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The Wrongologist

Geopolitics, Power and Political Economy

We Saved GM For This?

The Daily Escape:

Redfish Lake, ID – 2018 photo by potatopatriot

From the Guardian:

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

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

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

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

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

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

Source: Wolfstreet.com

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

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

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

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

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

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

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

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

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

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

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

America: A sucker for saving GM in 2008.

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

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Monday Wake-Up Call – August 20, 2018

The Daily Escape:

East Byram River, Greenwich CT – August 2018 iPhone photo by Wrongo. With so much recent rainfall, CT waterfalls are working hard.

This Monday, we depart from our usual ranting about politics and economics, and turn to the subject of text-analytics. The Atlantic has an article by Frank Partnoy about it. Text-analytics scans unstructured text, and pulls usable data from it, using a variety of algorithms. The technology is used extensively in the finance industry. Investment banks and hedge funds scour public filings, corporate press releases, and statements by executives to find slight changes in language that might indicate whether a company’s stock price is likely to go up or down. From Partnoy:

Goldman Sachs calls this kind of natural-language processing “a critical tool for tomorrow’s investors.” Specialty-research firms use artificial-intelligence algorithms to derive insights from earnings-call transcripts, broker research, and news stories.

More from Partnoy:

In a recent paper, researchers at Harvard Business School and the University of Illinois at Chicago found that a company’s stock price declines significantly in the months after the company subtly changes descriptions of certain risks. Computer algorithms can spot such changes quickly, even in lengthy filings, a feat that is beyond the capacity of most human investors.

Most of us use a form of the technology without knowing it, since it operates in background powering things like the spam filters on our email. Many companies also use text-analytics to monitor their reputation on social media, in online reviews, and to find wherever they are mentioned on the internet.

The technology has become so sophisticated that companies are now using it to scan employees’ emails to determine levels of employee engagement, employee stress, and morale. Many firms are sensitive about intruding on employee privacy, though courts have held that employees have virtually no expectation of privacy at work, particularly if they’ve been given notice that their correspondence may be monitored. But as language analytics improves, companies may have a hard time resisting the urge to mine employee information. Here is a blurb from one industry leader, KeenCorp:

KeenCorp’s revolutionary software uses proprietary artificial intelligence and psycholinguistic analysis. Its algorithm recognizes patterns and detects tension from regular e-mail and corporate messengers. It works unobtrusively in the background to provide automated and continuous reporting.

The software then assigns the analyzed messages a numerical index that purports to measure the level of employee engagement. When workers are feeling positive and engaged, the number is high; when they are disengaged or expressing negative emotions like tension, the number is low. This allows KeenCorp to create a “heat map” of employee engagement for company management.

KeenCorp says the heat maps have helped companies identify potential problems in the workplace, including audit-related concerns that accountants failed to flag. This can be a big issue in highly-regulated industries, like finance, health care, and pharmaceuticals.

The firm’s software can chart how employees react when a leader is hired or promoted. And one KeenCorp client investigated a branch office after its heat map suddenly started glowing and found that the head of the office had begun an affair with a subordinate.

Imagine, an office relationship threw off heat!

KeenCorp says that they don’t collect, store, or report any information at the individual level. They say all messages are “stripped and treated so that the privacy of individual employees is fully protected.”

But, it’s absolutely a short step to snooping on an individual employee. It is a simple extension of the technology to grab information about individuals, based on their heat map score. KeenCorp indicates that some potential clients want it.

If sufficient firms are seeking that information, that software enhancement will be developed by an outside firm, or by building an in-house data-mining system.

Another software, Vibe, searches through keywords and emoji in messages sent on Slack, a workplace-communication app. The algorithm reports in real time on whether a team is feeling disappointed, disapproving, happy, irritated, or stressed. While it isn’t a fully commercialized product, 500 companies have tried it.

At this point, text-analytics is an unproven technology. No data exist about how often such tools might suggest a false positive, a problem when none exists. Or even fail to reveal a problem at all.

A real issue is what will managements do if/when they are made aware of potential problems surfaced via text-analytics? HR departments survey morale all the time, and few have success in changing the paradigm.

Wrongo thinks that the ability to parse information closely is what separates really outstanding analysts from the mediocre. This software will help, not hinder great analysis.

OTOH, it is what all paranoids do with friends and family. It’s also important to note that not all wrongdoing will register on a heat map, no matter how finely tuned.

