The Wrongologist

What’s
Wrong Today:

There is a chance
that in tonight’s debate, we
will get another dose of baffle ‘em
with BS by Mr. Romney concerning small business
taxes. Romney and Ryan continue to conflate
small business taxes with individual income taxes.

The GOP claims that a lower top personal income tax rate will
allow businesses to hire more people.

At the vice
presidential debate, Paul Ryan repeated a persistent conservative talking point
about the Obama administration’s plan to let Bush-era tax cuts expire for the
rich. He
said:

“Two-thirds of
our jobs come from small businesses…This one tax would actually tax about 53% of
small-business income.”

In the
first presidential debate, Mitt Romney struck
the same chord,
saying that Obama’s plan to make wealthy individuals pay Clinton-era taxes was
an attack on “the people who work
in small business.”

So,
What’s Wrong?

The
rhetorical appeal is clear: Americans love small businesses.

But, let’s leave the fact-free zone by
defining the universe of businesses: There are a little more than 6 million businesses in the US with
employees. They employ about 121 million people.

Businesses with less than 500 employees
represent 99.7% of all businesses in the US. In fact, only 981 companies have more than 10,000 employees each.

So how
small is a small business?

• Firms
  with more than 100 employees
  are only 2% of total businesses in the US

• That
  means firms with less than 100 employees are 98% of all companies

• The
  average firm with less than 100
  employees grosses $7.1million in sales

• As
  of 2008, there were 4.1 million firms
  with 9 employees or less, they employed an average of 3.2 people.

Firm Size	# of Firms	# Employees	Avg. # Employees	Total Sales	Avg. Sales/Co.
1-4 Employees	1,070M	6,000M	1.95	$1,435B	$464,000
5-9 Employees	1,060M	7,000M	6.60	$1,145B	$1,040,900

When a politician
describes a “little 250 employee firm”, these are among the largest
employers in the US. So, let’s call a less-than-100 employee firm small. Remember, the average >100 employee firm grosses $7.1million in
sales annually.

When Republicans talk
about lowering the highest tax rate on small businesses, they are referring to individual
income taxes. The reasoning is these
same wealthy
individuals are small business owners, some in the form of sole
proprietorships and pass through tax structure business entities (see below).

Question 1 to ask Mr.
Romney: What size firms are you proposing for tax cuts?

Question 2: What type
of firm are you proposing for tax cuts?

Back into the fact zone:
There are four common types of business entities in the US. They are: Corporations,
partnerships, S-corporations and sole proprietorships.

Partnerships are primarily two types, a
limited liability partnership (LLP) or a limited liability company (LLC). There
are also other types of businesses, such as Registered Investment Companies
(RIC’s), which are glorified investment vehicles with capital gains tax pass
through. S-corporations also allow pass through taxes, although not as lenient
as partnerships.

According to the tax
code, some “S” Corps, Partnerships and Proprietorships have the ability to pass
through business income to the individual owner’s income taxes.

Corporations cannot
pass through business profits. They are taxed via the corporate tax code. The US
Bureau of the Census, from where we get the above data, uses business type definitions based on the tax code:

• Corporation – An incorporated business that
  is granted a charter recognizing it as a separate legal entity having its
  own privileges, and liabilities distinct from those of its members.
• S-Corporation – A form of Corporation where the
  entity does not pay any federal income taxes. The corporation’s income or
  losses are divided among and passed to its shareholders. The shareholders
  must then report the income or loss on their own individual income tax
  returns.
• Partnership – An unincorporated business
  where two or more persons join to carry on a trade or business with each person
  having a shared financial interest in the business.
• Sole Proprietorships – An unincorporated business with
  a sole owner.

Below is a chart of
number of these firms by type, who had at least one paid employee during part
of 2009:

Corporations	“S” Corporations	Partnerships	Sole Proprietorships
2.3 Million	2.6 Million	600,000	1 Million

Sole
Proprietorships

Republicans claim sole proprietorships create jobs. The Census statistics on
business latest data are from
2009. These numbers require a business had at least one paid employee
during a part of the year. These sole proprietorships represent
16.4% of all businesses with employees in this country.

Statistics also show the self-employed are not paying large amounts
of tax. From the SBA we see their
median tax rate is only 10%. In 2008, 15.5 million individuals listed their
primary occupation as self-employment (both incorporated and unincorporated).  

Only 4.1% of the self-employed (about
192 thousand people) were in the highest marginal tax bracket of 33% or more.

In 2009, about 947
thousand sole proprietorships employed 4.8 million people. 753 thousand (79.5%)
of these sole proprietorships employed zero
to four employees for the year, or 1.2 million people, with an average of 1.63 persons employed.
In other words, 79.5% of these sole
proprietorships are not really generating
jobs.

And given their average tax rate, most people who are self-employed (96%)
are close to being broke. They aren’t
earning enough for themselves, never mind being able to generate jobs.

Firms
with zero employees

It may
surprise you to learn that there are ANOTHER 22.1 million firms (3.7 times the
number WITH employees) that have no payrolls. BTW, they average $45.7million in annual revenues-don’t you
wonder what can bring in all that dough without any workers? (Hint: capital) The Census also gives us statistics on these businesses.
According to the
Census, the majority of all business establishments in the United States are
non-employers.  

So, Question 3: Will firms without employees receive tax breaks?

“S”
Corporations

In the above table, S Corporations have the most employees.
Why? Because they are tax pass through vehicles. S Corporations
allow owners to not pay as much in
payroll taxes. They have to pay employees a reasonable salary in
an S Corp, yet income from the business is passed through and taxed as
individual income. That income isn’t subject to FICA, or social
security and Medicare taxes, unlike sole proprietorships because they
pay self-employment tax.  

Practically any individual earning
freelance or self-employment income can incorporate as an S corp.

Many large corporations also shelter their
profits in “S” Corps. In 2007, for example, 339 manufacturing corporations
that averaged $429 million in revenue
filed as “S” corps and
paid zero corporate taxes.

By contrast, the 4,375 manufacturers that
filed under the corporations tax code made a just over 10% of that amount and
paid an average of about $1 million in corporate taxes.

So, are “S” Corporations
are really creating jobs? It is unclear. Many of these employees are also
owners of the business, playing games with the tax code and classifying
themselves as employees with low salaries in order to reduce their overall tax
bill.

Question
4: Will “S” Corporations receive tax breaks?

In
Conclusion:

The point of this
exercise is to show that Republicans are arm waving about taxes, in other
words trying to baffle us with bullshit:

Business taxes are not individual taxes and for those businesses with tax pass
throughs, most owners are sole proprietors and are barely getting by. In the case
of “S” Corps, owners are hiring themselves….to not pay taxes.

It’s clear that claims about reducing the top individual
income tax bracket have little to do with actual jobs. The statistics
from the Bush tax cuts also show that lower taxes for the rich do not generate jobs.

If politicians really
want to change the tax code to generate jobs, they would be creating a tax rebate tied to hiring and retention of out-of-work Americans, not simply giving more money to the wealthy.

