Boeing Documentary Shows Corporate Malfeasance

The Daily Escape:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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The Great Resignation

The Daily Escape

Sunrise, Alpine AZ – November 2021 photo by Ed Kendall. Alpine is at 8,200’ elevation.

From Krugman:

“You’re probably aware that the US is experiencing what many call the Great Resignation — a significant fall in the number of people willing to accept jobs, at least at pre-Covid wages. Four million fewer Americans are employed than were on the eve of the pandemic, yet the rate at which workers are quitting their jobs — usually a good indicator of labor market tightness — has hit a record, and the scramble of employers to find workers has led to rapid wage increases.”

People see the “now hiring” signs everywhere. They assumed that generous unemployment benefits were discouraging workers from accepting jobs. But the enhanced benefits went away with no visible change in the US labor force participation. So, what’s going on?

Back to Krugman: (brackets by Wrongo)

“…[the] Great Resignation, it turns out, is largely an American phenomenon. European nations have been much more successful than we have at getting people back to work. In France, in particular, employment and labor force participation are now well above prepandemic levels.”

Barry Ritholtz says that there’s a massive transformation underway in America’s labor markets. When we look at the total Quits Rate for all Nonfarm payroll workers since the Great Financial Crisis (GFC) ended in 2009, the trend in the “quits rate” has steadily moved higher for all workers and really accelerated this year:

The red trend line shows that the rate that people are quitting has now returned to its level in 2016, and except during the pandemic, it has continued to rise.

If you look at only the Quits Rate for Professional & Business Services, those white-collar workers who did okay during the pandemic, their trend isn’t the same as the overall quits:

There’s been virtually no difference in the rate of professional quits since 2008. That’s telling us that the Great Resignation is taking place in the lower half of the employment wage scale, entry-level jobs, and the tiers just above them.

This has deep ramifications for the American economy.

Companies who rely on cheap labor are having hiring problems. Those companies that pay the minimum wage (or slightly higher) are having a hard time finding workers. Part of this is the failure of the Federal government to raise the minimum wage, which has been the same since 2009. That hasn’t kept up with inflation, or the growth in corporate profits.

Instead of gradually raising the minimum wage over time nationally, putting it on a path towards $15 or higher, we’ve allowed wage pressure to build for years. Then, during the pandemic, we experienced an 18 month period when low-wage workers reconsidered their careers. The dam broke, and we’re seeing both a sudden spike in wages and a shortage of workers.

Along the way, some labor has upskilled, gotten certified, degreed, and found new fields to work in. Now we have millions of people launching small businesses, striving to make it to the middle class, and towards self-determination. From the WSJ:

“The pandemic has unleashed a historic burst in entrepreneurship and self-employment. Hundreds of thousands of Americans are striking out on their own as consultants, retailers and small-business owners.”

The number of unincorporated self-employed workers has risen by 500,000 since the start of the pandemic, to 9.44 million. Except for a few months this summer, that’s the highest total since 2008. It amounts to an increase of 6% in the self-employed, while overall US employment total remains nearly 3% lower than before the pandemic.

So far this year, these entrepreneurs applied for federal tax-identification numbers to register 4.54 million new businesses, up 56% from the same period of 2019. That is the largest number on record since 2004. And two-thirds are for businesses that aren’t expected to hire employees.

More from the WSJ:

“This year, the share of US workers who work for a company with at least 1,000 employees has fallen for the first time since 2004….Meanwhile, the percentage of US workers who are self-employed has risen to the highest in 11 years. In October, they represented 5.9% of U.S. workers, versus 5.4% in February 2020.”

So, there’s a challenging future ahead for the small fraction of American workers who willingly struck out on their own. Couple that with the problem for those firms who pay near-minimum wages and who still treat employees like commodities.

Americans like to believe in “survival of the fittest” when it comes to business and the market. Well, if your company won’t look after its employees properly, its workers may desert it. The company may not survive.

There’s a huge difference between a spectator sport economy with a few winners and lots of losers, and an economy where everyone feels as if they belong and see a way to do better. In the US economy, where the same side always wins, it shouldn’t be a surprise when people decide to stop playing.

At least until they no longer have to work for a dick.

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Our Curious Job Market

The Daily Escape:

Cranberry harvest, Carver, MA – October 2021 photo by Sarah Stiles Cabe

Robert Reich commented to Newsweek about the unexpectedly low US employment figures, that American workers are engaged in, “the equivalent of a general strike.”

