The Powell Memo

Click to access lewis-powell-memo.pdf

Common Dreams on Defending Social Security

Social Security: The Social Contract’s Comeback Year?

by Richard Eskow

What a difference a year makes. Last year at this time, a President and a party who had just won an election with progressive rhetoric were quickly pivoting toward a “Grand Bargain” which would cut Social Security and Medicare. Leaders in both parties were obsessed with deficits, and there was “bipartisan” consensus that these “entitlements” needed to be cut. The only questions left to debate were when they would be cut, and by how much. To resist these moves was to be dismissed as “unserious” and “extreme” – in Washington, in newsprint, and on the airwaves.

Today the forces of corporate consensus are on the defensive. It’s considered politically reckless to get too far out front on the subject of benefit cuts. Some of the think tanks who advocated Austerity Lite one year ago are focused now on inequality. And, as the leaders of Third Way learned recently, the same rhetoric which earned nods of approval all across Washington this time last year can get you slapped down today.

Social Security is a vital program, but the implications of this shifting debate run even deeper, to the future of the social contract itself.

Why Social Security?

For decades there has been a concerted, well-funded effort to cut Social Security benefits. It has successfully co-opted prominent leaders from both political parties, while recruiting lesser political figures like Republican Alan Simpson and Democrat Erskine Bowles to serve as its pitchmen.

Social Security cutters have held virtually unchallenged dominance in recent years, both in the corridors of power in recent years and on the pages and airways of corporate-funded media. President Obama and a number of key Democrats on the Hill allied themselves with this effort. They distanced themselves only at election time, when they obscured their positions with vague rhetoric. The Republicans’ support for these efforts was virtually unanimous and often took the form of a more generalized anti-government extremism.

As news stories later confirmed, only concerted action by labor and other groups prevented the President from pre-emptively offering Social Security cuts in his 2010 State of the Union address. He finally offered them in his budget earlier this year in the form of the “chained CPI.”

Why is Social Security such a target? A number of government programs embody our social contract. Medicare, Medicaid, welfare, food assistance – each reflects the vision of a society which recognizes that its shared interests are reflected in the safety and well-being of each of its members. But perhaps no program in this country reflects the social contract more clearly than Social Security.

The name itself – “Social Security” – has a timeless ring to it. It might have appeared in one of John Locke’s notebooks. And it reflects a universality in its design: Most living Americans have contributed to the program, directly or indirectly. Most will collect benefits from it someday, either when they reach retirement age or, in the case of disability, even earlier.

The program was reduced once before, at a time of genuine crisis. There is no such crisis today, and its long-term imbalances are easily fixed in ways that would also allow for increased benefits. But it has symbolic value. If this program – funded by its participants, financially self-supporting, and forbidden by law from contributing to the national debt – can be cut, it means that no aspect of the social contract is sacrosanct.

The Struggle

Social Security, like the social contract ideal which spawned it, enjoyed a long period of growth and evolution. The number of people it covered kept increasing – Republicans boasted about that in their 1956 party platform! – and its benefits were designed to keep pace with the cost of living for its recipients. Nobody in mainstream political thought would have dared to challenge it.

True, the social contract always had its opponents. But for decades they were marginalized by norms of political and social decency. Right-wing radicals like billionaire H. L. Hunt might rave about tearing up social programs, and democracy along with them, but they had no standing – not in politics, and not in legitimate debate.

Then something happened – or, rather, some things happened. Future Supreme Court Judge Lewis Powell wrote a paper for some wealthy corporate interests in 1970 which outlined a long-term strategy for bringing these radical ideologies of greed back into the mainstream. Ronald Reagan put a smiling face – perhaps even a smiley face – on these mean-spirited ideologies.

A new breed of Democrat began to offer, not a defense of the social contract, but a “kinder, gentler” plan for dismantlement. That approach was first epitomized by the DLC (Democratic Leadership Council) faction which helped elect Bill Clinton, and then by the Wall Street-funded (and self-described “progressive”) ideas of groups like Third Way.

The anti-Social Security crowd claims the mantle of objectivity and rationality, but resorts instead to deception and highly emotional arguments. Alan Simpson routinely erupts in rage at anyone who disagrees with him, especially if they use actuarial data to make their case. Social Security advocates are smeared as “irrational,” “extreme,” and marginal, even as they marshal logic, information, and public opinion to make their case.

And never underestimate what a billion dollars can do. Billionaire hedge-funder Pete Peterson, a hard-core right-winger from Richard Nixon’s cabinet, began a multi-decade assault on the social contract in general, and Social Security in particular. He backed politicians, including Clinton. He formed “bipartisan” foundations and gave sinecures to functionaries from both political parties.

How much has Peterson spent trying to tear up the social contract? He’s not saying. But we know that in one five-year period along he spent nearly half a billion dollars, and he’s been pursuing this goal since the 1980s.

“Money doesn’t talk,” as the young Bob Dylan so aptly put it, “it swears.”

The Fruits of Their Labors

But activists and experts had been working diligently behind the scenes. At first the efforts were defensive, and focused on preventing those cuts. But these individuals and groups eventually shifted the terms of the debate from cuts to expansion. Policy experts like Jacob Hacker and Paul Pierson began proposing benefit increases, both to offset increasing wealth inequality and to shore up the nation’s rapidly decaying retirement system. Economist and blogger Duncan Black took up the cause in op-eds. And a number of groups went to work privately educating political leaders on the need to strengthen, not weaken, Social Security.

