Conservative Press 05janfeb

Previous Weeks' Conservative Press

From January 3 to March 28, 2005


     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.)




The week of...

March 28

March 21

March 14

March 7

February 28

February 21

February 14

February 7

January 31

January 24

January 17

January 10

January 3



Week of March 28



     Can you think of how the following two items in the same issue of the Journal are related?


From The Wall Street Journal, March 31, 2005.

AIG Admits 'Improper' Accounting

Broad Range of Problems
Could Cut $1.77 Billion
Of Insurer's Net Worth
A Widening Criminal Probe

American International Group Inc., the world's largest business insurance company, admitted to a broad range of improper accounting that could slash its net worth by $1.77 billion.

In an extraordinary confession, the 93,000-employee company with operations in 130 countries outlined transactions that "appear to have been structured for the sole or primary purpose of accomplishing a desired accounting result." It listed eight areas where a wide-ranging and still-continuing internal review has identified accounting problems or potential ones, and explicitly labeled as "improper" the treatment of a deal with a unit of Warren Buffett's Berkshire Hathaway Inc.

State and federal investigators probing AIG believe yesterday's statement doesn't cover the full extent of AIG's accounting missteps over the past decade, people familiar with the matter say….

Amid the wave of financial scandals that have toppled corporate executives in recent years, AIG's woes stand out. Unlike Enron, WorldCom and HealthSouth -- all highfliers that rose to prominence in the 1990s -- AIG has been a solid blue-chip for decades. Its stock is in the Dow Jones Industrial Average, and its longtime chief, Maurice R. "Hank" Greenberg, was a globe-trotting icon of American business….


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Continental Nears
Labor Cost-Cut Goals

HOUSTON—Pilots, mechanics and dispatchers at Continental Airlines approved tentative agreements to cut their pay and benefits, putting the company a few steps closer to slashing labor costs by $500 million a year and avoiding a cash crunch….


     How are they related? They’re both the result of a totally corrupt corporate environment in which anything goes—as long as it profits investors and top corporate executives, and no matter what the disastrous effects are on workers, consumers, or the environment. Of course, the reason employees in the airline industry are taking pay, and standard of living, cuts, is because of decades of greedy actions of former top executives.

     As investors and corporate executives become a new class of American aristocracy, working Americans and consumers get taken to the cleaners.

     Not only is the “profit any way you can get it” philosophy leading to unethical and immoral behaviors, it is leading to actual violations of law. And reference to “the wave of financial scandals that have toppled corporate executives in recent years,” is the understatement of the year.

     And these are the same hypocrites who claim that corporate executives are better managers—and are better for our country—than are “government bureaucrats.”




     China, ladies and gentlemen, is the country that our Republicans and conservative Democrats in Congress and the White House have given our industries to.

     Under the heading of “free international trade”—also known as “death of American worker incomes, in order to create a new American aristocracy”—we are making the most ruthless country today the world’s next superpower.


From The Wall Street Journal, March 29, 2005.

Staking a Claim

China Flexes Economic Muscle
Throughout Burgeoning Africa

Beijing Forges Deep Alliances
With War-Torn Nations,
Countering U.S. Influence
A Dam Gets Built on the Nile

ADDIS ABABA, Ethiopia—When this east African country went to war against neighboring Eritrea in the late 1990s, the U.S. responded by evacuating its Peace Corps volunteers, scaling back military aid and issuing a security warning to U.S. citizens and companies.

The Chinese government had a different reaction. Beijing saw the war—and the reduced U.S. presence—as an opportunity to expand its influence. It dispatched even more diplomats, engineers, businessmen and teachers to Ethiopia. New aid grants soon rolled in, followed by bank credits for Chinese companies operating there.

Today, China's influence in Ethiopia is overwhelming. Its embassy is among the largest in the country and hosts more high-level visits than any Western mission. Chinese companies have become a dominant force, building highways and bridges, power stations, mobile-phone networks, schools and pharmaceutical plants. More recently, they have begun exploring for oil and building at least one Ethiopian military installation.

It's all part of Beijing's broad push into Africa. Aiming to secure access to the continent's vast natural resources, China is forging deep economic, political and military ties with most of Africa's 54 countries. There's more at stake than just fuel for an economic juggernaut, however, say senior Chinese officials, executives and Western diplomats. In Africa, as in many other parts of the developing world, China is redrawing geopolitical alliances in ways that help propel China's rise as a global superpower….

For the U.S., China's Africa initiative poses new challenges. Despite a landmark trade pact signed with Africa in 2000, U.S. influence has leveled off in many African countries and in some cases declined. Now, as Washington focuses its attention on the Middle East, it faces a formidable player in a region key to future U.S. economic and security interests….

Unlike the U.S., which bars U.S. companies from doing business with some outlaw regimes, Beijing expresses no qualms about dealing with the continent's most brutal and corrupt leaders. Instead, Chinese leaders prefer to view their relationship through a North-South prism, emphasizing the need for developing nations to band together against the industrialized West….

What's more, many Chinese companies operating in Africa are government-owned and less concerned with near-term profits. Indeed, by reaching out to African leaders who are shunned by Western nations, and throwing money at projects Western companies avoid, Chinese officials and businessmen say they are able to secure more business deals and build political influence at a far more rapid pace….

Says Girma Biru, Ethiopia's Minister of Trade: "China has become our most reliable partner and there is a lot we can learn from Beijing, not just in economics but politics as well."…


     This is a very brief excerpt of a massive article. Those who want to pursue the matter further—and scare themselves absolutely to death—should read the original.




     The greed never ends. And the disconnect between ethical corporate practices and the compensation given to top level executives continues without shame.


From The Wall Street Journal, March 29, 2005.

Bank of America Pays Its CEO
$19.3 Million Amid Penalties

Bank of America Corp., which has paid more than $1 billion during the past year in scandal-related settlements and penalties while absorbing a huge acquisition, paid its chairman and chief executive, Kenneth Lewis, a total of $19.3 million in compensation, according to a proxy filing with the Securities and Exchange Commission….

Bank of America has faced a series of regulatory and legal blowups. Last July the company became the first bank to settle a class-action suit alleging that some top U.S. financial institutions participated in a scheme with Enron Corp. executives to deceive shareholders.

Earlier this month Bank of America agreed to pay $460.5 million to settle a suit brought by investors of the former WorldCom Inc. who lost billions when the telecommunications company filed for bankruptcy protection in 2002 after an accounting scandal. The bank also agreed to pay $675 million to settle improper mutual-fund trading charges.


     There you have it folks. The only way we judge corporate executives is by how much money they make for their shareholders—not how they made it or who they screwed in the process.




     The following article doesn’t even discuss the most important aspect of our “becoming a nation of financiers.” It’s emphasis is on the fact that corporations are getting out of manufacturing and into pure finance—like credit cards, mortgages, finance fees, etc.

     Unfortunately, it doesn’t mention the most important way in which major corporations are becoming, in effect, investment bankers. They do it by getting out of manufacturing, and contracting out to others the actual production of products and services. They’re taking the easier and faster route to extreme wealth: pit suppliers against each other—from all parts of the world—in a bidding war that is based on paying workers the least, and on having the worst working conditions.


From Business Week, March 28, 2005.

Corporate America's New Achilles' Heel

Overreliance on profits from finance units may be setting companies up for a fall

America is no longer a nation of manufacturers. But it isn't quite a health-care or even a tech economy, either. Instead, America is quietly and quickly becoming a nation of financiers.

Finance supplies 30% of all U.S. company profits, as of last Sept. 30, up from 21% a decade ago, according to federal government data. And some of those profits don't come from banks or other financial companies, but from manufacturers and retailers that rely on their financial activities for a big chunk of their earnings.

At Deere & Co., the farm-equipment company, finance produces nearly one-fourth of earnings. Retailer Target Corp. usually gets about 15% of its profits from its credit cards. And while General Motors Corp. is having trouble selling cars, its ditech.com mortgage business is going great guns. GM's financing operations earned $2.9 billion last year, while GM lost money on cars. If GM earns any money this year, it will again come from finance.

With finance dominating the corporate landscape, any threat to financial earnings has a magnified impact—and now several threats are gathering. Since the Federal Reserve started raising interest rates in June, finance businesses have paid higher short-term rates on the funds they use to make loans, but the rates they charge customers for longer-term loans haven't been rising nearly as fast. That's starting to squeeze profits.

What's more, lenders have been running more risks than ever as the competition for borrowers heats up, according to a report by Bridgewater Associates Inc., which manages $92 million in investments. So more defaults may be on the horizon….

Of course, it's possible that none of these scenarios will turn into painful reality. Perhaps stronger demand from borrowers will lift long-term rates and spreads. Perhaps the recent buildup of cash on corporate balance sheets will offset losses from defaults. In an economy that increasingly revolves around finance, however, the triple threat is certainly unsettling.


     Key statement: “America is no longer a nation of manufacturers.” How sad. That’s always been the route to success and a better live for low- and middle-income Americans. We’re now a country that is totally geared to benefit the inheritors of wealth—at the direct expense of those who work for a living.




     Who knows what’s the truth behind news items like the one below? Greed, corporate politics, and the total disregard for the welfare of employees and the general public all seem intertwined. Previous stars of the corporation are charged with willful skullduggery.

     Were they actually miscreants—or were they simply caught by the authorities for doing what they knew they were expected to do to the real powers-that-be in the corporation?

     Again, it seems that another of our widely-acclaimed success stories in modern corporate America is beginning to unravel.


From The Wall Street Journal, March 28, 2005.

Wal-Mart Forces a Director's Exit

Ex-Vice Chairman Coughlin
Quits After Expense Probe;
CEO Plans to Address Staff

Wal-Mart Stores Inc. forced its former vice chairman and one-time No. 2 executive, Thomas M. Coughlin, to resign from its board following an investigation into fraudulent expense accounts and invoices and misuse of company-owned gift cards….

Mr. Coughlin's ouster comes as Wal-Mart faces mounting legal and public-relations challenges. Wal-Mart is already scrambling to explain its latest public black eye to its employees. Tomorrow, according to the company, Wal-Mart President and Chief Executive Lee Scott plans to tell company employees in an internal telecast that "If you see something or someone asks you to do something that you know is wrong—whether that is a buddy or a supervisor or Lee Scott—you must have the courage to say 'no.' We all have to do this, no matter our role or position within the company."

The six-week internal investigation also led the company to fire three employees, including a company officer, the company said. The terminated employees included Rob Hey, who was a vice president of store operations, according to people familiar with the matter….

Mr. Coughlin's abrupt departure is the latest in a series of controversies surrounding Wal-Mart. Last summer, a federal-court judge ruled that a gender-discrimination lawsuit against the company could proceed as a class action encompassing possibly 1.6 million women. The company is appealing. In just the last several weeks, Wal-Mart paid a fine to settle federal allegations that underage workers were allowed to operate dangerous machinery. And it recently paid $11 million to settle a federal investigation regarding its use of undocumented workers in floor-cleaning crews.

At the same time, Wal-Mart is increasingly battling critics who accuse the company of paying low wages and benefits while killing off smaller businesses. It recently launched a high-profile image campaign to refute its critics….

Another question the company anticipated: "Why does this stuff keep happening? Is there something wrong with Wal-Mart?" To that Wal-Mart corporate affairs offered this response: " ... [T]his demonstrates once again the strength of the Wal-Mart culture. Our standards of integrity apply to everyone, with no exceptions."…

As recently as the late 1990s, Mr. Coughlin was considered a possible contender to succeed David Glass as Wal-Mart's CEO. But Mr. Scott, a logistics whiz with relatively little merchandise experience, ultimately won out. Although the two publicly made light of their supposed rivalry, people close to the company say Mr. Coughlin was bitter that he lost the top job….

Mr. Coughlin remained a company icon, familiar to rank-and-file store workers and executives alike. He had worked in almost every division of the company, from head of human resources to chief operating officer of Sam's Club. Mr. Coughlin was seen as a keeper of the Wal-Mart culture, a merchant above all else who evoked company founder Sam Walton….

Still, others question what effect losing a merchandising and store-operations mastermind such as Mr. Coughlin will have on a company that is seeking to make its stores more efficient….


     The joke of the day: "If you see something or someone asks you to do something that you know is wrong—whether that is a buddy or a supervisor or Lee Scott—you must have the courage to say 'no.' We all have to do this, no matter our role or position within the company." Sheer sanctimonious hypocrisy. Everyone knows that people who do this in today’s corporate environment always lose.

     And today’s euphemism: “a company that is seeking to make its stores more efficient.” Translation: a company that does everything to reduce costs—no matter how unfair or brutal to employees, suppliers, and their more ethical competitors.




     The sanctimonious hypocrites are gearing up for battle. They’re making the globalization issue pro- or anti-Hispanic versus what it really is: wealthy investors versus people who actually work for a living.


From Business Week, March 28, 2005.

This Trade Pact Won't Sail Through

Expect a bruising CAFTA debate as both parties try to score points with Latinos

In the three years since Congress handed the White House carte blanche to negotiate free-trade deals, lawmakers from both parties have rubber-stamped a handful of minor pacts. But the Central American Free Trade Agreement (cafta), scheduled for Apr. 6 hearings, promises to be a bitter battle as both parties maneuver to appeal to Hispanic voters.

Democrats and their labor allies are closing ranks against CAFTA as harmful to workers in the U.S. and Central America. Meanwhile, the Administration is ready to paint Democratic foes of the pact as anti-Hispanic. "You have six struggling democracies trying to do the right thing," says Christopher A. Padilla, an assistant U.S. trade representative whose grandfather emigrated from Guatemala. "How is a vote against that going to look [to U.S. Latinos]?"…

To promote the deal, ambassadors and other officials from Central America are rushing in. Their message: "We are your neighbors, and we are poor, and it's not a good idea to keep your neighbors poor," says Carlos Sequeira, Nicaragua's chief CAFTA negotiator. "The critical question is, 'Do you want to lose jobs to your neighbors or to China?"'

Opponents such as Representative Xavier Becerra (D-Calif.), a second-generation Mexican-American who has voted for free-trade pacts during his 12 years in Congress, argues that CAFTA "will set off a race to the bottom." Like other pro-trade Dems and Latino activists, Becerra says CAFTA will not require Central American governments to protect workers or ban child labor. What's more, foes say CAFTA could devastate the region's farm economies with a flood of U.S. corn and rice….


     The drive of the wealthy and powerful to become more wealthy and powerful never ends. Utilizing child labor and taking ruthless advantage of impoverished workers of the world are standard practices of today’s financial conservatives.




     When is the American public going to wake up? Again, sanctimonious hypocrisy reigns supreme in our Congress, and this time the stakes are our environmental survival.


From Business Week, March 28, 2005.

COMMENTARY

Energizing Energy

The U.S. urgently needs to tap new sources-and conserve old ones

By John Carey with Chris Palmeri in Los Angeles and Wendy Zellner in Dallas

Gasoline prices have climbed above $2 per gallon, crude is hitting record highs—reaching $56 a barrel on Mar. 16—and OPEC is pumping more to keep America's oil pain from increasing even more. So it's small wonder that in Washington, panicky pols are suddenly talking the talk on energy policy….

Forget red-state and blue-state America. Now many lawmakers see the energy crunch in shades of green. Indeed, who could possibly be against less-polluting school buses, a more reliable electricity grid, and incentives for solar and wind power—all packaged alongside traditional GOP ideas for increasing oil and gas output?...

Even the White House, which once dismissed conservation as little more than "a sign of personal virtue," is now getting in on the act. In a mid-March speech, President George W. Bush said that America needed a strategy that "must promote conservation" as well as diversifying and updating the country's energy sources. Of course, that too remains high on the Administration's agenda: On Mar. 16 the Senate voted to open up the Arctic National Wildlife Refuge (ANWR) to drilling, though the battle is far from over.

Does this mean Washington is getting serious about a bold plan? Not really….

Even if a measure does pass, it won't do much to impose a rational energy regime on a fuel-guzzling nation. "I don't want to say there's nothing in it, but there's not a lot that really makes a difference," says Obie O'Brien, director of government affairs at Apache Corp., a Houston oil and gas producer. Sure, it's a great idea to provide incentives for everything from renewable fuels to natural gas supplies, but "the bill does not make an honest attempt to solve the long-term issues everyone is concerned about: energy security, climate change, and creating new technologies," says one key Hill staffer….

Today, the main driving force for a national energy policy is the high price of oil, says Joseph Romm, a former Energy Dept. official. "But in the long term, it will be global warming."

That's why the U.S. needs an energy plan—one that goes beyond the compromises and pork-trading that Congress will resort to in Energy Bill, Act III….

If Washington had courage, it could simply slap a slowly rising tax on emissions of carbon. In one bold move, that would make fossil fuels gradually more expensive, smoothing out price swings and spurring the development and adoption of everything from efficient cars to green power. It could even be good for the economy, if the revenues were returned to companies in the form of reduced payroll taxes or research and development funds for new technologies.

Of course, that idea is politically untenable in today's Washington. So instead, expect Congress and the White House to fight endlessly over sideshow issues like farmer-friendly ethanol or drilling in the ANWR while another opportunity to make a real difference is lost. We can do better.


     So, “Even the White House, which once dismissed conservation as little more than ‘a sign of personal virtue,’”—you mean they are pretending that they’ve improved their attitudes about the environment at the White House?




     The U.S. now has 341 billionaires, including 69 that became billionaires in just this last year.

     Consider: as of 1999 (I don’t know what the present figures would be, but I suspect that they would be worse) 20% of Americans had a net worth value of zero or less. That’s assets minus liabilities. In 1984 only 15% had a net worth value of zero or less. In 1969, the figure was only 10% who had a net worth value of zero or less.

     And guess what. The top result is a direct result of the bottom result. The more the wealthy can destroy the wages, working conditions and living standards of workers—the richer they get, faster.


From Forbes, March 28, 2005.

Billion Dollar Babies

The rich had a good year. The collective net worth of the 691 billionaires we could find is $2.2 trillion, up $300 billion from the combined worth of the 587 people listed last year. Every region saw gains. The world's richest moguls now hail from 45 countries, including, for the first time, Kazakhstan, Poland, Ukraine and even Iceland. The newcomers include 69 Americans and 38 Europeans….


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     You’ll notice that every time Forbes publishes an article glorifying greed and materialism, it also carries an article in the same issue that justifies how the wealthy are getting that way. In this case, they are accusing the opponents of globalization—the biggest, single reason for the degeneration of wages for low- and middle-income Americans—as being the equivalent of racists.


From Forbes, March 28, 2005.

On My Mind

Xenophobia and Politics

By Steven E. Landsburg

Why protectionism is a lot like racism.

…Both major parties (and most of the minor ones) are infested with protectionist fellow travelers who would discriminate on the basis of national origin no less virulently than David Duke or any other overt racist would discriminate on the basis of skin color. But if racism is morally repugnant-and it is-then so is xenophobia, and for exactly the same reasons….

When General Motors hires an American in Detroit or a Mexican in Ciudad Juarez, the rest of us are not footing the bill. And that makes it none of our business. Nor should we want it to be. I hold this truth to be self-evident: It is just plain ugly to care more about total strangers in Detroit than about total strangers in Juarez. Of course we care most about the people closest to us-our families more than our friends and our friends more than our acquaintances. But once you start talking about total strangers, they all ought to be on pretty much the same footing.

You could say you care more about white strangers than black strangers because you've got more in common with whites. Does that make it okay to punish firms for hiring blacks? It's also worth mentioning that laws intended to "protect" Americans raise the price of goods that Americans buy. I won't dwell on this because it's already obvious to anyone with a dollop of economic literacy….

After all, if it's okay to enrich ourselves by denying foreigners the right to earn a living, why not enrich ourselves by invading peaceful countries and seizing their assets? Most of us don't think that's a good idea, and not just because it might backfire. We don't think it's a good idea because we believe human beings have human rights, whatever their color and wherever they live. Stealing assets is wrong, and so is stealing the right to earn a living, no matter where the victim was born.


     For those interested in the science of demagoguery, this is a classic example of the technique called “inoculation.” If you are prejudiced against working-class Americans—and think that they are overpaid for what they do—you charge your opponents of being prejudiced against, well, whatever or whoever you can dream up. Thus, you, to some degree, inoculate yourself against the charge of prejudice.

     For a more extensive discussion about the propaganda technique of inoculation, check out the file: The Republicans’ Most Important Propaganda Technique.




     Sometimes an op-ed piece is so good, it’s impossible to abstract it. The following is just such an op-ed. And the fact that the editors of one of our most conservative financial publications saw fit to publish it suggests that it, indeed, deserves serious consideration.


From Barron’s, March 28, 2005.

Homeland Insecurity

The price of free trade is mounting, says this manufacturer

By Stan D. Donnelly, CEO, Donnelly Custom Manufacturing in Alexandria, Minn.

HOW MANY TIMES HAVE YOU HEARD an economist say that he believes in free trade, because "if you produce what you're good at producing and another country produces what it's good at producing, both countries will be better off?" This distillation of David Ricardo is an economic article of faith, but it's a short-sighted policy for our country.

The free traders would have us believe that China is good at work that requires a content of manual labor. But is that so? The fact is that they aren't good at manual labor, they're just cheap. The economists are misusing Ricardo's theory of comparative advantage. China's cheap labor has nothing to do with China's manufacturing expertise, nor with any innate natural resource blessings. Instead it has everything to do with a bloated population starved for work. At a wage rate of less than 50 cents an hour, with no benefits or social protections of the sort that we have evolved, there is nothing free about this trade on either side of the ocean.

Free traders heartlessly assert that costs are costs, however they are derived. So ask them this: "If free trade means that a society is better off by sourcing its manufactures in low wage areas, regardless of the reasons why the wages are so low, what is wrong with trading with a nation who can offer the cheapest labor of all, slave labor? At those prices, wouldn't we be even more better off?"

The free traders would reply—with justifiable indignation—that such a thing would be immoral. Of course, they are right. Except that they now have admitted that costs are not just costs. Morality does have something to do with the equation after all. So let us ask the question again: "Is it moral (or even wise) to eliminate the manual-labor jobs of an evolved nation and disrupt its vital economic balance and social health?"

At its distilled essence, the wealth of a society is created by those people and corporations that make something from nothing. You've got to mine it, make it, or grow it. Manufacturing is directly about 20% of our economy; the other 80% depends on that wealth-generator. Some today scoff that our new "service economy" doesn't need this 20%. A caution: Even though your bones are only 20% of your body mass, without your skeleton, you're a puddle.

We must not fool ourselves that the bargains that we are seeing in China are any bargain at all. Nor should we fool ourselves that we can innovate and educate our way out of it. We already have a generation of millions that have flunked in our government schools. Whatever the reason is, they're here now, and more are on the way. What are we to do with them if their minds cannot be their salvation? What is wrong with letting their hands do the job instead?

Manufacturing today may be in much the same position as agriculture a century ago, when more than half of Americans worked on the land, making food. Today, it's about 3%. Most of that reduction was justifiably due to agricultural and mechanical innovation. But where did all those farmers go? They and their descendents were absorbed by a growing industrial economy that made things. So as farming went out, fortunately, new maker industries were coming in. The farmers and their descendants took up jobs that were in a known but unexpanded sector: Industry and manufacturing.

Interestingly and ominously, in the ensuing century Americans have not discovered any radically new methods to make things. Whether it's metal molecules or plastic polymers or a tree's timber, for all of the improvements and refinements we've made, we're still making things in essentially the same ways as we always have. But today, unlike in the days when the farmers left the fields, there are no new emerging and substantial maker-methods realistically in sight. So when their jobs are transferred to foreigners, where will our current makers go and what will they do?

This is the gamble at the heart of free trade policies: Free traders are betting with a blind faith that because in the past a burgeoning maker industry took up the slack during another maker-segment's contraction, a new one will somehow appear in this time of need and save the day. But 2.1 million manufacturing jobs have been lost in America in about three years.

What is the definition of a successful society? The business of business isn't everything. But it can effect everything. Can we honestly say that a society is successful that has driven its working-class folks' wages down to developing-nation levels? This is where we are heading. And we are all to blame. It is insidious.

Unemployment is not spiking up suddenly: The laid-off makers have generally taken lower wage service jobs. But as we enjoy those low China-made prices, like the slowly boiled frog, we do not feel the gathering danger. And while our leaders should see it, explain it, and lead us from temptation, the workers of America who are snapping up those China-made Wal-Mart prices are just as guilty. It's an awful circle that is slowly tightening into an unseen spiral.

Efficient and cost-effective organizations are forged on the crucible of good, hard competition. Competition is the mother of invention and the sister of efficiency—but 50 cents an hour above slave wages has nothing to do with either.

Redressing unfair competition is not new, un-American, or anti-capitalistic. Standard Oil and Ma Bell were predatory and Americans used the power of government to restrain them. Is the militaristic dictatorship in China something less?

There are two ways to deal with the problem. First, recognizing the inherently impossible nature of the United Nations, where all sovereign nations—including brutal dictatorships like China—are considered legitimate, we must form a free-trade union of only the truly democratic nations.

And for those outside of that union who wish to do business with us, we need to create a simple and transparent tariff system that is adjustable. It would be like a golf handicap system. As you get better, your handicap goes down. What's par for the course? Here in the United States shooting par includes paid holidays and vacations, OSHA and EPA regulations, worker compensation and unemployment state-mandated insurances, hefty business, personal, and property taxes, 14.5% social security tax, time and a half over 40 hours per week, and a $5.15 minimum hourly wage. That's par for the course in America. And on our course, China should have a 36 handicap and accompanying duty. But as China develops, then, like an improving golfer, its handicap will drop. This is a handicap-tariff system that is fair, flexible, and feasible.

We are living in a lull. At present, the former makers are taking lower wage jobs, which is only masking the coming unemployment and disposable earnings problems. In time, people will be unable to afford even those cheap Asian prices Wal-Mart offers, and when that day arrives, so will the whirlwind.

This free trade is not free: Sooner or later, it will cost us dearly.


     Re-read the last two paragraphs. They’re prophetic.




     The following op-ed can easily be abstracted. It’s so full of nonsense and repetitious propaganda, you’ll immediately recognize its absurdities.


From Barron’s, March 28, 2005.

EDITORIAL COMMENTARY

Rising Expectations

Even the poverty line goes up as national wealth increases

By Thomas G. Donlan

POVERTY ISN'T WHAT IT USED TO BE, for which all Americans should be thankful. The 12.5% of Americans who were officially designated as poor in 2003 lived better than the poor people of 20 years ago or 50 years ago or 100 years ago. Economists who analyze poverty issues call this the "income elasticity of the poverty line."

By any title, what it means is that somebody has remembered to ask, "Compared to what?"

Since the wealth of the nation rises continually, if not consistently, and since scientists, engineers and manufacturers are continually providing more and better goods, the average standard of living of Americans rises accordingly. Americans whose standard of living does not rise will fall further into poverty compared to the average. And those whose standard of living rises with the average will still be poor by any reasonable comparison, even though they have more stuff.

Two centuries ago, even George Washington did not have central heating. A hundred years ago, the indoor toilet, the electric light and the telephone were found only in a few homes that could afford to install them. These conveniences became middle-class necessities and eventually commonplace items in every American home, even the poorest.

Today's poor also have a better social safety net. Dust Bowl refugees had next to nothing when their farms stopped producing and little in the way of charity to fall back on. Unemployed factory workers may have had more resources, such as shoes and overcoats, but they had more expenses too. Life on "relief," or in one of the tent cities called Hoovervilles, seems shocking today because all of us, including the poor, have come so far….

Those who say that the widening income gap is bad news rarely acknowledge the improving general standard of living. They deny that "a rising tide lifts all the boats" and they think that "trickle-down economics" is a curse rather than a blessing….

It all fits together. If upper-income people have more of their own money available to do more saving and investing, all Americans will keep getting richer. The economy will keep on increasing wages faster than prices and the nation will continue to be able to afford to raise the poverty line.


     The Donlan’s of the world choose to remain willfully blind to the fact that we are a nation of incredible wealth, yet the poor and middle class are finding it increasingly more difficult to get reasonable health care, reasonable rents, etc. And, at the same time, the wealthy are buying up—and raising the cost of—everything in sight, from land and buildings to medical care and advanced education.

     They also choose to ignore that it’s the explosion in technology and productivity that has benefited our country’s poor and middle class, not the economic system that is heavily biased in favor of investors and the wealthy, and against those who actually work for a living.

     For an extended discussion of the zerosum nature of wealth, see Wealth is a Zerosum Game.




      Our rapacious financial wheelers and dealers—the ones who buy and sell corporations, and conduct mergers and acquisitions, and divestitures with abandon—frequently justify their actions on the basis of lower-level inefficiencies. Corporations have grown too fat, employees are too complacent, even “spoiled,” and there are too many duplications of effort, and so on.

     To some extent that may be true. But what about the greedy barbarians at the top of our American corporations? The following two excerpts were in the same issue of the Journal.


From The Wall Street Journal, April 1, 2005.

Morgan Stanley CEO,
Deputies Mount Defense

Support of Major Shareholders,
Top Officers Is Sought Amid
Calls for Purcell's Ouster by Alumni

Morgan Stanley Chief Executive Philip Purcell and his new top deputies yesterday intensified their defense against calls for his ouster, seeking support from top Morgan Stanley executives and the Wall Street firm's largest shareholders.

Mr. Purcell and the deputies scheduled a trip to Boston today to visit money managers to defend his record and make the case for this week's management shake-up. His co-presidents sought to gain signatures for a letter of support from members of the firm's management committee and a few other top executives, though they said late yesterday that a letter is just one possible way they may respond….

The public attacks against Mr. Purcell, led by former President Robert Scott, ex-Chairman Parker Gilbert and six other alumni, who yesterday aired their grievances against the Morgan Stanley CEO in a full-page ad in The Wall Street Journal, have stoked a sense of crisis within the firm that the Purcell team is attempting to quell. The ad warned of a possible additional "loss of talent" after this week's management shake-up, which led to the departure of key executives….


---------------------------------------------------------------

Tyco Ex-Auditor
Testifies on Bonuses

NEW YORK—Tyco International Ltd.'s former lead outside auditor testified he was aware of two special bonuses totaling millions of dollars paid to former top executives L. Dennis Kozlowski and Mark H. Swartz, but never specifically told Tyco's board the men received them….

Prosecutors have alleged that Mr. Kozlowski, Tyco's former chief executive, and Mr. Swartz, its former chief financial officer, improperly granted themselves millions of dollars in compensation without proper authorization.

However, Mr. Scalzo said the audit firm's job wasn't to determine whether the compensation was properly approved, but rather to determine that it was properly recorded on the company's books and records. As Tyco's former top auditor, Mr. Scalzo is considered a key witness in the case….


     I’m not quite sure why I still put things like these in this website. They are so common, they hardly need to be mentioned. Still, it helps to remind ourselves that the problems at the top of our corporations are much worse than the problems in their middle and bottom.

     But the ones at the top have become a new economic aristocracy—with corresponding incomes and social status—while those in the middle and bottom are making all the sacrifices, in income and standard of living.



Week of March 21



     When the ultra-conservative Wall Street Journal publishes articles like the two below, you know without a doubt that our American corporate culture is getting meaner and less ethical. Executives on the fast track to extreme wealth obviously don’t consider work on the job—at least, by lower-level employees—as a legitimate part of life.

     Workers are not supposed to have decent working conditions, because they are just like machines—to be used up and discarded at will.


From The Wall Street Journal, March 25, 2005.

IN THE LEAD

Readers Share Tales
Of Jobs Where Strategy
Became Meeting Target

By Carol Hymowitz

Whatever number you hit yesterday, make it higher today, no matter how much you must cut to get there. Dozens of readers who responded to my recent column, "When Meeting Targets Becomes the Strategy," say that's what they're being ordered to do.

The flood of reaction I received included letters in which readers complained about far greater pressure to meet targets than I described, and letters that offered innovative analysis of the problem, as well as some solutions.

Roger S. King, a risk consultant for Lloyds TSB Bank's Wholesale and International Division wrote from Key Biscayne, Fla.: "In over 30 years as a banker, I have seen the toll that the relentless pressure to turn in ever better quarterly and annual numbers has ... on business and personal ethics, too." The former risk-management director at Lloyds added: "It is getting increasingly difficult to find true long-term plans, meaningful budgets and committed employees. Planning seems more directed at making Wall Street happy, with budgets becoming increasingly unattainable."

Anthony Juliano, who started his career in sales at 3M 20 years ago and then worked at Imation, a 3M spinoff, lost his job last year after the company posted weak earnings. "Many positions were either eliminated or centralized at corporate" headquarters, he wrote. "I was replaced by someone without the relationships I had developed over the years, who will have a very difficult time hitting their numbers. What corporate America loses sight of is the short-term gain [from trimming] sales and administrative costs is quickly gobbled up by lost revenue."

A manager in the public sector in Texas wrote, "I'm watching this happen in my wife's company. She made President's Club last year for being 220% above quota and her whole team did well and was recognized as tops in the company. Their reward: The VP raised their overall quota by 65% this year, an impossible target. Teams in adjacent areas that did not do nearly as well had their quotas raised 15%. Her whole team is out looking for new jobs and is very discouraged. For my wife, it means she will not make as much this year, and in fact will have a hard time even making quota."

Meanwhile, a manager at a big global bank recently quit his job in Texas after observing how the pressure to hit targets under a new manager had backfired. "The pressure worked at first with increased sales, but now the territory, which used to be the top for our company, is one of the worst in the country," he wrote. "I left because it was tiresome seeing my co-workers getting beat on day in and day out about the number of checking accounts they had opened. When I left it wasn't because of poor performance -- my numbers were in the top 1% of all reps in the country. ... I was on pace to make over $250,000." But, he added, "the environment they created made it a miserable place to work because teamwork had eroded along with morale."

Keith Johnson, chief legal counsel at the state of Wisconsin Investment Board, believes "investors need to hear more of this. I have worked in the investment management industry for over 20 years and fear this could be the Achilles' heel of the U.S. economy," he wrote.

But many American companies are in copycat mode, exacerbating the problem. "One extended implication of Gresham's Law [that in a free-trading environment, "bad" currency tends to drive "good" currency out of circulation] may be that "bad" practices ... to the extent that they are successful even in the short term ... will inevitably drive the better practices out of existence," wrote Hank Rodgers, a trial-court consultant in Orange County, Calif. "In a competitive environment, if one chooses to 'just do it,' so will others, and eventually everyone will be forced to do the same in order to survive.

Others fear companies are suffering from a diet that verges on anorexia or worse. Cecily Franklin, now a piano teacher in Pittsburgh and formerly a manager at Consolidated Natural Gas and a vice president at Mellon Bank, wrote, "It is only possible, or safe, to lose weight slowly. ... There comes a point when the goal is to STOP losing weight and work on maintaining it."

She noted that "it would be possible, though dangerous, to turn weight loss into a pure numbers game. By amputating an arm, one would clearly see numerical results, but one would also suddenly find it more difficult to do almost everything. And if a new 'stretch' goal arises, then another and another body part may need to be removed in order to replicate—notice I didn't say sustain—those results. In the end, one would lose the capacity to function altogether."

Exhorting CEOs to stand up to investors, though, won't be enough to solve the problem, readers said. "The problem is compounded by an increasingly footloose executive class with ever shorter tenures," wrote Michael Fine, a Washington attorney and a principal of NXG Global, a consulting company....


---------------------------------------------------------------

From The Wall Street Journal, March 24, 2005.

WORK & FAMILY

How and Why We Lie at the Office:
From Pilfered Pens to Padded Accounts

By Sue Shellenbarger

Amid the uproar about top executives cooking the books, another ethical meltdown has gone largely unnoticed.

Rank-and-file employees are lying more often at work, by some measures. Employees calling in sick have hit a five-year high, and three-fifths of those who do so aren't sick at all, but are tending to personal needs or just feel entitled to a day off, says a 2004 survey of 305 employers by CCH Inc. In a separate survey last year of 1,316 workers by Kronos Inc., a labor-management and consulting concern, more than one-third of workers admit to having lied about their need for sick days.

Groups that track federal family-leave use say more employees are stretching the reasons for taking time off, even claiming that a common cold warrants a medical leave….

One factor may be stresses brought on by accelerating corporate change. There is evidence that misconduct increases in companies where mergers, acquisitions and restructurings are under way….

Almost all of us are dishonest at work at one time or another, of course. Among more than 30 readers I asked about eight common workplace sins—from lying about one's reasons for missing work to stretching expense accounts—one-third wrote back to confess to at least one….

It's easy to blame top executives for creating the kind of environment that fosters dishonesty. One New York headhunting firm is run by "people slimier than the bottom of a bottle of Wesson," says a former employee, a finance director. Amid a lack of strong policies and an abundance of bad examples at the top, "everything from regularly calling in 'sick' to stretching revenue forecasts was acceptable….

Some employees, of course, simply harbor a larcenous sense of entitlement. Phyllis Hartman, a consultant with PGHR Consulting, Pittsburgh, who has worked with many clients on family-leave issues, says she has seen an increasing sense of entitlement among employees over the law's 12-year existence, with a growing number taking time off for minor illnesses or questionable family needs….

What if the truth will do so much career damage that a face-saving lie seems better? A Newport Beach, Calif., human-resource director says her boss is so demanding that she lies to protect family time, fabricating work-related reasons for missing staff meetings, taking time off or refusing business trips.

"Am I proud of it? No," she writes in an e-mail. "But it helps my VP maintain the illusion that everyone is as dedicated—that is, as much of a workaholic—as he is."… ."


     A key statement above: "But it helps my VP maintain the illusion that everyone is as dedicated—that is, as much of a workaholic—as he is." Our anal-retentive top corporate executives who work 60 hours a week expect lower-level employees to do the same, or if it is illegal to make them do it, to at least require them to work harder to make up for it.

     What they fail to appreciate is that not everyone wants to sacrifice their life and health—and the welfare of their families, to become a member of America’s new aristocracy. And even if they did put in those kinds of hours or effort—they’re still lower-level employees whose incomes will never match their productivity. It’s power, not productivity, that determines who gets what in modern corporate America.

     And, of course, “It's easy to blame top executives for creating the kind of environment that fosters dishonesty.” And employees do “feel a sense of entitlement” when they have been treated ruthlessly. It’s long been known that there is a direct relationship between employee theft and the quality of work life.

     Obviously, the quality of work life for many (most?) of those who actually work for a living in America is lousy, and getting worse daily.




     The following is a brief excerpt—for purposes of criticism only—of a huge, massive article. Those who truly want to understand the utter disaster that globalization is becoming for the U.S. should read the original.

     A key statement below is that globalization is causing a rethinking of the structure of the modern corporation. I’ve already explained in books and on this website what this new structure is intended to look like, and who it is really supposed to benefit. What’s your guess?


From Business Week, March 21, 2005.

