UA-43475823-1

The Wrongologist

Geopolitics, Power and Political Economy

The Kids Are All Right

The Daily Escape:

Autumn in Larch Valley, Banff National Park, Alberta CN – 2008 photo by Andy Simonds

For the past few days, Wrongo has been writing about both ideas and people that could help to shape a reform of American capitalism.

We’ve talked about Bernie Sanders, Richard Murphy, Alan Curtis and Alexi Yurchak, and the Yellow Vests in France. Today, let’s focus on America’s youth, at least some of them:

More than 1,000 young people and allies flooded the Capitol Hill hallways and offices of Democratic representatives to demand that elected officials listen to their youngest constituents—as well as some of the world’s top scientists—and back the bold proposal to shift the US to a zero-carbon energy system by 2050 in order to save the planet from an irreversible climate catastrophe.

The protesters were mostly members of the youth-led Sunrise Movement, 800 of whom had attended a training on lobbying members of Congress and their staffers the previous evening. They carried signs reading, “Do Your Job,” “Back the Deal,” and “No More Excuses“. Here is a picture of them in the halls of Congress:

Before you get all crazy about the (apparently) professionally-made signs, here’s a web site where you can easily make them. More from Common Dreams:

Many also wore T-shirts emblazoned with the following message: “We have a right to good jobs and a livable future,” two key components of the Green New Deal, which would create 10 million jobs in the first decade by putting Americans to work building a green energy infrastructure…

At least 143 of the demonstrators were arrested as they lobbied in 50 congressional offices. But, they had an impact. The number of Democratic lawmakers now supporting a Select Committee on a Green New Deal has now reached 31, twelve of whom signed on this week. How it came together reveals how the Congressional Progressive Caucus (CPC), will use its growing membership.

The Caucus agreed with incumbent members who were willing to have a select committee so long as actual lawmaking authority remained in existing committees.

This wasn’t all due just to the kids. Rep.-elect Alexandria Ocasio-Cortez (D-NY) has spent the past few weeks wrangling support for the Green New Deal as well. The outcome was the result of a collaboration between the CPC leaders, Ocasio-Cortez, and the Sunrise Movement.

Wrongo doesn’t know if a Green New Deal is a good idea or not, but much of the message will resonate with voters. Who will be against “good jobs and a livable future”?

And Alexandria Ocasio-Cortez is showing that she has really good political instincts.

We should be happy that these kids are speaking from their hearts. They are practicing for when they will need the strength to fight the hard political battles of their generation. But, why aren’t we seeing a million parents fighting alongside their kids?

We also should remember how undervalued kids are in America: We under fund their schools. We are providing only low-wage service economy jobs for most of them when they grow up. We hardly care whether they are covered under a health insurance plan. We take them from their parents at the border.

No wonder they are learning to act, since we, their guardians, seem unwilling to act for them.

Facebooklinkedinrss

Monday Wake Up Call – December 10, 2018

The Daily Escape:

The twin peaks of Ushba, Caucasus Mountains, Georgia – photo by Pflunt

Last week, Bernie Sanders was with Paul Jay on the Real News Network. The discussion was about how growing income inequality isn’t simply unfair. Bernie said:

Concentration of wealth in America causes concentration of political power.

Sanders had spoken at (his wife Jane’s) Sanders Institute in Vermont on Wednesday. In his subsequent interview, Bernie said:

But it is not just that the one tenth of 1 percent owns more wealth than the bottom 90%. They don’t put their wealth underneath their mattresses….They use that wealth to perpetrate, perpetuate their power. And they do that politically. So you have the Koch brothers and a handful of billionaires who pour hundreds of millions of dollars into elections, because the Supreme Court gutted the campaign finance laws…and now allow billionaires quite openly to buy elections.

We all know that wealth equals political power. Sanders gave a great example:

Lloyd Blankfein, the head of Goldman Sachs, came to Congress a few years ago…after the taxpayers of this country bailed them out because of their greed and their illegal behavior…..These guys, after getting bailed out, they come to Congress. They say, you know what we think Congress should do is…cut Social Security, and Medicare, and Medicaid. And by the way, lower corporate tax rates and give more tax breaks to the wealthy. That’s power. That’s chutzpah. We have it all, we can do whatever we want to do.

He closes with this:

My vision is that we have got to have the guts to take on Wall Street, take on the pharmaceutical industry, take on the insurance industry, take on the 1 percent, and create an economy that works for all.

….We’re seeing great young candidates who didn’t wait on line for 20 years to get permission to run, but kind of jumped in and beat some long-term incumbents. They’re saying, hey, I come from the community. I know what’s going on in this community, and I’m going to fight for working people, and I’m not afraid to take on big money…..So a two-part approach…..we need to fight for our agenda. We need to elect candidates from the grassroots who…are going to implement that agenda.

