Blog

Stan Sorscher
Labor Representative, Society for Professional Engineering Employees in Aerospace

A few days ago, economist Joseph Stiglitz said something quite provocative: “We’ve been shaping our society to create people who are more selfish.”

The eye is drawn to the last part, “… create people who are more selfish.” My takeaway message is at the beginning, “We’ve been shaping our society … .”

In the same speech, he repeats a line from one of his books: “The reason the invisible hand was often invisible was that it wasn’t there.” He reminds us that, generally, markets do not solve our problems. “Nobody ever said that they were fair, that they would lead to a distribution of income that was socially acceptable.” Markets fail, more often than we suppose.

I first saw this remarkable figure in 2002:

In the post-war period, workers’ wages increased in direct proportion to increases in productivity. Then, in the mid-’70s, wages abruptly decoupled from productivity.

The message of this figure is that wages, adjusted for inflation, would be twice what they are now, if workers had continued to share improvements in productivity. The top of our society has prospered, while more than 90 percent of us have stayed even or fallen behind.

This has consequences. As the economists say, “In the long run, consumption cannot increase faster than income.” Income has been flat for the long run.

Let me give some examples of why this matters.

Erik Reinert wrote a terrific book, inspired by a question that troubled him as a Norwegian teenager on a class trip to Peru. Why does a barber in his native Norway make a comfortable middle-class living when an equally deserving barber in low-wage Peru makes so much less? The barbering profession had made only modest gains in productivity since the introduction of metal scissors in Roman times. The difference for barbers in Peru and Norway is the prosperity of their customers. (more…)

By Dean Baker
Co-Director, Center for Economic and Policy Research, Author

It’s standard practice during the election campaign for presidential candidates to publish an autobiographical account of their rise to stardom or their philosophy of life and politics. However, in keeping with his commitment to innovative business practices, it seems that Mitt Romney has outsourced this task to Ed Conard, one of his former partners at Bain Capital.

In fairness, it is not clear to what extent Romney shares the views of his former partner, but Conard surely understands that his book will get attention because of his proximity to the presumptive Republican nominee. And, on the off chance that Conard does think like the man who likes to be able to fire people, this book should be taken seriously.

There is much in this book to infuriate those who don’t get their kicks from firing people. To start, Conard has a tale of the housing bubble and the ensuing crash that places all the blame on government efforts to promote homeownership.

Making this case requires serious abuse of the facts. In arguing that the banks did not know that they were passing along fraudulent mortgages, Conard asks why they would hold so many mortgages on their own books if they knew they were trash. The obvious answer is that they couldn’t sell them. This was the whole point of the collaterized debt obligations and later the second generation collaterized debt obligations. The goal was to hide the garbage.

This was like a game of musical chairs. At some point the music stops and someone is left holding the trash. It wasn’t by choice that Lehman, Citigroup, and the rest were still holding tens or hundreds of billions of dollars of junk mortgages in 2008. They just couldn’t find enough suckers. (more…)

By Dean Baker
Co-Director, Center for Economic and Policy Research, Author

Jason Richwine and Andrew Biggs have a piece saying that many public sector workers are overpaid in which they also say that I agree with them in much of their analysis. This is true.

Let me outline what I think are areas of agreement. First, we seem to agree that if we just compare the straight wages paid to public sector and private sector workers, the latter do better. When we adjust for education and experience, private sector workers tend to get higher pay than their counterparts in the public sector.

This is not true across the board. My colleague John Schmitt has found that while workers with college and advanced degrees (e.g. doctors and lawyers) get less in the public sector, less educated workers get paid the same or slightly more than their counterparts in the private sector. In other words, there is less inequality in public sector wages than we see in the private sector, with the average being somewhat lower.

We also agree that the lower wages for public sector workers are largely or completely offset by higher benefits. The key difference here is that public sector workers are far more likely to have a traditional defined benefit pension plan. Most workers in the public sector still have defined benefit pensions, while less than 20 percent of workers in the private sector do. (The difference is considerably less stark if we restrict the comparison to large private firms, where defined benefit plans are still common.)

Richwine and Biggs conclude that public sector workers are overpaid because the two assign a high value to the nature of the guaranteed benefit in traditional pension plans. Their point is that a guaranteed benefit of $1,500 a month in post-retirement is worth much more than a contribution to a 401(k) type plan that would on average provide the same benefit.

