Economic cheerleaders on Wall Street and in the White House are taking heart. The US has had three straight months of faster job growth. The number of Americans each week filing new claims for unemployment benefits is down by more than 50,000 since early January. Corporate profits are healthy. The S&P 500 on Friday closed at a post-financial crisis high.
Has the American recovery finally entered the sweet virtuous cycle in which more spending generates more jobs, more jobs make consumers more confident, and the confidence creates more spending?
On the surface it would appear so.
American consumers in recent months have let loose their pent-up demand for cars and appliances. Businesses have been replacing low inventories and worn equipment. The richest 10 per cent, owners of approximately 90 per cent of the nation’s financial capital, have felt freer to splurge. Consumer confidence is at a one-year high, according to data released on Friday.
The U.S. government has not succumbed entirely to the lunacy of austerity. Republicans in Congress have just agreed to extend both a payroll tax cut and extra unemployment benefits, and the US Federal Reserve is resolutely keeping interest rates near zero.
Yet the US economy has been down so long that it needs substantial growth to get back on track – far faster than the 2.2 - 2.7 per cent projected by the Federal Reserve for this year (a projection which itself is likely to be far too optimistic).
A strong recovery can’t rely on pent-up demand for replacements or on the spending of the richest 10 per cent. Consumer spending is 70 per cent of the US economy, so a buoyant recovery must involve the vast middle class.
But America’s middle class is still hobbled by net job losses and shrinking wages and benefits. Although the US population is much larger than it was 10 years ago, the total number of jobs today is no more than it was then. A significant portion of the working population has been sidelined – many for good. And the median wage continues to drop, adjusted for inflation. On top of all that, rising gas prices are squeezing home budgets even more.
Yet the biggest continuing problem for most Americans is their homes.
Purchases of new homes are down 77 per cent from their 2005 peak. They dropped another 0.9 per cent in January. Home sales overall are still dropping, and prices are still falling – despite already being down by a third from their 2006 peak. January’s average sale price was $154,700, down from $162,210 in December.
Houses are the major assets of the American middle class. Most Americans are therefore far poorer than they were six years ago. Almost one out of three homeowners with a mortgage is now “underwater”, owing more to the banks than their homes are worth on the market.
Optimists point to declining home inventories in relation to sales, but they’re looking at an illusion. Those supposed inventories don’t include about 5 million housing units with delinquent mortgages or those in foreclosure, which will soon be added to the pile. Nor do they include approximately 3 million housing units that stand vacant – foreclosed upon but not yet listed for sale, or vacant homes that owners have pulled off the market because they can’t get a decent price for them. Vacancies are up 1m from 2006.
What we’re witnessing is a fundamental change in the consciousness of Americans about their homes. Starting at the end of the second world war, houses were seen as good and safe investments because home values continuously rose. In the late 1960s and 1970s, early baby boomers got the largest mortgages they could afford, and watched their nest eggs grow into ostrich eggs.
Trading up became the norm. Homes morphed into automatic teller machines, as baby boomers used them as collateral for additional loans. By the rip-roaring 2000s, it was not unusual for the middle class to buy second and third homes on speculation. Most assumed their homes would become their retirement savings. When the time came, they’d trade them in for a smaller unit, and live off the capital gains.
The plunge in home values has changed all this. Young couples are no longer buying homes; they’re renting because they’re not confident they can get or hold jobs that will reliably allow them to pay a mortgage. Middle-aged couples are underwater or unable to sell their homes at prices that allow them to recover their initial investments. They can’t relocate to find employment. They can’t retire.
The negative wealth effect of home values, combined with declining wages, makes it highly unlikely the US will enjoy a robust recovery any time soon.
Under these circumstances it’s not enough to rely on low interest rates and make it easier for homeowners who have kept up with their mortgage payments to refinance their underwater homes. The Administration should also push to alter the federal bankruptcy law, so homeowners can use the protection of bankruptcy to reorganize their mortgage loans. (Few will actually do so, but the change would give homeowners more bargaining power to get lenders to voluntarily alter the terms.) A second possibility if for the Federal Housing Administration to offer to take on a portion of a household’s mortgage debt in exchange for an equitable interest in the home, of the same proportion, when it is sold. Such debt-for-equity swaps could help homeowners now struggling to keep up with their mortgage payments, while not adding to the federal budget in future years when housing prices are expected to rise.
But whatever is done will not affect the fundamental change that’s come over Americans with regard to their homes. It’s not clear what will take the place of houses as the major investments of the American middle class.
[I wrote this for the Financial Times, where it appears today]
My father was a Republican for the first 78 years of his life. For the last twenty, he’s been a Democrat (he just celebrated his 98th.) What happened? “They lost me,” he says.
They’re losing even more Americans now, as the four remaining GOP candidates seek to out-do one another in their race for the votes of the loony right that’s taken over the Grand Old Party.
But the rest of us have reason to worry.
A party of birthers, creationists, theocrats, climate-change deniers, nativists, gay-bashers, anti-abortionists, media paranoids, anti-intellectuals, and out-of-touch country clubbers cannot govern America.
Yet even if they lose the presidency on Election Day they’re still likely to be in charge of at least one house of Congress as well as several state legislators and governorships. That’s a problem for the nation.
The GOP’s drift toward loopyness started in 1993 when Bill Clinton became the first Democrat in the White House in a dozen years – and promptly allowed gays in the military, pushed through the Brady handgun act, had the audacity to staff his administration with strong women and African-Americans, and gave Hillary the task of crafting a national health bill. Bill and Hillary were secular boomers with Ivy League credentials who thought government had a positive role to play in peoples’ lives.
This was enough to stir right-wing evangelicals in the South, social conservatives in the Midwest and on the Great Plains, and stop-at-nothing extremists in Washington and the media who hounded Bill Clinton for eight years, then stole the 2000 election from Al Gore, and Swift-boated John Kerry in 2004.
They were not pleased to have a Democrat back in the White House in 2008, let alone a black one. They rose up in the 2010 election cycle as “tea partiers” and have by now pushed the GOP further right than it has been in more than eighty years. Even formerly sensible senators like Olympia Snowe, Orrin Hatch, and Dick Lugar are moving to the extreme right in order to keep their seats.
At this rate the GOP will end up on the dust heap of history. Young Americans are more tolerant, cosmopolitan, better educated, and more socially liberal than their parents. And relative to the typical middle-aged America, they are also more Hispanic and more shades of brown. Today’s Republican Party is as relevant to what America is becoming as an ice pick in New Orleans.
In the meantime, though, we are in trouble. America is a winner-take-all election system in which a party needs only 51 percent (or, in a three-way race, a plurality) in order to gain control.
In parliamentary systems of government, small groups representing loony fringes can be absorbed relatively harmlessly into adult governing coalitions.
But here, as we’re seeing, a loony fringe can take over an entire party — and that party will inevitably take over some part of our federal, state, and local governments.
As such, the loony right is a clear and present danger.
Republican politicians are in the habit of assailing President Obama with statements like the following: "I believe that President Obama is the worst President in American history." Really? Based on what facts? Was he worse than Willard Fillmore? Was he worse than Franklin Pierce? Was he worse then James Buchanan? According to every poll including the Chicago Tribune, the New York Times, the Wall Street Journal, C-SPAN and Sienna College, these Presidents are considered the worst. But never mind that. What Republican politicians and right wing talking heads like Rush Limbaugh, Glenn Beck, Sean Hannity and other right wingers do is to create an alternative reality based not on facts but on beliefs. They've constructed a completely fictitious alternative Barack Obama, one that is worthy of being detested and ridiculed and demeaned. Then their job is to sell that image of Barack Obama to the American public. The American public, most of them, have never met Barack Obama. They've never discussed politics, economics or anything else with Barack Obama. Their only knowledge of Barack Obama is whatever comes over the TV tube. So competing realities are out their for defining and either demonizing or angelizing Barack Obama. According to this view of reality, the side with the most TV and media output wins. Republican politicians and TV and talking head radio personalities are mostly either lawyers or people like lawyers with immense powers to persuade and convince people of practically anything. A good lawyer can convince a jury that an innocent man is guilty or that a guilty man is innocent. That is their job, and the better that the lawyer can distort the truth, the better lawyer he or she is considered to be.
When it comes to politics, the more right wing talking heads can convince people that Barack Obama is the worst President ever, the more money they make. The whole point is to demonize Obama by associating him with Muslims or Kenyans or the devil. They don't quite go so far as to associate him with Hitler. That seems to be one line even the lunatic fringe will not cross. But they tell you he is a European socialist despite the fact that he went all out to save the big banks, the very beating heart of capitalism, from complete collapse in the recent financial calamity. Despite the fact that not one fraudulent banker is in jail, Obama is a socialist. Too bad the Soviet Union no longer exists or they would be tagging Obama with the communist label. So now they are reduced in effect to accusing him of being sympathetic to the European Union! Gorbachev said that the collapse of the Soviet Union would deprive the US of its enemy. How right he was? The US was deprived of its chief bogeyman when the Soviet Union imploded. And they cannot very well demonize The Communist Party of China, our chief trading partner and financial co-dependent. So they are reduced to accusing Obama of being a European socialist.
The dynamic here is to demonize Obama based on beliefs not facts. And they have a lot of money to do it with. In many media markets there are no countervailing views. People are left to the imprecations of Rush Limbaugh and Fox News. So they hear day in and day out that Obama is A TERRIBLE PRESIDENT, the worst President etc. Knowledgable persons whose voices are hardly consulted might say that Obama's predecessor, George W Bush, was among the worst.
A 2006 Siena College poll of 744 professors reported the following results:
"George W. Bush has just finished five years as President. If today were the last day of his presidency, how would you rank him? The responses were: Great: 2%; Near Great: 5%; Average: 11%; Below Average: 24%; Failure: 58%."
"In your judgment, do you think he has a realistic chance of improving his rating?” Two-thirds (67%) responded no; less than a quarter (23%) responded yes; and 10% chose no opinion or not applicable."
Thomas Kelly, professor emeritus of American studies at Siena College, said: "President Bush would seem to have small hope for high marks from the current generation of practicing historians and political scientists. In this case, current public opinion polls actually seem to cut the President more slack than the experts do." Dr. Douglas Lonnstrom, Siena College professor of statistics and director of the Siena Research Institute, stated: "In our 2002 presidential rating, with a group of experts comparable to this current poll, President Bush ranked 23rd of 42 presidents. That was shortly after 9/11. Clearly, the professors do not think things have gone well for him in the past few years. These are the experts that teach college students today and will write the history of this era tomorrow."
A 2010 Siena poll of 238 Presidential scholars found that former president George W. Bush was ranked 39th out of 43, with poor ratings in handling of the economy, communication, ability to compromise, foreign policy accomplishments and intelligence. Meanwhile, the current president, Barack Obama was ranked 15th out of 43, with high ratings for imagination, communication ability and intelligence and a low rating for background (family, education and experience).
Bush doubled the national debt from $5 trillion to $10 trillion by giving tax cuts to the rich, an unfunded prescription drug benefit to seniors which was a giveaway to the pharmaceutical corporations and two unfunded wars in Iraq and Afghanistan. Obama took out the leadership of Al Quaeda including Osama bin Laden and Anwar al-Awlaki, brought or is bringing those unfortunate wars to an end and is doing his best to restore Clinton's tax structure which would raise taxes on the rich while keeping tax cuts for the middle class and poor. Obama's health care act, popularly known as Obamacare, would, among other things, end the insurance corporations' policy of rescission which denies insurance to people with pre-exisitng conditions, close the doughnut hole for seniors and keep young people on their parents' policies till age 26, an important consideration in an era of high youth unemployment. The fact is that Bush Jr was cavalier in implementing policies that were not only disastrous for the US including the war he lied us into in Iraq, but also ran up the national debt in a huge way. These policies are still in effect because of Republican filibusters that keep them in effect. Only now Obama is being blamed for them by the right wing talking heads, and using their powers of persuasion, they are doing their best to convince the American people that Obama is a spenthrift who only wants bigger government despite the fact that there have been massive job losses in the public sector and modest gains in the private sector.
So the fictitious President Obama is what Santorum, Romney, Gingrich, Limbaugh, Hannity and all the rest are trying to sell to the US public. They are fueled with billions of dollars from right wing billionaires like the Koch brothers and Sheldon Adelson for whom a million or two invested here or there is nothing more than pocket change. With an income of $1 billion a year, which translates to $1000 million a year or $2.7 million a day, these guys can well afford a day's pay to influence elections in their favor. That's pocket change to them. So they associate Obama with Satan. He's supposed to be in league with the devil. They send around emails showing a skunk, half black and half white, and associate that with Obama. There's no depth that they won't sink to to demonize Obama except of course they haven't sunk to the depth of trying to convince us that he's channeling Adolf Hitler. I guess Hitler's considered to be even worse than the devil! And of couse all this is based on statements like "I think that Obama blah blah..." and "I believe that Obama blah blah ...." Nothing based on facts because the facts are quite the opposite of the image they are trying to create
And the truth is that they don't give a rip about all the stuff they try to get the electorate riled up about like the social issues - abortion, birth control, God, gays and guns. These are all smoke screens to hide their real agenda which is tax breaks for the rich, deregulation for corporations and privatization of public schools. Of course they never talk about inequality or the fact that corporations only contribute 8% of Federal revenues instead of the 30% they used to contribute. They don't talk about the fact that the rich pay taxes at a lower rate than the poor. The last thing they want to talk about is the fact that there is $2.5 trillion in the social security trust fund because they want to eliminate social security on the grounds that it is running out of money.
So Obama is terrible, a failure (they love that tag), the worst President in American history based on not facts but beliefs. Except that these intelligent men don't really believe that at all. Just like the lawyer that knows his client is guilty and effectively and skillfully convinces the jury that he really is innocent, right wing talking heads including Republican politicians are trying to draw a picture of Obama as the worst President in American history and then convince you that this belief based reality is the real reality.
The following is a transcript from Dan Rather's show on hdnet. Videos may be found at http://www.hd.net/danrather
ACT 1: GREECE
The economic crisis is becoming a disaster to many Greeks with the fallout spreading to children. Some parents are sending their children to live with relatives because they can no longer afford to keep them. Also, the story of a journalist who's taking on a dictator in Europe.
A Greek Tragedy
DAN RATHER (ON CAMERA)
GOOD EVENING. A FOUNDING MISSION, HERE AT DAN RATHER REPORTS, HAS BEEN TO TELL IMPORTANT STORIES FROM AROUND THE WORLD THAT ARE NOT GETTING ENOUGH ATTENTION IN THE AMERICAN PRESS. TONIGHT WE HAVE COMBINED THREE SUCH STORIES INTO A SPECIAL HOUR OF INTERNATIONAL REPORTING. WE WILL TAKE YOU TO THE BRAZILIAN RAINFOREST AND THE FIGHT AGAINST DEFORESTATION. AND WE WILL TRAVEL YOU TO THE SELDOM SEEN COUNTRY OF BELARUS – AN AUTHORITARIAN THROWBACK IN THE HEART OF EUROPE. BUT WE BEGIN IN GREECE, WHERE THERE’S BEEN A LOT OF VIEWS ABOUT BAILOUTS, AUSTERITY MEASURES AND THE NEED TO PROTECT THE WORLD ECONOMY. BUT MISSING FROM THE HEADLINES IS THE PLIGHT OF HUNDREDS OF THOUSANDS OF GREEK FAMILIES WHO ARE NOW SUFFERING UNIMAGINABLE ECONOMIC PAIN.
RATHER (VOICE OVER)
TODAY, ATHENS IS A CITY OF ANXIETY. YOU CAN SEE IT IN THE SHUTTERED
BUSINESSES... THE LEGIONS OF NEW HOMELESS... EVEN IN THE FACES OF THOSE WHO,
FOR NOW AT LEAST, HAVE JOBS AND A PLACE TO LIVE. THERE’S A SENSE THAT
WHATEVER YOU MAY HAVE NOW, COULD BE GONE IN AN INSTANT.
THERE IS NO QUESTION THAT GREECE HAD A REMARKABLE PAST... THE QUESTION IS,
DOES THIS COUNTRY HAVE A FUTURE...AND THAT QUESTION IS CAUSING A LOT OF
WORRY.
RECENTLY THIS IS THE IMAGE THE WORLD HAS SEEN OF ATHENS...A CITY ON FIRE.
MASSIVE PROTESTS WHERE THOUSANDS RIOTED. EARLIER THIS MONTH, ALMOST A
HUNDRED BUILDINGS WERE BURNED. BUT WE CAME HERE TO TELL A DIFFERENT
STORY…FOR EVERY PROTESTER IN THE STREETS THERE ARE THOUSANDS OF REGULAR
GREEKS SUFFERING IN THE SHADOWS...
THIS IS A TIGHT-KNIT SOCIETY WHERE, FOR GENERATIONS, FAMILY AND FRIENDS
RELIED ON EACH OTHER IN TIMES OF NEED. BUT THE GREEKS NOW FIND THAT SOCIAL
FABRIC, ALONG WITH THEIR ECONOMY, IS BEING TORN APART.
YOU CAN FIND EXAMPLES OF THIS MODERN-DAY GREEK TRAGEDY AT THE COUNTRY’S
BIGGEST PORT. WHEN THE ECONOMY WAS HUMMING, SO TOO WAS THE SHIPPING
BUSINESS HERE. BUT THOSE DAYS ARE GONE. SO EVERY MORNING DESPONDENT MEN
WHO WERE ONCE THE BREADWINNERS FOR THEIR FAMILIES NOW GATHER HERE AT
THEIR UNION HALL JUST INSIDE THE GATES OF THE PORT, HOPING FOR AN ODD JOB.
THAT’S WE WHERE WE FIRST MET CHRISTOS PITSOUNIS. FOR 23 YEARS, HE HAD A
GOOD-PAYING JOB WELDING SHIPS. BUT HE HASN’T HAD STEADY WORK FOR THREE
YEARS.
CHRISTOS PITSOUNIS, UNEMPLOYED WELDER ( translated from Greek)
I worked for 46 days in 2009, 18 days of work in 2010, no days of work in 2011.
RATHER (VOICE OVER)
HE SEES THE STRAIN FOR HIMSELF AND HIS COUNTRY.
PITSOUNIS (translated from Greek)
There is no life in Greece anymore. They finished us. We’ve reached desperation.
RATHER (VOICE OVER)
WHEN THINGS WERE GOOD, CHRISTOS WAS ABLE TO BUY AN APARTMENT ABOUT A
MILE FROM THE PORT IN A WORKING CLASS NEIGHBORHOOD. HE TOOK US HOME TO
MEET HIS WIFE AND TWO YOUNG CHILDREN.
WHEN HE LOST WORK, AT FIRST HE DID WHAT MOST GREEKS DO WHEN THEY’RE
STRUGGLING, TURN TO HIS FAMILY FOR HELP PAYING THE BILLS. BUT NOW, THEY
HAVE THEIR OWN PROBLEMS.
PITSOUNIS (translated from Greek)
How do we live? We’re on welfare. A friend brings some stuff, a bit from my mother and my sister. And that’s over with because my mother and my sister, my mother has had her pension cut and my sister, who works at the hospital of the city of Preveza had her wages slashed. They can’t help anymore.
RATHER (VOICE OVER)
SO THEY’RE TRYING TO COPE ON THEIR OWN. THE POWER COMPANY DISCONNECTEDGEORGE AND HIS FRIEND LEO ARE TWO OF THE NEW HOMELESS. WE MET THEM AT AFOUNDATION. THE GREEK GOVERNMENT WAS SPENDING MUCH MORE THAN IT WAS
THE ELECTRICITY WHEN THEY DIDN’T PAY THE BILL. AND THERE IS NO HEAT.
ANI PITSOUNIS, WIFE OF CHRISTOS PITSOUNIS (translated from Greek)
There’s no job, there’s no job, there’s no job. Wherever you go and ask. And me, when I tried to find a job there was nothing. People were saying to me, “Madam, where are you going? We’re not working, where do you think you’re going to find a job?”
CHILD (translated from Greek)
And then we found a job?
ANI PITSOUNIS (translated from Greek)
Sure, only in dreams my dear child.
RATHER (VOICE OVER)
CHRISTOS AND HIS WIFE HAVE TAKEN THE PAINFUL STEP OF BREAKING UP THEIR
FAMILY. THEY SENT THEIR 8-YEAR-OLD DAUGHTER TO LIVE WITH HER GRANDMOTHER
FIVE HOURS AWAY IN WESTERN GREECE BECAUSE THEY SAY THEY CANNOT AFFORD
TO RAISE ALL THREE CHILDREN
THE PITSOUNIS ARE AN EXAMPLE OF A PHENOMENON SWEEPING GREECE -- A FAMILY
BARELY HANGING ON AND FORCED TO MAKE HEARTBREAKING DECISIONS.
AT THIS PRIVATELY RUN FOSTER HOME IN GREECE THEY HAVE SEEN A STARTLING
SPIKE IN THE NUMBER OF CHILDREN COMING FROM FAMILIES THAT CANNOT AFFORD
TO KEEP THEM. TURNING A CHILD OVER TO STRANGERS IS DEEPLY SHAMEFUL IN
GREECE.
AND MANY GREEKS HAVE LOST HOMES. HARD NUMBERS ARE TOUGH TO COME BY BUT
THERE ARE AT LEAST A FEW THOUSAND OF WHAT GREEKS ARE CALLING THE “NEW
HOMELESS”, THESE AREN’T THE USUAL KINDS OF PEOPLE YOU FIND LIVING ON THE
Occupy Wall Street rallies in New York's Zuccotti Park in support of Greek resistance to austerity on February 18, 2012. (Photo: Sunset Parkerpix)
They chanted, "We. Are. The 99 percent" with Greek accents in Zuccotti Park on Saturday. Greek-Americans, nationals and immigrants were joined by Occupy Wall Street (OWS) protesters in a show of solidarity with the people of Greece, thousands of whom took to the streets to protest the latest round of International Monetary Fund-imposed austerity cuts. A week earlier, Greeks had rioted, setting dozens of Athenian buildings ablaze.
