Conservative Press 05aprjun

Previous Weeks' Conservative Press

From April 4 to July 1, 2005

     This review of the conservative press was started on the week of June 2, 2003. In the brief time since then, note the number and diversity of articles that were published in America's most respected conservative financial publications.

     In one way or another, they clearly demonstrate the hypocrisy of those conservatives who claim that:

     So, grab your barf bag and read on!

     (Note: the abstracts below are presented for purposes of criticism only. Because of copyright laws—and in the interests of brevity and readability—they are necessarily incomplete. Those who are interested in the investment or other implications of the articles should read the originals.)

The week of...

June 27

June 20

June 13

June 6

May 30

May 23

May 16

May 9

May 2

April 25

April 18

April 11

April 4

Week of June 27

     Check out the following, if you want a history lesson on what’s happening to workers worldwide. The “Barbarians at the Gate” are now everywhere, and competing with each other in a mad rush to cash out the value that true capitalism has created over the decades.

     The firms described below aren’t capitalists who build strong economies; they’re barbarians, who use money – mostly other peoples’ – to rape, pillage and burn the industries that other people built. The losers: the workers, who were the ones who created the wealth to begin with.

From The Wall Street Journal, June 30, 2005.

Among Germans,
Foreign Buyouts
Heighten Angst

American, British Takeovers
Stir Workers' Resistance
To Economic Overhaul

HEMER, Germany – The hardball methods of American and British buyout firms are intensifying an angry German backlash against free-market capitalism. At the core of the fight is an urgent question: What is the best remedy for the deep funk in Europe's largest economy?

The clash is playing out here at the headquarters of Grohe Water Technology AG. Grohe's faucets and showers adorn upscale hotels and residences around the world. Their impressive quality and long guarantees allow Grohe to charge premium prices.

Long family-owned, the company was sold in 1999 to British investors who loaded it with debt to finance the buyout. The British retained Grohe's management, however, and were reluctant to shut plants or shift the bulk of production to Asia and other low-wage areas, as most of the manufacturer's competitors have done.

Then last year, Texas Pacific Group and Credit Suisse First Boston bought the company and piled on even more debt. Their plans to slash jobs in Germany and make bathroom fixtures in cheap-labor countries sparked worker protests and put Grohe at the center of a national controversy over the influence of Anglo-American-style capitalism.

"The Americans built up our economy after the war, and now they're breaking it up," says Rene Klem, a lacquerer at Grohe who fears for his job. In April, Franz Müntefering, head of the ruling Social Democratic Party, blamed foreign investment firms for destroying German companies and jobs. "They stay anonymous, have no face, fall upon companies like swarms of locusts, strip them bare and move on," he told the mass-circulation newspaper Bild. A party document attacking "market radicalism" named 11 mostly American firms, including Kohlberg Kravis Roberts & Co. and Goldman Sachs Group as examples of the "locusts."

Cases like Grohe are fueling hostility to economic changes here at a time when some economists and foreign investors say the world's third-largest economy needs freer markets to end its stagnation. "Germany has low growth and high unemployment because it has many structural inefficiencies and is tied to an old manufacturing base," says Stephen Peel, a Texas Pacific partner based in London. "Unfortunately, the medicine is unpleasant in the short term."…

Hostility against free markets has swept much of Western Europe, contributing to the failure last month of the European Union's proposed constitution. Critics said the constitution would promote unfettered American-style capitalism and undermine Europe's cherished social protections….

But increasingly, ordinary Germans blame the economic problems on business owners and managers pursuing profit at the expense of the German dream of a more humane capitalism….

"Grohe is a prime example of what [Social Democratic party chief] Müntefering was talking about," says Mr. Schulze. "We make 20% margins, but that's still not good enough. If this becomes the rule, then you can shut down corporate Germany. How are people supposed to persuade their kids that if you work hard and do a good job, you will succeed?"

     Key statement: “"The Americans built up our economy after the war, and now they're breaking it up." That’s the story of what’s been happening ever since the 1980s. Prior to the 1980s, our ancestors build strong businesses and corporations, and created an economy that benefited everyone, including workers.

     Since then, the barbarians have figured out how to eviscerate those same businesses and corporations – just to enrich themselves, and to create a new world aristocracy.

     If you ever doubted that multinational corporations are in total control of our economy, just read the following;

From The Wall Street Journal, June 29, 2005.

States Pay Steep Price
To Attract Industry

Local Taxpayers, Small Businesses Bear
The Burden, Say a Growing Chorus of Critics

RALEIGH, N.C. – Worried about job losses in the textile and furniture industries, North Carolina officials went all out in persuading Dell Inc. to build a plant in the Winston-Salem area.

But the state's victory over rival Virginia came at a high price: $280 million in state and local incentives. Critics say the subsidies amount to corporate welfare that puts local taxpayers and small businesses at a disadvantage. Last week a nonprofit think tank funded by local conservative groups sued the state, challenging parts of the package as unconstitutional.

"People are starting to see through the façade," says Robert Orr, a retired state Supreme Court justice who runs the North Carolina Institute for Constitutional Law, which filed the suit. "Incentives are geared toward literally a handful of large, very wealthy and very powerful corporations at the expense of the other businesses."