What’s Wrong Today:

As the
Wrongologist outlined, on Wednesday, the House Oversight and Government Reform
Committee held hearings on the mess in
Benghazi.

During the
open hearing, as members of the State Department were briefing the Committee, they
were showing commercially available satellite images of the area of the attack.

Suddenly,
Republican Jason Chaffetz suggested that the images showed classified
information that could endanger current ongoing operations in the area.  

As The
Washington Post’s Dana Milbank described it:

Rep. Jason
Chaffetz (R-Utah) was the first to unmask the spooks. “Point of order! Point of
order!” he called out as a State Department security official, seated in front
of an aerial photo of the U.S. facilities in Benghazi, described the chaotic
night of the attack. Chaffetz says:

“We’re getting into
classified issues that deal with sources and methods that would be totally
inappropriate in an open forum such as this.”

A State
Department official assured him that the material was “entirely unclassified”
and that the photo was from a commercial satellite. Chaffetz continued:

“I totally object
to the use of that photo… I was told specifically while I was in Libya I could
not and should not ever talk about what you’re showing here today.”

As Milbank
points out, Chaffetz’ outburst confirmed two things: first, that the picture was apparently of a CIA base
and second, that the base might still
be in operation even after the attack that killed our ambassador.

That the
Benghazi compound included a large CIA
presence had been reported but not confirmed. The New York Times, for example, had reported that among those
evacuated were “about a dozen CIA operatives and contractors.” The Times withheld locations and details
of the facilities at the administration’s request.

But on Wednesday, all withholding was on
hold.

So,
What’s Wrong?

Oops. While
attempting to use the death of American government officials in Libya to further
Mitt Romney’s election bid, fellow Republican Jason Chaffetz and his House
Republican colleagues on the House Oversight and Government Reform
Committee, outed a classified CIA
operation and on C-SPAN no
less. In a nutshell, Chaffetz’ outbursts ensured that every
terrorist in the world would now be
checking C-SPAN to figure out what the CIA was doing in Benghazi.

Heckuva
job, Jason.

After it
became clear that Issa, Chaffetz and the Republicans hoped to use the Benghazi
attack to turn Obama into Jimmy Carter, it was likely that there could be
trouble with the classified information.

Deputy
Assistant Secretary of State Charlene Lamb puts up a satellite image that
showed both US Benghazi locations (see c-span after
55:00),
and later in her testimony, she implied there were other security resources on the ground that were not being
discussed in the hearing.

The satellite image was commercially
available to anyone, including al Qaeda as readily as the Congress or the State
Department. Chaffetz was attempting to keep hidden a safe house that had already been compromised, either by poor spy craft or espionage.

In
addition, in her testimony, Lamb
implied that another video exists, which shows the attack. It is being withheld
by CIA.

Understand what this means: The Republican lawmakers
created the security breach after ordering a public hearing for political
reasons on a matter that belonged
behind closed doors.

In any
case, this demonstrates that if Republicans wanted to conduct their own
investigation of this attack (and there’s no reason why they shouldn’t), they should have done it in the security-savvy
House Intelligence Committee. Here’s Dana Milbank again:

“Republicans were
aiming to embarrass the Obama administration over State Department security
lapses. But they inadvertently caused a different picture to emerge than the
one that has been publicly known: that the victims may have been let
down not by the State Department but by the CIA. If the CIA
was playing such a major role in these events, which was the unmistakable impression
left by Wednesday’s hearing, having a televised probe of the matter was absurd.”

Another
point: The question of how much obvious
security there should have been at the Benghazi compound becomes an interesting
question now that Chaffetz has informed the world that this was actually a CIA station.

Think a
minute: The CIA might not have wanted
a large contingent of Marines based at the “Special Mission” and
“annex,” since it would signal the bad guys that this was not simply a backwater “Special Mission and annex.”

But the
administration can’t give that response while Mitt Romney and the House
Republicans are berating them up for supposedly not having more security at the
station.

They couldn’t explain that maybe we didn’t
want the extra security because it would signal that there was actually a CIA
operation underway.

And think
about this: Romney has been getting
security briefings from the Administration since the Republican convention. He
likely knows all about the CIA station in Benghazi. But, the political
theater rolls on.

Sounds like it’s time for a hearing about
the hearing.

The congress’ cavalier
treatment of classified information often results in selective declassification
of things hidden to keep us safer.

This time around,
Republicans went out of their way to hide
unclassified information.

What’s
Wrong Today?

It
was not a mob reacting to an anti-Muslim film that attacked a US Special
Mission in Benghazi Libya on September 11, 2012, killing four Americans. It was
the scene of a pitched battle, in which as many as 100 terrorists besieged
American diplomats and their security team with RPG’s, mortars and small-arms
fire for over four hours. 4 people died, including the US Ambassador,
Christopher Stevens who happened to be visiting from Tripoli.

Ambassador Stevens
was well known and respected in Libya. He spoke Arabic. He first went to
Benghazi March 2011 as the US Special Representative to the National Transitional Council during the Libyan revolution. Stevens’ itinerary was supposed to last
from Sept. 10 until Sept. 15. The highlight of the visit was to be the
opening of the American Space, a
center intended to serve as a hub for US culture and education.

Confusion remained
about the attack’s origin for much of September. The Obama Administration had
trouble getting its facts straight: Five days after the strike, American
ambassador to the UN Susan Rice, said the unrest in Benghazi began with a protest against an anti-Islam video. It
apparently did not.

Here is a brief timeline: 

Sept. 11: Around 9:30 pm,
attackers begin
firing at the main building of the Special Mission compound with
guns and rocket-propelled grenades. Computer technician Sean Smith dies inside.
Two other Americans, security officers Tyrone Woods and Glen Doherty,
responding from a facility a mile away, are later killed in the shootout. In
the battle, Ambassador Stevens is not accounted for, and later turns up at a
nearby hospital, dead of cardiac arrest and smoke inhalation.

Sept. 12: US intelligence
agencies intercept calls between members of Ansar al-Sharia, the jihadist
group suspected of carrying out the attack and members of al Qaeda in the
Islamic Maghreb (AQIM), the group’s North African affiliate. The Libyans brag
that, after watching riots on Sept. 11 at the U.S. embassy in Cairo, they had
decided to
go forward with an attack in Benghazi.

Sept. 16: Susan Rice makes her now-infamous
statement.

Let’s also make
it clear that our office in Benghazi was a “Special Mission,” not a consulate,
not an embassy. State
Department officials reported that it was a temporary facility rented from
a local businessman. The building was improved by making the walls higher with masonry concrete and then
adding barbed wire and concertina razor wire on top to further extend the
height of the wall to 12 feet. Guard booths and sandbag emplacements were built
to create defensive positions inside the compound.

But these improvements
were not sufficient.

So, What’s Wrong?

It is important to fully understand
what happened in Benghazi and to use what we find to try our best to blunt the
severity of future attacks. Both
parties should completely endorse that goal.

However,
what we are seeing is an effort to turn the tragedy to political advantage:

On Sept. 11th,
Mr. Romney blasts the Administration, claiming its first response was “to
sympathize” with the attackers:

“Its disgraceful that the Obama Administration’s
first response was not to condemn the attacks on our diplomatic missions, but
to sympathize with those who waged the attacks.”

