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Monday
Dec052011

US police departments have been “Israelified” to fight “crimiterror.”

Discussion in an email forum about the sometimes-violent police responses to peaceful Occupy demonstrators evoked this odd and disturbing story. The Bureau of Reclamation is proposing to relocate the road over little Vallecito dam in remote southwestern Colorado because, according to BuRec

[N]ew concerns about keeping federal facilities safer from possible terrorist attacks have resulted in the Bureau of Reclamation (Reclamation) restricting access to its dams. Relocating this road would also help achieve this need.

A local resident who is in our forum reported this:

[T]he head of BOR, at an open public meeting at the community center, told me that no, he couldn't answer the question about whether it was true or not that Homeland Security paid for the road, and that I should get used to not knowing things. "It's as if you are living in Israel from now on and you should get used to this." I swear to God, he really said those words you are living in Israel to me, in the open, at this meeting. I've had TSA people in the airport throw Israel at me as well. Someone is training them, telling them to say this.

Whether government officials are trained to refer to Israel or whether such statements are unauthorized candor is unkown, but Max Blumenthal says in this long and extensively-sourced investigative report that federal, state, and local law enforcement agencies all over America are being trained by Israeli agencies not just in counterterrorism, intelligence gathering, and transportation security but also in crowd control. Bye bye community policing; hello police at war with their communities.

Some excerpts from the Blumenthal piece:

The process of Israelification began in the immediate wake of 9/11, when national panic led federal and municipal law enforcement officials to beseech Israeli security honchos for advice and training. America's Israel lobby exploited the climate of hysteria, providing thousands of top cops with all-expenses paid trips to Israel and stateside training sessions with Israeli military and intelligence officials. By now, police chiefs of major American cities who have not been on junkets to Israel are the exception.

"Israel is the Harvard of antiterrorism," said former US Capitol Police Chief Terrance W. Gainer, who now serves as the US Senate Sergeant-at-Arms. Cathy Lanier, the Chief of the Washington DC Metropolitan Police, remarked, "No experience in my life has had more of an impact on doing my job than going to Israel." "One would say it is the front line," Barnett Jones, the police chief of Ann Arbor, Michigan, said of Israel. "We're in a global war."

. . . .

The Jewish Institute for National Security Affairs (JINSA) is at the heart of American-Israeli law enforcement collaboration. JINSA is a Jerusalem and Washington DC-based think tank known for stridently neoconservative policy positions on Israel's policy towards the Palestinians and its brinkmanship with Iran. The group's board of directors boasts a Who's Who of neocon ideologues. Two former JINSA advisors who have also consulted for Israeli Prime Minister Benjamin Netanyahu, Douglas Feith and Richard Perle, went on to serve in the Department of Defense under President George W. Bush, playing influential roles in the push to invade and occupy Iraq.

Through its Law Enforcement Education Program (LEEP), JINSA claims to have arranged Israeli-led training sessions for over 9000 American law enforcement officials at the federal, state and municipal level. "The Israelis changed the way we do business regarding homeland security in New Jersey," Richard Fuentes, the NJ State Police Superintendent, said after attending a 2004 JINSA-sponsored Israel trip and a subsequent JINSA conference alongside 435 other law enforcement officers.

During a 2004 LEEP trip, JINSA brought 14 senior American law enforcement officials to Israel to receive instruction from their counterparts. The Americans were trained in "how to secure large venues, such as shopping malls, sporting events and concerts," JINSA's website reported. . . .

Cathy Lanier, now the Chief of Washington DC's Metropolitan Police Department, was among the law enforcement officials junketed to Israel by JINSA. "I was with the bomb units and the SWAT team and all of those high profile specialized [Israeli] units and I learned a tremendous amount," Lanier reflected. "I took 82 pages of notes while I was there which I later brought back and used to formulate a lot of what I later used to create and formulate the Homeland Security terrorism bureau in the DC Metropolitan Police department."

Some of the police chiefs who have taken part in JINSA's LEEP program have done so under the auspices of the Police Executive Research Forum (PERF), a private non-governmental group with close ties to the Department of Homeland Security. Chuck Wexler, the executive director of PERF, was so enthusiastic about the program that by 2005 he had begun organizing trips to Israel sponsored by PERF, bringing numerous high-level American police officials to receive instruction from their Israeli counterparts.

PERF gained notoriety when Wexler confirmed that his group coordinated police raids in 16 cities across America against "Occupy" protest encampments. As many as 40 cities have sought PERF advice on suppressing the "Occupy" movement and other mass protest activities. Wexler did not respond to my requests for an interview.

. . . .

Besides JINSA, the Anti-Defamation League (ADL) has positioned itself as an important liaison between American police forces and the Israeli security-intelligence apparatus. . . . Through the ADL's Advanced Training School course on Extremist and Terrorist Threats, over 700 law enforcement personnel from 220 federal and local agencies including the FBI and CIA have been trained by Israeli police and intelligence commanders. This year, the ADL brought 15 high-level American police officials to Israel for instruction from the country's security apparatus. According to the ADL, over 115 federal, state and local law enforcement executives have undergone ADL-organized training sessions in Israel since the program began in 2003. "I can honestly say that the training offered by ADL is by far the most useful and current training course I have ever attended," Deputy Commissioner Thomas Wright of the Philadelphia Police Department commented after completing an ADL program this year. . . .

The ADL claims to have trained over 45,000 American law enforcement officials through its Law Enforcement and Society program, which "draws on the history of the Holocaust to provide law enforcement professionals with an increased understanding of…their role as protectors of the Constitution," the group's website stated. All new FBI agents and intelligence analysts are required to attend the ADL program, which is incorporated into three FBI training programs. According to official FBI recruitment material, "all new special agents must visit the US Holocaust Memorial Museum to see firsthand what can happen when law enforcement fails to protect individuals."

Fighting "crimiterror"

Among the most prominent Israeli government figure to have influenced the practices of American law enforcement officials is Avi Dichter, a former head of Israel's Shin Bet internal security service and current member of Knesset who recently introduced legislation widely criticized as anti-democratic. During the Second Intifada, Dichter ordered several bombings on densely populated Palestinian civilian areas, including one on the al-Daraj neighborhood of Gaza that resulted in the death of 15 innocent people, including 8 children, and 150 injuries. "After each success, the only thought is, 'Okay, who's next?'" Dichter said of the "targeted" assassinations he has ordered.

Despite his dubious human rights record and apparently dim view of democratic values, or perhaps because of them, Dichter has been a key figure in fostering cooperation between Israeli security forces and American law enforcement. In 2006, while Dichter was serving at the time as Israel's Minister of Public Security, he spoke in Boston, Massachusetts before the annual convention of the International Association of Chiefs of Police. Seated beside FBI Director Robert Mueller and then-Attorney General Alberto Gonzalez, Dichter told the 10,000 police officers in the crowd that there was an "intimate connection between fighting criminals and fighting terrorists." Dichter declared that American cops were actually "fighting crimiterrorists." The Jerusalem Post reported that Dichter was "greeted by a hail of applause, as he was hugged by Mueller, who described Dichter as his mentor in anti-terror tactics."

. . . .

"Occupy" meets the Occupation

When a riot squad from the New York Police Department destroyed and evicted the "Occupy Wall Street" protest encampment at Zuccotti Park in downtown Manhattan, department leadership drew on the anti-terror tactics they had refined since the 9/11 attacks. According to the New York Times, the NYPD deployed "counterterrorism measures" to mobilize large numbers of cops for the lightning raid on Zuccotti. The use of anti-terror techniques to suppress a civilian protest complemented harsh police measures demonstrated across the country against the nationwide "Occupy" movement, from firing tear gas canisters and rubber bullets into unarmed crowds to blasting demonstrators with the LRAD sound cannon.

