The Bridge Collapse Will Mean More Socialized Losses

The Daily Escape:

Ceanothus, Black Mountain Preserve, San Diego, CA – March 2024 photo by Michelle Duong

Everyone knows about the cargo ship MV Dali that struck the Francis Scott Key Bridge (FSK) in Baltimore, causing it to completely collapse into the frigid Patapsco River. Currently, we know that six people are presumed dead, while two people were recovered alive. Let’s talk about the ways capitalism figures into the FSK bridge collapse.

The BBC reports that:

“The America Pilot’s Association provided details on the ship that crashed into the Baltimore bridge. The association says the ship lost full power, with no lights, no electronics and no engine propulsion, making it essentially a “dead ship” within 20 to 30 seconds. The group says lights came back on in the ship thanks to an emergency generator, but that doesn’t give the engine power. Video shows lights flicker back on briefly before the vessel hits the bridge.”

There are backup generators on ships because power can fail at critical times. In the case of the MV Dali, it has one propeller driven by one engine. The fuel and steering systems of the ship require electricity to function.It is believed that the Dali had 3-4 backup generators, but did they function as designed?

Wrongo knows from his experience with backup generators in the commercial world that they don’t start up instantaneously. It might take them 30-60 seconds to start and longer to come up to full power to restore control of the ship. Without electric power, both the navigation and the steering systems would have been disabled in the critical minutes prior to the collision. No one on the ground in the Port of Baltimore performs testing to see if the MV Dali’s back-up generators are working properly. Why? Because it would be very costly to do.

There are several other factors unique to shipping that will make it difficult for Maryland or US taxpayers to collect enough to cover all of Maryland’s costs from the ownership of the MV Dali. From VOX:

“The Dali was a Singapore-flagged ship, with an all Indian-nationality crew, operated by the Danish company Maersk….”

This organization structure, dividing ownership and operations, is a classic method used in shipping to limit liability when bad things happen, like when your vessel knocks down a bridge in a foreign country.

Cargo ships have become exponentially bigger while US bridges have been aging. When the Francis Scott Key Bridge was being built between 1972 and 1977 the average container ship carried between 500-800 twenty-foot shipping containers (called TEUs). But they ballooned to an average of 4,000 TEUs by 1985. The MV Dali, manufactured in 2015, had a capacity of 10,000 TEUs. According to bridge experts, no bridge pylon could have survived being hit by a vessel of this size.

This continuous upsizing has pitted US ports against each other in order to attract bigger vessels. The 2016 expansion of the Panama Canal caused ports along the US East Coast to dredge their harbors and build higher bridges to accommodate the larger ships now traveling through the Canal.

Back in 2015, Wrongo wrote about the upsizing of US bridges:

“Consider NJ, where, at high tide, 151 feet of empty air lies between the waters of the Kill Van Kull and the deck of the Bayonne Bridge. The Kill, a narrow tidal strait between Staten Island, NY and Bayonne, NJ, is one of the busiest shipping channels in the country. When the Bayonne Bridge opened in 1931,151 feet easily accommodated the world’s largest vessels. But the new ships won’t fit, so, the roadway will be elevated…to 215 feet, more than enough to let these big ships pass underneath. The five-year Bayonne Bridge project costs $1.3 billion.”

This imposed costs on NJ taxpayers beyond what it should have, because then-Gov. Christie (R), signed a bill that ended the collection of any cargo facility charge by the Port Authority of New York and New Jersey. Christie was attempting to offer something to ship owners and operators that would make Bayonne more competitive vs other US ports.

So the taxpayers of NY & NJ not only paid for allowing the bigger Panamax ships under the Bayonne Bridge, but no ocean-going vessel had ANY stake in paying the costs of that bridge expansion. Instead, NJ turned to a “Public-Private Partnership” to finance this project.

The Port of Baltimore also expanded to accommodate supersized ships in 2013, but it didn’t need to raise the height of the FSK bridge. Since then, it has grown into the 9th-busiest port for receiving foreign cargo. The Port of Baltimore is the largest in the US for roll-on/roll-off (Ro-Ro) ships carrying trucks and trailers.

Meanwhile, the FSK bridge has remained largely unchanged since the 1970s. From 1960 to 2015, there were 35 major bridge collapses worldwide due to ship or barge collisions, 18 of which happened in the US.

There are now about thirty ships stranded in the Harbor. They will stay there until the damaged bridge remains are removed from the ship channel. That includes container ships, Ro-Ro ships, and bulk carriers. There are also three US Naval ships stranded there. The collapse is almost sure to create a logistical nightmare for months, if not years along the East Coast. The accident will also snarl cargo and commuter traffic.

And who will pay the costs to repair the bridge, or compensate the people who died, or cover the lost revenues for the many years it will take to rebuild the bridge? Or the tax receipts that Baltimore won’t be in a position to charge while the port is closed?

According to Business Insider, the majority of the financial fallout is likely to lay primarily with the insurance industry:

“Industry experts told the FT that insurers could pay out losses for bridge damage, port disruption, and any loss of life. The collapse could drive “one of the largest claims ever to hit the marine (re)insurance market…”

The Dali is covered by the Britannia Steam Ship Insurance Association Ltd., known as Britannia P&I Club, according to S&P Global Market Intelligence. Britannia is one of 12 mutual insurers included in the International Group of P&I Clubs, which maintains more than $3 billion of reinsurance cover. Although the ship’s owner and it’s operator have insurance, their policies will in no way cover the all-in costs of this event.

Some are saying that this is a “black Swan” event. But this is almost certainly the result of operational pressure for more containers, faster turnaround, and more profit. The ship owners have traded reliability for economy. Unless we force the container trade to transition to more reliable and more costly vessels, we’ll continue to see events like this every few years.

That’s the price of cheap goods in our stores and of the profits it generates for ship owners.

Once again, the losses will be socialized, and the US taxpayer will be gouged again, all in service to our capitalist overlords who will laugh all the way to the bank. Wrongo certainly isn’t a Marxist, but Marx was absolutely right when he said that capitalism contained the seeds of its own destruction.

Why is it that no legislator is willing to consider the costs of externalities (a cost that is caused by one party but financially incurred by another) to its taxpayers when they approve partnering with big industry?

Are the tax revenues in Baltimore going to be enough to cover the costs to all US taxpayers when the US government rebuilds the FSK bridge? They will not. You know they’ll be minuscule compared to the real costs.

And the big shipping players will sail off towards the horizon with hardly a financial scratch.

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Wake Up To Monday’s Hot Links

The Daily Escape:

Cypress trees, Lake Verritt, LA – November 2023 photo by Rick Berk Photography. Note the egret in the background.

For today’s Wake Up Call, we return to a staple of yesteryear, some hot links that caught Wrongo’s eye over the past few days.

