Saturday Soother – June 26, 2021

The Daily Escape:

Low tide, Thumpertown Beach, Cape Cod MA – July 4, 2018 iPhone photo by Wrongo

After Biden and a bipartisan group of US lawmakers announced a deal on infrastructure, it soon became clear that Democrats would only support it if it was passed alongside a big reconciliation bill, something that Wrongo suggested was the only way to play infrastructure with the Republicans.

The American Society of Civil Engineers says that we need to spend $2.59 trillion in the next decade on pure, traditional infrastructure. According to a fact sheet released by the White House, Part 1 includes just $579 billion in new infrastructure spending over the course of five years, with $309 billion going to transportation and $109 billion earmarked for roads, bridges, and other projects.

That means there needs to be two bills: one, a “hard infrastructure” bill along the lines of the framework agreed on Thursday, and the second, a “broadly defined infrastructure” bill containing the other provisions Biden originally wanted in his big infrastructure bill.

If a bipartisan Part 1 appeases enough moderates of both parties sufficiently to get them not to raise hell over a reconciliation Part 2, then Biden will be acknowledged as better at politics than the pundits.

OTOH, McConnell says Biden can have Part 1 only if he doesn’t ask for Part 2. That sets up the possibility that Democrats must choose between something that’s admittedly terrible, or nothing. Biden says he won’t sign the first unless he is also given the second one to sign, while Pelosi says the first bill won’t pass the House until the reconciliation bill passes the Senate.

As with everything in DC, the usual caveats apply: So. Much. Can. Go. Wrong. The two-track Senate strategy (one bill bipartisan, another through reconciliation) requires extraordinary political deftness, possibly a bridge too far for the craptacular Senate Majority Leader Schumer.

A few words about Part 1 from Common Dreams:

  • Rather than pushing for taxes targeting rich individuals and corporations, a White House fact sheet on the bipartisan package outlines other potential financing sources, from unused Coronavirus funds to reinstating Superfund fees for chemicals.
  • The proposal also relies on public-private partnerships, (P3s), private activity bonds, and asset recycling for infrastructure investment.

When politicians say “asset recycling” they mean the sale or lease of public assets to the private sector so the government can put that money toward new investments. But the devil is in the details, and how we fund new infrastructure can’t be through privatizing our existing infrastructure.

America won’t get a redo once its public infrastructure is privatized.

In some places public/private partnerships can be tolerable. Think rail policy where Amtrak’s funding is contingent on some sort of matching grants for private freight service improvement. This can be better justified as both are connected as part of the same rail network and improvements can be easily tracked.

But elsewhere, it can’t, especially in power and telecom, where P3s only serve to prevent public services from being offered. This sounds like how Philadelphia and other cities sold off infrastructure like parking garages and parking meters. The city derived no recurring income, while private companies collected the monies.

From Benjamin Studebaker:

“In most democracies, a working legislative majority allows the government to pass legislation. In the United States, things don’t work this way….As our problems slowly mount, neither the Democrats or the Republicans are able to experiment with policy solutions. The policies that do get passed are the result of fraught compromises. It’s never clear who is responsible for the policies that issue from the federal government, and every time anything goes wrong every part of the US government passes the buck to every other part.”

The failure to make essential investments in the basic infrastructure of the country is not consistent with having a functioning state. Either the filibuster must go, or the primary system must go. The primary system is here to stay because it is equated with democracy itself in the US. Therefore, sooner or later, the filibuster will go.

So, rather than teasing Americans with the promise of a new Roosevelt administration (in aviator shades), it looks like we’re in for another round of gridlock.

That’s enough politics for this Saturday. It’s time for our Saturday Soother. Wrongo and Ms. Right are spending a few days on Cape Cod, which is always enjoyable. So, before going off to watch another beautiful sunset, let’s take a few minutes to relax and listen to the Second movement (largo) of Dvořák’s “From the New World“, performed here in 1985 by the Vienna Philharmonic, directed by the late Herbert von Karajan:

 

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Why Won’t Manchin Help Keep Jobs in West Virginia?

The Daily Escape:

Grand Canyon NP at golden hour – photo by indieaz

Viatris is a new pharmaceutical company formed by the merger of Mylan and Upjohn late last year. Their strategy for improving profits post-merger was as is usual, to restructure and cut $1 billion in costs. One victim of the cost-cutting is the Viatris plant in Morgantown, West Virginia. The company announced the plant would close last December.

