Monday, March 24, 2008

Obama Making Corporate Hacks Nervous

John Torinus, of the Milwaukee Journal-Sentinel, wrote a Sunday March 23, 2008 article, Obama speech full of anti-business rhetoric, lambasting Barack's willingness to confront the business community. Everyone should know by now that in our fascist state, where corporate and government interests are one in the same, no such debate should be proposed.

Torinus asserts, "No Wisconsin corporate executive has been charged with corruption...that can't be said for political or religious leaders." He then goes on to say that these executives are actually trying to solve social problems. Hmmm, how are they doing this? By avoiding $1.3 billion in taxes yearly?

But Obama's premise wasn't merely a jab at Wisconsin's business sector, but at the entire corporate ethos, making Torinus' argument misplaced and illusory. Barack is referencing the likes of the Savings & Loan scandal, Long Term Capital Management, Enron, WorldCom, Arthur Anderson, CountryWide, et al. This isn't simply bad judgment by a few; this is the corrupt paradigm under which big business seems to operate these days.

Torinus then states that except for a few bad apples, corporate accounting is practically infallible, while it is government accounting that is full of fuzzy math. I'd have to agree this is true for the Bush administration, but not for most of government. Especially since the mid-1980s, more and more accounting gimmicks, which originated in the private sector, have come to light and have cost taxpayers billions of dollars.

One of his best lines, also a complete distortion, is that none of this is really the corporate sector's fault, but the fault of Congress because they make the rules. The corporations are merely taking advantage of them. Remind me, though, who again is paying for these politicians to get elected? Oh, that's right, the same corporations dodging taxes, increasing the burden on average Americans, and then having their bought-and-paid-for politicians write legislation in their favor. Ethics no longer apply. Scapegoats are aplenty when accountability begins reaching up the hierarchy.

Another absurdity Torinus spews forth, "When a government runs red ink, it either prints more money or raises taxes and then stumbles on. Businesses go under." Actually this is not the case for the big ones, who have their political apparatchiks lobbying and legislating in their favor. They, as we've seen recently, have the Federal Reserve step in and bail them out, passing the bill of their speculation and mismanagement on to the taxpayers.

Also, sorry Mr. Torinus, the rich don't "carry a hugely disproportionate share of the tax burden." As a percentage of income earned, most states tax their low- and middle-income earners more than the rich. (Though, obviously, if his point was that a millionaire pays, in total dollars, more than a poor person...duh! But when we're talking proportions, a better measure to use is percentage of income paid. But as such an astute businessman, I'm sure he knew that.) And while we're at it, Wisconsin has one of the lowest corporate tax rates in the U.S. The low, almost non-existent, corporate tax rate given to Wisconsin business is well known to Torinus. He is the chairman of Serigraph Inc., which paid nothing in Wisconsin corporate taxes in 2003 and 2004. He is also a board member of Wisconsin Manufacturers & Commerce (the lobby for Wisconsin big business), an organization where even when it's members pay no taxes at all still feel taxation is too high.

Please, Mr. Torinus, you and your ilk in the corporate community whom have benefited most from the largess of government over the past three decades, stop baldly lying and presenting a false reality about what a harsh environment you operate in. Stop repeating your same phony lines and baseless claims. The middle-class is disappearing, inequality is rising, unemployment and poverty are rising, CEO compensation is climbing, and the corporate tax rate is continually falling (along with any and all taxation on capital). Spare us your woe-is-me diatribes for the corporate sector.

For Further Reading:
Free Lunch and Perfectly Legal by David Cay Johnston
Big Box Swindle by Stacey Mitchell
The Great American Jobs Scam by Greg LeRoy
Tax Fairness Institute for Wisconsin's Future
White House For Sale

Sunday, March 16, 2008

NAFTA & The Myth of Free Trade

John McCain recently indicated his position in the free trade debate and belittled his Democratic challengers by dismissing their reservations about and proposals of possible reform for the North American Free Trade Agreement (NAFTA). Yet, why should we trust McCain's judgment of NAFTA or anything closely resembling economics when he readily admits he doesn't understand the subject?