One of the Zuccotti Park protesters, Costas Panayotakis, is an associate professor of sociology at City College of Technology and author of "Remaking Scarcity: From Capitalist Inefficiency to Economic Democracy." "Greece is just a more extreme example of what's going on around Europe and around the world," he said in an interview with Truthout, explaining the impetus behind the solidarity demonstration.Christa Calbos, a student activist who goes to Manhattanville College and who has spent time in Greece, agreed that the solidarity stems from people worldwide seeing their own situation in the Greeks'. "It is important for Americans," she said, "and all citizens of the world fighting against austerity to show solidarity because the challenges Greece now faces are not unique to Greece.""There is a growing global consciousness that has resulted from the crisis," Panayotakis elaborated. "There are global movements. The Occupy movement itself is part of the global movement going back to the occupations in Spain and Athens and even before that, of course, in Tahrir Square in Egypt. There is a global growth in solidarity, because what we have is the failure of global neo-liberalism has become manifest during the crisis and so has the failure of the political and economic elites that have been administering this neo-liberal project."The Greek government, in order to shore up its fiscal health - its debt to private foreign banks is expected to reach 129 percent of the country's gross domestic product in 2020 - has repeatedly had to accept bailouts from the International Monetary Fund (IMF) and the German-run European Central Bank (ECB). The austerity the IMF and ECB insist on imposing as a condition of the bailouts resembles similar measures imposed throughout the global South in recent decades - privatization of the commons, deep cuts to social services, dismemberment of labor unions, the imposition of a greatly lowered standard of living on the average Greek citizen. Calbos noted this similarity. "These words that have become so common after the start of OWS such as 'austerity,' 'free market,' 'bail-outs,' 'debt relief.' The true meaning and impact of these words have been understood and felt within the developing world for decades. Countries in Africa, Latin America, and Asia have been bailed out - or bought out rather - by the IMF, World Bank, and other international financial institutions. When this happens, of course, it does away with a truly democratic government and any form of public social services."Panayotakis indicated that these phenomena are closer to home than the third world, saying, "There is a very brutal assault on people's living standards. There is a liquidation of labor rights that go back more than 50 years. And of course we've seen similar kinds of things going on even in the U.S., with the attack on labor rights of the public sector workers in Wisconsin and other parts of the country."This bringing-home of third-world conditions has ignited a radical spirit here, said Calbos. "It was easy for the west and the 1% to stomach this happening in the developing world," she said. "They could paternalistically blame it on lack of education. However, Greece has suddenly now shown us that the white, western, middle class is not immune to the damaging effects of the neo-liberal economic system. This should be a wake up call, a call to action, a perfect example of how capitalism and democracy are not inextricably intertwined but rather at odds with each other."Almost no one in Greek society has suffered during the past few years as desperately as students. Said Calbos, "Students in Greece are at the heart of resistance, and I believe this is also important to the Occupy movement here in the U.S. In Greece, 50% of the population under 25 is currently unemployed. With incredible student debt, tuition hikes, and an ever-difficult job market, we in the U.S are facing many of the same obstacles."Rather than defaulting on the banks, the Greek government has decided to default on its people. "Basically there is an effort to push the cost of the crisis on the people least responsible for it," said Panayotakis. "The priority in responding to the crisis has been to protect the banks and the financial sector. This is what we see in Greece and in Europe and the people who get penalized the most are ordinary workers and ordinary citizens."Greece, where democracy originated, was thrust into so deep a crisis by the financial crash that it abandoned democracy, turning its government over to a "technocrat" (read: banker), Lucas Papademos, formerly an ECB vice president. The result of this bloodless coup (i.e. whether Papademos' government can bring Greece back from the precipice of collapse) will reverberate worldwide, said Panayotakis. "What happens in Greece, of course, has great repercussions obviously for the European economy and, via the European economy, on the American economy and therefore the global economy." This largely depends on the willingness of the German government, the economy of which is still strong, to help out, he explained. "There is a joke that the most dangerous opponent of President Obama is Angela Merkel. Her policies are threatening to basically throw the European economy into a meltdown, which of course would affect the rest of the world."And the whole world, they say, is watching.
Published on Thursday, February 23, 2012 by Common Dreams
If alternatives are not pursued, Greece faces many years of economic pain along austerity path
- Common Dreams staff
If the European authorities are unwilling to abandon their destructive prescription of deeper cuts and continued austerity, Greece should seriously consider a planned default and exit from the euro, according to a new paper by the Center for Economic and Policy Research (CEPR).
People shout during a huge anti-austerity demonstration in Athens' Syntagma square. (Photo: Reuters) “The IMF has consistently underestimated the depth of the Greek recession,” said Mark Weisbrot, CEPR Co-Director and lead author of the paper. “At some point, it becomes rational for Greeks to ask, is the euro worth this kind of punishment?”
The paper (pdf) discusses the most recent agreement between the Greek government and the so-called Troika -- the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Commission (EC) -- which included reducing public employment by 150,000 workers by 2015, cutting the minimum wage by 20 percent (and by 32 percent for those under the age of 25); and weakening of collective bargaining in exchange for a 130 billion Euro package. "All of this," according to CEPR, "will have the effect of reducing living standards for workers and redistributing income upward."
One of the many problems of the austerity push is that it comes from European authorities who look at Greece’s situation "mainly from a creditor’s point of view," says the report. From the Troika's point of view, it is "not necessarily bad that the adjustment is painful" for the Greek people.
Ideologically/politically, [the Troika wants] a smaller government in Greece, with less regulation, much lower wages, and weaker unions. [...] The IMF lists reducing the size of the public sector as an “essential element” of its program.
Louise Armistead, writing for The Telegraph, says that "Unlike the troika’s messy efforts, the CEPR’s arguments are clear and compelling." And continues:
Greece has already suffered among the worst losses of output from financial crises in the 20th and 21st centuries, says the CEPR. Even if the economy starts to recover, Greece will have lost 15.8% of GDP since its peak.
Greece is paying crippling interest rates of 6.8% of GDP - one of the highest rates in the world. In the eurozone, only two are above 4% - Italy and Portugal. It seems unlikely that the bailout will bring the interest payments down.
Mark Weisbrot and Juan Antonio Montecino, the authors of the paper, argue that the "most important problem with the commitments that Greece has made to the European authorities is that its fiscal policy is pro-cyclical – that is, the government has been, and is committed to, tightening its budget while the economy is in recession. In 2010-11, the Greek government adopted measures to cut spending by 8.7 percent of GDP. This is comparable to cutting U.S. federal spending by $1.3 trillion."
Greek unemployment hit a record of 20.9 percent in November and the IMF forecasts that it will still be at 17 percent in 2016. Employment as a percentage of the working age population is now less that it was in 1994.
Following Argentina's path the sane alternative? The paper notes that Argentina reached its pre-recession GDP in just three years, while Greece is expected to take at least a decade to reach that benchmark. The authors suggest that if the European authorities are unwilling to consider other alternatives, a planned default and exit from the euro is one alternative that should be considered.
The authors also look briefly at the alternative of a planned default and exit from the euro, considering that such an outcome might happen in any case due to recurrent crises and continued recession. They look at the case of Argentina, which unsuccessfully tried an internal devaluation with a deep recession from 1998-2001, as a relevant comparison. After default in December 2001 and devaluation a few weeks later, the Argentine economy shrank for just one quarter (a 4.9 percent loss of GDP), but then recovered and grew by more than 63 percent over the next six years.
“Argentina’s success after its default and devaluation show that rapid recovery is possible,” said Weisbrot. “It was not, as many claim, a commodities boom, or even export-driven growth. Argentina recovered rapidly because it was able to abandon the kinds of destructive economic policies that Greece is following today, and switch to pro-growth policies.”
The paper notes that Argentina reached its pre-recession GDP in just three years, while Greece is expected to take at least a decade to reach that benchmark.
An exit from the Euro would not be without risk, the authors acknowledge. They write: "A lot would depend on how skillfully and quickly the authorities could move from the financial crisis that would ensue, to economic recovery. As noted.. it took just one quarter for the economy to resume growth in Argentina after the default/devaluation."
In the case of Greece, there is no way to know in advance how severe the financial crisis, and associated loss of output and employment, would be if the government were to decide to default and exit from the euro. And that is what makes this decision difficult for the government or any political party: on the other side of the equation, it is not known when the Greek economy will begin to recover under the current program. So, although the current program has failed miserably and can be expected to continue to fail in the foreseeable future, there is considerable uncertainty regarding the effects of either choice. And for political leaders, it may be easier to accept the troika’s program as though –as the European authorities and most of the media frame it – there is no choice.
But, the idea that default/exit would be a catastrophe on the order of a Great Depression is false. The Great Depression was not the result of any one-time event; it was a long series of bad policydecisions over years. [...] A default/exit would likely bring on a financial crisis, but it would not by itself cause a Great Depression.
And finally, "Given the prognosis for Greece under the current program, and the probability that it will be plagued with recurrent crises and could even end in a chaotic default, a planned default/exit option could very well be the more prudent choice. It should be taken seriously as an alternative."
***
The Greek Debt Crisis: It's, Like, Totally Over A helpful video primer which exposes the insanity of the current economic path in Greece
We're being told by today's High Priests of Conventional Wisdom that everyone and everything in our economic cosmos necessarily revolves around one dazzling star: the corporation.
This heavenly institution, the HPCW explain, has such financial and political mass that it is the optimal force for organizing and directing our society's economic affairs, including the terms of employment and production. While other forces are in play (workers, consumers, the environment, communities and so forth), they are subordinate to the superior gravitational pull of the corporate order. Profits, executive equanimity and a healthy Wall Street pulse rate are naturally the economy's foremost concerns.
How nice. For the wealthy few. Not nice for the rest of us, though. We're presently seeing the effect of this enthronement of self-serving corporate elites. Millions of Americans are out of work, underemployed and tumbling from the middle class down toward poverty. Yet excessively paid and pampered CEOs (recently rebranded as "job creators" by fawning GOP politicians) are idly sitting on some $2 trillion in cash, refusing to put that enormous pile of money to work on job creation.
The Powers That Be keep us tethered to this unjust system of plutocratic rule only by constantly ballyhooing it as a divine perpetual wealth machine that showers manna on America. Any tampering with the hierarchical control of the finely tuned machinery of trickle-down corporate capitalism, they warn, will cause a collapse and crush American prosperity.
Ha! Prosperity for whom? The corporate order itself has come crashing down on the prosperity of America's workaday majority — and the people are no longer fooled about the system's "divinity." From the Wisconsin rebellion to the outing of the Koch brothers' efforts to impose their plutocratic regime on us, from the Occupy movement to the spreading grassroots campaign to get corporate cash out of our elections, we commoners have finally peeked behind the curtain to see the fraud being perpetrated by the wizards of wealth inequality.
Yet, tightly clutching their wealth, the wizards retort that the only alternative is the hellish horror of government control, screeching "socialist" at all critics to scare off any real change.
But wait. The choices for our country's rising forces of economic and political democracy are not limited to corporate or government control. There's another, much better way of organizing America's economic strength: The Cooperative Way.
Cooperatives can (and do) provide a deeply democratic, locally controlled, highly productive, efficient percolate up capitalism.
Co-ops are wholly in step with the values, character, spirit and history of the American people.
While socialism has been cast by the corporatists as a destroyer of our sainted free-enterprise system, the cooperative approach is not an -ism at all, but a democratic structure that literally frees the enterprise of the great majority of Americans — which is why the co-op movement is fast spreading throughout our country.
While it's rarely mentioned by the conventional media, completely missing in the political discourse, not considered by economic planners and chambers of commerce and not known by most of the public, there are 30,000 cooperatives in America (with 73,000 places of business). A 2009 survey by the University of Wisconsin's Center for Cooperatives (www.uwcc.wisc.edu) found that these energetic enterprises have 130 million members, registering $653 billion in sales and employing more than 2 million people.
There are several types of co-ops, including those owned by workers (there are 11,000 of these, with 13 million worker-owners). Also, there are cooperatives owned by consumers, producers, local businesses, artists and communities, as well as hybrids of those categories. They function in every sector of our economy — manufacturing, health care, transportation, banking, farming and food, media, massage, child care, funeral services, interpreting and translating services, advertising, home building, high tech, engineering, energy ... and even a strip club in San Francisco.
Co-op businesses do everything that a corporation can do, but with a democratic structure, an equitable sharing of income and a commitment to the common good of the community and future generations.
You might be surprised to learn that such national brand names as ACE Hardware, Best Western Hotels, Organic Valley, REI and True Value Hardware are organized as co-ops, rather than as corporations. The strength of the movement, however, is in the limitless number of local cooperatives flowering all across the country. From Union Cab of Madison (http://www.unioncab.com/) to KOOP Radio in Austin (http://www.koop.org/), from Evergreen Cooperatives in Cleveland (www.evergreencoop.com) to Circle Pines Center in Michigan (www.circlepinescenter.org), citizen co-ops are highly prized for their unique personalities, human scale, democratic values and community focus.
Cooperatives are a big, structural reform that ordinary Americans can implement right where they live, giving small groups a pragmatic and effective way to push back against the arrogance and avarice of the centralized, hierarchical corporate model. Not only do co-ops work economically, they also make people important again, offering real democratic participation and putting some "unity" back in "community."
National radio commentator, writer, public speaker, and author of the book, Swim Against The Current: Even A Dead Fish Can Go With The Flow, Jim Hightower has spent three decades battling the Powers That Be on behalf of the Powers That Ought To Be - consumers, working families, environmentalists, small businesses, and just-plain-folks.
Interview with Costas Panayotakis, author and associate professor of sociology at New York City College of Technology, conducted by Scott Harris
European finance ministers agreed on Feb. 21 to a second bailout of the Greek economy, avoiding for now the threat of default, which many observers fear could trigger a crisis that would endanger the survival of the Eurozone. The so-called “troika,” made up of the European Central Bank, the European Commission and the International Monetary Fund negotiated a deal that will cut the principle on Greek bonds and lower the interest rate paid.
In exchange for the $172 billion loan, European officials demanded the Greek government approve harsh austerity measures to reduce the nation’s debt-to-GDP ratio to 120 percent by 2020. Although tens of thousands of Greeks marched and rallied in militant protests opposing the austerity measures across the country, the Greek parliament approved a package that included 150,000 layoffs from government jobs by 2015 and steep cutbacks in the minimum wage, health care budget and pensions. Another controversial provision of the debt deal forced Greece to amend its constitution, giving priority to "debt servicing payments" before any other national obligations are met.
With an unemployment rate of 21 percent, many economists say the austerity policies will only worsen economic conditions in Greece with no hope to reverse the decline. Between the Lines’ Scott Harris spoke with Costas Panayotakis, associate professor of sociology at the New York City College of Technology and author of the book, “Remaking Scarcity: From Capitalist Inefficiency to Economic Democracy.” He assesses growing public resistance to austerity measures in Greece and the overall Eurozone crisis.
COSTAS PANAYOTAKIS: There is a massive assault on working people and ordinary citizens in Greece right now and we see people's living conditions and incomes have collapsed, and unemployment is skyrocketing. We're talking about 21 percent of the population; 50% of young people. As a result, there's a growing resistance. People see that these policies are not leading anywhere and they are no longer willing to give the government the benefit of the doubt. The government tries terrify people into submissions, telling them that without austerity policy, there will be chaos. But increasingly, people see that is chaos is all around them precisely because of these policies.
BETWEEN THE LINES: The austerity measures that were just recently adopted by the Greek parliament have caused a lot of people to be very concerned for their nation's future. There was a 22 percent cut, I believe, in the minimum wage threshold; 150,000 layoffs in coming years and maybe you could discuss a bit about the kind of pain that this is causing the average Greek citizen.
COSTAS PANAYOTAKIS: Yes, every segment of the Greek society has been affected by the measures. The reduction of the minimum wage is accompanied by a destruction of labor rights and collective bargaining that is likely to reduce the wages of all private sector workers. There have been successive pay cuts for public sector workers and for pensions. And as a result, there is a growing sense of desperation, rising poverty rates, homelessness, hunger and these phenomena are increasingly affecting even people who were recently solidly middle class. So we're talking increasingly about a humanitarian crisis. I was listening to the report by the Doctors of the World who are active in Athens, and they were calling for people to donate food. And they were saying that what they see in Greece right now is the kind of thing that one would normally expect from really low-income countries in Africa.
BETWEEN THE LINES: What are the alternatives? What can the Greek people do as opposed to just accept these austerity measures? There is resistance in the streets as has been widely reported. But to what end? There are elections that are expected as early as April. Are there alternative political ways to handle this crisis that have emerged during these months of people looking for alternative solutions?
COSTAS PANAYOTAKIS: Well, I think the most important thing is for people to say no to these policies and in essence, it doesn't make sense for Greece to keep borrowing more and more money to service a debt that is already unsustainable. And there are sort of other platforms and proposals by political parties, especially on the left in Greece and those are by economists and there is no sort of one platform, one alternative platform that has universal sort of assent among the critics of austerity, but there is a debate about whether Greece should exit the Euro and devalue its currency or whether it should just basically declare default within the Eurozone and put pressure on Europe to change these austerity (unintelligible) that is leading nowhere and that is deepening the crisis even within Europe and the Eurozone.
But the problem, of course, is that as the opposition to austerity increases, there is growing pressure from European political and economic elites not to allow Greeks to basically have a say over the decisions that will seal their fate for the coming decades. So now, Greece has an unelected prime minister who's a former banker. He basically pushes these measures to a parliament that no longer reflects the wishes of Greek citizens. His government is supported by them, by what used to be the two major parties in Greece, the socialists and the conservatives.
But, the support, according to all the polls, to all these parties has collapsed. So you have basically a parliament that does not reflect the current opinion of Greek citizens and this parliament is pushing a loan package and the measures that will basically commit Greek governments in the future to policies that Greek citizens have not had a chance to have a say on.
Nothing drives voter sentiment like the price of gas – now averaging $3.56 a gallon, up 30 cents from the start of the year. It’s already hit $4 in some places. The last time gas topped $4 was 2008.
And nothing energizes Republicans like rising energy prices. Last week House Speaker John Boehner told Republicans to take advantage of voters’ looming anger over prices at the pump. On Thursday House Republicans passed a bill to expand offshore drilling and force the White House to issue a permit for the Keystone XL pipeline. The tumult prompted the Interior Department to announce on Friday expanded oil exploration in the Arctic.
If prices at the pump continue to rise, expect more gas wars.
In fact, oil prices are rising for three reasons — none of which has to do with offshore drilling or the XL pipeline.
The first, on the supply side, is Iran’s decision to cut in oil exports to Britain and France in retaliation for sanctions put in place by the EU and United States. Iran’s threat to do this has been pushing up crude oil prices for weeks.
The second, on the demand side, is rising hopes for a global economic recovery – which would mean increased oil consumption. The American economy is showing faint signs of a recovery. Europe’s debt crisis appears to be easing. Greece’s pending bailout deal is calming financial nerves on both sides of the Atlantic, and the Bank of England and European Central Bank are keeping rates low. At the same time, China has decided to boost its money supply to spur growth there.
Neither of these would have much effect were it not for the third reason — overwhelming bets of hedge funds and other money managers that oil prices will rise on the basis of the first two reasons.
Speculators have pushed crude oil to $105.28 per barrel, up 35 percent since September. Brent crude, Europe’s benchmark, is now $120.37 a barrel – also worrisome because many East Coast refineries use imported oil.
Funny, I don’t hear Republicans rail against speculators. Could that have anything to do with the fact that hedge funds and money managers are bankrolling the GOP as never before?
But that’s okay. The gas wars may come to a screeching halt before too long, anyway. So many bets are being placed on rising oil prices that the slightest hint the speculators are wrong – almost any sign of expanding supply or declining demand – will set off a sharp drop in oil prices similar to the record one-day fall on May 5 of last year.
Suddenly, manufacturing is back – at least on the election trail. But don’t be fooled. The real issue isn’t how to get manufacturing back. It’s how to get good jobs and good wages back. They aren’t at all the same thing.
Republicans have become born-again champions of American manufacturing. This may have something to do with crucial primaries occurring next week in Michigan and the following week in Ohio, both of them former arsenals of American manufacturing.
Mitt Romney says he’ll “work to bring manufacturing back” to America by being tough on China, which he describes as “stealing jobs” by keeping value of its currency artificially low and thereby making its exports cheaper.
Rick Santorum promises to “fight for American manufacturing” by eliminating corporate income taxes on manufacturers and allowing corporations to bring their foreign profits back to American tax free as long as they use the money to build new factories.
President Obama has also been pushing a manufacturing agenda. Last month the President unveiled a six-point plan to eliminate tax incentives for companies to move offshore and create new lures for them to bring jobs home. “Our goal,” he says, is to “create opportunities for hard-working Americans to start making stuff again.”
Meanwhile, American consumers’ pent-up demand for appliances, cars, and trucks have created a small boomlet in American manufacturing – setting off a wave of hope, mixed with nostalgic patriotism, that American manufacturing could be coming back. Clint Eastwood’s Super Bowl “Halftime in America” hit the mood exactly.
But American manufacturing won’t be coming back. Although 404,000 manufacturing jobs have been added since January 2010, that still leaves us with 5.5 million fewer factory jobs today than in July 2000 – and 12 million fewer than in 1990. The long-term trend is fewer and fewer factory jobs.
Even if we didn’t have to compete with lower-wage workers overseas, we’d still have fewer factory jobs because the old assembly line has been replaced by numerically-controlled machine tools and robotics. Manufacturing is going high-tech.
