Geithner Takes Tax Payer Funded Trip to Swiss Retreat

What is U.S. Secretary of Treasury doing hobnobbing in Davos Switzerland? He's being interviewed on stage by Charlie Rose of PBS fame. Can't they do that right here at home? How does it look to Americans that a high ranking U.S. official and an employee of PBS - BTW, both funded by tax payer money - are going to a meeting which is essentially limited to rich and powerful people? Not sure this is what the framers of our constitution had in mind when they set out to create the new nation.

By the way if you want to read what Mr. Geithner had to say, here's a link. It's not pretty. He essentially doesn't have much to say about how to generate jobs though he's very optimistic about U.S. growth.

Did you know: 42% of U.S. workers get no sick days

42% of the workers in the U.S. private sector are unable to take a paid day off when they're ill.

That's 44 million workers without that benefit include. (Only 4.2 million of these have not been on the job long enough to be eligible for paid sick days.)


Source: Institute for Women's Policy Research

A Global Fight for Jobs

Tonight President Obama articulated in his State of the Union speech what is at stake: a global fight for jobs.  Outsourcing American jobs by American companies for over 2 decades has created a tipping point for the American middle class.  In order to restore American prosperity, jobs must be created here.  That's not to say that no American company should hire employees overseas - that would be absurd.  But jobs that can be done in America, and be done cost competitively, should be done in America. Do we really need H&R Block accountants abroad doing our taxes? Or radiologists looking at our X-rays? Or American Express credit card service representatives?  American wages are competitive with those abroad.

It is time for American companies to stop taking the easy road and to start looking in their own backyard for employees. 

Bright Spot for American Manufacturing & Jobs

GM went public this week and now enjoys a market capitalization of $50 billion.  And there's 1 main reason why that was even possible: the lifeline that the U.S. government made to GM in loaning them over $40 billion back in 2009.  Behind these numbers are are millions of American jobs that were saved.  Here's the full story:

What Do Germany, China, and India Have to Do with U.S. Unemployment?

In this straight-talk video, Austan Goolsbee explains how the U.S. economy stacks up against the other major economies of the world. 

I think he does a fair good job in explaining how Germany, China and India stack up to the U.S..  But I'd like to see him do a better job explaining what's at stake in these so-called "trade talks" and "trade agreements" between countries (practically inscrutable if  you follow the business press).  

I also would like him to do a better job of talking about why the U.S. has to start promoting manufacturing and export industries the way for example Germany has. As long as our corporations are making money, we haven't cared where goods are made or by whom.  And guess what, the chickens are coming home to roost now because not only have we lost manufacturing know-how but we have decimated our middle class so that over time our consumer power will erode and we'll become a less affluent nation.  

Grim?  Irreversible?  No way.  But the answers won't come from existing Fortune 1000 business leaders who are all too happy to send American jobs and factories overseas.

America's New Addiction: Outsourced Jobs

As President Obama was departing for an overseas trip to Asia this week, he commented:

"The primary purpose is to take a bunch of U.S. companies and open up markets so that we can sell in Asia, in some of the fastest-growing markets in the world, and we can create jobs here in the United States of America."   - President Obama

I believe the President but I'm not sure the problem is closed markets.

Over 200 business executives will accompany President Obama on the trip.  They are the same executives that have fired American workers and replaced them with workers in Asia during the Great Recession.

According to a poll conducted by San Jose State University researchers (see chart to the right), 2 out of 5 Silicon Valley households have been hit by job losses since the Great Recession began nearly three years ago.  

Tech had done well during the Great Recession

During this same 3 year period, the NASDAQ has returned to par (not bad for a recession) and tech headliners like Apple have soared. In other words, while American CEOs have argued that they must lay off workers because of the economic downturn, their companies have done quite well and weathered the Great Recession in flying colors.  That's a great testament to American business know-how.
 
