What’s
Wrong Today:

Our tax
code is keeping $billions out of the US Treasury. In Corporate
Tax Dodges Hurt Everyone, the Wrongologist talked about a GAO report which showed that corporate tax breaks cost the
US government $181.4 billion in 2011 alone. As Bud Meyers points out, the tax code favors the wealthy and corporations:

Wealthy taxpayers
hire lots of tax attorneys. But the median wage in America is $27,000, so 50%
of us may only need to file the single page 1040EZ form which has about 100
pages associated with it. So in reality, there are two tax codes, one for the
average salaried wage earner and the other for the corporations and their 1%
owners and managers.

The
corporatists use Congress as pawns in their strategy for continuing war on the
middle and lower classes. And their weapon of choice is the tax code. Starting
with capital gains taxes in the Revenue Act of
1921,
the top 1% has received most of the tax breaks; and that’s because they have
the means and the connections to lobby members of Congress for special tax
provisions.

The top 1%
earns most of their wealth with investments in stocks. The top 10% holds about 80%
of all stock market wealth. Those who derive income from stocks pay capital gains
taxes on realized gains, as do CEOs who earn stock options as the majority of their
pay. After holding an option for a one year period, they pay a maximum of 23.8%
for federal taxes when they sell it, less than the top marginal rate of 39.6%for
regular wages. And capital gains income is not subject to any Social Security
taxes. In 1977, the capital gains tax rate was 40%. Changes in the tax law that
reduced the federal tax rate on capital gains income is by
far the largest contributor to rising income inequality in the United States.

Remember
that 48% of Congress —
257 to be exact, up seven from the previous year — have an estimated net worth
of more
than $1 million. They
invest in the same real estate and the same stock market (and pay the same capital
gains taxes), so they also benefit from the very same preferential tax laws
that they themselves write and pass —sort of like having the fox guarding the
henhouse.

To be
clear, corporations take more advantage of the tax code than do individuals. As
the Center for Economic and Policy Research has pointed out, the latest
Congressional Budget Office (CBO) report suggests strongly that in containing
projected long-run deficits, the US has a tax problem, not a spending problem:

But the
importance of corporate income tax revenues has steadily fallen since 1946. In
the 1950s, corporate income tax revenue was about 4.5% of GDP and the average
between 1946 and 1986 was 3.2% of GDP.

An interesting
poster boy for the tax loophole team is that quintessential team sport, the National
Football League. Although Roger Goodell’s salary
is $29.5 million per year, the NFL is a not-for-profit organization. A provision in the tax code says the NFL is just like the
Tea Party and the American Cancer Society, a not-for-profit organization. Here
is the enabling sentence: (emphasis by the Wrongologist)

From the Atlantic’s report, How the NFL Fleeces Taxpayers: While the Congress was debating Public Law
89-800 in 1966, which offers the NFL an anti-trust exemption, NFL lobbyists
tossed the sort of obscure provision that is the essence of the lobbyist’s art
into another law. The phrase “and professional football leagues”
was added to Section 501(c)(6) of 26 USC. So, in 1966, Congress gave the
NFL tax exempt status.

Recently
Tom Coburn (R-OK) introduced a bill called the PRO Sports Act, which would amend the tax code and would
revoke the 1966 exemption. We’ll see if anything comes of it.

Our
society works best if those who enjoy its benefits are also prepared to pay
their share of the costs. This chart shows that individuals have paid about the
same percentage of total federal revenues since the 1930’s, while corporations’
share has fallen dramatically:

These same corporations are leading the charge for austerity, to cut
social safety nets like Medicaid, Medicare and social security, while they
demand Congress lower corporate tax rates even further and add even more
loopholes.

And they are doing little to create more jobs for all of this trickle
down.

Right now politicians
claim they are for the middle class. They feel
our pain and empathize
while enacting policies and agendas by and for corporations. Congress says they
vote their conscience. But they vote only with their wallets.

They vote for lower corporate taxes.

What’s
Wrong Today:

While we were
preoccupied with the crisis in Syria and what Sen. Cruz and the Tea Party are
doing in Congress, the interim Egyptian government that took over Egypt three
months ago was cementing its political control over the country. In a sweeping
ruling, an Egyptian court banned the
Muslim Brotherhood and ordered its assets seized. The Brotherhood’s leader Mohamed
Morsi, was elected in a election widely regarded as fair in 2012, but he is now
imprisoned by the Egyptian Military.

The interim
government, led by Prime Minister Hazem Beblawi, did not really have to do
anything, because the MB was banned as a result of privately filed lawsuits. Egypt’s
judiciary moved to not merely contain the Islamist organization, but to render
it non-existent.

From David
Kirkpatrick in the New
York Times:

However, the
government has said it will not yet implement this ban until all litigation
against the group has exhausted all judicial processes and procedures. Kirkpatrick
added:

The BBC added this
important detail:

Among
other things, this could be a humanitarian disaster: The MB feeds many of the poor
in Egypt and runs free medical clinics.

