Los Angeles Times
Friday 4 July 2003
Front Page [page A-1]
U.S. Unemployment Rises to 6.4%, a 9-Year High
by Peter G. Gosselin, L.A. Times Staff Writer
Washington, D.C.: The nation produced more fired workers than economic fireworks last month as the unemployment rate shot to a nine-year high of 6.4% and payrolls shrank by 30,000 jobs, the Labor Department said Thursday.
The June payroll decline extended the economy's job-losing streak to five months. Employers have dumped 394,000 workers since February and 2.6 million since the March 2001 start of the latest recession.
The jump in the unemployment rate from May's 6.1% to 6.4% in June was the biggest monthly increase since the September 2001 terror attacks and surprised analysts, who had predicted little or no change. The last time the rate was higher was in April 1994.
The new figures diminished hopes - which had been on the rise - that tax cuts coupled with interest rate reductions engineered by the Federal Reserve would propel the economy to a quick comeback.
"It's not a pretty picture for a recovery," Los Angeles economic consultant Ted Gibson said. "To keep losing jobs when most people think the recession ended a year and a half ago is really unprecedented."
The June numbers did include some hints of improvement. Part of the reason for the rise in the unemployment rate was an increase in the number of people looking for work, sometimes an early indicator of an economic rebound. The jobs report said that the civilian labor force grew by 611,000 people last month. In addition, hiring of temporary help, another harbinger of recovery, was up by 38,000.
But Thursday's numbers, coming as the country prepared to celebrate the Fourth of July, set off a political uproar with Democrats blasting President Bush over the economy's performance while the administration generally sought to avoid the subject.
"The Republicans' multitrillion-dollar failed economic policy is one of the greatest disasters for working Americans in a decade," said Sen. Jon Corzine (D-N.J.), chairman of the Democratic Senatorial Campaign Committee.
Countered outgoing White House Press Secretary Ari Fleischer: "Tax cuts have helped to create jobs and promote growth in the economy."
Among other positive signals Thursday, an industry group reported that the nation's huge service sector expanded for a third straight month. The Institute for Supply Management's index for non-manufacturing companies rose to 60.6, its highest level since September 2000.
But analysts said the problem with such hints of promise is just that - they remain only hints, two months after the end of the U.S.-led war with Iraq lifted the cloud of doubt over the economy and after consumers and companies knew that another round of tax cuts was on the way in the second half of the year.
"There are great expectations for a turnaround in the economy, but there's nothing in these numbers to suggest that it's turned yet," said Mark Zandi, chief economist of West Chester PA-based Economy.com.
"We're still in a very fragile state that threatens to come unraveled if anything goes wrong," he said.
Despite signs of improvement, there was plenty of evidence of economic pain in the new report. The unemployment rate for African Americans jumped a full point to 11.8%. The rate for Latinos rose two-tenths of a point to 8.4%.
The median duration of unemployment - the minimum length of time that half of those who have lost their jobs have been out of work - jumped to 12.3 weeks, the longest it has been since the government started keeping tabs in 1967. Generally speaking, the longer people are unemployed, the more it costs their families and the harder it is to find new work.
Average hourly wages rose 3 cents to $15.38 in June, but the pace of growth has slowed. Neither the length of the average workweek nor the amount of manufacturing overtime worked budged during the month. Both usually rise early in recoveries.
In a separate report Thursday, the Labor Department said that initial claims for unemployment benefits unexpectedly jumped 21,000 last week to 430,000.
Investors reacted to the latest signals from the economy with a sort of split decision Thursday.
Stocks lost ground as some market players saw in the employment report a suggestion that the recovery could stall. The Dow Jones industrial average slid 72.63 points, or 0.8%, to close at 9,070.21. The broader Standard & Poor's 500 index fell 8.05, or 0.8%, to 985.70, and the Nasdaq composite index slid 15.27, or 0.9%, to 1,663.46.
By contrast, bond traders focused on the service sector report and concluded that the recovery is gaining steam. Such a development could threaten the value of their holdings by causing inflation.
Traders reacted by pushing the price of a bellwether 10-year Treasury note down, lifting its yield, or market interest rate, to 3.65% from 3.54%. As recently as three weeks ago, the rate was at a 45-year low of 3.11%.
