Economic Policy – Page 33 – The Wrongologist

Do Demonstrations Matter Anymore?

Newsweek reported that The People’s Climate March on Sunday in New York was perhaps the largest climate change protest in history. Between 300,000 and 400,000 people took to the streets. Celebrities and high-profile politicians were among the marchers. The protest was big on social media, but it was largely ignored by the TV talking heads. HuffPo reported:

All in all, it was a perfect opportunity for some of America’s biggest news organizations to cover the topic of climate change, something that usually gets either ignored or badly handled. For Sunday talk show hosts, there was even a nice political hook, since the march was pegged to a UN summit that President Obama will be attending.

But HuffPo said that no Sunday morning show except MSNBC’s “Up” so much as mentioned climate change, or the march. There was one reference on “This Week” by The Nation’s Katrina van den Heuvel, who pointed out that the march was actually gathering right outside the ABC studios in Lincoln Center where the show is taped. The fact that more people actually showed up for climate change than an iPhone 6 sale in New York City is big news and it should have been covered!

Why no coverage? And more important, do demonstrations matter anymore? From Juan Cole:

Don’t get me wrong. I am all for demonstrating and admire everyone who came out in New York City on Sunday (some 400,000 according to Time magazine) to demand that world leaders deal urgently with climate change.

Cole makes the point that in the current political climate, holding large rallies rarely results in any political change. But, there have been exceptions. Consider the 1963 March on Washington. That was a case where succinct demands were associated with ground-up mass actions across America. It did not bring about immediate results, but the demonstrations combined with months, and sometimes years of base-level organizing, delivered energy and momentum to that same cohesive set of demands.

But the 21st century is not the 1960’s. Now, people just send a tweet and think they’ve accomplished something. The failure of demonstrations today is symptomatic of the failure of our democracy, which refuses to separate corporate money from elections, or from influencing the mass media. Pew Research reports that only 40% of Americans think that it is important for Congress and the White House to tackle the issue of climate change. The public already knows about climate change and sees it as a problem, yet nothing is done by either party, because it would inconvenience their corporate patrons, and anger the Koch brothers.

A 2010 Stanford University poll showed that voters are unpersuaded by the usual arguments against taking action on global warming:

Only 18% believe that slowing climate change would cause unemployment, and only 14% think the US should wait for other countries to go first.

What climate change activists must first realize that the obstacle is oligarchy, not public awareness of the issue.

Large demonstrations can help build local organizations, can bring together a broad range of activists who would not otherwise have face-to-face contact and can show like-minded people that they are not alone, that there are large numbers of people who share their views. These things are all valuable to any movement for social justice.

The writers of the US Constitution believed it important enough to explicitly provide for ‘the right of the people peaceably to assemble’, although recent efforts in cities across America to abridge that right in the name of public safety have been growing. Assembly should still be seen as a form of pressure that requires many other steps to move the needle on the status quo.

The movement also needs a charismatic leader, a compelling story and a skilled group to coordinate all activities.

The next stage has to be competing for mind-share of our Congresspersons and Senators, against the entrenched and very wealthy hydrocarbon industries.
Gerrymandering that has produced a structural Republican majority in the House means that climate activists need to find GOP challengers who are deeply concerned about global warming and who are willing to primary the incumbent.

In the end, a single-issue Climate PAC, if very well-funded, could make a difference. Much of the climate change action will have to be done or coordinated by politicians, and at the moment most of those in Washington are owned by Big Oil, including by the Koch brothers.

Finally, it is clear that in addressing climate change, we address multiple ills in our society, including the tremendous waste of resources caused by the pursuit of war. We have long needed a political movement that ties together the various threads of what is wrong with our society and shows how they are interrelated.

Climate change activism has the potential to do that.

Is a New World Order Coming?

In the prologue to his 1987 book of essays, Hidden History: Exploring Our Secret Past, historian Daniel Boorstin wrote about “the Fertile Verge”, a place where something and something else, something unexplored, meet.

A verge is like a frontier region, a place where ecosystems, or ideas, mingle. Verges between land and sea, between civilization and wilderness, between state and national governments, between city and countryside – all are a part of the American experience. Boorstin said that the movement westward by colonists into the American continent was a verge between European civilization and the culture of the American Indians.

America is clearly now on the verge of something new, possibly a big change in the world order. The old rules are broken. New states may emerge out of conflict in the Africa and the Middle East. Our old allies see their future drifting away from ours. The old order is rapidly disintegrating. But is there a new order that will replace it? Will it happen only in America, or will it be a global change?

Consider the following about America:
• In August, the Wall Street Journal reported on an FBI database that contains a file on one in three adults, or 77.7 million Americans.
• Our schools aren’t succeeding,
• Our infrastructure is crumbling,
• American corporations are heading for the exits (to tax havens).
• 45 Million Americans live in poverty, and that number hasn’t changed since 2010.

