Henry Ford said, “It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”
We are beginning to understand, and Occupy Wall Street looks like the beginning of the revolution.
We are beginning to understand that our money is created, not by the government, but by banks. Many authorities have confirmed this, including the Federal Reserve itself. The only money the government creates today are coins, which compose less than one ten-thousandth of the money supply. Federal Reserve Notes, or dollar bills, are issued by Federal Reserve Banks, all twelve of which are owned by the private banks in their district. Most of our money comes into circulation as bank loans, and it comes with an interest charge attached.
According to Margrit Kennedy, a German researcher who has studied this issue extensively, interest now composes 40% of the cost of everything we buy. We don’t see it on the sales slips, but interest is exacted at every stage of production. Suppliers need to take out loans to pay for labor and materials, before they have a product to sell.
For government projects, Kennedy found that the average cost of interest is 50%. If the government owned the banks, it could keep the interest and get these projects at half price. That means governments—state and federal—could double the number of projects they could afford, without costing the taxpayers a single penny more than we are paying now.
This opens up exciting possibilities. Federal and state governments could fund all sorts of things we think we can’t afford now, simply by owning their own banks. They could fund something Franklin D. Roosevelt and Martin Luther King dreamt of—an Economic Bill of Rights.
A Vision for Tomorrow
In his first inaugural address in 1933, Roosevelt criticized the sort of near-sighted Wall Street greed that precipitated the Great Depression. He said, “They only know the rules of a generation of self-seekers. They have no vision, and where there is no vision the people perish.”
Roosevelt’s own vision reached its sharpest focus in 1944, when he called for a Second Bill of Rights. He said:
This Republic had its beginning, and grew to its present strength, under the protection of certain inalienable political rights . . . . They were our rights to life and liberty.
As our nation has grown in size and stature, however—as our industrial economy expanded—these political rights proved inadequate to assure us equality in the pursuit of happiness.
He then enumerated the economic rights he thought needed to be added to the Bill of Rights. They included:
The right to a job;
The right to earn enough to pay for food and clothing;
The right of businessmen to be free of unfair competition and domination by monopolies;
The right to a decent home;
The right to adequate medical care and the opportunity to enjoy good health;
The right to adequate protection from the economic fears of old age, sickness, accident, and unemployment;
The right to a good education.
Times have changed since the first Bill of Rights was added to the Constitution in 1791. When the country was founded, people could stake out some land, build a house on it, farm it, and be self-sufficient. The Great Depression saw people turned out of their homes and living in the streets—a phenomenon we are seeing again today. Few people now own their own homes. Even if you have signed a mortgage, you will be in debt peonage to the bank for 30 years or so before you can claim the home as your own.
Health needs have changed too. In 1791, foods were natural and nutrient-rich, and outdoor exercise was built into the lifestyle. Degenerative diseases such as cancer and heart disease were rare. Today, health insurance for some people can cost as much as rent.
Then there are college loans, which collectively now exceed a trillion dollars, more even than credit card debt. Students are coming out of universities not just without jobs but carrying a debt of $20,000 or so on their backs. For medical students and other post-graduate students, it can be $100,000 or more. Again, that’s as much as a mortgage, with no house to show for it. The justification for incurring these debts was supposed to be that the students would get better jobs when they graduated, but now jobs are scarce.
After World War II, the G.I. Bill provided returning servicemen with free college tuition, as well as cheap home loans and business loans. It was called “the G.I. Bill of Rights.” Studies have shown that the G.I. Bill paid for itself seven times over and is one of the most lucrative investments the government ever made.
The government could do that again—without increasing taxes or the federal debt. It could do it by recovering the power to create money from Wall Street and the financial services industry, which now claim a whopping 40% of everything we buy.
An Updated Constitution for a New Millennium
Banks acquired the power to create money by default, when Congress declined to claim it at the Constitutional Convention in 1787. The Constitution says only that “Congress shall have the power to coin money [and] regulate the power thereof.” The Founders left out not just paper money but checkbook money, credit card money, money market funds, and other forms of exchange that make up the money supply today. All of them are created by private financial institutions, and they all come into the economy as loans with interest attached.
Governments—state and federal—could bypass the interest tab by setting up their own publicly-owned banks. Banking would become a public utility, a tool for promoting productivity and trade rather than for extracting wealth from the debtor class.
Congress could go further: it could reclaim the power to issue money from the banks and fund its budget directly. It could do this, in fact, without changing any laws. Congress is empowered to “coin money,” and the Constitution sets no limit on the face amount of the coins. Congress could issue a few one-trillion dollar coins, deposit them in an account, and start writing checks.
The Fed’s own figures show that the money supply has shrunk by $3 trillion since 2008. That sum could be spent into the economy without inflating prices. Three trillion dollars could go a long way toward providing the jobs and social services necessary to fulfill an Economic Bill of Rights. Guaranteeing employment to anyone willing and able to work would increase GDP, allowing the money supply to expand even further without inflating prices, since supply and demand would increase together.
Modernizing the Bill of Rights
As Bob Dylan said, “The times they are a’changin’.” Revolutionary times call for revolutionary solutions and an updated social contract. Apple and Microsoft update their programs every year. We are trying to fit a highly complex modern monetary scheme into a constitutional framework that is 200 years old.
After President Roosevelt died in 1945, his vision for an Economic Bill of Rights was kept alive by Martin Luther King. “True compassion,” King declared, “is more than flinging a coin to a beggar; it comes to see that an edifice which produces beggars needs restructuring.”
MLK too has now passed away, but his vision has been carried on by a variety of money reform groups. The government as “employer of last resort,” guaranteeing a living wage to anyone who wants to work, is a basic platform of Modern Monetary Theory (MMT). A student of MMT declares on his website that by “[e]nding the enormous unearned profits acquired by the means of the privatization of our sovereign currency. . . [i]t is possible to have truly full employment without causing inflation.”
What was sufficient for a simple agrarian economy does not provide an adequate framework for freedom and democracy today. We need an Economic Bill of Rights, and we need to end the privatization of the national currency. Only when the privilege of creating the national money supply is returned to the people can we have a government that is truly of the people, by the people and for the people.
——————
Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are http://WebofDebt.com and http://EllenBrown.com.
LONDON - Almost $6.3tn was erased from global stock markets this year as the eurozone financial crisis reverberated across the world in the latter half of 2011, calling into question the future of the world’s largest currency bloc.
Global stock market capitalisation dropped 12.1 per cent to $45.7tn according to Bloomberg data, while the euro ended the year as the worst performing major currency after finally starting to succumb to the continent’s financial and economic woes in December.
The euro had proved resilient for much of the year – burning hedge funds that bet on a steeper decline – but on Friday touched a 10-year low against the Japanese yen, and is near lows against the dollar last touched a year ago.
“Investors were more optimistic at the start of the year, but as the year progressed they were forced to come to grips with the debt levels in the western world,” said Navtej Nandra, the international head of Morgan Stanley’s asset management arm.
The S&P 500 is flat this year while the FTSE 100 has only dropped 5.5 per cent. But the Eurofirst 300 gauge of blue-chip European companies has lost 11 per cent, led by the French and Italian exchanges. The MSCI Emerging Markets index has shed a fifth of its value despite strong growth in China and other emerging markets.
Asian equity markets were hit particularly hard with Japan’s Nikkei index losing 17.3 per cent this year, Hong Kong’s Hang Seng index 20 per cent and the Shanghai Composite 22 per cent.
Assets considered to be relative havens amid the turmoil have fared better. UK government yields hit a record low on Friday and gilts were the best performing major government bonds in 2011 – notching up 17 per cent returns, compared with US Treasuries’ 9.8 per cent returns and 10 per cent for German Bunds.
Despite efforts by policymakers to shore up the eurozone, analysts and bankers expect next year to start on a glum note, as Europe continues to grapple with its debt crisis.
One of the biggest immediate tests will be the hundreds of billions of euros worth of government and bank debt that comes due in the first three months of the year.
Countries on Europe’s periphery, on the other hand, face funding costs that remain at near record highs, despite a series of summits that have unveiled various measures to restore investor confidence in the eurozone.
There is more than €457bn of eurozone government debt due to be repaid in the first quarter of 2012, according to calculations by Citigroup. Italy has to repay almost €113bn in the first three months of next year – at a time when its funding costs remain elevated.
“Markets would love to think that this will be solved swiftly, but dealing with all these problems will take time,” said Philip Poole of HSBC Asset Management. “Bond yields will remain high until it’s clear how deep the eurozone recession will be and austerity packages are more fully implemented.”
The European Central Bank lent €489bn to more than 500 banks earlier this month to ease concerns over bank funding, but has so far fought pressures to more actively buy eurozone government bonds directly.
While the US economy is showing signs of recovery and most emerging market countries are still growing at a healthy clip, some investors fear that China’s economy could be facing a “hard landing” next year, posing yet another danger to the fragile global economy.
PARIS — Moody’s Investors Service has cut Hungary’s credit rating to below investment grade, or junk, just a week after the country said it would seek aid from the International Monetary Fund to help it maintain an investment grade.
Moody’s said late Thursday that it was cutting Hungary to a speculative rating of Ba1 from Baa3, its lowest investment grade, and was maintaining a negative outlook on the debt. The agency cited its doubts about whether the government of Prime Minister Viktor Orban would be able “to meet its targets on fiscal consolidation and public-sector debt reduction over the medium term, in view of higher funding costs and the low-growth environment.”
The benchmark Budapest stock index fell 3 percent, while the currency, the forint, and Hungarian bond prices sagged.
While Hungarian bonds had been trading at levels suggesting investors already treated the debt as junk, Mr. Orban had said Nov. 18 that Hungary would seek “an insurance-type agreement” from the I.M.F. in a last-ditch effort to keep its investment grade.
The Economy Ministry, in a statement cited by Reuters, called the ratings agency’s move the latest in a string of “financial attacks against Hungary.”
The Hungarian downgrade was just one of several to European Union countries. On Friday, Standard & Poor’s cut its rating for Belgium to AA from AA+, still investment grade, but said the outlook was negative. And Fitch Ratings on Thursday cut its rating on Portugal to junk, citing similar concerns about the trajectory of government finances.
The biggest ratings question hanging over Europe now is whether France, which holds a coveted triple-A rating from all the major agencies, will be able to hang on to its status. A downgrade of France would have painful repercussions for the European bailout fund and for the euro.
Hungary’s public debt is uncomfortably high for an emerging-market country, equivalent to about 81 percent of its gross domestic product, a figure the government hopes to reduce to 50 percent by 2018. The budget deficit is relatively benign, and Mr. Orban has made keeping it under control a hallmark of his leadership, targeting a level of 2.5 percent of G.D.P. next year.
Moody’s warned that the outlook for the economy and government finances was being increasingly clouded by slowing growth, higher interest rates stemming from the euro crisis and the weakening of key export markets. Those risks are magnified by the fact that two-thirds of government debt is denominated in foreign currencies.
Hungary got a €20 billion, or $26.5 billion, bailout from the I.M.F. and European Union in 2008; it exited the fund’s stewardship last year.
Mr. Orban has enacted tough measures, widely described as “unconventional,” to keep the economy afloat. He has nationalized pension funds, imposed new taxes on services and decreed that Hungarians, many of whom borrowed in other currencies to finance their homes during the credit boom, can pay off their foreign-currency-denominated mortgages at artificially favorable rates — at the expense of mortgage lenders.
But those measures, many of which are one-time events, have run afoul of the I.M.F. and European Union, and some of them will probably have to be dismantled as the price of any new deal.
Tathagata Ghose, an economist with Commerzbank, wrote in a research note that the credit downgrade was not unexpected, as the Economy Ministry had itself suggested the action was imminent. “The negative connotation in terms of dwindling foreign capital participation is obvious,” Mr. Ghose said. “But, there could also be a positive outcome: We think that a much needed reversal to the present policy framework may finally be in prospect.”
FRANKFURT — To some people, the European Central Bank seems like a fire department that is letting the house burn down to teach the children not to play with matches.
The E.C.B. has a fire hose — its ability to print money. But the bank is refusing to train it on the euro zone’s debt crisis.
The flames climbed higher Friday after the Italian Treasury had to pay an interest rate of 6.5 percent on a new issue of six-month bills — more than three percentage points higher than a similar debt auction on Oct. 26. It was the highest interest rate Italy has had to pay to sell such debt since August 1997, according to Bloomberg News.
But there is no sign the E.C.B. plans a major response, like buying large quantities of the country’s bonds to bring down its borrowing costs. The E.C.B. “is not the fiscal lender of last resort to sovereigns,” José Manuel González-Páramo, a member of the executive board of the bank, told an audience at Oxford University on Thursday, a view that has been repeated by members of the bank’s governing council in recent weeks.
To many commentators, the E.C.B.’s attitude seems so incomprehensible that they assume the central bank is just putting pressure on politicians to make sure they keep their promises. Rather than let the euro break apart, the thinking goes, the bank will eventually relent and drench the economy with cash as the United States Federal Reserve and Bank of England have done.
But another possibility is that when the E.C.B. says “no,” it in fact means “no.”
“I think markets are going up a blind alley thinking there’s going to be a common euro bond or thinking that the E.C.B. is going to act as a lender of last resort,” Norman Lamont, the former British finance minister, told Bloomberg on Friday. “I think Germany would rather leave the euro than see the E.C.B.’s integrity affected.”
Instead, the E.C.B. insists, euro area governments must amend their errant ways. “Governments need to ensure, under any circumstances, the achievement of announced fiscal targets and deliver the envisaged institutional and structural reform programs,” Mr. González-Páramo said in London on Friday.
E.C.B. policy makers have been consistent in arguing that huge purchases of government bonds would violate the bank’s mandate and not solve the crisis.
Mr. González-Páramo even accused investors of cynical self-interest when they pleaded for a European version of quantitative easing, the use of large purchases of securities to encourage economic growth.
“Market participants that call for the E.C.B. to play this role may care only about the nominal value of their assets and the need to avoid losses,” he said in Oxford.
To outsiders, it may seem that the E.C.B., based in Frankfurt and steeped in the conservative culture of the Bundesbank, would rather let the euro go up in smoke than compromise its principles. But policy makers do not see the choice in those terms.
To them, the best way to address the crisis is to stick to principles, the most important of which is preserving price stability. That is set out in the first sentence of the statute that defines the E.C.B.’s tasks. “The primary objective” of the European system of central banks “shall be to maintain price stability,” the statute reads.
E.C.B. policy makers also believe that their charter forbids them from using bank resources to finance governments. If they expanded the money supply to provide debt relief to Italy, policy makers believe, they would be breaking the law. They would also effectively be transferring the debt burden from countries like Greece and Italy to countries like Germany or the Netherlands.
The E.C.B. has been buying Italian government bonds and debt from other troubled countries, but in relatively modest amounts and always on the ground that intervention was needed to maintain control over interest rates and prices.
Mr. González-Páramo argued this week that the restriction on E.C.B. action, far from a handicap, was a good thing. It helps policy makers resist the temptation to print money rather than make painful changes.
“The monetary financing prohibition, in this way, is a spur towards better policies and better governance — in other words, a closer economic union,” Mr. González-Páramo said in the Oxford speech, which encapsulated arguments made by other top E.C.B. officials.
But there might be a situation in which the E.C.B. would intervene significantly in bond markets. If there were credible signs that inflation was coming to a standstill and that deflation threatened, the bank would have a strong justification for pumping up the money supply.
“Things would be very different if the E.C.B. started to think there is a risk of deflation,” said Eric Chaney, chief economist of the insurer AXA Group. “In that case, there would be a good reason to buy bonds, to lower interest rates. Then it would be done for price stability objectives, not for saving Country X or Y.”
Inflation in the euro area is 3 percent on an annual basis, still above the E.C.B. target of about 2 percent, though the central bank has forecast that price pressures will ease as the economy slows.
The E.C.B., though formally immune from political influence, would in practice need the approval of European governments, especially Germany, to intervene. Any move would have to be tied to new treaty provisions to enforce greater spending discipline on governments in the future, said Daniel Gros, director of the Center for European Policy Studies in Brussels.
For now, opponents of greater bond buying on the E.C.B. governing council appear to hold sway. Jens Weidmann, president of the German Bundesbank and an influential council member, has been particularly vocal.
If there are members of the 23-member council who favor some form of quantitative easing, they have been quiet about it. But Mr. Gros said support could grow as borrowing costs soar in more countries.
Despite acute tensions on markets, policy makers argue that the crisis is not as acute as it seems, and they refuse to be rushed into making decisions they might later regret.
If the E.C.B. miscalculates, though, the result could be breakup of the euro area. Mr. Gros said it was reassuring that Mario Draghi, president of the E.C.B. since the beginning of the month, seemed to have an impressive grasp of market dynamics.
“He has a lot of experience in the markets,” Mr. Gros said of Mr. Draghi, an economist who worked briefly at Goldman Sachs before becoming governor of the Bank of Italy and then E.C.B. president.
“I presume Draghi has all the market information in real time at his disposal,” Mr. Gros said. “What can we do but trust him?”
My political prediction for 2012 (based on absolutely no inside information): Hillary Clinton and Joe Biden swap places. Biden becomes Secretary of State — a position he’s apparently coveted for years. And Hillary Clinton, Vice President.
So the Democratic ticket for 2012 is Obama-Clinton.
Why do I say this? Because Obama needs to stir the passions and enthusiasms of a Democratic base that’s been disillusioned with his cave-ins to regressive Republicans. Hillary Clinton on the ticket can do that.
Moreover, the economy won’t be in superb shape in the months leading up to Election Day. Indeed, if the European debt crisis grows worse and if China’s economy continues to slow, there’s a better than even chance we’ll be back in a recession. Clinton would help deflect attention from the bad economy and put it on foreign policy, where she and Obama have shined.
The deal would also make Clinton the obvious Democratic presidential candidate in 2016 — offering the Democrats a shot at twelve (or more) years in the White House, something the Republicans had with Ronald Reagan and the first George Bush but which the Democrats haven’t had since FDR. Twelve years gives the party in power a chance to reshape the Supreme Court as well as put an indelible stamp on America.
According to the latest Gallup poll, the duo are this year’s most admired man and woman This marks the fourth consecutive win for Obama while Clinton has been the most admired woman in each of the last 10 years. She’a topped the list 16 times since 1993, exceeding the record held by former First Lady Eleanor Roosevelt, who topped the list 13 times.
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.
Dec. 1 (Bloomberg) -- It is a tenet of American economic beliefs, and an article of faith for Republicans that is seldom contested by Democrats: If taxes are raised on the rich, job creation will stop.
Trouble is, sometimes the things that we know to be true are dead wrong. For the larger part of human history, for example, people were sure that the sun circles the Earth and that we are at the center of the universe. It doesn’t, and we aren’t. The conventional wisdom that the rich and businesses are our nation’s “job creators” is every bit as false.
I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc.
Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.
That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.
Theory of Evolution
When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around.
It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.
That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer.
And that’s what has been happening in the U.S. for the last 30 years.
Since 1980, the share of the nation’s income for fat cats like me in the top 0.1 percent has increased a shocking 400 percent, while the share for the bottom 50 percent of Americans has declined 33 percent. At the same time, effective tax rates on the superwealthy fell to 16.6 percent in 2007, from 42 percent at the peak of U.S. productivity in the early 1960s, and about 30 percent during the expansion of the 1990s. In my case, that means that this year, I paid an 11 percent rate on an eight-figure income.
One reason this policy is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don’t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, I go out to eat with friends and family only occasionally.
It’s true that we do spend a lot more than the average family. Yet the one truly expensive line item in our budget is our airplane (which, by the way, was manufactured in France by Dassault Aviation SA), and those annual costs are mostly for fuel (from the Middle East). It’s just crazy to believe that any of this is more beneficial to our economy than hiring more teachers or police officers or investing in our infrastructure.
More Shoppers Needed
I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or enjoy any meals out. Or to make up for the decreasing consumption of the tens of millions of middle-class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.
If the average American family still got the same share of income they earned in 1980, they would have an astounding $13,000 more in their pockets a year. It’s worth pausing to consider what our economy would be like today if middle-class consumers had that additional income to spend.
It is mathematically impossible to invest enough in our economy and our country to sustain the middle class (our customers) without taxing the top 1 percent at reasonable levels again. Shifting the burden from the 99 percent to the 1 percent is the surest and best way to get our consumer-based economy rolling again.
Significant tax increases on the about $1.5 trillion in collective income of those of us in the top 1 percent could create hundreds of billions of dollars to invest in our economy, rather than letting it pile up in a few bank accounts like a huge clot in our nation’s economic circulatory system.
Consider, for example, that a puny 3 percent surtax on incomes above $1 million would be enough to maintain and expand the current payroll tax cut beyond December, preventing a $1,000 increase on the average worker’s taxes at the worst possible time for the economy. With a few more pennies on the dollar, we could invest in rebuilding schools and infrastructure. And even if we imposed a millionaires’ surtax and rolled back the Bush- era tax cuts for those at the top, the taxes on the richest Americans would still be historically low, and their incomes would still be astronomically high.
We’ve had it backward for the last 30 years. Rich businesspeople like me don’t create jobs. Middle-class consumers do, and when they thrive, U.S. businesses grow and profit. That’s why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.
So let’s give a break to the true job creators. Let’s tax the rich like we once did and use that money to spur growth by putting purchasing power back in the hands of the middle class. And let’s remember that capitalists without customers are out of business.
(Nick Hanauer is a founder of Second Avenue Partners, a venture capital company in Seattle specializing in early state startups and emerging technology. He has helped launch more than 20 companies, including aQuantive Inc. and Amazon.com, and is the co-author of two books, “The True Patriot” and “The Gardens of Democracy.” The opinions expressed are his own.)
In her excellent book, "Web of Debt," Ellen Brown questions the whole notion that governments, whether they be the US or the Eurozone, should have to go into debt to private bankers such as Goldman Sachs and Deutsche Bank to get the money they need to finance their operations. Consider the Federal Reserve which is the primary creator of the money supply in the US. It is neither Federal nor is it a reserve. It is a private bank which creates money as an accounting entry on a computer screen. Recently, it loaned over $7 trillion to private banks at a ridiculously low .01% interest rate. That wasn't money it held in reserve; it was money that was "printed" or rather created out of whole cloth. And who do you think sits on the Board of the privately owned Federal Reserve? Jamie Dimon, CEO of JPMorgan Chase! Do you think that the Federal Reserve acts in the interest of anyone other than the large, too big to fail, banks? The banking system prints or creates money all the time, and not only central banks do it. It has been a longstanding practice of banks everywhere to loan out more money than they hold in deposits. This is called "fractional reserve" banking. For example, when a bank takes in $100 in deposits, it will loan out $1000 figuring that that will be sufficient for depositors who wish to redeem their deposits. Unless there's a run on the bank, that usually is sufficient. So money is created by the private banking system all the time and on a daily basis. Many multiples of the banks' deposits are then loaned out at interest.
Individuals, businesses, corporations and governments then borrow money from private banks to meet their needs for expansion and simply to pay their bills. The US government, for example, borrows the money it needs to function essentially from Goldman Sachs and other large banks and then pays interest to those banks. This happens because the US sells Treasury bonds to those large institutions in return for money to fund its wars and pay social security and medicare recipients among other things. The taxpayers are then on the hook for paying the interest on these bonds. Goldman Sachs got the money in the first place from the Federal Reserve so that by means of a little bit of subterfuge (the Federal Reserve cannot by law loan money directly to the US government), money is transferred from the privately owned Federal Reserve bank, which it created out of thin air, to the US government with interest to be paid by the taxpayers to private banking interests. This begs the question that Ms. Brown makes a central point of her book: if a private central bank can increase the money supply by creating money out of thin air as an accounting entry on a computer screen, why can't the government itself create the money to fund its needs? In particular, if the government created the money instead of the private banking system, taxpayers wouldn't be on the hook for the interest payments which are rapidly eating up an ever increasing share of the Federal budget. Interest on the national debt is projected to be $241.6 billion in FY 2012; it will only increase every year as the national debt goes up. The question is why should US taxpayers pay interest to private bankers on the money loaned to the US government which was created by private bankers when the US government itself could just as well have created the money interest free?
The same line of reasoning holds for the Eurozone which is caught up in a debt crisis in which the private banking system is raising interest rates for countries that it considers weak. The rising interest rates make countries such as Spain and Italy even weaker and all this is being fueled by speculators who are shorting the bonds of these countries. Derivative trading such as shorting drives up interest rates since it makes it seem that investors are selling rather than buying the bonds of those countries.
The process of shorting can be simply explained as follows. Suppose my neighbor buys a lawnmower for $500. I then ask to borrow my neighbor's lawnmower to mow my yard. As I'm mowing, another neighbor drives by and offers to buy the mower for $450. As it happens, I know about a sale at the local Sears where I can buy the same exact lawnmower for $400. So I sell the lawnmower for $450., rush down to Sears and buy another one for $400., return the mower to the neighbor I originally borrowed it from and then pocket the $50. profit. Now in the dark world of derivatives markets it's not even necessary to borrow anything from a preexisting owner in order to short sell. These trades are called "naked shorts." The whole effect will drive up interest rates in Greece and Italy making their borrowing costs to turn over their loans even more expensive and hasten the day when these countries will default. Speculators stand to make big money if and when a Eurozone country does default because they have placed large bets on this outcome. It is to be noted that the European Central Bank (ECB) has the same deal that the US Federal Reserve has in that it can't give money directly to one of its member countries. Monies have to be funneled through banks. This means that they are subject to the machinations of the bond market and speculators. If the ECB created the money directly and then loaned it to member countries, the interest rate could be maintained constant as speculators would be eliminated and it would be lower as the private bankers would not be getting their cut.
If the whole notion of a central government creating the money supply as opposed to a private central bank creating it seems radical to you, please bear in mind that this is exactly what Abraham Lincoln did to fund the Civil War and the economic expansion following it including the transcontinental railroad, the land grant colleges and the Homestead Act which gave away free land to settlers in the west. Greenbacks were government created currency which was spent into the market. Today Federal Reserve notes are created by the privately owned Federal Reserve and are the official US currency. Ellen Brown maintains that any government can create a fiat currency. This simply means that the government created currency is declared to be the legal currency of that government. It doesn't have to be backed by gold or anything else. It is the official currency just because the government says it is. Ellen Brown characterizes the Greenback era as follows:
How was all this accomplished with a Treasury that was completely broke and a Congress that hadn't been paid themselves? ... Lincoln tapped into the same cornerstone that had gotten the impoverished colonists through the American Revolution and a long period of internal development before that: he authorized the government to issue its own paper fiat money. National control was reestablished over banking, and the economy was jump-started with a 600 percent increase in government spending and cheap credit directed at production. A century later, Franklin Roosevelt would use the same techniques to pull the country through the Great Depression; but Roosevelt's New Deal would be financed with borrowed money. Lincoln's government used a system of payment that was closer to the medieval tally. Officially called United States notes, these nineteenth century tallies were popularly called "Greenbacks" because they were printed on the back with green ink (a feature the dollar retains today). They were basically just receipts acknowledging work done or goods delivered, which could be traded in the community for an equivalent value of goods or services. The Greenbacks represented man-hours rather than borrowed gold. Lincoln is quoted as saying, "The wages of men should be recognized as more important than the wages of money." Over 400 million Greenback dollars were printed and used to pay soldiers and government employees, and to buy supplies for the war.
The Greenback system was not actually Lincoln's idea. but when pressure grew in Congress for the plan, he was quick to endorse it. The South had seceded from the Union soon after his election in 1860. To fund the War between the States, these Eastern banks had offered a loan package that was little short of extortion - $150 million advanced at interest rates of 24 to 36 percent. Lincoln knew the loan would be impossible to pay off. He took the revolutionary approach because he had no other real choice. The government could either print its own money or succumb to debt slavery to the bankers.
So the war and the economic development following it were financed with goverment created fiat money, the Greenback. This would be perfect today for funding the $2 trillion in infrastructure repair and rebuilding that the IEEE claims is needed - in other words an infrastructure bank. This would solve a lot of the US' unemployment problems as well as bringing the US infrastructure up to par with China and other countries which are modernizing their infrastructure at rates far exceeding the US. The Eurozone ECB could also print or create euros without borrowing or funneling them through private bankers and subjecting the economies of certain countries to the whims of speculators. For the US it would be simple to move the Federal Reserve into the Treasury Department, transfer ownership to the public sector and keep the fact that the chairman would be appointed by the President. To keep its autonomy, Congress should not have the ability to interfere with the newly created Federal Reserve just as the situation exists now. So what would change? Only that the money created would be the equivlent of Greenbacks which would be non-interest bearing notes. Government created money would not be money that the government would have to pay interest on to private sector banks. These Greenbacks could coexist with Federal Reserve notes so that there would be two forms of currency in circulation both of which would be legal tender. Therefore, Federal Reserve notes would not have to be recalled. The new system could be created overnight with a minimum of disruption to commerce.
The Eurozone probably operates the same way. I'm not an expert but I surmise that the large European banks such as Deutsche bank, Societe Generale and ING loan money to Eurozone countries at interest. Even Goldman Sachs, since it is an international bank, probably has its finger in the pie of Eurozone money creation. Even money created by the ECB needs to be funneled through these banks before it gets into the coffers of the respective Eurozone countries. This means that not only are countries such as Greece and Italy paying interest to the large European and international banks but the interest rates they are paying are subject to market speculation which drives them up even more. If the ECB issued euros directly instead of letting the large banks do it, the interest rate could be carefully controlled, the rates wouldn't be subject to speculation and the interest paid would go into the coffers of the ECB instead of into the coffers of large private banks.
Individuals and families in the US and throughbout the world are increasingly indebted to private banks for mortgage debt, student loan debt and credit card debt. Easy credit and low initial interest rates as well as declining wages have induced much of the population to go into debt in the same way that countries have gone into debt. Ultimately, these levels of debt are unsustainable especially if today's historical low interest rates start to rise. Of course the banks' major goal is to have everyone in debt paying interest money to them as a major part of their expenditures. If everyone is a debt slave, the banks are in the position of owning most of society's assets. Ellen Brown's ideas about taking money creation out of private bankers' hands and putting it into the hands of central governments strikes at the core of capitalist economics which assumes that money creation remains entirely privatized. However, other countries such as China have shown that government owned large banks can be a boon to economic development and growth.
