That's Why It's Called Capitalism

There were two must-read articles in the last two days. In Friday's Washington Post, Steven Pearlstein's "The New Division of Labor: Adding profits, subtracting workers"; and in Friday's New York Times Bob Herbert's "A Sin and A Shame". This Great Recession was not a natural consequence of economic cycles but a man-made disaster caused by deregulation,over-leveraging of debt and retooling corporations toward a more efficient use of labor to maximize profits. Recently, the Brookings Institute conducted a series of studies, which demonstrates that without a profound change in our economy, current levels of unemployment will continue for the foreseeable future.



This past week , Princeton's Alan Blinder, a former vice chairman of the FED, and Mark Zandi, chief economist at Moody's Analytics and a former adviser to John McCain's presidential campaign, released a paper showing how the government saved the country from another Great Depression. Using a standard econometric model, they backed out everything the government did to staunch the bleeding of the crisis and stimulate the economy. From zero interest lending. the TARP program, bailing out the auto industry, tax cuts and infrastructure payments and providing the states with money, they concluded the economy would now be 8 percent smaller, with 8 million fewer jobs and a federal deficit this year of $2 trillion, not $1.4 trillion. This tracks with earlier testimony of FED chief Bernanke that without these measures, the unemployment rate would be closer to 30%.

This week President Obama did a victory lap in Motor City, where he visited the auto industry. The use of $86 billion in government funds to bail out Chrysler and General Motors has paid off handsomely. For the first time since 2004,all three major American car companies are operating at a profit and they have repaid up to $8 billion in loans. The auto industry has added 55,000 jobs this year and exports are up 57%. And the industry is rapidly moving to the production of energy efficient vehicles. President Obama deserved his victory lap since the Auto bailout was opposed by virtually every single Republican.

So why can't there be more such programs? Baby-boomer progressives always ask why President Obama with clear majorities can not embark on more aggressive job-creating programs like FDR. Besides the obvious obstructionism of the Republicans in the Senate, we have to realize that the media and the Beltway are immune to the effects of the recession. D.C. lawyers, K Street lobbyists, policy think tanks and employees of the government and Congressional staff inhabit a world immune to the world of the economy.

A recent scandal involving an NGO I once led revealed that salaries of this govermment-funded entity range from 3 to 5 times that of the average American family. If you walk that across the whole Beltway, you are looking at married couples earning a combined income of $200 to $400,000 per year, with retirement plans and medical insurance. The only hit they have taken so far is with 501-Ks. For them, there is no urgency to the economy and no real perceived long-term downside to the economy in their hermetically sealed world. This accounts for the lack of etnhusiasm for letting the Bush tax cuts for the wealthy die, because they would be affected.

Today's Washington is not the sleepy parochial Southern town, which saw the flood of New Dealers hoping to serve the public good. In fact, I would argue the denizens of the Beltway have no sense of the public good.


Then we move to another untouched part of our economy--American corporations. Steven Pearlstein notes the irony of the four giant banners hanging outside the U.S. Chamber of Commerce , which spells J-O-B-S. The private businesses the Chamber purports to represent eliminated 8 million jobs in 2008 and 2009 and have managed to add a scant 600,000 since then. While the jobs haven't returned, corporate profits have been soaring. Today, they are at $1.2 trillion annually, which are now larger than they were at the height of the financial bubble. While Chamber President Tom Donohue says that corporations are holding on to $2 trillion in cash reserves because they are uncertain in this investment climate, the reality is that corporations used the recession to find out ways to produce more with less workers. What used to be the case, funds would go to research and development and investing in new equipment and plants has now changed to spending in faster-growing markets abroad and paying down your debt. As we all know, corporations are not in the business to create jobs, but profits. And there are doing that at a record pace. Why stop and why support any further govermment programs to strengthen job creation?

Bob Herbert's piece follows the logic of Pearlstein by emphasizing how shabbily American corporations have treated workers. His point is that there was absolutely no need for so many men and women to be forced out of their jobs in the Great Recession. Herbert cites the studies of Andrew Sum, an economic professor and director of the Center for Labor Market Studies at Northeastern University in Boston, which shows that the carnage in the workplace was way out of porportion to the economic hit that corporations were taking. Professor Sum says that even though the country emerged from the recession early in the summer of 2009, this period of economic recovery "has seen the most lopsided gains in corporate profits relative to real wages and salaries in our history." Citing a figure of $1.84 trillion cash on hand, a 27 percent increase since 2007, Sum notes that as a percent of total company assets, this cash has reached a level not seen in the past half-century.

Andrew Sum backed up to the start of the recession in December 2007 and found that the real aggregate output in the United States as measured by the gross domestic product, fell about 2.5 percent but employers cut their payrolls by 6 percent. The consequence was that by the end of the fourth quarter in 2008, corporate profits exploded and by the time we reach the first quarter of 2010 by $572 billion, But wage and salries will have gone down by $122 billion.

Both Pearlstein and Herbert essentially agree that there can't be a robust recovery as long as corporations are intent on keeping idle workers sidelines and squeezing the pay out of those who remain on the job. Pearlstein thinks the Chamber should change the banners outside their building to T-H-A-N-K-S to President Obama. Herbert ends his piece by noting that ALCOA, which laid off 37,000 workers, will not rehire despite huge profits. "Until we begin to value our workers," he writes," and understand the critical importance of employment to a thriving economy, we will continue to see our standards of living decline."