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Monday Wake Up Call – June 4, 2018

The Daily Escape:

The Blue Grotto, Malta – photo by SingularET. Not to be confused with THE Blue Grotto on Capri, the hangout of the Roman emperor, Tiberius.

NewdealDemocrat over at Angry Bear raised a few excellent points about historically low unemployment and stagnant wage growth: (emphasis by Wrongo)

As I noted several weeks ago, even though we are at least closing in on full employment, the percentage of employers not raising wages at all has gone up in the last year:

(The blue line is the percentage of employers who have not increased wages. The grey shaded areas are recessions.)

There was more bad news from Axios , reporting on a meeting with the Dallas Federal Reserve about how big companies aren’t planning on raising wages at all:

The message is that Americans should stop waiting for across-the-board pay hikes coinciding with higher corporate profit; to cash in, workers will need to shift to higher-skilled jobs that command more income.

Troy Taylor, CEO of the Coke franchise for Florida, said he is currently adding employees with the idea of later reducing the staff over time “as we invest in automation.” Those being hired: technically-skilled people. “It’s highly technical just being a driver,” he said.

The moderator asked the panel whether there would be broad-based wage gains again. “It’s just not going to happen,” Taylor said. The gains would go mostly to technically-skilled employees, he said. As for a general raise? “Absolutely not in my business,” he said.

John Stephens, chief financial officer at AT&T, said 20% of the company’s employees are call-center workers. He said he doesn’t need that many. In addition, he added, “I don’t need that many guys to install coaxial cables.”

The Civilian Non-Institutional Population (those who the government tracks for jobs analysis), grew 21.3% between April 2000 and April 2018, yet, full-time jobs grew only 11.7%. This means that we can’t possibly be at full employment, despite the government’s headline unemployment rate of 3.8%, the lowest since 2000.

And if most employers are thinking like those at Coke and AT&T, wages won’t increase, despite the country’s nine-year economic recovery. If wages will not be increasing, where do employers think increased demand will come from? And, if companies are freezing wages during the supposed good times, what will happen when times turn bad?

Corporate policies are designed primarily to respond to the requirements of its management and its institutional shareholders, not employees. Employers’ profits have been increasing steadily, but the wealth keeps getting transferred upwards. And it’s the employers who are responsible for layoffs, and who use other methods to increase profits, such as automation, which leave the surviving workers in an increasingly poor negotiating position when it’s time for the annual raise discussion.

Do workers “deserve” an annual increase? By performing their jobs, workers produce value for the company. If a company is profitable, workers should get a cut, and if profits go up, so should their share.

If a particular individual isn’t performing well, then in an efficient/well-managed company, they’ll be replaced. If the job itself is not structured to produce effectively, in an efficient/well-managed company, the job will change. And if the company fails to do either, then in an efficient/well-managed company, the company will change, or it will fail.

It appears that with their paltry increases, workers are losing ground. Rents are rapidly rising in most cities. Wrongo saw a story about a New York City couple who moved from Brooklyn, NYC to Westport, CT for cheaper housing. It wasn’t many years ago that Westport was substantially more expensive than Brooklyn. In fact, it was once the home town of Paul Newman and Martha Stewart.

Many workers are fighting for a 2% raise. (Remember, 2.6% is the average, which means many workers are getting less than that). Factor in the rising rents, food costs, and health care insurance, and you can see that the average hourly worker has little chance of upward mobility.

Is this an inevitable outcome caused by Mr. Market? Not really. Our government has its thumb on the scale via tax benefits to corporations, combined with a Federal minimum wage that is impossibly low.

Time to wake up, America! We must stop letting corporations hoard the profits! Capitalism is institutionalized avarice. Its purpose is concentration of power. And one outcome is the spreading of economic misery.

To help you wake up, here is the Soup Nazi who, says, “No soup for you! Come back 1 year!” Just like many employers say when hourly employees ask for a raise.

Those who read the Wrongologist in email can view the video here.

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Reagan’s Tax Cuts Are No Model for Today’s GOP

The Daily Escape:

Colima Volcano, Mexico, December 2015 – photo by Sergio Tapiro, National Geographic 2017 photographer of the year

Republicans are patting themselves on the back about their coming tax cuts, comparing it to the famous (infamous?) Regan tax cuts, known as the Tax Reform Act of 1986. From the Economist:

During the three decades since its passage, Democrats and Republicans alike have hailed the law not only for overhauling the country’s tax system…but also for doing so with bipartisan support in both houses of Congress.

