Category: Corporatism

Monday Wake Up Call – September 26, 2022

The Daily Escape:

Arches NP, UT – September 2022 photo by Nathan Smith

It can now take longer than 10 years for a typical first-time US home buyer to afford the down payment on a modest house, so says S&P Global in a July report (registration required). From the report:

“By fourth-quarter 2022, it will take 11.3 years for a first-time homebuyer with median income to save for a 10% down payment. It will take this homeowner 22.6 years to save for a 20% down payment. Both are over twice their pre-pandemic rates of five and 10.6 years, respectively.”

S&P estimates that with house prices rising so quickly, down payments are now twice the amount that they were before the pandemic. They also estimate that 60% of households could be priced out of the housing market by Q4 2025.

The NYT also is looking at the US housing market. They say that the US has a deepening housing crisis, including an acute shortage of:

“small, no-frills homes that would give a family new to the country or a young couple with student debt a foothold to build equity…”

Factors include land costs, costs of construction materials and government fees. The typical new home has grown in median size over the past 60 years, while the average number of people living in each home has declined:

These long-term trends were accelerated by the pandemic, which drove up demand for homes and house prices as people scattered, worked from home, and snapped up second residences.

Local policies are also driving this new reality. The Times reports that communities nationwide:

“…are far more prescriptive today than decades ago….Some ban vinyl siding. Others require two-car garages. Nearly all make it difficult to build the kind of home that could sell for $200,000 today,”

So, high prices due to high demand. High mortgage rates due to the FED clamping down on inflation. And cities and towns making it more difficult to build low-end homes. On top of that, investors bought about a quarter of all single family houses sold last year.

Wrongo grew up when homes were affordable for a one-salary family. His 1,400 sq.ft. “starter home” in a tidy NJ suburb (walk to take the NYC train to Wall Street) cost $28,000 in 1970. We sold it for $38,000 in 1976. Zillow estimates that it would sell today for $647,000, 23 times what it did in 1969! It’s unbelievable how high home values in that neighborhood have risen.

Also, home buyer expectations are higher today. If a home doesn’t have an open floor plan, three bathrooms and granite countertops, most young buyers think they are settling for much less than they want.

Owning a home has been a part of the American Dream, but it’s one of the three legs of that dream that are currently being killed: (1) High housing costs (2) Stagnant wages and (3) High health-care costs. When you add college debt to the mix, you have the makings of a revolution against the 21st century’s form of capitalism.

Part of the American dream is for your kids to succeed. That starts with a good education in a school district that aligns with that goal. That can rule out most public schools in our larger cities. If young families can afford the costs of private schools in cities, they must be very well off.

The only way that most people can choose that kind of school is to look in the suburbs. Suburban school districts pay for their good schools with taxes on expensive homes. That means parents, and the local government all have a stake in keeping local property values as high as possible, thus the difficult zoning regulations that make houses larger.

But smaller homes are also desired by many retirees. People who are living out their golden years often want to “downsize” into an affordable small home, condo, or townhouse. Many of these developments are being built throughout America. They can be beautiful inside, but they are often attached or semi-attached boxes crammed together on land that was never supposed to be developed.

Time to wake up America! Today in most parts of the country there is hardly anything on the market for under $300,000. Not much that resembles the tidy starter home Wrongo purchased 52 years ago.

Affordable housing prices aren’t coming back without government intervention. America needs to look carefully at its housing policies along with how we have let financialization take over the housing market.

Financialization of housing refers to the increasing presence of corporations and organizations that are creating or using real estate management, mortgage processes, and financial instruments to profit-seek against individual homeowners.

To help you wake up listen to Buddy Guy perform “Gunsmoke Blues” along with Jason Isbell. The tune is highly relevant, and very powerful. It’s from Guy’s album ,“The Blues Don’t Lie” due out on September 30th:

Lyrics:

Trouble down at the high school
Somebody got the gunsmoke blues
Trouble down at the high school
Somebody got the gunsmoke blues
Read it in the morning paper
Watch it on the evening news

…

Some folks blame the shooter
Other folks blame the gun
But that don’t stop the bullets
And more bloodshed to come
A million thoughts and prayers
Won’t bring back anyone

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Corporate Money Is Flowing To Senate Republicans

The Daily Escape:

Sunset, Housatonic River, New Milford CT – 2022 photo by Tony Vengrove

There are just 55 days left until the 2022 midterm elections, and Wrongo’s crystal ball remains cloudy. For example, take the US Senate race in Pennsylvania. Democrat John Fetterman leads Republican Mehmet Oz by 48.5% to 40.4% in the 535 average of polls as of September 8. Sounds like a big lead, no?

But the US Chamber of Commerce told Axios on Sept. 11 that it was donating $3 million to support Oz’s campaign. Who is the US Chamber? They are an industry group that represents virtually every major American corporation. From Judd Legum:

“Corporations — whether individually or through a trade organization like the Chamber — are prohibited from donating $3 million directly to Oz’s campaign. (Corporate PAC donations are capped at $5,000 per election.) So instead, the Chamber is routing the money through the Senate Leadership Fund, a Super PAC set up by Republican Leader Mitch McConnell….The Senate Leadership Fund can raise unlimited funds from any source and spend them to boost Oz and other Republican candidates.”

