Blog

It’s hard to believe considering what happened in 2008 on Wall Street and in Washington, but banking is built on trust.

A worker hands his hard-earned dollars to a teller and trusts the money will be deposited and available for withdrawal when needed. Despite the crash on Wall Street, workers still trust bankers to safeguard deposits from robbers and reckless investments.

Granting banks a little less credulity might be wise. Just consider what happened in the past two weeks. A U.S. Senate investigation revealed that the 2010 Dodd-Frank banking reforms utterly failed in the case of the $6.2 billion “London Whale” gambling loss at JPMorgan Chase. Then a U.S. House committee passed seven measures to weaken Dodd-Frank. And there was the European Union’s demand that Cyprus expropriate money from depositors to prevent that nation’s big banks from failing. That means no depositor can trust that a government won’t dip its hands into savers’ accounts to bail too-big-to-fail banks. The trust is gone, baby.

Last week’s bad banking news began in Cyprus. It’s a cautionary tale about trust in both politicians and bankers. Cyprus is a tax haven for wealthy Russians the way the Caymans are for wealthy Americans. The Cypriot financial institutions, which made bad bets on Greek debt, are teetering on the edge of bankruptcy and were closed last week to stave off bank runs.

The European Union, which includes Cyprus but not Russia, was not eager to provide loans to secure moneyed Russians. Euro zone finance ministers and representatives of the International Monetary Fund (IMF) and European Central Bank worked out a deal under which Europe and the IMF would provide $13 billion to bail out the banks if the country took $7.5 billion from depositors’ accounts.

Cypriot and European officials betrayed depositors, particularly small ones whose savings of less than $130,000 supposedly are insured. The newly elected president of Cyprus, Nicos Anastasiades, turned on his own people. He rejected a proposed deal under which Cyprus would take 12.5 percent from depositors with more than $130,000 euros and about half of that from smaller account holders. Anastasiades demanded the rich, often Russian oligarchs, pay less, which meant, of course, the smaller depositors, everyday Cypriot workers, would have to pay more. (more…)

As President Obama said in his inaugural address last week, America “cannot succeed when a shrinking few do very well and a growing many barely make it.”

Yet that continues to be the direction we’re heading in.

A newly-released analysis by the Economic Policy Institute shows that the super-rich have done well in the economic recovery while almost everyone else has done badly. The top 1 percent of earners’ real wages grew 8.2 percent from 2009 to 2011, yet the real annual wages of Americans in the bottom 90 percent have continued to decline in the recovery, eroding by 1.2 percent between 2009 and 2011.

In other words, we’re back to the widening inequality we had before the debt bubble burst in 2008 and the economy crashed.

But the President is exactly right. Not even the very wealthy can continue to succeed without a broader-based prosperity. That’s because 70 percent of economic activity in America is consumer spending. If the bottom 90 percent of Americans are becoming poorer, they’re less able to spend. Without their spending, the economy can’t get out of first gear.

That’s a big reason why the recovery continues to be anemic, and why the International Monetary Fund just lowered its estimate for U.S. growth in 2013 to just 2 percent.

Almost a quarter of all jobs in America now pay wages below the poverty line for a family of four. The Bureau of Labor Statistics estimates 7 out of 10 growth occupations over the next decade will be low-wage — like serving customers at big-box retailers and fast-food chains.

At this rate, who’s going to buy all the goods and services America is capable of producing? We can’t return to the kind of debt-financed consumption that caused the bubble in the first place.

Get it? It’s not a zero-sum game. Wealthy Americans would do better with smaller shares of a rapidly-growing economy than with the large shares they now possess of an economy that’s barely moving.

If they were rational, the wealthy would support public investments in education and job-training, a world-class infrastructure (transportation, water and sewage, energy, internet), and basic research — all of which would make the American workforce more productive.

If they were rational they’d even support labor unions — which have proven the best means of giving working people a fair share in the nation’s prosperity.

But labor unions are almost extinct.

The decline of labor unions in America tracks exactly the decline in the bottom 90 percent’s share of total earnings, and shrinkage of the middle class.