Bringing back American manufacturing isn’t the real challenge, anyway. It’s creating good jobs for the majority of Americans who lack four-year college degrees.
Manufacturing used to supply lots of these kind of jobs, but that was only because factory workers were represented by unions powerful enough to get high wages.
That’s no longer the case. Even the once-mighty United Auto Workers has been forced to accept pay packages for new hires at the Big Three that provide half what new hires got a decade ago. At $14 an hour, new auto workers earn about the same as most of America’s service-sector workers.
GM just announced record profits but its new workers won’t be getting much of a share.
In the 1950s, more than a third of American workers were represented by a union. Now, fewer than 7 percent of private-sector workers have a union behind them. If there’s a single reason why the median wage has dropped dramatically for non-college workers over the past three and a half decades, it’s the decline of unions.
How do the candidates stand on unions? Mitt Romney has done nothing but bash them. He vows to pass so-called “right to work” legislation barring job requirements of union membership and payment of union dues. “I’ve taken on union bosses before, ” he says,” and I’m happy to take them on again.” When Romney’s not blaming China for American manufacturers’ competitive problems he blames high union wages. Romney accuses the President of “stacking” the National Labor Relations Board with “union stooges.”
Rick Santorum says he’s supportive of private-sector unions. While in the Senate he voted against a national right to work law (Romney is now attacking him on this) but Santorum isn’t interested in strengthening unions, and he doesn’t like them in the public sector.
President Obama praises “unionized plants” – such as Master Lock, the Milwaukee maker of padlocks he visited last week, which brought back one hundred jobs from China. But the President has not promised that if reelected he’d push for the Employee Free Choice Act, which would make it easier for workers to organize a union. He had supported it in the 2008 election but never moved the legislation once elected.
The President has also been noticeably silent on the labor struggles that have been roiling the Midwest – from Wisconsin’s assault on the bargaining rights of public employees, through Indiana’s recently-enacted right to work law – the first in the rust belt.
The fact is, American corporations – both manufacturing and services – are doing wonderfully well. Their third quarter profits (the latest data available) totaled $2 trillion. That’s 19 percent higher than the pre-recession peak five years ago.
But American workers aren’t sharing in this bounty. Although jobs are slowly returning, wages continue to drop, adjusted for inflation. Of every dollar of income earned in the United States in the third quarter, just 44 cents went to workers’ wages and salaries — the smallest share since the government began keeping track in 1947.
The fundamental problem isn’t the decline of American manufacturing, and reviving manufacturing won’t solve it. The problem is the declining power of American workers to share in the gains of the American economy.
A cushion of reliable income is a wonderful thing. It can help pay for basic necessities. It can be saved for rainy days or used to pursue happiness on sunny days. It can encourage people to take entrepreneurial risks, care for friends, or volunteer for community service.
(Credit: Rifqi Dahlgren under a Creative Commons license from flickr.com)
Conversely, the absence of reliable income is a terrible thing. It heightens anxiety and fear. It diminishes our ability to cope with crises and transitions. It traps many families on the knife’s edge of poverty, and makes it harder for poor people to rise.
There’s been much discussion of late about how to save America’s declining middle class. The answer politicians of both parties give is always the same: jobs, jobs, jobs. The parties differ on how the jobs will be created — Republicans say the market will do it if we cut taxes and regulation. Democrats say government can help by investing in infra¬structure and education. Either way, it still comes down to jobs with decent wages and benefits.
It’s understandable that politicians say this: it was America’s experience in the past. In the years following World War II, we built a solid middle class on the foundation of high-paying, mostly unionized jobs in the manufacturing sector. But those days are history. Today, automation and computers have eliminated millions of jobs, and private-sector unions have been crushed. On top of that, in a globalized economy where capital can hire the cheapest labor anywhere, it’s no longer credible to believe that America’s middle class can prosper from labor income alone.
So why don’t we pay everyone some non-labor income — you know, the kind of money that flows disproportionally to the rich? I’m not talking about redistribution here, I’m talking about paying dividends to equity owners in good old capitalist fashion. Except that the equity owners in question aren’t owners of private wealth, they’re owners of common wealth. Which is to say, all of us.
One state—Alaska—already does this. The Alaska Permanent Fund uses revenue from state oil leases to invest in stocks, bonds and similar assets, and from those investments pays equal dividends to every resident. Since 1980, these dividends have ranged from $1,000 to $2,000 per year per person, including children (meaning that they’ve reached up to $8,000 per year for households of four). It’s therefore no accident that, compared to other states, Alaska has the third highest median income and the second highest income equality.
Alaska’s model can be extended to any state or nation, whether or not they have oil. Imagine an American Permanent Fund that pays dividends to all Americans, one person, one share. A major source of revenue could be clean air, nature’s gift to us all. Polluters have been freely dumping ever-increasing amounts of gunk into our air, contributing to ill-health, acid rain and climate change. But what if we required polluters to bid for and pay for permits to pollute our air, and decreased the number of permits every year? Pollution would decrease, and as it did, pollution prices would rise. Less pollution would yield more revenue. Over time, trillions of dollars would be available for dividends.
There’s been much discussion of late about how to save America’s declining middle class. So why don’t we pay everyone some non-labor income? I’m talking about paying dividends to equity owners in good old capitalist fashion. Except that the equity owners in question aren’t owners of private wealth, they’re owners of common wealth. Which is to say, all of us.
And that’s not the only common resource an American Permanent Fund could tap. Consider the substantial contribution society makes to publicly traded stock values. When a company like Facebook or Google goes public, its value rises dramatically. The extra value derives from the vastly enlarged market of investors who can trust a public company’s financial statements (filed quarterly with the Securities and Exchange Commission) and buy or sell its shares with the click of a mouse. Experts call this a ‘liquidity premium,’ and it’s generated not by the company but by society.
This socially created wealth now flows mostly to a small number of Americans. But if we wanted to, we could spread it around. We could do that by charging corporations for the extra liquidity that society provides. Let’s say we required public companies to deposit 1 percent of their shares in the American Permanent Fund for ten years, up to a total of 10 percent. This would be a modest price not just for public liquidity but for other privileges (limited liability, perpetual life, constitutional protections) we currently grant to corporations for free. In due time, the American Permanent Fund would have a diversified portfolio worth trillions of dollars. As the stock market rose and fell, so would everyone’s dividends. A rising tide would truly lift all boats.
There are other potential revenue sources for common wealth dividends. For example, we give free airwaves to media companies and nearly perpetual (and nearly global) copyright protection to entertainment and software companies. These free gifts are worth big bucks. If their recipients were required to pay us for them, we’d all be a little richer.
Banks are another large recipient of our collective largesse. I’m not talking about bail-out funds; I’m talking about the hugely valuable right we give banks to create money out of nothing. Banks do this (with our generous permission) by lending roughly seven times the money customers deposit (this is called ‘fractional reserve banking’); they then charge interest on these magically minted dollars. This gift to banks is justified on the grounds that it injects needed cash into the economy, but a comparable boost could be achieved by giving people new government-issued dollars — for example, by wiring money to their bank accounts — and limiting bank lending to money actually on deposit. Fresh money would then trickle up through households rather than down through banks.
Regardless of its revenue sources, the mechanics of an American Permanent Fund would be simple. Every U.S. resident with a valid Social Security number would be eligible to open a Shared Wealth Account at a bank or brokerage firm; dividends would then be wired to their accounts monthly. There’d be no means test — and no shame — attached to these earnings, as there are to welfare. Nor would there be any hint of class warfare — Bill Gates would get his dividends along with everyone else. And since the revenue would come from common wealth, there’d be no need to raise taxes or cut government spending. All we’d have to do is charge for private use of common wealth and feed the resulting revenue into an electronic distribution system.
How large should dividends be? The amounts paid would vary from year to year just as corporate dividends do. But the system should be designed so that dividends supplement rather than replace labor income. One good guide is Warren Buffet’s rule for bequeathing money to children: give them “enough to do anything, but not enough to do nothing.” We could also bear in mind that the higher the dividends, the stronger the middle class and the smaller the gap between the richest 1 percent and everyone else.
The United States isn’t broke, as some Republican say; we’re a very wealthy and productive country. The problem is that our wealth and productivity gains flow disproportionately to the rich in the form of dividends, capital gains, rent and interest. If we want to remain a middle class nation, that needs to change. Jobs alone won’t suffice. We need to complement wages with non-labor income from the wealth we all own. That would truly make us an ownership society.
This work is licensed under a Creative Commons License
Published on Friday, February 17, 2012 by Common Dreams
- Common Dreams staff
A $25 billion settlement agreement between the nation's largest banks, states, and millions of homeowners who were victims of bad lending practices and fraudulent foreclosures has yet to be fully realized, but a new study from California indicates that many of the same 'illegal' foreclosure practices are still occurring at alarming rates.
A foreclosed home is shown in Stockton, California May 13, 2008. Home foreclosure filings in the U.S. jumped 23 percent in the first quarter from the prior quarter, and more than doubled from a year earlier. (Credit: Reuters/Robert Galbraith)
A report this week showing rampant foreclosure abuse in San Francisco reflects similar levels of lender fraud and faulty documentation across the United States, say experts and officials who have done studies in other parts of the country.
The audit of almost 400 foreclosures in San Francisco found that 84 percent of them appeared to be illegal, according to the study released by the California city on Wednesday.
"The audit in San Francisco is the most detailed and comprehensive that has been done - but it's likely those numbers are comparable nationally," Diane Thompson, an attorney at the National Consumer Law Center, told Reuters.
Across the country from California, Jeff Thingpen, register of deeds in Guildford County, North Carolina, examined 6,100 mortgage documents last year, from loan notes to foreclosure paperwork.
Of those documents, created between January 2008 and December 2010, 4,500 showed signature irregularities, a telltale sign of the illegal practice of "robosigning" documents.
The report also makes the familar point that one of the major problems throughout the foreclosure crisis has been how murky it has become to know who owns the loans on the home being foreclosed upon:
One of the major problems that has emerged in the foreclosure crisis is that it is far from clear that many lenders foreclosing on properties actually own the loans and have the right to take action against them.
In many cases during the housing bubble that burst in 2008, original mortgages were repackaged and sold to so many investors that it is now unclear who actually holds the loans. [The study] could only find the current owners of the mortgages [...] in 287 out of 473 cases.
In the San Francisco study, which studied properties subject to foreclosure sales between January 2009 to November 2011, 45 per cent were sold to entities improperly claiming to be the owner of the loan.
"It is not impossible that there are homeowners who are alleged to have defaulted on loans to which they never fully agreed to and, further, are being foreclosed upon by lenders that might not even own such loans," the report stated.
All of this might be less shocking if it wasn't right on the heals of the mortgage settlement which, as Yves Smith explains at Naked Capitalism on Thursday, is a canard when it comes to bank accountability. The whole point of the settlement -- even the threat of investigations -- has been to make sure the banks change their practices. She writes:
The whole purpose of a settlement is that a party pays damages to rid themselves of liability, and the amount they pay (and “pay” can include the cost of reforming their conduct) is less than what they expect to suffer if they were sued and lost the case (otherwise, it would make more sense for them to fight).
But in the topsy-turvy world of cream for the banks, crumbs for the rest of us, we have, in the words of Scott Simon, head of the mortgage business at bond fund manager Pimco, in an interview with MoneyNews, lots of victims paying for banks’ misdeeds:
“A lot of the principal reductions would have happened on their loans anyway, and they’re using other people’s money to pay for a ton of this. Pension funds, 401(k)s and mutual funds are going to pick up a lot of the load…
“Think about this, you tell your kid, ‘You did something bad, I’m going to fine you $10, but if you can steal $22 from your mom, you can pay me with that.’”
Part 2 covering the Bush Sr, Clinton, Bush Jr and Obama years can be found here.
We rely for data for this blog on the Federal Individual Income Tax Rates History for income years 1913 to 2011 put out by taxfoundation.org. Also Historical Capital Gains and Taxes put out by the Tax Policy Center of the Urban Institute and the Brookings Institution and the Social Security and Medicare Tax Rates put out by socialsecurity.gov. We will report only on income tax rates for a married couple filing jointly. Tax rates for other classifications of people generally followed the same trajectories. It is a sordid history of how Republican Presidents Reagan and Bush Jr. lowered taxes on the rich, raised taxes on the poor and middle class and drove up the US national debt. Let's start with tax year 1980 the first year Reagan occupied the White House. The tax rates that year were carried over from the Carter Presidency. It took a couple of years for Reagan to get his tax cutting Mojo working. In 1980 the income tax table was the following. All amounts are adjusted for inflation.
The first thing to notice is that there are 16 tax brackets. Over the ensuing years the number of tax brackets would be reduced under the guise of simplification, but really what this reduction amounts to is a "flattening" of the tax code on the way to that conservative Valhalla - the flat tax. The second thing to notice is that the highest tax rate is 70%. That would be reduced in coming years to less than half that amount giving a huge bonus to the rich. The third thing to notice is that the highest marginal tax rate applies to incomes over $586,546. That means that for higher incomes - and incomes well over $1 million were not that uncommon in 1980 - there were no additional tax brackets at higher marginal tax rates. This tendency not to progressively tax the highest incomes is a feature that will be accentuated in the terms of Republican Presidents over the next 30 years. Clinton "unflattened" the tax code adding three new brackets at the high end while keeping taxes on the poor and middle class constant. However, in Clinton's second term under a Republican controlled Congress, the capital gains tax affecting mainly the rich was lowered exemplifying the fact that Congress has much more control over taxes than does the President. Reagan and Bush Jr primarily lowered taxes on the rich while Reagan also raised taxes on the poor as a concomitant.
In 1980 the maximum tax rate on long term capital gains stood at 28%. Also in 1980 the payroll tax (FICA and SECA) stood at 6.13% for employers and employees and at 8.1% for self-employed. FICA is the tax that employers and employees pay for social security and medicare; SECA is the tax the self-employed pay. Reagan and Greenspan would hike these rates spiking the rate for self-employed thus adhering to their philosophy of taxing the poor while lowering taxes on the rich since payroll taxes are a flat tax with no deductions, no exemptions. The poor while paying little if anything in income tax are still stuck with almost exhorbitant payroll taxes especially the self-employed. And when they retire, the poor self-employed get a relative pittance in benefits despite having paid in at the highest rates.
In 1981 the income tax table was not substantially changed keeping the same 16 tax brackets. However, the maximum tax rate on long term capital gains was lowered from 28% to 20%, a big reduction for the rich who have much more income from capital gains than do the middle class and the poor. While lowering taxes on the rich Reagan simultaneously raised them on the poor not through the income tax but by means of FICA and SECA taxes. Those rates increased from 6.13% to 6.65% for employers and employees and from 8.1% to 9.3% for the self-employed.
In 1982 there were major changes to the tax code as shown in Table 2.
The first thing to notice here is a reduction in the progressivity of the tax code since 16 brackets have been reduced to 13 eliminating the top three tax brackets altogether! The top tax bracket starts at $199,035, a brazen tax giveaway to the rich! The lowest taxable bracket starts at roughly $7906. rather than $9258 as it did in 1980, a slight increase on the poor. There are also slight increases on the middle class throughout the tax code.
The maximum long term capital gains tax rate remained steady at 20% while FICA and SECA taxes were raised slightly. So we have seen taxes on the rich diminish remarkably in the second year of Reagan's Presidency by means of the capital gains rate and in the third year by means of the income tax table while at the same time taxes on the poor and middle class were raised through the FICA and SECA tax rates. FICA and SECA taxes are regressive since the same rate applies to all incomes up to a certain cap and beyond the cap there is no payroll tax so the rich get off scot free above a certain income level which in 2011 was $106,800. In 1982 there was a flattening of the income tax code brackets and a raising of the already flattened payroll taxes. The lesson to be learned from the early Reagan years is that taxes were lowered primarily on the rich due to the elimination of the upper three income tax brackets and the lowering of the capital gains tax while they were raised on the poor and middle class primarily through the FICA and SECA taxes.
The following table represents the effects of the "Tax Reform Law of 1984."
Consider the top tax bracket. It remains the same as in 1982 at 50%. However, it doesn't start till an income of $350,715 instead of $199,035 in 1982 thus lowering taxes on the rich again. The 0% tax bracket ends at a lower dollar amount thus raising taxes slightly on the poor again. Consider the middle tax rate of 25.0%. It starts at $46,969 and ends at $57,199 in 1982 while it starts at $53,125 in 1984 and ends at $64,571. This represents a slight lowering on the middle class as well.
The capital gains rate remained the same at 20% while FICA and SECA taxes were given a huge jolt. They were raised from 6.7% and 9.35% respectively in 1982 to 7% and 14% respectively in 1984. This represents a huge increase in regressivity and taxes on the poor and middle class for the self-employed.
In 1986 there were no major changes to the income tax code - only adjustments for inflation. Capital gains tax remained constant at 20%. There were increases in FICA and SECA taxes though. Again taxes on the poor and middle class were raised under Reagan's Presidency. They now stood at 7.15% and 14.3% respectively.
Now in 1987 accordning to the Tax Reform Act of 1986, there were major changes to the income tax code. Here are the tables for 1987:
The number of tax brackets has been drastically reduced from 15 to 5 thus flattening the tax code once again and reducing taxes on the rich! The top tax rate applies to incomes over $177,766 whereas that rate in 1984 applied to incomes over approximately $100,000. Taxes on the poor are raised as well since the 0% tax rate is eliminated entirely! However capital gains taxes are raised back to 28% due to the fact that Democrats took control of Congress in 1986. FICA and SECA taxes remain the same as they were in 1986.
In 1988 the income tax code is radically flattened again.
Table 5 - 1988 - Married Filing Jointly
Marginal Tax Brackets Tax RatesOverBut Not Over
15.0% $0 $56,427 28.0% $56,427
_______________________________________________
This flattening raised income taxes on the poor considerably by dropping the lowest tax bracket altogether. At the same time it lowered taxes on the rich by dropping the upper two tax brackets! Capital gains tax stayed at 28% while FICA and SECA taxes increased considerably from 7.15% and 14.3% respectively to 7.51% and 15.02% respectively. Thus a double whammy in tax increases for the poor was perpetrated while reducing them drastically for the rich.
All in all the Reagan years under the tutelage of Alan Greenspan were a disaster for the poor and middle class and a bonanza for the rich. The income tax was drastically flattened reducing progressivity while FICA and SECA taxes which are regressive because one rate fits all were raised. For most of Reagan's Presidency capital gains tax was kept low at 20%, another tax giveaway to the rich. However, when Democrats regained control of Congress in 1986, the capital gains tax rate was raised back to 28% where it had been when Reagan entered the Presidency and Republicans controlled Congress. There is a pattern here. Republicans use the tax code to benefit the rich and shift the burden of paying for government to the poor and middle class while Democrats lower taxes on the poor and middle class and raise them on the rich. In 1983, on the recommendation of his Social Security Commission— chaired by none other than the man he later made Fed chairman, Alan Greenspan—Reagan called for, and received, Social Security tax increases of $165 billion over seven years. So it was Alan Greenspan, that Ayn Rand inspired "rock star" of economics, who was primarily responsible for raising taxes on the poor during the Reagan era. Although the pretext for this huge increase in social security and medicare taxes was the fact that at some point the social security trust fund would run out of money, the increase in government revenues was just spent in the government's general fund thus effectively using a huge increase in regressive taxation to fund the government not to provide security for retirees. At the present time despite a supposed $2.5 trillion in the social security trust fund, Republicans are again maintaining that social security is broke and needs "fixing," the fix they recommend being to privatize it.
Finally, we note that Reagan tripled the national debt from approximately $1 trillion to $3 trillion. George W Bush doubled it from $5 trillion to $10 trillion. The two biggest tax cutters (on the rich) were also the two biggest adders to the national debt!
Watching what’s happening to our democracy is like watching the cruise ship Costa Concordia founder and sink slowly into the sea off the coast of Italy, as the passengers, shorn of life vests, scramble for safety as best they can, while the captain trips and falls conveniently into a waiting life boat.
We are drowning here, with gaping holes torn into the hull of the ship of state from charges detonated by the owners and manipulators of capital. Their wealth has become a demonic force in politics. Nothing can stop them. Not the law, which has been written to accommodate them. Not scrutiny -- they have no shame. Not a decent respect for the welfare of others -- the people without means, their safety net shredded, left helpless before events beyond their control.
The obstacles facing the millennial generation didn’t just happen. Take an economy skewed to the top, low wages and missing jobs, predatory interest rates on college loans: these are politically engineered consequences of government of, by, and for the one percent. So, too, is our tax code the product of money and politics, influence and favoritism, lobbyists and the laws they draft for rented politicians to enact.
Here’s what we’re up against. Read it and weep: “America’s Plutocrats Play the Political Ponies.” That’s a headline in “Too Much,” an Internet publication from the Institute for Policy Studies that describes itself as “an online weekly on excess and inequality.”
Yes, the results are in and our elections have replaced horse racing as the sport of kings. Only these kings aren’t your everyday poobahs and potentates. These kings are multi-billionaire, corporate moguls who by the divine right, not of God, but the United States Supreme Court and its Citizens United decision, are now buying politicians like so much pricey horseflesh. All that money pouring into super PACs, much of it from secret sources: merely an investment, should their horse pay off in November, in the best government money can buy.
They’re shelling out fortunes' worth of contributions. Look at just a few of them: Mitt Romney’s hedge fund pals Robert Mercer, John Paulson, Julian Robertson and Paul Singer – each of whom has ponied up a million or more for the super PAC called “Restore Our Future” -- as in, "Give us back the go-go days, when predators ruled Wall Street like it was Jurassic Park.”