We are taking on some of the trappings of a police state. And there is no reason to suppose that the FBI’s (and the NSA’s) increased sophistication in domestic spying, and data storage and retrieval will do anything but make that trend more efficient, and penalties more severe and long-lasting. That is not a prescription for maintaining a united Homeland.

Our coffers are shrinking, yet we march off to one risky war after another, with all of those billions going where, and for what? Our Republic now seems to want only compliant workers and consumers. All others need not apply.

Last bit of history; the Principate, (27 BC – 284 AD) was the first stage of the Roman Empire. The Roman Empire succeeded the Roman Republic. The Principate was characterized by a concerted effort by its Emperors to preserve the illusion of the continuance of the Roman Republic. And just like the Principate, the illusion of the American Republic is what now remains.

The order of things that underpinned our era is in crisis. Part of peoples’ concern is the sense that the old order isn’t holding, but we’re not quite yet able to see the terms of any new order, one that may be based on different states, different global powers, or on different principles.

So, what’s next for America? A nation founded explicitly on an idea of individual freedoms and representative governance, the US has always identified its success with the spread of liberty and democracy. Today, those very rights are threatened here at home.

The post-WWII bipolar world ended when the USSR collapsed under their own weight. That brought about a different world order, a uni-polar era, with the US as the sole superpower, possessing the only military strong enough to deter any other potential rival from engaging in aggressive war.

Even that order is ending. We are on the frontier of something completely new in global politics in addition to change in our domestic society. Consider what is happening around the globe:
• Our people see what’s happening in Ukraine; what’s happening in Syria, with what Assad has wrought on his own people; in Iraq, where Sunni, Shia and Kurd fail to compromise, even in the face of invasion; the war between Israel and Gaza; the challenge of ISIS.
• Libya is in civil war, Pakistan is close to one, and Afghanistan’s democracy may be on the verge of paralysis. Egypt again has a military-dominated government.
• Add to these troubles the relationship between the US and China, that bounces between pledges of cooperation and public recrimination.

In Africa and the Middle East, the 21st Century has collided with the 8th Century, and the 8th Century is armed with 21st Century weaponry, so it is winning on the ground. An entirely new paradigm for deciding our priorities is required.

What will that new paradigm be? The most important questions to ask are – what is in the best interest of our country?
• What do we seek to prevent, no matter how it happens, and if necessary, alone?
• What do we seek to achieve, even if not supported by a multilateral effort?
• What do we seek to achieve, or prevent, only if supported by an alliance?
• In what should we not engage, even if urged on by a “responsibility to protect”, or by a multilateral group or alliance?”

All of our intermediating of trouble in the world has weakened us. Continuing to do so will only hasten our eclipse as the indispensable power. Our role in the world depends on a strong economy and few structural/societal problems at home. Shouldn’t taking care of the Homeland be our primary concern?

We may feel that a new “Fertile Verge” is almost upon us, but no one knows yet what it will be, or if we will make it across to the other side.

Or, if crossing to the other side will be better for America.

Friday Music Break – September 5, 2014

Labor Day is in the rear view mirror. November, and control of the Senate, should be our focus, not ISIS and Ukraine. In fact, the more we focus on foreign affairs, it is less likely it is that we will discuss domestic issues, and the more likely it is that voter turnout will be low in November.

So, let’s think a bit about food insecurity (and music). Economic times are tough for a great swath of our citizens. From the Wall Street Journal:

On Wednesday the Agriculture Department released the results of its annual Household Food Security in the United States survey for 2013. According to the USDA survey, 14.3% of U.S. households—some 49 million Americans—were “food insecure at least some time during the year in 2013.” The decrease from 14.5% of households in 2012 was “not statistically significant.”

This has been a familiar story for a long time in America. Today, we will listen to only one song, done three ways. The song is “Hard Times Come Again No More”. It was written in 1854 by Stephen C. Foster, America’s pioneer songwriter. Foster was born July 4, 1826, the 50th anniversary of US Independence. That is the same day that Thomas Jefferson and John Adams died. There was a short, sharp recession in 1854 that saw an 18% drop in economic activity. As in all recessions and depressions, the poor got hit the hardest. Here are some of Foster’s lyrics from 160 years ago:

Let us pause in life’s pleasures and count its many tears,
While we all sup sorrow with the poor;
There’s a song that will linger forever in our ears;
Oh hard times come again no more.
Chorus:
Tis the song, the sigh of the weary,
Hard Times, hard times, come again no more
Many days you have lingered around my cabin door;
Oh hard times come again no more.

Even though it sounds as if it could have been written recently, this is a traditional piece of American music. Food insecurity has been around for a long, long time.

Here are James Taylor and Yo Yo Ma performing the song. It is from the CD “Appalachian Journey“. James Taylor and Yo Yo Ma are joined by Edgar Meyer and Mark O’Connor:

James Taylor and company do a lovely job. The sad part is that it demonstrates that not much has changed in the past century and a half: the poor still suffer in this land of plenty.