Outsourcing Innovation

First came manufacturing. Now companies are farming out R&D to cut costs and get new products to market faster. Are they going too far?

…When Western corporations began selling their factories and farming out manufacturing in the '80s and '90s to boost efficiency and focus their energies, most insisted all the important research and development would remain in-house.

But that pledge is now passé. Today, the likes of Dell, Motorola, and Philips are buying complete designs of some digital devices from Asian developers, tweaking them to their own specifications, and slapping on their own brand names. It's not just cell phones. Asian contract manufacturers and independent design houses have become forces in nearly every tech device, from laptops and high-definition TVs to MP3 music players and digital cameras….

While the electronics sector is furthest down this road, the search for offshore help with innovation is spreading to nearly every corner of the economy. On Feb. 8, Boeing Co. said it is working with India's HCL Technologies to co-develop software for everything from the navigation systems and landing gear to the cockpit controls for its upcoming 7E7 Dreamliner jet. Pharmaceutical giants such as GlaxoSmithKline and Eli Lilly are teaming up with Asian biotech research companies in a bid to cut the average $500 million cost of bringing a new drug to market. And Procter & Gamble Co. says it wants half of its new product ideas to be generated from outside by 2010, compared with 20% now….

After spending years squeezing costs out of the factory floor, back office, and warehouse, CEOs are asking tough questions about their once-cloistered R&D operations: … How many of those pricey engineers are really creating game-changing products or technology breakthroughs?

The result is a rethinking of the structure of the modern corporation. What, specifically, has to be done in-house anymore?

The downside of getting the balance wrong, however, can be steep. Start with the danger of fostering new competitors. Motorola hired Taiwan's BenQ Corp. to design and manufacture millions of mobile phones. But then BenQ began selling phones last year in the prized China market under its own brand….

Countries such as India and China, where wages remain low and new engineering graduates are abundant, likely will continue to be the biggest gainers in tech employment and become increasingly important suppliers of intellectual property….

Companies also worry about the message they send investors. Outsourcing manufacturing, tech support, and back-office work makes clear financial sense. But ownership of design strikes close to the heart of a corporation's intrinsic value. If a company depends on outsiders for design, investors might ask, how much intellectual property does it really own, and how much of the profit from a hit product flows back into its own coffers, rather than being paid out in licensing fees?...

Who will ultimately profit most from the outsourcing of innovation isn't clear. The early evidence suggests that today's Western titans can remain leaders by orchestrating global innovation networks. Yet if they lose their technology edge and their touch with customers, they could be tomorrow's great shrinking conglomerates….


     It should now be obvious to everyone. The planned organizational structure of the future will consist of wealthy investors in the U.S. and their production units in other countries. This will enable the established wealthy and powerful to pit workers—at all levels—against each other in a race to the bottom. The countries that provide the fewest protections of workers, and their incomes and working conditions, will be the ones that get the jobs.

     And the U.S., at present, doesn’t fit that category.




     Here’s the classic defense of those who want to destroy Social Security—under the guise of trying to save it.


From Business Week, March 21, 2005.

Economic Viewpoint

Social Security: Beware Of Hasty Compromises

"Add-on" accounts are a good idea, but not higher payroll taxes

By Glenn Hubbard

…The national conversation over Social Security is already shifting to compromise, focusing on raising the cap on wages subject to the payroll tax and proposing "add-on" instead of "carved-out" personal accounts.

Raising the payroll tax cap is a bad idea. Proposals that suggest increasing the taxable wage base from $90,000 to, say, $150,000 would impose a 12.4% increase on the marginal tax rates of millions of Americans. These higher rates would offset the gains from President Bush's reductions in marginal income tax rates. A payroll tax hike would discourage work and entrepreneurship and would hamper job creation….

Putting Social Security on a viable long-term financial footing could be better accomplished by slowing the rate of increases in Social Security benefits….

Benefits in the future must be increased more slowly than wages or the system's solvency cannot be restored. If we don't increase payroll taxes, solvency can be restored only by shifting from wage indexing to something else, such as price indexing….


     Key statement: “Putting Social Security on a viable long-term financial footing could be better accomplished by slowing the rate of increases in Social Security benefits.” In other words, even that 20% of American retirees who rely totally on Social Security for their retirement income will see their inadequate benefits cut even further.

     And the reason: So our wealthiest citizens won’t have their taxes increased.

     The argument that a “payroll tax hike would discourage work and entrepreneurship and would hamper job creation”—simply doesn’t hold water and is contradictory to our entire history of taxation. People with money will always invest it in job creation enterprises, because that’s how you get richer in this county.




     The following excerpt explains the real reason behind most outsourcing. Corporations can knowingly violate labor laws by contracting jobs out to companies that will do their dirty work for them.

     In this case, Wal-Mart has deniability (“it was the contractor that violated the laws, not us”), yet they reap all the advantages of law violation. Fortunately, the Fed didn’t buy their argument.


From The Wall Street Journal, March 21, 2005.

Wal-Mart Settles Immigration Case

Retailer to Pay $11 Million,
Establish Greater Controls
On Contractor Agreements

Wal-Mart Stores Inc. agreed Friday to pay $11 million to settle a federal investigation into allegations it knowingly hired floor-cleaning contractors who employed undocumented workers.

The government won't pursue any criminal charges against Wal-Mart or any of the Bentonville, Ark., company's employees, according to a statement from the Department of Homeland Security and the Justice Department. The 12 companies that furnished the workers to Wal-Mart pleaded guilty to criminal immigration charges and agreed to forfeit $4 million to the government, according to the statement.

Though Wal-Mart says company executives didn't know illegal workers were scrubbing its floors, the company agreed to the settlement because it said it should have had better safeguards in place to ensure its contractors were hiring legally eligible workers….

"They didn't pay $11 million for nothing," says James L. Lindsey, attorney for the plaintiffs. "It is a telling sum that shows where they stood with regard to the criminal investigation."


     Of course, the advantage of outsourcing isn’t just that “reputable” corporations can violate the law in relative safety. They can also violate the standards of worker rights and justice—in ways that are contemptible, but legal—by contracting with employers who have no reputation to protect and who are willing to brutalize their own employees.

     To understand how the least-principled corporation, like Wal-Mart—rather than the federal government—will establish the minimum wage for an area, see the file Working conditions, wages still deteriorating.




     As you read the following two articles from the same issue of Barron’s, remember that they are intended for readers who are among our country’s most sophisticated investors. Even with all this advice, they are finding financial planning for retirement to be a formidable task.

     And they’re the same people who want our government to privatize some of our Social Security funds, and put the planning of their retirement into the hands of unsophisticated workers, many of whom don’t know the difference between a stock and a convertible bond.


From Barron’s, March 21, 2005.

Income to Spare

By Robin Goldwyn Blumenthal

Funding the Golden Years

Is a little income for retirement too much to ask? Just a few years ago, the yields on bonds were in the high single digits or above, making it a cinch to fund long days on the golf course and frequent trips to the grandkids. Nowadays, though, you're lucky to find a dependable, income-generating investment that beats the 3% inflation rate after taxes. Taxable 10-year bonds are yielding little more than 4%, and the dividend yield on the Standard & Poor's 500 index stands at just 1.8%. That'll barely cover beer for the beach….

What follows is a guide to the new landscape of income investing for retirement. It's not as easy to navigate as the old terrain, but it's not without rewards, either. Make the right decisions and you just might end up with a splendid retirement and income to spare.

For most folks, dividend stocks probably are the best bets. That's especially so in the wake of the Jobs and Growth Tax Relief Reconciliation Act of 2003, which has cut the tax rate on qualified dividend income to 15% from as high as 35%. Though the cut expires in 2008, President Bush is pushing to make it permanent and has a good chance of succeeding….

One of the most intriguing prospects may be debt issued by Asian, South American and other emerging-market countries. These securities, as measured by the J.P. Morgan MB Global Index, yield about 3.3 percentage points over Treasuries. That's about the same as corporate debt, and credit ratings have improved dramatically as countries have worked to make their economies more structurally sound….

Certainly, the hunt for income can still be worth the effort. Says Arnott: "Someone who pays as much attention to their investment portfolio as they do to buying their next car will be able to do 2% better than their neighbor." These days, that ain't half bad.


---------------------------------------------------------------

Wheel of Fortune

The rise of "Monte Carlo" retirement calculators

By Karen Hube

…So what happens when high science meets retirement planning? If used properly, it vastly improves your ability to create a reliable retirement plan. But many advisers familiar with the tool urge caution. "Everyone is expecting it and demanding it, but even financial planners don't necessarily know how to use it properly or how to explain the results to their clients," says Harold Evensky, a financial adviser at Evensky & Katz in Coral Gables, Fla….

For most people, a 50% chance of success is not good enough—when the downside is going broke. "They want some level of comfort that under negative scenarios [for financial markets], they can still live comfortably," asserts Cordaro.

That's where a Monte Carlo analysis can help. You or an adviser preprogram the calculator with a range of returns that seem likely for each of your asset classes over, say, 25 years. The calculator then runs through thousands of scenarios within those parameters, with different levels of returns for each year. For example, stocks might experience a loss of 5% one year and gain of 10% the next, leaving you worse off than an average gain of 2.5% in each year. Based on how each of the many scenarios would affect your investments, the calculator ultimately determines the odds of meeting your income goals….


     Key statement above: “a 50% chance of success is not good enough—when the downside is going broke.” And here Barron’s is talking about rich people with advisors and calculators. What are the implications of those who have few funds to begin with, and who certainly don’t have advisors?

     Note that the above excerpts are for purposes of critique only, and those who are interested in the investment implications of these extensive articles should read the originals.




     One of the mysteries of the century is why Jack Welch is considered by some to be a role model for American corporate executives.

     His “brilliance” consists almost solely of his barbaric attitude toward workers, even his own. How much managerial talent does it take to destroy one’s own unions and workers, and their standard of living, simply to cut costs. He even required GE suppliers do the same—or risk losing GE’s business.

     Surely, within the next few years, Americans will wake up to the fact that Welch not only sold out his own workers—by pitting them against impoverished foreign workers—he paved the way for the destruction of our economy.


From The Wall Street Journal, March 23, 2005.

In India's Outsourcing Boom,
GE Played a Starring Role

Early Investments Helped Fuel
Tech and Service Sectors;
A Cheap Source of Talent

NEW DELHI—In September 1989, Jack Welch, then General Electric Co.'s chairman, flew to India for a sales call. He hoped to sell products like airplane engines and plastics to the Indian government.

But during a breakfast meeting with top government advisers, it was Mr. Welch who got pitched. "We want to sell you software," Sam Pitroda, chief technology adviser to the late Indian Premier Rajiv Gandhi, told a surprised Mr. Welch. Mr. Pitroda explained that India needed business for its emerging high-tech sector.

"If I kiss your cheek, what do I get in return?" the GE chairman replied, according to two men who were present.

Fifteen years later, the answer is clear: the global outsourcing revolution….

Publicly, GE has been reluctant to take credit for its singular role. Shipping white-collar jobs overseas has proved controversial in the U.S. Demoralized American workers have had to train their foreign replacements….

GE's taste for cost-cutting came as a shock to Wipro executives such as 48-year-old Ramesh Emani, who helped manage the software partnership. He says GE soon began playing one Indian software firm against another to drive down costs, demanding constant productivity gains. "GE was very brutal," says Mr. Emani, who now heads a Wipro unit developing software for automobiles and cellphones….

Other companies such as American Express Co. and British Airways PLC had already moved some back-office operations to India. But with Mr. Welch's enthusiastic support, GE eventually went much further, shifting thousands of jobs and untold dollars in operational expenses to India. Savings on backroom operations alone amount to about $300 million a year….

Mr. Andrews says he realized that India's 100 million English speakers offered an almost limitless pool of inexpensive, educated labor for such tasks. "We started to think, we can do this for the rest of the world," says Pramod Bhasin, 53, a former GE Capital executive who helped create Gecis and serves as its chief executive….


     "If I kiss your cheek, what do I get in return?" That statement alone is almost enough to understand Welch’s devotion to greed—even if it would eventually destroy our American economy.




     Here’s another example of the ratcheting effect of globalization. Mexico profited at first, it is now seeing how it feels to lose its industries. Although the news seems to be good at first, a careful reading of the following creates a different impression.


From The Wall Street Journal, March 22, 2005.

Maquiladoras Resumed
Hiring Growth in 2004

Mexico's maquiladora industry, considered an indicator of U.S. manufacturing strength, witnessed a significant hiring turnaround in 2004, as employment increased for the first time since 2000, according to a new report from the El Paso branch of the Federal Reserve Bank of Dallas….

According to Roberto Coronado, the El Paso bank's assistant economist, maquiladora output rose at an even faster rate in 2004, up 10% from a year earlier to produce $19 billion in foreign exchange for Mexico, surpassing contributions from oil exports or remittances from Mexicans working abroad.

Nonetheless, he said maquiladora employment remains short of peak levels near the end of 2000, when 1.3 million people worked in the sector.

Another caution comes from the type of employment that is growing fastest along the border. Among the sector's big labor gainers were so-called "service" maquiladoras, operations that do everything from sorting supermarket coupons to repairing home appliances returned to retailers under warranty by U.S. consumers.

That indicates Mexico is still losing ground to Asia in the competition for light-assembly jobs….


     American corporations’ pursuit of profit and cost reduction will inevitably lead to the abandonment of any country that fails to keep its wages low enough to be competitive with the cheapest labor markets in the world.




     Unfortunately, most people who read the news item below will conclude, as The Wall Street Journal intends, that immigration doesn’t harm our poorest workers—because the unemployment rate hasn’t gone up.

     But that’s not the main issue. The problem with immigration is that it increases the labor supply, which means that employers don’t have to raise wages to get workers. In fact, increasing the labor supply—in all its forms—is they way our government makes sure that our poorest paid workers are always below or around the poverty line.


From The Wall Street Journal, March 24, 2005.

Jobs and Immigrants

More proof of the integration of the North American labor market comes courtesy of a new report from the Pew Hispanic Center, which says the nation's illegal alien population rose to more than 10 million last year, a 23% increase since 2000.

The news here isn't that the numbers are growing. So long as the U.S. economy is creating opportunities for that supply of poor, low-skilled workers south of the border—more than half of the growth is attributable to Mexico—the influx will continue apace.

What the study helps illustrate is how well we've absorbed these newcomers, contrary to restrictionists' claims that immigrants "steal" jobs and are otherwise bad for the nation's economic health. The U.S. has maintained a relatively low unemployment rate since the last recession, even as immigration has grown….

At the very least, Mr. Passel's study gives lie to the claim that immigrants are somehow displacing American workers and fettering our economy.


     Want a lesson in demagoguery? Consider this statement: “restrictionists' claims that immigrants "steal" jobs and are otherwise bad for the nation's economic health.” The Journal never evaluates the nation’s economic health on the basis of the adequacy of workers’ wages—which at the present time is deplorable.

     The Journal’s only concern is that investors and business owners are getting richer—and on that basis, the economy has, indeed, absorbed very high levels of immigration.



Week of March 14



     It’s all basic economics, right? We’re paying through the nose for gas because the price for a barrel of oil has gone up, and the cost must be passed on to consumers. It’s not because of price gouging by our fine petroleum corporations.

     The following is a classic example of the unrestrained greed of America’s corporations and their investors—regardless of what’s in the public interest.


From The Wall Street Journal, March 18, 2005.

Oil Companies Reap
Cash Windfall
From Price Surge

Investors Say Big Stockpiles
Can Help Pump Up Returns;
Exxon's $23.1 Billion Hoard

The surge in oil prices over the past year is generating an immense cascade of cash that is flooding the coffers of oil companies, raising pressure on their bosses to pursue acquisitions, further boost spending on production or give more of the gains to shareholders….

Moreover, though the cash windfall is large—Exxon Mobil Corp., the world's biggest oil company, ended 2004 with $23.1 billion in cash on hand, more than double its hoard from a year earlier—plans at most oil companies assume prices will drop from today's highs.

But some shareholders say they should get a big share of that windfall—perhaps with a special dividend like the one Microsoft Corp. paid investors last year, worth $32.6 billion. With the tax rate on dividends at 15%, and the possibility that could rise in the future, Frederick Leuffer, an oil analyst at Bear Stearns, says a special payment this year is preferable to incremental boosts over several years….

Exxon's not alone in seeing its hoard of cash—that is, the amount of money left over after paying all expenses, from capital projects to taxes—grow as oil prices climb higher. At Royal Dutch/Shell Group, cash on hand rose to $8.5 billion in 2004, from $2 billion a year earlier. ChevronTexaco's cash jumped to $9.3 billion from $4.3 billion….

The cash windfall goes well beyond the industry giants. Burlington Resources Inc., a Houston-based independent, reported last month that it had $2.18 billion in cash and cash equivalents at the end of 2004, nearly triple the amount it had a year earlier….


     Think of it. National guardsmen are giving up their good-paying jobs to fight in Iraq, and some of their dependants at home are going into bankruptcy because of it. Workers who have lost their jobs because of globalization are also going into bankruptcy.

     Halliburton has been charged with fraud for overcharging the U.S. taxpayers for the gas they provided to our military, and the Exxons of the world are doing everything they can to become incredibly rich by taking ruthless advantage of the situation.

     And as the American consumer becomes poorer by paying high prices for gas, the petroleum corporations blame increasing oil prices for the high prices they are charging. They don’t mention, of course, that they are making outrageous profits from the process.




     They’re so commonplace today, I sometimes wonder why I even bother to include items like the one below.


From The Wall Street Journal, March 18, 2005.

HealthSouth Witness Is Unswayed

BIRMINGHAM, Ala.—A former HealthSouth Corp. finance chief lashed out at prosecutors and the defense but stuck by his claim that company founder Richard M. Scrushy was in on a massive earnings overstatement.

Under cross-examination for a second day, former Chief Financial Officer Tadd McVay grew testy as James Parkman III, Mr. Scrushy's lead attorney, suggested he was lying about Mr. Scrushy's involvement in the $2.7 billion accounting fraud in order to gain favor with prosecutors….

Mr. Scrushy faces 58 criminal counts and the equivalent of a life sentence if convicted on all charges.


     Just another in an endless series of articles about corporate greed and corruption.




     A disturbing thought: Bernard Ebbers “aw shucks” defense may actually be valid. Fact is, many (most) of today’s corporate CEOs are egomaniacs who are able to con their boards of directors simply by creating an image of being a true leader.

     Today’s corporate environment has become so corrupt, it’s getting almost impossible to distinguish between the true leaders and the “destructive achievers.”


From The Wall Street Journal, March 16, 2005.

Verdict Is Warning to Other CEOs
Of the Risks of Pleading Ignorance

The conviction of Bernard J. Ebbers could be a blow to other chief executives who are facing fraud trials and claiming they were left in the dark.

The former chief executive of WorldCom Inc., who was found guilty of fraud and conspiracy charges yesterday by a federal jury in New York, built what prosecutors called his "Aw, shucks" defense on the claim that he was an accounting ignoramus who knew nothing of the massive fraud that took place on his watch. But jurors said that they bought the argument of prosecutors that the CEO had to be aware of the fraud.

That could be worrisome for executives facing their own federal fraud cases, like Richard Scrushy and Kenneth Lay. Mr. Scrushy is the fired CEO of HealthSouth Corp. who is on trial now in Birmingham, Ala., while Mr. Lay, the former chairman and chief executive of Enron Corp., is scheduled to go on trial in January in a Houston federal court. Both have portrayed themselves as well-meaning executives heading complicated operations who were duped by malicious underlings.

"This verdict is devastating for any other CEO or senior executive who intends to use the defense that 'I did not know,' " said Jacob Frenkel, a former enforcement attorney for the Securities and Exchange Commission who is now in private practice in Rockville, Md. Mr. Ebbers's conviction, he said, "is a missile blowing that defense out of the sky."… ….


     

     To better understand the differences between true leaders and Destructive Achievers, check out the file on Proactive vs. Reactive Management. The book it's based on is actually about corporations, but on this site the principles are applied primarily to American politics.




     Two articles in the same issue of Business Week illustrate the changed values of our society—in favor of the rich and powerful, and against working-class Americans.

     While corporations are “the most optimistic in years,” our highest paid factory workers are seeing their jobs destroyed.

     Let’s face it. Republicans control Congress and the White House, the class war is over, and the rich and powerful have won.


From Business Week, March 14, 2005.

U.S.: Optimistic Businesses Are Revving Up For Growth

Companies should face less uncertainty and more demand this year

…Evidence of a corporate renaissance is growing. Chief executives are the most optimistic in years. And why shouldn't they be? Demand continues to grow strongly. Many companies are enjoying increased pricing power. And financial resources are abundant: Internally, profits and cash flow remain strong, and externally, credit markets offer cheap long-term financing, while lending terms and conditions at banks are the easiest in years….

Perhaps the best news for 2005, though, stems from the historically tight correlation between capital spending and hiring. It should not be surprising that hiring picked up substantially last year as companies began to expand. Strong business outlays imply a continuation of job growth in 2005 that will generate a healthy pace of income to help support consumer spending….

But the real story is in wages and salaries, which make up nearly three-fifths of total earnings. In January, basic wage income grew 5.8% from the previous year, the largest yearly gain in four years and twice the rate of inflation….

If economic growth continues to surprise on the high side of expectations, it will have important consequences. First, it would mean that the economy is using up whatever slack exists in production capacity and the labor pool at a faster rate than expected. Second, strong growth would bolster gains in pricing power already evident in many industries. And third, it would give the Fed far less leeway to move interest rates up at its recent leisurely pace.

There is no doubt that the animal spirits of Corporate America are stirring unlike any time since the go-go years of the late 1990s. That optimism will boost the economy's performance this year. But the Fed will be watching closely to make sure that this new ebullience doesn't allow inflation to spiral out of control.


---------------------------------------------------------------

A Wrench For Parts Suppliers

Labor and legacy pension costs from GM and Ford are hurting Delphi and Visteon

Back in 1999, General Motors Corp.'s plan to spin off the Delphi parts division looked like an all-around great idea. By carving out its components business, GM reckoned to shed nearly 43,000 union workers and trim supply costs. To make Delphi attractive to investors, the auto giant blessed it with a clean balance sheet and billions of dollars in contracts. If Delphi could cut costs and win sales from other carmakers, executives figured, it would prosper.

That expansive vision proved short-lived….

Delphi's 185,000-strong global workforce includes some 25,000 UAW members in the U.S., while Visteon employs 18,000 UAW members….

ASIAN THREAT

The suppliers' current contracts make it tough to grow at home. Big Three purchasing agents use the threat of low-priced Mexican and Asian parts to get lower cost contracts. And in the U.S., Japanese and Korean auto makers simply won't buy parts from union plants….


     Imagine! The “basic wage income grew 5.8%” for workers, after decades of stagnation, and they’re not coming remotely close to the wages factory workers made 20 years ago, relative to inflation. And, of course, the wages of CEOs continue to explode beyond reason.

     Sure, our growing economy will create more jobs, but the pay will be lousy—relative to the pay of America’s top 20%—and the cost of life’s most necessary items (housing, education, health care, etc.) will continue to go out of the reach of workers.

     Also, be wary of that last sentence in the first article: “But the Fed will be watching closely to make sure that this new ebullience doesn't allow inflation to spiral out of control.” Of course, you know what that means: if wages start to go up too much, the Fed will raise the prime to slow down the economy. On the other hand, if corporate profits, CEO incomes, and the stock market go up—that’ll be just fine with the Fed.

     For a more extensive discussion of this last issue, see: The Class Warfarer’s scapegoat: “Wage Inflation”.




     The following is just another in the endless series of articles that describe Wall Street’s preoccupation with the possibility that working Americans may begin to share in the prosperity of our country.

     The “goldilocks” economy is one in which corporate profits—and the incomes of the wealthy and powerful—continue to grow (the economy is not too cold), but the incomes of workers remain stagnant (the economy is not too hot).


From The Wall Street Journal, March 15, 2005.

AHEAD OF THE TAPE

Fairy Tales

By Justin Lahart

Some pundits have been talking about how the U.S. economy is in a new "Goldilocks" environment, where growth is not too hot, not too cold. But investors are wary that the bears could come home early.

The Labor Department's February employment report showed jobs growth that was ahead of economists' forecasts, but below what many traders had expected. Treasurys rose, pushing the yield on the 10-year note down to 4.32% from 4.39%. Stock-market participants sent the Dow Jones Industrial average up over 100 points.

The fervor faded as it became apparent that the Treasury market's apparent relief over the jobs report had more to do with speculative players rapidly exiting bets on a strong jobs report than it did with bond investors' penchant for buying. Last week, the 10-year's yield went above 4.5% for the first time since the summer and the Dow lost 166 points….….


     As you read the above, remember that these are the same people who say we shouldn’t be envious of the wealth and incomes of the rich. Yet, they watch the incomes of workers like predatory hawks.

     For a more extensive discussion of this subject, see: The Class Warfarer’s scapegoat: “Wage Inflation”.




     The following is just one more example of the military-industrial complex doing its very best to enrich itself at our country’s expense. And all the while telling us that we should be willing to make sacrifices, both human and financial, to support this totally unnecessary war.


From The Wall Street Journal, March 15, 2005.

U.S. Audit Questions Halliburton
On $108.4 Million in Iraq Work

Pentagon auditors have questioned $108.4 million that Halliburton Co. billed the U.S. government to deliver fuel to Iraq as part of a no-bid contract to rebuild the country's oil infrastructure, heightening questions about the company's billions of dollars in expenditures to support the military effort.

The audit, completed in October but released only yesterday by congressional Democrats, faults Halliburton for failing to provide "adequate" justification for its expenditures….

The audit released yesterday examines only the fuel-shipment work Halliburton performed in 2003 and 2004. The Houston-based company charged $887.4 million for that work, but military auditors have identified $108.4 million in "questioned costs."…

Some of the charges were so inexplicable that auditors concluded there must be a gross mistake in billing. In one instance, Halliburton charged about $27.5 million to haul $82,000 of liquefied petroleum gas, a condensed form of propane widely used for cooking. Auditors called the charges "illogical" and asked that Kellogg Brown & Root "review its accounting data again" for improperly classified costs.

Auditors also faulted Halliburton for failing to renegotiate high prices it paid for fuel from the little-known Kuwaiti firm Altanmia. Halliburton has said it chose Altanmia because the company had the transportation resources to deliver fuel under very tight deadlines that could head off civil unrest as a result of fuel shortages. The auditors said Halliburton should have renegotiated prices after 30 to 90 days. The company's failure to do so resulted in a $62 million overcharge, auditors said, comparing the company's cost to similar work by another Pentagon agency a year later….….


     Want the real reason there is so much support for the Bush Administration’s war with Iraq? Propaganda from the war profiteers has to be a major factor.




     When The Wall Street Journal describes the Republican Congress and the Bush Administration “pro-business,” you gotta pay attention.


From The Wall Street Journal, March 15, 2005.

Pro-Business Agenda May Hit Hurdles

Republicans Battle the Clock as Well as
Democrats in Pushing Legislative Priorities

WASHINGTON—Republicans handed business two victories with progress on long-stalled class-action and bankruptcy bills. But advancing other pro-business items on the party's agenda won't be easy.

Though Republicans boast expanded majorities in Congress, priorities such as energy and asbestos legislation remain so contentious that overcoming Senate filibusters may be difficult. Making President Bush's capital-gains and dividend-tax cuts permanent stands at odds with some lawmakers' emphasis on deficit reduction. If those obstacles weren't enough, the attention that Mr. Bush's Social Security plan and judicial nominations will consume may reduce the time available for action….

To be sure, legislation represents only part of the business community's wish list in Republican-dominated Washington. Friendlier regulation by the Securities and Exchange Commission is also a priority, given complaints by the U.S. Chamber of Commerce and others that SEC Chairman William Donaldson has been too aggressive….

On Capitol Hill, Republican leaders plainly share Mr. Bush's goal of making the U.S. the "the best place in the world to do business." Republican senators are planning to hold a news conference within the next month with major U.S. business lobbies to unveil a catalog of priorities including extension of the capital-gains and dividend-tax cuts, permanent repeal of estate taxes, energy and asbestos legislation, an overhaul of medical-malpractice laws and reduced trade barriers with Central American and Caribbean nations.

Mr. Bush's plan for private Social Security accounts also is viewed by some Wall Street interests as a potential boon for business….


     Almost every sentence in the above excerpt demonstrates that legislation that is pro-business is automatically anti-worker, anti-consumer, and anti-environment. On almost every issue, corporate profits are going to benefit—and workers, consumers, and the environment will suffer.




     The disastrous effects of globalization continue to reveal themselves.


From The Wall Street Journal, March 14, 2005.

January Trade Deficit Widened
To Second-Largest Level on Record

WASHINGTON—Booming demand for imported cars and electronics and a surge in textile imports from China helped to enlarge the trade deficit to $58.27 billion in January, a 4.5% jump from December and the second-largest deficit on record.

The widening gap between exports and imports of goods and services was fueled by a 1.9% rise in imports, which totaled $159.09 billion for the first month of 2005, the Commerce Department reported. The jump reflected demand for goods such as televisions, videocassette recorders, cookware and pleasure boats. Exports for the month were essentially flat at $100.83 billion despite the weakening dollar….

The January data added fuel to a debate over the pace of imports of textile and apparel products from China, which jumped 39% from December, the U.S. said. Overall, the trade deficit with China was $15.25 billion for the month, the largest gap with any single country and nearly 33% larger than in January 2004….

"The evidence is irrefutable," said Cass Johnson, president of the National Coalition of Textile Organizations, a manufacturers' trade group. "Now is the time for the government to act quickly and save our workers' jobs." Importers rebuffed the calls for new protection. Commerce Department officials are watching the trend, and discussions have begun about an "early warning" system to better track surges in imports from China….

In a speech Thursday, Federal Reserve Chairman Alan Greenspan suggested that a turnaround in the trade deficit is imminent.


     As usual, the beneficiaries of globalization are investors and top corporate executives, and at the direct expense of our general economy (the exploding deficit) and the welfare of workers (the loss of good jobs).




     As you read the following two excerpts, remember that this is the industry that the Bush Administration wants to put in charge of managing a significant portion of the funds of Social Security retirees.


From The Wall Street Journal, March 17, 2005.

Rough Justice

Wall Street Panels
For Settling Fights
Draw Renewed Fire

'Public' Arbitrators May Have
Had Ties to Brokerages

When investor Bruce Gimelson thought the brokerage TD Waterhouse had cheated him out of $70,883 by selling shares in his account without permission, he was forced to turn to Wall Street's homegrown justice system to try to get the money back.

He filed a securities arbitration claim with the New York Stock Exchange, which promises that two of the three members of its arbitration panel will come from the general public, not the securities industry. But Mr. Gimelson's lawyer was surprised when he found out that one of the "public" arbitrators on the panel was Laurie Zeligson, who worked as a lawyer at Citibank for a dozen years through 1998 and later represented the bank and a securities firm in private practice. The panel ruled against Mr. Gimelson, while denying Waterhouse's attempt to collect the $15,351 it said he owed.

Last year, Ms. Zeligson went to work for a Prudential Financial Inc. money-management unit but continued serving as a public arbitrator on a case that was already in motion, voting in favor of a securities firm in an NYSE employment-arbitration dispute. During her arbitration career, she voted in favor of Wall Street firms in all seven customer and employee cases she heard….

Investors have been complaining for years that the arbitration system is stacked in favor of Wall Street. But the debate has intensified in recent years amid a swell of new arbitration claims following the burst of the Internet bubble in 2000. Now, some members of Congress and state officials are starting to turn up the heat on the industry. And the self-regulatory bodies that run the arbitration forum have started tinkering with the system to make it appear more fair.

"Combine a public arbitrator who has a long association with Wall Street with an industry arbitrator who works on Wall Street and the investor is not being served," says William Galvin, the top securities regulator in Massachusetts. A subcommittee under the House Committee on Financial Services will hold public hearings on securities arbitration today….

The securities industry's brand of justice took off after a Supreme Court ruling in 1987 allowed brokers to require customers to waive their right to sue in court as a condition of opening a brokerage account. Today such clauses are standard, which is why investors' complaints usually end up in arbitration….

In practice, though, even some "public" arbitrators have ties to Wall Street. Even if an arbitrator previously worked as a Wall Street broker, the NASD classifies the person as public if he or she held the brokerage job for fewer than 20 years and has been out of the business for at least five years. The NASD also counts accountants and lawyers as public if they get less than 10% of their income from brokerage clients. The NYSE has its own rules, including some similar to the NASD's that leave the door open for former Wall Streeters to be classified as public….

Arbitrators, who typically make $400 a day, aren't required to justify their decisions….


---------------------------------------------------------------

J.P. Morgan to Pay $2 Billion
As Street's Bill for Bubble Soars

J.P. Morgan Chase & Co., the last big holdout in a class-action lawsuit filed by investors of WorldCom Inc. against Wall Street securities firms, agreed to settle the case for $2 billion. The pact brings the total amount recovered in the case to just over $6 billion—a record for a securities class-action case—and takes the total firms have paid so far in major settlements for their alleged stock-bubble sins to more than $10 billion.

Wall Street is paying a huge and still-growing price as investors have lashed out against the firms that courted and helped finance highflying companies that later crashed. Enron Corp. had a peak market value of $70 billion before it collapsed in 2001. Fraudulent accounting at Italian dairy giant Parmalat SpA saddled the company with about $19 billion in debt. Many of those cases are still pending….

Investors, led by New York State Comptroller Alan Hevesi, accused investment banks of failing to adequately examine WorldCom's financial health when they sold $17 billion of its bonds in 2000 and 2001. Its collapse left investors with massive losses.

In addition to the WorldCom bond case, the scandals have included Wall Street analysts who issued biased research to win investment-banking business and mutual funds that allowed aggressive short-term trading at the expense of long-term "mom-and-pop" investors….


     No matter what the details of Social Security privatization, if this group of clowns get to insert themselves—and their fees, commissions, hidden charges and false pretensions of expertise—between retirees and their money, watch out. Nothing good can result.




     As you read the following, remember that these are the people who are the real beneficiaries of the tax cuts brought to us via Congressional Republicans and the Bush Administration.

     But that’s not all the bad news. Also consider the implications for workers and consumers who are left after the businesses have huge chunks of money taken out of them by these greedy predators.


From Barron’s, March 14, 2005.

LBOs Are Back

Their returns are fat and fast — for now

WITH THE DOW REACHING a 45-month high this month, the stock market has given investors a pretty good ride lately. But the profits spun by private buyout firms in the past year, make the market seem as if it's moving backwards.

Buyout shops, also known as private-equity firms, have long been viewed as the smart and patient money, willing to buy and retool companies over several years before reaping their returns.

But in the past year, the buyout industry has represented the easy and fast money, taking advantage of pliant capital markets to turn billions in quick winnings for themselves and their investors….

On the payoff side, private-equity players cashed out of enough investments to return a whopping $36 billion in net cash to their investors in the nine months through September. Though the investors are mainly pension funds and other institutions, wealthy individuals have also been getting in on the action, through their private banks and sometimes directly.

All told, private-equity firms as a group generated a 19.3% return to their limited partners in the year ended Sept. 30 (the latest numbers available), according to Cambridge Associates. That return is even more impressive considering it's the actual return enjoyed by investors—net of all fees, expenses and the typical 20% cut of profits that private-equity firms levy.

Yet even those numbers don't properly convey the rich supply of huge, quick profits booked by some of the larger, sharper players in the $800 billion private-equity industry. In the past year, it became almost commonplace for LBO firms to triple or quadruple their initial investments by buying, recapitalizing and selling companies in a matter of months….

When the LBO firms' 20% cut of the profits is factored in—a jackpot that flows right into the partners' pockets—it’s no surprise that the likes of Blackstone chief Stephen Schwarzman could afford the priciest apartment in Manhattan a few years back….


     No matter how you slice it, the more money these greedy people take out of the corporations, the less money is left for other things: Paying decent wages to workers, providing safe and reasonable working conditions, developing new or better products for consumers, or giving consumers a price break on the goods and services that they provide.

     Not only are they becoming a new class of economic aristocracy, they are paying politicians to cut their taxes and to reduce government services to the very people who are victimized by their greed.



Week of March 7



     The following is a description of the classic Republican strategy of mislabeling the true intent of their bills in Congress. It turns out that the “American Jobs Creation Act” was simply a tax break for the wealthy and powerful—and a further disaster for American workers who lost their jobs.

     Instead of using their tax breaks to expand employment in the U.S., corporations either invested in other countries where workers can be taken ruthless advantage of, or they simply continued their ongoing process of eliminating jobs (“reducing labor costs”).


From The Wall Street Journal, March 10, 2005.

Layoffs Seem to Conflict With Tax
Break Meant to Propel Job Growth

There is more evidence that a tax break intended to boost U.S. jobs isn't getting the job done.

Consider several major companies that say they are considering bringing home hundreds of millions of dollars in foreign profits under a tax holiday that is part of the American Jobs Creation Act passed last year. These include National Semiconductor Corp., Sun Microsystems Inc. and Colgate-Palmolive Co.—all of which recently cut staff. These companies' example calls into question how effective "repatriation" will be in spurring new jobs, adding to already reported concerns about the wiggle room the law gives companies in how to spend the money.

National Semiconductor disclosed in January it may repatriate as much as $500 million in foreign earnings under the tax break. The same day, the company announced it would cut 550 jobs, or 6% of its work force, to cut costs and streamline operations.

Sun said in February that it could bring home as much as $1.1 billion in foreign profits. The company also said it had laid off 3,600 people -- about 10% of its work force—during the previous nine months as part of a plan to reduce costs and improve efficiency.

Colgate-Palmolive said in December that it expected to close about a third of its factories and eliminate about 12% of its work force-a total of about 4,400 job cuts—in a four-year restructuring plan. In February, the company disclosed it was considering bringing home $500 million in foreign profits….

"The bill as enacted does not have a close link between repatriation and some form of job creation," says Stephen E. Shay, a tax partner with the Boston law firm of Ropes & Gray. "It's best characterized as a fig-leaf relationship."

Mr. Shay adds that it is "not inconsistent with the law" for companies to cut jobs at the same time they are considering repatriating funds ostensibly meant to create jobs. They are just following the law as it is written, he says….

DuPont Photomasks Inc. is repatriating $24 million in foreign profits, some of which it is applying to a $30 million expansion of production capacity at its Round Rock, Texas, plant. But the company also announced in January that it would close its Kokomo, Ind., plant—eliminating 100 jobs, or about 6% of its work force—and said it is expanding capacity at a Singapore plant….

National Semiconductor's Mr. Weir, who used to work on Capitol Hill, says repatriating earnings should be seen simply as a tax break. Calling the law "the American Jobs Creation Act" was marketing, he says. "I would not trust the title of any law and what it really says."


