California Free Press

Why Obama Should Be Attacking Casino Capitalism — Both Romney’s Bain and JPMorgan

by Robert Reich

Tuesday, May 22, 2012

I wish President Obama would draw the obvious connection between Bain Capital and JPMorgan Chase.

That way his so-called “attack” on private equity is neither a personal attack on Mitt Romney nor a generalized attack on American business.

It’s an attack on a particular kind of capitalism that Romney and JPMorgan both practice: Using other peoples’ money to make big bets which, if they go wrong, can wreak havoc on the economy.

It’s the substitution of casino capitalism for real capitalism, the dominance of the betting parlor over the real business of America, financial innovation rather than product innovation.

It’s been terrible for the American economy and for our democracy.

It’s also why Obama has to come out swinging about JPMorgan. The JPMorgan Chase debacle would have been prevented if the Volcker Rule were sufficiently strict, prohibiting banks from using commercial deposits to make bets except very specific offsetting bets (hedges) on narrow classes of trades.

But Jamie Dimon and JPMorgan have been lobbying like mad to loosen the Volcker Rule and widen that exception to include the very kind of reckless bets JPMorgan made. And they’re still at it, as evidenced by Dimon’s current claim that the rule that eventually emerges would allow those bets.

As a practical matter, the Volcker Rule is hopeless. It was intended to be Glass-Steagall lite — a more nuanced version of the original Depression-era law that separated commercial from investment banking. But JPMorgan has proven that any nuance — any exception — will be stretched beyond recognition by the big banks.

So much money can be made when these bets turn out well that the big banks will stop at nothing to keep the spigot open.

There’s no alternative but to resurrect Glass-Steagall as a whole. Even then, the biggest banks are still too big to fail or to regulate. We also need to heed the recent advice of the Dallas branch of the Federal Reserve, and break them up.

At the same time, there’s no point to the “carried interest” loophole that allows private-equity managers like Mitt Romney to treat their incomes as capital gains, taxed at only 15 percent, when they’ve risked no money of their own.

If private equity were good for America it wouldn’t need this or the other tax preference it depends on, elevating debt over equity. But the private equity industry has huge political clout, which is why these tax preferences remain.

Get it? Bain Capital and JPMorgan are parts of the same problem. The President should be leading the charge against both.

Obama has to Explain Why Fairness is Essential to Growth (and Why Some Democrats Have to Stop Believing Otherwise)

by Robert Reich

Wednesday, May 23, 2012

The Cory Booker imbroglio has ignited a silly but potentially pernicious debate in the Democratic Party between so-called “pro-growth centrists” who want the President to focus on how well he’s done getting the economy back on its feet after the Bush administration almost knocked it out, and “pro-fairness populists” who want him to focus on the nation’s widening inequality and Wall Street’s (and Romney’s) continuing role in generating profits for a few at the expense of almost everyone else.

According to the National Journal’s Josh Kraushaar, for example:

Conversations with liberal activists and labor officials reveal an unmistakable hostility toward the pro-business, free-trade, free-market philosophy that was in vogue during the second half of the Clinton administration….. Moderate Democratic groups and officials, meanwhile, privately fret about the party’s leftward drift and the Obama campaign’s embrace of an aggressively populist message… [T]hey wish the administration’s focus was on growth over fairness.

This is pure bunk – or should be.

Fairness isn’t inconsistent with growth; it’s essential to it. The only way the economy can grow and create more jobs is if prosperity is more widely shared.

The key reason why the recovery is so anemic is so much income and wealth are now concentrated at the top is America’s the vast middle class no longer has the purchasing power necessary to boost the economy.

The richest 1 percent of Americans save about half their incomes, while most of the rest of us save between 6 and 10 percent. That shouldn’t be surprising. Being rich means you already have most of what you want and need. That second yacht isn’t nearly as exciting as was the first.

It follows that when, as now, the top 1 percent rakes in more than 20 percent of total income — at least twice the share it had 30 years ago — there’s insufficient demand for all the goods and services the economy is capable of producing at or near full employment. And without demand, the economy doesn’t grow or generate nearly enough jobs.

Wall Street is part of the problem because it’s responsible for so much of the concentration of income and wealth at the very top – and for much of the distress still felt in the rest of the economy after the Street nearly melted down in 2008.

The Street has turned a significant part of the economy into a giant casino involving mammoth bets with other peoples’ money. When the bets go well, the rich owners of the casino (Wall Street executives, traders, hedge-fund managers, private-equity managers) become even richer. When the bets go sour, the rest of us bear the costs.

The casino also requires continuous transfers of wealth from ordinary taxpayers. Some are built into the tax code. One is the preference of debt over equity (interest on debt is tax deductible), which awards Wall Street banks like JPMorgan for risky lending and awards private-equity firms like Bain Capital for piling debt on the firms it buys.

Another is the “carried interest” rule that, absurdly, allows private-equity managers (like Mitt Romney) to treat their income as capital gains even when they haven’t risked any of their money.

The biggest of all is the invisible guarantee that if the biggest banks get into trouble, taxpayers will bail them out. This subsidy reduces the big banks’ cost of capital relative to other banks and fuels even more risky lending.

None of this is fair. It’s also bad for economic growth and jobs – as we’ve so painfully witnessed.

Translated into presidential politics, all this means the President should be talking about fairness and growth and jobs, and explaining why we can’t have the latter without the former.

It also means he should be attacking Mitt Romney because Romney is part of the system of casino capitalism that has harmed America and held back growth — and Romney wants even less regulation of Wall Street (he’s vowed to repeal Dodd-Frank).

And because the budget Romney has put forth would gut public services vital to the middle class and poor, while cutting taxes on the rich and on corporations even more than they’ve already been cut.

In other words, Romney epitomizes the unfairness of the American economy in this new Gilded Age. For that same reason, Romney is the quintessence of an economic approach shown to be anti-growth and anti-jobs.

Why Neither Stimulus Nor Austerity Will Work to Revive Western Economies But Redistribution Will.

by John Lawrence

Think back a couple hundred years ago - before industrialization when economic life was much simpler. Let's assume that when a good or service was purchased, that the person who received the money spent it all - no savings. Therefore, money was circulated just like water can be circulated in a closed pipe. If the pipe makes a circle, then all that is needed to keep water flowing through the pipe is a pump. Similarly, when the blacksmith received $10. for shoeing a horse, we can assume that he took that money and spent it at the grocery. The grocer then took that same $10. and spent it with the farmer. The farmer took the money and spent it at the haberdasher's and so on. So the same $10. gets passed around from person to person until it lands back up at the blacksmith's again and the process repeats itself over and over. As long as all the yeoman in any given village have a good or service they can sell and as long as the money flows through the hands of each person in the village, that same $10. is used over and over; it is circulated round and round just like the water in the pipe. As long as the money flows fast enough, everyone can purchase what they need and business is good. GDP is a measure of how many transactions occur in any given year. The faster the money flows through the system, the greater is GDP.

Now what happens when one of the participants saves some of the money instead of spending it all? Then there is less money to flow through the system and economic activity and hence GDP will be lower. The more money that is saved, the more economic activity will decrease until the money supply is inadequate to meet people's needs. It is a well known fact that, when consumers spend more and save less, economic activity and GDP increase. That's why George W Bush sent everybody a check and told them to go out and spend it. When economic activity decreases enough, a recession or a depression occurs. In the US consumer spending accounts for 70% of GDP so, if consumer spending decreases, economic activity decreases. This would happen in the simple economy described above if, instead of the blacksmith spending his money at the grocer's, he saved it instead. So saving decreases economic activity and GDP. There is one caveat to that and that is, if instead of the blacksmith saving the money, he invested it by expanding his business and created a couple of additional jobs. Then those additional workers would also go out and spend their paycheck adding to economic activity.

When the economy goes into recession two things happen. Government revenues from taxes decline and consumers spend less because they have less money to spend. Keynsianism is a philosophy that says that the government should borrow money in a recession and spend it into the economy thus creating jobs and increasing economic activity or at least preventing starvation and dire need. The other way that economic activity can be expanded is for the central bank to loan money to banks which then loan it to businesses who want to expand their businesses thus creating jobs. So money is injected into the economy either by the government borrowing money or by the central bank printing money in the form of a loan. In either case debt is created and the economy becomes a debt based economy.

If we think of money circulating similar to water circulating in a network of pipes, if a business or an individual saves a portion of the money instead of spending it, there is a continual need for money creation to keep up the same level of economic activity. That's why capitalism has to be a growth based economy. When there was one blacksmith for every village, saving money was not a problem since the income from blacksmithing over the economy as a whole was dispersed to many blacksmiths who all spent most of it keeping it in circulation. If one blacksmith captured most of the business - let's say he called his business Blacksmiths Are Us - and franchised it throughout the whole economy, then all the profits would flow to one person - more or less - and money would be continually taken out of circulation necessitating growth and debt based money creation by the government or private businesses just to provide enough jobs to keep money circulating to all people with economic needs. Money saved and not spent is similar to water in a system of pipes entering a cul de sac or black hole from which it never emerges or to being siphoned off never to return to mainstream circulation.

In today's economy money is continually siphoned off by the major corporations who have not only nationalized but who have internationalized. It's as if Blacksmiths Are Us has gone global. That money which is taken out of the real economy goes into the financial economy which is a black hole from which money never emerges again into the real world economy. So there is a continual need for either the central bank to print money (increase the money supply) or for the government to prime the pump with debt based stimulus money (the fiscal method).

In a western capitalist economy there is a continual need for money to be created either by government borrowing and the provision of fiscal stimulus or by means of the central bank loaning money into the banking system. The only problem is that today, when the Federal Reserve (the central bank) loans money to other banks, the money goes not into the real economy where jobs are created but into the financial or casino economy. In other words it goes to rich people like Jamey Dimon of JP Morgan Chase or Lloyd Blankfein of Goldman Sachs who don't spend it in the real economy but who gamble it in the casino economy so it doesn't do too much good for the creation of jobs which provides for the distribution of money to all who need it. A job is seen as the only legitimate means for an economic unit to acquire the money it needs to meet its needs. Of couse, just giving the money to all who need it would increase economic activity and GDP, but that isn't seen as legitimate. Similarly, when the government borrows and spends, the money also does not circulate much since it is soon siphoned off by the Wal-Marts, the Exxon Mobils - the modern day versions of Blacksmiths Are Us - where it ends up in the financial economy. There is no very good way to keep the money circulating in the real economy since large corporations are siphoning it off at every turn which means that either the central bank has to keep printing money or the government has to keep borrowing and spending money, the Keynesian approach.

Therefore, neither the method of giving money to rich people through zero interest loans nor fiscal stimulus requiring more government debt will work in today's economy. Paul Krugman, who advocates fiscal stimulus and more government borrowing, is wrong and the Republican supply siders who advocate giving more money to the rich are also wrong. Obviously, the central bank cannot go on indefinitely printing money because of the devaluation of the currency and subsequent inflation and the government can not go on indefinitely borrowing money because interest on the debt eventually consumes all expenditures so what is the solution? Giving more tax breaks to the rich only compounds the problem of money being siphoned off from the real economy, taken out of circulation and placed in the financial or casino economy where it circulates only among the financial elite. The Republican solution is to speed up the process of redistributing money from the poor and middle class to the rich even more.

The only viable solution is to redistribute the money from rich to poor. The money that has been siphoned off and taken out of circulation by the Wal-Marts and Exxon Mobils of the world needs to be siphoned back into the real economy where it can continue to circulate. Too much money is ending up in the cul de sacs where it never reenters the real economy but instead circulates endlessly in the casino economy among very rich people. 300 years ago when the economy was much simpler and consisted of a yeomenry who provided a good or service and spent all the money they took in, money circulated endlessly in the real economy. Today, Wal-Mart and Exxon Mobil take most of the money out of the real economy in the form of profits. That money leaves the real economy and enters the financial economy which is a big black hole as far as the real economy is concerned. In order not to increase the money supply endlessly or to require the proliferation of new products and services, which provide a temporary increase in economic activity, new jobs and circulation of money to a wider distribution of individuals and families, money has to be recirculated and redistributed into the local real economy. And in order for the Federal Government not to have to borrow money endlessly, it needs to siphon money from the rich who won't spend it and redistribute it to the poor and middle class who will. In this manner the economy needs not to be based so much on debt based growth but can become more of a steady state, balanced economy. Money siphoned off by Blacksmiths Are Us is siphoned back again and redistributed to the local blacksmiths where it can circulate in the real economy again.

Another way the economy can grow without creating debt or increasing the money supply endlessly, which means just fueling the casino economy, is to take Ellen Brown's suggestios from her book Web of Debt, and that is for the central bank to not loan money into the economy with zero interest loans to the big banks, but instead to spend the money into the economy for infrastructure projects and the like. Thus the money supply is increased as needed without the creation of debt. This is the method Abraham Lincoln used to fight the Civil War and to build the transcontinental railroad. It is estimated he saved the nation $4 billion in interest by spending the money into the economy with greenbacks instead of loaning it into the economy at interest.

Taxing the rich amounts to siphoning back money which has been siphoned off from the real economy in the first place and putting it back into circulation amongst a wider distribution of people. The Blacksmith Are Us franchisees supply a uniform blacksmithing experience for weary travelers regardless of which village they happen to be in. As such they take business from the Mom and Pop blacksmiths and concentrate wealth at the central headquarters of Blacksmiths Are Us. We imagine that no matter which village George Washington or Thomas Jefferson was in, they could count on the fact that their blacksmithing needs were met with satisfaction when they shopped at Blacksmiths Are Us. However, this would diminish the amount of money in the real local economy due to the fact that the business of the local blacksmith would diminish since the profits would be shipped elsewhere.

