S&P head: Agency may downgrade U.S. again

By David Edwards - RAW Story
Sunday, August 7th, 2011

The head of Standard & Poor's sovereign ratings said Sunday that the agency may downgrade the U.S. again.

"Given the economic and political situation in the U.S., which will we see, an upgrading back to AAA or further downgrades?" Fox News' Chris Wallace asked David Beers.

"We have a negative outlook on the rating and that means we think that the risk currently for the rating are to the downside," Beers said.

While explaining what the U.S. could do to get its AAA rating back, the S&P official mentioned entitlement cuts but ignored the agency's call to raise revenues.

"Does any compromise have to have entitlement reform and revenue increases to be credible?" Wallace wondered.

"The key thing is, yes, entitlement reform is important because entitlement is the biggest -- are the biggest component of spending and they are the part of spending where the cost pressures are greatest," Beers replied.

"The White House as you know is not happy with this decision and they have accused S&P of amateurism. They went through your numbers and found a $2 trillion overstatement of what the debt would be and when they pointed that out to you, you simply changed the rational and continued to downgrade the debt," Wallace noted.

"That is a complete misrepresentation of what happened," Beers claimed. "Here we are talking about highly technical assumptions about projecting budget base lines far in the future. We made the motifications that we did after a conversation with the Treasury, it doesn't change the fact that in our estimation, that even with the agreement of Congress and the administration this past week, that the underlying debt burden of the U.S. government is rising and will continue to rise, most likely, over the next decade."

"The haste with which S&P changed its principal rationale for action when presented with this error raise[s] fundamental questions about the credibility and integrity of S&P's ratings action," Treasury assistant secretary for economic policy John Bellows wrote last week.

White House chief economic adviser Gene Sperling added that S&P's actions "smacked of an institution starting with a conclusion and shaping any arguments to fit it."

"The magnitude of their error combined with their willingness to simply change on the spot their lead rationale in their press release once the error was pointed out was breathtaking," he said.
Beers told Wallace that he did not expect "that much impact" from the downgrade when the global markets open on Monday.

Watch this video from Fox's Fox News Sunday, broadcast Aug. 7, 2011.

Second U.S. recession could be worse than the first

(Call it what it is...the beginning of a depression. If we used math instead of some 9 member panel of economists, the math would show we are 3 years into a depression. That panel of economists says we're in a recovery--HA!--jef)

By Kase Wickman - RAW Story
Sunday, August 7th, 2011

A second recession, what many are calling the double-dip recession, could be on its way, economists warn. And should it come, it will probably be even more devastating than the previous period of economic woe. 

“It would be disastrous if we entered into a recession at this stage, given that we haven’t yet made up for the last recession,” Conrad DeQuadros, senior economist at RDQ Economics, told the New York Times.

The Standard and Poor's downgrade of the U.S.'s credit rating bodes ill for the world's financial markets as well as the domestic market.

President Barack Obama, once the debt deal with Congress to avoid a debt default was struck, announced a pivot to focus on jobs.

"I'll continue also to fight for what the American people care most about: new jobs, higher wages and faster economic growth," Obama said in a statement to press after the debt deal was passed last week.

While the working age population has grown 3 percent in the past four years, the economy has 5 percent fewer jobs -- or 6.8 million less than four years ago. The U3 Unemployment rate stands at 9.1 percent.

Economists don't think another stimulus package will do the trick, either.

“There are only so many times the Fed can pull this same rabbit out of its hat,” Torsten Slok, the chief international economist at Deutsche Bank, told the Times.

What Can We Do About The Great American Lie?

Monday, August 8, 2011 by CommonDreams.org
by Michael Lewis

I. F. Stone told us many years ago that All Governments Lie. Daniel Ellsberg, in Secrets: A Memoir of Vietnam and the Pentagon Papers, told us why governments, including Presidents, always lie, and must continue to lie about what they know to be true, but about which they cannot talk under constraints of "National Security." The lies place an impermeable barrier between Those Who Know and Those Who Cannot Be Told, a barrier that trickles downhill, forever separating the citizenry of the United States from their government.

Today, the lies continue, as they must, even though journalists, bloggers and other malcontents desperately chip away at the facade. The raid into Pakistan to capture Bin Laden is revealed to have been not a one-off military adventure, but part of an on-going campaign of covert military intervention in 120 countries around the world on the part of a highly organized and secretly funded cadre of 15,000 specially trained soldiers let loose on the world. There was never any intent to capture Bin Laden alive. The goal of the raid was to kill this living embarrassment to the United States government and remove any chance that he might say something awkward and revealing before he died of kidney failure on his own.

It's not just the President who is foisting lies on the public. Politicians of all stripes meet in smoke filled back rooms with corporate lobbyists and industry representatives, barely deigning to conceal the bribes slipped under the table into their grasping clutches. Nudge nudge, wink wink. The press is summarily dismissed from these gatherings, such as ALEC, the American Legislative Exchange Council, as politicos hide their faces from the peering eye of the Internet, pretending we do not see. The back slapping and glad handing continue safely within the confines of the Marriott Hotel, where legislation is crafted far from the public eye. Would that they were only making sausage.

What do we do in the face of a government corrupt to the core, a government that professes to be Of the People, by the People and for the People, yet continues to do the bidding of unaccountable corporate lobbyists, revolving door "experts," and an overweening military technology industry? Do we continue to vote for new fodder for the corporate grist mill, aka Congress? Do we demand legislation that will stop the Congressional gravy train, from those who are first at the gravy bowl? Do we demand a President to lead us out of the wilderness scheduled to be clear-cut for corporate profits?

The central authoritarian government doesn't have the answer, as it is the central problem. Jeffersonian Republicans knew what they were doing when they opposed Alexander Hamilton's Federalists at the turn of the 19th Century. They foresaw the coming excesses of centralized authority in a world dominated by capitalist greed. They viewed the Federalist agenda as anti-revolutionary, a continuance of the economic system that had strangled the North American British colonies until the Revolution tore them free. The Anti-Federalists argued for small government, democracy, mutual aid, self-reliance and self-government. As foreseen, Hamilton's paternalistic state has fostered a populous that cannot take care of itself, let alone serve as a beacon of democracy and freedom in an increasingly privatized world.

There is only one path open to those few willing and aware US citizens: turn around and take a new step forward. We cannot solve the problem of corrupt government by appealing to the corrupt government. Jefferson was fond of the concept of public dissent and rebellion: "Every generation needs a new revolution."

It's time for our generation to expose the lies and foster a new revolution, a revolution that starts between the ears, and works outward through our families, neighborhoods, communities and bioregions. Not a violent revolution, as that which spawned this country, but a quiet revolution over back yard fences, neighborhood meetings in living rooms, public gatherings with local representatives, the anonymity of the polling booth. By the time the central authority recognizes the revolution, it will be too late, a fait accompli, a done deal.

The challenge at present is to penetrate the fog of lies and mindless distractions of popular culture sufficiently to foster such a revolution.

The solution is simple: we tell the truth. The Orwellian bumper sticker tells us: "During times of universal deceit, telling the truth becomes a revolutionary act." Whenever we encounter a lie, we respond with the truth. From local neighborhoods to the White House, in the coffee shop or City Council chambers, we never let a lie pass unchallenged. This accomplishes two goals: we raise the consciousness of all within reach, and we challenge those who lie to us and expect to get away with it.

Thus the revolution begins.

America's Real Job Creators Are Broke

Monday, August 8, 2011 by OtherWords
Despite the GOP's ideological claptrap about corporate executives being "job creators," it's ordinary Americans who actually create jobs.
by Jim Hightower

As narrators used to say in Western movies: "Meanwhile, back at the ranch..."

Our policymakers in Washington have totally lost sight of what's happening at the ranch. John Boehner's GOP-controlled House and Barack Obama's White House have agreed to slash trillions of dollars from the federal budget, as though that's America's most important need.

Bovine excrement! If they'd lift their vision to the countryside, even they could figure out that our great economic urgency is for the creation of good, middle-class jobs to get America moving again — moving upward and moving together.

Today, we are a dangerously disunited society. Elite CEOs and big investors are grabbing all the gains, leaving the vast majority mired in recession and facing falling incomes. Since the recession technically "ended" 18 months ago, corporate profits have zoomed, sopping up an unprecedented 88 percent of America's economic growth. Meanwhile, only one percent of the growth that we all help produce has gone to wages and salaries, the primary sources of income for 90 percent of us.

Yet, those same CEOs say they won't invest in new jobs or raise wages until consumers start buying again. That's like saying, "The beatings will continue until morale improves." Hello? The consumers whom CEOs are waiting on are the workers whose jobs and wages the CEOs won't increase.

You see, despite the GOP's ideological claptrap about corporate executives being "job creators," it's ordinary Americans who actually create jobs by spending from their paychecks. This is why our obtuse policymakers need to quit pampering the rich and fussing over budgets.