Bernie is the best messenger about our urgent need to reform capitalism.

In a similar vein, Seth Godin wrote last week about what he calls “Linchpin Jobs”. These are jobs that few can do, and which contribute greatly to society. That’s an interesting concept, but Wrongo focused on his apt description of “Cog Jobs”, which anyone can do, and which can be done with little effort, or skills: (emphasis by Wrongo)

Industry offered a deal to the worker:

Here’s a job. We’ll pay you as little as we can get away with while still being able to fill the job. We’ll make sure it’s easy to find people for this job, because we don’t want you to have much in the way of power or influence….In return, you’ll work as little as you can get away with. That’s the only sane way to respond to the role of being a cog.

This is the dilemma that faces low-skilled workers today: They can find work, but they can’t live on what they make at only one job. Clearly, cog-like work doesn’t create nearly as much value as intelligent work, but not everyone can find a linchpin job, they’re rare.

Can the paradigm that concentration of wealth equals concentration of power be shifted? Is Bernie Sanders the next FDR? While Wrongo thinks we need a younger leader to reform capitalism, Bernie is the right messenger for reform. His effectiveness as a messenger is clear when we see that 70% of the American people now support Medicare for All, just two years after his 2016 campaign.

And the message is clear. Without reform, we’ll have to look our grandchildren in the eye, and say we’ve wrecked their future.

Time to wake up America! This is the signal issue of our time. The reform of Capitalism must be at the top of our agenda.

Whomever the Democrats nominate for president in 2020 has to be a person that can start America down the road toward reducing the concentration of both money and power in America.

The choice in 2020 will either be more Trump, or a Democrat.

We shouldn’t select another tepid corporate Democrat. They probably won’t win. If by some chance one wins, we’d have to watch as our society becomes even more unequal for the rest of our lifetimes.

Facebooklinkedinrss

Can America Learn From France’s Yellow Vest Movement?

The Daily Escape:

Turtlehead Pond, Groton State Forest, VT – October 2018 photo by mattmacphersonphoto

The Yellow Vests have thrown France into turmoil with their protests in recent weeks. They say they want lower taxes, higher salaries, freedom from gnawing financial fear, and a better life.

It’s a uniquely French phenomenon. Every automobile in France is supposed to be equipped with a yellow vest, so that in case of car accident or breakdown, the driver can put it on to ensure visibility and avoid getting run over.

That enabled the wearing of a yellow vest to demonstrate against unpopular government measures to catch on quickly. Most people had one. The symbolism was fitting: in case of an income inequality emergency, show people that you don’t want to be run over.

What set off the protests was a rise in gasoline taxes. But it became immediately clear that much more was driving the protests, that the gasoline tax was the last straw in a long series of measures favoring the rich at the expense of the majority of the population.

That’s why the movement achieved almost instant popularity and support.

The Yellow Vests held their first demonstrations on Saturday, November 17 on the Champs-Elysées in Paris. Most French trade union demonstrations are well organized. People carry banners and listen to speeches from leaders at the end. But, the Yellow Vests showed up without any organization, and no leaders to tell them where to go, or to speak for the crowd’s demands.

They were just there in yellow vests, angry and ready to explain their anger to any listener. Their message was:

We can’t make ends meet. The cost of living keeps going up, and our incomes keep going down. We just can’t take it anymore. The government must stop what it’s doing and change course.

This is another example that income disparity between the rich and rest of us is out of control on a global basis.

The Yellow Vest protesters know that our political systems are controlled by the rich, and by their captured politicians. They are enriching themselves on the backs of the working and middle classes. Interestingly, it was the French economist, Thomas Piketty, who has researched and publicized the fact that the US has the largest income gap of any Western nation.

We should be paying closer attention both to Piketty and the Yellow Vests.

Global corporations and their fellow traveler politicians know that this sort of discontent is infectious, so politicians always try to quell it quickly. If the American 90% got the idea from France, revolution might migrate, as our revolution in 1776 migrated to France in 1789.

It is interesting that the NYT reports that in France, the Yellow Vest protests were totally unanticipated by the government.

We all know that income inequality is a growing global problem, so how can it be that the suffering of a country’s citizens and their protest against the French government’s plan to increase gas taxes would be “totally unanticipated by the parties’’?  Are the powers that be in France completely tone-deaf to the needs of their constituents?

So, are there lessons for America in the Yellow Vest movement? There should be, because the issue here is similar to the issue in France, and elsewhere in Europe. That issue is economic insecurity.