A final note: with all the economic turmoil in Europoe over the eventual default by Greece on its loans and the fact that this could create economic chaos, instead it could be seen as an opportunity for Greece to set up its economy as non-debt based by having its central bank spend fiat money into the economy thus creating jobs and distributing income until the economy picks up steam of its own accord. Thus Greece could drop out of the eurozone with it's western debt based economic methods and align itself more with the non-western world to create a non-debt based society instead of one drowining in debt as it is presently constituted.

Paul Krugman Says: “Within a Few MonthsThe Eurozone Could Fall Apart”… Does This Statement Go Too Far?

by Frank Thomas 

It’s strange to hear Paul Krugman predict the imminent breakup  of the Eurozone caused by countries that spent too much but should spend more … and be additionally supported by countries who have  followed a course of reasonable fiscal discipline. Indeed, Ireland, Portugal, Greece, and Spain are all drowning in debt – the origin of which is a separate story for each country.  U.S. right-leaning conservatives typically get the causal factors wrong when they automatically conclude that what’s happening to Greece, Spain, Portugal, Ireland, and Italy is a result of that evil “Socialistic cradle to grave” European economic model.  

Conveniently forgotten is that America is still in a disastrously prolonged recession due to Bush Jr.’s 6 year over-spending message of BUY, BUY, BUY (a house ), SPEND, SPEND, SPEND  (on cheap products from China) and LEND, LEND, LEND (at 100% of inflated values from slick lenders) spurred by ever lower taxes for the rich and stagnant wages and insane credit card debt for everyone else! A truly terrific grand economic formula for social-economic progress for ALL Americans!  Those export trade deficits just kept piling up to ±$68 billion per month in 2007-08 …  putting extreme reliance on a 70% of GDP CONSUMPTION level and Zero Savings to achieve minimum 3-4%  GDP growth rates negatively affected by gigantic trade deficits, disgracefully low public and private  investments in infrastructure and manufacturing.

And here we are about to reignite that same magical growth formula as trade deficits rebound from a 36% of GDP level in 2010 to an onward sky high trend of 51% of GDP  last March and rising  … with hopes the middle class will SPEND, SPEND, SPEND with ever lower wages!  It’s called junk economics. And junk  economics it will remain with enduring high unemployment until we, among many other things, do what European nations have done long ago concerning trade policy with countries like China … namely, enter a phased in agreement that China will bring its exports to U.S. to a par level with U.S. exports to China by 2015.  Away with trade deficits!                                                     

But back to the problem of Greece. Following are just a few facts concerning the generally non-socialistic origins of Europe’s weak performing countries.

 Greece has been on the verge of bankruptcy for almost half of the last 150 years! Yet, this history and the country’s real financial situation when it was admitted to the European Union were entirely overlooked. As most know, Greece developed phony statistical figures to gain entrance to the Eurozone currency in 2000. Then, while Greece continued producing deficits in the 20^th century and on and on through the first decade of the 21^st century – fiscal discipline provisions of the Maastricht Treaty were NOT enforced. The current inevitable financial collapse of Greece comes from many factors:  lax EU enforcement of fiscal discipline; large trade deficits facilitated by EU banks wildly lending to Greece to stimulate exports to Greece; gross internal mismanagement and a culture of corroding corruption (like that of Russia); a criminally irresponsible socialistic system of flagrant social-nets to keep people dumb and passive and the corrupters safe while they were misappropriating the taxes collected.

Spain and Ireland’s financial chaos situations are NOT due to socialist programs run amok but simply to a greedy, irresponsible investment wave in real estate, including government guarantees of much of the speculative bank lending on real estate projects. Both countries are suffering from the aftermath of a burst property bubble compounded in Spain by a 20% unemployment rate. Prior to its property financial crisis, Spain’s national debt was at a very low 40% of GDP reaching 65% currently. The real estate crisis was intensified by the 2009-2011 mini-depression … a mini-depression sparked and transported to Europe by the U.S. exotic casino bank lending and bank/hedge fund derivative financial poker game played on a mammoth scale over the period 2003 to 2008.

Italy’s crisis is  NOT due so much to socialist programs as to an ancient, costly banking system and corrupt gross mismanagement under the chaotic egomaniacal leadership of the business tycoon Berlisconi. Result? Italy, like Greece, has been one of the lowest tax collection countries in Europe. And NOT surprisingly, Italy has the HIGHEST salaries for government bureaucrats, but, surprisingly to most perhaps, has among the LOWEST working class wages in Europe!  Of course, the latter is why Italian (and Greek) tax evasion is so high as the working class is forced to operate heavily in the black just to survive with meager wages. Does this ring familiar to our systemic wage/benefit exploitation of our working class? Poor tax collection, stagnant consumption deepened by an ongoing mini-depression is a deficit inducing financial reality for any country operating for so long with a middle-class wage race to the bottom system like Italy and the U.S.

If Greece exits the Eurozone, it’s probably back to the Middle Ages for Greek people and possibly a major financial shock wave for the rest of Europe. Without substantial injections of loan funds in addition to the hundreds of billions already spent and/or committed by the EU and IMF, Greece can’t pay government salaries, pensions, social nets as well as international debts over the next five years. In an exit scenario, the new currency will be a weak currency, wages will fall and expanded unemployment can be expected. When all savings, loans, and contracts with foreign investors are converted to the new currency and many Greeks timely transfer their money to foreign accounts, the Greek bank system could indeed collapse. This in combination with a possible investor withdrawal of funds from other weak performing countries such as Spain, Portugal, Ireland could lead to an implosion of the Eurozone.  JP Morgan has estimated that a Greek exit will result in immediate bank losses of €400 billion on loans that will be repaid in a devalued currency. This includes € 130 billion from the EU/IMF, €240 billion in Greek debt, and €25 billion in European banks loans.  

On the other hand, banks and private investors just experienced the biggest debt write-off in Greece’s history … a bond swap rescue package of €237 billion amounting to more than 70% of investor holdings going up in smoke. This action was led by the Netherlands and German Financial Ministers, de Jager and Schauble. BUT, the same investors and others who lost so much have not withdrawn from the Eurozone … not even after the Fitch rating agency downgraded Greece’s default rating from CCC to C, indicating Fitch considers the bond swap rescue package a distressed debt exchange making a default more likely.                                                              

Meanwhile, the weak Euro members Spain, Portugal, Ireland, Italy have undertaken the necessary austerity measures, unlike Greece. So their financial vulnerability has been somewhat reduced. In addition, the European Emergency Fund and IMF have built up a reserve funds exceeding €650 billion in the event of a Greece exit from the euro. And the Emergency Fund will probably be further increased. But it is highly unlikely much of these funds will be used to save Greece if the country does not come up with an acceptable, credible alternative plan to lower its enormous debt level … now running  at 160% of GDP to 120% of GDP by 2020.                                                                                            

The northern EU countries are not about to pour more billions of good money after bad money into Greece. A confidential analysis by the European Central Bank, the European Commission, and the IMF in February projected that Greek debt would still amount to 129% of GDP by 2020 – despite multi billions of loans from the rest of Europe – and could still be as high as 160% of GDP in 2020. 

So it's "tough love" time for everyone involved in Greece's financial disaster and contamination possibility to other weak and even strong EU countries. Firewalls are being built up to minimize the damage of a possible Greece exit. It's a devil's dilemma. Europe lends to Greece and loses billions. Europe doesn’t lend to Greece and losses billions.  In the final analysis, no one really knows with any degree of confidence what a Greek exit from the euro financially means for all of Europe. The Maastricht Treaty has no provision for expelling a member form the Eurozone. Can there be an orderly exit with minimal damage to all parties?                                                                                                         

The U.S. and UK remain obsessed with “consumer spending” their way out of the economic downturn, while Eurozone members are putting systems in place to enforce fiscal discipline for ALL members including the Greeces. Northern European countries that are advocates of sound money are not enamored with pure money printing solutions to get control of big deficits.(See: "European Banking System Is Not Seen as a Money Printing Press, Jan. 15, 2012  and followup article, "Continuation: ECB Banking System Should Not Be Seen as a Money Printing Press, Jan. 27, 2012").    

BUT, are Europeans going to bring about or allow a total breakup of the European Union due to the Greece crisis and its danger of spreading to Spain, Portugal, Ireland? Are Europeans going to revert to 27 different currencies? I seriously doubt that. A solution will be found for Greece to leave the Eurozone in an orderly manner with constructive assistance from the EU or the Greeks will put forward a credible,  acceptable austerity and reform alternative to get itself back on a sustainable footing. I’m not optimistic about the latter option.                                         

Irregardless, Paul Krugman’s suggestion that the European Union is about to or could Fall Apart soon is a bit premature and highly improbable!   

Frank Thomas
The Netherlands
May 16, 2012

Time to Say Danke

by Fareed Zakaria

Published May 28, 2012 in Time magazine

Everyone is worried that Greece will default on its national debt. That's really not news. By one estimate, since it gained its independence from the Ottomans in 1832, Greece has been in default or restructuring for half this period. The news is that this time, Germany is willing to bail it out.

Throughout the euro-zone crisis, it has become conventional wisdom to regard the Germans as narrow-minded, ungenerous and dogmatically wedded to prescriptions of austerity to treat Europe's problems. Those criticisms are vastly overstated. Consider that Germany is being asked to take its taxpayers' money--in a democracy--and use it to bail out a country like Greece, which is guilty of mismanagement, poor competitiveness and financial fraud. And it has said yes! In return for this, Germans are being called Nazis in Greek newspapers.

Germany was an organizer of and is by far the largest contributor to the European Financial Stability Facility, which totals a staggering 726 billion euros ($924 billion). That number will rise and, when combined with earlier funds and loans, Germany's share will easily exceed the country's total annual federal tax revenues. Imagine the U.S. being willing to guarantee more than $2 trillion to bail out Mexico.

We hear a lot about the German public's opposition to helping the Southern European countries. What's remarkable, given the scale of German aid, is how little opposition there is. This month, Parliament will easily ratify a number of these funding mechanisms as well as a new financial-transaction tax to pay for part of this. (The Germans have the old-fashioned, conservative view that if you spend money, you should pay your bills.) In late February, one of the bailout packages cleared the German Parliament in a 496-to-90 vote. The German government has also relaxed its once rigid opposition to a more aggressive monetary policy. Mario Draghi, head of the European Central Bank, would not have been able to provide cheap loans to Europe's banks--thus staving off a Lehman Brothers--like crisis--without German approval.

There is a lively political debate to be had about whether the U.S. needs austerity measures right now. (I would say no.) But Greece and the other weak euro-zone countries had few options. Markets had become unwilling to lend them money because of their ever rising debt loads. It was as a response to genuine market pressures that these governments began to get their budgets in order. The austerity programs place too little emphasis on growth, but had these nations wantonly spent money, their interest payments would have skyrocketed. Most important, the Germans have not emphasized austerity so much as structural reform--opening up labor markets, liberalizing sectors and dismantling protections. What economies like Greece really need is less austerity and more reform. The lesson of most debt crises is that countries that make these changes ultimately make themselves more competitive.

Southern Europe has a long way to go on that score. In terms of the ease of doing business, the World Bank ranks Italy and Greece last (30th and 31st) among high-income countries. The World Economic Forum ranks Greece and Italy 125th and 126th in flexibility of hiring and firing and 133rd and 140th (out of 142!) in the burden of government regulation. Tax collection is almost nonexistent in both countries, and corruption is rampant.

Largely thanks to European Union (read: German) subsidies, over the past 10 years, wages have risen dramatically in Southern Europe. Unit labor costs in Greece went up by 35% from 2000 to 2010. They went up 2% in Germany.

German leaders have said again and again that they are willing to bail out weak euro-zone countries. But they have asked for reform as a condition of that aid. German Chancellor Angela Merkel is opposed to a sweeping solution like eurobonds not because of their cost--Germany will end up paying more--but because they would take off pressure to reform. The only leverage Germany has with countries like Greece is that the money gets to them incrementally as they enact reforms.

Greece might yet have to default and quit the euro zone. Its competitiveness problem is simply too great and its political leadership too weak. But if it goes down this path, Greece will find that the markets will refuse to lend it money at reasonable rates unless it does pretty much the same things Germany is asking it to do. Life without Germany will mean a lot more austerity than life with Germany.

Read more: http://www.time.com/time/magazine/article/0,9171,2115038,00.html#ixzz1vRjssHwP

The Commencement Address That Won’t Be Given

by Robert Reich

Friday, May 18, 2012

Members of the Class of 2012,

As a former secretary of labor and current professor, I feel I owe it to you to tell you the truth about the pieces of parchment you’re picking up today.

You’re f*cked.

Well, not exactly. But you won’t have it easy.

First, you’re going to have a hell of a hard time finding a job. The job market you’re heading into is still bad. Fewer than half of the graduates from last year’s class have as yet found full-time jobs. Most are still looking.

That’s been the pattern over the last three graduating classes: It’s been taking them more than a year to land the first job. And those who still haven’t found a job will be competing with you, making your job search even harder.

Contrast this with the class of 2008, whose members were lucky enough to get out of here and into the job market before the Great Recession really hit. Almost three-quarters of them found jobs within the year.

