Monthly Archives: February 2014

Decreasing Deficit

The following chart is from the NY Times:

deficit

As the Times notes:

Closing the books on a fiscal year in which the federal budget deficit fell more sharply than in any year since the end of World War II, the Treasury Department reported on Thursday that the deficit for 2013 dropped to $680 billion, from about $1.1 trillion the previous year.

In nominal terms, that is the smallest deficit since 2008, and signals the end of a five-year stretch beginning with the onset of the recession when the country’s fiscal gap came in at more than $1 trillion each year. As a share of the nation’s economy, the budget deficit fell to about 4.1 percent, from a high of more than 10 percent during the depths of the Great Recession.

See the story here.

Advertisements
Image

Thomas Jefferson

Humor: The Borowitz Report

Arizona Confronting Awkward Realization That Gay People Have Money, Buy Stuff
Posted by
boro-arizona.jpg

PHOENIX (The Borowitz Report)—The state of Arizona found itself in the middle of a conundrum today as it awoke to the awkward realization that gay people have money and buy stuff.

Just days after the Arizona legislature passed a law that would enable businesses to discriminate against gays, it emerged that gays spend billions of dollars in Arizona each year—an unexpected development that seemed to take many legislators by surprise.

Carol Foyler, a Tea Party Republican who supported the anti-gay law, said that the startling bombshell that gays play a role in the state’s economy put her and her fellow lawmakers “in a tight spot.”

“Quite frankly, we were blindsided by this,” she said. “We had no idea that gays had money and bought things just like regular people do.”

Acknowledging that her vote for the anti-gay law might have been calamitous for the state’s economy, Ms. Foyler placed the blame for it squarely on the shoulders of one group: the gays themselves.

“How was I supposed to know what gay people do with their money, etc., when I don’t personally know any gay people?” she asked. “I’m sorry, but it was up to the gays to tell us.”

Get the Borowitz Report delivered to your inbox.

Above: Arizona Governor Jan Brewer. Photograph by Bebeto Matthews/AP.

Naked Capitalism: Divvying Up the Loot

Why So Little Media Coverage of How the Rich Are Becoming Richer and the Middle Class Wages Are Being Squeezed?

Posted: 25 Feb 2014 03:14 AM PST

I’m seriously behind in highlighting an article by Ryan Grim and Mark Gongloff on one of the key mechanisms by which CEO pay has risen to stratospheric levels: cronyism and backscratching among board members, many of whom are also CEOs. While this behavior is well understood by most people who know the workings of the top levels of large corporations, the general public is largely in the dark. In addition, it’s one thing to recognize on an anecdotal basis that this sort of favor-trading goes on, quiet another to have it proven in a more rigorous manner. As the Huffington Post article explains:

The rise in U.S. income inequality in recent decades is largely due to massive wealth accumulating at the top of the income scale. The press and popular culture treat this phenomenon almost as if natural forces were guiding it — an invisible hand dealing out different shares to different people.

But the hands doing the dealing are in fact quite visible. They belong to the directors of the boards of the major companies in the U.S. and around the globe. One key source of wealth at the very top is the pay of the executives of our largest companies. That pay is approved by corporate directors, who are themselves paid for their service. Many of those directors are also executives at other companies, meaning they sit on both sides of the arrangement…..

The system operates largely in the open, with corporate records filed publicly for shareholders to view. But there is little practical transparency around the issue. Based on research conducted by [Dean] Baker’s CEPR, which combed through Securities and Exchange Commission filings, HuffPost has built the first-ever interactive database of every director of every company in the Fortune 100.

The database is here, and the article names and describes how this corporate incest works, for instance, describing how as Erskine Bowles approved hefty pay increases for CEOs at underperforming companies.

And remember, even the board members who are not executives at public companies benefit over time from this largesse. As CEO pay zooms upward, board member pay is also reset higher, since the board members are of the same class as the corporate officers they are overseeing and need to be paid appropriately.

Gee, but don’t board members have a duty to shareholders and the corporation to make sure its assets aren’t squandered by paying top executives too much? How can they justify all this wink and nod overpayment? Not to worry, they have all sorts of procedures in place that both make it look legitimate but are guaranteed to keep compensation levitating to the stratosphere. We wrote in 2008 about thepay double standard:

While most commentators on CEO pay correctly focus on the role of options-based rewards in goosing pay from generous to stratospheric, the role of compensation consultants seldom gets the attention it merits.

