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A New ‘New Normal’

There has been a lot of talk in the business/financial media about a ‘New Normal’. A ‘new normal’ for low economic growth and low job growth. Washington ruling class has accepted this ‘new normal’. We don’t have to.

Is this the precursor of the ‘new normal’?

Economic growth:

Job growth:

So as this ‘new normal’ seems to be settling in - what is Washington focusing on?  The deficit. Forget that unemployment is still high. Forget that millions of people have been unemployed for over a year. Forget that food stamp usage is at an all-time high. The Washington ruling class (yes that includes both parties) would rather figure out ways to cut medicare, medicaid, food stamps, education and social security rather than address the real problems with our economy.

Don’t be fooled. The biggest problem with our economy is a lack of jobs - living wage paying jobs. There are solutions, such a Job Guarantee program, but many of these solutions require involving a political system that is broken and a ruling class that is obsessed with deficit reduction.

There are other solutions that don’t need to involve the Washington ruling class. These solutions are within our control and do require a lot of effort on our part but that’s the price for changing the status quo (change happens for a reason). These solutions can be the foundation for creating a New Economy. A New Economy that is more inclusive and productive for all people. A New Economy that is responsive to the ecological challenges that our planet faces. A New Economy that services the needs of people and not the primacy of profit and shareholder returns. We can do this.

There many examples of the New Economy solutions all across the U.S. In SF Bay Area there are a number of worker cooperatives including Arizmendi Bakery. In Cleveland there is Evergreen Cooperative Laundry and other related worker-owned cooperative businesses. In Wisconsin there is Cooperative Care of Waushara County and the Fifth Season Cooperative. In New York there is the Green Workers Cooperative and Cooperative Home Care Associates. There are ‘green shoots’ all across the U.S. But we need more.

It’s time for us to reject the ‘new normal’ accepted by the Washington ruling class and create a new ‘new normal’ for ourselves. It’s already being done. With help from friends and community members - we can do more.

Good luck.

Further suggested reading:

Vision: As the American Capitalist Economy Craters, Promising Alternatives Emerge

 

Huge Problems Still Exist

The global financial crisis caused by Wall Street that lead to the Great Recession began in U.S. housing sector. As Wall Street profits and executive bonuses recover the problems that were caused by Wall Street still remain. Doing nothing will not make the problem go away.

The housing sector is all screwed up. Policies offered so far have not matched the magnitude of the problem. We need more drastic solutions.

The two major problems in the housing sector are: 1) foreclosures and other distressed sales such as short sales; and 2) housing prices. These two problems are related.

New York Times had a story last week that indicated the magnitude of the problem: As Lenders Hold Homes in Foreclosure, Sales Are Hurt. That story, citing RealtyTrac as a source, said that banks currently own (REO) more than 872,000 homes. However, Calculated Risk, a very knowledgeable source on the housing sector, thought that RealtyTrac number was too high. However, the next day Calculated Risk cited two more very disturbing figures: 1) 2.25 million homes currently in the foreclosure process PLUS 2) 1.8 million homes that are 90 days+ delinquent on mortgage payments. These are huge numbers that will only put more downward pressure on home prices.

It’s hard to see a bottom to home prices. When you consider the huge number of foreclosures in the pipeline this bad news on home prices: U.S. Home Prices Fell 5.5% in First Quarter will be repeated for quite some time. BTW, this was the biggest decline in two years.

The foreclosures and reduced home prices are leading to huge negative equity or ‘underwater’ mortgage problems. Negative equity or ‘underwater’ mortgage is when home price/value is less than mortgage loan balance. Negative equity is also a major reason people walk away from mortgages as known as strategic default. It’s a vicious cycle, more foreclosures - lower prices - more negative equity - more foreclosures. This vicious cycle will continue to repeat itself if something is not done to break it.

One big thing that could break this vicious cycle is system-wide mortgage principal reductions. That’s right - no matter what the status of the mortgage - a certain dollar amount reduction in mortgage loan balance. Sure, Wall Street will cry that this isn’t possible and it may mean several big banks would be rendered insolvent. But hey, they caused this mess - it’s time they pay for it.