You’re still better off than your friends who didn’t graduate. Overall, the unemployment rate among young people (21 to 24 years old) with four-year college degrees is now 6.4 percent. With just a high school degree, the rate is double that.

But even when you get a job, it’s likely to pay peanuts.

Last year’s young college graduates lucky enough to land jobs had an average hourly wage of only $16.81, according to a new study by the Economic Policy Institute. That’s about $35,000 a year – lower than the yearly earnings of young college graduates in 2007, before the Great Recession. The typical wage of young college graduates dropped 4.6 percent between 2007 and 2011, adjusted for inflation.

Presumably this means that when we come out of the gravitational pull of the recession your wages will improve. But there’s a longer-term trend that should concern you.

The decline in the earnings of college grads really began more than a decade ago. Young college grads with jobs are earnings 5.4 percent less than they did in the year 2000, adjusted for inflation.

Don’t get me wrong. A four-year college degree is still valuable. Over your lifetimes, you’ll earn about 70 percent more than people who don’t have the pieces of parchment you’re picking up today.

But this parchment isn’t as valuable as it once was. So much of what was once considered “knowledge work” – the kind that college graduates specialize in – can now be done more cheaply by software. Or by workers with college degrees in India or East Asia, linked up by Internet.

For many of you, your immediate problem is that pile of debt on your shoulders. In a few moments, when you march out of here, those of you who have taken out college loans will owe more than $25,000 on average. Last year, ten percent of college grads with loans owed more than $54,000. Your parents have also taken out loans to help you. Loans to parents for the college educations of their children have soared 75 percent since the academic year 2005-2006.

Outstanding student debt now totals over $1 trillion. That’s more than the nation’s total credit-card debt.  

The extraordinary rise in student debt is due to two related facts: the cost of a college education continues to increase faster than inflation, and state and local spending per college student continues to drop – this year reaching a 25-year low.

But this can’t go on. If unemployment stays high for many years, if the wages of young college grads continue to fall, if the costs of college continue to rise and state and local spending per college student continues to drop, and if the college debt burden therefore continues to explode – well, you do the math.

At some point in the not-too-distant future these lines cross. College is no longer a good investment.

That’s a problem for you and for those who will follow you into these hallowed halls, but it’s also a problem for America as a whole.

You see, a college education isn’t just a private investment. It’s also a public good. This nation can’t be competitive globally, nor can we have a vibrant and responsible democracy, without a large number of well-educated people.

So it’s not just you who are burdened by these trends. If they continue, we’re all f*cked.

How J.P. Morgan Chase Has Made the Case for Breaking Up The Big Banks and Resurrecting Glass-Steagall

by Robert Reich

Thursday, May 10, 2012

 

J.P. Morgan Chase & Co., the nation’s largest bank, whose chief executive, Jamie Dimon, has led Wall Street’s war against regulation, announced Thursday it had lost $2 billion in trades over the past six weeks and could face an additional $1 billion of losses, due to excessively risky bets.

The bets were “poorly executed” and “poorly monitored,” said Dimon, a result of “many errors, “sloppiness,” and “bad judgment.” But not to worry. “We will admit it, we will fix it and move on.”

Move on? Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.

Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets).

Dimon argued that the financial system could be trusted; that the near-meltdown of 2008 was a perfect storm that would never happen again.

Since then, J.P. Morgan’s lobbyists and lawyers have done everything in their power to eviscerate the Volcker rule — creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near-meltdown.

And now — only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent, pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression — J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, and poorly-executed and excessively risky trades that caused the crisis in the first place.

In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.

The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?

Several weeks ago there were rumors about a London-based Morgan trader making huge high-stakes bets, causing excessive volatility in derivatives markets. When asked about it then, Dimon called it “a complete tempest in a teapot.” Using the same argument he has used to fend off regulation of derivatives, he told investors that “every bank has a major portfolio” and “in those portfolios you make investments that you think are wise to offset your exposures.”

Let’s hope Morgan’s losses don’t turn into another crisis of confidence and they don’t spread to the rest of the financial sector.

But let’s also stop hoping Wall Street will mend itself. What just happened at J.P. Morgan – along with its leader’s cavalier dismissal followed by lame reassurance – reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded.

 

Those Revolting Europeans

Op-Ed Columnist

By PAUL KRUGMAN

Published: May 6, 2012 in the New York Times

The French are revolting. The Greeks, too. And it’s about time.

Both countries held elections Sunday that were in effect referendums on the current European economic strategy, and in both countries voters turned two thumbs down. It’s far from clear how soon the votes will lead to changes in actual policy, but time is clearly running out for the strategy of recovery through austerity — and that’s a good thing.

Needless to say, that’s not what you heard from the usual suspects in the run-up to the elections. It was actually kind of funny to see the apostles of orthodoxy trying to portray the cautious, mild-mannered François Hollande as a figure of menace. He is “rather dangerous,” declared The Economist, which observed that he “genuinely believes in the need to create a fairer society.” Quelle horreur!

What is true is that Mr. Hollande’s victory means the end of “Merkozy,” the Franco-German axis that has enforced the austerity regime of the past two years. This would be a “dangerous” development if that strategy were working, or even had a reasonable chance of working. But it isn’t and doesn’t; it’s time to move on. Europe’s voters, it turns out, are wiser than the Continent’s best and brightest.

What’s wrong with the prescription of spending cuts as the remedy for Europe’s ills? One answer is that the confidence fairy doesn’t exist — that is, claims that slashing government spending would somehow encourage consumers and businesses to spend more have been overwhelmingly refuted by the experience of the past two years. So spending cuts in a depressed economy just make the depression deeper.

Moreover, there seems to be little if any gain in return for the pain. Consider the case of Ireland, which has been a good soldier in this crisis, imposing ever-harsher austerity in an attempt to win back the favor of the bond markets. According to the prevailing orthodoxy, this should work. In fact, the will to believe is so strong that members of Europe’s policy elite keep proclaiming that Irish austerity has indeed worked, that the Irish economy has begun to recover.

But it hasn’t. And although you’d never know it from much of the press coverage, Irish borrowing costs remain much higher than those of Spain or Italy, let alone Germany. So what are the alternatives?

One answer — an answer that makes more sense than almost anyone in Europe is willing to admit — would be to break up the euro, Europe’s common currency. Europe wouldn’t be in this fix if Greece still had its drachma, Spain its peseta, Ireland its punt, and so on, because Greece and Spain would have what they now lack: a quick way to restore cost-competitiveness and boost exports, namely devaluation.

As a counterpoint to Ireland’s sad story, consider the case of Iceland, which was ground zero for the financial crisis but was able to respond by devaluing its currency, the krona (and also had the courage to let its banks fail and default on their debts). Sure enough, Iceland is experiencing the recovery Ireland was supposed to have, but hasn’t.

Yet breaking up the euro would be highly disruptive, and would also represent a huge defeat for the “European project,” the long-run effort to promote peace and democracy through closer integration. Is there another way? Yes, there is — and the Germans have shown how that way can work. Unfortunately, they don’t understand the lessons of their own experience.

Talk to German opinion leaders about the euro crisis, and they like to point out that their own economy was in the doldrums in the early years of the last decade but managed to recover. What they don’t like to acknowledge is that this recovery was driven by the emergence of a huge German trade surplus vis-à-vis other European countries — in particular, vis-à-vis the nations now in crisis — which were booming, and experiencing above-normal inflation, thanks to low interest rates. Europe’s crisis countries might be able to emulate Germany’s success if they faced a comparably favorable environment — that is, if this time it was the rest of Europe, especially Germany, that was experiencing a bit of an inflationary boom.

So Germany’s experience isn’t, as the Germans imagine, an argument for unilateral austerity in Southern Europe; it’s an argument for much more expansionary policies elsewhere, and in particular for the European Central Bank to drop its obsession with inflation and focus on growth.

The Germans, needless to say, don’t like this conclusion, nor does the leadership of the central bank. They will cling to their fantasies of prosperity through pain, and will insist that continuing with their failed strategy is the only responsible thing to do. But it seems that they will no longer have unquestioning support from the Élysée Palace. And that, believe it or not, means that both the euro and the European project now have a better chance of surviving than they did a few days ago.

Social Security is Not Going Broke

By David Cay Johnston

May 4, 2012 from Reuters

Which federal program took in more than it spent last year, added $95 billion to its surplus and lifted 20 million Americans of all ages out of poverty?

Why, Social Security, of course, which ended 2011 with a $2.7 trillion surplus.

That surplus is almost twice the $1.4 trillion collected in personal and corporate income taxes last year. And it is projected to go on growing until 2021, the year the youngest Baby Boomers turn 67 and qualify for full old-age benefits.

So why all the talk about Social Security “going broke?” That theme filled the news after release of the latest annual report of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, as Social Security is formally called.

The reason is that the people who want to kill Social Security have for years worked hard to persuade the young that the Social Security taxes they pay to support today’s gray hairs will do nothing for them when their own hair turns gray.

That narrative has become the conventional wisdom because it is easily reduced to a headline or sound bite. The facts, which require more nuance and detail, show that, with a few fixes, Social Security can be safe for as long as we want.

SHIFTING TAX BURDENS

Let’s look at how Social Security taxes have grown in the last half century — a little-known tale of tax burdens shifted off the rich and onto workers. From 1961 through 2011, the year covered in the last Social Security report, Social Security taxes exploded from 3.1 percent of Gross Domestic Product to 5.5 percent.

Income taxes went the other way. The personal income tax slipped from 7.8 percent of the economy to 7.3 percent, with most of the decline enjoyed by people in the top 1 percent of incomes. The big drop was in the corporate income tax, which fell from 4 percent of the economy to 1.2 percent. Notice that the corporate income tax fell by 2.8 percentage points, an amount almost entirely offset by a 2.4 percentage point increase in Social Security taxes.

The effect has been to ease the taxes of the wealthy, while burdening the vast majority of workers. Considering how highly ownership of stocks is concentrated, the benefit of those lower corporate taxes went overwhelmingly to the top 1 percent and, especially, the top 1 percent of the top 1 percent. Considering that the Social Security tax is capped, most of the burden of the increased payroll tax went to the bottom 90 percent.

Now let’s look at how that $2.7 trillion Social Security surplus arose. In 1983, President Ronald Reagan sponsored an increase in Social Security taxes, changing the program from pay-as-you-go to collecting much more taxes than it paid in benefits. The idea was to have the Boomers prepay part of their old age benefits. The extra tax was supposed to pay off the federal debt and then be invested in federal bonds. Instead, Reagan ran huge deficits, violating his 1980 promise to balance the federal budget within three years of taking office.

FINANCING TAX CUTS

In my view, building the Social Security surplus has had two major effects.

One effect was to finance tax cuts for those at the top, whose highest tax rate fell during the Reagan years from 70 percent to 28 percent, and for corporations, whose rate fell from 50 percent of profits to 35 percent. Those with less subsidized those with more.

The other effect was a huge increase in consumer debt, as Americans saddled with higher Social Security taxes took out loans to cover other needs. Stagnant wages played a role, but the $2.7 trillion Social Security surplus is also a factor in a $1.5 trillion increase in consumer debt since 1984.

It is no wonder consumers have gone into debt. Paying a tax in advance is expensive. Indeed, the first lesson in tax planning is that a tax deferred for 30 years is effectively a tax avoided, provided the money is invested wisely. The reverse is also true. A dollar of tax paid in 1984 cost $2.20 in today’s dollars, and that’s before counting the interest that could have been earned.

With the coming bulge in retirees, Social Security will start to pay out more than it takes in 2021, according to projections in the latest annual report. Under current law the program would be able to pay only about three-quarters of promised benefits starting in 2033. But that scenario can easily be avoided through a combination of four policy changes that would ensure full benefits continue to be paid, though I fear Congress will continue to do nothing.

One would be restoring the Reagan standard that 90 percent of wages are covered by the Social Security tax, which now applies to only 83 percent of wages. If we went back to the Reagan standard, the Social Security tax would apply to close to $200,000 of wages this year instead of $110,100.

Two would be raising the Social Security tax rate by two percentage points. That tax hike could be smaller or even avoided if, three, we reignited the growth in wages. Median wages have fallen in 2010 back to the level of 1999. And, four, it would help just as much if we created millions more jobs, which since 2000 have grown at only a fifth the rate of population increases.

Under current tax rules, the Social Security shortfall for the next 75 years is $8.6 trillion.

But there is a much bigger problem that needs our attention. If we continue national security spending at current levels, with no future increases, the total cost would be $63 trillion, based on the figures in President Barack Obama’s latest budget. Unlike spending on Social Security, much of the national security spending goes overseas. And that makes us worse off.

A Generation Hobbled by the Soaring Cost of College

By ANDREW MARTIN and ANDREW W. LEHREN

Published: May 12, 2012 by the New York Times

ADA, Ohio — Kelsey Griffith graduates on Sunday from Ohio Northern University. To start paying off her $120,000 in student debt, she is already working two restaurant jobs and will soon give up her apartment here to live with her parents. Her mother, who co-signed on the loans, is taking out a life insurance policy on her daughter.

“If anything ever happened, God forbid, that is my debt also,” said Ms. Griffith’s mother, Marlene Griffith.

Ms. Griffith, 23, wouldn’t seem a perfect financial fit for a college that costs nearly $50,000 a year. Her father, a paramedic, and mother, a preschool teacher, have modest incomes, and she has four sisters. But when she visited Ohio Northern, she was won over by faculty and admissions staff members who urge students to pursue their dreams rather than obsess on the sticker price.

