The Jobless Recovery
Larry Summers and the End of the Economic Crisis
Arianna Huffington was right when she said that Larry Summers should be fired. As the top economic advisor to Barack Obama and the director of the National Economic Council, Summers is amassing an impressive record of serving corporate greed at the expense of the public good. Summers reveals himself as thoroughly disconnected from the suffering of main street America in light of his recent statements. On the December 13th edition of ABC’s This Week, Summers cheerfully explained to George Stephanopoulos that the U.S. has “walked back from the brink” following the 2008 economic collapse, and that “everyone agrees the recession is over and the question is what the pace of the [job and economic] expansion is going to be.”
Huffington, who was also a guest on This Week, reacted with scorn: “he’s the wrong man to be heading the President’s economic team. His response is so lackadaisical, no sense of urgency. This is meaningless; Larry Summers’ accelerating his forecast [on job creation] is so utterly meaningless. I don’t even know why we’re talking about it. All his [other] forecasts have been completely wrong.” Huffington’s tongue lashing was one of the few breaths of fresh air in a constant barrage of political and media propaganda that promises the end of the economic crisis is near.
Summers is technically accurate in claiming that the recession is over- if recession is defined as two consecutive quarters or more of negative growth. Data from the U.S. Bureau of Economic Analysis indicates that national changes in the value of National Gross Domestic Product for the last two quarters of 2008 were -2.7 and -5.4 percent respectively, while the figures for the first three quarters of 2009 were: -6.4, -.7, and 2.8 percent. Since the third quarter of 2009 saw limited economic growth, the U.S. economy cannot, by definition, be in a recession. What was most dishonest about Summers’ portrayal, however, is the implication that the U.S. is emerging from the economic crisis. This promise is highly suspect considering that many economists are predicting an increase in unemployment to 11 percent nationwide by next year.
Summers’ promise of economic redemption seems dubious in light of other current economic indicators, which suggest that the economy is in worse shape now than at any other point in recent decades. Unemployment still stood in November 2009 at 10 percent, a drop of a meager .2 percent from the October 2009 high of 10.2 percent. U.S. Bureau of Labor Statistics figures indicate that the November unemployment rate is more than two percent higher than it was in February 2009. Unemployment is currently higher than at any other point in the last ten years, and remains more than twice as high as it was from March of 2007 to February 2008 (when unemployment ranged from 4.4 to 4.8 percent). When put into context, the .2 percent drop in unemployment last month hardly symbolizes an end to the economic crisis. Quite the contrary, the jobless recovery is continuing in light of the high unemployment rate, accompanied by the continued profits posted by major Wall Street banks and investment firms (such profits are largely the product of the economic bailout, rather than increased lending).
If one is still inclined to take Summers seriously, consider some other numbers:
- The New York Times estimates that the job losses accompanying the 2009 recession are the most extreme the U.S. has seen in the last 35 years. The paper also reports that the most recent numbers from the Census Bureau show that the national poverty rate reached 13.2 percent in 2008, an increase from 12.5 percent in 2007, and poverty is at an all-time high over the last ten years. Although numbers are still unavailable for 2009, trends from 2008 suggest that poverty continues to be a monumental problem.
- Further analysis from the New York Times suggests that the median household income has declined by four percent from 2007 to 2008. Similarly, the percent of American adults without health insurance has increased by more than three percent over the past ten years, with approximately 50 million uninsured and another 25 million underinsured (both combined equal about 25 percent of all Americans). The economic crisis has also exacerbated the health care problem, since so many of those thrown out of their jobs lose their health insurance coverage.
- As of late 2009, nearly 10 percent of all U.S. home mortgages were either delinquent or in foreclosure, while projections suggest that up to six million families may lose their homes in the next three years if the government fails to effectively act. 2009 estimates suggest that 17 percent of all homes in the U.S., and four in ten homes sold in the last five years are underwater. End of year foreclosure rates also remain high. For the third quarter of 2009, foreclosure filings reached a total of 937,840, a 23 percent increase from a year earlier. Data for November 2009 suggests that home foreclosures did decline 8 percent from October, but remain 18 percent higher than in November 2008.
- Sadly, Obama’s plan to stabilize the housing market has fallen short up to this point. Although Obama allocated $75 billion to assist troubled homeowners avoid foreclosure, the program has not been as successful as expected. Elizabeth Warren, the head of a Congressional Oversight Panel overseeing the bailout funds, concluded this month that the Obama administration was relatively successful in stabilizing the banking system, although it failed to make similar progress in the troubled housing market. As U.S. News & World Report concluded this month: “while the Obama administration is temporarily reducing mortgage payments for a growing number of troubled borrowers, it has failed to find permanent fixes for all but a precious few. A little more than four percent - or 31,382 - of the more than 728,000 modifications underway through November have advanced from the program’s trial period to the permanent phase.”
