Week of December 29

     The following excerpt of a run-of-the-mill article in the conservative financial press has several instructive lessons for American voters.

From The Wall Street Journal, December 31.

Fund Investors Face
Higher Post-Scandal Costs

Tougher Rules to Boost
Legal Expenses, Insurance;
Paying for Others' Sins

Regulatory efforts to root out wrongdoing in the $7 trillion mutual-fund industry are driving up costs for the victims of the share-trading abuses—fund investors themselves.

Though fund-management companies could end up absorbing fines and restitution payments—as New York Attorney General Eliot Spitzer is demanding in settlements—insurance, legal and administrative costs are soaring. These expenses, tied to enforcement of stricter rules, could easily total more than $1 billion a year—money that likely will come out of fund assets, and therefore out of the pockets of fund investors.

"Even fund companies that had nothing to do with this, and their shareholders, are going to pay the price for the sins of others," says Jim Atkinson, president of Guinness Atkinson Funds, a small fund-management company that hasn't been drawn into the trading scandal….

Fund companies will be loath to immediately boost fees they charge investors, particularly because of the potential public-relations backlash. But there are ways that firms can push up their fees without drawing attention. Fund companies sometimes arbitrarily waive part of their fees. Louis Harvey, president of Dalbar Inc., a Boston fund-research firm, says a fund company looking to boost fees could simply undo such a waiver….

"The idea that the management company is going to pay for all this is fleeting, at best," Mr. Harvey says. "Even if the management company agreed to pay, at the next discussion of management fees they'll raise their fees a few" hundredths of a percentage point….

• Greed exacts huge costs from the American public, as corporate executives bend the rules to enrich themselves.

• Not only does the public have to pay for the obscene incomes of the corporate executives, the executives’ misbehaviors require that

• Our government enact more regulations and provisions to prevent abusive behaviors in the future, which

• Creates still more expenses that new regulations always entail. And when

• Corporate executives find that their incomes will be reduced because of the increased costs of regulations, they then

• Pass on to consumers the increased costs (which resulted from their own misbehavior.), and

• The executives are just as rich as they ever were, and even moreso.

     Of course, when it is all over, Republicans and conservative Democrats will tell the voting public: “See, we told you so. We need to get government out of your lives so we can reduce the cost of doing business.”

     If you want to know whose interests America’s conservatives favor, just read the editorials in their most respected financial publications. The full editorial below enumerated Wal-Mart’s negative effects on local businesses, suppliers, and employee wages and working conditions—as well as it’s benefits: lower costs to consumers and bigger returns for investors.

     Of course, the problem in such editorials is the balance is all skewed. While consumers save some money as a result of, for example, the brutalization of employees, the main beneficiaries are the investors. As far as Barron’s is concerned, that makes Wal-Mart a fine example of capitalism at its best.

From Barron’s, December 29.

EDITORIAL COMMENTARY

America at a Discount

Wal-Mart is a success story that some love to hate

By THOMAS G. DONLAN

… Despite ritual poor-mouthing by retail companies, Americans are still shopping like they suddenly came into an inheritance. And a lot of them are shopping at Wal-Mart, a chain of stores that they have been told they ought to hate, despite its low prices.

For years now, Wal-Mart has been handed up as the symbol of all that's wrong with America: Along with "Coca-Colonization," there's the "Wal-Martification" of America and the world. In books, magazines and newspapers, Wal-Mart is often depicted as the company that ruined Main Streets in rural America, the company that uses its size to bankrupt its competitors, the company that exploits its workers by refusing to countenance unions, the company that impoverishes its American suppliers by driving impossibly hard bargains, the company that ruins the economies of Third World countries by a constant demand for the lowest-cost goods….

One place (Wal-Mart’s cost cutting) goes is into the pockets of Wal-Mart customers and another place is into the pockets of Wal-Mart shareholders—who include hundreds of thousands of past and present Wal-Mart workers, as well as five of Sam Walton's heirs who happen to be among the 15 richest people in the world.

Wal-Mart's niche-market victories add up to 40 years of astonishing success in the U.S. retail industry—a difficult industry that is marked by more failures than manufacturing. Starting from a small store in a small state, Wal-Mart now would be the 31st largest economy in the world if it were a country—bigger than Saudi Arabia and all its oil, bigger than Switzerland and all its banks, factories and tourism.

The Wal-Martification of America: How can we sneer at a bargain like that?

     Unstated in this editorial: the large numbers of failures in the retailing business (and other businesses) are due to the immoral and ruthless corporations that drive moral and conscientious corporations out of business. And they’ll do it every time, if there are not enough governmental protections of workers, the environment and sound business practices.

     The following excerpt demonstrates yet another disconnect between editorial policies and news reporting in the same conservative financial publication.

From Fortune, December 29.

INVESTOR'S GUIDE 2004

Double Agents

The pros you've hired to manage your money are more deeply conflicted than you may think.

The market-timing scandals of the past months have made one thing very clear: Mutual fund executives don't always have their customers' interests at heart.

But then, wouldn't it be strange if they did? The people who run mutual funds have needs, hopes, and dreams of their own. Most obviously, they want to make money. The same is true for brokers, hedge fund managers, and financial planners. These people are agents, hired to act on someone else's behalf. Many do a perfectly good job. Many don't, usually for the simple reason that their interests and those of their clients don't happen to coincide…

An added conflict evolved at big brokerages as trading commissions shrank and investment banking became a big profit center in the 1980s and 1990s. Some Wall Street firms came to see the executives who gave them IPO and M&A business as their true customers, so the "research" they handed out to brokerage customers evolved into puffery. In effect, they'd become double agents, shifting their loyalty to new paymasters while still collecting from the old ones….

     After clearly explaining why unsophisticated investors have been—and always will be—taken to the cleaners by Wall Street, Fortune still supports the privatization of Social Security. Go figure.

     (Note: this was a very large article. Those interested in its investment implications should read the original.)

     So, it turns out that some of those Indian telephone clerks are not performing as well as expected. And the article excerpted below doesn’t even deal with the most important issue.

From Fortune, December 29.

Hang-Ups in India

Call center backlash! India isn't the answer, say some firms.

…Corporations are having to tread more gingerly on the outsourcing front for fear of backlash from elected officials and customers. If the U.S. economy keeps strengthening, that backlash should fizzle. But CEOs are being forced to realize that while their shareholders may think it's swell that customer calls can be routed seamlessly to people in India making $2,000 a year, many customers are less pleased…. ….

     The most important issue that is not even discussed in today’s media: corporations have shifted the costs of customer services from themselves to their customers.

     Think about it. Instead of being able to dial a number and talk directly to someone who has been trained to actually help you, you now must go through an endless supply of menus—and may not even be connected to anything that you’re looking for. And if you make a single mistake, you have to go through the entire process again.

     So, instead of providing employment to well-trained corporate representatives who are actually useful to consumers—corporations utilize computers and poorly trained foreigners—and thus saving money for themselves while costing you your valuable time and raising your frustration level to historic proportions.

     The real conservative strategy is represented by this single paragraph in an article against tariffs.

From Fortune, December 29.

INTERNATIONAL FIRST: TARIFFS

Steel Glut

On balancing international supply and demand in steel.

The only way to balance international supply and demand in steel is to end market-distorting subsidies or tariffs, as the EU has largely done. To achieve that happy outcome, the OECD has been hosting talks with steel producers for the past two years. But asking developing countries like Brazil and China to treat steel firms like businesses rather than national treasures is uphill work—particularly when the U.S. sets such a terrible example.

     That just about says it: Our country is a business, not a society that considers stable communities and reliable employment for working-class Americans as national treasures.

     Republicans and conservative Democrats are all about money folks. The quality of life for workers is irrelevant.

     Sure, China is the country of the future. But investors beware.

From Fortune, December 29.

INVESTOR'S GUIDE 2004

How to Play the China Boom

Investors have been rushing into this red-hot market. But be warned: It's one easy place to get burned. Here, a few safer ways to bet.

Investing in China ought to be a no-brainer. With an economy that has barreled forward at an average rate of 7% for five years running and that will probably advance 9% in 2003 despite SARS, China boasts the world's most compelling growth story. As it rises, China is roiling markets everywhere—driving up the price of commodities from copper to gas, sucking in billions of dollars of investment from foreign multinationals, and fanning protectionist sentiment in Washington, Tokyo, and Brussels. For all appearances, China's transformation from communist backwater to manufacturing powerhouse is a megatrend right up there with the Industrial Revolution….

Experts pale at the suggestion that small investors emulate the Sage of Omaha by loading up on shares of a single company. "The last thing you want to do in this market is put all your chips on one or two stocks in the hope of finding China's IBM," says Geoff Lewis, head of investor services at JF Asset Management in Hong Kong. They also warn against following a broader index. Too few China shares trade on overseas exchanges to build a balanced portfolio….

Alas, for now, predicting Chinese growth remains a lot easier than profiting from it. ….

     Unstated in the above article is the ultimate danger in investing in any country that has become a magnet for industries seeking low wages and no protections of workers or the environment. Eventually, those corporations who are unwilling to the most ruthless in the treatment of workers and the environment will eventually go out of business—no matter where they are located. And if you invested in them—too bad.

     (Note: this is a brief excerpt if an extremely lengthy article. Those interested in the investment implications should read the original.)

     From Enron to Wal-Mart, examples of the destructiveness of executive greed are reported in the conservative business press itself. The following excerpt represents more of a tally (one more checkmark against corporate American ethical standards) than an attempt to detail specific actions.

From The Wall Street Journal, December 29.

Many Companies Report
Transactions With Top Officers

'Related Party' Deals Disclosed
By 300 Large Corporations;
Potential for Conflict

…To get a better handle on the extent of related-party transactions, The Wall Street Journal examined filings made with the Securities and Exchange Commission by more than 400 of the nation's biggest public companies over the past two years.

The survey found that some 300 of those companies reported one or more related-party transactions. Major corporations, from Wal-Mart Stores Inc. to Walt Disney Co. reported multiple related-party transactions. Many of the deals involved millions of dollars. All these deals present the risk of conflicts between a company official's two roles: representative of the shareholder and individual seeking to get the best deal for himself….

     This was a massive article that detailed example after example of those who have enriched themselves at the probable expense of shareholders and the general public. These violations of common ethical standards are so well known by now they will not be repeated here.

     It’s absolutely delicious when the conservative press is confronted with one of their own who decides to tell the truth.

From The Wall Street Journal, December 30.

REVIEW & OUTLOOK

The Soros Agenda

The press corps is finally giving billionaire George Soros the attention he deserves as the new Daddy Warbucks of the Democratic Party. Mr. Soros has responded that all he's doing is exercising his own Constitutional right to free speech. We'd agree, except for the detail that the world's 38th richest man (according to Forbes) is using his money to restrict everyone else's freedom….

The hedge-fund operator made his money practicing capitalism but now he spends it trying to give himself and his ideological allies an advantage over other voices….

As his clout grows, we hope the media pay even more attention to the views of Mr. Soros and his web of left-wing activists…. We'd say they reveal a billionaire who is himself a threat to what he likes to call an "open society."

     The “freedom” that Soros wants to restrict is the ability of the established wealthy and corporations to use their money to deliberately lie to the American public through the mainstream media that they already own.

     To conservatives, the “open” society is the society that they totally control. And when a successful capitalist exposes their motivations and strategies, it drives them bonkers.

     As you read the following seemingly innocuous excerpt, remember: one of the keys to keeping wages low is to increase the labor supply.

From The Wall Street Journal, December 30.

Luring Moms Back to Work

To Fight Female Flight, Some Companies
Overhaul Leave Programs; a Five-Year Break

As more working mothers seek lengthy leaves to care for their families—or quit jobs entirely—some companies are devising new ways to lure them back to work.

After years of steady increases, the rate of working mothers with young children is declining. The percentage of new mothers who work fell to 55% in 2000 from 59% in 1998—and it hasn't risen since, according to the U.S. Census Bureau. The growing efforts to retain mothers may seem odd at a time when the labor market remains soft. But companies say that keeping ties with old workers is often cheaper than recruiting and training new workers….

KPMG anticipates that the labor market will start tightening at some point and is preparing itself for the day when workers have choices again, he says….

     And why do so many women have to go back to work? Simple, it now takes two working members of a family to have a decent income.

     If there weren’t so many working mothers, corporations might have to pay working fathers enough money to actually support a family of four in this country.

     You can get a good idea of the values held by the editors and writers for The Wall Street Journal from the following excerpt.

     See previous excerpts from conservative financial publications during the past three months about the outrageous scandals in the mutual fund industry. It’s painfully clear that insiders made huge illegal profits through practices that enriched themselves at the expense of shareholders.

     In the above excerpt, the Journal implicitly justifies these behaviors by saying that investors still made money during the last year (and despite the fact that investors lost money during the previous three years).

     (Note: this is a brief excerpt of a long article, for purposes of criticism only, and readers who are interested in the investment implications should read the original.)

Week of December 22

     Have you noticed the glowing reports of our country’s improving productivity? On radio, TV, and in the newspaper editorials, conservatives say our improving productivity is a harbinger of a better economy to come for workers.

     If you want to know the real implications of these “improving” productivity numbers for workers, you need to look at what conservatives are saying when they give advice to investors.

From Forbes, December 22.

Financial Strategy

Profits and Layoffs

By A. Gary Shilling

Productivity gains in this recovery are mostly the result of trimming workers from the payroll. And so earnings have benefited. Alas, this elixir can't keep working forever. Look out.

The jobless recovery, much in the news lately, is a scary notion. That's why optimists seize upon any shred of evidence that employment is coming back, such as the small downtick in unemployment claims in mid-November. And we keep hearing that U.S. unemployment really isn't so bad after all—just 6.1%, versus three percentage points higher in Europe.

So there's nothing to worry about, right? Wrong. Layoffs are a key concern. And that will have baleful consequences for investors who are betting on better times….

The nation saw a productivity boom in the 1990s, chiefly powered by marvelous advances in information technology. Better labor training, more-efficient staffing structures (fewer managers) and smarter corporate strategy were helpful. Today's better productivity, though, is catalyzed by layoffs….

The sober truth is that cutting costs is the only route to profits salvation these days. Most costs, directly or indirectly, are labor. And that means more layoffs.

These announcements just keep coming. Sprint, for instance, said on Nov. 24 it would lop 2,000 workers, 2.9% of its payroll. The latest manufacturing employment numbers (six months through October) show a 1.4% drop, about in line with a year ago….

Cost-cutting layoffs will squeeze consumer incomes. Fiscal and monetary stimuli, which masked the devastating effects of layoffs on consumer incomes, are fading, too….

I hate to be the bearer of bad tidings. But if you expect the economy and the market to keep climbing next year, you will be sorely disappointed.

     “Alas, this elixir can't keep working forever.” Translation: you can’t keep improving profits forever by screwing your workers. Eventually, they get totally screwed out and there is no other place to go.

     Note: this brief excerpt of an article is presented for purposes of critique only. Readers who are interested in the investment implications of the article should read the original. It also should be pointed out that most financial advisors today are predicting a good stock market next year.

     Mr. Shilling’s observations (above) about the nature of our country’s recent productivity “improvement” were confirmed by Business Week.

From Business Week, December 22.

U.S. GDP Revisions:
The Recovery's Lift Is Slower For Workers

…Of more interest to the outlook are the new data on income. Businesses and workers alike earned more money so far in this recovery, but not by an even margin.

