The Wrongologist

What’s
Wrong Today:

The
Wrongologist continues to be otherwise engaged, but here are more links for
your review:

1. The
Bureau of Labor Statistics (BLS) reported that the US has lost almost 2 million
clerical jobs since 2007, but gained 387,000 managers. The International
Business Times is out early with a report  on the BLS data and the changes to the
workforce. Read it and weep.

    2. CNN
takes a different cut at the BLS data talking
about the growth in low-income jobs. The headline is that seven of the ten highest employment occupations earn less than $30,000 per year. Many of these jobs earn less
than the current poverty level.

Here is a chart from the BLS data in the report:

And here is
a chart showing current unemployment and average income by education level:

Seems that the best idea is still to go to college.

What’s
Wrong Today:

There
will be limited blogging this week as the Wrongologist attempts to finish a
year-long project and also to file his (and Ms. Oh So Right’s) taxes.

Instead
here are selections of links to articles by people who obviously have more time than the Wrongologist:

1. Daily Currant reports: Paul
Ryan thrown out of Easter Mass

2. NYT: Tom
Friedman’s ridiculous article on Sunday

• Dean
  Baker’s mocking
  response to Friedman
• A
  site where you can create your
  own mock Friedman column 

3. David
Stockman’s even more ridiculous
Sunday NYT article

• Paul
  Krugman’s cranky
  response  also, more by Krugman here 

4. 21
Charts that compare medical costs overseas to the US

5. Obligatory
funny pet video: Who is the
guilty dog?

 

Happy Easter, or happy Final Four, depending upon your religion:

Easter message to the Weasels in Washington:

Scalia admits his non-traditional relationship:

Obama’s speech in Israel:

Kim Jong Un imitates Psy’s dance:

Rodman’s bromance has benefits:

What’s
Wrong Today:

Politicians
are the only people in the world who create problems and then campaign against
them. Do you wonder why, if both Democrats and Republicans are against
deficits, we have deficits? Have you ever wondered why, if all the politicians
are against war and unemployment, we have war and unemployment?

The plain truth is that
if 538 people in Congress can decide the direction of the federal government, it
must follow that the conditions that exist today are what they want to exist.

If
the budget is in the red, it’s because they colored it red. If Marines are in Africa,
it’s because they wanted them sent to Africa. There are no insoluble government
problems.

Above all, don’t
let politicians con you into believing that there are disembodied forces like
“the economy,” “inflation” or “politics” that
prevent them from doing what they have taken an oath to do.

Turning to
2013, how is it that when Mr. Obama gets re-elected by a majority on a pledge
to hike taxes on incomes above $250K, and despite
having a legislative situation where if he takes no action, his pledge succeeds,
that he proceeds to negotiate against himself?

How is it
that while polls show that a majority of Americans oppose cuts to Social Security, both President
Obama and Senate Majority Whip Dick Durbin, along with Republicans, are for them?

So,
What’s Wrong?

It’s the rule
of the Plutocrats. Throughout history, the richest among us have used their wealth
to secure favorable laws.

As Jeffrey
Winters and Benjamin Page write in their 2009 article, Oligarchy
in the United States, it is perfectly possible for an oligarchy to function
quite nicely inside a democracy. Reference to another work by Benjamin Page appeared
in the Wrongologist earlier
this week.

Winters
and Page write: (emphasis by the Wrongologist)

Winters
and Page speak about oligarchs, while the Wrongologist speaks about plutocrats.
How are plutocrats different from oligarchs?

“Oligarchy”
is when the government is controlled by a small group; “Plutocracy” is when the
government is controlled by the wealthy. The Wrongologist assumes that all
plutocrats are oligarchs but not all oligarchs are plutocrats. The Free
Dictionary reports
that the combination of plutocracy and
oligarchy is called plutarchy, a largely unpronounceable word.

How do the
plutocrats coordinate their politics? How can they work together when there are
so many of them? Winters and Page say the
answer is that hyper-rich people share three
important interests:

• Protecting
  and preserving wealth

• Insuring
  the unrestricted use of wealth

• Acquiring
  more wealth

They don’t
have to conspire to protect their interests. They just shut up and let a few of them manage the specifics
for all of them.