He was referencing Bureau of Labor Statistics (BLS) numbers that showed US employment increased 194,000 in September, nearly 300,000 jobs shy of estimates. Despite a record level of job openings and 7.7 million out of work, many employers report difficulty filling positions. From Reich:

“In reality, there’s a living wage shortage, a hazard pay shortage, a childcare shortage, a paid sick leave shortage, and a health care shortage – and American workers are demanding an end to all these shortages. Or they won’t return to work.”

So, the question is: are Americans saying “take your shit job and shove it” to corporate America?

Reich may have a point, but the current employment situation is both good and bad, and it’s a lot less political than he thinks it is. The numbers make clear that ending unemployment benefits wasn’t as effective in generating new employment as conservative politicians said it would be.

The inability to find childcare, or concerns about the safety of the available jobs, and the possibility that people saved some amount of their former emergency benefits and it’s providing them with a cushion, are all possibly contributing to the current jobs situation.

There are other factors at work. The data also show a record number of people voluntarily quitting their jobs (meaning they are not eligible for unemployment benefits). The number of quits (to work for another company offering higher wages and benefits, change careers, or stay home and take care of the kids) spiked by 242,000 people to a record of 4.27 million in August, up 19% from August 2019.

A historically high number of quits suggests a tight and competitive labor market that’s encouraging workers to switch jobs. The highest quit rate was in leisure and hospitality (6.4%), a sector that includes accommodation and food services (6.8%), retail (4.7%), and professional and business services (3.4%):

In total, 892,000 workers in accommodation and food services quit in August, equal to 6.8% of all workers in that sector. Quits are usually high in this sector. In August 2019, during that pre-Covid tight labor market, 5.1% quit.

The Labor Department also reported that there were 10.4 million job openings in August, up by 46% from August 2019. A high number of job openings pushes employers to offer higher wages, better benefits, signing bonuses, and similar enticements to help bring qualified people on board.

Despite what Robert Reich says, workers now seem to have some pricing power. When they leave a job for better wages and working conditions at another company, they create a headache for their old employer who now has to find a new employee by also offering a better deal.

But it all doesn’t quite add up. On the one hand, there are tons of jobs going begging. On the other hand, the labor force participation rate is well below pre-pandemic levels. In September, the civilian non-institutional population in the US was 261.8 million. That includes all people 16 and older who did not live in an institution, such as a prison, nursing home or long-term care facility.

Of that civilian non-institutional population, 161.3 million were participating in the labor force, meaning they either had a job or were actively seeking one during the last month. This resulted in a labor force participation rate of 61.6% in September, down slightly from the 61.7% in the prior two months, but 0.2 points higher than the 61.4% when Biden took office.

The number of Americans counted as not in the labor force, meaning they didn’t have a job and were not looking for one, rose in September to 100.4 million, up 338,000 from August.

If the job market is so good, why are so many people staying on the sidelines? That’s not consistent with a tight labor market, so there has to be something missing from the data. We do know that a big chunk of employees have taken early retirement. The number of retirees shot up by around 3.6 million during the pandemic, according to the Federal Reserve Bank of Kansas City. At the usual pace, that figure would have been around 1.5 million.

Are people just working off the books more now? Is it people who can’t get/afford childcare?  Or is it simply a mismatch of skills and jobs? We don’t need as many people staffing tourist jobs, but we need more people working at the docks and driving trucks?

Whatever is going on, there are millions of people doing it.

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More Shortages Are Coming

The Daily Escape:

Fall, Longfalls Dam road, Carrabassett, ME – October photo by Laura Casey

The NYT reported on how the German economy is being slowed by product shortages:

“More than 40% of German companies said they had lost sales because of supply problems in an August survey….Europewide, exports would have been 7% higher in the first six months of the year if not for supply bottlenecks, according to the European Central Bank.”

And it isn’t just Germany. Since the onset of Covid, US consumers have been experiencing disruptions in the supply chain. Wrongo has once again noticed empty shelves are back in our local chain supermarkets.

The bad news is that many think it’s going to get worse.

It’s no longer a matter of fixing one problem. A cascade of sourcing failures in raw materials, production, shipping, staffing, labor, along with weather disasters, may mean these shortages are around for several years. From Shelley Fagan:

“The US has 20 container ports located along the East and West coasts as well the Gulf of Mexico. Ports are where 70% of all US-international trade enters, accounting for 26% of…GDP.”