Unlike the bi-partisan review of our tax system that occurred from 1984 to 1986, Donald Trump has promised to sign a bill by Christmas, just two months after the first legislative text was introduced.

Congressional Republicans originally promised that any reform would not reduce overall revenues. But they have flip-flopped: The current plan is expected to raise deficits by between $1.3 and $1.5 trillion over its 10-year life. And according to figures from the Joint Committee on Taxation, most of the benefits will go to the rich. Reagan’s reform did the opposite. The left hand chart below shows the Reagan tax cut in blue and the Trump tax cut in red. The x axis is annual income, while the y axis is the percentage of taxpayers receiving a tax cut:

Source: The Economist

The gaps in share of taxpayers receiving a cut are stunning. Between 35-55% of those under $40k in income will receive a benefit under the Trump plan, while between 70-80% of the same group received a cut under the Reagan tax plan.

It gets worse when we look at the right hand chart above. The x axis shows the percentage change in after-tax income by earnings level. Reagan’s cut gave those making between $10k-$50k an increase in take home pay by between 0.25% and 1.5%. Trump’s plan will leave them at ± 0% change in take-home income, while those who make from $50k to $200k will do significantly better under the Trump plan than under Reagan.

And an article of faith for the GOP is that the tax cut will stimulate the economy. Let’s unpack this a bit. The bill provides interim tax relief of about $1.38 trillion during 2018-2025 before the tax sunset provisions kick-in. That equals 4.2% of current tax revenue collections during the 8- year period, and only about 0.8% of GDP.

It’s hard to see how an 0.8% stimulus to GDP is going to bring on a growth tsunami, or add tons of new jobs.

Back to the Reagan tax cut, it had no measurable effect on the trend rate of economic growth, and when it was fully implemented, it amounted to 6.2% of GDP, not 0.8%, .

Finally, when the Tax Policy Center costed out the Senate Finance Committee bill, it showed that by year 10, not one of the 150 million individual filers will still be getting a tax benefit. And most importantly, the single tax cut item left in the statute, the 20% corporate rate, which stays in place permanently, costs America $171 billion in lost revenue in 2027. From David Stockman:

Likewise, the latest distributional analysis [probably from the Center on Budget and Policy Priorities] shows that in 2025, before the sunset,-the bottom 30 million tax filers would get an average “tax cut” which amounts to the grand sum of $1.15 per week….the next 30 million filers would only get $7 per week; and the middle quintile—-the 30 million tax filers between $55,000 and $95,000 per year and the heart of the middle class—– would get just $17 per week of tax relief in 2025.

Hardly seems worthy of Paul Ryan’s gloating about how he’s helping the middle class. The people know that they have no control over what happens, they just want to see how much more they will have to spend (pay?) when the dust settles.

And that’s why Paul Ryan and Donald Trump gloat. They show the rubes a dollar, and then send $1000 to their corporate benefactors.

This will be the GOP’s paradise after they enact the Trump tax plan:

 

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Saturday Soother – July 8, 2017

The Daily Escape:

Marble Caves, Patagonia – photo by Clane Gessel

Any idea which investor-types are the largest buyers of US stocks? It is the corporations themselves, buying back their own stock. They are followed by Exchange Traded Funds (ETFs). Here is a graphic:

From Bloomberg:

The entities shoveling more money into the stock market than any other this year, as has been the case for the past few years, remain corporations. Buybacks are on pace to reach nearly $550 billion, or $150 billion more than ETFs.

None of that cash is going into new markets, new products, R & D, or innovation. The buyback is equivalent to the CEO saying: “I’ve got no idea what we should be doing to improve profits or market share”.  Arne Alsin at Forbes said this:

For most of the 20th century, stock buybacks were deemed illegal because they were thought to be a form of stock market manipulation. But since 1982, when they were essentially legalized by the SEC, buybacks have become perhaps the most popular financial engineering tool in the C-Suite tool shed. And it’s obvious why Wall Street loves them: Buying back company stock can inflate a company’s share price and boost its earnings per share — metrics that often guide lucrative executive bonuses.

Alsin suggests that buybacks are big because we’re in a period of technological disruption. New industries like cloud computing, electric cars, and streaming video are rapidly changing the world. But older companies are slow to adapt, and rather than investing in R & D (or simply holding onto cash) the corporate boards of legacy businesses are bolstering stock prices the only way they know how: buying back their stock.