In the 1950s, when the U.S. economy was growing faster than 3 percent a year, more than a third of all working people belonged to a union. That gave them enough bargaining clout to get wages that allowed them to buy what the economy was capable of producing. (more…)

That deficit problem we keep hearing about is gone. When it comes to spending cuts, it’s time to follow the advice a general offered when we were mired in Vietnam: Declare victory and get out.

We had a deficit problem, once, although it was never as urgent or as important as our jobs crisis. Nor was it as important as the wealth inequity that’s destroying the middle class, killing the hopes of a better life for lower-income Americans and stifling growth.  Wealth inequity hasn’t been this high since the Great Depression.

Our problem now is that we’re not spending enough.

Washington needs to spend more money now if we want a balanced budget tomorrow. That’s called investment, and we’ve needed more of it for the past four years. Instead President Obama and other Democrats bought into that right-wing narrative that said that “The Deficit” – something that’s described in static, singular, and slightly scary terms, like “The Blob” – was our biggest problem. Good thing it’s, as Paul Krugman says, “mostly solved.”

In fact, other cuts in this battered economy would make the economy worse – and would make deficits go up. Don’t take our word for it. The world’s leading institutional deficit hawk, the International Monetary Fund, reached the same conclusion.

To understand why reality’s so different from the Beltway’s fantasy we need to know how we got here.

The Big Score

Some Democrats don’t like hearing this, but the seemingly miraculous “Clinton economy,” including the government surplus we heard about when Bill Clinton left office, was primarily driven by a stock market bubble.

That bubble, and the one that followed it, were largely driven by irresponsible Wall Street deregulation – together with Republican collaborators like Sen Phil Gramm, got rich on Wall Street – and the bubble kept inflating.

We didn’t use that bubble money to rebuild our social safety net. We didn’t put it in the bank, either.  Instead the Bush Administration pushed through an irresponsible set of tax breaks for the wealthy, who were already being taxed at historically low rates. And despite the end of the Cold War, we went on a military spending spree that include two wars of choice, massive weapons purchases, and continued staffing and maintenance for the thousands of military installations that span the globe today.

The deficit soared as a result of these profligate moves. The long-term deficit outlook became grim, too, as our profit-driven healthcare system led to soaring medical cost inflation, a growing number of uninsured Americans and a rising wave of medically-caused bankruptcies for people with health insurance.  But that was off the table in the halls of corporate-funded political power. (more…)

Well, there they go again. Less than a week after its chief economist apologized for wrongly imposing austerity on European nations – hey, sorry about that, unemployed millions! – the International Monetary Fund is misleading another country into the miasma of austerity economics: ours.

The IMF released a report that rates nations on their “profligacy” and places the United States at or near the top. Among other things, this demonstrates that their grasp of language rivals their grasp of economics.

To be “profligate” means that you’re “wildly extravagant” and “completely given up to dissipation and licentiousness.”  Synonyms for “profligate” include ”debauched,” “degenerate,” “depraved,” “dissipated,” “dissolute,” “iniquitous,” “lax,” “lewd,” “libertine,” “licentious,” “loose,” “promiscuous,” “reprobate,” “shameless,” “unprincipled,” “vicious,” “vitiated,” “wanton,” “wicked,” “and “wild.”

I don’t think they’re suggesting that the halls of Washington rival Caligula’s court. Nobody’s marrying their sister, opening a brothel, or installing a horse in the Senate. (Although, to be fair, it couldn’t do much worse than the current minority.)

The Real Debauch

The far right (which is to say, all of the American right) will love this idea, of course. It plays into all their worst prejudices. But is the United States government really on a wild spending spree?

Poverty’s at record levels and so is unemployment.  The truth is, we don’t have a spending problem at all. Then what is our problem? This is: We’re coddling corporations and indulging the wealthy.

Repeating the IMF’s poorly-chosen label is like calling Mom and Dad “profligate” for trying to feed Grandma after their billionaire nephew stole the car, the home and the bank accounts.

We’ve got the charts to prove it.

Words Matter

The IMF report calls us “profligate” because of the imbalance between the amount of money our government collects and the amount it spends. But, as Howard Schneider notes in The Washington Post, Denmark offers much better social benefits than the U.S. and isn’t called “profligate” because it collects the revenues to pay for it.