Given the amount of training the NYPD and so many other police forces have received from Israel's military-intelligence apparatus, and the profuse levels of gratitude American police chiefs have expressed to their Israeli mentors, it is worth asking how much Israeli instruction has influenced the way the police have attempted to suppress the Occupy movement, and how much it will inform police repression of future upsurges of street protest. But already, the Israelification of American law enforcement appears to have intensified police hostility towards the civilian population, blurring the lines between protesters, common criminals, and terrorists. As Dichter said, they are all just "crimiterrorists."

The deliberate blurring of crime and terrorism shows up clearly in the use of the Patriot Act. New York magazine reported that the "sneak and peak" warrants have been used only 15 times in terrorism investigations but have been used 122 times for fraud and 1,618 times for drug crimes.

One final point: The employment of tactics learned from Israel, which has been charged several times with denying human rights with its "security" measures, may be putting the US in violation of international law, including the specific "responsibility to protect" duty that the US invoked to justify NATO's recent attack on Libya. From Huffpo:

The United Nations envoy for freedom of expression is drafting an official communication to the U.S. government demanding to know why federal officials are not protecting the rights of Occupy demonstrators whose protests are being disbanded -- sometimes violently -- by local authorities.

Frank La Rue, who serves as the U.N. "special rapporteur" for the protection of free expression, told HuffPost in an interview that the crackdowns against Occupy protesters appear to be violating their human and constitutional rights.

"I believe in city ordinances and I believe in maintaining urban order," he said Thursday. "But on the other hand I also believe that the state -- in this case the federal state -- has an obligation to protect and promote human rights."

Thursday
Dec012011

Most read Realitybase posts in November

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post has been the #1 response to a Google search for "plutonomy memo."

Two hypotheses for why US CEO pay is so high Charts show that in the US CEO pay is about double that in other advanced countries, implying either that there is a shortage of talent in the US, or that the US CEO pay market is broken.

The American Dream died in February 1973 This post, which makes the top 10 almost every month, has graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

Comparative Advantage—The Unicorn of Free Trade A collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

Is the New York Times editorial board adapting to reality, or is this cognitive dissonance? In August 2008 the NYT editorial board acknowledged that globalization is one of the reasons "Americans are working harder and not getting ahead," but it continues to urge readers to "embrace" globalization.

"We demand free and fair elections untainted by Big Money." Explaining why the Occupy Movement should make this its central unifying demand.

What I saw at Occupy Los Angeles On Saturday afternoon November 7, it was small, earnest, harmonious, well organized, clean, law abiding and not likely, in my estimation, to change the world until it becomes much bigger and feistier.

Monday
Nov072011

What I saw at Occupy Los Angeles

Occupy Los Angeles has a website where I learned about a teach-in last Saturday (more about that below) and decided to visit. The website is quite extensive, with streaming video, etc., and I haven't browsed it all, but I was struck by the effectiveness of the Declaration of Occupation. It mirrors our Declaration of Independence in that it is not a statement of demands but a statement of grievances. If that approach was appropriate in 1776, it's appropriate now, I think.

So, I arrived at the City Hall occupation site about 2 o'clock Saturday afternoon and walked around to get a feel. It seemed small, but there was little or no empty space for additional tents, of which there were enough to accommodate probably 500-1000 people overnight. There were trash recycling and disposal areas and no litter on the grounds. There were porta-potties, but maybe not enough of them unless they are pumped several times a day. No offensive sights, sounds, odors, or behaviors. Basically, it was like an overcrowded national park campground.

There were few if any children or teens, but if you adjust for that and the fact that there didn't seem to be any European or Asian tourists, the population also looked like what I expect at a national park campground—mostly men and women in their 20s and 30s but also a pretty fair representation of middle-aged and geezers like me. It was multiracial and partly bi-lingual. Most were dressed for camping, but there were one or two people in dirty clothes I suspect were homeless. There were also quite a few well-dressed people who might have come from their jobs in banks or government offices.

It was thoroughly peaceful, with evident comity among a diversity of traditional progressive interests including but certainly not limited to signature gatherers for various legislative initiatives, anti-war people, labor unions, legalization of marijuana (prograssives?), proselytizers for new age religions, Ron Paul activists, etc., etc. And, of course, there were a fair number of people with signs returning from the morning march to local Big Bank branches to encourage people to move their accounts to community banks and credit unions.

In the library tent, there was a group of 10-12 students and a teacher sitting cross-legged on the floor; a nearby schedule announced different hour-long courses to be taught all day long. The subjects all seemed generally related to the movement's grievances. In other areas there were meetings going on, but I couldn't get close enough to pick up on the subjects. Lots of people with laptops and smaller devices pounding and clicking. Most people seemed busy at something.

There were perhaps a half dozen police cars parked on side streets, but I saw no officers in or near the crowd. There was a pair of men on bicycles wearing shirts that said "District Safety" on the back, and they carried night sticks and a variety of other paraphernalia (no guns) on their belts; I have no clue as to their jurisdiction or function. In any event, there was nothing for law enforcement to do, as I observed nothing that was even close to disorderly, unsafe, or criminal—unless you take the position their mere assembly and exercise of speech in this location is intolerable.

At 2:30 the event I came for started on time and with a good sound system. There were even folding chairs for 100-200 up front, but I was too late for one of those and stood back near the "IT department" tent. The first speaker was Robert Reich. Toward the end of his talk, he took some abuse from one person in the crowd with a cheerleader's megaphone who accused him of being a part of the Clinton/Rubin Administration and its large part in the turn-over of government to Wall Street. His introducer and later speakers defended him as the one prominent official who objected to Rubinomics and was gone before the worst of it was implemented. Reich's biggest applause lines were his advocacy for campaign finance reform to get money out of politics and for cutting our military budget in half. In response to a question he said, "We should support the Democratic Party when it becomes us."

After a musical interlude, there came an "economics panel" moderated by Bob Scheer, who of course spoke at length and forgot to moderate. The next speaker was William Black, an associate professor of economics and law at the University of Missouri-Kansas City, a white-collar criminologist, a former senior financial regulator, and the author of The Best Way to Rob a Bank is to Own One. He excoriated the Obama Administration and State AGs for not pursuing criminal actions against Big Bank executives. He contrasted that to the Reagan and Bush I years when federal regulatory agencies made 1,000 criminal referrals arising out of the S&L debacle (including the infamous Charles Keating—for whom Alan Greenspan was a lobbyist), resulting in a 90% conviction rate.

Professor Joel Rogers came from Wisconsin to describe what had happened and was happening there in response to Governor Scott Walker's initiatives and to give a little advice—mainly, stay focused together on the big issues and don't let yourselves fragment over parochial causes.

I would love to have stayed to hear and see the rest of the program, especially George Lakoff, but my knee and back had had enough standing by 4:30 and I went home. The lineup for the rest of Saturday, ending with a movie premier in the evening, is here. Other events, including Occupy the Rose Parade, are being planned and will be posted on the website calendar.

My overall impression: This looks nothing like my memory of protests in the 1960s—the Civil Rights Movement, the anti-Vietnam War movement, or even the Berkeley free speech movement and the women's liberation movement. Whether the Occupy Movement may grow into something on that scale I don't know, but it's hard for me to envision it being effective if it does not.

Tuesday
Nov012011

Most Read Realitybase Posts in October

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post is now the #1 response to a Google search for "plutonomy memo."

Two hypotheses for why US CEO pay is so high Charts show that in the US CEO pay is about double that in other advanced countries, implying either that there is a shortage of talent in the US, or that the US CEO pay market is broken.

The American Dream died in February 1973 This post, which makes the top 10 almost every month, has graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

Americans have more than enough education to fill 21st Century jobs. A chart shows that only the 3% of workers with Ph.D.s and professional degrees had increasing earnings, while earnings of those with masters and bachelors degrees or some college declined even more than the earnings of those with high school only. The fact of falling earnings is inconsistent with the claim that there is a shortage of college-educated workers.