One practice that I have seen get perilous little mention is where the pay targets are set. Based on their belief of what constitutes good modern practice (influenced in no small degree by the pay consultants) most boards set general target ranges for how they would like the CEO to be paid relative to peers. The comp consultant then helps define and survey the peer group’s pay ranges, setting a benchmark for how the CEO in question is to be paid.

That all sounds fine, right? Well, except just as all the children at Lake Woebegone are above average, no board likes setting a target below peer group norms. I have heard of numerous examples of targets being set somewhere in the top half (66th percentile, top quarter, top 20%), hardly any at the mean, and none I know of below average…

So with this mechanism in place, any CEO who has fallen below median pay who is targeted to be in a higher group will have his pay ratcheted up, independent of performance, merely to keep up with his peers. This increase raises the average and creates new laggards. The comp consultants have institutionalized a leapfrogging process that keeps them busy surveying competitor reward levels and keeps top-level pay rising relentlessly.

Oh, and it gets even better. The fact that CEO compensation has risen so much allows for all the service providers to charge higher rates too. In the days when I was at Goldman (a LONG time ago), the investment bankers were careful not to dress too ostentatiously (well, one broad-shouldered man over 6 feet tall did manage to pull off wearing fur coats) precisely so as not to rub the noses of the less well paid CFOs in the fact that the senior investment bankers made a lot more. Now that CEOs routinely make tens of millions of dollars, they want to engage someone they think is a top or at least a pretty good practitioner, and that means he needs to be well paid, since pay is assumed to be a proxy for quality. After all, an attorney that makes only $300 an hour, or a consulting firm that bills its top partners at a mere $500 an hour can’t be good enough to be doing top executive level work. So a whole raft of professionals gets to ride the slipstream of rising CEO pay (and you see that even more with the professionals who serve the even better remunerated top hedge fund and private equity firm managers).

And in case you missed it, if you aren’t part of any of these elite clubs, a similar process is being used to your disadvantage. From our double-standard post:

Consider the way in which views that are contrary to most wage earners’ interests have been internalized (or at least are promulgated in the media). One meme I have noticed surfacing in the debate over the automaker bailout is that UAW employees are paid more than average workers.

Now in and of itself, that statement is meaningless. You need to have an idea of worker productivity to see whether that it out of whack (and for some odd reason, the bloated and highly paid management cohort almost never gets mentioned in these discussions, nor do the massive state level subsidies to the foreign transplants). Perhaps I missed it, but I do not recall seeing any longitudinal work on labor costs (that sort of analysis would help bring some badly needed facts to the table).

But why is framing the discussion around averages alone dangerous? Let’s say we collectively want to bring car worker pay down to some sort of average. That has the effect of lowering the average. You will have groups that were formerly at the average that are now above it. And if you accept the implicit logic “above average pay is bad” (fill in the blank as to why), you have a race to the bottom due to pressure on the relatively better paid to take less which puts pressure on aggregate pay.

And it is not hard to see that that is precisely what is happening. Not all that long ago, people chose government jobs explicitly because they were lower risk/more stable employment in return for lower pay. They turned out to have made the right bet on the “lower risk” part. But the people who made the bad bet and took the riskier private sector jobs and have now seen pay levels outside a few select sectors (finance and the minions to CEOs and the 1%) have been encouraged, not to demand better pay or insist that the top brass also make sacrifices, but instead have had jealous of those government workers stoked very successfully. Demanding that their wages and benefits be lowered simply paves the way for further grinding down of ordinary worker pay.

As robber baron Jay Gould said, “I can hire one half of the working class to kill the other half.” Today’s uber rich have done Gould one better by getting the lower orders doing their dirty work by undermining each other for free.

Climate Change Flat-Earthers

Determined Ignorance on Climate Change: Still Impervious to Facts

Posted: 24 Feb 2014 02:15 AM PST

By Dan Fejes, who lives in northeast Ohio. Cross posted from Pruning Shears

Climate change is a hard policy question to address because it pits those who believe in evidence against those committed to knowing as little as possible. And unfortunately, the dumbasses control a great deal of political territory, a gigantic ice sheet of stupid that never recedes enough for facts or data to gain purchase. The cretinous mass inched forward this week courtesy of Joseph Curl. His empty-headed triumphalism in the Washington Times is a nearly perfect illustration of the problem: climate change flat-earthers like him simply refuse to acknowledge arguments against their position or pay attention to new developments in the area.