The Morgantown plant has been in operation since 1965. It employs between 1,500 and 2,000, whose jobs will be offshored to India and Australia. These are well-paying jobs in one of America’s poorer states. The bulk of the layoffs will occur on July 31, when 1,246 people will be let go, including 764 union workers and 482 nonunion staff. Complete closure will happen by March 2022.

Mylan reported $3.9 billion in profits in 2019. Naturally, local union president Joe Gouzd had harsh words for Viatris:

“This is the last generic pharmaceutical manufacturing giant in the US, and executives are offshoring our jobs to India for more profits. What is this going to do to us if we have another pandemic?”

The local union represents about 900 workers. Gouzd said:

“…we’re going to rid ourselves of 2,000 high-paying jobs in north central West Virginia, taking out $150m to $200m out of the local economy…”

The West Virginia legislature passed a bill calling on Governor Jim Justice and Joe Biden to save the jobs. Biden has proposed taxing companies that offshore jobs, but it remains to be seen whether he will be successful.

Senators Elizabeth Warren and Marco Rubio introduced the Pharmaceutical Supply Chain Review Act to study America’s over-reliance on foreign countries in pharmaceutical industry, but neither West Virginia Senator has sponsored the bill.

The Guardian reports that Republican Senator Shelley Moore Capito has ignored pleas to work with Biden officials to save the plant. Democrat Joe Manchin, whose daughter Heather Bresch served as Mylan’s chief executive until she retired in 2020, didn’t fully ignore their requests to get involved; he held a Zoom meeting in December that might as well have focused on “thoughts and prayers.”

Isn’t it curious that the state’s two Senators aren’t trying hard to keep jobs in their state?

You probably hadn’t heard that Bresch collected $37.6 million when she stepped down from Mylan. You also missed that under her leadership, Mylan recently undertook what’s called a “tax inversion”, changing its headquarters for tax purposes from Pittsburgh, PA to the Netherlands, reaping big tax breaks. So, less tax revenue for America.

Earlier, Mylan disclosed that it is in an ongoing lawsuit by the Public Employees Retirement System of Mississippi that alleges misconduct by the company. The suit alleges “misrepresentation and concealment of violations of FDA regulations governing pharmaceutical product quality and safety.” In 2016 and in 2018, the FDA found documentation, record-keeping, quality-control and cleaning issues. The plant was shut down temporarily after the 2018 findings. It then reduced production volume by about two thirds, and “right sized” plant staff.

But we initially heard about Ms. Bresch during Mylan’s EpiPen pricing controversy. They had been hiking prices for years on their epinephrine injector to the point where many people could no longer pay for it. Along with the EpiPen fiasco, Mylan paid $465 million to the federal government to settle claims it underpaid Medicaid rebates.

Understandably, the town and the state are looking for ways to head off the layoffs. Last week, members of the union and others rallied outside the state capitol in Charleston to urge Republican governor Jim Justice to help save the facility. According to the union, Justice said his administration was trying to find an alternative to closure, including holding talks with two companies that have expressed an interest in buying the plant.

But Justice said that Viatris was not cooperating:

“We’ve talked with Viatris, and we continue to struggle with them….They’re difficult to work with. The least they could do …is be cooperative.”

So, Viatris isn’t the best of corporate citizens. That doesn’t make them different from most multinationals. That means political pressure is the only leverage that will keep these jobs in America.

Yet, when you see these two “bipartisan” Senators not lift a finger to help the soon-to-be unemployed citizens of their own state, you have to ask: Why haven’t they done more?

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Monday Wake Up Call, Bipartisan Kabuki Play Edition – June 21, 2021

The Daily Escape:

North Umpqua River, Glide OR – 2021 photo by Bobbie Shots Photography

We’re hearing a lot of talk about a bipartisan infrastructure plan. The plan would spend about $1 trillion over the next eight years. But that’s only about half of what Biden had asked for and won’t accomplish anywhere near all that he wanted. But half is better than nothing, and if the plan were fair, Wrongo would support it.

Sen. Lindsey Graham (R-SC) made headlines on Sunday by saying he’s the latest Republican Senator to support the bipartisan infrastructure deal in the Senate. On Fox News, he said:

“I think the difference between this negotiation and the earlier negotiation is that we are willing to add more new money to infrastructure in this package and I am hopeful that the White House and Joe Biden stay involved, we can get there,”

He also said that the “bipartisan” support will disappear if Democrats signal that they intend to follow it up with a second infrastructure package passed via reconciliation.

But is there any reason to believe he, or other Republicans involved in these negotiations are acting in good faith? Or is this another game like what happened with Obama’s Affordable Care Act negotiations? Will Republicans simply try to run out the clock on the legislative calendar and then ultimately vote no on the final bill?