While at lunch with a friend the other day he said I had buried my head in the sand and and wanted to know why I refused to accept that America's best days were behind us.  I believe that our enterprising nature will always find ways out of short term problems if given the chance.  I just wish more American companies would give American workers a chance.
   

Krugman was Right

When President Obama came to office in January 2009, the U.S. ecnonomy that he inherited from his Republican predecessor was headed into collapse. The jobs report and the stock market indices were shedding big numbers. As the president considered what to do he turned to this economic team of Larry Summers (the Treasury Secretary under Clinton who championed allowing banks to gamble with credit default swaps and went on to earn tens of millions at hedge fund DE Shaw) and Tim Geither (former NY Fed Reserve boss who signed off on allowing Goldman and JP Morgan to get away with billions in US tax payers money by paying them 100% on their insurance contracts with the failed insurance giant AIG).

The advise he got from Larry and Tim was not only bad for Americans out of work, it was also bad for the president's future.

What Larry and Tim advised the president to do was to go easy on the banks saying that if he did so they would start lending money, everyone would just forget about what the banks had done to cripple the economy and the who scary story could just go away.

Paul Krugman at the time wrote that this was folly. He said that the president needed to inject significantly more money directly into the real economy to create jobs not give it to the banks. Krugman also said that if the president didn't take this direct course of action that he would lose political support.

The election of Republican Brown to the seat held by the late Teddy Kennedy shows how prescient Mr. Krugman was.

"Temp Work" - Is It A Temporary or Permanent Sign?

Many media outlets have been running stories about the rise of temp work as a good sign that the economy is recovering. Is it? Let's put this into perspective.

Temp or temporary work use to be something companies used to fill occasional administrative work or to augment staff during the busy end of the year shopping season. But over the last decade and especially over the last few years companies have moved to use temp status as a way to avoid having to provide benefits and commit to workers over the long run.

With a shortage of jobs prospects, workers have been willing to take temp work (or even contract work) knowing that it did not provide security or benefits and hoping that something permanent would come around. But the unemployment rate is over 10% and is expected to stay high for years to come (see Fed Reserve chart to the right).

The fact is that after the last business expansion cycle, roughly from 2004 to 2007, companies did not hire back many workers, choosing instead to hire overseas or temp workers. And when the recession picked up momentum, companies shed workers quickly. This had the effect of weakening the balance sheet of many American families who have burned through savings and then gone deeper into debt during the same period.

The American (or any other country's) middle-class driven economy is based on a permanent employment model. Without permanent employment the economy would look more like Mexico where workers plan their consumption from pay check to pay check.

2 of the largest industrialized countries are taking a different approach:

• In Germany the Kurzarbeit program encourages companies to reduce the amount of hours their employees work rather than laying them off (read more: Merkel Says Worst Still Ahead).
• And in Japan the government is looking at curbing the alarming shift from permanent to temporary workers (read more: Japan May Limit Hiring of Temporary Workers).

These actions are in marked contrast to the approach taken by successive U.S. administrations, Democrats or Republicans. The American approach has been to provide some modest unemployment benefits and hope the private sector will start hiring again.

But as the chart above shows, the Fed Reserve doesn't expect many jobs to return even looking out to 2012 pointing to the obvious: American companies will eventually have to hire workers or constraint their own growth but they will either be overseas or will only be temp.

What should the U.S. government do to encourage hiring of permanent workers? Make business tax credits dependent on hiring and keeping on-shore workers. The proof is in the example of several southern U.S. states that have shown tax credits are attractive to luring car mfg. such as BMW and Daimler.

Outsourcing Costs Companies More Money, Say Nobel Laureates

According to the recipients of this year's Nobel Prize in economics, Boeing’s costly, overdue production of its 787 Dreamliner could have been predicted. It is due to outsourcing.

Research conducted over the years by Oliver Williamson and Elinor Ostrom is now accepted by economists as proof that employees can't be viewed as just a financial transaction. Seriously? Yes, this how Williamson and Ostrom earned the Nobel, by showing why outsourcing is not only bad for American jobs it is bad for American business.