The effort paid off. The idea of increasing Social Security benefits had been marginalized as “extreme” in the media and in DC power circles, despite being supported by most voters (including most Republicans). No longer. As proof of that, Sen. Tom Harkin of Iowa introduced a bill this year which would increase benefits. A number of other Democrats have signed on to the bill, including Sherrod Brown of Oklahoma, Hawaii’s two Senators, and Mark Begich from conservative-leaning Alaska.

Sen. Elizabeth Warren’s recent endorsement of the idea added considerable momentum to the effort, and sparked that ill-advised tirade from the leaders of Third Way.

The momentum and the power remains with the anti-Social Security crowd. But it’s a sign of change to see the idea of increasing Social Security move into the mainstream debate. That’s striking progress, in the course of only a single year. But it reflects an ancient struggle over the existence and nature of the social contract.

Proxy War

Today the anti-“entitlement” crowd is on the defensive. Its arguments are increasingly embedded in wider ad hominem arguments against “leftism” or “economic populism.” The Third Way attack on Elizabeth Warren was a case in point. So was a recent column by former New York Times editor Bill Keller, which praised his fellow “centrists” – a faction whose views are actually far to the right of the general public’s – for, among other things, wishing to “slow the growth of entitlements.”

Keller, like most self-described “centrists,” argue that it is reasonable and even “liberal” to argue that public investments can only be funded at the cost of the nation’s seniors and disabled. At the same time, they argue that historically reasonable levels of taxation on the wealthy and on corporations are politically “impractical.”

Theirs is a “kinder, gentler” assault on the social contract, one which argues that it can only be maintained at a reduced level – and that it can only be financed by further damaging the economic security of the vast majority. Call it a “lateral Robin Hood” approach – take from the unfortunate, and give to the even less-fortunate, but leave the wealthy alone. That’s not liberalism, in any sense of the term.

Dean Baker dispatched Keller’s arguments rather neatly here. We, among others,responded to Third Way’s. But on a broader time scale, the debate isn’t just a short-term argument about Social Security or economic policy. The assault on Social Security is a proxy war on the social contract itself. Combatants like Keller probably don’t realize that’s what they’re doing. They’re just repeating what they’ve heard. But they’re waging a proxy war just the same.

Honoring the Contract

The social contract is an ancient concept, which arguably began with Plato. Worrying about its well-being can seem absurd, like worrying about the fate of entropy or the planetary crust. It seems unassailable, indestructible. But either we’re a society or we’re not. An attack on any aspect of the social contract, especially programs like Social Security, are an attack on the entire fabric of an indivisible whole.

It’s been more than three hundred years since John Locke published his Two Treatises on Government. The social contract has continued to evolve since then. It was essential to the formation of this country, and to our best modern moments of prosperity. But today it’s threatened by the forces of globalized wealth.

That’s why the good news of the past year is more than just a glimmer of hope. It’s been asymmetrical warfare between the highly-financed advocates for the 1 percent and the outgunned, underfunded fighters for the majority. The shifting debate about Social Security is one sign that the balance of power may be shifting. There were others this year, including the Moral Mondays protests in North Carolina and the growing minimum-wage movement.

These setbacks for corporate “centrism” open windows of opportunity, especially when they’re achieved against such overwhelming resources and odds. If the “economic populists” redouble their efforts, we may someday look back on 2013 as the year the social contract began its big comeback.

This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.

Richard (RJ) Eskow is a well-known blogger and writer, a former Wall Street executive, an experienced consultant, and a former musician. He has experience in health insurance and economics, occupational health, benefits, risk management, finance, and information technology. Richard has consulting experience in the US and over 20 countries.

Ralph Nader in Common Dreams

Letter to Boeing’s Boss: Squeezing Workers for Corporate Welfare

By Ralph Nader

Jim McNerney, CEO
The Boeing Company
100 North Riverside
Chicago, IL 60606

Dear Mr. McNerney:

The squeeze that you and Boeing are putting on your machinist workers’ pensions, pay scales and your stance on other labor issues regarding the assembling of the new 777X airliners is unseemly for several reasons.

First, consider your pay this year of $21.1 million, a 15 percent increase from the previous year, and much higher than your predecessors. That sum does not demonstrate a moral authority to require sacrifices from your workers at a time of rising Boeing sales and profits, dividend increases, cash hoard, and another notorious $10 billion stock buyback. I say notorious because stock buybacks per se do little for shareholder values and a lot for the enlarged stock options of top executives.

Second, you’re holding an auction for your long-time workers jobs in other states, inciting a bidding war whereby states are giving away taxpayer assets to lure your 777X assembly factory with huge tax holidays and other subsidies. Washington state outdid itself with a new law, signed by Governor Jay Inslee with the largest state business tax break package for Boeing in history. The tax escape law “will give Boeing and its suppliers about $8.7 billion in tax breaks between now and 2040,” according to the Citizens for Tax Justice (CTJ) calculations. CTJ adds that “Boeing has managed to avoid paying even a dime of state income taxes nationwide on $35 billion in pretax U.S. profits.” Boeing also received tax advantages from the federal government, including $1.8 billion in federal income tax rebates on its $35 billion in U.S. profits between 2003 and 2012.

Third, in 1997 the Justice Department allowed Boeing to merge with McDonnell Douglas, making Boeing the only manufacturer of commercial jet planes in the United States – a domestic monopoly, justified by the only other foreign competitor – Airbus Industries in Europe. Another valuable gift by Uncle Sam brought about by your company’s Washington lobbyists.