The bipartisan proposal is led by Sens. Rob Portman (R-OH) and Kyrsten Sinema (D-Ariz.). It costs about $973 billion over five years or $1.2 trillion over eight. The plan would have $579 billion in new spending. That makes the bill’s total new investment about one-fourth the size of  Biden’s initial proposal. Graham joined the group, including 10 Democrats and 10 other Republicans, as its 21st member.

But as always in DC, the devil is in the details.  Their plan uses public infrastructure funds for “public private partnerships” in the form of thousands of new toll roads. It uses money already earmarked for COVID relief funds, rather than paying with more progressive taxation. It imposes new taxes and surcharges on electric vehicles, a disincentive when we should be doing our best to phase out fossil fuels. But more about that below.

OTOH, there are worthwhile elements of their funding methodology. They are suggesting ramped-up IRS enforcement to pay for a portion of the spending. In a NYT op-ed last Wednesday, five former Treasury Secretaries Timothy Geithner, Jacob Lew, Henry Paulson, Robert Rubin and Larry Summers all agreed that the country should strengthen its tax system by collecting uncollected taxes.

The Treasury’s Office of Tax Analysis estimates that this could generate $700 billion over the next 10 years. But the former Treasury Secretaries say that is a modest estimate, citing former IRS commissioners who say it could be as large as $1.6 trillion.

The taxes on electric vehicles can be justified, since drivers of EVs do not pay gas taxes that fund highway maintenance, even though they use roads and highways just like gas-powered cars. But an EV tax must be paired with investments in electric charging stations or else the net effect would be to slow America’s transition off fossil fuels.

We’re watching as, Eric Levitz says, a staring contest between moderates and liberals. Liberals can’t pass anything without Manchin and Sinema’s votes. Moderates won’t get federal dollars for their states without the liberal’s cooperation. Both factions are waiting for the other to blink, while Republicans are happily trying to keep the stare down going: The longer it lasts, the less time Democrats will have to pass new laws before midterm season begins.

The Republicans are bragging that the plan doesn’t raise taxes. That’s not exactly true. They mean the plan doesn’t raise taxes on corporations or the rich. They don’t seem to mind that the plan would take money out of the pockets of working- and middle-class people.

The legislative calendar is a scarce resource. The Senate has only six more workweeks before summer’s end. Time to wake up Democrats! Biden can support this $1 trillion bill, but he must also keep pressing forward with a reconciliation bill to address other infrastructure priorities.

To help you wake up listen to the great Pink Martini perform their song, “Hang on Little Tomato“. Here it’s performed live in Portland, Oregon in December 2005, featuring vocalist China Forbes.

The song was inspired by an ad for Hunt’s Ketchup in a 1964 issue of Life magazine telling a green tomato to stay on the vine and ripen. It’s been popular lately as a song of hope:

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Sunday Cartoon Blogging – June 20, 2021

Wrongo went to his local power equipment repair place on Saturday. It was the first time he consciously didn’t wear a mask in a public setting. Two weeks ago, he went with son Sean to watch a baseball game at Yankee Stadium. While we had seats in the vaccinated section, it was wonderful to be a human among a large gathering of humans, doing very human things.

Connecticut has a new Covid infection rate of less than 2 per 100,000. Our county has zero hospitalized Covid patients and a vaccination rate of more than 70%. That’s not true for much of Red America. An MD friend wrote this on her Facebook page: (emphasis by Wrongo)

“England just delayed their full re-opening by 4 weeks as Covid cases are rising again even though 80% of adults are vaccinated. 99% of their cases are the Delta variant now and a vast majority of their new cases are in children and young adults who have not yet been vaccinated. 10% of hospitalized patients with the Covid Delta variant have been fully vaccinated (Pfizer is 96% effective in preventing severe illness w/Delta variant while Astra Zeneca is 92% effective). We are usually about 3-4 weeks behind Europe.”

As the  Delta variant becomes more widespread in the US in the next 4 to 8 weeks, it will be a real challenge for our poorly vaccinated states. No one really knows how to reach those who refuse to get vaccinated. But Wrongo no longer cares what happens to them. If they don’t want to take basic health precautions, it’s on them:

If you are fully vaccinated, go outside. Be around other people. Bask in the sun. Draw energy from sunlight and the other people.

The Supremes upheld the ACA for a third time. Not everyone is happy:

Juneteenth is now a national holiday:

We should never underestimate the importance of symbolism. And as symbolic gestures go, who exactly could be insulted by celebrating the emancipation of enslaved people in America? A national holiday might not be as substantial as a voting rights law, but everything doesn’t have to be judged through the same lens.