Wrongo isn’t happy with how the Ukraine War has slipped from the consciousness of America’s media and thereby, from our view. Saturday’s WSJ offered an intriguing idea with its column, “Does the West Have a Double Standard for Ukraine and Gaza?” (free link). The article makes two excellent points. First, how these two wars have divided the world. Here’s a view of the division:

From the WSJ: (emphasis by Wrongo)

“Outrage and political mobilization have become subordinated to geopolitical allegiances—a selective empathy that often treats ordinary Ukrainians, Palestinians and Israelis as pawns in a larger ideological battle within Western societies and between the West and rivals such as China and Russia.”

Second, the article concludes by saying that the main difference between the two wars is that the Israeli-Palestinian conflict, with all its complexities, lacks the moral clarity of the Ukrainian resistance to Russia. They quote British lawmaker Alex Sobel:

“There is no moral justification for the Russian invasion. Zero. It’s just about Russian imperialism….But in Israel and Palestine, it’s about the fact that there are two peoples on a very small amount of land, and political and military elites on both sides are unwilling to settle for what’s on offer.”

Yes, America may have the moral high ground in both cases, and views can differ on how both wars are being waged. But as the article says in its second paragraph:

“The Russian invasion of Ukraine in February 2022 was unprovoked, while Israel sent troops into Gaza because of a mass slaughter of Israeli civilians…”.

Make of the article what you will, but it’s important to think through why you (like Biden) think both wars are morally equivalent.

Link #2 is apropos of the COP28 conference now underway in Dubai. Grist Magazine has an article: “Where could millions of EV batteries retire? Solar farms.” As solar energy expands, it’s becoming more common to use batteries to store the power as it’s generated and transmit it through the grid later. One new idea is to source that battery back up at least in part from used electric vehicle batteries:

“Electric vehicle batteries are typically replaced when they reach 70 to 80% of their capacity, largely because the range they provide at that point begins to dwindle. Almost all of the critical materials inside them, including lithium, nickel, and cobalt, are reusable. A growing domestic recycling industry, supported by billions of dollars in loans from the Energy Department and incentives in the Inflation Reduction Act, is being built to prepare for what will one day be tens of millions of retired EV battery packs.”

More:

“Before they are disassembled…studies show that around three quarters of decommissioned packs are suitable for a second life as stationary storage.”

Apparently there are already at least 3 gigawatt-hours of decommissioned EV battery packs sitting around in the US that could be deployed, and that the volume of them being removed from cars is doubling every two years.

Link #3 also shows the impact of the Inflation Reduction Act. Wolf Richter writes that:

“In October, $18.5 billion were plowed into construction of manufacturing plants in the US ($246 billion annualized), up by 73% from a year ago, by 136% from two years ago, and by 166% from October 2019.”

More:

“The US is the second largest manufacturing country by output, behind China and has a greater share of global production than the next three countries combined, Germany, Japan, and India.”

All of this construction spending will take time to turn into production. When these new plants are up and running and producing at scale, manufacturing’s share of US GDP will rise. And much of the new construction is happening in fly-over America, which can use the help.

Finding factory workers in sufficient numbers to support the new capacity will be a key. America has energy in abundance and has robotic manufacturing. So pulling production from overseas with fewer workers needed will be a giant plus for the US.

Link #4 is a downer. Civic Science says in this week’s 3 things to know column, that “Nearly 3 in 10 Americans say they have had to forgo seeing a doctor in the past year due to costs.” Here’s their chart”:

Civic Science says that 12% of US adults have had to miss or make a late payment on medical bills in the last 90 days, a two percentage point increase over September 2022.

A far larger percentage of Americans – 27% of the general population and about 30% of respondents under 55 years old or with an annual household income under $100,000 – report they could not go to a doctor in the past 12 months because they could not afford the cost. Gen Z adults and households making between $25K-$50K are more likely to have held off seeing a doctor due to cost (34% and 31% respectively).

We all know that medical costs have continued to rise and that medical debt is the leading cause of personal bankruptcy in the US. If Congress was really interested in helping provide for the general welfare, they would deal with this out of control problem.

Time to wake up America! There’s plenty going on that isn’t getting visibility in the mainstream media or on social media. You have to cast your net widely to be on top of the good and bad happening in the US.

To help you wake up, we turn to Shane MacGowan, frontman for the Irish group the Pogues who died last week. He left behind a body of work that merged traditional Irish music and punk rock. He wrote many songs that could easily be mistaken for traditional Irish tunes including this one, which was also used as the music for wakes by the Baltimore Police Department in the great, great HBO series, “The Wire“. Here’s “The Body Of An American” from their 1986 album, “Poguetry in Motion”:

RIP Shane.

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Democrats Need New Messaging

The Daily Escape:

Cholla Cactus at sunrise, Joshua Tree NP – November 2023 photo by Michelle Strong

Yesterday’s column described how confusing current polling data is with less than a year to go before the 2024 presidential election. We can easily overdose on polls, but in general, they seem to be pointing toward a very difficult re-election for Biden.

At the risk of contributing to the OD, here’s another example of terrible poll for Biden. It comes from Democratic stalwarts Democracy Corps, run by James Carville and Stanley Greenberg:

“President Biden trails Donald Trump by 5 points in the battleground states and loses at least another point when we include the independent candidates who get 17% of the vote. Biden is trying to win these states where three quarters believe the country is on the wrong track and 48% say, “I will never vote for Biden.”

What to make of all this? Wrongo thinks it’s time to take a different approach to the Democrat’s messaging. Let’s start with a quick look at the NYT’s David Leonhardt’s new book, “Ours Was the Shining Future”. Leonhardt’s most striking contention is based on a study of census and income tax data by the Harvard economist Raj Chetty: Where once the great majority of Americans could hope to earn more than their parents, now only half are likely to. From The Atlantic:

“Of Americans born in 1940, 92% went on to earn more than their parents; among those born in 1980, just 50% did. Over the course of a few decades, the chances of achieving the American dream went from a near-guarantee to a coin flip.”

As we said yesterday, the American Dream is fading. Leonhardt says that the Democrats have largely abandoned fighting for basic economic improvements for the working class. Some of the defining progressive triumphs of the 20th century, from labor victories by unions and Social Security under FDR to the Great Society programs of LBJ, were milestones in securing a voting majority. More from The Atlantic:

“Ronald Reagan took office promising to restore growth by paring back government, slashing taxes on the rich and corporations…gutting business regulations and antitrust enforcement. The idea…was that a rising tide would lift all boats. Instead, inequality soared while living standards stagnated and life expectancy fell behind…peer countries.”

Today, a child born in Norway or the UK has a far better chance of out-earning their parents than one born in the US. More context from The Atlantic: (emphasis by Wrongo)

“From the 1930s until the late ’60s, Democrats dominated national politics. They used their power to pass…progressive legislation that transformed the American economy. But their coalition, which included southern Dixiecrats as well as northern liberals, fractured after…Johnson signed the Civil Rights Act of 1964 and the Voting Rights Act of 1965. Richard Nixon’s “southern strategy” exploited that rift and changed the electoral map. Since then, no Democratic presidential candidate has won a majority of the white vote.”

