Dollars & Sense blog

(Repost from March 9:) Items on Greece

noreply@blogger.com (Dollars and Sense) — Thu, 11 Mar 2010 20:12:00 +0000

A couple of items on Greece: First, Mike-Frank Epitropoulos, who is working on an article for us on the Greek debt/default situation, sent us this image. The German magazine Focus ran a cover story headlined "Cheats in the Euro Family," with an image of the Venus de Milo giving (the rest of Europe) the finger. The Greeks were outraged, with one newspaper, Eleftheros Typos, saying that Europe is "threatened by financial naziism," according to the Wall Street Journal's blog The Source. And then there was the magazine cover response. I can't find a translation of the headline, and my Greek is rusty (and was always archaic anyhow).

Then there's this juicy piece from last Friday's Financial Times. The FT's headline writers couldn't resist the term "Greek drama," but the photo that went with this article in the print edition was especially nice: a view of the sun-drenched rooftop restaurant at the Hotel Grande Bretagne in Athens, with the Parthenon in the background; it was not just a gratuitous shot of the Acropolis—this was actually where the hedge-fund managers met to plot their speculative exploits.

Funds' role in Greek drama examined

By Sam Jones, Hedge Fund Correspondent

Published: March 5 2010 02:00 | Last updated: March 5 2010 02:00

On January 28, a cloudy, drizzly day in Athens, Goldman Sachs played host to a hotchpotch group of 10 clients at the Grande Bretagne, a palatial belle epoque hotel overlooking Syntagma square and the old royal palace, now the home of the Vouli, the Greek parliament.At dinner on the rooftop—with an unimpeded panorama of the Acropolis as the backdrop—the clients; ten bankers, asset managers and hedge fund analysts, ruminated on the future of the Greek economy—and of course, how to make money from it.Events since—a vicious collapse of confidence in the Greek debt market—have made some of those present, millions. But there has been a price. The dinner and the two-day schedule of meetings it bisected, is now one of a handful of events at the centre of a growing political backlash against some of the biggest and most powerful traders in the debt markets. Hedge funds and more broadly financial 'speculators' are finding themselves under attack from politicians and regulators on both sides of the Atlantic, who accuse them—including some of those Goldman chaperoned around Athens in late January—of exacerbating the Greek credit crisis in an effort to spin a quick buck.

Read the rest of the article.

(Repost from Feb. 25:) Goldman Sachs and Greece

noreply@blogger.com (Dollars and Sense) — Thu, 11 Mar 2010 19:36:00 +0000

Dear blog readers: This is a restored version of one of the posts, from Feb. 25, that we lost when our blog got !@#$%&ed up in the past couple of days. I have figured out how to fix the half-dozen posts that were broken, and how to post new ones, but it involves a laborious fix (posting; going onto our server; downloading the resulting html file; deleting a string of javascript code that is somehow being generated now but wasn't a week ago; re-uploading the html file). If anyone's an expert on blogger or wants to help us (pro bono?) migrate our blog to some better blogging software (e.g. WordPress would be my preference), give us a shout.

Today's New York Times has two stories about Greece: one on the front page about how banks, including some that helped the Greek government hide its bad debt, are now using credit default swaps to bet that Greece will default on its debt (thereby making this more likely to happen); and another, on p. A13, about the massive protests against budget cuts in Greece, including the country's second 24-hour general strike in two weeks. (In the second article, an accompanying photo appears to show tens or hundreds of thousands of protesters, but is accompanied by a caption mentioning "thousands" of protesters.)

We have been meaning to do a post about an interesting item posted to Naked Capitalism earlier this week, by fund manager Marshall Auerback and L. Randall Wray, from the UMKC economics department (one of the main heterodox departments in the United States):

Memo to Greece: Make War, Not Love, With Goldman Sachs

By Marshall Auerback, a fund manager and investment strategist and L. Randall Wray, a Professor of Economics at the University of Missouri-Kansas City | February 22, 2010

In recent weeks there has been much discussion about what to do about Greece. These questions become all the more relevant as the country attempts to float a multibillion-euro bond issue later this week. The Financial Times has called this fund-raising a critical test of Greece's credibility in financial markets as it battles with a spiraling debt crisis and strikes. (http://www.ft.com/cms/s/0/463b205e-1d93-11df-a893-00144feab49a.html ) The "credibility" of the financial markets is an important consideration in a country which has functionally ceded its sovereign ability to create currency, and thus remains dependent on the vagaries of the very banking institutions which helped create the mess in the first place.

Maybe Greece should secede from the European Union and default on its euro debt? Or go hat-in-hand to the International Monetary Fund (IMF) to beg for loans while promising to clean up its act? Or to the stronger Euro nations, hoping for charitable acts of forgiveness? Unfortunately, all of these options are going to mean a lot of pain and suffering for an economy that is already sinking rapidly.

And it is questionable whether any of them provide long term viable answers. Polls show that given the perception of fiscal excesses of Greece and the other countries on the periphery, the public in Germany opposes a bailout of these countries at its expense by a significant margin. Periphery countries such as Ireland that have already undertaken harsh austerity measures also oppose the notion of a bailout, despite—nay, because of–the tremendous pain already inflicted on their own respective economies (in Ireland's case, the banks are probably insolvent as well). The IMF route is also problematic, given that Greece probably doesn't qualify under normal IMF standards, and many euro zone nations would find this unpalatable from an ideological standpoint, as it would mean ceding control of EU macro policy to an external international institution with strong US influence.

The Wall Street Journal recently highlighted an article by Simon Johnson and Peter Boone, lamenting that the demands being foisted on Greece and other struggling Euronations would "massively curtail demand, lower wages and reduce the public sector workforce. The last time we saw this kind of precipitate fiscal austerity—when nations were tied to the gold standard—it contributed to the onset of the Great Depression in the 1930s" (http://online.wsj.com/article/SB10001424052748703525704575061172926967984.html ). Where we disagree with Johnson and Boone is the suggestion that the IMF be brought in to craft a solution. Any help from this organization will come with tight strings attached—indeed, with a noose around Greece's neck. Germany and France would be crazy to commit their scarce euros to a bail-out of Greece since they face both internal threats from their own taxpayers and external threats from financial vampires who are looking for yet another nation to attack.

Here's a more appropriate action: declare war on Goldman Sachs and other global financial firms that created this mess. Send the troops, the planes, the tanks, and the ships. Attack every outpost of the saboteurs on European soil. Blockade the airports and ports. Make Wall Street traders and CEOs fear for their lives, or at least for their freedom to travel. Build some Guantanamo-like facility to hold these enemy financial combatants until they can be tried, convicted, and properly punished.

Ok, if a literal armed attack on Goldman is too far-fetched, then go after the firm using the full force of the regulatory and legal systems. Close the offices and go through the files with a fine-tooth comb. Issue subpoenas to all non-clerical staff for court appearances. Make the internal emails public. Post the names of all managers and traders on Interpol. Arrest anyone who tries to board a plane, train, or boat; confiscate their passports; revoke their visas and work permits; and put a hold on their bank accounts until culpability can be assessed. Make life at least as miserable for them as it now is for Europe's tens of millions of unemployed workers.
We know that the Obama administration will not go after the banksters that created this global financial calamity. It has been thoroughly co-opted by Wall Street's fifth column—who hold most of the important posts in the administration. Europe has even more at stake and has shown somewhat more willingness to take action. Perhaps our only hope for retribution lies there.
Some might believe the term "banksters" is too mean. Surely Wall Street was just doing its job—providing the financial services wanted by the world. Yes, it all turned out a tad unfortunate but no one could have foreseen that so many of the financial innovations would turn into black swans. And hasn't Wall Street learned its lesson and changed its practices? Fat chance. We know from internal emails that everyone on Wall Street saw this coming—indeed, they sold trash assets and placed bets that they would crater. The crisis was not a mistake—it was the foregone conclusion. The FBI warned of an epidemic of fraud back in 2004—with 80% of the fraud on the part of lenders. As Bill Black has been warning since the days of the Saving and Loan crisis, the most devastating kind of fraud is the "control fraud", perpetrated by the financial institution's management. Wall Street is, and was, run by control frauds. Not only were they busy defrauding the borrowers, like Greece, but they were simultaneously defrauding the owners of the firms they ran. Now add to that list the taxpayers that bailed out the firms. And Goldman is front and center when it comes to bad apples.

Lest anyone believe that Goldman's executives were somehow unaware of bad deals done by rogue traders, William Cohan (http://opinionator.blogs.nytimes.com/2010/02/18/the-great-goldman-sachs-fire-sale-of-2008) reports that top management unloaded their Goldman stocks in March 2008 when Bear crashed, and again when Lehman collapsed in September 2008. Why? Quite simple: they knew the firm was full of toxic waste that it would not be able to continue to unload on suckers—and the only protection it had came from AIG, which it knew to be a bad counterparty. Hence on March 19, Jack Levy (co-chair of M&As) sold over $5 million of Goldman's stock and bet against 60,000 more shares; Gerald Corrigan (former head of the NY Fed who was rewarded for that tenure with a position as managing director of Goldman) sold 15,000 shares in March; Jon Winkelried (Goldman's co-president) sold 20,000 shares. After the Lehman fiasco, Levy sold over $6 million of Goldman shares and Masanori Mochida (head of Goldman in Japan) sold $56 million worth. The bloodletting by top management only stopped when Goldman got Geithner's NYFed to produce a bail-out for AIG, which of course turned around and funneled government money to Goldman. With the government rescue, the control frauds decided it was safe to stop betting against their firm. So much for the "savvy businessmen" that President Obama believes to be in charge of Wall Street firms like Goldman.

From 2001 through November 2009 (note the date—a full year after Lehman) Goldman created financial instruments to hide European government debt, for example through currency trades or by pushing debt into the future. But not only did Goldman and other financial firms help and encourage Greece to take on more debt, they also brokered credit default swaps on Greece's debt—making income on bets that Greece would default. No doubt they also took positions as the financial conditions deteriorated—betting on default and driving up CDS spreads.

But it gets even worse: An article by the German newspaper, FAZ, ("Die Fieberkurve der griechischen Schuldenkrise", Feb. 20, 2010) strongly indicates that AIG, everybody's favorite poster boy for financial deviancy, may have been the party which sold the credit default swaps on Greece (English translation here).

Generally, speaking, these CDSs lead to credit downgrades by ratings agencies, which drive spreads higher. In other words, Wall Street, led here by Goldman and AIG, helped to create the debt, then helped to create the hysteria about possible defaults. As CDS prices rise and Greece's credit rating collapses, the interest rate it must pay on bonds rises—fueling a death spiral because it cannot cut spending or raise taxes sufficiently to reduce its deficit.

