Capitalism Reform – Page 10

Tuesday Wake Up Call – September 3, 2019

The Daily Escape:

Clouds and light, Zion NP, Utah – 2019 photo by walkingaswind

It’s fair to ask, “What happened to the Wrongologist?” He’s taken a long break from posting, in part due to fatigue brought on by our toxic political environment. But beyond that, Wrongo has (at least temporarily) despaired of seeing a path forward to meaningful political change.

Here’s a few relatively connected changes to ponder on Labor Day.

We’re in the midst of a big demographic change. Demo Memo reports that Non-Hispanic Whites (that’s white people to us non-demographers) will account for just 47% percent of the nation’s 2019 public school students, according to the National Center for Education Statistics. That means the majority of students (53%) in grades K through 12 will be Hispanic, Black, Asian, or another minority.

That’s a big drop since 2000, when 61% of public school students were non-Hispanic White. Their share fell below 50% in 2014. The non-Hispanic White share of public school students will continue to fall. In 2027, non-Hispanic Whites will account for 45% of students, according to projections by the National Center for Education Statistics.

It’s not a coincidence that nearly 32% of Americans aged 18 or older can speak a language other than English. According to the 2018 General Social Survey, this figure is up from 28% a decade ago. Asians and Hispanics are most likely to say they can speak a language other than English, 83% and 69%, respectively. By generation, the youngest Americans are most likely to be able to speak a language other than English, with the iGeneration at 43%, Millennials at 39%, and GenX’ers at 33%.

Times they are a-changing.

Changes on the jobs front have already occured. Here is chart from Visual Capitalist showing the largest non-government employer in all 50 states. Sadly, even in this time of economic progress, Walmart is the largest employer in 21 states:

In many states, either the state or federal government is the top employer. California employs 250,000 federal workers. New York State is unique, since NYC’s municipal workforce is the state’s top employer. And then, there is the US Department of Defense: Eight states have more active military personnel than any single private employer.

Universities and hospitals are top employers in nearly half of the states.

But Walmart is the biggest private employer, with 1.5 million workers. They employ about 1% of private sector workforce in the US. Amazon is a distant second with more than 500,000 employees.

How are the facts about majority/minority schools and Walmart as our largest employer linked? According to Walmart’s 2019 diversity report, 44% of Walmart employees are people of color. This means that after graduation, Walmart is a likely workplace for many of them. People of color account for 61% of Amazon employees.

And the average wage for a full-time Walmart employee in the US is $14.26. Recent full-time pay in a New Jersey Amazon warehouse was $13.85. Both sound fine until you realize that these are average pay rates for full-time workers. Many earn far less. And few actually are full-time workers, most are part-time.

Are these good jobs at good wages? They are not.

Our schools are getting more diverse, and the jobs we hold now are increasingly fragile. What’s more, for many Americans, one job doesn’t provide a living wage. As the NYT reported in a Labor Day opinion piece by Binyamin Appelbaum and Damon Winter:

“More than eight million people — roughly 5 percent of all workers — held more than one job at a time in July, according to the most recent federal data.”

Dignity. Shouldn’t America strive to make working at one job pay enough to provide for a person’s family? We tout the low unemployment rate, and the statistics that show millions of available and unfilled jobs. But, except for a few jobs involving high barriers to entry, “worker shortage” is a euphemism for “this job doesn’t pay well enough, or have good enough conditions to attract enough workers.”

There’s no worker shortage in America, there’s a pay and good working conditions shortage. Work doesn’t have to be absorbing, but it should be free of fear, and it should be worthy of one’s talents.

It’s baffling to Wrongo that supposedly smart politicians have facilitated a system that has robbed wealth from the bottom 90% of Americans and funneled it to the top 1%, largely through holding down workers’ wages, when our economy is driven by consumer spending.

All of us are wage slaves to a degree, we all sell our time and talent for money. Our schools are the basis for building talent. That, plus job experience, is what the average American offers to sell to employers.

So this is mostly a post about future Labor Days.

Time to wake up America! Without profound changes to how we educate our kids, and how we reward capitalists and capitalism, our country of tomorrow will bear little resemblance to the nation of today.

Saturday Soother – August 3, 2019

The Daily Escape:

Wotans Throne, North Rim, Grand Canyon NP, AZ – photo by phantomcloud.

