Category: Capitalism Reform

The Great Resignation

The Daily Escape

Sunrise, Alpine AZ – November 2021 photo by Ed Kendall. Alpine is at 8,200’ elevation.

From Krugman:

“You’re probably aware that the US is experiencing what many call the Great Resignation — a significant fall in the number of people willing to accept jobs, at least at pre-Covid wages. Four million fewer Americans are employed than were on the eve of the pandemic, yet the rate at which workers are quitting their jobs — usually a good indicator of labor market tightness — has hit a record, and the scramble of employers to find workers has led to rapid wage increases.”

People see the “now hiring” signs everywhere. They assumed that generous unemployment benefits were discouraging workers from accepting jobs. But the enhanced benefits went away with no visible change in the US labor force participation. So, what’s going on?

Back to Krugman: (brackets by Wrongo)

“…[the] Great Resignation, it turns out, is largely an American phenomenon. European nations have been much more successful than we have at getting people back to work. In France, in particular, employment and labor force participation are now well above prepandemic levels.”

Barry Ritholtz says that there’s a massive transformation underway in America’s labor markets. When we look at the total Quits Rate for all Nonfarm payroll workers since the Great Financial Crisis (GFC) ended in 2009, the trend in the “quits rate” has steadily moved higher for all workers and really accelerated this year:

The red trend line shows that the rate that people are quitting has now returned to its level in 2016, and except during the pandemic, it has continued to rise.

If you look at only the Quits Rate for Professional & Business Services, those white-collar workers who did okay during the pandemic, their trend isn’t the same as the overall quits:

There’s been virtually no difference in the rate of professional quits since 2008. That’s telling us that the Great Resignation is taking place in the lower half of the employment wage scale, entry-level jobs, and the tiers just above them.

This has deep ramifications for the American economy.

Companies who rely on cheap labor are having hiring problems. Those companies that pay the minimum wage (or slightly higher) are having a hard time finding workers. Part of this is the failure of the Federal government to raise the minimum wage, which has been the same since 2009. That hasn’t kept up with inflation, or the growth in corporate profits.

Instead of gradually raising the minimum wage over time nationally, putting it on a path towards $15 or higher, we’ve allowed wage pressure to build for years. Then, during the pandemic, we experienced an 18 month period when low-wage workers reconsidered their careers. The dam broke, and we’re seeing both a sudden spike in wages and a shortage of workers.

Along the way, some labor has upskilled, gotten certified, degreed, and found new fields to work in. Now we have millions of people launching small businesses, striving to make it to the middle class, and towards self-determination. From the WSJ:

“The pandemic has unleashed a historic burst in entrepreneurship and self-employment. Hundreds of thousands of Americans are striking out on their own as consultants, retailers and small-business owners.”

The number of unincorporated self-employed workers has risen by 500,000 since the start of the pandemic, to 9.44 million. Except for a few months this summer, that’s the highest total since 2008. It amounts to an increase of 6% in the self-employed, while overall US employment total remains nearly 3% lower than before the pandemic.

So far this year, these entrepreneurs applied for federal tax-identification numbers to register 4.54 million new businesses, up 56% from the same period of 2019. That is the largest number on record since 2004. And two-thirds are for businesses that aren’t expected to hire employees.

More from the WSJ:

“This year, the share of US workers who work for a company with at least 1,000 employees has fallen for the first time since 2004….Meanwhile, the percentage of US workers who are self-employed has risen to the highest in 11 years. In October, they represented 5.9% of U.S. workers, versus 5.4% in February 2020.”

So, there’s a challenging future ahead for the small fraction of American workers who willingly struck out on their own. Couple that with the problem for those firms who pay near-minimum wages and who still treat employees like commodities.

Americans like to believe in “survival of the fittest” when it comes to business and the market. Well, if your company won’t look after its employees properly, its workers may desert it. The company may not survive.

There’s a huge difference between a spectator sport economy with a few winners and lots of losers, and an economy where everyone feels as if they belong and see a way to do better. In the US economy, where the same side always wins, it shouldn’t be a surprise when people decide to stop playing.

At least until they no longer have to work for a dick.