There’s no political will to deal with job insecurity. There’s no mechanism in place for those who can’t pay their bills. Soon, given automation and AI, there will not be enough work available for everyone to support themselves and their families. Underemployed people will still need food, shelter, and health care, so they might start by demonstrating in order to get them.

The sooner our corporate and political leaders decide to work on these problems, the better we all will sleep at night. But, no one in the top 10% of our economic strata has any idea what it is like to go without the necessities; it is simply inconceivable to them.

Many think that there are no consequences to the inequality that has developed in America since 1980, but there certainly will be consequences. We are in the midst of economic class warfare. The politicians, bought by the corporate plutocrats, are pushing their corporatist agenda down the throats of the middle and working classes.

We can either engage in a slow reform of Capitalism, or we can wait another generation, and participate in an urgent, rapid destruction of Capitalism as we know it today.

If we opt to go slow, let’s not kid ourselves. You don’t close a deep wound with a Band-Aid. It takes surgery.

Facebooklinkedinrss

Tax Abatements Are Killing School Budgets

The Daily Escape:

Egmont National Park, NZ – photo by vicarious_NZ

A new report shows that US public schools in 28 states lost at least $1.8 billion in tax revenues last year as a result of tax incentives granted to corporations. The study analyzed the financial reports of 5,600 of the nation’s 13,500 independent public school districts.

Good Jobs First examined the first full year of reporting under a new accounting standard for school districts, adopted by the Governmental Accounting Standards Board (GASB), the body that sets accounting rules for all states and most localities. The new rule, GASB Statement No. 77 on Tax Abatement Disclosures, requires most state and local governments to report annually on the amount of revenue they’ve lost to corporate tax abatements.

This is extremely important, since most local schools are very dependent on revenue from property taxes, but they rarely have influence over corporate tax abatements granted by their towns, and/or the cities or counties where they are located.

And local voters have had no way to see how much they are forced to pay in additional taxes that were lost to enrich the pockets of corporate employers.

Good Jobs found that the 10 most affected states could have hired more than 28,000 new teachers if they were able to use the lost revenues. Or, they could have avoided higher home property taxes, or provided their teachers with better resources, or higher pay.

States and cities have long used abatements and other tax incentives to lure companies, or to keep them from leaving, and/or to encourage them to expand locally. Often, those companies make their choice of location based on the quality of local schools and colleges.

These abatement deals are made by local politicians and are meant to boost local economic development. Their proponents say the lost tax revenue is worth it, because they grow the local economy. But it is difficult to know whether the benefits outweigh the burdens.

And until GASB 77, it has been impossible to see just how much a school system may have lost because of a company’s tax break. The new rule is especially helpful in understanding local schools finances, because it requires the reporting of revenue losses even if they are suffered passively by the school system as the result of decisions made by another body of government.

Of the five districts that lost the most, three are in Louisiana. Together, they lost more than $158 million, or $2,500 for each student enrolled. The School District of Philadelphia, which only last year regained local control from the state after climbing out of a deep fiscal crisis, lost the second most revenue at $62 million.

Overall, nearly 250 school districts lost at least $1 million each, and in four districts, tax abatements reduced classroom resources by more than $50 million.

But most school districts have not yet complied with Rule 77, which was implemented in 2015. Good Jobs First estimates that another $500 million of subsidies and abatements are currently unreported.

Most of us believe that our governments are supposed to govern in the interests of the “general welfare,” that when voters put people in positions of power, based on the legitimacy of our electoral process, is the limit of our responsibility as voters.

We accept that somebody has to say what the rules are, and then enforce them.

But in our neoliberal economic times, voters have to remember that our governments often act as wholly owned subsidiaries of the 1%. It takes suspension of belief to accept that our republic, ruled as it is by an oligarchy, is working for the general welfare of all of our citizens.

Why do we think that, our “governments”, all of which are subject to capture and ownership by the few, are going to somehow provide decency, comity, or fairness to all of us?

We need to abandon the article of faith that the free market, one without government oversight, promotes the best economic outcome for all of us.

Today’s inequality says the opposite.

We need a new vision of the role of government. But it isn’t really a “new” vision. It is simply a return to insisting on the “promotion of the General Welfare for all” as the paramount object of government.

Here’s another thought from Gordon Wood, in his book, Creation of the American Republic:

In a republic each individual gives up all private interest that is not consistent with the general good, the interest of the whole body. For the republican patriots of 1776 the commonweal was all encompassing—a transcendent object with a unique moral worth that made partial considerations fade into insignificance.

The last outcome that American revolutionaries wanted was to be ruled by oligarchs. But, here we are.

We need to reform our capitalism.