Alsin offers Hewlett-Packard as an example:

In the last decade, the company has invested $47 billion in stock buybacks — which is nearly double the company’s current market capitalization. That risk is senseless. HP knows they are facing existential threats from upstart competitors, but instead of paying out dividends or letting cash accrue on the balance sheet, HP is choosing the riskiest option.

Buybacks are the result of several converging forces: pressure from activist shareholders; executive compensation programs that tie pay to per-share earnings and share prices that buybacks can boost; increased global competition; and fear of making bets on products and services that may not pay off.

This financialization of non-financial firms increasingly crowds out other types of investment, to the detriment of lower level employees, whose jobs are less secure. It can hurt long-term investors, who hold these stocks in their 401(k)s and pension plans.

Serving customers, creating innovative new products, employing workers, and taking care of the environment are not the objectives of these firms.

So think carefully about the companies you invest in, or buy from.

Enough worrying for this week! Time to unstress. Grab a cuppa Vermont Artisan Coffee & Tea Company’sDarkest Roast”, $11.25/lb. (It is available in decaf), settle into your favorite chair, and listen to “Ashokan Farewell” performed by Jay Ungar and Molly Mason Family Band, live in the Folk Alley studio at WKSU 89.7 FM. WKSU is Kent State’s college radio station:

Wrongo supports Folk Alley, and recommends that everyone should. Ungar composed Ashokan Farewell in 1982. It is written in the style of a Scottish lament. Ungar sometimes introduces it as:

A Scottish lament written by a Jewish guy from the Bronx.

Ungar says that Ken Burns heard the song in 1984, and asked to use it in his (then) upcoming PBS series, “The Civil War”. The original version and a few other versions are heard 25 times in the show, for a surprising total of 59 minutes and 33 seconds of the 11-hour series. For the non-math majors, that is 9% of the show!

Those who read the Wrongologist in email can view the video here.

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United Airlines: Try Doing The Right Thing

The Daily Escape:

Kravica waterfall in Bosnia Herzegovina -photo by Vedrana Tafra

Wrongo needs to start by saying that he has nearly 800,000 lifetime air miles on United Airlines (UAL) and, after the forcible removal of a paying passenger, he will try to avoid flying them again.

You know the story: United Express in Chicago loads passengers on a plane heading to Louisville. Then four employees arrive, needing seats. United was unwilling to offer enough compensation to induce passengers to give up their seats, and ordered four passengers off of the aircraft. Three left, but one refused, saying he had to be in Louisville in the morning.

United officials called the Department of Chicago Aviation, (part of the City of Chicago), the type of government agency that you never even knew existed, to remove him. Officers grabbed his arms, dragged him screaming across the armrests and along the floor and off of the aircraft, apparently injuring him in the process.

Unusual situations like this test organizations and their leadership. The key information here is that UAL wanted to make space to carry their own staff. The flight was not “overbooked”, UAL wanted to take back seats of a few paying passengers to accommodate their own staff. Apparently, UAL had bungled its own logistics, and then looked to its paying customers to solve the problem.

Poor customer service like this exists because of corporate culture, and because the company rarely has to pay a price for it.

In Wrongo’s past, he managed 1000 employees who had technical support and/or customer service contact with the public. We had a mantra: Know when to Do The Thing Right, and know when to Do The Right Thing. 95% of the time, the job is to follow established procedures, to guide the customer to a pre-established solution that had been vetted, one that was company policy.

Our staff’s job was to “do the thing right” in those cases, to follow our processes.

5% (or less) of the time, our people would see something novel, outside the scope of established policy. Something that called for reaching an equitable solution that wasn’t in any manual.

Then, our employees needed to “do the right thing”.

These aren’t difficult concepts to instill, they are entirely consistent with most people’s personal experience, and usually with their views about fairness.

United should try empowering people to do the right thing, when going by the book fails the customer. Whatever it might have cost to compensate volunteers, it would have been far cheaper than what UAL will now pay to this passenger.

This also illustrates how America is changing: Large corporations are willing to use the police to enforce their policies. The passenger’s choice was to comply with police demands, or face physical intimidation, or worse. And Chicago’s sub-contracted police were too eager to jump into the fray.