Instead, they should launch a national, FDR-style jobs program that will immediately increase paychecks, perk up consumer spending, and generate grassroots economic growth.

Who Killed Economic Growth?

The McLaughlin Group

I love it when they all bark at the same time, but they make some really good, hard points. Check it out.

Bad News About Water Quality — and Quantity

(Sometimes I feel guilty watering my yard. Real life water rationing is right around the corner, and we won't have a choice. People will bitch--mainly business folks--but we won't have a choice. Soon "lost to history" will be water parks; and the backyard family pool will soon be a thing of the past. But someday soon, we will literally wake up and wonder where all the water went.--jef)

Friday, August 5, 2011 by The Toronto Star
by Antonia Zerbisias

The Daily Show’s Jon Stewart practically cowered under his desk last month when journalist Alex Prud’homme appeared.



That’s because Prud’homme’s just-published The Ripple Effect: The Fate of Freshwater in the Twenty-First Century is 435 pages of bad news about how North Americans waste, contaminate and violate our water supplies.

“Water is a deceptively plain substance,” he notes in his introduction. “Yet it is the basis for life, and is considered an ‘axis resource,’ meaning one that underlies all others.”

Without water, there is no life. As we have seen this summer, droughts have ravaged the U.S. mid- and southwest, China and even France. In Somalia and Kenya, it’s a humanitarian disaster.

In North America, we’re spoiled.

On the phone from his home in New York City, Prud’homme says, “We really need to start thinking about water.

“Because we’ve become so good at collecting, transporting and treating water, people feel they can turn the tap on anytime they want and get as much water as they want, at any temperature they want, for as long as they want. So we’ve forgotten how important it is. But what we haven’t done is manage it very sustainably or wisely.

“But now conditions have changed. There are more people on Earth, we are using water more and more, the climate is shifting, our diets are changing, the ways we pollute water are shifting. Our indifference is a luxury we no longer can afford.”

On a per-capita basis, Canadians are just behind the world’s most wasteful water users, the Americans, reports the Conference Board of Canada. That’s a lot of water down the drain.

What’s more, says Prud’homme, we excrete Viagra, synthetic estrogen and other prescription drugs — as well as illicit substances — when we use the toilet. Some of us are even flushing chemicals and leftover pills away. We poison fish every time we wash with antibacterial soap. Our factory farms send rivers of runoff — including potentially E. coli-carrying manure — into lakes and streams. Turn on an appliance, including the computer on which you may be reading this, water is used to power hydroelectric dams, or cool nuclear plants, or run coal generators.

And personal water usage is just a few drops in the bucket compared to what industry uses and pollutes on a daily basis.

Then there are the catastrophes. Last year’s BP Deepwater Horizon explosion spewed at least 2.5 million gallons of oil per day into the Gulf of Mexico, ranking it as the worst environmental disaster in the nation’s history.

But that’s nothing, according to Prud’homme, who notes that every day “millions of tiny leaks from the cars, trucks, motorcycles, lawn mowers, boats, planes, snowmobiles and other machines we use” get washed into sewers and flow into the rivers, lakes and the ocean.

Citing a National Research Council report, he writes that “humans spill more than 300 million gallons of oil into North American waters every decade, which is double the highest estimate of the BP spill.”

“This is not as photogenic as Deepwater Horizon or Hurricane Katrina, something where images can really sway people emotions,” he tells the Toronto Star. “The fact is, ultimately it’s far more destructive.”

But The Ripple Effect is about a lot more than water quality. It’s also about water quantity, which we take for granted.

In the U.S., water is literally poured into the desert.

That’s why Prud’homme zeroes in on the driest city in the driest state, Las Vegas, Nev., where the famous strip’s hotels boast extravagant water features, water slides, water shows and even shark tanks.

While Sin City has started to recycle and manage its water — that could be your used bathwater spurting out of the Bellagio’s famous fountain — it has also been snatching up ranch land to claim the groundwater beneath.

“Las Vegas is the city that wasn’t supposed to be,” says Prud’homme. “Despite the fact that they have implemented a lot of efficiencies, it’s still a city in the desert, which is kind of crazy. So they’re considering this project which would essentially build this pipeline up to central eastern Nevada where the basins are seemingly dry on the surface but there’s actually water beneath. The ranchers and the environmentalists and Native Americans are not happy about it and, most important, the state of Utah is not happy about it because that aquifer is shared between Nevada and Utah.”

Which brings us to water ownership.

Prud’homme devotes many pages to tycoons such as Canada’s Maurice Strong and American corporate raider T. Boone Pickens, who both own thousands and thousands of acres of land atop two of the U.S.’s largest aquifers. It’s a 21st-century bonanza.

“The hydrocarbon era is over. Water is the new oil!” says Pickens in The Ripple Effect.

Then there are the multinationals that are eager to buy water, bottle it and sell it for profit.

They’ll also tempt cash-strapped municipalities with offers of replacing aging infrastructure, such as century-old sewer pipes, in return for collecting fees for water.

“This gets to this really interesting moral question,” says Prud’homme. “Is water a common (good) like the air we breathe and therefore should be free to everyone, or is it a commodity like oil and natural gas that is extracted and processed and then sold in the market place?

“Sometimes private water can be good. They’ll come in and fix up your utility and they will run it more efficiently and you’ll get better water. Yes, there’s a price for that but it’s an affordable price.

“But there are other times where the dark side of human nature has gotten the better of water companies and they have seized on this essential resource. Private water companies have occasionally gouged their customers and started charging high water rates when people are desperate for a drink. This has happened in places like Central and South America, and it’s led to protests and riots.”

Like many, Prud’homme worries the coming water scarcity could lead to hostilities.

“That’s the great fear,” he says. “If you look at places like Pakistan-India, the two Koreas, China and its neighbours or the Tigris-Euphrates nations, there are certainly going to be tensions in the coming years, maybe even violence. There’s only so much water in the world, the population is growing, the climate is changing and people are using water in new ways.”

Canadians, who may feel smug about having one of the world’s largest supplies of fresh water, may need to, well, pour some of that water into their wine.

“Canada is water rich but it’s not so easy to pipe water from Quebec to Alberta, for example, and there are consequences,” cautions Prud’homme. “There is a way of managing water more holistically instead of having a hodgepodge of laws and initiatives.”

Pointing to the tiny island nation of Singapore, he says, “It’s an island nation and it’s ruled by an autocrat but they use water extremely efficiently. Their system is overseen by a body of highly skilled and educated managers who are well-funded and independent. It can make decisions based on what’s right rather than what’s politically expedient.

“Every drop counts there. They are always reminding citizens how important it is to be efficient and to conserve. There’s a great depth of education about water there that neither Canada nor the U.S. has.

“So these are lessons and strategies that can be adopted on a larger scale for nations like Canada and the U.S. We are going to have no choice over the coming decade.”

Next Low-Wage Haven: USA

Saturday, August 6, 2011 by Labor Notes
by Jane Slaughter

Jokes about the U.S. becoming “Europe’s Mexico” are commonplace, but now high-priced consultants are pushing the notion in all seriousness.

They’re predicting that within five years certain Southern U.S. states will be among the cheapest manufacturing locations in the developed world—and competitive with China.

For years advisers like the Boston Consulting Group got paid big bucks to tell their clients to produce in China. Now, they say, rising wages there, fueled by worker unrest, and low wages in Mississippi, Alabama, and South Carolina mean that soon it won’t be worth the hassle of locating overseas.

Wages for China’s factory workers certainly aren’t going to rise to U.S. levels soon. BCG estimates they will be 17 percent of the projected U.S. manufacturing average—$26 an hour for wages and benefits—by 2015.

But because American workers have higher productivity, and since rising fuel prices are making it even more expensive to ship goods half way around the world, costs in the two countries are converging fast.

Dan Luria, research director of the Michigan Manufacturing Technology Center, says many of the big-name consultancies, which until a year ago were advising their clients to “Asiafy their footprints,” are now telling companies to think twice.

BCG bluntly praises Mississippi’s “flexible unions/workers, minimal wage growth, and high worker productivity,” estimating that in four years, workers in China’s fast-growing Yangtze River Delta will cost only 31 percent less than Mississippi workers.

That’s before you figure in shipping, duties, and possible quality issues. Add it all up, says BCG, and “China will no longer be the default low-cost manufacturing location.”

ALREADY COMPETITIVE

Actually, employers deciding where to produce the next generation of widgets may not need to look to the South. Plenty of factory jobs in Northern states—even in the former high-wage stronghold of auto—are already “competitive.”

Ford’s flagship Dearborn Truck plant outside Detroit, for example, contracts non-union workers to do inspection and repairs—long the coveted jobs, that workers could get only with many years’ seniority—at $10 an hour with no benefits.

That’s more than the Chinese average now, but less than what’s projected for 2015.