Facebooklinkedinrss

We’re Too Short to be on This Ride

The Daily Escape:

Lion’s Head, Capetown South Africa, viewed from Tabletop Mountain – 2012 photo by Wrongo

A WaPo report said that Donald Trump discussed giving Janet Yellen another term as head of the Federal Reserve, but was concerned that she was too short. He thought that at 5 feet, 3 inches, she just wasn’t tall enough to get the job done.

Wrongo thinks Yellen’s performance was about the same as her predecessor, Ben Bernanke, and her successor, Jerome Powell. Shouldn’t the real question be: Do we know what’s wrong with our economy, and do we have people in place with enough strength and/or courage to fix it? They can also be short, as long as they have ability and vision.

And it isn’t only in the US: (brackets by Wrongo)

Income inequality has increased in nearly all regions of the world over the past four decades, according to the World Inequality Report 2018. Since 1980, the global top 1% of earners have…[garnered] twice as much of the global growth as have the poorest 50%.

More from the World Inequality Report: (emphasis by Wrongo)

Such acute economic imbalances can lead to political, economic, and social catastrophes if they are not properly monitored and addressed….Governments need to do more to keep society fair…Public services, taxation, social safety nets – all of these have a role to play.

We’re seeing a slow-rolling social catastrophe in the US. We’re seeing alienation across class, race, age and gender. We’re divided as never before, with the possible exception of the pre-Civil War period.

Aren’t we all too short to be on this ride?

Central banks play an integral part in the global economy, and their performance (including the Fed’s) during the 2008 Great Recession was for the most part, admirable.

But central banks can only use monetary policy to partially solve issues of economic inequality. The most robust solutions lie in fiscal policy. Fiscal policy is how Congress and other elected officials influence the economy using spending, taxation and regulation.

Take student loans. Many of our university students are simply being led to the debt gallows. Currently, 44.5 million student loan borrowers in the US owe a total of $1.5 trillion. Student loans are the fastest growing segment of US household debt, seeing almost 157% growth since the Great Recession.

From Bloomberg:

Student loans are being issued at unprecedented rates as more American students pursue higher education. But the cost of tuition at both private and public institutions is touching all-time highs, while interest rates on student loans are also rising. Students are spending more time working instead of studying. (Some 85% of current students now work paid jobs while enrolled.)

Student loan debt has the highest “over 90 days” delinquency rate of all household debt. More than 10% of student borrowers are at least 90 days delinquent. Mortgages and auto loans have a 1.1% and 4% 90-day delinquency rate, respectively,

And if the student loan can’t be repaid, it isn’t expunged by bankruptcy. In fact, students can’t outlive their debt. The feds can garnish social security payments to repay a student’s outstanding debt.

As young adults struggle to pay back their loans, they’re forced to make financial choices that create a drag on the economy. Student debt has delayed marriages. It has led to a decline in home ownership. Sixteen percent of young workers aged 25 to 35 lived with their parents in 2017, up 4% from 10 years earlier.

We are only beginning to understand the social costs of our politics. We are in the midst of a brewing social disaster. And these are self-inflicted wounds, fixable with different government policies. But, most of today’s politicians are too short to get on that ride.

So, how to solve the simultaneous equations of high poverty rates, income inequality and an impending social disaster?

It won’t be easy, and it starts with politicians admitting that our economy doesn’t work for everyone, and that it must be reformed. Then, we can move beyond the tired rallying cries of “more tax cuts” to a capitalism which incorporates a social consciousness that can get people on the track to better paying, and more secure jobs.

An April 2018 study of survey data from 16 European countries found that economic deprivation increased right-wing populist tendencies. Sam van Noort, a co-author of the report said:

Individuals who “feel economically less well-off” were more likely to be attracted by the far right…and radical right respondents are more likely to be male, subjectively poorer, less educated [and] younger.

This will also happen here, unless the voters have determination, and even the short politicians have courage.

Facebooklinkedinrss

Monday Wake Up Call – December 3, 2018

The Daily Escape:

Boston Public Library – photo by joethommas

The NYT’s David Brooks:

We’re enjoying one of the best economies of our lifetime. The GDP is growing at about 3.5% a year, which is about a point faster than many experts thought possible. We’re in the middle of the second-longest recovery in American history, and if it lasts for another eight months it will be the longest ever.

So everything’s good, no? Not really. More from Brooks: (emphasis by Wrongo)

Researchers with the Gallup-Sharecare Well-Being Index interviewed 160,000 adults in 2017 to ask about their financial security, social relationships, sense of purpose and connectedness to community. Last year turned out to be the worst year for well-being of any since the study began 10 years ago.

And people’s faith in capitalism has declined, especially among the young. Only 45% of those between 18 and 29 see capitalism positively, a lower rate than in 2010.

Brooks’ conclusion? It’s not the economy, we all just need more community connections.