Next, Mavis Staples recorded the song in 2004 as part of the CD “Beautiful Dreamer – The Songs of Stephen Foster“:

Finally, a rousing version from Tommy Fleming, who has been called the “Voice of Ireland” and is one of Ireland’s top entertainers. This song is from the “Voice Of Hope” DVD Recorded at Knock Basilica, in County Mayo:

Steven Foster’s prayer, “Hard Times Come Again No More” has not been answered in 160 years.

We Have to do Something!

Syria, Ukraine, Iraq, Afghanistan, and ISIS: We have to do something! What’s the plan, Obama? In fact most Americans have heard that Mr. Obama said “we don’t have a strategy yet” to deal with ISIS.

WTF? In fact, Obama was speaking solely about ISIS in Syria. A reporter asked last Thursday:

Do you need Congress’s approval to go into Syria?

Obama replied:

We don’t have a strategy yet…We need to make sure that we’ve got clear plans, that we’re developing them. At that point, I will consult with Congress

This has led to the “We have to do something” chorus. Consider Fox Anchor Heather Childers:

https://twitter.com/HeatherChilders/status/506918798298198018

Ever hear of the “Politician’s Syllogism”? It is a logical fallacy that takes this form:
1. We have to do something
2. This is something
3. Therefore, we have to do this.

Sound familiar? We see and hear it every Sunday morning on “Bloviating with The Old Pundits”, also known as the network week in review shows. Here is what this can lead to: The Hill reports that House and the Senate are considering action to “do something”:

Rep. Frank R. Wolf, R-Va., said in a statement Wednesday he will introduce legislation when Congress reconvenes next week that would authorize the use of military force against ISIS and other terror groups around the world, including al Nusra, Ansar al Sharia, al Shabaab and Boko Haram

House Speaker Boehner said in an appearance on conservative Hugh Hewitt’s radio show that the president will need congressional authority if he wants to strike at ISIS in its Syrian strongholds:

…If he’s going after ISIS…I think he would have to provide a War Powers notification to the Congress…And then it would be up to the House to make a decision about whether we dealt with the issue or not

Are you feeling better? We saw the pitfalls of “We must do something” following 9/11. Initial reactions to the attacks on America were shock and confusion. Traditional ideological divides were blurred, but then the Right trotted out a line that resonated with all Americans and caused the antiwar left to dissolve: We have to do something!

In US political speak, the one thing we have to do “something” about always refers to a foreign policy concern. Politicans don’t feel that we “have to do something” about domestic problems. Poverty? No need to act. Corrupt bankers? Inaction is fine.

In foreign policy, when a crisis flares up overseas, and especially if it involves possible opponents that the War Hawks, the defense industry and the media can categorize as bad guys, “we have to do something” means military action.

But, there are always supplements to military action. Half-measures can come in both military (money and weapons, but no boots on the ground), quasi-military (military and political advisers) and geo-political or diplomatic forms (coalitions, sanctions or embargoes). We can employ some, or all of those options. Or, after careful consideration of our short and long term interests, we can do nothing.

Any and all of that is called “strategy”.

And that’s the problem. We need to do something effective that has long and short term benefits, and that doesn’t bankrupt the nation. We can drop some more bombs and send more advisers. To have a useful strategy, we have to come to grips with these facts:
• We’re going to have to give Assad a pass for killing his countrymen and doing mean things with chemical weapons, because we have to work together on eliminating ISIS
• We may need to ally with Iran, a non-democratic and anti-Sunni regime that most Americans think of as an enemy
• We may need to confront our allies, Saudi Arabia and Turkey, who have, at best, been “soft” on ISIS
• We have to accept that we now bomb our own weapons that have been seized by ISIS. Are we OK with more of that down the road, if that is the outcome of arming the “moderates” in Iraq and Syria?

With two beheadings, American opinion is being whipped up by certain politicians and the media to get us to strike back, hard. Fine, but let’s spend a few seconds thinking about WHY ISIS is whacking the hornets’ nest that is America. We are told that it is to get America to stop the bombing in Iraq.

Could it be just the opposite, that it is their invitation to join in yet another Middle East quagmire?

Could it be that they want a chance to defeat the “sole superpower” on their way to creating their caliphate? The logic of this form of asymmetric terror is pretty straightforward. But our “tough on defense” politicians fall for it every time. They take another bite of the “counter-insurgency” apple.

It may just be that their strategy (emulating Osama bin Laden), is to:

…in any way possible, enmesh the US and NATO in unwinnable wars, and then watch as the imperial powers disintegrate

ISIS and Al Qaeda are playing a long game. By doing flashy terrorist actions they empower the War Hawks and American conservatives. War Hawks and conservatives thereafter use their rejuvenated mandate to insist on crude and violent actions in the Middle East. They push reluctant centrists and liberals to do the same.

America then completely messes up the campaign, and further weakens its economy and social contract.