     Key statement: “Calling the law 'the American Jobs Creation Act' was marketing.” How about “deliberately lying”?

     How do you know when a Republican Congressman is lying? When he’s describing the intent of his latest legislation.




     My, my. It seems that Wall Street is beginning to discover ethics. Don’t hold your breath.


From The Wall Street Journal, March 10, 2005.

Does Wall Street
Finally Need
An Ethics Code?

Rohatyn, NYSE's Reed and Others
Make Case for Some Kind of Oath;
Critics See 'Public-Relations Ploy'

Doctors have the millennia-old Hippocratic Oath. Pharmacists, mathematicians and even football coaches all have codes of ethics.

Not investment bankers.

Now, a few of the best-known names on Wall Street, along with some lawyers and academics, think it is time for these creators of mergers and stock offerings to explore the possibility of their own code. It would be the kind that, like the Hippocratic Oath, might be taught in schools, framed and hung on office walls and called upon when arriving at life's ethical crossroads….

Investment banking is a vexing area to police. Bankers sit in the crucible of the economy: doling out loans; hammering out contracts; and counseling companies on the sensitive topics of mergers and acquisitions, among other things.

It is in these areas that ethical lapses can occur, with bankers using confidential information from one client to benefit another, or failing to fully outline the drawbacks of a particular transaction to guarantee a big payday. Many on Wall Street say the vast majority of bankers are ethical ones, but nearly all will admit they can lose or win fees based on how far they are willing to go.

Given the million of dollars in profits that also can be personally earned from one or two banking transactions, the "pressure on behavior is sometimes too great to bear," writes Gerald Rosenfeld, chief executive officer of investment bank Rothschild North America, in the book….

"A code of ethics is always a public-relations ploy," says Michael Davis, senior fellow at the Center for Study of Ethics in the Profession at the Illinois Institute of Technology. "The question is whether it is only a public-relations ploy."…


     Key statement: “Given the million of dollars in profits that also can be personally earned from one or two banking transactions, the "pressure on behavior is sometimes too great to bear." Right. And given the number of Wall Streeters who have risked jail and violated the laws already on the books—one wonders how a code of ethics is going to change anything.

     Of course, it probably couldn’t hurt.




     Here’s further evidence of the pro-business, anti-consumer nature of our Republican dominated Congress. The recent bankruptcy legislation will simply reward the sloppy and greedy practices of American corporations, and put all the burdens on those victimized by the process.


From The Wall Street Journal, March 10, 2005.

Creditor-Friendly South Offers
Preview of Bankruptcy Changes

The Senate moved closer yesterday to passage of a bankruptcy bill that has been characterized as landmark legislation mapping out a new creditor-friendly environment, yet much of the South has long operated under a system that resembles what the bill aims to establish nationwide….

Some economists and consumer advocates are concerned that Southern states have relatively higher rates of bankruptcy filings and that this could stem from the creditor-friendly system.

According to the American Bankruptcy Institute, one of every 72.8 households in the U.S. filed for bankruptcy protection during the 12-month period that ended in March 2004, but the rates varied sharply by region. Tennessee had the second-highest rate, with one household in every 38.7 filing for bankruptcy, and Georgia had one in every 42.4 households filing. Utah, with one in 36.5 households, has the highest bankruptcy rate of any state.

In contrast, filings are low in the Northeast and parts of the West and Midwest. One in 156.2 households filed for bankruptcy in Vermont, one in 144.3 in Massachusetts. Alaska had the lowest bankruptcy rate, at one filing for every 171.2 households.

There are several reasons for the large regional differences in bankruptcies. Economists say that a major reason is that incomes are generally lower and more volatile in the Southeast than in other parts of the country. Less income leaves families with smaller financial cushions to fall back on when problems arise. But income differences can't explain all of the gap.

Some bankruptcy economists theorize that there's an inverse relationship between strong consumer-protection laws and bankruptcy filings. In states where it's harder for lenders to get judgments against consumers, bankruptcies might be lower because lenders are pickier about who gets credit. In states that make it easy for creditors to repossess property, bankruptcies might be higher because more consumers are extended credit.

That, the economists say, might explain why many Southern states -- known for the creditor-friendly laws -- have higher bankruptcy rates. Alabama, Georgia and Tennessee provide a wide range of prejudgments, creditor remedies, attachments, garnishments and wage assignments with limited or no litigation, Mr. Gerdano says….

"We'll have more-aggressive small consumer companies lending to lower-middle-class householders," Mr. Zandi says. "So in the end we will have more bankruptcies because creditors will end up extending more credit."…


     It’s the same old story: take ruthless advantage of the poor and uneducated, and reward the greedy and manipulative in our society. And it’s all reported in The Wall Street Journal.




     If you want to know which political party truly represents the interests of working-class Americans, just read The Wall Street Journal, one of the most avid supporters of the Bush Administration. When the Journal says that the Bush Administration is “pro-business,” you’d better believe it. (Of course, the antithesis of pro-business is anti-worker, anti-consumer and anti-environment.)


From The Wall Street Journal, March 9, 2005.

White House to Launch Push
For Pro-Business Regulation

WASHINGTON – The Bush administration is expected to launch a push for business-friendly regulation, possibly including streamlined and more flexible pollution standards, chemical-handling rules, and workers' medical-leave protections.

The stated aim is to improve the overall climate for U.S. manufacturing, a sector hammered by recession and overseas competition during much of President Bush's first term.

But Gary Bass, executive director of OMB Watch, a pro-consumer group that monitors the White House Office of Management and Budget, called the effort a new assault on anticompetitive rules that amounts to rewarding Mr. Bush's political supporters in the business world….

The White House is expected to put forward a new priority list of regulations for agencies to rewrite or push through. Some changes would be relative tweaks, while others would be substantial. Changes would be made administratively with little or no input from Congress….

Much of the new initiative is expected to focus on industry-nominated changes. But an OMB official said yesterday only that the agency was finalizing plans to release its report on rules to be revisited. OMB will take into consideration the recommendations it received but "won't necessarily implement all these," the official said.

For example, a number of businesses and trade groups have suggested revisions to ease the burdens imposed by environmental standards, including rules defining what constitutes hazardous waste, as well as spill-prevention control and some toxic-release reporting requirements for businesses…Rules for handling toxic and hazardous materials—such as community right-to-know laws concerning presence of chemicals at local plants—also have drawn criticism.


     Translation: “more flexible pollution standards, chemical-handling rules, and workers' medical-leave protections” means industry is allowed more flexibility to pollute the land, air and water, and workers’ medical leave provisions will be reduced or removed.

     And “community right-to-know laws concerning presence of chemicals at local plants,” will undoubtedly be eliminated, thus allowing corporations to pollute the environment and endanger the public in secret.

     Another key statement: “The stated aim is to improve the overall climate for U.S. manufacturing, a sector hammered by recession and overseas competition during much of President Bush's first term.” Meaning: the disaster of globalization that is hurting even many American corporations will be minimized by saving costs related to protection of the environment, and of consumers’ and workers’ rights.




     The bias of the Republicans in favor of the wealthy and powerful—and against the poor and powerless—is truly amazing. Two articles in the same issue of the Journal demonstrate it’s one-sided ideology, as is reflected in the recent bankruptcy legislation.


From The Wall Street Journal, March 9, 2005.

Defeat of Amendment
Clears Way for Passing
Bankruptcy Overhaul

WASHINGTON – The Senate cleared the way for approval of a landmark bankruptcy bill after defeating a controversial amendment that had held up the legislation since the Clinton administration.

By a 53-46, near-party-line vote, senators rejected an amendment by Democrat Charles Schumer of New York designed to prevent antiabortion demonstrators from using bankruptcy protections to avoid court-imposed fines. With that obstacle to passage removed, the Senate moved toward a final vote on the bill as early as tonight….

House Republicans, eager to reduce the number of individuals filing for bankruptcy, said they would approve the Senate bill next month in order to send it to the White House this spring. That would be a significant victory for Mr. Bush, who has vowed to make the U.S. more business friendly in his second term, and for his allies in the business community….

Arguing that protesters at abortion clinics shouldn't be able to use bankruptcy laws as a shield from legal sanctions, Sen. Ted Kennedy (D., Mass.), likened opponents of the Schumer amendment to those who "stand with the radical elements of our society who want to roll back protections for a woman's right to chose."…


---------------------------------------------------------------

The New Rules
Of Bankruptcy

Overhaul Is on Track to Clear Congress,
But Housing, Trust Exemptions Remain

…Wealthy individuals will be less likely to feel the impact of the legislation. That is because the bill retains significant loopholes that could be used to shelter valuable assets from the bankruptcy process, such as exemptions for homes that protects them from being seized. The proposed new rules also retain a loophole that permits people to set up so-called "asset protection trusts," which are exempt from being used to pay off debts in a bankruptcy proceeding….

The changes, which come after eight years of failed attempts, represent one of the most-significant rewrites in decades. Supporters—credit unions, banks, and retailers—have sought the legislation to curb alleged abuses in the system….

The bill leaves in place a contentious exemption: Debtors can still own and retain expensive houses in certain states that protect the homes from a forced sale to pay debts….

The Senate, during debate on the bill, also rejected efforts to kill off the loophole that permits the wealthy to protect assets by opening special trust accounts in any of several states, including Alaska, Delaware, Rhode Island, Nevada and Utah. Doctors have been setting up these so-called asset-protection trusts for years to protect themselves from malpractice litigation. Now, executives are following suit, as a result of the latest round of corporate scandals and the passage of the Sarbanes-Oxley Act, which makes top executives and directors accountable for their company's financial results.

About 1,500 domestic asset-protection trusts holding more than $2 billion in assets were created between 1997 and 2003, according to an estimate by Wilmington Trust Co.

In addition, the bill increases the value to $1 million of retirement funds exempted from bankruptcy claims. The current law has complicated formulas to exempt pensions….


     So, middle-income people who become penniless because of a major illness, or loss of a good-paying job, will still have to pay their debts. However, if a bomber of an abortion clinic is fined, the bankruptcy laws won’t apply to him. Neither will the law apply to the wealthy convicted corporate criminals who shelter their wealth in selected states.

     How one-sided and hypocritical can you get?




     I never cease to be amazed at the callousness of conservative economists and politicians. The people who constantly preach to us that we should not be envious of the incomes of the rich are the very same people who watch the incomes of workers like predatory hawks.

     The first three excerpts below are from the same issue of Barron’s, the fourth is from Business Week, and the fifth is from The Wall Street Journal. Notice the utterly cold analyses they make of status and living standards of the people in our country who actually work for a living.

     As you read the following, remember that a “goldilocks” economy is one in which the unemployment rate is high enough so employers can find workers without having to raise wages, but low enough so that the drain on the economy (and taxes) is not excessive. In other words, and economy is just fine—not too hot and not too cold—if corporations are making huge profits, and not having to share them with workers through higher wages.


From Barron’s, March 7, 2005.

ECONOMIC BEAT

Underlying Job Trends

A 5.5% unemployment rate is enviable

By GENE EPSTEIN

The official story released Friday by the Bureau of Labor Statistics showed nonfarm payroll employment rising by a seasonally adjusted 262,000 in February, while the jobless rate snapped back to a seasonally adjusted 5.4% from 5.2% the month before….

A more focused look reveals a job market that isn't quite as hot as the February report implies. But it ain't cold, either….

Call it the Goldilocks economy. Don't call it chopped liver.


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THE TRADER

By Michael Santoli

Rarely is an act of government met with the kind of near-unanimous approval that greeted Friday's employment report from the Labor Department.

The word that 262,000 jobs were added in February (for more on this, see Economic Beat in the main news section) provided the cause, or at least an excuse, for buying across virtually every asset class. Stocks got a 1% lift while bond prices advanced (dropping their yields)….

Indeed, the bond market's celebration of the payrolls report belies the notion that the 262,000 tally was a true upside surprise, never mind the formal consensus forecast of 225,000. Treasury traders were clearly positioned for a bigger number, and cheered its absence….

The advance in the stock indexes drove the Dow Jones Industrial Average and the Standard & Poor's 500 index to new 2005 highs and above the December peaks, levels that had capped the benchmarks until then….

For the week, the Dow gained 98 points to hit 10,940, its highest close since June 2001. The S&P 500 climbed 10, to 1222, a level last seen in July 2001….

The upbeat take on this pattern is that that temptress Goldilocks was favoring Wall Street again, with a cozy environment neither too hot nor cold….


---------------------------------------------------------------

CURRENT YIELD

Jobs and Bonds Gain

Fears fade of more aggressive Fed moves

By Jennifer Ablan

U.S. treasuries held firm Friday after the latest jobs report fell short of the market's high expectations, soothing concerns of more aggressive rate hikes by the Federal Reserve….

In the wake of the February employment data, federal-funds futures continued to forecast that the Federal Open Market Committee is virtually certain to boost its key overnight rate in quarter-point increments at its next three meetings through June, to 3¼% from 2½% currently….

The unemployment rate, meanwhile, ticked up to 5.4% from 5.2%, in part because the labor force rose by 153,000 following declines in the previous two months….

"Wage pressures remained weak," Wang notes, pointing out that private service wages fell outright by 0.1%...

"Even though companies are cash-rich, they still appear reluctant to hire," says Mary Ann Hurley, vice president of fixed-income trading at D.A. Davidson. "We should be adding many more jobs, especially at this stage in the economic recovery." She asserts that companies are loath to hire and expand their business because of such factors as the rising cost of health-care and pensions. The economy needs to add between 150,000 and 200,000 jobs a month just to keep up with population growth, Hurley adds….



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From Business Week, March 7, 2005.

Is That A Whiff Of Inflation?

The forces that have held it back are starting to move in another direction

Strong growth and low inflation have become ingrained in the way most analysts view the U.S. economy. This win-win combination was a hallmark of the late 1990s, and it has been true for the past two years. However, the ground is slowly shifting, and the forces that have held inflation down for so long are starting to move in the opposite direction….

Most important, labor markets are tightening, the dollar has fallen for three years, to a seven-year low, and productivity growth has slowed sharply. Why is this important? Because when the labor markets were tightening in the late '90s, it was a rising dollar and strong productivity growth that held inflation in check.

If the economy is as solid as recent data suggest, then 2005 will offer a crucial test of just how much this new age of global competition can continue to keep price pressures under wraps….

With productivity slowing, businesses will have to add to their payrolls at a faster clip to meet increased demand. Plus, the labor market may well be tightening faster than recent job data suggest. New unemployment claims this year have moved sharply lower, with new filings in mid-February hitting their lowest level in more than four years.

Moreover, the Conference Board's February survey of consumer confidence showed that the percentage of consumers describing jobs as "hard to get" fell to the lowest level since 2002. Households also described present economic conditions as the best in 3 1/2 years. Based on past trends, a surge in consumers' assessment of current conditions has always been linked to a pickup in job growth, and job trends will weigh heavily on both wage growth and the Fed's future interest-rate moves.

To be sure, globalization continues to be a formidable force holding back U.S. inflation pressures. But this year, the economic winds are gradually beginning to blow in the other direction. How strong those gales turn out to be will determine whether the economy faces clear sailing or rough seas.


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From The Wall Street Journal, March 7, 2005.

For Bonds, Rise in Jobs
Means Narrow Trading

NEW YORK — It was a mixed blessing for the bond market.

For investors seeking a compelling trend in the economy, Friday's report on U.S. employment was the latest in a line of data likely to keep yields trapped in a frustratingly narrow range, albeit with a bearish outlook….

That was clear in the grudging relief rally Friday, as the market digested the payrolls data….

"The fear within the bond market was a move to stronger job growth accompanied by signs of inflation pressures, and that's clearly not the case for now," said Dominic Konstam, head of interest-rate strategy at Credit Suisse First Boston….

Instead, the report "confirms what we've been saying about the economy, that it continues to grow without generating a lot of inflationary pressure," said Gary Pollack, portfolio manager at Deutsche Bank Private Wealth Management….


     Let just a hint that the unemployment rate of workers may be going down, or that the resulting wage increases may be starting to go up, and Alan Greenspan—our premier class warrior—and the Fed may raise the prime interest rate in order to slow down the economy.

     Of absolutely no concern to Greenspan and the Fed are the exploding incomes of CEOs, investors, professional athletes, actors, rock stars, top-tier doctors and lawyers, real estate moguls, and on and on. That’s simply the way it should be when you believe—as does Greenspan—in aristocracy, and in the perverted form of capitalism that we have now, and as it has been sold to the voting public.

     For a more extensive discussion of this subject, see: The Class Warfarer’s scapegoat: “Wage Inflation”.




     The following three excerpts are just a sample of the growing body of evidence that globalization is an unmitigated disaster for our country. Since these excerpts are presented for purposes of criticism only, and to convey the general theme, serious students of the subject should read the originals.


From Barron’s, March 7, 2005.

The Perils of Economic Glory

Gauging the pitfalls of China's astonishing growth

The new kid on the block may be growing up too fast. Warnings about the downside of China's galloping economic growth and its increasing impact on the global balance of power have begun bleeding through the happy talk about its vast market, its endless supply of lowest-wage workers, and the unbeatable bargains it delivers to U.S. consumers.

In February, CIA director Porter Goss suggested that China's military modernization and expansion could roil the Taiwan Strait's status quo and threaten U.S. forces in the region; the U.S. Chamber of Commerce complained openly that China's counterfeiting and pirating was costing American industry more than $200 billion a year, and badgered the Bush administration to initiate legal action in the World Trade Organization to quash it. And awareness has begun to hit home that China's awesome rise as a manufacturing powerhouse had elevated it to America's most serious competitor for oil.

In rather short order, China has come to bear significant responsibility for rising oil prices, an increase in global warming and the spreading of pollution. In addition, suspicions are afoot that China just might, in a matter of decades, be able to pull the rug out from under America's status as No. 1 Superpower….



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From Business Week, March 7, 2005.

In Europe, Every Little Reform Counts

A slew of modest measures in Germany and France may add up to brighter growth prospects for 2005

...In France, as in Germany, the reforms may be starting to gain traction just as companies are beginning see benefits from several years of tough restructuring. Buoyant exports, payroll slashing, and offshoring of jobs to cheaper locales in Eastern Europe—coupled with increasingly sophisticated capital markets—are helping pave the way for fatter profits….

With steady-drip reforms, Europe may finally be wearing away some of the toughest obstacles to growth.


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From Business Week, March 7, 2005.

States' Rights vs. Free Trade

As trade pacts proliferate, states start to howl about lost sovereignty

The good people of Utah decided 110 years ago that gambling was one vice the state didn't need. So they outlawed it and later added electronic gaming to the ban. Now, Utah's right to make games of chance illegal has been shot down by the World Trade Organization.

WTO judges ruled last fall in a case brought by the government of Antigua and Barbuda that gambling regulations in Utah and most other states conflict with America's obligation not to discriminate against foreigners providing "recreational services." In ruling for the tiny Caribbean nation, which had charged that Utah's wager-phobia infringed on Internet gambling operations based in the islands, the WTO opened the door to millions of dollars in potential penalties. "It's not just gambling," warns Utah state representative Sheryl L. Allen, a Republican who chairs a multistate committee studying free-trade deals. "The states are losing their authority in a lot of areas."

After decades of dozing on the sidelines as Washington promoted a free-trade agenda around the globe, governors, state lawmakers, and judges are waking up to the same startling reality: A growing number of international trade agreements are usurping state powers. Suddenly alarmed that Washington is bargaining away their authority over everything from regulating utilities to controlling land use, states are all but ready to join the chorus of anti-globalization critics….

The assault on sovereignty is rooted in a series of trade agreements stretching back to the mid-1990s. The 1994 North American Free Trade Agreement and the pact creating the WTO in 1995 both established three-judge panels that can authorize punitive tariffs or fines against violators. These judges put teeth behind vaguely worded commitments—buried in hundreds of pages of arcane detail—that nations will use the "least trade-restrictive" regulations and laws "no more burdensome than necessary" to accomplish their social, economic, and environmental goals. The unintended result: "These agreements are not just about trade anymore," says Lori Wallach, a trade-law expert at consumer watchdog Public Citizen. "They're about every aspect of government."

Just ask California Governor Arnold Schwarzenegger. In December the governor's advisers warned that proposed tax incentives meant to encourage road builders to grind up California's annual harvest of 32 million used tires and blend them with asphalt would violate NAFTA by putting Canadian and Mexican recyclers at a disadvantage. Schwarzenegger vetoed the bill….


      Add all this up and what do you have? In civilized countries, the only way you can even begin to prosper is by payroll slashing, and offshoring of jobs to cheaper locales…” as is now being done in Germany and France (and the U.S.). And it’s all done in order to benefit investors, CEOs, and all who are on the right side of globalization.

      In the process, we’re destroying our status as the leading world power, in both the productivity of products and innovation, and, eventually, even in military power.

      Probably the biggest understatement of the year is: “After decades of dozing on the sidelines as Washington promoted a free-trade agenda around the globe, governors, state lawmakers, and judges are waking up to the same startling reality: A growing number of international trade agreements are usurping state powers.” It’s not just state powers that are being usurped, it’s our national government’s powers.




     You’ll be relieved to know that the incomes of some corporate employees are keeping up with, and even exceeding, inflation.


From The Wall Street Journal, March 8, 2005.

Bear Stearns Paid CEO
$24.7 Million Last Year

NEW YORK—Bear Stearns Cos. Chairman and Chief Executive Officer James Cayne received $24.7 million in salary and bonuses in 2004, down from the year-earlier $27.1 million, continuing a trend of healthy pay on Wall Street.

Co-presidents Alan Schwartz and Warren Spector, meanwhile, each made more than $23.4 million last year….


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IBM Paid Its CEO
$8.8 Million in 2004

ARMONK, N.Y.—International Business Machines Corp. paid Samuel J. Palmisano, its chairman and chief executive $8.8 million in salary, bonus and long-term incentive payout last year, reflecting a 12% raise over the prior year.

The Armonk, N.Y. computer concern's executive compensation board cited the company's "strong revenue growth and significant market share gains" under Mr. Palmisano who took over the helm three years ago….


     How do CEOs of corporations like IBM improve their bottom lines so much? The principle method is to ruthlessly cut labor costs (reduce wages and living standards of their lowest paid employees—terminations, outsourcing, harsher demands for performance, etc.). This increases corporate profits, the stock goes up, investors get richer, and the boards of directors increase the CEO’s income. In return, of course, the CEO makes sure the members of the board also receive hefty increases in compensation.

     These practices of producing corporations end up being especially profitable to the bankers who are the wheelers-and-dealers of Wall Street and corporate finance—the Bear Stearns of our country.




     Globalization is beginning to unravel, as it should. Across the world, countries are beginning to realize—just as they did in the 1930s—that they must ensure the ability of most of their citizens to make a decent living. If they don’t, then instability and social disruption is inevitable.

     Of course, after globalization has done all its damage and countries belatedly take steps to rescue their economies and their working-class citizens — “protectionism” will be blamed for the resulting economic recession or depression.


From The Wall Street Journal, March 11, 2005.

As China Exports
Of Textiles Grow,
Limits Are Sought

A surge in textile exports from China following the lifting of quotas on Jan. 1 has sparked calls around the globe for fresh restraints on the Chinese juggernaut.

European manufacturers are joining U.S. companies in lobbying for protections to be imposed. Even Chinese exporters, hoping to stave off the backlash, are discussing setting a floor for their own prices.

The lifting of textile quotas, which had long restrained Chinese exports to richer countries, appears to have unleashed an export surge to the U.S. and the European Union. New data show the quantity of some exports soaring and prices plunging. "The time has come to limit the seemingly voracious appetite of Chinese exporters for the European market," said Bill Lakin, director-general of the European Apparel and Textile Organization, Europe's largest textile industry group….

While U.S. and EU textile makers worry about the import surge, consumers benefit. In part because of imports, apparel price rises in the U.S. already have lagged behind those in other goods and services. The U.S. Bureau of Labor Statistics says, for example, that while the overall consumer-price index rose 3% the past 12 months, prices of men and boys apparel fell 0.9%, prices of women and girls apparel declined 0.2%, and prices of infant and toddler apparel rose 0.3%....

The U.S. National Council for Textile Organizations added its voice to calls for fresh protection earlier this week, calling on the administration to quickly institute safeguards, without which it fears a "wave of plant closing and job losses." According to the European Trade Union Federation for Textiles, Clothing and Leather, Europe lost 165,000 jobs in the textile sector last year alone….


     You can count on it. Just as they did in the 1930s, Republicans will blame the coming economic disaster on the protectionism that inevitably results after the wealthy and powerful have sold out American workers—and all in order to further enrich themselves.




     Someday, hopefully, people will realize that all societies and all economies are always controlled. The only issue is: who’s doing the controlling and for whose benfit?

     When government functions are privatized, it only means that the control is transferred to private, greedy individuals who have no obligation or incentive to work for the public interest. Even marginally competent government officials are better than intentionally manipulative and fraudulent private investors.


From The Wall Street Journal, March 11, 2005.

Malaysia Is Finding
Privatization Contracts
Hard to Revise or Undo

KUALA LUMPUR, Malaysia—During the 1990s, Malaysia went on a privatization spree, with then-Prime Minister Mahathir Mohamad's government selling stakes in public utilities and awarding billions of dollars in contracts to private businesses for showcase infrastructure and industrial projects.

Now, as in some other countries that embarked on similar binges, new political leaders are struggling to cope with privatization deals that have proved to be costly, ill-advised or unpopular….

As in Malaysia, the impetus to revisit privatization awards elsewhere has followed changes in political leadership. Ukraine's newly elected government, for example, is just beginning to wrestle with the question of how much energy to expend on reviewing hundreds of privatization awards—mainly sales of state-owned assets—made in recent years under former President Leonid Kuchma, which most Ukrainians suspect involved corruption or favoritism….

In Argentina, meanwhile, President Nestor Kirchner's government has been at odds with previously privatized state companies since it took office in May 2003. Some of those privatizations have come under the scrutiny of Argentine investigative judges examining cases of alleged corruption under the government of former President Carlos Menem, who ruled from 1989 to 1999.

Government officials complain that the operators of privatized businesses made huge profits during the country's early 1990s economic boom but didn't reinvest what they should have to maintain public services during the more-recent lean years….

The results of the privatization frenzy have been mixed. While the partial sales of national utility companies and ports have been successful, some companies entrusted with large infrastructure projects, including commuter-rail systems and the huge Bakun hydroelectric dam in Borneo, eventually failed, leaving the government to lead costly bailouts….


     To better understand why all societies and all economies are always controlled by someone—and the implications for government vs. privatization—check out the file Conservatives are attacking the freedoms that count .



Week of February 28



     Read the following for a classic example of the zero-sum nature of wealth. As the top 20% of Americans get richer, the bottom 80%, in effect, get poorer. It’s especially true of the top 1%, relative to the bottom 40%.

     This excerpt describes why our real estate and tax laws create additional wealth for the already wealthy—and deeper poverty for the already poor.


From The Wall Street Journal, March 4, 2005.

Entrepreneurs' Unusual Tactic:
Buying Up Homes by Hundreds

Working-Class Neighborhoods
Offer Better 'Rental Yield'…

TRENTON, N.J.—Many people agonize for months before deciding to buy a house. Jonas P. Lee is more decisive: He often buys several in a day.

This year, the 38-year-old Mr. Lee says he plans to buy more than 1,000 homes for Redbrick Partners LP, a New York firm he runs with the help of an MIT economist to invest in single-family rental property. What millions of mom-and-pop landlords do locally, Redbrick is trying to do on a grander scale.

Mr. Lee, a former Web entrepreneur who grew up in New York's posh Westchester County, doesn't see much value in most suburbs at today's lofty prices. Instead, he is buying in working-class neighborhoods in such cities as Baltimore, Philadelphia and Trenton. Even there, however, he is running into tough competition from people determined to cash in on America's decade-long housing boom.

On average, house prices in the U.S. have jumped 85% over the past decade, according to the Office of Federal Housing Enterprise Oversight….

The National Association of Realtors estimates that 23% of home purchases last year involved investment properties….

Redbrick's first fund, which started with $3 million of equity and has used borrowings to acquire about $10 million of properties, has produced an estimated return of 50% after fees since closing to new investors in December 2003, Mr. Lee says. Redbrick has told investors in its first two funds that it expects average annual returns in the 18% range….


     It’s the old supply and demand principle: as the wealthy buy up homes, the available supply dwindles—and rent and the prices for homes go up dramatically. The wealthy investors benefit, and the renters fall further behind in their ability to have a decent standard of living.

     For an extended discussion of the zerosum nature of wealth, see Wealth is a Zerosum Game.




     The following excerpt is encouraging, but recent history suggests caution. Are Chuck Prince’s stated intentions real—or are they merely the froth of a cynical public relations endeavor?


From The Wall Street Journal, March 2, 2005.

Citigroup CEO Pursues Culture of Ethics

Chuck Prince says he has found his purpose. He wants to be the chief executive officer who brings a new culture of ethics to Citigroup. And yesterday, his campaign started in earnest.

This may seem an odd effort for a man who earned his stripes as a close adviser to Sandy Weill. While few would charge Mr. Weill with being unethical—"tough but honest" is a phrase used by those who know him—he built Citigroup's financial empire with a ruthless focus on cost-cutting, deal-making and financial performance. He didn't spend much time talking about "values," "ethics" or "shared responsibilities."…

Citigroup played a pivotal role in financing fraud-ridden Enron, WorldCom, Adelphia and Parmalat. Its private bank in Japan spent three years flouting the directives of regulators. And bond traders in Europe developed a trading strategy so extreme that they dubbed it "Dr. Evil." The company, under both Mr. Weill and Mr. Prince, has been caught misbehaving multiple times, on multiple continents.

Mr. Prince says Citigroup isn't a company out of control. "We don't have a bad culture. We don't have a corrupt culture."

Instead, he argues that Citigroup's leaders -- himself included -- have failed to make their own values and ethics part of the fabric of the corporation. "We emphasized the short-term performance side of the equation exclusively," he said. "We didn't think we had to say: 'And by the way, don't violate the law.' There were unspoken assumptions that need to be spoken."…

The result is a massive campaign that began at Citigroup yesterday. Many of the company's 300,000 employees in 100 countries gathered to watch a movie that traced the company's history and called on employees to make Citigroup "the most respected global financial-services company." Citigroup's top executives have been told to expect a host of changes that include annual ethics training for all employees, expanded training for top managers, anonymous appraisal of managers by their employees ("That one came from Dell," Mr. Prince says), a 30% increase in resources for compliance and audit, and changes in the way management compensation is calculated. In addition, Mr. Prince plans a global tour each year to reinforce the effort.

The big danger, of course, is that by adopting this new approach, Mr. Prince undercuts one thing at which Citigroup is highly successful: generating profits….


     Chuck Prince's stated efforts to improve the ethical standards of Citigroup are commendable and encouraging. It remains to be seen if these efforts are of substance or merely the froth of a public relations campaign.

     A disturbing note is Prince's comment that "We emphasized the short-term performance side of the equation exclusively...We didn't think we had to say: 'And by the way, don't violate the law.' There were unspoken assumptions that need to be spoken."

     Not violating laws is not a sign of ethical behavior. That's what even unethical people do to avoid going to jail. Ethical behavior means you respect the ethical standards of rights, justice and utility in your daily actions (as taught in a typical business ethics class).

     However, teaching ethics in employee training classes will be totally ineffective if senior management still puts unreasonable pressures on subordinates to improve the bottom line. Mr. Prince's record suggests that that's exactly what he does. And that's why some employees decide that violating the law—and not getting caught—is a requirement for promotion or even job retention.

     To better understand the factors that affect corporate ethics, check out the file on Proactive vs. Reactive Management. The book It's based on is actually about about corporations,but on this site the principles are applied to American politics.




     The ultimate disaster of globalization is playing out, and it’s being described by The Wall Street Journal.

     Everything is now moving to those countries with the lowest wages: industry, research facilities, the development of new technologies—and the purchasing power of consumers.

     Who are the winners in all this? The investors in companies like GE and top corporate executives. The established wealthy and powerful.

     Who are the losers? Upper-middle, middle- and low-income Americans who actually work for a living.


From The Wall Street Journal, March 2, 2005.

GE Pins Hopes on Emerging Markets

Strategy Is Major Shift
From Reliance on the West;
Big Rivals Echo Approach

General Electric Co. expects to get as much as 60% of its revenue growth from developing countries over the next decade, Chairman and Chief Executive Jeffrey Immelt said in the company's annual report….

The strategy, which Mr. Immelt has discussed inside and outside the company in recent months, marks a major shift from the past decade when just 20% of the conglomerate's revenue came from developing countries. Instead of counting on the U.S. and Europe, GE now is looking to China, India, the Middle East and Asia to buy its turbines, aircraft engines and medical devices.

In addition, it expects to sell mortgages and credit cards to a growing middle class in Eastern Europe, including Russia, and Southeast Asia—and eventually China. Some developing countries, China in particular, are growing at rates high in the single digits, compared with 3% to 3.5% for the U.S., and half that for Europe and Japan.

GE's outlook is echoed by most multinationals, many of them rivals such as Siemens AG and Philips Electronics NV, and financial-services giant Citigroup Inc. Like GE, these companies are dealing with how to grow in the face of a slower U.S. and European economy. For most of them, that means moving deeper overseas—in some cases, building manufacturing plants and buying materials in those countries while selling lower-price products such as medical equipment. It also could mean more job cuts in the U.S., and even Europe, as the multinationals seek new markets for their products….

Banking on developing countries also means more outsourcing of back-office jobs, from processing paperwork to basic accounting, something that GE started doing in the 1990s in India….

By 2024, GE estimates China will be the largest consumer and consumer-finance market—and be the largest consumer of electricity in the world. To be successful there, companies must make concessions, such as sharing technology with the Chinese, who eventually want to make their own turbines, medical equipment and other sophisticated products. Additionally, companies are investing in research centers and crafting partnerships with government-owned entities to give them a more-favored status with the Chinese government … such investments give companies like GE favored status when they are bidding on projects….


     Key statement above: “the Chinese, who eventually want to make their own turbines, medical equipment and other sophisticated products.” Therein is the fundamental lie of those who have supported globalization. Low-paid jobs were to be exported to Third World countries in exchange for higher-paid jobs for American workers.

     It simply isn’t happening. We’re exchanging higher-paid for lower-paid jobs for workers—and all to benefit investors and the established powerful and wealthy.

     It’s not only industries and research facilities that are being exported, it’s the purchasing power—and living standards—of American workers.




     So, the Chinese are benefiting from globalization, right? Well, it depends upon whether you’re a wealthy and powerful citizen or a poor and powerless citizen. Same as right here in the U.S.


From The Wall Street Journal, March 2, 2005.

China Grapples With Social Ills

Leaders Fear Economic Boom's Inequities
Imperil Stability, Growth on the Mainland

…In recent weeks, the senior [Chinese] leadership has held a series of closed-door conclaves to zero in on what it sees as worrisome social ills. Influential economists and senior economic-policy makers debated whether widening income disparities would undermine future growth, participants say.

President Hu Jintao and other leaders huddled last week with provincial politicians to discuss how the government could be more responsive to the people amid growing discontent over the wealth gap, rampant official corruption and land grabs for urban development, say people familiar with the situation….

"Before, people paid more attention on how to develop the economy," says Fan Jianping of the State Information Center, a cabinet think tank. "Now that China has achieved some progress in this, it needs to figure out how to divide the cake so that each person can get a taste of China's success."…

A government sociologist, Li Peilin, who gave a presentation to top leaders in February, pointed out a spate of discomforting problems: rising unemployment; 40 million rural Chinese dispossessed of their land, often with inadequate compensation; a seemingly intractable 30 million living in absolute poverty; and swelling dissatisfaction among these low-income citizens….


     It never ends. Economic theories are not based on science. They’re based on justifying the living standards of the rich and powerful: the ones who control a nation's economy.




     Here are two classic descriptions of “The Destructive Achiever.” They manage by intimidation, while maintaining a deniability of any wrongdoing (no paper trails, just personal testimony).

     Both of these “celebrated chief executives” undoubtedly knew how to look and act like genuine leaders. As a result, they got huge incomes because their “blue-chip” corporations reported (fraudulently) huge profits.


From The Wall Street Journal, March 1, 2005.

Ebbers Denies He Knew
About WorldCom's Fraud

Former WorldCom Inc. Chief Executive Bernard J. Ebbers took the witness stand in his own defense yesterday and denied having any knowledge of his company's $11 billion fraud, directly contradicting the government's star witness, Scott D. Sullivan….

Yesterday's testimony marked the most dramatic moment in the five-week trial of Mr. Ebbers, who was one of the nation's most celebrated chief executives in the late 1990s as WorldCom gobbled up companies and saw its stock soar. He was forced out in April 2002, just two months before the telecom giant began to disclose what has become the biggest accounting fraud in U.S. history, which drove the company into bankruptcy and hammered a stock worth $180 billion at its peak….

Mr. Ebbers said his budding career as a college basketball player went sour after his Achilles tendon was cut in an attack by "hoodlums" on the street in Mississippi. He worked as a delivery man, a milkman and a bouncer. After graduating from college, he said, he lived for a few years in a trailer behind a motel he was managing in Mississippi.

"So you don't have a CPA [certified public accountant certification]?" asked Mr. Weingarten. Mr. Ebbers, dressed in a black suit, white shirt and a silver tie, chuckled and said the closest he had gotten to that was taking a basic economics course. He said he'd gotten into the motel business because it seemed to match his abilities.

"It didn't require any technical skills—I was a PE [physical education] teacher," Mr. Ebbers said. "It was mostly about getting along with people. I thought I could do that."…

Earlier in the day, answering questions from Mr. Weingarten, Mr. Ebbers had admitted to being a tough boss. "I considered myself demanding," Mr. Ebbers said. "I expected results and there were a few times when I lost my temper and said things I probably shouldn't have said."…

The government contends that Mr. Ebbers participated in the fraud to protect a personal fortune composed largely of about 20 million shares of WorldCom stock….


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HealthSouth Ex-Finance Chief
Says Scrushy Knew of Fraud

BIRMINGHAM, Ala.—A former HealthSouth Corp. finance chief testified that company founder Richard M. Scrushy praised him and another executive for finding a way to fraudulently boost the company's bottom line in 1997.

Michael Martin, who took the stand late yesterday at Mr. Scrushy's trial here as a witness for the prosecution, recalled a meeting in which he told the chief executive that the two finance officials could shift $300 million in expenses off HealthSouth's books during an acquisition. "We told him the scheme we had come up with to move those expenses and prop up earnings for that year," Mr. Martin said. "He said, 'Damn, you guys are good.' "

Mr. Martin, who was chief financial officer at HealthSouth from 1997 to 2000 and has pleaded guilty to participating in the fraud, is the third onetime chief financial officer at HealthSouth to testify that Mr. Scrushy knew about the $2.7 billion accounting maneuver. William T. Owens, the other finance executive in the meeting described by Mr. Martin, would later serve as finance chief, and spent 11 days testifying against Mr. Scrushy….