In a statement, Chamber EVP Neil Bradley described Oz as “a pro-business champion” and said Fetterman “subscribes to a far-left, government-knows-best approach.”

So, America’s big corporations are against Fetterman. Sounds like a reason to be for him.

Legum takes a deep dive into where the US Chamber gets the millions it is donating to promote Oz’s candidacy: It comes from dues paid by member corporations. And which corporations are members? The Chamber keeps its membership list secret. More from Legum:

“We know, however, that virtually every major American corporation is a member of the Chamber. The Chamber’s board of directors includes representatives from FedEx, Bristol Myers Squibb, Facebook, AT&T, United Airlines, Abbott, 3M, Microsoft, Deloitte, Fidelity, Chevron, Intuit, Xerox, Pfizer, Dow, AllState, Delta, and many others.”

And most member companies don’t have a board seat. Their donations are secret as well, but CVS disclosed that it paid $500,000 to the Chamber in 2021 and $325,000 to a related organization, the US Chamber Institute for Legal Reform. And CVS isn’t a board member! Imagine how much the really big guns paid.

A few major corporations aren’t members. Apple, for example, resigned its membership in 2009 in protest of the Chamber’s policy on climate change.

Sadly, corporations are not accountable (or even visible) in their support of the extreme policies of the GOP when they donate through vehicles like the US Chamber. We have to hope that as the Republican message gets ever more extreme, corporations will have a harder time continuing their support for this type of Citizens United chicanery.

This shows just how scummy our politics have become with the help of the Roberts Court and the Federalist Society. If it’s illegal to donate a certain amount directly to this person or organization, we simply create a PAC or a Super-PAC, and then donate huge sums directly to them.

If creating a PAC achieves this result, how is the individual limitation protecting democracy?

There’s an old joke about how if you know a little about politics, your issues are guns, abortion and taxes. If you know a lot about politics, your issue is campaign finance reform.

Pennsylvania is one of a handful of states that could determine which Party holds the majority in the Senate. While Fetterman has a lead, Pennsylvania is still a competitive state, with money pouring into its governor’s race as well. This $3 million from the Chamber could have a real impact on the outcome.

It’s important to understand that more than 40% of the Pennsylvania electorate seems to want what Oz is offering. That’s scary, and it speaks to something that many in the media don’t want to address. They’re actually scared to address what the Republican Party has become. It isn’t surprising because the media are both a large part of the problem and not a part of the solution.

And when Biden accurately calls out what the Republican Party has become, when he says that Republican behavior and beliefs are inimical to what America is supposed to be, the media says he’s being divisive.

Oz is an example of what happens when one Party creates an existential situation out of whole cloth. When it’s backed by their 30 years of increasing extremism, the existential threat to democracy is now real.

No, America’s corporations aren’t going to save you. Giving money and time to Democratic Senate candidates like Fetterman, or Georgia’s Warnock (up by 2%), or Arizona’s Kelly (up by 2%), or New Hampshire’s Hassan (up by 4%), or Ohio’s Ryan (up by 1%), or North Carolina’s Beasley (up by 1%) MIGHT save you.

Do what you can.

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Monday Wake Up Call – September 12, 2022

The Daily Escape:

Harvest Moon, Cape Cod National Seashore, MA – September photo by Tom Baratz

With all of the media’s coverage of the comings and goings of the British monarchy, Wrongo’s certain that you missed the reviews of a new book, “Slouching Towards Utopia” by Brad DeLong, an economist from UC Berkeley. Dylan Matthews in Vox quotes DeLong from the book:

“The 140 years from 1870 to 2010 of the long twentieth century were, I strongly believe, the most consequential years of all humanity’s centuries.”

Matthews thinks it’s a bold claim. After all, homo sapiens has been around for at least 300,000 years; DeLong’s “long twentieth century” represents 0.05% of that history.

But DeLong says an incredible thing happened during that sliver of time that had eluded our species for the other 99.95% of our history: Before 1870, technological progress was glacial, but after 1870 it accelerated dramatically. More from Vox:

“DeLong reports that in 1870, an average unskilled male worker living in London could afford 5,000 calories for himself and his family on his daily wages. That was more than the 3,000 calories he could’ve afforded in 1600, a 66% increase….But by 2010, the same worker could afford 2.4 million calories a day, a nearly five hundred fold increase.”

DeLong is speaking of the nations of the rich north, not about all nations. He’s saying that food surplus was the key driver of progress. What’s implied is that the greatest difference between the wealthy and everyone else was that the poor were living on the verge of starvation. Those basic economic facts shifted once having enough to eat ceased being society’s most critical status distinction.

Another interesting statistic from the book:

“…the average number of years of a woman’s life spent either pregnant or breastfeeding…has gone down dramatically, from 20 years of a typical woman’s life in 1870 to four years today.”

