Conservative Press 04julsep

Previous Weeks' Conservative Press

From October 4, 2004 through December, 2004

     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...

December 6

November 29

November 22

November 15

November 8

November 1

October 25

October 18

October 11

October 4

Week of December 6

     One wonders how the editors of Business Week can read their own news stories and still write the editorials they do. The following three excerpts come from the same issue—two news items and one editorial—and are on the same subject: globalization, and whether or not it will ultimately be good or disastrous for our country.

     These were very large articles and those interested in studying the issue in depth should read the originals. The negatives of globalization are admittedly presented here simply to describe what is happening to those who are most affected by the disaster of globalization: America’s working-class citizens.

     A reading of almost any article in the conservative financial press obviously treats our workers as mere economic machines or raw materials in the accumulation of wealth by our richest and most powerful investors.

From Business Week, December 6, 2004.

"The China Price"

They are the three scariest words in U.S. industry. Cut your price at least 30% or lose your customers. Nearly every manufacturer is vulnerable—from furniture to networking gear. The result: A massive shift in economic power is under way

…"The China price." They are the three scariest words in U.S. industry. In general, it means 30% to 50% less than what you can possibly make something for in the U.S. In the worst cases, it means below your cost of materials. Makers of apparel, footware, electric appliances, and plastics products, which have been shutting U.S. factories for decades, know well the futility of trying to match the China price. It has been a big factor in the loss of 2.7 million manufacturing jobs since 2000. Meanwhile, America's deficit with China keeps soaring to new records. It is likely to pass $150 billion this year.

Now, manufacturers and workers who never thought they had to worry about the China price are confronting the new math of the mainland. These companies had once held their own against imports mostly because their businesses required advanced skills, heavy investment, and proximity to customers. Many of these companies are in the small-to-midsize sector, which makes up 37% of U.S. manufacturing. The China price is even being felt in high tech. Chinese exports of advanced networking gear, still at a low level, are already affecting prices. And there's talk by some that China could eventually become a major car exporter.

Multinationals have accelerated the mainland's industrialization by shifting production there, and midsize companies that can are following suit. The alternative is to stay at home and fight—and probably lose. Ohio State University business professor Oded Shenkar, author of the new book The Chinese Century, hears many war stories from local companies. He gives it to them straight: "If you still make anything labor intensive, get out now rather than bleed to death. Shaving 5% here and there won't work." Chinese producers can make the same adjustments. "You need an entirely new business model to compete."…

America's Eroding Base

The deficit with China will keep widening under most projections. That raises the issue: Will America's industrial base erode to a dangerous level? So far the hardest-hit industries have been those that were destined to migrate to low-cost nations anyway. But China is ramping up rapidly in more advanced industries where America remains competitive, adding state-of-the-art capacity in cars, specialty steel, petrochemicals, and microchips….

Meanwhile, U.S. companies are no longer investing in much new capacity at home, and the ranks of U.S. engineers are thinning. In contrast, China is emerging as the most competitive manufacturing platform ever. Chief among its formidable assets is its cheap labor, from $120-a-month production workers to $2,000-a-month chip designers. Even in sophisticated electronics industries, where direct labor is less than 10% of costs, China's low wages are reflected in the entire supply chain—components, office workers, cargo handling—you name it….


Shaking Up Trade Theory

For decades economists have insisted that the U.S. wins from globalization. Now they're not so sure

Ever since Americans began fretting about globalization nearly three decades ago, economists have patiently explained why, on balance, it's a boon to the U.S. Yes, some Americans lose their jobs, either to imports or because factories move to cheap-labor countries such as China or India.

But the bulk of this work is labor-intensive and lower skilled and can be done more efficiently by countries that have an abundance of less-educated workers. In return, those countries buy more of our higher-value goods made by skilled workers—for which the U.S. has a comparative advantage. The lost jobs and lower wages in the U.S., economists say, are more than offset when countries specialize like this, leading to more robust exports and lower prices on imported goods.

Now this long-held consensus is beginning to crack. True, China is emerging as a global powerhouse, realigning many economic relationships. But in the long run a more disruptive trend may be the fast-rising tide of white-collar jobs shifting to cheap-labor countries.

The fact that programming, engineering, and other high-skilled jobs are jumping to places such as China and India seems to conflict head-on with the 200-year-old doctrine of comparative advantage. With these countries now graduating more college students than the U.S. every year, economists are increasingly uncertain about just where the U.S. has an advantage anymore—or whether the standard framework for understanding globalization still applies in the face of so-called white-collar offshoring….

The great debate percolating among the country's top trade economists gained new prominence with a recent article by Nobel laureate Paul A. Samuelson in the Journal of Economic Perspectives (JEP). In the piece, the 89-year-old professor emeritus at Massachusetts Institute of Technology, who largely invented much of modern-day economics, questions whether rising skills in China and India necessarily will benefit the U.S….

The central question Samuelson and others raise is whether unfettered trade is always still as good for the U.S. as they have long believed….

Until now the pain of globalization has been borne by less than a quarter of the workforce, mostly lower-skilled workers, whose wage cuts outweighed the cheaper-priced goods globalization brings. But the other three-quarters of American workers still came out ahead, since they weren't affected by foreign wage competition. If blue- and white-collar employees alike are thrown into the global labor pool, a majority of workers could end up losing more than they gain in lower prices. Then the benefits of increased trade would go primarily to employers. "It's entirely possible that all workers will lose and shareholders will gain; you have to be concerned about that," says Harvard University trade economist Dani Rodrik….

Globalization, say most trade economists, ultimately should benefit the U.S. more than it hurts. But they can't yet show that to be true. Until someone comes up with a convincing explanation for what happens when the highest-skilled jobs move offshore, battles over globalization are likely to rage even hotter.



How America Can Meet "The China Price"

Start by cutting the budget deficit. And boost funds for education

…It's all too easy to fall into a spiral of despair when thinking of Asia. Certainly importing goods, outsourcing production, and offshoring services represent major economic challenges. Yet even though many industries and companies are suffering dislocation and their employees are feeling pain, the U.S. economy as a whole should do very well in the future. But there are a lot of "ifs" behind that proposition. The U.S. should be in fine shape if it remains flexible, entrepreneurial, and cutting-edge smart, and if Washington acts to bring the nation's federal budget deficit under control….

While Washington pours billions into farm subsidies and pork barrel spending, it is cutting back on federal Pell Grants for college kids. The U.S. needs far more engineering, math, and science graduates. Retraining workers and easing the pain of moving to new jobs are also important. To help, Congress should act on plans for tax-advantaged savings accounts and wage insurance….

     Key statements above: “Globalization, say most trade economists, ultimately should benefit the U.S. more than it hurts.” That’s the way it always is among conservatives. Their policies—from taxes to international trade—always benefit the rich and powerful first and massively, and then are supposed to benefit middle- and low-income Americans somewhere in the future. Somehow, however, the future never seems to come for those who are supposed to benefit as a result of “trickle-down.”

     ”The U.S. needs far more engineering, math, and science graduates.” Nonsense. That’s not going to do a bit of good, since China and India can produce graduates much faster and far more cheaply than we will ever be able to. In fact, as other articles have pointed out, they’re already doing it. We will never be able to compete with China or India in any area on the basis of price only—including education.

      “Until now the pain of globalization has been borne by less than a quarter of the workforce, mostly lower-skilled workers.” This is probably the most important statement of all. Since only the bottom quarter of our workforce are making all the sacrifices, the rich and powerful—and even many in the middle-class—don’t really care. But, as the accumulating evidence is beginning to show, their turn is coming.

     The following two excerpts are excellent examples of how propaganda can distort the realities of our country’s economy.

     The Bush administration will undoubtedly brag that its policies have created 112,000 jobs in the economy. But the average citizen should read the investment columns of our conservative financial press to understand the true implication of the number. It’s a severe disappointment, because—given all the tax breaks to rich investors, and the powerful stimulants to the economy of gearing up for war—the number should have been 200,000.

From The Wall Street Journal, December 6, 2004.

Jobs Report Rattles Traders Again

Those Positioned for Rise
In Yields Get Hit as Data
Are Weaker Than Expected

NEW YORK—It’s been a nightmare year for traders ahead of the monthly employment reports.

Even so, they confidently went back out on that limb last week, sure that the Labor Department would deliver another robust gain in payrolls and that bond yields would move higher. Other economic data appeared to point in that direction, and broad weakness in Treasurys earlier in the week heightened a sense of bold bearishness on Treasury desks.

But at 8:30 a.m. EST on Friday, the government's report pushed a number of investors right off that limb into a large, gaping trap. Investors and economists expected companies to have padded their payrolls with more than 200,000 new employees in November. Instead, they added only 112,000, according to the government….


     And how does one of the right-wing crackpots working for Barron’s see the disappointing numbers? He pretends to be unsurprised because he wants to convince the public that this recovery—which is great for investors and terrible for workers—isn’t really in trouble.

From Barron’s, December 6, 2004.


The Great Disconnect

Why tepid job growth = lower unemployment

By Gene Epstein

…The Bureau of Labor Statistics reported that the unemployment rate ran at 5.4% in November, confirming a long-term drop from 6.2% in the summer of '03.

That's surprising in view of the unremarkable employment growth in the past year or so. The Bureau reported that payroll employment rose by 112,000 jobs in November, well below the 200,000 that Wall Street had expected….

Sluggish gains like that didn't use to cause declines in the unemployment rate. The old rule-of-thumb calls for monthly gains of 150,000 merely to absorb the growing labor force and prevent the unemployment rate from rising. A recent study from the Atlanta Federal Reserve now sets the bar at 98,000 jobs a month to keep the unemployment rate steady.

The study's main point is that growth in the labor force has ratcheted down. But I suggest we focus on the share of the population classified as "not in the labor force" instead of the share that are. The fact is, an unusually large number of people who might have been in the labor force are staying out voluntarily—chiefly to go to school or raise children. Since they're not looking for work, they're not being counted as unemployed.

The portion of people not in the labor force has increased recently to a 16-year high of 34%. You might think that suggests that millions want a job but can't find one or have given up looking. But that's not so.

The Bureau of Labor Statistics keeps track of those who are not in the labor force but say they want a job. All they have to do is say "yes" when the Household Survey interviewer (after determining that they're without a job and haven't looked one over the past month) asks if they want a job. Nothing else….

     Conclusion: if the data reflects badly on the Bush Administration—minimize it by criticizing the data gathering methodology.

     Now we’re seeing the other side of tax cuts for the rich. Middle- and low-income citizens get the short end of the straw when tax cuts are given out, and when the resulting deficit requires cuts in domestic spending—in those programs that, of course, would benefit the general public.

From The Wall Street Journal, December 7, 2004.

Congress Clears Spending Bill
With Tight Domestic Limits

…The giant measure, covering 14 cabinet-level agencies and filling 658 pages, represents a near freeze on domestic appropriations for fiscal 2005 and anticipates still tighter limits in President Bush's 2006 budget plan to be announced in early February.

The domestic budget crunch comes as the costs of the Iraq war climb, and a supplemental spending bill is expected near the time of the new budget next year. The Army's requests alone are said to be $45 billion. When additional Iraq costs for the other military services and the State Department are counted—plus a major new $700 million to $800 million antinarcotics initiative in Afghanistan—lawmakers say the package could easily reach $65 billion—on top of $25 billion already approved this past summer for 2005.

At home, domestic-agency heads are only now coming to grips with the effect of the tighter limits. Democrats have accused Republicans of waiting until after the November elections to complete the final spending agreement.

The gap between high-profile authorization bills—promising more money—and the reality of the appropriations process is striking. Lawmakers last month sent the White House an updated version of the Individuals With Disabilities Education Act, assuming $12.36 billion for special-education programs in 2005 and authorizing steady annual increases reaching to $26.1 billion in 2011.

By contrast, the omnibus bill provides about $10.7 billion, or 13% less than the authorization level. Looking ahead, the assumption that Congress can come up with an extra $2.3 billion a year is at odds with the fact that the entire budget for discretionary domestic programs increased this year by only about $3 billion to $4 billion.

The same pattern is repeated with the Environmental Protection Agency budget. For example, contaminated sediment is a major problem in the Great Lakes basin, and two years ago Congress passed a law promising $270 million in funding over five years. This has been a priority for EPA Administrator Mike Leavitt, who heads a Great Lakes federal interagency task force that held a major meeting in Chicago Friday. But even after Mr. Leavitt interceded in the year-end talks, the final bill gives him only $22.5 million for 2005, half the president's request.

     Naturally, the environment always suffers in the Republicans’ short-sighted corporate-driven priorities.

     Our globalized economy is beginning to unravel, just as it did in the 1930s. We are repeating the disastrous economic policies that gave us the depression, and, just as they led to world-wide protectionism, our current policies are also leading to protectionism.

     Of course, protectionism is not what is going to cause the next worldwide economic depression. It’s the policies that led to the protectionism that is the problem (those policies put too much money into the hands of the wealthy and powerful, and not enough money in the hands of the world’s consumers—the ones who actually create a dynamic economy.)

From The Wall Street Journal, December 7, 2004.

EU Is Set to Prod China
On Textile Exports

BRUSSELS -- The European Union will warn China at a summit meeting this week against flooding world markets with textile exports when global quotas fall away in January. The EU also will tell China it isn't ready to end its 15-year arms embargo until the country improves its human-rights record….

On both issues, the EU and U.S. seem to be taking similar approaches. The U.S. is pressing the EU to maintain the arms embargo and has threatened to curtail transfers of sensitive military technology to European countries.

France and Germany want to end the embargo. German Chancellor Gerhard Schroeder, in Beijing yesterday as China signed agreements valued at about €1.6 billion, or $2.2 billion, to buy Airbus jetliners and German industrial goods, repeated his calls for the embargo to be dropped. EU officials said yesterday there was no agreement among all 25 EU governments to relax the embargo. Several countries demand more progress on human rights and want China to ratify an international convention on civil liberties.

Even before textile quotas end Jan. 1, the U.S. is preparing to block Chinese socks and bras, arguing the nation's exporters are unfairly undercutting world market prices.

EU officials, headed by trade chief Peter Mandelson, will suggest that the Chinese government introduce import duties on cotton used to make textiles. They also will warn that the EU could follow the U.S. example of blocking specific Chinese items of clothing.

The EU says it has figures to back claims of unfair Chinese government support in textiles. Unlike other countries, China has had almost no bankruptcies in the textiles industry. The EU alleges this is because of an accommodative policy on loans and low expectations for capital return.

     As the demand for each country’s products declines, and the countries with the cheapest labor destroy the incomes of workers in other countries—there becomes a mad scramble to salvage whatever markets are left.

     Protectionism is just beginning, and it’s going to grow—not only in textiles, but in the basic products of trade, such as cars, computers, software, and so on. The leaders of all countries simply cannot afford to have large masses of their publics taking to the streets in protest of what’s happening.

     It’s about time that those who are making outrageous profits from globalization quit claiming that it is economically efficient. The following excerpt exposes the deliberate lie—that is, unless you consider American workers as raw materials or machines, and as simply an expense to be minimized.

From The Wall Street Journal, December 8, 2004.

Manufacturers Cope With Costs
Of Strained Global Supply Lines

The rising cost and complexity of getting goods delivered is adding to the profit pressures faced by U.S. manufacturers and may indicate deeper structural problems in global supply lines.

Logistics has been a growing challenge since American companies sought to cut costs by shifting more production to countries where manufacturing was cheaper. The surge in global trade in recent years has added to strains and charges for all forms of transport.

As a result, some manufacturers are developing costly buffer stocks—which can mean setting up days' or weeks' worth of extra components—to avoid shutting down production lines and failing to make timely deliveries. Others are shifting to more-expensive but more-reliable modes of transport, like air freight, which is faster and less prone to delays than ocean shipping. Some companies are turning to new information technology to keep supply chains flowing and hiring experts to help determine the best U.S. ports to use each week….

"Every problem you have adds cost," says Wayne Youngers, chief executive of the family-run maker of metal parts for oil-drilling, construction and hydraulic equipment. Youngers, which launched its outsourcing drive two years ago, had planned to be importing by now twice as much as it actually does. It has slowed the pace largely because of transport problems….

"If you look at what's happening to imports and the need to move containers across the country, we're at the beginning of a continuing capacity crunch—in terms of ocean, rail and motor-truck movements," says Tim Vaio, vice president, supply-chain practice at Hitachi Consulting….

     As has been obvious from the very beginning, the ONLY economic “efficiency” to be derived from globalization is that it destroys wages for American workers.

Week of November 29

     Anyone who still doubts that multinational corporations are now running our country—at taxpayer expense—should read the following.

From The Wall Street Journal, November 29, 2004.

Tax Break to Lure Employers Is Attacked

DaimlerChrysler Defends Ohio Incentive
For Plant; Court Cites Free Flow of Trade

A 94-year-old auto factory, where the original Willys Jeep that took U.S. soldiers to war was produced, is at the center of a legal battle over the tax breaks used by dozens of states to attract employers.

Back in 1998, DaimlerChrysler AG was considering shutting the Toledo, Ohio, factory. To keep the plant open, the city and state offered the auto maker a $280 million tax break in exchange for a $1.2 billion plan to expand the complex.

Then a group spearheaded by consumer advocate Ralph Nader filed a lawsuit attacking the package as illegal "corporate welfare." In a September ruling that is drawing shouts of protest from state capitals and corporate executive suites across the country, a U.S. appeals court in Cincinnati found that a key part of the plan violated the Constitution because it interfered with the free flow of trade among the states.

Business groups and state governments are now joining in an appeal of the ruling, warning that it could abolish the job-creating tax break in Ohio, Michigan, Kentucky and Tennessee, the states under the appeals court's jurisdiction. Moreover, they warn, the ruling could prod courts elsewhere into interfering with tax breaks for projects ranging from factories to football stadiums….

State and local governments have long used tax breaks to draw factories from other places in order to create jobs. Currently, about 40 states use breaks and other incentives similar to those given DaimlerChrysler to attract or keep employers….

Critics of the breaks cite studies showing that tax incentives don't figure as prominently in business-location decisions as geography or the availability of labor. A two-year study tracking such decisions by Peter Fisher, a University of Iowa professor of urban and regional planning, found that in many instances tax breaks provided incentives "to a firm that would have relocated there anyway."…

Chambers of commerce from Ohio, Kentucky and Tennessee argue that, unless reversed, the decision "will likely encourage businesses to move operations offshore, where labor costs and lack of regulation produce substantially lower costs."…

     Corporations’ ultimate power to control the actions of local and state governments is summed up in the threat of the Chambers of Commerce: if they don’t get their way, "…businesses [will] move operations offshore, where labor costs and lack of regulation produce substantially lower costs."

     In other words, by pitting local governments against each other, international corporations now have all the power, and local governments and their taxpayers have none. If local communities don’t provide them with what they demand, they will abandon them and go other countries that are more desperate for whatever crumbs the corporations will grant.

     The bills for our massive tax cuts for the rich and our short-sighted globalization policies—and the resulting trade gap—are beginning to come due. Even conservative Republicans are beginning to see the folly of recent economic policies.

     The following pair of articles describe the mess we’re getting ourselves into.

From Fortune, November 29, 2004.

Congrats, Sir! Now Please Fix the $50 Trillion Mess We're In.

Here's hoping Bush shows the same backbone with the deficit as he has with foreign policy.

A week after George W. Bush won a second term, the leaders of the Concord Coalition—the deficit fighters' club founded in the dark days of 1992—gathered at the Pierre Hotel in New York City to commiserate. This was no bunch of blue-state liberal whiners. Half the people on stage at the coalition's annual awards dinner were Republicans. The guest of honor was Senator John McCain, who spent much of the fall on the road campaigning for Bush.

But the tone was somber, even apocalyptic. Few in Washington care about deficits, McCain lamented: "No one's sounding alarms. We don't want to make any tough decisions." Coalition co-founder Warren Rudman, former Republican Senator from New Hampshire, warned that this year's $422 billion deficit is but a cold snap presaging the economic ice age to come. "For people currently alive, we have $50 trillion to $65 trillion in unfunded liabilities," he said, referring to the cost of Social Security and Medicare benefits promised to current and future retirees. If we try to put off dealing with that staggering fiscal imbalance much longer, Rudman added, "we'll crash into the iceberg and see if we can float." …

This time around, more Treasuries than ever are in the hands of foreigners. Japan has long been the biggest buyer of the things; China is now a strong No. 2. This means that a President who has made a point of ignoring the opinions of other nations may end up having to consult the Chinese, of all people, over his domestic taxing and spending decisions….


From Business Week, November 29, 2004.

U.S.: Could Trade Imbalances Topple The Greenback?

Pressure from currency markets makes fixing the trade gap a delicate task

The ever-growing deficit in America's international trade is a bomb waiting to explode, but one with a very long fuse. That's why for years economists and policymakers put the deficit low on their list of worries. The lack of urgency stemmed from the glacial pace of the gap—it has been widening for 13 years with no problems—and from the fact that the U.S. remains the most attractive destination for foreign funds.

Recently, however, the fuse seems to be burning a lot more quickly. Currency markets, increasingly edgy about the deficit, are pushing down the dollar. Overseas officials and international trade organizations have called on the U.S. to deal with the problem before it inflicts global pain. And policymakers at the Federal Reserve took time at their Sept. 21 policy meeting to discuss the "worrisome further widening of the U.S. trade and current-account balances." At the same time, growing economic tensions, especially in Europe, and contradictory statements from the White House about the dollar suggest that correcting the current-account deficit will be risky….

The U.S. will have to tighten either monetary or fiscal policy--preferably both. The European Central Bank must cut interest rates, and Japan must solve its long-running banking problems. China and many Asian governments have to loosen their grip on their currencies. And all countries must restrain themselves from protectionist urges.

IT'S A TALL ORDER, especially given the Bush Administration's penchant for acting unilaterally rather than in conjunction with other governments. Choosing to go it alone on this effort risks unleashing the wrath of the currency markets. Given the dollar's slide, they may already be losing their patience with current efforts….

The problem isn't just China. Excluding China, the U.S. deficit with the OITPs (Other Important Trading Partners) is still 41% bigger than it was in February, 2002. And in the past year, the U.S. gap with the seven major trading regions has worsened just as much as the gap with China has, even though the dollar is down 5% vs. the major currencies and not at all vs. the yuan.

Why hasn't the dollar narrowed the trade deficit, even in areas with strengthening currencies? Strong U.S. demand, compared to that in other regions, has overwhelmed the constraints of the dollar's weakening. In effect, hefty stimulus from U.S. tax cuts and low interest rates has skewed global growth and helped out foreign producers.

In the coming year, economic tensions are bound to rise, as the global trade imbalance gets worse before it gets better. The onus will fall on the Bush Administration to take the lead in achieving a benign resolution. But if government policy fails, the currency markets will step in. And their remedy could be much more painful.

     Of course, the Republican bias isn’t to correct the real problems—tax cuts for the rich, globalization, and our ballooning trade deficit—it’s to cut the “Social Security and Medicare benefits promised to current and future retirees.”

     In other words, keep the tax cuts for our new aristocracy, and the benefits to wealthy investors from globalization—and penalize working class Americans who depend upon Social Security and Medicare to compensate them for the sacrifices that Republicans and conservative Democrats have forced upon them.

     Love the way our conservative press sometimes tells the truth. Just look at the way Fortune describes what’s really been happening to working-class Americans.

From Fortune, November 29, 2004.


Productivity Pains

After years of productivity gains, American workers are slowing down.

In the third quarter, productivity growth (a measure of how much a worker accomplishes for every hour on the job) fell from 3.9% to 1.9%. That's the lowest rate since the fourth quarter of 2002 and well below the 9% rises we were seeing in mid-2003. Falling productivity does bode well for job growth, however.

When companies can't wring any more out of their existing workforce, they're forced to start hiring again….

     So, “companies can't wring any more out of their existing workforce.” How sad. Now it looks like they may have to start hiring more workers and actually sharing with them the wealth that the workers themselves are creating.

     Finally, a sensible and morally sound editorial from the conservative Business Week.

From Business Week, November 29, 2004.

Minimum Wage: The States Get It

Since Congress won't raise hourly pay, local lawmakers are taking the lead

By Aaron Bernstein

Florida Governor Jeb Bush helped to deliver 52% of his state's votes for his brother on Nov. 2, but that didn't stop fully 72% of voters there from backing a GOP-unfriendly ballot initiative: raising the minimum wage. The popular measure set a state wage floor of $6.15 an hour, a buck higher than the federal level, which hasn't been lifted since 1997. It also pegs the state's new minimum to inflation, so that the lowest-paid workers will get automatic increases each year to keep their purchasing power in line with consumer price hikes.

The initiative, to which Governor Bush offered only tepid opposition, makes Florida the 13th state to lose patience with the federal government and set its own higher minimum. It's also the third, following Washington and Oregon, to index its minimum wage to inflation. Both of these ideas are long overdue and should be emulated by Congress and other states.

True, if wage floors are set too high, employers will create fewer jobs, and the lowest-skilled Americans will lose more than they gain. This is the argument some business groups made in Florida and continue to make about the federal minimum, says Stephen R. Birtman, Florida state director of the National Federation of Independent Business (NFIB).

But new research over the past decade shows that modest hikes to keep the low-paid abreast of inflation will cost few if any jobs. The point has been widely embraced since 1995 studies by University of California at Berkeley economist David Card and Princeton University economist Alan B. Krueger found no employment losses among New Jersey fast food restaurants hit with minimum-wage hikes. Given wide variations in costs around the country, the federal minimum should serve as a floor, which would allow high-cost states such as California or Alaska to set their own minimums higher if they wish. "Indexing doesn't improve conditions for low-wage workers, it just keeps them from deteriorating further as prices rise," says Robert Pollin, an economics professor at the University of Massachusetts at Amherst who led a study of the Florida initiative for its advocates.

Certainly, there are few credible reasons left to oppose an increase of the federal $5.15 an hour. That sum gives a full-time worker barely more than $10,000 a year, despite a family poverty level that has climbed to $18,600. Indeed, the federal minimum was 40% higher in 1968, or $8.50 in today's dollars. So lifting it by a dollar or two wouldn't even come close to restoring low-wage workers' purchasing power back to where it was more than 25 years ago.

Employers of low-wage workers--mostly restaurant and hotel chains and small companies represented by groups such as the NFIB—have enough clout in Washington to a block minimum wage hike. But the idea has widespread support. As many as 123 cities have passed "living wage" laws, which set higher minimums for workers employed by city contractors. "Even most people in red states like Florida know that $10,000 a year is a joke to live on," says Jen Kern, director of the Living Wage Resource Center at ACORN, an antipoverty group that spearheaded the Florida initiative and others.

Some critics argue that the Earned Income Tax Credit is a better way to lift up the poor. The reason: The EITC, which gives tax dollars to the lowest-income workers, targets the poor more directly than the minimum, which also covers people such as affluent teenagers.

There's truth in this view, but the EITC would work even better with a federal minimum pegged to inflation. Welfare reform and the EITC have lured more single mothers into the labor force since the mid-1990s. But in doing so, they expanded the supply of low-skilled workers, holding down low-end wages, points out David Neumark, a senior fellow at the Public Policy Institute of California. An indexed minimum would offset that downward pressure, creating complementary policies that bring up those on the bottom to rise along with the rest of us.

     How can Republicans possibly claim the moral high-ground and still oppose raising the minimum wage for our poorest Americans?

     Go figure.

     This is an unusually good, and rare, week for Business Week editorials. Here’s another one.

From Business Week, November 29, 2004.


The High Cost Of Corruption

Rigged markets, as well as regulation, can hurt growth

The cost of regulation is high, but the cost of corruption may be higher. Nov. 15 marked the implementation deadline for a key section of the Sarbanes-Oxley Act for companies with fiscal years ending on or after that date. Under Section 404 of the law, publicly traded companies must have new financial monitoring controls in place, certified by auditors. Many chief executives are complaining loudly that implementing "Sox" is costing their companies heavily in time and money. But we should all be indignant at the broader economic "tax" imposed by corporate corruption on America.

Corruption makes markets less efficient, more costly, and less innovative. Take the latest insurance scandal unearthed by New York State Attorney General Eliot Spitzer. Bid-rigging and secret payoffs among insurance brokers have undermined much of the competition in the insurance market. Instead of analyzing different policies and bringing the best and cheapest to their clients, major brokers gave the business to those who paid them off.

Think about this for a moment. We now know that Corporate America is paying far more than it should for property and casualty insurance. We have just learned that both companies and employees are paying more than they should for disability, life, and other insurance in the employee benefits market. The next uproar may well be in medical insurance, which has been in a crisis for years. Doctors find it increasingly impossible to pay high premiums and are dropping out of the profession. Expensive medical malpractice lawsuits are partly to blame. But is this crisis due to rigged markets for medical insurance as well?

The truth is economists don't usually compute the tax that is imposed on economic growth by corruption. They should. In the past few years, we have witnessed conflicts of interest and manipulation within the initial public offering, mutual-fund, investment banking, and insurance markets. These rigged markets stifle innovation, erode discipline in the markets, channel money into less productive activities, add expense, and undermine national competitiveness.

We know that government regulation places a heavy burden on America's companies. We should recognize that market corruption may place an even heavier burden on the nation's economic growth.

     Remember, you read it from Business Week: a truthful analysis of the relationship between government regulations and the forced efficiencies of corporate behaviors.

     The following is a classic example of the zero-sum nature of wealth. As the wealthy look for more ways to invest their money, their attention inevitably goes to real estate. And, as they buy up everything available, middle- and low-income Americans get priced out of the market.

