Brewtown Gumshoe: free trade

In the wake of Detroit’s bankruptcy, you may be wondering: How could anyone be surprised that a city so tied to manufacturing faces crippling problems in an era that has seen such an intense public policy assault on domestic American manufacturing? You may also be wondering: How could Michigan officials possibly talk about cutting the average $19,000-a-year pension benefit for municipal workers while reaffirming their pledge of $283 million in taxpayer money to a professional hockey stadium? ...

It’s a straightforward conservative formula: the right blames state and municipal budget problems exclusively on public employees’ retirement benefits, often underfunding those public pensions for years. The money raided from those pension funds is then used to enact expensive tax cuts and corporate welfare programs. After years of robbing those pension funds to pay for such giveaways, a crisis inevitably hits, and workers’ pension benefits are blamed — and then slashed. Meanwhile, the massive tax cuts and corporate subsidies are preserved, because we are led to believe they had nothing to do with the crisis. Ultimately, the extra monies taken from retirees are then often plowed into even more tax cuts and more corporate subsidies.

Just How Generous Are Detroit's Worker Pensions for Retirees?

"My basic takeaway was that [Detroit's] pension system itself was not overly generous," said Jean-Pierre Aubry, assistant director of State and Local Research at Boston College's Center for Retirement Research...

Retired general city workers, such as librarians or sanitation workers, received average payments of $18,275 a year in 2011, according to the Detroit General Retirement System...

While retired Detroit firefighters and police officers receive more generous pension checks than auto workers -- checks averaged almost $30,000 a year in 2011 -- they often don't receive the added bonus of Social Security payments.

We Need A Federal Bailout for Detroit's Pensions

Does $1,500 a month after hauling garbage cans your whole adult life really sound like a fortune? ...

Retired Detroit employees didn't cause the financial crisis of 2008, which hit the pension plan's investment fund hard. Yet they're being handled as if they were morally equivalent to the Wall Street creditors who did. As the New York Times reports, the unelected city manager's plan would "treat bondholders the same as retirees" and ask them both to sacrifice...

The average Detroit city pension is slightly less than $19,000 per year. For police and firefighters, pensions are their only source of retirement income. (They don't have Social Security.)

Five myths about Detroit

The real culprit in the city’s decline has been federal policies that put corporate health ahead of community health, such as free-trade agreements that sacrifice U.S. jobs for foreign trade...

Detroit’s major financial problem is that its shrinking tax base has meant years of declining revenue. Remember, the city has lost more than 1 million residents since its population peaked in the 1950s. Those who blame pensions confuse cause and effect — like blaming a personal bankruptcy on a pesky car loan after one’s salary was cut in half. The difference, of course, is that getting rid of a car you can no longer afford isn’t the same as reneging on a promise to 21,000 retirees.

Tuesday, July 9, 2013

Saturday, April 28, 2012

U.S. Firms Adding Jobs ... Overseas

Wall Street Journal & The Big Picture

Sunday, January 2, 2011

Deja Vu

Tom Still, at the Journal, has a whopper (and laughable) wish list for business growth. We'll take this steaming pile one turd at a time.

He begins with a defense of tax cuts and the wealthy. He wants us to ignore increasing unemployment, poverty, inequality, wage stagnation, increasing health care costs, declining retirement coverage, amongst the many other hardships the bottom 99 percent face. He finds justification because a select few earning the most also happen to pay a lot in taxes. The funny part is when he states, "They [the rich] already pay their fair share and help keep the economy humming." Indeed, nearly 10 percent unemployment, foreclosures, and increasing poverty - that's humming along.

Next free trade is given boosterism. Here the typical right-wing talking-points are on display. Free trade, no strings attached, is good policy...damn the evidence. Luckily more reasoned analysis is out there - Jobs With Justice and Economic Policy Institute.

The University of Wisconsin system, we're informed, will get the "freedom to manage its own resources." Which means they will be responsible for more of their own costs. Slowly spinning our UW system into a quasi-privatized entity. Again, as is the problem with everything in life for right-wingers, the system has too much regulation from the state. Running the university system like a business will produce much better results. (Yes, I'm trying to hold back my laughter, too.) Just look at how great this privatization scam has worked for the economy.

Now we get to the magical world of venture capital. As I've written earlier, "Josh Lerner, of Harvard, has found the number of exceptional venture capitalists is very small. Harold Bradley, of the Kaufmann Foundation, believes venture capitalists have plenty of money, but allocate it very inefficiently, and therefore should not be receiving additional public dollars with the hope of boosting a local economy. Bradley and Carl Schramm, in an article for Business Week, write that the current focus on fees has promoted start-up flipping rather than nurturing." Another attempt of throwing those well-worn conservative talking-points -- entrepreneurial, venture capital, flexibility, etc. -- out there and seeing what sticks.

Mr. Still would also like Congress to reauthorize the Small Business Innovation Research grant program. This is another area I find so hypocritically disturbing among conservatives. They bad mouth everything about government. They talk of how omnipotent business and the market are. But, for some reason, government money and initiatives are the crucial elements for so much of private sector progress.