Brad Duncan, who worked at the plant last year, said it seemed like dozens of small companies were involved. Many pay people as “independent contractors,” he said, and are essentially fly-by-night operations.

“I worked for 10 bucks an hour with no overtime for around 66 hours a week,” Duncan said. “Then I’d get laid off for a week or more at a time with no notice.”

At a GM plant in Lake Orion, Michigan, north of Detroit, contractors hire young third-tier workers at $10 an hour or less to gather parts for assemblers, work done very recently by GM employees.

These kids are union members, though they don’t have a contract yet. The United Auto Workers convinced the contractors to let them organize the workforce through card check.

“There are more people there handling parts than building cars,” said Dan Theisen, a plant electrician.

Many of the union assemblers are themselves second-tier workers paid less than the U.S. manufacturing average, with wages of $14.60 and no pensions.

“It makes it hard to do anything for the second tier when the third tier is so bad,” said Theisen, a dissident who’s spoken against lowering GM wages.

ALREADY A TREND?

Among the U.S. companies rethinking their production locations are Ford, Caterpillar, an ATM company building a plant in Georgia, and Wham-O Inc., which returned Frisbee production to California and Michigan.

Master Lock is bringing work back to Milwaukee from China. GE, enticed by federal stimulus money, will be making green refrigerators in Indiana with Electrical Workers (IBEW) members instead of in Mexico.

And Suarez Manufacturing Industries has been lauded for relocating production of a space heater from China to North Canton, Ohio.

After experiencing lengthy transit times from Asia, CEO and North Canton native Ben Suarez painstakingly put together a chain of suppliers from within the U.S. In a former IBEW Hoover vacuum factory, abandoned in 2007 in favor of Mexico, he’s now contracted with two companies to supply the plant with labor.

Wages will run from $7.50 an hour (general labor) to $10 (assemblers) to $16 (programmers). Federal minimum wage is $7.25.

The plant will soon employ 100-150 workers in full-time jobs. As production ramps up, others will be guaranteed seasonal work, October through March. The plant received 3,000 applications, according to the company’s Lauren Capo.

NOT YET

The Steelworkers union has long agitated for a manufacturing renaissance in the United States, arguing that an economy that doesn’t make things is weak and unsustainable. In 2007 the union initiated the Alliance for American Manufacturing, a partnership with employers.

AAM Executive Director Scott Paul says there’s no hard evidence yet that manufacturers are actually returning from China in enough numbers to constitute a trend.

Rather, various consultants are now telling their clients to consider the U.S. They’re the same consulting class that “popped up around the time of NAFTA with ‘yes you can in Yucatan,’” he said.

Paul cites the factors that could converge to bring more work to these shores:

• Costs of labor and commodities are rising on the Chinese coasts, as workers demand higher pay. If companies move further inland to poorer areas, they hike their logistics costs.

• In most of the world, the dollar is worth 25 percent less than three years ago, and in China 5 percent less.

• Shipping costs are increasing because of rising energy costs.

• Companies fear that in China they’ll lose their intellectual property to spin-off competitors.

• Some consumers prefer an American-made product.

• The U.S. has an abundance of skilled but unemployed workers.

• And U.S. wages are stagnant or even falling.

But, Paul notes, if companies choose to build in the lowest-cost states—as Japanese automakers have done for nearly 30 years—“it quickly becomes a state vs. state competition, a race to the bottom. If South Carolina can offer lower wages, so can Mexico.”

WHAT KIND OF JOBS?

Will factory jobs flood into Michigan and Mississippi at just above minimum wage? Or is that still not cheap enough? The fact remains that the decisions are all made by corporations seeking the greatest profit in a dog-eat-dog world.

As Michael Zinser, one of the co-authors of the BCG report, told Labor Notes, “Location is agnostic. It’s a question of what the market will bear.”

Luria predicts that some manufacturers will indeed leave China, but sees the moves mainly benefiting Mexico and Eastern Europe.

Paul, from the manufacturing alliance, wants to see the government step in and influence those location decisions through government policy, as it did with the domestic content requirements in the 2009 Recovery Act and the high-speed rail bill. The German multinational Siemens located a train factory in Sacramento, California, as a result, he said.

Likewise, clean energy loans, grants, and tax credits led to 18 new advanced battery factories in Michigan (though not at high wages). “None of this would be possible without public investment,” Paul said.

HANDS-OFF

Mostly, of course, the Obama administration has taken a hands-off approach to what business should do, instead providing cash on request in the bank and auto bailouts.

UAW dissidents said the auto bailout was a giant missed opportunity to steer their industry toward clean products built in the U.S. at decent wages. Unions and consumer groups protested because the banks were saved but stiff regulations were not attached to their checks.

Paul notes that government policies to promote industry are the norm elsewhere, in old capitalist countries as well as in new ones like China. He fears the absence of such government help leaves U.S. workers with only one bargaining chip—and that’s not a happy one.

“Low wages won’t be the factor that compels companies to locate in the U.S.,” he said.

“But absent a national economic development strategy where there is a focus on manufacturing, that’s what we’re left with.”

Downgraded Anyway...( 3 articles)

Sunday, August 7, 2011 by Richard D. Wolff
The S&P Downgrade of US Debt: What it Means
by Richard Wolff

 

Much verbiage is piling up on this issue. Yet, it matters little that the two other giant rating agencies did not downgrade US debt as S&P did. It is likewise unimportant that all those agencies deserve the bad reputations won when their over-rating of securities burst in the collapse of 2007 and took an already unbalanced economy into deep recession. Nor does the downgrade impose major cash costs anytime soon.

The S&P downgrade is important because it clarifies and underscores two key dimensions of today’s economic reality that most commentators have ignored or downplayed. The first dimension concerns exactly why the US national debt is rising fast. There are three major reasons for this:

(1) major tax cuts especially on corporations and the rich since the 1970s and especially since 2000 have reduced revenues flowing into Washington,
(2) costly global wars especially since 2000 have increased government spending dramatically, and
(3) costly bailouts of dysfunctional banks, insurance companies, large corporations and the economic system generally since 2007 have likewise sharply expanded government spending. 

With less tax revenue coming in from corporations and the rich and more spending on defense/wars and bailouts, the government had to borrow the difference. Duh!

The second dimension concerns the “deal” just agreed between President Obama and the Republicans in Congress. That deal promises further major increases in the national debt in the years ahead. That is because it does not alter any of the three major debt causes listed above. The political theatrics of the two parties reflect the money/power of the corporations and the rich, keeping their tax cuts, subsidies, and government orders untouched. Instead, the two parties pretend concern about the debt, debate only how much to cut government spending on the people, and focus on the 2012 election.

S&P downgraded the US national debt because these economic and political dimensions of the US today guarantee a worsening of the nation's debt. Thus, a basically political problem is looming for those lenders who purchased and now own the debt obligations of the US (i.e. Treasury securities). The political problem is this: how long will the mass of Americans accept not only an economic crisis bringing unemployment, home foreclosures, reduced real wages and job benefits, but now also cutbacks in government supports? When will the political backlash explode and how badly may it impact the creditors of the US?

When might that backlash demand that the people’s taxes stop going to pay off creditors (corporations, the rich, and foreigners) and be used instead for public services that the people need? Exactly that political danger for creditors prompted the rating downgrades for the debts of Greece, Portugal, etc. The same danger has now reached our shores and confronts our nation'a creditors.

S&P decided – for reasons good and bad, noble and venal – to say what any reasonable observer knows (given that such backlashes hurting creditors have often happened in recent history). Creditors need to worry about the combination of economic crisis, growing inequalities of wealth, income and power, and political dysfunction that now defines the US. The risks of backlash against creditors rise with the national debt. Not to worry is irrational and dangerous for them. And for us?

 ++++++++++++++

Saturday, August 6, 2011 by Huffington Post
How to Think About Standard and Poor's Downgrade
by Dean Baker

 

Standard and Poor's downgrade of U.S. government debt captured headlines across the country and around the world. It is a newsworthy event, but primarily as another colossal failure by a major credit rating agency.

First, it is worth mentioning the important background here. S&P, along with the other credit rating agencies, rated hundreds of billions of dollars of subprime mortgage backed securities as investment grade. They were paid tens of millions of dollar by the investment banks for these ratings. We know that concerns were raised by their own people about the quality of many of these issues. This was at the least astoundingly incompetent. It was quite possibly criminal.

This raises the question of whether S&P fears an investigation and possible prosecution. In such circumstances the desire to curry favor with powerful politicians could certainly influence their credit rating decisions. There are also rules affecting the credit rating agencies in the Dodd-Frank financial reform bill. The desire to have these rules written in a favorable way could affect the credit rating agencies' decisions. It would be nice if we could just assume that the credit rating agencies make their rulings on an objective assessment of the evidence, but we can't.