Having been bailed out by the Obama Administration, Wall Street firms are already eyeing other victims (and for allowing these kinds of activities to continue, the US Treasury remains indirectly complicit, another good reason why one shouldn't expect any action coming out of Washington). Since the economic collapse is causing all Euronations to run larger budget deficits and at the same time is raising CDS prices and interest rates, it is easy to pick off nation after nation. This will not stop with Greece, so it is in the interest of Euroland to stop the vampires now.

With Washington unlikely to do anything to constrain Goldman, it looks like the European Union, which is launching a major audit, just might banish the bank from dealing in government debt. The problem is that CDS markets are essentially unregulated so such a ban will not prevent Wall Street from bringing down more countries—because they do not have to hold debt in order to bet against it using CDSs. These kinds of derivatives have already brought down an entire continent – Asia – in the late 1990s (see here), and yet authorities are still standing by and basically doing nothing when CDSs are being used again to speculatively attack Euroland. The absence of sanctions last year, when we had a chance to deal with this problem once and for all, has simply induced even more outrageous and fundamentally anti-social behavior. It has pitted neighbor against neighbor—with, for example, Germany and Greece lobbing insults at one another (Greece has requested reparations for WWII damages; Germany has complained about subsidizing what it perceives to be excessive social spending in Greece).

Of course, as far as Greece goes, the claim now is that these types of off balance sheet transactions in which Goldman and others engaged were not strictly "illegal" under EU law. But these are precisely the kinds of "shadow banking transactions" that almost brought down the global financial system 18 months ago. Literally a year after the Lehman bankruptcy – MONTHS after Goldman itself was saved from total ruin, it was again engaging in these kinds of deals.

And it wasn't exactly a low-level functionary or "rogue trader" who was carrying out these transactions on behalf of Goldman. Gary Cohn is Lloyd "We're doing God's work" Blankfein's number 2 man. So it's hard to believe that St. Lloyd did not sanction the activities as well in advance of collecting his "modest" $9m bonus for last year's work.

If these are examples of Obama's "savvy businessmen", then heaven help the global economy. The transaction highlighted, if reported that way in the private sector, would be accounting fraud. Fraud – "Go to jail, do not pass Go" fraud. That senior bankers had no problem in structuring/recommending/selling such deals to cash-strapped governments should probably not surprise us at this point. However, it would be interesting to know if the prop trading desks of those same investment banks, purely by coincidence of course, then took long CDS (short the credit) positions in the credit of the countries doing the hidden swaps. A proper legal investigation by the EU could reveal this and certainly help to uncover much of the financial chicanery which has done so much destruction to the global economy over the past several years.

In this country, we have had a "war on terror" and a "war on drugs" and yet we refuse to declare war on these financial weapons of mass destruction. We all remember Jimmy Carter's "MEOW"—the attempt to attack creeping inflation that was said to sap the strength of the US economy in the late 1970s. But Europe—and indeed the entire globe—faces a much more dangerous and immediate threat from Wall Street's banksters. They created this mess and are not only profiting from it, but are actively preventing recovery. They are causing unemployment, starvation, destruction of lives, and even violence and terrorism across the world. They are certainly more dangerous than the inflation of the 1970s, and arguably have disrupted more lives than Osama bin Laden—whose actions led the US to undertake military actions in at least three countries. That should provide ample justification for Greece's declaration of figurative war on Manhattan.

However, in an ironic twist of fate, it was just announced that Petros Christodoulou will take over as the head of Greece's national debt management agency. He worked as the head of derivatives at JP Morgan, and also previously worked at Goldman—the firm that got Greece into all this trouble!

Dimitri Papadimitriou has recently made what we consider to be an important plea for moderation of the hysteria about Greece's debt. Writing in the Financial Times, he complained that

The plethora of articles in your pages and others, some arguing in favour and other against a bail-out, contribute to market confusion and drive the country's financing costs to record levels. It is not yet clear that a bail-out is even needed, but this market confusion is rendering the government's ability to achieve its deficit goals ever more difficult.

Indeed, we suspect that the same financial firms that helped to get Greece into its predicament are profiting from—and stoking the fires of—the hysteria. He goes on, "what Greece really needs now is a holiday from further market confusion being created by contradictory, alarmist public commentary".

Greece, Euroland in general, and the rest of the world all need a holiday from the manipulation and destruction of our economies by Wall Street firms that profit from speculative bubbles, from burying firms, households, and governments under mountains and debt, and even from the crises that they create. Governments all over the globe should use all legal means at their disposal to ferret out the bad faith and even fraudulent deals that global financial behemoths are foisting on us.

Read the original post.

Unemployment at 9.7%; Links on Jobs

noreply@blogger.com (Dollars and Sense) — Fri, 05 Mar 2010 18:44:00 +0000

The Bureau of Labor Statistics released the jobs numbers for February this morning; find the Employment Situation Summary here.

I apologize for not keeping up with the blog for the last few days—we have been busy rushing the March/April issue of Dollars & Sense to the printers (late, but by less than usual for us!).

I have just posted an article from the new issue on military Keynesianism; and here is the editorial note for the issue, whose theme is Guns (i.e., military spending) vs. Butter (i.e., spending on jobs):

Word is out about how bad the long-term unemployment situation is likely to be. The cover story in the current issue of the Atlantic Monthly, How a New Jobless Era Will Transform America, declares, plausibly, that "a whole generation of young adults is likely to see its life chances permanently diminished by this recession."

A recent working paper from the National Bureau of Economic Research, the same outfit that calls the start- and end-dates of recessions, found that people who come of age during a recession "tend to support more government redistribution, but they have less confidence in public institutions," and tend to believe "that success in life depends more on luck than on effort." In other words, people who grow up in a recession are more likely to wind up in depression.

In a New York Times article on long-term unemployment, Allen Sinai, chief economist for Decision Economics, gave a glimpse into how economic elites tend to think about unemployment: "American business is about maximizing shareholder value. You basically don't want workers." He continued, "You hire less, and you try to find capital equipment to replace them." Our vision of a future economy—one without bosses—somehow seems more sustainable than one without workers.

There is an alternative to a jobless future: government policies that support full employment, including direct job-creation by the federal government. How would this be funded? There are lots of options, including a tax on financial transactions (which John Miller assesses in this issue's Up Against the Wall Street Journal), restoring tax rates to the progressive levels of the mid-20th century, and slashing our bloated military and "security" budgets. Now is the time to push for (many) fewer guns and (much) more butter.

Debt Vultures in Liberia (Greg Palast)

noreply@blogger.com (Dollars and Sense) — Tue, 02 Mar 2010 20:42:00 +0000

Greg Palast continues to follow the story of debt vultures who "buy up the loans of poor governments, wait for them to win debt relief from the international community, and then use courts to pursue the countries for assets," for BBC TV Newsnight and an article in the Guardian. Palast wrote about debt vultures for D&S back in 2007 (George Bush's Favorite Vultures). Here's an excerpt from the Guardian article:

Liberian leader urges MPs to back action against vulture funds

Liberia's president calls on MPs to support bill that would bar vulture funds from pursuing debts of poorer nations in UK courts.

Heather Stewart and Greg Palast | Thursday, February 25, 2010

Ellen Johnson Sirleaf, the president of Liberia, is urging MPs to back a bill banning vulture funds from using British courts to prey on poor countries when it comes to a vote on Friday .

Liberia lost a $20m (£13m) case in London last year against two so-called vultures. Such funds buy up the loans of poor governments, wait for them to win debt relief from the international community, and then use courts to pursue the countries for assets.

Sirleaf said: "We've been waiting for a parliament or an assembly to take this kind of hard decision. I hope the US Congress and maybe some others in Europe will pick up this gauntlet and will follow the example of Britain."

An investigation for BBC's Newsnight, to be broadcast tonight, has uncovered allegations that speculators subverted the international debt relief process for Liberia, in an attempt to gain more money from its government and international donors than 97% of its other creditors accepted.

Liberia received debt relief worth $4bn from the international community in 2007 under the heavily indebted poor countries initiative, including $2bn from private-sector bondholders. Insiders to negotiations allege that two US financiers, Eric Hermann and Michael Straus, allowed other creditors to accept a low payout from Liberia, then quietly transferred their holdings to two other firms, which then sued in Britain for the debt in full.

Read the full article.

A Titanic Budget (Jo Comerford)

noreply@blogger.com (Dollars and Sense) — Mon, 01 Mar 2010 16:00:00 +0000

A great piece from Jo Comerford of the National Priorities Project, recently posted at TomDispatch. Here is Tom Engelhardt's introduction:

If there were a prize for worst headline of the week, even the month, it would surely go to a February 23rd piece in the New York Times headlined online: "Gates Calls European Mood a Danger to Peace." The bellicose "mood," so undermining of global peace that our secretary of defense had to go after it, was (according to Brian Knowlton of the Times) the "public and political opposition to the military" spreading across Europe. Who wouldn't react similarly in the face of such an unnerving phenomenon? After all, should it grow stronger, peace on Earth will surely prove a chimera.

European publics are now, it seems, so totally peaceable that, while the thousandth American died "in and around Afghanistan" in Operation Enduring Freedom last week to next to no notice here, they continued to exhibit extraordinary "weakness." After all, this was also the week in which—speak of the devil—the Dutch coalition government collapsed over a dispute about the public's desire to get Dutch troops out of Afghanistan. What an example of that anti-peace bogeyman run riot! No wonder Gates was warning that the perception of weakness could lead hostile powers (unnamed) to a "temptation to miscalculate and aggression."

Fortunately, one country is still willing to sink its money (and lives) into the armed enhancement of peace globally: the United States. As Jo Comerford of the National Priorities Project points out, the latest federal budget opens the American public to yet more pain, while shielding the military and the rest of the national security establishment from the same. Fortunately, that "antiwar mood" seems not to have jumped the wide Atlantic, which means, for the time being, peace is safe in America. —Tom

Read Jo Comerford's article.

Why Not End Homelessness Now?

noreply@blogger.com (Dollars and Sense) — Tue, 23 Feb 2010 22:27:00 +0000

Here is the press release for the 13th annual Homelessness Marathon, an annual overnight radio broadcast on homelessness and poverty. It is a truly amazing program--especially the moving testimony from homeless folks who call in or show up at the broadcast site. We encourage you to tune in for at least part of it. You can listen online or tune over the airwaves--it's carried on over a hundred radio stations across the United States and Canada. This year's marathon originate in Detroit. It starts in an hour and a half--tune in!

BROADCAST TO ASK, "WHY NOT END HOMELESSNESS NOW?"