Critics have also taken aim at incentive programs in other states, including Minnesota, Nebraska, Ohio and Wisconsin. And they are preparing challenges in at least another four states, says Peter Enrich, a law professor at Northeastern University in Boston and a leader in the anti-incentive movement. He declined to identify the states….

People who oppose the Voinovich effort say that granting tax concessions to corporations unfairly shifts the burden of funding services such as schools and roads to individual taxpayers and small businesses. Greg Leroy, director of Good Jobs First, a nonprofit economic-development research organization in Washington, says the biggest breaks are awarded disproportionately to the wealthiest multinational companies.

In the case of Dell, the computer company threatened to move its planned $100 million facility offshore if state officials didn't waive corporate income taxes. When North Carolina balked, Kip Thompson, a Dell vice president, told the state commerce secretary: "If a state like N.C. can't get this, I'm worried for our country – there’s a certain amount of patriotism here," according to copies of handwritten notes released by the state….

     Key statement: “In the case of Dell, the computer company threatened to move its planned $100 million facility offshore if state officials didn't waive corporate income taxes.”

     Just as corporations are threatening unions and work groups that they must give up wage and working condition concessions, or they’ll leave the country – they are now threatening states.

     The gloves are off and totally transparent: the only thing corporate executives and their investors care about is their own wealth. Not only do they not care about working-class Americans, they don’t even care about the long-term health of our country. As the Dell Vice-president said, "If a state like N.C. can't get this [give us huge tax breaks], I'm worried for our country – there’s a certain amount of patriotism here." Yeah, right.

     Remember how we were promised that globalization would create more jobs in the U.S.? Well, it seems to have done just that, if you consider jobs flipping hamburgers or picking strawberries.

     But if you consider a job as one that pays a decent wage, forget it. Those are all going overseas, as corporations find that they simply can’t be competitive unless they use the slave labor in other countries.

From The Wall Street Journal, June 28, 2005.

Lear to Cut Up to 7,700 Jobs,
Expand Production Overseas

Slumping Car Sales Force
Automotive-Parts Supplier
To Restructure Operations

Lear Corp. said it plans to eliminate up to 7,700 jobs, or about 5% to 7% of its world-wide work force, and close or consolidate 20 factories in North America and Western Europe as it struggles with slumping sales among U.S. auto makers.

Lear, a maker of automotive interiors and seats, also said it plans to expand production in countries with cheap labor….

Lear said it will speed efforts to expand manufacturing operations in countries where labor and other costs are cheaper than in the U.S. and Western Europe. Lear already has operations in Mexico, Honduras, the Philippines, India, Thailand, China and in Eastern European countries. A Lear spokesman said the company has made a decision to accelerate efforts to move its "total footprint of where we make things to the lowest-cost areas." Most of the losses will be factory jobs, but the spokesman said Lear will cut engineering and administrative positions as well….

     Globalization is a deliberately created disaster for working Americans. It’s the best tactic ever devised for destroying labor unions and the power of workers to negotiate for higher wages.

     Corporate America, through their Republican and conservative Democrat stooges in Washington, now have all the power and workers have none.

     Evidence continues to mount that outsourcing of our industries to China – to take advantage of the huge buying power of its multi-millions – is turning out to be a disaster.

From The Wall Street Journal, June 27, 2005.

Big Dragon, No Fire?
China's Might Masks
Falling Profitability

HONG KONG – From offshore, with Chinese attempts to acquire ever-bigger corporate targets making daily headlines, Asia's largest dragon looks suddenly both wealthy and powerful. That view became more entrenched last week when Chinese oil company Cnooc Ltd. offered to acquire U.S. energy company Unocal Corp. for $18.5 billion.

Seen from within, China doesn't look quite as invincible. An increasing number of economists in China believe such acquisitions are needed not so much to flex China's muscle but to help defend against a looming problem: declining profitability. Indeed, it is precisely the lack of profitability and other economic distortions at home that are contributing to China's quest for opportunities abroad.

"China is running out of profits," says Jim Walker, chief economist of Credit Lyonnais Securities Asia in Hong Kong. He blames the pincerlike effect of rising input prices and wages as well as a reluctance to raise output prices for fear of losing market share and customers….

A survey from CLSA found that nearly half of China's companies reported rising input prices in April – but only 18% planned to increase output prices at all. By the end of last year, 14 out of 23 categories of companies listed on domestic Chinese exchanges reported falling profits. Meanwhile, manufacturing capacity continues to expand: By the end of the year, China will have the capacity to churn out six million cars for a market that is half that size.

In addition, property accounts for an expanding portion of economic activity across China, according to Mr. Walker. Harbin, a city in northeast China, seems as unlikely a candidate to spawn a property bubble as a Rust Belt city. Yet ask locals to name the richest people in town, and the list will always start with property developers….

How exactly the government finesses its economic management has implications for the rest of the world. If it doesn't apply enough of a brake, the overinvestment continues. If too harsh, domestic demand will dry up further and even more of China's productive energies will have to be taken up by a world that is already having trouble absorbing its output.

