A gripping story, describing three generations within a family (the Nicholson family in Grafton, Mass) who experienced three different transitions in our economy, including the post-WW II, post-Vietnam and today’s recession, was published a few weeks ago in the New York Times. For the millennial generation of 18-29, the unemployment rate, officially at 14 percent, approaches the level  for that group during the Great Depression. But, now add to that the 23 percent that have stopped looking for work, based on Bureau of Labor statistics, and you come up with a whopping unemployment rate of 37 percent, the highest it has been in more than three decades and within the range of the 1930s. For young adults seeking work today, this is their Great Depression. Adult unemployment in the Great Depression reached about 20% of the work force (though numbers for this period are not as accurate as today’s; some numbers that are higher for unemployment during the depression did not include classifying workers in emergency work, like the temporary work created by Federal jobs programs, etc as being employed).

Among the millennial generation, a college education helps, but the unemployment rate among college-educated young adults is currently at 5.5%, or nearly double what it was on the eve of the Great Recession in 2007. That is the highest level by two percentage points, since the bureau began keeping records in 1994 for those with at least four years of college. A college degree is no longer an insurance policy against prolonged unemployment. We have hollowed out our economy and exported many would be good paying jobs. So far there are no signs that things are getting better for any group of workers in our economy, quite independent of their level of education. Indeed, recent economic forecasts suggest that our economy will contract before it expands, as stimulus money runs dry and nothing is available to pick up the slack.  Europe’s decision to introduce an anti-Keynesian fix to their problems, beginning with Greece, is compounding the issues we face in reaching for a more global and balanced economic recovery. So what happened?

A major fault line in our economic recovery strategy was the insufficient level of the stimulus package we engineered to soften the blow of the collapse. If we had invested somewhere between two and three times what we did invest as our stimulus package, we surely would have been seeing more light at the end of the tunnel by now (too much of the stimulus package was in the form of tax breaks, which are often not used or used late). Very likely, we would have started seeing new job growth through a stronger nurturing of the new economy we will require,  as new businesses could have been generated based on the richest resource we have–our scientific and technological skill level, which now lies fallow because of poor investment decisions and too much money spent on propping up banks and corrupt financial institutions. This unfortunate outcome, the lack of a sufficient Keynesian response to our financial collapse, has left us with rich bankers and unemployed young people. Is that an even sensible trade? Where will our economy come from that we need in order to generate good-paying jobs that can fill the void and the reduce the vast unemployment debt we have accumulated as the biggest obstacle for our future? Right now we seem to be content to let the bankers get away with it and allow our young people to suffer. They are paying the real cost of this economic disaster.

The youngest member of the Nicholson family, caught in exactly this circumstance, remains optimistic about his future, a very different outlook compared to those who went through the Great Depression in the 1930s. Let’s hope we can right our ship in sufficient time to reward his optimism and start generating the new economy by investing in the one area where we stand a chance of regaining leadership–the art and science of saving our planet and learning to live within the limitations of  finite planetary resources. Are we that stupid? Have we been out-Foxed? Is corporate power too much for us to resist and prevent us from reshaping our economic foundations? I don’t think so, but these numbers for the unemployment among young people must become more broadly known and right now the traditional media that we rely on for news refuses to get down and dirty in the places we need in order to flush out and reveal the truly suffering class, our youth, who are currently spared from despair by their innate optimism. How much longer can that last? It would be better for all of us if it didn’t last much beyond tomorrow because it is fixable.

As a companion to the worst recession since the Great Depression, we have a political and financial system that got embedded in the army and acquired the art of generating financial bubbles. Those same people that gave us our bubbles, including the dot com and the sub-prime mortgage fiasco, have given us a solution by a massive transfer of wealth that has yet to be recognized as such. Scott Nicholson’s good paying job went into buying a Goldman Sachs executive a new house and a new boat and a twenty five year lease on an expensive boat slip in Long Island.