13th Annual Homelessness Marathon begins 7 p.m., EST, Tues. Feb 23rd
and run for 14 hours until 9 a.m., EST, Wed. Feb. 24th

"We have a mindset in this country that homelessness is a problem that can wait," comments Jeremy Weir Alderson, founder of the Homelessness Marathon, "but it's a dire emergency for the people who are homeless, a drain on our economy, and a stain on our national honor. We ought to solve this problem, and we could if we would only turn our attention to it."

The Homelessness Marathon will address the problem of homelessness by speaking directly with homeless people, who will give their first-hand testimony on how they became homeless and the obstacles they face before they can be housed again.

Hundreds of homeless people will be brought by bus (in rotating shifts) so that they can participate in this event and speak directly to the nation. They will be brought by shelters, advocacy groups, and grass roots organizations formed by homeless people themselves.

The broadcast will feature, as well, such speakers as Senator Carl Levin; Ron Gettlefinger, president of the United Auto Workers; and two of America's most outstanding anti-poverty advocates, Cheri Honkala, director of the Poor Peoples' Economic Human Rights Campaign and Paul Boden, director of the Western Regional Advocacy Project.

Prominent advocates from Detroit will participate, including Rev. Faith Fowler, director of Cass Community Social Services and Maureen Taylor, the state chairperson of Michigan Welfare Rights Organization.

Experts from elsewhere in the country will also participate, including Kathleen Johnson, director of Katrina Relief in Mississippi and Mike Rhodes, editor of the Community Alliance newspaper in Fresno, California, arguably, the cruelest city in America towards its homeless citizens.

The broadcast will originate from 12025 Woodrow Wilson St., a "green gym" recently opened by Cass Community Social Services for the use of its homeless clients. Detroit area radio stations participating in the broadcast will include, WHFR in Dearborn, the broadcast's host station; WHPR in Highland Park and CJAM in Windsor, Ontario.

The Homelessness Marathon is a consciousness-raising not a fund-raising broadcast. There will be no on-air solicitations.

More information about the broadcast can be found here;

Acclaim for the broadcast can be found here;

To donate to the Homelessness Marathon go here.

Greenspan Wins Dynamite Prize

noreply@blogger.com (Dollars and Sense) — Mon, 22 Feb 2010 21:18:00 +0000

From the folks at the Real-World Economics Review (formerly the Post-Autistic Economics Review); they initially called this the "Ignoble Prize in Economics," not knowing that that name had already been taken (much as they, ahem, kind of stole the name our textbook series--Real World Macro, Real World Micro--has had for more than twenty years, but we still like them). So glad Larry made the top three!

Alan Greenspan has been judged the economist most responsible for causing the Global Financial Crisis. He and 2nd and 3rd place finishers Milton Friedman and Larry Summers have won the first–and hopefully last—Dynamite Prize in Economics.

In awarding the Prize, Edward Fullbrook, editor of the Real World Economics Review, noted that "They have been judged to be the three economists most responsible for the Global Financial Crisis. More figuratively, they are the three economists most responsible for blowing up the global economy."

The prize was developed by the Real World Economics Review Blog in response to attempts by economists to evade responsibility for the crisis by calling it an unpredictable, "Black Swan" event. In reality, the public perception that economic theories and policies helped cause the crisis is correct.

The prize winners were determined by a poll in which over 7,500 people voted—most of whom were economists themselves from the 11,000 subscribers to the real-world economics review . Each voter could vote for a maximum of three economists. In total 18,531 votes were cast.

Fullbrook cautioned that not all economics and economists were bad. "Only ‘neoclassical’ economists caused the GFC. There are other approaches to economics that are more realistic—or at least less delusional—but these have been suppressed in universities and excluded from government policy making."

"Some of these rebels also did what neoclassical economists falsely claimed was impossible: they foresaw the Global Financial Crisis and warned the public of its approach. In their honour, I now call for nominations for the inaugural Revere Award in Economics, named in honour of Paul Revere and his famous ride. It will be awarded to the 3 economists who saw the GFC coming, and whose work is most likely to prevent another GFC in the future."

Dynamite Prize Citations

Alan Greenspan (5,061 votes): As Chairman of the Federal Reserve System from 1987 to 2006, Alan Greenspan both led the over expansion of money and credit that created the bubble that burst and aggressively promoted the view that financial markets are naturally efficient and in no need of regulation.

Milton Friedman (3,349 votes): Friedman propagated the delusion, through his misunderstanding of the scientific method, that an economy can be accurately modeled using counterfactual propositions about its nature. This, together with his simplistic model of money, encouraged the development of fantasy-based theories of economics and finance that facilitated the Global Financial Collapse.

Larry Summers (3,023 votes): As US Secretary of the Treasury (formerly an economist at Harvard and the World Bank), Summers worked successfully for the repeal of the Glass-Steagall Act, which since the Great Crash of 1929 had kept deposit banking separate from casino banking. He also helped Greenspan and Wall Street torpedo efforts to regulate derivatives.

In total 18,531 votes were cast. The vote totals for the other finalists were:

Fischer Black and Myron Scholes 2,016

Eugene Fama 1,668

Paul Samuelson 1,291

Robert Lucas 912

Richard Portes 433

Edward Prescott and Finn E. Kydland 403

Assar Lindbeck 375

The poll was conducted by PollDaddy. Cookies were used to prevent repeat voting.

For further information and interviews email: pae_news@btinternet.com

Wall Street's Bailout Hustle (Matt Taibbi)

noreply@blogger.com (Dollars and Sense) — Mon, 22 Feb 2010 21:06:00 +0000

Matt Taibbi's latest at Rolling Stone; also check out a blog post by Taibbi in which he agrees with Bailout Nation author Barry Ritholtz that "we should have gone Swedish on their asses" (i.e. the U.S. gov't should have temporarily nationalized the banks the way the Swedes did in the early 90s); and check out an interesting post by Edward Harrison on that topic at Naked Capitalism.

Wall Street's Bailout Hustle

Goldman Sachs and other big banks aren't just pocketing the trillions we gave them to rescue the economy—they're re-creating the conditions for another crash

On January 21st, Lloyd Blankfein left a peculiar voicemail message on the work phones of his employees at Goldman Sachs. Fast becoming America's pre-eminent Marvel Comics supervillain, the CEO used the call to deploy his secret weapon: a pair of giant, nuclear-powered testicles. In his message, Blankfein addressed his plan to pay out gigantic year-end bonuses amid widespread controversy over Goldman's role in precipitating the global financial crisis.

The bank had already set aside a tidy $16.2 billion for salaries and bonuses—meaning that Goldman employees were each set to take home an average of $498,246, a number roughly commensurate with what they received during the bubble years. Still, the troops were worried: There were rumors that Dr. Ballsachs, bowing to political pressure, might be forced to scale the number back. After all, the country was broke, 14.8 million Americans were stranded on the unemployment line, and Barack Obama and the Democrats were trying to recover the populist high ground after their bitch-whipping in Massachusetts by calling for a "bailout tax" on banks. Maybe this wasn't the right time for Goldman to be throwing its annual Roman bonus orgy.

Not to worry, Blankfein reassured employees. "In a year that proved to have no shortage of story lines," he said, "I believe very strongly that performance is the ultimate narrative."

Translation: We made a shitload of money last year because we're so amazing at our jobs, so fuck all those people who want us to reduce our bonuses.

Goldman wasn't alone. The nation's six largest banks—all committed to this balls-out, I drink your milkshake! strategy of flagrantly gorging themselves as America goes hungry—set aside a whopping $140 billion for executive compensation last year, a sum only slightly less than the $164 billion they paid themselves in the pre-crash year of 2007. In a gesture of self-sacrifice, Blankfein himself took a humiliatingly low bonus of $9 million, less than the 2009 pay of elephantine New York Knicks washout Eddy Curry. But in reality, not much had changed. "What is the state of our moral being when Lloyd Blankfein taking a $9 million bonus is viewed as this great act of contrition, when every penny of it was a direct transfer from the taxpayer?" asks Eliot Spitzer, who tried to hold Wall Street accountable during his own ill-fated stint as governor of New York.

Beyond a few such bleats of outrage, however, the huge payout was met, by and large, with a collective sigh of resignation. Because beneath America's populist veneer, on a more subtle strata of the national psyche, there remains a strong temptation to not really give a shit. The rich, after all, have always made way too much money; what's the difference if some fat cat in New York pockets $20 million instead of $10 million?

Read the rest of the article.

Top Firms Cause $2.2 Trillion in Eco-Damage (UN)

noreply@blogger.com (Dollars and Sense) — Fri, 19 Feb 2010 21:04:00 +0000

From the Guardian; hat-tip to Larry P.

World's top firms cause $2.2tn of environmental damage, report estimates

Report for the UN into the activities of the world's 3,000 biggest companies estimates one-third of profits would be lost if firms were forced to pay for use, loss and damage of environment

Juliette Jowit | Thursday 18 February 2010 18.19 GMT

The cost of pollution and other damage to the natural environment caused by the world's biggest companies would wipe out more than one-third of their profits if they were held financially accountable, a major unpublished study for the United Nations has found.

The report comes amid growing concern that no one is made to pay for most of the use, loss and damage of the environment, which is reaching crisis proportions in the form of pollution and the rapid loss of freshwater, fisheries and fertile soils.

Later this year, another huge UN study - dubbed the "Stern for nature" after the influential report on the economics of climate change by Sir Nicholas Stern - will attempt to put a price on such global environmental damage, and suggest ways to prevent it. The report, led by economist Pavan Sukhdev, is likely to argue for abolition of billions of dollars of subsidies to harmful industries like agriculture, energy and transport, tougher regulations and more taxes on companies that cause the damage.

Ahead of changes which would have a profound effect - not just on companies' profits but also their customers and pension funds and other investors - the UN-backed Principles for Responsible Investment initiative and the United Nations Environment Programme jointly ordered a report into the activities of the 3,000 biggest public companies in the world, which includes household names from the UK's FTSE 100 and other major stockmarkets.

The study, conducted by London-based consultancy Trucost and due to be published this summer, found the estimated combined damage was worth US$2.2 trillion (£1.4tn) in 2008 - a figure bigger than the national economies of all but seven countries in the world that year.

The figure equates to 6-7% of the companies' combined turnover, or an average of one-third of their profits, though some businesses would be much harder hit than others.

"What we're talking about is a completely new paradigm," said Richard Mattison, Trucost's chief operating officer and leader of the report team. "Externalities of this scale and nature pose a major risk to the global economy and markets are not fully aware of these risks, nor do they know how to deal with them."

The biggest single impact on the $2.2tn estimate, accounting for more than half of the total, was emissions of greenhouse gases blamed for climate change. Other major "costs" were local air pollution such as particulates, and the damage caused by the over-use and pollution of freshwater.