Perhaps we should let ISIS terrify Saudi Arabia, Turkey, Iran, Syria, Lebanon, Jordan and the Gulf States to the point where they will all work together to destroy ISIS and its sources of funding instead of begging us to waste American lives and money there.

That is a strategy that is not exactly a do-nothing strategy, but you can already hear the War Hawk chorus, telling America to expect beheadings on Main Street next week.

The Circle of Graft

Trenton, New Jersey is the political home of Republican Governor Chris Christie. The rest of America sees Mr. Christie as a tough-talking know-it-all, a moderate Republican who could be a real threat to win the presidency in 2016.

David Sirota in the International Business Times reports that Christie is sending state pension money to his buddies on Wall Street. The idea was to improve pension plan investment returns. From Sirota:

Gov. Chris Christie’s administration openly acknowledged that more New Jersey taxpayer dollars were going to land in the coffers of major financial institutions. It was 2010, and Christie had just installed a longtime private equity executive, Robert Grady, to manage the state’s pension money. Grady promoted a plan to put more of those funds into riskier investments managed by Wall Street firms. Though this would entail higher fees, Grady said the strategy would “maximize returns while appropriately managing risk”.

Some of the higher risk investments were in hedge funds. Ten years ago, public pension funds stayed away from hedge funds. Possibly hedge funds seemed too risky, or opaque, or exotic. After all, public pension funds invest money so they can afford to keep sending checks to retired schoolteachers, police officers and firefighters. Christie and Robert Grady went ahead.

Now, four years later, New Jersey has achieved about half of their promised results:

With the exception of the 2012 fiscal year, annual public pension return rates in New Jersey are significantly lower than the national median. Those differences add up when you are investing a pool of $80 billion. However, the fees NJ paid to its financial managers have more than tripled since Christie assumed office:

Mr. Christie took office in 2010. In all, New Jersey’s pension system has spent $939.8 million on financial fees between fiscal year 2010 and 2013. That’s just slightly less than the amount Christie cut from state education funding in 2010.

Half the results at triple the cost! Madison Avenue is so NOT stealing that claim.

The news gets worse: NJ’s pension fund is $47.2 billion short of what it needs to fulfill its promised benefits to retirees. The gap had narrowed to $36.3 billion in 2010 after Christie signed bills that boosted contributions from employees, raised the minimum retirement age for new workers and froze cost-of- living adjustments for retirees.

But, the gap grew again after Christie skipped a $3 billion pension payment in fiscal 2011. Christie also decided in May to skip this year’s $3.1 billion payment, again, in order to balance the state budget. As justification for the move, he argued that retirement benefits for NJ police officers, firefighters and teachers are unaffordable and therefore must be reduced.

Even more bad news: Many of the Wall Street firms NJ now pays management fees have been donors to Republican groups backing Christie’s election campaigns. Employees of those firms have also donated more than $11 million to the Republican Governors Association and the Republican National Committee. Now, not all of that money goes to support Mr. Christie, but the New York Times reports that both organizations spent big in support of his 2013 reelection campaign: (brackets by the Wrongologist)

A third of the $1.65 million the [National Governors] association raised in New Jersey [in 2013 by Christie] came from people and businesses who had significant contracts with the state, or from utilities, which are prohibited from making any contributions to candidates for governor.

As the IBTimes also reported, at the time many of these campaign contributions were made, Robert Grady was moving about 1/3 of New Jersey’s portfolio to some of the donor firms. Grady is a former managing director of the Carlyle Group, and Carlyle and a subsidiary have received $450 million in New Jersey pension investments since Christie took office.

NJ has a history of pension pratfalls. In 1997, Republican Gov. Christine Whitman issued $3 billion of state bonds and used the proceeds to make a leveraged stock market bet that failed when the Internet bubble popped. Ms. Whitman went on to withhold payments of $ billions to the public employee pension funds over the next few years, using the bulk of that money to balance the state budget.

Wait! There’s more: From 2006-2009, NJ also failed under Democrats: (brackets by the Wrongologist)

Orin Kramer [was]…Chairman of the New Jersey State Investment Council, which is tasked with oversight of the state’s public pension system. In 2006 he successfully pushed to shift a huge chunk of the state’s $72 billion pension fund to private money managers rather than [have them managed by] state employees.

Kramer was also the architect of the decision to invest $400 million in Citigroup and $300 million in Merrill Lynch as those firm tried to survive the sub-prime market crisis in 2008. Later in 2008, Kramer “invested” union pension money into Lehman Brothers shortly before the firm’s collapse.

That move lost $115 million.

Although “public officials” decide where to place pension funds, increasingly with hedge funds, the pension monies belong to state employees.

How ironic that these same public officials blame the employees for the failure of the pension funds to have sufficient funds to meet their obligations.

Why not blame the “public officials”?

Circle of Graft, indeed!