Putin Summit wasn’t fun for somebody:

GOP is not happy with the Summit. They fail to see the irony:

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Saturday Soother – June 19, 2021

The Daily Escape:

View of Lake Champlain from Hog Island, VT – photo by Kim Brown

A few items that were lost in the noise this week: First, the House voted 268-161 to repeal the 2002 AUMF, the Iraq War Authorization for Use of Military Force. The 2002 AUMF allows military action to defend the national security of the US against the continuing threat posed by Iraq. The other AUMF, the 2001 AUMF, issued to allow the president to order the invasion of Afghanistan, remains in effect.

The rationale for repealing these AUMFs is that the power to declare war properly belongs with Congress. Congress’s delegating a blank check to the president via the AUMF’s to make war promoted the indefinite, Middle East military engagements that turned Onion headlines about sons patrolling the same routes in Afghanistan as their fathers into a horrible reality.

Congress has been negligent in reclaiming their power. And while there’s a case for the kind of open-ended military actions of the 21st Century, that case should be made in Congress, where the strategy can be deliberated, and if approved, funded by Congress, our ultimate authority for both war-making and war-funding.

The 2002 AUMF repeal now goes to the Senate and if passed, to Biden, who has suggested he would sign a repeal.

Even if the repeal passes the Senate, the standard Republican line on AUMF repeal is that a replacement resolution must be passed at the same time. That will possibly kill the repeal. And depending on how it is written, it could defeat its entire purpose.

Second, this week, Lina Khan, the author of “Amazon’s Antitrust Paradox” was confirmed by the Senate (with 19 Republican votes) as Federal Trade Commissioner. A 32-year-old, British-born woman of Pakistani heritage is now Chair of the FTC, facing down the most powerful corporations in American history, backed by the full power of the US government.

Khan inherits an antitrust lawsuit against Facebook, which seeks to break up the company over allegations that it copied or acquired and killed its rivals. The lawsuit is a test of Washington’s ability to check Silicon Valley’s power amid a broader debate about changing tech regulations. Kahn will be running an agency that lawmakers and experts for years have warned is under-resourced and lacking technical expertise.

Our existing antitrust laws are robust, but they have been weakened by business-friendly judges and clearly aren’t optimized for our digital world. A bipartisan group in Congress introduced a series of bills that would outlaw many of the allegedly anticompetitive tactics that tech companies used to solidify their dominance. But as with all reforms, it’s unclear whether they’ll pass.

Ms. Khan will be getting more resources. Biden has proposed an 11% funding increase for the FTC, boosting its spending from $351 million to $390 million. The president’s proposal will also allow the FTC to increase its headcount to 1,250, its largest staff since it was eviscerated in the early 1980s.

She enters the FTC with a 3-to-2 Democratic board majority, but it’s unclear how long that will last. Rohit Chopra (D) is awaiting his confirmation to the Consumer Financial Protection Bureau. If he leaves, it could be difficult for Biden to build the bipartisan support needed to install another commissioner.

Finally, it was disconcerting to hear Putin, in his post-summit news conference, play back Republican disinformation. From the WaPo’s Dana Milbank:

“For the past few years, Republicans in Congress have echoed Russian propaganda. On Wednesday, in Geneva, Vladimir Putin returned the favor: He echoed Republican propaganda.”

Milbank notes that the Russians have adopted the talking points of right-wing media about January 6. Putin mentioned that the January 6 insurrectionists are not looters or thieves:

“Many of the suspects, have been hit with very harsh charges…. Why is that?”

Putin read some more from the Republican playbook:

“As for who is killing whom or are throwing whom in jail, people came to the US Congress with political demands….Over 400 people had criminal charges placed on them. They face prison sentences. … They’re being called domestic terrorists.”

It’s surprising how awful Republican talking points sound when spoken by Putin.

On to the weekend, and our Saturday Soother! We will be continuing our yard work on the Fields of Wrong. You know you live in the wilds when Ms. Right can find bear poop 20 feet from our front door. Interestingly, it smelled like the bear had dined on fish. That’s probably enough outdoors reality for this week!

Let’s start our Juneteenth and Fathers’ Day weekend by listening to Harold Darke’s “Fantasy in E Major”. It is arranged here for string orchestra by Clive Jenkins because Drake’s arrangement is lost. It’s played by the Chamber Ensemble of London, conducted by Peter Fisher:

The video is beautiful because it includes paintings by English landscape artist, James Lynch. They’re lovely. Enjoy!