McCain went on to state, "The fundamentals of our economy are still strong." Huh? I think he's been on the campaign trail a bit too long. You don't have to have be an economics PhD to read the newspapers and grasp that our economy is headed in the wrong direction. Many parties and policies are to blame for this downturn. Reagan/Thatcher deregulation, lower taxation, and decreased protectionism; Greenspan/Rubin/Clinton continued deregulation, balanced budget obsession, and the dollar/stock/housing bubbles; and Bush's even lower taxation, deregulation, and costly and unnecessary war. So as we can see, there is a theme running through the last three decades and much of it is coming to a head.

In the 1980s we bailed out the savings & loan industry. Which, as Paul Krugman calculates, cost taxpayers 3.2 percent of GDP, or the equivalent of $450 billion today. Today, we're bailing out the cesspool that is the subprime mortgage industry. Both were caused by excessive deregulation and lack of oversight into the activities of what have become evermore-risky financial schemes. The U.S. has been on a steady path of lowering taxes on its corporations, tearing down trade restrictions (mostly to undercut labors' gains and their bargaining power), and removing any management and boundaries of standards of acceptable business practice. We're letting the foxes watch the hen house. All of this is done to please Wall Street-ers and to cook the books for acceptable quarterly returns for shareholders.

As Nouriel Roubini notes there now exists a shadow financial system, composed of conduits, money market funds, hedge funds and other non-bank financial institutions. "The Fed now can lend unlimited amounts to non-bank highly leveraged institutions that it does not regulate...By lending massive amounts to potentially insolvent institutions that it does not supervise or regulate and that may be insolvent the Fed is taking serious financial risks and seriously exacerbating moral hazard."

We've entered into an era of uber casino capitalism where rules and ethics no longer apply. Aided by bought-and-paid-for government policies, elite capital plunders and pillages the globe in search of higher returns. This is all claimed under the guise of creating jobs, advancing democracy, increasing wages, and advancing civilization. Yet all of these assertions are empirically and demonstrably false.

Alice Amsden, an MIT economist, has demonstrated that most of the successful Asian nations have violated every aspect of the law of comparative advantage on their path to economic success. Ha-Joon Chang, a Cambridge economist, has shown that almost all countries have used protectionist measures to protect their infant industries and to develop economically throughout time. Unadulterated free trade, virtually non-existent taxes, and the lack of any protectionist measures, as an economic development policy is a modern scheme. This is a ruse that is failing miserably. Developed countries grew at 3.2 percent during the 1960-1980 period. Their growth stalled to just 2.2 percent, from 1980-2000. Over this same time, developing countries growth decreased from 3 percent to 1.5 percent.

Alexander Hamilton, America's first treasury secretary, proposed measures to protect America's infant industries. Since 1791, up until the Second World War, the U.S economy grew behind huge tariff walls, with industrial tariffs ranging from 25 to 40 percent. Direct government participation and protection of industry resulted in the economic strength and maturity of the nation. "Within 200 years, when America has gotten out of protection all that it can offer, it too will adopt free trade," Ulysses Grant (civil war hero, U.S. president 1868-1876) commenting on U.S. trade policy with parallels to England's history of protection and their change in attitude to free trade when they saw that they had gotten all that protection could offer them.

The countries that have accomplished economic ascendancy have done so by fashioning policies to their own needs, not by following neo-liberal orthodoxy (aka The Washington Consensus). Today, China and India have tariffs ranging between 20 and 30 percent on manufactured goods. The productivity gap between rich (developed) and poor (developing) countries is much higher today than it was, so it only follows that tariffs should also be higher. The ratio of per capita income in purchasing power parity between the richest and poorest developed countries was, at most, four-to-one. Today the gap is around fifty-to-one. Today's developing countries will have to impose higher tariff rates than those used by developing countries in the past if they are to provide the actual same degree of protection to their industries. Infant economies cannot compete with mature ones. Free trade agreements between countries with vastly different levels of productivity cannot succeed over the long-term.

From 1993 (NAFTA's inception) to 2002, the U.S. lost 879,280 jobs due to the trade agreement. Wisconsin has lost 23,028 jobs due to NAFTA over this period. Productivity has risen by 48 percent since 1973, yet real hourly compensation has increase by only 20 percent. In 1973 manufacturing accounted for 24 percent of total U.S. employment, it is now only roughly 10 percent. Trade liberalization has been most hurtful to those without college degrees, whom have actually seen their wages decline.