Then there's casino boss Sheldon Adelson and his wife Miriam, fiercely pro-Israel and anti-President Obama's Mideast policy. Initially, they placed their bets on Newt Gingrich, who says on his first day in office he’d move the American Embassy in Israel to Jerusalem, a decision that would thrill the Adelsons but infuriate Palestinians and the rest of the Muslim world. Together, the Adelsons have contributed ten million to Newt's “Winning Our Future” super PAC.
Cowboy billionaire Foster Friess, a born-again Christian who made his fortune herding mutual funds instead of cattle, has been bankrolling the “Red White and Blue Fund” super PAC of Rick Santorum, with whom he shares a social right-wing agenda. Dark horse Ron Paul has relied on the kindness of PayPal founder Peter Thiel, a like-minded libertarian in favor of the smallest government possible, who gave $900,000 to Paul’s “Endorse Liberty” super PAC. Hollywood’s Jeffrey Katzenberg has so far emptied his wallet to the tune of a cool two million for the pro-Obama super PAC, “Priorities USA Action.”
President Obama -- who kept his distance from Priorities USA Action and used to call the money unleashed by Citizens United a “threat to democracy” -- has declared if you can't beat 'em, join 'em. He urges his wealthy supporters to please go ahead and back the super PAC. "Our campaign has to face the reality of the law as it stands," his campaign manager Jim Messina said. To do otherwise, he added, would be to "unilaterally disarm" in the face of all those Republican super PAC millions. So much for Obama’s stand on campaign finance reform – everybody else is doing it, he seems to say, so why don’t you show me the money, too?
When all is said and done, this race for the White House may cost more than two billion dollars. What’s getting trampled into dust are the voices of people who aren't rich, not to mention what's left of our democracy. As Democratic pollster Peter Hart told The New Yorker magazine’s Jane Mayer, “It’s become a situation where the contest is how much you can destroy the system, rather than how much you can make it work. It makes no difference if you have a ‘D’ or an ‘R’ after your name. There’s no sense that this is about democracy, and after the election you have to work together, and knit the country together.”
These gargantuan super PAC contributions are not an end in themselves. They are the means to gain control of government – and the nation state -- for a reason. The French writer and economist Frederic Bastiat said it plainly: "When plunder becomes a way of life for a group of men living in society, they create for themselves, in the course of time, a legal system that authorizes it and a moral code that glorifies it." That’s what the super PACs are bidding on. For the rest of us, the ship may already have sailed.
Journalist Bill Moyers is the host of the new show Moyers & Company, a weekly series of smart talk and new ideas aimed at helping viewers make sense of our tumultuous times through the insight of America’s strongest thinkers.. His previous shows on PBS included NOW with Bill Moyers and Bill Moyers Journal. Over the past three decades he has become an icon of American journalism and is the author of many books, including Bill Moyers Journal: The Conversation Continues, Moyers on Democracy, and Bill Moyers: On Faith & Reason. He was one of the organizers of the Peace Corps, a special assistant for Lyndon B. Johnson, a publisher of Newsday, senior correspondent for CBS News and a producer of many groundbreaking series on public television. He is the winner of more than 30 Emmys, nine Peabodys, three George Polk awards and is the author of three best-selling books.
Michael Winship, senior writing fellow at Demos and president of the Writers Guild of America, East, is senior writer of the new public television series Moyers & Company, premiering in January 2012. Go to www.billmoyers.
On February 9th, administration officials stood alongside state attorneys general to announce a $25 billion mortgage settlement. It was reminiscent of a big announcement by administration officials three Februarys ago involving an even bigger number: $50 billion. That money was supposed to go to the administration’s signature mortgage modification program, which eventually became HAMP.
Three years later, HAMP (the Home Affordable Modification Program) is widely considered a failure. That failure provides key context to [Thursday’s] announcement.
According to the state attorneys general and the administration, a major selling point of the new settlement is that it won’t repeat HAMP’s mistakes. This deal, they say, is different.
“If people are eligible for a loan modification, the banks won’t screw up those decisions anymore,” said Iowa Attorney General Tom Miller.
North Carolina Attorney General Roy Cooper made a rather pointed reference to HAMP: “I think strong, court-ordered enforcement with teeth distinguish this deal from those earlier efforts to help homeowners.”
When HAMP was launched, it came with the promise that mortgage servicers would have to abide by clear rules. The handbook laying out these rules now approaches 200 pages. But as we’ve detailed, enforcement of those rules has been lacking.
According to the state attorneys general, the settlement directly addresses that. The five big servicers—Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial (formerly GMAC)— that will sign on to the not-quite-finalized deal have agreed to follow a raft of new rules. Some of these rules, like how quickly a bank must respond to a homeowner’s completed modification application, come straight from HAMP.
What’s different this time, they say, is that there are clear consequences for rule-breaking. But plenty of questions remain, and only time will tell if the latest promises of mortgage-servicer accountability will be kept.
“The big picture is that these new rules are only good if servicers follow them,” said Alys Cohen of the National Consumer Law Center. “Enforcement will really matter.”
As critics like Firedoglake blogger David Dayen have pointed out, the new system relies to some extent on “self-assessments” by the banks to identify violations of the new rules. But Miller, the Iowa attorney general, notes that consumers will be able to complain to their state’s attorney general, who will make sure their complaints are heard.
The settlement does create a “monitor” who will have the power to impose penalties. The administration says a bank could be fined up to $1 million per violation and up to $5 million for repeat violations. But the details released so far don’t show how violations will be applied or counted. (If thousands of homeowners, for instance, have been wrongly denied modifications, will that be counted as one violation or thousands?)
HAMP came with no penalties for participating mortgage servicers that broke the rules. It was only in the past several months that the Treasury Department decided to address servicer noncompliance—by temporarily withholding the program’s subsidy payments. (As for the millions of dollars in incentives that Bank of America, JPMorgan Chase and the other servicers were paid over the previous years, they get to keep that.)
The settlement is not only supposed to have more sticks than HAMP, it’s also a chance for the administration to breathe life back into the old program. Treasury recently made major revisions to HAMP to allow more homeowners to qualify for modifications.
“The extension and expansion of HAMP are designed to be complementary to the settlement,” said Treasury spokeswoman Andrea Risotto.
For instance, the program was set to end at the end of 2012 but now will accept new homeowners until the end of 2013. (The banks will operate under the umbrella of the settlement through 2014 or so.) In addition, Treasury has broadened some of the criteria to make it easier to qualify.
Some of the millions of homeowners who were rejected might be eligible for a second shot. Hundreds of thousands of homeowners were originally granted “trial modifications” through the program in 2009 and early 2010, only to be denied permanent modifications many months (and sometimes more than a year) later. Most of those homeowners started those trials by just giving their income information over the phone. They’ll be eligible to reapply, according to the proposed rules.
One of the recent changes to HAMP could reduce the cost of the settlement for banks—and leave taxpayers footing a chunk of the bill.
As part of [Thursday’s] deal, the five banks agreed to reduce billions in mortgage debt for homeowners in danger of foreclosure. Most of those principal reductions—about 85 percent according to Housing and Urban Development Secretary Shaun Donovan—will likely be for loans that the banks hold on their own books.
HAMP also has long offered investors incentives to encourage principal reductions. For loans owned by banks, the money goes right to them. In January, Treasury tripled those incentives. In cases in which a loan qualifies for HAMP, the government will now pay investors, often the banks themselves, up to roughly two-thirds the cost of a principal reduction.
The banks have agreed to perform at least $10 billion worth of principal reductions as part of the settlement. Because it’s unclear how many of the principal reduction modifications will be done through HAMP, it’s impossible to say how much of that will be covered by the government subsidies.
So far, about 40,000 HAMP modifications have been done through HAMP’s principal reduction program at a median reduction of $67,196, meaning that roughly $2.7 billion in principal has been reduced. If the banks find HAMP more attractive because of the increased incentives, that amount might increase sharply, and HAMP could experience something of a renaissance.
LINDSTROM, Minn. — Ki Gulbranson owns a logo apparel shop, deals in jewelry on the side and referees youth soccer games. He makes about $39,000 a year and wants you to know that he does not need any help from the federal government.
He says that too many Americans lean on taxpayers rather than living within their means. He supports politicians who promise to cut government spending. In 2010, he printed T-shirts for the Tea Party campaign of a neighbor, Chip Cravaack, who ousted this region’s long-serving Democratic congressman.
Yet this year, as in each of the past three years, Mr. Gulbranson, 57, is counting on a payment of several thousand dollars from the federal government, a subsidy for working families called the earned-income tax credit. He has signed up his three school-age children to eat free breakfast and lunch at federal expense. And Medicare paid for his mother, 88, to have hip surgery twice.
There is little poverty here in Chisago County, northeast of Minneapolis, where cheap housing for commuters is gradually replacing farmland. But Mr. Gulbranson and many other residents who describe themselves as self-sufficient members of the American middle class and as opponents of government largess are drawing more deeply on that government with each passing year.
Dozens of benefits programs provided an average of $6,583 for each man, woman and child in the county in 2009, a 69 percent increase from 2000 after adjusting for inflation. In Chisago, and across the nation, the government now provides almost $1 in benefits for every $4 in other income.
Older people get most of the benefits, primarily through Social Security and Medicare, but aid for the rest of the population has increased about as quickly through programs for the disabled, the unemployed, veterans and children.
The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits. A secondary mission has gradually become primary: maintaining the middle class from childhood through retirement. The share of benefits flowing to the least affluent households, the bottom fifth, has declined from 54 percent in 1979 to 36 percent in 2007, according to a Congressional Budget Office analysis published last year.
And as more middle-class families like the Gulbransons land in the safety net in Chisago and similar communities, anger at the government has increased alongside. Many people say they are angry because the government is wasting money and giving money to people who do not deserve it. But more than that, they say they want to reduce the role of government in their own lives. They are frustrated that they need help, feel guilty for taking it and resent the government for providing it. They say they want less help for themselves; less help in caring for relatives; less assistance when they reach old age.
The expansion of government benefits has become an issue in the presidential campaign. Rick Santorum, who won 57 percent of the vote in Chisago County in the Republican presidential caucuses last week, has warned of “the narcotic of government dependency.” Newt Gingrich has compared the safety net to a spider web. Mitt Romney has said the nation must choose between an “entitlement society” and an “opportunity society.” All the candidates, including Ron Paul, have promised to cut spending and further reduce taxes.
The problem by now is familiar to most. Politicians have expanded the safety net without a commensurate increase in revenues, a primary reason for the government’s annual deficits and mushrooming debt. In 2000, federal and state governments spent about 37 cents on the safety net from every dollar they collected in revenue, according to a New York Times analysis. A decade later, after one Medicare expansion, two recessions and three rounds of tax cuts, spending on the safety net consumed nearly 66 cents of every dollar of revenue.
The recent recession increased dependence on government, and stronger economic growth would reduce demand for programs like unemployment benefits. But the long-term trend is clear. Over the next 25 years, as the population ages and medical costs climb, the budget office projects that benefits programs will grow faster than any other part of government, driving the federal debt to dangerous heights.
Americans are divided about the way forward. Seventy percent of respondents to a recent New York Times poll said the government should raise taxes. Fifty-six percent supported cuts in Medicare and Social Security. Forty-four percent favored both.
Support for spending cuts runs strong in Chisago, where anger at the government helped fuel Mr. Cravaack’s upset victory in 2010 over James L. Oberstar, the Democrat who had represented northeast Minnesota for 36 years.
“Spending like this is simply unsustainable, and it’s time to cut up Washington, D.C.’s credit card,” Mr. Cravaack said in a February speech to the Hibbing Area Chamber of Commerce. “It may hurt now, but it will be absolutely deadly for the next generation — that’s our children and our grandchildren.”
But the reality of life here is that Mr. Gulbranson and many of his neighbors continue to take as much help from the government as they can get. When pressed to choose between paying more and taking less, many people interviewed here hemmed and hawed and said they could not decide. Some were reduced to tears. It is much easier to promise future restraint than to deny present needs.
“How do you tell someone that you deserve to have heart surgery and you can’t?” Mr. Gulbranson said.
He paused.
“You have to help and have compassion as a people, because otherwise you have no society, but financially you can’t destroy yourself. And that is what we’re doing.”
He paused again, unable to resolve the dilemma.
“I feel bad for my children.”
Middle-Class Blues
Mr. Gulbranson has tried several ways to make a living in the storefront he bought from his father in 1979. He ran a gift shop, then shifted to selling jewelry. Nine years ago, he moved the gold scales to the back and bought equipment for screen-printing clothing. Through it all, he has never made more than about $46,000 in a year.
Meanwhile, the cost of life — and of raising five children — has climbed inexorably.
“I used to go out and try to have a meal at Perkins, which is a restaurant here, and get out of the store with $5,” Mr. Gulbranson said. “And now it’s probably up to $10.”
In recent years he has earned so little that he did not pay federal income taxes, although he still paid thousands of dollars toward Medicare and Social Security. The earned-income tax credit is intended to offset those payroll taxes, to encourage people with lower-paying jobs to remain in the work force.
Mr. Gulbranson said the money covered the fees for his children’s sports leagues and the cost of keeping the older ones on the family’s car insurance.
“If we didn’t get these government things, then probably my kids could not participate in some of the sports they do,” he said.
Almost half of all Americans lived in households that received government benefits in 2010, according to the Census Bureau. The share climbed from 37.7 percent in 1998 to 44.5 percent in 2006, before the recession, to 48.5 percent in 2010.
The trend reflects the expansion of the safety net. When the earned-income credit was introduced in 1975, eligibility was limited to households making the current equivalent of up to $26,997. In 2010, it was available to families making up to $49,317. The maximum payout, meanwhile, quadrupled on an inflation-adjusted basis.
It also reflects the deterioration of the middle class. Chisago boomed and prospered for decades as working families packed new subdivisions along Interstate 35, which runs up the western edge of the county like a flagpole with its base set firmly in Minneapolis. But recent years have been leaner. Per capita income in Chisago excluding government aid fell 6 percent on an inflation-adjusted basis between 2000 and 2007. Over the next two years, it fell an additional 7 percent. Nationally, per capita income excluding government benefits fell by 3 percent over the same 10 years.
Mr. Gulbranson’s business struggled as other companies, particularly construction firms, stopped ordering logo-emblazoned shirts. In 2009, the family claimed the earned-income credit for the first time on the advice of their accountant, who was claiming it for herself. The share of local families claiming the credit climbed 33 percent between 2000 and 2008, the most recent year for which data are available.
To make extra money, Mr. Gulbranson refereed 40 soccer games on Tuesday and Thursday nights last fall. His wife sold clothes at equestrian events and air-brushed novelties at craft fairs, driving around the country with a one-ton trailer hitched to a 20-foot van.
Their difficulties, Mr. Gulbranson said, have made it hard to imagine asking anyone to pay higher taxes.
“I don’t think most people could bear to pay more,” he said.
Instead, he said he would rather give up the earned-income credit the family now receives and start paying for school lunches for his children.
“I don’t demand that the government does this for me,” he said. “I don’t feel like I need the government.”
How about Social Security? And Medicare? Can he imagine retiring without government help?
“I don’t think so,” he said. “No. I don’t know. Not the way we expect to live as Americans.”
A Starring Role
Bob Kopka and his wife often drive to the American Legion hall in North Branch on Thursday nights, joining the crowd gathered in the basement bar for the weekly meat raffle. Almost everyone present relies on the government to pay for their medical care.
Mr. Kopka, 74, has had three heart procedures in recent years. His wife recently had surgery to remove cataracts from both eyes.
Without Medicare, Mr. Kopka said, the couple could not have paid for the treatments.
“Hell, no,” he said. “No. Never. She would have to go blind.”
And him?
“I’d die.”
Few federal programs are more popular than Medicare, which along with Social Security assures a minimum quality of life for older Americans.
None are more central to the nation’s financial problems. The Congressional Budget Office projects that government spending on medical benefits, even taking into account the cost containment measures in the 2010 health care law, will rise 60 percent over the next decade. Then it will start rising even more quickly. The cost of caring for each beneficiary continues to increase, and the government projects that Medicare enrollment will grow by roughly one-third as baby boomers enter old age.
Spending on medical benefits will account for a larger share of the projected increase in the federal budget over the next decade than any other kind of spending except interest payments on the federal debt.
Medicare’s starring role in the nation’s financial problems is not well understood. Only 22 percent of respondents to the New York Times poll correctly identified Medicare as the fastest-growing benefits program. A greater number of respondents, 27 percent, chose programs for the poor. That category, which includes Medicaid, is slightly larger than Medicare today but is projected to add only half as much to federal spending over the next decade.
Medicare’s financial problems are much worse than Social Security’s. A worker earning average wages still pays enough in Social Security taxes to cover the benefits the worker is likely to receive in retirement, according to an analysis by the Urban Institute. Social Security is still running out of money because the program must also support spouses who do not work and workers who earn lower wages. But Medicare’s situation is even more dire because a worker earning average wages still contributes only $1 in Medicare taxes for every $3 in benefits likely to be received in retirement.
A woman who was 45 in 2010, earning $43,500 a year, will pay taxes that will reach a value of $87,000 by the time she retires, assuming the money is invested at an annual interest rate 2 percentage points above inflation, according to the Urban Institute analysis. But on average, the government will then spend $275,000 on her medical care. The average is somewhat lower for men, because women live longer.
Medicare is often described as an insurance program, but its premiums are not nearly high enough. In simple terms, Americans are getting more than they pay for.
But many older residents in Chisago say this problem belongs to younger generations. They paid what they were told; they want to collect what they were promised.
Some, like the Kopkas, have savings they can tap. Mr. Kopka still owns the landscaping business he started after leaving the Navy in the early 1960s. He and his wife own a three-bedroom home on three acres, valued by the county at $153,700. The mortgage is paid. They hope to pass the house to their children.
Others have nothing else. Barbara Sullivan, 71, moved last year to the apartments above the Chisago County Senior Center in North Branch. Waiting on a recent Friday for the hot lunch, which costs $3.50, she watched roughly 20 people play bingo for prizes including canned soup and Chef Boyardee pasta.
“Most of the seniors around here are struggling to make it,” she said.
She counts herself among them. She lives on $1,220 a month in Social Security benefits and relied on Medicare to pay for an operation in November.
She believes that she is taking more from the government than she paid in taxes. She worries about the consequences for her grandchildren. She said she would like politicians to propose solutions.
“We’re reasonable people,” she said. “We’re not going to say, ‘Give it to me and let my grandchildren suffer.’ I think they underestimate seniors when they think that way.”
But she cannot imagine asking people to pay higher taxes. And as she considered making do with less, she started to cry.
“Without it, I’m not sure how I would live,” she said. “With the check I’m getting from Social Security, it’s a constant struggle on making sure that I pay my rent and have enough left for groceries.
“I haven’t bought a Christmas present, I haven’t bought clothing in the last five years, simply because I can’t afford it.”
Keeping a Promise
Representative Cravaack often says he entered politics to lift the burden of debt from the shoulders of his two sons.
“I vision that I open up their backpacks and I put in a 50-pound rock and zip it back up again,” Mr. Cravaack told the Minnesota Freedom Council in October 2010. “And I say, ‘Sorry, son, you’re going to have to hump this the rest of your life.’ Because that’s exactly what we’re doing to our national debt right now to our children.”
Mr. Cravaack, a 53-year-old Navy veteran and a retired pilot for Northwest Airlines, was grounded by sleep apnea in 2007. He and his wife, an executive at the drug company Novo Nordisk, decided he would stay home with their sons. He soon became the first man to serve as president of the Chisago Lakes Parent Teacher Organization.
In August 2009, while driving the children to North Branch, he heard a talk radio host urging people to protest President Obama’s health care legislation. Mr. Cravaack and about two dozen others spent more than two hours the next day in Mr. Oberstar’s North Branch office before a staff member told them the congressman would not meet them. The rejection convinced Mr. Cravaack that Mr. Oberstar should be replaced. One of the other protesters, a woman who had taken her six children to the office, became Mr. Cravaack’s campaign scheduler.
Two weeks after speaking to the Freedom Council, he beat Mr. Oberstar by 1.6 percentage points, or 4,407 votes. Voters in Chisago, the southern tip of an expansive district, provided the margin of victory.
“We have to break away,” Mr. Cravaack told supporters, “from relying on government to provide all the answers.”
Mr. Cravaack has said he drew unemployment benefits during a furlough from Northwest in the early 1990s. He did not respond to several requests for an interview, nor to an e-mail with questions about his views and about whether his family has drawn on other benefits programs. This account is based on a review of his public statements.
Shortly after arriving in Congress, Mr. Cravaack voted with a vast majority of House Republicans for a plan to remake Medicare by providing money to its beneficiaries to buy private insurance. Senate Democrats have rejected that plan.
But Mr. Cravaack has also consistently said the government should not reduce its largest category of spending — benefits for the current generation of retirees. He also says he does not support cuts for people who will turn 65 over the next decade.
“If you’re 55 years and older, you don’t have to listen to this conversation because we have to keep those promises,” Mr. Cravaack told The Daily Caller last April. “People like myself, 52, if you’re 54 or younger, we’re going to have a conversation.”
Tomorrow, Tomorrow
The government helps Matt Falk and his wife care for their disabled 14-year-old daughter. It pays for extra assistance at school and for trained attendants to stay with her at home while they work. It pays much of the cost of her regular visits to the hospital.
Mr. Falk, 42, would like the government to do less.
“She doesn’t need some of the stuff that we’re doing for her,” said Mr. Falk, who owns a heating and air-conditioning business in North Branch. “I don’t think it’s a bad thing if society can afford it, but given the situation that our society is facing, we just have to say that we can’t offer as much resources at school or that we need to pay a higher premium” for her medical care.