     That’s the major reason workers can no longer afford to pay rent for housing near where they work, especially if it’s in a desirable part of the country. And those who want to buy their first home find that it’s impossible unless they go into ruinous debt far into the future.

From The Wall Street Journal, November 30, 2004.

Investors Buy
Real Estate
At Record Pace

Wary of Stocks, More Individuals
Buy Condos and Rental Property

A growing number of Americans are buying real estate as an investment, driven by the combination of low interest rates, rising property values and tepid stock-market returns….

The demand for investment property is particularly apparent in rapidly appreciating markets, including Las Vegas, Arizona and parts of California, according to LoanPerformance. But it's evident in other markets as well: In Miami, speculators account for as much as 80% of the preconstruction purchases of luxury condominium units, according to Mark Zilbert, an associate with Esslinger-Wooten-Maxwell Realtors. In one new South Beach condo building, ICON, roughly half of the apartments were bought by investors and then resold before the building's official opening this week, according to the developer, the Related Group of Florida….

"It seems like investing in real estate is a wiser decision than putting [the money] into a stock market or savings account or savings bonds," says Kelly McDonnell, a recruiter for an educational testing company in Amherst, Mass. Ms. McDonnell is currently shopping for a two-family duplex she can rent out and then, she hopes, sell for a profit in a few years….

Investors interested in owning hard real-estate assets range from first-time speculators to wealthy individuals. Erik Friis, a San Diego attorney, started buying San Diego real estate in the late 1990s, then set his sights on Arizona as prices in California climbed. "It came to a point where there weren't any properties that made sense to buy," says Mr. Friis, who recently sold a small apartment building in San Diego and used the proceeds to buy a 24,000-square-foot shopping center in Tucson.

In Long Beach, Calif., there's "more of a demand than ever for investment property," says Richard Gaylord of Re/Max Real Estate Specialists. "The problem is that inventory is so low that I'm pulling my hair out trying to find them stuff."…

     For a more extensive discussion about the zero-sum nature of wealth, check out the file Wealth is a Zerosum Game.

     The unmitigated greed of corporate executives continues to amaze. The top executives make horrible business decisions that can even affect patient health—the stock drops—there’s a chance of a takeover or merger—and the executives get rewarded with three years’ worth of pay and bonuses.

From The Wall Street Journal, November 20, 2004.

Embattled Merck
Arms Executives
With Golden Parachutes

Merck & Co. has implemented a sweeping plan to award more than 200 executives hefty severance packages in the event of a major merger or acquisition.

The provisions, disclosed yesterday in a federal filing, effectively grant Merck's upper management a so-called golden parachute out of the company if a large deal leads to their dismissal or resignation for "good reason." The company asserts the changes were implemented to fill a "competitive gap" in compensation and benefits identified earlier this year.

The change-of-control plan, a first for Merck, comes in the wake of myriad problems at the drug giant, and growing concerns about the company's future. Merck faces potential legal liabilities over its voluntary withdrawal of its blockbuster painkiller Vioxx, as well as investigations by the Securities and Exchange Commission and the Justice Department.

The plan covers Merck's management committee and other vice president-level managers. All told, about 230 employees qualified when the plan was adopted last week, the filing said. Merck confirmed chief executive Raymond Gilmartin is among them and that he doesn't have a separate severance agreement.

Under the plan, some high-level employees could receive as much as three times their annual base salary and target bonus….

Companies say they embrace change-of-control plans "to allow executives to make objective decisions about mergers without fear of a loss of money" in their pockets, Mr. Hodgson says….

Some activist institutional investors believe that parachutes "can reward executives for under-performance leading up to a change in control," Mr. Rees said. That may be "what's happening at Merck."

     As Steve Farley noted in an email: After probably knowingly selling a bad drug leading to 27,000 heart attacks, the execs get a major comp guarantee and increase "in case of a takeover." I love it!

     New evidence suggests that privatizing Social Security is a terrible idea. As you read the following, remind yourself that those who invest in 401(k)s are likely to be much more sophisticated than your typical factory worker who knows nothing about the securities markets.

From The Wall Street Journal, December 1, 2004.

A Lesson for Social Security:
Many Mismanage Their 401(k)s

Workers Often Make Bad Picks
In Saving for Retirement;
Now, Some Let a Pro Do It

If President Bush has his way, it might be possible in a few years for Americans to take a portion of their Social Security taxes and invest the money as they see fit. The president says people should have more control over their retirement savings.

For a look at the challenges that plan could present, consider Americans' experience with do-it-yourself 401(k) retirement plans. In the 23 years since 401(k) plans were first created, many people have made obvious mistakes in investing their money, such as putting too much money into low-yield savings accounts or betting the house on their own company's stock. Many also don't put as much money into the plans as they could, forgoing big tax savings and employers' matching contributions.

Some companies have become so concerned about their employees' poor decision-making that they are shifting responsibility away from them. One Los Angeles power-equipment maker is automatically putting its workers into accounts managed by a professional investment company unless they choose otherwise. Dozens of other companies, including J.C. Penney Co. and Alcoa Inc., are giving employees a similar option, although they're not making it the default choice. Vanguard Group and Merrill Lynch & Co. are among the professional money managers now offering such managed-account programs, which were made possible by a federal rule change in December 2001….

The do-it-yourself aspects of 401(k) plans "are not working," says Alicia Munnell, director of Boston College's Center for Retirement Research. "They are simply too complicated for people to handle. It's not that people are dumb. It's just that...becoming a financial expert is low on their priority list."…

     Couple the average workers’ lack of sophistication about the securities markets with the skullduggery and high fees that are typical of Wall Street, and you have the recipe for disaster. Millions of workers are bound to place their future retirement funds in unwise investments and will suffer because of it. Those who are sure to profit will, as usual, will be the securities professionals.

     We’re finally beginning to learn the real story about insourcing. After you read the great news at the beginning, be sure to connect the bad news at the end with the recent items you’ve read on this website. Article after article have described how India and China are now beating us out of our high-tech and high-skill jobs. And that’s where the “insourcing” of the future will go: where scientific and creative “labor” is available at one tenth of the cost.

From The Wall Street Journal, December 1, 2004.

The 'Insourcing' Problem

Now that the election is over, all the wailing about "outsourcing" seems to have vanished, as it certainly should. So maybe we can all begin to pay attention to the more important economic subject known as "insourcing," where some of the recent data really are worrisome.

Insourcing is what happens when foreign-headquartered multinationals operate subsidiaries in the U.S. These companies contribute both to U.S. economic growth and living standards, but a precise measure of these gains is hard to come by. That's why the Bureau of Economic Analysis's recent data about insourcing through 2002 is worth noting. As is the study of this data by Matthew Slaughter, an economist at Dartmouth's Tuck School of Business.

Mr. Slaughter finds that insourcing companies boost the U.S. economy in two ways: through their own operations and their interactions with domestic firms. Insourcing provided jobs for more than 5.4 million U.S. workers in 2002, or nearly 5% of total private-sector employment. These are good-paying jobs, too. Payroll came to more than $307 billion—or 6% of all private-sector compensation. The average annual compensation at such companies was a tad over $56,000, or some 31% more than the average annual private U.S. compensation.

The internal operations of insourcing companies also contribute to research and development and to capital investment. Their share of private-sector R&D expenditures came to 14% (or $28 billion) and their share of capital investment topped 10% (or $112 billion). Just as eye-popping, insourcing companies accounted for 20% of U.S. goods exports.

Insourcing companies also purchase a high and rising share of their intermediate inputs from domestic suppliers—in 2002, nearly 80 cents of every dollar, or $1.3 trillion. Just as important, these companies share technology and other knowledge with these U.S. suppliers to improve quality and reliability….

However, and here's the worry, the past is not necessarily prologue. There's no guarantee that the world's best companies will continue to invest as much in the U.S. They now have plenty of other choices. China and India are the world's two most populous countries, have been growing rapidly, and have liberalized their trade and investment policies. Ditto for some of the newer members of the European Union.

And that's what makes some other data, through year-end 2003, a bit disturbing. Total flows of Foreign Direct Investment capital into the U.S. have collapsed since 2000—from a peak of $314 billion in 2000 to $29.8 billion in 2003. That's down 90%. No doubt some of that decline is a cyclical response to the giant surge in the late 1990s. But some of the falloff might be structural. In 2003, for the first time, China attracted more FDI than the U.S. ($53 billion). This comes as the U.S. share of world FDI inflows fell to only 5.3% in 2003, from 22.6% in 2000….

As Mr. Slaughter says: "Insourcing companies have contributed a lot to the U.S. economy, but the country is facing rising competition to attract and retain them." He's right.

     Bear in mind that the good news at the beginning of this article was in reference to those lucky enough to be in the right professions in the right industries. That good news has nothing to do with the millions of working-class Americans who have lost their standard of living because of globalization.

     And, as usual, it’s the investors and the movers-and-shakers who gain the lion’s share of the benefits of globalization—and of insourcing and outsourcing. That's probably why The Wall Street Journal still feels that "all the wailing about 'outsourcing' seems to have vanished, as it certainly should."

Week of November 22

     Globalization was sold to voters as a way to exchange America’s low-skill, low-paid jobs in order for us to focus on developing high-skill, high-paid jobs—right?

     Guess what. We’ve lost not only our best-paid manufacturing jobs to outsourcing, we’re now losing our best and highest-skill jobs as well.

From The Wall Street Journal, November 22, 2004.

Drug Companies
Look to China
For Cheap R&D

SHANGHAI—Long known as a place to produce clothes and toys cheaply, China now is providing the West with another opportunity: developing drugs at lower cost.

Opening a new frontier in outsourcing, pharmaceutical companies overwhelmed by the rising cost of creating drugs are turning to China to conduct research and development. They are finding highly educated scientists who work for a fraction of what their Western counterparts are paid, as well as vibrant and growing biotechnology businesses. And they are beginning to sink significant amounts of money into deals that will further boost China's capabilities….

Drug companies have found that China, where doctorate-level scientists command $25,000 a year, compared with nearly 10 times that in the West, makes a good place to test drug compounds and their efficacy. While some other highly complex R&D—such as intricate biological testing—still is mainly performed in the West, China can save companies money, since about 80% of their total R&D costs go toward scientists' salaries….

It isn't just the industry's giants that are being lured to China; Western start-up businesses are moving here as well. The lower costs buy them more time to prove the viability of their drug prospects between rounds of funding from Western venture capitalists….

     It’s about time the voting public woke up to the fact that globalization is a class war between investors and everyone who actually works for a living, including not only manufacturing workers, but our most skilled scientists as well.

     And, finally, we’re getting the straight scoop: no one actually knows how many jobs our country is outsourcing to other countries. And that’s just the jobs that have been actually outsourced. Not even considered are the jobs that were never created, because, as the previous article pointed out, “Western start-up businesses are moving (to China) as well.”

From The Wall Street Journal, November 22, 2004.

Job Losses From Outsourcing
Prove Hard for U.S. to Quantify

WASHINGTON—The U.S. government's attempt to count workers who lose their jobs when employers "outsource" work overseas has suffered a setback: Too many employers say they just don't know the numbers.

The U.S. Labor Department's Bureau of Labor Statistics, which began tracking such job losses in January, has tried to coax the information from senior executives of companies that have laid off more than 50 people. It even sent in psychologists to reinterview some of the personnel officers who answered a BLS questionnaire, theorizing its questions were misunderstood.

But the answer to the question—a matter of interest in the 2004 presidential campaign—remained "don't know." The BLS, as a result, hasn't been able to produce a count….

By most accounts, the number of layoffs caused by outsourcing of U.S. jobs to low-wage countries such as China and India is a small fraction of the millions of U.S. jobs lost each year for other reasons. Private analysts, responsible for the largest estimates, say the number this year may be as high as 400,000. But a recent government study concluded that nobody, including the federal government, has a firm grip on the number….

     The fact that “only” 400,000 jobs are being outsourced this year is almost irrelevant—for three reasons. First, almost all those who lost their jobs will now be making less money than they did before.

     Second, those people will enter the job market and be a depressing factor for the wages of all those who still have what used to be good jobs.

     Third, all workers will have the notion reinforced that when corporations threaten workers that—if they don’t behave and work for a pittance—the threat to leave the country is real. They will abandon them and their communities in a heartbeat if workers insist on making a decent income.

     If you want to get just a hint of the stupidity of privatizing Social Security, just read the following.

     Also note that there is no hint of the real reason for privatizing Social Security: an economic boon for the securities industry as workers place their retirement funds into the Wall Street casino.

From Business Week, November 22, 2004.

What's Ahead For Social Security

Can Bush's proposed private accounts fix the system's fiscal troubles?

President George W. Bush has interpreted his reelection as a mandate to restructure the troubled Social Security system. While Bush has not yet said how he'd do it, he has called for sweeping changes that would divert part of workers' payroll taxes into individual investment accounts. His goals: heading off a fiscal collapse of Social Security and promoting an "ownership society" that would give working Americans a chance to build their own retirement stake of stocks and bonds….

Pay-as-you-go Social Security only functions if there are enough workers to support each retiree. Today there are 3.4 workers per pensioner. In 30 years there will be only two….

Private accounts would generate greater potential returns by investing in stocks and bonds, but they'd also be riskier. If the money were poorly invested or withdrawn in a bear market, some workers could end up with less retirement income than if they had stuck with the basic government benefit….

The biggest is the cost of moving from the existing system. If workers shift, say, 2 points of payroll tax into their accounts, the government would have to find some other money to pay benefits to current retirees. The transition cost: at least $1 trillion over the next decade. If workers shift more into private accounts, costs could approach $2 trillion.

At the moment it looks as though the Administration is leaning toward having Uncle Sam borrow the money to fund the transition. Unfortunately, the feds are already borrowing $400 billion a year to finance the deficit. Shifting to private accounts would add $100 billion to $200 billion a year to that debt….

Should the government provide workers with a basic, though fairly modest, benefit in retirement? Or should workers have the opportunity to build their own nest egg—a chance that comes with a shot at a more comfortable retirement but also the risk that their investments will come up short? With a program as important as Social Security, the issues are far bigger than just dollars and cents.

     Key statement in the above: privatizing Social Security gives workers “a chance that comes with a shot at a more comfortable retirement but also the risk that their investments will come up short.”

     Just remember that most of these people will be unsophisticated in the ways of Wall Street, and, after Wall Street takes its cut, their chances of a more comfortable retirement will be slim to none. See excerpts from “previous weeks’ conservative press” to read about the skullduggery of Wall Street, and see if you still think workers will benefit from placing their funds with our modern securities industry.

     The disastrous effects of globalization and our escalating trade gap are beginning to become obvious even to “most economists.” Of course, to those who are making all the sacrifices for this great economy—America’s workers—it’s been obvious all along.

From Business Week, November 22, 2004.

The Trade Gap: How Long Can It Go On?

Some economists see it as sustainable, but most believe the U.S. spree must soon end

The rapid growth of the U.S. trade deficit has sparked vociferous debate—and fresh research—among international economists. The majority of the profession argues that the trade deficit is unsustainable in the long run because it's piling big foreign debts on the next generation—and unsustainable in the short term because it threatens to trigger a financial or political crisis….

The U.S. is borrowing from abroad and attracting foreign investments into assets such as stocks, corporate bonds, and Treasury securities. But much of the rising flow of money from overseas is coming from foreign central banks, especially Japan's and China's. They favor a strong dollar to keep Americans buying exports. Asian central banks added $160 billion of U.S. securities in the first half of 2004. If they change policies, it would be far harder for the U.S. to finance its deficit….

American factory workers suffer, but consumers and the government get to spend more than they earn. And nations such as Japan and China benefit from having the U.S. run trade deficits because they rely on exports to the U.S. for growth. Economist Michael P. Dooley of the University of California at Santa Cruz argues that China's biggest problem is the number of unemployed Chinese who need to be given paying work. The best way for China to deal with that problem is by keeping its trade surplus with the U.S. large….

Why do most economists worry about the trade deficit?

Because, they argue, Americans are living beyond their means. They say a trade deficit and inflow of foreign capital can be healthy if the U.S. is investing in projects that generate future wealth. But in recent years, investment has been weak. Imported capital has primarily allowed U.S. consumers to go on a spending binge. In the third quarter, personal saving was just 0.4% of after-tax income, the lowest ratio since at least World War II. As for the rise in Americans' wealth, some say it's largely the result of a bubble in the housing market.

Are there signs that the financial markets are getting worried?

Yes. The clearest indication is downward pressure on the dollar, which in recent days has dropped to a new low against the euro. Against a Federal Reserve trade-weighted index of the currencies of major trading partners, adjusted for inflation, it has fallen 24% from its most recent peak three years ago….

     Key statement above: “American factory workers suffer.” Of course. That’s the whole point. Workers suffer, and international investors become billionaires and multi-millionaires. That’s the way you create an aristocracy from what previously was democratic capitalism.

     If you know any labor union members who voted for Bush in the last election—show them the following excerpts. The election is hardly over and the Republicans are falling all over themselves in stampeding pro-business, anti-labor legislation through Congress.

     The same goes for anyone who actually cares about the environment and was foolish enough to vote for Bush.

From The Wall Street Journal, November 22, 2004.

With Election Over, Belt-Tightening Begins

Legislation Permits Just 1% Growth in Domestic
Discretionary Spending for Fiscal Year 2005

WASHINGTON—The massive year-end spending bill that Congress approved this weekend is a harbinger of tight budgets to come and marks a shift to the right after the elections.

With the continued wide deficits and the rising costs of the war in Iraq, the $388.4 billion measure permits only 1% growth in domestic discretionary spending for fiscal year 2005, which began Oct. 1. In the politically sensitive areas of labor, health and education programs, it represents the smallest increase in almost a decade.

The Environmental Protection Agency, Small Business Administration and National Science Foundation all will receive less for their programs than they did in fiscal 2004. And the measure imposes a final 0.8% across-the-board reduction that will fall heavily on personnel costs even at a time when workers are promised 3.5% pay raises….

Labor lost on several fronts, and from gun control to abortion, social conservatives moved the government more their way.


From The Wall Street Journal, November 22, 2004.

Lawmakers Load Spending Bill
With Range of Help for Business

WASHINGTON—From Libya trade to patent fees to satellite-television dishes in rural America, the year-end spending bill is busy with business.

After the State Department intervened, lawmakers added last-minute language waiving longstanding restrictions and allowing the Export-Import Bank to again provide direct loans, guarantees and insurance in support of U.S. companies seeking to do business in Col. Moammar Gadhafi's Libya….

But labor also lost twice as it sought to slow the replacement of federal workers with private contractors and tried to block new rules making it easier for private employers to deny their white-collar workers overtime….

At the same time, the Federal Communications Commission and a number of other agencies will be squeezed with the 3.5% pay increase for federal workers and a final round of across-the-board cuts.

     This last article also puts the lie to the Republican claim that their proposed legislation regarding overtime was actually a protection of workers’ interests.

     Here’s another in the endless series of articles describing the lack of moral standards in an entire industry—in this case, the insurance industry.

From The Wall Street Journal, November 23, 2004.

Life-Insurance Agent Fees
May Cost Consumers

Commission Rates Eat Away
At Value of Some Policies;
Lowering Your Premiums

Life-insurance agents have wide latitude in how they set their own commissions, a practice critics say deserves greater scrutiny. While such arrangements are legal, they are similar to the practices being looked into by New York Attorney General Eliot Spitzer and other regulators.

Up to now, the insurance probe has focused on property-casualty insurance and employee benefits, although both Mr. Spitzer and California Insurance Commissioner John Garamendi have said their actions to date are only the initial volleys into an investigation that will touch on the entire insurance industry.

The life-insurance problem chiefly affects whole-life policies, which are structured so that agents can set their own commission levels in a way that rewards the agent while reducing the value of the policies they sell.

There is virtually no disclosure of commissions for people purchasing any kind of life insurance. While that doesn't necessarily promote the same conflicts of interest that commercial insurance brokers have, it does create a situation in which the interests of the agents are at odds with those of insurance buyers….

The key to fixing such situations is for regulators to require commission disclosure, critics say. "It's a very unpopular notion," says Joseph Belth, professor emeritus for insurance at Indiana University, noting that state insurance commissioners are under pressure from agents as well as insurance companies that operate in their state. "Whenever anybody proposes the idea, it's immediately shot down."…

     The last paragraph above says it all: conservative legislators, mostly Republicans, automatically oppose any regulations that benefit consumers and that force corporations to behave ethically. Requirements that corporations actually tell the truth to consumers are therefore “immediately shot down.”

     The following three items appeared in the same issue of The Wall Street Journal.” Taken together, they present an excellent case for not privatizing Social Security.

     These three excerpts are presented for purposes of criticism only, and those who are interested in their investment implications should read the originals.

All three of the following excerpts came from The Wall Street Journal, November 23, 2004.

No-Load Turkey Funds

This Thanksgiving, the only turkey you feast on should be the kind that's served with stuffing and cranberry sauce.

Alas, many people also have turkeys in their mutual-fund portfolios. All too often, investors stubbornly hold on to dreadful funds that should have been sold a long time ago. If you fall into this camp, it's time for a turkey shoot.

We've compiled a list of no-load stock funds that have some of the worst long-term track records around—and high fees, to boot. Please don't consider our list exhaustive. There are many lesser offenders that also might be worth purging from your portfolio. The key is to know how to identify a turkey when you see one. Chronic underperformance is a telltale sign that a fund might be getting a little gamy. Fat fees don't help matters.

But a true turkey is one that has underperformed its peers over the long haul—while charging shareholders a handsome fee for the privilege of owning it. Take the American Heritage fund, with a 19% annualized loss over the past 10 years and a staggering 12.6% expense ratio….


More Investors Are in High-Fee College 529 Plans

State-sponsored 529 plans with the highest fees tend to have more investors and higher account balances, while those with lower fees and greater tax deductions draw fewer investors, according to a recently released study by two accounting professors.

The findings—covering 77 college-savings 529 plans over a two-year period that ended in September 2003—are likely to fuel the debate over whether brokers are pitching out-of-state 529 savings plans instead of directing investors to plans with better tax benefits available in their own state….

"These findings are consistent with congressional concerns that advisor fees are driving investment recommendations, not state income tax benefits or low fees, which should lead to higher expected returns for these investments," wrote Profs. Alexander and Luna in a letter this year to the Municipal Securities Rulemaking Board….


Pensions Outperformed
401(k) Plans in Bear Market

Traditional pension plans outperformed 401(k) plans during the last three years of the bear market, a study finds.

From 2000 to 2002, both types of retirement plans lost money amid the equity market's declines, but investors in 401(k)s fared worse than those in pension plans, which are run by professional money managers….

The reversal of fortunes comes from the fact that pension plans are strictly monitored by managers, while 401(k)s depend on the attentiveness of individual investors. Since the managers have a fiduciary responsibility to manage the assets prudently, they are regularly rebalancing portfolios to get back to a predetermined ratio of stocks and bonds. Individual investors in 401(k)s may also have stated investment strategies, but many often fail to implement them, says Sylvester Schieber, director of research at Watson Wyatt. "The managers of these respective plans have different behavioral patterns," he says….

     Voters who are considering supporting the politicians who want to privatize Social Security should remember that it isn’t intended to be a crap-shoot where individuals try to outwit Wall Street professionals in picking the best investments.

     Voters should realize that the main purpose of privatizing Social Security is to benefit the investment professionals who are more interested in enriching themselves with their high fees—than in giving honest investment advice to unsophisticated retirees.

Week of November 15

      The following is a brief excerpt of a very long article and is presented for purposes of criticism only. Those who would like to study the subject in depth should read the original.

      As you read it, remember that, shortly before the Savings & Loan crash of the 1980s, Greenspan testified before Congress that the S & L industry was healthy and no cause for concern. He also was a paid consultant for S & L corporations at the time.

      Also note that he’s chronically against any government policies that may inhibit corporations’ ability to make huge profits—but he’ll raise the prime interest rate any time that it looks like there may be the remotest chance that working-class Americans may start making higher wages.

From The Wall Street Journal, November 19, 2004.

The Deregulator

A Less-Visible Role
For the Fed Chief:

Greenspan Blessed Mergers
And Blocked Regulation;
Using the 1800s as a Model
Is Modern Finance Too Risky?

WASHINGTON—As Alan Greenspan approaches his last year as chairman of the Federal Reserve Board, he continues to draw praise for his most visible job: steering the economy by raising and lowering interest rates. But behind the scenes, the 78-year-old economist has had a big impact on American life in an entirely different role: pushing the government to stay out of financial markets.

Consider what happened in 2002, when Democratic Sen. Dianne Feinstein proposed new rules to govern how traders buy and sell contracts to deliver energy through financial instruments known as derivatives. Her move came after Enron Corp. and others helped send electricity prices soaring in California by manipulating that market. When she telephoned Mr. Greenspan for support, he declined, telling her the proposal threatened the multitrillion dollar derivatives industry, which he considers an important stabilizing force that diffuses financial risk….

In addition to thwarting the post-Enron impulse to regulate derivatives, Mr. Greenspan has helped remove Depression-era barriers between the banking and securities industries and has blessed mergers creating banking behemoths….

The result is a paradoxical position for one of the world's most influential civil servants: He would prefer that the state play virtually no role in the economy. His ideal is the pre-Civil War period when the federal government was so invisible it didn't even issue a national currency….

Critics say his hands-off regulatory philosophy has made the Fed a less effective watchdog, citing complicity by Fed-regulated banks in recent corporate scandals. His intellectual opponents also argue that some regulation is necessary to moderate the risks inherent in modern finance….

Mr. Greenspan has also been skeptical of the value of the Fed's many consumer-protection rules. The only vote he has lost on the seven-member Federal Reserve Board was a 4-3 decision in 1995 that required banks to change the way they calculate savings-deposit rates. Some on the board felt the way the rate was calculated was misleading to the public. Weeks later, after banks protested the cost of the change, the board voted unanimously to suspend its action and the proposal didn't take effect….

      Most of the above article speaks for itself. Just note how Greenspan supports any government action, or inaction, that increases corporate profits—and how he opposes anything remotely associated with the interests of consumers or workers.

      To better understand how Greenspan—our #1 class warfare expert against working Americans—deliberately keeps working-class wages from going up, check out the file: The Class Warfarer’s scapegoat: “Wage Inflation”.

     The following article demonstrates the pathetic—and ultimately futile—efforts of American manufacturers to overcome the onslaught of cheap Chinese labor.

From The Wall Street Journal, November 18, 2004.

U.S. Response: Speedier Delivery

Imported furniture from China may be cheaper, but there's a drawback: That boat from China can be pretty slow.

American furniture makers are trying to take advantage of that by speeding up the truck from North Carolina. As the flood of Chinese imports grows, domestic manufacturers are increasingly fighting back by offering speedier delivery on custom-ordered pieces. In the past, deliveries from manufacturer to retailer could take a frustrating eight to 12 weeks or longer…

Some American companies have been attempting faster delivery times for a while, but the strategy is widely considered a strategic imperative, as lower tariffs open the way for more Chinese imports. Now, U.S. companies are offering speedy delivery not just on upholstered pieces but also on wood furniture….

Some representatives for Chinese companies are skeptical that the custom market will draw away consumers. "Sure, there are big opportunities in furniture for custom work, but you pay a lot more for it than the furniture made in larger runs," says John Wampler, president of Forbidden City, a division of Lifestyle Enterprise Inc., which imports leather sofas from China. A Forbidden City leather sofa retails anywhere between $499 and $999. By comparison, a Williams-Sonoma Home leather sofa will set you back by $4,200 to $5,800….

     It’s a no-brainer. There’s no way furniture selling for $4,200 will compete—for long, or at any significant scale—with similar furniture selling for $499.

     This excerpt also demonstrates the horrible inefficiencies of globalization: huge increases in transportation expenses and inevitable time delays. But the savings realized by cutting the wages and standard of living for millions of American workers makes it all worth while. What a sweet deal for America’s wealthy investors.

     What great news for third-party advocates! It looks like the Democrats are again going to shoot themselves in the foot.

     Who are they championing today? Loser Joe Lieberman, who lost with Gore as both of them tried to act like moderate Republicans. And winner Bill Clinton, who, after his election, proceeded to lose us the “blue-collar, less educated, and rural whites,” with his totally anti-labor NAFTA and WTO.

From Business Week, November 15, 2004.

Commentary: The World Has Changed. Why Can't The Dems?

Another election, another lost opportunity to craft a lasting vision

By Richard S. Dunham

… "Something went wrong [in 2004] besides a lousy candidate," says John Kenneth White, a political scientist at Catholic University. "Democrats need to say: 'We ought to look to see if we have a party problem here."'…

…the party's socially liberal standard-bearers have watched a steady erosion of support from voters who once made up the heart of the New Deal coalition: blue-collar, less educated, and rural whites. What's left is a bicoastal party that has an ever-more-difficult time competing in the industrial heartland and has collapsed in the South—once the twin peaks of its power. Continuing to wallow in nostalgia and trying to reassemble the New Deal coalition relegates Democrats to long-term minority status. "If there's a silver lining [in Kerry's defeat], it is that it's going to eliminate the ability [of Democrats] to argue that we have a natural majority on our side," says California venture capitalist Andrew S. Rappaport, a leading funder of Democratic causes. "We don't. It's over."…

Changing the nomination process to reduce the power of interest groups might be a start. Although polls show that Democratic liberals are outnumbered by party moderates and conservatives, they dominate the primaries. In 2004 former Vermont Governor Howard Dean's unexpected surge as the candidate of the hard-core antiwar Left masked the fact that Dean's rivals were liberals, too—just of a more pragmatic stripe. Even retired General Wesley K. Clark, medals and all, ran as a down-the-line liberal. The only moderate in the nine-candidate field, Senator Joe Lieberman, failed to win a single primary….

