Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. Ponzi Collapses Nearly Quadrupled in '09 (AP)From the Associated Press:By CURT ANDERSON, AP Legal Affairs Writer Curt Anderson, Ap Legal Affairs Writer —Mon Dec 28, 9:33 pm ET Read the rest of the article. Labels: Allen Stanford, Bernard Madoff, ponzi, Ponzi schemes Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Appeal to Our Blog ReadersDear Regular Visitors to the D&S blog:If you read postings to the D&S blog via an RSS feed rather than by visiting the D&S website, you may not know that we are having a 35th anniversary fundraising effort. We are calling it our "Anti-Capital Campaign," both because we want to put D&S on a better financial footing by retiring some debt, and because we want to secure our financial future so we can keep standing up to capital for another 35 years! Our goal for the year was to raise $35,000 beyond what we normally raise. Online fundraising has been a key component of this campaign. At the beginning of December we launched the online component, complete with fundraising "thermometer" and a special web page announcing our campaign. We are within striking distance of meeting our $35K goal by the end of 2009. We have raised about $8K in December so far, but we need around $6.5K more by the end of the month. If you are a regular visitor to the D&S blog and website—if you depend on us to keep you informed about the U.S. and global economies, if you like the analyses and explanations our authors provide, if you enjoy the tips our "sources" provide us and we pass on via the blog, please consider supporting us financially. We are a collectively run organization—our staff isn't paid much, and we run a very lean operation, so you can be sure that any donation you provide will go directly to disseminating the kind of left economic analysis that D&S has been providing for 35 years. Find out more about our 35th anniversary here (for our "Anti-Capital Campaign") and here (for our retrospective). To donate, click here. There are several hundred blog subscribers, so if each subscriber makes a small donation we can reach our campaign goals. Please mention in the comments section of your online order that you are a fan of the blog and are responding to this special appeal. You may also want to consider subscribing to the print edition of D&S; or purchasing an e-subscription (we'll send you a full-color pdf of the magazine a week or two before the print subscribers get theirs!); subscriptions at the sustainer rate ($60/year; $120 for two years) actually cover the costs of producing the magazine. Or you may wish to purchase gift subscriptions for friends or family (we're having a special right now—only $10 each if you buy five or more!). Finally, our newest book, The Economic Crisis Reader, makes a terrific gift. Thanks for your support! —Chris Sturr, co-editor of D&S, for the staff and collective. Labels: 35th anniversary, anit-capital, capital, DandS blog, fundraising Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). $57,077.60, Surging by the Minute (Jo Comerford)Tom Engelhart's last post of the year over at TomDispatch, is In Nightmares Begin Responsibilities: Why War Will Take No Holiday in 2010. It's a great one! Here's a tidbit:In Afghanistan, here's what we know. The president is surging at least 30,000 troops into that country, reportedly accompanied by a surge of up to 56,000 private contractors, and an extra crew of civilian employees of the U.S. government as well. What initially was announced as a six-month surge is now expected to last 11-12 months (if things "line up perfectly," according to the general in charge). That means the surge itself will probably still be underway next November. Fittingly, then, the Obama administration has made it clear that it won't even consider beginning what Secretary of Defense Robert Gates has called a "thorough review of how we're doing" in Afghanistan until December 2010, a process that, based on the last set of presidential deliberations, could last months. Put another way, war in the present escalated form is simply what's on the books for 2010. Period. Read the full post. And from a few days ago at TomDispatch, an excellent account of the cost of the surge in Afghanistan, by Jo Comerford. Here's Tom's introduction: A remarkable "lesson" in the economics of surging in Afghanistan, the costs of the president's escalation as you've never seen them before: Jo Comerford, "$57,077.60, Surging by the Minute" http://www.tomdispatch.com/archive/175179/ Read Jo Comerford's post at TomDispatch. Labels: Afghanistan, Afghanistan war, Jo Comerford, Tom Engelhardt Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Krugman vs. Hudson on SamuelsonI was alerted by this post on Naked Capitalism to a back-and-forth between Paul Krugman and Michael Hudson on Paul Samuelson.It started when, on Dec. 14th, the day after Samuelson died, Counterpunch re-published a paper by Michael Hudson from back in 1970, shortly after Samuelson was awarded the recently-established Nobel Prize in Economics. Here's a tidbit: This is only the second year in which the Economics prize has been awarded, and the first time it has been granted to a single individual—Paul Samuelson—described in the words of a jubilant New York Times editorial as "the world's greatest pure economic theorist." And yet the body of doctrine that Samuelson espouses is one of the major reasons why economics students enrolled in the nation's colleges have been declining in number. For they are, I am glad to say, appalled at the irrelevant nature of the discipline as it is now taught, impatient with its inability to describe the problems which plague the world in which they live, and increasingly resentful of its explaining away the most apparent problems which first attracted them to the subject. Krugman responded to Hudson on his NYT blog. (As one commenter ("attempter") on Naked Capitalism pointed out, Krugman doesn't even mention Hudson by name: "Krugman couldn't even bring himself to write Hudson's name, but just linked to the anonymous post. (Of course K is always very respectful of anyone properly ensconsed in the Establishment, even where he disagrees with them.) Quite the contrast with his protests over how he and others who were correct on Iraq remain marginalized on that subject.") Here is all of Krugman's post: A number of people are linking to this reprinted critique of the work of the late Paul Samuelson. I