Most historians present modern history as a long 19th century (from the French revolution in 1789) to the crisis of 1914. Which is then followed by a shorter 20th century ending with the fall of communism. DeLong, by contrast, argues that the period from 1870 to 2010 is best seen as a coherent whole: the first era, he argues, in which historical developments were overwhelmingly driven by economics.

From the Economist:

“…despite the Industrial Revolution…for millennia, technological improvements never yielded enough new production to outrun population growth. Incomes had stuck close to subsistence levels. Yet from around 1870, growth found a new gear, and incomes in leading economies rose to unprecedented levels, then kept climbing.”

DeLong says that economic policy in this period was a duel between the ideas of Friedrich von Hayek, who extolled the power of the free market, and Karl Polanyi, who warned that the market should serve man, not man serving the market.

Before WWI, markets generated rapid growth along with soaring inequality. People pushed back, demanding greater political rights, which they used to pursue regulation of the economy and improved social insurance.

After WWII, a mix of a market economy and a generous safety-net made for a happy marriage of Hayek and Polanyi, improved by Keynes, who said that governments should act to prevent economic recessions. This led to a three-decade post-war period of growth unmatched before or since. DeLong calls them the Thirty Glorious Years; from 1945 to 1975, as the US and Europe recovered from World War II.

But when growth sagged and inflation rose in the 1970s, voters supported politicians promising market-friendly, or “neoliberal”, economic growth reforms, like lower taxes and reduced regulation. But those reforms didn’t keep economic growth high. And they also led to even worse inequality. Still, the US and other rich countries pressed on with them, right up to the 2008 global financial crisis, which marks the end of DeLong’s 20th century.

According to a paper by Carter C. Price and Kathryn Edwards of the RAND Corporation, had the more equitable income distribution that America experienced in those thirty glorious years stayed constant, the aggregate annual income of Americans earning below the 90th percentile would have been $2.5 trillion higher in just the year 2018. That’s an amount equal to nearly 12% of GDP.

Price and Edwards say that the cumulative inequality cost for our 40-year experiment in government-supported income inequality added up to $47 trillion from 1975 through 2018. And probably equaled $50 trillion by 2020.

That’s $50 trillion that would have made the vast majority of Americans far more healthy, resilient, and financially secure.

So, the big unanswered question is: Can we again return to a period where we see both economic growth and equitable growth? It’s highly doubtful. As DeLong says in Time:

“Our current situation: in the rich countries there is enough by any reasonable standard, and yet we are all unhappy, all earnestly seeking to discover who the enemies are who have somehow stolen our rich birthright and fed us unappetizing lentil stew instead.”

The problem here is that our entire culture, economy and even our civilization is predicated around growth and people haven’t known anything else. Hope you’ve enjoyed the ride.

Time to wake up America! We need to reimagine capitalism, our taxation policies and our welfare scheme if we are to survive. Expect a rough adjustment.  To help you wake up, listen, and watch Bruce Springsteen perform “Darlington County” live in London in 2013:

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Companies Are Making Inflation Worse

The Daily Escape:

Grand Park, Mt. Rainier, WA – August 2022 photo by Edwin Buske Photography

As discussed yesterday, polls are showing that voters are still concerned about inflation. The good news over the past two days is that producer prices (prices at the wholesale level) and consumer prices both fell from June to July.

But these inflation concerns won’t be going away, and the Republicans hope to make the November midterms a  “gas and groceries” election, saying Biden is the cause of rising prices. In July’s Consumer Price Index, the price of groceries was a particular pain point, rising 1.3% for the month. Wolfstreet reports that the year-over-year rise in the “food at home” part of the CPI (food bought in stores and at markets) is now at 13.1%, the worst spike since 1979.

Food is a category where inflation hits consumers right in the face on a daily basis. And it hits people on the lower end of the income spectrum much harder because they spend a relatively larger portion of their income on food.

But the fall in gasoline prices over the last couple of months is also meaningful. After peaking in June at $5.03 per gallon, the average national price of gas fell below $4 this week, according to GasBuddy.

The Hill reports that Biden will go on offense against the Republicans’ drumbeat about inflation by traveling the country to tout job creation and the Inflation Reduction Act, once it is passed by the House on Friday. Biden plans to make the point that Congressional Republicans sided with the special interests every step of the way on delivering lower costs for working people.

That won’t hurt Dems chances in November, but will it be enough to offset what’s happening with retail prices? Here’s another striking set of facts from Bloomberg:

“The first sign that this wasn’t going to be a typical corporate earnings season came early on the morning of July 12, when PepsiCo Inc. unveiled an odd set of results. Growth in unit sales, it said, was essentially zero in North America. Revenue rose though, driven by the double-digit price increases Pepsi slapped on its snacks.”

They weren’t the only consumer product company to raise prices as sales fell: The purple dots show how unit sales fell (as much as 10% for Clorox) while prices (green dots) rose in most cases, more than 10%. And revenue (yellow dots) rose for all firms:

This is bad for the economy on many levels: Price-driven sales growth isn’t healthy; and it isn’t good for consumers who have lost purchasing power (and are angry about it). It isn’t good for our overall economy, or for the Federal Reserve that’s trying to bring down inflation.