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The Climate Summit

The Daily Escape:

Fall colors near Smugglers Notch, VT – October photo by Montanus Photography

Representatives from 200 countries will meet in Glasgow, Scotland later this week to try once again to iron out an approach to heading off the disaster that will occur as global warming continues.

While this is a political gathering, the real focus should and must be on businesses. They are the primary sources of carbon emissions. And they are very concerned about their future should governments agree to serious efforts to limit global warming to 1.5°-2.0°C.

A real commitment would send shock waves through the business models of all corporations.

Corporations don’t like being forced by governments to do much of anything. With climate change, they prefer to make voluntary gestures, just enough to keep governments off their backs. One problem is that many have become more sophisticated in their soft climate denialism, as opposed to the 87-year old Oklahoma Senator who brought a snowball to the floor of the Senate.

If we’re serious about global warming, governments need to force corporations to pay for the damage they do to the planet. That should take at least two forms.

First, a global carbon tax. For big emitters, this would be an immediate threat to profitability. They will fight carbon taxes with all the weapons at their disposal. Reporters have exposed well-funded misinformation campaigns sponsored by them. More about carbon taxes below.

Second, corporations can’t be allowed to walk away from the pollution they create. Bloomberg reports that old oil and gas sites are a climate menace:

“There are hundreds of thousands of…decrepit oil and gas wells across the US, and for a long time few people paid them much mind. That changed over the past decade as scientists discovered the surprisingly large role they play in the climate crisis. Old wells tend to leak, and raw natural gas consists mostly of methane, which has far more planet-warming power than carbon dioxide.”

Bloomberg focuses on one company, Diversified Energy Co., owner of 69,000 wells throughout the US, making them America’s largest well owner. Diversified has alarmed some regulators and environmental advocates:

“State laws require that every well be plugged with cement after it runs dry, an expensive and complicated chore. At the rate Diversified is paying dividends to shareholders, some worry there will be nothing left when those bills come due. If a company can’t meet its plugging obligations, that burden falls to the state…”

Diversified’s business model is partially built on abandoning its played-out wells. If Diversified is allowed to walk, states are likely to be stuck with a $ billions mess. The only way to deal with this and similar problems is to change our bankruptcy laws so that liability for environmental damage isn’t expunged in bankruptcy. That change will require substantial political courage.

Back to a potential carbon tax: The Economist reports: (brackets and parenthesis by Wrongo)

“Even business[es]…realize that the best way to apply pressure is by imposing a global system of carbon taxes, with some form of redistribution to ease the pain on the poorest….The trouble is that only about one-fifth of global emissions is covered by a price on carbon. As a result, the global average price is just $3 per ton of carbon dioxide.

[But] To meet the ambitions of the Paris agreement, the IMF says the global carbon price needs to rise to $75/ton….For some heavy emitters covered by the European Union’s emissions-trading system, it is already above €60 ($69). In China’s new (limited) scheme, by contrast, it is a pittance. America has no federal (carbon tax) scheme of any kind.”

The first thing governments must do is to go after the big emitters like utilities, oil and gas firms, steel, and cement makers. A high carbon tax will cause price increases and thus force changes in consumer behavior. Tourist locations would see fewer tourists because flights would be more costly. Supermarkets would provide more local foods. Amazon might need to rethink their distribution strategy. Life as we know it for consumers would change, while for big emitters, this would be an “adapt or perish” moment. All the more reason why it won’t happen.

The largest problem will be trying to energize collective governmental action.

Self-interest leads every country to do as little as possible to solve this giant global problem. The only way to move these governments is for their citizens to care enough about the world 50 to 75 years from now. They must be willing to make significant sacrifices today for the sake of the future.

There are 30 US Senators who refuse to acknowledge human-caused climate change. That’s 30% of the Senate. As Greta Thunberg says to those not going to Scotland:

“Hope comes from people, from democracy, from you…It’s up to you and me…No one else will do it for us.”

Thunberg is saying that saving the planet will take better politicians. She’s correct. The necessary changes require a global political movement. That means there’s zero reason to be optimistic about the trajectory of global warming.

And like in our domestic politics, it’s another reason why we shouldn’t have 80-year olds in charge of our future.