The lion's share of June's job losses was in manufacturing, which shed 56,000 jobs last month. Since hitting its most recent peak three years ago, manufacturing employment has plunged by 2.6 million jobs. Analysts predicted that many of those positions would not return when the economy finally recovered.
Partially offsetting the latest manufacturing losses was new hiring by the health and social assistance industries,which added 35,000 workers last month and 306,000 over the last year.
The construction industry also was hiring. Since February, construction companies have added 101,000 workers to keep up with the housing boom driven by low interest rates.
Information technology payrolls were little changed during the month. The industry was battered by the 2001 recession and has lost 434,000 jobs since the start of the downturn.
The U.S. economy grew at an annual rate of slightly more than 1% in the final quarter of last year and the first quarter of this year, and did not do much better in the just-completed second quarter.
But the consensus among economists is that with the latest tax cut slated to kick in this month and with the Fed having just trimmed its key benchmark interest rate to a 45-year low of 1%, the time is ripe for faster growth.
Yet analysts acknowledge that growth will have to be at a 3.5% annual pace or better to lift employment and bring down the jobless rate. That's something the economy has yet to be able to sustain so far this decade.
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Los Angeles Times
Saturday 22 September 2001 (3 articles)
Business Section [page C-1]
Dow Off 140; Worst Week Since 1933
[from L.A. Times staff & wire reports]
Markets: Losses total 14.3% in continued selling. Other indexes are at their lowest levels in nearly three years.
Stocks slumped again Friday as the Dow Jones industrial average wrapped up its worst week since The Great Depression on growing fears about the U.S. economy and a potentially long war on terrorism after last week's deadly attacks.
Even a positive earnings forecast from market giant General Electric - although briefly pushing the Dow into positive territory - couldn't stem the tide of selling.
Likewise, President Bush's Thursday night speech that sought to rally the nation to the fight against global terrorism failed to rally Wall Street. "Clearly, this market is event-driven," said Bill Ryder, strategist at First Union Securities in Richmond, Va. "When the CEO of General Electric came out and said, 'Hey, we're going to make our earnings numbers this year,' the Dow was up for a few minutes in the morning, but the rally didn't last long."
As for Bush's tough-talking speech, it "was kind of scaring the market," Ryder said.
The Dow closed down 140.40 points, or 1.7%, at 8,235.81. But the blue-chip index did recover some ground from an early 313-point drop.
For the week, the Dow lost 1,369.70 points, or 1.43%. Since 1915, that was second only to the 15.6% decline in one week of July 1933, during the depths of The Great Depression, according to Bloomberg News.
The technology-laden Nasdaq composite index fell 47.74 points, or 3.3%, to 1,423.19 Friday. For the week, Nasdaq lost 272.19 points, or 16.1%.
The Standard & Poor's 500 index fell 18.74 points, or 1.9%, to 965.80 Friday and sank 11.6% for the week.
The indexes are now at their lowest levels in nearly three years. And other market statistics showed how severe the week's decline was.
About $1.4 trillion in investor wealth evaporated during the week, raising fears that consumer spending will drop and add more pressure to the economy.
Three stocks fell for every one that rose on the New York Stock Exchange on Friday - an improvement over the 10-1 ratio in early trading. Volume was extremely heavy at more than 2 billion shares on the NYSE, second only to Monday's record volume. Losers led winners 2 to 1 on Nasdaq.
Another sign of the heavy selling: One of four stocks that traded on the NYSE posted a new 52-week low.
"Right now, there are just falling knives everywhere," said Dirk van Dijk, who helps manage $4.5 billion for C.H. Dean & Associates. "Who wants to step in front of a freight train? On Monday, we did some buying. Clearly we were premature."
GE, a member of the Dow, offered a short-lived respite from the relentless selling after the conglomerate said it was on track to deliver double-digit earnings growth this year. But GE also said that it does not expect an economic rebound next year. GE climbed 93 cents to $31.30.
But most other corporate news has been grim as companies ranging from airlines and publishers to financial services firms and software makers have announced big layoffs. Last week's terrorist attacks paralyzed the travel industry, aggravated fears of a recession and threatened to damp consumer confidence.
Bargain-hunting among beaten-down stocks helped prop up prices late in the day. Shares of airlines, brokerage firms, hotel companies and oil-field services providers were among the best-performing market sectors.