We should ask: Did the injured passenger break any law by refusing to give up his seat? If that’s the case, the plane was filled with lawbreakers. If not, why was an element of the Chicago police doing UAL’s dirty work?

The Seventh Amendment of the Constitution guarantees a jury trial for civil cases in the federal courts:

In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved

The $20 amount is trivial in today’s economy. But that idea of a jury trial has been killed by corporatist judges on the Supreme Court, and other courts, and has been replaced the company’s terms of service. When you agree, it takes away most of your rights — disputes are resolved through arbitration that the corporation almost always wins. In this case, UAL’s terms of service gives them almost unlimited authority when dealing with its passengers, including a rule regarding “refusal of transport” (Rule 21) and “denial of boarding compensation” (Rule 25).

But that doesn’t justify bad corporate behavior. Or violence.

But, thanks to Congress’s bipartisan policy of ignoring anti-trust laws for several decades, just four firms now control the vast majority of domestic flights, and they don’t really compete with one another. This is from the DOT’s report on airline competition:

Less competition means you don’t have to worry as much about annoying people with delays or overbooked flights. It also means you can make a lot more money. There’s less pressure to cut ticket prices — even when the price of oil, an airline’s biggest cost, is plummeting — and it’s easier to introduce ever-more obnoxious fees and charges.

UAL isn’t worried about you sharing a video of a passenger being dragged off their plane, because you have no real choice when you fly from certain cities.

Ultimately, the responsibility to blunt this trend is ours. Replace Citizens United. Remove corporatist judges. Keep our police on a short leash.

Don’t just upload a video, organize your neighbors and vote!

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Why Trump Doesn’t Talk About Jobs Anymore

The Daily Escape:

(Bamboo after snowfall in January, near Kyoto. Photo by Hiroki Kondo)

During the 2016 presidential race, Trump campaigned on populist themes. Now that he is in office, it is clear that his policies will be neither populist nor popular, but strictly pro-business. The first clue was his choice of Cabinet members. Despite promising to “drain the swamp”, nobody realized that he could do that by making lobbyists pointless, as their clients are in charge of the government: The CEO of Exxon is head of foreign policy, a former Goldman Sachs partner heads Treasury, the daughter of a ship owner heads Transportation, a corporate raider is at Commerce, and so it goes.

Two months into his presidency, it is clear that the Trump economic policy is pro-business, not pro-jobs, or pro-little guy. If you still have doubt, the Republicans just rolled back a series of Obama-era worker safety regulations. The Senate voted 49-48 to kill a rule that required federal contractors to disclose and correct serious safety violations.

It’s clear that industry CEOs can’t believe their good luck, despite having opposed Trump at every step before the election. He’s only asking them for some vague promises to add new American jobs in return. Acting normal when they are interviewed after leaving a Trump meeting must be the hardest part of their day.

Trump hardly mentions jobs anymore, because he knows there aren’t many. His bogey man of weak domestic manufacturing needs to be addressed: China’s total exports in 2015 were $2.3 Trillion. The US total exports in 2015 were $1.5 Trillion, second in the world.

And the total value of US manufacturing in 2015 was $6.2 Trillion and we are doing it with fewer people than ever before. Today, US factories produce twice as much stuff as they did in 1984, but with one-third fewer workers.

Trump’s carrot and stick approach with US companies is theater. He is now industry’s number one value creator: When he commended Ford for deciding not to build a new plant in Mexico, the price of its shares rose 4.5%.

Softbank shares went up 6.2% after being praised by Trump for investing $50 billion in the US. Softbank’s motive was simple: Softbank owns Sprint, who would like to merge with T-Mobile. The authority to permit this merger lies with the new head of the FTC, yet to be named by Trump. Trump’s positive tweets feed Softbank’s hopes that the merger will be approved.

The Trump presidency has begun in the worst possible way for all who believed he would be an activist in new jobs creation for the lightly skilled, the people who overwhelmingly helped to elect him.

If the opposition wants to take Trump down, they should stop talking about Russia, and focus on Trump’s record with jobs creation. He made big promises – a job for everyone. It will be a long time (if ever) before a significant number of new manufacturing jobs materialize. This is true because Trump’s plan is to cut the fat out of government, cutting so many jobs that he might never add enough to make up for those he eliminates.

His plan is to use the freed-up funds to do something splashy with infrastructure. This would allow him to boast significant job creation, while downplaying the lost jobs in government. If Trump can figure out how to take unemployed, 50+ year old white males living in small town West Virginia, and make them productive, employed workers, then he’s a genius.