Why We Are Driving Less

The Driving Boom, a six decade-long period of increases in per-capita miles driven in the US appears to be over. There are still millions driving, which means there are millions taking part in the Geico vs Progressive battle for the best insurance prices, but the number of drivers is not rising like it used to. From the Frontier Group:

Americans drive fewer total miles today than we did nine years ago, and fewer per person than we did at the end of Bill Clinton’s first term. The unique combination of conditions that fueled the Driving Boom — from cheap gas prices to the rapid expansion of the workforce during the Baby Boom generation — no longer exists.

If you drive a truck then you may want to purchase an ELD Device online to make driving more safe, one of the electronic logs is a great investment.
The Federal Highway Administration (FHA) reported in July on data from May, 2014, showing that travel on all roads and streets changed by 0.9% (2.4 billion vehicle miles) for May 2014 as compared with May 2013.

Here is an annotated graph of the FHA data from DShort:

The only other time in history that we’ve seen a similarly long time between the peak and trough was following the 1982 recession, when it took 39 months for total vehicle miles traveled to recover to its previous peak. It’s now been more than twice that long since the all-time high in vehicle miles driven, and unlike the 1980s, we don’t have a gas-tax hike to blame for it.

The research firm Behind the Numbers argues that we’re entering a new era in which Americans simply prefer to drive less. They report that it is unlikely that miles driven will eventually return to its prior trend. Among the reasons they say a sharp reversal is unlikely:

• Boomers are getting older and driving less.
• Millennials are less interested in driving, and are now the largest generation in the US.
• The trend toward living near the urban core reduces the need for driving.
• Higher gas prices discourage driving.
• Mass transportation is winning over more consumers.

As a result, Behind the Numbers thinks that tire and auto companies won’t do well in the future, since their sales are directly related to American driving. While it’s true that Baby Boomers are aging and will continue to drive less throughout their lives, the rest of their argument warrants rebuttal.

Let’s look at the relationship of miles driven to the Labor Force Participation Rate. The participation rate is the number of people over the age of 16, who are either employed or are actively looking for work. The Bureau of Labor Statistics (BLS) has been tracking this since 1948. Here is the relationship:

Note that the left axis is the Labor Force Participation rate expressed as a % of our total population, while the Vehicle Miles Traveled is measured on the right axis, expressed in billions of miles. It is clear that once the Great Recession started, and a smaller percentage of the population had a job or were looking for work, the miles driven stopped growing and began to decline. Conversely, when the participation rate was growing briskly, America’s miles driven grew dramatically.

The long-term growth in the employment participation rate has been discussed by many, including the Wrongologist:

During the 1970s and 1980s, the labor force grew vigorously as women’s labor force participation rates surged and the baby-boom generation entered the labor market…The labor force participation rate hit an all-time peak in early 2000 of 67.3%…And labor force participation has since dropped to 63%.

So, when the number of people working declined starting in 2007, miles driven declined. THAT may explain what is happening more clearly than “Millennials don’t like cars”, or “Mass transportation is more popular” or “Online shopping equals fewer trips”, although those may also be contributing factors. For those that are still driving on the roads, it’s worth investing in a dash cam from somewhere like BlackBoxMyCar so if an accident were to ever happen, you would have video footage to protect yourself.

Fewer miles driven means lower revenues from gas taxes. Less revenue from gas taxes means less to spend on road and bridge repair. Less spending on roads and bridges leads us toward becoming a second-world economy.

This is just one of the truly poor outcomes caused by our inability to deal constructively with the economic fallout of the Great Recession.

What can we do to reverse our national losing streak?

We do not have what it takes to leave the dysfunction of our politics behind. We have a self-reinforcing system based on our politicians scuffling for money from corporations and therefore, performing as trained monkeys for their lobbyists.

You must get out and vote. You must work to drive turnout in November. We, the people, have to get back in the game, or our losing streak will continue.

Could Ferguson MO become Newark NJ, 1967?

A little history:

A riot broke out in Newark in 1967, triggered by the police beating a black cab driver, who was falsely reported to have died. Five nights of rioting and looting followed in what the press in those days called the “ghetto”. Republican Governor Richard J. Hughes called up the New Jersey National Guard. When the National Guard arrived, reports began coming in of scores of black snipers roaming the city, and terrorists with dynamite and arms heading towards Newark with supplies for the uprising.

As a result, when the Police or the Guard saw people, or some shadow on far away windows, they began shooting. The results? 26 deaths and 725 wounded.

Were there truly black snipers? Here is some information from the report of The Kerner Commission: (emphasis by the Wrongologist)

In the summer of 1967, after the riots in Newark, Detroit, and 125 other cities, President Lyndon Johnson convened an advisory commission to look into what happened and why. The report of the Kerner Commission, which warned of a nation moving toward a “system of apartheid” in its cities, concluded that the so-called snipers in Newark were actually members of the police, Troopers, and Guard, who, lacking any reliable communications and possessed by fear of the specter of armed black men, often ended up shooting at each other.

