that will provide states and locales zero-interest loans, to be repaid when their unemployment rates drop to 5 percent or below.

Second item: eliminating payroll taxes on the first $20,000 of all incomes and make up the difference by subjecting all income above $250,000 to the payroll tax. (Remember, the wealthy save most of their after-tax income, lower-income Americans spend it.)

Third item: recreating the WPA to hire Americans directly. The Works Progress Administration put Americans back to work during the Depression rebuilding the nation's infrastructure.

The jobs emergency requires no less.