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The cause of this recession? Economic pundits ignoring history’s voice | Simon Jenkins December 16, 2011

The Queen, reported the Daily Mail, was wearing a speckled cream suit and matching hat. Her Majesty was at the London School of Economics, listening to a professor, Luis Garicano, talk about the credit crunch. “It’s awful,” she said suddenly. “Why did nobody see it coming?”

For three years I have pondered the Queen’s question, and the answer. (LSE was institutionally flummoxed; a year later, it gave her a waffly reply, that “everyone thought they were doing the right thing,” and that “wishful thinking was combined with hubris”.) It resurfaced last Tuesday with the publication of the Financial Services Authority report into its own conduct of the 2008 collapse of RBS and the attendant chaos. It is like expecting the Cosa Nostra to investigate the mafia. We are all sinners, ruminated the FSA, and need forgiveness, but no one was really to blame. It is a rough old world.

Had the banking fiasco been a Russian invasion, nuclear meltdown or outbreak of plague, every expert would have faced inquisition, damning or being damned. Soldiers would have been cashiered and scientists ruined; doctors would have choked, blaming government cuts. Yet from the profession of economics and its gilded acolytes in the City, nothing but silence. The Queen’s question remains on the table, its acid quietly eating into the woodwork.

The world economy is in a mess. At such times we take refuge in familiarity and choose metaphors that fit our prejudices. Last week we either opted for the slow lane of Europe’s great future, or carefully declined a luxury berth on the Titanic. Britain was a dog slinking miserably from the top table, or walking proud into the sunset.

I prefer to seize the apron strings of history, following a series of articles in the New York Review of Books by the American Nobel economist Paul Krugman. For two years he and his colleague, Robin Wells, have been seeking to set current economic woes in the context of the past. They have studied previous crashes and distilled what was ordered at the time by such pundits as Keynes and Friedman. From the cliff of economic history, Krugman hacked nuggets of wisdom, many sane, most alarming. They should be wrapped in vellum and delivered to Buckingham Palace.

A year ago Krugman wrote up Reinhart and Rogoff’s history of financial crashes – with the ironic title, This Time Is Different. Every crash was unpredictable because everyone thought it was unlike the last one – until found in crucial respects to be the same. Then came Jeff Madrick’s The Age of Greed, with its eerie narrative of how each crash since the war had been worse than the one before and nobody noticed, and Roubini and Mihm’s Crisis Economics – with Krugman admitting “outrage fatigue” amid a crescendo of gloom.

At each turn the financial gurus assert that a recession will be temporary and “different”. Over the past two years each prediction, including from Britain’s Office for National Statistics, has been wildly optimistic. Mathematical models have proved as useless to economics as leeches and blisters once were to medicine. As Krugman notes, whatever the evil tidings, “things have turned out considerably worse … and are running fairly close to the historical norm”.

The western world is in the grip not of a blip or retrenchment, but of “the second great contraction” of modern times. It matches that of the Great Depression of the 1930s, out of which the west climbed only with the spending spree of Hitler’s war. Its roots lay in the same cause, a speculative bubble (this time in housing) linked to reckless bank lending to individuals and states. That lending concealed wide imbalances between national economies.

The fact that no remedy has seemed to work has had remarkably little impact on policy. During the Depression Milton Friedman’s call for an increase in money supply proved ineffective when that increase was merely hoarded by stricken banks. Thus pumping up the banks is exactly what the Bank of England is doing today: to the same minimal effect.

Likewise in the 1920s and 1930s governments that forced national budgets into balance through austerity saved their banks, but exacerbated stagnation and slump. Krugman accepts that deficit finance is more acceptable today than in the 30s, but it is as yet insufficient to stimulate real growth. Equally disastrous was forcing nations to sustain overvalued currencies in deference to the gold standard. Yet the EU is still trying to shackle the weaker European states to an overvalued currency.

There are lessons in smaller crashes, such as the 1982-3 boom in Latin American debt, the Swedish crash of 1991, or the 1997 downturn in the so-called Asian tiger economies. Latin America descended into depression and hyperinflation. Japan has yet to recover. Some things worked. Korea rescued itself by halving the value of its currency, leading to an export-led boom. Sweden nationalised, divided and recapitalised its banks.

Krugman holds strongly to the thesis that indebtedness is no enemy of growth, as creditworthy Britain showed for much of the 20th century. The task for government is to make the trade-off: how much credit to risk for how much growth. The argument between George Osborne and Ed Balls is old as the hills. Now that Osborne has established his bona fides on the credit front, the message of history is probably tilting Balls’s way, towards more aggressive stimulants to demand.

The question is not what history says but who is listening. The relaxation of global regulation in the 1980s arose from the influence over government of a profession that was becoming both rich and arrogant. Bankers paid lobbyists and courted politicians. Their influence is vividly narrated in Madrick’s Age of Greed, as they moved their lending into sovereign debt on the thesis that “countries don’t go out of business” and were “too big to fail”. It was a phrase they deftly applied to themselves when disaster struck.

