This review of the conservative press was started on the week of June 2, 2003. In the brief time since then, note the number and diversity of articles that were published in America's most respected conservative financial publications.
In one way or another, they clearly demonstrate the hypocrisy of those conservatives who claim that:
So, grab your barf bag and read on!
(Note: the abstracts below are presented for purposes of criticism only. Because of copyright laws—and in the interests of brevity and readability—they are necessarily incomplete. Those who are interested in the investment or other implications of the articles should read the originals.)
One wonders how the editors of Business Week can read their own news stories and still write the editorials they do. The following three excerpts come from the same issue—two news items and one editorial—and are on the same subject: globalization, and whether or not it will ultimately be good or disastrous for our country.
These were very large articles and those interested in studying the issue in depth should read the originals. The negatives of globalization are admittedly presented here simply to describe what is happening to those who are most affected by the disaster of globalization: America’s working-class citizens.
A reading of almost any article in the conservative financial press obviously treats our workers as mere economic machines or raw materials in the accumulation of wealth by our richest and most powerful investors.
From Business Week, December 6, 2004.
…"The China price." They are the three scariest words in U.S. industry. In general, it means 30% to 50% less than what you can possibly make something for in the U.S. In the worst cases, it means below your cost of materials. Makers of apparel, footware, electric appliances, and plastics products, which have been shutting U.S. factories for decades, know well the futility of trying to match the China price. It has been a big factor in the loss of 2.7 million manufacturing jobs since 2000. Meanwhile, America's deficit with China keeps soaring to new records. It is likely to pass $150 billion this year.
Now, manufacturers and workers who never thought they had to worry about the China price are confronting the new math of the mainland. These companies had once held their own against imports mostly because their businesses required advanced skills, heavy investment, and proximity to customers. Many of these companies are in the small-to-midsize sector, which makes up 37% of U.S. manufacturing. The China price is even being felt in high tech. Chinese exports of advanced networking gear, still at a low level, are already affecting prices. And there's talk by some that China could eventually become a major car exporter.
Multinationals have accelerated the mainland's industrialization by shifting production there, and midsize companies that can are following suit. The alternative is to stay at home and fight—and probably lose. Ohio State University business professor Oded Shenkar, author of the new book The Chinese Century, hears many war stories from local companies. He gives it to them straight: "If you still make anything labor intensive, get out now rather than bleed to death. Shaving 5% here and there won't work." Chinese producers can make the same adjustments. "You need an entirely new business model to compete."…
America's Eroding Base
The deficit with China will keep widening under most projections. That raises the issue: Will America's industrial base erode to a dangerous level? So far the hardest-hit industries have been those that were destined to migrate to low-cost nations anyway. But China is ramping up rapidly in more advanced industries where America remains competitive, adding state-of-the-art capacity in cars, specialty steel, petrochemicals, and microchips….
Meanwhile, U.S. companies are no longer investing in much new capacity at home, and the ranks of U.S. engineers are thinning. In contrast, China is emerging as the most competitive manufacturing platform ever. Chief among its formidable assets is its cheap labor, from $120-a-month production workers to $2,000-a-month chip designers. Even in sophisticated electronics industries, where direct labor is less than 10% of costs, China's low wages are reflected in the entire supply chain—components, office workers, cargo handling—you name it….
Ever since Americans began fretting about globalization nearly three decades ago, economists have patiently explained why, on balance, it's a boon to the U.S. Yes, some Americans lose their jobs, either to imports or because factories move to cheap-labor countries such as China or India.
But the bulk of this work is labor-intensive and lower skilled and can be done more efficiently by countries that have an abundance of less-educated workers. In return, those countries buy more of our higher-value goods made by skilled workers—for which the U.S. has a comparative advantage. The lost jobs and lower wages in the U.S., economists say, are more than offset when countries specialize like this, leading to more robust exports and lower prices on imported goods.
Now this long-held consensus is beginning to crack. True, China is emerging as a global powerhouse, realigning many economic relationships. But in the long run a more disruptive trend may be the fast-rising tide of white-collar jobs shifting to cheap-labor countries.
The fact that programming, engineering, and other high-skilled jobs are jumping to places such as China and India seems to conflict head-on with the 200-year-old doctrine of comparative advantage. With these countries now graduating more college students than the U.S. every year, economists are increasingly uncertain about just where the U.S. has an advantage anymore—or whether the standard framework for understanding globalization still applies in the face of so-called white-collar offshoring….
The great debate percolating among the country's top trade economists gained new prominence with a recent article by Nobel laureate Paul A. Samuelson in the Journal of Economic Perspectives (JEP). In the piece, the 89-year-old professor emeritus at Massachusetts Institute of Technology, who largely invented much of modern-day economics, questions whether rising skills in China and India necessarily will benefit the U.S….
The central question Samuelson and others raise is whether unfettered trade is always still as good for the U.S. as they have long believed….
Until now the pain of globalization has been borne by less than a quarter of the workforce, mostly lower-skilled workers, whose wage cuts outweighed the cheaper-priced goods globalization brings. But the other three-quarters of American workers still came out ahead, since they weren't affected by foreign wage competition. If blue- and white-collar employees alike are thrown into the global labor pool, a majority of workers could end up losing more than they gain in lower prices. Then the benefits of increased trade would go primarily to employers. "It's entirely possible that all workers will lose and shareholders will gain; you have to be concerned about that," says Harvard University trade economist Dani Rodrik….
Globalization, say most trade economists, ultimately should benefit the U.S. more than it hurts. But they can't yet show that to be true. Until someone comes up with a convincing explanation for what happens when the highest-skilled jobs move offshore, battles over globalization are likely to rage even hotter.
…It's all too easy to fall into a spiral of despair when thinking of Asia. Certainly importing goods, outsourcing production, and offshoring services represent major economic challenges. Yet even though many industries and companies are suffering dislocation and their employees are feeling pain, the U.S. economy as a whole should do very well in the future. But there are a lot of "ifs" behind that proposition. The U.S. should be in fine shape if it remains flexible, entrepreneurial, and cutting-edge smart, and if Washington acts to bring the nation's federal budget deficit under control….
While Washington pours billions into farm subsidies and pork barrel spending, it is cutting back on federal Pell Grants for college kids. The U.S. needs far more engineering, math, and science graduates. Retraining workers and easing the pain of moving to new jobs are also important. To help, Congress should act on plans for tax-advantaged savings accounts and wage insurance….
"The China Price"
They are the three scariest words in U.S. industry. Cut your price at least 30% or lose your customers. Nearly every manufacturer is vulnerable—from furniture to networking gear. The result: A massive shift in economic power is under way
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Shaking Up Trade Theory
For decades economists have insisted that the U.S. wins from globalization. Now they're not so sure
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Editorials
How America Can Meet "The China Price"
Start by cutting the budget deficit. And boost funds for education
Key statements above: “Globalization, say most trade economists, ultimately should benefit the U.S. more than it hurts.” That’s the way it always is among conservatives. Their policies—from taxes to international trade—always benefit the rich and powerful first and massively, and then are supposed to benefit middle- and low-income Americans somewhere in the future. Somehow, however, the future never seems to come for those who are supposed to benefit as a result of “trickle-down.”
”The U.S. needs far more engineering, math, and science graduates.” Nonsense. That’s not going to do a bit of good, since China and India can produce graduates much faster and far more cheaply than we will ever be able to. In fact, as other articles have pointed out, they’re already doing it. We will never be able to compete with China or India in any area on the basis of price only—including education.
“Until now the pain of globalization has been borne by less than a quarter of the workforce, mostly lower-skilled workers.” This is probably the most important statement of all. Since only the bottom quarter of our workforce are making all the sacrifices, the rich and powerful—and even many in the middle-class—don’t really care. But, as the accumulating evidence is beginning to show, their turn is coming.
The following two excerpts are excellent examples of how propaganda can distort the realities of our country’s economy.
The Bush administration will undoubtedly brag that its policies have created 112,000 jobs in the economy. But the average citizen should read the investment columns of our conservative financial press to understand the true implication of the number. It’s a severe disappointment, because—given all the tax breaks to rich investors, and the powerful stimulants to the economy of gearing up for war—the number should have been 200,000.
From The Wall Street Journal, December 6, 2004.
NEW YORK—It’s been a nightmare year for traders ahead of the monthly employment reports.
Even so, they confidently went back out on that limb last week, sure that the Labor Department would deliver another robust gain in payrolls and that bond yields would move higher. Other economic data appeared to point in that direction, and broad weakness in Treasurys earlier in the week heightened a sense of bold bearishness on Treasury desks.
But at 8:30 a.m. EST on Friday, the government's report pushed a number of investors right off that limb into a large, gaping trap. Investors and economists expected companies to have padded their payrolls with more than 200,000 new employees in November. Instead, they added only 112,000, according to the government….
Jobs Report Rattles Traders Again
Those Positioned for Rise
In Yields Get Hit as Data
Are Weaker Than Expected
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And how does one of the right-wing crackpots working for Barron’s see the disappointing numbers? He pretends to be unsurprised because he wants to convince the public that this recovery—which is great for investors and terrible for workers—isn’t really in trouble.
From Barron’s, December 6, 2004.
By Gene Epstein
…The Bureau of Labor Statistics reported that the unemployment rate ran at 5.4% in November, confirming a long-term drop from 6.2% in the summer of '03.
That's surprising in view of the unremarkable employment growth in the past year or so. The Bureau reported that payroll employment rose by 112,000 jobs in November, well below the 200,000 that Wall Street had expected….
Sluggish gains like that didn't use to cause declines in the unemployment rate. The old rule-of-thumb calls for monthly gains of 150,000 merely to absorb the growing labor force and prevent the unemployment rate from rising. A recent study from the Atlanta Federal Reserve now sets the bar at 98,000 jobs a month to keep the unemployment rate steady.
The study's main point is that growth in the labor force has ratcheted down. But I suggest we focus on the share of the population classified as "not in the labor force" instead of the share that are. The fact is, an unusually large number of people who might have been in the labor force are staying out voluntarily—chiefly to go to school or raise children. Since they're not looking for work, they're not being counted as unemployed.
The portion of people not in the labor force has increased recently to a 16-year high of 34%. You might think that suggests that millions want a job but can't find one or have given up looking. But that's not so.
The Bureau of Labor Statistics keeps track of those who are not in the labor force but say they want a job. All they have to do is say "yes" when the Household Survey interviewer (after determining that they're without a job and haven't looked one over the past month) asks if they want a job. Nothing else….
ECONOMIC BEAT
The Great Disconnect
Why tepid job growth = lower unemployment
Conclusion: if the data reflects badly on the Bush Administration—minimize it by criticizing the data gathering methodology.
Now we’re seeing the other side of tax cuts for the rich. Middle- and low-income citizens get the short end of the straw when tax cuts are given out, and when the resulting deficit requires cuts in domestic spending—in those programs that, of course, would benefit the general public.
From The Wall Street Journal, December 7, 2004.
…The giant measure, covering 14 cabinet-level agencies and filling 658 pages, represents a near freeze on domestic appropriations for fiscal 2005 and anticipates still tighter limits in President Bush's 2006 budget plan to be announced in early February.
The domestic budget crunch comes as the costs of the Iraq war climb, and a supplemental spending bill is expected near the time of the new budget next year. The Army's requests alone are said to be $45 billion. When additional Iraq costs for the other military services and the State Department are counted—plus a major new $700 million to $800 million antinarcotics initiative in Afghanistan—lawmakers say the package could easily reach $65 billion—on top of $25 billion already approved this past summer for 2005.