The WSJ has an important story on how people with what seems like pretty good household incomes, are getting more and more indebted trying to keep up a middle class lifestyle:

“The American middle class is falling deeper into debt to maintain a middle-class lifestyle.

Cars, college, houses and medical care have become steadily more costly, but incomes have been largely stagnant for two decades, despite a recent uptick. Filling the gap between earning and spending is an explosion of finance into nearly every corner of the consumer economy.

Consumer debt, not counting mortgages, has climbed to $4 trillion—higher than it has ever been even after adjusting for inflation. Mortgage debt slid after the financial crisis a decade ago but is rebounding.

Student debt totaled about $1.5 trillion last year, exceeding all other forms of consumer debt except mortgages.

Auto debt is up nearly 40% adjusting for inflation in the last decade to $1.3 trillion. And the average loan for new cars is up an inflation-adjusted 11% in a decade, to $32,187, according to a Wall Street Journal analysis of data from credit-reporting firm Experian.”

The Journal gives a generally sympathetic portrayal, provided you don’t go deeply into their comments section, where readers spout platitudes about Millennial’s lack of fiscal responsibility. Here’s a chart from the WSJ using some recent work by Georgetown bankruptcy law professor Adam Levitin showing how much certain costs have risen relative to wages:

Can Democrats Be Republican Lite in 2020 and Win?

The Daily Escape:

Bowman Lake, Glacier NP – June 2019 photo by TheChariot77

We’re facing multiple crises over the next few years that require big policy fixes. Climate change is an existential threat, and the consequences of inaction far outweigh the risk of doing too much, too soon in trying to solve it. Education, healthcare, and housing costs are growing in unsustainable ways, and threaten to leave large swathes of Americans behind. The under-investment in our infrastructure is approaching a point of no return. The toxic combo of immigration, income inequality and political division could lead us into a second Civil War.

When we look at both Party’s candidates for 2020, do any of them have ideas that can solve these problems? Trump offers nothing to address them. A few of the Democrats running for the nomination have big ideas, and a few newbies in Congress have big ideas of their own.

The question is, will the Establishment Democrats prevent the candidates from offering big ideas to American voters?

In a prescient article in the WaPo, “Haunted by the Reagan era”, Ryan Grim made the point that older Democrats, like Pelosi, Schumer and Biden were scarred by past defeats, and subsequently, have attempted to placate their Republican opposition. From Grim:

“It’s hard to overstate how traumatizing that 1980 landslide was for Democrats. It came just two years after the rise of the New Right, the Class of ’78 led by firebrands like Newt Gingrich, and it felt like the country was repudiating everything the Democrats stood for. The party that had saved the world from the Nazis, built the modern welfare state, gone to the moon and overseen the longest stretch of economic prosperity in human history was routed by a C-list actor. Reagan won 44 states….”

It also happened in 1972, when Nixon swamped the liberal Democrat, George McGovern, 49 states to one. More from Grim: (emphasis by Wrongo)

“When these leaders plead for their party to stay in the middle, they’re crouching into the defensive posture they’ve been used to since November 1980, afraid that if they come across as harebrained liberals, voters will turn them out again.”

Maybe it’s political PTSD. For younger politicians like Rep. Alexandria Ocasio-Cortez (D-NY), this is a strategic error. For the young Democrats, Republicans shouldn’t be feared, they should be beaten.

But, Joe Biden is leading the polls for the Democratic nomination. He, like the other Establishment Dems, assume the voters won’t agree with them on fundamental change. They think that Democrats only get elected by avoiding riling up the conservative silent majority, or, at least, the majority of those who actually turn out to vote. From David Atkins:

“They hew to the late 20th century perspective that the wisest course lies in not making change too quickly, or giving any political party the power to make sweeping changes. This status-quo philosophy is part of why America hasn’t made any major changes to its economic or political structures since enacting Medicare in the 1960s.”

They believe this, no matter how much polling shows that voters increasingly reject conservative precepts. More from Atkins:

“Voters swept Barack Obama and the Democrats into unitary control of government in 2008, and got for their trouble a too-small stimulus and a relatively minor adjustment to the healthcare system. Voters… swept Donald Trump and Republicans into unitary control of government in 2016, and for their trouble got a tax cut for the wealthiest Americans….And when neither party has total control of government, practically nothing happens at all.”