The most dangerous person in the world is a frightened person. If they are armed to the teeth, and they are frightened, really bad things can happen. It is very interesting to read contemporaneous reporting from the 1967 riot. The rioters are called “terrorists” by the New York Times:

Incensed by the slaying of a white fire captain by Negro snipers, Gov. Richard J. Hughes said he was considering an appeal for Federal help in capturing the terrorists.

What happened next was urban warfare. More from the NYT of July 16, 1967:

After midnight, Springfield Avenue, the main commercial street in the ghetto, was raked by machine gun fire from guardsmen and the police, who ducked behind cars and sprayed the roofs of buildings thought to contain terrorists…The Governor again said that the riots were not caused by a spontaneous uprising against unemployment, squalid housing and a general hopelessness – as negro leaders insist – but were an outbreak by a “vicious criminal element.” Thrusting out his jaw, he promised that the rioters would receive swift and retributive justice.

Ferguson hasn’t gotten to that point yet. But it has similar elements, all waiting for a spark.

The Kerner Commission Report concluded that the trigger for the Newark riots and those in 125 other US cities, were confrontations between the local police and members of local African-American communities. It also concluded that the residents’ held a perception (often justified) of the largely white police as an occupying force which was in the community to serve and protect the interests of the privileged white communities rather than to serve and protect the legitimate interests of the local minority residents, and that the police inherently harbored racist attitudes toward residents of minority communities that they were also charged to serve.

Compare that conclusion of 47 years ago to Ferguson MO today.

Newsweek reports that 22% of Ferguson residents live below the poverty line, and 21.7% receive food stamps. The unemployment rate in the town is 14.3%, or more than double that of St. Louis County and Missouri as a whole: (emphasis by the Wrongologist)

…in 2013, the Ferguson Municipal Court issued 24,532 arrest warrants and 12,018 cases, or about 3 warrants and 1.5 cases per household.

In the media commentary on Ferguson, there is little mention of the economic and social conditions that underlie both the current growth of police repression and the eruption of popular anger in response to it. We don’t hear that one out of four residents of St. Louis lives in poverty. Or that the wholesale closure of auto plants, breweries and other manufacturing facilities has led to the loss of two-thirds of St. Louis’s population since 1950.

Or, that 47% of the metropolitan area’s African American men between ages 16 and 24 are unemployed.

What we are seeing in Ferguson is a disturbing trend in US policing: Violence against inanimate property equals violence against “the people”. And it is not just in miniority neighborhoods. Think about the excessive force used by police all across America to break up the Occupy movement’s civil disobedience.

This is why police departments across the US are being prepared and equipped to deal with mass unrest. That is what The Powers That Be are expecting.

Along with everybody else who has seen the writing on the wall.

Thoreau, from Civil Disobedience:

…Thus the state never intentionally confronts a man’s sense, intellectual or moral, but only his body, his senses. It is not armed with superior wit or honesty, but with superior physical strength. I was not born to be forced. I will breathe after my own fashion. Let us see who is the strongest…

The Crook Who Took America off the Gold Standard

Forty years ago on August 9, 1974, Richard Nixon resigned in disgrace rather than face Impeachment. Millions of words have been written about his crimes and misdemeanors. Some efforts at rehabilitation of his image occurred over the last week.

One thing we shouldn’t forget is that Nixon took us off the gold standard.

When Nixon entered office in 1969, America had been part of the international monetary system known as Bretton Woods since the end of World War II. Bretton Woods committed the US to backing every dollar overseas with gold. Thus, foreign countries had the right to exchange their dollars at the rate of $35 per ounce. All other currencies were fixed to the dollar, and the dollar was pegged to gold.

Nixon appointed Arthur Burns as Chairman of the Federal Reserve in 1970, with instructions to ensure easy access to credit since Nixon was going to run for reelection in 1972, and wanted a growing economy to help his case. Bloomberg Business Week says he gave Burns some blunt instructions: “You see to it, no recession”.

Despite Nixon’s instructions to Burns, the US went into recession in 1970, triggering a rise in unemployment to 6% (imagine that!), which was the highest level since the Korean War. The recession should have curbed inflation, but it didn’t. Burns was stumped. Business Week quotes Burns’ diary:

What the boys around the White House fail to see…is that the country now faces an entirely new problem—sizable inflation in the midst of recession…The rules of economics are not working the way they used to. Prices were going up even when factories stood idle—a seeming refutation of the economic rules.

Despite growing inflation, Nixon pressured Burns to further loosen monetary policy, driving even more inflation. Domestic inflation was mirrored overseas. Foreign governments bought dollars to continue their growing exports to the US, leaving their central banks filled with greenbacks. Meanwhile, America’s gold holdings dwindled to $10 billion, about half its 1960 level.

The gold standard now existed in name only, since foreign banks held far more dollars than the US held in gold at $35/ounce. This left the US dollar vulnerable to a run.