At home, domestic-agency heads are only now coming to grips with the effect of the tighter limits. Democrats have accused Republicans of waiting until after the November elections to complete the final spending agreement.
The gap between high-profile authorization bills—promising more money—and the reality of the appropriations process is striking. Lawmakers last month sent the White House an updated version of the Individuals With Disabilities Education Act, assuming $12.36 billion for special-education programs in 2005 and authorizing steady annual increases reaching to $26.1 billion in 2011.
By contrast, the omnibus bill provides about $10.7 billion, or 13% less than the authorization level. Looking ahead, the assumption that Congress can come up with an extra $2.3 billion a year is at odds with the fact that the entire budget for discretionary domestic programs increased this year by only about $3 billion to $4 billion.
The same pattern is repeated with the Environmental Protection Agency budget. For example, contaminated sediment is a major problem in the Great Lakes basin, and two years ago Congress passed a law promising $270 million in funding over five years. This has been a priority for EPA Administrator Mike Leavitt, who heads a Great Lakes federal interagency task force that held a major meeting in Chicago Friday. But even after Mr. Leavitt interceded in the year-end talks, the final bill gives him only $22.5 million for 2005, half the president's request.
Congress Clears Spending Bill
With Tight Domestic Limits
Naturally, the environment always suffers in the Republicans’ short-sighted corporate-driven priorities.
Our globalized economy is beginning to unravel, just as it did in the 1930s. We are repeating the disastrous economic policies that gave us the depression, and, just as they led to world-wide protectionism, our current policies are also leading to protectionism.
Of course, protectionism is not what is going to cause the next worldwide economic depression. It’s the policies that led to the protectionism that is the problem (those policies put too much money into the hands of the wealthy and powerful, and not enough money in the hands of the world’s consumers—the ones who actually create a dynamic economy.)
From The Wall Street Journal, December 7, 2004.
BRUSSELS -- The European Union will warn China at a summit meeting this week against flooding world markets with textile exports when global quotas fall away in January.
The EU also will tell China it isn't ready to end its 15-year arms embargo until the country improves its human-rights record….
On both issues, the EU and U.S. seem to be taking similar approaches. The U.S. is pressing the EU to maintain the arms embargo and has threatened to curtail transfers of sensitive military technology to European countries.
France and Germany want to end the embargo. German Chancellor Gerhard Schroeder, in Beijing yesterday as China signed agreements valued at about €1.6 billion, or $2.2 billion, to buy Airbus jetliners and German industrial goods, repeated his calls for the embargo to be dropped.
EU officials said yesterday there was no agreement among all 25 EU governments to relax the embargo. Several countries demand more progress on human rights and want China to ratify an international convention on civil liberties.
Even before textile quotas end Jan. 1, the U.S. is preparing to block Chinese socks and bras, arguing the nation's exporters are unfairly undercutting world market prices.
EU officials, headed by trade chief Peter Mandelson, will suggest that the Chinese government introduce import duties on cotton used to make textiles. They also will warn that the EU could follow the U.S. example of blocking specific Chinese items of clothing.
The EU says it has figures to back claims of unfair Chinese government support in textiles. Unlike other countries, China has had almost no bankruptcies in the textiles industry. The EU alleges this is because of an accommodative policy on loans and low expectations for capital return.
EU Is Set to Prod China
On Textile Exports
As the demand for each country’s products declines, and the countries with the cheapest labor destroy the incomes of workers in other countries—there becomes a mad scramble to salvage whatever markets are left.
Protectionism is just beginning, and it’s going to grow—not only in textiles, but in the basic products of trade, such as cars, computers, software, and so on. The leaders of all countries simply cannot afford to have large masses of their publics taking to the streets in protest of what’s happening.
It’s about time that those who are making outrageous profits from globalization quit claiming that it is economically efficient. The following excerpt exposes the deliberate lie—that is, unless you consider American workers as raw materials or machines, and as simply an expense to be minimized.
From The Wall Street Journal, December 8, 2004.
The rising cost and complexity of getting goods delivered is adding to the profit pressures faced by U.S. manufacturers and may indicate deeper structural problems in global supply lines.
Logistics has been a growing challenge since American companies sought to cut costs by shifting more production to countries where manufacturing was cheaper. The surge in global trade in recent years has added to strains and charges for all forms of transport.
As a result, some manufacturers are developing costly buffer stocks—which can mean setting up days' or weeks' worth of extra components—to avoid shutting down production lines and failing to make timely deliveries. Others are shifting to more-expensive but more-reliable modes of transport, like air freight, which is faster and less prone to delays than ocean shipping. Some companies are turning to new information technology to keep supply chains flowing and hiring experts to help determine the best U.S. ports to use each week….
"Every problem you have adds cost," says Wayne Youngers, chief executive of the family-run maker of metal parts for oil-drilling, construction and hydraulic equipment. Youngers, which launched its outsourcing drive two years ago, had planned to be importing by now twice as much as it actually does. It has slowed the pace largely because of transport problems….
"If you look at what's happening to imports and the need to move containers across the country, we're at the beginning of a continuing capacity crunch—in terms of ocean, rail and motor-truck movements," says Tim Vaio, vice president, supply-chain practice at Hitachi Consulting….
Manufacturers Cope With Costs
Of Strained Global Supply Lines
As has been obvious from the very beginning, the ONLY economic “efficiency” to be derived from globalization is that it destroys wages for American workers.
Anyone who still doubts that multinational corporations are now running our country—at taxpayer expense—should read the following.
From The Wall Street Journal, November 29, 2004.
A 94-year-old auto factory, where the original Willys Jeep that took U.S. soldiers to war was produced, is at the center of a legal battle over the tax breaks used by dozens of states to attract employers.
Back in 1998, DaimlerChrysler AG was considering shutting the Toledo, Ohio, factory. To keep the plant open, the city and state offered the auto maker a $280 million tax break in exchange for a $1.2 billion plan to expand the complex.
Then a group spearheaded by consumer advocate Ralph Nader filed a lawsuit attacking the package as illegal "corporate welfare." In a September ruling that is drawing shouts of protest from state capitals and corporate executive suites across the country, a U.S. appeals court in Cincinnati found that a key part of the plan violated the Constitution because it interfered with the free flow of trade among the states.
Business groups and state governments are now joining in an appeal of the ruling, warning that it could abolish the job-creating tax break in Ohio, Michigan, Kentucky and Tennessee, the states under the appeals court's jurisdiction. Moreover, they warn, the ruling could prod courts elsewhere into interfering with tax breaks for projects ranging from factories to football stadiums….
State and local governments have long used tax breaks to draw factories from other places in order to create jobs. Currently, about 40 states use breaks and other incentives similar to those given DaimlerChrysler to attract or keep employers….
Critics of the breaks cite studies showing that tax incentives don't figure as prominently in business-location decisions as geography or the availability of labor. A two-year study tracking such decisions by Peter Fisher, a University of Iowa professor of urban and regional planning, found that in many instances tax breaks provided incentives "to a firm that would have relocated there anyway."…
Chambers of commerce from Ohio, Kentucky and Tennessee argue that, unless reversed, the decision "will likely encourage businesses to move operations offshore, where labor costs and lack of regulation produce substantially lower costs."…
Tax Break to Lure Employers Is Attacked
DaimlerChrysler Defends Ohio Incentive
For Plant; Court Cites Free Flow of Trade
Corporations’ ultimate power to control the actions of local and state governments is summed up in the threat of the Chambers of Commerce: if they don’t get their way, "…businesses [will] move operations offshore, where labor costs and lack of regulation produce substantially lower costs."
In other words, by pitting local governments against each other, international corporations now have all the power, and local governments and their taxpayers have none. If local communities don’t provide them with what they demand, they will abandon them and go other countries that are more desperate for whatever crumbs the corporations will grant.
The bills for our massive tax cuts for the rich and our short-sighted globalization policies—and the resulting trade gap—are beginning to come due. Even conservative Republicans are beginning to see the folly of recent economic policies.
The following pair of articles describe the mess we’re getting ourselves into.
From Fortune, November 29, 2004.
A week after George W. Bush won a second term, the leaders of the Concord Coalition—the deficit fighters' club founded in the dark days of 1992—gathered at the Pierre Hotel in New York City to commiserate. This was no bunch of blue-state liberal whiners. Half the people on stage at the coalition's annual awards dinner were Republicans. The guest of honor was Senator John McCain, who spent much of the fall on the road campaigning for Bush.
But the tone was somber, even apocalyptic. Few in Washington care about deficits, McCain lamented: "No one's sounding alarms. We don't want to make any tough decisions." Coalition co-founder Warren Rudman, former Republican Senator from New Hampshire, warned that this year's $422 billion deficit is but a cold snap presaging the economic ice age to come. "For people currently alive, we have $50 trillion to $65 trillion in unfunded liabilities," he said, referring to the cost of Social Security and Medicare benefits promised to current and future retirees. If we try to put off dealing with that staggering fiscal imbalance much longer, Rudman added, "we'll crash into the iceberg and see if we can float." …
This time around, more Treasuries than ever are in the hands of foreigners. Japan has long been the biggest buyer of the things; China is now a strong No. 2. This means that a President who has made a point of ignoring the opinions of other nations may end up having to consult the Chinese, of all people, over his domestic taxing and spending decisions….
Congrats, Sir! Now Please Fix the $50 Trillion Mess We're In.
Here's hoping Bush shows the same backbone with the deficit as he has with foreign policy.
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From Business Week, November 29, 2004.
The ever-growing deficit in America's international trade is a bomb waiting to explode, but one with a very long fuse. That's why for years economists and policymakers put the deficit low on their list of worries. The lack of urgency stemmed from the glacial pace of the gap—it has been widening for 13 years with no problems—and from the fact that the U.S. remains the most attractive destination for foreign funds.
Recently, however, the fuse seems to be burning a lot more quickly. Currency markets, increasingly edgy about the deficit, are pushing down the dollar. Overseas officials and international trade organizations have called on the U.S. to deal with the problem before it inflicts global pain. And policymakers at the Federal Reserve took time at their Sept. 21 policy meeting to discuss the "worrisome further widening of the U.S. trade and current-account balances." At the same time, growing economic tensions, especially in Europe, and contradictory statements from the White House about the dollar suggest that correcting the current-account deficit will be risky….
The U.S. will have to tighten either monetary or fiscal policy--preferably both. The European Central Bank must cut interest rates, and Japan must solve its long-running banking problems. China and many Asian governments have to loosen their grip on their currencies. And all countries must restrain themselves from protectionist urges.
IT'S A TALL ORDER, especially given the Bush Administration's penchant for acting unilaterally rather than in conjunction with other governments. Choosing to go it alone on this effort risks unleashing the wrath of the currency markets. Given the dollar's slide, they may already be losing their patience with current efforts….
The problem isn't just China. Excluding China, the U.S. deficit with the OITPs (Other Important Trading Partners) is still 41% bigger than it was in February, 2002. And in the past year, the U.S. gap with the seven major trading regions has worsened just as much as the gap with China has, even though the dollar is down 5% vs. the major currencies and not at all vs. the yuan.