Capitalism hasn’t changed. A subset of oligarchs led by Trump have seized control of the US government. They are “nationalists”. Another subset, the “globalists” lost control of the state.

OTOH, the American people would have lost regardless of who won.

This is being repeated around the industrialized world, from Brexit, to Marine Le Pen’s right-wing challenge in France, to far right challenges to Angela Merkel in Germany.

The chaos described in Naomi Klein’s Shock Doctrine: The Rise of Disaster Capitalism is engulfing the world.

In honor of those who still believe that Trumpy will solve the jobs equation, here is Alan Jackson with “Hard Hat and a Hammer”:

Those who read the Wrongologist in email can view the video here.

Sample Lyrics:

Lace-up boots and faded jeans
A homemade sandwich, and a half a jug of tea
Average Joe, average pay
Same ol’ end, same ol’ day

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New FCC Chair Guts Net Neutrality

Today we premiere a new feature, the “Daily Escape”, a photo that hopefully will take you away from all that is wrong just now. Some photos will be by Wrongo, but most will be from professionals. They will not have any particular relevance to the topic of the day. They are here to help you pause for a moment, and go to a different place.

Today’s Daily Escape: George Peabody Library, Johns Hopkins University

Now, on to what’s wrong…

The principle that all Internet content should be treated equally as it flows to consumers is called “net neutrality”. Net neutrality looks all but dead under Trump’s new head of the FCC. From the NYT:

In his first days as President Trump’s pick to lead the Federal Communications Commission, Ajit Pai has aggressively moved to roll back consumer protection regulations created during the Obama presidency.

Mr. Pai took a first swipe at net neutrality rules designed to ensure equal access to content on the internet. He stopped nine companies from providing discounted high-speed internet service to low-income individuals. He withdrew an effort to keep prison phone rates down, and he scrapped a proposal to open the cable box market to competition.

Before he became FCC Chair, Pai served as an FCC commissioner, one of the Republican minority under the Obama administration. In that role, he opposed reclassifying broadband providers as common carriers, which allows the agency to regulate them like utility companies, a necessary step if the FCC was to enforce net neutrality rules. That reclassification might be next to go.

Today consumers can pay Internet service providers for a higher-speed Internet connection, but regardless of the download speed they choose, under new Chair Pai’s plan, they might get some content faster, depending on how much their content provider has paid the service provider.

Tim Wu at the New Yorker offered some insight: (emphasis by the Wrongologist)

With broadband, there is no such thing as accelerating some traffic without degrading other traffic. We take it for granted that bloggers, start-ups, or nonprofits on an open Internet reach their audiences roughly the same way as everyone else. Now they won’t. They’ll be behind in the queue, watching as companies that can pay tolls to the cable companies’ speed ahead

The new rule gives broadband providers what they’ve wanted for about a decade: the right to speed up some traffic at the expense of others. The motivation is not complicated. The broadband carriers want to make more money for doing what they already do. Never mind that American carriers already charge some of the world’s highest prices for a service that costs less than $5/month to provide.

In the large-scale server market, Internet traffic is nearly free. In that market, a terabyte of data costs about $1/month. That’s 1000 gigabytes/month, if you are not familiar with usage of that size.  The home user pays 10x to as much as 1000x more than that per month; $100 for 100 gigabytes of traffic is not uncommon. A recent offer from AT&T for 45 M/bit internet is $30/month, which includes 1TB of data/mo. So 1000 gigabytes costs $30, or $1 per 33 gigabytes, but, if you exceed ATT’s limit, the price goes up dramatically: You would have to pay $10 per each additional 50 GB.

No volume discount for you, but Netflix will get one.

Requiring access fees for faster service will be good for Netflix, since it won’t have to worry as much about competitive traffic, particularly from small companies. The ultimate result will be to lock in the current set of incumbents who control the internet, ushering in the era of big, fat, (and possibly) inefficient monopolies.

Republicans and big corporations like to say that they are against regulation because the free market should rule. That economic efficiency brings lower prices.

It is always a lie.

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Our New Political Majority

(This is the last column for this week. We will resume on Sunday with cartoons. Everyone has reasons to be thankful, so take the time to talk about them with your loved ones, or your close friends this week.)

Last weekend, like most Americans, Wrongo spoke with friends and family about how we got to the disappointing political place where we are today.