In other markets, safe-haven bonds and gold gained, as the yield on the benchmark 10-year Treasury note fell to 4.69% from 4.74% on Thursday. The dollar finally found some poise after the Bank of Japan lent support for the greenback. Crude oil fell for a fifth day, closing below $26 a barrel in New York for the first time since mid-July as the global economic slowdown was set to slash demand.
Among the day's highlights:
Stocks fell overseas amid uneasiness about U.S. plans to retaliate for the terrorist attacks. Japan's Nikkei stock average finished the day down 2.4%. Britain's FTSE index closed with a loss of 2.7%, France's CAC-40 fell 2.3%, and Germany's DAX index declined 0.6%.
EMC fell $1.47 to $11.15 after the data-storage-device firm said it will cut 10% of its work force and probably report a quarterly loss. Also in the tech sector, Palm fell 38 cents to $1.77. The company pulled the plug on plans to launch a highly anticipated wireless hand-held computer this year.
CVS fell $3.10 to $32.25 after the drugstore chain lowered its quarterly earnings outlook on expectations of slower sales.
Business Section [page C-2]
Mutual Funds May Post Worst Year in 4 Decades
[from L.A. Times staff & wire reports]
Stock mutual funds could be on track for their worst year in at least 40 years as fresh declines this week have added to already steep losses, according to data released Friday.
The average diversified U.S. stock fund is down 25.7% year to date through Thursday, according to Lipper Inc., which tracks fund performance. If funds close the year at that level, the losses would exceed the 24.9% decline of 1974 and the 22.1% decline of 1973.
Stock prices plunged in 1973-74 after the Arab oil embargo helped trigger a sharp economic downturn in the United States. Lipper tracks fund performance back to 1960. The most popular fund category, large-stock growth, is down 36.2% since the beginning of the year.
Last year, U.S. diversified equity funds slipped an average of 1.7%, Lipper said. In 1999, the average fund gained 28.3% amid the booming stock market.
Quarter to date, the average diversified stock fund is down 21.6% through Thursday, Lipper said. If that figure holds through the end of the quarter it would be the worst quarterly performance since the second quarter of 1970, when the average fund fell 22%, Lipper said.
Despite this week's market dive, stock funds apparently were hit by only moderate redemptions from investors, said TrimTabs.com Investment Research of Santa Rosa, Calif., which tracks fund flows. Stock fund redemptions outpaced new cash investments by about $11 billion for the week, TrimTabs estimated.
Business Section [page C-3]Late Card Payments Increase
by Leslie Earnest, L.A. Times Staff Writer
The percentage of consumers falling behind on credit card payments rose in the second quarter to the highest level in nearly three decades, according to a report released Friday.
Analysts said the report was particularly worrisome because it shows significant financial stress on households even before the Sept. 11 terrorist attacks, which many economists believe will push the nation into a recession.
In the second quarter, credit card payments past due 30 or more days jumped by almost a full percentage point to a seasonally adjusted 3.93% from 2.99% in the first quarter, according to the American Bankers Assn. In the second quarter of last year, the rate also was 2.99%. The increase is a result of "a stagnant economy and the cumulative effect of layoffs," said James Chessen, the association's chief economist. "When you have a slower economy and people losing their jobs, it's inevitable that the stress of their financial obligations will catch up to a small percentage of individuals."
The latest credit card delinquency rate is the highest since 1972. The report also shows that the delinquency rate on a composite of other kinds of loans--including auto, personal and fixed-term home equity loans--rose to 2.51%, the highest rate since 1997. It was 2.4% in the first quarter.
"We're looking at a very serious downturn," said Dean Baker, an economist who co-directs the Center for Economic and Policy Research, a liberal think tank.
Some economists have long expressed concerns about the risks of mounting consumer debt loads, saying that would deepen both a recession and the stress on families during a downturn.
Chessen said the higher delinquency rates also show that tax rebates, lower interest rates and home refinances can go only so far in providing financial relief.
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Los Angeles Times
Friday 15 June 2001
SoCal Living Section [page E-1]
Life at the Bottom of the Food Chain
by David L. Ulin [Special to The Times]
In joining the ranks of the working poor, author Barbara Ehrenreich found how hellish survival can be.
There's a giant chicken on the Third Street Promenade. Or not a chicken, but a person in a chicken suit promoting some local fast-food joint. It's a sultry Saturday and Santa Monica is bustling, the crush of pedestrians helping turn the chicken's slow passage down the sidewalk into something like an obstacle course. Little kids point and laugh, while adults avert their eyes; halfway down the block, a teenage boy challenges two friends to hit the chicken, just to see if it will fall.