Even if the goods get to America, we’re at the mercy of our system of rails, barges, and trucks that  transport goods to factories, distribution centers, stores, and consumers. Trucking moves 71% of all this freight in America, and there’s a shortage of drivers.

But our transportation infrastructure is also vulnerable, and our politicians have yet to lift a finger to help. Maybe next month.

Moving cargo by sea is historically cheap and efficient, so most of our imports from Asia arrive via cargo vessels. But now there’s a shortage of shipping containers. This has caused an immense spike in the cost of shipping. From Scott Galloway:

“Until 2020, the cost of shipping a 40-foot container along the world’s major trade routes never exceeded $2,000. Then Covid hit, and shipping firms reduced their fleets in expectation of low consumer demand. Instead, demand went up. This has upended the global supply chain. Shipping costs are now up 5 times to a record high: $10,000.”

The largest ships can carry more than 10,000 of these and when things run smoothly, about 25 million containers are in use on some 6,000 ships sailing around the globe.

The supply chain disruptions are causing backlogs in transporting all this cargo. About 40% of all US container traffic flows through the ports of Los Angeles and Long Beach. Currently, there are 65 ships waiting to unload thousands of containers. Again, that’s complicated by too few drivers in the trucking industry.

Flying into San Francisco last week, Wrongo saw about 30-35 ships also stacked up there. And China’s current forced reduction in energy consumption has hurt many high-tech producers. Wolfstreet reports that:

“…suspensions or reductions of industrial electricity supply that manufacturers in numerous industries are hit with, including key facilities that produce components for Apple, Tesla, Intel, NVIDIA, Qualcomm, NXP, Infineon, and ASE Tech….They’re now under orders to temporarily halt production…”

And supply chain issues go beyond tech products. Currently, 119 million Americans use prescription drugs, of which 25% are imported. These drugs start out as APIs (active pharmaceutical ingredients) — chemicals like hydrochloric acid and caustic soda. And China accounts for 80% of total raw materials for making medicine.

India is the largest producer of generic pharmaceuticals. They fulfill 40% of the demand in the US generic market. And shortages linked to this vulnerability aren’t a new problem. From Pharmaceutical Outsourcing:

“The average drug shortage in the US lasts for 14 months and some last for years when based on a high-risk supply chain. Before COVID-19, the FDA had already placed 145 pharmaceutical products on its drug shortages list.”

Since disruptions of the supply chain cause big price increases for goods that are difficult to get, it’s a threat to America’s economic health. And for medical and pharmaceuticals, it’s also a threat to public health.

Government knows about the problem but can’t fix it. After the PPE shortages at the onset of the Covid pandemic, you’d think we would develop a detailed plan to address the areas of greatest disruption. But all that happened was a 100-day review, making recommendations to shore up vulnerabilities sometime in the future. The proposals are sound, but they won’t help end our current shortages. Consumers can expect the current supply chain issues to persist well into 2022, and possibly beyond.

The geniuses in the multinational corporations who sold us globalization and just-in-time supply chains as the way to our best future are now telling us we just have to get used to shortages.

Economies can’t always just fix themselves. That’s a fantasy of capitalist utopianism.

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Will We Ever Bring the Wealthy to Justice in America?

The Daily Escape:

Evening mist, Southampton, MA – July 4, 2021 photo by Kendall Lavoie

From Patrick Radden Keefe in the NYT:

“In 2016, a small-time drug dealer in Leesburg, Va., named Darnell Washington sold a customer a batch of what he thought was heroin. It turned out to be fentanyl. The customer shared it with a friend, and the friend died from an overdose….prosecutors have begun treating overdose deaths not as accidents but as crimes, using tough statutes to charge the dealers who sold the drugs. Mr. Washington had never met the person who overdosed. But, facing a mandatory minimum prison sentence of 20 years for distribution resulting in death, he pleaded guilty to the lesser charge of distribution and is now serving a 15-year sentence in federal prison.”

Shouldn’t that same level of criminal liability also be directed at Purdue Pharma, the company that makes OxyContin? After all, according to the US Department of Health and Human Services:

“More than 760,000 people have died since 1999 from a drug overdose. Two out of three drug overdose deaths in 2018 involved an opioid.”