could point out that the critique thoroughly misunderstands what Samuelson was saying about international trade, factor prices, and all that. But there is, I think, an interesting point to be made if we start from this complaint:Can it be "scientific" to promulgate theories that do not describe economic reality as it unfolds in its historical context, and which lead to economic imbalance when applied?Actually, there was a time when many people thought that institutional economics, which was very much focused on historical context, the complexity of human behavior, and all that, would be the wave of the future. So why didn't that happen? Why did the model-builders, led by Samuelson, take over instead? L. Randall Wray of the University of Missouri at Kansas City (where Hudson teaches, along with lots of other great heterodox economists, responded on behalf of Hudson at the UMKC econ blog. Wray says that Krugman's claim that "Samuelson-type economics" won the day because it had something useful to say in response to the Depression is "bizarre, to say the least," and he gives six reasons for thinking so. Here are the first four: First, Roosevelt's New Deal was in place before Keynes published his General Theory, and it was mostly formulated by the American institutional economists that Krugman claims to have been clueless. (There certainly were clueless economists—those following the neoclassical approach, traced to English "political economy".)Read the rest of the post. And last but not least, here's Michael Hudson's response to Krugman, also at the UMKC econ blog. Labels: Counterpunch, Great Depression, institutional economics, Keynesianism, L. Randall Wray, Michael Hudson, Paul Krugman, Paul Samuelson, UMKC Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bernanke, Time, Senate Banking CommitteeWell the New York Times website is reporting that the Senate Banking Committee just approved Ben Bernanke for a second term as Fed chair.This comes just after Time magazine announced that Bernanke is its Person of the Year for 2009. We know that this designation doesn't necessarily mean that the magazine endorses the person in question (remember Hitler?). But here's how the announcement describes Bernanke: A bald man with a gray beard and tired eyes is sitting in his oversize Washington office, talking about the economy. He doesn't have a commanding presence. He isn't a mesmerizing speaker. He has none of the look-at-me swagger or listen-to-me charisma so common among men with oversize Washington offices. His arguments aren't partisan or ideological; they're methodical, grounded in data and the latest academic literature. When he doesn't know something, he doesn't bluster or bluff. He's professorial, which makes sense, because he spent most of his career as a professor. Ok—fair enough. Bernanke is a nerdy, professorial type. But non-ideological? We beg to differ. I asked Jerry Friedman, who wrote Bernanke's Bad Teachers for our July/August issue, to give us his reaction to Time's announcement. Here's what he had to say: In picking Ben Bernanke as Person of the Year, Time Magazine recognizes the man responsible for the little good and much bad that has characterized policy the worst economic crisis since the 1930s. When President George W. Bush appointed him to succeed Alan Greenspan as head the Federal Reserve, Bernanke was Chair of the President's Council of Economic Advisors and an acknowledged acolyte of Milton Friedman. Like Friedman and Greenspan, Bernanke believes in "Say's Law" or the principle that individual action through markets will eliminate unemployment. To Bernanke, the current crisis was caused by government mistakes, particularly the misalignment of currencies and the subsequent Chinese savings glut which, when it flowed into the United States housing market, led to an unsustainable real-estate boom. To address the subsequent financial crisis, Bernanke has been willing to move very aggressively but his actions have stopped with the Wall Street bailout because he sees no broader ramifications of the crisis. Confident in free-market capitalism, there is, for Ben Bernanke, no problem with free capital markets, no concern that growing income inequality or changing industrial policy may be undermining effective demand, and no reason, therefore, to revisit the conservative and pro-business policy decisions made during the neo-liberal era that began in the 1970s. This is the man Time says is not ideological? Hmm... Maybe the analogy is not Hitler being named "Man of the Year," but Obama winning the Nobel Peace Prize... Labels: Ben Bernanke, Gerald Friedman, Hitler, Senate Banking Committee, Time magazine Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Howard Dean: Kill the Senate Health Care BillFrom a Vermont Public Radio broadcast from Tuesday:(Host) Former Governor Howard Dean is back at the center of the health care reform debate in Washington. Hear the segment. Labels: health care reform, Howard Dean, Medicare, public option Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Who Really Saved The Global Economy?According to this Observer article, it was the global drugs lords: their money laundering activities provided the required marginal capital to keep flowing in the interbank markets at the height of the crisis, when more legitimate players were glued to the sidelines, so that the whole shebang didn't go down. Thanks to Yves Smith at Naked Capitalism for the link:Drug money saved banks in global crisis, claims UN advisor Drugs and crime chief says $352bn in criminal proceeds was effectively laundered by financial institutions Rajeev Syal The Observer, Sunday 13 December 2009 Drugs money worth billions of dollars kept the financial system afloat at the height of the global crisis, the United Nations' drugs and crime tsar has told the Observer. Antonio Maria Costa, head of the UN Office on Drugs and Crime, said he has seen evidence that the proceeds of organised crime were "the only liquid investment capital" available to some banks on the brink of collapse last year. He said that a majority of the $352bn (216bn pounds) of drugs profits was absorbed into the economic system as a result. This will raise questions about crime's influence on the economic system at times of crisis. It will also prompt further examination of the banking sector as world leaders, including Barack Obama and Gordon Brown, call for new International Monetary Fund regulations. Speaking