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

American Youth: Digitally Skilled and Unemployable. A graph shows that Americans under 25, who presumably are the most familiar with digital technology, are losing employment share to those over 55, who presumably are least at home in the digital age. This counterintuitive trend started long before the Great Recession.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

Is the New York Times editorial board adapting to reality, or is this cognitive dissonance? Three years ago the NYT editorial board acknowledged that globalization is one of the reasons "Americans are working harder and not getting ahead," but it continues to urge readers to "embrace" globalization.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Comparative Advantage—The Unicorn of Free Trade A collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions. Views of this 2009 post tend to spike every exam season.

Wednesday
Oct262011

“We demand free and fair elections untainted by Big Money.”

What does the Occupy Movement want? Well, they could do worse than adopt this as their core unifying demand. It articulates what seems to be a strong universal complaint in the movement—that both major parties and government are completely controlled by financial and business elites, primarily though the campaign finance process.

The demand wrong-foots adversaries because "free and fair elections" is a universal demand of politically powerless peoples everywhere and is a central tenet of US foreign policy. Entrenched interests will find it hard to argue against this demand without clashing with America's cherished democratic mythology.

The Occupy Movement is being emulated throughout the world, and the demand for free and fair elections will tend to unify the movement internationally and reinforce its legitimacy.

Some of those (many in the Tea Party, for example,) who blame government for America's fiscal, unemployment, and declining wealth problems may be recruited to the Occupy Movement by the insight that government is bad because it is being manipulated by Big Money puppet masters.

This demand is actionable—it could be met by a Constitutional Amendment undoing Citizens United, for example.

Without this fundamental political reform coming first it is unlikely that other specific economic goals (such as tax policy, banking regulation, job creation, debtor assistance) can be achieved.

It would make the Occupy Movement more difficult to co-opt by a political party, labor unions, or other existing interest groups because they are invested in the present system.

The demand is a short declarative ideological statement of the sort that every movement needs. It avoids a laundry list of disparate special interest demands that would inevitably sound like a party platform and would rarely be read or remembered.

The demand lends itself to derivative formulations more suitable for signs and bumper stickers:

"Money out of politics."

"Government not for sale."

"Democracy, not plutocracy."

Friday
Oct142011

Ethanol Madness

Melissa Lott at Scientific American (via Climate Progress):

For every 10 ears of corn that are grown in the United States today, only 2 are consumed directly by humans as food. The remaining 8 are used in almost equal shares for animal feed and for ethanol. And, for the 12 months from August 2011 to 2012, the U.S. biofuels industry used more corn for fuel than domestic farmers did for livestock feed – a first for the industry. This significant milestone in the shifting balance between crops for food versus fuel shows the impact of government subsidies for the biofuels industry. And, it could represent a tipping point in the conflict between food and fuel demand in the future.

Over the past year, U.S. farmers used 5 billion bushels of corn for animal feed and residual demand.  During the time timeframe, the nation used more than 5.05 billion bushels of corn to fill its gas tanks. And, while some of the corn used to produce these biofuels will be returned to the food supply (as animal feed and corn oil), a large proportion of this corn will be solely dedicated to our gas tanks.

According to Rabobank's head of agricultural research, Luke Chandler, this shift in the balance between food and fuel could be the tipping point in world grain markets. China, once able to supply its internal corn demand, currently expects to import (from the U.S.) a few million tons of corn next year. This will likely place additional stress on the United States corn industry, as it will introduce another source of demand (and corresponding market pressures) for the nation's corn harvests.

The energy efficiency and global warming impacts of corn-based ethanol are both terrible. When we grow corn for ethanol fuels, we start with a lot of fossil fuel inputs, add some sunshine, and yield a product that in Iowa and other corn belt areas has a little more energy content than the fossil fuel inputs, but in marginal corn-growing regions the fossil fuel inputs exceed the net energy outputs. From this earlier Realitybase post:

To the extent our goal is to reduce CO2 emissions, corn to ethanol is a terrible idea because the proportion of "renewable" content in the ethanol is very small or negative. If we don't care about global climate change or increasing the cost of transportation fuels but do care about minimizing energy imports, corn to ethanol is a way to convert domestic coal to a transportation fuel—not a good way, but a way.

In recent years, the conversion of corn to ethanol has contributed to rising food prices worldwide. As if we didn't have enough humanitarian and political crises. We need to end the corn-to-fuel madness.

Friday
Oct142011

Belief is more a social process than a rational one.

Miguel at Simoleon Sense has been looking at the extensive Less Wrong Blog "a community blog devoted to refining the art of human rationality." Here is Miguel's summary of a key theme there.

How To Actually Change Your Mind: A collection of blog posts - via Less Wrong -People go funny in the head when talking about politics. The evolutionary reasons for this are so obvious as to be worth belaboring: In the ancestral environment, politics was a matter of life and death. And sex, and wealth, and allies, and reputation… When, today, you get into an argument about whether "we" ought to raise the minimum wage, you're executing adaptations for an ancestral environment where being on the wrong side of the argument could get you killed… Politics is an extension of war by other means. Arguments are soldiers. Once you know which side you're on, you must support all arguments of that side, and attack all arguments that appear to favor the enemy side; otherwise it's like stabbing your soldiers in the back – providing aid and comfort to the enemy.

Just to be clear, I'm pretty sure Miguel's summary is meant to describe a widespread phenomenon, not to recommend it.

Wednesday
Oct052011

"If something cannot go on forever, it will stop."

This original expression of Herbert Stein's Law, is sometimes paraphrased as "Trends that can't continue, won't." While Stein used his Law as a reason for government not to try to stop economic trends that are unsustainable anyway, this simple truism is also useful for thinking about how far unsustainable trends can go. For example, let's look at the trend of increasing concentration of income in the top 1% of US households, which exploded from 8% in 1981 to >18% (not including capital gains) in 2007. (h/t David Ruccio at Real-World Economics Review blog)

Clearly, as a matter of simple math, the share of the top 1% can never exceed 100%. Just as clearly, at 100% the other 99% of Americans would have zero income and the "economy" would consist exclusively of the top 1% of households. Donald Trump and Charles Koch mowing each other's lawns, butchering their own steers, and having no security guards while everybody else becomes a hunter-gatherer or dies from dehydration, starvation, exposure to the elements, and lack of medical care? Clearly, then concentration of income at the very top is a trend that at some point will become unsustainable and must stop. We have reached that point, according to Bill Gross, co-founder of one of the world's largest mutual fund debt managers. The incomes of the top 1% come primarily from dividends, interest, and capital gains rather than as salaries and bonuses, and Gross writes this week (emphasis his) that the trend in corporate profits, which have risen from 8% of Gross National Income to 13%, has reached the point of unsustainability.

That there is a current imbalance is obvious from Chart 1 [omitted here], which shows before-tax corporate profits as a percentage of Gross National Income (GNI). It is obvious that "capital" as opposed to "labor" – moving from 8 to 13% of GNI over the past three or even 30 years – has been the cyclical and secular champion. Why one or the other should be policy and politically advantaged is not commonsensically clear. Granted, the return on capital as opposed to the return to labor should logically be higher if only to encourage savings. But once an historical midpoint or range has been established, a relative equilibrium should be observed. Even conservatives must acknowledge that return on capital investment, and the liquid stocks and bonds that mimic it, are ultimately dependent on returns to labor in the form of jobs and real wage gains. If Main Street is unemployed and undercompensated, capital can only travel so far down Prosperity Road. Until recently, economic recovery has been relatively robust if one were a deployer of capital as opposed to the laborer who made that deployment possible. Near zero percent interest rates have allowed profit margins to widen even in the face of anemic end demand. As well, "productivity" has remained high, but only because of layoffs and the production of goods and services with fewer people. While that is a benefit to capital, it obviously comes at a great cost to labor.

