Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Category: Class Warfare Page 31 of 36

Is America past the point of no return economically?

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On October 1, 2010

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This, from Numerian, is the sort of thing I was talking about when I noted that:

If you can build a factory overseas which produces the same goods for less, meaning more profit for you, why would you build it in the US?

Until that question is adequately answered, by which I mean “until it’s worth investing in the US”, most of the discretionary money of the rich will either go into useless speculative activities like the housing and credit bubbles, which don’t create real growth in the US, or they will go overseas.

Numerian notes:

We rescued the automakers so they could move to China. GM is a shadow of itself before the 2007-2008 crisis. It has shed plants and workers in the US, along with their ongoing health and other benefit obligations. But in its newly-shrunken state, its emphasis is not on the US, which rescued it from bankruptcy. GM is putting investment money in China almost entirely. Like so many other manufacturers before it, the company has ceased to be American, in the sense that its manufacturing is no longer done here and its workers no longer live here. Instead, its corporate headquarters is here, and little else. Even its profits are kept overseas to avoid paying US taxes.

He goes on to do discuss the debt trap, and notes that the US has lost its technological advantage, meaning there is no way to fix the problem now except through brutal austerity.

I don’t think this is quite true, but it’s damn near true, and it seems to be the assumption the elite is operating on.  And by the time we get rid of this bunch of loser Dems, suffer through the Republican government to come and then get another shot at someone competent, it may well be too late.

The future doesn’t happen in America any more, and that means America’s just a place with too high costs and a lot of guns.  There’s no damn reason to invest in the US except in leveraged scams, and until the US figures out a way to change that, things aren’t going to get better. Right now the US’s elites seem to think the way to fix it is to reduce wage costs till they’re competitive with China’s.

I’ve said this before, I’ll say this again: if you can get out of the US, GO!  If not hunker down and fight, and fight smart.  More on that later.

One of the silver linings of the State tax crisis

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On September 16, 2010

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is that for the first time in 38 years the state prison population has dropped:

Professor Chris Uggen, at Public Criminology, summarizes the causes identified by the report:

Pew attributes the drop to greater diversion of low-level offenders and probation and parole violators from prison; stronger community supervision and re-entry programs; and, a quicker release of low-risk inmates who complete risk reduction programs. State budget problems have likely played an important role in accelerating each of these trends.

The decrease is certainly better than an increase, but Uggen notes that it is quite small.  The prison population dropped by only 0.4%, or 5,739 inmates.  Further, the decrease in the state prison population was outpaced by the increase in the federal prison population, which went up by 6, 838 inmates.  Even so, Uggen argues, this is significant: “…any change in direction is meaningful after four

I’d go further and say it was definitely caused by the economic crisis.  Suddenly locking up dark people and non-violent drug offenders doesn’t seem like such a good use of money. One can hope that this will continue.

No, the Fed doesn’t need to “press” Credit Card companies to live up to the law

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On August 25, 2010

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This is exactly wrong mindset:

Time and again, the credit card industry has demonstrated its disdain for its customers. The Fed needs to press these companies to live up to the law.

No, they need to FORCE them.  And if they don’t, it needs to PUNISH them enough that it’s not worth their while.

Which comes down to this: in most cases, paying fines is fine by such businesses, it’s worth it, they make more money breaking the law than the price of the fines.  So you either have to change the law to allow for executive prison time, or you need to get passive-aggressive, which is to say the Fed starts making their lives really unpleasant in other ways and so does the DOJ.  The Fed can make any financial firm buckle.

If it wants to.

Social Security Trustees Report: No Social Security Crisis

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On August 5, 2010

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Social Security Trustees report that social security will be able to make full payments until 2037(pdf).  Tax receipts will dip below outlays before then, but this is precisely why the Social Security program has taken in more money than it needed, so that it could handle baby boomer retirement and increased life spans.

Any projection which goes out 27  years is so incredibly reliant on the embedded assumptions about growth, employment and lifespans that it amounts to a fiction.  It is, at best, a guess.

Increase growth by just a little bit and the entire “problem” goes away.  Get rid of the taxation cap so the rich are not capped in what they pay and the entire problem goes away.  Assume higher employment, and the entire problem goes away.  Assume a reduction in inequality, and the problem goes away.

The US has a number of problems which are at or near crisis, such as employment, inequality and healthcare costs, to name just a few.  Social Security is not one of them. It isn’t even close, and politicians and billionaires like Pete Peterson who are trying to gin up a crisis should be ashamed of themselves.