So, should the Democrats run to the center in 2020? Hillary lost doing precisely that in 2016, but the Dems took back the House in 2018 mostly by winning centrist districts, including many that had voted for Trump in 2016. The Establishment Democrats want to hedge their bets, protecting a status quo that, in the medium-term, may prove very dangerous to the country.

The Dems won 2018 in part by promising to reign in Trump. Once in control, Pelosi took all substantive actions off the table, opting instead for a series of small, politically-irrelevant investigatory gestures.

Those who voted for them have to wonder: If this all that they’re going to do, why give them the power?

Sanders and Warren are old enough to be Establishment Dems, but they are true progressives. Neither Warren, nor Sanders is a once-in-a-generation superstar like Barack Obama. Assuming none of the current pack of nominees are like him, the question is whether the Dems on the extreme left, or the center-left, are more likely to turn out enough voters to carry Wisconsin, Michigan, Pennsylvania and possibly, Florida.

Monday Wake Up Call – July 1, 2019

The Daily Escape:

East Inlet Pond, Pittsburgh NH – photo by Wes Lavin. The East Inlet area has one of the few remaining virgin stands of forest in the east.

How did Boeing, a company known for meticulous design and manufacturing, screw up the 737 Max so badly? Bloomberg is reporting that Boeing outsourced software development for some of the 737 Max’s software to Indian companies. There are concerns that decision may have contributed to Boeing’s two deadly crashes.

Bloomberg says that starting in 2010, Boeing began relying on Indian software engineers making as little as $9 an hour in their design program. The software engineers were supplied by the Indian software developer HCL Technologies, which now has annual sales of $8.6 billion. The coders from HCL designed to specifications set by Boeing but, according to Mark Rabin, a former Boeing software engineer:

“It was controversial because it was far less efficient than Boeing engineers just writing the code.”

It turns out that the HCL engineers were brought on at a point when Boeing was laying off its own experienced software developers. In posts on social media, an HCL engineer who helped develop and test the Max’s flight-display software, summarized his duties:

“Provided quick workaround to resolve production issue which resulted in not delaying flight test of 737-Max (delay in each flight test will cost very big amount for Boeing).”

This may be resume inflation. Boeing insists that HCL had nothing to do with the Max’s Maneuvering Characteristics Augmentation System (MCAS) software. HCL said that it:

“…has a strong and long-standing business relationship with The Boeing Company, and we take pride in the work we do for all our customers. However, HCL does not comment on specific work we do for our customers. HCL is not associated with any ongoing issues with 737 Max”.

It isn’t unusual for US companies to use outsourced talent. Prior to his dynamic blogging career, Wrongo was CEO of an outsourcing firm. Our clients were the US government, and several big tech and office product companies, including Dell, Microsoft, and Xerox.

But managing outsourcing is tricky, both for the company moving the work out-of-house, as well as for the outsourcer. Unless the parties develop detailed plans, procedures, and follow strict quality control, even top people can produce work that fails to meet design standards.

The typical jetliner has millions of lines of code. From Rick Ludtke, a former Boeing flight controls engineer:

“Boeing was doing all kinds of things, everything you can imagine, to reduce cost, including moving work from Puget Sound, because we’d become very expensive here….All that’s very understandable if you think of it from a business perspective.”

More profits over people.

In 2010, HCL and Boeing opened a “Center of Excellence” in Chennai, saying the companies would partner to create software used in flight testing. Ultimately, there is no denying that testing software plays a huge role in ascertaining safety standards. You can find further information and resources related to software testing and a guide to IEC 61508 Compliance by checking out the Parasoft website. Generally speaking, this type of testing is typical for big companies. Boeing also has a design center in Moscow. From Cynthia Cole a former Boeing engineer who headed the Engineer’s Union from 2006-2010: (emphasis by Wrongo)

“At a meeting with a chief 787 engineer in 2008, one staffer complained about sending drawings back to a team in Russia 18 times before they understood that the smoke detectors needed to be connected to the electrical system…”

A big reason for offshoring is price. Engineers in India make about $9 – $10/hour, compared with $35 to $40 for Indians in the US on an H1B visa, and higher for a US engineer. Anyone who understands offshoring knows that the cost of rework needs to be added to the apparent hourly cost, and in some cases, that can push the real price closer to $80/hour.