His is another attempt to dress up the now-failing neoliberal economics. Things look good today from some perspectives, but our economy is crushingly cruel from others. Brooks seems to think that millions of Americans are struggling to pay their rent or mortgage, education loans, health care insurance or buy groceries because they have failed to master the art of networking in their neighborhoods.

Alienation is behind the rise of Trumpism, and the rise of populism across the world. In that sense, Brooks is correct, but the leading cause of people’s alienation is economic inequality.

And the leading cause of economic inequality is corporate America’s free rein, supported by their helpmates in Washington. Last week, Wrongo wrote about the exceptional market concentration that has taken place in the US in the past few years. He suggested America needs a revitalized anti-trust initiative. In The Myth of Capitalism, authors Jonathan Tepper and Denise Hearns write:

Capitalism without competition is not capitalism.

For decades, most economists dismissed antitrust actions as superfluous, so long as consumers were not the victims of price-gouging. Monopoly capitalism is back, and it’s harmful, even if a company’s core product (like Google’s and Facebook’s) is free to consumers. As we wrote last week, there’s excessive corporate concentration in most industries, including air travel, banking, beer, health insurance, cell service, and even in the funeral industry.

All of this has led to a huge and growing inequality gap. That means there is little or no economic security for a large and growing section of the American population. People see their communities stagnating, or dying. They feel hopeless, angry, and yes, alienated.

One consequence is that we’ve seen three years of declining life expectancy, linked to growing drug use and suicides. We seem to be on the edge of a social catastrophe.

But our real worry has to be political. People could become so desperate for change that they are willing to do anything to get it. The worry then, is that few vote and a minority elects a strong man populist leader, simply because he/she tells them what they want to hear. That leader can then go out and wreak havoc on our Constitutional Republic.

After that, anything could happen.

Despite what Brooks thinks, we don’t have a crisis of connections. It’s a crisis of poorly paying jobs, job insecurity, and poverty. When people look at their economic prospects, they despair for their children. Doesn’t it matter that in America, health care, education, and transportation all lag behind other developed countries?

The unbridled ideology of free markets is the enemy. Our problem isn’t that individual entrepreneurs went out and took all the gains for themselves, leaving the rest of us holding the bag. It’s more about how neoliberal economics is used both by government and corporations to justify an anti-tax and anti-trust approach that has led to extreme wealth and income concentration in the top 1% of Americans.

The reality is that the nation’s wealth has become the exclusive property of the already prosperous.

We need to wake up America! We have to stop for a second, and think about how we can dig out of this mess. When America bought in to FDR’s New Deal programs 75 years ago, we entered an era we now think back on nostalgically as “great”.

And it isn’t enough to talk about how we can look to Sweden or Norway as economic models. Both have populations of under 10 million, and our society is far less homogeneous than theirs.

We need a uniquely American solution to this problem. It will involve reforming capitalism, starting with tax reform, and enforcing anti-trust legislation.

Facebooklinkedinrss

Capitalism Must Be Reformed

The Daily Escape:

Mt. Fuji, Japan at sunset – November, 2018 photo by miles360x

From the Economist:

In 2016, a survey found that more than half of young Americans no longer support capitalism.

One reason that young people have lost faith in capitalism is the exceptional market concentration that has taken place in the US in the past few years. US firms have gotten bigger, often by acquiring their competition. This is true across many markets. Vox reports that: (parenthesis by Wrongo)

Four companies…control 97% of the dry cat food sector: Nestlé, J.M. Smucker, Supermarket Brand, and Mars. According to the report, Nestlé has a 57% (share of)…the industry, owning brands such as Purina, Fancy Feast, Felix, and Friskies. Altria, Reynolds American, and Imperial have a 92% market share of the cigarette and tobacco manufacturing industry. Anheuser-Busch InBev, MillerCoors, and Constellation have a 75% share of the beer industry. Hillenbrand and Matthews have a 76% share of the coffin and casket manufacturing industry.

On November 26th, the Open Markets Institute, an anti-monopoly think tank, released a data set showing the market share of the largest companies in each industry. Pulling the data together was a challenge, because the FTC halted the collection and publication of industry concentration data in 1981, during the time of Ronald Regan. Now, David Leonhardt of the NYT has turned it into a table:

As you can see, big companies are much more dominant than they were just 15 years ago. More from Leonhardt:

The new corporate behemoths have been very good for their executives and largest shareholders — and bad for almost everyone else. Sooner or later, the companies tend to raise prices. They hold down wages, because where else are workers going to go? They use their resources to sway government policy. Many of our economic ills — like income stagnation and a decline in entrepreneurship — stem partly from corporate gigantism.

