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Dean Baker

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

In the movie Lars and the Real Girl, the main character imagines that a female blow-up doll is his fiancé. To humor Lars, his brother and sister-in-law go along with the charade. Over the course of the movie, more people are drawn into the circle, until eventually the whole town is treating Bianca the blow-up doll as one of its leading citizens.

This seems to pretty well describe the debate over the budget deficit, except it’s not clear that many people realize it’s a charade. The main story is that Lars’ budget hawk counterparts are upset that the deficits projected for 2013 or 2019 are too large. They want President Obama to commit to spending cuts and/or tax increases in order to bring these deficits to levels they consider acceptable.

The unreality of this picture is striking because the budget hawks seem not to notice that we are in the middle of an economic meltdown.

People are losing their homes through foreclosures at the rate of more than 100,000 a month. The default rates on credit cards, car loans and other debt is at record levels. Most of our major banks are effectively insolvent.

Home and stock prices have plummeted, destroying most of the wealth of the baby boom cohort as they stand on the edge of retirement. The economy is shedding almost 700,000 jobs a month, with the unemployment rate rapidly approaching the highest level since the Great Depression.

In this context we are supposed to be up in arms over the deficit projections for 2013 or 2019? This is a bit like someone complaining about the lawn not being mowed at a time when the house is on fire, it’s just not the first priority. And the media all seem to go along with the charade – yes, they are very concerned about the projected deficit for 2013, just as the characters in the movie expressed concern about the health of Bianca the blow-up doll.

It is especially annoying to hear the whining from this group of deficit hawks since their whining in prior years helped to drown out serious discussion of the dangers posed by an $8 trillion housing bubble. While some of us were yelling at the top of our lungs about the imminent disaster that would hit the economy when the housing bubble burst, the media chose to focus on these deficit hawks with their dire warnings about budget deficits 40 or 50 years in the future.

Because the media and political elites chose to pay more attention to the deficit hawks than those warning about the housing bubble, we now get to enjoy the current economic crisis. And, one result of the economic crisis is (drum roll, please) ……..record deficits.

To put the point so simply that even a Washington Post editor can understand it: because the media highlighted the views of the people who were ranting about the deficit rather than the views of people who understood the economy, we both got a wrecked economy and larger deficits.

The moral to this story is that the economy must take priority, not only because the state of the economy is what most directly determines people’s well-being, but also because the state of the economy will be the most important determinant of the deficit.

The experience of the 1990s provides an example of exactly this sort of story. In January of 1994 the Congressional Budget Office projected that the deficit in 1999 would be $204 billion or 2.4 percent of GDP. This projection incorporated the impact of President Clinton’s tax increase and spending cuts.

It turned out that there was a surplus of $125 billion in 1999, or 1.4 percent of GDP. This shift from deficit to surplus of 3.8 percentage points of GDP (equivalent to $540 billion in 2009) was not caused by further spending cuts or tax increases, it was caused by the strong economic growth of the period.

There is no guarantee that President Obama’s policies will be successful in restoring strong growth, but they are clearly a step in the right direction. If we have strong growth, then our deficits will be manageable. If the economy remains weak, the deficit will remain a serious burden no matter how much we raise taxes or cut spending.

Someone has to tell the deficit hawks that their blow-up doll is not real. The issue is the economy, not the deficit.

Dean Baker is the author of the new book,“Plunder and Blunder: The Rise and Fall of the Bubble Economy.”  This piece was first published on  Huffington Post.

International President

In a perverse way, the media painted Republicans perfectly when it selected red for their states.

Reporters would never have guessed when they did it that the red party’s candidate would engage in red-baiting. But there was John McCain repeatedly doing it in the debate Wednesday night, trying to convert Barack Obama into a terrifying “spread-the-wealth-around” commie. And earlier this month, the Republican’s brother, Joe “McCarthy” McCain, called two Democratic-leaning Virginia counties “Communist Country.”

When it comes to spreading assets around, however, the royal red Republicans, led by King “I-am-a-capitalist-really” George, take the Triple Crown. Their upside down communism works like this: the middle class pays for the tax breaks awarded the nation’s rich and for the financial recklessness of Wall Street’s ultra-wealthy.

Trickle down

In the Republican world, in the view of John McCain and George W. Bush, it never, ever works the other way. A curse, they would say, on anyone who would dare suggest that the rich should be taxed so that government could “trickle down” a portion of their extraordinary wealth to benefit the majority.

They believe in “free markets,” that is, allowing financial markets to run unrestrained and unregulated, or as some have put it recently – amok. They believe government interferes in markets and therefore should be shrunken and impotent. They believe that when an elite few accumulate wealth in that system, some of it naturally will eventually “trickle down” into the empty porridge bowls of the nation’s vast unworthy masses.

A dreadful thing happened on the way to the fiscal crash, though. That philosophy failed.