Let's look at the evidence. S&P made a big point of citing the fact that the debt deal did almost nothing to slow the growth of Medicare and other entitlements, obviously alluding to Social Security. S&P surely knows that Medicare's cost growth is driven by projections of explosive growth in private sector health care costs. The projections it relies upon from the Congressional Budget Office show that the cost of providing health care to an average 65 year-old in the private sector will be almost $20,000 (in 2011 dollars) a year by 2030. Of course, this will make Medicare unaffordable if it proves true, but this projected explosion in health care costs will be devastating for the U.S. economy even if we eliminated Medicare and other public sector health care programs altogether.

If S&P were being honest, it would have written about the need to fix the U.S. health care system. Instead it talked about the need to cut Medicare. Of course, if U.S. health care costs were comparable to those in any other country in the world, then we would be looking at massive surpluses in the long-term, not deficits.

The reference to Social Security also cannot be supported. The program is financed by its own designated tax. Under the law, if benefits exceed the money raised by the tax, then they are not paid. If S&P assumes that Social Security will add to the deficit in future years, then they are assuming that Congress will change the law in a way that no one is now proposing.

It is also worth noting that the projected increase in Social Security as a share of GDP over the next 30 years is 1.6 percent. This is roughly the same as the increase in the annual military budget since the days before September 11th. An unbiased credit rating agency would not be highlighting one increase while ignoring the other.

There are other problems with the S&P downgrade. U.S. government debt and its derivatives (e.g. the $5 trillion of mortgage backed securities issued by Fannie Mae and Freddie Mac) are the backbone of the U.S. financial system and indeed the world financial system. If U.S. debt is in fact less creditworthy, then all the banks and financial companies that rely on its value should also be less creditworthy. Yet, we didn't hear of J.P. Morgan, Goldman Sachs and the rest being put on the watch list for a downgrade. Why not? Perhaps this is because S&P doesn't take its own rating seriously.

Finally, what does the risk of default on U.S. government debt mean? The debt is issued in dollars. That means it is payable in dollars. The U.S. government prints dollars. This means that if some reasons the government was unable to tax or borrow to raise the money to pay its debt then it could always print it. This may carry a risk of inflation, but S&P is not in the business of making inflation predictions, they are in the business of assessing the likelihood that debt will be repaid. (Of course if they are worried that inflation will erode the value of U.S. debt, S&P would also have to downgrade all debt denominated in dollars everywhere in the world.)

In short, there is no coherent explanation that can be given for S&P's downgrade. This downgrade was not made based on the economics. We can only speculate about the true motive.

+++++++++++++++

Saturday, August 6, 2011 by The New York Times

S&P and the USA: Right's 'Madness' and Agency's Ineptitude Led to Downgrade

by Paul Krugman 

NEW YORK - OK, so Standard and Poors has gone ahead with the threatened downgrade. It’s a strange situation.
 
On one hand, there is a case to be made that the madness of the right has made America a fundamentally unsound nation. And yes, it is the madness of the right: if not for the extremism of anti-tax Republicans, we would have no trouble reaching an agreement that would ensure long-run solvency.

On the other hand, it’s hard to think of anyone less qualified to pass judgment on America than the rating agencies. The people who rated subprime-backed securities are now declaring that they are the judges of fiscal policy? Really?

Just to make it perfect, it turns out that S&P got the math wrong by $2 trillion, and after much discussion conceded the point — then went ahead with the downgrade.

More than that, everything I’ve heard about S&P’s demands suggests that it’s talking nonsense about the US fiscal situation. The agency has suggested that the downgrade depended on the size of agreed deficit reduction over the next decade, with $4 trillion apparently the magic number. Yet US solvency depends hardly at all on what happens in the near or even medium term: an extra trillion in debt adds only a fraction of a percent of GDP to future interest costs, so a couple of trillion more or less barely signifies in the long term. What matters is the longer-term prospect, which in turn mainly depends on health care costs.

So what was S&P even talking about? Presumably they had some theory that restraint now is an indicator of the future — but there’s no good reason to believe that theory, and for sure S&P has no authority to make that kind of vague political judgment.

In short, S&P is just making stuff up — and after the mortgage debacle, they really don’t have that right.

So this is an outrage — not because America is A-OK, but because these people are in no position to pass judgment.

The Deindustrialization of America

Goodbye to Fosteria, Ohio
By JOHN R. MacARTHUR

Pro-North American Free Trade Agreement (Nafta) forces staged on 9 November 1993 what may be remembered as the greatest salesman's trick in televised propaganda. Millions of Americans had just watched CNN's Larry King show, and its "debate" over the ratification of the agreement, between Ross Perot, the anti-Nafta crusader and independent presidential candidate, and then Vice President Al Gore, spokesman for mainstream political and business opinion about free trade and its alleged benefits to the US.

The professional politician Gore had bested the billionaire amateur Perot, but the show wasn't over, and neither was rhetoric about Nafta. CNN followed with a post-debate debate, in which four "experts" argued over the plan of former President George H W Bush and President Bill Clinton for eliminating tariffs and integrating the Mexican, Canadian, and American economies in ways they claimed would bring money and jobs to everybody — a "win-win" scenario. One expert, a soldier for David Ricardo's economic theory of comparative advantage, was Larry Bossidy, leader of the pro-Nafta business lobby and chairman and CEO of Allied Signal, an industrial corporation with worldwide interests, including the Autolite spark plug plant in Fostoria, Ohio.

With many fearing what Perot called the "giant sucking sound" of jobs heading to cheap labour in Mexico if Nafta passed Congress, Bossidy needed to promote the notion that the agreement would bring more work to the Midwestern rust belt, already in steep decline. So, on instructions from Gore's media adviser Carter Eskew, Bossidy held up a plug and pronounced: "I would like to say, about the jobs, this is a spark plug, an Autolite spark plug. It's made in Fostoria, Ohio. We make 18 million of them. We're going to make 25 million of them; the question is, where are we going to make them? Right now you can't sell these in Mexico because there's a 15% tariff... if this Nafta is passed, we'll make these in Fostoria, Ohio... we'll have more jobs... This is a small part of a car. We export 4,000 cars to Mexico today, we'll export 60,000 cars in the first year [of Nafta], that's 15,000 jobs."

As of 1 November 2010 General Motors was a ward of the federal government, the country was in prolonged economic slump, and there were 86 assembly jobs in the Fostoria factory. The remaining Autolite employees were there to make just the ceramic insulators around the plug. The rest of the jobs had moved to a maquilladora in Mexicali, where nearly 600 Mexicans were manufacturing mostly Motorcraft spark plugs, the house brand of Ford Motor Company, healthiest of the Big Three US auto companies.

A very different wage

The crucial difference between Mexicali (just south of the border from Calexico, California, on the Baja peninsula) and Fostoria was the wage scale: in Fostoria, unionised production workers made an average $22 an hour, including benefits, for a 40-hour week; in Mexicali, workers on the first two shifts made 15.5 pesos (about $1.83) an hour for a 48-hour week. Autolite's new owner was Honeywell, dominant partner of a 1999 merger with Allied Signal, and its chairman, Dave Cote, could be pleased with his investment. The maquilladora was not only less costly to operate, it was also protected against expropriation, serious environmental supervision, and strikes by Nafta, the Mexican government and Mexico's corrupt national labour union, the CTM. In 2009 Cole received more than $13m from his board of directors. Somewhat surprising was President Barack Obama's embrace of Cote as a spokesman for American employment and re-industrialisation.

When I went to Fostoria, in September 2009, long freight trains still rumbled through town regularly on the railroad lines that made the city, despite its modest size (population 13,441), such an attractive place to build a factory in the 19th and early 20th centuries. But the trains weren't stopping to pick up much and the chamber of commerce was reduced to promoting its macadvantages for rail photography enthusiasts. No train buffs — or anyone else — were in evidence downtown, where Readmore's Hallmark Books and Gifts was advertising a closing sale. Vast empty parking lots abutting shuttered factories and businesses — Fostoria Industries, a maker of specialty ovens; the Thyssenkrupp Atlas crankshaft plant; the GM dealership — testified to the declining fortunes of what Fostoria's boosters had dubbed "A Small Town in the Middle of Everywhere!"

But while factory after factory had closed down, the Autolite plant seemed impregnable — not just because of Bossidy's pledge in 1993 but also because the plant was churning out vast quantities of spark plugs with stunning efficiency — as many as 1.2m a day on 13 production lines operating over three shifts. It couldn't last with so many plants heading to Mexico and, after passage by Congress of permanent normal trade relations with China in 2000, the even cheaper labour of China. In January 2007 Autolite announced plans to build the plant in Mexicali, and in August said it would begin to lay off 350 of the plant's 650 workers.