Total national income was revised higher by increasing amounts, so that by 2002, there was $967 billion more income. Much of the gain came from an inclusion of certain taxes into the income accounts. But Commerce also says that corporate profits have grown at a far faster pace in this recovery than first thought, mostly because companies had to expense fewer stock options exercised by workers. In the second quarter of 2003, profits totaled more than $1 trillion, 14% higher than the $897 billion previously reported.

Wages and salaries grew as well, but the gain was not as large. Pay in the second quarter totaled $6.17 trillion, up just 1.2% from the old $6.09 trillion figure.

What the data suggest is that companies relied more on cost-cutting in this recovery than was first thought. The resulting productivity growth benefited capital more than labor. The data also explain why workers have been so pessimistic in this business cycle, even though the unemployment rate did not rise much by historic standards….

     As usual, the financial benefits of improved productivity favored investors and corporate executives, and not the understaffed workers who brought it about: employees working harder, longer, and for less pay.

     The current Business Week reports what a "smashing success" NAFTA was for Mexico—although not, apparently, as seen by most Mexicans.

     "Success" depends upon who benefited. The Mexicans who like NAFTA are the ones who got rich off of it. Those who don’t like NAFTA are workers and taxpayers who see their overall quality of life going to hell.

From Business Week, December 22.

Mexico: Was NAFTA Worth It?

A tale of what free trade can and cannot do

…On Jan. 1, NAFTA will celebrate its 10th anniversary. The assessment? The grand experiment was a smashing success on many levels. American manufacturers, desperate for relief from Asian competition, flocked to Mexico to take advantage of wages that were a 10th of those in the U.S. Foreign investment flooded in, rising to an annual average of $12 billion a year over the past decade, three times what India takes in….

But rightly or wrongly, a large proportion of Mexicans today believe the sacrifices exceeded the benefits. The Mexican mood is infecting other Latin countries, which after 15 years of gradually opening their own economies to trade and investment are showing pronounced fatigue with the "Washington consensus," the free-market formula preached by the U.S. and the International Monetary Fund. In an August poll of 17 Latin countries carried out by Chile-based Corporación Latinobarómetro, just 16% of respondents said they were satisfied with the way market economics were working in their countries….

Mexicans also feel shortchanged by globalization. They thought they would be America's biggest workshop. That honor now belongs to China, whose workers often earn a fraction of what Mexicans do. Mexican policymakers thought even more trade pacts would deliver additional benefits: That's why Mexico has signed trade agreements with 30 other countries, more than any other nation. Sure enough, consumers got cheaper and better goods. Yet local manufacturers of everything from toys to shoes, as well as farmers of rice and corn, are struggling just to survive the onslaught of cheap imports.

Ordinary Mexicans hoped NAFTA would generate enough jobs to keep them at home. Instead, the jobless are flocking in ever-greater numbers across the border. Voters figured that somehow NAFTA's gains would be translated into better schools. Yet a cash-starved government is still struggling to deliver the minimum in teachers, classrooms, and books. Vital but controversial reforms that pressed on Mexico before NAFTA—such as modernizing the power sector and overhauling the leaky tax code—are an even more difficult sell now that political power is split among several parties.

Do Mexico's woes disprove the value of free trade? Few would argue that Nafta was a waste. "If we didn't have Nafta, we'd be in far worse shape than we are today," says Andrés Rozental, president of the Mexican Council on Foreign Relations. If NAFTA has disappointed, it is in large part because the Mexican government has failed to capitalize on the immense opportunities it offered. "Trade doesn't educate people. It doesn't provide immunizations or health care," says Carla A. Hills, the chief U.S. negotiator in the NAFTA talks. "What it does is generate wealth so government can allocate the gains to things that are necessary."

If a government does not allocate the new wealth correctly, the advantages of free trade quickly erode. That is Mexico's plight….

While U.S. companies praise the work of their Mexican employees, they now make it abundantly clear that there are other, cheaper locales. The numbers tell the tale. An assembly line worker in Mexico earns $1.47 an hour; his counterpart in China makes 59 cents an hour, according to a recent McKinsey & Co. report….

     If you read between the lines in articles like this, you find that conservatives who are benefiting from globalization always blame government for the failures of the unregulated market to bring better lives to average citizens. According to them, globalization’s failures are never caused by the greed of the globalization masterminds—who always skim the cream off the top—it’s the fault of government bureaucrats.

     In a sense, their charge is true. But the government bureaucrats are at fault because they are serving the rich and powerful in their own country—and doing exactly what they are told to do. And, as always, an unprincipled government makes sure that the poor and powerless make all the sacrifices.

     Just as in the U.S., the Mexican investors and corporations get rich by not paying enough taxes to correct the social and economic disruptions that economic growth always causes. And, of course, a major reason American corporations have located there is that they were given extremely favorable tax treatment, and lax environmental regulations and enforcement, by the Mexican government.

     Note: this was a massive article, and those who are interested should read the original. However, the implications for the future of average Mexican citizens are just as ominous as the excerpt above suggests.

     When the conservative Forbes magazine suggests that ethics may be a problem with an American corporation, readers should pay attention.

From Forbes, December 22.

Coke's Sinful World

Today signs of a Coke rebound continue on its long march to conquer the world. Coke has built its booming overseas business by teaching thousands of bottlers, distributors and retailers how to sell the world's best-known soda. Now if only the company could teach its overseas partners a thing or two about ethics.

     The dirty little secret that Forbes neglects to reveal in this article is the major reason corporations’ overseas activities are so successful. When they make deals “with the devil,” they know that their unscrupulous foreign associates are quite willing to take a few ethical shortcuts to get easy profits—like murdering labor union organizers.

     And by owning less than 50% of the devil’s operation, they get the benefits of partnership with the devil, yet have legal deniability of the wrongdoing they know is occurring.

     By using a football analogy, Roger Martin clearly explains why our compensation systems for U.S. CEOs are so totally screwed up.

From Barron’s, December 22.

The Wrong Incentive

Executives taking stock will behave like athletes placing bets

By ROGER MARTIN

…In football, there is a rigid separation of the real market—the games played on Sundays—from the expectations market, or the betting that takes place prior to the game. No participant in the real market is permitted to participate in any way in the expectations market. If they do, they risk a lifetime ban for even one infraction….

Senior executives, arguably the most critical players in the real market, are strongly encouraged and often compelled to participate in the expectations market. They are given massive stock-based compensation under the misguided theory that stock-based compensation aligns their interests with the interests of shareholders.

Stock-based compensation does nothing of the sort. Like encouraging NFL players to bet on football, it encourages executives to manipulate the expectations market and the real market to benefit themselves at the expense of outside shareholders.

There is only simplistic logic in assuming that powerful stock-based compensation incentives will cause executives to work hard in the real market to improve performance, which then will increase the stock price and make investors rich….

Stock-based compensation is an incentive to increase expectations, not performance. The easiest way to do that is to hype the stock by talking up the company's prospects on TV and in newspapers and magazines. Alternatively, a hungry executive can use extremely aggressive accounting to inflate performance in the real market in an attempt to raise expectations. Or he can make a bunch of acquisitions that appear to produce profitable growth in the short run but hurt the firm in the long run. Better still: Combine all three, like Tyco International!...

The greatest incentive for stock-compensated managers is to create as big a gap as possible between expectations and reality—in either direction—then utilize their superior knowledge either to sell or buy stock for personal profit.

In the numerous stock-market scandals of the recent years—Enron, Worldcom, Global Crossing, Qwest, Tyco, Adelphia, etc. –observers seemed shocked that senior managers appeared so misaligned with the interests of outside shareholders, despite high levels of stock-based compensation.

There should have been no shock. Senior managers were completely misaligned with the interests of outsider shareholders because of their high levels of stock-based compensation….

     This is one of the clearest explanations of why most CEOs of American corporations have incentives to MISmanage their own corporations—at the direct expense of outsider stockholders, consumers, and the general public.

     And the Bush Administration has given these very people huge tax breaks—while cutting government services to the people who need them the most.

     The extent of corporate misdeeds and outright fraud continues to amaze even the most cynical observers.

From The Wall Street Journal, December 23.

CIBC's Penalty
For Enron Role
Is $80 Million

The various settlements all have been tied to intricate financial transactions that regulators and prosecutors say served to dupe investors as to the true financial condition of the once-powerful energy-trading company, which entered into bankruptcy-court protection in December 2001….

     Of special note: Darrell Komansky, Chairman of the Board of Merrill Lynch raked in $14,436,344 in 2002. Robert Rubin, Chairman of the Executive Committee of Citigroup made $18,333,332 in 2002. William B. Harrison, Chairman and CEO of J.P. Morgan Chase & Co. made $13,207,722 in 2002. How much the top executives of CIBC is not easily available.

     (If you’re interested in how much other CEOs of American corporations made in 2002, check out PayWatch.)

     How all these guys can be in charge of so much skullduggery, and make so much money in the process, is truly one of the mysteries of the age we’re living in.

     But why the Bush Administration gave them such huge tax breaks is no mystery at all: they're in his club, they support him, and he paid them back.

Week of December 15

     Remember all the promises that were made to American workers that NAFTA would create more jobs in the U.S. than it would lose? And ever since NAFTA was passed, it was claimed that we were actually, in fact, gaining more jobs than we were losing.

     Now the truth finally comes out, even in our conservative financial press. It's buried, of course, in the middle of an article about the Bush Administration’s attempts to put still more pressures on the incomes of working-class Americans.

From The Wall Street Journal, December 18.

U.S. Reaches a Trade Agreement
With 4 Central American Nations

WASHINGTON—The Bush administration reached agreement on a free-trade deal with four Central American countries but now faces an election-year fight that could mirror the brawl in the early 1990s over opening up trade with Mexico.

Free-trade skeptics in Congress say the agreement must overcome stiff opposition amid rising anxiety in the U.S. over the flight of jobs overseas and the merits of trade liberalization….

The Central American Free Trade Agreement, known as Cafta, will stir controversy in Congress because of what opponents describe as its weak provisions on labor and environmental rules, and tough patent protections that could limit access by Central Americans to important medicines. Many lawmakers also are concerned that increasing trade with Latin America could lead to more job losses in the U.S., particularly in the hard-hit textile and clothing sector….

Debate a decade ago over the North American Free Trade Agreement, or Nafta, drew loud warnings that liberalized trade with Mexico would lead to huge job losses in the U.S. Trade with Mexico has soared since Nafta's debut in 1994, but recent studies have concluded that the U.S. did lose more jobs in various industries than it gained because of the pact….

     What’s worse—even more than the fact that Nafta caused us to lose more jobs than we gained—is that the wages of the workers who didn’t lose their jobs to other countries were depressed because of the increase in the labor supply in this country.

     And that, of course, is the hidden agenda of America’s Republicans and conservative Democrats: cut labor costs to increase corporate profits. Benefit investors at the direct expense of working-class Americans. And they’ve been incredibly successful.

     As you read the following excerpt from our leading conservative financial newspaper, keep in mind that:

• Jack Bovender, CEO of HCA, Inc., made $9,372,270 in 2002, and has $19,201,323 in unexercised stock options from previous years, and

• Jeffrey Barbakow, CEO of Tenet Healthcare, made $31,992,980 in 2002, cashed out $111,050,000 in stock options exercises, and has another $208,475,680 in unexercised stock options from previous years.

     Given the intense competition for the honor, it would be difficult today to award the top prize for unabashed greed and callous moral standards to any single CEO. However, these guys are probably right up there in the running.

From The Wall Street Journal, December 17.

Hospitals Will Give Price Breaks
To Uninsured, if Medicare Agrees

They Concede Many Charges Aren't Fair
To the Needy, but Blame Federal Rules

Under pressure from lawmakers and consumer advocates, the hospital industry said it would consider making broad price cuts for the uninsured—provided the federal government approves. The announcement by the American Hospital Association included a stark admission that some hospital billing and collections practices are unfair to needy patients….

At the heart of the issue is the hospitals' common practice of charging full listed prices to the nation's 43.6 million uninsured patients. Meanwhile, other patients enjoy steep discounts negotiated on their behalf—either by private insurers and HMOs or by government programs such as Medicare and Medicaid, the federal-state program for the poor. In some areas, the hospitals' official charges amount to several times the discounted rates.

Adding to the problem for the uninsured, many hospitals have become more aggressive in seeking payment of these bills. Hospitals have placed liens on debtors' homes, garnisheed wages, seized bank accounts and, in some cases, sought the arrest of debtors who miss court dates, a practice known in some states as "body attachment."…

A major for-profit hospital chain, HCA Inc. of Nashville, Tenn., said it struggled for months to craft a program of price breaks for uninsured patients that would satisfy Medicare rules….

Meanwhile, another large, for-profit chain, Tenet Healthcare Corp. of Santa Barbara, Calif., said it hasn't been able to move forward on its own discounting plan, which involved billing low-income, uninsured patients at the same discounted prices it gets from HMOs. …

     As in almost all other areas of our economy, fairness and justice have no roles in decision making. It’s all about power and who has it. Right now, with Republicans and conservative Democrats in control of government, the wealthy and powerful reap all the benefits and the poor and powerless make all the sacrifices.

     Actually, I suppose these CEOs of HCA and Tenet are worth the incomes they’re getting. As everyone knows, for-profit organizations always do better at keeping costs—like medical care—down for everyone.

     Incidentally, CEOs of other corporations involved in the industry make incomes similar to those mentioned—pharmaceutical, insurance, accounting, and virtually all aspects of delivering health care to the public. If you’re curious to check out the incomes of any particular CEO, go to Paywatch.

     A pair of articles from the same issue of The Wall Street Journal demonstrate how absurd it was to allow U.S. corporations to export whole industries overseas to other countries.

From The Wall Street Journal, December 16.

Indian Immigrants Return Home
Where Software Jobs Await Them

A year ago, Gaurav Maheshwari was living the dream of a generation of Indian engineers. The 30-year-old software programmer was earning more than $100,000 a year at a Silicon Valley start-up, living in a luxury San Jose, Calif., apartment complex with a swimming pool, and driving a Nissan Maxima with a souped-up sound system.

Then, Mr. Maheshwari learned that his employer, Lumenare Networks Inc., was moving all of its programming jobs to India to reduce costs. Uncertain of his U.S. prospects amid the tech slump, and with strong family ties tugging him home, Mr. Maheshwari volunteered to go….

As companies like Lumenare increasingly move software and other service-sector jobs to India, Mr. Maheshwari effectively wound up competing against himself in the global labor market. Tens of thousands of U.S. programmers are unemployed, and pay is declining for those still working.

In returning to India, Mr. Maheshwari may be in the vanguard of a growing reverse migration. Over the past decade, hundreds of thousands of Indian engineers moved to the U.S. for jobs, adventure and Silicon Valley wealth. Now, the U.S. job market is lousy and the government is tightening the rules on immigrants….….

     This is how globalization works:

• The first corporations to outsource jobs to another country—like computer programming to India—make huge profits and gradually take business away from other corporations that have much higher labor costs.

• In order to survive, other corporations also send their low-skill jobs to India, and eventually wages are more equalized at the lowest levels in both countries.

• Then, the process steps up a notch. The more greedy corporations decide to send top talent to India to teach them how to take more high-skill jobs from the U.S. , and again, other corporations are forced to follow suit or go out of business.

• Eventually, the process works up the skill and income ladder, until the entire industry is in India, and if American workers are to have jobs, they must go to India to work.

     The moral of these stories: increasing your skills doesn’t assure you of having a good income in this country—or even having a job. Investors can send overseas any job that doesn’t absolutely have to be done in this country.

     I’m not their fan, but 15 years ago, Ross Perot, Pat Buchanan and Ralph Nader all warned us of the giant sucking sound that we were creating. They were right, and the leaders of the conservative movement knew it, but denied it.