The true figure is likely to be even higher because the $2.2tn does not include damage caused by household and government consumption of goods and services, such as energy used to power appliances or waste; the "social impacts" such as the migration of people driven out of affected areas, or the long-term effects of any damage other than that from climate change. The final report will also include a higher total estimate which includes those long-term effects of problems such as toxic waste.

Trucost did not want to comment before the final report on which sectors incurred the highest "costs" of environmental damage, but they are likely to include power companies and heavy energy users like aluminium producers because of the greenhouse gases that result from burning fossil fuels. Heavy water users like food, drink and clothing companies are also likely to feature high up on the list.

Sukhdev said the heads of the major companies at this year's annual economic summit in Davos, Switzerland, were increasingly concerned about the impact on their business if they were stopped or forced to pay for the damage.

"It can make the difference between profit and loss," Sukhdev told the annual Earthwatch Oxford lecture last week. "That sense of foreboding is there with many, many [chief executives], and that potential is a good thing because it leads to solutions."

The aim of the study is to encourage and help investors lobby companies to reduce their environmental impact before concerned governments act to restrict them through taxes or regulations, said Mattison.

"It's going to be a significant proportion of a lot of companies' profit margins," Mattison told the Guardian. "Whether they actually have to pay for these costs will be determined by the appetite for policy makers to enforce the 'polluter pays' principle. We should be seeking ways to fix the system, rather than waiting for the economy to adapt. Continued inefficient use of natural resources will cause significant impacts on [national economies] overall, and a massive problem for governments to fix."

Another major concern is the risk that companies simply run out of resources they need to operate, said Andrea Moffat, of the US-based investor lobby group Ceres, whose members include more than 80 funds with assets worth more than US$8tn. An example was the estimated loss of 20,000 jobs and $1bn last year for agricultural companies because of water shortages in California, said Moffat.

Read the original article. (There's a great set of graphs.)

Commercial Real Estate: 'Extend and Pretend'

noreply@blogger.com (Dollars and Sense) — Thu, 18 Feb 2010 20:38:00 +0000

I have been meaning to post this for a while--interesting post from the Financial Times' Money Supply blog:

Subprime 2.0 strategy: "Extend and pretend"
February 11, 2010 5:06pm
by Emma Saunders

Between 2010 and 2014, $1,400bn US commercial real estate loans will reach the end of their terms. Nearly half of them are currently in negative equity—that is, the borrower owes more than the property is worth. And banks are reducing the number of loans in the sector, and have been doing so throughout 2009.

More shocking is that banks and their auditors are typically well aware of the problem, but have not written down the value of property as prices have fallen. Instead they are "extending and pretending"—or "delaying and praying": holding property values steady and assisting the borrowers where possible. They need to. If banks were accurately to record property values, they would write down assets on their own balance sheets and jeopardise their business (see example to right).

A very thorough report just released from the Congressional Oversight Panel expects many banks to go under when the pretence comes to an end. The report concludes: "There is a commercial real estate crisis on the horizon, and there are no easy solutions to the risks commercial real estate may pose to the financial system and the public."

When a government body admits things are at crisis proportions, you have to take notice. This isn't journalistic hyperbole. It is hard to overstate the impact of the coming second subprime, hitting, as it will, a very fragile economic recovery.

So, who will be most affected? In a nutshell, banks, and mostly the smaller ones. "Large loan losses and the failure of some small and regional banks appear to some experienced analysts to be inevitable," says the report. But it is by no means only banks affected (see pie, right): 54 per cent of exposure sits throughout the financial system.

Read the rest of the post.

Vancouver Olympics--At What Price?

noreply@blogger.com (Dollars and Sense) — Wed, 17 Feb 2010 20:37:00 +0000

For good alternative Olympics coverage, check out a three-part radio series entitled The Winter Olympics Comes to the Northwest...But at What Price? on KBCS community radio in Bellevue, Wash. (Part of this was rebroadcast on Boston's own Radio With a View this past Sunday--hat-tip to Mark and Dave for alerting us to this series. You can hear last Sunday's show for the next two weeks by clicking here, scrolling down, and clicking on the Feb. 14th link under the RWAV listing.)

Also check out the No 2010 Olympics on Stolen Native Land website and the Vancouver Media Co-op website for updates on the excellent activism going on to disrupt the Olympics.

Meanwhile, we bring you more satire about Canada from Maurice Dufour, professor of political science at Marianopolis College in Montreal: Arctic Power ... With Added Cleansers. If you like Maurice's satire, check out two of his earlier pieces for us: Shovel-Ready in Canada, about the supposed superiority of the Canadian banking system, and How to Make Mud Cookies, about famine in Haiti in the midst of the commodity crisis of 2008. One of his funniest for us, Hooked on Hydrocarbons, about the Alberta oil sands, is available only in the print edition. But email us and maybe we can send you a pdf (and try to convince you to subscribe).

Kwak on Mankiw on the Deficit

noreply@blogger.com (Dollars and Sense) — Tue, 16 Feb 2010 20:01:00 +0000

From Baseline Scenario; hat-tip to LF. James Kwak and Simon Johnson have a new book, 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown, which will be available on March 30th.

Greg Mankiw on the Deficit

By James Kwak

Broken record alert: Another post on the deficit ahead. Wouldn't you rather look at funny pictures of cats? Why do I keep writing these? (Hint: The other side keeps writing them.) You have been warned.

Greg Mankiw, noted economics textbook author and former chair of Bush 43's Council of Economic Advisers, has an op-ed on the deficit that is relatively sensible by the standards of recent debate. He points out that modest deficits can be sustainable, that taxes will probably need to go up, and that a value-added tax is a plausible option. He also points out that Obama's projections are based on optimistic economic forecasts that very plausibly may not pan out, and that Obama's main deficit-reduction strategy is to kick the problem over to a deficit-reduction commission, which are valid criticisms.

Unfortunately, his bottom line seems to be throwing more rocks at President Obama, under the general Republican principle that since he's the president, everything is his fault:

"But unless the president revises his spending plans substantially, he will have no choice but to find some major source of government revenue. Ms. Pelosi's suggestion of a VAT may be the best of a bunch of bad alternatives. Unfortunately, in this new era of responsibility, the president is not ready to face up to the long-term fiscal challenge."

Mankiw, not I, brings up the comparison between Bush 43 and Obama:

"From 2005 to 2007, before the recession and financial crisis, the federal government ran budget deficits, but they averaged less than 2 percent of gross domestic product. Because this borrowing was moderate in magnitude and the economy was growing at about its normal rate, the federal debt held by the public fell from 36.8 percent of gross domestic product at the end of the 2004 fiscal year to 36.2 percent three years later. . . .

"[Mr. Obama's budget] fails to return the federal government to manageable budget deficits, even as the wars wind down and the economy recovers from the recession. According to the administration's own numbers, the budget deficit under the president's proposed policies will never fall below 3.6 percent of G.D.P. By 2020, the end of the planning horizon, it will be 4.2 percent and rising."

What's missing from this comparison? First, the economic growth of 2005-2007 was at best a mixed blessing, as we now know, driven by an unsustainable and ultimately catastrophic credit bubble. Second, and more importantly, the comparison leaves out the long-term trend . . . wait for it . . . Medicare.

Here's my favorite chart again, from the 2008 CBO Budget and Economic Outlook.

In 2007, Medicare, Social Security, and Medicaid cost 8.9 percent of GDP (see Table 3-1). By 2018, they were already projected to grow to 10.8 percent of GDP; extrapolating forward at constant growth rates, by 2020 they would grow to about 11.3 percent—an increase of 2.4 percentage points over 2007. That, in one number, is the difference between Bush 43 and Obama. (Ongoing patches to the AMT—something that Obama includes in his projections that Bush did not—also grow to $150 billion by 2018, or another 0.7 percent of GDP.)

Did Bush 43 do anything about this looming problem? No, because one conservative aspiration since Ronald Reagan has been to crimp government by crippling its finances ("starving the beast"). If Bush had actually reduced the size of government to match his tax cuts, in true conservative fashion, we would face less of a long-term deficit problem now.* But whether by accident or design, it turned out to be politically advantageous to kick the problem down the road and therefore make it harder for his successor to govern.

Now, this doesn't change the fact that it's Obama's problem now, and it's his responsibility to do something about it. But Obama realized that the long-term deficit is a health care problem, while Mankiw doesn't even use the word "health" in his op-ed on the deficit. If we don't slow the growth of health care costs, there is no real solution to the deficit problem; the only way out from the budget perspective will be slashing Medicare, but that doesn't solve the problem—it just shifts it onto individuals. And Obama spent much of the last year pushing for health care reform with major cost-cutting components,** attracting support from some Republican health experts (though not from any Republican Congressmen). Now, it would be meaningful to criticize Obama for having the wrong ideas about how to control health care spending, as a few Republicans have done. But to say he's not up to the challenge without mentioning health care misses the real point.

Still, it's true that Obama could put forward a more aggressive deficit reduction plan. If I were king, my plan would include modest increases in the Medicare eligibility age, a whole bevy of health care cost reduction initiatives, modest tax increases (pushed out into the future and made contingent on economic recovery) such as eliminating the cap on the Social Security tax and reinstating the estate tax, and bigger tax increases that would kick in if health care cost savings failed to materialize. But in our current political climate, that would be political suicide for any president and would have zero chance of passage. I'm skeptical about the deficit commission, too, but we have collectively backed ourselves into a position where neither party can afford to even propose the necessary steps on its own.

The political problem is that there's no politically palatable way to solve the long-term deficit problem. The Republican strategy, after (almost) killing health care reform, is to attack Obama for not having a long-term solution, daring him to propose one so they can then attack him for raising taxes. Yes, that's the way the game is played. That doesn't change the fact that it's a game.

* Bush did make an attempt to reform Social Security. But even if we assume he had managed to stop the growth of Social Security completely, the growth in Medicare, Medicaid, and the AMT fix would by themselves account for the difference between the 2005-2007 deficits and the projected 2020 deficit.

** The Senate health care bill only reduces the deficit by a little by year ten, because the CBO gives it very little credit for its cost-cutting measures, particularly the delivery system reforms. It is fair for the CBO to give those reforms little credit, since they are unproven. But it is also important to remember that there is no proven way to reduce health care costs (Paul Ryan's plan reduces government expenditures reliably, but it is no more proven to reduce actual health care costs), so the only way to have any chance to reduce health care costs is to undertake the kind of experimentation proposed by the Senate bill.

Read the original post.