Fourth, recall Boeing’s contract with the Department of Defense for the initial phase of Air Force’s KC-46 aerial tanker program that provoked sharp criticism by Senator John McCain in July 2011 for the excessive burdens on American taxpayers from cost over-runs in a supposed “fixed price” contract. In a letter to Department of Defense Undersecretary Ashton B. Carter, Senator McCain wondered “why under a fixed-price, relatively low-risk contract, taxpayers may have to pay 60 percent of any overrun within that band – up to $600 million.”

A book could be written about the Boeing company’s strategy for externalization of a variety of its costs onto innocent, defensely people – whether workers or taxpayers. Boeing’s systemic campaigns for corporate welfare are shameful. Your company is one of the major corporate welfare kings in America, running a close race with the champion – General Electric. As CTJ wrote: Boeing “employs an army of site location and tax consultants, whose job has been to blackmail states into giving Boeing lavish tax breaks.” These include sales and property tax breaks which drain communities’ ability to provide for school and other public facilities (http://www.goodjobsfirst.org/corporate-subsidy-watch/boeing).

Fifth, there is the gigantic subject of your outsourcing to foreign suppliers, in particular Japan where your technology transfers, damaging the longer term viability of U.S. competitiveness in the aerospace sector for short term gains favoring Boeing, merit thorough examination by the Congress. As you know Boeing’s foreign outsourcing brought your company considerable quality control and delay troubles with the Dreamliner.

You need to read the 2005 report by the Defense Science Board about the hollowing out of domestic capability in the electronics industry from this kind of overseas outsourcing migration by U.S. companies.

For starters read the current copy of The American Conservative magazine’s cover story titled “Japan’s Plan to Unmake Boeing,” describing the full assistance of Boeing. No doubt, if your further cruel downward pressure on your machinists culminates in your destroying their union local and their jobs by leaving the state of Washington and going for example to the anti-union state of South Carolina, there will be further public inquiries. Such as how perverse incentives provided by your suppliers in Japan and elsewhere have furthered job losses here and accelerated your company’s technology transfers perhaps beyond the tipping point against the U.S. national interest.

Sincerely yours,

Ralph Nader

http://www.commondreams.org/view/2013/12/28

Alternet’s Charts on the Economy

How to Fix the Economy in 13 Easy Charts

Policies that ensure broadly shared prosperity should be policymakers’ foremost priorities in 2014.

December 20, 2013  |

As we say goodbye to 2013, the economy is still failing ordinary workers. What is being done to make it better? Not enough.

Public spending and public investment are too low, wages for increasingly productive workers are flat or falling, and the minimum wage is inadequate.

However, there is hope for 2014. The policies that created these trends can be reversed. There is a renewed push to raise the federal minimum wage, states are raising their own minimum wages, and more policymakers are coming to terms with the downside of economic inequality.

Economic Policy Institute’s top charts of 2013 explain why a full economic recovery and policies that ensure broadly shared prosperity should be policymakers’ foremost priorities in 2014.

1.

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In November 2013, the labor market had 1.3 million fewer jobs than when the recession began in December 2007. Further, because the potential labor force grows every month, the economy would have had to add 6.6 million jobs just to preserve the labor market health that prevailed in December 2007. Counting jobs lost plus jobs that should have been gained to absorb potential new labor market entrants, the U.S. economy had a jobs shortfall of 7.9 million in November 2013.

Adapted from: “Recession Has Left in Its Wake a Jobs Shortfall of Nearly 8 Million,” an EPI Economic Indicator updated Dec. 6, 2013, on www.stateofworkingamerica.org

2.

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One of the best measures of labor market health is the share of 25- to 54-year-olds with a job. Looking at 25- to 54-year-olds instead of the entire working-age population provides more certainty that the trends we see are being driven by reduced demand for workers and not supply-related factors such as retiring baby boomers or increased college enrollment of young people. This ratio deteriorated dramatically through late 2009, essentially stalled for two years, and improved modestly over the last two years. But the 75.9 percent share of 25- to 54-year-olds with a job in November 2013 is identical to the share at the official end of the Great Recession in June 2009.

Adapted from: “Drop in Employment for ‘Prime-age’ Workers during 2007 Recession Truly Stunning,” an EPI Economic Indicator updated Dec. 6, 2013, on www.stateofworkingamerica.org

3.

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In today’s labor market, the headline unemployment rate drastically understates the weakness of job opportunities because it does not count the large pool of “missing workers”—potential workers who, due to weak job opportunities, are neither employed nor actively seeking a job. These are people who would very likely be either working or looking for work if job opportunities were significantly stronger. In November 2013, there were 5.7 million missing workers. If they were looking for work and therefore counted as unemployed, the unemployment rate in November 2013 would have been 10.3 percent, significantly above the official 7.0 percent rate.

Adapted from: “Millions of Potential Workers Sidelined,” an EPI Economic Indicator updated Dec. 6, 2013

4.

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The recovery from the Great Recession has been accompanied by the slowest growth of public spending following any recession since World War II. If the current recovery had instead featured public spending growth that mirrored spending growth following the early 1980s recession (one that was similarly as deep, if not as long, as the Great Recession), the economy would be almost fully recovered with more than 7 million additional jobs.

Adapted from: Taking Middle-Out Economics Seriously in This Fall’s Fiscal Debates, an EPI report published Sept. 26, 2013

5.

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One economic indicator that has shown extraordinary strength in the recovery from the Great Recession is the share of corporate-sector income claimed by owners of capital instead of employees. By the third quarter of 2013, the share of corporate-sector income accruing to profits and other forms of capital income had reached 25.8 percent, the highest share ever recorded. To put this number into perspective, if the share of corporate-sector income accruing to capital owners in the third quarter of 2013 were 20.4 percent (the 1969–2007 average), every worker in the U.S. economy would have earned $3,200 more in wages.