     Increasingly, it seems, image—including the obvious devotion to greed, for themselves, their top executives, and their boards of directors—is far more important than genuine management skill in succeeding in today’s corporate America.

     To better understand why many (most?) corporate CEOs are terrible managers, check out the file on Proactive vs. Reactive Management. Although the file is concerned primarily with the political implications of reactive management, the concept applies equally well to the corporate environment (as does the book it is based on).




     Republicans never know when to stop. Their chronic pro-business, anti-labor, and anti-consumer bias knows no limits.

     This time, they’re protecting the horrible (fraudulent?) practices of the credit-card industry—by allowing them to continue their haphazard and deceptive credit-card practices, and passing the disastrous results onto their unsophisticated customers.


From The Wall Street Journal, March 1, 2005.

Bankruptcy Bill Is Pushed in Senate

WASHINGTON — Republican leaders are pressing for Senate passage of a bankruptcy-code overhaul that would make it harder for consumers to walk away from debts and instead require some to pay them. The Senate began debate yesterday on the legislation, which is backed by credit-card and other financial-services companies.

Congressional leaders believe the bankruptcy bill is more likely to become law after eight years of failed attempts, in part thanks to larger Republican majorities following last year's elections….

The legislation is aimed at limiting consumers' use of Chapter 7 of the U.S. Bankruptcy Code to wipe out credit-card bills or loans unsecured by a house or other asset….

"This isn't a balanced bill," said Travis Plunkett, spokesman for the Consumer Federation of America, a nonprofit consumer-research and advocacy group. "There isn't a single curb on abusive-lending practices by credit-card companies that contribute to personal bankruptcies."

Consumer advocates are unhappy that, among other things, the bill doesn't require credit-card companies to disclose exactly how much extra in interest consumers end up paying if they make only minimum credit-card payments each month….

The Republicans' fast-track effort on bankruptcy is the latest push for business-friendly bills that are high on the Bush-administration's agenda….


     Key statement: “The Republicans' fast-track effort on bankruptcy is the latest push for business-friendly bills that are high on the Bush-administration's agenda.” When the ultra-conservative Wall Street Journal says that Bush and Congressional Republicans are “business-friendly,” (also meaning anti-labor and anti-consumer, as well as anti-environment) you’d better believe it.




     This is one of the best descriptions of the real intent of Bush’s efforts to create an “ownership society.” His real intent is to put real economic power into the hands of the wealthy, educated, and politically well-connected. People like himself.

     The losers in such a society are those who work hardest for a living: the uneducated, the powerless, and those without any political clout. Throughout history, these are the kinds of people who have always been the victims of the rich and powerful.


From The Wall Street Journal, February 28, 2005.

In Bush's 'Ownership Society,
Citizens Would Take More Risk

Beyond Social Security Moves,
His Vision Encompasses
Health Care and Housing
Shrinking the Safety Net

WASHINGTON — President Bush's campaign to revamp Social Security is just the boldest stroke in a much broader effort: To rewrite the government's social contract with citizens that was born of Franklin Roosevelt's New Deal and expanded by Lyndon Johnson's Great Society.

In what Mr. Bush calls an "ownership society," Americans would assume more of the responsibilities—and risks—now shouldered by government. In exchange, the theory goes, they would get the real and intangible benefits of owning their own homes, controlling their retirement savings, and using tax credits or vouchers to shop for education, job training and health insurance….

"We will widen the ownership of homes and businesses, retirement savings and health insurance," Mr. Bush said in his inaugural address in January. "By making every citizen an agent of his or her own destiny, we will give our fellow Americans greater freedom from want and fear, and make our society more prosperous and just and equal."…

Critics say Mr. Bush's vision is blind to economic risks facing Americans, especially lower-income workers. William Gale, a Brookings Institution economist, dismisses the president's agenda as "the Dismantling-the-Safety-Net Society." Some applaud his rhetoric, but say the president's policies—heavy on tax breaks—don’t broaden ownership, but favor the well-off.

The poorest workers, exempt from income taxes, can't take advantage of tax breaks for savings. Eugene Steuerle, a Reagan-era Treasury official now at the Urban Institute, titled a recent analysis, "An Ownership Society, Or A Society For Those Who Already Own?"…


     To better understand the real values of today’s Republican party, check out It’s the Republicans Who are Waging Class War, and Class War: It's Investors Vs. Everyone Who Works for a Living. Of course, that is the subject of most of this website.




     Here we have the usual explanation for why American consumers will be paying higher prices for gas. Nowhere in this article will you find one of the main reasons: the record corporate profits and outrageous CEO incomes in the petroleum industry—as reported recently in the conservative news media.


From The Wall Street Journal, February 28, 2005.

Gas Prices Rise
Despite Greater Supply

The soaring cost of crude oil is pushing gasoline prices higher, even as refiners report ample fuel supplies well ahead of the summer driving season.

Analysts at the U.S. Department of Energy's Energy Information Administration expect the average price for unleaded gasoline in the U.S. to peak this spring near last year's high of $2.06 a gallon, held in check by stocks that are more than 8% above year-ago levels. Nevertheless, officials are concerned prices at the pump could rise higher still on strong demand, with some analysts predicting prices as high as $2.50.

"Inventories can be drawn down quickly," said Joanne Shore, EIA senior analyst.,,,

…rising demand for gasoline is putting considerable pressure on the U.S.'s refining system, which has seen its capacity tighten amid a precipitous decline in the number of refineries in the past 20 years. Thanks in large part to gas-guzzling vehicles, gasoline demand rose nearly 3% for the first seven weeks of 2005 from the comparable period last year…


     To better understand how the petroleum industry takes ruthless advantage of bad supply/demand situations, check the recent weeks' record of the conservative press on this site.




Want to know what mainstream economists really think of Bush’s plan to privatize Social Security? Read on.

From The Wall Street Journal, February 28, 2005.

Social Security Overhaul Plan
Leans on a Bullish Market

In selling the idea of private Social Security accounts to Americans, President Bush has repeatedly made a bullish prediction: The stock market will help younger workers get a "better deal" than they would from traditional Social Security.

A number of prominent economists have two problems with Mr. Bush's pitch. First, they say it's too optimistic about the long-term prospects for stocks. Second, it ignores an irrefutable rule of finance: There is no free lunch. Or, put another way, greater returns bear greater risks.

"You can't just sort of invent free return," says William Dudley, chief U.S. economist at Goldman Sachs Group Inc. in New York. "If it was that easy, you wouldn't have a Social Security problem in the first place."…

For example, there is that assumption of a 6.5% annual return on stocks. By contrast, the actuaries' prediction that the Social Security system will become unable to pay full benefits in 2042 assumes that the economy will grow at a rate of 1.9% a year between now and then—a tepid pace that would be unlikely to produce stock-market returns of nearly 6.5%. Many economists are critical of the idea that stock returns can be so high relative to gross domestic product growth. "That stretches the imagination," says David Rosenberg, chief U.S. economist at Merrill Lynch & Co. in New York….


     Key statement: “an irrefutable rule of finance: There is no free lunch. Or, put another way, greater returns bear greater risks.” That’s why we have Social Security in the first place. It’s an iron-clad guarantee of a sure return, and based on risk sharing across the entire society. It’s not gambling in the stock market.




     There’s an old saying that “What’s good for General Motors is good for the country.” While not entirely true, it’s certainly partly true. And right now, the problems GM is facing are indicative of the problems of our entire country—or, at least, for our working-class citizens.


From Barron’s, February 28, 2005.

GM's Challenge

FOR ALMOST A CENTURY, no car manufacturer has been better at moving the metal than General Motors. But these days, the company appears to be more adept at providing mortgages and loans that it is at peddling Bonnevilles, Impalas, TrailBlazers or LeSabres. And that's making investors increasingly nervous, given GM's voracious need for cash flow and its well-known problems, including onerous medical and pension costs, production overcapacity and mounting pressure from rival auto makers….

Having spent a decade boosting productivity, the company is now the most efficient of Detroit's Big Three, better than the Europeans and fairly close to its top Japanese competitors. So, the opportunity to boost profits through further cost-cutting is limited….


     Key statement: “onerous medical and pension costs, production overcapacity and mounting pressure from rival auto makers.” And that’s true of our entire country. We’ve destroyed the living standards of working-class Americans, and if we insist on raising them again, we price ourselves out of the world market—just as GM is finding out.

     Of course, GM shouldn’t be surprised, since that’s the whole purpose of globalization to begin with: the destruction of working-class wages and living standards. And all to benefit wealthy investors.

     Note that the above excerpt is for purposes of critique only. Those who are interested in the investment implications of buying GM stocks vs. bonds should read the original.




     As you read the following excerpt, remember that is in our most prestigious conservative financial publication for serious investors.


From Barron’s, February 28, 2005.

D.C. Current No Dumb Cluck

A worthy warning on the budget deficit

By Jim McTague

THERE ARE SOME PEOPLE WHO SEE SUNSHINE on a cloudy day. President George Bush clearly fits into this category. Then there is the Concord Coalition. This group of fiscal watchdogs looks at the Bush tax cuts and Congressional spending and sees doom and gloom and the world going boom.

If George Bush is Smiley Face, then the Coalition is Mr. Yuck. Bush sees a robust economy growing out of its debt problems. The Concord Coalition sees little but a menacing sea of red ink.

We dislike pessimists and whiners, so we'd love to be able to dismiss the coalition out of hand as a collection of neo-Chicken Littles in need of the latest psycho-pharmaceutical. But we can't because the bipartisan organization is run by serious, substantial people.

The group's board of directors includes former Federal Reserve Chairman Paul Volcker and former Treasury Secretary Robert Rubin and current Comptroller General David Walker, head of the Government Accountability Office or GAO….


     We’re not having a Social Security crisis. We’re having a national fiscal crisis because of an unnecessary war with Iraq, tax breaks for the wealthy, etc. Blaming Social Security is just a way the Bush Administration and Congressional Republicans distract the voting public from the real issues.




     The following is just another in the endless series of articles that describe how screwed-up our economic and legal system is.


From The Wall Street Journal, March 2, 2005.

Imprisonment Doesn't Bar Pay
For Select Group of CEOs

For a few executive felons, serving time is a lot like a paid leave of absence. They are being paid by the companies they once led while still completing their sentences. The unconventional arrangement breaks no laws but strikes some as poor corporate governance….

Andrew Wiederhorn, the former CEO of Fog Cutter Capital Group Inc., will collect about $5.5 million from the fast-food chain in compensation and reimbursement of his restitution during his 18-month imprisonment for pension-law and income-tax felonies at a prior employer.

Steven Madden, the shoe designer who ran Steven Madden Ltd. until 2001, pockets a $700,000 annual salary during his 41-month jail stint for stock fraud and money laundering….

Between July 2002 and July 2004, the U.S. Justice Department's Corporate Fraud Task Force charged more than 60 top corporate officers with various types of fraud and obtained more than 500 convictions or guilty pleas, largely from individuals….


     Even when the miscreants don’t get paid when they are in jail, their numbers are still symbolic of the deplorable ethical standards of corporate America. If this many are getting caught, just think of how many must be getting away with their crimes.




     These two excerpts inadvertently describe how our society is getting meaner across the board, from corporations to the federal government. As the movers and shakers of our country get richer and more powerful, they use the increased costs of basic necessities—like medical care and retirement benefits—to justify cutting them back for the poor and powerless.

     And this is going on at a time of exploding corporate profits, and huge tax breaks for the wealthy, who are taking most of the benefits of our economy for themselves.


From The Wall Street Journal, March 3, 2005.

Retirees Face More Benefit Cuts

As Health-Care Costs Rise,
Some Big Employers Move
To Cut Dependents' Coverage

More companies are joining the wave of employers who are cutting health-care costs by reducing the benefits they offer to their workers' dependents.

A growing number of big employers are excluding new dependents—such as spouses and children—from their retirees' health-care plans, while others are cutting coverage amounts for retirees' current dependents.

These moves come after many employers already have raised premiums for the dependents of active employees and imposed surcharges to encourage spouses to seek coverage from their own employer. Others are dropping current employees' future retirement benefits….

The upshot is that retirees could be left bearing the brunt of covering their families, or left in the lurch if spouses with insurance elsewhere lose coverage. Some may even have to return to work….


---------------------------------------------------------------

Spouses May Lose
With Social Security Overhaul

One of the big unanswered questions in President Bush's push to revamp Social Security is how widows, widowers and ex-spouses would fare.

While Social Security rules are gender-neutral, women in particular have a lot riding on the answers. About 30% of Social Security beneficiaries—the majority of them women, because they tend to earn less—get part or all of their benefit based on how much their spouse or ex-spouse earned during their working years, according to the National Academy of Social Insurance.

Future generations of women "will need the higher benefits they get from Social Security as a spouse or a widow to make sure they're not poor in old age," says Joan Entmacher, a vice president at the National Women's Law Center in Washington….


     Go back through previous weeks of the conservative press on this website, and note the repetitive references to exploding corporate profits and their cash-rich treasuries.

     In other articles, note the constant demands of Republicans to cut taxes on the established wealthy, and their relentless attempts to destroy government programs that benefit the bottom 80% of Americans.




     Isn’t corporate America great! The airline industry has been besieged by a series of mergers and takeovers, as one egomaniac CEO after another rapes the corporations involved. Result: huge inefficiencies, poor service to customers, lower wages for workers, and the enrichment of the new aristocracy who caused it all.


From The Wall Street Journal, March 3, 2005.

U.S. Faults Airlines for Delays,
Cancellations Over Holidays

WASHINGTON—Inadequate staffing and outdated computer systems were behind thousands of flight delays and cancellations in December, disrupting holiday plans of thousands of passengers, government investigators said….

Poor planning by management and insufficient flight-attendant staffing—not an informal sick-out, as some management officials charged—prompted US Airways to cancel 405 flights and delay another 3,900 flights, affecting about 564,000 passengers, investigators said….


     And think of it. All during these flight delays and cancellations, the management was blaming the workers. Typical.



Week of February 21



     Here’s another lesson for those who don’t want to face the fact that our present national economic policy is deliberately designed to keep wages of working-class Americans from going up. And this is at a time of record incomes for investors, top corporate executives and business owners.


From Business Week, February 14, 2004.

U.S.: The Fed: Trying To Shift Into Neutral

Unfortunately, no one knows the rate that neither helps nor hinders growth

…What policy rate constitutes a neutral rate, which neither helps nor hinders growth? And when might the Fed have to move policy into the restrictive zone, raising rates so that economic activity begins to feel the pinch, in an effort to preempt building inflation pressures?

To be sure, this is not the typical course of rate-hiking. Usually by the fourth year of expansion, the Fed is raising rates in an effort to choke off budding price pressures resulting from superhot demand, overextended factories, and tight job markets. But the latest data on real gross domestic product, labor costs, and factory activity show no signs of an overheating economy or rising wages….

THE PROBLEM for the Fed: No one knows for sure what constitutes a neutral funds rate. Economists generally give a target of 3.5% to 4%, but those estimates are usually based on historical averages. In today's economy, the neutral rate may even be higher than in the past. Given that a high-productivity economy generally offers higher rates of return, interest rates across the board can be higher without exerting a drag on the economy. Plus, the current slower rate of job growth means the economy can grow much faster without generating price pressures.

In fact, the Fed will know it has reached neutrality not by hitting a specific rate, but by observing economic and inflation trends. To that end, the bank's primary focus, as always, will be the job markets. Inflation pressures come mostly from the cost side, and businesses' biggest costs come from labor. The latest report on employment costs was Fed-friendly. Total compensation rose a less-than-expected 0.7% in the fourth quarter over the third. For all of 2004, total wages, salaries, and benefits rose 3.7%.

Wages and salaries alone grew just 2.4% last year, the smallest annual advance in the 24 years that the Labor Dept. has compiled records…

...the overall slowdown in compensation means that labor costs are not ramping up as quickly as might have been expected given the turnaround in job growth in 2004. Labor markets haven't tightened enough to worry the Fed about near-term cost pressures. The unemployment rate will have to get well below 5% before tight labor markets become an issue….


     If the above excerpt isn’t immediately clear to you, these are the intended meanings of some of the statements made:

  • “What policy rate constitutes a neutral rate, which neither helps nor hinders growth?” This has frequently been referred to as the “goldilocks” theory. That is, what prime rate level—set by the Fed—encourages growth of corporate profits and the stock market, but not so much growth that wages start to go up.

  • “Labor markets haven't tightened enough to worry the Fed about near-term cost pressures.” The unemployment rate will have to get well below 5%—now considered the “neutral rate”—before tight labor markets become an issue. Meaning: the unemployment rate will have to go below 5% before any significant increases in working-class wages will begin to occur. Therefore,

  • “The unemployment rate will have to get well below 5% before tight labor markets become an issue”—at which time the Fed will definitely raise the prime interest rate.

  • And, despite the fact that “Wages and salaries alone grew just 2.4% last year, the smallest annual advance in the 24 years that the Labor Dept. has compiled records,” our right wing conservatives (mostly Republicans, but a few Democrats) STILL want to keep working-class wages from going up.

     Don’t let anyone kid you, although the Fed considers many factors when it decides to fight inflation—as Business Week freely admits—“the bank's primary focus, as always, will be the job markets.” Or, to put it bluntly, its focus is on whether or not workers are beginning to share in the prosperity of our country. If they are, it’s time to cool down the economy.

     When the incomes of investors and top corporate executives go through the ceiling and into the stratosphere—the Fed simply sees that as a sign that its version of capitalism is working as it should.




     Want the unvarnished truth about the economic policies of the Bush Administration? Check out the following analysis from one of our most respected conservative financial publications.


From Business Week, February 14, 2004.

Commentary

The Fog Of The Budget

How Bush will mask the biggest national debt in history

By Howard Gleckman

…This budget—which will cover fiscal years 2006 through 2010—will largely ignore the costs of Bush's own top priorities, including Iraq, restructuring Social Security, and taming the Alternative Minimum Tax. Nor will it reflect the long-term costs of making his 2001 and 2002 tax cuts permanent, which will largely occur starting in 2011.

At the same time, it will spotlight initiatives that are unlikely to save much money, such as effectively freezing spending on most domestic programs or slowing the growth in federal funding for Medicaid, the joint federal-state health program for the poor.

Such legerdemain will allow Bush to claim that he will meet his goal of slicing the deficit in half by fiscal 2009, the last budget he'll propose. But in reality, it will obscure an agenda that is likely to generate ever-larger deficits over the coming decades. ``It will show how tough the President can be on [some] spending,'' says Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates balanced budgets. ``But to leave out Social Security, the AMT, and the war costs and say you have a plan to cut the deficit in half over five years is beyond chutzpah.''…

Bush's budget resembles Swiss cheese—and the holes may be more interesting than the substance. Start with Iraq. On Jan. 24, Lt. Gen. James J. Lovelace Jr., the director of Army operations, said that for budget planning purposes, the Pentagon was assuming the U.S. would maintain current troop levels in that war-torn country at least through calendar 2006. The CBO figures the price tag at $70 billion a year. But the Bush budget will not include any new money to keep U.S. troops on the ground after Sept. 30, 2005….

When the congressional fiscal wars finally conclude next fall, Bush will likely get his freeze on domestic spending. But the rest of his budget may be largely forgotten. What will be hard to overlook, though, is this: Washington could well be looking at deficits in the range of $400 billion-plus for the rest of his Presidency.


      “…beyond chutzpah.'' That just about sums up the entire Bush Administration. How the public can continue to be conned by this crowd of newly-minted military aristocrats is almost beyond comprehension. Virtually everything they do is designed to enrich the established wealthy, strengthen the military and police state, and destroy all programs that benefit primarily middle- and low-income Americans.




     What great news! Wages are going up in India, which means that American workers will become more competitive. But wait a minute. Read the entire excerpt.


From Business Week, February 14, 2004.

India: Good Help Is Hard To Find

Higher wages and lavish perks reign as outsourcing outfits scramble for talent

…The Indian outsourcing industry grew by a sizzling 35% last year as big multinationals and smaller U.S. and European companies handed over to Indian firms everything from software development and computer help desks to financial analysis. That growth has boosted competition for workers, as employment in the sector jumped by 20% last year…

Entry-level wages have climbed by as much as 15% annually over the past two years, while salaries for mid-level managers have clocked 30% annual growth during the same period, to a median of $31,131, according to Nasscom, India's software industry association.

Indian colleges have begun offering courses in tech project management and back-office processing, so within a few years services companies should have an easier time finding qualified recruits. "This is a transition period for the industry," says S. Padmanabhan, global human resources chief for Tata Consultancy Services, India's largest software outsourcing shop. "These shortages will not last more than three years."…


     Two horrible implications in the above “good news”: First, the dramatic rise in middle-level manager income has gone up to only $31,131. That’s still way below the average income of all workers in the U.S.

     Second, India is training vast numbers of people to take over the higher-skill jobs of the future, and they’re doing it cheaper and more massively than we’re doing it in the U.S. As the last Bush Administration budget proposed, the U.S. is going to reduce funding for education.

     Face it. Republicans and conservative Democrats have sold out our American workers—which increasingly include about everyone who works, versus invests—to the lowest bidders on the world market. From now on, wages and living standards for American workers will be determined by China and India—those paragons of human and religious values, and great and successful models for the ideal society.




     Combine the following two articles, and you almost have the real story behind globalization: it’s a super way to destroy wages of working Americans and to capitalize on the low wages in other countries. In both cases, American workers lose and American investors become incredibly wealthy.


From The Wall Street Journal, February 14, 2004.

A Big Burst of Hiring Appears Unlikely

By Timothy Aeppel

…Many companies have clearly stretched their existing work force as far as they can and will be adding more employees in the months ahead. But larger economic forces—from the growing ability of companies to meet more domestic demand with production outside the country, to lingering anxiety about overexpansion, to further technological advances—will curb the appetite for workers. There will be job growth, but it will be moderate, and disappointing to those waiting for a big burst.

Daniel Meckstroth, an economist at the Manufacturers Alliance/MAPI, an Arlington, Va., association of manufacturing companies, is among those expecting only a slight increase in the pace of hiring this year, partly because demand growth itself is decelerating. If employers can get more out of each worker, they don't need to hire so many. But it also has a lot to do with how much demand there is in the economy, and that is edging down. The Manufacturers Alliance predicts gross domestic product will grow 3.4% this year—down from 4.4% last year….

There is no question that the economy has benefited from the unprecedented run of strong productivity gains over the past decade. When productivity grows rapidly, companies can produce more and pay workers more—or offset other expenses such as costlier materials or higher medical-insurance costs—without raising prices. That is why slumping productivity sparks inflation fears….

Manufacturing productivity grew a muscular 5.6% in the fourth quarter, up from 4.2% in the third. And sure enough, factories cut 25,000 jobs in January, according to the Labor Department, after shedding 7,000 in December. Rising manufacturing productivity has allowed the factory sector to produce more with fewer workers, but manufacturing is a shrinking source of jobs, and employment elsewhere in the economy has grown significantly.

Economists believe one reason manufacturers have a consistently higher rate of productivity gains than other parts of the economy is the intense global competition they face. They have been forced to grow more productive to survive, while the vast service sector has been largely insulated….

The appliance maker estimates that productivity of its hourly workers rose 50% over the past eight years. Like most companies, Whirlpool has its own way of measuring productivity that is far different from the U.S. government's gauge. The appliance maker bases it purely on the amount of savings gained. For example, if it cost $100 to manufacture an appliance at the beginning of the year, and the cost fell to $95 by the end, the company calls that a 5% gain in manufacturing productivity….

In any case, the company says it feels no pressure to add workers.

The same goes for Kason Industries Inc., a maker of refrigerator hardware in Shenandoah, Ga. The closely held company recently installed three robotic polishing machines that greatly increased the plant's output and outsourced to Asia the production of another labor-intensive refrigerator part. Kason's output has gone up about 15% during the past two years as a result of such moves, while employment shrank to 200 from 250….


-----------------------------------------------------------

From Barron’s, February 14, 2004.

EDITORIAL COMMENTARY

Catch a Tiger by the Tail

By Thomas G. Donlan

…As many as 350 million Indians can get along in English well enough to drive taxis for tourists and point out the sights. The country produces more than a half-million English-speaking university graduates every year, 40% of them with engineering or hard-science degrees.

Call centers have become the most familiar sign of Indian entrance into the global economy. Call the customer-service line for Dell personal computers or any of hundreds of other products and services, especially in the evening, U.S. time, and you probably will be greeted by "Howard," or "Sylvia," who will ask "How may I help you?" in a distinctly Indian accent. They are well-programmed to use computerized knowledge bases to identify and solve basic and advanced computer problems.

And for every call-center employee, whose chief skill is communications, there is at least one other Indian working more invisibly for U.S. customers doing something considerably more difficult. Writing custom software is the most well-developed skill, but Indians are evaluating applications to American banks for home-equity loans, or analyzing investment opportunities in American companies or researching American legal issues. An Indian can use the Internet as easily as an American to check the assessed valuation in homes located in hundreds of U.S. counties, or to read Securities and Exchange Commission filings on thousands of American companies, or to look up obscure state cases for precedents in a complex legal action….

Even Bengal, a state whose government is dominated by Communists, has taken steps to attract the infotech industry. In a move reminiscent of Soviet labor practices, Bengal has declared infotech a "critical industry"—in which strikes are forbidden….

Outsourcing brought India more than $7 billion a year in revenue in 2003. That number is widely expected to double by 2007, and double again by 2012. But outsourced business is only the beginning of India's exploitation of its global advantages. In many industries, Indian companies are poised to break out from outsourcing to be independent actors on the world business stage….

People from Europe, Japan and Canada who are rationed away from all the care they want, and people from the U.S. who are unable to afford the care they want, are actually finding it cheaper—including airfare—to fly to India to pay far less for surgeries such as hip replacements than they would using the usual free-market alternative in the U.S. Some 150,000 foreigners a year are already making the trip.

India's indigenous pharmaceutical industry already meets world standards in some respects. The country boasts more factories certified by the U.S. Food and Drug Administration to produce drugs and intermediate chemicals for the U.S. market than any other country outside America….

Fortunately for investors, publicly traded Indian companies produce annual and quarterly reports, in English, in formats regulated by the Indian equivalent of the SEC that are intelligible to transoceanic investors. Merrill Lynch, Goldman Sachs and Morgan Stanley have linked up with Indian investment banks and are covering a broad range of Indian stocks. (They are also pumping out initial public offerings at record rates.)…

Investing in India is probably going to be a wild ride, but a ride worth taking for most of the 21st century. After all, exploiting India has been profitable for the West since the 15th century. Now it's India's turn.


     Key statement: “Investing in India is probably going to be a wild ride, but a ride worth taking for most of the 21st century.” In other words, that’s where our jobs are going and that’s where the profits will be made—so, abandon America and invest in India.

     And when you couple globalization with productivity and technological improvements in this country, you have the recipe for continued firing of employees, record corporate profits and stagnant or declining wages.

     What a great world Republicans and Conservative Democrats have given us.




     Unbelievable! CEO bonuses go up by 46.4%. These are the people who support (buy) the Republicans in Congress and the White House. And the Republicans cut their taxes and do everything to cut government benefits for those who are victimized by our economic system—and make it possible for the CEOs go get richer.


From The Wall Street Journal, February 25, 2004.

CEO Bonuses Rose 46.4%
At 100 Big Firms in 2004

Median Was $1.14 Million;
Some Chiefs Under Fire
Also Drew Sizable Extras

Bonuses for many chief executive officers surged last year amid rising criticism of what some deem excessive compensation, especially in cases where the bottom line doesn't keep pace.

At 100 major U.S. corporations, CEO bonuses rose 46.4% to a median of $1.14 million, the largest percentage gain and highest level in at least five years, according to an exclusive survey by Mercer Human Resource Consulting in New York.

Mercer, which began tracking the latest proxy statements of 100 big companies for The Wall Street Journal in 1999, didn't scrutinize any heads of Wall Street firms, where much higher bonuses are common….


     And just think. The Mercer study didn’t even include those who make the biggest bonuses: those on Wall Street—the bandits that the Republicans want to handle your Social Security retirement funds.



Week of February 14



     Here’s another lesson for those who don’t want to face the fact that our present national economic policy is deliberately designed to keep wages of working-class Americans from going up. And this is at a time of record incomes for investors, top corporate executives and business owners.


From Business Week, February 14, 2005.

U.S.: The Fed: Trying To Shift Into Neutral

Unfortunately, no one knows the rate that neither helps nor hinders growth

…What policy rate constitutes a neutral rate, which neither helps nor hinders growth? And when might the Fed have to move policy into the restrictive zone, raising rates so that economic activity begins to feel the pinch, in an effort to preempt building inflation pressures?

To be sure, this is not the typical course of rate-hiking. Usually by the fourth year of expansion, the Fed is raising rates in an effort to choke off budding price pressures resulting from superhot demand, overextended factories, and tight job markets. But the latest data on real gross domestic product, labor costs, and factory activity show no signs of an overheating economy or rising wages….

THE PROBLEM for the Fed: No one knows for sure what constitutes a neutral funds rate. Economists generally give a target of 3.5% to 4%, but those estimates are usually based on historical averages. In today's economy, the neutral rate may even be higher than in the past. Given that a high-productivity economy generally offers higher rates of return, interest rates across the board can be higher without exerting a drag on the economy. Plus, the current slower rate of job growth means the economy can grow much faster without generating price pressures.

In fact, the Fed will know it has reached neutrality not by hitting a specific rate, but by observing economic and inflation trends. To that end, the bank's primary focus, as always, will be the job markets. Inflation pressures come mostly from the cost side, and businesses' biggest costs come from labor. The latest report on employment costs was Fed-friendly. Total compensation rose a less-than-expected 0.7% in the fourth quarter over the third. For all of 2004, total wages, salaries, and benefits rose 3.7%.

Wages and salaries alone grew just 2.4% last year, the smallest annual advance in the 24 years that the Labor Dept. has compiled records…

...the overall slowdown in compensation means that labor costs are not ramping up as quickly as might have been expected given the turnaround in job growth in 2004. Labor markets haven't tightened enough to worry the Fed about near-term cost pressures. The unemployment rate will have to get well below 5% before tight labor markets become an issue….


     If the above excerpt isn’t immediately clear to you, these are the intended meanings of some of the statements made:

  • “What policy rate constitutes a neutral rate, which neither helps nor hinders growth?” This has frequently been referred to as the “goldilocks” theory. That is, what prime rate level—set by the Fed—encourages growth of corporate profits and the stock market, but not so much growth that wages start to go up.

  • “Labor markets haven't tightened enough to worry the Fed about near-term cost pressures.” The unemployment rate will have to get well below 5%—now considered the “neutral rate”—before tight labor markets become an issue. Meaning: the unemployment rate will have to go below 5% before any significant increases in working-class wages will begin to occur. Therefore,

  • “The unemployment rate will have to get well below 5% before tight labor markets become an issue”—at which time the Fed will definitely raise the prime interest rate.

  • And, despite the fact that “Wages and salaries alone grew just 2.4% last year, the smallest annual advance in the 24 years that the Labor Dept. has compiled records,” our right wing conservatives (mostly Republicans, but a few Democrats) STILL want to keep working-class wages from going up.

     Don’t let anyone kid you, although the Fed considers many factors when it decides to fight inflation—as Business Week freely admits—“the bank's primary focus, as always, will be the job markets.” Or, to put it bluntly, its focus is on whether or not workers are beginning to share in the prosperity of our country. If they are, it’s time to cool down the economy.

     When the incomes of investors and top corporate executives go through the ceiling and into the stratosphere—the Fed simply sees that as a sign that its version of capitalism is working as it should.




     Are we better off without Saddam Hussein? Or, was the war with Iraq worth it? Even if you accept these as valid questions, current events suggest that the answer in each case is probably “no,” and more people are concluding that every day.

     Of course, those aren’t even the right questions. The right question is, “What is the best use of our financial and human resources in fighting terrorism?” And the answer to that is a definite, ironclad, unequivocal “almost anything instead of attacking a fourth-rate country that represented no real threat to our country, and, as a matter of fact, was a counterbalance to the fanatic Islamic fundamentalists in the region."

     The following is just another addition to the growing and overwhelming evidence that attacking Iraq has been an absolute disaster for our country.


From The Wall Street Journal, February 15, 2005.

Bush Seeks $82 Billion for War Costs

Request Supplies U.S. Troops
In Iraq Through September,
Allows Spending 'Flexibility'

President Bush is asking Congress for $82 billion to cover the costs of keeping about 140,000 troops in Iraq through September as well as the expenses of the war in Afghanistan and tsunami relief.

In his emergency-funding request, Mr. Bush asked that about $5.7 billion be set aside for training and equipping Iraqi security forces—a request that is likely to be controversial since it doesn't specify exactly where the money would go, but rather permits top commanders in Iraq to spend it as they see fit….

In the past Congress has opposed such open-ended spending proposals, preferring more control over how and when federal tax dollars are spent. "Congress tends to get a little uneasy if there is too much discretion, particularly with regard to these supplemental requests," said Steven Kosiak, a budget analyst with the Center for Strategic and Budgetary Assessments, a nonpartisan defense think tank in Washington….

"The Pentagon has padded this budget with tens of billions of dollars not related to combat operations in Iraq and Afghanistan," said Christopher Hellman, military policy analyst at the Center for Arms Control and Non-Proliferation Center in Washington, which receives funds from the MacArthur Foundation and the Carnegie Corp. among others. "It is a fiscal sleight-of-hand that Congress ought to reject. This method of budgeting hides the true size of the deficit, and it makes it extremely difficult for Congress to track how these funds are being allocated."


     President Eisenhower warned us against the military-industrial complex, and here we have it at a level we’ve never before seen in history. And the Bush Administration is pushing it every chance it gets.




     Big Pharma doesn’t want us to be allowed to buy drugs from Canada, and doesn’t want our governmental agencies to be able to bargain for lower drug prices for its programs. So, of course, that’s exactly what Republicans have been pushing for in their legislative proposals.

     And while the Republicans want to “save” our medical system by reducing all benefits to patients—while maximizing profits to corporations—our middle- and low-income citizens increasingly are facing bankruptcy.

     The following two excerpts are further additions to the evidence that clearly shows that corporations are the big winners in our medical delivery system, while patients and taxpayers are making all the sacrifices.


From The Wall Street Journal, February 16, 2005.

Big Pharma, Flush With Cash,
Is Looking Acquisitive

With big pots of cash to spend and holes to fill in their product offerings, the world's biggest pharmaceutical firms such as Pfizer Inc. and Merck & Co. in the U.S. and GlaxoSmithKline PLC are likely to consider acquisitions this year. Their favored targets could be smaller companies with successful drugs in sought-after therapeutic areas….

Pfizer, the world's largest drug maker with $52.5 billion in sales last year, will have a war chest of as much as $38 billion from the repatriated profits, in addition to other cash on hand. Merck, which has been stung by the withdrawal of its Vioxx arthritis drug, has $14 billion in cash and investments and $15 billion eligible for repatriation, though it hasn't decided yet how much to bring back….


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From The Wall Street Journal, February 15, 2005.

Middle-Class Families Strain
Public Health-Insurance Plans

More and more middle-class American workers are choosing to enroll their children in taxpayer-funded health-insurance programs instead of the more expensive plans offered by their employers.

It's a trend that ultimately will cost publicly funded state and federal programs billions of dollars and could eventually force even consumers of private health insurance to pay higher premiums. Many financially burdened states, meanwhile, are seeking ways to cap health-care costs, by restricting enrollment and looking for ways that will lead to companies and insurers providing cheaper coverage….

The shift is part of a much broader realignment of insurance burdens in the U.S., where companies facing ever-rising medical costs have been cutting back on insurance coverage for employees or making them pay a larger share of premiums.

Faced with the choice of paying more of their own coverage, more middle-income families are relying on state health-insurance programs that once were confined largely to lower-income or part-time workers….


     It never ends. Corporations tell us they must charge outrageous prices for their products, even though their profits are skyrocketing. And when consumers and state budgets suffer, all the blame is placed on government, or lawyers, or (anyone but the corporations).




     Here’s just another example of the rich crying poverty—in the midst of outlandish profits—and blaming everyone an everything but themselves for their high prices to consumers.


From The Wall Street Journal, February 16, 2005.

ChevronTexaco CEO
Declares the Era
Of Cheap Oil Is Over

HOUSTON—The world has entered a new era of more expensive oil and greater competition for resources, and the U.S. will have to formulate a national energy policy to keep up, ChevronTexaco Corp. Chief Executive David J. O'Reilly said.

"The time when we could count on cheap oil and even cheaper natural gas is clearly ending," said Mr. O'Reilly, speaking at an oil-and-gas conference here.

Strong growth in energy demand in China has been a main contributor to the past year's surge in oil prices. The Asian giant isn't only drawing in greater volumes of imports from the Middle East and elsewhere, but also is aggressively bidding for access to resources….

ChevronTexaco, San Ramon, Calif., last month reported soaring profit in the fourth quarter, but faces the same quandary as other major energy companies: how to find enough new oil and natural gas to replace the reserves it produces every year.


     Of course, when we sent our best industries to China, we created our future shortage—and high prices for oil. China is getting most of the benefits from the future oil shortage, while American consumers, who once had decent jobs, are the ones making all the sacrifices.




     It’s amazing how often you read about the “goldilocks” theory of managing the economy—and yet, so few Americans realize how much our federal government deliberately tries to keep working-class wages from going up.


From The Wall Street Journal, February 16, 2005.

commentary

Economy 'in the Zone' . . .

By John Lipsky and James E. Glassman

Financial market participants are hoping that today's congressional testimony by Alan Greenspan will help them to interpret recent market moves, to anticipate the economy's prospects, and to understand the Fed's policy intentions. The prospective stakes are high. After all, the recent combination of solid growth but minimal inflation—together with the Fed's measured but relentless rate hikes since mid-2004—have produced far lower than expected long-term interest rates and rising stock prices.

Investors are beginning to suspect that the favorable financial environment may be sustained, despite consensus forecasts suggesting that recent market gains have been too good to last….

Critically, broad measures of U.S. labor compensation have increased at a stable pace for the past few years, and there is little reason to expect any significant near-term acceleration. Although the unemployment rate has fallen over the past year, payroll employment only recently regained its pre-recession peak. Since that time, the U.S. working age population has risen by about nine million. Thus, full employment remains a distant goal, leaving ample margins for non-inflationary job gains.


     For a greater appreciation of how our government keeps wages from going up—even when corporate profits and the stock market are skyrocketing—check out The income gap is no accident.




     Just as investing in real estate can be a fantastic way to increase your wealth, it can also be a factor in causing your own poverty. As you read the following, remember that an 8% increase in the value of real estate also represents an 8% loss to those who don’t own any, and need to buy or rent a home.