Take the
Estate Tax as an example: Its function is partly to generate revenue, but its
social role is to break up large fortunes. The Wal-Mart heirs provide
leadership for the rest of the plutocrats on this issue. They spend vast sums
of money to insure that their children do not suffer the indignity of living on
less than billions (and billions) of dollars of inherited money.

Very few other
plutocrats outwardly support the Wal-Mart heirs on this issue and even fewer oppose
them. Those that do oppose them only talk, they do not spend money.

Plutocrats
deploy armies of professionals to assist them in influencing economic policy. As
we discussed yesterday,
professionals see themselves as independent, but they need patronage to maintain their positions and they
get it by providing research and advocacy for the policies that support the
views of the plutocrats.

Plutocrats have recently lost interest in maintaining
their part of the bargain about following the rules:

• Entire
  industries are now off limits for prosecution

• Rules
  are randomly changed to favor their interests

Worst of
all, democracy no longer works in America. It used to operate under majority rule. That is no longer the case in either house of Congress.

In the
House, under the Hastert Rule, the Speaker is reluctant to present a bill that
doesn’t have the support of a majority of his party. That means that a minority
of the House can prevent any bill from being heard.

The Senate’s
rules allow a single Senator to stop a bill. A minority can prevent consideration
of any bill. This situation is largely the fault of the Republicans, the party
of the plutocrats. But in the Senate, Majority Leader Harry Reid (D-NV) could have
moved against the paralysis and changed these rules, but he refused to do so. In
the Senate, fault lies as much with Harry Reid as with the party of the rich.

This leverage is used by the plutocrats primarily
on economic issues.

Like the
rest of America, plutocrats are divided on social issues like immigration, LGBT
rights and women’s issues. It turns out that some plutocrats have family or
friends or are themselves LGBT.  Because
of that, they are prepared to allow democracy to work on this issue.

And that’s
exactly how things are working out. On
matters of direct interest to the plutocrats, they win. You can pass laws about marriage or abortion as long as we get our way on money.

That’s just
a lousy deal for the rest of us.

Representatives
of the plutocrats are elected either by low voter participation, or by the
willingness of those who do vote to elect people based mostly on non-ability
factors like religion, party, appearance, etc. It doesn’t help that there is a
majority of people who care more about the Super Bowl than presidential
elections. Television ratings are
truth.

In the
1930’s, the organized support of the American people made Social Security
possible. Today, their apathy may lead to its destruction. When pessimists
proclaim that Social Security will not be there for them, we should ask if that
won’t be a self-fulfilling prophecy.

How long can
it be before an army of average Joes takes on the task of ending our political impasse?

What’s
Wrong Today:

Today, the Wrongologist turns up HIS voice: Our economy is
failing our citizens despite the wonderful stock market.

Consider that in the
past 6 months:

• The working age
  population has grown by 1.1 million; the number of employed Americans is up by 500k,
  but the number of people who have left the labor force has increased by 600k

• The number of Americans
  entering the Food Stamp Program increased 1 million, to 47.8 million

• Existing home sales have
  increased by a scintillating 2.9% on a seasonally adjusted annual basis and
  average prices have fallen by 6%

• The National Debt has
  gone up by $750 billion, while Real GDP has increased by $150 billion

• Real hourly earnings have
  not increased in the last six months

• Consumer debt has risen
  by $65 billion 
  

• Retail sales have
  increased by less than 2%

With 71% of our GDP driven by consumers,
these numbers show that we are institutionalizing our low growth economy, and
perpetuating income inequality.

As Timothy Fenwick Jr. said in
the movie, Diner:

At the close of the movie, he is
driving by a long white fence in some ritzy, horse farm section outside
Baltimore. He could feel that they lived better than he did. Awareness can be a bitch. 

Income
inequality has been around and studied for some time. In 1954, Simon Kuznets
published his classic paper on whether income inequality
affects growth. In the late 1990′s income inequality reached modern historic
highs and has stayed there.

Viewed
from below, income inequality is about how much better the rich live than do the
people below them. In the realm of politics, being rich gives the ability to
buy political power. The more power that can be reliably bought, the more money
and political power become interrelated. According to Wikipedia, a plutocracy must
not only have Pluto, (wealth), but cracy, (power).