Some view
Monday’s court ruling as telegraphing the widely-held desire to continue on
the path toward destruction of the group, which was first banned in 1954, and that operated
underground for decades. It emerged as a political powerhouse during the 2011
Arab Spring revolt that toppled Hosni Mubarak.

Postponing
enforcement of the judgment shows that there are at least some in the interim
government that have enough balance to understand that when you talk about
democracy, you have to go by the numbers. Morsi was elected by 51% of the
voters, more than GW Bush got in his first term.

On the other hand, outlawing
the organization is an important formality. It replaces the de facto ban on its
activities, demonstrated by the interim government’s rounding up of its leaders
and zero tolerance of its protests by security forces.

The
questions before us are:

• Is
  this a great leap forward in the political evolution of Egypt, since it
  represents a rejection of the MB, for whom “democracy” seemed to be a convenient
  step toward the implementation of Shariah law?

• Is
  this simply the restoration of the Mubarak regime without Mubarak?

• Will
  this more sectarian government just ban the MB and any other pro-democracy
  forces that participated in the 2011 revolution, or are they simply banning
  ideas, like Shariah?

Banning
ideas is useless. The MB is based in its religion. It has its own ideas and
deserves a hearing. If it is wrong, its errors should be rejected or corrected
if possible. But its ideas will never be suppressed by banning, particularly in a country that is 91% Muslim.

Banning is
the tool of those who cannot respond effectively to the ideas they are banning.
That said, the Brotherhood’s English language website describes the principles
of the MB as including first, the introduction of the Islamic Sharia as
“the basis for controlling the affairs of state and society” and
second, unification of “Islamic countries and states, mainly among the
Arab states, and liberating them from foreign imperialism”.

For democracy
to thrive, there must be a separation of church and state, or in this case, of
mosque and state, to protect the rights of secularists and religious minorities.
Until this separation is made a basic part of Egyptian law, democracy will
never really operate effectively. In the meantime, it is naive to expect a
country that is 90% Muslim won’t have a religious group seeking power. Who will
be banned next? The Egyptian military may see itself as the conscience of the
nation or the ultimate arbitrator of what should happen in Egypt. It isn’t, and
it shouldn’t be allowed to perpetuate this mind set.

Any free Egyptian democratic
election meant the MB would be the ruling party. And they deserved it, since
they had been the stalwart opposition and they were the ones who fed the poor
and tended their illnesses.

But after the
election, the MB rammed through a constitution they shouldn’t have: They took a
democratic victory and transformed it into a permanent Islamic state, rather
than something which could be changed by election. That was a mistake, and it
was wrong. But the coup was also wrong and outlawing the MB could cause
unbelievable suffering. So don’t be surprised when car bombs start going off.

It should
be an expected consequence of what the interim government, the judiciary and
military have done.

For the
US, our support first of Morsi, and later of the Al-Sisi coup, is not the same as what we did in the 1950’s Eisenhower era, when governments were overthrown in Iran, Nicaragua,
and a Christian government was installed in Lebanon. It is reminiscent of those situations though.

In each case, it was a “easy”
solution that came back to bite the US in the ass. It took about 25
years or so for payback, think Somoza in Nicaragua, the Ayatollah in Iran and
the mess in Lebanon that Israel still cannot handle.

Payback
here could happen more quickly.

The story
is not yet finished, but it is a sad day for the “Arab
Spring.” Since fall is officially here, perhaps Monday’s development in Egypt may
turn out to be the start of the “Arab Winter.”

What’s
Wrong Today:

In 2012, Corrections Corporation
of America (CCA), the largest for-profit private prison company in the country
sent a letter to 48 state governors offering to buy their public prisons. CCA
offered to buy and operate a state’s prison in exchange for a 20-year contract,
which would include a 90% occupancy rate guarantee for the entire term. This
information comes from a report by In
The Public Interest (ITPI): How
Lock-up Quotas and “Low Crime Taxes” Guarantee Profits for Private Prison
Corporations.

Essentially, any state that signed on would have to guarantee that its
prison would be 90% filled for the next 20 years (a quota), or pay the company
for unused prison beds if the number of inmates dipped below 90% of capacity at
any point during the contract term. While no state took up CCA on its offer,
many states already pay these occupancy guarantees in their prison privatization
contracts.

This is a kind of tax that penalizes taxpayers when the desirable
social goal of lower crime is achieved, since lower crime translates into smaller
prison populations.

The poster boys
of domestic government prison outsourcing are the Corrections
Corporation of America (CCA), The GEO Group (GEO) and Management & Training Corp (MTC). The HuffPo
provided this map of the locations of prisons with lock up quotas:

These
contracts are another example of elected officials and state employees being out
negotiated by corporate smart guys. Bed
occupancy guarantees shift the risk from the private sector to the taxpayers. The
big idea used by the private firm is to tell the state’s negotiator that they can
lower the per-prisoner annual cost to the state (or county, or town) if the
government entity can guarantee a minimum number of inmates or inmate-nights to
the operator of the prison.