Mr. Falk, who voted for Mr. Cravaack, said he did not want to pay higher taxes and did not want the government to impose higher taxes on anyone else. He said that his family appreciated the government’s help and that living with less would be painful for them and many other families. But he said the government could not continue to operate on borrowed money.
“They’re going to have to reduce benefits,” he said. “We’re going to have to accept it, and we’re going to have to suffer.”
One of the oldest criticisms of democracy is that the people will inevitably drain the treasury by demanding more spending than taxes. The theory is that citizens who get more than they pay for will vote for politicians who promise to increase spending.
But Dean P. Lacy, a professor of political science at Dartmouth College, has identified a twist on that theme in American politics over the last generation. Support for Republican candidates, who generally promise to cut government spending, has increased since 1980 in states where the federal government spends more than it collects. The greater the dependence, the greater the support for Republican candidates.
Conversely, states that pay more in taxes than they receive in benefits tend to support Democratic candidates. And Professor Lacy found that the pattern could not be explained by demographics or social issues.
Chisago has shifted over 30 years from dependably Democratic to reliably Republican. Support for the Republican presidential candidate has increased relative to the national vote in each election since 1984. Senator John McCain won 55 percent of the vote here in 2008.
Residents say social issues play a role, but in recent years concerns about spending and taxes have predominated.
Voters in the North Branch school district have rejected increased financing for local schools in each of the past three years. In 2010, the district switched to a four-day school week, striking Monday from the calendar to save money.
Some of the fiercest advocates for spending cuts have drawn public benefits. Many, like Mr. Falk, have family members who rely on the government. They often cite that personal experience as the reason they want to cut government spending.
Brian Qualley, 49, has a sister who survived a brain tumor but was disabled by its removal. The government pays for her care at an assisted-living facility. Their mother scrapes by on Social Security.
Mr. Qualley said that the government should provide for those who need help, but that too much money was being wasted. Mr. Qualley, who owns a tattoo parlor in Harris, north of North Branch, said some of his customers paid with money from government disability checks.
“They’re getting $300 or $400 tattoos, and they’re wearing nice new Nike shoes that I can’t afford,” he said, looking up from working a complicated design into the left leg of a middle-aged woman. “I guess I shouldn’t say it because it’s my business, but I think a tattoo is a little too extravagant.”
But Mr. Qualley said he did not want to reduce benefits for the current generation of retirees. Rather, he said his own generation should get less, because they have time to prepare. This is a common position among the young and healthy in Chisago.
Mr. Qualley said he was saving some money for retirement, although, he added, “I don’t have a 401(k) or anything like that.”
“I also have a job that I don’t necessarily ever want to — or have to — retire from,” he said.
What if his hands start to shake as he gets older?
“Actually,” he said, the electric needle falling silent in his hand, “it’s my shoulders and neck that bother me most.”
Safety in Numbers
Barbara Nelson has little patience for people who say they will not need government help. She considers herself lucky she has not, and obligated to provide for those who do.
“Catastrophes happen in life,” she said, sitting in a coffee shop in Taylors Falls. “To be so arrogant that you think it won’t happen to you, that somehow you’re going to be one of the special ones, I disagree with that.”
Ms. Nelson, 61, who describes herself as a centrist Democrat, also dismisses the claim that people cannot afford to pay more taxes.
“Anyone who can come into a coffee shop and buy coffee is capable of paying more,” she said. “If someone’s life can be granted, in terms of adequate health care, if that means I give up five cups of coffee a month, that is a small price to pay.”
Gordy Peterson, 62, who has used a wheelchair for 30 years since a construction accident, has reluctantly reached a similar conclusion.
“I’m a conservative,” he said by way of introducing himself. He built his own house before his injury and paid for it in cash. He still thinks the government should operate that way. He never intended to depend on federal aid and said he sometimes felt guilty about it.
But for the last three decades, he has received a regular check from the Social Security disability insurance program, and Medicare has helped to pay his medical bills.
“Here I’m getting money, and everybody is struggling,” he said. “Even though it ain’t no cakewalk for me.”
Mr. Peterson used a workers’ compensation settlement to buy a farm that he managed with his brother-in-law, who is mentally handicapped and also on government disability.
“He was my legs, and we worked it,” Mr. Peterson said.
They grew corn, soybeans and rye, and even kept steers for a while. In good years they earned enough to live on. In bad years they lived on the government’s checks. Life would have been very difficult without them, he said.
Mr. Peterson, an easygoing man who looks down when he thinks and smiles sheepishly when he offers an opinion, looked down after completing the story of his own dependence on the safety net.
“It’s hard to beat up on the government when they’ve been so good to you,” he finally said. “I’ve never really thought about it, I guess.”
Lately, the government has been very good, indeed. The county, with federal financing, bought a corner of Mr. Peterson’s farm to build a new interchange for Interstate 35. He used the money to open a gas station at the edge of the farm in 2008 to serve the traffic that rolls off the new ramp. The business is prospering, and he no longer worries that he will need to depend on Social Security.
“But you can’t take that away,” he said. “My own sister has only Social Security. That’s all. That’s all she’s going to have. And if you take that away from her, Christ, she’d be a street person. I don’t think we can cut them off on that.”
How about higher taxes?
Maybe a little higher, he said. Maybe.
“I’m glad I’m not a politician,” he said. “We’re all going to complain no matter what they do. Nobody wants to put a noose around their own neck.”
Something strange is going on in the world today. The global financial crisis that began in 2008 and the ongoing crisis of the euro are both products of the model of lightly regulated financial capitalism that emerged over the past three decades. Yet despite widespread anger at Wall Street bailouts, there has been no great upsurge of left-wing American populism in response. It is conceivable that the Occupy Wall Street movement will gain traction, but the most dynamic recent populist movement to date has been the right-wing Tea Party, whose main target is the regulatory state that seeks to protect ordinary people from financial speculators. Something similar is true in Europe as well, where the left is anemic and right-wing populist parties are on the move.
There are several reasons for this lack of left-wing mobilization, but chief among them is a failure in the realm of ideas. For the past generation, the ideological high ground on economic issues has been held by a libertarian right. The left has not been able to make a plausible case for an agenda other than a return to an unaffordable form of old-fashioned social democracy. This absence of a plausible progressive counternarrative is unhealthy, because competition is good for intellectual debate just as it is for economic activity. And serious intellectual debate is urgently needed, since the current form of globalized capitalism is eroding the middle-class social base on which liberal democracy rests.
THE DEMOCRATIC WAVE
Social forces and conditions do not simply “determine” ideologies, as Karl Marx once maintained, but ideas do not become powerful unless they speak to the concerns of large numbers of ordinary people. Liberal democracy is the default ideology around much of the world today in part because it responds to and is facilitated by certain socioeconomic structures. Changes in those structures may have ideological consequences, just as ideological changes may have socioeconomic consequences.
Almost all the powerful ideas that shaped human societies up until the past 300 years were religious in nature, with the important exception of Confucianism in China. The first major secular ideology to have a lasting worldwide effect was liberalism, a doctrine associated with the rise of first a commercial and then an industrial middle class in certain parts of Europe in the seventeenth century. (By “middle class,” I mean people who are neither at the top nor at the bottom of their societies in terms of income, who have received at least a secondary education, and who own either real property, durable goods, or their own businesses.)
As enunciated by classic thinkers such as Locke, Montesquieu, and Mill, liberalism holds that the legitimacy of state authority derives from the state’s ability to protect the individual rights of its citizens and that state power needs to be limited by the adherence to law. One of the fundamental rights to be protected is that of private property; England’s Glorious Revolution of 1688–89 was critical to the development of modern liberalism because it first established the constitutional principle that the state could not legitimately tax its citizens without their consent.
At first, liberalism did not necessarily imply democracy. The Whigs who supported the constitutional settlement of 1689 tended to be the wealthiest property owners in England; the parliament of that period represented less than ten percent of the whole population. Many classic liberals, including Mill, were highly skeptical of the virtues of democracy: they believed that responsible political participation required education and a stake in society -- that is, property ownership. Up through the end of the nineteenth century, the franchise was limited by property and educational requirements in virtually all parts of Europe. Andrew Jackson’s election as U.S. president in 1828 and his subsequent abolition of property requirements for voting, at least for white males, thus marked an important early victory for a more robust democratic principle.
In Europe, the exclusion of the vast majority of the population from political power and the rise of an industrial working class paved the way for Marxism. The Communist Manifesto was published in 1848, the same year that revolutions spread to all the major European countries save the United Kingdom. And so began a century of competition for the leadership of the democratic movement between communists, who were willing to jettison procedural democracy (multiparty elections) in favor of what they believed was substantive democracy (economic redistribution), and liberal democrats, who believed in expanding political participation while maintaining a rule of law protecting individual rights, including property rights.
At stake was the allegiance of the new industrial working class. Early Marxists believed they would win by sheer force of numbers: as the franchise was expanded in the late nineteenth century, parties such as the United Kingdom’s Labour and Germany’s Social Democrats grew by leaps and bounds and threatened the hegemony of both conservatives and traditional liberals. The rise of the working class was fiercely resisted, often by nondemocratic means; the communists and many socialists, in turn, abandoned formal democracy in favor of a direct seizure of power.
Throughout the first half of the twentieth century, there was a strong consensus on the progressive left that some form of socialism -- government control of the commanding heights of the economy in order to ensure an egalitarian distribution of wealth -- was unavoidable for all advanced countries. Even a conservative economist such as Joseph Schumpeter could write in his 1942 book, Capitalism, Socialism, and Democracy, that socialism would emerge victorious because capitalist society was culturally self-undermining. Socialism was believed to represent the will and interests of the vast majority of people in modern societies.
Yet even as the great ideological conflicts of the twentieth century played themselves out on a political and military level, critical changes were happening on a social level that undermined the Marxist scenario. First, the real living standards of the industrial working class kept rising, to the point where many workers or their children were able to join the middle class. Second, the relative size of the working class stopped growing and actually began to decline, particularly in the second half of the twentieth century, when services began to displace manufacturing in what were labeled “postindustrial” economies. Finally, a new group of poor or disadvantaged people emerged below the industrial working class -- a heterogeneous mixture of racial and ethnic minorities, recent immigrants, and socially excluded groups, such as women, gays, and the disabled. As a result of these changes, in most industrialized societies, the old working class has become just another domestic interest group, one using the political power of trade unions to protect the hard-won gains of an earlier era.
Economic class, moreover, turned out not to be a great banner under which to mobilize populations in advanced industrial countries for political action. The Second International got a rude wake-up call in 1914, when the working classes of Europe abandoned calls for class warfare and lined up behind conservative leaders preaching nationalist slogans, a pattern that persists to the present day. Many Marxists tried to explain this, according to the scholar Ernest Gellner, by what he dubbed the “wrong address theory”:
Just as extreme Shi’ite Muslims hold that Archangel Gabriel made a mistake, delivering the Message to Mohamed when it was intended for Ali, so Marxists basically like to think that the spirit of history or human consciousness made a terrible boob. The awakening message was intended for classes, but by some terrible postal error was delivered to nations.
Gellner went on to argue that religion serves a function similar to nationalism in the contemporary Middle East: it mobilizes people effectively because it has a spiritual and emotional content that class consciousness does not. Just as European nationalism was driven by the shift of Europeans from the countryside to cities in the late nineteenth century, so, too, Islamism is a reaction to the urbanization and displacement taking place in contemporary Middle Eastern societies. Marx’s letter will never be delivered to the address marked “class.”
Marx believed that the middle class, or at least the capital-owning slice of it that he called the bourgeoisie, would always remain a small and privileged minority in modern societies. What happened instead was that the bourgeoisie and the middle class more generally ended up constituting the vast majority of the populations of most advanced countries, posing problems for socialism. From the days of Aristotle, thinkers have believed that stable democracy rests on a broad middle class and that societies with extremes of wealth and poverty are susceptible either to oligarchic domination or populist revolution. When much of the developed world succeeded in creating middle-class societies, the appeal of Marxism vanished. The only places where leftist radicalism persists as a powerful force are in highly unequal areas of the world, such as parts of Latin America, Nepal, and the impoverished regions of eastern India.
Lately inequality has re-entered the national conversation. Occupy Wall Street gave the issue visibility, while the Congressional Budget Office supplied hard data on the widening income gap. And the myth of a classless society has been exposed: Among rich countries, America stands out as the place where economic and social status is most likely to be inherited.
So you knew what was going to happen next. Suddenly, conservatives are telling us that it’s not really about money; it’s about morals. Never mind wage stagnation and all that, the real problem is the collapse of working-class family values, which is somehow the fault of liberals.
But is it really all about morals? No, it’s mainly about money.
To be fair, the new book at the heart of the conservative pushback, Charles Murray’s “Coming Apart: The State of White America, 1960-2010,” does highlight some striking trends. Among white Americans with a high school education or less, marriage rates and male labor force participation are down, while births out of wedlock are up. Clearly, white working-class society has changed in ways that don’t sound good.
But the first question one should ask is: Are things really that bad on the values front?
Mr. Murray and other conservatives often seem to assume that the decline of the traditional family has terrible implications for society as a whole. This is, of course, a longstanding position. Reading Mr. Murray, I found myself thinking about an earlier diatribe, Gertrude Himmelfarb’s 1996 book, “The De-Moralization of Society: From Victorian Virtues to Modern Values,” which covered much of the same ground, claimed that our society was unraveling and predicted further unraveling as the Victorian virtues continued to erode.
Yet the truth is that some indicators of social dysfunction have improved dramatically even as traditional families continue to lose ground. As far as I can tell, Mr. Murray never mentions either the plunge in teenage pregnancies among all racial groups since 1990 or the 60 percent decline in violent crime since the mid-90s. Could it be that traditional families aren’t as crucial to social cohesion as advertised?
Still, something is clearly happening to the traditional working-class family. The question is what. And it is, frankly, amazing how quickly and blithely conservatives dismiss the seemingly obvious answer: A drastic reduction in the work opportunities available to less-educated men.
Most of the numbers you see about income trends in America focus on households rather than individuals, which makes sense for some purposes. But when you see a modest rise in incomes for the lower tiers of the income distribution, you have to realize that all — yes, all — of this rise comes from the women, both because more women are in the paid labor force and because women’s wages aren’t as much below male wages as they used to be.
For lower-education working men, however, it has been all negative. Adjusted for inflation, entry-level wages of male high school graduates have fallen 23 percent since 1973. Meanwhile, employment benefits have collapsed. In 1980, 65 percent of recent high-school graduates working in the private sector had health benefits, but, by 2009, that was down to 29 percent.
So we have become a society in which less-educated men have great difficulty finding jobs with decent wages and good benefits. Yet somehow we’re supposed to be surprised that such men have become less likely to participate in the work force or get married, and conclude that there must have been some mysterious moral collapse caused by snooty liberals. And Mr. Murray also tells us that working-class marriages, when they do happen, have become less happy; strange to say, money problems will do that.
One more thought: The real winner in this controversy is the distinguished sociologist William Julius Wilson.
Back in 1996, the same year Ms. Himmelfarb was lamenting our moral collapse, Mr. Wilson published “When Work Disappears: The New World of the Urban Poor,” in which he argued that much of the social disruption among African-Americans popularly attributed to collapsing values was actually caused by a lack of blue-collar jobs in urban areas. If he was right, you would expect something similar to happen if another social group — say, working-class whites — experienced a comparable loss of economic opportunity. And so it has.
So we should reject the attempt to divert the national conversation away from soaring inequality toward the alleged moral failings of those Americans being left behind. Traditional values aren’t as crucial as social conservatives would have you believe — and, in any case, the social changes taking place in America’s working class are overwhelmingly the consequence of sharply rising inequality, not its cause.
BRUSSELS — At the same meeting where Greece’s latest economic plans were greeted with blunt skepticism, a television microphone accidentally recorded a very different exchange between a minister from Germany and a colleague from another bailout recipient, Portugal.
If Lisbon, which faces an austerity-driven economic slump similar to Greece’s, needed to ease its bailout terms, “we would be ready to do it,” said the German finance minister, Wolfgang Schäuble.
“That’s much appreciated,” replied his counterpart from Portugal, Vitor Gaspar.
The conversation, broadcast on the private Portuguese network TVI, illustrated a stark fact as the euro zone’s debt crisis enters its third year: While Portugal, Ireland and other countries may be struggling, Greece has found itself in a category of its own — a nation the rest of Europe no longer trusts.
The gathering Thursday night of finance ministers from the 17-nation euro zone, together with leaders of the European Central Bank and the International Monetary Fund, was supposed to bless a much-delayed agreement among Greek politicians on austerity measures required to win a new bailout of €130 billion, or $171 billion.
Instead, the ministers made it plain that they did not believe the figures, saying that Greece needed to find €325 million extra in savings before the bailout was signed off on, hopefully next Wednesday.
The Greek Parliament and main political parties will have to endorse the austerity measures. And if Greece gets its new bailout, the money may be paid into a special account that would cover debt repayments before any money was released to general government spending.
According to some unofficial estimates, up to 70 percent of Greece’s bailout money might be spent this way.
The rebuff from euro zone ministers was greeted with violence on the streets of Athens during a general strike Friday, while five politicians resigned, plunging the government into a new crisis before the pivotal vote in Parliament on Sunday.
After a period of relative calm, financial markets and the euro fell. The Euro Stoxx 50 index, a barometer of euro zone blue-chips, fell 1.65 percent, while the FTSE 100 index in London fell 0.73 percent. In New York, the Standard & Poor’s 500 index was down 0.92 percent by midafternoon. The euro declined to $1.3175 from $1.3286 late Thursday in New York.
The failure to reach a final deal and the disorder in Athens have “been an excuse to deflate some of the Greek-related optimism in the market,” Gary Baker, an equity strategist at Bank of America Securities Merrill Lynch in London, said, though he cautioned against reading too much into the market moves.
It is not in the interest of the euro zone or of Greece to see the country default, and all parties are hoping that the Greek Parliament will approve the deal on Sunday.
Even if that happens, there is work to be done. A deal with the European Central Bank to help ease Greece’s debt burden by giving up profits on its holdings of Greek bonds has not yet been struck. In Berlin, Mr. Schäuble, briefing lawmakers, said that current plans would leave Greece’s debt as high as 136 percent of gross domestic product by 2020, as opposed to 120 percent foreseen in the country’s second bailout, Bloomberg News reported.
Behind closed doors in Brussels the lack of trust was evident, and it is this that may have put the entire bailout at risk.
In one of several tough exchanges, the Greek finance minister, Evangelos Venizelos, was taken to task by Mr. Schäuble for having failed to begin the required negotiations with labor unions to enable the minimum wage to be reduced. Mr. Venizelos had been reluctant to do that before knowing the bailout would be approved; his European partners saw this as time-wasting, according to one official briefed on the talks but not authorized to describe confidential discussions.
Ministers vented their frustration in public as well. “We cannot live with a system where promises are made and repeated and repeated and implementation measures are from time to time too weak,” said Jean-Claude Juncker of Luxembourg, who chairs meetings of the 17 euro zone finance ministers.
“The Netherlands and some other countries have outlined a lot of demands which should be clarified,” added Jan Kees de Jager, the Dutch finance minister. “It is the implementation that we have seen lacking, so we did ask a series of critical questions.”
Worries that the Greek public administration is both bloated and chronically weak appear to have been borne out. The process of selling off state assets has been so slow that Greece is to be given longer to raise the €50 billion it once said it would use to pay down its debt. Now the plan is to produce €19 billion from initial state asset sales by the deadline of 2015, with the remaining €31 billion to be produced later.
On Thursday the country’s deputy finance minister, Pantelis Economou, said that the state had issued penalties worth €8.6 billion for tax evasion and other offenses during the past two years. But according to Kathimerini, a daily newspaper, only 1 percent of the €8.6 billion has been collected, meaning that less than €100 million made it to public coffers.
For their part, Greek officials believe they have been placed in an impossible position by the so-called troika of international lenders — the European Commission, European Central Bank and International Monetary Fund — that is administering the bailouts.
Demands keep changing and the program is a “moving target” as Greece is pushed deeper into recession, said one European official who, like many involved in the talks, was not authorized to speak publicly.
With the plans reviewed every three months, and with the economic outlook deteriorating steadily, Greece was being asked for ever tougher measures to hit its targets. And elected politicians were finding it an impossible sell.
“How much can you do in three months?” asked one Greek official.
Failure by the international community to confront the unsustainability of Greece’s debt burden has led to a somewhat chaotic bailout process. For example, private investors in Greek bonds were initially told they would be repaid in full, then asked to accept losses of 21 percent, which subsequently rose to 50 percent and may now amount to 70 percent.
In Italy, the arrival of a technocratic prime minister, Mario Monti, has helped restore confidence in the country’s ability to pull itself out of its crisis. But a change at the top has failed to work the same magic in Greece, where Lucas D. Papademos, a former vice president of the European Central Bank, is a caretaker leader.
“Monti is trusted by European partners,” said one European minister. “Papademos has a much more difficult situation. In Italy the situation is not good, but it is more manageable. In Greece you see how difficult it is just to bring three political parties together to agree measures.”
While Portugal’s economic predicament is close to that of Greece, one senior E.U. official argued that the Portuguese, at least, had a functioning administration.
“It is increasingly understood that Greece is a very unique case,” added a European diplomat. “It is not holding up to its commitments. In Ireland, Portugal, Spain and Italy things are not rosy, but they are in a different class.”
It has been said there is no high ground in American politics since any politician who claims it is likely to be gunned down by those firing from the trenches. That’s how the Obama team justifies its decision to endorse a super PAC that can raise and spend unlimited sums for his campaign.
Baloney. Good ends don’t justify corrupt means.