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Senate Authorizes New Industrial Policy

The Daily Escape:

Oro Valley, AZ – 2021 photo by PoohBear512

On June 8, the Senate passed a major industrial policy bill that would direct government investment toward critical technological sectors. The bill is intended to reinvigorate the manufacturing segment of the US technology sector, providing alternatives to supply chains dependent on Chinese microchips. Some argue that it also lays the foundation for long-term economic and technological competition with China. The bill passed with a filibuster-proof 68 votes.

The debate over industrial policy is politically charged because it goes to the heart of a deeper, long-standing controversy over the role of free markets and the role of the government in the economy.

Proponents of a state-directed and funded industrial policy argue that the government has the duty to structure the economy in the national interest, since the free market may fail to do so. We know that manufacturing provides stable, well-paid employment, but that isn’t factored into an individual firm’s decision-making. We can look at American firm’s offshoring of production even though it has cost jobs domestically while also offshoring manufacturing know-how.

As we discovered with Covid, it is very important to produce critical goods domestically. Industrial policy can help a country determine what critical goods it needs to produce domestically, such as medical supplies, or military equipment, for national security reasons. We learned about the automotive chip shortage, which is part of the greater issue of foreign control of global computer chip production.

There is also an argument that the government should fund R&D because the societal benefits go far beyond what companies will ever invest in.

Industrial policy fell out of favor in the US during the 1980s and 1990s with the development of the Washington Consensus, that defined economic development as the result of free-market policies such as the privatization of state enterprises and promotion of free trade.

But because of our competition with China, there’s a renewed interest among DC politicians across the aisle with again doing what Republicans have castigated Democrats for doing: “Betting on winners and losers”.

The bill authorizes the lion’s share of the money, totaling $190 billion, for a major rethinking of federal science, technology and research spending. It creates a new technology division within the National Science Foundation to focus on emerging areas including artificial intelligence. It also gives $10 billion for the Commerce Department to invest in new technology hubs so that other regions and cities across the country can attract the same sort of economic opportunities as Silicon Valley.

If some version of the bill eventually passes both Houses and is signed into law by Biden, it represents a major shift in how the US government manages its relations with the tech sector.

Both Republican and Democrats now suddenly seem interested in government intervention in domestic markets. It turns out that bipartisanship is on the menu whenever the issue is socialism for corporations. We can easily pass legislation that sends $ billions to corporations, but money for voting rights, people’s domestic lives, and infrastructure? Not now, maybe not ever.

China has invested in R&D while the lion’s share of American firms have squandered their money on share buybacks. Shame on us for supporting tax cuts for corporations! If only we had the foresight to know how stupid those things were. Here’s a chart:

Source: Council on Foreign Relations

Oh wait. Many of us had that foresight.

We did this with Japan back in the late 1970s. Earlier, we outspent the Russians in the space race.

This time we will probably give $ billions to the some of the same companies that decided to move their factories to China in the first place. Oversight will be crucially important.

Nothing we do will prevent China from educating its people, building new infrastructure, and focusing on STEM. But we can keep our edge over the Chinese by focusing on education, basic research, infrastructure upgrades, and STEM.

And the Chinese won’t be an easy target.

While we debate whether intelligent design and Critical Race Theory should be taught in our schools, the Chinese will be colonizing the Moon. While we fight about the 2nd Amendment, the Chinese are moving to dominate the global economy.

Most of the bill funds domestic investments to remain technologically competitive and reduce dependence on our economic adversaries. This seems like sound policy.

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The Covid Recession and American Capitalism

The Daily Escape:

Upper Buttermilk Falls, Ithaca NY – June 2021 iPhone photo by Wrongo

The following chart appeared in the NYT on Tuesday in an article claiming that the recession is over. The unfortunate reality is that the COVID recession was artificially induced by a shutdown of the economy. But it may now be transitioning into a longer, systemic recession caused by poor economic policy. Take a look at the chart:

While economists say that, by traditional definitions, the Covid recession didn’t last very long, we are still down 7 million jobs from pre-pandemic levels, even while personal income is back to pre-Pandemic levels. So, how can the recession be over?

And why are lawmakers in Republican states calling for an end to unemployment benefits when so many remain out of work? Zandar says we should start by looking at Tennessee’s official job posting website:

“There are more than 250,000 jobs available in Tennessee right now, but….Only 3% of the jobs posted — about 8,500 as of Friday evening — pay $20,000 [per year] or more. The federal poverty line for a family of three is just under $22,000.”