Ultimately, however, both labor and capital suffer as a deleveraging household sector in the throes of a jobless recovery refuses – if only through fear and consumptive exhaustion – to play their historic role in the capitalistic system. This "labor trap" phenomenon – in which consumers stop spending out of fear of unemployment or perhaps negative real wages, shrinking home prices or an overall loss of faith in the American Dream – is what markets or "capital" should now begin to recognize. Long-term profits cannot ultimately grow unless they are partnered with near equal benefits for labor. Washington, London, Berlin and yes, even Beijing must accept this commonsensical reality alongside several other structural initiatives that seek to rebalance the global economy. The United States in particular requires an enhanced safety net of benefits for the unemployed unless and until it can produce enough jobs to return to our prior economic model which suggested opportunity for all who were willing to grab for the brass ring – a ring that is now tarnished if not unavailable for the grasping. Policies promoting "Buy American" goods and services – which in turn would employ more Americans – should also be reintroduced. China and Brazil do it. Why not us?

The last time the top 1% got this big a share of income, in 1929, the economy collapsed into the Great Depression, and it took WWII to get us back to full employment and prosperity. Rebuilding US employment is even harder now because outsourcing and globalization seem to give us a "choice" only between even lower US middle-class wage rates or higher unemployment rates. That explains Gross's call for "structural initiatives" such as re-imposing Buy American requirements.

Saturday
Oct012011

Americans have more than enough education to fill 21st Century jobs.

It is frequently asserted that Americans are unemployed and have declining wages because they are undereducated, but that's very hard to square with these data from US Census Bureau (via Mathew Slaughter, via David Wessel at WSJ, via John Schmitt). In the first decade of the 21st Century, real wages of the 31% of the work force that have high school diplomas declined less than the 54% that have some college, bachelor's degrees, or even master's degrees. Only the 3% with Ph.D.s or professional degrees had real wage gains.

Schmitt's excellent point is that a decline in wages is strong evidence against the argument that there has been a shortage of workers with BAs and MAs. When there have been such shortages in the past, wage levels have risen, but not so in the 21st Century. As I've written before, we can't fix this by increasing the number of people that have higher education—in fact, adding to that existing oversupply will depress their wages further, which is the actual objective of some. Nor can we fix the problem by doubling or tripling the number of people who get Ph.D.s and professional degrees—there is no plausible prospect that all of them could find appropriate employment, and those wages would also be driven into decline by an oversupply.

We hear anecdotes about shortages of recent graduates from American colleges, to fill e.g. software development jobs, but we don't hear that employers are increasing the salary offerings for those positions in order to meet their hiring goals. Instead, US employers are using our lax immigration laws to fill the slots with Indians at wages that are high for India but depress US wage rates. That trend may be accelerated by young Americans avoiding vocations that appear highly exposed to foreign price competition and outsourcing. As I have pointed out, labor shortages in declining industries are to be expected.

There are many good reasons to be concerned about the state of American education and to strive to improve its quality and availability, but we should reject the unsupportable claim that unemployment and/or middle-class wage rates can be significantly improved in the short- or medium-term, or even in the long-term, by putting more people with better educations into the US work force. Our 21st Century problem is a shortage of jobs in America, not a shortage of qualified American workers, and we must find our solutions outside the educational system.

Saturday
Oct012011

Most Read Realitybase Posts in September

I posted only twice in September—lazy and uninspired. So, eight of the top ten most read posts in September were oldies but goodies.

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post is now the #1 response to a Google search for "plutonomy memo."

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

The American Dream died in February 1973 This post, which makes the top 10 almost every month, has graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

The Recession Is Coming! The Recession Is Coming! December 2007 post with charts showing America's middle class had already been in recession for 7 years and asking if we really care about them.

After 1975 did incomes grow faster for American families or French families? The top 1% of American families did better than the top 1% of French families, but for the bottom 99% the opposite was true.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

The American Middle Class Got Frog-Boiled. Since the 1970s, the middle class gradually lost economic power to the super-rich and also so much political power that it is doubtful it can recapture its share of the American Dream.

We don't have a Social Security problem; we have an unemployment problem. But for chronic unemployment, there would be no Social Security problem.  We should not raise the SS retirement age because that would increase youth unemployment. The current COLA formula is already unfair to seniors and the proposed change would make it more so.

Is the New York Times editorial board adapting to reality, or is this cognitive dissonance? Three years ago the NYT editorial board acknowledged that globalization is one of the reasons "Americans are working harder and not getting ahead," but it continues to urge readers to "embrace" globalization.

Sunday
Sep042011

The American Middle Class Got Frog-Boiled.

Robert Reich presents irrefutable evidence of the immiseration of the American Middle Class since the 1970s, explains how it happened, shows that it was not inevitable and can be fixed, and issues a call to action in The Limping Middle Class on today's NYT op ed page. An excerpt:

THE real reason for America's Great Regression was political. As income and wealth became more concentrated in fewer hands, American politics reverted to what Marriner S. Eccles, a former chairman of the Federal Reserve, described in the 1920s, when people "with great economic power had an undue influence in making the rules of the economic game." With hefty campaign contributions and platoons of lobbyists and public relations spinners, America's executive class has gained lower tax rates while resisting reforms that would spread the gains from growth.

Yet the rich are now being bitten by their own success. Those at the top would be better off with a smaller share of a rapidly growing economy than a large share of one that's almost dead in the water.

The economy cannot possibly get out of its current doldrums without a strategy to revive the purchasing power of America's vast middle class. The spending of the richest 5 percent alone will not lead to a virtuous cycle of more jobs and higher living standards. Nor can we rely on exports to fill the gap. It is impossible for every large economy, including the United States, to become a net exporter.

Reviving the middle class requires that we reverse the nation's decades-long trend toward widening inequality. This is possible notwithstanding the political power of the executive class. So many people are now being hit by job losses, sagging incomes and declining home values that Americans could be mobilized.

I agree whole-heartedly with all this (and the rest of his essay) except for the last sentence, and I have grave doubts about that. In one of my earliest Realitybase posts in December 2007, The Recession Is Coming! The Recession is Coming!, I put up some of the evidence about stagnation of middle-class incomes and ended by expressing my concern that America doesn't really care:

Well, is there a problem? Is this good enough for America? Or should it be a national goal to get the middle class moving again?

That was written just as the current recession was beginning (December 2007 according to the BEA dating committee) and before the financial crisis of September 2008 made it the Great Recession with its extraordinarily deep and prolonged unemployment and decimation of tax revenues. Clearly, middle class problems are much bigger now than "just" wage stagnation, but I still don't see any evidence that a large number of Americans care enough to mobilize themselves politically to get the middle class moving again. Ominously, if they do try to mobilize, I think they will find that 30 years of sitting in the pot while the financial and political elites slowly increased the heat has left them enervated as well as immiserated.

Friday
Sep022011

After 1975 did incomes grow faster for American families or French families?

It's a trick question. The top 1% of families did better in America than in France, but the bottom 99% of French families had faster income gains than the bottom 99% of American families, according to a recent paper by Atkinson, Piketty and Saez. (In the US, top 1% families had annual incomes above $398,900 in 2007.) Here, via Uwe Reinhardt in Economix blog, are the numbers:

Average real income per family in the United States grew by 32.2 percent from 1975 to 2006, while they grew only by 27.1 percent in France during the same period, showing that the macroeconomic performance in the United States was better than the French one during this period. Excluding the top percentile, average United States real incomes grew by only 17.9 percent during the period while average French real incomes — excluding the top percentile — still grew at much the same rate (26.4 percent) as for the whole French population. Therefore, the better macroeconomic performance of the United States and France is reversed when excluding the top 1 percent.

Reinhardt points out that this reversal of rank is due to the extreme skewing of US income gains to the top 1% in recent decades (a pattern also observed in other English-speaking nations, China, and India but not in Continental Europe).