One of the articles of (bad) faith that Curl and others hold dear is that climate scientists were predicting global cooling forty years ago, then flip-flopped and began warning of global warming. Curl references, without link, a 1971 Washington Post article titled “U.S. Scientist Sees New Ice Age Coming.” (Hilariously, Curl provides no description of the piece beyond what’s available at the 2-sentence free article preview. Either the Washington Times is really cheap or Curl is really lazy.) As characterized here (PDF) (via), the article quoted a scientist – singular – who basically said, if we keep seeing this trend continue in a linear fashion it could trigger a new ice age.

Do you know what that is not? It is not a clarion call by the entire scientific community to take immediate action. It was a tentative hypothesis put forward by one scientist. Yet among dimwits this seemingly obvious and gigantic distinction is invisible.

Climate dummies have for years crudely but successfully seized on a handful of items like this and continue to regard them with talismanic significance,1 as though thrusting them out and averting their gaze will successfully ward off approaching facts. This Newsweek article (PDF) (via) is another example. The actual quoted scientific bodies and reports in the article make extremely cautions warnings. But the reporter uses some provocative framing (“If the climatic change is as profound as some of the pessimists fear” etc.) to speculate on some downright apocalyptic possibilities.

Yet instead of drawing a distinction between somewhat sensationalized reporting in the popular press and peer reviewed publication in the scientific press, it all gets mushed together as “cooling then, warming now, it’s all a scam hurf hurf hurf.” It doesn’t seem like a terribly difficult concept to grasp, but it continues to elude the dimmer bulbs among us.

Curl swerves hard to avoid thinking in the next section of his piece as well. He references, but does not point his readers to (is the man allergic to hyperlinks?), a Daily Telegraph piece that attempts to make hay out of 1) a one-year increase in Arctic ice cover and 2) disputing the scientific consensus that warming is happening. Here again we see the problems in attempting to engage the dull witted on the subject.

If one does not understand regression to mean (via) then an increase in ice cover after a record decrease will seem dispositive. Global warming: hoax! (See also.) How do you even begin a debate with someone who doesn’t have the most basic math literacy required to discuss the issue? There’s an old saying that if you point at the moon to a dog it will look at the end of your finger. That’s the kind of situation we’re talking about here.

As for the second point, the two sources quoted by the Telegraph were quickly debunked by facts and stuff. But try to point the likes of Curl to that and, well, never mind. The Telegraph story was the final word on the subject, additional information will not be processed, and presumably we will see this article gleefully cited by the next several generations of ignoramuses.

Having put the pointy headed academics in their place, Curl turns his attention to the liberal media Illuminati:

So what does the MSM do? Simple: Rewrite the parameters to make the “facts” fit their story line.

Fox News Channel’s Chris Wallace finally got around to pointing that out Sunday. “When did ‘global warming’ become ‘climate change’?” the talk show host asked Kimberley Strassel of The Wall Street Journal.

“It became ‘climate change’ when you couldn’t prove that there was much global warming anymore, as the temperatures didn’t change,” she said. “So, suddenly we had to have this catch-all term, what was responsible [which] meant that any change in the weather somehow supported the theory.”

Exactly. And the MSM is ready to move on the new version of “facts.”

Perhaps it was called global warming because in the 80’s the increase of CO2 in the atmosphere was described as the greenhouse effect, and that term gave the best layman’s explanation of the phenomenon. Then, as climatology matured, scientists realized that “global warming” might be misleading2 because it would imply a uniform trend in all places. And they also discovered that there are a whole range of measures apart from global surface temperatures that could help understand the nature of the changes occurring.

Grappling with those facts, though, lacks the simple and straightforward fun of pretending they do not exist and acting like it’s all a big conspiracy.

Such commentary is marked by the complete absence of curiosity and an unwillingness to learn. There’s no sense of: hm, let’s analyze this text a little; let’s see what’s being said by a scientist, what’s being said by the scientific community in general and what’s being said by a reporter. Instead it’s all treated as an undifferentiated mass. Not: this data point exists; let’s see how (if at all) it fits in with overall trends. Just: case closed.

The point here is not to point and laugh at Curl’s stupidity. The point is to recognize that there are stupid people like Curl with high profile platforms they use to broadcast their stupidity. While the impulse for the not-stupid might be to say “God, not this again” and ignore the argle-bargle, the stakes are pretty high with climate change. It’s important, at least occasionally, to go through the tedious exercise of showing just how intellectually bankrupt articles like Curl’s are. Not because it will make any difference to those firmly committed to know-nothingism, but to persuade those who might be considering it that while ignorance might be bliss, it’s nothing to aspire to.