This week Britain’s bankers likewise persuaded David Cameron that “the national interest” required a refusal to accept or even participate in a new regulatory regime, despite such a regime being palpably needed. The same lobby resisted pressure to reduce bonuses, erect Chinese walls or adopt the recent Vickers report on bank restructuring. History is clear: as long as sectional interest overrides prudence or common sense, there is another crash.

This repeats the awful lesson offered by Seymour Hersh in his book, The Target is Destroyed. Describing events after the Russians accidentally shot down a Korean airliner in 1983, Hersh accused Washington of refusing to believe its own clear intelligence that the shooting was in error. In the grip of the cold war, the most sophisticated surveillance on earth was useless because no one wanted to believe it. Reagan’s White House needed an excuse to hurl threats at Moscow. The message of economic history is similar. It can scream as loud as it likes, but if power is not listening it might as well be mute.

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Traffic deaths trended down again in 2010, says DOT December 8, 2011

Washington (CNN) — Some 32,885 people died on the nation’s roadways in 2010 — a number that, while slightly higher than preliminary figures released in April, shows the downward trend in traffic deaths is continuing, now reaching low levels not seen since 1949, the U.S. Department of Transportation reported Thursday.

The decline came despite the fact Americans drove 46 billion miles in 2010 — 1.6 percent more than the previous year.

“While we have more work to do to protect American motorists, these numbers show we’re making historic progress when it comes to improving safety on our nation’s roadways,” Transportation Secretary Ray LaHood said in a statement.

The 2010 fatality rate — which comes to 1.10 deaths per 100 million vehicle miles — was he lowest rate ever recorded, the DOT said. It is down from 1.15 deaths per 100 million vehicle miles in 2009.

Fatalities declined in most categories, including occupants of passenger cars and light trucks, a category that includes SUVs, minivans and pickups. Fatalities rose among pedestrians, motorcycle riders and large truck occupants.

Experts have attributed the change to a variety of reasons, including changes to cars — such as vehicle rollover protection — and programs to change driver behavior — such as campaigns addressing drunk driving, distracted driving and seat belt use. Laws aimed at young people also likely have had an impact, notably older minimum drinking ages and graduated drivers’ licenses. They also give credit to stricter enforcement of driving laws and drivers taking personal responsibility for their safety.

Traffic fatalities in the United States peaked in 1972, with 54,589 killed, according to the DOT. But the rise and decline of the grim number has numerous peaks and dips, influenced by direct changes such as the national speed limit and indirect causes such as recessions.

In recent history, the most notable change was a 9.7 percent plummet in deaths in 2008. In a report examining that drop, DOT officials gave credit to DOT safety programs, but also noted that the drop coincided with a recession in the economy. The recession, and high unemployment rates among the young workforce, probably had a big impact on travel among young drivers, and probably accounts for a steep decline in fatalities involving younger people, the DOT said.

Drunk driving deaths dropped 4.9 percent in 2010, taking 10,228 lives compared to 10,759 the previous year, the DOT said.


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US searches for a cultural response to economic hardship November 13, 2011

By any standards, watching Jeff Nichols’s much lauded film Take Shelter is a haunting experience. Its central character, Curtis LaForche, a working-class Midwesterner trying to hold on to his family, job and sanity in rural Ohio, is increasingly plagued by apocalyptic dreams that seem to be leaching into the real world.

The audience watches LaForche’s life and world fall apart in a film that is soaked with both supernatural imagery and the everyday American problems of losing a job and being unable to afford healthcare for your family.

The film vibrates with uncertainty and foreboding for the end of the American way of life. Critics have hailed it as as a masterpiece of the great recession and the economic crisis.

Nor is the film alone in revealing the impact of the recession on almost every cultural aspect of modern life in the new US age of anxiety. With headline jobless levels stuck at 9% – and the real figure much higher – and almost 50 million people living in poverty, no wonder there is a cultural angst. A sense of the end-times is also apparent in Rise of the Planet of the Apes and Contagion, where super-intelligent apes and killer microbes respectively are poised to wipe out mankind.

Yet doom and gloom is not the only cultural response to the recession. There is evidence of a renewed longing for the certainties of the 1950s and 1960s when – in the popular mind at least – good solid jobs were plentiful, US factories made products exported around the world and the suburban dream was one of white-picket fences, not foreclosure signs. From high-street fashion to retro trends in cocktails to the renewed popularity of facial hair for men there is a cultural longing to look back and ignore hardships. The influence of the hit show Mad Men, set in an early 1960s New York advertising agency, is almost impossible to overstate. It’s chauvinistic masculine central character, Don Draper, has become a cultural symbol. The curvaceous figure of Joan Holloway has changed modern visions of female beauty. The series’ journey into a simpler, more solid “Golden Age” is not alone. It has been followed by shows like Pan Am, which celebrates and glamorises the life of air stewardesses in the 1960s, when flying was a far cry from the crowded hell that it is nowadays. At the same time, remakes of classic old TV shows such as Mr Ed, The Man From U.N.C.L.E. and Bewitched are in the works, also harking back to simpler times.

“There is a tendency among television storytellers to look to the past when current times are tough. Audiences need to be removed from contemporary settings to provide them a way to, in a sense, relocate from reality,” said Professor Jeff McCall, a popular culture expert at DePauw University in Greencastle, Indiana.