According to Lou Dubose, editor of The Washington Spectator (highly recommended), here is what the banking industry visited on our economy: $14 trillion in lost household wealth; 8 million jobs gone, not yet returned or even on the horizon (thus the need for brand new ones); 200 community banks closed and more than $14 trillion in bailouts accompanied by a staggering increase in deficit spending needed to keep the economy out of a depression (it just wasn’t enough to give us a good jump start). The credit default swaps that swamped our economy were created by speculators that didn’t actually own the stock in question. What they made was a bet about whether one stock might default and another investor gave them  credit default swap insurance against that happening. Neither investor actually invested in the company per se. By the time credit default-swap trading destroyed the economy, 90 percent of the traders were speculators and many of them were banks. Furthermore, it was the Wall Street bond lawyers who wrote the “Commodities Future Modernization Act” that Phil Gramm held up as the wave for our new future in 2000. With the final regulatory constraints out of the way, over the counter derivatives went from $100 trillion in 2000 to $600 trillion when the economy collapsed in 2008–that was 10 times the GDP of the entire world! Graham was Wall Street’s operative in the Senate, but the bill had strong support from Clinton’s Treasury Secretary (Larry Summers–now in charge of Obama’s National Economic Council). Not surprisingly that bill also had the strong endorsement of Alan Greenspan. The same people who engineered our financial meltdown are now engineering our recovery. Any wonder why we are not seeing anything close to a recovery? Is there any doubt why the recovery that was engineered for us to enjoy is not enjoyable at all? Obama hired the wrong team. We need a new one. For starters, I would recommend Joseph Stiglitz.

RFM

This bill sailed through the house, but got blocked in the Senate where all good things come to an end. But the clever tactic of including it in the reconciliation process (part of the savings from the new student loan bill will help pay for the new healthcare insurance bill) dropped it into the can-do box under the radar screen.

Student loans began with the Federal Family Education Loan Program, created in 1965. Under Clinton, the Department of Education began its own direct loan program and most schools would sign up for one vs the other (bank vs Fed), not both. At that time, the Federal Government would set the rates and terms. Once at 20% of all student loans, as our economy went south, the percentage of direct Federal loans has grown, now at about 35% and soon to be 100% of all new student loans. Banks can still give loans, but they will not be secured by the Federal Government and will presumably be prohibitive in cost–so be wary!

Loan repayment schedules have been improved. The new bill will limit payments to 10 percent of discretionary income and forgive balances after 20 years. But these changes only apply to loans taken out by new borrowers on or after July 1, 2014. They are not retroactive.

Public-service workers on the income-based repayment plan can have their remaining balances forgiven after 10 years. That’s the same as the old law.

Now the major challenge in front of us, is to make a new economy that provides jobs for college graduates and doesn’t reduce them to competing for the same jobs that high school graduates get in line for. So far there is too much of that going around, especially for an “advanced” “civilized” “modern” society. That is the mother of all assignments for the weekend. How to build a better economy. Here is my first suggestion: any business that is going to be sold by its owners or downsized by a Private Equity firm, is given first opportunity for purchase to the employees, who with government help to secure loans, can assume ownership and try to run the business as a profitable enterprise. Remember that one problem we have is what I call the “Microsoft Problem.” That is too many corporations trying to emulate Microsoft’s unseemly profit margins and as a result, workers pay has stagnated and they did not financially gain as their company productivity went up: savings from that source went into CEO pay and company profit margins to elevate the value of the stock. The golden parachute appeared and the gold watch went in the toilet.   Worker ownership should be less concerned about profits and more concerned about jobs and products. And, we know where the creativity for the place is typically found–yes in the workers. Remember the high financiers of today’s corporate world, understand a leveraged buyout, but don’t know how to make things. Making things is the key to an industrialized society with equitable wealth distribution. Everybody has a skill. We need to get all those Chrisitan militia people back to work as well. They are getting a little scary out in the hinterland.

RFM

Pawlenty was inspired to enter politics because, when he was a law student at the University of Minnesota, he heard Ronald Reagan say “government is not the solution, it’s part of the problem.” You all remember that one. It is hard to imagine any adult committing themselves to a political career on the basis of a single slogan, but once you get to know Pawlenty, you realize that, in his case, it might actually be true. Had he been in the GW Bush administration at the right time,  he would have been the first to coin the effective phrase “better a smoking gun than a mushroom cloud.” You get the picture–he’s the kind of quipper that fashions catchy phrases of deep statesmanship timbre.  And, like every good Reaganite, Pawlenty believes that our entire gigantic economy is determined by one thing and one thing only–the income tax rate. So that’s Pawlenty–he’s in favor of slogans and against taxes. He also goes Reagan one further as an ideologue–he probably doesn’t have Alzheimer’s yet, which otherwise might account for some of his actions. In that sense, Reagan, or at least his legacy, was lucky.