For the 787 Dreamliner, much of Boeing’s work was outsourced. It is well-known that the 787 entered service three years late, and billions of dollars over budget, in 2011. That was due in part to confusion caused by their outsourcing strategy.

Was another globalist lesson learned by Boeing with the 787? Not really, if the 737 Max troubles are any indication.

So this cheap labor story is another black eye for Boeing. It goes along with the Justice Department’s criminal probe, and the FAA’s continuing concern about the Max software. Boeing also has disclosed that the company didn’t inform regulators of the MCAS problems when they first learned about them, because engineers had determined it wasn’t a safety issue.

This is more of the crapification of America’s best companies as they chase lower costs. This time, people died.

Wake up Boeing! The high-value, high-risk elements in your product must be sourced at home.

If America had a real Justice Department, Boeing’s management would be in jail.

Monday Wake Up Call – June 24, 2019

The Daily Escape:

View from Angels Landing summit, Zion NP Utah – 2019 photo by SurrealShock. 86,000 people visited Angels Landing over the four-day Memorial Day weekend in 2018.

On Sunday, the NYT reported: (emphasis by Wrongo)

“In the last decade, private land in the United States has become increasingly concentrated in the hands of a few. Today, just 100 families own about 42 million acres across the country, a 65,000-square-mile expanse, according to the Land Report, a magazine that tracks large purchases. Researchers at the magazine have found that the amount of land owned by those 100 families has jumped 50 percent since 2007.”

The West is a patchwork of public and private lands. Land ownership in the West has always been concentrated in the hands of the federal government, which owns about 50%. Now we learn that the rest of the West is quickly moving into the hands of a very few people.

The large purchases by these new private landholders come as the region is experiencing the fastest population growth in the country. That drives up housing prices and the cost of living. Some locals are fearful of losing both their culture and economic stability.

Rocky Barker, a retired columnist for The Idaho Statesman, has said this is a clash between two American dreams, pitting the nation’s respect for private property rights against the notion of beauty-rich publicly-owned lands set aside for the enjoyment of all.

In the West, there is an evolution of an economy based in minerals extraction, to one based on recreation; from a working class culture to a more moneyed one. The NYT article focuses on one family, the Wilks brothers, Dan and Farris, who made their money ($3.5 billion) in fracking. They sold out, and bought a vast stretch of mountainous land in southwest Idaho.

The Wilks brothers see what they are doing as a duty. God had given them much, and in return, “we feel that we have a responsibility to the land.”

The Wilkses now own 700,000 acres across several states, and have become a symbol of the out-of-touch owner. In Idaho, they have closed trails, and hired armed guards to patrol their land, blocking or stymieing access not just to their property, but also to some publicly owned areas. They also hired a lobbyist to push for a law that would stiffen penalties for trespass, and the bill passed.

This has made locals angry, as they have hiked and hunted on these lands for generations. Some emailed the Wilkses, asking permission to cross their property. They were surprised to receive a response suggesting they first visit PragerU, a right-wing website that was financed by the Wilkses and share their opinions of its content.

This is an example of a test for land use. Should you have to tell landowners your political views before you get to use their land?

Welcome to the future. Concentration of land ownership is a natural consequence of our free market capitalism. Our capitalist system isn’t designed to prevent concentration of ownership, whether it be of corporations or land.

That requires politicians who are not beholden to corporations and capitalists.

Our ancestors left Europe because by the 1600s, much of the land had already been bought up and was either inaccessible, or available in small lots for rent. America has been in the process of being divided up in the same way since the 1700s.

We talk about wealth inequality, and this story shows again that it is much more than numbers on a ledger. It is the power to own vast chunks of America, to decide how that land will be used, and to charge for that usage if they desire.

Battles over both private and public land have been a defining part of the West since the 1800s. For years, fights have played out between private individuals and the federal government.

OTOH, Americans in the West have made private ownership of wilderness a sacrament. They even contend that private use of public lands should be a right. Now, when the results of concentrated private land ownership become clear, when suddenly, a river or a mountain range they’ve enjoyed using for decades has a fence around it, their bellyaching begins.

But when the Wilkses, who made their money in fracking talk about how they feel they have a responsibility to the land, that has to be seen as hypocrisy.

The people in the West should Wake Up and give thanks for every inch of every national park. They should willingly pay additional taxes to keep our national parks in prime condition.