On Sept. 26th
Reince Priebus,
chairman of the Republican Party, writes at Real Clear Politics:

“Amid
Middle East turmoil and six weeks before the election, President Obama refuses
to have an honest conversation with the American people… The country deserves
honesty, not obfuscation, from our president.”

On Oct. 2, House
Republicans, Darrell Issa (CA) Chairman; and Jason Chaffetz (UT) send a letter to
Secretary of State Hillary Rodham Clinton demanding more information about the assault on the
Benghazi compound.

On Oct. 10th, the House
Oversight Committee, chaired by Rep. Issa, held a hearing at which State
Department officials testify, conceding that there was no protest. While Under Secretary of State for
Management Patrick Kennedy insisted in testimony on Wednesday that there was no cover-up of the
attack’s true cause.

On Oct. 11th,
during the VP debate, Paul Ryan asks why there were no Marines in Benghazi. However,
Ryan already knew that there were no
Marines in Libya, much less Benghazi.

According to
Foreign Policy,
out of the 285-plus U.S. diplomatic security facilities worldwide, 152 have
Marine Corps detachments, primarily to protect facilities and the classified information they contain.

Col. Harold Van Opdorp, director of the
Marine Senate Liaison office stated in an email to Foreign Policy:

“Overall, the
plan is to grow the number of MCESG (Marine Corps Embassy Security Group) detachments
worldwide to 173. It is also important to note the detachments are charged
with protection of the chancery…

Perimeter security
is the responsibility of the HN [host nation] police/security forces.” 

Here
are the things that were wrong with our security in Libya:

1. Funding
   cuts for State Department Security that reduced global security headcount by at
   least 300 worldwide.
2. Our
   effort to meet Libya’s demands that we keep US soldiers out of their country.

Let’s
look at funding first:
For fiscal 2013, the House proposed spending $1.934 billion for the State
Department’s Worldwide Security Protection program, $200 million below the
$2.15 billion requested by the Obama administration.

In
fiscal 2011, House Republicans cut the administration’s request for embassy
security funding by $128 million. In fiscal 2012, it was cut by $331 million (with
the Senate restoring $88 million).

Under
Ryan’s budget, passed twice by the House, non-defense discretionary spending,
which includes State Department funding, would be slashed nearly 20 percent in
2014, which would translate to more than $400 million in additional cuts to
embassy security.

Last
year, Sec. Clinton warned that the proposed cuts to her department would be
“detrimental to America’s national security”, a charge rejected by Republicans at the time.

That’s
right; the Republicans cut funds for embassy security, and now are blaming the Administration
for laxity. It seems completely
typical that Congress would cut funding for a program and then bitch about the
logical consequences.

Now Let’s
turn to Libya’s hard line on foreign soldiers: The new government in Libya did
not want US soldiers or foreign national mercenaries on the ground. Some of
this is based on experience with foreign fighters that had been employed by
Ghaddifi against the “freedom fighters” during the revolution.

Instead,
the State Department contracted with a UK based firm, Blue Mountain Group, a security firm
approved by the Libyan government that supplied
Libyan nationals to provide security at the Benghazi facility. The
Embassy in Tripoli also had an agreement with the Libyan February 17th
Brigade to serve as back up support in Benghazi. Stevens was due to meet
with
a representative of the Brigade on 9/11 at 11am, possibly to tweak the
arrangement with the Brigade, since Stevens had worked closely with the
militias throughout the war.

This is
the group that Charlene Lamb, Deputy Assistant Secretary of State testified about on Wednesday at
the Issa hearings: 

“The
annex U reaction security team arrived with approximately 40 members of the
Libyan 17th February Brigade. They encountered heavy resistance as they
approached the compound. Together with the Diplomatic Security agents, they
helped secure the area around the main building and continued the search for
the Ambassador—again making several trips into the building at their own
peril.”

Based
on what we know, the terrorist force may have numbered 100 or more. Our on-site force was 8, plus the 40
members of 17th February Brigade nearby.

These
measures or lack thereof, to protect the Benghazi Special Mission are now a
major campaign issue.  

Jason Chaffetz,
Issa’s Republican partner in the hearings, and Romney Campaign surrogate, believes
that Libya is so dangerous it requires we take a full-time military stance.
But not so dangerous he couldn’t do a quick “fact” “finding” trip to Libya with little advance notice.

In
no surprise, Chaffetz’ extensive investigation onsite in Libya discovered that
politics was dictating security. He told Fox News:

“Rather than
letting security dictate security, they let politics dictate security.”

Predictably,
all this happened not simply in time for Chaffetz’ and Issa’s hearing on the
attack, but more importantly, in time for Mitt’s big foreign policy
speech,
in which he said:

“The attack on our
Consulate in Benghazi on September 11th, 2012 was likely the work of the same
forces that attacked our homeland on September 11th, 2001.”

Imagine
what Commander-in-Chief Romney would do with the Authorization for the Use of Military Force (AUMF), (passed after
the real 9/11 and extended recently), if all he needs to determine that the
people who attacked the Special Mission building (remember, not the Consulate) are “the
same forces” that attacked the World Trade Center is to send a campaign surrogate to the Tripoli airport for a few
hours.

It
is difficult to understand what the Republicans are trying for here. If their
complaint is lack of consulate security, then they shouldn’t have cut the money
for it.

If
their complaint is that early accounts of what happened were chaotic and
ultimately inaccurate, what else would they expect when the Ambassador is
killed and our team can’t immediately locate his body?

There are
many questions, but when those making the accusations, those who voted to cut
embassy security by nearly half a billion dollars, are conducting the
investigation, it loses any veneer of
objectivity.  

It is not
a non-partisan search for answers.  

We shouldn’t
politicize these terrible events. When we do, it always turns ugly.

What’s Wrong Today?

First, median
household income has not been this low since 1999. The Wall Street
Journal reported on the Census Bureau data release which
showed a continued steep decline in Real Median Income, falling by 1.5% in the
past year,
and it has declined by a total of
8.1% since 2007.

Second, also according to Census Bureau reports, poverty
has risen to near-record highs, with 46 million people falling below the
official poverty line, and the poverty rate reached 15 %.

Third, the FDIC reported that 29% of households do not have a savings account. The
FDIC sponsored a survey of unbanked
households, that is, those among us who have no checking or savings accounts.

Nobody can get ahead unless they can build some savings to send a kid to school, to purchase a
computer, to tide them over between jobs.

Some of the key findings from the
FDIC 2011 Survey include:

• 8.2 % of US households have no bank account. This represents 1 in 12 households, or
  nearly 10 million households in total. 
• 29.3 % of households do not have a savings
  account, while
  about 10% do not have a checking account.
• Only 66% of
  households have both checking and savings accounts. 

So, What’s Wrong?

Good stock market, good GDP, good
corporate profits, but median income is down, poverty is up and 29% of us do
not have a savings account.

Welcome to the new normal.