NOTES

1. This kind of preoccupation with anomalies seems to be a thing for dumb people. See also how bogeymen like Bill Ayers and Saul Alinsky loom large in some conservatives’ imagination. Actual liberals don’t cite either as authorities or role models, yet still: Ayers! Alinsky!

Sometimes anomalies are valuable – namely, when a person or group with an ulterior motive briefly allows a carefully maintained persona to drop a little. Moments like that can be revealing, but are also rare enough that it makes sense to hang on to them. See, for example, Paul Weyrich’s line from way back in 1980: “I don’t want everybody to vote…our leverage in the elections quite candidly goes up as the voting populace goes down.”

The difference between a reveal and a hobby horse, though, is subsequent developments. Weyrich’s ideology is all over the modern disenfranchisement effort. That’s why it makes sense to see his comments as a glimpse behind the mask in a way that, for instance, whatever is in Rules For Radicals is not.
(Back)

2. Which it clearly was, at least among numbskulls.
(Back)

Naked Capitalism: Free Trade Is About Control

Matt Stoller: “Free Trade” Pacts Were Always About Weakening Nation-States to Promote Rule by Multinationals

Posted: 21 Feb 2014 03:30 AM PST

Yves here. I hope those of you who are in countries being browbeaten to sign the Trans-Pacific Partnership or the TransAtlantic Trade and Investment Partnership will circulate this post widely.

By Matt Stoller, who writes for Salon and has contributed to Politico, Alternet, Salon, The Nation and Reuters. You can reach him at stoller (at) gmail.com or follow him on Twitter at @matthewstoller. Originally published at Observations on Credit and Surveillance

Here’s part one of this series on the origins of NAFTA and our current trading regime.

It’s amazing what you find in the Congressional Record. For example, you find American political officials (liberal ones, actually) engaged in an actual campaign to get rid of countries with their pesky parochial interests, and have the whole world managed by global corporations. Yup, this actually was explicit in the 1960s, as opposed to today’s passive aggressive arguments which amount to the same thing.

Here’s the backstory.

 

As I wrote in part one of this series on the origin of modern American trade policy, the first real mention of NAFTA in the Congressional record that I could find came from a hearing in 1967. This was a Joint Economic Committee hearing conducted just after a major series of global trade talks known as the “Kennedy round”, from 1964-1967. The Kennedy round went quite far in reducing explicit tariffs, and was a capstone to the trading regime of tariff reductions that FDR and Cordell Hull put in place in 1934 after the Smoot-Hawley tariffs.

After the Kennedy round ended, liberal internationalists, including people like Chase CEO David Rockefeller and former Undersecretary of State and an architect of 1960s American trade policies George Ball, began pressing for reductions in non-tariff barriers, which they perceived as the next set of trade impediments to pull down. But the idea behind getting rid of these barriers wasn’t about free trade, it was about reorganizing the world so that corporations could manage resources for “the benefit of mankind”. It was a weird utopian vision that you can hear today in the current United States Trade Representative Michael Froman’s speeches. I’ve spoken with Froman about this history, and Froman himself does not seem to know much about it. But he is captive of these ideas, nonetheless, as is much of the elite class. They do not know the original ideology behind what is now just bureaucratic true believer-ism, they just know that free trade is good and right and true.

But back to the 1967 hearing. In the opening statement, before a legion of impressive Senators and Congressmen, Ball attacks the very notion of sovereignty. He goes after the idea that “business decisions” could be “frustrated by a multiplicity of different restrictions by relatively small nation states that are based on parochial considerations,” and lauds the multinational corporation as the most perfect structure devised for the benefit of mankind. He also foreshadows our modern world by suggesting that commercial, monetary, and antitrust policies should just be and will inevitably be handled by supranational organizations.

Here’s just some of that statement. It really is worth reading, I’ve bolded the surprising parts.

“For the widespread development of the multinational corporation is one of our major accomplishments in the years since the war, though its meaning and importance have not been generally understood. For the first time in history man has at his command an instrument that enables him to employ resource flexibility to meet the needs of peopels all over the world. Today a corporate management in Detroit or New York or London or Dusseldorf may decide that it can best serve the market of country Z by combining the resources of country X with labor and plan facilities in country Y – and it may alter that decision 6 months from now if changes occur in costs or price or transport. It is the abilityt o look out over the world and freely survey all possible sources of production… that is enabling man to employ the world’s finite stock of resources with a new degree of efficiency for the benefit of all mandkind.

But to fulfill its full potential the multinational corporation must be able to operate with little regard for national boundaries – or, in other words, for restrictions imposed by individual national governments.