The Atlantic makes another great point: (emphasis by Wrongo)

“The civil-rights revolution also changed white Americans’ economic attitudes. In 1956, 65% of white people said they believed the government ought to guarantee a job to anyone who wanted one and to provide a minimum standard of living. By 1964, that number had sunk to 35%.”

America’s mid-century economy could have created growth and equality, but racial suppression and racial progress led to where we remain today.

Leonhardt argues that what Thomas Piketty called the “Brahmin left” must stop demonizing working-class people who do not share its views on cultural issues such as abortion, immigration, affirmative action and patriotism. From Leonhardt:

“A less self-righteous and more tolerant left could build what successfully increased access to the American Dream in the past: a broad grass-roots movement focused on core economic issues such as strengthening unions, improving wages and working conditions, raising corporate taxes, and decreasing corporate concentration.”

Can the Dems adapt both their priorities and messaging to meet people where they are today?

The priorities must change first. What would it take to establish the right priorities for the future? Stripping away the wedge issues that confuse and divide us, America’s priorities should be Health, Education, Retirement and Environment (“HERE”). It’s an acronym that sells itself: “Vote Here”.

(hat tip to friend of the blog, Rene S. for the HERE concept.)

Wrongo hears from young family members and others that all of the HERE elements are causing very real concerns. Affordable health care coverage still falls short. Regarding education, college costs barely seem to be worth shouldering the huge debt burdens that come with it.

Most young people think that they have no real way to save for retirement early in their careers when there’s the most bang for the buck. They also feel that Social Security won’t be there for them. From the NYT:

“In a Nationwide Retirement Institute survey, 45% of adults younger than 27 said they didn’t believe they would receive any money from the program.”

Today, only about 10% of Americans working in the private sector participate in a defined-benefit pension plan, while roughly 50% contribute to 401(k)-type, defined-contribution plans.

Finally, people today feel that their elders have created an existential environmental threat that will be tossed into their laps. A problem for which there may not be a solution.

As Leonhardt argues, these HERE problems should have always been priorities for Democrats. But for decades, the Party hasn’t been willing to pay today’s political price for a long term gain in voter loyalty. That is, until Biden started working on them in 2020.

But every media outlet continues to harp on inflation and the national debt. Much of what would be helpful in creating a HERE focus as a priority for Democrats depends at least somewhat on government spending. No one can argue that our national debt is high. It is arguable whether it can safely go higher or if it must be reigned in at current levels.

To help you think about that, we collected $4.5 trillion in taxes in 2022, down half a $trillion vs. what we collected in 2021. Estimates are that the Trump tax cuts cost about $350 billion in lost revenue/year.

Looking at tax collections as a percentage of GDP, it’s less than 17% in the US, well below our historical average of 19.5%. There are arguments to keep taxes low, but if you compare the US percentage to other nations, Germany has a ratio of 24%, while the UK’s is 27% and Australia’s is 30%.

If we raised our tax revenue to 24% of GDP, which is where Germany is now, we would eliminate the US deficit.

There’s a great deal of tension in the electorate between perception and reality. And it’s not caused by partisanship: Democrats and independents are also exhibiting a disconnect, too.

Democrats have to return to being the party of FDR and LBJ. They need to adopt the HERE priorities and build programs around them.

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America’s Confusing Opinion Polling

The Daily Escape:

Oak Creek, Sedona AZ – November 2023 photo by Jim Lupton

Over single malt and martinis, our Thanksgiving guests talked about what a confusing time we’re living in. Americans are angry and anxious, and the polls continue to show problems for Biden across the board, despite that overall, the economy is fine.

Inflation has slowed significantly. Wages are increasing. Unemployment is near a half-century low. Job satisfaction is up. Yet Americans don’t necessarily see it that way From the NYT:

“In the recent New York Times/Siena College poll of voters in six swing states, eight in 10 said the economy was fair or poor. Just 2% said it was excellent. Majorities of every group of Americans — across gender, race, age, education, geography, income and party — had an unfavorable view.

To make the disconnect even more confusing, people are not acting the way they do when they believe the economy is bad. They are spending, vacationing and job-switching the way they do when they believe it’s good.”

Continuing with the confusion, the new WSJ/NORC survey of the American dream—the proposition that anyone who works hard can get ahead regardless of their background, has moved out of reach for many Americans. Only 36% of voters in the survey (conducted between Oct. 19-23 with a margin of error of ± 4%) says that the American dream still holds true: (emphasis by Wrongo)

“The American dream seemed most remote to young adults and women in the survey…..46% of men but only 28% of women said the ideal of advancement for hard work still holds true, as did 48% of voters aged 65 or older but only about 28% of those under age 50 agreed.”

And people think the dream is growing more remote. When last year’s WSJ poll  asked whether people who work hard were likely to get ahead, 68% said yes—nearly twice as many as in this year’s poll (36%). More from the NYT:

“Economic difficulties are greater for those without a college degree, who are the majority of Americans. They earn less, receive fewer benefits from employers and have more physically demanding jobs.”

Voters without a college degree are Trump’s strongest cohort.

Adding to the cloudy forecast, the Economist/YouGov weekly tracking poll of registered voters says most people are happy with their jobs:

  • Overall, how satisfied or dissatisfied are you with the way things are going in your life today? Satisfied 64%, Dissatisfied 35%
  • How happy would you say you are with your current job? Great deal/somewhat 80%, A little/not at all 19%.
  • Do you consider yourself paid fairly or underpaid in your job? Paid fairly 56%, Underpaid 38%.
  • Do you think your family income will increase or decrease in 2024? Increase 45%, stay the same 41%, decrease 15%.

But the same Economist/YouGov poll gives a different impression when you ask about the American economy more broadly:

  • Do you think the economy is shrinking or growing? Growing 22%, staying the same 25%, shrinking 37%. That’s 47% thinking its growing or staying the same. (The reality: The economy has grown at 3% on average under Biden, the highest for any President since Clinton.)
  • Are the number of jobs in the US increasing (42%), staying the same (36%) or decreasing (22%)? (The reality: 14 million new jobs have been created under Biden.)
  • How would you describe the current state of the American economy? Excellent/good 30%, fair/poor 64%. (The reality: We’ve had the fastest job growth perhaps ever, very strong GDP growth, inflation is way down, wage growth is very strong, and the annual deficit is way down from Trump’s presidency.)

What’s going on here? These data suggest something tragic – either the American people have no idea what is happening in the country, or what they do know is deeply wrong.

A final nail in this conundrum. Ed Kilgore in NY Magazine says that the youth vote is swinging against Biden:

“Until recently, Democrats’ biggest concern about the 2024 youth vote was that millennial and Gen-Z voters …might not turn out in great enough numbers to reelect Joe Biden. Young voters were…the largest and most rapidly growing segment of the Democratic base in the last election. But now public-opinion surveys are beginning to unveil a far more terrifying possibility: Trump could carry the youth vote next year.”

The latest national NBC News poll finds President Joe Biden trailing Trump among young voters ages 18 to 34 — with Trump getting support from 46% of these young voters and Biden getting 42%, while:

“CNN’s recent national poll had Trump ahead of Biden by 1 point among voters ages 18 to 34.