So the incentive driven by these contract
clauses is full prison beds. And doesn’t America have the highest incarceration rate in the world?

The private prison industry often
claims that prison privatization saves states money. The report states that
many studies and audits have shown these claims to be illusory, and bed
occupancy requirements are mainly a way that private prison companies can lock
in profits after the contract is signed. Some findings in the report:

• 65% of
  the private prison contracts that ITPI analyzed included occupancy guarantees
  in the form of quotas or required payments for empty prison cells.

• Occupancy
  guarantee clauses in private prison contracts range between 80% and 100%, with
  90% as the most frequent occupancy guarantee requirement.

• Arizona,
  Louisiana, Oklahoma and Virginia are locked into contracts with the highest
  occupancy guarantee requirements, with all quotas requiring between 95% and
  100% occupancy.

These deals create many kinds of moral hazard. In March, the Wrongologist described
a 2008 “kids for cash” scandal in Wilkes-Barre, PA, in which two juvenile court
justices were convicted of taking bribes from a local private prison company,
which kept its facilities full of teenagers steamrolled through the court
system. The judges were notorious for imposing lengthy jail sentences on teens
for minor, first-time offenses, often after the defendants unknowingly waived
their right to counsel.

Is this
just the occasional and inevitable corruption, or, the for-profit gaming of a
broken social system in the name of a privatized world?

Can we
privatize a service without it becoming a crony capitalist sweetheart deal?

A 2011 report by the Justice Policy Institute found that
private prison companies lobby hard for harsher sentencing laws. Steve Owen, a
spokesman for CCA, the nation’s largest private prison company, said to the Shreveport
Times that the occupancy requirements “are necessary for a
feasible business model.”

But
government shouldn’t be in the business of keeping an unsustainable industry
afloat. And yet that’s just what they’ve been doing. Leslie Berestein reported for the San
Diego Union-Tribune that the country’s leading private prison firms
– CCA, GEO and MTC lobbied lawmakers to pass harsh new immigration laws,
including changes “in the way that immigrant detainees – illegal immigrants,
asylum-seekers, legal residents appealing deportation and others – are held.”

“The
private prison industry was on the verge of bankruptcy in the late 1990s, until
the feds bailed them out with the immigration-detention contracts,” said
Michele Deitch, an expert on prison privatization with the Lyndon B. Johnson
School of Public Affairs at the University of Texas in Austin.

And who
drafts these tough laws for state houses across America? The American Legislative
Exchange Council (ALEC). Remember ALEC? It is a national organization that provides
state lawmakers, more than 2,000 of whom are members of ALEC, with draft
legislation written by corporations and special-interest groups. Would
it surprise you that ALEC’s corporate members include both the Corrections
Corporation of America and the GEO Group?

When Arizona
passed its anti-immigrant law in 2008, a law guaranteed to
increase jail populations, the template for their law was written by ALEC.

With ALEC’s
help, a once dying business has been transformed into a multibillion-dollar
industry with record revenue and stock prices several times higher than they
were eight years ago. They are now a $5.1 billion industry, with virtually no
risk – the risk instead is borne by American taxpayers.

More moral
hazard: According to Aviva Shen, the private prison industry spent $45 million
on immigration lobbying alone.

The
push to privatize everything from education, to water rights, to social
security, is not about quality, or outcome, or even the greater good; it is
about profit and control of resources. In the end, privatization can lead to
monopolization and price manipulation.

The
public good, civil liberties, equality, and justice ultimately decline for the
people that can no longer afford the services. When we hear “The
government can’t do anything right”, that’s a bought and paid for
speech spread by those who benefit from rerouting taxpayer dollars to private corporations.

It’s easy to forget at this great distance that our country’s greatest
success was due to a collaborative effort in the years during and after World
War II, when advances in manufacturing and technology made us the strongest
economy the world had ever seen. It was a shared success. The common good was
not for sale.

Privatize the
taxpayers’ money. Tear down the commons. Taxpayers take the risk, corporatists take
the rewards.

Corporations are not
people. People are capable of patriotism.

What’s
Wrong Today:

Did you
know 15% of America lives in poverty and that household income after adjusting
for inflation has declined by 8.3% since 2007? That America is making 9%
less in real dollars than in 1999?  

The Census
report for 2012 shows America is still broken and poor. The report, Income, Poverty and Health Insurance Coverage in the United
States, is loaded with more bleak news. From The Nation, here are a few current
statistics about poverty:

• US
  poverty (less than $23,492 for a family of four): 46.5 million people, 15%

• African-American
  poverty rate: 27.2%

• Hispanic
  poverty rate: 25.6%

• White
  poverty rate: 9.7%

• Poverty
  rate for people with disabilities: 28%

• Poorest
  age group: 16.1 million children, 34.6% of all people in poverty

• Poverty
  rate among families with children headed by single mothers: 40.9%

• Women
  31% more likely to be poor than men.