The neoliberal experiment has failed. It's time for a new New Deal. Imagine that -- government restricting corrupt financial practices and putting the people back to work, whilst also initiating some new programs, legislation, and policies aimed at benefiting the majority of the population rather than a select monied few. As Stanley Kutler's recent article states, "The New Deal launched vast public works projects, expanding and improving the nation's infrastructure...More than eight million people working on one million projects, benefited from the program. The Roosevelt administrations enduring legacy came from its reform measures...the Social Security Act...legislation and regulatory commissions for banking, securities, communications, and labor practices." If only we hadn't spent the last three decades tearing apart these policies and legislation, much of today's horrible financial news and depressing economic conditions could have been averted.

And this also ties into immigration, obviously. First, although this is free trade and is supposed to be based on Ricardo's comparative advantage, which is supposed to lead to efficiency and productivity gains. But with the U.S. continually subsidizing farmers, we artificially lower the price of American agricultural exports and hurt developing countries. Such as Mexico, in one area where they can actually produce at a lower cost. Instead, our subsidized agri-business drives Mexican farmers off their land because of our low priced agricultural products. And, because of this, Mexican wages have actually fallen since NAFTA. Hmmm, I wonder where they might go to find better wages?

For Further Reading:
Challenging Neoliberal Myths
Consensus Against Neoliberal Washington Consensus
Economics of Empire
Fair Trade
False Promises on Trade
How the Washington Consensus Endangers U.S. National Security
Myth of Free Trade
NAFTA at Ten: The Recount
Post-Washington Dissensus
Rethinking Global Political Economy
Subprime Bailout Bonanza

Friday, March 7, 2008

CEO Compensation Scam

Long overdue, the House Oversight and Government Reform Committee is looking into the ridiculously overblown CEO compensation. Executives are now averaging pay that is over 300 times as large as their average worker (in the late 1960s, CEOs earned about 25 times as much). CEOs have seen double digit pay increases, year-in and year-out. Average workers have been lucky to see their pay keep up with inflation. If the minimum wage had seen the same increase as CEO pay since 1990, the minimum wage would be $23.03.

Even when they drive their companies into the ground, or merely oversee their company's stock devalue by 80 percent or so, these Captains of Industry walk away with millions if not hundreds of millions of dollars in compensation. The executives' pay, alone, takes roughly 10 percent of aggregate net company earnings. And, the tax code also allows many nefarious ways to avoid or lower taxation on this overly generous compensation.

Additionally, as Dean Baker comments, "The typical CEO is not producing great returns for shareholders. The average return is weak, and in many cases shareholders are incurring loses due to CEO mismanagement."

Yet the mainstream media has to nerve to write stories complaining about workers whom make a living wage, or actually have health insurance and some sort of retirement plan, as if everyday laborers are the cause of companies budgetary problems. We keep getting fed this story that all workers need to be Wal-Mart-ized (low wages, no health insurance, etc.) if we want to compete in the global economy. It's always the unions fault. Those damn Joe and Jane Six-packs! How dare they ask for a wage that allows them to own a home, pay their utilities, afford medical care, and, god forbid, take an occasional vacation.

Hopefully this is just the beginning of the pulling back the curtain on this inverse Robin Hood scheme the elite have been practicing for the last three decades, whereby workers are the enemy and in need of downsizing, while the rich, no matter how horribly they fail, are allowed to extract larger and larger rewards year after year.

Wednesday, March 5, 2008

Subsidizing Mansions

Here is an alarmingly informative October 18, 2005 article from Professor Peter Dreier (key points are italicized below):

The two major homeowner tax breaks cost the federal government almost $90 billion last year—$70.1 billion for the mortgage interest deduction and $19.3 billion for the property tax deduction.

Less than one-fourth of all low-income Americans (those who have Section 8 rental vouchers or who live in government-assisted developments) receive federal housing subsidies. In contrast, almost two-thirds of affluent Americans—many living in mansions—get housing aid from Washington.