Then there's the party's inability to come up with a lasting post-New Deal ideology. Bill Clinton's New Democrat formulation succeeded for eight years, but the past two nominees have diluted upbeat Clintonism with downbeat rhetoric, harping on tax cuts for the rich and scaring the elderly with warnings about Social Security privatization….

The biggest reason that the coalition won't jell: Democrats must come to grips with the reality that they are increasingly on the losing side of America's cultural divide. In this election, millions of blue-collar economic populists rejected a Massachusetts liberal because they felt he did not share their values on issues ranging from abortion to affirmative action, from guns to gay rights. More than two-thirds of churchgoing Christians—including millions who disapproved of the President's handling of the economy and the war in Iraq—nevertheless voted for Bush….

     The comment that "If there's a silver lining [in Kerry's defeat], it is that it's going to eliminate the ability [of Democrats] to argue that we have a natural majority on our side,"—it totally asinine. Democrats would have a natural majority if they would just claim it and give that majority some real reasons to believe that the Democratic party is still their party.

     The statement that “millions of blue-collar economic populists rejected a Massachusetts liberal because they felt he did not share their values on issues ranging from abortion to affirmative action, from guns to gay rights”—is true, but only because they could see no significant differences between Kerry and Bush on the economic issues that affected their lives (NAFTA, WTO, Fast Track legislation, removal of workplace protections, etc.), and on the way they would deal with Iraq.

     As it stands now, The Democratic Party is only an indistinguishable bit more on the side of working Americans than are the Republicans—and that small difference is not enough to make up for the other issues where Republicans have greater appeal to voters (matters relating to personal sex practices, abortion, etc.).

     The widening gap between the children of the wealthy and the children of the poor- and middle-class is extending into higher education.

     We’re becoming a nation of wealthy, educated aristocrats and their uneducated servants—who will be expected to work for minimum wages for their entire adult lives.

     Business Week describes how even our public universities are pricing the poor- and middle-class out of an advanced education. And even the ultra-conservative Forbes sees the unfairness of the tendency of the wealthy to favor their own kind, rather than those who most need the kindnesses of others.

From Business Week, November 15, 2004.

Should Public Universities Behave Like Private Colleges?

They're hiking tuition and becoming more elitist—ducking a key social role

…To date, no major public university has been fully privatized. But as the states foot a smaller share of their budgets, the flagships have become more dependent on tuition and other sources of funds. They may still be publicly owned, but increasingly they're privately financed. So a number of the flagships are seeking more freedom from state control.

In July, University of Colorado President Elizabeth Hoffman won "enterprise status" for her school, which means it's no longer governed by the same rules as state agencies. Miami University of Ohio recently became the first major public campus to adopt the high-price, high-financial-aid tuition model used by elite private colleges. That means all students across the board are now charged $19,642, although Ohio residents receive scholarships of at least $10,000. "We are becoming more like our private counterparts," says Penn State President Graham B. Spanier….

…creeping privatization accelerates a broader movement by the top 100 or so flagships to hike their tuitions at a double-digit rate. The result is that a public good designed to give all Americans access to higher ed is turning into something more like a private one, open primarily to those whose families can afford it. Already, the student body at some flagship campuses is more affluent than at elite private schools: At Ohio's Miami, for one, the median family income tops $100,000 a year.

Moreover, as flagships break free, support could erode for less prestigious state schools that remain more dependent on public funds. Privatization "will accelerate the social stratification of higher education, in which the elite [public colleges] are primarily filled with kids from privileged backgrounds, and the kids from poorer families are concentrated in less prestigious schools," says David W. Breneman, dean of the Curry School of Education at UVA. At the nation's 146 most selective colleges -- including the top flagships -- just 3% of entering freshman come from the bottom socioeconomic quarter, while a staggering 74% come from the top quarter….

Already, "many flagships are not serving their traditional role of providing broad access to the brightest from all economic backgrounds," says Century senior fellow Richard D. Kahlenberg.

Public universities have played a fundamental role in American society, from spurring technology to helping create and expand the country's middle class. But without better planning, the move to keep them competitive could widen the already growing class divide in higher ed.


From Forbes, November 15, 2004.

Defining Charity Upward

By Mark Redmond

Why do wealthy people give to well-endowed universities serving successful kids, instead of to nonprofits that help the truly needy? When I read a few months ago about an anonymous $50 million donation to Middlebury College, followed by an additional $10 million, also anonymous, I wondered, "Why not Spectrum?" Not that I have anything against Middlebury, which is in my home state of Vermont. It is a fine institution, one of the best liberal arts colleges in the country. It does a good job in fulfilling its mission.

But I have to wonder: Why would someone wealthy enough to make such a donation give to a place that already has beautiful buildings, a golf course, a ski slope, a magnificent hockey rink, a first-class cafeteria/restaurant and one of the highest tuition rates in the U.S.? Spectrum Youth & Family Services, where I serve as executive director, is 45 minutes from Middlebury.

Our students are like Middlebury College students in age but unlike them in every other way. Our kids (2,500 last year) are runaways or are living on the streets. Many are high school dropouts. Many were abused, neglected or abandoned when they were younger and raised in the foster care system. Some are in trouble with the law or are addicted to drugs or suffer from mental health disorders. Spectrum provides them with a place to live, food, health care, substance abuse counseling, education and job training. We find them mentors. We help them move on to college or permanent housing. It is no small challenge. Our alumni, when successful, obtain high school diplomas and usually move on to community colleges or trade schools….

They have the talents and energy that will make them successful no matter where they go to college. At the moment the tax laws make no distinction between gifts to institutions that serve society's winners, like art museums and well-endowed universities, and institutions that serve the other half, like United Way. Perhaps that should change.

     Remarkable! And congratulations to Forbes, a magazine that rarely publishes an article suggesting that government programs actually be designed to help those who need it most.

     Another stalwart American corporation—historically considered as having traditional American and Christian values—demonstrates that greed and a total lack of a moral compass rule our culture today.

From Forbes, November 15, 2004.

On the Backs Of the Poor

Illegal immigrants don't dare open a bank account in the U.S. To wire money overseas, they pay a hefty fee. One company has built a billion-dollar business on their dilemma. Shielded by bulletproof glass, the crowded check-cashing outlet on Anaheim Street in Wilmington, a Hispanic neighborhood in southern Los Angeles, functions as lifeline and financial centerfor the thousands of illegal immigrants who visit it.

Open seven days a week, it caters to the unbanked—people who are too poor, or too illegal, to have a bank account. It offers them "free money orders," welfare-benefit pickups, prepaid phone cards and the real clincher:money transfers to relatives overseas. They pay hefty fees—almost a day's wages in some cases—for a transaction that costs $3 to $6 to process.

A few blocks away a young woman named Teresa stands in her tiny, dirt-packed front yard and passes judgment on the store's fees: "Way too much," she says in Spanish, as some of her seven children scamper barefoot among strewn toys and a battered van propped up on jacks….

Teresa is one face behind the booming, multibillion-dollar transfer business that has revived the fortunes of a 153-year-old corporate icon:Western Union. The company that pioneered coast-to-coast telegraph service in 1861 dominates the money-transfer business today, racking up $3 billion in fees and investment income, and an operating profit (net before interest, taxes and nonrecurring charges) of $1 billion last year—most of it on the backs of the poor.

In five years it has extended its vast tentacles into thousands of check-cashing joints, pawnshops and other gritty outposts of the fringe economy to better exploit the dreary unbankability of the underclass….

Western Union and others "lure people up here, put them in very precarious situations and are responsible for their deaths," says Michael McGarry of the Colorado Alliance for Immigration Reform, a hard-line group that has thrown up billboards bearing a map of the U.S. stamped with the word "FULL."

Western Union's money transfer business seems shrewdly geared to the 8.7 million illegal immigrants in the U.S. If they walk into a regular bank to wire money overseas, the fees will be lower, but the senders are asked for identification and personal details they don't want to provide…

     Key statement: “Western Union's money transfer business seems shrewdly geared to the 8.7 million illegal immigrants in the U.S.” In other words, when the poor have no power, and you have them by the short hairs, take as ruthless advantage of them as you can.

      The bad news about globalization is continuing to accumulate in unexpected directions. Now, it’s becoming clear that China is not only taking jobs away from our manufacturing workers, it’s further impoverishing them by creating higher oil and gas prices.

      Of course, that doesn’t even begin to address the issue of global warming. The Chinese manufacturing miracle is accompanied by the pollution that goes with unrestrained production, and the increasing global environmental degradation will be felt worldwide.

From Business Week, November 15, 2004.

Asia's Great Oil Hunt

China needs energy more than ever. Its quest to secure enough oil and gas to keep its economy humming will change the world

…As China's economy expands, so does its thirst for oil, gas, coal, and electricity. Today, China accounts for 12.1% of the world's energy consumption. That's second only to the U.S., at 24%, and up from 9% a decade ago. China's whole modernization strategy is based on access to abundant supplies of energy. Its hungry basic industries such as steel, aluminum, and chemicals devour electricity and coal….

That means China will play a key role in influencing global oil prices and energy investment flows—not to mention climate-destabilizing carbon dioxide emissions. "There is going to be a huge increase in consumption across the region, and especially in China," says Edu Hassing, an energy analyst at the Asian Development Bank.

With China consuming ever more oil, it risks developing an ever-greater dependency on foreign vendors of crude. For the security-obsessed Chinese, that's pretty scary. Right now, though, it's hard to see how the Chinese will avoid the same fate as the U.S., which is uncomfortably dependent on oil states such as Nigeria, Saudi Arabia, and Venezuela….

      So, “Right now, though, it's hard to see how the Chinese will avoid the same fate as the U.S.” That statement leaves out the obvious fact that our U.S. “same fate” won’t ever be the same again. It’ll be much worse as the uncontrollable Chinese pursue their own interests.

     It never ends. Reports of corporate malfeasance are reported daily. Any more, the only surprising thing about these reports is the extent to which corporate executives are willing to lie and cheat—even when they are almost sure to be found out sometime in the future.

From The Wall Street Journal, November 15, 2004.

Witness Says Police-Vest Maker
Ignored Safety Concerns

Two years before bullets pierced the bulletproof vests of two police officers, the vests' manufacturer withheld test results that cast doubt on the vests' effectiveness because executives feared bad news might hurt plans for an initial public stock offering, the company's former research director said in a sworn statement.

The allegation, in a deposition for a lawsuit in a state court in Oklahoma, is the latest twist in a controversy over Second Chance Body Armor Inc.'s handling of the 2001 test results. The company in September 2003 announced it would upgrade and replace 130,000 potentially defective vests, about three months after two vests were pierced in shootings that killed one California policeman and wounded another in Pennsylvania….

Mr. Westrick, in a September deposition, said test results in 2001 showed that the strength of some Zylon vests deteriorated much more quickly than their five-year warranty. He said he was told to keep the results quiet because company executives stood to lose as much as $20 million if the company didn't launch an IPO….

Mr. Westrick said he warned senior managers multiple times, starting in 2001, that the vests weren't safe….

     Given the massive number of reports similar to this, how is it possible that the editors of The Wall Street Journal continue to claim that the American public would be better off without government regulations of corporate behavior?

     Face it. Without sensible government regulations, our “free market” would be a market ruthlessly controlled by unprincipled corporate executives.

     Our foolish headlong rush to globalization is looking worse all the time. We’ve not only given our best-paying manufacturing and service jobs to China and India, we’ve transferred the world’s manufacturing centers to countries that are going to increase worldwide pollution to even more dangerous levels. As though they aren’t dangerous enough already.

From The Wall Street Journal, November 16, 2004.

Global Surge in Use of Coal Alters Energy Equation

Shift Offers a Way to Slow Rise in Demand
For Oil; Worries on Global Warming

A world-wide surge in the mining and use of coal is helping offset some of the economic strains of rising oil demand and marks an important shift in energy consumption with long-term consequences for the global energy equation and the environment.

The trend is especially notable in the two countries that are the biggest new sources of global energy demand: China and India. These nations have enormous coal reserves but not nearly enough oil and gas….

"We lived in a period of plentiful energy, and now we're entering a period of tighter supplies. ... Coal will fill some of that gap," says Gerard McCloskey, a coal-industry consultant and editor of a trade newsletter in London….

For all the upside, many experts believe that burning more coal could worsen the planet's environmental problems. Coal-related emissions are blamed for a rise in respiratory illness, mercury poisoning and other dire health consequences. Such emissions are believed to contribute to global warming….

The environmental hazards are greater for China and India, which are expected to make up two-thirds of global coal demand through 2030. China has seven of the world's 10 most-polluted cities, largely owing to fumes from coal….

Part of the problem is that demand in China appears to be growing faster than regulators' ability to police emissions. A few years ago, when demand wasn't so strong, the Chinese government moved to shut thousands of substandard coal operations. Chinese coal production tumbled by more than 25% to about 500 million tons of oil equivalent in 2000, according to BP data.

Then China's economy took flight. By 2003, Chinese coal production had soared to 842 million tons of oil equivalent. If recent trends hold, production could rise to nearly one billion tons of oil equivalent this year….

     There you have it, folks. Say goodbye not only to decent paying jobs for America’s workers, but also to our world’s likelihood of surviving beyond the next century.

     Again, we’re going to have "an S&L-style taxpayer bailout of [another agency of government that pays for corporate malfeasance]." The greedy top executives of American corporations who looted the corporate treasuries—and underfinanced their corporate pension funds—will retire as millionaires, while taxpayers will pay their pensioners the money that they deserved and were promised.

From The Wall Street Journal, November 16, 2004.

Pension Guarantor's Deficit Widens

Gap Reached $23.3 Billion
In '04 Amid Airline Woes;
Troubles May Spur Change

WASHINGTON—The federally chartered company that backstops private pension plans said its long-term deficit more than doubled in 2004, under pressure from failing airline plans.

The Pension Benefit Guaranty Corp. said its long-term deficit expanded to about $23.3 billion in fiscal 2004, from about $11.2 billion in 2003. The agency takes over defined-benefit pension plans when they become insolvent, and by law pays at least a portion of the benefits promised to retirees….

"They [the PBGC] are thoroughly bankrupt no matter how you look at it," said Douglas Elliott, president of the Center on Federal Financial Institutions, a new nonpartisan Washington think tank; it so far is funded largely by Mr. Elliott himself, a former Wall Street investment banker. "I think the government probably is going to have to sponsor a bailout at some point."…

Congress has made the problem it faces somewhat more difficult by passing new rules for calculating pension obligations that make many companies' underfunding of their plans look somewhat less dire. Many experts believe it's going to be hard for Congress to force employers to fix the mess. That will further increase pressure for a bailout. On the other hand, a taxpayer bailout could be politically volatile because only about one-fifth of U.S. workers are currently covered by defined-benefit plans, which tend to be relatively generous.

House and Senate Republicans issued statements calling for legislation focused on pushing companies with weak plans to beef them up. The PBGC could also seek to make it more difficult for companies to shed their obligations in bankruptcy. But Rep. George Miller (D., Calif.) said the PBGC could eventually require "an S&L-style taxpayer bailout of the agency."

     Key statement above: “Congress has made the problem it faces somewhat more difficult by passing new rules for calculating pension obligations that make many companies' underfunding of their plans look somewhat less dire.” Guess who makes up that Congress: Republicans and conservative Democrats, who do the bidding of their corporate supporters before ever considering the public interest.

     What a great economy. The ranks of millionaires are surging, while many of those at the bottom half of our economic ladder can’t afford to pay rent and also buy necessary medical care—or send their kids to college, a genuine necessity today.

From The Wall Street Journal, November 16, 2004.

Ranks of U.S. Millionaires Surge

The ranks of U.S. millionaires surged 33% to a record 8.2 million households in mid-2004 from a year earlier, buoyed by this group's steady investment in the stock market.

An additional two million households this year joined those with more than $1 million in net worth excluding primary residence, according to TNS Financial Services' annual survey of the wealthy….

     Sounds like the 1920s all over again. The number of millionaires in that decade tripled, while the average worker made under $800 a year (and it took $2,000 to support a family of four above the poverty level).

     Also, in 1929, the top 1% of Americans owned 44% of the privately held wealth in the country. Because of liberal governmental policy, that figure dropped to 19.9% in 1976. And, according to a recent Business Week article, it’s now again back up to the 40% level.

     1929 all over again? And all that followed it?

     The continuing saga of a morally corrupt industry—and an inadequate government oversight—continues to unravel.

From The Wall Street Journal, November 17, 2004.

Spitzer Decries
Lax Regulation
Over Insurance

Consumers End Up Paying More,
State Attorney General Testifies;
Guilty Pleas Grow in Manhattan

New York Attorney General Eliot Spitzer told federal lawmakers that Congress needs to look into the insurance industry's "Pandora's box" of problems, saying that lack of federal oversight and disclosure has padded consumers' insurance costs.

While Mr. Spitzer was testifying on Capitol Hill, two more low-level insurance executives in New York surrendered to police and made their way to a courthouse in lower Manhattan, where they pleaded guilty to criminal charges for their roles in alleged bid-rigging and steering.

Five individuals have pleaded guilty as part of the probe kicked off Oct. 14 by Mr. Spitzer's civil suit against Marsh & McLennan Cos.' Marsh Inc. insurance-brokerage unit. In it, he alleged that Marsh brokers cheated clients by rigging bids for insurance contracts and steering business to insurers that paid Marsh millions of dollars in so-called contingent-fee commissions, which Mr. Spitzer likened to kickbacks….

Mr. Spitzer and Connecticut Attorney General Richard Blumenthal, who also is probing insurance-industry abuses, told a Senate governmental affairs subcommittee that many of the conflicts now being uncovered stem from regulatory "gaps" that let the industry escape tough oversight.

"It is clear that the federal government's hands-off policy with regard to insurance, combined with uneven state regulation, has not entirely worked," Mr. Spitzer said….

Mr. Spitzer said his probe has turned up widespread evidence of undisclosed payments between insurers and insurance brokers. A new conflict, he said, involves insurers who made loans and gave company stock to individual brokers who steered business their way. He declined to discuss which companies engaged in the practice, which could be improper if it was undisclosed and if it influenced a broker's decision about where to steer business….

Messrs. Spitzer and Blumenthal said the problems extend from automobile insurance to health-care benefits. The pair called on Congress to investigate the growing trend of insurers moving to Bermuda and elsewhere offshore to escape regulation. However, they cautioned lawmakers not to pre-empt state oversight, saying the federal government should increase its role while preserving states' rights.

A survey of nearly 700 corporate insurance-buyers released yesterday suggests many buyers share the regulators' concerns. Almost three-quarters of those surveyed favored improved disclosure by brokers and insurers, while 54% said contingent commissions pose a conflict of interest for insurance brokers. The survey was conducted Nov. 10-12 by Advisen Ltd., a New York insurance-information provider….

     And who caused “the federal government's hands-off policy with regard to insurance”? Republicans, of course.

     Republicans don’t actually believe in government—except when it’s the non-elected international corporations who are governing our society.

     Not even the Republicans who read The Wall Street Journal can deny any longer the disastrous effects of air pollution. Yet, count on it, any time new legislation is proposed to preserve our environment, the Republicans will oppose it.

     Greed trumps common sense every time in the Republican repository of moral values.

From The Wall Street Journal, November 17, 2004.

Study Links Deaths
In Many Urban Areas
To Increases in Ozone

Elevated levels of ozone in urban areas may cause an increase in premature deaths, according to a study in this week's Journal of the American Medical Association. The findings suggest that ozone—which is the principal ingredient in smog—causes far more harm than previously known.

The study is believed to be the first large-scale investigation of its kind in this country to find a correlation between increased ozone levels and premature deaths, a link long suspected by many doctors….

Ozone is a gas that occurs naturally in the upper atmosphere to shield the earth from harmful ultraviolet rays. But it also is created in the lower atmosphere, when vehicle and industrial emissions react with sunlight. Levels typically rise when sunlight and heat is highest in the summer months. Ozone inhalation can cause shortness of breath, chest pain and wheezing and increase the risk of respiratory infections, asthma attacks and lung inflammation, health experts say….

"This is a very important study because there had been a relative lack of interest in studying the chronic effects of ozone," said John Balmes, a professor of medicine at the University of California at San Francisco and a spokesman for the American Lung Association of California. "I think the message is we can't just focus on one type of pollutant, but we have to look at the pollutant mix."…

Officials of the American Lung Association say this study is further proof the administration needs to do more to crack down on air polluters. But Tom Skinner, an acting assistant administrator of the EPA, says the agency has diligently gone after polluters. He cited the agency's success in gaining legal commitments during the past year for plants to reduce their pollutants of all types by a billion pounds annually. In a statement, EPA officials also said the ozone study further supports the need for continued state and federal efforts to reduce ozone levels….

“If you can see dirty air, presume it could make you sick," an advisory from the American Lung Association says.

     Of course, “Tom Skinner, an acting assistant administrator of the EPA, says the agency has diligently gone after polluters.” Naturally. That’s what Republican administrations always do: pander to the Republican political supporters, and then cite the few instances in which the EPA actually did its job.

     Even the ultra-conservative Wall Street Journal can’t avoid reporting news that proves what deliberate liars our Republican Congressmen are.

     Before the election, they assured voters that they valued education, that they wanted to protect the environment, and that they valued small business owners. After the election, they couldn’t wait to cut funding for these and other projects that benefit most Americans. And all in order to cut taxes for our richest citizens.

From The Wall Street Journal, November 18, 2004.

Congress Targets
Cuts in Spending;
DeLay Is Shielded

WASHINGTON – Republicans in Congress neared agreement on a year-end budget bill that would dramatically slow the growth in federal support for education and nondefense scientific research to meet strict spending targets set by the White House.

The action came as the Senate voted last night to raise the federal debt ceiling by $800 billion to help Treasury cope with continued large deficits. And paying a political debt of their own, House Republicans changed a decade-old rule to protect Majority Leader Tom DeLay from having to give up his party post if indicted by a grand jury investigating alleged campaign-finance abuses in his home state of Texas….

Senate Republicans are retreating from pre-election promises of more money, and the impact on research and education is most striking. The National Institutes of Health would be held to $28.6 billion, or a 2% increase over this year's spending levels, and after years of growth, the National Science Foundation would get a slight cut of about $62 million below current levels.

Total funding for the Education Department is expected to be less than President Bush's budget request for the 2005 fiscal year that started Oct. 1, and the shortfall will widen further once House and Senate negotiators impose a final 0.75% cut across the board on proposed spending levels. For example, while Mr. Bush had proposed an estimated $1 billion increase in funding for special education, the proposed bill falls about $383 million below this goal. And once the 0.75% cut is added, the gap could widen to $470 million.

"The Lord giveth and taketh away," said Rep. Ralph Regula (R., Ohio), one of the negotiators.

Elsewhere, cuts would be imposed on funding for clean-water projects, small-business loan subsidies and the Export-Import Bank—all of which would get less than 2004 spending levels….

Its heft makes it a target for end-of-session special interest provisions, and food marketers and the meat industry hope to add provisions weakening food-labeling requirements approved when Democrats controlled the Senate in the last Congress….

     And while they’re cutting every program that isn’t devoted to improving the lives of the wealthy, they reverse their ten-year-old commitment to ethical government—in order to protect one of their most morally corrupt members: Tom DeLay.

Week of November 8

     Do you want to know who the privatization of Social Security is really supposed to benefit? Just read below.

     Note that “windfall” describes the benefits to Wall Street firms, and not to retirees with pitifully small amounts of money to invest.

From The Wall Street Journal, November 12, 2004.

Windfall From a Privatization
Of Social Security to Take Time

The politically charged issue of allowing workers to divert a portion of their Social Security taxes to individually controlled accounts investing in the stock or bond markets is back on the table, and speculation about the windfall that Wall Street would reap already is swirling….

Social Security taxes are currently collected, pooled together and invested in short-term U.S. government securities. Current retirees receive their Social Security payments from that pool. Under the proposals being circulated, a worker could choose to divert a portion of the Social Security taxes withheld from a paycheck into a personal account that could be invested in stock or bond mutual funds.

On Wall Street, people are focused on the presidential commission's "Reform Model 2." Under this proposal, workers under the age of 55 would have the choice of redirecting four percentage points of the 12.4% payroll taxes they pay into personal accounts. Initially, the maximum annual contribution to a personal account would be $1,000.

Such a program could result in about $100 billion a year flowing to the personal accounts, says Robert Pozen, a member of the presidential commission and currently chairman of MFS Investment Management….

     If investing Social Security funds on Wall Street is such a good idea, why don’t we let the securities firms put their own money on the line.

     Instead of the government turning small percentages of money over to individuals to invest, securities firms could bid on taking over portions of the Social Security fund, and guarantee the government a certain amount over bond returns. The securities firms could then keep as profit any money made over the guarantee to the government. Of course, that assumes that the securities firms actually believe that they can do significantly better than the guaranteed return on bonds—and that’s a stretch.

     They probably won’t have to worry though. With the Republicans in charge of government, individuals will put portions of their Social Security into the hands of Wall Street—and Wall Street will make its guaranteed profits, and the individuals will take all the risks.

     Remember how Bush’s tax cuts for the wealthy were going to stimulate the creation of jobs in the U.S.? If you want to know where they’re really putting their tax refunds, read the following.

     Not only is investor money going to China and other Third World countries, it’s creating greater competition for the remaining jobs in the U.S. and actually exacerbating our degenerating economy for working-class Americans.

From The Wall Street Journal, November 11, 2004.

Funds Refocus China Strategies

Private-Equity Firms, Investors
With U.S. Manufacturing Assets
Embrace China's Factory Sector

THESE DAYS nearly every private-equity fund looking to invest in U.S. manufacturing has to have a China strategy.

But what strategy? Competition from the growing Chinese economy and its huge pool of low-cost labor is causing a split in the investment community. Some private-equity firms are turning away from manufacturing, to service industries such as restaurants, while others are buying U.S. manufacturers and moving the production to China….

More private-equity firms are hiring experts who know how to help U.S. manufacturers buy products and parts from low-cost foreign factories—a common strategy for dealing with the challenges of Chinese competition….

"If you look at any portfolio, you'll see decreasing share of manufacturing, and more service," says Béla Szigethy, managing general partner of Riverside Co., a New York private-equity firm with $1.3 billion under management. "The recession and China have both hit manufacturing hard, so we've moved rapidly to increase service companies in our portfolio."…

     We’re repeating the conditions that led to the depression. "The recession and China have both hit manufacturing hard.” As more manufacturing plants are built in China, and consumers worldwide are losing their purchasing power—we’re becoming loaded with “overcapacity,” even though consumers need the products that are coming off the assembly lines.

     Someday the voting public may realize that Bush’s tax breaks should have gone to middle- and low-income workers who would have spent their money in this country. Even though they may have purchased products made in China, at least the money would have stimulated the American retail economy. At least, that’s better than putting the money into overseas manufacturing plants and further destroying American working-class wages.

     What a convoluted world we’re living in. We don’t put tariffs on products made by American corporations in other countries where they have access to brutalized workers. Instead, we’re putting the tariff on U.S. taxpayers who will make up the difference between the wages of American workers vs. the brutalized workers in Third World countries.

     And the Dell investors and top corporate executives will get incredibly rich from the process. Not only does Dell get the true economic advantages of locating in the center of a distribution area, it, in effect, gets an ironclad guarantee that they’re entering an almost risk-free business deal.

From The Wall Street Journal, November 10, 2004.

Dell to Build Assembly Plant
In North Carolina

Dell Inc. plans to construct a new 500,000-square-foot personal-computer assembly plant in North Carolina to supply its growing business in the Eastern U.S….

The expansion continues the world's largest PC maker's strategy of locating assembly operations near large markets, to reduce shipment costs and provide faster delivery.

Dell has assembly facilities in Texas and Tennessee. Outside the U.S., it has assembly plants in Brazil, China, Ireland, and Malaysia….

"There is a great, educated work force, a good business climate, and fine logistics" in the region, Mr. Rollins says….

Last week, North Carolina legislators agreed to provide $242 million in tax incentives to help lure Dell to the state. As part of the package, Dell receives a tax credit on each PC built at the plant through 2019….

Mr. Rollins says Dell expects to make an initial investment of about $60 million to build the plant and equip two production lines, increasing to $100 million as production expands….

     What a sweet deal for Dell. In order to bribe Dell to create jobs in North Carolina, it’s giving it $242 million in tax breaks, even though Dell is only going to invest $100 million in the manufacturing plant.

     Our country is going crazy. And it’s being driven insane by Republicans and conservative Democrat politicians who have made it all possible.

     Too few voters realize how conservative politicians, through the Federal Reserve Board, deliberately keep working-class wages from going up—even at a time of record corporate profits. The people who say we shouldn’t be envious of the rich are the very same people who watch the incomes of workers like predatory hawks.

     And any small sign that unemployment levels may go down—and wages of workers may go up—wealthy investors demand that the Fed slow down the economy by raising the prime interest rate.

From Barron’s, November 8, 2004.

Jobs Jump, Treasuries Reel

Bond yields soared Friday after a government report showed that more jobs than had been expected were created in October, making it likely the Fed will raise short-term interest rates two more times this year and keep boosting them well into 2005….

In the wake of the employment report, the federal-funds futures market predicted that the Fed's policy-setting Open Market Committee is all but certain to boost its overnight fed-funds rate target—currently 1.75%—by a quarter-point Wednesday. Perhaps more important, futures put a 75% probability on another quarter-point rise when the FOMC meets on Dec. 14….