• 106
  million people earn less than $46,042 for a family of four (twice the poverty
  level), that is approximately 1 in 3 Americans.

• Jobs
  in the US paying less than $34,000 a year: 50%

• Jobs
  in the US paying below the poverty line for a family of four, less than $23,000
  annually: 25%

This data
adds to last week’s discussion in the Wrongologist’s post
about the House voting to cut $40 billion from the SNAP (food stamp) program. For
the 11th time in 12 years, poverty has worsened or stayed the same.

Conservatives use the 15% poverty rate to label our nearly
50-year War on Poverty as a failure, since today’s poverty rate is about the
same as it was in the late-1960s. But you have to overlook critical information to reach that conclusion. The
poverty rate would be twice as high now, nearly 30%—without the totality of today’s safety
net. SNAP’s food stamp benefits aren’t included in the official poverty rate,
but they lifted a record 4 million people above the poverty line in
2012; nor are the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC),
which in 2011 moved 9.4 million people above the poverty line.
In fact, in 2011 the official poverty rate would have dropped from 15.0% to 10.9% if it included food stamps, EITC and CTC.

Incomes
for the middle class and working poor have stagnated right along with the poverty rate. Below is a graph of household
median and mean income which shows half of America is making almost 10% less
than 14 years ago. Median
means 50% of households make below this amount, 50% above, whereas mean is the
average income of all households. The Census likes to focus on
households, not individuals, despite the fact that 27% of people in the US live
alone. Households are defined as all people living at one address.
There was little statistical change in the economic plight of households
between 2012 and 2011, meaning that for most of America, the economy was just
as terrible in 2012 as it was in 2011.

What the Census
doesn’t point out is that, adjusted for inflation (real median income), median
household income hasn’t been this low since 1995. In 1995, real median
household income was $50,978. In 2012, seventeen years later, household median
income was $51,017. But, it’s even worse than that. In 1989, the median American household made $51,681 in 2012 dollars. This means that 24 years ago, a middle
class American family was making more than the a middle class family was making
one year ago.

Below is a
graph of the Census data of median household income by select income brackets,
adjusted for inflation. Notice how flat income is for the bottom 50% of
America, yet the top 10% and top 5% household income earners have gained nicely
since the 1960s. This is another illustration of just how bad income
inequality has become in the United States.  

Here is a Census
graph that shows Poverty Rates among the working age population. This is driven by wages remaining flat for those groups.
The numbers of American working poor have increased dramatically since 2000.
For these people, hard work does not pay off,
they must choose between making rent and putting food on the table. According
to the Census: In 2012, 7.3% of workers aged 18 to 64 were in poverty. The poverty
rate for those who worked full time, year round was 2.9%, while the poverty
rate for those working less than full time, year round was 16.6%:

It is important to
note that GDP is up 23% since 2000, or $3 trillion. While there is more to GDP than
the sum of family income, the broader point firmly stands: it takes much more
than a growing economy to lift the bottom half of our nation. Remember that,
trickle down advocates!

David
Shipler in his NYT review
of “The American Way of Poverty”:
(emphasis by the Wrongologist)

The author,
Sasha Abramsky, says that poverty is “not a glitch, but a feature” of the
American system, a system that believes that an oligarchy is desirable. It is
important to differentiate between policies that redistribute or transfer
income among the classes, from policies that would return social mobility to the
working poor and the rest of those in poverty. We need both.

Here
are a few ideas that address redistribution:

• We
  should tax the two main types of unearned income, inheritance and capital
  gains, at the same rate as earned income or higher. Most inherited property is
  not taxed at all, using an accounting trick called “stepped-up basis.” The idea
  that stock market profits should be taxed at about half the rate of wages and
  salaries should be abhorrent to Americans. Raise the tax on capital gains! Tax
  both inheritance and capital gains at the same rate as earned income

• Eliminate
  the cap on social security wages

Moving on
to ideas that address mobility:

• Raise
  the minimum wage to at least $11.06, the rate that takes a family of four above
  the poverty line

• Improve our public transit, ports, airports and highways

• Invest
  in public education so that all school districts, rich and poor, receive the
  same investment

Headlines about the Census income numbers tend to focus on how we have
now experienced a lost decade for the middle-class American family, with
incomes back to their late 1990s level. But, as the first chart shows, it’s
really worse than that.