It is not just TV shows that are seeking an escape to a happier past. The Cleveland Institute of Art is showing an exhibition called Masters of Abstraction featuring mid-century artists Robert Mangold, Julian Stanczak and Ed Mieczkowski. All painted highly abstract, often Op Art, pieces celebrated for their cheerful, bold bright colours and lack of social context. “It is completely optimistic art,” said Cleveland gallery director Bruce Checefsky. The show’s opening was a huge success with Checefksy describing it as perhaps his most popular in the last decade. He has a simple explanation. “The outlook is so grim that people are looking back to the 60s and this art when there was at least a sense of optimism. It was staggering the amount of people coming through and I think it reflected those trends,” he said.

Much of the “golden age” that is being yearned for is mythical. The 1950s and 1960s may have been a time of economic advances but it was also a period of deep sexism, homophobia and racism, all on display in Don Draper. “I am not sure Mad Men or the Draper character depict a ‘better’ time,” said Professor Dann Pierce, a communications expert at the University of Portland, Oregon. McCall agreed. “The 1960s were actually turbulent in many ways, including a cold war, the Cuban missile crisis, political assassinations, urban riots and Vietnam. It is not necessarily a time we should long to revisit,” he said.

But not every cultural reaction to hard times is escapism. Another way is to tackle the problems. Today bankers and big business are the villains in films and TV shows. Just as communists and Soviet spies were the bad guys during the cold war and terrorists were the enemy during the 1990s and 2000s, now it is the high lords of finance who are taking the cultural hits.

From Oliver Stone’s Wall Street: Money Never Sleeps, which brought back the 1980s demon figure of Gordon Gekko, to Margin Call in 2011, the finance industry’s role in the crisis is being examined and, usually, a harsh judgment is being passed. The list of films from the last couple years is long and includes The International, where the enemy is a bank, to comedies such as The Other Guys and Despicable Me where offhand jokes skewer banks and bankers even in children’s films.

Music has also got in on the act.Rappers like Young Jeezy have sung about the recession, as has Neil Young. Of course, there is precedence for all of this. The Great Depression, far worse than today’s economic woes, also had a profound impact on cultural life. Bing Crosby’s hit song Brother, Can You Spare a Dime? reflected the devastating impact of the crisis on ordinary lives, as did an explosive growth in blues music.

In literature, Steinbeck’s The Grapes of Wrath explored the hard times of the poor and out of work. At the same time there was escapism in an explosion of exuberant jazz culture and the emergence in 1938 of the figure of Superman, who no doubt symbolised both a yearning for happy simplicity and a desperate desire for an All-American hero to rescue the country.

There was also nostalgia for simpler times in the form of the immense popularity of western films and radio shows, like The Lone Ranger, in which heroes were easily identifiable, problems were solved with a quick fight and villains easily identified and eventually vanquished.

One crucial difference, however, was that during the 1930s there was a massive government sponsorship of the arts via the New Deal. Huge sums of money flowed into the pockets of jobless painters, sculptors, writers, musicians and poets in a bid to create work at a time of immense hardship. But it also was a genuine effort at encouraging, or saving, cultural expression. Organisations including the Federal Theatre Project, the Federal Writers’ Project and the Federal Music Project were all set up in the late 1930s.

The current economic tough times have no equivalent. While billions of dollars have poured into banking bailouts and help for the car industry, there has been no meaningful effort at state help for arts funding, nor is there much public appetite for one. Arts organisations struggle for money more than ever before.

“Fundraising is hard. It is even more challenging now,” said Checefsky. A recent report by the National Committee for Responsive Philanthropy found that because so much cash was now coming in from rich individuals, rather than government, it was skewed to the interests of a wealthy, white audience: mostly funding large museums, opera and symphony orchestras.

Despite the difficulty in raising cash, especially for small projects and in disadvantaged communities, the arts are flourishing. A recent survey showed that some 2.2 million Americans can now be classified as professional artists, up from 1.9 million in 1996. So, when it comes to creating art about the recession, whether via escapism or exploration or condemnation, there is no shortage of people to do it.

Cultural highlights of the thirties depression

We will have to wait to see if the US downturn produces anything to rival the cultural achievements to come out of the Great Depression.

The Grapes of Wrath

John Steinbeck’s masterful tale of the poor Joad family’s flight from dust bowl Oklahoma won a Pulitzer prize after it was published in 1939. John Ford’s film version was made just a year later and it remains an American classic.

Brother, Can You Spare a Dime?

The song was written in 1931 by Yip Harburg, a socialist whose small business went bust after the 1929 Wall Street crash. The best known version was sung by Bing Crosby and it became an anthem of the Great Depression.

Migrant mother photograph by Dorothea Lange

The grim black and white 1936 picture of stern-faced mother Florence Owens Thompson, surrounded by her children, became emblematic of the Depression’s impact on poor workers. Dorothea Lange took the picture while working for the government and documenting rural poverty.Thompson was a migrant worker.