     The lesson you can take to the bank: the Republican and conservative Democrats who have been assuring us that globalization will eventually benefit all Americans are either deliberate liars and hypocrites—or just plain stupid.

     At one time, IBM took pride in its commitment never to fire employees without cause. It became America’s premier corporation as a desirable place to work. It produced quality products, had excellent management, and employees could rely on it as a stable source of employment.

     Globalization has changed all that. Now, IBM is just another corporation that must join the abandonment of American communities and workers in order to survive.

From The Wall Street Journal, December 15.

IBM to Export
Highly Paid Jobs
To India, China

In particular, he predicted "to train someone to do a job that you know will no longer be yours" raises issues of "dignity and fairness" that unions might exploit….

     Talk about unmitigated gall. Not only are IBMers going to lose their jobs, they will have to train their replacements. And, to get an extra six month pay, they will do it.

     If anyone ever doubted workers’ need for unions, all they need to do is look at the behind-the-scenes communications of senior management. Of course, given the current state of our political environment and our conservative judiciary, the ability of unions today to protect workers is severely limited.

     It goes without saying that IBM’s only reason for offshoring is to cut labor costs. They aren’t going to the middle of the distribution area, near where the raw materials are, or even where people are already trained.

     That’s what globalization is all about folks, cost reduction and corporate profits. And, increasingly, it’s a matter of corporate survival.

     Welcome to the new economy that Republicans and conservative Democrats have given us.

     If you want to know what conservatives really think about the world economy, never read their editorials or listen to what they say on radio or TV. In these media, they always claim that globalization is good for American workers and average citizens.

     It’s when they are giving investment advice to rich investors that you hear what they really think.

From Barron’s, December 15.

Stepping Up to the China Plate

Already, Lennon (Jim Lennon, head of global commodity research at Macquarie Bank in London) says, aluminum smelters have needed to shut down capacity because of a paucity of electric power. Shortages of iron ore and coke also will restrict the steel industry's ability to produce….

     By getting Congress and the Presidency to support globalization policies, conservatives have created an investment boom in China—which has allowed them to realize huge gains in wealth as a result of the declining wages in this country and abroad.

     Of course, the ones who got there first will profit most, and are likely the ones who will get out in time before the world economy collapses from its own weight.

     Their incredible short-sightedness has already seriously damaged our U.S. economy, as people have lost their well-paying jobs, and the rest of the workers’ wages have stagnated for at least the past 25 years.

     In effect, America’s wealthy investors have sold our economy to China, India, Mexico, etc. at great profit to themselves. They’ve effectively cashed-in the wealth that American workers created over the previous century.

     And it looks like the final gasp of globalization will occur in China, as it produces the world’s products and uses the world’s raw materials.

     Of course, until the end of the process of selling-out American workers comes, the prices of energy and raw materials are going to go up, and the American investors in commodities will also reap huge profits.

     The following two excerpts from an article and a commentary in the same issue of Business Week demonstrate what globalization has done to the moral standards and economic health of the U.S. and the world.

Where Free Trade Hurts

"Take anything—garments or textiles—and people will say, 'Sorry, China is cheaper than anywhere else,"' says G.K. Ram, general manager of a Kahatex Group factory in Bandung, Indonesia, that churns out apparel for Wal-Mart Stores Inc. (WMT ) and Kmart (KMRT ). Perhaps sooner than most realize, Tuch Phearom and millions like her will be struggling to find new jobs.

Commentary: Lessons From A Faded Levi Strauss

…UNFORTUNATELY, NICE GUYS OFTEN DO FINISH LAST. With a long history of taking care of its workers and an admirable commitment to American manufacturing, Levi's discovered that it simply couldn't compete with brands produced more cheaply overseas. So after years of plant shutdowns, Levi's announced in September that it would close its last two U.S. plants. Union leaders say Marineau and the controlling Haas family made the move reluctantly. For too long, Levi's history and culture has prevented it from becoming the lean marketing and design organization needed to compete…..

     Finally, it’s becoming clear to everyone what a disaster globalization is becoming. Benefits of globalization to workers are always temporary and fleeting—with corporations abandoning workers as soon as they start making decent incomes.

     Not even morally responsible corporations, like Levi, can resist the immoral tide that brutalizes working-class people throughout the world.

     Remember the Neil Bush who was a disaster in every business venture he got involved in?

     Finally, it looks like he’s successful—unfortunately for taxpayers and the security of the U.S.

A Bush In Hand Is Worth...A Lot

Still, there is little doubt that Grace could use a bit of help in its dealings with the U.S. Grace is one of many Chinese and Western companies that would benefit from a repeal of controls on the sale of tech equipment that Western countries fear could be used by the Chinese military…..

     Who could object to a little influence peddling when a person can’t succeed at anything else?

     As if more arguments were needed for not privatizing Social Security, more evidence appears daily in the conservative financial press.

Breach Of Trust

Put it all together—light regulation, a savvy trade association, a compliant Congress, a declining market, and frantic competition over a shrinking investment pie—and you get the witches' brew of unsavory business practices now being uncovered. It was a disaster waiting to happen…..

     It’s hard to find in a single article so many descriptions of what’s wrong with our economy and political system: greed, political influence, industrial favoritism, weak regulations, and on and on.

     Note: this is a brief excerpt of a huge article that details the skullduggery of the securities industry—the very same industry that Republicans and conservative Democrats want unsophisticated workers to entrust their retirement funds with.

Week of December 8

     The unabashed greed of today’s corporate executives knows no bounds.

     One would think that articles like the one below would embarrass them enough to make them at least pretend that they had the interests of their lower-level employees at heart.

     Not even remotely so.

From The Wall Street Journal, December 10.

For Pension Plans, Risky Is Fine

Accounting Rules Let Companies
Benefit From Investment Upside,
Escape Consequences of Mistakes

…In the past decade, many employers have quietly taken on more risk in pension plans—loading up on stocks, their own securities and nontraditional and illiquid investments—thanks to accounting rules for pensions that enable employers to capture all of the investment upside, while postponing losses and shifting the consequences of poor investment results to their workers and retirees….

(Companies are) merely taking advantage of accounting rules that can make pension investments a no-lose proposition for employers. The key to this investing success lies in accounting rules that allow companies to use "assumed" returns for the pension assets. In 2002, large companies generally assumed rates of return between about 8.5% and 9%, though a few used assumptions as high as 10%.

If the investments do better than expected, companies can stockpile the excess gains and use them later. Meanwhile, if the investments go sour, companies can postpone the losses, and dribble them into their income calculations over many years.

While these rules were intended to cushion companies from the ups and downs of their pension investments, they have also given companies an incentive to take on more risk than they otherwise might if they were truly on the hook for lousy investment results….

By law, employers are required to invest pension assets prudently, and must make investment decisions in the interests of the employees in the pension plan. Historically, employers had a good reason to do so: After all, if the pension plan loses money, employers have to come up with the shortfall eventually, and might even have to dump more into the plan to pay the promised benefits. (That's what makes pensions different from 401(k)s, in which employees bear all of the investment risk.)

But increasingly, that risk equation has changed, thanks in part to the accounting rules, which protect employers from any immediate consequences for bad investment decisions in the pension plans….

The risk equation is further skewed by employers' ability to cut pensions: When the pension assets lose money, employers can cut benefits, which generates accounting gains that offset the stockpiled investment losses before they begin to hurt the company's financial results.

Indeed, in the past year, many companies, citing pension-plan losses, have cut pensions by making the formulas less generous, or even terminated the pension plans….

…executive pensions are rarely invested in company stock. Employees with regular pensions have often complained that rules permitting employers to invest as much as 10% of pension assets in company stock leave the pension underdiversified.

Delta Air Lines Inc., for instance, specifically forbids the use of Delta stock or debt obligations in its executive trusts. Delta confirmed this information, but declined to comment further.

     So, the executives of our fine American corporations get their pensions funded by solid, conservative investments that they can count on.

     Their lower-level employees’ pensions are funded by risky investments that may allow the company—if it is lucky—to take money out of the pension fund for other purposes. And if those investments lose money, well, they just cut—or eliminate—the pension payouts to retirees.

     Incidentally, the CEO of Delta Air Lines, Leo Mullin, made $12,901,554 in 2002. And his pension will be guaranteed by investments other than Delta stock.

     Is this a great economy or what?

     Finally, workers in undeveloped countries who have been victimized by American corporations may be getting some justice.

     Anyone who pays attention knows that conditions described below are characteristic of what’s happening in country after country, as foreign political leaders do whatever American corporations require to ensure a low-wage, compliant labor force.

From The Wall Street Journal, December 9.

Trial of Unocal on Claims
Of Slave Labor Set to Start

Unocal Corp. Tuesday is set to become the first American company to stand trial in the U.S. for alleged human-rights violations committed overseas….

Although Unocal did not operate the field, owned by the government of Myanmar, American lawyers for the villagers assert in a lawsuit that the company was aware of the labor conditions and therefore faces legal liability.

Attorneys for the El Segundo, Calif., company dispute that the villagers even worked for the pipeline and add that, even if they did, Unocal is shielded from any liability because its Myanmar venture involved only its foreign-based subsidiaries, not the parent. Indeed, Unocal fought unsuccessfully to have the matter tried in either a Myanmar court, or in Bermuda, where the subsidiaries are based….

"We are using the American justice system to hold corporations liable for their conduct in foreign countries," said Dan Stormer, a Los Angeles attorney who is representing some of the villagers….

While the plaintiffs' lawyers categorize the units as shell corporations, Unocal contends they are viable entities with combined assets in the billions….

The villagers—the women and 10 men—say their lives have been turned upside down after being forced to work on the Unocal venture. According to the villagers' lawyers, Myanmarese soldiers ordered hundreds of nearby peasants to work on the gas pipeline, uprooting them from homes and retaliating against any who tried to refuse. For example, one woman said she and her baby were thrown into a fire after her husband tried to escape. She said the baby died and she suffered injuries. Other villagers report being beaten, raped and otherwise mistreated when the alleged slave-labor conditions were going on….

     There ought to be law that makes unbelievable stupidity a crime. American corporate executives know damn well—or ought to know—that these kinds of conditions are caused by their own pressures on foreign governments to ensure cheap, compliant workers for them.

     And if they don’t know—their ignorance has to be at a level that should be considered illegal.

     Incidentally, Charles R. Williamson, CEO of Unocal, made $1,466,280 in 2002.

     The world economy is beginning to unravel. And the political conservatives who caused it are beginning to get nervous.

From Fortune, December 8.

FREE TRADING

The Unlikely Trade Warrior

Bush never planned to be a protectionist. But his presidency is turning into a free-traders' nightmare.

By Justin Fox

President George Bush is a free-trader. So is every last one of his economic advisors. "Certainly the rhetoric has been the strongest of any President since Roosevelt in favor of free trade," says Dartmouth economist and trade expert Douglas Irwin.

But now, in one of those delicious ironies that makes American politics so maddeningly interesting (think Nixon goes to China), free-trader George Bush appears to be dragging us back to the protectionist past.

It started, as these things do, with the 2001 recession. When economic times are tough, American voters—or at least key voters in key states whose jobs happen to be disappearing—lose patience with vague talk about how trade benefits us all. So in 2002 the President slapped a 30% tariff on steel imports and signed a farm bill chock full of protectionist measures. This November he imposed a quota on Chinese bras and bathrobes. The plan, if you can call it that, was to keep pushing for free trade through forums like the World Trade Organization but grab headlines (and votes) with a few high-profile protectionist moves….

"There is a Mid-Atlantic trade storm whipping up," Niall FitzGerald, co-chairman of Anglo-Dutch food and consumer-products giant Unilever, told the BBC in late November. "There will be retaliation and then retaliation to that retaliation, which could lead us to a 1930s decline."

That's a stretch—the steel tariffs and the planned European response are nowhere near the size or scope of the Smoot-Hawley Tariff Act that set off the 1930s trade wars. And while Smoot-Hawley and its foreign counterparts worsened the Great Depression, hardly anybody thinks they caused it….

     At least Fortune, unlike most of America’s right-wing propagandists, doesn’t pretend that the Smott-Hawley tariff caused the depression. (After all, it didn’t even pass until 1930, after the damage had already been done.) They couldn’t stand to let it go at that, however, so they simply say that it made the depression worse.

     Not even that is true. The cause of the depression was that rich investors world-wide took too much profit off the top, and left too little for those who actually spent their money for products and services. Businesses everywhere found that they couldn’t sell their products at a profit, so they stopped producing, and started dumping—and working-class citizens everywhere lost even more of their incomes and savings.

     When the politicians of the world realized that they had been had, again, by rich investors—they tried, too late to correct the situation by implementing the tariffs that would protect workers’ wages.

     Now, it’s happening all over again. And, again, America’s right-wing propagandists will blame tariffs, not corporate and investor greed, as the culprit.

     Remember what conservatives were saying—for public consumption—after Clinton got his deficit reduction act passed in 1993? That’s right. It was “the biggest tax increase in history.”

     If you want to know what conservatives really think, you need to read their objective analyses of the economy when they are advising investors about what they should do with their money.

From Forbes, December 8.

The Wages of War

By Steve H. Hanke

Like it or not, the war on terrorism is going to mean more public spending, regulations, taxes and inflation. Invest accordingly….

What about taxes? Yes, the Bush Administration has delivered cuts. Enjoy them while you can. Wars are expensive and eventually have to be paid for. And big tax reductions are vulnerable to Washington's whittling ways. Just look at what happened to President Reagan's supply-side tax cut of 1981. Less than a year later the Gipper put his pen to another tax law that raised taxes by almost 1% of GDP, making it the biggest peacetime tax increase in American history. And that was not all. In every subsequent year of Reagan's presidency, with the exception of 1988, Congress passed and Reagan signed tax increases.

The wages of war are always the same: a more obese and intrusive government and, yes, more inflation, too. The prices of precious metals and other commodities, an early indication of inflation, are already in a bull-market phase.

Faced with these prospects, what should an investor do? Dump conventional bonds and position the core of your portfolio (65%) in inflation-protected government bonds….

     So, who really passed “the biggest peacetime tax increase in American history”? Your favorite president and mine, the Gipper.

     And what do conservatives see in our inevitable future: more tax increases to undue the damage the Bush Administration’s tax cuts have obviously done to our economy.

     Business Week’s cover story tried to put a good face on globalization by citing all kinds of supposed long-term benefits to the world.

     But the key paragraphs are presented below:

From Business Week, December 8.

The Rise Of India

Growth is only just starting, but the country's brainpower is already reshaping Corporate America

…Still, this deep source of low-cost, high-IQ, English-speaking brainpower may soon have a more far-reaching impact on the U.S. than China. Manufacturing—China’s strength—accounts for just 14% of U.S. output and 11% of jobs. India's forte is services—which make up 60% of the U.S. economy and employ two-thirds of its workers. And Indian knowledge workers are making their way up the New Economy food chain, mastering tasks requiring analysis, marketing acumen, and creativity.

This means India is penetrating America's economic core….

A study by McKinsey Global Institute, which believes offshore outsourcing is good, also notes that only 36% of Americans displaced in the previous two decades found jobs at the same or higher pay. The incomes of a quarter of them dropped 30% or more. Given the higher demands of employers, who want technicians adept at innovation and management, it could take years before today's IT workers land solidly on their feet.

India's IT workers, in contrast, sense an enormous opportunity. The country has long possessed some basics of a strong market-driven economy: private corporations, democratic government, Western accounting standards, an active stock market, widespread English use, and schools strong in computer science and math. But its bureaucracy suffocated industry with onerous controls and taxes, and the best scientific and business minds went to the U.S., where the 1.8 million Indian expatriates rank among the most successful immigrant groups….