Good luck.

 

Worker Cooperatives - A Solution

High unemployment, underemployment, poverty, huge income inequality and a lack of economic mobility. Our economy isn’t working for most people. We can’t wait for policy prescriptions from politicians. We have to find solutions to our economic challenges on our own. Worker Cooperatives are one solution.

A cooperative (co-op) is a business model that is often overlooked as a tool for community economic development. It is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly-owned and democratically controlled enterprise. Users or members own, control and benefit from a cooperative.

There are several types of cooperatives:

1) Producer Cooperatives - used mainly in agriculture. Such a cooperative may buy farm inputs, equipment, and insurance, hire managers and sales people, market and advertise together, or operate storage or processing facilities or a distribution network.

2) Consumer Cooperatives - these businesses are owned and governed by people who want to buy from the co-op. People can create a cooperative to provide pretty much anything they want to buy such as groceries, electricity, telephone service, housing, healthcare, or—under the label of credit unions—financial services.

3) Retail or Purchasing Cooperatives - this type of cooperative is often called shared services cooperative and is often used by independent business owners. Best Western and ACE Hardware are examples of this type of cooperative.

4) Multi-stakeholder Cooperative - this is a hybrid of two or more of different types of cooperatives. For instance, there could a cooperative consisting of farm-growers and consumers or a cooperative between workers and consumers. This type of cooperative can be a very complex undertaking as you try to balance the interests of the different groups but benefits can be well worth the effort.

5) Worker Cooperatives - this type of cooperative is owned, controlled and managed by workers. More below.

Communities all across the country are facing significant economic challenges but we have a political system that is more determined to either preserve the status quo or take us back to the 19th Century/early 20th Century. We cannot afford to wait for solutions from our state capitols or Washington. We have to find solutions together as communities facing these economic challenges. Worker cooperatives can be one of those solutions.

Worker cooperatives are a unique (for the U.S.) form of business where the workers own, control and manage the business. Worker cooperatives still have to operate in a market economy but their objectives are not quite the same as a typical for-profit business that focuses strictly on profitability and shareholder returns. Not that those objectives are not important to (most for-profit) worker cooperatives but there is more meaning or higher objectives for worker cooperatives.

Worker cooperatives can provide jobs at living wages for workers and at the same time provide a meaningful and productive work environment - after all it’s the workers who own and manage the business.

Worker cooperatives have an attachment to the communities they operate in - after all worker/owners won’t outsource their own jobs.

Worker cooperatives provide a democratic workplace - one worker-member one vote.

No time to waste. We have to act now to find solutions to our economic challenges. We can do this - whether worker cooperatives or other forms of cooperatives. If you have any questions please feel free to ask in the comments below.

For further reading and listening:

The Rationale of Worker Co-operatives
Business Matters Interviews Worker Cooperative Organizers

Good luck.

 

 

 

Inflation

What is infation? Is it happening now? Why do current increases in food and gas prices suck?

Inflation is the continuous rise in prices over a period of time. If price levels increase 4% every month then that is inflation. If price levels increase 4% one month, 6% the next month and 8% in the following month then that is accelerating inflation. We can also have deflation where price levels actually decrease. Thing to remember is that inflation is a continuous increase in price levels.

There are is a lot of misinformation and myths circulating about inflation. We don’t have enough space or ability to keep you interested to address all of them so we will address two big points. First, price rises like we are seeing now in food and oil are NOT necessarily inflation but could become inflation if prices continue to rise over time. Second, there is myth that Fed is ‘printing money’ and causing inflation. This myth is based on a flawed theory called monetarism and BTW, the Fed isn’t printing money.

There are two sources of inflation: 1) demand side or cost-pull inflation and 2) supply side or cost-push inflation. Demand side or cost-pull inflation is when growth in economic output is outstripping the capacity of the economy so prices continue to rise as (aggregate) demand from output increases. Supply side or cost-push is when input prices, such as materials or labor, are increasing and producer in order to maintain a certain mark-up (or profit level) in prices starts to pass increase input prices to consumers/buyers. However, the issue is whether consumers/buyers will pay the higher prices or will demand just fall off. 