Many CEOs are willing to raise prices because it’s no longer the taboo it has been for the past two decades, when annual inflation averaged a little more than 2%. Their thinking is that if volumes slip a little as a result of the price hikes, their share prices won’t take a beating. So no worries, just raise prices.

The bet that these consumer products CEOs are making is that once things settle down in the economy, people will come back. Bloomberg quotes  Neil Saunders, an analyst at GlobalData Plc, a consulting company:

“If they keep losing share next year, they’ll take more notice. It’s very hard at the moment to tell what’s temporary and what’s permanent.”

Starbucks, Coca-Cola, Kimberly-Clark, and Church & Dwight, the maker of Arm & Hammer baking soda and OxiClean, all reported quarterly numbers that fall into the weak-volumes-and-big-price-hikes category. More from Bloomberg: (emphasis by Wrongo)

“One of the best examples is Conagra Brands Inc., the…Chicago-based food conglomerate, which reported results on July 14. A core measure of its revenue jumped 6.8%, in the three months that ended on May 29, thanks to an increase of 13% in the average price it charged….The amount of goods it sold, though, fell 6.4%.”

We know that inflation is very high, among the highest rates in the past 40 years. It now seems clear that consumer products companies are a prime contributor to these price increases.

We know that unemployment is as low as it’s been in 50 years. The labor market is strong. We know that the growth rate of GDP was really high in 2021, and that it’s slowing in 2022.

What we don’t know is how voters are going to act in November.

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Monday Wake Up Call – July 11, 2022

The Daily Escape:

Penstemon and Paintbrush, with Mt. St. Helens in background – June 2022 photo by Edwin Buske Photography

There are two big economic issues that the media and pundits say will influence the 2022 mid-terms: inflation, and the possibility of a recession.

Let’s start with the scare of a looming recession. Most Americans have been told that a recession occurs when real GDP contracts for two consecutive quarters. Sounds easy to figure out, but this definition wasn’t met in two out of the last three recessions. Some facts: The 2020 downturn lasted just two months, not two quarters. And during the 2001 recession, real GDP didn’t contract for two quarters in a row either.

The difference is that recessions are determined not by pundits but by a group of economists at the National Bureau of Economics (NBER), and they use several measures beyond GDP to make it official. Here’s how they explain it:

“A recession is a significant decline in economic activity spread across the economy, normally visible in production, employment, and other indicators…”

They go on to say that:

“There is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions.”

In recent decades, the two measures that have had the most weight are real personal income and non-farm payroll employment. So, despite what you’re hearing from pundits about GDP, it basically boils down to income and employment. If income and employment turn south, there’s a good chance economic output will be lower.

But after two quarters of 2022, while output is slowing, income and the labor market are both still solid. The WSJ quotes Robert Gordon a Northwestern University economics professor and member of the NBER’s committee that decides on recessions:

“We are going to have a very unusual conflict between the employment numbers and the output numbers for a while…”

The US economy added 1.6 million jobs in the first quarter, and another 1.1 million jobs in the second quarter. Those numbers certainly don’t look recessionary, despite what the media is trying to tell us. U6, which is a measure of underemployment declined -0.4% to 6.7%. This is a new all-time low for U6, which has been tracked since 1994.

It may seem like splitting hairs to talk about the definition of a recession. But we need to be prepared for the coming political scenario where some argue we’re in a recession while others will refute that idea vigorously.

In this mid-term season, things are going to get weird.

Let’s turn to the scourge of inflation. It is among the first stories on the local news every night, but you might not know that as Paul Krugman says:

“The wholesale price of gasoline has fallen about 80 cents a gallon since its peak a month ago. Only a little of this plunge has been passed on to consumers so far, but over the weeks ahead we’re likely to see a broad decline in prices at the pump….what are the odds that falling gas prices will get even a small fraction of the media coverage devoted to rising prices?”

That seems to point to profit taking by the petroleum corporate interests. Have you noticed how much profit they have made lately? ExxonMobil plans to buy back $30 billion of stock this year with the extra money that we all paid at the pump.

Last Friday, PBS talked about a looming wage-price spiral, a neoliberal concept that says rising wages drive prices. But the annualized rate of wage growth, comparing the last three months (April, May, June) with the prior three months (January, February, March), was 4.3%,down from a previous annualized rate of 6.1%.

This is big since the Fed’s plans for aggressive interest rate hikes is based on its concern about a 1970s-type wage-price spiral. It is impossible to have a wage-price spiral when wage growth is slowing. The current 4.3%  wage growth is less than one percent higher than the 3.4% rate in 2019 when inflation was comfortably below the Fed’s 2.0% target.

Retailers are now stuffed to the gills with merchandise. What happened was that all of the product that was stranded at sea has finally reached store shelves. They will hold massive sales this fall to get rid of it, and that will lower prices.

The lockdowns in China are mostly over, last year’s fiscal stimulus has worked its way through the economy, and the Fed has begun sharply raising interest rates.

Krugman feels that as the economy weakens, the prospect for sustained inflation is receding.