Sarah Miller, deputy director of the Open Markets Institute, told Vox: (brackets by Wrongo)

… [When] you go to the store, you see all of these brands, but guess what? They’re all being operated by the same companies…She called the system a scam economy where competition is an illusion, and choice is an illusion.

The primary issue with corporate concentration is its potential to drive up prices. The fewer sellers, the fewer choices consumers have for goods and services, and thus, there is less pressure for the big competitors to hold prices down.

Even if many consumers don’t immediately realize they are victims of concentration, it’s visible when millions of homes only have one internet provider. Or, when four cellphone providers control 98% percent of the market (Verizon, AT&T, T-Mobile, and Sprint). And if the T-Mobile and Sprint merger plan goes through, there will be just three.

Ultimately, monopolies aren’t just an economic problem. They are also a political one. Democrats believe that anti-monopolism can be a political winner. It’s a way to address voters’ anxiety over high drug prices, digital privacy, and low wages.

We have been at this rodeo before. At the start of the 20th century, we broke up monopolies in railways and energy. In 1984, we broke up AT&T, only to see the “Baby Bells” recombine in the 1990s. We’ve simply stopped enforcing our anti-trust laws over the past 40 years.

Meanwhile, the public has been manipulated to believe that ever larger companies are in their best interests. We celebrate the “right” of large corporations to operate in unfettered ways.

But, Econ 101 shows that the trajectory of a monopoly starts with economies of scale, and ends with economies of exploitation. And remember that six corporations own 90% of the media. We won’t hear much about wrongdoing at Amazon from the Washington Post.

The required anti-trust laws are already on the books, but interpretation of them has changed over the years under Republican administrations. Eventually, we will have to break up existing giants, like we did before. One obvious candidate is Amazon, a company that will soon dominate the supply chain and all logistics in the US.

Facebook, which has gobbled up Instagram and WhatsApp, may be another candidate.

America is very late in addressing the negative outcomes of free markets, so there’s no time like the present to begin to Make America Love Small Business Again.

Voters need to push for anti-trust enforcement, which can only be done by the federal government. We have to insist that the protection of citizens is more important than protecting the 1%.

Let’s close with this quote from Louis Brandeis: “We may have democracy, or we may have wealth concentrated in the hands of a few, but we can’t have both.”

Facebooklinkedinrss

We Saved GM For This?

The Daily Escape:

Redfish Lake, ID – 2018 photo by potatopatriot

From the Guardian:

General Motors announced yesterday that it will halt production at five North American facilities and cut 14,700 jobs as it deals with slowing sedan sales and the impact of Donald Trump’s tariffs.

The cuts will also hit 15% of GM’s 54,000 white-collar workforce, about 8,100 people. And some 18,000 GM workers have already been asked to accept voluntary buy-outs. By next year, it will no longer make the Buick LaCrosse, the Chevrolet Impala, or the Cadillac CT6 sedan. It’s also killing the Chevy Volt plug-in hybrid. GM’s CEO Mary Barra:

We recognize the need to stay in front of changing market conditions and customer preferences…

Changing market conditions” means that GM’s sales are down despite offering enormous cash incentives to potential buyers. GM’s new-vehicle deliveries in the US plunged 11% in the third quarter, and are down 1.2% for the year. In Canada, GM’s sales have dropped 1.6% so far this year.

GM’s goal in restructuring is to save $6 billion in cash flow a year by year-end 2020. But saving all this money will cost a lot: GM estimates it at $3.0 billion to $3.8 billion, including asset write-downs, pension charges, and up to $2.0 billion in employee-related and other cash-based expenses.

GM will have to borrow this money. They said they expect to fund the restructuring costs through a new credit facility. The money has to be borrowed because GM blew through $13.9 billion in cash on share buybacks over the past four years:

Source: Wolfstreet.com

Despite spending $14 billion on share buybacks, the price of GM’s shares fell 10% over the same period.

You’d think that GM, a company that went bankrupt not too long ago, would be conservative in how it uses its cash. Nope, they wasted their cash on stock buybacks, and now they have to take out loans in order to reposition the company in its market.

Failing to anticipate where their market is going isn’t a new GM story. It had a 46% share of the car market in 1961, and now has a 17.6% share. They emerged from bankruptcy in 2009, only to be laying off workers and shutting plants in 2018.

Some history: Through the Troubled Asset Relief Program, the US Treasury invested $49.5 billion in GM in 2008 and recovered $39 billion when it sold its shares on December 9, 2013. We lost $10.3 billion. The Treasury invested another $17.2 billion into GM’s former financing arm, GMAC (now Ally). The shares in Ally were sold on December 18, 2014 for $19.6 billion netting $2.4 billion.

Net, GM has cost taxpayers $7.9 billion, while the top decision-makers spent $14 billion largely to enrich themselves.