Adapted from: “Economy Built for Profits, Not Prosperity,” an EPI Economic Snapshot updated Dec. 6, 2013

6.

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After shrinking during the recession, the gap between CEO pay and typical worker wages is growing rapidly. The ratio of annual pay received by CEOs of the largest 350 U.S. firms relative to annual wages of production/nonsupervisory workers in those firms’ industries was roughly 20-to-1 in 1965, reached 100-to-1 by 1992, and peaked at 383-to-1 during the stock market bubble of 2000. In 2012, it was 273-to-1.

Adapted from: CEO Pay in 2012 Was Extraordinarily High Relative to Typical Workers and Other High Earners, an EPI report published June 26, 2013

7.

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While CEOs are doing fine in today’s economy, most other U.S. wage earners could badly use a raise—and not just to make up ground lost in the Great Recession. Essentially the bottom 70 percent of American workers have seen flat or falling real (i.e., inflation-adjusted) wages since 2002. The disproportionate income gains going to capital owners rather than workers have slowed the recovery, as a higher share of capital income is saved when it could instead be spent by workers and thus create more demand for goods and services.

Adapted from: A Decade of Flat Wages: The Key Barrier to Shared Prosperity and a Rising Middle Class, an EPI report published Aug. 21, 2013

8.

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Wages and productivity grew in tandem during the three decades following World War II. But as EPI began pointing out in the 1994 edition of The State of Working America, this link broke in the late 1970s for the vast majority of American workers. Productivity measures the average dollar value of economic output produced in an hour of work—essentially measuring the economy’s potential for providing rising living standards for all. But this potential has been unrealized for most American workers. Between 1979 and 2012, productivity rose 63.8 percent, but compensation per hour for production and nonsupervisory workers (who constitute 80 percent of the private-sector workforce) rose only 7.5 percent. As a result, an enormous share of economic output is going to profits and earnings of CEOs and other workers much higher up the wage scale—which is why American inequality has skyrocketed over the past generation.

Adapted from: “Cumulative Change in Total Economy Productivity and Real Hourly Compensation of Production/Nonsupervisory Workers, 1948–2012,” an EPI Economic Indicator updated Sept. 4, 2013

9.

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It’s not just workers with less education who are failing to get their fair share of overall wage growth. For nearly the last quarter century, real wages for young workers with a four-year college degree have essentially stagnated.

Adapted from: The Class of 2013: Young Graduates Still Face Dim Job Prospects, an EPI report published April 10, 2013

10.

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Sending American workers to computer programming school will not guarantee that their wages will keep pace with economy-wide growth. From 1994 to 2010, real wages for workers in computer occupations like computer programming and computer system design were essentially flat. Besides indicating that American wage problems are not due to workers’ lack of technical skills, wage trends in high-tech occupations also belie claims that the United States needs to give more visas to foreign tech workers because there aren’t enough here. If there were glaring labor shortages in tech sectors, tech-sector wages would be way up.

Adapted from: Guestworkers in the High-Skill U.S. Labor Market, an EPI report published April 24, 2013

11.

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Every year that the minimum wage is not raised by Congress, its real value is reduced by inflation. This inaction has eroded living standards for low-wage workers. The real value of the minimum wage today, $7.25, is much lower than its height of $9.40 in 1968, despite the 109 percent rise in U.S. productivity since 1968. Today’s minimum wage would be $18.30 if it had grown at the same rate as U.S. productivity.

Adapted from: Raising the Federal Minimum Wage to $10.10 Would Lift Wages for Millions and Provide a Modest Economic Boost, an EPI report published Dec. 19, 2013

12.

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Inequality in the U.S. economy has many dimensions, including inequalities in retirement security. The generation-long experiment in retirement security policy away from pensions to individual accounts—often called the “401(k) revolution”—has been a clear disaster, generating a few big winners and millions of losers: Most American households now face a deeply insecure retirement. Nearly half of households have no savings in retirement accounts, and a household in the 90th percentile of the retirement savings distribution has nearly 100 times more retirement savings than the median household.

Adapted from: Figure 11 in EPI’s Retirement Inequality Chartbook, published Sept. 6, 2013

13.

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One of the starkest divides in retirement readiness is by race and ethnicity: White households have more than six times as much saved in retirement accounts on average as Hispanic and black households. Clearly the move away from a retirement system based on pensions to one dependent on 401(k)s has hurt minority households.

Adapted from: Figure 26 in EPI’s Retirement Inequality Chartbook, published Sept. 6, 2013

Corporate Hoarding and the Next Crash

America’s Missing Investors

Did Someone Say “Crash”?

by MIKE WHITNEY

Guess who’s investing in America’s future?

Nobody, that’s who.

