In his State of the Union address, President Obama asked us to consider how to rebuild America’s middle class.  He talked about the need to bring manufacturing back to our shores, provide greater fairness in foreign trade, educate our workforce to compete in global markets, and train a new generation of skilled workers.

All of these are indeed critical elements in providing American workers and their families with the types of jobs that made many of our parents “solidly middle class.”   But history tells us that there was one other element in America’s transformation from a working class society to a middle class society, and it has to do with a statistic reported by the U.S. Bureau of Labor Statistics at the end of January. 

According to the Bureau, the percentage of American workers who belonged to trade unions fell to 11.3 percent last year, the lowest level since the 1930s and perhaps as far back as 1918.  Last year, of course, was when we saw unions being blasted across the country from Wisconsin to Illinois, and New Jersey.

In some cases, unions have not done themselves or their members proud by ignoring changes in the global economy or the patience that taxpayers have with the pace of public reform.  But let us not forget how unions played a critical role in the very creation of the middle class.

Let’s begin with a simple definition of two social classes.  We can define a “working class” household as one that has little income and even less economic security.  In contrast, a “middle class” household has more income, but even more importantly, a modicum of economic security.  In the 1930s, the Roosevelt Administration began the job of transforming America into a middle class society where a majority of Americans enjoyed higher wages and greater economic security.  Unemployment insurance helped workers from falling out of the middle class the moment they lost a job.  Social Security helped older workers from losing their middle class status once they retired. 

Yet it was the passage of the National Labor Relations Act (NLRA) in 1935 that expanded the middle class the most by providing a set of rules that eased the ability of workers to join unions and work collectively to improve their lot.  From just nine percent of the workforce in 1936, the proportion of America’s workers who were union members soared to more than 35 percent by the mid-1950s.  What is more, given the spread of trade unionism, many non-union employers offered wages and benefits that were close to comparable with organized workplaces – in an attempt to discourage their workers from joining a union.  Perhaps two-thirds of workers were thereby helped by the organizing drives of the 1930s, 1940s and 1950s even if half of them never paid a dollar in dues.

The big breakthrough in building America’s middle class came right after World War II when new union contracts were forged in the nation’s major industries.  These new contracts had six provisions that would make it possible for workers of modest skill to join the ranks of the middle class along with those who had the benefit of a higher education.  The first provision provided blue collar America a middle class wage:

AIF/COLA Clause – The annual improvement factor and cost of living escalator gave workers a wage increase each year consistent with productivity growth and protected their wages from the erosion of inflation. 

 

The next five provided workers with a modicum of job and income security:

 

Fringe Benefits – Health insurance, life insurance, pensions

Seniority – Layoffs, recalls, and transfers based on years of work on the job

Grievance Procedure – A formal process for adjudicating workers’ rights at work

Work Rules – A formal set of guidelines that protected workers on the job

Union Shop Provision – A guarantee that workers would have union representation

The modern collective bargaining agreement that grew out of these principals and provisions transformed American workplaces into middle class establishments.

Times change and the spread of unionism began to wane.  Imports and the introduction of new technologies reduced the need for less-skilled workers and the ranks of organized labor dwindled.

Whether a new form of unionism can replace the old, consistent with the exigencies of a global economy and whether additional worker protections like universal health care insurance can recreate the basis for rebuilding America’s middle class is an open question.

But without making it possible for the majority of American households to once again enjoy the benefits of rising incomes and greater job security, it is hard to see how we can rebuild America’s middle class.

As we enter 2013, the latest news on the housing front is encouraging.  This past year sales of single-family homes in Greater Boston rebounded for the first time in seven years.  Condo sales are up as well, nearly 30 percent over 2011 levels. And with mortgage rates remaining at historic lows, this coming year could see more of the same.

But the big story in housing is the dawning of a seismic shift in the region’s population and with it, a dramatic change in what kinds of housing people will want and where they are going to want it.  It’s all about the greying of the baby-boom generation and the coming of age of the “millenials.”

Between 2010 and 2020, the population of Massachusetts is projected to grow by roughly 200,000 or about 3.1 percent.  But as the figure below demonstrates, the age structure of the population is going to change dramatically.  The number of young “prime age” individuals, aged 25-34, is expected to grow by about 91,000.  These are the millenials who were 15 to 24 years old in 2010.

The number of older prime age population – those aged 35-54 – will actually decline by a whopping 220,000.  These folks represent the aging of the “baby bust” generation. 

The fastest growth in the population will occur among us geezers – those of us in the huge baby boom generation born between 1946 and 1964.  There will be over 250,000 more households headed by someone 65 or older.

This demographic shift will affect housing demand dramatically in Massachusetts and especially Greater Boston.  Many of us older folks will wish to “age in place” where we have lived for decades but move from the suburban three and four bedroom homes where we raised our families to apartment and condo developments that are right-sized for us, allow us to use our cars less to go to Starbucks or the grocery store, and have plenty of amenities – especially elevators. 

What we know about the millenials is that they are starting families later, want to live near work, hate to commute, and love to live in places where they can easily walk or bike to the same Starbucks we like to visit.  We also know they have suffered from this Great Recession more than anyone else.  Their incomes have fallen, their college debt has soared, they tend to be geographically mobile, and many will have trouble qualifying for mortgages.  Rental housing will appeal to them while others will have the dough and the desire to purchase a condo.  Few are going to opt for the suburban home on a large lot.