Time to wake up America, don’t get demagogued by the scary economic terms that the politicians will throw at you. To help you wake up, let’s listen to Barenaked Ladies – “If I Had a Million Dollars” Live in Michigan in 2007:

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J&J’s Texas Two-Step

The Daily Escape:

Wallowa Lake near Joseph, OR – May 2022 photo by Danny J Goff

From Judd Legum:

“Nearly 40,000 lawsuits have been filed against Johnson & Johnson (J&J), alleging that the company’s baby powder causes cancer. The lawsuits claim that customers became sick with mesothelioma or ovarian cancer after being exposed to asbestos contained in talcum powder.”

In July 2018, a Missouri jury awarded $4.7 billion in damages to 22 women who said they contracted ovarian cancer from J&J baby powder. According to judge Rex Burlison, J&J:

“…knew of the presence of asbestos in products that they knowingly targeted for sale to mothers and babies, knew of the damage their products caused, and misrepresented the safety of these products for decades.”

Obviously J&J appealed, and an appeals court reduced the verdict to $2 billion. J&J wasn’t satisfied and further appealed the verdict, ultimately to the US Supreme Court. In June 2021, however, the Supremes refused to hear the case, letting the $2 billion award stand.

J&J had no interest in bankruptcy, but came up with another strategy to protect most of its assets from the current and any future judgements. In July 2021, the company launched “Project Pluto,” in which J&J would create a new subsidiary, LTL Management, which would “own” the liability for the baby powder litigation. It also would receive about $2 billion in cash. LTL would then declare bankruptcy.

More from Judd Legum:

“J&J is attempting to exploit a 1989 Texas law, deploying a legal maneuver known as the “Texas two-step.” J&J temporarily became a Texas company and then executed a “divisive” merger. The move split J&J into two new companies: one with almost all of the assets and no baby powder liability and another with all of the baby powder liability and few assets.” The latter almost immediately filed for Chapter 11 bankruptcy.

More:

“By filing for bankruptcy, all civil litigation against LTL Management is immediately halted. The claimants no longer have the ability to have their claims heard in court. Instead, if the scheme is successful, all claimants have to split up a limited pool of assets defined by J&J.”

That’s the “Texas Two-Step.” You may remember that in 2021, the NRA had requested to be reincorporated in Texas when it filed for bankruptcy, a move hailed by Texas governor Gregg Abbott. It would also have led to splitting the NRA into two companies, with the liability in the new firm. That effort failed when a Texas judge wouldn’t allow the move without the approval of New York State, something NYS wouldn’t do.

It’s possible in every state to split a company’s assets and liabilities through a spin-off, and spin-offs have often been used to fraudulently transfer assets that might be part of a bankruptcy. The Two-Step exploits a quirk of Texas law, which defines “merger” as including not just two companies merging into one, but also the exact opposite, when a company divides into two or more entities.

Texas and Delaware are the two states that allow for such “divisive” mergers. This type of “merger” avoids what in bankruptcy circles is called a “fraudulent transfer” of assets, assets that should by rights be considered a part of the bankruptcy estate to be divided among the firm’s creditors.

The deemed lack of an asset transfer is what makes the Texas Two-Step unique and interesting to J&J.

The Senate Judiciary Subcommittee on Federal Courts, Oversight, Agency Action, and Federal Rights, led by Sen. Sheldon Whitehouse (D-RI), is looking into the legality of the Texas Two-step:

“It does not make sense for a $450 billion corporation with 38,000 people with potentially lethal injuries to be able to carve off $2 billion…and walk away from the responsibility for what it did.”

We’ll see what becomes of the lawsuits against J&J and the LTL Management company.

More broadly, this shows we need to substantially strengthen the US bankruptcy fraudulent transfer laws. Unfortunately, that’s a political fight between the capitalist wolves and the consumer lambs, with all the best lawyers on the side of the wolves. For example, J&J has retained Neal Katyal, former Acting US Solicitor General under Obama to help with their liability carve-out. Katyal is earning $2,465/hour while working for J&J. Seems reasonable, no?

The wolves know that the legal positioning really matters. They will fight tooth and nail to keep the firm’s money in the firm and out of the hands of the plaintiffs. Even though there are substantially more lambs than wolves, the lambs have neither the resources nor the smarts to protect themselves.

These greedy schemes by America’s biggest firms are designed to dodge financial responsibility. J&J is attempting to cheat cancer patients from getting what the courts have already awarded them.

The management and their attorneys should face prison time for depriving justice to these consumers who won in court.

If we can’t bring Capitalism to heel, it must go.

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China’s Torpedoing the Supply Chain

The Daily Escape:

Spring snow, Mt. Princeton, CO – April 2022 photo by Haji Mahmood

For the past two years, Covid has thrown the global supply chain into a tailspin. Even though the cargo industry’s ships, trains, trucks, and planes worked full-time, we still have shortages. Now, China’s zero Covid policy is increasing both the uncertainty and costs of efficiently operating the still-choked global supply chain.