Why hasn't the dollar narrowed the trade deficit, even in areas with strengthening currencies? Strong U.S. demand, compared to that in other regions, has overwhelmed the constraints of the dollar's weakening. In effect, hefty stimulus from U.S. tax cuts and low interest rates has skewed global growth and helped out foreign producers.
In the coming year, economic tensions are bound to rise, as the global trade imbalance gets worse before it gets better. The onus will fall on the Bush Administration to take the lead in achieving a benign resolution. But if government policy fails, the currency markets will step in. And their remedy could be much more painful.
U.S.: Could Trade Imbalances Topple The Greenback?
Pressure from currency markets makes fixing the trade gap a delicate task
Of course, the Republican bias isn’t to correct the real problems—tax cuts for the rich, globalization, and our ballooning trade deficit—it’s to cut the “Social Security and Medicare benefits promised to current and future retirees.”
In other words, keep the tax cuts for our new aristocracy, and the benefits to wealthy investors from globalization—and penalize working class Americans who depend upon Social Security and Medicare to compensate them for the sacrifices that Republicans and conservative Democrats have forced upon them.
Love the way our conservative press sometimes tells the truth. Just look at the way Fortune describes what’s really been happening to working-class Americans.
From Fortune, November 29, 2004.
In the third quarter, productivity growth (a measure of how much a worker accomplishes for every hour on the job) fell from 3.9% to 1.9%. That's the lowest rate since the fourth quarter of 2002 and well below the 9% rises we were seeing in mid-2003. Falling productivity does bode well for job growth, however.
When companies can't wring any more out of their existing workforce, they're forced to start hiring again….
BY THE NUMBERS
Productivity Pains
After years of productivity gains, American workers are slowing down.
So, “companies can't wring any more out of their existing workforce.” How sad. Now it looks like they may have to start hiring more workers and actually sharing with them the wealth that the workers themselves are creating.
Finally, a sensible and morally sound editorial from the conservative Business Week.
From Business Week, November 29, 2004.
By Aaron Bernstein
Florida Governor Jeb Bush helped to deliver 52% of his state's votes for his brother on Nov. 2, but that didn't stop fully 72% of voters there from backing a GOP-unfriendly ballot initiative: raising the minimum wage. The popular measure set a state wage floor of $6.15 an hour, a buck higher than the federal level, which hasn't been lifted since 1997. It also pegs the state's new minimum to inflation, so that the lowest-paid workers will get automatic increases each year to keep their purchasing power in line with consumer price hikes.
The initiative, to which Governor Bush offered only tepid opposition, makes Florida the 13th state to lose patience with the federal government and set its own higher minimum. It's also the third, following Washington and Oregon, to index its minimum wage to inflation. Both of these ideas are long overdue and should be emulated by Congress and other states.
True, if wage floors are set too high, employers will create fewer jobs, and the lowest-skilled Americans will lose more than they gain. This is the argument some business groups made in Florida and continue to make about the federal minimum, says Stephen R. Birtman, Florida state director of the National Federation of Independent Business (NFIB).
But new research over the past decade shows that modest hikes to keep the low-paid abreast of inflation will cost few if any jobs. The point has been widely embraced since 1995 studies by University of California at Berkeley economist David Card and Princeton University economist Alan B. Krueger found no employment losses among New Jersey fast food restaurants hit with minimum-wage hikes. Given wide variations in costs around the country, the federal minimum should serve as a floor, which would allow high-cost states such as California or Alaska to set their own minimums higher if they wish. "Indexing doesn't improve conditions for low-wage workers, it just keeps them from deteriorating further as prices rise," says Robert Pollin, an economics professor at the University of Massachusetts at Amherst who led a study of the Florida initiative for its advocates.
Certainly, there are few credible reasons left to oppose an increase of the federal $5.15 an hour. That sum gives a full-time worker barely more than $10,000 a year, despite a family poverty level that has climbed to $18,600. Indeed, the federal minimum was 40% higher in 1968, or $8.50 in today's dollars. So lifting it by a dollar or two wouldn't even come close to restoring low-wage workers' purchasing power back to where it was more than 25 years ago.
Employers of low-wage workers--mostly restaurant and hotel chains and small companies represented by groups such as the NFIB—have enough clout in Washington to a block minimum wage hike. But the idea has widespread support. As many as 123 cities have passed "living wage" laws, which set higher minimums for workers employed by city contractors. "Even most people in red states like Florida know that $10,000 a year is a joke to live on," says Jen Kern, director of the Living Wage Resource Center at ACORN, an antipoverty group that spearheaded the Florida initiative and others.
Some critics argue that the Earned Income Tax Credit is a better way to lift up the poor. The reason: The EITC, which gives tax dollars to the lowest-income workers, targets the poor more directly than the minimum, which also covers people such as affluent teenagers.
There's truth in this view, but the EITC would work even better with a federal minimum pegged to inflation. Welfare reform and the EITC have lured more single mothers into the labor force since the mid-1990s. But in doing so, they expanded the supply of low-skilled workers, holding down low-end wages, points out David Neumark, a senior fellow at the Public Policy Institute of California. An indexed minimum would offset that downward pressure, creating complementary policies that bring up those on the bottom to rise along with the rest of us.
Minimum Wage: The States Get It
Since Congress won't raise hourly pay, local lawmakers are taking the lead
How can Republicans possibly claim the moral high-ground and still oppose raising the minimum wage for our poorest Americans?
Go figure.
This is an unusually good, and rare, week for Business Week editorials. Here’s another one.
From Business Week, November 29, 2004.
The cost of regulation is high, but the cost of corruption may be higher. Nov. 15 marked the implementation deadline for a key section of the Sarbanes-Oxley Act for companies with fiscal years ending on or after that date. Under Section 404 of the law, publicly traded companies must have new financial monitoring controls in place, certified by auditors. Many chief executives are complaining loudly that implementing "Sox" is costing their companies heavily in time and money. But we should all be indignant at the broader economic "tax" imposed by corporate corruption on America.
Corruption makes markets less efficient, more costly, and less innovative. Take the latest insurance scandal unearthed by New York State Attorney General Eliot Spitzer. Bid-rigging and secret payoffs among insurance brokers have undermined much of the competition in the insurance market. Instead of analyzing different policies and bringing the best and cheapest to their clients, major brokers gave the business to those who paid them off.
Think about this for a moment. We now know that Corporate America is paying far more than it should for property and casualty insurance. We have just learned that both companies and employees are paying more than they should for disability, life, and other insurance in the employee benefits market. The next uproar may well be in medical insurance, which has been in a crisis for years. Doctors find it increasingly impossible to pay high premiums and are dropping out of the profession. Expensive medical malpractice lawsuits are partly to blame. But is this crisis due to rigged markets for medical insurance as well?
The truth is economists don't usually compute the tax that is imposed on economic growth by corruption. They should. In the past few years, we have witnessed conflicts of interest and manipulation within the initial public offering, mutual-fund, investment banking, and insurance markets. These rigged markets stifle innovation, erode discipline in the markets, channel money into less productive activities, add expense, and undermine national competitiveness.
We know that government regulation places a heavy burden on America's companies. We should recognize that market corruption may place an even heavier burden on the nation's economic growth.
EDITORIALS
The High Cost Of Corruption
Rigged markets, as well as regulation, can hurt growth
Remember, you read it from Business Week: a truthful analysis of the relationship between government regulations and the forced efficiencies of corporate behaviors.
The following is a classic example of the zero-sum nature of wealth. As the wealthy look for more ways to invest their money, their attention inevitably goes to real estate. And, as they buy up everything available, middle- and low-income Americans get priced out of the market.
That’s the major reason workers can no longer afford to pay rent for housing near where they work, especially if it’s in a desirable part of the country. And those who want to buy their first home find that it’s impossible unless they go into ruinous debt far into the future.
From The Wall Street Journal, November 30, 2004.
A growing number of Americans are buying real estate as an investment, driven by the combination of low interest rates, rising property values and tepid stock-market returns….
The demand for investment property is particularly apparent in rapidly appreciating markets, including Las Vegas, Arizona and parts of California, according to LoanPerformance. But it's evident in other markets as well: In Miami, speculators account for as much as 80% of the preconstruction purchases of luxury condominium units, according to Mark Zilbert, an associate with Esslinger-Wooten-Maxwell Realtors.
In one new South Beach condo building, ICON, roughly half of the apartments were bought by investors and then resold before the building's official opening this week, according to the developer, the Related Group of Florida….
"It seems like investing in real estate is a wiser decision than putting [the money] into a stock market or savings account or savings bonds," says Kelly McDonnell, a recruiter for an educational testing company in Amherst, Mass. Ms. McDonnell is currently shopping for a two-family duplex she can rent out and then, she hopes, sell for a profit in a few years….
Investors interested in owning hard real-estate assets range from first-time speculators to wealthy individuals. Erik Friis, a San Diego attorney, started buying San Diego real estate in the late 1990s, then set his sights on Arizona as prices in California climbed. "It came to a point where there weren't any properties that made sense to buy," says Mr. Friis, who recently sold a small apartment building in San Diego and used the proceeds to buy a 24,000-square-foot shopping center in Tucson.
In Long Beach, Calif., there's "more of a demand than ever for investment property," says Richard Gaylord of Re/Max Real Estate Specialists. "The problem is that inventory is so low that I'm pulling my hair out trying to find them stuff."…
Investors Buy
Real Estate
At Record Pace
Wary of Stocks, More Individuals
Buy Condos and Rental Property
For a more extensive discussion about the zero-sum nature of wealth, check out the file Wealth is a Zerosum Game.
The unmitigated greed of corporate executives continues to amaze. The top executives make horrible business decisions that can even affect patient health—the stock drops—there’s a chance of a takeover or merger—and the executives get rewarded with three years’ worth of pay and bonuses.
From The Wall Street Journal, November 20, 2004.
Merck & Co. has implemented a sweeping plan to award more than 200 executives hefty severance packages in the event of a major merger or acquisition.
The provisions, disclosed yesterday in a federal filing, effectively grant Merck's upper management a so-called golden parachute out of the company if a large deal leads to their dismissal or resignation for "good reason." The company asserts the changes were implemented to fill a "competitive gap" in compensation and benefits identified earlier this year.
The change-of-control plan, a first for Merck, comes in the wake of myriad problems at the drug giant, and growing concerns about the company's future. Merck faces potential legal liabilities over its voluntary withdrawal of its blockbuster painkiller Vioxx, as well as investigations by the Securities and Exchange Commission and the Justice Department.
The plan covers Merck's management committee and other vice president-level managers. All told, about 230 employees qualified when the plan was adopted last week, the filing said. Merck confirmed chief executive Raymond Gilmartin is among them and that he doesn't have a separate severance agreement.
Under the plan, some high-level employees could receive as much as three times their annual base salary and target bonus….
Companies say they embrace change-of-control plans "to allow executives to make objective decisions about mergers without fear of a loss of money" in their pockets, Mr. Hodgson says….
Some activist institutional investors believe that parachutes "can reward executives for under-performance leading up to a change in control," Mr. Rees said. That may be "what's happening at Merck."
Embattled Merck
Arms Executives
With Golden Parachutes
As Steve Farley noted in an email: After probably knowingly selling a bad drug leading to 27,000 heart attacks, the execs get a major comp guarantee and increase "in case of a takeover." I love it!
New evidence suggests that privatizing Social Security is a terrible idea. As you read the following, remind yourself that those who invest in 401(k)s are likely to be much more sophisticated than your typical factory worker who knows nothing about the securities markets.