It's a ridiculous situation, until you think about the individual inside the costume, for whom this dehumanizing display is a job, a necessity, a way of staying afloat for one more day. As hot as it is outside, after all, it must be that much hotter underneath this facade of wire and rubber, an outfit so unwieldy that every step becomes an awkward hop.
Although the person in the chicken suit may not know it, Barbara Ehrenreich has him or her in mind. The progressive social critic is just up the street at the Midnight Special bookstore, where before a standing-room-only crowd, she discusses her 12th book, 'Nickel and Dimed: On (Not) Getting By in America" (Metropolitan), an accessible yet relentless look at the lives of the American underclass.
Slight and somewhat unprepossessing, eyes animated beneath large glasses and a tapered shock of blond hair, Ehrenreich speaks with a fine, hard edge of anger what she later calls "a purifying rage". As the audience listens intently, she reads from the book's final pages: "When someone works for less pay than she can live on, when, for example, she goes hungry so that you can eat more cheaply and conveniently, then she has made a great sacrifice for you, she has made you a gift of some part of her abilities, her health, and her life.
"The 'working poor,' as they are approvingly termed, are, in fact, the major philanthropists of our society. They neglect their own children so that the children of others will be cared for; they live in substandard housing so that other homes will be shiny and perfect; they endure privation so that inflation will be low and stock prices high. To be a member of the working poor is to be an anonymous donor, a nameless benefactor to everyone else."
"Nickel and Dimed" is a work that explores these issues from an abidingly personal perspective, a piece of "immersion journalism" that details Ehrenreich's efforts "to survive in the economy's lower depths". Growing out of an article for Harper's Magazine, the book follows its author through three brief but intense periods of saturation, in which she left home for a succession of motels or trailer parks, and took on a variety of subsistence-level jobs to experience firsthand how America's poorest workers make ends meet.
The idea itself was fairly basic: Presenting herself as "a divorced homemaker re-entering the work force after many years" (a slight spin on the truth; she is the divorced mother of two grown children), Ehrenreich spent a month each in Key West, Fla.; Portland, Maine; and Minneapolis, seeking both the highest-paying employment and the cheapest housing available, before settling in "to see whether I could . . . earn, in that time, the money to pay a second month's rent".
Although there's a certain artificiality to this ("Who, in real life," Ehrenreich writes, "plops herself down in a totally strange environment, without housing, family connections or job, and attempts to become a viable resident?"), it's balanced by an open-ended quality, the sense that even Ehrenreich is unsure what to expect. "At the beginning," she recalls, "I didn't know what I was going to write. I saw it as a math problem, matching wages to rent. And since I had never before written anything in the first person, this was all unknown territory for me."
A Fascination With the Workaday World
Ehrenreich is no stranger to the lives of American workers; she grew up in Butte, Montana, in a family of miners and railroad switchmen, and has written about labor (and economic) issues for much of her career. In 1989, she was nominated for a National Book Critics Circle Award for "Fear of Falling: The Inner Life of the Middle Class", and her essay collection, "The Worst Years of Our Lives: Irreverent Notes From a Decade of Greed", skewered the easy-money culture of the 1980s with a savage grace. Still, she says, she was astonished by many aspects of low-wage work, not least each job's difficulty.
In Key West, where she worked as a waitress, she experienced "the perfect storm" of restaurant work four tables seated at the exact same moment, including a party of 10 British tourists, "who seem to have made the decision to absorb the American experience entirely by mouth". In Maine, Ehrenreich's maid-service job required her to "empty [her] mind of all prior housecleaning experience" in favor of a system so rigidly codified it filled four instructional videotapes.
"Here I am, a PhD, right?" she laughs. "This should be a snap. It wasn't. In every case, I had to struggle to catch on." Then there were the lessons taught by fellow workers, about dodging rules and managers who, much of the time, seemed to exist only to get in the way. The biggest surprise, though, was the dictatorial nature of many workplaces, where workers can be fired for offenses like swearing or taking unauthorized bathroom breaks.