Throughout U.S. history, workers have been pushed off farms, textile mills, and steel plants. In the end, the workforce has managed to move up to better-paying, higher-quality jobs. That could well happen again. There will still be a crying need for U.S. engineers, for example. But what's called for are engineers who can work closely with customers, manage research teams, and creatively improve business processes. Displaced technicians who lack such skills will need retraining; those entering school will need broader educations….

     Increasingly, it’s becoming painfully obvious that globalization is dealing our economy and society a severe body blow to “America’s economic core.”

     Think of it. One-fourth of Americans who lost their jobs in the past 20 years have suffered an income loss of over 30%—and only 36% got the same or higher incomes. That means the 34% got lower incomes. And all the while investors and high-level corporate executives got incredibly rich.

     And does anyone seriously believe that, just as Americans left the farms to go to work in factories, that something like that will happen again? (Why workers leaving textile mills and steel factories were included in the example is baffling. That’s a relatively recent development and those workers still haven’t found decent jobs.)

     When ultra-conservative Forbes magazine complains about the “cozy ties” that exist on Wall Street, readers had better pay attention.

From Forbes, December 8.

Team Players

By Neil Weinberg

The SEC somehow missed the fact that bad things have been going on in the mutual fund industry. Could that be because of its cozy ties?

"The fund industry can be proud of its history of promoting a culture of honesty, integrity, transparency and accountability, and also should be proud of its commitment to strong fund governance and compliance practices."

These are the words of Paul Roye, director of the Securities & Exchange Commission's Division of Investment Management—the guy who writes the rules for the $7 trillion industry. He uttered them in March, six months before it came out that certain funds had been allowing unethical, possibly criminal, trading to take place in their shares.

Roye's admiration for the industry he regulates is reciprocated. At the same conference Matthew Fink, president of the Investment Company Institute, the fund management lobby, said: "Strong day-to-day regulation by the SEC has protected the nation's 95 million mutual fund shareholders and kept the industry free of systemic scandal for more than 60 years."

The coziness says a lot about how trading rip-offs managed to stay under the radar for so long. The industry's lobbying arm is immensely powerful and is aided by a revolving door connecting the regulated to the regulators. Indeed, Roye and his colleagues at the SEC have known about many of the problems for years—like lax governance, weak fee disclosure and under-the-table payments between fund firms and brokerages—but have a long history of making rules that don't solve the underlying problems….

     The only mystery now is: Given the obvious corruption of the entire securities industry, how can the Forbes editorial staff—in good conscience—still recommend that Congress privatize Social Security?

     Just when you think that Forbes would never support anything that actually will benefit consumers instead of corporations—it surprises you.

     This article proves that even a stopped clock can be right at least twice a day. Finally, Forbes and the Cato institute came down on the right side of an issue.

     The following is merely another monotonous reporting of corruption in corporate America.

From Forbes, December 8.

Where's That Deposit Insurance?

HomeGold Financial propped up a failing mortgage business with cash from a subsidiary. Duped investors didn't spot the trouble until $275 million went missing….

For the people of Easley, a bucolic burg of 18,000 in northwest South Carolina, the big yellow-and-black sign for Carolina Investors on East Main Street represented a familiar brand for 40 years. It was a consumer lender, specializing in loans for homes, cars and cemetery plots for senior citizens, blue-collar workers and the wealthy alike. But its focus shifted in the 1990s, as it began heavily promoting an investment account offering a handsome annual return, most recently 7.5%, for anyone depositing $10,000 for three years.

Carolina branches looked an awful lot like banks. The investments looked like savings accounts--why, the balances were posted in passbooks. But this wasn't any bank, and the accounts were not federally insured. The investments were junk bonds, unsecured and not registered with the Securities & Exchange Commission….

So far no payments have been made. Inspired by the collapse of Carolina, the state legislature rammed through a law this summer giving prosecutors more teeth to indict securities fraudsters. Cold comfort for Carolina's investors….

     Despite an almost unlimited stories like the above, Forbes still chronically opposes any regulation of corporate America.

     More corporate and political sleaze. This excerpt has it all—profiteering, insider no-bid contracts, corporate deniability, etc.—and those who are interested should read the original article.

From The Wall Street Journal, December 12.

Halliburton's Contracts in Iraq
Face Investigation by Pentagon

The Pentagon has launched a sweeping investigation of Halliburton Co. activities in Iraq and found evidence of "substantial overcharging" in $1.2 billion of fuel sales by the company once run by Vice President Dick Cheney….

The larger audit is sure to become politically explosive because of Halliburton's past ties to Mr. Cheney and allegations by the administration's critics that the company won its lucrative contracts in Iraq through political favoritism. KBR's contracts in Iraq are currently valued at $5 billion….

Halliburton officials said KBR would be cleared of any wrongdoing once the audit agency's questions are answered. "It is not fact that KBR has overcharged. KBR has acted in full accordance with its fiduciary and contractual responsibilities under the contract," said Halliburton Chief Executive Dave Lesar in a statement. "We expect and want continuing reviews and audits that detail our work in Iraq. We welcome a thorough review of any and all of our government contracts," he said.

As to the fuel audit, Mr. Lesar said that the U.S. Army Corps of Engineers, which oversees the work, had repeatedly found "no signs of overcharging or any other impropriety." The Army Corps, he said, also directed KBR to buy fuel in Kuwait and has been unable to find anyone else to do the job, which KBR has been trying to relinquish. The company "only makes a few cents on the dollar when fuel is delivered from Kuwait to Iraq," he said.

KBR so far has received about $2.3 billion through a no-bid contract it received in March to help rebuild Iraq's oil industry. About $1.2 billion of the money KBR received was to supply gasoline and other fuels for the Iraqi people, with almost all of that money coming from seized assets or Iraqi oil revenue….

     What everyone knows, but isn’t in the article, is that if open bids had been allowed by the Bush Administration—and Germany, Italy, France, and Russia could have participated—the American taxpayer would have saved a bundle on the cost of fuel in Iraq. And the cost of virtually everything else in Iraq for that matter.

Week of December 1

     Despite all the propaganda, the conservative economic policies of our country for the past 20 years have been a disaster for working-class Americans. Now, even the conservative Business Week can’t avoid reporting the reality of what’s happening.

From Business Week, December 1.

Commentary: Waking Up From The American Dream

Last year, Wichita State University sociology professor David W. Wright and two colleagues updated a classic 1978 study that looked at how sons fared according to the social and economic class of their fathers. Defining class by a mix of education, income, and occupation, they found that sons from the bottom three-quarters of the socioeconomic scale were less likely to move up in the 1990s than in the 1960s. Just 10% of sons whose fathers were in the bottom quarter had made it to the top quarter by 1998, the authors found….

     Increasingly, it’s becoming so obvious, even the conservative press must recognize it: we’re rapidly losing the bedrock of our society—the middle class.

     And as more people get permanently stuck in the lower echelons of society, it gets worse daily.

     Consider:

• Matthew Rose, CEO of Burlington Northern, made $5,024,285 in 2002.

• Richard Davidson, CEO of Union Pacific, made $16,278,789 in 2002.

     Undoubtedly, they cite their outstanding management skills as justification for such high incomes. These skills would include cutting labor and equipment costs to the bare bones—to the point where both people and machines are stretched to their breaking points.

     Employees not only experience more stressful working conditions, they also find that their vulnerability to future layoffs prevents them for pressing for higher wages—even enough to keep up with inflation. In today’s economy, it seems that only low-level employees must make the sacrifices necessary for corporate profits.

     As you read the following excerpt, ask yourself: was the public well served by the effects of these incredibly greedy CEOs on the national economy?

From The Wall Street Journal, December 1.

Railroad Logjams
Threaten Boom
In the Farm Belt

"It galls people that they're putting in a rate increase when they can't perform with what they got," says Jerry Cope, transportation manager of South Dakota Wheat Growers Association, a farmer-owned cooperative based in Aberdeen, S.D. ….

     Cutting costs is all the rage today, no matter how stupid, and as long as it improves the short-term bottom-line. Instead of maintaining employees and equipment—by repairing, training, upgrading and preparing for the future—the egomaniacs at the tops of our railroad corporations wanted to make their quarterly reports look good so their bonuses and stock options would be worth more.

     So, they got incredibly rich, while forcing expenses on practically all other sectors of the society, which are paying dearly for their greed and poor management.

     If you think our political process is broken, you’re right. Even The Wall Street Journal finds facts of politics hard to ignore in their news columns. Of course, in their editorials, they still defend the purchasing of politicians as a form of “free speech.”

From The Wall Street Journal, December 1.

Louisiana Lobbyist
Keeps State Laws
On Drinking Loose

After the bill passed, Mr. Brown says he was asked by a lawmaker to approach the brewers and demand $15,000. In secret grand jury testimony reviewed by The Wall Street Journal, a Dixie manager said he met Mr. Brown at the Beer League and gave him an envelope stuffed with $20 bills….

     Whatever happened to campaign reform? And why does the public still vote for the Republicans, who blatantly defend the right of the wealthy to purchase the favors of politicians?

     China is emerging as a world-class superpower. Its effects on the U.S. and the world are indications of the failures of our national policies—both economically and environmentally.

     Again, the discrepancy between The Wall Street Journal’s excellent news reporting and its editorial policies have never been clearer. The following news item clearly describes what’s happening to our world—yet, the Journal continues to support unmanaged world trade and opposes environmental controls on corporations.

This excerpt is from The Wall Street Journal, December 3.

China's Growing Thirst for Oil
Remakes the Global Market

Still, many analysts are wary of a Beijing that could begin to feel boxed in by its energy needs. The study noted that China might emerge as a major arms supplier to the Saudis. Other analysts fear that China might be tempted to trade weapons technology for access to oil in countries such as Libya and Iran….

     This single article highlights several disasters caused by—or aggravated by—our own Congress and Executive branch. By making it legally acceptable to abandon American communities and workers to countries like China, we’ve effectively frozen working-class wages at pre-1973 levels (adjusted for inflation).

     In addition, the countries that got our industries increase the world-wide demand for oil—thus raising the price of oil to American consumers (workers included), while enriching the entire oil industry and their investors.

     The higher costs of energy force countries like China and North Korea to seek ways to get money to purchase oil, possibly by selling weapons technology and materials to countries like Libya and Iran.

     And, believe it or not, even the Chinese recognize the dangers to the environment as more people drive cars and consume energy at ever-increasing rates: It “plans to introduce standards that could be even tougher than those in the U.S.” How’s that as a horrible comparison with the Bush Administration’s head-in-the-sand stance toward the environment? The U.S. can’t beat even the Chinese for having a minimally-acceptable moral concern for the future of the environment.

     So, drive your Hummer H2 while it’s still legal. Eventually, even the Republicans will recognize the damage they’ve done to the futures of their own children.

     So this is what a good economic recovery looks like. Productivity and profits are going up and more jobs are being created.

     That’s fine, except those who benefit most are wealthy investors who are getting richer and paying less for what they buy because “wage inflation” isn’t keeping up with either the productivity or the profit improvements.

     Why? Simple. The large corporations have moved their manufacturing operations to third world countries—thus putting downward pressures on all wages in the U.S.—and the downsized workers are getting jobs in poorer-paying smaller companies of all kinds.

Excerpt is from The Wall Street Journal, December 4.

Small Companies Slowly Build
Momentum in the Job Market

"The auto industry in Detroit has really taken a turn for the worse. Security isn't there," she says. He is managing the restaurant, while she continues her day job as an engineer. They have 10 employees and ideally want to have twice as many, with a mix of full- and part-time workers….

     Understand the terrible implications of this article. Large employers cut labor costs by outsourcing—even within this country—to smaller companies who pay less, offer fewer or no benefits, and have worse working conditions.

     And those who are able, take great risks to go into business themselves, and hope to make a living by paying low wages to those who work for them.

     Employment may stay the same or even go up a little—but the quality of life is significantly reduced for those who are at the bottom of the food chain and are powerless to defend themselves.

     Score another victory for Republicans and conservative Democrats who believe that an economic system should benefit primarily the winners—and the devil take the hind most.

Excerpt is from The Wall Street Journal, December 4.

The New Stresses Of
Chinese Society Shape a Girl's Life

She speaks some English ("Men like to smoke and drink beer, wine and whiskey," she observed in English one evening on the way to her piano lesson.) and knows her way around the family computer. She has her own bedroom in the family's 650-square-foot apartment, something unheard of in her parents' generation. The family bought a larger apartment two years ago but squeezes into the old one because it is closer to Bella's school….

     Now that we’ve given most of our manufacturing industry to China—and we’re in the process of giving all our other jobs that don’t absolutely have to be done in this country to India and elsewhere—China, India and other fine civilized countries are now setting the living standards for the world.

     In other words, Republicans and conservative Democrats like what’s happening in the world economy because we now must:

• Forget childhood. Since winners take all, and losers get a life of drudgery, preparation for the competition must start at birth.

• Forget safety nets. That doesn’t fit in with the Republican belief in aristocracy (wealth, education and political power should be inherited) or meritocracy (those whose parents finance an excellent education for their kids should succeed; those of poor parents should remain poor). And, Voilà,

• Wealthy, educated citizens of the world have great lives—consuming the world’s resources with abandon—while the peasants service their every need.

     What a great economy the Republicans and conservative Democrats have given us.

     Sometimes I wonder why I bother. The endless reports of greed, conspicuous spending, and corruption among America’s corporate elite are so numerous, it seems almost pointless to keep criticizing.

     Almost pointless. But not quite. Because there is a constant political battle in which Republicans constantly tell us that corporate executives are better stewards of our society than are government bureaucrats. Anyone who objectively reads our five most prestigious conservative financial publications knows that that’s simply not true.

     If it weren’t for our democratic government, we’d now have a full-blown corporate aristocracy, with people being born into wealth and power and others being born into poverty and servitude. (We’re not there yet, but if Republicans and conservative Democrats have their way, we’ll be there shortly.)

From The Wall Street Journal, December 5.

Indictment Alleges
Westar's Former CEO
Sought to Loot Firm

Mr. Wittig was forced to resign in November 2002, after he was subpoenaed on separate charges that he conspired with a local banker to conceal a loan payment. He was convicted of those charges this past summer, though Mr. Wittig is seeking a new trial….

     Remember, Republicans don’t believe in democratic (small d) government and are doing everything they can to destroy it. People like Wittig are the Republican’s heroes, although Wittig went so far in his insatiable greed that he got caught.

     There are many out there who are almost as bad, but are too smart to get caught—and it is the Republican dismantling of government (deregulation) that has allowed them to succeed.

Week of November 24

     The spinners are coming! The spinners are coming! Arm yourself, because they’re masters of the classic logical fallacy of "Post Hoc, Ergo Propter Hoc.” (“After this, therefore because of this.” )

     Recent news items clearly indicate that we’re headed for a worldwide global recession, possibly even a depression. Just as happened in the 1920s, most of the profit from the world economy has been going to the top 20%—with the bottom 20% losing pace with inflation, and the middle 60% somewhere in between.

     The rich have already bought most of what they need, and they’re now using their money to invest in those parts of the world where workers are most brutalized. This has resulted in “overproduction,” although that’s not really the problem. The problem, as was true in the early 1930s, is that too many people don’t have the money to buy the products and services they need.

     Countries worldwide are now trying to salvage some semblance of relief for the struggling bottom 80% of citizens who are victims of globalization. Obviously, this means that they must reverse the trend that caused the original problem, by reinstituting reasonable trade restrictions that previously protected the interests of workers.