And they should finally see the wisdom in higher income taxes on corporate profits, and in Elizabeth Warren’s taxes on individuals with greater than $50 million in assets .

Sunday Cartoon Blogging – June 23, 2019

Iran’s solution to possible war with the US. If this happened, Trump would say he got a love letter from the Ayatollah:

Little-known technology shows Pentagon the best story to use about its reasons for war:

This week, the Trump administration argued in court that detained migrant children do not require basic hygiene products like soap and toothbrushes in order to be held in “safe and sanitary” conditions:

Mitch ain’t willing to discuss reparations:

Reparations are a difficult subject. As the historian Howard Zinn said, “You can’t be neutral on a moving train.” He meant that you either abide the status quo, or you oppose it. You either commit yourself to be the best anti-racist you can be, or you don’t. Whichever you choose, you should be honest in how you frame your choice. Saying that reparations are not worth pursuing, or simply doing nothing about them, is an implicit defense of the policies and systems that have created our present-day racial inequities.

The Supremes held 7-2 that a cross located in a war memorial could be displayed on public property (at a traffic circle). They said that some crosses are merely historic icons. Their decision favors one religion over others, and it seems hostile towards religious minorities. And why won’t Christians act like Christians?

How the Capitalism game actually works:

Is Ending Income Inequality a “Radical” policy?

The Daily Escape:

Mount Robson & Berg Glacier, BC, Canada – June 2019 photo by DrTand the women

New York Magazine’s Eric Levitz writes: (brackets and emphasis by Wrongo)

“…the Federal Reserve just released…its new Distributive Financial Accounts data series [that] offers a granular picture of how American capitalism has been distributing the gains of economic growth over the past three decades. Matt Bruenig of the People’s Policy Project took the Fed’s data and calculated how much the respective net worth of America’s top one percent and its bottom 50 percent has changed since 1989.

He found that America’s super-rich have grown about $21 trillion richer since Taylor Swift was born, while those in the bottom half of the wealth distribution have grown $900 billion poorer.”

This is what a few of the Democratic presidential candidates have been talking about, some loudly and some quietly, for the past few months. Levitz asks the right question:

“So, is an economic system that distributes its benefits in this manner consistent with Americans’ common-sense views of economic justice? If not, would incremental changes be sufficient to bring it into alignment with the median American’s values? Or would more sweeping measures be required?”

In a sense, Democrats are testing whether advocating for changing Capitalism is an argument that voters will accept in 2020. More from Levitz:

“Some Democratic presidential candidates say that America’s economic system is badly broken and in need of sweeping, structural change. Others say that the existing order is fundamentally sound, even if it could use a few modest renovations. The former are widely portrayed as ideologues or extremists, the latter as moderates.”

Essentially, the question is “who’s the extremist?” in the Democratic Party. This conflation of “extreme” or “radical” with “bad” is what the GOP and the Main Stream Media do every day, and it weakens our policy-making.

We use “extremist” or “radical” as a way of signaling that a policy position is too awful to consider.

If you simply say that something is bad, then you are forced to defend your position. But, when you describe it as “extreme“, you’ve called it bad, and people will HEAR that you think it’s much too big a change to even discuss.

Respectable talking heads like Judy Woodruff will ask: “Will Americans really go for THAT?”

This is bad faith messaging about important questions. This is so ingrained into people who talk about politics that it largely goes unquestioned. We shouldn’t care about pundits and broadcasters saying how extreme or not extreme something is. We should care about the merits of the argument.

Republicans have been calling Democrats “extreme” “radical” and “Socialist” for decades. They’re using bad-faith tactics; de-legitimizing an idea or a candidate without having to debate on the merits.

Bernie Sanders and Elizabeth Warren are offering “extreme” policies only if our baseline is what the average Congress critter’s economic agenda looks like. It’s not clear why that’s an appropriate yardstick.

Did we think calls for sweeping change in Egypt were extremism when students took to the streets demanding basic civil rights? Do we think the young people demonstrating today in Sudan are radicals? Our assessment (and support) of these dissenters’ ideologies has more to do with how far their values are from those of their corrupt political and military leaders.

And also by how close they seem to be to our core values.

Whether it is extreme or moderate to propose sweeping changes to American capitalism should depend on how close our existing system is to how a just economic system operates. And these latest data show that the one percent have gotten $21 trillion richer since 1989, while the bottom 50% have gotten $900 million poorer.