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Sunday Cartoon Blogging – October 24, 2021

Last Friday, Wrongo and Ms. Right got their Covid booster shots. It’s a sample of one, but at our local drugstore here in a very conservative part of Connecticut, there was a line to get shots. Some were there for their first vaccinations, but most were waiting for a booster. There’s never a line around here for anything, except when the lobster food truck rolls into town.

But sadly, this isn’t the story for the rest of the country, particularly for cops and heath care workers. Some are saying that the vaccine mandates do little. But health workers who don’t really believe in science are leaving the job. And cops who don’t really care about public safety are leaving policing. Sounds like mandates are working just fine. On to cartoons.

Mandates are nothing new:

Most Republicans want boosters:

Texas got two new districts. Then the GOP redrew urban districts so that incumbent minority congresspeople are now running against each other:

One of our two political parties thinks that elections shouldn’t be the basis for choosing our representatives. That means democracy doesn’t matter to them anymore. They say it’s because there’s too much voter fraud, and no one can trust the result of any election now, anywhere.

So, the Dems think the next step is to change the Senate rules, modifying the filibuster. That would pave the way to pass the Protect the Vote Act. But there’s real danger that when the Republicans inevitably regain the majority, they will change that law to whatever the next Trump-like Republican leader wants voting rights to be. Could it be that Republicans are blocking the bill, not just to deny voting rights to minorities, but to lure the Democrats into changing the filibuster?

The economic ship sails on, and 40 years later, there’s zero thought to changing the message:

Biden compromises on the social spending bill. Still, it’s not certain to pass:

If only there was a solution to our supply chain problems:

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Saturday Soother – July 10, 2021

The Daily Escape:

Sunset at White Sands NP, NM – 2021 photo by Guyin6300dollarsuit.

Gabriel Zucman and Gus Wezerek had an opinion piece in the NYT about the divergence between personal and corporate tax rates:

“In the decades after World War II, close to 50% of American companies’ earnings went to state and federal taxes. Economically, it was a golden period. Middle-class incomes grew at roughly the same rate as those of the richest Americans.

But as globalization gave companies the ability to choose where they recorded profits, Congress scrambled to keep their business by lowering corporate taxes. In 2018, American companies were taxed at an average effective rate of less than 14%, by our calculations.”

For the past 30 years, corporate tax breaks have helped business owners amass huge amounts of money, much of which is kept offshore. Their gain has been the loss for middle-class Americans, who have footed the bill, as Congress has supported our federal budgets by raising taxes on wages:

This chart shows the result of Republican policies. Corporate taxes are at an all-time low, while many profitable corporations pay no tax at all, and workers’ taxes on wages have risen. This has caused a huge and still growing gap in income and wealth between the rich who lead America’s corporations and the rest of us.

Let’s spend a minute on some tax arcana. There used to be a tax regulation that kept income out of tax havens. It is called unitary taxation, a method of allocating corporate profit to a particular state (or country) where that corporation has a taxable presence. It attributes the corporation’s total worldwide profit (or loss) to each jurisdiction, based on factors such as the proportion of sales, assets, or payroll in that jurisdiction.

If this were in effect, it would slow the parking of profits in tax havens by multinationals. California and other states used to use unitary taxation. It was the subject of two US Supreme Court cases: Mobil Oil v. Vermont and Exxon v. Wisconsin, both decided in 1980 in favor of the unitary tax principle. In other words, in favor of the states.

In 1983, the US Supreme Court again ruled in favor of unitary taxation but this time on a worldwide basis in their Container Corporation vs. Franchise Tax Board decision.

That’s when St. Ronnie pressured California and other states to adopt a restricted version known as the water’s edge method that excludes the profits of foreign affiliates from a state’s pre-apportionment tax base. This allowed profit-shifting to tax haven affiliates to mushroom to what we see today.

Biden is trying to end the race to the bottom on corporate tax rates. But even if Congress approves the 15% global minimum corporate tax, it won’t be sufficient to close the growing economic gap between America’s corporations and its workers. Taxing multinationals at 15% would still leave them facing a lower rate than the average American pays in state and federal income tax.