     Key statement: “even more of China's productive energies will have to be taken up by a world that is already having trouble absorbing its output.” Just as happened in 1929, overproduction by some of the cheapest labor countries in the world is leading to overcapacity. Since all the money is going to the top 20% of the world’s citizens, and especially the top 1%, poorly-paid consumers throughout the world lack the purchasing power even to buy the products they need.

     And when the crunch happens, even more corporations will leave our country to Third World countries in order to survive in this lowest-labor-cost madness.

     Remember the argument that trade with other countries will decrease the likelihood that it will help prevent war?

     Forget it. At best, it’s a tossup. And as far as Communist China is concerned, I wouldn’t be very optimistic.

From The Wall Street Journal, June 27, 2005.

Is China's Rapid Economic Development Good for U.S.?

Chinese oil company Cnooc Ltd.'s takeover bid for Unocal Corp. has brought into sharp relief two opposing American views on China's rapid economic development.

Many in Congress and the Pentagon think it may hasten an inevitable clash between the U.S. and China for economic and political leadership in the world. Many businessmen and academics, however, think China's growing wealth and international economic ties will make it more democratic and a force for global stability. Both have history on their side.

Brad DeLong, an economic historian at the University of California at Berkeley, sees a useful parallel in Britain's policy toward the emerging industrial colossus of the United States in the 19th century.

As late as the 1840s, he notes, the U.S. and Britain – then the world's sole superpower – came close to war over territorial disputes in the Pacific Northwest and the lucrative fur trade there. But in subsequent decades Britain chose to accommodate, rather than suppress, the U.S. By 1900, the notion of conflict was widely regarded "as silly, simply because the trade and economic connections were so tight and the political systems so compatible," Mr. DeLong said.

Similarly, he argues the world will be safer if the Chinese in time see the U.S. as having aided, rather than hampered, their economic development.

History, though, also offers counterexamples. Germany was catching up to Britain at the same time as was the U.S. but that relationship ended in war. Similarly, Japan was more open to imports and foreign investment before World War II than after, yet its rapid industrialization, especially later under a nationalist military government, ultimately made it a more formidable adversary of the U.S.

"There is no deterministic relation" between economic advance and war or peace, said Charles Maier, a Harvard University historian. Katherine Barbieri, a political scientist at the University of South Carolina, has found that countries that trade more with each other are actually more likely to fight, in part because deeper relationships generate more things to fight about. "Trade generates wealth but...certain countries may take that wealth and direct it to military purposes," she said. "We're giving China the power to build a very strong military."…

Some of the more alarming views of China's intentions will be laid out in a Pentagon assessment of China's military, which is expected to come out next week after a long delay and heated internal debate. Defense officials indicate that the report hasn't been notably toned down through the interagency vetting process, and will still contain a list of potential conflict scenarios that some in the White House and the State Department had hoped to strip out….

     Key statement: "We're giving China the power to build a very strong military." And China is doing that very thing, as recently reported in the general press.

     Will the U.S. be flattened by a Flatter World? Yes, of course, if we follow false prophets like Thomas Friedman.

From Fortune, June 27, 2005.


Will the U.S. Be Flattened by a Flatter World?

By Rik Kirkland

Inside Beijing's Diaoyutai State Guesthouse on a fine May morning at the FORTUNE Global Forum—somewhere between a breakout session on regional power shifts and a panel on technological innovation—I had my eureka moment. "China," I scribbled on a notepad, "is what the U.S. economy might look like if it were run by a consortium of folks from McKinsey, Goldman Sachs, and the CIA."

Sure, they'd get plenty wrong, but more often than not they'd get it right. The proof was all around us: in the capital's skyscrapers and software parks; in our discussions ("China needs to make enterprises, not universities, the center of innovation because they'll respond better to the market," said Minister of Science and Technology Xu Guanhua); and, of course, in the numbers. Of all the dazzling stats China has posted, the most impressive is this: In 20 years it has lifted some 400 million of its 1.3 billion people out of grinding $1-a-day poverty.

But it's not just China, as the several hundred CEOs gathered for the conference were reminded. One of the liveliest sessions featured Indian business leaders whose firms are thriving as low-cost sources of services and information technology. These corporate successes, plus government reforms, have spurred India's once lumbering economy onto a rapid growth path and given many of its one billion citizens a new swagger. "Today the average Indian feels, 'Man, we can take on the world,'" said Prannoy Roy, head of India's NDTV. Yes, these guys get it too.

Which raises a big, fat question for U.S. officials, business leaders, and citizens: Do we get it? Helpfully, there's a flotilla of new books in the stores claiming to answer the question. While they aim at different targets, all share a sense of urgency that major changes in attitudes and policies are essential if the U.S. is going to cope with the era of China, India, and the Internet.

The flagship, both in physical heft and intellectual throw weight, is New York Times columnist Thomas Friedman's The World Is Flat: A Brief History of the 21st Century….

Friedman compares this moment to the wake-up call America received in 1957 when the Soviet Union launched Sputnik. But while "the main objective in that era was building a strong state," he writes, "the main objective in this era is building strong individuals."