Richwine and Biggs are absolutely correct on this point. This guarantee does have considerable value for workers. The point here is straightforward. We may expect the stock market to provide returns that average 10 percent before adjusting for inflation, but if the market happens to be down in the year I retire, then I am out of luck. If the government has assumed this market risk for me, and will simply give me the average return, then it has made me considerably better off. (more…)

By Sen. Bernie Sanders
Independent U.S. Senator from Vermont

The history of American democracy, to say the least, has been checkered. Our nation was founded at a time when people of African descent were held in bondage. After slavery was abolished, they were forced to endure legal discrimination for another 100 years.

When our country was formed, women were not just second-class citizens. They were third- or fourth-class citizens. Women couldn’t vote or play a significant role in the political life of the nation. Women, in many cases, couldn’t own property and were legally regarded as subservient in marriage. The educational and economic opportunities open to women were extremely limited. And, of course, women were unable to have control over their own bodies.

In the last 50 years, as the result of an enormous amount of effort on the part of the women’s movement and its male allies, we as a nation have made significant progress in the fight for gender equality. Clearly, much, much more needs to be done, but few would deny that our country has come a very long way in this struggle. In Vermont, Governor Madeleine Kunin has given years of service to our state after becoming the state’s first female governor in 1985. She is an inspiration to girls throughout Vermont and the country in allowing them to know that the opportunities they have are unlimited.

At rallies in Vermont and across the country this weekend, our message was clear. We are not going back. Not only are we not going to retreat on women’s rights, we are going to expand them. We are going forward, not backward.

We are not returning to the days of back-room abortions, when countless women died or were maimed. The decision about abortion must remain a decision for the woman, her family and physician to make, not the government.

We are not going back to the days when women could not have full access to birth control. Incredibly, here in the year 2012, that is exactly what the Blunt Amendment, which we defeated last month in the Senate, was all about. The Blunt Amendment would have allowed any employer who provided health insurance, or any insurance company, the right to deny coverage for contraception or any other kind of procedure if the employer had a “moral” objection to it. While I am glad that we defeated this horrendous amendment, it certainly was a sad day in our country when every Republican, save one, voted for it.

We are not going back to the days of wide-scale domestic violence, even if 31 Republican men in the Senate recently voted against the reauthorization of the Violence Against Women Act because it expanded coverage to the gay community and Native Americans.

We are not going back to the days when it was legal for women to be paid less for doing the same work as men, even if the governor of Wisconsin recently signed a bill to repeal that state’s pay-equity law.

Further, not only are we going to protect and expand those laws which deal directly with women’s rights, we are going to vigorously defend the important laws and programs which protect all working people in our country — women and men alike.

In the midst of this terrible recession we say NO to cuts in Social Security, a program which is so important to all of our seniors, but especially to women. (more…)

Mike Lux
Co-founder and CEO, Progressive Strategies

My absolute favorite story of the week is Paul Ryan saying that his fondness for the philosophy of Ayn Rand is an “urban legend.” You have to give these wild and crazy Republicans credit for at least one thing: they have cojones the size of the elephants which are the mascots for the party. The urban myth quote came after a career of Ayn Rand idolatry special even for right-wing Republicans: giving the book to his interns, speaking at Ayn Rand tributes, doing videos about her, saying her philosophy inspired him to get involved in politics. This was no youthful fling, but a lifelong love affair — until a couple of days ago, apparently. I’ve always wondered what politicians are thinking when they say something like this that is so obviously easy to check and refute. Do they really think people are that stupid? Maybe they just think that with the kind of money they can raise, and the Fox News-style, right-wing media to help support them, they can just obliterate the truth with bluster and deafening bombast.

So why is Ryan, who is on the short list for Romney’s VP candidate, so eager to erase his (very recent) past obsession with Ayn Rand, whom so many other right wingers adore as well? Because her writing really is so blatantly offensive to anyone not besotted with her. She preached not only the virtue of selfishness, but that any compassion and generosity was a moral wrong because it helped those who were weakening society. She despised not only the poor but even people with disabilities as leeches draining strength from society. She actually hated the Christianity Ryan and every other Republican is obligated by their base to claim they believe in because Jesus taught that the poor were to be cared for, making her views dangerous for Republican politicians to adhere to as much as they love all that pro-selfishness talk.