Der Spiegel Online asked: If you think back ten years, could you have imagined in 2006 that America’s reality would be Donald Trump as president of the US? Probably not, but ten years ago:

  1. Economic growth and job growth both fell in 2006 as the residential housing boom came to an end.
  2. Wages were the smallest share of national income since the government began compiling the statistic in 1947.
  3. Consumer debt soared to new heights, while consumer debt payments rose to the highest on record.

Those were dispatches from the ongoing war that corporations and neoliberal economic elites made on our citizens. And it didn’t stop there. After 2006, we had the financial meltdown and the Great Recession. Banks had to be bailed out. Millions of people lost their jobs. Debt grew, and faith in government’s willingness and ability to improve the fortunes of their citizens evaporated.

The clear losers were workers in traditional economic sectors, particularly in manufacturing. According to a study by economists David Autor, David Dorn and Gordon Hanson, the increase in imports from China have resulted in the loss of 1.5 million manufacturing jobs since the early 1990s.

But automation had a greater impact: In total, some 6.9 million manufacturing jobs were lost in the US between the early 1990s and 2011. For those who have lost their jobs, it seems that their political representatives have forgotten them. Particularly when establishment Democrats and Republicans continue to push for more trade, by which they mean more imports from our global corporations who continue to export those jobs to lower-wage countries.

In 2016, despite substantially better economic times, many American still worried about losing their jobs and their financial security. They saw themselves as the losers in a game that only helps corporations and the elites. This domination of our politics by the economic elites has produced a defacto disenfranchisement of everyone else.

A new political map has emerged, one that doesn’t neatly fit into the Left vs. Right model of our politics. The new dividing line is between those who support, and those who oppose, America’s economic elites and their neoliberal policies. Those on both sides of the old ideologies who distrust the elites are connected by their fear of being left behind. This was clear in 2016 in those precincts where Trump outperformed Romney, and where Clinton underperformed Obama.

This is today’s landscape, but in 1998, Richard Rorty, an American philosopher who died in 2007, wrote “Achieving Our Country” which predicted our current political situation. According to the NYT, the following fragment of the book has been retweeted thousands of times since the election:

Members of labor unions, and unorganized unskilled workers, will sooner or later realize that their government is not even trying to prevent wages from sinking or to prevent jobs from being exported. Around the same time, they will realize that suburban white-collar workers — themselves desperately afraid of being downsized — are not going to let themselves be taxed to provide social benefits for anyone else.

At that point, something will crack. The nonsuburban electorate will decide that the system has failed and start looking around for a strongman to vote for — someone willing to assure them that, once he is elected, the smug bureaucrats, tricky lawyers, overpaid bond salesmen, and postmodernist professors will no longer be calling the shots.

One thing that is very likely to happen is that the gains made in the past 40 years by black and brown Americans, and by homosexuals, will be wiped out. Jocular contempt for women will come back into fashion…All the resentment which badly educated Americans feel about having their manners dictated to them by college graduates will find an outlet.

Rorty’s basic contention is that the left abandoned its core philosophy in favor of a neo-liberal worldview that promoted globalism and corporatism. Rorty said in a lecture in 1997:

This world economy will soon be owned by a cosmopolitan upper class which has no more sense of community with any workers anywhere than the great American capitalists of the year 1900.

Mr. Rorty’s most prescient words:

The cultural Left has a vision of an America in which the white patriarchs have stopped voting and have left all the voting to be done by members of previously victimized groups.

Rorty said that in 1998. And in 2016, it was Hillary Clinton’s failed election strategy.

What’s so striking about “Achieving Our Country” is Rorty’s argument that both the cultural and political left abandoned economic justice in favor of identity politics, ignoring too many economically disadvantaged Americans.

According to voter turnout statistics from the 2016 election, 58.4% of eligible voters actually voted (135.2 million). Clinton received about 63.7 million votes (27.5% of eligible voters) to Trump’s 62 million, (26.8%) while 9.5 million votes went to others.

This means that 41.6% of America voted for nobody, far outweighing the votes cast for Trump or Clinton.

That the majority of Americans did not vote is not because they don’t care. They voted no confidence in a political system that forgot about them a long time ago.

A minority elected Trump. The majority voted against our neoliberal political system.