What to Do About Housing Foreclosures?

noreply@blogger.com (Dollars and Sense) — Tue, 16 Feb 2010 17:52:00 +0000

Dollars & Sense and the Boston chapter of Democratic Socialists of America are co-sponsoring a forum on the housing foreclosure crisis, on Wednesday, March 3, 2010, in Boston. We hope to see our Boston-area friends and supporters there! Here are the details:

We are facing a crisis of housing foreclosures in Massachusetts. In November 2009 alone, there were 76% more foreclosures than in the same month a year ago. This wave of foreclosures is decimating whole communities, leaving buildings empty and people without homes. Big banks get bailed out, but our government has done little to help working people tricked into bad loans, who are now losing their homes to foreclosure. Is this fair?

Our forum will look at the way the greedy and unethical actions of the big
financial institutions help caused the global economic crisis, of which the
foreclosure crisis is only a part. We will learn about efforts to pass legislation to help people facing foreclosure, as well as the way people are organizing in their communities to help themselves. And we will learn what we can do to help!

Speakers:
Grace Ross – Former Green Party gubernatorial candidate, now challenging Gov. Patrick in the Democratic Party Primary. Currently a staffer for the Massachusetts Alliance Against Predatory Lending (MAAPL), and author of the forthcoming book, "Main Street Smarts: Who got us into this economic mess and how we get through it."

Melonie Griffiths – Tenant and Economy Project Organizer for City Life/Vida
Urbana, the Jamaica Plain-based social justice organization which has been
organizing community members to resist evictions and save their homes.

Senator Sonia Chang-Diaz (D-Boston) – Co-sponsor of SB1609, one of the MAAPL-supported bills, which would protect tenants from eviction in foreclosed properties.

Wednesday, March 3, 2010, 7:00 P.M., at Encuentro 5, 33 Harrison Ave., 5th floor, Chinatown (Boston). For directions to 33 Harrison Ave., visit www.encuentro5.org

Rethinking Poverty today

noreply@blogger.com (Dollars and Sense) — Tue, 16 Feb 2010 17:11:00 +0000

United Nations University (UNU) Office at the United Nations in New York will present a book launch this afternoon to discuss issues raised in Rethinking Poverty: Report on the World Social Situation 2010, published by the United Nations Department of Economic and Social Affairs.

If you're in NYC, you're invited to attend, from 3-4:30 p.m. in Conference Room C, Temporary North Lawn Building (TNLB), UN Headquarters.

If you can't make it to the UN today, the event will include a simultaneous live, interactive webcast. To receive instructions on how to participate in the webcast, please register. The webcast will also be archived online in a few days.

Here's a brief synopsis of the book and the event:

The negative economic and social impacts of the recent food and energy crises, combined with the threats posed by climate change, challenges the assumption of the sustainability of poverty reduction. Rethinking Poverty: Report on the World Social Situation 2010 disputes the current technocratic vision of poverty reduction and affirms that eradicating poverty requires actions leading to sustainable economic growth, productive employment creation and social development as part of an integrated framework of economic and social policies for the benefit of all citizens.

The event will feature Dr. Jomo Kwame Sundaram, United Nations Assistant Secretary-General for Economic Development in the UN Department of Economic and Social Affairs (DESA), and (Honorary) Research Coordinator for the G-24 Intergovernmental Group on International Monetary Affairs and Development. The Q&A session following the presentation will be moderated by UNU's Director Dr. Jean-Marc Coicaud.

Read more about the event and the book. [Hat tip to Lynn Fries.]

Security and Order Not the Issue in Haiti (Alternet)

noreply@blogger.com (Dollars and Sense) — Mon, 15 Feb 2010 14:55:00 +0000

Excellent piece on Haiti by Arun Gupta at Alternet.

More Pain for Devastated Haiti: Under the Pretense of Disaster Relief, U.S. Running a Military Occupation

The rapid mobilization of U.S troops in Haiti was not primarily done for humanitarian reasons; we're likely to see a neoliberal economic plan imposed, at gunpoint if necessary.

By Arun Gupta | February 12, 2010

Official denials aside, the United States has embarked on a new military occupation of Haiti thinly cloaked as disaster relief. While both the Pentagon and the United Nations claimed more troops were needed to provide "security and stability" to bring in aid, according to nearly all independent observers in the field, violence was never an issue. in

Instead, there appears to be cruder motives for the military response. With Haiti's government "all but invisible" and its repressive security forces collapsed, popular organizations were starting to fill the void. But the Western powers rushing in envision sweatshops and tourism as the foundation of a rebuilt Haiti. This is opposed by the popular organizations, which draw their strength from Haiti's overwhelmingly poor majority. Thus, if a neoliberal plan is going to be imposed on a devastated Haiti it will be done at gunpoint.

The rapid mobilization of thousands of U.S troops was not for humanitarian reasons; in fact it crowded out much of the arriving aid into the Port-au-Prince airport, forcing lengthy delays. Doctors Without Borders said five of its cargo flights carrying 85 tons of medical and relief supplies were turned away during the first week while flights from the World Food Program were delayed up to two days. One WFP official said of the 200 flights going in and out of Haiti daily "most...are for the U.S. military." Nineteen days into the crisis, only 32 percent of Haitians in need had received any food (even if just a single meal), three-quarters were without clean water, the government had received only two percent of the tents it had requested and hospitals in the capital reported they were running "dangerously low" on basic medical supplies like antibiotics and painkillers. On Feb. 9, the Washington Post reported that food aid was little more than rice, and "Every day, tens of thousands of Haitians face a grueling quest to find food, any food. A nutritious diet is out of the question."

At the same time, the United States had assumed control of Haiti's airspace, landed 6,500 soldiers on the ground, with another 15,000 troops offshore at one point, dispatched an armada of naval vessels and nine coast guard cutters to patrol the waters, and the U.S. embassy was issuing orders on behalf of the Haitian government. In a telling account, the New York Times described a press conference in Haiti at which "the American ambassador and the American general in charge of the United States troops deployed here" were "seated at center stage," while Haitian President René Préval stood in the back "half-listening" and eventually "wandered away without a word."

Read the rest of the article.

CEO-As-Hero on CBS (Labor Notes)

noreply@blogger.com (Dollars and Sense) — Mon, 15 Feb 2010 14:36:00 +0000

Excellent piece from Labor Notes. The best bit is about how the CEO blathers on this "reality" TV show about his commitment to safety, while in reality at this union-free company, "workers are three times more likely to get killed on the job than firemen, and 60 percent more likely than police officers," and one worker "was cut in half two years ago by a malfunctioning hydraulic arm on a garbage truck." Get out the pitchforks.

Reality TV Gives Corporate America a Big Wet Kiss
by Mark Brenner | Thu, 02/11/2010 - 4:26pm

Want to know what chutzpah means? Look no further than TV's newest reality show, "Undercover Boss." Apparently the titans of industry aren't satisfied that they burned our economy to the ground and got nothing but a slap on the wrist from Washington. They want us to like them, too.

"Undercover Boss," which debuted on CBS after Sunday's Superbowl, is a corporate charm offensive. For one week the CEO of a major company goes "undercover," performing a variety of jobs at the bottom of the corporate ladder.

CEO-AS-HERO

Over the course of an hour we discover that the CEO is really a nice guy. We see just how ready top brass is to reward hard-working employees and to clean up problems on the front lines.

It's a blast from the Reagan-era past: CEO-as-hero.

The first episode features Larry O'Donnell, president of Waste Management, the nation's largest trash and recycling company.

In fine superhero tradition, O'Donnell adopts an alter ego (that sounds strangely like a porn star)—Randy Lawrence—and spends a day each doing various jobs at Waste Management: sorting recycling; picking up trash at a landfill; cleaning port-a-potties in an amusement park; shadowing the manager of a landfill; and riding shotgun on a residential garbage truck route.

Read the rest of the article.

Break Up With Your Big Bank (Bankster)

noreply@blogger.com (Dollars and Sense) — Fri, 12 Feb 2010 21:42:00 +0000

Here, from Bankster, is another example of anti-big-bank activism, albeit of the PC consumerist sort, that *might* be able to send the biggest banks the message that We Don't Like Them. Here are the details:

FOR VALENTINE'S DAY - BREAK UP WITH YOUR BIG BANK!

This Valentine's Day is the perfect time to end your abusive relationship with the big banks that have a stranglehold on our country. They've been lying, gambling, cheating and they seem to think they can just keep getting away with it forever. Now's the time to tell them you want to bank with someone who actually cares about you and whose interest rates don't exceed their actual interest.

That's the message that our partners and friends A New Way Forward are sending to the big banks this Valentine's Day. They are asking people to start moving their money away from the largest banks to smaller local banks and credit unions and boycott big-bank credit cards as well. Then, they are asking people to help spread the word in a coordinated fashion at 400 events around the country. They have a flyer that can be printed out and photo-copied, and they're asking people to distribute it at job fairs and other events.

Americans are drowning in $700 billion in credit card debt because of the big banks' dangerous interest rates. Ninety percent of all credit cards are from the four big banks, Bank of America, Chase, Citi and Wells Fargo. They are using their market dominance to charge interest rates that are, on average, 20 percent higher than the rates of local bank and credit union cards.

Now I know that most BanksterUSA subscribers may already have their savings at local credit unions (or under their mattress), but if you have a friend in an abusive banking relationship, please forward this email and tell them there is help at Bankbreakup.org.

There is also a handy page of tips to make breaking up with your bank simple. Click here to learn more!

Thanks for all your support and Happy Valentine's Day from BanksterUSA!

I got into a bit of trouble the last time I posted this kind of thing—about the Move Your Money campaign, which was co-sponsored by Arianna Huffington. First of all, blog visitor Michael E. responded thusly: "Doug Henwood, the intrepid, articulate, and clear-headed editor of the Left Business Observer, asserts that "Move Your Money" is a delusional waste of time and effort based on false assumptions about the banking system. His argument is very convincing. Check out his article in the current issue."

Once I'd read the LBO article, which I liked quite a bit, I posted the bulk of the argument from it, with a link urging people to subscribe to LBO. I guess no good deed goes unpunished—within an hour or so we got an email from Doug saying he was annoyed that we had posted "the entirety" of the piece (which we had not), even though he intended to post the full text of the article on his own site that very day. Sigh. Of course I trimmed down the re-post immediately.

We again urge you to subscribe to LBO (it's Doug's livelihood!), and listen to Doug's excellent radio program. (Subscribe to D&S while you're at it—it's our livelihood! E-subscriptions are now available—a full-color pdf delivered to your Inbox six times a year.)

And if you still have money in one of the big banks, put it in a credit union! But needless to say, don't expect that to bring down capitalism or even to make it appreciably less nasty, except maybe with respect to your own overdraft fees.