From The Wall Street Journal, February 16, 2005.

Median Price of Home
Rose 8.8% to $187,500
In the Fourth Quarter

Home-price appreciation skyrocketed at the end of 2004, as buyers competed for a tighter supply of homes….

Prices appreciated much faster in the hottest housing markets, and a record number of metropolitan areas experienced double-digit price growth. Of the 129 metro areas that the NAR tracks, 62 saw home prices rise 10% or more. That was the largest number of cities with double-digit price increases since the NAR began publishing such data in 1982….


     To better understand the zero-sum nature of wealth, check out Wealth is a zero-sum game.







     Want the unvarnished truth about the economic policies of the Bush Administration? Check out the following analysis from one of our most respected conservative financial publications.


From Business Week, February 14, 2005.

Commentary

The Fog Of The Budget

How Bush will mask the biggest national debt in history

By Howard Gleckman

…This budget—which will cover fiscal years 2006 through 2010—will largely ignore the costs of Bush's own top priorities, including Iraq, restructuring Social Security, and taming the Alternative Minimum Tax. Nor will it reflect the long-term costs of making his 2001 and 2002 tax cuts permanent, which will largely occur starting in 2011.

At the same time, it will spotlight initiatives that are unlikely to save much money, such as effectively freezing spending on most domestic programs or slowing the growth in federal funding for Medicaid, the joint federal-state health program for the poor.

Such legerdemain will allow Bush to claim that he will meet his goal of slicing the deficit in half by fiscal 2009, the last budget he'll propose. But in reality, it will obscure an agenda that is likely to generate ever-larger deficits over the coming decades. ``It will show how tough the President can be on [some] spending,'' says Robert L. Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates balanced budgets. ``But to leave out Social Security, the AMT, and the war costs and say you have a plan to cut the deficit in half over five years is beyond chutzpah.''…

Bush's budget resembles Swiss cheese—and the holes may be more interesting than the substance. Start with Iraq. On Jan. 24, Lt. Gen. James J. Lovelace Jr., the director of Army operations, said that for budget planning purposes, the Pentagon was assuming the U.S. would maintain current troop levels in that war-torn country at least through calendar 2006. The CBO figures the price tag at $70 billion a year. But the Bush budget will not include any new money to keep U.S. troops on the ground after Sept. 30, 2005….

When the congressional fiscal wars finally conclude next fall, Bush will likely get his freeze on domestic spending. But the rest of his budget may be largely forgotten. What will be hard to overlook, though, is this: Washington could well be looking at deficits in the range of $400 billion-plus for the rest of his Presidency.


      “…beyond chutzpah.'' That just about sums up the entire Bush Administration. How the public can continue to be conned by this crowd of newly-minted military aristocrats is almost beyond comprehension. Virtually everything they do is designed to enrich the established wealthy, strengthen the military and police state, and destroy all programs that benefit primarily middle- and low-income Americans.




     What great news! Wages are going up in India, which means that American workers will become more competitive. But wait a minute. Read the entire excerpt.


From Business Week, February 14, 2005.

India: Good Help Is Hard To Find

Higher wages and lavish perks reign as outsourcing outfits scramble for talent

…The Indian outsourcing industry grew by a sizzling 35% last year as big multinationals and smaller U.S. and European companies handed over to Indian firms everything from software development and computer help desks to financial analysis. That growth has boosted competition for workers, as employment in the sector jumped by 20% last year…

Entry-level wages have climbed by as much as 15% annually over the past two years, while salaries for mid-level managers have clocked 30% annual growth during the same period, to a median of $31,131, according to Nasscom, India's software industry association.

Indian colleges have begun offering courses in tech project management and back-office processing, so within a few years services companies should have an easier time finding qualified recruits. "This is a transition period for the industry," says S. Padmanabhan, global human resources chief for Tata Consultancy Services, India's largest software outsourcing shop. "These shortages will not last more than three years."…


     Two horrible implications in the above “good news”: First, the dramatic rise in middle-level manager income has gone up to only $31,131. That’s still way below the average income of all workers in the U.S.

     Second, India is training vast numbers of people to take over the higher-skill jobs of the future, and they’re doing it cheaper and more massively than we’re doing it in the U.S. As the last Bush Administration budget proposed, the U.S. is going to reduce funding for education.

     Face it. Republicans and conservative Democrats have sold out our American workers—which increasingly include about everyone who works, versus invests—to the lowest bidders on the world market. From now on, wages and living standards for American workers will be determined by China and India—those paragons of human and religious values, and great and successful models for the ideal society.




     Combine the following two articles, and you almost have the real story behind globalization: it’s a super way to destroy wages of working Americans and to capitalize on the low wages in other countries. In both cases, American workers lose and American investors become incredibly wealthy.


From The Wall Street Journal, February 14, 2005.

A Big Burst of Hiring Appears Unlikely

By Timothy Aeppel

…Many companies have clearly stretched their existing work force as far as they can and will be adding more employees in the months ahead. But larger economic forces—from the growing ability of companies to meet more domestic demand with production outside the country, to lingering anxiety about overexpansion, to further technological advances—will curb the appetite for workers. There will be job growth, but it will be moderate, and disappointing to those waiting for a big burst.

Daniel Meckstroth, an economist at the Manufacturers Alliance/MAPI, an Arlington, Va., association of manufacturing companies, is among those expecting only a slight increase in the pace of hiring this year, partly because demand growth itself is decelerating. If employers can get more out of each worker, they don't need to hire so many. But it also has a lot to do with how much demand there is in the economy, and that is edging down. The Manufacturers Alliance predicts gross domestic product will grow 3.4% this year—down from 4.4% last year….

There is no question that the economy has benefited from the unprecedented run of strong productivity gains over the past decade. When productivity grows rapidly, companies can produce more and pay workers more—or offset other expenses such as costlier materials or higher medical-insurance costs—without raising prices. That is why slumping productivity sparks inflation fears….

Manufacturing productivity grew a muscular 5.6% in the fourth quarter, up from 4.2% in the third. And sure enough, factories cut 25,000 jobs in January, according to the Labor Department, after shedding 7,000 in December. Rising manufacturing productivity has allowed the factory sector to produce more with fewer workers, but manufacturing is a shrinking source of jobs, and employment elsewhere in the economy has grown significantly.

Economists believe one reason manufacturers have a consistently higher rate of productivity gains than other parts of the economy is the intense global competition they face. They have been forced to grow more productive to survive, while the vast service sector has been largely insulated….

The appliance maker estimates that productivity of its hourly workers rose 50% over the past eight years. Like most companies, Whirlpool has its own way of measuring productivity that is far different from the U.S. government's gauge. The appliance maker bases it purely on the amount of savings gained. For example, if it cost $100 to manufacture an appliance at the beginning of the year, and the cost fell to $95 by the end, the company calls that a 5% gain in manufacturing productivity….

In any case, the company says it feels no pressure to add workers.

The same goes for Kason Industries Inc., a maker of refrigerator hardware in Shenandoah, Ga. The closely held company recently installed three robotic polishing machines that greatly increased the plant's output and outsourced to Asia the production of another labor-intensive refrigerator part. Kason's output has gone up about 15% during the past two years as a result of such moves, while employment shrank to 200 from 250….


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From Barron’s, February 14, 2005.

EDITORIAL COMMENTARY

Catch a Tiger by the Tail

By Thomas G. Donlan

…As many as 350 million Indians can get along in English well enough to drive taxis for tourists and point out the sights. The country produces more than a half-million English-speaking university graduates every year, 40% of them with engineering or hard-science degrees.

Call centers have become the most familiar sign of Indian entrance into the global economy. Call the customer-service line for Dell personal computers or any of hundreds of other products and services, especially in the evening, U.S. time, and you probably will be greeted by "Howard," or "Sylvia," who will ask "How may I help you?" in a distinctly Indian accent. They are well-programmed to use computerized knowledge bases to identify and solve basic and advanced computer problems.

And for every call-center employee, whose chief skill is communications, there is at least one other Indian working more invisibly for U.S. customers doing something considerably more difficult. Writing custom software is the most well-developed skill, but Indians are evaluating applications to American banks for home-equity loans, or analyzing investment opportunities in American companies or researching American legal issues. An Indian can use the Internet as easily as an American to check the assessed valuation in homes located in hundreds of U.S. counties, or to read Securities and Exchange Commission filings on thousands of American companies, or to look up obscure state cases for precedents in a complex legal action….

Even Bengal, a state whose government is dominated by Communists, has taken steps to attract the infotech industry. In a move reminiscent of Soviet labor practices, Bengal has declared infotech a "critical industry"—in which strikes are forbidden….

Outsourcing brought India more than $7 billion a year in revenue in 2003. That number is widely expected to double by 2007, and double again by 2012. But outsourced business is only the beginning of India's exploitation of its global advantages. In many industries, Indian companies are poised to break out from outsourcing to be independent actors on the world business stage….

People from Europe, Japan and Canada who are rationed away from all the care they want, and people from the U.S. who are unable to afford the care they want, are actually finding it cheaper—including airfare—to fly to India to pay far less for surgeries such as hip replacements than they would using the usual free-market alternative in the U.S. Some 150,000 foreigners a year are already making the trip.

India's indigenous pharmaceutical industry already meets world standards in some respects. The country boasts more factories certified by the U.S. Food and Drug Administration to produce drugs and intermediate chemicals for the U.S. market than any other country outside America….

Fortunately for investors, publicly traded Indian companies produce annual and quarterly reports, in English, in formats regulated by the Indian equivalent of the SEC that are intelligible to transoceanic investors. Merrill Lynch, Goldman Sachs and Morgan Stanley have linked up with Indian investment banks and are covering a broad range of Indian stocks. (They are also pumping out initial public offerings at record rates.)…

Investing in India is probably going to be a wild ride, but a ride worth taking for most of the 21st century. After all, exploiting India has been profitable for the West since the 15th century. Now it's India's turn.


     Key statement: “Investing in India is probably going to be a wild ride, but a ride worth taking for most of the 21st century.” In other words, that’s where our jobs are going and that’s where the profits will be made—so, abandon America and invest in India.

     And when you couple globalization with productivity and technological improvements in this country, you have the recipe for continued firing of employees, record corporate profits and stagnant or declining wages.

     What a great world Republicans and Conservative Democrats have given us.




     All through the 1980s, conservative commentators denied that the disparity in wealth and income between rich and poor was growing. After it became obvious in the 1990s that the disparity was, in fact, exploding—they then changed their argument to admitting that the gap was growing, but it was ok because the economy became better as the rich had more money to invest and spend.

     Of course, the disparity continues to grow, and middle- and low-income Americans are running out of money to buy the things they need.


From The Wall Street Journal, February 18, 2005.

Uneven Economy
Encoded in Results
Of Retail's Titans

Wal-Mart Stores Inc. saw its profit surge 16% in its fiscal fourth-quarter despite a tough environment for discounters while competitor Target Corp. reported flat earnings after a charge.

But the way the two retailing giants achieved their results underscored the uneven economic recovery. Wal-Mart, the world's largest retailer, got a boost in total revenue from a flurry of new-store openings during the quarter, but same-stores sales—or sales at stores open at least a year—were hurt as lower-end shoppers continued to feel the squeeze of higher gasoline prices and slower wage growth. Meanwhile, Target, which attracts higher-end customers looking for cheap-chic bargains, had robust same-store sales growth.

"These two companies are a perfect reflection of the bifurcation of the economy," said Emme Kozloff, retail analyst at Sanford C. Bernstein. "The higher end segment continues to see growth, while the lower end has had much more constraints."…

Wal-Mart said profit margins were pressured by costs for labor, health insurance and utilities. Wal-Mart said it made some tactical miscalculations during the quarter and vowed to more aggressively cut costs and improve its merchandising….

Separately, Connecticut Attorney General Richard Blumenthal said earlier this week that he will seek to enlist other states in a states-led investigation into allegations Wal-Mart violated child labor laws. Last week, Wal-Mart agreed to pay $135,540 to settle 24 federal child-labor violations brought by the U.S. Labor Department….


     Even though Wal-Mart violated child labor laws and already cuts costs to the bone for labor and health insurance, its lower-income customers are running out of purchasing power. And this at a time when consumers at higher end stores are increasing their purchases.



Week of February 7



     If you want to know who the real winners will be if Social Security is privatized, just read the following excerpt. This excerpt can also serve as a classic illustration of the sanctimonious hypocrisy of today’s American corporate spokespersons. (“We’re not trashing Social Security for our own profit—we’re just doing it as a public service.”)


From The Wall Street Journal, February 11, 2005.

Edward Jones's Film Noir:
A Dim Social Security View

Entering Politically Charged Fray,
Internal Video for Clients Makes
Its Case for Overhauling Program

Brokerage house Edward D. Jones & Co., which has been an advocate of private Social Security accounts like those proposed by President Bush, is taking the message that big changes are needed in Social Security directly to its clients.

This week, the St. Louis firm, which operates the nation's largest network of brokerage offices, began broadcasting to its offices a 33-minute video called "The Future of Social Security" for audiences of clients and prospective clients. The video lays out the case for overhauling Social Security but doesn't back any particular proposal….

John Boul, a spokesman for Edward Jones, noted that the broadcast "didn't advocate any position at all" and was intended to be "informational."

Edward Jones has worked behind the scenes for years to support private accounts. Since 1998, it has contributed to the Alliance for Worker Retirement Security, a lobbying group whose goals include making individually controlled accounts part of any Social Security overhaul….

Edward Jones stands out at a time when most Wall Street firms haven't taken a position on private accounts or have played down the potential benefit of what could be billions of dollars in new fees. The alliance currently counts just three other financial firms as contributors—Charles Schwab Corp., Wachovia Corp. and Waddell & Reed Inc., according to Mr. Max. The Securities Industry Association, a lobbying group for Wall Street firms that supports the creation of private accounts, also is a contributor to the alliance….

The AFL-CIO, which opposes private accounts, contends that Edward Jones and Schwab have a conflict of interest in lobbying for changes that could boost their profits while putting workers' retirement income at risk. In January, the AFL-CIO organized a letter-writing campaign complaining to Schwab that workers could be hurt. It now is urging members to e-mail the head of Edward Jones, demanding that the firm be more upfront about its support for private accounts and withdraw that support. The group also held a protest against the video broadcast.

The Schwab spokesman said the firm doesn't have a conflict of interest. Edward Jones's Mr. Boul said, "We have no way of knowing what, if any, benefit will accrue to financial-services companies" should private accounts be adopted….


     "We have no way of knowing what, if any, benefit will accrue to financial-services companies" should private accounts be adopted. Yeah, right. The accurate statement in the above excerpt is “the potential benefit of what could be billions of dollars in new fees” for firms like Edward Jones and Schwab. They’ll be getting most of the benefits (fees and commissions) and will take none of the risks—which the retirees will assume.

     If you actually believe that some Social Security funds could be better invested by playing the stock market, check out a far superior solution by reading Who bears the risk for Social Security reform.




     The following provides an excellent lesson in interpreting headlines. What’s the obvious implication of “Europe Puts Consumers First”? The U.S. puts business first and consumers last?

     Or, how about, “The U. S. always regulates its economy for the benefit of the rich and powerful.” It protects monopolies, predatory labor practices, and doesn’t really give a tinker’s damn about consumers.


From The Wall Street Journal, February 11, 2005.

Europe Puts Consumers First

Market-Competition Rules
At Odds With U.S. Approach

BRUSSELS—The concept sounds strange to American ears: Pulling a Pepsi can out of a Coke-branded cooler.

Under pressure from European Union regulators, though, mighty Coca-Cola Co. agreed last year to hand over one-fifth of the space in some of its familiar red-and-white coolers to archrivals such as PepsiCo Inc. The concession helped Atlanta-based Coca-Cola to avoid huge fines and punishments. It also underscores a profound difference between the way the U.S. and EU look at regulation and market power.

In several recent decisions—from soft drinks to software, beer and automobiles—Brussels has sought to use regulation to protect consumer choice much more aggressively than Washington does. Despite the European Commission's new emphasis on smoothing paths for business to encourage economic growth, this type of enforced competition is unlikely to change, antitrust lawyers say.

"Making a quick and concrete contribution to consumer welfare is rapidly becoming the paramount goal for EU antitrust," says Luc Gyselen, the former EU official who led most of the five-year investigation into Coca-Cola's business practices. He is now a Brussels-based partner at law firm Arnold & Porter….

The enforcement trend gained ground under former EU antitrust commissioner, Mario Monti, whose term ended in November, and is expected to remain a crucial part of new Commissioner Neelie Kroes's antitrust arsenal. "Mrs. Kroes is firmly convinced that it is crucial not only for Europe's competitiveness, but also for consumers who should be able to enjoy the benefits of a single market with access to a wide range of goods and services at reasonable prices," says her spokesman, Jonathan Todd.

Some U.S. officials are perturbed by the trend, which they fear adds up to a doctrine that allows rivals to piggyback on a dominant company's market power—punishing victors in business. They have warned that Europe risks eroding the value of big brands, trampling on intellectual-property rights and thereby chilling the already cool climate for innovation in Europe….


     When the U.S. officials refer to “punishing victors in business,” they really mean that the ruthless and powerful (those who financially reward U.S. officials) should be able to take advantage of consumers by denying market access to competitors.




     Two articles in the same issue of The Wall Street Journal describe how Wal-Mart has become a symbol of America’s values and its model for the future.

     It isn’t good. Unless you believe in aristocracy and a society divided into the very rich and the very poor.


From The Wall Street Journal, February 10, 2005.

Wal-Mart Fosters
A Region's Rise,
But Not All Benefit

In Northwest Arkansas, Jobs
Are Plentiful in Two Areas:
Professional and Menial

BENTONVILLE, Ark....In a state long known for its poverty, this region is growing fast—but some are being left behind. As in some other parts of the U.S., a two-tiered labor market is emerging in Northwest Arkansas, with a well-paying rung for college-educated workers and a much lower rung for those with less education or outdated skills. And many of the best jobs are going to newcomers, not to native Arkansans.

The biggest force behind the growth is the world's largest retailer, Wal-Mart Stores Inc., based in Bentonville. Meat processor Tyson Foods Inc. and trucking company J.B. Hunt Transport Services Inc. have also helped turn the area into a business magnet. Hundreds of Wal-Mart suppliers, start-up companies and upscale retailers have flocked here….

But the boom isn't helping Terence and Crystal Hale, a Springdale couple with two small children, who together earn $20,000 a year. They say jobs at the many restaurants and manufacturing plants in the region that have "now hiring" signs don't pay enough to sustain a family. Mrs. Hale, a native Arkansan, makes $7 an hour working at a local Head Start program. Mr. Hale, a unionized welder, says few factories are hiring permanent full-time employees. In his field, he says, "there are no good-paying jobs here."…

"We're getting extremely highly paid executives moving here and to keep them happy, we're getting good schools, good entertainment and an exciting intellectual community," says William Schwab, chairman of the sociology department at the University of Arkansas in Fayetteville. He calls this a "double-edged sword" because "the difference between the rich and the poor is becoming exacerbated."…

… workers agree that immigrants from Latin America are helping employers push wages down in jobs such as construction, where some native-born workers say they earn less now than they did 10 years ago. According to the Census Bureau, 6.9% of the area's population was foreign-born in 2000, up from 1.5% in 1990. In addition to Latin Americans, Springdale has the largest concentration of people from the Pacific Ocean's Marshall Islands outside of their native land—an estimated 4,000 people, many of whom work in local factories and poultry plants.

James Bishop and Lisa Broadwell are longtime residents of Northwest Arkansas and both have years of experience in a trade: Mr. Bishop in machining and Ms. Broadwell in dry cleaning. Yet both are underemployed. "Hispanics are taking over the jobs in the poultry industry—jobs that used to go to people who live here, and as a result, those people that used to be in the poultry industry are taking over our jobs," Ms. Broadwell said.

The couple spent much of last year in a homeless shelter before moving into a home recently. They picked up odd jobs such as weeding, lawn mowing and construction site cleanup for $7 to $12 an hour. But the work is unpredictable and Mr. Bishop, 49, finds it strenuous dumping heavy concrete blocks at construction sites. "I never had a problem getting a job before. I could walk out of one job into another," said Mr. Bishop. "But nowadays the average person here cannot survive in this area." He has applied for several factory machinist jobs paying up to $11 an hour, but competition was heavy and he didn't get any.

Kimberly Gross, executive director of Seven Hills Homeless Shelter in Fayetteville until several weeks ago, says when the shelter opened four years ago, only one person came for help. Last year, an average of 64 people came through the shelter each day. "It's our dirty little secret," she says, "since a lot of people who are struggling and homeless are living in the woods, not panhandling in the street."


---------------------------------------------------------------

Wal-Mart Will Close a Store
In Canada Amid Union Efforts

Wal-Mart Stores Inc. said it plans to close a Canadian store whose workers were seeking to become the first ever to win a union contract from the world's largest retailer.

Wal-Mart said it was shutting the store in Jonquiere, Quebec, because it is losing money and demands from union negotiators would make it impossible for the location to become profitable. Wal-Mart's decision comes less than a week after the United Food and Commercial Workers union, saying negotiations had reached an impasse, ended contract talks and filed a request with Quebec's Minister of Labour for binding arbitration….

Wal-Mart, which has vigorously fought efforts to unionize its stores across North America, previously had said publicly that the store wasn't profitable—and hasn't been since it opened. Wal-Mart added that the union demands, which it said would have required increasing workers' hours and the hiring of at least 30 more people, would- make it even less likely that the store could turn a profit.

In 1997, Ontario's Labor Board imposed union certification on a Windsor, Ontario, Wal-Mart after it found that the company had intimidated workers. Three years later the store voted to decertify. In the U.S., a group of Wal-Mart butchers voted to unionize in February 2000. Several weeks later, the company announced that it no longer would use butchers at any of its stores, saying it would stock prepacked beef instead….


     Although conservative demagogues say the solution to poverty is increased education and even fewer restrictions on corporations—it should be clear by now to everyone that it’s all about power.

     Right now, the Wal-Marts of the world have all the power, and those who work hardest in the worst jobs have virtually no power. Until the voting public wakes up and starts electing true liberals to office, it’s only going to get worse.




     How anyone can read The Wall Street Journal and not conclude that George Bush is totally out of his perpetually-college-fraternity-freshman mind—is beyond belief.

     Even though our country is disintegrating around us, he still insists on cutting taxes on our richest citizens. As you read the following four articles, note that he wants to totally eliminate estate taxes and keep lower taxes on dividends and capital gains.

     This means that five members of the Walton family, each of whom is worth at least $18.8 billion, will be able to transfer that wealth to their descendants tax free—and for the next several centuries, thousands of Walton descendants will be able to live in luxury without having to work a day in their worthless lives. And they represent only a very small number of the people in the top 1% of American society.

     In the meantime, people working in mines, in factories, on farms, etc., will have to pay taxes on every cent they make.


From The Wall Street Journal, February 8, 2005.

How Bush's Budget
Affects Your Taxes

Despite renewed clamor over budget deficits, President Bush shows no sign of backing down from his tax-cutting crusade.

In the budget unveiled yesterday, the president reaffirmed his determination to make permanent the sweeping tax cuts of his first term. For starters, he is calling on Congress to extend the sharp individual income-tax rate cuts that are scheduled to expire at the end of 2010.

He also is seeking to make permanent the 15% top rate on most types of dividends and long-term capital gains; the lower rate is to expire at the end of 2008. And he is renewing efforts to kill the federal estate tax. Currently, the estate tax is set to disappear in 2010—but only for that one year—and then spring back to life in 2011….


---------------------------------------------------------------

From The Wall Street Journal, February 8, 2005.

A 'Lean Budget'
From Bush Cuts
Mainly at Home

Trims in Domestic Spending,
Growth in Defense Promise
Scant Change in Deficit

WASHINGTON—President Bush proposed the broadest domestic spending cuts since the Reagan era in a fiscal 2006 budget that seeks to begin making good on conservatives' longstanding vow to shrink the size of government….

The document failed to account for supplemental Iraq war spending or costs associated with the administration's proposed Social Security overhaul; in projecting shrinking deficits beyond 2006, it skimped on details of how that would be accomplished….

Mr. Bush is asking lawmakers to cut more deeply into domestic programs benefiting children, the poor and other vulnerable groups. Discretionary spending on nonsecurity areas would actually fall by almost 1% in dollar terms—an even larger cut once inflation is taken into account….

Education programs would take a $528 million cut, their first since 1995…. The Environmental Protection Agency would lose $326 million for clean-air, clean-water and Superfund programs….

The hardest-hit Justice Department programs, cut by more than $1 billion, were the Community Oriented Policing Services (COPS) Program and the Justice Assistance Grant. The president of the International Association of Chiefs of Police complained that the "This administration talks about homeland security but then guts funding for...programs that help secure our homeland."…


---------------------------------------------------------------

From The Wall Street Journal, February 7, 2005.

Surging Costs for Medicaid
Ravage State, Federal Budgets

In Mississippi, Governor Sees
'Cancer on Our Finances'
Amid $268 Million Gap
New Pressure From Bush Cuts

JACKSON, Miss.—To see how Medicaid is devouring state budgets across the country, take a look at Mississippi.

Over the past five years state and federal spending in Mississippi on Medicaid—the health program for the poor and disabled—has doubled to $3.5 billion. Fully one-quarter of state residents are in the program. "Medicaid is a cancer on our state finances," says Mississippi Gov. Haley Barbour, the former head of the Republican National Committee and a close ally of President Bush.

In the current fiscal year, which ends June 30, Medicaid is projected to cost $268 million more than the state budgeted. Officials are now warning that the program will run out of money by the end of this month unless the legislature passes an emergency appropriation. To open up funds for Medicaid, the state has slashed road construction and may delay plans to raise the salaries of public-school teachers who earn an average of about $35,000 a year.

Forty years ago, Congress, as an afterthought to the Medicare program for the elderly, created Medicaid to help pay for the medical needs of about four million low-income people. Today, the program covers 53 million people—nearly one in every six Americans—and costs $300 billion a year in federal and state funds, recently surpassing spending on the federal Medicare program. In some states, Medicaid accounts for one-third of the budget….

Now a state-versus-federal battle over Medicaid may be looming. President Bush, faced with a swelling federal deficit, will propose Medicaid changes in the budget he sends Congress today. The administration wants to cut about $60 billion from what it projects it will spend on the program over the next decade, mostly by cracking down on techniques used by states to collect extra federal payments….

Republican Gov. Jeb Bush of Florida is pushing a plan to give more control of Medicaid to private insurers and cap the amount Medicaid spends on each recipient. He warns that Medicaid will "collapse under its own weight" without an overhaul….


---------------------------------------------------------------

From The Wall Street Journal, February 8, 2005.

U.S. Waterway System Shows Its Age

Supply Disruptions Increase
As Repairs Fail to Keep Pace
With Equipment Problems

The nation's freight-bearing waterway system, plagued by age and breakdowns, is saddling the many companies that rely on the network with a growing number of supply disruptions and added costs.

While some consider it an anachronism in the age of e-commerce, the system remains vital to a broad swath of the economy, carrying everything from jet fuel and coal to salt and the wax for coating milk cartons. The network stretches 12,000 miles, mostly through the nation's vast web of rivers, and relies on a series of dams and locks, which are enormous chambers that act as elevators for moving barges from one elevation of water to another….

Big companies like U.S. Steel Corp., DuPont Co. and Archer-Daniels-Midland Co. make extensive use of the system, and usually don't have easy alternatives. The rail- and truck-freight systems, which carry about 45% and 33%, respectively, of U.S. intercity freight, are near capacity and much more costly. Moving materials by barge is about a tenth the cost of using trucks, and two-thirds that of rail….

"Many of the facilities are at the fatigue point now, where they need major rehabilitation," says David Grier, a navigation analyst at the Institute for Water Resources, part of the Army Corps of Engineers….

"People forget how many basic industries rely on the waterways," says Barry Palmer, president of the Waterways Council. "What we need is a program that identifies the locations that need attention the most urgently, so we can reduce the risks of a catastrophic failure."…


     So, while Bush cuts taxes on those who have benefited most from our economy for the past 30 years—he’s cutting services for those who have made most of the sacrifices by performing our low-wage and hardest jobs.

     If that weren’t bad enough, he’s also cutting funding for those things that are economically essential to our future: environmental protection, true homeland security (police, emergency medical teams, etc.), educational programs, maintenance of our infrastructure (waterways, roads and highways, and virtually everything states have to maintain, but can’t because of Bush’s tax policies).

     To better understand why Republicans are terrible managers of our economy, check out the file on Proactive vs. Reactive Management.




     This is a brief excerpt of a very long article describing the horrors of many (most?) variable annuities, and is presented for purposes of criticism only. Those who are seriously considering the financial issues involved should read the entire article.


From Business Week, February 7, 2005.

Annuities: Don't Believe The Hype

Many of the tax benefits of variable annuities no longer exist, but the hard sell continues

Have you bought a variable annuity yet? If you're a baby boomer and your answer is no, get ready for the hard sell. The promoters of these savings vehicles will prey on your insecurity about not having enough money for retirement to get you to sign up for what could be a costly investment.

Even if you already have a variable annuity, someone may try to convince you to trade in your existing contract for one with new bells and whistles—in which are buried higher fees. The problem with variable annuities is they are often a high-cost answer to a problem that may have simpler, cheaper solutions, such as fully funding your tax-deferred retirement accounts or assembling a portfolio of reliable dividend-paying stocks.

Still, through Sept. 30, 2004, variable annuity sales were $98.4 billion, about 4% higher than during the same period in 2003. And it's insurance salespeople, not Wall Street brokers, who are making most of the sales. Financial planners in particular have been cool to the product. Variable annuities "are tax-inefficient, difficult if not impossible to understand, and have high costs," says Warren McIntyre, a financial planner in Troy, Mich….

The legions of sales folks are spending time and money to refine their pitches. In February, for instance, at the annual marketing conference of the National Association for Variable Annuities (NAVA) in Tucson, one session will cover, according to the program, "the hot buttons that drive baby boomers' long-term financial decisions and how to connect the benefits of variable annuities to these hot buttons."…


     This is the industry, ladies and gentlemen, that the Bush Administration wants to guide Americans in the ways they invest their “personal Social Security funds.” Lotsa luck.




     Even the readers of Business Week are being exposed to some sensible analyses of the Social Security “crisis.” The following editorial is here presented almost in its entirety.


From Business Week, February 7, 2005.

ECONOMIC VIEWPOINT

The 2% Solution To Fix Social Security

Restore the pre-Bush tax rate on the very richest U.S. taxpayers

By Robert Kuttner

President George W. Bush's initiative to make Social Security partly private is in startling disarray. In recent days prominent Republican legislators have publicly distanced themselves from the Bush approach. A basic problem is that privatization is expensive, because it diverts payroll taxes to a new system of private accounts. But any strategy of paying for it alienates one key bloc of Republicans or another.

If you pay for the transition by borrowing an estimated $2 trillion, fiscally prudent Republicans balk. If you cut benefits, as Bush aides have suggested, another batch of GOP legislators will resist. And if you raise taxes, as House Ways & Means Chairman Bill Thomas uncharacteristically proposed, still other Republicans desert. Virginia Representative Tom Davis, who heads the Republican Congressional Campaign Committee, has publicly declared that the whole thing is dubious politics, because it risks losing Republican House seats in 2006….

Bush's predicament is so serious that Republicans who normally loathe tax increases are suddenly talking about raising income subject to Social Security taxes in the hope of luring a few Democrats to support the Bush plan. But they have no takers. The White House nominally has the votes, since Republicans enjoy majorities in both houses of Congress. But without bipartisan cover for a vote that risks voter backlash, Republicans won't walk this plank.

Bush is also getting increasingly skeptical press coverage on his central contention—that the existing system is in dire crisis. Since 1997, the Social Security trustees (a majority of whom are now Bush appointees) have pushed back Social Security's supposed day of reckoning, when it won't be able to pay all its benefits, from 2029 to 2042. In other words, in seven years the system has gained 13 years of health, mainly because the economy has grown much faster than anticipated. And the Congressional Budget Office, with more realistic economic assumptions, puts the date at 2052.

So how will all this play out? Bush's idea of individual accounts is attractive. All Americans want nest eggs, and they should have them, but not at the expense of Social Security, which is the one part of the retirement system absolutely guaranteed against market risks….

Fixing Social Security's actual shortfall, which is about 0.4% of gross domestic product over the next 75 years, according to the CBO, is actually pretty easy. One politically risky way would be by raising the cap on the payroll tax, from $90,000 of income, to about $140,000, as floated by the AARP and accepted in principle by Senator Lindsey Graham (R-S.C.) and Representative Jim McCrery (R-La.), who heads the House Social Security subcommittee.

The workers' share of the Social Security tax is 6.2% of wage and salary income. If we raise the cap, a person earning $140,000 would face a tax increase of more than $3,000. It's hard to imagine either party proposing a major tax hike on the upper-middle class.

There's a much better way. Roughly the same amount of revenue, about $60 billion a year in current dollars, could be raised by restoring the pre-Bush income tax code on just the top 1% of taxpayers. Then, set up a system of universal, portable, supplemental pension accounts by restoring the pre-Bush income tax code on the second-wealthiest 1%. That would generate roughly an additional $45 billion in current dollars. This money could be used as a government match, on a sliding scale, to encourage all Americans to set up private accounts. Remember, 98% of Americans would get no tax increase.

Each party would gain something. The Democrats would strengthen the existing system. The Republicans could take credit for setting up a system of universal individual accounts. Bush might not accept a bipartisan deal. But if he holds out for privatization financed by a raid on the existing Social Security system, he could well face his first big defeat.


     Key statement above: By raising taxes on the top 2% of Americans, the government could use “This money … as a government match, on a sliding scale, to encourage all Americans to set up private accounts.” Not only would this work, it would save the Republicans from being total hypocrites—when they say that middle and low income people should be able to invest money in securities, just like the wealthy do.

     As Kuttner points out, this is quite possible without destroying the fundamental nature of Social Security.




     The top executives of Enron, Tyco, WorldCom and the others were aberrations of corporate behavior only in the fact that they carried their skullduggery further than most corporate executives and they got caught.

     Now we find that executives of ultra-blue-chip Merck knew of the dangerous side effects of Vioxx long before the news was made public.


From The Wall Street Journal, February 7, 2005.

Merck Documents Shed
Light on Vioxx Legal Battles

Records Show Safety Panel
Had Early Data Indicating
Higher Heart-Problems Risk

When Merck & Co. pulled its painkiller Vioxx from the market in September, it said it was acting because a clinical trial had shown that users were at increased risk of heart attacks or strokes after 18 months.

That conclusion, and how it was reached, are the central issues for Merck in defending itself against a wave of lawsuits … accusing the company of negligence. The suits could start being heard in courtrooms as soon as May. Previously undisclosed company records, which were reviewed by The Wall Street Journal, are casting light on the coming legal battles.

The records, which plaintiffs' attorneys have, show that the external committee charged with monitoring the drug's safety in the clinical trial had early data suggesting that users could be at increased risk of certain heart problems after as little as four months.

Notes from committee meetings show that members were watching the "concerning nature of the trends" about Vioxx's possible effects on heart attacks and strokes from their first meeting. The records also show that the committee of five included one Merck employee and two doctors who had done consulting work for the company. One of the consultants was the lead author on a paper written with Merck scientists that defended Vioxx's safety and criticized a study raising safety concerns about the drug. All those issues are expected to be probed by plaintiffs' attorneys….

Minutes from meetings show that committee members voiced concerns about safety at their first meeting in January 2002, two years after the clinical trial began. "There were some trends noted in serious adverse clinical events and in thromboembolic events," such as heart attacks, strokes and dangerous blood clots, according to the minutes….


     It’s ironic that Vioxx is probably a good drug for its intended purposes and is likely safe for those who have no risks of heart problems or stroke, and if taken in moderation. All the Merck executives had to do is notify doctors and the public of the possible side effects for designated persons and what the safe doses would be. Merck could still have made a decent profit, although it wouldn’t have been the blockbuster that the greedy jerks at the top insisted upon.

     If you want to know more about how “Destructive Achievers” have taken over the corporate world, check out the file Proactive vs. Reactive Management.




     Speaking of Destructive Achievers, note the two excerpts to follow. And while you read them, think of two of our biggest national problems that are helping to drive our country to bankruptcy: medical costs and gas prices.


From The Wall Street Journal, February 7, 2005.

Love 'em! Hate 'em!

UnitedHealth, Coach Top the Analysts' List
Of Companies Set for Big Earnings Gains

Earnings season has been generally good so far, even as the stock market has declined in the first few weeks of the year amid concerns about the outlook for profits….

Heading the "up" list are health insurer UnitedHealth Group Inc., luxury-goods maker Coach Inc. and pharmaceutical-service provider Caremark Rx Inc. Medical-products manufacturer Stryker Corp., orthopedic-implants maker Zimmer Holdings Inc. and retailer Bed Bath & Beyond Inc. also make the grade….


------------------------------------------------------------------

From The Wall Street Journal, February 7, 2005.

Exxon's Record Profit
Humbles Analysts

After Forecasts Widely Miss Mark,
Wall Street Turns Its Attention
To Oil Giant's $23 Billion in Cash

Investors rejoiced when Exxon Mobil Corp. reported record quarterly profit last week. Wall Street analysts had a different reaction: "Ouch."

Exxon's fourth-quarter net income of $8.4 billion widely is considered the biggest quarterly profit ever for a U.S. public company. It exceeded Wall Street's prediction by 21%, according to Thomson Financial. That amounted to a striking flub for analysts who follow the company.

These analysts said that they underestimated how Exxon's efficiency and size would exploit the specific characteristics of today's commodity market and send profit soaring….

Now the question is what Exxon will do with its loot. The company has amassed a cash hoard of $23 billion, leading some analysts to predict it will continue raising its dividend and rate of share buybacks in 2005, and perhaps even issue a special one-time payout to shareholders….

Exxon wasn't the only energy company that outperformed analysts' estimates amid high crude-oil and natural-gas prices. ChevronTexaco Corp. beat analysts' predictions by 16%, and ConocoPhillips surprised the Street by 12%....


     The cynicism of corporate America is truly astounding. While they blame government, regulations, shortages, lawyers—and everyone but themselves for the high prices they charge—executives in the medical and petroleum industries continue to rack up record profits. And, of course, those at the top are becoming members of the new American aristocracy.




     I don’t know why I bother anymore. The following two excerpts are just more in the endless stream of reports about the greed at the top of corporate America.


From The Wall Street Journal, February 7, 2005.

Morgan Stanley
Gives CEO Pay
Of $22 Million

Morgan Stanley Chairman and Chief Executive Officer Philip Purcell took home salary and bonuses totaling $22 million for 2004, according to a regulatory filing Friday.