I understand the White House’s concerns. Obama is a proven fundraiser – he cobbled together an unprecedented $745 million for the 2008 election and has already raised $224 million for this one. But his aides figure Romney can raise almost as much, and they fear an additional $500 million or more will be funneled to Romney by a relative handful of rich individuals and corporations through right-wing super PACS like “American Crossroads.”
The White House was surprised that super PACs outspent the GOP candidates themselves in several of the early primary contests, and noted how easily Romney’s super PAC delivered Florida to him and pushed Newt Gingrich from first-place to fourth-place in Iowa.
Romney’s friends on Wall Street and in the executive suites of the nation’s biggest corporations have the deepest pockets in America. His super PAC got $18 million from just 200 donors in the second half of last year, including million-dollar checks from hedge-fund moguls, industrialists and bankers.
How many billionaires does it take to buy a presidential election? “With so much at stake” wrote Obama campaign manager Jim Messina on the Obama campaign’s blog, Obama couldn’t “unilaterally disarm.”
But would refusing to be corrupted this way really amount to unilateral disarmament? To the contrary, I think it would have given the President a rallying cry that nearly all Americans would get behind: “More of the nation’s wealth and political power is now in the hands of fewer people and large corporations than since the era of the robber barons of the Gilded Age. I will not allow our democracy to be corrupted by this! I will fight to take back our government!”
Small donations would have flooded the Obama campaign, overwhelming Romney’s billionaire super PACs. The people would have been given a chance to be heard.
The sad truth is Obama has never really occupied the high ground on campaign finance. He refused public financing in 2008. Once president, he didn’t go to bat for a system of public financing that would have made it possible for candidates to raise enough money from small donors and matching public funds they wouldn’t need to rely on a few billionaires pumping unlimited sums into super PACS. He hasn’t even fought for public disclosure of super PAC donations.
And now he’s made a total mockery of the Court’s naïve belief that super PACs would remain separate from individual campaigns, by officially endorsing his own super PAC and allowing campaign manager Jim Messina and even cabinet officers to speak at his super PAC events. Obama will not appear at such events but he, Michelle Obama, and Vice President Joe Biden will encourage support of the Obama super PAC.
One Obama adviser says Obama’s decision to openly endorse his super PAC has had an immediate effect. “Our donors get it,” the official said, adding that they now want to “go fight the other side.”
Exactly. So now a relative handful of super-rich Democrats want fight a relative handful of super-rich Republicans. And we call this a democracy.
January’s increase in hiring is good news, but it masks a bigger and more disturbing story – the continuing downward mobility of the American middle class.
Most of the new jobs being created are in the lower-wage sectors of the economy – hospital orderlies and nursing aides, secretaries and temporary workers, retail and restaurant. Meanwhile, millions of Americans remain working only because they’ve agreed to cuts in wages and benefits. Others are settling for jobs that pay less than the jobs they’ve lost. Entry-level manufacturing jobs are paying half what entry-level manufacturing jobs paid six years ago.
Other people are falling out of the middle class because they’ve lost their jobs, and many have also lost their homes. Almost one in three families with a mortgage is now underwater, holding their breath against imminent foreclosure.
The percent of Americans in poverty is its highest in two decades, and more of us are impoverished than at any time in the last fifty years. A recent analysis of federal data by the New York Times showed the number of children receiving subsidized lunches rose to 21 million in the last school year, up from 18 million in 2006-2007. Nearly a dozen states experienced increases of 25 percent or more. Under federal rules, children from famlies with incomes up to 130 percent of the poverty line, $29,055 for a family of four, are eligible.
Experts say the bad economy is the main factor driving the increase. According to an analysis of census data by the Center for Labor Market Studies at Northeastern University, 37 percent of young families with children were in poverty in 2010. It’s likely that rate has worsened.
Mitt Romney says he’s not concerned about the very poor because they have safety nets to protect them. He says he’s concerned about the middle class. Romney doesn’t seem to realize how much of the middle class is becoming poor.
But Romney doesn’t like safety nets to begin with. He’s been accusing President Obama of inviting a culture of dependency. “Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society,” he says over and over, arguing that our economic problems stem from a sharp rise in dependency. Get rid of these benefits and people will work harder.
He and other Republicans point to government data showing that direct payments to individuals have shot up by almost $600 billion since 2009,a 32 percent increase. And 49 percent of Americans now live in homes where at least one person is collecting a federal benefit such as food stamps or unemployment insurance, up from 44 percent in 2008.
But Romney and other Republicans have cause and effect backwards. The reason for the rise in benefits is Americans got clobbered in 2008 and many are still sinking. They and their families need whatever help they can get.
The real scandal, as I’ve said before, is America’s safety nets are too small and shot through with holes. Only 40 percent of the unemployed qualify for unemployment benefits, for example, because they weren’t working full time or long enough on a single job before they were let go. The unemployment system doesn’t recognize how many Americans work part time on several jobs, and move from job to job.
And even those who are lucky enough to be collecting employment benefits are about to lose them. A record and growing percent of the unemployed have been jobless for six months or more, and Republicans in Congress are unwilling to extend their benefits.
Romney’s budget proposals would shred safety nets even more. According to an analysis by the Center on Budget and Policy Priorities, his plan would throw 10 million low-income people off the benefit rolls for food stamps or cut benefits by thousands of dollars a year, or some combination. “These cuts would primarily affect very low-income families with children, seniors and people with disabilities,” the Center concludes.
At the same time, Romney’s tax plan would boost the incomes of America’s most wealthy citizens, who are already taking home an almost unprecedented share of that nation’s total income. Romney wants to permanently extend George W. Bush’s tax cuts, reduce corporate income tax rates, and eliminate the estate tax. These tax cuts would increase the incomes of people earning more than a million dollars a year by an average of $295,874 annually, according to the nonpartisan Tax Policy Center.
By reducing government revenues, Romney’s tax cuts would squeeze programs for the poor even further. Extending the Bush tax cuts will add $1.2 trillion to the nation’s budget deficit in just two years. That’s the same as the amount that’s supposed to be saved by automatic spending cuts scheduled to start next year – which, by the way, will hit the poor especially hard.
Oh, I almost forgot. Romney and other Republicans also want to repeal of Obama’s health care law, thereby leaving 30 million Americans without health insurance.
The downward mobility of America’s middle class is the big news, but the GOP apparently hasn’t heard about it. Maybe it’s too hard to hear about from that far away – and Mitt Romney is certainly far away. His unearned income last year was more than $20 million. That’s about as much as the combined earnings of a thousand American families at or just above the poverty line.
Mitt Romney's well rehearsed bit - "I'm not concerned about the very poor. We have a safety net there. If it needs repair, I'll fix it. I'm not concerned about the very rich, they're doing just fine. I'm concerned about the very heart of America, the 90 percent, 95 percent of Americans who right now are struggling." Romney managed to offend almost everyone with his comment about the poor when what he was really trying to do was to pander to the middle class. Since the next election is shaping up to be a fight for the middle class on the part of President Obama, Mitt was just trying to take some of the wind out of his sails by saying in effect 'I'm for the middle class too." Instead all he managed to accomplish was to sound like he had a lack of concern for the poor. The right didn't like it, not because they have any regard for the poor, but because Romney was so inept in his pandering to the middle class. The right prides itself on being first rate panderers. They don't want anybody representing them that can't do this well. Romney gets a failing grade for pandering.
Also when it comes to bald faced lying Romney doesn't rate very well either. He actually is too honest to be a "conservative." To be a true conservative you have to come up with the most outrageous lies and say them with a straight face and a lot of passion. Romney fails on this score too. And when it comes to hatemongering, Romney is similarly ineffective. Red meat conservatives need to work the crowd up into a frenzy of hate for that socialist who takes your rights and freedoms away, namely, Obama. Romney actually was acknowledging the legitmacy of the safety net for the poor - "If [the safety net] is broke, I'll fix it." No! What right wing conservatives wanted to hear is "we've got to get these damn people off of welfare and get rid of the nanny state." Fix the safety net! Blarney! Damned if they want to fix the safety net. We've got to get these lazy, good-for-nothing welfare queens used to the fact that with a Republican in the White House they won't be sucking at the government teat any longer. It takes a really inept politician to piss off people on behalf of the poor (most of which probably don't give a damn about the poor either) while pretending at the same time to be in favor of helping them while at the same time pandering ineptly to the middle class.
Mitt you've got problems! You managed to have an income of $21 million last year while not doing a lick of work on which you paid less than 15% in income tax (practically nothing in social security and medicare tax). Bain Capital has been the bane of existence for all the middle class workers it has been instrumental in laying off. How are you going to square that circle? Sure you made a few dollars from making speeches; I think it was somewhere north of $300,000? The middle class that you were ineptly trying to pander to would love to have the income you made just from your speeches; forget the $21 million from investments. As far as the right wing is concerned, this guy is a loser: no passion, too honest, boring, a lousy hate mongerer, inept panderer and a disaster as a bald faced liar. These are all talents that most right wing politicians have honed and polished to a fine art. They are the mother's milk of right wing politicking. No wonder Gingrich and Santorum are licking their chops!
And then there's the foreclosure crisis about which Romney has said, "Don't try to stop the foreclosure process. Let it run its course and hit bottom." Once it hits bottom, then "investors will swoop in" and buy up the foreclosures and the market will return to normal. Sure, just what we need: people forced out of their homes while investors reap a bonanza. Again Romney is being too honest about what he actually believes. He gets a D in being hypocritical, the hallmark of every successful right wing politician. You have to rev up the crowd about Obama's purported socialist tendencies and then lay it on them that he shouldn't be interfering in the free market without mentioning "run its course" and "investors swooping in." What kind of lame comments are those. Romney is clearly out of touch with the mainstream of right wing rhetoric. He is not giving the crowd the red meat they deserve and want to hear.
And he managed to be for Obamacare, which was modeled on Romney's Massachusetts Romneycare, before he was against it. He better hope that his superpacs will come through with zillions of dollars in negative attack ads against Obama to make up for that flip flop. As for the car industry, Romney maintains that Obama should have just let it fail. Again the government was fooling around in the free market. The fact that Obama saved millions of jobs and that now GM has rebouded to being number one in the world again is lost on him. Only the fact that Obama is a socialist for saving the car industry makes any sense. Let's stand on principle here.
All in all Romney is an incompetent politician: a boring technocrat who is an inept panderer, a mediocre bald faced liar, a lukewarm hypocrite and an unsurefooted hate mongerer. The more he tries to be all these things which don't come naturally to him, the worse he looks and in politics looks are everything. You can't be a successful right wing politician without being first class in each of these categories.
There is much talk about inequality lately. The top 1% take home 24% of the nation's income. In 1976 they took home just 9%. Wealth inequality is even worse. The top 1% of Americans own 40% of the nation's wealth. The bottom 80% own 7%. The concentration of wealth in the top 1% bodes ill for democracy. An aristocracy is in the process of being created that is controlling the levers of government by means of money in the form of campaign contributions and lobbying. Thus is democracy thwarted.
It shouldn't have to be this way. As technological progress has continued, wealth is being created at a rapid pace. If this wealth were evenly distributed, the average person should only be working 10 or 20 hours per week and have twice the income that he or she now receives. Think about it. Lesson 1 in "Wealth Creation for Dummies" is that as you become more wealthy you should be able to work fewer hours. A modest amount of wealth insures that a person doesn't have to work at all. A wealthy person receives most of their income from the return on their assets - which is another name for wealth - in the form of interest, dividends, rents or other forms of investments such as factories which are mainly capital investments in the form of robots rather than investments in human capital. They receive so-called "unearned income" while people whose only income is from their labor receive "earned income." Being wealthy to the point that you don't have to work does not mean that you have all the commonly imagined accoutrements of wealth - big houses, fancy cars, expensive jewelry etc. You can be wealthy to the point of not having to work and yet not be able to afford more than a modest lifestyle. At that point you have true freedom as you have complete control over your time and energy and are not accountable to anyone.
If wealth were evenly distributed and since most products are manufactured by automated processes requiring little labor, people could have most of what they consume while not having to work much. Certainly with the robotization of the work force and the even distribution of wealth, consumable products should cost virtually nothing. However, in the real world products do cost a great deal and the profits from the sale of those products go mainly to the upper 1% because they own most of the wealth. They own the factories that produce the products; they own the robots. They own the physical capital and supply chains and retail outlets. So rather than the wealth that is created by the robots being evenly distributed, it accumulates more and more in the hands of fewer and fewer people who end up with far more wealth than they really need to live even a high end lifestyle with multiple homes, cars yachts, airplanes, art, jewelry etc. They spend their extra money on lobbying and campaign contributions which gives them control over what has become an ersatz democracy.
Lesson 2 in "Wealth Creation for Dummies" is that as soon as possible you must get yourself in the position of not living paycheck to paycheck. This means that even if you have a good job, you can't be spending your whole paycheck every month shortly after you receive it. Because what happens is that as soon as some unexpected expense pops up, you go into debt and your financial situation worsens because now in addition to your other expenses you have to pay interest on that debt - to some wealthy person for whom it represents unearned income. You need a buffer whether in the form of a savings account or in the form of a Home Equity Line of Credit (HELOC) so that you can manage the ups and downs of cash flow without paying exhorbitant amounts of interest. You also need a second job, the proceeds of which go right into savings and creating wealth. A good way to do this is to buy fixer-uppers, fix them up and rent them out. At this point in time when interest rates and property values are extremely low, it's the ideal time to follow this strategy. As soon as the rent that can be charged exceeds the mortgage to be paid, you have a source of wealth that is creating unearned income and that will go on creating additional income, rent being one form of the phenomenon that wealth creates income, ad infinitum. These assets, unlike a pension, can be passed down from generation to generation.
It takes a surprisingly small amount of wealth to generate an income sufficient to live on providing you don't need to live the lifestyle of the rich and famous. For example, just three mortgage free rentals renting at approximately $1500. per month per property is enough for a small family to live on as long as you live modestly. And just because you collect unearned income every month doesn't mean that you can't continue to work at something you really love doing. Lesson 3 in "Wealth Creation for Dummies": Work as a self-employed person is far more rewarding then work as an employee. When you work for yourself, you aren't subject to being laid off, fired or having your job outsourced. You don't have to take a subservient position relative to an employer or potential employer. You don't have to go begging in the job market for a job. You have control over your time, work the hours you choose and vacation when you want not when your boss tells you to. You don't have to swallow hard and say nothing if your supervisor insults you. You are your own boss. This is what freedom is all about. Freedom is much more than just the freedom to make money which is what the right wing would have you believe. Wealthy people no matter the amount of their wealth are self-employed by definition because they are not dependent on any job or any employer. In today's world of employee uncertainty, this kind of independence is priceless.
But the real world situation is entirely different than the scenarios I've painted in "Wealth Creation for Dummies." Most people live paycheck to paycheck, are entirely dependent on someone giving them a job and are not in a position to contradict their boss. Meanwhile, wealth and the income that wealth produces as a return on assets goes to fewer and fewer people, exacerbating income and wealth inequality. Lesson 5 in "Wealth Creation for Dummies' is to change your ideas about what money is used for. Money shouldn't just be used for consumption. You don't need all the products that TV advertising is urging you to buy. You must develop sales resistance and use your money insofar as is possible for wealth creation. Isn't the goal to get in the position of not having to work? The typical middle class position on this is that you should work for a set period say 30 years as an employee at a job and then collect a pension for the rest of your life. This process does not really create wealth for you; it creates wealth for your employer because the assets the return on which goes to pay your pension are owned by your employer - not you. With a pension once you die, it goes away. If you own the wealth that your pension is based on instead of your employer owning it, you can pass it on to your heirs (Lesson 6).
Second, employers aren't providing set pensions any more - only 401ks which are defined contribution instead of defined benefit plans. This means that they may be totally worthless which many of them have turned out to be when you reach retirement age. Therefore, you have to create wealth for yourself (Lesson 7) instead of counting on your employer to do it for you. Thirdly, 30 year careers are few and far between any more. The shift from defined benefit pensions to 401ks really makes a sham and a mockery out of the traditional middle class aspiration of a college degree and a secure job with a secure retirement. There just ain't no such thing any more. Intead of wealth creation most college students are creating debt in the form of student loans which will follow them the rest of their lives. Therefore, you have to take wealth creation into your own hands and not expect some employer to allow you to live paycheck to paycheck. Now should you expect a college degree to in and of itself create wealth for you? A college degree only gives you a ticket of admission to the corporate world in the form of an employeehood. In this form you are likely to be laid off, outsourced or downsized. You are much better off starting to create wealth right out of high school instead of creating debt which is what most college students are doing. As a self-employed person you don't need a college degree and there are no roads to the creation of wealth that are closed to you. Just ask Bill Gates, Steve Jobs, Michael Dell or Larry Ellison - all college dropouts and high tech billionaires.
If you create wealth for yourself instead of relying on a pension you may be able to retire in less than 30 years. There's no law that determines when you should have to or not have to retire. If you are self-employed you can work as long as you want to. You don't have to retire at 65 if you love your work.
Now the concentration of income in the upper 1% which is a consequence of the concentration of wealth in the upper 1% leads to its own logical contradiction which suggests that this wealth maldistribution is not inevitable. Consider the largest concentration of wealth in the US - the Walton family based on the Wal-Mart chain of stores. But what does Wal-Mart really do? They amalgamate products manufactured in China, arrange them on store shelves and hire a few cashiers to collect money from consumers. It's not rocket science. The same applies to Home Depot, Best Buy, Costco, Target, Loew's and any other large nation wide retail chain. They provide nothing of value but they have concentrated wealth in fewer and fewer hands as they've replaced Mom and Pop operations throughout the country. This begs the question why shouldn't these retail operations which just assemble products made in China, arrange them on store shelves and hire check out people (which are increasingly being replaced with automated check out stations) be cooperatively owned with the rewards of ownership (shares of the wealth) being more evenly distributed among larger and larger numbers of people? It should be a no brainer because nothing these stores are doing requires a large amount of brain power to undertake.
Part of the answer is that the person or persons who started these retail stores were ambitious entrepreneurs who worked long hours to get their operations going. The average person does not have the time or energy (not to mention the capital) to do this or to attract a large number of people to get a cooperative venture going. In other words how do you set something like this up if not for the ambitions of the individual entrepreneur? Here's one way: a group of citizens could petition local government to provide startup money for such a venture. After all local government consists of a bunch of local citizens. If there was enough of a collective will to set up a co-op retail merchandising operation, it could be done using local government to provide capital and manpower and organization. Once in operation a co-op such as this could replace Target, Best Buy, Home Depot, Costco etc and profits could be plowed back into the local population. In addition an operation such as this could provide employment for the local population and a share of the wealth so created. In banking this is already being done in North Dakota which has a publicly owned state wide bank. The profits are owned by the people of North Dakota.
This is exactly what is needed to distribute wealth more evenly and to distribute the demands for necessary labor more evenly. Instead of fewer and fewer people becoming fabulously wealthy and owning multiple million dollar homes which they don't need, the bulk of the population could be in the position of working fewer and fewer hours taking full advantage of the robotization of the work force and having income based on the wealth so created.
Lesson 7: Wealth produces income; income does not produce wealth if your mindset is to consume up to your income level. Therefore, consume less and instead of saving for your old age, invest to create wealth, but invest in real assets not in phony paper financial assets which can evaporate at a moment's notice.
The most significant aspect of January’s jobs report is political. The fact that America’s labor market continues to improve is good news for the White House. But as a practical matter the improvement is less significant for the American work force.
President Obama’s only chance for rebutting Republican claims that he’s responsible for a bad economy is to point to a positive trend. Voters respond to economic trends as much as they respond to absolute levels of economic activity. Under ordinary circumstances January’s unemployment rate of 8.3 percent would be terrible. But compared to September’s 9.1 percent, it looks quite good. And the trend line – 9 percent in October, 8.6 percent in November, 8.5 percent in December, and now 8.3 percent – is enough to make Democrats gleeful.
But the U.S. labor market is far from healthy. America’s job deficit is still mammoth. Our working-age population has grown by nearly 10 million since the recession officially began in December 2007 but many of these people never entered the workforce. Millions of others are still too discouraged to look for work.
The most direct way of measuring the jobs deficit is to look at the share of the working-age population in jobs. Before the recession, 63.3 percent of working-age Americans had jobs. That employment-to-population ratio reached a low last summer of 58.2 percent. Now it’s 58.5 percent. That’s better than it was, but not by much. The trend line here isn’t quite as encouraging.
Given how many people have lost their jobs and how much larger the total working-age population is now, we’ve got a long road ahead. At January’s rate of job gains – 243,000 – the nation wouldn’t return to full employment for another seven years.
When they’re not blaming Obama for a bad economy, Republicans are decrying the federal budget deficit and demanding more cuts. But America’s jobs deficit continues to be a much larger problem than the budget deficit.
In fact, we can’t possibly achieve the growth needed to reduce the budget deficit as a proportion of the total economy unless far more people are employed. Workers are consumers, and consumer spending is 70 percent of economic activity. And cutting the budget means fewer workers, directly (as government continues to shed workers) and indirectly (as government contractors have to lay off workers) and therefore fewer consumers.
Yet deficit hawks continue to circle. State and local budgets are still being slashed. The federal government is scheduled to begin major spending cuts less than a year from now. Republicans are calling for more cuts in the short term. Austerity economics continues to gain traction.
Meanwhile Congress is debating whether to renew extended unemployment benefits. This should be a no-brainer. The long-term unemployed, who have been jobless for more than six months, comprise a growing share of the unemployed. (In January they rose from 42.5 percent to 42.9 percent).
Republicans say unemployment benefits are prolonging unemployment, that people won’t get jobs if they get unemployment checks from the government. That’s claptrap, especially when there’s only 1 job opening for every 4 people who need a job. Republicans also say we can’t afford to extend jobless benefits. Also untrue. Jobless workers spend whatever money they get, and their spending keeps other people in jobs.