from his office in Vienna, Costa said evidence that illegal money was being absorbed into the financial system was first drawn to his attention by intelligence agencies and prosecutors around 18 months ago. "In many instances, the money from drugs was the only liquid investment capital. In the second half of 2008, liquidity was the banking system's main problem and hence liquid capital became an important factor," he said. Some of the evidence put before his office indicated that gang money was used to save some banks from collapse when lending seized up, he said. "Inter-bank loans were funded by money that originated from the drugs trade and other illegal activities...There were signs that some banks were rescued that way." Costa declined to identify countries or banks that may have received any drugs money, saying that would be inappropriate because his office is supposed to address the problem, not apportion blame. But he said the money is now a part of the official system and had been effectively laundered. "That was the moment [last year] when the system was basically paralysed because of the unwillingness of banks to lend money to one another. The progressive liquidisation to the system and the progressive improvement by some banks of their share values [has meant that] the problem [of illegal money] has become much less serious than it was," he said. The IMF estimated that large US and European banks lost more than $1tn on toxic assets and from bad loans from January 2007 to September 2009 and more than 200 mortgage lenders went bankrupt. Many major institutions either failed, were acquired under duress, or were subject to government takeover. Gangs are now believed to make most of their profits from the drugs trade and are estimated to be worth 352bn pounds, the UN says. They have traditionally kept proceeds in cash or moved it offshore to hide it from the authorities. It is understood that evidence that drug money has flowed into banks came from officials in Britain, Switzerland, Italy and the US. British bankers would want to see any evidence that Costa has to back his claims. A British Bankers' Association spokesman said: "We have not been party to any regulatory dialogue that would support a theory of this kind. There was clearly a lack of liquidity in the system and to a large degree this was filled by the intervention of central banks." Labels: financial crisis, underground economy, Yves Smith Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Stop Usury Now (William Greider)From The Nation (but: do not take this as an endorsement of Martha Coakley—some of us voted against her in the primaries):William Greider | December 10, 2009 The Democratic party brushed aside the question of usury last spring when Congress decided not to impose any limits on the ruinous interest rates charged by major banks and other lenders. But usury is now back on the table, put in play by Metro IAF, an alliance of two dozen faith-based community organizations affiliated nationwide with the Industrial Areas Foundation. These politically savvy community groups draw their members from diverse religions and across the usual divisions of race and class. They are staging face-to-face "actions" to confront bankers and politicians around the country with a blunt moral message. Usury is a sin, Judaism, Christianity and Islam agree, and must be stopped. This demand is expressed in their slogan: "Ten Percent Is Enough." The campaign seeks a legal ceiling of ten percent imposed on the interest rates for credit cards and predatory practices like "payday loans." Ten percent approximates the old ceiling on interest rates before 1980, when deregulation repealed the federal law against usury. Ten percent is also the tithe religious adherents give to their churches. As one IAF campaigner put it, "If 10 percent is good enough for God, it should be enough for the bankers." The anti-usury initiative was launched in mid-summer, from Boston to North Carolina, from New York City to the Midwest, and has already produced some startling results. In Massachusetts, the leading candidate for Ted Kennedy's old Senate seat, Attorney General Martha Coakley, answered "yes, yes, yes, yes" to the demands expressed by the Greater Boston Interfaith Organization, when 800 of its members turned out to address the candidates. Rep. Louise Slaughter of New York heard about the anti-usury actions and contacted the organizers to say she is introducing a bill to cap interest rates at 16 percent. Slaughter evidently changed her mind about usury. Last spring, as chair of the powerful House Rules committee, Slaughter blocked similar measures and would not even allow a floor vote on the issue. Many Democrats want to avoid a roll call on usury because it will compel them choose between their constituents and the bankers. The most startling development for the anti-usury campaign is the endorsement from the CEO of Citigroup, Vikram Pandit. Like other leading banks, Citi has been kicking up its credit-card rates as high as 30 percent, even as Citi is kept afloat with billions from the taxpayers. Nonetheless, Pandit told editorial writers at the Boston Globe he would support a legal ceiling on interest rates if it is applied industry-wide. "We're completely in support of having a rational rate structure." Pandit said. The Citigroup executive did not endorse a specific ceiling, but cited the example of the 10 percent credit cards his bank introduced several years ago, believing other banks would follow and lower their rates too (when they didn't, Citi lost money in the venture). The Globe's exchange with Pandit was most likely inspired by news stories about the anti-usury actions in Boston. Pandit made the telling observation that sky-high interest rates are among the impediments to ending the recession. If interest rates are curbed, he explained, banks would likely defend profitability by reducing the available credit and some high-risk borrowers would doubtless be cut off (the banking industry is already pursuing this strategy). However, Pandit added, a dramatic reduction in rates would help deeply indebted families recover their purchasing power. "I don't disagree," he said, "with the notion that having high rates in this environment is not conducive to driving economic recovery." This insight could be important for transforming the debate on economic recovery. Instead of attending intensely to the profitability of banks, government