Detroit murals by Diego Rivera

Mexican muralist genius and communist Diego Rivera was commissioned to create a series of 27 fresco panels between 1932 and 1933 in the Detroit Institute of Art. He used the opportunity to pay tribute to the industrial city’s tough working labour force and its factory landscape.

Superman

Though there were personal reasons behind the creation of the comic book hero Superman by Jerry Siegel and Joe Shuster, the cultural success of the Man of Steel played out against the Great Depression. The public longed for a saviour who was impervious to harm and with superhuman strength. First published in 1938, Superman rapidly became an all-American icon.

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New Greek PM Says Country Is at ‘Crucial Crossroads’ November 10, 2011

Greece’s newly named caretaker prime minister, Lucas Papademos, says his country is at a “crucial crossroads” and it won’t be easy to fix the huge problems facing the Greek economy.

Thursday, Greece’s feuding political leaders named Papademos, a former vice president of the European Central Bank, to be the country’s interim leader until a national election is held, likely next year. Outgoing Prime Minister George Papandreou handed him the responsibility for carrying out Greece’s hugely unpopular austerity measures demanded by its international creditors in exchange for more money to keep the country from defaulting on its debts.

Stressing stability, unity

Papademos, to be sworn in Friday, said “the course will not be easy.” But he said the country’s continued use of the euro currency is a “guarantee of monetary stability” and that Greeks “must all be optimistic about the final result” if they stay united.

The U.S.-educated economist has never run for elected office and is viewed as a non-partisan personality. Analysts say he is well-connected in European capitals.

His appointment came as the European Union voiced new concern about the continent’s economy. Economic affairs commissioner Olli Rehn said “growth has stalled in Europe” and that there is a risk of a new recession.

Risk of recession

The EU predicted economic growth in the 17-nation eurozone would amount to just five-tenths of one percent next year, plunging from an earlier 1.8 percent projection.

With the Greek selection of a new leader, the focus of the European debt crisis again turned to Italy. Italian Prime Minister Silvio Berlusconi, who has promised to step down after Parliament passes tough austerity measures, appeared Thursday to endorse the man widely seen as his replacement, leading economist Mario Monti.

Focus on Italy

A former European Union commissioner, Monti could be named to head a new government that hopes to implement Italy’s budget-cutting plan aimed at reducing the country’s $2.6 trillion debt.

German Chancellor Angela Merkel said it is important for Italy, with Europe’s third largest economy, to quickly push through its austerity measures and settle on its political leadership.

In the meantime, Italy’s borrowing costs have soared this week above 7 percent – higher than the rate that forced Greece, Ireland and Portugal to ask for bailout loans. The EU predicted that Italy’s economy will only grow by one-tenth of a percent in 2012.

Some information for this report was provided by AP, AFP and Reuters.

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Obama Brings Economic, Security Assurances on Asia-Pacific Trip November 8, 2011

President Barack Obama departs this week for Hawaii where he will host the Asia-Pacific Economic Cooperation summit, formed in 1989 to improve economic cooperation and liberalize trade among its member nations.  Mr. Obama brings economic and security assurances on his nine-day trip that also includes Australia and the East Asia Summit in Bali.

The 21 APEC leaders last gathered in the United States in 1993, when former President Bill Clinton hosted in Seattle.

The summit comes as President Barack Obama continues his efforts to jolt the U.S. economy out of recession and underscores the importance of free trade in helping to create jobs, and the challenge of competition from Asian economies, particularly China.

Ernest Bower with the Center for Strategic and International Studies says Mr. Obama will also be sending a message to Americans back home. “He has got to make the case that if we are going to move out of our economic slowdown, or recession, or whatever it is, that Asia is part of the answer, and being back on a forward foot on trade is going to be absolutely key to that,” he said.

APEC has tried for more than a decade to build a large Asia-Pacific free-trade zone.  But the United States and eight other APEC members are expected to announce a framework agreement for a smaller trade group, the Trans-Pacific Partnership.

China has voiced concerns over the trade group.  Analyst Michael Green of the Center for Strategic and International Studies. “Even though APEC is not a trade negotiating organization, it is the right framework of countries to move forward with a trans-Pacific trade architecture at a time when many in Asia are saying we should have an East Asian-only trade architecture,” he said.

Complex economic and security relationships with China, including rivalries over the South China Sea, are a backdrop to Mr. Obama’s travels.

Before APEC, top U.S. officials toured the region, including Defense Secretary Leon Panetta and Deputy Secretary of State Williams Burns. “In a complex relationship like this one, neither conflict nor cooperation is pre-ordained.  As China’s role in world affairs grows, keeping this relationship on a productive track will be a defining challenge for both sides,” he said.

Bower, of the Center for Strategic and International Studies, says U.S. security assurances to the region are a backdrop to Mr. Obama’s visit to Australia, which will allow expanded access for the U.S. military. “The U.S. security presence is very much welcomed to balance what is perceived as some recent Chinese aggression, particularly in the South China Sea, also in the Senkaku, or Diaoyu [islands] up north,” he said.

President Obama’s trip comes at a crucial time back home, as a November 23rd deadline approaches for a congressional committee to agree on $1.2 trillion in government spending cuts.

