It’s strange to hear Paul Krugman predict the imminent breakup of the Eurozone caused by countries that spent too much but should spend more … and be additionally supported by countries who have followed a course of reasonable fiscal discipline. Indeed, Ireland, Portugal, Greece, and Spain are all drowning in debt – the origin of which is a separate story for each country. U.S. right-leaning conservatives typically get the causal factors wrong when they automatically conclude that what’s happening to Greece, Spain, Portugal, Ireland, and Italy is a result of that evil “Socialistic cradle to grave” European economic model.
Conveniently forgotten is that America is still in a disastrously prolonged recession due to Bush Jr.’s 6 year over-spending message of BUY, BUY, BUY (a house ), SPEND, SPEND, SPEND (on cheap products from China) and LEND, LEND, LEND (at 100% of inflated values from slick lenders) spurred by ever lower taxes for the rich and stagnant wages and insane credit card debt for everyone else! A truly terrific grand economic formula for social-economic progress for ALL Americans! Those export trade deficits just kept piling up to ±$68 billion per month in 2007-08 … putting extreme reliance on a 70% of GDP CONSUMPTION level and Zero Savings to achieve minimum 3-4% GDP growth rates negatively affected by gigantic trade deficits, disgracefully low public and private investments in infrastructure and manufacturing.
And here we are about to reignite that same magical growth formula as trade deficits rebound from a 36% of GDP level in 2010 to an onward sky high trend of 51% of GDP last March and rising … with hopes the middle class will SPEND, SPEND, SPEND with ever lower wages! It’s called junk economics. And junk economics it will remain with enduring high unemployment until we, among many other things, do what European nations have done long ago concerning trade policy with countries like China … namely, enter a phased in agreement that China will bring its exports to U.S. to a par level with U.S. exports to China by 2015. Away with trade deficits!
But back to the problem of Greece. Following are just a few facts concerning the generally non-socialistic origins of Europe’s weak performing countries.
Greecehas been on the verge of bankruptcy for almost half of the last 150 years! Yet, this history and the country’s real financial situation when it was admitted to the European Union were entirely overlooked. As most know, Greece developed phony statistical figures to gain entrance to the Eurozone currency in 2000. Then, while Greece continued producing deficits in the 20th century and on and on through the first decade of the 21st century – fiscal discipline provisions of the Maastricht Treaty were NOT enforced. The current inevitable financial collapse of Greece comes from many factors: lax EU enforcement of fiscal discipline; large trade deficits facilitated by EU banks wildly lending to Greece to stimulate exports to Greece; gross internal mismanagement and a culture of corroding corruption (like that of Russia); a criminally irresponsible socialistic system of flagrant social-nets to keep people dumb and passive and the corrupters safe while they were misappropriating the taxes collected.
Spain and Ireland’s financial chaos situations are NOT due to socialist programs run amok but simply to a greedy, irresponsible investment wave in real estate, including government guarantees of much of the speculative bank lending on real estate projects. Both countries are suffering from the aftermath of a burst property bubble compounded in Spain by a 20% unemployment rate. Prior to its property financial crisis, Spain’s national debt was at a very low 40% of GDP reaching 65% currently. The real estate crisis was intensified by the 2009-2011 mini-depression … a mini-depression sparked and transported to Europe by the U.S. exotic casino bank lending and bank/hedge fund derivative financial poker game played on a mammoth scale over the period 2003 to 2008.
Italy’s crisis is NOT due so much to socialist programs as to an ancient, costly banking system and corrupt gross mismanagement under the chaotic egomaniacal leadership of the business tycoon Berlisconi. Result? Italy, like Greece, has been one of the lowest tax collection countries in Europe. And NOT surprisingly, Italy has the HIGHEST salaries for government bureaucrats, but, surprisingly to most perhaps, has among the LOWEST working class wages in Europe! Of course, the latter is why Italian (and Greek) tax evasion is so high as the working class is forced to operate heavily in the black just to survive with meager wages. Does this ring familiar to our systemic wage/benefit exploitation of our working class? Poor tax collection, stagnant consumption deepened by an ongoing mini-depression is a deficit inducing financial reality for any country operating for so long with a middle-class wage race to the bottom system like Italy and the U.S.
If Greece exits the Eurozone, it’s probably back to the Middle Ages for Greek people and possibly a major financial shock wave for the rest of Europe. Without substantial injections of loan funds in addition to the hundreds of billions already spent and/or committed by the EU and IMF, Greece can’t pay government salaries, pensions, social nets as well as international debts over the next five years. In an exit scenario, the new currency will be a weak currency, wages will fall and expanded unemployment can be expected. When all savings, loans, and contracts with foreign investors are converted to the new currency and many Greeks timely transfer their money to foreign accounts, the Greek bank system could indeed collapse. This in combination with a possible investor withdrawal of funds from other weak performing countries such as Spain, Portugal, Ireland could lead to an implosion of the Eurozone. JP Morgan has estimated that a Greek exit will result in immediate bank losses of €400 billion on loans that will be repaid in a devalued currency. This includes € 130 billion from the EU/IMF, €240 billion in Greek debt, and €25 billion in European banks loans.
On the other hand, banks and private investors just experienced the biggest debt write-off in Greece’s history … a bond swap rescue package of €237 billion amounting to more than 70% of investor holdings going up in smoke. This action was led by the Netherlands and German Financial Ministers, de Jager and Schauble. BUT, the same investors and others who lost so much have not withdrawn from the Eurozone … not even after the Fitch rating agency downgraded Greece’s default rating from CCC to C, indicating Fitch considers the bond swap rescue package a distressed debt exchange making a default more likely.
Meanwhile, the weak Euro members Spain, Portugal, Ireland, Italy have undertaken the necessary austerity measures, unlike Greece. So their financial vulnerability has been somewhat reduced. In addition, the European Emergency Fund and IMF have built up a reserve funds exceeding €650 billion in the event of a Greece exit from the euro. And the Emergency Fund will probably be further increased. But it is highly unlikely much of these funds will be used to save Greece if the country does not come up with an acceptable, credible alternative plan to lower its enormous debt level … now running at 160% of GDP to 120% of GDP by 2020.
The northern EU countries are not about to pour more billions of good money after bad money into Greece. A confidential analysis by the European Central Bank, the European Commission, and the IMF in February projected that Greek debt would still amount to 129% of GDP by 2020 – despite multi billions of loans from the rest of Europe – and could still be as high as 160% of GDP in 2020.
So it's "tough love" time for everyone involved in Greece's financial disaster and contamination possibility to other weak and even strong EU countries. Firewalls are being built up to minimize the damage of a possible Greece exit. It's a devil's dilemma. Europe lends to Greece and loses billions. Europe doesn’t lend to Greece and losses billions. In the final analysis, no one really knows with any degree of confidence what a Greek exit from the euro financially means for all of Europe. The Maastricht Treaty has no provision for expelling a member form the Eurozone. Can there be an orderly exit withminimal damage to all parties?
BUT, are Europeans going to bring about or allow a total breakup of the European Union due to the Greece crisis and its danger of spreading to Spain, Portugal, Ireland? Are Europeans going to revert to 27 different currencies? I seriously doubt that. A solution will be found for Greece to leave the Eurozone in an orderly manner with constructive assistance from the EU or the Greeks will put forward a credible, acceptable austerity and reform alternative to get itself back on a sustainable footing. I’m not optimistic about the latter option.
Irregardless, Paul Krugman’s suggestion that the European Union is about to or could Fall Apart soon is a bit premature and highly improbable!
I happen to like Sarkozy but have sensed that his gap with the working class is too great. His presidency inherited a costly French governmental bureaucracy, an extensive welfare system, and a sputtering economic growth all leading to: a high public debt level at 85% of GDP and public spending at 55% of GDP; a declining industry; and almost double digit joblessness. His closeness with the rich, brash style, inability to reverse France's tough economic situation as well as the growing public impatience with strict austerity measures brought him down in the election yesterday.
Hollande's election puts pressure on Merkel in her elections next year as the German public is also growing a little restless with austerity measures. Should Merkel lose, this would represent a dramatic shift of power to the left in Europe with only the UK, Spain and to a lesser extent the Netherlands and Scandinavian countries as the primary conservative-centrist governments in Western Europe. And it remains to be seem whether the very strongly rising Dutch SP socialist party will win big in September as expected, helped by what's happened in France. Then the Dutch coalition government could well shift to the left from its current slight left of center position ... although this doesn´t concern me as the conservative VVD party is still expected to win a major number of the seats in Parliament and will be a strong force in any new coalition formed after the September elections. This is the inherent beauty and balance of the Netherlands's proportional representation governmental system I described in my last writing.
Francois Hollande's campaign themes give apoplexy to many people of strict conservative mind (no doubt particularly to the American far right) ... who see his election as a "Big Government Nightmare." I find this very amusing as most people were looking favorably upon the financially sharp Strauss Kahn as the next socialist party premier of France until his women escapades put to ashes his political career. However, Hollande will probably use Kahn´s exceptional financial acumen hopefully to great benefit for the nation.
Hollande supports France´s deeply entrenched -- already excessive in my view -- socialist policies. He wants to renegotiate the hard-won European treaty on budget cuts, BUT, he remains a staunch Euro-Federalist (unlike the increasingly popular Dutch SP socialist party). He wants austerity to be tempered with immediate plans to stimulate economic growth and favors increasing France´s already 55% high public spending as a % of GDP. For example, he wants to recruit 60,000 new teachers and lower the retirement age from 60-62 for manual workers who started their work as teenagers. He will pay for this and more and balance the budget by 2017 by: setting a 75% tax rate on income above euro 1.0 million ($1.3 million), increasing taxes on big corporations and implementing a financial transaction tax. He sees the world of finance as his and the nation's real enemy. I couldn´t agree more!
All in all it's a gamble with Francois Hollande as it was with Sarkozy. On the positive side, he's a methodical, quiet working professional who wants to only temper austerity actions while taking firm measures to stimulate growth. He's not against financial discipline but wants it spread out more as the Krugmans and Stiglitzes are pleading for which I think makes sense as long as the equal necessity for financial solidity is not compromised. The problem is that France is the one last major power in Europe that has done the least to reform its very costly social net, health and pension systems.
Hollande's support of his country´s socialist policies may be his ultimate downfall. BUT, he has the chance to come with a refreshing new approach to balancing French private and public initiatives to restore financial stability and growth. While I´m a little nervous, one has to marvel at the diversity of social/economic models and governance styles in Europe ... all learning from each other while at same time addressing the priorities, habits and needs relevant to each country's unique historical culture.
Margaret Thatcher warned:
"Socialist governments traditionally do make a financial mess. They always run out of other people´s money."
But the Iron Lady couldnt fathom that conservative governments can do the same thing with the most recent lesson coming from Pres. Bush Jr. ... who Doubled our national deficit from $5 trillion to $10 trillion in 2008 with his pharmaceutical subsidies and tax reduction policies for the rich causing another ± $2 trillion deficit during Obama´s term.
Will Hollande, the socialist, copy Bush, the conservative, in bringing his country to near financial insolvency? I doubt it. There are simply too many structural checks and balances in the mature, broadly represented government systems in Europe for any one man to behave irresponsibly left or right. Even the UK conservative premier, Cameron, whom I much admire along with his co-premier Clegg, is kept in sensble balance by becoming part of his country's first coalition government in 60 years.
I greatly admire Robert Reich’s tireless energy and knowledge to explain in simple, straight language – to Americans of all colors, convictions, and class – what is truly happening to the U.S. economy and main-stream America. Namely, Social Darwinist inequality is at the heart of the system calling for reduction of the social net, forcing average Americans to rely on their own resources in a competitive environment where the fittest will survive – and the rest will get what they deserve for their lack of work ethic initiative and responsibility.
This ultra-conservative agenda perversely promotes primacy of the market economy over all else – “Reagan’s casual wisdom that “government is the problem not the solution.” This has resulted in Paul Ryan-type social-economic policies that have been driving many working class people to the edge of economic ruin. It has fostered a fertile ground for ultra right political and media pundit demagogues who operate at a demagogic intensity unheard of in Europe … where multiparty coalition consensus systems are generally far more reflective and less doctrinaire.
However, I must take issue with Dr. Reich’s over-generalization that “demagoguesare loose in Europe” (and the U.S), concluding that “In Europe,fringe parties on the left and right are gaining ground”… also suggesting that fringe parties are led by demagogues. First, what exactly is meant by fringe parties? European multi-party proportional representation (PR) government systems, with the Netherlands as an archetypal example, form the very basis of European “social democracies.” Such systems check extremist agendas and effectively marginalized demagogues. Such systems generate a broader competition of ideas where ultimately more balanced and progressive ideas often emerge.
All parties are treated with respect since the number of seats won in the Parliament (House of Representatives comprising 150 seats and 76 being necessary for a majority, i.e., to form a viable coalition government. ) is proportionate to the number of votes received. A party that receives 30% of the votes gets 30% of the seats. There are no electoral districts. Proportional representation (PR) systems tend to produce a proliferation of parties, while single member electoral districts stimulate a two-party system. PR allows small parties to be represented in Parliament which is considered to be a GOOD THING! Such systems facilitate legislative balance, fairness, and alertness to real life happenings, problems, needs in a typical pluralistic society having a uniquely ingrained European national cultural heritage .
As already noted, an exceptionally democratic feature of coalition systems I’ve observed, after 30 years living /working in Europe, is that they insure inclusive legislative policy-making and effectively marginalize “demagogues” from exercising undue influence. I´m referring to fact that in the Dutch Parliamentary government, the Cabinet formation consists of 12 Ministers and 8 Junior Ministers who are divided equally among the coalition members, regardless of their respective size. In other words, the current minority coalition government is comprised of the conservative VVD party with 31 seats and the centrist CDA party with 12 seats. BUT, each of these ruling parties receives 6 Ministers and 4 Junior Ministers!
The Dutch government fell because Geert Wilders´ far right PVV Freedom Party with 21 seats, as a non-coalition member, did not agree with the center-right minority coalition government´s budget plan based on a EU 3% of GDP deficit level in 2013. For the hard-core U.S. conservative Republicans or Democratic liberals, it may seem incomprehensible that Dutch coalition members and non-members do not necessarily blindly follow the party line as happens in America. For example, Geert Wilders far right PVV party is leap years philosophically different than our far right conservative Tea Party. On one hand, he´s against severe budget cuts in welfare, health, unemployment benefits, and opposes any decrease in the purchasing power of pensioners and lower income earners. On the other hand, he wants to scrap the euro, return to the guilder, stop all non-Western immigration including from Eastern EU member countries, and drastically diminish the power of Brussels.
Does this make Wilders a wild demagogue leading a fringe party with 14% of 150 Parliamentary seats, all achieved in less than two years? I think NOT! Is Wilders a team player willing and able to make the necessary coalition compromises in the country’s interest at a most serious economic time? I think NOT! Will some parts of Wilders´ social thinking – and that of the SP socialist party or PvdA labor party – be eventually incorporated in a final budget plan? I think, YES!
A culture of give and take, compromise, merger of the best policy initiatives under multi-party coalition governance systems – where no one party ever secures an overall majority of votes – is a much understated strength and support for consensus democracy in mature EU countries. Of course, another giant plus is the fact that European political representatives and processes are not bought by special interest money.
The U.S. all right or all left purist governing paradigm is avoided. This is reflected in the recently agreed budget plan of the newly formed 5-party interim coalition. Despite a sudden political move to left of center, the 5-party new plan agreed to in two days does NOT represent a complete rejection of austerity measures. ALL parties, including non-member coalition parties, fully recognize the need to balance the budget and implement fiscally responsible austerity measures. The ongoing debate until the September elections will focus on how far these measures should go, where the burden should fall, when should stimulus measures be activated.
In the final analysis, multi-party systems require a precise coordination of coalition strategies, programs, personnel choices that give confidence and a sense of reliability to the vast majority of voters. Assumptions about the goals coalition parties pursue and rules of the bargaining process determine the disintegration or success of multiparty proportional representation systems. On balance, however, effectivePR coalition systems have NOT been an easy playing fieldfor demagogues in their actions as members of traditional, new or rising fringe parties.
To further illustrate the check and balance features of coalition systems, it would seem to be certain political suicide, if not an outright impossibility, that a far right new Dutch until late rising strongly but now falling conservative party led by Geert Wilders, a far left new Dutch risingsocialist party led by Emile Roemer, and a far left French traditionalistsocialist party led by Francois Hollande (now challenging Sarkozy) have almost as much in common as they have at odds with each other … a concurrence of views unimaginable between Democrats and Republicans. None of these party leaders, or any others I can mention, are fringe party demagogues.
All three are against the timing of the EU 3% deficit rule. All three are vehemently opposed to deep budget cuts that reduce purchasing power of the elderly and lower income groups. All three want to set measures to increase economic growth. All three have a deep distrust of globalization. Two argue for a drastic cut back in immigration, especially from Islamic lands – an exception being the Dutch SP socialist party which is more multicultural minded, but has also been critical of immigration policy as a capitalist tactic to drive down wages.
SUMMARY
Lately in Europe, there has been a clear trend of views shifting to left of center in even the fiscally austere countries. Denmark, The Netherlands, Belgium, France, and Germany to a smaller extent are beginning to question the certified wisdom of continuing strict economic austerity programs. New coalitions are forming to force a democratic reassessment of this policy. Some coalition partners want to maintain a reputation for fiscal discipline. Some want a different mix of cuts and tax increases and decreases. Some, like the PVV, SP and PvdA, want a greater emphasis on growth measures.
This is the profoundly unique and healthy contribution of the multiparty governing process in Europe, despite its tendency to political stalemate and lengthy debate. It spurs a natural questioning of assumptions, more sharing of ideas, and realigning of policies to deal fairly, humanly, pragmatically with continuing economic stagnation and high debt situation …while simultaneously tempering the casino game of government ad hoc printing of money to solve all problems and keeping the lid on irresponsible acceleration of national and household debt levels.
In contrast, this is what I don’t see happening in the our broken government system. Absent completely is the European style of questioning sacred, purist ideologically driven dogma; civilly engaging other ideas; striving to adapt, share, merge the best of policy initiatives. If ever there is a healthy playing field for demagogues, it’s the black and white thinking of left vs.right and “winner-takes-all” U.S. political system … that class divides people, fosters constant two-party warfare, and destroys any chance of constructive, balanced policy making in the interest of ALL citizens.
If ever there’s a place where “demagogues are running loose” in force, it’s in the good old USA.
You are not going to believe this, but in 2 days, five Dutch parties including the fallen coalition parties VVD (conservative party) and CDA (centrist party) – but excluding coalition partner PVV (far right party) – have agreed April 26th to a more balanced budget accord that meets the EU rule (recently agreed to by the EU 27 countries) of NOT exceeding a 3% deficit level as percentage of GDP in 2013. Thus, a group of five parties that are generally more left of center did something in TWO DAYS that the existing predominantly right coalition government couldn’t achieve in SEVEN WEEKS !!
The five parties achieved the new budget agreement in a creative, pragmatic, equitable, humanistic BUT still very responsible manner. The conservative governing coalition failed in this task, including the coalition partner PVV - the far right party of Geert Wilders. The five parties STUCK to the 3% deficit rule for 2013 rather than spreading this austerity rule over 2-3 years, for example, ±4% in 2013 dropping to 3% or lower by 2015. As stated in my memo above, I favored the latter approach. But I’m glad the five party “quasi” interim coalition has not walked away from standing behind a deficit rule the Dutch government and especially its Finance Minister, Jan Kees de Jager, has been demanding that all EU countries follow.
The new five party group includes: VVD, CDA, as the former ruling coalition parties, plus D66 (centrist to left party), the Christian party (centrist to left party), and Green party (left) as the new parties joining the fallen VVD and CDA parties . The PvdA labor party, SP (socialist party), and PVV far right party have not joined the “quasi” interim coalition of five parties as these three parties fundamentally disagree with the timing of implementing the 3% deficit rule and want to wait and see what the voters say in September.
Pragmatism, setting aside egos, and making hard concessions in the interests of ALL Dutch citizens and their well-being ruled the day! This kind of courageous cooperation in politics to merge the best and brightest ideas for the benefit of the nation as a whole is tragically IMPOSSIBLE in the broken-down, money-corrupted, ideologically pure, polarized government system America is afflicted with today.
So, the Dutch “quasi” interim coalition government of five parties has turned decidedly to left of center in recognition of the public impatience with indecisive leadership and the extremely serious economic times Holland and Western countries are in. At the same time, the five parties are not walking away from the country’s high household debt level and social net costs. For example, the five parties have agreed to: reform the housing mortgage market by reducing the interest deduction while also reducing the taxes on the purchase price of homes, to undertake necessary reforms in retirement pensions, to raise the VAT tax on certain goods and to initiate a temporary tax increase on the higher income class.
These and other actions have been agreed to in order to reach the 3% deficit target WITHOUT damaging the purchasing power of retirees and the lower income classes … and WITHOUT making serious cuts in EDUCATION, INFRASTRUCTURE, and R&D Investments. While all citizens will feel some pain for 1 or 2 years, the ultimate cost of the new budget agreement is estimated to reduce GDP growth from ±1.4% in 2013 to ±0.75% … a not insignificant but also a not overly costly change. The lower GDP growth rate is a sacrifice the Dutch people, with their culture of ±10-12% savings rates, generally consider bearable and worthwhile to maintain their remarkable triple AAA financial rating as well as to achieve intermediate-term financial stability and GDP growth rates in the 2-3% range.
For the future, the Dutch are now talking seriously of putting into policy motion the practice to set aside a portion of healthy tax revenuereceipts that come in good cyclical times as a reserve to be used in cyclicaldownturns. This will greatly help reduce the wild volatility and risk exposure to cyclical and/or irresponsible financial management-induced macro-micro economic downturns.
All this only reconfirms my lasting respect, trust and pride in the Dutch parliamentary coalition system of government. It does result in fallen governments, loss of continuity of leadership, and added costs. But, from my over 30 years experience living and working here, these drawbacks have not been serious obstacles to Holland’s development and ranking as one of the best performing economic and social societies in the world.
It still mystifies me why the PvdA and SP parties did not join in accepting the new budget plan agreed upon in just two days. But many things could change should these two parties capture a major share of the general public’s votes in the September elections. One often heard criticism of the socialist SP party – now enjoying a widespread popularity under the impressively open, down-to-earth, genuine Emile Roemer – is that the party’s leadership falls short on putting forth a vision and concrete set of ideas for solving the systemic problems the SP party sees under conservative economic model-type thinking and governance. The PvdA labor party also receives much of the same criticism.
So, stay tuned. Holland’s broadly representative coalition governing democracy is alive and well … and the nation is determined to stay true to a unique European principle, “We are all in this life together.”
Seven weeks of Government talks have broken down on the issue of more spending cuts – above €18 billion already agreed upon giving a 4.6% budget deficit in 2013 – to reach 3% EU deficit limit. This brings Holland’s credibility at risk as it has been the fiercest promoter of the 3% deficit rule and the severe austerity plan for Greece. Result? The coalition government of the conservative VVD party and centrist CDA party has fallen Saturday. This minority government has depended on an agreement with the ultra right PVV party, the Freedom Party, to achieve a required parliamentary majority (by the slim margin of one vote).
This development illustrates what I’ve been saying for quite some time about the built-in balancing, self-correcting , countervailing featuresof European coalition governments … a governance system that moderates and can prevent excessive ideological swings left or right. Not even a Paul Krugman or Joseph Stiglitz fully comprehend this European coalition governance dynamic, let alone the U.S. media or average American. When a coalition government can’t agree on fundamental issues, it can fall. New elections are then held where the people decide. It’s called democracy.
So, the Dutch government fell yesterday, necessitating new elections in September or October. After 7 weeks of negotiations, the ultra-conservative PVV party, led by the anti-Islam, anti-immigration, anti-Brussels Geert Wilders, concluded that added budget cuts to reach the 3% deficit level in 2013 fall disproportionately on pensioners and low-income people. Wilder’s party and other leftist-leaning Dutch parties are of the opinion the budget cuts to bring deficits to 3% of GDP should be taken in measured concrete steps over 3 years and that there should be more incentive and investment emphasis on encouraging job growth. Where in America today would you hear of a Republican conservative promoting a combination of right and left policy actions as Wilders does? This can happen under coalition government systems which put more pressure on balanced, effective compromise than our U.S. “winner-take-all, pay and play” autocratic government decision-making in the hands of the ultra-richand “corporate citizens” who are simultaneously bleeding the federal government by paying little or no taxes.
I’m not a fan of Geert Wilders although I agree with his position about the 3% deficit timing. He’s too much of a soloist, populist politician for my likes who has the “my way or the highwayegocentric syndrome,”so diametrically unDutch in character. He’s a control freak who wants to micro-manage everything from A to Z, including the activities of his own party members. His wild one-liner remarks have potential of doing real damage to Holland’s commercial export potential (with Turkey, for example) and ageless reputation for being a tolerant nation for those who integrate well, learn the language, and follow the rules.
New elections will likely result in a more balanced, hopefully stable, coalition scenario along some variation of the following lines:
VVD :conservative party led by Mark Rutte with ±1/3 of votes in new elections
SP : left party led by Emile Roemer with ±1/5 of votes in new elections
PVDA : labor party led by Diederik Samson or possibly a coalition of 2 parties with ±1/5 of votes in new elections
This brings me to another example of the self-correcting dynamic of coalition governance systems. Over the past two years, the SP left-leaning party led by Emile Roemer has zoomed in popularity. The ultra right PVV party of Wilders has peaked and is now almost disintegrating. The PVDA labor party has lost much ground but shows promise of new life with a clever, just nominated young leader (also educated in the sciences). Of course, I know the typical Republican demagogic remark would be that, “Holland is thus going more socialistic in the direction of biggergovernment and higher taxes for the rich.”
Nothing could be further from the truth. The SP party and other parties such as PVDA labor party, D66 centrist party, the Green leftist party and the the SPG centrist party fully recognize the utter necessity of getting the country’s fiscal house in order for future generations and to retain its excellent financial rating. Holland has been a leading example of entrepreneurship, financial soundness and societal equity for generations. BUT, the above-mentioned parties, including especially the SP, correctly want this financial austerity executed in abetter-timed,wiselybalanced humanistic manner that does not take the mass of citizens down the“race to the bottom” … a societal devastating disease systemically paralyzing and polarizing America so completely for so long now.
The extremely important $64,000 dollar question is: Can the current interim coalition of VVD and CDA join with others parties and act responsibly to pass an intelligent budget plan of pain and gain fairly shared that sets transparent goals of where the country needs to go?
This should be done NOW and NOT postponed until the new coalition is formed in the September or October elections. Will the usually sound Dutch values of political sensibility, fairness, and pragmatism come forward in reaching a budget compromise in the interests of all Dutch citizens? Having lived and worked over 30 years in Holland, I’m eternally hopeful this will happen!
There are some inherently democratic lessons and processes here ourU.S. leaders might learn from.
The Dutch governing coalition collapsed on Saturday when far-right politician Geert Wilders pulled out of budget cut talks, saying it was not in the Netherlands’ interest to meet the deficit of three per cent imposed by the new European fiscal pact.
EU-imposed austerity measures have cost leaders in southern European countries, including Greece, Italy, and Spain, their jobs. With the fall of the conservative Dutch government, and the possibility that Nicolas Sarkozy may lose the French presidential election that begins on Sunday, the damage seems to have spread to Europe’s prosperous north.
Highlighting widespread voter anger over EU-imposed budget cuts, Mr. Wilders said he could not allow Dutch citizens to “pay out of their pockets for the senseless demands of Brussels.”
“We don’t want to follow Brussels’ orders. We don’t want to make our retirees bleed for Brussels’ diktats,” Mr. Wilders said.
The loss of Mr. Wilder’s support left the conservative government of Mark Rutte, Prime Minister, with just over a third of the seats in parliament. Mr. Rutte and other party leaders said that made new elections inevitable. He is expected to offer his cabinet’s resignation to the Dutch Queen on Monday, but leave the cabinet in place as a caretaker government until elections are held, probably in September.
The fall of Mr. Rutte’s government is ironic because the Dutch were among the most vociferous supporters of strict budget limits during negotiations over Europe-wide fiscal reforms at Brussels summits last year.
After the slowing Dutch economy led the Netherlands’ own 2013 deficit estimates to jump to 4.6% of GDP, Mr. Rutte was forced in early March to launch negotiations with his coalition partners – the Christian Democrats (CDA) and Mr. Wilder’s PPV party, the Party of Freedom – over new cuts.
While awaiting elections, the conservative caretaker government will be forced to seek agreement on a budget with leftwing opposition parties. The leaders of the opposition Labor and left-conservative D66 parties said they might back some cuts with a view to long term deficit reductions below 3%. But they said they were not interested in ensuring that the deficit met the 3% limit in 2013.
D66 leader Alexander Pechtold said the government would need to go “hat in hand” to Brussels to see whether a smaller package of cuts would be acceptable. But a person with knowledge of the government negotiations said that the Conservatives and Christian Democrats were both determined to reach the 3% goal, and that it might be possible to create shifting coalitions to pass different measures to reach that goal.
The fall of the government has unpredictable ramifications for the future of Mr. Wilders. On Saturday, Mr. Rutte and Christian Democrat leader Maxime Verhagen rushed to paint him as irresponsible for having triggered the collapse of talks.
Mr. Rutte said the negotiators were “completely done.”He said an agreement on budget cuts had already been reached when Mr. Wilders abruptly said Saturday he was no longer willing to approve them. Exiting the government at this stage will allow Mr. Wilders to disclaim any responsibility for unpopular budget cuts. But the biggest winner in elections could be the far-left eurosceptic Socialist Party (SP), which has seen its support rise to as much as 20% (if not 30%) of the electorate over the past year.
Meanwhile, Dutch analysts said the inability of even the prosperous, deficit-averse Netherlands to generate voter support for Europe-directed budget cuts called the sustainability of the EU fiscal pact into question.
“Enforcing the pact would always be difficult. Punishing countries is a naïve concept,” said Arnold Boot, a professor of finance at the University of Amsterdam. Mr. Boot saidfiscal harmonization would be impossible once theEuropean economy returns to normal growth, but thattrying to execute it in times of crisis causes “undue pain, which would lead to too much opposition to EU enforcement.”
Energy industry experts, researchers within the Congressional Research Service (CRS) the U.S. Energy Information Agency (EIA) have been publishing truly excellent reports dissecting and forecasting global fuel mix, growth and prices. These energy outlook analyses are vital to the debate on sustainable, secure energy sources. But, such detailed studies fall short in generating a Wake-Upcall to theurgency of newthinking to achieve energy independence from imports and polluting fossil fuels – and emphasizing how this goal is affected by the broaderworld energy marketsupply-consumption balance among key countries, the finite sustainabilityof fossil fuel energy use, particularly oil, and environmental risks, including drilling in deeper and deeper waters.
The choices we make in fuel mix and in producing, importing, consuming energy involve severe technical, economic, and ecological constraints. The strategic implications of those choices remain a mystery to most people. This information void applies, for example, to the world forces pushing fuel prices to ever higher support levels despite modest growth in demand for gasoline. Who or what is to blame? No one has a clear explanation. Public speculations and anger abound over the consistent upward path of gasoline prices, now at an average U.S. price of $4.00 per gallon and ±$100 per crude oil barrel. Ongoing oil price increases to at least $150/barrel by 2020 and $200/barrel by 2030 are more than just likely.
Demand and sustainability are key to understanding the stark reality that the trend of rising fossil fuel costs – households now spend 10% on energy, mostly on fossil fuels – is irreversible. Little wonder escalating fuel prices, an oil import dependence that accelerates colossal trade deficits, and high CO2 emissions from oil and coal are fueling uncertainty about future energy supply developments and the potential of devastating ecological/environmental damage. U.S. domestically produced oil/gas supply shortages, technological advances, and ballooning fuel prices are driving offshore drilling to more difficult, deeper waters of 800 - 1,000 meters or more … where development risks are exponential, where actual increases to total proven reserves from major offshore finds have been relatively modest in recent years. That is why world oil reserves are being depleted faster than the number and size of new offshore fields discovered … another subtle pressure on fuel prices.
Oil companies thrive on high pump prices that deliver the profits needed to pursue high-cost projects in high-risk offshore waters. This also adds to public cynicism and confusion about the right mix of renewable and traditional energy exploitation policies, their long-term effect on economic development and climate change in the context of transitioning to a clean, secure energy economy.
The key issue explored in this paper is that the cost of fossil fuels, especially oil, and total energy consumption are certain to rise significantly the next two to three decades. This means the cost differential of transitioning to alternate green fuels is fast becoming marginal. And that is why Denmark is on a mission to remove carbon-polluting fossil fuels entirely by 2050 without introducing nuclear energy(coal power combined with carbon storage is an option but is not yet commercially feasible or environmentally friendly).
Other factors pushing fossil fuel prices ever higher include the composition of oil, natural gas, and coal supplies by country – the growing rejection of nuclear – and increasing concentration of oil/gas supplies in a few countries. These macro-factors also give commodity speculators and hedge fund investors a perfect playing field to apply their manipulative commodity shorting/longing trading expertise to milk the system – and to Hell with the rest of society!
The central theme in this paper is that there is a strategic necessity to make faster development of alternative green energy production an urgent national priority. The oil industry has no fiduciary or corporate responsibility to aggressively develop commercial alternatives to fossil fuels. U.SGovernment policy of getting out of the way of the oil industry – combined with generous subsidies, tax reduction gifts –and not participating as an active partner ( e.g. Norway’s example ofa state oil company) has led us to the energy dependence we have today. Denmark and Germany realize this, but we still don’t.
DISCUSSION
PART I: Sustainability and Denmark´s Road to Fossil Fuel Independence
“A sustainable process or state is one that can be maintained at a certain level indefinitely. It should provide optimal conditions for ALL organisms affected by it and not threaten, even indirectly, the viability of any organisms. … The current level of human activity is unsustainable. That it has been at all is due to the use of fossil fuels, a non-sustainable resource, whose use is by definition unsustainable.”
Denmark and Germany have accepted the reality message behind this definition. They have resisted the temptation to consider renewable green energy sources as merely a modest and not a dominant contributor of net energy supplies. While the world population is still growing , though more slowly, these two countries realize the Earth’s oil and gas resources are severely limited and that carbon storage and pollution from coal are an environmental nightmare.
These two countries recognize that the Earth's ability to absorb global warming emissions of ±7 billion tons of carbon dioxide annually from fossil fuels is also limited and very costly. These two countries are getting behind the lifestyle changes and potential net savings of investing heavily in clean, sustainable wind, biomass, and solar energy. As everyone knows, Germany has decided to phase out its nuclear plants. Denmark has no nuclear plants.
This brings me to a brief overview of Denmark´s remarkable societal unity and pioneering commitment to a 100% clean, sustainable energy economy. For a detailed description of Denmark’s plan to convert to renewable, clean energy, see “Energy Strategy2050,” The Danish Government, Feb. 2011. The Danish define independence from fossil fuels as producing sufficient renewable energy to cover at least 100% of energy demands in 2050. This would meet a EU policy goal of reducing greenhouse gas emissions 80% by 2050 vs. 1990 emissions. Renewables cover 29% of total electrical production today. Tables 1 and 2 reveal the sheer audacity of Denmark’s accelerated path to renewable energy. ______________________________________________________________ TABLE 1 : DANISH GROSS ENERGY CONSUMPTION IN 2050
Remarkably, Denmark already produces 20% of its total energy needs fromrenewables versus 8% for the U.S. today. Denmark will increase this percentage to 33% by 2020, meeting the EU 2020 target of 30% comprising wind, biomass, biogas, biofuels, solar. The above range of gross energy consumption mixes in 2050 under different energy scenarios are calculated to meet expected energy demand in 2050 of 600-700 petajoule (PL) per year.
Alternative 1 assumes continued use of fossil fuels. Alternative 2 assumes elimination of fossil fuels. Both scenarios assume an “Unambitious”international climate policy, i.e. that rates of CO2 emissions reduction will remain essentially unchanged and fossil fuel scarcity continues to push energy prices higher. Unambitious emissions reduction policies are assumed to result in moderate prices for biomass and CO2.
Alternative 1, is a possible but less attractive scenario. It includes the combining of less renewables and much coal with carbon capture and storage (CCS). Alternative 2 assumes an aggressive expansion of biomass and wind energy sources where prices are expected to be low. Biomass production used in the energy system in 2050 is limited to relatively the same sustainable food production amount and agricultural area as exist today. Biomass will grow in relation to its price competitiveness with other renewable energy sources.
Alternative 3 represents Denmark’s ideal scenario to eliminate fossil fuel use under an “Ambitious”international climate policythat restricts ratesof atmospheric carbon levels to450 parts per million, i.e.limiting human-caused global warming to within 2 degrees C. This requires western nations to reduce 1990 net greenhouse gas emissions by at least 80% by 2050. Under ambitious emissions reduction policies, it is assumed fossil fuel prices will rise more slowly while biomass and CO2 prices will increase. A 25% reduction in total energy consumption by 2050 is predicted and comes from significant energy efficiency improvements , e.g. broad deployment of efficient cost-effective heating pumps, and substantial rises in wind and solar supplies.
For all alternatives, wind and biomass play a crucial role as does a broad range of cost-effective energy efficiency initiatives including for example:
raising the energy savings target energy firms must implement for their customers by 50% starting in 2013 and by 75% during 2017-2020
tightening building codes, energy standards, e.g. renovation of buildings
implementing an intelligent energy network and electric meters
phasing out of oil and gas furnaces, no installations starting 2017
converting to electric vehicles and 2050 goal that vehicles and average home are using 29% and 40%, respectively, of energy used today
deploying heat pumps for individual, district, and industrial heating
providing financial incentives for wind energy through cooperatives
While costs of heat and electricity will rise moderately, homeowners will be given the opportunity to lower energy costs by greater efficiency. A broad range of renewable energy initiatives will not only promote more efficient energy use but will also encourage a switch to biomass in power plants of cities and increase the consumption of renewable energy.
Denmark’s path to fossil fuel independence along with an 80% reduction in net greenhouse gas emissions by 2050 is ambitious and smart. The near-term goal to double electricity from renewables by 2020 is impressive if achieved.
TABLE 2 : Denmark’s % Share of Renewables in Electricity Production, 2009 Compared to 2020 Goal
A spectacular 62% of electricity generation is expected from renewable sources by 2020, largely wind and biomass. The doubling of wind capacity to the 42% goal of electricity generation will come from construction of new offshore wind turbines at the Kriegers Flak wind farm, coastal wind turbines, and land-based turbines. Wind energy will go from a 3 GW capacity now to a 10 GW to 18 GW by 2020-2050. More intensive energy efficiency efforts will reduce gross energy consumption by 6% in 2020 compared to 2006, increasing to 25% by 2050 assuming an “Ambitious” international climate policy.
The Danish are not waiting to learn that fossil fuels are a finite global resource. Protecting future energy security and reducing greenhouse gas emissions are driving Denmark’s transition to a new energy strategy, NOW. The country’s planning for fossil fuel independence is thorough, covering all contingencies – a far cry from our seemingly “business as usual” market approach to energy supply security, environment, and financing policy initiatives. Danish clean energy investments will be offset by lower fossil fuel expenditures and CO2 reductions and a proposed security of supply tax. Denmark’s Commission on Climate Change Policy sums up the gradual increased pressure on public budgets as the result of tax revenues lost by reduced use of fossil fuels as follows:
“The government’s objective is to be independent of fossil fuels. This has the effect, that fossil fuels that are highly taxed will be replaced by other, more environmentally friendly types of energy taxed at a lower rate and in some cases tax exempt. In order to offset this detrimental effect on tax revenues, other energy taxes may be increased, provided the overall tax burden is not increased.”
SUMMARY
A Danish research team put in perspective the cost of Denmark’s visionary conversion to renewable energy quite well:
“It may seem surprising that the total phase out of oil, gas, and coal use will not involve large costs for society in the long term. However, there are several reasons for this: Firstly, transition of the energy system will take place gradually over a long period of time (just as Denmark has done by starting with wind energy in 1970 to now being the world leader in this electrical energy source), so that existing capital stock (infrastructure) will be exploited. Secondly, over this time period, an increased global demand for energy will make traditional alternatives to renewable energy sources still more expensive. Simultaneously, technological development will gradually make many renewable energy sources more competitive and emission reduction targets will have a cost if Denmark continues to use fossil fuels. Finally, total expenditure on energy services constitutesonly a minor 5-6% share of GDP in 2050 under all scenarios. Thus, although total expenditure on energy services rises about 5% because of the transition to fossil fuel independence, the cost measured as a % of GDP decreases in significance.”
PART II. Strategic Policy Implications of U.S. Energy Supply, Demand, Price Trends, and Concentration of World Supplies
We mustn’t forget that Carmen Reinhart and Kenneth Rogoff in their massive economic research highlighted in part in a paper entitled, “Growth in a Time ofDebt,” came up with the central conclusion that nations grow slower when their public debt levels rise above 80-90% of GDP. Another conclusion was that private debt tends to fall off sharply after financial crises which is also another factor slowing down growth.
U.S. total private and public debtexploded from $26 trillion in 2000 to $53 trillion in 2008 or 9.5% annually – private non-financial debt rose from $17.5 trillion to $36.4 trillion and public debt from $7.2 trillion to $ 12.3 trillion in same period – increasing to $17.8 trillion now, including government debt needed to replace funds confiscated from the Social Security Fund. Public debt has risen over $5 trillion since the end of 2008. During 2000-2008, household debt rose from 68% of GDP to over 100% by 2008. On the positive side, private debt has fallen almost $5 trillion since the end of 2008. Since the 3rd quarter of 2008, there have been 12 consecutive quarterly declines as total household debt has fallen by almost $1 trillion. (data from Ned Davis Research) But, this ongoing private debt deleveraging process, while vitally necessary, simultaneously slows GDP growth made worse by a 100% plus public debt to GDP ratio (as Reinhart/Rogoff concluded in their study that countries face limits for Debt/GDP levels above which the effects on economic growth are non-linear).
This brings up point noted earlier that I believe U.S. is afflicted with an inherently, unstable out-of-balance economic model where GDP growth must be achieved by an excessive, debt-inducing dependence on Consumption (at 70% of GDP) in combination with low savings, stagnant wages, soaring trade deficits from unfair trade, loss of manufacturing base knowhow, relatively low public and private investments, and declining rate of tax revenue growth – all together accelerating public debt, credit card debt, and consumer spending beyond our means. Resulting U.S. huge trade balance deficits have been contributing a negative 3-4 percentage points to annual GDP growth … driving the vicious cycle of high Consumption with stagnant wages, and ever higher export deficit to the next worse financial crisis. We critically need to counter gross unfair trade practices and to shift R&D and productive investment resources to a more export led growth pattern. This requires a vast improvement in the contribution of net exports to GDP growth even if this means a 1% percentage point negative impact on GDP growth rather than historical 3-4%.
TABLE 5 gives a rather shocking picture of just how far our nation has become addicted to debt to achieve GDP growth. Note particularly that starting in the early 80s, total U.S. debt relative to GDP took a gigantic jump upwards!
During the period 1949-1959, total debt of $337.6 billion was incurred to generate $268 billion of GDP – resulting in a Debt/GDP ratio of 1.36. In simple language , this means that in the decade 1949-1958 it took $1.36 of total debt to generate $1.00 of GDP. As stated, the last three decade trend of total Debt to GDP ratios showing how much debt is necessary to generate $1.00 ofGDP is truly disturbing to say the least:
TABLE 5: TRENDS IN RATIO OF DEBT TO GENERATE $1.00 GDP –1959-2009
1959 to 1969 1.53 = $1.53 Debt to generate $1.00 of GDP
1969 to 1979 1.68
1979 to 1989 2.93
1989 to 1999 3.12
1999 to 2009 6.02 (deregulation, stock, housing bubbles)
Source: Ned Davis Research Using Data from Commerce & Labor Departments
During the 1980s and beyond, the amount of U.S. total debt sharply accelerated relative to GDP as consumers were pressured to buy, buy, buy – at 70% of GDP using flaky consumer credit vehicles accompanied by stagnant wages – more goods and services than they needed. This was facilitated by convenient necessity to buy artificially cheap (often low quality) Chinese products thanks to that country’s grossly undervalued currency and “the devil’s contract” of buying our Treasury bonds to finance resulting huge national trade deficits and persistent federal budget deficits … with debt growing much faster than GDP.
Ned Davis Research confirms the correlation between an increase in total debt (public and private) as a % of GDP and the growth rate in real GDP as follows:
1947-1980: total debt was less than 160% of GDP and GDP growth averaged 3.7%
1980-2000: total debt was 270% of GDP and GDP growth went south to 3.2%
2000-2011: total debt has risen to 350% (vs. 375% in 2008) of GDP and annualized GDP growth has plummeted to less than 1.8%.