From The Wall Street Journal, December 1, 2004.
If President Bush has his way, it might be possible in a few years for Americans to take a portion of their Social Security taxes and invest the money as they see fit. The president says people should have more control over their retirement savings.
For a look at the challenges that plan could present, consider Americans' experience with do-it-yourself 401(k) retirement plans. In the 23 years since 401(k) plans were first created, many people have made obvious mistakes in investing their money, such as putting too much money into low-yield savings accounts or betting the house on their own company's stock. Many also don't put as much money into the plans as they could, forgoing big tax savings and employers' matching contributions.
Some companies have become so concerned about their employees' poor decision-making that they are shifting responsibility away from them. One Los Angeles power-equipment maker is automatically putting its workers into accounts managed by a professional investment company unless they choose otherwise. Dozens of other companies, including J.C. Penney Co. and Alcoa Inc., are giving employees a similar option, although they're not making it the default choice. Vanguard Group and Merrill Lynch & Co. are among the professional money managers now offering such managed-account programs, which were made possible by a federal rule change in December 2001….
The do-it-yourself aspects of 401(k) plans "are not working," says Alicia Munnell, director of Boston College's Center for Retirement Research. "They are simply too complicated for people to handle. It's not that people are dumb. It's just that...becoming a financial expert is low on their priority list."…
A Lesson for Social Security:
Many Mismanage Their 401(k)s
Workers Often Make Bad Picks
In Saving for Retirement;
Now, Some Let a Pro Do It
Couple the average workers’ lack of sophistication about the securities markets with the skullduggery and high fees that are typical of Wall Street, and you have the recipe for disaster. Millions of workers are bound to place their future retirement funds in unwise investments and will suffer because of it. Those who are sure to profit will, as usual, will be the securities professionals.
We’re finally beginning to learn the real story about insourcing. After you read the great news at the beginning, be sure to connect the bad news at the end with the recent items you’ve read on this website. Article after article have described how India and China are now beating us out of our high-tech and high-skill jobs. And that’s where the “insourcing” of the future will go: where scientific and creative “labor” is available at one tenth of the cost.
From The Wall Street Journal, December 1, 2004.
Now that the election is over, all the wailing about "outsourcing" seems to have vanished, as it certainly should. So maybe we can all begin to pay attention to the more important economic subject known as "insourcing," where some of the recent data really are worrisome.
Insourcing is what happens when foreign-headquartered multinationals operate subsidiaries in the U.S. These companies contribute both to U.S. economic growth and living standards, but a precise measure of these gains is hard to come by. That's why the Bureau of Economic Analysis's recent data about insourcing through 2002 is worth noting. As is the study of this data by Matthew Slaughter, an economist at Dartmouth's Tuck School of Business.
Mr. Slaughter finds that insourcing companies boost the U.S. economy in two ways: through their own operations and their interactions with domestic firms. Insourcing provided jobs for more than 5.4 million U.S. workers in 2002, or nearly 5% of total private-sector employment. These are good-paying jobs, too. Payroll came to more than $307 billion—or 6% of all private-sector compensation. The average annual compensation at such companies was a tad over $56,000, or some 31% more than the average annual private U.S. compensation.
The internal operations of insourcing companies also contribute to research and development and to capital investment. Their share of private-sector R&D expenditures came to 14% (or $28 billion) and their share of capital investment topped 10% (or $112 billion). Just as eye-popping, insourcing companies accounted for 20% of U.S. goods exports.
Insourcing companies also purchase a high and rising share of their intermediate inputs from domestic suppliers—in 2002, nearly 80 cents of every dollar, or $1.3 trillion. Just as important, these companies share technology and other knowledge with these U.S. suppliers to improve quality and reliability….
However, and here's the worry, the past is not necessarily prologue. There's no guarantee that the world's best companies will continue to invest as much in the U.S. They now have plenty of other choices. China and India are the world's two most populous countries, have been growing rapidly, and have liberalized their trade and investment policies. Ditto for some of the newer members of the European Union.
And that's what makes some other data, through year-end 2003, a bit disturbing. Total flows of Foreign Direct Investment capital into the U.S. have collapsed since 2000—from a peak of $314 billion in 2000 to $29.8 billion in 2003. That's down 90%. No doubt some of that decline is a cyclical response to the giant surge in the late 1990s. But some of the falloff might be structural. In 2003, for the first time, China attracted more FDI than the U.S. ($53 billion). This comes as the U.S. share of world FDI inflows fell to only 5.3% in 2003, from 22.6% in 2000….
As Mr. Slaughter says: "Insourcing companies have contributed a lot to the U.S. economy, but the country is facing rising competition to attract and retain them." He's right.
The 'Insourcing' Problem
Bear in mind that the good news at the beginning of this article was in reference to those lucky enough to be in the right professions in the right industries. That good news has nothing to do with the millions of working-class Americans who have lost their standard of living because of globalization.
And, as usual, it’s the investors and the movers-and-shakers who gain the lion’s share of the benefits of globalization—and of insourcing and outsourcing. That's probably why The Wall Street Journal still feels that "all the wailing about 'outsourcing' seems to have vanished, as it certainly should."
Globalization was sold to voters as a way to exchange America’s low-skill, low-paid jobs in order for us to focus on developing high-skill, high-paid jobs—right?
Guess what. We’ve lost not only our best-paid manufacturing jobs to outsourcing, we’re now losing our best and highest-skill jobs as well.
From The Wall Street Journal, November 22, 2004.
SHANGHAI—Long known as a place to produce clothes and toys cheaply, China now is providing the West with another opportunity: developing drugs at lower cost.
Opening a new frontier in outsourcing, pharmaceutical companies overwhelmed by the rising cost of creating drugs are turning to China to conduct research and development. They are finding highly educated scientists who work for a fraction of what their Western counterparts are paid, as well as vibrant and growing biotechnology businesses. And they are beginning to sink significant amounts of money into deals that will further boost China's capabilities….
Drug companies have found that China, where doctorate-level scientists command $25,000 a year, compared with nearly 10 times that in the West, makes a good place to test drug compounds and their efficacy. While some other highly complex R&D—such as intricate biological testing—still is mainly performed in the West, China can save companies money, since about 80% of their total R&D costs go toward scientists' salaries….
It isn't just the industry's giants that are being lured to China; Western start-up businesses are moving here as well. The lower costs buy them more time to prove the viability of their drug prospects between rounds of funding from Western venture capitalists….
Drug Companies
Look to China
For Cheap R&D
It’s about time the voting public woke up to the fact that globalization is a class war between investors and everyone who actually works for a living, including not only manufacturing workers, but our most skilled scientists as well.
And, finally, we’re getting the straight scoop: no one actually knows how many jobs our country is outsourcing to other countries. And that’s just the jobs that have been actually outsourced. Not even considered are the jobs that were never created, because, as the previous article pointed out, “Western start-up businesses are moving (to China) as well.”
From The Wall Street Journal, November 22, 2004.
WASHINGTON—The U.S. government's attempt to count workers who lose their jobs when employers "outsource" work overseas has suffered a setback: Too many employers say they just don't know the numbers.
The U.S. Labor Department's Bureau of Labor Statistics, which began tracking such job losses in January, has tried to coax the information from senior executives of companies that have laid off more than 50 people. It even sent in psychologists to reinterview some of the personnel officers who answered a BLS questionnaire, theorizing its questions were misunderstood.
But the answer to the question—a matter of interest in the 2004 presidential campaign—remained "don't know." The BLS, as a result, hasn't been able to produce a count….
By most accounts, the number of layoffs caused by outsourcing of U.S. jobs to low-wage countries such as China and India is a small fraction of the millions of U.S. jobs lost each year for other reasons. Private analysts, responsible for the largest estimates, say the number this year may be as high as 400,000. But a recent government study concluded that nobody, including the federal government, has a firm grip on the number….
Job Losses From Outsourcing
Prove Hard for U.S. to Quantify
The fact that “only” 400,000 jobs are being outsourced this year is almost irrelevant—for three reasons. First, almost all those who lost their jobs will now be making less money than they did before.
Second, those people will enter the job market and be a depressing factor for the wages of all those who still have what used to be good jobs.
Third, all workers will have the notion reinforced that when corporations threaten workers that—if they don’t behave and work for a pittance—the threat to leave the country is real. They will abandon them and their communities in a heartbeat if workers insist on making a decent income.
If you want to get just a hint of the stupidity of privatizing Social Security, just read the following.
Also note that there is no hint of the real reason for privatizing Social Security: an economic boon for the securities industry as workers place their retirement funds into the Wall Street casino.
From Business Week, November 22, 2004.
President George W. Bush has interpreted his reelection as a mandate to restructure the troubled Social Security system. While Bush has not yet said how he'd do it, he has called for sweeping changes that would divert part of workers' payroll taxes into individual investment accounts. His goals: heading off a fiscal collapse of Social Security and promoting an "ownership society" that would give working Americans a chance to build their own retirement stake of stocks and bonds….
Pay-as-you-go Social Security only functions if there are enough workers to support each retiree. Today there are 3.4 workers per pensioner. In 30 years there will be only two….
Private accounts would generate greater potential returns by investing in stocks and bonds, but they'd also be riskier. If the money were poorly invested or withdrawn in a bear market, some workers could end up with less retirement income than if they had stuck with the basic government benefit….
The biggest is the cost of moving from the existing system. If workers shift, say, 2 points of payroll tax into their accounts, the government would have to find some other money to pay benefits to current retirees. The transition cost: at least $1 trillion over the next decade. If workers shift more into private accounts, costs could approach $2 trillion.
At the moment it looks as though the Administration is leaning toward having Uncle Sam borrow the money to fund the transition. Unfortunately, the feds are already borrowing $400 billion a year to finance the deficit. Shifting to private accounts would add $100 billion to $200 billion a year to that debt….
Should the government provide workers with a basic, though fairly modest, benefit in retirement? Or should workers have the opportunity to build their own nest egg—a chance that comes with a shot at a more comfortable retirement but also the risk that their investments will come up short? With a program as important as Social Security, the issues are far bigger than just dollars and cents.
What's Ahead For Social Security
Can Bush's proposed private accounts fix the system's fiscal troubles?
Key statement in the above: privatizing Social Security gives workers “a chance that comes with a shot at a more comfortable retirement but also the risk that their investments will come up short.”
Just remember that most of these people will be unsophisticated in the ways of Wall Street, and, after Wall Street takes its cut, their chances of a more comfortable retirement will be slim to none. See excerpts from “previous weeks’ conservative press” to read about the skullduggery of Wall Street, and see if you still think workers will benefit from placing their funds with our modern securities industry.
The disastrous effects of globalization and our escalating trade gap are beginning to become obvious even to “most economists.” Of course, to those who are making all the sacrifices for this great economy—America’s workers—it’s been obvious all along.
From Business Week, November 22, 2004.
The rapid growth of the U.S. trade deficit has sparked vociferous debate—and fresh research—among international economists. The majority of the profession argues that the trade deficit is unsustainable in the long run because it's piling big foreign debts on the next generation—and unsustainable in the short term because it threatens to trigger a financial or political crisis….
The U.S. is borrowing from abroad and attracting foreign investments into assets such as stocks, corporate bonds, and Treasury securities. But much of the rising flow of money from overseas is coming from foreign central banks, especially Japan's and China's. They favor a strong dollar to keep Americans buying exports. Asian central banks added $160 billion of U.S. securities in the first half of 2004. If they change policies, it would be far harder for the U.S. to finance its deficit….