To do that, Friedman advocates changes ranging from making pensions and health insurance portable (vs. tying them to an employer), to some form of wage insurance (to ease the job dislocations many will face), to new subsidies for tertiary education (upgrading human capital is critical in a flat world), to more good old-fashioned parenting (as in, Hey, kid, put down that video controller and crack a book!).

      The world is getting crazier, and Thomas Friedman isn’t helping. In fact, he’s become the new guru of globalization, with a phony pacifier to distract American voters from the main issue: global investors have sold out global workers for profit.

     And now it’s a race to the bottom for American workers, as they approach the wages and working conditions of the most brutalized workers in the world.

     If you want a detailed discussion of the absurdity of Friedman’s “solutions,” check out the file Friedman’s globalized world isn’t flat; it’s a mountain.

     If you already aren’t convinced about Friedman’s dangerously misleading solutions, consider the following:

From Business Week, June 27, 2005.

China: Too Many Factories?

If the economy slows, overcapacity could crunch profits in China

Any day now, German chemical giant BASF and its partner China Petroleum & Chemical Corp. will fire up a new, $2.9 billion petrochemical complex. The 220-hectare facility along a stretch of the Yangtze River outside Nanjing, built by 15,000-plus Chinese workers and contractors from 22 countries, can turn out 600,000 metric tons a year of ethylene, a base material used to make a variety of plastic products.

By yearend two other plants – one built in Shanghai by Sinopec and Britain's BP, the other in Guangdong Province, courtesy of CNOOC and Royal Dutch/Shell Group – will kick in an additional 1.7 million tons of capacity. All told, China's ethylene output could rise by 36% this year from 2004 levels.

Now consider this: Six additional ethylene crackers, as they're known in industry jargon, are expected to win government approval and come online by 2010. China's ethylene capacity is expected to grow by 22% annually through 2009, while domestic demand will climb by just under 13%, figures Qu Guangdong, a Beijing analyst with chemical industry researcher SRI Consulting. Already the excess capacity has helped whack global ethylene prices by 50%, to about $600 per ton, since September.

Qu thinks that for emerging petromajors such as Sinopec and CNOOC, it's a matter of having too much cash. "They have the money, and they want to spend," he says, "and they don't really care about the international markets." A Sinopec spokesman says the company is not worried about overcapacity in ethylene….

But what if China downshifts? Most economists foresee mainland growth slowing to a more sustainable 8.5% or so in the next couple of years. At the start of 2004, China appeared to be in real danger of overheating and contracting severely, which would have been a disaster, since the country needs to grow at least 7% annually to create enough jobs for new workers….

In the cutthroat auto sector it's even worse. Profit growth there slowed to 4% from January through the end of April, vs. 9% in the same period of the previous year, because of aggressive price-cutting, according to the China Association of Automobile Manufacturers. The industry is running at only about 70% capacity, according to Automotive Resources Asia Ltd., an auto consultancy.

Then there's steel. The government is forecasting that the country's steel production will soon exceed domestic demand: Total capacity is expected to surge 43% by 2010, according to government numbers….

Semiconductors are likely to be hit, too. Just as the industry is showing signs of matching supply with demand after a nasty glut and plunging prices last year, China is heading for a massive buildup in chip-fabrication plants, albeit lower-end ones. The nation is already home to 35 silicon-wafer plants, and 22 new ones are expected to be in place by the end of 2008, according to the trade group Semiconductor Equipment & Materials International….

     So, China is developing an overcapacity for producing chemicals, plastics, autos, steel, semiconductors, and just about everything that can be produced or manufactured.

     Their workers make less than one-tenth of what American workers make, and their engineers and scientists make less than one-third of what Americans make.

     And we’re supposed to compete with them (and India) by “building strong individuals”? How utterly, unbelievably absurd.

     And to think that so-called smart people are buying this garbage. The rich and powerful of our country have done such a complete job of trashing the only realistic solution – protection of our way of life – that it isn’t even considered any more.

     Serious warning: if you don’t have a strong stomach, don’t read the following.

From Business Week, June 27, 2005.

Lobbyists Are Gushing Over This Energy Bill

…After two attempts, Congress appears ready to move a major energy bill, and industry and lawmakers are piling on. The bill's authors have included a slew of sweeteners to reward narrow slices of the energy industry. These targeted receipts are usually located in the districts and home states of powerful leaders – or of wavering lawmakers whose votes are needed. Business lobbyists, who haven't had a significant energy bill to carry pet projects since 1992, are positively giddy.

But some of the breaks may be too over-the-top even for Congress. The House version, for example, includes about $2 billion to help producers of gasoline additive MTBE. The argument: The feds required MTBE or other oxygenators to help gasoline burn more cleanly until it was discovered that the chemical was contaminating groundwater; now they should help producers switch to making different additives. House Majority Leader Tom DeLay (R-Tex.) wants to go further by protecting MTBE makers from liability. The fight over the additive killed the bill in 2003, and Senate Energy Committee Chairman Pete V. Domenici (R-N.M.) says he doesn't want any MTBE provisions in this year's bill. Grouses Senator Richard J. Durbin (D-Ill.): "The House bill is just a gusher of giveaways to the oil patch."…

The House bill establishes a consortium to dole out up to $2 billion over 10 years for oil-drilling research. The most likely candidate to handle the money: The Research Partnership to Secure Energy for America, a nonprofit in DeLay's home town of Sugar Land, Tex. That group shares members and office space with the Texas Energy Center, whose executives have made contributions to DeLay's campaign.