To achieve such a free trading environment we must do far more than merely reduce or eliminate tariffs. We must move in the direction of common fiscal concepts, a common monetary policy, and common ideas of commercial responsibility. Already the economically advanced nations have made some progress in all of these areas through such agencies as the OECD and the committees it has sponsored, the Group of Ten, and the IMF, but we still have a long way to go. In my view, we could steer a faster and more direct course… by agreeing that what we seek at the end of the voyage is the full realization of the benefits of a world economy.

Implied in this, of course, is a considerable erosion of the rigid concepts of national sovereignty, but that erosion is taking place every day as national economies grow increasingly interdependent, and I think it desirable that this process be consciously continued. What I am recommending is nothing so unreal and idealistic as a world government, since I have spent too many years in the guerrilla warfare of practical diplomacy to be bemused by utopian visions. But it seems beyond question that modern business – sustained and reinforced by modern technology – has outgrown the constrictive limits of the antiquated political structures in which most of the world is organized, and that itself is a political fact which cannot be ignored. For the explosion of business beyond national borders will tend to create needs and pressures that can help alter political structures to fit the requirements of modern man far more adequately than the present crazy quilt of small national states. And meanwhile, commercial, monetary, and antitrust policies – and even the domiciliary supervision of earth-straddling corporations – will have to be increasingly entrusted to supranational institutions….

We will never be able to put the world’s resources to use with full efficiency so long as business decisions are frustrated by a multiplicity of different restrictions by relatively small nation states that are based on parochial considerations, reflect no common philosophy, and are keyed to no common goal.”

I’m doing this series on the origin of the modern trading regime because of the current controversies over trade policies, including the Trans-Pacific Partnership. It’s striking how, when you look into these efforts, these agreements are not and never have been about trade. You simply cannot disentangle colonialism, the American effort to create the European Union, and American trade efforts. After their opening statements, Ball and Rockefeller go on on to talk about how European states need to be wedged into a common monetary union with our trade efforts and that Latin America needs to be managed into prosperity by the US and Africa by Europe. Through such efforts, they thought that the US could put together a global economy over the next thirty years. Thirty years later was 1997, which was exactly when NAFTA was being implemented and China was nearing its entry into the WTO. Impeccable predictions, gents.

In previous research efforts, I’ve found that there was a serious elite liberal effort called “Atlanticism” to create an explicit world government, and that this effort really did influence how our current leaders think about international policy-making. By 1967, Ball wasn’t an Atlanticist, he dropped his illusions about the ability to combine the globe into one polity. But he was still a utopianist – he didn’t seek an explicit world government, he wanted to build a set of supranational institutions that could manage all the important economic questions, while national leaders got to argue about symbols.

I guess it turns out that the conspiracy theorists who believe in UN-controlled black helicopters aren’t as wrong as you might think about trade policy, and not just because United Technologies, which actually makes black helicopters, has endorsed the Trans-Pacific Partnership. Oh sure they’re wrong, but so are the people who deny that our trade agreements are just about trade. They aren’t. These agreements are about getting rid of national sovereignty, and the people who first pressed for NAFTA were explicit about it. They really did want a global government for corporations. At the time, of course, multinationals didn’t treat American workers like disposable objects, this was the era of the “Treaty of Detroit.” So Ball wasn’t as naive as he would sound today if he used these same words; it wasn’t totally crazy then to assume that global multinationals might operate in good faith. Moreover, given that there had just been two world wars because of nationalism, it also wasn’t crazy to hope that corporations would “wash away national boundaries”.

But what’s interesting is more the why than the what. Ball in particular expressed his idea of a government by the corporations, for the corporations, in order to benefit all mankind. Keep that in mind when you think you’re being paranoid.

The full hearing can be downloaded here, though it is a big file.

Humor: The Borowitz Report

Republicans to Discontinue Use of E-Mail

Posted by
walker-christie-email.jpg

WASHINGTON (The Borowitz Report)—Citing the scandals embroiling Wisconsin Governor Scott Walker and New Jersey Governor Chris Christie, the Republican Governors Association today ordered its members to discontinue the use of e-mail, “effective immediately.”

According to a memo sent to all Republican governors, “Any plots, schemes, conspiracies, or violations of campaign-finance laws should be conducted using pay phones or easily disposable cell phones such as the ones used on ‘The Wire.’ ” The governors were instructed to read the memo once and then either burn or eat it.

Asked to comment on the new policy, Governor Walker’s office responded, “The recipient’s e-mail address was not found in the recipient’s e-mail system. Please check the e-mail address and try resending this message.”