Those “disappearing” from the scene are older prime age families aged 35-54 who have historically chosen to raise their children in large-lot single-family homes in the suburbs and have been willing to sit in their cars for hours on Rte 3, Rte 2, the Pike, and I-93 commuting back and forth to work in order to do so.  (As they sit in that traffic with a good deal of time to contemplate, many are coming to the unsettling realization that each year they are spending a larger proportion of the time they have left on earth in traffic jams – and wondering whether this is the best use of their remaining time!) 

So what does this mean for housing in the Commonwealth and especially in Greater Boston between now and 2020?

The market supply of existing traditional suburban single family homes is going to expand as baby-boomers sell these units and move into smaller places.  At the same time, market demand for larger homes is going to weaken as the number of older prime age households -- those who have opted for this housing in the past -- declines. That means traditional suburban home prices are going to continue to stagnate.  At current rates, they may not return to their 2005 peak until sometime early in the 2030s.

Simultaneously, the demand for multifamily apartments and condos is going to soar as young millenials at one end of the age spectrum and aging baby boomers at the other both search for smaller housing units in village and town centers and some in the central city where there are close-by amenities and access to mass transit.  Unless we build a lot more of this type of housing, condo prices and rents are going to skyrocket.

And here is the rub.  Over the years, many of the suburban communities around Boston have enacted zoning that severely restricts the ability of developers to construct multifamily housing in village and town centers.  Some of this stems from the fear that people “unlike” those living currently in their communities will move in to take advantage of more affordable housing in these developments.

But the demographic shift means that these communities are zoning not against “those” people, but against their own residents, many of whom have lived in their communities for decades -- the community’s aging baby boomers and their millennial kids. 

Unless these communities are ready to jettison their long-term residents, they need to get on with the task of rezoning sections of their communities for smart growth, transit-oriented, village and town centered, multifamily housing.   If they are wise, they will use the state’s Chapter 40R program which will not only encourage developers to construct precisely this type of housing, but the communities themselves can get an extra dollop of local aid in the bargain which they can use to help keep their municipalities from going bankrupt.  

 

 

 

As we approach the “fiscal cliff” President Obama is adamant about raising tax rates on high income families to help reduce the deficit.  House Speaker John Boehner now says Republicans are willing to consider some form of higher tax revenue as part of the solution – but only “under the right conditions.”  Lower tax rates for all families, both rich and poor, is one one of them.  If the Republicans were to reconsider this position, the President and the Congress could pull off a pretty neat trick – simultaneously reducing the deficit and stimulating the economy.

 

How could this possibly work?

 

Right now, the main reason why economic growth is so sluggish is a lack of consumer spending.  If we want to increase demand for goods and services, we need to put money in the hands of spenders, not savers.  Savers are good for investment, but savings are not our current problem.  Businesses are sitting on the sidelines with something like $2 trillion in cash which they could use for investment.  They are not investing because in the current economy they fear there is not enough consumer demand to purchase the output this investment would produce.

 

Right now the nation needs consumers.  So who consumes and who saves?  This is well-known.   In general, savers are rich people.  A family in the top 1% of all earners (those with incomes in excess of $569,000) spends only about 49 cents out of every additional dollar while those in the top 5% spend 63 cents out of every dollar.  The rest goes into savings accounts, the stock market, and hedge funds – which in the short run create virtually no jobs.

 

What about everyone else?  Four-person families in the lowest quintile of incomes – the poorest 20 percent -- earning up to $45,200 a year spend 99 cents out of every additional dollar.   Families in the second quintile ($45,201 - $69,800) spend 91 cents while those in the middle quintile (earning up to $100,200) spend 89 cents.

 

A major reason why economic growth has been so slow over the past decade is that an enormously disproportionate amount of income flowed to the richest families in the country who saved much of their gains.  Between 2002 and 2007, 87 percent of the increase in personal income went to the wealthiest 10 percent of all Americans.  Thirteen percent went to everyone else.  Even spending every dollar of the little additional income they earned, total consumption by the bottom three quintiles of the economy was insufficient to grow the economy fast enough or create enough jobs.

 

This suggests a straightforward way to grow the economy faster while reducing the federal deficit and not add to government spending.  The math is pretty simple.  If we transfer $1,000 from a rich household in the top 1% of the income distribution to a family in the first quintile, consumption falls by $490 for the rich household, but spending goes up by $990 for the low income family for a net increase in consumption of $500.  Transferring $1,000 from that rich household to a family in the second quintile increases consumption by $420.  A transfer to a middle quintile family boosts spending by $400.

 

So here’s the deal the White House should offer Boehner to help avoid the fiscal cliff.

 

(1)    President Obama and the Congress should agree to temporarily raise the maximum marginal tax rate for those in the top 5 percent of all earners from 35 percent to 50 percent.  This would be equal to the maximum rate in 1985 when Ronald Reagan was in the White House.

 

(2)   Half of all the additional revenue garnered from this increase in the top tax bracket should be set aside to reduce the size of the federal deficit.

 

(3)   The other half should be transferred as immediate tax rebates to households in the bottom three income quintiles.  Nearly 93 percent of these dollars will go into the spending stream.

 

(4)   This increase in the maximum tax rate on the richest families in the nation and the tax rebates for most others should remain in effect until the unemployment rate falls below 6 percent.  Cutting the higher marginal tax rates on the wealthy when the economy is booming again will shift incomes to high savers who will help spur investment when new production capacity will be needed.

 

This plan could be part of a larger Grand Bargain that includes additional methods for reducing government expenditures and raising more revenue.