Bob Teeple, the president of United Auto Workers Local 533, is the son of an Autolite millwright, and in 1995, at age 32, he followed his father into the plant's skilled trades, the elite of unionised blue-collar workers. There were "close to a thousand" employees at the plant. When I visited union headquarters with Hart Perry, the documentary filmmaker, Teeple was awaiting news from the company of the shutdown of everything but the ceramics section, but he wasn't sure when most of the remaining 271 employees would have to go, since the Mexicali plant was having start-up problems.

Teeple recalled the great Nafta debate and a later visit from Larry Bossidy "who even came to the plant and made it sound like, you know, our business is doing good. But I wasn't super aware of what effect Nafta would have. You know, it's just one of them things that you heard on TV — pros and cons."

Neither, it seems, were any of his co-workers super-aware of Nafta. When I sneaked inside the factory to observe one of the four production lines still in operation, I met Peggy Gillig, who was checking plugs for defects. Gillig had started work 10 years earlier, when she was 46, and she wasn't very politically or union minded. Automation at Autolite had failed to kill her job, but politicians had succeeded: "I'm disappointed in our leaders that they've more or less stabbed us in the backs — sold us out to foreign interests."

But Gillig didn't blame poor foreigners for taking her job and preventing her from retiring at age 60, which would have been possible under the UAW contract. "It doesn't seem like it's good for the third world countries they [the jobs] are going to. They don't pay those people... a living wage, so how is that good for them? I mean, it's better than not havin' any kind of a job... I don't understand who it is good for other than the big companies."

Other workers, current and former, spoke with me, including Larry Capetillo, a Spanish-speaking Mexican-American whom the company lured out of retirement in 2007 to help train workers in Mexico. Morally conflicted, Capetillo kept a journal about his dilemma. The Honeywell executive who recruited him and three other retirees claimed that the Autolite plant had lost money for the past "four to five years", according to the journal, not so much because of production costs "but because we have 1,200 retirees". However, if the move to Mexicali was successful, the executive had promised that "the goal is to keep 300-and-some jobs here [in Fostoria]". Capetillo thought of Autolite as a family affair — his wife, Fran, had taken a buyout after 29 years, and his daughter, Tracy, was still employed there with her husband.

"We all knew that people were going to dislike us very much for doing this," Capetillo told me. But the executive had been blunt: "Whether you go [to Mexico] or not, they're going to move this. We're going to try to make [the Mexicali plant] go if we can — if we can't, and it goes down... the rest of this is going to close." Capetillo said "We decided, you know, if we can keep the plant here; if we can do something to help there, we're going to go down and try to do it then... Believe me, the four of us were not going to go, but when he said the whole operation would close if the Mexico thing did not make it, we had to make a decision."

In his journal, Capetillo was more candid: "Many of our fellow employees hated us for making this decision." However, "the longer we can keep this plant open the longer my daughter gets to keep her job."

The company had no intention of keeping any plug production in Fostoria. After two years of commuting between Fostoria and Mexicali, Mexicali was ready to manufacture, as Bob Teeple put it, "everything with platinum attached to it". When negotiations began in 2009 for a contract, the company surprised Teeple with a demand: if the union wanted to keep more than 110 jobs in Fostoria, there would be a wage cut to $11 an hour plus big employee contributions to health insurance. "We couldn't do that," Teeple said. Better to negotiate for good severance than to take a humiliating reduction far below the UAW norm.

"I guess I felt totally betrayed by the company," Capetillo said. "It seems they all deal in half-truths... He did tell us that 300 jobs would stay, probably. And not even half of them stayed."

'All of us have to help'

Ordinarily, this story would have ended on 23 December 2009, when the last integrated production line was shut down. I felt obliged to interview Dave Cote, especially since he had appeared with Obama at the White House, just after his inauguration, to promote business-government cooperation in combating severe recession. As Cote told reporters, "The Congress, the American people, all of us as a business community, all of us have to help. Mr President, I can say that for Honeywell you can count on us and all of our employees to be there to help support this."

For months, Cote's PR man at corporate headquarters in Morristown, New Jersey, kept putting me off, not knowing I wanted to talk about Nafta in general and Autolite in particular. It seemed just a matter of time before the remaining 99 workers in the ceramics department in Fostoria lost their jobs.

But on 4 April 2010 a catastrophe occurred — a 7.2 earthquake struck 60km from Mexicali, placing the region in a state of emergency and damaging the new plant. Honeywell's Consumer Products Group had no choice but to move some production back to Fostoria and rehire 70 laid-off workers to satisfy demand. Before long, Teeple said, "they told us we were doing four times the production of the Mexican plant, 130,000 a day, and some days we got as high as 230,000 with two lines running for three shifts." By October operations were back to normal in Mexicali and the 70 rehires were laid off again, for good: "Not one machine is left in department 9," Teeple said. "All of them were shipped to the Mexicali plant."

All Teeple had to look forward to was a 1 November 2011 contract expiration and another round of negotiations on behalf of the 86 survivors in the insulator section. "They're telling us no, they're not setting up kilns in Mexicali," Teeple said in December 2010, but the company had said the same things to Larry Capetillo . The ceramic insulators could easily be made by NGK, a Japanese company with a factory in Irvine, California, much closer to the Mexicali plant. It wouldn't be long before Fostoria's Autolite plant, which opened in 1936, shut forever.

Teeple was demoralised. When he called me in February, he said he wouldn't run for re-election in June as Local 533's president and would take a buyout from the company: "I'm dead in the water. I want to change professions, go into marketing. The more you do, the more you make." His first love, sprint-car racing, wasn't a way to support four kids and a wife. By May, Teeple had changed his mind — a sense of obligation to union members took precedence, — and he was re-elected.

But Teeple had more bad news: on January 28 Honeywell announced that it had agreed to sell its Consumer Products Group (CPG), including Autolite and Fram Filters, to the Rank Group, a New Zealand-based, privately held investment company, for $950m in cash (1). "While CPG is a good business," Dave Cote said in a press release, "it doesn't fit with our portfolio of differentiated, global technologies... we are confident that the Rank Group, with its proven track record of investing in and building established franchises, will be a good home for CPG's consumer brands, customers, and employees."

Rank was owned by the leveraged buyout billionaire Graeme Hart, said to be worth more than $8bn. His method for making money was borrow heavily to buy companies with a healthy cash flow; cut costs and increase profits through layoffs or mergers; then issue more debt or resell the company for more than he paid. His purchase of Alcoa's packaging and consumer group in 2008 was exemplary: after paying $2.7bn for the aluminium foil maker he cut more than 20% of the workforce by closing facilities, including 490 unionised workers at Reynolds Wrap manufacturing plants and a distribution facility in Richmond, Virginia, and by laying off 158 employees at a printing plant, also in Richmond. Under the new corporate entity, Reynolds Group Holdings Limited, Hart has assembled other packaging companies, including SIG and Evergreen Packaging. Bob Teeple was not optimistic about management-labour relations under Rank Group ownership: he predicted that Honeywell's union-staffed Fram Filters plant in Greeneville, Ohio, would fall victim to Hart's cost-cutting after the sale of the company became official, probably this autumn.

Rewarded for investing in the American dream

Over the past 12 years I have heard many stories about the beneficial effects of free trade from its proponents. But the stories recounted by its victims always seemed more persuasive. Among the best storytellers were two Autolite workers who lost their jobs. When I met Jerry Faeth in 2009 he was 52 and considered himself lucky. With 32 years at the plant, he would retire with a full pension, which he had planned to do just before being laid off. Both his daughters were well on their way to graduating from college, and his house in New Riegel, southeast of Fostoria, was fully paid for. He had liked Autolite because after 28 years, "I got into the prototype section of the plant. I loved working [there] because it's something different every day and you're not just using your hands; you're using your mind and you're working with college-graduated individuals who treat me as an equal." Faeth had invested in the American dream and been rewarded: "I was fortunate because of Autolite. We had good wages... and my wife was able to quit work and stay home for eight years with our two children; and I think that's key to some of the issues we're having in society today because the babysitter doesn't raise your kids like Mom or Dad." But now he was embittered.

After the meeting at which the layoffs were announced by a Honeywell executive, Faeth said it "felt like he hit me in the stomach... I wanted five more years [in the plant] and I'm not going to get it... I said, 'You know, you talked about us [needing to be] competitive. I contribute to the 401K in Honeywell and I get this book every year and it says the top five guys in Honeywell last year made $70 million. Sir, is that competitive?"' According to Faeth, the executive replied: "Well, I can't speak for Dave Cote's salary but, you know, that comes out of a different fund anyway." Faeth said: "'Sir, that's not what I asked. You can't tell me that there's not a smart person down there in Mexico that wouldn't do [Cote's] job for a whole lot less. How can he tell you that we're makin' too much money here when those top five guys made $70 million. What's wrong with that picture?' He didn't have an answer for me."