Now, even
members of the professional class are becoming aware of income inequality as they watch the wealthy elites move up and out of sight. Professionals are realizing that their
own perceptions of income inequality has changed. No longer are they watching as the
middle class and working class fall into the abyss, but they are experiencing their own relative fall in
comparison to the truly wealthy.

Income
inequality is now everyone’s issue: first, the working class, then middle
class and the technical class, and now the professional class. They, the CEOs, bankers and attorneys, saw themselves as servants of the elites and in return, believed
that they had the chance to join the elites if they invested well, or if they created
a big score for a member of the elite.

One important
concept that explains how the world works is the Red Queen’s Race. In the book, Alice In Wonderland, the Red Queen drags Alice “as fast as they can
go,” and they go nowhere. The term Red Queen’s Race
describes a situation where exerting all one’s efforts leads to going nowhere. Our current Red Queen’s Race is the effort
by Washington to deal with high unemployment and low GDP growth.

Congress
and the Plutocrats are dragging us about, but we are getting nowhere.

Look at
almost any policy that the “Very Serious People” push. You will see that it
creates more financial paper to sell. What we get is the continued stagconomy and the honor of paying
rent to people who do not compete directly for the things we want, and the honor of not having
to pay rent to people who DO compete directly with us. We are bought off by the
homogeneity of our material world: Everyone’s phones, cars, trucks, houses, all work
the same way and work well. It is a trade that the vast majority of Americans
are willing to make, one that is not tied to an ideology or to a single
political party.

We and the
elites now live in two different worlds, they, with banks in Geneva, hotels in
Dubai and medical care that the rest of us do not see. This is hugely expensive,
since their parallel world is not tea
with the Queen, but breakfast on Mt. Olympus. 

And first
class is no longer first class; first class is a private jet. In the 1970’s you
could see Mayors and CEOs flying the Shuttle. They don’t fly the Shuttle any more.
They don’t go to the same hospitals, theirs do not accept our insurance. This is
also why the professional class hates taxation: They are not rich enough to
hide their money; their money resides where it can be found by governments. And
thus, the government must not increase taxes.

Summary

• Income
  inequality and lack of social mobility is how our political economy was
  designed

• There
  has been a sequential exclusion of all classes but the elites from increases in
  real wealth starting in the 1970’s

• The
  public has accepted this exclusion, while elites have used it to concentrate their
  political power

The
point is that teachers, doctors or architects, who once lived next door to Plutocrats,
now see that they are falling farther and farther behind. Doctors and attorneys,
who were closest to the Plutocrats, have been superseded by the MBA’s running
the insurance delivery system who, by the way, find that they are also falling
behind.

Teachers
and architects are way back in the rear view mirror.

Things
have regressed. Health care is once again regarded as a luxury. A defined
pension is a luxury. A full-time job is a luxury. A middle-class income is a
luxury. In fact, everything north of genteel poverty has become a luxury.

The
middle class and the poor have always had aspirations, but caused no trouble
for the Plutocrats. Yet, history says that they are the people who bring out the
firing squads when betrayed.

It
takes a while to sink in: It was almost 100 years from Louis XIV until Louis
XVI took his little trip through the streets of Paris to the guillotine.

 

The Wrongologist spent 4 days in Dubai last
week. He was invited to speak at the American University in Dubai. Mission Accomplished.
The student body is mostly from Arab countries. Their demeanor is similar to that
of students everywhere. The 8th Dubai Corporate Games, a large amateur athletic
competition between corporate teams was underway on campus. Students attended,
cheered and ate fast food, just like anywhere in the US. Hip-hop music was
playing from boom boxes. We saw this sign in the University cafeteria:

One of the trip objectives was to see if either
Turkey (see the Wrongologist’s Turkey column here)
or Dubai could be a model for the countries struggling for answers after the
early optimism surrounding the Arab Spring.

Four days does not create expertise, but here
are a few impressions: Dubai is a global
city. It is a business and cultural hub of the Middle East and the Arabian Gulf
region. Above all, the city is very modern and very clean, with no visible
signs of trash. It is the most centrally located city of the jet age and is
whitewashed of things like religious extremism, tough immigration laws, pesky
taxes or real-estate restrictions that might impede the flow of money into the
city.