And OxyContin is an opioid. It should be clear that the members of the billionaire Sackler family who own a controlling stake in Purdue, must also face the music. But, that isn’t happening. The Sacklers are likely to receive a sweeping grant of immunity from all litigation relating to their role in helping precipitate and prolong America’s opioid crisis. From NPR: (brackets by Wrongo)

“As part of the bankruptcy talks, they’ve [the Sacklers] offered to give up control of the company and pay roughly $4.2 billion. In exchange, under the current deal on the table, the Sacklers would keep much of their wealth, admit no wrongdoing and be sheltered from future opioid lawsuits.”

It’s interesting that state DAs and DOJ attorneys can charge dealers with drug induced homicide in overdose cases and yet can’t (or won’t) charge the executives or owners in the Purdue/Sackler case.

In October 2020, during the dying days of the Trump administration, the Sacklers reached a settlement agreement with the US DOJ. Forty states have now agreed to this plan, although significant holdouts remain. Connecticut has filed an objection to the bankruptcy exit plan and has been joined by eight other states: California, Delaware, the District of Columbia, Maryland, Oregon, Rhode Island, Vermont, and Washington.

According to the formal objection:

“…the attorneys general oppose a provision in the bankruptcy plan that would grant the Sacklers lifetime immunity from all liability, which would prevent the states from bringing consumer protection lawsuits against the family. And they highlighted a recent New York Times editorial that showed the Sacklers will continue to earn interest on their $4.3 billion as the settlement is paid out over nine years, thus ensuring they will be wealthier than they were when they started.”

In response, the Sacklers threatened a motion for sanctions against five of the dissenting states for allegedly false statements in the states’ proofs of claim, only to withdraw their 201 page motion the next day. That big memo probably cost a fortune for the lawyers to produce, but hey, it’s the Sacklers! More than anything, it shows that the Sacklers have no sense of contrition for their role in the OxyContin debacle.

There is still some reason to hope that the Bankruptcy Judge Robert Drain won’t agree to the blanket immunity for the Sacklers. This week, the DOJ made two separate court filings that raised Constitutional and other concerns about the settlement. From NPR:

“US Trustee William Harrington….accused the Sacklers and their associates of using the bankruptcy system to avoid liability for ‘alleged wrongdoing in concocting and perpetuating for profit one of the most severe public health crises ever experienced in the United States’”

Their argument is technical, and the saga is far from over. In the light of Harrington’s objections, and the arguments made by the state AG holdouts, it may be difficult for Judge Drain to sign off on the immunities as they now stand, especially since the Sacklers are retaining the bulk of their fortune, and that no individual executives were charged, even with misdemeanors.

Where’s the justice? What people really want, more than compensation for harm done to them, is justice. They want proof that the rich and their corporations can’t just commit crimes that harm or kill people on a massive scale, and then use their wealth and political connections to evade the consequences.

Worse, the victims won’t blame Purdue or the Sacklers if/when they’re betrayed. People expect companies or the wealthy to defend themselves to the best of their ability.

They will blame the government, for feigning helplessness in this case, just like they did with the banks in 2009.

And for allowing a separate standard of justice for the wealthy to prevail. Again.

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Senate Authorizes New Industrial Policy

The Daily Escape:

Oro Valley, AZ – 2021 photo by PoohBear512

On June 8, the Senate passed a major industrial policy bill that would direct government investment toward critical technological sectors. The bill is intended to reinvigorate the manufacturing segment of the US technology sector, providing alternatives to supply chains dependent on Chinese microchips. Some argue that it also lays the foundation for long-term economic and technological competition with China. The bill passed with a filibuster-proof 68 votes.

The debate over industrial policy is politically charged because it goes to the heart of a deeper, long-standing controversy over the role of free markets and the role of the government in the economy.

Proponents of a state-directed and funded industrial policy argue that the government has the duty to structure the economy in the national interest, since the free market may fail to do so. We know that manufacturing provides stable, well-paid employment, but that isn’t factored into an individual firm’s decision-making. We can look at American firm’s offshoring of production even though it has cost jobs domestically while also offshoring manufacturing know-how.

As we discovered with Covid, it is very important to produce critical goods domestically. Industrial policy can help a country determine what critical goods it needs to produce domestically, such as medical supplies, or military equipment, for national security reasons. We learned about the automotive chip shortage, which is part of the greater issue of foreign control of global computer chip production.