This isn’t a lost decade for economic gains for Americans, it is a lost
generation. We
are becoming the land of the destitute and desperate. There
simply isn’t a way to paint a pretty picture regarding what America has become…

 

Another
week of Wrong. Congress reminds us of why America hates them. You could focus
on the government shut down or, the debt ceiling debate. For today’s homily,
try using France in 1789
and the “let them eat cake” quote to construct your homily:

Congress reduces support to the poor:

Pope Francis gets  headlines:

Regarding
Francis: Is this is a pivot moment for the church? Is the Pope like his
namesake St. Francis of Assisi?  Is
Francis trying to repair the church by calling it back to the words of Jesus,
who cared a lot more about the poor than about rigid rules and fancy robes? We’ll
see who dances with Francis.

The Wrongologist
sides with Sean
Paul Kelly:

Can’t let the little people get too close:

Will Obama meet with Iran’s Rouhani next week?

Sen. Cruz plots with his friends:

What’s
Wrong Today:

On
Wednesday, the Wrongologist wrote,
“What do we know about Turkey?” The idea was to provide some insight into a
long-term ally, one that is undergoing dynamic change in both domestic and global
strategy.

How
does America fit within the simultaneous equations that all of our allies are constantly solving? Today we review Turkey’s
military posture and how it is changing as its global strategy changes.
 

We
said that Turkey is an ally of the US, it is member of NATO. We have had nuclear
weapons in country since 1957 and have about 70 nuclear weapons in 24
underground vaults at the Incirlik air base. Turkey is on
record as seeking a nuclear-free Middle East.

Turkey’s nuclear
strategy has been focused on Russia, both as a possible enemy and as a trade
partner. As a member of NATO, Turkey was a potential launch point for intermediate
range nuclear missiles, which were removed at the time of the Cuban Missile
Crisis. For decades, it has been a forward base for the US Air force, but
Turkey’s focus is now turning to the Middle East.

Turkey’s
domestic nuclear program is focused on building nuclear power plants due to its
growing energy needs and a desire to reduce its reliance on foreign
suppliers. Although it identified Iran’s ballistic missile and nuclear program
as a threat in the 1990s, Turkey has not pursued its own nuclear weapons
capability. In May, Turkey and Japan agreed to a $22 billion deal in which four
nuclear power reactors will be built at Sinop on the Black Sea. The deal marks
the start of Turkey’s second nuclear power project, after it reached a similar
deal three years ago with a Russian consortium to construct four reactors at
Akkuyu near the Mediterranean.

Turkey
wants to develop its own missile shield to protect from longer-range cruise
missiles, or from short-range ground-to-ground missiles launched by Middle
Eastern antagonists, like Iran or non-state terror groups. They are also
concerned about drone or ballistic missile attacks. NATO has an integrated
system of defensive missiles and incoming missile detection systems designed to
defeat such attacks. But, Turkey may want to go off on its own.

Turkey is
thinking about sourcing part of its missile defense from China. As the South China Post reported;
in January, Turkey
restructured its US$4 billion surface-to-air missile program, dubbed T-Loramids,
which was an off-the-shelf purchase consisting of radar, launchers and
intercept missiles. As a NATO member equipped with the US’ Patriot air defense
systems, Turkey had been urged by its Western allies to remove China and Russia
from its bidding list for air defense projects because of differences between
their systems. But Ankara has publicly declared interest in adopting the
Chinese HQ-9 missile system. Burak
Bekdil, Turkey’s defense correspondent for Hurriyet Daily News and Jane’s
Defence Weekly, reports
that Turkey “is strongly leaning toward adopting a Chinese long-range
anti-missile and air defense system”.

The HQ-9
is reported to have the capability to track and engage aircraft, ballistic
missiles, and low-and-slow flying cruise missiles. The technical data suggest
that it is similar to the
United States’ Patriot.

The South China Post also reported that Emre Kizikaya, an
Istanbul-based political commentator, said the main problem with selecting the
Patriot is America’s unwillingness to
share know-how and software codes. Somehow, Turkey believes that China
will be willing to share.

Since the HQ-9
system cannot be integrated with NATO’s early warning radar network, Turkey
will not be able to link the HQ-9 with NATO’s planned alliance-wide missile
defense shield. The Alliance plans rely on the US’ SM-3 ship-based
missile interceptor, now in testing, for defense against a regional ballistic
missile threat. Turkey has said it is likely to purchase the SM-3 for its
fleet.

Thus, NATO
has a layered missile defense system capable of firing
multiple interceptors at incoming missiles to give a high probability that
the target is destroyed. The system relies on a network of American deployed
ground based radars (the radar at Malatya, Turkey is one), space based sensors,
and early warning satellites. 

If Turkey chooses
the Chinese missile, it could still benefit from the Alliance missile shield, but
it would not be linked to NATO’s early warning system. An incoming missile
aimed at Turkey may not be detected as
early as it might be otherwise. Turkey will still be reliant on NATO for
its ultimate protection, which raises questions about why Ankara would purchase
a system that is not interoperable with NATO’s. Could this be just a
smokescreen to drive a better deal with the US?