“As an 18-year-old, it sounded like a good fit to me, and the school really sold it,” said Ms. Griffith, a marketing major. “I knew a private school would cost a lot of money. But when I graduate, I’m going to owe like $900 a month. No one told me that.”

With more than $1 trillion in student loans outstanding in this country, crippling debt is no longer confined to dropouts from for-profit colleges or graduate students who owe on many years of education, some of the overextended debtors in years past. Now nearly everyone pursuing a bachelor’s degree is borrowing. As prices soar, a college degree statistically remains a good lifetime investment, but it often comes with an unprecedented financial burden.

Ninety-four percent of students who earn a bachelor’s degree borrow to pay for higher education — up from 45 percent in 1993, according to an analysis by The New York Times of the latest data from the Department of Education. This includes loans from the federal government, private lenders and relatives.

For all borrowers, the average debt in 2011 was $23,300, with 10 percent owing more than $54,000 and 3 percent more than $100,000, the Federal Reserve Bank of New York reports. Average debt for bachelor degree graduates who took out loans ranges from under $10,000 at elite schools like Princeton and Williams College, which have plenty of wealthy students and enormous endowments, to nearly $50,000 at some private colleges with less affluent students and less financial aid.

Here at Ohio Northern, recent graduates with bachelor’s degrees are among the most indebted of any college in the country, and statewide, graduates of Ohio’s more than 200 colleges and universities carry some of the highest average debt in the country, according to data reported by the colleges and compiled by an educational advocacy group. The current balance of federal student loans nationwide is $902 billion, with an additional $140 billion or so in private student loans.

“If one is not thinking about where this is headed over the next two or three years, you are just completely missing the warning signs,” said Rajeev V. Date, deputy director of the Consumer Financial Protection Bureau, the federal watchdog created after the financial crisis.

Mr. Date likened excessive student borrowing to risky mortgages. And as with the housing bubble before the economic collapse, the extraordinary growth in student loans has caught many by surprise. But its roots are in fact deep, and the cast of contributing characters — including college marketing officers, state lawmakers wielding a budget ax and wide-eyed students and families — has been enabled by a basic economic dynamic: an insatiable demand for a college education, at almost any price, and plenty of easy-to-secure loans, primarily from the federal government.

The roots of the borrowing binge date to the 1980s, when tuition for four-year colleges began to rise faster than family incomes. In the 1990s, for-profit colleges boomed by spending heavily on marketing and recruiting. Despite some ethical lapses and fraud, enrollment more than doubled in the last decade and Wall Street swooned over the stocks. Roughly 11 percent of college students now attend for-profit colleges, and they receive about a quarter of federal student loans and grants.

In the last decade, even as enrollment at state colleges and universities has grown, some states have cut spending for higher education and many others have not allocated enough money to keep pace with the growing student body. That trend has accelerated as state budgets have shrunk because of the recent financial crisis and the unpopularity of tax increases.

Indentured Servitude for Seniors: Social Security Garnished for Student Debts

by Ellen Brown, May 13, 2012 from Nation of Change

Security program…represents our commitment as a society to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.  

-- President Jimmy Carter, December 20, 1977.

[This law] assures the elderly that America will always keep the promises made in troubled times a half century ago…[The Social Security Amendments of 1983 are] a monument to the spirit of compassion and commitment that unites us as a people.

-- President Ronald Reagan, April 20, 1983.

So said Presidents Carter and Regan, but that was before 1996, when Congress voted to allow federal agencies to offset portions of Social Security payments to collect debts owed to those agencies. (31 U.S.C. §3716).  Now we read of horror stories like this:

I’m a 68 year old grandma of 2 young grandchildren. I went to college to upgrade my employment status in 1998 or 1999. I finished in 2000 and at that time had a student loan balance of about 3500.00.

Could not find a job and had to request forbearance to carry me. Over the years I forgot about the loan, dealt with poor health, had brain surgery in 2006 and the collection agents decided to collect for the loan in 2008. 

At no time during the 6-7 year gap did anyone remind me or let me know that I could make a minimum payment on the loan. Now that I am on Social Security (have been since I was 62), they have decided to garnishee my SS check to the tune of 15%.

I have not been employed since 2004 and have the two dependents . . . .  I don’t dispute that I owed them the $3500.00 but am wondering why they let it build up to somewhere around $17,000/20,000 before they attempted to collect. 

Her debt went from $3500 to over $17,000 in 10 years?!  How could that be?

It seems that Congress has removed nearly every consumer protection from student loans, including not only standard bankruptcy protections, statutes of limitations, and truth in lending requirements, but protection from usury (excessive interest).  Lenders can vary the interest rates, and some borrowers are reporting rates as high as 18-20%.  At 20%, debt doubles in just 3-1/2 years; and in 7 years, it quadruples.  Congress has also given lenders draconian collection powers to extort not just the original principal and interest on student loans but huge sums in penalties, fees, and collection costs.

The majority of these debts are being imposed on young people, who have a potential 40 years of gainful employment ahead of them to pay the debt off.  But a sizeable chunk of U.S. student loan debt is held by senior citizens, many of whom are not only unemployed but unemployable.  According to the New York Federal Reserve, two million U.S. seniors age 60 and over have student loan debt, on which they owe a collective $36.5 billion; and 11.2 percent of this debt is in default.  Almost a third of all student loan debt is held by people aged 40 and over, and 4.2% is held by people over the age of 60.  The total student debt is now over $1 trillion, more even than credit card debt.  The sum is unsustainable and threatens to be the next debt tsunami.

Some of this debt is for loans taken out years earlier on their own schooling, and some is from co-signing student loans for children or grandchildren.  But much of it has been incurred by middle-aged people going back to school in the hope of finding employment in a bad job market.  What they have wound up with is something much worse: no job, an exponentially mounting debt that cannot be discharged in bankruptcy, and the prospect of old age without a social security check adequate to survive on.

Gone is the promise of earlier presidents of a “commitment to the belief that workers should not live in dread that a disability, death, or old age could leave them or their families destitute.”  The plight of the indebted elderly is reminiscent of the Irish immigrants who came to America after a potato famine in the 19th century, who were looked upon in some places as actually lower than slaves. Plantation owners kept their slaves fed, clothed and cared for, because they were valuable property.  The Irish were expendable, and they were on their own.2

It is obviously not a good time to raise interest rates on student debt, but they are set to double on July 1, 2012, to 6.8%.  Many lawmakers in both parties agree that the current 3.4% rates should be extended for another year, but they can’t agree on how to find the $6 billion that this would cost.  Republicans want to take the money from a health care fund that promotes preventive care; Democrats want to eliminate some tax benefits for small business owners.

Congress cannot agree on $6 billion to save the students, yet they managed to agree in a matter of days in September 2008 to come up with $700 billion to save the banks; and the Federal Reserve found many trillions more.  Estimates are that tuition could be provided free to students for a mere $30 billion annually.  The government has the power to find $30 billion -- or $300 billion or $3 trillion -- in the same place the Federal Reserve found it: it can simply issue the money.

Congress is empowered by the Constitution to “coin money” and “regulate the value thereof,” and no limit is set on the face amount of the coins it creates. It could issue a few one-billion dollar coins, deposit them in an account, and start writing checks. 

But wouldn’t that be inflationary?  No.  The Fed’s own figures show that the money supply (M3) has shrunk by $3 trillion since 2008. That sum could be added back into the economy without inflating prices.  Gas and food are going up today, but the whole range of prices must be considered in order to determine whether price inflation is occurring.  Housing and wages are significantly larger components of the price structure than commodities, and they remain severely depressed.

There is another way the government could find needed funds without raising taxes, slashing services, or going further into debt: Congress could re-finance the federal debt through the Federal Reserve, interest-free.  Canada did this from 1939 to 1974, keeping its national debt low and sustainable while funding massive programs including seaways, roadways, pensions, and national health care.  The national debt shot up only when the government switched from borrowing from its own central bank to borrowing from private lenders at interest.  The rationale was that borrowing bank-created money from the government’s own central bank inflated the money supply, while borrowing existing funds from private banks did not.  But even the Federal Reserve acknowledges that private banks create the money they lend on their books, just as central banks do.

U.S. taxpayers now pay nearly half a trillion dollars annually to finance our federal debt.  The cumulative figure comes to $8.2 trillion paid in interest just in the last 24 years.  By financing the debt itself rather than paying interest to private parties, the government could divert what it would have paid in interest into tuition, jobs, infrastructure and social services, allowing us to keep the social contract while at the same time stimulating the economy. 

For students, at the very least the bankruptcy option needs to be reinstated, usury laws restored, predatory practices eliminated, and the cost of education brought back down to earth.  One possibility for relieving the burden on students would be to give them interest-free loans.  The government of New  Zealand now offers 0% loans to New Zealand students, with repayment to be made from their income after they graduate.  For the past twenty years, the Australian government has also successfully funded students by giving out what are in effect interest-free loans.  The loans in the Australian Higher Education Loan Program (or HELP) do not bear interest, but the government gets back more than it lends, because the principal is indexed to the Consumer Price Index (CPI), which goes up every year. 

Predatory lenders are keeping us in debt peonage through misguided economics and bank-captured legislators.  We have people who desperately want to work, to the point of going back to school to try to improve their chances; and we have mountains of work that needs to be done.  The only thing keeping them apart is that artificial constraint called “money”, which we have allowed to be created by banks and let out at interest when it could have been created by public institutions for public purposes, either by direct issuance or through publicly owned banks.  We just need to recognize our oppressors and throw off their yoke, and the good times can roll again.

Of Bedrooms and Boardrooms

by Robert Reich

Wednesday, May 9, 2012

The 2012 election should be about what’s going on in America’s boardrooms, but Republicans would rather it be about America’s bedrooms.

Mitt Romney says he’s against same-sex marriage; President Obama just announced his support. North Carolina voters have approved a Republican-proposed amendment to the state constitution banning same-sex marriage. Minnesota voters will be considering a similar amendment in November. Republicans in Maryland and Washington State are seeking to overturn legislative approval of same-sex marriage there.

Meanwhile, Republicans have introduced over four hundred bills in state legislatures aimed at limiting womens’ reproductive rights – banning abortions, requiring women seeking abortions to have invasive ultra-sound tests beforehand, and limiting the use of contraceptives.

The Republican bedroom crowd doesn’t want to talk about the nation’s boardrooms because that’s where most of their campaign money comes from. And their candidate for president has made a fortune playing board rooms like checkers.

Yet America’s real problems have nothing to do with what we do in our bedrooms and everything to do with what top executives do in their boardrooms and executive suites.

We’re not in trouble because gays want to marry or women want to have some control over when they have babies. We’re in trouble because CEOs are collecting exorbitant pay while slicing the pay of average workers, because the titans of Wall Street demand short-term results over long-term jobs, and because of a boardroom culture that tolerates financial conflicts of interest, insider trading, and the outright bribery of public officials through unlimited campaign “donations.”

Our crisis has nothing to do with private morality. It’s a crisis of public morality – of abuses of public trust that undermine the integrity of our economy and democracy and have led millions of Americans to conclude the game is rigged.

What’s truly immoral is not what adults choose to do with other consenting adults. It’s what those with great power have chosen to do to the rest of us.

It is immoral that top executives are richly rewarded no matter how badly they screw up while most Americans are screwed no matter how hard they work.

Regressive Republicans have no problem intruding on the most personal and most intimate decisions any of us makes while railing against government intrusions on big business.

They don’t hesitate to hurl the epithets “shameful,” “disgraceful,” and “contemptible” at private moral decisions they disagree with, while staying stone silent in the face of the most contemptible violations of public trust at the highest reaches of the economy.

We must protect and advance private rights of individuals over intimate bedroom decisions. We must also stop the abuses of economic power and privilege that are characterizing so many decisions in the nation’s boardrooms and executive suites.

A Question of Timing: What America Can Learn from the Revolt in Europe

by Robert Reich

Monday, May 7, 2012

 

Who’s an economy for? Voters in France and Greece have made it clear it’s not for the bond traders.

Referring to his own electoral woes, Prime Minister David Cameron wrote Monday in an article in the conservative Daily Telegraph: “When people think about the economy they don’t see it through the dry numbers of the deficit figures, trade balances or inflation forecasts — but instead the things that make the difference between a life that’s worth living and a daily grind that drags them down.”

Cameron, whose own economic policies have worsened the daily grind dragging down most Brits, may be sobered by what happened over the weekend in France and Greece – as well as his own poll numbers. Britain’s conservatives have been taking a beating.

In truth, the choice isn’t simply between budget-cutting austerity, on the one hand, and growth and jobs on the other. 

It’s really a question of timing. And it’s the same issue on this side of the pond. If government slices spending too early, when unemployment is high and growth is slowing, it makes the debt situation far worse.

That’s because public spending is a critical component of total demand. If demand is already lagging, spending cuts further slow the economy – and thereby increase the size of the public debt relative to the size of the overall economy.

You end up with the worst of both worlds – a growing ratio of debt to the gross domestic product, coupled with high unemployment and a public that’s furious about losing safety nets when they’re most needed.

The proper sequence is for government to keep spending until jobs and growth are restored, and only then to take out the budget axe.

If Hollande’s new government pushes Angela Merkel in this direction, he’ll end up saving the euro and, ironically, the jobs of many conservative leaders throughout Europe – including Merkel and Cameron.