Conclusion? Our over-debted and undercapitalized financial system spells slower average growth over next few years until sensible debt to equity and deficit ratios (budget deficits past three years have been at a sky-high historical level of +-10%) are effectively implemented and enforced … precisely what the EU 27 nations have recently agreed to do with the appropriate legislative adjustments and sanctions.
Contrary to what Paul Krugman is saying about the financial failure of EU countries as a whole to date, the total debtrelative to GDP ratios of EU mature countries over last 30-40 years are not anywhere near the U.S. development shown above. Yes, there are 5 financially very troubled EU countries, but how does this compare to 48 troubled states whose budgets are in the red with many also near insolvency … where in a number of states public employees are being fired and scanty social nets are being further marginalized left and right? How does this compare to a EU credit card use and debt level far below that of the U.S.? How do household debt levels of the mature EU countries compare when taking into consideration the millions of U.S. home foreclosures vs. the relatively tiny number of foreclosures in most EU countries? How does the U.S. debt situation compare to that of the mature EU countries whose austerity measures do not also include cutting back on continued strong investments in education, R&D, innovation, infrastructure? The EU social-economic picture is not as black as reputable economists are painting with exception of the problem countries.
We need new policies to correct the structural, destabilizing imbalances in the GDP growth components at work in our economic model. We need to listen much more closely to Reinhart and Rogoff’s warning that, “The sharp run-up in public debt will likely be one of the most enduring legacies of the 2007-2009 financial crisesin U.S. and elsewhere. High debt levels of 80-90% ofGDP and above are associated with notable lower growth outcomes.Seldom do countries grow themselves out of deep debt burdens.”
In short, our excessive reliance on a mounting pyramid of public and private debt to achieve GDP growth is a formula for repeat financial crises, carrying the middle-class further down the bare survival-wage, poverty line.
Complexity, misunderstandings, frustration abound over ECB (European Central Bank), NCBs (National Central Banks) and EU policy approaches to debt and deficit crisis. Without getting too technical, this paper will address questions on how the EU banking system works.
Multiple factors must be taken into account when it comes to ECB, NCB and government handling of HIGH sovereign debt problems for Ireland, Greece, Portugal, Italy and HIGH privatebank debt situations run amok in Ireland and Spain. In latter countries, booms were financed with unsustainable capital inflows – caused by profligate real estate bank loans and bank debt guaranteed by the Irish government, exploding its sovereign debt as well. Weak country local banks were funded by European banks with German and French banks having heavy exposure to Greek, Spanish, Portuguese and Irish bonds. Then there is the HIGH ±$1.5trillion euro zone debt governments must repay in 2012 – in the first-half of 2012, $695 billion of debt matures for Italy, Germany and France alone! This has all led to an interlocked web ofsovereign debt and banking crises, expandingrisk exposure for banks and taxpayers across Europe.
Any workable solution requires a step-by-step, well-coordinated, multi-faceted action plan. This does NOT necessarily mean the ECB should ipso facto aggressively expand its balance sheet debt by large-scale purchases of euro zone government bonds. The EU Treaty of Maastricht and Statute of the Eurosystem of Central Banks (ESCB) prohibits the ECB to balance its single monetary objective of pricestability against other aims such as growth stimulus, job creation or currency speculation. In contrast, the Federal Reserve's objectives are far more broadly defined taking into account output, growth stimulus and employment, in addition to inflation targets. The ECB and NCBs are prohibited from lending money to the public sector. [ed. note: Why? Could it be that they are influenced and/or controlled by private bankers who don't want to give up their vigorish?]
This shields central banks from pressure by governments to grant monetary financing using ECB and NCB bank money. [ed. note: Yes, but it doesn't shield governments from pressure by Goldman Sachs to take on more debt.] This prohibition covers the buying of sovereign debt – but not bank debt – on the primary market. Prohibited also are "backdoor" ECB funded bailouts as Congress and Federal Reserve did during the financial crisis and recession of 2008-09. Important, however, are the €750 billion of euro zone loan guarantees (€440 billion) and an IMF loan (€250 billion) for the European Financial Stability Fund (EFSF) to help bail out weak, debt-stressed countries under strict rescue conditions. Germany alone has contributed almost 50% of the total euro zone loan guarantees. The ECB has circumvented the treaty rule on buying public debt by buying billions of weak country bad debt on the secondary market [ed. note: Yes, but the primary market still yields the vigorish to private bankers.], justified as part of its responsibility to stabilize monetary prices. Also, the ECB greatly eased the credit-squeeze of EU banks not lending to each other by a €489 billion ($639 billion) liquidity injection of cheap 1% interest, 3-year collateralized loans to 523 euro zone banks. Some see this as a "backdoor" way of supporting the government bonds of weak countries since much of this liquidity injection was placed in sovereign bonds [ed. note: at much higher interest rates yielding fantastic profits for the banks!]. However, the ECB will not lend to the IMF so it can manage the stabilization job from Washington. But, this is a possibility for the NCBs. For now, ECB and Merkel rule out selling Eurobonds guaranteed by euro zone members. Germany’s anti-Keynesian approach of fiscal discipline, pricestability, and quasi-automatic rules governing future such crises has won out.
QUESTION 1: Who Are The Owners of The ECB and NCBs?
Owners and shareholders of the ECB are the ESCB (central banks) of the EU 27 Member States comprising 17 euro area and 10 non-euro area NCBs. Each country’s NCB is owned by that country’s government, thus making the taxpayers of each Member State indirectly the ultimate owners. Neither the ECB or NCBs nor any member of their decision-making bodies can ask for or accept instructions from any other body. [ed.note: Good, no lobbying!] EU institutions and governments must accept this principle and abstain from giving instructions or influencing the ECB and NCBs in the exercise of their exclusive functions and competence centered around monetary policy.
Since the financial crisis began in 2008, the ECB and NCBs have not joined the Federal Reserve and US Congressional bandwagon of printing and plowing back trillions of dollars to come out of the debt crisis …and they did this while unknown trillions of high-risk bank/hedge fund default swap contracts flooded markets, including insuring euro zone member bank loans as well. Is it any wonder some U.S economists have been urging the ECB to jump into the quantitative easing, money creation game. Since 2008, the scale of U.S. money creation and bank/hedge fund gambling in derivatives has been mind-boggling. Ellen Brown, research author of “Web of Debt,”found that government bailout funds for the financial institution culprits who caused the financial crisis started with $700 billion in Sept. 2008; rose to $800billion in Oct. 2008; exploded to $8.5 trillion in Nov. 2008 including all guarantees, commitments, and loans, and leaped exponentially to a potential $24 trillion in July 2011! In Brown’s words, “This mountain of U.S. debt risk exposure is TWICE the Federal Debt and TWICE GDP! BUT, concerning Q1/Q2 quantitative easing actions, one can legitimately ask where would the U.S. be today in terms of a DEFLATION MENACE with global scale implications if the Federal Reserve had not aggressively increased the money supply by quantitative easing while federal and state authorities have been slashing government budgets? (ed. note: there doesn't seem to be any inflation as a result of all the quantitative easing in the US as a result, so what is the downside? It may be that the huge quantity of dollars owned by foreign governments and individuals will eventually be used to by up large amounts of real assets in the US. In fact that is already happening.) Still, Germany has never been in love with the Anglo-Saxon model of short-term finance capitalism versus its model of robust export growth, strict budget discipline, innovative manufacturing, and long-term investment in the real economy. In my opinion, I don’t believe Europe will, nor should, walk down a pyramid money creation lane as the magical answer for stabilizing and resolving serious short/long-term deficit and debt problems in the weak euro zone countries. [ed. note: This is important as the US Fed's expansion of the money supply was an expansion of the money supply in the financial economy and not in the real economy. I speculate that this is why it was non-inflationary as well as contributing to increased casino speculative gambling which will possibly some day lead to another major financial crisis.)
I've been thinking a lot about these issues but so far have not found the time to put my thoughts down. I think Europe has followed the US with the neoliberal (here called neocon) model involving privatization, austerity and kowtowing to the bond market and the large banks. I noticed today on the European news some kvetching about the fact that the US rating agencies are downgrading some European countries including Belgium and the fact that there aren't any European rating agencies.
The ECB is following the model of the US Federal Reserve which isn't allowed to loan money directly to the US government - only to the big banks. Similarly, the ECB isn't allowed to loan money directly to European countries. These laws or rules totally favor the private banking system at the expense of the taxpayers of the respective countries.
Once the banks get the countries in debt as they did in South America, then the IMF and the World Bank want them to institute austerity and privatization programs.
I thought the article I reprinted on the blog today was a good one about how the European philosophy has changed from Keynsian right after WW 2 to now neo-liberal, basically the same philosophy that's being implemented in the US - shutting down public institutions, austerity for the middle class and privatization to get money to pay debts on all levels - municipal, state and national.
Best,
John
John,
All the talk in so many circles that Europe is going down the neo-liberal route of the United States started at least 18 months ago and has been picking up steam lately in some provocative writings. For quite some time now, I too have been confronted with this fear by some Dutch people I have met in my lecturing and training sessions every week. Such talk has hit a crescendo lately because of the "tough love" i.e., austerity treatment that's being given to the financially bad performing countries.
As I''ve said to you before, without pretensions of perfect wisdom, I believe this fear is entirely overstated. WHY? Because the coalition governance systems prevalent in all EU countries will not allow such a neo-liberal transformation. Just yesterday, for example, the Dutch public voted the Socialist Party leader, Emile Roemer, as the most outstanding politician in 2010. Denmark's conservative ruling party coalition is expected to lose in next year's elections. So, as Steven Hill correctly noted and I have witnessed for over 35 years now, Europeans have the multi-party political, counter-balancing flexibility and institutions in place to adjust to new market/financial realities. And, they make adjustments when necessary, like in significant financial stress cycle we are in now -- a more severe recession followed by a financial crisis. BUT adjustments are not undertaken with the direct intention of impoverishing the middle class as is the goal of the ultra-extreme conservatism prevalent in the U.S. What's happening in Spain, Greece, Italy, Ireland, Portugal appears conservative, ruthless and mean only because these countries have sunk so badly deficit and debt- wise.
This has many causal factors ... some national, some EU related. EU authorities simply have never enforced the 3% of GDP deficit rule thereby allowing poorly managed countries to build up wild debts, low tax collection, corrupt budgeting and reporting processes, unsustainble retirement terms and pension plans. In addition, national rulers and financial authorities in the weak countries grew accustomed to living, spending, and speculatively investing beyond their countries' means resulting in a flood of evolving debt at both public and private levels.
Now the rest of the EU 17 countries --who generally followed financially responsible rules --must save the irresponsible countries and thus the euro. The well-run countries have already provided up to €100 billion euros so Greece and Ireland can pay their daily bills. BUT, the well-managed countries are correct, in my humble opinion, to insist on disciplined reforms and budget austerity for all High Debt and High Deficit members to master control of the very deeply infiltrated causes of their financial breakdown. Otherwise, the money that is currently being sent to Greece and the others and more that will be sent will simply be money down the drain for Dutch, French, German taxpayers, etc. If financial discipline doesn't take root, the financial breakdowns will repeat themselves, and that could well bankrupt all EU countries. So, the near term approach to the financial crisis is "tough love" as the Frances, Germanies, Hollands know how serious the financial consequences will be if Greece, Italy, Spain, Portugal, Ireland all at the same time were left to survive on their own without the euro currency. Might one or two of these countries ultimately willingly or forcibly be required to leave the eurozone? Yes, of course, but the goal for this to happen must be organized in an orderly way, much like any company bankruptcy.
Another WHY neo-liberal transformation of EU is an overdone misplaced popular cry of researchers and pundits (especially from left-leaning economists in U.S.) is that they fail to understand that -- with exception of the weak EU countries that have put themselves in a dangerous financial situation over the last 20 years -- the strong countries have the Margin of Financial Cushion in their social nets and budgets to Squeeze their fiscal budgets in response to new market realities of a rapidly expanding aging of society exploding retirement/health care costs, and the slower GDP growth prospects given scarcity of basic resources and extreme, often unfair competition of China and India. BUT the mature EU countries will undertake a multi/task approach to austerity that includes progressively raising taxes and investing so as not to impoverish the middle class as America as been doing ... where social nets are ALREADY BAREBONE and yet are being cut further!! As I said in a prior writing, our social-economic situation is not too dissimilar from how the America team of brave soldiers summed up their situation and mission in the "Saving of Private Ryan" ... "FUBAR."
So, I sense the austerity situation and impact of same between the U.S. and the EU 17 healthy nations is entirely different and does not warrant the general claim that Europe is going down the socially destructive neo-liberal track America has followed the last 30 years. This apocalyptic assumption is also wrong because it fails to recognize that the EU states -- in terms of labor mobility, inherited cultural habits, norms, nationalism -- are all uniquely and light years historically different compared to the 50 U.S. states. This means each EU coalition government has always been, by necessity and by general public and cultural accomodation, first and foremost focused on an equitable and fair distribution of capitalism's rewards and punishments. I don´t expect this heritage to change. That's WHY EU democracies are referred to as "Social Democracies" which are slightly right, left or center. This is in sharp contrast to America's "Winner-Takes-All" in a die/hard liberal vs. conservative name calling democracy where quality of life, income and wealth levels
are at other extremes from the European patterns.
I'm not trying to say that all is perfect with Europe's struggle to save the euro, to sacrifice some sovereignty to achieve an independent oversight of national fiscal budgets. The struggle to go from monetary to include fiscal union where nations retain bulk of their sovereign decision power is by far not over. Nearly 50% of the ECB's capital reserves come from Germany and France, the most influential eurozone members ... both of whom are putting the brakes on opening the money printing press for expanding the European Financial Stability Facility (EFSF) from planned Euro 750 billion level to at least Euro 1 to 1.5 trillion, as some are recommending. This can be seen as a weakness of the ECB since it is not completely independent from the most dominant EU members. This can also be seen as an obstacle to be overcome for other EU members to have an equal voice in the final fiscal austerity mechanisms, and the effective implementation and operation thereof.
In my over 30 years of living and working in Europe, in my view what's going on now is Europe's usual pragmatic, step-by-step adjustment process to new challenges and market/financial realities. The adjustment task is slower and much, much grander this time ... more seriously testing EU unity given the interlocking depth of the financial breakdowns in weaker EU member countries. I have greater faith Europe will overcome the obstacles than I do that Republicans and Democrats will ever come together to solve our own equally, if not worse, financial and job development crises in a sane, constructive, fair way that brings ALL Americans foreward as opposed to only the top 1%, 5%, 10%, 20%
Time will tell who´s right about the claim Europe is also moving towards the kind of destructive, money-only-counts casino capitalism and oligarchic rule that has already taken over our democracy.
Best,
Frank
John,
Easing of the euro and credit crunch crisis by the ECB's just announced $639 billion loan liquidity offer -- at a very low benchmark interest rate of 1% and loan terms of 3 years -- to over 500 EU banking institutions BUYS TIME to solve longer-term issues such as:
reducing very high government or household debt among EU member countries noted in TABLE 1
achieving real EU 17 and EU 27 fiscal unity including: consistentcy and harmonization in financial reporting, transparency, and effective operation/enforcement of EU rules for government deficit and debt levels
implementing Basel III stricter capital (equity) reserve requirements for banks of 3% of total assets among other provisions
Concerning debt levels, the Dutch have come up with a thoughtful idea. Authorities are now serioiusly considering offering new and existing homeowners an income tax benefit if their home mortgages are paid off more quickly. As TABLE 1 shows, the Netherlands has an excessive level of household debt amounting to +-130% of GDP.
Over thirty years living in the Netherlands has taught me never to give up on the Dutch multi-party coalition governance to ultimately reach balanced solutions to serious societal challenges -- like the Dutch multi-faceted strategy approach to the current financial crisis of CUT, REFORM, RAISE TAXES, and INVEST. And the goal is to try to undertake these actions simultaneously so as not to create a long period of "stand-still" growth as the Japanese experienced in their 1992-2002 self-inflicted prolonged economic
stagnation.
Best
Frank
Frank,
Have you taken into account that the bond speculators are driving Greece into default by betting that they will default? This has nothing to do with how well European leaders respond to the crisis and everything to do with what international speculators may be doing to drive up Greek and Italian interest rates by shorting their bonds. Speculators prey on the weakest countries and can drive them into default by betting huge sums of money that they will fail. This is what caused MF Global to go bankrupt: they had bet their depositor's money that Greece would default, and then, when it didn't, they couldn't cover their bets.
There's still the business of naked shorts where the bettor doesn't even need to own any securities. I think the EU banking system is no different from the US banking system in the respect that it is private and not immune to the machinations of Goldman Sachs and the whole international banking crew and their mania for derivatives which can drive up interest rates for weak countries and ultimately could cause them to default. Huge sums of money are being bet on outcomes for Greece and Italy which could ultimately become self-fulfilling prophecies.
Is the ECB owned by the EU or is it private? Does interest accrue to the EU or to private bankers for the money it loans?
More next week...
Regards,
John
John,
I'll spare you before Xmas from a long email response about financial speculators. In short, suffice it to say one key goal of a financial transaction tax, I just wrote about at length, is to put a damper on all sorts of financial speculations and make them consummately transparent. It's a fast growing reprehensible out-of-control international activity close to or often actually being outright criminal. Sophisticated huge money players like Goldman Sachs and other greedy manipulators play the short and long speculation game.
George Soros, who I happen to admire, made billions as a speculator among other ways. Financial speculation has been around since stock/ bond/currency exchanges have existed. The ugly excesses and abuses are still ineffectively controlled. Recently though, I've noticed EU authorities are getting more and more behind a financial transactions tax, hopefully in spite of Geithner's opposition. It will be interesting to learn what the recent Basel III meetings and discussions have concluded, if anything, about this deeply-rooted problem that's just another form of casino capitalism benefiting the wealthy and powerful.
Will converse more with you on this subject later.
Dean Baker's article is valuable in illuminating the time phasing of deficits as a percentage of GDP before and after the crisis. Public and Household Debt generally always increase in recessions but rose to an extremely high level in 2008-09 recession which was really a "mini depression", now an ongoing double-dip recession for most EU countries. When Debt rises, growth falls which in turn expands Debt and thus intensifies the downward spiral of an already weak growth rate.
So adding significantly more debt when it is already so high is NOT the solution adopted to date by EU authorities as Krugman proposes. The focus for the time being is primarily on solving the fiscal problems and keeping savings high. This approach and the ongoing recession will expand unemployment as is now happening in the Netherlands (unemployment rate is now near 6% from 4.8% six months ago. But there are ample unemployment benefit funds to cover this setback. Such benefits amount to €180/day( $240/day up to maximum of ±$42,000/year) for up to 36 months ... more than sufficient to weather the double dip recession. These social nets, as I've said many times, are very important "economic stabilizers" in economic down times which America does not have.
Paul Krugman tends to underestimate the stabilizing effects of European social nets which historically have generally made recession downturns slower and less steep in mature EU countries and recoveries slower than in the U.S. But, let's face it: EU authorities failed egregiously in not enforcing the fiscal rules passed in 1991. This left Italy to go its reckless corrupt ways and left Greece, Ireland, Portugal, Spain (and Iceland) to go their reckless financial ways. Greece and Italy share the lead as being the worst tax collection countries in Europe. The ECB never paid any attention to this among other things.
Italy’s ignored public debt is at such a level that their austerity program is also being directed at politicians whose incomes are substantially above the EU average. While Italian workers’ salaries are among the lowest in Europe, monthly take-home pay for lawmakers ranges from $18,000 to $28,000 plus excellent medical insurance, a car and driver, and free travel within Italy. Little wonder Italy’s Parliament costs about $2.0 billion a year or $33 per capita for a population of 60 million. This compares to our U.S. Congress which costs about $2.2 billion a year to maintain or $7 per capita for a population of 315 million!! This underscores EU focus on weak countries getting their financial houses in order before opening the fiscal stimulus floodgates.
Carmen Reinhart and Kenneth Rogoff’s exhaustive study of recessions and the financial crises after recessions confirms that results vary broadly depending on how policy makers respond to the crisis. Their research showed that nations already at high debt levels and/or in an unhealthy financial state have historically not responded well to fiscal stimulus measures. For example, China and South Korea have recovered quicker than the U.S. and Europe because the fiscal status of these countries was far sounder before the recession hit them. In Reinhart and Rogoff’s opinion, the policy response to the banking system which caused the crisis is far more important. To make a system less vulnerable to a financial crisis, they warn there must be no hesitation in implementing and enforcing appropriate rules and regulating on the banking system. Europe is doing this now as well as seeking disciplined enforcement of a 3% of GDP deficit brake and a 60% of GDP public debt brake.
The theme in the paper, "The Real Effects of Debt,"is that a country trying to go too far to buy itself out of a recession only makes the already High Debt situation and intermediate term inflation risk even worse. Better to tighten spending, reform social nets, and raise taxes progressively, support banks with longer term loans. low interest benchmark rates and, and stick as much as financially possible to planned sustainable investment projects. Name economists forget that Ireland and Iceland are now slowly recovering from economic disaster with the former receiving modest support from the ECB and the latter practically nothing (except some aid from Norway).
The following ratios of Debt as a percentage of GDP come from the Federal Reserve Bank paper. They are alarming, and the Debt mix management problem is quite different for most countries:
One can quickly see why the Netherlands is undertaking a sharp five year budget reduction of €23-26 billion particularly with its very high household debt ratio ... which is also very high for U.S., UK, and Spain but surprisingly low for Greece.
U.S., France, Italy, and Greece have very high government debt ratios. Non-financial debt ratios are extremely high for Spain and France and rather high for all other countries, but very low for U.S. and, again surprisingly, very low for Greece.
The Federal Reserve Bank paper concludes after exhaustive study that certain thresholds should not be exceeded for the three forms of debt above. These thresholds are: 85% for government debt; 85% for household debt; and 75-90% for non-governmental debt. The research paper concludes that going above these thresholds begins to have a significant impact on GDP growth.
This is a main factor behind the EU's reluctance to print large sums of money now or purchase excessive bundles of bad debt. The next step is to come to agreement on some innovative bail-out funding solution for the ECB that is financially responsible ... while still holding both financially weak and strong countries to the agreed fiscal discipline rules.
Easing of the euro and credit crunch crisis by the ECB's just announced $639 billion loan liquidity offer -- at a very low benchmark interest rate of 1% and loan terms of 3 years -- to over 500 EU banking institutions BUYS TIME to solve longer-term issues such as:
reducing very high government or household debt among EU member countries noted in TABLE 1
achieving real EU 17 and EU 27 fiscal unity including: consistentcy and harmonization in financial reporting, transparency, and effective operation/enforcement of EU rules for government deficit and debt levels
implementing Basel III stricter capital (equity) reserve requirements for banks of 3% of total assets among other provisions
Concerning debt levels, the Dutch have come up with a thoughtful idea. Authorities are now serioiusly considering offering new and existing homeowners an income tax benefit if their home mortgages are paid off more quickly. As TABLE 1 shows, the Netherlands has an excessive level of household debt amounting to +-130% of GDP.
Over thirty years living in the Netherlands has taught me never to give up on the Dutch multi-party coalition governance to ultimately reach balanced solutions to serious societal challenges -- like the Dutch multi-faceted strategy approach to the current financial crisis of CUT, REFORM, RAISE TAXES, and INVEST. And the goal is to try to undertake these actions simultaneously so as not to create a long period of "stand-still" growth as the Japanese experienced in their 1992-2002 self-inflicted prolonged economic
Frank's remarks go first as he is living in the Euro zone and much more knowledgable than John. John's remarks, which are more speculative come later. Perhaps this can be an ongoing dialogue between our two correspondants.
Frank's Remarks:
On December 8, 2011, EU history was made as all EU 27 members (subject to Parliament approval by 3 or 4 countries) -- except the UK -- agreed to cede some sovereignty in accepting tough financial fiscal-budgeting rules that members had earlier pledged to follow under the original Maastricht Treaty. In short, apocalyptic expectations of the euro's demise have been proven wrong as the EU takes one small but great step towards fiscal and monetary union without an unbearable loss of sovereignty. More intensive discussions will no doubt occur on latter point.
The European Court of Justice will ultimately have central oversight of national budgets making sure that budget deficits do not exceed 3% of GDP and total overall debt does not exceed 60% of annual economic output. Debt brakes will be put into law or constitutions committing countries to these fiscal discipline measures. The 3% rule was put into effect in 1991, but it has been given scant attention and has never been enforced. Sound familiar? Politicians have a tendency of flouting, not standing behind, or resorting to subtle ways to shirk enforcement of their statutory legislative actions. But that behavior will be harder for EU members this time as serious sanctions face those who disobey the tough rules. Sanctions might include possible expulsion or willful withdrawal from EU membership.
Premier Cameron found the fiscal-budget oversight measures too much of a threat to UK sovereignty and an intrusion into the City's powerful financial trading services. Thus, his veto of the reinforced fiscal measures means the UK is stepping out of further discussions about the euro, deficits and debt reduction, and funding of the EU central bank. This is not surprising as Cameron has been under extreme pressure from party members who want no part of this development. The UK wants it both ways. They want to have influence but not pay the price of joining the eurozone. This veto means that only the EU 17 have formally or legally committed to accepted central fiscal oversight control and enforcement.
Once the detailed operating mechanisms are worked out, the next step will likely be a prudent, innovative plan to add liquidity to the financial system to restore confidence and put to rest any market panic. In the interim, the European Central Bank (ECB) will reduce the banks' benchmark interest rate from 1.25% to 1.00% to offset the current credit crunch. Also, the ECB will offer banks more long-term loans of up to 3 years versus current 13 months. This will make it easier for banks to lend money in the market place and will offset the flight of private investor capital from EU financial institutions.
To date the ECB has been modestly buying the distressed debt of Greece and Portugal. The ECB is strongly commited to intervene in the bond markets to keep interest rates under control for financially weak countries that are finding it more and more expensive to borrow money on the bond market. However, the ECB will do no more than that now and is not about to print money or buy a large amount of government bonds. The game is to keep the pressure on politicians of financially weak and strong countries to start carrying out tough fiscal measures and debt reduction to make sure this kind of crisis problem never happens again. The Netherlands, Finland and Germany have been the keen initiators of uniting on a policy of strictly enforced fiscal-budget discipline as a first step before exploring the role and funding of the ECB in bailing out insolvent governments, requiring a change to the Maastricht treaty. It's all about coming down hard on the financial recklessness of southern European countries while adhering to the original goal of European fiscal and monetary unification under the euro.
Another complication is that the ECB (unlike the U.S. Federal Bank) is prevented by treaty law from financially coming to the aid of EU member governments. The EU's single legal mandate is monetary stability. It can only aid companies/people by supporting the banks. And that's just what the Germans want and preferably no more. Bailing out and restructuring the bad debt of an insolvent government must be a very last resort action by the ECB after a country's belt-tightening actions have failed. The Germans and Dutch are uncompromising about this principle.
Europe does not want to get on the fast track of wholesale printing of money or selling of EU bonds (or buying up billions of bad debt) in the easy ways the U.S. money system works (e.g. trillions in quantitative easing and selling Treasury bonds). There are many reasons for this: first, the most obvious being the fear of inflation 3-5 years down the road -- a risk Paul Krugman and other economists erroneously consider as highly unlikely with very low inflation today --; secondly, there's the fear of exacerbated debt growth as some countries relax their controls thinking they will always be saved by the taxpayers of the finacially well-managed countries. It's called Moral Hazard.
Another concern is that printing euros on a large scale in Europe is far more inflation-risk intensive than in the U.S. This is because the euro is a relatively small regional currency while over the past 60 years the dollar is better protected against this kind of inflation-risk by being deeply distributed and planted in worldwide banking and transactions' systems. As stated, EU leadership is reluctant to open the money faucets until there is clear evidence of at least a "de facto" fiscal discipline in process. And in all cases the ECB should be the lender of last resort to governments. Presently, there is about €850 billion in the Euro Emergency Fund. Some are advocating this Fund should be increased to €1.5-2.0 trillion to scare the pants off the treacherous currency speculators. So far, EU officials are not buying this advice.
One thing is certain. It's not a question of choosing between the euro falling or fiscal unity. The vast majority of European leaders realize that suggesting or even contemplating the fall of the euro is NOT an option -- it's a self-fulfilling DISASTER scenario affecting the entire world economy. The globalization and advanced data transfer technology processes have bound the financial world into a tight, supremely complex, irreversible interconnection like the attachment of early twins in the womb. Abandoning the euro would trigger a wave of financial collapses, negative growth and a duplication of the 1930s depression. Allowing the euro to fail with the hope of building the system up again with multiple currencies is, as one financial advisor lightly remarked, "like thinking an egg can be broken up and put back together again." Impossible! Furthemore, one currency versus multiple fluctuating currencies makes it far, far easier to undertake long-term investments, cross border transactions and to grow businesses. But of course this requires that fiscal policies of EU 17 are brought in line. A common currency without fiscal and monetary harmony is very problematic as Europe is learning the hard way.
I'm confident EU countries will resolve the loss of sovereignty pain and come up with the right emergency funding actions to calm financial markets and assure long-term fiscal stability and debt control. Already, general agreement is near to raise the banks' reserve requirement to 9% from 6% which could be further increased as a bank gets globally bigger. This responsible financial thinking is in contrast to the U.S. where compromised politicians continue playing the banks' casino games with a paltry 6% reserve requirement and massive bonus payments. The EU bank bonus system will also be sharply reformed. Meanwhile, U.S. authorities cowardly pussy-foot around this insidiously destructive practice. Another more aggressive step being considered is legislation that will allow a failed insolvent (as opposed to illiquid) government to declare bankruptcy or to willingly withdraw from eurozone membership. But, of course this idea, if feasible, must be structured in a highly regulated, orderly way
This is a complex serious matter. The EU mature countries, with the Netherlands as an excellent example, are already taking a tough but balanced, equitable austerity approach to the ongoing recession and to maintaining fiscal sanity. The Netherlands' approach involves four strategies: CUT (for example: waste, culture/social-net budgets, foreign aid, possibly mortgage interest deduction); REFORM (health care, social-nets, financial institutions/systems); INVEST (in sustainable job-producing projects, i.e., education, infrastructure, green energy, R&D, Innovation; and RAISE TAXES (but not on lower income earners).
When European leaders finally come together as they have and say they are fully behind the euro and fiscal discipline, I'm convinced they mean business.
Best,
Frank Thomas
The Netherlands
December 9, 2011
John's Remarks:
I note that Germany and Angela Merkel are calling the shots here followed closely by the Netherlands, France and Finland. The northern European countries, which are far more economically successful and seem to have a much greater work ethic, are imposing their solution on the weaker southern European countries of Greece, Italy, Spain and Portugal. This bothers me in the sense that it could create a rift in the Euro zone with the weaker countries feeling that the austerity measures imposed on them by the stronger northern European countries are unfair. Of course, the northern European countries are maintaining that the southern countries need to get their act together, pull their own weight and not expect Germany to bail them out. This could backfire in that the average "middle class" Greek, for example, might find the austerity measures imposed on him unfair and unbearable especially if he loses his job because of them. A macroeconomic solution by itself might not play well in the microeconomic world.
In a way Merkel is playing the role of conservative Republicans in the US who want fiscal problems solved by cutting expenses rather than raising revenues. While the Occupy movement in the US is calling for taxing the rich to solve the deficit/debt crisis, Republicans and Merkel seem to be calling for cutting spending. Why isn't their a greater call for taxing the European rich? I did notice, however, that Merkel has called for a Financial Transaction Tax (FTT) which is why Britain backed out of the agreement which all the other Euro zone countries have agreed to. Why does Britain, which doesn't even use the euro, have any say in the matter whatsoever, and does this mean that there will be a FTT in the euro zone sans Britain? If so, this could alleviate some of the austerity which is being advocated.
I also notice the parallel between the Republican war on government workers in the US and the fact that there is a large percentage of the Greek work force involved in government work. I assume that it is Merkel's intention to cut that government work force as part of her austerity measures. But what are those laid off workers supposed to do? I don't think Greece has much of an export economy or even much of a private sector. If the austerity measures are too severe, there will be rioting in the streets as if there hasn't been already. But there will be more.
I think Merkel's approach will probably bring the speculative markets under control and allow Greece, Italy, Spain and Portugal to get a handle on their debt problems. It's interesting that the ECB cannot loan money directly to governments but only (for all intents and purposes) to banks. That is similar to the US Federal Reserve which has offered extremely low interest loans to banks - over $7 trillion of quantitaive easing at an interest rate of .01% - while not dealing directly with the average middle class citizen whose lot is to deal with the banks which offer them no such advantageous deal. The ECB seems to be relying on the fact that bailing out the banks (in advance) will help Euro zone countries with their debt problems because the banks then will be able to loan to the countries involved at a lower interest rate than would otherwise be the case. This still leaves the problem of what to do with all the unemployed workers who will lose their jobs due to the belt tightening.
Redistribution of wealth from the hardworking, thrifty and frugal northern Europeans to the "La Dolce Vita" loving Italians and the "Who me, pay taxes?" Greeks is something that Angela Merkel is adamant against just as in the US the Republicans are adamant that the "job creators" should not pay any more in taxes to help the poor. The rich, whether individuals in the US or countries in the EU, seem to think that they are entitled to keep what they perceive they have earned and not be forced to give it up to those who have squandered their resources. They have worked hard while the others have been lazy and goofed off so why should they have to bail them out?
However, redistribution from rich to poor, whether in terms of individuals as in the US or in terms of countries in the EU, might be the more preferable and humane solution compared to the prospect of rioting in the streets. In order to keep the wolves at bay, it might be desirable for the more conservative elements in both societies to give a little even as reforms are being implemented. It may be necessary for northern Europeans to "carry" their "little brothers" in the south for the sake of maintaining peace and harmony in the EU just as it may be necessary for the weathy in the US to give up some of their enormous gains in wealth and income over the last 30 years in order to stabilize society.
In the last 30 years average workers in the US have made hardly any wage gains while most of the gains have gone to the upper 5%. 30 years ago CEOs made about 30 times the wage of the average worker whereas today they make 300 times the average worker's wage. The middle class has only been able to keep its head above water by going into debt and participating in the bubble economy only to lose big time when the bubbles have burst - first the stock market bubble in 2000 and then the housing bubble in 2008. These two bubbles dropped the floor out from beneath the middle class. Since Europe, especially Britain, has followed the US in its fiscal and monetary policies to some extent over the last 30 years, I imagine that some of the maladies in the economy of the EU are similar to those in the US especially in banking.
In the final analysis, taxing the rich may be necessary in the interests of social stability as opposed to balancing budgets on the backs of the poor and middle class. Perhaps northern Europeans need to relax their work ethic while southern Europeans need to step up to the plate and strengthen theirs. All the countries of the EU need to pull together or it will come apart with disastrous consequences as has happened all too frequently in past history.
Frank's Further Remarks:
Your speculative analysis overall is excellent, but I feel goes way too far in equating EU country tough treatment of the weak nations to that of the Republicans treatment of "the losers" and poor in America. As noted in my writing, Europe will come to the aid of Spain, Greece, Italy, and Portugal eventually as a lender of lastresort but only after they show evidence of their committment to get their debt and fiscal house in order. I have no doubt that the EU Emergency Fund will be increased in a sane manner. Don't forget that 26 of the EU 27 countries have just agreed to sacrifice some precious sovereignty in accepting central oversight control of national budgets that will be enforced by tough penalties. This is a major, major change! These 26 nations reflect a population base of over 400 million. It's totally unimaginable that 99% of all states in America with 300 million people would ever agree to such a concept of central budget oversight control. This would be immediately met with screams of a "communistic tyranny" and "down with the government" !!
John's Further Remarks:
Similar to the poor and gullible in the US who took on sub-prime loans which they didn't have a prayer of ever paying back especially after the ARMs reset, the Greek government took on debt that it couldn't pay back which, if the banks didn't actually force on them, they certainly used pursuasion and encouragement to get them to go in debt way over their heads. So in both situations it was the banks who "helped" the Greeks and individual would be mortgagees in the US take on more debt than they should have. Sure one can blame the debtor who wasn't exactly forced to sign on the bottom line, but the banks surely acted as pushers to the debt addition both in the EU and in the US. Unfortunately, the weaker countries such as Greece, Italy and Spain fell for the banks' ploys just as weaker persons in the US fell for the easily obtained credit without realizing what they were getting themselves into.
This is why I think both the Greeks and debtors in the US should be cut some slack. In the final analysis, if it weren't for the banks' policies of making credit easily available to unworthy debtors, crises in both countries could have been avoided. The big banks encouraged individuals and countries to go into debt way over their heads.
Frank's Further Further Remarks:
Improved bailout resources, ECB's support of the banking sector, and fiscal austerity and overhauls where budget deficit and debt limits will be incorporated in national constitutions all give governments time to prove they are serious about financial discipline as well as to finalize a new intergovernmental treaty. The EU's firm, unified commitment that the euro does not fall also means no one is about to let the weak countries go down the tubes providing they move on the financial pack agreed to by the Euro Zone core 17 and the 9 remaining EU states.
This is the second in a two part series considering whether or not drugs and prostitution should be legalized in the US as many libertarians including Ron Paul have advocated. Part 1 can be found here.
Prostitution is legal in some form or other in many countries of the world. In many other countries, including Muslim countries, polygyny, which means that one man can have multiple wives, is completely legal. Does prostitution serve some beneficial social purpose or is it something entirely reprehensible that should be criminalized and prosecuted? Or is it a necessary evil that should be regulated and managed but discouraged while not being criminalized. We shall examine some of these ideas in this article. Of course prostitution isn't the societal problem that drugs are. There is no "prostitution war" equivalent to the "drug war" that is ravaging Mexico. Billions of dollars aren't involved in prostitution in the same way that they are in the lucrative drug trade. Prostitution as a societal problem is almost beneath the radar compared to the drug problem where competing cartels have waged war and numerous people have been killed.
There are some 13,000 porn films made every year in the United States, most in the San Fernando Valley in California. According to the Internet Filter Review, worldwide porn revenues, including in-room movies at hotels, sex clubs, and the ever-expanding e-sex world, topped $97 billion in 2006. That is more than the revenues of Microsoft, Google, Amazon, eBay, Yahoo!, Apple, Netflix, and EarthLink combined. Annual sales in the United States are estimated at $10 billion or higher. There is no precise monitoring of the porn industry. And porn is very lucrative to some of the nation's largest corporations. General Motors owns DIRECTV, which distributes more than 40 million streams of porn into American homes every month. AT&T Broadband and Comcast Cable are currently the biggest American companies accommodating porn users with the Hot Network, Adult Pay Per View, and similarly themed services. AT&T and GM rake in approximately 80 percent of all porn dollars spent by consumers.
Evidently, it's not illegal to pay a woman to have sex so long as it's packaged and sold as an illusion, and it adds to the bottom line of corporate profits and as long as the man paying her isn't the man who is actually having sex with her.
The web has made pornography accessible and free. A Newsweek article in the December 5, 2011 issue states: "An estimated 40 million people a day in the US log on to some 4.2 million pornographic websites, according to the Internet Filter Software Review. And though watching porn isn't the same as seeking out real sex, experts say the former can be a kind of gateway drug to the latter."
The problems with the profession of prostitution are mainly visited on the low end prostitutes, the street walkers and hookers, who are regularly brutalized and even serially murdered by their clients. Sex trafficing affects girls and women who are promised a ticket out of some miserable homeland only to find themselves landed up as sex slaves. If prostitution were legalized and regulated, the people who would be helped the most are the low end prostitutes, the poor prostitutes who are exploited by pimps and sex trafficers. Perhaps this is why prostitution remains illegal in the US where disregard of the poor is a tenet and bedrock belief of Republican philosophy. After all legalization and regulation would mean more government bureaucracy even though it might reduce violence and sexually transmitted diseases. In other countries legalization means that prostitution is regulated to make sure that exploitation and disease are minimized under the theory that human behaviour can't be legislated but it can be managed and regulated.
In Holland where prostitution is legal, prostitutes even have their own union! Prostitution is legal in many countries including Canada, Mexico, Israel, England, France, most other European countries, most all of South America including Brazil, Australia and New Zealand. Even Iran has "temporary wives" which can last for only a few hours. Legalizing prostitution not only protects prostitutes and their customers, but it represents a service that can be taxed and can bring in government revenues. Libertarians in the US are all for legalizing drugs and prostitution. The joke is that libertarians are Republicans who want to smoke dope and get laid. The question why do men go to prostitutes is of less interest here than the sociological question of whether legalization or criminalization of such activity produces a more healthful and more crime free society. Societies in which drugs and prostitution are legal tend to have lower incidences of rape and other violent crimes than the US according to the Liberator report. And the US is the world's chief hypocrite in this regard as it tolerates and even encourages prostitution in countries which contain US military bases due to demand from soldiers, sailors, marines and airmen.
Before I go on though, there is a joke along these lines: A middle aged couple went to the county fair. As they were perusing the livestock barns they came across the prize bulls, those who had won blue ribbons. The wife exclaimed to the husband, "Look at that bull. He sired 150 calves last year. That means he had sex 150 times. If that bull can have sex 150 times in a year, surely you can do as good as that bull. They walked a little farther and the wife exclaimed again, "That bull sired 250 calves last year. He had sex 250 times. If that bull can do it, you should be able to do it too. They walked a little farther and the wife said,"Look at that bull. He had sex 350 times last year because he sired 350 calves." Just then the husband piped up, "Yeah but it wasn't always with the same cow!"
The "same cow" syndrome, as I call it, or sexual boredom explains in part why men who seemingly have everything, including the most beautiful wives in the world, cheat. Why do such men as Tiger Woods, John Edwards, Eliot Spitzer, Arnold Schwarzenegger, Jesse James and now even Ashton Kutcher cheat? Rich and famous men in particular have more opportunities for one thing because women are attracted to them. Rock stars, professional athletes and entertainers have women throwing themselves at them in many cases. They have ample opportunities. These are people who can go out and buy anything they want. If they want another home they simply go out and buy it. Another car? No problem. Another yacht? Same thing. They are used to being able to have anything they want. So it seems that what a lot of these men want in addition to all the other stuff is to have sex with a woman other than their wives even when they are married to the most beautiful women in the world. Men who stay monogamous may have the same desires but don't act on them due to the consequences and loss, both financial and emotional, that would ensue if they were found out. They may be altruistic enough to consider the consequences of breaking the heart of someone they love even if they are attracted to other women. Men seem to be able to divide love and sex into two distinct, sometimes non-overlapping, compartments of their minds. A girlfriend told me once that love and sex are all mixed together in a woman's mind whereas for men they are two distinct phenomena.
Take the case of superstars and multimillionaires Jennifer Lopez and Marc Anthony who supposedly had a fairy tale marriage and two adorable twin kids. That lasted about seven years. Marc decided that he wanted to spend more time with his ex-wife, a former Miss Universe. Jennifer decided she wasn't "passionately in love" any more. Friends said Marc had an eye for other women. There you have it folks. The fairy tale didn't last. Someone I dated once told me that fairy tale relationships don't last. She and her ex-boyfriend initially had passion that wouldn't quit. They couldn't get enough of each other. Then the passion started to diminish and after seven years they were sleeping in separate bedrooms and couldn't stand each other. Is this where the seven year itch comes in? I think the lesson here is that passionate fairy tale marriages or relationships won't last without concomitant commitment and sometimes even committed relationships won't last particularly if the participants can have anything they want without restrictions of finance or opportunity.
"Till death do us part” is a compelling idea, but with the divorce rate exceeding 50 percent, many people would very likely agree that humans have a biological impulse to be nonmonogamous. One popular theory suggests that the brain is wired to seek out as many partners as possible, a behavior observed in nature. Chimpanzees, for instance, live in promiscuous social groups where males copulate with many females, and vice versa.
But other animals are known to bond for life. Instead of living in a pack like coyotes or wolves, red foxes form a monogamous pair, share their parental and hunting duties equally, and remain a unit until death.
For humans, monogamy is not biologically ordained. According to evolutionary psychologist David M. Buss of the University of Texas at Austin, humans are in general innately inclined toward nonmonogamy. But, Buss argues, promiscuity is not a universal phenomenon; lifelong relationships can and do work for many people.
So what distinguishes the couples that go the distance? According to several studies, a range of nonbiological factors can help pinpoint which pairings are built to last—those who communicate openly, respect each other, share common interests and maintain a close friendship even when the intense attraction wanes.