—Chris Sturr, D&S co-editor.

Obama's Junk Economics (Michael Hudson)

noreply@blogger.com (Dollars and Sense) — Thu, 11 Feb 2010 19:57:00 +0000

From Counterpunch:

Obama's Junk Economics

Democrats Say "Bye" to Populist Option

In a dress rehearsal for this November’s mid-term election, Democrats and Republicans vied last week for who could denounce the banks and blame the other party the most for the giveaways to Wall Street that have swollen the public debt since September 2008, pushing the federal budget into deficit and the economy into a slump.

The Republicans are winning the populist war. On the weekend before his State of the Union address on Wednesday, Obama strong-armed Democratic senators to re-appoint Ben Bernanke as Federal Reserve Chairman. His Wednesday speech did not mention this act (happily applauded by Wall Street). The President sought to defuse voter opposition by acknowledging that nobody likes the banks. But he claimed that unemployment would be much higher if they hadn’t been bailed out. So the giveaway of public funds was all for the workers. The $13 trillion that has created a new power elite was just an incidental byproduct. Unpleasant, perhaps, as American democracy slips into oligarchy. But the least bad option. People might not like it, but Main Street simply cannot prosper without creating hundreds of Wall Street billionaires—without enabling them to increase their bonuses and capital gains as bank stock prices quadruple. It’s all to get credit flowing again (at 30 percent for credit card users, to be sure.)

So the rest of us must wait for wealth to trickle down. The cover story is that, like it or not, this is how the world works. At least this is the argument of the lobbyists who are drafting and censoring laws and signing off on just who is acceptable to run the Federal Reserve, Treasury and other public-subsidy agencies. The working assumption is that the economy cannot recover without enriching Wall Street.

In fact what the economy needs is to recover from the Bush-Obama supposed cure, i.e., from the mushrooming debt overhead. It needs to recover from the enrichment of Wall Street. It doesn’t need more credit, but a write-down for the unpayably high debts that the banks have imposed on American families, businesses, states and localities, real estate, and the federal government itself.

Instead of helping debtors, Obama has moved to heal the creditors, at public expense. If debtors cannot pay, the Treasury and Fed will take their IOUs and bad casino gambles onto the public sector’s balance sheet. The financial winners must come first—and it seems second and third, too. The rationale is that unless the government gives the large financial institutions what they want and saves them from taking a loss, their “incentive” to protect the economy from devastation will be gone.

Read the rest of the article.

The New Deal in Reverse (Steve Fraser)

noreply@blogger.com (Dollars and Sense) — Thu, 11 Feb 2010 17:00:00 +0000

From TomDispatch, a piece by Steve Fraser criticizin' Obama's populist droppin' of g's and his inadequate jobs "surge." Here's Tom E.'s intro to the piece:

From TomDispatch today, a canny and striking comparison between Franklin D. Roosevelt and Barack Obama that shows how, by the end of their first year in office, they were heading in mirror-opposite directions: Steve Fraser, The New Deal in Reverse, How the Obama Administration Ended Up Where Franklin D. Roosevelt Began. (An accompanying TomDispatch audio interview discussing why Obama has ignored the jobs model Roosevelt pioneered.)

Franklin D. Roosevelt came into office with far less expected of him than Barack Obama. He was, on arrival, wedded to the traditional idea of a balanced budget, like his predecessor Herbert Hoover, determined not to alienate high finance or corporate power, and eager to create jobs and restart the Great Depression economic engines of the country indirectly through the business community. That was Roosevelt, the New Deal president, on day one; that, as TomDispatch regular and New Deal historian Steve Fraser indicates, is Barack Obama at the end of year one. Their rhetoric was similar. How did they end up in such different places, going in such different directions as their first year in office ended? Why did one president take an historic and extraordinary path and the other head into the quagmire?

This is a remarkable tale which Steve Fraser tells in his usual striking fashion, examining three key steps Roosevelt took: separating commercial and investment banking (while Obama simply shored up Wall Street), creating the Tennesee Valley Administration which competed successfully with private utility companies (while Obama's public health option went down the tubes and the insurance companies emerged triumphant), and creating millions of jobs through direct government intervention (while Obama's jobs plan relies on funneling tax relief to business).

The upshot was one historic presidency and another heading into the swamps of disappointment -- and a tale of two presidencies not to be forgotten.

As ever, Fraser offers a stimulating take on today's headlines in the long view of history.

Read The New Deal in Reverse.

Elizabeth Warren Calls Out Wall Street

noreply@blogger.com (Dollars and Sense) — Tue, 09 Feb 2010 14:59:00 +0000

From James Kwak at Baseline Scenario; hat-tip to LF.

Although the Consumer Financial Protection Agency made it through the House more or less intact, the banking lobby is taking another, better shot at killing it in the Senate, and is planning to use the magic words: "big government" and "bureaucracy." Elizabeth Warren wrote an op-ed for Tuesday's Wall Street Journal that lays out the confrontation. For most of the past two decades, many Americans trusted the banking industry—not necessarily to be moral exemplars, but they trusted that the banks were basically doing what was right for customers and for the economy. Then in 2007-2008 that mood abruptly reversed, as it became apparent that unscrupulous mortgage lenders, the Wall Street banks that backed them, and the credit rating agencies had been ripping off mortgage borrowers on the one hand and investors on the other.

The big banks face a choice. They can agree to sensible reforms that protect consumers and rein in the excesses of the past decades. Or they can simply decide to screw customers, but do it openly this time, since they have so much market share it almost doesn't matter what customers think. How else do you explain, say, Citigroup's concocting a new credit card "feature" explicitly to get around a new requirement of the Credit CARD Act? Or Jamie Dimon saying that financial crises are something to be expected every five to seven years, so we should just get over it?

A year ago, it might have been possible to twist the banks' arms hard enough to get them to agree to new ways of doing business (such as a CFPA), because they needed government support so badly. Now it's too late. So the solution has to come from the other kind of arm-twisting—pressure from the president, the administration (that means you, Tim Geithner), and ordinary voters. If people feel screwed by the financial sector—and many of them should after the past decade—then they should want the CFPA.

But last month, Republican political consultant Frank Luntz wrote a memo laying out how Republicans could kill financial regulatory reform. "Ordinarily, calling for a new government program ‘to protect consumers' would be extraordinary popular," he wrote. "But these are not ordinary times. The American people are not just saying ‘no.' They are saying ‘hell no' to more government agencies, more bureaucrats, and more legislation crafted by special interests." The goal is simple: to make Americans think that the CFPA is their enemy, because it's part of the government, and that the banks are nice cuddly ewoks by comparison.

This is absurd.

We like to make fun of government in this country, but really, what are you and a few of your buddies going to do to fight JPMorgan Chase on your own? For all of our beloved rugged individualism (and our individual right to handguns), it doesn't do much good when you're up against your credit card issuer. There is no Chicago-school free market solution to an oligopoly that, on top of all its other advantages, has an implicit government guarantee that gives it a major funding cost advantage over its competitors. One of the purposes of government is to protect ordinary people from forces (hurricanes, terrorists, monopolies) against which free market forces do not provide adequate protection. This is why we need a Consumer Financial Protection Agency. And this is what Frank Luntz wants to trick people into forgetting.

Read the original post.

Why Aren't There More Radicals at Work?

noreply@blogger.com (Dollars and Sense) — Tue, 09 Feb 2010 14:32:00 +0000

From the (new?) website, radicalsatwork.org:

Works sucks and it's been getting worse in the U.S. for decades.

So why aren't there more radicals at work?

For the first part in a series about radicals and labor today, we asked a dozen radical workplace organizers—teachers, Teamsters, telephone technicians, union organizers, and more—that question. Read what they had to say.

The activists we talked to blamed the American Dream, persistent racism, and a feeling that struggle and collective won't do any good. They also laid some of the blame on radicals themselves, for failing to connect with working people.

It hasn't always been this way. Before World War II, radicals in the United States had much deeper roots in the working class. Employers, the government, and even union officials purged those Reds after the war.

If we want to rebuild those connections, we have to understand the barriers that hold us back.

American Dreams

For over a century, historians and organizers have said that American prosperity—and the hope of getting a slice of the pie—explained why there was "no socialism in America."

Millions of workers still see the path to success through individual hard-work, not collective struggle.

"There's a sense among some—not all—that ‘I got to where I am by hard work, and other people should be able to as well,'" said a telephone technician in New York.

That hope doesn't just apply to people who've "made it" and are living the American Dream.

"Most of the folks that I worked with in the Army, construction and restaurant industries, ended up in those low-wage jobs because of a lack of resources and education," said a union organizer in Pennsylvania. "A good percentage still subscribed to the whole ‘pull your self up by the bootstraps' bit, even though they were clearly struggling with no end in sight."

The same is true for jobs with a lot of prestige—even though many of those jobs are getting worse.

Take college professors. There are way more Ph.D.s looking for work than tenure-track positions. Many are getting by cobbling together part-time adjunct work.

But that doesn't stop many Ph.D.s from hoping. "In grad school TAs think: ‘I don't need a union, I'm going to get a cushy job,'" said a college professor in New York. "That's just not really the reality anymore."

"Then when someone lands a full-time position, they think, ‘I realized my goal and compared to most people I have it good, so no there's no need to rock the boat,'" she said.

American Nightmares

For years, many white workers achieved their own American Dream by keeping workers of color out of "white" jobs, "white" neighborhoods, and "white" schools.

Competition over jobs, housing, and schools has led many white workers to identify as white first, workers second—if at all.

And that's still true today. "A lot of the white folks I work with are really drawn to the Tea Party movement," said a telephone operator in the South. "Part of it is backlash against having a Black president. Part of it is backlash against immigrant workers in their communities."

"White workers often respond to exploitation by pushing others downwards rather than attempting to tear down those at the top," said a union organizer out West.

Today, those fears are played up by the right-wing press. "A lot of my co-workers get almost all of their news of the world from the New York Post or other tabloid papers, supplemented by the local news or CNN," said a telephone technician we interviewed. "There's almost no counter-weight to the conservative B.S. they hear on the radio, the TV news, the tabloid papers," she said.

Historically, many unions have helped to confront working-class racism. Unions formed in the great upsurge of the 1930s brought together workers across the color line, promoted the leadership of workers of color, and challenged white racism.

But historian and activist Bill Fletcher points out that many U.S. unions have followed a different strategy: rather than including all workers, some unions have reserved jobs for white men by excluding workers of color and women.

That practice goes back to the nineteenth century, when craft unions kept Black workers out of skilled trades, and unions promoted legislation to exclude Chinese workers from the U.S. And that's why white males still dominate the construction trades to this day.