 

(BTW, Tuesday was the 53rd anniversary of JFK’s assassination. While it remains fresh in Wrongo’s mind, it hardly registers in the minds of the press or the public. A new idea on Oswald’s motives appeared in the LA Times. Take a look.)

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Hail The Orange Overlord

(Wrongo will say more about Veteran’s Day during Sunday’s cartoon edition. For today, let’s acknowledge that Veteran’s Day is one of America’s most patriotic holidays, and that this year, it feels very disappointing to many of us. Leave that aside. Take a minute to reflect on those who fought for us so that we have the right to vote for whomever we please.)

Regarding the election: Aren’t you happy that America is on its way to being great again?

For both the winners and the losers, please don’t make things worse than they have to be by deepening the divide between the two political camps. Most of all, try to be understanding of each other. Half of the country is not reacting well to this, and some on both sides are going to say things that they’ll regret, or that put them at odds with you and your core values.

People aren’t at their best when they’re afraid and confused, so take a beat, and let the next month or two go by without overreacting. There will plenty of time to do that after the inauguration.

And there is little value for Democrats in performing a self-flagellating post-mortem. We can analyze the results, but we can’t change them. We know what went wrong, even if we won’t admit it. Here’s what has to happen:

  1. Democrats need to find a way to make sure that their primary process favors new faces with bold, inspiring ideas. We can’t have any more competent retreads. Mondale, Dukakis, Gore, Kerry and Hillary Clinton were all competent technocrats who were really weak candidates. How many times must we replay this record before changing direction?
  2. It’s time for Democrats to stop using white working classas a pejorative. Not so long ago they were the bedrock of the New Deal Democratic Party. Find a way to be respectful. Think about how to bring them back to the Democrats’ side.
  3. There is one argument that we need to see less of: that the demographic makeup of the US is sure to produce a Democratic paradise. This argument is false, as we learned on November 8, and it promotes lazy thinking by the leaders of the DNC: the “We’ll just sit back and they’ll drop into our hands like ripe fruit” kind of thinking.

Finally, the notion that since the old white people will die off, we should focus solely on Millennials is stupid. Time makes more old people every day. And as people age, they change their opinions and politics.

Hillary and her campaign team failed. They raised $1.1 billion by Election Day, and lost conclusively. Their strategy, and its execution were both failures. If you spent a $billion in the corporate world and failed, you would be fired immediately by your organization. Dems should take no consolation from Hillary winning the popular vote. It doesn’t change who the president is. The real numerical difference is very small, and may even be reversed by the time all votes are counted.

Hillary did not articulate an inspiring vision. Her damned emails and the Clinton Foundation were self-inflicted wounds. Her team’s strategy of micro-targeting, which worked well for an inspiring candidate Barack Obama, was self-limiting for the technocrat Clinton.

The 2016 problem that Democrats failed to address was that nearly half of the electorate was dissatisfied enough that they were willing to vote for Donald Trump, arguably the least qualified person to ever hold the office. And Clinton and her campaign team had no message or vision directed at the group Donald inspired.

Presidential campaigns are an affair of the heart, but Hillary was a cerebral candidate in a highly-charged emotional situation.

The so-called Deplorables have spoken. Democrats have opened the door and let the Right Wing demons in. The GOP now has free reign. And doubtless, there will be no mercy dispensed as they roll back the new deal legislation that remains of the books.

It is likely that the “lesson” the DNC will learn from their loss will be to move even further to the right. Yet, when Americans have to choose between an ersatz Republican-lite and the real thing, they will choose the real thing every time. If the DNC had an ounce of clever thinking, they would recognize the need to be once again have a platform that is:

  • Fully committed to adding more jobs, jobs, jobs
  • For reining in the economic power of large corporations
  • For reversing income inequality
  • For Medicare for all
  • For additional taxation of the highest personal income brackets
  • Against endless war
  • Against Citizens United

The question is whether progressives attempt to “reform” the Democratic Party, or whether they organize a new party. It might begin like the Republicans began when they split from the Whigs. The Whigs split started in 1850, and by 1856, the Whigs were no longer a national party.

Maybe in these times, a new “American Justice” party could recruit Elizabeth Warren, Bernie Sanders, Kamala Harris, Tulsi Gabbard, Gavin Newsom and most important, a battalion of young messengers to bring a third party to power in the US.

If that doesn’t happen, we need to see the DNC leadership’s heads on a pike.

In either case, we face a decade or more of rebuilding progressivism into an American political majority.

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