Possibly. Raytheon
(the Patriot manufacturer) is unwilling to meet Turkey’s demanding offset requirements. (Offset is a legal trade practice in
the aerospace and military industries. The sale of a system to Turkey may
require the seller to purchase an equivalent amount of Turkish goods). Others
think that the Chinese have agreed to a co-production arrangement for the
missile and will invest in a production facility for the system inside Turkey,
a Turkish priority.

Since the
1980’s, Turkey has sought to build its domestic arms industry through
co-production deals for military procurements.  If the task is too great
for Turkish defense firms, Ankara prefers co-development agreements, or, if that
proves to be impossible, they prefer co-production/co-licensing agreements.

For example,
Turkey’s tank is based on a co-production deal with South Korea’s Hyundai and
its attack helicopter is a co-production agreement with Agusta-Westland, a European consortium.
Turkey’s policy is not unique; 130 countries have similar co-production/offset policies.

So, should
we be worried about the direction of our long-term ally? Not clear, China held a joint military exercise in Turkey’s
Konya province, in 2010, marking the first time China had sent troops to a NATO
country.

Now, China might get its
nose under the tent of Turkey’s strategic air defense.

When we
hear that Turkey might go its own way on defensive weapons procurement, possibly
making deals with our rival China rather than the US, the reasons may have less
to do with our relationship or our future as allies.

It may have
more to do with purely domestic considerations.

 

What’s
Wrong Today:

The
Federal Reserve decided to keep on adding cash to the economy, despite most
economists thinking they would wind down the program.

One reason
was the labor participation rate, which is at a record low of 63.2% and which has dropped 0.3 percentage
points in the last year. The low labor participation rate implies people
are dropping out of the job market, not able to gain employment. The
unemployment rate can go down if people just drop out of the labor force. From
Mr. Bernanke:

Mr.
Bernanke again called on Congress to address income inequality, noting that those
policies that could really help the middle class are under the control of
Congress and the Administration. Needless
to say, Congress has abandoned helping the middle class.

While the unemployment rate
is down to 7.3%, the stock market has rallied to new highs. Home prices are
rebounding. Total GDP output has surpassed its pre recession peak. But the
recovery has left many young people behind.

According to the Wall
Street Journal, the official unemployment rate for Americans under age 25
was 15.6% in August, down from a peak of nearly 20% in 2010 but still more than 2½ times the rate for those 25
and older—a gap that has widened during the recovery.

Even those
under 25 who are lucky enough to be employed are often struggling. About 50% are working full time, compared with about 80% of the
population at large, and 12% earn minimum wage or less.

The median
weekly wage for young workers has fallen more than 5% since 2007, after
adjusting for  inflation; for those 25
and older, wages have stayed roughly flat:

There is some evidence that suggests today’s young people
will suffer life-long consequences. A
study by Yale University economist Lisa
Kahn found that after the 1980s recession, new college graduates lost 6% to 7% in initial wages for every one
percentage point increase in the unemployment rate. The effects shrank
over time, but even 15 years after graduation, those who finished college in
bad economic times earned less than similar people who graduated in better
times. Some never caught up at all.

But the
problem is worse when you dis-aggregate the Labor Participation Rate by age. Men,
and in particular, very young men, are bearing the brunt of a major change in their
life prospects due to unemployment. The chart below comes from Global
Economic Analysis blog:

The above
group represents about 25% of the US male population. While there is erosion of
participation in the labor market for all in this age cohort, the impact is
an existential crisis for 16-19 year olds. And there are signs
that the weak economy is leading to deep societal changes.

An entire
generation is putting off moving out of their parent’s home, getting married,
buying a home and having children. The marriage rate among young people, long
in decline, fell even faster during the recession, and the birthrate for women
in their early 20s fell to an all-time low in 2012. According to a recent Pew Research study, 56% of 18- to
24-year-olds lived with their parents in 2012, up from 51% in 2007—an increase
that looks particularly dramatic because the share had changed little in the previous
four decades.

Moreover,
many young people are losing hope of matching the prosperity of their parents’
generation. Just 11% of employed young people in a recent Pew survey said they
had a career as opposed to “just a job”; fewer than half said they
were even on track for one.

The costs
of a “lost generation” go beyond the impact on young people
themselves. A 2012 analysis commissioned by the Corporation for National and Community
Service, a federal agency, estimated that the 6.7 million American youth
who are disconnected from both school and work could ultimately cost taxpayers $1.6 trillion in lost tax receipts,
increased reliance on government benefits and other expenses. If we look at
broader economic and social effects such as lost earnings and increased
criminal activity, the impact tops $4.7 trillion, the researchers estimated.

Those in
this age group face an added challenge that was far less common in earlier
generations: student debt. Even as mortgage and consumer debt plunged in the
wake of the financial crisis, student loan balances nearly tripled from 2004 to
2012, to roughly $1 trillion, according to a recent study
by the Federal Reserve Bank of New York.

