Category Archives: Economy

Rich countries working on secret climate treaty that favors them

December 8, 2009 James O'Keefe Leave a comment

The US, UK and other rich countries are discussing a secret draft climate treaty for the UN Copenhagen climate talks. Excluded from the discussion are developing countries, who were rightly upset. The Guardian reported that the draft treaty would:

hand effective control of
climate change finance to the World Bank;
would abandon the Kyoto protocol –
the only legally binding treaty that the world has on emissions reductions;
would make any money to help poor countries adapt to climate change dependent
on them taking a range of actions [forcing more privatizations so as to enrich they buyers?];
not allow poor countries to emit more than 1.44 tonnes of carbon per
person by 2050, while allowing rich countries to emit 2.67 tonnes.

The last point is quite key since rich countries have produced the vast majority of CO₂ emissions since 1900, as this graph at the World Resources Institute demonstrates:

A climate treaty that does not recognize that rich counties got us into this mess and need pay more to get us to climate stability, will not be accepted by developing countries.

Also, Naked Capitalism has a piece on the effectiveness of Cap and Trade solutions in reducing CO₂ emissions. It isn’t favorable.

Economy, Government, Politics

Bernanke Reloaded

December 4, 2009 James O'Keefe Leave a comment

I have wished to talk about Fed. Chairman Ben Bernanke's renomination and the quality of the job that the former Princeton Econ prof and expert on the economics of he Great Depression did, but since Doug Henwood, of Left Business Observer, sums up Chairman Ben's performance so well, I'll leave it to him:

Why is this guy getting reappointed? He let the bubble inflate,
dismissed worries about the dangers of subprime mortgages and
derivatives, said in mid-2008 that the recession was unlikely to get
too serious (just as it was about to get very serious)—and then, when
everything fell apart, set about writing big big big giant big checks
to Wall Street. Yes, in a financial crisis, it’s essential that a
central bank flood the system with money to keep things from imploding
utterly. But he’s done so without any clear strategy or accountability,
and absolutely no commitment to insuring that it doesn’t happen again.
Truly the American ruling class is a rotting social formation.

and later:

Fed chair Ben Bernanke was before the Senate just the other day urging
Congress to cut Medicare and Social Security. I suspect that the upper
reaches of American society are deeply interested in imposing an
austerity program on most of us in order to pay the bills for the
bailout and stimulus programs. It’s never too early to gear up for that
fight.

The rest of Doug's article is his assessment of the latest economic news and worth the read as it always is, even when I disagree, which is seldom.

Economy, Government, Social Justice

German laws supporting workers helps their economy plus Utah Phillips on natural resources

November 15, 2009 James O'Keefe Leave a comment

Paul Krugman writes about how Germany is hasn't seen as high an increase in unemployment as the US has and that this is due to the laws Germany has to support employment and the subsidies to employers who reduce the hours of their workers rather than lay them off.

He goes on to suggest that the government cannot use monetary policy to get us out of the recession, and for 90% we STILL are in a recession, and the government leadership may not be willing to borrow enough to counter the demand short fall that resulted from the recession. He suggests creating a new W.P.A. to hire people and reduce unemployment (worked for one of my grandfathers, who helped build the Quabbin reservoir). He argues against the standard objections:

But these aren’t normal times. Right now, workers who lose their
jobs aren’t moving to the jobs of the future; they’re entering the
ranks of the unemployed and staying there. Long-term unemployment is
already at its highest levels since the 1930s, and it’s still on the
rise.

And long-term unemployment inflicts long-term damage.
Workers who have been out of a job for too long often find it hard to
get back into the labor market even when conditions improve. And there
are hidden costs, too — not least for children, who suffer physically
and emotionally when their parents spend months or years unemployed.

Yves Smith of Naked Capitalism adds a bunch of points including:

Krugman does Germany an injustice by failing to contest US prejudices
about European (particularly German) labor practices. If German labor
practices are so terrible, then how was Germany an export powerhouse,
able to punch above its weight versus Japan and China, while the US,
with our supposedly great advantage of more flexible (and therefore
cheaper) labor, has run chronic and large current account deficits? And
why is Germany a hotbed of successful entrepreneurial companies, its
famed Mittelstand? If Germany was such a terrible place to do business,
wouldn’t they have hollowed out manufacturing just as the US has done?
Might it be that there are unrecognized pluses of not being able to
fire workers at will, that the company and the employees recognize that
they are in the same boat, and the company has more reason to invest in
its employees (ignore the US nonsense “employees are our asset,”
another line from the corporate Ministry of Truth).