More than half (53.7 percent) of last year's $89.5 billion homeowner subsidies went to the 11.8 percent of taxpayers with incomes over $100,000. More than one-fifth (20.6 percent) of these subsidies went to the wealthiest 2.3 percent of taxpayers with incomes over $200,000—some living in mansions.

Wealthy households are most likely to own homes and to itemize deductions. Half of all homeowners do not claim deductions at all.

62 percent of households with incomes above $200,000 receive a homeowner tax break, averaging $7,219. In contrast, only 3.5 percent of households with incomes between $10,000 and $20,000 get any subsidy, averaging $317.

Only one-third of the 52 million households with incomes between $30,000 and $75,000 receive any homeowner subsidy.

Sunday, March 2, 2008

Development, Sprawl and Water

Sprawl: low-density, lacks mixed-use, separates residential from non-residential property, lacks mass transportation options, increases auto-dependence and commute times, consumes more and more green space, and lacks affordable housing.

I know suburbanites feel they can just continue growing outward, building more roads and sewer lines, paving over more and more green space, and this will have no deleterious effects. Yet the real debate we should be having over the Great Lakes Water Compact is that the suburbs (and sprawl) are a misguided, unsustainable pipe-dream. We don’t have enough money to take care of the roads we have now, yet some want us to continue sprawling outward. America has more paved mileage per capita than any other country. Sprawl is merely duplicating infrastructure we already have. People complain about taxes now, yet they want to continue sprawling, which will only require more police, more maintenance, more of everything, which includes more taxes.

White flight and the “screw the inner-city” attitude is what drove suburbanites outward in the first place. All of this was encouraged by the highway and home-building lobbies. Suburbanites turned their backs on the problems of the city. This was also aided by federal policies. The Federal Housing Administration provided government-insured mortgages to whites in the suburbs (while denying them in the inner-city). Policies have also kept gas prices artificially low, while reserving gas tax and highway toll revenues for road-building rather than mass transit, which subsidizes suburban commuters and continued sprawl.

Another much touted, yet becoming more so destructive, policy tool is tax incremental financing (TIF). These were initially established to bring investment to blighted, low-income areas. But nowadays, more states are loosening their eligibility requirements and allowing affluent areas to reap the benefits. TIFs allow a municipality to issue a bond to pay for part of the costs of the new development. The property tax revenue generated by the development is then used to pay off the bonds. Some municipalities also allow sales tax increments, where the sales tax generated by the new development can be diverted to redevelopment costs.

The City has the trump card in these negotiations. If suburbanites want access to the City's water: 1) move back to the city, 2) pay a ridiculous amount for the water (to offset the negative externalities of such development), 3) pay for mass transit improvements to link inner-city unemployed with suburban employment, or 4) make some effort and recognition to show that suburbanites understand their present water-deprived reality and are willing to work towards a long-term, sustainable resolution.

We cannot keep pretending that we can do whatever we wish and mold nature to our liking. The suburban land of strip malls and highways is a blight and cancer on our landscape. The idea that suburbanites can use Lake Michigan water, take it from the Great Lakes Basin, divert it west of the Subcontinental Divide, and never return it, or somehow return it through pipelines, does nothing to address the unsustainable nature of sprawl, which is devouring our green space and natural habitat nationwide. And, as Barbara Miner reports in her Milwaukee Magazine article The Politics of Water, "One of the world's oldest lakes took less than 50 years to shrink away...diverting the Aral Sea's tributary rivers in order to grow cotton in the desert - turned into a massive ecological disaster." In the last few decades the U.S. population has grown by roughly twenty percent, but urbanized land has grown by over fifty percent. This cannot continue.

The simple fact that certain localities are running out of water is Nature’s way of saying you were not supposed to be there in the first place. The sooner we realize that we can’t keep running from our problems and building over evermore green space with parking lots and highways, the better off we will be, and the better off the planet will be.

For Further Reading:
Fair Faucet
A Firm Hand on the Spigot
Great Lakes Deal Announced
Great Lakes Forever
Options Running Dry
State Struggles on Where to Draw the Line
Those who control oil and water...
Time to start paying waters real price