"From very early on," Ehrenreich says, "when a fellow worker warned me that my purse could be searched at any time by management, I thought, 'This cannot be.' I went home that day and called a friend who's a union organizer, and he said, 'Yeah, that's legal.' I was shocked by the absurd rules, like no gossiping, or, in Wal-Mart, no talking, which, of course, people do. And the sense in many places of being under surveillance at all times, the assumption that you're probably a thief. That was a hard thing to step into from my normal life."
If there was a defining tenor to her workplace experiences, it was that of having to "check your civil liberties at the door". Job applications were routinely accompanied by personality tests; at a Winn-Dixie supermarket in Florida, she was asked (via computer) how many dollars' worth of stolen merchandise she had purchased lately, while at Wal-Mart, she faced questions about her attitude toward management, and "whether a co-worker observed stealing should be forgiven or denounced".
Employees Are Put Under a Microscope
Even more insidious was the prevalence of drug testing. Often, potential employees are required to urinate in the presence of a security official, to ensure no tampering with the sample, and even in less extreme situations there's a strong component of suspicion and contempt. "The experience of it," says Ehrenreich, who was tested by Wal-Mart, for whom she worked in Minnesota, "makes me think it's just a ritual humiliation. At some level, it seems to be if you would disobey any law, like smoke a joint sometime, we don't want you, like looking for anybody who might not dare to conform."
The most likely rationale for such tactics is to create "multiple reasons to fire you," Ehrenreich says, which makes even the most disgruntled employee disinclined to rock the boat. Her experience at Wal-Mart is a perfect example. Throughout the eight-hour orientation session, new 'associates' were cautioned about a wide range of behavior, including union activity and time theft, which means "doing anything but working during company time".
Meanwhile, attempts by workers to exercise their own rights were often stymied, especially when it came to overtime. As Ehrenreich points out in a footnote, employees have sued Wal-Mart in four states, alleging that "instead of paying time and a half for overtime work, the company would reward workers with desired schedule changes, promotions and other benefits", while workers who refused the unpaid overtime were "threatened with write-ups, demotions, reduced work schedules or docked pay".
There's a coercive element at work here, but, Ehrenreich laments, "this is the trouble. Workers have some rights in this country, but if they're not enforced, they don't exist". The irony, she goes on, is that at the time she was researching "Nickel and Dimed" (and, to a lesser extent, now as well), America had more jobs than applicants to go around. Yet even in such a market, "you're made to feel you have to prove something just to get, and keep, a job".
Partly, all this has to do with economics. How else could a company get away with paying people $7 an hour unless it stripped away those workers' sense of self? Yet on a deeper level, what Ehrenreich's describing is a full-fledged war on the American worker, and it's more brutal the further down you go.
Running Out of Options
As to the question at the heart of her book – can you make it, month to month, at the bottom of the economic ladder? the answer is, quite simply, no. To survive, Ehrenreich often had to take a second job, and even then, it wasn't enough. For her, at least, there was a way out. At the end of the month, she could go home. The people she worked with, however, had no such options; in many cases, they couldn't even afford the deposit on an apartment, and paid $60 a night to live in a motel.
When it comes to assistance, there's little available, a direct result of the welfare reform bill signed by President Clinton in 1996. Now that the Republicans are in power, things look even bleaker, she says, with the erosion of the remaining social programs and a $1.3 trillion tax cut that was never intended to trickle down to the working poor.
In the end, it all adds up to a built-in cycle of poverty, a vicious circle of deprivation and need. "We're such a class-segregated society now, with such great inequalities, that top management thinks of the lowest level workers as some kind of frightening underclass. What kind of person would work for $6, $7 an hour? They've got to be borderline criminals."
If there's a silver lining to be found here, it has to do with the resiliency of people, their ability to overcome, to persevere, to find a reason to have hope. Throughout the book, Ehrenreich cites many examples, from the housecleaners who cover for a pregnant crew member to the middle-aged woman who says kindly, on the day the author first moves into a motel, "that it is always hard at the beginning, living in a motel, especially if you're used to a house, but you adjust after a while, you put it out of your mind".
Such compassion is all the more striking given the heartlessness of the larger culture, in which "many big corporations have come to see American workers as they see Third World workers, as a renewable resource". Still, while those instances may provide some small source of inspiration, it comes at a heavy human price. After all, Ehrenreich asks partway through the book, "If you hump away at menial jobs 360-plus days a year, does some kind of repetitive injury of the spirit set in?"