Monogamy which isn't prevalent in the non-Western world is having a rough go of it in the US despite the "family values" crowd. Despite their family values politicians such as Newt Gingrich and now Herman Cain turn out to be serial adulturers. Others such as Republican David Vitter and Democrat Eliot Spitzer have been found out for visiting prostitutes. Vitter was able to keep his job in Congress; Spitzer wasn't able to hold on to the governorship of New York.
Muslims can have multiple wives. And according to the Bible Solomon had seven hundred wives and three hundred concubines. King David had eight wives and ten concubines. The Biblical example doesn't bode well for monogamy as the bedrock of western civilization. Monogamy in the western world is undercut by serial marriage which movie stars such as Elizabeth Taylor (8 marriages) indulge in. The marriage vow "till death do us part" has become irrelevant for large numbers of people who fail to even include it as part of their marriage ceremony. And in the western world one can simply remain single and have multiple boy or girl friends. The sanction against sex outside of marriage no longer exists. But still for some people monogamy remains a strongly desirable value and way of life. The fact that there are many ways around monogamy including prostitution is probably a good thing as it relieves sexual tension and pressure for those who are unable or unwilling to maintain strict monogamy. This pressure relief valve probably prevents equivalent energy release in more anti-social and even criminal modalities.
Frank has written an excellent essay on prostitution in Holland where it is legal, as it is in most other countries of the developed and undeveloped world, which we present here:
LEGALIZED PROSTITUTION IN THE NETHERLANDS
Introduction
The Netherlands has undergone a long transformation of first viewing prostitution as a dishonorable profession with few rights under the law; to seeing the prostitute as a victim of criminal exploitation by procurers and traffickers; to adopting a public policy of regulated tolerance; to legalizing and accepting adult prostitution in 2000 as a legitimate “right” and form of occupation by consenting adults. The Dutch practical approach to prostitution was evident as far back as 1413 in a decree from the city of Amsterdam:
“Because whores are necessary in big cities and especially in cities of commerce such as ours – indeed it is far better to have these women than not to have them – and also because the holy church tolerates whores on good grounds, for these reasons the court and sheriff of Amsterdam shall not entirely forbid the keeping of brothels.”
One caution to readers. This writer makes no pretenses that the Dutch approach to prostitution today is transferable to the U.S. For every nation has its unique social-cultural history affecting attitudes towards social problems like prostitution, drug abuse, rape, abortion, teenage pregnancy, euthanasia. The legal spectrum for prostitution extends to the death penalty in some Muslim countries to treating sex workers as legally independent, tax-paying business entrepreneurs in the Netherlands. US public policy decisions on prostitution have long been driven by traditional religious-based moral values making prostitution a criminal offense. Costly time consuming court cases are pursued penalizing prostitutes while knowing prostitution is impossible to eliminate. U.S. officials often end up taking a schizophrenic blind eye to its presence and abuses.
Since the 17th century, the Dutch have slowly developed a more permissive culture of pragmatism and tolerance towards the “oldest profession.” Although Calvinistic moral absolutism strongly colored government policy on prostitution in the 17th century, the criminalization of brothels died down as old habits continued. Dutch authorities gradually left brothels alone if they were not a public nuisance. Moral arguments to justify certain laws came to be overshadowed by a jurisprudence based on a cultural value of utilitarianism. Thus, religion, sin, morality are rarely the driving emotions in policy-making for social phenomena in the Netherlands. The Dutch are above all a practical, realistic, open people … characteristics nurtured by centuries of doing business across continents in diverse languages with few pre-conceived prejudices about race, political creed, culture, or religion. No wonder, surveys show that 78% of Dutch citizens favor legalization of prostitution.
In contrast, Sweden sees prostitution as a sex-specific act of violence against women, as an act essentially involuntary and morally repugnant. Sweden’s goal is to suppress and ultimately abolish it. Prostitutes are seen as a victim group and prostitution as a “gross violation of a woman’s integrity.” Prostitutes need to be rehabilitated not punished. In 1999, Swedish law decriminalized the sale of sex and took the historical step of making it a criminal offense to pimp, traffic, and buy sex. Men who buy sex are subject to public exposure and fines or up to six months in prison. Thus, clients as well as pimps and traffickers are seen as oppressors. All face the threat of being punished under criminal law. This plus the Swedish threat of "naming and shaming" the client by publication are generally accepted methods of abolishing prostitution, achieving true gender equality, and protecting women from violence.
Officially reported results are positive. Street prostitution has been eliminated. The number of prostitutes has dropped 40%, and criminal human trafficking gangs tend to avoid Sweden.
Sweden’s abolitionist policy is very un-Dutch. People here regard prostitution as a social phenomenon that cannot be eliminated. Interestingly enough, however, the Dutch are now considering adopting Sweden’s practice of "naming and shaming" the client – to be directed to buyers of sex from women or brothels not legally registered or licensed, to buyers from prostitutes who are minors, and to buyers who commit acts of coercion or violence. Studies show most men who bought sex would likely be deterred by the risk of a pillorying by public exposure in the local newspaper. Heleen Mees, Dutch economist and lawyer, concluded that for many men (including former New York Governor Eliot Spitzer), the promise of anonymity may be the most appealing aspect of buying sex.
How the Dutch System of Legal Regulation Works
The Dutch have long believed banning prostitution makes it ever more difficult to control and counter abuses. Accordingly, prostitution itself has never been illegal in the Netherlands. A 1911 Act banning the owning of a brothel and profiting from prostitution was lifted in 2000. The 1911 Act had only been used against brothels and sex clubs engaging in criminal activities or disturbing public order. It was replaced by Article 250a of the Dutch Criminal Code which made it legal under strict conditions to operate a brothel or solicit clients for a prostitute while prohibiting exploitation of prostitutes.
Like the Netherlands, Germany also legalized prostitution in 2002. The criminal aspect and spiraling violence were overriding factors compelling both countries to legalize and regulate the sex industry.
Dutch law brings tough penalties for the following offenses:
Forcing another person to engage in prostitution, inducing a minor to engage in prostitution, recruiting, abducting or taking a person in prostitution in another country, receiving income from a minor or a person forced to engage in prostitution and forcing another person to surrender income from prostitution.
The Ministry of Justice formulated six key aims of the new Prostitution Act:
Improve monitoring and regulating possibilities for legal prostitution through a municipal licensing system for prostitution businesses and work/residence permits for prostitutes. Curb illegal prostitution and intensify efforts to combat exploitation and forced prostitution. Reduce if not stamp out trafficking of minors, illegal immigrants and individuals without a valid residence permit. Protect minors below 18 against sexual exploitation. Safeguard position, mental integrity, and rights of prostitutes. Separate prostitution from the criminal activities associated with it.
Criminal offences carry a fine and a sentence of up to six years extended to eight or ten years for aggravating circumstances related to exploitation, trafficking, forced prostitution and use/abuse of children.
Guidelines and regulations to control brothels, self-employed sex workers, sex clubs and streetwalkers are set by local municipalities. The Association of Netherlands Municipalities publishes a common set of guidelines. Police, urban district councils, and local municipal health services are responsible for enforcing the laws, formulating and implementing the rules and policies regulating prostitution. This includes safety, hygiene, fire precautions, condoms, panic buttons, hot and cold running water. This also includes warnings, issuing/withdrawing business licenses and sex-worker residence or work permits, temporarily or permanently closing down a business for violation of license conditions, relocation of brothels for reasons of public order.
Workers in the oldest profession are now beginning to feel the pressure of European austerity by paying taxes like everyone else. In the Netherlands, the sex industry generates over $800 million annually in gross revenues. The sex trade went almost entirely untaxed until legalization in 2000. Sex workers are registered as one-woman, self-employed businesses. Authorities are now actively pursuing prostitutes who should be paying an average 33% tax many have managed to avoid. Research indicates about 40% of window prostitutes in Amsterdam pay some income tax. A spokesman for the Tax Service said, “We began at the larger places, the brothels, so now we are moving on to the window landlords and the ladies.”
Of course, an option for the prostitute is to work in the unlicensed, illegal sector. But if the client can find a prostitute there, why can’t a Dutch tax administrator? The prostitute and business establishment thus face real risks of losing their residence/work permits and license to work plus fines and possible jail terms.
As part of the Tax Service’s new tactics, officials are touring the red light districts (Amsterdam, for example) checking that the ladies – along with their required residence/work permits – are aware they must be paying taxes and making sure they have filled in all proper forms. In a notice given in Amsterdam’s city newspaper, landlords and window prostitutes were told they would be audited in typically bureaucratic fashion, “Agents of the Tax Service will walk through various elements of your business administration with you, such as pricing, staffing, agendas and calendars. The facts will be used at a later date in reviewing your returns”
Planned drop-in sessions by tax inspectors will be key in helping the Dutch government receive its share of the lucrative sex industry. For tax enforcement and collection efforts to be really effective, communication is crucial as the first language for most women is not Dutch and few speak English. Around three-quarters of the women working in Amsterdam’s sex industry – involving 8,000 prostitutes of all kinds and 3,000 working behind windows – are from Eastern Europe, Asia, and Africa. Another complication is that the industry is an all-cash business making it problematic to apply tax law, despite the fact that sex workers have residence or work permits. As one lady of the profession said, “How can they tell how many people come inside each day or how much money changes hands once the curtain is drawn? Not many customers ask for a receipt.”
What Are the Lingering Problems With the Dutch System of Legalized Prostitution?
The Dutch have been busy reducing the size of the red-light district in Amsterdam out of fear the business is getting out of control in recent years – exacerbated by sharp increases in the flow of women from poorer, less-developed countries. The abuse of prostitutes and illegal trafficking activity have been on the rise. As Job Cohen, former mayor of Amsterdam said in 2008, “We’ve realized this is no longer about small-scale entrepreneur businesses, but about big crime organizations involved in trafficking women, drugs, killings and other criminal activities.” Mr. Cohen added, “It is not that we want to get rid of our red-light district. (Fifty percent of the business comes from tourists). We want to reduce it. Things have become unbalanced and if we do not act we will never again regain control.”
In 2008, Amsterdam authorities began reducing half of the city’s 400 prostitution windows and closing a third of its brothels and some of the city’s 70 sex clubs and marijuana cafes. Simultaneously, there has been an intense crackdown on human traffickers who deceive victims by offering work in hotels, restaurants or child care while later forcing them into prostitution. Recent prison terms for small crime gangs have ranged from 4 to 7.5 years. The police conduct frequent controls of brothels to pick up signs of human trafficking.
In 2009, the Dutch Justice Ministry appointed a special public prosecutor responsible for closing down prostitution and coffee shops connected to organized crime. As has been the practice since the legalization of prostitution, withdrawal or refusal to grant a brothel license may occur for moral or ethical reasons or if:
• The brothel owner is unable to produce a police clearance certificate issued by the local authorities.
• The brothel employs a minor or an illegal resident or any person under coercion.
• The intended location conflicts with zoning plans.
• It is in the interest of public order.
• It makes the area less desirable to live in.
Other proposed stiffening up of legal requirements now nearing the last stage of the approval process include:
(1) Minimum age of sex worker will be increased from 18 to 21.
(2) Prostitutes must receive a registration pass with a photograph and a registration number but no name and personal data; clients will be required to check this pass.
(3) License requirements will be extended to escort and internet agencies, home sex outlets, adult movie theaters.
(4) An advertisement of an individual prostitute or of a sex company must show the registration number and license number, respectively; the outside and inside premises of a sex company must display a sign showing it is licensed.
(5) Clients engaging in sex at unlicensed establishments, or with non-registered prostitutes or with minors, or clients guilty of unacceptable treatment of a prostitute will also be subject to a naming and shaming threat of public exposure similar to regulation practice in Sweden.
What Are the Benefits of the Legalization of Prostitution from the Dutch Experience?
From Dutch perspectives, the advantages of legalizing prostitution are several for all parties, i.e., prostitutes, local governmental authorities, communities:
• The rights of prostitutes are asserted as autonomous self-employed businesswomen in a legitimate form of labor offering all the protections/benefits of the labor laws (participating in pension planning and workman’s compensation) as well as the obligations related to tax and social insurance contributions. Prostitutes are self-determining. No longer under control by pimps, they can accept or reject clients, decide when to work and when to retire. Pimping services are disappearing helped by regulations prohibiting pimps from earning a livelihood off the wages of prostitutes.
• Prostitutes are able to report violent and abusive crimes (rape, assault, coercion, extortion) without fear of prosecution or abuse by law enforcement agents – thus being far less vulnerable to predators like clients, pimps, madams, crime gangs, police. Abuses are more easily detected when prostitutes operate publically and legally. Strengthening the rights of women engaged in the oldest profession is seen as the best way to combat sexual violence.
• Prostitution in the “open sunshine” as a registered and licensed profession means the health needs of prostitutes are more likely to be self-addressed by prostitutes and by local health authorities. By local law, brothels must allow health services or interest groups unrestricted access to their premises. •
• While medical checkups are not obligatory, prostitutes self-employed or employed in the legal sector generally comply with the request to have medical checkups four times a year. Employers of prostitutes must pursue safe-sex policies and encourage their employees to have regular checkups for STDs.
• Brothels must meet standards of housing safety, basic hygiene facilities, zoning regulations, quality of life of the community, confinement to designated areas leaving most parts of a community prostitution-free. Streetwalking is less than 5% of all prostitution in the Netherlands. Some municipalities refuse to license window prostitution and streetwalking.
There’s a special phone line for members of the public to anonymously report suspicious activities. This and regular inspections by law enforcement agencies produce valuable information to follow and prosecute offenders in both the regulated and illegal prostitution sectors.
Summary
The Dutch have had a long history of tasting the more prohibitionist, morally-driven approach to prostitution. Then in 1911 came a policy of prohibiting brothels and “living off the avails of prostitution”, (sharing in earnings of a prostitute) together with a discretionary enforcement of the law … a kind of de facto “regulated-tolerance.” Finally, legalization of brothels and formal legitimization and de-stigmatization of prostitutes came in full force in October 2000. Prostitutes can work as regular employees (with a labor contract), although the vast majority now work as independent contractors.
The Dutch approach to legalizing prostitution frees up the justice system from wasting enormous monies and time on nuisance cases. More time is available for getting better control and prosecution of the real vicious culprits … organized crime gangs who continue with the exploitation of minors, human trafficking, coercion, violence, and drugs. The Dutch realize they must do much, much better in breaking down the illegal clandestine underworld of prostitution. And they will get the job done. But they are also realistic in recognizing that banning social phenomena makes them much more difficult to get under control.
And now in true Dutch pragmatic fashion, the red-light districts can expect a business-only visit by the tax inspector. Besides the improving government oversight of all facets of the sex industry, there is the important spin-off of a grass–roots enforced tax policy which is expected to generate much needed tax revenues. Although the 2008 financial crisis was weathered fairly well by the Netherlands, the government ran a deficit of 6% of GDP in 2010. It is now cutting spending +-20% and raising taxes over the next four years in the hope of balancing the budget by 2015. The lucrative sex industry must do its part.
REFERENCES: Legalized Prostitution in the Netherlands ________________________________________________________________
1. “Human Trafficking and Legalized Prostitution in the Netherlands,“ by Dina Siegel Prof. of Criminology at the Willem Pompe Institute, Utrecht University of the Netherlands, March 2009
2. “Prostitution in the Netherlands,” by Radio Netherlands Worldwide, Sept. 18, 2009
3. “Does Legalizing Prostitution Work,” by Helen Mees, Feb.3, 2009
4. “Prostitution in the Netherlands – History,” Wikipedia
5. “Prostitution in the Netherlands Since the Lifting of the Brothel Ban,” by A.L. Daalder of the WODC (Wetenschappelijk Onderzoek en Documentatiecentrum), 2007
6. “The Legalization of Prostitution: Myth and Reality” – A Comparative Study of Four Countries (Including the Netherlands, pages 55-69), Naomi Levenkron of Hotline for Migrant Workers, 2007
7. “The Act Regulating the Legal Situation of Prostitutes” – Implementation, Impact, Current Developments: Findings of a Study on the Impact of the German Prostitution Act (which adopted somewhat the Dutch liberal drugs model), by Prof. Dr. Barbara Kavemann, Ass. Jur. Heike Rabe, Sept. 2007
8. “How the Dutch Protect Their Prostitutes,” by Patrick Jackson of BBC News, Dec. 16, 2006
9. “Legalized Prostitution – Regulating the Oldest Profession,” by Mark Liberator, Dec. 8, 2005
10. “Dutch Policy on Prostitution,” Questions and Answers: Publication by the Netherlands Ministry of Foreign Affairs, 2004
11. “Prostitution in the Netherlands: Transforming the World’s Oldest Profession into the World’s Newest Industry,” by Gary Feinburg of Crime & Justice International, July/Aug. 2003, Vol. 19, No. 75
12. “Prostitution Laws – Toronto, Ontario and Canada,” (Live off the avails of prostitution) Posted by Toronto Defense Lawyers (TDL), Mar. 8, 2010
End of Frank's Essay
Comments on Frank's essay by John:
Frank says: "US public policy decisions on prostitution have long been driven by traditional religious-based moral values making prostitution a criminal offense." But prostitution is legal, not a criminal offense, in Nevada. Currently eight out of Nevada's 16 counties have active brothels (these are all rural counties). As of June/July 2008, 28 legal brothels existed in Nevada.
Frank brings up the Swedish attitude of legalized prostitution but "naming and shaming" the clients or Johns. (In Holland the "naming and shaming" only applies to clients of illegal forms of prostitution such as intercourse with underaged girls.) In Sweden the women are viewed as victims, and prostitution, though tolerated, is viewed with disapprobation. This begs the question 'is there any individual or social good at all in prostitution or the exchange of money for sex?' I would maintain that there is a relative social and individual good in prostitution. First, under the right conditions, it allows certain women to make a good living who otherwise might be unemployed. Second, prohibition only drives the industry underground and makes exploitation and disease, more, rather than less, likely. Third, it provides an outlet for men who are not in a position, temporary or otherwise, to form a normal emotional, as well as sexual, relationship with a woman.
The Chinese government has intervened in commercial sex work in China in order to alleviate the growing HIV/AIDS problem there. Even though prostitution is illegal, the government thought it necessary to provide condoms, establish clinics to provide check-ups and other measures to prevent the spread of disease.
Consider the two cases of Eliot Spitzer and John Edwards. Spitzer was outed as having visited a prostitute, and, as a result, he was shamed into resigning as New York State Governor. But in short order he has rehabilitated himself and his public image having become a pundit on TV and having had his own talk show on CNN for a period of time. Since there was no emotional attachment, his wife, evidently, has forgiven him, and his marriage remains intact. Edwards, on the other hand, formed an emotional and sexual relationship, a full blown affair, with Rielle Hunter that resulted in the birth of a child while Edwards was married to his wife who was dying of cancer. Edwards has been much reviled and is facing five Federal counts for misusing campaign funds which may land him in jail and cause the loss of his attorney's license and the loss of custody of his children not to mention a stiff fine. If only Edwards had visited a prostitute instead of getting involved in a very personal affair, he might not be in the very serious situation he's presently in which could result in his children becoming parentless for an extended period of time if Edwards goes to jail. Edwards probably rues the day he ever got involved with Hunter not to mention the fact that his affair probably cost a hundred times more in monetary terms than did Spitzer's dalliance with a high priced prostitute. Spitzer has had to come to terms with his sexuality vis a vis his wife and why he felt it necessary to seek sex outside of marriage, but that is between him and his wife and is not a public matter.
End of John's comments.
Wesley's Comments:
As far as prostitution goes, in this country it should be regulated as it is in Holland. I have never been there or sampled the fruits of their labor, but from my readings in Newsweek, Time, and the like it seems to be working. At least by regulating it, organized crime's involvement is reduced and health standards maintained. All good, but in any government entity, there is inherent corruption; just not as violent and final as organized crime's methods that would necessitate laws to control it. More laws!!! That means more government employees to "supervise, enforce, document, inspect, study, propose more regulations", and the list is endless.
Take government out of the picture and street level entrepreneurs (pimps and organized crime) will fill the void. The best solution is the most expensive - as usual.
Our present laws are rooted in the colonial standards where one would be either jailed, stocked, dunked, or humiliated in some way for not attending church on the Sabbath. Witches and anyone else with talents that were not understood were executed. The carry over is our present prohibition on anything deemed sexually explicit.
It can be argued that such regulation serves the common good in that it sets the boundaries of moral conduct and makes for a stronger society. Is it OK for someone with supervisory control over children to abuse them in any way? Is it OK for someone to force a young person into prostitution? If that conduct were not prohibited, would our society be any less corrupt? In my view it would be disastrous and government control is the only viable option. At least the taxes and fees collected may cover a small portion of the cost to taxpayers for regulating it.
As to porn. A multi BILLION dollar world wide business and thanks to the internet, not sanctioned or controlled by our government. But they want to - desperately want to.
Who in the hell does it hurt? Psychologists maintain that it is the first step in the release of sexual repression that may evolve to violent sexual behavior. Is it like the first puff of MJ where some say that you are on the fast track to addiction? Is it a sign of underlying hatred or disrespect of the female gender?
BS! Guys have testosterone and their brain is wired differently - end of story. Maybe some do not get beyond the 3rd grade experience of sneaking a peek up a class mate's dress. Others wish they had and that peek becomes the top playground subject for the week. Could this be the foundation where reputations are built? After all, some guys and some girls will have one by their senior year and many sooner. Is this where porn is started? The unspoken desire to see more!
We are indoctrinated at a very early age "not to look". I heard it from my mother, grandmothers, teachers, clergy, and I can't count the rest that uttered that admonition. But I still did! And they knew it!!! Do I still? I'll never tell. So you head readers out there have fun with that. Am I or am I not a pervert?
Regulate it - Hell No. BUT then what about child porn and MBLA? Well, some regulation is in order. Now the pool of government workers grows a bit more. (Go back to the first paragraph).
There is not freedom without government regulation. With regulation there is not freedom.
As far as prostitution goes, no matter how legal it becomes there will always be a stigma because of those with religious beliefs, and those in public office will still be held to a higher standard if for no other reason than muck raking. In this case, Spitzer and the like might not have committed a crime, but might not have survived an election either. That will be interesting.
Legalizing would be an easy solution, but here again the bureaucracy governing the career field will run out of control. I use the term "career field" because with legalization it will supposedly be a choice freely entered into by the person. Person, because prostitutes come in both sexes and the male side has never been as fully disclosed as the female side.
Breaking the present hold on the "business agents" involved today will be difficult even with licensing, health inspections, and field agents. My original feelings were opposite, but after much consideration I feel that involvement of organized crime and street level pimps, gangs and the like will never be eliminated. In fact, keeping corruption out of even legalized entities will be nigh impossible because the dollar amounts are astronomical.
But if enacted into law, the passage of time will mollify public opinion and both prostitution and drugs will become socially acceptable to some degree.
End of Wesley's Comments
John's Comment on Wesley's Comments
As you point out, legalizing something does not mean that criminal elements will not continue to be involved. I think Frank pointed out that Holland recognizes that fact and provides for monitoring both the legal and illegal aspects of prostitution.
This is the first part of a two part article considering whether or not drugs and prostitution should be legalized in the US. Part 2 on the legalization of prostitution can be found here.
A recent documentary by Ken Burns on Prohibition brought to light the harmful effects of trying to outlaw an activity deeply ingrained in human culture - the drinking of alcohol - which was prohibited by constitutional amendment from 1920 to 1933 when the amendment was repealed. Not only did the prohibition of alcohol not diminish the actual drinking of it, nor did it reduce alcoholism, but prohibition opened up previously unavailable opportunities for organized crime. It also produced an epic level of hypocrisy among politicians who disparaged alcohol publicly while indulging in it privately. Revenues due to excise taxes which funded the Federal government for much of its history up till then dried up. Drug use and prostitution are related since many drug users are prostitutes and many prostitutes are drug users. Many people feel that you can't legislate morality so the government should stay out of trying to control people's personal habits. One such person is libertarian and Republican Presidential candidate Ron Paul. Listen to what he has to say.
Politicians, most notably Eliot Spitzer, former Governor of the great state of New York, have been embarassed, scandalized and driven from office over dalliances with prostitutes while rock stars, athletes and entertainers glorify and seemingly get away with drug use and sexual practices somewhat removed from the mainstream. While virtually no one is subjected to harsh jail sentences as a result of prostitution, minor drug offenses lead to jail time. The US has the highest incarceration rate in the world - about 1% of the entire adult population - largely due to minor drug offenses. What amounts to a war is raging on the US Mexican border due to criminal drug syndicates in Mexico which cater to the American appetite for illegal drugs. Of the two - drugs and prostitution - drugs are by far the greater problem due to the illegal importation of them, the killing in Mexico because of rival drug gangs fighting each other for dominance and the large incarceration rate mainly of African-Americans in the US. 9.2% of African-American adults were in prison in 2008. The prisons to house these inmates are costing taxpayers a huge amount of money while the taxes that could be collected on legalized drugs go uncollected in an economy that's in desparate need of revenue.
Jazz singer Anita O'Day in her autobiography "High Times Hard Times" commented about the fact that marijuana, which was legal in the US up till 1933, was made illegal precisely when alcohol was legalized again:
People ask me when I first smoked grass. Well, I smoked it before it became illegal in 1933, although it really wasn't legal for me to smoke anything then. But before going into our dance, George and I would share what we called a reefer. It was no big deal when I was twelve or thirteen. If you lived in the Uptown district, you could buy a joint at the corner store, if not nearer. I never read the newspapers so I didn't know when pot was outlawed and beer became legal. One night I asked George for a hit on a joint and I thought he was going to flip out. 'Do you want to get us arrested?' he hissed. Then he told me what had come down. It didn't make sense. One day weed had been harmless, booze outlawed, the next, alcohol was in and weed led to 'living death.' They didn't fool me. I kept on using it, but I was just a little more cautious.
Other famous jazz musicians such as trumpeter Louis Armstrong were lifelong devotees of marijuana. It didn't seem to hurt his career any. Pianist and composer Thelonious Monk was denied a cabaret card in New York City for many years which meant he could not earn a living playing in clubs, due to a minor drug offense. In some cases musicians were set up and drugs planted on them by police. Habits formed when marijuana was legal were hard to break particularly in the African-American community when marijuana became illegal in 1933. The persistence of cultural patterns of smoking MJ probably has something to do with the large number of African-Americans incarcerated today because of its use. The hypocrisy of a system which makes beer legal one day and marijuana illegal the next does nothing but breed disrespect for the law which is what happened during the Prohibition era.
The history of cocaine has a similar trajectory. Cocaine was perfectly legal in the US up to 1914. In early 20th-century Memphis, Tennesee, cocaine was sold in neighborhood drugstores on Beale Street, costing five or ten cents for a small boxful. In the 1890s the Sears & Roebuck catalogue, which was distributed to millions of Americans homes, offered a syringe and a small amount of cocaine for $1.50. Stevedores along the Mississippi River used the drug as a stimulant, and white employers encouraged its use by black laborers. In 1914, the Harrison Narcotics Tax Act outlawed the sale and distribution of cocaine in the United States. However, the use of cocaine was still legal. Cocaine was not considered a controlled substance in the United States until 1970, when it was listed in the Controlled Substances Act. Until that point, the use of cocaine was open and rarely prosecuted in the US. Since 1970 the jails have filled up with people prosecuted for minor drug use.
From 1898 through 1910 diacetylmorphine, the technical name for heroin, was marketed under the trademark name Heroin as a non-addictive morphine substitute and cough suppressant by the German corporation Bayer. The name was derived from the Greek word for Heros because of its perceived "heroic" effects upon a user. Bayer marketed the drug as a cure for morphine addiction before it was discovered that it rapidly metabolizes into morphine. As such, diacetylmorphine is essentially a quicker acting form of morphine. Contrary to Bayer's advertising as a "non-addictive morphine substitute," heroin would soon have one of the highest rates of dependence amongst its users.
In the USA the Harrison Narcotics Tax Act was passed in 1914 to control the sale and distribution of diacetylmorphine and other opioids, but allowed the drug to be prescribed and sold for medical purposes. In 1924 the United States Congress banned its sale, importation or manufacture. It is now a Schedule I substance, which makes it illegal for non-medical use in signatory nations of the Single Convention on Narcotic Drugs treaty, including the United States.
In 1923, the U.S. Treasury Department's Narcotics Division (the first federal drug agency) banned all legal narcotics sales, forcing addicts to buy from illegal street dealers. Soon, a thriving black market opened up in New York's Chinatown.
Today a majority of people in the US favor the legalization of marijuana. At the same time more deaths occurred last year due to prescription drugs than to illegal drugs. These two facts seem to indicate that prescription drugs are a greater problem than marijuana.
On the other hand, Zurich's experience with its "drug park" is a cautionary tale for the liberal tolerance of drug use and its legalization. The following article from the New York Times is so interesting and informative that we reprint it here in its entirety:
After years of steadily rising crime and other drug-related problems, this city once associated more with banking and solid civic virtue than with marauding groups of addicts has ended its innovative experiment with an open drug market in a public park here.
The smashed windows of a Chanel store and a central branch of Credit Suisse, as well as the shooting of an unidentified man on Thursday, betray the sharp tensions that have stemmed from the closing last week of the Platzspitz, a park where the illicit activities of thousands of drug addicts and dealers were tolerated in recent years in a policy of containment of the drug problem.
Andres Oehler, a municipal spokesman, said the City Council had decided to shut the park, now sealed behind 10-foot iron fences hastily erected on the adjoining bridges, because "it was felt that the situation had got out of control in every sense."
But closing the park left several unresolved issues, including the fate of what has become a large international community of addicts in Zurich and the question of what exactly went wrong with an initiative originally aimed at helping drug abusers.
Addicts were drawn from all over Europe in recent years by the Socialist City Council's decision to offer clean syringes, the help of health officials and a large measure of tolerance in the Platzspitz, a once-elegant garden behind the stately National Museum.
The city characterized its approach as an enlightened effort to isolate the drug problem in an area away from residential neighborhoods, curb AIDS and foster rehabilitation. Its policy reflected a strong current of feeling among some European experts that it is the illegal and clandestine nature of the drug business, rather than the drugs themselves, that causes many of the associated problems.
But the situation gradually degenerated. "You give a little finger, and they want the whole hand," said a senior city official who insisted on anonymity. "You turn a blind eye to the small deals, and the big ones come. It was a spiral."
Regular users of the park swelled from a few hundred at the outset in 1987 to about 20,000, with about 25 percent of them coming from other countries. Then, Mr. Oehler said, dealers from Turkey, Yugoslavia and Lebanon moved in last year. Thefts and violence increased, with 81 drug-related deaths in 1991, twice as many as in 1990.
"We were having to resuscitate an average of 12 people a day, with peaks of 40 a day on some days," said Dr. Albert Weittstein, the city's chief medical officer. "Our people were running up around the park blowing oxygen into people's lungs. We started with three doctors, but recently had to put in two more. It has become an impossible strain."
Groups of as many as 50 addicts now gather in the streets adjoining the park, where they are jostled by police officers with orders to disperse them. "This is a crazy decision, we'll be in the whole city now," said one young man, a syringe casually tucked behind his ear, as a policeman pushed him away. He declined to be identified.
On a nearby bench another youth, apparently oblivious to the approaching police officers, calmly tightened a belt around his upper arm before plunging a needle into a bulging vein below his elbow.
Christoph Schmid, a 21-year-old Swiss addict who has been using the park for the last two years, took a measured view of the action. He said the closing and the police crackdown would cause him and others "enormous difficulties" -- heroin has become harder to get and its price has already doubled to about $230 per gram -- but he also said the Platzspitz had recently become too violent. "Too many kids were getting hooked too easily," he added.
The park -- beautifully situated at the confluence of the Sihl and Limmat Rivers, which isolated it from neighbors despite its central location -- is now a monument to vain utopian hope and sordid devastation. "Anarchy is possible," proclaim graffiti scrawled across the National Museum. A bronze statue of a stag has been adorned with the word "Dope" in fluorescent orange paint.
On the ground lie thousands of discarded syringes and syringe packets, now being collected by garbage crews. The rhododendrons that once lined the paths are dead; so, too, are many of the trees. Most of the expanses of grass have been reduced to mud.
Peter Stunzi, the director of the city's parks, said that because the park had become what he called "Zurich's municipal urinal," the soil is such that it will be difficult to plant anything in the near future.
He added that he believed it was right to close the Platzspitz because "Zurich could not be responsible for the drugs of Switzerland and the rest of Europe." But he added, "My worst nightmare is that these people will now have nowhere to go."
The city government wants all those who are not from Zurich to leave. Signs have been posted around the city warning that the authorities will no longer tolerate the public shooting up or handling of drugs or gatherings of groups of addicts. All those not from the city should "go back to the communes, where they will be helped."
Checking for Outsiders
Mr. Oehler, the city's spokesman on drug matters, said that by April hostels in Zurich where addicts are allowed to sleep for about $3 a night will no longer accept anyone who does not have an identity card proving Zurich residency. But he conceded that "the problems will take a long time to resolve."
The city's new measures appear to be coming into force amid tensions in the nine-member City Council. One member, Emilie Lieberherr, who is responsible for social affairs, has protested the action as ill-considered. And there seems to be a general feeling that while mistakes were made, frontal attacks on drug abuse are not the answer either.
"We hoped we could minimize the social costs by creating an open market where people could get help," Dr. Weittstein said. "We thought we'd ferret out the dealers, but we failed, and we did not consider the dynamics of a still illegal business, which meant that dealers and users were attracted from far afield."
He added that the failure of the park did not, in his view, resolve the argument over whether drug prohibition makes matters better or worse. "I believe and most Swiss experts believe, that prohibition does a lot of damage," he said.
Drugs used in the park were still technically illegal. But attempts by plainclothes police officers to clamp down on dealers achieved little.
There are an estimated 30,000 drug addicts in Switzerland, a country whose industrious precision has created enormous wealth and a sparkling order, but also a conspicuous alienation among youths.
About $1.5 million will now be spent on renovating the park, Mr. Stunzi said, and it is hoped that a pristine Platzspitz might reopen by the spring of 1993 at the earliest.
By then, Zurich hopes, its self-created reputation as a drug capital will have faded. But for now, its streets are full of the confused ebb and flow of a disoriented mass of youths. Outside the park's closed gates, when the police move off, hordes of addicts quickly return to try to salvage with spoons some precious white powder that had spilled to the ground.
The lesson here, I believe, is to not create a central location for drug addicts, offer free needles and attract them from all over the world. Zurich effectively created a drug addict's nirvana while their efforts at rehabilitation were insufficient. They more or less said that drug users will inevitably always be with us so let's just herd them into one central location. Intervention as opposed to incarceration might be a better approach. This would mean taking the addict off of the street, denying them access to drugs and then offering them treatment and rehabilitation before letting them go free again. This requires societal resources, but might maximize the probability that a particular addict might stay clean once he or she goes back into society.
The question of drug legalization has to do with which drugs are to be legalized - just soft drugs like marijuana or hard drugs like cocaine, heroin and methamphetamine too. Ron Paul is for legalizing all drugs on the grounds that government should not dictate people's personal habits, and most people would not try heroin anyway even if it were legal. Certainly, legalizing marijuana would cut the cross border illegal trade considerably while doing nothing more than legalizing a substance which had been previously legal in the US up till 1933. The Prohibition era for marijuana would be over as it was for alcohol in 1933. The growing and selling of marijuana could provide jobs for many people in a jobless economy. Taxing marijuana could provide much needed government revenues. The diminution of the prison population would be a social good. I honestly don't see any downside. Probably taxes should be kept low for the first five years so that the crime syndicates in Mexico would not be able to undercut the price, and would be largely put out of business. For hard drugs I would advocate legalization also but very tough regulation and high taxation to make them very expensive. In addition to lowering the prison population, legalization of drugs would reduce the killing in Mexico and the cross border illegal shipments of guns and cash from the US. The border situation with illegal guns, money and immigrants could be normalized. It would be a step in the right direction towards increasing border security.
Along with legalization of drugs, education about the effects of using drugs and addiction in general whether it be drugs, food or sex as well as programs for getting people who want to quit the drug habit off of drugs should be stepped up. Public schools should teach students not only about drugs but other life skills such as how to deal with finances. Sex education is a necessity if for no other reason than US media culture is permeated and saturated with gratuitous sexual messaging. The cultural winds blowing on impressionable minds glorify sex, drugs, violence and consumerism. Public education needs to combat these forces. Perhaps this is why Republicans are dead set on destroying the public education system.
Wesley's Comments
As far as I am concerned if someone wants to indulge themselves with a present day illegal substance, let them. No stigma, but absolute enforcement of laws governing conduct, driving and work place sobriety standards. Give no quarter and make the penalties extremely severe.
I don't give a damn if someone dies of an overdose whether it be drugs or alcohol. If a person has so little self control, or self respect, perhaps society would be better off without them. You use it and end up hooked, you have no one to blame but yourself - suffer the consequences. If the government is involved (which it will be), there has to be a way of recouping expenses besides excise taxes. Those desiring rehabilitation can volunteer for it, and those convicted of non-injurious drug use should be sentenced to a project similar to the CCC or WPA of the Depression era. Anyone convicted of drug use resulting in injury or death of another should be executed.
You and some readers might think me insensitive and unreasonable at the least, and, more than likely, far worse. So be it. It is time our society wakes up to the fact that we, individually, are responsible not only to ourselves, but to society as a whole. It is not mine, nor anyone else's financial responsibility, to support the indulgent behavior of others, and that will be the 800 pound gorilla in the room. More public assistance to the weak willed, over and above the tax revenues collected, is not called for.
In my estimation the only things not eliminated by legalization of drugs are things for which one can be prosecuted due to other infractions of the law not having anything to do with drugs per se. Every other aspect whether legal or illegal should remain the same, but will probably get worse if drugs are legalized because of the additional laws and standards required. Catch 22 comes to mind.
I did not isolate my stand on drugs to MJ. Legalize them all just as it was up to the early parts of the 20th century. Opiates were an over the counter remedy for everything. Hells bells, there were even door to door salesmen peddling the stuff. Addiction, yes there was, but the primary difference today is that people are driving cars at 70 miles an hour. Now, thanks to OSHA, nearly all factory and work place tools and machinery are idiot proof so perhaps a mild buzz could be acceptable. Maybe even a little meth prescribed to senior citizens would speed up their reactions and the little old blue hair ladies that can barely see over the steering wheel can maintain freeway speeds.
I can foresee a definite improvement in traffic flow; and that time distance reaction thing, that is an acquired skill. I should know. I practiced steadily for a number of years with some of Kentucky's finest. Never had or caused an accident while under the influence of the stuff; it was the sober hours that were a problem. Probably a hangover thing and from what I have been told that is not a problem with MJ.
And as I wrote, if you cause injury or death while under the influence of drugs or alcohol, you should face a MANDATORY death sentence. No incarceration, no rehab, no counseling, no appeals. The sentence to be carried out right after being found guilty. NO delay.
End of Wesley's Comments
John's Comment on Wesley's Comments
Wayne, what about a minor injury? Surely you wouldn't recommend putting someone to death for that even if under the influence of drugs or alcohol. I can see it for a head on collision in which innocent people in the other car are killed. There was a case like that here recently. I think the drunk guy who lived got 20-30 years in jail. I am for capital punishment in open and shut egregious cases, but not for those convicted based on eyewitness testimony which is notoriously inaccurate resulting in the incarceration and death of a lot of innocent people. A drunk driver causing an accident, on the other hand, is pretty much an open and shut case.
Frank's Essay:
DUTCH POLICY TOWARDS HARD ANDSOFT DRUGS
Introduction
A country’s drug policy evolves slowly and reflects national conditions and culture. As punitive or other model drug laws have evolved in countries over the past century, so have the unique drug policy enforcement solutions pioneered by the Dutch. Their open minded attitudes toward illicit drugs, like toward prostitution, are driven by their peculiar societal values – a realistic, humane approach to social problems like drugs as a health-centered and social well-being matter, not primarily as a problem of the police and judiciary – values that embody:
First, a long history of tolerance and pragmatism.
Second, a strong belief in individual freedom, like deciding about private matters such as one’s own health, while also having a strong sense of responsibility for the community’s well-being.
Third, a view of drug issues as manageable health and harm reduction matters – as “normal social problems” with real-life, scientific distinctions in relative risks – not an alien threat, a “forbiddenfruit” perennially punishable by the criminal prosecution and imprisonment apparatus.
Fourth, a non-absolutist ideological approach to social problems where criminal law is not perceived as enforcing social or religious morality, and government is expected to act with reserve on issues involving religion and moral questions.
Fifth, a belief that hiding or taking a blind eye to negative social problems does not make them go away but only makes them more difficult and costly to control.
What is the Historical Trend in Drug Policy?
Repressive and indiscriminate drug policies adopted under the 1919 Opium Act slowly gave way to very grave doubts as to the effectiveness of that approach. In the 50s and 60s, harsh sentencing practices for drug offenses including cannabis did not deter a notable increase in consumption. So in 1976, the Dutch parliament amended the Act to focus on battling the risks of drug abuse for society and individuals rather than just fighting consumption itself. The pre-1976 policy of prohibition and penal measures paid scant attention to the human, social, psychological, economic fallout of hard and soft drug use and the need to prevent further human suffering and disease.
While the Opium Act criminalized drug possession, cultivation, trafficking, importing and exporting, the 1976 amendments and subsequent amendments have established two classes of drugs: (1) hard drugs deemed to be an unacceptable risk to public health including heroin, cocaine, amphetamines, LSD, ecstasy, hallucinogenic (magic) mushrooms; (2) tolerable traditional hemp-product soft drugs, marijuana and hashish. Dutch drug policy has pragmatically reverted to a new guideline of distinguishing drugs and related punishable acts based on their harm to the individual and to public health – a policy of minimizing the hazards and abuse of drug use rather than just suppressing all drugs … a policy addressing demand and supply that supports a certain degree of tolerance and non-prosecution rather than indiscriminate law enforcement.
The now amended 1976 Opium Act incorporates some unique strategies for reducing the harm of drug use and abuse:
The prevention or alleviation of social and individual risks caused by drug use.
A rational relation between those risks and policy measures, e.g., possessing, dealing in, selling, and producing drugs are criminal offenses with severe penalties for hard drugs. Drug possession for dealing is also more severely punished than possession for personal use which police generally take a soft approach to.
A differentiation of policy measures that considers risks of legal and medical drugs.
A police and judiciary that gives high priority to tackling the large-scale drug trade and production of drugs.
Recognition of the inadequacy of criminal law concerning other aspects (i.e., apart from trafficking) of the drug problem.
Not taking action against possession of small quantities of soft or hard drugs for personal consumption; tolerating (de facto legalizing) under strict conditions the consumption and traffic in soft drugs in youth centers and coffee houses where threshold quantities and the intent to deal determine personal possession, use, and trafficking offenses.
A high law-enforcement priority of cracking down, levying stiff penalties on hard drugs trafficking and production – including exportation and importation, large-scale commercial cultivation of cannabis, ecstasy, amphetamines, and LSD.
A “normalization” policy that treats drug problems as normal social problems, not as punishable deviant behavior only making societal control problems worse; a policy of integration and social rehabilitation of addicts; a policy of low threshold treatment acceptance, minimum paperwork, routine medical treatment services … all to avoid delaying care, marginalizing, stigmatizing, or isolating drug users.
Early focus on health promotion to young people in particular of the benefits of universal drug prevention … through curricular school-based programs such as, “The HealthySchool of Drugs” program – comprising lectures in secondary school on alcohol, tobacco and cannabis – and prevention outside school under the, “Going Out, Alcohol and Drugs” program – aimed at reducing health and safety problems among young people using drugs in recreational and party settings. Also, a wide range of support programs are offered to addicts with the goals to prevent and relieve risks of drug use for addicts, their immediate environment, and society as a whole.
What Are the Enforcement Principles and Rules?
The amended 1976 Opium Act still holds the possession of marijuana/hashish to be a petty misdemeanor today. But, even that offense is seldom enforced under the “expediency principle” in Dutch criminal law. This principle gives authorities discretionary powers to refrain from prosecuting certain offenses “on grounds derived from the public interest.” It applies to cases involving small quantities for personal use where there’s no dealing or other drug-related crime. Thus, cannabis and hashish are technically illegal but “tolerated.”
The “expediency principle” helps separate to the extent possible the recreational soft drug market – posing a minimal risk to society – from the true hard drug, criminal markets. The goal has been to separate distribution channels thereby greatly reducing the gateway from soft drugs to heroin and cocaine. It is felt this policy and the early educational school programs prevent experimenting youth from getting drawn into the dangerous criminal elements of the hard drug culture.