With America' economic might shrinking relative to the world and the competition sharp for cutting edge technologies, you would think that such a large country would have a national industrial policy. But the sacred commitment to the free market prevents this from happening. This is clear just by the example of the inability to develop a coherent energy policy, when that is essential to future national security. The Obama Administration will steer us out of the Great Recession but not on to safe shores. The question is really how can we transform our economy away from its consumer base to production with the minimum of unrest and upheaval.

Rt 66 at The Last Manatee

I think I've finally figured out the politics of the new Right. Protect the unborn and worry about future generations' debt and not give a damn about living people. That's a winning formula.

On the debt, I've finally solved it. We fixed the social security problem with my rise the ceiling on the FICA tax. We solved the National Military/ Terrorist deficit by limiting national security costs to double that of the next largest country's expenditures. That saves us about $1 trillion a year. And the Medicare issue, which has bothered me, is now resolved. Think Howard Dean and the public option, which was not included in the healthcare bill. Progressives take note. Health costs rise for people 50 or over, with the largest expenditures of health costs at the end of life. By widening the risk pool, you lower the costs. So allow for all Americans to enroll in Medicare, which would bolster its revenues and lower long-term costs by spreading the risk to other demographic groups. Take our three proposals together, the national debt issue is solved.

Taxes. Republicans figured they would box Democrats in on the tax issue for the mid-terms as we saw yesterday, especially with the nonsense that tax cuts pay for themselves. The Democrats plan to make the Bush Middle Tax Cuts permanent this term with the exception of the brackets above $250,000. This puts Republicans in a monkey trap of their own doing. They are already moaning that it is the top brackets who stimulate the economy. Now Democrats have to point out that most small businesses don't make a profit of $200,000 a year and they should actually restore income-averaging, which got dropped years ago because of some special interest no one remembers. Add that and they have a winner.

Elizabeth Warren, American heroine. All the noise about Senate confirmation is nonsense. She doesn't have to be approved by the Senate so her "difficulties " are nonsense. Labor Unions and over 3 dozen members of the House have petitioned the White House to appoint her. The first leader of the new Consumer Agency will set the tone for its whole existence.

Bob Herbert had an interesting op-ed in the New York Times where he writes that Obama and the Democrats had an historic chance and blew it completely on generating jobs. Herbert claims that they should have focused on the issue of an economic recovery and the creation of jobs before anything, including healthcare reform. He suggested a large jobs program in clean energy. Interestingly, former Republican Governor of Pennsylvania Tom Ridge also had suggested at the time of the stimulus package a Manhattan-style project on energy to revitalize the economy. I share some of Herbert's thoughts but I still come back to the fact that President Obama came in office with only one major party operating in the country and the other using procedural tricks to stop and stall every new initiative. I also believed the stimulus was too small and that has turned out to be right but politically I can't see how it could have been different with the poison here in the Potomac.

My only comment on the faux scandal of the USDA employee is that her father had been lynched by the KKK, which might color her views on white folks, and still she saved the white couples farm, which shows she did rise above racism.

Sister Glenn Beck's sponsor Goldfine is now being investigated by the state of California and the U.S. Congress. Goldfine is peddled by conservative talk show hosts and makes its money by selling gold coins way above market prices.

A correction of a Huffington Post piece, Lindsey Graham's vote for Elena Kagan was necessary. The author said she had the Democrats' vote but didn't need Republicans. She needed at least one Republican to get her nomination to the floor. Never fear though, Frank Gaffney published a piece in the Washington Times saying once again that Elena Kagan supports Sharia Law. Why wouldn't conservatives support Sharia Law. If you hate women and want lower interest rates on credit cards, Sharia Law is the way to go.

The research wing ( you have to love it) of Focus on Your (Not My) Family produced a DVD urging Christians to vote or they will go to hell. What happens if you're sick?

Chet Traylor, a former State Supreme Court Judge" has entered the Republican primary race against Diaper Dave Vitter on the platform he is the "most moral candidate". The prostitute loving Louisiana Senator looks in trouble. But, wait, Judge Traylor has to explain his affairs with two married women. No wonder Charlie Cook downgraded the Republican chances in the race.

One surprise is Alex Sink, the Democrat, now leading for governor of Florida. I thought she was a particular weak candidate but the Republicans are self-destructing there. Charlie Crist has widened his lead recently over Marco Rubio. Florida voters are also calling for Crist to caucus with the democrats if he wins.

I happen to agree with progressive who thought the Democrats in West Virginia caved to the Republicans by allowing a sitting politicians to run for two seats at the same time. This would allow Shelly Capito, the Republican House member to run for Senate. She was the only viable candidate against Governor Manchin. This morning she announced she would not run for the seat, making it probable that the Democrats will not suffer another Scott Brown situation in Massachusetts.

Barbara Boxer, no hobo herself, is running ads against Carly Fiorina about Carly's two yachts. What's great was the response from Fiorina's spokeswoman, telling an economically depressed state that having two yachts was reasonable.

Part three of the Washington Post's investigative piece on Secret America appeared today. The whole series is a must read, detailing the Rube Goldberg machine of our intelligence community.

President Obama is signing the Wall Street Reform Bill into law today. Pundits claim that the series of great legislative accomplishments have not help President Obama and the Democrats. Well, they may have helped the country. Gallup, which is doing a boom business, has a new gimmick to pacify critics--they have shown quarterly reports of drops in Obama's approval rating to 47.5% for the last quarter. So this can be used to dominish a 49% average of the year.