How were they enriched? Share buybacks boost stock prices. Usually the salary and bonus plans for top executives in public companies are keyed to share price, so the incentive to prop up the share price includes a personal reward. The Chairman and Board set the compensation plans for the CEO and C-suite. The composition of Boards is strongly influenced by the major shareholders, including the large stock funds, who want share price gains, along with a few buddies of the CEO.

We’ve just witnessed a decade of stock buybacks by large firms. They are doing that as opposed to investing in R&D, plant efficiency or market expansion. But companies can only go so far with financial engineering before they actually have to improve their businesses, and now GM has been burned by share buybacks.

This is more corporate greed that leads to the little guy facing real suffering when jobs are lost.

GM is a shot across the bow. The auto industry will follow with additional capacity reduction. Volkswagen has already warned that the shift to Electric Vehicles (EV’s) will drastically cut employment at its plants that manufacture internal combustion (IC) components. EV vehicle production is far less costly than IC vehicle production, so this will be a real and ongoing issue.

OTOH, car manufacturers all have an EV option, but people are still buying Toyota’s, Honda’s and Mazda’s, even though only a few are EV’s.

This new GM “plan” seems more like a smoke screen for being caught AGAIN behind a market that is moving away from them.

America: A sucker for saving GM in 2008.

And possibly, a sucker-in-waiting when the latest, greatest plan to make GM great again only works out for GM’s executives.

Facebooklinkedinrss

A Strategy for 2020 Emerges

The Daily Escape:

Fall in Hopkinton, MA – November, 2018 photo by Karen Randall

The 2020 election campaign has already started, regardless of whether we are ready.

“Big Idea” strategies are in the air. And the large group of potential Democratic presidential candidates are being discussed.

And we no longer have to chew on the failure by Democrats in 2016. We can now talk about lessons learned in the 2018 midterms, and how they may apply in 2020. Wrongo wants to highlight three Democrats who won in deeply Republican districts. Max Rose, who won on Staten Island in NYC; Kyrsten Sinema, who won the open Senate seat in Arizona; and Lauren Underwood, who won a Congressional seat in Illinois.

Rose won a district that went heavily for Trump in 2016. He beat a long-time incumbent Republican. He did it by asking for a chance to reshape the fortunes of working people. From the NYT:

He offered a simple, unifying message that was progressive in substance but relatively neutral in its delivery: that the system is rigged to benefit special interests, that the little guy is getting stiffed over and over, that we need better infrastructure and stronger unions.

Demographic change helped. Rose’s district covers parts of Staten Island and Brooklyn, where Millennials who have been priced out of living in Manhattan and trendy Brooklyn are now locating.

Kyrsten Sinema’s story is different on the surface, but similar in what got her elected. A three-term member of Congress, she campaigned on her biography. She was homeless for three years as a child. Sinema is an openly bisexual former Green Party activist who moved to the political center.

Sinema promised to be a nonpartisan problem-solver. She campaigned on health care and protections for people with pre-existing conditions. Sinema treaded lightly on immigration, but probably looked pro-immigrant versus her opponent Martha McSally, another member of Congress who was very anti-immigration. 2.1 million Latinos live in Arizona, and after Trump’s visit in October, there was a spike in Latinos returning early ballots. Most Arizona residents vote by mail, and many Latinos voted for Sinema.

Lauren Underwood won an Illinois Congressional seat held in the past by the infamous Denny Hastert. The 32-year-old African-American nurse, unseated four-term Rep. Randy Hultgren in a district that is 86% white. The district was gerrymandered after the 2010 census to make it an even safer Republican seat. She won by stressing health care for all Americans.

These three candidates were successful in traditionally Republican places. They each had great personal stories. They each ran as problem solvers who wanted to help working families. This shows there are two threads that mattered in 2018: The candidate, and a message that addressed the things that were alienating people in their districts.

If we widen out our view to America today, alienation is behind the rise of Trumpism, and the rise of populism across the world.

The leading cause of people’s alienation is economic inequality.

Candidates can win as centrists if they are willing to fight economic inequality, because everybody knows that the system is rigged to benefit special interests.

Progressives can also win on economic inequality, because the largest divide in our country is between the 98% and the 2%. This idea can unite us, because nowhere in the US do the capitalists outnumber the salaried and hourly wage people.

Remember what Franklin Roosevelt said in his acceptance speech: (emphasis by Wrongo)

Throughout the nation men and women, forgotten in the political philosophy of the Government, look to us here for guidance and for more equitable opportunity to share in the distribution of national wealth… I pledge myself to a new deal for the American people. This is more than a political campaign. It is a call to arms.