For the Dutch, drug use is a health matter not unlike the use of tobacco and alcohol. A paradigm of arresting and incarcerating thousands of citizens for minor drug possession or use offenses is not accepted. In stark contrast, Sweden views all forms of drug possession and use, regardless of quantities or drug type, as an abuse – while Portugal has decriminalized ALL drugs with favorable results. Each country must find its own way. For the Dutch, freedom to decide about matters relating to one’s own health is fundamental. So a visible, manageable retail market for cannabis was allowed to develop. But, as stated, wholesale dealers, traffickers, and large-scale cultivators of cannabis or hard drugs will be rewarded by the full force of the penal laws.
The Dutch do not see the separation of soft drugs from hard drugs and flexible law enforcement measures as some magical cure-all. The prime aim is prevention of health risks and the negative consequences for society arising from drug abuse. This involves educational measures where a restricted tolerance approach enables authorities to monitor and control better the social phenomena of drug abuse. Abuses are also fought by healthmeasures such as treatment monitoring centers, extensive demand reduction and detoxification facilities, a free methadone supply program for heroin users, a free syringe exchange program, and free testing of ecstasy pills.
The lure of stepping-up to hard drugs is checked by allowing purchase of cannabis in alcohol-free coffee-shops. For evidence shows this separation of the market for illicit drugs means youthful cannabis users are less likely to slip into contact with hard drugs. Also, surveys show the vast majority of Dutch people never try marijuana. Most who do try it don’t continue to use it very often, much less hard drugs. Moreover, users know that cannabis is far safer than hard drugs and less addictive than even caffeine, alcohol, tobacco, and many prescription drugs.
Coffee-shop regulations are very strict. Operators are legally and strictly bound to adhere to following rules:
No alcohol or hard drugs may be sold or consumed in a coffee house. Driving under the influence of soft drugs is considered as driving under the influence of alcohol. Police check for this.
No advertising, active promotion, web sites are allowed.
Cannabis can only be sold to people aged 18 or over. No minors are allowed around or in coffee-shop premises.
No sale of large quantities is allowed – the limit is 5 grams to one person in one day. This maximum amount is tolerated, not prosecuted, even though technically illegal.
The coffee-shop must not be causing a public nuisance, e.g., must not be located within 250 meters of a school.
The coffee-shop operator is allowed a maximum level of cannabis stock for selling of 500 grams, but local authorities can impose lower limits. Of course, no selling of hard drugs is allowed.
The decision whether or not to tolerate coffee-shops lies entirely with the local municipalities. Smoking cannabis is banned in public places. (As of 2005, 72% of the 467 municipalities pursued a zero policy with regard to the number of tolerated coffee-shops).
The local mayor is entitled to close a coffee-shop for violating any of the above rules (including being a public nuisance, e.g., disturbing a neighborhood’s public order and safety).
Why Drug Decriminalization and Tolerance?
The Dutch have normalized and decriminalized the soft and hard drug problem as a practical compromise between the extremes of an intensified war on drugs and legalization. Drug use is a fact of life. It must be discouraged, and the harm and risks minimized in a flexible, realistic manner. Under the Opium Act during 1919 to 1976, the Dutch learned this lesson the hard way when severe and disproportionate penalization failed to stop a steep rise in drug users and abusers. Continuing an all-out fight risked driving more and more drug users into the fringes of the underworld, making them hidden and beyond reach of any “helping” institution, other than the justice system. In short, a repressive, prohibitive approach led to negative side effects both for the individual and Dutch society.
The amended Opium Act of 1976 relegates criminal law to a relatively minor role in preventing individual drug abuse. However, as noted, cannabis and all other drugs are still statutorily illegal. But the law is not enforced for possession of small amounts for personal use or sale of small amounts in coffee-shops. So over the last 35 years, the goal has been to avoid situations where cannabis consumers suffer more damage from criminal proceedings than from use of the drug itself. A policy of tolerance for selling soft drugs in coffee-shops evolved on grounds it stops many users from contacting drug dealers and experimenting with hard drugs. Facts support this conclusion as the number of convictions, addicts, drug casualties in the Netherlands is one of the lowest in Europe and far below that of the US.
From Dutch perspectives, trying to eradicate drugs or drug addiction by criminal law makes the cure worse than the disease. On the other hand, unilateral formal legalization of soft drugs is not a goal and is unnecessary – not only because cannabis retail prices would drop further thus creating ever more “drugs tourism” – but mainly because Dutch courts have ruled that institutionalized non-enforcementin past years constitutes de facto decriminalization, i.e., a roughly legal regime for soft drugs. One thing is certain, however. Hard drugs are illegal and are unlikely to be legalized, at least in the near future. Some feel that the best argument for legalization is that it undermines outside-the-country drug cartels, often protected by terrorist groups. The Netherlands has never had the massive smuggling industry or a "next door" land route to the heart of drug country like the US has with Mexico. But imported drugs, for example, from Afghanistan to Dutch harbors and then channeled to the rest of Europe do remain a serious problem.
The outright banning of all coffee-shops is also not an option as it will not solve the problems of crime, street-drug trade, nuisance, and health. For the Dutch, it comes down to striking a careful balance between the rights of cannabis consumers and coffee-shop retailers and the Dutch government’s responsibility to public health and safety. This means setting fair and very strict limits of what can and cannot tolerated by all concerned.
Over-dramatization, criminalization, or moralization of the drug problem has thus given way to prevention,harm reduction and treatment policies… i.e., the promotion of healthylifestyles. While comparisons to other countries show the Netherlands’ tolerant policy has worked well for decades, the country has its share of drug problems. But these are no more and often far less than many modern democracies which have much harsher drug laws and penalties.
Serious attention is being directed to the nuisance related by cannabis use by “drugs tourism” and by foreign drug addicts residing illegally. Amsterdam and Dutch cities near Germany and France have been under strain from the flow of EU “drugs tourists” who are taking advantage of the Netherlands’ more liberal soft drug laws. In Maastricht alone, 70% of the 2 million visitors to Maastricht’s 14 coffee-shops come from abroad. This has increased nuisance complaints regarding the hazards of drug runners luring tourists to coffee-shops, petty crime, and the smell of weed smoke. In their constant efforts to correct such policy shortcomings, the Dutch are about to implement nation-wide a “weed-pass” system to contain “drugs tourism.”
Coffee-shops will be turned into private clubs requiring proof of membership by a pass issued to adult Dutch citizens for use in one club only. Maastricht has already banned foreigners’ access to coffee-shops except neighboring Germans and Belgians … at some economic cost. For example, foreign visitors to Maastricht’s or Amsterdam’s coffee-shops spend up to €75/day ($100/day) for cannabis compared to €125-250/day ($90-180/day) on shopping, eating out and lodging.
Cannabis Penalization Policies and Penalties
Dutch penalization policy makes a sharp distinction between drug users and drug traffickers. Drug use is seen primarily as a public health, harm-reduction issue poorly addressed by a paradigm of punishment-based prohibition. Adult people can buy, possess or use small quantities without criminal sanctions. Research clearly shows that cannabis is a very safe drug. But possession of this soft drug for commercial purposes is a serious criminal offense, subject to some tough penalties. In 2010, one of the largest Dutch cannabis-selling coffee shops was fined €10 million ($13.5 million) and a 4 month prison term for keeping more than the allowed 500 grams of stock cannabis in the shop.
Today, Dutch cannabis is grown locally and only up to 40% is sold locally – the majority is exported. Producing and exporting cannabis, ecstasy or amphetamines illegally is thus becoming a major Dutch enforcement and penal priority given organized crime’s rising interest in the lucrative European cannabis market. Dutch police are under pressure to aggressively pursue, prosecute, and punish large-scale possession, dealing and cultivation of cannabis.
In this regard, decriminalization of soft drugs has brought key manpower and income benefits that can be redirected to healthy and productive public ends: (1) it frees up police enforcement manpower from petty abuses to fight commercial drug trafficking and production; (2) it yields substantial police, judiciary, and detention cost savings, and it generates €400-500 million ($540-675 million) in coffee-shop tax revenues yearly. These funds finance a wide range of drug actions: aggressive prosecution of illegal trafficking and production; a high standard of preventive care, counseling and educational information, medical treatment services for addicts, and special housing for long-term addicts. Little wonder that the numberof addicts and deaths by overdose in the Netherlands is near the lowest in Europe and far lower than the US.
Furthermore, the Dutch government has announced it will classify cannabis with a THC level above 15% as a high potency, hard drug. Those coffee-shops selling cannabis with 17-18% THC levels today will have to use milder cannabis variants. This action plus strict regulation of a fast growing number of synthetic drugs; closure of coffee-shops within 250 meters of a school; shutdown of over 400 coffee-shops from 1179 in 1997 to ± 680 today (a 40% decrease) for reasons of nuisance, disturbance and other violations; a “weed pass;” and a stepped-up attack on trafficking and Dutch production of cannabis reflect a determination to adjust the country’s drug policy to new market realities – even if that means reversing tolerance policies.
Here’s a brief summary of the penalties for drug offenses:
Possessing up to 30 grams of cannabis for personal use is a minor offense with a maximum detention of 1 month (and/or a fine of €2,250/$3,000). But this penalty is not usually enforced.
Possessing more than 30 grams of cannabis, regardless of the quantity, is a criminal offense with a maximum detention of 2 years (and/or a fine of €25,000/$34,000).
Importing/exporting soft drugs is a criminal offense with a maximum detention of 4 years (and/or a fine of €45,000/$60,000). Penalties are increased for repeated offenses.
Buying, selling, producing, transporting soft drugs for commercial purposes is a criminal offense with a minimum detention of 1 month (and/or a fine) up to 8 years (and/or a fine of €45,000/$60,000) depending on the quantity.
Selling more than 5 grams to a client in any one day by a coffee-shop is a criminal offense. Coffee-shop owners or operators risk prosecution and being closed down (and/or big fines) for violating this or other coffee-shop rules as noted above.
What Are the Successes of Dutch Drug Policy?
Ambitious politicians, media, and other “experts” can’t resist spreading wildly exaggerated myths, misunderstandings, and misinformation in their disagreement with Dutch drug policy. This is not only dishonest but strange considering more and more global leaders have declared the “war on drugs” to be destructive and a failure. Many countries (and a small number of US states) have moved to various forms of decriminalizing low-level drug possession and adopting health-centered approaches to cut consumption, improve public health, and weaken the power of organized crime.
The pragmatic, pioneering Dutch approach of setting tolerance guidelines that make drug policy more visible are methods adopted by most EU countries. Decriminalizing the possession of soft drugs has not led to a rise in their use. There’s ample empirical evidence that removal of criminal provisions for cannabis possession does not markedly increase the prevalence of cannabis or any other illicit drug. Studies by the Trimbus Institute on drug addiction and mental health show that 5% of Dutch citizens smoked marijuana or hashish in the past year compared to an average of 7% in the rest of Europe. Supporting statistics are noted in TABLE 1:
The US percentage of total marijuana arrests was 52% of total drug arrests with arrests for possession increasing significantly from 34% in 1995 to 46% in 2010. No wonder US prisons are bursting with drug offenders, most of whom would probably not be in prison now if possession of 1 ounce or less had not been criminalized in a majority of states. As one expert said, “The U.S. has 5% of the world’s population but 25% of its prisoners.”
The above demonstrates that de facto legalization to purchase marijuana in the Netherlands has not given rise to marijuana levels of use – nor cocaine or heroin use – significantly higher than those in countries like France, Sweden and the US which pursue repressive drug policies. The Dutch intense policy of prevention and care has made drug addicts healthier and HIV prevalence even lower than in many countries where HIV infections are already very low. The Dutch government reports there are about 25,000 hard drug addicts or 1.6 per 1000 people. This is well below the EU average.
TABLE 3 illustrates the relative drug health treatment intensity for selected countries:
US, France, and Sweden have prohibitionist drug regimes for all drugs while Germany and the Netherlands have de facto decriminalization regimes for soft drugs. The US has at least 6 times more drug-user treatments/rehabs per 100,000 people than the Netherlands where HIV infections are also very low. This situation and the US doorway to a gigantic flow of drugs from its close-by neighbor, Mexico, make US legalizing or decriminalizing of drugs more complex and problematic. In contrast, the Dutch produce all of their cannabis consumption needs locally. And the level of hard drug consumption is very low. Another factor is that the Netherlands, third most densely populated country in the world, has 16.5 million people living on a land territory one-fourth the size of New York state (or one-half the size of my state of Maine). This also makes hands-on policy implementation, oversight and control of drugs relatively easier.
Tolerating cannabis use and taxing it works for the Dutch … with the exception of ongoing new market challenges that are causing a rethink of tolerance policies, e.g., drugs tourism, coffee-shops’ selling to minors and creating a public nuisance, potentially dangerous ecstasy and synthetic drugs, and illegal export of cannabis abroad.
Dutch success emphasizing prevention and health care shows up in the number of drug related deaths which are very low averaging 120/year or less than .75 per 100,000 people. Deaths related to overdose of cannabis are unheard of. Hard drugs, or synthetic drugs combined with alcohol or prescription drugs can have certain bad medical, even deathly effects. While hard drug users are seldom prosecuted and heroin junkies have vanished from the streets into heroin-assisted treatment centers, potential intensification of health hazards and toxic addiction are key Dutch arguments for sticking by their decriminalized “harm-reduction” policy rather than legalizing all drugs at this time. But, debate and studies of this option live on.
“The trend in cocaine and heroin addiction in theNetherlands is stabilizing, even decreasing. One percent of Dutch people aged between 15 and 34 is a recent cocaine user, well below the European average of 2.2%. The number of heroin clients in addiction care and rehabilitation facilities has decreased as well as has property-related crime ascribed to heroin users. But there are signs of an increase of (injected) heroin usage due to an influx of (mainly homeless) Eastern European immigrants.”
Summary
Rather than wage war on drugs or legalize all drugs, the Dutch have taken a public health approach emphasizing “de facto decriminalization” and “normalization”… aimed at harm reduction, the integration of drug users in society, and the avoidance of stigmatizing, marginalizing, and isolating drug users.
Decriminalization has not resulted in any unusual increase in cannabis and hard drug use or abuse that poses a public threat … as confirmed by a 30-year Dutch experience and a truly excellent 2004 study by Craig Reinarman, PhD and his associates, “The Limited Relevance of Drug Policy:Cannabis inAmsterdam and in San Francisco.” However, trafficking, production, importing and exporting of drugs necessitates a relentless police pursuit and judicial prosecution effort.
The Dutch demand and supply approach to reducing the risks and harm of drugs has proven to be sane and successful. Cannabis and hard drugs are better controlled openly in a safe environment rather than in the wilds of the dangerous street-drug trade or in a prison complex.
Since hard drug use is seen as a social and medical issue not punished for the behavior alone, the emphasis is on health risk reduction and treatment. The Dutch government is able to aid about 90% of help-seeking addicts for detoxification programs. Regional and local authorities are responsible for the organization, implementation, and coordination of addiction care. Treatment is mainly delivered by non-governmental organizations on a regional level, followed by private organizations including physicians, hospitals, and private clinics. And treatment costs are at least 6 times less than trying to reduce consumption by mandatory prison sentences .. more enforcement .. higher penalties .. all leading to a dead end.
Finally, there’s that very important cash flow from coffee-shop value added taxes and income tax revenues that can be applied to drugs enforcement, prevention and treatment.
REFERENCES : Dutch Policy Towards Hard Drugs and Soft Drugs ______________________________________________________
1. European Monitoring Centre For Drugs and Drug Addiction (EMCDDA), Annual Report 2010 – “The State of the Drugs Problem in Europe”
2. Report to the EMCDDA by the Reitox National Focal Point: “The Netherlands Drug Situation in 2010,” Dec. 22, 2010
3. “Trends in Drug Usage in Europe,” A Response to the EMCDDA 2010 Annual Report, 2011
4. Reaction of Trimbus Institut to the EMCDDA Annual Report 2011, by Margriet van Laar, Head of Drug Monitoring, November 15, 2011
5. “Dutch Reclassify High-Potency Marijuana As Hard Drug,” Associated Press, Toby Sterling, Oct. 7, 2011 and World News Netherlands, Oct. 7, 2011
6. Get the Facts- Drug War Facts.Org.: “The Netherlands Compared to the U.S.,” 2009
7.“The Limited Relevance of Drug Policy: Cannabis in Amsterdam and in San Francisco,” 2004, by Craig Reinaraman, PhD; Peter Cohen, PhD; Hendrien Kaal, PhD., 2004
8. “National Drug Policy: The Netherlands,” by Benjamin Dolin of Law and Government Division, Parliament of Canada, Aug. 15, 2001
9. “Dutch Drug Policy: A Model for America?” In press for: JOURNAL OF HEALTH & SOCIAL POLICY, by David F. Duncan, Dr. P.H. CAS, Thomas Nicholson, PhD, 1997
10. “The Dutch Harm Reduction Model of Addiction Treatment,” Addiction Services, Amsterdam Wiki, April 3, 2009
11. “Normalization of the Drugs Problem: An Outline of the Dutch Drugs Policy,” by Otto Janssen, June 1992
12. “Marijuana: The Myths Are Killing Us,” by Karen P. Tandy of DEA, June 17, 2005
13. “The Myths of Drug Legalization,” AMERICA, The National Catholic Weekly, March 16, 1996, by Joseph A. Califano, Jr.
14. “Drugs Policy in the Netherlands,” by UK Ministry of Health, Welfare and Sport, The Netherlands, April 1997
15. “Dutch Drug Policy In A European Context,” by Tim Boekhout van Solinge, Journal of Drug Issues – Vol.29, No.3, 1999
16. “Soft Drugs in the Netherlands,” By Radio Netherlands Worldwide, Sept. 2009
17. “Honor Thy Promise: Why the Dutch Drug Policies Should Not Be a Barrier to the Full Implementation of the Schengen Agreement,”BostonCollege International & Comparative Law Review (Vol.23, Issue 1, Article 8)) by Susan H. Easton, Dec. 12, 1999
Frank Thomas The Netherlands November 15, 2011
John's Comment on Frank's Essay:
Clearly, the Dutch methods are working and superior to those in the US. First, effective and thorough studies of the problem reveal what does and what doesn't work. Then Dutch pragmatism and a willingness to implement those policies that are working and reject those policies that are not working lead to a rational solution to the problem. Instead of viewing drug policy as strictly a law enforcement problem, the Dutch have an integrated approach which includes treatment while allowing for the recreational use of soft drugs which under well defined circumstances can even be considered a social good much as the recreational use of alcohol can be considered a social good when used in moderation. At a time when a majority of the American population favors legalization of marijuana, US policy makers should study the Dutch policy on drugs as an example of what works. Last year in the US there were more deaths from the misuse of prescription drugs than from illegal drugs. Drug use in general is a problem that needs to be solved by education, treatment and rehabilitation instead of relying on the criminal justice system while allowing for the moderate use of recreational drugs just as alcohol, caffeine and nicotine when used in moderation have been tolerated for many years. All in all the Dutch approach is intelligent and humane without a lot of moralizing or implementation of preconceived prejudices.
Why Is Treasury Secretary Geithner Beholden to Wall Street?
Wall Street’s U.S. Treasury Secretary Geithner recently told European Commission members he opposed a “Tobin” Financial Transaction Tax on stock trades and other financial instruments. Eurozonefinance ministers are working towards a European-wide FTT involvingharmonization with existing EU transaction levies. But, financial industry experts in the UK – which has long had a 0.25% “stamp duty” on both purchase and sale of stocks by UK incorporated firms, independently of where the transaction takes place and whether the trader is foreign or domestic – are against recent EC FTT proposal of a 0.1% tax on stocks/bonds and a 0.01% tax on derivatives. WHY?
The reasons proffered by libertarian UK and US think tanks are voluminous and generally lacking documentary proof concerning effects of financial transactions taxes on trading volatility and volume, liquidity, stock prices, returns to investors, etc.See opposing UK studies by Adam Smith Institute, “The Tobin Tax: Reason or Treason” and by U.S. Investment Company Institute, “Frequently Asked Questions onSecurities Transactions Taxes” and compare both to the recent 2011 study by Dean Baker of the Center for Economic and Policy Research, “The Deficit-Reducing Potential of a Financial Speculation Tax.”
These and other analyses of a FTT raise a couple of credible reasons questioning the workability of such a tax:
1.Unless a FTT is uniformly and multilaterally implemented forexchange-traded financial products (stocks, bonds, options, derivatives) in all key world markets and strictly enforced by every nation, it would be tantamount to economic suicide for any one country to go its own way in implementing such a tax. Today’s financial world of executing high-frequency stock and derivative trades in ‘picoseconds’ (one trillionth of a second) and expanding relative homogeneity of financialproduct sales (vs. greater heterogeneity of OTC securities) has resulted in a highly competitive global financial industry. This in turn magnifies the temptation and increasing ease of capital flying abroad, of cross-border arbitrage occurring.
For why would a company continue to conduct trading securities in a country where stock transaction and regulatory administrative burden costs are appreciably higher … when such costs are considerably lower in, say, Hong Kong? Of course, this whole flight of capital fear may be slightly overdone knowing that today many countries already have some form of a FTT or stamp tax including: Austria, Denmark, Poland, Spain, Luxembourg, Switzerland, Portugal, Italy, China, Singapore and Hong Kong. The European task is to harmonize individual EU country financial transaction levies with the EC FTT proposal.
People like to cite Sweden’s 1984-90 experience with a stock turnover tax implemented in 1984. The action failed due to poor design, heavy concentration of foreign investors resulting in migration of 50% of stock trade volume to London by 1990.Hence, all Swedish securities’ taxes were abolished in 1991. In contrast, UK’s “stamp duty” on onlystock trading by investors (intermediaries are tax-exempt) hasn’t hurt its ability to have a thriving financial stock exchange, the 4th largest in the world. The UK stamp duty yielded tax revenues close to 0.3% of GDP in 2007 before stocks crashed. A similar performance in the U.S. would yield over $40 billion in tax revenues today (source: CEPR study).
Nevertheless, the point is well made that it’s very important that any FTT, comprising an acceptable range of tax rate differences, be universally applied to all markets – at least in Europe and the U.S. – ifmaterial location andproduct substitution problems are to be minimized. If it is not workable to include all countries, other possible avoidance reduction measures include higher exit taxes (onshares transferred to clearance services, and/or converted to other financial products, on stock securities made to qualify as bonds, on initial public offerings in overseas stock markets); intelligent tax design; pressure on tax havens or bilateral agreements covering treatment of securities.
2.This brings up another substitution problem experienced by Sweden with its 1984-90 FTT, namely, the ease of tax avoidance or reduction with products designed by sophisticated financial experts. As we all have learned the hard way the past 30 years, global finance is one of the most innovative (and non-transparent) industries operating today, and often not in the general public’s interests. FTT tax avoidance tricks are manifold: switching to debentures, derivatives, options, swaps, forward rate agreements, paying no tax on citizen trades of unregistered foreign shares, increasing use of contracts for differences and trade in American depository receipts (a derivative transaction). The latter three are all UK investor moves to avoid the stock stampduty. In Sweden, untaxed domestic substitutes were available, making it easy for investors to execute their transactions in substitutes without incurring any additional costs. Even if Sweden had not had cheaper market alternatives and/or so many foreign investors, migration of trading activity would still have occurred because there were no barriers to trading in SEK denominated instruments.
A lesson of the above is that Sweden’s failure with their FTT is hardly a valid reason to dismiss out-of-hand a European-wide FTT. After all, transaction taxes on stocks exist in many countries and forms today. One simply needs to make sure tax avoidance innovations or other avoidance measures threatening the tax base are included into the tax base or charged with a higher exit charge upon leaving the tax regime. If at all possible, this problem area should also incorporate a unified product policy and strict enforcement approach by trading exchanges in Europe and the U.S.
In a time of extreme need for spending austerity and major reforms to counter short-long-term escalating costs and raging deficits, there is a simultaneous need to invest in sustainable projects building JOBS.
As only part of the recovery strategy, this means all taxes shouldbe on the table, including a FTT tax. Why not attempt to harmonize a European FTTwith a US FTT plan (e.g., such as the DeFazio proposal, H.R. 4191) to neutralize any problems with flight of capital? The chance and amount of tax avoidance that might occur depends on the tax’s universality of design and the costs of avoidance measures. It’s incomprehensible that Treasury Secretary Geithner has not made it one of his missions to engage his counterparts in Europe in reaching a reasonably uniform FTT policy that effectively counter-balances problem areas. The all-important requirement is that the FTTbrings in the tax revenue expected of it. Past country projections for such a tax have here and there been well below expectations.
The final tax should probably cover trading in stocks, bonds, derivatives, and options. On this basis, Dean Baker of CEPR assumes a U.S. 0.5%FTT tax on both purchase and sale of stocks versus 0.1% being proposed by European Commission on stocks and bonds and a much lower rate on derivatives. He then projects an annual tax revenue generation of $150 billion, even assuming a considerable reduction in trading volume. These revenues equal 1% of GDP based on a scaled set of taxes on a range of asset securities. This compares to tax revenues equaling 0.3% of GDP for UK’s 0.25%taxon the purchase and sale of stocks only. Assuming only $75 billion is raised by a US FTT, this would cover the following societal costs as estimated by Dean Baker :
·140% of a 1-year extension of unemployment benefits = $54 Bil.
·70% of a 1-year payroll tax cut = $107 Bil.
·75% of projected shortfall of Social Security Trust Fund = $100 Bil.
·75% of the cumulative shortfall in state budgets = $101 Bil.
We must Think Bigger both short and long-term to get control of deficits and simultaneously to invest in our nation’s decayed infrastructure, schools, and worker training. A FTT can bring in significant added tax revenues. We are tax revenue and cost bleeding on all fronts including federal, state and local in the face of ±25 million unemployed and underemployed. But the revenue bleeding when taken in context of our investment needs is a HEMMORAGE!
Baker says the FTT will be paid largely by the financial industry and very active traders, including top income classes. Fabrications and Exaggerations abound by think tanksthat a FTT will hurt the middle class. But this is not so for one key reason shown in the following data showing the incredible concentration of U.S. stock ownership:(source: “Wealth, Income and Power” G.W. Domhoff,2011 and “Recent Trends in Household Wealth in U.S.: “Rising Debtand Middle-Class Squeeze – a 2007 Update” by E.N. Wolff).
·The top 20% wealth class of Americans owned 91% of all stock
with only 9% owned by the bottom 9%.
·The top 10% wealth class owned 81% of all stocks and mutualfunds with 19% owned by thebottom 90%.
Above illustrates how small stock ownership is by bottom 90% and 80% of households. Also, the bottom 80% of households owning $10,000 or more in stock value is also relatively small. And ordinary investors owning less than $10,000 in stocks could always be made exempt from a FTT.
One can argue forever over whether a FTT tax will put a damper on casino stock speculation where the insider Big Hitters are the usual Winners … like former Treasury Secretary Paulson was in grand style to the sum of $500 million by short-selling his own firm´s flaky securitized mortgage packages. As one nobel prize economist has said, “Quick buck ultra short-term finance artistsare rotting the foundation of our economy.”
We have a democracy where the obscenely rich – mainly through stock, bond, business equity, and real estate investments – have created their own economy for their own needs. An economy where the wealth of all U.S. millionaires exceeds the GDPs of China, Japan, Brazil, Russia, and the EU combined!
And here is Secretary Geithner quietly opposing a European Commission proposed tiny (actually too tiny) 0.1% FTT on stocks and bonds. The billion dollar question is, is his view President Obama´s view? Geithner´s publically unexplained non-support of a uniform financial transaction tax in concert with Europe makes one wonder where his loyalties lie. For in addition to raising substantial funds when designed well, the FTT is fair compensation for the extraordinary damage the financial sector has inflicted upon Mainstreet America. It will also balance taxation of all parts of the economy more fairly to meet critical budget and deficit commitments.
The European Commission´s proposal is supported by Germany and France. Britain and Sweden oppose on grounds that it will drive away financial trading institutionsunless the tax is universal, i.e., eitherthe world is in or we shouldn´t do it, as the Dutch finance minister, Jager, has remarked recently.
An earlier impact study concluded that a low 0.1% FTT may result in a drop in GDP of 0.53% in best conditions to a loss of EC income of-1.76% in worst conditions in the long-run. But the study assumptions were questionable and quite different from those of the EC´s current proposal. (The EC proposal excludes any tax on shares and bonds when they are first issued). Some economists feel the FTT plan may expand market volatility and speculation because traders will handle fewer small transactions. However, there´s no empirical proof one way or the other supporting these assumptions. In short, the EC (and most EU member countries) feels the financial sector should pay its share of the financial crisis and expects to achieve $75 billion (Euro 55 billion) annually from the FTT.
Huge short and long term deficits are the reality facing the U.S. This is in combination with a deeply rooted structural decline in the rate of job generation since 1980 – accelerating the past decade and onward into the future by the new world dynamic of outsourcing, robotisizing, automating, and downgrading jobs to maximize global shareholder returns. The middle class and poor can´t pay for these deficits with depressed wages/benefits and part-time survival jobs.
The Scale and Diversity of our financial challenges are awesome! Secretary Geithner and President Obama´s need to get it right … bold steps are needed. All options whether related to cost reduction or revenue generation should be on the table. BUT, a compromising compromise or a doing-little fundamental stranglehold is NOT AN OPTION!
A revealing 2009 study by David Cay Johnston, Prof. at Syracuse University College of Law exposed the 1961-2006 tax cut effects on average income growth of 400 top income earners and bottom 90% of income earners. (see reports: “Is Our Tax System HelpingUsCreate Wealth?” by David Cay Johnston and “Wealth, Income and Power” by G. William Domhoff).
Johnston concludes that, despite a GDP growth of 227% adjusted for inflation and population growth during 1961-2006, our U.S. tax system has been consistently redistributing benefits to top 400 income earners. Real wages for most workers peaked in 1973, remained flat for two decades and then plunged sharply in the last decade. As I and others citing similar data have pointed out, this trend spells very unstable times ahead particularly given the likelihood of jobs growing less than the working-age population in the intermediate future.
Johnston’s disturbing study results show again in another way the Huge Gap in income and tax savings for top 10% vs. rest of society based on numerous tax cuts passed by Congress since 1964. The data confirm how – in an era of depressed wages, automation, and outsourcing – that tax savings have had a bare survival effect on the living standard of average Americans.
Income $263,300,000 $13,676,300 $249,623,700 Increase: 19.3 times
Income Tax $45,204,650 $5,800,500 $39,040,150 Increase: 7.8 times
After Tax Income $218,095,350 $7,875,800 $210,219,550 Increase: 27.7 times
Effective Tax Rate17.17% 42.41% - 60%
Tax: 1961 Rate $111,673,300
Tax Savings $66,468,650
Bottom 90%20061961Change
Income $31,640 $22,365 $9,275 Increase: 1.4 times
Income Tax $2,275 $2,145 $130 Increase:1.1 times
After Tax Income $29,365 $20,220 $9,145 Increase: 1.5 times
Effective Tax Rate7.20% 9.60% -25%
Tax: 1961 Rate $3,035
Tax Savings $760
NOTE: Ave.Tax Savings Top 400 ($+66 mil.) vs. Bottom 90% ($760)! Source: IRS data on income division for top 400; Picketty/Saez Study of bottom 90% income earners.
The miniscule $760in tax savings for the average taxpayer in 2006 was more than eliminated by high payroll taxes which take almost a sixth of the wages of the bottom 90%, according to Johnston’s study.
After tax income for the top 400 taxpayers went up 28 times vs. 1.5 times for bottom 90%, while top income taxes only went up 7.8 times because tax rates fell sharply. The combination of exploding income growth and a 60% drop in effective tax rate of top 400 meant that forevery dollar the top had in income in 1961 they had$28.00 in 2006. Payroll taxes are negligible for top taxpayers. In contrast, for every dollar earnedby the bottom 90% taxpayers, latter had a bare $1.40 in 2006! Of course, 65% of top-earner income (vs. 2% for those earning less than $50,000) is capital gains and dividends at the much lower marginal tax rate of 15% compared to ordinary income rates.
This data is just another insidious confirmation of the +35 year trendconcentration of income and wealth that’s lighting the fires of dangerous inequality and polarization in our nation. Our tax system is doing its part in pouring gasoline on the fires of societal discontent and instability – where today 85% of all wealth is controlled by 20% of the people, leaving only 15% for the bottom 80%. Prof. Johnston’s summary comments are on the mark:
“Does anyone really think that heavily leveraged, offshore hedge fund investments are creating wealth, rather than just exploiting rules to concentrate wealth, while shifting risks to everyone else? … What is the social utility of creating a society whose rules generate a doubling of output per person but provide those at the top over 35 times the gain of the vast majority of taxpayers? … Are we to think that the gains of the 400 top taxpayers are proportionate to their economic contributions?”
The same income concentration results appeared in the late 90s and last 2002-07 modest economic expansion. During latter expansion period, two thirds of the nation’s total income increase flowed to the highest-income 1% of Americans. In 2007, the top 400 earners paid 16.6% of their income in federal individual income taxes (even as their pre-tax incomes grew five times larger) down from 30% in 1995. Between 1995 and 2007, after-tax income of the top 400 grew faster than pre-tax income – 475% vs. 400% (based on 2007 dollars). This was mainly due to sharp decline in effective tax rates following capital gains tax rate reductions in 1997 and 2003. (Source: Center on Budget & Policy Priorities and IRS data).
SUMMARY
All of the above is facilitated with Republican repetitive dogma of cut, cut, cut spending and taxes to regenerate the economy. In fact, this economic paradigm will only make the economy smaller and the structural job destruction situation worse. The reality is we have a multi-fold tax revenue, spending, sustainable investments for jobs problem. Jobs won’t increase by dismissing teachers, policemen, firemen and government workers, nor by a broad, haphazard cutting of government expenditures.
Exhaustive research conclusively shows that tax cuts do not pay for themselves. Republican propagandists preach that redistributing wealth by progressive taxation does not create wealth or jobs. Only low taxes spur economic growth and net tax revenue growth. So say the McConnells, the Cantors, the Boehners, the P. Ryans, the R. Pauls with the automatic, airhead one-liner, “We do not have a revenueproblem, we have a spending problem.”
Reagan learned such extraordinarily unfounded claims to be completely FALSE as did Bush Jr.; FALSE to countries like Germany, the Netherlands, Sweden, Norway, Denmark, etc.; FALSE according to a CBO study showing that tax cuts replace 22% of lost tax revenue the first five years, rising to replace 32% of lost revenues the second five years. In short, tax cuts induce deficits and yield minor job growth especially in a culture of wage stagnation and job elimination.
As far as corporate taxes and jobs are concerned, corporations tend to pad their profits with tax savings and ultimately their share prices. Joblessness is due to many factors, corporate tax rates being only one of them. Mega corporations will continue to create jobs for foreign markets where wages and/or taxes are low – no matter how bad the local situation is. A recent example is the 2002-07 modest economic expansion and subsequent bubble crisis that blossomed during Bush Jr.’s term. In this period, total job generation was less than 2 million or 10% ofthat during Clinton’s presidency – DESPITE Bush’s extensive tax cuts for the rich, including the capital gains tax rate. (see writing: “Ongoing Structural Unemployment Calamity”).
Besides, it is morally irresponsible to expect individuals to cover an ever larger share of the federal tax burden while massive and highly profitable “citizen” corporations can avoid or are excused from paying their fair share of government tax revenues.
What is needed is a Blended, Balanced short and long-term fiscal-economic program focused on job creation, small firms that generate +-75% of all new jobs, infrastructure, schools, worker training, tax reform. (see writing, “Our Fiscal-Economic Quagmire: Some Solutions).”
Sadly, under our broken-down government of winner-takes-all where loyalty to special interests and purist ideology comes first, rational and fair social-economic policy-making for All Americans under a “share the pain and gain” modus operandi is dead.
Professor of economics at Harvard, Robert Barro, has joined the Romneys, Perrys, Bachmans, Gingriches, Ryans, Palins, etc., advocating the economic paradigm of lower taxes for all, reduced government spending, and reform of Medicare/Social Security with no mention of infrastructure/education investments … as the responsible way to control deficits/debt expansion, to increase GDP growth and jobs. In his recent article in the NY Times he says a consumption tax (VAT) and elimination of corporation taxes is a better plan than Obama’s.
Prof. Robert Barro's pure fiscal austerity strategy will certainly reduce government’s size and role in our society. But will it also reduce long-term debt and deficits by increasing net tax revenues as he claims (with no supporting data)? One thing is clear: Barro's global corporations who as legal people will not pay taxes will be richer to bribe the politicians, further stealing the political voice of "We the people" who pay taxes. What does this spell for our democracy?
Here's in short his grand fiscal reform scheme:
Introduce a 10% VAT or consumption tax, an efficient tax not easily avoided. (What happens to state sales/income taxes)?
Abolish the corporation tax and replace same by a VAT; if this is impossible, eliminate the dividend tax.
Eliminate estate taxes.
Lower marginal income tax rates for everyone.
Phase out tax deductions for mortgage interest, state and local taxes, and employee-provided health care.
His conclusions: the above will increase tax revenuesoverall and GDP by encouraging more private investment and savings. Elimination of the corporate tax will increase private investment and jobs. The 10% VAT consumption tax (averaging 19% in Europe) will likely dampen consumption (despite lower marginal tax rates), increasing system savings and financial liquidity for direct private investment in job regeneration. He says nothing about government investments/incentives in long-term projects, technology, and job growth also contributing to deficit/debt reduction. His approach is a pure market strategy relying mainly on reduced taxes as the answer to our systemic fiscal-economic quagmire. There appears to be a concomitant goal of reducing the size of government.
He goes on to say if the base rate of the VAT were 10%, this would yield tax revenues amounting to about 5% of GDP. Is he forgetting he’s eliminating corporate and estate taxes averaging 12-13% of all taxes over the last decade (see U.S. Fiscal-Economic Quagmire: Some Solutions) or a tiny +-3% of GDP ? Also, I assume the different state income and sales taxes, amounting to +-3% of GDP, would be eliminated under Prof. Barro´s VAT recommendation, also increasing gross tax revenue losses. So gross tax revenue generated by his ideas could well be negative as a % of GDP … or his VAT must be set much higher to yield gross tax revenues of 5% of GDP. He’s rather unclear on this point.
In addition, he ignores overwhelming historical study evidence, discovered by Reagan, that lower taxes do not pay for themselves. For neither the rich consume sufficiently more (“trickle down” their wealth) nor does the middle class sufficiently consume more in a society of stagnant, sub-standard wages … where the obsession and extreme dependence of consuming at 70% of GDP fostering negligible household savings (vs. 60% of GDP in Europe and 10-12% household savings) accelerates the purchase of cheap imports, resulting in HUGE trade deficits. This is an unsustainable process that diverts national savings to financing extraordinary trade deficits.
Prof. Barro also forgets that the sole value driving corporations is shareholder profit. To meet this global goal, workers are expendable commodities who, along with communities, are abandoned at will if it’s more profitable to do so. Today, there’s little if any corporate conscience of social responsibility other than shareholder wealth maximization. How would this change if corporate taxes, which are already contributing a tiny 10% of all tax revenues, were eliminated altogether? Would not the resulting higher profits make mega global corporations ever more aggressive in putting shareholder interests above those of labor, communities, and the environment? Would not most of the higher profits be redirected to investments abroad?
This amateur economist fails to see how Prof. Barro comes to the glib conclusion his packaged new VAT/tax decreases, phasing out mortgage interest and other deductions accompanied by NO public societal investments-incentives will result in a NET INCREASE in long-term federal/state tax revenues – leaving aside tough reforms in Medicare and Social Security which most will agree must be done at all costs.
Prof. Barro's corporate/individual/estate tax reduction ideas have a Tea Party libertarian accent of equating pure market capitalism with democracy … where government´s role is sidelined to the reserve bench where the real focus of corporate libertarianism is with private interests not public interests. Unsurprisingly, he does not address how his "invisible hand of the market" tax change package will affect the nation’s exploding inequality of wealth … an inequality going hand-in-hand with political corruption under floods of special interest influence money. In 2008, for example, the top 1% held 50% of all investment assets while the bottom 90% held less than 10%. About 60% of the richest taxpayers reported 60% of their income in capital gains (i.e., 15% tax rate) and 8% from salary and wages. The rest of the country, or +-90% of households, reported 5% in capital gains and 72% in salary and wages. Wouldn’t these gaps worsen under Prof. Barro’s tax proposals? Wouldn’t corporations feel more free to exercise their unaccountable powers over our democratic representatives? Wouldn’t this increase our regulatory dependency on non-governmental institutions as a substitute for government … all of the above resulting in more socialism for the rich and capitalismfor the poor?
Certainly lowering marginal tax rates for everyone and abolishing estate taxes will disproportionately benefit the rich and make the economic inequality gap worse. Phasing out (i.e., eliminating) mortgage interest as a tax deductible item will regressively financially punish the bottom 80% of households … if it is not appropriately progressively designed with acceptable deductibility limits.
A uniform VAT for all states that would replace state sales/income taxes would be a good idea. But, as mentioned earlier, Prof. Barro's 10% VAT rate is appears too low to generate a net increase in tax revenues through new job expansion. Job growth Investments and Incentives are what really increase demand and hence new jobs.
What’s needed is a tough, transformative Fiscal-Economic plan that is common sense BLEND OF POLICY ACTIONS, equitably BALANCING the interests of all Americans. Such an approach might include some variation of the following actions:
I. AUSTERITY MEASURES
(a) Reduce obvious spending waste.
(b) Cut Defense budget back to 3.5-4% of GDP.
(c) Pass a federal Balanced Budget Amendment that sets limits—subject to reasonable exceptions – on annual Deficits (e.g., 2-3% of GDP) and Spending (e.g., 20% of GDP) reflecting terms in writing, U.S. Fiscal-Economic Quagmire.
II. TAX REFORM MEASURES
(a) Set progressive limits on mortgage interest deductibility.
(b) Eliminate all corporate special tax privileges, subsidies, tax avoidance loopholes.
(c) Reduce corporate statutory tax rate to 25% subject to (b).
(d) Increase capital gains tax rate to 25%.
(e) Implement a uniform U.S. VAT of at least 12% replacing state sales and income taxes and applicable on all imports but excluded on all exports.
(f) Maintain original marginal tax rate of 39.5% on income exceeding, e.g., $250,000 , perhaps higher
III. INVESTMENT ACTIONS: Short and Long-Term
(a) Implement American Jobs Act but reduce payroll tax part and increase jobs part of $450 billion plan.
(b) Focus investments on infrastructure, schools worker training.
(c) Offer corporations tax incentives for repatriating foreign held profit reserves into a transparent Jobs Fund for sustainable investments only in projects that importantly increase jobs.
(d) Rethink and reactivate an aggressive, workable fossil fuel independence plan, which in addition to environmental benefits, will lead to a major favorable reduction in our huge trade deficits.
IV. HOW TO PAY FOR ABOVE WITHOUT GYRATING DEFICITS
(a) Implement a “financial transaction tax” on all stock, bond, and large currency transactions.
(b) Implement Austerity measures.
(c) Return (in 2012) the highest marginal tax rate to 39.5%.
(d) Treat societal investments as depreciable “investments” not as annual expenses.
(e) Undertake the necessary reforms to Medicare and Social Security without privatizing them.
SUMMARY
Contrary to conventional ideological propaganda, one of our truly great founding fathers, Benjamin Franklin, was aware of the relationship of economic inequality and political corruption. In an objective, brilliant book written in 2007 by Lorraine Smith Pangle entitled, “The Political Philosophy of Benjamin Franklin,” she had the following to say of his beliefs:
“Benjamin Franklin knew that enlightened economic policies would not be for the good of absolutely everyone. So he always looked for benefits that would truly be common. But when choices had to be made, he preferred the good of the many to the good of the few, and the good of the common man to that of anyone else.”
As for the role of government in society, another great founding father, Thomas Jefferson, also got it right 245 years ago when he said:
“Some men look at constitutions with sanctimonious reverence, and deem them like the ark of covenant, too sacred to be touched.
… Laws and institutions must go hand in hand with the progress ofthe human mind … We might as well require a man to wear still the coat which fitted him when a boy, as civilized societies to remain under the regimen of their barbarous ancestors.”
And Jefferson said this when there was no need for sensible, regulatory restraint and guidance of the complex, excesses of raw capitalism and special interests infringing on the rights and freedoms of others – where constructive reforms were being obstructed by insider-money influences with little regard for the common good and the long view. In Jefferson’s time, the largest U.S. cities were New York and Philadelphia with populations of 60,000 and 30,000, respectively in 1800 … cities the size of just small towns today. Jefferson’s reality was that he lived in a predominantly agrarian environment. Nevertheless, remarkably, even then he favored a dual concept of minimalist governance and support for the common man.