Quinnipiac University had Biden ahead by 9 points in that subgroup.

The national Fox News poll had Biden up 7 points among that age group.”

Hard to know what to believe from those surveys. More from Kilgore:

“According to Pew’s validated voters analysis (which is a lot more precise than exit polls), Biden won under-30 voters by a 59% to 35% margin in 2020. Biden actually won the next age cohort, voters 30 to 49 years old, by a 55% to 43% margin.”

So, what’s wrong? It’s important to note that yesterday’s younger voters aren’t today’s. From Nate Silver:

“Fully a third of voters in the age 18-29 bracket in the 2020 election (everyone aged 26 or older) will have aged out of it by 2024, as will two-thirds of the age 18-to-29 voters from the 2016 election and all of them from 2012.”

Silver says, So if you’re thinking “did all those young voters who backed Obama in 2012 really just turn on Biden?” Those voters have aged into the 30-to-41 age bracket.

We need to remember that today’s young voters share the national unhappiness with the performance of the economy, and many are particularly affected by high cost of living and higher interest rates that make buying a home or a car difficult. Some are angry at Biden for his inability (thanks to the Supreme Court) to cancel student-loan debts. And most notoriously, young voters don’t share Biden’s strong identification with Israel in its ongoing war with Hamas (a new NBC poll shows 70% of 18-to-34-year-old voters disapprove of Biden’s handling of the war).

And there’s this tidbit from the NYT:

“Younger people…had concerns specific to their phase of life. In the poll, 93% of them rated the economy unfavorably, more than any other age group.”

What exactly are kids in their 20’s supposed to be feeling at this stage of life? Unless you come from money, your 20’s are a financial struggle. Wrongo’s certainly were, and that’s decades ago when the economy was great. This isn’t to dismiss today’s very real economic uncertainties. Wrongo’s own grandchildren run the gamut of (relative) struggle financially.

The single most persuasive way to convince young people that Trump isn’t the right answer is to show them what he’ll do in his own words. Many of them are too young to know much about Trump. Some of today’s college freshmen were just 14 or 15 when he was in office.

It’s Monday, and it’s time to wake up America! People need to pay attention. Once again, it will come down to effective messaging for the Dems. They must help voters understand who will serve their interests and who will literally crush their interests.

To help you wake up watch and listen to William Devaughn’s “Be Thankful For What You’ve Got”. It sold nearly two million copies in 1974. It takes us back to a time when there was more optimism in America. If you lived or worked in NYC in the1970s, the video will also take you back to a difficult period in the city’s history. In its own way, it’s a great Thanksgiving song:

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Dark Money Keeps Flowing Into Our Politics

The Daily Escape:

Cranberry Bog, Old Sandwich Road, Cape Cod MA – October 2023 photo by Ken Grille Photography

As usual, we’re enjoying our time on Cape Cod. We visited a cranberry bog operator yesterday and learned that the number one use of cranberries in America is making crasins. Those packages of whole cranberries you purchase at Thanksgiving make up just 1% of US cranberry sales.

Two topics today: First, as much as Wrongo would like, he can’t ignore the escalating war between Israel and Hamas. Many have written about the conflict. Wrongo wants to spend a few minutes on this week’s hypocrisy by House Republicans. Ja’han Jones wrote for MSNBC:

“In February, several Republicans signed on to a bill, introduced by Rep. Matt Gaetz, R-Fla., that was aimed at ending US military and financial aid to Ukraine.”

At the time, Gaetz said:

“America is in a state of managed decline, and it will exacerbate if we continue to hemorrhage taxpayer dollars toward a foreign war…”

But on Sunday, Gaetz said on Meet the Press that we should up our support to Israel:

“The reason we have this multibillion-dollar commitment…to Israel is because we want Israel to have a qualitative military edge over everyone in the region…”

Just last week Gaetz and other Republicans were willing to shut down the federal government over aid to Ukraine. Aiding Ukraine means spending to assist in a fight against Russia, which the MAGAverse is apparently supports only very weakly. But aiding Israel, which this time means spending to assist in a fight against Hamas, is ok. Republicans like spending money fighting Muslims.

Anne Applebaum in The Atlantic warns that the “rules-based world order” is on the verge of breaking down:

“Open brutality has again become celebrated in international conflicts, and a long time may pass before anything else replaces it.”

This applies to both Ukraine and to Israel. We can’t afford to ignore one in favor of the other.

Our second issue today is that the billionaire Charles Koch is using a tax dodge to fund his ongoing political activities. From Judd Legum:

“…Charles Koch…is funneling his wealth into two organizations that can continue his right-wing political advocacy for years. Koch structured more than $5 billion in donations to…allow him to avoid paying capital gains or gift taxes. It’s not surprising that Koch is familiar with the loophole — he spent hundreds of thousands of dollars lobbying to create it.”

Legum cites a Forbes article which states that in 2022, Koch donated $4.3 billion in Koch Industries stock to Believe in People, a newly formed 501(c)4 nonprofit organization. The organization is run by Koch’s inner circle, including his son, Chase Koch along with Dave Robertson, co-CEO of Koch Industries, and Brian Hooks, the co-author of Charles Koch’s last book.

From Forbes: (brackets by Wrongo)

“ [Koch] has already quietly transferred $5.3 billion of nonvoting stock to a pair of nonprofits….Forbes estimates those shares account for nearly a tenth of the 42% stake previously held by Charles (though he still has 42% voting power).”

The other Koch nonprofit is called CCKc4. In 2020, Koch also donated $975 million in Koch Industries stock to CCKc4, controlled exclusively by Charles’ son, Chase Koch. Legum reports that in its 2020 IRS filing, CCKc4 listed its mission as “N/A.” The gift to Believe in People is now the largest publicly disclosed donation to a 501(c)4–a type of nonprofit with fewer restrictions on lobbying and politics than traditional charities.

Unlike a traditional 501(c)3 nonprofit, a C4 can own an entire for-profit company indefinitely and (so long as these activities support its principal purpose) benefit private individuals; engage in an unlimited amount of issue lobbying; and get directly involved in politics.

Since Congress exempted donations to C4s from the usual 40% federal gift tax in 2015, a number of billionaires have donated 100% of their companies to C4s. Before Koch’s gift the largest of these C4 donations was by Patagonia’s founder Yvon Chouinard, who transferred all of his outdoor clothing and gear retailer’s nonvoting stock to an environmentally-focused C4 in 2022. At the time of the gift, Patagonia was reportedly valued around $3 billion.

Legum reports that Koch’s main political spending vehicle, Americans for Prosperity Action (AFP Action), in the 2022 election cycle spent 95% of its money on Republican candidates who were formally endorsed by Trump or who actively campaigned as Trump supporters. AFP Action spent just $3.5 million on candidates not aligned with Trump and zero dollars supporting Democratic candidates.