Daniel
Brook, in his book, A
History of Future Cities, (Norton, 2013) writes a history of four cities;
St. Petersburg, Mumbai, Shanghai and Dubai. These cities were intended to be
venues for the world’s most ambitious organizations and people. They grew and
prospered, in most cases beyond what their country accomplished. Brook says
they are object lessons for the world we live in now:  

Brook
tells us that the growing class of the rich and their associated service
providers now jet from Tokyo, Sao Paulo, Geneva, London and New York, barely noticing the difference. Dubai
is an example of that: It has the look and feel of Las Vegas, another desert
city of high rise glass-walled buildings and neon. Dubai today is home to many
innovative, large high-rise buildings, including the world’s tallest building du jour, the Burj Khalifa.

The
nightly fountain show in the Burj Khalifa’s artificial lake is similar to the water
and light show outside the Bellagio in Las Vegas, although the fountains in
Dubai perform the Arabic Hair Dance or the Swinging Cane Dance, as opposed to “Fly
Me to the Moon” or “Viva Las Vegas”.

In some
ways Dubai is architecture school gone wild. All sorts of building concepts have
been executed, along with man-made islands, indoor ski hills and skating rinks
inside large shopping malls that include all of the global franchise stores.

Dubai has 2.1
million people, including a large expatriate community, with much of its
residential real estate market driven by wealthy expat buyers from China and
elsewhere in the Middle East, or by the not-as-wealthy European and American
expats, who are renters of large, western-style apartments. A 2012 study found that Emiratis
comprised a tiny 2% of the labor force. So expats come in many forms:
Indians and Filipinos predominate in taxis and domestic jobs, while an Italian restaurant
where we had dinner was staffed predominantly by Italians who were on one-year
contracts to work both the front of the room and the kitchen. We saw many
Russians shopping in the malls. Construction jobs are held by Africans,
Pakistanis and south Asians.

A famous
expat is Pervez Musharraf, deposed former president of Pakistan, who announced
that he is returning to Pakistan after 4 years self-imposed exile in Dubai.
That was tough duty.

Brook
points out that Dubai seized its moment in the 1970’s under the leadership of
Sheikh Mohammed, by building extraordinary hotels and office buildings long
before there were enough businesses or people to fill them. It then took off in
the post-9/11 environment by being the most important safe haven for people and
money in the Middle East.

Its infrastructure
is new and spectacular, with a stunning metro that is reasonably inexpensive, although
not available on a 24×7 basis. It is the longest driverless metro system in the
world, covering 46 miles of track. The station names could be from a sci-fi
novel: Media City, Internet City, Knowledge City and Health Care City. You can
even buy a ticket to Energy. These sectors of Dubai are established to create a
nexus of similar businesses in a given area.

The principal
thoroughfare, the Sheikh Zayed Road, is a 12 lane highway without potholes, (America
take notice) but not without traffic jams at rush hour. The airport departure
terminal is sleek and modern:

The Arrivals
Terminal is not so modern or different from elsewhere.

In
closing, in the past 10 days the Wrongologist visited two secular-leaning Muslim
countries, Turkey and Dubai. Both are thriving economically, making them quite
different from the Arab countries currently slogging through the Arab Spring.

Turkey is an
old democracy which, along with Indonesia, represent the only true democracies
among Muslim countries. Both have growing economies. Dubai is ruled by a Sheikh
and his family. Its economy is growing, but its people largely live on a
government stipend, since so few of them are employed.

Are either
of these countries models for the rest of the Arab world? Turkey at least in Ankara
and Istanbul, is an amalgam of Europe and Asia, of Islam and Christianity. It
was always a part of both worlds, and it is hard to see it as a repeatable
model for any other Middle Eastern country.

Dubai is 99%
Muslim, excluding the expats. It is multicultural and capitalist. Can Dubai be
the model for the rest of the Middle East? No. It succeeds by being secular on
the surface and ruled primarily by the laws of commerce. It is much like
Singapore: A city-state with inflexible social rules, but flexible business
rules.

It represents
the worst of wealth-based modernity, compelling, clean and soulless. If there truly
is a pivot toward Asia in the coming 50 years, Dubai along with Shanghai may be
the New York and London of the 21st century.

The
British glam-rock group, ABC said it best: “I’ve seen the future, I can’t
afford it”.