But he also has an important audience in the United States, where Republicans are trying to sell a toxic blend of trickle-down supply-side economics (tax cuts on the rich and on corporations) and austerity for everyone else (government spending cuts). That’s exactly the opposite of what’s needed now.  

Yes, America has a long-term budget deficit that’s scary. So does Europe. But the first priority in America and in Europe must be growth and jobs. That means rejecting austerity economics for now, while at the same time demanding that corporations and the rich pay their fair share of the cost of keeping everyone else afloat.

President Obama and the Democrats should set a clear trigger — say, 6 percent unemployment and two quarters of growth greater than 3 percent — before whacking the budget deficit.

And they should set that trigger now, during the election, so the public can give them a mandate on Election Day to delay the “sequestration” cuts (now scheduled to begin next year) until that trigger is met.

 

Corruption Accounts For As Much As 14 Dollars Out Of Every Tank Of Gas

By Lee Fang posted May 7th 2012 at 1:14PM in the Republic Report

You pay a hidden premium every time they fill up your gas tank. The prices are high at the gas station, but part of the price you pay is directly caused by commodity speculators. And you can thank lobbyists for why the government has been unable to do anything to solve the problem.

Over the years, Wall Street speculators have taken advantage of significant loopholes in commodity trading law — loopholes often written by industry lobbyists — to buy up oil delivery contracts and boost the price of oil. While excessive speculation results in lots of money for investors, it also means that Americans are forced to pay more at the pump.

How much money? Bart Chilton, a commissioner with the Commodities Futures Trading Commission, explained to ABC News how oil reckless oil speculation is rapidly raising the price at the pump for all drivers:

By Chilton’s calculation, if you drive a car like a Honda Civic, you’re paying $7.30 more than you should every time you fill up — to Wall Street speculators. If your car is a Ford Explorer you’re paying an extra $10.41. For a Ford F150, he says owners pay an additional $14.56 per fill up -or more than $750 a year.

The government, under intense pressure from industry, punted on serious speculation limits. The few limits, called “position limits,” that have been outlined by regulators offer large exemptions and would not even take effect until next year.

Lawmakers from both parties have offered legislation that would compel regulators to impose position limits immediately and for agencies like the CFTC to act now against oil price manipulators. But nothing happens.

Republic Report has reviewed lobbying disclosures and other records to reveal the lobbyists working on behalf of the finance industry to make sure these bills to address excessive speculation never move far in Congress:

The Managed Funds Association is a trade group for hedge funds. Led by a congressman-turned-lobbyist named Richard Baker, who was once a Republican lawmaker in Louisiana, the Managed Funds Association has lobbied against a number of bills that would crack down on oil speculation, including H.R.2328, the End Excessive Oil Speculation Now Act of 2011. The Managed Funds Association counts Citadel and Elliott Management, two hedge funds identified in leaked documents concerning major oil speculators, as leading members. The association retained over 54 registered lobbyists last year and over $4 million spent influencing the federal government.

The CME Group is “the world’s largest owner and operator” of private exchanges for derivatives products. CME Group specializes in a number of markets, including trading futures contracts for various blends of crude oil and food commodities. Since the CME Group directly benefits from excessive levels of oil speculation, it’s no surprise the company has deployed a small army of lobbyists to defeat several anti-oil speculation bills, including S. 1200 and H.R. 2003. Fishing for campaign contributions, House Majority Leader Congressman Eric Cantor (R-VA) visited the company last year and promised to help rollback regulations that would affect CME Group’s business, including the rules at the CFTC.

Bloomberg reported that the International Swaps and Derivatives Association Inc. and the Securities Industry and Financial Markets Association — trade associations representing companies including JPMorgan Chase & Co., Goldman Sachs and Morgan Stanley – sued to overturn the CFTC commodity speculation rules. Though the firms lost their first battle in court, they are now pressing forward with a second suit designed to slow down the implementation of the regulations. The International Swaps and Dealers Association has over a $55 million budget, much of which goes towards lobbying and other forms of advocacy. The Securities Industry and Financial Markets Association has over 50 registered lobbyists.

As we’ve reported, major oil speculators enjoy a variety of avenues for influencing government. Paul Singer, owner of a hedge fund that engages in oil speculation, is a top donor to the largest Republican Super PAC, Crossroads GPS. Patton Boggs, a lobbying firm that counts commodity trading interests as clients, recently hired a former CFTC commissioner to become an influence peddler. That same commissioner, Michael Dunn, appears on television to erroneously claim that oil speculation isn’t a problem.

The current debate over excessive oil speculation is nothing new. In 2008, lobbyists maneuvered to crush a similar effort to curb out of control oil speculation. A bill that would have empowered the CFTC to regulate speculators was crushed, despite overwhelming evidence that speculators fueled price spikes that year. Despite calls by members of both parties for regulators to do more on commodity speculation, Wall Street lobbyists simply have too much power.

Reforming the way big money influences government might be the last thing on your mind the next time you fill up your tank. But remember, corruption is one of the reasons you’re paying so much.

Game Over for the Climate

By JAMES HANSEN

Published: May 9, 2012 by the New York Times

GLOBAL warming isn’t a prediction. It is happening. That is why I was so troubled to read a recent interview with President Obama in Rolling Stone in which he said that Canada would exploit the oil in its vast tar sands reserves “regardless of what we do.”

If Canada proceeds, and we do nothing, it will be game over for the climate.

Canada’s tar sands, deposits of sand saturated with bitumen, contain twice the amount of carbon dioxide emitted by global oil use in our entire history. If we were to fully exploit this new oil source, and continue to burn our conventional oil, gas and coal supplies, concentrations of carbon dioxide in the atmosphere eventually would reach levels higher than in the Pliocene era, more than 2.5 million years ago, when sea level was at least 50 feet higher than it is now. That level of heat-trapping gases would assure that the disintegration of the ice sheets would accelerate out of control. Sea levels would rise and destroy coastal cities. Global temperatures would become intolerable. Twenty to 50 percent of the planet’s species would be driven to extinction. Civilization would be at risk.

That is the long-term outlook. But near-term, things will be bad enough. Over the next several decades, the Western United States and the semi-arid region from North Dakota to Texas will develop semi-permanent drought, with rain, when it does come, occurring in extreme events with heavy flooding. Economic losses would be incalculable. More and more of the Midwest would be a dust bowl. California’s Central Valley could no longer be irrigated. Food prices would rise to unprecedented levels.

If this sounds apocalyptic, it is. This is why we need to reduce emissions dramatically. President Obama has the power not only to deny tar sands oil additional access to Gulf Coast refining, which Canada desires in part for export markets, but also to encourage economic incentives to leave tar sands and other dirty fuels in the ground.

The global warming signal is now louder than the noise of random weather, as I predicted would happen by now in the journal Science in 1981. Extremely hot summers have increased noticeably. We can say with high confidence that the recent heat waves in Texas and Russia, and the one in Europe in 2003, which killed tens of thousands, were not natural events — they were caused by human-induced climate change.

We have known since the 1800s that carbon dioxide traps heat in the atmosphere. The right amount keeps the climate conducive to human life. But add too much, as we are doing now, and temperatures will inevitably rise too high. This is not the result of natural variability, as some argue. The earth is currently in the part of its long-term orbit cycle where temperatures would normally be cooling. But they are rising — and it’s because we are forcing them higher with fossil fuel emissions.

The concentration of carbon dioxide in the atmosphere has risen from 280 parts per million to 393 p.p.m. over the last 150 years. The tar sands contain enough carbon — 240 gigatons — to add 120 p.p.m. Tar shale, a close cousin of tar sands found mainly in the United States, contains at least an additional 300 gigatons of carbon. If we turn to these dirtiest of fuels, instead of finding ways to phase out our addiction to fossil fuels, there is no hope of keeping carbon concentrations below 500 p.p.m. — a level that would, as earth’s history shows, leave our children a climate system that is out of their control.

We need to start reducing emissions significantly, not create new ways to increase them. We should impose a gradually rising carbon fee, collected from fossil fuel companies, then distribute 100 percent of the collections to all Americans on a per-capita basis every month. The government would not get a penny. This market-based approach would stimulate innovation, jobs and economic growth, avoid enlarging government or having it pick winners or losers. Most Americans, except the heaviest energy users, would get more back than they paid in increased prices. Not only that, the reduction in oil use resulting from the carbon price would be nearly six times as great as the oil supply from the proposed pipeline from Canada, rendering the pipeline superfluous, according to economic models driven by a slowly rising carbon price.

But instead of placing a rising fee on carbon emissions to make fossil fuels pay their true costs, leveling the energy playing field, the world’s governments are forcing the public to subsidize fossil fuels with hundreds of billions of dollars per year. This encourages a frantic stampede to extract every fossil fuel through mountaintop removal, longwall mining, hydraulic fracturing, tar sands and tar shale extraction, and deep ocean and Arctic drilling.

President Obama speaks of a “planet in peril,” but he does not provide the leadership needed to change the world’s course. Our leaders must speak candidly to the public — which yearns for open, honest discussion — explaining that our continued technological leadership and economic well-being demand a reasoned change of our energy course. History has shown that the American public can rise to the challenge, but leadership is essential.

The science of the situation is clear — it’s time for the politics to follow. This is a plan that can unify conservatives and liberals, environmentalists and business. Every major national science academy in the world has reported that global warming is real, caused mostly by humans, and requires urgent action. The cost of acting goes far higher the longer we wait — we can’t wait any longer to avoid the worst and be judged immoral by coming generations.

James Hansen directs the NASA Goddard Institute for Space Studies and is the author of “Storms of My Grandchildren.”

The Answer Isn’t Socialism; It’s Capitalism that Better Spreads the Benefits of the Productivity Revolution

by Robert Reich

Sunday, May 6, 2012

 

Francois Hollande’s victory doesn’t and shouldn’t mean a movement toward socialism in Europe or elsewhere. Socialism isn’t the answer to the basic problem haunting all rich nations. 

The answer is to reform capitalism. The world’s productivity revolution is outpacing the political will of rich societies to fairly distribute its benefits. The result is widening inequality coupled with slow growth and stubbornly high unemployment.

In the United States, almost all the gains from productivity growth have been going to the top 1 percent, and the percent of the working-age population with jobs is now lower than it’s been in more than thirty years (before the vast majority of women moved into paid work).

Inequality is also growing in Europe, along with chronic joblessness. Europe is finding it can no longer afford generous safety nets to catch everyone who has fallen out of the working economy.

Consumers in China are gaining ground but consumption continues to shrink as a share of China’s increasingly productive economy, while inequality in China is soaring. China’s wealthy elites are emulating the most conspicuous consumption of the rich in the West.

At the heart of the productivity revolution are the computers, software, and the Internet that have found their way into the production of almost everything a modern economy creates. Factory workers are being replaced by computerized machine tools and robotics; office workers, by software applications; professionals, by ever more specialized apps; communications and transportation workers, by the Internet.

Some work continues to be outsourced abroad to very low-wage workers in developing nations but this is not the major cause of the present trend. This work now comprises such a tiny fraction of the costs of production that it’s becoming cheaper for companies to do more of it at home with computers and software, and even bring back some of it (“in-source”) from abroad.   

Consumers in rich nations are reaping some of the benefits of the productivity revolution in the form of lower prices or more value for the money – consider the cost of color TVs, international phone calls, or cross-country flights compared to what they were before.

But most of the gains are going to the shareholders who own the companies, and to the relatively small number of very talented (or very lucky and well-connected) managers, engineers, designers, and legal or financial specialists on whom the companies depend for strategic decisions about what to produce and how.

Increasingly, via stock options and bonuses, the owners and the “talent” are one and the same. While many other people indirectly own shares of stock through their pensions and 401-K plans, 90 percent of the value of all financial assets in the U.S. belongs to the richest 10 percent of the American population.

Meanwhile, a large number of low-paid service workers sell personalized comfort and attention – something software can’t do — in the retail, restaurant, hotel, and hospital sectors (most U.S. job growth since 2009 has occurred here.) Others – temps, contract workers, the under- and partially-employed, fill in where they can. A growing number are not working.

The problem is not that the productivity revolution has caused unemployment or under-employment. The problem is its fruits haven’t been widely shared. Less work isn’t a bad thing. Most people prefer leisure. A productivity revolution such as we are experiencing should enable people to spend less time at work and have more time to do whatever they’d rather do.

The problem comes in the distribution of the benefits of the productivity revolution. A large portion of the population no longer earns the money it needs to live nearly as well as the productivity revolution would otherwise allow. It can’t afford the “leisure” its now experiencing involuntarily.

Not only is this a problem for them; it’s also a problem for the overall economy. It means that a growing portion of the population lacks the purchasing power to keep the economy going. In the United States, consumers account for 70 percent of economic activity. If they as a whole cannot afford to buy all the goods and services the productivity revolution is generating, the economy becomes stymied. Growth is anemic; unemployment remains high.

That’s why “supply-side” tax cuts for corporations and the wealthy are perverse. Corporations and the rich don’t need more tax cuts; they’re swimming in money as it is. The reason they don’t invest in additional productive capacity and hire more people is they don’t see a sufficient market for the added goods and services, which means an inadequate return on such investment.

But more Keynesian stimulus won’t help solve the more fundamental problem. Although added government spending has gone some way toward filling the gap in demand caused by consumers whose jobs and incomes are disappearing, it can’t be a permanent solution. Even if the wealthy paid their fair share of taxes, deficits would soon get out of control. Additional public investments in infrastructure and basic research and development can make the economy more productive – but more productivity doesn’t necessarily help if a growing portion of the population can’t absorb it.