What’s really needed is a 25% percent minimum corporate tax. That would bring in about $200 billion in additional revenue annually. Over 10 years, that would be enough to pay for nationwide high-speed internet, free community college and universal preschool for 3- and 4-year-olds.

All are worthy uses of tax dollars, but it’s doubtful that all Senate Democrats, much less enough Senate Republicans would support a 25% floor for corporations.

A Republican Congress took a shot at reforming the hiding of offshore profits with their 2017 Tax Cut and Jobs Act, which failed. Data from the Bureau of Economic Analysis suggest profits booked in foreign tax havens have not declined since the law was passed.

In 2018, US corporations reported more profit in Ireland than in Mexico, China, Germany and France combined. For example, in 2018, Facebook made $15 billion in profit in Ireland, about $10 million for each of its Irish employees, while Bristol Myers Squibb’s reported profit in Ireland worked out to about $7.5 million per employee.

For decades, Congress tried unsuccessfully to play catch-up as business owners and a handful of tax havens have driven our tax policy. The result is that we’re a nation where working-class Americans are left with underfunded public schools while the wealthiest Americans are boarding rocket ships in some ego-fueled game.

Time for a post-tropical storm Elsa break! Just when you think all is lost, you discover it isn’t. For the first time, Queen Elizabeth has decided that you can now have a picnic on the front lawn of Buckingham Palace. Don’t get too excited, there are rules: No knives to slice your cheese, no dogs, no prosecco. Besides, 78,000 people are already on the waiting list:

Now take a moment, and listen to Czech composer Bedřich Smetana’s String Quartet No.1 In E Minor “From My Life“, the Largo movement by the Amadeus Quartet, recorded in 2013:

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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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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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Monday Wake Up Call – June 7, 2021

The Daily Escape:

Sunset, Paines Creek Beach, Cape Cod MA – May 2021 photo by Kristen Wilkinson Photography

People worldwide are finally waking up to the tax mischief of multinational corporations. When Treasury Secretary Janet Yellen announced earlier this year that it was time to end the “race to the bottom” and implement a global minimum tax for corporations, few took her seriously.

But now we could be on the cusp of a once-in-a-generation moment that would benefit funding of our public services immensely.

On Saturday at the G7 meeting, the members agreed to back a new global minimum tax rate of 15% for companies to pay on income, regardless of where they are based. The deal is focused on two main changes: reallocating taxes towards countries where economic activity takes place, rather than where these firms choose to book their profits, along with setting a minimum tax rate.

If enacted, the agreement would stop large multinational companies from locating in tax havens, which will force them to pay more taxes. This is clearly revolutionary. The winners would be large economies where multinationals sell a lot, but where they book little taxable profit, thanks to tax loopholes that allow them to siphon off income into low-tax jurisdictions.

This has become a larger problem since the rise of the digital giants like Apple and Google, companies with mostly intangible assets. The most obvious losers will be the tax haven countries that, more than half a century ago, started taking advantage of globalization by drastically lowering their tax rates.

The most sophisticated firms, those with battalions of tax lawyers and accountants, have for years employed tax loopholes in individual countries’ tax laws to minimize their total tax liability. While not all tax loopholes deal with international sales, they are a prime method that the biggest firms use to avoid income taxes.

The NYT cites a report from the EU Tax Observatory which estimated that a 15% minimum tax would yield an additional $58 billion in tax revenue per year.

Between 2011 and 2020, Amazon, Facebook, Alphabet (the owner of Google), Netflix, Apple, and Microsoft paid roughly $219 billion in income taxes, which amounted to just 3.6% of their more than $6 trillion in total revenue, according to the Fair Tax Foundation.

Had these six firms paid the prevailing tax rates in the countries in which they operate, they would have given global tax authorities over $149 billion more than they did over the past decade.

But tax reform isn’t a sure thing. Next month, the G7 must sell the concept to finance ministers from the broader G20 group of nations. If that is successful, officials hope that a final deal can be signed by the Group of 20 leaders when they meet next in October. Ireland, which has a tax rate of 12.5%, has come out against the global minimum tax. China has been quiet, but is considered unlikely to buy in.