There is also an argument that the government should fund R&D because the societal benefits go far beyond what companies will ever invest in.

Industrial policy fell out of favor in the US during the 1980s and 1990s with the development of the Washington Consensus, that defined economic development as the result of free-market policies such as the privatization of state enterprises and promotion of free trade.

But because of our competition with China, there’s a renewed interest among DC politicians across the aisle with again doing what Republicans have castigated Democrats for doing: “Betting on winners and losers”.

The bill authorizes the lion’s share of the money, totaling $190 billion, for a major rethinking of federal science, technology and research spending. It creates a new technology division within the National Science Foundation to focus on emerging areas including artificial intelligence. It also gives $10 billion for the Commerce Department to invest in new technology hubs so that other regions and cities across the country can attract the same sort of economic opportunities as Silicon Valley.

If some version of the bill eventually passes both Houses and is signed into law by Biden, it represents a major shift in how the US government manages its relations with the tech sector.

Both Republican and Democrats now suddenly seem interested in government intervention in domestic markets. It turns out that bipartisanship is on the menu whenever the issue is socialism for corporations. We can easily pass legislation that sends $ billions to corporations, but money for voting rights, people’s domestic lives, and infrastructure? Not now, maybe not ever.

China has invested in R&D while the lion’s share of American firms have squandered their money on share buybacks. Shame on us for supporting tax cuts for corporations! If only we had the foresight to know how stupid those things were. Here’s a chart:

Source: Council on Foreign Relations

Oh wait. Many of us had that foresight.

We did this with Japan back in the late 1970s. Earlier, we outspent the Russians in the space race.

This time we will probably give $ billions to the some of the same companies that decided to move their factories to China in the first place. Oversight will be crucially important.

Nothing we do will prevent China from educating its people, building new infrastructure, and focusing on STEM. But we can keep our edge over the Chinese by focusing on education, basic research, infrastructure upgrades, and STEM.

And the Chinese won’t be an easy target.

While we debate whether intelligent design and Critical Race Theory should be taught in our schools, the Chinese will be colonizing the Moon. While we fight about the 2nd Amendment, the Chinese are moving to dominate the global economy.

Most of the bill funds domestic investments to remain technologically competitive and reduce dependence on our economic adversaries. This seems like sound policy.

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Monday Wake Up Call – June 7, 2021

The Daily Escape:

Sunset, Paines Creek Beach, Cape Cod MA – May 2021 photo by Kristen Wilkinson Photography

People worldwide are finally waking up to the tax mischief of multinational corporations. When Treasury Secretary Janet Yellen announced earlier this year that it was time to end the “race to the bottom” and implement a global minimum tax for corporations, few took her seriously.

But now we could be on the cusp of a once-in-a-generation moment that would benefit funding of our public services immensely.

On Saturday at the G7 meeting, the members agreed to back a new global minimum tax rate of 15% for companies to pay on income, regardless of where they are based. The deal is focused on two main changes: reallocating taxes towards countries where economic activity takes place, rather than where these firms choose to book their profits, along with setting a minimum tax rate.

If enacted, the agreement would stop large multinational companies from locating in tax havens, which will force them to pay more taxes. This is clearly revolutionary. The winners would be large economies where multinationals sell a lot, but where they book little taxable profit, thanks to tax loopholes that allow them to siphon off income into low-tax jurisdictions.

This has become a larger problem since the rise of the digital giants like Apple and Google, companies with mostly intangible assets. The most obvious losers will be the tax haven countries that, more than half a century ago, started taking advantage of globalization by drastically lowering their tax rates.

The most sophisticated firms, those with battalions of tax lawyers and accountants, have for years employed tax loopholes in individual countries’ tax laws to minimize their total tax liability. While not all tax loopholes deal with international sales, they are a prime method that the biggest firms use to avoid income taxes.

The NYT cites a report from the EU Tax Observatory which estimated that a 15% minimum tax would yield an additional $58 billion in tax revenue per year.

Between 2011 and 2020, Amazon, Facebook, Alphabet (the owner of Google), Netflix, Apple, and Microsoft paid roughly $219 billion in income taxes, which amounted to just 3.6% of their more than $6 trillion in total revenue, according to the Fair Tax Foundation.