This is what economic class warfare looks like. Saying that isn’t hyperbole. The earnings and wealth of a majority of our citizens has been systematically declining with the complicity and power of our government, in order to benefit the rich.

It shows how bad things are when the “radical” in American politics is anybody who argues that the American economy isn’t working for a huge percentage of the population.

Judy Woodruff may think that the economy is great, but incrementalism has failed most of us for the past 40 years.

Given all this, any politician who insists that American capitalism is “already great” is clearly someone who is indifferent to economic inequality.

We need to adopt redistributive economic policies. That may sound like an extreme position, but the alternative of continuing our growing wealth inequality, should really be thought of as far more radical.

Fed Study Shows Rising Financial Desperation in Poorer Zip Codes

The Daily Escape:

Aliso Creek State Beach, near Laguna Beach, CA – 2019 photo via

Simon Johnson observes at Project Syndicate: (emphasis by Wrongo)

“To defeat populism requires coming to grips with a fundamental reality: bad economic policies no longer necessarily result in a government losing power. In fact, it is now entirely possible that irresponsible populists may actually strengthen their chances of being re-elected by making wilder and more impossible promises – and by causing more economic damage.”

Johnson, former chief economist for the IMF, believes that structural economic factors, including automation, trade, and the financial crisis have left many people feeling neglected by those who control economic policy.

When politicians back policies that add economic uncertainty, or that discourage investment, we see lower economic growth, and fewer good jobs. Ordinarily, dissatisfaction shows up at the ballot box, holding that government accountable at election time.

But this is no longer reliable, because politicians wiggle out of the trap by saying that the media are biased, that the experts are wrong, and that the facts are not the facts. And the angrier people become, the easier it is to persuade them to accept that no one is to blame, and vote again for those who helped to cause their economic distress in the first place.

A new study by the St. Louis Federal Reserve Bank examined American financial distress by Zip Codes. It sheds light on a topic we regularly debate: Why are there so many signs of distress in a supposedly robust economy? And this time, will politicians be held to account?

Since 2015, the lowest income households have been taking on more debt. Their wealth has become even more concentrated in home ownership. The level of distress in lower-income households has also increased, despite the official story of increasing prosperity.

The study drills into Zip-Code level data to show that even adjacent Zips show striking divergence in wealth accumulation (or erosion). For instance, they looked at the percentage of people within a Zip Code that have reached at least 80%t of their credit limit on their bank-issued credit cards.

That is believed to be a good proxy for financial distress.

Before the 2008 crisis, analysts missed the rising levels of household debt. That debt was often funded by borrowing against home equity. Rapidly falling home prices after 2008 showed how fragile many of those borrowers were.

The contrast between national averages and Zip Code households is stark. Looking at averages, the recovery appears to be quite broad. But zooming in by Zip Code showed a bifurcated economy still suffering from the 2008 crisis. The researchers found that looking at the value of assets and reliance on debt shows a clearer picture: (emphasis by Wrongo)

“…the poor and high-leverage ZIP codes that are more affected by wealth shocks may still be vulnerable. What’s more, trends in less affluent groups are masked in nationally aggregated statistics by groups with more wealth.”

“May be vulnerable”? They will certainly be vulnerable when the next downturn begins.

Since 2015, debt and financial distress have been rising the fastest in these low-wealth areas, while it rose the slowest since 2015 for the wealthiest households. We already see softness in economic indicators like retail sales, home sales and housing construction. It’s reasonable to expect that the next recession isn’t far away.

We’ve had a long economic recovery, but its gains were not distributed as broadly as they had been in previous downturns. What we got was an uneven economic recovery, with most gains going to an increasingly narrow group.

More people are left out of this supposedly robust economy than the politicians and most economists think. The Fed study shows that the averages conceal plenty of pain. Maybe this isn’t an earthshaking idea. We all see income and wealth disparities in our communities, it’s not that unusual. But the fact that the differences are now extreme enough to show up in ZIP Code level data seem significant, and worrying.

So, will politicians pay any price in 2020 for the continuing maldistribution of gains since the 2008 recession? Or, will politicians tell the people that no one’s to blame, that the Laffer curve will surely work this time?

The miracle of modern Republican economic theory allows for both the Laffer curve, and “pulling oneself up by the bootstraps” not only to be truths, but to be the desired outcome.