This is America in the 2020s: $ billions “donated” by billionaires to protect other billionaires. The tax dodge was enacted in 2015 during the Obama administration. This expansion of tax-free funding of political action is something that is unknown to average people, yet it impacts our politics through its substantial invisible influence. It strips money from the government’s coffers while simultaneously further poisoning US democracy. The only way to take back control of our politics is to take back control of the flow of money into our politics.

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The Auto Strike

The Daily Escape:

Trail Ridge Road, Rocky Mountain NP, CO – September 2023 photo by Rick Priebe

On Friday, The UAW union expanded its strike against GM and Stellantis, two of the Big Three automakers, ramping up pressure on the companies to reach deals on new contracts. The union walked off the job at parts distribution centers of both manufacturers but spared Ford, saying the company had done more to meet its demands. From the NYT:

“Our pressure on Ford is starting to pay off,”

But there was no indication a deal with Ford was imminent. More:

“Stellantis workers walked out at 20 of the company’s parts distribution centers Friday, while G.M. workers went on strike at 18 centers.”

Ford Canada reached a deal last week with the union that represents its Canadian workers. It may offer a clue to the US outcome: The deal provides for pay increases worth up to 25% over three years, as well as bonuses, improved retirement benefits and measures to protect employees as Ford retools factories for electric vehicles. The union, Unifor, is negotiating separately with GM and Stellantis in Canada.

The UAW is asking for a 37% wage increase over four years, improved retiree benefits and shorter work hours. They also want an end to a tiered wage system that starts new hires at much lower wages than the top UAW pay of $32 an hour. Importantly, more than 18,000 UAW members are now on strike.

Some context: UAW workers made significant sacrifices to help keep the big three afloat, amidst the financial crisis in 2009. They made those sacrifices based in part on the promise that the Big Three would eventually renew their compensation and benefits, which the Big Three never did. There were no cost of living adjustments, despite the Big Three going from losing money to record profitability (and tens of $ billions in stock buybacks).

And this week, Biden will join the strike in an extraordinary move of support. From CNN:

“Biden will travel to Michigan on Tuesday and walk the picket line with members of the United Auto Workers union, he announced Friday…”

Biden said in a post on Xitter:

“Tuesday, I’ll go to Michigan to join the picket line and stand in solidarity with the men and women of UAW as they fight for a fair share of the value they helped create. It’s time for a win-win agreement that keeps American auto manufacturing thriving with well-paid UAW jobs,”,

This presidential appearance on a picket line is a historic first. It is also an opportunity to score political points, since it comes one day before Trump is scheduled to deliver a speech to an audience of current and former union members in Detroit. In July, Trump asked the UAW to endorse him, so both politicians are working hard to gain traction with the union.

The UAW was angered by Biden’s pumping tax money into nonunion electric vehicle suppliers, and has withheld its endorsement, even as most other labor unions have rushed to back Mr. Biden’s re-election.

Back to some context for the UAW strike: The WSJ reports that:

“The Detroit companies’ labor costs, including wages and benefits, are estimated at an average of $66 an hour…”

That compares with $45 at Tesla, which isn’t unionized.

Hopefully, the UAW strike will yield fair results for the workers, given the enormous profits the companies are making, the generous salaries the industry’s execs are reaping, and the sacrifices labor made to keep the lights on when the industry was on life support in 2008.

This may well be the union’s last big strike when you consider that nearly half of all the cars built in the US are manufactured in 31 foreign-owned plants. None of these facilities are unionized, and their workers are generally paid less than those at union plants.

The move to EVs will be also be a sea-change reality for auto labor. There is likely to be a 40% reduction in the labor required to build the new engineless cars. Electric motors are much simpler than internal combustion engines. It is estimated that in less than 10 years, two-thirds of all new cars will be electric.

While the impact on labor throughout the supply chain will be dramatic, plenty of internal combustion engines will remain in use, even if not in production. That will provide stability for auto maintenance and repair workers for decades to come.

Nonetheless, the writing is on the wall. Workers with computer skills and AI capability will replace many traditional lunch-pail workers at plants assembling automobiles.

Time to wake up America! Not so long ago, the thought of a UAW strike was traumatizing because of the enormous workforce the union represented. A half-century ago, the UAW represented 1.5 million auto workers (1.5%) out of a total American workforce of just under 100 million workers. Today, UAW membership at GM, Ford, and Stellantis is about 150,000 employees (less than one percent) out of a total American workforce of 160 million workers.

Imagine if today’s number is reduced by 40%, or 60,000 workers! This means that the UAW loses its ability to represent its workers effectively by 2033!

To help you wake up, watch and listen to Green Day perform their hit “Wake Me Up When September Ends” from their 2004 album “American Idiot” at England’s Reading Festival in 2013. Frontman Billie Joe Armstrong wrote the song about the death of his father when he was 10 years old. But it has come to express loss of all kinds. Gotta love those English crowds:

You realize that the country is growing older, that Biden is growing older, the song is growing older, Green Day is growing older, and the union movement in the US is growing older too.

Regardless of how much time has passed, this song hits just as hard as it did when it was introduced 19 years ago.

Sample lyric:

Summer has come and passed
The innocent can never last
Wake me up when September ends

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Can Biden’s Union Roots Help Him In 2024?

The Daily Escape:

Red Mountain, San Juan Mountains, CO – September 2023 photo by Daniel Forster Photography

The “the biggest auto strike in generations” got under way last week, with 150,000 US autoworkers, including employees at Ford, Stellantis and General Motors walking off the job after contract negotiations failed to reach a deal. This strike, coupled with the likely government shutdown at the end of the month, will precipitate a very dangerous moment for the Biden administration.

From The Guardian:

“The United Auto Workers (UAW) union says workers have never been fully compensated for the sacrifices they made after the 2008-09 financial crisis, when they agreed to a raft of cuts to save the industry. The carmakers received huge bailouts and soon returned to record profits.”

The WaPo had a good article asking workers why they are striking. Most cited inflation and fairness:

“We’re not making enough money” said Petrun Williams, a 58 year-old Ford repairman. “People should be able to buy their own houses, but right now it’s not possible.”

This is going to be a difficult problem to tackle, because GM, Ford, and Stellantis are wildly inefficient giant bureaucracies with cost structures optimized to make $75,000 trucks, and their move into Electric Vehicles will take a lot of money and time before it pays off.

But the Biden administration isn’t necessarily helping: (Brackets by Wrongo)

“…Biden…is in a tough spot with the United Auto Workers….Through its industrial policies,…[Biden]…is giving away billions to automakers through production tax credits and loans, while supporting the transition to electric vehicles through consumer rebates and funds for charging infrastructure. Biden has promised that those incentives will lead not only to carbon emissions reductions but also good-paying union jobs.”

But the UAW leadership isn’t buying it. As the UAW goes on strike, their members don’t necessarily support Biden, but that doesn’t necessarily mean they support Trump either. Politico asked striking members if Biden had done enough to prevent the strike. They talked to Garry Quirk, the president of the local UAW union in Kokomo, IA:

“I don’t know what he’s done…Ask him. I don’t think he knows what he’s done. Seriously. I’m not trying to be mean.”

