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IMAGE Hazel Henderson on the set of Globo TV's Top financial show, Brasil
The estimated 2.5% growth of GDP in Q3 was welcome as were the upward employment revisions: August's up from 57,000 to 104,000 and September's up from 103,000 to 158,000. October added 80,000 non-farm payroll jobs. European leaders, after getting banks to take a 50% haircut on their Greek Debt, faced further uncertainty over Greece which clouded the G20 summit in Cannes, Nov. 3-4, and derailed its longer-term agenda. The G20 leaders noted that the global recovery has weakened, leaving unemployment at unacceptable levels and that tensions in financial markets have increased and commodity price swings have put growth at risk. Nowhere was there any definition of 'growth' although it was mentioned 8 times in the final Communiqué. Yet mis-measurement of 'growth' perpetuated by GDP still causes mis-pricing of sovereign bonds, energy, food and most goods due to externalizing of social and environmental costs and business models still based on 'profits' based on passing on such unrecorded costs to taxpayers and future generations. I welcome the Communiqué's recognition of the 20 too-big-to-fail banks; the need to curb commodity speculation; examine high-frequency trading and the now widespread support for global financial transaction taxes ('FTT: The Commonsense Approach'), as well as phasing out subsidies on fossil fuels, which still unfairly compete against the cleaner, renewable energy companies in the green economy (see the Green Transition Scoreboard). All this riled stock markets in the US and Europe. Deep structural problems in the US economy remain: millions of expected foreclosures, 25% of all mortgages still under water, still-falling house prices - all reflected in the Occupy Wall Street protests still spreading across the country and world wide.
The jobs bill of the Obama administration is encountering Republican resistance while markets push the Fed for even more easing. Jobs are still key in the sluggish economy, plagued by foreclosures. Non-farm payrolls added a revised 127,000 jobs in July, up from the 85,000 reported earlier. All the revisions still leave 13.9 million people officially unemployed. Cutbacks in state and local government led to another 24,000 jobs lost in October in addition to the 34,000 lost in September for a total of 559,000 jobs lost since September 2008. The official unemployment rate remains at 9.0%.
On October 6th, President Obama indicated that the explanation for the Occupy Wall Street 99% movement which has spread across the country was due to Americans' frustration. The group's manifesto is a call for corporate social responsibility, fairness and political reforms. Student debt has reached an unrepayble $1 trillion while graduates are jobless while facing bleak futures. Lawyer Ellen Brown's plan to stimulate recovery by a special Fed bailout found broad support and Obama responded with a limited version.
After the dispiriting Congressional wrangling over raising the debt ceiling finally patched over on August 2, the anemic job numbers and stock market volatility still signal much uncertainty both over the debt problems in Europe and the continuing likely political deadlock in Washington. Policy makers on both sides of the Atlantic are caught between the conservative 'debt vigilantes' demanding more cuts in budgets without increasing revenues versus the Keynesians warning that such cuts may tip the US into another recession. This deep ideological struggle may render the new 12-person Congressional 'Super Committee' deadlocked – which would trigger more mandatory cuts. Thus, the Keynesians have lost this debate. This leaves the Obama administration with few fiscal policy options to create those long-promised new jobs, and facing resistance to his jobs bill which would be paid for with raising taxes on incomes of $1 million and over – the so-called 'Buffet Rule' for sharing the burden.
As we at Ethical Markets have been advocating, a new re-structuring of trade agreements and our economy is needed: to end subsidies and close tax loopholes for the incumbent fossil-fueled sectors still in control of Congress. We urge policies that follow the lead of private investors who have already, since 2007, invested over $2.4 trillion in the cleaner, greener more energy-efficient 21st century economy (www.greentransitionscoreboard.com). While stock markets will try to force another bailout of past failures, urging the Fed to deliver a new Q3, the new green sectors are growing unnoticed by Wall Street and mainstream media's fossilized asset allocation models. Instead, the idea of returning to plain vanilla 'public utility' style banking and the model of state-owned banks like the Bank of North Dakota are catching hold in 14 states – 'North Dakota Economic Miracle: It's Not Oil.'