Still, the term’s a loaded one and shouldn’t have been used. It won’t lead to a serious debate about tax revenues in this country, and we’re certainly not having one now. We’re fixated on spending, and the revenue side of the discussion has been narrowed so radically that the only debate going on in Washington is over which six-figure incomes will be taxed at a historically low rate of 39.5 percent.

Let’s go to the charts. First up:

1. We spend very little on government in this country.

And remember, we spent a trillion dollars on the wars in Iraq and Afghanistan during this period, along with a lot of other unnecessary military spending. (The Pentagon takes roughly one-fifth of the government’s budget.)

2. Government spending went up after Wall Street crashed the economy, because it had to. (Revenues went down, too.)

(via Business Insider)

3. But taxes in this country are actually low …

Source: Center for American Progress

4. … especially for the well-to-do, who are paying historically low rates …

(more…)

Sen. Todd Akin calls for abortion on demand, and free distribution of condoms. The CEO of Exxon decries global warming and demands an end to oil company subsidies along with new public investment in renewable energy. Arizona Sheriff Joe Arpaio calls for amnesty for undocumented workers.

Not likely, right? But the equivalent of these improbables just took place in international economics. The International Monetary Fund, for decades famed for inflicting harsh austerity policies on developing nations, now says, “never mind,” essentially admitting it got it wrong.

IMF Director Christine LaGarde is calling on European nations to ease austerity measures before they cause another global recession. “The fund warned earlier this week that governments around the world had systematically underestimated the damage done to growth by austerity,” the Financial Times reports.

This extraordinary recognition of reality by the IMF raises an obvious question: Will Romney and Republicans get a clue? The IMF’s call is a direct repudiation of the harsh austerity policies it has been peddling. Just like the IMF, Romney is passionate about deep cuts in federal spending, as well as tax reforms that do not lower revenues (He claims now that he wants to lower rates across the board, but pay for them completely by closing loopholes).

In addition, Romney and Ryan rail against the Federal Reserve for printing money, for taking extraordinary measures to keep long term interest rates low. They wax hysterical about the inflation ogre that is about to materialize at any moment and lay waste to the economy.

Romney even sent out a fundraising email savaging the Fed, claiming its newest round of “quantitative easing” was “another bailout.” That “Barack Obama is at it again — spending your tax dollars to bail out his failed economic plan… money we can’t afford for jobs we will never see.” Now, all of this is simply nonsense. Barack Obama has nothing to do with the Fed policy. The Federal Reserve is notoriously independent of the administration and Congress (and its chairman, Ben Bernanke, is a Republican economist who is basically pursuing what conservative guru Milton Friedman advocated: an aggressive monetary policy to counter recessionary currents). And the Fed isn’t “spending your tax dollars.” In fact, the Fed has been paying billions in profits back into the Treasury, reducing deficits — not adding to them. And we don’t have to “afford the money” because the Fed is basically printing it. (more…)

One year ago, when Honeywell International locked me and 228 of my brothers and sisters from its plant in Metropolis, Ill., I never dreamed that I would end up explaining what happened in Germany and Belgium. But that’s where the fight—which officially ended this week, when we accepted a new three-year contract that keeps seniority provisions and creates 21 new jobs—led me.

Many members in locals across the country, including my own, question the importance and relevance of building relationships with labor unions in other parts of the world. Hopefully, my experience during 13 months of being locked out will put these doubts to rest.

On June 28, 2010, Honeywell International—one of the largest corporate political contributors in the United States and a major defense contractor—made the decision to lock out members of United Steelworkers (USW) Local 7-669 from its uranium conversion facility in Metropolis, despite our offer to continue to work and bargain past the expiration of our collective bargaining agreement.

Even before we were locked out, we knew that we could not fight this corporate giant alone.

Our first step was joining the national Honeywell union council, which was not very active. With the help of USW District 9 Director, Daniel Flippo, we held the first ever large-scale council meeting at our union hall in Metropolis, directly across the road from our (former) workplace. (more…)

By James P. Hoffa
General President, International Brotherhood of Teamsters

Some of the most trusted institutions in the world are finally awakening to the dangers of unrestrained global capitalism.