After Pawlenty’s election as governor (2002), replacing our previous wrestler governor, Jesse Ventura, he began to wrestle on his own with the state budget. He looked at the tax structure of Minnesota and claimed that our high taxes were driving businesses out of the state.  His quip was “I can hear the sucking sound of jobs leaving Minnesota.” In response to that quip, a well-known businessman, a member of Pawlenty’s own party, wrote a popular op-ed piece, pointing out that companies actually  like to settle in Minnesota because the taxes in the state have been used judiciously to fabricate an excellent public education system and companies like to settle in states where there is a well-educated workforce. That might be one reason why, until Pawlenty came along, the state of Minnesota had one of the highest per capita earnings in the country. In fact, when you look at the relationship between the State and Federal governments financial exchange, that is, the difference between what the Feds pay to the State of Minnesota from all sources of Federal expenditures vs what the State pays to the Federal government, Minnesota was in the top 5 states in the country, with each individual in the state paying ~$1294 more to the Federal government than the state got back from the Feds. That’s how we keep a lot of Reagan states from going into receivership. Pawlenty’s ideologue approach to that problem was to reduce the income growth of the state and the average median income in comparison to the growth rates of most other states. In that way the Fed/State balance picture should look better. Got it?

Then too there is the matter of Pawlenty’s priorities. He went to law school at a time when the state and the Federal government were helping to subsidize higher education. In fact, he might not have been able to afford to go to college, much less law school, if tuition had not been relatively low, all by design to improve the education and skills of our citizens.  Given that fact, once elected governor of Minnesota, he promptly and severly cut the higher education budget, forcing higher tuition costs to the point that fewer and fewer people (that are roughly where Pawlenty was economically about thirty years ago) can afford to go to college. Currently the medical school at the University of Minnesota has the second highest rate of tuition for any public medical school in the country (Colorado is first).

Well at last some people seem to be on to Pawlenty. Perhaps it was the Obama victory coupled to the financial collapse that has convinced just about everyone except Pawlenty that Reaganism hasn’t worked out quite as well as he would have us believe. As if called upon to be the national spokesman to head off a complete collapse of Reaganism, Pawlenty tried one more quip of the type that in the past he has managed to get away with. The state recently released its budget projection for the coming fiscal year and,  like every other state, things don’t look good, with a $4.6 billion deficit projected. So, in response to the devastating news, Pawlenty held a press conference to provide what he thought was convincing statistical evidence that states which taxed less were in far better shape than Minnesota. The trouble was that Pawlenty’s own data, obtained from the Census Bureau,  refuted his case. Using the same data that Pawlenty showed at his press conference, a reporter for Min2020 (Jeff Van Wychen) showed that under Pawlenty, the state of Minnesota had cut its tax rate from 2002-2006 by 10.9 %. Only three other states cut their spending by more than Minnesota. But further elaboration of the data revealed that during that period of declining state taxes, employment growth was substantially below the national average (see bar graph). Of equal importance, other reports have shown that Minnesota’s position relative to other states in terms of median household income, unemployment levels, pupil-teacher ratios, and many other important indicators of a state’s well-being have deteriorated substantially. When these factors are counted, Minnesota has been among the ten worst performing states in the country, all taking place during Pawlenty’s tenure as governor. In short, Pawlenty put the state of Minnesota into a nosedive. In fact, Minnesota did not become a laboratory to prove that Reaganomics works, as Pawlenty had promised, but quite the opposite. Under Pawlenty, Minnesota has been the national experiment to demonstrate what happens to a once prosperous state when you stop investing in education and infrastructure. Our bridge didn’t fall down by accident (it was originally built with the wrong size gusset plates, but Federal support for bridge maintenance was used for other “budget balancing” strategies).

I don’t know how quickly Pawlenty left the room after demonstrating his prowess for statistics and facts. Nor do we know yet whether the Minnesota 2020 article will catch on more widely in the state. But at least one reporter is hot on the scent. Given Pawlenty’s miserable performance as an outdated ideologue, it would be entirely fitting to invite him to California to close the last leaf on the book of Reaganomics, while visiting the Reagan library and going horseback riding with Nancy. I would love to be there. We have two more years of this clown and he has reassured Minnesotans that he won’t accept Federal money to help Minnesota meet its enormous budget deficit. Have you noticed how few Republican ideologues can ever learn something new? It’s just not in their DNA.