From Bloomberg:

“We expect a bigger mess than last year,” said Jacques Vandermeiren, the chief executive officer of the Port of Antwerp, Europe’s second-busiest for container volume, in an interview. “It will have a negative impact, and a big negative impact, for the whole of 2022.”

Bloomberg says that China accounts for about 12% of global trade. It’s recent Covid lockdowns have idled factories and warehouses, slowed truck deliveries and exacerbated container logjams. And since US and European ports are already swamped, this new outage will leave them vulnerable to additional shocks.

China is home to six of the world’s 10 largest container ports. It’s the global economy’s most important manufacturing hub. While most countries have decided to learn to live with the Covid, Beijing has maintained its Zero Covid policy, where even small outbreaks can shut down large population centers and slow economic activity.

It’s taking an average of 111 days for goods to reach a warehouse in the US from the moment they’re ready to leave an Asian factory. That’s similar to the record of 113 set in January 2022 and more than double the time that the same trip took in 2019, according to Flexport Inc., a freight forwarder.

Julie Gerdeman, CEO of supply-chain risk analytics firm Everstream Analytics says:

“Once product export activities resume and a large volume of vessels make their way to the US West Coast ports, we expect waiting times to increase significantly…”

You’d think that after more than two years into this pandemic, America would have realized that single-sourcing much of our industrial production to a dictatorship is a bad idea. One with enormous consequences when something goes wrong.

But we haven’t. US Treasury Secretary Janet Yellen has advocated for what she calls “friend-shoring” meaning reducing our dependence on China and Russia. Brian Ehrig, a partner at the consulting firm Kearney is co-author of a report that found 78% of CEOs are either considering reshoring or have done it already. He says that relocating supply chains:

“…might cost more, but if you can make smaller quantities that you can then sell at closer to full price, you can actually completely change the game…”

Le Monde reminds us that capitalism has created hidden dependencies in Ukraine. It is the main producer of the wiring harnesses that hold together the many electrical cables in a car. They quote Christine Lagarde, president of the European Central Bank (ECB) in a speech in Washington, DC: (brackets by Wrongo)

“Ukraine produces one fifth of Europe’s [harness] output,”

These parts are low value added, but essential in the construction of cars, a perfect outsourcing target for capitalism. Globalization isn’t going to die; but maybe it can evolve. Much of that possible shift hinges on convincing consumers to accept higher prices for the certainty of supply.

For example, once the CDC finally gave us unambiguous advice about wearing masks, there was a huge rush to open mask production facilities in the US. But now they’ve all closed, because it’s cheaper to make masks in China.

Dictatorships can ensure that labor remains cheap. That’s great for capitalists, not so good for people who needed masks in 2020 when China decided to keep most of them for their population. Or, now, when China is still willing to shut down its economy to stop a Covid outbreak.

And, despite all the good will in the world, nobody will make masks in the US if it means their five-dollar boxes of masks go unsold because everyone is buying the one-dollar boxes. Instead, they will complain about how the company asking five dollars is a bloodsucker.

We’re told that capitalism works. That it just does. That just-in-time supply cuts costs for consumers. But does it?

Art installation by Steve Lambert – 2013, Times Square, NYC

It’s proven not to work during an emergency. But what are the chances of re-shoring ever happening? Business school really only teaches one thing: Short-term profits rule and everything else is irrelevant.

After all, America is a business, not a country.

What should be readily apparent is that despite the CEO poll above, our corporate masters are certainly not thinking about systemic change to supply chains. Nor will they, as long as the focus is reducing costs as low as possible for maximum shareholder gain.

The point is that unless business is incentivized otherwise, don’t expect the supply chain to get any better. That incentive must come from the government in the form of tax policy or subsidy.

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Saturday Soother – April 23, 2022

The Daily Escape:

North Landing River, near Virginia Beach, VA – April 2022 photo by Erik Moore

Our media ecosystem is overwhelming us. Some of the information is accurate, some is bogus, and much is intentionally misleading. And that’s a deliberate strategy. While it didn’t originate with Steve Bannon, he perfected it with his thought that:

“…the Democrats don’t matter….The real opposition is the media. And the way to deal with them is to flood the zone with shit.”

This is why the ongoing cultural war works so well for Republicans. There’s always some petty war going on between the Parties that’s stoked by the media. And it’s almost always about cultural issues since Republicans really don’t have a policy platform, and don’t want to go against large corporate America. When you go against corporations, you lose the money needed to get elected.

But we should see the big corporations as our common enemy. Time Magazine has an article about how overtime pay has disappeared:

“If it feels like you’re working longer hours for less money than your parents or grandparents did, it’s because you probably are. Adjusted for inflation, average hourly wages have actually fallen since the early 1970s, while average hours worked have steadily climbed. American workers are increasingly underpaid, overworked, and overwhelmed.”

One reason is the loss of overtime pay:

“If you’re under the age of 45, you may have no idea that overtime pay is even a thing. But…middle-class workers used to get a lot of it….That means that [for] every hour you work over 40 hours a week you work for free, contributing…a giant pool of free labor that modern employers have come to expect and exploit. Profits are up, real wages are down, and income inequality has soared to its highest level since the Gilded Age.”