But others purported to have an answer to Faeth's question. One of them is the economist R Glen Hubbard, dean of the Columbia University Graduate School of Business, chairman of the Council of Economic Advisors in the first two years of the George W Bush administration and a villain in Inside Job (the Academy Award-winning documentary about the 2008 financial crisis). When I encountered Alison Murray at Local 533, she had read parts of his textbook, Macroeconomics. With a BA, Murray enrolled in night classes at the University of Findlay when layoffs loomed at Autolite. As a single mother, aged 42, with only 17 years in the plant, she couldn't retire with a pension and needed to plan for the future. But her encounter with Findlay's economics department left her troubled about post-industrial Fostoria.

Slapped in the face

"The ironic thing," she said, "was that the very first class that I took when I went back to school was a macroeconomics class. And the whole entire textbook told us how important it was that they move the manufacturing jobs from America to other countries — and that manufacturing in America was a dinosaur and that it should be outsourced to other countries because that was the only way to make money... So it was like getting slapped in the face. I was trying to go back to school... because I'm losing my job and I'm a displaced worker... and the very first class I took, the very first page of the textbook [justifies my layoff]."

Murray argued with her teacher: "I said, 'You know, that's all well and great in theory but I've lived the human side. I've seen the devastation that... is caused by these factories moving out to the other countries...' And the textbook and the teacher say, 'Well, we're not talking about very many jobs.' Well, to me in this town of 15,000, to have 900 jobs [roughly the number lost at Autolite since 1993] leaving, that's a lot... And it's affected every single person's life."

But there's no arguing with Hubbard, or even Obama, who pledged to "renegotiate" Nafta during his battle with Hillary Clinton in the 2008 Ohio primary campaign, then reversed once he entered the White House.

Hubbard's Macroeconomics puts together supposedly irrefutable economic truths turned into clichés in the aftermath of the 2008 financial debacle. In its orthodox advocacy of tax cuts, deregulation, free trade and free markets, it has a tone of bland authority that makes it hard to challenge unless one pays close attention to arguments, alternatives, and facts he omits. His chapter on "Comparative Advantage and the Gains from International Trade" is full of unprovable generalisations: "Some people worry that firms in high-income countries will have to start paying much lower wages to compete with firms in developing countries. This fear is misplaced, however, because free trade actually raises living standards by increasing economic efficiency. When a country practices protectionism and produces goods and services it could obtain more inexpensively from other countries, it reduces its standard of living."

Besides, says Hubbard, child labour isn't such a bad thing, since the "alternatives" (such as prostitution) can be "extremely grim". We can be grateful that the smart rulers of developing countries resist pressure to pay higher wages or impose environmental regulation because "jobs that seem to have very low wages based on high-income country standards are often better than the alternatives available to workers in low-income countries". While the US has a "comparative advantage" with many skilled workers doing "sophisticated" manufacturing, "other countries, such as China, have many unskilled workers and relatively little machinery... China has a comparative advantage in the production of goods... that require unskilled workers and small amounts of simple machinery." Nowhere is mentioned Chinese wages of 50 cents an hour, the government-controlled Chinese national labour union, the absence of a formidable Chinese environmental regulator, or the sophistication of Chinese factories.

In this distorted world, we're all operating on a level playing field: "It is true," the book says, that "jobs are lost" when "more-efficient foreign firms drive less-efficient domestic firms out of business." But the same is true when "more-efficient domestic firms" kill off the competition — we're all playing under the same global rules of free enterprise. One shouldn't worry about the lost jobs because "these job losses are rarely permanent."

While Jerry Faeth, Allison Murray, and Peggy Gillig awaited news of their next place of employment, and at what wage, they could contemplate Larry Bossidy's plug promise versus the Department of Labor's latest report on a programme called the Transitional Adjustment Administration. TAA is supposed to provide money to people who lost jobs directly as a result of Nafta, which became effective on 1 January 1994. TAA does not calculate actual job losses, only petitions made for assistance as a consequence of lost jobs. As of 21 June 2011 its "estimated number of workers covered" — those eligible for government money — stood at 2,491,479. It seemed likely that before long the figure would increase by 86, the total number of UAW members left in Autolite's Fostoria plant.

The Crisis That Wasn't

Political Suicide in the Name of Bipartisanship
By MARK WEISBROT

Since the U.S. "Debt Crisis" has been a big international story for the last few weeks, it is worth clarifying what is real and what is not. First, the U.S. government does not have a "debt crisis." The U.S. government is paying net interest of just 1.4 percent of GDP on its public debt – this is not much by any historical or international comparison. The relatively large annual deficit at present (9.3 percent of GDP) is overwhelmingly the result of the recession and weak recovery. The long-term deficit projections are driven by health care costs in the private sector. These spill over into public spending because the U.S. government pays for almost half of health care spending, at a rate that is twice as high as other developed countries – and rising fast.

There was never any chance that the U.S. would actually default on its debt. The whole "crisis" was manufactured from the beginning, with Republicans in the House of Representatives using a technicality to win soc secunpopular spending cuts that they could not win at the ballot box. It worked: They got an agreement that promises large spending cuts without any tax increases on America's rich or super-rich, who have vastly increased their share of the national income over the past three decades.

The right won because President Obama chose to collaborate with them, also seeking to take advantage of the manufactured "crisis" to implement cuts that offended and hurt the people who voted for him. Of course he also wanted to increase taxes on the rich, but because he had accepted the legitimacy of the Republicans' extortion, he lost that too.

The worst damage from this "weapon of mass distraction" – and President Obama's capitulation to it -- is that the policy debate in the United States has been sharply altered. The phony "debt crisis" is seen as the main problem; and even more absurdly, a cause of the economy's weakness. The U.S. economy barely grew in the first half of this year, and we have 25 million people unemployed, involuntarily working part time, or having dropped out of the labor force. We are more than one-third of the way into a "lost decade," and the shift of the policy debate toward deficit reduction will increase the probability that we will experience the whole thing.

If President Obama loses both houses of Congress and/or the presidency in the next election, it will be the result of a weak economy and high unemployment, and because he let his opponents not only sabotage the economy – which they are all too happy to do – but also to redefine the economic debate so that the president and his party will get blamed for the mess.

So the next time someone complains that most of South America is governed by left-populist presidents who fight too much with their countries' traditional elite, remember there are worse kinds of leadership: the kind that commit political suicide for the sake of "bipartisanship."

Nation-Crushing Here at Home

Empire and Inequality Win Again

By PAUL STREET

Recall the conservative U.S. President Barack Obama’s televised speech to the nation on the evening of June 22, 2011 – the one where he announced the removal of 33,000 troops from illegally invaded Afghanistan by September 2012. “We are a nation,” Obama proclaimed, “whose strength abroad has been anchored in opportunity for our citizens here at home. Over the last decade, we have spent a trillion dollars on war...Now, we must invest in America’s greatest resource –- our people…....America, it is time to focus on nation building here at home.”

There is no Peace Dividend

Ever-hopeful liberals who thought this meant the president was going to offer a long awaited peace dividend – the diversion of resources from the nation’s massive military budget to the meeting of rising social and economic needs at home (long supported by most Americans)– were wrong again. Since 2001, total U.S. “defense” spending has nearly doubled; it now represents roughly 20 percent of the entire federal budget. As Ronald Reagan’s former Assistant Secretary of Defense Lawrence Korb noted earlier this year, “U.S. defense spending is higher than at any time since the end of World War II. Over the past decade, the U.S. share of global military spending has grown from one third to one half. The United States now spends six times as much as China, the country with the next biggest budget.” The government could attain Obama’s originally proposed $4 trillion in spending cuts over ten years simply by returning to the enormous military budgets of the Clinton era.

But Obama has no intention of moving in this direction. “Defense” (military empire) spending has increased significantly under the supposedly antiwar president, who was advised and agreed before the 2008 election that (in the words of researchers at the leading financial bailout recipient firm Morgan Stanley) “there is no peace dividend.” Obama’s 2012 military budget has been projected to go as high as $1.4 trillion. The budget “deal” Obama just cut with the Republicans to permit the 173rd raising of the U.S. debt ceiling makes no serious effort to rein in the Pentagon system. “Defense” supposedly takes a $330 billion hit over ten years. But, as Tom Engelhardt recently noted in reflecting on Obama and Senate Majority Leader Harry Reid (D-AZ)’s original proposal or $400 billion in ‘defense’ reduction, however, it’s all sleight of hand:

“Obama’s $400 billion in Pentagon ‘cuts’ are not cuts at all -- not unless you consider an obese person, who continues eating at the same level but reduces his dreams of ever grander future repasts, to be on a diet. The ‘cuts’ in the White House proposal, that is, will only be from projected future Pentagon growth rates. …They are expected savings based largely on the prospective winding down of America's wars and, like so much funny money, could evaporate with the morning dew.” The debt ceiling “deal” lets the next president and Congress “change the formula for defense spending” in 2014. Even before that date, however, insiders know very well that Pentagon budgets are readily increased quickly in accordance with policymakers’ understanding of threats – real, perceived, and manufactured – to American “security.” (TomDispatch, August 2, 2011).