If they want the US budget more in order they should look at health care, where single payer could cut costs by at least a third, and at the military, where real spending has doubled since the end of the Clinton administration.

Or they should work on increasing employment and increasing wages for ordinary people. That’s a crisis.

Instead of dealing with real problems, instead of tackling the medical industry or the military-industrial complex, instead of fixing the job situation, they want to steal money from old people.

Stating the Obvious: Obama wants to gut social security

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On August 2, 2010

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Let me state the obvious, which we all know, one more time.

Obama intends to gut social security.  Republicans failed, it requires Democrats.  If Obama did not intend to gut social security he would not have set up the SS comission with the members it has.

Nancy Pelosi is onside with this (or she wouldn’t have forcefully scheduled a vote for the lame duck session.)

The Democrats most of us supported in 08 intend to gut Social Security.

Betrayal: the most bitter sauce.

But why shouldn’t they betray us?  No matter what they do, most folks say “well, the Republicans are worse”.  All it requires is that Democrats beat ordinary people with canes instead of chains.

They’re not the suckers.

Serious People Notice Banks Are Gouging Consumers and Tanking the Economy

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On July 5, 2010

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Well, better late than never:

rates on 10-year Treasury bonds are only about 3 percent, many consumers still carry tens of thousands of dollars of credit card debt at 20 percent or more. This burden has been a continuing drag on spending. The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan.

With their debt service payments cut by more than half, consumers could increase spending immediately. And the five-percentage-point spread on money lent under the program would help cover its administrative costs, and maybe even relieve short-run government budget pressure.

This is, of course, correct, though I’d only push it up 4%, myself. I originally suggested this February 9, 2009. It was the right thing to do then, it’s still the right thing to do.

As David Anderson notes, this would be a huge help to ordinary people:

Going from 18% to 8% interest, the individual with $10,000 in credit card debt would see their initial monthly payment go from $250 a month to $167 per month. Using a declining minimum payment formula of (monthly interest expense +1% of current balance), the debt burden at the end of the year is still $9,000 but the interest expense declines from $1,570 to $700. That gap of $870 is greater than the ARRA Making Work Pay tax credit and it most likely would be targeted at individuals with a high marginal propensity to spend (as evidenced by credit card debt.) If balances or interest rates are higher, the freed up cash flow would be even greater.

Also the government can make real, significant money by doing this. All it is is arbitrage. If you can borrow money cheap and lend it at higher rates that’s free money. Not only would that help consumers, and the economy, it would also reduce the deficit. Win/Win/Win. If Blue Dogs are really sincere about their belief in deficit reduction they should jump all over this suggestion.

Note that rates being so high is a classic case of market failure. The banks are charging more than they need to in order to make a profit. In an actual free market other banks are supposed to step in and undercut them, but that isn’t happening. We could argue about why (they’re a collusive oligopoly or they’re broke being the most probable causes), but in the immediate term, it doesn’t matter, what matters is fixing it.

But I doubt it will happen. Why? Because the banks are making a TON of money by gouging customers, and they own DC. I suspect the best we can hope is that this is a warning shot across their bows, a message to reduce the looting or pillaging to “acceptable” levels.

Which will be a heck of a lot higher than you might like, but hey, they run the place.

How bailing out the rich created the Depression

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On June 29, 2010

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The other day, Krugman wrote that we’re in the beginning of a new Long Depression.

Forgive me, but he’s wrong: this isn’t the beginning, it’s been going on for about two years now.

During a Depression there are periods where GDP grows.  There are periods where jobs grow.  It’s just that the periods of job growth don’t last.

There were opportunities to end the Depression before it really dug in its heels.  The last one was at the beginning of Obama’s term.  Kicking out of the Depression required two things.

The first was an adequate stimulus. This didn’t just mean a large enough stimulus, though the one offered was not large enough, it meant one properly constructed.  Tax cuts for ordinary Americans are not stimulative, because folks like banks who have pricing power (you must have a credit card, loans, etc…) will simply take that money away by raising rates and fees.  And it doesn’t mean short term shovel-projects, it means making commitments which will last for years so that businesses, when making plans know that hiring is worth it because those employees will be needed for more than a year or so.

Likewise the US has some serious problems with the structure of the American economy.  The cornerstone of the stimulus had to be reducing US dependence on oil because as long as the US economy is so dependent on oil, full fledged growth is simply not possible.  The days of $20/barrel oil aren’t coming back, and every time the price of oil gets too high, it puts great pressure on the US economy (and every other modern nation.)