American factory workers suffer, but consumers and the government get to spend more than they earn. And nations such as Japan and China benefit from having the U.S. run trade deficits because they rely on exports to the U.S. for growth. Economist Michael P. Dooley of the University of California at Santa Cruz argues that China's biggest problem is the number of unemployed Chinese who need to be given paying work. The best way for China to deal with that problem is by keeping its trade surplus with the U.S. large….
Why do most economists worry about the trade deficit?
Because, they argue, Americans are living beyond their means. They say a trade deficit and inflow of foreign capital can be healthy if the U.S. is investing in projects that generate future wealth. But in recent years, investment has been weak. Imported capital has primarily allowed U.S. consumers to go on a spending binge. In the third quarter, personal saving was just 0.4% of after-tax income, the lowest ratio since at least World War II. As for the rise in Americans' wealth, some say it's largely the result of a bubble in the housing market.
Are there signs that the financial markets are getting worried?
Yes. The clearest indication is downward pressure on the dollar, which in recent days has dropped to a new low against the euro. Against a Federal Reserve trade-weighted index of the currencies of major trading partners, adjusted for inflation, it has fallen 24% from its most recent peak three years ago….
The Trade Gap: How Long Can It Go On?
Some economists see it as sustainable, but most believe the U.S. spree must soon end
Key statement above: “American factory workers suffer.” Of course. That’s the whole point. Workers suffer, and international investors become billionaires and multi-millionaires. That’s the way you create an aristocracy from what previously was democratic capitalism.
If you know any labor union members who voted for Bush in the last election—show them the following excerpts. The election is hardly over and the Republicans are falling all over themselves in stampeding pro-business, anti-labor legislation through Congress.
The same goes for anyone who actually cares about the environment and was foolish enough to vote for Bush.
From The Wall Street Journal, November 22, 2004.
WASHINGTON—The massive year-end spending bill that Congress approved this weekend is a harbinger of tight budgets to come and marks a shift to the right after the elections.
With the continued wide deficits and the rising costs of the war in Iraq, the $388.4 billion measure permits only 1% growth in domestic discretionary spending for fiscal year 2005, which began Oct. 1. In the politically sensitive areas of labor, health and education programs, it represents the smallest increase in almost a decade.
The Environmental Protection Agency, Small Business Administration and National Science Foundation all will receive less for their programs than they did in fiscal 2004. And the measure imposes a final 0.8% across-the-board reduction that will fall heavily on personnel costs even at a time when workers are promised 3.5% pay raises….
Labor lost on several fronts, and from gun control to abortion, social conservatives moved the government more their way.
With Election Over, Belt-Tightening Begins
Legislation Permits Just 1% Growth in Domestic
Discretionary Spending for Fiscal Year 2005
--------------------------
From The Wall Street Journal, November 22, 2004.
WASHINGTON—From Libya trade to patent fees to satellite-television dishes in rural America, the year-end spending bill is busy with business.
After the State Department intervened, lawmakers added last-minute language waiving longstanding restrictions and allowing the Export-Import Bank to again provide direct loans, guarantees and insurance in support of U.S. companies seeking to do business in Col. Moammar Gadhafi's Libya….
But labor also lost twice as it sought to slow the replacement of federal workers with private contractors and tried to block new rules making it easier for private employers to deny their white-collar workers overtime….
At the same time, the Federal Communications Commission and a number of other agencies will be squeezed with the 3.5% pay increase for federal workers and a final round of across-the-board cuts.
Lawmakers Load Spending Bill
With Range of Help for Business
This last article also puts the lie to the Republican claim that their proposed legislation regarding overtime was actually a protection of workers’ interests.
Here’s another in the endless series of articles describing the lack of moral standards in an entire industry—in this case, the insurance industry.
From The Wall Street Journal, November 23, 2004.
Life-insurance agents have wide latitude in how they set their own commissions, a practice critics say deserves greater scrutiny. While such arrangements are legal, they are similar to the practices being looked into by New York Attorney General Eliot Spitzer and other regulators.
Up to now, the insurance probe has focused on property-casualty insurance and employee benefits, although both Mr. Spitzer and California Insurance Commissioner John Garamendi have said their actions to date are only the initial volleys into an investigation that will touch on the entire insurance industry.
The life-insurance problem chiefly affects whole-life policies, which are structured so that agents can set their own commission levels in a way that rewards the agent while reducing the value of the policies they sell.
There is virtually no disclosure of commissions for people purchasing any kind of life insurance. While that doesn't necessarily promote the same conflicts of interest that commercial insurance brokers have, it does create a situation in which the interests of the agents are at odds with those of insurance buyers….
The key to fixing such situations is for regulators to require commission disclosure, critics say. "It's a very unpopular notion," says Joseph Belth, professor emeritus for insurance at Indiana University, noting that state insurance commissioners are under pressure from agents as well as insurance companies that operate in their state. "Whenever anybody proposes the idea, it's immediately shot down."…
Life-Insurance Agent Fees
May Cost ConsumersCommission Rates Eat Away
At Value of Some Policies;
Lowering Your Premiums
The last paragraph above says it all: conservative legislators, mostly Republicans, automatically oppose any regulations that benefit consumers and that force corporations to behave ethically. Requirements that corporations actually tell the truth to consumers are therefore “immediately shot down.”
The following three items appeared in the same issue of The Wall Street Journal.” Taken together, they present an excellent case for not privatizing Social Security.
These three excerpts are presented for purposes of criticism only, and those who are interested in their investment implications should read the originals.
All three of the following excerpts came from The Wall Street Journal, November 23, 2004.
This Thanksgiving, the only turkey you feast on should be the kind that's served with stuffing and cranberry sauce.
Alas, many people also have turkeys in their mutual-fund portfolios. All too often, investors stubbornly hold on to dreadful funds that should have been sold a long time ago. If you fall into this camp, it's time for a turkey shoot.
We've compiled a list of no-load stock funds that have some of the worst long-term track records around—and high fees, to boot. Please don't consider our list exhaustive. There are many lesser offenders that also might be worth purging from your portfolio. The key is to know how to identify a turkey when you see one. Chronic underperformance is a telltale sign that a fund might be getting a little gamy. Fat fees don't help matters.
But a true turkey is one that has underperformed its peers over the long haul—while charging shareholders a handsome fee for the privilege of owning it. Take the American Heritage fund, with a 19% annualized loss over the past 10 years and a staggering 12.6% expense ratio….
State-sponsored 529 plans with the highest fees tend to have more investors and higher account balances, while those with lower fees and greater tax deductions draw fewer investors, according to a recently released study by two accounting professors.
The findings—covering 77 college-savings 529 plans over a two-year period that ended in September 2003—are likely to fuel the debate over whether brokers are pitching out-of-state 529 savings plans instead of directing investors to plans with better tax benefits available in their own state….
"These findings are consistent with congressional concerns that advisor fees are driving investment recommendations, not state income tax benefits or low fees, which should lead to higher expected returns for these investments," wrote Profs. Alexander and Luna in a letter this year to the Municipal Securities Rulemaking Board….
Traditional pension plans outperformed 401(k) plans during the last three years of the bear market, a study finds.
From 2000 to 2002, both types of retirement plans lost money amid the equity market's declines, but investors in 401(k)s fared worse than those in pension plans, which are run by professional money managers….
The reversal of fortunes comes from the fact that pension plans are strictly monitored by managers, while 401(k)s depend on the attentiveness of individual investors. Since the managers have a fiduciary responsibility to manage the assets prudently, they are regularly rebalancing portfolios to get back to a predetermined ratio of stocks and bonds. Individual investors in 401(k)s may also have stated investment strategies, but many often fail to implement them, says Sylvester Schieber, director of research at Watson Wyatt. "The managers of these respective plans have different behavioral patterns," he says….
No-Load Turkey Funds
------------------------------
More Investors Are in High-Fee College 529 Plans
------------------------------
Pensions Outperformed
401(k) Plans in Bear Market
Voters who are considering supporting the politicians who want to privatize Social Security should remember that it isn’t intended to be a crap-shoot where individuals try to outwit Wall Street professionals in picking the best investments.
Voters should realize that the main purpose of privatizing Social Security is to benefit the investment professionals who are more interested in enriching themselves with their high fees—than in giving honest investment advice to unsophisticated retirees.
The following is a brief excerpt of a very long article and is presented for purposes of criticism only. Those who would like to study the subject in depth should read the original.
As you read it, remember that, shortly before the Savings & Loan crash of the 1980s, Greenspan testified before Congress that the S & L industry was healthy and no cause for concern. He also was a paid consultant for S & L corporations at the time.
Also note that he’s chronically against any government policies that may inhibit corporations’ ability to make huge profits—but he’ll raise the prime interest rate any time that it looks like there may be the remotest chance that working-class Americans may start making higher wages.
From The Wall Street Journal, November 19, 2004.
WASHINGTON—As Alan Greenspan approaches his last year as chairman of the Federal Reserve Board, he continues to draw praise for his most visible job: steering the economy by raising and lowering interest rates. But behind the scenes, the 78-year-old economist has had a big impact on American life in an entirely different role: pushing the government to stay out of financial markets.
Consider what happened in 2002, when Democratic Sen. Dianne Feinstein proposed new rules to govern how traders buy and sell contracts to deliver energy through financial instruments known as derivatives. Her move came after Enron Corp. and others helped send electricity prices soaring in California by manipulating that market. When she telephoned Mr. Greenspan for support, he declined, telling her the proposal threatened the multitrillion dollar derivatives industry, which he considers an important stabilizing force that diffuses financial risk….
In addition to thwarting the post-Enron impulse to regulate derivatives, Mr. Greenspan has helped remove Depression-era barriers between the banking and securities industries and has blessed mergers creating banking behemoths….
The result is a paradoxical position for one of the world's most influential civil servants: He would prefer that the state play virtually no role in the economy. His ideal is the pre-Civil War period when the federal government was so invisible it didn't even issue a national currency….
Critics say his hands-off regulatory philosophy has made the Fed a less effective watchdog, citing complicity by Fed-regulated banks in recent corporate scandals. His intellectual opponents also argue that some regulation is necessary to moderate the risks inherent in modern finance….
Mr. Greenspan has also been skeptical of the value of the Fed's many consumer-protection rules. The only vote he has lost on the seven-member Federal Reserve Board was a 4-3 decision in 1995 that required banks to change the way they calculate savings-deposit rates. Some on the board felt the way the rate was calculated was misleading to the public. Weeks later, after banks protested the cost of the change, the board voted unanimously to suspend its action and the proposal didn't take effect….
The Deregulator
A Less-Visible Role
For the Fed Chief:Greenspan Blessed Mergers
And Blocked Regulation;
Using the 1800s as a Model
Is Modern Finance Too Risky?
Most of the above article speaks for itself. Just note how Greenspan supports any government action, or inaction, that increases corporate profits—and how he opposes anything remotely associated with the interests of consumers or workers.
To better understand how Greenspan—our #1 class warfare expert against working Americans—deliberately keeps working-class wages from going up, check out the file: The Class Warfarer’s scapegoat: “Wage Inflation”.
The following article demonstrates the pathetic—and ultimately futile—efforts of American manufacturers to overcome the onslaught of cheap Chinese labor.