 

The beauty of this plan from a liberal perspective is that it provides a major new stimulus to the economy without increasing the federal deficit.  The beauty of this plan from a conservative perspective is that it entails no new government spending out of the increased tax revenue.

 

Unfortunately, Mr. Boehner and his allies are so ideologically opposed to taxes that they will likely refuse to consider such a plan no matter how well it might work to help reduce the deficit and expand economic growth, ironically the two issues at the very center of their own standard bearer’s recent campaign for the Presidency.

In 1965, according to a national Gallup Poll, 35 percent of Americans considered "big government" to be the biggest threat to the country in the future. Slightly fewer (29%) named "big business" as the biggest threat while just 17 percent put this onus on "big labor." This was the era of Lyndon Johnson and the federal government's massive "War on Poverty."

By 1983, fully 50 percent of those polled listed big government as the biggest threat with only 20 percent naming either business or labor. This was the era of Ronald Reagan and the mantra "Get the Government off my back." By 2001, at the beginning of George W. Bush's presidency and "compassionate conservatism," the Gallup poll revealed that two-thirds (65%) of Americans were most worried about big government. By contrast, less than a quarter (24%) feared big business and only 8 percent now worried about big labor.

Last year, in the third year of the Obama presidency, Gallup asked the same question and the results were largely unchanged from 2001. Two-thirds -- 64 percent – still believed government posed the greatest threat to the future of the country. Despite the Great Recession, brought on in large measure as a result of the financial shenanigans of some of the largest banking businesses ever assembled on earth, only 26 percent of Americans believed business was the greatest threat to the country’s future.

Why the continued distrust and fear of government? It is mainly due to "asymmetrical information" and the lack of a serious education campaign about what government actually does for every last one of us every single day. Essentially, we take for granted what local, state, and federal agencies take care of as a matter of course and rarely consider that the stop light at the next corner was put there and maintained by a local government agency, that our safe drinking water was provided for and guaranteed by a multi-billion dollar state government investment, and that our life expectancy has increased by nearly ten years since the end of World War II mainly due to medical research funded by an array of federal programs.

A good experiment you might try is to keep track of all the things government does for you during a single 24-hour period. Even before you wake up on that day, a government inspector has assured you that your bedroom mattress will not cause you harm. Within the first hour, you will have clean water for your shower, sewers for your waste, and cornflakes for your breakfast that are not only safe but delivered to you along federal interstate highways, state roads, and local streets. And that’s all before 9:00 AM.

During the day, the federal government alone (not counting what state and local governments are doing) is working in the background on an enormous array of programs that benefit us in countless ways. For the sake of brevity, here is a short list of federal programs by function:

Provide for the National Defense

• Army, Navy, Air Force, , Marine Corps, Coast Guard


• National Guard


• Special Forces


• CIA


• Missile Defense Agency (MDA)


• State Department


• Agency for International Development (USAID)


• Arms Control and International Security


• Defense Advanced Research Projects Agency (DARPA)


• Helsinki Commission (Commission on Security and Cooperation in Europe)


• National Aeronautics and Space Administration (NASA)


• National Security Council

Assist the Private Economy

• Establish Rules for Private Property


• Copyright Office


• Patent Office


• Adjudicate property disputes


• Commerce Department


• Federal Reserve System


• Bureau of the Engraving and Printing (Money)


• Antitrust Division


• Federal Trade Commission (FTC)


• Bankruptcy Courts


• Court of Federal Claims


• Economic Development Administration


• Export-Import Bank of the United States


• Farm Credit Administration


• Federal Deposit Insurance Corporation (FDIC)


• Federal National Mortgage Association (Fannie Mae)


• Federal Home Loan Mortgage Corporation (Freddie Mac)


• Government National Mortgage Association


• Federal Housing Finance Agency


• Federal Mediation and Conciliation Service

Provide for Basic Infrastructure

• Federal Highway Administration


• Federal Aviation Administration (FAA)


• Federal Railroad Administration


• Federal Transit Administration


• Maritime Administration


• AMTRAK


• Railway Stations


• Local Mass Transit


• Commuter Rail


• U.S. Postal Service


• Federal Communications Commission (FCC)


• Army Corps of Engineers


• Bonneville Power Administration


• Federal Maritime Commission

Enhance Education and Culture

• Office of Elementary and Secondary Education


• Employment and Training Administration


• Vocational Training Programs


• Employment Services


• Commission on Fine Arts


• Holocaust Memorial Museum


• John F. Kennedy Center for the Performing Arts


• Library of Congress


• National Science Foundation

Provide for Health

• National Institutes of Health (NIH)


• Agency for Healthcare Research and Quality (AHRQ)


• Animal and Plant Health Inspection Service


• Center for Food Safety and Applied Nutrition


• Centers for Disease Control and Prevention (CDC)


• Centers for Medicare & Medicaid Services (CMS)


• Food and Drug Administration (FDA)


• Food Safety and Inspection Service


• Healthy Homes and Lead Hazard Control Office


• Indian Health Service


• Nuclear Regulatory Commission

Protect the Natural Environment

• Environmental Protection Agency


• National Parks


• National Forests


• Bureau of Land Management (BLM)


• Bureau of Reclamation


• Fish and Wildlife Service


• Forest Service


• Migratory Bird Conservation Commission

Provide Information to Citizens

• Food and Drug Administration


• Vehicle Safety Information


• Vehicle Efficiency Data


• Agricultural Research Service


• Agriculture Department


• Bureau of Consumer Financial Protection


• Bureau of Economic Analysis (BEA)