Also in the US state owned banks such as the Bank of North Dakota maintain that state in a healthy economic condition compared to the US as a whole. Interest collected on loans goes back into state coffers defraying taxpayer expenses. So lower taxes are the result of a state owned rather than a privately owned bank. The same could be true for countries as well. Also loans can be more carefully controlled so that they go for socially useful purposes rather than fueling speculative investment. Finally, many countries including China and Norway have sovereign wealth funds which act to make those countries more creditworthy than countries which have no assets and only debts. As any banker knows, an individual's creditworthiness represents the difference between his assets and his debts. The same holds true also for countries. If governments created their own money, it could be loaned directly to families that are being foreclosed on instead of relying on private bankers to work out deals with them which they have been reluctant to do thus exacerbating the foreclosure crisis. Greater leniency could also be granted to student loan debtors than is the case now.
Lincoln saved the US an incredible amount of interest repayments by issuing Greenbacks instead of borrowing the money:
In 1972, the United States Treasury Department was asked to compute the amount of interest that would have been paid if the $400 million in Greenbacks had been borrowed from the banks instead. According to the Treasury Department's calculations, in his short tenure Lincoln saved the government a total of $4 billion in interest, just by avoiding this $400 million loan.
Finally, a quote from Thomas Edison from an interview in the 1921 New York Times:
If the Nation can issue a dollar bond it can issue a dollar bill, The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution, pays noboldy but those who contribute in some useful way. It is absurd to say that our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.
Therefore, the "full faith and credit" of the US government and the ECB could apply to currency as well as bonds, and private bankers and speculators could be eliminated from the loop.
AS winter approached, a retired secretary here named Carol Bonner was putting snow tires on her car when she noticed that her back-right rim was bent. Ms. Bonner took the car to Otto’s Auto Body Shop and got bad news: the work was going to run her $244 — more than half of her $417 monthly pension check.
Without a credit card or enough saved up to replace the rim herself, Ms. Bonner, who is 61 and cares for her sister Jane, who is disabled, did the only thing she could do: she went down to the Bank of Cattaraugus and took out a $300 loan. The bank, in a reversal of the usual process, had bailed her out before. A few years ago, when Ms. Bonner fell behind on her property taxes and was forced to sell her home, the bank’s president, Patrick J. Cullen, who held the mortgage on the house, had his son Thomas buy it. Thomas Cullen, who lives in Chicago, never intended to live there. Ms. Bonner and her sister were able to stay as renters.
“The whole thing was incredible,” Ms. Bonner said the other day, a single pine branch hanging in her living room in lieu of a full Christmas tree, which she could not afford. “I just didn’t realize there were people like that in the world, people who would help you.
“Especially,” she said, “a banker.”
This has not exactly been a time of great love for bankers. Amid the continuing foreclosure crisis and Occupy Wall Street’s campaign against “the 1 percent,” it is easy to forget that not all banks are complicated giants, trading in derivatives and re-hypothecating valueless collateral. The Bank of Cattaraugus, for example, is by asset size the state’s smallest bank (one branch, eight employees, no credit default swaps) and yet it plays an outsize role in this hilly village an hour south of Buffalo: housing its deposits, lending to its neediest inhabitants and recently granting forbearance on a mortgage when the borrower, a bus mechanic, temporarily lost his job after shooting off his finger while holstering his gun.
If it sounds old-fashioned, it is. It’s not the kind of bank you’ll find anymore in New York City, where multiple branches and capitalizations counted in 10 figures are the norm. With $12 million in total assets, the Bank of Cattaraugus is a microbank, well below the $10 billion ceiling that defines small banks. It exists in a seemingly different universe from the mammoth banks-turned-financial-services-conglomerates, like Citigroup ($1.9 trillion in assets) or JPMorgan Chase ($2.25 trillion).
With obvious exceptions, business at the Bank of Cattaraugus hasn’t changed much since 1882, when 20 prominent residents — among them a Civil War surgeon and a cousin of Davy Crockett — established the bank to safeguard townsfolk’s money and to finance local commerce.
In its 130-year history, the bank has rarely booked a profit for itself in excess of $50,000. Last year, Mr. Cullen said, it made $5,000. He and his officers are industry anomalies: bankers who avoid high-risk and high-growth tactics in order to reinvest in their community’s economy.
“My examiners always ask me, ‘When are you going to grow?’ ” said Mr. Cullen, a Cattaraugus native who is 64 and has the prosperous stoutness of a storybook banker. “But where is it written I have to grow? We take care of our customers. The truth is we probably couldn’t grow too much in a town like this.”
While it faces many of the same regulations that govern larger banks, it operates according to an antiquated theory of the business: that a bank should be a utility, like the power company, and serve as a broker between savers and borrowers in its community.
Cattaraugus, nestled in the woods of the misleadingly named Rich Valley, is a town of limited prospects. (“We’re not on the way to anywhere,” Mr. Cullen said.) Manufacturing, which once thrived here, has more or less died — except for the Setterstix factory on South Main Street, which produces paper lollipop handles. The largest employer in the village is the school district, and many village residents survive, like Ms. Bonner, on pensions or government subsidies, in homes that have an average mortgage of $30,000.
Mr. Cullen’s bank is the only one in town — the next-closest is in Little Valley, seven miles away.
In this difficult environment, Mr. Cullen — like the bank’s former president, his father, L. E. Cullen — occupies a paternal, if not quite paternalistic, position: a well-to-do man who is sufficiently familiar with the local economy that he does not use credit scores when handing out a loan.
“Numbers don’t tell the story here,” he said one day, relating the tale of an Amish customer who wanted $85,000 to consolidate his debts. Even though the man earned only $2,300 a year — from selling greenhouse starter kits — Mr. Cullen gave him the loan.
“If you know Amish culture, you know his sons work and that everything they earn goes to him until they’re 21 or married,” Mr. Cullen said, observing that the man had eight sons, each earning at least $10 an hour. “So he was fine, but none of that shows up on a credit score.”
Mr. Cullen’s first job at the bank was wrapping pennies for his father at age 5. When he was 9, he helped repossess a car. After two years at the Marine-Midland Bank in Buffalo, he joined the family bank as an assistant cashier — he was 24 — and he has been there ever since, commuting each morning to his office on Main Street from his house around the corner: a 20-second drive.
The bank remains a family business. His daughter, Colleen C. Young, is the chief financial officer, and his wife, Joan A. Cullen, is the corporate secretary (she used to keep the books, but it was thought to be improper that the bank auditor slept in the same bed as the president).
The Cullens — there are three more children, all sons and all in finance in Chicago — are that oddest of commodities: a beloved banking family.
“They saved our lives,” said Duane Kelley, a retired Setterstix worker who, a few years ago, lost the house he lived in with his wife to a $15,000 tax lien. Mr. Cullen bought the house at a county land auction with the bank’s money and returned it to the Kelleys. They are paying him back through a 15-year loan.
SMALL banks have been dying for 20 years. In 1990, there were 12,000 banks nationwide with assets of less than $10 billion; now, there are 7,350. The country’s top five banks have, meanwhile, grown relentlessly: In 1995, they held 11 percent of all deposits; last year it was 34 percent.
For several years, the small-banking sector has been pinched on one side by the rising costs of compliance and technology, and on the other by historically low interest rates (which cut into lending margins). In the last year, though, anger over big banks’ fees and mortgage lending practices has turned consumers against the mega-banks, and smaller institutions have been the beneficiaries.
The publisher Arianna Huffington has been behind the Move Your Money Project, which encourages people to take their money out of big banks and deposit it in local financial institutions. (Slogan: Invest in Main Street, Not Wall Street.) Ms. Huffington produced a video based on the Christmas banking classic “It’s a Wonderful Life” to support the campaign. BankTransferDay.org similarly claims to have persuaded 400,000 people to switch their funds from big banks to not-for-profit credit unions. Occupy Wall Street, which has pretty much turned “bank” into a four-letter word, has deposited nearly $500,000 into Amalgamated Bank, a big small bank in New York City owned by the labor union Unite Here.
Edward Grebow, Amalgamated’s president, posted signs in his branches supporting the movement and marched with its members in October. Perhaps as a result, the number of new checking accounts at Amalgamated has doubled in the months since it took on Occupy Wall Street as a customer. But the increased business came at a delicate moment for the bank: under new rules passed in the wake of the subprime lending meltdown, Amalgamated was forced to raise fresh capital. In September, the bank sold a 40 percent stake in its business to two giants of the private-equities markets: Wilbur L. Ross Jr., a billionaire investor, and Ronald W. Burkle, a California supermarket magnate.
According to Camden R. Fine, the president of the Independent Community Bankers of America, an advocacy group for small banks, nearly every bank regulation of the last 20 years was put in place in response to real or perceived malfeasance by the country’s largest banks.
“Community banks are paying for the greed and overreach of the biggest players in the market,” he said. “For a small bank in Ashland, Mo., say, it’s absurd to apply the body of regulation that a Citicorp has to deal with.”
The question facing community banks today is whether their current vogue can offset the abiding trend toward consolidation. Even in Cattaraugus — population 950 — Mr. Cullen says he receives at least two offers a week from larger institutions that want to buy him out. He claims to be unsurprised by these overtures, though his business is exceptionally simple: 80 percent of the loans in his portfolio are mortgages, a third of them arising from marital separation. (“Two people are living together; they split,” he said. “Now, instead of one house, you need two.”) Still, his answer to potential buyers is always the same: no thanks. “There’s nothing they can offer us,” he said, “that we can’t do ourselves.”
The core problem at banks like his is that the comparative advantages they offer — customer service, access to managers, an intimate knowledge of borrowers — do not always translate to the bottom line, even if they do yield dividends in public relations.
“They do things that big banks won’t do,” said Paul Macakanja, the owner of the Jenny Lee diner, which sits on Main Street facing Mr. Cullen’s bank. The diner has no photocopier, and tellers at the bank, he said, will run off copies of his menu, free of charge. “They support you personally,” he added, “because your success is their success.”
It is for these and other reasons that Mr. Fine argued poignantly on behalf of small banks. They hold 20 percent of the country’s assets, he said, and yet write more than half of its small-business loans. “Customers can say, ‘I know where my money is — it’s down there eight blocks away,’ ” he said. “They can walk in and talk to the president and know he isn’t sucking in their money and betting against them on proprietary securities.”
Nonetheless, 400 community banks have disappeared in the last three years.
IN 1982, Mr. Cullen published a chapbook to celebrate his bank’s centennial. The book contained a photograph of the bank’s first president, the elaborately bearded Oscar F. Beach, and another of himself, from childhood, which bore the caption: “Ms. Berger’s kindergarten class 1953.”
“Banking, as one might imagine, is a very interesting business,” he wrote. “In a rural area, it is also a very important business. When customers entrust their life savings to us, we treat it as if it were our own.”
Beyond a business, Mr. Cullen sees banking as an instrument — one that can shape and preserve the history of his village, which he cites with an archivist’s fluidity. His office is cluttered with local artifacts: a mug from the Third Annual Amish Relief Auction; an old sign reading, “Cattaraugus Chowder & Marching Society.” One of his most treasured possessions is a leather map bag that belonged to Theodore Roosevelt, who passed through town during his New York gubernatorial campaign.
For the last six years, Mr. Cullen has owned and operated the American Museum of Cutlery across the street from his bank, which honors Cattaraugus’s onetime pre-eminence in the knife-making trade.
Between his day job and his other hobbies — antique firearms, an Irish band — Mr. Cullen runs the Historic Cattaraugus Corporation, a nonprofit business that has purchased several buildings in town (the 1909 theater, the 1915 Ford dealership) and refurbished them and rented them out, or simply stopped them from deteriorating. The idea came to him in 1990, he said, when a schoolteacher left town and simply abandoned his house. Not long after, the garage collapsed.
The property was dangerous enough that the school district would not let students walk by. It was an eyesore; it was dragging property values down. “I went and camped out at his new place, and when he went to work, I said, ‘Listen, you can’t do this to our community,’ ” Mr. Cullen recalled. He persuaded the man to deed the house back to the bank. The bank paid for a renovation and eventually resold it — at a loss of only $500, Mr. Cullen said.
From 1990 to 2003, when the historical corporation was formed, Mr. Cullen invested nearly $1 million of the bank’s money in properties in the village, often getting it back, but not always. “Banks tend not to do that sort of thing,” he stated dryly. (His wife, more succinctly, said, “Growth isn’t Patrick’s thing.”) Now, however, with grants from the state, Mr. Cullen has bought, among other things, the glorious old moldering hotel in town, and he is patiently waiting for an opportunity to put it to use.
The corporation recently acquired Mr. Cullen’s most cherished local property: the 4.5-acre plot where Cattaraugus was founded (the same spot where, not coincidentally, the campaigning Teddy Roosevelt addressed townsfolk from the back of a train). Dreaming as only a small-town banker dreams, Mr. Cullen plans to rebuild the original buildings — from the shingle maker’s shop to the stagecoach station — and open them to the public as a Colonial Williamsburg-style theme park.
“If you look at Williamsburg’s Web site, they claim the park employs 3,800 people,” he said. “Give us 5 percent of that, I’ll claim success.”
Mr. Cullen hints that there is interest in his project among certain personages in Washington — he is a banker, after all, who knows other bankers, who know politicians — but it would contradict the very purpose of the project, he said, to finance it with federal money. Cattaraugans know Cattaraugus. The venture will be locally grown.
“Everyone will be involved,” he said. “The bank, the church, local government, the people — everyone will have a stake. Creating that experience is what it means to be American, in a sense. It’s what it means to be from a place.”
As her mother sat in a homeless shelter in downtown Miami, talking about her economic struggles and loss of faith in the U.S. political system, 3-year-old Aeisha Touray blurted out what sounded like a new slogan for the Occupy Wall Street protest movement.
Nairkahe Touray (C) speaks with Reuters where she lives with her five children at the Chapman Partnership homeless shelter in Miamii, Florida, December 19, 2011. At left is Aeisha, 3, and at right is Yesuf, 11-months old. (Credit: Reuters/Joe Skipper)
"How dare you!" the girl said abruptly as she nudged a toy car across a conference room table at the Chapman Partnership shelter in Miami's tough and predominantly black Overtown neighborhood.
There was no telling what Aeisha was thinking as her 32-year-old mother, Nairkahe Touray, spoke of how she burned through her savings and wound up living in a car with five of her eight children earlier this year.
But how dare you indeed? How does anyone explain to kids like Aeisha and countless others how they wound up homeless in the world's richest nation?
In a report issued earlier this month, the National Center on Family Homelessness, based in Needham, Massachusetts, said 1.6 million children were living on the streets of the United States last year or in shelters, motels and doubled-up with other families.
That marked a 38 percent jump in child homelessness since 2007 and Ellen Bassuk, the center's president, attributes the increase to fallout from the U.S. recession and a surge in the number of extremely poor households headed by women.
Recent data from the U.S. Census Bureau provided a sobering backdrop. Based on new or experimental methodology aimed at providing a fuller picture of poverty, the data showed that about 48 percent of Americans are living in poverty or on low incomes.
Under the bureau's so-called Supplemental Poverty Measure for 2010, issued last month, the poverty level for a family of four was set at income anywhere below $24,343 per year.
"I see it every day," said Alfredo Brown, 73, a retired army officer and deputy director of the non-profit Chapman Partnership, when asked about child homelessness.
The organization, funded largely by a 1 percent food and beverage tax on larger restaurants to bankroll homeless programs, operates two sprawling homeless shelters in Miami-Dade County.
"I see so many children and mothers that are homeless and sleeping in their car or an abandoned building, an old bus. It's a sad situation that we live in a country that has so much and many people have so little," Brown said.
Child homelessness is a relatively new social problem in the United States, where being on the street and the stigma attached to it has long been associated with adults with alcohol or drug dependency issues.
IMPOVERISHED MOTHERS
Families accounted for less than 1 percent of the U.S. homeless population in the mid-1980s, according to Bassuk, but they now comprise about a third of the homeless population. A lot of children are dependent on poverty-stricken single moms.
"There's sort of a Third World emerging right in our backyard. You know, we talk about developing countries but look at what's going on here," Bassuk said.
To put a face to the breadth and depth of the homeless problem, a team of Reuters journalists fanned out across the country in the past week, for interviews with parents and children who are down on their luck.
From Skid Row in Los Angeles to the South Bronx in New York, a common thread of economic devastation from the recession ran throughout many of the stories these people told.
But there also was a common thread of hope running through their compressed life stories.
Little Aeisha in Miami got visibly upset as her mother spoke tearfully about the wear and tear on her children amid her struggles with a bad economy, severe depression, diabetes and chronic foot problems stemming from torn ligaments.
Touray sounded like an Occupy Wall Street protester herself, as she complained about bailout money for banks but not people. "You get treated like an animal because you're homeless," said Touray, who said she lives on just $583 a month in child support after going through a divorce last year. Her parents, who live separately in Atlanta and Chicago, are also homeless.
"Just because I'm homeless it doesn't mean that I was like nothing yesterday," said Touray, who said four small businesses she owned in Atlanta only went bust due to the recession.
She also complained about the tone-deafness of many politicians, saying they were doing nothing to ease the unemployment and inequality that have come to dominate the national conversation.
"I'm living the real deal," Touray said. "I don't need for somebody to come up here and tell me what the economy's doing. They (the politicians) need to get out here and see these children, see these parents."
RIDING THE RAILS
Across the country in Los Angeles, Reuters came across Luis Martinez, 34. A single parent, he lives with his three children at the Union Rescue Mission on a trash-strewn city block where homeless men and women stand vigil over plastic shopping carts.
But the shelter is an improvement over the time when Martinez passed nights on the L.A. subway with his children, riding the rails to nowhere.
A junior high school dropout who became unemployed after he injured his back on construction site job about six years ago, Martinez spoke proudly about how well he said his kids were doing in school.
They have a laptop computer, which they use to help do homework through free wireless connections at McDonalds and Starbucks. They also have an Xbox video game system and Martinez, who wears a necklace that says "My Kids First," has a cell phone to stay in touch with family and potential employers.
"I mean, I'm homeless but not hopeless," Martinez said.
"(It) gets easier as you go," said Jesse, Martinez's 8-year-old son.
Highlighting the shrinking middle class in America, a reporter found Tracy and Elizabeth Burger and their 8-year-old son, Dylan. The Burgers said they once earned nearly $100,000 a year combined but saw their middle-class lifestyle evaporate when Tracy lost his job in audiovisual system sales.
Unable to pay rent, they were evicted from their apartment in early 2009 and had to move into a motel. In March they moved into a cramped converted garage at Elizabeth's mother's house in Los Angeles.
Elizabeth, a former medical assistant, said she has less than six weeks left on her unemployment insurance and was anxiously watching this week's standoff in Congress over extending those payments, along with the payroll tax cut for 160 million Americans.
The congressional debate highlighted the partisan bickering that has made this a tumultuous year in U.S. politics, while throwing Washington's ability to make sound economic policy into doubt.
In central Florida, Justin Santiago, 15, said he was not surprised when he, his parents and three younger siblings landed in a downtown Orlando shelter last September.
Since the national economic collapse in 2008, his out-of-work family bounced from one relative's home to another, and left California in search of employment and stability.
"I wasn't shocked. When the economy's going down and it just drops, it's out of control," Justin said.
EYES ON THE PRIZE
In 16 years of marriage, his parents, Theresa and Timothy Santiago, managed to provide for their family by working multiple jobs, earning about $20,000 in their best year. But work dried up and the family set out for Florida last spring in search of cheaper living expenses.
After a run of more bad luck, they found their way to the Coalition for the Homeless of Central Florida shelter. But Justin is taking eighth grade honors classes now and says his family's recent experience will not keep him from pursuing his dream career in video game production and becoming an Internet success story.
"It will get better for me and my family," he said. "I'll be making billions, I know that."
Antonio Dixon, 26, knows all about things getting better. His mother, Corenthia, said he bounced between at least a dozen homeless shelters growing up in Miami and Atlanta.
He eventually won a football scholarship at the University of Miami and fought dyslexia to become the first person in his family to graduate college.
"They had me study hard every hour," Dixon told Reuters.
He has since gone on to play defensive tackle for the NFL's Philadelphia Eagles, making good on his boyhood dream.
Dixon has been sidelined by a torn tricep since early October. But he seems confident about overcoming adversity yet again and plans on being in the starting lineup next season.
His advice to homeless kids is to stay in school and get focused on whatever it is they really want to do in life.
"Just keep on doing something you like and don't give up," Dixon said. I had to work myself up from the bottom to the top. I did that. Don't let nobody stand in your way. You just got to go and get it. You can't be afraid to take a chance on life."
Bassuk, a psychiatrist and Harvard Medical School professor, said medical problems and under-achievement in school were among the things that often go hand in hand with childhood homelessness.
"These are kids who don't have any opportunities," she said. "If you look at some of the educational variables, they're doing really poorly. And they're kids who can do OK. They just don't have appropriate support.
"It just seems that on every front this is a very vulnerable group of kids," she said.
I’d like to join the war against the war against Christmas: a cause bravely championed by muffled voices in the catacombs like Bill O’Reilly at Fox News and Rex Murphy on CBC. So here are some Christmas presents from the Judeo-Christian tradition that I hope will find favor with deniers and those who just don’t care if there’s a God since it would make no practical difference. I’ll draw from the Judeo part, since it’s my background. You can call me Santa.
The early books of the Hebrew Bible contain some amazing laws from biblical times (packaged as divine commandments) that read like Christmas cards to people today who are drowning in debt or who’ve lost cherished homes. Take the law of the Sabbatical year: every seventh year, all debts are forgiven. (In addition the land must lie fallow — something under the tree, as it were, for environmentalists.)
Then there’s the Jubilee year: every 50 years — after seven cycles of seven — all land reverts to its original owners. Under this rule, inequality couldn’t expand endlessly, so that — as in the U.S. — the top 20 per cent own 87.2 per cent of the wealth while the other 80 per cent have 12.8 per cent. Instead, the gap narrows periodically. We’re morally primitive by comparison. In Spain today people lose their homes yet must keep paying the damn mortgage.
These laws used to be viewed as idealized, impractical versions of biblical realities. In my seminary days, I thought of them as evidence for their opposite: societies probably rife with oppressive debt, etc. But it turns out they weren’t unusual. Similar enlightened rules were common in the ancient Mideast. They’re part of a venerable tradition linking economics with morality that reigned until very recent times. In his book, Economics of Good and Evil, Tomas Sedlacek traces it from the Epic of Gilgamesh right to Adam Smith — who Sedlacek says has been misrepresented as trusting the economy to amoral market forces.
Sedlacek is a Czech economist who’s both an academic and popularizer. He advised Vaclav Havel when he was president and he represents the best of the Havelian approach — which it’s nice to mention this Christmas, just after Havel’s death. That approach placed a moral sensibility at the heart of public policy — and not in merely rhetorical or chauvinistic ways: God on our side; My country right or wrong, etc. Sedlacek wants to restore this lost ethical emphasis to economics much as Margaret Atwood resuscitated it in her book, Payback, two years ago. It’s a nice little trend.
Jesus in the New Testament is even more focused on debt, equating it with sin: Forgive us our debts as we forgive our debtors. It goes so far there that God sacrifices his only son — to “redeem” the debt/sins of humanity. That’s a bit of a stretch for some of us but at least, Sedlacek says, a moral thread runs through economics until the modern era, based on a sense of mutual human responsibility. With that moral element now eliminated, you wind up bailing out (“forgiving”) the biggest, most powerful debtor/sinners, i.e. the banks, but doing nothing for the poor and destitute, who were supposed to inherit the Earth.
I know that’s terse and I recommend the book over my summary. But since Sedlacek puts such stress on human sympathy and solidarity — which is another way to say, Peace on Earth, good will toward men — let me mention one more directive from the Hebrew Bible. It’s in the Ten Commandments and may be the only biblical law to forbid an emotion: Thou shalt not covet. What a pointless injunction. We have no control over our emotions; they come to us unbidden. Yet nothing is as destructive to human sympathy and community as envy or jealousy. It’s as if the Bible felt it was necessary to forbid them, even as it knew that was a hopeless order. It chose to at least draw attention to the danger.
I offer these thoughts in the spirit of seasonal gift-giving which, as Sedlacek notes, is a very uneconomic — at least in the modern sense — activity. Nobody uses econometrics to calculate gifts they give or gratitude they feel. The whole process is uneconomic — but only in the withered, current sense.
Rick Salutin is a Canadian novelist, playwright, journalist, and critic and has been writing for more than forty years. Until October 1, 2010, he wrote a regular column in the Globe and Mail; on February 11, 2011, he began a weekly column in the Toronto Star.
Many political pundits of various media institutions were quick to demand the Occupy Movement declare a list of grievances at its founding. Though not immediately, and not uniformly, a set of demands has emerged from many of the 100 or so occupations found in cities across the United States. Demands include such proposals as the end to the war on terror, the formation of a single-payer health care system, a higher tax on the wealthy, the overturning of the Citizens United v. the FEC Supreme Court decision, restoration of the guidelines once found in the Glass-Steagall Act, and various other forms of economic regulation as well as limitations on money's influence in politics.
These demands give some idea of what the Occupy Movement is about, but focusing too narrowly on the demands misses the movement's very important core element. The most important feature of the Occupy Movement was the very process by which the demands were made.
The Occupy Movement is important in that it no longer looks to the government, as it currently is, to acheive its goals. The General Assembly, the legislative body present at each occupation, represents in miniature an alternative governing organization meant to both demonstrate everyday people's ability to manage their affairs as well as act as a body to be compared to the government itself. In fact, Goldsmiths, University of London anthropologist David Graeber, a founder of the Occupy Movement, made many statements indicating this as the reason for the movement's being organized as it was.
The Occupy Movement is about people's exercising self-determination, its very process of decision making to be juxtaposed to the current lack of power participants feel in our capitalist democracy.
The preamble to the Declaration of the Occupation of New York City clarifies:
"As one people, united, we acknowledge the reality: that the future of the human race requires the cooperation of its members; that our system must protect our rights, and upon corruption of that system, it is up to the individuals to protect their own rights, and those of their neighbors; that a democratic government derives its just power from the people, but corporations do not seek consent to extract wealth from the people and the Earth; and that no true democracy is attainable when the process is determined by economic power."
"We come to you at a time when corporations, which place profit over people, self-interest over justice, and oppression over equality, run our governments."
The Occupy Movement is young and yet at its beginning, as corporations and the class which operates them are so entrenched in U.S. politics.
The most popular reason given for why the wealthy and corporations exercise so much power politically involves the process of campaign finance. In the past decade the majority of money presidential and congressional candidates raised came from contributions of $200 or more. Less than one percent of the population made these donations, 81 percent of whom had incomes of more than $100,000 a year. These donations pale in comparison to the amount of money businesses donate directly to candidates' political parties, which comprise near 90 percent of total contributions in any given election.
Corporations not only have a powerful effect on elections, but are a virtually inseparable part of the political process itself.
The capitalist class is able to use the wealth generated by the corporations which they run to continuously lobby on their behalf.
Lobbying is a constant component of corporate strategy. In 2010, the oil and gas industry spent over 146 million dollars while employing 802 lobbyists, the pharmaceutical industry spent over 244 million dollars while employing 1,612 lobbyists, and finance (insurance and real estate) spent over 475 million dollars while employing 2,563 lobbyists. In comparison, public sector unions, representing the largest non-corporate, politically active institutions in the U.S., spent just over 14 million dollars and had a mere 150 lobbyists.
Further, as corporations are institutions which both own and manage a nation's resources, they naturally become politicians' biggest source for relevant information with which to form public policy. Corporate directors, executives, and those they employ as top level accountants or lawyers form the basis of the nation's largest think tanks and policy discussion groups.
Think tanks organize corporate money and industry experts to discuss issues surrounding public policy. They debate current policy, identify issues of their own and train experts. Of the ten largest think tanks in the U.S., seven are either explicitly conservative or promote ideas in line with the stated goals of the Republican Party. The other three define themselves as non-partisan. Some think tanks, like the Heritage Foundation, focus on promoting experts and their interpretation of policies via public relations efforts while other think tanks, like the American Enterprise Institute or Chamber of Commerce, focus more on providing information and expertise to involved corporations, policy discussion groups, or directly to politicians.
Policy discussion groups are leaner than think tanks and tend to be focused more directly on policy formation. These are corporations' political working groups, where experts from think tanks present ideas to the heads of corporations and position statements are formed. One of the most powerful policy discussion groups is the Business Council, which began as a quasi-governmental advisory group in the 1930s only to become an independent entity in 1962. The Business Roundtable is the Business Council's active branch. These groups either meet directly with members of Congress and the Executive branch or work through lobbyists.
Corporations are, therefor, not only economic entities. They represent institutions of organized power and are the foundations that allow the capitalist class the constant influence in politics which the Occupy Movement stands against.
The economy, having developed so that a small group of capitalists wield such a vast amount of power, forces progressives to reconsider capitalist democracy. The directors of these corporations are not only member's of the nation's wealthiest one percent, but have been observed by sociologist G. William Domhoff to also be 90 percent male and 95 percent white. Capitalism has developed such that it undermines democracy itself.
The Occupy Movement introduced many to the process of self-determination through the management of their occupations, from the preparation and distribution of food, to the organization of hygiene and the production of media. The challenge is to expand on the practice of self-determination and employ it on a vast scale.
Another Occupy Movement founder, Naomi Klein, presented how this might be done in The Take, a 2004 film on Argentinian worker's self-management of factories. The film demonstrating how communities united to operate factories abandoned by that nation's companies in a recession. Curiously, they used the slogan "occupy, resist, produce." Many of the reclaimed factories continue to operate effectively under management elected from the workers' own ranks in democratic self-management systems established during their occupation.