Of the 8,500 jobs on the state of Tennessee’s official job board, about 8,250 pay $10 an hour or less, which is a poverty level wage even in Tennessee. But Tennessee’s governor Lee has decided to stop accepting CARES Act money in July, saying he didn’t want to pay people to sit at home.

As Ezra Klein said in the NYT: America doesn’t fight poverty, it runs on it.

“The American economy runs on poverty, or at least the constant threat of it. Americans like their goods cheap and their services plentiful and the two of them, together, require a sprawling labor force willing to work tough jobs at crummy wages. On the right, the barest glimmer of worker power is treated as a policy emergency, and the whip of poverty, not the lure of higher wages, is the appropriate response…”

More from Klein:

“Vast numbers of Americans are kept poor for a reason. Any whiff of labor organization, or worker solidarity is ruthlessly annihilated in order to maintain millions of Americans working for single-digit hourly wages, or slightly higher wages, but no benefits whatsoever. We demand it, because we know corporations will just break our backs with higher prices if we give in. Either way, we’re the ones who pay, and it’s never the billionaires.”

Klein mentioned a report, “A Guaranteed Income for the 21st Century,” that would guarantee a $12,500 annual income for every adult and a $4,500 allowance for every child. It’s what wonks call a “negative income tax” plan — unlike a universal basic income, it phases out as households rise into the middle class.

The team estimates that its proposal would eliminate poverty while costing $876 billion annually.

To give a sense of scale, total federal spending in 2019 was about $4.4 trillion, with $1 trillion of that financing Social Security payments and $1.1 trillion supporting Medicaid, Medicare, the Affordable Care Act and the Children’s Health Insurance Program. As Paul Campos says:

“$876 billion represents less than the growth in the personal fortunes of America’s 651 billionaires over the course of the 16 months of the COVID pandemic. Not, mind you, anything like those fortunes themselves, but merely the growth in the personal fortunes of 651 people over the past year and a third.”

A simple annual wealth tax on the incremental gain in wealth of obscenely rich Americans would by itself pay for somewhere between a third and half of the cost of eliminating poverty in this country, via straightforward wealth redistribution.

So why don’t we get rid of poverty by giving people without money, money? Because we haven’t adjusted psychologically and politically to the fact that the developed economies produce so much wealth that getting rid of poverty could be a minor problem of distribution, one that merely requires a social commitment to doing it.

Instead, we tell the people at the bottom of wage distribution: “This is America. If you don’t like being poor, you can always do something about it, like not being poor.” And many of us go back to eating our dollar menu cheeseburgers and thinking to ourselves “I don’t know anybody *that* poor”.

Except that if you think about it, you know plenty of people who ARE that poor. And apparently, many of us want to keep it that way, just in case we end up rich someday.

America’s $21 trillion American economy has been captured by its oligarchs and their political servants who say we can’t eliminate poverty because that would be socialism, and socialism makes the baby Jesus cry.

So, 50 million Americans continue to wake up dirt poor every day.

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Scammers Steal Huge Amounts of Unemployment Money

The Daily Escape:

American White Pelicans over the Rocky Mountain Front, MT – photo by Jack Bell Photography

(This is the last post by the Wrongologist until Wednesday, June 16th.)

Felix Salmon at Axios has a disturbing story which says that as much as half of the pandemic’s payments for unemployment claims may have been stolen. Axios quoted Blake Hall, the CEO of ID.me, a fraud prevention service, who said that the US has lost as much as $400 billion to fraudulent claims.

They also quoted Haywood Talcove, CEO of LexisNexis Risk Solutions’ Government business, who told Axios that at least 70% of stolen money ultimately left the country, with much of it ending up in places including China and Nigeria:

“These groups are definitely backed by the state…”

He means foreign powers, not one of our bumbling 50 states whose out-of-date processing systems and limited ability to check for fraud are at the root of the problem.

This isn’t the first reported instance of stimulus money ending up in the wrong hands. Last week, federal authorities announced that Venezuelans living in South Florida and Mexico had stolen over $800,000 in stimulus checks since the start of the pandemic.

Wait, there’s more. On May 28, the US Office of the Inspector General found that $39 billion in unemployment money from the 2020 CARES Act had been wasted, partly due to failures in detecting fraud and improper payments.

While some Democrats are still pushing for more stimulus payments and unemployment benefits beyond what has already been delivered, fraud at this level must be addressed before moving forward.

Biden has already said in a speech that “it makes sense” for unemployment benefits to expire in September, so there should be little reason to move forward with more payments before getting the payments processing in all 50 states audited and fixed.