Consider now the longest period featured in their Table 1, from 1976 to 2007. The authors estimate that over that period the average annual income of all families in the United States grew at an average annual compound growth rate of 1.2 percent. But the data reveal that for the top 1 percent of income recipients, average real income grew by 4.4 percent a year. They captured 58 percent of the growth in total income over the period.

By contrast, for the bottom 99 percent of Americans, average family income over the same period grew by only by only 0.6 percent a year. Within that broad 99 percent, however, some lower-income groups probably saw their real income fall. 

The next time somebody says US economic policies are superior to French economic policies, what do you say?

Thursday
Sep012011

Most Read Realitybase Posts in August

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post is now the #1 response to a Google search for "plutonomy memo."

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

Pitchforks before Parties A third party candidate to challenge Obama is doomed unless it is supported by a broad and powerful ideological movement.  Using such a movement to influence the Democratic Party would be more effective and more enduring than a third party.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Our Plutocrats Versus Their Plutocrats Jeffrey Sachs writes that Republicans are for Big Oil and, since Bill Clinton and Robert Rubin, Democrats are for Big Banks. Neither party looks after the interests of middle class and poor Americans.

The American Dream died in February 1973 With graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

We don’t have a Social Security problem; we have an unemployment problem. But for chronic unemployment, there would be no Social Security problem.  We should not raise the SS retirement age because that would increase youth unemployment. The current COLA formula is already unfair to seniors and the proposed change would make it more so.

How would your family cope with 20% pay cuts? What if your customers got 20% pay cuts? Booz is showing its clients how to reduce the wages of their US employees by 15-20%. This is a general 21st Century trend and is causing a broad downward macroeconomic spiral that only major federal government policy changes could reverse.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

The Recession Is Coming! The Recession Is Coming! December 2007 post with charts showing America's middle class had already been in recession for 7 years and asking if we really care about them.

Sunday
Aug282011

Understanding Obama--Two Views

Friday
Aug262011

Did money arise out of barter or debt, and what are the current implications?

This interview of anthropologist David Graeber posted at Naked Capitalism is absolutely fascinating. He offers an alternative narrative to Adam Smith's story that money was created to make more convenient the human tendency to "truck and barter." Graeber argues that money was created instead as a unit of account to track debt. The barter theory emphasizes the use of money in "spot" transactions but, says Graeber, futures transactions were more prevalent and more important in early societies--the need to finance agriculture or import-export activities for example. As evidence for his theory, he says there were accounting records long before there was circulating money.

The interview moves from this into a general discussion of debtor and creditor classes and relationships, for example, how debt traps led to indentured servitude, slavery, and eventually write-offs of debt.

This was the great social evil of antiquity – families would have to start pawning off their flocks, fields and before long, their wives and children would be taken off into debt peonage. Often people would start abandoning the cities entirely, joining semi-nomadic bands, threatening to come back in force and overturn the existing order entirely. Rulers would regularly conclude the only way to prevent complete social breakdown was to declare a clean slate or ‘washing of the tablets,’ they’d cancel all consumer debt and just start over. In fact, the first recorded word for ‘freedom’ in any human language is the Sumerian amargi, a word for debt-freedom, and by extension freedom more generally, which literally means ‘return to mother,’ since when they declared a clean slate, all the debt peons would get to go home.

Graeber says that coinage was popularized and perhaps invented as a way to pay soldiers. The government issued coins to soldiers and made them valuable by requiring other persons to pay taxes using those coins.  Taxes, debt, and morality got woven together linguistically and functionally in interesting ways.

Taxes are also key to creating the first markets that operate on cash, since coinage seems to be invented or at least widely popularized to pay soldiers – more or less simultaneously in China, India, and the Mediterranean, where governments find the easiest way to provision the troops is to issue them standard-issue bits of gold or silver and then demand everyone else in the kingdom give them one of those coins back again. Thus we find that the language of debt and the language of morality start to merge.

In Sanskrit, Hebrew, Aramaic, ‘debt,’ ‘guilt,’ and ‘sin’ are actually the same word. Much of the language of the great religious movements – reckoning, redemption, karmic accounting and the like – are drawn from the language of ancient finance. But that language is always found wanting and inadequate and twisted around into something completely different. It’s as if the great prophets and religious teachers had no choice but to start with that kind of language because it’s the language that existed at the time, but they only adopted it so as to turn it into its opposite: as a way of saying debts are not sacred, but forgiveness of debt, or the ability to wipe out debt, or to realize that debts aren’t real – these are the acts that are truly sacred.

How did this happen? Well, remember I said that the big question in the origins of money is how a sense of obligation – an ‘I owe you one’ – turns into something that can be precisely quantified? Well, the answer seems to be: when there is a potential for violence. If you give someone a pig and they give you a few chickens back you might think they’re a cheapskate, and mock them, but you’re unlikely to come up with a mathematical formula for exactly how cheap you think they are. If someone pokes out your eye in a fight, or kills your brother, that’s when you start saying, “traditional compensation is exactly twenty-seven heifers of the finest quality and if they’re not of the finest quality, this means war!”

Money, in the sense of exact equivalents, seems to emerge from situations like that, but also, war and plunder, the disposal of loot, slavery. In early Medieval Ireland, for example, slave-girls were the highest denomination of currency. And you could specify the exact value of everything in a typical house even though very few of those items were available for sale anywhere because they were used to pay fines or damages if someone broke them.

But once you understand that taxes and money largely begin with war it becomes easier to see what really happened. After all, every Mafiosi understands this. If you want to take a relation of violent extortion, sheer power, and turn it into something moral, and most of all, make it seem like the victims are to blame, you turn it into a relation of debt. “You owe me, but I’ll cut you a break for now…” Most human beings in history have probably been told this by their debtors. And the crucial thing is: what possible reply can you make but, “wait a minute, who owes what to who here?” And of course for thousands of years, that’s what the victims have said, but the moment you do, you are using the rulers’ language, you’re admitting that debt and morality really are the same thing. That’s the situation the religious thinkers were stuck with, so they started with the language of debt, and then they tried to turn it around and make it into something else.

How best to think about the role of money changes from era to era depending on the circumstances.

One of my inspirations for ‘Debt: The First 5,000 Years’ was Keith Hart’s essay ‘Two Sides of the Coin’. In that essay Hart points out that not only do different schools of economics have different theories on the nature of money, but there is also reason to believe that both are right. Money has, for most of its history, been a strange hybrid entity that takes on aspects of both commodity (object) and credit (social relation.) What I think I’ve managed to add to that is the historical realization that while money has always been both, it swings back and forth – there are periods where credit is primary, and everyone adopts more or less Chartalist theories of money and others where cash tends to predominate and commodity theories of money instead come to the fore. We tend to forget that in, say, the Middle Ages, from France to China, Chartalism was just common sense: money was just a social convention; in practice, it was whatever the king was willing to accept in taxes.

The interview then explored the modern day indicia and implications for transition between the debt and cash aspects of money.

From an historical perspective, it’s pretty ominous. One could go further than the Clinton era, actually – a case could be made that we are seeing now is the same crisis we were facing in the 70s; it’s just that we managed to fend it off for 30 or 35 years through all these elaborate credit arrangements (and of course, the super-exploitation of the global South, through the ‘Third World Debt Crisis’.)

As I said Eurasian history, taken in its broadest contours, shifts back and forth between periods dominated by virtual credit money and those dominated by actual coin and bullion. The credit systems of the ancient Near East give way to the great slave-holding empires of the Classical world in Europe, India, and China, which used coinage to pay their troops. In the Middle Ages the empires go and so does the coinage – the gold and silver is mostly locked up in temples and monasteries – and the world reverts to credit. Then after 1492 or so you have the return world empires again; and gold and silver currency together with slavery, for that matter.