What to do? Learn from our own history.

The last great surge in productivity occurred between 1870 and 1928, when the technologies of the first industrial revolution were combined with steam power and electricity, mass produced in giant companies enjoying vast economies of scale, and supplied and distributed over a widening system of rails. That ended abruptly in the Great Crash of 1929, when income and wealth had become so concentrated at the top (the owners and financiers of these vast combines) that most people couldn’t pay for all these new products and services without going deeply and hopelessly into debt – resulting in a bubble that loudly and inevitably popped.

If that sounds familiar, it should. A similar thing happened between 1980 and 2007, when productivity revolution of computers, software, and, eventually, the Internet spawned a new economy along with great fortunes. (It’s not coincidental that 1928 and 2007 mark the two peaks of income concentration in America over the last hundred years, in which the top 1 percent raked in over 23 percent of total income.)

But here’s the big difference. During the Depression decade of the 1930s, the nation reorganized itself so that the gains from growth were far more broadly distributed. The National Labor Relations Act of 1935 recognized unions’ rights to collectively bargain, and imposed a duty on employers to bargain in good faith. By the 1950s, a third of all workers in the United States were unionized, giving them the power to demand some of the gains from growth.

Meanwhile, Social Security, unemployment insurance, and worker’s compensation spread a broad safety net. The forty-hour workweek with time-and-a-half for overtime also helped share the work and spread the gains, as did a minimum wage. In 1965, Medicare and Medicaid broadened access to health care. And a progressive income tax, reaching well over 70 percent on the highest incomes, also helped ensure that the gains were spread fairly.

This time, though, the nation has taken no similar steps. Quite the contrary: A resurgent right insists on even more tax breaks for corporations and the rich, massive cuts in public spending that will destroy what’s left of our safety nets, including Social Security and Medicare and Medicaid, fewer rights for organized labor, more deregulation of labor markets, and a lower (or no) minimum wage.

This is, quite simply, nuts.

And this is why a second Obama administration, should there be one, must focus its attention on more broadly distributing the gains from growth. This doesn’t mean “redistributing” from rich to poor, as in a zero-sum game. It doesn’t mean socialism. The rich will do far better with a smaller share of a robust, growing economy than they’re doing with a large share of an economy that’s barely moving forward.

This will require real tax reform – not just a “Buffet” minimal tax but substantially higher marginal rates and more brackets at the top, with a capital gains rate matching the income-tax rate. It also means a larger Earned Income Tax Credit, whose benefits extend high into the middle class. That will enable many Americans to move to a 35-hour workweek without losing ground – thereby making room for more jobs.

It means Medicare for all rather than an absurdly-costly system that relies on private for-profit insurers and providers.

It will require limiting executive salaries and empowering workers to get a larger share of corporate profits. The Employee Free Choice Act should be an explicit part of the second-term agenda.

It will require strict limits on the voracious, irresponsible behavior of Wall Street, from which we’ve all suffered. The Glass-Steagall Act must be resurrected (the so-called Volcker Rule is more ridden with holes than cheese), and the big banks broken up.

And it will necessitate a public educational system – including early child education – second to none, and available to all our young people.

We don’t need socialism. We need a capitalism that works for the vast majority. The productivity revolution should be making our lives better — not poorer and more insecure. And it will do that when we have the political will to spread its benefits.

 

Hollande Beats Sarkozy: Report from Holland

by Frank Thomas

 

I happen to like Sarkozy but have sensed that his gap with the working class is too great. His presidency inherited a costly French governmental bureaucracy, an extensive welfare system, and a sputtering economic growth all leading to: a high public debt level at 85% of GDP and public spending at 55% of GDP; a declining industry; and almost double digit joblessness. His closeness with the rich, brash style, inability to reverse France's tough economic situation as well as the growing public impatience with strict austerity measures brought him down in the election yesterday. 

Hollande's election puts pressure on Merkel in her elections next year as the German public is also growing a little restless with austerity measures. Should Merkel lose, this would represent a dramatic shift of power to the left in Europe with only the UK, Spain and to a lesser extent the Netherlands and Scandinavian countries as the primary conservative-centrist governments in Western Europe. And it remains to be seem whether the very strongly rising Dutch SP socialist party will win big in September as expected, helped by what's happened in France. Then the Dutch coalition government could well shift to the left from its current slight left of center position ... although this doesn´t concern me as the conservative VVD party is still expected to win a major number of the seats in Parliament and will be a strong force in any new coalition formed after the September elections. This is the inherent beauty and balance of the Netherlands's proportional representation governmental system I described in my last writing.

 

Francois Hollande's campaign themes give apoplexy to many people of strict conservative mind (no doubt particularly to the American far right) ... who see his election as a "Big Government Nightmare." I find this very amusing as most people were looking favorably upon the financially sharp Strauss Kahn as the next socialist party premier of France until his women escapades put to ashes his political career. However, Hollande will probably use Kahn´s exceptional financial acumen hopefully to great benefit for the nation.

                                  

Hollande supports France´s deeply entrenched -- already excessive in my view -- socialist policies. He wants to renegotiate the hard-won European treaty on budget cuts, BUT, he remains a staunch Euro-Federalist (unlike the increasingly popular Dutch SP socialist party). He wants austerity to be tempered with immediate plans to stimulate economic growth and favors increasing France´s already 55% high public spending as a % of GDP. For example, he wants to recruit 60,000 new teachers and lower the retirement age from 60-62 for manual workers who started their work as teenagers. He will pay for this and more and balance the budget by 2017 by: setting a 75% tax rate on income above euro 1.0 million ($1.3 million), increasing taxes on big corporations and implementing a financial transaction tax. He sees the world of finance as his and the nation's real enemy. I couldn´t agree more!

 

All in all it's a gamble with Francois Hollande as it was with Sarkozy. On the positive side, he's a methodical, quiet working professional who wants to only temper austerity actions while taking firm measures to stimulate growth. He's not against financial discipline but wants it spread out more as the Krugmans and Stiglitzes are pleading for which I think makes sense as long as the equal necessity for financial solidity is not compromised. The problem is that France is the one last major power in Europe that has done the least to reform its very costly social net, health and pension systems. 

 

Hollande's support of his country´s socialist policies may be his ultimate downfall. BUT, he has the chance to come with a refreshing new approach to balancing French private and public initiatives to restore financial stability and growth. While I´m a little nervous, one has to marvel at the diversity of social/economic models and governance styles in Europe ... all learning from each other while at same time addressing the priorities, habits and needs relevant to each country's unique historical culture.

 

Margaret Thatcher warned:

 

"Socialist governments traditionally do make a financial mess. They always run out of other people´s money."

 

But the Iron Lady couldnt fathom that conservative governments can do the same thing with the most recent lesson coming from Pres. Bush Jr. ... who Doubled our national deficit from $5 trillion to $10 trillion in 2008 with his pharmaceutical subsidies and tax reduction policies for the rich causing another ± $2 trillion deficit during Obama´s term.

 

Will Hollande, the socialist, copy Bush, the conservative, in bringing his country to near financial insolvency? I doubt it. There are simply too many structural checks and balances in the mature, broadly represented government systems in Europe for any one man to behave irresponsibly left or right. Even the UK conservative premier, Cameron, whom I much admire along with his co-premier Clegg, is kept in sensble balance by becoming part of his country's first coalition government in 60 years. 

The Stall Has Arrived

by Robert Reich

Friday, May 4, 2012

 

The economy has stalled.

Friday’s jobs report for April was even more disappointing than March. Employers added only 115,000 new jobs, down from March’s number (the Bureau of Labor Statistics revised the March number upward to 154,000, but that’s still abysmal relative to what’s needed). We need well over 250,000 new jobs per month in order to begin to whittle down the vast number of jobs lost in the Great Recession. At least 125,000 new jobs are necessary each month just to keep up with an expanding population of working-age people.

With only 115,000 jobs in April, the hole is getting even deeper.

Most observers pay attention to the official rate of unemployment, which edged down to 8.1 percent in April from 8.2 percent in March. That may sound like progress, but it’s not. The unemployment rate dropped because more people dropped out of the labor force, too discouraged to look for work. The household survey, from which the rate is calculated, counts as “unemployed” only people who are actively looking for work. If you stop looking because the job scene looks hopeless for you, you’re no longer counted.

In the winter months — December, January, and February – hiring had seemed to pick up, averaging over 250,000 new jobs per month. Then the mini-surge stopped. The simplest explanation is that the mild winter across much of the United States gave an unusual boost to hiring then, leading to a correction by the spring.

Most of the job gains in April were in lower-wage industries – retail stores, restaurants, and temporary-help. That means average wages continue to drop, adjusted for inflation – continuing their long-term decline. Most of the new jobs that have been added to the U.S. economy during this recovery have paid less than the jobs that were lost during the downturn.

What does all this mean? Together with other recent data showing slower economic growth during the first quarter of this year, it’s safe to say the economy has stalled.

This is bad news for millions of Americans.

It’s also bad news for Obama and the Democrats. Voters don’t pay much attention to the economy in an election year until after Labor Day, so it’s not necessarily a huge help to Romney and the Republicans. But it’s a bad political omen nonetheless. 

No set of policies between now and Election Day are likely to expand the economy. To the contrary, government at all levels continues to contract, acting as a fiscal drag when government needs to be doing the exact reverse – boosting the economy through additional spending. In 2013, when spending major cuts are scheduled, we’ll fall off a fiscal cliff.

Obama needs to push back loudly and clearly, saying he won’t support additional spending cuts until the economy is showing clear signs of improvement.

But widening inequality is the underlying culprit here. As long as almost all the gains from economic growth continue to go to the top, the vast middle class doesn’t have the purchasing power to boost the economy on its own. And rich Americans spend a much smaller portion of their incomes than does the vast middle class. Their marginal satisfaction from additional spending falls off. The second yacht isn’t nearly as much fun as the first.

Get it? We’ve still got a terrible cyclical problem – we can’t get out of the gravitational pull of the Great Recession.

Yet the underlying problem is structural, and it’s been growing for decades. The structural problem of stagnant or declining real incomes for most people, and soaring income and wealth at the top, was masked during the boom years when the middle class could turn their homes into piggy banks and extract home-equity loans or refinance. But the mask came off in 2008 as home values plummeted.

There’s no way to put the mask back on. We’ve got to face the truth. Obama and the Democrats have to explain to the American people why inequality isn’t just unfair; it’s also economically unsustainable.

 

Why the Economy is Heading for a Stall

by Robert Reich

Thursday, May 3, 2012

We’ll know more tomorrow when the jobs report is announced, but today’s report on America’s massive service sector – which make up about 90 percent of the economy – is sobering to say the least.

The Institute of Supply Management’s non-manufacturing index fell to a four-month low in April (53.5, down from 56 in March – still positive territory but just barely). New orders dropped to their lowest level in six months.

That doesn’t bode well, especially when combined with other recent data. The Commerce Department reports that the economy as a whole has slowed from the last quarter of 2011 when it was expanding at an annual rate of 3 percent, to 2.2 percent for the first quarter of this year. And last month’s unemployment report showing only 120,000 new jobs in March was downright alarming.

What’s going on? Europe is sliding into recession, and gas prices are still high. But the real problem lies closer to home. Cuts in government spending are reducing domestic demand precisely at the time when consumers are reaching the end of their ropes and can’t spend more.

Consumers did all the spending they could in the first quarter. Household purchases increased 2.9 percent between January and March. That was the biggest increase since the last quarter of 2010.

Absent real wage gains, that spending pace can’t possibly continue. Consumer savings are down and their debt is up. Consumer confidence dropped last week to a two-month low.

The only people left spending are in the top 5 percent, whose stock portfolios have been doing so well they feel even richer. But the top 5 percent can’t pull the entire economy out of the doldrums. Besides, if demand continues to slide the stock market will follow.

The real problem is political, not economic. Republicans in Congress insist on cutting public spending even before the economy has mended.

Conspiracy theorists might think Republicans want the economy to be so bad by Election Day that Obama is swept out of office, along with most congressional Democrats.

Paranoid double-conspiracy theorists might come to the opposite conclusion: Democrats are allowing Republicans to do this because they want Romney elected and Republicans in charge next year as the economy slides into a terrible recession due to far larger spending cuts already scheduled to kick in then, as well as increased taxes on the middle class.

Under President Romney and a Republican congress there will be no escape from this downward spiral; fiscal hawks and right-wing government-haters will be in control. As a result of this nightmarish mess, Republicans will be booted out of office for a generation.

Are the Demagogues Loose in Europe?

by Frank Thomas

Robert Reich Says : “The Demagogues Are Loose in Europe. ”  BUT, This Is More Fiction Than Fact!

I greatly admire Robert Reich’s tireless energy and knowledge to explain in simple, straight language – to Americans of all colors, convictions, and class – what is truly happening to the U.S. economy and main-stream America. Namely, Social Darwinist inequality is at the heart of the system calling for reduction of the social net, forcing average Americans to rely on their own resources in a competitive environment where the fittest will survive – and the rest will get what they deserve for their lack of work ethic initiative and responsibility.                                                                                                 

This ultra-conservative agenda perversely promotes primacy of the market economy over all else – “Reagan’s casual wisdom that “government is the problem not the solution.” This has resulted  in Paul Ryan-type social-economic policies that have been driving many working class people to the edge of economic ruin. It has fostered a fertile ground for ultra right political and media pundit demagogues who operate at a demagogic intensity unheard of in Europe … where multiparty coalition consensus systems are generally far more reflective and less doctrinaire.       