should concentrate on helping consumers overcome the lack of sufficient demand. Democrats could argue that restoring prudent controls on the terms of credit is actually an an important way to stimulate growth. Usury is immoral, but it is also bad economics. The anti-usury campaigners learned additional insights from Citigroup when they met with John P. Carey, chief administrative officer for the bank's credit-card business. Carey told them a cap on interest rates is plausible if it is designed to be flexible in adverse conditions. He suggested it could be indexed to inflation and other factors like unemployment levels so creditors could maintain an "appropriate rate of return" and not be compelled to shrink credit availability. Flexibility might have saved the old system of interest-rate controls from repeal. Inflation was rising in the 1970s and creditors rightly complained that their "real return" on lending was getting smaller, even turning negative when the rate of inflation exceeded the nominal interest rate. Instead of making sensible adjustments, Congress abolished all limits. The result today is an economy and financial system drenched in usurious practices--banks that profit by destroying the borrowers. IAF organizations do politics very differently from Washington and are seen as quaintly old-fashioned alongside the modern politics of mass communications. These community activists still make "house calls." Their agenda is derived from the experiences of ordinary people, not policy experts, much as old-time political machines used to do. Players in Washington believe they are close to completing financial reform. IAF members believe the politics of financial reform is just getting started. It may take several years to build momentum from the ground up for what people would recognize as true reform. But the organizers are opening new fronts of influence, asking local governments, churches and foundations why they deposit their money with banks that practice usury. Metro IAF's campaign has one large advantage over established politics: ordinary people already understand the meaning of usury. They know it is wrong. They are eager to talk about their experiences with it. For contrast, ask any elected representative (or economist, for that matter) what they think about usury. If they agree is wrong, do they intend to do anything about it? Labels: Citigroup, Louise Slaughter, Martha Coakley, usury, Vikram Pandit, William Greider Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Left of ObamaCaught a broadcast today on a Boston NPR station of an Intelligence Squared–US debate over the proposition: “Obama’s economic policies are working effectively.” Nothing that was said on either side was especially remarkable. What was remarkable, though, was that two of the three members of the “disagree” panel—James Galbraith and Eliot Spitzer—were taking Obama on from the left.Defending Obama on economic policy were Larry Mishel from the Economic Policy Institute, Mark Zandi from Moodys.com, and Steve Rattner, who handled the auto industry bailout for Obama. (Zandi was a McCain advisor during the campaign but now advises Obama.) Maybe the non-fringe part of the ideological spectrum is shifting left a bit... You can hear the whole debate here. Labels: Barack Obama, Economic Policy Institute, Eliot Sptizer, financial crisis bailout, Intelligence Squared, James K. Galbraith, Lawrence Mishel, Mark Zandi, Steven Rattner, stimulus package Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). More Sit-Ins for Single-Payer, Thurs. Dec. 10thThe Mobilization for Health Care for All, about which we have blogged several times, is having another Day of Action for single-payer this Thursday, December 10th, on the occasion of International Human Rights Day. I hope some regular D&S blog visitors can participate in these sit-ins! Here is the Mobilization's press release:We are making the point that health care is a human right—that means everyone should have access to health care. This is not just a nebulous right, but a life and death issue. We all know that 45,000 people die in the United States because of lack of access to health care. And, we know that more than a million have gone bankrupt due to health care problems. If we met the human rights standard of providing health care to all then these problems would diminish greatly. These Mobilization actions will urge support for Sen. Bernie Sanders' single-payer amendment. And, we are also telling the senate to allow states to put in place a state-level single payer system. We know improved Medicare for All is the solution to the health crisis in America and we will continue to advocate for it. Please support our efforts. We are not going to give up and accept the inadequate bills being considered in Congress. The problems in American health care will continue even if the best of these bills pass. We know that in order to get real health care reform ongoing organizing will be essential. To find an action in your state click here. Labels: civil disobedience, direct action, health care reform, Mobilization for Health Care for All, single-payer Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Copenhagen Climate TalksThe long-awaited talks start today, with progressives mostly pessimistic about the outcome. Bill McKibben makes a case for pessimism at TomDispatch—sobering and well worth reading. Paul Krugman claims to be optimistic in his New York Times op-ed today, but based on a remarkably apolitical analysis of the situation (cutting carbon is affordable and makes sense, so it will happen??!!).As Copenhagen begins, it’s also worth looking back at this post on Slate from last February by a fellow at the Shorenstein Center at Harvard (and Bloomberg News columnist) who looked at media coverage of climate change. He lays out the high degree of consensus among economists of most stripes on the economics of climate change: that the benefits of prompt strong action far outweigh the costs. Then he looks at how wrong most media coverage of the economics has been. Not the only factor that explains why public pressure is lacking in the United States on this issue, but no doubt one of them. Labels: Bill McKibben, climate change, Copenhagen Climate Conference, Eric Pooley, Paul Krugman, Slate Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). 