That decision, or failure to reach a compromise, will have far-reaching effects and will be watched closely by the Asia-Pacific leaders Mr. Obama meets with on his trip.

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France Unveils Tough Austerity Plan

The French government unveiled tough new austerity measures Monday as fears grow that Europe’s fiscal problems may touch new members of the 17-nation eurozone.

French Prime Minister Francois Fillon warned that billions of euros in spending cuts and tax hikes amount to some of the toughest in more than half a century, as he unveiled them on Monday.

Fillon said the word “bankruptcy” was no longer an abstract term at a press conference where he unveiled the measures. He said France’s economic, financial and social sovereignty demanded collective effort and even some sacrifices.

The plan includes raising the official retirement age to 62 by 2017 — a year earlier than expected. Other measures include raising value-added and business taxes, with an overall goal of eliminating the country’s budget deficit by 2016.

Coming six months ahead of presidential elections, the plan is likely to further erode French President Nicolas Sarkozy’s already record-low popularity ratings.

The main opposition Socialist Party was swift to criticize the cuts along with union leaders. Force Ouvriere Union leader Jean-Claude Mailly slammed the austerity plan for hurting ordinary taxpayers. What France and other European countries need isn’t more austerity, he said, but economic growth.

That sentiment is shared by analysts like Simon Tilford, chief economist at the Center for European Reform in London.

“The [French] recovery has already ground to a halt and it’s sliding back into a recession,” he said. “That is not the time that any government should be cutting spending. All that risks doing is pushing the economy further into recession.”

The austerity measures come as neighboring Italy threatens to become the latest victim of the spreading eurozone crisis.

“It’s not beyond the realms of possibility that in a few months time France could find itself in a similar position to the one in which Italy finds itself now,” said Tilford.

France’s belt tightening takes place just days after President Sarkozy presided over a G20 summit in Cannes dominated by the European debt problems — with Greece and Italy on the front lines of the crisis.

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Study: Largest U.S. group of poor kids is now Latino September 30, 2011

Los Angeles (CNN) — For the first time in U.S. history, the largest single group of poor children in any racial or ethnic category is Hispanic, according to a new survey.

Calling it “a negative milestone” in Hispanics’ explosive growth in the United States, the Pew Hispanic Center study said in 2010, 37.3% of poor children in the U.S. were Hispanic, compared with 30.5% white and 26.6% black.

The Pew analysis of new census data put the number of Hispanic children in poverty at 6.1 million in 2010.

This negative trend has emerged as the 2010 census confirmed for the first time that Hispanics are the nation’s No. 2 group, surpassing African-Americans.

Hispanics now make up 16.3% of the total American population — but in the youth demographic, Hispanic kids comprise an even bigger share — 23.1% of U.S. children are Latino, the study said.

See how Hispanics drove the growth of the white population

The study found there are 6.1 million Latino children living in poverty, and more than two-thirds of them — 4.1 million — are children of immigrant parents. Of those 4.1 million, 86% were born in America, the study said.

The remaining 2 million poor Latino children have U.S.-born parents, the study said.

Prior to the recession, more white children lived in poverty than Latino kids, but since the recession began in 2007, those positions reversed, and the number of poor Hispanic children grew by 36.3% between 2007 and 2010, or 1.6 million, the study said.

The number of white and black children in poverty also grew, but not as big, the study found.

See how the white population changed in relation to minorities

The recession hit Latino families hard: the unemployment rate among Hispanic workers is 11.1%, compared with a national rate of 9.1%, and the household wealth for Latinos fell more sharply than for white or black families between 2005 and 2009, the study said.

Food insecurity also grew among Latinos, with one-third of households facing the problem in 2008, up from 23.8% the prior year, the study said.

Leaders of programs serving the poor said Thursday their experiences match the study’s findings, which was released Wednesday.

In his twice-a-month acts of charity, Reverend Carlos Paiva has noticed the increasing number of Latino youngsters who arrive with their families at his Angelica Lutheran Church near downtown Los Angeles.

The church gives free rice, beans, potatoes, onions and fruits to needy families, he said.

“The numbers are growing,” Paiva said about Latino kids who show up at the church with their families. “The average age of the people who come here for food is 10 years old.”

Michael Flood, CEO of the Los Angeles Regional Food Bank, said his group’s recent summer lunch program for poor children saw “a lot more kids from the Latino community.”

“It worries us,” Flood said. “Given the fact that the economy hasn’t turned around, it’s a more desperate deal.”

Victor Martinez, director of programming at Bienestar, a nonprofit that runs nine health community centers in southern California for Latinos, said he was “sad and disappointed to see that my community is facing these problems.”

“Especially for the more recent immigrants, they have more limited resources to work. We have more requests to go to the food bank and housing,” Martinez said.


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Is the US already in a double-dip recession, as George Soros says? | Poll September 24, 2011

Polly Toynbee:
Ed Miliband: to dodge the rocks, be bold and speak your mind

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Worlds apart – the neighbourhoods that sum up a divided America September 18, 2011

They are barely a mile apart, separated by a few gritty streets and a thin muddy stretch of water known as the Harlem river. They are in the same city and have experienced the same recession.