     Naturally, conservative propagandists are seeing the same danger signs throughout the world, and are already laying the blame on others for their own skullduggery. The ones who caused the fundamental problem—via globalization—are shifting the blame to the restoration of the “protectionism” (of working-class incomes) that they previously destroyed.

     For example, consider Gary Shilling’s warning to investors that their gravy train may be coming to an end:

From FORBES, November 24.

Financial Strategy

The Protectionist Threat

By A. Gary Shilling

Free trade is hard to find. There are U.S. steel tariffs, European crop-import curbs and Chinese currency supports. That's scary. Does anyone recall the 1930s?

… As restructuring and automation abound, employment losses appear not just cyclical but permanent. So politicians find it easy to succumb to cries for protectionism from both management and labor. Foreigners don't vote in U.S. elections. A recent poll found that 54% of Americans believe that when multinationals produce abroad they export U.S. jobs.

Protectionist actions here and elsewhere are mushrooming….

The protectionist impulse in the U.S. used to come from blue-collar employees—first textile, then steel- and autoworkers. Now computer programmers and Wall Street researchers are seeing their jobs exported to India. Displaced American professionals can end up bagging groceries….

Let's hope that policymakers recall what protectionism and deflation did to the world economy in the 1930s….

Watch out for creeping—nay, galloping!—protectionism. Regardless of intentions, it's ultimately the enemy of jobs, the economy, profits and stocks.

     Do you “recall the 1930s”? Republicans and conservative Democrats certainly do, and they remember how they successfully blamed the Smoot-Hawley and similar tariffs as causes of the depression. It’s hard to tell if they are deliberate liars and hypocrites, or whether they are just plain stupid.

     The stock market crash occurred in 1929. The Smoot-Hawley act was passed on June 17, 1930. It was the result of the horrible economic policies of the 1920s, that shifted most of the wealth from workers to investors—just as has been happening from 1976 to the present.

     In both periods of history, the damage to the economy was already done. Protectionism was simply the last stage of cycle, which goes like this:

• By eliminating all protections of workers from brutalized foreign workers, create an economic boom that rewards rich investors at the expense of workers.

• Invest money overseas which lowers labor costs in the U.S. and increases corporate profits and investor’s incomes.

• Suck the workers in the U.S. dry as long as you can, until they run out of money.

• Then the inevitable happens. Economies begin to crash, and people can’t afford rent, food, medical care, education, etc.

• Countries worldwide then realize, again, that they’ve been conned by the rich and powerful, and try to reverse the disastrous trend, too late, through tariffs.

• Result: a recession or depression—and the right-wing-crackpots of the world blame the last stage of the cycle, “protectionism” for the results of their own insatiable greed.

     Of course, what got us out of the depression of the ’30s were the progressive policies of Roosevelt, which included, among many other things, reasonable protections of U.S. workers from unbridled foreign competition. And that’s exactly what can get us out of the next recession or depression.

     The following brief excerpts are from four extensive articles in FORTUNE’s “SPECIAL REPORT ON THE U.S. ECONOMY.”

     How Fortune editors can publish such articles—and still support the Bush Administration’s economic policies—should be a subject of a Ph.D. dissertation on the symptoms of insanity.

     Go figure:

• We are exporting our best-paying jobs outside the country, and thus losing a significant part of our tax base. Not only will workers make less money and pay less taxes, many of them will place almost insurmountable burdens on social services.

• We’re cutting taxes on the wealthy—the ones who are profiting from the sacrifices forced on workers.

• We’re permanently losing our manufacturing jobs for reasons both good (productivity improvements) and bad (outsourcing purely to cut the cost of, and incomes of, American workers).

• And we’re creating a massive federal debt that will likely ruin us.

If Things Are So Good, Why Do We Feel So Bad?

Besides the threat of terrorism and the long, hard slog in Iraq, the biggest worry for most of us is jobs.

...Bolstered by dazzling productivity growth, America will continue to be a manufacturing powerhouse; we'll just need fewer and fewer American factory workers

Once, we white-collar types at least felt insulated from foreign competition. No longer. Just as China in the past decade became the world's workshop, India in this decade is becoming the world's back office. Cheap bandwidth and the Internet allow companies to tap a vast market of English-speaking, educated workers happy to take jobs in software, accounting, consulting, and other services for 10% to 20% of what an American employee would charge…

Morgan Stanley economist Stephen Roach believes the migration of millions of service jobs is "a new source of joblessness that could well be the defining macro event of our times." Will that necessarily translate into higher U.S. unemployment? No, says Intel chairman Andy Grove: "I think it just exerts strong downward pressure on wages for years to come."…

Politicians from both parties have yet to even acknowledge the staggering bill that must eventually be paid through future tax increases and benefit cuts….

---

Where Your Job Is Going

A visit to Bangalore, India, a city where tech is hot, the drinks are cold, work is plentiful, and the salaries are a lot lower than yours.

…After years of wondering what all those fiber-optic cables laid around the earth at massive expense in the late 1990s would ever be good for, we finally have an answer: They're good for enabling call-center workers in Bangalore or Delhi to sound as if they're next door to everyone. Broadband's killer app, it turns out, is India.

It's not just about call centers. In Bangalore some 110,000 people are employed writing software, designing chips, running computer systems, reading MRIs, processing mortgages, preparing tax forms, and doing other essential work for U.S., European, Japanese, and even Chinese companies. Intel, Cisco, Oracle, Philips, and GE are among the multinationals with significant R&D facilities there. AOL, Accenture, and Ernst & Young have big operations in town too. Scores more Western corporations outsource work to Indian companies like Bangalore-based IT services firms Infosys and Wipro….

The attraction of the Indian knowledge workers who get those jobs is that they're paid 10% to 20% of what Americans would expect for similar work—and in many cases they do it better. That has stoked understandable alarm in the U.S. Together with China's rise in manufacturing, it is bringing protectionists out of the woodwork. It is also causing even those of a less reactionary bent to wonder just what it is that Americans will do for a living now that even knowledge work can easily be sent overseas….

Indian call-center workers may make a lot less money than Americans (salaries start at about $2,000 a year), but they make a lot more money than fresh-out-of-college Indians who aren't computer geniuses have ever made before….

---

The $44 Trillion Abyss

The baby-boomers are about to retire, and it's going to cost us—big. Here's what the government doesn't want you to know.

Last fall Paul O'Neill, then Secretary of the Treasury, wanted a simple answer to a thorny question: How prepared was the nation today to pay all its future bills? Two government experts worked for months to calculate the answer. Their findings, which shocked even them, were never published—the Bush administration made sure of that.

The reason for the silence was that by the time the two researchers had completed their study, O'Neill had been thrown out of the Treasury and replaced by the more politically astute John Snow. No savvy administration power player would dare point out, right in the middle of tax-cut season, that there was a huge hole in the country's finances—a $44 trillion hole.

That's the kind of Washington tactic that makes Larry Kotlikoff angry. So angry, in fact, that the normally composed and carefully spoken academic starts ranting about a government conspiracy to keep us all in the dark. He even refers to this particular episode as "the great Treasury cover-up." And once you start Kotlikoff on the subject, it's hard to stop him. "I hate politicians," he says, without pausing for breath. "These people are so focused on the next election, they don't care about the next generation. The thing that really turns my stomach is that they have the opportunity to do good, and they know they're doing bad, and it's okay. It's immoral."…

It's clear nobody can solve a $44 trillion-sized problem overnight. Yet in Washington, generational accounting is as popular as a skunk at a garden party. The real question is, Do we continue an Eyes Wide Shut fiscal policy or—and this is a huge "or"—admit there's something really big and ugly staring us in the face?

---

Will 'Made in USA' Fade Away?

Yes, we'll still have factories, and great ones too. We just might not have many factory workers. Why those jobs are never coming back.

...the fact is that American factories are producing more than they ever have, even the steel and automobile manufacturers that were consigned to extinction decades ago. The problem for American workers is that factories are experiencing huge gains in productivity—companies now need far fewer employees to churn out all those cars and steel slabs and machine tools.

For all the talk of how technology has revolutionized the white-collar office with e-mail and the Internet and PDAs, it's in the blue-collar sector where high-tech has dramatically altered the landscape....

     Those of us who lived through the 1950s, ’60, and ’70s remember the predictions of the explosion of productivity improvements that we are seeing today. We also remember the problems we were anticipating.

     With so few workers needed to produce all the food and material goods the world needed, what was going to happen to those millions of persons without jobs and decent incomes—even the ones with good educations? Possible answers:

• much shorter work weeks and hours, more vacation time (eventually, six months?)

• the creation of jobs to clean up the environment or improve it

• much more professionally supervised recreational opportunities, and

• more and better personal services.

     Of course, in the world of the future, all who worked the necessary hours would receive compensation adequate for one income-earner to support a family of four.

     Then, the Republicans and conservative Democrats came into power, and talk of all such nonsense came to end. Now, all the benefits of productivity improvement go to the wealthy and powerful in this and other countries—and workers everywhere be-damned.

     So far, it’s been a great economy for the wealthy and powerful, whose greed is insatiable, and who choose to ignore the lessons of history. Much worse times are coming, even for them.

     For those who know how to decipher the code words, two editorials in Business Week describe the anti-worker philosophy of our conservatively controlled Federal government.

     In order to fulfill the desires of the rich and powerful, the Fed encourages economic growth as long as it increases corporate profits—but discourages growth as soon as workers begin to benefit (thus causing “wage inflation.”)

     For a detailed analysis of how this strategy works (which is under the control of Republican and conservative Democrat politicians), see the file The Class Warfarer’s Scapegoat: “Wage Inflation”.

Both of the following excerpts are from Business Week, November 24.

Commentary: Why Greenspan Will Just Let It Ride

By Rich Miller

He'll wait till there's less economic slack to raise rates

The economy is cooking. Business spending is rising and the job market has turned up. The pickup in growth, in the U.S. and abroad, has sent commodity prices soaring and fanned fears of a resurgence of inflation….

Fed Chairman Alan Greenspan and his cohorts believe they can take their time before raising rates. Despite investors' skepticism, Fed insiders believe the U.S. is in a unique period where inflation is so low—and the economy still boasts so much slack—that they can relax and let things rip. "In these circumstances," Greenspan said on Nov. 6, "monetary policy is able to be more patient."

BECAUSE OF EXCESS CAPACITY and elevated unemployment—what economists call the output gap—plenty of slack still remains in the economy. According to output-gap theorists, the recession of '01 and the slow recovery since have left the economy some 2% smaller than it would have been had it stayed on its long-term growth trend. Until that growth deficit disappears, the theory goes, inflation pressures will be muted….

---

Economic Trends

Is Inflation Set To Surge?

By Gene Koretz

The Fed could be in for a nasty surprise

…(Economist Martin) believes the economic risks have now shifted decisively in the direction of inflation. The return of payroll job growth, he argues, indicates that the expansion is finally on a sure footing and likely to post above-trend growth over the next year. And close analysis reveals that prices of most consumer goods and services actually have been trending higher for some time….

The U.S. economy, of course, could deflect these inflationary pressures if productivity continues to surge higher. But like many others, Barnes believes that productivity growth is bound to slow as hiring accelerates. "The real question," he says, "is not whether inflation will rise, but whether it does so gradually or with surprising vigor."

      “The economy is cooking.” Meaning: corporations are making good profits.

     But “the job market has turned up,” and “The pickup in growth… has sent commodity prices soaring and fanned fears of a resurgence of inflation.” Meaning: WARNING SIGN—the economy may be cooking so much that wages may start to go up.

      “Fed insiders believe the U.S. is in a unique period where inflation is so low—and the economy still boasts so much slack—that they can relax and let things rip.” Meaning: they have workers in such a bind, that even a “cooking” economy isn’t likely to make wages go up significantly. So conservatives can relax and enjoy the economic boom without fear.

      “…the economic risks have now shifted decisively in the direction of inflation. The return of payroll job growth, he argues, indicates that the expansion is finally on a sure footing and likely to post above-trend growth over the next year.” Meaning: as more workers get jobs, wages tend to go up. Therefore, the Fed should raise the prime interest rate to cool off the economy before it happens.

     So far, the “jobless recovery” is going exactly according to plan.

     The following three excerpts from articles in a single issue of The Wall Street Journal illustrate why this is the best possible short term economic climate for investors.

From The Wall Street Journal, November 26.

Company Profits Soared
By 30% in 3rd Quarter

The sector is much less important for the economy than it used to be, of course. We're a service economy. The economy can grow and produce jobs even as the manufacturing sector loses jobs, if that rate of job loss is relatively muted.

     Great! Profits are booming and the stock market is skyrocketing. What a wonderful world—for investors.

     The bad news: the reason profits are exploding is because corporate income is going up, but wages aren’t (except for the top executives). It’s a lousy deal for workers and it will ultimately destroy our economy—to the detriment of everyone, even wealthy investors.

     Reason: We’re losing our manufacturing industry, which is the poor person’s key to a decent income. The loss of manufacturing jobs depresses wages for all categories of working-class Americans. Most of the jobs being created in the service industry don’t allow one person to support a family of four.

     Almost all of the benefits of the economy are going to the rich, and they are being advised to invest it overseas, because “…the burden of producing the world's goods will fall on the developing world, with its younger population. That should mean rapid growth for developing countries and hence healthy returns for emerging-market funds.”

     We’re repeating 1929 all over again.

Week of November 17

     Same old story, with a new twist that further explains why globalization is a disaster for everyone who works for a living.

From The Wall Street Journal, November 17.

Romanians Become
Latest Tech Rivals
For Off-Shore Jobs

BUCHAREST—Rent-a-Coder is one of several Internet sites where the world's computer programmers bid to do free-lance software jobs, mostly for American and European companies eager to "off-shore" a small project at low wages. It's no surprise that the nation that's home to most of these eager-for-work programmers is India, now famed in the U.S. for its Bangalore help desks….

While every Romanian programmer with a broadband connection has opportunities that were unimaginable just 10 years ago, there is no quick ticket to Easy Street where there is global competition….

In truth, a relatively small number of programmers here have high-enough ratings to be picky about jobs. Getting to that stage, says Mr. Ionescu, "is a matter of finding a niche," of having some specialization that an entry-level Indian or Russian programmer doesn't have.

American high-tech workers not long ago believed the same thing, confident that their training would give them a permanent leg up on the rest of the world.

In Romania, they know all about the off-shore controversy in the U.S. The Bucharest programmers I met were surprisingly empathetic about the manner in which their modest recent gains are coming at someone else's expense. Says Ionut Ianasi, a 22-year old Bucharest programmer, "If it were happening to me, I'd be angry too."

     The new twist to this story really isn’t new, it’s just that the Journal more clearly explains what we already know: Those who really understand globalization—like the Bucharest programmers—know that their prosperity is at the cost of Americans who lost their jobs, and the Americans who now face lower wages because of the increased competition.

     What the Bucharest programmers have yet to experience is the loss of their own jobs after others in still lower-wage countries gain the training to compete with them. Who will give them the training? Corporate America. They’ve been doing it throughout our history and there is no reason for them to change.

     American corporations have absolutely no commitment to workers anywhere. The only thing that counts is profit, and they maximize profit by increasing the labor supply any way they can. Even if it means going to countries where workers have absolutely no protections.

Week of November 10

     Chalk up one more news item from the conservative press that proves the hypocrisy of those who defend what has become known as “globalization.” (Check out International Free Trade; It’s NOT “Globalization”.)