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

     And how are corporations doing these days? They’re “flush with cash.” How nice.

     And why are they still reducing staff, and cutting wages and benefits for workers? And giving bigger dividends to their investors? Because Republicans and conservatives have given them the power to do so, of course.

From Barron’s, November 8, 2004.

A Power Payout

Manpower doubles dividend; repurchases shares

CORPORATIONS ARE FLUSH with cash these days. According to Standard & Poor's, the aggregate cash on the balance sheets of S&P 500 members stood at $590 billion on Sept. 30, up 126% from $261 billion five years earlier.

Among the things directors can do with all that lucre is raise dividends or buy back stock. Manpower hadn't done either in six years until last Monday, when the largest U.S. provider of employment services doubled its semiannual common payout to 20 cents a share and launched a new stock-repurchase program for up to five million shares. Disbursement of the new dividend will take place Dec. 15 for investors of record Dec. 6. Payouts have been ongoing since 1994. The stock buyback would cover about 5% of Manpower's approximately 90 million common shares outstanding.

CEO Jeffrey A. Joerres says Manpower is "committed to creating value for our shareholders."…

     That’s what today’s corporations are all about: “creating value for our shareholders.” The welfare of their lowest-level workers, their families and their communities are irrelevant. Sometimes even their customers are irrelevant if they can be conned by deceptive, professional, corporate marketing practices.

     Our headlong and thoughtless immersion into globalization is beginning to have its downside, as our eventual economic collapse becomes inevitable.

     One of our last great hopes as a sustaining force in maintaining a not-too-disastrous trading balance with other countries is showing increasing strains.

From The Wall Street Journal, November 8, 2004.

Surging Imports
Of Food Threaten
Wider Trade Gap

U.S. Agriculture Exports,
Relied on to Ease Deficit,
Feel Heat of Competition

America's appetite for imported food is creating problems for the U.S. economy.

Agriculture, one of the few big sectors of the economy that could be counted on to produce trade surpluses, has recently generated monthly deficits—a development that could worsen the nation's already significant trade imbalance.

According to the U.S. Department of Agriculture, the U.S. imported more agricultural goods than it exported in June and August, the first monthly trade deficits since 1986, when the Farm Belt was mired in a depression.

"It's very worrisome," said Sung Won Sohn, chief economist of banking giant Wells Fargo & Co. "We need agricultural trade surpluses more than ever because the nonagricultural deficit is ballooning."…

The availability of imported food clearly benefits consumers, giving them variety as well as new sources of competition that help keep their food costs under control.

But the problem with the widening overall trade deficit is that it is sustainable only as long as foreigners are willing to lend the U.S. large amounts of money. Many economists warn that this isn't likely to continue, and if they're correct, the risks are growing for a market-rattling crash in the value of the dollar….

     Key statement above: “the risks are growing for a market-rattling crash in the value of the dollar.” Gee, this may even hurt our newly minted aristocrats. However, don’t feel too bad for them, since they will use any economic crash as an opportunity to buy bankrupt farms, business, neighborhoods of rental houses, etc.—just as they did in the 1930s.

     As usual, it’ll be working-class Americans who will be hurt most.

     As usual, the latest “improvement” in health care comes with fantastic benefits for the wealthy and healthy, and at great expense of the less healthy and poor. Why should we be surprised? It fits right in with virtually every plan the Republicans ever came up with.

     It’s not only anti-Christian, it’s anti-American.

From Business Week, November 8, 2004.

Your New Health Plan

Health savings accounts, like 401(k)s, will give employees more choices—but also a greater share of the costs

…Get ready for the next great experiment in American health care. In the 1980s, employers embraced health maintenance organizations (HMOs) as the solution to runaway medical costs. But the ensuing backlash in the 1990s forced companies to ease HMO restrictions or replace them with looser PPOs that do little to limit care. When medical inflation returned to nosebleed levels, desperate employers began searching for yet another solution.

The latest answer: HSAs (Health Savings Accounts) and their cousin, the health reimbursement account (HRA). In 2000, insurance companies first began marketing HRAs, which also allow employers to set up high-deductible plans with lower premiums. With HRAs, employers set up new company-funded accounts that employees use to pay out-of-pocket health costs for, say, visiting a specialist or getting treatment for the flu. Because workers can roll over unused funds at the end of the year, they have a big incentive to shop for cheaper doctors and hospitals….

HSAs may appeal mostly to healthy and affluent families who will opt for lower monthly premiums, betting they can handle big out-of-pocket costs if they get sick. But the less healthy may remain in traditional plans, making them even more costly….

What's more, it's by no means clear that health care will conform to the logic of the market. If the forces that HSAs are designed to unleash don't curb prices, employees may end up shouldering more of their expenses. Indeed, many companies like the HSA idea because it allows them to manage costs better….

Some experts also predict that plans with high deductibles will be affordable only for those who are both healthy and affluent. HSAs open up a new tax-free savings strategy that's far more generous than 401(k)s, individual retirement accounts, or Roth IRAs. While all these allow either pretax contributions or tax-free withdrawals, HSAs are entirely tax-free, as long as you use the funds for medical expenses. "You get the Triple Crown of tax planning: It goes in tax-free, it grows tax-free, and it comes out tax-free," says Andy Anderson, a benefits attorney at Hewitt.

That may create a sweet new shelter for high-income families that have already maxed out on their 401(k) contributions. HSAs thus could offer a great way to save for post-retirement health care, which many employers have dropped. Yet even more companies may dump the benefit once their workers have a pot of money with which to buy their own.

Trouble is, most middle-income families pulling down $45,000 or $50,000 a year probably can't afford to put aside thousands of dollars, even if Uncle Sam kicks in so much. Fully 96% of workers already contribute less than the maximum to their 401(k)s. And many may feel compelled to choose between their 401(k) and an HSA, potentially diverting savings from retirement to health care. "We are concerned about that," concedes American Financial's director of human resources Scott Beeken….

     First key statement: “HSAs may appeal mostly to healthy and affluent families who will opt for lower monthly premiums, betting they can handle big out-of-pocket costs if they get sick. But the less healthy may remain in traditional plans, making them even more costly.”

     Second key statement: “most middle-income families pulling down $45,000 or $50,000 a year probably can't afford to put aside thousands of dollars, even if Uncle Sam kicks in so much. Fully 96% of workers already contribute less than the maximum to their 401(k)s.” Of course. Every time the Republicans give a tax break to “workers,” it’s the rich workers, not the ones who really need it. And, as often as not, the benefits to the rich result from the sacrifices forced on the poor.

     Read the following, and see if you still believe that globalization is a good thing, because we’ll be doing the high-paid quality jobs—and the rest of the world will be doing all the dirty work.

From Business Week, November 8, 2004.

How China Opened My Eyes

An old Mexico hand tours China and is impressed at the nation's fierce drive

By Geri Smith

…As BusinessWeek's Mexico City bureau chief, I have chronicled how China has siphoned precious investment and jobs from Mexico. But it wasn't until September, when I got a fellowship to travel through China for two weeks, that I saw with my own eyes what Mexico is up against.

The trip was fascinating—and sobering. Fascinating because China is developing at a pace that is remarkable to behold. Sobering because it drove home to me how stagnant Mexico looks in comparison. I knew China had the edge over Mexico in cheaper labor and lower taxes. But China's real advantage lies in the whole package it offers investors: impressive infrastructure, able managers, an enthusiastic workforce, and—above all—spirit.

What do I mean by spirit? The sense the Chinese have that anything is possible. Case in point: At a Motorola Inc. facility we visited in Chengdu, dozens of software engineers gathered for a lecture on The Seven Habits of Highly Effective People. A bit corny? Sure. But the engineers were listening raptly, determined to learn how they might earn the performance-linked stock options their plant manager dangled before them.

What else sets China apart? On the streets, I was approached by young people eager to practice the English they had learned in school: In 2002, China made English classes mandatory starting in grade school. In Mexico, English is still optional, even though the country is next door to the world's biggest English-speaking nation. Efraín Payán, a Mexican businessman who also visited China in September on a trade mission, was floored by the Spanish-speaking translators the government provided. "Their Spanish was perfect," he marveled. "They have really worked hard to get where they are."

The Chinese certainly have a long way to go. Democracy is nonexistent. Pollution is dire. Joblessness is a big problem. But its drive and enthusiasm still give China an edge over Mexico….

What should Mexico do? Invest in better education. Build more highways. Open the energy sector to private investment. Enact real tax reform to pay for all of the above. That's the standard prescription. But how about this proposal: All Mexicans in a position of leadership—in business, education, or government—should buy a plane ticket to China now and see for themselves what Mexico is up against….

     What Mexico is up against? Read the article again, and realize that this is the trading monster that we largely created by destroying manufacturing in our country and shipping it to China. It’s not China’s fault. It’s the fault of Republicans and conservative Democrats who don’t give a tinker’s damn about working Americans.

     The following two brief excerpts are just more in the endless series of articles that expose the horrible moral standards of even entire industries in the U.S.

Both are from Business Week, November 8, 2004.

Cracking The Insurance Biz Wide Open

Eliot Spitzer's run at insurance broker Marsh & McLennan Cos. (MMC ) looks increasingly as if it could be just the opening battle in a wide-ranging war against abuses in the insurance industry. The crusading New York Attorney General is expected to bring criminal fraud charges against at least three Marsh employees in the next several weeks for their alleged roles in bid-rigging on insurance contracts, sources close to the investigations say. Spitzer is also moving quickly to take on other brokers and will soon begin probing insurers directly, including property-casualty, health, and life insurers….

If he eventually brings charges against health insurers, Spitzer will have reached his original goal: Before he hit upon the rich vein of alleged wrongdoing at Marsh, his aim was to target insurers that rip off the little guy. Along the way, he has managed to plant fear—and possibly the seeds of reform—in an entire industry.


When Charity Begins At Home

With the IRS focused on corporations, abuse among foundations is spreading

James Beard Foundation President Leonard F. Pickell Jr. resigned under a cloud in September after board members discovered that the New York culinary group had squandered hundreds of thousands of dollars. Sure, that's pocket change compared with many corporate scandals, but the missing money—allegedly frittered away on hefty salaries and extravagant meals—is a big chunk of the nonprofit's $4.7 million annual revenue.

It also includes taxpayer dollars, since the organization is tax-exempt. Now, as the New York State attorney general investigates, board members are moving to overhaul the foundation's governance. "We have to restore the public's trust," concedes Beard Chairman George P. Sape.

When scandal hit Corporate America several years ago, the Internal Revenue Service shifted resources into corporate tax audits. Of course, the move made sense, but a little-known consequence is that it also gutted audits of foundations such as Beard, which have been cut 44% since 1998, to 5,754 audits last year—out of the country's 1.8 million-odd nonprofits.

With greed left to take its course, a spate of scandals has erupted among foundations and charities. Last summer the IRS announced a probe into 2,000 nonprofits after congressional investigations revealed inflated compensation packages and insider dealing. But little has happened, since Congress hasn't O.K.'d the $300 million to fund the crackdown. If it does, it would be only a first step toward a much-needed look into what appear to be widespread abuses of taxpayer money. "This a large and threatening problem," says Paul C. Light, a New York University public service professor….

Nonprofits pay no taxes, since they help society. But if they help themselves instead, taxpayers end up footing the bill.

     Think of it. The people who are committing these wrongdoings are the same people who say you can’t trust government—or that we’re better off when corporate executives look out for our welfare, rather than “government bureaucrats.”

     The class war against working Americans is heating up, and even including retired working Americans.

     The following speaks for itself. The unbelievable power of corporations to take ruthless advantage of its employees and retired employees is described in graphic detail.

From The Wall Street Journal, November 10, 2004.

Companies Sue Union Retirees
To Cut Promised Health Benefits

Firms Claim Right to Change
Coverage, Attempt to Pick
Sympathetic Jurisdictions
The Process Server Pays a Call

When a deputy sheriff came to his door with a court summons, George Kneifel, a retiree in Union Mills, Ind., was mystified. His former employer was suing him.

The employer, beverage-can maker Rexam Inc., had agreed in labor contracts to provide retirees with health-care coverage. But now the company was asking a federal judge to rule that it could reduce or eliminate the benefit.

Many companies have already cut back company-paid health-care coverage for retirees from their salaried staffs. But until recently, employers generally were barred from touching unionized retirees' benefits because they are spelled out in labor contracts. Now, some are taking aggressive steps to pare those benefits as well, including going to court.

In the past two years, employers have sued union retirees across the country. In the suits, they ask judges to rule that no matter what labor contracts say, they have a right to change the benefits. Some companies also argue that contract references to "lifetime" coverage don't mean the lifetime of the retirees, but the life of the labor contract. Since the contracts expired many years ago, the promises, they say, have expired too….

They have little to lose by trying. Typically, as such legal cases drag on, the employers save money as some of the retirees, who have to pay growing portions of their health-care costs, forgo costly care, drop out of the plans or die. If companies lose in court, the worst that happens is they have to resume paying benefits. They don't face punitive damages or penalties. And they may not have to resume benefits for those retirees who dropped out of the health plans.

What's more, their earnings get a pop. That's because at the same time as they sue, employers typically announce reductions in the retirees' benefits. Doing so entitles them to lessen the liabilities carried on their books. Lower liabilities translate to higher earnings.

The retirees, by contrast, often find themselves in a bind—unsure of their recourse and facing, as they age, the court system's typical long waits for legal resolution. The U.S. Labor Department is of little help. Retired workers "aren't our constituents anymore," says a spokeswoman for the department.

Unions often do go to bat for retirees. The United Auto Workers and the Steelworkers have been the most active in filing suits to protect retirees whose benefits a company has unilaterally changed. But unions aren't allowed to strike or file unfair-labor-practice complaints on behalf of retirees.

Employers that want to cut union retirees' health coverage or make retirees pay a larger portion could just impose changes and wait to be sued. But by suing first, they stand a chance of choosing the jurisdiction. This is important, because federal circuits' appellate courts tend to take differing positions in these disputes. Indeed, the unsettled nature of the law on these issues—with employers' arguments sometimes succeeding and sometimes not—may be a factor prompting some companies to have a go at gaining the legal right to change benefits….

     And just think. Bush is now in a position to load the courts with still more pro-business, anti-labor judges.

Week of November 1

     The Wall Street Journal accurately describes Democrats’ problems and dilemma, but incorrectly, and deceptively, suggests the wrong solutions. Incidentally, why would anyone ever suspect that the Journal would honestly try to help Democrats solve their problems?

From The Wall Street Journal, November 4, 2004.

Beaten Again,
Democrats Ponder
Shift in Philosophy

Wanted: Charismatic Leader
To Capture Religious Vote
And Retake the South

WASHINGTON—Twice in four years, the Democrats seemed inches from the front door of the White House, only to be turned away. Now what?

John Kerry's defeat has Democrats grappling with whether the party must make fundamental changes in philosophy to recapture the White House. Already, influential party insiders are mobilizing a debate that's likely to center on a few difficult questions:

Should the Democrats seek national success by moving to the left, as many party faithful demand? Or should they shift rightward, which is where the election suggests the country is? And will their leader be a liberal, such as former Vermont Gov. Howard Dean or Sen. Hillary Clinton, or the more centrist Sen. John Edwards—or some fresh face from Congress or the ranks of Democratic governors?…

Tuesday night's results underscored the gulf that has grown between the nation's electoral center and the Democrats since the Clinton administration. In exit polling, voters listed terrorism and morals as two of their top three concerns, supplanting such issues as jobs and education that play to Democratic strengths….

Late in the campaign, some Christian and Jewish leaders organized in support of Mr. Kerry, but they went largely unheard amid the stronger conservative voices of Catholic bishops and evangelical Protestants.

Harold Ickes, another former Clinton aide and founder of The Media Fund, says figuring out how to compete with the Republicans on cultural issues is critical. "We Democrats need to do a better job of figuring out some of the cultural issues—guns, choice, gay rights—because the other side has no compunction about using these issues to divide and conquer."…

Democrats need to develop better ways to talk about their policies in a framework of family and social values, says Simon Rosenberg, president of the moderate New Democratic Network, which has helped lead efforts to reach out to Hispanic voters. "Our effort to give everybody health care is an incredible statement about our commitment to family and community in a very important way," he says. "But we've lost our ability to characterize our compassion for people in values terms."

A problem that has become chronic is the Democrats' difficulty breaking through in the South, once a party stronghold….

Some think the party's problem is less a matter of ideology or geography and more a question of finding national leaders with broad popular appeal. Sen. Kerry's main failing, in this view, was a shortage of charisma and likability….

     This part of the story is correct: “Wanted: Charismatic Leader To Capture Religious Vote And Retake the South.” That’s exactly what Democrats have to do, but not by giving up their moral principles and moving to the right.

     When the Journal poses the option, “Or should they shift rightward, which is where the election suggests the country is?”—it omits the possibility that the Democrats need to move the country back to their fundamental moral values relating to economic justice, justice for the poor and working-class, protection of the environment, and so on.

     In fact, that’s exactly the strategy conservatives used to move the country to the right when it was liberal prior to the 1960s. Conservatives didn’t move left to where the public was to win elections; they deliberately lied about economic and social issues (civil rights, effects of tax policy and pro business/anti-labor legislation, and so on) to drive the country to the right.

     We should be able to use the same strategy to take the country back to sensible liberalism by doing the same thing, except we don’t have to be deliberate liars and hypocrites to do it. The facts and reality are all on our side.

     It’s hard to imagine how even Republicans or fundamentalist Christians can feel good about the election when you read the following.

     Remember, this isn’t coming from some liberal rag, it’s the conservative Wall Street Journal.

From The Wall Street Journal, November 4, 2004.

Another Winner Is Big Business

Already Happy With Bush,
Many Sectors Expect More
In New Policies, Programs

Big business is counting its blessings—and anticipating more—in the wake of President Bush's re-election.

The Bush administration had already proved itself to business in its first term when it enacted three rounds of tax cuts, eased environmental regulation, filled cabinet agencies with business-friendly appointments, and backed legislation to boost domestic energy production. Now, many companies and industries expect specific gains from new federal policies and programs, and the Republican Party's stronger hand in Congress will mean that those legislative proposals will face relatively fewer hurdles….

In the next four years, drug makers, health-care companies and financial-service concerns expect to benefit from Bush efforts to rein in legal costs and extend dividend and capital-gains tax cuts. Wall Street companies are looking for a flood of new investment if Mr. Bush succeeds in opening the Social Security system to privately owned accounts. Fast-food chains are less worried about a higher minimum wage and auto makers about tighter fuel-economy standards—both areas where a Kerry administration planned to make changes.

Many industries invested heavily in the Bush campaign as much to avert a victory by Sen. John Kerry as to help ensure four more years for Mr. Bush. Health-care and drug companies contributed $26 million to Mr. Bush and the Republican Party, knowing the Massachusetts Democrat planned to have the federal government bargain directly with drug makers on Medicare prices and allow drug imports from Canada….

The election news pushed shares up, with the Dow Jones Industrial Average posting a gain of 101.32, or 1%. Drug, oil and defense stocks—all anticipated beneficiaries in a second Bush term—posted sharp gains

Technology stocks on the Bombay Stock Exchange rose throughout the day as well, as executives hoped Mr. Bush's re-election would ease political pressure on U.S. companies that outsource jobs overseas….

With wider majorities in both houses of Congress, Mr. Bush will have an easier time pursuing big changes that could benefit business. At the top of the list: revamping the Social Security system to create privately owned accounts, which could be invested in the stock and bond markets. Mr. Bush will probably also push for new savings accounts that would let people sock away money tax-free to save for schools, homes or other purposes. Wall Street firms believe such savings accounts could boost stock prices and yield fat management fees. And Mr. Bush is widely expected to make permanent the many tax cuts for individuals and corporations scheduled to expire by 2010….

Many of the companies that Wall Street expects to gain the most under the second Bush term contributed heavily to his re-election bid. Finance and insurance firms gave $55 million to the Republican Party in the latest election cycle, as well as $32 million directly to Mr. Bush's campaign, according to the Center for Responsive Politics, a Washington group that tracks campaign financing.

Despite the broad Bush rally yesterday, stocks of biotechnology firms doing embryonic stem-cell research fell sharply. Mr. Bush has limited federal funding of such work to stem cells derived before August 2001, which scientists say rules out promising avenues of research. StemCells Inc. shares fell more than 23%, while Geron Corp. and Aastrom Biosciences Inc. fell 12% and 16%, respectively….

Oil companies appear to be clear winners. They're unlikely to face new environmental limits, and stand a better chance of winning Congressional approval to extract oil and gas from federal lands that are now off limits. A number of Senate Republicans, though, still oppose drilling in the Arctic National Wildlife Refuge in Alaska.

Coal companies also stand to benefit from a second Bush term—and from Mr. Kerry's defeat. The president has been a strong backer of the industry and is less likely to impose tough pollution standards. Peabody Energy Corp., Arch Coal Inc. and Massey Energy Co. all rose sharply, adding nearly 5% to their share prices. The coal industry strongly backed Mr. Bush and paid for ads supporting his energy priorities.

The president's re-election may also bring about major changes in health insurance—and a potential windfall for insurance and health-maintenance firms. Mr. Bush wants to start to shift away from a health-care system where most Americans get their insurance through work, to one in which individuals are more responsible for financing their health care through a system of tax credits and health-savings accounts. Those accounts could be invested in stocks and bonds, again benefiting Wall Street.

"The mutual-fund industry and other financial managers are just champing at the bit to manage these funds on behalf of the chronically healthy," says Uwe Reinhardt, a professor of political economy and a health-care expert at Princeton University.

Some industries that have become political pariahs also stand to gain, including the tobacco industry, which contributed heavily to Mr. Bush's re-election. The Bush administration isn't expected to press Congress for new regulation of cigarette sales, and with the election over, may be more willing to settle a $280 billion Justice Department lawsuit against the four largest tobacco companies. That case, launched by the Clinton administration and pursued reluctantly by President Bush, is in its seventh week of trial in U.S. District Court in Washington.

     There are so many obvious things to comment about in this article, it’s pointless to try. No one who cares about the environment, the outsourcing of jobs, the welfare of middle- and low-income Americans, the epidemic breakdown of corporate ethics, the fair treatment of consumers—and on and on—can read it and not feel sick at his stomach.

     The total corruption of today’s Republican Party is plainly there to see. It is indeed, a black day for most Americans. What’s really bad is that even the descendants of those who aren’t willing to admit that we are destroying our environment, and who are benefiting from environmental destruction—will eventually suffer.

     Regardless of who wins tomorrow’s election, I won’t be happy. This editorial captures one of my concerns: neither Kerry nor Bush is going to make much progress in improving the economy. They’re both Republicans. Bush is a right-wing religious crackpot, and Kerry is a moderate Republican. My choice won’t be on the ballot or won’t have a chance: either Ralph Nader or Dennis Kucinich.

     Only a true Democrat would be able to establish a sensible, truly progressive tax policy, and turn around our foolish headlong plunge into globalization—and the resulting destruction of our vibrant middle class.

From Barron’s, November 1, 2004.


Crucial Choice

By Randall W. Forsyth

…The fact is, we're going broke, and neither President Bush nor Sen. Kerry has a plan to fix it. After patting himself in bringing the just-ended fiscal year's budget deficit in closer to $400 billion than the feared $500 billion, the incumbent promises to cut that shortfall in half. David Stockman two decades ago warned of $200 billion deficits as far as the eye can see; now that's the rosy scenario. The challenger talks of returning to budget surpluses that prevailed during the Bubba era—products of a bubble of historic proportions that's gone and never coming back.

In truth, the proposals put forth by both Bush and Kerry would increase the aggregate federal deficit by $1.3 trillion—that’s with a "T"—over the next 10 years, according to the Concord Coalition. W would rack up that red ink mainly by making permanent the tax cuts already enacted, which are due to expire down the road. It also assumes spending restraint from an administration that has not vetoed a single spending bill, unprecedented in American history.

This doesn't include Bush's plan to privatize Social Security, which the Concord Coalition says would add another $1.2 trillion to the deficit….

As for Kerry's plan, most of the increased deficit comes from the extension of the middle-class tax cuts, plus his health-care plan, which the Concord Coalition reckons would cost $476 billion—after expected savings of $300 billion. The budget watchdog group didn't buy the Kerry camp's claims for $131 billion of various offsets….

A breakdown in that Faustian bargain will force the unpleasant choices on the overleveraged U.S. government and American consumer. That will happen regardless of who wins.

So as you enter the voting booth this week, remember what Woody Allen said: "More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other, to total extinction. Let us pray we have the wisdom to choose correctly."…

     When will the Democrats learn? Roosevelt and Truman had it right all along, and all we had to do was replicate their philosophies and strategies.

     Even if Kerry wins by pretending to be a moderate Republican, the economy is going to tank, and Democrats will be blamed for it—because they didn’t cut taxes enough or allow enough jobs to be outsourced to China and India.

     Actually, a Bush win could be good ultimately for Democrats, although disastrous for the country. The tanking of the economy, and the inevitable disaster of Iraq, will turn the voting pubic against the Republicans for the next 30 years—just as the last depression did. Let’s face it. The American voter is a slow learner, has no appreciation for history, and at least half of them just haven’t gotten it yet.

     Here we go again.

     Merck, one of the best of the blue chip pharmaceutical corporations, demonstrates again how much American corporate ethics have degenerated. Actually, given the constant stream of scandals coming from virtually every corner of corporate America—corporate ethics is an oxymoron.

     The following is a very brief excerpt of a massive article. Those interested in the medical implications of Vioxx, especially compared to Celebrex, should read the original.

From The Wall Street Journal, November 1, 2004.

E-Mails Suggest Merck Knew
Vioxx's Dangers at Early Stage

As Heart-Risk Evidence Rose,
Officials Played Hardball;
Internal Message: 'Dodge!'
Company Says 'Out of Context'

When Merck & Co. pulled its big-selling painkiller Vioxx off the market in September, Chief Executive Raymond Gilmartin said the company was "really putting patient safety first." He said the study findings prompting the withdrawal, which tied Vioxx to heart-attack and stroke risk, were "unexpected."

But internal Merck e-mails and marketing materials as well as interviews with outside scientists show that the company fought forcefully for years to keep safety concerns from destroying the drug's commercial prospects.

Merck's first worry, in the mid-to-late 1990s, was that its drug would show greater heart risk than cheaper painkillers that were harsh on the stomach but were believed to reduce the risk of heart attacks. Several company officials discussed in e-mails how to design a study that would minimize the unflattering comparison, even while admitting to themselves that it would be difficult to conceal.

By 2000, one e-mail suggests Merck recognized that Vioxx didn't merely lack the protective features of old painkillers but that something about the drug itself was linked to an increased heart risk. On March 9, 2000, the company's powerful research chief, Edward Scolnick, e-mailed colleagues that the cardiovascular events "are clearly there" and called it a "shame." He compared Vioxx to other drugs with known side effects and wrote, "there is always a hazard." But the company's public statements after Dr. Scolnick's e-mail continued to reject the link between Vioxx and increased intrinsic risk.

As academic researchers increasingly raised questions about Vioxx's heart safety, the company struck back hard. It even sued one Spanish pharmacologist, trying unsuccessfully to force a correction of an article he wrote. In another case, it warned that a Stanford University researcher would "flame out" unless he stopped giving "anti-Merck" lectures, according to a letter of complaint written to Merck by a Stanford professor. A company training document listed potential tough questions about Vioxx and said in capital letters, "DODGE!"

The revelations shed new light on the interplay between marketing and science at Merck as bad news piled up about a blockbuster drug used by some 20 million Americans. Amid growing danger signs, Merck fought a rearguard action for 4½ years, clinging to a hope that somehow Vioxx's safety could be confirmed -- even though its research chief had already privately acknowledged its risks…..

A Merck internal marketing document reviewed by The Wall Street Journal, addressed to "all field personnel with responsibility for Vioxx," provided an "obstacle handling guide." If a doctor said he was worried that Vioxx might raise the risk of a heart attack, he was to be told that the drug "would not be expected to demonstrate reductions" in heart attacks or other cardiovascular problems and that it was "not a substitute for aspirin." This wasn't a direct answer.

One training document is titled "Dodge Ball Vioxx" and consists of 16 pages. Each of the first 12 pages lists one "obstacle," apparently representing statements that might be made by a doctor. Among them are, "I am concerned about the cardiovascular effects of Vioxx" and "The competition has been in my office telling me that the incidence of heart attacks is greater with Vioxx than Celebrex." The final four pages each contain a single word in capital letters: "DODGE!"…

     Think of it. Many of the people involved in this despicable episode have Ph.D degrees in science and/or MBA degrees in business. They are making tons of money. And they are still acting like any hoodlum on a street corner.

     The following is a very brief excerpt of a much longer article that is notable for what it doesn’t mention: whether or not wage increases will be a consideration in the upcoming Fed’s decision about the prime interest rate.

From The Wall Street Journal, November 1, 2004.

For Fed Officials Weighing Rates,
Oil Price, Dollar Are Big Factors

WASHINGTON—Oil prices and the dollar are emerging as key factors for Federal Reserve officials ahead of next week's expected rate increase and the subsequent debate over whether to raise rates again in December.

     So, what does this mean? Globalization. and other class warfare tactics, have effectively destroyed any likelihood that working-class wages will make any significant increases in the future. Therefore, the Fed will not have to take any action to keep workers’ wages stagnant, and doesn’t even have to consider the possibility.