It's 2011, but some things never change. Delusions and misinformation are out in full force to start the new year.

For Further Reading:

Incidence of Taxes

Progressive & Regressive Taxation in the U.S.

Wisconsin State & Local Taxes

Wisconsin Tax Exemption Devices

Sunday, March 7, 2010

May The Force Be With You

"The force of globalization can't be stopped," declares John Torinus in his latest Journal Sentinel rant. This type of thinking is typical of the business class. They believe in the magic of the market - an unstoppable force which always gravitates toward optimal outcomes. The problem with this paradigm is that it leads to a global race to the bottom, which ends up decreasing labor standards, while rewarding mobile capital.

He points to Mexico, and our trade relationship with them, and concludes it's a "major plus, a job creator." But, as I wrote in an earlier post, 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.

Torinus also claims, "Companies must go where the business is, not where you want it to be." So why are subsidies and tax breaks given out to lure companies? Just as the two Spanish companies (which Torinus mentions) whom are moving some operations to Milwaukee based on subsidies, not simply business nor competitive advantage (which Torinus doesn't mention).

I guess when one believes so blindly in a theory, which one also benefits and profits handsomely from, it's hard to let historical and empirical evidence get into the picture.

Saturday, April 12, 2008

Class Warfare

The Milwaukee Journal Sentinel’s take on the Columbian trade agreement, “In a fog over trade,” is just more refuse on the pile of globalization garbage being pushed by the free traders. “Democrats once had a reasonable trade policy. They understood that if the economic pie grows, everyone benefits,” chimes the editorial. The economic pie has grown for the last three decades. (Although this growth was not as stellar as the growth during our belittled three-decade, post WWII, high-tax, semi-protectionist days.) Yet wages over our modern, free trade, period for most Americans have stagnated. Wages have not kept pace with productivity, which was supposed to be part of the deal when it was being pushed in arrangements like the NAFTA. In reality, free trade agreements are a means of reversing the power of labor, which workers have fought decades for.

The implication is globalization is a Pareto improvement. Globalization is a change that makes some better off and only a few, so they hope, worse off. But, as we see, this isn't reality. Some are better off, but many are worse off. It's as if we're reinventing the wheel. Developed countries' workers have earned their fair share of the economic pie (fair wages) and the inherent rights from the struggle to obtain such. To simply allow other laborers (lower wage in totalitarian states) to be exploited, thereby weakening and fracturing Labor as a whole, merely redistrbutes profit upward to Capital rather than Labor. This is neither a productive nor a fair economic model the U.S. should be exporting or participating in.

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 editorial states, “The United States must live in the real world - the real globalized world. Protectionism doesn't allow for that.” Japan, Canada, and most European countries enjoy a standard of living as well as if not better than ours. On numerous quality of life indicators, these places score better than the U.S. But they also pay better wages, have universal health care, and have better institutional supports for those at the lower rungs of the ladder. Protectionism does allow for that. In fact, almost all countries have used protectionist measures to protect their infant industries and to develop economically throughout time.

Our new unregulated, hyper-financialized and securitized, speculative economy is the prime culprit in the modern-day war against Labor. Capital is opening up borders around the world so they can avoid regulation, environmental concerns, and paying a decent wage. We have morphed from an economy fueled on labor and production into a capitalist casino. Today, circulating money around the world in highly dubious financial transactions is the key to wealth creation.

Unadulterated free trade, virtually non-existent taxes, and the lack of any protectionist measures, as an economic development policy is a modern scheme (neoliberalism and/or the Washington Consensus). 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.

Maybe it’s time for America to, rather than jingoism and conceding to business, start applying, again, the principles established in the late 19th and early 20th centuries and strengthened by the New Deal. The standards that allowed one to earn a living wage, afford health care, a home, and be able to retire. This, alongside stronger modernized regulations to curb the risky speculative greed culture. Trying as much as possible to follow the policies of that time of shared prosperity, such as the post WWII period, when the middle-class was created.

55 percent of Americans make under $50,000 a year; and 30 percent make under $25,000 a year. Globalization, which merely allows cheap labor to compete with well-organized labor, benefits the CEOs and shareholders, whom are few in number and contribute nothing to the productive economy. While the wages and rights of the workers, the ones actually producing the goods, are steadily undercut. So, as we see, it’s more of the same old story – the workers make the sacrifice, the rich reap the rewards. I guess this is the "real world" the Journal Sentinel wants to promote?

For Further Reading:
Crunchian Take on Globalization
Economics of Globalization
Essays on Globalization
Essence of Neoliberalism
Global Networks, Imperial Culture
Great Myths and False Promises
Great Myths of Globalization
Labor History
Myth of Foreign Investment Benefits
Rethinking the Global Political Economy
Union Movement's Proud Past
What is Neoliberalism?

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

Brewtown Gumshoe

Thursday, January 13, 2022

Midweek Reading

Sunday, June 5, 2016

Sunday Reading

Saturday, July 27, 2013

Correcting The Right-Wing Myths About Detroit