Government should extend unemployment benefits, and not cut spending until the nation’s rate of unemployment is down to 5 percent. Then, and only then, should we move toward budget austerity.
The job situation is better than it was but it’s still awful. The jobs deficit is still our number one economic problem. Forget the budget deficit until we tame it.
With a deadline looming on Monday for state officials to sign onto a landmark multibillion-dollar settlement to address foreclosure abuses, the Obama administration is close to winning support from a crucial state that would significantly expand the breadth of the deal.
The biggest remaining holdout, California, has returned to the negotiating table after a four-month absence, a change of heart that could increase the pot for mortgage relief nationwide to $25 billion from $19 billion.
Another important potential backer, Attorney General Eric T. Schneiderman of New York, has also signaled that he sees progress on provisions that prevented him from supporting it in the past.
The potential support from California and New York comes in exchange for tightening provisions of the settlement to preserve the right to investigate past misdeeds by banks, and stepping up oversight to ensure that the financial institutions live up to the deal and distribute the money to the hardest-hit homeowners.
The settlement would require banks to provide billions of dollars in aid to homeowners who have lost their homes to foreclosure or who are still at risk, after years of failed attempts by the White House and other government officials to alter the behavior of the biggest banks.
The banks — led by the five biggest mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — want to settle an investigation into abuses set off in 2010 by evidence that they foreclosed on borrowers with only a cursory examination of the relevant documents, a practice known as robo-signing. Four million families have lost their homes to foreclosure since the beginning of 2007.
As recently as two weeks ago, with federal officials hoping to complete a deal that President Obama could cite in his State of the Union address, California’s attorney general, Kamala Harris, made it clear she was not on board, terming the plan inadequate. But in the last few days, differences have narrowed in negotiations that one participant described as round the clock, with California officials in direct communication with bank representatives for the first time in months.
“For the past 13 months we have been working for a resolution that brings real relief to the hardest-hit homeowners, is transparent about who benefits, and will ensure accountability,” Ms. Harris said in a statement. “We are closer now than we’ve been before but we’re not there yet.”
The settlement has been hamstrung by one delay after another over the last year. Winning California’s support now would represent a major win for the White House in this election year.
“I am encouraged by the conversations we’ve had with many states in the last few days,” said Shaun Donovan, the secretary of housing and urban development. “This will be one of the most significant steps in the recovery of homeowners, neighborhoods and the broader housing market from the worst collapse since the Depression.”
“My fundamental point is that it’s a first step,” he added, citing measures like Mr. Obama’s proposal last week to lower interest rates for homeowners who are still current on their mortgages.
Officials involved in the negotiations cautioned that broader state support could still be days away. And although the timing of any announcement is subject to last-minute maneuvering, as it stands now the deal would set aside up to $17 billion specifically to pay for principal reductions and other relief for up to one million borrowers who are behind on their payments but owe more than their houses are currently worth. The deal would also provide checks for about $2,000 to roughly 750,000 who lost homes to foreclosure.
Those figures are contingent upon the number who respond to the offer, which is likely to go to people who lost their homes between Jan. 1, 2008, and Dec. 31, 2011. In addition, said Patrick Madigan, the Iowa assistant attorney general, homeowners who participate in the settlement will still have the right to sue the banks for improper behavior in the foreclosure process.
California has been focused on measures that would benefit individual homeowners, while New York has been most interested in preserving its ability to investigate the root causes of the financial collapse.
Another critical issue for California is narrowing the amnesty given to banks because under the state’s False Claims Act, state officials and huge pension funds like Calpers would be able to collect sizable monetary damages from the banks if they could prove mortgages were improperly packaged into securities that later soured. What is more, California’s participation would result in having more money available for many other states, including an estimated $500 million in additional money for Florida.
But the agreement’s terms do not guarantee minimum allocations of mortgage relief by state.
Mr. Donovan added that there had been numerous discussions with individual states that had specific concerns.
California officials and other veterans of the foreclosure crisis are haunted by the failure of past attempts to alter the behavior of the big banks, including a 2008 deal with Countrywide Financial, the subprime giant now owned by Bank of America, and a more recent agreement last April between federal regulators and the biggest mortgage servicers.
The backers of the latest deal insist their plan has more teeth, with a powerful outside monitor to oversee enforcement and heavy monetary penalties if banks fail to live up to commitments. While the past agreement with Countrywide gave banks credit even if their offers to modify the interest rate of the mortgage or write down principal were not accepted by borrowers, this deal counts only what banks actually do for homeowners.
If banks fall short of the multibillion-dollar benchmarks set out for principal reduction and other benefits for homeowners, they will have to pay the difference plus a penalty of up to 40 percent directly to the federal government, according to Mr. Madigan.
The depressed housing market continues to pose a drag on the halting economic recovery. RealtyTrac, which analyzes housing data, predicts two million more foreclosures over the next two years. Some 11 million families owe more on their houses than they are worth.
The settlement, if all states participate, will also include $3 billion to lower the rates of mortgage holders who are current. Banks will get more credit for reducing principal owed and helping families keep their homes, and less for short sales or taking losses on loans that were likely to go bad, like those that were severely delinquent.
(Reuters) - Greece's prime minister scrambled on Sunday to convince lenders and politicians to sign off on a 130 billion euro ($171 billion) rescue, after his finance minister said just hours remain before the euro zone abandons the country to its fate.
A technocrat appointed in November, Prime Minister Lucas Papademos is trying to ensure cash-strapped Greece avoids sinking into a chaotic default when big bond redemptions come due next month.
His finance minister said Athens had only until Sunday night to clinch a second financing package from lenders, after euro zone ministers bluntly told him they were ready to abandon Greece without proof it could push through painful cuts.
"We are on a knife edge," Finance Minister Evangelos Venizelos said on Saturday after what he called a "very difficult" conference call with euro zone counterparts.
"The moment is very crucial."
Papademos's first mission on Sunday is to agree at least a preliminary deal with the "troika" of foreign lenders on reforms included in the bailout, after several days of talks failed to resolve the thorny issue of cutting wages and spending.
Greek officials have emerged increasingly despondent after each round of talks, complaining that the European Central Bank, European Union and International Monetary Fund troika were stubbornly refusing to yield on demands to cut the minimum wage level, axe holiday bonuses and fire public sector workers.
Papademos then faces an even tougher task convincing party chiefs in his own national unity coalition to back the reforms demanded by the lenders at the risk of ruining their chances at national elections expected in April.
He is expected to meet the lenders in the early afternoon before huddling with the socialist, conservative and far-right party leaders in his coalition later in the day.
The conservative New Democracy and the far-right LAOS party in particular have staunchly opposed further wage and spending cuts, arguing that risks pushing Greece into an even deeper recession and imposing more pain on struggling Greeks.
"The truth is that people are tired. They can't put up with more austerity," New Democracy spokesman Yannis Michelakis told the Real News weekly.
LAOS leader George Karatzaferis, meanwhile, rejected what he called the "ultimatum" to strike a deal on Sunday.
Papademos's government implored them to be more cooperative.
"We have carried out superhuman negotiations. And so political leaders must help us now," a senior government official said, adding that the party chiefs were free to join the Sunday talks with lenders if they wanted.
Greece's lenders, who want spending cuts worth about 1 percent of GDP - or just above 2 billion euros - this year, have demanded all political leaders endorse the cuts irrespective of the outcome at the polls.
LIMITED PROGRESS
Athens has wrangled without success for weeks on the bailout package and a debt restructuring plan, putting itself dangerously close to bankruptcy as 14.5 billion euros of debt falls due in mid-March.
The lack of agreement has kept financial markets on tenterhooks as investors fret a messy default could cause shockwaves across the financial system, triggering a credit crunch and sending the global economy back into recession.
Athens says it has notched up some progress by agreeing a plan to recapitalize Greek banks and details on privatization, even if bigger issues on reform remain unresolved. A senior banker told Reuters the recapitalization would occur mainly via common shares with restricted voting rights.
The talks have moved slowly also because the troika wants agreement on all parts of the complex Greek rescue deal - including any contribution by public creditors like the ECB - before approving the bailout, a source close to the talks said.
The rescue package, drawn up in October, also includes a bond swap under which banks and insurers will take real losses of about 70 percent on the Greek debt they hold in a bid to ease Greece's debt burden by 100 billion euros.
But Greece's deteriorating economic prospects and struggles with reform have fed concern that will not be enough to get its debt back to a manageable level and Athens wants public creditors like the ECB to also take part in the bond swap.
Representatives for the banks and insurers were expected to continue talks in Athens over the weekend on the bond swap, which Venizelos has said is now the easier part of the overall process to save Greece.
The debt swap and bailout was designed to bring Greece's debt down to 120 percent of GDP by 2020, but EU sources say euro zone governments may now have to cough up an extra 15 billion euros on top of the 130 billion agreed for that to happen.
There's not much that comes out of conservative mouths these days that I find agreeable. However, Republican Governor of Indiana Mitch Daniels, in his rebuttal to President Obama's State of the Union Speech, mentioned an idea for saving the government money which I heartedly (I won't say whole- heartedly) endorse. He said:
"There is a second item on our national must-do list: we must unite to save the safety net. Medicare and Social Security have served us well, and that must continue. But after half and three quarters of a century respectively, it’s not surprising that they need some repairs. We can preserve them unchanged and untouched for those now in or near retirement, but we must fashion a new, affordable safety net so future Americans are protected, too.
“Decades ago, for instance, we could afford to send millionaires pension checks and pay medical bills for even the wealthiest among us. Now, we can’t, so the dollars we have should be devoted to those who need them most. [ed. note: Amen!]
...
"It’s absolutely so that everyone should contribute to our national recovery, including of course the most affluent among us. ... The better course is to stop sending the wealthy benefits they do not need, and stop providing them so many tax preferences that distort our economy and do little or nothing to foster growth."
First I should add that there is $2.5 trillion in the Social Security Trust Fund so it is not exactly in dire need of reform and also eliminating the cap on income on which people pay Social Security and Medicare taxes will bring in additional money. Medicare, on the other hand, is in dire need of reform, but increasing the amount on which the rich pay into the system in Medicare taxes will help to fix that.
But why do liberals, like Thom Hartmann, disagree with the sentiment "to stop sending the wealthy benefits they do not need"? By Hartmann's convoluted logic we must continue to make payments to the rich just so they won't eliminate payments to the poor and middle class. Thom Hartmann says that this would be the "camel's nose under the tent" for those who want to destroy Social Security and Medicare. His logic is the same as those who say we must give tax breaks to big corporations just so they will continue to provide jobs. Means testing according to him will give Republicans all the leeway they need to eliminate Social Security and Medicare altogether. Bullshit! They don't need the pretext of "means testing" to accomplish that. Hartmann doesn't realize that all social programs in the US are under attack by the right wing and the only thing standing in the way of their entire elimination is the determination of the middle class and Democratic politicians to fight for their continuance and even expansion.
So liberals will resist even a rational idea for reform because it might lead to the complete destruction of these venerable programs? Let me tell you something. Their nose is already under the tent. They don't need this pretext for wanting to destroy Social Security and Medicare. Why they have already boldly proposed privatizing both of these programs. Check out Paul Ryan's plan, "The Path to Prosperity" (for the rich). For liberals or progressives to oppose a rational idea just because it comes from someone that I for one disagree with on everything else he is trying to do, like destroying unions in the state of Indiana, is utter irrational nonsense. It goes under the same principal of not giving subsidies and tax breaks to highly profitable corporations like the oil companies.
President Obama is proposing an alternative minimum tax for millionaires. Why not apply this alternative minimum tax to corporations? Why should Exxon and GE actually get back taxpayer dollars and pay absolutely nothing in? There should be an alternative minimum tax for them too. By the same token senior citizens who have retirement incomes in the $100,000. range or higher don't need another $1000. a month in social security benefits. The money would be better spent by giving it to people whose only retirement income is social security and whose social security income places them below the poverty line. If you are getting $10,000. a month in retirement income, you don't need another $1000. a month in Social Security. It's absolutely ridiculous. By the same token, you don't need Medicare either. You're perfectly capable of buying a gold plated private health insurance policy which the rich would probably do anyway since the finest doctors (unfortunately) do not even accept Medicare patients.
To take a truly conservative approach to government spending is to make everyone (including corporations which according to the Supreme Court are people) pay their fair share and to not receive government benefits which they don't deserve. By definition they don't deserve government benefits if they are fantastically wealthy in the first place although the rich have hired lobbyists whose main goal is to provide them with government benefits at the expense of the poor and middle class. This has turned the goal of reducing government spending on its head. According to them (in defiance of the hypocritical words that come out of their mouths) there is no government spending so large that goes to the wealthy that should be eliminated. Their goal is to shower government benefits on the rich while denying them to the poor. That's why there is so much inequality in the US - because they have been actively promoting it regardless of the hypocritical words they say. They are only for reducing the size of government when it comes to reducing government programs and subsidies which benefit the poor and middle class.
The top 1% of Americans own 40% of the nation's wealth. The bottom 80% own 7%. The top 1% take home 24% of the nation's income. In 1976 they took home just 9%. Their share of national income has almost tripled in just over 30 years. How was this accomplished? Not by hard work, but by incessant lobbying to change laws that benefit the rich like the 1999 Financial Services Modernization Act and the Commodities Futures Modernization Act of 2000 that overthrew Glass-Steagall leading to the merger of commercial and investment banks, unregulated derivatives, credit default swaps, collateralized debt obligations and all the other paraphernalia of the financialization and globalization of the US economy. Leveraged buyout artists or vulture capitalists like Mitt Romney can give $100,000,000. to each of his five sons without paying any gift tax while ordinary middle class folks pay taxes through the nose. On Romney's income of $21 million last year, for which he did no work to earn it, he paid less than 14% in taxes while most middle class folks are taxed in the 30% range. Romney also paid practically nothing in Social Security or FICA taxes. If he had paid FICA taxes on all his income, this would have helped to bail out Social Security and Medicare right there.
Capital gains is how the rich make their money and they are taxed right now at half the rate that the middle class is taxed. Here is the history:
In the 1970s under President Carter capital gains were taxed at 40%. In the 1980s under President Reagan they were lowered to 20% and under George W Bush they were lowered to 15%. All this was done under the noses of the middle class while they were sleeping or watching football on television. What me worry? Meanwhile lobbyists for the rich were hard and persistently at work. It's pretty clear that Democratic Presidents have raised capital gains taxes while Republican Presidents have lowered them.
A true conservative would want to conserve the safety net while insuring that the rich pay their fair share. Instead all they talk about is lowering taxes (primarily on the rich) while eliminating government programs which primarily benefit the poor and middle class. If they want to reduce the size of government a good place to start would be to reduce the size of the bloated military-industrial complex. Presdident Obama is already striking a populist tone with his talk about an "alternative minimum tax" on millionaires while Defense Secretary Leon Panetta is busy ending wars and reducing the size of the military-industrial complex. They should follow up by embracing Social Security and Medicare reform and by reducing or eliminating payouts of all kinds to the rich. They should also enact a Financial Transactions Tax to be used for debt reduction so that the banks can pay back their fair share to the taxpayers who bailed them out.
That Lawrence Summers, a president emeritus of Harvard, is a consummate distorter of fact and logic is not a revelation. That he and Bill Clinton, the president he served as treasury secretary, can still get away with disclaiming responsibility for our financial meltdown is an insult to reason.
Yet, there they go again. Clinton is presented, in a fawning cover story in the current edition of Esquire magazine, as “Someone we can all agree on. ... Even his staunchest enemies now regard his presidency as the good old days.” In a softball interview, Clinton is once again allowed to pass himself off as a job creator without noting the subsequent loss of jobs resulting from the collapse of the housing derivatives bubble that his financial deregulatory policies promoted.Former presidents George W. Bush and Bill Clinton, right, share a laugh in 2006. Both men share blame for the economic collapse of 2008. It was Clinton’s financial deregulation that legalized the merger of commercial and investment banks, creating institutions that were both risky and too-big-to-fail.
At least Summers, in a testier interview by British journalist Krishnan Guru-Murthy of Channel 4 News, was asked some tough questions about his responsibility as Clinton’s treasury secretary for the financial collapse that occurred some years later. He, like Clinton, still defends the reversal of the 1933 Glass-Steagall Act, a 1999 repeal that destroyed the wall between investment and commercial banking put into place by Franklin Roosevelt in response to the Great Depression.
“I think the evidence is that I am right about that. If you look at the big players, Lehman and Bear Stearns were both standalone investment banks,” Summers replied, referring to two investment banks allowed to fold. Summers is very good at obscuring the obvious truth—that the too-big-to-fail banks, made legal by Clinton-era deregulation, required taxpayer bailouts.
The point of Glass-Steagall was to prevent jeopardizing commercial banks holding the savings of average citizens. Summers knows full well that the passage of the repeal of Glass-Steagall was pushed initially by Citigroup, a mammoth merger of investment and commercial banking that create the largest financial institution in the world, an institution that eventually had to be bailed out with taxpayer funds to avoid economic disaster for millions of ordinary Americans. He also knows that Citigroup—where Robert Rubin, who preceded Summers as Clinton’s treasury secretary, played leading roles during a critical time—specialized in precisely the mortgage and other debt packages and insurance scams that were the source of America’s economic crisis.
Even Clinton, in a rare moment of honest appraisal of his record, conceded that his signing of the Commodity Futures Modernization Act (CFMA), legalizing those credit default swaps and collateralized debt obligations, was based on bad advice. That advice would have had to come from Summers, his point man pushing the CFMA legislation, which Clinton signed into law during his lame-duck days.
When the British interviewer reminded him of Clinton’s comment, Summers, as is his style, simply bristled: “Again, you make everything so simple, when in fact it’s complicated. Would it have been better if the whole financial reform legislation had passed in 1999, or 1998, or 1992? Yes, of course it would have been better. But … at the time Bill Clinton was president, there essentially were no credit default swaps. So the issue that became a serious problem really wasn’t an issue that was on the horizon.”
That is a lie. Credit default swaps had been sold at least since 1991, and collateralized debt obligations of all sorts quickly became the rage during the Clinton years. Summers surely remembers that Brooksley Born, the legal expert on such matters that Clinton appointed to head the Commodity Futures Trading Commission (CFTC), warned about the ballooning danger of those unregulated derivatives. Born, who served with Summers as one of four members of the President’s Working Group on Financial Markets, tried repeatedly and in vain to get her colleagues to act. When her pleas fell on deaf ears she issued a “concept release” calling attention to an unregulated derivatives market that was even then spiraling out of control.
The CFMA legislation that Summers pushed and Clinton signed was a specific rebuke to Born’s efforts. As Summers testified at the time before a Senate committee: “As you know, Mr. Chairman, the CFTC’s recent concept release has been a matter of great concern, not merely to Treasury, but to all those with an interest in the OTC [over-the-counter] derivatives market. In our view, the Release has cast the shadow of regulatory uncertainty over an otherwise thriving market—raising risks for stability and competitiveness of American derivative trading. We believe it quite important that the doubts be eliminated.”
Those doubts were eliminated by the new law exempting all of that troubling OTC derivatives trading from all existing regulations and regulatory agencies. Summers argued in his congressional testimony that there was no reason for any government regulation of what turned out to be tens of trillions of dollars in toxic assets:
“First, the parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies and most of which are already subject to basic safety and soundness regulation under existing banking and securities law.
“Second, given the nature of the underlying assets involved—namely supplies of financial exchange and other financial instruments—there would seem to be little scope for market manipulation of the kind seen in traditional agricultural commodities, the supply of which is inherently limited and changeable.”
Has any economist ever gotten it so wrong?
Robert Scheer is editor of Truthdig.com and a regular columnist for The San Francisco Chronicle.
One of the few things Mitt Romney and Newt Gingrich agree on is that President Obama is turning America into “European-style welfare culture.”
In his standard stump speech Romney charges Obama with creating a nation of dependents. “Over the past three years Barack Obama has been replacing our merit-based society with an entitlement society.”
Gingrich calls Obama “the best food-stamp president in American history.”
What’s their evidence? Both rely on federal budget data showing direct payments to individuals shot up by almost $600 billion, a 32 percent increase, since the start of 2009.
They also point to Census data showing that 49 percent of Americans now live in homes where at least one person is collecting a federal benefit – Social Security, food stamps, unemployment insurance, worker’s compensation, or subsidized housing. That’s up from 44 percent in 2008.
Finally, they trumpet Social Security Administration figures showing that the number of people on Social Security disability jumped 10 percent in Obama’s first two years in office.
They argue our economic problems stem from this sharp rise in “dependency.” Get rid of these benefits and people will work harder.
But they have cause and effect backwards. The reason for the rise in food stamps, unemployment insurance, and other safety-net programs is Americans got clobbered in 2008 with the worst economic catastrophe since the Great Depression. They and their families have needed whatever helping hands they could get.
If anything, America’s safety nets have been too small and shot through with holes. That’s why the number and percentage of Americans in poverty has increased dramatically over the past three years. According to a study by Northeastern University, a third of families with young children are now in poverty.
This is the real scandal. For example, only 40 percent of the unemployed qualify for unemployment benefits because they weren’t working full time or long enough on a single job before they were canned. The unemployment system doesn’t take account of the fact that a large portion of the workforce typically works part time on several jobs, and moves from job to job.
Republicans also object to Obama’s health care law, which covers 30 million more Americans than were covered before. That law still leaves over 20 million without health insurance. They’ll get emergency care when they’re in dire straights — hospitals won’t refuse them — but we all end up paying indirectly.
Regressive Republicans pretend they’re about opportunity. In reality they’re back at what they’ve been doing for years — promoting Social Darwinism.
Treasury Secretary Tim Geithner, speaking at the World Economic Forum in Davos a few days ago, said the “critical risks” facing the American economy this year were a worsening of Europe’s chronic sovereign debt crisis and a rise in tensions with Iran that could stoke global oil prices.