Of course, a $330 billion real world cut could be met by the continuing retraction of unnecessarily (and criminally) deployed troops in Iraq and Afghanistan and the suspension of over-budget and unnecessary weapons programs. Serious structural reductions in the military-imperial budget are completely off the table. The military-industrial-complex continues to enjoy an open-ended entitlement to tap the treasury of a government that has spent decades raiding the Social Security trust fund to offset deficits caused by the war budget and tax cuts and loopholes for the rich.

The Rich are Getting Richer

Serious investment in everyday American working people and families is off the table too. Masses of ordinary Americans are struggling as the U.S. economy limps through the weakest “recovery” on record. Last June, the official jobless rate went back above 9 percent (real or functional employment was considerably higher) and millions of Americans faced the expiration of extended unemployment benefits. Foreclosures continue at historically high levels and food pantries are serving record numbers of people in some locales. Forty five million Americans go to bed hungry each night. Meanwhile, the top 1 percent that owns more than 40 percent of the nation’s wealth (and 57 percent of its financial wealth) sees its grotesquely outsized share of the nation’s net worth grow in the wake of a Great Recession that has played the classic role of capitalist crises – increasing the concentration of wealth and power. In New York City last year, Wall Street financial institutions paid themselves $20.8 billion in cash bonuses last year while 120,000 men, women and children spent at least one night in a city shelter, an all-time record.

Rising inequality is abetted by the federal government’s astonishingly weak and falling taxation of the rich and corporate Few. As U.S Senator Bernie Sanders (I-VT) noted in no less capitalist a venue than the editorial pages of The Wall Street Journal last week, “The rich are getting richer. Their effective tax rate, in recent years, has been reduced to the lowest in modern history. Nurses, teachers and firemen actually pay a higher tax rate than some billionaires ...Many corporations, including General Electric and Exxon-Mobil, have made billions in profits while using loopholes to avoid paying any federal income taxes.” No wonder Americans are angry, with nearly three fourths (72 percent) of the population believing (according to a mid-July Washington Post/ABC News poll) that Americans earning more than $250,000 a year should pay more in taxes. Most Americans believe that job creation should be a bigger government priority than deficit reduction, that social protections should be expanded (not contracted), that the rich are under-taxed, that wealth inequality and poverty are the nation’s leading moral issues, that big business and the wealthy exercise far too much influence over government, and that Social Security and Medicare benefits should be protected and expanded.

So what? Sanders offers chilling commentary on the American one-and-half party system’s abject service to the rich: “If the Republicans have their way, the entire burden of deficit reduction will be placed on the elderly, the sick, children and working families…. [But] although the United States now has the most unequal distribution of wealth and income of any major industrialized country, [Obama and the] Democrats have …handed the wealthy even more tax breaks. In December, the House and the Senate extended President George W. Bush's tax cuts for the rich and lowered estate tax rates for the wealthiest Americans. In April, to avoid the Republican effort to shut down the government, they allowed $38.5 billion in cuts to vitally important programs for working-class and middle-class Americans.”

Signing on to the Republican Framework

The Republicans have just had their away again, and they’re not through. The “historic” debt-ceiling accord just agreed to by Obama, Reid and House Speaker John Boehner (R-OH) amounts to $917 billion in spending cuts with no revenue-generating tax hikes or loophole-closings of any kind. The G.O.P. is supposed to have “compromised” by dropping a proposed constitutional amendment requiring a balanced budget and by agreeing that the debt ceiling will not be allowed to emerge as an issue again before the 2012 elections. But the amendment was never anything but theater and a bargaining chip. The rightmost of the nation’s two establishment business parties will have no problem pushing for further spending cuts (exempting the Pentagon) when the 2012 budget deadline of October 1 gives them another opportunity to threaten to shut down the government in the disingenuous name of “deficit reduction.”

Defending themselves against left charges of sell out, the administration and its conservative Democratic allies boast that the “deal” does not include any major attacks on Social Security, Medicare, and Medicaid. But the real assault on those “entitlements” (funny how this term is never applied by “mainstream’ commentators to the Pentagon system and other forms of corporate welfare) has just been pushed back a little. As left economist Jack Rasmus explained on ZNet last Monday, “The bigger attack on social security, Medicare, Medicaid is still to come. The next round...is the 2012 budget negotiations that are supposed to conclude by September 23. Republicans will get another ‘bite of the apple’ in spending only cuts at that time. And Obama and Democrats will likely cave in to those demands yet again, as they have repeatedly the past year.”

Things should get more regressive in November. That’s when the August 2nd agreement’s 12-member “Bipartisan Debt Reduction Commission” makes proposals for a further $1.5 trillion in l spending cuts. Obama has announced that the commission’s recommendations will be “submitted for an up or down vote only” by Congress. If Congress fails to approve the proposals, a pre-arranged set of cuts will kick in. Rasmus elaborates: “That means some small group…will ...decide solely between themselves the composition and magnitude of cuts in Medicare, Social Security, Medicaid, how much tax loopholes will be closed, and how much Defense spending will be cut.” The reactionary composition and leanings of such commissions are well understood in the neoliberal era: “we can expect $2 in cuts in Medicare and Social Security for every $1 in tax loophole closing and Defense spending reductions…if we’re lucky.”

Don’t take it just from angry radicals and “disappointed” liberals that the debt-ceiling “deal” is a right-wing triumph. Listen to the Republican Wall Street Journal columnist William McGurn. “It’s hard,” McGurn noted last Tuesday, “to look at the debt-ceiling and see it as anything but a conservative victory...the deal has Democrats, essentially, signing on to the Republican framework for defining the problem: spending that is too high rather than taxes that are too low…Come the 2012 elections this deal will help force the debate that all conservatives have wanted all along.”

The harsh neoliberal message is clear as day in the United States:

“the banks having been rescued, governments will do nothing to avert the continuing human recession. Instead, they plan to intensify their attacks on social programs and the working class” (David McNally, Global Slump [PM Press, 2011], 184).

The Real Winners

Liberal economist and New York Times columnist Paul Krugman is right to say that the Obama-Reid-Boehner debt ceiling deal is disastrous for “a deeply depressed economy” since “The worst thing you can do in these circumstances is slash government spending…that will depress the economy even further” (Krugman, “The President Surrenders,” NYT, August 1, 2011).. Yes, of course. But why does Krugman insist on accusing Obama of “surrendering?” At some point it needs to sink in with liberal and “progressive” commentators that the fake-progressive Obama has been acting in accord with his rich history of right-leaning corporate-imperial centrism. His recurrent “shifts right” (how many has the mainstream media announced since the summer of 2008?) are the predictable outcome of his own longstanding deeply conservative and neoliberal politics and of his promises kept to the rich and powerful Few, whose increasing wealth and influence are the real force behind the longstanding rightward drift of American politics in the neoliberal era.

The chattering classes are debating who won the debt-ceiling drama. Some say Obama, who gets to pose as a great “compromiser” and to woo “moderates” and Independents by countering Republican propaganda that he is a big government socialist. Others point to “the Tea Party,” credited for pushing the “debate” rightward, or Boehner, who gets to seem like a cool statesman who ultimately kept his “Tea Party lions” under control while facing down the White House. Meanwhile the rich and powerful Few – the leading sponsors of the Democrats, the Republicans, and the super-Republican “Tea Party” alike – continue to cash in on their lockdown-like control of the nation’s politics and indeed on the continuing impoverishment and insecurity of ordinary people at home and abroad. They are as usual the real winners under what Edward S, Herman and David Peterson call America’s “unelected dictatorship of money.”


The persistent losers are the working and lower classes, whose hope for change through the America’s corporate-managed electoral process are regularly drowned in the icy, money-soaked waters of historical and political “reality.” In the harsh actuality of U.S. politics and policy, the officially “elect-able” candidates are vetted in advance by what the left historian Laurence Shoup calls “the hidden primary of the ruling class.” By prior Establishment selection, they act safely within the narrow parameters set by those who rule behind the scenes to make sure that the rich and privileged continue to be the leading beneficiaries of the American system. In its presidential as in its other elections, U.S. “democracy” is “at best” a “guided one; at its worst it is a corrupt farce, amounting to manipulation, with the larger population projects of propaganda in a controlled and trivialized electoral process. It is an illusion,” Shoup noted in 2008, “that real change can ever come from electing a different ruling class candidate.”

"Half-Measures Have Availed Us Nothing"

Let Me Be Clear: We Should Not Eat the Poor!
By JOHN ESKOW

I've always felt a kinship with Jonathan Swift, partly because he was the first black humorist in the English language, and partly because, in a way, he's family: my full name is John Temple Eskow, and a direct ancestor of mine, Sir William Temple, was Swift's literary secretary. So maybe I can be forgiven my ever-growing hunch that Swift's masterpiece of satire, A Modest Proposal—in which he suggests that rich people should eat the babies of the poor—wasn't really meant to be funny. 