But New Yorkers living in the city’s 14th and 16th congressional districts – electoral districts with populations of around 600,000 each – often occupy completely different worlds. Their lives provide a shocking example of growing inequality in America, where the rich are leaving a growing mass of the poor completely behind.

The numbers are stark enough. Last week a census report revealed that 46 million Americans live in poverty, the highest number ever recorded. At the same time, the richest 20% of Americans control 84% of the country’s wealth. Indeed, just 400 families have the same net worth as the total of the bottom 50%. America’s Gini coefficient – which measures inequality of income distribution – now nears that of Rwanda.

The Gini figure is just a number – but to walk the streets of the 14th and 16th districts is to see that story of growing inequality in terms of people living almost next to each other but separated by education, job prospects, health, race and class.

The 14th occupies a chunk of Manhattan and Queens. Not all of it is wealthy, but at its heart lies the Upper East Side, by Central Park, a neighbourhood that is home to New York‘s moneyed classes. It is here that the titans of finance, whose recklessness brought on the near collapse of the American economy, live and play. They raise their families in gigantic apartments, send their children to the best private schools and patronise the pricey bistros that dot the street corners. Old money New York has long considered the Upper East Side its natural home, viewing Central Park as its backyard and Manhattan as a private playground.

The same cannot be said of the 16th. That district spans the South Bronx. It has been occupied by waves of immigrants, now mainly Hispanics from Mexico, the Dominican Republic and Puerto Rico, plus black Americans heading out of the south or fleeing higher rents in gentrifying Harlem. It is rife with gangs, drugs and crime. Well-paid jobs are scarce.

To travel between the two districts is to go from a world of unimaginable luxury to one of fear and poverty. It takes about 10 minutes on the subway.

Felix Santiago, 51, has certainly felt the impact of the great recession on the 16th district. He arrived from Puerto Rico 30 years ago and made a home when the neighbourhood was scarred by the drug epidemic and racial troubles of the 1970s and 1980s. Now he sees it going downhill again. “If you live in this neighbourhood, you are poor. If you try to be middle class, you just can’t do it,” he said.

Santiago has tried. He works as a handyman in a local church; his daughter joined the US Marines. But he struggles as rents and food prices go up. He shook his head at the idea that America’s economy has recovered since the financial crisis. In the South Bronx, he said, it is still getting worse. “I think this year has been the real critical one. There is no work. Prices are going up. It is getting ridiculous.”

Life is definitely hard in the 16th compared with the 14th. Life expectancy is three years lower in the South Bronx than on the Upper East Side. The median household income of $23,000 (£14,500) in the 16th is barely above the official poverty level. In the South Bronx, nearly 40% of people live below the poverty line; in the 14th, the figure is less than 10%.

The murder rate is four times higher in the 16th and the number of robberies more than twice as high. There are 90 Starbucks coffee shops in the 14th. There is just one in the 16th.

Just a few blocks away from where Santiago works are some of the toughest streets in the Bronx. On one corner, even though it is barely 10am, police have a lookout post on top of a mobile crane. It looks eerily like a medieval watch tower. Nor does it stop drug dealers from plying their trade nearby, though Santiago warned that times are tough for them too. “There is no money for people to spend on drugs,” he said, blaming that for a spate of muggings as frustrated dealers turn to robbery. Local shops sell cheap clothes and corner stores accept food stamps. It would be suicide not to. The use of food stamps in the US has risen by 75% in the past four years and now covers 15% of the population.

But if you hop on the number 6 subway line and travel a few stops south to the Upper East Side, food stamps are not an issue. The streets are crowded, luxury shops sell the latest fashions and French restaurants are doing a roaring trade. There is anger at the recession here, too. Certainly Sam Durant is furious. He runs a high-end jewellery store on Madison Avenue and his trade is down as Wall Street bankers are now often paid bonuses in stocks not cash.

Durant knows where the blame lies. “People are not spending,” he said “That asshole in the White House has taken away their bonuses. He doesn’t want them to have what he doesn’t have,” he said. His disapproval of Barack Obama is fierce. “He’s the most hated president in history, did you know that?” he said.

Politics inspires worry in the South Bronx, too. But in a different way. In St Ann’s church, the Rev Martha Overall watched last week’s Republican debate in dismay, especially the attacks on government. She fears the impact that enormous government cuts are already having, let alone the sort that any Republican president might bring in. “It’s social Darwinism. It’s people being pitted against people. I also believe it is un-American. I don’t believe this country was founded on a sense of every man for himself. It was founded on community,” Overall said.

Rather than fretting over Wall Street bonuses, Overall is scared about reports that the local post office, a major employer in the area, might shut “It is also kind of a social centre here,” she said.

“Don’t walk across the park,” warned Santiago, referring to St Mary’s Park in the South Bronx. Such sentiments are rarely voiced on the Upper East Side about Central Park. Last week it was its usual haven, packed with young mothers and their children and, more frequently, with dark-skinned nannies wheeling white children around.