Many of us no longer live in the
America we grew up in. The new normal
is a growing economy and growing ranks of the unemployed, the lower class and
the chronically underemployed.

We are witnessing the end of the post-industrial-revolution
economy and the birth of a new American economy right on top of it. High tech service jobs have replaced
manufacturing jobs as the standard for attaining a middle class
lifestyle.  This jobs environment is
changing faster than our leaders seem to understand. They can’t react to it,
since it requires a long-term world view and long range planning, neither of
which are strengths in Washington. The main stream media also fails to mention that
“normal” is shifting much more rapidly than our slow recovery seems to
indicate.

If they did notice, it would force
longer-term thinking and possibly, an acceptance that the job booms we remember
from the mid-20th century and Y2K may be gone forever.

Nobel Prize winning economist Joseph Stieglitz says:

“The growing lower class lives in a world marked by mediocre
education, job insecurity and rationed health care.”

Meanwhile, the 2012 election
campaign rolls on, as though Washington is the axis around which job creation
revolves. Politicians might be an axis of change, but sadly, they are not, and
will not be effective in growing new jobs, until
they embrace a national industrial policy on jobs and job formation.

Mitt Romney campaigns on a promise
of “more jobs, less debt, and smaller
government,” implying that Obama’s government
policies and the 2009 stimulus destroyed jobs or prevented hiring. Democrats in
turn take credit for a slowly reviving economy with a declining unemployment
rate, conveniently soft-pedaling just how many people are out of work and how low
wages are for many of the new jobs.

The voters think the election will
turn on which candidate will create more jobs.

The problem is: Each suggest that more of their party’s programs will soon bring
prosperity to those without it today. They are wrong.

What has to happen?

Fix our broken economic framework. 

The world in which people sell largely
unskilled, uncredentialed physical labor is slipping away, replaced by robotics
and different services, ranging from information to nursing to logistics to
entertainment.

We are well along in a transformation of the American job market as
dramatic as the changes that occurred when farming became more mechanized and
displaced millions prior to the Great Depression.

Aside from brief protests from
movements like Occupy, we are not had an honest discussion about class, about
economic divides, or about what to do when we confront forces beyond the easy
control of our government.

We will lose a generation unless we act soon (and decisively) to embrace different
strategies for employment. Winning the fight also requires a new social
contract that few in Washington (or outside) have shown the courage to discuss.

What does this new economy look like?

• It is a vast
  (and growing) class of knowledge and service workers, at new jobs like human/tablet interface designers,
  jobs that require slick programming skills and a deep appreciation about how we
  want to use information in business and entertainment. These people are
  unlikely to hold any one job for more than a few years. Therefore, pensions and health care must be portable.
• The new
  economy is one where of tens of millions of men and women with college
  educations will continue to staff the still-growing health care industry. These people need continuing education
  and cheap/free college loans.
• This economy
  will provide limited job opportunities for tens of millions of young and
  middle-aged people with skills in construction and labor. These people need a national commitment to retraining for different
  jobs.
• The new economy
  has whole new businesses: Integrated Logistics for example, which provide jobs
  managing vast amounts of infrastructure and information, and the global retailers
  that use these services will reward those workers and businesses. This industry needs a million+ very
  skilled workers to support global expansion. And many of them will make big
  bucks.

How government crafts policies that address all of these conflicting
needs will be critical.

James Steele & Donald Bartlett’s
book, Betrayal
of the American Dream, (Public Affairs, New York, July 2012) gives us a
list of things we should change immediately:

• Revise the tax code: We lowered the effective tax rate on the
  wealthiest Americans from about 51% in
  1955 to 16.6% by 2007. The primary justification for the cuts was to
  stimulate the economy and create jobs. That hasn’t happened. Instead we created
  the widest wealth gap in the US since the late 1920’s. We need to make the
  wealthiest pay more, and invest those proceeds in education, training and
  infrastructure that can help create 21st century jobs.

• Keep free trade, but make it fair trade: We have followed the expansion of the free
  trade ideology too far. Our trade policy must limit imports from countries that
  won’t play fairly. A healthy economy balances its imports and exports, like our
  biggest trading partners do (Canada, China, Japan and Germany). Let’s start by
  limiting subsidized imports and deal primarily with countries that agree to
  remove barriers to importation of our goods.

• Invest in America: This used to be the job of our corporate
  leaders, their bankers and the stock markets. That is no longer the case. The
  American Society of Civil Engineers issues a periodic report on the
  quality of America’s infrastructure (bridges, highways, airports, electric
  grid, rails, tunnels, dams, you name it). The latest ASCE report grades our national
  infrastructure as a “D” and estimates that we have $2.6 TRILLION of
  deferred maintenance. All of our
  country’s competitors are building new infrastructure that we already have
  difficulty competing with. We need to be matching them to promote our
  commercial competitiveness and create jobs.

• Rethink Training:  The
  nation’s federal training programs for those who have lost their jobs to
  outsourcing/off-shoring need a major upgrade. Rather than simply counsel the
  out-of-work, we need to set up well-funded apprenticeships/internships with
  large corporations as sponsors. Let the big firms take on 2 million interns in order to justify the low/no tax
  payments they enjoy under our rigged tax structure. 

This means politicians must face up to a long tough fight and get
busy grappling with the world as it is, rather than the world they remember.

For our part, we will need patience
and the brains to avoid demagogues promising a quick fix. There will be no quick fix
for us.

What is coming is a world in which many
workers will be in effect, contractors or temps, self-employment will be the
norm. So we also need to decide what our
social contract will look like when that is the real world for most people.

Have you ever vacationed in a banana
republic? Where every morning, the locals pick up their trinkets and head for
wherever the tourists gather to sell their wares? It is a hardscrabble life
with limited upside.

That kind of life can’t become America’s New Normal.

What’s
Wrong Today:

The top
American commander of troops in Afghanistan showed signs of impatience about
the growing number of insider attacks, called green-on-blue, that have taken a
toll on U.S. troops this year. During
an interview on “60 Minutes” Sunday night, Gen. John Allen said:

“I’m mad as hell
about them [green-on-blue attacks], to be honest with you…We’re going to get
after this. It reverberates everywhere, across the United States. You know,
we’re willing to sacrifice a lot for this campaign. But we’re not willing to be
murdered for it.”

President Barack
Obama’s plan for withdrawal from Afghanistan calls for the US to train Afghan
security forces to defend their own country as most of the remaining 68,000
U.S. troops will return home in 2014.

Allen, who
said that the “vast majority” of Afghans and Afghan soldiers stood
with the US, warned that Americans should be prepared to see the deadly attacks
continue:

“The enemy
recognizes this is a vulnerability…You know, in Iraq, the signature weapon
system that we hadn’t seen before was the IED. We had to adjust to that. Here,
I think the signature attack that we’re beginning to see is going to be the
insider attack.”

The Wrongologist reported on
green-on-blue attacks in March, 2012 here, quoting Dr. Jeffery Bordin, a PhD working for the military.
Bordin reported on the reasons for green-on-blue attacks in “A Crisis of Trust and Cultural
Incompatibility”. He characterized the shootings of Americans by Afghan
troops as “a severe and rapidly metastasizing malignancy.”