This is the ultimate irony in American political life right now, the conservatives who swear on a stack of Bibles that they worship Jesus Christ when they really bow down to the philosophy of Ayn Rand and the golden idol of the free market to be placed at the center of all other things. They preach of an American exceptionalism blessed by a Christian God, and call for America to be a shining city on a hill which can be an example to the entire world. Yet their exceptionalism isn’t based on our country being moral the way Jesus would have understood it, but moral the way Rand and the Social Darwinists of the 1880s and ’90s would have understood it: whoever gets rich deserves to be, and whoever is poor is a leech on society. Their vision of America is shining because of the gold the wealthy among us possess, not because our society as a whole is built on morality. (more…)

Mike Lux
Co-founder and CEO, Progressive Strategies

Readers may remember my last, shall we say, dialogue with the great Republican thinker Todd Akin. Akin is rapidly becoming one of my favorite Republicans because he articulates the party’s true positioning on issues so well. He has been back in the news recently with this gem of a quote about student loans: “America has the equivalent of the stage-three cancer of socialism because the federal government is tampering in all kinds of stuff it has no business tampering in.” While Mitt “Etch A Sketch” Romney and other Republicans are back-pedaling as fast as they can on the student loan issue to make it sound like they don’t want student loan interest rates to go up, Todd Akin and the other right wingers who control the Republican party are digging in, questioning the whole idea of whether the government should even be involved in student loans.

Please, keep speaking out, Congressman. Your country, your Party, and my Party especially all need you to keep making clear the true Republican position on student loans.

There couldn’t be a clearer distinction between Republicans and Democrats, between conservatives and progressives than on this issue. What Democrats, progressives, and incidentally the American people believe is that one of the best ways to rebuild the great American middle class is to invest in our young people’s education through both high-quality K-12 public education and through grants and loans for college students. Thomas Jefferson’s dream of public education for all, Abraham Lincoln’s idea of a land grant university system, FDR’s plan for a GI Bill for our country’s soldiers so they could get a college education after serving their country, and Claiborne Pell’s bill that gave grant money for college students in need helped create the legacy of a strong middle class in this country. We created a way for poor and working class kids to get a good education and make a better life for themselves than their parents had, and that made us a stronger country.

The American middle class, the largest and most prosperous middle class in the history of the world, was not built by accident. It was built brick-by-brick by the generations that came before. It was built by raising our wages through the power of the labor movement and the minimum wage; it was built by providing incomes, health care, and a safety net for our senior citizens and those with disabilities and those who had hard times; it was built by protecting us from financial speculation and the specter of bank runs; it was built by investing in roads, bridges, highways, and rural electrification; it was built by investing in the kind of R&D that created the transistor chip and the Internet; it was built by encouraging entrepreneurship and small business strength through vigorous anti-trust enforcement; and it was built by investing in the education of our young people. Education was one of the cornerstones. (more…)

Sanjay Sanghoee
Former banker; Author, The Merger

They say that there are only two certainties in life: death and taxes. In a capitalist economy, many regard death as the lesser of those evils. That may be amusing but only in the same disturbing way as the NRA slogan ‘gun control is hitting your target.’ Given that the hot-button issue of taxes could sway the presidential elections and impact our future, it is critical to examine it more closely and dispel the absurd myths surrounding it. Broadly speaking, there are four big arguments to consider:

Portfolio and passive income should be taxed at lower rates than earnings
This one always leaves me scratching my head. Why should non-active income, such as capital gains, be taxed any differently than the salary of a construction worker, a bartender or a lawyer? Conventional wisdom says that lower tax on portfolio and passive income encourages investments, which then generates jobs. That sounds great but is nonsense. People invest money to make more money — and regardless of whether those returns are taxed at 15 percent, 20 percent or 35 percent, they still make money. Investment income also has the added benefit of not requiring active work. Granted, double taxation, nations with friendlier tax codes and other factors do complicate the issue, but the U.S. still provides the safest and most attractive arena for investing anywhere in the world.