Had these six firms paid the prevailing tax rates in the countries in which they operate, they would have given global tax authorities over $149 billion more than they did over the past decade.

But tax reform isn’t a sure thing. Next month, the G7 must sell the concept to finance ministers from the broader G20 group of nations. If that is successful, officials hope that a final deal can be signed by the Group of 20 leaders when they meet next in October. Ireland, which has a tax rate of 12.5%, has come out against the global minimum tax. China has been quiet, but is considered unlikely to buy in.

G7 finance officials think that if enough advanced economies sign on, other countries will be compelled to follow suit. They plan to exert political pressure on Ireland to join the agreement.

The Biden administration has been eager to reach an agreement because a global minimum tax is an ingredient in its plans to raise the US corporate tax rate to 28% from the current 21%, to help shave the deficit. While Republicans and corporations think that increasing taxes would make American companies less competitive, getting other countries to go along with a minimum tax rate on overseas profits would minimize the home field disadvantage to American companies.

Time to wake up, America! We need our Congress, along with world leaders, to step up and enact this new tax policy. Changes to the tax code requires approval from both Houses of Congress, so this may never happen.

To help you wake up, listen to a cover of Bob Dylan’s “Everything Is Broken” by RL Burnside, with an all-star supporting cast including Buddy Guy with the first guitar solo, Derek Trucks with the second guitar solo and James Cotton on solo harmonica.

You may not be aware that Rolling Stone has a list of their top 80 Dylan covers . Here’s Burnside’s blues take on Dylan:

Sample lyric:

Broken hands on broken ploughs,

Broken treaties, broken vows,

Broken pipes, broken tools,

People bending broken rules.

Hound dog howling, bull frog croaking,

Everything is broken.

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Monday Wake Up Call – May 24, 2021

The Daily Escape:

Sun, clouds and Saguaros, North Scottsdale AZ – photo by rayredstonemedia61

After three decades of digital technology development, it’s evident that cybersecurity isn’t being adequately ensured by Mr. Market’s “invisible hand.” In remarks at the White House last Thursday, Biden said:

“…private entities are in charge of their own cybersecurity…and we know what they need. They need greater private-sector investment in cybersecurity.”

Wrongo’s last assignment was as CEO for a division of a F500 defense contractor. We were targeted by Chinese and other hackers thousands of times per day. By 2005, the parent company was investing tens of millions annually on cybersecurity. Most non-defense firms have come to investing in cybersecurity slowly and without large funding.

We again became painfully aware of the issue when hackers shut down the Colonial pipeline on Mother’s Day, bringing back gas shortages and long conga lines of cars trying to fill up. We subsequently heard that Colonial paid the hackers $4.4 million in Bitcoin to regain control of their networks.

From the New Yorker:

“…we are a country that has seen nearly a thousand reported ransomware attacks on our critical infrastructure since 2013. This includes transportation services, wastewater facilities, communications systems, and hospitals. The average recovery cost of a ransomware attack for businesses is around two million dollars.”

Even though private companies are most vulnerable to counterattacks, they continue to set their own cybersecurity standards largely based on operational and economic priorities, even if their negligence exposes the public to risks. So why won’t companies fix their mess?

Most in the private sector think that cybersecurity regulations will cost too much, which they do not want to pay, or may be incapable of paying. Many in the private sector also consider requirements for better cybersecurity to be yet another form of government regulation.

Mostly, it’s about money and secondarily, about a shortage of IT skills. Some argue that the incentive structure is backwards. Companies often think the costs of adding robust cybersecurity to be higher than their likely losses from a cyber theft. In a way, they are self-insuring, but that ignores the harm to their customers that occurs when personal information is stolen, or when you can’t buy gasoline.

CEOs are concerned primarily with the short-term profits and stock prices of their corporations. Companies have regularly absorbed losses incurred by security breaches, rather than reveal weaknesses in their internal cybersecurity systems, all in the name of protecting management reputations.

In 2015, Obama’s DHS designated dams, defense, agriculture, health care, and twelve other sectors of the economy as “critical infrastructure,” meaning that they:

“…are so vital to the US that their incapacity or destruction would have a debilitating impact on our physical or economic security or public health or safety.”

But while the DHS issued cybersecurity guidelines to those sectors, most companies operating critical infrastructure (like Colonial) are privately owned, and they ignored them. That includes 80% of the energy sector, including pipelines, power generation, and the electricity grid. DHS said in 2015 that those industries needed to develop a common vision and framework to deal with cyber threats.