Surprise! Here we are 6 months later,
questioning the plan.

So,
What’s Wrong?

It’s our
strategy that’s wrong.

Our original mission was to kill bin
Laden, to destroy al Qaeda and to remove the Taliban government that had
sheltered them. Our original strategy
was to use Special Forces to achieve those ends and we accomplished two out of three with special operations forces within
weeks, and again using Special Forces, bin Laden in 2011.

Advantage: USA.

Then, we
changed our strategy. We decided to hold territory. Our Generals said:
If we can’t hold territory, we can’t win the war in Afghanistan. That strategy had
failed by 2009. Advantage: Taliban.

Third, our strategy morphed to: We
need to suppress the Taliban and buy time so that they negotiate with us (and Karzai). We settled on combining a surge with implementing Gen.
Petraeus’ counter-insurgency strategy, (COIN). COIN means we root out
the Taliban while winning the hearts and minds of the Afghans. The COIN
doctrine invokes the imagery of an “ink blot”: Operations begin in a
small area then spread out to adjacent villages and districts, winning people
over and detaching them from the insurgents.

There was never much reason to
believe that COIN would succeed. See the Wrongologist’s prior posts, here, here, and here. But the military situation in Afghanistan
looked sufficiently dire in 2009 that a bipartisan consensus of Washington
policymakers believed that a surge was necessary. So, Gens. Petraeus and McChrystal said we should add
troops (surge), because it worked in Iraq. After intramurals about how many
troops to employ in the surge, Obama settled on 30,000, below the 40,000
McChrystal said he needed.

We have now withdrawn the surge troops. But the suppressive force provided by the surge did not even
tamp down insurgent activity to levels seen in 2009, much less defuse the
situation, or enable COIN. Here are some statistics:

• In
  August 2009, at the height of the Obama administration’s debate over a troop
  surge, insurgents attacked US troops using small-arms fire, homemade bombs, and
  mortars, approximately 2,700 times.
  In August 2012, they attacked just shy of 3,000
  times.

•  In
  August 2009, insurgents used just
  under 600 IED’s on NATO forces. They used just over 600 IED’s NATO forces in August 2012.

And there’s another number to consider: Its 988; the
number of US troops killed in action in Afghanistan or who died since the troop
surge. The Taliban is
not battered, they didn’t agree to negotiate and now, the New York Times reports that the negotiating effort is over.

At best, the Surge strategy was a
draw with the Taliban.

Our final strategy is to train the Afghans
to do it for us.
That allows us to declare victory and head for the exits. Preparing the
Afghan Army and police to fight without us is
the foundation of the Obama Administration’s 2010 strategy to withdraw most
American forces by the end of 2014.

What
happens if we can’t train the Afghans? We’re
about to find out, since two weeks ago, we decided to suspend joint
combat patrols because of the growing green-on-blue attacks. So far this year, more than fifty American and NATO
soldiers have been killed by Afghan soldiers or recruits: actually, its 56 (16+%) of the 340 who have died this
year.

Advantage Taliban.

As Dexter Filkins
wrote in The Atlantic:

“When I was in
Afghanistan in April and May [2012], it was clear that the entire thrust of the
American-led mission was to train Afghan forces as quickly as possible, so that
we could stay on our departure schedule. The principal means to that end, I was
told repeatedly by senior commanders, was carrying out operations together. (I
heard the phrase “shoulder to shoulder” so often I started repeating it in my
sleep.) The reason for this was simple: Afghan soldiers typically perform much
better when American soldiers are with them. The Afghans fight better, feel
better, and abuse each other, and Afghan civilians, less.”

The Washington Post is now reporting
that joint operations
with the Afghans have now resumed, although
not at the same level as before. Gen. Martin E. Dempsey, chairman of
the Joint Chiefs of Staff, made an unannounced trip to Afghanistan over the
weekend to meet with Gen. John R. Allen, the top U.S. and NATO commander, and
other officials. Dempsey said he wanted to:

“get a sense for whether our campaign
objectives were still valid, whether our campaign plan was still on track…The
Taliban is clearly trying to split us apart, but it won’t work…They’re working
to weaken the coalition, and that won’t work either.”

It is difficult to
overstate just how easily the Taliban have blunted our latest strategy.
Afghans (civilian and
insurgent alike) may be uneducated by our standards, but clearly, they’re not
stupid.

Our strategy? We decided
to hold territory, we started nation-building, we COIN’ed, we surged. The
Taliban strategy? Keep up their hit and run operations.

Here
is Obama’s (and our) dilemma: We have been in Afghanistan for eleven
years. We can’t remain much longer because we’ve overstayed our welcome, even
among our friends. But, if we leave, it means a Taliban takeover.

And
now, we can’t train the local troops to take over for us.

Time for a new strategy: We should leave,
but our leaders are afraid of the “They lost Afghanistan” narrative: We need
some sort of Graceful War Zone Exit
to make OUR LEADERS (not us) feel leaving is acceptable.

Here is the Wrongologist’s take: Our military has achieved
all of the tangible goals that can be expected of them in Afghanistan. The
thing no one in government can articulate for us is the real benefit to the US
of a peaceful Afghanistan: The argument
that Afghanistan is a base for terrorist activities is ridiculous,
since the terrorists exist in Yemen, Libya, Sudan, Somalia, or, even Pakistan,
where bin Laden lived for so many years.

Our
strategy is now self-defeating. We are locked into a situation where we are
committed to supporting the Karzai government, when our only true strategic interest is that we not be attacked
from there. Our national interest has absolutely nothing to do with
whatever regime rules Afghanistan and were it to be convulsed with civil war
and internecine bloodshed, it will not materially affect us.

We should withdraw from Afghanistan
and let Mr. Karzai see if he can govern without us. We should make it clear
that, while we cannot impose a government, our drones and cruise missiles can
make darned sure no Taliban regime will ever govern effectively.

This
is a strategy we can execute.

Don’t agree? Read what a 20-year old Afghan
soldier told The New York Times last
Wednesday:

“We
would have killed many of [the U.S. troops] already, but our commanders are
cowards and don’t let us.”

Game over! Time to go
home!

(This is the
second of two posts about The Wrongologist’s visit to South Africa)

What’s Wrong Today:

In August, Secretary
of State Hillary Clinton took an 11-day trip across sub-Saharan Africa. In her
“Remarks on Building Sustainable
Partnerships in Africa,” delivered in Senegal, Clinton said:

 

“The days of having
outsiders come and extract the wealth of Africa for themselves leaving nothing
or very little behind should be over in the 21st century.”

China took these
comments as a direct criticism of its African policies. Xinhua news agency stated:

“Ironically, it was
the Western colonial powers that were exactly the so-called outsiders, which,
in Clinton’s words, came and extracted the wealth of Africa for themselves,
leaving nothing or very little behind.”

China
has emerged as a major US competitor in Africa’s trade, investment and aid. This has led
many to question the nature of its involvement. Critics say that China is only interested in resources and its
exports to Africa, like shoes and clothing, threaten local industries which are
labor-based.