Unions, of course, have for decades warned about the emerging global order. The reason for integrating regional economies into global networks has always been to shift power away from workers. The imbalance, we warned, was dangerous to all of our futures.

It gives me no satisfaction to say we were right. The world’s economy is now dominated by multinationals roaming the globe to sniff out tax havens and cheap labor; out-of-control banks extorting governments for bailouts again and again; and politicians catering only to greed. All the while, America’s middle class grew poorer, and smaller. Workers lost their jobs, their savings and their houses. Now their Social Security and Medicare are attacked.

The new organization of the world economy, dreamed up by the bankers and the multinationals, has failed. Don’t take my word for it: This is what the World Bank, the International Monetary Fund and the Council on Foreign Relations are reporting. (more…)

By Travis McArthur
Public Citizen Trade and Finance Researcher

U.S. Trade Representative Ron Kirk and Han Duk-soo, Korean Ambassador to the U.S., discussed aspects of the Korea Free Trade Agreement (FTA) at a panel on Thursday. They talked about deadlines, little anecdotes, and so forth, but what Ambassador Han had to say about how the Korea FTA would impact Korean domestic economic policymaking was most intriguing. He said:

But more important for Korea is that we develop our economy by opening it to global competition. The Asian Financial Crisis of 1997 and 1998 was a good lesson for us. What the Korea-U.S. Free Trade Agreement offers the Korean people is a comprehensive legally-binding reform package that will lead to the opening of our market.

Here Ambassador Han alludes to what Thomas Friedman called the “Golden Straightjacket”. The idea is that you should force harsh economic policies on countries, often through some less-than-democratic means (in this case, a trade agreement that has been negotiated in secret), and they will eventually prosper. Ambassador Han referred to these “painful prescriptions” in an earlier speech here. (In the first chapter of Bad Samaritans, Dr. Ha-Joon Chang does a great job of exploding the Golden Straightjacket myth while demonstrating that Friedman’s beloved Lexus in his Lexus and the Olive Tree could never have been produced without significant government involvement in the economy.) (more…)

By Stan Sorscher
Labor Representative, Society for Professional Engineering Employees in Aerospace (SPEEA)

Support for free trade is declining for good reason. Free trade came with a promise of prosperity. However, after 20 years of experience, we have structural trade deficits and an economy that cannot create jobs.

What went wrong with free trade?

First of all, free trade is orthodoxy, not science. Free trade orthodoxy stands on the Theory of Comparative Advantage, a great philosophical accomplishment of the 18th and 19th centuries. Unfortunately, Comparative Advantage is highly idealized and fundamentally flawed. It ignores the real-world conditions of 21st century globalization. (more…)

By Robert L. Borosage
Co-Director Campaign for America’s Future 

Voters are in a surly temper. The economy stinks. Jobs are scarce. Wages are under pressure. One in 4 homes with mortgages is underwater. Retirement savings have been butchered; pensions are at risk. Bailed out bankers are paying themselves record bonuses; the oil keeps fouling the Gulf; the jobs aren’t coming back. It is ugly out here.

Not surprisingly, faith in Obama is starting to flag. According to a recent Washington Post poll, a startling 58% have only some or no faith that he will make the right decisions about the country’s future. Congressional Democrats fare worse. Republicans would be salivating, only folks overwhelmingly don’t want to rehire them either. A staggering 72% have little or no trust in congressional Republicans on the country’s future.

And now the election season starts. Last weekend, President Obama traveled to Missouri in support Senate candidate Robin Carnahan and delivered rousing speeches framing the choice the voters must make this fall. Republicans, he scorned, have that “no” philosophy, that

 ”‘you’re on your own’ philosophy, the status quo philosophy — a philosophy that says everything is politics and we’re just going to gun for the next election, we don’t care what it means for the next generation. And they figure if they just keep on saying no, it will work for them, they’ll get more votes in November — because if Obama loses, they win; if we can stop him then we’ll look better.”

This election, the president said, will offer a choice:

“It’s a choice between the policies that led us into this mess and the policies that are leading us out of this mess. It’s a choice between falling backwards or moving forward.” (more…)