• Bureau of Labor Statistics


• Bureau of the Census


• Bureau of Transportation Statistics


• Congressional Budget Office (CBO)


• Consumer Financial Protection Bureau


• Consumer Product Safety Commission (CPSC)


• Government Accountability Office (GAO)


• Government Printing Office (GPO)


• Legal Services Corporation


• National Weather Service (NOAA)

Provide for Domestic Security

• Federal Bureau of Investigation (FBI)


• Federal Bureau of Prisons


• Courts


• Jails


• Prisons


• Alcohol, Tobacco, Firearms, and Explosives Bureau


• Bureau of Prisons


• Civilian Radioactive Waste Management


• Federal Emergency Management Agency (FEMA)


• Federal Law Enforcement Training Center


• Federal Mine Safety and Health Review Commission


• Federal Motor Carrier Safety Administration (FMCSA)


• Federal Marshals Service


• Mine Safety and Health Administration


• National Highway Traffic Safety Administration (NHTSA)

This is just for starters. Which would you want to see disappear?

On the other hand, one firefighter receiving disability pay while he works out to win a body-building contest gets our dander up … as it should. So does one local public housing agency director who is on the take. But too many of us – if Gallup is right, two-thirds of us -- then take such few idiosyncratic cases of bad behavior as though they were commonplace and blame "big government" for threatening our future. One piece of bad news is more powerful to our thinking about government than thousands of unnoticed, but absolutely critical, services conveyed to us silently and continuously by hundreds of government programs, most of which we couldn’t name if asked to do so.

We need to stop and think about what government actually provides for us before we follow the path to radically downsize government. To be sure, many government programs, like most businesses, can become more effective and efficient – but you would be hard pressed to find enough "waste and abuse" in government to permit major cuts in programs before decimating programs we all take for granted and would have trouble living without. We hate government, but can you imagine how much we will miss it once it's gone?

FULL ENTRY

The Federal Reserve Bank of Boston has been blessed with extraordinary leadership since the 1960s, if not longer.  Eric Rosengren has continued that tradition since he became president of the bank in 2007.  Now he is speaking out calmly and intelligently about the state of the economy and the need for his Federal Reserve colleagues in Washington to take greater action to accelerate economic growth.  With the domestic economy’s annual growth rate slowing to 1.5 percent this past spring, the national unemployment rate rising to 8.3 percent, and Europe’s economy on the brink of another deep recession, Rosengren is urging the Fed to keep interest rates low by aggressively buying up bonds – possibly trillions of dollars of them. 

 

In particular, the Boston Fed President would like to see the Fed buy mortgage securities in order to lower home loan rates further.  This would make it possible for more households to refinance their mortgages at lower rates, leaving them with additional money each month to purchase other goods and services.  It would also encourage renter households with good credit ratings to purchase homes, encouraging more housing construction.  Lower interest rates would likewise help families pay off credit card debt.  Interest rates are already at an all-time low, but driving them down further could spur at least a bit more investment activity.

 

If all of this were to happen, increased demand for all kinds of products and services could spur growth and the low interest rates would reassure businesses that they once again could think about investing in new productive capacity and hiring additional workers.

 

Mr. Rosengren’s call for such aggressive, proactive federal reserve bank policy is right on target because there are few options left and this is no ordinary time nor are we in a period of ordinary politics.  Historically, at least since the Great Depression, the U.S. and most developed countries have relied on two types of public policies to stimulate the economy when growth slows and unemployment lines lengthen.  The first is fiscal policy and it involves the federal government spending more or taxing less (or both) in order to create jobs through government contracts and grants or provide consumers with tax relief so they can purchase more goods and services – thus generating more employment.   Indeed, this type of fiscal policy adds to the national deficit, but in times of high and rising unemployment it is appropriate to do so in order to keep the economy from sinking even further into recession.  Once the economy is running at full throttle, it is appropriate to reverse fiscal policy and run surpluses that reduce these deficits.  That is precisely what was done in President Bill Clinton’s second term.  Through their power to tax and spend, the White House and the Congress are in charge of fiscal policy.

 

The second means of stimulating a weak or weakening economy is monetary policy. The Federal Reserve Board is the sole actor here.   When the Fed buys bonds from the public, it drives down interest rates and puts cash back into the economy.

 

In normal times when there are just minor perturbations in the economy, we can rely on a modest dose of fiscal policy to tap one accelerator or a modest dose of monetary policy to tap on the other.  If inflation begins to increase because the economy overheats, fiscal policy or monetary policy can be used to bring it under control by slowing spending, raising taxes, or raising interest rates. 

 

In more dire times when the economy is plummeting into recession, it has been good practice to have fiscal policy and monetary policy both at work more aggressively – essentially having the White House, the Congress, and the Fed all hitting the accelerator until the private sector engine begins to surge and the public sector can let up on the gas pedal.

 

Right now is one of those times when we need those who control the fiscal side and those who manage monetary policy to work in tandem.  And with interest rates already low, the fiscal side could pack a lot more punch.  But just when we need it most, we are on the verge of abandoning fiscal policy altogether.  Instead of using fiscal policy to stimulate the economy, Washington has decided to use it to reduce federal deficits.  Already, a slowdown in spending by Congress (and by state and local governments which must balance their books on less revenue) amounts to tapping the brakes rather than the accelerator.  Now if sequestration goes into effect in early 2013, billions of dollars more will be cut from federal budgets immediately and $1.2 trillion soon after.  Instead of just stepping on the brakes, Washington will be stomping on them without the benefit of the anti-lock brakes on your automobile.  Slamming on the brakes will almost surely throw the economy into a violent skid.  Watch out for the ditch.  Already there are reports that firms fearing sequestration are holding back from hiring new workers and some are planning layoffs.   