It is time for progressive forces in the U.S. to seriously pose capitalism as a question. At the end of November, the Republican governor's association met in Florida in part to talk about messaging. Frank Luntz, a Republican political messaging strategist, insisted that conservatives replace the word "capitalism" with the words "economic freedom" or "free market". A recent change to Texas textbooks also replaced "capitalism" with "free enterprise system".
The capitalist question, when posed as a matter of economic freedom, prompts those without economic power to respond "freedom for whom?". The question begs an answer that calls for the need for a "democratic economy". This idea can be conceptualized as parallel to the goal of "democracy in the workplace", a phrase the labor movement currently uses in its struggle.
There can be no real political democracy until there is economic democracy.
Two weeks before the Iowa caucuses, the Republican crackup threatens the future of the Grand Old Party more profoundly than at any time since the GOP’s eclipse in 1932. That’s bad for America.
The crackup isn’t just Romney the smooth versus Gingrich the bomb-thrower.
Not just House Republicans who just scotched the deal to continue payroll tax relief and extended unemployment insurance benefits beyond the end of the year, versus Senate Republicans who voted overwhelmingly for it.
Not just Speaker John Boehner, who keeps making agreements he can’t keep, versus Majority Leader Eric Cantor, who keeps making trouble he can’t control.
And not just venerable Republican senators like Indiana’s Richard Lugar, a giant of foreign policy for more than three decades, versus primary challenger state treasurer Richard Mourdock, who apparently misplaced and then rediscovered $320 million in state tax revenues.
Some describe the underlying conflict as Tea Partiers versus the Republican establishment. But this just begs the question of who the Tea Partiers really are and where they came from.
The underlying conflict lies deep into the nature and structure of the Republican Party. And its roots are very old.
As Michael Lind has noted, today’s Tea Party is less an ideological movement than the latest incarnation of an angry white minority – predominantly Southern, and mainly rural – that has repeatedly attacked American democracy in order to get its way.
It’s no mere coincidence that the states responsible for putting the most Tea Party representatives in the House are all former members of the Confederacy. Of the Tea Party caucus, twelve hail from Texas, seven from Florida, five from Louisiana, and five from Georgia, and three each from South Carolina, Tennessee, and border-state Missouri.
Others are from border states with significant Southern populations and Southern ties. The four Californians in the caucus are from the inland part of the state or Orange County, whose political culture has was shaped by Oklahomans and Southerners who migrated there during the Great Depression.
This isn’t to say all Tea Partiers are white, Southern or rural Republicans – only that these characteristics define the epicenter of Tea Party Land.
And the views separating these Republicans from Republicans elsewhere mirror the split between self-described Tea Partiers and other Republicans.
In a poll of Republicans conducted for CNN last September, nearly six in ten who identified themselves with the Tea Party say global warming isn’t a proven fact; most other Republicans say it is.
Six in ten Tea Partiers say evolution is wrong; other Republicans are split on the issue. Tea Party Republicans are twice as likely as other Republicans to say abortion should be illegal in all circumstances, and half as likely to support gay marriage.
Tea Partiers are more vehement advocates of states’ rights than other Republicans. Six in ten Tea Partiers want to abolish the Department of Education; only one in five other Republicans do. And Tea Party Republicans worry more about the federal deficit than jobs, while other Republicans say reducing unemployment is more important than reducing the deficit.
In other words, the radical right wing of today’s GOP isn’t that much different from the social conservatives who began asserting themselves in the Party during the 1990s, and, before them, the “Willie Horton” conservatives of the 1980s, and, before them, Richard Nixon’s “silent majority.”
Through most of these years, though, the GOP managed to contain these white, mainly rural and mostly Southern, radicals. After all, many of them were still Democrats. The conservative mantle of the GOP remained in the West and Midwest – with the libertarian legacies of Ohio Senator Robert A. Taft and Barry Goldwater, neither of whom was a barn-burner – while the epicenter of the Party remained in New York and the East.
But after the Civil Rights Act of 1964, as the South began its long shift toward the Republican Party and New York and the East became ever more solidly Democratic, it was only a matter of time. The GOP’s dominant coalition of big business, Wall Street, and Midwest and Western libertarians was losing its grip.
The watershed event was Newt Gingrich’s takeover of the House, in 1995. Suddenly, it seemed, the GOP had a personality transplant. The gentlemanly conservatism of House Minority Leader Bob Michel was replaced by the bomb-throwing antics of Gingrich, Dick Armey, and Tom DeLay.
Almost overnight Washington was transformed from a place where legislators tried to find common ground to a war zone. Compromise was replaced by brinkmanship, bargaining by obstructionism, normal legislative maneuvering by threats to close down government – which occurred at the end of 1995.
Before then, when I’d testified on the Hill as Secretary of Labor, I had come in for tough questioning from Republican senators and representatives – which was their job. After January 1995, I was verbally assaulted. “Mr. Secretary, are you a socialist?” I recall one of them asking.
But the first concrete sign that white, Southern radicals might take over the Republican Party came in the vote to impeach Bill Clinton, when two-thirds of senators from the South voted for impeachment. (A majority of the Senate, you may recall, voted to acquit.)
America has had a long history of white Southern radicals who will stop at nothing to get their way – seceding from the Union in 1861, refusing to obey Civil Rights legislation in the 1960s, shutting the government in 1995, and risking the full faith and credit of the United States in 2010.
Newt Gingrich’s recent assertion that public officials aren’t bound to follow the decisions of federal courts derives from the same tradition.
This stop-at-nothing radicalism is dangerous for the GOP because most Americans recoil from it. Gingrich himself became an object of ridicule in the late 1990s, and many Republicans today worry that if he heads the ticket the Party will suffer large losses.
It’s also dangerous for America. We need two political parties solidly grounded in the realities of governing. Our democracy can’t work any other way.
The defining political issue of 2012 won’t be the government’s size. It will be who government is for.
Americans have never much liked government. After all, the nation was conceived in a revolution against government.
But the surge of cynicism now engulfing America isn’t about government’s size. The cynicism comes from a growing perception that government isn’t working for average people. It’s for big business, Wall Street, and the very rich instead.
In a recent Pew Foundation poll, 77 percent of respondents said too much power is in the hands of a few rich people and corporations.
That’s understandable. To take a few examples:
Wall Street got bailed out but homeowners caught in the fierce downdraft caused by the Street’s excesses have got almost nothing.
Big agribusiness continues to rake in hundreds of billions in price supports and ethanol subsidies. Big pharma gets extended patent protection that drives up everyone’s drug prices. Big oil gets its own federal subsidy. But small businesses on the Main Streets of America are barely making it.
American Airlines uses bankruptcy to ward off debtors and renegotiate labor contracts. Donald Trump’s businesses go bankrupt without impinging on Trump’s own personal fortune. But the law won’t allow you to use personal bankruptcy to renegotiate your home mortgage.
If you run a giant bank that defrauds millions of small investors of their life savings, the bank might pay a small fine but you won’t go to prison. Not a single top Wall Street executive has been prosecuted for Wall Street’s mega-fraud. But if you sell an ounce of marijuana you could be put away for a long time.
Not a day goes by without Republicans decrying the budget deficit. But the biggest single reason for the yawning deficit is big money’s corruption of Washington.
One of the deficit’s biggest drivers — Medicare – would be lower if Medicare could use its bargaining leverage to get drug companies to reduce their prices. Why hasn’t it happened? Big Pharma won’t allow it.
Medicare’s administrative costs are only 3 percent, far below the 10 percent average administrative costs of private insurers. So why not tame rising healthcare costs for all Americans by allowing any family to opt in? That was the idea behind the “public option.” Health insurers stopped it in its tracks.
The other big budgetary expense is national defense. America spends more on our military than do China, Russia, Britain, France, Japan, and Germany combined. The basic defense budget (the portion unrelated to the costs of fighting wars) keeps growing, now about 25 percent higher than it was a decade ago, adjusted for inflation.
That’s because defense contractors have cultivated sponsors on Capitol Hill and located their plants and facilities in politically important congressional districts.
So we keep spending billions on Cold War weapons systems like nuclear attack submarines, aircraft carriers, and manned combat fighters that pump up the bottom lines of Bechtel, Martin-Marietta, and their ilk, but have nothing to do with 21st-century combat.
Declining tax receipts are also driving the deficit. That’s partly because most Americans have less income to tax these days.
Yet the richest Americans are taking home a bigger share of total income than at any time since the 1920s. Their tax payments are down because the Bush tax cuts reduced their top rates to the lowest level in more than half a century, and cut capital gains taxes to 15 percent.
Congress hasn’t even closed a loophole that allows mutual-fund and private-equity managers to treat their incomes as capital gains.
So the four hundred richest Americans, whose total wealth exceeds the combined wealth of the bottom 150 million Americans put together, pay an average of 17 percent of their income in taxes. That’s lower than the tax rates of most day laborers and child-care workers.
Meanwhile, Social Security payroll taxes continue to climb as a share of total tax revenues. Yet the payroll tax is regressive, applying only to yearly income under $106,800.
And the share of revenues coming from corporations has been dropping. The biggest, like GE, find ways to pay no federal taxes at all. Many shelter their income abroad, and every few years Congress grants them a tax amnesty to bring the money home.
**
Get it? “Big government” isn’t the problem. The problem is big money is taking over government.
Government is doing less of the things most of us want it to do — providing good public schools and affordable access to college, improving our roads and bridges and water systems, and maintaining safety nets to catch average people who fall — and more of the things big corporations, Wall Street, and the wealthy want it to do.
Some conservatives argue we wouldn’t have to worry about big money taking over government if we had a smaller government to begin with.
Here’s what Congressman Paul Ryan told me Sunday morning when we were debating all this on ABC’s “This Week”:
If the power and money are going to be here in Washington, that’s where the influence is going to go … that’s where the powerful are going to go to influence it.
Ryan has it upside down. A smaller government that’s still dominated by money would continue to do the bidding of Wall Street, the pharmaceutical industry, oil companies, big agribusiness, big insurance, military contractors, and rich individuals.
It just wouldn’t do anything else.
If we want to get our democracy back we’ve got to get big money out of politics.
We need real campaign finance reform.
And a constitutional amendment reversing the Supreme Court’s bizarre rulings that under the First Amendment money is speech and corporations are people.
WASHINGTON — "Dance with the One that Brought You" is the title of a well-known song. But the Urban Dictionary offers a deeper meaning: "The principle that someone should pay proper fealty to those who have gone out of their way to look after them."
Barack Obama should pay attention. In 2008, young voters were enthused and turned out for him by the millions.
But now? The campus/youth enthusiasm factor has declined sharply. The deficiency seriously imperils Obama's re-election effort.
There's one issue, though, that might reignite youthful enthusiasm. That issue is marijuana — partly its medical use, but especially Americans' right to recreational use free of potential arrest and possible prison time.
Today's grim reality is that police continue to arrest youth for marijuana possession by the hundreds of thousands. But each arrest is a red flag of danger, threatening life prospects for a young man or woman suddenly saddled with a permanent "drug arrest" record that's easily located by employers, landlords, schools, credit agencies and banks.
Small wonder then that 62 percent of young Americans (ages 18 to 29) now favor legalizing marijuana, as a Gallup poll reported.
And it's not just youth these days. Gallup this year found 50 percent nationwide support for legalizing marijuana use — the most ever, up from a measly 12 percent in 1969 to 30 percent in 2000 and 40 percent in 2009.
A ballot measure to legalize, regulate and tax marijuana received 46.5 percent of the vote in California last year. Parallel measures are likely to be on the 2012 ballots in Colorado and Washington. Odd political bedfellows — Reps. Barney Frank, D-Mass., and Ron Paul, R-Texas — recently introduced a legalization bill and now have 19 co-sponsors. Paul even gets applause advocating legalization in Republican presidential debates.
But what about President Obama? In 2004 he endorsed marijuana decriminalization. He was candid about his early pot use and in 2006 told a group of magazine editors: "When I was a kid, I inhaled, frequently." By his run for president in 2008, he was slipping away from decriminalization but at least talked of a "public health" approach, emphasizing drug treatment instead of prison, giving drug-reform advocates hope for a new day in national policy.
But Obama as president has been a clear disappointment to reform forces. In White House-initiated electronic town halls, respondents — heavily weighted to original Obama supporters — have repeatedly put marijuana at the top of their issue lists. But the White House has either laughed off or provided dismissive retorts.
Obama's Drug Policy Office claims the drug war is over, replaced by a focus on shrinking demand, "innovative, compassionate and evidence-based drug policies." But Obama has not once singled out marijuana — a substance arguably far less harmful to the human body than alcohol — for special consideration. Nor has he spoken to the harm to youth caused by 800,000 yearly arrests. Or moved to stem the billions of dollars a year spent on marijuana-related arrests.
This is clearly not the "change" Obama's enthusiastic supporters of 2008 expected. And it's deeply ironic. Ethan Nadelmann of the Drug Policy Alliance notes that if local police departments had been enforcing marijuana laws as harshly in the early 1980s as many do today, "there's a good chance a young Columbia student named Barack Obama could have been picked up — and not be in the White House today."
Nadelmann suggests that both the White House Drug Policy Office and the Justice Department enforcement divisions have been "co-opted" by holdover appointees deeply invested in anti-marijuana rhetoric and "let's just bust them" drug enforcement.
Facing the 2012 election, Obama is not likely to advocate, suddenly, marijuana decriminalization. But he could announce that it's time for a serious national dialogue on the issue, and that it will be a hallmark of his second term. He could express his dismay that 800,000 people, mostly young (and heavily black and Hispanic), are being arrested each year for marijuana possession — even as 50 percent of Americans favor legalization. He could focus on the massive costs of enforcement, the deep social costs of imprisonment. Let all America, youth included, join in the debate, he could urge.
A new openness to marijuana reform could help to reignite, on campuses and among high numbers of young people, the hope for "change" that really means something. Perhaps even prospects for the president's own re-election.
Columnist Neal Peirce is chairman of the Citistates Group, a network of journalists and speakers who believe that successful metropolitan regions are today's key to economic competitiveness and sustainable communities.
In the narrative of the economic and political elites that have long shaped it, the European project has put an end to the series of bloody wars that afflicted the continent up through the first half of the 20th century. In reality, of course, the process of European unification reflected and reinforced, from its beginnings, new kinds of divisions that continue to shape Europe’s social and economic landscape. In the early postwar period the gradual formation of the European Community helped to bring together the various European countries on the capitalist side of the Cold War divide, while in more recent decades the deepening economic integration of the continent, most dramatically exemplified by the adoption of a common currency by 17 of the European Union’s member states, has increased economic and class inequality by restructuring European societies along neoliberal lines. In addition to eroding the gains that the postwar “golden age” of capitalism brought to European working classes, this neoliberal model is now in grave crisis, as the contradictions underlying the eurozone project have begun to unravel.
While mainstream U.S. media often attribute the crisis to the overspending of European countries, the reality is that the philosophy structuring European institutions has long prioritized the pursuit of low deficits, debt and inflation even at the expense of chronically high unemployment. In this respect, the European Union has been in line with the neoliberal paradigm that has prevailed in most parts of the world since the postwar model of development came to an end in the 1970s. While the deficit and debt targets were often violated by most countries in the eurozone (and not just by Greece and the countries on the European periphery), the main thrust of the European project has been to move away from the immediate postwar model, which was predicated on Keynesian social-democratic policies that sought full employment and the growth of social services and welfare states designed to give capitalism a human face.
While the postwar model of “welfare Keynesianism” was predicated on an international economic structure known as the Bretton Woods system, which protected the autonomy of economic policy-making on the national level, the deepening economic integration within Europe has pushed a model of economic development less dependent on the growth of domestic demand and more dependent on international competitiveness. Thus, while rising wages and productivity, as well as a growing welfare state, helped support economic growth in the postwar model, in the neoliberal era rising wages and a large welfare state are viewed as drags on economic growth that damage national competitiveness and reduce exports.
As has been the case in other parts of the world, this shift from the postwar Keynesian model to today’s neoliberal model has been devastating for ordinary workers and citizens, even as it helped European capital to recover from the crisis of the postwar model in the 1970s. The process of economic unification up to and including the formation and crisis of the eurozone has, moreover, encapsulated the problems with neoliberal globalization more generally.
While neoliberals never tire of presenting free trade as universally beneficial, scholars who have studied the history of national economic development often point out that none of today’s economic powerhouses developed by adopting an open-market policy in their early stages of development. Indeed, it is the technologically and economically most advanced countries that are usually the most ardent supporters of free trade, since they (and especially the capitalist groups within them) benefit the most from such policies. This dynamic has certainly been present within the eurozone and contributed to the regional divisions that overdetermine the present crisis.
The adoption of a common currency was especially beneficial to German industrial capital, since the economically less powerful countries on the European periphery could no longer protect their competitiveness by periodic devaluations or by industrial strategies that sought to challenge their subordinate position within the European division of labor. Unsurprisingly, the adoption of a common currency did not just increase the penetration of Southern markets by German industrial products but also decimated the industrial capacity of economically less strong countries.
This regional imbalance was further aggravated by Germany’s tendency to bolster the competitiveness of its products even further by squeezing the wages of its workers. Those who present Germany as the model that the black sheep on the European periphery have to emulate usually neglect to mention that because of this “competitiveness” policy Germany has in recent years experienced rapidly rising poverty rates even among citizens who are employed.
In another sense, of course, Germany is a model of the contradictions that result from the neoliberal shift from a developmental model based on domestic demand to one based on exports. There is something paradoxical about the intense pressure on countries on the European periphery to emulate Germany by adopting an export-oriented development strategy that supposedly requires a brutal assault on wages, collective bargaining and labor rights. Those who advocate this strategy seem to forget that not everybody can emulate Germany’s trade surpluses for the simple reason that for some countries to achieve such surpluses some other countries have to incur corresponding deficits.
The other contradiction of global neoliberalism operative within the eurozone relates to the inherent instability of liberalized financial markets. Financial liberalization may benefit the financial sector, which has been as influential in shaping the European project as it has been in shaping economic policy in other parts of the world, but it has again and again wrought terrible havoc on the lives of billions of people, whenever asset bubbles burst and in the ensuing climate of panic businesses close down, jobs are lost and people’s lives are ruined.
The formation of the eurozone a decade ago inaugurated a short-lived period of easy credit. This easy credit was made available by banks in more affluent European countries, such as Germany and France, to the citizens and governments of less affluent countries on the periphery. From the point of view of countries on the receiving end of these loans, easy credit fueled a period of prosperity that, as we know from the experience of other countries, such as the United States, might not have been possible at a time of growing economic inequality. The creditors, by contrast, underestimated the risks inherent in doing business within a eurozone that was not economically and technologically homogeneous.
As has often happened in the last few decades around the world, an external shock is often enough to turn unrealistic euphoria into extreme pessimism, giving rise in the process to debt crises that reverberate across the global economy. Thus it was that the financial crisis triggered three years ago by the subprime loans fiasco has over time come to threaten the very survival of the eurozone.
When the European debt crisis first surfaced in Greece, the first response of the mainstream media in the United States and Europe alike was to attribute it to the “profligacy” of Greeks and the defective political culture that allegedly fueled it. In addition to misrepresenting the manifestation of a broader systemic problem as a “national” one, this interpretation is giving rise to new divisions within Europe, as the citizens of the so-called PIGS (Portugal, Ireland/Italy, Greece and Spain) have in effect been racialized and treated as the convenient scapegoats for a crisis flowing from the structural imbalances inherent in the neoliberal architecture of the eurozone project.
This racialization provides ideological cover for the brutal assault on the living conditions, pension and labor rights not just of Greeks but of working people across the European periphery. Being at the forefront of the crisis, Greece exemplifies the inability of these policies to address the debt problem. By leading to the collapse of internal demand, the closing of thousands of small businesses, skyrocketing unemployment and the further weakening of a banking sector at the brink of bankruptcy, austerity policies that seek to reduce deficits by cutting spending fail because they simultaneously lead to a collapse of tax revenues.
In this context, workers and citizens across Europe are proving more perceptive than their political and economic leaders. Social and class conflict across Europe is escalating as political and economic elites insist on a self-defeating strategy that has not contained the crisis to the periphery but has led it to spread, deepen and knock at the door of the largest eurozone countries, including Spain, Italy and, increasingly, France and Germany.
At the same time, however, the risk of losing the benefits coming from the eurozone has forced European political elites to take some incremental steps to address the crisis. Being too little and too late, these measures have not prevented the crisis from deepening. And as the crisis grows, so do the fractures within the European capitalist elites. One of the central issues under debate has been whether the European Central Bank should play a greater role in supporting countries in trouble by lending to them directly and functioning, like most central banks, including the U.S. Federal Reserve, as a lender of last resort.
The ECB has up to this point tried to stabilize the borrowing costs of countries in trouble by buying these countries’ bonds in the open market, but it is not allowed to lend to countries directly. This proscription, which contrasts with private banks’ easy access to low-interest loans from the ECB, is one example of tailoring the eurozone project around the needs of European financial capital. Germany is opposed to the ECB adopting a less restrictive policy stance, but as the crisis spreads to the core of the eurozone, it finds itself increasingly isolated. Germany has also been opposed adopting Eurobonds, which could ease the market pressure on the most vulnerable countries, preferring to postpone any such talk until even more draconian fiscal restrictions on eurozone countries make austerity permanent.
Meanwhile, Germany and other countries of the European core have profited from the crisis, since, until recently, the investors who fled the bond markets of the countries on the European periphery turned to safer alternatives, such as German and Dutch bonds.
This development has reduced the core countries’ interest rates, saving them tens of billions of euros. In addition, the interest rates such core countries earn on the loans that formed part of the rescue packages extended to countries like Greece, Ireland and Portugal exceed the interest rates they themselves have to pay, thus further adding to the benefits the “rescuers” reap from the rescue operation. In a typical ideological maneuver, the true beneficiary of the rescue operation appears as a benefactor, while the citizens in the periphery who are losing everything to keep servicing their countries’ debt appear as leeches supposedly living off the largesse of German and Northern European taxpayers.
Needless to say, this maneuver leaves the other great beneficiaries of the rescue operation — the French, German and European banks holding European sovereign debt — out of the picture, thus making large parts of the rescue packages available for the continued support of zombie banks. To add insult to injury, a banker is now Greece’s new prime minister, inaugurating a new trend of unelected technocrats favored by European capital presiding over the bleeding of their countries. Thus, the evolving eurozone crisis brings to the surface the long-standing contradiction between capitalism and democracy. As European elites’ inept attempt to defend the former threatens to sink the eurozone, it falls on ordinary European citizens and workers to defend the latter by taking to the streets and escalating their resistance against a European capitalist class that has long abandoned the pretense of presiding over a social model that lends capitalism a human face.
Costas Panayotakis is a professor of sociology at New York City College of Technology/CUNY. He is the author of Remaking Scarcity: From Capitalist Inefficiency to Economic Democracy.
Mr. President, we heard what you said last week in Kansas – about the dangers to our economy and democracy of the increasing concentration of income and wealth at the top.
We agree.And many of us are prepared to work our hearts out to get you reelected – as long as you commit to doing what needs to be done in your second term:
—Raise the tax rate on the rich to what it was before 1981.The top 1 percent has an almost unprecedented share of the nation’s wealth and income yet the lowest tax rate in 30 years.Meanwhile, America faces colossal budget deficits that have already meant devastating cuts in education, infrastructure, and the safety nets we depend on.The rich must pay their fair share.Income in excess of $1 million should be taxed at 70 percent – the same rate as before 1981.
—Raise capital gains taxes to the same level.It’s absurd that the 400 richest Americans – whose wealth exceeds the wealth of the bottom 150 million Americans put together – should pay an average 17 percent tax on their incomes, the rate day laborers and child-care workers pay.That’s because so much of the income of the super-rich is considered capital gains, now taxed at only 15 percent.Close this loophole.
—Tax financial transactions.A tiny tax on every financial deal would yield billions of dollars more.It would also slow speculators and reduce the wild gyrations of financial markets.
—Use the bulk of this money to create good schools, give our kids access to a college education, and build a world-class infrastructure, so all our children have a chance to get ahead.
— Resurrect the Glass-Steagall Act, that used to separate commercial from investment banking.It was put in place after the Great Crash of 1929 to prevent financiers from gambling with peoples’ bank deposits.But it was repealed in 1999 – and its repeal contributed to the Crash of 2008.Wall Street lobbyists have made sure the new Dodd-Frank law has enough loopholes to allow financiers to continue to gamble with otherpeoples’ money.The only way to stop this is to bring Glass-Steagall back.
—Cap the size of Wall Street’s biggest banks and break up the biggest.They were too big to fail before the bailout.They’re even bigger now.And because of their huge size they get preferential treatment from the Fed, giving them an even greater competitive advantage over smaller banks.Cap their size and break them up before we have to bail them out again.
— Require the big banks that got bailed out to modify the mortgages of millions of Americans now under water, who owe more than their homes are worth.It’s not theirfault the banks created a housing bubble that burst, causing home values to plummet.
Mr. President, we know nothing good happens in Washington unless good people outside Washington are organized and mobilized to make it happen.
So here’s the deal:We’ll reelect you.We’ll stand behind you.We’ll give you a mandate to do all this – and more – in your second term.
Newt Gingrich has done it again. With his new tax plan he has raised the bar from irresponsibility to recklessness.
Every dollar estimate I’m about to share with you comes from the independent, non-partisan Tax Policy Center – a group whose estimates are used by almost everyone in Washington regardless of political persuasion.
First off, Newt’s plan increases the federal budget deficit by about $850 billion – in a single year!
To put this in perspective, most forecasts of the budget deficit cover ten years. The elusive goal of the White House and many on both sides of the aisle in Congress is to reduce that ten-year deficit by 3 to 4 trillion dollars.
Newt goes in the other direction, with gusto. Increasing the deficit by $850 billion in a single year is beyond the wildest imaginings of the least responsible budget mavens within a radius of three thousand miles from Washington.
Imagine what Standard & Poor’s or Moody’s or Fitch would do if it became law. We’d go directly from a triple-A credit rating to triple X – the veritable porn star of fiscal mayhem. Interest on our debt would become larger than most of the rest of the budget.
Most of this explosion of debt in Newt’s plan occurs because he slashes taxes. But not just anyone’s taxes. The lion’s share of Newt’s tax cuts benefit the very, very rich.
That’s because he lowers their marginal income tax rate to 15 percent – down from the current 35 percent, which was Bush’s temporary tax cut; down from 39 percent under Bill Clinton; down from at least 70 percent in the first three decades after World War II. Newt also gets rid of taxes on unearned income – the kind of income that the super-rich thrive on – capital-gains, dividends, and interest.
Under Newt’s plan, each of the roughly 130,000 taxpayers in the top .1 percent – the richest one-tenth of one percent – reaps an average tax cut of $1.9 million per year. Add what they’d otherwise have to pay if the Bush tax cut expired on schedule, and each of them saves $2.3 million a year.
To put it another way, under Newt’s plan, the total tax bill of the top one-tenth of one percent drops from around 38 percent of their income to around 10 percent.
What about low-income households? They get an average tax cut of $63 per year.
Oh, I almost forgot: Newt also slashes corporate taxes.
I’m not making this up.
This might be amusing if Newt were just being old Newt – if this were another infamous hot-air bubble emerging from an always provocative, sometimes clever, often bizarre mind.
But it’s the tax plan of the leading candidate for president of one of the two major political parties of the United States.
And it comes at a time when America’s super rich are raking in a larger portion of total income and wealth than at any time over the last eighty years, and when their marginal taxes are lower than they’ve been in three decades; a time when the nation’s long-term budget deficit is causing cuts in education and infrastructure which will impair our future and that of our children, and when safety nets and social services are being slashed.
Can Newt get away with this?
Probably — because his plan also comes at a time when Americans are so cynical about the major institutions of our society that someone who offers huge, outrageous plans holds a special fascination: The whole system is so awful, people tell themselves, why not just jettison everything and start from scratch? Let’s throw caution to the winds and do something really big – even if it’s colossally stupid.
This is why the more outrageous Newt can be, the better his polls. The more irresponsible his bomb-throwing, the more attractive he becomes to a sizable portion of Americans so fed up they feel like throwing bombs.
History is full of strong men with dangerous ideas who gain power when large masses of people are so desperate and disillusioned they’ll follow anyone who offers big, seemingly easy solutions.
At times like this a nation must depend on its wise elders – people who have gained a reputation for good judgment and integrity, and who are broadly respected by all sides regardless of political affiliation or ideology – to call out the demagogues, speak the truth, and restore common sense.
The great tragedy of America today is the paucity of such individuals when we need them the most.
If you want to know why the middle class disappeared and where they went, look no further than your local Walmart. People walked in for the low prices, and walked out with a pile of cheap stuff, but in a figurative sense, they left their wages, jobs, and dignity on the cutting room floor of the House of Cheap.
Welcome to the logical end point of Reagonomics. Welcome to Ayan Rand’s nightmare vision of morality, where we know the price of everything but the value of nothing; where predatory behavior is celebrated and the notion of community is blasphemy.
It’s a sprint to the bottom. Lower wages; dangerous working conditions; more pollution; greater liquidation of natural capital; more global warming; less happiness. (photo: Carlos Fernandez)
In his excellent documentary, Walmart: The High Cost of Low Price, Robert Greenwald carefully documents how Walmart’s giant box stores lower wages across the entire retail sector, impose high social and economic costs on the states and communities in which they operate, and destroy local businesses.
But it’s not just Walmart. Big box stores now rule across the board in the US retail economy in everything from electronics to pet supplies. And it’s not just retail. The entire US economy is now organized around the notion that getting us cheap stuff – the more the better – is the sine qua non of economic policy.
There was a time when corporations understood that paying their employees a living wage had economic and societal benefits. Henry Ford famously said he wanted his employees to be able to afford to buy the cars they made and launched six decades of prosperity.
The labor movement helped create a social and economic compact in which workers shared the wealth they generated. When workers had enough money to consume, they stimulated economic growth. When production was as important as consumption, the economy flourished, the common worker had dignity, and the means of production were valued.
But that compact has been sacrificed at the Alter of the Cheap, and we no longer produce, we merely consume.