So, What
is the Big Picture?

We are in
a shadow war with China for access to African natural resources. In 2009, China
became Africa’s single largest trading
partner,
surpassing the United States. And China’s foreign
direct investment
in Africa has grown from $100 million in 2003 to more than $12 billion in 2011.

In
2011, Africa-China bilateral trade reached $166 billion, an increase
of 300% over 2006, while China’s direct investments in Africa are now nearly
$15 billion.
 
Starting from a low level, China’s
share of Africa’s exports has increased from a mere 1% to about 15% in just 10
years.

The Government of
China maintains over 150 commercial attachés and associated staff at its
embassies in 48 African countries, while according to a report by the Brooking
Institution’s Africa Growth Initiative, there are currently just five U.S.
Commerce Department Foreign Commercial Service Officers in Africa.  

Furthermore, Chinese President Hu
Jintao has made seven trips to Africa, five as head of state and has visited 17
African countries.

SA President Zuma with Hu Jintao

In 2011, about 62% of African exports to
China consisted of crude oil, with over $24.7 billion coming from Angola,
now the source of over 9% of China’s oil imports.

 And the US? Over the past decade, oil accounted for roughly
89% of US imports from Africa. Nigeria is the fifth largest source of oil imports to the US and Angola, the eighth.

So, in the shadow war
between Beijing and Washington, DC is
behind and falling further behind:
Beijing announced on July 20, $20
billion in assistance to the continent, double the amount it pledged in
2009; and an “African Talents Program” to train 30,000 people in various
sectors and set up vocational training centers, 18,000 government scholarships
and the dispatch of 1,500 additional Chinese medical personnel to Africa. 

 

So, What’s Wrong?

China is securing access to African natural
resources and agricultural land by whatever economic means at its disposal. For
example, China’s
three state-owned oil companies have become the biggest investors in Africa.  

Despite
the good investment news, China’s colonial instincts are evident: Chinese state-owned firms in
Africa are facing criticism for using
imported Chinese labor to build government-financed projects like roads and
hospitals, while pumping out natural resources and leaving little in
the local economies.

Meanwhile, native Chinese
have migrated to Africa, hired by an estimated 900 local Chinese companies. Today
there are approximately 1 million Chinese in Africa,
with about 40% located in South Africa.

South African President
Jacob Zuma has also spoken out recently about the “unsustainable”
nature of Africa’s trade with China, in
which South Africa transfers low-value commodities to China while high
value-added manufactured products are imported, costing jobs.

The University of
East Anglia
concluded that from 2001-2010, competition from China has caused the loss of
77,000 South African low-end factory jobs. The study shows that China now has a 46% share of the South
African footwear market and supplies about a third of South Africa’s electronic
goods. South African factory owners have had little choice but to shift
to more capital-intensive, technology-driven means of production and phase out
labor-intensive product lines, at the
expense of employment levels. South African unemployment
today is about 25%, and 48%
among youths aged 15-24.

During
the Wrongologist’s visit to Swaziland, he saw direct evidence of China’s long range strategy:
Swaziland is a very poor country where
all land is owned by the King. It is rich in iron ore. China stepped in,
built and equipped a state of the art hospital in Mbabane, Swaziland’s capital.
They staffed it with Chinese doctors.

In
exchange, China received control of a national iron mine.

Mbabane Government Hospital

In
South Africa, the Wrongologist heard about direct attempts by the Chinese to
influence policy:
The Dalai
Lama, Tibet’s exiled spiritual leader, was denied a visa to visit South
Africa in October
2011. He was to attend the 80^th birthday of fellow Nobel Laureate, Desmond
M. Tutu of South Africa.

Critics
viewed the visa denial as a capitulation to China, a strong opponent of the
Dalai Lama, whom the Chinese authorities consider subversive.

Archbishop Tutu lashed out at his
government, calling its conduct disgraceful and discourteous toward the Dalai
Lama, criticized President Jacob Zuma, saying:

“Mr. Zuma, you and
your government don’t represent me,” he told reporters. “You represent your own
interests.”

The visa denial
coincided with a visit to China by South Africa’s vice president, Kgalema
Motlanthe, who signed multiple trade
and development agreements with the Chinese government.

More in South Africa: The Pretoria High
Court issued a landmark ruling this week classifying
Chinese South Africans as black, making them eligible for benefits for
those discriminated against by the former apartheid regime. There is a
sub-group of Chinese who have been in South Africa since the early 1900’s. The Chinese
Association of South Africa (CASA) argued that these Chinese citizens continue to be
marginalized under the country’s black economic empowerment and affirmative
action legislation. Both laws benefit the country’s black, Indian and
mixed-race communities, but excluded
South African born Chinese.

Patrick
Chong, CASA leader, described the
ruling as a victory:

“Under the
apartheid rule we were classified as colored — a term used to describe a
mixture of black and white race…After the democratic government came into
power, our status was no longer recognized as colored, so we were in
between.”

Does
this also reflect a wink and a nod to South Africa’s relationship with China?
It seems a stretch to say that the decision is entirely based on the inequity of the current laws of South Africa.

Finally,
consider Zambia:
Its capital, Lusaka, has just become
the first African city to offer Chinese currency banking services for domestic
transactions.

It is
China’s objective to become an alternative
reserve currency to the US dollar in Africa. Lusaka’s Bank of China
branch, with government approval, now handles deposits and withdrawals in Yuan.
The Bank explained that the service in Yuan (also known as renminbi) was aimed at
Chinese investors working in Zambia, but
also at Zambians importing goods from China.

Also, there is concern that China is
bankrolling its favorite in the Zambian presidential election. In the run-up to the
polls questions are being asked about just how far China’s influence in Zambia
spreads and if Chinese money is bankrolling the incumbent presidential
candidate Rupiah Banda and his party, the Movement for Multiparty Democracy
(MMD). Banda is very much in the Chinese camp as compared to his opposition,
the Patriotic Front, which is anti-Chinese.

 

China has no plans to leave Africa, or to modify
their colonial instincts. The British may have come first with their bibles and
ultimately, owned the land.

The
Chinese have come with a new religion, loans and investment.

Ultimately, like the British, they also expect
to own the land.

The Wrongologist and
Ms. Oh So Right concluded their visit to South Africa last Monday with a tour
of Soweto.

Soweto is an acronym
for SOuth WEstern TOwnship. The creation of townships south and west of
Johannesburg that would later become Soweto was the product of white city and state
authorities evicting black Africans from Johannesburg. Black South Africans came
from rural South Africa to work in the gold mines that were established in
Johannesburg after 1886.   

After the Afrikaner-dominated
National Party gained power in 1948
and began to implement apartheid, the pace of forced removals and the creation of
townships outside legally designated white areas increased. The name “Soweto”
was adopted in 1963.

Soweto came to the
world’s attention on June 16, 1976 with the Soweto
Uprising, when mass protests erupted over the government’s policy to
enforce education in Afrikaans rather than English.
Police fired on 10,000 children marching from Naledi High School to Orlando
Stadium, On the first day of the rioting, about 200 people (there is no accurate
count of the dead), died in Soweto.