In addition, Mr. Purcell realized roughly $18.1 million in profit from the exercise of options on Morgan Stanley stock during the year ended Nov. 30….

When adding money realized from exercising previously granted stock options, John Havens, Morgan Stanley's head of equities, made a figure close to Mr. Purcell. He realized nearly $20 million from exercising Morgan stock options, in addition to earning a total of $16.1 million, which includes $300,000 in salary, $7.1 million in cash bonus, and $8.7 million in restricted stock.


------------------------------------

From The Wall Street Journal, February 10, 2005.

H-P's Board Ousts
Fiorina as CEO

Hewlett-Packard Co.'s board, amid mounting displeasure with the Silicon Valley computer giant's performance, ousted Chief Executive Carly Fiorina after she resisted the directors' plan for her to cede some day-to-day authority to the heads of H-P's key business units….

Yesterday, some H-P employees reacted to the news of Ms. Fiorina's ouster by holding champagne toasts, according to several employees, who described the scenes as "jubilant."… Investors cheered the news of Ms. Fiorina's departure. In 4 p.m. composite trading on the New York Stock Exchange, H-P's shares rose 6.9%, or $1.39, to $21.53….

Ms. Fiorina will receive a severance package valued at about $21 million. Because she was "involuntarily terminated without cause," she will receive 2.5 times her annual salary and bonus, under a severance plan passed by committees of H-P's board in 2003. Based on her 2003 compensation, the most recent the company has made public, that amount would come to about $8.4 million….


     Interesting, isn’t it. It doesn’t matter whether or not top executives do well or horribly—they still end up with millions upon millions of dollars.

     Don’t let anyone con you into believing that the huge incomes these people are making doesn’t affect you. For an extended discussion of the zerosum nature of wealth, see Wealth is a Zerosum Game.




     Alan Abelson is far and away the best writer and economic analyst on the Barron’s staff. While others choose to remain blind to the weaknesses of this economy—and the duplicity of George Bush—Mr. Abelson tells it like it is.


From Barron’s, February 7, 2005.

UP AND DOWN WALL STREET

By Alan Abelson

Security and Securities

…In studding his address with soaring rhetoric and going light on the boring specifics, Mr. Bush was maintaining an old presidential tradition. Pageantry not substance, inspiration not enlightenment, are the aims of the exercise and Mr. Bush fulfilled those admirably.

What the president neglected to explain is how adding several trillion dollars to the $8 trillion or so of debt the Republic already is shouldering will keep Social Security solvent four decades from now. But perhaps he'll make it crystal clear in due course. He somehow also failed to dwell on the sad fact that investing is not a sure thing, that, much as we hate to say so, it entails risk (which obviously is why it can be very rewarding), but the omission was simply an oversight, we're sure.

Our problem with the notion of private accounts is that as passionately as we believe in markets and their virtues, we also are more than a tad mindful of their deficiencies, even dangers. And while we heartily urge everyone of sound mind and decent finances (we hope we won't be accused of discriminating against people of unsound mind and indecent finances) to put money in stocks, we don't think it should be done as the result of disguised governmental coercion or even sponsorship. Or, that the folks investing in stocks confuse it with the conventional concept of saving….

On Friday came the January jobs report from the Bureau of Labor Statistics and, alas, once again it makes a monkey out of the consensus. Instead of the 200,000 payroll additions confidently anticipated (and there were some intrepid souls who boldly ventured nearly 300,000), the true total of new slots was a much less grand 146,000. And adding to the dismal picture was that the previous month's gain in employment was shaved to 133,000, from the 157,000 originally reported.

Obviously, speculation, sparked by declining productivity, that Corporate America had wrung out everything it possibly could from its present work force and would have to start hiring in earnest was not exactly on the money. Even the apparent good news in the latest report—the decline in the unemployment rate to 5.2%, from 5.4%—was less than heartening on closer inspection. For the jobless rate dropped solely by virtue of a doleful exodus from the labor force, mostly by folks who couldn't find a job and gave up the search. As Philippa Dunne and Doug Henwood point out in the Liscio Report, had those forlorn souls not dropped out, the rate would have ticked up, not declined.

Manufacturing, a sector that supposedly was on the rise after being down for what seems like an eternity, appears to have suffered something of a relapse, losing 25,000 jobs in January. Moreover, December's reported gain of 3,000, feeble as it was, on revision became a loss of 7,000. The workweek contracted and hourly wages eked out a modest 0.2% rise….


     Finally, a recognized economic expert with a prestigious financial publication has presented a realistic analysis of the absurdity of privatizing Social Security.



Week of January 31



     The following is a brief excerpt of a very long article that describes the experiences of other countries that privatized their Social Security programs. Those interested in studying the issue in depth should read the original.

     It’s hard to see how any objective observer could conclude that the U.S. should privatize a system that is the most efficient in our country, and has an expense of less than 1% of the money taken in vs. the money actually paid to retirees.

     As you read it, remember that our economy and our securities industry resemble those of the British much more than of Chili’s.


From The Wall Street Journal, February 3, 2005.

From Nations That Have Tried
Similar Pensions, Some Lessons

As President Bush gears up to sell his plan to remake Social Security, he and his allies cite Chile as an example of how private accounts can boost retiree payouts.

Opponents counter with their own favorite: Britain, where a scandal engulfed an overhaul and tarnished the system.

Lessons from 20 countries that have embraced private accounts will play a role in what's shaping up as the first big domestic issue of the second Bush term. Each side is looking to them for ammunition. A review of seven nations' experience illuminates some of the major issues that must be resolved….

A British social-security overhaul in the late 1980s promised fiscal probity and consumer choice. But it has been dogged by scandal, and many Britons now seek the security of state payouts. "A lot of people look longingly at [America's] Social Security system," says Stephen Yeo, a partner in London at pension consultants Watson Wyatt Worldwide….

Chile's private accounts are a pioneering program that's studied by economists from around the world. Assets in the private accounts amount to $54 billion, nearly equal to two-thirds of national output….

The U.S. economy and financial markets are in a quite different position than Chile's were when it adopted private accounts. U.S. interest rates, while slowly rising, are near historic lows. And while Chile then had a promising emerging stock market poised for a boom, the U.S. is a mature market that enjoyed a giant run-up over two decades starting in 1982.

Now Chile's returns are coming back to earth. From 1996 to 2004, they averaged about 6.5%. Large fees charged by fund managers, amounting to more than 20% of the total deposited, have also taken some of the glitter from the privatization system. "This program was imposed at the point of a bayonet," says Juan Correa, an auditor and account holder. "And today, I have to pay management fees even if I lose money."…

In Chile, the program is considered a solid success, though hardly the "miracle" it is sometimes portrayed as in seminars and studies by proponents overseas.


     One has to wonder why the editors of the Journal want to analyze the records of other countries, when we have our own outstanding and successful Social Security record of the past 70 years.

     Our system didn’t get into “trouble” until the wealthy and powerful started taking all the benefits of our country’s productivity improvements all for themselves, and not sharing it with the workers who were creating the wealth. If they had been making more money—and, as a result, gladly paying more in Social Security taxes—the system wouldn’t be in trouble. Plus, if we would eliminate the top income limit on paying Social Security taxes, we would even be able to increase benefits for retirees.




     Two signs of the times—and portrayals of the future—are to be found in The Wall Street Journal, this February second.


From The Wall Street Journal, February 2, 2005.

Thanks to Chinese,
Chicago Clockmakers
May Be Short-Timers

Blind Workers Are Favored
By Federal Agencies,
But Price Is a Problem

CHICAGO—If a federal bureaucrat is watching the clock somewhere, chances are it was made by a factory in downtown Chicago where nearly all of the workers are blind.

For 28 years, most wall clocks in U.S. government offices have come from one place: Chicago Lighthouse, a nonprofit enterprise devoted to employing the blind. It made 104,000 clocks last year for all branches of the military, the Energy Department, the Postal Service and the Justice Department.

But the clock is ticking for Chicago Lighthouse, which faces heavy new competition from China. In the past four years, U.S. imports of wall clocks—most of them from China—have increased by 24%, totaling $121 million in 2003. The march of battery-operated Chinese timepieces hastened the demise four years ago of General Time Corp., once America's largest maker of alarm clocks and wall clocks….

Now in its 99th year, Chicago Lighthouse used to draw Helen Keller to its annual dinners in the 1940s and 1950s. Over the years, blind workers here have made hand-woven baskets, battery cables, hydraulic hoses, toy science kits and pogo sticks.

Clocks have been the breadwinner for a generation. In the late 1970s, Chicago Lighthouse had industrial engineers study conventional clockmaking procedures. They devised an assembly process and special instruments that helped workers handle all the traditionally intricate steps….

OfficeMax, Office Depot and other retailers are competing for domestic clock sales with cheaper imports from China, where workers sometimes are paid less than $1 an hour. Government offices are snapping up more of those, which can run $8 or less for a 12-inch-diameter clock. "We do carry items that help our customers meet their economic needs," says a spokesman for OfficeMax….


------------------------------------------------------

SBC-AT&T Savings Rely on Job Cuts

SBC Communications Inc. executives said their plan to successfully combine with AT&T Corp. in a $16 billion deal relies heavily on a cost-cutting drive that will eliminate 13,000 jobs and save at least $2 billion a year by 2008.

Officials of the San Antonio company expect the acquisition of AT&T to practically pay for itself with about $15 billion in cost savings from the deal….

SBC and AT&T, which now employ about 210,000 people, expect to have a combined work force of 198,000 by the end of 2005 as they pursue already-existing plans to cut jobs. They expect the deal to close in early 2006 and then plan to trim the additional 13,000 jobs….


     These trends—sending jobs overseas and huge mergers whose only purpose is to save money by terminating employees—will never end until voters wise up and elect liberal politicians who will again put the interests of workers on a par with the interests of investors. Right now, investors have all the political power and workers have none.

     Roosevelt would never have let these kinds of things happen, as his anti-trust, minimum wage, and other legislative and governmental actions demonstrated. Allowing investors to have all the power in the “free market” will destroy capitalism, just as it almost did in the 1920s.




     With unbelievable frequency, two kinds of articles appear together in the same issue of a publication:

  • one is an article that describes how our richest citizens are continuing to get richer—and usually at the expense of others who are forced to make economic sacrifices necessary for the system to continue to benefit the wealthy, and

  • the other is an editorial that complains about how unfair and unwise it is to raise taxes on the wealthy.

The following article and editorial appeared in the January 31 Wall Street Journal:


No Razor Here:
Gillette Chief to Get
A Giant Payday

About $153 Million Awaits
Kilts After P&G Deal,
His Second Merger Score

James Kilts had millions of reasons to sell Gillette Co. to Procter & Gamble Co. -- 153 million of them, to be precise.

Mr. Kilts, Gillette's chairman and chief executive, cited the need for more heft in the global personal-care industry in explaining why it made sense to subsume the 104-year-old company in P&G. But he also had a financial incentive to do the deal, which he initiated: Mr. Kilts stands to reap more than $153 million, including gains on his Gillette stock options and stock rights, a one-time sweetener from P&G valued at an estimated $23.9 million, plus a "change in control" payment of $12.6 million.

Mr. Kilts will also stay on at the merged company for a year, as P&G vice chairman, earning what one compensation expert estimated would be about $8 million….

While some say Mr. Kilts, 56 years old, deserves every penny for turning Gillette around and adding billions in shareholder value, his big payday after just four years is spotlighting some longstanding issues about CEO pay in general: Are top executives sometimes motivated to do mergers, at least in part, by personal gain? And is it right for the top people to walk away with megamillions while thousands lose their jobs in post-merger downsizing? P&G and Gillette have said 6,000 jobs are likely to be cut in the combined company….

Mitchell Marks, a San Francisco strategy consultant and specialist on managing mergers, says he has seen CEO attitudes shift from two decades ago, when most who sold their companies later regretted doing so. Now, he says, many "people see M&A as a game and as a way to buttress their own wealth and their own portfolio." He dislikes the trend, because he says it demoralizes employees: "People think they are joining a company for the long haul and boom, the rug is pulled out from under them because the CEO wants a quick payday."…

A troubling sign, some add, is a merger deal's one-time sweetener for the target company's chief executive. "Many of them really dip in and take an extra bonus, an extra augmentation of their contract at the 11th hour, when there's very little ability of the shareholders or even their own directors to do anything about it," says David Yermack, a New York University associate professor who studies executive pay. "You have to wonder if the deal might have been even more favorable had they been working for shareholders instead of just for themselves."…


----------------------------------------------------

REVIEW & OUTLOOK

Mitch the Knife

The political lust for ever-more tax revenue is a bipartisan affliction, as Indiana voters are finding out to their regret. Their reward for electing their first Republican Governor in 16 years looks like it will be a big tax increase.

This pocketbook raid comes courtesy of Mitch Daniels, the former White House budget director whose victory last November also brought in GOP control of the Indiana house. (The party already controlled the senate.) He's now helping to define Republicanism in the Hoosier state by proposing a 29% tax increase, levied largely on anyone making $100,000 or more—including married couples filing jointly and small business owners.

Mr. Daniels says the tax hike, which raises the top marginal income tax rate to 4.4% from 3.4%, will last only one year, but the new Governor is also opening the door for county and city governments to levy their own income taxes….

Mr. Daniels' official excuse, as ever, is that raising taxes is the only way to balance the state's $250 million budget shortfall. This will surprise taxpayers who didn't hear Mr. Daniels mention it during last year's campaign….


      To better understand why a strong progressive tax not only makes economic sense, it is also fair, check out the file, Best argument for taxing the rich.

      Let's hope that, some day, politicians and the voting public will become sophisticated enough to realize that a progressive tax system is a requirement for a capitalistic democracy to survive. It's only demagogues who claim otherwise.




     It’s indeed a mystery how policymakers can read articles like this one and still conclude that globalization—as presently practiced—is good for America.


From Business Week, January 31, 2005.

The High-Tech Threat From China

America Inc. is rushing Beijing ahead by sharing R&D treasures

The news is full of headlines about China—its rising trade surplus, ballooning currency reserves, relentless search for oil, and its tensions with the U.S. over textiles and intellectual property rights. But one development has been seriously underreported: China's emergence as a technological superstate. Could Beijing pose a threat in the one area where the U.S. has assumed it would always retain supremacy?

Since 1985, China has repeatedly declared its resolve to reach technological parity with the West. Between 1992 and 2002, the latest period for which figures are available, Beijing has more than doubled the proportion of gross domestic product it spent on research and development, while the level stagnated in America. China boosted its output of PhDs in science and engineering by 14% a year, while the number of U.S. grads fell.

Its technology-intensive exports grew by 22% annually, while exports of U.S. high-tech goods have declined. Today, moreover, while American universities award 25% of all their PhDs in science and engineering to Chinese citizens, Beijing is sparing no effort to lure many back. Among China's R&D priorities are superscale integrated circuits, computer software, and information security systems.

Western companies are speeding up China's advancement by establishing huge R&D facilities there. General Electric Co. has 27 labs in China working on projects from composite-materials design to molecular modeling. Microsoft Corp. has nearly 200 researchers in the country. Cisco, DaimlerChrysler, IBM, Intel, and many others are following suit….

In a recent study, Kathleen Walsh of the Henry L. Stimson Center calls for Washington to wake up to the economic and national security implications of China's growing R&D capabilities. And the National Science Foundation is upset by the decline in research funding and scientific education in America….


     For a better understanding of how true international trade differs from globalization, check out the file International Free Trade: IT'S NOT "GLOBALIZATION" (5% = 100%).




     Anyone who voted for Bush and his far-rightwing Republicans—and also cares about the environment—should read the following.


From Business Week, January 31, 2005.

Washington Outlook

Why The Clean Air Fight Is Likely To Be A Draw

Edited by Mike McNamee

As activists see it, the nation's basic environmental laws are lined up like old-growth trees before a GOP chain saw. Key regulations—from clean-air rules to the Endangered Species Act—are coming under attack by staunchly pro-industry Republicans at both ends of Pennsylvania Avenue. "We've got a lineup [of lawmakers] never really seen before in history," worries Frank O'Donnell, head of Clean Air Watch. "There is a great deal of potential for bad things to happen."

But rolling back enviro regulation may be tougher than the GOP expects. Not all Republicans are signing on. In some cases, environmental activists are able to use industry's favorite weapon, the cost-benefit analysis, to boost regs rather than block them. And the need to fight global warming—which is finding growing acceptance even in Corporate America—will undercut hard-liners like James M. Inhofe (R-Okla.), chair of the Senate Committee on Environment & Public Works, who has argued that it's all a hoax.

The probable result: stalemate. "2005 is likely to resemble the middle of World War I: five steps forward, then back into the trench," says Philip Clapp, president of the National Environmental Trust….

GOP leaders, flush with bigger majorities in both the House and Senate, won't stop their efforts to roll back regs. And the fights will be intense. But when the smog of warfare finally clears, clean air rules and other key environmental protections probably will still be standing.


     And this is from one of our most prestigious conservative financial publications.




     The following is just another of the many reports of how investors have won the class war against the world’s workers.


From Business Week, January 31, 2005.

Why Europe Inc. Is Jumping Ship

Its booming multinationals see more profits in newer, less sclerotic economies

By Jack Ewing

What is the biggest economic event for Europe right now? The obvious answer is the surge in the euro's value against the dollar. But there is another, much less visible trend that, in the long run, could trump the currency story: the clear emergence of two Europes—that part of the European economy driven by Europe's multinationals and the Europe bogged down in an endless struggle to reform and grow. How much further this split develops could have huge consequences for the region….

The recent expansion of the European Union to include much of Eastern Europe has created a natural zone for low-tax, low-wage operations. Perhaps most important, the big companies are quietly giving up on the idea that reforms will deregulate Western Europe's rigid labor market and ease taxes deeply enough and fast enough to help them.

They "don't have the patience to wait for the politicians," says Ralph Wiechers, chief economist of the German Engineering Federation. "They're creating their own facts." One example: Continental, Germany's big tire and auto parts maker. The company hasn't deserted Germany, but new production capacity is heavily concentrated overseas. Since July, Continental has opened a factory in Romania, started another in Brazil, and inked deals in Slovakia and China….

Maybe the two Europes will still find a way to help each other. For now, the best companies are determined to do what it takes to survive and thrive. The other Europe can follow—or get left behind.


     Key statement above: “The other Europe can follow—or get left behind.” Meaning: those corporations or businesses who still have any moral standards regarding the treatment of workers will simply find themselves abandoned by investors.

     In today’s world economy, only those who are willing to take ruthless advantage of the most disadvantaged workers will be able to survive for long.




     You’ll never understand the corrupt nature of the securities industry by reading conservative politicians’ justifications for privatizing Social Security. Instead, read advice to investors as given by some of our best conservative financial publications.


From Forbes, January 31, 2005.

Hidden Expenses

By James M. Clash with Michael Maiello

A lot of mutual fund expenses are understated because they do not include stock trading costs. We made the adjustment, and the picture isn't pretty.

Two stock funds, AIM Global Health Care and American Express' AXP Global Technology, have the same expense ratio: $1.94 per $100 of assets. Officially, that is. But the official expense ratio doesn't tell the whole story about the portfolio management costs that come out of investors' hides. It excludes one big item: brokerage commissions run up by the portfolio manager. The AIM fund, with portfolio turnover of 99%, spent 32 cents per $100 on trading commissions, making a combined expense burden of $2.26. The American Express fund, however, turned over its portfolio five and a half times as fast as AIM. Result: Its real expense ratio of $5.55 is more than double that of the AIM fund.

Think about that number. The Amex fund has to beat the market by better than five points with its stock picks just to tie the results of a low-cost index fund. It's an uphill battle, and Amex has been losing it. Over the last five years AXP Global Technology lost an average annual 17.3%, trailing the S&P 500 by 15 points….

A study by the Zero Alpha Group, an investment advisory outfit, found that the average domestic stock fund is running up 58 cents per $100 annually in commissions plus execution costs. That's a $17 billion annual burden born by investors, most of them, we'll wager, blissfully unaware of how they are making life comfortable for the people on Wall Street.


     The above excerpt describes just one of many reasons privatizing Social Security would be an economic boon for Wall Street, and a disaster for retiring Americans.




     The following two articles in the same issue of the Journal demonstrate the cause/effect relationship of greed and the economic health of our country.


From The Wall Street Journal, February 1, 2005.

Exxon Posted Record Earnings
Of $8.42 Billion for Fourth Quarter

Exxon Mobil Corp. said its fourth-quarter net income rose 27% to $8.42 billion—its biggest quarterly profit ever and a record quarterly take for a U.S. public company.

Buoyed by high crude-oil and natural-gas prices, Exxon's net income rose to $1.30 a share, easily surpassing analysts' predictions. In the year-earlier period, the Irving, Texas, oil titan earned $6.65 billion, or $1.01 a share, including a large tax-related gain. Quarterly revenue was $83.36 billion, up 26% from the year-earlier period….


------------------------------------------------------

UAL Pilots, Attendants Approve
Pacts Saving $300 Million a Year

Pilots and flight attendants at UAL Corp.'s United Airlines approved labor contracts that will provide more than $300 million in annual savings to their employer, in bankruptcy-court protection nearly 26 months….


     Amazing, isn’t it, how the oil industry proclaims that they must raise prices because of scarce supply. Yet, in the same breath they report record profits—and undoubtedly their top corporate executives make record bonuses.

     The result: almost the entire airline industry is on the verge of bankruptcy—and, as usual, it’s the workers who suffer the most. And that industry, and its workers, represent only a small percentage of those affected by the greed of investors and top corporate executives—who use a national crisis to enrich themselves, regardless of the cost to society.




     As you read the following, remember that Marsh & McLennan Cos. is not a fly-by-night organization. It, and its unit Putnam, can be listed among our premier corporations with supposedly excellent reputations.


From The Wall Street Journal, February 1, 2005.

Marsh, Spitzer Settle
With $850 Million,
An Apology to Clients

Marsh & McLennan Cos. reached an $850 million settlement of civil fraud charges with New York state's attorney general, Eliot Spitzer, and the state insurance department in a pact that includes an apology to the firm's clients.

The New York City financial-services giant will pay the $850 million in annual installments over the next four years. The money will serve as restitution for clients of its Marsh Inc. insurance brokerage firm from 2001 through last year who allegedly were cheated by Marsh brokers. In his Oct. 14 lawsuit, Mr. Spitzer accused the company of rigging bids for insurance contracts and steering business to insurers who paid Marsh special "contingent commissions." The settlement amount roughly matches the amount of these commissions pocketed by the firm in 2003….

But Marsh isn't out of the woods. The pact covers only the allegations in Mr. Spitzer's lawsuit. His probe continues with the help of Marsh and six individuals, mostly from insurance companies, who have pleaded guilty to criminal charges for their roles in the alleged scheme. Mr. Spitzer said more guilty criminal pleas by cooperating individuals and civil settlements with other insurance brokers and companies are expected.

Marsh also faces an unfair-business-practices civil suit filed by Connecticut's attorney general, and other regulators also are examining its business practices. Class-action litigation filed by shareholders looms as well….


-------------------------------------------------

From The Wall Street Journal, February 2, 2005.

Putnam May Owe $100 Million

Independent Consultant Finds
Improper Trading Cost Investors
More Than Previously Believed

BOSTON—An independent consultant has found that improper share trading at Putnam Investments shortchanged investors by as much as $100 million, about 10 times a previous estimate of damages, according to people familiar with the matter.

The consultant, appointed by regulators, came up with the preliminary $100 million figure as part of an effort to determine how much money to return to customers damaged by rapid "market timing" trades at Boston-based Putnam, the nation's seventh-largest mutual-fund firm. Putnam, a unit of Marsh & McLennan Cos., was the first in the fund business to face civil fraud charges in the scandal that began unfolding in 2003….


     As you read the above, remember that the Bush Administration wants this industry to handle a portion of the Social Security funds designated for future retirees.



Week of January 24



     Want to know what the real Republican values are? Just read below about how the Republican chicken-hawks actually value our citizens who are sacrificing the most in the foolish and totally unnecessary war with Iraq.


From The Wall Street Journal, January 25, 2005.

As Benefits for Veterans Climb,
Military Spending Feels Squeeze

Congress's Generosity May Hurt
Weapons, Other Programs;
Lobby Group's Power Grows
Trying to Find $100 Billion

WASHINGTON—With the wars in Iraq and Afghanistan badly straining its forces, the Pentagon is facing an awkward problem: Military retirees and their families are absorbing billions of dollars that military leaders would rather use to help troops fighting today….

Rising veterans' benefits are a big factor behind the billions of dollars in weapons cuts to be proposed when President Bush unveils next year's budget blueprint early next month. New retiree entitlements also are crimping the Pentagon's ability to increase incentives for enlistment at a time of dangerous, yearlong Iraq deployments.

The military's budget woes are similar to the broader problem facing the U.S. government, as spending on aging baby boomers—in the form of Social Security and Medicare—squeezes out funds for other programs, from health care for the poor to scientific research. The pinch is exacerbated by Mr. Bush's campaign promise not to raise taxes. The private sector, particularly auto makers and the steel industry, is being similarly squeezed. Many companies are holding the line and in some cases cutting spending on pensions and health care for future retirees….

[The Military Officers Association of America] has an ambitious agenda for 2005, listing on its Web site 16 goals for further expanding retiree and survivor benefits. Earlier this month, its members flooded Capitol Hill with about 16,000 brown bags with hand-written messages urging lawmakers to exempt World War II and Korean War retirees from Medicare premium payments. The message: Veterans were being treated like old paper bags to be discarded after use.

"We in the military have long had pay scales below our civilian counterparts," says retired Vice Adm. Norb Ryan, the MOAA's president. In exchange, the military offered troops a generous retirement and health-care package. "Now some in the Pentagon want to walk away from that. That is a very dangerous thing," Adm. Ryan says.

The politics of veterans benefits, meanwhile, are roiling the Republican Congressional majority. Earlier this month, the House Republican leadership took the unusual step of stripping New Jersey Rep. Christopher Smith of his chairmanship of the Veterans Affairs Committee. Mr. Smith had irked House leaders when he pushed so aggressively for veterans benefits that he at times threatened to oppose their spending plans—and President Bush's—unless unless more retiree benefits were included….


     The most damning statement in the above excerpt: “Earlier this month, the House Republican leadership took the unusual step of stripping New Jersey Rep. Christopher Smith of his chairmanship of the Veterans Affairs Committee. Mr. Smith had irked House leaders when he pushed so aggressively for veterans benefits that he at times threatened to oppose their spending plans—and President Bush's—unless unless more retiree benefits were included.”

     Unbelievable! When a Republican does exhibit a semblance of a conscience, he is stripped of his chairmanship. And because he was pressing for better veterans’ benefits, no less.




     Every issue of Business Week has an article on the current state of the U.S. economy, and everyone should read it. It is a classic example of the cold-blooded way conservative economists discuss the state of corporate profits and how they are dependent upon keeping wages of workers from going up—and from sharing the benefits of improvements in their own productivity.

     A careful reading of the following excerpt clearly demonstrates that the welfare of workers—and the unjust nature of the economic system—are of no concern to those who are interested only in maximizing corporate profits and investor returns.


From Business Week, January 24, 2005.

U.S.: Profits Should Stay Perfectly Presentable

Price and productivity gains in 2005 may be enough to widen margins

The fourth-quarter earnings season is just getting under way. Market professionals generally expect a solid 15% gain from the previous year in earnings per share for the 500 companies in the Standard & Poor's 500-stock index. That showing would bring profit growth for the full year to about 20%. Such an increase is well ahead of expectations at the beginning of 2004. But now it's time to zero in on prospects for 2005.

Both industry analysts and equity strategists expect profits to slow considerably this year. Analysts, who always tend to be the more upbeat of the two groups, look for a full-year gain of 10.5%, according to Thomson Financial. The strategists, who take a broader economic view, see a gain of only 6%. Neither would be a bad showing, especially in the fourth year of an economic recovery and given that 2004's stellar performance will present a tall hurdle for previous-year comparisons.

What's behind the expected slowdown? The December job report, with its gain of 157,000 new jobs last month, made it clear that the labor markets are improving. And with productivity slowing, faster-rising unit labor costs may begin to squeeze profit margins. At the same time, growth in overall earnings will be constrained by whatever top-line revenue gains companies can generate in a year when the growth rate for demand is expected to slow. That's the classic business-cycle pattern….

SINCE THE RECESSION ENDED in 2001, businesses have reaped the lion's share of the gains from the exceptionally strong uptrend in productivity. Profits soared, while job and income growth remained lackluster.

But 2004 signaled a change in that pattern. Hiring finally picked up, as did income growth from wages and salaries. The resulting higher labor costs—along with the unexpected jumps in oil and commodity prices—meant the pace of corporate profits slowed. But thanks to solid enough advances in productivity, margins remained high last year, and earnings consistently beat expectations….

Equally important, global competition as well as the technology revolution have altered Corporate America's mindset regarding productivity and hiring. As a result, the job cycle has changed, perhaps forever. The days when employment gains averaged more than 300,000 per month, as they did in 1994, are gone….

IT'S EASY TO construct a scenario, using conservative assumptions, in which profit margins could actually expand a bit further in 2005. With slack in the labor markets being taken up very slowly, workers' wages and benefits this year are unlikely to grow much faster than their pace of about 4% in 2004. Wages will pick up, but the pace of benefits should slow as they did last year, when health-care costs began to cool….


     For those who missed it, this is a discussion of the classic economic cycle:

  • recession with low wages and low corporate profits, then

  • improvement of business conditions and rising corporate profits and stock market, but stagnant wages, then

  • explosive economic conditions and exploding corporate profits and stock market ("businesses have reaped the lion's share of the gains from the exceptionally strong uptrend in productivity. Profits soared, while job and income growth remained lackluster"), then

  • wages begin to go up, thus reducing profit margins, which causes

  • investors to switch from stocks to bonds and withdraw money from the economy (because it’s harder to make outrageous profits when workers are making decent incomes), which

  • ends the economic cycle and begins a new recession or depression.

     In other words, when conservatives are in control of the economy, they always make sure that they are the ones who profit from economic cycles and that workers make all the sacrifices.




     Want to know who the real beneficiaries will be from the privatization of Social Security? Read the following.


From Business Week, January 24, 2005.

Windfall On Wall Street?

As Washington begins to battle over letting workers invest a portion of their Social Security in private accounts, Wall Street's big guns are staying silent. Private accounts could pump vast sums into the markets—$54 billion a year, by the Social Security Administration's estimate. Yet financial firms aren't endorsing the accounts, and their legions of lobbyists haven't descended on Congress….

But don't think for a minute that the Street is giving up on that gusher. Private accounts could be a boon for some firms—and their impact on stock trading will pump up the entire industry. Reform would further extend and entrench the equity culture that has taken root over the past 20 years.

Financial executives know that if their scandal-plagued firms lead the charge, they'll hand opponents of private accounts a killer issue. The AFL-CIO has already put 46 financial firms on notice that Big Labor will hammer them if they stump actively for the plan. "Social Security privatization is a risky scheme for America but a sure bet for the financial-services industry," argues AFL-CIO President John J. Sweeney.

So Wall Street is lying low. A few firms—notably brokers UBS Financial Services and Edward Jones—and industry trade groups are joining forces with business coalitions and conservative groups that will run grass-roots campaigns to marshal support for the plan….

No question, there's big money to be made down the road. The estimated $54 billion that could pour into the markets is roughly a quarter of stock and bond mutual funds' annual take now. "In 30 or 40 years, the assets in these accounts will be on the order of the entire present-day stock market of Japan," says Austan Goolsbee, a University of Chicago economics professor….

A key battle will be over investment fees. Wall Street will argue for as much leeway as possible, but a ceiling is probably inevitable….

But if private Social Security accounts become a part of American life, financiers won't hesitate to elbow in for a share of the pie. The land rush of lobbyists will happen—just later.


     The most important sentence in the above may be “Financial executives know that if their scandal-plagued firms lead the charge, they'll hand opponents of private accounts a killer issue.” That about explains it all. With their high fees and total lack of ethical standards, the securities industry sees the privatization of Social Security as their license to steal—legally.

     Go back through the files on this site that review the conservative press articles from the past year—and note the total breakdown of professional ethics of the securities industry.

     For more discussion of this issue, check out Who bears the risk for Social Security reform?, and Why Social Security is no crisis.




     The incredible stupidity of our country’s globalization policies are increasingly becoming obvious, even to those who previously supported them. It’s almost impossible to enumerate all the threats to our nation’s welfare that have been created by outsourcing our industries—including technology industries—to China.

     The following two articles describe what's happening. It's notable that these are from conservative financial publications, and one has to wonder why the mainstream press isn't giving the issue more coverage.


From Fortune, January 24, 2005.

Are The U.S. And China On A Collision Course?

U.S.-China relations, stable in recent years, may soon be replaced by sustained political conflict. This has less to do with the political philosophies of Jefferson and Mao than with China's need for a steady supply of energy and raw materials—a need that is pulling China into deeper political involvement in regions where Washington has long enjoyed a near monopoly on international influence.

The numbers are staggering. Having become a net importer of oil only in 1994, China now imports half its daily consumption. Its demand for oil surged nearly 40% in the first half of 2004, accounting for roughly one-third of the increase in world oil consumption. If its oil demand grows at an average rate of 7% a year (as it has since 1990), China will be consuming 21 million barrels a day by 2022—equaling the amount currently used in the U.S.

That growing demand has taken China to places like Iran, which has put it in direct conflict with U.S. efforts to force Iran to renounce its ambition to become a nuclear weapons state. In November, China signed the largest energy deal in Iran's history—an agreement to buy 250 million tons of liquefied natural gas over 30 years. Iran will also export 150,000 barrels of crude oil per day to China once Sinopec, a Chinese state-owned energy company, has developed Iran's Yadavaran field. The deal is valued at $70 billion.

Shortly after the agreement, Beijing made clear it would oppose any attempt in the UN Security Council to impose comprehensive sanctions in response to Iran's failure to satisfy the UN's nuclear watchdog, the IAEA, that it remains in compliance with the Nuclear Nonproliferation Treaty. Iran has now negotiated a watered-down deal with three European countries over its nuclear program, a deal Washington calls inadequate. But China's lucrative new energy contract ensures it won't allow the Security Council to be used to punish Iranian noncompliance.

China's search for energy supplies has also complicated Washington's efforts to stop what the Bush administration has called a state-sponsored genocide in the Darfur region of Sudan. Southern Darfur is rich in oil, and China National Petroleum holds the largest concession there. China whittled down U.S.-sponsored warnings to Sudan to stop the violence in Darfur, changing Security Council threats to "take further action" against Khartoum to the weaker "consider taking additional measures." Even with the change, China abstained.

The demand for commodities has sharpened China's traditional political rivalries in Asia as well. There have been recent conflicts with Japan in the East China Sea and with Vietnam in the South China Sea, which has oil and gas reserves. Conflicts among China, Japan, South Korea, and Taiwan over sovereignty aren't new. But they are intensifying as China's aggressiveness grows with its demand for energy. China and the U.S. are also likely to compete for oil in Russia.

The U.S. wants to reduce its energy dependence on Persian Gulf states by using cooperative pipeline projects to move oil through Siberia to Murmansk, where it can be put in tankers and shipped across the Pacific. But China also wants that oil to fuel its economy.

Even in the Western Hemisphere, China is making its economic presence felt. Sinopec has expressed interest in investing in oil sands operations in western Canada. China's Minmetals has bid to acquire the Canadian nickel mining company Noranda. And in South America, Chile now exports more to China than to the U.S. China has signed energy exploration deals with Argentina and trade pacts with Brazil, and it is expanding commercial relationships throughout Latin America.

Under an agreement reached last month, Chinese companies will gain development rights to 15 oilfields in Venezuela and will be allowed to build refineries there. It's not simply the more intense competition in America's backyard that worries Washington; China views these resources strategically and often pays more than fair market price to tie them up. And China's involvement in the hemisphere goes beyond natural resources. In addition to sending military advisors to Venezuela, China has reportedly been operating an electronic intelligence center in Cuba since1999….

Chinese demand is a stimulant for the global economic growth on which American prosperity depends. And China, because it exports so much to the U.S., has built up a trade surplus that is invested largely in U.S. Treasuries. A quick withdrawal could raise interest rates here and undercut economic growth.

The Bush administration seems unprepared for the challenge China poses….

Unfortunately, if China's foreign policy frustrates Washington's efforts to protect U.S. national interests, lawmakers are liable to fall back on a familiar counterstrategy: a Cold War containment policy. But persuading U.S. lawmakers to put aside Cold War zero-sum thinking in its relations with China and to begin to see China as a strategic partner in the world economy is a challenge worth accepting.


-------------------------

From The Wall Street Journal, January 24, 2005.

China May Be on Course
To Overtake U.S. Economy

… China's economy seems to be on a trajectory to one day overtake the U.S.'s, which has been growing at an inflation-adjusted average annual rate of about 3% for the past 25 years….

"If you take a survey of all the CEOs of listed companies in America and ask them, 'What's the single factor that's going to change the world,' it's going to be China," says Donald Straszheim, an economist who specializes in China and heads Straszheim Global Advisers LLC in Los Angeles. Mr. Straszheim predicts the pivotal moment will come in 15 years.

Understanding this trend is far from academic, with an impact likely to shake up businesses and governments and today's U.S.-driven world order. Having the world's largest economy will give China a greater say in global affairs. Its currency, which is now pegged to the U.S. dollar, will join the yen and the euro as globally traded currencies and in doing so will erode the dollar's position as the world's default coin of choice. China's military, which has enjoyed double-digit budget increases for much of the past 15 years, is likely to grow larger, bolstered by the huge economy.

The Central Intelligence Agency, for one, is taking note. A research arm, the National Intelligence Council, issued a report last month likening China's emergence and its impact on the world to that of the U.S. in the last century and Germany in the 19th. The report says that by 2020 the world's geopolitical center of gravity will tilt toward Asia, especially China, the economy of which will have surpassed Japan's to become second only to that of the U.S….

But even if China manages to maintain strong growth and rival the U.S. in economic size, its people still won't be rich. According to the Goldman Sachs research, by 2040, gross domestic product per capita in China will be about one-third that of Americans. That will somewhat mute the significance of grabbing the No. 1 spot.


     So, we give our industries to China, and China starts consuming huge amounts of the world’s resources, especially for energy, and thus driving up the costs for everyone. Of course, those who profited enormously from outsourcing will be well able to afford higher prices. But for those who made all the sacrifices for this “great” economy, the costs are getting greater and much more painful—to the point of being disastrous.

     And the terrible economic disadvantages that we are creating don’t even take into account our worsening political problems throughout the world, and our decreasing power to deal with them. And after all that, "...even if China manages to maintain strong growth and rival the U.S. in economic size, its people still won't be rich." Who will be the rich after all this happens? The top 10% of Americans and Chinese who are causing all this to happen.