 

This is why Mr. Rosengren’s pleading for Fed action is right on the money.  Without fiscal policy and with the possibility of sequestration, all the work of spurring the economy now falls on the Fed.  It must take prudent action.  If the Fed does not act, essentially no one will.   During the 1930s, New Deal fiscal policies saved the economy from even greater disaster when the monetary authorities were too timid.  Today, with fiscal policy abandoned, the only hope might be that the monetary authorities in Washington listen to the leader of their Boston office.

 

As a general rule, you will do much better taking advice from a used car salesman or, for that matter, a fortune teller than an economist.  Economists, on the whole, are much better when it comes to arguing abstract theory about the past or the future than providing even the most mundane concrete advice about the present.  My wife, with her training in psychology and survey research, has a much better track record than I when it comes to buying almost anything or investing in the stock market. 

Yet at the risk of actually giving out some advice, for whatever it is worth, let me suggest that if you are going to be in the market to buy a home sometime in the near future and can afford to buy one now, there may be no better time to do so than this summer.  There are a lot of reasons for listening this one time to a card-carrying economist.

The first is that after nearly six years, home prices in Greater Boston have finally stabilized.  While there is still some risk that home prices could fall further, data for the past six months suggest that home prices have hit bottom in most communities and are on the verge of beginning to rise.  Buying at the bottom of the market makes sense and this finally looks like a bottom.

The second is that mortgage rates are ridiculously low.  If you are creditworthy, you can find a mortgage that carries an interest rate of less than 4 percent.  That is lower than anytime this century and may be lower than any time in the past fifty years or more.  It is hard to believe that interest rates could get any lower and they are likely to rise later this year or next.   When it comes to paying for a home, the mortgage rate can be as important as the price.

The third reason is that, unlike home prices, rents in Greater Boston are at an all-time high and could go higher.  This is the consequence of three factors.  The first is that many young homeowners are sitting on the sidelines either anxious about home prices or so in debt because of college loans that they cannot afford a mortgage.  The second is that an unfortunately large number of families have faced foreclosure and they have moved from homeownership into the rental market.  And the third is that over the past decade the graduate student population of our universities has exploded, putting greater pressure on the rental market as students come to Boston to attend school.  The upshot is that for some households, the monthly cost of renting might not be much higher than homeownership and perhaps less. 

There is one problem, however, that you may encounter if you take my advice.   If you want to buy in a community with excellent schools, you may find there is little inventory available.  This is just another indication of how strong a “buyers’ market” we have.   At any given time, a market can be more favorable to the buyer or more favorable to the seller.  A glut of housing (or cars or Red Sox tickets, for that matter) usually favors the buyer.  A shortage of housing but in the context of strong demand favors the seller.  Right now, sellers who can wait to sell are sitting on the sidelines waiting for property values to increase.  Why sell now if you can wait six months and get $60,000 more for your home?  

As such, we have a buyer’s market but not a glut of attractive properties.  What that means is that you should get into the market now and be prepared to spend some time before that ideal home comes along at a price you can still afford.  I’m not sure my wife agrees with me on this, but I am afraid to ask.

Good luck!

The latest news on the employment front is not good.  Indeed, it is terrible.  Last month, employers nationwide added a total of just 80,000 to their payrolls.  Back in January of this year, 275,000 jobs were created, a strong enough performance to reduce the national unemployment rate from 8.5 to 8.3 percent in a single month.  If we could have kept that pace up for just five months, we would have shaved the unemployment rate by a full point.  By the November election, we might have faced a jobless rate of “just” 6.5 to 7.0 percent.   President Obama would have been seen as something of an economic magician, boosting his chances of reelection immensely.

Unfortunately, June marked the sixth month in a row that employment growth has been deteriorating.  As such the official unemployment rate remains stuck at 8.2 percent.  Unless a miracle comes along to create about 200,000 jobs a month to offset labor force and productivity growth, the unemployment rate will not fall much below this level.  Essentially, private employers have stopped hiring and the public sector continues to lay workers off.  Sluggish consumer demand explains part of this.  A weakening European economy explains still another.  And while I am not one for conspiracy theories, it just may be true that some employers could justify adding new employees now, but are holding off new hiring until after the election hoping that miserable economic conditions will help jettison Democrats from the White House and the Congress.

The fact is this recession is unlike any one we have experienced over the past century with the possible exception of the Great Depression of the 1930s.  A few statistics and a simple chart demonstrates why.

The current “Great Recession” is the eighth official recession since 1960.  The job loss during this recession was enormous relative to each of the others as the following table demonstrates.  Between January 2008 and February 2010, total non-farm employment plummeted by nearly 8.8 million jobs.  This was more than three times the loss in any of the previous recessions in terms of the number of jobs lost and more than twice the rate.   Before employment began to recover, the nation had a total of 6.4 percent fewer jobs than before the recession began. 