The first to be killed when the police
opened fire was Hector Pieterson, who was 13 years old.

Below is a photo of Hector being carried
on that day by his brother, taken
by photo-journalist Sam Nzima.
This picture captured the defining moment of the student uprising for the rest
of the world. The impact of the Soweto protests reverberated throughout South
Africa and across the world. This
photo popularized the revolution and precipitated a 18 year period of uprising
that culminates in Nelson Mandela being freed from prison and ultimately, in the
new South African constitution, the first democratic elections in the country
and the end of Apartheid.

Soweto is synonymous
with oppression and unbelievable poverty. It was the poster child of black
slums worldwide.

Many parts of Soweto still
rank among the poorest in Johannesburg. The economic development of Soweto was
severely restricted during Apartheid, where the state provided very limited
infrastructure and prevented residents from owning their own businesses. Roads
remained unpaved, and many residents shared one water tap among four houses.

Today
Soweto has 858,000 people in 41 square miles. It is mostly composed of old
“matchbox” houses, or four-room houses built by the government to
provide cheap accommodation for black workers during Apartheid.

After the African National Congress
(ANC) took power in 1994, the government began building new houses in
disadvantaged areas like Soweto under a program called Reconstruction and
Development Program, (RDP). Between
1994 and 2001, over 1.1 million cheap houses were built, accommodating about 6
million of the estimated 12.5 million South Africans without proper housing. Between
1994 and May 2000 around 1.75 million homes in disadvantaged areas had been
connected to the national grid, while the proportion of rural homes with electricity
grew from 12% to 42%.

Many people who still
live in the “matchbox” houses have improved and expanded their homes, and the City
Council has enabled the planting of more trees while improving parks in the
area.

So, What’s Wrong?

Many
things in South Africa are turning right, but for black South Africans, there is still a huge way to go. Soweto, however, was
a revelation. It is poor, but has the look of a poor but proud area that is on
the way up, far from the very poor slums we have seen in India and elsewhere.
Here is an example: The Maponya Mall:

The Mall was built by Richard Maponya, a black South African
entrepreneur affiliated with the ANC who became the real estate agent appointed
by ANC Government to sell land in Soweto to blacks under their land reform
program. He made a fortune in commissions and went on to build the Maponya
Mall. The Mall opened in 2007.

We visited the Mall around noon on the Sunday of a holiday weekend. The Mall was quite crowded but the huge
parking lot was only 1/3 full, reflecting the lack of privately owned
cars in Soweto. Most take busses or walk to and from the Mall. It is a huge
mall with lots of activity and no empty store fronts.

We felt very safe
walking around mall, having lunch in a fast food place and walking in the parking
lot.

There were new cars for sale inside
the Mall, including Japanese and Indian imports. There were new construction
homes in Soweto also for sale. The new homes were priced from ZR 350,000, or $42,500.
This gets you between 45 and 65 sq. meters of living space (500 sq. ft. to 700
sq. ft.). That includes the cost of the land. The developer offers zero
interest financing at the list price.

We moved on to Vilakazi
Street, the best
known street in Soweto. It is the only
street in the world where two Nobel Peace

Prize winners have lived: 
Desmond Tutu
& Nelson Mandela.
Mandela lived at #8115 and Tutu about 50 yards down the street. Tutu’s family
still lives there and operates a popular restaurant next door.  Mandela’s home
is now a museum.

We also visited the Apartheid Museum and the Constitution Court, similar to our Supreme
Court, except that it handles only constitutional law questions. They have a Supreme
Court that is the final place to adjudicate all non-constitutional questions.  

The
Wrongologist was struck by a quote in the Apartheid Museum. It was anonymous,
obviously written by a black South African.  

It
is the best definition of Colonialism at its worst:

“When
the British came here, we owned the land and they were carrying bibles.

Now,
they own the land and we carry bibles.”

Next
post, we will talk about the colonialist
impact of China’s investment policies in Africa.

There will be limited posts for the next two weeks. The Wrongologist is off to South Africa with the Chamber of Commerce in his state.

Wireless apparently exists in some hotels and public spaces, so we’ll get a few chances to test connectivity to the server…

In the meantime, please feel free to offer comments or criticisms about the continuing saga of our economy.

There are
about 3.6
million available jobs in the US today. See this chart:  

So we have 15 million people needing a job,
and about 3.6 million jobs available.

If we are
to add jobs,we need a radically different
approach: An
industrial policy designed to create jobs in America.

There are
serious problems trying to implement a national jobs policy.

• Ideology
  causes some to reject an industrial policy as “socialism”, because they say:
  “government is the problem, not the solution”.

• Multinationals
  (MNC’s) and their lobbyists will spend millions to drive the policy in the
  direction most favorable to them. Think: Affordable Health
  Care Act and Dodd-Frank.

MNC’s only
want an industrial policy to the extent it allows them to import foreign
workers.

Strange
isn’t it: more immigrants from Mexico steal jobs from Americans but more immigrants from India are
necessary for our economy.

How
do the MNC’s influence “industrial policy”? First, they claim there is a talent
shortage. The reality is there isn’t a 6-7
million US talent shortage if only 3.6 million jobs are available.

Let’s talk about STEM jobs (Science,
Technology, Engineering and Math), which are touted by both Republicans and Democrats
as the holy grail of high wage jobs.

The MNC’s are
looking to force a national policy on STEM, allowing an unlimited number of
foreign students to compete for these jobs. Here
is the MNC lobbyists’ agenda:

• Granting
  automatic green cards or provisional visas to all foreign students after they
  earn a STEM degree from a U.S. university.

• Fully
  implementing within two years the August 2011 immigration initiatives regarding
  EB-2, H-1B, EB-5 and E13 categories, primarily around speeding up the process
  for making visa decisions.

• Increasing,
  by a factor of at least four, the number of entrepreneurs from other countries
  allowed entry into the United States, mainly though expansion of the EB–5
  program.

Here is some history on immigrant
work visas:

• The L-1 visa program was started in the 1970s and was originally
  for intracompany transfers only.

• The H-1B guest worker visa program was started in 1990 with an
  annual cap of 65,000 visas.

• In late 1998 and early 2000, the
  H-1B visa caps were raised from 65,000 a year to 115,000 per year and
  195,000 per year, respectively.

• As a result of the 1998 & 2000 increases, 1.1 million foreign guest workers came
  into the U.S. from October 1998 to October 2003.

• The number of L-1s who came in from 1998-2003 was at
  least 1 million. There is no yearly cap on L-1 visas.

• The <-1Ba hrt.novacredit.com/resources/h1b-visa">h1b Visa cap reverted to 65,000 per year in Oct. 2003.

• There is no legal requirement in the H-1B law that requires an employer to look for and try
  to hire an American worker instead of a foreign worker.

Consider this:

• The 1.8 Million unemployed STEM workers
  represent 65% of the 2.75 million US STEM jobs, according to the USDOL.

• If you count the L1 and H1 Visa
  totals for the last 20 years, it is around 2.1 Million Visas.