Her experience suggests it does, to the detriment of us all. "I think," she says, "that the social contract has been totally violated and shredded at least the social contract as I understood it, which was, 'Work hard. Hard work will get you ahead.' If that doesn't work, then what's the deal?"
Los Angeles Times
Sunday 10 June 2001
Business Section
Writer Explores the Lives, Problems of the Working Poor by Joining Them
by Fred Bruning, Newsday Reporter
Book chronicles the circularity of the struggle to make ends meet in low-wage jobs, where workers have little opportunity to make financial gains.
She is a waitress at a homey Italian joint and good at her job. It is not her only employment. Days, she works as a school aide. Like most people, she has other responsibilities too as mother, wife, sister and daughter. Her husband is no slacker either. He works in computers and does construction work on the side.
Two people, four jobs. Why are they knocking themselves out? "To have a few nice things," said the waitress. And, she said, because working less wouldn't pay the bills.
In a country where it sometimes seems that everyone is driving a shiny new Land Rover or eating out most nights or retrofitting their thighs at the local health spa, people such as the waitress and millions of others in far more alarming economic conditions risk drifting into a kind of cultural obscurity. What, no Sub-Zero refrigerator, no Pilates classes, no cottage on the Cape? What kind of people are these, anyway?
Writer Barbara Ehrenreich thought the questions worthy enough to spend two years hunting answers. For a Harper's Magazine article and, subsequently, a book, "Nickel and Dimed: On (Not) Getting By in America", Ehrenreich infiltrated the low-income job market to see who dwells there and to try to solve one of the great mysteries of the 21st century: How do people survive on $7, tops, an hour?
"I think there is a certain kind of middle- and upper-middle-class complacency about the poor," Ehrenreich said. "People say, 'Oh, yeah, they have a hard time, but they get by.' But I was encountering working people who were homeless and people who actually were not getting enough to eat."
It didn't take Ehrenreich long working as a waitress near her home in the Florida Keys, a housecleaner and dietary aide in Maine, a Wal-Mart sales clerk in Minnesota, to determine that:
Low-wage employment snares Americans (and late-arriving
immigrants) of all descriptions, white, black, Latino, educated,
undereducated, sick, healthy, married, single, with kids and
without, everyone.
Lousy pay makes for unlucky lives.
There is no such thing as unskilled labor.
"Any fears I had of being overqualified were dispelled on day one," said Ehrenreich, 59, who holds a doctorate in biology.
Like her co-workers, Ehrenreich lived in marginal conditions although her circumstances generally were better than those many face.
At various times, home was a trailer (8 feet wide, floor plan like a barbell); a motel that she argues persuasively might be the worst in the country (mouse droppings, a bolt-less door, one window, no screen); a room in an ersatz Alpine village that, while nice enough, was much too expensive at $120 a week.
In each case, she settled for the best of absurdly bad alternatives. But, Ehrenreich noted, options are not exactly in ample supply at the swampy bottom of the U.S. economy down where employees have no health care, no day care, no clout, no prospects.
As one co-worker named Stan told Ehrenreich, he really should go to school to make himself more marketable, but how do you go to school when you have to work every possible hour to stay afloat?
Central to Ehrenreich's reporting is the maddening circularity that marks these lives. Health care? Oh, sure the company offers insurance, but premiums are so high that paying them would mean no money for rent. A food pantry in Maine closes when? at 3 p.m., when most people are on the job. "So much for the working poor!" Ehrenreich wrote.
"We have been changing in the wrong direction in the last 20 years," she said, noting glumly the decline of unions, the punitive nature of Clinton administration welfare 'reform', the increasingly oversized and overpaid cadre of corporate executives, the ascendancy of uptight bosses who view workers as a kind of 'fifth column' apt to steal, goof off or take drugs on company time.
Ehrenreich, whose father was a copper miner in Montana, could not be cornered into saying some jobs are more valuable and worthy of greater rewards. "To say that would be to say that some lives are worth more than others," she said. What seemed peculiar to her, the writer said, is that people who provide unquestionably vital services nursing home workers, for instance earn such miserable wages.
At the Center for Working-Class Studies at Youngstown State University in Ohio, co-director John Russo said a large part of the problem is tied to loss of good-paying manufacturing jobs and proliferation of low-wage service-sector positions, part-time work and temporary or contingent employment.
A better minimum wage, national health insurance and affordable child care would be most welcome, Russo said, but the problems of low-paid Americans are daunting. "In the short term, there is no easy kind of solution," he said.