Financial Industry Buys Politicians

The Daily Escape:

Tulip time, Skagit Valley, WA – 2019 photo by Karen Randall

Yesterday, we talked about how the Democrats might ultimately need Wall Street money for the 2020 presidential election. Now, we learn from Americans for Financial Reform (AFR), a consumer interest group, that Wall Street spent at least $1.9 billion on political campaigns and lobbying during the 2018 mid-term elections:

“The figure, which includes contributions to campaign committees and leadership PACs ($922 million) and lobbying expenditures ($957 million), reflects a massive rush of pro-industry nominees and legislation over the last two years, at a time when the biggest banks made $100 billion in profits for the first time.”

That was the largest-ever amount for a non-presidential year, outstripping the total of $1.4 billion, in the 2013-14 election cycle, by 36%.

The 63-page report, “Wall Street Money in Washington”, uses a special data set compiled by the Center for Responsive Politics on behalf of AFR in order to provide a more precise look at financial services industry spending. The data excludes spending by health insurers, who work to influence a different group of issues than do US banks.

The data also doesn’t include “dark money” that goes mostly unreported, so the actual sums of Wall Street spending are likely to be much higher.

The report breaks its findings down by Campaign Contribution and Lobbying:

Campaign Contributions: Individuals and entities in the financial sector reported making $921.8 million in contributions to federal candidates for office during the 2017-18 election cycle.

Of the $519.6 million in party-coded contributions by individuals and PACs associated with finance, 53% went to Republicans and 47% went to Democrats. About $402.2 million in additional cash flowed from financial sector contributors to candidates through outside groups.

Lobbying: The financial industry reported spending a total of $956.8 million on lobbying in calendar years 2017 and 2018. This spending only got the financial sector to third place. The “Health” sector was second, spending $1.12 billion, and “Miscellaneous Business” which comprises companies and trade associations, was first, spending $1. 02 billion. “Miscellaneous Business” includes the US Chamber of Commerce, which spent $189.4 million.

And which politicians got the money?

In the House, Republicans did very well, with Former Speaker Paul Ryan (R-WI) leading the way. Rep. Kevin McCarthy (R-CA), now the House minority leader, and Rep. Patrick McHenry (R-NC), now the ranking member on the House Financial Services Committee, both benefited from Wall Street largesse.

The freshman class in the House, including first-term Democrats, had substantially less reliance on money from Wall Street than those Democratic incumbents who won re-election. Another report that AFR co-authored on small-dollar contributions found that 17% of money contributed to the Democratic freshman came from small donors, compared to 9.4% for incumbent members.

In the Senate, the data underscores how money moved to members who supported the industry’s legislative goals. Overall, spending favored Republicans. But the industry gave significant amounts to Democratic Senators who helped get S. 2155 passed, which was a significant rollback of the Dodd-Frank regulations.

Wall Street gave heavily to the Democratic senators who supported the bill and were up for reelection in 2018, mostly from states that Trump won in 2016. One Dem who won in 2018, was Jon Tester (D-MT); others, including Joe Donnelly (D-IN), Heidi Heitkamp (D-ND) and Claire McCaskill (D-MO) did not win.

Sen. Kyrsten Sinema (D-AZ) won after she supported the legislation as a House member.

But, not all top Senate Democratic recipients of Wall Street money did the industry’s bidding. Sen. Sherrod Brown (D-OH) opposed S. 2155. He was the only Democrat in Ohio to win statewide office in 2018.

Who spent the most? The top five donor companies and trade associations in the financial sector were:

National Association of Realtors — $144,716,676
Bloomberg LP — $96,481,469
American Bankers Association — $25,769,494
Paloma Partners — $25,575,800
Citadel LLC — $20,596,381

You can see a list of the top 20 donors here. It is easy to see that turning down Wall Street funding could put a big dent in the Democratic nominee’s spending plans for 2020.

It also seems clear from yesterday’s reporting that Wall Street Democrats might bolt to Trump if the 2020 nominee is Sanders or Warren. A decision to reject Wall Street funding could hand Trump a very large gift.

The money spent by the financial services industry won’t be any lower in 2020 than in 2018. We’ll just have to wait and see if the 2020 Democratic presidential nominee rejects their support.