Just check out this excerpt from an article by Rex Nutting at Marketwatch and you’ll see what I mean. The article is titled “No one is investing in tomorrow’s economy”:

“The U.S. economy simply isn’t investing enough to ensure that there will be enough good paying jobs for our children and our children’s children. Net investment — the amount of capital added to our stock — remains at the lowest levels since the Great Depression. …

Net investment…measures the additional stock of buildings, factories, houses, equipment, software, and research and development — above and beyond the replacement of worn-out capital.  In 2012, net fixed investment totaled $485 billion, only about half of the $1.1 trillion invested in 2006…

If businesses, consumers and governments were investing for the future at usual rate, the economy would be at least 3% larger, employing millions more people.  That’s a huge hole in the economy that can’t be filled by heavily indebted consumers, especially at a time when government is handcuffed by forces of austerity.”  (“No one is investing in tomorrow’s economy”, Rex Nutting, Marketwatch)

Now the author seems to believe that the lack of net investment is just a temporary phenom that will work itself out in the years ahead. But he could be wrong about that. After all, why would a company build up its capital stock for the future when the future is so uncertain? Certainly, there’s nothing in the data that would suggest that the US economy is about to shake off its five year post-recession funk and shift into high-gear again, is there? No, of course not. In fact, it looks like the economy has reset at a lower level of activity that will only get worse as the impact of budget cuts and stagnation are felt. That will further curtail consumer spending which, to this point, had been the primary driver of growth.

Bottom line: Net investment is down because there’s no demand. And there’s no demand because unemployment is high, wages are flat, incomes are falling, and households are still digging out from the Crash of ’08. At the same time, the US Congress and Team Obama continue to slash public spending wherever possible which is further dampening activity and perpetuating the low-growth, weak demand, perma-slump.

So,  tell me: Why would a businessman invest in an economy where people are too broke to buy his products?  He’d be better off issuing dividends to his shareholders or buying back shares in his own company to push stock prices higher.

And, guess what? That’s exactly what CEOs are doing. Check this out in the Washington Post:

“Battered by months of dis­appointing sales, networking giant Cisco needed a way to give its shareholders a pick-me-up. So the San Jose-based firm did what has become routine for many big U.S. companies in a slow-growing economy: It announced last month that it was buying back shares of its stock…..

This is what U.S. multinationals do now with their cash. Rather than tout big new investments, raise worker wages or hire more employees, companies are more likely to set aside funds to reward shareholders — a trend that took a dip during the recession but has roared back during the recovery.

The 30 companies listed on the Dow Jones industrial average have authorized $211 billion in buybacks in 2013, according to data from ­Birinyi Associates, helping to lift the benchmark stock index to heights not seen since the tech boom of the late 1990s. By comparison, the amount is nearly three times what the group spent on research and development last year, according to data from S&P Capital IQ.

Why spend so much on stock repurchasing?

When the number of shares outstanding falls, the value of each one goes up, instantly rewarding shareholders.”  (“Companies turning again to stock buybacks to reward shareholders”, Washington Post)

Corporations don’t care about the future. What they care about is maximizing shareholder value, that’s the name of the game; profits. If that means boosting net fixed investment then, okay, that’s what they’ll do. But if the Fed creates incentives to do something else, like gaming the system with stock buybacks, then they can make the adjustment. And that’s what the Fed’s zero rate policy does. It’s incentivizes businesses to use their capital in a way that’s damaging to the real economy.  Here’s more from the same article:

“Helping to fuel the stock market’s meteoric rise is the Federal Reserve’s stimulus program designed to lower borrowing costs. Companies are taking advantage, often by borrowing money at low rates to repurchase shares, although it’s unclear how much of the debt is being used to pay for buybacks.

“It somehow feels scarier if they borrowed the money to buy back stock than if they had some investment opportunities,” Inker said. “That somehow seems more sustainable than just levering up to reduce the share count.”

Some analysts say companies are better off repurchasing shares than pouring money into investments promising dubious payoffs, especially in a slow-growing economy.”  (“Companies turning again to stock buybacks to reward shareholders”, Washington Post)

There you have it; instead of investing in R&D, factories or new technologies, (all of which produce more high-paying jobs) companies are taking advantage of the Fed’s cheap money, goosing stock prices and raking in hefty profits. That’s just the way the policy works.  The only way change the outcome, is to change the incentives. But the Fed doesn’t want to do that, and neither does the Congress because, at present, they have working people right where they want them,  under their bootheel.

If you are looking for proof that workers are getting shafted, just look at the condition of the US consumer who is still on the ropes 5 years after the recession ended. Now,  according to the latest Fed’s Flow of Funds report, “Household net worth rose by $1.9 trillion in the last quarter” which means that everything should be hunky dory, right? It means the long period of deleveraging should be over and consumers should be ready to go on another madcap spending spree like they did up-until 2007. Unfortunately, the Fed’s  report is a bunch of baloney.  The $1.9 trillion merely accounts for rising asset prices that have been reflated by Bernanke’s quantitative easing boondoggle.  While working people have seen some uptick in housing prices, the bulk of the gains have gone to stock and bond speculators who’ve made out like bandits. As for consumers, well, they’re still stuck in the doldrums as economist Stephen S. Roach points out in this article at Project Syndicate. Here’s a clip:

“In the 22 quarters since early 2008, real personal-consumption expenditure… has grown at an average annual rate of just 1.1%, easily the weakest period of consumer demand in the post-World War II era.” (It’s also a) “massive slowdown from the pre-crisis pace of 3.6% annual real consumption growth from 1996 to 2007.” (“Occupy QE“, Stephen S. Roach, Project Syndicate)

So, personal consumption has dropped from 3.6% to 1.1%?!?

Yep.  No wonder there’s no recovery. And, keep in mind, this is no short-term deal either, mainly because Democrats and Republicans are equally committed to future budget cuts which means it will be more difficult for households to get out of the red and resume spending. More austerity means more retrenchment and hard times for consumers, households and workers. Economist William R. Emmons provides a good summary of what’s-in-store for consumers in a recent post titled  “Don’t Expect Consumer Spending To Be the Engine of Economic Growth It Once Was”. Here’s a clip from the article:

“Lower wealth: First and foremost, U.S. household wealth took a beating during the Great Recession. …., the loss of significant amounts of wealth and the severe pressure in some households to deleverage their balance sheets (reduce debt) are likely to contribute to restrained consumer spending for some time.