(ABC-“How to be a Millionaire”-1985)

 

Turkey
is a constitutional republic with a diverse cultural heritage. Turkey’s
population is 75 million, and 96% of the people are Muslims. The country spans
Europe and Asia, with its main city, Istanbul, separated by the Bosporus and
Dardanelles straits, which link the Mediterranean Sea with the Black Sea to its
north.

The
Wrongologist has been staying in Istanbul, home to 15 million people. It has
the look and feel of a European city, showing evident wealth, sophistication
and some cultural diversity. The city is growing rapidly: it was home to 8
million in 1990, 12 million in 2000 and 15 million today. All of Turkey is
becoming urbanized: Today, 75% of its population lives in towns or cities.

Istanbul
has the feel of a secular place. There are few headscarves and fewer bhurkas
evident on the streets, while most women are in western dress, many talking on
mobile phones as the walk. Most cars are relatively new, but there is evident
use of public transportation, buses, metro and ferries to the Asian side of the
city. There is much construction underway, including a tunnel under the Straits,
more bridges between the the old city and the new city, and metro line
extensions.

We
saw gentrification much like you would see in an American city: A city block of
old apartments that had been occupied by Kurds is now being converted to
upscale apartments with water views. What happened to the Kurds? They were “relocated”
to another part of the city. The renovated buildings will be offered at market
rates to the new middle class of Istanbul.

Nothing
demonstrates the secular nature of the Turkish Republic better than the Sophia,
a Roman church that became an Eastern Orthodox Church, which became a mosque,
that finally became a museum in 1935.

It
was built by the Romans in 360. The dome visible in the photo was added in 537.
Constantine made it the home of the Roman church (and the city,
Constantinople). It was an Eastern Orthodox Church for a short period, and from
1453 to 1931, it was a mosque. Sophia shows the additions and subtractions as
its religion changed throughout the millennia. This photo below was taken
yesterday:

The
medallion on the right represents Allah while the medallion on the left is for
Mohammad. Behind the medallions is the nave of the original church, with the middle
window pointing to Jerusalem. The lighted arch in the nave was added when the
building became a mosque, and it points toward Mecca.

Our
hotel was the site of the Young Presidents Organization world congress. Since
the age limit to be a Young President is 45, the Wrongologist is disqualified
on the basis of ageism. Holding this meeting in Istanbul demonstrates the
growing economic clout of Turkey and its commitment to tourism. Last
year, 10 million people visited the country.

Turkey
is not without human rights and women’s rights issues, however. Over the past
few days, Turkey’s ruling party, the AKP, unveiled a campaign to replace local
women’s rights groups which provide consultation in 11 centers for the
prevention of violence against women with party-sponsored consultants. All of
the former personnel were dismissed it is alleged, in order to bring the
shelters and consultation under the control of the ruling party.

Most
women’s groups in the country see this as the government’s way to set and control
the agenda of women’s rights in Turkey.

By
the way, the famed Turkish bath houses are open to men only.

Onward to Dubai today…         

The Wrongologist is in Istanbul, Turkey and is then heading
to Dubai. Full-scale blogging should
begin again around March 11.

Istanbul is a fact-finding visit.  Here is the Topkapi Palace:

Invited to speak at the American University in Dubai:

Trinkets will be purchased.

This Week At Our Lady Of Wrong:

What’s
Wrong Today:

Two facts in sublime
conjunction:

First, we continue
the stalemate over the Sequester. One side says “no new revenues” while the
other side says, “new revenues”.

Let’s start by discussing
the second fact: The FDIC reported that the banking industry had a great 2012.
The industry’s full-year earnings were the second-highest on record at $141.3
billion, an increase over 2011 of $22.9 billion, or 19.3%. This was the best result in 6 years, or since bank earnings
peaked in 2006 at $145.2 billion.

Much of the earnings
growth in 2012 came from banks reducing the amount they set aside in case of
losses on loans, the FDIC said. So, they didn’t have to write off as much in
bad loans as they did previously.

It was even better in the 4th
quarter of 2012: The industry’s earnings for the fourth quarter of 2012 totaled
$34.7 billion, up $9.3 billion, or 36.9% from the same period in 2011.

So,
What’s Wrong?