The displacement of US STEM workers by
immigrants is obvious.

A year
ago, at a hearing by the Senate Judiciary Subcommittee on Immigration, Refugees
and Border Security titled, The
Economic Imperative for Enacting Immigration Reform, Ron Hira, associate professor
of public policy at Rochester Institute of Technology in New York and an engineer, testified
as
the token U.S. STEM professional representative. Hira actually used real live
government statistics:

• According
  an analysis of BLS data by IEEE-USA more than 300,000 American engineers and computer
  professionals are unemployed.

The claim
that corporations cannot
find these STEM workers is fiction. It’s an excuse to age
discriminate, labor arbitrage, outsource, and control the labor supply. The real
issue is that the US has not produced
enough high quality engineers willing to work for cheap, because that’s what
American
MNC’s want.

It is
worth remembering that the United States has third
largest population of the world. Clearly we have more than enough people
to spawn all the STEM workers we need,
if we make it a national priority.

Leaving
the STEM issue aside, we need to do more for America’s unemployed and working poor:

• Improve
  the amount and available interest rates on student loans.

• Refinance
  their mortgages at today’s low interest rates.

• Increase
  the Earned Income Tax Credit – a wage subsidy for lower-paying jobs.

• Provide
  a higher minimum wage that’s automatically adjusted for inflation.

• Exempt
  the Social Security payroll tax on the first $25,000 of income and pay for it by eliminating
  the ceiling (now $110,100) on income subject to it.

• Establish
  a new Works Projects Administration and Civilian Conservation Corps designed to
  put the long-term unemployed back to work.

• Mandate
  that our large corporate firms hire some portion of the long-term unemployed
  for each job opening they have until unemployment reaches 6%.

On
Wednesday, some economists said that the new iPhone 5 might add as much as 0.5%
to GDP. Would that create jobs?

Consider this:

China
can’t hire enough people to meet America’s demand for iPhone5’s. On Sept. 6th,
The Shanghai Post reported that Foxconn, Apple’s manufacturer
of iPhones and iPads, made deals with
local colleges to suspend classes so that the students could work the
assembly line making iPhone5’s:

“THOUSANDS of students in an east China city are being forced to
work at a Foxconn plant after classes were suspended at the beginning of the
new semester… Students from Huai’an in Jiangsu Province were driven to a
factory in the city run by Taiwan’s Foxconn Technology Company after the plant
couldn’t find sufficient workers for the production of Apple’s much-anticipated
iPhone 5, they said in online posts…They started work on the production line
last Thursday and were being paid 1,550 yuan (US$243.97) a month for working
six days a week.”

So,
even when the American consumer DOES create demand for a hot product, the majority of the jobs created
are temporary, low paying and in a foreign country.

This is no different than
what we see during the Christmas season, except that those jobs are in the US.

Three years into a
recovery, when GDP is well above pre-recession levels, we are at a modern historical low for working-age adults who are
actually working, or trying to find work. We have a growing population in which
our young are becoming chronically unemployed, maybe even unemployable.

We need to scrap ideology and failed
ideas and move in new directions.

What is stopping us?

In
case you hadn’t noticed, GDP is at an all-time high, well above pre-recession levels, corporate
profits are at an all-time high and the stock market has come back to
near its high point in 2008. So is our Deficit.

In
the past, that would have been enough to move us toward acceptable employment
levels but this time, we have an enormous number
of unemployed, or functionally unemployed, about 15 million people. Check out
this graph:

We need to cut the rate of unemployment
about in half
to approach the country’s prior average levels of unemployment. And we need to
do this when profits are great, the stock market is good, and GDP is at an all time high.

So, where will the jobs come from?

Is this as good as we can expect? Are we
condemning a generation to residing in the lower economic class? Pew Research has just published
a study
about the growth in Americans who self-identify as members of the lower-middle
or lower class.

The headline is that the percentage who identify
as lower-middle or lower class has risen
from a quarter of the adult population to about a third in the past four years.
Pew surveyed 2,508 adults.

Pew
reports that not only has the lower class grown, but its demographic profile
also has shifted:

• A
  virtually identical share of blacks (33%) and whites (31%) now say they are in
  the lower class.

• The
  share of Hispanics who place themselves in the lower classes grew by a third.
  

• The percentage of blacks who say they are in the lower classes is unchanged from 4 years ago, while the percentage of whites grew by 35%.

As
those surveyed look to the future and that of their children, many in the lower
class see their prospects getting worse. From the report:

• About
  three-quarters (77%) say it’s harder now to get ahead than it was 10 years ago.
  

• Only
  half (51%) say that hard work brings success, a view expressed by overwhelming
  majorities of those in the middle (67%) and upper classes (71%).

While the
expectation that each new generation will surpass their parents is a central
tenet of the American Dream, those lower classes are significantly more likely
than middle or upper-class adults to believe their children will have a worse
standard of living than they do.

Downward mobility has political
consequences:
Although it is not clear whether any of Pew’s findings are based on perceptions
created at the political conventions, only
8% identified the Republican party as favoring the poor more than Democrats.This is even more surprising since the
survey shows that more Republicans and Conservatives say they are
in the lower class than said so in 2008. From the Survey:

• Nearly twice the proportion of Republicans now places themselves in the lower class than did so four years ago (23% vs. 13%).
  

• The share of political independents who say they are in the lower classes also increased to 37%, a 10 percentage point increase over 2008.

• About a third of all Democrats say they are lower class (33%), compared with 29% four years ago, a change that is not statistically significant.
  

Here’s the big problem: Based on current unemployment levels in what are otherwise
relatively good times, and based on the statistics presented here and here; and the in the Pew Survey above, the middle class is shrinking
in absolute terms while those who self-identify as lower class is growing
rapidly.  

Consumer spending is 70 percent of the
nation’s economic activity.
The way we add jobs is INCREASED CONSUMER DEMAND. That means getting more
American consumers spending again. Most
new spending comes from the middle class and those aspiring to join the
middle class. They are the true job creators. Adding to the lower class is not
helpful.

But, consumers can’t spend when they
are unemployed or working part time, when their wages are shrinking, their savings are
depleted, their homes are worth a fraction of what they were five years ago,
and they’re worried about keeping their jobs.

This is the heart of our economic
dilemma, 15 million people are having difficulty making ends meet because they
are not working, or they have less of a job than they want.

Neither
party, nor their presidential candidate has addressed the question. They prefer
arm waving about middle class jobs.

The question at the
core of the upcoming presidential election isn’t merely which candidate’s story
most voters believe, the debate should be:  What needs
to be done starting in January to add more jobs in this economy?  

Romney has the usual Republican
arguments: Cut taxes on corporations and the already rich, cut government
spending (mainly on the lower-middle class and the poor), and eliminate costly
government regulations.

But corporations won’t hire more
workers simply because their tax bill is lower and they could spend less on
regulatory compliance.
Most companies are simply sitting on the profits they’re already making. They
are waiting for DEMAND to
improve.

In Part II,
we will talk about what steps we might take that will lead to more jobs and
more demand.