Stagnant incomes: The economic recovery under way since mid-2009 has been mediocre, at best. Job growth barely matches population growth, while incomes of the typical worker are barely keeping up with inflation. …, most of the overall gains in income appear to be flowing to high-income workers.

Tight credit: Consumer lenders either have disappeared altogether or are offering credit on a much more restricted basis than before the downturn.. …

Fragile confidence:  Major consumer-confidence indexes have rebounded from their lowest levels during 2009 in the immediate aftermath of the recession, but they remain below the levels that prevailed just as the recession began in late 2008 …

Looming reversal of stimulus:  The Federal Reserve has explored options to “exit” its extraordinarily accommodative monetary policy, while Congress and the president agree that budget consolidation is necessary in the not-too-distant future. In both cases, a tightening of policy measures represents a withdrawal of support for household incomes and wealth and, therefore, consumer spending.”

Individually, any of the five obstacles noted above might be surmountable. But combined, these contractionary forces make the outlook for broad-based consumer spending growth challenging. To be sure, some households weathered the economic and financial storms well, but we can’t count on these fortunate few to step up their spending sufficiently to offset the lost spending caused by declines in wealth, income, access to credit, confidence and government support.”   (“Don’t Expect Consumer Spending To Be the Engine of Economic Growth It Once Was”, William R. Emmons, The Regional Economist |via The Big Picture

Emmons offers a bleak, but realistic assessment of our present predicament. There’s really no way the US economy can rebound without a dramatic reversal in the current fiscal policy. Most Americans appear to grasp this point which is why survey after survey show that the majority think the country is “on the wrong track”. The public’s frustration with Congress -(whose public approval rating is at all-time lows) is reflected in growing pessimism which is affecting their spending habits. This is completely normal, given that most middle income working people do not expect their financial situation to improve in the next year. Lower expectations mean more penny pinching, fewer job openings, skimpy net investment, and sluggish growth.  That’s the future in a nutshell.

It’s worth noting that the investor class will also pay a heavy price for the current misguided policy. Stocks have had an impressive  4-year run, but there are signs that the day of reckoning is fast approaching. Get a load of this from USA Today:

“A potential warning to stock investors: the fourth-quarter earnings pre-announcement season is shaping up to be the most negative on record.  In what seems like a major disconnect, the number of profit warnings relative to upbeat guidance is the widest it has ever been — at a time when the U.S. stock market is trading near record territory. The Standard & Poor’s 500 index notched a new closing high of 1809 Monday.

For every 10 companies warning of weaker-than-expected earnings for the October-through-December period, only one has said it will top forecasts, says earnings-tracker Thomson Reuters I/B/E/S.  The actual 10.4-to-1 negative-to-positive pre-announcement ratio is on track to eclipse the prior record of 6.8 warnings for every positive one back in the first quarter of 2001. The long-term ratio is 2.3 warnings for each positive one.

“This is off the charts, I’ve never seen it this high,” says Gregory Harrison, analyst at Thomson Reuters.” (“As stocks hit record highs, so do profit warnings”, USA Today)

So why is Wall Street taking such dire warnings in their stride, you ask?

It’s because investors no longer pay attention to the fundamentals. Demand doesn’t matter.  Earnings don’t matter. What matters is the Fed and the Fed alone. “Is Bernanke going to keep pumping trillions in liquidity into the financial markets or not?” That’s the policy upon which all investment decisions are made.

So when Bernanke announces his plan to “taper” his asset purchases (scale-back QE), equities will adjust accordingly.

Did somebody say “crash”?

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

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Mario Piperni on the Latest Right-Wing Lunacy

Something Tells Me It Wasn’t Just Because It Sounded Pretty

DECEMBER 17, 2013 BY MARIO PIPERNI

Sometimes, comrades and friends, the right has to dig down pretty deep to find another reason to despise Obama.

It was once not uncommon in ‘captive’ communist satellite nations (subjugated to the USSR) to give your child a Russian name, mostly to show support for the Soviet system and provide them a leg-up in the commie world. But how many (esp black) Americans do YOU know with a Russian first name?

How amusing it is then that the Obamas’ last federal tax return revealed a fact not publicly known- that ‘Sasha’s actual legal name is ‘Nastasha’, which means ‘birthday’ in the language of the USSR. And something tells me it wasn’t just because it sounded pretty.

Of course it’s a family tradition with Obama—after all, his parents met in Russian language class at the University of Hawaii. And WHAT kind of people took Russian in America in 1961…? Outside of CIA spooks, Lee Harvey Oswald comes to mind…

If nothing else, wingers are an imaginative bunch.

___

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Mother Jones on Expenditures of the Military

Until Sen. Patty Murray (D-Wash.) and Rep. Paul Ryan (R-Wis.) rode to the rescue this week, Pentagon brass and their allies had been issuing dire warnings about the nation’s military readiness: The armed services were being decimated, they said, by sequestration—the automatic budget cuts that were set to trim $1 trillion from the Pentagon budget over the next decade. “It’s one thing for the Pentagon to go on a diet. It’s another for the Pentagon to wear a straitjacket while dieting,” grumbled Rep. Jim Cooper (D-Tenn.). The message got through: The House overwhelmingly approved the Ryan-Murray plan just two days after it was introduced.