What’s been happening since Nixon went off the gold standard in 1971 has just been another turn of the wheel – though of course it never happens the same way twice. However, in one sense, I think we’ve been going about things backwards. In the past, periods dominated by virtual credit money have also been periods where there have been social protections for debtors. Once you recognize that money is just a social construct, a credit, an IOU, then first of all what is to stop people from generating it endlessly? And how do you prevent the poor from falling into debt traps and becoming effectively enslaved to the rich? That’s why you had Mesopotamian clean slates, Biblical Jubilees, Medieval laws against usury in both Christianity and Islam and so on and so forth.

Since antiquity the worst-case scenario that everyone felt would lead to total social breakdown was a major debt crisis; ordinary people would become so indebted to the top one or two percent of the population that they would start selling family members into slavery, or eventually, even themselves.

Well, what happened this time around? Instead of creating some sort of overarching institution to protect debtors, they create these grandiose, world-scale institutions like the IMF or S&P to protect creditors. They essentially declare (in defiance of all traditional economic logic) that no debtor should ever be allowed to default. Needless to say the result is catastrophic. We are experiencing something that to me, at least, looks exactly like what the ancients were most afraid of: a population of debtors skating at the edge of disaster.

And, I might add, if Aristotle were around today, I very much doubt he would think that the distinction between renting yourself or members of your family out to work and selling yourself or members of your family to work was more than a legal nicety. He’d probably conclude that most Americans were, for all intents and purposes, slaves.

He shines a harsh light on the current household and sovereign debt and banking crisis, the resulting class tensions, and democracy.

These ‘realities’ are being increasingly revealed to simply be ones of power. Clearly any pretence that markets maintain themselves, that debts always have to be honored, went by the boards in 2008. That’s one of the reasons I think you see the beginnings of a reaction in a remarkably similar form to what we saw during the heyday of the ‘Third World debt crisis’ – what got called, rather weirdly, the ‘anti-globalization movement’. This movement called for genuine democracy and actually tried to practice forms of direct, horizontal democracy. In the face of this there was the insidious alliance between financial elites and global bureaucrats (whether the IMF, World Bank, WTO, now EU, or what-have-you).

When thousands of people begin assembling in squares in Greece and Spain calling for real democracy what they are effectively saying is: “Look, in 2008 you let the cat out of the bag. If money really is just a social construct now, a promise, a set of IOUs and even trillions of debts can be made to vanish if sufficiently powerful players demand it then, if democracy is to mean anything, it means that everyone gets to weigh in on the process of how these promises are made and renegotiated.” I find this extraordinarily hopeful.

Read the whole interview here.

Saturday
Aug202011

Is the SEC going to make the ratings agencies even more dangerous?

A former senior analyst of sub-prime mortgage bonds at Moody's has filed 80 pages of personal comments with the SEC on its proposed rules to "reform" how rating agencies operate.  I didn't read it all; there was enough in the first few pages to make me sick:

There was pervasive and effective management pressure for committees to issue ratings that were different from (usually higher than) those generated by the technical analysts. This had enormous practical consequences because if senior tranches had been rated Aa1, just one notch below Aaa, they would have been unmarketable.

The proposed SEC rules would confer even more trust in the managements of rating agencies.

The model used to evaluate risk assumed housing prices would rise 4% per year forever, and nobody involved was actually dumb enough to believe that.

H/t Simoleansense.

Saturday
Aug202011

H-1b, the “Outsourcing Visa”

An email referring to Down with Globalization asks if Kathy's narrative there is accurate. My response:

Kathy seems accurate as far as she goes, but she doesn't describe the whole problem.  There are about 1 million H-1b and L-1 visa holders in the US at any one time, but there are at least 1 million more that have come here on those temporary visas to get trained and then went home taking with them the jobs of the American trainers, many of whom were then fired.  From an EPI report last year:

For several years, Congress has debated revising high-skill immigration policies as part of larger comprehensive immigration reform legislation. An important consideration is what to do about two major high-skill guest worker programs, the H-1B and L-1 visa programs, which account for an estimated 1 million guest workers.

Both of these visa programs need immediate and substantial overhaul. The goals of the H-1B and L visa programs have been to bring in foreign workers who complement the U.S. workforce. Instead, loopholes in both programs have made it too easy to bring in cheaper foreign workers, with ordinary skills, who directly substitute for, rather than complement, workers already in the country. They are clearly displacing and denying opportunities to U.S. workers.

The loopholes also provide an unfair competitive advantage to companies specializing in offshore outsourcing, undercutting companies that hire American workers. For at least the past five years nearly all of the employers receiving the most H-1B and L-1 visas are using them to offshore tens of thousands of high-wage, high-skilled American jobs.

Offshoring through the H-1B program is so common that it has been dubbed the "outsourcing visa" by India's former commerce minister.

Inside, part of the Executive Summary says this:

1. Neither visa requires a labor market test. Employers can and do bypass American workers when recruiting for open positions and even replace outright existing American workers with H-1B and L-1 guest workers.

2. Wage requirements are too low for H-1B visas, and they are non-existent for L-1. The programs are extensively used for wage arbitrage. Employers have told the GAO that they hire H-1Bs because they can legally pay below-market wages. The Department of Labor has certified wages as low as $12.25 per hour for H-1B computer professionals. The arbitrage opportunities for L-1 visas can be even greater because employers pay home-country wages. In the case of workers from India—the largest source country for L-1 visas—this can mean a 90% discount for importing an L-1 guest worker compared to hiring an American.

3. Visas are held by the employer rather than the worker. H-1B and L-1 visa workers can be easily exploited and put into poor working conditions but have little recourse because the working relationship is akin to indentured servitude.

4. Program oversight and enforcement is deficient. Department of Labor review of H-1B applications has been called a "rubber stamp" by its own Inspector General. A DHS IG report found that one in five H-1Bs were granted under false pretenses. The L-1 visa program has not been reviewed for more than four years even though the last DHS IG report found that there were "significant vulnerabilities to abuse."

Manufacturing & Technology News started with the EPI report and did its own reporting

There has been no growth in IT employment for a decade, with the total number of U.S. IT workers (including lower skilled workers like computer specialists and call center employees) holding steady at 3.8 million. Wages are stagnant.

That has not been the case for companies that offer IT outsourcing services. Tata was expected to hire up to 50,000 workers in 2010. Infosys is hiring between 7,000 and 8,000 workers per quarter. By comparison, Google's total worldwide employment is 20,000. Foreign outsourcing firms "are growing by Google's number in one year," says Hira. "If you had a company with that kind of growth in the United States, Obama would be all over it. But there is not a single company in the U.S. that is growing like that, certainly not in high-tech services."

Other U.S. technology companies that have embraced the outsourcing model and are actively hiring H-1B workers. Accenture, Cognizant, Larsen & Toubre Infotech and IBM India Private Ltd. are all major users of the H-1B visa program.

IBM now has more people working in India than it has working in the United States, according to data compiled by The Economist magazine. In 2003, IBM's U.S. headcount was 135,155, while it had 6,000 workers in India. By 2009, its U.S. headcount had shrunk to 105,000, while its Indian workforce numbered 100,000. Deloitte has tripled its headcount in India, from 11,000 to 33,000. "None of this gets reported in the United States," says Hira.

India now has 2 million workers employed in the IT offshoring and business process offshoring industries. An estimated 65 percent of those workers directly serve the U.S. market, according to data from the NASSCOM, the Indian IT trade association.

"You are talking about 1.3 million jobs offshored to India," says Hira. "Part of the problem is that because no one is paying attention to what is going on, the industry can make up whatever statistics it wants. So the U.S. Chamber of Commerce is using the mass layoff figures [from the Bureau of Labor Statistics] claiming that only 10,000 jobs have been offshored and they are able to get away with it."

In the meantime, U.S. companies like Accenture, IBM, EDS, HP are reporting record profits. Accenture's headcount in India surpassed its U.S. headcount in 2007. The company has 50,000 workers in India.