However, I must take issue with Dr. Reich’s over-generalization that  “demagogues are loose in Europe” (and the U.S), concluding that “In Europe, fringe parties on the left and right are gaining ground”… also suggesting that fringe parties are led by demagogues. First, what exactly is meant by fringe parties?  European multi-party proportional representation (PR) government systems, with the Netherlands as an archetypal example, form the very basis of European “social democracies.” Such systems check extremist  agendas and effectively marginalized demagogues. Such systems generate a broader competition of ideas where ultimately more balanced and progressive ideas often emerge.   

All parties are treated with respect since the number of seats won in the Parliament (House of Representatives comprising 150 seats and 76 being necessary for a majority, i.e., to form a viable coalition government. ) is proportionate to the number of votes received. A party that receives 30% of the votes gets 30% of the seats. There are no electoral districts. Proportional representation (PR) systems tend to produce a proliferation of parties, while single member electoral districts stimulate a two-party system. PR allows small parties to be represented in Parliament which is considered to be a GOOD THING! Such systems facilitate legislative balance, fairness, and alertness to real life happenings, problems,  needs in a typical pluralistic society having a uniquely ingrained European national cultural heritage .  

As already noted, an exceptionally democratic feature of coalition systems I’ve observed, after 30 years living /working in Europe, is that they insure inclusive legislative policy-making  and effectively marginalize “demagogues”  from exercising undue influence. I´m referring to fact that in the Dutch Parliamentary government, the Cabinet formation consists of 12 Ministers and 8 Junior Ministers who are divided equally among the coalition members, regardless of their respective size. In other words, the current minority coalition government is comprised of the conservative VVD party with 31 seats and the centrist CDA party with 12 seats. BUT, each of these ruling parties receives 6 Ministers and 4 Junior Ministers!

The Dutch government fell because Geert Wilders´ far right PVV Freedom Party with 21 seats, as a non-coalition member, did not agree with the center-right minority coalition government´s budget plan based on a EU 3% of GDP deficit level in 2013. For the hard-core U.S. conservative Republicans or Democratic liberals, it may seem incomprehensible that Dutch coalition members and non-members do not necessarily blindly follow the party line as happens in America. For example, Geert Wilders far right PVV party is leap years philosophically different than our far right conservative Tea Party. On one hand, he´s against severe budget cuts in welfare, health, unemployment benefits, and opposes any decrease in the purchasing power of pensioners and lower income earners. On the other hand,  he wants to scrap the euro, return to the guilder,  stop all non-Western immigration including from Eastern EU member countries, and drastically diminish the power of Brussels.                            

Does this make Wilders a wild demagogue leading a fringe party with 14% of 150 Parliamentary seats, all achieved in less than two years? I think NOT! Is Wilders a team player willing and able to make the necessary coalition compromises in the country’s interest at a most serious economic time? I think NOT! Will some parts of Wilders´ social thinking – and that of the SP socialist party or PvdA labor party – be eventually incorporated in a final budget plan? I think, YES!                         

A culture of give and take, compromise, merger of the best policy initiatives under multi-party coalition governance systems – where no one party ever secures an overall majority of votes – is a much understated strength and support for consensus democracy in mature EU countries. Of course, another giant plus is the fact that European political  representatives and processes are not bought by special interest money.                                                                                     

The U.S. all right or all left purist governing paradigm is avoided. This is reflected in the recently agreed budget plan of the newly formed 5-party interim coalition. Despite a sudden political move to left of center, the 5-party new plan agreed to in two days does NOT represent a complete rejection of austerity measures. ALL parties, including non-member coalition parties, fully recognize the need to balance the budget and implement fiscally responsible austerity measures. The ongoing debate until the September elections will focus on how far these measures should go, where the burden should fall, when should stimulus measures be activated.                                                                                               

In the final analysis, multi-party systems  require a precise coordination of coalition strategies, programs, personnel choices  that give confidence and a sense of reliability to the vast majority     of voters.  Assumptions about the goals coalition parties pursue     and rules of the bargaining process determine the disintegration      or success of multiparty proportional representation systems. On balance, however, effective PR coalition systems have NOT been an easy playing field for demagogues in their actions as members of traditional, new or rising fringe parties. 

To further illustrate the check and balance features of coalition systems, it would seem to be certain political suicide, if not an outright impossibility, that a far right new Dutch until late rising strongly but now falling conservative party led by Geert Wilders,  a far left new Dutch rising socialist party led by Emile Roemer, and a far left French traditionalist socialist party led by Francois Hollande (now challenging Sarkozy) have almost as much in common as they have at odds with each other … a concurrence of views unimaginable between Democrats and Republicans. None of these party leaders, or any others I can mention, are fringe party demagogues.                            

All three are against the timing of the EU 3% deficit rule. All three are vehemently opposed to deep budget cuts that reduce purchasing power of the elderly and lower income groups. All three want to set measures to increase economic growth. All three have a deep distrust of globalization. Two argue for a drastic  cut back in immigration, especially from Islamic  lands – an exception being     the Dutch SP socialist party which is more multicultural minded,     but has also been critical of immigration policy as a capitalist tactic  to drive down wages.

SUMMARY

Lately in Europe, there has been a clear trend of views shifting to   left of center in even the fiscally austere countries. Denmark, The Netherlands, Belgium, France, and Germany to a smaller extent are beginning to question the certified wisdom of continuing strict economic austerity programs. New coalitions are forming to force a democratic reassessment of this policy. Some coalition partners want to maintain a reputation for fiscal discipline. Some want a different mix of cuts and tax increases and decreases. Some, like the PVV, SP and PvdA,  want a greater emphasis on growth measures.                                              

This is the profoundly unique and  healthy contribution of the multiparty governing process  in Europe, despite its tendency to political stalemate and lengthy debate.  It spurs a natural questioning of assumptions, more sharing of ideas, and realigning of policies to deal fairly, humanly, pragmatically with continuing economic stagnation and high debt situation  …while simultaneously tempering the casino game of government ad hoc printing of money to solve all problems and keeping the lid on irresponsible acceleration of national and household debt levels.

In contrast, this is what I don’t see happening  in the our broken government system.  Absent completely is the European style of questioning sacred, purist ideologically driven dogma; civilly engaging other ideas; striving to adapt, share, merge the best of policy initiatives. If ever there is a healthy playing field for demagogues, it’s the black and white thinking of left vs. right and “winner-takes-all”  U.S. political system … that class divides people, fosters constant two-party warfare, and destroys any chance of constructive, balanced policy making in the interest of ALL citizens.                                                      

If ever there’s a place where “demagogues are running loose” in force, it’s in the good old USA.

Frank Thomas                                                                                                              
The Netherlands                                                                                        May 4, 2012   

What Determines the Price of Gas?

by John Lawrence

Frank Thomas has written an excellent article on the transition from fossil fuels as a source of energy to renewable resources such as wind, solar and biomass that is going on in Denmark and Germany. In this article we explore how the price of gas at the pump is determined. This is an opaque subject which has been heaped in layers of obfuscation because the oil companies don't want you to know what a huge scam they are perpetrating on the American public systematically ripping them off at the gas tank. They want you to think that gas prices are set by immutable, impersonal factors like the "world oil market" over which we have no control nor ever could we. When the oil company executives went before a Congressional hearing in May 2011 as gas prices hit $4.00 a gallon, Rex Tillerson, CEO of Exxon Mobil, was asked "how are oil prices set?" He responded that they were based on the marginal cost of producing the next barrel of oil. Nothing could be further from the reality of the situation although it would be a worthy aspirational ideal, something to shoot for in a more perfect world. The Big 5 oil companies - Exxon Mobil, Shell, ConocoPhillips, BP America and Chevron - defended their huge tax breaks and subsidies despite record and eye popping profits as necessary to incentivize them to drill for more oil implying that more domestically produced oil would lessen dependency on imported foreign oil and keep the price down. This is also a total crock. Prices are set on the "world oil market" and have nothing to do with whether or not the oil is produced domestically or abroad.

According to Public Citizen:

Big Oil CEOs testify Thursday before the Senate Committee on Finance to defend the trillion dollars in profits they have made in the past decade thanks to you, the American consumer. Some in Congress will defend the billions of dollars in tax breaks and royalty relief taxpayers give to these same companies each year. Public Citizen recently crunched the numbers and found that Big Oil’s profits aren’t the only eye-popping statistic – what the industry is spending its money on is equally astonishing.  Big Oil lavishes more on stock buybacks, dividend payments, lobbying and marketing than on U.S. oil investments. Our research shows that since 2005, the largest five oil companies operating in the U.S. spent nearly half a trillion dollars buying back their own stock and paying dividends to shareholders. That’s more money than they spent investing in their U.S. infrastructure. This contradicts the industry’s insistence that its billions of dollars a year in tax breaks are needed to create jobs and keep gas prices affordable. In fact, Big Oil’s investment decisions are driven by market prices of crude oil, not U.S. tax policy.  It’s time our leaders stop bowing to corporate interests and put an end to the “take the money and run” tactics of Big Oil that are nothing short of highway robbery. While the speculation-fueled price of oil per barrel has continued to escalate, the underlying costs to produce oil haven’t. Consider this: On average, it costs $20 to produce a barrel of oil. Big Oil sells it to us for more than $100. This generates the massive cash flow that fuels oil companies’ profits and spending.

Ever wonder who pays for those ubiquitous "touchy-feely" TV ads by ExxonMobil, Chevron and the Oil and Gas Industry that you see day in and day out? You do. Without them the price of gas at the pump could be lower.

But despite the oil company executives' dissimulation, deception and mendacity, there are several factors that go into the witch's brew of oil and gas prices: namely, royalties paid to the owner of the oil before its extracted, the law of supply and demand and speculation. First, the oil as it sits in the ground, unbeknownst to most American citizens does not belong to the oil companies. It belongs to them! It is a public resource no matter how much the executives would try to persuade you that it is private property. Oil corporations pay the Federal government (meaning you the taxpayer) royalties in return for the right to drill on goverment (citizen) owned property. During most of the twentieth century, oil and gas companies generally paid between 12.5 and 16.7 percent in royalties for a lease to drill on public land or water. This is one of the lowest rates paid to a government anywhere in the world! In comparison Norway's citizen/taxpayers get a 50% return on their oil assets.

According to the US Goverment Accountability Office:

Based on results of a number of studies, the U.S. federal government receives one of the lowest government takes in the world. Collectively, the results of five studies presented in 2006 by various private sector entities show that the United States receives a lower government take from the production of oil in the Gulf of Mexico than do states - such as Colorado, Wyoming, Texas, Oklahoma, California, and Louisiana - and many foreign governments. Other government-take studies issued in 2006 and prior years similarly show that the United States has consistently ranked low in government take compared to other governments.

So American taxpayers/consumers are being ripped off by oil companies before the oil even gets out of the ground! If higher royalties were paid, this would offset the price of gas at the pump and/or reduce taxes. In any event this would benefit the American consumer/taxpayer. Moreover, royalties have been fraudulently underpaid or exempted from for years. In 1995, both houses of Congress passed and President Bill Clinton signed the Deep Water Royalty Relief Act (S.395), which granted a royalty "holiday" to oil and gas companies drilling in government-owned deep waters in the Gulf of Mexico for leases sold between 1996 and 2000. In 2005, Congress passed and President Bush signed the Energy Policy Act of 2005 (H.R. 6). which included a variety of provisions to provide royalty relief to oil and gas companies.

But wait there's more:

During the mid-nineties, whistleblowers and the Project on Government Oversight (POGO), a government watchdog group, filed suit against sixteen oil companies for failing to pay their required royalties. POGO’s suit was filed under the False Claims Act (FCA), which provides citizens the power to sue on behalf of the federal government for fraud. In these cases, the Justice Department has the right to join the case. This ultimately happened in the POGO case. From 1998 to 2001, a dozen major companies, while acknowledging no wrongdoing, paid $438 million to settle charges that they had intentionally misreported their sale prices for oil (in order to pay lower royalties).

So while the big oil companies were recording record profits, paying little if any taxes to the Federal government (causing you to pay more) and receiving subsidies, they were also committing fraud by underpaying royalties which were minimal in the first place.

Now that we've got the oil out of the ground, what is the next step? Why placing it on the world oil market which means that US oil companies will sell it anywhere in the world to the highest bidder. You might think that they would sell oil extracted in the US to US consumers first and then this would be supplemented by oil bought from abroad - the so-called foreign oil - to make up the shortfall in which case oil would be subject to the law of supply and demand within the US but such is not the case. American consumers are expected to buy gas that is subjected to the law of supply and demand among world consumers which means that as demand goes up in China and India, for example, American gas prices will rise even as demand within the US is falling. Dependency on foreign oil is a misnomer and a bugaboo. Our supposed dependence on foreign oil has nothing to do with the price of oil. What we're really dependent on is that "our" oil companies sell us "our" oil based on world oil market prices which means that they extract from us much higher prices than if they sold us "our" oil based on the domestic oil market. In other words oil produced on US real estate and sold to US consumers would end up being cheaper than oil placed on the world oil market and priced accordingly. So drilling for more oil on American soil has nothing to do with lessening our dependence on foreign oil because the pricing of oil we consume has nothing to do with how much oil is extracted from American soil.