The second thing which had to be done is to force the banks to actually eat their losses.  Wipe out the shareholders and let the bondholders take their losses.  All the money plunged into the banks (and it was much more than the TARP money, which was the smallest part of it) was wasted.  Banks are not lending, and restoring lending is what the bailouts were sold as doing.  Moreover they have raised borrowing rates and fees on those who need credit most, soaking up money which otherwise would be helping the economy rather than simply being sopped up to plug holes in bank balance sheets.

The trillions of dollars spent attempting to bail out the banks weren’t just wasted, by keeping zombie banks alive they made the situation worse.  Further by not wiping out the wealth of banks and those rich folks who made foolish investments which wrecked the world economy, they created a political problem: to whit, as Durbin said—the banks still own Congress.  (Along with the military industrial complex, pharma and various other monied interests).  Because monied interests still own Congress, they have made it impossible to fix America’s structural problems.

Six percent of GDP could have been saved by doing health care reform properly, but that didn’t happen.  The current “financial reform” bill under consideration is so week that I don’t know of one credible outside analyst who thinks it is sufficient to make sure there isn’t another financial crash, and on and on.

Historically speaking periods of high concentration of wealth only end when the rich lose it in a huge crash.  They are never ended by, say, high marginal taxation—high marginal taxation only occurs after the losses have occurred as those who saw the run-up do their best to make sure it can’t happen again.

That lasts until the generations who saw the mania and crash start dying off and losing power.  So you start seeing really serious decreases in marginal tax rates and slashing of financial regulations when the generations who lived through not just the Great Depression but the Roaring twenties were no longer around.

The cliche that a crisis is an opportunity is, sadly, true.  But it is only an opportunity if you take it.  What politicians, and this includes Obama and Geithner, as well as Bush, Paulson and Bernanke, did, was they protected the rich from their own folly, and made  ordinary people pay for it.  The wealth of the rich has mostly recovered, corporate profits have recovered, but for ordinary people the economy still sucks and there is no reason to believe it isn’t about to start sucking even more.

The financial elites think that what they can do is create an economy with a permanently high unemployment rate and that Americans (and Europeans, for that matter) will put up with it, because what choice do they have?

We are going to have another kick at this can, because the legislation being put in place is not sufficient to prevent another financial crisis.  This is a Depression, and it is not going to go away.

Next time I hope we will consider doing the right thing.  Make those who crash the system take their losses and break the power of the rich over government.

Be very clear, it’s you, or it’s them.  You break their power, or they will continue to push your wages towards parity with China.

And they are very determined it’s not going to be them.

Are you determined it’s not going to be you?

G20 Confers on how to make you pay for the rich’s blunders

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On June 27, 2010

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It’s really, really simple.  The rich crashed the world economy.  They were bailed out, with their wealth having almost entirely recovered and corporate profits likewise have pretty much recovered.  Now, at the G10, the world’s leaders are discussing how to make regular people pay for the rich’s follies.

The world’s developed countries have built extensive public health systems, promised citizens a paycheck for life and erected a welter of protections around some industries and types of jobs. Now their leaders are conferring over a singular dilemma: how to take some of it back without undermining the economies they are trying to sustain.

You notice that somehow, no one is talking about going back to 1950’s levels of progressive taxation, with a top rate around 90%. No, what they’re talking about is making the middle class and the poor pay for the sins of the rich.

The key thing here to understand is this: there is no crisis for the rich or corporations any more, therefore as far as they are concerned, there is no crisis.

Dick Durbin once said, “”And the banks — hard to believe in a time when we’re facing a banking crisis that many of the banks created — are still the most powerful lobby on Capitol Hill. And they frankly own the place.”

It’s not just the banks, of course, they are just one of the apex predators of the current court system, along with the Pentagon, pharma and various other predators.  The systems is simple enough—they take care of Congress, staffers and everyone else who matters, and those people take care of them.  Even if a congress member is not reelected, if they went down doing the bidding of monied interests they are taken care of.  If they don’t do the bidding of their masters, on the other hand, their post-Congress career will be much less pleasant.

At the G20, today, what is being discussed is how to take away what’s left of your economic future.  Ordinary Americans didn’t see a pay raise in the last decade. Not only won’t they see one this decade, they’ll take a loss, and now even the European experiment in taking care of the population is on the chopping board.

This is your future being decided, and no, they don’t think you have a say in it.

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