One young mother, who gave her name as Ally, said the recession had hit the neighbourhood. Her husband worked in finance and, while he had kept his job, things had been nerve-racking. “It’s not been easy. You don’t feel you have security and so you watch your spending,” she said.

But in general the finance industry is roaring again. Last year the ratio of wage bills to company earnings rose at 10 out of 16 major US and European banks. This year again will see bonuses worth hundreds of thousands of dollars for many and millions of dollars for the lucky few. Such payouts fuel the Upper East Side property market.

A glance at an estate agent’s display on Madison Avenue revealed a townhouse going for $26m. Prefer to rent? Another could be had for $58,000 a month. Even a modest-looking two-bedroom apartment cost $1.9m. On 75th Street, one opulent mansion has just been sold by financier Christopher Flowers for $36.5m (he had left the property empty for the past couple of years).

It is a different picture a few miles away. There are vacant properties in the Bronx, but they tend to be derelict. Yet there are links between the two neighbourhoods. Overall is one herself. She is from the Upper East Side but works with church groups in what she calls “the other congressional district”.

St Ann’s welcomes volunteers from the Upper East Side and schools operate exchange programmes. But on the whole, the people of the South Bronx pay little attention to the people of the Upper East Side and vice versa. Both are too busy with their own concerns.

Mike Manigault, 21, came here from South Carolina. He had just got a precious job at the Fat Boy Barber Shop. He was glad his year-long quest to find work had ended, even if he was just sweeping up hair. “It’s tough, but you just do what you got to do. You either quit or you keep trying,” he said.

And as for life as it’s lived on the Upper East Side? He shrugged. He has never been there.

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For Jobs, It’s War September 17, 2011

Even so, the president’s jobs bill is already being nickeled and dimed from the right — and the left — even though it is only throwing nickels and dimes at the problem to begin with. But at least it’s a start, even if a long-overdue one.

To understand just how overdue it is, one need look no further than the absolutely dreadful data issued this week by the Census Bureau about the increasing numbers of people falling into poverty. No matter how you slice it, it’s bloody.

There are now 46.2 million poor Americans.

Of those, 2.6 million fell into poverty last year.

At 15.1 percent, the poverty rate is at its highest since 1993.

Bloody, bloody, bloody.

But even those numbers somewhat obscure the true historic nature of the crisis and the effect that the recession, falling wages and chronic joblessness have had on those living in poverty. If you remove children and the elderly and just look at working-age adults — those 18 to 64 — the picture is even more bleak. The percentage of that group that is in poverty is the highest recorded since President Lyndon B. Johnson declared a “war on poverty” during his first State of the Union address in January 1964.

And it’s not that most of these people don’t have jobs. It’s that they don’t have good jobs that pay enough to push them out of poverty. Three out of four of those below the poverty line work: half have full-time jobs, a quarter work part time. Only a quarter do not work at all.

This raises an important distinction — not only do we need to create more jobs, we need to increase the number of good jobs. And we can’t see that quest for good jobs as an internal skirmish between warring political ideologies. It’s an international war. At least that is the way Jim Clifton, chairman of Gallup, frames it in his fascinating — and frightening — new book, “The Coming Jobs War.”

According to Clifton, “the coming world war is an all-out global war for good jobs.”

(He defines a good job, also known as a formal job, as one with a “paycheck from an employer and steady work that averages 30-plus hours per week.”)

In the book he makes this striking statement, drawing from all of Gallup’s data: “The primary will of the world is no longer about peace or freedom or even democracy; it is not about having a family, and it is neither about God nor about owning a home or land. The will of the world is first and foremost to have a good job. Everything else comes after that.” The only problem is that there are not enough good jobs to go around.

Clifton explains that of the world’s five billion people over 15 years old, three billion said they worked or wanted to work, but there are only 1.2 billion full-time, formal jobs. Therefore his conclusion “from reviewing Gallup’s polling on what the world is thinking on pretty much everything is that the next 30 years won’t be led by U.S. political or military force.”

“Instead,” he says, “the world will be led with economic force — a force that is primarily driven by job creation and quality G.D.P. growth.” And guess who is vying for the lead? That’s right: China.

And I must say, we don’t appear to be poised to fight this war. In education we’ve gone from leading to lagging, our infrastructure is literally crumbling around us, ever-expanding health care costs threaten to suffocate us and our politics have succumbed to paralysis.

A widely-cited 2009 study by the consulting firm McKinsey Company, “The Economic Impact of the Achievement Gap in America’s Schools,” found that the recent American educational achievement gaps — between black and Latino students and white ones; between low-income students and the rest; between low-performing states and the rest; and between the United States as a whole and better-performing countries — not only cost the economy trillions of dollars, they also “impose on the United States the economic equivalent of a permanent national recession.”

According to a recent report by the Urban Land Institute and Ernst Young, China has “about 9 percent of G.D.P. devoted to infrastructure, compared with less than 3 percent in the United States.” And the Report Card for America’s Infrastructure graded by the American Society of Civil Engineers in 2009 was so full of C’s and D’s that it looked like Rick Perry’s college transcript. The group estimated that $2.2 trillion of investment over five years was needed to bring conditions up to par. We’re not even close to that.