The companies that utilize the H-1B and L-I visas have business models that "shift as many American jobs as possible offshore," according to Hira. Eight of the top 10 H-1B employers were offshore outsourcing firms or had significant offshoring operations," according to Hira. The same held true for the top 10 L-I employers.

"The data show that the H-1B and L-I visa programs are being used to speed up the offshoring of high-wage, high tech jobs, contradicting the claims by those who argue that expanding the programs would prevent offshoring," says Hira. The Commerce Minister of India even referred to the H-1B visa program as the "outsourcing visa" in a 2009 interview with the New York Times.

Infosys has stated in its financial reports to the U.S. Securities and Exchange Commission that it is dependent on the H-1B and L-1 visas and that if they were discontinued it "would pose a significant risk to its business model," Hira reports. In its 2010 SEC filing Infosys states: "The vast majority of our employees are Indian nationals." These workers are employed at client locations. "The ability of our technology professionals to work in the United States, Europe and in other countries depends on the ability to obtain the necessary visas and work permits," writes Infosys.

Infosys revenues increased to $4.8 billion in 2010, up from $203 million in 2000. Its workforce has increased from 5,400 to 113,800. It has 10,700 H-1B and LI visa holders on its payroll.

India has transformed the entire American high-tech sector in a way that has demoralized U.S. workers, Hira argues. Companies like Pfizer, Siemens, Wachovia and Bank of America have all reportedly required their U.S. workers to train foreign replacements that have H-1B or L-I visas. "This practice, unfortunately enough, appears to be perfectly legal under the current sets of regulations and laws," writes Hira. "We do not know how widespread it is because employers have threatened workers with lawsuits and conditioned their unemployment insurance and severance packages to guarantee silence. Each new report, however, further reduces the attractiveness of IT to students of American universities."

Corporate CEOs and President Obama constantly implore more Americans to study science, technology, engineering and math, but the top concern of people working in technical fields is the negative impact of offshore outsourcing on their job prospects. A recent survey done by Information Week found that offshoring of technology jobs "is discouraging young Americans from pursuing tech careers and [is] shipping innovation abroad." The survey found that most IT workers, managers and students believe that the practice has led to the United States losing its leadership position in technology, "with 66 percent -- the single highest percentage -- citing offshore jobs movement as one of the top three reasons."

Says Hira: "I give lectures at RIT's Engineering School, and one of the classes is for a masters in product development for working mid-level engineers. They said they voted for Obama not because of health care but because they expected him to do something on offshoring, and they were sorely disappointed."

With gaping holes like this below our waterline, I can't see how it's possible for America to avoid chronic joblessness, real wages for almost everybody converging downward to those in Chindia, declining provision of public goods like education and infrastructure, substantial elimination of our middle class, and rising class barriers. I welcome any comment that explains why that's wrong.

Friday
Aug192011

Down with Globalization

In Tripped up by Globalization Jeffrey Sachs describes the devastating effects on the middle class in America and Europe as multinational corporations clean up with globalization. He ends with this indictment: 

The recent swoon in financial markets and the stalled recovery in the US and Europe reflect these fundamental shortcomings. There is no growth strategy, only the hope that scared and debt-burdened consumers will return to buying houses they don’t need and can’t afford. Sadly, these global economic currents will continue to claim jobs and drain capital until there is a revival of bold, concerted leadership. In the meantime, the markets will gyrate in pangs of uncertainty.

True, but I thought the following comment by Kathy a more compelling description of what is really happening to millions of loyal, hardworking, well-educated Americans:  

I live in Silicon Valley, CA home of the Asian competitor, next door. In 1985, when my engineer husband and I moved here we got jobs that paid about $43,000 for him (he has a degree in Math and one in computer science) and I was paid $30,000(for a B.A. economics and M.S industrial psychology). We worked about 75 hours per week on average (most weekends too). My husband got promoted every year and I also moved up from very hard work. We saved about 60% of our income and invested it in houses and stocks. When we started, we had literally nothing --just a Honda hatchback car.

After 11 years, we had saved and invested and lived in a house in a working class neighborhood---that was inhabited by mostly auto mechanics in the 1960's. We bought this house for $415,000 and it was in terrible shape (built in 1952). We fixed it up with our own labor on weekends.

By 2000 we were doing pretty well, but our standard of living was really no better than the middle class existance I had as a kid....prices were so very high in Silicon Valley, you see. Houses were insanely expensive as was just about everything. We both noticed the phenominon inside our companies that more and more people from India, China and South Korea were taking jobs here and moving into our neighborhoods. As liberals, we welcomed this and though it was kind of "nice."

By 2005, it became obvious that this "trend" of shipping more and more people from India, China and South Korea to Silicon Valley was getting way out of hand. I started researching the trend and found out that nearly 1.2 million American engineers had been fired and replaced with foreign H1B and L-1 visa workers from these countries. Main streets all over the Valley were now dominated by Chinese, Korean and Indian-owned small businesses. They moved really fast. Companies like Infosys and Wipro were making bilions off this low cost trade in its own people.

Meanwhile, Americans with B.S.'s Masters and PhD's in Math, Computer Science and Engineering were getting fired left and right and outright replaced by non-citizens. It was alarming. They I found this website called CompeteAmerica.org which showed all the multinational tech giants like Intel, Cisco, Oracle, Microsoft and many others had joined forces to allow an "unlimited" number of H1B visa immigrants to come to the U.S and take our college grad jobs in 25 categories, even beyond engineering and software.

This phenomenon is going on all over the U.S. and is sponsered by the U.S. Chamber of Commerce and many U.S. multinationals. They have been "claiming" for years that there is a shortage of qualified, educated citizens to fill these jobs. That is a total and utter propoganda lie. There are millions of highly qualified engineers, and every category who cannot even get an interview anymore. U.S. universities have been flooded with foreign students who take our places because they are charged 1.5 -2.5 times more tuition than American students. We invented and developed the technologies for PC's, smart phones, the Internet, and the semiconductors. The Asians are now flooding our country and being allowed to take our jobs.

Meanwhile, in my neighborhood including all the towns in the San Francisco Bay area that hire technology professionals, the U.S. census data show a 50% increase in the Asian population between 2000 and 2010.

During this time period, pay for senior management in high tech companies has risen 500% while wages for highly educated engineers, and scientists continue to drop. Indian engineers live 4 people to a small apartment and are "promised" U.S. citizenship in return for cheap labor. Some of them get it. Many do not. I want to say it's not thier fault and they are just taking a good opportunity---and they are---but I resent it. Why should I --the citizen who worked really hard, got the education and did all the hard work get replaced by a low cost alternative non-citizen by the age of 40? This is wrong. Not to mention my education cost $90,000. What is the cost-benifit in that for any engineer?

The Americans have been fired and these companies are breaking the laws for visa holders (which say you can only hire H1B or L1 if you show there is no American who can fill the job) they are firing American's (from Harvard, MIT, and all our great schools) and replacing them with anyone who will take the 1/3 -2/3 pay cut. At least half of these Indian, Chinese and South Korean tech workers went to "junior" colleges or worse--non accredited Goldman Sachs private college mills which have zero requirements to get in. This is not progress.

This is what globalization has meant to me and my neighbors in California. I did not even mention the massive illegal immigration from Mexico and Central America---the census showed they numbered 35 million in 2000 and 50 million in 2010---accounting for almost all the U.S. population growth since 2000.

This is a strategy to make U.S. multinationals rich, and to utterly destroy the middle and lower classes through opening the floodgates of immigration. And I was all warm and fuzzy about "equality." This is not equality----this is the treason of the multinationals. They have destroyed us.

I wanted to give readers a real life picture of what is happening at street level. Some "granularity."

Down with globalization.