The “small government” Bush and Republican Congress increased spending, thus replacing the budget surplus bequeathed them with deficits. And not just any deficits – the largest known to man — $455 billion this year, edging out the $413 billion record debt Bush set in 2004.

The rich won’t be paying for that. No, Bush gave them a tax break, and McCain swears he’ll make that break for the wealthy permanent. The middle class, and their children and grandchildren will be making payments on that debt — which, by the way, was caused in part by the revenue loss from Bush’s tax break for the rich.

That’s spreading the wealth around – from the pockets of middle class to trust funds of the rich.

Over the past eight years, middle class Americans have watched with shock and awe as corrupt and incompetent CEOs left their failing corporations with golden parachutes – like McCain’s top financial advisor Carly Fiorina, who exited Hewlett-Packard with $45 million in 2005 when the board dismissed her as CEO following the company’s stock dropping 50 percent and her furloughing 20,000 workers.

Bail out speculators

Now those same middle class Americans are incredulous as Bush — who had McCain’s support 90 percent of the time over the past eight years — is taking $700 billion of their tax dollars to nationalize banks. Their tax dollars will be used to bail out the Wall Street financiers who wouldn’t cut the middle class a break when they were late on mortgage payments, the speculators whose uninhibited risk-taking caused financial institutions to fail, lending to freeze, stocks to swoon.

Deregulation of the financial industry allowed banks and other sorts of financial institutions to merge and become “too big to fail” and engage in risky purchases without sufficient supporting capital. McCain, who until recently bragged about being “Mr. Deregulation,” endorsed this suspension of rules. Its chief champion served as his campaign co-chairman – former Texas Senator Phil Gramm.

Gramm successfully pressed for repeal of the depression-era Glass-Steagall Act, which was designed to prevent financial institutions from becoming too big to fail, and for passage of the Commodity Futures Modernization Act of 2000 that deregulated those now infamous credit default swaps that took down insurer AIG, costing taxpayers another $85 billion.

Gramm left the senate in 2002 for an executive position with the Swiss investment bank, UBS, the stock for which, by the way, has plummeted right along with that of American banks.

McCain’s mentor

Gramm still advises McCain, though he’s no longer campaign co-chair. He had to resign that position after he called the United States a nation of whiners during an interview in which he also denied the seriousness of the financial crisis. Here’s what McCain’s financial mentor said, “You’ve heard of mental depression; this is a mental recession.”

Sure, when the coins of the middle class are flowing up into your pockets, Mr. Gramm, it doesn’t feel like a recession at all. Spreading the wealth around – from the middle class to the wealthy Gramms and multi-millionaire McCains.

Really, Joe “McCarthy” McCain was right when he called the Virginia counties of Arlington and Alexandria Communist Country. John McCain owns a condo in Arlington, and that’s where he located his campaign’s national headquarters. They’re communist all right, McCain Republican-communist, under which middle class earnings are spread to the rich.

In the debate Wednesday night, McCain accused Barack Obama of conducting class warfare because the Democrat wants to end Bush’s tax breaks for the wealthy and instead cut the taxes of the middle class – 95 percent of American families.

What Obama proposes isn’t warfare; it’s fairness.

Class warfare is what the Republicans have done to the middle class over the past eight years, and what McCain pledges to continue. It’s a war the rich now are winning.

That’s what Obama wants to change.

By Leo W. Gerard
International President

Toxic Toys
Over the past year, American parents rebuffed foreign-made toys when they contained leaded paint, poisonous cadmium beads or the “date rape” drug.
These toxic toys created a scandal as it became clear that the Bush administration’s deliberately stripped down Consumer Product Safety Commission was not protecting American children and families from dangerous imports. Republicans eschew government regulation, but its absence has allowed our supermarkets to sell us imported tainted toothpaste and deadly dog food.
Now, the National Labor Committee (NLC), which often works with the United Steelworkers to combat sweatshop labor conditions internationally, has released an investigation of the Kai Da Toy Factory in Shenzhen City, China, where the Sesame Street Kid K’Nex Ernie construction kits are assembled, that raises a moral question for American parents: Are they willing to rebuff toys that are toxic to other people’s children?
In this case, it’s the children of Chinese parents who the National Labor Committee found work in grueling, sweatshop conditions to assemble toys that are supposed to bring joy to American boys and girls, toys of Ernie that, ironically, is the character symbolizing playfulness, not work, on Sesame Street.
Even if the Ernie K’Nex toy isn’t bathed in lead paint, the National Labor Committee inquiry found that he’s drenched in the sweat of young workers, including some child laborers. Here is what the NLC discovered:

Forced overtime

The 600 workers at the factory, including 100 16-year-olds, routinely put in 13 to 15-hour days, and work seven-day weeks for months on end. Occasionally, they’re required to endure 23½-hour work days. The weekly overtime is mandatory, even though it exceeds China’s legal limits.
Despite the long hours, workers earn less than one cent per Ernie doll they assemble – 43 cents an hour. That is below Shenzhen City’s minimum wage of 62 cents an hour. And, like the minimum wage in the U.S., that is not subsistence earnings in China. After the factory deducts for room and board, the workers receive only about 28 cents an hour.
The rooms are shared by eight workers, sleeping on metal bunk beds, washing their clothes in sinks, and using communal bathrooms. Many of these workers are young teenagers, who pay additional money toward tuition with the hope of eventually attending technical schools.
Younger children who were working in the factory earlier this year disappeared after a Chinese newspaper, Southern Metropolis, revealed in April that hundreds, if not thousands, of children from impoverished areas in Liangshan Prefecture in Sichuan Province were being sold to work as slave laborers in toy and garment factories.
The Kai Da factory does not cover health care and will dock pay if workers refuse overtime. In addition, if a worker quits before a committed period of time elapses, typically six months, the factory will withhold an entire month’s pay.
These practices are all illegal under Chinese law – the excessive overtime, paying less than minimum wage, and not providing health care. But the National Labor Committee documented them.
K’Nex responded to the report by saying: “We are a family owned company, and we are committed to the safety and welfare of children. The . . .toy factory is ICTI (International Council of Toy Industries) certified, which means that we comply with the highest safety and labor laws in the toy industry. We take the NLC allegations very seriously, and as a result we are launching an immediate investigation.”

Laborer-children

The question, however, is whether K’Nex, or any multinational, is devoted only to the safety and welfare of customer-children and not to that of laborer-children who produce the products.
Or, really, more fundamentally, how did we get ourselves into a situation in which children in China are assembling Ernie toys for children in America? Surely the late Mr. Rogers, were he here to advise us, would say there’s something deeply wrong with this neighborhood. Sesame Street could benefit from a little morality training from Rogers, a Presbyterian minister: It’s wrong to abuse one child so another may play with a cheap Ernie toy. It’s wrong to abuse a child for corporate profit.
There’s something else at play here as well. As children began to toil in China, factories closed in the U.S. The American toy industry lost nearly 60 percent of its jobs over the past 15 years. U.S. factories closed. American workers found themselves unemployed. Now, Chinese adolescents are assembling toys in sweatshops for American parents to buy and wrap for Christmas for their children – well, the American parents who still have jobs and houses in which to put those Christmas trees anyway.
It’s difficult not to buy a toy made in China with 85 percent of those in U.S. stores made there now. But a parent wouldn’t knowingly hand his own child a dangerous toy, one with lead paint or the Aqua-dots kit with its “date rape” chemical substituted by a Chinese manufacturer.
American parents must provide the same consideration to Chinese youngsters and boycott toys that have endangered them by working them in sweatshops. The Sesame Street Kid K’Nex “Ernie” is one of those toys.
The National Labor Committee investigation has provided us with that documentation.

Fair trade

No moral American can enjoy seeing their child play with a toy covered with the sweat of a child laborer. We must have fair trade agreements and regulation that ensure products imported into the U.S. are manufactured in factories that, at the very least, conform to the minimum child labor, wage and overtime laws of the countries of origin.
Sen. Byron Dorgan, a Democrat from North Dakota, has introduced legislation, the Decent Working Conditions and Fair Competition Act, supported by the NLC and the USW, that would make it illegal it import or export goods made with sweatshop labor.
If we as a country can protect property with trademarks and copyrights, and if we can defend foreign pets by prohibiting the importation of cat and dog fur, it’s time to pass Dorgan’s bill protecting human beings from degrading and inhumane sweatshop conditions.

By Leo W. Gerard
International President

Here everybody has a neighbor
Everybody has a friend
Everybody has a reason to begin again
Bruce Springsteen – Long Walk Home

Sen. Barack Obama yesterday asked 4,500 delegates and observers at the convention of the United Steelworkers in Las Vegas to help him give America a chance to begin again. The group responded with a roar of applause.
The presumptive Democratic nominee for President appeared before the delegates by videocast after an introduction by former Sen. John Edwards and established solidarity immediately when he said, “Working together, ordinary people can achieve extraordinary things.” That’s something we’ve experienced up close and personal from organizing drives to picket lines. (more…)

By Leo W. Gerard
International President

Nobody’s second class citizens

In Las Vegas, a town infamous for carelessly bankrupting the naïve, members of the United Steelworkers voted Tuesday to pay a little more forward out of each paycheck to ensure they won’t be duped, overpowered or taken for anybody’s second class citizens.
All of the additional pennies-per-hour steelworkers decided to invest into our strike and defense fund will provide added protection. From 850,000 steelworkers, that will build the account into a formidable force, one to stand up to the kind of power that comes from the boundless capital multinational corporations command, the very multinationals that unions now must reckon with. (more…)