Get the Borowitz Report delivered to your inbox.

The Bartcop.com Collection

gop-1-percent-healthy

 

 

 

jobless-cat-video_3

 

jobs-china_6

 

voter-id-agendagw-big-oil-liars_4

 

gop-butt-fling_6

 

gay-NFL_2

Naked Capitalism: Clawing Back from ‘Chicago Boys’ Neoliberalism in Chile

Undoing the Damage in Chile

Posted: 19 Feb 2014 10:47 PM PST

Yves here. America hates taking lessons from other countries, but Chile looks about to embark on tackling a student debt/overpriced educational system mess that makes ours pale by comparison. So it will be instructive to see how this reform effort takes shape.

By Jayati Ghosh, Professor of Economics and Chairperson at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. Cross-posted from International Development Economics Associates (IDEAs); originally published in the Frontline

It was no surprise to anyone in Chile or outside when Michelle Bachelet romped home convincingly in a landslide victory in the run-off for the Presidential election in December. Indeed, the only surprise was that while she took 62 per cent of the vote, the voting rate itself fell to only 44 per cent of the electorate.

Bachelet, the pediatrician mother of four who was also among the students persecuted by the military dictatorship in the 1970s, has already served as President once. She completed her first term with an incredible 84 per cent popularity rating, which must be a record for any democratically elected leader after four years in office. But the current Chilean Constitution does not allow consecutive terms as President, so she could not contest again. In the interim, between 2011 and 2013, she was the first Secretary General of the newly founded international organization UN Women, but resigned from that position earlier this year to run for President again.

This time around she campaigned on the basis of a more explicitly progressive and transformative agenda, leading a coalition (Nueva Mayoría or New Majority) that includes a wide spectrum of political orientation, from the Christian Democratic Party in the centre to Bachelet’s own socialist-leaning Concertacion to the Communist Party and an array of even more radical student leaders on the left. The very emergence of this coalition and its electoral success suggests that Chile has is finally shaking off some of the torpor induced by the acceptance of neoliberal economic policies by both centre-right and centre-left parties over the past decades.

Of course, it is not that all politics in Chile was in a state of torpor, as young people in particular have been active in questioning structures and strategies that increased inequality and material insecurity. Indeed, the increasingly lively student movement in Chile has been raising important progressive demands relating not only to the privatization of education, but also much else that characterized the neoliberal consensus. Thereby it has arguably been responsible for radicalizing the wider population as well, and pushing the mainstream political discussion significantly to the left.

As it happens, the student movement has harked back to an earlier tradition, when the Communist party and the Socialist party were significant players on the political scene. In the early 1970s the Socialist Salvador Allende became President with the explicit goals of nationalizing the copper industry and pursuing egalitarian economic policies, only to be toppled and killed by a military coup on 11 September 1973, a move that was certainly applauded by the United States and possibly actively assisted by the CIA.

The Pinochet dictatorship that emerged from that violent takeover turned out to be one of the most vicious and brutal regimes in a continent already known for oppressive military rulers. When it was finally terminated at the end of the 1980s, the general bequeathed an economy that had been the laboratory of the neoliberal economic experiment, the happy hunting ground of “Chicago boys” who effectively privatized everything that did not move and much that did. So deeply integrated into global markets had the Chilean economy become, so thoroughly market-centric and driven by the activities of capital in pursuit of ever more profits, that there was little space available for alternative economic policies even in a more democratic setting after the dictatorship ended. So the Socialist party that governed Chile for much of the subsequent period accepted the basic principles of the Washington Consensus in terms of both macroeconomic and microeconomic decisions.

To some observers, Chile is seen as a model of macroeconomic stability because of the strict rules that have constrained its economic policy making. But others point to the dramatically increased inequalities in assets, incomes and access to basic goods and services over this period, making Chile one of the most unequal societies in the region as well as in the world. They also note the massive insecurities faced by workers whose rights are not respected, older people whose access to pensions is uncertain and inadequate and students who are crushed by massive (and often un-repayable) burdens of debt in the course of paying for their education.

These are some of the problems that Michelle Bachelet already had to contend with in her first stint as President. During that tenure, she and her government maintained the generally conservative macroeconomic policies that had become the norm. This included ensuring that with the government fisc was generally in balance and that revenues from copper exports (which still dominate in total exports) were used to finance public spending only in proportion to a reference average price, with windfall gains from global price increases being saved to a war chest for future use.