Overtime pay was one of the great New Deal reforms. It was a core provision of the Fair Labor Standards Act (FLSA). The FLSA set the minimum wage at one-half the median wage and the overtime threshold at three times the minimum—an amount equal to 1.5 times the median wage.

But both the minimum wage and the overtime rules began to change in 1975, and rising income inequality since 1975 is responsible for a $50 trillion upward redistribution of wealth and income from the bottom 90% households to those in the top 1%. Here’s a chart showing the impact of losing overtime. Productivity goes up, but is completely decoupled from income:

Source: chartr

The Economic Policy Institute has a tool called “Company Wage Tracker” that allows you to select any big corporation and see what percentage of their employees make below a certain wage. For example, it shows that 51% of Walmart employees earn below $15/hr.

The NYT wrote about Mary Gundel, a manager at a Dollar General store in Tampa, FL who was fired for speaking out about the chain’s policies regarding overtime and short-staffing:

“The store used to have about 198 hours a week to allocate to a staff of about seven people….But by the end of last month, she had only about 130 hours to allocate….With not as many hours to give to her staff, Ms. Gundel often had to operate the store on her own for long stretches, typically working six days and up to 60 hours a week with no overtime pay.”

Ms. Gundel was working 60 hours a week and making $51,000 a year. That means she’s making only a little more than the minimum wage. Dollar General is one of the most profitable retail chains in the country.

Prices are going up everywhere across America, and corporations are making proportionately more income. This is what the Democrats should be focusing on, standing up for workers, doing what is right as opposed to groping for answers to the Republican’s culture war issues.

There’s plenty that’s wrong in America. But what’s wrong doesn’t see the light of day alongside all of the pissing contests about Critical Race Theory, or predator grooming or LGBTQ issues. These are ginned-up to make sure you won’t pay attention to what’s really going on.

Something seems to be brewing. We’re seeing halting attempts at unionization at Starbucks and Amazon. Those employees want a better life; they want to have a seat at the table about the future of the company.

We need to remember that without the “essential workers” the country grinds to a halt. We need to support those who try to organize. We need to wrest some economic power away from politicians and big businesses. And finally, some faceless people who are sick of being wronged are trying to do just that.

Enough for another week. It’s time to let go of the news. It’s time for our Saturday Soother. On the Fields of Wrong we’re preparing our vegetable garden, although it will be a few weeks before it’s warm enough for the plants to survive. We had an overnight temperature of 32° earlier this week.

Now, grab a seat by a large window and listen to violin soloist Soojin Han play Chopin’s “Nocturne No.20 in C# minor” in August 2019. She’s playing on a 1666 Stradivarius:

It sounds beautiful.

Chopin composed the piece in 1830, but it was published in 1875, 26 years after his death. It was featured in the movie “The Pianist” in 2002.

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Boeing Documentary Shows Corporate Malfeasance

The Daily Escape:

Mount Liberty, White Mountains, NH – February 2022 photo by AG Evans Photography

Over the weekend, Wrongo and Ms. Right watched the Netflix Boeing documentary: “Downfall: The Case Against Boeing”. You can watch the trailer here. It exposes how Boeing’s management, Wall Street’s influence and the cratering of Boeing’s culture of quality control, resulted in two plane crashes of the 737 MAX, just months after being placed in service.

That two new planes would go down within five months of each other was beyond a chance event in 21st Century airplane manufacturing. Boeing initially blamed the pilots based in Indonesia and Ethiopia for being poorly trained. But it turns out that Boeing knew all along that the 737 MAX had a critical software problem that caused the plane to go into an irreversible nosedive.

The film makes it clear that pilots had just 10 seconds to reverse those faulty software commands before it was too late. It shows that Boeing told the FAA and the airlines that purchased the MAX that no new pilot training was required to fly the new plane, even though pilots knew nothing about the software or the glitch.

Boeing was lying about training to keep the costs of the new aircraft competitive with Airbus. It was a lie that Boeing took months to correct. It also took months for Boeing to admit that they were flying an unsafe plane.

Why did this (and even worse things) occur while Boeing was attempting to bamboozle the Feds, the airlines, crash victims and their families? Money. The film features Michael Stumo, father of Ethiopian Airlines crash victim 24-year-old Samya Stumo. While not mentioned in the film, Ralph Nader is Samya’s uncle. At the time, he published an open letter to Dennis A. Muilenburg, then-CEO of Boeing. Here’s a part of his letter: (brackets by Wrongo)

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

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

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

Nader notes that Boeing was one of the companies that MarketWatch labelled as “Five companies that spent lavishly on stock buybacks while pension funding lagged.” More:

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

Nader shows that Boeing had the capital to invest in developing a new plane. They also had problems with the launch of the 787:

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

The 737 MAX was the answer to Boeing’s prayer. It allowed them to continue their share buybacks while paying for the 787 cost overruns. Abandoning the 737 for a completely new plane would’ve meant walking away from a financial golden goose.