Furthermore, Clifton points out that 30 percent of America’s students drop out or do not graduate on time. He concludes, “If this problem isn’t fixed fast, the United States will lose the next worldwide, economic, jobs-based war because its players can’t read, write or think as well as their competitors in a game for keeps.”

And, a Rand Corporation study released last week found that “between 1999 and 2009, total spending on health care in the United States nearly doubled, from $1.3 trillion to $2.5 trillion. During the same period, the percentage of the nation’s gross domestic product devoted to health care climbed from 13.8 percent to 17.6 percent. Per person health care spending grew from $4,600 to just over $8,000 annually.”

We simply can’t sustain that sort of growth.

Clifton enumerates 10 “demands” that America will have to master to “lead the new will of the world” — from drastically increasing exports, to having investments follow “rare entrepreneurs versus the worldwide oversupply of innovation,” to something as basic as doing a better job of identifying where likely customers are. But at the top of the list is understanding that the world has a shortage of good jobs and every decision of every leader must be informed by increasing the share of those jobs.

He puts it this way:

“The war for global jobs is like World War II: a war for all the marbles. The global war for jobs determines the leader of the free world. If the United States allows China or any country or region to out-enterprise, out-job-create, out-grow its G.D.P., everything changes. This is America’s next war for everything.”

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Why Gloomy Consumers May Spend Anyway

Americans are in a foul mood.

Recent confidence readings show that consumers are as gloomy as they were at the worst moments of the recession, in late 2008 and early 2009. Those were apocalyptic times. Companies were axing jobs by the thousands. Stocks were in a nosedive. The government was launching rescue measures most people had never heard of before.

[See how to escape the middle-class squeeze.]

What’s puzzling now is that the economy, while hardly booming, is in much better shape than it was during the depths of the recession. It’s growing instead of shrinking. Layoffs have tapered off. The economy has added about 1.3 million jobs over the last year. Yet consumers seem to be losing heart. One component of the Reuters/University of Michigan survey shows that expectations for future economic conditions are at the lowest level since 1980. That was a time when inflation was about 12 percent and a sharp recession was just beginning.

So the dichotomy between consumer confidence and actual economic conditions seems perplexing—until you factor in the role played by politicians in Washington. Confidence was actually at much healthier levels until the summer, when it plunged by about 25 percent. What might have triggered that? The reckless performance by members of Congress who waited until the last second to extend Washington’s borrowing limit, threatened a default on America’s debt, and for all the huffing and puffing produced a weak deal that will reduce the national debt by far less than most experts think is necessary. Congress. Killed. Confidence.

It’s obviously dismaying that a body whose job is to look out for American interests is harming them instead. In polls by Gallup, more than 80 percent of people disapprove of the job Congress is doing, among the worst readings ever. But disgust with politicians may not mean that consumers are shutting their wallets. New Research by economist Ross DeVol of the nonprofit Milken Institute in Los Angeles finds that falling stock prices and a weak economy have been minor factors pushing confidence down, but that “most of the drop in consumer confidence was attributable to the job approval rating of Congress.”

[See why big companies are axing jobs.]

That might merely confirm what already seems obvious, but it has important implications for economic growth. Consumer-confidence levels usually help predict spending, since confidence typically reflects whether incomes are going up or down and people feel like they’ve got cash in their pockets. Since consumer spending still accounts for 70 percent of the U.S. economy, confidence levels have fairly direct implications for growth. Lately, with confidence plunging, many economists have been cutting their growth outlook. Forecasting firm IHS Global Insight, for instance, has reduced its estimate for GDP growth this year to just 1.5 percent, and to just 1.8 percent for 2012. That would be an extremely weak performance, barely keeping the economy out of recession.

But DeVol argues that confidence may now be a weaker indicator of future spending than it used to be. The huge drop in confidence over the summer, he points out, has not been followed by a proportionate plunge in spending. Retail sales in August—in the immediate aftermath of the debt-ceiling fiasco—were basically unchanged from the month before, and up about 7 percent from the same time a year earlier. Retailers had been hoping for a bigger back-to-school boost, but at least they didn’t endure the kind of wipeout that would have happened if consumers were really as dour as they were at the depths of the recession.

[See what to expect from the stagnant economy.]

If the trend continues, it means that consumers might be depressed, but their spending isn’t. DeVol predicts that consumer spending for the third quarter will rise by between 2.5 and 3 percent, which isn’t a runaway pace but isn’t recessionary, either. While there’s plenty that could go wrong, DeVol also sees some positive signs, such as record-low interest rates and a falling debt burden on the typical household. “There is room for cautious optimism,” he writes.

Since Americans now expect so little from their government, there’s also an outside chance that an “upside surprise” from Washington could lift spirits and in turn boost the economy. The congressional “supercommittee” assigned to come up with further debt-reduction measures by late November might actually do it, without another political meltdown. Mere competence in that process would be an unexpected breakthrough. Congress could even end up passing a jobs plan that jump-starts the recovery for good. Unless Congress dramatically exceeds expectations, however, skepticism looks to be a new national pastime.

Twitter: @rickjnewman

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