When the pandemic hit, few states were prepared for the unprecedented wave of unemployment claims they were about to face. It was assumed by politicians and government watchdogs that criminals would make off with at least some of the emergency pandemic relief funds. They knew that some fraud was inevitable but decided that getting the money out to people who needed it was more important than making sure all of the claims were genuine. That gamble didn’t pay off.

Apparently, the scammers steal personal information and use it to file claims while impersonating the claimants. Other groups trick individuals into voluntarily handing over their personal information. Local low-level criminals or “mules”, are given debit cards and asked to withdraw money from stolen accounts via ATMs. That money then gets transferred abroad, often via bitcoin.

Before the pandemic, unemployment claims were far fewer, and generally were paid for much shorter periods of time, so international criminal syndicates didn’t view them as a lucrative target. But after unemployment insurance became an important vehicle  that the US government used to keep the economy afloat, all that changed.

It was a kind of perfect storm: Unemployment payments became big money, and the process was being run by bureaucrats who aren’t as knowledgeable about scams as is private industry. Much like ransom ware, unemployment fraud packages can now be purchased by criminals on the dark web, on a software-as-a-service basis.

And like companies with weak IT departments, states without fraud-detection services are targeted most frequently. Since the start of the pandemic, some states are finally getting more sophisticated about preventing this kind of fraud.

But the taxpayers have lost a huge amount of money, and it’s doubtful that the feds will find these bitcoins lying around to grab and return to the government.

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New Jan. 6 Report Doesn’t Go Far Enough

The Daily Escape:

Lupine super bloom, Folsom Lake, CA – May 2021 photo by Ed Kornegay

A joint report from the Senate Rules and Administration, and the Homeland Security and Governmental Affairs Committees reveals that Capitol Police had specific intelligence indicating an armed invasion of the Capitol at least two weeks before the Jan. 6 riot, but a series of omissions and miscommunications kept that information from reaching front-line officers targeted by the violence.

Sen. Gary Peters (D-MI), chair of the Homeland Security panel, told reporters:

“There were significant, widespread and unacceptable breakdowns in the intelligence gathering….The failure to adequately assess the threat of violence on that day contributed significantly to the breach of the Capitol….The attack was, quite frankly, planned in plain sight.”

More from the WaPo:

“The bipartisan report…comes just days after the Senate rejected legislation to create an independent investigative commission that passed the House with strong bipartisan support, and as lawmakers continue to wrestle with how to pay for security improvements to the Capitol campus…..its recommendations, which call for better planning, training and intelligence gathering, largely mirror those of other investigators who have examined the topic, and its contents steer clear of offering any assessment or conclusion about the former president’s responsibility for the riot.”

The report also suggests that even if they had better intelligence, the Capitol Police didn’t have the ability to respond to the riot. Fewer than ten uniformed officers had actually been trained in how to use the less-than-lethal munitions that they rely on for mob control, and much of the equipment in the force’s possession was either defective or inaccessible during the attack. Some other findings:

  • Capitol Police had no operational or staffing plan for the Jan. 6 joint session of Congress to count and certify the 2020 Electoral College votes.
  • DOJ was the lead federal agency for security and response on Jan. 6, but it never created a security plan and didn’t coordinate a response.

Since the report was “bipartisan”, it didn’t attempt to examine the origins and motivations of the people who participated in the attack. It also did not examine Trump’s role. Most of us are aware that the attack was planned in plain sight because we saw it coming. But the new report is far from the whole truth. From CNN:

“Sources tell CNN that in order for this report…to have support from both parties, the language had to be carefully crafted, and that included excluding the word “insurrection,” which notably does not appear outside of witness quotes and footnotes…“

While these committees had virtually unlimited access to emails, phone logs, and documents of the Capitol Police, they had only limited ability to gather similar information from other federal intelligence agencies. Therefore, they really don’t know all of what the government knows about Jan. 6, including any possible involvement by The Former Guy or his aides.

Here we see that the problem of the Capitol Police: Siloed information and a unnecessarily incomplete threat assessment leading to a poor crisis response, has now been exactly replicated by the Senate committees trying to get the facts about what happened. It seems that, every time America has a national security disaster, there’s always evidence that our agencies really don’t share important information with each other about the looming problem. That’s true again here:

“The Senate committees’ report found fault with the Department of Homeland Security and the FBI for failing to provide specific warnings about the threats posed to the Capitol. According to the report’s findings, the FBI alerted the Capitol Police of potential “war” only the night before Trump’s rally…”

Last month, the House narrowly passed a $1.9 billion supplemental appropriations package to pay for security improvements to the Capitol. The debate on the bill was intensely partisan, and that’s likely to be true in the Senate where it will need to find 60 votes to avoid a procedural filibuster.