     The bad news about the results of globalization—coupled with the explosion in technology and productivity—continues to get worse for most people who work for a living.


From The Wall Street Journal, January 24, 2005.

Big Silicon Valley Firms Thrive,
But Jobs Are Few

Four years after the technology bust, Silicon Valley has evolved into a bifurcated economy: Many large tech companies, and their workers, are doing well; but hundreds of thousands of people are struggling to rebound after losing jobs in the nation's worst regional economic downturn in 60 years.

That is the sobering conclusion of an annual report by Joint Venture Silicon Valley, a nonprofit group representing businesses and government agencies in the world's tech capital. "We're still growing, but the way we're growing has changed," says Russell Hancock, Joint Venture's president and chief executive. Growth is "not translating into jobs. Companies are doing more with less."

The report marshals a surprising array of evidence of Silicon Valley's enduring economic might: Productivity, measured as value-added per employee, has grown faster than 5% annually for a decade and is now more than twice the national level in the U.S.; per-capita income increased 3% last year amid solid wage growth at technology firms and is about 58% above the national average; venture-capital investment rebounded after four years of decline, spurring new technology firms.

At the same time, the report points to an equal or greater number of troubling signs: The number of jobs in the region continues to decline, though at a slower pace. The region has lost one of every six jobs in the past four years, or roughly 211,000 total. Job losses were highest at well-paying technology firms. Outside technology, where the number of jobs is growing, wages are generally falling. Rapidly rising home prices add to economic stress….

The challenge for the region, Mr. Hancock says, is finding high-paying jobs for these people, particularly when companies are shifting many of their routine tasks overseas.


     There you have it folks. Instead of sharing the benefits of globalization and the improvements in technology and productivity with all workers—investors and those in the top echelons of corporations want it all for themselves, and to hell with everyone else.

     We’re seeing the creation of a new American aristocracy and a growing class of servants who are powerless to demand a fair share of our country’s prosperity.




     When Republicans find they can no longer reasonably deny the implications of bad news, they always resort to the same tactic: Cut or eliminate the funding that creates the bad news.


From The Wall Street Journal, January 24, 2005.

Labor Department Ends Survey
Of Migrant Farm-Worker Status

The U.S. Department of Labor has suspended the only national survey that collects detailed data on employment, health and living conditions of migrant and seasonal farm workers.

The move has caused concern among some policy makers and scholars, who say the survey has documented the rapid growth of immigrant labor in the agriculture industry. Based on interviews with thousands of laborers, the National Agricultural Workers Survey gathered data that helped the federal government allocate funds to health, education and social programs in rural areas for nearly two decades….

With immigration such a hot-button issue, some agricultural scholars saw political overtones in the decision. "If somebody doesn't like that result, one way not to show it is by canceling the survey," said Phil Martin, professor of agricultural economics at the University of California, Davis….

The survey cost the Department of Labor about $2 million a year, according to people close to Aguirre International, a Burlingame, Calif., firm that conducted it and that received a notice to suspend the survey about a week ago.

Until introduction of the survey, relatively little was known about the farm-worker population of the U.S., agriculture researchers say. Surveyors are deployed into the fields three times a year to track wages, migration patterns, English fluency and housing, among other things. The federal government, which spends nearly $1 billion each year in programs for migrant workers, uses the data to decide how to allocate funds to schools, clinics and nonprofit groups in rural areas.

"Twenty years ago, pathetically little was known about farm workers in the U.S.," said Rob Williams, executive director of Florida Legal Services, a public-interest law firm. At a time when new immigration laws are being debated, "the survey could help see the impact of new policies on the agricultural workplace," Mr. Williams said.


     Eliminating this kind of funding isn’t unique to the National Agricultural Workers Survey. Anyone who reads the conservative financial press knows that the Republicans always try to reduce or eliminate research that accurately describes what’s going on in our society, especially in our labor markets.




     Two articles in the same issue of The Wall Street Journal almost summarize the impact of globalization—and the impact of conservative economics-in-general—on our country. All you have to do is connect the dots.


From The Wall Street Journal, January 26, 2005.

Budget Office
Widens Estimate
Of 2005 Deficit

WASHINGTON—The short-term federal budget outlook worsened somewhat since the fall, the Congressional Budget Office said, due to more spending and tax breaks….

The CBO said the fiscal 2005 budget deficit would reach about $368 billion, but that didn't include the new money for the military. In announcing its supplemental spending request yesterday, the White House estimated that the deficit for fiscal 2005, which ends Sept. 30, would hit about $427 billion.

The CBO projected a 2005 deficit of about $348 billion in September. But that was before final spending bills and an election-eve extension of some of President Bush's tax cuts….

Deficits also could be wider if Mr. Bush pushes through his plan to overhaul Social Security, which is likely to result in higher borrowing….


----------------------------------------------

China's Economy Grows 9.5%,
Renewing Fears of Overheating

A late spurt in exports lifted China's economic growth in the final quarter of 2004 to 9.5%, an unexpectedly high rate that indicates Beijing's battle to prevent overheating is far from over….

For all of 2004, the economy expanded by 9.5%, the fastest rate since 1996. For 2003, China reported a 9.1% rate.

After the announcement of the latest figures, J.P. Morgan Chase & Co. raised its forecast for China's growth in 2005 to 8.5% from 8.2%....

U.S. companies have invested heavily in China as both a manufacturing base for exports and to gain access to a vast domestic market. Stable growth in China is increasingly important to the success of firms like General Electric Co. and General Motors Corp….

The essential reason is that wages for laborers from the countryside are too low, Mr. Li said. The average wage for such workers today, which he put at around 600 yuan, or $72, a month, hasn't risen much in recent years, he said. "With the economy expanding so quickly, is that fair?" he asked. "Enterprise bosses should really reflect on it: peasants aren't going to do manual work for you forever. You have to increase their pay."…


     What do these two articles tell us? The U.S. has outsourced our industries to China, thus enriching wealthy investors and top corporate executives—in both this country and China. The Bush Administration gave these same people in our country huge tax breaks, while cutting programs that benefited the working-class citizens who were making all the sacrifices for this great economy.

     Result: huge deficits and deteriorating social conditions for the U.S., and an “overheating” economy in China. And, ironically, in China “wages for laborers from the countryside are too low.” Class war seems to be built into every society.

     It’s always the rich and powerful against the poor and powerless—and only a government with high moral principles can maintain a fair and just economic system. That description obviously doesn’t fit China—or the Bush Administration.




     Although this excerpt is basically a description of corruption of the rich and powerful, it’s also a reminder of what our country has lost—and suffered—because of globalization.

     When economists cite the benefits of outsourcing our industries to other countries, they never try to calculate the cost to the communities and workers that are left behind. Actually, it would be impossible. How do you place a price on a city like Detroit? Or on the human misery that is left there?


From The Wall Street Journal, January 27, 2005.

In Motor City, Mayor
Is in Quite a Scrape
Over a Flashy SUV

A Lincoln Navigator Leased
For His Family Bothers
Detroiters Just Getting By

DETROIT—Waiting for a bus on a slushy downtown corner earlier this week, 33-year-old Rhonee Williams made a vow. If a certain cherry-red 2005 Lincoln Navigator SUV happened to stop there, "I'm getting in it!"

Like many angry Detroiters, the clothing-store cashier feels entitled to a ride. She's upset because, at a time when Detroit Mayor Kwame Kilpatrick is planning big budget cuts—including cuts in bus service—the city recently leased a luxury Navigator for the mayor's family using taxpayers' money.

It isn't surprising that in this beleaguered city built on the auto industry, such a vehicle has come to symbolize the community's frustration and outrage. People here know a status symbol when they see one. And they also know that many in this poor city can't afford cars at all.

That's why people huddled at the bus stop here viewed the "Navigate" scandal in the most basic terms. A bus ride costs $1.50, "and if you're short a quarter, you're turned off the bus," said Ms. Williams. The wait between buses can be hours here, and quarters mean something to people, so "it's ludicrous that the mayor would sell us on all these cuts and then get a car like that for his family," said Nadirah Muhammad, a 56-year-old office receptionist.

Earlier this month, Mr. Kilpatrick, who is 34, asked citizens to make great sacrifices. Given Detroit's $230 million budget deficit, he announced plans not only to cut services but also to lay off 700 city employees. "We've reached a dire moment in the history of our city," he said….

Mr. Kilpatrick presides over a city that desperately needs a better profile as it plans to play host to the 2006 Super Bowl. The city's murder rate rose in 2004, with 384 killings, while most major cities showed declines. Detroit's downtown is full of abandoned buildings, and its schools are in shambles. Black middle-class flight is expected to leave just 100,000 students in the schools by 2008, down from 200,000 in 1999. Meanwhile, an exodus at the current rate of 10,000 residents a year has left the city's population at about 900,000, down a million people since 1950….


     How come the mainstream media don’t publish more articles like this? Like a lot of bad news, as it gets older people tend to get bored with it. Yet, it’s an incredibly important damage that has been inflicted on our economy and society.

     And the whole point was that American automobile corporations wanted to destroy the ability of workers to negotiate for higher wages and better working conditions.



Week of January 17



     Occasionally, the conservative Business Week publishes an op-ed piece from an objective observer who gets an issue right. Now, its readers can’t deny that the Social Security crisis is a phony issue—used by its traditional opponents to justify destroying the system.

     Because it is such a compact recitation of fact, it is presented here in its entirety.


From Business Week, January 17, 2005.

ECONOMIC VIEWPOINT

Social Security Crisis? What Crisis?

Modest benefit cuts and revenue increases would solve the shortfall

By Laura D'Andrea Tyson

Is the Social Security system facing a crisis? President George W. Bush certainly wants us to think so. Indeed, he recently warned that the "crisis is now." After years of repeated warnings by conservative political thinkers, the word crisis has become the mental frame that shapes the way many Americans think about Social Security's future.

But as a recent Brookings Institution book by Peter A. Diamond and Peter R. Orszag demonstrates, Social Security does not confront a crisis; in fact, its solvency for future generations can be ensured through modest benefit reductions and modest revenue increases.

To defuse the crisis hype it is useful to begin with a few facts. First, Social Security is a significant source of income for elderly Americans, providing the majority of income for two-thirds of elderly beneficiaries and all of the income for 20% of them. Second, according to the most recent report by the Trustees of Social Security, even under the cautious assumption that the U.S. economy grows at the anemic rate of 1.6% a year, the revenues into Social Security from the current level of payroll taxes will cover promised benefits for another 38 years and will be enough to finance about 70% of benefits through 2078.

The net present value of the shortfall in revenues over the next 75 years is $3.7 trillion, only about one-third of the net present value of the Bush tax cuts of 2001 and 2003 and about 0.7% of gross domestic product projected for the same period. An immediate payroll tax increase of about 2% would eliminate this gap. So would paring the Bush tax cuts of 2001 and 2003 back by less than 50%, and transferring the added revenues to Social Security.

THIRD, THE PROJECTED financing gap in Social Security is not the result of overly generous benefits. Under current law, projected benefits are slated to fall from only 33% of previous earnings for an average worker of 62 today to a low 29% by 2030. And retired workers with low lifetime earnings as well as disabled workers and their families often live in poverty despite Social Security's progressive benefit formula. Any proposal to restore solvency through benefits cuts alone would require a 20% reduction in payouts in addition to the declines built into current law, sharply increasing poverty rates among future beneficiaries (assuming that the disabled and those presently 55 and older are exempt).

In contrast, Diamond and Orszag propose a plan that calls for modest cuts in overall benefits, some improved treatment of the most vulnerable categories such as workers with low lifetime earnings, and a gradual increase in the combined employer-employee payroll tax rate from 12.4% today to 13.2% in 2035 and 15.2% in 2075. Benefits for the average worker aged 45 today would be cut by about 1%, and for the average worker aged 25 today by about 9%, relative to currently scheduled benefits. However, the level of inflation-adjusted benefits would continue to rise.

A major lesson of this analysis is that Social Security can be put on a solid financial footing without dramatic change. In contrast, President Bush is using the specter of an impending crisis to justify allowing workers to divert up to 4% of their payroll taxes into private, individually controlled retirement accounts. This would reduce payroll tax revenues available to cover promised Social Security benefits by as much $2 trillion to $4 trillion, transforming an imaginary crisis into a real one.

The Bush Administration has recently indicated that it plans to finance these transitional costs of creating private accounts through additional government borrowing. But the amounts involved are as much as an added $100 billion a year in government borrowing for the next decade, rising to $350 billion a year after 20 years.

Additional borrowing of this magnitude on top of already large government deficits could spook global investors, triggering sharply higher interest rates on U.S. government debt and a collapsing dollar. But President Bush has been silent about the possibility of such a crisis. He has also been silent about the fact that individual accounts would require paying financial management fees that could amount to more than 25% of Social Security's current 75-year funding gap.

For nearly 70 years, Social Security has provided all working Americans with a basic level of income protected against inflation, financial market fluctuations, not to mention the risks of disability, losing a family wage-earner, or outliving one's assets. With a few modest changes, it can continue to deliver this remarkable security. There is no crisis.


     It’ll be interesting to see how long, if ever, it takes the mainstream conservative radio and TV media to also publish the real facts about Social Security.




     How the Republicans have managed to pull off the con that they are the party of ethics and values continues to amaze objective observers. If it isn’t obvious to anyone with an IQ over 80 by now, it never will be.


From Business Week, January 17, 2005.

Washington Outlook

Where Have All The GOP Reformers Gone?

Edited by Lee Walczak

On one end of Pennsylvania Avenue, President Bush persuaded his father and former President Bill Clinton—not exactly a mutual admiration society—to join hands by leading a U.S. drive to raise millions for South Asia's tsunami victims. The unity push continued on Jan. 3 when George W. urged freshman members of the 109th Congress to work together to "take on the big issues."

That message obviously didn't travel to the other end of the avenue. There, House Republicans flirted with political disaster by contemplating controversial rule changes designed to shield embattled Majority Leader Tom DeLay.

While cooler heads eventually prevailed, on Jan. 4 House Republicans rammed through revisions that give the GOP a virtual veto on internal ethics investigations—and permit lawmakers to negotiate for jobs with special interests even as they write legislation that benefits the same group. "An absolute outrage," wailed House Minority Leader Nancy Pelosi (D-Calif.)….

The tonal dissonance is heightened by the controversies swirling around DeLay. Three close DeLay associates have been indicted by an Austin grand jury probing campaign fund-raising, and House Republicans are desperate to protect their No. 2 leader from what they consider a political vendetta by a Democratic prosecutor.

But their first solution—repealing a rule that requires an indicted leader to temporarily step aside—subjected the GOP to widespread ridicule. Representative Christopher Shays (R-Conn.), for one, reminded colleagues that the GOP won the House in '94 by campaigning against Democratic excesses and promising "a higher standard."

Shays's comments point up the role reversal on Capitol Hill in the decade of GOP rule. Republicans have backtracked on term limits, central to their "Contract With America." They have engaged in verbal acrobatics to justify record budget deficits. They have expanded the pork-barrel spending they condemned under Dem dominance. And they have twisted the rules to marginalize the minority.

What has been lost? Any sense that the GOP will clean up Congress after decades of Democratic abuses. "That's the history of reform movements," says Brookings Institution senior fellow Stephen Hess. "Before the blink of an eye, the reformist who took over the banana republic is acting just like the people he deposed."

Tinhorn authoritarianism may temporarily tighten the conservative firebrands' grip on power. But it limits GOP growth potential with reform-minded independents—the kind of voter that Bush managed to corral. And without public support for his ambitious agenda, the President could fall short in his quest to become a reformer with results.


     And this editorial, ladies and gentlemen, was in Business Week, America’s conservative news weekly.




     The following two articles demonstrate how corporations are in almost total control of our government—especially those in the industries that contribute most heavily to Republicans in Congress and the White House.


From Barron’s, January 17, 2005.

Welcome Back

New tax break will spur nationals to repatriate big sums from overseas this year

IN WASHINGTON, AS HAS BEEN SHOWN many times, what you see isn't necessarily what you get.

Consider the American Jobs Creation Act of 2004, signed into law on Oct. 22 by President Bush. Its stated intent was to end a trade dispute by repealing a tax break for American exporters….

Like many bills, however, the Jobs Creation Act contained other amendments, including one that temporarily establishes favorable tax treatment for U.S. companies that repatriate retained earnings of their foreign affiliates, provided that certain criteria are met.

Usually, such repatriated earnings would face a 35% corporate income-tax bite. But under the new rule, they're treated as dividends received from the foreign units. And for corporations, 85% of such payouts are excluded from federal income tax.

The effective tax rate will be just 5.25% (that is, 15% of 35%) on payments that qualify, producing a potential bonanza for their recipients….

A check of public filings by the 30 companies in the Dow Jones Industrial Average indicates that, combined, they have accumulated more than $250 billion in undistributed earnings of their foreign affiliates. Even if they repatriate a fraction of that, the sum would be considerable.

The corporate parent could use funds received under the act for debt reduction, acquisitions or other purposes—any of which might boost its stock price and aid the entire stock market….

In sum, U.S. multinationals are about to get a big tax break. And they and investors could become the richer for it.


--------------------------------------------------

From The Wall Street Journal, January 17, 2005.

Two Drug Firms Set
To Repatriate Profits

INDIANAPOLIS—Two drug makers said last week that they would likely repatriate billions of dollars of overseas profits under a one-year tax break.

Eli Lilly & Co. Chief Executive Sidney Taurel said on Friday the company planned to repatriate between $8 billion and $9 billion….

At Johnson & Johnson, of New Brunswick, N.J., a spokesman said late Thursday, "based upon a quick review, it continues to be our intention to repatriate approximately $10 to $11 billion of our international cash holdings." In October, the company had estimated that the cost of repatriating $7 billion to $10 billion would be between $350 million and $500 million in 2005.


     There you have it. While the Republicans want to increase Social Security payroll taxes—for you and those who actually work for a living—they’re giving their corporate donors huge tax breaks. Who says money doesn’t buy good government?




     Whenever an editorial in The Wall Street Journal shows a humanitarian streak, you need to look for what’s missing.

     What’s missing here?


From The Wall Street Journal, January 17, 2005.

COMMENTARY

Aid Is Good; Trade Is Better

By Supachai Panitchpakdi, director general of the World Trade Organization

The international response to the tsunami disaster has been unprecedented. Never before have governments, international organizations, NGOs, corporations and private individuals mobilized so much assistance so quickly. In addition to the considerable aid, governments from the Paris Club of creditor countries have agreed to a debt moratorium which will enable affected countries to postpone for at least a year billions of dollars in debt repayments.

Yet an important complement to these relief efforts has so far received little attention—trade. The gains arising from lower barriers to exports from the affected countries may not have the immediate impact of debt relief or monetary assistance, but gains from increased trade would in fact be larger and more sustainable….

The benefits to developing countries accruing over time as a result of greater market access for their agriculture and manufactured products would be many times more than the total aid they receive each year. Greater access to markets in both developed and emerging developing country markets, as well as reform to their own trade regimes, would be a powerful contribution to economic recovery in the region….


     What’s missing? Sure, the impoverished citizens in devastated countries will receive some benefits. But the real winners in the above scenario will be the rich investors in both the U.S. and the impoverished countries.

     They’ll make sure that they profit handsomely from the increased corporate profits that result when wages in the U.S. go down or remain stagnant—as a result of poorly-paid workers in the impoverished countries taking their jobs. And THAT’S what is behind their seemingly altruistic motives.




     Still another report of actual results that demonstrates the folly of privatizing Social Security.


From The Wall Street Journal, January 18, 2005.

Some Retirees' Nest Eggs
Appear to Have Cracks

The shift away from defined-benefit plans is putting more responsibility on workers to pad their own nest eggs, but so far, at least one-fifth of new retirees appears to be faltering under the burden.

This finding, from a report released last week by the nonpartisan Employee Benefit Research Institute, comes at a time when President Bush is pushing to allow workers to divert a portion of their Social Security payroll taxes into private accounts, making investors even more accountable for their retirement savings.

Employers, in recent years, have stepped up their efforts to get workers into 401(k) plans amid the changing retirement-plan landscape and the uncertainty of Social Security. Still, nearly a third of eligible workers aren't participating in their company's 401(k) plan, and of those who do, many aren't putting away enough to make it through their retirement years, according to Hewitt Associates, a global outsourcing and consulting firm in Lincolnshire, Ill.

These savings patterns, if they don't change, will wreak havoc on nest eggs. Already, among 15% of new retirees—many of whom had defined-benefit plans for at least part of their career—total wealth fell by at least 50% from 1992 to 2002. An even greater number, about a fifth, of this group are in danger of running out of money during retirement. Still, the majority of those born in 1931 to 1941, individuals who are now 64 to 74 years old, saw their total wealth grow by 50% or more during this 10-year period….

The report also looked at financial wealth, including stocks, bonds and bank accounts, but minus corresponding debt. (Housing assets aren't part of this figure.) By this measurement, nearly 10% of new retirees lost all their financial wealth at the beginning of retirement, while more than one-third had lost a quarter, according to the study. About 55% of this group saw financial wealth grow by at least a quarter from 1992 to 2002….


     This article demonstrates the uneven and unreliable effects of individuals managing their own retirement funds. Those who do it right, benefit. Those who don’t, suffer. And that’s the way it should be in a free market when people use their talents and surplus income to increase their wealth during their retirement years.

     But that’s not the purpose of Social Security. Its purpose is to provide an ironclad guarantee to ALL retirees that they will have enough money to live at least above the poverty level when they can no longer work.




     According to the dictionary, a conundrum is “a : a question or problem having only a conjectural answer, b : an intricate and difficult problem.” What’s the conundrum about the deplorable conditions for working-class Americans in the job market?

     The Wall Street Journal still pretends that stagnant wages and a terrible job market for workers are a mystery to those who deliberately made them happen.


From The Wall Street Journal, January 19, 2005.

Jobs Outlook May Stay Volatile
As Caution in Hiring Persists

Despite the current economic expansion, some economists expect the U.S. jobs market to be volatile this year, as many companies continue to hire based on short-term outlook, rather than projected, steady demand….

The fierce pressures companies face to lower costs and raise productivity have helped shift hiring practices, says Cliff Waldman, an economist with the Manufacturers Alliance/MAPI, a manufacturing-industry group based in Arlington, Va….

At the same time, the flood of highly skilled workers suddenly available for hire after many companies slashed staffs during the recession also has contributed to a job market where employers can easily find people willing to work for several months or even weeks….

A more cautious short-term approach and heavy reliance on temporary or contract work could help explain two other conundrums in the job market. Economists have puzzled over the lack of growth in real wages despite gains in productivity and the fact that unemployed people are remaining out of work for longer periods. Short-term hires don't build salaries and a significant number of unemployed workers might not want to take temporary work….


     Unbelievable! How could “Economists [be] puzzled over the lack of growth in real wages despite gains in productivity and the fact that unemployed people are remaining out of work for longer periods”? It’s as plain as the nose on your face, and any “economist” who claims he doesn’t know the answer is either a deliberate liar or has an IQ under 80.

     And if you don’t understand the causes of the “lack of growth in real wages,” just read the rest of the material on this website.




     The following is a brief excerpt of a more extensive article designed to inform readers about ways to save taxes on real estate profits.

     It is presented here as an example of the zero-sum nature of wealth, and to make the point that our laws regarding real estate have created one of the major ways the rich and well-connected can accumulate wealth—and how it increases poverty for those who are victims of the system.


From The Wall Street Journal, January 19, 2005.

Big Gains in Real Estate
Bring Out the Tax Plans

Several years of strong performance in the real-estate market have left many property owners with big gains. Now, they are being hit with the inevitable array of tax plans designed to shield their profits from the IRS….


     As the rich and powerful accumulate property, the demand drives up the prices—either to buy property or to rent it. Those on the ownership side reap tremendous benefits, and those who rent increasingly find that they cannot afford to live in decent housing, or in housing near where they work. And when they do find housing, it costs them a greater percentage of their limited incomes than it did in previous years.

     For an extended discussion of the zerosum nature of wealth, see Wealth is a Zerosum Game.




     You’ve gotta love the Chamber of Commerce’s definition of free speech.


From The Wall Street Journal, January 20, 2005.

'Fair Disclosure' Inhibits Speech,
U.S. Chamber of Commerce Says

NEW YORK—In its latest effort to limit the Securities and Exchange Commission's power, one of the nation's top business groups has slammed the agency's so-called fair-disclosure rule as a constitutionally suspect, congressionally unsanctioned intrusion into corporate affairs….

"In punishing companies for selectively disclosing 'material and nonpublic' information, Regulation FD impairs fundamental First Amendment values," the chamber wrote in its friend-of-the-court brief. "It either compels corporate executives to engage in unwanted discourse with the public at large, thereby inhibiting their right to freedom of speech and association, or causes them to restrict their speech altogether to avoid violation of the regulation."

In seeking to weigh in on the Siebel case, the chamber is once again showing its willingness to come between the nation's top securities regulator and the U.S. companies and investment firms under its watch. The organization is also challenging the SEC's authority to pass new standards forcing 75% of mutual-fund directors to be independent….


      "In punishing companies for selectively disclosing 'material and nonpublic' information, Regulation FD impairs fundamental First Amendment values." Isn’t that like saying that corporations should have the right to lie to the public? To hide negative information? And to disclose only the positive information?

     “The chamber is once again showing its willingness to come between the nation's top securities regulator and the U.S. companies and investment firms under its watch.” You’d think that the U.S. Chamber of Commerce would have higher moral standards than to deliberately try to water down protections of the public, either consumers or investors. Of course, that’s never been its mission—which is to create a new American business aristocracy.



Week of January 10



     It’s the 1930s all over again. As nations realize that they are facing the destruction of their basic industries and the increasing social degeneration of the majority of their citizens—they are finally deciding to enact sensible trade protections from countries where workers can be ruthlessly treated.


From The Wall Street Journal, January 17, 2005.

EU Is Feeling Pressure to Follow
Turkey on China Textile Quotas

BRUSSELS—Pressure is building for Europe to follow Turkey's lead in blocking imports of cheap Chinese textiles, amid worries that products rejected by Turkey could flood European markets instead, European Union officials said.

Turkey decided on Jan. 9 to put emergency import quotas on 43 categories of Chinese textiles. Turkey says unfettered imports of these goods would disrupt its thriving textile market….

Turkey's influential textiles lobby in Europe could play a role in pushing the EU to act. Europe's largest textiles-industry lobby group, Euratex, has stated it will demand EU action against China this month….

World trade in textiles was freed of all restrictions Jan. 1, the internationally agreed-upon date to end a global system of quotas. Textile producers around the world now are braced for a flood of cheap Chinese textiles to dominate their markets. If its export growth continues, China could clothe about half the world by 2007, according to estimates by the World Trade Organization….


     In judging economic policies, one must answer three questions:

  • Who are the beneficiaries? When conservatives sell their policies, like globalization, to a gullible public, they make sure that everyone benefits—a little. Virtually everyone pays lower prices for products and services.

  • Who are the real winners? In the case of globalization, it’s the rich and powerful of all nations, who get huge benefits from decreased wages and cheaper working conditions (safety and quality of work life issues). These are the investors and top corporate executives.

  • Who makes all the sacrifices? Naturally, they are the workers whose incomes and working conditions always deteriorate relative to inflation.

     Then, when economies start crashing and social unrest becomes a real problem, countries return to tariffs and trade protections, and those actions are then blamed for the economic recession or even depression. The original cause—the greed of the rich and powerful and their selfish economic policies—are forgotten.




     Pay close attention to the next time Bush brags about how the economy is improving. Undoubtedly, all he will refer to is the fact that small firms created an additional 4.4% jobs in 2004 “under his administration.”

     He will not refer to the fact that our economy is increasingly becoming biased in favor of the rich and powerful and against Americans who actually work for a living.


From The Wall Street Journal, January 11, 2005.

Small Firms Add Workers,
But Average Pay Falls

More workers, less pay.

Small businesses increased the number of employees by 4.4% in 2004, and cut the average paycheck by 4.8%, according to data from SurePayroll Inc., a Skokie, Ill., payroll firm serving more than 14,000 companies nationwide.

Average pay for employees at companies with 100 or fewer workers moved downward throughout the year, according to the firm's records, but results differed by geographic region.

The West topped the list for both an increase in workers for small businesses, at 6.3%, and for a drop in average pay, with a decline of 7.6%....

With the number of workers increasing and average pay decreasing last year, Mr. Alter says that for small businesses we shouldn't characterize the improved economy as jobless, but rather as payless.


     Having a job is only part of what makes a good economy. More importantly, having a job that pays a decent income is the real key. (Virtually all slaves had jobs in the 1800s in the U.S.)




     The fine old tradition of buying politicians is alive and well, even in wartime. As you read the following, remember that, during the wartime years, Roosevelt discontinued the Washington celebrations of his election—which he thought inappropriate at a time of severe national crisis.


From The Wall Street Journal, January 11, 2005.

Bush Inaugural Gala Is a Big-Ticket Affair

Hoping to Gain Goodwill, Corporations
Write Checks to Help Bankroll Four-Day Party

WASHINGTON—Corporations put the brakes on big political giving last year, but scores of them now are racing to bank some last-minute goodwill with President Bush by underwriting his second inauguration.

Nearly 90 corporations have given more than $12 million to finance the four-day party that includes nine inaugural balls and three dinners with Mr. Bush or other high-ranking White House officials. According to records released Friday, the inaugural committee has raised $18 million from businesses and individuals toward a $40 million goal.

The giving demonstrates that a 2002 U.S. law that prohibited big donations from businesses to political parties and candidates still left significant loopholes—such as inaugurations and conventions—for deep-pocketed interest groups.

Campaign-finance reformers say these contributions give lobbyists opportunities to plug their causes just as the White House is deciding policy priorities for the new term. In 2000, the top lobbyist for Northwest Airlines used a Kennedy Center reception sponsored by General Motors Corp. to buttonhole Chief of Staff Andrew Card and press the airlines' case in a dispute with machinists unions.

Two months later, the president announced that his administration would do whatever was necessary to prevent a shutdown of the airline industry, which gave more than $4 million to his campaign and $300,000 to underwrite inauguration events.

This time around, the energy industry has donated nearly $1.8 million to the inauguration, and industry lobbyists are pressing the White House to push Congress to vote on a Bush-backed industry-overhaul bill that has languished in Congress since 2001.

"Somehow we've gotten to a point where an inauguration has come to symbolize huge parties being thrown by the winning side paid for by corporations and wealthy interests," said Fred Wertheimer, an advocate of campaign-finance reform.

The deadly tsunami in Asia and continuing military actions in Iraq and Afghanistan haven't slowed the checks pouring in, an inaugural-committee spokeswoman said….


     Think of all the good that money could have done, either to aid the tsunami victims, or our troops in Iraq, or our disabled returning veterans. And that’s not even considering the fact that they could pay their lowest-paid workers more or cut prices for their products to the consumer.

     Instead, American corporations are paying for political influence—which has a direct connection to corporate profits and pay and bonuses for the top corporate executives.




     Why the voting public isn’t furious at Republicans and conservative Democrats is beyond understanding. The following two articles are so common it almost seems pointless to keep recording them. They clearly demonstrate the sheer hypocrisy of America’s rich and powerful and their utter contempt for working-class Americans.

     Note how coldly they describe working-class unemployment figures and the Fed’s policies that are deliberately designed to keep wages from going up.


From The Wall Street Journal, January 10, 2005.

Labor Market Shows Some Strength

Increase in Jobs Is Largest
Since 1999, but Fed Policy
Isn't Expected to Change

The U.S. economy created 2.23 million jobs in 2004, the largest annual gain since 1999 and a number that nearly reverses the 2.4 million jobs lost from 2001 to 2003.

Although last year's gains were smaller than the comparable number of jobs created at this stage of previous economic recoveries, economists said the labor market appears to be creating enough jobs to keep unemployment at low levels….

Adding to their wariness on inflation, Fed officials are beginning to re-examine their long-held assumption that an ample supply of unemployed workers and new labor-market entrants would ensure plenty of competition for the jobs being created, which would keep wage and inflation pressure under wraps. Officials have felt the drop in the unemployment rate from 6.3% in June 2003 overstated the improvement in the job market because many people had simply stopped looking for work, and thus were no longer counted as unemployed. The share of the working-age population either working or looking for work has remained stuck at 66% for the past year, down from its prerecession peak of 67%....

[ Fed Vice Chairman Roger] Ferguson also said the bulk of the job loss earlier this decade appears to have been caused by industrial restructuring, which will make it harder for those laid off to find new work. He said the companies hit hardest in the downturn appeared to see their hardship as permanent because they didn't try to hold on to their workers, as companies facing a temporary setback typically will. He said this could depress the supply of readily available workers since "workers displaced by restructuring must either search longer to find a job appropriate for their skills, or seek retraining."

If indeed there is less readily available labor than previously thought, Mr. Ferguson said, "the amount of economic slack could be very small, and thus expansive monetary policy could lead to a pickup in inflationary pressures."

That need not be the case, he added: "A substantial pool of unused labor may remain in the labor market, and an overly restrictive monetary policy could" slow the return to full employment. "The evidence is more ambiguous than one would like," Mr. Ferguson said.

Still, Fed officials appear to believe there remains a lot of slack in the labor market, even if it is less than they thought. The main evidence is that wage growth remains subdued. Hourly wages rose just 0.1% in December from November, though they were up 2.7% from a year earlier….

For the year, average hourly earnings were $15.86 in December, up slightly from $15.45 in December 2003, which shows that year-to-year hourly earnings aren't keeping pace with inflation, economists say….


----------------------------------

From The Barron’s, January 10, 2005.

ECONOMIC BEAT

Unemployment Revised

Inflation-adjusted private-sector wages rose 1% in '04

By GENE EPSTEIN

TODAY'S VERSION OF THE goldilocks economy—not too cold, slightly hot—received further confirmation Friday, when the Bureau of Labor Statistics (BLS) reported a seasonally adjusted increase in nonfarm payrolls of 157,000 from mid-November to mid-December.

The unemployment rate held steady at a seasonally adjusted 5.4%.

The more reliable 12-month trend showed an average monthly increase in payroll employment of 186,000, way below par by the standards of the late-'Nineties. But the gains were enough to bring the unemployment rate down a full half-point, to 5.4% in fourth quarter '04, from 5.9% in Q4 '03….

The sector's relentless increase in productivity lends validity to polymath Peter Drucker's belief that manufacturing is following the lead of agriculture by becoming so capital-intensive that it will eventually employ a relatively insignificant share of the labor force….

In January, be prepared for a plunge of more than 2 million….


     Think of it. “year-to-year hourly earnings aren't keeping pace with inflation, economists say,” and those same economists are still micro-analyzing employment data to see if there are any hints that the unemployment rate may be going down enough to where working-class Americans may start sharing the prosperity of our country.

     If you aren’t familiar with the infamous “goldilocks” economic strategy that is so popular with the Epsteins of the world, check out The Class Warfarer’s scapegoat: “Wage Inflation”.

     It’s also important to understand the implications of the “validity to polymath Peter Drucker's belief that manufacturing is following the lead of agriculture by becoming so capital-intensive that it will eventually employ a relatively insignificant share of the labor force.” The decline for the need for hands-on production workers is exactly why economists of the 1960s, ’70s, and ’80s were predicting that by the year 2000 the average work week would be 32 hours. (Four eight-hour days.)

     For a greater understanding of this issue, see From country with a heart to business without a soul.




     Those who have yet to figure out what a horrible idea it was to elect a Bush Theocracy into power need to read the following.


From The Wall Street Journal, January 10, 2005.

Asia Is Stem Cell Central

Singapore and others are racing to grab the lead in a promising field

…The (Singapore) government has established a $600 million fund to invest in startups engaged in research on stem cells and other cutting-edge life-sciences projects. Last year, Singapore opened Biopolis, a 2 million-square-foot complex of laboratories and offices devoted to such research. So far, Singapore has ponied up $22 million for ES Cell International. ES today owns six stem-cell lines (a line is a group of identical cells that come from the same embryo) and is focusing on developing treatments for diabetes. ``Here, there's huge support,'' says Robert Klupacs, ES Cell's chief executive officer.

``ASTONISHING'' PROGRESS

Singapore isn't the only country in the region trying to profit from the U.S. restrictions. Australia, China, India, Japan, and South Korea all see stem cell research as a way to get ahead in biotech. The progress the Asians have made is ``astonishing,'' says Robert A. Goldstein, chief scientific officer at New York-based Juvenile Diabetes Research Foundation International, which has teamed up with Singapore in funding ES Cell's efforts to find a cure for the disease. Many governments have been asking themselves: ``Since the U.S. doesn't seem to be taking a lead role, why don't we?'' observes Goldstein.

What has created this opportunity? President George W. Bush put drastic restraints on federal funding for embryonic stem cell research in the U.S. three years ago because many religious conservatives oppose use of the cells, which often come from embryos left over after in-vitro fertilization….

Some governments have focused on importing talent. China, for instance, has recruited scientists from top universities in the U.S. to run research centers on the mainland. And in Singapore, 32-year-old Soren Müller Bested, a self-described ``gene jockey'' from Denmark, is now the chief technology officer for Cordlife, a company that focuses on preserving and researching stem cells found in human umbilical cords. Bested and others involved in stem-cell work say the government's unflagging support gives confidence to scientists worried about shifting political winds. ``You won't find out overnight that what you've been working on for five years has been banned,'' he says….


     It’s not enough that Bush has continued to support the exportation of our basic industries to other countries; he has compounded our problems by destroying our ability to build new, emerging industries.

     This statement says it all: “President George W. Bush put drastic restraints on federal funding for embryonic stem cell research in the U.S. three years ago because many religious conservatives oppose use of the cells.”




     The following two articles from the same issue of Business Week indirectly describe why workers’ wages have been largely stagnant for the past 30 years: Most of the corporate profits have been going into corporate coffers (a “mountain of cash”) and investors’ pockets—instead of into wages and better working conditions for employees, and lower prices for consumers.

     And if BWs current predictions bear out, the trend will continue.


From The Wall Street Journal, January 10, 2005.

U.S.: Financial Fuel For The Economy's Engine

Accommodating conditions—and the expansion—stem mostly from Fed policy

…Put it all together, especially at a time when Corporate America is sitting on a mountain of cash, and it creates a potentially explosive combination for new mergers and dealmaking, in addition to an extremely growth-friendly climate….

First, through a new openness toward policy, the Fed has put its pattern of interest-rate hikes on a gradual and predictable path. Ever since the Fed began lifting rates in June, the market has come to expect a quarter-point increase in the federal funds rate at almost every meeting, an expectation that should remain in place in 2005….