G7 finance officials think that if enough advanced economies sign on, other countries will be compelled to follow suit. They plan to exert political pressure on Ireland to join the agreement.

The Biden administration has been eager to reach an agreement because a global minimum tax is an ingredient in its plans to raise the US corporate tax rate to 28% from the current 21%, to help shave the deficit. While Republicans and corporations think that increasing taxes would make American companies less competitive, getting other countries to go along with a minimum tax rate on overseas profits would minimize the home field disadvantage to American companies.

Time to wake up, America! We need our Congress, along with world leaders, to step up and enact this new tax policy. Changes to the tax code requires approval from both Houses of Congress, so this may never happen.

To help you wake up, listen to a cover of Bob Dylan’s “Everything Is Broken” by RL Burnside, with an all-star supporting cast including Buddy Guy with the first guitar solo, Derek Trucks with the second guitar solo and James Cotton on solo harmonica.

You may not be aware that Rolling Stone has a list of their top 80 Dylan covers . Here’s Burnside’s blues take on Dylan:

Sample lyric:

Broken hands on broken ploughs,

Broken treaties, broken vows,

Broken pipes, broken tools,

People bending broken rules.

Hound dog howling, bull frog croaking,

Everything is broken.

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Monday Wake Up Call – May 24, 2021

The Daily Escape:

Sun, clouds and Saguaros, North Scottsdale AZ – photo by rayredstonemedia61

After three decades of digital technology development, it’s evident that cybersecurity isn’t being adequately ensured by Mr. Market’s “invisible hand.” In remarks at the White House last Thursday, Biden said:

“…private entities are in charge of their own cybersecurity…and we know what they need. They need greater private-sector investment in cybersecurity.”

Wrongo’s last assignment was as CEO for a division of a F500 defense contractor. We were targeted by Chinese and other hackers thousands of times per day. By 2005, the parent company was investing tens of millions annually on cybersecurity. Most non-defense firms have come to investing in cybersecurity slowly and without large funding.

We again became painfully aware of the issue when hackers shut down the Colonial pipeline on Mother’s Day, bringing back gas shortages and long conga lines of cars trying to fill up. We subsequently heard that Colonial paid the hackers $4.4 million in Bitcoin to regain control of their networks.

From the New Yorker:

“…we are a country that has seen nearly a thousand reported ransomware attacks on our critical infrastructure since 2013. This includes transportation services, wastewater facilities, communications systems, and hospitals. The average recovery cost of a ransomware attack for businesses is around two million dollars.”

Even though private companies are most vulnerable to counterattacks, they continue to set their own cybersecurity standards largely based on operational and economic priorities, even if their negligence exposes the public to risks. So why won’t companies fix their mess?

Most in the private sector think that cybersecurity regulations will cost too much, which they do not want to pay, or may be incapable of paying. Many in the private sector also consider requirements for better cybersecurity to be yet another form of government regulation.

Mostly, it’s about money and secondarily, about a shortage of IT skills. Some argue that the incentive structure is backwards. Companies often think the costs of adding robust cybersecurity to be higher than their likely losses from a cyber theft. In a way, they are self-insuring, but that ignores the harm to their customers that occurs when personal information is stolen, or when you can’t buy gasoline.

CEOs are concerned primarily with the short-term profits and stock prices of their corporations. Companies have regularly absorbed losses incurred by security breaches, rather than reveal weaknesses in their internal cybersecurity systems, all in the name of protecting management reputations.

In 2015, Obama’s DHS designated dams, defense, agriculture, health care, and twelve other sectors of the economy as “critical infrastructure,” meaning that they:

“…are so vital to the US that their incapacity or destruction would have a debilitating impact on our physical or economic security or public health or safety.”

But while the DHS issued cybersecurity guidelines to those sectors, most companies operating critical infrastructure (like Colonial) are privately owned, and they ignored them. That includes 80% of the energy sector, including pipelines, power generation, and the electricity grid. DHS said in 2015 that those industries needed to develop a common vision and framework to deal with cyber threats.

But corporate America never developed that vision and framework.