But that government brought in one major change: undoing the ravages created by the pension systems put in place under Pinochet. The Pinochet regime had created a contributory system managed by private insurance firms. This was both inequitable and inefficient: it excluded large numbers of working people who did not have any social security after their working years were over; it had very high capital costs; it was prone to many market imperfections including moral hazard and opaque and often unjust behaviour of the profit-oriented private insurance companies. In 2008 the Bachelet government changed back to tax-funded social pension system, which coves self-employed and other excluded workers and provides guarantee of a minimum income. This move has been copied by other governments in Latin America thereafter. However, the pension reform is not complete – it stalled during the government of Sebastián Piñera who will remain in office until March 2014 – and it will require additional funding if universal and stable coverage of the elderly is to be ensured.

There are some important concerns at present, which relate to two issues that have been central to recent popular protests: the huge student debt and unequal access resulting from a heavily privatised system of secondary and high education; and the fiscal reform that will necessarily be required to fund the public takeover of most higher education that appears to be the only way to solve the problem. The high cost of education, the uneven quality across institutions, the long years spent in gaining degrees only to face uncertain prospects of employment, are all features that have traumatised the younger generation in Chile for some time now.

Student protests began in earnest in 2006, during Bachelet’s earlier tenure, led by high school and university students. The current system is heavily privatised (more than two thirds of enrolment is in private institutions) and even the better public institutions charge very high fees, especially relative to per capita income and future potential earnings. The tertiary education process is also very prolonged, with even undergraduate degrees taking 4-8 years to earn.

In this high-cost system, banks enable young people from the middle classes to access private universities and the more expensive public universities through a programme of state-guaranteed credit for students. Even with the loans, middle-class families spend around 40 per cent of their income on higher education for their young. The poor are squeezed out altogether. Even among those who do get into the system, dropout rates are high. This affects the students as well as the educational institutions, which are financially responsible for dealing with that cost, so that many such institutions are also deeply indebted and no longer financially viable, creating a mountain of bad debt for banks to deal with eventually. Overall, the system fails everyone because it generates poor public schools, expensive private universities, unprepared teachers and unaffordable loans, which have grave financial consequences for households and eventually for banks.

The student movement has expressed its anger and resentment through a combination of traditional and innovative protests – strikes, huge demonstrations and marches, mass “kiss-ins”, and other means. Their demands include universal access to free public schooling and massive increase in state support to universities, which currently rely mainly on tuition fees. Achieving this will require significant revenue mobilisaiton by the state, which is where the proposals on tax reform and increasing the share of tax revenues raised from corporations and rich households are important.

The Nueva Mayoría coalition has managed to get a simple majority in the Congress, which will be necessary for the tax reform. But they have not got the larger majority required to push through the education reform. Still, there is clear recognition that this must be a major thrust of the new government that will take over in March next year, and already moves to persuade other elected representatives to support this are on. It helps that four important student leaders – all under 30 years old – have been elected to Congress, including the charismatic Camilla Vallejo of the Communist Party and Gabriel Boric.

It is evident that the damage done to Chilean economy and society through all these decades of aggressive neoliberalism was immense and pervasive, and it will take time, patience and a lot of effort to undo it and to create a more equitable and secure society. Even so, it is clearly a time of hope in Chile. As Michelle Bachelet said in her victory speech, “The social and political conditions are here and at last the moment has arrived. If I’m here it’s because we believe that a Chile for everyone is necessary. It won’t be easy, but when has it been easy to change the world?”

Naked Capitalism: Subsidizing Beach-Front Estates

Yes, Virginia, You Pay Subsidies Not Just to Banks But to Flood-Prone Homes of the Rich

Posted on February 19, 2014 by

You are supporting the habits of the rich in more ways than you know, including their love of water views.

Readers may recall that we wrote about the Biggert-Waters Act, a bill to address rising losses in a Federal flood insurance program that had run on a self-supporting basis until the late 2000s. As New Jersey Spotlight explained:

Congress created the National Flood Insurance Program in the late 1960s after Hurricane Betsy hit New Orleans, causing over a billion dollars in damage. Flood insurance was nearly impossible to secure from the private market, so lawmakers felt the federal government had a duty to step in and provide help to residents along the coast. The program was set up to be self-sustaining, borrowing from the U.S. Treasury only when necessary, and it generally worked for several decades. But beginning in 2005, Hurricanes Katrina, Rita, Wilma and several other storms caused it to blow through its budget and go $24 billion in debt.