OTOH, this money helps Wall Street rig the system in its favor, largely by buying the support of politicians who will help insulate them from accountability.

Does any Democrat have the guts to reform capitalism?

Boeing: Poster Child for Capitalism Reform

The Daily Escape:

La Sal Mountains in background, Canyonlands NP and Colorado River in foreground, UT – 2019 photo by Larnek

The Boeing 737 MAX story is getting worse. Just when you thought you had the whole story, you find more ugliness underneath. Ralph Nader published an open letter to Dennis A. Muilenburg, CEO of Boeing, and it’s quite the takedown, capturing the essence of Boeing’s problem:

“Aircraft should be stall-proof, not stall-prone.”

The stall-prone MAX was supposedly fixed, but then it failed. Nader has a personal interest in the MAX’s problems, since his niece, 24-year-old Samya Stumo, was among the 157 victims of an Ethiopian Airlines flight crash last month. Here’s a part of his letter:

“Your narrow-body passenger aircraft – namely, the long series of 737’s that began in the nineteen sixties was past its prime. How long could Boeing avoid making the investment needed to produce a “clean-sheet” aircraft and, instead, in the words of Bloomberg Businessweek “push an aging design beyond its limits?” Answer: As long as Boeing could get away with it and keep necessary pilot training and other costs low…as a sales incentive.”

Nader draws a connection between Boeing’s decision to “push an aging design” and their financial engineering.

“Did you use the $30 billion surplus from 2009 to 2017 to reinvest in R&D, in new narrow-body passenger aircraft? Or did you, instead, essentially burn this surplus with self-serving stock buybacks of $30 billion in that period?”

Nader notes that Boeing is one of the companies that MarketWatch labelled as “Five companies that spent lavishly on stock buybacks while pension funding lagged.” Their pension fund is only 79.6% funded. More:

“Incredibly, your buybacks of $9.24 billion in 2017 comprised 109% of annual earnings….in 2018, buybacks of $9 billion constituted 86% of annual earnings….in December 2018, you arranged for your rubberstamp Board of Directors to approve $20 billion more in buybacks.”

Nader’s focus on stock buybacks shows that Boeing had the capital to invest in developing a new plane. From Bloomberg in 2019:

”For Boeing and Airbus, committing to an all-new aircraft is a once-in-a-decade event. Costs are prohibitive, delays are the norm and payoff can take years to materialize. Boeing could easily spend more than $15 billion on the NMA, according to Ken Herbert, analyst with Canaccord Genuity….”

NMA means the New Middle-of-the-Market Aircraft. Boeing has already spent a total of $30 billion in share repurchases, with another $8 billion to come in 2019. A new aircraft would have cost half of that amount.

The main reason may have been Boeing’s earlier problems with the launch of the 787:

“In the summer of 2011, the 787 Dreamliner wasn’t yet done after billions invested and years of delays. More than 800 airplanes later…each 787 costs less to build than sell, but it’s still running a $23 billion production cost deficit.…”

The 737 MAX was Boeing’s answer. It allowed them to continue their share buybacks while paying for the 787 cost overruns. Abandoning the 737 for a new plane would’ve meant walking away from its financial golden goose. OTOH, someone should be responsible for the 346 deaths Boeing’s MAX has caused.

Finally, there are reports that some pilots are giving the MAX a vote of no confidence. The FAA has opened another 737 Max investigation based on reports on the FAA whistleblower hotline:

“A source familiar with the matter says the hotline submissions involve current and former Boeing employees describing issues related to the angle of attack sensor — a vane that measures the plane’s angle in the air — and the anti-stall system called MCAS, which is unique to Boeing’s newest plane.”

Reuters says:

“American Airlines pilots have warned that Boeing’s draft training proposals for the MAX do not go far enough to address their concerns, according to written comments submitted to the FAA.”

Stock buybacks like Boeing’s were once illegal because they are a type of stock market manipulation.

But in 1982, then President Reagan wanted to do his banker buddies a favor. So his Securities and Exchange Commission passed rule 10b-18, which created a legal process for share buybacks. That opened the floodgates for companies to start repurchasing their stock en masse.

Is it too much to ask that the Boeing CEO be asked to resign, even if he did kill a lot of people?

After all, wasn’t he only trying to maximize shareholder value?

The Wrongologist

Geopolitics, Power and Political Economy

Category: Capitalism Reform

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