Today, Democrats need working people to vote for them if they want to win decisively. But since they govern like mainstream Republicans when in office, they must change to an FDR-like call to action.

It is possible to build voting coalitions that pick off a few red states in 2020. In fact, the midterm results were a terrible leading indicator for Trump in 2020. Without Hillary heading the ticket, Midwest states like Michigan and Wisconsin appear to be returning to Democrats. Pennsylvania is already back.

The Dems need to convince voters that governing the country in a manner that benefits everyone is a better idea than governing the country in a manner that benefits only a few.

The potential new votes for Democrats by following this strategy is largely the pool of non-voters. They are the majority in this country, and they are alienated.

They also outnumber the small percentage of persuadable Republican voters.

Nominating high quality candidates and fighting alienation are the keys to success in 2020.

Facebooklinkedinrss

Letter From Russia, Part III

The Daily Escape:

The Assumption Cathedral, Yaroslavl, RU. Originally built in 1210, it was  blown up by the Soviets in 1937 as part of their anti-religion policy. This new cathedral was constructed in 2010 on the same spot. In front is an eternal flame memorializing the soldiers and the workers of WWII.

Wrongo and Ms. Right spent the day in Yaroslavl, Russia. It’s a mid-sized town of about 600k residents, and an important port on the Volga River. The Volga is more than 2,000 miles long, tying the western Russian cities together. Yaroslavl is an ancient city, founded in 1010.

In Yaroslavl, we learned two interesting facts about Russian towns. Any town of size has a fortress that includes a church. In Russia, that space is called a “Kremlin”. Second, despite the collapse of the the Soviet Union, statues of the heroes of the revolution were not taken down. The idea is that young people should understand their history, both the good and the bad. Major streets have kept their revolutionary names as well.

Maybe there is a lesson in that for America.

In visiting both tiny towns and large cities, it quickly becomes evident that the peoples of Russia have suffered immensely over the centuries. They endured long periods of starvation, and their losses in blood and treasure at the hands of both their enemies and their rulers were truly extraordinary:

  • As many as 17 million died under Stalin in the Gulags. At their high point, there were thousands of Gulags across the Soviet Union.
  • In WWII, during the war with Germany, Russia lost 27 million people.
  • During the 400 years of serfdom, millions of serfs died during forced labor. They built the palaces, roads and waterways that remain in use today between Moscow and St. Petersburg.

If history teaches us just one thing about Russia, it is that its people know suffering. They have survived, and in Wrongo’s brief visit, appear to have thrived. Stores are full of product, markets are busy with the purchase of fresh vegetables, meats and fish. New cars are on the streets, theaters are open, and everything looks very clean.

How have a people who have endured so much suffering, succeeded in the modern world? How were they not irretrievably damaged by their multiple tragedies?

How are they so resilient?

Perhaps their legendary winters forge a determination to do whatever is necessary to survive a long, hard fight with limited resources. Perhaps Russia’s long history of invasion and occupation by hostile powers has played a role: Russians have been invaded by the Mongols, the Turks, the Poles, the Swedes, the Germans and the French. Their story is ultimately one of resilience despite tremendous loss of life, repeated destruction of infrastructure, and against long odds.

Another thing is that the people seem to have a profound and deep feeling for their homeland, Mother Russia. That seems to be true, regardless of who is in control in the Kremlin, or which Tsar was in charge at the time.

So they fought and died for the motherland, regardless of who was leading them.

Compare that with America’s resilience. How resilient are we, in the 21st Century? We have never faced invasion, but we have faced attack. On our homeland, we fought a seven-year revolution, and a bloody civil war. We’ve faced natural disasters.

After 9/11, we overreacted to the threat of Islamic extremists by weakening our First Amendment rights with the Patriot Act. We launched wars in Afghanistan and Iraq. But, we didn’t come together as a nation. In fact, 9/11 threw gasoline on the fire of America’s already factionalized politics.

When Japan attacked us at Pearl Harbor in 1941, we came together as a people. There were a few who said we shouldn’t go to war, but the vast majority of our people got behind a global war against fascism. We sent our fathers, brothers and husbands off to war. Women worked in the factories for the war effort. Some were on the front lines with the troops. We rationed butter and sugar.

Our people knew hardship, and pulled together in common cause.

The question is: Will today’s America still pull together in common cause? Do we have the strength of character, the grit, to fight for something larger than ourselves? Could we again sacrifice for what we believe to be the right thing?

Our response to the Great Recession of 2008 showed us that in an American financial crisis, it’s every person for themselves, unless that citizen happens to be a financial institution.

When you think about it, do you still love Lady Liberty enough to fight for her?

To send your kids to fight for her?

And, do you think that we love her as much as Russians seem to love Mother Russia?

 

Facebooklinkedinrss