U.S. financial conditions ranging from low interest rates, a declining dollar, and an upbeat stock market are the most supportive in many years. And with that heavy amount of financial lubricant greasing the economy's wheels, don't be surprised if the economy racks up another year of solid growth in 2005.


---------------------------------------

Shake, Rattle, And Merge

Companies with cash. Investors who welcome bold offers. A weak dollar. It looks like a year of big deals

Remember the urge to merge? Quelled since 2000, it's coming back. In the last quarter of 2004, deals for U.S. companies came at a trillion-dollar-a-year pace—and more are in store. Companies are looking to mergers again to cut costs, boost efficiency, and extend their reach….

A robust economy and soaring corporate profits have boosted stock prices and cash. In other words, there's plenty of "deal grease" around…. While it's a good bet that at least some acquirers will overpay or make bad choices, few are holding back….

There's plenty of money for deals. The Standard & Poor's 500-stock index companies, including financial companies, have a record $2 trillion in cash and other short-term assets, according to S&P Compustat. Close to 60% of the U.S. deals in 2004 were paid for with cash, vs. around 35% in 2000, estimates Stefan M. Selig, vice-chairman of Banc of America Securities, the investment banking arm of Bank of America Corp….

As M&A gets going, takeover premiums could rise as vows of caution get thrown to the wind. Still, whether the merger surge ends well or badly, there's little doubt that it will be a busy 2005.


     Key words above: “merge, cut costs, boost efficiency.” In other words, reduce staff, make the remaining workers work harder for less money, reduce actual services to customers (because of leaner staffs)—and more movers and shakers can become members of America’s new aristocracy.

     And guess what. It doesn’t make any difference whether or not the mergers “end well or badly”—those who do the “shaking, rattling and merging” will all become incredibly rich in the process. And workers will find their wages and working conditions worse than before.

     Another key statement: “Accommodating conditions—and the expansion—stem mostly from Fed policy.” To understand the implications of this sentence, see: The Class Warfarer’s scapegoat: “Wage Inflation”.




     The big mystery: despite articles like the following, conservative America still resists universal health coverage as a solution for our out-of-control health-care costs.


From The Wall Street Journal, January 10, 2005.

Commentary: Health Care: More Money, Less Care

Ever higher outlays aren't getting the U.S. a better health-care system, but the pols aren't doing much to redress this miserable equation

By Catherine Arnst

This is what passes for good news in health care: U.S. spending will increase by only 9% to 10% in 2005, about the same rate as last year, according to UBS Securities. That's still three times the rate of inflation, but at least it's less than the gains the nation saw in the first two years of this century, when costs rose by 12% to 13% a year….

At some point, and probably in the not-too-distant future, this level of spending will almost certainly become unsustainable. Expensive new drugs and medical technologies, a growing number of uninsured, and an aging, overweight population virtually guarantee cost increases will climb back to the 12% to 13% range in a few years. By 2010, UBS Securities estimates that health care will consume 17.4% of the GDP. "In my view, the pressure is not off costs at all," says William McGeever, a UBS health-care analyst. "I see nothing on the horizon that will moderate increases."

All of this might be O.K. if we were getting maximum bang for all those bucks, but we're not. Other industrialized nations, which have universal health coverage, spend less of their GDP on health care—8% to 10%. Yet they rank well above the U.S. in average life expectancy and infant mortality rate, standard measures of a nation's health. The U.S. ranks in the bottom quartile of all industrialized nations on those two measures.

Nor does the U.S. do well on more specific quality measures. In a study of a broad range of procedures in five highly industrialized nations, released last spring in the well-regarded journal Health Affairs, researchers determined that the extra spending on health care in the U.S. is "not buying better experiences with the health care system, with the exception of shorter waits for nonurgent surgery." That conclusion was backed up by a study released in December by Veteran's Administration researchers: They found that only 51% of patients nationwide receive medically recommended care for their conditions. So much for the oft-heard claim that the U.S. has the best medical system in the world.

Despite this dire situation, there are no serious proposals in Washington to redress the miserable cost/quality equation. President George W. Bush's main health-care reform initiative, the introduction of tax credits for Health Savings Accounts, is likely only to siphon off healthy adults from existing insurance plans, making it harder to offset the costs of treating the sick. At the same time, the shift to high-deductible policies by many employers is likely to cause some consumers to delay health care until their conditions become serious—and more expensive to treat….


     Think of how much money we could save if we had universal health coverage. We would cut the entire insurance industry out of the picture, as well as most legal costs due to lawsuits (which some see as a way to compensate those who cannot pay for disastrous, although inevitable, medical outcomes). And that’s just for starters.




     Prior to the last election, Bush bragged that a sign of an improving economy was the increase in home ownership. Even Forbes magazine finds it difficult to put a favorable slant on how this supposedly favorable developmnt was accomplished.


From Forbes, January 10, 2005.

No Money Down

Worthy goal: foster homeownership. Unworthy side effect: foster deadbeats.

What can you say about a bill, introduced by a Realtor turned congressman, that requires the Federal Housing Administration to insure tens of billions of dollars' worth of mortgages taken out by first-time home buyers who put nothing down? Normally, you wouldn't need to say much, because it would go nowhere. But this curious idea has been embraced by President Bush as part of his ambitious push to build a nation of home and investment-account owners.

It was just a year ago that Congress unanimously passed the President's American Dream Downpayment Act, which gives low-income home buyers grants to make their down payments. But that requires government spending. By contrast the Zero Downpayment Act, which authorizes the mortgage insurance, is being touted as a free lunch by the Bush Administration and Representative Patrick Tiberi (R-Ohio), the bill's chief sponsor.

John Weicher, an assistant secretary at Housing & Urban Development, told a congressional subcommittee in 2004 that the no-money-down insurance won't cost the government's insurance fund anything and will actually raise $184 million in the first year because borrowers will be charged higher premiums, including a 2.25% upfront fee, compared with the FHA's normal 1.5% fee. And how will borrowers pay that fee? They'll be able to fold it into—and increase the size of—their no-money-down loans, of course, meaning they'll start out in an even bigger equity hole….

Is anyone shocked that a home buyer who can't manage to come up with 3% of the house price might be a bad credit risk? The Congressional Budget Office predicts that at least 30% of no-money-down borrowers will be foreclosed on, about twice the rate HUD predicts. As a result, by CBO's figuring, the zero-down program will end up costing taxpayers a half-billion dollars over four years….

Sheila Crowley, president of the National Low Income Housing Coalition, told a House hearing: "The problem with this legislation is not what it does but how far off the mark it is in addressing the most serious housing problem—that is, the shortage of rental housing stock that is affordable and available to the lowest-income families."…

The losers in this game are taxpayers, who end up footing the bill when marginal home buyers with FHA insurance—folks who never put up any genuine equity—are later foreclosed on….


     Like many other economic statistics, the supposedly favorable home ownership statistics cover a looming problem that will cost the taxpayers dearly. Instead of addressing the real problem—shortage of rental housing for the lowest-income families—the Bush administration gave a present to the real estate industry, and the taxpayers will end up paying the bill.




     Pity poor rich people. They’re having such a difficult time coping with the stresses of modern aristocracy.


From Barron’s, January 10, 2005.

Money Trouble

Greater wealth breeds anxiety, survey finds; Fears of producing another Paris Hilton

By Suzanne McGee

…Americans report that the richer they grow, the more anxious they become, and the less prepared they are to plan for the future, right down to writing a will. In a survey by Pittsburgh-based PNC Advisors of 792 of its wealthy private-banking clients, scheduled to be released this week, virtually all respondents said they believe they need to double their wealth to be financially secure. "It seems to be everyone's secret worry, that 'I don't have enough money'," says Joan Gulley, PNC Advisors' chief executive.

Even among those who succeeded in boosting their fortunes, achieving that goal wasn't a panacea. Indeed, only 46% said their extra wealth had made them happier, while an astonishing 29% of those with more than $10 million to invest said that having more money only generates more problems than it solves.

That may be because it's getting easier to find someone else who's doing better, whether at the country club or in the pages of Fortune. Many successful, affluent people focus on what they still lack, rather than what they've achieved—including riches they would have found unimaginable just a decade earlier.

"At a certain point, people should be able to say, 'I have enough money to do what I want in my life.' Yet, that rarely seems to happen," says Dennis Jaffe, a San Francisco psychologist and management consultant. "Instead, people create an image of the life they should be living. They tell themselves that because so-and-so has a Gulfstream, they should, too."

Maybe that's why a third of PNC's wealthiest clients said having "enough" money is still a constant worry. Joseph Spada, co-founder of the Institute for Family Wealth , a Parsippany, N.J., advisory firm, says that one of his clients has $25 million in assets—but spends $1 million a year maintaining the lifestyle he believes he should have. "The message we get everywhere is that you can never have enough," Spada says….

More than half the PNC clients surveyed worry about their children growing up with a sense of entitlement, and 46% say their kids already are spoiled. But talking about money with children can be even more difficult than explaining the facts of life. According to the survey, 58% of respondents have never discussed an estate plan with their families….


     No wonder we’re in trouble. Millions upon millions of spoiled rich kids are growing up with the expectation that they are entitled to lives of luxury—and those luxurious lives will be dependent upon working-class incomes remaining stagnant. That’s the main way today’s aristocracy got that way in the first place: by demanding most of the benefits of workers’ own productivity.




     The following two articles from the same issue of The Wall Street Journal inadvertently describe how thoroughly the rich and powerful of the world have won the class war against the world’s workers.


From The Wall Street Journal, January 10, 2005.

Bush Economic Adviser Defends Social Security Plans

PHILADELPHIA—President Bush's top economic adviser, responding to criticism of the administration's plans to shore up Social Security, said the White House isn't seeking to slash retiree benefits, but aims simply to stop the system from showering ever-larger benefits on each new generation of retirees.

Gregory Mankiw said that under current law, Social Security benefits for the average U.S. citizen are set to increase "by over 40%" in inflation-adjusted terms over the next four decades. To pay for such increases, he said, the government would have to raise payroll taxes to levels that could hobble the U.S. economy and make it "more like those of Europe."

"As the nation debates alternative reform proposals, you should avoid the sophistry of those opposed to reform," Mr. Mankiw told the American Economics Association. "In particular, be wary of comparisons between a new reformed Social Security system and current law. The benefits now scheduled for future generations under current law are not sustainable ... they're empty promises."…


-----------------------------------------

The German Disease

…[D]espite being the world's leading exporter, Germany can't seem to hitch a ride on the global economic recovery. "The world economy is booming like it hasn't in 28 years but the German economy is not participating," the Ifo institute, one of that country's leading economic research centers, said in a report last month. Growth in 2004 was probably only around 1.7% and might slow to around 1.2% this year. This "recovery" follows on the heels of three years of near-total stagnation—the longest no-growth period in German history….

As of this year, the long-term unemployed will see severe benefit cuts and be forced to accept almost any job or risk seeing their benefits reduced even more. What probably sounds like common sense to most people is a revolutionary change in Germany's welfare state.

The reform should help curtail the country's burgeoning social spending and at least some of the unemployed should soon disappear from the statistics. Most of the 225,000 open jobs, an astounding number given the high unemployment rate, might now finally be filled. And new rules allowing the unemployed to beef up their benefits by taking up minor work may even help create jobs, primarily in the low-wage sector.

Germany's high taxes and work rules make investors less inclined to put capital to work there and create new jobs and wealth. The CEOs who pass through our offices all say that they wouldn't dream of making a major new investment in that country.

Or to look at it another way, Germany imports less because it consumes less. And one of the reasons it consumes less is because so many are out of work. What's more, it's much harder in Germany than in the U.S. to find a new job if you lose one, a thought that doesn't exactly make Germans rush to the mall….


     Germany is regularly used as an example of the welfare state, with high pay and good working conditions for its working-class citizens. Naturally, it is losing industry and jobs because the rich and powerful are going to those countries where workers can be easily manipulated and even brutalized.

     As the Journal points out, “The CEOs who pass through our offices all say that they wouldn't dream of making a major new investment in that country.” Why pay decent wages and provide safe and good working conditions for employees when you can go to Mexico, China or Indonesia?

     And the Bush Administration’s #1 right-wing economic crackpot, Mankiw, is doing all he can to perpetuate the myth that our country’s economic problems are due to Social Security (which benefits primarily working-class Americans) instead of a foolish, self-destructive war in Iraq and totally uncalled-for tax cuts for our wealthiest citizens.




     Talk about hypocrisy. Armstrong Williams has long been a critic of the “biased liberal news media.” As you read the following, realize that what’s true of Williams is also true the other conservative commentators, especially on Fox News, who have made careers out of demonizing responsible and truly professional journalists.


From The Wall Street Journal, January 10, 2005.

Bush Draws Fire Over Fee Paid
To Columnist to Promote Policy

The Bush administration faces a closer look at how it tries to influence public opinion as it readies campaigns to overhaul Social Security and the tax code, following reports that the Education Department paid a conservative columnist to promote its policies.

Armstrong Williams, a prominent commentator and frequent guest on television news shows, lost his syndicated column after disclosures that he was paid $240,000 by the Education Department to promote the "No Child Left Behind" law to other black journalists. In an appearance on CNN's "Crossfire" Saturday, Mr. Williams said, "I used bad judgment," and apologized to his audience. "It's the first time we've done business with the government, but I just would not do it again."…

The administration previously tried to promote its agenda in the mainstream media using less-than-upfront methods. In early 2004, the White House's drug-control policy office sent local television stations around the country packaged reports on a government campaign to curb drug abuse. The materials included a "suggested live intro" for news anchors to read, interviews with Washington officials and a closing similar to a typical broadcast-news sign-off. The "reporter," a former Washington journalist, was in fact working under contract for the government.

The Government Accountability Office later criticized the administration for an illegal "covert propaganda" campaign. The GAO also concluded that similar production pieces touting Mr. Bush's Medicare drug benefit were an improper use of taxpayer money….


     Face it. The Bush Administration and the Armstrong Williams’ of the world were made for each other.




     California voters are about to find out what happens when they elect a Republican for Governor: He’ll keep the tax cuts for the wealthiest Californians and cut services that benefit the general public.


From The Wall Street Journal, January 11, 2005.

Schwarzenegger Will Try to Close
Budget Gap With Cuts, New Debt

Gov. Arnold Schwarzenegger proposed closing California's projected $8.1 billion budget gap through a combination of spending cuts and borrowing similar to some of the measures that bailed the state out of an even bigger fiscal mess last year….

The governor continued to rule out raising taxes to address California's budget woes, which began four years ago after personal-income-tax collections fell precipitously following the crash of financial markets. He called on California lawmakers to overhaul the state's budget system to eliminate future shortfalls. "Last year, we stopped the bleeding," Mr. Schwarzenegger said in a letter to the Legislature. "This year, we must begin to heal the patient."…

…the governor's spending plan would give K-12 schools and community colleges about $2.2 billion less than education officials say they were promised last year. Those schools are guaranteed a specified share of state revenue under a voter-approved initiative.

"The governor personally gave me his word then and now he has broken it," said Barbara Kerr, president of the California Teachers Association. "As a result, the children of California have been betrayed."

In his budget statement, Gov. Schwarzenegger said allocating the full amount of promised funds to schools would have forced him to impose "severe cuts" on social programs for California's neediest residents….

But budget analysts warn that Gov. Schwarzenegger—by ruling out no new taxes—is running out of options as California's budget problems continue. "The governor can only cut and borrow, but all the easy targets have already been taken," said Jean Ross, executive director of the California Budget Project, a nonpartisan analysis group in Sacramento….


      Schwarzenegger says that “Last year, we stopped the bleeding. This year, we must begin to heal the patient." Meaning: Last year we kept the tax cuts for the wealthy. This year, we’ll get rid of the patient by killing him (public education, services for the unemployed, etc.).




     Pay close attention to the next time Bush brags about how the economy is improving. Undoubtedly, all he will refer to is the fact that small firms created an additional 4.4% jobs in 2004 “under his administration.”

     He will not refer to the fact that our economy is increasingly becoming biased in favor of the rich and powerful and against Americans who actually work for a living.


From The Wall Street Journal, January 11, 2005.

Small Firms Add Workers,
But Average Pay Falls

More workers, less pay.

Small businesses increased the number of employees by 4.4% in 2004, and cut the average paycheck by 4.8%, according to data from SurePayroll Inc., a Skokie, Ill., payroll firm serving more than 14,000 companies nationwide.

Average pay for employees at companies with 100 or fewer workers moved downward throughout the year, according to the firm's records, but results differed by geographic region.

The West topped the list for both an increase in workers for small businesses, at 6.3%, and for a drop in average pay, with a decline of 7.6%....

With the number of workers increasing and average pay decreasing last year, Mr. Alter says that for small businesses we shouldn't characterize the improved economy as jobless, but rather as payless.


     Having a job is only part of what makes a good economy. More importantly, having a job that pays a decent income is the real key. (Virtually all slaves had jobs in the 1800s in the U.S.)




     Surprisingly, The Wall Street Journal did a fairly accurate job of describing the real issues behind the great Social Security debate. Even so, it couldn’t resist spinning the argument in favor of those conservatives who are dedicated to the virtues of greed and materialism.


From The Wall Street Journal, January 12, 2005.

On Social Security,
Bush Is Confronting
Ideological Divide

MITCHELLVILLE, Md.—Bob Ball started work at the Social Security Administration before George W. Bush was born. He was running the program before Mr. Bush reached high school.

Today, 90 years old and semiretired, Mr. Ball agrees with the president that the program has a solvency problem. He even agrees that, as Mr. Bush reiterated in an interview with this newspaper on Monday, it is risky and irresponsible to deny the need for changes. So the dean of Democratic Social Security gurus has proposed a nip-and-tuck overhaul plan that would reduce the 75-year deficit to zero.

But the chances that Messrs. Bush and Ball could come together around the issue are nil—for a reason that both sides are loath to acknowledge. Shoring up Social Security's solvency is part of what Republicans and Democrats are preparing to fight about. But it is the lesser part. What is really at stake is how to achieve solvency, and what kind of program emerges from that process.

That is why the argument over a transition to private investment accounts isn't an argument about practicality. It is an ideological debate about whether Social Security remains a social insurance safety net, which redistributes a modest amount of income from rich to poor, or moves toward greater individual opportunity, risk and reward. Bubbling with enthusiasm, Mr. Bush casts his effort to transform the Mideast as the "philosophical argument of the age." In U.S. domestic politics, the argument of the age concerns Social Security.

It runs to the heart of historic differences between Republicans and Democrats. As political scientist James Reichley explains in "The Life of the Parties," the Republican tradition champions economic growth and using government to foster "individual, family and community achievement"—even if that makes society less equal. The Democratic tradition celebrates the use of government to foster equality—even if that makes the economy less efficient….

Mr. Ball's ideas today still flow from his belief that Social Security should remain, distinct from private pensions or private savings, a universal program with a prescribed benefit that gives American seniors a solid underpinning of financial security. He would leave the basic structure unchanged while implementing a five-step financial tune-up: gradually increase the amount of wage income subject to payroll taxes; trim the cost-of-living index used to adjust benefits for inflation; bring state and local government employees fully into the system; dedicate a residual estate tax to the system; slightly increase the payroll tax rate.

Using the assumptions of Social Security actuaries, this would meet the test Mr. Bush laid out in the Journal interview of changes that ensure the issue "doesn't 20 years from now pop back up" on a future president's to-do list. But it wouldn't meet the larger objective Mr. Bush shares with conservatives of moving toward an "ownership society."

"Our goal is to provide a path to greater opportunity, more freedom and more control for individuals over their own lives," White House aide Pete Wehner recently explained in an e-mail memo to potential allies. "That is what the personal-account debate is fundamentally about."

Indeed it is. In political conditions shaped by the spread of stock-market ownership during the 1990s boom, Mr. Wehner says Republicans "can win...for the first time in six decades." Their modern, market-oriented solution, he argues, can finally best Democratic adversaries arrayed as "the party of the past."

Sitting in the study of his retirement home outside Washington, surrounded by old black-and-white photos depicting him with Lyndon Johnson and other luminaries, Mr. Ball embodies that Democratic past. But he insists that, in the case of Social Security, the principles he is defending are "timeless and universal."

Mr. Ball expresses confidence his side still can win the argument—a result that some of Mr. Bush's fellow Republicans privately fear. Whatever the outcome, it is precisely the argument that the president, the Congress and the public need to grapple with now.


A couple of sentences merit special comment:
  • “The Democratic tradition celebrates the use of government to foster equality—even if that makes the economy less efficient.” Correcting the inequities of capitalism doesn’t make it less efficient—it enables it to survive.

    The claim that Social Security creates economic inefficiencies makes sense only if you consider the human beings who built and run this country are merely machines or raw material, and don’t deserve a decent retirement for their contributions. To better understand why liberal economic policies—like Social Security—are necessary to make sure our capitalist system works for the benefit for our total society, see How Roosevelt saved capitalism…and brought us out of the depression.

  • "'Our goal is to provide a path to greater opportunity, more freedom and more control for individuals over their own lives,' White House aide Pete Wehner recently explained in an e-mail memo to potential allies." Translation: Our real goal is to allow the rich and powerful to continue to take ruthless advantage of working-class Americans, even into retirement—even though these are the people who made us rich.

  • “Mr. Bush shares [a larger objective] with conservatives of moving toward an "ownership society.” Translation: the “ownership” society is a society in which the rich and powerful continually increase their ownership of the total wealth of America. In 1929, the top 1% owned 44% of the privately held wealth in the U.S. After progressive economic policies took effect, that was reduced to 19.9% in 1976. Because of the kinds of policies that Republicans and conservative Democrats have been pursuing for the past 25 years, it again has climbed to 40%—and growing.

     This isn’t rocket science, folks. It should be plain to everyone. Republicans are today’s repository of the values of greed and materialism, and they don’t give a rat’s ass who gets hurt in the process.

     For a greater understanding of how we got to this sorry state, see From country with a heart to business without a soul.




     The Wall Street Journal recently reported that the number of affluent Americans who are buying their third homes is rapidly increasing. The main reasons they’re doing it is to have diverse options as to were they can spend their time, as well as investments.

     Either way, it’s a classic example of the zero-sum nature of wealth. As rich persons buy up available housing, it gets priced out of the market for those with less money. Thus, the following article:


From The Wall Street Journal, January 12, 2005.

The Nation's Least-Affordable Housing Markets

Rising Home Prices Outpace
Incomes in Many Areas;
Interest-Only Loans Surge

Rising home prices during the past year have made it substantially harder for buyers to get their foot in the door in half of the nation's 30 largest metro areas.

That is the conclusion of a study that ranked 325 metropolitan areas by their affordability. The study, by forecasting and consulting firm Economy.com, found that in nearly 30 metro areas nationwide, prices are so high that someone earning the median income can't afford a median-price home, based on traditional lending standards. That is a remarkable finding given that mortgage rates remain near historical lows.

Other measures also suggest affordability is dropping. Just more than half of the homes sold in the U.S. during the third quarter were affordable to families earning the median income, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, which looks at sales of both new and existing homes. That's down from about 61% for the first quarter of 2004.

Affordability—a measure of the ability of the average household to buy a home at current mortgage rates—has long been an issue for low-income buyers. But in some markets, such as Salinas, Calif., New York City and Honolulu, prices have increased so rapidly that buyers with healthier incomes are feeling the squeeze as well. And the number of such markets could climb if mortgage rates rise this year, as many economists expect.

The decline in affordability helps explain the rise of lending programs—such as interest-only mortgages and 100% financing—that help buyers get into a home they couldn't otherwise afford. In some of the least-affordable markets, including Salinas and Santa Cruz, Calif., interest-only mortgages accounted for more than 60% of mortgages taken out to buy homes last year, according to an analysis done for The Wall Street Journal by LoanPerformance in San Francisco, which tracks 46 million mortgages monthly. Nationwide, interest-only loans accounted for about one-third of home-purchase mortgages in 2004.

If interest rates rise, some buyers who stretched their purchasing power with adjustable-rate loans and interest-only mortgages could face financial problems….


     For an extended discussion of the zerosum nature of wealth, see Wealth is a Zerosum Game.




     One has to wonder who the “experts” are who are “confounded” by the fact that our trade gap is ballooning to record proportions. It’s as natural as night follows day. Not even a declining dollar is enough to make up for our abandonment of our basic industries and the disaster of globalization.


From The Wall Street Journal, January 13, 2005.

Trade Gap Balloons to $60.29 Billion

November's Record Reading
Raises Doubts That Drop
In Dollar Can Cure Problem

WASHINGTON—The U.S. trade deficit roared to yet another record, hitting $60.29 billion in November amid strong demand for imported petroleum and consumer goods.

The news pushed the dollar down sharply on foreign-exchange markets, with the U.S. currency slipping a cent versus the euro, and falling to its lowest level versus the Japanese yen in more than a month….

"Today's release ... continues to confound the 'experts' who have constantly predicted that a weaker dollar would be the cure for America's exploding trade imbalance," said Peter Schiff, president of Euro Pacific Capital Inc. in Newport Beach, Calif. "If anything, the statistical record is showing an inverse relationship between the dollar and the deficit: The more the dollar falls, the higher the deficit goes."

The ballooning trade gap underscored an underlying phenomenon in the U.S. economy, as Americans continued to consume more than they were able to produce….

The largest U.S. bilateral trade deficit continued to be with China. The monthly deficit with China was $26.63 billion, slightly narrower than in October. The U.S. trade gap with the 25-nation European Union stood at $10.5 billion, up from $9.3 billion in October. The department also reported increased deficits with Canada, Japan and South Korea.


     Those who still wonder about the wisdom of globalization should ask themselves why China and India are now the world’s major magnets for new investment. Those are the economies that are improving and getting stronger—and ours is going down the tubes.



Week of January 3




     Those who have been living in a cave for the past 100 years, and still believe that the Republicans want to “save” Social Security—should read the following.


From The Wall Street Journal, January 6, 2005.

White House Memo
Argues for Social Security Cuts

Note Aims at GOP Backers
Of Private Accounts Alone;
Threat to Party's Majority?

WASHINGTON—The White House, in a private memo to conservative allies, strongly argues that Social Security benefits paid to future retirees must be significantly reduced. The memo disputes those on the right who insist that creating private investment accounts is all that's needed to fix the retirement system.

To fail to make benefit cuts while diverting payroll taxes to workers' personal accounts, the memo argues, would be irresponsible and "have serious short-term economic consequences."

The memo, contained in a Monday e-mail from Peter Wehner, President Bush's director of strategic initiatives, was marked "not for attribution." It reflects the White House's behind-the-scenes efforts to avert a split in Republican ranks over the politically charged Social Security issue. The Wall Street Journal reviewed a copy of the memo, which wasn't released publicly, and it's unclear how wide a distribution it had. There are indications that it went to legislators and a number of influential conservatives outside Congress.

For years, Mr. Bush has emphasized the upside of private accounts—potential investment gains for workers. The memo goes beyond anything the president and his team have said publicly about the pain—as lawmakers call benefit reductions—that would accompany a Social Security fix….

The administration is trying to rally conservatives behind a plan that would let workers divert payroll taxes to personal investment accounts, while shrinking Social Security benefits for future retirees….

Mr. Wehner cited the administration argument that the nation faces more than $10 trillion in unfunded obligations for promised benefits. Allowing workers to divert a portion of their 12.4% Social Security payroll taxes to personal accounts would cost as much as an additional $2 trillion in the first decade, Mr. Wehner acknowledged, because the government would have to make up the diverted payroll taxes to pay current retirees' benefits….

"If we borrow $1-2 trillion to cover transition costs for personal savings accounts and make no changes to wage indexing, we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities," the memo says. "This could easily cause an economic chain reaction: the markets go south, interest rates go up, and the economy stalls out."…

The political stakes were evident yesterday as national AARP officials met with reporters. Chief Executive William Novelli said opposing the diversion of payroll taxes to private accounts would be the seniors' lobby's top priority this year. Carving out private accounts would be "risky, hugely expensive and unnecessary," Mr. Novelli said.

He also said that doing away with the wage-indexing formula for benefits would be "draconian" for future retirees. While the current formula ensures that Social Security replaces, on average, about 40% of a retiree's income, Mr. Novelli said that substituting an inflation index for the wage index would cut that replacement rate nearly in half, according to Social Security Administration calculations….


     This is about as clear as you can describe the motivations of the Republicans. They obviously want to gradually starve Social Security to death, and are even willing to risk bankrupting our economy to do it—with the “trillions” of dollars it will take to privatize the system.

     And the only way they can make their draconian system work is to drastically cut the retirement benefits to those Americans who are making all the sacrifices that have allowed our economy to thrive for our newly minted aristocrats.




     Speaking of Social Security, further insights can be gained from the following pair of articles that were in the same issue of The Wall Street Journal. The first is an editorial that demonstrates the utter blindness that greed creates among the staff of the Journal—and their willingness to deliberately lie to get their points across. Compare the content of this editorial with the news release above.

     The second article below is a news release that describes the class of people who will benefit from the lower taxes that will result by reducing Social Security benefits that primarily benefit working-class Americans.


From The Wall Street Journal, January 5, 2005.

REVIEW & OUTLOOK

AARP's Tax Increase

Well, that didn't take long.

Just over a year ago Republicans were fantasizing that they'd bought the senior vote with their Medicare prescription drug entitlement. We warned at the time that the GOP's "rent-a-friends in the AARP will soon return to lobbying alongside their more natural big government allies on the left." And sure enough, yesterday America's self-styled lobby for the elderly began an ad blitz assailing the Bush Administration's attempt to address the other half of the coming entitlement crack-up: Social Security.

"There are places in your retirement planning for risk, but Social Security isn't one of them," says one ad about the President's idea to let individuals put some of their payroll tax into individually owned retirement accounts. "If we feel like gambling, we'll play the slots," says a couple in another.

So here we are back to scaring grandma, never mind the facts. The AARP leadership knows that no Social Security reform would have any effect at all on current members of the 50-plus set they claim to represent; the personal accounts would be voluntary and for younger workers only. They also know that there isn't a serious Social Security reform plan anywhere that wouldn't guarantee some minimum level of benefit, or that would allow people to "gamble" their retirement savings in anything other than diversified mutual funds….

Particularly dishonest is AARP's readiness to peddle the fiction that there is actually a "trust fund" accumulating assets to pay benefits once Social Security payments exceed payroll tax revenues around 2018. Mr. Novelli knows these "surpluses" have already been spent on other things and been converted to IOUs that will have to be financed by taxes on future workers, unless of course those liabilities are repudiated by future politicians….

That's never going to be allowed to happen, of course. The real agenda of the "no problem" crowd is to keep spending the Social Security "surplus" on other things until 2018 and then simply raise taxes much higher. AARP rank-and-file members need to understand that the leaders speaking on their behalf are now essentially endorsing much higher taxes or lower benefits, and probably both….


-----------------------------------------------

With Market Hot,
More People Now
Have Third Homes

Jay Lieberman, a dentist who lives outside Washington D.C., also owns a home perched on the slopes of Park City, Utah, which he uses as a ski getaway for his family. Late last year, Mr. Lieberman decided to snap up a third home as well.

"I bought it purely as an investment," says the 58 year old. He plans to use the 2,200-square-foot house, also in Park City, as a rental property. Mr. Lieberman rented it out for two weeks over Christmas, and it is booked for the Sundance Film Festival this month.

Second-home ownership has jumped significantly in the past decade, thanks in large part to record-low interest rates on mortgages and the rapid appreciation of real-estate prices. Now, motivated by those same factors, as well as some others—from a desire to retire in multiple locations to an interest in being nearer to relatives—more people are picking up third homes, too….

While academics and economists say no one systematically tracks the third-home market nationally, brokers from California to Florida say more of their clients are buying a third piece of property.

Alice Sardell, owner of the real-estate firm Sardell & Co. in Aventura, Fla., north of Miami, says she sold third homes to at least 40 people last year, double what she sold the year before last. The homes ranged in price from $265,000 to $2.4 million….

For the super rich, multiple homes are nothing new, and some of the current crop of buyers are in that same league. But the third-home trend is starting to migrate further down the food chain….

The run-up in real-estate prices in recent years has fueled the perception that property is a relatively safe haven for investment dollars. Average prices of single-family homes surged nearly 13% in the 12 months ended Sept. 30, the largest 12-month increase since 1979, according to the Office of Federal Housing Enterprise Oversight, which tracks home-price changes nationwide….


     Note that many of our truly rich citizens see real estate as a more reliable producer of wealth than the stock market. These are the very same people who want working-class Americans to put part of their Social Security money into mutual funds—so the rich can save on taxes because of the reduced benefits that will be needed to pay for the transition to privatization.

     Note also that those who are buying second and third homes are driving the costs of rent and home ownership out of the range of the people in the bottom rungs of our economy, and who will most need future help in their retirement requirements.

     So, who is going to benefit by our Republicans’ privatization of Social Security? The very rich and those who are planning to become very rich. The beneficiaries certainly won’t be working-class Americans.




     If you want a preview of what’s coming in the U.S., look to what’s happening in other countries as workers begin to realize that they have been royally screwed by globalization—and all to benefit rich investors.


From The Wall Street Journal, January 4, 2005.

Protesters Clash With Police,
As Germany Cuts Jobless Benefits

BERLIN, Germany—Several hundred protesters clashed with police at an unemployment office here as a sharp cutback in jobless benefits took effect in a government effort to push people to find work….

After people use up their basic jobless benefits their payments drop to €345 ($465) a month in western Germany and €331 ($408) in the east, plus rent and heating allowances. Previously, people could receive more than half of their most recent net salary. The idea is to provide an incentive to get off unemployment….

Seventy-one percent of those employed in 2004 were in services, versus 59.2% in 1991, while employment in the manufacturing and construction sectors continued falling.


     As benefits to workers are cut, and employment opportunities are increasingly to be found in low-paid service jobs—as opposed to better manufacturing and construction jobs—social unrest will continue to grow.

     It’s always happened throughout history, and there’s no reason to expect it to change.




     Union members who voted republican in the last election should realize the horrible mistake they made—in more ways that are immediately obvious. Totally off the radar is the impact on the appointment or election of conservative judges who always favor the interests of business over labor.


From The Wall Street Journal, January 7, 2005.

Business Gears Up to Support
White House Judicial Nominees

WASHINGTON—After sitting on the sidelines for decades, the business community is poised to join in the bruising judicial nomination battles more often defined by such social issues as abortion and civil rights.

The National Association of Manufacturers, an organization that represents thousands of business including Gillette Co. and Caterpillar Inc., is putting the finishing touches on a program that would generate television advertising and grass-roots lobbying support for President Bush's appellate court nominees, a NAM spokeswoman said. NAM would ratchet up its activities in the case of a Supreme Court nominee….

It … represents an escalation of the business community's push to create a friendlier legal climate. The U.S. Chamber of Commerce already raises money to support business-backed judicial candidates for state and local courts and it has a multimillion dollar foundation to press for passage of federal limits on class-action lawsuits and jury awards.

Civil-rights advocates said they are not surprised by business's shift. "This is less about the integrity of the federal courts than it is about furthering the narrow economic interests of their constituents," said Wade Henderson, executive director of the Leadership Conference on Civil Rights….


      “[T]he business community's push to create a friendlier legal climate,” just about says it all. If corporations can buy their judges it will add still more power to their ability to control wages and working conditions—even those that are presently considered illegal (violations of labor laws, consumer protections, etc.)




     Corporations’ creativity in cutting wages and benefits for workers is truly amazing. The following is just another of many ways it can be done.


From The Wall Street Journal, January 7, 2005.

Drivers Deliver Trouble to FedEx
By Seeking Employee Benefits

Some 'Contractors' Contend
Company Calls All Shots;
IRS Examines Complaints
Chief Says 99% Like System

MADISON, Tenn.—As a driver for FedEx Corp.'s ground division, Brion Butterbaugh must wear a full FedEx uniform, observe a long list of delivery and pick-up times and hook his truck keys on the finger FedEx tells him to when walking to doors to deliver packages (the little finger of the nonwriting hand).

Mr. Butterbaugh, 41 years old, isn't a FedEx employee. He's one of 13,500 "contract" drivers for FedEx Ground who operate their own trucks and pay for their gas and other expenses. The company says these drivers are "independent" and has advertised that becoming a contractor is a way to "be your own boss."

But some contractors have set off a high-stakes battle with FedEx by contending the company calls all the shots in their operations. They say rules such as the little-finger requirement show they're essentially employees of FedEx, with all of the risks and none of the benefits, such as health insurance and a retirement plan.

Last July, FedEx Ground drivers who had filed a class-action lawsuit against the company won a victory when a California state court ruled that they are employees because of FedEx's "close to absolute actual control" over drivers.

In recent months, officials in Montana and New Jersey likewise determined that certain FedEx Ground drivers in those states are employees. FedEx is appealing all the judgments, and FedEx Ground Chief Executive Daniel J. Sullivan says he's confident the company will prevail….

U.S. companies have long sought to get an edge by treating workers as independent contractors instead of employees. Employees receive benefits such as health care, paid vacations and pensions. And the law requires companies to pay 6.2% of the first $90,000 of an employee's salary in 2005 for Social Security taxes as well as 1.45% of all salary for Medicare taxes….


     What a sweet deal for corporations: they can totally control the behavior of their “independent contractors,” fire them at will, pay no Social Security taxes, and pay them no benefits.




     When does the “U.S. economy…perform well”? As defined by The Wall Street Journal, it’s when economic growth is just hot enough to increase corporate profits and a rising stock market, but not so hot that workers’ wages start to go up (called “wage inflation”). It’s also called the “goldilocks” economy.


From The Wall Street Journal, January 3, 2005.

U.S. Economy Expected
To Perform Well in 2005

The U.S. economy will perform well in 2005, according to a survey of economists' predictions, with modest but healthy growth, subdued inflation and only slight rises in interest rates.

But there are challenges ahead as well. Many of the forecasters surveyed worry about the low household-saving rate and wide budget and trade deficits. While a few of the economists believe these problems could create trouble in 2005, the majority sees these as long-term problems that won't derail the expansion anytime soon….

"Modestly above-trend growth is 'just right.' It will gradually remove slack in the labor and product markets without sparking an unwelcome rise in inflation," Macroeconomic Advisers LLC, a St. Louis-based forecasting firm, wrote to its clients in December in a report titled "A Return to Goldilocks."…

With households and the government spending beyond their means, the U.S. is increasingly relying upon foreign investors—most notably foreign central banks—to finance all of its consumption….


     Watch out. Our current “good economy” is based on deficit spending, by both government and private households. As the Journal describes it: “With households and the government spending beyond their means.” Of course, not so many worker households would be spending beyond their means if their incomes had kept pace with inflation for the past 25 years.

     For a more thorough understanding of the “goldilocks” principle, and how the Fed makes sure workers’ incomes don’t rise enough to keep up with inflation, check out the file The Class Warfarer’s scapegoat: “Wage Inflation”.)




     

     

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