Around 39
million people in total have student debt, including more than 40% of
25-year-olds. The average borrower owes roughly $25,000. Each of these numbers
have increased 70% since 2004. According to the Fed study, 35% of borrowers
under the age of 30 are delinquent on their loans, up from about 25% in 2008!  

The rapidly rising level of student debt, combined with poor job opportunities,
is likely to have long-term consequences. An August 2013 study from the think tank Demos,
showed:

• The average student debt burden for
  a dual-headed household with bachelors’ degrees from
  4-year universities ($53,000) leads to a lifetime wealth loss of
  nearly $208,000 

• That nearly two-thirds of this
  loss ($134,000) comes from the lower retirement savings of the indebted
  household, while more than one-third ($70,000) comes from lower home
  equity

• They predict that today’s $1
  trillion in outstanding student loan debt could lead to total lifetime wealth loss of $4
  trillion for indebted households

They
concluded that the financial impact of student debt will be felt by more than the
39 million people who have student loans, that it will create a drag on the
entire US economy.

The trend
of no work for people between 16 and 19 years old probably forces many more of them
to think about higher education. Higher education today requires student loans.

When it is a prerequisite for people to pay
in advance to get a job, we need to call that what it is: “indentured servitude”. We need common
sense solutions to the twin crisis of no employment and growing student debt:

• Control
  the costs of higher education

• Don’t
  charge interest on student loans

• Create
  a paid internship program at every company with more than 100 employees, funded
  by the taxpayers–you need experience and a degree to get a job today
  

• Allow
  students to discharge unpayable loans through bankruptcy

People
ask philosophers or clergy for answers to questions like: “Why do people gas
innocents?” Or, “What should my personal response be when the rest of the world
casts a blind eye on evil?”

Mr. Obama and the rest of America have had to
wrestle with these questions for the past few weeks.

The
debate over Syria uncovered a shift in US attitude on foreign policy from: “We
don’t care about the consequences to others if we intervene militarily,” to “We
don’t care about the consequences to others if we DON’T intervene militarily.”

The distinction isn’t
subtle. Are there more than collective answers? Use the quote by Gertrude Stein on the church sign below to construct your homily for this week:

I need answers, dammit!

Who had the big idea?

All we are saying:

Playing Politics with Syria:

Exceptional Criticism:

Worldview based on Politics:

What’s
Wrong Today:

The
Wrongologist understands that graphs and numbers do not always make for his most
popular columns. In the glare of the Syrian news, we neglected to talk about America’s
missing jobs. So, today there are a few graphs.

There are
still 3.1 unemployed people per job opening, says the Bureau of Labor Statistics’
(BLS) July Job Openings and Labor Turnover Survey, or JOLTS
report.

It has
been the same story for the last six months. By comparison, there were only1.8 unemployed persons
per job opening at the start of the recession in December 2007. The
official level of unemployed in July 2013 was 11.5 million people.

The
Wrongologist has written about this before, in February,
March,
April,
June
and now again, in September. 

The JOLTS
report takes a random sampling of 16,000 businesses and derives their numbers
from that. As you can see from the graph below, job openings have grown 69%
from the bottom of the recession in 2009 until 2012, but have been
stagnant since then:  

At
the height of the pre-recession economy in late 2007, we had about 4.6 million
job openings in America. We have the
same number of job openings today as we did 8 years ago in 2004, while
our population has grown by almost 22 million
since then. 

Looking
at specific sectors, retail trade job openings showed a decline of 50,000 from
June to July, a drop of 10.6%. These are jobs working at your big box marts,
clothing stores and so on. Construction dropped by 20,000 job openings, a
monthly decline of 16.7%, while the best hiring rate is for the leisure &
hospitality sectors.

So, the lowest
paying jobs of all have the best hiring rates in America.

This
is simply terrible. Despite the fact that corporate profits are at roaring
highs, it does not look like there will be a full recovery from our jobs crisis
in the next 4 years. The lack of robust demand for labor leads inevitably to
stagnant wages which suppresses economic growth indefinitely. Consumer spending
accounts for 70% of the US economy. If this component stagnates, it is
impossible for the other 30% to fill the hole. 

Faced with
a Republican Party that is by turns, nihilistic and filled with zeal for small
government and fewer taxes, any pragmatism about adding jobs will be met with
rhetoric about unleashing America’s businesses from regulation and how even
lower taxes will spur new jobs and new investment.

And as Paul
Krugman said this week:

The
Wrongologist often asks: What kind of society do we want to be?
It should be intolerable in our society that politicians won’t work
together to return our unemployed to work after 5 years and 8 months.

Had the
great jobs slaughter affected K Street and Wall Street, it would have been
solved in a great bi-partisan rush by our politicians.  