Even when Congress isn't doling out dollars, it's changing rules to help industry. If the Environmental Protection Agency rejects refineries' permits to operate in certain areas, the House bill would let them appeal to the Energy Secretary – a friendlier judge, critics say. Another clause would let natural gas drillers use "hydraulic fracturing" to crack open coal beds – sometimes injecting diesel fuel directly into the ground – without having to worry about the Safe Drinking Water Act. Halliburton Co. is among the companies employing the method….

     As long as Republicans control the Congress, expect the rape of the American public by major corporations to continue.

Week of June 20

      Read the following for the typical Business Week spin. It’s again bashing Germany and France as “anti-capitalist,” just because they are concerned about “jobs and social justice” for workers.

     In other words the “left” wants to preserve the gains for workers that were made from the 1930s to the 1980s, and before the era of globalization destroyed working-class standards of living.

From Business Week, June 20, 2005.

A Specter Is Haunting Europe: The Left

The Left in Europe is flexing its muscles. Anti-capitalist, anti-globalization activists played a key role in defeating referendums on the European Union constitution in France on May 29 and the Netherlands on June 1. Relentless sniping from left-wingers in Germany's Social Democratic Party helped drive Chancellor Gerhard Schröder to call for elections this fall, a year ahead of time…. The main action is in Germany and France. In Germany, former Social Democrat Chairman Oskar Lafontaine, who campaigned in France against the EU constitution, is likely to lead a new left-wing party, provisionally called the Electoral Alternative for Jobs & Social Justice. It will field candidates and press Schröder to swerve left. The party says it's getting a huge response. "Our fax never stops running," exults Murat Cakir, a governing board member of the party, which wants to raise taxes on the rich and open the spigots of government spending….

A strong protest party could make life hard for Christian Democrat Angela Merkel, who is favored to unseat Schröder in the early elections. Initially, Merkel would have lots of leeway to push through cuts in social welfare benefits. But labor-oriented left-wingers such as Michael Sommer, president of the German Confederation of Labor Unions, have vowed "house-to-house combat" if a new government restricts collective bargaining rights. The model may be Italy, where the unions are well practiced at getting what they want….

Ironically, the far left's hostility to EU expansion and reform is shared by Europe's far right. Both extremes helped defeat the EU constitution in France and the Netherlands. The nightmare scenario is that left-wing and right-wing populism weaken the center, ushering in volatility that hasn't been seen in decades. Since World War II the center has held in Europe. But the pressures of globalization are shaking the traditional power balance.

     An encouraging sign: even the “right-wing populists” now see the looming disaster that globalization is creating by destroying the living – and spending—standards of their middle- and working-class citizens.

     Let’s hope that it won’t be too long before America’s right-wing discovers the same thing. But don’t hold your breath.

     Here’s just one more sign of how the U.S. is transferring its economic and, ultimately, political power over to China.

From Business Week, June 20, 2005.

Napoleon Of China's Oil Patch

Third-ranked CNOOC has become China's boldest energy player

Chinese oil company CNOOC Ltd. may be coming back for more. After months of on-again, off-again talk about buying Unocal Corp., CNOOC on June 7 said that it is still interested in a deal, potentially derailing Chevron Corp.'s $16.4 billion bid for the U.S. oil producer.

If successful, such a deal would be the biggest overseas acquisition ever by a Chinese company – and would further establish CNOOC as the most ambitious Chinese player in the oil patch. CNOOC is "ahead of the curve in China," says Scott Roberts, director of Cambridge Energy Research Associates in Beijing. "And they are willing to think big."

Lately, CNOOC has certainly been seizing lots of opportunities. Since May, 2004, the company has completed three big transactions giving it access to oil and gas from the waters off Australia and Indonesia to the dry oil sands of Alberta, Canada. Such deals helped boost revenues by 30% last year, to $6.7 billion, while net profits jumped 40%, to $1.95 billion….

There's good reason to believe that bullish prediction. China is sucking up energy faster than any country on earth, and that's not likely to change anytime soon as foreign investment continues to pour in and Chinese consumers boost their spending by 10% or more annually….

CNOOC is also positioning itself as China's leading player in natural gas…. CNOOC Ltd. in December expanded its stake in Australia's rich North West Shelf gas project to just over 5%. And it's negotiating to buy into the Gorgon LNG project off Australia, which is owned by Chevron, Shell, and ExxonMobil. Meanwhile, CNOOC has become one of the biggest players in Indonesia's offshore gas fields, and in April it purchased a 17% stake in Calgary-based MEG Energy Corp., giving it access to an estimated 2 billion barrels of reserves in the oil sands of western Canada….