President Obama's jobs bill is in addition to seeking passage of the infrastructure bank bill and continuing to invest in education, R&D and an independent, clean energy future. Meanwhile, the real unemployment rate is still over 17% when discouraged workers and involuntary part time workers are included. This indicates that 2.6 million people were 'marginally attached' to the workforce. Of this group, 967,000 people have given up looking for work, and so also have been dropped from the official rolls. This leaves the labor-force participation rate at 64.2%. Thus the official 9.0% unemployment rate gives a distorted picture of the real pain still experienced by so many in our economy. While Congress is still gridlocked on the ideological divide between cutting spending and the need for investments in the next economy, hopefully, the focus will shift to cutting subsidies and closing tax loopholes to cut the deficit. The 2011Green Scissors report identifies $380 billion of cuts to both reduce the deficit and save environmental assets from future depletion.
The estimate for GDP growth in the 3rd Quarter of 2011 of 2.5% was welcomed, even as skepticism about GDP as an inaccurate measure grows and better measures: the OECD's Better Life Index, the Canadian Index of Wellbeing, are gaining prominence (see Ethical Markets' Beyond GDP).
Responding to concerns about gasoline prices President Obama appointed a Commission to look at these rising prices, including the role of 'speculators,' which Common Cause estimates add some 70¢ to a gallon of gas. As I have pointed out, speculation by hedge funds and institutional investors drives up the price of oil and all commodities - but has not been curbed yet by the CTFC ('A Closer Look at Oil Speculators'). Only legislation to limit the positions of large investors and raising margin requirements from 5% to 50% will begin to curb commodities futures speculation - ironically fueled by the Fed's $600 billion QE2, as noted by China at the G-20 in Cannes.
Bernanke, in his press conferences and at Jackson Hole in August, 2011, acknowledged that joblessness remains too high and threw the ball to policy makers, adding 'Central bankers alone cannot solve the world's economic problems.' We agree. Washington policymakers are still beholden to Wall Street and other incumbent industrial sectors while the paradigm war between neo-Keynesians stimulus advocates and deficit hawks led by billionaire Peter Peterson contribute to policy paralysis.
My interview on Jan. 31, 2010, with John Williams, pre-eminent expert on deconstructing US official statistics at www.shadowstats.com, confirmed my distrust of GDP which continues to need an overhaul, as the January 2011 Ethical Markets Media Beyond GDP Survey with Globescan shows. Williams agrees with us that 'GDP is the worst quality information from the USgovernment.' GDP becomes an ever less reliable measure. The update of the 2007 Beyond GDP Survey compiled for the European Commission shows that large majorities in 12 countries (2 more than in 2007's survey) still favor adding indicators of health, education, poverty gaps and environment to all national measures of progress. New measures, including the OECD's Better Life Index, Canada's Index of Wellbeing and others are gaining ground. The Economist also improved its 'Big Mac' Index of purchasing power parity by including data on wages in GDP per person (July 2011).
Those critiquing the current narrow debate point, as we do, to deeper issues for US malaise: from 'free trade' ideologies favoring large multi-national corporations and finance in trade and globalization, technological unemployment, off-shoring of US jobs, de-regulation of global finance fleeing to tax havens, as contributing to US unemployment and further inequality in wealth and income distribution (see my review of Treasure Islands). Discouraged workers still bring the total unemployment rate to over 17%. Many economic reports found that the US recovery was illusory (Seeking Alpha, February 25, 2010). Thus, my review and Ethical Markets research points to the need to re-structure finance (www.transformingfinance.net). New investment in a 21st century infrastructure can accelerate the transition from the fossil-fueled Industrial Era to the cleaner, greener, information-rich Solar Age (seewww.greentransitionscoreboard.com).