James Madison echoed similar thoughts in words I couldn’t agree more with in these times when he said in the 1788 Federalist:
“If men were angels, no government would be necessary … In framing government which is administered by men over men, the great difficulty lies in this: you must first enable the government tocontrol the governed, and in the next place,oblige it to control itself.”
What I’ve said here in reaction to Prof. Barro’s economic renewal ideas for coming out of the social-economic MESS we are in does not address our fundamentally corrupt system of campaign financing and buying the loyalties of elected legislators on both sides of the political aisle … bringing our democracy closer to a plutocracy where one dollar equals one vote. We are in a governance game where the elected get comfortable playing the system for their personal career benefit and/or purist ideology rather than for the interests of the country as a whole. This polarization of winner-takes-all politics is intensified by a complex tax code enabling the rich and powerful to take advantage of the tax code’s obscurities and egregious, non-transparent loopholes for their greedy self-aggrandizement.
Today, private and public interests seem BOTH out-of-control and out-of-balance, as Madison wisely warned about in 1788! The challenge is seeing that non-governmental interests and government interests are sufficiently controlled so as not to invade the rights of the other and, very importantly, so as not to be adverse to the entire society.
This requiresnowa sound BLEND of fiscal-economic Austerity, Social-Net ReformsandInvestment advancing the WHOLE of society – as opposed the top 10% and disproportionately powerful "citizen" corporations/ wealthy estates owners paying NO TAXES while buying our democracy and disregarding the nation's commongood.Otherwise, we shall endure another decade of deep social-economic divisions, stagnant growth, and structural decline in the rate of job growth – a decline that started three decades ago andreached epic proportions evenbefore the Great Recession. (See study: “U.S. Ongoing Structural Unemployment Calamity”)
On the whole, I feel Prof. Barro’s economic revival ideas fall short in coming to the right egalitarian mix of public and private initiatives that restore trust and confidence that things will improve for ordinary Americans. He can do better
Frank Thomas
The Netherlands
ADDENDUM
Prof. Barro’s Solution to America’s Problems
Addendum:
The enormous distrust, intolerance, and disrespect politicians and parties show for each other these days; the blame game that it’s somebody else’s fault; the ugly slogans heaped upon each other with no self-criticism of failed policies or thinking ; the rhetoric and political sabotage substituting for substantive, cooperative solutions to problems that ‘ain’t’ going away but just get rolled over … all this and more isspreading thedisconnect between U.S. society and the political system.
A sea of Distrust and Cynicism has emerged thatour representatives don’t represent us; uncertainty and fear have arisen over thequestion whether government is working for citizens as well as capitalism (discussed in writing, “Capitalism’s Creative Destruction of a CivilSociety” – The Rights of Money vs. Living Persons).
As Rosalind Williams of MIT has said, “This crisis is not routine … our children’s historical time is going to be quite different. … there are all sorts of episodes spreading circles, a network of crises.”
Her admonition, as is mine, is that in this fundamentally changed world of global capital and shareholder priorities – where people feel lost to unaccountable mega corporations and to organizations, i.e., government, that are out-of-touch or simply behind complex issues and related human vulnerabilities – we had better come together and get the policy actions equitable and right this time for ALL.
I was pleased with Obama's firm, serious plain English talk void of elevated oratory .
I was pleased to see Obama finally place job development at the top of his priorities with an aggressive $450 billion plan ... comprising $240 billion temporary payroll tax incentives and $140 billion for infrastructure, schools, $35 billion aid to states to prevent massive teacher firings and encourage rehirings, etc. Equally important, he said all this will be paid for and, therefore, will be deficit neutral. However, he was vague on the specifics (e.g., a financial transactions tax, closing tax loop holes, actions having negligible if no impact on aggregate consumer demand) of how to achieve this goal, other than to say he would propose an even more ambitious target for reducing the long-term deficit.
Of course the Cantor/Ryan Republican Congress members immediately stood up and clapped enthusiastically when Obama mentioned expansion/extension of payroll tax cuts for employers and employees under the American Jobs Act ... while they remained seated and almost "stone still" when he described the very modest job stimulus part of the plan. Tax cuts fit the Republican mission to "starve the government beast" as amplified further by Sarah Palin's recent speech in Iowa (Sept. 2) where she advocated "an end to all corporate taxes."
(Digressing here a bit, QUITE SURPRISINGLY and COINCIDENTALLY, I also learned today that Palin's Iowa talk did contain some substantive points on the nature of our nation's governing paralysis THAT I HAVE JUST WRITTEN ABOUT IN GREAT DETAIL -- including David Korten's research. Her threefold condensed remarks were:First, the U.S. is now governed by a permanent political class, drawn from both parties, that is increasingly cut off from the concerns of regular people. Second, that these Republicans and Democrats have allied with big business to their mutual advantage to create what she called "corporate crony capitalism." Third, that the real political divide in the U.S. may no longer be between friends and foes of Big Government, but between friends and foes of vast, remote, unaccountable institutions (both public and private) -- Source; Anand Giridharadas of International Herald Tribune, Sept.11-12).
Back to Obama's speech. Unfortunately, as I've noted in a prior writing (U.S. Fiscal-Economic Quagmire: Some Solutions), all evidence shows that temporary tax cuts result in significantly less net tax revenues (thus are deficit inducing). In other words, they do not pay for themselves and do a poor job of generating jobs, especially over the short term. In fact, most respected enonomists conclude that tax cuts are ineffective in stimulating an economy on a temporary basis. But, given the explosion in scarce commodity/fuel prices and systemic wage stagnation of the working class, this tax cut move makes sense now for employees caught in a tight cash squeeze, but probably makes less sense for employers who will hire people when DEMAND increases. Obviously, increasing jobs and decent wages has a far greater effect on aggregate consumer demand than temporary tax cuts.
I have no illusions the jobs stimulus part of Obama's plan will not be cut to pieces by Tea Partiers on the PHONY financial grounds it will increase deficits and debt but tax cuts won't do the same. Their robotical argument is that the real problem is Big Government and the mountain of government regulations on corporations, small firms, and entrepreneurs. This spiritual Resurrection of a version of Saint Newt Gingrich's farcical Contract With America will likely render Obama's job stimulus action as ineffective, helping to insure his defeat in 2012.
But, Obama's awareness of this twisted, dumb logic, and propaganda is on high alert by now. So I have high hopes he will fight the dangerous ultra right thinking as fervently as he spoke last Thursday night for the middle class. Going across the country to explain his plan directly to the American people is a GREAT TAKE IT TO THEM Harry Truman approach! I wish him every success.
Best,
Frank
John: Liselotte and I read about your electrical blackouts in California and were wondering about you and Judy. We're glad everything has returned to normal.
Frank,
Obama's speech was good as far as it went. Unfortunately, the power went out here a half hour before I was all set to watch it! However, I think there is still too much emphasis on tax cuts. His strategy of selling it to the American people and blaming Congress if they don't pass it is good. If anyone thinks the Republican Congress will do anything except tie this legislation up in knots and delay, delay, delay while pretending to negotiate, they are sadly mistaken. Obama shouldn't be so nieve to think that any portion of it will pass including the payroll tax cuts. Republican Congress persons will pretend to be interested, and then do everything they can to consume time and energy while causing Obama to look like he's spinning his wheels, accomplishing nothing.
What Obama should do is to leave the pretend negotiations up to his lieutenants in Congress such as Harry Reid and Nancy Pelosi and then devote his time and energy to finding a way to shift already allocated funds to Americorps or another WPA style program in order to put long term unemployed, minorities and youth back to work immediately. I'm sure it can be done in such a way that bypasses Congress if he only has the will to do it. Meanwhile, the other parallel effort requiring Congressional approval could proceed on another track. Also he needs to figure out a way of funding an infrastructure bank either enlisting the help of billionaires or working out some deal with the big corporations and banks that are sitting on $2 trillion in cash or working out a deal with Fed Chairman Ben Bernanke to funnel money to it in the form of loans instead of funneling money to the big banks. He needs to get creative and try something that's never been tried before to get the money to put people to work immediately. Time is of the essence. Republicans knowing this will do everything they can to waste it so they can run in 2012 on the basis that Obama has failed to create jobs.
At a time when the global economy is separating ever larger international firms from public accountability and the public’s interests; at a time when economic globalization is systematically creating a sea of poverty and race to the bottom for middle-class Americans; at a time when corporations are bidding down wages and taxes under the threat of moving elsewhere, outsourcing and automating away jobs at will, closing down plants and trashing any responsibilities to productive, loyal employees and communities; at a time when the Paul Ryans are orchestrating the coup de grãce of unions, the sell-off of government assets, the elimination of jobs for teachers, firemen, policemen, and social workers – the main unresolved questions facing allAmericans are less about political ideologies than about life’s values vs. financial values, about the concentration of economic power in mega global corporations, now society’s most powerful citizens … whose sole mission is maximizing shareholder wealth and often, as Robert Hinkley has noted, “at the expense of the environment, human rights, the communities in which they operate, or the dignity of their employees.”
As far back as 1996, David Korten of the Harvard Business School with unusual foresight gave his verdict on the then existing (and now populist Tea Party) libertarian doctrinaire harangue that an unregulated free-market economy equates with democracy. His verdict on what the free market and the unfettered self-interests of multinational corporations are doing was smack on the point, “We are suffering from a threefoldhuman crisis: the deepening of poverty, social disintegration, andenvironmental destruction.”
Following excerpts are from his writings and 1996 essayentitled, “The Rights of Money versusThe Rights of Living Persons” His observations have an unnerving relevance to the Fiscal-Economic QUAGMIRE we are in today after 30 years of laissez-faire capitalism (Parts I, II and III of my writing on this subject) … which in its worst form is taking our nation toward plutocracy and away from egalitarianism and democracy. In the spirit of John Lawrence’ s blog to explore deeply – with eyes and mind open – our nation’s structural problems and solutions to same, here is David Korten’s provocative, prescient plea for a reawakened civil society and for reclaiming the economic spaces in our society in favor of the small and the locally accountable. Written 15 years ago, Korten’s out-of-the-box thinking reminds me of some words once said by LeRoy Greason, former President of my Alma Mater, Bowdoin College in Maine, who just passed away:
“We are seldom absolutely right. Even when most alive and living beyond ourselves, we had best walk humbly with our gods.”
Proponents of market liberalism claim the free market is the essential foundation of political democracy – a guarantor of the rights of people against the abuse of state power. They neglect, however, the important ways in which the unfettered market tends to function as a profoundly undemocratic institution.Political democracy vests rights in the living person, one person, one vote. By contrast, the market recognizes only money – one dollar, one vote. It gives no voice to the penniless (or those hit by bad times), and when not balanced by constraining political forces can become an instrument of oppression by which the wealthy monopolize society’s resources, leaving the less fortunate without land, jobs, technology, (training) or other means of livelihood. Only when wealth is equally (I prefer word, equitably) distributed can the market be considered democratic in any meaningful sense.
World markets are now dominated by global-mega corporations – among the most undemocratic and unaccountable of human institutions. By its nature, the corporation creates a legal concentration of power (and highly paid lobbyist network) while shielding those who wield that power from accountability for the consequences of its use. Many mega-corporations command more economic power (including advertising budgets that rival education budgets) than do the majority of states, and they dominate the political processes of nearly all states. Their growing unaccountable power poses a serious threat to the basic economic and political rights of people everywhere.
The time has come to re-examine some of our most basic assumptions about the nature of democracy, human rights, and the institution of the corporation. The survival of our political freedoms depends on recognizing that economic rights are an essential foundation of political democracy. Consider, for example, two of the most fundamental of all human rights – the right to a means of living (literally the right to live) and the right to participate in making the decisions that affect our lives.
The Right of Access to a Means of living: The earth’s (rapidly declining) life-sustaining resources are a common heritage of all life. All people are born with an inalienable right to a sufficient share of these resources to create a secure and fulfilling life for themselves and their families. They have a corresponding responsibility to share and steward these resources to the benefit of all persons and other living things.
Since the most basic requirements of living depend on the products of the earth, there is a fundamental – though often neglected – connection between livelihood rights and property rights. English philosopher John Locke set forth a moral justification for property rights in The Second Treatise of Government published in 1689. Locke argued that where unused land is abundant, a man has a right to appropriate for his private and exclusive use the land which he tills to produce for his basic subsistence needs. It is through the application of his labor to make the land produce that he acquires this private right. Locke stressed that given the condition of abundance, such appropriation in no way deprived others of similar opportunity. Locke was clear that the rightful claim to a property right followed only from the application of one’s personal labor. Furthermore, this claim legitimately extended only to such property as required to meet one’s material needs – suggesting that a property is virtually synonymous with a livelihood right.
Locke, however, went beyond this relatively unassailable moral argument to seek justification for actions of those who accumulate property far beyond their personal needs. Presuming that property rights are most likely to be accumulated by clever and industrious persons who seek to realize their full productive potential, Locke argued that the result of this accumulation would be to maximize the wealth of society and thereby the well-being of all. It is essentially the same argument that economists make to this day in defense of inequality based on the assumption that the surpluses created through investments of the wealthy in a growing economy will be widely distributed through society in the form of high-paying jobs and well-funded public services (the lying “trickle-down” economic con-game played on ordinary Americans the last 30 years).
It is noteworthy that the moral defense of inequality in Locke’s thesis and the work of (many) modern economists rests on two inadequately examined assumptions : (1) natural wealth is abundant relative to need;and (2) the benefits of an overall increase in economic activity arewidely shared even when wealth is distributed unequally.
Unfortunately, on a global basis, for several billion people who find their livelihoods increasingly at risk, neither premise is valid in our present world. To the contrary, the poor are being excluded from access to land, technology is eliminating jobs quicker than it is creating new ones, and public services are being systematically dismantled – all to increase the riches of those whose wealth already exceeds any conceivable need. In short, property rights are being used routinely to justify the exclusion of those without property from access to a decent means of living.
As suggested by Locke’s argument, the rightful purpose of a property right is to protect a person’s right of access to a means of livelihood or to secure for the individual a just reward for entrepreneurial initiatives that create a better life for all. A property right loses its legitimacy when its exercise by those who have more than they need denies others of their rightful means of a livelihood or otherwise diminishes their opportunities for a full and meaningful life. The livelihood rights of the many come before the property rights of the few. Recognition in our laws and public culture of this limitation of property rights is fundamental to the market’s socially efficient function.
The Right to Participate in Decisions That Affect One’s Life and Community : Born with reason, conscience, and the capacity for intelligent choice, all people have the inalienable right – indeed the obligation – to use these gifts to participate actively in the decisions that affect their lives and communities.
In the economic realm, the exercise of the right of participation extends far beyond choosing among those products the market finds it profitable to offer us. It includes the right to participate in setting standards and priorities for the economic affairs of our communities, the uses to which our local resources will be put, and the conditions under which we will engage in external trade and invite the participation of others in our domestic economies.
This right is under attack by the world’s mega-corporations that seek to establish their own right to move across the planet without restriction to extract resources; exploit unorganized and unprotected labor; evade taxes and environmental regulations, and health safety; monopolize indigenous knowledge and genetic materials without regard to the human and environmental consequences. Their weapons of choice are international (and national) agreements on trade and investment that take precedence over the rules and regulations established by people and their governments to govern local commerce.
Negotiated in secret and implemented without full public discussion and democratic assent, these agreements are systematically eroding the democratic rights of people to regulate their own local and national economies, and to set rules for commerce consistent with their own values and judgments regarding their personal and community needs. The interests of money and the fictitious legal persona of the corporation are thus placed ahead of the interests of living persons and their communities – all in the name of market freedom.
An unregulated market invariably encourages the externalization of costs because the resulting public costs (resource giveaways, low wage labor, tax breaks, lax environmental regulations) become private gains. This happens, for example, when a chemical corporation dumps wastes (or a natural gas driller pumps huge quantities of chemicals into the ground destroying water supplies) without adequate treatment, thus passing the resulting costs of air, water, and soil pollution to the community in the form of health care costs, genetic deformities, lost working days, a need to buy bottled water, and the cost of cleaning up the contamination.
It is useful to recall that Adam Smith, the intellectual patron saint of free-marketeers, favored a market comprised exclusively of small buyers and sellers. Smith considered the corporation to be an instrument for monopolizing markets and saw no place for such institutions in a properly functioning competitive market economy. By his reckoning, the corporation is an anti-market institution. Smith opposed any form of economic concentration and would be outraged by claims that he advocates that the market turns unrestrained greed into socially optimal outcomes. Smith’s focus was on self-interest of small business entrepreneurs, small farmers, and artisans trying to get the best price for their products to provide for themselves and their families. For him, greed is a high-paid corporate executive firing 10,000 employees and then rewarding himself with a multi-million dollar bonus for having saved the company so much money. In short, Smith believed the efficient market is composed of small, owner-managed enterprises located in the communities where the owners reside (my note: This is precisely the democratic modus operandi of the exciting trend to community, regional, state-wide, worker-manager owned cooperatives).
A corporation comes into being only through the public act of the government that issues the corporate charter. The creation of a corporation is thus a public, not a private, act. And its only justification is to serve a public purpose. Whatever privileges or authority the corporation may enjoy are derived from the authority of government, which is itself derived from the will of the people. It therefore follows that the corporation is rightfully subject to the will of the people and to whatever laws people freely choose to establish governing its function.
It is the proper function of the corporation to implement the laws that people establish through their governments, not to participate in their creation. Indeed, it is essential to the integrity of democratic governance that corporations be barred from political participation of any kind on the theory that political rights reside in real people. (my note: This position by Korten in 1996 is a far cry from present-day reality reflected in Supreme Court’s recent one vote majority decision in Citizens United case ruling that spending money to influence elections by corporations is a form of constitutionally protected free speech under the 1st Amendment).
The idea that corporations should enjoy the rights of flesh and blood persons – including the right of free speech – grew out of the U.S. Supreme Court decision in 1886 that designated corporations as legal persons entitled to all the rights and protections afforded by the Bill of Rights of the U.S. Constitution. Significantly, the U.S. Constitution makes no reference to corporations. It was a decision without legal or moral foundation made by a corrupted court system. (my note: By the beginning of the 20th century, corporations had become sovereign as persons under the law and had turned people into consumers, or workers, or whatever the corporation of the moment chose to define humans as).
Markets are important institutions and they have an essential place in any democratic society – functioning within a framework of democratically determined rules and public safeguards. There is nothing democratic, however, about an unregulated market that responds exclusively to the needs of the wealthy and subordinates human rights and interests. In the end, only an active and politically engaged citizenry can assure the protection of our human rights from the arbitrary use of power by either states or corporations (my note: For example, the recent moves by some states to privatize publically-owned government assets and eliminate collective bargaining rights of unions).
Institutional power and legitimacy flow from the will of the people, and when any institution usurps our natural rights, it is the right of the people to restructure, replace, or eliminate, that institution.
SUMMARY
At a time when abundant resources critical to all life are being rapidly depleted and falling commodity prices have become a thing of the past, we are being warned that our traditional, desperate free-for-all focus on 4% or higher GDP growth rates is no longer sustainable. This requires a paradigm shift to policies aimed at achieving the conditions where market-driven capitalism can function in a more equitable democratic fashion in the public interest. This also means we cannot sustainably consume at 70% of GDP with zero Savings, explosively high Trade Deficits and related consumer and federal Debt … a formula we’ve perfected that will inevitably bring the next crisis of all crises.
We need to fundamentally rethink our social-economic model … as someone said “do a little fate-of-the world scale thinking.” But I’m afraid we will continue to tinker with things broken in our unstable social-economic system. We seem Hell Bent on remaining captive to divisive ideology where the best and brightest ideas are sacrificed to inflexible dogma and the greedy pursuit of political power.
I support David Korten’s thesis that corporations owe as much to the public as they do to shareholders. They owe something to workers, communities and the natural environment in which they operate. This calls for a far more civil society founded upon the values of equity, cooperation, openness, active citizen participation, consensus-oriented decision making and responsibility to the whole society.
In a 2000 essay, David Korten further wisely contrasted the values/benefits inherent in an uncivil purely capitalistic society where the sole defining purpose is making money and people are treated as expendible commodities -- vs. a more humanistic civilsociety where inclusivity, equity, shared sacrifice and shared gain are the dominate cultural values:
“We might thus expect the economy to be comprised primarily of local enterprises and to vest in each individual a share in the ownership of the productive assets on which their livelihood depends (i.e., cooperatives, small enterprises). The civil society is radically self-organizing and predominately cooperative in the manner of all healthy living systems, and seeks to maximize the opportunity for each individual to fully and freely develop and express their creative potential in service to the whole life. (my note: Actually this was the American Dream that has become a middle-class Nightmare). Thus, a civil society differs on every dimension from the capitalist economy in which we currently live.
In the pure capitalist economy, money is the defining value and the primary mediator of relationships among persons and institutions. The whole of public life is dominated by national and global financial markets (and shareholder interests) that value life only for its liquidation price. The wages of working people are suppressed to increase the returns to those elite few who already command vast financial holdings.
Dominant corporations buy politicians and control public discourse to create a grossly distorted one dollar, one vote democracy. Spiritually impoverished and pressed into a struggle for survival, those deprived of both political voice and a (decent) adequate means of livelihood become increasingly indebted to the system that demands they devote ever more of their life energies to its imperatives. Ideals of equity are out the window and individual freedom becomes largely illusory.”
My concern is our GDP growth rate is far too dependent on a 70-72% of GDP consumption level in a society that has experienced a 30 year trend of stagnant wages for the bottom 80% of households and a steady 30 year decline in the rate of job growth due to rapidly changing technology, automation, robotization, outsourcing, job downgrading. Given these developments, our paradigm of promoting high consumption, inevitably made worse by consumer over-leveraging and weak regulatory credit standards, results in an ever increasing demand for relatively inexpensive foreign goods and services as well as foreign capital. This in turn expands trade deficits, absorbs national savings, and expands foreign debt.
I believe this is no longer, if it ever was, a sustainable approach to achieving stable GDP growth rates of at least 3% annually. Stagnant wages and consuming at 70-72% of GDP automatically leads to declining saving rates. Decreasing or depleting middle-class household savings is NOT a sustainable way to create stable, long-term growth patterns. The most threatening hurdle to coming out of this economic quagmire is the disastrous unemployment and underemployment of +-28 million Americans – over 60% unemployed or underemployed for 6 months or more. And those fortunate to get a job in these times must accept substantial wage cuts. This structural jobless growth and job downgrading is contributing in a big way to our budget deficits (and the prevailing national mood of financial insecurity) … budget deficits that also tend to accelerate trade and current account deficits.
After tax household income is about 75% of GDP. Thus, a household savings rate now of 6% is just 4.5% of GDP. Adding in corporate savings averaging 3% of GDP brings total private savings to +-7.5% of GDP (vs. almost double that in mature EU countries). A CBO study projects that U.S. budget deficits will average 5.2% of GDP over the next decade and 5.5% thereafter – leaving a net private savings rate of +2.5%. This borrowing level exhausts our modest savings and means that the U.S. has a continuing need for large foreign capital inflows to finance business investment. In contrast, prior to the early 1990s, household savings in excess of 8% of GDP plus corporate savings were sufficient to finance most business investments in plant, equipment and housing.
The high consumption-low savings-stagnant wages paradigm in combination with high budget deficits compounds the dependence on foreign borrowings as trade and current acccounts deficits rise to new risk levels. This is because domestic demand (under this paradigm) exceeds domestic output. The shortfall has to be met by imports, i.e., higher trade and current account deficits. The demand on the world’s credit caused by foreign borowings cannot be met by savings, nor are savings adequate to fund private investment. This is poignantly evidenced by a 40 year non-investment in decayed infrastructure and sub-par educational systems. (Of course, 5.5% of GDP Defense spending has also played a major role inducing deficits and choking off societal investment's role ). A recent CBO study concludes that our continuing budget deficits will transfer more and more U.S. income to the rest of the world the next decade, further eating away the living standard of middle-class Americans.
While trade and current account deficits have dropped from a peak of 6% of GDP in 2005 to 4.5% today as a result of the recession, most economists see this reversing in the intermediate term as consumption rises. I don't think this necessarily also means household savings will decline to pre-crisis lows of less than 3% of GDP to help spur consumption back to 70-72% of GDP. The great recession caused an enormous loss of middle class wealth, broad- scale structural joblessness, related considerable household insecurities, home foreclosures, deleveraging, and tougher credit terms. I feel all this will motivate middle-class Americans to stay in a stronger savings mode for some time. So I'm in the camp of those like Martin Feldstein who believe household savings will climb back to ±8% of GDP. A possible reduced consumption in the range of 65% of GDP could occur, stabilizing trade /current account deficits providing the dollar’s value remains weak, making exports more attractive to foreign buyers.
Obama's emphasis on exports rather than consumption is wise policy. But it won't work well until decent wages and jobs come back for working Americans. In the past, stagnant wages/salaries have driven the middle class to buy cheap imports with the domino negative deficit/debt effects. Sustainable job stimulus and training, balancing the budget in good times, encouraging greater savings (despite negative short-term effect on consumption) are the most reliable ways to stabilize U.S. foreign deficits and debt. Some related financial rules should be: net annual debt buildup not to exceed annual GDP growth; combined trade and current account deficits not to exceed 3% of GDP, as recommended by Paul Volcker; and budget deficits not to exceed 2% of GDP.
The latter also means, as noted above, the dollar's value must remain low to make U.S. products and services more attractive to foreign buyers and ultimately more attractive to U.S. buyers.
I am not saying higher savings are the cure-all to the multi-faceted economic mess we are in. They are a critical Part-Cure. (Some are saying a VAT will stimulate more savings and substantial tax revenues. But this gives the anti-tax cult a brain hemorrhage). Our low savings rate has forced us to be far more dangerously dependent on funds from abroad. According to Martin Feldstein, such funds have been financing more than 75% of U.S. net investment.
As stated, improving our national savings is a very important Part-Cure to our nation’s financial problems. Balancing the budget and controlling debt levels,investing in sustainable renewal projects are the priority needs. Seeking an economic renaissance by excessive dependence on High Consumption-Low Savings is a No-Cure approach to our problems.
In simple terms, we've got to confront the deeply rooted out-of-balancecomponents of GDP growth in our economic model, namely excessive Consumption and Current Account Deficits that are choking Private and Public Investments … in a situation of meager net national savings, stagnant wage growth, and massive structural joblessness. The components of GDP growth are not working well together at all in our economic model:
GDP Components = Consumption plus Private and Public Investments plusNet Exports (Exports minus Imports).
The fiscal and growth strategies suggested herein and in PARTS I & II in answer to our economic breakdowns are but one citizen's challenge for America's best and brightest to get the final strategic priorities right for ALL Americans.
Frank Thomas The Netherlands August 2011
Sources:
1) The Peterson Institute for International Economics
2) The Return of Saving by Martin Feldstein
3) America´s Saving Surprise by Martin Feldstein
4) The Dollar and the Deficits by C. Fred Bergsten
5) Recent CBO Study of Current/Projected Budget Deficits and Debt Growth
Note:Household saving is the difference between what households receive inafter-tax income (including wages, salaries, fringe benefits, interest, anddividends) and what they spend on goods and services. Those savings can take the form of bank deposits (popular in Europe), purchases of financial assets such as stocks and bonds, or investments in real assets such as homes and unincorporated businesses. Contributions to individual retirement accounts (IRAs) and 401(k) plans ) as well as employer contributions to defined-benefit pension plans are also counted as household savings.
Note: EU countries spend less than 2% of GDP on Defense; have high Private Savings rates; generous social-nets; progressive tax systems, and a much, much lower disparity between high/low income and wealth classes.
Something has gone seriously haywire with the Republican Party. Once, it was the party of pragmatic Main Street businessmen in steel-rimmed spectacles who decried profligacy and waste, were devoted to their communities and supported the sort of prosperity that raises all ships.
They were good-hearted people who vanquished the gnarlier elements of their party, the paranoid Roosevelt-haters, the flat Earthers and Prohibitionists, the antipapist antiforeigner element. The genial Eisenhower was their man, a genuine American hero of D-Day, who made it OK for reasonable people to vote Republican. He brought the Korean War to a stalemate, produced the Interstate Highway, declined to rescue the French colonial army in Vietnam, and gave us a period of peace and prosperity, in which (oddly) American arts and letters flourished and higher education burgeoned – and there was a degree of plain decency in the country. Fifties Republicans were giants compared to today’s. Richard Nixon was the last Republican leader to feel a Christian obligation to the poor.
In the years between Nixon and Newt Gingrich, the party migrated southward down the Twisting Trail of Rhetoric and sneered at the idea of public service and became the Scourage of Liberalism, the Great Crusade Against the Sixties, the Death Star of Government, a gang of pirates that diverted and fascinated the media by their chutspah, such as the misty-eyed flag-waving of Ronald Reagan who, while George McGovern flew bombers in World War II, took a pass and made training films in Long-Beach.
The Nixon moderate vanished like the passenger pigeon, purged by a legion of angry men who rose to power on pure punk politics. ``Bipartisanship is another term of date rape, ´´ says Grover Norquist, the Sid Vicious of the GOP. ``I don´t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.´´ The boy has Oedipal problems and government is his daddy.
The party of Lincoln and Liberty was transmogrified into the party of hairy-backed swamp developers and corporate shills, faith-based economists, fundamentalist bullies with Bibles, Christians of convenience, freelance racists, misanthropic frat boys, shrieking midgets of AM radio, tax cheats, nihilists in golf pants, brownshirts in pinstripes, sweatshop tycoons, hacks, fakirs, aggressive dorks, Lamborghini libertarians, people who believe in Neil Armstrong´s moonwalk was filmed in Roswell, New Mexico, little honkers out to diminish the rest of us, Newt´s evil spawn and their Etch-A-Sketch president, a dull and rigid man suspicious of the free flow of information and of secular institutions, whose philosophy is a jumble of badly sutured body parts trying to walk.
Lies pop up like toadstools in the forest! Wild swines crowd round the public through! Outrageous gerrymandering! Pocket lining on a massive scale! Paid lobbyists sit in committee rooms and write legislation to alleviate the suffering of billionaires! Hypocrises shine like cat turds in the moonlight! O Mark Twain, where art thou at this hour? Arise and behold the Gilded Age reincarnated gaudier than ever, upholding great wealth as the sure sign of Divine Grace.
Here in 2004, George W. Bush is running for reelection on a platform of tragedy – the single greatest failure of national defense in our history, the attacks of 9/11 in which 19 men with box cutters put this nation into a tailspin, a failure the details of which the White House fought to keep secret even as it ran the country into hock up to the hubcaps, thanks to generous tax cuts for the well-fixed, hoping to lead us into a box canyon of debt that will render government impotent, even as we engage in a war against a small country that was undertaken for the president’s personal satisfaction but sold to the American public on the basis of brazen misinformation, a war whose purpose is to distract us from an enormous transfer of wealth taking place in this country, flowing upward, and the deception is working beautifully.
The concentration of wealth and power in the hands of the few is the death knell of democracy. No republic in the history of humanity has survived this. The 2004 election will say something about what happens to ours. The omens are not good. Our beloved clan has been flogged with fear – fear, the greatest political strategy ever. An ominous silence, distant sirens, a drumbeat of whispered warnings and alarms to keep the public uneasy and silence the opposition. And in a time of vague fear, you can appoint bullet-brained judges, strip the back off the Constitution, eviscerate federal regulatory agencies, bring public education to a standstill, stupefy the press, lavish gorgeous tax breaks on the rich.
There is a stink drifting through this election year. It isn’t the Florida recount or the Supreme Court decision. No, it’s 9/11 that we keep coming back to. It wasn’t the “end of innocence,” or a turning point in our history, or a cosmic occurrence, it was an event, a lapse of security. And patriotism shouldn’t prevent people from asking hard questions of the man who was purportedly in charge of national security at the time.
This year, as in the past, Republicans will portray us Democrats as embittered academics, desiccated Unitarians, whacked-out hippies and communards, people who talk to telephone poles, the party of the Deadheads. They will wave enormous flags and wow over and over the footage of firemen in the wreckage of the World Trade Center and bodies being carried out and they will lie about their economic policies with astonishing enthusiasm. The Union is what needs defending this year. Government of Enron and by Halliburton and for the Southern Baptists is not the same as what Lincoln spoke of. This gang of Pithecanthropus Republicani has humbugged us to death on terrorism and tax cuts for the comfy and school prayer and flag burning and claimed the right to know what books we read and to dump their sewage upstream from the town and clear-cut the forests and gut the IRS and mark up the Constitution on behalf of tolerance and promote the corporate takeover of the public airwaves and to Hell with everybody who opposes them.
This is a great country, and it wasn’t made so by angry people. We have a sacred duty to bequeath it to our grandchildren in better shape than however we found it. We have a long way to go and we’re not getting any younger.
Dante said that the hottest place in Hell is reserved for those who in time of crisis remain neutral, so I have spoken my piece, and thank you, dear reader. It’s a beautiful world, rain or shine, and there is more to life than winning.
WHO WROTE THIS CONFESSION OF THE AMERICA SOUL? None other than GARRISON KEILLOR
JOHN,
THIS IS A PARALLEL PARODY AND TRUTH EPISTLE OF THE PRESENT DAY ARROGANT, CULTIST, TUNNEL-VISION THINKING OF RADICAL RIGHT, DOUBLE-TONGED CONSERVATIVES – NOW ADDICTED TO A PURIST CONSERVATIVE IDEOLOGY , A PERVERTED POWER ETHOS UNDER THE JUDAS GUISE OF FINANCIAL PRUDENCE TO SAVE OUR NATION FROM LIBERAL SPENDERS , RATHER THAN THOSE TRADITIONAL CONSERVATIVE PRAGMATIC EGALITARIAN NORMS MERGING INDIVIDUAL and COMMUNITY INTERESTS – WHO ARE IN EFFECT SAYING, “THE COMMON MAN IS AN OBSTACLE TO THE TROJAN HORSE OF SMALL GOVERNMENT AND THE RICH.”
We are self-destructing again destroyng any hope of traditional solidarity and eqalitarianism in our democracy. Bush Jr.’s catastrophic economic pain inflicted on the middle-class is not enough!
What the Hell, as soldiers remarked in moments of crisis in the story true of Saving Private Ryan, FUBAR: Fucked-Up .. Beyond All Recognition!
How dumb, ideologically perverted and narrow-minded can we get? I think the answer is: in direct relation to Obama’s determination to be the Leader par excellence as a Compromising Compromiser !
SO, BRING ON THE NEXT CRISIS OF ALL CRISES. OBAMA WiII NEGOTIATE the next FUBAR !
“Good people are out there (edit: fighting the ordinary folks fight and exposing the financially destructive, narrow-minded Republican cut spending and taxes policy). They just aren’t getting the media exposure the other side is.”
Your words are right on, John, and reflect “the same old story” of right-wing ideological domination of the public political dialogue, mastering the indoctrination art of repeated, simplistic one-liners through media channels bought by powerful special-interests’money.
A huge inequality in income and wealth in a deregulated environment caused people to go into debt to consume or borrow against the inflated value of a house. The social-economic morass we are now in shows no light at the end of the tunnel. How do we come together finally to come out of the MESS we are in?
PART 1
What Is The Republican Agenda For America?
“DOWN with deficits, debt, government spending and UP with jobs by LOWER taxes mainly for the rich.”
This is the Boehner, McConnell, Cantor, Bachman Incorporated fiscal paradiseshift for America … in reality, it’s an agenda to make government small by “starving the beast.” Welcome to the resurrection of Newt Gingrich’s “Contract for America” fiasco. Successor deciple Boehner has assumed the pledge of government’s demise with his recent words: “We need to end the job-killing binges by the federal government,…, and then we need to turn attention to killing the job-killing health care law.” The irony that passes over his head conveniently is that the Republicans did a marvelous job killing ALLjobs the last decade!
Only problem is this lean and mean paradigm will increasingly starvewhat’s left of middle-class Americans in an economy where job growth, aggregate demand and private investment remain stagnant with ±28 million people unemployed or underemployed … all reinforcing a vicious circle of ever lower demand, risk of spiraling deflation, and thus more unemployment.
Let’s bear in mind the last decade was the Lost Decade for working people with near ZERO job growth and annual GDP growth rates of 1.9%, close to 1.3% in the 30s Great Depression. We now have both private and public jobs being wiped out at all levels – a recipe for an ongoing financialrelapse and continuing deficits (similar to Japan’s 1992-2004 economic stagnation).
As most informed Americans well know by now, tax cuts, mainly benefiting the rich, accelerate deficits and do little to create jobs (as Reagan found out much to his surprise). The right wing never stops lying about this much proven point.
However, as stated, the Republican priority is not lower deficits but smaller government and Obama’s defeat in 2012 – no matter the disproportionate economic sacrifices inflicted on ordinary Americans.
A creative, balanced, pragmatic BLEND of austerity measures and renewal policy solutions in the interests of everyone – middle-class as well as the upper class – clearly is not a driving Republican priority. Ignored is the persistent recession middle-class squeeze (building up over 30 years) with lost jobs and lost home equity and retirement savings.
How Will A Balanced Budget Amendment To The Constitution Help?
Republicans are now proposing a tough Balanced Budget Amendment (BBA) to come to grips with the soaring repetitive federal budget deficits – presumably formulated so as not to inflict greater pain on the working class, but of course this is the million dollar question.
In my opinion, the Republican initiative for a BBA could be a good idea providing it didn’t duplicate on a national level California’s catastrophic BBA experiment passed in Reagan’s time as Governor … and providing the language didn’t mirror an anti-government mission or incorporate strictures further harming the very vulnerable middle-class.
The Amendment as now formulated will:
Require Congress to balance the Federal Budget each year
Prevent Congress from spending more than 18% of GDP
Require a 2/3 supermajority vote to raise taxes
The argument is that most states already have some form of BBA. This is true. BUT, the inevitable state and local budget shortfalls that frequently occur are by necessity greatly offset by recycled federal taxpayer funds. Without such support funds, most states would be in even more dire financial straits today (and would have been historically).
California, for example – despite federal funds support and emergency, panic implementation of other local taxes/fees – still has a ±$25 billiondeficit – and climbing under its statute enforced BBA rules. Why is this? The answer is: insuffcient tax revenues caused by the state’s BBA over the years. (Ed. note: California has a 2/3 majority requirement in order to raise taxes put in under Prop. 13 which also is driving the deficit. Despite Democratic control of all three branches of government, California could not close it's budget gap because they were a few votes short in both Houses this year to raise taxes.) So what can be done in such a situation? Simple … fire teachers, firemen, policemen, government service providers; destroy Union collective bargaining rights; reduce social net benefits, etc. Result? State deficits and social instability are rising to inhuman proportions. This self-destructive practice on a national scale under a federal Balanced Budget Amendment would be disastrous.
The EU has a simple rule for controlling state budget deficits. The rule requires that a deficit not exceed 3% of GDP, with allowances for emergencies. When pro-actively enforced under effective warning signals – which wasn’t done for Greece, Ireland, Spain, and Portugal – it has worked reasonably well for the mature EU countries.
In short, if a federal BBA is to be given serious consideration, it should Not be based on the three key provisions noted above. Such an Amendment should incorporate the following refinements, without riddling it with loopholes:
Require that annual budget deficits not exceed 2% of GDP
Prohibit by statute federal government borrowing from Social Security Trust Fund to cover other deficit spending. In past years, trust fund surpluses amounting to over $2 trillion have been siphoned off by the federal government borrowings in exchange for Treasury notes. This conceals the true nature of normal federal budget shortfalls and diverts taxpayer funds from a trust fund most Americans assume is for their minimum old-age pensions.
Prevent Congress from spending more than 20% of GDPin any year which could be waived in times of recession, environmental disasters, war or military conflict. The 18% of GDP cap is far too low. It would have our country – with its no-holds barred, winner takes all political infighting culture – frequently meshed in enduring controversial budget storms. Result? The Supreme Court starts to run the country’s business.
Federal spending as a % of GDP in past decades was as follows: 17.8% in 1960; 19.5% in 1970 (Vietnam War); 21.7% in 1980; 22.8% in 1985 (Reagan’s increased Defense budget and lower taxes for rich); 21.9% in 1990 (Iraq War); 18.2% in 2000 (under Clinton); 19.9% in 2005 (under Bush Jr. with 2 wars); 25.4% in 2010 (under Obama with 2 wars, a nation still suffering from the Great Recession depressing GDP growth, tax revenues).
It is felt that a supermajority requirement for Congress and each state to raise federaltaxes will hamstring flexibility of central and local government initiatives in running operations with a minimum of paralysis from extended infighting (as happens in California). Moreover, a2/3supermajority requirementwould give an even greater advantage and incentive to thewealthy (e.g. Kochs) and corporate special interests to buy political and media influence toprevent the 2/3 majority from happening -- bringing our democracy that much closer to an oligarchy "of the rich and powerful, by the rich and powerful, for the rich and powerful."
How Much Has Our National Debt Grown In Past Decades?
The ultra-right especially and media pundit sensationalists tend to play on the public’s fear or preconceptions by manipulating and often misrepresenting government financial performance data. The lying machine is alive and speeds up in times of crisis. This has been occuring lately in discussions around raising the debt ceiling. It has occured when discussing the origins of our $13.8 trillion national debt, yearly deficits, and “Who is responsible.”
While the evidence shows both parties are responsible, it also shows that almost 70% of the $12.9 trillion increasein the national debt – after Pres. Carter’s last year office in office in 1980 – hashappened on the watch of Republican Administrations (see TABLE 1). Below is a factual statement of origins of past debt growth … typical data so often used in a distorted blame game to misguide or dumb down the general public’s understanding.
________________________________________________________________ TABLE 1 National DebtIncrease%+-
(a) CBO 2011 study result Bush tax cuts reduced fed. tax revenues $2.8 trillion between 2002-11; $1,250 figure is 50% of CBO study
(b) Fed. tax revenues reduced by Bush tax cuts per CBO study reduced 50%
(c) June ending debt of $13,800 minus 1980 $909 ending debt under Carter
(d) $4,134 excludes 2009-2011 $450 billion debt increase caused by Bush tax cuts
So much for the Republican double talk that those profligate liberals, with Obama in the vanguard now, are the BIG SPENDERs causing most of the expansion in national debt over the last 31 years. In fact, the really big Republican spenders and deficit producers were Reagan, Bush Sr., Bush Jr.
Reagan to his great credit saw that “tax decreases don’t pay for themselves” as debt and deficits rose steeply in his first term of office, not helped by sharply increased Defense spending. Reagan got caught up in the “Trickle Down” political-economic con game that lowering taxes for the rich reduces deficits and increase jobs. Reagan ended upRaising Taxes 11 times. Bush Sr. also saw the need to increase taxes.
Tragically, Bush Jr. (and Greenspan) didn’t respect the junk economics of “Trickle Down” calling for reducing taxes largely for the wealthy because this increases jobs – a line Boehner robotically repeats to the party faithful. The truth is that the modest 2001-07 economic expansionperiod produced lackluster tax revenue growth and an anemic 6.2 million jobs.(see study: U.S. Pattern ofStructural & Long-Term Joblessness ).
The meager 6.2 million job increase over 7 years evaporated when ±8 million jobs were lost in the 2008-09 Great Recession. After 2009, the Great Recession was thought to be finis, but the job and growth crisis is still unfolding. No need to worry though, the deficits and debt will magically disappear by firing government workers at all levels and lowering taxes to expand jobs. If you believe this financial math wizardry, you're drinking too much wine.
PART II
How Is Our Economic Development Affected by the Global Economy?
There are critical structural challenges to our economic system in a technically fast-evolving, tightly integrated global economy. An economy where emerging nations with lots of cheap labor and sustainable +8% GDP growth rates are placing severe competitive pressures on existing scarce natural resources, on the income, wealth and job opportunities of advanced nations. Our national debt escalation is but a serious symptom of these underlying global changes affecting future growth dynamics.
Some of these structural factors are:
U.S. Consumption at 70-72% of GDP (vs. 60% in Europe) is not sustainable with huge trade deficits. This dependence combined with stagnant wages inevitably exhausts savings, accelerates credit levels (i.e. living beyond one’s means) to buy cheap imports offsetting stagnant wages, drives up trade deficits to new astronomical levels, and reduces system liquidity for desperately needed societal improvements. With a national debt structure approaching 100% of GDP, this economic vicious circle will only lead to repeated social-economic crises. Lower consumption patterns will be an increasingly negative factor affecting future aggregate demand and our economic model. More on this later.