 

Recession Period	Jobs Lost	Jobs Lost as % of Total
1960-1961	1,256,000	-2.3%
1970	1,044,000	-1.5%
1974-1975	2,115,000	-2.7%
1980	1,159,000	-1.3%
1981-1982	2,838,000	-3.1%
1990-1992	1,571,000	-1.4%
2001-2003	2,709,000	-2.0%
2008-2010	8,779,000	-6.4%

 

But what is really frightening about the current state of affairs is that the recovery has stalled in a fashion that makes even these numbers look relatively benign.  By May of this year, only 43 percent of the lost jobs had been recovered.   In the previous recessions, as the following chart reveals, it took no more than eight months to recover this share of the job loss.  This time around it has taken fifty-one (51) months.  In this sense, this weak economy is between six and twenty-five times worse than earlier recessions!  (The dates in the chart refer to the period in which the total number of jobs was contracting.)

There are several reasons that might explain this.  First, of course, is that this recession was so much more severe than all the earlier ones.  Snapping back from a recession that claims just 1.3 to 3.1 percent job loss is a lot easier than one where 6.4 percent of the jobs disappeared.  A second reason is that all of the previous recessions were “normal” in the sense that they amounted to corrections in a regular business cycle when inventories of unsold goods rose faster than consumption and as a consequence employers slowed down production to bring inventories into line with demand.  This time around the proximate cause was not a “normal” inventory build-up, but an irrational speculative boom in housing, a massive credit card spending bubble, and ridiculously risky banking practices that could never be sustained.  Instead of a little bubble bursting, a gargantuan one did.

Yet there is still a political dimension to this recession that marks this one apart from all the others.  In past recessions, Democrats and Republicans came together to forge a coherent fiscal policy response to bad economic times.  The consensus was similar to the near universal support given to the President in times of war or a foreign policy crisis.  In the 1960-1961 recession, President Kennedy and Republicans in Congress agreed on short-term tax cuts for working Americans to prop up consumer spending.  In subsequent recessions, members of both parties forged a combination of short-term tax cuts and sharp increases in federal spending -- in defense and in social programs -- to shorten the time it took to regain lost jobs.

This time around, Republicans in the Congress have made it clear that they – perhaps like some employers -- do not desire a faster solution to reduce joblessness in the hopes of securing electoral victories in November.  By putting partisanship and conservative ideology ahead of a coherent and rational attack on unemployment, millions and millions of American families will suffer for years to come.

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Nearly three years ago, the Boston Globe published an OpEd I had written about public sector unions.  In that piece, I asked whether these unions would suffer the same fate of lost membership and diminished political clout to which my old union, the UAW, had succumbed. What happened in Wisconsin, San Diego, and San Jose last week seems to make that 2009 article more prescient than ever.  Yet there is a now chance for organized labor to win back some popular support in Massachusetts if it follows the lead of the Massachusetts Teachers Association (MTA).  The Teachers Union has just banded together with Stand for Children to push for groundbreaking state legislation that will help make teacher performance rather than strict seniority the means by which teachers are assigned to schools. 

Let me explain what has happened and why this could signal a new era for public unions in the Commonwealth.

When I was a summer replacement worker on a Ford assembly line in the mid-1960s, the UAW had 1.5 million members and was widely respected for its efforts not only on behalf of its own ranks, but workers everywhere.  As such, it had widespread political support. 

By 2009, however, UAW membership had slipped to fewer than 465,000 as the auto industry collapsed.   I noted that most of its demise was due to the “extraordinary blunders made by the auto companies” themselves.  But the union was partly to blame.  “It failed to press the auto companies to build high quality, innovative cars that could compete with imports.  Often it insisted on job classifications and work rules that undermined efficiency and compromised the industry’s competitiveness.”

I asked back then, “Will public sector unions follow the same path?”   I equated the UAW and the auto industry’s disregard of their customers’ demands for competitively priced, higher quality, more fuel efficient cars with the apparent disregard of public unions for reforms that could improve the quality of public services.  Too often, union leaders seemed to flaunt their political power at the expense of building popular support for their cause.

What I feared back then is coming true.  Antagonism toward public unions is exploding.  Governor Scott Walker’s victory in Wisconsin provides the exclamation point to the growing movement to weaken or destroy public sector unions in the U.S.  Sensing a growing wariness of unions, Mitt Romney’s attacks on organized labor have become ever more intense and shrill.  Even before Walker’s victory, the Wisconsin outlawing of the automatic withholding of union dues that led to the recall campaign was taking its toll.  According to the Wall Street Journal, one-third of the Wisconsin members of the American Federation of Teachers stopped paying union dues.  Membership in Wisconsin’s American Federation of State, County, and Municipal Employees (AFSCME) shrank by more than 34,000. 

Wisconsin is hardly alone.  Last week, voters in San Diego and San Jose overwhelmingly approved ballot measures to roll back municipal pensions.   One suspects that this anti-union movement will spread across the country, especially given the continuing fiscal crises faced by cities and towns nearly everywhere.  As communities face the choice of honoring union contracts versus providing basic public services, one can imagine an increasing chorus arguing the case against the unions and fewer and fewer standing up for them. 

In the long run, this would be bad for workers everywhere especially in a period of falling wages amidst a rising Plutocracy.  Unions have not outlived their usefulness in theory, but their tactics have often undermined their own goals in practice. 

Fortunately, there is at least one union in Massachusetts now taking constructive action that should help counter the antiunion animus spreading from state to state.  That union is the Massachusetts Teachers Association (MTA).   Last week, the union came to an agreement with Stand for Children, an organization whose mission is to improve public schools throughout the state.  Stand for Children has been sponsoring a November ballot referendum that would, if passed, require teacher staff reductions or reassignments be based on teacher performance rather than on strict seniority.  Working with the MTA, the organization has agreed to withdraw this initiative in light of the union’s agreement to co-sponsor legislation in the State House that would give teacher performance based on honest and fair teacher evaluations precedence over seniority in teacher assignments.  This legislation would help provide common standards for teacher assignments while ensuring that teachers continue to have an appropriate collective voice in their schools.