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

     To those of you who still think that Social Security should be privatized: Check out the kind of people who will be selling their services to seniors looking for ways to make their retirement funds grow with the economy.

From The Wall Street Journal, November 1, 2004.

How Untested Trader
Attracted Millions
To Failed Hedge Fund

After Tony Saliba made millions in the options market during the 1987 stock crash, people started "coming out of the woodwork" seeking his attention, including Charles L. Harris, a brash, personable Texan.

Mr. Saliba gave Mr. Harris a shot, teaching him the ropes at the Chicago Board Options Exchange and financially backing his trades for a few months in 1988-89. But Mr. Harris just "didn't work out," because "he was a gunslinger," Mr. Saliba recalls. "He just wasn't disciplined. He was more of a get-rich-quick kind of guy."

The well-heeled investors in a hedge fund Mr. Harris started years later have arrived at the same conclusion -- too late: Mr. Harris today faces lawsuits and criminal wire-fraud charges in U.S. District Court in Chicago stemming from Tradewinds International's meltdown, which federal prosecutors say cost his investors between $10 million and $25 million….

Sept. 9. A judge later denied Mr. Harris bond, saying he was a flight risk. He faces as much as 30 years in prison and a $1 million fine.

     Note that Mr. Harris’ victims were “well-heeled investors,” and not unsophisticated people looking for a place to put their Social Security funds. Thank heavens there was no possibility of that—for now, at least. If Republicans have their way, that’ll change.

     And why is Mr. Harris a flight risk? Because he has become incredibly rich conning the gullible, and undoubtedly has hoards of cash stowed away in safe places.

     The two following articles are closely related, and describe the true objective of globalization: the total destruction of the ability of workers to negotiate with multinational corporations for higher wages and better working conditions.

     The first article describes the accelerating trend in the U.S., as corporations abandon American workers and go to where workers can be freely brutalized. The second is an editorial that explains how Germany—once a prosperous country for both investors and workers—is being destroyed by investors who see globalization as an excuse to destroy workers’ incomes.

From Business Week, November 1, 2004.

Outsourcing: Worse Than You Thought

U.S. employers have more than doubled the number of factory and white-collar jobs sent overseas since 2001, according to an Oct. 15 report by the U.S.-China Economic & Security Review Commission. It found that in the first quarter of this year, the annualized pace of job shifts topped 400,000, vs. 200,000 three years ago.

The study likely omitted many moves, especially white-collar jobs to China and India. Why? It's based on corporate announcements, which many companies have stopped because of bad publicity.



Saving Germany's Auto Industry

Could auto manufacturing become the 21st century equivalent of Germany's coal industry, uncompetitive and destined to collapse? General Motors Corp. announced on Oct. 14 that it will shrink its workforce by 20%—12,000 jobs—in Europe, with most cuts in high-cost Germany. Why? At GM-Opel's Bochum and Russelsheim plants, workers earn $41 an hour, or 33% more than auto workers in France and other European countries.

German auto suppliers have already transferred 100,000 jobs to Eastern Europe and Turkey, and 40% have plans to shift more manufacturing out of Germany. If labor leaders, employers, and politicians don't wake up, German companies may soon be exporting made-in-China cars to Europe.

It's not too late to change the situation. First, Germany must roll back high labor costs and scrap the 35-hour workweek, which hamper productivity. German leaders need to rethink the nation's antiquated model of labor negotiation. The metalworkers' union still sits down with the employers' union and inks a wage package for all industries that employ its workers, including automobiles. That consensus model functioned in a less global economy, but it doesn't now…

Weak-willed politicians are the third problem. Gerhard Schröder's ruling center-left government, terrified of alienating its labor union base, has carried out only halfhearted economic reforms. Berlin has tinkered with the system, trimming long-term unemployment benefits, for example. But it has shirked a healthy discussion on transforming the postwar, consensus-driven industrial model into a more flexible system that would allow German companies to remain competitive.

As auto makers struggle with excess capacity across Europe, they are finally beginning to close down inefficient plants in high-cost countries. Of Germany's three volume producers, Ford Motor Co. and GM-Opel are reeling from chronic heavy losses, and Volkswagen is struggling to eke out a profit. The country's car industry accounts for one of every seven jobs and 10% of Germany's gross domestic product. Replacing it will be painful.

     Key statement above: “If labor leaders, employers, and politicians don't wake up…” Meaning: if they don’t realize that the class war is over, and investors have won, Germany will lose its industry, workers will lose their jobs, and we’ll be at the beginning stage of the next worldwide depression. Investors will have all the money, and consumers won’t have enough to buy the things that are still being produced in China.

     For the real story about the true purpose of globalization, check out International Free Trade: IT'S NOT "GLOBALIZATION" (5% = 100%).

     Anyone still wondering how to vote in the election this week should read the following editorial in one of our most prestigious conservative financial publications.

From Business Week, November 1, 2004.


By Laura D'Andrea Tyson

How Bush Widened The Wealth Gap

Not since the '20s has income inequality been this great

During the last half-century the distribution of income and wealth in America has become more and more unequal. Even during the 1990s, a period of sustained expansion, most of the growth in income and wealth was concentrated among the top 10% of households. By 2000 this group accounted for 44% of total household income, compared with 33% in 1980.

Today the top 1% of households receives more pretax income than the bottom 40%. And the distribution of wealth is even more lopsided. The top 1% of households owns nearly 40% of total household wealth—more than the bottom 90% of households combined—and earns half of all capital income. Income and wealth are more unevenly distributed among Americans than at any time since the Jazz Age of the 1920s. On measures of income and wealth inequality, the U.S. tops the charts among the advanced industrial nations.

Yet rather than fashion economic policy to ameliorate the trends of growing income and wealth inequality, President Bush has championed policies that have exacerbated them. And if he is elected to a second term, he has put voters on notice that they should expect more of the same.

A recent study by the bipartisan Congressional Budget Office confirms that the 2001 and 2003 Bush tax cuts have disproportionately benefited the wealthiest households. The tax cuts have boosted the aftertax incomes of the top 1% of households, with average incomes in excess of $1,000,000, by 10%—compared with a 2.3% increase for middle-income families with average incomes of $57,000 and a 1.6% increase for the bottom 20% of families, with average incomes of less than $17,000.

The tax cuts for millionaires alone have reduced government revenues by $90 billion a year, more than the lost revenues from tax cuts for the 80% of families making less than $100,000. Ninety billion dollars a year is more than enough to pay for the comprehensive health-care plan proposed by John Kerry and for the promises President Bush himself made but has not funded in his No Child Left Behind education bill.

As an intended consequence of the Bush tax cuts, the share of federal taxes paid by the bottom 80% of taxpayers has increased, while the share paid by the top 1% has dropped. And that's before the elimination of the estate tax scheduled to take effect at the end of the decade, which will further reduce taxes on the wealthiest households. President Bush has repeatedly announced that the main economic priority of his second term will be making his tax cuts permanent. If he realizes this goal, he will have succeeded in passing the most regressive tax program in U.S. history.

He will also have chosen tax relief for the rich over strengthening the Social Security system on which low-income workers, disabled workers, widows, and surviving children depend to avoid poverty. The tax code already favors those at the top. High-income households can afford to buy or build larger homes to take advantage of the tax deduction for mortgage interest payments. The top 20% of earners receives more than two-thirds of the benefits from tax deductions for private retirement savings. Most Americans are deeply in debt, and 95% can't afford to take advantage of such deductions. Yet President Bush wants to make them even more generous.

Employer-provided health-insurance plans also receive generous tax breaks, but less than half of low-wage workers enjoy such coverage, compared with 90% of high-wage workers. President Bush proposes a refundable tax credit for low-income individuals and families to help them buy health insurance. But according to the Kaiser Foundation, the credit is too small to enable most Americans to purchase coverage on their own. President Bush also proposes tax breaks for people who buy high-deductible health-insurance plans and who establish private health savings accounts to cover the bulk of their health-care costs.

Under his plan, all contributions, earnings, and withdrawals from heath-savings accounts would be tax-free. This would be extremely attractive to high-income individuals but would raise the cost of traditional health-insurance coverage for lower-income and higher-risk populations. The inevitable result would be an increase in the number of uninsured and even greater inequality in access to health care.

If Bush is reelected, America will continue down the path of increasing inequality in income, wealth, and health, with dangerous implications for U.S. democracy.

     That about says it all. Anyone who claims to have Christian values—or any values at all—simply cannot vote for Bush, or for any Republican for that matter.

     When Republican Steve Forbes, editor-in-chief of Forbes magazine, speaks on radio or TV and gives his opinions on the economy, don’t believe him. Like all of today’s right-wing crackpots, he distorts reality with abandon.

     Instead, read the investment advice his writers give to Forbes' readers. Although they can deliberately lie to the voting public about government economic policies, they are forced to tell the truth to their investor readers—because they're the source of Forbes's revenue.

     With the exception of the glee Shilling expresses at the prospects for making money from a horrible economy for most Americans, the following dead-on analysis sounds like it came from a liberal Democrat.

From Forbes, November 1, 2004.

Carriage Trade

By A. Gary Shilling

John Edwards is right: The U.S. is splitting into a rich nation and a poor one. You can make money from this trend. Think yachtmakers.

John Edwards says the U.S. is becoming two nations, one rich, one poor. Regardless of where you stand politically, you have to concede that the evidence supporting these income trends is strong.

What the Democratic senator probably wouldn't like to hear is that this polarizing of income presents an opportunity for investors. You should exit companies that sell to the masses and buy into businesses catering to the upper stratum. While it is not quite true that the poor are getting poorer, there is no doubt that the poor are getting squeezed--by $2-a-gallon gasoline and by medical bills. That means they have less money to spend at Wal-Mart and Target. The average real (that is, inflation-adjusted) wage is falling, unusual for this stage of the business cycle.

A different trend is going on at the other end of the income scale. Executive pay continues to leap. Even chief executives dismissed in disgrace receive huge severance packages. The polarization of income is a long-term trend, and government can do little to reverse it. Income polarization did not suddenly spring up under George W. Bush, and it would not disappear with John Kerry in the White House.

Since the late 1960s the share of pretax income (not including capital gains) of the top 20% in household income rose from 43% to 50% of the total, while the shares of the other four quintiles fell. In part, this is because the job mix is moving away from many middle-income occupations. Manufacturing pays 25% more on average than all nonfarm jobs, but its share of employment has fallen from 28% in 1966 to 11% now.

Productivity growth and the shift of manufacturing jobs, first to Mexico and now to Asia, means that the production of goods (a category that includes not just manufacturing but also construction) occupies just 17% of payroll employees today. Goods production accounts for 33% of today's economic output, considerably down from several decades ago.

Workers in leisure and hospitality make only 43% of the economy's average wages. But with rapid growth in leisure-hospitality, their numbers have leaped from 6.4% of nonfarm employees in 1966 to 9.4% today. The economic squeeze extends even to parts of the upper-middle-income bracket, for three reasons. Certain professional jobs that pay well here, such as computer programming and X-ray reading, are moving to India along with low-paid call center work. Personal computers are not only manufactured in Asia today, but they're designed there as well by Asian engineers.

Second, well-paying U.S. tech industries like semiconductors and computers may be morphing from growth to cyclical status. So much hardware and software is in use that replacement demand often dominates over new applications.

Third, rising medical costs hurt. Employers, faced with skyrocketing insurance bills, are forcing employees to pay more. The middle- and lower-tier folks have maintained growth in spending by borrowing more and saving less. Combined consumer and mortgage debt outstanding jumped from 65% of annual aftertax income in the early 1980s to 111% this year. That hocking up went hand in hand with a collapse in the savings rate from 12% to 2% of aftertax personal income.

Rising delinquencies and bankruptcies suggest that consumers may not be able to keep borrowing much longer. Sure, a virtue of the U.S. economy remains that it is dynamic. People aren't locked into serving hamburgers their entire lives. Many dot-com zillionaires of the late 1990s were eating hot dogs and beans a year later. But by and large those on the highest rung have the skills to compete in today's global economy. They're the entrepreneurs who are making fortunes.

How should you respond to the two-Americas trend? Shun stocks in the producers of discretionary items for the middle-and lower-income classes. Deflation, if it arrives as I forecast, will aggravate the problem by leading to a self-feeding downward spiral of consumption. Avoid shares in automakers, which depend on rebates and zero-percent financing to move the metal. Appliance makers will also suffer if the housing bubble breaks, as I expect it will. Credit card issuers will be hurt as borrowers swear off.

The well-heeled, though, will patronize the providers of luxury cars, yachts, high-end resorts and travel and other upscale goods and services. Invest in those companies' stocks. I look for interesting investment opportunities in smaller private companies that cater to the carriage trade.

Tidy fortunes will be made by entrepreneurs running yacht basins, outfits that clean and maintain the vacation homes of the wealthy and even house-sitting, au pair and pet-care services.

     I could not have described the economic disaster for working Americans better. And it came from the most conservative financial publication in the U.S.: Forbes magazine. That’s the very same publication that consistently advocates economic policies (like tax breaks for the rich, globalization, freezing the minimum wage, etc.) that have led to the "investment opportunities" Shilling describes so well.

     Possibly the most hypocritical statement Shilling makes is that "government can do little to reverse it" (the exploding disparity between rich and poor). Republicans and conservative Democrats have created this economy through government (NAFTA, appointment of conservative judges, tax legislation, anti-labor legislatlion, and so on)—and it'll take a liberal Democratic government to reverse the process.

     What this country needs is another Roosevelt/Truman administration.

     Read the following, and thank God for California and common sense. If it were up to the Bush Administration we’d never address the deadly problem of climate change and global warming. It may be too late, but at least we may have a fighting chance to save the planet.

From Fortune, November 1, 2004.

California Rocks the Auto Industry

How a state agency ruling on climate change may force Detroit to spend $33 billion.

A few weeks ago in Los Angeles the board of directors of a state regulatory agency you've never heard of met in an airport hotel you'd never notice. The California Air Resources Board voted to adopt regulations to reduce the amount of carbon dioxide (CO2) and other greenhouse gases that cars and light trucks emit into the atmosphere by 30% within 11 years. The vote didn't garner much national attention. If you did read about it in a squib buried in a newspaper, you might have thought, How nice, the public servants of CARB are doing their share, earnestly urging Californians to get their greenhouse gases in check.

You almost certainly wouldn't have expected the car industry to react as if someone were trying to hit it upside the head with a $33 billion sledgehammer. "This is probably the most far-reaching and expensive regulation the auto industry has ever faced," says John Cabaniss, director of environment and energy at the Association of International Automobile Manufacturers, a trade group representing Honda, Nissan, Toyota, and other foreign makes. "It would take a change of direction on California's part to avoid litigation," warns Reg Modlin, DaimlerChrysler's director of environment and energy planning. He adds that the company would "very seriously consider" suing to "protect our interests."

How could an obscure state agency get such a rise out of a $425 billion industry? For one thing, CARB is a local agency with very large teeth. Headed by a Welsh-born chemist named Alan Lloyd, it makes decisions that often end up serving as the model for federal vehicle-pollution regulations, as well as those of foreign countries.

And at the top of CARB's agenda just now is global warming, which is an especially urgent issue in California. The state is seeing the effects of global climate change first-hand, the starkest example so far being a shrinking of the snowpack in the Sierra Nevadas that supplies much of the state's water. There's also evidence of climate-related crop damage, as well as coastal flooding. "Absent federal leadership, it's important for California to demonstrate that there is a way to address global warming," Lloyd says. "And then other states can copy it." What Eliot Spitzer is to Wall Street, Lloyd is to the auto industry….

Conservation may be a noble goal, but the country hasn't been able to decide how to get there. Polls indicate that Americans are for conservation, but the same public is persisting in a wholesale adoption of light trucks for uses that cars once served. As a result, total fuel economy in this country has actually decreased over the past few years. Washington makes noises about increasing efficiency, yet obvious ideas like bumping up fuel taxes are political nonstarters. Maybe Lloyd and his band of earnest bureaucrats are the solution we deserve.

      “Conservation may be a noble goal, but the country hasn't been able to decide how to get there.” Let’s hope that our country wises up to environmental destruction before it’s too late. And we’ve got our entire auto industry fighting us all the way. (Don’t auto executives have kids? If they do, they certainly don’t care about them.)

     Want to know how we can cut taxes for middle- and low-income Americans? Or why they now have to pay so much more in taxes than they used to? Read below for a clue.

From Fortune, November 1, 2004.

Not Very Taxing

Business's share of the national income tax burden is at its lowest level in decades.

The latest corporate tax bill—passed by Congress in early October and stuffed with $137 billion in tax breaks—will bring the business community's share of the national tax burden to its lowest level in decades.

Economists Alan Auerbach and James Poterba have shown that most of the drop between 1960 and 1985 came from declining corporate profits rather than a falling tax rate. But over the past 15 years the effective federal tax rate for big corporations has dropped sharply, from 26.5% in 1988 to 17.2% in 2003, according to think tank Citizens for Tax Justice.

Thanks to loopholes and avoidance schemes, an amazing 61% of U.S. corporations paid no taxes from 1996 to 2000, according to the Government Accountability Office. So who in the business world is paying? Berkshire Hathaway's $3.3 billion tax bill last year represented about 3% of the total income tax paid by all corporations. And next year, Warren Buffett says, he hopes to pay even more. He, for one, sees higher taxes as the byproduct of a worthy goal: higher profits.

     Note that this article came from one of our most conservative financial publications—not known for being critical of corporations or conservative tax policies.

     And why are there so few Warren Buffetts in corporate America?

     Seventeen new members were added to the Asian Billionaire Club last year. So now you know who’s profiting from globalization and the movement of industry to China and India.

     It’s certainly not the workers in China’s factories, which are now taking their turn in a worldwide race to the bottom for profits and, inevitably, for wages for workers.

From The Wall Street Journal, November 2, 2004.

China's Factory Growth Slows

Survey of Manufacturers
Finds Big Increase in Costs
Curbs Purchasing, Hiring

HONG KONG—After a period of robust growth, China's manufacturing sector showed signs of decelerating last month amid Beijing's campaign to cool the economy.

According to the CLSA China Manufacturing PMI, manufacturing growth slowed in October, with the reading slipping to 52.4 from 54.1 in September, the first time it has fallen since June. Strong gains in production volumes and new orders were partially offset by sharp increases in costs, which put a crimp on purchasing and hiring activities of many firms. Overall, manufacturing growth was still positive….

Manufacturers are "very pessimistic now," said Robin Liang, general manager of Qingdao Europa Arts & Crafts Co., which sources fabric home furnishings for companies such as U.S. retail giant Target Corp.

Although orders have shot up by 40% during the past three months ahead of the end of global textile quotas on Dec. 31, plant managers are dealing with labor shortages and sharp rises in material costs, such as synthetic textiles derived from petroleum products, which have shot up 50% in cost compared with a year ago, he said.

"Competition is harder and harder," Mr. Liang said. "All manufacturers are cutting costs and cutting profits."

     It never ends. The only way workers will be allowed to share in the wealth that they are creating is if they have power. At this point, all the power is in the hands of investors and their international corporations.

     As sales and profits decline, the market adjusts—not by cutting the income of top corporate executives or investors—it closes factories and throws workers into the street.

     As we send out best working-class jobs to China, India, and elsewhere, conditions continue to degenerate for workers in this country. About the only way they can maintain their standard of living is to go into debt.

     When record amounts of bad debt come due, we will have an economic meltdown, and most Americans will finally realize how thoroughly they’ve been screwed.

From The Wall Street Journal, November 2, 2004.

Debt Collectors Reap Rewards
A Consumers Rack Up Bills

The mountains of debt that consumers have piled up are a good thing—if you get paid to collect it.

Shares of several midsize companies that specialize in collecting old consumer debt are climbing, as companies, hospitals and others increasingly farm out the job of collecting it all. NCO Group Inc., Encore Capital Group Inc., Portfolio Recovery Associates Inc. and Asset Acceptance Capital Corp. have seen their shares rise between 8% and 31% this year, as the overall market has barely budged….

Household-sector debt is up to about $9.7 trillion, mostly from mortgages. That is up 10% in the past year, and it is growing faster than personal income, suggesting that more bad bills will be coming due. But reasonable job and income growth, and still-low interest rates, make it easier for some consumers to pay off their bad debts….

     Those who are expecting “reasonable job and income growth” to bail out our debtor/workers are in for a shock. Given the economic mess we’re in due to the policies of Republicans and conservative Democrats—there’s no way this economy is going to avoid crashing within the next two years.

     The disastrous results of globalization are beginning to sink to the heads of even our Republican politicians. It’s a repeat of the worldwide excesses of the 1920s, the retrenchment of nations to protect the welfare of their own citizens, and then a giant economic slowdown as investors realize the world’s citizens have run out of money to buy the products they themselves are making.

     Thus, the retrenchment begins, as the U.S. belatedly discovers that, if it doesn’t protect its basic industries, the degenerating economic trends will accelerate to almost irreversible levels. And other countries are coming to the same conclusion.

From The Wall Street Journal, November 5, 2004.

U.S. to Consider
Curbing Imports
Of China Apparel

New 'Safeguard' Quotas
On Certain Clothing Items
Are Sought by Textile Firms

HONG KONG—China’s dream of becoming a one-stop shop for the world's apparel industry has suffered a setback as a U.S. government body agreed to consider imposing quotas on a range of Chinese textile and clothing imports.

Last week, the U.S. Committee for the Implementation of Textile Agreements, an interagency group led by the U.S. Commerce Department, agreed to investigate an

American industry petition on cotton pants coming from China. On Wednesday, the group agreed to consider complaints on five more categories of clothing. The complaint was made by a coalition of textile companies, apparel firms and a union representing U.S. textile and apparel workers…..

China has opposed the U.S. move to consider quotas, calling it a violation of free-trade principles. Ministry of Commerce spokesman Chong Quan said in a statement that the threat of quotas had "severely damaged" the confidence of China's garment sector. U.S. officials defend the investigation as fully acceptable under WTO rules….

Not all U.S. garment and textile groups want to impose curbs on China. While U.S. textile producers try to protect domestic jobs, garment producers are often looking overseas for low-cost production. American retailers also are hoping for lower-priced clothing, which many of them expect to become available if garment production is concentrated in China and India….

Pro-quota groups note that China-made bras, pajamas and down-filled jackets flooded U.S. markets after quotas on these categories were lifted in 2001. After the removal, China's share of the U.S. market for these items, on average, shot to 63% from 9% in just two years.

      “China has opposed the U.S. move to consider quotas, calling it a violation of free-trade principles.” No kidding. And guess what. They’re bound to retaliate, and suddenly we’ll find that even desirable international trade may be hurt.

Week of October 25

     When Republican Steve Forbes, editor-in-chief of Forbes magazine, speaks on radio or TV and gives his opinions on the economy, don’t believe him. Like all of today’s right-wing crackpots, he distorts reality with abandon.

     Instead, read the investment advice his writers give to Forbes' readers. Although they can deliberately lie to the voting public about government economic policies, they are forced to tell the truth to their investor readers—because they're the source of Forbes's revenue.

     With the exception of the glee Shilling expresses at the prospects for making money from a horrible economy for most Americans, the following dead-on analysis sounds like it came from a liberal Democrat.

From Forbes, November 1, 2004.

Carriage Trade

By A. Gary Shilling

John Edwards is right: The U.S. is splitting into a rich nation and a poor one. You can make money from this trend. Think yachtmakers.

John Edwards says the U.S. is becoming two nations, one rich, one poor. Regardless of where you stand politically, you have to concede that the evidence supporting these income trends is strong.

What the Democratic senator probably wouldn't like to hear is that this polarizing of income presents an opportunity for investors. You should exit companies that sell to the masses and buy into businesses catering to the upper stratum. While it is not quite true that the poor are getting poorer, there is no doubt that the poor are getting squeezed--by $2-a-gallon gasoline and by medical bills. That means they have less money to spend at Wal-Mart and Target. The average real (that is, inflation-adjusted) wage is falling, unusual for this stage of the business cycle.

A different trend is going on at the other end of the income scale. Executive pay continues to leap. Even chief executives dismissed in disgrace receive huge severance packages. The polarization of income is a long-term trend, and government can do little to reverse it. Income polarization did not suddenly spring up under George W. Bush, and it would not disappear with John Kerry in the White House.

Since the late 1960s the share of pretax income (not including capital gains) of the top 20% in household income rose from 43% to 50% of the total, while the shares of the other four quintiles fell. In part, this is because the job mix is moving away from many middle-income occupations. Manufacturing pays 25% more on average than all nonfarm jobs, but its share of employment has fallen from 28% in 1966 to 11% now.

Productivity growth and the shift of manufacturing jobs, first to Mexico and now to Asia, means that the production of goods (a category that includes not just manufacturing but also construction) occupies just 17% of payroll employees today. Goods production accounts for 33% of today's economic output, considerably down from several decades ago.

Workers in leisure and hospitality make only 43% of the economy's average wages. But with rapid growth in leisure-hospitality, their numbers have leaped from 6.4% of nonfarm employees in 1966 to 9.4% today. The economic squeeze extends even to parts of the upper-middle-income bracket, for three reasons. Certain professional jobs that pay well here, such as computer programming and X-ray reading, are moving to India along with low-paid call center work. Personal computers are not only manufactured in Asia today, but they're designed there as well by Asian engineers.

Second, well-paying U.S. tech industries like semiconductors and computers may be morphing from growth to cyclical status. So much hardware and software is in use that replacement demand often dominates over new applications.

Third, rising medical costs hurt. Employers, faced with skyrocketing insurance bills, are forcing employees to pay more. The middle- and lower-tier folks have maintained growth in spending by borrowing more and saving less. Combined consumer and mortgage debt outstanding jumped from 65% of annual aftertax income in the early 1980s to 111% this year. That hocking up went hand in hand with a collapse in the savings rate from 12% to 2% of aftertax personal income.

Rising delinquencies and bankruptcies suggest that consumers may not be able to keep borrowing much longer. Sure, a virtue of the U.S. economy remains that it is dynamic. People aren't locked into serving hamburgers their entire lives. Many dot-com zillionaires of the late 1990s were eating hot dogs and beans a year later. But by and large those on the highest rung have the skills to compete in today's global economy. They're the entrepreneurs who are making fortunes.

How should you respond to the two-Americas trend? Shun stocks in the producers of discretionary items for the middle-and lower-income classes. Deflation, if it arrives as I forecast, will aggravate the problem by leading to a self-feeding downward spiral of consumption. Avoid shares in automakers, which depend on rebates and zero-percent financing to move the metal. Appliance makers will also suffer if the housing bubble breaks, as I expect it will. Credit card issuers will be hurt as borrowers swear off.

The well-heeled, though, will patronize the providers of luxury cars, yachts, high-end resorts and travel and other upscale goods and services. Invest in those companies' stocks. I look for interesting investment opportunities in smaller private companies that cater to the carriage trade.

Tidy fortunes will be made by entrepreneurs running yacht basins, outfits that clean and maintain the vacation homes of the wealthy and even house-sitting, au pair and pet-care services.

     I could not have described the economic disaster for working Americans better. And it came from the most conservative financial publication in the U.S.: Forbes magazine. That’s the very same publication that consistently advocates economic policies (like tax breaks for the rich, globalization, freezing the minimum wage, etc.) that have led to the "investment opportunities" Shilling describes so well.

     Possibly the most hypocritical statement Shilling makes is that "government can do little to reverse it" (the exploding disparity between rich and poor). Republicans and conservative Democrats have created this economy through government (NAFTA, appointment of conservative judges, tax legislation, anti-labor legislatlion, and so on)—and it'll take a liberal Democratic government to reverse the process.

     What this country needs is another Roosevelt/Truman administration.

     Surprise! Tax cuts for the rich and our globalization economic policy are not creating high-paying—or even decent-paying—jobs for American workers.

     Instead, all they have seemed to have done is to create an new class of American aristocracy—at the direct expense of everyone and everything else.

From Business Week, October 25, 2004.

Jobs: The Lull Will Linger

Structural shifts across several key sectors make the robust job growth of the 1990s unlikely to return anytime soon

Remember when the U.S. was a big, mean job machine? The 1990s saw the creation of 22 million jobs, the equivalent of adding another California and New York to the national labor market. Even after the 2001 recession and the September 11 terror attacks sent employment reeling, most economic observers—including this one—were confident that the job slump was just temporary.

In fact, the employment market didn't turn up until August, 2003, and its performance since then has hardly been riproaring. In September only 96,000 jobs were created—the fourth disappointing month in a row. And while the economy has added 1.7 million jobs in the past year, that's still 500,000 less than the 2.2 million average annual gain in the 1990s.

Tepid job growth weakens household incomes and makes the economy more vulnerable to negative shocks, such as more bad news out of Iraq. That's why some economists have started lowering their gross domestic product forecasts for the fourth quarter and beyond.

What's holding back job creation? Many believe the problem is short-term in nature, caused by such factors as this year's unusually active hurricane season, political uncertainty, and the spike in oil prices. Others blame more persistent influences, such as high health-care costs and intense global competition….

Manufacturers were not contributors to the job boom of the 1990s, with factory employment falling by 400,000 annually, on average, over the decade, and continuing to plunge in 2001, 2002, and 2003. Thus, the 9,000-job increase in manufacturing over the past year, however small, marks somewhat of an improvement….

The lesson here is that the days of prolific job creation are over, at least until another breakthrough innovation such as the Internet comes along. In the 1990s, the wind was at our backs, and jobs were easy to come by. Today job creation is much tougher for many reasons—and for now that's just a reality we have to live with. ….