To the extent that the law of supply and demand comes into effect which, as we shall see, is minimal, it is easily seen that this factor gives the lie to Tillerson's claim that the price of oil is based on the "marginal cost of the next barrel of oil that is produced." The law of supply and demand states that the seller will sell his product for the highest price he can get irregardless of cost. The selling price has nothing whatsoever to do with cost. It only has to do with demand. Edvard Munch probably produced "The Scream" for less than $10. Yet it sold recently at auction for $119 million. A Liz Claiborne sweater for which the worker in Thailand is paid 3 cents to make sells for $170. The law of supply and demand insures that cost has nothing to do with selling price. Insofar as the price of oil is affected by supply and demand, the same thing holds true.

The next factor to be considered is speculation. Oil being a commodity is traded on the commodities exchange. Futures contracts are bought and sold. What this means is that gas prices aren't simply set by the law of supply and demand but that speculators who are only in it purely for profit can drive up the price of oil. These are people who have no interest in ever taking delivery of the oil. They will buy a futures oil contract only to sell it (hopefully at a profit) before the oil has to be delivered. It has been estimated that 80% of the oil market is under the control of speculators. None other than Rex Tillerson, CEO of ExxonMobil, has testified that this has caused a 40% spike in gas prices. So "market forces," namely the selling of oil on the world market instead of just the domestic market and speculators have control of and can manipulate the price of gas at the pump in order to gouge the American public and increase their profits. Although the Commodities Futures Trading Commission was ordered to put position limits on speculators under the Wall Street reform act passed by Congress in 2010, they have failed to do so. This has allowed the continuation of unbridled speculation which translates into an additional $750. a year going directly from your pocket into those of the Wall Street speculators every time you fill up your vehicle!

Some believe that speculators control the market completely and supply and demand has nothing to do with it. In a blog titled "Futures Prices Determine Physical Oil Prices," JD contends that spot oil prices adjust to futures prices and not the other way around as is commonly thought. The spot oil price is simply the price of physical oil if you went out and bought some today. It is not too hard to see why the futures oil price would control the market if most of the oil market was tied up in futures contracts. If that were the case, there would simply not be enough oil on the spot market for current users, and oil consumers would be forced to buy from those who held the futures contracts in which case they would have to pay the futures contract price not the spot oil price. Supply and demand would have little to do with it since there would be relatively little supply on the current physical oil market.

All of this begs the question of why does oil and gas have to be subject to market forces and speculation at all? The answer to that question is that this maximizes profits for the oil companies and Wall Street while providing a disservice to American citizens/taxpayers. If the price of oil was not set by "the market", if control of natural resources was in the hands of or controlled by the citizens/taxpayers, we wouldn't have the ridiculous situation that supply of oil is as great as it's ever been while demand is exceedingly low, yet the price of gas at the pump has doubled compared to what it was when supply was lower and demand was greater.

In the documentary "GasHole" the nefarious activities of the oil companies are pointed out including the elimination of any technology such as the water injected carbuerator which results in a car getting 100 mpg and the electric car that was killed by the oil companies in the 1990s as recorded in the documentary "Who Killed the Electric Car?". Before the turn of the 20^th century, in 1893, Rudolf Diesel developed a fuel source based on peanut energy.  He said, “The use of vegetable oil for engine fuels may seem insignificant today.  But such oils may become, in the course of time, as important as petroleum.”  His demise is also shrouded in mystery, and his engine invention moved forward — using oil, another example of how the oil corporations bought out or forced out every alternative to the use of oil to propel vehicles. In 1904 progressive muckraker Ida Tarbell wrote "The History of Standard Oil" in which she pointed out how John D Rockefeller had used unethical business practices to force out smaller oil producers. As a result the Standard Oil monopoly was broken up into smaller companies based on states. In New Jersey it became Standard Oil of New Jersey which later became Exxon. In New York it became Mobil etc. Under the Clinton administration these two corporations were allowed to merge again into ExxonMobil.

The biggest crock is that the way to lower gas prices is to produce more domestic oil - drill, baby, drill. This is because oil prices are set on the world oil market not on any kind of domestic oil market. The way to lower gas prices is for the American people to take control of the resources they purportedly own. We can hire the oil companies to do the work for us of getting the oil out of the ground and refining it, but we should control gas prices, not the oil corporations or the "markets" namely Wall Street speculators. If We the People controlled the price of gas, it could be more rationally based on, as Rex Tillerson said, "the marginal cost of producing the next barrel of oil," instead of oil prices set by the "world oil market" and speculators.

 

Bolivia Nationalizes Power Grid

Published on Wednesday, May 2, 2012 by Common Dreams

- Common Dreams staff

Bolivian President Evo Morales announced on Tuesday during a commemoration of May Day that the country would be nationalizing its power grid by taking power away from Spanish company Transportadora de Electricidad (TDE).

Bolivian president Evo Morales (second from the right) and members of his government celebrate May Day. Photograph: EPA

At the presidential palace in La Paz, Morales said, “Today, again, in merited homage of the workers and people of Bolivia who have fought to recover natural resources and basic services, we are nationalizing Transportadora de Electricidad.”

Morales sent troops to occupy the company's installations in the country.

"Just to make it clear to national and international public opinion, we are nationalizing a company that previously was ours," Morales added.

* * *

El País: Bolivia’s Morales nationalizes REE’s stake in local power utility

In a surprise move, Bolivian President Evo Morales on Tuesday announced the expropriation of the local affiliate of Spain’s Red Eléctrica de España, Transportadora de Electricidad SA.

Signing a decree to coincide with International Worker’s Day, Morales ordered the army to take over the company’s installations throughout the landlocked Andean country. [...]

According to Morales’ decree number 1214, all of REE’s shares in Transportadora de Electricidad will will be turned over to the Bolivian government, which will control them through the National Electric Company ENDE.REE controls 77 percent of Transportadora. The facilities and land owned by REE will also automatically be forfeited over to the government, Morales said.

* * *

The Guardian: Bolivia nationalises Spanish-owned power grid

Morales did not say how much the company would be compensated, but the nationalisation decree says the state would negotiate a compensation fee.

Morales said only $81m (£49.9m) had been invested in Bolivia's power grid since it was privatised in 1997.

The government, meanwhile, "invested $220m in generation and others profited. For that reason, brothers and sisters, we have decided to nationalise electricity transmission," he said.

Argentina president Cristina Fernández de Kirchner also blamed a lack of investment by Repsol for her decision to nationalise the oil companies assets.

Bolivian soldiers peacefully took over the company's offices in the central city of Cochabamba, hanging Bolivia's flag across its entry.

The Tinder-Box Society

by Robert Reich

Tuesday, May 1, 2012

The Dow Jones Industrial Average hit 13,338 Tuesday, its highest since December, 2007. The S&P 500 added 16 points. Wall Street will remember May 1 as a great day.

But most of these gains are going to the richest 10 percent of Americans who own 90 percent of the shares traded on Wall Street. And the lion’s share of the gains are going to the wealthiest 1 percent.

Shares are up because corporate profits are up, and profits are up largely because companies have figured out how to do more with less.

Payrolls used to account for almost 70 percent of the typical company’s costs. But one of the most striking legacies of the Great Recession has been the decline of full-time employment – as companies have substituted software or outsourced jobs abroad (courtesy of the Internet, making outsourcing more efficient than ever), or shifted them to contract workers also linked via Internet and software.

That’s why most of the gains from the productivity revolution are going to the owners of capital, while typical workers are either unemployed or underemployed, or else getting wages and benefits whose real value continues to drop. The portion of total income going to capital rather than labor is the highest since the 1920s.

Increasingly, the world belongs to those collecting capital gains.

They’re the ones who demanded and got massive tax cuts in 2001 and 2003, on the false promise that the gains would “trickle down” to everyone else in the form of more jobs and better wages.

They’re now advocating austerity economics, on the false basis that cuts in public spending – including education, infrastructure, and safety nets – will generate more “confidence” and “certainty” among lenders and investors, and also lead to more jobs and better wages.

None of this is sustainable, economically or socially.

It’s not sustainable economically because it has resulted in chronically inadequate demand for goods and services. That’s meant anemic growth punctuated by recessions. Without a larger share of the economic gains, the vast middle class doesn’t have the purchasing power to buy the goods and services an ever-more productive economy can generate.

It’s not sustainable socially because it has resulted in rising frustration over the inability of most people to get ahead.

Austerity economics in Europe is fanning the flames, as public budgets are slashed on the false crucible of fiscal responsibility. In the United States, an anemic recovery and plunging home prices are taking a toll: a large portion of the public believes the game is rigged, and no longer trusts that the major institutions of society – big business, Wall Street, or government – are on their side. In Europe and America, 30 to 50 percent of recent college graduates are unemployed or underemployed.

Inequality is also widening in China, where the scandal surrounding Bo Xilai and his family is serving as a public morality tale about great wealth and official corruption. Students in Chile are in revolt over soaring tuition and other perceived social injustices.

It’s a combustible concoction wherever it occurs: Increasing productivity, widening inequality, and rising unemployment create tinder-box societies.

Public anger and frustration can ignite in two very different ways. One is toward reforms that more broadly share the productivity gains.

The other is toward demagogues that turn people against one another.

Demagogues use fear and frustration to advance themselves and their own narrow political agendas – scapegoating immigrants, foreigners, ethnic minorities, labor unions, government workers, the poor, the rich, and “enemies within” such as communists, terrorists, or other conspirators.

Be warned. The demagogues already are on the loose. In Europe, fringe parties on the right and left are gaining ground. In America, politics has turned especially caustic and polarized. (The right is even accusing people it doesn’t like of being communists.) No one knows where China is heading, but reformers and ideologues are battling some of it out in public.

May 1 may be a good day for the Dow Jones Industrial Average, but the future depends on the job prospects and wages of the average worker.

Our Do-Almost-Nothing Congress

By Dana Milbank, Wednesday, May 2, 5:35 AM The Washington Post

If you were to stroll by the House chamber today — or tomorrow, or the next day, or the day after that — you would arrive at the ideal time to see what the lawmakers do best: absolutely nothing.

It’s another recess week for our lazy leaders. Oh, sorry: “Constituent Work Week” is what they’re calling it these days, as if lawmakers were filling potholes and making calls to Social Security rather than raising campaign cash.

By the time the Republican-led House returns next week, members will have been working in Washington on just 41 of the first 127 days of 2012 — and that was the busy part of the year. They are planning to be on vacation — er, doing “constituent work” — 17 of the year’s remaining 34 weeks, and even when they are in town the typical workweek is three days.

Good work if you can get it — but the behavior is doing quite a job on the rest of us. On those infrequent occasions the House is in session, the Senate, also enamored of recess, often isn’t, which helps explain why the two chambers can’t agree on much of anything.

To call this 112th Congress a do-nothing Congress would be an insult — to the real Do-Nothing Congress of 1947-48. That Congress passed 908 laws. To date, this one has passed 106 public laws. Even if they triple that output in the rest of 2012 — not a terribly likely proposition — they will still be in last place going back at least 40 years.

Doing nothing would arguably be preferable to what the House is actually doing. Lawmakers have staged 195 roll-call votes so far this year, which sounds like a lot until you realize that boils down to only about 60 pieces of legislation, including post-office namings. Among the 60:

●The Mark Twain Commemorative Coin Act.

●The Sportsmen’s Heritage Act of 2012.

●Legislation requiring the Treasury to mint coins commemorating the 225th anniversary of the U.S. Marshals Service.

●The World War II Memorial Prayer Act.

●The Permanent Electronic Duck Stamp Act.

The few pieces of important legislation of this Congress, such as the payroll-tax break and the debt-limit increase, have been passed by the Republican majority under pressure and duress. Republican leaders claim that a heavy schedule means bigger government, but the lax schedule has been challenged by no less a conservative than firebrand freshman Allen West.

This is not to suggest that the Democratic-controlled Senate is blameless. The Post’s Paul Kane went through Senate roll-call votes from this year and found that, of the 87 votes, the majority were on just three bills: 25 on the highway bill, 16 on the postal bill and 13 on an insider-trading bill. Sixteen others were on confirmations.

But there is a crucial difference: While a simple majority in the House can pass pretty much anything without agreement of the minority, the Senate is traditionally where bills go to die. Because the Democrats lack a filibuster-proof majority, they can bring virtually nothing to a vote without the blessing of the Republicans. Even with that high hurdle, the Senate has been able to slog through a number of bills in recent weeks: a long-term renewal of the surface transportation bill, renewal of the Violence Against Women Act, postal reform and a bill making it easier for companies to go public.

The last of those passed the House, too, but the other three are awaiting action. Of those, the failure to pass a long-term highway bill is particularly glaring. House Speaker John Boehner announced in November that he was proceeding with the bill, but so far he has been able to pass only a short-term extension. The House also has yet to act on the China currency bill the Senate passed last fall. Instead, House Republicans have voted repeatedly on budgets that will never be followed and similarly doomed attempts at repealing Obama priorities.

With such a lean agenda, filling even 41 days has been a challenge. House Republicans are now devoting full floor debates to bills such as H.R. 2087, “To remove restrictions from a parcel of land situated in the Atlantic District, Accomack County, Virginia.” That issue — allowing development on a 32-acre property — was so crucial to the Republic that lawmakers had five roll-call votes on the topic.

They dressed it up and called it a “jobs bill” — but really it was another bill showing that House Republicans aren’t doing theirs.

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