So how do you make a decision to outsource work? According to one professor at UC Berkeley “I need to be very sure I can specify what I need in advance and wouldn’t have to ask for changes later” to make outsourcing contracts cost-effective. As anyone who has ever had to manage a project of any duration or complexity knows, that's the $100,000 question for which no one can ever be sure to have an answer. And if that's the central question on whether work should be outsourced well, American business is going to be in a world of hurt. (And you've probably already experienced it if you've ever had a complex question you've tried to ask of an overseas call center.)

BTW, it seems that Boeing's answer to the question is that it needs more control over the complex production process. So it has reversed course canceling contracts and even acquiring some of the companies that were making the jet parts.

Brother, can you spare $17/hour?

Economy watchers use to wonder if this generation of Americans would live as comfortable a middle-class life as did our parents. Forget about this generation (the answer is no) how about the generation before us? In what has yet to be acknowledged by our leaders and the mainstream media, baby boomers (defined as being between 45 and 64 years old) have seen a spectacular erosion in their lifestyle during the past decade - and it's getting worst.

The culprit you would guess is the U.S. recession. Yes that's part of the story. But the bigger contributor, the elephant in the room, is the steady shipping of jobs out of the country every year for almost 20 years.

Take the story of Joseph Paccione, chronicled in this weekend's paper. Mr. Paccione, aged 55, spent 30 years working for 2 companies as a technology specialist. A year ago he was laid off from his job at Lockheed Martin. His job search yielded only a part-time position making $17 an hour. But he still hoped it would turn into a full-time job - no luck. Mr. Paccione supports a typical American family of 5 and no one in the family has health insurance. (Side note: the debate you may have heard of between whether America needs jobs or health care first is false - American needs both.)

Let me put this into perspective. $17 per hour is $33K per year or about $45K if you factor in benefits, increasingly rare. A full-time worker with Mr. Paccione's IT skills, say in Beijing or Bangalore, costs at least $40K (fully-loaded, as accountants say, with benefits, cost of facilities, training, and recruiting) but that worker is probably younger than 35 and has no family to support. And if you were looking for someone with Mr. Paccione's managerial skill and experience he would be equivalent to the salary Mr. Paccione made at Lockheed Martin. How can I be sure? I have had to make those painful hiring decisions in my career in Silicon Valley.

If you are an employer reading this, would you seriously not consider hiring someone like Mr. Paccione, rather than sending his job offshore? (His temporary job has ended but his manager was so impressed, she is willing to give him a stellar recommendation.)

America has lost its way following the free-market, free-trade pied-pipers. If you think business voices and political leaders (who run for office using business money) have your jobs at heart when they advocate for NAFTA or free trade with Asia, I have a mortgage portfolio to sell you from Lehman Brothers.

And I'm afraid to tell you that the situation is getting worse because not only are white collar, "knowledge-worker" jobs not coming back, the surplus of wealth the middle-class built over the past 50 years is evaporating faster than the polar icecaps due to the big ticket items: energy, health care, education and housing costs. For those of us who grew up hearing stories of the depression (a rarity these days) or of immigrant sacrifices (as I have from my parents), it's time to start paying attention, thrifty days are ahead.

2 Views on the Future of the U.S. Economy

View 1:

• "There are going to be fewer stores, fewer factories, fewer financial services operations." - John E. Silvia, chief economist at Wachovia
  

• "There’s been no place to hide.” - Stuart Hoffman, chief economist at PNC Financial

View 2:

• "This country has never responded to a crisis by sitting on the sidelines and hoping for the best.” - President Obama

• "You’ve got to use this moment to retrain for jobs.”- Andrew Stettner, National Employment Law Project

These quotes, all from an NYT.com article today, clearly show the choice we have. We are at a fork in the road. The economists and financial pundits of the boom years never thought the good days would end. Now that recession winds are blowing, all that is offered is doom and gloom.