From The Wall Street Journal, November 18, 2004.
Imported furniture from China may be cheaper, but there's a drawback: That boat from China can be pretty slow.
American furniture makers are trying to take advantage of that by speeding up the truck from North Carolina. As the flood of Chinese imports grows, domestic manufacturers are increasingly fighting back by offering speedier delivery on custom-ordered pieces. In the past, deliveries from manufacturer to retailer could take a frustrating eight to 12 weeks or longer…
Some American companies have been attempting faster delivery times for a while, but the strategy is widely considered a strategic imperative, as lower tariffs open the way for more Chinese imports. Now, U.S. companies are offering speedy delivery not just on upholstered pieces but also on wood furniture….
Some representatives for Chinese companies are skeptical that the custom market will draw away consumers. "Sure, there are big opportunities in furniture for custom work, but you pay a lot more for it than the furniture made in larger runs," says John Wampler, president of Forbidden City, a division of Lifestyle Enterprise Inc., which imports leather sofas from China. A Forbidden City leather sofa retails anywhere between $499 and $999. By comparison, a Williams-Sonoma Home leather sofa will set you back by $4,200 to $5,800….
U.S. Response: Speedier Delivery
It’s a no-brainer. There’s no way furniture selling for $4,200 will compete—for long, or at any significant scale—with similar furniture selling for $499.
This excerpt also demonstrates the horrible inefficiencies of globalization: huge increases in transportation expenses and inevitable time delays. But the savings realized by cutting the wages and standard of living for millions of American workers makes it all worth while. What a sweet deal for America’s wealthy investors.
What great news for third-party advocates! It looks like the Democrats are again going to shoot themselves in the foot.
Who are they championing today? Loser Joe Lieberman, who lost with Gore as both of them tried to act like moderate Republicans. And winner Bill Clinton, who, after his election, proceeded to lose us the “blue-collar, less educated, and rural whites,” with his totally anti-labor NAFTA and WTO.
From Business Week, November 15, 2004.
By Richard S. Dunham
… "Something went wrong [in 2004] besides a lousy candidate," says John Kenneth White, a political scientist at Catholic University. "Democrats need to say: 'We ought to look to see if we have a party problem here."'…
…the party's socially liberal standard-bearers have watched a steady erosion of support from voters who once made up the heart of the New Deal coalition: blue-collar, less educated, and rural whites. What's left is a bicoastal party that has an ever-more-difficult time competing in the industrial heartland and has collapsed in the South—once the twin peaks of its power. Continuing to wallow in nostalgia and trying to reassemble the New Deal coalition relegates Democrats to long-term minority status. "If there's a silver lining [in Kerry's defeat], it is that it's going to eliminate the ability [of Democrats] to argue that we have a natural majority on our side," says California venture capitalist Andrew S. Rappaport, a leading funder of Democratic causes. "We don't. It's over."…
Changing the nomination process to reduce the power of interest groups might be a start. Although polls show that Democratic liberals are outnumbered by party moderates and conservatives, they dominate the primaries. In 2004 former Vermont Governor Howard Dean's unexpected surge as the candidate of the hard-core antiwar Left masked the fact that Dean's rivals were liberals, too—just of a more pragmatic stripe. Even retired General Wesley K. Clark, medals and all, ran as a down-the-line liberal. The only moderate in the nine-candidate field, Senator Joe Lieberman, failed to win a single primary….
Then there's the party's inability to come up with a lasting post-New Deal ideology. Bill Clinton's New Democrat formulation succeeded for eight years, but the past two nominees have diluted upbeat Clintonism with downbeat rhetoric, harping on tax cuts for the rich and scaring the elderly with warnings about Social Security privatization….
The biggest reason that the coalition won't jell: Democrats must come to grips with the reality that they are increasingly on the losing side of America's cultural divide. In this election, millions of blue-collar economic populists rejected a Massachusetts liberal because they felt he did not share their values on issues ranging from abortion to affirmative action, from guns to gay rights. More than two-thirds of churchgoing Christians—including millions who disapproved of the President's handling of the economy and the war in Iraq—nevertheless voted for Bush….
Commentary: The World Has Changed. Why Can't The Dems?
Another election, another lost opportunity to craft a lasting vision
The comment that "If there's a silver lining [in Kerry's defeat], it is that it's going to eliminate the ability [of Democrats] to argue that we have a natural majority on our side,"—it totally asinine. Democrats would have a natural majority if they would just claim it and give that majority some real reasons to believe that the Democratic party is still their party.
The statement that “millions of blue-collar economic populists rejected a Massachusetts liberal because they felt he did not share their values on issues ranging from abortion to affirmative action, from guns to gay rights”—is true, but only because they could see no significant differences between Kerry and Bush on the economic issues that affected their lives (NAFTA, WTO, Fast Track legislation, removal of workplace protections, etc.), and on the way they would deal with Iraq.
As it stands now, The Democratic Party is only an indistinguishable bit more on the side of working Americans than are the Republicans—and that small difference is not enough to make up for the other issues where Republicans have greater appeal to voters (matters relating to personal sex practices, abortion, etc.).
The widening gap between the children of the wealthy and the children of the poor- and middle-class is extending into higher education.
We’re becoming a nation of wealthy, educated aristocrats and their uneducated servants—who will be expected to work for minimum wages for their entire adult lives.
Business Week describes how even our public universities are pricing the poor- and middle-class out of an advanced education. And even the ultra-conservative Forbes sees the unfairness of the tendency of the wealthy to favor their own kind, rather than those who most need the kindnesses of others.
From Business Week, November 15, 2004.
…To date, no major public university has been fully privatized. But as the states foot a smaller share of their budgets, the flagships have become more dependent on tuition and other sources of funds. They may still be publicly owned, but increasingly they're privately financed. So a number of the flagships are seeking more freedom from state control.
In July, University of Colorado President Elizabeth Hoffman won "enterprise status" for her school, which means it's no longer governed by the same rules as state agencies. Miami University of Ohio recently became the first major public campus to adopt the high-price, high-financial-aid tuition model used by elite private colleges. That means all students across the board are now charged $19,642, although Ohio residents receive scholarships of at least $10,000. "We are becoming more like our private counterparts," says Penn State President Graham B. Spanier….
…creeping privatization accelerates a broader movement by the top 100 or so flagships to hike their tuitions at a double-digit rate. The result is that a public good designed to give all Americans access to higher ed is turning into something more like a private one, open primarily to those whose families can afford it. Already, the student body at some flagship campuses is more affluent than at elite private schools: At Ohio's Miami, for one, the median family income tops $100,000 a year.
Moreover, as flagships break free, support could erode for less prestigious state schools that remain more dependent on public funds. Privatization "will accelerate the social stratification of higher education, in which the elite [public colleges] are primarily filled with kids from privileged backgrounds, and the kids from poorer families are concentrated in less prestigious schools," says David W. Breneman, dean of the Curry School of Education at UVA. At the nation's 146 most selective colleges -- including the top flagships -- just 3% of entering freshman come from the bottom socioeconomic quarter, while a staggering 74% come from the top quarter….
Already, "many flagships are not serving their traditional role of providing broad access to the brightest from all economic backgrounds," says Century senior fellow Richard D. Kahlenberg.
Public universities have played a fundamental role in American society, from spurring technology to helping create and expand the country's middle class. But without better planning, the move to keep them competitive could widen the already growing class divide in higher ed.
Should Public Universities Behave Like Private Colleges?
They're hiking tuition and becoming more elitist—ducking a key social role
---------------------------------------------------------------
From Forbes, November 15, 2004.
By Mark Redmond
Why do wealthy people give to well-endowed universities serving successful kids, instead of to nonprofits that help the truly needy? When I read a few months ago about an anonymous $50 million donation to Middlebury College, followed by an additional $10 million, also anonymous, I wondered, "Why not Spectrum?" Not that I have anything against Middlebury, which is in my home state of Vermont. It is a fine institution, one of the best liberal arts colleges in the country. It does a good job in fulfilling its mission.
But I have to wonder: Why would someone wealthy enough to make such a donation give to a place that already has beautiful buildings, a golf course, a ski slope, a magnificent hockey rink, a first-class cafeteria/restaurant and one of the highest tuition rates in the U.S.? Spectrum Youth & Family Services, where I serve as executive director, is 45 minutes from Middlebury.
Our students are like Middlebury College students in age but unlike them in every other way. Our kids (2,500 last year) are runaways or are living on the streets. Many are high school dropouts. Many were abused, neglected or abandoned when they were younger and raised in the foster care system. Some are in trouble with the law or are addicted to drugs or suffer from mental health disorders. Spectrum provides them with a place to live, food, health care, substance abuse counseling, education and job training. We find them mentors. We help them move on to college or permanent housing. It is no small challenge. Our alumni, when successful, obtain high school diplomas and usually move on to community colleges or trade schools….
They have the talents and energy that will make them successful no matter where they go to college. At the moment the tax laws make no distinction between gifts to institutions that serve society's winners, like art museums and well-endowed universities, and institutions that serve the other half, like United Way. Perhaps that should change.
Defining Charity Upward
Remarkable! And congratulations to Forbes, a magazine that rarely publishes an article suggesting that government programs actually be designed to help those who need it most.
Another stalwart American corporation—historically considered as having traditional American and Christian values—demonstrates that greed and a total lack of a moral compass rule our culture today.
From Forbes, November 15, 2004.
Illegal immigrants don't dare open a bank account in the U.S. To wire money overseas, they pay a hefty fee. One company has built a billion-dollar business on their dilemma. Shielded by bulletproof glass, the crowded check-cashing outlet on Anaheim Street in Wilmington, a Hispanic neighborhood in southern Los Angeles, functions as lifeline and financial centerfor the thousands of illegal immigrants who visit it.
Open seven days a week, it caters to the unbanked—people who are too poor, or too illegal, to have a bank account. It offers them "free money orders," welfare-benefit pickups, prepaid phone cards and the real clincher:money transfers to relatives overseas. They pay hefty fees—almost a day's wages in some cases—for a transaction that costs $3 to $6 to process.
A few blocks away a young woman named Teresa stands in her tiny, dirt-packed front yard and passes judgment on the store's fees: "Way too much," she says in Spanish, as some of her seven children scamper barefoot among strewn toys and a battered van propped up on jacks….
Teresa is one face behind the booming, multibillion-dollar transfer business that has revived the fortunes of a 153-year-old corporate icon:Western Union. The company that pioneered coast-to-coast telegraph service in 1861 dominates the money-transfer business today, racking up $3 billion in fees and investment income, and an operating profit (net before interest, taxes and nonrecurring charges) of $1 billion last year—most of it on the backs of the poor.
In five years it has extended its vast tentacles into thousands of check-cashing joints, pawnshops and other gritty outposts of the fringe economy to better exploit the dreary unbankability of the underclass….
Western Union and others "lure people up here, put them in very precarious situations and are responsible for their deaths," says Michael McGarry of the Colorado Alliance for Immigration Reform, a hard-line group that has thrown up billboards bearing a map of the U.S. stamped with the word "FULL."
Western Union's money transfer business seems shrewdly geared to the 8.7 million illegal immigrants in the U.S. If they walk into a regular bank to wire money overseas, the fees will be lower, but the senders are asked for identification and personal details they don't want to provide…
On the Backs Of the Poor
Key statement: “Western Union's money transfer business seems shrewdly geared to the 8.7 million illegal immigrants in the U.S.” In other words, when the poor have no power, and you have them by the short hairs, take as ruthless advantage of them as you can.