The mandated increases under Biggert-Waters started hitting at the same time when FEMA issued new flood maps. This is a periodic process, but the latest version reflected recent experience with more frequent and severe storms. As a result, people whose homes had never been in floodplains (and hence required to buy insurance) were newly included,. Those already in a flood area saw their premiums increase, at a minimum due to Biggert-Waters, plus many were hit by having their home moved into a higher risk category. The result was many faced increases of tens of thousands of dollars in annual premiums. For instance, a Bloomberg headline wailed about seven-fold increases; a NOLA story about St. Tammany Parish listed several cases of more than ten times premium increases.

Biggert-Waters is in the process of being cut down into something that causes homeowners less pain, meaning taxpayers will now as a matter of policy (as opposed to by accident) be subsidizing coastal homes. The Senate passed a bill that would delay rate hikes (those to cover the $24 billion shortfall) by four years. Ooh, but the bill expires in four years! House members want some modifications in the Senate bill, but odds are high that some form of relief or de facto termination of the bill will take place. And some of the rate changes related to the flood map redo are being deferred. CNBC reported that:

Certain homeowners who met previous flooding codes that have since been revised won’t see premium hikes for up to two years—but only because a recent spending bill passed by Congress keeps the agency from using funds to implement the hikes.

But there were some people who managed to insulate themselves from these rate increases: the wealthy who petitioned FEMA for a break. In some cases, these properties had already gotten large insurance payouts in previous storms, and had less well heeled, well connected neighbors who got no rate relief. From NBC (hat tip DB):

As homeowners around the nation protest skyrocketing premiums for federal flood insurance, the Federal Emergency Management Agency has quietly moved the lines on its flood maps to benefit hundreds of oceanfront condo buildings and million-dollar homes, according to an analysis of federal records by NBC News.

The changes shift the financial burden for the next destructive hurricane, tsunami or tropical storm onto the neighbors of these wealthy beach-dwellers — and ultimately onto all American taxpayers.

In more than 500 instances from the Gulf of Alaska to Bar Harbor, Maine, FEMA has remapped waterfront properties from the highest-risk flood zone, saving the owners as much as 97 percent on the premiums they pay into the financially strained National Flood Insurance Program.

NBC News also found that FEMA has redrawn maps even for properties that have repeatedly filed claims for flood losses from previous storms..

And FEMA has given property owners a break even when the changes are opposed by the town hall official in charge of flood control.

The article goes through some of the 533 cases it found, staring with a section of beach in the coast of Alabama that was flooded during hurricanes in 1995, 1997, 1998, 2004, and 2005:

That’s why flood maps show most of this beach as a “coastal velocity wave zone,” the area with the highest risk of damage from storm surge…From 2011 through 2013, FEMA granted applications remapping 66 out of 72 waterfront condo towers in Gulf Shores to lower-risk flood zones or off the flood maps entirely. Four others have applications pending. Just two applications have been denied. And next door in Orange Beach, the map lines have been redrawn around four high-rise condo buildings.

One condo (a large highrise building) had its premiums reduced by 94%, another by 97%. Neighboring single family homes got no reductions, and some pay premiums several times as large as that of entire condo towers.

The illustrations come from all over the US and include:

mapnbcnews

A $4 million Hamptons vacation home for an investment manager

A $19 million residence of a former CEO in Naples, Florida

The Mamaroneck Beach & Yacht Club

A tony neighborhood in Hatteras Island

And these gifts don’t stop giving. Emphasis ours:

Giving property owners a method for correcting errors on flood maps is perfectly reasonable, according to national specialists in flood insurance. But considering coastal properties with a history of flooding as low risk has inevitable results, they say:

The owners pay less into the national flood insurance program, where a reduced risk typically means a lower premium. Depending on when the map change is issued, the owners may receive refunds of premiums for the current year and the previous year.

If these properties are damaged in the next hurricane, nor’easter or tsunami, they’re still insured by the national flood program, up to $250,000 in damage to a single-family home, or $250,000 per unit for a condo building, which could add up to $100 million for a high-rise with 400 units…

Being in a less-restrictive flood zone allows owners to use lower construction standards, avoiding breakaway walls and sinking piers and pilings deep into the ground. Such shortcuts encourage overbuilding along the coastline, further increasing the risk to taxpayers.

The condo provision is a doozy, since a flood is presumably only going to damage common areas, any building infrastructure below or at ground, and lower floor units. The insurance per unit provision means the coverage for the units on the higher floors that will not be affected effectively provides a vastly greater effective coverage to these apartment towers than to low rises or single-family homes. Charming.

The next show in this NBC series profiles one of the people who negotiates these super duper discounts for the rich. Stay tuned.