New labor-saving technology, automation, robotization, outsourcing, job downgrading, also means relatively fewer decent jobs in coming years – particularly job opportunites for the less well-educated in a world favoring high-value-added jobs. The Wall Street Journal recently reported that the top U.S. firms cut 2.9 million jobs in the last decade – a Zero job growth decade – while hiring 2.4 million overseas.
A structurally slower rate of job growth started in the 80s, slowed down substantially to less than 1% in 2001-07 and peaked to below zero in the 2007-09 crisis bubble. Recently, there has been a slowdown in the low-value-added service job sector – retail, hotel, restaurant, construction, health-care, government jobs – providing over 90% of all new jobs in the past two decades. This slowdown cannot be regained by the much smaller high-value-added job sector of the well-educated in computer science and design, finance, consulting services, engineering and production of products. Manufacturing activities have declined considerably the last 30 years. They now provide jobs to less than 8% of the workforce vs. 22% in 1980 and vs. +20% in Germany today – expanding Germany’s job opportunities, technical knowhow and breadth as well as trade surpluses. Meanwhile, U.S. jobs are growing less in both low-tier and high-tier job sectors adding other pressures on the nation’s ability to continue Consumingat 70-72% of GDP.
Our economic model is structurally out-of-balance, relying far too much on consumption for GDP growth with stagnant wages driving cheap imports and massive trade deficits made worse by polluting fossil fuel imports. Under our economic model, hightrade deficits reduce GDP so much we are forced into an abnormal dependence on consumptiontriggering irresponsibledebt expansion and the next financial crisis.
We are in a losing battle with the GDP formula for growth: GDP = Consumption + Private Investment + Public Investment + Net Exports.
Our GDP growth rate is greatly depressed by huge trade deficits, which in turn depress private and public investments, which in turn drive our economy into a high consumption dependence with all the negative consequences. The current jobless GDP growth may comfort the few winners, but it’s a bankrupted development. The GDP components of growth are relatively much more in balance in mature EU countries with low net exports (trade deficits), higher private and public investments, much lower consumption (+-60% of GDP) and thus far higher savings (10-12% of GDP), adding more liquidity and stability to the entire social-economic system.
Until we learn how to get our economic model in better balance with the GDP components of growth, we are systemically destined to social-economic manic depression Ups and Downs, testing the barrier of an eventual complete breakdown!
The economic model puzzle is how can the mature EU countries, where annual GDP growth averages about 10% less than ours, still have a decent living standard, no excessive trade deficits, lower unemployment levels (excepting the weaker countries under great stress now), stabilizing social-nets, active innovation and entrepreneurship … anddo thiswith higher marginal tax rates?
Some answers are: higher household savings supporting private investment, VAT and ample tax funds for public investments, getting something concrete and valuable back for higher taxes, low college education costs, excellent health care coverage, constantly updated and state-of-art infrastructure, quality of life, e.g., vacations, a much, much flatter disparity between high-low income /wealth classes contributing to a spirit of equity and cohesion.
Propagandists like to say that redistributing existing wealth by progressive taxation does not create wealth. Only low taxes spur economic growth and net tax revenue growth. Reagan found such claims to be completely FALSE; as did Bush Jr. but would never admit it; false also to the Germanies, Hollands, Swedens, Denmarks, Norways, etc., of this world; false also according to CBO study showing that tax cuts replace 22% of lost tax revenuethe first 5 years, rising to replace 32% of lost tax revenue the second fiveyears. In layman’s language: a $1 million tax cut would generate a $780,000 deficit in each of the first 5 years and a 680,000 deficit in each of the second 5 years!
TABLE 2 shows that the compositions of federal tax receipts from individuals, corporations, retirement receipts (Social Security), excise and other taxes have been getting Smaller or Stagnant in recent decades:
______________________________________________________ TABLE 2 PERCENTAGE COMPOSITION OF FED. TAX RECEIPTS
1960s1970s1980s1990s 2000s
Individual 44.1% 45.4% 45.8% 45.7% 44.7% Taxes
Corporate 20.7% 14.6% 8.9% 10.6% 10.1% Taxes
Retirement 19.9% 28.8% 35.2% 35.3% 37.6% Taxes
Excise 10.8% 6.0% 4.8% 3.9% 3.2% Taxes
Other 4.5% 5.2% 5.3% 4.5% 4.4% Taxes
Individual taxes are extremely significant and stable contributing about 45% of all federal taxes. About 70% of all individual taxes are paid by the top 10% income bracket. Thisgroup earns +-48% of all reported income and owns 70% of all household wealth. Of course, conservative propagandists focus only on the 70% of individual taxes paid figure, ignoring the top 10% group's remarkably high absolute growth in income and wealth at the modest effective tax rate of +-20% -- of course,after exploiting all the tax loopholes, including 15% capital gains tax.
Hey, Mr. Boehner, do you hear me? The upper 1%-5%-10% income earners pay more taxes because of the huge increases in their income and wealth. Consider this FACT Mr. Boehner: Over the past three decades, 34.6% of all income growth went to the top 0.1% of all earners! In contrast, 90% of all earners have collectively seen only 15.9% of all income growth over the same period (Source: Economic Policy Institute, Feb. 2010). Republican propaganda that the rich are overtaxed is the party’s lie machine working overtime. Conclusion on individual taxes? Any dropping of the top income earners' taxes, besides increasing federal deficits and further exploding the income/wealth gap, will endanger the critically important, stable tax contribution of these taxes.
Same applies to corporate taxes which have declined 50% from 21% of all taxes in the 60s to 10% the last decade. Republicans and some Democrats, to pleasetheir election financiers, propose dropping the statutory corporate tax rate from 35% to 25%, knowing that the current corporate effective tax rate is at 25%. So, with all the loopholes and special deductions, this means the proposed 25% statutory rate will drop to a new low effective rate of +-18% range! This would have a disastrous effect on the already tiny, tiny percentage contribution of all taxes corporations already make to the nation's tax revenues. It would also raise pressure to increase individual taxes, add to deficits and intensify existing make-shift panic practices of many states to find other taxes in all directions to compensate for insufficient local revenues and federal funds.
Retirement receipts (Social Security) have been stagnating as a percentage of all taxes the past 30 years. In combination with the aging population and people living longer, this points to the need to improve the contribution of retirement receipts and/or reduce outflows by resetting retirement age to 67, doing away with benefits for millionaires, discontinuing the government practice of borrowing from the trust fund, and starting to refund the over $2 trillion accumulated government borrowings from trust fund (though legally done).
Excise taxes have all but vanished as a % of all federal taxes, dropping from 11% of all taxes in the 60s to 3.2% the last decade. Besides contributing to the extraordinary wealth gap in America, this is just another factor squeezing our nation's overall tax revenue base to the primary benefit of the rich.
Conclusion: It's financial suicide to be recommending reducing marginal tax rates on the rich unless compensated for by serious tax reform that removes tax loopholes and special deductions. New taxes having no notable negative effects on deficits and aggregate consumer demandare still a critical (tax reform or not) dire need to reduce deficits/debt while also investing in our society’s renewal. It’s impossible to just cut our way out of deficits and debt!
What Blend of Balanced Solutions Deserve Consideration?
A balanced strategy mix around which to design a prudent tax and financing policy should embrace the following goals:
Take needed austerity measures to remove wasteful spending
Reform (not privatize) Social Security and Medicare
Invest in human capital, technology, infrastructure
Focus aggressively on renewables, eliminating fossil fuel imports
Reduce debt and deficits under some form of balanced budget rules
Fund programs by 50% self-financing (new taxes and cost cutting) and 50% debt financing
As opposed to a cut,cut,cutstrategy with no tax increases, making things worse – a blend of financing actions to fund above goals might include:
(1) Implement a financial transaction tax on all stock, bond, largecurrency transactions – potential annual savings $100 billion
(2) Remove tax subsidies for large firms, e.g., the oil firms – potential annual savings $50 billion
(3) End tax havens and tax loopholes – potential annual savings $75 billion
(4) Reduce tax loopholes and simplify a tax structure so complex that even Warren Buffet stated recently he had a lower tax rate than his secretary
(5) Limit deductibility of interest on residential real estate (as the Netherlands is now planning to do) especially on second homes
(6) Reduce unaffordable Defense spending back to 3.5% to 4% of GDPover next 5 years – potential annual savings $200 billion (Obama Administration's recent $50 billion savings target is a joke. This out-of-control cost center contributes at least three times that amount to our annual deficits.
(7) Re-examine unfair trade practices as our current account deficits are no longer sustainable. Financing $40-65 billion a month trade deficits robs liquidity for investments in our society. Furthermore, it’s going to be increasingly difficult, if not impossible, to finance trade deficits even at a higher interest rate for Treasury notes. The sheer scale of trade deficit growth is nothing but ominous, rising from $132 billion in the 70s, to $940 billion in the 80s, to $1,457 billion in the 90s, to $5,636 billion in the 2000s (i.e., $5.6 trillion).
(8) Provide incentives for aggressive expansion of worker-manager owned Cooperatives that place profit and concern for people and communities on a more equal plain. Cooperatives bring money circulation closer to communities, reduce trade deficits, and expand jobs by more buying and producing of products at home.
SUMMARY
Let's not forget there's a minimum safety net in the U.S. The whole society has always been based on the assumption that new work is around the corner. We are in a dramatically changing world where such hopes are getting far more difficult to realize. Structural unemployment and underemployment sends too many people into a descending spiral: job degraded, health care coverage lost, auto lost, home lost, job lost, family lost … FOOD STAMPS!
The human challenge can't be better portrayed than in this painful job debacle picture (TABLE 3) that omits the ugly trend of a permanent drop in wages for those lucky enough to find work.
TABLE 3 UNEMPLOYED AND UNDEREMPLOYED IN MARCH 2011
A. Officially defined as unemployed (a) 13.5 million
B. Persons not in the labor force but wanting a job 6.5 million
C. Working part time but desiring full-time work 8.4 million
TOTAL 28.4 million
(a) Revised to 14.1 million June 2011
SOURCE: U.S. Dept. Of Labor, Bureau of Economic Research
When all is said and done, the U.S. challenge is to find a sound fiscal and human balance in our nation’s renewal process that benefits ALL Americans.
Purist ideology and orthodoxy must be set aside … if we are to recapture those unique American creative, pragmatic, dynamic skills. This requires courage to try new initiatives such as reducing the number of jobs exported that should stay at home … such as getting our house on a solid financial footing while investing in renewal … such as getting off the fossil fuel cocaine. These goals need not be mutually exclusive.
I want to be optimistic that our broken, polarized political climate will step up, come together to make the necessary changes … while at the same time recognizing this may only be possible by the common folk finally fighting back to get justice, the true facts, the development options, and a fair share of the pie in a more level playing field.
The Dutch three-tier pension system -- state AOW (Social Security) Pension, Supplementary Pensions based on terms of employment between employers and employees, and Supplementary Personal Pensions anyone can buy from insurance firms, companies or banks -- are reputed to be the best in the world. At the end of 2009, total assets of Dutch pensions funds were $745 billion or 130% of GDP -- the highest of all OECD countries by far. This enormous sum is invested in bonds and stocks and is thus sensitive to volatility in the financial markets. During the years 2001-2003 preceeding the bubble, the Dutch very wisely reduced significantly the level of pension fund investments in stocks while sharply increasing investments in bonds. Result? Modest exposure to plummeting stock markets in 2007-09.
Still, the Netherlands is no exception to the rising pressures being placed on pensions (and health care) as a result of the financial and economic crises, low interest rates, and particularly the aging population, increasing life expectancy, and recourse to expensive high-tech medical services. So, true to Dutch pragmatism of timely confronting changing macro-economic realities head-on -- unlike the enduring systemic political squabbling and paralysis on such serious matters in the U.S. -- last Friday, a majority of Dutch Parliament MPs announced their support of a reformed state AOW pension deal agreed to among unions, employers, and ministers. The reforms still have to be approved by individual union members and some influential union members have said they will vote no.
The main reform points of the state AOW (Social Security) pension agreement include:
The pension age will go to 66 in 2020 and probably rise again to 67 in 2025.
The pension will increase by 0.6% plus inflation per year from 2013 to 2028.
The pension of people who stop working earlier will be cut by 6.5% per year. Those who work longer than 67 will receive 6.5% more for each extra year.
The main reform points on corporate pensions include:
Corporate pensions will not work with nominal guaranteed payouts but will vary with stock exchange developments. The effect of changes will be spread over a maximum of 10 years, removing the need for quick fixes. Details have to be worked out. One alternative for the current nominal contract may be a "hybrid contract" composed of two layers -- one layer of lower accrual but with a large degree of nominal security and a second layer that is fully performance-dependent (profit sharing). A second alternative may be a completely flexible contract.
Companies and employers can determine the balance between risk and security in terms of the corporate pension fund investment mix.
Premiums will be split between workers (one-third) and employers (two-thirds) and employers will no longer have to top up the fund if it runs into trouble.
No final conclusion has been reached on how to handle accrued pension rights: freeze them and set them apart or bring them under the enforcement of the new rules. The second option is unlikely and probably not even possible. Trade unions are vocal in pressuring officials to respect accrued pension rights.
And here we are in America constantly spreading lies and fear-mongering stories about how our Social Security system is near bankruptcy. Actually it has been and is in a SOLID financial state -- punctuated by fact that over the years our Federal Government has borrowed substantially from the surplus funds built up in the Social Security Trust Fund. All that needs to be done to preserve the fund's financial integrity and solvency over the next 30 years is to do (in some appropriate way) exactly just what the Dutch have timely done, namely, set the policy for raising the qualifying retirement age from 65 and 67 (or higher) as dictated by the fiduciary math calculations.
SIMPLE? Actually YES! ... but NOT SIMPLE in our broken down political system where everything's about getting re-elected, being ideologically pure to self-interests rather than serving the national interest.
Instead, populist fundamentalists with tunnel vision are popularized as they patronize the libertarian drumbeat of privatization of everything governmental to truly enjoy the greater "benefits-freedom-equality" (better said, "excesses") of unregulated capitalism! This axiomatic thinking leads to stupid flights of fancy, for example, to claim government intervention never does any good overall for society as opposed to the effects of the market. If accepted, this fools' dogma would be the deathknell of affordable Social Security and Medicare for older generations to come.
Meanwhile, in a spirit of solidarity, the Netherlands like other mature European countries are promptly, painfully, fairly, cleverly restructuring the financial imbalances in their social-economic models ... while not throwing out that overriding, long-standing European value, "WE ARE ALL IN THIS LIFE TOGETHER."
We have been talking about a constitutional amendment along the lines of movetoamend.org which is advocating a constitutional amendment which would seek the following:
"We, the People of the United States of America, reject the U.S. Supreme Court's ruling in Citizens United, and move to amend our Constitution to:
* Firmly establish that money is not speech, and that human beings, not corporations, are persons entitled to constitutional rights.
* Guarantee the right to vote and to participate, and to have our vote and participation count.
* Protect local communities, their economies, and democracies against illegitimate "preemption" actions by global, national, and state governments."
In addition there is a need to get money out of politics namely the money that goes into lobbying and political campaigning.
Sorry I've been out of commission as we took some vacation time and had a 10 day visit by a dear friend from Connecticut whose husband suddenly passed away not long ago. Thanks much for keeping me informed of your give and take on the A Code for Corporate Citizenship constututional amendment idea.
Regarding this effort, American corporate law is caught up in the normative consensus that the shareholder-centered corporate goverance model offers greater efficiencies in a growing world network of corporate intermediaries . A standard questionable argument is that the interests of other participants in the firm or nonshareholder constituencies such employees, customers, creditors, merchants in a firm's local community, extended interests of those concerned about a well-preserved environment can be best protected by existing efficacious legal mechanisms outside corporate law. For workers, this embraces antidiscrimination law, health and safety law, pension law, labor contracting law. For consumers, it includes product safety regulation, antitrust law, warranty law, tort law governing product liability, mandatory disclosure of product contents, performance specifications, etc. For the general public, it includes environmental law, mass torts, and nuisance law. The argument is that investor rights cannot be well-protected by contract but only by having exclusive, strong control and representation rights.
In contrast, Germany and the Netherlands have adopted stakeholder models that include investors andworker representatives in the board of directors, while also protecting societal and corporate interests through similar contract and regulatory law devices noted above. For example, German law allows workers to elect representatives for almost half of the supervisory board of directors. This applies to public and private firms with 2000 or more employees. In addition, employees in Germany and the Netherlands are entitled to elect a works council (Betriebsrat) according to the Industrial Constitution Act. The employer is not active in this election process but is responsible for all costs that arise through the works council. Each plant with more than 5 employees must have a works council.The council represents employees' interests as distinct from that of the employer and trade unions. It also has rights in dismissal and recruitment as well as codetermination on issues not regulated by law or collective agreements.
This practice has been in place for many years and insures rather stable and productive worker participation in corporate affairs without unduly paralyzing or damaging management and board decision making. It has enabled Germany to have +-20% of its workforce in high-value added manufacturing vs. less than 8% in the U.S.
One U.S. version of this broader stakeholder corporate governance model is the so-called fiduciary model. Here, if stakeholders are not given a direct representation at the corporate board level, they are protected by the board's greater discretion to represent not just shareholder interests but other stakeholder interests as well. However, experience often shows courts to be ineffective in formulating well and enforcing adequately fiduciary duties that make sure managers act fairly in the interests of all constituencies, including society as a whole.
But this shareholder model does not come close to the collective representation models existing in mature EU countries. Sweden, for example, has a one-tier system with codetermination where employees are given seats on the board of directors. In fact, in all EU countries there is employee representation by trade unions and/or by a works council.Trade unions are voluntary affiliations covering collective bargaining agreements. They are of great importance in France but of less importance in Germany, although over 60% of employment contracts refer to them. A works council represents all employees in a company and is constituted by statute.
For the last 30 years, the U.S. has been going diametrically in the opposite direction of systematically destroying unions to maximize corporate freedom to set wages, hire and fire, and maximize profits. U.S. management by itself and in secret can make strategic decisions as to whether to close a plant or reduce manpower levels. This has been backed up by U.S. Supreme Court decisions holding that an employer need not bargain with its employees over whether to shut down part of its business. Things just simply don't work that way in Europe.
Europeans tend to feel that employees acquire a property rightinterest in their jobs over time. The more senior the employee the greater is property interest built up in his or her job performance . Thus, appropriate severance pay is legally required (a minimum of one month for each year of employment in the Netherlands) as compensation for the taking of that property interest by dismissal. Such norms reflect substantial cultural and business morality differences between U.S. labor practices and how Europeans view and value the role of workers.
In the U.S., people do not commonly accept or believe anyone is entitled to a job. Employees can be dismissed with little notice. Legally required severance pay is low and is viewed as a human cushion to help the dismissed until a new job is found. As mentioned, U.S. law gives the employer and entrepreneur flexibility to do almost as they wish with their employees. U.S. corporations, particularly global firms, have one principle objective -- maximum profit for shareholders using all job elimination means (outsourcing, automation, robotization, downgrading, etc.). Under German law, the works council must approve any dismissal or any plant changes, relocation, and merger or any co-determination issue that might result in serious disadvantages to employees. If it does not approve, then parties must appear before a labor court or an arbitration committee for a binding decision.
Again, the "old world"and the "new world" societies are leap years apart on how they treat workers and how they view corporate social welfare and shareholder responsibilities.
I will return to this whole subject whether the pursuit of profit will solve the larger problems of society -- pollution, war, a higher standard of living for all citizens, making things better for workers and communities.
I have in mind another writing on the continuing U.S. JOB DEBACLE -- where politicians are playing irresponsibly dangerous brinkmanship and blackmailing tactics concerning raising the debt ceiling -- while the world watches in disbelief and +-28 million American remain unemployed or underemployed. Obama appears to be wallowing in leaderless compromised nothingness.
Paul Keleher wrote in response to my suggestion that we look at other countries which have already successfully solved these problems:
I agree with everything and have begun to read Max Chafkin's piece. Interesting.... whole towns in Norway smell like rotten fish?!?!
What I take from this reply is that more research into existing models and examples of what works is needed before a draft text should be attempted. Perhaps we don't need to invent a new "American" model for socially responsible business when working models already exist that we can learn from and adapt for our own use. I wonder what moral authority in the Norwegian government has guided the country to adopt the regulations you describe. For what I'm talking about is the drafting of just such a moral authority for the US.
Obviously, there is much work to be done here. But I think that the vast majority of the American people also believe that the country will be better off if money is barred from the political process. However, given the recent history here, a change of course is needed, because Citizen's United just pushed it the other way, big time. To effect such a change, the restrictions of money found in Europe could never be put through this Congress without first passing a moral guideline in the form of a constitutional amendment passed by referendum ballot initiatives in the states in which the people express a direct voice, and only then might we be able to force Congress to consider such a resolution.
I agree that each nation should ideally be production self-sufficient in basic commodities to extent possible … like oil and gas. The intractable political reality problem undermining such sensible strategic aims is that the governing elites of both parties are hopelessly mired, divided, and corrupted by parochial special interests to the extreme. We can’t come together on anything.
It’s high time the U.S. did – what Germany and Japan historically have been cleverly doing with superb technical training and education programs – namely, adopt an aggressive policy of retaining and expanding “home production” of key component parts of intensive-knowhow-industrial products … as opposed to current practice of U.S. corporations’ outsourcing production of products or components for knowhow fees, maximum global profits and then reimporting same products, skyrocketing U.S. trade deficits. The revenue inflows from this trade practice benefit but a SMALL number of middle-class workers. The job growth dynamics are peanuts compared to a national strategy of having product development, design and at least component manufacturing in America for American needs. Spirits will be energized as a more equitable, inclusive, confident sharing in our nation’s social-economic progress returns.
We should also formulate a policy – under easy-to-measure guidelines and criteria – that requires foreign firm importers of industrial, high knowhow products to establish manufacturing facilities in the U.S. After all, this has been rather successfully done with Japanese cars. Control and oversight could be in the hands of a respected team of independent experts from the business, R&D, education, worker training and development fields.
Lastly, as you have noted John in a prior writing, American products coming into the EU, e.g., to Germany or The Netherlands, are hit with a VAT of +- 19% plus an import duty. In sharp contrast, EU products entering the U.S. incur only an import duty plus a much lower state sales tax at point of final sale. Thus, the EU vs. U.S. total tax-import duty system, when combined with low-cost foreign labor, grossly unfairly favors imports from the EU (and Asia). This tax-duty disparity also generates more EU tax revenues, greatly tempers excessive EU imports while helping exports, leading to relatively modest EU trade deficits (even annual trade surpluses for Germany and The Netherlands). It further intensifies the will of U.S. corporations to outsource all or a part of their production to China or to some other low-cost developing country, thereby permanently destroying hundreds of thousands of American jobs each year.
Obama seems to be counting on the fact that the economy will recover on its own after the initial stimulus package. It's starting to look like this was a bad bet. The Republicans of course have their job creation plan in place: lower taxes especially on the rich, less government spending and more deregulation or, in other words, the continuation of the transfer of wealth from the poor and middle class to the rich. However, this is precisely what has ruined the economy. As Robert Reich, Bernie Sanders, Paul Krugman and others have been saying repeatedly, the government has to spend more to create jobs and raise the money to do so by a variety of mechanisms like a financial transaction tax, doing away with subsidies for oil and agriculture, closing tax loopholes for corporations, raising taxes on millionaires and billionaires etc. Obama is in the weak position of not having an ideological counter to the Republican ideology. The Democrats need to develop an ideological position based on Keynesian economics to counter the Republicans. Obama's "Republican lite" philosophy will probably result in his losing the next election if the economy continues to sputter and stagnate. His position seems to be the Republican position only not quite as severe. What is needed is a complete repudiation of trickle down economics, union busting, the "small government" mantra, and the wealthy as "job creators." The Democrats need an ideological consistency to counter the Republicans who are extremely ideologically consistent.
Most of the jobs being created are temp jobs and lousy jobs at less than a living wage. The Democrats are not addressing this and they need to. The Democrats need to state loudly and clearly that the government needs to be the job creator of last resort. If private enterprise cannot create the jobs to provide for a full employment economy, then government must step in and fund infrastructure repair projects and even a WPA style work program. We need to get over the notion that the only legitimate government job creation program is in the military.
Obama's Administration and the Republicans are either brain mute or unwilling (out of fear of increasing America's indebtedness now with CONSTRUCTIVE PUBLIC DEBT financed investments ) to recognize the deeply structural character of our nation's declining rate of job generation shown in Frank's 30 year trend summary (The U.S. Ongoing Structural Unemployment Calamity).
The 50,000 job generation in May doesn't surprise us. In the 80s and 90s decades about 36-38 million jobs were created (averaging 18-20 million per decade: see Advance and Rutgers study). In the first decade of the 21st century, depending on which study numbers one uses, U.S. job generation was either a shockingly negative -0.4 million up to-2.1 million including labor force growth.
To summarize again this disastrous trend based on Advance & Rutgers 1982-2009 and BLS 2010-11 data:
ANNUAL AVE. JOB GROWTHTOTAL
Nov.1982-July 1990 Expansion 2,401,800 18.4 Mil.
Mar. 1991-Mar. 2001 Expansion 2,150,000 21.5 Mil.
Nov. 2001-Dec. 2007 Expansion 1,020,550 6.2 Mil.
Jan. 2008-Dec.2009 RECESSION - 4,600,000 (a) -9.2 Mil. (a)
Jan.2010- Dec. 2010 RECOVERY 850,000 0.9 Mil.
Jan. 2011- May 2100 RECOVERY 700,000 0.7 Mil.
(a) Includes unfulfilled job need of 1.7 million to meet labor force growth.
As everyone has learned a few thousand times over by now, we have 14 million officially unemployed and another 8-10 million underemployed (the latter at below-subsistence wage levels). As was reported in a recent writing, this overall situation is far worse than that of the better performing, mature European countries (excepting the high jobless levels in Spain, Ireland, Greece and Portugal).
AUSTERITY (get rid of waste), REFORM (Medicare, Soc. Security, Defense Spending, Tax System/Avoidance) and INVEST (in high-return projects, training) to produce jobs should be Obama's no-holds-barred leadership call. We are on the path of being mired in a long lasting economic malaise similar to Japan's experience during 1992-2002 -- where their debt as a % of GDP rose from 62% to 174% in 2004 and even higher now. Japan covered their explosive annual debt cost with exceptionally strong net export surpluses up to 2008. Now, with sharply deteriorating net export balances, their high debt level is becoming an unquestionably dangerous financial burden.
If we migrate to a Japan 10 year stagnant-type malaise, we will be in BIG financial trouble because we have no trade surpluses, only enormous annual trade deficits simultaneously with a mountain of public debt escalated in the Great Recession bubble of Bush's Presidency and by the government's costly rescue efforts of selected financial institutions.
As repeated many times, our economic growth model of extreme dependence on CONSUMPTION (70% of GDP vs. 60% in Europe) with almost Zero Savings (vs. 10-12% in Europe) and net export deficits of $45-60 billion a month, along with low PUBLIC and PRIVATE Investments (vs. higher infrastructure and R&D investment levels in Europe) is NOT SUSTAINABLE. European countries, like Holland, Germany and others, realize that Public investment spending, joint private-public ventures and sensible, affordable military spending (+-1.7% of GDP vs. +-5.5% in U.S.) much more significantly and effectively increase GDP, jobs, incomes and tax revenues in the short and long term. All this means that we need new ideas to get our social-economic model structurally as well as fiscally balanced to improve societal well-being ... to stop the destruction of human capital through impoverishment of the middle-class.
The Democrats need to fine tune their ideological stance and confront the Republican ideology head on. They can't just be pragmatic. Pragmatism looks a lot like wishy-washiness when confronted by an aggressive, confrontational ideology like the Republicans espouse. And Obama cannot simply cross his fingers and hope that the "experts" are right when they say that the American economy will just recover by itself and on its own without any further efforts on his part.
As you may know, the Greece government is bordering on bankruptcy while the EU country money chests are being stretched to provide survival funds (as well as to Spain, Ireland and Portgugal). Suddenly in recent days, a possible partial but very significant solution has arisen for Greece. The giant Greek shipping industry transports over 15% of all world goods. This industry involves about a thousand very, very rich Greek shipping families (0nassis type family wealth). These families have paid hardly any taxes for many decades because each vessel is legally registered as a company in an offshore tax-haven (Jersey/Gernsey. This is standard practice done on a broad scale, particularly in shipping. I saw such tax haven legitimate actions take place here when I worked in the Dutch shipbuiding and offshore oil-gas industry in the 70s.
Well, the Greek shipping tycoons are now being asked to come to their country's rescue by buying a major portion of their nation's debt, amounting to €350 billion ($500 billion) today. It appears that serious negotiations are taking place on this proposition. If the shippers can agree to take over €100-140 billion of the debt, then the Greek financial crisis drops from a practically hopeless situation to a manageable one.
Surprises come from many directions. For the Greeks and Europe, I hope this one brings some deliverance!
Regarding Robert Reich's retort about proposed legislation to put a 3% CAP on Federal Spending, isn't this crazy financial idea, made into law during Reagan's Governorship, exactly what has contributed so disastrously to California's structurally deep budget and deficit red ink over past years?
I would like to draw Reich's and everyone else's attention to the EU Stability and Growth Pact (SGP) which more correctly sets a 3% of GDP CAP on member-country Deficits. This means recommended adjustments by the EU Commission -- to correct a member country's excess deficit breaking the 3% of GDP threshhold -- can take the broader, more sensible form of cuts, higher taxes and/or other constructive actions.
When the EU passed this legislation some time ago, member states realized a rule-based framework was needed in the budgeting process given the harsh reality of people having longer lives and fewer children. Member states saw the urgency of confronting this future cost challenge impact (e.g., health care, social safety-nets, social security) by assuring the long-term sustainability of public finances. Non-compliance with EU's Stability and Growth Pact can trigger others steps, including the possibility of sanctions. Of course, there are provisions for unusual developments like a severe recession crisis.
Noteworthy is that the Stability and Growth Pact has an early-warningpreventive as well as dissuasiveresponse to deficit safeguard measures. The prevention part hasn't worked well for certain grossly mismanaged countries like Greece, Ireland, Portgugal, etc. But, over the years since its implementation, the Pact has ensured structually improved fiscal soundness and awareness by mature EU members. The ongoing EU member states' common goal under the Pact is to consistently correct deficit levels and for doing so within a time-frame that is harmonious with sustainable public finances. Of course, deficits have jumped of late due to the great recession, causing a fall in tax revenues together with a rise in social-spending, e.g., in unemployment benefits. This is the same pernicious problem thst is afflicting the U.S. economy, only we have a relatively far more serious unemployment/underemployment level and 30-year trend of declining rates of job generation.
When can we ever learn something from the best practices of others?
A 3% CAP ON FEDERAL DEFICITS is a far more responsible rule approach than a 3% CAP ON FEDERAL SPENDING. Reich is right. The latter will simply accelerate our Federal Government's Race-To-The Bottom ... a race already carrying down most states and the job-wage-crunched middle-class. Seeing that Senator Lieberman supports this "middle-ages fiscal renaissance" should make everyone nervous! It's utterly irresponsible, stupid, nation-destructive FISCAL AND FINANCIAL MATH THINKING!
Dutch taxpayers are up in arms over bonuses paid to Amsterdam based ING bank executives. Unlike the US, they are doing something about it. Their (unbought) politicians are proposing a 100% tax on all bonuses until the banks' bailout debts are paid back.
Yes, I'm quite aware of the taxpayer furor caused when top managers of Holland's ING bank --which received a Dutch government crisis bailout of euros 10 billion (+$14 billion) -- decided to award themselves bonuses of up to1.25 million euros ($1.8 million and within the legal limit set by the Dutch government). Such bonuses are of course a mere pittance compared to U.S. and UK top management bonuses!
This was being proposed when ING pensioners have seen their payouts frozen and while many employees were awarded a pay increase of just 1% in 2010. The public and union reactions were so fierce that within days it caused ING's CEO Jan van Hommen, awarded a 1.25 million euro bonus, to waive his bonus and to tell other directors to do the same. The normal culture here is that everyone expects banks that were bailed out by the state should be exercising modesty in this area.
Now politicians have voted legislation to implement a 100% tax on all bank bonuses paid to executives that received state aid as result of the financial crisis. This means no bonuses until the debt is repaid. Also, the union is advocating a law that makes sure executive pay NEVER amounts to more than 20 times the lowest-salaried employee. We shall see what the final vote will be, but it will be realistically fair and tough as Holland and most of Europe is not into fundamentalist market capitalism that rewards the minority and impoverishes the majority.
As I have noted before on this blog, European CEO salaries and bonuses are relatively much, much smaller compared to an average worker's wages as opposed to the correspondingly outrageous relationship of U.S. corporate top management's remuneration. The latter is driven by the culture of Shareholders & Management First and -- Workers Last , thrown survival breadcrumbs and begger benefits.
Regarding the Dutch bonus levels, Prof. Domhof in his study, Wealth, Income and Power, shows 2010 average median compensation for U.S. CEOs as follows:
All industries:....................................$3.9 million.....or 100 times median worker´s pay of $36,000
Standard and Poor´s 500...............$10.6 million.....or 300 times median worker´s pay of $36,000
Dow Jones Industrial Average........$19.8 million.....or 500 times median worker´s pay of $36,000
Diverse studies indicate that the overall ratio of CEO pay to worker pay is approximately ±250 to 1 in the US versus ±25 to 1 in Europe.
Britain has a rival when it comes to bashing bankers. After a furious row over pay packages at Amsterdam-based ING in which thousands of customers threatened to make mass withdrawals, the Netherlands is now vying for the title of Europe's most bonus-hating country.
A growing Dutch political storm could end with a blanket ban on bonuses to financiers who work for institutions bailed out by the taxpayer.
ING customers mobilised on Twitter and other social networks to protest at bonuses paid to bosses at the bank, one of the biggest in the country. The threat of direct action raised the spectre of a partial run on ING, terrifying the Dutch establishment. Fred Polhout, union organiser at the bank, says: "People were outraged. We heard about the bloated sums being paid again in the City and in New York; but suddenly the issue exploded on our own front door."
Compared with the packages awarded to bankers in the US and UK, the Dutch bonuses were small potatoes. Jan Hommen, ING's chief executive, was due to receive a £1m bonus – a pittance when you consider that Stephen Hester, head of state-controlled RBS in the UK, is in line for up to £7.7m, Bob Diamond of Barclays is to collect as much as £6.5m, and some senior bankers at Goldman Sachs and JP Morgan are looking at windfalls of about £40m each.
"Perhaps we are so upset because we are a small country that prefers to set an example, rather than follow others," suggests Polhout.
So severe was the public reaction to Hommen's bonus that within days he had agreed to waive the award and told other ING directors to do the same.
Now the Netherlands is going through a painful period of introspection and soul-searching. Politicians have voted to implement a 100% retrospective tax on all bonuses paid to executives at institutions that received state aid as a result of the financial crisis. In other words, no banker should get a bonus until the debt is cleared, and they should return payments made since 2008.
ING was thrown a €10bn (£8.7bn) lifeline to stop it going under, while ABN Amro was nationalised. Numerous other Dutch financial firms received capital support, including Aegon, SNS Reaal and ASR Nederland.
On the streets of Amsterdam, there is little sympathy for the bankers. Emma Rohl, who works at an English bookshop in the city centre, says: "They shouldn't get bonuses at all. Why should people be paid vast sums for going into work and doing their jobs? It's utterly ridiculous."
Erick Koenig at a nearby restaurant says: "We rescued the banks from their own follies, and now they expect to be paid extra. I think they should work for free for at least five years."
At a dusty office in a northern suburb of Amsterdam, Henk van der Kolk, head of the country's biggest trade union, FNV Bondgenoten, does nothing to conceal his frustration: "Everybody is angry about what happened at ING. The board isn't in tune with public opinion. What were they thinking of? ING pensioners have seen their payouts frozen, while many employees were awarded a pay increase of just 1%."
Van der Kolk's union is pushing for a law that would ensure that executive pay should never amount to more than 20 times the wage paid to the lowest-salaried employee. As for bonuses, the union feels payouts should not exceed 50% of a director's salary. Hommen's bonus was worth 92% of his €1.35m package.
"Remuneration for bankers was linked to financial machismo, which encouraged irresponsible lending. We want to get away from the bonus culture," says van der Kolk.
But given the payouts to ING directors were relatively small, some Dutch bankers are shocked they have received another public mauling.
One ING insider suggests the country was in the grip of a "typically Dutch Lutheran and Calvinist backlash" which cultivates the view that excessive wealth is somehow morally reprehensible and in contravention of traditional Dutch, Christian values. The source says: "We went through this during the boom when ministers railed against stock options and bankers were accused of exhibitionism, and enriching themselves to the detriment of the nation."
The bankers' response that high remuneration is vital to retain talent and prevent Dutch financiers from defecting to overseas banks is given short shrift by Polhout. He says: "Let them go abroad if they don't like it here; there are plenty of clever people who will take their place and work for less. Good riddance, as far as I am concerned."
Moderate opinion in Holland seems united in its belief that banks which received state aid should not be shelling out bonuses. And Dutch parliamentarians are saying the same thing, demanding the government take immediate action. ING may have made a net profit last year of more than €3bn, but it still owes the taxpayer €5bn.
The uproar against Hommen's bonuses and those earmarked for the bank's senior executives have forced ING to rethink its position. Hommen promises no more bonuses till 2012/13 when the bank expects to have repaid all state aid. In a letter to Dutch newspaper De Volkskrant, he said: "We have underestimated the signal we sent to society. [We] have [risked] renewed damage to the recovering trust of our customers."
Few doubt a critical factor behind ING's volte face was the boycott threatened by consumers.
A spokesman for the bank admitted the payment of bonuses "prompted a reaction from our customers via emails and telephone messages to our call centres". But he said only a few hundred people had actually closed their accounts.
Now the ball is in the court of finance minister Jan Kees de Jager, who must decide how to respond to a proposal by parliament calling for the return of bonuses by all executives at state-supported banks. On a recent television show, he said such a law would be difficult to implement and would hit bankers on average salaries who receive bonuses of just a few thousand euros. But in today's highly charged political atmosphere, de Jager knows that doing nothing is probably not an option.
My research told me that, despite the strong job growth development during President Clinton’s term, the annual rate of job growth in the 1991-2001 economic expansion still showed a decline from prior job growth rates in the 80s and 70s. Thus, like our structural budgetary deficits, we have had structurally declining jobgrowth rates since the 80s, reaching a never-before experienced negative growth rate during the 2008-2009 Great-Recession.
In the 80s, 90s, and 2001-07 economic expansions, the rate of private-sector job growth fell to an average of 2.7%, 2.2%, and 0.9%,respectively – compared to annual average job growth rates above 3% in the 70s and 60s. Here’s a 30-year disturbing factual summary:
TABLE 1a: U.S. Private-Sector Employment Growth in Last Three Economic Expansion Periods Covering Nov. 1982-Dec.2010 _______________________________________________________________________________
The average annual rate of increase in jobs fell steadily during the expansion periods of Reagan’s, Bush Sr.s’ and Clinton’s terms … and then tanked further in the weaker 2001-07 economic expansion of Bush Jr.s’ term.
Then came the severe 2008-09 economic crash causing the loss of over7.5 million jobs plus another job need of 1.7 milllion to meet labor force growth. The result? For the first time since the Great Depresssion, the U.S. had an absolute private-sector job loss over the decade … ± 1.7 million fewer jobs than whenthe decade started.
In effect,the first decade of the 21st century has rightly been called, “The Lost Employment Decade,”—where job-less economic growth became the modus vivendi. To understand the “Big Picture” of this job-less structural calamity, our nation created 35.5 million private sector jobs in the final two decades of the 20th century. During the first decade of the 21st century we lost more than 1.7 million jobs! These are ominous precedents reflecting the scale and structural character of job losses.
Since January 2010, we have seen approximately 1.5 million new jobs generated, including ± 650,000 net new jobs in Jan.- April of 2011. or about 160,000 a month – of which 125,000 jobs are required for the annual ± 1.5 million growth in the labor force. So we have a long way to go to bring unemployment down 8 million from current ± 14 million to ± 6 million or a 5% unemployment rate, excluding the 8-10 million underemployed. Many consecutive years of sustained job growth – as opposed to the job-less growth of the last decade – are needed to eliminate the employment deficit of ± 8 million … again, excluding the 8-10 million now underemployed.
It’s clear that structural obstacles to job development are much DEEPER and more sinister than both sides of the political spectrum recognize. The ugly phenomenon of outsourcing, robotisizing, automating, downsizing, downgrading jobs, eliminating low-skill jobs, etc. are all factors contributing to the permanent destruction of middle-class jobs at a faster clip than they can be replaced by creative, sustainable investments, industry-focused training, better education, etc.
So far in 2011, the average job generation performance of 160,000 comes closer to the 90s performance when economic expansion was much stronger and not limited by a hugely destructive financial-casino bubble. Assuming 250,000 net new jobs are created every month for the next 7-9 years, the 8 million lost jobs (excluding the 8-10 million underemployed) plus 1.5 milllion added jobs needed to cover the labor force growth will not be employed until at least 2018-20.
Last March 30th, the Bureau of Labor Statistics (BLS) reported some telling trend data entitled: “International Comparisons of Annual Labor ForceStatistics.” It further dramatizes just how shockingly deep the U.S. declining structural job generation and unemployment situation has become … for adults above 25 and for younger adults 20 to 24.
It’s clear that America has had by far the greatest increase in its overall unemployment rate in the last decade. A long process of significant destruction of manufacturing jobs between 1980 and 2000 has now also started to include the destruction of service jobs in the last decade.
America has had by far the greatest increase in its unemployment rate for those 25 or older. The Great Recession has caused vastly more serious unemployment problems in U.S. than in Europe. People with no high school, only high school, some college, or a college degree are all hurting.
The pervasively poor quality of pre-college education and practical, in-depth training programs continue to dim job prospects for U.S. young and middle-aged workers. Little wonder the Great Recession has hit poorly educated people extremely hard. David Autor of MIT points out that those between 24 and 34 are less likely to have a degree and to have completed college than their similar age-group in the UK, Denmark, France , the Netherlands. and Spain.
These are truly disastrous unemployment segment-trends for the U.S. and UK, France, Italy, and (quite surprisingly) Sweden. When young people in such large numbers are failing to find work in a reasonable time frame, this leads to: intensified social-net cost problems and protections; greatly disproportionate job discrimination towards some ethnic groups; loss of skills forcing millions of Americans to accept minimum wage survival Wal-Mart or fast food jobs … fostering a race-to-the-bottom for both young adults 20-24 as well as for adults 25 or older.
And here come the Hoover Republicans recommending deeper cuts in government jobs, teachers, firemen, and policemen … even in training programs for the long-term unemployed, the less educated, the high school dropouts, the older-age discarded. Programs to get people back to work are underfunded and ineffective compared to those of the best performing countries in Europe, for example, like the Netherlands.
And here come the Hoover Republicans saying this is not the time to Invest, Cut Waste, Reform Social-Nets and wisely Raise Taxes. Rather, it is a time only to CUT All Spending (except Defense) and PRIVATIZE Social Nets (Medicare, Social Security), etc. Republican fiscal math is the same old “trickle-down fraud” on the American public, making the rich and powerful richer and more powerful at the expense of the middle-class – talking reform rather than reducing huge budget deficits and encouraging broad-based job growth. Without adequate, decent jobs for the middle class, tax revenues will decline, social costs and instability will escalate. Lower taxes for the rich and corporations – with already Low effective tax rates – will simply redistribute money to the Few and expand the flight of capital abroad for better returns causing further losses in tax revenues … insuring continuing high budget deficits. The Paul Ryans and their elitist anti-government paradigm discouraging public direct investing/investment incentives for education, worker retraining, upgrading infrastructure, achieving green energy independence will also insure prolongation of high budget deficits and unemployment. Result? Continued imbalance between income distribution and economic growth with more and more middle-class Americans numbering in the millions left behind.
In this regard, the Republican lie machine is in full display when one reads carefully some typically wily words recently spoken by the anti-government polemicist, Paul Ryan. According to him:
“The Democrats’ narrative story line is: if you go to the Republicans they’re going to feed you to the wolvesin a ‘dog-eat-dog society’(writer’s note: which is exactly what’s been happening the past 30 years of which 20 years were Republican administrations). This narrative of ‘sharedscarcity’ (writer’s note: Why not also ‘shared prosperity,’ i.e., a fair playing field and broad-based participation in society’sprogress and failures?) will be ‘trumped’ by theRepublican story line: we want to have growth. (writer’s note: Who doesn’t? What growth and whose growth is Ryan talking about? Middle-class wages in 80% of households have gone up 12% after inflation the last 30 years while income and wealth growth/concentration of top 1%, 5%, 10% has mushroomed ). We want an ‘upwardly mobile society.’(writer’s note: Who doesn’t? But what we have is a middle-class and state-by-state race-to-the-bottom dynamic of stagnant wages, bare-bones social services, and jobless growth – while the rich get richer).