Our main economic activity has become the ceaseless churning and manipulating of the vast capital the old system produced. No value is added, some is skimmed off by the uber rich with each churning. It’s a colossal, self-limiting, Ponzi scheme.
The rich and the corporations have no allegiance to the US or its workers, and so they take the fruits of their skimming and either sit on it, or invest it overseas, where the cheapest goods can be made.
Job creators? Sure. But not good jobs, and not here.
When they’ve skimmed all they can from the US consumer, they’ll focus on the emerging middle class in China, India and elsewhere, leaving us to sit among the decaying detritus of cheap stuff we can no longer afford, searching in vain for the happiness we thought we were buying.
It’s a sprint to the bottom. Lower wages; dangerous working conditions; more pollution; greater liquidation of natural capital; more global warming; less happiness.
Globalization – the handmaiden of Cheap at All Costs – is celebrated as a solution, when it is the problem. And even astute economists seem unable to realize that when another country’s comparative advantage is based on environmental crimes, low pay, and inhuman conditions, then comparative advantage doesn’t operate the way it’s presented in textbooks and abstract econometric models.
Just as Walmart has driven down wages throughout the retail sector, the Doctrine of Cheap has driven down wages for the developed nations, and it will cap them at unjust levels in the developing world.
And the dirty little secret hiding behind the globalization façade is the devastating affect it is having on the environment.
For example, this week, Bejing suffered from air pollution so severe, that the airport was shut down. It’s easy to ignore this kind of environmental insult when it’s “over there.” But the carbon and soot and filth generated in China ultimately reaches us.
At the scale of human economic activity we’ve reached, we suffer the environmental consequences of our purchases no matter how cheaply or how far away they are made. In a world were humans have become a global force of nature, “there” is “here.” Climate change is exhibit A in how insults to our commons affect us all.
But the dirtiest little secret of all, is that we – the 99% -- enable this race to the bottom. Our addiction to cheap stuff and our desire for more, more, more is the fuel that feeds this destructive Ponzi scheme.
But there is good news here, too. If we are the enablers of the Walmartization of America, we have the power to change course.
How?
We are the marketplace, and we decide who wins and who loses by where we park our money, what we invest in, what we choose to buy and who we choose to buy it from.
We hold a total of $17.5 trillion in retirement funds – the single biggest source of money the big banks, Wall Street, fat cats, and assorted other speculators use to play their very own version of hi-risk Texas hold ‘em.
The real power in our economic and political system resides with us, the 99%, if we have but the wit, wisdom and courage to seize it.
So forget Wall Street. Let’s occupy the whole damn marketplace. Let’s vote with our dollars and our values. That’s an election they can’t buy.
John Atcheson's writing has appeared in the New York Times, the Washington Post, the Baltimore Sun, the San Jose Mercury News, the Memphis Commercial Appeal, as well as in several wonk journals. He is the author of a fictional Trilogy that centers on climate change. The first book will be available on Amazon in January. Atcheson's book reviews are featured on Climateprogress.org.
Occupy Wall Street, October 21, 2011. (Photo: Tony the Misfit)
The most significant accomplishment for Occupy Wall Street (OWS) to date is that the Occupiers have managed to poke a hole in the legitimacy of neoliberal capitalism and its central claim that unregulated markets provide opportunity and freedom.
The Occupiers have accomplished this feat in a surprising way, peacefully, with home-made signs, signs that say things like, "If I had a lobbyist, I wouldn't need this sign."
OWS has punctured the neoliberal façade simply by having the audacity to gather in public, in bold defiance of the police and to bear witness, by their solidarity and cooperation, to the idea that the Washington Consensus has long denied - that a different world is possible.
Phil Rockstroh puts it this way: "the walls of the neoliberal prison are cracking ... We are no longer isolated, enclosed in our alienation, imprisoned by a concretized sense of powerlessness; daylight is beginning to pierce the darkness of our desolate cells."
At the core of this neoliberal ideology is a simple assertion - economic exchanges promote freedom because they are voluntary and, thus, they only occur if both parties believe they will benefit. Unregulated market exchanges thus allow individuals to engage with others in complex social arrangements without coercion, without impinging on individual liberty. Government is needed, but only to define and enforce property rights and to create and regulate the currency individuals need to undertake market exchanges.
Liberal Keynesians, who argue for expanding government in order to regulate or oversee individual exchange, are denigrated because they seek to interrupt these free and voluntary agreements and they, therefore, undermine individual liberty. Reagan, who ushered in the neoliberal era, said it this way: "Government is not the solution to the problem; Government is the problem." In this extreme libertarian view, capitalism is the champion of democracy, the champion of freedom.
The flaw in this neoliberal reasoning is not hard to see. Ownership of wealth obviously confers power; it gives some individuals an upper hand in the "voluntary" exchanges they make with others. Lacking the means otherwise to support ourselves, most of us must hire out our ability to do work in exchange for wages. We might do quite well if we are educated and talented, lucky or white, but even so, we ultimately produce more value than we are paid - that is, after all, the reason we are hired.
Wealth ownership, thus, gives an upper hand to employers in these voluntary exchanges with working people. The extra value we create flows steadily into the hands of wealth holders and we don't have a say over what it is used for.
This upper hand in these so-called voluntary exchanges provides an ongoing and increasing source of wealth accumulation that is self-reinforcing. Money begets money. That is after all what capital is, money advanced for the purpose of making more money.
Excluding people from having a say over what happens to the wealth we create is the first and the most fundamental way that any capitalist system undermines democracy. We are fundamentally disenfranchised in the places we work. Wealth owners control the levers of investment and, thus, the "needs" of capital trump those of workers when it comes to making decisions about what gets produced, how and for whom.
Beyond this, neoliberal capitalism goes further - it uses the value you and I create to enforce a virtual dictatorship by wealth in the political sphere. The most obvious manifestation of this dictatorship by wealth is the unlimited corporate financing of our elected representatives.
But this financing is only the tip of the iceberg. Not only must candidates pander to corporate interests to successfully raise the funds needed to run for office, once they are in office, they are plied and courted with unrelenting advances designed to ensure that they do not lose their focus and begin to think about something other that promoting a favorable business climate.
Even deeper in the subsoil of this treasonous takeover of our democracy is the ownership and influence over the main vehicle of public discourse, the news media. The manufacture of consent is accomplished by narrowing the acceptable range of debate to the question of how best to support economic growth (read profits) and American imperialism (read war).
Where do the millions, or billions, that candidates raise end up? Primarily, this money ends up in the coffers of the corporate media - campaign advertising is the single most important source of revenue for the corporate media.
So, it is an odd fact of American life that capitalism is equated with democracy while, at the same time, acting as democracy's most corrosive force. But think about it, if capitalism really supported democracy, if it really welcomed open, honest, wide-ranging debate about the values and practices of corporations and their elected representatives, why would they be sending their police in with bats and pepper spray to prevent the free, open exchange of ideas? Why would they not be handing out microphones, providing open access to the airwaves, organizing televised debates?
If capitalism really were the champion of democracy, the Occupiers and their many allies would be celebrated. Instead we are disdained. The corporate elites fear and resist any questioning of their core beliefs because their ideas do not hold up to scrutiny and reasoned debate. That's how we all know - capitalism is the enemy of democracy.
But is there any alternative? It is tempting to think that if we can only regulate capitalism effectively, we can harness its virtues and contain its vices. In fact, there is some evidence to support this view.
The 99 percent were much better served in the post-war era in the United States, and they continue to benefit from efforts to rein in capitalism's excesses in Scandinavia and Northern Europe. But these efforts to regulate are under constant attack and a return to regulations is ultimately a brief inconvenience to the corporate elites.
As Richard D. Wolff and others have noted, as long as the value you and I create is credited to the owners of capital, these owners have both the means and, given their distorted values, the incentive to undermine and neutralize any effective regulation and oversight we attempt to impose.
Capital will continue to corrode democracy, as certainly as oxygen corrodes iron, as long as a few hold sway over investment and jobs and are committed to using the wealth that we generate to undermine the will of the people. In the words of Supreme Court Justice Louis Brandeis, "You can have wealth concentrated in the hands of a few, or you can have democracy; you cannot have both."
Fortunately, a proven alternative to corporate capitalism already exists. For over 50 years, it has provided a practical example of how we can extend democracy to the workplace as a means of preserving democracy in our political lives. The basic idea of this experiment is to address the root of the problem, to uncover the means by which capitalism undermines democracy and to provide new institutional rules governing how we organize our economic lives.
Over 50 years ago, the Mondragon Cooperatives in northern Spain developed their poverty-stricken regional economy by developing worker-owned and managed cooperatives. Co-ops place the ownership of wealth and the decisions concerning how wealth is invested in the hands of the people who produce the wealth.
These institutions recognize that the wealth generated by an enterprise is the result of the collective efforts of all, and that those most affected by the decisions of the enterprise, workers and community members, ought to have the principal say in what happens to the wealth, how it is distributed and the purposes to which it is put.
Many people argue that co-ops are impractical, but this simple, democratic principle rests at the heart of this highly successful, internationally competitive, stable and flourishing regional economy. It is an economy based on democratic management, worker ownership and democratic oversight and it faces its own challenges, yes, but has certainly proven the lie that there is no alternative to corporate capitalism. It shows that people, acting together, can use democratic principles to imbue their economic lives and their political lives with agency and meaning.
And this effort is spreading to America's heartland. The Evergreen Cooperatives in Cleveland have successfully applied the principles of the Mondragon experiment to develop a thriving urban development project. As Gar Alperovitz argues, the linking of large anchor institutions with worker-owned enterprises offers a practical economic development strategy that is politically feasible in the context of our current economic crisis.
Many people are uncomfortable with the idea that working people can do without their corporate bosses. Quite a bit of time and energy has been spent trying to convince us that the idea that workers can manage themselves is preposterous. OWS has provided the opening for us to consider, debate and discuss what has previously been off the table.
Economic democracy is not only possible; it is essential. As Bill McKibben and others have shown us, we cannot afford to continue on the trajectory of neoliberal capitalism. By democratizing the economy, we are taking the first necessary step toward a sustainable future. We are also taking a step toward reclaiming that peculiar American Dream of a government of, by and for the people.
So, let's grasp the significance of what OWS is doing. We need to step boldly through the hole they have opened in the shiny façade of our glad-handled, Madison Avenue, faux democracy. We need to take up the challenge of creating a real, substantive democracy, right here and now, in the very heart of America. We need to create an economic and a political democracy as a means of reclaiming our own dignity as working people, our own liberty as citizens and to ensure a livable world for those who come next.
David Kristjanson-Gural
David Kristjanson-Gural is associate professor of economics and senior fellow of the Social Justice College at Bucknell University. His writing appears in the LA Progressive, Commondreams.org, the Williamsport Guardian and the Daily Item. He is a member of the Spilling Ink Writers' Collective.
ROME/BERLIN | Fri Dec 16, 2011 9:44pm EST from Reuters
(Reuters) - The credit rating agency Fitch has told euro zone countries it believes a comprehensive solution to their debt crisis is beyond reach, putting six euro zone economies including Italy on watch for potential downgrades in the near future.
It reaffirmed France's top-notch triple-A rating but even here said the outlook was now negative, meaning it could be downgraded within two years.
Underscoring the tensions within the bloc over a crisis that has spread relentlessly over the past two years, Italy's prime minister urged European policymakers on Friday to beware of dividing the continent with efforts to fight its debt crisis.
In a swipe at Germany, he warned against a "short-term hunger for rigor" in some countries.
Germany has led resistance to allowing the European Central Bank to ramp up its buying of government bonds on the open market to a big enough scale to douse the crisis, but Fitch late on Friday added to the pressure for just such a move.
It said that, following the EU summit a week ago, it had concluded that "a 'comprehensive solution' to the euro zone crisis is technically and politically beyond reach."
"Of particular concern is the absence of a credible financial backstop," it said. "In Fitch's opinion this requires more active and explicit commitment from the ECB to mitigate the risk of self-fulfilling liquidity crises for potentially illiquid but solvent Euro Area Member States."
It put Belgium, Spain, Slovenia, Italy, Ireland, and Cyprus on negative watch, which could mean a downgrade within three months.
Later another agency, Moody's, cut Belgium's credit rating by two notches, saying the euro zone debt crisis raised funding risks for countries with high public debt burdens, and said a further downgrade was possible within two years.
Standard & Poor's had already warned 15 of the currency bloc's 17 members they were close to a downgrade.
"The systemic nature of the euro zone crisis is having a profoundly adverse effect on economic and financial stability across the region," Fitch said.
The euro edged higher against the dollar but still suffered its worst weekly performance against the greenback in three months.
German Chancellor Angela Merkel gained some respite from domestic pressure to take a tougher line in the crisis when eurosceptics in her junior coalition partner, the Free Democrats, lost a grassroots party referendum aimed at blocking a permanent euro zone rescue fund.
A victory for the eurosceptics could have brought down Merkel's centre-right coalition, but the outcome still left the FDP split, with its public support in tatters.
Meanwhile, a first draft of a planned fiscal compact among euro zone countries and aspiring members, published on Friday, showed that countries could be taken to the European Court of Justice if they did not meet agreed budget goals.
AUTOMATIC SANCTIONS
Merkel - under pressure from the revered Bundesbank to force debt-saddled euro zone countries to reform and save their way out of crisis with austerity measures - has led a push for automatic sanctions for deficit "sinners" in the bloc.
This has fed concerns that excessive belt-tightening in southern countries could send their economies into a negative spiral with no prospect of growing out of crisis, while feeding resentment in the prosperous north.
Italian Prime Minister Mario Monti said Europe's response "should be wrapped in a long-term sustainable approach, not just to feed short-term hunger for rigor in some countries."
"To help European construction evolve in a way that unites, not divides, we cannot afford that the crisis in the euro zone brings us ... the risk of conflicts between the virtuous North and an allegedly vicious South," he told a conference in Rome.
French officials have sought to prepare the public for the likelihood that Paris will lose its top-notch rating from S&P for the first time since 1975, playing down the potential setback and focusing attention instead on neighboring Britain. President Nicolas Sarkozy had vowed to keep the top rating, and it could become an issue in next year's election campaign.
"The economic situation in Britain today is very worrying, and you'd rather be French than British in economic terms," Finance Minister Francois Baroin said in a radio interview, a day after Bank of France Governor Christian Noyer said that if ratings agencies were even-handed, Britain deserved to be downgraded before France.
Deputy Prime Minister Nick Clegg said French Prime Minister Francois Fillon had called him to explain that "it had not been his intention to call into question the UK's rating but to highlight that ratings agencies appeared more focused on economic governance than deficit levels."
Clegg's office said he accepted the explanation "but made the point that recent remarks from members of the French government about the UK economy were simply unacceptable and that steps should be taken to calm the rhetoric."
World Bank President Robert Zoellick said he was "deeply troubled" by the exchanges.
He said politicians needed to be careful because "you've got a tinderbox out there in both political and economic terms."
Euro zone officials said potential downgrades, particularly from S&P, could raise the cost of borrowing for the region's existing EFSF bailout fund, but would not make a big difference to its operations.
EFSF FIREPOWER
EFSF chief Klaus Regling told the Rome conference about 600 billion euros was available to fight the crisis.
"If Italy and Spain were to ask for support, their gross financing needs for 2012 are less than that and I don't think they would need to be taken off the market," he said.
The EFSF has the option of providing first-loss insurance on new bond issues, but the country concerned would have to make a formal request and negotiate conditionality, while the sum guaranteed would have to be agreed unanimously by EFSF members, subject to German parliamentary approval.
Euro zone countries will hold talks next Monday on the draft text of the euro zone fiscal compact and on bilateral loans to the International Monetary Fund, officials in Brussels said.
Slovak Finance Minister Ivan Miklos told Reuters they would commit 150 billion euros to boost the IMF's lending capacity.
The United States has refused to offer additional funding and it remains to be seen how much countries such as China, Russia, Brazil and India are willing to commit.
The European Central Bank has resisted calls for unlimited purchases of euro zone sovereign bonds to quell the debt crisis, putting the onus on governments and their collective financial firewalls.
ECB President Mario Draghi said on Thursday that euro zone governments were on track to restore market confidence and the ECB's bond-buying plan was "neither eternal nor infinite."
But in one intriguing hint on Friday, Bank of Italy governor Ignazio Visco told the Rome conference: "The impression is that there is only one way to convince markets, and we'll work on that." He did not elaborate.
Banks appear to be resisting pressure from governments to help debt-choked euro zone countries by using cheap money lent by the ECB to buy more sovereign bonds.
The chief executive of UniCredit, one of Italy's two biggest banks, said this week that using ECB money to buy government debt "wouldn't be logical."
Euro zone governments need to sell almost 80 billion euros of fresh debt in January alone, and the stand-off between policymakers and banks could turn the slow-burning debt crisis into a conflagration in the New Year.
In Greece, where the debt crisis began two years ago, a senior official of the EU/IMF troika team negotiating terms for a second bailout package said there was no guarantee that talks on the private sector's contribution would lead to a voluntary deal involving the bulk of its creditors.
Agreement has been held up by wrangling over issues ranging from the credit status and interest coupons on the new bonds to legal guarantees to be offered by the official sector. One key question is how many sign up to a private sector debt swap.
Failure to secure agreement could force a disorderly default that might trigger a wider emergency across the euro zone.
Asked if there was a risk of a disorderly Greek default, the troika official said: "Our objective is still to have a voluntary operation. If you ask me 'Is there a guarantee that there will be a voluntary operation?', of course there can never be a guarantee."
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
THE Occupy Wall Street protests have come and mostly gone, and whether they continue to have an impact or not, they have brought an astounding fact to the public’s attention: a mere 1 percent of Americans own just under half of the country’s financial assets and other investments. America, it would seem, is less equitable than ever, thanks to our no-holds-barred capitalist system.
But at another level, something different has been quietly brewing in recent decades: more and more Americans are involved in co-ops, worker-owned companies and other alternatives to the traditional capitalist model. We may, in fact, be moving toward a hybrid system, something different from both traditional capitalism and socialism, without anyone even noticing.
Some 130 million Americans, for example, now participate in the ownership of co-op businesses and credit unions. More than 13 million Americans have become worker-owners of more than 11,000 employee-owned companies, six million more than belong to private-sector unions.
And worker-owned companies make a difference. In Cleveland, for instance, an integrated group of worker-owned companies, supported in part by the purchasing power of large hospitals and universities, has taken the lead in local solar-panel installation, “green” institutional laundry services and a commercial hydroponic greenhouse capable of producing more than three million heads of lettuce a year.
Local and state governments are likewise changing the nature of American capitalism. Almost half the states manage venture capital efforts, taking partial ownership in new businesses. Calpers, California’s public pension authority, helps finance local development projects; in Alaska, state oil revenues provide each resident with dividends from public investment strategies as a matter of right; in Alabama, public pension investing has long focused on state economic development.
Moreover, this year some 14 states began to consider legislation to create public banks similar to the longstanding Bank of North Dakota; 15 more began to consider some form of single-payer or public-option health care plan.
Some of these developments, like rural co-ops and credit unions, have their origins in the New Deal era; some go back even further, to the Grange movement of the 1880s. The most widespread form of worker ownership stems from 1970s legislation that provided tax benefits to owners of small businesses who sold to their employees when they retired. Reagan-era domestic-spending cuts spurred nonprofits to form social enterprises that used profits to help finance their missions.
Recently, growing economic pain has provided a further catalyst. The Cleveland cooperatives are an answer to urban decay that traditional job training, small-business and other development strategies simply do not touch. They also build on a 30-year history of Ohio employee-ownership experiments traceable to the collapse of the steel industry in the 1970s and ’80s.
Further policy changes are likely. In Indiana, the Republican state treasurer, Richard Mourdock, is using state deposits to lower interest costs to employee-owned companies, a precedent others states could easily follow. Senator Sherrod Brown, Democrat of Ohio, is developing legislation to support worker-owned strategies like that of Cleveland in other cities. And several policy analysts have proposed expanding existing government “set aside” procurement programs for small businesses to include co-ops and other democratized enterprises.
If such cooperative efforts continue to increase in number, scale and sophistication, they may suggest the outlines, however tentative, of something very different from both traditional, corporate-dominated capitalism and traditional socialism.
It’s easy to overestimate the possibilities of a new system. These efforts are minor compared with the power of Wall Street banks and the other giants of the American economy. On the other hand, it is precisely these institutions that have created enormous economic problems and fueled public anger.
During the populist and progressive eras, a decades-long buildup of public anger led to major policy shifts, many of which simply took existing ideas from local and state efforts to the national stage. Furthermore, we have already seen how, in moments of crisis, the nationalization of auto giants like General Motors and Chrysler can suddenly become a reality. When the next financial breakdown occurs, huge injections of public money may well lead to de facto takeovers of major banks.
And while the American public has long supported the capitalist model, that, too, may be changing. In 2009 a Rasmussen poll reported that Americans under 30 years old were “essentially evenly divided” as to whether they preferred “capitalism” or “socialism.”
A long era of economic stagnation could well lead to a profound national debate about an America that is dominated neither by giant corporations nor by socialist bureaucrats. It would be a fitting next direction for a troubled nation that has long styled itself as of, by and for the people.
Gar Alperovitz, a professor of political economy at the University of Maryland and a founder of the Democracy Collaborative, is the author of “America Beyond Capitalism.”
Not long after I first came to Washington 20 years ago I was at a conference dealing with Social Security privatization. One of the panelists used a number for the administrative costs of private accounts that was far lower than the numbers I had seen in the literature. After the panel, I asked one of the other panelists about her best estimate of the administrative costs of private accounts. She said that this depended on whether I was interested in advocacy or policy.
I was somewhat taken aback by her response, but after a moment I told her that I was interested in accuracy. I have always felt that this is the best approach to policy questions.
Accuracy has not featured prominently in Washington budget debates in recent decades. There is an enormous amount of misunderstanding about the deficit, much of it deliberately promoted by politicians. We hear endless tales of out-of-control government spending and chronic deficits. This is nonsense as the data clearly show, but unfortunately both parties have an interest in promoting the deceptions.
There is a chart that I routinely use in presentations on the economy. It shows that the deficit was relatively small compared to GDP in the years prior to the economic collapse in 2008. The deficit in 2007 was just 1.2 percent of GDP, a level that we can sustain precisely forever. With deficits of this size, the ratio of debt to GDP is not rising, which means that there is no issue of debt sustainability.
However that changes beginning in 2008 as shown clearly in the chart. The deficit jumps to 3.2 percent of GDP in fiscal of 2008 and then soars to 10.0 percent of GDP in fiscal 2009. The Republicans have used these numbers to blame the deficits on President Obama. However this ignores the inconvenient fact that the jump in the deficit preceded his taking office. (Remember these are fiscal years that begin on October 1 of the prior year. That means fiscal 2009 was almost one-third over the day that President Obama entered the White House.)
While President Obama’s stimulus did increase the deficit by about 2 percentage points of GDP from its baseline level (while also creating around 2-3 million jobs) the main cause for the jump in the deficit was the economic downturn that followed from the collapse of the housing bubble. It was not wild spending that gave us big deficits the last three years; it was the economic wreckage that followed from the collapse of the housing bubble.
When the economy tanked, it sent tax collections plummeting. Similarly, the government began to pay out more money for unemployment benefits, food stamps and other transfer payments that automatically rise when the economy goes into a recession and people lose their jobs. In addition, the Obama administration also had its stimulus package to try to counteract the downturn, which increased the deficit by roughly 2 percent of GDP in both 2009 and 2010. These are the reasons that deficits always swell during a downturn, but the jump was especially large in the last few years because this downturn has been so much worse than past recessions.
It is easy to show that the story of deficits driven by out of control spending has no basis in reality, but it is also possible to show that Democrats’ preferred tale of the deficit is also at odds with reality. Many Democrats and their allies are fond of charts like the one below showing actual and projected deficits from 2009 to 2019, and attributing the deficits to various causes.
There are several aspects to this chart that are worth noting. First, starting the chart in 2009 can lead audiences to believe that large deficits had been an ongoing problem, rather than something that began with the recession. Second, the chart shows the deficit in nominal dollars rather than as shares of GDP. This is deceptive since GDP is projected to be nearly 60 percent higher at the end of the period in 2019 than it was in 2009. This means that measured as a share of GDP, the $1.2 trillion projected deficit shown for 2019 is only a bit more than half as large as the $1.4 trillion deficit that the country saw in 2009.
The deficit projected for 2019 is a bit more than 5.0 percent of GDP. That is a level that cannot be sustained indefinitely, but it is quite different from the deficits hovering near 10 percent of GDP that we have seen in the last three years.
The tale from this chart is that the Bush administration’s tax cuts and the wars in Iraq and Afghanistan are the real culprits in the deficit story. While there are plenty of grounds for criticizing tax cuts that favored the wealthy and wars that we did need not to fight, the reality is that we would not be facing large deficits had it not been for the economic downturn caused by the collapse of the housing bubble. It is arguable that the deficits in the Bush years were larger than would have been desired (certainly the money could have been better directed), but the outsized deficits are directly attributable to the downturn. Furthermore, had it not been for the downturn, even if all the Bush tax cuts were left in place throughout the decade, the debt to GDP ratio would have increased only modestly over the decade.
In short, the real story of the deficit is the story of the economy, which is the problem of letting a housing bubble grow unchecked. The housing bubble was largely kept out of policy debates prior to the downturn, with the then-modest deficits getting far more attention in the media.
Remarkably, even after the collapse of the housing bubble has both wrecked the economy and led to large deficits, there is still little interest in the media in the underlying imbalances that led to the bubble. At the top of this list would be the over-valued dollar that led to large trade deficits. These trade deficits created a gap in demand that was filled by the stock bubble in the 90s and the housing bubble in the last decade.
But that discussion makes both the Clinton administration Democrats and the Bush administration Republicans look bad. As a result, we tend to get a lot more advocacy than accuracy in our policy debates about federal deficits and debt.
Occupy San Diego demonstrators shut down main gate at San Diego port, 12/12/11.
UPDATES
5:44 PM – Big Ed Schultz of msnbc mentions the West Coast ports shut down, while highlighting east coast actions around voting rights.
5:41 PM - Protesters arrive at Port of Oakland less than an hour ago -
As three helicopters hover overhead, as many as 2,000 protesters are entering the port, a much larger crowd than there was at the early morning action. One group of activists is carrying a tent, and there’s three helicopters overhead. There’s no immediate sign of police.
Music is blasting from a flatbed truck that was rented for the occasion. People are playing drums and dancing, about six blocks deep.
5:19 PM – And in Loveland, Colorado, near Denver … Police make arrests outside Walmart
Loveland police have made several arrests of Occupy protesters outside the Walmart distribution center near the Budwiser Events Center. Protesters were arrested by police after blocking the intersection where trucks were trying to enter and leave the distribution center.
”At about 12:45 p.m., demonstrators blocked the Walmart truck traffic entrance with people and tents. The roadway was cleared immediately by police and several arrests were made,” Loveland police said in a statement. Loveland police had a heavy presence in the area all day, with more than 10 marked and unmarked law enforcement vehicles in the area of of Crossroads Boulevard and Greenfield Drive.
It didn’t take long for Frank Chimienti to become the first and, so far, only person to be arrested at Monday’s Occupy protest at the Port of Hueneme.
Within an hour of joining protesters picketing outside the deep-water port, he decided to lie down in the middle of the road to block a long line of trucks trying to enter, said Chimienti, 41. When police asked him to get up, he refused. They asked again and when he refused a second time, they arrested him.
Vancouver Occupiers blocked two access routes to Canada’s biggest port Monday, acting in solidarity with U.S. protesters’ efforts to shut down West Coast ports from Alaska to California. The protest at Port Metro Vancouver began with roughly a dozen demonstrators blocking the Clark Drive entrance before 8 a.m., disrupting traffic and preventing employees from getting to work, according to police who arrived on scene.
At about 1 p.m., dozens more gathered to block the Commissioner Street entrance but were met by a heavy police presence as they approached port property.
The port, which handles $200 million per day in cargo, hired extra security in anticipation of the protest and executive Peter Xotta said the port was “prepared to do anything necessary to see port operations continue.”
5:09 PM – Injured Vet Leads Oakland Evening March to Port
Scott Olsen, the Marine Corps veteran who was struck in the head during a clash between police and Occupy Oakland protests, is leading the evening march to the Port of Oakland. Olsen, whose speech is still a bit slow after his skull was fractured on Oct. 25, was holding a banner leading nearly 1,000 Occupy Oakland members as they left City Hall toward the port on Monday evening.
He told the AP that it felt good to be back out in the thick of things and that he was proud of the turnout. He said he was focused on getting better and “spreading the fruit of truth.” The 24-year-old Iraq war veteran had been attending Occupy protests after working his day job as a security software engineer.
5:03 PM – Tacoma Washington update: Occupy movement protest peaceful at Port of Tacoma
About three dozen Occupy protesters brandished banners and passed out leaflets Monday on a key arterial leading to Port of Tacoma, but didn’t attempt to halt commerce at the port’s terminals.
Occupy Tacoma participants said they wanted to show solidarity with Longshore Union workers seeking a contract with a new grain terminal in Longview and with non-union truck container truck drivers asking for higher wages at Southern California ports.
Occupy protester Sarah Morken said she came to the port Monday noon to support workers’ efforts for better wages and working conditions, but not to alienate the truckers and others whose work lives would have been disrupted if Occupy tried to halt work at the port.
4:55 PM – Latest from Occupy San Diego : General Assembly will be held at Freedom Plaza at 7pm as planned. The workgroup from Chicano Park planning meeting will be presenting plan for tomorrow at the General Assembly tonight. Get down to the plaza for GA tonight and help plan tomorrows action.
About 100 Occupy Seattle protesters briefly blocked a street near a Port of Seattle facility. Several dozen police cleared the road after the group stopped traffic for about 20 minutes Monday afternoon. At least one person was taken into custody.
The Seattle group had marched several miles from a downtown shopping area. At the port entrance the crowd chanted and waved signs at Terminal 18, near Harbor Island.
4:49 PM Updates: Bellingham WA where protesters laid down on train tracks -
About 100 protesters in Bellingham blocked railroad tracks near downtown Bellingham. Some were seen lying down, bound together by bicycle locks around their necks.