A different example. A US colleague was sent to Paris to turn around a
medical database business (spanning 11 timezones). She succeeded. Now
American managers don’t know how to turn around businesses without
firing people, which was not an option for her. I submit that no one is
willing to consider that the vaunted US labor market flexibility has
produced lower skilled managers, one who resort to the simple expedient
of expanding or contracting the workforce (which is actually pretty
disruptive and results in the loss of skills and know-how) rather than
learning how to manage a business with more foresight and in a more
organic fashion because the business is defined to a large degree
around its employees.

Both are useful articles and the discussion on the Naked Capitalism article is very interesting.

One last thing, the "employees are our asset" nonsense always reminds me of this Utah Philips story (called "Natural Resources") which appears the album "The Past Didn't Go Anywhere" that he did with Ani DeFranco:

I
was invited to the State Young Writers' Conference out at Cheney, which
was at Eastern Washington university. And I didn't want to embarrass my
son, you know, and I was gonna behave myself cause I had to live there
then – it was a chore. But I got on the stage – it was an enormous
auditorium; there were twenty-seven hundred young faces out there, none
of them with any prospects anybody could detect – and off to the side
of the stage was the suit-and-tie crowd of people from the school
district and the principals, and the, the main speaker following me was
from the Chamber of Commerce.

Well something inside of me snapped.

And I got to the microphone, and I looked out over that multitude of faces and I said something to the effect of:

"You're about to be told one more time that you're America's most valuable natural resource. Have you seen what they do to valuable natural resources? Have you seen them strip mine? Have you seen a clear-cut in a forest? Have
you seen a polluted river? Don't ever let them call you a valuable
natural resource! They're gonna strip mine your soul! They're gonna
clear-cut your best thoughts for the sake of profit, unless you learn
to resist, cause the profit system follows the path of least
resistance, and following the path of least resistance is what makes
the river crooked! Hmph!"

Well there was great gnashing of teeth
and rending of garments – mine. I was borne to the door, screaming
epithets over my shoulder, something to the effect of: "Make a break
for it, kids!" "Flee to the wilderness!" The one within, if you can
find it.

There is a bit more. The whole album as well as the others he did are most worth it. He is still sorely missed.

Economy, Social Justice

Unemployment & Underemployment rate hits 17.5%

November 7, 2009 James O'Keefe Leave a comment

The big number is that unemployment, what the Bureau of Labor Statistics calls U-3, reached 10.2%. However, it is worse than that since the broadest measure of unemployment, what the BLS calls U-6, is now at 17.5%. A year ago, the respective U-3 & U-6 rates were 6.1% & 11.1%. The BLS defines U-6 as:

Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers.

where:

Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past.
Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job.
Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

The previous recorded high was 17.1 percent,
in December 1982.

To reiterate a point I made about the increasing inequality of the US economy, economist Paul Krugman mentioned:

Take the United States, which wasn’t damaged in the war. Take per
capita real GDP. Give hostages by taking data from 1950 to 1980, which
means including the 1980 recession, but stopping at 2007, so that the
current slump isn’t included. Then here’s what you get:

Growth in per capita real GDP from 1950 to 1980: 2.2 percent per year
Growth in per capita real GDP from 1980 to 2007: 2.0 percent per year

Oh, and if we look at real median family income instead, we get:

Growth from 1950 to 1980: 2.3 percent per year
Growth from 1980 to 2007: 0.7 percent per year

So comparing the time period from 1950 to the recession of 1980 with that of the recession of 1980 to the boom of 2007, Reagan/Bush/Clinton/Bush2 did worse in average terms than the previous 30 years. If you look at the median family income, i.e. those people in the middle of the income distribution, things are even worse for the Reagan+ period.

Sources:

Current Affairs, Economy, Social Justice

Financial Bubble, Rich Get Richer, Economic Bust, Rich Get Bailed Out, Repeat

November 2, 2009 James O'Keefe Leave a comment

I haven't posted much about the economy lately owing to a time: a lack on my part and the length needed for a post on such a topic. However, a couple of people have made some interesting observations that allow me to weave them together into something that is a little bit more illuminating.