I have long explored the entire range of distortions that make GDP a perverse measure of US progress, and TIME's article agrees, pointing to our Calvert-Henderson Quality of Life Indicators and others including the United Nations Human Development Index (HDI). In CSRWire 'Grossly Distorted Picture: GDP Still Misleading Governments' (January 23, 2011), I show how GDP can mis-price sovereign bonds of Greece, Ireland and Portugal by omitting their real wealth: educated workforces, efficient infrastructure and productive ecosystems … all count for zero in GDP.
As mentioned, better measures of human progress are gaining mainstream media attention: the excellent Canadian Index of Wellbeing (CIW) at www.ciw.ca and the new report Spirit Level (2010) by British researchers Richard Wilkinson and Kate Pickett linking equality with quality of life within and across countries. They find that countries with the most equal income distribution (by GINI) have the largest socially and politically prosperous middle class while unequal countries do worse on most quality of life indicators (www.equalitytrust.org.uk). The USA scores poorly and confirms John Williams' and our view that a massive overhaul of GDP, unemployment, inflation, money supply and other US statistics is now urgent if we are to address the need for more jobs.
Why has the weak US recovery still produced so few jobs? The BLS 'Establishment Survey' differs from the broader 'Household Survey' which records the civilian labor force in small companies often failing or unable to obtain financing, which the Establishment Survey cannot detect. For 20 years, I have pointed to reasons the USA has experienced 'jobless growth' - rooted in the abstractions of macroeconomics theories and methods. The faith in 'free trade' has prevented government agencies from making use of futurists' broader forecasting and planning methods used by most global corporations. Their economic advisors' market fundamentalism warned against 'industrial policy' except for that covertly practiced by the Department of Defense and activities in the name of 'national security.' Thus, the 'hollowing out' of US manufacturing has continued for two decades at the behest of global corporations and their investment bankers. President Bush I famously held that it did not matter whether the US manufactured computer chips or potato chips, while President Bush II's chair of the Council of Economic Advisors, Gregory Mankiw, maintained that outsourcing was good for American workers who could take their severance pay and 401Ks and become day traders on the stock markets. In spite of the growing protests in America's streets, most politicians, corporate leaders and their academic advisers didn't get it.
Add to these idiocies the stout denials by economists that increasing capital-intensive technological change, automating manufacturing and services would create the structural unemployment we see today. Conventional measures of output per capita masked this technological unemployment as beneficial 'increases in productivity' for decades, as we have pointed out. Unfortunately, Obama administration economic advisors are mostly steeped in conventional theories and models which continue to serve Wall Street and corporate interests at the expense of workers and individuals (see the excellent reports at www.prospect.org). Happily, the movie 'Inside Job,' documenting economists' conflicts of interest won an Oscar and the University of Massachusetts now exposes these ethical lapses.
Although the recession is deemed officially ended, fears of a double dip persist. The recovery will be fragile until job creation picks up. This may not get big banks to step up lending to domestic companies since they make more money with proprietary trading, hoarding their bailout funds or sending them offshore. The anemic GDP numbers underline what most Americans have experienced for the past years, along with the loss of over 8.4 million jobs since December 2007. States facing their new fiscal year are wrestling with budget shortfalls by scapegoating teachers, firefighters and police in Wisconsin, Ohio and Indiana. California's budget gap is at $24 billion, while Illinois and Arizona have much smaller deficits. North Dakota still stars with continuing budget surpluses, as we discuss later. While markets and politicians all cry for more GDP growth, we need to remember that growth must be redefined with the new scorecards to know what is dying, what needs to grow and to maintain key infrastructure.