Quirk wasn’t freelancing: Fain and the union haven’t yet endorsed Biden’s reelection, throwing into doubt Biden’s standing in autoworker-heavy communities. But Politico reported that Biden had spoken that day with UAW president Shawn Fain and auto company CEOs. The chair of Biden’s Council of Economic Advisers said this week that Biden had been very much engaged.

But his efforts didn’t resonate with union member Denny Butler:

“Historically, man, if you didn’t vote Democrat years ago, and you were in the union, sometimes you got your ass kicked…I’m telling you what, the Democratic Party is not what it was 20, 30 years ago.”

So this is another Politico story about Obama voters becoming Trump voters and not looking back.

What Biden is fighting is the sense that the Democratic Party has not been truly on the side of union workers for a long time. It is true that today the Democrats are more on the side of unions. Neoliberalism is not nearly as powerful in the Democratic Party as it was during Obama’s time, or earlier.

But perceptions can be sticky. Clinton, Carter, and Obama (especially in the first term) all promoted corporate policies over the unions. Workers got screwed as factories closed, and no one offered much to workers beyond retraining programs that they didn’t want, and for the most part, didn’t lead to better jobs.

If you said that Republicans (including Mitt Romney) were no better, you’re correct. But today’s Republican Party offers a way to channel anger and resentment. Union members can opt for the GOP path even if the GOP doesn’t have the union’s interests in mind.

Despite Obama (and Biden) saving autoworker jobs through the 2009 auto bailout, they did little to hold the auto companies accountable. They allowed the expansion of two-tiered wage rates that the union is still fighting during the current strike.

The perception is that the UAW shrank and sacrificed, while the auto industry leadership got richer.  Biden absolutely cares about unions, but he’s fighting against decades of belief that the Democrats aren’t what they used to be.

And no matter what Biden does, it’s going to be hard to get by that perception. There’s a mixture of anger and nostalgia that sticks in the minds of people who don’t really pay attention to the details of politics. Let’s take a look at the price of cars over the last ten years:

The Big Three automakers reported $21 billion in profits in just the first six months of 2023. Despite these enormous gains, the companies have cried poverty in response to union demands for wage increases that would make up for decades of pay stagnation. Worse, during the last year, the Big Three automakers have authorized $5 billion in stock buybacks, effectively giving those dollars to shareholders instead of to autoworkers.

The Economist had an excellent observation (paywalled):

“Late last year I took a trip…in a shiny new vehicle, Ford’s electric F-150. The car is in some ways an avatar for today’s Democratic Party. Joe Biden’s administration likes things that are made in America by union labor. It also wants to speed up the transition away from fossil fuels. The F-150 car ticks both boxes. It is also a high-end item that markets itself as a vehicle for working Americans.”

More:

“That’s a bit like the Democratic Party too…with each passing election Democrats lose votes among actual working-class Americans and gain them with college-educated ones (some of whom can actually afford a $75,000 truck).”

More:

“When we talked to a…UAW…representative near Detroit, it became clear the unionized workers are lukewarm on the green transition. Electric vehicles are less labor-intensive than cars powered by internal combustion, which is bad for the UAW members. In fact that is one reason why the union went on strike today. College-educated liberals, on the other hand, like electric vehicles a lot.”

Apparently union members see the problem much more clearly than the Biden Administration.

There could be a settlement reached between the unions and the companies at any moment, but it feels like this will be a protracted situation: If the UAW workers get the 40% pay increase they are asking for, they probably would learn to accept electric vehicles. Don’t hold your breath.

Biden’s relationship with America’s unions is deep and personal, but the next few months are really about his political strategy. And they’re an example of how the Democrats are always trying to balance competing aims.

Time to wake up America! Will Biden continue pursuing his environmental policies and risk losing even more support among working-class Americans? Or will he pump the brakes on environmentalism and alienate upscale Democrats? Biden won only 33% of white, non-college voters in 2020, so maybe that’s where his opportunity to expand his base in 2024 lies. But does Biden really have a path to take back more non-college voters?

To help you wake up, watch and listen to a recent version of the union anthem “Solidarity Forever”, written by Ralph Chaplin in 1915. Although it was written for the Industrial Workers of the World (IWW), the AFL–CIO have adopted the song as their own. Here it is sung in the Wisconsin capitol building in September 2011, by demonstrators who opposed then Governor Scott Walker’s “Wisconsin Budget Repair bill.”

The bill proposed to alleviate the state’s budget shortfall by taking away the ability of public sector unions to bargain collectively over pensions and health care, as well as ending automatic union dues collection by the state. Walker stated that without the cuts, thousands of state workers would have to be laid off.  After two days of arrests for “holding signs” on the first floor of the Wisconsin State Capitol, the Solidarity Sing Along took to the rotunda in joyful defiance:

The law passed and remains in effect today.

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Two Writers Who Speak To What America Needs

The Daily Escape:

Wukoki, Wupatli National Monument, AZ – September 2023 photo by David Erickson

September is underway, and we’re about to have a negotiation about government spending. But that doesn’t mean that the news this month will be any less stupid than last month’s. Also, as the Republican presidential candidates demonstrate every day, we don’t actually know whether the GOP is a dying Party or, the rising single Party of an authoritarian state.

Unless and until the traditional press presents these as the stakes, it is very unclear which it’ll end up being. With this as an introduction, Wrongo wants to introduce two writers who are attempting to break through our chain of bad policies and the bad ideology that threatens our democracy.

First, from Wesley Lowery in the Columbia Journalism Review:

“We find ourselves in a perilous moment. Democracy is under withering assault. Technological advances have empowered propagandists to profit through discontent and disinformation. A coordinated, fifty-year campaign waged by one of our major political parties to denigrate the media and call objective reality into question has reached its logical conclusion: we occupy a nation in which a sizable portion of the public cannot reliably tell fact from fiction. The rise of a powerful nativist movement has provided a test not only of American multiracial democracy, but also of the institutions sworn to protect it.”

Lowery is a Pulitzer Prize-winning reporter. He goes on to say:

“In 2020, I argued that the press had often failed this test by engaging in performative neutrality, paint-by-the-numbers balance, and thoughtless deference to government officials. Too many news organizations were as concerned with projecting impartiality as they were with actually achieving it, prioritizing the perception of their virtue in the minds of a hopelessly polarized audience…”

Lowery also says that news organizations often rely on euphemisms instead of clarity in clear cases of racism (“racially charged,” “racially tinged”) and acts of government violence (“officer-involved shooting”). He says that these editorial decisions are not only journalistic failings, but also moral ones:

“…when the weight of the evidence is clear, it is wrong to conceal the truth. Justified as “objectivity,” they are in fact its distortion.”

Lowery concludes by saying:

“It’s time to set aside silly word games and to rise to the urgent test presented by this moment.”