Where does Summers fit into the larger economic crisis? Aside from his ineptitude in fostering a national recovery and his current state of denial on the state of the economy, Summers and his allies in the Obama administration (including Treasury Secretary Timothy Geithner, Chief of Staff Rahm Emanuel, and economic advisor Robert Rubin) share major responsibility for creating the economic meltdown in the first place. Summers has amassed quite a controversial record in his various public and administrative positions, as the following review demonstrates.
- Summers was pressured to step down as President of Harvard after he made sexist claims that women were less well represented in the sciences and engineering because of their intellectual inferiority. Summers’ tenure at Harvard was also marked by controversy after he fired Harvard Endowment Manager Iris Mack for blowing the whistle on the university after it became involved in dangerous derivative investments - which were a major contributor to the 2008 economic collapse, and cost Harvard nearly $1 billion in lost investments.
- Summers also became a controversial figure when it was shown that he made over $5 million in profits for the year in hedge fund investments and another $2 million from troubled Wall Street investment firms (many of which received bailout money) for various speaking engagements. The millions made by Summers from his Wall Street connections have raised many eyebrows at a time when he’s supposed to be spearheading an effort by the White House to increase transparency in the national economy and hold Wall Street accountable for its many transgressions.
- Summers enjoys other controversial ties with Wall Street firms. He was strongly criticized after it was revealed that he accepted benefits from Citigroup (one of the major banks responsible for the sub-prime/derivatives economic crisis), including free jet rides. Summers also called prominent members of Congress, requesting that they remove limits on executive pay at companies that received TARP bailout money (Citigroup was one of the companies that would benefit from the removal of the cap).
- Finally, Summers supported the 1999 bi-partisan repeal of the 1933 Glass-Steagall Act. The Congressional repeal tore down the legal separation between traditional commercial banks and riskier investment banks. This repeal was significant because it ushered in the deregulation of U.S. banks. Deregulation is cited by critics as having played a major role in fostering the current economic collapse and crisis, especially in light of Congress’s deregulation of financial derivatives with the Commodity Futures Modernization Act of 2000.
Larry Summers is merely a symptom of the much larger problem of big businesses’ dominance of government. Business elites do not merely “control” or “buy” political leaders. Increasingly, business and political elites are one and the same. Many of the most prominent members of Obama administration not only serve the business community, they are an active part of it. A recent report from the Chicago Tribune finds that “virtually all of the top Chicagoans [including Rahm Emanuel, David Axelrod, and Valerie Jarrett] serving in the West Wing had assets valued at a million dollars or more at the end of 2008.” Other administration officials also made their fortunes in corporate America. These officials - many of whom are responsible for regulating Wall Street - include: Secretary of Treasury Timothy Geithner (net worth of $1.7 million), economic advisor Robert Rubin ($130 million), Commodity Futures Trading Commission head Gary Gensler ($61.7 million), Security and Exchange Commission Chair Mary Schapiro ($41.8 million), and Chief Economist of the Economic Recovery Advisory Board Austan Goolsbee ($2.7 million), to name just a few.
More generally, the wealthy overwhelmingly dominate the presidential nomination and primary processes. A review of the 2008 presidential election shows that six of the top seven candidates who ran in the Democratic and Republican primaries - including John McCain, Rudy Giuliani, Mitt Romney, Hillary Clinton, Barack Obama, and John Edwards - were all millionaires (only Mike Huckabee wasn’t a millionaire, at least before his 2008 foray into the media punditry).
The problem of business dominance extends beyond the White House as well. As of 2003-2004, an estimated 40 percent of members of the Senate were millionaires. A 2009 study by the Center for Responsive Politics found that close to half - 44 percent of members of Congress - enjoyed assets of more than a million dollars each. Government officials are typically well represented among corporate lobbyists as well. A study by the Washington Post finds that an astounding one-half of all health industry lobbyists employed by the private sector “worked for key [Congressional] committees and lawmakers [who are] debating whether to adopt a public insurance option opposed by major industry groups.” The revolving door between government and the private economy is a major threat to the public good, as government officials serve as defenders of corporate power and are part of the same business class they’re supposed to be regulating.
The results of corporate-government incest are entirely predictable: government’s primary goal is to serve the interests of the business power elite. It is no surprise, then, that officials like Summers appear so inept in light of public demands for stronger regulation of Wall Street. They’re more interested in protecting corporate profitability and ensuring that public subsidies continue to flow from American workers to the business class. As progressive thinker John Dewey once explained: “politics is the shadow cast on society by big business.” This reality couldn’t be any starker when looking at the Obama presidency.
Anthony DiMaggio is the author of the forthcoming “When Media Goes to War” (February 2010) and “Mass Media, Mass Propaganda (2008). He teaches U.S. and Global Politics at Illinois State University, and can be reached at: firstname.lastname@example.org