President Obama's $787 billion Economic Recovery and Reinvestment plan did prevent layoffs, bolstering states' finances and investing in infrastructure prevented a deeper recession and allowed the modest GDP improvement. Deeply entrenched ideologies and special-interest politics are battling over the budget with deficit hawks gaining the upper hand. Cutting the Pentagon's weapons procurement and subsidies for nuclear power, fossil fuels and big farmers as recommended in the $380 billion of cuts outlined over 5 years in the Green Scissors report would boost investments in education, health care, efficiency and renewable energy. Allowing the Bush tax cuts to expire would have reduced future deficits. At least the President's 30,000 troop surge will be reduced by 10,000 this year and costed transparently in the budget, even as a majority of Americans believe we should end our war in Afghanistan. The UN-NATO action in Libya represents the first time that military expenditures have led a US debate. The oversight reported on TARP, July 21st that US taxpayers are liable for up to $23.7 trillions of bailouts (www.sigtarp.gov). All this shows that the great transition from the fossil-fueled, unsustainable Industrial Era to the green economy of the Solar Age (see my The Politics of the Solar Age, 1981) is now well underway.
The Fed's job with so many new tasks is now harder -- trying to steer between recession, deflation and inflation. Low interest rates continue to punish savers and are actually negative when corrected for inflation. The role of the Fed, a private institution owned by its 12 regions' banks, came under scrutiny by Bloomberg, Fox Business News and other media for its secrecy. Their Freedom of Information Act suit released data showing some $3 trillion given to bail out companies and even some European banks. Over 300 Congress members co-sponsored Ron Paul's bill to audit the Fed. State-owned banks like the Bank of North Dakota could expand local lending. It provides funds to local banks for low-cost credit directly to North Dakota's infrastructure, education and services, as well as businesses (see 'Monetize This!' and 'Escape from Pottersville' by Ellen Brown at www.ethicalmarkets.com). Opponents to advocates of public utility style banking, claim that North Dakota's economy is boosted by Bakken oil. This is refuted in 'North Dakota Economic Miracle: It's Not Oil.'
A revealing look at these issues is A Demon of Our Own Design (2007) by former hedge fund manager Richard Bookstaber and Fools Gold by Gillian Tett of the Financial Times showing how financial engineering of ever-more exotic swaps, derivatives, options, etc are themselves adding to market instabilities worldwide. Another market institution, the Depository Trust and Clearing Corporation (DTCC) has a backlog in handling the huge volume of derivatives trading. Much of the volatility on Wall St. is due to high-frequency trading and the failure of these exotic 'quant' models and the need for hedge fund managers to sell assets to cover margin calls from their bankers. Yet other challenges to Wall Street's conventional wisdom are the best-seller, The Black Swan, by veteran options trader and mathematician Nassim Nicholas Taleb, and Lecturing Birds on Flying by Paulo Triana, who critique risk assessment models used by investors and banks. I made similar critiques of such models as Value At Risk (VAR) used so widely that unanticipated events could lead to system-wide crises in The UN: Policy & Financing Alternatives which I co-edited (Elsevier Scientific, UK, 1995, 1996).
Inflation must keep the Fed on alert longer term, despite new fears that collapsing demand may mean deflation. The core rate (excluding food and energy) at 2.1% in Q1 of 2011is suspect. A scathing editorial in The Economist called this use of the core index 'highly misleading' since most people eat and drive! (June 23, 2007, p.16) We have made this same point for many years. Meanwhile, behind all the headline numbers, average wages for non-supervisory workers have remained stagnant for decades, foreclosures continue, house prices stagnate, and many deeper structural problems in the USA go unaddressed. The $787 stimulus has repaired some USA infrastructure and provided some green jobs. The growing green economy worldwide is overlooked by Wall Street's obsolete asset-allocation models dominated by the fossil fueled sectors (see my The Sustainability Sector at www.seekingalpha.com). The growing gap between rich and less affluent citizens is worrying Democrats and Republicans - but their concerns offered the familiar remedy: more GNP-based economic growth. Economist Joseph Stiglitz now estimates the Iraq occupation will total $3 trillion in his The Three Trillion Dollar War (2008).
Global Geo-Economics
Globalization Concerns Grow
The Global Boom in New Indicators
The New Politics of Productivity Measures
Global Media and Public Opinion: The New Superpower
Indicator-Related Events, Activities and Meetings
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