     So, “China is sucking up energy faster than any country on earth.” That’s where the industry is going, and that’s where the next world’s power is growing. What a great think Republicans and conservative Democrats have done by their globalization strategies – which were originally designed simply to destroy working-class wages.

     And here’s yet another example of the incredibly callous attitudes of corporate America, the Fed, and conservative economists generally.

     When corporate profits and investors’ incomes explode – that’s just capitalism. But when workers start to make more money and share in our country’s prosperity, conservatives scream “wage inflation,” and encourage the Fed to stop it by raising the prime interest rate.

From Business Week, June 20, 2005.

U.S.: Weak Payrolls Mask A Tightening Job Market

How companies handle rising labor costs will affect future inflation

The labor markets have always been the mother lode of information about trends in economic growth, inflation, and Federal Reserve policy….

So what are the labor markets really saying about the economy? On balance, the data show more signs that labor markets are tightening than loosening, and those signals go beyond the declining jobless rate….

In addition, workers' sense of job insecurity appears to be lessening a bit…. [The] so-called quit rate rose to 12.3% of the labor force in May, the highest level in almost four years. In the past, Fed Chairman Alan Greenspan has looked at the quit rate to gauge how confident consumers feel about job prospects.

The degree to which labor markets are tightening will likely be the most crucial factor in future interest-rate decisions by the Fed, because of what tight job markets imply for future inflation….

In a strong economy, with tight labor markets, this leaves businesses with two options: lift prices to compensate, or watch profit margins get squeezed….

     For a more extensive discussion of how our conservative government deliberately keeps working-class wages from going up, see: The Class Warfarer’s scapegoat: “Wage Inflation”.

     For a lesson on how to defend the wealthy and powerful by re-writing history, see the following.

From Forbes, June 20, 2005.

Washington's Knucklehead Economics

By Steve Forbes, Editor-in-Chief

Why isn't the stock market – at least the nontech portion of it – reaching new highs? Corporate profits continue to advance. Productivity is impressive. Consumer incomes are strong. Federal government revenues are growing rapidly – the deficit will come in below estimates. The villain: the ominous drumbeat of protectionism….

Doesn't anyone in authority remember that the notorious Smoot-Hawley Tariff of 1929-30 precipitated the Great Depression by slapping prohibitive taxes on hundreds of imports, thereby setting off a devastating global trade war?…

…contrary to popular "wisdom," our China trade--in fact, all of our trade – is making us stronger. A significant part of this trade is made up of U.S. companies importing parts and pieces – usually from facilities that are wholly or partially American owned – that make up products sold in the U.S., such as the Apple iPod. Trade with China enables our high-tech companies to stay on the cutting edge of innovation by focusing more resources on design and new breakthrough products….

     Notice how Forbes refers to the “Smoot-Hawley Tariff of 1929-30”? Clever. It actually was passed in 1930 – after the stock market crash of 1929.

     The depression wasn’t caused by protectionism. Protectionism followed the cause of the depression, as countries worldwide discovered that they had to protect their societies from ruthless exploitation by investors. The depression was caused by the greed of the wealthy and powerful of the 1920s who took too much of the money and left middle- and low-income citizens with not enough money to buy the world’s products.

     THEN the depression hit, as unsold products – that people needed but didn’t have enough money to buy – sat on the store shelves.

     So, where does Barron’s advise American investors to put the money they got from the Republican tax cuts – “so they could create jobs”?

     India, of course. And in the process they further destroy our economy – and American jobs – even further than globalization already has.

From Barron’s, June 20, 2005.

India's Nimble Elephant

Even in the golden age of American capitalism, there was never a corporate empire like the one that the Tata-family interests control in India. The Tata Group holds the equivalent of Ford Motor, U.S. Steel, General Electric, IBM, AT&T, Macy's, A&P and General Foods – when each was approaching its heyday of growth and opportunity….

Tata Sons (pronounced Tah-Tah) is a private company with some 91 businesses and annual revenues of $14 billion. Its shares are held by a variety of Tata family trusts and philanthropies. Ratan Tata, the family patriarch, has said he is considering a public offering of a small part of Tata Sons.

It would raise capital for the conglomerate, increase the value of the charities and trusts and make the Tata Group a brighter light in the eyes of investors.

In the meantime, U.S. investors can join the ride at Tata through the American depositary receipts of its publicly traded units. Some of these, especially the ADRs of Tata's automotive and telecom units, could be attractive plays on India's burgeoning economy….

     Note that a major beneficiary of India’s booming economy is one family of aristocrats. By giving India much of our industry, and jobs, we’re not creating a great future middle class and the elimination of poverty in India – we’re simply giving their wealthy and powerful much of the wealth that American working-class citizens formerly held.

     And of course, American investors and top corporate executives are becoming a new class of aristocrats as well, becoming partners in “India’s burgeoning economy.”

     Abandoning and betraying America has never been so profitable.

     If you ever doubted that we have an absolute idiot for president, read the following.

From The Wall Street Journal, June 20, 2005.