Anyone claiming to understand such double-talk is hyping a “Market Government” free-for-all democracy over the people, by the people, for the people.” We’ve had quite a 30-year taste of this ultra-right ideological distortion of our nation’s founding governmental principles. Look where it has landed us! And still the Ryans march on embracing divisive social issues: cutting and privatizing Medicare, lowering taxes on wealthy, defending non-tax paying companies like the oil and banking industries, turning brain-dead on ideas for selective, sustainable future job-growth investments/incentives and taxes to pay for them.
Conclusion
So, the vicious deficit circles and societal inequities become self-perpetuating and selfulfilling … fed by this fiscal fantasy farce of cutting taxes, government jobs and spending, while destroying unions to solve deficits. Let’s face it. We have Lost the Way and Connection to our core egalitarian values. Cool, balanced, respectively open, creative minds are desperately needed to represent fairly and constructively the interests of ALL Americans.
It’s time we bloody WOKE UP to the sheerstructural magnitude of our nation’s 30 year declining job growth rates … and a middle-class race-to-the-bottom that is financially impoverishing 80% of family households and dangerously dividing our country into a democracy for the HAVES with TIDBITS for the HAVE NOTS.
Did I hear correctly that Wisconsin passed legislation aimed at eliminating the bargaining rights of workers? If true, it’s clear the ultra-right is determined to turn America into a governing autocratic anachy with the common folk being common servants at slave wages to serve the viscious avarice of the Kochs and like company. If this isn’t symptomatic of the war being declared on working class Americans, then I don’t know what is. It’s the Republican game plan of shifting the blame, shame, and pain onto the middle-class for systemic economic breakdowns caused by the upper class. I’m very sad for my country!
That the money-influenced bought Gov. Scott Walker and his promotion of ending the basic rights of unions to represent workers as a way to reduce a state deficit he helped create is disgusting beyond words. The situation we have now of other crony Republican Governors humping this solution to structural deficit problems – whose primary origin lies in other directions – reminds me of the film, “Saving Private Ryan” in WWII. George Marshall initiated the assignment of an Army Ranger team to rescue Private Ryan since his three brothers had already been killed in battle actions. The code name given this very dangerous mission by the rescue team was “FUBAR.”
FUBAR meant, “F****d Up Beyond All Recognition.” This is exactly how I would describe the state of our governmental affairs today in handling deficits and a steady trend – that has been accelerating the last three decades (see my study of historical job growth) – of destroying and minimum-wage Wall-Marting of middle class jobs.
Wisconsin is setting a destabilizing societal divisive precedent of entrenching the upper 10% class that owns +85% of all wealth while placing all other blue-collar Americans in a fight to simply economically survive, and this struggle is only made worse without fair, effective union representation. Is this what thousands of Private Ryan common folk soldiers nobly fought and died for in WWII? An expanding Have and Have Not Divide making us all ultimately the LOSERS ?
People, including the President, will get just what they deserve if they cannot muster the courage to stand up to the monied-interests’ rape of our democracy by, among other ways, eliminating the average working man´s collective bargaining rights for obtaining a decent standard of living and job growth prospects. Until people unite and say, “Enough is Enough,” cannibalizing middle-class social nets such as Social Security and Medicare/Medicaid will be next on the ultra-right’s hit list. Gov. Scott Walker´s trampling on worker-bargaining rights in concert with job and benefit cut threats is just more nails in the coffin on America’s already sad state of social-cultural cohesion and equity for ALL citizens.
Yes, the right word for our current chaotic, brain-dead approach to “Saving Our Nation’’ and solving in a banking, fiscally and economically balanced, creative fashion (like North Dakota) the nation’s short and long-term structural deficits can also best be described as “FUBAR: F****d Up Beyond All Recognition.”
Benjamin Disraeli (British Prime Minister and Novelist, 1804-1881) long ago principally captured admirably our race to institutionlizing an increasingly morally corrupt, massively class divided society based on money and survival of the fittest:
"Two nations; between whom there is no intercourse and no sympathy; who are as ignorant of each other's habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets; who are formed by a different breeding, are fed by a different food, are ordered by different manners, and are not governed by the same laws." "You speak of -- " said Egremont, hesitatingly, "THE RICH AND THE POOR."
I haven't had time to respond to this article [In Norway, Start-Ups Say Ja to Socialism] properly. You must understand Max Chafkin's excellent information is old hat to me as I have lived in Europe and worked for European firms for over 30 years now. Here are my abbreviated personal comments on some key differences in how the economies of Europe and America work.
At the age of 30, I was Scandinavian Director of Finance for Merck, Sharpe & Dohme located in Denmark. Had extensive direct contact with all the Nordic countries, including Norway. Later, as a consultant-manager for the Dutch shipbuilding and offshore oil-gas industry for many years, I had a number of business dealings/negotiations with Norwegians as result of their offshore oil-gas discoveries in the late 60s.
The Norwegians have much in common with the Dutch. They both have a plethora of entrepreneurial family companies and small firms, and some very successful global firms .... an entrepreneurial history that goes way, way back.They both have been conducting business around the world since the 17th century -- the Norwegians with their enormous tanker fleets and the Dutch starting with the Dutch East India Company, then Royal Dutch Shell, Unilever, Phillips, etc.. For centuries, both nations have been very worldly-engaged people, making them super alert to new ideas, ways of making, doing things, and dealing with vastly different cultures.
In brief, here are a few important points of Norway's story that similarly relate to other mature EU countries like the Netherlands, Sweden, Denmark, Switzerland, etc.:
(1) European countries have to be extra focused on the internal general welfare of their citizens and quality-of-life because the majority will never live and work in another country .... as each country has such a completely different history and cultural at-home cohesiveness. This, of course, is just what makes Europe so attractive.
(2) The European welfare system with its higher taxes gives something concrete and valuable back to all its citizens regardless of income level, e.g., state-of-art productive transport/water-sewer systems; generous vacations; quality-affordable basic health care for all (as our study of Dutch-American health care systems dramatized); free pre-college public education (although the Netherlands, unlike Norway, does have some private schools) and very low cost of universities; very low poverty rates due in part to advanced/refined internal flexible-work markets and extreme ease and low cost of starting up so-called "one-man firms"(as in Holland); energy efficiency and conservation standards far exceeding those in America; GDP COMPONENTS OF GROWTH that reflect a sound economic culture of higher savings rates, lower consumption, stronger public and private investment, modest trade deficits .... compared to the U.S.
(3) A relatively far more stable and harmonious regulatory environment that does not drastically vacillate with political mood or with newly elected officials.
(4) A fundamental cultural value of sharing and enjoying life has also nutured the idea that, "Life is much less about living to make money than it is about making money to live." Quality-of-life priorities are high on everyone's list.
(5) The relatively higher social-nets are silent Economic-Stabilizers (not noted by most U.S.economists) in weak economic times thus making the slowdowns less severe while the recoveries can be slower. I've watched this dynamic occur here for many years.
So, what all the supposedly expert U.S. economists have seldom understood and what the U.S. fear-mongering politicians constantly are lying about is that although taxes may be higher in Europe (and Max Chafkin is closer to the truth when he suggests this may even be highly questionable), taxpayers get something back of real value. This fact and the deeply-rooted European cultural value, "We are all in this life together," give support to the acceptance of progressive taxation to insure that prosperity is broadly shared.
When the economic environment dictates the need for change and financial austerity, the mature European countries generally go about doing what has to be done promptly and systematically in a fair, clever manner ... without hurting the lower middle-class nor drastically reducing social capital for deregulated, fundamental market capitalism. An important omission by Americans is that there is always much more room to economize or make more efficient generous European social-net systems than to cut America's social-nets. The latter are already ridicuously "bare-bone" and might more appropriately be labeled "poverty social-nets."
Europe now has its plate of problems and problem countries -- Ireland, Greece, Spain, Portugal. But all the U.S. media/politician hysterical and demagogic misrepersentations (e.g., typically by Paul Ryan recently and Fox news) of Europe's general economic demise due to massive out-of-control social-nets are pure NONSENSE!
Of course, the euro's future and financial problems certain countries present are awesome challenges. But for over 30 years I've watched European coalition governments come realistically to grips with institutional policy mistakes, excesses or new system-threatening challenges. A key advantage is that most mature EU countries have inherently more balanced, stable economic models than the US has on which to make adjustments to meet the new global circumstances .... crisis situations like now where both austerity measures as well as intelligent investments are essential.
In sharp contrast, the US is out-of-balance with an extraordinary level of unaffordable military spending (at +5% of GDP vs. 1.5% in Europe), an ancient broken-down infrastructure, an extraordinary dependence on consumption combined with stagnant middle-class wages stimulated by outsourcing/automating/robotosizing/downsizing where labor's value for society is seen as a replaceable machine of 400 times less value than top management and shareholder wealth enhancement ...all resulting in low middle-class savings, huge trade deficits, high long-term structural unemployment, explosive budget deficits as tax revenues decline.
The Norways, Swedens, Denmarks, Hollands, Switzerlands of the world are not into any form of self-destructive capitalism extolling a "survival of the fittest" caricature as being the ideal social-economic paradigm for long-term stability, cultural cohesiveness or quality-of-life experience. The European economic models have interesting shades of differences, but all have the central value and priority to keep in proper balance a dynamic market of entrepreneurship/innovation and the protection of society's general welfare.
As Steven Hill has so correctly noted in his book "The Promise of Europe: "It's the steady statesociety of Europe versus the "On your own society of America," each with its inherent weaknesses and unique strengths .... with the major exception that Europe pragmatically steps up to the task of refining/correcting any capitalistic and general-welfare imbalances in their societies under the principle of SOLIDARITY.
Whereas we in the U.S. are addressing (better said not addressing) our societal imbalances by encouraging greater class DIVISIONS and GAPS between the Haves and Have Nots.
Is America in the twilight zone of cultural and social collapse? Morris Berman, a much recognized and, yes, controversial, social critic and cultural historian, thought so tenyears ago when he wrote the notable and much criticized book, “The Twilight ofAmerican Culture.” Another tongue-lashing excoriation of our culture followed in one his recent books, “Dark Ages America: The Final Phase of Empire”
In “The Twilight of American Culture,” Berman focused on America’s cultural breakdown as reflected in the growing alienation, inequities, pervasive anti-intellectualism, illiteracy, and decline in educational quality .
He drew anecdotal similarities of the sad state of American society to the social class differences and anti-intellectualism of the Roman Empire before its fall. Berman prophetically predicted back in 2000 that America was moving in a direction best described as a culturally mind-numbing lack ofcritical thinking … a societal consciousness and identity drowning in divisive, mean-spirited dialogue, and lost in a purposeless, paranoid excessive commercialism. He saw American culture as, quite simply, in a mess going into the 21st century.
Berman warned we are moving in the direction of no longer having a history, a life, a consciousness apart from the business culture. The latter is putting itself beyond our power of imagining because it has become our imagination, it has become our power to envision, and describe, and theorize, and resist, and share. Hype and life have merged in politics, in the media, in computers and the Internet, in our general lifestyle. This process destroys the values lying at the core of any civilization, ours being no exception – namely, the ability to distinquish between quality and garbage, the dispassionate pursuit of truth, the committment to critical thinking, the fostering of an equitable playing field and sharing in society’s progress.
Instead, where are we now? We are truly a divided society, incapable of communicating and acting together in the best interests of all citizens. Political parties and leaders are ideologically frozen, unable to bring the balanced, unvarnished, undogmatized news of what needs to be done to come out of our systemic cultural and economic decline. Ten years ago Berman vividly saw the seeds of this self-destruction.
But what really piqued my interest in his book was his synopsis and connection of the eerie parallels of our cultural mess to civilizations in decline. Berman described four factors present when a civilization is collapsing or near the parameters of collapse:
Accelerating social and economic inequality which is structural in nature based on a core of industrial and technical elite regions (class divides) versus a periphery of exploited regions (class divides) resulting in a broad social and economic stratification.
Declining marginal returns with regard to investment in organizational solutions to socio-economic problems. For example, short of privatization, entitlement systems (e.g., Social Security, Medicare) become unsustainable due to the increased aging of society and a sharply falling fertility rate.
Rapidly dropping levels of literacy, critical understanding, self-critique, and general intellectual awareness. For example, there is the dumbing down of the public school educational system where teachers effectively become baby sitters. There is the commercialization of education where the university culture is ever more devoted to consumption, entertainment or pleasing the student. A general educational mediocritizing and a hostility to intelligence emerges – evidenced in my recent summary of the shockingly poor U.S. results in the international PISA TESTS for 15 years olds.
Spiritual death – the emptying out of cultural content and the freezing or repackaging of it in formulas – kitsch, in short. The pervasiveness of kitsch, or hype, form part of a spiritual death due to the commercial domination of our lives. Hype is life. Commercial messages fill practically all the empty spaces in our culture. This works against depth and self-reflection. It leads to an inability to think except by slogans. When that part of the mind seeking to maintain adult behavior, social norms, and standards collapses and adolescent attitudes and corporate values merge, life becomes merely a question of what is popular.
These were four very penetrating perceptions by Morris Berman made ten years ago. Admittedly, Berman tends to generalize and rage acerbic about America’s societal dysfunctions. However, his four observations portending a culturally collapsing society ring loud and clear today. For today, a deeply rooted cynicism and distrust greets attempts by anyone in the governing establishment to come together effectively to solve critical problems. Not surprisingly, Obama’s overtures to Republicans and the business world have immediately been met with accusations of gross naivete andcourting the devil (e.g., appointing GE’s CEO as the head of a team to spur U.S. job growth). This cynicism and absence of civility in turn contributes to paralyzed governance … a do-nothing-band-aid policy-making contamination I call compromised compromising. The recently approved health care plan is an example of this.
I believe most Americans – conservatives, liberals, progressives – are sickened by the money and might decides/the winner-takes-all/consume, consume . middle class with stagnant wages, corrupted perversion of American politics, economy, and culture. A culture where stigmatization, ideologically pure self-rightousness, and ridiculously dumb demagoguery is the reigning religion. We deserve leaders who appeal to our saner, better instincts of balanced civil discourse and reasoned argumentation of options which allows people to coalesce around common purposes and recognition as well as for accumulation of wealth. The problems are simply too complex to be resolved through the narrow, self-interested prism of one ideological philosophy. A demogogic rivalry of name calling, bald-faced repetitive lying to the public, passing a litmus test of who’s the most thoroughbred conservative, who’s the most genuine protector of our constitutional rights, individual freedoms and liberties has made an arrogant, farcical, running mockery of our democratic system.
“All human beings believe they have a certain inherent worth and dignity. When that worth is not recognized adequately by others, they feel anger; when they do not live up to others’ evaluation, they feel shame; and when they are evaluated (and compensated) appropriately, they feel pride. If we understand, then, that economic life is pursued not simply for the sake of accumulating the greatest number of material goods possible but also for the sake of recognition (and respect), then the critical interdependence of capitalism and liberal democracy becomes clearer.”
Morris Berman’s vituperative critique of the American Way, while out of bounds here and there, is right on when he implies we have lost the way in balancing social capital with a dynamic, prosperous capitalist economy. Europe is far more advanced in recognizing the inherent interdependence here of social capital and commercial capital (e.g., “We are all in this life together”) for achieving a stable democracy and a solid measure of cultural cohesiveness.
BUT WE HAVE LOST THE WAY. And in the process we are facilitating, as Berman writes, the breakdown of our culture and egalitarian democractic principles … including an economic justice that recognizes the worker’s labor for its true worth in relation to others. Thus, creative and pragmatic goverance in the public’s general interest is sacrificed to greedy, powerful special interests operating globally for maximum corporate profit and shareholder wealth.
This all means ordinary people are losing, the politics of money is winning, and the art of fiscal sanity while bringing jobs back is being buried in political-economic obfuscation that brings credibility to Berman’s “dark”prognosis of America’s inevitable duplication of ROME’s cultural collapse.
The Arizona tragedy raises your point of the differences in firearm levels, gun-related and non-gun related homicides in Europe vs. the U.S. First, a historical note: as far back as the 18th century, the Swiss had a significant influence on the passage of the 2nd Amendment to our Constitution on rights of citizens to firearms. Since its founding in 1291, Switzerland has allowed and even required its citizens to arm as a defense against Europe’s despots. Thus, for centuries, a well-armed Swiss populace has been successful in keeping their independence by defeating the mighty armies of European monarchs. In 1791, U.S. Representative Andrew Jackson acknowledged the Swiss influence on the right to arms when he said: “The inhabitants of Switzerland emancipated themselves by the establishment of a militia which finally delivered them from the tyranny of the lords.” General George Wingate, the founder of the NRA, later heaped praise on the Swiss militia model as being the ideal model for securing the country’s security. It certainly effectively dissuaded the Germans from invading Switzerland, thus saving armed Jewish Swiss citizens from the Holocaust. The Swiss were among the very first to learn that tyrannical governments kill more people than do criminals or the deranged. Although virtually all Swiss households have firearms, these have become a peaceful, sport-shooting family occupation at contest-festivals where eating, drinking and socializing abound. This culture contributes to gun sanity and is partly why the Swiss gun homicide rate is far below already very low European rates. Guns have become a recognized shooting-sport. Rules cover permits, safety training, discipline. Males aged 20 to 42 must keep their rifles and pistols at home. In Switzerland, a gun culture of shooting-range festivals has come to represent a wholesome community activity. These social-attitudes have no doubt over time helped to practically eliminate Swiss violence with guns. England has had a much stricter gun control culture where there are relatively few guns in households. In sharp contrast to both countries, America has had loose gun controls for decades. Like Switzerland, America has as many firearms as there are people … with one major difference. While the original motivations for an armed populace were similar, i.e., to defend against tyrants and invaders and for hunting, America’s motivations have become more focused on defending themselves against outrageous and multiple crime subcultures. The following data, taken largely from a 1994 UN International Study later updated, summarizes total homicides, gun-homicides, non-gun homicides, and robberies per 100,000 people. The data tell a remarkable contrasting story about fundamentally different gun cultural and social attitudes, resort to violence and how these relate to gun availability and controls.
TABLE 1: Total Homicide Rate, Gun Homicide Rate, Robberies Per 100,000 People in the U.S. and Selected European Countries: 1994-99
TotalGun Homicide RateHomicide RateRobberies United States 5.70 3.72 232 Canada 2.16 0.76 101 England 1.41 0.11 116 Switzerland 1.32 0.58 36(a) Average: 1.38 0.47 48 Selected EU Countries (b)
a) The Swiss state that half of their robberies are by non-resident foreigners.
b) Finland, Sweden, Denmark, Norway, Netherlands, Germany, France Austria, Italy, Spain, Ireland
Above data and recent trends reveal how the U.S. has by far the highest total murder rate, gun-murder rate, and robberies per 100,000 people. The U.S. non-gun murder rate (total murder rate minus gun-murder rate) is higher than many European country’s total murder rates. WHY?
England with its strict gun controls has almostnogun-murders and one of the lowest total murder rates. The influence and correlation of gun availability and violence is an unending and confusing chicken and egg debate, i.e., is the U.S. dilemma of extreme violence due primarily to gun availabilty/ownership or to other societal factors? For example, the UK had achieved a low gun-murder rate prior to having any strict gun controls. There are a number of confounding societal factors such as poverty, physical abuse, alcohol/drug abuse, racism, uncensored violence , etc. that play an equal if not greater role in homicide rates. Switzerland’s homicide figures, like those also of Norway, are exceptionally low which seems a questionable contradiction upon first glance. Here’s a country with the highest gun ownership rate in the world while having a very low murder rate and an extremely low gun-murder rate! The Swiss (and Norwegian) firearms experience refutes the belief that very low total murder rates and gun-murder rates are always due to strict gun controls … while England’s and the EU’s experience confirms the belief. WHY? I shall offer some answers to the WHYS. But first I should forewarn readers I may be a little prejudiced in my views on guns for hunting. I’m a deer and pheasant hunter starting way back as a 12 year-old young boy under the firm guidance of my State Police father. We hunted each season in the northern wooded wilds of Aroostook County, Maine, a region in which I was born. It wasn’t the phony, bravado hunting for cameras and votes done by Sarah Palin … who took 4-5 shots with a high-powered rifle and scope to kill a simple-minded, kindly Moose. The general public doesn’t know – what the Palins and real hunters know – that a Moose is the one of the easiest wild animals to find and kill. And one can do it with a simple 30-30 lever action rifle without a scope. Of course Sarah’s visually metaphorical gun-play with the cross-hairs scope aimed at Ms. Giffords house and at the watching, accommodating Moose was just “hard politics, Sarah exercising her American “foundation freedoms”as she explained recently.
SOME WHY ANSWERS
WHY does America’s relatively weakly regulated gun culture correlate to out-of-sight gun-homicide rates compared to Europe? One answer is the many levels of U.S. criminality compared to the UKs, the Switzerlands, and other EU countries. Note the number of robberies per 100,000 people, the number of people in prison per 100,000 people -- ± 700 in U.S. vs. 87 in the EU!. Our disgraceful violent and less violent crime rates justify for many Americans the constitutional argument of self-defense in allowing firearms of all sorts to roll off the producers’ production lines … including semi-automatic pistols and automatic rifles. We are at a crossroads where it’s not the gun ownership level that determines homicide rates but rather it’s the high crime and homicide rates that motivate people to acquire guns for self-defense. What this all comes down to is that we are by nature a violent nation … and have always been so. Research I’ve examined makes a strong case that homicides are tied to the willingness to resort to violence, not just to the mere existence of firearms. The tragic study facts show that our already horrendously high U.S. total homicide and gun-homicide rates would be even higher it weren’t for the right-to-carry state laws allowing individuals to carry firearms for protection against crime. In the right-to-carry states, studies reveal that violent crime rates compared to other states are +-25% lower, murder rates 50% lower, and robbery rates 50% lower. Control of the tools, i.e. guns, to express our tendency to violence is critical of course, but complex social problems (poverty, alcohol /drug abuse, violent TV and movies, unstable upbringings, etc.) cannot be brushed aside as they are also a powerful cause of violence. Why does Switzerland or Norway, for example, have such low violent crime and gun-homicide rates despite the fact they are among the most armed household nations in the world? Solving our violence dilemma lies in the social, cultural, psychological determinents of violence as much as it does in the widespread ownership of guns. The enemy is US and the battlefield is mostly in the urban areas. The hunter world is not where the gun problem and violence is. Another WHY answer is that America has gone nuts selling semi-automatic pistols and automatic rifles that release dozens of bullets in seconds … military-style assault weapons are really great for our soldiers in Afghanistan but insane as everyday sold products to the general public. Here’s where guns are indeed the major precipitator of a culture of violence. I can’t believe that General Wingate, founder of the NRA, had in mind a population armed with such deadly automatic big-cartridge weaponry that can be purchased almost at will by the teenager, the novice, the mentally unbalanced, the disabled. Another WHY answer explaining Switzerland’s and England’s as well as Europe’s very low homicide, gun homicide, and robbery rates is that guns are generallyviewed here as anathema after so many centuries of human killing. This is why European countries do not see ownership of firearms as aconstitutional right. Controls are in place and strictly enforced to limit the availability of firearms manufactured or obtained illegally. Strict sellling, permit, and safety training regulations are constantly being improved. England and Switzerland are two of the safest places to be with entirely different approaches to gun control. Switzerland is awash in guns, but its overall murder and robbery rates are even below England’s very low rates where most guns are banned.
One researcher of Europe’s very low gun homicides and violence summed it all up pretty well:
“The bottom line is one of social attitude. Populations with training in civic virtue though armed heavily like Switzerland or lightly like England and other European countries generally do not experience massacres or high crime rates. Switzerland and Norway fit the mold. The U.S. does not.”
As H. Rap Brown declared in the 1960s, “Violence is as American as apple pie.”
TABLE 1 also shows huge homicide and violence differences between U.S. and its neighbor, Canada. U.S. firearm homicide rates are 5-6 times higher than Canada and non-gun homicides rates are 2-3 times higher. The U.S.has +-250 million working firearms in private household hands compared to 7.2 million in Canada (1 million of which are very tightly restricted). This equates to 5 guns per 6 Americans vs. 1 gun per 6 Canadians. It’s clear that European style social and cultural factors also play a significant role in discouraging crime and violence in Canada.
All this means the Palins of America should be extremely sensitive and called to task for public actions that are “reprehensibly” self-enriching “hard politics” even remotely suggesting visual and verbal “elimination” when attacking the opposition.Regards, Frank Thomas
The in-denial rationalists who say that the Arizona tradgedy is a "one-off act of a crazy" are in effect saying: the moral is that words spoken REPEATEDLY over the years by politicians and ultra-right media hacks with a sly, money-making demoniacal intention to stir hatred and fear have NO effect on a society.
Devious political and greedy sharks like the Becks, Limbaughs and Palins know better! They are wolves in sheeps' clothing -- Judases to the true meaning of Christianity -- out to extravagantly and lyingly provoke the easily intimidated, the unstable, and naive to ENRICH themselves and the self-serving destructive POWER their dangerous, narrow-minded,indoctrinating BULLSHIT fosters!
It's not about social cohesion for these hackneyed screwballs ... it's all about pitting one sector of American society against another activated by nihilistic, brain-dead one-liners (e.g., "You are in our gunsights," "We want our government back") to the uncritical, Hallelujah faithful. The Becks and Fox News junkies know their hypocritical, provocative lies are EFFECTIVE ... especially when the ABC/NBC/CBS/CNN type news media and politicians each in their own self-protective way never seriously analyze and question deeply what's GOING WRONG with civil, honest, constructive debate and democracy in America.
My prayers are for the Arizona victims who are indirectly the tragic victims of our perverse, ugly WE versus THEY socially divisive dialogue. I come from a solid lower-middle class, hardworking Maine police family whose parents were born around 1910. What I see happening now to our societal solidarity is 180 degrees in departure from my parents' and my upbringing and our shared American values. I'm truly ashamed of our disgusting moral and political behavior in these serious times where the social-economic problems are so seriously deep and structurally complex!
If we can't sensibly and pragmatically come together now, then we are truly a country in the process of inevitable decadence, social isolation, and world disrespect. In contrast, the UK is going in quite another way by forming a coalition government (for the first time in 60 years) that is fusing conservative and liberal governance principles/values in the interests of country FIRST and ideology and party LAST.
WAKEUP AMERICA before it's too late! Has it got to get worse before it gets better?
Read David Brooks article today, "A Good Week for Obama," where he argues that Obama is living in the real world of the less partisan, more compromising "network liberal" who does not see politics as an all out win or lose war. In Brooks words, "Network liberals are comfortable building relationships with people they disagree with."
In Brooks view, the package Obama got -- the earned income tax and college scholarship provisions as well as extended unemployment insurance in exchange for freezing the Bush tax cuts for everyone for the next two years -- was a good deal. This was further confirmed by a Gallup poll result that said 67% of independents and 52% of Democrats favor extending all the tax cuts to everyone. And even higher percentage numbers support extending unemployment insurance.
In contrast, Brooks says that "cluster liberals" who value solidarity, loyalty, and prosperity for all see only evil and greed in their right-wing counterparts. Thus, they view politics as an all-out-war and coalition forming as giving into the enemy. Consequently, the cluster liberal sees the non-liberal as a blackmailer (I'm guilty of this labeling) and negotiation with Republicans as always a losing proposition and, therefore, not to be entered into in the first place.
All this win-lose-at-all-costs paradigm destroys stable and balanced governance operating in the interests of ALL Ameicans.
In Brooks view, Obama is the ultimate realist in the school of Ted Kennedy who recognizes the world of politics is no longer amenable to the traditional pitched battle between the two sides syndrome ... but must reflect reality - an amalgamation of diverse American interests and ideas.
Thus, networks and going over the ideological line in the sand is the new order of the day. Otherwise, the destructive dynamic in place dividing, demonizing, downgrading our governance system will continue its destructive course. This, of course, is what you and I and others have been saying for quite some time, John ... to the point, I've about given up on any hope of any sensible transformation to the UK's new coalition government approach where country is being placed before party and ideology in confronting very serious societal problems.
Maybe there is a thread of wisdom in what Brooks is saying that is worth repeating over and over. But he conviently skips over the dirty laundry list of the last 30 year history of politics in America where BOTH SIDES have adopted an all-out lie, alienate, and defeat the opposition at all cost paradigm ... with exception that the Republicans have perfected this divide-and-conquer broken system to an art form. They play the game so well they usually win over the weak compromising tactics of the easily intimidated Democrats who spend more time fighting and disagreeing among themselves.
Politics is two-thirds perception which is primarily emotion-driven. Obama is losing on this ground and, contrary to what Brooks and the Gallup poll says, Obama will also finally lose with the tax deal financial tradeoff. When he fiscally - naively and irresponsibly - agrees to retain BOTH all the tax cuts for everyone as well as the critically needed unemployment benefits, this is NOT stimulating growth as Brooks maintains. Instead, it is greatly risking postponing dealing with - and thus dangerously compounding - increased deficits and debt levels. Brooks (and perhaps the President) have not factored in a possible defeat of Obama in 2012 with the likelihood that Republicans will continue enriching the already rich by tax cuts and special favors paid for by further squeezing middle class wages and entitlements ... entrenching further our greedy Have-Have Not oligarchic democratic direction and national deficit/debt instability.
Brooks' belief that both political parties deep down are yearning to network and form coalitions to solve critical problems in a give-and-take process -- which any rational person agrees and desires today -- defies a 30 years' history. Even the recent so-called Bipartisan Fiscal Commission has proven to be anything but bipartisan or fiscally responsible and fair, for that matter.
Despite history's depressing reality of our dysfunctional governance, I pray along with Brooks that a reasonable, non-corrupt, non-money influenced network system of creative, constructive, compromise returns to American politics soon ... like, TOMORROW!
Starting in 2000 and every 3 years since then, the OECD PISA Test has been given to half a million 15-year-old students from 65 countries. The aim is to measure how well students in the final years of secondary school are prepared to meet life’s future challenges. This paper sums up results just published of the 2009 PISA test where I focus on the top 32 countries.
This 2-hour handwritten test measures literacy in Science, Math and Reading. For Math, the test is based on applying math knowledge to solve practical problems relevant to everyday real life. For Reading, the test is less about vocabulary, spelling and grammar perfection than about a student’s ability to “construct, extend, and reflect on the meaning of what they have read … i.e., to reason, analyze and communicate effectively. The 2009 PISA test gave some extra attention to Reading.
Like the 2003 and 2006 PISA test results, 2009 U.S. average scores were shockingly poor. Comparing test scores in the top 32 countries, the U.S. came in 22nd in Science, 31st in Math, and a mediocre 17th in Reading. Students of a relatively small, poor country like Estonia achieved on the average far better rankings of 9th in Science, 17th in Math, and 13th in Reading.
Similarly, the 2009 test scores of some major Asian countries continued to be exceptional, like the city of Shanghai and the special administrative region Hong Kong (both representing China), Singapore … where GDP per capita levels are well below the OECD average. One study finding was that low national income does not necessarily signify low educational performance – and high national income and highest spending per student as in the U.S. does not by mean high test results on average.
The best school systems were found to be the most equitable ones where students from disadvantaged backgrounds were just as likely to do well academically as the more advantaged. In the U.S., 17% of the variation in student performance on the PISA test was found to be related to the student’s background – compared to 9%, for example, in Canada. So, not so surprising were the far superior test results of Canada’s 15-year-olds. Canadian students performed more than one school year ahead in Math and one-half school year ahead in Science compared to the U.S.’s 15-year-olds. Canada was also a top performer in reading along with Finland, Shanghai, South Korea, Hong Kong, Singapore, New Zealand, Japan, Australia, and the Netherlands.
This has raised the obvious question; “Why is the U.S. falling so far behind itsneighbor to the north, Canada.”
The 2009 six volume PISA report also provides a wealth of information and dsicussions on quality of teachers, teacher pay, class size, and the all-important issue of accountability. The average test scores from the diverse countries reflect much variation in class sizes – with some of the best performers discovering success by putting quality teachers in larger classes. China, South Korea’s, and Singapore’s outstanding test performances reflect a disciplined focus on the importance of education and a curriculum that is closely in tune with practical everyday life problems in the workplace now and in the future.
TABLE 1 lists 2009 PISA test scores for best and weak countries of the top 32countries. Data reveal shocking differences between highest performing countries and U.S., especially in Science and Math. Highest ranking is a 1.
Shanghai students achieved the highest score in Science, Math and Reading!
In Math, the Shanghai were in a class by themselves with an average score of 600 points which was a 113 points higher than 487 point U.S. average score or 31st putting them below 30 other countries of the top 32 listed in TABLE 1. Of course, Shanghai is a city of over 20 million and attracts with all its universities all the best secondary students. So the Shanghai results are not representative of all China but they send a powerful message of China’s intense, path to excellence in the sciences, math, and languages (English especially) on a massive scale.
This data dramatizes how obsolete the idea is that the rich western countries have the magic key and monopoly to being well-educated societies vs. the relatively poorer countries. China is proving this wrong as are South Korea, Hong Kong, Singapore, Taiwan, New Zealand, and Australia.
TABLE 1SCIENCEMATHREADING
ScoreRankScoreRankScoreRank
AVERAGE SCORE
32 Countries 501 497 494
United States 502 23 487 31 500 17
Canada 529 8 527 10 524 6
EUROPE
(STRONG)
Finland 554 2 541 6 536 3
Netherlands 522 11 526 11 508 10
Switzerland 517 15 534 8 501 14
Germany 520 13 513 16 497 20
(WEAK)
France 498 27 497 22 496 22
UK 514 16 492 28 494 25
ASIA
(STRONG)
Shanghai (China) 575 1 600 1 556 1
Hong Kong (China) 549 3 555 3 533 4
Singapore 542 4 562 2 526 5
South Korea 538 6 546 4 539 2
Japan 539 5 529 9 520 8
Taiwan 520 12 543 7 495 23
New Zealand 532 7 519 13 521 7
Australia 527 10 514 15 515 9
If the above is not a clear WARNING and WAKEUP CALL for the U.S. to mobilize all resources to upgrade the quality, performance standards, and accountability in its pre-college educational systems, then I don’t know what is.
Are we paying any attention to such critical comparative international test data? Apparently not. Federal budgets and education budgets are being sliced and diced across the U.S. now to reduce out-of-control budget-deficits. Will this just be another vital area to our national growth and economic security that will fall prey to the fear-mongering Deficit Hawks and far right anti-government demogogues? Another area where Obama wil be blackmailed by the political opposition into a compromise upon a compromise with no winners … and ending up with incremental patchwork solutions for improving our pre-college educational systems, policies and outcomes? Is this going to be just another Obama campaign promise not kept? I truly hope not.
The stakes are extremely high here. A recent OECD study with Stanford University projected, “If the U.S. raised its average PISA test scores by just 25 points over the next 20 years, there would be a gain of $4 trillion in the U.S. economy over the lifetime of the generation born in 2010.”
China is setting the right example of aggressively supporting access to quality education with special emphasis on the sciences and math for broad sectors of their society. If we fail to get our governance act together on the right incentives and investments to match other countries’and China’s quality development of their human resources at every level, then we are going to be in deeper trouble unimaginable 10-20 years from now.
There are three strategic Must Invest In key knowhow areas for our economy to come out of its structural social-economic quagmire besides cutting wasteful expenditures, eliminating tax-evasion loopholes, wisely raising tax revenues. They include:
EDUCATION
INFRASTRUCTURE
GREEN ENERGY INDEPENDENCE
… and all the above will lay the basis for healthy long-term job generation.
Concerning the severe, structural unemployment/underemployment crisis affecting over 25 million Americans now -- your question is,"Can Obama divert money to start a WPA styleprogram as Robert Reich suggests in his recent writings?"
Executive orders allow Presidents to make major decisions, even law, without Congressional consent. However, they are subject to judicial review and are rather controversial when they depart from following accepted applications, namely: to modify how an executive branch does its job (i.e., a rule change); or to modify existing law, if such authority has been granted by Congress to the President.
An obstructive or dysfunctional Congress operating at completely disparate odds of ideological purity -- as we now have -- or a Congress genuinely convinced that a presidential executive order transgresses a president's constitutional powers or runs against constitution processes has the options to (a) challenge the executive order in Court, or (b) rewrite or amend a previous law to which the executive order relates or go into great detail defining exactly how the Executive Branch has to operate in a given executive order situation.
History reveals that neither (a) nor (b) options have hindered Presidents from in effect legislating by executive order. As mentioned, legal challenges can occur on grounds of departing from Congress's legislative intent thus infringing on the powers and duties of Congress or exceeding constitutional powers or requiring funds that have Not been appropriated by Congress. So, if Obama issues an executive order to divert funds to a WPA program, this will likely be perceived by Republicans as unconstitutional as it requires expenditures Not specifically appropriated for the purpose of the executive order. However, the Supreme Court has only struck down TWO executive order cases to date and has generally been forebearing in reviewing a wide range of executive orders.
The two exceptions include the Court's overruling of President Truman's executive order to seize the nation's steel mills in order to settle labor disputes. The Supreme Court ruled that seizure was unconstitutional and exceeded presidential powers because neither the Constitution nor any statute authorized the President to seize private firms to settle labor disputes. Ironically, Robert Reich was involved in the only other exception during Clinton's Administration in the case, American Chamber of Commerce of U.S. vs. Reich. Here, President Clinton had issued an executive order concerning the employing of permanent striker replacements by Federal contractors.
History shows that option (b) has been equally difficult because Congress is generally unable to gather the 2/3 votes needed to overcome a presidential veto of a bill passed in direct conflict or contrast to an executive order. Thus, in many cases, executive orders have been used to guide federal agencies in directions contrary to Congressional intent. Executive orders have received broad acceptance in the areas of foreign affairs, wars, and national emergencies ... although the National Emergencies Act has restricted the presidential exercise of emergency powers by executive order.
To my and perhaps your surprise, Obama is considered by some (on the right, of course) to be one of the most active Presidents since FDR in expanding his executive powers through the technique of executive orders. For example, TARP II and III giving the Treasury Secretary (executive branch) full decision powers over an amount of money in the trillions, and Obama's passage of a stimulus bill were successfully achieved by this technique. In his last State of the Union address, Obama also publicly rebuked the Supreme Court over its decision that corporations should have the same freedom of speech in political campaigns as unions ... and announced plans to counter this decision with passage of the Disclose Act.
So, Obama has been somewhat aggressive in using executive orders in the economic bailout and stimulus spheres. But, does he have the backbone to really step forward for the forgotten people, those millions out of jobs, savings, homes and hope of ever recovering their lives in the worst deflationary, job stagnant recession since the Great Depression?
Would the Republicans legally challenge or come up with some countervailing actions against an executive order to neutralize any attempt by Obama to divert funds to a WPA program as Robert Reich suggests is possible? And would they do this irregardless of the apparent economic benefits to millions of families and society as a whole? In my view, as the party of the RICH, Republicans are capable of any level of self-interest to undermine Obama's Presidency. On the positive side, one can take some comfort in the fact that history indicates that executive orders are almost impossible to overturn.
Obama must act on the strict principle of concern for ordinary middle-class Americans. This means facing head on the scale of the cataclysmic unemployment/underemployment, Have-Have Not spiral our nation is in and the slim to zero chances the market mechanism alone will solve these problems -- in my remaining lifetime. A well-conceived WPA non “make-work" program initiative under executive order may be precisely what's constructively needed to stop the continued bleeding away of middle-class jobs on the altar of maximizing management bonuses and shareholder values. A WPA program can probably also be deficit-neutral given the expected significant decrease in unemployment benefits paid and increase in U.S. tax revenues received by getting people back to work.
Can Obama rise above his civil statesman character trait of trying to please everyone while often ending up pleasing no one with compromised compromising? Can he become productively uncompromising for once and forcefully break the job generation paralysis?
Chalmers Johnson’s judgement on America’s descendance into an excessive military spending paradigm nearly bankrupting the nation in more ways than one is True. You and I, John, have dwelled on this problem often in past writings. Some time ago, I wrote on Robert Reich’s blog about England’s point of bankruptcy after WWI caused by an empire-building obsession and related overblown military spending. To save itself from total collapse, England had to wipe out about three-quarters of its military expenditures in the 1920s.
We still can’t come to grips with the similar financial excesses of our military establishment. It’s a clever insider power-center unto itself. This is reflected in the reporting of DOD annual expenditures which vary from $800 billion to $1.1-1.4 trillion including non-DOD military related expenditures. Everywhere one looks at the spending data, there’s a different number popping up. We are a nation constantly searching for enemy targets and rationalizing blooted military spending on social-engineering, police-enforcing and protecting other societies when we can’t afford to bring social-economic stability and renewal to our own society. As one study concludes: “If the Pentagon were an independent country, it would be the 10th richest in the world.” Our current defense budget is 6 times China’s and has been rising 9% a year since 2000. This spending excess is in direct contrast to most European countries that are now Reducing their already modest but considered unsustainable defense budgets given current and future harsh economic realities of aging societies, slower growth patterns and natural resource limitations.
For example, here’s the Netherlands’ total defense personnel reduction trend and near term target:
1990…………………………………………….281,000
2009………………………………………………69,000 (includes 24,000 civilian workers and 45,000 military personnel)
Near Term Target…………………………..59,000 (includes +-40,000 military personnel)
Here is some recently published data on Europe’s defense outlays as a % of GDP for selected countries in 2009:
France……………………………………..2.3%
UK…………………………………………...2.2%
The Netherlands……………………..1.5%
Germany………………………………….1.4%
Denmark………………………………...1.4%
Norway…………………………………...1.4%
Italy………………………………………..1.4%
Spain……………………………………….1.2%
Belgium…………………………………..1.1%
Canada…………………………….1.4%
United States…………………….5.5%(+-$782 billion excluding: +-$165 billion for Iraq/Afghanistan wars; +-$140 billion interest cost for federal deficits caused by past and current war spending; +-98 billion veterans affairs; +-$55 billion for Homeland security; plus more billions on nuclear weapons’ research, testing, production …. bringing total direct and indirect military spending to well above 8% of GDP.
The 2009 U.S. DOD spending level of $782 billion amounts to over $2,500 per capita, dramatically rising to over $4,000 per capita when total military related expenditures are taken into account. This compares to Netherlands’ defense spending of less than $780 per capita in 2009. U.S. defense spending outside the DOD brings between $350 billion to $600 billion in added military related spending. Thus, when costs of the two wars, interest on the national debt created by past and present military spending, veterans affairs, etc., are added to the defense budget, total defense spending constitutes well over 50% of the Federal Budget excluding Social Security and Medicare trusts which have their own tax revenue inflows/benefit outflows.
Non-discretionary or mandatory spending items in the Federal Budget include Social Security, Medicare, interest on the national debt and veterans’affairs. These costs alone comprise almost 60% of the Federal Budget. The remaining 40% is discretionary spending including all defense related expenditures. Although cost reforms for Social Security and Medicare are obviously a high priority, it’s clear that reducing our plus $1 trillion annual deficits cannot be done in the non-discretionary area alone.
Deficit reduction will have to come from a number of tax revenue generation measures, closure of tax-avoidance loopholes, and cost reduction actions …. including raising the retirement age or cap for Social Security (as you suggest, John), reducing Medicare costs, but also equally importantly, gradually making substantial reductions in a bloated defense spending culture by bringing the defense budget down to +-3% of GDP over the next 5 years.
We are now at a national debt level of $13 trillion (or 85% of GDP) expected by many economists to reach $20 trillion by 2015. In combination with gigantic trade deficits, this direction of debt acceleration is unsustainable. We don’t have the resources. The DOD defense budget makes up about 60% of all discretionary spending …. the latter comprising, as stated earlier, 40% of the Federal Budget items that must be appropriated annually by Congress before government funds can be supplied.
So the message here is simple: to reduce our plus $1 trillion annual deficits also down to 3% of GDP (and preferably lower), the bulk of the discretionary spending cuts must come from the defense budget. Some of the cost reductions achieved here in the intermediate term and in cost-quality effective reform of entitlements over the long term can be more productively invested, with higher yields and job growth results, in updating our nation’s decayed infrastructure and in converting rapidly to green energy independence …. with latter also having additional economic benefit of significantly reducing our +$50 billion a month trade deficits.
Does this makes some sense? Any rational person would think so. But making sense has not been our governance trademark lately.