     Anyone who says that destroying American jobs is good—because workers in poor countries will benefit—should read the original of the abstract reproduced below.

     And bear in mind that articles with exactly the same message have been published regularly, ever since the early 1980s.

From The Wall Street Journal, November 13.

Behind China's Export Boom,
Heated Battle Among Factories

As Wal-Mart, Others Demand
Lowest Prices, Managers
Scramble to Slash Costs

SHAJING, China—Under the corrugated-metal roofs of Ching Hai Electric Works Co., hundreds of workers toil in six plants to meet orders for millions of small appliances. Inside one factory, ex-farmers bend over a clanging conveyer belt where they turn squid-shaped hunks of steel and wiring into electric fans. The fans cost about $4 wholesale and eventually will retail in the U.S. for $15 to $40 through such online stores as Amazon.com.

This is the kind of picture U.S. politicians might conjure up when tapping the hot-button issue of American jobs lost to the flood of Chinese exports. But China's smaller manufacturers themselves face brutal new competition right at home.

China, one of the world's busiest factory floors, increasingly suffers from a production glut, and the big overseas retailers such as Wal-Mart Stores Inc. that soak up China's exports have been quick to capitalize. They're demanding rock-bottom prices and forcing factory bosses to cut costs any way they can in order to remain in contention for export orders. The average wholesale price for Ching Hai's fans, juicers and toasters has tumbled to $4 from $7 a decade ago, according to company executives.

It's the survival of the cheapest. At Ching Hai, manager David Liu has cut his labor force in half, to 1,500 workers, even while maintaining the same level of orders. The company's starting salary of about $32 a month is some 40% less than the local minimum wage. Many workers put in 18-hour days with minimal training and constant pressure to boost output. Despite the cost cutting, Mr. Liu says Ching Hai is just barely profitable, although he declines to provide any figures….

The relentless cost cutting raises questions about how much pressure retailers should exert in places where unemployment and weak labor laws are problems. Ching Hai, which has a high rate of accidents mostly involving fingers severed by machinery, has been investigated by the local labor bureau for possible violations….

Buyers are moving aggressively to play one factory against another. "As things get more competitive, the pressure that comes along with that, yeah, we try to take advantage of it," says Gary Meyers, a vice president in global procurement at Wal-Mart….

…fields of rice and litchi trees gave way to white-tiled factories and a haze that hung over them. Migrant workers from other provinces, employed at Shajing's many factories, would come to outnumber town residents 10-to-1….

Ching Hai employees say they are sometimes asked to work as long as 18 hours. Though the city's minimum wage is about $56 a month, Ching Hai starts new recruits at that low $32 level and promises subsidies for food and lodging to make up the difference….

The competition is making it harder to improve conditions for Chinese factory workers. As abuses come to light, many multinationals are enforcing codes of conduct for suppliers. Among Wal-Mart's "Standards for Suppliers" are demands that factories comply with local laws for wages and work hours. Wal-Mart also forbids forced labor and child labor, and promotes proper training, safety and clean restrooms.

But many low-cost factories in China ignore such codes, and many government officials enforce them haphazardly. Chinese labor experts say officials worry that enforcing standards would increase costs, deter investment and undermine local economic development….

"Everybody is here trying to make money," Mr. Liu says in the shadows of his showroom, where the lights are shut off at lunchtime to save money. "I just never thought it would be so hard."

     How often do you read about Wal-Mart—and a total disregard to fundamental human rights—in the same context? It’s damn near automatic.

     Study the following sentence. It’s a classic and always accompanies the willful violation of moral standards. “Among Wal-Mart's ‘Standards for Suppliers’ are demands that factories comply with local laws for wages and work hours. Wal-Mart also forbids forced labor and child labor, and promotes proper training, safety and clean restrooms.”

     This technique is as old as the hills:

• Proclaim high moral standards,

• “Forbid” unsavory practices, then

• Turn over your work to those who you know will give you what you want—by not following the rules you’ve set.

     It’s just like the CEOs who promote subordinates who have no moral standards, knowing that they will cut costs and maximize profits—even illegally—and the CEO can remain blameless.

     Anyone who doubts that the corporate climate in the U.S. is morally bankrupt should read every issue of the Wall Street Journal.

     Only government regulations protect the health and physical well-being of all Americans, and the incomes and working conditions of our working-class citizens.

     Never count on the moral standards of corporate executives to do it.

From The Wall Street Journal, November 12.

Costs of Trucking Seen Rising
Under New U.S. Safety Rules

Drivers' Shorter Work Day,
Aimed at Relieving Fatigue,
Could Hurt Retailers, Others

The first major changes in truck-driver work hours since 1939 are expected to reduce highway fatalities, but also contribute to the biggest increase in trucking rates in two decades.

The little-noticed changes, mandated under new federal safety rules that take effect in January, are designed to reduce fatigue among truck drivers, a major cause of accidents. The new rules increase the time that truck drivers must set aside to rest in each 24-hour period to 10 hours from eight hours, and the total time a driver can be on duty will fall to 14 hours from 15 hours….

Wal-Mart Stores Inc., which unsuccessfully opposed the new rules, believes the more stringent 14-hour rule will reduce its drivers' daily work time by 6% on average and cause it to add 275 new drivers and 300 new trucks to handle the same amount of cargo. The giant retailer expects the changes to cost it $24 million just for the additional trucks. "The rule will impose serious costs on society, not only on motor carriers but on shippers and receivers as well," the company said in a regulatory filing….

The federal agency says it is training inspectors to enforce the new rules. Large trucking companies say they will fully abide by the new regulations. However, industry experts say many drivers already fail to keep accurate accounts of their time in log books, and the new rules aren't expected to change that….

The new rules could push the industry to become more efficient, especially the speedier handling of trucks at loading docks. These docks have become a source of massive inefficiency, often holding up trucks and drivers for hours. Under the old rules, drivers didn't count these delays as time on duty. And trucking companies had little incentive to push for changes, because most long-haul truck drivers get paid by the mile and aren't compensated when they aren't driving….

     As usual, corporate profits and the incomes of investors and top executives are more important than public safety and employee working conditions.

     It’s almost axiomatic: if Wal-Mart opposes legislation—you automatically know it will be good for America.

     Incidentally, a very similar situation caused the formation of the Teamsters Union to begin with. People were paid only for the time they loaded trucks. When Congress passed a law that required employers to pay employees for the total time they spent at work, they employers “hired” workers when a truck came in, and “fired” them when the truck left.

     And people wonder why workers need unions.

     Most people think that “fuzzy-headed liberals” are the main supporters of immigration. Not true! Virtually all conservative financial publications support unlimited immigration—because, of course, immigration depresses wages.

An editorial from The Wall Street Journal, November 12.

Viva Work Visas

Short of doing things that would offend American values—such as threatening to shoot border crossers—we can't stop immigrants from coming. Those conservatives who fret about "illegals" ought to favor some kind of work-visa program that gives these strivers the option of working here legally….

      “… conservatives who fret about "illegals" ought to favor some kind of work-visa program that gives these strivers the option of working here legally….” This statement should be extended to: “,…which will help depress the wages for those in our society who most need a wage increase.”

     A medal should be given to every American consumer who respects the law and believes in being honest in dealings with corporations. Because corporations certainly have no feelings of responsibility to treat consumers honestly.

From The Wall Street Journal, November 12.

What Part of 'Cancel'
Don't You Understand?

Regulators Crack Down on Internet Providers,
Phone Companies That Make It Hard to Quit

…From AOL to EchoStar, a growing number of U.S. companies are coming under fire from regulators who claim they are deliberately thwarting customers' efforts to cancel their service contracts.

The regulators are targeting a range of tactics used to keep people from dropping cellphone plans, magazine subscriptions and satellite TV services. The methods under scrutiny include billing customers for service after they quit, and levying hefty contract-cancellation fees on departing customers….

To stem defections, companies are doing everything in their power to lock in customers. Until recently, for instance, MCI routinely required customers to show a death certificate when canceling phone or Internet service for a deceased relative, though it loosened the policy last month. Many companies have also retrained phone reps who handle cancellation calls to try to "save" customers who phone in to quit….

To slow … departures, AOL customer reps were offered incentives to win back customers who phoned to cancel. The pressure, combined with a lack of management oversight, may have meant the reps listed some customers who called to cancel as "saves," according to the FTC. As a result, the customers continued to receive bills even though they had canceled….

Overbilling problems are a growing concern as more customers pay their bills through automatic debit arrangements in a wide range of industries. The payment option lets companies withdraw funds directly from customers' bank accounts and credit cards each month. That access means companies may be able to continue to withdraw money, even after a service is canceled. "Once they get your credit-card number, you're stuck," says Ohio Attorney General Jim Petro….

      “Companies may be able to continue to withdraw money, even after a service is canceled. "Once they get your credit-card number, you're stuck," says Ohio Attorney General Jim Petro.” Shouldn’t that be considered illegal? And how many customers will even overlook the excessive charges?

     It’s a new world out there. Corporations who have no moral standards lecture consumers about being honest in their dealings with them. (E.g. not copying music online.)

     Finally, some good news. A manufacturing company is making a profit right here in the U.S. But how long can it continue?

From The Wall Street Journal, November 10.

Unglamorous Axle
Maker Is Good as Gold

American Axle & Manufacturing Holdings Inc. produces some of the auto industry's most unglamorous hardware, including axles and drive shafts. Its biggest factory is a union shop in the heart of Detroit. Its primary customers are Detroit's cost-slashing Big Three auto makers.

With that profile, American Axle might look like a sitting duck for competition from China. But the company and its co-founder, chairman and chief executive officer, Richard E. Dauch, are making money, and gearing up to grow.

American Axle is forecasting a 10% increase in profit for 2004. In 4 p.m. composite trading on the New York Stock Exchange Friday, the company's shares stood at $35.71, close to a 52-week high and double the $17-a-share initial public offering price in January 1999. At a time when many U.S. manufacturers are cutting jobs, American Axle has expanded its work force by 60% since 1994. Its productivity has more than doubled during the same time by one measure….

To keep Wall Street on his side, Mr. Dauch (chairman and chief executive officer, Richard E. Dauch) must prove that a unionized U.S. manufacturer can thrive over the long haul in the face of global competition and relentless pricing pressure from the big auto makers….

Another challenge for American Axle will be to sustain the edge the company has in quality and product technology over competitors in lower-wage countries. United Auto Workers-represented hourly workers at American Axle's U.S. plants earn $22 to $25 an hour straight time. Including benefits, that goes up to about $43 an hour. But inside American Axle's Detroit plant, a red, white and blue banner proclaims, "Low Cost Country."

Mr. Dauch says American Axle is a low-cost producer, despite its pay scale, because its workers are more productive, and build better-quality products than competitors in low-wage countries….

     First of all, note that a single instance of an American manufacturer paying decent wages and being successful in the U.S.—is worthy of a news item in The Wall Street Journal.

     In all likelihood, American Axel will be successful—until a competitor duplicates in China what it’s doing in the U.S. Our machismo attitude that “American workers can compete with anyone in the world” has proved to be false. When wage rates in other countries are 10% or less than in the U.S., there’s no way American workers can be competitive over the long haul.

     In the present political environment, any manufacturing success we have in the U.S. will be brief, and will be limited to products where other countries have yet to learn of our new productivity technologies and methods.

     Long term, the countries that get industry are those that can keep their workers from making decent incomes.

     If American Axel remains successful, and others can duplicate their success over the long haul in the U.S.—fantastic! But that’s certainly not the trend, and it’ll be a pleasant surprise if it happens.

     As long as investors and top corporate executives have all the power, the U.S. will continue exporting jobs, and workers worldwide will see their quality of life deteriorate.

     More great news about a booming Republican economy. Corporate profits are exploding, jobs are still shifting from good-paying manufacturing jobs to the poor-paying service industries, and wages will only keep up with inflation—under the best of circumstances.

From The Wall Street Journal, November 10.

Retailers' Present for Job Market
On Mend: More Holiday Hiring

Two years after the battered U.S. economy began climbing out of recession, it's finally generating new jobs, a trend that is likely to get a boost soon from preholiday hiring by retailers….

The latest increases in national employment weren't large by historical standards—in the 1990s, payroll gains of more than 300,000 a month were common. Moreover, economists say monthly increases of more than 150,000 will be needed in the months ahead to continue bringing down the unemployment rate as discouraged workers who previously dropped out of the labor force begin hunting for jobs again. In all, about 2.4 million jobs have been lost nationwide since the recession began in March 2001….

Wal-Mart Stores Inc., the nation's largest retailer, says it is expecting the holiday season to be "a bit stronger" than last year and will staff accordingly, although it declined to give firm numbers. Consumer electronics chain Best Buy Co. says it will increase store staffing by 32% on average for the shopping season, up from a seasonal increase of 30% last year. Sears, Roebuck & Co. says it plans to hire 30,000 to 35,000 holiday workers, down slightly from previous years, despite recently improved sales. That's because Sears recently remodeled its stores to make some departments self-service, trimming labor costs….

While the retail hiring plans and last week's positive economic news indicate the economy is improving, analysts cautioned that the recent spate of job growth isn't yet uniform across the economy and hardly certain to continue. The manufacturing payroll decline in October, for instance, at 24,000, was the smallest drop since November 2000. Nevertheless, the steady decline in manufacturing jobs has been a weight on the economy since the sector began to contract after the technology-driven stock-market rally of the 1990s ended in 2000.

     We’re still losing manufacturing jobs. And, of course, what’s missing in this Journal article is that even the few new manufacturing jobs coming on stream are paying less than the manufacturing jobs we are losing. That’s what happens when you “increase the labor supply,” which the Republicans are masters at doing.

     Not to worry. Greed is still alive and well in corporate America—even at the expense of its shareholders. (And a good argument for why options should be expensed in the corporation’s financial reports.)

From Barron’s, November 10.

Living Large

Adobe's lush option grants pit insiders against public shareholders

ADOBE SYSTEMS… software's popularity has made (it) a financial and investment success. The company's gross margins routinely top 90%, while pretax operating margins are about 30%. Reflecting its growth, Adobe shares have more than quadrupled, to 45, in the past five years.

But Adobe also dramatizes one of the biggest problems in technology investing today: Large grants of stock options to employees penalize public shareholders, and force companies to devote large portions of their cash flow to share repurchases, to offset the dilutive effect of options issuance. Adobe, and nearly all other tech companies, resist including options expense in their income statements, despite the economic impact on profits.

Another potentially bothersome issue for Adobe investors is the low stock ownership by top executives. Adobe's chief executive, Bruce Chizen, owned less than 2,000 shares earlier this year, but had options to buy more than 1.7 million shares. He and other Adobe executives have received generous options grants in recent years, but most quickly sold nearly all the shares acquired through the exercise of vested options. In effect, they have treated options like cash compensation.

From 2000 through 2002, Adobe issued options on more than 20% of its 240 million shares outstanding. Most big companies limit their annual option grants to 2% or less of their outstanding shares.

Many technology executives argue that options cost their companies nothing. But in Adobe's case, that isn't true. In the past three years Adobe received $288 million in option-related proceeds, as option-holders exercised the right to buy shares at below-market prices. But the company spent $830 million, or more than 50% of its cash flow, to buy back stock on the open market to offset shares issued in relation to options grants. Moreover, if Adobe's option grants had been more restrained, the company presumably would have had more money to pay a higher dividend, make acquisitions or meaningfully reduce its outstanding shares….

     This is a very brief excerpt of a very long article. Investors who are interested in the subject or who own Adobe shares should read the original article.