It is the short term, though, that mattered most to workers Ehrenreich met those engaged in the daily grind of getting by or not. "It's really hard to get out of that situation," she said.
interview about the book in L.A. Weekly [July 2001]
Barbara Ehrenrich's official website
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Los Angeles Times
Saturday 21 October 2000
Main News Section
U.S. Quandary: Where To Park A Windfall
by Peter G. Gosselin, L.A. Times Staff Writer in Washington, DC
The government is amassing budget surpluses and wiping out debt at such a ferocious pace that it could soon exhaust the usual places to park extra cash and face a politically explosive decision: whether to invest some of it in corporate stocks and bonds.
Unlike a family, which can use a windfall to pay off credit cards or retire a mortgage, Washington cannot repay all its debt whenever it pleases. The Treasury Department can't order people to turn in their bonds before they are due. As a result, its annual surpluses, which are projected to double over the next decade to at least $400 billion, could shortly outstrip the debt immediately available to be paid off.
The Treasury Department and other agencies are quietly studying whether they can funnel some of the resulting excess into private financial markets, but the idea would almost certainly be a tough sell.
The most obvious means government purchase of individual securities raises the specter of federal bureaucrats gambling with the public's money by picking stocks and becoming such a big player as to play havoc with the market itself.
Could the government put up a big enough firewall to prevent political considerations from entering into investment decisions? Would a sizable government presence in the market undermine investor confidence? Could the market's direction be trusted as an indicator of anything?
This is where things would get truly weird," said J. Bradford DeLong, a former Clinton administration Treasury official now at UC Berkeley. "The idea of the government directly investing in American businesses is territory we really don't want to get into."
Indeed, the idea seems so controversial that most policymakers say the government will never get a chance to try it. They predict that if the surpluses keep rolling in at their current pace, voters will demand such massive tax cuts that it will end the dilemma by reducing the amount of excess cash and slowing debt reduction.
But that's not what the presidential candidates are saying. Both have embraced the principle not just of debt reduction but also of debt elimination. Democrat Al Gore, Jr. wants the job done by 2012, Republican George W. Bush would be satisfied with 2016.
Both candidates, for example, have made saving large chunks of the surplus central to their plans for fixing the finances of big benefit programs, such as Social Security. But analysts warn that such steps implicitly raise the question of government investment in private markets.
So little space separates Gore and Bush on debt elimination that it has become the mom-and-apple-pie issue of the 2000 race. Yet the difficulties of pulling it off are only now becoming clear--and the crunch is arriving much sooner than anyone expected.
"I don't think the public has quite wrapped its mind around this matter yet," said G. William Hoagland, staff director of the Republican-controlled Senate Budget Committee and a veteran of Washington's budget wars.
If we're talking about eliminating the debt and saving the surpluses in programs like Social Security and Medicare, we're going to have to put the money someplace," Hoagland said, "and the stock and bond markets are the most obvious places."
Surplus Being Used to Redeem Bonds
Until recently, the Treasury used debt to finance deficits, selling bonds and using the proceeds to plug the government's annual budget gap. Now that the U.S. is running surpluses, it is doing the opposite by using some of the excess cash to redeem previously sold bonds.
The problem is that the Treasury could soon be unable to redeem enough to handle projected surpluses. That's because it can be sure only of getting those bonds that have reached their maturity date and must be turned in to the government. For anything else, it must entice owners to sell bonds that are still current by offering premiums.
Washington purchased about $30 billion worth of current bonds this year, but officials say it would have to buy substantially more in coming years to absorb the surpluses. As it does so, officials say, owners will charge increasingly steep premiums.
In addition to the Treasury, the Federal Reserve uses the outstanding supply of bonds to manage the economy. It does so by buying and selling those bonds. Buying has the effect of pumping money into the economy and reducing interest rates. Selling has the reverse effect.
To be fair to the candidates, almost nobody realized the complexities of handling big surpluses until recently. Most people assumed there was plenty of readily available government debt to soak up all the excess cash for at least a decade. They thought whatever difficulties might arise would come up a decade or more from now.
But policymakers have been caught short by the speed at which the surplus has grown and the debt reduced. Washington has already slashed the nation's publicly held debt by $360 billion, or nearly 10%, since the government unexpectedly began running surpluses in 1998. According to administration projections, it will cut an additional $225 billion in the coming year.