Bush Faces Heat Over Global Warming

As Political Pressure Grows
From Key Allies, Administration
Could Be Forced to Act

President Bush is facing new pressure from key allies – both abroad and in his own Republican Party – for tougher action on global warming. While the White House remains opposed to new regulations, the shifting politics of the issue could force Mr. Bush to move further this summer on curbing greenhouse gases….

James Connaughton, chairman of the White House Council on Environmental Quality, declined to say whether Mr. Bush would veto an energy bill… saying it "goes right to the heart of our competitiveness " by forcing all sectors of the economy to achieve efficiencies equally…

…the Bush administration is attempting to recast its message on climate change by emphasizing that it, too, favors some regulatory solutions but wants to tailor them to the economic sectors that need them.

     The whole world – even a few Congressional Republicans who are now proposing corrective legislation (weak though it is) – know that global warming is real and could eventually destroy our planet.

     Still, idiot Bush still is willing to risk our ultimate survival in order to pay off his financial supporters in the petroleum, coal and utility industries. In his view, they are too costly, and they are not economic sectors that “need” environmental controls.

Week of June 13

     Here’s just one more example of the terrible disaster globalization is creating for the U.S.

     China now has “the world's fastest-growing economy.” And why? It isn’t because it has cheap labor, because it always has had cheap labor. For the real reason, read below.

From The Wall Street Journal, June 17, 2005.

Bank of America
To Pay $2.5 Billion
For China Foothold

Bank of America Corp., moving to make one of the largest single foreign investments to date in China's fast-changing banking sector, said it has reached a deal to buy a 9% stake in China Construction Bank for $2.5 billion….

The agreement, representing the bank's first big dive into the world's fastest-growing economy, is expected to be signed today in Beijing by Bank of America Chairman Kenneth Lewis and China Construction Bank Chairman Guo Shuqing. The companies announced the transaction in a news release last night….

     China is the fastest growing economy – and emerging as the future’s greatest military and political power – because Republicans and conservative Democrats decided to pass legislation that would enrich their supporters by literally giving China our industries.

     By allowing American corporations to shift manufacturing to Third World countries – without any penalties (tariffs, quotas, etc.) – they were able to take advantage of lower wages, and, more importantly, to destroy the wages of working-class wages in this country.

     For a more complete discussion of this issue, check out International Free Trade: it's not "globalizataion."

     The aristocrats of the world have won. They’ve totally defeated workers and small business owners who don’t benefit from globalization. Now, it’s even affecting the so-called free market of Europe.

      “Free market” is defined as a market that is ruthlessly controlled by international corporations, and one in which workers have almost no political power to defend their standards of living.

From The Wall Street Journal, June 13, 2005.

With Italy in the Doldrums,
Many Point Fingers at the Euro

CAPOLONA, Italy – Rossano Soldini, the 60-year-old head of a family-owned shoe factory in this tiny Tuscan town, is getting creamed by Chinese imports.

But Mr. Soldini isn't only blaming China. He also wants to give Europe's common currency the boot.

Like other shoe manufacturers across Italy, Mr. Soldini says the euro's sharp rise against the dollar inflated the price of the shoes he ships to the U.S. and left him defenseless against Asian rivals. Italian shoe production dropped almost 8% last year, the fourth straight year of declines. In 2004, Italy imported more shoes than it exported for the first time.

In the past, Italy would devalue its old currency, the lira, to help businesspeople claw back to competitiveness against other countries. But since Rome gave up control of currency policy to join the euro in 1999, Mr. Soldini, who also heads the National Association of Italian Shoe Manufacturers, has watched his fortunes slide. Having the euro has been like "wearing handcuffs," he says, adding: "Without a doubt, I'm nostalgic for the lira. Europe is not listening to us."…

In Italy, an anti-euro backlash is ricocheting up and down the peninsula as the country sinks deeper into a recession. Consumers, businesspeople and some politicians now bemoan a currency they claim has left them poorer and less competitive….

The euro-bashing isn't confined to Italy. A poll for Stern magazine this month found that 56% of Germans want the mark back.

The mounting dissatisfaction is another blow to the authority of the EU. The 25-member union was pitched into confusion two weeks ago by the rejection by French and Dutch voters of a proposed new constitution for the union. Underpinning those votes and the grousing over the euro are deep anxieties about slow growth, high unemployment and the future of Europe's generous welfare states….

The euro has brought big benefits for companies trading across European borders by eliminating currency swings and foreign-exchange fees. It created huge, unified capital markets akin to the U.S.'s, which have helped many European companies raise capital. Returning to a weaker currency would mean returning to higher interest rates….

Now, the only way Italy can compete is to cut prices. The only way it can cut prices is to cut costs. But the opposite is happening. Inefficiencies in Italy's cartel-pocked economy have caused prices of everything from electricity to zucchini to shoot up faster than elsewhere in the euro zone.

Unions began demanding higher wages to offset lost spending power. Companies had to grant raises that outstripped any gains in worker output. Adjusted for productivity, Italian labor costs have risen 17% since the euro came in, while German labor costs have risen only 1%, according to Barclays Capital. Italian productivity grew just 0.5% a year in the past decade, compared with 1.6% in Germany, and 2.4% in the U.S., according to the Organization for Economic Cooperation and Development….