     Senior management’s isolation from lower-level executives and employees has to be one of the major causes of corporate demise. The following excerpt presents sound, but incomplete, advice for modern managers:

From The Wall Street Journal, November 11.

Reverse Mentoring Programs
Can Bridge Generational Gaps

When consulting firm Deloitte & Touche LLP instituted a reverse-mentoring program in 2001, 48-year-old Jim Wall, its national managing director for human resources, found himself tapping the wisdom of a 26-year-old associate consultant….

For his part, Mr. Wall says private tutoring helped him expand his Internet proficiency and get a better handle on the daily torrent of e-mail. He even got constructive criticism on his own management style. The relationship continues. "It turns into a mutual mentoring," he says….

Today, there is a growing belief that reverse mentoring can also help bridge other gaps among generations. In addition to imparting technical know-how, younger staffers are frequently asked to help solve conflicts that crop up when generational attitudes clash….

Here are tips to help ensure that a reverse-mentoring program is effective:

• Make mentoring a two-way street….

• Set objectives….

• Treat each other with respect….

• Consider generational differences….

     All these “tips” are good ones, but the most important has been left out: If the ethical standards of the top executives are deficient, none of the rest counts.

     If greed and self-interest are the top exec’s most dominant motivators—vs. providing a genuine product or service at the lowest cost to consumers—there is no way it will not poison the work environment. (Check out: The Destructive Achiever in the Proactive vs. Reactive file.)

Week of November 3

     The U.S. once had the best economic and social system the world has ever known. Never before had such a large proportion of a population realized a good quality of life—in which work was appropriately rewarded and which valued fairness and justice for everyone.

     Have we totally destroyed that economy, and that fair and just society? Just look at what passes for “good news” in today’s conservative press.

From The Wall Street Journal, November 7.

Behind Surging Productivity:
The Service Sector Delivers

Firms Once Thought Immune
To Boosting Worker Output
Are Now Big Part of Trend

…Once confined to the computer sector and a few technologically savvy companies, productivity gains have spread into the nation's vast service sector, from airports to pet stores and package deliverers. Moreover, companies now are reaping the benefits of not just their technology investments in the 1990s but of organizational changes that made the technology work for them….

The Labor Department reported Thursday that the productivity of the nation's labor force—defined as output per hour worked by the average U.S. worker in the nonfarm business sector—rose at a breathtaking annual rate of 8.1% during the third quarter, following a 7% growth rate in the second quarter….

Strong productivity growth means companies are producing more with less, which helps to explain why millions have been locked out of the job market even as the economy recovers. This recovery is the only one in postwar history that has gone so long—at least 23 months—without producing a sustained rise in employment….

Despite the near-term pain of a weak job market, most economists agree that rising productivity serves as the bedrock for living standards in the long run. The faster productivity grows, the faster the economy can grow without creating inflation. Faster economic growth means more-rapid growth in real household incomes over time. Higher incomes, of course, allow consumers to buy higher-quality products—including fancier homes and cars—and pay for services that enhance their lives. Eventually, as demand and economic growth accelerate, economists expect companies to start hiring again to keep up with a faster pace of output….

(This) would also allow Fed policy makers to keep interest rates lower for longer because productivity growth holds down inflation. When a company can produce more widgets with fewer workers, it is able to hold down its costs and boost its profit margin, diminishing the incentive to raise prices….

There are important reasons for caution about the latest productivity gains in the service sector. It is notoriously hard to measure output and the number of hours worked in the service sector. Some economists, such as Morgan Stanley's Stephen Roach, argue that workers in the service sector aren't more productive, they are simply working longer hours that don't get counted in official statistics….

• "Productivity gains have spread into the nation's vast service sector." Meaning: Since Republicans and conservative Democrats have sent our manufacturing jobs overseas, working-class Americans have had to settle for poorer-paying service jobs.

• “Companies now are reaping the benefits…” Meaning: corporate profits are going up, investors and top corporate execs are getting much richer.

• “Productivity of the nation's labor force—defined as output per hour worked by the average U.S. worker in the nonfarm business sector—rose at a breathtaking annual rate of 8.1% during the third quarter.” Meaning: Workers are working much harder because they’ve been threatened by their employers with job loss (high unemployment = “there are many out there who want your job”).

• “Rising productivity serves as the bedrock for living standards in the long run.” This should be true for everyone, but today it’s true only for investors and corporate executives. They want all the benefits for their own greedy selves and don’t want to share with anyone—even with those who made the productivity improvements. Instead of sharing the benefits of productivity, they fire workers and make those remaining work harder. Accounting for inflation, wages today are lower than they were in 1973.

• “Faster economic growth means more-rapid growth in real household incomes over time.” Simply not true for the bottom half of the U.S. If household incomes for working-class Americans even start to go up, Republicans and conservative Democrats in Congress will take steps to stop it, calling it “wage inflation.” Increased productivity does NOT cause incomes to go up. It’s all a matter of power, and investors and corporate executives have all the power and workers have none.

• “Fed policy makers (will be able to) keep interest rates lower for longer because productivity growth holds down inflation.” True. Of course, productivity growth wouldn’t hold down inflation if it were shared with workers in the form of higher wages and better working conditions. As it stands now, the only income-increases the Fed will allow are those of investors and corporate executives.

• “Workers in the service sector aren't more productive, they are simply working longer hours that don't get counted in official statistics.” Welcome to the truest statement in the entire article.

      How can the editors of The Wall Street Journal possibly support our war in Iraq, and still publish on their news pages the insurmountable realities we face in that distant country?

From The Wall Street Journal, November 5.

To Find Peace
In Sunni Triangle,
Talk to the Sheiks

Col. Mirabile Woos Tribes,
Like British Before Him;
Now, His Cup Runs Over

…Befriending and cajoling the local chieftains is a tested way of ruling this part of Iraq. It's how the Ottoman and British occupiers kept peace, and it's how Saddam Hussein operated, too, often freeing political prisoners at the request of powerful Sunni tribes and rewarding chieftains with cash and gleaming limousines.

The sheiks here in Anbar can be unsavory characters. Many owe their fortunes to smuggling with Syria and Saudi Arabia, as well as to outright extortion and thievery. Bolstering their power goes against the grain of the occupation government's longer-term effort to transform Iraq into a showcase of Western-style democracy and civil society….

When Col. Mirabile's (American Lt. Col. Hector Mirabile) men rolled in from forward bases in Jordan, they knew nothing of Iraq's intricate patchwork of tribal alliances and old feuds, he says. To make up for this lack of intelligence, Col. Mirabile has been reading up on the British colonial experience and how British spies and bureaucrats a century ago cultivated the ancestors of some of the people he is dealing with today. He still finds it tough going. "I meet with a sheik every day," Col. Mirabile says, "But we still haven't gotten a handle on who is a real sheik and who isn't."…

"Since 'Lawrence of Arabia,' not a damn thing here has changed—the same infighting, the same political quarrels. The only change is that now they have cars instead of camels," the colonel said with a sigh. "And the only thing they really care about is their own profit margin."…

Back at the base, Col. Mirabile was glad that his favor to Sheik Hamed is paying off, one night at a time. "Keep your friends close," the colonel said with a smile, "but keep your enemies real close." ….

      Possibly someone should remind the Bush Administration that the reason the U.S. supported Saddam in the first place is that he was the only deemed powerful and ruthless enough to gain control over these warring factions. Now who are we going to appoint as Iraq’s next dictator?

      In addition, of course, are these considerations:

• Al-Qaida was not active in Iraq until we "won" the war there. Now it's a magnet for terrorists.

• For all practical purposes, we've abandoned Afghanistan and chosen to ignore the problems in Pakistan -- the real centers for harboring and encouraging terrorists. And this doesn't include other obvious problems like Korea, the Philippines, Colombia, and on and on, throughout our troubled world.

• From all accounts, we've under-funded our obvious first line of homeland security: local police, fire departments, border patrols, accident and emergency units, and so on.

• Last, but not least, we've overextended ourselves financially to the point where we are endangering our future ability to meet the real terrorist threats when they emerge -- right here at home.

      The next time someone wants to debate whether or not invading Iraq was morally right—or what will happen to Iraq if we get out as soon as possible—someone should point out that that's not the issue.

      The issue is: What is the best use of our human and financial resources for our homeland security? It's definitely not to bankrupt ourselves in a low priority cause. Even if it were possible to make Iraq a model of the ideal democratic secular/Moslem country, we don't have enough resources to do it, and still meet our obligations to our own citizens.

      If a deliberate lie about special interest legislation is immoral to the point of criminality, the Bush Administration and the Republican Congress should go to jail.

      Read the following excerpt, and then wait to see how the Republicans will describe their legislation to the American voter. If recent history is any guide, you’ll see absolutely no resemblance between their spin and the actual legislation.

From The Wall Street Journal, November 5.

Two Big Tax-Free Savings Plans
To Get New Push by White House

WASHINGTON—The Bush administration is crafting a sweeping election-year proposal to boost individual savings through two new tax-exempt accounts, which together would allow family members each to sock away as much as $15,000 a year, say people familiar with the plan….

The accounts would affect a broad swath of taxpayers but would be a special boon to the wealthy, who now are barred from some federal tax-exempt plans but would benefit from the new ones….

With Congress controlled by the president's party, the plan stands a decent chance of passage in 2004 as the follow-on to two rounds of tax-cut packages the Bush administration pushed through Congress over some Democratic opposition….

But the plan is sure to bring a hail of criticism from Democrats, who will argue it will add billions to government deficits for decades to come and do little to increase retirement savings among lower and moderate income workers who need it most. Less than 4% of workers who make $40,000 to $80,000 contributed the maximum amount to their IRAs in 1997, the latest year available.

Critics at the liberal Tax Policy Center in Washington estimated that last year's version of the proposal would end up costing the government $90 billion a year within 25 years as people begin to withdraw their tax-free funds. In the short term, the O'Neill version of the proposal was structured so that it would be revenue neutral over the initial 10-year period. But the additional tax breaks the administration now is considering as part of the package could cost $50 billion in that time….

      Somehow, responsible reporters in the American news media must make the American voter aware of the massive income and wealth redistribution—from the poor-and-middle-class to the rich—that the Republicans have brought about for the past 20 years.

     And the fact that they have deliberately lied about their true objectives for this same period could make an excellent documentary.

      As if it we needed it, Holman W. Jenkins, Jr.’s editorial in The Wall Street Journal removes any doubt that a major objective of the Republican tax cuts is to cut government services that benefit the poor and middle-class.

From The Wall Street Journal, November 5.

Republicans Learn to Love
(Well, Like) the Deficit

What Republicans have understood … is that the only effective long-term form of fiscal discipline is tax cuts.

Republicans have become the Party of Tax Cuts: that is, the party that lets you keep your own money, the party that protects the private sector from being smothered by big government. In a more sophisticated audience's eyes, it means a second thing: the party that restrains the growth of government by keeping it on the only fiscal leash that works—a.k.a., the deficit, which maintains a constant tension between forgoing new spending or borrowing to pay for it.

Admittedly, this involves Republicans in a certain amount of self-duplicity (We don't mean this in a bad way; every party has to keep its big tent together.) Not only do Republicans take as given that Congress will spend every dime it can tax and then every dime it can borrow, until it runs up against its effective credit limit. Republicans also accept that they will behave exactly like Democrats in this matter.

The deficit has become the Repubocrat/Demolican equivalent of using adhesive tape as a diet aid. It's not subtle. It doesn't demonstrate a high degree of willpower or self-control. But it works, sort of.

It also has put the Democrats in the interesting position of worrying about the deficit all the time since it's now the primary obstacle to their spending ambitions. That's why the only live debate between the two parties anymore on economic management concerns tax policy aimed at a narrow subset of wealthy voters—a popularity contest that, ahem, almost always redounds to the proponent of tax cuts….

This rough-and-ready formula for keeping the fiscal house, if not in order, at least from collapsing, will surely be tested by the baby boomers. The yield curve already suggests the bond market is wondering where exactly the money will come from to keep 77 million spoiled and creaky rock-'n-rollers surfeited with prescription drugs, a pleasing retirement lifestyle and whatever else their geezy hearts desire….

      Of course, Democrat “spending ambitions” are time-tested stimulants to the economy, the correction of the capitalist system’s deficiencies, and necessary government services—from disease control and disaster relief—to education for all citizens and environmental protection. All of which, Republicans oppose.

      Mr. Jenkins, Jr. apparently believes that “a pleasing retirement lifestyle and whatever else their geezy hearts desire,” is something only for rich Republicans and conservative Democrats, not “77 million spoiled and creaky rock-'n-rollers.” Of course, the way things are going, the figure is more likely to be the bottom 80% of Americans who won’t have a decent retirement, not just a mere 77 million.

     The giant sucking sound continues, with it’s usual hypocrites defending it.

From The Wall Street Journal, November 3.

U.S. Furniture Makers Seek
Tariffs on Chinese Imports

A group of 28 U.S. furniture makers, fighting a surge in imports, asked the government to impose antidumping trade duties on Chinese-made bedroom furniture, alleging that the Chinese unfairly price their dressers, beds and nightstands….

Doug Bassett, vice president of sales at Vaughan-Bassett Furniture Co. in Galax, Va., and a spokesman for the companies, who call themselves the American Furniture Manufacturers Committee for Legal Trade, said Chinese furniture makers benefit from currency manipulation and government subsidies.

The American companies said that from 2000 to 2002, their sales fell 23% and operating income fell 75%. "It is no exaggeration to say that the imports from China have single-handedly forced the industry into a tailspin so swift and so deep that it may soon become irreversible," the companies wrote in their petition.

Chinese factory owners and their American importers say the low-cost furniture is simply a matter of taking a labor-intensive product—wooden furniture must be sawed, shaped, sanded, stained and finished—and building it with low-priced workers inside sprawling, modern factories that are more advanced than aging American ones….

Kevin O'Connor, the president of Legacy Classic Furniture, Greensboro, N.C., an importer, said the factory owners in China that he does business with are honest, and their employees are extremely hard working. "Without getting religious about the whole thing, is God an American? Did he decide that the only people who should have wealth and a good way a life are in the middle of the North American continent? ... In China, you ask these people to work 12-14 hours a day, six days a week, and they'll do it gladly, because they're trying to improve their plight in life.''…

     Oh my! The compassion of importer Kevin O’Connor’s concern about the welfare of hard-working Chinese is truly impressive. It would be even more impressive, of course, if he weren’t becoming incredibly rich himself—with very little effort and no hard work—from the process.

     And, incidentally, where is his concern for:

• his fellow countrymen who are losing their businesses, because they didn’t want to abandon their communities and their workers to go overseas, and for

• the American workers who lost their jobs, and for

• the depressing effect all worker incomes—that the displaced workers will have on total job market?

     It’s all a matter of self-interest and economics folks. If the furniture industry were immune to globalization, its members wouldn’t be complaining. In fact, they would probably be great supporters of it—just like American investors, rich Republicans and conservative Democrats, and all those who profit from destroying American jobs.

     Globalization is just fine, no matter who else it hurts—and if it benefits you personally.

     Any working-class American who wonders who his friends and enemies are in today’s political environment—should regularly read The Wall Street Journal. The following excerpt almost says it all.

From The Wall Street Journal, November 3.

Employers Win Ergonomics Duel
By Achieving Delay in Guidelines

WASHINGTON—Employer groups have won another battle against ergonomics regulations, stalling and possibly killing an influential nonprofit group's effort to draft voluntary guidelines for preventing repetitive-motion injuries. Businesses feared the guidelines would become the foundation for a federal-government crackdown.

