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The Blue Money Report
"...contributors will only give money to challengers when they have a realistic chance of winning, and incumbents only spend a lot when they have a chance of losing"
~ Steven Levitt

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Today's Commentary: 10.17.03
Double Up and In
As baseball winds its season down, the terminology of "double up and in" comes to mind in trying to explain why this recovery has no real legs. This is a pitching strategy designed to throw the batter off balance. Fastballs hurtle at the batter high and inside causing him to lean back avoiding pitches that are just out of the strike zone but perilously close to the batter's head. This is immediately followed by a curve ball that breaks to the outside leaving the batter too far away to take a stab at a pitch as it creases the low outside corner of the plate for a strike.

We are, if unwittingly, receiving more than our share of this type of pitching. It pulls us back not once, but twice, only to dangle a financial curve ball that not only throws off whatever strategy we may have had but pre-empts future attempts at developing a good solid one.

If your attention hasn't been drawn to the strike in southern California, I will. 70,000 grocery workers have taken to the streets in this dire economic time to make known to the companies who employ them and bargain contracts as a group, that they are dissatisfied with the company's attempts to wrangle cash out of pocket to pay for health and welfare costs. Willing to sacrifice pay raises, they are unwilling to open the door to co-payments of insurance that has been historically a benefit. Non-union workers look on a wonder how they can request such a thing from their employer when many have had to chose between having coverage and going without.

The importance of this issue is not local, nor even regional. On a national level, it is the one of the many stagnating forces that will slow this recovery. Let's start with the six point plan as restated by the President in early September.

Before the Greater Kansas City Chamber of Commerce, Mr. Bush said that the economy was indeed recovering but that it was "hard to feel confidence if you're somebody looking for a job". His belief that increasing the deficit, slicing off huge tax cuts for those in the highest tax bracket, and continuing to create policies that are detrimental to those that are undermining those that are employed, have created this lack of confidence. In that same speech, Mr. Bush suggested that the job losses that have occurred during his administration would have been much worse accompanied by a deeper recession had he not reacted in the manner that he had.

While job creation is important, those that have jobs are feeling the presence of these unemployed. The unemployed meanwhile are looking at jobs that pay less than a living wage and sometimes less than the unemployment benefit. As each state grapples with their own economic difficulties, benefits have largely been extended creating a working class with little incentive to find work if the only pay available is based on a minimum wage. The current federal minimum wage of $5.15 per hour has not increased in 20 years. At the behest of small businesses, many of whom find themselves in the services sector of the economy, this wage was kept as low as possible in the attempt to grow a better bottom line.

All of us know an unemployed person. We may stay clear of them but somewhere in your extended family or living in your neighborhood is the very drag on the economy that no tax cut will aid. In fact, these people are not likely to take minimum wage employment for two reasons. Minimum wage is not full time employment and there is little chance that once the job is taken, they will ever return to a job that pays more. As Aimee S. told me in the lobby of a Starbucks just the other day, "every application wants to know what your last employer paid. If I land a job that pays the minimum", she said, "there is no chance the next employer will offer more if they can get me for less." She has been unemployed for over eighteen months, well above the national average of 18 weeks. Minimum wage, even the $8.50 being proposed in California, is not a living wage by most of our standards. And as she put it, those low wages are not attached to a forty hour a week job. She refuses to become an employed statistic if the job she does land means that she "needs to have two to break even". This is not job creation.

Recent figures point toward the fact that jobs are being created. They are just not being created fast enough to eclipse the flip side of the coin, job elimination. According to the Bureau of Labor Statistics, job creation in the last three months of 2002 fell behind those created by 100,000. Even a mediocre economist will agree that this is one of the surest signs of a struggling economic recovery. Add to that the cost cutting through job elimination and you now have the new profit center for the upcoming earning season.

But those same figures fail to point at jobs that have been eliminated during the statistical gathering during the quarter. Even Richard L. Clayton, a division chief at the Bureau of Labor Statistics admits there are flaws in the numbers. Take a high paying skilled job and eliminate it, replacing it with a lower paid job, and the numbers show no difference in employment rates. Although we know that the higher paying job was more likely to create a stronger consumer base, having a job does not, in this instance create economic strength. These understated numbers are the basis of Mr. Bush's six point program. Without the creation of good jobs, people working for less is not a sign of strength.

So the first fastball up and in is the lack of good jobs with a solid pay package that can create a living standard. The second has to do with taxes.

There are very few local and state governments that have been able to survive the last several years with their budgets intact. Cost cutting, which starts with services that many of the lower wage earners have come to expect and depend on have been slashed at not only the state level but the federal one as well. This puts increased burdens in the hands of those that are still employed. My property taxes have increased by 9% over last year and an additional payroll tax has been deducted from my withholding. This will not only creates drag the recovery but slows any long term chances that the recovery will last. This acts as negative income growth at a time when the President insists that economic conditions are improving. While tax relief should have a trickle down effect, it instead is merely a shift in who will collect.