In 2019, a European cybersecurity researcher using open-source tools available to anyone, identified and mapped the location of twenty-six thousand industrial-control systems across the US whose internet configurations left them exposed and vulnerable to attack. But you know, they would be prohibitively expensive to fix.

On May 12th, Biden issued an executive order that directed federal agencies and their contractors to abide by a host of stringent new cybersecurity regulations and reporting requirements. The order also required IT service providers and companies that operate industrial-control systems, to inform the government about cybersecurity breaches that could affect American networks.

Biden’s order is a significant workaround for the lack of government control of cybersecurity in the private sector. Many of the cloud services and software packages used by government agencies are also used in the private sector. So, Biden is creating the likelihood that those standards and requirements will be more broadly adopted. That would be similar to auto-emissions standards: When California raised its standards, 12 other states decided to adopt those requirements, and five automakers agreed to design all their new cars to meet them.

Something similar could occur with cybersecurity. Like with Covid, we’re again learning that there’s a very good reason for a robust central government that has the will to write and enforce 21st Century regulations.

Time to wake up America! Corporations aren’t your friends. From sending jobs abroad, to out-of-control share buybacks, to failing to invest in cybersecurity, they need much closer scrutiny. To help you wake up, let’s dust off Depeche Mode with their 1989 hit “Personal Jesus”:

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US Banks Want Another Bailout

The Daily Escape:

Beach near Avon Fishing Pier, NC – April 2021 photo by Greg Kiser

Many of you know that Wrongo spent many years as a banker for one of the top-three US banks. Banks have several challenges when trying to make a buck. They must first find a borrower. The borrower must be able to afford and repay the loan, and when the loan is repaid, the banker must find another borrower. That summarizes the raison d’etre for loan officers and banks in general. Full disclosure: Wrongo receives a pension from the big bank.

That background may help with the following story from the NYT:

“The Biden administration’s efforts to provide $4 billion in debt relief to minority farmers is encountering stiff resistance from banks, which are complaining that the government initiative to pay off the loans of borrowers who have faced decades of financial discrimination will cut into their profits and hurt investors.”

This debt relief is part of the $1.9 trillion stimulus package that Congress passed in March. It is intended to make amends for the discrimination that Black and other farmers of color have faced from lenders and the United States Department of Agriculture (USDA). More from the NYT:

“But no money has yet gone out the door. Instead, the program has become mired in controversy and lawsuits. In April, white farmers who claim that they are victims of reverse discrimination sued the USDA over the initiative.

Now, three of the biggest banking groups — the American Bankers Association, the Independent Community Bankers of America and National Rural Lenders Association — are complaining about the cost of being repaid early.”

The impacted banks will receive 120% of the outstanding loan balances. They are getting that additional amount to help cover their costs and taxes. Their complaint is that 120% isn’t enough, that they have been short changed because they won’t receive future interest on a loan that will no longer exist.

What has happened to corporate America if this is really a legitimate issue?

When a bank loan is repaid early, the bank now has that money available to lend again. The bank isn’t losing money, they’re losing the ability to earn the total return they projected when they originally made the loan. Most loans have a right of prepayment, usually without penalty. So, once repaid, the bank has an opportunity to create new loans and a new earnings stream with a new borrower.

Where’s the problem unless Wall Street requires another bail-out because they can no longer operate profitably under their basic business model?

A glitch is that the banks do not always hold the loans they originate to maturity. Instead, they package them and sell them to other investors. The bank lobbying groups have been asking the USDA to step in and make the loan repayments on behalf of the borrower. Of course, this makes what was a loan to a Black (or other minority) farmer a riskless US government security.

The USDA says that obliging the banks would put an undue burden on taxpayers and that the law doesn’t allow the agency to pay interest costs or reimburse secondary market investors. This quote from Bill Bridgeforth, a farmer in Alabama who is on the board of the National Black Growers Council says it all: (brackets by Wrongo)

“Look at the two groups: You have the Black men and women who have gone through racism and discrimination and [some] have lost their land and their livelihood….And then you have the American Bankers Association, which represents the wealthiest folks in the land, and they’re whining about the money they could potentially lose.”