10% Unemployed: Change We Can Believe In?Just about everyone was caught off guard by the November employment reports, which indicated that the US unemployment rate had actually declined .2% to 10.0%, and that a mere 11,000 jobs were lost during the month (forecasts had called for 130,000, and the ADP private sector report released only days earlier tipped the scales at 160,000). Moreover, the September and October readings were reduced significantly, confirming the sentiment that large-scale corporate reductions have ceased to be the major factor in the employment picture. Hence, concern shifts to whether or not the still anemic economy can actually generate any kind of jobs growth. Here, the picture is in many ways a tad more optimistic than that which followed last month's report, but with some major exceptions.The underlying upward trend was driven by slowing declines in construction and manufacturing. In the case of the latter, the savage inventory rundown that ran from last October to late this spring ensured that a certain level of restocking was necessary, especially given the partially-restored wealth effects from surges in financial and commodity markets that resulted from unprecedented monetary laxity and financial-sector coddling. And demand for capital goods seems to be perking up, so further gains in the sector are possible in the months ahead (barring any further financial catastrophes). But in construction, the picture is blurred because of the state of the commercial real estate sector, which is currently poised to take major hits, given poor performance in the retail sector (i.e. possible bankruptcies), so it's hard to see continued strength here. One sector in which things really picked up was in temporary work. An uptick in temp hours is a usually a good sign that overall employment demand is picking up, but it's perhaps helpful here to put the rise in context by juxtaposing it with a welcome, but ever-so-slight reversal of the drastic decline in the average workweek, which has, during the last few months, hit--and stayed at--record lows. Together, these data suggest that employers are, kicking and screaming all the way, easing up on besieged workers just enough to keep them ticking over the heroic gains in productivity by hiring a few temps, and offering just a bit of overtime. These productivity gains have, in the decided absence of revenue growth, alone accounted for a truly impressive--given the weak economic backdrop--corporate profits performance registered in the third quarter. But this activity may be of very questionable durability and quality: after all, many new hires, especially amongst newly-graduated college students (a group which has been one of the most severely affected by the crash in the labor market), are coming on as interns, or at much reduced rates of pay, and that reduction means that employment spending multiplier effects that generated further hiring (even at the dreadfully slow levels characteristic of the last two recoveries) in past cycles could be diluted still further. Another area experiencing positive movement of a sort was retail: in this sector, too, the positive development consisted of the lack of a negative one, as the pace of losses continued to slow. But holiday hiring, which had been dangerously subdued in October, picked up significantly in November. Still, many of these people will be junked after Christmas like so many of the useless gadgets and packages they had worked so hard to flog in the preceding weeks. And in restaurants and taverns, employment actually slowed. The government continued to add jobs, but an 8,000 monthly figure seems, frankly, pathetic (if not insulting) given the enormous size of the stimulus and bailout packages. And the stimulus money is about half gone, now. It's unacceptable that an economy this devastated (and in such desperate need of public works) is being so neglected. But the folks on Wall Street are getting nervous about spending, and Friday's numbers, which foreign investors saw as positive, pushing the dollar up, were seen on the Street as evidence that the Fed might be all the quicker to raise interest rates and exit from its support programs for the banks: so US stockmarkets posted only slight gains. This illustrates that any further stimulus will be hard fought over by the corporate whores in Congress, though some Democrats are now talking about redirecting returned TARP money to a second stimulus. One very negative development concerns the long-term unemployed: the roll of persons unemployed for longer than 26 weeks continued to expand. And though the U6 reading, which counts underemployed persons seeking full-time work also reversed its downward spiral at last, registering a 17.2% reading from November's 17.5%, the fact that so many have been out of the workplace for such extended period of time merely increases the likelihood that they will not be hired as long as the labor market is decidedly slack (an increasingly popular tenet of employer propaganda has it that such persons' *skill sets* deteriorate when they've been idle for this long, and it's better to go with someone else, especially with some 6 applicants looking for each available job--that figure is from about a month ago, I think). So, all in all, the reversal in layoffs seems certain (for now), but any substantial uptick in hiring will have to wait for next year, at least. And, though some sectors show room for one-off or even sustainable gains, the potential levels of gains, at best, remain extremely subdued. Labels: ADP private sector employment report, economic indicators, employment, real unemployment rate, US employment Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Mason Gaffney on the U.S. EconomyThe first part of an interview with Mason Gaffney, who was interviewed by Kevin Press for SunLife Financial's Today's Economy blog. Gaffney is promoting his new book After the Crash: Designing a Depression-Free Economy.November 30, 2009 After the Crash: Designing a Depression-Free Economy, Selected Works of Mason GaffneyAt a time when most everyone has an opinion about the state of the U.S. economy and the quality of decision-making in Washington, D.C., the voice of esteemed economics professor and former TIME magazine journalist Mason Gaffney is an important one. Currently teaching at the University of California, Gaffney has been publishing vital contributions to economics since his PhD dissertation in 1956. Western Canadians will remember him as the founder of the British Columbia Institute for Economic