We're Getting Our Butts Kicked

It's hard for most workers to imagine an alternative to those individual survival strategies offered by the American Dream and racism. Why?

Being a radical means that you think ordinary people can improve our lives and change the world when we work together. But the organizers we talked to said that most workers feel alone, isolated, and powerless.

"People don't feel empowered in life. Their entire life they've been socialized to defer to authority," said a UPS part-timer in Pennsylvania. "People aren't sure they deserve better. People have never seen collective action."

A big part of that powerlessness is the weakness of the labor movement. Factory closings. Lockouts and permanent replacements. Tough anti-union employers: Organized labor has been getting its butt kicked since the 1980s. Only 12.3 percent of workers in the U.S. were in unions in 2009.

Even when workers are in unions, many don't feel the power.
A New York nurse sums up the problem: "Nurses feel powerless and vulnerable. Management has managed to structure things in a way that reinforces that feeling, and there is no history of recent collective struggle and solidarity to chip away at that overwhelming feeling."

For decades, officials treated their unions like a business—not a social movement. When employers went on the attack in the 1980s, they were caught off guard, and the union movement is still scrambling to respond today.

That's not to say that there isn't fightback on the job. But the barriers to collective action are high: Most workers don't have any experience in fighting back. And most aren't in unions. And many unions have given up challenging "management's right" to run their business—even when workers pay the price.

Sometimes workers who speak out are sidelined—either by the employer, or even by their own union officials: "When anyone speaks out about some injustice on the job, they are called a troublemaker and harassed until they learn their lesson: just do your job and shut up," said a union dissident in the longshore industry.

Given all that, it's no wonder most workers choose individual, not collective, solutions to their problems.

Freaks and Geeks

Even if they are open to alternative ideas, most workers in the United States have never met a radical.

"There is very little exposure to radical culture: arts and literature that is motivated by radical politics, news analysis of the effects of capitalism on our lives, a sense of history of radical struggles, a familiarity of leaders of radical movements," said a former hotel worker on the West Coast.

Many people associate radicals with the mistakes and tragedies of Russia under Stalin. "They think that's Stalin's Russia was real socialism—and that socialism is doomed to failure. Totalitarian Communism couldn't be more different than grassroots, bottom-up socialism," said a web designer in New York.

But without contact with real radicals, most people don't make that distinction.

Even when they have met a radical, that experience isn't always that good. For many, their first experience meeting a radical is someone trying to sell them a newspaper, or getting in an argument with them.

Let's face it—we're partly to blame for our isolation because so often we fail to meet workers where they're at.

All that doesn't mean that people don't have some radical ideas. Here's what one teacher in a small town in the mountain states said: "One reason that people who have left views on a wide range of issues don't identify as radicals is because they don't know what it means to be a radical, or all the self-professed radicals they've met have been off-putting in some way."

"In my case, this was definitely true until I met radicals who seemed smart, relatable and sane," she said. "Once I met them, and they exposed me to more radical ideas and perspectives, I was ready to join!"

Breaking Through the Isolation

Radicals haven't always been so isolated.

Scratch a union struggle before World War II in the United States, and you'd find some Reds. Anarchists at the Haymarket. Socialists in the garment industry. Communists in the auto union. Trotskyists in the Teamsters. Reds inspired and led some of the greatest organizing drives and union battles in our history.

Socialists, Communists, and Trostkyists were on the frontlines of building the CIO during the thirties and helped build big industrial unions in meatpacking, auto, steel, and transportation.

But in the Red Scare after World War II, the union leadership purged these Reds—and since then, most radicals have done a pretty poor job of re-connecting those roots.

Here's what socialist activist and theorist Kim Moody had to say about that:

At no time since the 1950s has the isolation of socialists from the working class been greater. Socialist organizations in the U.S., including Solidarity, remain small and largely populated by people with an educated middle class background. Many socialist groups' connection with the working class is limited to support work for various strikes. The gap between the socialist organizations and the active sections of the working class who are the organizers of much of the resistance to the employers and rebellions within the unions is too great. The gap has many facets: some arise from different class origins, others from the habit of defeat on the left and the proclivity for symbolic actions and campaigns that flows from it. Most of the gap, however, is one of consciousness. The left with its highly theorized, often moralistic politics, and the worker activists with an un-theorized pragmatic outlook are often like trains passing in the night. This can be true even where left groups or individuals work within the unions. (Kim Moody. The Rank-and-File Strategy for Building a Socialist Movement in the United States. Solidarity. 2000)

Some radicals are trying to break through that isolation—including all of the activists we talked to. You'll hear about what they're doing differently in future articles in this series.

Now tell us what you think.

Why do you think that there aren't there more radicals at work? Share your ideas and your stories in the comments.

Visit radicalsatwork.org.

Deficit Hawk, Progressive Style, Part II

noreply@blogger.com (Polly Cleveland) — Sun, 07 Feb 2010 22:52:00 +0000

As I wrote in Part I (Feb 3), the deficit hawks legitimately claim that huge deficits will hinder investment and kill jobs. But their solutions would make matters worse. What are those solutions? What are alternatives? A leading hawk, C. Fred Bergsten of the Peterson Institute for International Economics, proposes three control measures: containing Medicare and Medicaid costs, "comprehensive Social Security reform, including gradual increases in the retirement age and an alteration of the benefits formula" and a national consumption tax.

The hawks are right that we need to control all--not just public--health care spending, but only as part of national health reform. They are wrong about Social Security, which does just fine under any reasonable projections. They're especially wrong about a consumption tax.

A consumption tax is essentially a national sales tax. Why a consumption tax? Because, the argument goes, it will encourage more saving. More saving will engender more investment. Of course, as even proponents recognize, a consumption tax hits poorer people harder, because they consume proportionately more of their income.

There's little evidence a consumption tax will encourage saving and investment, let alone productive investment. To see why, consider the main reason that U.S. saving and investment fell so low in recent years: the real estate bubble. Middle class homeowners thought they were saving through the appreciation of the land under their houses. So why put aside a portion of their wages? Banks and other investors thought they were investing by buying up high-yield mortgage-based securities. So why lend at lower returns to productive businesses? In fact, real estate bubble investments closely resemble investment in government debt: both are passive investments, parasites on the real economy.

Here are three alternatives to the conservative hawks' program of entitlement-cutting and consumption taxes: 1. Cut military spending. 2. Restore progressivity of federal taxes and raise rates, and 3. At state and local levels, rediscover the original wealth tax--the property tax.

1. Cut military spending. Dollar for dollar, military spending generates the fewest jobs and creates the most waste. Even strong advocates of a second "stimulus" wouldn’t demand more military pork. Chart III (click to enlarge) shows military spending from 1940 to 2013, in 2005 dollars and as a percentage of GDP. Cutting military spending both absolutely and relative to GDP helped Clinton lower debt and stimulate the economy. Obama seems headed the other way.

2. Restore the progressive income tax system. Since World War II, the federal income tax system has both declined as a proportion of GDP, and grown steadily less progressive. Top rates of the official income tax have fallen from over 90% to 35%, and unearned income like capital gains gets special low rates or disappears into loopholes. Meanwhile the other income tax--the payroll tax supporting Social Security and Medicare--has grown larger than the official income tax itself! The payroll tax hits all earned income up to a cap, now $106,800. The payroll tax rate, 2% in 1937 at the start of Social Security, has risen to 15.3%. Some two thirds of American families pay more payroll tax than income tax. Chart IV (click to enlarge) shows how the payroll tax has overtaken the official income tax as a source of federal revenue.

Conservative economist Greg Mankiw wrote in a recent New York Times op-ed that "Higher tax rates mean reduced work incentives and lower potential output." That's true, but only at the lower end of the income scale, not the upper. (Can you imagine a CEO saying, "If you cut my pay by $1 million, I'll go home early on Friday"?) The payroll tax has become the ultimate killer of small business and low-wage jobs.

Federal taxes as a percentage of GDP have hit a historic low, well under 20%. There's plenty of room to raise taxes and make the system much more progressive. To do so, we should: a. Reinstate high progressive rates for the regular income tax. b. Cut or eliminate payroll taxes at the lower end, and remove the cap.

3. At state and local levels, rediscover the property tax. The property tax? Despite much rhetoric to the contrary, the property tax really is a tax on property--including corporate property (about 50% of the base). It's a wealth tax, intrinsically the most progressive tax we have. Until World War II, it was the most important tax in the US. Since then, as Chart V (click to enlarge) shows, sales and income taxes have substantially displaced the property tax. But as also evident in Chart V, the property tax doesn't fall off in recessions as do income and sales taxes--if states had stuck with the property tax, as has New Hampshire, they wouldn't be in their present fiscal jam. As an added bonus, because the property tax hits land values, it checks the false savings of real estate bubbles--encouraging real saving!

Conclusion: If we want to reduce debt, lessen inequality, stimulate small business investment and create jobs, here's how to do it: cut military spending; restore progressivity and raise rates in the income tax system; and resurrect the property tax. Politically impossible? Only if it's unthinkable!

Mixed Jobs Report for January (BLS)

noreply@blogger.com (Dollars and Sense) — Fri, 05 Feb 2010 18:00:00 +0000

The Bureau of Labor Statistics has released its employment numbers for January. It is a mixed report: the official unemployment rate fell from 10.0% to 9.7%, yet the economy lost 20,000 non-farm jobs. This means that the decline in the rate of unemployment has to do with people who aren't (fully) employed but aren't counted as unemployed (i.e. they have become discouraged or marginally attached). The BLS also revised upward its estimate of the number of jobs that were lost in Dec. 2009, from 80,000 up to 150,000. Here are the basics from the BLS:

THE EMPLOYMENT SITUATION -- JANUARY 2010

The unemployment rate fell from 10.0 to 9.7 percent in January, and nonfarm payroll employment was essentially unchanged (-20,000), the U.S. Bureau of Labor Statistics reported today. Employment fell in construction and in transportation and warehousing, while temporary help services and retail trade added jobs.

Household Survey Data

In January, the number of unemployed persons decreased to 14.8 million, and the unemployment rate fell by 0.3 percentage point to 9.7 percent.

In January, unemployment rates for most major worker groups--adult men (10.0 percent), teenagers (26.4 percent), blacks (16.5 percent), and Hispanics (12.6 percent)--showed little change. The jobless rate for adult women fell to 7.9 percent, and the rate for whites declined to 8.7 percent. The jobless rate for Asians was 8.4 percent, not seasonally adjusted.