Unfortunately, the other teachers’ union in Massachusetts and the state AFL-CIO have vowed to oppose the legislative alternative.  They are urging the leadership of the House and Senate to reject the legislation, and they hint at mounting a “fight” on Beacon Hill to defeat the bill if legislative leaders seek to advance it.

With all due respect to my friends at the American Federation of Teachers Massachusetts and the AFL-CIO, I truly believe they fail to fully recognize that if they are successful with the Legislature, they will have won a Pyrrhic victory.  The Stand for Children ballot initiative will almost surely prevail and the cost involved in trying to defeat it will be prodigious.  In the end, the bruising battle will turn even more taxpayers and voters against organized labor even as it threatens to undermine the achievements that have made Massachusetts number one in the nation according to many educational measures. 

In this age of enormous income equality and the unparalleled power of big business, we desperately need organized labor to preserve its strength to stand up for the 99 percent – not just the unions’ own members.  Prevailing against the proposed legislation will undermine the much bigger fight on our hands.  Building coalitions with parents, students and other community organizations will help restore the alliance of progressive forces in the Commonwealth and help reconstitute popular support for public unions.  Without such coalitions, we all face much darker days ahead.

One of Massachusetts’ public high schools has a 97 percent graduation rate and a dropout rate of less than .02 percent (3 out of 1,323 students).  It ranks among the highest percentage of students scoring advanced or proficient in the 2011 MCAS assessments (97% in Language Skills; 85% in Math; and 91% in Science.)  The school valedictorian is headed to M.I.T. this fall and over 70% of the senior class is on its way to college.

Weston?  Wellesley?  Brookline High?  Newton North?   Actually, the school posting this incredible set of outcomes is Shawsheen Technical High School in Billerica.  Shawsheen is a vocational high school producing the next generation of skilled craftsmen and talented technicians for local private employers all through the region.  And these kids know how to read and count! 

What’s the secret to Shawsheen’s success?  Recently, I asked Charlie Lyons, the school’s superintendent.   This is what I learned.

Shawsheen focuses on “relevance, rigor, and resources.”   Its courses, which include much of the standard fare of any high school - English, math, science – also includes courses with practical applications for the world of work.  Students can see how doing well in school can help them do well in life.   The school’s curriculum is rigorous and maintains high standards.   Students have different access points to that curriculum and the school uses high quality assessment tools to determine the strengths and weaknesses of each individual student in both academic and vocational courses.  After assessment, the school’s faculty applies this information to strengthen each student’s strengths and deal with each student’s weakness.  

To assure success in this realm, resources are deployed strategically.  Shawsheen has class sizes of as little as 6 students to a teacher for students with a demonstrated need in reading.  (High performing students are taught in classes of 22 to 1.)  Students of similar ability are grouped together so that students work with curriculum materials that best fit their needs. 

I asked Superintendent Lyons how his teachers are motivated to do such a good job.  He told me that teachers are selected on the basis of high qualifications.  Political influence plays no role in teacher selection.  The school pays its teachers well and measures student improvement for each teacher and shares this information with the teacher’s peers.   The goal is constant improvement in the teachers’ craft.  

All of this is done under union contract.   Mr. Lyons has negotiated all teacher contracts for the past 20 years and has built mutual respect between the administration and local union leaders. Review of teachers by their peers was negotiated so that teachers that are not performing up to par are either counseled to improve their teaching or let go if their performance does not improve.   As long as the union believes there is due process and professional intent, the union is on board.   In the last ten years, Mr. Lyons can remember only one grievance filed by the union against the administration.

Shawsheen is a standout on another pressing matter in the Commonwealth.   Next year is 7^th year in a row without an increase in health care insurance premiums.  

Working with its Preferred Provider Organization (PPO) and Blue Cross, Shawsheen has negotiated preferred rates for certain medical procedures.  A yearly health claims assessment report from Blue Cross helps the school administration and its faculty to find ways to minimize claims.  The report provides feedback on hypertension, cholesterol levels, and pre-diabetes indicators.  Over the years, the school has worked to help its staff stay healthy.  It built a state of the art gym for faculty.  It has Zumba dancing classes every Wednesday after school.  It has developed an aggressive program to reduce smoking by its teachers and administrators.   It has helped reduce stress in part by building a day care center for its staff where twenty-nine children are now cared for while their parents work.   It has contracted with Weight Watchers for a weight reduction program.  So far thirty-seven faculty have participated and collectively they have shed 500 pounds. 

Cutting down on tobacco use, keeping physically-fit, reducing stress and extra pounds have all meant fewer medical insurance claims and kept medical care inflation to zero percent.  

If this were not enough to suggest Shawsheen has a lot to teach us about making our schools even better,  Superintendent Lyons crows about his school’s athletic prowess.  Shawsheen athletic teams have incredible winning records in lacrosse, baseball, softball, and track … because the spirit of the school is “to always achieve.”