Big profits?? The
government has propped up the big banks for years through bailouts
and subsidies.
After the earnings announcement, Bloomberg reported:

And Bloomberg isn’t your usual source of radical
information.

Lately, economists
have tried to pin down exactly how much the subsidy lowers big banks’ borrowing
costs. In one effort, two researchers — Kenichi Ueda of the
International Monetary Fund and Beatrice Weder di Mauro of the
University of Mainz — put the number at about 0.8 of a percentage point. The
discount applies to all their liabilities, including bonds and customer
deposits.

Small as it might
sound, 0.8 percentage point makes a big difference: Multiplied by the total
liabilities of the 10 largest US banks by assets, it amounts to a taxpayer subsidy of $83 billion a year. To put the figure in perspective, it’s
tantamount to the government giving the banks about 3 cents of every tax dollar
collected.

The top five banks,
JPMorgan, Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and
Goldman Sachs Group Inc. account for
$64 billion of the total subsidy, an amount roughly equal to their
typical annual profits. Check out Bloomberg’s chart below:

In other words, the biggest
and best banks in the US financial industry, with almost $9 trillion in assets,
equaling more than half the size of the US
economy, would just
about break even in the absence of corporate welfare. In large part, the profits they report are
essentially transfers from taxpayers to their shareholders.

When
it comes to big banks, we’re still doting parents: Four years after the financial
crisis, we just can’t stop babying them.

So, how
does all this fit with the Sequester?

Maybe
we can get back some of that subsidy by taxing the Banks.  Jesse Eisinger wrote at ProPublica  about establishing a transactions tax on the
banks.  He states:

A transaction tax
could raise a huge amount of money and cause less pain than many alternatives.
It could offset the need for cuts to the social safety net or tax increases
that damage consumer demand.

How
much could it raise?

Harkin and DeFazio
got an estimate of $ 352 billion over 10 years from the bipartisan Joint
Committee on Taxation, which scores tax plans.

The bill would exempt
initial public offerings (IPOs) so that the markets’ capital-raising function
isn’t harmed. Initial investments and withdrawals from tax-protected accounts,
like retirement or education funds, might also have some protection.

Critics say that it
will harm the capital markets and won’t raise that much money. They argue that
such a tax cannot be enforced; that it will depress trading, leading to lower
asset prices; and that it will ultimately be passed on to retail investors.

These arguments are dismissed
in an excellent report by Britain-based group, Stamp Out
Poverty:

Some taxes might be hard
to collect, but this shouldn’t be one of them. Trading is conducted by large
businesses on computers. This tax would be collected by the exchanges. And if no
stock exchange was involved, the buyer would owe it. It would be paid on any
trade carried out in the United States or by any American entity or individual
(a corporation’s offshore subsidiaries can’t get around it).

Trading has
skyrocketed in the last decade and a half. What has society gotten for it?
Bubbles, crashes, volatile asset prices and an outsize financial sector that
extracts rents from the rest of the economy. Rising transaction volumes haven’t
delivered broad-based wage growth or good jobs.

And it hasn’t really helped
the stock market. There has been no boom in IPO’s. The Dow and the S&P
index have just gotten back near to their peaks before the financial crisis.
The Nasdaq isn’t close to the peak achieved in the year 2000.

The average American, who has limited
exposure to the stock market, has little to fear from the tax and much to gain.
And if some of the high-frequency trading flees offshore? So be it.

The politics of a
transaction tax are daunting: Harkin can’t get this done by himself, so bank
transaction tax legislation will have to be embraced by some senators on the
relevant committees, like finance or banking. But Sen. Charles Schumer D-NY,
chair of The Senate Finance Committee, is a problem because his main
constituency is Wall Street.

There is a possible
anti-Wall Street/Big Bank coalition between Midwestern and Western Democrats
and Republicans. Sherrod Brown D-OH and David Bitter R-LA don’t agree on much,
but they co-sponsored a bill calling for more bank capital. Charles Grassley, R-IA
serves on the Senate Finance Committee and has been willing to challenge vested interests in the past.

But Republicans have taken blood oaths
never to support higher revenue.

If some kind of
increase in taxes is inevitable, one that takes aim at high-frequency traders surely
hits few Iowans (Mr. Grassley) or Americans in general, while it might do a lot
of good.

Something
has to break the logjam between Republicans and Democrats.