Jane Hansher's posted article ("Obama Twists Own Arm, Says 'Uncle' to Extending Bush Tax Cuts") quotes sources suggesting that David Axelrod said the Obama Administration is ready to face the new political reality and accept an across-the-board continuation of the Bush tax cuts for the middle class as well as for the very wealthy.
If true, this sadly seems to say Jonathan Rauch's thesis that divided government (no matter how chaotic and ineffectual) forces more compromise is already starting to take effect. Obama knows the Republicans can pass the tax cuts through reconcliation as they did under Bush's Presidency. Maybe that's why there was no wasting of words when he said he was "absolutely open" to negotiation on the Bush tax cuts (possibly excluding the top 1% as Reich and others recommend).
Whatever emerges under this new lame duck divide, I fear Obama's emotional makeup is no match with FDR's force of character to stand up for the common man against Wall Street and the wealthy monied interests now stealing our democracy. FDR's "stand up" inspiring words 75 years ago ring relevant now:
"There is nothing I love so much as a good fight." ... "The first (failed) theory is that if we make the rich richer, somehow they will let a part of their prosperity trickle down to the rest of us." ... "The true conservative seeks to protect the system of private property and free enterprise by correcting such injustices and inequalities as arise from it." ... "These unhappy times call for the building of plans that rest on the forgotten, plans that put their faith once more in the man at the bottom of the economic pyramid."
Today, the ugly irony is that the forgotten at the "bottom of the economic pyramid" comprise nearly 80% of American households!
Best, Frank
Frank,
You say "Obama knows the Republicans can pass the tax cuts through reconcliation as they did under Bush's Presidency." I don't know about that. Democrats still have a majority in the Senate. Reconciliation is used to overcome a filibuster so the majority can vote. This does not apply for the Republicans because Democrats still will have a majority in the Senate. But the lame duck Congress can use reconciliation to pass an alternative tax plan. Democrats still have a majority in both Houses till the first of the year. They can let the Bush tax cuts expire and pass their own plan using reconciliation just like Bush did.
Here's what they should do: 1) let the Bush tax cuts expire and 2) pass the Bush tax cuts for the middle class or their own version of Bush tax cuts for the middle class using reconciliation to avoid the filibuster.
Please tell me why they could not do that? They have a month and a half to do it.
Regards,
John
John,
You're right. I wasn't aware the Democrats could let the Bush tax cuts expire and then could successfully use reconciliation with their current Congressional majority in January to pass their own bill before Republicans take over the Congress.
But it's my cynicism at work that Obama will not resort to reconciliation or will be obstructed in some unpredictable way by the Republicans from getting what he wants before 2010 ends or the new Congress takes over. Then Boehner's party is in the driving seat with reconciliation and broad-based tax cuts in 2011. [Frank: No, reconciliation can only be used to overcome a filibuster if the party using it has a majority. Otherwise, when the bill is brought to a vote, it will still be voted down by the majority. The Democrats still have a majority in the Senate going forward so reconciliation will be of no avail to the Republicans.] As most people know, Republicans used reconciliation twice for tax cuts, first in 2001 and again with cuts going disportionately in absolute terms largely to the rich in 2003. They will do it again at the first opportunity. [Yes, but they would first need a majority in the Senate to use reconciliation which they don't have.]
So, Obama is under severe pressure to "give-in," if not cave-in, (with or without the reconciliation 50 vote rule) to the Republican demand that the Bush tax cuts be extended across-the-board to all income earners. I will not be surprised if the Republicans dare to hold middle-class tax cuts hostage to cuts on the very wealthy upper class. Their "trickle down" demoguery has no limits.
Of course, broad-based tax cuts are fiscally irresponsible. All studies confirm the Bush 2001-03 tax cuts dramatically reduced government revenues during 2003-10 ... thereby increasing annual deficits and the national debt. Government studies also conclude that continuing the tax cuts for the upper income earners (top 2-3%) will result in a net reduction of tax revenues of $700 billion over the next decade. In contrast, most of the tax cuts for the millions of middle-class households are spent. Their tax cuts partially compensate for income lost over last 30 years due to wage stagnation. This arithmetic reality falls dead on Republicans. In fact, they continue to spread the lies that tax cuts for the middle class are more costly than tax cuts for the highest incomes because the middle class far outnumbers the very wealthy income earners who "trickle their wealth down." The Great Depression disproved this counterfeit masquerade.
Like you, I hope Obama doesn't "give-in or cave-in" to the Republicans. When he says he's 'absolutely open' to negotiation of the Bush tax cuts, hopefully he's alluding to other fiscally responsible tax-revenue options also contained in the two 2001-03 Reconciliation Acts. For example: in addition to raising somewhere well above $250,000 the upper income level at which tax cuts will expire or to eliminating tax cuts to top 1% as opposed to top 2-3%, a number of other Bush tax cuts -- many people are unaware of -- included in the 2001-03 Reconciliation Acts could be changed or reversed such as: (a) decrease annual IRA contribution limits; (b) reduce the AMT exemption; (c) increase dividend and capital gains taxes; (d) eliminate 1st year bonus depreciation writeoff, (e) reverse repeal of estate and gift taxes, etc. Obama, for example, could ask for one or more of these concessions in return for raising the income level at which tax cuts will not be extended.
The blunt fact is that we are going to go further into crushing debt if we do not raise tax revenues in a creative and fair manner while simultaneously cutting wasteful sppending. The Republican campaign slogan of reducing spending (except Defense) and lowering taxes for all tax-filers is pure financial insanity ... compounded when you also have 30-40 states at various levels of near bankruptcy or insolvency today.
Yes, I've been following Fareed Zakaria for some time. He's one of the very few more thoughtful, informed TV journalists who dare come forward with their own conclusions on societal issues ... views that reflect prescient, objective, non-purely ideological and non-poll driven analyses. He has just published a writing in the Times European edition the title of which is, "Restoring the American Dream."
To quote one of his remarks, "The middle-class, many Americans have come to believe, is being hollowed out. I think they are right." He shows revealing trend-statistics graphically presenting well the abject destruction of manufacturing jobs and the dangerous Have-Have-Not concentration of income (as I've done in detail with Tables). For example, he illustrates how real after-tax income for the top 1% shockingly grew 281% vs. 95% for the top 20%, and 16% for the bottom 20% during 1979-2007. His main solutions to our internal breakdowns have also been proposed by others, but he presents his thoughts extremely clearly. He optimistically has not lost faith in the American CAN DO adventuresome spirit, its openness, diversity, dynamism.
His writing ends with a quote from the historian James Truslow Adams who published the Epic of America in 1931. Adams coined the term American Dream and said it was of "a better, richer, happier life for ALL our citizens of every rank, which is the greatest contribution we have made to the thought and welfare of the world. That dream or hope has been present from the start. Ever since we became an independent nation, each generation has seen an uprising of ordinary Americans to save the American Dream from the forces which appear to be overwhelming it."
Fareed concludes: "Today, those forces really do look overwhelming. But challenges like those have been beaten back before -- and can be again."
Zakaria, who was born in India, in his optimism slides over the phenomenon that the current conservative uprising is more about power than elevating the American dream for ALL Americans. We have a politics that doesn't solve or add anything ... a vision-less politics of permanent emptiness that helps bring people down, a politics of permanent lying and name-calling. In the name of freedom and liberty, it's a politics about spreading hate, pointing out black sheep using the socialist (even Nazi) buzz word at will. It's about stirring division and resentment rather than employing civil, creative argumentation.
Furthemore, optimism seems a total stranger in a world of accelerated globalization and technology where people become appendages ... where the real struggle is saving our Judeo-Christian humanistic tradition, founded on elevating people, from being supplanted by a populist culture politisizing the vindictive masses. This of course raises the question: Is populism a tool to diminish the gap between the citizen and politics? A known European philosopher had once a nice answer: "A little bit of populism doesn't exist just like being a little bit pregnant doesn't exist."
We must never start to go this way because there is no way back. In the words of one cultural historian, "History shows that when social-democracies fail, populism and fascism get another chance." If the themes of the ultra right and extreme voices of the Tea Partiers dominate, we shall also lose costly time for the real problems that are here now and that are coming.
Our current flirtation with capitalistic fundamentalism and a me-first and community second society are hardly the values upon which to restore the American Dream especially in this new 21st century where, for so many Americans, uncertainty has become the only certainty.
You made a great overture on how Obama should respond to the Republican goal to "kill the Democratic agenda at any cost," (publicly stated at different times before and after the election by both McConnell and Boehner) and thus Obama's Presidency. You should publicly disburse this article as broadly as you can (including to Obama's revolving inner circle), and the sooner the better! Obama has to light an inner fire of connection with ordinary Americans using using simple language, not university lectures. America is a culture where the attention span is shrinking daily. Repetitive effective sound bites and simplification backed by actions and a fighting spirit speaking to the ordinary man is the order of the day.
BRAVO! I couldn't agree more with what you say, John. Obama has got to come to grips with fact that American politics has descended to an undemocratic "winner take all" paradigm where cooperative concern for Mainstreet is an afterthought. A small, but vital, example of the structural breakdowns in our political system is that the winning party can receive 100% of all committee chairmanships ... even though that same party didn't receive 100% of the vote! Our "to the majority winner all the power and final word" governance system would unequivocably be viewed as a right-wing dictatorship in Europe.
Things have broken down in so many ways with our social-political-economic system, it's almost impossible to know where and how to begin the "fixing." Lies, distortion, and personal demonization permeate and destroy constructive communication between liberals and conservatives ... drowning out any merging of the best of each group's values and ideas in the interests of all Americans.
My heart goes out to you and all countrymen who are saddened by the inevitable low point in Obama's 2-year Presidency as voters marched en masse to the tunes of other pied pipers. Hopes now rest on the assumption that bipartisanship is not a matter of choice since neither party can now achieve a 2/3 vote majority in the Senate. I'm going short on any bets of this happening!
Our two parties must now coalesce over the need to reduce a bloated defense budget; to activate a pervasive energy independence policy focused on clean and safe energy sources; to reform cost structures of Medicare and Social Security; to invest in infrastructure, job development, R&D and education; and, yes, to raise tax revenues, e.g., by closing tax-avoidance loopholes. This will never occur without a spirit of compromise and pragmatism in problem-solving as is being demonstrated thus far in the UK's new right and left coalition of David Cameron and Nick Clegg. Unfortunately, such a spirit has long been absent in our "winner takes all" political system.
To compound our generic failure in balanced governance, we now have an enraged conservative group entering the governing process having little respect for the already meager social pact of past decades ... a group that chafes at the values of investing in communities; of insuring a well-functioning economy that is positively affecting ecology, health, quality of everyday life, fairness and opportunities for all citizens; of adopting an ethics of care based on empathy and responsibility, both for oneself and others.
Obama has his work cut out for him. Ordinary citizens, including the downtrodden, in our de-industrialized conservative economy -- where power lies in services, finance and with the newly rich entrepreneurs and financiers and where jobs are not being created by established U.S. global firms where shareholder values override employee interests -- are at the mercy of his administration's working with the expanded Republican Congress at a time when jobs, wages, worker retraining, state welfare and societal investments are all under exponential threat in this new (almost hysterical) age of "austerity."
The upcoming election is all about jobs. No, it's all about taxes. No, it's all about debt. Well, I guess it depends on who you talk to. The Tea Partiers are all concerned about the debt and lowering taxes. That supposedly will produce more jobs. Only we've tried that for 10 years and it hasn't worked. Lowering taxes is not going to produce any jobs. That's been established. But that amounts to the Republicans' jobs program: lower taxes. Well, how does lower taxes - if it doesn't produce more jobs - affect the national debt. Well, the Republicans have a track record on that too. Lowering taxes increases the debt because there are less revenues coming into the Federal government. George Bush pretty much proved that. In fact the deficit - which is the yearly contribution to the debt - would by and large be eliminated if we just eliminated all the Bush tax cuts - those on the wealthy and those on the middle class.
So let's say we eliminate the Bush tax cuts on everyone. Problem solved at least as far as adding to the debt is concerned. Of course there are other ways of raising additional government revenues which would also eliminate the deficits. Problem is the government as presently constituted doesn't have the political will do do any of them. But one thing is for sure: you can't lower taxes and reduce the debt. And if lowering taxes doesn't produce more jobs, it seems like a no brainer to at least solve the debt problem by raising taxes, not necessarily on the middle class, but somewhere.
One way in which the think tanks and the conservative media con the American public is to conflate income taxes for the rich with income taxes for everyone else. And this is the crux of the con job. When Bill Clinton proposed tax increases in 1993, think tanks like Heritage and Cato immediately opposed them with their myths about the negative consequences of tax increases.
Those negative consequences would be a lack of job creation. But we've had low taxes and ... WHERE ARE THE JOBS??!! If job creation is not a consequence of lowered taxes, which has been historically proven, then why not raise taxes on those who can afford to pay? Taxes could be raised on the rich and lowered on the middle class. The $100 billion that corporations park offshore each year, and, consequently, pay no taxes on could be reclaimed by changing the law. The middle class has already been pounded by the fact that most income over the last 10 years has gone to the upper income groups resulting in the greatest amount of income and weath inequality since the 1920s.
So it's a no brainer to raise taxes on the wealthy to solve the deficit problem at least. Now what about the jobs problem? Right now corporations are being given tax breaks to move jobs out of the US. It's hard to believe but that is government policy. Democrats tried to pass a law changing this, but guess who opposed it? That's right, the Republicans who will do everything in their power to keep the present status quo which favors the big corporations who want to increase profits by offshoring jobs to where they can be performed by cheap labor. So it's patent BS that lowering taxes on corporations will create more jobs in the US when the overriding penchant is for corporations to outsource jobs, and they will continue to do that tax breaks or no tax breaks.
Most big corporations are multinationals. That means they have no allegiance to the US or to American jobs. They will create jobs wherever it's profitable to do so. Right now a lot of American corporations are American in name only; they do most of their business - both in terms of producing and in terms of selling - overseas. So why not change the law to discourage imports that could be produced in the US and give favorable treatment to companies that create jobs in the US. Obviously, the US cannot just be a consumer market for products produced abroad. Stuff must be produced here in order that workers can earn enough money to consume the products they need. The US cannot be just a consumer market for multinational companies.
So how are more jobs in the US to be created? 1) Discouraging imports and encouraging production within the US. 2) Massive government involvement in infrastructure repair and creation. #2 would require government expenditures that would increase debt only if the money is borrowed. However, raising taxes can not only be a solution to solving the debt problem, but it can also be a partial solution to solving the jobs problem without increasing the debt. So why isn't it being proposed by the Democrats? Partly, it's because right wing media has labeled Obama a socialist already for his puny American Recovery and Reinvestment Act which was mainly another tax cut. All this tax cut did was add to the debt. The puny amount that was directed towards saving and creating jobs was not big enough to have a major effect on the unemployment rate although it did some good. What is needed is a massive infrastructure investment program and revenue enhancement in the form of tax increases on those who can afford to pay to fund it.
So there you have it: problem solved, debt stabilized, jobs created. And the way it's solved is to raise taxes on those possessing all the money that's sloshing around in the casino economy and going back to a tax structure similar to what was in effect under Eisenhauer (when the top marginal tax rate was 91%) and Nixon (when the top marginal tax rate was 70%). Not only are the Bush tax cuts ruining the financial solvency of the US government but the Reagan tax cuts are adding to the ruin. But Democrats can hardly run on raising taxes even though they are gaining some traction with the idea of raising taxes on the wealthy but not on the middle class. They need to keep repeating this theme so that the American middle class will deconflate raising taxes with raising taxes on everyone.
Regarding the possibility of foreclosure lawsuits against the banks by individual homeowners, an obvious way people can afford to do this is by bringing a class action lawsuit or, perhaps better still, the same is first done by a 50 state attorney generals' class action suit on behalf of all citizen plaintiffs.This is exactly what occurred in the 1998 46 state successful class action suit precedent against the major tobacco industry firms on behalf of those who get sick from tobacco smoke. This case ended in a court damage ruling for a +$200 billion award to the 46 states (paid over 25 years).
During the prior period 1954-1992, individual and small class action tobacco case suits based on negligence, deceit, failure to warn, breach of express warranties, strict liability were lost. Plaintiffs went broke legally fighting the rich tobacco firms that took thousands of dispositions, filed every conceivable motion and legal delay tactic, eventually bleeding dry plaintiffs' financial and emotional resources.
Then came a stronger class action suit filed by flight attendants in Florida claiming personal medical injury and costs related thereto from second-hand smoke in planes. This resulted in over 3000 individual lawsuits and a major settlement in 1997. This was part of a wave of smaller class action lawsuits in the 90s brought by those injured by tobacco products as well as medical reimbursement suits brought by states'attorney generals and insurance firms of a few states (which led to 46 state class action suit).
Medical, legal and criminal theories were used successfully in the flight attendants' case -- most of which would have a direct application in a possible class action suit against the illegal mortgage documentation acts of major U.S. banks. Legal theories used included fraud, intentional and negligent misrepresentation (sound familiar to banks' prior knowledge of illegal non-transfer of proper mortgage documentation/property title to suck in investors for pooled mortgages faster -- driven by banks' fee greed), unjust enrichment or indemnity (sound familiar to banks' quick buck actions), and criminal theories under the RICO Act ... criminal law that also has direct application possibilities against banks' massive illegal mortgage documentation, false documentation, and subsequent possible criminal homeowner foreclosure acts.
Thus, as the tobacco firms were forced to seek a national settlement in late 90s under the 1998 medicare-related class action U.S. Master Agreement involving 46 states, so should the banking industry be forced to negotiate a class action settlement for their gross misdemeanors and deceit around the mortgage closure and foreclosure casino stings perpetuated on millions of homeowners. If this also means ultimately applying existing legislation to break up the big banks on the basis their behavior has posed and is posing a threat to U.S. financial or economic security, then so be it.
Over the years I’ve watched with respect how Holland constantly fine tunes its labor force management policies to achieve rather stable, high employment levels. HOW does it go about doing this? And HOW does the US manage to do the opposite?
TABLE 1 highlights recent years’ relatively low unemployment before and during the severe recession for selected EU countries compared to the US for years 2007 to July 2010.
The reasons for Holland’s stable and relatively low unemployment rates are many. One major fortunate factor was the very tight job market when the crisis struck. In such times, firms are reluctant to release workers who were so hard to recruit … workers greatly needed when the baby boomers start to retire in large numbers. In a weak economy, studies confirm that US firms tend to take the shortsighted view and release large numbers of the “less essential” workers – often far more than necessary – to protect their “more essential” workers. The latter are then forced to take up the workload of their fired colleagues.
This is how the US economy works today: both productivity and corporate profits increase over the backs of middle class workers. Are managers in coming years going to hire back those hoards of dismissed workers noted in Table 2? I wouldn't bet on it. Such is NOT the labor management culture in most of Europe today where I’ve lived and worked for over 30 years.
This shows up in the fact that there are 3 Dutch job seekers for each private sector vacancy (seasonally adjusted) versus 5 in America … and the US ratio is based on a much lower officially reported unemployment level of 15 million. But the Center for Labor Market Studies comes up with an added 15 million underutilized workers (see Table 2). The U.S. job-seeker to job-vacancy ratio then skyrockets to 10.
Other key factors behind Holland’s relatively low unemployment levels are:
(1) In the 70s and 80s, drastic reforms in the Dutch unemployment compensation system expanded the workforce.
Unemployment compensation benefits were reduced and qualifying for them became more difficult. Today, unemployment benefits are still generous by US standards – comprising a daily payment of 70% of one’s last daily wage up to a maximum daily wage of €180.00 ($240.00) or a maximum daily benefit of $168.00 (70% x $240.00) totaling $43,700 annually. The benefit’s duration depends on age and the number of months employed with a maximum of 38 months. As I’ve said before, this fair benefit acts as an economic stabilizer during cyclical changes.
Proposed social net cutbacks will reduce the maximum benefit period to 24 months, perhaps lower. The maximum daily payment may also be reduced over time … to create more dynamic job search incentives. If the unemployed do not actively seek jobs or if work offered is refused, there is a penalty and less money is paid out. Other countries generally have less effective stimuli or none at all.
(2) A firmly entrenched Dutch part-time job culture also explains why unemployment rates are so low.
Nowhere is part time employment so popular as it is in the Netherlands. As one expert noted: “This has a huge effect on employment simply because we need more people for the same amount of work.” The relatively high number of temporary workers also makes for a very flexible job market.
The large number of part time workers under contract (and exploding number of sole proprietorship firms) is a carry-over from the 80s when unemployment was accelerating – so politicians called for a better division of the few jobs that were available. Unions initially oppose part time jobs as second rate employment. When unemployment rates got out of hand (as they are now in the U.S.) in the 80s, the Unions changed their position on this issue. Since the 90s and to this day part time work has rapidly gained in popularity.
In other countries, however, part time work is still opposed by unions, mostly because of poor pay. In such countries, part time jobs consist predominately of poorly skilled labor. In contrast, Holland has refined a system (including subsidized worker retraining) that has advanced to full-fledged part time employment at decent wages (also subject to minimum wage laws) for all levels from low to medium and high skilled workers. People can perform rewarding, high value added, administrative or more routine work for 3 or 4 days a week. In a number of nations this is difficult if not impossible.
(3) Partly because of (1) and (2) factors above, the Dutch do not suffer the extraordinary unemployed and underemployed rates the US does, especially in deep recession times and especially for the bottom 50% household income group. Holland’s flexible labor system, positive trade balances, fair unemployment payments, progressive tax rates, high 12% savings and low consumption (at 57-60% of GDP) all reinforce job stability.
TABLE 2 quantifies the shocking scale of US worker underutilization (unemployment and underemployment ) at lower tier income levels. This disastrous development is certainly NOT taking place in Holland or in other mature European countries. It clearly demonstrates America’s dangerously intensifying structural long term unemployment problem, further swelling a permanent underclass.
(a) The “ALL” totals for the 10 income groups do not add up because they include persons withmissing household incomes on the Oct.-Nov. Files of 4th Qtr. 2009.
CENTER FOR LABOR MARKET STUDIES: JOB UNEMPLOYMENT RESEARCH
Definition of Terms:
1) Utilized = those officially reported unemployed.
2) Underutilized = those underemployed or with very minimally-paid part-time jobs who would rather have full-time jobs.
3) Labor Force Reserve = those who were not actively participating in the labor force (including seasonal workers) who expressed a desire for immediate full-time employment. This term reflects a kind of “hidden unemployment,” including those unqualified for benefits, those ‘discouraged’ who have given up looking for more permanent work, those taking early retirement to avoid being laid-off but who would prefer working full-time.
4) Underutilized Pool = unutilized workers plus underutilized workers and the labor force reserve.
5) Adjusted Labor Force = the reported official civilian labor force plus the labor force reserve.
6) Underutilization Rate = the underutilized pool divided by the adjusted labor force.
As report researchers say, a U.S. labor market depression has faced those in the bottom 3 income ranges with total worker underutilization rates of over 50%, 38% and 30%, respectively. In the researcher's words, “This would have to beclasssified as symbiotic of a True Great Depression.” A deep labor market recession has hit in the middle of the income distribution with underutilization varying from 23% to 17%. Thiscompares to almost full employment for the most wealthy at the Top income range. America’s affluent have eluded the worst labor market recession since the Great Depression!
As stated, this total worker underutilization picture comprises detailed research on the employed, underemployed, and labor force reserve. The labor force reserve (a kind of hidden unemployment) are people not actively participating in the labor force but who desire immediate full time employment. As TABLE 2 “ALL” figures show, a total of 29.2 million or 18.5% of the labor force were underutilized in 4th Qtr. 2009 which prevails today! This is unique to America and is truly SHOCKING!
It comes from an ugly corporate 30-year practice – that is persistently picking up steam – of eliminating lower-middle class jobs by outsourcing jobs and production facilities, automating, roboticizing, downsizing, creating redundancies by mergers and acquisitions, eliminating millions of manufacturing jobs in just the last decade alone (Table 2 of my report, “US Pattern of Structural & Long-Term Joblessness”) – entrenching our HAVE and HAVE NOT societal polarization. We have sunk into a survival-of-the-fittest culture where shareholders come first and workers last in the race to maximize the global profits and wealth of the few.
TABLE 2A specifies unemployment and underemployment rates by income range for 4th quarter 2009. For example, the Center for Labor Market Studies report showed that workers in the lowest income households experienced an underemployment rate of almost 21% -- averaging 22-23 hours of work versus a mean of nearly 43 hours for full time workers.
TABLE 2A: Unutilized & Underutilized Rates of Unemployment in the US for Workers by Ranges of Household Income Distribution in 4th Qtr. 2009
Income RangeUnemployment Underemployment RateRate
LOWEST 10%
$12,500 or less 30.7% 20.7%
2nd 10%
$12,500-20,000 19.1% 17.2%
3rd 10%
$20,000-30,000 15.3% 12.7%
4th 10%
$30,000-40,000 12.2% 8.3%
5th 10%
$40,000-50,000 9.0% 6.1%
8th 10%
$75,000-100,000 5.0% 3.6%
9th 10%
$100,000-150,000 4.0% 2.5%
TOP 10% 3.2% 1.6%
NOTE: One can’t add the percentages In TABLES 2/2A because the denominator of the ratios is different for each measure: (1) the unutilized rate is the number of unutilized workers divided by the official labor force minus the labor force reserve; (2) the underutilized rate is the number of underutilized workers divided by the number of employed (= adjusted labor force minus labor force reserve and minus unutilized workers ; (3) the total underutilization rate in TABLE 2 is the underutilized pool of workers divided by the adjusted labor force.
CONCLUSIONS: In the 4th quarter of 2009, workers especially in the bottom 4 income ranges with an income of $40,000 or less encountered (and are still encountering) astoundingly different and staggering labor market problems versus those in the TOP income range. Workers employed in lowest income range group suffered a 31% unemployment rate plus 1 in 5 workers (21%) in this group had underemployed poverty-paying part time jobs. This compares to unemployment rates of 4% and 3.2%, respectively, for the top two income groups comprising the top 20% income range in Holland. These dramatically painful, shameful developments where lower middle classes took and are still taking the brunt of Wall Street’s induced Financial Crisis have certainly not occurred in Holland nor in other mature European countries
(4) Low unemployment rates in Holland reflect the slow response to economic swings due to legal protections.
Traditional factors such as employment protection legislation for permanent workers also explain the higher degree of labor hoarding in good and bad times. Dutch law makes it harder to lay off people. This protection requires a delicate balance so as not to make the labor market too inflexible. Companies generally keep people on board longer in a recession before laying them off. The increased tempo of laid off workers comes later and can last longer after the recovery. However, at this time the Dutch unemployment rate is showing clear signs of already stabilizing, reflecting effects of a strong fiscal stimulus in 2008-09.
(5) The Dutch government has suppported labor hoarding by introducing work time programs.
These progams subsidize firms with falling activity levels to maintain their employment levels. The program is well-designed to improve efficiency, including provisions that only firms with large falls in business activity can apply. If workers are fired after enrollment in program, the employer must repay financial support provided by the government.
(6) Government policy emphasizes providing more and bettertargeted services to job seekers.
Job activation policies are aimed to be counter-cyclical by making resources devoted to activation proportional to the number of unemployed.
(7) Holland’s small industrial base is another reason for the relatively low unemployment rates.
The manufacturing industry is always affected worse in a recession. Holland is a broad service economy with many jobs in information technology, software and high-tech equipment design, education, health care, technical services, drug research, banking, government sectors, etc. The Dutch economy is thus less prone to cyclical movements.
SUMMARY:
Steven Hill in his book “Europe’s Promise”, mentions how Europe’s new capitalism has infused two essential values into its economies: “First, a degree of real economic democracy from boardroom to the work floor; and second, comprehensive worker training, skill development, and job placement.”
Holland and other European countries do not see social justice and market dynamics as mutually exclusive goals. The constant struggle is one of achieving a good balance in sustainable growth and quality of life patterns that keep most citizens reasonably content and productively working in a fair playing field. Renewal and adjustments to new market realities are a continuing challenge, guided by the belief “we are all in this life together.”
In contrast, the U.S. with 18.5% of its labor force unemployed and underemployed seems to be going in the opposite direction of everyone for himself or herself. As Tables 2 and 2A show, we have far to go to restore the American standard-of-living progress and sustainable job creation for ALL our citizens. Until we do so, our nation’s long-term social-economic plight remains very precarious.
If there's one person I've always considered to be a truly slimy, immoral politician and human being, it's Professor/Politician Newt Gingrich. Democrats have never countered this weasel's sly, slippery tongue that lashes out multiple lies and conservative epithets about liberals as cleverly and abundantly as my grandmother in northern Maine could perfectly bake fluffy homemade blueberry pies, donuts and breads at the same time.
This pretentious man is the archetypal representative of everything despicable and corrupt about our political system and so many politicians. Robert Reich is too kind to this chameleon who willy nilly will come up with threatening schemes and slick overtures with a smudge of intellectual insight for good measure to scare the fearful, to entice the gullible or opportunistic at any cost... even if it means a direct or indirect undermining of the spirit of our Constitution to sanctify his southern spoon-fed, screwball conservative tenets to the somnolent party faithful.
Much to my disgust over the past 35 years, this man's type of pointed demogoguery and the devious political ways of others like him -- all preying on atavistic fears with their blatant lies -- HAVE BEEN EFFECTIVE over the years. Witness now, as in Delaware, first indications of a potentially broad two-year sudden 180 degree switch back to the Beck/Limbaugh/Gingrich/Fox News backers of the "Give us our government back" simplistic Republican candidate-novices now winning the majority attention and loyalty of voters.
If Democrats clearly lose the majority seats in the House and Senate in November, this will only amplify "An everyone for himself/herself " mentality in our nation to another decadent Me First and Community Second level. "Free markets" will become the newly revived rallying call not as sources of inspiration, freedom and opportunites for all, but of the enriched decadence of a small powerful elite. Effective governance will continue to slide into paralysis as Democrats subsequently assume the role of blocking Republican initiatives out of sheer frustration from losing power, and as special interests expand their political influence over government policies. Then the lower-middle classes can blissfully welcome a return to Reagan's ideals of not having any concern for social-nets, except privatizing them. Yes, indeed, everyman for himself.
What’s happening in the U.S. with its completely out-of-balance social-economic model sensitizes me to the systemically destructive way capitalism is working in America. When profit and wealth in the hands of a few define a culture, when firms consider labor an obstructive cost to be optimally reduced, when there is an incredible indifference to do the best for all Americans, when we fail to speak to the question of the human condition and state of society as we know it … then all things are vulnerable, including our democracy.
What kind of world do you see under the paradigm of a compound 3-4% GDP growth each year over the next 25-50 years? The effects on already scarce resources and on the environment will be worse than disastrous unless serious changes in how we live emerge. GDP per capita does not differentiate between transactions that add to the well-being of a country and those that diminish it. A dollar spent on sending a teenager to prison adds as much to GDP as a dollar spent on sending him to college … and we have 685 prisoners per 100,000 people (compared to 87 per 100,000 in Europe)! A GDP growth statistic doesn’t measure quality-of -life factors like poverty level, life expectancy, access to health care, income disparity, working hours, culture and leisure time, etc.
We need a broad grass-roots political movement that fosters a conversation around alternatives to the standard recipe of ad infinitum 4% GDP growth rates and laissez-faire capitalism leading to: intensifying concentration of power and wealth; two billion poor worldwide falling faster into a no-man’s land existence; natural resources being plundered , the environment increasingly polluted; unemployment insurance compensation and social-nets in general being cynically attacked as Big Government robbing individual freedom and self-initiative; an enriching oligarchic-power-capitalism and democracy steered by huge transnational corporations whose mission is global profits, before people.
I’m not optimistic about our capability to have this conversation, to explore new perspectives and rhythms of what constitutes a healthy, honorable, happy lifestyle. A lifestyle filled with different kinds of cultural innovations and material values in place of just producing and consuming more “modern” gismo, trivial, conspicuous products; a lifestyle where the public education process is not dumbed down by wasting +- $250 billion annually on the ‘military economy,’ playing the unaffordable role of being the world’s social-engineering protector and enforcer; a lifestyle not buried in a kind of cultural, spiritual death from overflowing narcotic TV commercials, flashy and superficial news, warped ego-centric ideological propagandism; a lifestyle where you can dream to see the world and educate yourself in what interests you without going into a prolonged penurious state; in short, a lifestyle where Hype and Reckless Debt is NOT Life … where households are not being debt drowned with 5 or 6 credit cards at banker robber-baron usury rates.
Is ethical, productive, socially conscious capitalism possible? Can progress and social justice go hand-in-hand in America as in Europe? Yes, in theory, but I don’t see it happening until a disciplined “people’s movement” arises that addresses head-on the question: “Can we continue to do things the way we have been doing them?” If not, what fundamental changes are necessary to enjoy life on this planet and in our homeland while keeping both intact for future generations?
Human beings can be very creative, resourceful but sadly squander these gifts when it comes to admitting to – and coming together to correct – obvious social-economic breakdowns and antiquated ways ultimately carrying everyone down. The waters get muddled with the same old phoney, narrow, dogmatic cliches, “The business of America is business. Business should be uninhibited and government regulators off our backs. Profit is the goal. Maximum Profit and Trickle Down economics are the only things that work.”
Unfortunately, lower-middle-class working Americans are not part of the conversation nor the short-term cultural profit equation applied globally. Following summary data on U.S. structural jobless situation vividly portrays the incredible level of human pain being inflicted by a culture of indifference that sits deep:
• Normal unemployment level at 5% rate: 7 million
• Great recesssion caused unemployment: 8 million
• Officially unreported unemployment and 8 - 15 million underemployment:
GRAND TOTAL UNEMPLOYED TODAY 23 to 30 million!
Minimum monthly net private-sector jobs required just to recover 8 million recession and 8 million unreported unemployed plus cover 1 million labor force growth is … 175,000. Wasn´t the August report a resounding ±60,000 net new private-sector jobs and a fabulous 85,000 average monthly performance during 2002/07, a so-called economic expansion period in Bush´s term?
We Americans seem destined to await the next crisis of all crises to have that thoughtful conversation … about how to do the best we can for all Americans. Exerting what´s right comes when the rest of us acknowledge with respect that `dignity matters´ when people fall through the cracks by forces not entirely of their own doing or control.
Robert Reich often repeats the obvious to some of us who've been saying the same for a long time now ... like, for example, that the economic problems in America are structural not cyclical. Still, I can appreciate the value of Reich's repetitive style to open minds to how things are much worse than people admit. The general public's perceptions and misperceptions, beliefs and expectations might become wiser by listening to some contrary insights and observations. In his weekly writings lately, Robert Reich, in plain everyman's English, has been making some sound points while also modestly promoting his forthcoming book. There's a Dutch expression for this communication or behavioral style, "Slaan twee vliegen in een klop," i.e., "Hit two flies with one blow." I do find this material money accent a little irritating. It tests the impression that Reich is as much interested in bringing attention to his book sales as to his weekly writings. But economists can be assertive, self-interested capitalists too. As a self-employed, independent businessman most of my life, benefiting from the liberty of entrepreneurial capitalism, I certainly wish Dr. Reich all success with his new book. Contrary, sensible voices like his with clear-cut opinions and nuanced versions of the complex realities relating to our nation's flagrant, systemic, macro-microeconomic dysfunctions are a breath of fresh air.
Concerning Reich's thoughts about income taxes, common sense says that lowering taxes for the middle class, eliminating payroll taxes on those earning less than $20,000, and raising taxes on the upper class -- while critically necessary for reasons economists like Reich note and the informed are well aware of -- will NOT be sufficient to regenerate our economy to a reasonably healthy state of 5-6% unemployment over the next 5 years. These tax cuts are needed just to offset the 30-year stagnant growth or better said -- non-growth -- in middle class wages. Also, consumers are beginning to recognize the game of being puppet-played as the consumption and debt-building suckers who can't refuse buying all those over-advertised gimmicky, trivial, kitsch products offered them at bargain basement prices for volume purchases. The growing Have Nots are learning that Consumption at 70% of GDP with six credit cards and no Savings is the road to penury that finances bigger castles and bonuses for the Haves! In this connection, Obama's job creation initiative also fits the Dutch expression of "hit two flies with one blow." The $50 billion job stimulus program not only puts people back to work but also pute them back to work on basic, sustainable infrastructure projects -- as opposed to reliance on "make-work" projects. This will concurrently increase tax revenues, reduce unemployment compensation costs and, equally important, improve the nation's productivity. Of course, far right and centrist conservatives, under the duplicitous guise of being Deficit responsible, will defeat Obama's job development efforts in just another "shoot-yourself-in-the-foot" step in order to turn the tide against Obama's Administration in the November elections. Then, they will take an about face and proceed to initiate the job growth spending actions Obama's team wants to put in motion now. And in this process, the newly elected and new-born conservatives will proudly crown themselves as the common man's capitalist saviors ... while lowering taxes for the rich. It comes down to being a fool for allowing oneself to be fooled. If this happens, one can always take comfort in the thought that it's 'the fools who often form the overwhelming majority.' As Huckleberry Finn said in Mark Twain's novel : " Hain't we got all the fools in town on our side? And ain't that a big enough majority in any town?"
How hypocritical, ineffective, and corrupt can our political system get? The answer is, you don't have to wait and see. "It's structural not cyclical."
You will note that Les Leopold in the Huffington Post blog stated that the total unemployment/underemployment today is 29 million vs. my figure of 23 million. Further, he says that 22 million jobs are needed just to get back to a normal 5% unemployment of 7 million. My comparable figure is that 16 million jobs are needed to get back to a normal 5% unemployment of 7 million. (My 16 million figure excludes 1 million future private-sector jobs needed to meet annual labor force growth in coming years).
The 6 million difference (22 million minus 16 million) reflects his assumption of 8 million jobs lost from the recession and 14 million jobs lost by workers: (a) who have been forced into underemployment; (b) whose benefits have run out; (c) who are benefit-inelgible for various reasons; (d) who delay or are too discouraged to look for a job and/or to apply for UI benefits. My 16 million figure includes 8 million jobs lost from the recession and 8 million jobs lost by a,b,c,d workers as explained in previous sentence.
No one has an accurate grip on whether the a, b,c, d officially unreported jobless is 8 or 14 million or some other grotesque number. As you know, these jobless people are excluded from both the monthly officially reported total labor force and the unemployment rate.
Leopold sites a real unemployment/underemployment rate of 16.5% for 29 million jobless, based (I assume) on a labor force of 175 million. I come to a real unemployment/underemployment rate of +-17% for 23 million jobless, based on a labor force of 140 million. Leopold may have included his 14 million a,b,c,d jobless in the total labor force number whereas I have excluded my 8 million a,b,c,d jobless from the total labor force number.
Sadly, no one or any government agency has an accurate, reliable grip on the a,b,c,d officially unreported jobless. Inconsistencies and discrepancies (unconscious or intentional) easily creep into poorly collected, poorly organized and presented data. So there is a natural tendency for most concerned analysts to take the worst scenario especially in terrible, uncertain times. Most shocking in my view is the unprecedented sheer magnitude of the job loss to date (16-22 million above normal 5% unemployment), the long-duration unemployed (+-6.7 million excluding 8-14 million unreported unemployed), the 30 year trend of declining private-sector job creation (see my study).
The structural scale of the jobs lost vs. jobs gained problem has not come through to our leaders who are suffering from a severe attack of problem recognition and resolution apoplexy.
Like the U.S., Portugal has been heavily dependent on fossil fuels causing the cost of energy imports to double in the last decade and contributing to 50% of the country´s trade deficit. Sound familiar?
Data below show how amazingly successful Portugal, for example, has been in converting to renewable energy in a very short time. In comparison, U.S. progress appears appallingly weak as does President Obama's recently announced goal of having a paltry 20-25% of America's electricity produced from renewable sources by 2025.
Here are some comparative figures of current results and projected targets of top renewable power producers In Europe and other selected countries. Portugal´s current and projected renewable sources of electrical power generation are also shown. ___________________________________________________
RENEWABLE POWER PRODUCERS Percentages = Renewable Energy Produced as % of Total Electrical Power Production _________________________________________________________
Source: New York Times, Aug. 9, 2010: Portugal Gives Itself a Clean-Energy Makeover _________________________________________________________________ In justfive years under strong leadership, Portugal's enterprising program of capturing clean energy from wind, solar, biomass, hydropower, and ocean waves has rapidly advanced. Today, about 45% of the electricity in Portugal´s energy grid comes from renewable sources compared to 17% five years ago. Aggressive national policies are proceeding according to plan for Portugal to produce domestically renewable energy (including hydropower) sufficient for 60% of its electricity needs and 31% of its total energy needs by 2020. According to the IHS Report, Denmark, Spain, UK, Ireland, Brazil, even Canada will also be getting at least 40-50% of their total electricity needs from renewable sources (including hydropower) by 2025.
What's holding the U.S. back is the historical cocaine addiction to fossil fuels, particularly coal, that feed people relatively cheap electricity; the often cited fear of financially rocking the boat of the oil and coal industries which fight against renewable power developments perceived to be threatening business as usual with the help of bought politicians; an antiquated energy grid system that in essence is useless for adaptation to renewable energy transmission .... an inadequate grid system, for example, that technically cannot respond in the seconds/minutes/hours, necessary, to unpredictable environmental wind, sun, rainfall changes. Portugal and other countries are fully committed to move quickly and effectively to overcome such obstacles. Portugal (like Denmark) is greatly aided in this impressive energy policy conversion by the fact the general public takes the long view and is willing to pay more for renewable, clean energy today.
Study without desire spoils the memory, and it retains nothing that it takes in.
- Leonardo da Vinci
Advertising may be described as the science of arresting the human intelligence long enough to get money from it.
--Stephen Leacock
Canadian economist & humorist (1869 - 1944)
They can't put you in jail for what you're thinking.
--Clifton E Lawrence
If we can't create a good impression, we can at least try to create a bland impression.
-- Ben Weinbaum, my supervisor at General Dynamics
Men are generally idle, and ready to satisfy themselves, and intimidate the industry of others, by calling that impossible which is only difficult.
-- Samuel Johnson
There's a vas deferens between us.
--Paul Desmond to a girlfriend
Lawrence, how do you manage to go through so much shit and come out smelling like a rose?
--a college classmate
Lawrence, you're better on paper than you are in person.
--Guy Carlisle
Lawrencie, you're smart in school, but dumb in life.
--Arthur Hill
In politics you must always keep running with the pack. The moment that you falter and they sense that you are injured, the rest will turn on you like wolves.
--R. A. Butler
Don't put off till tomorrow what you can do today.
--Florence C Lawrence
There's no time like the present.
--Florence C Lawrence
One hand washes the other.
--Clifton E Lawrence
You have to take the bitter with the better.
--Clifton E Lawrence
An inventor is simply a fellow who doesn't take his education too seriously.
--Charles F Kettering
A problem well stated is a problem half solved.
--Charles F Kettering
Any sufficiently advanced technology is indistinguishable from magic.
--Arthur C. Clarke, "Profiles of The Future", 1961 (Clarke's third law) English physicist & science fiction author (1917 - )
The least of learning is done in the classrooms.
--Thomas Merton
Tastes pretty good for an old dead cow.
--Clifton E Lawrence at a family picnic
If the shoe fits, wear it.
--anonymous
If the shoe doesn't fit, don't wear it.
--John Lawrence
Doug Ramsey: Take Five: The Public and Private Lives of Paul Desmond This is a great book! Paul Desmond and Dave Brubeck formed the heart of one of the best all time jazz groups. Paul was the quintessential intellectual, white jazz musician. A talented writer, he never published anything. However author, Doug Ramsey has collected Paul's letters here. How ironic that now his writing in the form of letters to his father and ex-wife, among others, is finally published showing another window on the mind of this talented person.
A sideman, for the most part, his entire life, the Dave Brubeck Quartet might never have happened at all due to the fact that Paul had managed to offend Dave to the point where he never wanted to see him again. It had to do with a gig that Paul actually was the leader of. Paul wanted to take the summer off to play another gig, and Dave wanted Paul to let him take over the gig at the Band Box in Palo Alto, CA. Paul wouldn't let him and Dave, married with two children, proceeded to starve.
Due to an elaborate publicity campaign, when he realized the error of his ways, Paul managed to worm himself back into Dave's good graces. The rest is history.
This book is remarkable for the insight it gives into a working jazz musician's mind, wonderful pictures and interviews with the significant figures in Paul's life. Author Ramsey, not a remarkable penman himself, has nevertheless done a magnificent job of assembling all these various materials. Unlike a lot of jazz authors, he doesn't overly idolize his subject with the result that you get the feeling that you have met a real person and not a idealized version. That's high praise indeed for any biographer. (*****)
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