But corporate America never developed that vision and framework.

In 2019, a European cybersecurity researcher using open-source tools available to anyone, identified and mapped the location of twenty-six thousand industrial-control systems across the US whose internet configurations left them exposed and vulnerable to attack. But you know, they would be prohibitively expensive to fix.

On May 12th, Biden issued an executive order that directed federal agencies and their contractors to abide by a host of stringent new cybersecurity regulations and reporting requirements. The order also required IT service providers and companies that operate industrial-control systems, to inform the government about cybersecurity breaches that could affect American networks.

Biden’s order is a significant workaround for the lack of government control of cybersecurity in the private sector. Many of the cloud services and software packages used by government agencies are also used in the private sector. So, Biden is creating the likelihood that those standards and requirements will be more broadly adopted. That would be similar to auto-emissions standards: When California raised its standards, 12 other states decided to adopt those requirements, and five automakers agreed to design all their new cars to meet them.

Something similar could occur with cybersecurity. Like with Covid, we’re again learning that there’s a very good reason for a robust central government that has the will to write and enforce 21st Century regulations.

Time to wake up America! Corporations aren’t your friends. From sending jobs abroad, to out-of-control share buybacks, to failing to invest in cybersecurity, they need much closer scrutiny. To help you wake up, let’s dust off Depeche Mode with their 1989 hit “Personal Jesus”:

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Monday Wake Up Call – May 10, 2021

The Daily Escape:

Lone Juniper, Black Canyon, Gunnison NP, CO – 2020 photo by Mattbnet

Isn’t it time that corporations paid decent wages?

After the Labor Department released its April jobs report, the US Chamber of Commerce blamed last month’s weak employment growth on the $300 weekly supplemental jobless benefit. They then urged lawmakers to eliminate the enhanced unemployment payments that were extended through early September by Biden’s American Rescue Plan.

This, from the dudes who willingly spend $300 on a lunch.

According to the US Chamber’s analysis, the extra $300 unemployment insurance (UI) benefit results in roughly one in four recipients taking home more pay than they earned working. But, if one in four recipients are making more not working than they did working, that’s not an indictment of $300 a week in UI benefits. It’s an indictment of corporations who pay less-than-living wages.

We could blame Asia for this, or we can blame our managerial and ownership class who engineered the outsourcing deals that made it possible. They built factories in Asia as an economic-production-economic-aggression platform to disintermediate American workers by sending higher wage jobs to lower wage locations in the Far East. And in many cases, the same companies who closed the American plants owned the Asian factories.

It’s sickening to hear these big business types complain that raising wages will destroy the economy! That’s the same argument which was used in the South against ending slavery (it would hurt the economy).

The US Chamber isn’t alone. South Carolina is cutting off extended unemployment benefits starting on June 30. From the SC governor:

“South Carolina’s businesses have borne the brunt of the financial impact of the COVID-19 pandemic. Those businesses that have survived — both large and small, and including those in the hospitality, tourism, manufacturing, and healthcare sectors — now face an unprecedented labor shortage,”

South Carolina’s unemployment rate was 12.8% in April of last year. But this March, it was down to 5.1%, significantly below the 6.1% national rate. Still, these Governors (Montana has done this too) are simply acting as shills on behalf of corporations to force workers back into low wage jobs.

Many studies have shown that the employees of big box stores like Walmart and Target cannot meet their basic economic needs on the money they make at their minimum wage job. Many turn to community social services just to feed their families.

It’s not China (or other Asian countries) that are to blame. We demand ever-lower prices, so something had to give. That something was middle-class American jobs. The American public was never part of the discussion about the pros and cons of offshoring manufacturing to lower wage countries, or how that would both lower costs for goods, but also destroy American jobs.

A lot of the people who now shop at Walmart and Target lost their jobs to Mexico, China, or Bangladesh. At which point, they needed some form of welfare, and/or another part time job at Walmart-type wages. And now that they’re on Walmart wages, Walmart prices are all they can afford.

Time to wake up America! We should be asking how can it be that food banks are overwhelmed while the Dow Jones Industrial Average hits an all-time high? Simply, the stock market isn’t the whole economy. The stock market is about corporate profits, while food banks are about minimum wage jobs and unemployment.