The business lobby also is fighting ergonomics rules in numerous states, including Washington, where voters will decide Tuesday whether to scotch tough new regulations in a business-backed ballot initiative. The initiative would kill rules requiring employers to proactively identify and reduce repetitive-motion hazards….

"To the extent that this contributes to the demise of [the guidelines], our clients are pleased," said Baruch Fellner, the Washington, D.C., industry lawyer who spearheaded the effort. "At the very least," added Randy Johnson, the U.S. Chamber of Commerce's labor vice president, the guidelines "will be put on ice for a very long time."

Under the Clinton administration, OSHA enacted mandatory ergonomics rules, but Congress killed them after President Bush took office.…

Business groups face an uphill battle in Tuesday's referendum in Washington, a generally left-leaning state with strong labor unions. …

     So, who looks out for the interests of workers? Could it be more obvious? It’s Unions and Democrats.

     And who does everything they can to destroy workers’ rights? Republicans and business lobbying groups, like the U.S. Chamber of Commerce.

      The following two excerpts expose the hidden agenda of America’s conservative economists and politicians. It’s classic: economies “grow” when corporate profits “are on a tear,” but economic growth is excessive when wages start to to up.

From Business Week, November 3.

Corporate Profits Are On A Tear

Results soared in the third quarter—and look to remain strong next year, too

…Although profits have been marching higher for the past five quarters, they're on a tear now. The reason: continued cost cutting coupled with ongoing productivity gains are enabling many companies to drop a bigger portion of every new sales dollar straight to the bottom line….

      Translation: companies are firing employees (“continued cost cutting coupled with ongoing productivity gains”), yet maintaining production—and thus getting “a bigger portion of every new sales dollar straight to the bottom line.”

From Business Week, November 3.

What Happened To Deflation?

The fears are gone-and whispers about future inflation have surfaced. But the pricing power that's emerging may be just what U.S. business needs

It's natural to expect price pressures to build as the economy recovers more strongly. In the past, that would have been a big concern because rising prices would be seen as a harbinger of a surge in inflation. But in today's high-productivity, low-inflation economy, a little extra pricing power may be just what U.S. businesses need. As demand rises and sellers gain clout, higher prices will boost profits—and encourage companies to expand and take on more workers. "A rebirth in pricing power is a plus for Corporate America and the economy," says Morgan Stanley (MWD ) economist Richard Berner.

Of course, there's always a risk that once it starts to pick up, inflation could spiral out of control. It takes 12 to 18 months for monetary policy to have its full effect, so while few, if any, economists foresee a big jump in inflation next year, some are worried that if the Fed waits too long to act, inflation could accelerate more than it expects….

In the new era of price stability, however, the Fed can be counted on to stop inflation before it skyrockets. That's why a rebirth of pricing power now is a welcome sign of an economy finally on the mend. ….

      Note that the rebirth of pricing power is of no concern to conservatives, because that money goes to investors and top corporate executives. They can retain their power to raise prices IF they can hire more workers without paying them more.

      However, “some are worried that if the Fed waits too long to act, inflation could accelerate more than it expects.” And when does the Fed wait too long to act? When wages of workers start to go up. As usual, an economy controlled by conservatives ALWAYS is designed to benefit investors and top corporate executives—not workers, except as is absolutely necessary.

      If it actually happens—wages going up—you’ll be amazed at the demands in the conservative press for the Fed to raise the prime interest rate. (See The Class Warfarer's Scapegoat: "WAGE INFLATION".)

     To appreciate why good news for investors and top corporate executives is bad news for workers, read the following excerpt.

From Business Week, November 3.

U.S.: The Virtuous Cycle Is Finally Kicking In

As the recovery takes hold, GDP growth may hit levels not seen since 2000

…After almost two years of recovery that felt more like recession, the economy is finally entering the virtuous cycle crucial to self-sustaining growth—that is, when increased demand triggers a pickup in output and jobs, generating more income and profits, which lifts demand even further….

U.S. manufacturers will have to share some of the new demand with importers, but the turnaround will nevertheless help stanch manufacturing job losses. That's one reason the job picture is improving: Simply halting the decline in factory jobs will boost overall monthly payroll gains substantially. For example, excluding September's factory-job losses, private-sector payrolls would have risen by 101,000. The new strength in demand will broaden the nascent job recovery….

     “excluding September's factory-job losses, private-sector payrolls would have risen by 101,000.” Translation: our country traded 101,00 good-paying manufacturing jobs for the same number of poor-paying service jobs in September alone. This one step in a continuing trend is great for investors and top corporate executives—and a disaster for those who work for a living.

     And because of our continued loss of manufacturing jobs—even if they are replaced by the same number of new manufacturing jobs—wage rates for them will be lower than they should be.

     Money talks much more persuasively than the public interest, especially to conservative Washington politicians.

From The Wall Street Journal, November 4.

How Unlikely Coalition Scuttled
Plan to Remake Electrical Grid

Regional Groups Unite to Keep Their Lines
From Coming Under Federal Jurisdiction

WASHINGTON—The Aug. 14 blackout showed that the nation's electricity system has drastic problems. But instead of getting a major overhaul, it's unlikely to get even a tune-up….

For more than a year, publicly and behind the scenes, an unlikely collection of corporate, regulatory and political allies from the Southeast and Northwest have fought to use the energy bill to derail the FERC plan. That plan would take grid authority away from utilities and state regulators and vest it with the federal government and regional authorities. So far, the coalition's campaign has been successful….

FERC Chairman Pat Wood III says the blackout showed how "balkanized" the grid is. He believes performance and accountability would be improved by having a few well-trained operators take over management of the grid, working under one set of national rules.

His opponents don't contest the idea that centralized control might lead to better national planning and a more coherent response to emergencies. But they say participation in any national plan should be voluntary. They say they don't want to cede control over their regions' electricity to distant bureaucrats who, they argue, don't have a good track record of managing crises….

In the Southeast, coalition members are trying to protect powerful investor-owned utilities. These utilities operate in retail markets in which they hold monopolies, making them among the most profitable in the nation….

Under the FERC plan, wholesale markets would be run uniformly, providing similar rules for all buyers and sellers, regardless of location, instead of the current patchwork of rules that makes it harder to book power shipments across multistate areas. Accountability and market surveillance would shift to Washington….

Another powerful player in the coalition is Southern Co., which operates monopoly utilities that serve four million customers in four states. Southern owns both generating plants and transmission lines. Under federal rules, utilities have to give other power suppliers access to their lines….

According to the Center for Responsive Politics, a nonprofit, nonpartisan research group, since 1989 Southern has been the second-largest utility contributor to members currently sitting on the House Energy and Commerce Committee, giving them $481,500. In the Senate, Sen. Richard Shelby, an Alabama Republican, has received the largest amount from Southern—$105,000. In the House, it is Rep. Charles Norwood, a Georgia Republican, who has received almost $59,000….

     Count on it. If money and special interest is pitted against public interest, Republicans will always go with the former.

     Why has the cost of healthcare gone out of sight? The following excerpt explains one of the key reasons.

From The Wall Street Journal, November 6.

Pay-as-You-Go M.D.:
The Doctor Is In,
But Insurance Is Out

Maverick Physicians Skip
Red Tape and Cut Charges

GREENEVILLE, Tenn.—After Aaron Smith's weight plunged and he began feeling thirsty all the time, several doctors balked at seeing him because he doesn't have health insurance. On the verge of heading to the emergency room, his mother saw a newspaper ad: "No health insurance? Try Patmos EmergiClinic."

The ad put the Smiths in contact with a small but growing corner of the medical world where insurance is viewed as the problem with, not the answer to, rising health-care costs. Frustrated by red tape, some maverick doctors have cut out the middlemen, allowing them to offer less-expensive service and a return to the days when nothing came between patients and their family doctor….

Dr. Berry jokes that visits to his office cost something "between an oil change and a brake job."

Similar cash-on-the-barrelhead clinics are sprouting across the country. Dr. Berry and others like him say they are demonstrating a way to lower costs and relieve pressure on emergency rooms that are crowded with people without insurance. Besides, more patients are digging deep into their pockets even if they have insurance, as premiums and co-payments rise….

     The whole insurance industry is getting rich off of healthcare: the investors, the top corporate executives and everyone associated with them—excepting, of course, their policyholders and the American taxpayer.

     Similar conclusions could be drawn about other major industries in the healthcare system: privatized hospitals (that formerly were not-for-profit), the pharmaceutical industry, the legal system, and every related for-profit group that has been contaminated by the modern virtue called greed.

     I suppose it’s too cynical to accuse the Bush Administration of going to war simply to reward its corporate supporters. But the following excerpt certainly demonstrates that, as long as we’re going to war, there’s no reason not to profit handsomely from it.

From The Wall Street Journal, November 6.

Army Engineers Weigh Ending
Halliburton Unit's Duties in Iraq

HOUSTON—The U.S. Army Corps of Engineers has started talks to end Halliburton Co.'s responsibility for importing fuel into Iraq for U.S. personnel, officials said, after criticism the program was costing too much.

The Corps has spent as much as $6 million a day importing gasoline and other fuel to Iraq through Halliburton subsidiary Kellogg Brown & Root, which won a no-bid contract for work there. Congressional Democrats Wednesday released a letter quoting Jeffrey Jones, the former director of the Defense Energy Support Center, as saying KBR's price of $2.65 a gallon was "extraordinarily high." The letter also questioned why the Army Corps didn't address the issue faster.

If the Corps had given the job to Mr. Jones's agency from the outset, "many millions of dollars could have been saved," Bush critics Reps. Henry Waxman (D., Calif.) and John Dingell (D., Mich.), said in their letter. Vice President Dick Cheney is a former Halliburton chief executive….

On Oct. 8, the Congressional Research Service had reported the Bush administration appeared to be preparing to pay "substantially above" the market price for fuel imported to Iraq. The General Accounting Office, the investigative arm of Congress, is expected to report on the issue in January.

Keith Ashdown, vice president of public policy for Taxpayers for Common Sense, said the problems with the fuel program illustrate the Pentagon's poor planning in Iraq. "The people to blame are the people at the Department of Defense and their contracting process," Mr. Ashdown said.

     The same old names keep popping up in the same context (war profiteering): Cheney, the Pentagon, the Bush Administration, and Halliburton.

Week of October 27

     It’s celebration time, because we may be in the beginning of a classic Republican economic boom: corporate profits are exploding, the stock market is surging, investors are getting seriously richer—and workers are still getting fired and wage increases are miniscule.

     Of course, as always, good news for workers may be coming. (The wealthy always profit first and biggest, and, if the boom lasts long enough, they may not be able to keep workers from benefiting indefinitely.)

From The Wall Street Journal, October 31.

Economy Turned In Its Best
Growth Rate In Nearly Two Decades

GDP Surged 7.2% in Quarter,
On Broad-Based Gains;
Bush Team Trumpets Data

The U.S. economy shot out of the doldrums to its best quarterly growth rate in nearly two decades, giving a potentially powerful political lift to President Bush despite chronic weakness in the job market.

The 7.2% annualized rise in gross domestic product in the third quarter was the strongest pace of growth since the first quarter of 1984 and the broadest-based gain in the economy in the three years since the stock-market-fueled boom years of the 1990s….

The darkest shadow over the economy now is unemployment, which remains above 6% of the labor force. Thursday's GDP number was also just a preliminary estimate by the Commerce Department and could be revised in a few months. Some economists questioned whether steady growth could continue once the short-term effects of pump-priming from tax cuts and low interest rates wear off. Moreover, critics of the tax cuts argue that their contribution to the latest burst of growth comes at a steep cost: mounting federal budget deficits….

The unemployment rate remains near a nine-year high, and even during the third-quarter boom, the economy shed 41,000 jobs.

Since Mr. Bush took office, businesses have slashed a whopping 2.7 million jobs, a record that—Democrats never tire of pointing out—is the worst for any president since Herbert Hoover presided over the Great Depression. Even under the most optimistic forecasts for the next year, the economy will likely end up having lost jobs during all of Mr. Bush's first term. "A jobless economic recovery is a little bit like going on a diet and gaining weight—what’s the point?" says Clark aide Chris Lehane….

Because businesses are operating more efficiently and getting more output out of each worker, rapid economic growth may not guarantee a better job market soon….

Executives are clearly seeing the benefits of growth in their bottom lines. Profits grew by 14% in the second quarter, compared with a year earlier, and Mr. Berner of Morgan Stanley estimates third-quarter profits jumped by more than 30% from a year earlier. That is based on the Commerce Department's broadest based measure of corporate profitability….

Wage gains, too, remain under some pressure. The Labor Department's Employment Cost Index report for the third quarter, also released Thursday, showed that wages and salaries were up just 2.9% over the previous year, well below the 4% pace registered at times during the late 1990s boom….

Most economists believe that, over time, interest rates will be higher—and growth lower—because of the sharp increase in expected government borrowing under Mr. Bush….

     It’s amazing how positive the headlines can be—and the comments of pundits on radio and TV—when there is so much bad news in the body of the story. Despite all the good news, workers are still losing their jobs and wages aren’t keeping up with inflation, and the sharp increase in government borrowing will have disastrous long-term effects on the economy.

     And this little gem of a comment has sinister implications that go well beyond the number of words used: “Because businesses are operating more efficiently and getting more output out of each worker, rapid economic growth may not guarantee a better job market soon.”

     Meaning: Corporations are putting a serious squeeze on their lower-level employees. Instead of sharing their productivity improvements and profits with them, they are firing them and making the remaining employees work harder—for less money.

     Scrooge lives, and he’s the modern Republican model of the ideal business person—or legislator.

     We’re smack dab in the middle of the age of greedy egomaniacs.

     As you read the following, ask yourself: who will get most of the benefits of the Bank of America and FleetBoston merger? Especially, what do you think is eventually going to happen to the FleetBoston workers, and to the communities in New England?

From The Wall Street Journal, October 28.

     You can count on it: There are going to be massive layoffs, mostly in New England. It always happens that way. The top brass—“Mr. Gifford had negotiated safeguards for his job”—always make sure they make out like bandits. To protect their reputations as fine human beings, they also get assurances that their employees will be treated well. After all, there was the usual “stipulation that there be no layoffs in New England.”

     Of course, what’s actually going to happen to employees will follow historical precedent.

      Consider this: Bank of America...

• ...Paid a “big premium—far above a token 10% or 15% that would be typical in an acquisition,” and will be under intense pressure to make it pay off. B of A stock went down 9% the first day Wall Street got news of the merger. This will lead to future...

• ...“Changed economic conditions” which will make “unanticipated” cost reductions necessary. (Meaning: fire many of the workers and make the remaining people work harder). In addition...

• ...Since the top executives are now mismanaging a much larger corporation, they will be deserving of a much higher income, which will...

• ...Necessitate even more cost reductions and more productivity from the remaining employees. And of course...

• ...Customers will get worse service as more banking functions are switched from humans to machines that answer phones—and put callers through endless menus. (In effect, cutting labor costs for the Bank and increasing the cost—in wasted time—to the customer.)

     Forbes listed the biggest players in home ownership as: Donald Bren—$4 billion, Donald Trump—$2.5 billion, Leona Helmsley—$2.2 billion, and Leonard Stern—$2.2 billion. And just think, these are only the biggest owners of homes in the U.S. There are literally millions of other lesser wealthy investors who are buying homes, cornering the home market, and driving up the costs of homes and rent for people who simply must have a place for their families to live. And all the while, of course, increasing the value of their investments (and rewarding their greed).

     Forbes listed: Ted Turner—$750 million, Archie (Red) Emmerson—$1 billion, Irving family—$400 million.

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