What about jobs and wages here at home?
As the Commerce Department reported Friday, the U.S. economy grew 2.8 percent between October and December – the fastest pace in 18 months and the first time growth exceeded 2 percent all year. Many bigger American companies have been reporting strong profits in recent months. GE and Lockheed Martin closed the year with record order backlogs.
Yet the percent of working-age Americans in jobs isn’t much different than what it was three years ago. Yes, America now produces more than it did when the recession began. But it does so with 6 million fewer workers.
Average after-tax incomes adjusted for inflation are moving up a bit. (They increased at an annual rate of .8 percent in the last three months of 2011 after falling 1.9 percent in prior three-month period. For all of 2011, incomes fell .1 percent.)
But beware averages. Shaquille O’Neal and I have an average height of six feet. Exclude Mitt Romney’s $20 million last year — along with everyone else securely in the top 1 percent — and the incomes of most Americans are continuing to slip.
Consumer spending picked up slightly in the fourth quarter mainly because consumers drew down their savings. Obviously, this can’t last.
Meanwhile, government is spending less on schools, roads, bridges, parks, defense, and social services. Government spending at all levels dropped at an annual rate of 4.6 percent in the last quarter – and that’s likely to continue.
Some economists worry this drop is a drag on the economy. But it also means fewer public goods available to all Americans regardless of income.
Congress still hasn’t decided whether to renew the temporary payroll tax cut and extend unemployment benefits past February. If it doesn’t, expect another 1 percent slice off GDP growth this year.
Tim Geithner is surely correct that the European debt crisis and Iran pose risks to the American economy in 2012. But they aren’t the biggest risk. The biggest risk is right here at home – that most Americans will continue to languish.
All of which raises a basic question: Who or what is the economy for? Surely not just for a few at the top, and not just big corporations and their CEOs. Nor can the success of the economy be measured by how fast the GDP is growing, or how high the Dow Jones Industrial Average is rising, or whether average incomes are turning upward.
The crisis of American capitalism marks the triumph of consumers and investors over workers and citizens. And since most of us occupy all four roles – even though the lion’s share of consuming and investing is done by the wealthy – the real crisis centers on the increasing efficiency by which all of us as consumers and investors can get great deals, and our declining capacity to be heard as workers and citizens.
Modern technologies allow us to shop in real time, often worldwide, for the lowest prices, highest quality, and best returns. Through the Internet and advanced software we can now get relevant information instantaneously, compare deals, and move our money at the speed of electronic impulses. We can buy goods over the Internet that are delivered right to our homes. Never before in history have consumers and investors been so empowered.
Yet these great deals increasingly come at the expense of our own and our compatriots’ jobs and wages, and widening inequality. The goods we want or the returns we seek can often be produced more efficiently elsewhere around the world by companies offering lower pay, fewer benefits, and inferior working conditions.
They also come at the expense of our Main Streets – the hubs of our communities – when we get the great deals through the Internet or at big-box retailers that scan the world for great deals on our behalf.
Some great deals have devastating environmental consequences. Technology allows us to efficiently buy low-priced items from poor nations with scant environmental standards, sometimes made in factories that spill toxic chemicals into water supplies or pollutants into the air. We shop for great deals in cars that spew carbon into the air and for airline tickets in jet planes that do even worse.
Other great deals offend common decency. We may get a great price or high return because a producer has cut costs by hiring children in South Asia or Africa who work twelve hours a day, seven days a week. Or by subjecting people to death-defying working conditions.
As workers or as citizens most of us would not intentionally choose these outcomes but as seekers after great deals we are indirectly responsible for them. Companies know that if they fail to offer us the best deals we will take our money elsewhere – which we can do with ever-greater speed and efficiency.
The best means of balancing the demands of consumers and investors against those of workers and citizens has been through democratic institutions that shape and constrain markets.
Laws and rules offer some protection for jobs and wages, communities, and the environment. Although such rules are likely to be costly to us as consumers and investors because they stand in the way of the very best deals, they are intended to approximate what we as members of a society are willing to sacrifice for these other values.
But technologies for getting great deals are outpacing the capacities of democratic institutions to counterbalance them. For one thing, national rules intended to protect workers, communities, and the environment typically extend only to a nation’s borders. Yet technologies for getting great deals enable buyers and investors to transcend borders with increasing ease, at the same time making it harder for nations to monitor or regulate such transactions.
For another, goals other than the best deals are less easily achieved within the confines of a single nation. The most obvious example is the environment, whose fragility is worldwide. In addition, corporations now routinely threaten to move jobs and businesses away from places that impose higher costs on them – and therefore, indirectly, on their consumers and investors – to more “business friendly” jurisdictions. The Internet and software have made companies sufficiently nimble to render such threats credible.
But the biggest problem is that corporate money is undermining democratic institutions in the name of better deals for consumers and investors. Campaign contributions, fleets of well-paid corporate lobbyists, and corporate-financed PR campaigns about public issues are overwhelming the capacities of Congress, state legislatures, regulatory agencies, and the courts to reflect the values of workers and citizens.
As a result, consumers and investors are doing increasingly well but job insecurity is on the rise, inequality is widening, communities are becoming less stable, and climate change is worsening. None of this is sustainable over the long term.
Blame global finance and worldwide corporations all you want. But save some blame for the insatiable consumers and investors inhabiting almost every one of us, who are entirely complicit. And blame our inability as workers and citizens to reclaim our democracy.
Capitalism is coming apart at the seams and the middle-class is paying the price. This week’s news alone bombards us with examples of how, absent a dramatic rethink, our "free-enterprise" system may never again provide enough decent jobs for those who need and want them.
1. iSlavery
Apple is arguably the world’s most successful company. Yet most of the 700,000 jobs needed to produce its cherished products are located abroad, especially in China. Why doesn’t Apple manufacture in the United States? Charles Duhigg and Keith Bradsher writing for the New York Times reveal that Apple is looking for a cheap, “flexible” workforce that can be put to work whenever and wherever it is needed on the company's terms.
One chilling example concerns the manufacture of glass screens for the iPhone to replace plastic screens which are easily scratched. With only weeks to go before the phone’s release in 2007, the late Steve Jobs demanded a switch to glass. But to get that done on time required deploying the pliable workforce of the giant Chinese manufacturing firm, Foxconn:
“They could hire 3,000 people overnight,” said Jennifer Rigoni, who was Apple’s worldwide supply demand manager until 2010, but declined to discuss specifics of her work. “What U.S. plant can find 3,000 people overnight and convince them to live in dorms?”
In mid-2007, after a month of experimentation, Apple’s engineers finally perfected a method for cutting strengthened glass so it could be used in the iPhone’s screen. The first truckloads of cut glass arrived at Foxconn City in the dead of night, according to the former Apple executive. That’s when managers woke thousands of workers, who crawled into their uniforms — white and black shirts for men, red for women — and quickly lined up to assemble, by hand, the phones. Within three months, Apple had sold one million iPhones. Since then, Foxconn has assembled over 200 million more.
Little wonder that Apple just announced that it doubled its already enormous profits over the Christmas holidays. Like the Pharaohs of old, it’s always paid to build great things on the backs of slave labor.
2. The Bain of Our Middle-Class Existence
A day doesn’t go by without suffering through another Mitt Romney defense of his career at Bain Capital, his highly profitable leveraged buy-out firm. Mitt repeatedly tells us that Bain created tens of thousands of jobs at Staples, Domino’s Pizza, Sealy, Brookstone, Sports Authority, Burger King, Burlington Coat Factory, Dunkin’ Donuts, and Toys 'R' Us.
For a moment let’s put aside the fact that Bain also drove a large number of companies into bankruptcy while loading them up with debt and extracting enormous profits along the way. Instead, let’s focus on the type of jobs that Staples, Domino’s et al. produce for the American middle-class. While these jobs are not as slavish as those sought after by Apple in China, most Bain companies pay so little and have so few benefits that it is impossible to support a middle-class existence from the jobs they create.
Since Romney likes to brag about Staples, we took a closer look at its average hourly pay (as reported on Glassdoor.com). Out of 61 job classifications listed, only three provide starting salaries of $20 or more per hour. The vast majority of those 61 jobs categories have pay scales that begin at $7 and $8 per hour and scale up over time to $13 or $14 an hour. I’d like to see Mitt raise his dog on that.
But wait! There really is some fairness in our economy when it comes to taxes. If you work at Staples and somehow climb your way up to a middle-class salary, you might be paying the same tax rate as Mitt who earns $20 million a year. Then again, since Mitt paid only 13.9% on his 2010 taxes, you might even pay a little more counting all your state and local taxes. (More on how he does it below.)
3. Surprise! Federal Auditors Find Big Pay for Bailed-Out Bankers
While the middle-class suffers, top executives are raking it in yet again, even at the companies bailed out by our tax dollars. You may recall that the Obama administration demanded that executives at the top seven bailed-out firms receive no more than $500,000 a year. Congress complied by passing a law to set up a “special master” to administer the salary cap. Well, this week we discovered that the special master got mastered, according to federal auditors.
Apparently, the bailed-out companies teamed up with Treasury Secretary Timothy Geithner and company to pressure the special master to allow salaries 10 times as high for these failed executives. “Forty-nine people received packages worth $5 million or more from 2009-2011,” according to the auditor’s report. (What the auditor failed to mention is that the law only applies to direct bailout money. It does not cover the big Wall Street firms that took trillions in hidden loans from the Federal Reserve to avoid collapse. Those top bankers earn much more than those at the seven bailed-out firms.)
So what was the excuse for busting the pay cap? Without fatter paychecks, these poor executives would...quit.
Here’s the argument one bailed-out company used to claim a “hardship” exemption so the employee could receive at least $1 million in cash: “This individual is in their early 40s, with two kids in private school, who is now considered cash-poor.” Such people “would not meet their monthly expenses” if the $500,000 a year cap were applied to him. Ouch!
Why not let this executive walk? After all, his or her firm was a failure. It was only saved from destruction because of the generosity of the taxpayer. Where’s that executive going to go anyway, and couldn’t a suitable replacement be found at $500,000 a year?
Just count all the alleged “laws of capitalism” that are broken in this example: 1) the original bailout instead of bankruptcy; 2) the irreplaceable executive in an economy with massive layoffs even in the financial sector; and 3) a financial wage scale having no connection to real value produced (especially since the firm produced negative value and needed to be bailed out).
So while the Apple workers in China get up in the middle of the night from their company dorms to assemble phones, and while Staples workers try to live on $8 an hour, we the taxpayers are supporting financial executives who can’t make ends meet on $500,000 a year?
4. Economically Addicted to War
The news is hot this week with military strife. Iraq is drifting back to civil war. Afghanistan is already there. Iran is threatening to close the Straits of Hormuz, and the New York City police got nabbed using an anti-American Muslim training film on 1,400 of its officers. What does this all add up to? Spending trillions on the military and then asking the middle-lass to tighten its belt to make up for deficits.
Since W.W.II pulled the U.S. out of the Great Depression, massive military expenditures have been used repeatedly to keep the economy near full-employment. During the Cold War, these expenditures contributed mightily to a new form of state capitalism where public funds were used to subsidize private corporations which supplied the military. Along the way, this process also helped prop up the middle-class in defense industry jobs.
But over the last decade this military Keynesianism got a new wrinkle. The U.S. went to war without paying for it, thereby racking up nearly a trillion dollars in new debt. At the same time an enormous tax cut was handed over to the super-rich which proceeded to spend a good deal of it in the Wall Street casino which then crashed. In total, the unfunded wars, the tax cuts and the economic crash account for the entire deficit problem. Let me repeat, there would be no deficit at all were it not for the Bush tax cuts, the two unfunded wars and the Wall Street crash.
Nevertheless the middle-class must pay. We are told that the real problem is “entitlements,” including public support for healthcare, education, unemployment benefits and Social Security. Therefore we must cut, cut, cut, to pay for military adventurism and the lifestyles of our financial oligarchs.
5. Mitt Slithers Through the “Carried Interest” Loophole
Of course, one of the big news items of the week was Mitt’s tax returns, which revealed that he paid only 13.9 percent in federal taxes instead of the 30-plus percent high-income earners are supposed to pay. Like Warren Buffett, Mr. Romney probably pays a lower tax rate than his secretary at Bain Capital. How does he get away with that?
It’s not just that he has a legion of tax sharpies who know how to hide his money in secret Swiss accounts and in the Grand Cayman Islands. The real culprit is a gigantic tax loophole called “carried interest” that allows private equity moguls and hedge fund honchos to essentially lie about what they do for a living.
You will hear Mitt wax euphoric about how hard he worked at Bain to obtain his riches. What he doesn’t tell you is that he used the carried interest loophole to hide all that hard work from federal taxes. Instead of paying himself an income for the real work he performed (which would be taxed at 35 percent), he hid his income within a slice of the profits so that he could claim it as capital gains (which is taxed at 15 percent). If he worked at a big bank doing exactly the same kind of work and got big stock options as his bonus, he would have to pay 35 percent. But thanks to the largess of Congress, he and billionaires in the private equity and hedge fund rackets pay only 15 percent. And of course, every effort to remove this loophole has been stalled by both Democrats and Republicans in Congress.
This loophole is the poster child example of how the super-rich enhance their wealth at the expense of the rest of us. And the rest of us do indeed make up the difference either through increased taxes or decreased services.
6. How the Gringrich/Freddie Tryst Distorts History
This week also treated us with the release of Newt’s $600,000 a year consulting contract with Freddie Mac. Did he get paid for influence-peddling or for his prescient historical insights? Who cares? As sordid as his deal may have been, the real damage comes from the analysis of the financial crash that accompanies the story. We hear again and again by all, including the media, that Fannie Mae and Freddie Mac, the two troubled government housing agencies, caused the financial meltdown.
Not true!
Let’s start with some basic facts about these corporations. They are not government agencies. They are private corporations that have the implicit backing of the government to help provide a massive mortgage market for middle-class Americans (or they were before the crash). The big mistake was allowing these agencies to become for-profit organizations in the first place. But that’s another story.
The widely repeated erroneous analysis claims that Fannie and Freddie caused the crash by underwriting risky housing mortgages. Ron Paul, in particular, blames the Community Reinvestment Act for pushing Fannie and Freddie to buy up “risky” loans that enable underserved minorities in particular to obtain mortgages.
But Paul, who should know better, has it dead wrong. CRA mortgages were standard mortgages and not risky ones. Their default rates are just like other standard mortgages given to Anglo home buyers. CRA, in short, had absolutely nothing to do with Wall Street’s reckless gambling as big banks and hedge funds bought up risky mortgages and sold them in even riskier mortgage-related securities.
Fannie and Freddie also wanted in on that enormously profitable Wall Street derivative game. But they got there very, very late just as the crisis was starting to unfold. These flawed private/government backed agencies didn’t cause what already was fully developed. Instead they were left holding the bag. You can’t blame them for the mess that Wall Street already created.
Who suffers? The middle-class homeowner who is already underwater due to the housing crash, and those who will purchase homes in the future. The drumbeat of attacks on Freddie and Fanny will surely lead to the privatization of those functions, which in turn will drive up the costs of mortgages for the rest of us.
How do we put America back to work?
These recent examples demonstrate yet again that "free-enterprise" on its own can not create enough middle-class jobs. Neither Apple, nor Bain-Staples, nor Wall Street, nor deficit reduction will get us there. By the way, neither will small business.
We need to recognize that modern financialized capitalism is deeply flawed. Without enormous government support, it cannot function. Without enormous government support, there will be no sizable middle-class.
The solution is both simple and difficult for us to accept. We need to use public money to create jobs and decent wages doing the things that need doing!
•We need more education? Then make higher education virtually free as we did at the end of W.W.II. •We need alternative energy? Then use government funds to perfect the technology as we did with the Manhattan Project to build the A-bomb, and as we did with NASA’s moon shot. •We need to rebuild our crumbling infrastructure? Then hire a million workers to do it as we did during the Great Depression.
How do we pay for it? By now that should be conceptually easy: Wall Street should pay for the damage it has done. (A financial transaction tax would be a good first step.) And while we’re at it, get rid of the carried interest loophole so that Romney and the rest of his gang pay the same rates as the rest of us.
Les Leopold is the executive director of the Labor Institute and Public Health Institute in New York, and author of The Looting of America: How Wall Street's Game of Fantasy Finance Destroyed Our Jobs, Pensions, and Prosperity—and What We Can Do About It (Chelsea Green, 2009).
When the Romney campaign disclosed in December that the couple’s five sons had a $100 million trust fund, I suspected that, in setting up the fund, the Romneys used a tax strategy that allows some very rich people to avoid paying gift taxes. But it was impossible to know if this was the case without seeing their tax returns going back years.
So when Mitt Romney released the family’s 2010 tax return last week, I went looking. I found a hint on pages 132 and 134 of the return. It showed that the value of property placed that year into another family trust, the Ann D. Romney Blind Trust, was, for tax purposes, zero. The Ann Romney trust is not the same trust as the one that holds the Romney sons’ $100 million, but I wondered if the Romneys used the same approach in prior years when it came to valuing property placed into the sons’ trust.
Reuters emailed the Romney campaign spokeswoman to ask how much the Romneys paid in gift taxes on assets put into the sons’ trust over the last 17 years. The spokeswoman, citing Brad Malt, the Romney family tax lawyer, answered: none.
The idea that someone could pay zero gift taxes on contributions to a $100 million trust fund may surprise people who have heard arguments that the wealthy are overburdened by gift and estate taxes. But the Romneys’ gift-tax avoidance strategy is perfectly legal.
Under tax rules, wealthy people must pay a gift tax of 35 percent on gifts above a lifetime limit known as the “unified estate tax credit.” That limit was $1.2 million for a married couple in 1995 when the sons’ trust was created and $2 million in 2009, but is now $10 million.
So, if the limit is, at most, $10 million, how did the Romneys create this $100 million fund without paying gift taxes?
The explanation may stem from how the Romneys were able to value the assets put into the trust. If I’m right, it involves a special tax deal that Congress gives to people who manage investment partnerships, as Romney did at Bain Capital from 1984 to 1999.
This deal allows these managers to receive a kind of compensation known as “carried interest.” As the tax law sees it, carried interest does not represent ownership of stock or other securities, only the right to receive future profits. Because there is no ownership, the IRS lets people value their carried interest at zero for gift tax purposes if they meet certain technical rules. We asked the Romney campaign if carried interest was involved several times in emails. The campaign declined to comment about this and other specifics.
VALUING A GIFT AT ZERO
To understand how this works conceptually, imagine your employer gave you a bonus in company stock.
You would owe income taxes immediately on the stock as compensation, and it would be taxed at the same rate as a cash bonus. And if you gave the stock to your children, you would owe, on stock above $10 million, a gift tax of 35 percent of the market price on the day you gave it away.
Now imagine that instead of giving you stock outright, your employer gave you only the right to future increases in the value of company shares – which, like carried interest, is just a right to some potential future income. You could give that right to your children and legally tell the IRS that its value was zero provided they hold onto it for several years.
This would be legally true, even if the company’s stock had been steadily rising for years and was virtually a sure bet to continue going up in value. Of course as a matter of economics it would be a very valuable gift to your children.
The scenario of transferring a right to something of value in the future and valuing it at nothing shows up on the Romneys’ 2010 tax return, which reveals two contributions to the Ann D. Romney Blind Trust. Both contributions were valued at zero.
NO COMMENT
The Romney campaign declined to confirm that this is what happened with the sons’ trust. Malt, the family tax lawyer, and spokeswoman Andrea Saul have declined to go further than Malt’s statement that the contributions fell below the unified credit.
The campaign, which set up an email address for journalists with questions about the tax returns, did not offer any comment nor did it respond to specific questions, including whether any of the personal or trust returns had been audited, whether any adjustments had resulted and whether the gifts to the sons had been completed more than three years ago, which would put them beyond any review by the IRS.
There are other perfectly legal techniques that would also allow many millions of dollars to be passed on while avoiding gift taxes.
The Romneys could attain the same result by putting into the trust any asset whose value was expected to rapidly increase. They could also use a trust that creates an annuity for themselves for a few years provided the trust assets grew much faster than the minimum interest rate payout set by the IRS each month. In each of these cases the parents would pay any income taxes and that is just what the Romneys’ 2010 and preliminary 2011 tax returns show. They report the trust income as their own and pay the taxes on the income the trust earned from its rapidly appreciating assets — but no gift taxes.
How much income will flow from these gifts is known only to the Romney family and to Malt, who works at the Ropes & Gray law firm in Boston.
Mitt and Ann Romney appear to have complied with the law. What’s at fault is the law. Congress treats ordinary taxpayers one way and managers of private equity and hedge funds like Mitt Romney another. It’s also a fiction that there is a lifetime limit on tax-free gifts of $10 million when Congress lets unlimited sums pass untaxed this way.
Will this change? It’s hard to say, given the gridlock in Washington. But President Barack Obama’s State of the Union message could signal a new direction. In a speech that mentioned taxes 34 times, he proposed sweeping changes in the tax code, a message that could resonate in the 2012 campaign and in Congress in 2013. Watch this space.
PHOTO: Republican presidential candidate and former Massachusetts Governor Mitt Romney (L) introduces his sons Tagg (2nd L), Craig (3rd L), Josh (2nd R) and Matt, as his wife Ann (C) looks on, at a campaign rally in Des Moines, Iowa January 3, 2012, the day of the Iowa caucus. REUTERS/Brian Snyder
Former presidents George W. Bush and Bill Clinton, right, share a laugh in 2006. Both men share blame for the economic collapse of 2008. It was Clinton’s financial deregulation that legalized the merger of commercial and investment banks, creating institutions that were both risky and too-big-to-fail.
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