Rep. Peter DeFazio (D-OR) who chaired the House Committee on transportation and infrastructure that investigated Boeing, said:

“My committee’s investigation revealed numerous opportunities for Boeing to correct course during the development of the 737 Max but each time the company failed to do so, instead choosing to take a gamble with the safety of the flying public in hopes it wouldn’t catch up with them in the end…”

Wrongo remains baffled by how Boeing management was given a pass after this gross negligence. They paid the US government $2.5 billion to settle criminal charges that the company defrauded the FAA when it first won approval for the 737 MAX. The deal deferred any criminal charges by the DOJ to January 2024 and will dismiss the case then if there are no more misdeeds by the company.

Perhaps this is another example of a corporate mistake that’s simply too big to be punishable in the US. That means US corporations and their CEOs are immune to accountability. This should have put people into prison, but the CEO got off, and ultimately got a $62.2 million severance for his misdeeds, despite a lot of people dying on his watch.

To curry favor on Wall Street, Boeing reduced salaries. They cut costs deeply in quality assurance and safety programs to give the shareholders more money.

See the movie. Be outraged. Elect more people like Peter DeFazio.

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Saturday Soother – December 4, 2021

The Daily Escape:

Mexican Hat Rock, Mexican Hat UT – 2021 photo by Jacky and Rick

The media keeps talking about inflation, saying that it’s bound to hurt the economy any time now. They mean that inflation will make workers ask for higher wages. That will force companies to pay workers more, and thus, lower corporate profits.

Sounds like a problem, but as Bloomberg reports, the fattest corporate profits since 1950 are debunking inflation stories spun by CEOs. US corporations enjoyed the widest profit margins in more than 70 years during the second and third quarters of 2021. US corporate profits before adjustments rose to a record high of $3.14 trillion in the third quarter of 2021. From Bloomberg:

“On earnings calls, plenty of executives complained about the squeeze from rising costs of labor as well as materials. But overall, profits were up 37% from a year earlier, according to data out last week from the Commerce Department.”

Nearly two thirds of publicly traded US corporations have reported higher profit margins this year compared to 2020. One hundred of the largest have booked profit margins at least 50% higher than last year’s levels.

Bloomberg reports that businesses have been paying more to their employees too, with total compensation up 12% in the last quarter vs. a year earlier. It’s not that every worker got a raise. A significant part of the increase was due to millions of Americans simply returning to work. But many got raises too. To date, hourly earnings broadly kept up with the fast-rising cost of living. And in some low-pay industries like leisure and hospitality they’ve outpaced it, although not by enough for those firms to get fully staffed.

The new data on corporate earnings suggest businesses are comfortably passing on their higher costs. In recent months, a number of US companies including Coca-Cola, Procter & Gamble, Chipotle, and Dollar Tree have announced price hikes, claiming that the increases were necessary because of higher wages and material costs.

But the Bloomberg data say that these corporate kings are using price hikes to pass their sky-high CEO pay and marginal increases in material and labor costs to consumers, in order to keep padding their already historically strong profit margins.

Still, politicians are calling for Fed Chair Jerome Powell’s head. Sen. Tom Cotton (R-AK) wrote in the WSJ that Powell doesn’t deserve another term because he caused inflation. Powell’s policies have contributed to US inflation, but there’s zero evidence that US inflation is a problem today.

For months, corporate executives and right-wing politicians have been parroting the claim that inflation in the US is due to Biden’s social spending policies. But the new data show that inflation is going up largely because corporations are driving it.

Remember, corporate profits are up by 37% while inflation amounted to about 6.2% in the same period. In other words, as the economy reopened and prices for goods went up, and corporations used the situation to raise prices a lot.

In fact, the FTC just announced it voted 4-0 to investigate the relationship between competition and supply chain problems. The FTC sent letters to nine dominant firms in supply, retail, and wholesale, mandating they respond within 45 days to a host of questions, as well as give internal documents on various topics.

This matters. Inflation and shortages aren’t neutral forces. The twin problems seem to be *helping* big business improve their profit margins. It’s important to ask why they are happening and who has an incentive to keep them going.

Even Morgan Stanley is now asking corporations to hit the brakes on accumulating profits. Their research division released a report highlighting the gap between corporate profits and worker wages. From the report:

“Real wages…still have to grow by 7.3% in excess of productivity growth to make up the gap….If this catch-up takes place over the next 5 years, unit profits will fall 33% from current levels…This would move the corporate profit share back to its 1990s average on a pre-tax basis and leave it just marginally above on a post-tax basis.”

Imagine. An investment bank telling corporations that they really should be making less profit. Things must be really going to get much worse than we think.

Let’s launch into our weekend, starting with a Saturday Soother. Try to forget about whether a government shutdown will hurt you or Biden, or whether the Supreme Court is now filled with ideological hacks.

Instead, grab a seat by a window and listen to “The Girl with the Flaxen Hair” by Claude Debussy. The Art Nouveau period was obsessed with women’s hair. Debussy was immersed in that world. It’s played here by the LA-based, Sakura cello quintet. Wrongo is a sucker for cello, and there are five of them! This was originally written for piano, and is transposed here for cello:

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