In 1971, Nixon appointed John Connally as Treasury Secretary. Connally asked the White House financial team for options to control inflation and solve the possible run on the dollar, while keeping the domestic economy growing. Burns wanted price controls; he also thought the US should devalue the dollar against gold (that is, raise the gold price above $35). Undersecretary for Monetary Affairs Paul Volcker believed this would be ineffectual, as other countries would simply devalue their currencies by the same percentage. Volcker thought the US should temporarily halt gold-dollar convertibility.

On August 12, 1971 Britain demanded that the US guarantee $750 million. The next day, Nixon summoned his advisers to Camp David to agree on a plan. The plan had two essential points. First, America would stop converting dollars to gold. Second, to combat inflation, US wages and prices would be frozen for 90 days.

On August 15, 1971 Nixon announced the plan that unilaterally terminated convertibility of the US dollar to gold, effectively bringing the 25-year Bretton Woods system to an end. This was called the “Nixon Shock”. The gold standard was abandoned, and the previously fixed exchange rates of the world’s major currencies began to float.

Many conservatives argue that we should return to a gold standard. Would that help or hinder the world economy?

A terrific economic history of the Great Depression is the 2010 Pulitzer Prize-winning “Lords of Finance: The Bankers Who Broke the World” by Liaquat Ahamed. Ahamed says that the gold standard was the principal cause of the depression. His thesis is that tying the amount of currency a country has in circulation to the amount of gold it holds becomes a strait jacket. The problem is that if you have a gold standard, your money supply is fixed by the amount of gold available. When economic activity exceeds the value of a country’s gold holdings, trade and economic growth are stifled, or you devalue your gold, causing inflation.

Of course, because of Bretton Woods, you couldn’t devalue your gold. So Nixon, an economic conservative, took two unthinkable steps in order to get re-elected. He implemented wage and price controls, and ended the dollar’s convertibility into gold.

Taking the world off the gold standard has facilitated the unprecedented economic growth of the past 40 years, since trade has grown much faster than the growth in world’s physical stock of gold.

Nixon’s price controls didn’t do much. The Consumer Price Index rose 4.4% percent in 1971, and 3.1% in 1972. When the controls were phased out in 1973, inflation rose to 6.2%. It was a shocking 11% in 1974.

So, as in all things Nixonian, there was a little good along with a lottta bad.

When Nixon said the words “I will therefore resign”, it felt to the Wrongologist that years of anti-war protesting had come to fruition. Ford, our first appointed President, then promptly pardons Nixon, and the merriment was stopped dead in its tracks.

Is GDP Growth Enough?

A strong 2014 Q2 GDP report came out yesterday, registering 4% annualized real GDP growth, better than what we have seen in several years. This is good news, but it is worth looking at it in the context of the full recovery of the US economy. The House of Debt Blog has a chart showing recoveries after every post WWII recession in the US, updated to include Q2, 2014:

The red line is the Great Recession, compared to our recovery from 9 other post-war recessions. The slight uptick at the end of the red line reflects yesterday’s GDP report. Despite this recent fun news, we remain in the weakest economic recovery in history. Reportage from the New York Times:

The US economy rebounded in the spring after a dismal winter, the Commerce Department reported on Wednesday, growing at an annual rate of 4% for the three months from April through June.
In its initial estimate for the second quarter, the government cited gains in personal consumption spending, exports and private inventory investment as the main contributors to growth. The increase exceeded economists’ expectations and further cemented their views that the decrease in America’s overall output during the first quarter was most likely a fluke tied in large part to unusually stormy winter weather as well as other anomalies.

The NYT says that first quarter numbers were also adjusted upward:

During the first quarter, output shrank by 2.1%, less than had been reported, according to the Commerce Department’s newly revised GDP figures, also released on Wednesday. The department had previously said first-quarter output decreased 2.9%.

Now for the issues in the data: (emphasis by the Wrongologist)

While the economy seems generally to be bouncing back from the recession, overall growth remains lackluster. Wages have failed to rise significantly, an area of concern that Janet L. Yellen, chairwoman of the Federal Reserve, noted when she appeared before Congress this month.

In fact, Doug Short at the DShort blog provides a very helpful series of charts on wages and hours for the private workforce. The Bureau of Labor Statistics (BLS) has been collecting these data since 1964. The BLS numbers provide excellent insights on the income history of the private middle class wage earner. First, average hourly wages adjusted for inflation have remained unchanged since the Nixon Administration:

But that isn’t the bad news. Average weekly hours worked have been declining since the Johnson Administration:

Finally, DShort multiplies the real average hourly earnings by the average hours per week. This produces a hypothetical number for average weekly wages of this middle-class cohort, currently at $694 — well below its $827 peak back in the early 1970s:

$694 per week equates to a $36,000 annual wage. Then the person has to pay taxes, social security, rent, etc. So, purchasing power has declined for the middle class worker. Tomorrow, the July Jobs Report comes out. Then we’ll see if the fun times continue.