     The key statement above: “The lesson here is that the days of prolific job creation are over.” Why should that be surprising? Wasn’t that the whole intent of outsourcing America jobs in the first place? When Republicans and conservative Democrats make it hard for workers to find jobs, wages go down, corporate profits go up, and investors and corporate top executives get incredibly rich.

     Globalization was never intended to actually benefit working-class Americans. It’s doing exactly what it was intended to do.

     And don’t hold your breath for “another breakthrough innovation such as the Internet” to come along. Since we’ve also outsourced our research and development projects overseas—those innovations are now more likely to come from India or China.

     The following demonstrates the absurdities of an economic policy that claims to benefit the world’s workers—by ruthlessly pitting them against each other.

     It’s now reached the very bottom of the economic barrel, where workers must lose their jobs if their wages start to go up to "unacceptable" levels. When they do, factories close down and move elsewhere, so that their investors can continue to make outrageous profits.

From Business Week, October 25, 2004.

Is China Running Out Of Workers?

As farmers stay home, factories scramble for employees. It's all putting pressure on wages

…Driven partly by a surge of foreign investment that is expected to top $60 billion this year, China is building more factories than it can easily find workers for. At the same time, factories are also springing up in the Chinese hinterlands, partly because of Beijing's Develop the West program, but also as manufacturers seek cheaper land and labor and new markets open up in the regions away from the coast. That too is making for a tighter overall labor market….

As workers grow scarce, wages are going up. Indeed, over the last two years real salaries for manufacturing workers have risen faster than gross domestic product. That could have profound effects on China's economic infrastructure, since higher wages are running headlong into intense price competition.

Fang Haifeng, 27, invested $100,000 to set up a small textile factory with his parents and sisters in Hangzhou, Zhejiang province, in early 2003. In May of this year the operation closed down—a victim of rising wages among textile workers. "This kind of factory was successful a couple of years ago," says Fang. "Not anymore."

So will China lose its status as the world's workshop? Not anytime soon. China's hourly manufacturing wages are still just one-third of those in Malaysia….

     Same old story. Whenever workers actually start to benefit from an economic policy that is designed to benefit only investors—the investors abandon those who made them rich, and seek other locations where workers can still be brutalized.

     Chinese workers should take heart, however. Their wages are getting up to where they are one-third of Malaysians are making. And we all know what luxurious lives the spoiled and pampered Malaysian workers have.

     Even the readers of Business Week can no longer deny the disaster this economy has been for working-class families. It’s described very well in the following excerpt.

From Business Week, October 25, 2004.

Are We Better Off Than 4 Years Ago?

Overall, wages went up—but job losses have hit family incomes hard

…Families have made some real gains. Surprisingly, average wages managed to outpace inflation right through the downturn of 2001 and are about 2% higher today, after inflation adjustments, than they were before Bush took office. His mammoth tax cuts, while top-heavy, also put money into average household's pockets. And low interest rates have propelled home ownership to record heights.

But at the same time, the data show an apparent contradiction: that despite the wage gains of the past four years, family incomes have nonetheless declined after inflation. Why? Because employment is down and so are hours worked, outweighing the pay gains.

Even the affluent haven't been spared. To compensate, Americans have refinanced mortgages, piling on the debt and lowering their average net worth. Soaring medical costs, which employers have been shifting onto workers, have further depleted the family purse. Those at the bottom of the ladder have fared the worst: Poverty climbed steadily throughout the Bush years.

Add it all up, and the average U.S. household is somewhat worse off today than in 2000—several years of pain followed by not enough gain to make up the difference. "Americans barely held their own in the past four years, with bottom-half families clearly losing ground and some top-half ones maybe a little better off, mostly from the tax cuts," says Inc. Chief Economist Mark M. Zandi….

The punishing combo of fewer jobs plus fewer hours worked has left family incomes in the hole. The average household earned $43,588 last year, 3.4% less than in 2000, after adjusting for inflation, according to Census Bureau data. That's a decline of about $1,500 a year, which $647 in tax cuts couldn't fully offset.

Further biting into the family pocketbook: more health insurance cost shifting from employers onto workers. Employees' share of annual medical costs are up to 32% this year, vs. 25% in 2001, according to a survey by benefits consultants Hewitt Associates Inc….

Home equity loans and credit cards probably aren't the best ways to prop up your spending when your income stalls. Yet that's what many have done—lowering the median household's net worth from $89,300 in 2000 to $84,400 today, after inflation adjustments, according to Zandi's analysis of Federal Reserve Board data….

     Key statement above: “That's a decline of about $1,500 (in household earnings) a year, which $647 in tax cuts couldn't fully offset.”

     When the Bush Administration brags that it’s tax cuts are making it easier on financially strapped Americans—it totally ignores the reality that take-home pay is what really differentiates between rich and poor. And the Republicans are doing everything they can to keep take-home pay for working Americans as low as possible.

     After all—that’s how you create and nourish an aristocracy.

     In speculating about who Kerry or Bush would nominate as Chairman of the Fed, Barron’s clearly explains the differences in priorities between Republicans and Democrats.

     In determining economic policy, Republicans are most concerned with inflation, or “price growth” (translate that to read “wage inflation”). The welfare of workers—compared to investors and top corporate executives—is irrelevant.

     Democrats, however, in addition to considering inflation, will also consider the effects of Fed policy on the unemployment rate and workers’ incomes and standard of living.

From Barron’s, October 25, 2004.

Picking Teams

Who will the next president name to the key posts?


…Finally, there's the all-important Fed. We see Kerry appointing Princeton economist Alan Blinder, a campaign adviser. Unlike Greenspan, an autocratic chairman, Blinder would give more weight to Open Market Committee members' views when setting rates. As a liberal, he'd worry considerably about unemployment, not just inflation.

Bush, we think, would appoint Princeton economist Ben Bernanke, a Fed Board member and a favorite of Greenspan. Bernanke would set specific targets for price growth, and then make them public, letting everyone know what the policy is.

     If you need help in interpreting the implications of the above excerpt, and don’t understand the way the Fed deliberately keeps workers’ wages from going up, check out: The Class Warfarer’s scapegoat: “Wage Inflation”.

     George Bush wants to privatize Social Security. Period. His recent denials are contrary to his public pronouncements made over the first three years after his election. Even his ardent supporters know it, and freely discuss it in their own right-wing publications. Bush hasn’t denied it until the current presidential campaign season.

     Consider the following:

From Barron’s, October 25, 2004.

End It, Don't Mend It

Social Security should be taken off the table

By THOMAS G. DONLAN "Innumerable Delusions"

WITH A COUPLE OF WEEKS TO ELECTION DAY and the race looking tight, Sen. John Kerry is reviving the old "third rail of American politics." He's accusing President Bush of having a secret plan to privatize Social Security. And the president is acting as if the old black magic hasn't lost its spell. He is denying what he has said plainly, if not so dramatically, since he started running in 2000.

Alas, if only either candidate were telling the truth about Social Security. (We would settle for the possibility that Kerry was telling the truth, if it meant we could believe that Bush really would privatize it.) If only they would acknowledge that the nation's primary program for caring for the elderly will founder under its own weight, or survive by dragging down the productive economy that supports it. And the same goes for Medicare, only more so….

Our (Barron’s) plan gives up on mending Social Security and simply ends it. It moves everyone over to private investments accounts, while backing payments already promised with the full faith and credit of the United States….

Social Security is an unpayable obligation. It is engineered to grow faster than the economy. Benefits are indexed to inflation while receipts are tied to the wage base….

      “He is denying what he has said plainly.” That about says it all. Bush is a deliberate liar.

     And when Barron’s makes the claim that “Benefits are indexed to inflation while receipts are tied to the wage base,” it is correct. But it wouldn’t be a problem if workers’ wages also rose with inflation. However, with Congress and the presidency controlled by Republicans, there’s no chance that workers’ wages will ever come close to matching inflation.

     The only incomes that can go up faster than inflation are the incomes of wealthy investors and top corporate executives—and they pay hardly any Social Security taxes, as a percentage of their total incomes.

     So the problem isn’t with Social Security; it’s with the right-wing crackpots who are running this economy into the ground for working-class Americans. They are destroying the base that is essential for the system to be adequately funded: workers’ wages rising in pace with inflation.

     No one can read the whole page-A1 Wall Street Journal article excerpted below and conclude that the “Mixed Job Picture Offers Ammunition for Both Candidates” (Bush and Kerry).

     While the total job numbers and unemployment rate are looking relatively good today, the figures that actually count and that determine a worker’s standard of living are deteriorating precipitously. This economy—while a boon to the established wealthy, investors, and top corporate executives—is an absolute disaster for middle- and low-income Americans

From The Wall Street Journal, October 25, 2004.

Mixed Job Picture Offers
Ammunition for Both Candidates

Some Workers Are Questioning
Quality of Opportunities;
More Work, Less Security

After years of slashing its work force, Master Lock, the company famous for protecting your gym clothes from thieves, is hiring in Milwaukee again. Mike Konieczny got one of the jobs, but he's not satisfied.

A 34-year-old skilled machinist, Mr. Konieczny started in April at around $19 an hour, well above the $15.80 national average. But Master Lock pays newcomers $3 an hour less than company veterans in the same job and makes them kick in about $370 more each month in family health-care premiums. "If someone makes $3 an hour more than me and I know more than them, it's galling," he says.

Milwaukee workers like Mr. Konieczny—with newfound opportunities and profound ambivalence about them—say a lot about the state of the economy and the presidential campaign. After considerable hesitation, the economy began to produce more jobs about a year ago, as President Bush points out at every opportunity. But many of those jobs don't pay as much or offer as much security as the manufacturing jobs on which Milwaukee once depended, a point Democratic challenger John Kerry makes just as often….

The murkiness of the statistics and politicians' propensity to stretch the facts create a confusing picture as the election nears….

Even among those in Milwaukee with jobs, changes in the economy—skyrocketing health-care costs, outsourcing of jobs once thought safe from foreigners and wage cuts made in the name of competitiveness—leave many skeptical that the new jobs are better than ones they remember. And the recent improvements in the job market suffer when compared with workers' memories of the booming 1990s….

Still, careful studies of longtime workers who have been laid off—or "displaced workers" as they're called—do show clearly that today's economy is tougher, says Henry Farber, a Princeton University economist. Between 2001 and 2003, such workers landed jobs that paid 20% less on average than they had earned in their old jobs; in the past, the drop was closer to 10% or 12%….

"The jobs being created now aren't the jobs my parents had, my uncles had and my aunts had," says tool-and-die maker Bradley Schwanda, president of the UAW local.

Bob Rice, a Master Lock vice president, says the lower starting wages were necessary to make the company more competitive globally. "We have a gap world-wide when it comes to salary," he says….

     Key statement above: “lower starting wages were necessary to make the company more competitive globally.” Although corporations have been making record profits because of globalization—they’re using that same factor as an explanation for the degenerating standard of living for workers.

     Deliberate liars and hypocrites sold globalization to American voters as a benefit for everyone, including workers. Now, the truth is coming out with a vengeance.

     For a more thorough discussion of the disaster of globalization, check out: International Free Trade: IT'S NOT "GLOBALIZATION" (5% = 100%).

     The good news: If Kerry wins the election, those who are in line to inherit billions of dollars when someone dies will still have to pay estate taxes.

     The bad news is twofold. First, if Bush wins it would mean that the estate tax could be repealed entirely and permanently.

     But second, since Kerry is actually a moderate Republican, he’ll still reduce the inheritance tax by a huge amount. (Kerry) “would raise the exemption next year to $2 million from $1.5 million under current law.”

     At a time of disastrous deficits, this is no time to continue conferring special privileges to our new aristocracy—the people who are reaping tremendous benefits from an economy that is deliberately designed to further enrich the wealthy at the direct expense of middle- and low-income workers.

From The Wall Street Journal, October 27 2004.

What the Presidential Election
Means for Fate of the Estate Tax

President Bush and Sen. Kerry differ sharply over a politically charged pocketbook issue: death and taxes.

As things stand, the federal estate-tax exemption is set to disappear in stages through 2009. Then, in 2010, the estate tax is supposed to vanish entirely—only to spring back to life again in 2011.

Clearly, this bizarre system will change—maybe several times—before 2010. President Bush vows to kill "death" taxes permanently. Sen. Kerry wants to raise the basic exemption (now $1.5 million) to $2 million for most estates, and leave the top estate-tax rate unchanged at 48%, says Jason Furman, economic-policy director for the Massachusetts senator.

What happens next week could heavily influence the outlook. For the wealthy, the differences between the Bush and Kerry plans can be huge….

Suppose a single person who lives in Florida (which doesn't have a separate state estate tax) dies in 2010 and leaves behind a $5 million taxable estate. Under current law, the federal estate tax would be zero. Under the Kerry plan, it would be about $1.4 million, CCH says.

The Kerry plan offers more relief than current law for heirs of many wealthy people who die next year—and in 2011 and beyond. That is because he would raise the exemption next year to $2 million from $1.5 million under current law. For example, suppose a wealthy Floridian dies in 2005 and leaves behind a $2 million taxable estate. Under current law, the federal estate tax would be $225,000. Under the Kerry plan, it would be zero.

For the largest estates, though, a Kerry victory would mean a higher federal estate tax, even for 2005. The reason: Under current law, the top estate-tax rate is set to drop to 47% next year from 48% this year. Thus, if someone dies in 2005 with a $50 million taxable estate, the federal estate tax would be $255,000 more under the Kerry plan, which would leave the top rate at 48%….

Thus, one possible compromise that might emerge in Congress—no matter who wins next week—would be to raise the basic exemption amount to $2.5 million or $5 million. Raising it to $5 million would kill the tax for all but a few thousand of the nation's richest people, while preserving large amounts of revenue….

     Key statement above: “For the wealthy, the differences between the Bush and Kerry plans can be huge.” But it’s also true for workers: the impact on workers of a Bush vs. Kerry election will also be huge.

     First, the government services that will have to be cut when the inheritance tax is repealed will be the services that make life more tolerable for those near the bottom of the income and wealth scale.

     And second, the government will have to make up for its revenue loss some way, and that usually means that Republicans will figure out a devious way to shift the tax burden onto workers—like raising Social Security taxes.

     Isn’t it neat how Republicans have totally switched our values from a respect for workers’ rights—to the glorification of greed?

     Look at how today’s right-wing crackpots describe a “good world.”

     It’s a world of pitting workers of the world against each other in a race to the bottom for wages—and all to benefit the Melloans of the world.

From The Wall Street Journal, October 27 2004.


By George Melloan

In Economic Terms at Least,
It's a Good World

Ambassador Clara Gaymard, the "Special Representative of France for International Investment," dropped by the Journal office in New York recently to tell us why France is a good place for American companies to set up shop. Forget about Jacques Chirac and anti-Americanism, said the charming Ms. Gaymard, in effect: France has much to offer….

Aside from what this says about politically inspired illusions, a further point is what it says about "globalization." Listening to Ms. Gaymard, I was reminded of years ago when governors of American states, including once a youthful Bill Clinton, came frequently to our offices to list their industrial-development incentives. Those were the days when the mostly agrarian American South was luring investment and jobs from the industrial north with tax incentives and cheaper labor.

The only difference now is that it is entire countries, like France, that are on the make. They recognize what we at the Journal have been preaching for years, that there really is only one economy that matters, the economy of planet earth. Just as U.S. states once did—and still do—national governments are increasingly forced to adopt policies that recognize the need to compete with other governments.

This competition among governing entities to make their jurisdictions good hosts to business is fostering global economic development in much the same way that it once fostered the growth of the now-robust U.S. economy. As with other organizations, governments need competition to force greater efficiency….

That's why globalization is hated by socialists and other worshipers of state ascendancy the world over. They don't like these constraints but know that the penalty for resisting them is severe. Germany, for example, is facing further massive job losses because its socialist-led government has been too slow to reform laws that protect unions and enforce high labor costs.

The choice for rich nations like Germany is reform or die, thus Chancellor Gerhard Schröder's attempt to find a safe middle ground. German unions are finding that their chief weapon, the strike, is not effective if an employer chooses to close up shop and move to a more hospitable clime. If they read U.S. history they will see that the decline in American industrial unionism was hastened by the jobs migration to the South.

Adaptation can mean painful reductions in wages and benefits for some workers, so it's not surprising that labor unions have joined statists in decrying globalization….

You can see that the global economy is working well when investment flows to underdeveloped areas and they in turn provide low-cost goods to the developed nations. That's happening now, especially between the U.S. and the underdeveloped parts of Asia…..

     Any objective reader can detect the glee in Molloan’s conclusion that the aristocrats of the world have already won their class war with workers. Workers have simply lost almost all of their negotiating power in the new world economy. His celebration of greed and the “painful reductions in wages and benefits” that workers are experiencing is obvious.

     When he states that “national governments are increasingly forced to adopt policies that recognize the need to compete with other governments,” he’s saying, in effect, if a national government wants to have any industry left, it must sell-out its workers.

     Mellon’s analogy of globalization and its similarities to the movement of industry from the unionized American North to the barbaric South is accurate. That movement had absolutely nothing to do with any economic efficiencies (unless you put workers into the same categories as raw materials or machinery.) It was purely a way to destroy wages and decent working conditions for middle- and low-income Americans.

     For a more extensive discussion of this issue, check out International Free Trade: IT'S NOT "GLOBALIZATION" (5% = 100%).

     Some day the voting public is going to have to face reality: American corporations have absolutely no moral standards. If “price gouging” is a sin, our oil companies are our new standard bearers for evil.

From The Wall Street Journal, October 29, 2004.

Oil Giants Splurge for Investors

Many Major Companies Make
Share Buybacks as High Prices
Leave Firms With Piles of Cash

With oil at nearly $51 a barrel, even after two straight days of declines, the oil giants have a problem lots of companies only dream about: What to do with all the cash?

The seven largest Western oil companies are expected to generate $71.3 billion in free cash this year—and that is after funding $78.1 billion in spending for new oil and natural-gas projects, according to John S. Herold Inc., an oil consulting firm….

…many are shoveling cash back to investors, increasing their dividends and buying back shares. They also are building up their cash reserves. The five largest oil companies spent 56% of their cash on dividends and share repurchases in the second quarter, well above the 31% spent between 1999 and 2003, according to an analysis by Houston Simmons & Co. International, a Houston energy investment bank….

     Note some of the words used to describe what’s happening to our gas prices, and to the investors who are profiting from it: “piles of cash,” “$71.3 billion in free cash this year,” and “shoveling cash back to investors, increasing their dividends and buying back shares.”

     Of course, their spin to Congress and the voting public is that the war in Iraq is forcing up the price of oil, and they have no choice but to raise prices. Nonsense. Their greed and total disregard for welfare of society makes a good case for government taking over the industry. Oil is too important to be left to these barbarians.

     Want to know who the real beneficiaries are from the Bush Administration’s “humanitarian” effort to combat aids? Read on.

From The Wall Street Journal, October 29, 2004.

U.S. Pays High Prices
For Global AIDS Drugs

The U.S. government is paying twice as much for many of the drugs in its global AIDS program as other international aid organizations are, because the Bush administration won't buy cheaper versions made in India, congressional investigators found.

A draft report by the Government Accountability Office—the first independent comparison of the AIDS-drug prices—shows that the lowest price available to the U.S. for one common AIDS-drug regimen, stavudine, lamivudine and nevirapine, is $562 per person annually. That compares with $215 available to international AIDS groups not bound by U.S. restrictions….

Administration officials have said for months that they will buy the cheaper drugs once the Food and Drug Administration certifies their safety. The Bush administration says it regards the issue as one of drug safety rather than a fight over generic versus brand-name drugs. But a special FDA approval process, set up with great fanfare in May, hasn't produced a single approval of a three-in-one AIDS pill, partly because some companies haven't submitted applications….

     As usual, it’s all smoke and mirrors, as the Bush Administration makes sure that its biggest contributors take a healthy cut of any taxpayer funded attempt to solve the world’s problems.

Week of October 18

     Three articles in the October 22 Wall Street Journal give some hope that even the readers of the Journal may begin to realize that our environment is important—and that the Bush Administration has the absolute worst environmental record in history. How anyone could be aware of the following—and still vote for Bush—is indeed the mystery of the century.

From The Wall Street Journal, October 22, 2004.

As Planet Heats Up,
Scientists Plot
New Technologies

Appetite for Oil, Coal Drives
Search for 'Painless Cure'
To Global-Warming Issue

In a warehouse on the outskirts of Tucson, Ariz., engineers are building a prototype machine they believe could help stave off global warming. The scheme, hatched by Columbia University physicist Klaus Lackner, would remove carbon dioxide directly from the air—and store it in rocks or under the earth….

But a growing chorus of scientists, environmentalists and large corporations now agree that to seriously address the world's global-warming problem, a major technological shift is what the planet needs.

If Russia ratifies the Kyoto Protocol—its lower house of parliament is expected to approve it today—it will trigger the implementation of the treaty for most industrialized nations. The treaty is meant to slow the rapidly accelerating release into the atmosphere of so-called greenhouse gases, chiefly carbon dioxide. CO 2, produced by the burning of fossil fuels such as oil and coal, forms an atmospheric layer that reflects the sun's heat back toward Earth, heating the planet in a process known as the greenhouse effect, or global warming.

But the Kyoto Protocol won't solve the world's climate problem, the pact's supporters and detractors agree. That's not just because the U.S.—the world's largest carbon emitter—hasn’t signed on. Or because India, China and other emerging economies, whose collective global-warming emissions are expected within a few decades to overtake those of today's developed world, aren't covered by the pact.

The reality is that the Kyoto treaty, named for the Japanese city where it was negotiated in 1997, never was intended as anything but a first step. Countries that ratify it agree to emissions reductions between 2008 and 2012, which add up to a 5.2% cut from 1990 levels for the industrialized world….

Scientists at the Earth Institute, a research center at Columbia, don't think these steps are going nearly far enough, or fast enough. China is expected to add immense new coal-burning capacity to meet its energy needs, but if it builds conventional plants they will only add to climate problems for decades. "These are not hypothetical issues for the future," says economist Jeffrey Sachs, director of the Earth Institute….

Already, talks on what comes after Kyoto are heating up. The Pew Center on Global Climate Change, an Arlington, Va.-based nonprofit group, has launched a series of closed-door discussions on the subject among corporate and political leaders from around the world. Russia's possible ratification of Kyoto "requires that people start thinking about what comes next," says Eileen Claussen, the Pew Center's president….


Some Hunters Plan to Desert Bush

Outdoorsmen Are Among
One-Issue Voting Blocs
That May Prove Crucial

CIMARRON, N.M.—Larry Dwyer, Oscar Simpson and Alan Lackey are lifelong Republicans who voted for President Bush in 2000. They agree with many of the president's policies.

But they won't be voting for Mr. Bush this year, they say. All three are elk hunters who spend much of the year anticipating outdoors vacations in New Mexico and Colorado. They argue that the administration has bad conservation and wildlife policies that threaten what is dearest to them: public hunting grounds….

At the Outdoor Adventures Hunting and Fishing Show in Albuquerque last February, the New Mexico Wildlife Federation asked 600 sportsmen about their election choice in 2000 and their plans for November. Nearly half said they wouldn't vote for Mr. Bush in 2004, even though most said they had done so in 2000.

In Florida, some Republicans disagreed with Bush administration efforts to allow oil drilling off the state coast; the plan was abandoned after public outcry. In the West, some complain about the proliferation of natural-gas drilling rigs on grazing lands they lease from the federal government.

"What's turned me off on Bush is that he is trying to force his way into wild places that should never be industrialized," says 52-year-old Karl Rappold, a rancher on Montana's Rocky Mountain Front, a spectacular meeting of mountain and prairie where the administration has pushed for drilling. Though the administration has stopped work on that plan, Mr. Rappold says he will vote against the president—as will his wife, their five grown children and at least two other relatives, he says. He says they all voted for Mr. Bush in 2000….


Russia to Proceed
With Ratification
Of Kyoto Protocol

MOSCOW—The Kyoto Protocol on climate change is set today to clear the last major hurdle to ratification.

Russia's lower house of parliament is scheduled today to vote on the accord, the first binding global agreement on reducing greenhouse-gas emissions. The Kremlin, whose supporters dominate the legislature, backed Kyoto in September after a long period of deliberation. The measure must also be approved by the upper house, where it is expected to pass easily.

Passage by Russia will automatically bring the Kyoto Protocol into force in all those countries that have ratified it. The protocol needs ratification by industrialized nations that accounted for at least 55% of global emissions in 1990. Russia, which accounted for about 17%, effectively has had the deciding vote on the 1997 treaty since the U.S. rejected it in 2001….

     Think of the irony. If the U.S. finally does do the right thing and agree to the Kyoto Protocol—it will be following the lead of one of the most backward (advanced?) major countries of the world.

     No wonder the rest of the civilized world is absolutely amazed that the American voting public could be so stupid as to possibly elect Bush for a new term—even considering just his horrible environmental record.

     Read the following article carefully. It betrays the true intent of globalization: to destroy working-class wages in the U.S.—and all in order to profit international corporations and their investors.

     In citing reasons why many corporations should not outsource jobs, the authors unintentionally enumerate the true economic efficiencies—and inefficiencies—of “globalization.”

     International trade is efficient when it locates a manufacturing plant in the center of the distribution system, or where the raw materials are, or where most of the suppliers are. It actually creates huge inefficiencies when it violates these principles, and becomes “efficient” only when the wages of workers are destroyed. (Can you think of any other reason manufacturers locate just across the border in Mexico?)

     In other words, globalization is an economic efficiency only if you consider workers as machines or raw material, without any rights of citizenship in our society.

From The Wall Street Journal, October 19, 2004.


When Offshoring Doesn't Make Sense

By Robert Sternfels and Ronald Ritter

Big companies "sending jobs overseas" is a hot topic in the presidential race. Well, here's a question for both candidates: Ever wonder why, in an age when companies are sending thousands of high-wage jobs offshore, Toyota still makes Corollas in Silicon Valley, one of the costliest places on earth?

The answer lies in a fact of business life Toyota knows well. The best supply chain is short. Sending goods 500 feet in 24 hours is better than shipping them 5,000 miles in 25 days across logistical and political boundaries.

Offshoring can make good economic sense. But it is not a panacea. Manufacturers, in particular, should study potential drawbacks before pursuing it. In our experience, many overrate the value of wage savings and underestimate the inventory, obsolescence and currency risks. Some also overlook the top-line benefits of staying close to customers. Unlike companies in service industries—where wages are typically a higher share of costs and no physical goods change hands—manufacturers may do better in the U.S….

We've found compelling evidence that, in certain circumstances, offshoring is the wrong choice.

One reason is wage rates. They are the heart of the offshore case, yet the importance of direct labor is falling quickly for many manufacturers and often hovers around 7% to 15% of costs of goods sold. Hence, hard goods and high-tech manufacturers often say wages are not critical determinants of their performance.

At the same time, staying at home shortens lead times and heightens responsiveness to market change. One Los Angeles maker of casual wear can fill orders of up to 160,000 units in 24 hours. How? The entire supply chain—including weaving, dyeing and sewing—is downtown. The company carries less than 30 days inventory and is thinking about becoming a "build-to-order" producer….

So how should goods makers decide whether to offshore? Certainly not by starting the decision-making process with a geographic location target or wage-rate goal, as some companies seem to. Manufacturers should instead consider offshoring in the context of a broader operations strategy….

     Key words in the above excerpt: “…wage rates. They are the heart of the offshore case.” Of course. When your government gives you permission to abandon your workforce and the communities that made you rich, that’s exactly what you do.

     Globalization. It’s all about greed, folks. And a total disregard for the moral treatment of workers.

     Outsourcing continues to grow. Of course, it’s a political season, so it’s under the radar. No sense letting voters know that the looming disaster is getting closer. Some politicians might actually try to correct the problem—thus cutting the profits of the investors who are benefiting from the scam.

From The Wall Street Journal, October 18, 2004.

Outsourcing Booms,
Although Quietly
Amid Political Heat

Despite the recent reluctance of U.S. companies to talk about moving jobs overseas, the practice is accelerating, according to outsourcing-company executives and financial results of the biggest Indian outsourcing firms.

In fact, a number of executives and consultants expect that the pace could pick up even more after the U.S. presidential election on Nov. 2.

"Some customers were waiting for the elections to be over" to place outsourcing orders, says Suresh Senapaty, chief financial officer of Wipro Ltd., a large Indian technology-outsourcing company based in Bangalore. He notes that the outsourcing of jobs has become a political issue in the U.S….

Controversy in recent months has made many U.S. companies—and outsourcing firms—reluctant to divulge details about the overseas destinations of jobs awarded to other contractors, for fear of ending up in a campaign speech….

But while companies have become quieter about their plans, the pace of outsourcing continues to increase as businesses seek to use lower-cost labor overseas—as indicated by the recent revenue surge at Indian outsourcing firms.

While U.S. companies have sent manufacturing jobs outside the country for decades, they increasingly are sending more white-collar and service jobs overseas to take advantage of far lower salaries—from call centers to engineering and other information-technology work. Outsourcing firms with operations in India, Eastern Europe and other parts of Asia are seeing a swift increase in business….

Some say U.S. politicians are missing the point in suggesting more education as a solution for outsourcing, since the jobs moving overseas increasingly are affecting highly educated professionals, particularly in technology.

"We're not creating many new jobs in the U.S., and certainly not new jobs in technology," says Ronil Hira, an assistant professor of public policy at the Rochester Institute of Technology in Rochester, N.Y. "There is this mythology that it's just a matter of training. But what are you going to train them in?"…

     Oh yes. Note that even The Wall Street Journal recognizes that training is irrelevant to alleviating the disaster for working Americans. "There is this mythology that it's just a matter of training. But what are you going to train them in?"