With my Charlie Card Senior Pass, I can still ride the T for 60 cents.  At the Kendall Square Cinema, I save $2.00 over the regular ticket price.  Amtrak gives me a 15% discount on most trains if I merely show my ID.  Wendy’s will take 10% off my tab for a quick burger and golden fries.  Best of all, the National Park Service issued me a “Golden Age Passport” for a token $10 fee that provides a lifetime free pass to all National Parks, forests, and recreational areas. 

And here in Massachusetts I am particularly blessed for when I come to pay my Massachusetts state income tax, I don’t have to pay a cent on my Social Security earnings no matter how much other income I might have from wages, interest, dividends, and capital gains. 

All of this comes to me for one simple reason.  I am more than 62 years old.

Back in 1959, such senior citizen discounts might not have been such a bad idea.  The poverty rate for those 65 and older was 35 percent, more than double the rate for those aged 18 to 64.  Today, however, the poverty rate for seniors has shrunk to less than 10 percent, only two-thirds the rate of younger adults.  According to the Pew Research Center, between 1967 and 2010, median inflation adjusted household income rose by 27 percent for those whose oldest member was 35 or younger and 48 percent for those age 35 to 44.  But for those 65 and older, income more than doubled (+109%).

That today’s seniors are doing so well relative to others is due to a number of factors.  Increases in Social Security have raised many low income seniors out of poverty.   Older folks are staying in the labor force longer and continue to earn wages, some because they need the dough, but many others because they otherwise would be bored to death.  Baby boomers, now turning 65 at a rate of 10,000 a day, had the great fortune of buying homes when they were cheap.   As such, they not only had good incomes, but now have a tidy nest egg to boot.  Those in the older generation who went to college often graduated with little or no debt as tuition and room and board were much more reasonable a few decades back.  Today two-thirds of graduating seniors in the country start off with college debt that averages more than $25,000.

All of this means that the gap in net worth between seniors and youngsters is growing exponentially.  According to the Pew Research Center, those aged 65 and older head households where the median net worth was nearly $171,000 in 2009.  Those younger than age 35 had net worth of less than $3,700.  And this wealth gap has increased dramatically since 1984 because the net assets of seniors has increased by 42 percent while the net worth of the younger generation has declined by 68 percent.  Even the meltdown in financial markets had little effect on seniors.  Those 65 and older saw their net worth decline by 6 percent between 2005 and 2009.  Those younger than 35 experienced a 55 percent loss in wealth; those 35-44 a 49 percent loss.

Simply put, those who are now senior citizens are part of the richest generation of Americans of all time and it is unlikely that younger generations will ever have the same incomes or the same wealth.

And yet we continue to shower our seniors with discounts while younger folks have to pay full fare.   This is a demographic twist on the growing tradition in the U.S. of the “rich get richer ….”

There’s nothing wrong with offering discounts or free passes or giving out some tax breaks.  But we should be more careful about who gets them.  Some baby boomers can certainly use them because they have not benefited like others.  But I am much more concerned about those who are following our generation.  Somehow, they need the discounts more than we do. 

It may be hard to means-test everyone before we offer them a free ride or a cheaper one, but every time one of us geezers takes advantage of a discount, try to remember how tough it is on the younger generations coming up the pike.

Beginning July 1, MBTA fares will be going up and service will be cut.  To some, the increases may seem modest:  a single CharlieCard ride on the Red, Orange, or Blue line will increase by 30 cents to $2.00.  Bus rides will increase by 25 cents and student fares by 15. Monthly passes for commuter rail riders will increase between $38 and $64.  Some routes will be discontinued; others will experience service cuts on weekends.  All of this is to help close a projected MBTA deficit of $160 million in fiscal year 2013.

These fare increases will obviously hurt low and moderate income riders and especially those on fixed incomes.  When the T held hearings on the increases earlier this month, scores of riders told of the hardship this will cause them.

The poor will suffer, but in reality the real pain these fare increases and service cuts are likely to inflict are not on the poor but on those who own cars and use them regularly to commute to work or do their daily errands.  The irony is the biggest beneficiaries of the T are not its riders, but those who seldom use it.

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Massachusetts. We are world famous for our health care sector – just think MGH, the Brigham, Beth Israel, Dana Farber, Children’s, and the Joslin to name a few superstars. We are world leaders in biotech and the life sciences – from Abbot Labs and Akermes to Genentech, Genzyme, Shire and Vertex. And we are known for our financial institutions from Fidelity and Putnam to the Prudential, John Hancock, and State Street.

We also have a bevy of world-class universities like Northeastern where I work and a couple other good ones across the Charles. Just within Greater Boston, we have more than 70 universities and colleges, seven of them ranked in the top 100 in the nation. Statewide, there are another nine universities and colleges that U.S. News & World Report puts on their top 100 lists.

So when we normally think about the Massachusetts economy, we think health care, drugs (legal ones), banking and insurance, and higher education. But as a matter of fact, even with the explosive growth of these sectors, the Commonwealth’s economy is much more diverse.

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Welcome to my Boston.com blog.

In the months to come, I hope to provide you with food for thought about the economy and public policy -- particularly about Greater Boston and Massachusetts, but often about the nation and the world. There will be plenty of numbers and statistics, but I hope you will find that within those numbers there are big stories. Many you may find surprising, some I hope you find thought-provoking, and others just plain fun.

As an economist, I work with numbers and statistics all the time. These can be pretty tiresome until you see the story within. I'll do my best to reveal these stories and would appreciate hearing back from you about your own interpretations.

Every economist and indeed every scientist has some biases, if for no other reason than the subjects they choose to study. While I will strive to provide you with as unbiased reports as possible, it is helpful to know my background.

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