We should be asking: Why do these corporations (the small as well as the large) persist with business models that don’t allow them to pay living wages?

We could also ask whether more red states will try to “solve” the employment problem by hurting the unemployed rather than treating the root cause: paying living wages.

To help you wake up, listen to Rag’n’Bone Man and P!nk on Rag’n’Bone Man’s new release, “Anywhere Away from Here”. We often feature music to have fun with, or to dance to. And then there are tunes like this, music for the heart and soul:

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Taxes Aren’t Theft

The Daily Escape:

Humpback Whale, Tonga – Photo by Rita Kluge

Joseph Stieglitz has an op-ed in the NYT about saving capitalism from itself. He wants to re-brand capitalism as “progressive capitalism”: (emphasis by Wrongo)

“There is an alternative: progressive capitalism. Progressive capitalism is not an oxymoron; we can indeed channel the power of the market to serve society….The prescription follows from the diagnosis: It begins by recognizing the vital role that the state plays in making markets serve society. We need regulations that ensure strong competition without abusive exploitation, realigning the relationship between corporations and the workers they employ and the customers they are supposed to serve. We must be as resolute in combating market power as the corporate sector is in increasing it.”

America has been debating the role of capitalism in our society since our beginnings. In 1790, John Adams published the Discourses on Davila in which he said that entrenched economic inequality would create a political oligarchy in America similar to what had already occurred in Europe.

The problem isn’t inequality. We’ve survived a permanent underclass, but until recently, it has been a statistical minority. But, we won’t survive today’s continuing erosion of the middle class. Stieglitz says:

“We are now in a vicious cycle: Greater economic inequality is leading, in our money-driven political system, to more political inequality, with weaker rules and deregulation causing still more economic inequality.”

He calls for:

“…a new social contract between voters and elected officials, between workers and corporations, between rich and poor, and between those with jobs and those who are un- or underemployed.”

Call it progressive capitalism, capitalism plus, democratic capitalism, or whatever you want. At the core of any reform of capitalism is less corporate control over the levers of power, and a redistribution of wealth. Along with the growth in economic inequality and political impotence, so grows the myth propagated by the ultra-rich that higher taxes are a public theft of their hard earned fortunes, and are a threat to their personal freedoms.

Let’s spend a minute on the difference between positive and negative rights.

In the simplest terms, negative rights (most of the Constitution’s Bill of Rights) protect us from the government. They tell us what the government can’t do. The Constitution was designed as primarily a negative rights document, to maximize our individual liberty, and to protect us from the government interfering in our lives. They are most helpful to people whose rights are already protected.

Positive rights are different. They include things like the right to an education, and in some countries, the right to healthcare. Most of us define freedom as: freedom from hunger, freedom from ignorance, freedom from exploitation, freedom from poverty, freedom from hopelessness and despair. Very few positive rights are enumerated in the Constitution, with the exception of the right to have the government protect private property.

Today, if there’s one enduring myth that drives US politics, it is the myth that the rich have earned their reward, through nothing but their own hard work and savvy. The rich want no income redistribution, which they call “socialism”, just as the fat cats said in this cartoon from 1912:

The Republicans in the 1930s called FDR a socialist. Now, as we are thinking about a New Deal 2.0, today’s Republicans want to again brand all Democrats as socialists.

Corporations and the 1% ignore how much they are helped by a system designed by them, and for them. They are contemptuous of government and public authority, which they say act as agents of the poor, attempting to extort the rich.

They forget that our government facilitates and protects their wealth. If not for the many Federal agencies that write regulations favorable to industry, the Federal Reserve, protectors of the banking industry along with others, there would be a lot less wealth for corporations and the 1% to aggregate.

Therefore, they should pay the most.

And remember, rural electrification was a federal project under FDR. The dams on the Columbia River made irrigation possible, opening up western lands to agriculture. The Tennessee Valley Authority (TVA) was the Green New Deal of its time, and was the basis for development of a modern Southeastern US. The railroads that opened up the West relied on government property provided to private companies (redistribution?) to develop.

Let’s decide to reform capitalism. First, by making it responsive to the positive rights that average Americans are longing for. Second, paying for that with much high taxes on corporations. If the loopholes created by savvy corporate tax lawyers remain on the books, let’s create a stiff Alternative Minimum Tax (AMT) for corporations.

Just like the AMT that Wrongo has had to pay for lo, these many years.

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