Policy Analysis. I spoke with professor Gaffney last week about what went wrong with the American economy, and what he thinks president Barak Obama should be doing about it. (Hint: the president hasn't got it right.) Today's post sets out Gaffney's description of what's wrong with traditional government stimulus programs and U.S. tax policy. Part 2 will feature Gaffney on the trouble with macroeconomics. He also makes a startling prediction about U.S. unemployment. You write that the state of the U.S. economy is a result of a misallocation of capital. What do you mean? The emphasis here is on the allocation between durable capital, or capital that turns over slowly and working capital. Capital goes into highways, dams and battleships easily, but it doesn't come back out easily. That's where we are today. Any corner bakery or hamburger stand makes more jobs per dollar of capital than the massive public works that we depend on traditionally to fight unemployment. We depend on it, and it doesn't work. Yet we go on depending on it. It's been that way for hundreds of years. One of the worst examples, which sent many of our ancestors over to this country, was the English attempt to solve the potato famine problem in Ireland by putting Irishmen to work building roads. The people were starving to death, quite literally. They needed breakfast for tomorrow morning, and they were being put to work building roads for the next century. That, in an extreme case, is the kind of policy mistake that has been repeated time after time. What they needed was working capital for the private sector. How do you provide capital for the private sector? The private sector generates capital itself. Step one is not to take it away from it. Step two, in our own case, would be to pay down the public debt, because when you pay down the public debt, you put capital in the hands of the bond holders. If you don't give them the alternative of putting their money back into public debt, they invest it in the private sector. There's also a great deal of saving going on in the private sector at all times. It gets aborted by a phenomenon that I'll refer to generically as land speculation. That is what's been happening in the last eight years or so. The value of residences, or at least the land under them, has skyrocketed. The owners have borrowed on that through lines of credit and other means for consumption, with no production corresponding to it. The increase in land value appears to the owner of land as an income, but nothing is produced. So when you consume that, you're eating the seed corn, so to speak. You're consuming capital and not replacing it. I've been living on the old homestead myself for several years and now I'm sorry. Along with millions of other people who ran up debts based on their expectation of rising residential values which have turned negative. It happens wherever there is real estate. What's the answer? Change tax policy, which would dehydrate the unearned increments of land value and keep them from getting started in the first place. If you focus your taxes on the value of land instead of on payrolls, let's say, that nips a land boom in the bud. As the boom gets started, the irrational exuberance would cause the tax levy to rise. That throws cold water on the irrational exuberance as it gets started. It keeps it from going to the extremes that we have just been through...[Currently,] the tendency is to stick with the old values for several years. Tax valuations lag behind market valuations as the latter are rising. That lets the bull get off to a flying start. In California for example, the assessors are forbidden by law from following the market up. They're allowed to raise values by 2% a year at the most, while market values are going up, or were, by 10% a year. It wasn't long before the tax burden became negligible compared to the value of the land. In my own case, my own value went up so high and so fast, that my taxes were less than .2% of the market value at the peak of the boom. They didn't amount to anything; they were less than my fire insurance for heaven's sake. This situation let the boom in California and other extreme areas get completely out of hand, and we're now experiencing those results...They should be revising tax policy in a drastic way, to exact less tax money from honest labour and productive labour and more money from unearned increments – capital gains. By increasing taxes on capital gains, you tamp down market speculation. That's correct. Once the capital gain has occurred, you have this enhanced value which is an excellent tax base. Read the original interview. Labels: Georgists, land tax, Mason Gaffney, tax policy Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Bernanke's Re-Confirmation TestimonyWith opposition from the left (from Bernie Sanders, who promised to put an "official hold" on a floor vote for Bernanke's re-confirmation) and from the right (by two Republicans, as yet unnamed, according to FireDogLake, via NakedCapitalism).Meanwhile, here's the New York Times account of Bernanke's testimony, where he concedes that the Fed "could have done more" to avert the crisis. Here's a nice discussion on The Big Picture of whether Bernanke will get re-confirmed, should get re-confirmed, and whether we the people have any say whatsoever (one commenter claims that Bernanke's approval rating is at 21%). And here's an op-ed from left-ish economist Dean Baker and libertarian Mark Calabria arguing that an agreement on Fed transparency should precede Bernanke's re-confirmation. Sounds good to us. Labels: Ben Bernanke, Bernie Sanders, Federal Reserve, firedoglake, Monetary Policy, Naked Capitalism Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Numbers Behind the Troop IncreaseFrom the indispensable National Priorities Project:President Barack Obama is making a major policy speech on Afghanistan tonight. According to numerous press reports, this speech will include his intention to significantly increase the number of U.S. forces deployed in the region to conduct combat operations and assist with the training of Afghanistan's national security forces. The following are quick facts about the U.S. commitment in Afghanistan. Funding Additional Troops U.S. Troop Levels in Afghanistan—historical data Annual Funding for U.S. Combat Operations in Afghanistan Figures of U.S. Military Fatalities in Afghanistan Link to NPP's "Cost of War" Counter Issues to Consider As