A train expected at 3 p.m. was delayed by Burlington Northern Santa Fe, and police were arresting protesters who refused to clear the tracks.
Tensions between the NYPD and journalists continued to run high on Monday as police officers forcefully prevented New York Times photographer Robert Stolarik from taking pictures of Occupy Wall Street arrests.
Stolarik was covering the protests at the World Financial Center when police blocked him from getting shots of people being arrested. One police officer shoved Stolarik when ordering him off the stairs, and another pushed him back with a baton.
4:20 PM Looks like the livestream is back on. Go to the sidebar and click on OSD’s livestream link.
4:10 PM – Here’s an account by Eugene Davidovich of what happened after folks left the Midway Carrier park area:
After staying at the port all morning, we marched down the middle of Harbor Dr. to Midway where we proceeded to protest and regroup. Now the rain has passed and everyone is gathering at Chicano Park (NOT BARRIO TROLLEY). We will be planning the direct action for tomorrow from Chicano Park starting at 4pm. Get down here and join the Occupation. The Plaza is still Occupied with a core group as well.
4:07 PM – OccupySD activists are regrouping at Chicano Park – the site of San Diego’s successful early “occupation”. No livestream yet.
3:46 pm – As Occupy San Diego protesters regroup at the Barrio Logan Trolley Station at 4pm, there does seem to be a lull for right now at the different cities on the West Coast. Protesters are gathering again ahead of action later on today. Many of the demonstrations at the West Coast ports will be repeated from 4pm PDT (7pm ET) onwards, in a bid to prevent longshore workers from entering for night shifts and continue the port shut downs.
3:43 PM – There may be efforts by the Occupy movements at the different port cities to return at 4pm to continue the blockades for the afternoon shift.
3:38 PM – CNN just gave all of 5 seconds to the efforts to shut down West Coast ports.
3:18 PM Here’s an update from Huston: 20 Arrested Near Port of Huston
HOUSTON - Several protesters associated with Occupy movements across Texas were arrested near the Port of Houston on Monday.
Occupy Houston protesters were joined by protesters from Austin, San Antonio, Dallas and Fort Worth near the Port of Houston’s executive offices on the East Loop Monday afternoon. About two dozen protesters connected themselves with PVC pipes to block the road leading to the Port of Houston’s main entrance.
Firefighters were called in to cut the PVC pipe off the protesters. They put a tent up over the protesters to block sparks. Police said they took about 20 people into custody. Officials have not said what charges they will face. The protesters managed to delay three trucks and two cars that were on the ramp when the protest began. Other truck traffic was diverted to another entrance until the protest was cleared.
3:14 PM – Check out this crazy tactic (video) by Huston police and fire and rescue personnel against Occupy Houston protesters laying in the street. Cops bring up a huge red tent and cover the protesters with it in order to block the view of the arrests themselves.
2:56 PM – An unconfirmed report : OcccupySeattle cameraman just reported that 30 protestes tied themselves to the railroad tracks in Bellingham Wash to stop the trains.
2:53 pm – Big news from Bellington, Washington: Bellingham protesters block railroad tracks,
About 100 protesters blocked railroad tracks and an intersection near downtown Bellingham Monday, Dec. 12, in what they said was a show of solidarity with Occupy Oakland and other events aimed at shutting down ports on the West Coast.
Bellingham police said they would not arrest any of the protesters unless they were still blocking the tracks when trains made their next scheduled run through the area.
After a brief rally at nearby Maritime Heritage Park, the protesters – some carrying signs that read “Stop the 1% in their tracks” – marched two blocks to the intersection of Roeder Avenue and C Street. Most stood in the intersection, but about a dozen lay down on the tracks.
2:29 PM – Some will meet @ Barrio Logan trolley stop, 4pm.
2:07 PM – We have reports that the entire intersection of Harbor and Cesar Chavez is closed by police. People are still at the Midway Carrier park area; some have left to get warm clothes and some hot food.
2:00 PM – Occupy the Port protest underway in Seattle
About 300 Occupy Seattle supporters left Westlake Park about 1:30 p.m. marching south, and will eventually gather at one or more Port of Seattle terminals for as part of “Occupy the Port” rallies up and down the West Coast.
Port rallies are expected at 3 p.m. and 6 p.m.
1:58 PM - Oakland longshoremen sent home due to protests
OAKLAND, Calif. — Most longshoremen at the Port of Oakland were sent home Monday after Wall Street demonstrators blocked entrances as part of a coordinated West Coast port blockade effort.
Shipping companies agreed with workers’ concerns that the protests were creating unsafe working conditions and released about 150 out of about 200 workers on the morning shift, said Craig Merrilees, spokesman for the International Longshore and Warehouse Union.
Workers in unaffected parts of the port remained on the job.
1:55 PM – Here is the rest of Occupy San Diego’s schedule for today:
12:30 – Flying pickets leave Cesar Chavez Park for the Women’s Picket of the USS Midway Museum
1pm – Women’s Peace Picket of the USS Midway Museum
3:30M – Flying pickets leave Cesar Chavez Park for unannounced Port targets
4pm – FLASH MOB gathers at the Barrio Logan Trolley Stop
Elegant potluck dining, extraordinary DJ’s, music, dance, and party in and around Cesar Chavez Park. All day until late! Bring a dish, sing a song, dance a dance, or just join the general merriment. Come before work, come during work, and come after work – EVERYONE IS WELCOME TO JOIN US!
1:14 PM – An occupy supporter just tweeted that he could barely get out of his car down at the Midway Carrier park area without being harassed by cops. Be careful out there!
1:08 PM – WOW! Hear that rain!
Occupy Denver: Protesters Plan Walmart Disruption In Solidarity With Shut Down Of West Coast Ports
Occupy Denver is planning a rally to disrupt the large Walmart Distribution Center in Loveland on Monday. The rally is intended to show solidarity and support for the simultaneous protests planned to shut down West Coast ports from San Diego to Alaska coordinated by other occupy movements, according to CNN.
In a press release, Occupy Denver had this to say about the Walmart rally:
On 12/12 Occupy Denver will be rallying at the Walmart Distribution Center, 7500 Crossroads Boulevard, Loveland, Colorado, in order to illustrate the problems with a globalization solely based on the interests of multi-national corporations and total disregard for human values or human beings.
12:58 PM – More updates from earlier today: (msnbc)
Oakland, Calif.: Tractor-trailers en route into the facility, the nation’s fourth busiest container port by volume, were backed up and idle at one entrance where protesters formed a picket line in front of police. Two longshoremen who spoke to Reuters on condition of anonymity outside the gate said they would refuse to cross picket lines to get to their jobs and assumed others would follow suit.
Long Beach, Calif.: Activists scuffled in the rain with helmeted police officers who shoved them with batons in an effort to keep the entryway clear. At least one protester was taken away in handcuffs after the skirmish, and demonstrators later left the area to block traffic along a main thoroughfare through the port. But as rains grew heavier and police converged in force threatening arrests, protesters began to disperse on their own.
Portland, Ore.: Motorcycle police confronted some 200 demonstrators who tried to disrupt traffic outside a terminal there. Officers later stood aside and let protesters march to the terminal entrance. The port said two of its four terminals were closed for the day due to security reasons and that 200 workers were told not to show on Monday.
12:51 PM- NBC reports that in Oakland, Calif., shipping companies and the longshoremen’s union agreed to send home about 150 workers, essentially halting operations at two terminals.
In Longview, Wash., workers were sent home out of concerns for their “health and safety.”
12:25 PM (PT) Report from New York City – today:
While Occupy protesters on the west coast blocked ports, occupiers in New York staged their own demonstration, with about 200 people gathering at the World Financial Center, according to the New York Times.
Some 17 people were arrested during the protest, which apparently sought to portray Goldman Sachs as “a giant squid with tentacles that spread throughout the global financial system”, the Times said.
The World Financial Center is owned by Brookfield properties, which also owns Zuccotti Park – Occupy Wall Street’s base before they were cleared out by police last month.
Police in Long Beach, Calif., on Monday push back protestors blocking the road to SSA Marine, a shipping company that is partially owned by Goldman Sachs.
12:20 PM – We’re getting reports that OccupySD protesters are marching from the north gate northward to the Midway Aircraft carrier park area.
11:47 AM – We have a photo of OccupySD Bobbie getting arrested.
This photo of Occupy SD made national news - Mike Blake / Reuters Members of Occupy San Diego block a worker from driving to the Tenth Avenue Marine Terminal on Monday.
Harbor police Assistant Chief Mark Stainbrook said the port was shut down about an hour and 15 minutes. Trucks that were forced to turn around at Harbor Drive and Cesar Chavez Parkway were eventually admitted about 9 a.m., Stainbrook said. …
San Diego police Assistant Chief Boyd Long said he explained to the protesters that they were allowed to protest and peacefully assemble but that officers had to balance that with the rights of workers who needed to use the roadway. “I wish we didn’t arrest anyone out here,” Long said.
11:33 AM Occupy San Diego will be holding an emergency General Assembly at the north gate very soon.
11:30 AM – Check out this Open Letter from American Port Truck drivers:
We are the front-line workers who haul container rigs full of imported and exported goods to and from the docks and warehouses every day.
We have been elected by committees of our co-workers at the Ports of Los Angeles, Long Beach, Oakland, Seattle and Tacoma to tell our collective story. We have accepted the honor to speak up for our brothers and sisters about our working conditions despite the risk of retaliation we face.
Occupy protesters in Vancouver intend to block an entrance to Canada’s largest port on Monday as a show of solidarity with a movement crawling up the West Coast.
Demonstrators say they’re ready for a 12-hour blockade of the New Brighton entrance to Port Metro Vancouver. The protest is slated to begin shortly after noon local time.
The spot is one of two major access points to the bustling shipping port which trades about $75 billion in goods annually with more than 160 economies, according to the port’s website.
Police cleared two port entrances of protesters Monday morning as the Occupy movement’s planned disruption of Greater Vancouver ports fizzled. Vancouver Police Const. Lindsey Houghton said the attempted blockade began at about 7 a.m. Monday morning at several entrances to Vancouver’s port.
But only a dozen or so protesters showed up, and after disrupting traffic for over an hour, they were dispersed by police by about 8:30 a.m. Houghton said there were no arrests.
11:16 AM – San Diego demonstrators are all moving to the north gate as police have declared the main south gate an illegal assembly.
Bobbie's arrest, Monday morning at San Diego port shut-down.
11:09 AM – This just in from Oakland: demonstrators are pulling back.
10:53 PST OAKLAND — Protesters who successfully blocked entrances to the Port of Oakland this morning are pulling back and leaving after an unconfirmed report that an arbitrator closed the port because the protests posed a risk to worker safety.
10:51 AM – KPBS says a Port spokesperson has reported that 5 have been arrested in blocking the port in San Diego.
10:38 AM – News from Tacomo, Washington: Occupy Tacoma protest set for noon at Port of Tacoma
Occupy protesters are planning an informational protest at noon today beginning at the Port of Tacoma Road bridge over the Route 509 freeway.
According to the organization’s web site, the protesters are meeting at 11 a.m. at Pugnetti Park as South 21st Street and Pacific Avenue to carpool to the port.
Though the original plan by the Occupy movement was to shut down ports up and down the West Coast today, it appears that the group plans only informational activities today, unfurling signs on the overpass and passing out fliers to truckers.
SEATTLE — Occupy Seattle demonstrators planned a march and two rallies Monday as part of the campaign to shut down West Coast ports.
Organizers said on their website they would rally at 1 p.m. at Westlake Plaza in downtown Seattle then march to Port of Seattle property for rallies at 3 p.m. and 6 p.m. near the Spokane Street bridge and under the West Seattle bridge.
The website says demonstrators do not plan to break into port property or to sabotage equipment. Occupy marches and rallies also are planned Monday in Tacoma and Olympia.
Hundreds Occupy Portland protesters effectively shut down two of the Port of Portland’s busiest terminals, preventing about 200 longshore workers from going to work today.
The demonstrations began about 6 a.m. and were largely peaceful. Demonstrators planned to break up about 10 a.m. and said they would return to rally at Kelly Point Park. They said they hoped to disrupt the second shift of workers at the port.
Port spokesman Josh Thomas said longshore workers at terminals 5 and 6 were told to stay home. They will not be paid for today, he said.
The San Francisco-Oakland Bay Bridge is seen in the background as protesters block one of the entrances to the Port of Oakland, Monday, Dec. 12, 2011.
09:26 PST OAKLAND — A group of protesters have succeeded in stopping a line of big-rigs from entering the Port of Oakland this morning during their march to shut down the busy cargo terminal.
10:08 AM – Report from Port Hueneme in Ventura County: About 150 Occupy protesters picket Port of Hueneme
A crowd of about 150 soggy protesters held signs and formed a picket line Monday outside the entrance to the Port of Hueneme, a deep-water port in Ventura County, just south of Oxnard.
They were protesting shipments Monday by Del Monte Foods, which is owned by KKR, a private equity firm specializing in leveraged buyouts. Marshall Getto, an Occupy organizer out of Santa Barbara, called the firm “one of the worst companies representing the abuses of the 1%.”
Getto said protesters tried to get the longshoremen to join the demonstration, but the union declined.
”We understand that they have to work and feed their families,” he said. “We know they support us in spirit.”
Occupy protesters who briefly blocked an entrance to a Port of Long Beach pier Monday morning were dispersed by police. About 200 protesters blocked the south entrance to Pier J for about half an hour before police herded them out of the area and into a parking lot by Harry Bridges Memorial Park, where the protesters had assembled at the beginning of the morning.
Before moving to block the pier, protesters picketed in front of SSA Marine, a shipping company that is partially owned by investment bank Goldman Sachs. At least two protesters were arrested.
9:47 AM – The picket line at the south gate has been broken up and trucks are getting through. Police swept through the picketers, arresting at least 4 and cleared the road. Demonstrators have gathered about a block away from that gate, along E. Harbor Drive and Cezar Chavaz Parkway.
9:40 AM – Four arrests have been made at the main (south) gate.
9:33 AM – Just back from the Port shutdown with photos; Patty has created a photo gallery at the bottom of this post.
9:15 AM: Brother Hex was arrested about 10 minutes ago, also with a young woman who was arrested for blocking traffic.
8:55 AM: Police have cleared the intersection at the south gate (Cesar E. Chavez Pkwy & Crosby Rd.) declaring unlawful assembly by circling protesters and forcing them out of the street to allow trucks to pass. Someone being arrested right now.
8:30 AM: Protesters continue to hold 2 gates in San Diego. OccupySD media group streaming live from the North Gate. Trucker who is sitting in line is supportive of the protest.
8:00 AM: Police have issued the order to disperse. Unconfirmed reports that Paddy wagons have been seen at the south gate.
Occupy San Diego and other groups show solidarity with West Coast Occupy movements in efforts to close the ports, including Los Angeles/Long Beach; Port Hueneme, CA (central coast); Oakland; Portland, Oregon; Seattle and Tacoma, Washington.
7:50 AM: Frank reports that the North Gate at Park Blvd. and Harbor Drive has been blocked also. There is a long line of cars and trucks backed up trying to enter but protesters are holding their ground. Harbor Police are also present.
7:00 AM: As a light rain falls in San Diego about 150 protesters have gathered in an attempt to block entry to the port at Cesar E. Chavez Pkwy & Crosby Rd. Reports indicate that picketers have been successful in keeping this gate closed (but that port workers may be funneled to another gate), and there are large numbers of police and media present.
We’ll report more as information becomes available.
As we head toward 2012, there are a number of tax initiatives being proposed for the ballot next year. What separates them? Two of them, being put forth by activist millionaires, are largely regressive in nature aiming to bring in revenue by increasing income, sales, and other taxes on the majority of Californians in order to help fund education and other services. The Governor’s plan is a combination of progressive taxation (starting with earners who make $250,000 and above) and regressive (a sales tax that will hit everyone).
Only the “Millionaires’ Tax to Restore Funding for Education and Essential Services” keeps its aim on the 1% and only the 1% by imposing a 3% tax on all earnings over $1 million and 5% on all earnings over $2 million.
This initiative sponsored by my statewide union would take a huge step towards building a better California by bringing in over $6 billion of much-needed revenue. Where would the money go?
Specifically, the Millionaires’ Tax would allow us to:
Re-hire laid off teachers to reduce class size
Roll back college tuition increases
Restore cuts to essential services for children and seniors
Re-hire laid off emergency responders
Create jobs by repairing roads and bridges
This initiative is superior to the Governor’s proposal for several reasons:
It upholds the principle of progressivity and asks the only group of Californians who have gained over the course of the last several years (millionaires) to sacrifice very little for the greater good.
It allocates expenditures in a broader and more inclusive manner, taking into account the various crucial needs of the state. Education is a big part of it (since education is already a large portion of the state budget) but it also brings in funds for other vital needs that frequently fall by the wayside, such as care for the elderly and poor children.
It is the only initiative with a chance to pass. Recent surveys show the Millionaires’ Tax starting with an approval rating in the 70% range and only moving a couple of points down to a 68% approval rating after the opposition’s arguments are introduced. The other proposals with regressive elements don’t even come close (for instance, the notion of a more regressive “sales and income tax” ends up with 60% disapproval). Thus even if you don’t care about the principle of progressive rather than regressive taxation or social needs other than education, you are still betting on a big loser if you go with the Governor’s proposal. So if you care about schools and vital public services, go with the Millionaires’ Tax.
Who’s behind the Millionaires’ Tax? This proposal is already backed by a wide coalition of unions and community groups including: the California Federation of Teachers, the Courage Campaign, California Calls, Alliance of Californians for Community Empowerment, California Partnership, Inner City Struggle, Equality Alliance, Community Coalition for Substance Abuse Prevention and Treatment, Strategic Concepts in Organizing and Policy Education, Dolores Huerta Foundation, Knotts Family and Parenting Institute, Communities for a New California, Oakland Rising, Causa Justa/Just Cause, The Ella Baker Center for Human Rights, Asian Pacific Environmental Network, CAUSE, Working Partnerships USA, Poder Popular, Warehouse Workers United, Congregations Organized for Prophetic Engagement, Mobilize the Immigrant Vote, PICO California, and the University of California Student Association. Not millionaires or Sacramento politicians, but a true labor-community alliance of the 99%.
As Rick Jacobs, chair and founder of the 750,000 strong Courage Campaign says, “This is the only initiative proposal that would restore funding devastated by the recession, and rehire thousands of teachers, senior care providers and public safety personnel, without affecting the wallets of working families and the middle class. It addresses the heart of the problem: that total income share to the state’s richest 1% has doubled over the last twenty years, while their tax rates have fallen and the 99% have fallen farther behind.”
While some in the Democratic leadership and the house of labor feel obliged to take the path of least resistance and support the Governor’s plan, in doing so, they are accepting a strategy that links Brown’s assault on public sector workers’ pensions to any attempt at raising new revenue. They are also sandbagging the progressive taxes by adding a regressive sales tax in an effort to appease business interests (the same variety of appeasement that has failed miserably and repeatedly at the state and national levels). The curious thing about this latest episode of business as usual in Sacramento is that the pragmatic political argument in favor of this toxic deal doesn’t hold water, as the polling on the purely progressive measure is vastly superior to anything that includes regressive taxes. More importantly, those supporting the Governor’s plan are ignoring the populist momentum of the Occupy Movement and buying into a compromise that makes workers pay for the sins of the 1%.
Clearly, given the choice, most rank and file union workers would prefer our plan, as would the general public. If the Governor and his allies in labor’s leadership prevail in hijacking the promise of our initiative and killing it by tying it to regressive taxes and pension busting, it will be the worst kind of sell out by those who presume to speak for all of labor while failing to consult the rank and file, time and time again. Hopefully, it’s not too late to change course.
This time we deserve better.
Feeling sorry for millionaires? Don’t. They are paying taxes at a lower rate than they did fifteen years ago during the Pete Wilson era. Then they paid at 11%; today their rate is 10.3%. Add to that the fact that close to half of their wealth comes not from income but investments. Rather than creating new jobs, much of their wealth has come from activities that, as Paul Krugman points out, have more to do with “job destruction rather than job creation.” Indeed, over the last few decades they’ve run away with the store. What’s happened?
A few columns back I noted that a Congressional Budget office report showed that “after-tax incomes for the top 1% shot up by 275% from 1979 to 2007” while the bottom 80% saw their share of income decline. Bringing the point closer to home, the California Budget Project (CBP) just released a new study, “A Generation of Widening Inequality,” that indicated the same phenomenon happening here in the Golden State. In sum, the CBP found that, “a disproportionate share of income gains in recent decades has accrued to the very top of the distribution, in spite of continued productivity gains. As a result, the gap between the incomes of those at the high end of the distribution and those at the low end and middle has widened significantly.”
A few more lowlights from the report include the facts that:
Between 1987 and 2009, 35.5% of the inflation-adjusted income of all Californians went to the top 1%. That means that $77.9 billion (an amount just less than the size of California’s 2011-12 budget) went to fewer than 144,000 people.
71.3% of income gains during this period went to the wealthiest 10% of Californians while 2.5% went to the middle fifth of the income distribution.
The wealthiest Californians made significant gains while low and middle income Californians lost ground. Thus the top 1% of Californians increased their inflation-adjusted income by 50.2% between 1987-2009 to reach an average income of $1.2 million. Even the worst recession since the Great Depression failed to erase this decades-long gain.
In contrast, for the middle fifth of Californians, income dropped by 14.8% to an average of $35,000 in 2009, the lowest level since at least 1987.
The top 1% of Californians received 18.4% of income in 2009, up from 13% in 1987. Thus one out of five dollars went to one out of 100 Californians in 2009.
In contrast, the bottom 80% received 38.7% of total income, down from 46.6% in 1987. Thus 2 out of 5 dollars went to 80 out of 100 Californians.
California has one of the widest income gaps in the United States—the seventh biggest gap in America—putting us between Alabama and Texas. In 2010, 6.1 million (or over 16%) of Californians lived in poverty (including 2.2 million children—over 23% of the total).
In contrast 33,900 millionaire taxpayers (or 0.2%) had combined incomes of $104 billion in 2009. That’s 11 times the income needed to lift every single Californian out of poverty.
Hence it’s certainly not time to pity millionaires. It’s time for them to sacrifice a little for the greater good of our state and the future of our children.
To find out more about the campaign, pledge your support, and/or read the ballot measure in its entirety go to CFT.org.
Two important reforms are stopping the revolving door between Washington and the nation’s financial giants, and preventing financiers from flipping companies(making short-term profits by borrowing big sums to buy them, then squeezing payrolls and firing employees, and reselling the stripped-down companies at a profit — unless the debt-laden firms fall into bankruptcy first).
Remarkably, the frontrunners for the Republican nomination for president seem to agree. At least, that’s the clear implication from what they’ve said today.
During a morning appearance on Fox News, Mitt Romney said Newt Gingrich should return the $1.6 million in payments he received from mortgage financial giant Freddy Mac.
Gingrich has tried to defend himself by saying Freddy paid him as a “historian,” but anyone with half a brain knows Freddy wasn’t interested in history. It coughed up the money because they wanted Newt to influence his former House colleagues, so they wouldn’t take steps to reduce Freddy’s financial risk or reach.
In effect, Romney is taking a swipe not only at Gingrich but at the well-oiled revolving door linking financial giants to former congressional leaders, Treasury officials, and their staffs. That revolving door is one of the reasons the Street and its auxiliaries (like Fannie and Freddie) took the risks that caused the financial crisis, and have still never paid the price.
What’s Gingrich’s response? He said this morning ”if Governor Romney would like to give back all the money he’s earned from bankrupting companies and laying off employees over his years at Bain than I would be glad to then listen to him.”
Newt is criticizing not only Romney but also the pump and dump practices of Wall Street that have caused hundreds of thousands of Americans to lose their jobs, put countless companies in jeopardy, and earned a fortune for private-equity managers and others.
If this goes on much longer, the Mitt and Newt Show will get a slot on MSNBC.
Welcome to a new era of polarization as financial oligarchy replaces democratic government and reduces populations to debt peonage.
by MICHAEL HUDSON
The easiest way to understand Europe’s financial crisis is to look at the solutions being proposed to resolve it. They are a banker’s dream, a grab bag of giveaways that few voters would be likely to approve in a democratic referendum. Bank strategists learned not to risk submitting their plans to democratic vote after Icelanders twice refused in 2010-11 to approve their government’s capitulation to pay Britain and the Netherlands for losses run up by badly regulated Icelandic banks operating abroad. Lacking such a referendum, mass demonstrations were the only way for Greek voters to register their opposition to the €50 billion in privatization sell-offs demanded by the European Central Bank (ECB) in autumn 2011.
The problem is that Greece lacks the ready money to redeem its debts and pay the interest charges. The ECB is demanding that it sell off public assets – land, water and sewer systems, ports and other assets in the public domain, and also cut back pensions and other payments to its population. The bottom 99% understandably are angry to be informed that the wealthiest layer of the population is largely responsible for the budget shortfall by stashing away a reported €45 billion of funds stashed away in Swiss banks alone. The idea of normal wage-earners being obliged to forfeit their pensions to pay for tax evaders – and for the general un-taxing of wealth since the regime of the colonels – makes most people understandably angry. For the ECB, EU and IMF “troika” to say that whatever the wealthy take, steal or evade paying must be made up by the population at large is not a politically neutral position. It comes down hard on the side of wealth that has been unfairly taken.
A democratic tax policy would reinstate progressive taxation on income and property, and would enforce its collection – with penalties for evasion. Ever since the 19th century, democratic reformers have sought to free economies from waste, corruption and “unearned income.” But the ECB troika is imposing a regressive tax – one that can be imposed only by turning government policy-making over to a set of unelected technocrats.
To call the administrators of so anti-democratic a policy “technocrats” seems to be a cynical scientific-sounding euphemism for financial lobbyists or bureaucrats deemed suitably tunnel-visioned to act as useful idiots on behalf of their sponsors. Their ideology is the same austerity philosophy that the IMF imposed on Third World debtors from the 1960s through the 1980s. Claiming to stabilize the balance of payments while introducing free markets, these officials sold off export sectors and basic infrastructure to creditor-nation buyers. The effect was to drive austerity-ridden economies even deeper into debt – to foreign bankers and their own domestic oligarchies.
This is the treadmill on which Eurozone social democracies are now being placed. Under the political umbrella of financial emergency, wages and living standards are to be scaled back and political power shifted from elected government to technocrats governing on behalf of large banks and financial institutions. Public-sector labor is to be privatized – and de-unionized, while Social Security, pension plans and health insurance are scaled back.
This is the basic playbook that corporate raiders follow when they empty out corporate pension plans to pay their financial backers in leveraged buyouts. It also is how the former Soviet Union’s economy was privatized after 1991, transferring public assets into the hands of kleptocrats, who worked with Western investment bankers to make the Russian and other stock exchanges the darlings of the global financial markets. Property taxes were scaled back while flat taxes were imposed on wages (a cumulative 59 percent in Latvia). Industry was dismantled as land and mineral rights were transferred to foreigners, economies driven into debt and skilled and unskilled labor alike was obliged to emigrate to find work.
Pretending to be committed to price stability and free markets, bankers inflated a real estate bubble on credit. Rental income was capitalized into bank loans and paid out as interest. This was enormously profitable for bankers, but it left the Baltics and much of Central Europe debt strapped and in negative equity by 2008. Neoliberals applaud their plunging wage levels and shrinking GDP as a success story, because these countries shifted the tax burden onto employment rather than property or finance. Governments bailed out banks at taxpayer expense.
It is axiomatic that the solution to any major social problem tends to create even larger problems – not always unintended! From the financial sector’s vantage point, the “solution” to the Eurozone crisis is to reverse the aims of the Progressive Era a century ago – what in 1936 John Maynard Keynes hopefully termed “euthanasia of the rentier”. The idea was to subordinate the banking system to serve the economy rather than the other way around. Instead, finance has become the new mode of warfare – less ostensibly bloody, but with the same objectives as the Viking invasions over a thousand years ago, and Europe’s subsequent colonial conquests: appropriation of land and natural resources, infrastructure and whatever other assets can provide a revenue stream. It was to capitalize and estimate such values, for instance, that William the Conqueror compiled the Domesday Book after 1066, a model of ECB and IMF-style calculations today.
This appropriation of the economic surplus to pay bankers is turning the traditional values of most Europeans upside down. Imposition of economic austerity, dismantling social spending, sell-offs of public assets, de-unionization of labor, falling wage levels, scaled-back pension plans and health care in countries subject to democratic rules requires convincing voters that there is no alternative. It is claimed that without a profitable banking sector (no matter how predatory) the economy will break down as bank losses on bad loans and gambles pull down the payments system. No regulatory agencies can help, no better tax policy, nothing except to turn over control to lobbyists to save banks from losing the financial claims they have built up.
What banks want is for the economic surplus to be paid out as interest, not used for rising living standards, public social spending or even for new capital investment. Research and development takes too long. Finance lives in the short run. This short-termism is self-defeating, yet it is presented as science. The alternative, voters are told, is the road to serfdom: interfering with the “free market” by financial regulation and even progressive taxation.
There is an alternative, of course. It is what European civilization from the 13th-century Schoolmen through the Enlightenment and the flowering of classical political economy sought to create: an economy free of unearned income, free of vested interests using special privileges for “rent extraction.” At the hands of the neoliberals, by contrast, a free market is one free for a tax-favored rentier class to extract interest, economic rent and monopoly prices.
Rentier interests present their behavior as efficient “wealth creation.” Business schools teach privatizers how to arrange bank loans and bond financing by pledging whatever they can charge for the public infrastructure services being sold by governments. The idea is to pay this revenue to banks and bondholders as interest, and then make a capital gain by raising access fees for roads and ports, water and sewer usage and other basic services. Governments are told that economies can be run more efficiently by dismantling public programs and selling off assets.