Second, Bob Lord is a tax attorney and associate fellow at the Institute for Policy Studies. He also serves a senior advisor on tax policy for Patriotic Millionaires. At Inequality.org, he proposes a graduated wealth tax on the rich:

“The United States is experiencing a level of wealth inequality not seen since the original Gilded Age. This yawning gap between rich and poor has unfolded right out in the open, in full public view and with the support of both political parties.

A malignant class of modern robber barons has amassed unthinkably large fortunes. These wealthy have catastrophically impacted our politics. They have weaponized their wealth to co-opt, corrupt, and choke off representative democracy. They have purchased members of Congress and justices of the Supreme Court. They have manipulated their newfound political power to amass ever-larger fortunes.”

More from Lord:

“In well-functioning democracies, tax systems serve as a firewall against undue wealth accumulation. By that yardstick, our contemporary US tax system has failed spectacularly….Our nation’s current tax practices allow and even encourage obscene fortunes to metastasize while saddling working people with all the costs of that metastasizing.”

Lord along with the Patriotic Millionaires propose new legislation, called the Oligarch Act (Oppose Limitless Inequality Growth and Reverse Community Harms). It is being brought forward by Rep. Barbara Lee (D-CA) and Summer Lee (D-PA). The Lees have developed a graduated wealth tax tied directly to the highest wealth in America. The Oligarch Act propose a set of tax rates that escalate as a taxpayer’s wealth escalates:

  • A 2% annual tax on wealth between 1,000 and 10,000 times the median household wealth.
  • A 4% tax on wealth between 10,000 and 100,000 times the median household wealth.
  • A 6% tax on wealth between 100,000 and 1,000,000 times the median household wealth.
  • An 8% tax on wealth exceeding 1,000,000 times the median household wealth.

Per the US Census Bureau, the median household wealth in 2021 was $166,900. So the first tier 2% wealth tax would kick in at $166,900,000, and so on.

This would affect only very high levels of household wealth. To put that in perspective, according to the Federal Reserve, the wealth level that puts you into the top 0.1% of households in 2019 Q3 was $38,233,372. So if enacted, this Act would touch a really small number of outrageously wealthy households. Also, their taxable amount would be peanuts by their own standards.

The legislation would also require at least a 30% IRS audit rate on households affected by the new wealth tax. One recent estimate indicated that the richest Americans dodge taxes on more than 20% of their earnings, costing the federal government around $175 billion in revenue each year.

The immediate argument is that this tax will never pass as long as the filibuster is intact. And here’s how the work of both authors comes together. We see the “it will never pass” objection from journalists and pundits who try to appear savvy in the ways of DC. On any cable news show, someone is sure to jump up to say it.

The paradox is that if you look at the Congressional Record and flip to the special orders section and extensions of remarks, you’ll notice they’re filled with speeches and statements on behalf of recently introduced bills which the sponsors know will never pass as written. So why do they do it?

Because the point of introducing a bill is not just to pass it in the current session of Congress. It never has been. There is a tradition going back to the earliest days of Congress of introducing bills to make arguments and advance debate. Many famous members of Congress (think Ted Kennedy, Thaddeus Stevens, John Quincy Adams) sponsored or backed multiple bills they knew were not going to become laws.

They did it because they knew that debates over bills that will become laws don’t occur in a vacuum. They happen in the greater context of the debate in Congress over issues which are influenced by every other bill under consideration. And of course, you’ve gotta start somewhere.

Jumping to the conclusion “it will never pass” isn’t being savvy, it’s a sign you’ve missed the point. And it’s a sign of the vapidity of so many journalists and pundits that it’s the first thing out if their mouths. It’s never a good idea to take cues from the stuffed shirts on Fox, CNN and Meet The Press.

This graduated wealth tax is a good start and sets a precedent: There is an amount of wealth that is ruinous to democracy. Taxing it is a necessary condition for preserving democratic governance.

It is true that Congress, as it is presently constructed, will not pass this, or other badly needed legislation. A genuine revolution in thinking will be required. Both Wesley Lowery and Bob Love point us toward fresh thinking about how we start dealing with what we consider to be intractable problems.

Wrongo still has hope for the younger generations who are suffering the consequences of all this government sanctioned selfishness.

Change is coming.

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Biden’s Plan To Cut Drug Prices

The Daily Escape:

Mars on left, Earth on right – image by alofeed

The Biden administration released its list of 10 prescription medicines that will be subject to the first-ever price negotiations by Medicare. This is a big deal because Medicare covers 66 million older Americans, people who routinely take very expensive drugs.

Until recently it was illegal for Medicare to negotiate prices with drug companies. But the Inflation Reduction Act (IRA), passed last August, gives Medicare that power. It also forces companies to pay a rebate to Medicare if their drug prices rise faster than inflation. The Congressional Budget Office estimates that price-capping measures will reduce Medicare expenses (and the federal deficit) by $96 billion by 2031.

The list includes drugs for diabetes, arthritis, and Crohn’s disease, and could sharply lower medical costs for patients. Reuters says that the US Centers for Medicare & Medicaid Services (CMS) spent $50.5 billion between June 1, 2022 and May 31, 2023 on these 10 drugs. That was about 20% of the total cost of drugs in the Medicare prescription drug program known as Part D.

The WaPo had an opinion piece by David Goldhill, CEO of SesameCare.com, a digital marketplace for discounted health services: (brackets and emphasis by Wrongo)

“The pharmaceutical industry earns almost 50% of its worldwide revenue here [the US], as do medical information-technology firms. [Medical] Device makers earn 40% of their money in the US. And this understates things, because US revenue is generated from higher prices, so margins are greater. If the US accounts for half of a company’s revenue, it probably contributes at least 75% of its profits.”

This has always been the business plan for Big Pharma: Make your money in the US and take whatever scraps of profit you can get in other markets.

That market subsidy is paid by American taxpayers generally (through the funding of Medicare) and by US pill-takers specifically when they pay higher co-pay prices for the drugs that help with their chronic conditions. The Economist points out that prescription medicines in America cost two to three times more on average than in other wealthy countries:

The blue dots are the price paid in the US for brand name drugs. The grey dots are prices paid in the various countries for all US drugs sold in those countries. The comparison of brand name to generics shows how much greater the cost is to an American.  It also follows that US patients’ out-of-pocket expenses, (the slice of drug costs not covered by insurance), are among the highest in the world.

It’s understandable why Biden’s move to start negotiations on some of the most expensive drugs has been fiercely opposed by the pharmaceutical industry. Essentially, high US drugs costs underwrite what amounts to a subsidy for buyers of the same drug sold when it’s outside the US.

Many of the Big Pharma have jumped on the legal bandwagon, challenging price-setting provisions in the IRA. More from the Economist:

“Since the law’s passage over 50 companies have blamed the IRA in earnings calls for clouding their prospects.”

A quick primer on drugs. Most medicines are either small-molecule drugs or large-molecule drugs. The former are the kind of pills that line our medicine cabinets. Large-molecule drugs, (also called biologics), are more complex and must be injected. The IRA grants biologics 13 years of pricing freedom after a drug is approved, while small-molecule drugs get only nine years post-approval before they must face Medicare’s bean counters. The industry estimates that small-molecule brands could lose between 25% and 40% in overall revenue due to the earlier cap on prices.