     The disastrous results of globalization were never a matter of training or lack of it. It’s all about power, and who controls our government. Investors now have all the power, and workers have absolutely none.

     Speaking of power, look at what’s happening to those who have the least. Combine a lack of power with a lack of “generational leverage,” and you truly have a degenerating combination. (Generational leverage means that wealth tends to increase as succeeding generations inherit wealth.)

From The Wall Street Journal, October 18, 2004.

Wealth Gap Widens in U.S.
Between Minorities, Whites

LOS ANGELES—Economic recession and a weak recovery have hit Hispanics and African-Americans harder than whites, increasing the wealth gap between the two minority groups and whites, a new study found.

The median net worth of Hispanic households fell in 2002 to $7,932, down 24% from 1999, according to the Pew Hispanic Center, a Washington-based think tank. Over the same period, the net worth of African-Americans fell 32% to $5,988 from $8,774. For white households, the measure rose 2.6% to $88,651 from $86,370.

"The recession was much harder on minority households, which were already living on the edge," says Rakesh Kochhar, the economist who conducted the study. "While some of the decline in wealth among Hispanics is due to the influx of new immigrants, much of it reflects the effects of the 2001 recession," he added….

Across the economy in recent years, real wages have fallen, health-care costs have escalated and home prices have surged. These trends have hampered the ability of low-wage workers, who are predominantly minorities, "to accumulate assets that would give them a small measure of wealth in society," says David Koff, senior research analyst with Unite Here, the textile and hotel workers' union.

Janitors and other low-wage workers "can't dream of buying a house," says Ben Monterroso, a legal immigrant from Guatemala who is a western regional leader of the Service Employees International Union, one of the nation's largest labor groups, based in Washington. "With benefits shrinking, you go to the hospital once and it wipes out your savings."…

     Real wages have fallen for the past few years, while our country continues to create a record number of billionaires and multi-millionaires. That shouldn’t be surprising, since each is the direct cause of the other.

     For an accurate description of the recent tax legislation that Republicans and conservative Democrats have given us, read what Barron’s star editorialist has to say about it.

From Barron’s, October 18, 2004.


By Alan Abelson

Pig Heaven


…When all is said and done, though, when it comes to sheer piggery, there's no place like Washington, D.C. Last week brought rousing confirmation of that truism with passage of the "American Jobs Creation Act of 2004." Great title, to which we say, oink! oink!

The act was inspired by the need to end an export subsidy that was deemed illegal by the World Trade Organization in response to a plea from the European Union. While dumping the export subsidy, our chosen representatives decided to replace it with a truly awesome bundle of tax breaks for every imaginable industry in this nation's grand economic spectrum and, for good measure, the bounty was extended to a number of industries our beloved lawmakers just thought up. The bill should have been entitled, the "Richly Rewarding Lobbyists Act of 2004."

To soften the blow on those companies that would suffer from removal of the export subsidy—companies whose needy numbers include the likes of Microsoft and Caterpillar—Congress graciously softened the tax bite on manufacturers who turn out stuff at home as well as abroad. And to make sure that no corporation of whatever stripe feels aggrieved—and no poor lobbyist (forgive the oxymoron) goes unrewarded—our infinitely wise solons waved their wands and turned farmers and oil producers, electric utilities, software companies and construction outfits, architects and roofers and—oh, heck, you get the drift—into manufacturers. What a wonderful thing is a congressman!

So rampant was the urge to give and forgive among our representatives that they graciously eased the tax burden—or ditched it—on those relatively few unfortunates who in some mysterious fashion they were incapable of labeling domestic manufacturers. Like makers of Chinese ceiling fans and producers of fishing tackle and visitors from abroad who get lucky at Las Vegas gaming tables.

The reckoning is that businesses will take away $100 billion in tax savings, courtesy of the new law. But rest assured, the official lines goes, that won't add a cent to the deficit because the $100 billion will be offset by closing loopholes. Sure, and pigs can fly….

     When a conservative financial publication like Barron’s publishes an editorial like this—you’ve got to know that the American Taxpayer is getting royally screwed by Corporate America, through their purchased representatives in our Congress.

     More reasons globalization is a disaster for our country. As if any more reasons were needed.

From The Wall Street Journal, October 19, 2004.

Auto Sector Woes
Squeeze Suppliers

Prices for Raw Materials
Are Rising, but Car Makers
Won't Pay More for Parts

Just as the economy is supposed to be picking up steam, the auto sector is facing a new round of weak earnings and job cuts in part because of a new twist on an old demon: inflation.

Prices of steel and petroleum-based plastics have soared, squeezing suppliers unable to pass along the cost increases to auto makers, which are in the midst of their own price war. The result is a crisis among the auto suppliers employing tens of thousands of people across the Midwest.

Yesterday, Delphi Corp., once part of General Motors Corp., reported a third-quarter net loss of $114 million. Visteon Corp., which was previously part of Ford Motor Co., is expected to report a substantial loss on Thursday. More bad financial news is due next week from Tower Automotive Inc. and Dura Automotive Systems Inc. Some smaller suppliers are shutting down, moving abroad or seeking bankruptcy protection, a route Citation Corp. and Intermet Corp. took last month.

For the past few years, U.S. auto suppliers have had to contend with fierce competition from low-cost Chinese competitors and constant demands for price cuts from auto makers. This year, suppliers are being whacked by a spike in raw-material costs, with spot-market steel prices for hot-rolled coil, a benchmark product, more than doubling in the past 12 months to about $750 a ton in September, before falling back to about $675 a ton in recent weeks….

"You can't absorb all the raw-material costs and continue to provide the huge price reductions" required by the auto makers, John Barth, chief executive at Johnson Controls Inc., said this month in a conference call. Johnson Controls' automotive unit, which makes seats and interiors, is profitable and faring much better than many suppliers, but nevertheless announced last week that it was cutting 350 jobs at several Michigan locations to keep its costs down….

     We’re not only shipping all our jobs to China, the Chinese economic boom is increasing the cost of the raw materials for us at home—for the few industries we have left.

     We’ve also made ourselves trading partners with the most cut-throat competitors in the world: people who have no moral standards in the treatment of workers, the environment, or even their own citizens.

     Again, conservatives express “surprise” that the economy seems to be booming, yet inflation remains low. That’s not the way it’s supposed to be, since workers’ wages are normally supposed to go up as the economy grows.

From Business Week, October 18, 2004.

High Expansion. Low Inflation. What Gives?

China's boom, heady investment, and growing trade make for a potent combo

The world economy is cooking. Global output will expand 5% this year, the International Monetary Fund predicts—the biggest rise in nearly three decades. The U.S. has pulled out of a slowdown earlier this year and looks set to post 4%-plus growth in the third quarter. China is likely to grow a sizzling 9% this year, and Japan is enjoying its best performance since 1990. Even long-lagging Europe is looking up.

In the past, such a strong, synchronous upswing would have set off inflation-phobes' alarm bells. Indeed, stronger demand has pushed up prices of global commodities, and especially oil. But so far, those price hikes haven't sparked broad-based inflation. Excluding food and energy costs, consumer price inflation worldwide is running at less than 2.5%, IMF data show.

So, what's going on? Over the past decade or so, the global economy has undergone fundamental changes that are conspiring to boost growth while keeping prices in check. These shifts include the continuing productivity revolution in the U.S. as well as the determination of the globe's central banks to keep prices under control. But the mother of all change agents is China—a rising economic power whose soaring demand is fueling growth across the globe, even as its surge in low-cost manufacturing exports on the back of an undervalued currency is helping keep inflation in check from Des Moines to Düsseldorf….

      “So, what's going on?” Business Week has got to be kidding in asking that question. It’s simple. Wages worldwide simply cannot go up when the Chinese are willing to work for one-tenth the income of other workers. That’s the “fundamental change” in the global economy.

     So, the economy is in “high expansion” for investors and top corporate executives, while workers are getting shafted, and wage deflation has become the new norm.

     The readers of Business Week can no longer pretend that they don’t understand the hypocrisy of Bush’s economic plans. Robert Kuttner laid out the deficiencies of his policies in clear detail.

From Business Week, October 18, 2004.


By Robert Kuttner

How To Undermine An Ownership Society

Bush's plan would shift too many economic risks back to individuals

President George W. Bush has spoken repeatedly of an Ownership Society. In his acceptance speech at the Republican National Convention in New York, he quite reasonably declared: "Ownership brings security, and dignity, and independence." Specifically, in the ownership society he envisions, "more people will own their health plans and have the confidence of owning a piece of their retirement."

Reflect on this for a moment. It's one thing to own your own home or your business. It's a far less secure proposition to "own" your own health plan. Ever since the New Deal, public policy in America has protected ordinary people against unforeseen risks, precisely so that they can take the deliberate risks of starting businesses and committing themselves to mortgage payments and becoming owners. Public policy has also given subsidies to lower-income people so that they too can get on the ladder to ownership. What Bush is really proposing is to shift economic risks back onto individuals—at a time when other sources of economic security, such as long-term employment and stable pensions, are dwindling.

For his health plan, Bush wants to expand so-called Health Savings Accounts. These are tax-sheltered accounts tied to insurance with very high deductibles. By limiting the insurer's exposure, the approach allows for lower premiums. Health insurance would be delinked from employment, and people would freely choose what sort of insurance they wanted and use the Health Savings Accounts to pay the out-of-pocket costs. Said Bush in his acceptance speech: "These accounts give workers the security of insurance against major illness, the opportunity to save tax-free for routine health expenses, and the freedom of knowing you can take your account with you whenever you change jobs."

Sounds great. But there are four huge problems. First, the approach fragments the risk pool. Younger and healthier people would choose cheap, high-deductible policies, thus opting out of the broader insurance pool. Older and sicker ones would have to pay a king's ransom to get coverage. Second, individual policies are far more expensive than group policies to underwrite and administer, so the whole system would be less efficient.

Third, the most cost-effective approach to health is prevention, but these high-deductible policies don't cover preventive care. So more people, especially those of modest means, would tend to skimp on prevention to save money. Finally, there's nothing in it for low-income people who lack the means to use a Health Savings Account, except for a tax credit so puny that it covers only about one-fifth the cost of decent insurance. "Catastrophic" is an apt name for the whole approach.

The allure of owning your own retirement plan also demands a closer look. "We must strengthen Social Security," Bush said, "by allowing younger workers to save some of their taxes in a personal account—a nest egg you can call your own, and government can never take away." Sounds great. But the fellow proposing to take away part of the current Social Security guarantee is not "the government." It's Bush.

A recent Brookings study, Coming Up Short, by Alicia Munnell and Annika Sunden, is a searing indictment of "owning your own retirement." So-called defined-contribution plans, where the retiree has no assurance of a return, simply shift the risk from the employer or the government to the individual. The average 401(k) has assets to cover only a few years of retirement. It puts timing of retirement at the mercy of stock-market flukes.

And in order to make plans safe from Enron-style corporate larceny, in which people are locked into company stock while it's tanking, it's necessary to have strong government regulation of the sort that Bush resists. By all means, let's encourage people to increase their retirement savings, but not, as Bush proposes, by looting the one portion of the retirement system that is absolutely guaranteed—Social Security.

Look at American history, from the Homestead Acts to agricultural extension services, Federal Housing Authority loans, the GI bill, pension regulation, and public subsidies to health and education. The truth is that America's ownership society is built substantially on social investment and social insurance.

It's certainly not built on shifting all risks to the individual. In spite of himself, President Bush has opened a useful debate about what it really takes for America to become a secure society of owners.

     This is one of the best critiques of Bush’s economic policies that you are apt to find.

     If you ever doubted the stupidity of privatizing Social Security—and encouraging unsophisticated investors to put their retirement funds in the hands of investment “professionals”—just read the following advice given to the readers of Fortune and Forbes.

     They obviously feel it’s necessary to warn their sophisticated and experienced readers of the hazards of putting their money into annuities, mutual funds, or the stock market.

From Fortune, October 18, 2004.

Land of the Fee

Variable annuities are being touted as new and improved. But they still cost too much.

Tax-deferred variable annuities could be called the cockroaches of the investment world. Personal finance columnists rail against their high fees. Many financial advisors question their purported benefits. And the SEC and NASD issued a blistering report in June that lambasted the annuity industry for high-pressure sales tactics and failing to disclose exorbitant early withdrawal penalties. Yet none of that has threatened the survival of this investment species. Just the opposite: Investors have snapped up some $50 billion in variable annuities over the past 12 months, bringing the total invested in them to more than $1 trillion.

The annuity industry has been trying to clean up its image of late, touting "new and improved" offerings. That raises the obvious question: Just how new and improved are they? The answer: The changes, as you'll see, are mostly cosmetic. With a handful of exceptions, the investments simply do not make sense for most people….

The fees you pay often exceed the taxes you avoid….

Getting in is a lot easier than getting out….

This insurance policy almost never pays….


From Forbes, October 18, 2004.

The Curse of The Hot Hand

David Dreman, 10.18.04, 12:00 AM ET Mutual funds with short-term sizzle become dangerously popular. The only way to judge a fund's worth is over a long period.

Why is it that people are so prone to buying high and selling low? Why was it that the flow of money pouring into dot-com stocks reached its apogee when the stocks were the most ludicrously overpriced? Nobel laureate Daniel Kahneman of Princeton and the late Amos Tversky of Stanford have given us a good sense of the phenomenon through what they called the Law of Small Numbers. This is the tendency of people to be unduly influenced by recent events or statistical outliers.

Thus, if tech stocks had a burst of gains last year, the public raises its expectations for next year. Logically, you should expect the reverse. Take the multitude of investors who followed one or two good calls of seemingly omniscient market timers like Joseph Granville, Elaine Garzarelli or Abby Joseph Cohen, only to fall into the abyss. By the same token investors typically rush to cash near a bear market's end, when values are at their best and they should be buying bargain stocks….

     Note that both of the above are very brief excerpts of long articles and are intended for purposes of critique only. Those who are interested in the investment implications should read the original articles.

     Here are two more in the endless series of articles describing the total corruption of corporate America. As usual, nowhere in either article is the cause of corporate corruption described: the relentless pressure on corporate executives to deliver profits to the corporate treasury—no matter who is hurt in the process (customers, lower-level employees, the environment, and so on).

From The Wall Street Journal, October 20, 2004.

Citigroup Ousts Three Top Officials

CEO Prince Orders Move
Amid Fallout From Scandal
At Japan Private-Bank Arm

Citigroup Inc. ousted Vice Chairman Deryck Maughan and two other senior executives in connection with a recently disclosed scandal involving its private-banking operations in Japan.

In an internal memorandum issued late yesterday, Chief Executive Charles Prince announced Mr. Maughan, head of the bank's international operations; Thomas Jones, CEO of Citigroup Asset Management; and Peter Scaturro, CEO of Citigroup Private Bank, will leave the company.

The departures represent the most-decisive move by Mr. Prince to set a new tone at the world's largest financial-services firm, which in recent years has been battered by a series of regulatory problems. In recent weeks, Mr. Prince has said he needed to be "talking about values" far more often to Citigroup employees around the globe, and said questionable behavior would be dealt with harshly….

In one of the strongest sanctions levied against an American bank operating in Japan, regulators in Tokyo ordered Citigroup's private bank to close by next September. Regulators said Citibank employees failed to prevent transactions that could have been linked to money laundering, extended loans used to manipulate publicly traded stocks, routinely misled customers about the risk involved in financial products and tied loans to the purchases of specific investments….


From The Wall Street Journal, October 20, 2004.

Marsh Suspends
Four Employees
Amid Spitzer Probe

Marsh & McLennan Cos., under fire from regulators, suspended four employees whose names have surfaced as part of the New York attorney general's case alleging corrupt practices in the insurance industry, according to a person familiar with the matter.

The move by the world's largest insurance broker represents the first company fallout from the scandal. Last week, New York Attorney General Eliot Spitzer accused Marsh in a civil complaint of cheating corporate clients by rigging bids in arranging their insurance coverage. The day after the charges were filed, Marsh replaced the chairman and chief executive of Marsh Inc., its insurance-brokerage unit, but said it didn't reflect on his performance.

Marsh suspended William Gilman, executive director of marketing at Marsh Global Broking and a managing director of the huge insurance broker; Greg Doherty, a senior vice president in Marsh Global Broking's excess casualty division; and Edward McNenney, a brokerage executive, according to the person familiar with the matter. Also suspended was Samantha Gilman, Mr. Gilman's daughter. Mr. Gilman didn't return phone calls at home or on his work machine. Mr. Doherty didn't return calls. Mr. McNenney and Marsh declined to comment. Ms. Gilman couldn't be reached to comment.

Last week's complaint against Marsh asserted that Mr. Gilman "strictly enforced" the allegedly illegal scheme to submit phony bids and steer customers to companies paying big fees for throwing business their way. The complaint alleged that Mr. Doherty told an Ace Ltd. employee to inflate a bid for a client….

Mr. Spitzer said last week: "We're going to be bringing criminal cases," adding that criminal charges against Marsh or its executives or employees were "very possible."…

     Note the classic comment: “Mr. Prince has said he needed to be ‘talking about values’ far more often to Citigroup employees around the globe, and said questionable behavior would be dealt with harshly.” That’s always said after the skullduggery has been exposed. Prior to the exposure—count on it—senior corporate management pressured their subordinates to do the kinds of things they were fired for.

     For a more extensive discussion of this phenomenon, check out Proactive vs. Reactive Management.

     It’s 1929 all over again. The world is creating too much manufacturing capacity, without creating the necessary consumers with enough money to buy the products they themselves are producing.

From The Wall Street Journal, October 21, 2004.

Auto-Sales Slowdown in China
Clouds Growth Assumptions

Worries About the Economy
Extend to Other Industries
And Lead to Some Cutbacks

SHANGHAI—A sudden sales slowdown is shaking up automobile companies in China, dimming one of the brightest lights of the Chinese economy and amplifying the anxieties of other industries doing business in the fast-growing market.

After two years of growth that topped 50%, China's auto market has hit the skids. In September, year-to-year sales dropped 3.6%, the first monthly decline in 2004. Several of China's best-selling models saw sales drop more than 50% in the month from a year earlier, according to the China Association for Automobile Manufacturers, an industry group….

The shaky state of China's auto market is lifting the stakes for the multitude of foreign companies that have announced billion-dollar-plus expansion plans in the country. It raises questions about the long-range bets global auto makers have made on what two decades from now may be the world's largest car market….

With many foreign companies counting on China's growth to drive sales, even slight economic blips are being felt in corporate boardrooms. GM last week blamed a lackluster third quarter in part on slowing sales in China, even though its units here continue to make money. Nokia Corp.'s revenue from mobile phones, which globally fell 13% for first nine months of 2004, have come under pressure in China amid a price war for market share….

The slowdown even is showing signs of hitting companies that sell basic consumer goods. Whirlpool Corp. of Benton Harbor, Mich., which reported a 3.8% drop in third-quarter net income yesterday, said slowing demand in China was partly to blame for an operating loss of $10 million in its Asian operations for the period….

The slowdown also is rippling beyond the makers of automobiles to the companies that supply them with parts. Delphi Corp. of Troy, Mich., which reported a third-quarter loss of $114 million, has been squeezed by low-cost Chinese producers. Yet even ultracompetitive Chinese auto-parts suppliers, such as Fuyao Glass Industry Group Co., have felt the pinch. Fuyao, China's largest maker of automobile glass, in August cut its work force by 17%, laying off 1,000 workers, according to Huang Zhongsheng, a senior manager…..

"We never based our plans on unrealistic growth expectations," he says. In the meantime, GM continues to roll out new models to try to tempt consumers back to the market. On Monday, Shanghai GM introduced its latest car aimed at Chinese yuppies, the Excelle HRV Hatchback, a model that combines Italian design and a price tag of $16,500.

Other car makers that have enjoyed an unusual combination of fast sales and fat profit margins say the recent pace of sales offers a more realistic picture of what to expect here on out, they say. "We believe it is quite normal," says Mr. Zeng of Shanghai VW, which recently knocked about $1,200 off its Santana model that retails for about $15,000. "This situation will last for a few years."

     Just as is happening in the U.S., all the money is going to the Chinese investors at the top of the economic pyramid, and they’ve already bought their cars. (Last year, there were 17 more billionaires in Asia—while working-class Chinese are in factories that compete with each other by keeping wages as low as possible.)

     Someday, we’ll learn that our first priority is the health of our own economy. We’ve got to make sure that it works for the benefit of our total society, and we shouldn’t rely so much on the barbarians in other countries to engage in mutually beneficial trade with us.

     The following is another in the endless tales of greed and materialism in corporate America. In this case, it isn’t just another corporation, but an entire industry.

From The Wall Street Journal, October 21, 2004.

Insurance Probe Expands Its Focus
On Improper Payments to Brokers

The probe of conflict-ridden fees in the insurance industry, which increasingly is focused on employee-benefits plans, now stretches from a little-known broker in San Diego to one of the world's biggest life insurers in Amsterdam….

The closely held Universal Life Resources is a national player in helping companies arrange group-life, accident and disability-income insurance programs. The scrutiny it faces from regulators comes on top of a civil lawsuit filed last week in state court in San Diego by consumer advocates, accusing it of working with three big insurers to cheat corporations. The suit, alleging deceptive business practices and false advertising, was filed under the state's "public attorney general" statute, which allows virtually anyone to file a lawsuit on the public's behalf.

The suit, as well as the regulatory probes, focus on payments to brokers from insurers on top of their basic middleman fees, for hitting specified volume or profitability targets. In filing a civil suit against New York broker Marsh & McLennan Cos. last week, Mr. Spitzer maintained that the so-called contingent fees give brokers incentive to place insurance and other benefits packages in the hands of insurers paying the biggest commissions, not providing the best prices and terms. Mr. Spitzer said the fee arrangements led Marsh to rig bids to ensure that business went to its preferred insurers.

The Marsh case focused on brokers cheating corporations as they bought sophisticated liability-insurance packages. In the case of suspected wrongdoing among benefits brokers, the victims would include individual employees, who are paying an increasing share of the cost of benefits sponsored by their employers….

"The indications are that there are problems that are more serious and widespread than anyone has anticipated and not limited to the property and casualty industry," said Connecticut's attorney general, Richard Blumenthal. "We're concerned with any practice that stifles competition and therefore hurts the consumer."…

     As usual, it’s corporate America raping the public, and its executives becoming incredibly rich—and getting tax breaks from the Bush Administration in the process. It sure helps to own both Congress and the Presidency.

Week of October 11

      Get ready to vomit.

      In a page-one story, The Wall Street Journal describes the real intent of the recent tax bill that Bush claimed was designed to “create jobs.”

      Instead, it looks like corporations will use your tax money to increase the value of their shareholders’ stocks (by buying back corporate shares on the open market, thus raising the price), to acquire other companies, to pay off some of their debt, and, in general, to improve their balance sheets.

From The Wall Street Journal, October 13, 2004.

Tax Windfall May Not Boost
Hiring Despite Claims

Some Companies Plan to Use
New Break on Foreign Profits
For Debt and Other Needs

WASHINGTON—Big companies long lobbied for a tax cut on their overseas profit as a way to spur U.S. job growth. But now that it has been granted, much of the windfall won't go toward hiring but for such uses as strengthening balance sheets, buying back shares and making acquisitions.

The one-year break, included in a sweeping tax bill that cleared the Senate and went to the president this week, will allow hundreds of billions of dollars in overseas profit to be brought home by dozens of U.S. companies at a steeply reduced tax rate. By some estimates, U.S. companies have parked as much as $500 billion in profit abroad to avoid taxes back home….

Selling the bill based on an increase in jobs is symptomatic of the political silly season," says Michael Holland, chairman of Holland & Co., a New York investment company. "The reality is the repatriation may or may not cause net new jobs; the one thing it does is remove an artificial barrier so U.S. companies can, at the margin, be more efficient with what they do with their capital. Longer term that is good for workers and companies, but to argue that it will immediately lead to jobs is illusory at best."

At Hewlett-Packard, "debt payment and consequent improvement of the balance sheet would certainly be a possible use of the funds, even a likely use," said Vice President Dan Kostenbauder. The company has $14.4 billion in earnings parked offshore.

Similarly, some of the roughly $5 billion that Oracle has invested offshore could allow it to make acquisitions that otherwise could be restrained by its protracted effort to buy rival PeopleSoft Inc. -- a transaction that, like the H-P-Compaq deal, likely would produce layoffs. Currently, Oracle has a $7.7 billion cash bid outstanding for PeopleSoft. An Oracle official said that the funds won't benefit the firm's PeopleSoft bid directly, since it is already financed.

Drug company Schering-Plough Corp., which is sitting on $11 billion overseas, probably will apply some of its foreign cash to a $500 million bill from the Internal Revenue Service for allegedly improper deductions, one analyst said. The firm also has heavy domestic debt and needs the cash -- virtually all of which is offshore, according to regulatory filings. A spokesman for the firm had no immediate comment….

"Acquisitions, dividend increases, share repurchasing, paying down of U.S. debt -- those are high up on the list of possible uses for the funds," said Greg Kelly of Susquehanna Financial Group, who talked to many large firms for an analysis of their plans.

But investing in new facilities and expanding payrolls, he says, are much further down in corporate priorities. "Most tech companies are going to be using it for acquisitions and share repurchasing," he adds….

One study, by economists at J.P. Morgan Chase, surveying 28 large companies accounting for about 25% of all unrepatriated foreign profits, suggests that much of the money coming back to the U.S. will be used for purposes that won't aid growth or job creation. Rather, it will be used to strengthen the balance sheets of companies….

      So much for corporate integrity. After lobbying Congress for the tax bill on the basis of creating jobs, it now turns out that that’s never what they had in mind. It was all just a gimmick to increase the wealth of investors and top corporate executives at the expense of the American taxpayer.

     Forget “supply-side” economics. It doesn’t work. Giving tax breaks to investors and corporations doesn’t create jobs nearly as well as giving tax breaks to low- and middle-income people. Why? Because that added money is discretionary for the rich, and they won’t spend it if consumers don’t have money to buy the products and services they can produce.

     Even The Wall Street Journal is forced to acknowledge this fact in the following article.

From The Wall Street Journal, October 11, 2004.

Despite Piles of Cash, Businesses
Get Stingy About Spending

The economy is refusing to follow the optimists' script.

…as the oomph of government stimulus waned and consumers spent less readily, a surge in business investment in machinery, computers, software and buildings and a pickup in exports was supposed to lead to a happy ending right about now.

But while hiring and investment have risen, American business is proving reluctant to move very aggressively, perhaps unsure about the economy's direction or the Iraq war and the threat of terror. Prospects for stronger demand from abroad are discouraging. And rising oil prices threaten the vigor of consumer spending.

The question now: Do scattered signs of vitality presage an economy healthy enough to consistently deliver more jobs, rising wages and profits, even as the government's stimulus diminishes? Or do worrisome signs—such as Friday's report that employers added just 96,000 jobs in September, below the 150,000 or so needed to reduce unemployment—suggest a return to painfully slow growth?…

If consumers falter, so will the U.S. economy—unless business-investment spending picks up the slack…. But business isn't spending nearly as much as swollen profits and the pile of cash in corporate coffers suggest it should—despite a temporary tax break Congress enacted after Sept. 11, 2001, to spur such spending….

All across the economy, companies are returning cash to shareholders because they can't find promising investments. Cisco spent $350 million to acquire six companies between May and June—and $2 billion on buying back its shares. The San Jose, Calif., company still ended the quarter with $19.3 billion in cash and other liquid investments….

For the past couple of years, American consumers—the mainstay of the global economy—have spent sufficiently to keep the economy turning. Each time consumers cut back, it has prompted warnings that Americans are finally choosing to save more and spend less….

     The key statement above: “American consumers—the mainstay of the global economy—have spent sufficiently to keep the economy turning.” That’s the way is always is. If the consumers who have money spend it—then corporations will create jobs in order to get it.

     And the consumers who always spend their money in this country are the middle- and low-income persons—and they’re the ones who should always get the tax breaks. During times of economic uncertainty, rich people always reduce their discretionary spending, and save it for more opportune times for investment.

     Want another example of the zero-sum nature of wealth? Check out the following.

From The Wall Street Journal, October 11, 2004.

Shortage of Flu Vaccine
Is Giving Rise to Tensions
Between Haves, Have-Nots

With the nation's supply of influenza vaccine suddenly cut nearly in half by the shuttering of a British factory, signs of tension between those who have vaccine and those who don't are beginning to emerge….

Executive Health Exams International, an upscale medical provider with a clinic in New York, is one of the haves—and is giving shots even to young and healthy people, at $90 each. "We feel strongly about honoring our commitment to our patients who were already booked," said Nancy Boccuzzi, senior vice president of clinical affairs at Executive Health. The $90 price tag is the same as it has been for several years, said Ms. Boccuzzi. (A flu shot elsewhere generally is closer to $20.)

Ms. Boccuzzi said the clinic's medical board will discuss adhering to the government's rationing recommendations today. But it may no longer be an issue, because the clinic's supply is going fast. "When we're out, we're out," she said.

In Shreveport, La., physician Michael Fleming is a have-not…. "My patients don't understand why a grocery chain would have flu vaccine and their doctor not," says Dr. Fleming, president of the American Academy of Family Physicians. He says that local hospitals and the public health department don't have any flu vaccines, either.