Never has the gap between pretended aim and actual effect been more hypocritical. Making interest payments (and even capital gains) tax-exempt deprives governments of revenue from the user fees they are relinquishing, increasing their budget deficits. And instead of promoting price stability (the ECB’s ostensible priority), privatization increases prices for infrastructure, housing and other costs of living and doing business by building in interest charges and other financial overhead – and much higher salaries for management. So it is merely a knee-jerk ideological claim that this policy is more efficient simply because privatizers do the borrowing rather than government.
There is no technological or economic need for Europe’s financial managers to impose depression on much of its population. But there is a great opportunity to gain for the banks that have gained control of ECB economic policy. Since the 1960s, balance-of-payments crises have provided opportunities for bankers and liquid investors to seize control of fiscal policy – to shift the tax burden onto labor and dismantle social spending in favor of subsidizing foreign investors and the financial sector. They gain from austerity policies that lower living standards and scale back social spending. A debt crisis enables the domestic financial elite and foreign bankers to indebt the rest of society, using their privilege of credit (or savings built up as a result of less progressive tax policies) as a lever to grab assets and reduce populations to a state of debt dependency.
The kind of warfare now engulfing Europe is thus more than just economic in scope. It threatens to become a historic dividing line between the past half-century’s epoch of hope and technological potential to a new era of polarization as a financial oligarchy replaces democratic governments and reduces populations to debt peonage.
For so bold an asset and power grab to succeed, it needs a crisis to suspend the normal political and democratic legislative processes that would oppose it. Political panic and anarchy create a vacuum into which grabbers can move quickly, using the rhetoric of financial deception and a junk economics to rationalize self-serving solutions by a false view of economic history – and in the case of today’s ECB, German history in particular.
* * *
Governments do not need to borrow from commercial bankers or other lenders. Ever since the Bank of England was founded in 1694, central banks have printed money to finance public spending. Bankers also create credit freely – when they make a loan and credit the customer’s account, in exchange for a promissory note bearing interest. Today, these banks can borrow reserves from the government’s central bank at a low annual interest rate (0.25% in the United States) and lend it out at a higher rate. So banks are glad to see the government’s central bank create credit to lend to them. But when it comes to governments creating money to finance their budget deficits for spending in the rest of the economy, banks would prefer to have this market and its interest return for themselves.
European commercial banks are especially adamant that the European Central Bank should not finance government budget deficits. But private credit creation is not necessarily less inflationary than governments monetizing their deficits (simply by printing the money needed). Most commercial bank loans are made against real estate, stocks and bonds – providing credit that is used to bid up housing prices, and prices for financial securities (as in loans for leveraged buyouts).
It is mainly government that spends credit on the “real” economy, to the extent that public budget deficits employ labor or are spent on goods and services. Governments avoid paying interest by having their central banks printing money on their own computer keyboards rather than borrowing from banks that do the same thing on their own keyboards. (Abraham Lincoln simply printed currency when he financed the U.S. Civil War with “greenbacks.”)
Banks would like to use their credit-creating privilege to obtain interest for lending to governments to finance public budget deficits. So they have a self-interest in limiting the government’s “public option” to monetize its budget deficits. To secure a monopoly on their credit-creating privilege, banks have mounted a vast character assassination on government spending, and indeed on government authority in general – which happens to be the only authority with sufficient power to control their power or provide an alternative public financial option, as Post Office savings banks do in Japan, Russia and other countries. This competition between banks and government explains the false accusations made that government credit creation is more inflationary than when commercial banks do it.
The reality is made clear by comparing the ways in which the United States, Britain and Europe handle their public financing. The U.S. Treasury is by far the world’s largest debtor, and its largest banks seem to be in negative equity, liable to their depositors and to other financial institutions for much larger sums that can be paid by their portfolio of loans, investments and assorted financial gambles. Yet as global financial turmoil escalates, institutional investors are putting their money into U.S. Treasury bonds – so much that these bonds now yield less than 1%. By contrast, a quarter of U.S. real estate is in negative equity, American states and cities are facing insolvency and must scale back spending. Large companies are going bankrupt, pension plans are falling deeper into arrears, yet the U.S. economy remains a magnet for global savings.
Britain’s economy also is staggering, yet its government is paying just 2% interest. But European governments are now paying over 7%. The reason for this disparity is that they lack a “public option” in money creation. Having a Federal Reserve Bank or Bank of England that can print the money to pay interest or roll over existing debts is what makes the United States and Britain different from Europe. Nobody expects these two nations to be forced to sell off their public lands and other assets to raise the money to pay (although they may do this as a policy choice). Given that the U.S. Treasury and Federal Reserve can create new money, it follows that as long as government debts are denominated in dollars, they can print enough IOUs on their computer keyboards so that the only risk that holders of Treasury bonds bear is the dollar’s exchange rate vis-à-vis other currencies.
By contrast, the Eurozone has a central bank, but Article 123 of the Lisbon treaty forbids the ECB from doing what central banks were created to do: create the money to finance government budget deficits or roll over their debt falling due. Future historians no doubt will find it remarkable that there actually is a rationale behind this policy – or at least the pretense of a cover story. It is so flimsy that any student of history can see how distorted it is. The claim is that if a central bank creates credit, this threatens price stability. Only government spending is deemed to be inflationary, not private credit!
The Clinton Administration balanced the U.S. Government budget in the late 1990s, yet the Bubble Economy was exploding. On the other hand, the Federal Reserve and Treasury flooded the economy with $13 trillion in credit to the banking system credit after September 2008, and $800 billion more last summer in the Federal Reserve’s Quantitative Easing program (QE2). Yet consumer and commodity prices are not rising. Not even real estate or stock market prices are being bid up. So the idea that more money will bid up prices (MV=PT) is not operating today.
Commercial banks create debt. That is their product. This debt leveraging was used for more than a decade to bid up prices – making housing and buying a retirement income more expensive for Americans – but today’s economy is suffering from debt deflation as personal income, business and tax revenue is diverted to pay debt service rather than to spend on goods or invest or hire labor.
Much more striking is the travesty of German history that is being repeated again and again, as if repetition somehow will stop people from remembering what actually happened in the 20th century. To hear ECB officials tell the story, it would be reckless for a central bank to lend to government, because of the danger of hyperinflation. Memories are conjured up of the Weimar inflation in Germany in the 1920s. But upon examination, this turns out to be what psychiatrists call an implanted memory – a condition in which a patient is convinced that they have suffered a trauma that seems real, but which did not exist in reality.
What happened back in 1921 was not a case of governments borrowing from central banks to finance domestic spending such as social programs, pensions or health care as today. Rather, Germany’s obligation to pay reparations led the Reichsbank to flood the foreign exchange markets with deutsche marks to obtain the currency to buy pounds sterling, French francs and other currency to pay the Allies – which used the money to pay their Inter-Ally arms debts to the United States. The nation’s hyperinflation stemmed from its obligation to pay reparations in foreign currency. No amount of domestic taxation could have raised the foreign exchange that was scheduled to be paid.
By the 1930s this was a well-understood phenomenon, explained by Keynes and others who analyzed the structural limits on the ability to pay foreign debt imposed without regard for the ability to pay out of current domestic-currency budgets. From Salomon Flink’s The Reichsbank and Economic Germany (1931) to studies of the Chilean and other Third World hyperinflations, economists have found a common causality at work, based on the balance of payments. First comes a fall in the exchange rate. This raises the price of imports, and hence the domestic price level. More money is then needed to transact purchases at the higher price level. The statistical sequence and line of causation leads from balance-of-payments deficits to currency depreciation raising import costs, and from these price increases to the money supply, not the other way around.
Today’s “free marketers” writing in the Chicago monetarist tradition (basically that of David Ricardo) leave the foreign and domestic debt dimensions out of account. It is as if “money” and “credit” are assets to be bartered against goods. But a bank account or other form of credit means debt on the opposite side of the balance sheet. One party’s debt is another party’s saving – and most savings today are lent out at interest, absorbing money from the non-financial sectors of the economy. The discussion is stripped down to a simplistic relationship between the money supply and price level – and indeed, only consumer prices, not asset prices. In their eagerness to oppose government spending – and indeed to dismantle government and replace it with financial planners – neoliberal monetarists neglect the debt burden being imposed today from Latvia and Iceland to Ireland and Greece, Italy, Spain and Portugal.
If the euro breaks up, it is because of the obligation of governments to pay bankers in money that must be borrowed rather than created through their own central bank. Unlike the United States and Britain which can create central bank credit on their own computer keyboards to keep their economy from shrinking or becoming insolvent, the German constitution and the Lisbon Treaty prevent the central bank from doing this.
The effect is to oblige governments to borrow from commercial banks at interest. This gives bankers the ability to create a crisis – threatening to drive economies out of the Eurozone if they do not submit to “conditionalities” being imposed in what quickly is becoming a new class war of finance against labor.
Disabling Europe’s central bank to deprive governments of the power to create money
One of the three defining characteristics of a nation-state is the power to create money. A second characteristic is the power to levy taxes. Both of these powers are being transferred out of the hands of democratically elected representatives to the financial sector, as a result of tying the hands of government.
The third characteristic of a nation-state is the power to declare war. What is happening today is the equivalent of warfare – but against the power of government! It is above all a financial mode of warfare – and the aims of this financial appropriation are the same as those of military conquest: first, the land and subsoil riches on which to charge rents as tribute; second, public infrastructure to extract rent as access fees; and third, any other enterprises or assets in the public domain.
In this new financialized warfare, governments are being directed to act as enforcement agents on behalf of the financial conquerors against their own domestic populations. This is not new, to be sure. We have seen the IMF and World Bank impose austerity on Latin American dictatorships, African military chiefdoms and other client oligarchies from the 1960s through the 1980s. Ireland and Greece, Spain and Portugal are now to be subjected to similar asset stripping as public policy making is shifted into the hands of supra-governmental financial agencies acting on behalf of bankers – and thereby for the top 1% of the population.
When debts cannot be paid or rolled over, foreclosure time arrives. For governments, this means privatization selloffs to pay creditors. In addition to being a property grab, privatization aims at replacing public sector labor with a non-union work force having fewer pension rights, health care or voice in working conditions. The old class war is thus back in business – with a financial twist. By shrinking the economy, debt deflation helps break the power of labor to resist.
It also gives creditors control of fiscal policy. In the absence of a pan-European Parliament empowered to set tax rules, fiscal policy passes to the ECB. Acting on behalf of banks, the ECB seems to favor reversing the 20th century’s drive for progressive taxation. And as U.S. financial lobbyists have made clear, the creditor demand is for governments to re-classify public social obligations as “user fees,” to be financed by wage withholding turned over to banks to manage (or mismanage, as the case may be). Shifting the tax burden off real estate and finance onto labor and the “real” economy thus threatens to become a fiscal grab coming on top of the privatization grab.
This is self-destructive short-termism. The irony is that the PIIGS budget deficits stem largely from un-taxing property, and a further tax shift will worsen rather than help stabilize government budgets. But bankers are looking only at what they can take in the short run. They know that whatever revenue the tax collector relinquishes from real estate and business is “free” for buyers to pledge to the banks as interest. So Greece and other oligarchic economies are told to “pay their way” by slashing government social spending (but not military spending for the purchase of German and French arms) and shifting taxes onto labor and industry, and onto consumers in the form of higher user fees for public services not yet privatized.
In Britain, Prime Minister Cameron claims that scaling back government even more along Thatcherite-Blairite lines will leave more labor and resources available for private business to hire. Fiscal cutbacks will indeed throw labor out of work, or at least oblige it to find lower-paid jobs with fewer rights. But cutting back public spending will shrink the business sector as well, worsening the fiscal and debt problems by pushing economies deeper into recession.
If governments cut back their spending to reduce the size of their budget deficits – or if they raise taxes on the economy at large, to run a surplus – then these surpluses will suck money out of the economy, leaving less to be spent on goods and services. The result can only be unemployment, further debt defaults and bankruptcies. We may look to Iceland and Latvia as canaries in this financial coalmine. Their recent experience shows that debt deflation leads to emigration, shorter life spans, lower birth rates, marriages and family formation – but provides great opportunities for vulture funds to suck wealth upward to the top of the financial pyramid.
Today’s economic crisis is a matter of policy choice, not necessity. As President Obama’s chief of staff Rahm Emanuel quipped: “A crisis is too good an opportunity to let go to waste.” In such cases the most logical explanation is that some special interest must be benefiting. Depressions increase unemployment, helping to break the power of unionized as well as non-union labor. The United States is seeing a state and local budget squeeze (as bankruptcies begin to be announced), with the first cutbacks coming in the sphere of pension defaults. High finance is being paid – by not paying the working population for savings and promises made as part of labor contracts and employee retirement plans. Big fish are eating little fish.
This seems to be the financial sector’s idea of good economic planning. But it is worse than a zero-sum plan, in which one party’s gain is another’s loss. Economies as a whole will shrink – and change their shape, polarizing between creditors and debtors. Economic democracy will give way to financial oligarchy, reversing the trend of the past few centuries.
Is Europe really ready to take this step? Do its voters recognize that stripping the government of the public option of money creation will hand the privilege over to banks as a monopoly? How many observers have traced the almost inevitable result: shifting economic planning and credit allocation to the banks?
Even if governments provide a “public option,” creating their own money to finance their budget deficits and supplying the economy with productive credit to rebuild infrastructure, a serious problem remains: how to dispose of the existing debt overhead now acting as a deadweight on the economy. Bankers and the politicians they back are refusing to write down debts to reflect the ability to pay. Lawmakers have not prepared society with a legal procedure for debt write-downs – except for New York State’s Fraudulent Conveyance Law, calling for debts to be annulled if lenders made loans without first assuring themselves of the debtor’s ability to pay.
Bankers do not want to take responsibility for bad loans. This poses the financial problem of just what policy-makers should do when banks have been so irresponsible in allocating credit. But somebody has to take a loss. Should it be society at large, or the bankers?
It is not a problem that bankers are prepared to solve. They want to turn the problem over to governments – and define the problem as how governments can “make them whole.” What they call a “solution” to the bad-debt problem is for the government to give them good bonds for bad loans (“cash for trash”) – to be paid in full by taxpayers. Having engineered an enormous increase in wealth for themselves, bankers now want to take the money and run – leaving economies debt ridden. The revenue that debtors cannot pay will now be spread over the entire economy to pay – vastly increasing everyone’s cost of living and doing business.
Why should they be “made whole,” at the cost of shrinking the rest of the economy? The bankers’ answer is that debts are owed to labor’s pension funds, to consumers with bank deposits, and the whole system will come crashing down if governments miss a bond payment. When pressed, bankers admit that they have taken out risk insurance – collateralized debt obligations and other risk swaps. But the insurers are largely U.S. banks, and the U.S. Government is pressuring Europe not to default and thereby hurt the U.S. banking system. So the debt tangle has become politicized internationally.
So for bankers, the line of least resistance is to foster an illusion that there is no need for them to accept defaults on the unpayably high debts they have encouraged. Creditors always insist that the debt overhead can be maintained – if governments simply will reduce other expenditures, while raising taxes on individuals and non-financial business.
The reason why this won’t work is that trying to collect today’s magnitude of debt will injure the underlying “real” economy, making it even less able to pay its debts. What started as a financial problem (bad debts) will now be turned into a fiscal problem (bad taxes). Taxes are a cost of doing business just as paying debt service is a cost. Both costs must be reflected in product prices. When taxpayers are saddled with taxes and debts, they have less revenue free to spend on consumption. So markets shrink, putting further pressure on the profitability of domestic enterprises. The combination makes any country following such policy a high-cost producer and hence less competitive in global markets.
This kind of financial planning – and its parallel fiscal tax shift – leads toward de-industrialization. Creating ECB or IMF inter-government fiat money leaves the debts in place, while preserving wealth and economic control in the hands of the financial sector. Banks can receive debt payments on overly mortgaged properties only if debtors are relieved of some real estate taxes. Debt-strapped industrial companies can pay their debts only by scaling back pension obligations, health care and wages to their employees – or tax payments to the government. In practice, “honoring debts” turns out to mean debt deflation and general economic shrinkage.
This is the financiers’ business plan. But to leave tax policy and centralized planning in the hands of bankers turns out to be the opposite of what the past few centuries of free market economics have been all about. The classical objective was to minimize the debt overhead, to tax land and natural resource rents, and to keep monopoly prices in line with actual costs of production (“value”). Bankers have lent increasingly against the same revenues that free market economists believed should be the natural tax base.
So something has to give. Will it be the past few centuries of liberal free-market economic philosophy, relinquishing planning the economic surplus to bankers? Or will society re-assert classical economic philosophy and Progressive Era principles, and re-assert social shaping of financial markets to promote long-term growth with minimum costs of living and doing business?
At least in the most badly indebted countries, European voters are waking up to an oligarchic coup in which taxation and government budgetary planning and control is passing into the hands of executives nominated by the international bankers’ cartel. This result is the opposite of what the past few centuries of free market economics has been all about.
This was first published in the Frankfurter Allgemeine Zeitung on December 3, 2011, as “Der Krieg der Banken gegen das Volk.”
It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort. Unemployment in both America and Europe remains disastrously high. Leaders and institutions are increasingly discredited. And democratic values are under siege.
On that last point, I am not being alarmist. On the political as on the economic front it’s important not to fall into the “not as bad as” trap. High unemployment isn’t O.K. just because it hasn’t hit 1933 levels; ominous political trends shouldn’t be dismissed just because there’s no Hitler in sight.
Let’s talk, in particular, about what’s happening in Europe — not because all is well with America, but because the gravity of European political developments isn’t widely understood.
First of all, the crisis of the euro is killing the European dream. The shared currency, which was supposed to bind nations together, has instead created an atmosphere of bitter acrimony.
Specifically, demands for ever-harsher austerity, with no offsetting effort to foster growth, have done double damage. They have failed as economic policy, worsening unemployment without restoring confidence; a Europe-wide recession now looks likely even if the immediate threat of financial crisis is contained. And they have created immense anger, with many Europeans furious at what is perceived, fairly or unfairly (or actually a bit of both), as a heavy-handed exercise of German power.
Nobody familiar with Europe’s history can look at this resurgence of hostility without feeling a shiver. Yet there may be worse things happening.
Right-wing populists are on the rise from Austria, where the Freedom Party (whose leader used to have neo-Nazi connections) runs neck-and-neck in the polls with established parties, to Finland, where the anti-immigrant True Finns party had a strong electoral showing last April. And these are rich countries whose economies have held up fairly well. Matters look even more ominous in the poorer nations of Central and Eastern Europe.
Last month the European Bank for Reconstruction and Development documented a sharp drop in public support for democracy in the “new E.U.” countries, the nations that joined the European Union after the fall of the Berlin Wall. Not surprisingly, the loss of faith in democracy has been greatest in the countries that suffered the deepest economic slumps.
And in at least one nation, Hungary, democratic institutions are being undermined as we speak.
One of Hungary’s major parties, Jobbik, is a nightmare out of the 1930s: it’s anti-Roma (Gypsy), it’s anti-Semitic, and it even had a paramilitary arm. But the immediate threat comes from Fidesz, the governing center-right party.
Fidesz won an overwhelming Parliamentary majority last year, at least partly for economic reasons; Hungary isn’t on the euro, but it suffered severely because of large-scale borrowing in foreign currencies and also, to be frank, thanks to mismanagement and corruption on the part of the then-governing left-liberal parties. Now Fidesz, which rammed through a new Constitution last spring on a party-line vote, seems bent on establishing a permanent hold on power.
The details are complex. Kim Lane Scheppele, who is the director of Princeton’s Law and Public Affairs program — and has been following the Hungarian situation closely — tells me that Fidesz is relying on overlapping measures to suppress opposition. A proposed election law creates gerrymandered districts designed to make it almost impossible for other parties to form a government; judicial independence has been compromised, and the courts packed with party loyalists; state-run media have been converted into party organs, and there’s a crackdown on independent media; and a proposed constitutional addendum would effectively criminalize the leading leftist party.
Taken together, all this amounts to the re-establishment of authoritarian rule, under a paper-thin veneer of democracy, in the heart of Europe. And it’s a sample of what may happen much more widely if this depression continues.
It’s not clear what can be done about Hungary’s authoritarian slide. The U.S. State Department, to its credit, has been very much on the case, but this is essentially a European matter. The European Union missed the chance to head off the power grab at the start — in part because the new Constitution was rammed through while Hungary held the Union’s rotating presidency. It will be much harder to reverse the slide now. Yet Europe’s leaders had better try, or risk losing everything they stand for.
And they also need to rethink their failing economic policies. If they don’t, there will be more backsliding on democracy — and the breakup of the euro may be the least of their worries.
Wall Street is its own worst enemy. It should have welcomed new financial regulation as a means of restoring public trust. Instead, it’s busily shredding new regulations and making the public more distrustful than ever.
The Street’s biggest lobbying groups have just filed a lawsuit against the Commodities Futures Trading Commission, seeking to overturn its new rule limiting speculative trading.
For years Wall Street has speculated like mad in futures markets – food, oil, other commodities – causing prices to fluctuate wildly. The Street makes bundles from these gyrations, but they have raised costs for consumers.
In other words, a small portion of what you and I pay for food and energy has been going into the pockets of Wall Street. It’s just another hidden redistribution from the middle class and poor to the rich.
The new Dodd-Frank law authorizes the Commodity Futures Trading Commission to limit such speculative trading. The commission considered 15,000 comments, largely from the Street. It did numerous economic and policy analyses, carefully weighing the benefits to the public of the new regulation against its costs to the Street. It even agreed to delay enforcement of the new rule for at least a year.
But this wasn’t enough for the Street. The new regulation would still put a crimp in Wall Street’s profits.
So the Street is going to court. What’s its argument? The commission’s cost-benefit analysis wasn’t adequate.
At first blush it’s a clever ploy. There’s no clear legal standard for an “adequate” weighing of costs and benefits of financial regulations, since both are so difficult to measure. And putting the question into the laps of federal judges gives the Street a huge tactical advantage because the Street has almost an infinite amount of money to hire so-called “experts” (some academics are not exactly prostitutes but they have their price) who will use elaborate methodologies to show benefits have been exaggerated and costs underestimated.
It’s not the first time the Street has used this ploy. Last year, when the Securities and Exchange Commission tried to implement a Dodd-Frank policy making it easier for shareholders to nominate company directors, Wall Street sued the SEC. It alleged the commission’s cost-benefit analysis for the new rule was inadequate.
Last July, a federal appeals court – inundated by Wall Street lawyers and hired-gun “experts” – agreed with the Street. So much for shareholders nominating company directors.
Obviously, government should weigh the costs against the benefits of anything it does. But when it comes to the regulation of Wall Street, one overriding cost doesn’t make it into any individual weighing: The public’s mounting distrust of the entire economic system, generated by the Street’s repeated abuse of the public’s trust.
Wall Street’s shenanigans have convinced a large portion of America that the economic game is rigged.
Yet capitalism depends on trust. Without trust, people avoid even sensible economic risks. They also begin trading in gray markets and black markets. They think that if the big guys cheat in big ways, they might as well begin cheating in small ways. And when they think the game is rigged, they’re easy prey for political demagogues with fast tongues and dumb ideas.
Tally up these costs and it’s a whopper.
Wall Street has blanketed America in a miasma of cynicism. Most Americans assume the reason the Street got its taxpayer-funded bailout without strings in the first place was because of its political clout. That must be why the banks didn’t have to renegotiate the mortgages of Americans – many of whom, because of the economic collapse brought on by the Street’s excesses, are still under water. Some are drowning.
That must be why taxpayers didn’t get equity stakes in the banks we bailed out – as Warren Buffet got when he bailed out Goldman Sachs. That means when the banks became profitable gain we didn’t get any of the upside gains; we just padded the Street’s downside risks.
The Street’s political clout must be why most top Wall Street executives who were bailed out by taxpayers still have their jobs, have still avoided prosecution, are still making vast fortunes – while tens of millions of average Americans continue to lose their jobs, their wages, their medical coverage, or their homes.
And why the Dodd-Frank bill was filled with loopholes big enough for Wall Street executives and traders to drive their ferrari’s through.
The cost of such cynicism has leeched deep into America, causing so much suspicion and anger that our politics has become a cauldron of rage. It’s found expression in Tea Partiers and Occupiers, and millions of others who think the people at the top have sold us out.
Every week, it seems, we learn something new about how Wall Street has screwed us. Last week we heard from Bloomberg News (that had to go to court for the information) that in 2009 the Street’s six largest banks borrowed almost half a trillion dollars from the Fed at nearly zero cost – but never disclosed it.
In early 2009, after Citigroup tapped the Fed for almost $100 billion, the bank’s CEO, Vikram Pandit, had the temerity to call Citi’s first quarter the “best since 2007.” Is there another word for fraud?
Finally, everyone knows the biggest banks are too big to fail — and yet, despite this, Congress won’t put a cap on the size of the banks. The assets of the four biggest – J.P. Morgan Chase, Bank of America, Citigroup, and Wells Fargo – now equal 62 percent of total commercial bank assets. That’s up from 54 percent five years ago. Throw in Goldman Sachs and Morgan Stanley, and these six leviathans preside over the American economy like Roman emperors.
Speaking of Rome, if Italy or Greece defaults and Europe’s major banks can’t make payments on their debts to Wall Street, another bailout will surely be required. And the politics won’t be pretty.
There you have it. A federal court will now weigh costs and benefits of a modest rule designed to limit speculative trading in food and energy.
But in coming months and years, the American public will weigh the social costs and social benefits of Wall Street itself. And it wouldn’t surprise me if they decide the costs of the Street as it is far outweigh the benefits.
The result will be caps on the size of banks. Some will be broken up. Glass-Steagall will be resurrected. Some Wall Street bigwigs may even see in the insides of jails.
On Tuesday, in Osawatomie, Kan., President Obama gave a glorious and powerful speech that was a testament to the enduring appeal of one of our greatest political figures: Theodore Roosevelt. The president harnessed the economic principles of the Progressive Era and applied them to the economic realities of today. He made an argument for a dynamic government that invests based upon principles of equity and opportunity for all; a government that fosters a genuine robust capitalism based on principles of true competition and market integrity. The difference between the president’s vision of government and that of his potential Republican presidential opponents is vast. The difference between the president’s speech and his own governance over the past three years is, unfortunately, only marginally smaller.
The president has tried to wear the mantle of several presidents recently: Truman, for his attacks on a do-nothing congress; Eisenhower for his careful centrism; Clinton, for his willingness to invoke executive authority when the legislative branch failed. Yet it is Theodore Roosevelt whom President Obama should stick with, Theodore Roosevelt whose passion and principles of true reform have the most relevance today.
Obama’s speech was a welcome tonic, an indication of a new direction that might be taken. So who deserves credit for nudging the president to change his focus and tone? Occupy Wall Street. The president’s speech—which might be viewed as the opening salvo of the presidential race—was defined by OWS. Growth, fairness, and opportunity have replaced deficit reduction as the central theme of American politics. I even wonder whether Judge Rakoff would have issued his wonderful opinion rejecting as inadequate the SEC-Citibank settlement without the foundation laid by OWS. Judge Rakoff’s opinion is the judicial analogue to OWS: a visceral statement of discontent; a judicial “I have had enough of this”—albeit in more modulated prose.
What OWS has accomplished—its organizational and ideological deficits notwithstanding—brings to mind the famous Margaret Mead quotation: “Never doubt that a small group of thoughtful, committed citizens can change the world. Indeed, it is the only thing that ever has.” That small group—and we should not forget how few were actually involved in OWS—has altered American political debate in a few short months.
But two urgent questions remain: How will the president turn his newfound devotion to progressive era principles into actions? And what will OWS do next?
The test of the White House’s dedication will be the mortgage crisis. It is still the area of greatest concern to middle Americans, and still the area where creativity has been absent from the White House’s proposals. The president must take the plunge and demand significant mortgage reductions if the economy is to be revived and equity is to be addressed. There are plenty of interesting ideas for how to do this from all sides of the political spectrum. See the conservative Martin Feldstein’s New York Times op-ed on Oct. 12, 2011, and the more liberal Alan Blinder’s views in the Wall Street Journal on Oct. 20, 2011.
OWS also needs to choose its future. Here’s one idea. This past week the filibuster has once again deprived the public of candidates—one judicial, one for the newly formed consumer protection bureau—who had more than 50 supporters in the Senate and the backing of the president. The continued tyranny of 40, the number of senators who can block action—perhaps representing as little as 10 percent of the public—must be ended.
If OWS wants a government where the will of the majority will not be blocked by a powerful but small minority, demanding that Democratic leaders seek fundamental filibuster reform might be a great place to start. The chant “end the filibuster” might sound a bit technical, but the chant “save our democracy” would not. OWS has introduced the numbers 99 and 1 into the American political lexicon. Now it should do the same for 40 and 51.
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.
As progressives, we must occasionally test our beliefs by venturing into the netherworld of the Heritage Foundation, Cato Institute, and American Enterprise Institute (AEI). This is a murky world, filled with half-truths and an emphasis on minor but conservative-friendly points. The issue of income and wealth distribution is a timely example.
The Heritage Foundation claims that the poor get a lot of hidden benefits like food stamps, public housing, and school lunches. They don't mention the numerous regressive taxes disproportionately paid by low-income people.
The Cato Institute argues that "consumption inequality" is low, as evidenced, for example, by the fact that "refrigerators are now all but universal in the United States...the IKEA model will keep your beer just as cold as the Sub-Zero model." They quote University of Chicago economist Christian Broda: "We may have won the war against poverty without even noticing it."
The most serious denial came from the Heritage Foundation, which uses actual data to make a point: while income inequality has grown for the top 1% in recent years, wealth inequality has remained remarkably steady. The claim is repeated by AEI. Both organizations cite a paper by Kopczuk and Saez, which shows that the share of wealth owned by the top 1% has decreased from the early 1900s to the early 2000s, possibly because the "democratization of stock ownership...now spreads stock market gains and losses much more widely than in the past."
Heritage makes the most of this claim, urging us to "remember that wealth concentration has declined among top earners, even according to the very economist the left generally cites to argue that income inequality has grown."
But we need to take a closer look. No one disputes that inequality was held in check by the Depression, World War 2, and the consumer-driven economy and progressive tax structures that lasted through the 1970s. It is the pattern of wealth inequality after 1980 that must be investigated to determine if indeed a "democratization of stock ownership" leveled the wealth accumulation percentages for everyone.