Troop Levels Increase – Funding for Military vs. Non-military Activities – Reliance on Private Contractors – Stress on the "Total Force" – Staffing a "Civilian Surge" Additional Resources Funding Additional Troops Prior to Fiscal Year 2010, combat operations in Iraq and Afghanistan have been funded outside the normal Defense Department budget through "supplemental" spending bills. The Obama Administration pledged that it would end this practice after Fiscal Year 2009 and included, as part of its Fiscal Year 2010 budget request, a $130 billion request for "Overseas Contingency Operations," the majority of which was dedicated to the Iraq and Afghanistan wars. The Fiscal Year 2010 funding, which awaits final approval from Congress, does not include the funds that will be required to support any further increase in U.S. troop levels in Afghanistan. Thus it is very likely that the White House will again resort to a supplemental spending bill to secure additional war funding in the coming year. It has been widely reported in recent weeks that both the Pentagon and the White House estimate that any additional forces sent to Afghanistan will require $1 billion per year for every 1,000 troops sent, or $1 million per soldier. IN ALL, total funding for Afghanistan could exceed $325 billion in Fiscal Year 2010. (See "Annual Funding for U.S. Combat Operations in Afghanistan" below.) U.S. Troop Levels in Afghanistan Troops 2001 N/A 2002 5,200 2003 10,400 2004 15,200 2005 19,100 2006 20,400 2007 23,700 2008 30,100 2009 50,700 (Congressional Research Service estimate, as of July 2009)* * It has been reported subsequently that there are roughly 62,000 U.S. troops currently in Afghanistan. This number is expected to grow to at least 68,000 by year's end. ["Gates Says Additional Local Forces May Be Needed In Afghan War," Bloomberg News, September 1, 2009.] NOTE: The Defense Department reports troop levels involved in military operations in several ways. The figures shown here are taken from the Pentagon's "Boots on the Ground" (BOG) reports to Congress. They reflect only personnel located in Afghanistan and do not include other personnel deployed as part of Operation "Enduring Freedom," such as those providing logistical support in neighboring countries. Source: Troop Levels in the Afghan and Iraq Wars, FY2001-FY2012: Cost and Other Potential Issues, CRS Report R40682, July 2, 2009. Annual Funding for U.S. Combat Operations in Afghanistan $ in Billions 2001 N/A 2002 20.8 (See "NOTE" below) 2003 14.7 2004 14.5 2005 20 2006 19 2007 36.9 2008 42.1 2009 60.2 TOTAL 228.2* * Of the $130 billion for Fiscal Year 2010 operations in Iraq and Afghanistan currently awaiting final approval by Congress, roughly half, or around $65 billion, will likely go to Afghanistan. This additional funding will not cover any further increases in troop levels that President Obama might request. Adding in the cost of 30,000 additional troops (an estimated $30 billion), together with Afghanistan's portion of the $130 billion, total funding to date for Afghanistan could exceed $325 billion in Fiscal Year 2010. NOTE: 2002 figure includes both FY 2001 and 2002 funding. Source: The Cost of Iraq, Afghanistan, and Other Global War on Terror Operations Since 9/11, Congressional Research Service Report RL33110, May 15, 2009. U.S. Military Fatalities in Afghanistan U.S. Fatalities 2001 12 2002 49 2003 48 2004 52 2005 99 2006 98 2007 117 2008 155 2009 298* TOTAL 928 *NOTE: As of November 30, 2009 Source: Icasualties. NPP's "Cost of War" Counter—See NPP's Afghanistan "Cost of War" Counter and calculate the cost of the war to your state (and many cities or towns). Issues to Consider Funding for Military vs. Non-military Activities—In addition to increased numbers of combat forces in Afghanistan, President Obama will likely propose greater support for political and economic development. According to the Library of Congress's Congressional Research Service (CRS), 95 percent of total funding to date for Afghanistan has supported military operations, while only 5 percent of spending has supported development-related activities. Reliance on Private Contractors—According to CRS, Defense Department contract employees outnumber U.S. military personnel in Afghanistan. As of June of this year, contractors made up 57 percent of U.S. military forces in Afghanistan, with 73,968 contractors relative to 55,107 uniformed personnel. Source: Department of Defense Contractors in Iraq and Afghanistan: Background and Analysis, CRS Report number R40764, September 21, 2009. Stress on the "Total Force"—Many analysts believe that the U.S. military is already severely stressed by the size and duration of deployments in Iraq and Afghanistan. It is unclear what impact deployment of additional troops will have on the military and its ability to respond to events in other regions of the world. Staffing a "Civilian Surge"—A number of U.S. civilian and military leaders, including Gen. Stanley McChrystal, commander of U.S. and NATO forces in Afghanistan, have indicated the need to send large numbers of additional State Department and U.S. Agency for International Development personnel to Afghanistan. Yet it is not clear that the personnel needed for these duties and the funds necessary to support them are available. Civilian Casualties—the Human Rights Unit of United Nations Assistance Mission to Afghanistan publishes an Annual Report on the Protection of Civilians in Armed Conflict in Afghanistan. Additional casualty data, plus background information on Afghanistan can be found in The Cost of War in Afghanistan, published jointly by NPP and the American Friends Service Committee. Labels: Afghanistan, Afghanistan war, Barack Obama, militarism, National Priorities Project Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Arming Goldman With Pistols Against PublicFrom Bloomberg; hat-tip to Taki M. When did Bloomberg get so radical? Will they be joining us at the barricades with pitchforks? Given the disclaimer at the end, maybe just Alice Schroeder will come along.Commentary by Alice Schroeder Dec. 1 (Bloomberg)—'I just wrote my first reference for a gun permit,' said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank. I called Goldman Sachs spokesman Lucas van Praag to ask whether it's true that Goldman partners feel they need handguns to protect themselves from the angry proletariat. He didn't call me back. The New York Police Department has told me that 'as