To boil it down, if we don’t offer tax breaks to doctors to show up for surgery or cops to respond to a 911 call, there is no reason to offer it to business people to do what is already in their own best interests. It is blatantly unfair and penalizes anyone whose major source of income is wages. (more…)

By Richard Trumka
President, AFL-CIO

This week’s reports from the New York Times about Walmart’s practices in Mexico are breathtaking. The Times found “credible evidence that bribery played a persistent and significant role in Walmart’s rapid growth in Mexico.” The Times interviewed an executive of Walmart’s Mexican subsidiary who “bought zoning approvals and reductions in environmental impact fees.” According to the New York Times, when lawyers for Walmart discovered this activity and informed senior management, then Walmart CEO Lee Scott ordered Walmart’s internal investigative protocols revised to give the targets of internal investigations more control over those same investigations. The specific reports about conduct in Mexico were ignored, the executives involved were promoted and a senior in-house lawyer who objected subsequently left Walmart. The apparent result was that Walmart grew dramatically in Mexico at the expense of its Mexican competitors, leading to Mexico becoming Walmart’s second largest market after the United States. The executive identified in Walmart’s in-house investigator’s notes as “most responsible” was promoted to head of all U.S. Walmart stores.

Under the Foreign Corrupt Practices Act, it is a crime for a U.S. company to bribe an official of a foreign government — just as it is a crime to bribe an official of the United States government. It is also a crime in Mexico to bribe an official of the Mexican government. And bear in mind that the Times story does not describe the acts of isolated individuals — it describes conduct and elaborate efforts to suppress the results of internal investigation of that conduct involving multiple top executives over a period of years. In other words, the New York Times story describes “credible evidence” of criminal activity and the willful neglect of criminal activity involving individuals at the highest levels of one of America’s largest corporations.

Nothing like this has happened since the collapse of Enron and Worldcom in 2002. And Walmart is of course a more important company than either Enron or Worldcom. Walmart is the largest private employer in the United States. And in the days since the Times story appeared, the Washington Post has reported that Walmart has participated in an aggressive lobbying campaign to weaken the Foreign Corrupt Practices Act which makes bribing foreign officials a crime. (more…)

Mike Lux
Co-founder and CEO, Progressive Strategies

The big news coming out of the Pennsylvania primaries yesterday are that two of K Street’s favorite Capitol Hill Democrats, Tim Holden and Jason Altmire, got upset in races where they had lots more cash than their opponents but still got taken down. The way these races played out should be a big lesson to Democrats who think they can take special interest cash, make pro-special interest votes and still win elections. And with big issues like student loans, tax subsidies for Wall Street and Big Oil, and accountability for the big banks in play the rest of the year, politicians should pay attention.

Holden was an incumbent and his only weakness was that he was forced to run in a more Democratic district than he used to have. Given that he voted with corporate special interests and Republicans a lot of the time — including on the Bush tax cuts and fracking and factory farms — that became a big problem when he faced a progressive challenger named Matt Cartwright. Holden had the support of the Democratic establishment and the monied interests, but Cartwright thumped him. One of the key ads in the race directly took on his ties to Wall Street:

By Dean Baker
Co-Director, Center for Economic and Policy Research, Author

Last week the country saw one of the fruits of the Dodd-Frank financial reform bill. The bill requires that major corporations offer their shareholders the opportunity to vote on the pay package for their chief executive. The shareholders of Citigroup voted down the $14.9 million pay package for CEO Vikram Pandit by a margin of 55-45 percent.

The vote was non-binding (a very serious problem), but it was nonetheless a huge slap in the face for Pandit and Citigroup’s top management and directors. It is extremely difficult to organize shareholders for this sort of vote. Management controls the flow of information to shareholders in a way that would make incumbent members of Congress green with envy.

When shareholders see a poorly run company, it is far easier for even large investors to just dump their shares rather than try to gain the support needed to change the way the company is managed. That is why this vote was so striking in a huge corporation like Citigroup.

Of course the law is still tilted so much in management’s favor, that even when the shareholders — the actual owners of the company — vote down a pay package, it is still only an advisory vote which the board and top management is free to ignore. But this vote is still a big step forward.

The first question that people should ask is how Pandit managed to get a compensation package that was so out of line with his performance. The fact that executive pay packages bear little relationship to performance is well documented in Lucian Bebchuck and Jesse Fried’s excellent book Pay Without Performance. (more…)