"Every shot given to a nonpriority person is coming out of the arm of a person" in the high-risk groups, said Patrick Libbey, executive director of the National Association of County and City Health Officials….

     For a more detailed explanation of the zero-sum nature of wealth, check out the file: Wealth is a Zerosum Game.

     The Congressional skullduggery continues. Check out the values of our Republicans and conservative Democrats as they reveal themselves by their tax legislation.

From The Wall Street Journal, October 11, 2004.

Corporate Tax Measure
Nears Passage in Senate

U.S. Businesses Would See
About $100 Billion in Relief

Export Break to Be Repealed

WASHINGTON—A sweeping bill that substantially alters the corporate tax code and provides nearly $100 billion in new relief for U.S. manufacturers and other businesses neared the legislative finish line, clearing a major procedural hurdle in the Senate as lawmakers geared up to race home to campaign….

The original intent of the bill was to swap the export provision for a new benefit that helped the struggling manufacturing sector.

During the course of negotiations, the package became a magnet for scores of business breaks that have been queued up for several years awaiting just this sort of must-pass legislation. The result is an effective 3% rate cut for manufacturers, to a new top rate of 32%. In addition, the class of companies eligible for relief would be expanded to include oil-and-gas businesses, engineering, construction and architectural firms and large farming operations….

The bill also includes tax-code tweaks to help niche industries with friends in Congress, such as thoroughbred racing and bow-and-arrow making….

     An election is coming up. Be sure to vote. Although some Democrats are almost as bad as the Republicans, we want to give all the power we can to the party whose majority controls Congress.

     The next five articles are related. The first three describe the fundamental lie of globalization. Wealthy investors (conservatives) promised us that globalization would shift our less productive mature industries to other countries where labor is cheaper—and America would be able to use more of its human resources to pursue the more profitable innovative enterprises, thus benefiting everyone.

     Reality is beginning to set in. People are beginning to realize that the real purpose of globalization was to allow investors to pit virtually all classes of workers—including the skilled ones, like Ph.D. scientists—against each other. All they have to do in to place their investments for innovation where the skilled labor is cheapest.

     Now, even the best-educated Chinese scientists are finding it difficult to get good jobs. And if that is true of the poorly paid Chinese, think of the implications for American scientists who are used to our own country’s standard of living.

     The first article describes how even Chinese PhDs are having problems finding jobs.

From Business Week, October 11, 2004.

Now College Grads Can't Find A Job

With more and more Chinese attending university, they're facing frustration when they get out

If any student trying to enter the workforce in China should have an easy time finding a plum job, it's Wang Zhaohui. In July, the 30-year-old graduated from China Agricultural University in Beijing—China’s top agriculture academy—with a PhD in biochemistry and molecular biology. That makes him well-positioned to take advantage of the government's drive to upgrade its competitiveness in science and technology. But for months now, Wang has been seeking a position with a university, research center, or biotech company—and has had no luck. He says many classmates are having similar trouble. "I am so disappointed," he says, adding that his hoped-for salary of $725 a month might be unrealistic. "I have already lowered my expectations, and I may have to lower them further."

Around the world, it's hardly unusual for people fresh out of university or graduate school to have trouble landing a job. Until recently, though, China was the exception. For many years only the top 4% of China's students could enroll in college, and there were plenty of white-collar jobs to go around. But since the late 1990s public universities have undergone rapid expansion both on their main campuses and satellites around the country. People's University, Beijing Normal University, and China Medical University have all opened campuses in the booming southern city of Zhuhai. Private-sector schools, both Chinese and foreign, have also proliferated.

With all this expansion, more than 17% of the country's college-age students can now find places in universities. The number of university graduates has exploded from 1.5 million in 2002 to 2.8 million this year. In 2005 the system is expected to produce 3.4 million. "China has taken off like a rocket," says Mark Bray, dean of the education faculty at the University of Hong Kong. "There are huge numbers of graduates coming out of the pipeline."…

     The second article describes how our “innovation” jobs are fleeing the country, just as did our manufacturing jobs.

From Business Week, October 11, 2004.

Flying High?

Long the innovation leader, the U.S. now has serious competition from abroad. Is America's research lead in danger?

America's technological might has made it possible for humankind to probe everything from the rings of Saturn to the structure of atoms. But now the U.S. is facing stiff challenges from abroad. Korean scientists have made breakthroughs in cloning. Britain is a leader in studying stem cells, which offer promise in many disease areas.

World-class research labs are springing up in India, Singapore, Taiwan, and, especially, China.

And even as the world invests more in science and technology, there's a growing chorus of worries at home about the health of U.S. research. The fears: America is underfunding breakthrough science, failing to educate its own citizens well enough, and alienating talented foreign-born students, scientists, and engineers with a tangle of new immigration policies. "Our only real advantage is in knowledge—and we are not doing well," warns Norm Augustine, former CEO of Lockheed Martin Corp. (LMT ) Adds Nobel laureate and Massachusetts Institute of Technology physicist Jerome I. Friedman: "We are living off the investments of the past."…

Overall, this global innovation explosion "is a good thing. We want a productive world," says C. Paul Robinson, president of Sandia National Laboratories. But it presents new challenges for the U.S. Companies increasingly need to scour the world for ideas. In the future, "the U.S. can only count on making at most one in five inventions," predicts Greg E. Blonder, a former Bell Laboratories scientist who is now a venture capitalist….

     The statement that “"the U.S. can only count on making at most one in five inventions" about says it all, and is probably an understatement, as other countries undercut our skilled labor costs on the world market. And, just as Greg E. Blonder, a former Bell Laboratories scientist, became a venture capitalist, those who make decent income in the future will be those who go out of the skilled labor market and become bankers.

     The third article is another in the endless series of articles that describe how investors will abandon any country that tries to “protect workers' health and safety.” And, just as investors don’t hesitate to abandon their own manufacturing workers, they will equally abandon their most skilled professionals.

From Business Week, October 11, 2004.

European Union: Sending The Wrong Signal To Business

The European Union is taking another step in regulating its labor market. Plans to increase monitoring of worktime and cap weekly working hours were approved by the European Commission. The proposal will now be sent to the European Council and Parliament. If passed, the measures intended to protect workers' health and safety could also be a competitive drag for the EU….

     And who’s benefiting from today’s economy and the disasters you just read about? Just read the current Forbes magazine. The following 400 richest persons in the U.S. are the direct beneficiaries of globalization and the low wages it creates.

From Forbes, October 11, 2004.

The Forbes 400

The economy's recovery may be a little shaky, but you wouldn't know it from looking at this year's Forbes 400. The combined net worth of the nation's wealthiest climbed to $1 trillion, up $45 billion in 12 months. With a $750 million admission price, 9-digit fortunes are an endangered species here: 78% of the people on this year's list are billionaires….

     To save you doing the math, that 78% represents 312 Americans who are now billionaires—at a time when millions of our citizens can’t afford medical care or to send their kids to a decent college. And Republicans don't want their descendants to pay estate taxes when their parents die, or to pay taxes on the later dividends or capital gains from the wealth they inherit.

     Just for laughs, you might note that Forbes gives us reason to feel sorry for our billionaires.

From Forbes, October 11, 2004.

The Cost Of Being Rich

While the overall Consumer Price Index climbed 3% over the last 12 months, Forbes' index of 41 luxury goods climbed an average 4.2%.

     Some of the inflation that billionaires have to suffer: A natural Russian sable from Bloomingdale's costs $160,0000, although that is at the same as last year. However, one year at Harvard now costs $39,880, representing a 5% increase. And “Flowers in Season,” Arrangements for 6 rooms, changed weekly, by Christatos & Koster, N.Y.C., costs $8,175 per month, a 10% increase. Thank heavens I’m not a billionaire.

     The following op-ed piece is a classic example of the propaganda technique called “inoculation.” If you’re afraid that voters will think that Bush lost the debates because of his obvious lack of substance—then you charge Kerry with not having substance.

From The Wall Street Journal, October 12, 2004.


The Last Debate—and Beyond

By William F. Weld

My first prediction is that Sen. Kerry will win tomorrow night's debate. There really is no more able debater on the political scene today, and Sen. Kerry, increasingly Kennedyesque, seems to be hitting his stride. We will hear a great deal tomorrow night from him about jobs and families, about health care, children, environmental protection and the Supreme Court, all delivered with earnestness, confidence and fluency. At the end of the evening the quickie polls will declare him the victor….

The guy has style.

Which brings us to substance. Here the terrain grows rockier for the Kerry camp….

My second prediction is that after George Bush has lost the debates on style, he will win the election on substance.

Mr. Weld, a principal at Leeds Weld & Co., was governor of Massachusetts from 1991 to 1997.

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

Week of October 4

     The following opinion piece in The Wall Street Journal demonstrates the utter blindness and biases of America’s incredibly wealthy investor class. It’s hard to tell if Mr. Gerstner is deliberately trying to distract Americans from the cause of our economic problems—the breakdown of moral standards that protected the rights of workers to a decent standard of living—or whether he is merely stupid.

     As you read the following absurdities, remember that from the 1930s to the 1980s, American workers had a constantly improving standard of living because they had power to negotiate for higher wages—it was NOT because they had advanced educations.

     Globalization changed all that, as American laborers were mercilessly thrown into a world labor pool where workers could be pitted against each other and brutalized at will. As a result, wages entered a downward spiral to the bottom—not only for American workers, but also for workers in Mexico and Indonesia who have suddenly found that there are other countries in the world that are even worse for workers.

     Those who are profiting from all this are the Gerstners of the world, and they are acting as though they had nothing to do with the developing catastrophe that Gerstner himself describes below.

From The Wall Street Journal, October 7, 2004.

Bad Schools + Shackled Principals=Outsourcing

By Louis V. Gerstner Jr.

America is engaged in an unconventional conflict that stretches to every corner of the globe. It is being fought on unfamiliar terrain. It demands we rapidly repair old vulnerabilities and develop new skills and strengths. Our nation, which has prevailed in conflict after conflict over several centuries, now faces a stark and sudden choice: adapt or perish.

I'm not referring to the war against terrorism but to a war of skills—one that America is at a risk of losing to India, China, and other emerging economies….

As this global challenge emerges, far too much of the debate has focused on "job outsourcing"—demand most often as American companies moving jobs to lower cost labor markets in order to improve efficiency. Yet too often this misses the crucial point: American companies don't simply go offshore for inexpensive labor. They are increasingly going abroad to find skills that aren't available, or plentiful, in their own backyard. And at the very same time, foreign companies are not taking market share from U.S. companies simply because they have less expensive workers. Those workers increasingly have equal or better skills.

Another trend is exacerbating this skill deficiency still further. For decades, millions of talented scientists and engineers have flocked to the U.S. to study in our universities and work for cutting-edge companies. But as their home countries improve economically and politically, they are beginning to migrate back. America—on the receiving end of a brain drain for years—is starting to suffer from a reverse brain drain.

In response, what do we see? The leading U.S. tech companies are all opening research laboratories in Asia—labs that will source high-tech jobs from the highly educated students pouring out of Asian universities (or returning from training in America's best universities). The trends are also ominous in trade statistics: In recent years, the U.S. global share of high-tech exports has declined while the share from Asian countries other than Japan have climbed to nearly 30%. The trend lines crossed—maybe once and for all—around 1994….

We are fooling ourselves if we believe that tweaking tax rates, training, or trade agreements will turn this tide. The global information economy is here. It is brutal and unforgiving. And here is the hard truth: the layoffs we have experienced to date will pale in comparison to future losses if we fail to awaken to the scope of the crisis and the need for bold solutions that address the problem at its roots.

The only way to ensure we remain a world economic power is by elevating our public schools—particularly the teachers who lead them—to the top tier of American society. We have treated teaching as a second-rate profession for decades—with sub-par compensation, antiquated training, and arcane systems of accountability. It's designed for the industrial age, not the age of information and innovation….

We are losing the skill war. America, head to the barricades. Our schoolrooms are the true battleground.

(Mr. Gerstner, founder of the non-profit Teaching Commission and former chairman of IBM, is chairman of the Carlyle Group.)

     A key statement above: “foreign companies are not taking market share from U.S. companies simply because they have less expensive workers. Those workers increasingly have equal or better skills.” This betrays the real issue. Today, investors have all the power, and workers—even skilled ones—have none.

     Investors (those who are on the power side of today’s class war) have discovered that they can take ruthless advantage of anyone who actually works for a living—even the most skilled. And when they do take ruthless advantage of workers, for their own profit—and workers suffer terribly because of it—they blame everyone (government, schools, poor values and sexual deviancy of workers), but themselves.

     A second key statement: ”The global information economy is here. It is brutal and unforgiving.” What Gerstner doesn’t admit is that’s exactly what the Gerstners of the world have deliberately created. That’s what they’ve always wanted: a brutal and unforgiving world—for those who work for a living. You simply don’t see most of the billionaires and millionaires of the world complaining about the disasters Gerstner described above. They just keep bragging about what a great economy this is.

     A third key statement: “Our schoolrooms are the true battleground.” While it’s true that our schools need improving, it’s simply not true that they are the true battleground for a better economy for most Americans. The true battleground is in the field of values and morality—and how government policies affect who gets what in our society. Right now, the Gerstners of the world want it all, and don't want to share any of it with workers.

     (For a more extensive discussion of this issue, check out the file: International Free Trade: IT'S NOT "GLOBALIZATION" (5% = 100%).

     The 2004 election is coming up. Voters had better figure out which political party is in the pocket of the wealthy investors—and which political party best represents the interests of working Americans.

     It’s 1929 all over again. The worldwide bad news about the effects of “globalization” (translation: let’s destroy the incomes of workers across the world, in order to benefit rich investors) is becoming too bad for even The Wall Street Journal to avoid.

From The Wall Street Journal, October 6, 2004.

Labor, Services Data
Cloud Euro-Zone Outlook

FRANKFURT—The outlook for the euro zone's economic recovery got gloomier as reports showed rising unemployment and the worst service-sector activity in a year, surprising economists and disappointing policy makers….

The data came on top of a separate quarterly report from the European Union's executive body that said the economy is continuing to expand but that overall the "recovery still looks relatively timid." The European Commission said a boost from exports, which until now has been the driver behind the currency bloc's recovery, would subside gradually as the global economy softens, and that faster growth will depend on a pickup in domestic demand—but that it is an open question whether this will happen.

"Short-term prospects remain mixed as household spending is hampered by low confidence and a sluggish employment recovery," European Monetary Affairs Commissioner Joaquin Almunia wrote in a report.

In recent weeks, doubts have been growing about the strength of the euro-zone economy, which rivals the U.S. in size. During the first half of this year, the 12-nation bloc grew at its most rapid rate in more than three years, beating economists' expectations and ending a prolonged slump.

Yet European firms have been reluctant to invest in infrastructure and jobs at home. Also, energy prices have soared—with the price of oil rising to new highs above $50 a barrel again yesterday—threatening to erode corporate profits and consumers' disposable income.

The fragility of the economy was further exposed in yesterday's employment reports. The number of people without jobs in the euro zone rose by 25,900 in August to 12.8 million—the highest number in more than five years and leaving the unemployment rate steady at 9%, according to the EU's statistics agency….

     What’s really surprising is that this bad news is “surprising economists and disappointing policy makers.” Really? Why should they be surprised when the original purpose of globalization is realized?

     We’re totally destroying the ability of middle- and low-income workers to make the kind of money it takes to have a decent standard of living, and, incidentally, use their purchasing power to keep an economy healthy.

     The following two articles go together. The combination of a Republican controlled Congress—and the corruption of special interest bribery of our elected representatives—result in the legislative disasters described below.

From The Wall Street Journal, October 6, 2004.

The Real DeLay Scandal

The House Ethics Committee has just admonished Tom DeLay for the sin of twisting the arm of a reluctant fellow Republican to vote for last year's mega-super-ultra Medicare expansion. If only that were the Majority Leader's real offense.

The House ethicists were distressed, if only mildly so, that Mr. DeLay offered a political favor to Michigan Congressman Nick Smith in return for a "yes" vote on the Medicare prescription-drug bill. Mr. Smith is retiring this year, and his son Brad was running to succeed him. In a conversation that lasted all of eight seconds, Mr. DeLay offered to endorse the son if the father supported the bill. To his credit, Mr. Smith spurned the offer and voted no; his son later lost a GOP primary.

The Committee at least had the honesty to admit that this sort of horse-trading happens all the time on Capitol Hill. But then it rose in high dudgeon to pronounce in 64 pages that political support for a Member's relative "goes beyond the boundaries of party discipline and should not be used as the basis of a bargain."

We await similar ethics probes into other vote-buying rituals, such as trading a yea for a court house or highway. If the ethicists really got serious, the Appropriations Committees might have to go out of business.

More amusing still, the House ethicists came down even harder on Mr. Smith for talking about Mr. DeLay's offer in public. They are alarmed that his candor "impugned the reputation of the House," as if every American doesn't already know how political grease makes their world go 'round. It sounds to us as if Mr. Smith's real offense was violating the House law of omerta on log-rolling. So he had to be taught a lesson as a warning to others in the family….

That Mr. DeLay was the midwife for this huge expansion of government is especially ironic. The former small businessman from Sugar Land, Texas, came to Washington professing to limit the burdens that the Beltway imposes on Americans. His party won control of the House in 1994 promising to do precisely that. But now that he and his fellows are in the majority, they reserve their arm-twisting for the spending perquisites of incumbency. There's your scandal.


From The Wall Street Journal, October 5, 2004.

Congress Seeks
To Pass Tax Bill
Loaded With Perks

Congress this week will try to pass a massive tax bill aimed at repealing a break for U.S. exporters, but giving scores of breaks to businesses, farmers and residents of states without an income tax.

House Ways and Means Chairman Bill Thomas (R., Calif.) released a draft of the bill last night that includes many of the provisions companies and their Washington lobbyists have tried to plug into legislation for years.

The centerpiece of the bill is the repeal of the so-called exclusion for extraterritorial income that the World Trade Organization has ruled illegal and that has resulted in steep European Union sanctions on U.S. goods. To compensate for the lost relief, the legislation would provide companies with a new deduction for income attributable to U.S. production activities.

Most of the 600-plus-page bill consists of special-interest breaks. There are perks for the film, energy, and shipping industries. Taxes on railroad and waterway fuel and on alcoholic beverages would be repealed. Nearly 20 provisions would benefit farmers and the agriculture industry. Numerous provisions aim to simplify the tax code for companies that do business overseas, including a temporary incentive for multinationals to repatriate foreign earnings….

The bill's most contentious provision has nothing to do with taxes: It would buy back from tobacco farmers the Depression-era quotas that determine how much leaf they can grow. Mr. Thomas chose the Senate's approach to the plan, which would require the tobacco industry and its customers to finance the $10 billion buyout. But he didn't include new powers for the Food and Drug Administration to regulate the cigarette industry. Many senators have insisted on the new regulations as a quid pro quo for supporting the buyout.

The tobacco buyout is of particular interest in North Carolina, where another close Senate race is being fought between former Clinton aide Erskine Bowles and Rep. Richard Burr. Mr. Burr, a Republican, was appointed to the conference committee that is negotiating the final bill. Eager to hang on to their narrow majority, Senate Republican leaders believe that delivering the buyout before the election would give a boost to Mr. Burr, who is trailing in most polls….

     There you have it. The party that represents corporations and the established wealthy is in control of Congress, and they are going to make sure that our new aristocracy continues to get richer—at the direct expense of everyone else.

     The following paragraph is worth repeating, just in case you missed it: “More amusing still, the House ethicists came down even harder on Mr. Smith for talking about Mr. DeLay's offer in public. They are alarmed that his candor "impugned the reputation of the House," as if every American doesn't already know how political grease makes their world go 'round. It sounds to us as if Mr. Smith's real offense was violating the House law of omerta on log-rolling. So he had to be taught a lesson as a warning to others in the family.”

     In other words, exposing unethical behavior of Republicans in Congress is even more ethical than being unethical.

     So much for the sanctimonious pretension that Republicans are the “values” party.

     Those who believe that Social Security should be privatized—even partially—should note how difficult it is for even the sophisticated readers of The Wall Street to make wise investment decisions. And that’s even in selecting what is considered to be a “safe” investment in mutual funds.

From The Wall Street Journal, October 4, 2004.

What to Ask Before Investing

When Recommending a Fund, Does a Broker Have Your Best Interests in Mind?

Costs and conflicts of interest.

These are two topics on which federal mutual-fund regulators believe fund investors need to be better informed before they buy fund shares.

In coming months, the Securities and Exchange Commission is likely to require that fund buyers be given new "point of sale" disclosure statements and expanded order confirmations, something the agency proposed in January.

…the proposed disclosures point to some key questions about costs and conflicts that fund buyers should be asking. Recognizing critical questions to consider can be helpful even if firm answers aren't readily available.

Furthermore, increased regulatory scrutiny has already led a number of securities firms to provide additional information to their customers about matters including the once-hidden "revenue-sharing" payments that the firms receive from mutual-fund firms whose wares they promote.

To be sure, costs and conflicts are only part of the equation in selecting funds, to be considered along with key matters including a fund's investment mandate, performance record and risk. Still, here are nine important questions about costs and conflicts to which fund buyers should try to secure answers…

     This excerpt is presented for purposes of criticism only. If you’re interested in the investment issues discussed in this very large article, you should read the original.

     The following is just another in the endless series of revelations about the corruption in the military-industrial complex.

From The Wall Street Journal, October 4, 2004.

Air Force Ex-Official's Dealings
Put Pentagon Under Spotlight

Guilty Plea in Boeing Case
Sparks Broad Scrutiny
Of Big Weapons Programs

ALEXANDRIA, Va.—Some of the military's major weapons programs have come under scrutiny from prosecutors and military procurement specialists in the wake of former Air Force acquisition official Darleen Druyun's courtroom admission Friday that she systematically steered various contracts to Boeing Co.

Ms. Druyun was the Air Force's second-highest contracting officer for nearly a decade before she went to work as a Boeing vice president in December 2002. She was fired in late 2003 after it came to light that she negotiated her $250,000 Boeing job while overseeing the company's Air Force contracts, and on Friday was sentenced to nine months in prison for conspiracy to violate conflict-of-interest laws prohibiting such conduct.

But during last week's hearing, Ms. Druyun shook up the Defense Department and industry by disclosing other schemes she used to give Boeing preferential treatment over a much longer period of time than previously thought.

Ms. Druyun's statements already have prompted in recent weeks an expansion of the criminal investigation into her dealings with the Chicago aerospace giant, as well as sweeping contract reviews. Justice Department prosecutors and Pentagon agents are examining a wider array of big-ticket programs, as well as a larger group of current and former Boeing executives, than previous court filings have suggested, according to people familiar with the matter….

     Now you know why American corporations generally like the idea of our nation going to war—and why so many corporate executives are becoming fabulously rich at taxpayer expense.

     Although GM, Volkswagen and other auto manufacturers are making tons of money from their China locations—only the corporate executives and their investors are getting rich, and American workers are losing their standard of living.

     Not only that, the benefits of this stage of globalization will go entirely to today’s corporate executives and investors, and, as China takes over the world’s manufacturing facilities, future corporate executives and investors will find that all the easy money has already been made.

From Fortune, October 4, 2004.

Shanghai Auto Wants to Be the World's Next Great Car Company

With GM and VW as partners, China's biggest automaker has grown up fast. Now it is hatching its own brand.

In a modern industrial park on the east side of Shanghai, General Motors can't keep up with demand. Its plant is churning out new Buicks on three shifts, 24 hours a day, five days a week. The cars—compacts, minivans, and luxury sedans fitted with sunroofs and DVD players—wouldn't look out of place in U.S. dealer showrooms. With 4,000 workers producing 240,000 cars a year, says Tom Wilson, executive director of manufacturing, "we're pushing everybody to the limit."

A complex of Volkswagen factories is running even faster on the other side of Shanghai. Last year its 15,000 workers assembled more than 400,000 Passats, Polos, and other models in facilities that are as automated as any in Germany. Stamped steel moves automatically between giant transfer presses, robots use lasers to weld the pieces together, and parts reach the final assembly line in modules instead of individual pieces to speed installation and reduce defects. Carbuyers have repaid the investment by making VW the largest-selling car brand in China.

Neither GM nor VW has achieved this prodigious success alone. Even though they compete, both giants are linked to the same Chinese partner—Shanghai Automotive Industry Corp., or SAIC—which owns half of the operations and shares half of the profits. The joint ventures have proved a bonanza for SAIC, which has more than doubled in size since 2000. Last year it produced 612,216 cars with VW and GM, a startling increase of 57% from 2002. That has catapulted SAIC onto FORTUNE's list of the world's largest companies at No. 461, with revenues last year of $11.8 billion and profits of $689 million….

"SAIC will become one of the top ten car companies in the world within the next ten to 15 years," says Graeme Maxton of Autopolis, an industry consultant in Britain. "It is likely that teenagers in Europe or the U.S. will be considering a Shanghai Auto car within the next decade." …

     Globalization is how Republicans and conservative Democrats created an economic aristocracy. A relatively few members of royalty got rich in the initial stages of globalization, and now own most of the privately held wealth of the nation.

     The rest of our American society will now be relegated to serving their every desire—for whatever the royalty is willing to pay for. After all, since China, India and other countries are getting all our manufacturing jobs, service jobs are about all that’s left for working-class Americans.

     Here’s another reason industry is going to China. It has no effective environmental protections—and American corporations can pollute with abandon.

From Fortune, October 4, 2004.

Water, Water

But there's not enough to go around.

…China is facing a water shortage that threatens the continued progress of its economic development. Or that more than 90% of the rivers running through its cities have been seriously polluted by billions of tons of untreated sewage and industrial waste.

According to a 2003 report by the Chinese Academy of Engineering, 21 cities along the Yellow River registered the highest levels of measurable pollution. That has resulted in mercury contamination of rice, increased incidence of intestinal cancer, and rivers devoid of aquatic life….

     It never ends. A country can attract industry today only by allowing it to destroy the environment and take ruthless advantage of workers.

     Every time the Republican Congress makes a tax change—in this case to make up for the benefits that corporations will lose when their export breaks are taken away ($58 billion)—they make sure that the corporations come out ahead ($77 billion). Of course, it will be at taxpayer expense, since they are the ones who will be left with the bill for running the government and financing the unnecessary war in Iraq.

From The Wall Street Journal, October 8, 2004.

House Passes Corporate-Tax Bill

Measure Ends Export Break
But Lowers Rate to 32%
For Varied 'Manufacturers'

WASHINGTON—The House last night passed a massive business-tax bill aimed at settling a trade dispute with the European Union and propping up domestic manufacturers….

At the heart of the bill is the repeal of an export break, the so-called exclusion for extraterritorial income, that the World Trade Organization has ruled illegal. The European Union is retaliating by imposing steep tariffs on U.S. goods.

To replace the break, Congress chose to effectively cut by three percentage points, to 32%, the tax rate on domestic manufacturing activity. The new benefit would provide nearly $77 billion in tax relief in the next 10 years, compared with nearly $58 billion under the old export break.

Tax experts and even some authors of the bill are less than enthusiastic about the new benefit, saying that it is ripe for abuse, and that it further complicates the tax code….

Critics also worry that the measure's definition of a manufacturer is so vague that all sorts of businesses will contort themselves to meet it. The bill includes some exceptions, including the oil-and-gas extraction and refining industries, electric utilities, engineering and construction companies, and corporate farms—but not family farms. Individual architects are eligible, as long as they incorporate or employ at least one person. So do roofers, if they meet the same requirements….

Democrats who opposed the bill singled out a separate group of provisions for multinationals, valued at nearly $43 billion over 10 years, that they said amounted to incentives for companies that shift jobs overseas….

The bill provides scores of additional breaks for all sorts of industries. Some provisions, such as a temporary suspension of taxes on beer, wine and distilled spirits, have circulated for years, popping up in one tax bill or another, at the behest of friendly lawmakers….

      It never ends. The Republicans simply can’t do enough for their corporate supporters, no matter how illogical or detrimental to the national interests.

     The following two items are just more reminders that today’s economy is a looming disaster for working Americans.

From The Wall Street Journal, October 8, 2004.

Bank of America Plans to Cut
As Many as 4,500 More Jobs

Bank of America Corp. said it plans to reduce its work force by as many as 4,500 jobs and absorb severance costs of about $150 million as it further streamlines its operations in the wake of its takeover of FleetBoston Financial Corp.

The latest job cuts, affecting about 2.5% of the Charlotte, N.C., company's employees, follow the 12,500 positions eliminated after the Fleet acquisition was announced about a year ago. That deal was completed April 1….





From The Wall Street Journal, October 8, 2004.

AT&T Plans
More Job Cuts,
Asset Write-Off

AT&T Corp., the nation's largest long-distance carrier, announced moves to cut about 7,000 more jobs as it retreats from the consumer market and to write off $11.4 billion in assets that have lost much of their earning power….

AT&T, which had forecast cutting about 5,000 positions earlier in the year, said it will eliminate a total of about 12,000 jobs this year, resulting in a 20% reduction from the 61,600 employees it had at the end of 2003….

     And, as these job cuts force huge sacrifices on workers—those at the top continue to become fabulously rich. In the past year, David W. Dorman, Chairman and CEO of AT&T Corp. raked in $17,484,537 in total compensation including stock option grants from AT&T Corp., and has another $3,134,250 in unexercised stock options from previous years.

     Kenneth D. Lewis, Chairman President and CEO of Bank of America Corp. made $21,068,149 in total compensation including stock option grants from Bank of America Corp. and has another $23,638,050 in unexercised stock options from previous years.

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



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