This release includes new household survey tables with information about employment and unemployment of veterans, persons with a disability, and the foreign born. In January, the unemployment rate of veterans from Gulf War era II (September 2001 to the present) was 12.6 percent, compared with 10.4 percent for nonveterans. Persons with a disability had a higher jobless rate than persons with no disability--15.2 versus 10.4 percent. In addition, the labor force participation rate of persons with a disability was 21.8 percent, compared with 70.1 percent for those without a disability. The unemployment rate for the foreign born was 11.8 percent, and the rate for the native born was 10.3 percent. (The data in these new tables are not seasonally adjusted.)

In January, the number of persons unemployed due to job loss decreased by 378,000 to 9.3 million. Nearly all of this decline occurred among permanent job losers.

The number of long-term unemployed (those jobless for 27 weeks and over) continued to trend up in January, reaching 6.3 million. Since the start of the recession in December 2007, the number of long-term unemployed has risen by 5.0 million.

In January, the civilian labor force participation rate was little changed at 64.7 percent. The employment-population ratio rose from 58.2 to 58.4 percent.

The number of persons who worked part time for economic reasons (sometimes referred to as involuntary part-time workers) fell from 9.2 to 8.3 million in January. These individuals were working part time because their hours had been cut back or because they were unable to find a full-time job.

About 2.5 million persons were marginally attached to the labor force in January, an increase of 409,000 from a year earlier. (The data are not seasonally adjusted.) These individuals were not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey.

Among the marginally attached, there were 1.1 million discouraged workers in January, up from 734,000 a year earlier. (The data are not seasonally adjusted.) Discouraged workers are persons not currently looking for work because they believe no jobs are available for them. The remaining 1.5 million people marginally attached to the labor force had not searched for work in the 4 weeks preceding the survey for reasons such as school attendance or family responsibilities.

Read the full report.

Deficit Hawk, Progressive Style, Part I

noreply@blogger.com (Polly Cleveland) — Thu, 04 Feb 2010 03:37:00 +0000

As the national debt balloons, the deficit hawks have swooped in again, crying for "fiscal responsibility." According to C. Fred Bergsten of the Peterson Institute for International Economics, that means restricting or cutting spending on "entitlements"-- Medicare, Medicaid and Social Security--and imposing a national consumption tax. And now President Obama has heard their cries--and proposes to freeze discretionary spending--except for the military!

The hawks' concern is justified. But their policy conclusions don't follow.

When a government runs a "deficit"--spends more than it collects in taxes, --it borrows by selling securities, mostly short and long-term bonds known as treasuries. When a government runs a "surplus", it pays off treasuries. People often muddle deficits--one year's borrowing, with national debt--accumulated borrowing, which equals the quantity of treasuries outstanding.

Chart I shows national debt held by the public as a percent of US Gross Domestic Product (GDP), the total annual value of goods and services. From a high during World War II, it falls to an all time low in the mid 1970's, rises under Reagan-Bush I, falls under Clinton, and begins to rise again under Bush II Debt as projected by the Congressional Budget Office (CBO) really takes off under Obama, as bailouts and stimulus take their toll.

High levels of national debt weaken the economy. That's because buyers of the debt, domestic and foreign, substitute passive holding of US treasuries for productive investment. They avoid riskier but productive private investment in small to medium business--precisely the investments that create the most jobs and products and services per dollar invested. In economic language, the passive investments "crowd out" the productive ones.

The more unequal the economy the worse the effect. In fact, growing debt itself can worsen inequality. Consider who holds most of the debt: banks, mutual funds, large corporations, wealthy individuals and--in recent years--foreign governments, notably China. So a buildup of debt both cuts productive investment and tips distribution of wealth towards large passive entities.

The recent history of US debt supports the inequality connection. Chart II, from the US Census, shows the ratio of the 90th to 10th percentile of income, from 1967 to 2008--a rough measure of inequality. (By other measures, inequality fell steadily after WW II before the Census time series begins.) As the Census series shows, inequality loosely parallels debt as a percentage of GDP, at its lowest in the mid 1970's, rising steeply during the Reagan-Bush I era, leveling off during the Clinton era, and rising again during the Bush II era. (Of course many other factors, including the business cycle, also affect year-to-year debt and inequality numbers.)

I don’t consider the debt-inequality parallel a coincidence. The same policies that drove up the debt after the 70s--tax cuts and other favors for wealthy interests, Star Wars and Iraq spending--also raised the level of inequality in the US. It's also no coincidence that when President Clinton paid down the debt, we enjoyed a brief economic boom that increased jobs and wages, especially at the lower end of the scale.

Consequently the "stimulus"--funded by growing the debt--may do more harm than good. Money spent on "shovel-ready" construction, much of it in rural areas, may briefly create a few jobs--or divert a few jobs from elsewhere--but it's not productive investment. Only where stimulus spending helps maintain vital high-value services, notably in health and education, can the benefits outweigh the economic drain of deficits--at least as a short-term measure. The "pop Keynesian" argument for the stimulus simply disregards both the quality of spending, and the damage from running up the debt.

So the deficit hawks are right about national debt. But the answer isn't to cut social spending and raise regressive taxes. In brief, the answer is to go back where we were after World War II--to high social spending, high progressive taxes, and (sometimes) low military spending.

In Part II, I will address specific policy responses to rising debt.

Polly Cleveland

Econamici

The Obama Budget and the Deficit Chorus

noreply@blogger.com (Dollars and Sense) — Wed, 03 Feb 2010 00:41:00 +0000

Get ready for "the deficit chorus," as James K. Galbraith put it to us today.

I was happy to see that David E. Sanger quoted Galbraith in his news analysis of Obama's budget in today's New York Times.

But I was puzzled by the way he was quoted, in an article that makes this claim: "For Mr. Obama and his successors, the effect of those projections is clear: Unless miraculous growth, or miraculous political compromises, creates some unforeseen change over the next decade, there is virtually no room for new domestic initiatives for Mr. Obama or his successors." There is some wiggle room here—virtually no room for new domestic initiatives, unless there are no miraculous political compromises; and I suppose it would take a miraculous political compromise for Congress to change its priorities away from ever-increasing military spending and refusal to raise marginal tax rates on the wealthy, and toward health care, education, jobs programs, etc. But the effect is to suggest that domestic spending is just not possible.

Well—judge for yourself; here's the beginning of the article:

Deficits May Alter U.S. Politics and Global Power

By DAVID E. SANGER | February 1, 2010

WASHINGTON—In a federal budget filled with mind-boggling statistics, two numbers stand out as particularly stunning, for the way they may change American politics and American power.

The first is the projected deficit in the coming year, nearly 11 percent of the country's entire economic output. That is not unprecedented: During the Civil War, World War I and World War II, the United States ran soaring deficits, but usually with the expectation that they would come back down once peace was restored and war spending abated.

But the second number, buried deeper in the budget's projections, is the one that really commands attention: By President Obama's own optimistic projections, American deficits will not return to what are widely considered sustainable levels over the next 10 years. In fact, in 2019 and 2020—years after Mr. Obama has left the political scene, even if he serves two terms—they start rising again sharply, to more than 5 percent of gross domestic product. His budget draws a picture of a nation that like many American homeowners simply cannot get above water.

For Mr. Obama and his successors, the effect of those projections is clear: Unless miraculous growth, or miraculous political compromises, creates some unforeseen change over the next decade, there is virtually no room for new domestic initiatives for Mr. Obama or his successors. Beyond that lies the possibility that the United States could begin to suffer the same disease that has afflicted Japan over the past decade. As debt grew more rapidly than income, that country's influence around the world eroded.

And this would be a bad thing?

Here's the bit quoting Jamie Galbraith:

[Obama's chief economic advisor Lawrence] Summers, in an interview on Monday afternoon, said, “The budget recognizes the imperatives of job creation and growth in the short run, and takes significant measures to increase confidence in the medium term.”

He was referring to the freeze on domestic, non-national-security-related spending, the troubled effort to cut health care costs, and the decision to let expire Bush-era tax cuts for corporations and families earning more than $250,000.

But Mr. Summers said that “through the budget and fiscal commission, the president has sought to provide maximum room for making further adjustments as necessary before any kind of crisis arrives.”

Turning that thought into political action, however, has proved harder and harder for the Washington establishment. Republicans stayed largely silent about the debt during the Bush years. Democrats have described it as a necessary evil during the economic crisis that defined Mr. Obama’s first year. Interest in a long-term solution seems limited. Or, as Isabel V. Sawhill of the Brookings Institution put it Monday on MSNBC, “The problem here is not honesty, but political will.”

One source of that absence of will is that the political warnings are contradicted by the market signals. The Treasury has borrowed money to finance the government’s deficits at remarkably low rates, the strongest indicator that the markets believe they will be paid back on time and in full.

The absence of political will is also facilitated by the fact that, as Prof. James K. Galbraith of the University of Texas puts it, "Forecasts 10 years out have no credibility."

He is right. In the early years of the Clinton administration, government projections indicated huge deficits—over the "sustainable" level of 3 percent—by 2000. But by then, Mr. Clinton was running a modest surplus of about $200 billion, a point Mr. Obama made Monday as he tried anew to remind the country that the moment was squandered when "the previous administration and previous Congresses created an expensive new drug program, passed massive tax cuts for the wealthy, and funded two wars without paying for any of it."

But with this budget, Mr. Obama now owns this deficit. And as Mr. Galbraith pointed out, it is possible that the gloomy projections for 2020 are equally flawed.

Simply projecting that health care costs will rise unabated is dangerous business.

"Much may depend on whether we put in place the financial reforms that can rebuild a functional financial system," Mr. Galbraith said, to finance growth in the private sector—the kind of growth that ultimately saved Mr. Clinton from his own deficit projections.

His greatest hope, Mr. Galbraith said, was Stein's law, named for Herbert Stein, chairman of the Council of Economic Advisers under Presidents Richard M. Nixon and Gerald R. Ford.

Stein's law has been recited in many different versions. But all have a common theme: If a trend cannot continue, it will stop.

When I asked Jamie Galbraith whether he was misquoted, here's what he told us:

The press is indulging in a vast wave of hysteria.

Of course the deficit chorus has an agenda, which is to block jobs programs, prevent public investment, and to trim and privatize Social Security and Medicare.

I'm not normally an oracle of the markets. But the markets are sending a very clear signal: they don't believe a word of the hysteria. If they did, the 20 year Treasury bond rate would not be under 4.4 percent. In fact, the US government can borrow what it needs, at historically low interest rates, and so there is no financial barrier to funding the jobs, social programs and public investments that the country actually needs.

It's case of who you gonna believe, them or your lying wallet?

Not quite what showed up in Sanger's analysis, alas. (Otherwise wouldn't the headline have been: "There is no financial barrier to funding the jobs, social programs and public investments that the country actually needs"?) I'm still glad he contacts Galbraith for his articles, though...