But now, the Pentagon has once more gotten a reprieve from the budget ax: Under Murray and Ryan’s congressional budget deal, the Pentagon will get an additional $32 billion, or 4.4 percent, in 2014, leaving its base budget at a higher level than in 2005 and 2006. (The Department of Defense expects its total 2014 budget, including supplemental war funding, to be more than $600 billion.)

Before the budget deal, some critics of defense spending had been ready to accept sequestration as the blunt, imperfect tool that might force the military to shed some of the bulk it acquired while fighting two of the longest and most expensive wars in our history. Even with the sequester in place, the Pentagon’s base budget was set to remain well above pre-9/11 levels for the next decade, and the military would have taken a far smaller haircut than it did after Vietnam and the Cold War wound down.

The wars in Iraq and Afghanistan cost $1.5 trillion, about twice the cost of the Vietnam War when adjusted for inflation. Those funds came entirely from borrowing, contributing nearly 20 percent to the national debt accrued between 2001 and 2012. And that’s just the “supplemental” military spending passed by Congress for the wars—the regular Pentagon budget also grew nearly 45 percent between 2001 and 2010.

No wonder, perhaps, that defense watchdogs found the Pentagon’s wailing about the sequester less than convincing. “These ‘terrible’ cuts would return us to historically high levels of spending,” snapped Winslow Wheeler of theProject on Government Oversight. According to Lawrence J. Korb, a senior fellow at the Center for American Progress, the Pentagon could reduce its budget by $100 billion a year without undermining its readiness. The sequestration cuts for 2013 amounted to $37 billion.

Not so long ago, a hawkish GOP politician called for the “bloated” defense establishment to “be pared down” and retooled for the 21st century. The new budget deal doesn’t reissue the blank check the Pentagon received during the past decade, but it may have removed the incentive to pare down. Below, a field guide to just how big the Pentagon budget is—and why it’s so hard to trim. (That GOP politician? Former Sen. Chuck Hagel, now the secretary of defense.)

Our military is mind-bogglingly big.

• The Pentagon employs 3 million people, 800,000 more than Walmart.
• The Pentagon’s 2012 budget was 47 percent bigger than Walmart’s.
• Serving 9.6 million people, the Pentagon and Veterans Administration together constitute the nation’s largest healthcare provider.
• 70 percent of the value of the federal government’s $1.8 trillion in property, land, and equipment belongs to the Pentagon.
• Los Angeles could fit into the land managed by the Pentagon 93 times. The Army uses more than twice as much building space as all the offices in New York City.
• The Pentagon holds more than 80 percent of the federal government’s inventories, including $6.8 billion of excess, obsolete, or unserviceable stuff.
• The Pentagon operates more than more than 170 golf courses worldwide.

One out of every five tax dollars is spent on defense.

The $3.7 trillion federal budget breaks down into mandatory spending—benefits guaranteed the American people, such as Social Security and Medicare—and discretionary spending—programs that, at least in theory, can be cut. In 2013, more than half of all discretionary spending (and one-fifth of total spending) went to defense, including the Pentagon, veterans’ benefits, and the nuclear weapons arsenal.

We’re still the world’s 800-pound gorilla.

When it comes to defense spending, no country can compete directly with the United States, which spends more than the next 10 countries combined—including potential rivals Russia and China, as well as allies such as England, Japan, and France. Altogether, the Pentagon accounts for nearly 40 percent of global military spending. In 2012, 4.4 percent of our GDP went to defense. That’s in line with how much Russia spends; China spends 2 percent of its GDP on its military.

Too big to audit

Where does the Pentagon’s money go? The exact answer is a mystery. That’s because the Pentagon’s books are a complete mess. They’re so bad that they can’t even be officially inspected, despite a 1997 requirement that federal agencies submit to annual audits—just like every other business or organization.

The Defense Department is one of just two agencies (Homeland Security is the other) that are keeping the bean counters waiting: As the Government Accountability Office dryly notes, the Pentagon has “serious financial management problems” that make its financial statements “inauditable.”Pentagon financial operations occupy one-fifth of the GAO’s list of federal programs with a high risk of waste, fraud, or inefficiency.

Critics also contend that the Pentagon cooks its books by using unorthodox accounting methods that make its budgetary needs seem more urgent. The agency insists it will “achieve audit readiness” by 2017.

Anatomy of a budget buster

In the early 2000s, the Pentagon began developing a new generation of stealthy, high-tech fighter jets that were supposed to do everything from landing on aircraft carriers and taking off vertically to dogfighting and dropping bombs. The result is the F-35 Joint Strike Fighter, whose three models (one each for the Navy, Air Force, and Marines) are years behind schedule, hugely over budget, and plagued with problems that have earned them a reputation as the biggest defense boondoggle in history.

• Rolling out the F-35 originally was expected to cost $233 billion, but now it’s expected to cost nearly $400 billion. The time needed to develop the plane has gone from 10 years to 18.
• Lockheed says the final cost per plane will be about $75 million. However, according to the Government Accountability Office, the actual cost has jumped to $137 million.
• It was initially estimated that it could cost another $1 trillion or more to keep the new F-35s flying for 30 years. Pentagon officials called this “unaffordable”—and now say it will cost only $857 million. “This is no longer the trillion-dollar [aircraft],” boasts a Lockheed Martin executive.
• Planes started rolling off the assembly line before development and testing were finished, which could result in $8 billion worth of retrofits.
• A 2013 report by the Pentagon inspector general identified 719 problems with the F-35 program. Some of the issues with the first batch of planes delivered to the Marines:
  • Pilots are not allowed to fly these test planes at night, within 25 miles of lightning, faster than the speed of sound, or with real or simulated weapons.
  • Pilots say cockpit visibility is worse than in existing fighters.
  • Special high-tech helmets have “frequent problems” and are “badly performing.”
  • Takeoffs may be postponed when the temperature is below 60°F.
• The F-35 program has 1,400 suppliers in 46 states. Lockheed Martin gave money to 425 members of Congress in 2012 and has spent $159 million on lobbying since 2000.