So, will we ever learn who was responsible for the January 6th attack? Who were the people who made the decisions not to train and not to inform the Capitol Police? Who was responsible for the delay in sending reinforcements to the Capitol Police?

Will we ever know if any Members of Congress were part of planning the attack?

When Trump said, “Stand back and standby”, it was clear that he was announcing an insurrection. Later, he made similar statements about not accepting the election results and then said or tweeted “Come to DC on Jan 6th.  It will be wild.” And Giuliani said on the day: “Trial by combat.”

Will we ever know the scale and intent of what was planned for that day?

Not if the Republicans have anything to say about it.

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Yellen Says Higher Interest Rates Are OK

The Daily Escape:

La Jolla, CA – photo by Russ Harris photography

Janet Yellen made news for a second time, announcing on Sunday, in an interview with Bloomberg, that higher interest rates would be a “plus” for America. She probably has a fairly good idea of how the Federal Reserve is thinking, since she was its Chair prior to becoming Treasury Secretary.

The issue in her interview was whether inflation would continue growing if Biden’s infrastructure bill is passed, and we spend an additional $4 trillion over the next 10 years. Yellen said that it wouldn’t create enough inflation to cause economic concern. She said that the current spurt in prices powered in part by the Covid stimulus, is just temporary, and would fade next year.

But Yellen also said that if current price increases turned out not to be temporary, and it triggered more persistent inflation, the concomitant higher interest rates wouldn’t be a bad thing:

“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade….We want them to go back to a normal interest rate environment, and if this helps a little bit to alleviate things then that’s not a bad thing – that’s a good thing.”

Current Fed Chair Jerome Powell must surely see this as political cover for any near-term rate hikes, but opinions differ today on whether we’re in for a new run of inflation. We have some data that’s worrisome. Economic theory explains why we probably should be worried. And yet, we have plausible-sounding explanations as to why things are actually okay.

The younger generations may have trouble believing how dark things seemed in 1979 when President Carter appointed Paul Volcker Fed chairman. Some of us remember inflation that hit 14% in 1980. Unemployment trended up to 9.7% in 1982. Oil prices had jumped off the charts.

Volcker took dramatic steps to rein in the runaway inflation by tightening the money supply, which drove the Prime Rate to 21%. His actions led to not one, but two recessions before prices finally stabilized.

Nobody wants to see that type of inflation recur now, but low interest rates have increased wealth inequality in the US. Soaring stock and housing prices are a direct consequence of interest rates that remain reliably low. When this happens, people can borrow money for less than they can make by investing, and newly printed dollars that continue to pour into the markets ensure that prices will continue to rise.

And this low-rate scenario benefits those who already have lots of stock and real estate.

How could Elon Musk make $142 billion in 2020 when total revenues (not profits) at Tesla and SpaceX were less than half that number? Share prices in both companies rose with demand from investors with too much cash in their pockets. The growth in Musk’s fortune is based on the inflated share prices of both firms.

Yellen’s underlying message is that if the Fed maintains its low interest rate policy, more cheap money will flow into the pockets of people who really don’t need it. She’s correct when she says rates have been too low for a decade. It’s created an asset bubble, particularly in stocks and real estate. Today’s prices are no longer grounded in reality.

As for how to unwind the bubble? Good luck: Very few people will be happy if the stock market drops, or if the value of their home drops, say, just before retirement.

And like all things, inflation is political. House Republicans are working to undermine Biden’s economic agenda by zeroing in on voters’ latent fear of inflation. They are circulating a memo with the subject line: “Tie Biden Agenda to Inflation.” It tells members to “explain to voters how inflation is Democrats’ hidden tax on the Middle Class.”

The GOP is attempting to stir up fear of an impending economic downturn just as businesses are beginning to reopen after a year of being impeded by Coronavirus restrictions. They’re also saying that taxpayer dollars being put toward Covid relief and unemployment benefits will tank the economy.

The GOP is also using a WaPo op-ed by Larry Summers. Summers was Clinton’s Treasury secretary, and he was a former director of the National Economic Council for Obama. The article warns of the risk of sharply rising inflation expectations.

Ultimately, we’ll see if the inflation scare-mongering by Larry Summers is real.

What should we believe about inflation and interest rates? It doesn’t matter what we believe. What matters is what the market thinks. And if the market suddenly stops believing the explanation as to why these inflationary pressures are temporary, we’ll see rates rise bigly.

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