It's a Problem That's Not Far in the Future
Policymakers have begun to realize that problems could crop up well before the debt reaches zero.
The Fed has already concluded that it could run short of the government bonds it now uses within two years, people familiar with the central bank's operations said. The Treasury Department now estimates that the government could run out of enough debt to handle projected surpluses by the end of the next president's term or shortly thereafter, according to people acquainted with the agency.
"It's dawning on the Fed and other agencies that the problem of not having enough debt to satisfy official and other purposes could almost be upon us," said David M. Jones, chief economist of Aubrey G. Lanston & Co., a New York bond house.
Neither Fed nor Treasury officials would comment publicly about what their institutions will do as government debt dwindles, warning that any remarks could roil financial markets. But people acquainted with the operations of each agency say the issue is attracting substantial attention.
In the Fed's case, investing in private financial instruments would not be that unusual. For decades, the central bank bought and sold top-notch corporate debt, such as railroad and telephone bonds. It was only with the big expansion of government deficits and borrowing in the late 1970s that it has come to depend on government debt.
However, Treasury investment of government surpluses in corporate stocks and bonds would be unprecedented. The last time the nation ran a sustained surplus in the mid-1830s President Jackson sent the extra money back to the states as bonuses. Although the government once acquired tons of gold, it hasn't bought any of the precious metal in many decades.
There are some alternatives to government investment in stocks and bonds, but each appears almost as controversial.
For example, Washington could restrict its investment to the mortgage markets, but many officials believe there is already too much money being poured into housing. It could buy only state and local debt, but analysts worry this would encourage those governments to go on spending sprees. Or it could invest in foreign government debt, but such a move seems ready-made to spark a political firestorm.
Ultimately, Washington expects the private sector to solve its problem by coming up with new kinds of financial instruments that are safe and big enough to handle surpluses that are expected to total trillions of dollars by the end of this decade.
The answer is going to be something we don't have yet," said one person acquainted with Washington's internal debate over the issue.
One of the earliest signs of trouble with the shrinking federal debt came last fall when the Fed wanted to add resources as a precaution against a Y2K-related credit crunch but could not find enough Treasury debt to do the job.
It ended up using mortgage-backed securities issued by Fannie Mae and Freddie Mac, the massive government-chartered mortgage underwriters, a move that Fed officials subsequently suggested they regretted.
The officials indicated at a Federal Open Market Committee meeting in March that they feared relying on the two agencies' debt would expand their clout, something the central bank apparently does not want to do. They agreed to consider the Fannie Mae and Freddie Mac purchases as only "temporary," according to minutes of that meeting, and launched a "broad-gauge" study of alternatives to government debt.
A person acquainted with Fed operations said the options under study include direct investment in corporate stocks and bonds, and creation of a mutual-fund-like arrangement that would let the Fed invest in private markets without having to pick individual securities.
The central bank "can probably go for a couple years, maybe 2½ years, before it has to look for other assets," the person said.
Besides the Fed, Treasury has also begun to realize that Washington could run short of debt to soak up surpluses considerably sooner than 2012, when the administration now projects that it will have paid off all its IOUs.
That's because as much as $1 trillion of the $3.41 trillion in public debt may not be immediately available for the government to redeem, and a substantial fraction of the rest may be redeemable only at steep premiums.
For example, the Fed has $510 billion of the total in its portfolio, some of which it needs to manage the economy and thus is unlikely to turn over quickly. In addition, $178 billion is in U.S. savings bonds, whose owners are unlikely to redeem them.
Finally, people familiar with Treasury operations say that Washington will have to continue reissuing at least half of its $460 billion in short-term debt just to cope with the fact that the government's revenues arrive in big lumps at tax time while expenses continue year-round.
The Congressional Budget Office recently estimated that if current trends continue, the government will find itself with more surplus than debt to buy by 2007. In a July report, the CBO said the "accumulated excess cash greater than debt available for redemption" could total $281 billion in 2007 and rise to almost $2 trillion by 2010.
Treasury officials would not comment. But one person familiar with its operations said that by the time the government runs out of easily redeemable debt, the nation will have to have decided what else Washington can do with its surpluses, and especially whether it can invest them in corporate stocks and bonds.
That, or it will have erased the surpluses with new spending or tax cuts. "It's going to be one of the great political debates of the next term," the person said.
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