What we are experiencing now is food and oil price shocks or supply side shocks driven in large part by speculation in futures markets. Again the issue is whether these price shocks will translate into continuous price level increases. For this to happen there has to ‘fuel for the fire.’ One source of such fuel would be increase wages/incomes but this isn’t happening. Without the fuel of increasing wages/incomes, it will be interesting to see if producers (and particularly retailers) will be able to pass-on input price increases or will they just have to absorb them (and lower or maintain their prices).

Despite this discussion of inflation the bottomline for working class families and families on fixed income is that the current increases in food and gas prices suck. They suck because wages/incomes haven’t keep up with the cost of living. There may not be ‘fuel for the fire’ of supply side inflation.

For more on inflation check out:

Modern monetary theory and inflation – Part 1
Modern monetary theory and inflation – Part 2

Good luck.

 

‘Fierce Urgency of Now’

These words should definitely mean something when looking at the dire economic situation for poor and working class families. They do for me.

As far as I can tell it was Dr. Martin Luther King, Jr. who first used this phrase. He used many times but it was very important in two of his speeches.

I have a Dream Speech:

It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check which has come back marked “insufficient funds.” But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation. So we have come to cash this check—a check that will give us upon demand the riches of freedom and the security of justice. We have also come to this hallowed spot to remind America of the fierce urgency of now. This is no time to engage in the luxury of cooling off or to take the tranquilizing drug of gradualism. Now is the time to rise from the dark and desolate valley of segregation to the sunlit path of racial justice. Now is the time to open the doors of opportunity to all of God’s children. Now is the time to lift our nation from the quicksands of racial injustice to the solid rock of brotherhood.

Beyond Vietnam Speech:

We are now faced with the fact, my friends, that tomorrow is today. We are confronted with the fierce urgency of now. In this unfolding conundrum of life and history, there is such a thing as being too late. Procrastination is still the thief of time. Life often leaves us standing bare, naked, and dejected with a lost opportunity.

Powerful stuff. But somewhere along the way we lost that ‘fierce urgency of now’. Partly due to the “tranquilizing drug of gradualism” and down right vicious economic policies that served the interests of plutocrats. It’s time to regain this sense of urgency - economic survival of millions of families depends on it.

Last week some people were cheering the latest jobs report (for April 2011) that said the economy added 244,000 jobs. Sure it sounds good but ignored was the fact that 14 million people are still unemployed and at this pace of job growth it would take until the fall of 2016 to get back to the prerecession unemployment rate. We also like to ignore the incredible high social costs related to unemployment such as martial/relationship problems, drug/alcohol abuse, and potential physical abuse.

But the problems are not just high unemployment. There are other disturbing statistics including the fact that 44 million Americans are on food stamps and 1 in 4 renters are paying over 50% of their income in housing costs. All this when wages/incomes are stagnate but costs such housing and food and gas are going up. 

If not now, when? We should not wait for an economic apocalypse to start building the economy that we want - one that is sustainable and productive for all Americans. There are solutions and alternatives that can help us but it’s incumbent upon us to educate ourselves about these solutions and alternatives and then act.

Sure, there are fiscal policy solutions that can be implemented to help such as a Job Guarantee. But we live in a plutocracy where monied interests control policy in Washington DC and they don’t care about the economic plight of millions of Americans. Civil disobedience through mass non-violent protest may help change that but we need to do more now to help our families and communities.

We can have an economy that places people and our planet first. We can have an economy that is more sustainable and democratic. We can have this if we work together in our communities - this can be the revolution (a non-violent revolution). We don’t have to wait. This is about self-reliance and self-sufficiency for our families and communities.

Since ‘no man is an island’ - one big way that can help us achieve this better economy is through the use of cooperatives. Cooperatives can take many forms from a local credit union to grocery cooperatives to a worker-owned cooperatives and yes, even schools. This is about empowering ourselves and our communities.

We can do this. We just need the ‘fierce urgency of now’ and act.

Feel free to contact me if you’re interest in learning more about cooperatives or just ask in the comments. Good luck. 

 

 

 

 

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