Others such as President Obama and Andrew Stettner are painting a different view. Which will you choose?

If you are wondering what today's 651,000 job loss #s means for you, it depends on your view of the world. A crisis offers opportunity to those who look for it. This is not the time to be thinking like the economists, now is the time to get retrained and benefit from the retooling that is going on in the American economy.

[chart from NYT.com]

DHL Pullout Sends Ohioans to Food Lines

The German global shipper, DHL, is shuttering the Airborne Express operations it purchased in 2003 (source: Wikipedia). The impact to the community is devastating.

The DHL and Wilmington Ohio story was profiled by 60 Minutes.

Other multinational corporations are or will be doing the same in the months ahead. Because of trade pacts such as NAFTA there are limited to no protections for workers.

Here's a quote from a former DHL worker from the 60 Minutes site:

"Most DHL employees are contracted (75-80%) Most of us didnt get sevrence [sic] packages or any help when we got laid off. We didnt get help at having and opppertunity [sic] to have some one come in and help us into another trasition [sic] to another job. We worked for years, like myself, 8+ years with no holiday pay,no insurance,abd [sic] working on a salary. Most people would ask why stay at a job with no benefits,etc?? Because we loved what we did." - Posted by needwork2 Jan 28, 2009

There is a project co-sponsored by Ohio State University and The Times-Gazette that will track the impact of this closing. To share your story contact them at: southernohiovoices@gmail.com.

[Image: Skip Peterson/Associated Press)

Will the Stimulus Bill Create Jobs?

"Technology that helps fewer people get more work done may be good for the economy in the long run, but it makes extra workers redundant."

- Saul Hansell, Bits columns, New York Times

Saul's quote is from an article he wrote on whether the money going into rural broadband building as part of the $787 billion stimulus package will create jobs.

I think the answer depends on smart industrial policy - something the U.S. does not have and is the only industrial country that does not. It was not always the case.

U.S. industrial policy at one time built the telephone system, Social Security system, interstate highway system and Internet superhighway. It is also what the U.K. recently announced as part of "Digital Britain". And what France announced in bailing out its domestic car makers. The reason the U.S. doesn't have a smart industrial policy is because of almost 3 decades of unbridled free market economics also know as Reaganomics.

Free market economics as practiced by the U.S. is now dead. It has ruined the global economy thrown millions out of work and destroyed prosperity. All hope now rests on the Obama government or more accurately on Obama himself. His job is to convince Americans that a new way must be charted. It will not be easy. He is off to a good start.

As I'm writing this blog the U.S. stock market fell in intra-day trading to the 7200 level today. That's 7,000 points off the 14,165 all time high reached on October 9, 2007. Lot's of people have made money during this fall; their names end with with "Madoff" and "Stanford".

[See chart above.]

Speculators have existed from the days of the Silk Road. But today crooks and their accomplices have caused more harm to the lives of millions of people than any natural disaster. It doesn't have to be this way.

A smart policy about how to spend the $787 billion can direct money into job creation and arrest job loss. Governments as far away as France, China and Singapore know how to do this. Surely we can too.

The stimulus money can create jobs, but it needs a smarter more well-coordinated industrial policy to accompany it.

Greenspan: Nationalize the Banks . . . US Auto Next?

“I understand that once in a hundred years this is what you do.” (Read more.)

- Alan Greenspan, former U.S. Federal Reserve Chairman

OK, read that one more time.

Folks, we have entered a new era. The problems US banks created are so big that no amount of throwing money at the problem is helping. And we're talking about a lot of money being thrown, $8.5 trillion and counting.

If we're going to nationalize the banks, then why not US car companies who are threatening to layoff 25,000 American workers? I think the French got it right in setting a zero layoff policy in return for government funds. When are American voters going to wise up?

“Renault and PSA have also committed not to close any production sites for the duration of their loan and to do whatever they can to avoid layoffs.”
- French President Nicolas Sarkozy

"Buy American" is Good for America

I use to think that the "buy American" chant was just uniformed jingoism. But I've come to see the nuance and to see that it might just be the thing to save American jobs.