The bad news about globalization is continuing to accumulate in unexpected directions. Now, it’s becoming clear that China is not only taking jobs away from our manufacturing workers, it’s further impoverishing them by creating higher oil and gas prices.
Of course, that doesn’t even begin to address the issue of global warming. The Chinese manufacturing miracle is accompanied by the pollution that goes with unrestrained production, and the increasing global environmental degradation will be felt worldwide.
From Business Week, November 15, 2004.
…As China's economy expands, so does its thirst for oil, gas, coal, and electricity. Today, China accounts for 12.1% of the world's energy consumption. That's second only to the U.S., at 24%, and up from 9% a decade ago. China's whole modernization strategy is based on access to abundant supplies of energy. Its hungry basic industries such as steel, aluminum, and chemicals devour electricity and coal….
That means China will play a key role in influencing global oil prices and energy investment flows—not to mention climate-destabilizing carbon dioxide emissions. "There is going to be a huge increase in consumption across the region, and especially in China," says Edu Hassing, an energy analyst at the Asian Development Bank.
With China consuming ever more oil, it risks developing an ever-greater dependency on foreign vendors of crude. For the security-obsessed Chinese, that's pretty scary. Right now, though, it's hard to see how the Chinese will avoid the same fate as the U.S., which is uncomfortably dependent on oil states such as Nigeria, Saudi Arabia, and Venezuela….
Asia's Great Oil Hunt
China needs energy more than ever. Its quest to secure enough oil and gas to keep its economy humming will change the world
So, “Right now, though, it's hard to see how the Chinese will avoid the same fate as the U.S.” That statement leaves out the obvious fact that our U.S. “same fate” won’t ever be the same again. It’ll be much worse as the uncontrollable Chinese pursue their own interests.
It never ends. Reports of corporate malfeasance are reported daily. Any more, the only surprising thing about these reports is the extent to which corporate executives are willing to lie and cheat—even when they are almost sure to be found out sometime in the future.
From The Wall Street Journal, November 15, 2004.
Two years before bullets pierced the bulletproof vests of two police officers, the vests' manufacturer withheld test results that cast doubt on the vests' effectiveness because executives feared bad news might hurt plans for an initial public stock offering, the company's former research director said in a sworn statement.
The allegation, in a deposition for a lawsuit in a state court in Oklahoma, is the latest twist in a controversy over Second Chance Body Armor Inc.'s handling of the 2001 test results. The company in September 2003 announced it would upgrade and replace 130,000 potentially defective vests, about three months after two vests were pierced in shootings that killed one California policeman and wounded another in Pennsylvania….
Mr. Westrick, in a September deposition, said test results in 2001 showed that the strength of some Zylon vests deteriorated much more quickly than their five-year warranty. He said he was told to keep the results quiet because company executives stood to lose as much as $20 million if the company didn't launch an IPO….
Mr. Westrick said he warned senior managers multiple times, starting in 2001, that the vests weren't safe….
Witness Says Police-Vest Maker
Ignored Safety Concerns
Given the massive number of reports similar to this, how is it possible that the editors of The Wall Street Journal continue to claim that the American public would be better off without government regulations of corporate behavior?
Face it. Without sensible government regulations, our “free market” would be a market ruthlessly controlled by unprincipled corporate executives.
Our foolish headlong rush to globalization is looking worse all the time. We’ve not only given our best-paying manufacturing and service jobs to China and India, we’ve transferred the world’s manufacturing centers to countries that are going to increase worldwide pollution to even more dangerous levels. As though they aren’t dangerous enough already.
From The Wall Street Journal, November 16, 2004.
A world-wide surge in the mining and use of coal is helping offset some of the economic strains of rising oil demand and marks an important shift in energy consumption with long-term consequences for the global energy equation and the environment.
The trend is especially notable in the two countries that are the biggest new sources of global energy demand: China and India. These nations have enormous coal reserves but not nearly enough oil and gas….
"We lived in a period of plentiful energy, and now we're entering a period of tighter supplies. ... Coal will fill some of that gap," says Gerard McCloskey, a coal-industry consultant and editor of a trade newsletter in London….
For all the upside, many experts believe that burning more coal could worsen the planet's environmental problems. Coal-related emissions are blamed for a rise in respiratory illness, mercury poisoning and other dire health consequences. Such emissions are believed to contribute to global warming….
The environmental hazards are greater for China and India, which are expected to make up two-thirds of global coal demand through 2030. China has seven of the world's 10 most-polluted cities, largely owing to fumes from coal….
Part of the problem is that demand in China appears to be growing faster than regulators' ability to police emissions. A few years ago, when demand wasn't so strong, the Chinese government moved to shut thousands of substandard coal operations. Chinese coal production tumbled by more than 25% to about 500 million tons of oil equivalent in 2000, according to BP data.
Then China's economy took flight. By 2003, Chinese coal production had soared to 842 million tons of oil equivalent. If recent trends hold, production could rise to nearly one billion tons of oil equivalent this year….
Global Surge in Use of Coal Alters Energy Equation
Shift Offers a Way to Slow Rise in Demand
For Oil; Worries on Global Warming
There you have it, folks. Say goodbye not only to decent paying jobs for America’s workers, but also to our world’s likelihood of surviving beyond the next century.
Again, we’re going to have "an S&L-style taxpayer bailout of [another agency of government that pays for corporate malfeasance]." The greedy top executives of American corporations who looted the corporate treasuries—and underfinanced their corporate pension funds—will retire as millionaires, while taxpayers will pay their pensioners the money that they deserved and were promised.
From The Wall Street Journal, November 16, 2004.
WASHINGTON—The federally chartered company that backstops private pension plans said its long-term deficit more than doubled in 2004, under pressure from failing airline plans.
The Pension Benefit Guaranty Corp. said its long-term deficit expanded to about $23.3 billion in fiscal 2004, from about $11.2 billion in 2003. The agency takes over defined-benefit pension plans when they become insolvent, and by law pays at least a portion of the benefits promised to retirees….
"They [the PBGC] are thoroughly bankrupt no matter how you look at it," said Douglas Elliott, president of the Center on Federal Financial Institutions, a new nonpartisan Washington think tank; it so far is funded largely by Mr. Elliott himself, a former Wall Street investment banker. "I think the government probably is going to have to sponsor a bailout at some point."…
Congress has made the problem it faces somewhat more difficult by passing new rules for calculating pension obligations that make many companies' underfunding of their plans look somewhat less dire. Many experts believe it's going to be hard for Congress to force employers to fix the mess. That will further increase pressure for a bailout. On the other hand, a taxpayer bailout could be politically volatile because only about one-fifth of U.S. workers are currently covered by defined-benefit plans, which tend to be relatively generous.
House and Senate Republicans issued statements calling for legislation focused on pushing companies with weak plans to beef them up. The PBGC could also seek to make it more difficult for companies to shed their obligations in bankruptcy. But Rep. George Miller (D., Calif.) said the PBGC could eventually require "an S&L-style taxpayer bailout of the agency."
Pension Guarantor's Deficit Widens
Gap Reached $23.3 Billion
In '04 Amid Airline Woes;
Troubles May Spur Change
Key statement above: “Congress has made the problem it faces somewhat more difficult by passing new rules for calculating pension obligations that make many companies' underfunding of their plans look somewhat less dire.” Guess who makes up that Congress: Republicans and conservative Democrats, who do the bidding of their corporate supporters before ever considering the public interest.
What a great economy. The ranks of millionaires are surging, while many of those at the bottom half of our economic ladder can’t afford to pay rent and also buy necessary medical care—or send their kids to college, a genuine necessity today.
From The Wall Street Journal, November 16, 2004.
The ranks of U.S. millionaires surged 33% to a record 8.2 million households in mid-2004 from a year earlier, buoyed by this group's steady investment in the stock market.
An additional two million households this year joined those with more than $1 million in net worth excluding primary residence, according to TNS Financial Services' annual survey of the wealthy….
Ranks of U.S. Millionaires Surge
Sounds like the 1920s all over again. The number of millionaires in that decade tripled, while the average worker made under $800 a year (and it took $2,000 to support a family of four above the poverty level).
Also, in 1929, the top 1% of Americans owned 44% of the privately held wealth in the country. Because of liberal governmental policy, that figure dropped to 19.9% in 1976. And, according to a recent Business Week article, it’s now again back up to the 40% level.
1929 all over again? And all that followed it?
The continuing saga of a morally corrupt industry—and an inadequate government oversight—continues to unravel.
From The Wall Street Journal, November 17, 2004.
New York Attorney General Eliot Spitzer told federal lawmakers that Congress needs to look into the insurance industry's "Pandora's box" of problems, saying that lack of federal oversight and disclosure has padded consumers' insurance costs.
While Mr. Spitzer was testifying on Capitol Hill, two more low-level insurance executives in New York surrendered to police and made their way to a courthouse in lower Manhattan, where they pleaded guilty to criminal charges for their roles in alleged bid-rigging and steering.
Five individuals have pleaded guilty as part of the probe kicked off Oct. 14 by Mr. Spitzer's civil suit against Marsh & McLennan Cos.' Marsh Inc. insurance-brokerage unit. In it, he alleged that Marsh brokers cheated clients by rigging bids for insurance contracts and steering business to insurers that paid Marsh millions of dollars in so-called contingent-fee commissions, which Mr. Spitzer likened to kickbacks….
Mr. Spitzer and Connecticut Attorney General Richard Blumenthal, who also is probing insurance-industry abuses, told a Senate governmental affairs subcommittee that many of the conflicts now being uncovered stem from regulatory "gaps" that let the industry escape tough oversight.
"It is clear that the federal government's hands-off policy with regard to insurance, combined with uneven state regulation, has not entirely worked," Mr. Spitzer said….
Mr. Spitzer said his probe has turned up widespread evidence of undisclosed payments between insurers and insurance brokers. A new conflict, he said, involves insurers who made loans and gave company stock to individual brokers who steered business their way. He declined to discuss which companies engaged in the practice, which could be improper if it was undisclosed and if it influenced a broker's decision about where to steer business….
Messrs. Spitzer and Blumenthal said the problems extend from automobile insurance to health-care benefits. The pair called on Congress to investigate the growing trend of insurers moving to Bermuda and elsewhere offshore to escape regulation. However, they cautioned lawmakers not to pre-empt state oversight, saying the federal government should increase its role while preserving states' rights.
A survey of nearly 700 corporate insurance-buyers released yesterday suggests many buyers share the regulators' concerns. Almost three-quarters of those surveyed favored improved disclosure by brokers and insurers, while 54% said contingent commissions pose a conflict of interest for insurance brokers. The survey was conducted Nov. 10-12 by Advisen Ltd., a New York insurance-information provider….
Spitzer Decries
Lax Regulation
Over InsuranceConsumers End Up Paying More,
State Attorney General Testifies;
Guilty Pleas Grow in Manhattan
And who caused “the federal government's hands-off policy with regard to insurance”? Republicans, of course.
Republicans don’t actually believe in government—except when it’s the non-elected international corporations who are governing our society.
Not even the Republicans who read The Wall Street Journal can deny any longer the disastrous effects of air pollution. Yet, count on it, any time new legislation is proposed to preserve our environment, the Republicans will oppose it.