Data from Edward Wolff (Table 2 and here) confirms that from 1983 to 2007 the percentages of net worth and financial wealth for the top 1% barely budged.
But the percentages for the rest of the richest 5% increased by almost 20%.
And the percentages for the poorest 80% of the population DECREASED by almost 20%.
In other words, the share of wealth owned by the top 1% leveled off because the "democratization of stock ownership" spread the wealth among just 5% of the population, those earning an average of $500,000 per year. A few people -- 5 out of 100 -- got very rich, but everyone else lost ground.
These results are supported by Federal Reserve figures (Table 4), which show 1998-2007 wealth percentages steady for the richest 1%, but up about 15% for the remainder of the richest 5% of Americans.
One more note to conservatives in denial: if the wealth inequality shares finally do level off, it may be more of a saturation point than a sign of progress. With the richest 20% owning 93% of the country's non-home wealth, it can't get much worse.
Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at [email protected].
The nation’s economic news is grim indeed, and is the grimmest of all for black Americans. Recently released census data shows that while the median yearly income in this country is $50,000, it is only $32,000 for black people, the lowest of any other racial group in the country. Hispanics had a median income of $37,000, whites $49,000 and Asians $64,000.
Simply put, black Americans are at the absolute bottom of the economic heap in a county still teetering from the effects of a seemingly endless recession. The term recession is something of a misnomer because it does not adequately describe the worldwide crises endemic to capitalism. As western nations take their citizens on a dizzying race to the bottom with various austerity measures, the fate of people already on the bottom grows more precarious by the day.
It is not coincidental that the dismal economic prospects for black people has occurred at the same moment that black politics limps along on life support. Black politics traditionally affirmed a right, indeed an obligation, to speak directly to the needs and aspirations of the masses of people. It has been substituted with feelings of vicarious joy when a black person reaches a high office.
Enter Barack Obama, the beneficiary of both black loyalty and a system which he assessed astutely as being ready for the right black man to come along. He fills the duel roles perfectly, giving good feelings about his presence in the White House but this presence is a result of promising to do nothing that the 1% would find inconvenient.
Sadly, the bloom is not yet off of the Obama rose, with a continuation of bizarre poll results indicating that the group doing the worst has the greatest degree of optimism. But the income and other indicators don’t lie and don’t change because most black people still love the president who looks like them but who goes out of his way to ignore them and their needs.
While phony government figures claim that employment numbers are improving, more than 46 million Americans are now receiving food stamps, a record. As the leaders of European countries struggle to keep the crises of Greece, Italy and Spain from spinning out of control, it is tempting to anticipate the post capitalist world. The thought experiment is interesting, but one thing is clear. When the dust eventually settles, black people will be at the bottom of a destroyed system.
If Barack Obama is re-elected, it is likely that black support for him will also continue, and the downward spiral will continue too. What is the future of a group always living on the cusp of disaster when a huge disaster takes place? No one can predict if the world economy will collapse Armageddon-like, or whether it too will limp along, under performing and slowly putting millions of people in ever more dire conditions.
It is difficult to imagine a worse scenario, but imagine it we must. The Obama phenomenon has silenced a people who were once the most likely to speak out against inequality and injustice. The death of movement politics has made black people the perfect victims of the descent of their nation’s and the world’s economies.
Barack Obama’s role in exacerbating the crisis goes unnoticed while tangential characters are given needless attention. Every hateful statement from the mouth of Newt Gingrich is dissected and railed against but Gingrich has not been in power in this country for a long time. He played no role in the bank bailout and he did not declare that Social Security would be placed on the budget cutting table. Obama did those things and put an already suffering group further and further behind.
There has been a ray of hope lately provided by the Occupy Wall Street movement.
The group condemned for a lack of focus has focused on neighborhoods with high housing foreclosure rates and acted to put people back into their houses. The Occupy Our Homes actions are doing what movements have always done, forcing the powerful to respond to popular demands.
Black Americans do not have to continue acting like sheep going to the slaughterhouse. They can remember their history of bold action. They do not have to continue being last on the income list, and the political list. If movement politics can be resurrected the group at the bottom now does not have to stay there. There is hope for a different future, if people are unafraid to remember how great changes came about in the past.
Margaret Kimberley's Freedom Rider column appears weekly in BAR. Ms. Kimberley lives in New York City, and can be reached via e-Mail at Margaret.Kimberley(at)BlackAgendaReport.Com
And now it is winter. Wall Street rejoices, hoping that the change of seasons will mean a change in our spirit, our commitment to stop them.
They couldn't be more wrong. Have they not heard of Washington and the troops at Valley Forge? The Great Flint Sit-Down Strike in the winter of 1936-37? The Michigan Wolverines crushing Ohio State in the 1950 Blizzard Bowl? When it comes to winter, it is the time historically when the people persevere and the forces of evil make their retreat!
We are not even 12 weeks old, yet Occupy Wall Street has grown so fast, so big, none of us can keep up with the hundreds of towns who have joined the movement, or the thousands of actions -- some of them just simple ones in neighborhoods, schools and organizations -- that have happened. The national conversation has been irreversibly changed. Now everyone is talking about how the 1% are getting away with all the money while the 99% struggle to make ends meet. People are no longer paralyzed by despair or apathy. Most know that now is the time to reclaim our country from the bankers, the lobbyists -- and their gofers: the members of the United States Congress and the 50 state legislatures.
And they're crazy if they think that a little climate chaos (otherwise known as winter in the 21st century) that they've helped to bring about is going to stop us.
I would like to propose to my Occupying sisters and brothers that there are many ways to keep Occupy Wall Street going through the winter months. There is perhaps no better time to move the movement indoors for a few months -- and watch it grow even bigger! (For those who have the stamina to maintain the outdoor occupations, by all means, keep it up -- and the rest of us will do our best to help you and keep you warm!)
The winter gives us an amazing opportunity to expand our actions against the captains of capitalism who have occupied our homes with their fraudulent mortgage system which has tossed millions of families out onto the curb; a cruel health care system that has told 50 million Americans "if you can't afford a doctor, go F yourself"; a student loan system that sends 22-year-olds into an immediate "debtors' prison" of working lousy jobs for which they didn't go to school but now have to take because they're in hock for tens of thousands of dollars for the next two decades; and a jobs market that keeps 25 million Americans un- or under-employed -- and much of the rest of the workers forced to accept wage cuts, health care reductions and zero job security.
But we in the Occupy Movement reject this version of the "American Dream." Instead, I suggest we shift our focus for this winter to the following actions:
OCCUPY THE WINTER A proposal to the General Assembly of Occupy Wall Street from Michael Moore
1. Occupy Our Homes. Sorry, banks, a roof over one's head is a human right, and you will no longer occupy our homes through foreclosure and eviction because well, you see, they are our homes, not yours. You may hold the mortgage; you don't hold the right to throw us or our neighbors out into the cold. With almost one in three home mortgages currently in foreclosure, nearing foreclosure or "underwater," the Occupy Movement must form local "Occupy Strike Forces" to create human shields when the banks come to throw people out of their homes. If the foreclosure has already happened, then we must help families move back into their foreclosed homes -- literally (see this clip from my last film to watch how a home re-occupation is accomplished). Beginning today, Take Back the Land, plus many other citizens' organizations nationwide, are kicking off Occupy Our Homes. Numerous actions throughout the day today have alreadyresulted in many families physically taking back their homes. This will continue every day until the banks are forced to stop their fraudulent practices, until homeowners are allowed to change their mortgage so that it reflects the true value of their homes, and until those who can no longer afford a mortgage are allowed to stay in their homes and pay rent. I beseech the news media to cover these actions -- they are happening everywhere. Evictions, though rarely covered (you need a Kardashian in your home as you're being evicted to qualify for news coverage) are not a new story (see this scene I filmed in 1988). Also, please remember the words of Congresswoman Marcy Kaptur of Toledo (in 'Capitalism: A Love Story'): Do not leave your homes if the bank forecloses on you! Let them take you to court and then YOU ask the judge to make them produce a copy of your mortgage. They can't. It was chopped up a hundred different ways, bundled with a hundred other mortgages, and sold off to the Chinese. If they can't produce the mortgage, they can't evict you.
2. Occupy Your College. In nearly every other democracy on the planet, students go to college for free or almost free. Why do those countries do that? Because they know that for their society to advance, they must have an educated population. Without that, productivity, innovation and an informed electorate is stunted and everyone suffers as a result. Here's how we do it in the U.S.A.: make education one of our lowest priorities, graduate students who know little about the world or their own government or the economy, and then force them into crushing debt before they even have their first job. That way has really worked well for us, hasn't it? It's made us the world leader in … in … well, ok, we're like 27th or 34th in everything now (except war). This has to end. Students should spend this winter doing what they are already doing on dozens of campuses -- holding sit-ins, occupying the student loan office, nonviolently disrupting the university regents meetings, and pitching their tents on the administration's lawn. Young people -- we, the '60s generation, promised to create a better world for you. We got halfway there -- now you have to complete the job. Do not stop until these wars are ended, the Pentagon budget is cut in half, and the rich are forced to pay their taxes. And demand that that money go to your education. We'll be there with you on all of this! And when we get this fixed and you graduate, instead of being $40,000 in debt, go see the friggin' world, or tinker around in your garage a la the two Steves, or start a band. Enjoy life, discover, explore, experiment, find your way. Anything but the assistant manager at Taco Bell.
3. Occupy Your Job. Let's spend the winter organizing workplaces into unions. OR, if you already have a union, demand that your leaders get off their ass and get aggressive like our grandparents did. For chrissakes, surely you know we would not have a middle class if it weren't for the strikes of the 1930s-1950s?! In three weeks we will celebrate the 75th anniversary of the workers in my hometown of Flint, Michigan taking over and occupying the General Motors factories for 44 days in the dead of winter. Their actions ignited a labor movement that lifted tens of millions out of poverty and into the middle class. It's time to do it again. (According to the Census Bureau and the New York Times, 100 million Americans either live in or near poverty. Disgraceful. Greed has destroyed the core fabric of our communities. Enough!) Here are two good unions to get your fellow workers to sign up and join: UE and SEIU. The CWA are also good. Here's how to get a quick primer in organizing your place of employment (don't forget to be careful while you do this!). If your company is threatening to close down and move the jobs elsewhere, then it's time to occupy the workplace (again, you can get a lesson in how to successfully occupy your factory from my movie).
4. Occupy Your Bank. This is an easy one. Just leave them. Move your checking and your credit card to a nonprofit credit union. It's safe and the decisions made there aren't based on greed. And if a bank tries to evict your neighbor, Occupy the local branch with 20 other people and call the press. Post it on the internet.
5. Occupy the Insurance Man. It's time to not only stand up for the 50 million without health insurance but to also issue a single, simple demand: The elimination of for-profit, privately-controlled health insurance companies. It is nothing short of barbaric to allow businesses to make a profit off people when they get sick. We don't allow anyone to make a profit when we need the fire department or the police. Until recently we would never allow a company to make a profit by operating in a public school. The same should be true for when you need to see a doctor or stay in the hospital. So I say it's long overdue for us to go and Occupy Humana, United Health, Cigna and even the supposed "nonprofit" Blue Crosses. An action on their lawns, in their lobbies, or at the for-profit hospitals -- this is what is needed.
So -- there are my ideas for the five places we can Occupy this winter. Help the foreclosed-upon to Occupy their homes. Occupy your college campus, especially the student loan office and the regents meetings. Occupy your job by getting everyone to sign a union card -- or by refusing to let the CEO ship your job overseas. Occupy your Chase or Citi or Bank of America branch by closing your account and moving it to a credit union. And Occupy the insurance company offices, the pharmaceutical companies' headquarters and the for-profit hospitals until the White House and Congress pass the true single-payer universal health care bill they failed to pass in 2010.
My friends, the rich are running scared right now. You need no further proof of this than to read this story from last week. The Republicans' top strategist met privately with them and told them that they had better change their tune or they were going to be crushed by the Occupy Wall Street movement. They didn't have to change their greedy actions, he assured them -- just the way they talk and PR the situation. He told them never to use the word "capitalism" -- it has now been made a dirty word by the Occupy movement, he said. Only say "economic freedom" from now on, he cautioned. And don't criticize the movement -- because the majority of Americans either agree with it or are feeling the same way. Just tell the Occupiers and the distressed Americans: "I get it." Seriously.
Yes, in just 12 short weeks we have killed their most sacred word -- Capitalism -- and we have them on the run, on the defensive. They should be. Millions are coming after them and our only goal is to remove them from power and replace them with a fair system that is controlled by the 99%. The 1% have been able to get both political parties to do their bidding. Why should only 1% of the population get to have two parties -- and the rest of us have none? That, too, is going to change. In my next letter, I will suggest what we can do to Occupy the Electoral Process. But first we must start with those who pull the strings of the puppets in the Congress. That's why it's called Occupy Wall Street. Always better to deal with man in charge, don't you think?
Let's Occupy the Winter! An #OWS Winter will certainly lead to a very hopeful American Spring.
The President’s speech today in Osawatomie, Kansas — where Teddy Roosevelt gave his “New Nationalism” speech in 1910 — is the most important economic speech of his presidency in terms of connecting the dots, laying out the reasons behind our economic and political crises, and asserting a willingness to take on the powerful and the privileged that have gamed the system to their advantage.
Here are the highlights (and, if you’ll pardon me, my annotations):
For most Americans, the basic bargain that made this country great has eroded. Long before the recession hit, hard work stopped paying off for too many people. Fewer and fewer of the folks who contributed to the success of our economy actually benefitted from that success. Those at the very top grew wealthier from their incomes and investments than ever before. But everyone else struggled with costs that were growing and paychecks that weren’t - and too many families found themselves racking up more and more debt just to keep up.
He’s absolutely right – and it’s the first time he or any other president has clearly stated the long-term structural problem that’s been widening the gap between the very top and everyone else for thirty years – the breaking of the basic bargain linking pay to productivity gains.
For many years, credit cards and home equity loans papered over the harsh realities of this new economy. But in 2008, the house of cards collapsed.
Exactly. But the first papering over was when large numbers of women went into paid work, starting the in the late 1970s and 1980s, in order to prop up family incomes that were stagnating or dropping because male wages were under siege – from globalization, technological change, and the decline of unions. Only when this coping mechanism was exhausted, and when housing prices started to climb, did Americans shift to credit cards and home equity loans as a means of papering over the new harsh reality of an economy that was working for a minority at the top but not for most of the middle class.
We all know the story by now: Mortgages sold to people who couldn’t afford them, or sometimes even understand them. Banks and investors allowed to keep packaging the risk and selling it off. Huge bets - and huge bonuses - made with other people’s money on the line. Regulators who were supposed to warn us about the dangers of all this, but looked the other way or didn’t have the authority to look at all.
It was wrong. It combined the breathtaking greed of a few with irresponsibility across the system. And it plunged our economy and the world into a crisis from which we are still fighting to recover. It claimed the jobs, homes, and the basic security of millions - innocent, hard-working Americans who had met their responsibilities, but were still left holding the bag.
Precisely – and it’s about time he used the term “wrong” to describe Wall Street’s antics, and the abject failure of regulators (led by Alan Greenspan and the Fed) to stop what was going on. But these “wrongs” were only the proximate cause of the economic crisis. The underlying cause was, as the President said before, the breaking of the basic bargain linking pay to productivity.
Ever since, there has been a raging debate over the best way to restore growth and prosperity; balance and fairness. Throughout the country, it has sparked protests and political movements - from the Tea Party to the people who have been occupying the streets of New York and other cities. It’s left Washington in a near-constant state of gridlock. And it’s been the topic of heated and sometimes colorful discussion among the men and women who are running for president.
But this isn’t just another political debate. This is the defining issue of our time. This is a make or break moment for the middle class, and all those who are fighting to get into the middle class. At stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home, and secure their retirement.
Right again. It is the defining issue of our time. But I wish he wouldn’t lump the Tea Party in with the Occupiers. The former hates government; the latter focuses blame on Wall Street and corporate greed – just where the President did a moment ago.
Now, in the midst of this debate, there are some who seem to be suffering from a kind of collective amnesia. After all that’s happened, after the worst economic crisis since the Great Depression, they want to return to the same practices that got us into this mess. In fact, they want to go back to the same policies that have stacked the deck against middle-class Americans for too many years. Their philosophy is simple: we are better off when everyone is left to fend for themselves and play by their own rules.
He might have been a bit stronger here. The “they” who are suffering collective amnesia include many of the privileged and powerful who have gained enormous wealth by using their political muscle to entrench their privilege and power. In other words, it’s not simply or even mainly amnesia. It’s a clear and concerted strategy.
Well, I’m here to say they are wrong. I’m here to reaffirm my deep conviction that we are greater together than we are on our own. I believe that this country succeeds when everyone gets a fair shot, when everyone does their fair share, and when everyone plays by the same rules. Those aren’t Democratic or Republican values; 1% values or 99% values. They’re American values, and we have to reclaim them.
Amen.
…
In 1910, Teddy Roosevelt came here, to Osawatomie, and laid out his vision for what he called a New Nationalism. “Our country,” he said, “…means nothing unless it means the triumph of a real democracy…of an economic system under which each man shall be guaranteed the opportunity to show the best that there is in him.”
Some background: In 1909, Herbert Croly, a young political philosopher and journalist, argued in his best-selling The Promise of American Life that the large American corporation should be regulated by the nation and directed toward national goals. “The constructive idea behind a policy of the recognition of the semi-monopolistic corporation is, of course, the idea that they can be converted into economic agents…for the national economic interest,” Croly wrote. Teddy Roosevelt’s New Nationalism embraced Croly’s idea.
For this, Roosevelt was called a radical, a socialist, even a communist. But today, we are a richer nation and a stronger democracy because of what he fought for in his last campaign: an eight hour work day and a minimum wage for women; insurance for the unemployed, the elderly, and those with disabilities; political reform and a progressive income tax.
Today, over one hundred years later, our economy has gone through another transformation. Over the last few decades, huge advances in technology have allowed businesses to do more with less, and made it easier for them to set up shop and hire workers anywhere in the world. And many of you know firsthand the painful disruptions this has caused for a lot of Americans.
Factories where people thought they would retire suddenly picked up and went overseas, where the workers were cheaper. Steel mills that needed 1,000 employees are now able to do the same work with 100, so that layoffs were too often permanent, not just a temporary part of the business cycle. These changes didn’t just affect blue-collar workers. If you were a bank teller or a phone operator or a travel agent, you saw many in your profession replaced by ATMs or the internet. Today, even higher-skilled jobs like accountants and middle management can be outsourced to countries like China and India. And if you’re someone whose job can be done cheaper by a computer or someone in another country, you don’t have a lot of leverage with your employer when it comes to asking for better wages and benefits - especially since fewer Americans today are part of a union.
Now, just as there was in Teddy Roosevelt’s time, there’s been a certain crowd in Washington for the last few decades who respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If only we cut more regulations and cut more taxes - especially for the wealthy - our economy will grow stronger. Sure, there will be winners and losers. But if the winners do really well, jobs and prosperity will eventually trickle down to everyone else. And even if prosperity doesn’t trickle down, they argue, that’s the price of liberty.
It’s a simple theory - one that speaks to our rugged individualism and healthy skepticism of too much government. It fits well on a bumper sticker. Here’s the problem: It doesn’t work. It’s never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible post-war boom of the 50s and 60s. And it didn’t work when we tried it during the last decade.
Obama is advocating Croly’s proposal that large corporations be regulated for the nation’s good. But he’s updating Croly. The next paragraphs are important.
Remember that in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history, and what did they get us? The slowest job growth in half a century. Massive deficits that have made it much harder to pay for the investments that built this country and provided the basic security that helped millions of Americans reach and stay in the middle class - things like education and infrastructure; science and technology; Medicare and Social Security.
Remember that in those years, thanks to some of the same folks who are running Congress now, we had weak regulation and little oversight, and what did that get us? Insurance companies that jacked up people’s premiums with impunity, and denied care to the patients who were sick. Mortgage lenders that tricked families into buying homes they couldn’t afford. A financial sector where irresponsibility and lack of basic oversight nearly destroyed our entire economy.
We simply cannot return to this brand of your-on-your-own economics if we’re serious about rebuilding the middle class in this country. We know that it doesn’t result in a strong economy. It results in an economy that invests too little in its people and its future. It doesn’t result in a prosperity that trickles down. It results in a prosperity that’s enjoyed by fewer and fewer of our citizens.
Look at the statistics. In the last few decades, the average income of the top one percent has gone up by more than 250%, to $1.2 million per year. For the top one hundredth of one percent, the average income is now $27 million per year. The typical CEO who used to earn about 30 times more than his or her workers now earns 110 times more. And yet, over the last decade, the incomes of most Americans have actually fallen by about six percent.
The very first time the President has emphasized this grotesque trend. Now listen for how he connects this with the deterioration of our economy and democracy:
This kind of inequality - a level we haven’t seen since the Great Depression - hurts us all. When middle-class families can no longer afford to buy the goods and services that businesses are selling, it drags down the entire economy, from top to bottom. America was built on the idea of broad-based prosperity - that’s why a CEO like Henry Ford made it his mission to pay his workers enough so that they could buy the cars they made. It’s also why a recent study showed that countries with less inequality tend to have stronger and steadier economic growth over the long run.
Inequality also distorts our democracy. It gives an outsized voice to the few who can afford high-priced lobbyists and unlimited campaign contributions, and runs the risk of selling out our democracy to the highest bidder. And it leaves everyone else rightly suspicious that the system in Washington is rigged against them - that our elected representatives aren’t looking out for the interests of most Americans.
More fundamentally, this kind of gaping inequality gives lie to the promise at the very heart of America: that this is the place where you can make it if you try. We tell people that in this country, even if you’re born with nothing, hard work can get you into the middle class; and that your children will have the chance to do even better than you. That’s why immigrants from around the world flocked to our shores.
And what it’s done to equal opportunity, and how it’s eroded upward mobility:
And yet, over the last few decades, the rungs on the ladder of opportunity have grown farther and farther apart, and the middle class has shrunk. A few years after World War II, a child who was born into poverty had a slightly better than 50-50 chance of becoming middle class as an adult. By 1980, that chance fell to around 40%. And if the trend of rising inequality over the last few decades continues, it’s estimated that a child born today will only have a 1 in 3 chance of making it to the middle class.
It’s heartbreaking enough that there are millions of working families in this country who are now forced to take their children to food banks for a decent meal. But the idea that those children might not have a chance to climb out of that situation and back into the middle class, no matter how hard they work? That’s inexcusable. It’s wrong. It flies in the face of everything we stand for.
What should we do about this? Not turn to protectionism or become neo-Luddites. Nor turn to some version of government planning.
Fortunately, that’s not a future we have to accept. Because there’s another view about how we build a strong middle class in this country - a view that’s truer to our history; a vision that’s been embraced by people of both parties for more than two hundred years.
It’s not a view that we should somehow turn back technology or put up walls around America. It’s not a view that says we should punish profit or success or pretend that government knows how to fix all society’s problems. It’s a view that says in America, we are greater together - when everyone engages in fair play, everyone gets a fair shot, everyone does their fair share.
So what does that mean for restoring middle-class security in today’s economy?
It starts by making sure that everyone in America gets a fair shot at success. The truth is, we’ll never be able to compete with other countries when it comes to who’s best at letting their businesses pay the lowest wages or pollute as much as they want. That’s a race to the bottom that we can’t win - and shouldn’t want to win. Those countries don’t have a strong middle-class. They don’t have our standard of living.
In 1910, Teddy Roosevelt came here, to Osawatomie, and laid out his vision for what he called a New Nationalism. …
The fact is, this crisis has left a deficit of trust between Main Street and Wall Street. And major banks that were rescued by the taxpayers have an obligation to go the extra mile in helping to close that deficit. At minimum, they should be remedying past mortgage abuses that led to the financial crisis, and working to keep responsible homeowners in their home. We’re going to keep pushing them to provide more time for unemployed homeowners to look for work without having to worry about immediately losing their house.
I wish the Obama administration had made this a condition for the banks receiving bailouts.
But there’s far more to the speech. Read it in full. It lays out the basis for what could be the platform Obama will run on in 2012 — increasing taxes on the rich, investing in the rest us, requiring corporations and Wall Street banks that reap benefits from being in America create good jobs for Americans, and protecting our democracy from being corrupted by money — a new New Nationalism.
Here, finally, is the Barack Obama many of us thought we had elected in 2008. Since then we’ve had a president who has only reluctantly stood up to the moneyed interests Teddy Roosevelt and his cousin Franklin stood up to.
Hopefully Obama will carry this message through 2012, and gain a mandate to use his second term to take on the growing inequities and game-rigging practices that have been undermining the American economy and American democracy for years.
Better educational systems, labour market reforms and more redistribution can stem the relentless rise the gap between rich and poor, the Organisation for Economic Cooperation and Development has concluded in a long-awaited study of the causes of rising inequality across advanced economies.
The Paris-based international organisation found that income inequality rose in 17 of the 22 OECD countries surveyed between the mid-1980s and late-2000s with profound consequences for social cohesion.
“Youths who see no future for themselves feel increasingly disenfranchised. They have now been joined by protesters who believe they are bearing the brunt of a crisis for which they have no responsibility, while people on higher incomes appeared to be spared,” the OECD said.
The positive conclusions of the cross-country study of inequality were that widening income gaps were not inevitable and technological forces driving incomes apart could be successfully countered by active government policies.
The gap between rich and poor widened most sharply in the US, Germany, Finland, Israel, Luxembourg and New Zealand, the OECD found, although it remains highest in its poorer members, Mexico and Chile.
In those two countries the incomes of the top ten per cent are twenty-five times higher than those of the bottom ten per cent, while it is 14-to-one in the US, Israel and Turkey and 10-to-one in the UK.
Most important in the rise in inequality has been a relative rise in the rewards to well-educated individuals who have benefited from the advance of new technologies. Technological progress made in the manufacturing and service sectors, which has accelerated since the mid-1990s, has benefited highly-skilled workers most, with those with little education or training left behind, the report finds.
Tax and benefit systems were doing less to mitigate inequality than in the mid-1980s, the report also found. In contrast, globalisation had little impact on the gap between rich and poor, according to the report.
Published on Monday, the report recommends a three-pronged attack on inequality, using labour market reforms to create a level playing field between workers; education to improve the returns to work; and more redistribution from rich to poor to mitigate any rise in the underlying returns in the pre-tax income distribution.
But a higher tax burden on the rich “might not be the most effective” if it came in the form of higher income tax, the reports says, and suggests instead “improving tax compliance, eliminating tax breaks, and reassessing the role of taxes on all forms of property and wealth, including the transfer of assets.”
Investment in formal education and training is also key to closing the gap.
“Education appears to have been the single most important factor contributing not only to reduced wage dispersion among workers but also to higher employment rates,” the report said. “ The evolution of earnings inequality could be viewed mainly as the outcome of a ‘race between education and technology’.”
Though the relaxation of labour laws in most OECD economies has created more jobs, it has also contributed to greater wage inequality, the report finds, primarily because older workers have maintained safeguards while younger workers have few rights in many economies.
The OECD recommends an equalisation of rights, cutting the protections available to the lucky few and increasing social protection for the young in the labour market.
The new One Bank of America Center in Charlotte, N.C., April 11, 2011. (Photo: Chris Keane / The New York Times)
Do you know who Elizabeth Duke is? How about Donald Kohn or Kevin Warsh? No? Well - you should. Because while Congress was debating back in 2008 whether or not to bailout banksters with a $700 billion blank check - these guys and girls were just doing it. They were funneling $7.7 trillion to Wall Street under the table - without one constituent phone call - without worrying about one election - without having to give one explanation.
They were able to do that because they're members of the Federal Reserve Board of Governors - a group of people who are not voted into office, but have the power to completely dictate monetary policy in America. They are not politicians - they're technocrats - they're bankers and financial experts. Technocrats aren't interested in democracy - it takes too long, and often the interests of the majority of voters don't quite line up with the interests of the minority of bankers and foreign investors. Or - to put it in today's terms - the interests of the 99 percent rarely line up with the interests of the 1 percent. That's why - back in 2008 - the technocrats at the Fed weren't interested in waiting for Congress - with all of its open debate and constituent services - to bail out the banks - they just went ahead and did it themselves.
According to documents obtained by Bloomberg News - in 2009 - the Fed dished out $7.7 trillion in no-strings-attached, super-low interest loans to Wall Street's biggest players.That's $7.7 trillion!That's more than half of the total value of EVERYTHING - every single thing produced in America - that same year. $7.7 TRILLION out the door - with no one bothering to inform the electorate about it until now. And since they were super-low interest loans - banks made enormous profits off of them. Six of the nation's biggest banks - like Morgan Stanley and Bank of America - pocketed a not-too-shabby $13 billion in undisclosed profits, thanks to the deal with the technocrats at the Fed. So today - thanks to a decision made by technocrats, and not politicians - the too-big-to-fail banks are even bigger, and Wall Street has raked in more profits in just the last 30 months then they did in the entire eight years leading up to the 2008 financial crisis.
I guess the economic crisis that brought banksters to the ledge ended up being pretty lucrative for them in the long run. But the bigger picture is this: can our democracy survive future financial crises? As the world descends into financial turmoil on fears that the Euro zone may collapse, it's the technocrats who are taking power - replacing elected officials.The clearest example of this is what happened in Greece a few weeks ago. In order to preserve the euro - keep financial markets steady and ensure that foreign investors get what's theirs - the technocrats at the International Monetary Fund and the European Central Bank demanded that Greece take a bailout. Knowing that a bailout would mean more layoffs - higher taxes and less benefits for the Greek people - Greek Prime Minister George Papandreou wanted to hold a national referendum on whether or not to take the bailout, just like Iceland had done a year earlier. He wanted the people - through democracy - to determine their own fate. But that never happened.Just floating the idea cost Papandreou his job - he was forced out of office and replaced by a technocrat, Lucas Papademos, who just so happened to be the former vice president of the European Central Bank.