Ways to save a few billion

There are savings to be had within the Pentagon’s massive budget—if politicians can weather the storm that kicks up whenever a pet project is targeted. Here are 10 ideas for major cuts from an array of defense wonks, from the libertarian Cato Institute and the liberal Center for American Progress to the conservative American Enterprise Institute.

PROPOSAL	ESTIMATED SAVINGS
Get rid of all ICMBs and nuclear bombers (but keep nuclear-armed subs).	$20 billion/year
Retire 2 of the Navy’s 11 aircraft carrier groups.	$50 billion through 2020
Cut the size of the Army and Marines to pre-9/11 levels.	At least $80 billion over 10 years
Slow down or cancel the pricey F-35 fighter jet program.	At least $4 billion/year
Downsize military headquarters that grew after 9/11.	$8 billion/year
Cancel the troubled V-22 Osprey tiltrotor and use helicopters instead.	At least $1.2 billion
Modify supplemental Medicare benefits for veterans.	$40 billion over 10 years
Scale back purchases of littoral combat ships.	$2 billion in 2013
Cap spending on military contractors below 2012 levels.	$2.9 billion/year
Retire the Cold War-era B-1 bomber.	$3.7 billion over 5 years

Why Congress spared the Pentagon

A few weeks ago, an agreement to end the cycle of budget crises and fiscal hostage-taking seemed distant. Sequestration had few friends on the Hill, but the parties could not agree on how to ditch the automatic budget cuts to defense and domestic spending. Republicans had proposed increasing defense spending while taking more money from Obamacare and othersocial programs, while Democrats said they’d scale back the defense cuts in exchange for additional tax revenue. Those ideas were nonstarters: Following the government shutdown in October, Senate Majority Leader Harry Reid (D-Nev.) called the idea of trading Social Security cuts for bigger defense budgets “stupid.”

Which explains why Rep. Ryan and Sen. Murray’s deal craftily dodged taxes and entitlements while focusing on the one thing most Republicans and Democrats could agree upon: saving the Pentagon budget. This chart shows why military spending is the glue holding the budget deal together.

Guns and butter

A closer look at the $361 billion handed to military contractors in 2012 reveals the enormous amount of stuff the modern military consumes. Some of the items on the shopping list:

Sources: Office of Management and Budget (historic Pentagon budget chart); Department of Defense (PDF), Congressional Research Service, OMB, House Budget Committee (PDF) (recent/proposed Pentagon budget chart); DoD (PDF), Government Accountability Office (size of Pentagon stats); OMB, Washington Post (federal budget chart); Stockholm International Peace Research Institute (international military spending chart); GAO (F-35 cost chart); GAO, Kara’s Cupcakes (cupcake chart); USASpending.gov (contracts list). Research by AJ Vicens and Eric Wuestwald. Top image: Guyco. Cupcake image: Edward Boatman/ The Noun Project. Charts by Carolyn Perot. Support for this story was provided by a grant from the Puffin Foundation Investigative Journalism Project.

• 

DAVE GILSON

Senior EditorDave Gilson is a senior editor at Mother Jones. Read more of his stories, follow him on Twitter, or contact him at dgilson (at) motherjones (dot) com. RSS |TWITTER

Ezra Klein on the Insurance Gold Rush

In all of 2012, health insurers spent $216 million advertising on local television stations. But that’s nothing compared to what they’re about to spend. According to trade association TVB, insurers will spend more than $500 million on local television ads in 2014. And that’s to say nothing of cable television ads and social media campaigns.

Insurers look at these next few years as a gold rush. Tens of millions of people will be buying private insurance of the exchanges. It’s a swarm of customers like nothing they’ve ever seen. And they plan to capture them — even if they need to spend hundreds of millions of dollars to do so.

The Wall Street Journal reports that WellPoint has been holding off “on a planned campaign as problems with the website made it impossible for many consumers to sign up.” But now thatHealthCare.Gov is more or less working the insurance giant plans to spend $100 million by the end of the year.

These ads aren’t just a boon to local television stations. They’re a boon to the new health law which’ll be promoted in a sustained ad campaign that rivals the presidential election in size and scale. The ads won’t be specifically about Obamacare, of course — they’re about brand building for WellPoint and Cigna and others insurers — but many of the ads will tell consumers where they can go to buy this wonderful product they’ve just heard such glowing things about. Many of the ads will capture the eye of someone who knows they need to buy insurance before tax time but hasn’t quite gotten around to doing it. And then it will direct them to their local exchange, or at least to their insurer’s Web site.

The fact that the insurers are launching their campaigns is also independent confirmation that HealthCare.Gov is rapidly improving. major insurers are virtually the only group aside from the federal government that has real visibility into the functioning of Obamacare’s digital architecture. They know what the pace of enrollment looks like, and how many 834s are being correctly generated, and whether angry customers are calling their help lines. They know there are still problems even if the Obama administration is downplaying them. But if they think the system is sound enough to begin driving people to it that’s good evidence that the improvements are real.

American Exceptionalism and Childhood Poverty