Greed trumps common sense every time in the Republican repository of moral values.
From The Wall Street Journal, November 17, 2004.
Elevated levels of ozone in urban areas may cause an increase in premature deaths, according to a study in this week's Journal of the American Medical Association. The findings suggest that ozone—which is the principal ingredient in smog—causes far more harm than previously known.
The study is believed to be the first large-scale investigation of its kind in this country to find a correlation between increased ozone levels and premature deaths, a link long suspected by many doctors….
Ozone is a gas that occurs naturally in the upper atmosphere to shield the earth from harmful ultraviolet rays. But it also is created in the lower atmosphere, when vehicle and industrial emissions react with sunlight. Levels typically rise when sunlight and heat is highest in the summer months. Ozone inhalation can cause shortness of breath, chest pain and wheezing and increase the risk of respiratory infections, asthma attacks and lung inflammation, health experts say….
"This is a very important study because there had been a relative lack of interest in studying the chronic effects of ozone," said John Balmes, a professor of medicine at the University of California at San Francisco and a spokesman for the American Lung Association of California. "I think the message is we can't just focus on one type of pollutant, but we have to look at the pollutant mix."…
Officials of the American Lung Association say this study is further proof the administration needs to do more to crack down on air polluters. But Tom Skinner, an acting assistant administrator of the EPA, says the agency has diligently gone after polluters. He cited the agency's success in gaining legal commitments during the past year for plants to reduce their pollutants of all types by a billion pounds annually. In a statement, EPA officials also said the ozone study further supports the need for continued state and federal efforts to reduce ozone levels….
“If you can see dirty air, presume it could make you sick," an advisory from the American Lung Association says.
Study Links Deaths
In Many Urban Areas
To Increases in Ozone
Of course, “Tom Skinner, an acting assistant administrator of the EPA, says the agency has diligently gone after polluters.” Naturally. That’s what Republican administrations always do: pander to the Republican political supporters, and then cite the few instances in which the EPA actually did its job.
Even the ultra-conservative Wall Street Journal can’t avoid reporting news that proves what deliberate liars our Republican Congressmen are.
Before the election, they assured voters that they valued education, that they wanted to protect the environment, and that they valued small business owners. After the election, they couldn’t wait to cut funding for these and other projects that benefit most Americans. And all in order to cut taxes for our richest citizens.
From The Wall Street Journal, November 18, 2004.
WASHINGTON – Republicans in Congress neared agreement on a year-end budget bill that would dramatically slow the growth in federal support for education and nondefense scientific research to meet strict spending targets set by the White House.
The action came as the Senate voted last night to raise the federal debt ceiling by $800 billion to help Treasury cope with continued large deficits. And paying a political debt of their own, House Republicans changed a decade-old rule to protect Majority Leader Tom DeLay from having to give up his party post if indicted by a grand jury investigating alleged campaign-finance abuses in his home state of Texas….
Senate Republicans are retreating from pre-election promises of more money, and the impact on research and education is most striking. The National Institutes of Health would be held to $28.6 billion, or a 2% increase over this year's spending levels, and after years of growth, the National Science Foundation would get a slight cut of about $62 million below current levels.
Total funding for the Education Department is expected to be less than President Bush's budget request for the 2005 fiscal year that started Oct. 1, and the shortfall will widen further once House and Senate negotiators impose a final 0.75% cut across the board on proposed spending levels. For example, while Mr. Bush had proposed an estimated $1 billion increase in funding for special education, the proposed bill falls about $383 million below this goal. And once the 0.75% cut is added, the gap could widen to $470 million.
"The Lord giveth and taketh away," said Rep. Ralph Regula (R., Ohio), one of the negotiators.
Elsewhere, cuts would be imposed on funding for clean-water projects, small-business loan subsidies and the Export-Import Bank—all of which would get less than 2004 spending levels….
Its heft makes it a target for end-of-session special interest provisions, and food marketers and the meat industry hope to add provisions weakening food-labeling requirements approved when Democrats controlled the Senate in the last Congress….
Congress Targets
Cuts in Spending;
DeLay Is Shielded
And while they’re cutting every program that isn’t devoted to improving the lives of the wealthy, they reverse their ten-year-old commitment to ethical government—in order to protect one of their most morally corrupt members: Tom DeLay.
Do you want to know who the privatization of Social Security is really supposed to benefit? Just read below.
Note that “windfall” describes the benefits to Wall Street firms, and not to retirees with pitifully small amounts of money to invest.
From The Wall Street Journal, November 12, 2004.
The politically charged issue of allowing workers to divert a portion of their Social Security taxes to individually controlled accounts investing in the stock or bond markets is back on the table, and speculation about the windfall that Wall Street would reap already is swirling….
Social Security taxes are currently collected, pooled together and invested in short-term U.S. government securities. Current retirees receive their Social Security payments from that pool. Under the proposals being circulated, a worker could choose to divert a portion of the Social Security taxes withheld from a paycheck into a personal account that could be invested in stock or bond mutual funds.
On Wall Street, people are focused on the presidential commission's "Reform Model 2." Under this proposal, workers under the age of 55 would have the choice of redirecting four percentage points of the 12.4% payroll taxes they pay into personal accounts. Initially, the maximum annual contribution to a personal account would be $1,000.
Such a program could result in about $100 billion a year flowing to the personal accounts, says Robert Pozen, a member of the presidential commission and currently chairman of MFS Investment Management….
Windfall From a Privatization
Of Social Security to Take Time
If investing Social Security funds on Wall Street is such a good idea, why don’t we let the securities firms put their own money on the line.
Instead of the government turning small percentages of money over to individuals to invest, securities firms could bid on taking over portions of the Social Security fund, and guarantee the government a certain amount over bond returns. The securities firms could then keep as profit any money made over the guarantee to the government. Of course, that assumes that the securities firms actually believe that they can do significantly better than the guaranteed return on bonds—and that’s a stretch.
They probably won’t have to worry though. With the Republicans in charge of government, individuals will put portions of their Social Security into the hands of Wall Street—and Wall Street will make its guaranteed profits, and the individuals will take all the risks.
Remember how Bush’s tax cuts for the wealthy were going to stimulate the creation of jobs in the U.S.? If you want to know where they’re really putting their tax refunds, read the following.
Not only is investor money going to China and other Third World countries, it’s creating greater competition for the remaining jobs in the U.S. and actually exacerbating our degenerating economy for working-class Americans.
From The Wall Street Journal, November 11, 2004.
THESE DAYS nearly every private-equity fund looking to invest in U.S. manufacturing has to have a China strategy.
But what strategy? Competition from the growing Chinese economy and its huge pool of low-cost labor is causing a split in the investment community. Some private-equity firms are turning away from manufacturing, to service industries such as restaurants, while others are buying U.S. manufacturers and moving the production to China….
More private-equity firms are hiring experts who know how to help U.S. manufacturers buy products and parts from low-cost foreign factories—a common strategy for dealing with the challenges of Chinese competition….
"If you look at any portfolio, you'll see decreasing share of manufacturing, and more service," says Béla Szigethy, managing general partner of Riverside Co., a New York private-equity firm with $1.3 billion under management. "The recession and China have both hit manufacturing hard, so we've moved rapidly to increase service companies in our portfolio."…
Funds Refocus China Strategies
Private-Equity Firms, Investors
With U.S. Manufacturing Assets
Embrace China's Factory Sector
We’re repeating the conditions that led to the depression. "The recession and China have both hit manufacturing hard.” As more manufacturing plants are built in China, and consumers worldwide are losing their purchasing power—we’re becoming loaded with “overcapacity,” even though consumers need the products that are coming off the assembly lines.
Someday the voting public may realize that Bush’s tax breaks should have gone to middle- and low-income workers who would have spent their money in this country. Even though they may have purchased products made in China, at least the money would have stimulated the American retail economy. At least, that’s better than putting the money into overseas manufacturing plants and further destroying American working-class wages.
What a convoluted world we’re living in. We don’t put tariffs on products made by American corporations in other countries where they have access to brutalized workers. Instead, we’re putting the tariff on U.S. taxpayers who will make up the difference between the wages of American workers vs. the brutalized workers in Third World countries.
And the Dell investors and top corporate executives will get incredibly rich from the process. Not only does Dell get the true economic advantages of locating in the center of a distribution area, it, in effect, gets an ironclad guarantee that they’re entering an almost risk-free business deal.
From The Wall Street Journal, November 10, 2004.
Dell Inc. plans to construct a new 500,000-square-foot personal-computer assembly plant in North Carolina to supply its growing business in the Eastern U.S….
The expansion continues the world's largest PC maker's strategy of locating assembly operations near large markets, to reduce shipment costs and provide faster delivery.
Dell has assembly facilities in Texas and Tennessee. Outside the U.S., it has assembly plants in Brazil, China, Ireland, and Malaysia….
"There is a great, educated work force, a good business climate, and fine logistics" in the region, Mr. Rollins says….
Last week, North Carolina legislators agreed to provide $242 million in tax incentives to help lure Dell to the state. As part of the package, Dell receives a tax credit on each PC built at the plant through 2019….
Mr. Rollins says Dell expects to make an initial investment of about $60 million to build the plant and equip two production lines, increasing to $100 million as production expands….
Dell to Build Assembly Plant
In North Carolina
What a sweet deal for Dell. In order to bribe Dell to create jobs in North Carolina, it’s giving it $242 million in tax breaks, even though Dell is only going to invest $100 million in the manufacturing plant.
Our country is going crazy. And it’s being driven insane by Republicans and conservative Democrat politicians who have made it all possible.
Too few voters realize how conservative politicians, through the Federal Reserve Board, deliberately keep working-class wages from going up—even at a time of record corporate profits. The people who say we shouldn’t be envious of the rich are the very same people who watch the incomes of workers like predatory hawks.
And any small sign that unemployment levels may go down—and wages of workers may go up—wealthy investors demand that the Fed slow down the economy by raising the prime interest rate.
From Barron’s, November 8, 2004.
Bond yields soared Friday after a government report showed that more jobs than had been expected were created in October, making it likely the Fed will raise short-term interest rates two more times this year and keep boosting them well into 2005….
In the wake of the employment report, the federal-funds futures market predicted that the Fed's policy-setting Open Market Committee is all but certain to boost its overnight fed-funds rate target—currently 1.75%—by a quarter-point Wednesday. Perhaps more important, futures put a 75% probability on another quarter-point rise when the FOMC meets on Dec. 14….
Jobs Jump, Treasuries Reel
For a more extensive discussion of this subject, see: The Class Warfarer’s scapegoat: “Wage Inflation”.
And how are corporations doing these days? They’re “flush with cash.” How nice.
And why are they still reducing staff, and cutting wages and benefits for workers? And giving bigger dividends to their investors? Because Republicans and conservatives have given them the power to do so, of course.
From Barron’s, November 8, 2004.
CORPORATIONS ARE FLUSH with cash these days. According to Standard & Poor's, the aggregate cash on the balance sheets of S&P 500 members stood at $590 billion on Sept. 30, up 126% from $261 billion five years earlier.
Among the things directors can do with all that lucre is raise dividends or buy back stock. Manpower hadn't done either in six years until last Monday, when the largest U.S. provider of employment services doubled its semiannual common payout to 20 cents a share and launched a new stock-repurchase program for up to five million shares. Disbursement of the new divi
A Power Payout
Manpower doubles dividend; repurchases shares