But, it’s
clear that Washington’s position is to let the American worker be damned.

And damned
we are.

The New
Normal endures.

What’s
Wrong Today:

The Daily News Egypt,
Egypt’s only English language newspaper reported on the visit by a delegation from
the US House of Representatives sent to Egypt to gather firsthand information
about the current situation in the country. The group was led by Rep.
Dana Rohrabacher (R-CA) and included representatives Donna Edwards (D-MD),
Stephen Stockman (R-TX), Robert Pittenger (R-NC), and Lois Frankel (D-FL) along
with Tea party-backed Republican
Representatives Michele Bachmann (R-MN), Louie Gohmert (R-TX) and Steve King
(R-IA).

The group met with
several leaders while in Egypt, including interim president Adly Mansour,
Minister of Defense Abdel Fatah El-Sisi (also head of Egypt’s military), Coptic Pope Tawadros II, and President
of the American Chamber of Commerce in Egypt, Anis A. Aclimandos. 

The major thing to
emerge from the visit was a bizarre press conference held by Bachmann, Gohmert
and King last Saturday on Egypt’s private satellite TV station ONTV.

WaPo’s Max Fisher reports that the trio thanked the country’s military for
overthrowing the Morsi government and at one point even seemed to suggest that
the Muslim Brotherhood had been behind the Sept. 11, 2001 attacks in the United
States.

Here
is a link to the video of their press conference. 

Here is an extended
quote of Bachmann’s remarks from the video:

“Together, we’ve gone through
suffering. Together, the United States and Egypt, have dealt with the same
enemy…It’s a common enemy, and it’s an enemy called terrorism.”

 

\snip\


“We want to make sure that you have the Apache helicopters, the F-16s, [Wrongologist: The US has delayed F-16 sales due to the um, coup] the equipment that you have so bravely used to
capture terrorists and to take care of this menace that’s on your border…Many
of you have asked, do we understand who the enemy is? We can speak for
ourselves. We do.”

 

\snip\


“We have seen the threat that the Muslim Brotherhood has posed here for the
people in Egypt. We have seen the threat that the Muslim Brotherhood has posed
around the world. We stand against this great evil. We are not for them. We
remember who caused 9/11 in America. We remember who it was that killed 3,000
brave Americans. We have not forgotten.”

King and Gohmert
offered praise as well. King congratulated anti-Morsi Egyptians on “standing up
for liberty, standing up for freedom” in supporting the July 3 coup. He added,
“We stand against the Muslim Brotherhood. The American people do not support
the Muslim Brotherhood; we oppose all forms of terror and terrorism.”

Gohmert
compared El-Sissi to George Washington and said the “bloodthirsty Muslim
Brothers” want to “destabilize things” and seek “that large caliphate.” (He
also said that Egyptian Jews participated in the anti-Morsi movements). On the
other hand, Rep. Gohmert has
stated in the past that the Muslim Brotherhood had infiltrated American
politics. He also said that Huma Abedin, an American citizen and colleague of
Hillary Clinton (as well as wife of Anthony Weiner) was a member of the Muslim
Brotherhood.

The Wrongologist
wishes all of this was a joke but sadly, it seems that they announced their plan
to undermine US foreign policy on Egyptian TV.

To recap, this trio
of clowns:

• Went
  to a foreign capital with a very unstable political situation and a lot riding on our strategy, and undermined our policies

• Promised
  the Egyptian military an increase in military aid, the exact
  opposite of stated US policy

• Called
  Egypt’s Muslim Brotherhood terrorists (which
  our government explicitly has not)

• Blames
  the Brotherhood for 9/11

This is all
breathtakingly wrong, it should be illegal. It’s sad when actual, sitting
Congress critters look more spectacularly stupid than Dennis Rodman does when
he visits Lil’ Kim in North Korea. It should get all three of these jackasses
tossed from the House. But hey, they’re Republicans attacking the President, so
who cares?

This is more than just
a random stunt from simpleton politicians. The official position of the United
States was that the post-overthrow violence was needlessly brutal and shocking,
so much so that aid to Egypt may well be suspended. And yet, Bachmann, Gohmert,
and King traveled to Cairo to deliver a conflicting message — because they
are Tea Party.

Don’t
you wonder who authorized this trip (John Boehner)? You do know who paid for
this trip that undermines our government’s positions, right? You paid for it,
and it seems that you will continue to pay for it for quite a while.

Why
is it that we don’t
hear how much this Bachmann, Gohmert clown show costs the taxpayers,
but we know they will be among the first to whine about how much it costs when
President Obama travels to visit world leaders? They make Sen. Johnny Volcano’s (R-AZ) outbursts in Syria look almost statesmanlike. 

It’s
embarrassing enough the Michele Bachmann is a four-term Congresswoman of the
United States of America. But please, can’t she just embarrass us in the USA?

Can’t
we just keep the crazy here at home?