Some history: I remember all through the 1980s American commentators and so-called economic experts were decrying Japanese auto makers as taking away American jobs. They had worked workers all across the country into a frenzy and in Detroit it led to the death of an Asian-American who happened to be on the wrong street that day.

Japan of course wasn't the problem. Japanese auto makers were taking what they had learned from Americans and were putting it into practice, something Americans themselves weren't doing all through the 1980s. Instead we were practicing Reganomics, now discredited except for some ultra right-wingers.

These commentators were wrong then and they are wrong now to oppose it. "Buy American" wasn't the answer to our problems back then, our lack of productivity and investment was, but "buy American" might just be the right thing today.

I'm of course taking about the "buy American" clause that is part of the economic recovery (or stimulus) package being debated in Congress right now.

What has changed is that our decades-long experiment with free trade has revealed one undeniable truth: the U.S. market is second to none and every country needs to sell to Americans to grow their own economy. Ask any non-U.S. CEO and they'll tell you that in order to be successful today, you have to sell in the U.S. Or just go look at the monthly trade imbalance; we buy more from others than we sell to them.

So why are editorial pages, such as my home town paper the "SF Chronicle" railing against the "buy American" provision in the bill? Because they represent the mouthpiece of American business and American CEOs want access to any and all markets for cheap labor and to sell services. These same CEOs aren't concerned with creating American jobs.

If our own government doesn't "buy American" goods and services then we have no hope of reversing the trend of Amercian CEOs throwing Americans out of work.

Saving U.S. Auto Makers Only Makes Sense to Save Jobs

The next version of the "big 3" U.S. auto makers' request for a Federal bailout came into view today. Here's how much each company is requesting:

• GM: $18 billion
• Ford: $9 billion
• Chrysler: $7 billion

In return what will U.S. taxpayers get?At least 30,000 lay-offs by 2012 for GM alone. That doesn't sound like a good trade-off to me.

Republicans from President Bush to Senators Richard Shelby of Alabama and Jon Kyl of Arizona have ridiculed any bailout as throwing good money after bad.

"Companies fail everyday and others take their place. I think this is a road we should not go down. They're not building the right products."

- Senator Richard Shelby.

But should families pay the price for bad management when we are in a recession and jobs are scarce? Is this not the time for government to step in? There seemed to be plenty of money to bailout Wall Street.

Democrats Harry Reid and Nancy Pelosi has been on the other side saying “we want to see a commitment to the future."

"A restructured, competitive American automobile industry will continue to play a crucial role in our national economy and in the global marketplace."

- Speaker Nancy Pelosi

If you work in the auto manufacturing or supply industry or are concerned about what bankruptcy will mean for hard working Americans, now's the time to make your voice heard. Write to your U.S. Representative or U.S. Senators and tell them that you support the use of Federal money as long as it also preserves U.S. jobs.

First time writing to the U.S. Congress? Here's a link about how to write a good letter.

Breakdown of U.S. Bailout - $8.5 Trillion

If you're wondering how big the U.S. bailout has gotten of U.S. financial institutions, you're not alone. Most media outlets could not explain it last week after the joint Treasury/Fed Reserve announcement that Citigroup would be next in line and would receive a massive $300 billion infusion from the U.S. govt.

Bloomberg news did the only analysis I've seen adding up the total already spent to $3.2 trillion of $8.5 trillion committed. How did the numbers get so big? Here's the analysis (click to enlarge):



As you can see, the much debated and approved Congressional legislation commonly known as "TARP" is only $700 billion of the $8.5 trillion available to either the Bush Administration or the Federal Reserve which is technically not accountable to either the President or Congress.

Are these numbers large? Yes, they are massive, amounting to 60% of the entire U.S. economy.

Keep this in mind next time you hear someone saying: we can't afford to bailout the auto makers and save American jobs.