Robert Oak of The Economic Populist and Yves Smith over at Naked Capitalism posted both cited Nouriel Roubini's recent op-ed (here if you don't want to register) in the Financial Times. Mr. Roubini explains that the low interest rates (~0.5%) that the US Federal Reserve is offering to financial institutions is the cause of rapid increase in asset prices (stocks, commodities, etc.) More importantly, since these interest rates have caused the fall in the dollar relative to other currencies. As a result, financial firms are now able to borrow in the US where they get negative interest rates since the dollar is falling, and buy non-US assets which bids up their price. As Gillian Tett of the Financial Times reported recently:

Earlier this month, I received a sobering e-mail from a senior,
recently-retired banker. This particular man, a veteran of the credit
world, had just chatted with ex-colleagues who are still in the markets
– and was feeling deeply shocked.

“Forget about the events of the past 12 months … the punters are
back punting as aggressively as ever,” he wrote. “Highly leveraged
short-term trades are back in vogue as players … jostle to load up on
everything from Reits [real estate investment trusts] and commercial
property, commodities, emerging markets and regular stocks and bonds.“

Back to Roubini. He feels that the increase in asset prices is a new bubble over which the Fed isn't watching. Eventually, the bubble will burst when the dollar stops falling and/or interest rates go up and traders, without easy money from the Fed, find they have the sell their new assets to pay back their loans. Oh joy. Of course, without all that easy money, the financial sector would have imploded taking the rest of the economy with it. Well … more than it did at least.

All this easy money seems to have increased the bounce in the step of Wall Street fat cats such as Lord Griffiths, vice-chairman of Goldman Sachs International, who, while speaking at St Paul’s Cathedral in London about
morality in the marketplace said the British
public should “tolerate the inequality as a way to achieve greater
prosperity for all” (taken from The Guardian via Tony Wikrent of The Economic Populist). Of course we tried that for over thirty years and it hasn't worked.

Mr. Wikrent (which I am cribbing from) sets out a fairly detailed description of the financial sector's pillage of the rest of the economy since the early eighties that is pretty well summed up in this graph from a July 2003 paper by Economics Professor James Crotty of the UMass, Amherst, The
Neoliberal Paradox: The Impact of Destructive Product Market
Competition and Impatient Finance on Nonfinancial Corporations in the
Neoliberal Era. The graph shows the share of the cash flow of Non-Financial Corporations (NFC) that went to the financial markets in the form of interest payments, dividends, and stock buy backs:

Yes, that is correct that 75% of NFCs' cash flow in 1989 poured out of NFCs and into the financial markets. Seems suspicious that the financial sector's pillaging of the rest of the economy peaks just before the economy tanks, but I won't take correlation for causation without more information.

For those who want a history, or is it a clarity, lesson, midtowng at The Economic Populist has a pretty good summary of the causes of our latest economic crisis. For those who don't have time to read it, here is the conclusion:

So what does this all mean? It means that the reason for the
economic crisis was the asset bubble that preceded it. The "wealth
effect" was a lie.

The reason for the asset bubble was monetary
inflation that got directed almost entirely to the wealthy. They
naturally used it to become wealthier, which means stocks, bonds, and
real estate. The trickle-down theory is a lie.

The reason why the monetary inflation was directed to the wealthy is
because free trade agreements which gutted the income of the working
class and left the nation suffering from economic disparity. The
promises made by free trade proponents was a lie.

In essence, the economic crisis that we are suffering from, and
will continue to suffer from, was caused by too much concentration of
wealth in the upper class. The country will continue to suffer from
these bubble and bust cycles until either the nation addresses the
income disparity, or the rest of the world stops offering to buy our
debt.

One thing I'll note, while I think NAFTA and other free trade agreements had an
effect on the increase in income inequality, income inequality was
rising long before NAFTA and later free trade agreements. I wouldn't
discount technological changes, the increase in the free flow of
capital and the greediness of the wealthy.

That said, the 50s & 60s era of shared advancements in income and low debt was replaced in the mid 70s with greater income inequality (50% of all income went to the top 10% in 2007) and increasing debt for the middle class and poor in order to achieve some semblance of upward mobility. After all, the rich's new found wealth needed to go someplace to gain a return.

And so I have come full circle with a new bubble on the horizon since that is the only option the "leadership" of our highly unequal economy and political system will allow us.

Everything's JOK

Category Archives: Economy

Rich countries working on secret climate treaty that favors them

Bernanke Reloaded

The musings of Jamie O'Keefe: pirate party activist, geek, father and gamer.