Probably because when the Icelandic people were asked in a national referendum if they should take austerity cuts to bail out their banksters, they said, overwhelmingly, "No, let the banks fail." But with a technocrat in charge, there will be no vote - a bailout will be shoved down the throat of the Greek people, and so, too, will painful austerity - anything to keep the banksters happy.New York Times op-ed columnist Ross Douthat laid out this new reality of technocrat control in a recent article in which he wrote, "For the inhabitants of Italy and Greece, who have just watched democratically elected governments toppled by pressure from financiers, European Union bureaucrats, and foreign heads of state, it evokes the cold reality of 21st-century politics. Democracy may be nice in theory, but in a time of crisis it's the technocrats who really get to call the shots. National sovereignty is a pretty concept, but the survival of the European common currency comes first."
All signs indicate that we'll be confronted with this problem once again in America - as another financial crisis, be it caused by Europe or some other bubble like student debt or housing, seems like a foregone conclusion at this point. And when it hits the fan - and the American people tell Congress no way in hell will they sign off on another bailout of Wall Street - then the technocrats at the Fed will takeover and our democracy will be irrelevant - just like it was in 2008 and 2009. That's why we, the people, need to take back control of the Fed, and why the people of Europe need to take back control of their central banks and global financial institutions.
Only when the Federal Reserve becomes an instrument of the people to calm the mood swings of the market - and not a piggy bank for transnational banking corporations - can we really protect ourselves from a technocratic takeover in the future. And the way to do it is pretty straightforward - it was Alexander Hamilton's idea back in the George Washington administration. Have the central bank owned by the US government and run by the Treasury Department, so all the profits from banking go directly into the Treasury and you and I pay less in taxes while the banksters on Wall Street can find a job at Wal-Mart.The good people of North Dakota did just this, back in 1919, established something very much like this - the Bank of North Dakota - and it's kept the state in the black, and kept its farmers, manufacturers and students protected from the predations of New York banksters for nearly a century. It's time for every state to charter their own state bank, just like North Dakota did, and for the Treasury Department to either buy the Fed from the for-profit banks that own it, or simply nationalize it.Only when we get control of our money out of the hands of sociopathic banksters will our democracy begin to function for the people instead of just for the banksters.
by Peter G Tatchell, from Huffington Post, November 29, 2011
Up to two million trade union members are expected to strike this Wednesday, in protest against the government's attack on pensions and cuts in public services. Their grievances are real. But their solutions don't go far enough.
Pressing the government for fairness isn't the answer. Staging a protest is second best. These are reactive, defensive responses to fundamental flaws and failings in the way our economy is organised and run.
The perennial failing of most trade unions is that their horizons are so limited. They seek a better deal for their members within the economic status quo, when the real solution is to reform the system of economy that, by its very nature, leaves the vast majority of working people powerless, disenfranchised and marginalised. When it comes to the economy, the average person has no meaningful say in the decisions that affect their jobs, wages, pensions and working conditions.
We expect political democracy. Why not economic democracy too?
Behind the cosy democratic facade, Britain is a cut-throat economic dictatorship. A rich and powerful economic elite makes all the key economic decisions, excluding millions of employees and consumers.
Our country's democratic political transformation - pushed forward by the Levellers, Chartists and Suffragettes - has never been matched by a corresponding economic democratisation.
'One person, one vote' has been won in the political sphere (albeit imperfectly) but not in the realm of economics. Britain's democratic revolution, which begun four centuries ago, remains unfinished.
It is time to put economic democracy on the political agenda; to bring the economy into democratic alignment with the political system.
Extending the economic franchise is about democracy and justice. It can help create a greater plurality and diversity of economic power, and also lay the foundations for a more equitable and productive economic partnership between all those who contribute to wealth creation and to the provision of public services, from local councils to the NHS.
Whatever people think of the current economic system, one thing is indisputable: it is characterised by an absence of democracy, participation, transparency and accountability.
Employees and their representative bodies - the trade unions - are frozen out of economic influence and decision-making.
Big business rules. The captains of industry, commerce and finance have almost total power.
They run their enterprises on totalitarian lines. All decision-making is concentrated in the hands of a tiny, privileged cabal of major shareholders, directors and managers. They alone determine how the company operates. Employees - without whom no wealth would be created and no institution could function - are powerless and disenfranchised. They are little more than glorified serfs of the moneyed classes and their government.
Not much has changed in two centuries of capitalism. There have been no major democratic reforms of the economy. Although millions of people bought shares in privatised public enterprises like BT, their individual holdings are minuscule and marginal. They have no real influence. Big corporate interests retain the decisive economic power. This power is as centralised and autocratic as ever. A few determine the fate of the many.
The advent of nationalised public industries, utilities and services changed nothing. They have been run in much the same centralised, dictatorial manner as their privately-owned counterparts. There was never any economic democracy in the state-run railways or coal mines. The system of ownership changed but not the system of management. The bosses of public utilities and nationalised industries were almost as powerful as the captains of private enterprise. Their employees remained locked out of the decision-making process. It was state capitalism, not socialism. The Labour Party and the trade unions have made a huge mistake in over-emphasising public ownership, to the neglect of public control.
The same applies today in the NHS and other public services. They are administered according to the classic capitalist model of top-down command and control. NHS big-wigs have almost as much power as private medical bosses. Doctors, nurses and ancillary staff are excluded from policy-making in both public and private medicine. Their years of accumulated hands-on, frontline service knowledge is disregarded when it comes to policy-making. This is a huge waste of human resources.
Wherever we look, in all sectors of the economy, the democratic deficit is universal. Power is concentrated and wielded in ways that is contrary to the democratic, egalitarian spirit of modern, twenty-first century Britain. The time for economic democracy is now.
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.
In brief: The Bureau of Labor Statistics’ household survey shows unemployment at 8.6 percent, and the payroll survey shows 120,000 new jobs in November (140,000 from the private sector, and a loss of 20,000 in the public sector). BLS also revised upward its job numbers for September and October.
What does it mean? We’re not out of the woods but we might be seeing some daylight.
Maybe. Here’s what you need to worry about:
First, this rate of job growth is barely enough to keep up with the growth in the working-age population. So we’re not making progress on the backlog of more than 13 million jobless Americans, and another 11 million working part-time who’d rather have full-time jobs.
Second, retail jobs constituted a third of new private-sector employment in November. Retail jobs tend to be unstable, temporary, and low-paying. Although the BLS is supposed to adjust for seasonal employment (i.e. Christmas), it doesn’t take account of the fact that more and more Americans have been pushing up their Christmas buying to before Thanksgiving. So some of these jobs may not be around very long.
Third, the jobless rate fell partly because around 315,000 people who had been looking for jobs dropped out of the job market in November. Remember: If you’re not actively looking, you’re not counted as unemployed on the household survey.
Fourth, hourly earnings are down, as are real wages. So to some extent Americans have been substituting lower wages for lost jobs – either by accepting lower wages at their current place of employment, or getting the boot and settling for lower wages elsewhere. A job is better than no job, of course, but a job with a lower wage isn’t nearly as good as a job with at the same or better wage.
Fifth, another reason for November’s job growth is that American consumers – whose spending accounts for about 70 percent of the economy – increased their spending. But this can’t continue because, as noted, wages are dropping. They spent more by cutting into their meager savings. Don’t expect this to last.
Finally, there’s the wild card of the rest of the global economy – the European debt crisis and the high likelihood of recession in Europe, the slowdown in China and India, slower growth in developing nations. Some of our jobs depend on exports, which will drop. Others are keyed to the financial sector, which is being hit directly.
Two final wild cards closer to home: The Fed, and Congress. The Fed meets in two weeks to decide on further monetary easing. With today’s report, the odds of easing are down, unfortunately. Believe it or not, several Fed members are worried about inflation.
And if Congress refuses to extend the payroll tax cut and/or unemployment benefits by December 30, it will create another drag on the economy. When people ask me what Congress is likely to do I always say the same thing: The odds are in favor of nothing.
So while today’s jobs report is in the right direction, it’s way too early to break out the champagne.
What kind of society, exactly, do modern Republicans want? I’ve been listening to Republican candidates in an effort to discern an overall philosophy, a broadly-shared vision, an ideal picture of America.
They say they want a smaller government but that can’t be it. Most seek a larger national defense and more muscular homeland security. Almost all want to widen the government’s powers of search and surveillance inside the United States – eradicating possible terrorists, expunging undocumented immigrants, “securing” the nation’s borders. They want stiffer criminal sentences, including broader application of the death penalty. Many also want government to intrude on the most intimate aspects of private life.
They call themselves conservatives but that’s not it, either. They don’t want to conserve what we now have. They’d rather take the country backwards – before the 1960s and 1970s, and the Environmental Protection Act, Medicare, and Medicaid; before the New Deal, and its provision for Social Security, unemployment insurance, the forty-hour workweek, laws against child labor, and official recognition of trade unions; even before the Progressive Era, and the first national income tax, antitrust laws, and Federal Reserve.
They’re not conservatives. They’re regressives. And the America they seek is the one we had in the Gilded Age of the late nineteenth century.
It was an era when the nation was mesmerized by the doctrine of free enterprise, but few Americans actually enjoyed much freedom. Robber barons like the financier Jay Gould, the railroad magnate Cornelius Vanderbilt, and the oil tycoon John D. Rockefeller, controlled much of American industry; the gap between rich and poor had turned into a chasm; urban slums festered; children worked long hours in factories; women couldn’t vote and black Americans were subject to Jim Crow; and the lackeys of rich literally deposited sacks of money on desks of pliant legislators.
Most tellingly, it was a time when the ideas of William Graham Sumner, a professor of political and social science at Yale, dominated American social thought. Sumner brought Charles Darwin to America and twisted him into a theory to fit the times.
Few Americans living today have read any of Sumner’s writings but they had an electrifying effect on America during the last three decades of the 19th century.
To Sumner and his followers, life was a competitive struggle in which only the fittest could survive – and through this struggle societies became stronger over time. A correlate of this principle was that government should do little or nothing to help those in need because that would interfere with natural selection.
Listen to today’s Republican debates and you hear a continuous regurgitation of Sumner. “Civilization has a simple choice,” Sumner wrote in the 1880s. It’s either “liberty, inequality, survival of the fittest,” or “not-liberty, equality, survival of the unfittest. The former carries society forward and favors all its best members; the latter carries society downwards and favors all its worst members.”
Sound familiar?
Newt Gingrich not only echoes Sumner’s thoughts but mimics Sumner’s reputed arrogance. Gingrich says we must reward “entrepreneurs” (by which he means anyone who has made a pile of money) and warns us not to “coddle” people in need. He calls laws against child labor “truly stupid,” and says poor kids should serve as janitors in their schools. He opposes extending unemployment insurance because, he says, ”I’m opposed to giving people money for doing nothing.”
Sumner, likewise, warned against handouts to people he termed “negligent, shiftless, inefficient, silly, and imprudent.”
Mitt Romney doesn’t want the government to do much of anything about unemployment. And he’s dead set against raising taxes on millionaires, relying on the standard Republican rationale millionaires create jobs.
Here’s Sumner, more than a century ago: “Millionaires are the product of natural selection, acting on the whole body of men to pick out those who can meet the requirement of certain work to be done… It is because they are thus selected that wealth aggregates under their hands – both their own and that intrusted to them … They may fairly be regarded as the naturally selected agents of society.” Although they live in luxury, “the bargain is a good one for society.”
Other Republican hopefuls also fit Sumner’s mold. Ron Paul, who favors repeal of Obama’s healthcare plan, was asked at a Republican debate in September what medical response he’d recommend if a young man who had decided not to buy health insurance were to go into a coma. Paul’s response: “That’s what freedom is all about: taking your own risks.” The Republican crowd cheered.
In other words, if the young man died for lack of health insurance, he was responsible. Survival of the fittest.
Social Darwinism offered a moral justification for the wild inequities and social cruelties of the late nineteenth century. It allowed John D. Rockefeller, for example, to claim the fortune he accumulated through his giant Standard Oil Trust was “merely a survival of the fittest.” It was, he insisted “the working out of a law of nature and of God.”
Social Darwinism also undermined all efforts at the time to build a nation of broadly-based prosperity and rescue our democracy from the tight grip of a very few at the top. It was used by the privileged and powerful to convince everyone else that government shouldn’t do much of anything.
Not until the twentieth century did America reject Social Darwinism. We created the large middle class that became the core of our economy and democracy. We built safety nets to catch Americans who fell downward through no fault of their own. We designed regulations to protect against the inevitable excesses of free-market greed. We taxed the rich and invested in public goods – public schools, public universities, public transportation, public parks, public health – that made us all better off.
In short, we rejected the notion that each of us is on his or her own in a competitive contest for survival.
But make no mistake: If one of the current crop of Republican hopefuls becomes president, and if regressive Republicans take over the House or Senate, or both, Social Darwinism is back.
Greenspan's Fraud is the title of a book by Dr. Ravi Batra. In light of what's currently happening in Washington regarding the extension of the payroll tax cut, it is prescient. Greenspan engineered an increase in the payroll or FICA or Social Security tax in the 1980s at the behest of then President Ronald Reagan which effectively raised taxes on the poor while Reagan cut the income tax and effectively lowered taxes on the wealthy. The ostensible reason for this increase in payroll tax was a crisis in funding Social Security 35 years out (sound familiar). Republicans worked themselves and the American public up into a lather over a non-existent Social Security crisis. The real purpose of this supposed crisis was to shift the tax burden from the rich to the poor just as it is with Republicans today who don't really want to extend the payroll tax cut engineered by President Obama. Instead, they have pledged Grover Norquist not to raise taxes except ... they might make an exception for the payroll tax. In other words their pledge is to not raise taxes on the rich while they have no problem with raising them on the poor. They are showing their true colors ... again: protect the finances of the rich while exploiting those of the poor and middle class. Such was the brilliance of Greenspan's plan in the early eighties that hardly any Americans knew or realized what he was actually up to including the Democrats who went along with it. Personally, I've been self-employed since 1976, and I never realized that Greenspan had doubled my FICA taxes in 1983 so that I ended up paying higher payroll taxes than rich people paid in capital gains tax. Such is the reality of Republican subterfuge.
From Greenspan's Fraud, the book:
Greenspan's economics has extracted trillions of dollars in taxes from the American middle class and sharply enriched the rich, who are essentially people like himself and his friends - multimillionaires, politicians, and businessmen. ... His policies have led to the pooring of America as well as the world, while a tiny minority has raked in millions, even billions, in profit. He may be a legendary figure in the eyes of many, but when you carefully explore what he has wrought, the aura of public reverence around him can evaporate quickly.
This book will show that because of Greenspan's beliefs or support for certain policies, family income and real wages have declined for a broad swath of Americans, while CEOs have earned millions in stock options and capital gains; US manufacturing has been decimated and the country is saddled with more than half a trillion dollars of trade deficit per year; nearly two million lucrative jobs have vanished since 2000, and millions of people have been downsized.
In December 1981 President Reagan selected Greenspan to chair a blue ribbon commission to "save" social security. When it became obvious that the Federal budget deficit was ballooning due to Reagan's 1981 tax cuts, Greenspan ginned up the Social Security crisis which allowed the payroll tax to be increased, and, since Social Security and the general fund had been part of the unified budget since 1969, the increase in revenues from the increased payroll taxes masked the Federal budget deficits due to Reagan's tax cuts. In simple terms the excess revenues from social security taxes offset the deficit in the general fund due to Reagan's tax cuts. But rather than raise the income tax, which would have increased taxes disproportionally on the wealthy, Greenspan's plan was to raise the payroll tax which is a tax primarily on the poor and middle class. In addition Greenspan also later proposed cutting benefits for social security beneficiaries.
The Reagan-Greenspan theology required that the income [taxes] remain small even if it became necessary to coax money out of the destitute because this is essentially what the commission proposed in 1983. Instead of the general budget that actually faced a massive deficit, the commission insisted that the Social Security Trust Fund faced a giant shortfall, some 30 to 75 years in the future, when baby boomers would retire in large numbers. Never mind that in 1983 itself, the Trust Fund's receipts began to rise because of increasing employment, while the general budget suffered an even larger deficit of $208 billion.
In fact, by the end of the year, the Fund earned a small surplus. But the Greenspan commission relied on "forecasts" that showed a gargantuan deficit looming in the Fund, not five to ten years hence, but more than half a century later. It proposed eliminating the Social Security deficit expected from 1983 all the way to 2056 by overtaxing workers in advance, and generating an adequate surplus in the process.
So the money taken in in payroll taxes which was not used to actually make payments to social security recipients was transferred to the general fund and used to defray the budget deficits brought about by Reagan's tax cuts on the wealthy. In place of the money so used non-marketable Treasury bonds of an equivalent amount were placed in the Social Security Trust Fund (SSTF). Today they amount to $2.5 trillion. This is the amount owed to the SSTF by the general fund. Every year the surplus payroll tax revenues were spent in the general fund and IOUs of a similar amount were placed in the SSTF. The surplus dwindled over the years until today more money is actually being paid out to Social Security recipients than is being taken in in payroll taxes. That means that those non-marketable Treasury bonds in the SSTF must be cashed in and money taken from the general fund to make up the difference. Hence the general fund must accumulate an even larger deficit or it must raise taxes to make up the difference. This is why Republicans are again insisting that Social Security is in crisis. Pay-go demands that the amount paid out from the general fund to make up the difference between what is received in payroll taxes and what is paid out be paid for. Republicans want to make up the difference, as Greenspan wanted to do years ago, by cutting benefits. What they don't want to do is to raise income taxes on the wealthy to do so. Instead of honoring the special non-marketable Treasury bonds in the SSTF which would require either higher deficits or raising the income tax, Republicans want to cut benefits either by raising the retirement age or cutting the cost of living allowance. More extreme right wing Republicans, such as Paul Ryan, want to privatize social security so that the IOUs in the SSTF never will have to be honored. Both Paul Ryan and Alan Greenspan are devotees of Ayn Rand whose philosophy consisted mainly of unadulterated greed and to hell with the poor and middle class.
But Greenspan reserved his most draconian tax increase for the self-employed.
The Greenspan proposal would prove to be a crippling burden for the poor and the self-employed, because it sought to lift rates over and above those provided by a 1977 law. Today, [2005] a full-time minimum-wage earner, working for 2000 hours annually at a wage of $5.15 per hour, earns about $10,000 annually On that she has to pay a Social Security and Medicare tax of 7.65 per cent, or $765. which leaves her with $9,235. Add to this a state and local sales tax averaging 8% in big cities, and she forks over another $739 to meet her minimum consumption.
This sum of over $1500 in taxes can make a difference between homelessness and living in an apartment, between three meals a day and malnourishment, between a doctor visit and living with illness.This is why the commission's tax propopsals amounted to coaxing money out of the destitute, i.e., the millions who subsist on the minimum wage.
A worse outcome awaited for those working for themselves. Today [2005], a self-employed individual earning $30,000 a year, has to pay nearly 15% in Social Security taxes. Once $4500 is deducted in self-employment contributions, an individual is left with little to support a family, especially when his income is subject to the sales and income tax as well.
The Social Security or FICA tax is regressive; there are no deductions or exemptions. It's a flat tax that everyone, rich or poor, pays at the same rate. And it is only paid on the first $106,000. of income. All income over that amount is tax free as far as FICA taxes are concerned. This is why it's essentially a tax on the poor and middle class while the income tax which has higher tax rates for higher income earners is progressive and hits the rich more than the poor although today the highest tax bracket is 35% for income over about $380,000. That means that millionaires and billionaires pay income tax at the same rate as someone earning $380,000. There are no higher tax brackets for the truly rich.
Greenspan convinced his fellow commissioners and Congress to go along with his scheme and his proposals were enacted as Social Security Amendments in 1983. Greenspan's proposals also guaranteed that the maximum taxable wage base (which today is $106,000) would increase year after year so that Social Security taxes would increase on an annual basis. The reality of the situation is that the payroll tax increases of 1983 have been used primarily to fund the tax cuts of wealthy individuals and corporations. They don't want to give up the financial benefits they gained by having payroll taxes reduce their income taxes for 38 years. So they are in the process of reducing social security benefits by a combination of raising the retirement age, scaling back cost of living adjustments or possibly raising the payroll tax rates. The point is that there is no Social Security crisis if the non-marketable Treasury bonds in the SSTF are honored which is essentially the social contract entered into in 1983 by Greenspan and Reagan. If in fact these Treasuries were marketable instead of unmarketable bonds, they could be redeemed on the open market by the SSTF. In that case they would simply be rolled over by the Treasury Department and effectively become part of the ever increasing deficit and national debt. Alternatively, revenues could be sought from other sources most likely the income tax which has been kept low for decades due to the pilfering of the SSTF by the general fund.
Since Congress controls the rules regarding Social Security, they can change them at any time without any recourse by the American people. This means that they can bypass the implied contract to reimburse the IOUs in the SSTF with impunity effectively finessing the whole situation. A better way to place more money in the SSTF would be to lift the $106,000 cap on income subject to the Social Security tax meaning effectively that the rich would pay Social Security tax on all of their income, the same way the poor do.
The economic news out of the eurozone is getting worse every day, and so is the contagion to the rest of the world. The OECD (Organization for Economic Co-operation and Development), the club of 34 mostly high-income countries, has now lowered its projection for eurozone growth for 2012 from 2 percent (in May) to just 0.2 percent. According to their report, the 17-member eurozone economy already “appears to be in a mild recession.” For the U.S., the forecast for next year was lowered from 3 percent to 2.1 percent.
Forecasts for China, India, and Brazil have also been lowered significantly since May. From Asia to Latin America, the problems of the eurozone are reverberating as international banks contract credit, big investment projects are canceled or postponed, stock markets and real estate prices fall, and investor and consumer confidence drops.
And the OECD projections assume that Europe “muddles through” its current financial crisis without any significant financial disaster. But as the eurozone economy worsens, this assumption gets increasingly less tenable.
The simplest solution to the crisis is for the European Central Bank (ECB) to buy enough of the Italian and Spanish debt – and possibly other eurozone countries’ debt – to push down interest rates to a safe level. On Tuesday, Italy paid a record 7.89 percent yield for three-year bonds that it auctioned, well above the 7 percent level that was seen as a threshold for Greece, Ireland and Portugal to move from market financing to the International Monetary Fund (IMF) and European authorities. With lower borrowing costs, Italy and Spain would not be facing a “debt crisis.”
In fact, this whole crisis and recession could have been prevented very easily if the European authorities had simply intervened to maintain low interest rates on the Greek debt a year and a half ago. It is possible that some restructuring might still have been necessary, but the cost would still have been very small relative to the available resources of the European authorities. Because they refused to do this, and instead shrank the Greek economy, increased its debt burden, and allowed its borrowing costs to skyrocket – the crisis spread to the weaker countries of the eurozone, including Italy.
And now capital – including American money market funds – is fleeing Europe’s banking system, threatening a systemic financial crisis of unknowable proportions.
This failure to act – then and now – shows clearly that this is not a “debt crisis” at all but rather a crisis of failed policies. Eurozone finance ministers met Tuesday but failed again to come up with any credible solution that would stabilize the situation.
ECB intervention to stabilize eurozone bond markets is the most obvious, and possibly the only practical solution for several reasons. First, it is the only institution that can move quickly to bring the situation under control at a moment in which we really don’t know how far we are from a meltdown. Nobody anticipated that Germany, for example, would have trouble selling its bonds last week – there will be other unanticipated events that could possibly set off a panic at any time. Second, the ECB can buy the sovereign bonds of Italy or Spain at no cost to the European taxpayer. This is a serious issue, since the amounts of money involved could be large enough to present a political problem in Germany and other better-off eurozone countries. Just as the U.S. Federal Reserve has created $2.3 trillion since 2008 and used it to buy securities in the United States, the ECB could do the same in Europe where such buying is much more desperately needed. And just as there was no measurable effect on inflation in the United States, we would not expect any problem with inflation in Europe. Inflation in the eurozone is currently projected to fall to just 1.6 percent for next year.
The problem is that the ECB, and other European authorities led by the German government, are still playing the same game of brinkmanship that they have been playing for the past two years. They are more worried about forcing austerity policies on the weaker eurozone countries than they are about tanking the European and global economy. They continue to see the crisis as an opportunity to force through unpopular “reforms” – such as cutting jobs and pensions, raising the retirement age, privatizations, and reducing the size and scope of the welfare state. They have already caused a recession in the eurozone and seem more than willing to let it deepen in order to get what they want. The big question now is whether their recklessness will bring on a financial crisis that triggers a world recession.
Some of us have called for the Federal Reserve to intervene before this happens and do the ECB’s job for them. It has the capacity to do so, and like its prior quantitative easing in the U.S., would be costless to the taxpayers. It might cause a bit of a political storm, but that would be a small price to pay to avoid a recession that would throw millions more people out of work – in the United States, Europe, and much of the world.
A hedge fund manager who makes $5 billion in a year is making enough money to pay the starting salaries of 100,000 firefighters. On a one-year monetary basis, a financial expert is worth 100,000 times more than the man or woman racing to the scene of a medical emergency.
Thomas Paine noted that everything "beyond what a man's own hands produce" came to him from society, and therefore "he owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation back again to society from whence the whole came."
This is an extreme case, but there are a million other examples of Americans who, on the average, have tripled their share of the American income pie in just 30 years (after taxes). The richest 1% didn't work three times harder than the other 99 million American families. They benefited from the social and capitalist structures to which they often object paying taxes.
The very rich have made their fortunes in good part because of taxpayer-funded research at the Defense Advanced Research Projects Agency (the Internet), the National Institute of Health, and the National Science Foundation. They benefit disproportionately from national security and a business-enhancing infrastructure. They have taken advantage of tax cuts, de-regulation, and a financial system fine-tuned for the making of money at diminishing risk. The richest 10%, with 80% of the stock market and a 15% capital gains tax, have settled back to watch their assets grow. According to a study by the University of California, in 2008 only 19% of the income reported by the 13,480 individuals or families making over $10 million came from wages and salaries.
The standard argument against this is that everyone has an equal opportunity to benefit from past accomplishments. But it isn't true. An American born in 1970 in the bottom economic quintile had only a 17% chance of making it into the top two quintiles. Reports from Brookings, Pew, and the OECD show that much of Europe has more economic mobility than the United States.
Even for those who headed up the newest computer-based technologies, their successes have depended on the input of thousands of physicists and chemists and chip designers and software engineers and market analysts over many years to lay the groundwork for the infrastructure and protocols needed for success.
At the time of the American Revolution Thomas Paine noted that everything "beyond what a man's own hands produce" came to him from society, and therefore "he owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation back again to society from whence the whole came."
But instead we face a destructive form of class warfare in which a small percentage of people are taking almost all the new income. The middle class has been under siege for 30 years. Based on Internal Revenue Service figures, if the average middle-income family had just maintained its share of America's productivity held in 1980, it would be making $10,000 more per year ($45,000 instead of $35,000). An astounding 90% of American workers have seen their inflation-adjusted incomes go down since 1999.
Everyone who contributed to American productivity deserves to benefit from it. Extreme disparities in the system need to be fixed. That means taxed.
Paul Buchheit is a college teacher, an active member of US Uncut Chicago, founder and developer of social justice and educational websites (UsAgainstGreed.org, PayUpNow.org, RappingHistory.org), and the editor and main author of "American Wars: Illusions and Realities" (Clarity Press). He can be reached at [email protected].
NEW YORK – Massachusetts sued five major banks Thursday over deceptive foreclosure practices, such as the "robo-signing" of documents, potentially undermining negotiations over the same issue between lenders and state prosecutors across the nation.
The lawsuit named Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), and GMAC. Massachusetts Attorney General Martha Coakley filed the suit.
Massachusetts sued five major banks Thursday over deceptive foreclosure practices, such as the "robo-signing" of documents, potentially undermining negotiations over the same issue between lenders and state prosecutors across the nation. (photo: Taber Andrew Bain)
The complaint claims the banks violated Massachusetts law with "unlawful and deceptive" conduct in the foreclosure process, including unlawful foreclosures, false documentation, robo-signing, and deceptive practices related to loan modifications. In the foreclosure industry, robo-signing is the practice of a bank employee electronically signing thousands of documents and affidavits without manually verifying the information contained in the document or affidavit.
The lawsuit comes as talks have been dragging on for more than a year between major banks and the attorneys general from all 50 states over fraudulent foreclosure practices that drove millions of Americans from their homes following the bursting of the housing bubble.
In October 2010, major banks temporarily suspended foreclosures following revelations of widespread fraudulent foreclosure practices by banks. The talks have been designed to institute new guidelines for mortgage lending nationwide. It was anticipated to be the biggest overhaul of a single industry since the 1998 multistate tobacco settlement.
However, over the past year, several obstacles have arisen. Attorneys general of different states have disagreed over what terms to offer the banks. In September, California announced it would not agree to a settlement over foreclosure abuses that state and federal officials have been working on for more than a year.
Coakley, along with New York Attorney General Eric Schneiderman and Delaware's Beau Biden, have argued that banks should not be protected from future civil liability. Other states, including Kentucky, Minnesota and Nevada, have raised concerns about the extent of legal civil immunity the banks could receive as part of a settlement.
Both sides have also argued over the amount of money that should be placed in a reserve account for improperly foreclosed upon property owners. Many of the larger points of the deal, including a $25 billion cost for the banks, have been worked out, according to people briefed on the internal discussions but who are not authorized to speak publicly about them.
Details of a settlement had been expected to be announced sometime this month.
The lead negotiator on behalf of state prosecutors, Iowa Attorney General Tom Miller, said in a statement that he hopes Massachusetts would join that broader settlement as the final details are worked out.
"We're optimistic that we'll settle on terms that will be in the interests of Massachusetts," Miller said.
Barack Obama should pay attention. In 2008, young voters were enthused and turned out for him by the millions.
![](http://www.commondreams.org/sites/commondreams.org/files/imce-images/thomas-paine.jpg "Thomas Paine noted that everything "beyond what a man's own hands produce" came to him from society, and therefore "he owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation back again to society from whence the whole came."")
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