Not ha-ha funny, anyhow.

Swift saw Child Cuisine as a win-win proposition for English society: it would reduce the ghetto population AND provide much-needed income for the mothers who gave birth to the little delicacies (thus giving a whole ne meaning to the phrase "a bun in the oven.")

Critics and teachers—the liberal elites, in their ivory towers-- always assume that Swift was kidding. And sure--at first , it sounds extreme. "Eat the poor:" when you put it that way, it's so easy to caricature it! But now that Obama and the far right have shouted to the world, in one voice, "we intend to make our poor even poorer; they will never have jobs; and we will no longer give them even the pretense of care," isn't it time to take a serious look at Swift's supposedly "satirical" concept?

Let me be clear, as our leaders say: I'm not suggesting that Americans start noshing on newborns, or preparing tempura from toddlers, or—God forbid—sauteeing six-year-olds. For one thing, it's not our style. When an American drone kills a bunch of kids in the Middle East, it's not as if our soldiers rush in afterwards with knives and forks. It's one thing to kill children, but it's another to actually eat them.

We're not barbarians, for Christ's sake.

We should NOT eat the poor!

But—for their own sake, as well as our own—we should, in fact, start killing them. Calmly, and mercifully, but methodically.

During my lifetime, Washington has taken some half-assed steps in this direction: the military draft, especially during Viet Nam, slaughtered thousands of young men in fits and spurts, but it was a hit-or-miss affair, and sometimes it was hard to co-ordinate with the Viet Cong. The CIA's taken a few shots at the problem, too, working in tandem with foreign drug-lords to flood inner-city streets with heroin and crack; but again, as Chef Gordon Ramsey would say, "the consistency was lacking."

Of course, the worst approach of all was in our penal system , which poor kids of both sexes learned to exploit brilliantly: simply by possessing a little dope, or turning a few tricks on the street, they can spend entire decades on our dime, being fed and housed by The Nanny State, with free medical care thrown in. Random jailhouse murders hardly justify the expense. You have to wonder who dreamed up these socialist paradises—it definitely wasn't someone really, really committed to deficit reduction.

As they say in Alcoholics Anonymous, "half-measures availed us nothing".

See, the poor are hardy. "There is a rose in Spanish Harlem," as Ben E. King sang, and like that ghetto flower the poor keep lingering on—even when it's against their own best interests. 

Really—what's left for them? It's harder now to escape the lower class than at any time since the 1920s. And back then, if nothing else, the poor were inspired by dreams—immigrant dreams of American success, and bolder dreams of rebellion—of fighting back, and creating a world based on social justice.

What kind of life can we offer them now that even their dreams are gone? 

So don't think of it as some kind of large-scale murder program. Think of it as…deficit reduction! Think of it as "pulling off the band-aid." Sure, killing the poor will take courage on our part—but it's time. We all know it. And think of the bright side: not only will it be cost-efficient, but as the poorest of the poor are reduced, it will re-define the concept of "poor" ever upward, so that within a few years, we can make further reductions in what used to be called "the middle class." By the time we stop—at a time to be decided by a Congressional subcommittee—America will be one solid, united class, truly wealthy once again.

And we'll do it all without eating a single poor child!

Disaster Politics

Why Obama Played the Tea Party Game
By FELICE PACE

As pundits and the American People digest the Debt-Budget Deal many have concluded that the White House miscalculated or simply blew it. John Stewart and others suggested that the President could have avoided the entire scenario by simply conditioning renewal of the Bush tax cuts on raising the debt ceiling. Others say the White House should have demanded a clean debt ceiling bill. Either of those explanations requires assuming that the Obama White House is naïve or stupid or both.

Don’t believe it. President Obama and his advisors were playing a different game. They decided they could use a debt crisis created by Republicans to push through cuts to Social Security and Medicare in a manner that would provide the President with plausible deniability. In other words, Obama could claim “They made me do it!” while achieving what his Wall Street backers want – maintaining Global Capital’s police force on the backs of working folks, the middle class and the poor. 

Most readers will be familiar with Naomi Klein’s Shock Doctrine and her book of the same name. Klein describes Disaster Capitalism: how Global Capital – operating through governments, the International Monetary Fund and other international institutions - uses political crises to impose structural economic and government changes which invariably function to transfer wealth from workers and the middle classes to international banks and capitalists. We have seen this strategy migrate from the Global South – the so-called “Developing World” – to the North; workers in Greece, Ireland, Portugal, Spain and Great Britain are now also paying the price. When one strips away the rhetoric, it becomes clear that the Obama Administration has brought the same approach home to America. 

Why this has happened

At the close of World War Two the United States controlled 60% of global wealth. It was an artifact of war - the productive capacities of Europe and much of East Asia had been destroyed.  Led by Europe and Japan, the destroyed infrastructure would be rebuilt, economies would rise again, global wealth would be redistributed and the United States would once again face fierce competition.  

The architects of post-war US government policy recognized that the US could not control 60% of global wealth forever.  The US would help Europe and East Asia rebuild their economies because global capital demanded stability and needed places to invest.  And that would inevitably lead to a redistribution of global wealth.  Under those circumstances  - and as expressed by George Kenan, one of its chief architects - the raison d’etre of American foreign and economic policy during the second half of the 20th century would be to maintain the wealth gap – to delay as long as possible the inevitable redistribution of global wealth. 

We are now in the 21st century. The US no longer controls 60% of global wealth and capital has abandoned its national character. As a consequence of trade agreements, capital is free to move over most of the globe in search of higher profits.  But while capital has become international, the United States military continues to function as capital’s chief global cop. 

The difference is that the US no longer controls enough of the world’s wealth to maintain both the empire’s cop function - a world safe for Global Capital - and the US standard of living, i.e. the American Dream. Something has to change: either the empire will be scaled back or some Americans will have to sustain a cut in living standard. 

Global Capital needs the empire but it does not want to pay for it. Wealthy Americans also refuse to bear the burden. That necessitates transferring the cost of empire to US workers, the poor and middle class. Obama is committed to maintaining the empire and its police force – the US Military.

While he would prefer that rich American’s share the burden, when push comes to shove he will sacrifice fairness to the interests of his Wall Street backers.  Obama is the instrument by which Global Capital hopes to secure cuts in Social Security and Medicare necessary if working, poor and middle class folks are going to be made to pay for the empire. 

One indication of global capital’s agenda is what President Obama and Congress have done with the military budget. While claiming that he wants to end wars which have produced 15-25% of US debt and which do not make Americans safe or secure, Obama has escalated one war and begun yet another military adventure (Libya). While claiming that he wants to cut military spending, Obama actually requested a $26 billion increase in military spending for the 2012 fiscal year. The Republican House recently approved a $17 billion increase.  The debt/budget deal ostensibly cuts $350 billion from military budgets over the next ten years.  However, automatic increases for inflation could offset the entire amount. The US Military – global capitalism’s global cop – is unlikely to sustain real and substantial budget cuts. 

The Obama Presidency is Global Capital’s creation and he is their man. The Obama White House has now delivered part of what Global Capital demanded: the debt/budget deal will shift more of the economic burden of empire from corporations and their owners (aka the rich or monied interests) to working people and the poor.  Obama has not yet been able to raid Social Security and Medicare. But the Debt/Budget Deal holds within it the means to that end as well.

Through it Social Security and Medicare can be cut and most in Congress can claim they did not vote for those cuts. I can almost hear Nancy Pelosi rhetorically wringer her hands on camera now.     

How much abuse will Americans take?

The Democratic Party and the Republican Party have become instruments of Global Capital. That is the inevitable consequence when corporate “speech” is unfettered, information is controlled by global corporations and elections can be bought and sold.  US progressives are demoralized and fractious; we have no unifying analysis and no unified program. Progressive Democrats can’t even manage a “Dump Obama” movement.     

All over the world regular folks are rebelling. From England and Greece to Egypt and the Middle East – even in Israel - workers, middle class folks and the poor have taken to the streets and are demanding changes which would have the effect of limiting the economic and political dominance of Global Capital.

It is too early to tell whether the popular revolts popping up around the globe will lead to real change. The opponent – Global Capital – is well organized and powerful. The popular movements for change, on the other hand, are new, fragile and linkages among them are rudimentary or non-existent.  Unlike Global Capital, organized labor remains primarily national; labor lacks strong, unified and international programs to challenge capital’s global dominance. 

Will the emerging revolts be sustained? Will they link across borders? And how will everyday Americans react? Will working, poor and middle class Americans continue to absorb raids on their wealth and welfare? Can they continue to be persuaded to vote against their own interest? Will they continue to vote for the candidates Wall Street chooses?

How much abuse will the American People take before we rise up?