PhRMA, the pharma Industry’s lobbyist argues (and Republicans back them) that high US prices reflect the high cost of drug development. The pharmaceutical manufacturers are, of course, suing to stop the price negotiations. They say that allowing the government to negotiate lower bulk prices for drugs will stifle innovation, and will cut funds for research.

One thing that Big Pharma wants to avoid showing us is that they rely on smaller, more agile biotech firms for ideas. Between 2015 and 2021, 65% of the 138 new drugs launched by Big Pharma originated mostly from smaller firms. So, while innovation isn’t totally gone from the big firms, what they’re mostly doing is marketing the intellectual property of small pharmaceutical firms.

It didn’t take long for Republicans to jump on the decision to allow Medicare to negotiate drug prices. From Politico:

“Piggybacking on the pharmaceutical industry’s strategy, Republicans are working to persuade Americans that the Biden plan will stifle innovation and lead to price controls.”

Politico quotes Joel White, a Republican health care strategist:

“The price control is a huge departure from where we have been as a country….It gets politicians and bureaucrats right into your medicine cabinet.”

Politico says that the GOP effort to reframe the drug price debate may hurt them, since they plan largely to run on inflation, while the Biden plan will lower drug prices. Also they quote a new poll from the Kaiser Family Foundation (KFF) that shows 58% of independent voters trust Democrats to lower drug costs compared with 39% of Republicans.

Our politicians and pundits have bleated at us for years about being an “exceptional nation” – but what we really are is exceptionally gullible. As long as the large healthcare and pharmaceutical companies insist on standing between American consumers and their health needs, maximizing their profit will always come first.

We also continue to elect leaders who lobby for keeping corporations unleashed so that they can make as much profit as possible, while saying that the “market” will decide where the public good is prioritized. This keeps us hopelessly mired in a grossly expensive, and often ineffective healthcare system.

We continue to let ourselves be convinced by corporations and our politicians that reforming healthcare is impossible. That the solutions and methodologies used by other developed nations are substandard, and/or somehow immoral.

The Hill reported that the 14 leading US drug companies paid out more in stock buybacks and dividends from 2016 to 2020 than they spent on research and development. Those firms spent $577 billion from 2016 to 2020 on stock buybacks and dividends, $56 billion more than the $521 billion they spent on R&D. So, it’s oblivious how Big Pharma could easily fund their R&D with lower drugs prices.

It is also useful to remember that America has more healthcare billionaires AND healthcare bankruptcies than any other country. Those two things are inextricably linked.

As long as the pharmaceutical companies can maximize profits by buying politicians rather than by charging higher prices in other countries – the American people are the ones who will continue to get screwed.

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Monday Wake Up Call – July 17, 2023

The Daily Escape:

Comb Ridge, UT & AZ – July 2023 photo by RC Bullough Photography

Wrongo and Ms. Right were urban pioneers in NYC in the early 1980s. We rented a loft on Maiden Lane in the financial district. Back then, we had to go uptown or to Hoboken, NJ for groceries because there were so few people living amongst the downtown forest of office towers.

But by the 2020 census, lower Manhattan was the fourth fastest-growing residential neighborhood in NYC. Since the pandemic, downtowns have looked more like the ghost towns of the 1980s with so many workers adapting to remote work. And they seem to be staying away.

Things are going to get interesting. We may be at the beginning of a massive structural change, not just a temporary blip impacting office towers: It seems that companies have figured out they won’t ever need this vast amount of vacant office space. Brookings says that office utilization averages less than 50% across major US downtowns. While The Gothamist reports that national office vacancies are at a high of 19.2% (compared to 12.6% in early 2020). They also report that McKinsey predicts that remote work will erase $800 billion from urban office real estate values.

This has many cities thinking about conversion of office space into residential space. In NYC, 25 Water Street, which was once home to the Daily News and JPMorgan Chase, has a plan to gut the offices, carve out courtyards and add 10 floors to the 22-story structure. GFP Real Estate and Metro Loft bought the building, formerly known as 4 New York Plaza, in December for about $250 million.

One loophole is that the Financial District doesn’t require that the conversions include any affordable housing. So this project will not have any apartments with capped rents for low-income units. That isn’t true in other parts of the City, like Midtown, Queens or the Bronx.

Boston is testing an incentive program for developers to convert empty downtown offices into housing. Mayor Michelle Wu announced that the owners of repurposed buildings could get up to 75% off on their property taxes. Boston’s office market vacancy rate climbed to 14.2% in the second quarter, the highest level in 20 years, according to data from CBRE Group Inc. And median monthly rent for a one-bedroom apartment has jumped 8% in the past year to $2,800.

Boston’s downtown has about half of the city’s office space. An October 2022 report commissioned by the city found that economic activity downtown remained 20% to 40% below pre-pandemic levels for industries like retail.

Back in NYC, Mayor Eric Adams is also proposing incentives to designate 136 million square feet of office space for conversion to residential development. It’s worked before: A 1995 tax break for conversions helped create 13,000 new apartment units in Lower Manhattan.

Brookings raises the question of what the taxpayers’ interest should be in these conversions:

“To what extent are current high office vacancies a market problem whose burden falls on the private sector (property owners and investors) and to what extent do they represent a market failure and policy problem to which government must respond with financial support from the public?”

The advocates of tax breaks and other financial incentives say it will:

  • Help drive foot traffic to downtown businesses struggling from a lack of commuters.
  • Bolster municipal coffers, as cities often rely on property taxes from office buildings.
  • Supply much-needed housing amid a shortage that has many paying exorbitant rents.

It seems that office-to-home conversions are no more a comprehensive remedy for housing than e-bikes are for transit issues. Few office buildings are truly suited for conversion. It’s often more straightforward for developers to knock down the existing structure and build condos from scratch.

Moreover, the best thing that cities can do to encourage more housing is to loosen zoning restrictions, allowing multi-use and apartment buildings to be developed rather than just supply tax breaks.

The battle lines are drawn. The 25 Water St. developer said state and city lawmakers will have to pay up if they actually want to turn vacant offices into homes:

“The politicians, if they want to create housing in New York City out of these buildings, they will need to provide significant incentives….And if they want to provide affordable housing, those incentives would have to be even higher.”

Time to wake up America! We can’t let our mayors give away more tax revenues to developers! We’re unsure if the current rate of office utilization will improve or not, so cities need to be smart about what they do next. To help you wake up, we dust off an oldie. Here are the Rolling Stones with “Salt of the Earth” from their album “Beggars Banquet”. Performed live at the Rolling Stones Rock and Roll Circus in 1968. This was the first tune where Keith Richards had the lead vocal:

Sample Lyric:

Raise your glass to the hard-working people
Let’s drink to the uncounted heads
Let’s think of the wavering millions
who need leaders but get gamblers instead

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