In a consumer-driven economy where wages have failed to rise, there can be no sustained economic growth. Media reports say that the economy “rebounded”, that it “exceeded economists’ expectations”. But have economic conditions for average people improved? No, for them, this is a paper rebound, not a real one.

Tracking the economy of ordinary people continues to go unremarked and untargeted by lawmakers. The economic health of average people is an afterthought to the politicians, who consider it a vague byproduct of ‘GDP’ and ‘growth’. In the real world, GDP growth does not directly correlate with improvements in the average person’s well-being.

Workers desperately need more hours at better paying jobs. How does prosperity return if wages stagnate while wealth concentration continues?

What Can America Learn from its Competitors?

(This is the third column about US foreign policy. The other two columns are here and here.)

The past two columns have argued that our foreign policy does not employ any non-military strategies in areas where we compete with other nations or where there is local or regional conflict.

We have an insular view of our competition. We tend to see Vladimir Putin as a military strategist, massing his troops on the border of Ukraine, rolling over Crimea, providing the missiles to shoot down civilian airliners. Some, or all of that may be true, but Mr. Putin is a busy man who also uses soft power and commercial power. China, our great Asian competitor, follows a similar strategy to Russia’s.

We could learn a lot from our competitors. Last week saw Russia and China making soft power and commercial initiatives in South America. The Economist reports that Brazil’s President Rousseff hosted Mr. Putin, and China’s Xi Jinping as part of a summit of the BRICS group of emerging countries (Brazil, Russia, India, China and South Africa).

While in South America, Mr. Putin also visited Cuba where he announced plans to re-open an intelligence base. Russia also agreed to write off 90% of Cuba’s $35 billion Soviet-era debt. Putin then went on to pitch the export of Russian nuclear technology to Argentina and a $1 billion anti-aircraft missile defense system to Brazil.

Mr. Xi met with the leaders of CELAC, a club of all 33 Latin American and Caribbean countries. In Venezuela he met with officials regarding China’s $50 billion in oil-backed loans. Chinese trade with the region has grown more than 20-fold in this century:

China has become a big investor, trading partner and lender in the region. While Latin America’s ties with China are far more recent than those with Russia, they are also much more important. Russia, which had made major inroads into Latin America in the 1960’s and 1970’s is now playing catch-up in many countries, and is closest to Venezuela.

By contrast, the US has a history of attempted and successful overthrows of governments, and meddling that have kept South America suspicious of our motives for decades. We have diplomatic problems with Brazil stemming from the NSA’s tapping of Ms. Rousseff’s personal mobile phone. We are deeply involved in a debt default to private US hedge fund lenders by Argentina, which was heard by our Supreme Court, who found in favor of the lenders not the country. We continue to view Cuba through a Soviet-era lens. The region no longer looks only to the United States and Europe.

While the BRICS countries were in Brazil, they agreed to establish a New Development Bank (NDB) at their summit meeting. The NDB will have a president (an Indian for the first six years), a Board of Governors Chair (a Russian), a Board of Directors Chair (a Brazilian), and a headquarters (in Shanghai). They also created a $100 billion Contingency Reserve Arrangement (CRA), meant to provide additional liquidity protection to member countries during balance of payments problems.

The BRICS wanted a vehicle that matches their rising economic strength, and they wanted a bigger voice than they have in the World Bank and the International Monetary Fund (IMF). Although the BRICS are one-fifth of the global economy, they are just 11% of the votes at the IMF. The BRICS bank/CRA could challenge World Bank-IMF hegemony. The new bank’s partners already lend more than the World Bank, which made $52 billion in loans last year, while China made loans of $240 billion and Brazil made $88 billion.

The WaPo Monkey Cage reported that Mr. Putin extolled the NDB and CRA as a way to prevent the “harassment” of countries whose foreign policy clashes with America or Europe (like his annexation of Crimea, perhaps?). They also observed that Mr. Xi Jinping sees a geopolitical role for the BRICS as part of his push to set up a new alternative to US ‘hegemony’. Mr. Xi has a vision of China as a leader of the non-aligned nations, a concept first developed in the 1950s. He says this despite taking an increasingly militarized stance on disputed maritime borders in Asia.

Taking a step back, China and Russia are seeking economic dominance of huge swaths of the world, while the US is trying to maintain its current dominance of the same swaths.

And one way China and Russia attempt to do this is through trade, investment and lending, while the US uses military and currency dominance. One major issue in the next decade or two will be whether the dollar can remain the world’s reserve currency. Although at this moment there is no contender in sight, the BRICS’ NDB and CRA could be the first step in China and Russia’s grand plan.

How we respond with soft power, how well we solve our domestic economic problems will go very far towards determining whether the US can blunt the geopolitical challenges from China and Russia.

Guns ain’t gonna get it done.

The Wrongologist

Geopolitics, Power and Political Economy

Category: Economic Policy