In addition to the banks, a group of white farmers in Wisconsin, Minnesota, South Dakota, and Ohio are suing the USDA, arguing that offering debt relief on the basis of skin color is discriminatory. The lawsuit was filed by a group led by (who else?) the former Trump administration troll Stephen Miller. Miller’s fear of people of color getting anything is at the diseased heart of America’s economic, justice, and social systems.

Investing involves risk, including the risk of losing money. These banks aren’t going to “lose” money. And they’re ignoring the historical injustices visited on these farmers while focusing on their bottom lines. They’re also ignoring that they were an important part of that systemic racism.

This is another example of a huge flaw in our national ethos: The notion that maximizing business profits must always be a primary consideration when formulating government policy, and that enriching shareholders should take precedence over everything else.

The banks protesting debt relief for Black farmers says plenty about their sense of entitlement, particularly when their profits are soaring. It’s more proof that we need revolutionary change to American capitalism.

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Monday Wake Up Call – May 10, 2021

The Daily Escape:

Lone Juniper, Black Canyon, Gunnison NP, CO – 2020 photo by Mattbnet

Isn’t it time that corporations paid decent wages?

After the Labor Department released its April jobs report, the US Chamber of Commerce blamed last month’s weak employment growth on the $300 weekly supplemental jobless benefit. They then urged lawmakers to eliminate the enhanced unemployment payments that were extended through early September by Biden’s American Rescue Plan.

This, from the dudes who willingly spend $300 on a lunch.

According to the US Chamber’s analysis, the extra $300 unemployment insurance (UI) benefit results in roughly one in four recipients taking home more pay than they earned working. But, if one in four recipients are making more not working than they did working, that’s not an indictment of $300 a week in UI benefits. It’s an indictment of corporations who pay less-than-living wages.

We could blame Asia for this, or we can blame our managerial and ownership class who engineered the outsourcing deals that made it possible. They built factories in Asia as an economic-production-economic-aggression platform to disintermediate American workers by sending higher wage jobs to lower wage locations in the Far East. And in many cases, the same companies who closed the American plants owned the Asian factories.

It’s sickening to hear these big business types complain that raising wages will destroy the economy! That’s the same argument which was used in the South against ending slavery (it would hurt the economy).

The US Chamber isn’t alone. South Carolina is cutting off extended unemployment benefits starting on June 30. From the SC governor:

“South Carolina’s businesses have borne the brunt of the financial impact of the COVID-19 pandemic. Those businesses that have survived — both large and small, and including those in the hospitality, tourism, manufacturing, and healthcare sectors — now face an unprecedented labor shortage,”

South Carolina’s unemployment rate was 12.8% in April of last year. But this March, it was down to 5.1%, significantly below the 6.1% national rate. Still, these Governors (Montana has done this too) are simply acting as shills on behalf of corporations to force workers back into low wage jobs.

Many studies have shown that the employees of big box stores like Walmart and Target cannot meet their basic economic needs on the money they make at their minimum wage job. Many turn to community social services just to feed their families.

It’s not China (or other Asian countries) that are to blame. We demand ever-lower prices, so something had to give. That something was middle-class American jobs. The American public was never part of the discussion about the pros and cons of offshoring manufacturing to lower wage countries, or how that would both lower costs for goods, but also destroy American jobs.

A lot of the people who now shop at Walmart and Target lost their jobs to Mexico, China, or Bangladesh. At which point, they needed some form of welfare, and/or another part time job at Walmart-type wages. And now that they’re on Walmart wages, Walmart prices are all they can afford.

Time to wake up America! We should be asking how can it be that food banks are overwhelmed while the Dow Jones Industrial Average hits an all-time high? Simply, the stock market isn’t the whole economy. The stock market is about corporate profits, while food banks are about minimum wage jobs and unemployment.

We should be asking: Why do these corporations (the small as well as the large) persist with business models that don’t allow them to pay living wages?

We could also ask whether more red states will try to “solve” the employment problem by hurting the unemployed rather than treating the root cause: paying living wages.

To help you wake up, listen to Rag’n’Bone Man and P!nk on Rag’n’Bone Man’s new release, “Anywhere Away from Here”. We often feature music to have fun with, or to dance to. And then there are tunes like this, music for the heart and soul:

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