a preliminary matter' it believes some of the bankers I inquired about do have pistol permits. The NYPD also said it will be a while before it can name names. While we wait, Goldman has wrapped itself in the flag of Warren Buffett, with whom it will jointly donate $500 million, part of an effort to burnish its image—and gain new Goldman clients. Goldman Sachs Chief Executive Officer Lloyd Blankfein also reversed himself after having previously called Goldman's greed 'God's work' and apologized earlier this month for having participated in things that were 'clearly wrong.' Has it really come to this? Imagine what emotions must be billowing through the halls of Goldman Sachs to provoke the firm into an apology. Talk that Goldman bankers might have armed themselves in self-defense would sound ludicrous, were it not so apt a metaphor for the way that the most successful people on Wall Street have become a target for public rage. Pistol Ready Common sense tells you a handgun is probably not even all that useful. Suppose an intruder sneaks past the doorman or jumps the security fence at night. By the time you pull the pistol out of your wife's jewelry safe, find the ammunition, and load your weapon, Fifi the Pomeranian has already been taken hostage and the gun won't do you any good. As for carrying a loaded pistol when you venture outside, dream on. Concealed gun permits are almost impossible for ordinary citizens to obtain in New York or nearby states. In other words, a little humility and contrition are probably the better route. Until a couple of weeks ago, that was obvious to everyone but Goldman, a firm famous for both prescience and arrogance. In a display of both, Blankfein began to raise his personal- security threat level early in the financial crisis. He keeps a summer home near the Hamptons, where unrestricted public access would put him at risk if the angry mobs rose up and marched to the East End of Long Island. To the Barricades He tried to buy a house elsewhere without attracting attention as the financial crisis unfolded in 2007, a move that was foiled by the New York Post. Then, Blankfein got permission from the local authorities to install a security gate at his house two months before Bear Stearns Cos. collapsed. This is the kind of foresight that Goldman Sachs is justly famous for. Blankfein somehow anticipated the persecution complex his fellow bankers would soon suffer. Surely, though, this man who can afford to surround himself with a private army of security guards isn't sleeping with the key to a gun safe under his pillow. The thought is just too bizarre to be true. So maybe other senior people at Goldman Sachs have gone out and bought guns, and they know something. But what? Henry Paulson, U.S. Treasury secretary during the bailout and a former Goldman Sachs CEO, let it slip during testimony to Congress last summer when he explained why it was so critical to bail out Goldman Sachs, and—oh yes—the other banks. People 'were unhappy with the big discrepancies in wealth, but they at least believed in the system and in some form of market-driven capitalism. But if we had a complete meltdown, it could lead to people questioning the basis of the system.' Torn Curtain There you have it. The bailout was meant to keep the curtain drawn on the way the rich make money, not from the free market, but from the lack of one. Goldman Sachs blew its cover when the firm's revenue from trading reached a record $27 billion in the first nine months of this year, and a public that was writhing in financial agony caught on that the profits earned on taxpayer capital were going to pay employee bonuses. This slip-up let the other bailed-out banks happily hand off public blame to Goldman, which is unpopular among its peers because it always seems to win at everyone's expense. Plenty of Wall Streeters worry about the big discrepancies in wealth, and think the rise of a financial industry-led plutocracy is unjust. That doesn't mean any of them plan to move into a double-wide mobile home as a show of solidarity with the little people, though. Cool Hand Lloyd No, talk of Goldman and guns plays right into the way Wall- Streeters like to think of themselves. Even those who were bailed out believe they are tough, macho Clint Eastwoods of the financial frontier, protecting the fistful of dollars in one hand with the Glock in the other. The last thing they want is to be so reasonably paid that the peasants have no interest in lynching them. And if the proles really do appear brandishing pitchforks at the doors of Park Avenue and the gates of Round Hill Road, you can be sure that the Goldman guys and their families will be holed up in their safe rooms with their firearms. If nothing else, that pistol permit might go part way toward explaining why they won't be standing outside with the rest of the crowd, broke and humiliated, saying, 'Damn, I was on the wrong side of a trade with Goldman again.' Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life and a former managing director at Morgan Stanley, is a Bloomberg News columnist. The opinions expressed are her own. Labels: Bloomberg, Goldman Sachs, Henry Paulson, Lloyd Blankfein, Warren Buffet Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). Housing Meltdown, Ground Zero (Andy Kroll)The latest from TomDispatch. Here's Tom's introduction to the article:Talk about a devastated landscape... Any which way you look, the housing numbers are relentlessly bad. For example, 23% of U.S. homeowners owe more on their mortgages than their properties are worth, according to Ruth Simon and James R. Hagerty of the Wall Street Journal. They possess, in the vivid lingo of the housing industry, "underwater mortgages." Among them, 5.3 million households have mortgages that are at least 20% higher than their home's value, 520,000 of whom have already received default notices. In the meantime, home-loan delinquencies and home repossessions are now at record highs. According to E. Scott Reckard of the Los Angeles Times, by the end of September, "one in seven U.S. home loans was past due or in foreclosure," and the chief economist for the Mortgage Bankers Association expects the number of foreclosures to keep rising deep into 2010. And here's the beginning of the article: Housing Meltdown, Ground Zero Read the rest of the article. Labels: Andy Kroll, foreclosures, housing crisis, NACA, TomDispatch.com Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