Sunday
Aug142011

Rebuild America

America's infrastructure is largely worn out and in some places was never built. Now, with government borrowing costs at historic lows, is the time to launch a 10-year program to rebuild everything. It should be the largest imaginable program and involve state and local financing as well as federal. It should be comparable in relative size, visibility, and impact to the great water projects of the 1930s, the interstate highway system of the 1950s, and the space program of the 1960s. It would, of course, leave future generations additional debt to service but also with even more valuable benefits—safe and efficient transportation and utility systems that will cost less to maintain than the crumbling mess that will be replaced. Although it would create millions of jobs, it should be sold as an investment in America's public facilities and future. It would be good election-year politics for Obama to spend the next year selling a visionary Rebuild America Investment even if it doesn't get through Congress.

We have thousands of bridges and thousands of miles of roads that are worn out or obsolete. Occasionally one collapses with tragic and humiliating results. Many large urban sewer systems are ancient and inadequate, and we never built much of the legally-required sewage treatment capacity that could clean up our waterways and conserve our water resources. Water supply mains in many areas are worn out and undersized. Our air traffic control system is obsolete and increasingly unsafe, and many airports need expansion, upgrading, or replacement. We need to improve harbors and add parks, public buildings, and other public facilities that are inadequate for our much larger and still growing population. Where mass transit systems and tunnels make sense, now is the time to press forward with those projects. Perhaps there are also "green energy" and other types of infrastructure investments that it would be appropriate for governments to make.

We know we have to do this, but why now? In addition to the obvious need and the availability of cheap money, it would renew the American spirit and jump start and sustain employment, the tax base, and economic growth at a time when we desperately need all of that. Many new construction jobs would go to our most underemployed demographic—men without college degrees. This is not government borrowing to cover a current shortfall between revenues and expenditures. It is not a "stimulus program" or a jobs program to hire people to dig holes and fill them in again just to put purchasing power into the economy, which are bad, or at least unfortunate, reasons to borrow. Borrowing long term for a Rebuild America Investment is a necessary and enduring capital investment in national greatness.

Rebuild America Investment should not be so short-term that only "shovel-ready" projects can get funded. I would think it would take at least a decade, and some projects such as mass transit perhaps 15-20 years to complete. I really don't know how much it would cost, but that can't be an argument against doing this because these are "must-do" investments. I have a feeling, however, that we need to be thinking of numbers in the low trillions of dollars. To put that in perspective, our current, sputtering GDP is $15 trillion per year and employs about 130 million Americans. On that basis, a $3 trillion Rebuild America Investment spent at the rate of $300 billion per year would add 2% to the GDP growth rate and 2.6 million jobs, which is a healthy fraction of the 14 million additional jobs we need to get back to full employment.

If Obama wants to win re-election despite the fact that the economic and employment situation are sure to be still terrible in the fall of 2012, he should make Rebuild America Investment his brand and spend the next year going around the country selling it and trying to jam it through Congress. It will excite voters and draw them too him. If Republicans oppose it (they may not), he can profit greatly from rhetorically contrasting his investment initiative to make America great again—an America we'll proud of—with their insistence on dragging America down to the jerry-build, patched-up level of the former USSR. In any event, it changes the subject from all those things Republicans would prefer to talk about. Remember, Harry Truman won re-election in 1948 by campaigning against the "do-nothing Congress." In order to make this work for him politically, Obama would have to overcome his impulse to compromise, half measures, timidity, and letting his adversaries define the issues. If he tries to go big rhetorically but small in dollar terms, which is what he's been doing, that will be widely understood as a cynical attempt to win votes without actually improving the lives of Americans and their children and as further evidence that he has no vision, can't lead, and should be retired to private life.

Sunday
Aug142011

We don’t have a Social Security problem; we have an unemployment problem.

As our political class wrangles about the federal budget deficits and debt, there are persistent wrong-headed proposals to raise the Social Security retirement age and to make annual cost-of-living adjustments ("COLA") smaller. We can restore actuarial balance to Social Security by simply restoring full employment, and if we can't or won't restore full employment we should lower the retirement age and raise the COLA.

The Social Security "Problem"

The current problem with the Social Security retirement system is that in recent years taxes paid into the system have been too small, when supplemented by scheduled drawdowns from the accumulated trust fund, to pay all of the scheduled benefits over all of the next 75 years. At present and projected receipt levels, the trust fund will be exhausted in about 25 years, after which current receipts will be only large enough to fund about 77% of the scheduled benefits out to the planning horizon. This is not occurring because nobody noticed that there were a lot of baby boomers who were going to retire but because the percentage of working-age Americans in employment has been unexpectedly shrinking since 2000. Here, courtesy of the St. Louis Fed, is the employment-to-population ratio for Americans 16+ years old.

If the employment-population ratio had continued at the 2000 level, the trust fund would still be increasing, and current receipts plus trust fund drawdowns would never become insufficient to pay presently scheduled benefits. With full employment there is no Social Security funding problem at all. None. All scheduled benefits can be paid for at least 75 years without any tax or benefit changes. In other words, we don't have a Social Security problem, we have an unemployment problem.

In the political arena, we should insist on solving the immediate and devastating unemployment problem and not be drawn into discussing Social Security changes now to prevent a crisis a quarter century from now. If we are going to discuss Social Security at all, we should be demanding changes that make it better for America instead of giving credence to proposals that will both exacerbate unemployment and shrink the safety net.

The retirement age should go down, not up.

The proposal to raise the retirement age is intended to improve Social Security finances by both reducing total benefits paid and collecting more Social Security taxes from seniors who defer retirement. The unintended* but unavoidable consequence of doing that is that senior citizens who keep working will not be making room in the work force for young people, who must then be supported by their parents or some other government program or left in the streets.** This is not a fanciful or trivial problem or one caused by the Great Recession; it has been happening for at least 10 years.

Those 55 and older have been staying in employment longer each year since 1993 and have hardly given up any jobs in the Great Recession. In stark contrast, the employment ratio for 16-24 year-olds has dropped like a rock since 2000. The employment situation for young adults would be improved by lowering the retirement age to get seniors out of the workforce sooner. If there is going to be chronic unemployment, the least bad option is to have unemployed seniors instead of unemployed youth.

The COLA should be changed to CPI-E which recognizes the spending patterns of seniors.

Another proposal to lower the Social Security expenditure rate is to base annual cost of living adjustments on a new consumer price index, "chained CPI." This differs from the currently applicable CPI-W index in that the chained series adjusts the relative weights in the "basket" of goods and services on which prices are tracked to take into account consumers' changes in buying patterns. For example, when consumers can no longer afford steak, they buy hamburger, and when they can't afford that they move successively to bologna and low-protein staples. Thus, a smaller COLA forces lower spending and then (mis)calculates that a smaller COLA enables the beneficiary to stay even. Although the real reason for wanting to move to chained-CPI is simply to reduce Social Security outlays, proponents argue that it is more accurate than CPI-W and therefore fair to everybody. Not so.

If accuracy and fairness is the goal, we should adjust Social Security benefits by an index, CPI-E, which is based on the unique consumption patterns of seniors and has already been developed by BLS. Seniors spend relatively more on health care and housing and less on transportation and education, for example. Switching from CPI-W (which specifically excludes the spending patterns of retirees) to CPI-E (E for elderly) would generate somewhat larger annual increases in Social Security benefits as health care continues to be one of seniors' fastest increasing costs.

Be competent negotiators for a change.

Tactically, those who want to protect Social Security and solve broader economic and social problems, should be demanding a lower retirement age and a switch to CPI-E because the obvious compromise between that and a higher retirement age and chained CPI is the status quo. On the other hand, if progressives only defend the status quo, a compromise with proponents of a higher retirement age and chained CPI is more unnecessary economic and social distress.

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* Of course, there are those who fully intend to weaken Social Security because they want to privatize or eliminate it altogether.

** An additional problem with raising the retirement age is how to support senior citizens who don't keep working those extra years. One cost will be that Social Security disability benefit payments will increase. ADDED 8/21/2011: The disability trust fund will be exhausted in 2017 because of burgeoning applications by people who have lost their jobs and are arguably disabled, according to recent estimates.

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