     Key statements: “The euro has brought big benefits for companies trading across European borders,” and “Now, the only way Italy can compete is to cut prices. The only way it can cut prices is to cut costs.”

     Meaning: International corporations can pit workers against each other, and the only way workers can retain jobs is to accept lower wages. This is what the sanctimonious hypocrites who support the modern concept of globalzation call “cutting costs.”

     Two articles in the same issue of the Journal go together. Can you figure out how?

From The Wall Street Journal, June 13, 2005.

'Phantom' Accounts for CEOs Draw Scrutiny

Rich retirement savings plans for top executives – which often rely on "phantom accounts" that don't actually contain money – are generating controversy once again.

Last week, the board of MassMutual Financial Group fired Chairman and Chief Executive Robert J. O'Connell, accusing him in part of improperly inflating the value of his special executive retirement account by tens of millions of dollars….

In recent years, such supplemental savings plans for executives, commonly called "deferred compensation plans," have become a breeding ground for creative ways to jack up executive compensation, sometimes secretly….

A key feature of the arrangements is that they depend on hypothetical, or phantom, accounts. Unlike a 401(k), in which employees defer some of their pay into an actual trust, with actual dollars that belongs to them, there's no money in a deferred compensation account.

Rather, when executives defer their compensation, the employer simply postpones paying them; the money remains in the company's coffers. Because the money hasn't passed into the executives' hands, they haven't "received" it for tax purposes, and owe no taxes on it….


The Hottest Vacation-Home Markets

Second homes are sizzling. We tell you where – and why.

A year and a half ago, David Krahn had never been to the Jersey shore – but he plunked down almost a million dollars to buy a house there anyway.

Why? The Philadelphia utilities analyst had heard home prices along the shore were booming….

The townhouse appreciated so quickly – local brokers say they can easily get $1.5 million for it today –that Mr. Krahn is about to buy another, bigger place nearby. That house costs $1.875 million, but he hopes it, too, will be a gold mine….

The phenomenal real-estate boom of the past five years is sweeping through the vacation-home market. Lured by relatively low interest rates and the promise of big resale value, investors and regular vacationers alike are snapping up second homes – or, in some cases, third or fourth homes. And though rising interest rates could cool things off, the juggernaut shows few signs of stopping for now, even in upscale areas….

     Our tax laws that greatly favor the very rich and powerful – and at the direct expense of workers – are allowing them to buy up real estate with a wild abandon. What do you think these CEOs will do with all that free money?

     More than ever, real estate is one of the biggest creators of extreme wealth – and extreme poverty – as rich investors buy up homes and land, and drive up the prices of each, along with the rents that accompany them.

     For an extended discussion of the zerosum nature of wealth – and how real estate creates wealth and poverty – see Wealth is a Zerosum Game.

     As you read the two excerpts below, remember that the people behind these new economic trends are the ones you read about above: those who are buying their third and fourth homes – and don’t give a tinker’s damn about anybody else.

     The articles are from the same issue of Business Week, and demonstrate how far the wealthy and powerful are willing to go through, to further enrich themselves at the direct expense of all those who actually work for a living.

From Business Week, June 13, 2005.


How public pension promises are draining state and city budgets

…[The] daily struggle to provide vital community services while meeting retirement promises mirrors the battle playing out across Michigan and the entire country. It's not just school districts that are being squeezed.

State and local governments, hard hit by the economic downturn of 2001, find themselves in a financial bind. While sharp anti-tax sentiment constrains revenue and governments face new outlays for everything from homeland security to No Child Left Behind, there's a growing feeling that the retirement promises made to everyone from office workers and state patrols to firefighters and legislators may simply be unbearable….

If these costs aren't brought under control, rising taxes could prove unavoidable – and a competitive problem for the states in the worst shape as well as for the country. Stephen D'Arcy, a professor at the University of Illinois at Urbana-Champaign's College of Business who has studied public pensions, worries that if states like Illinois have to sharply hike taxes to pay for benefits earned decades ago, companies – and even citizens – could end up moving to states in better fiscal shape.

"You could see it turning into an economic desert in certain states," he warns. Combined with the national retirement issues surrounding Social Security, these plans contribute to a depressing outlook for U.S. competitiveness overall….

Taxes will keep going up and benefits will be cut for future public employees. Both are unpopular. The debate is just starting to be heard.


The Fight Brewing Over Family Leave

Corporate America is angling to rewrite the rules for unpaid medical absences

Last year the Bush Administration kicked off a small war when it rewrote national overtime regulations. Now women and labor groups are gearing up for a new showdown as the Labor Dept. prepares rule changes for another cherished plank of workplace law, the 1993 Family & Medical Leave Act.

Companies are targeting two key changes: narrowing the definition of a serious medical condition that qualifies for unpaid leave and upping the minimum leave employees can take, now as little as an hour or even less. Employers say such measures would help curb what they claim is abuse by employees who use the law to miss work when they aren't really sick. The law "has worked fairly well, but we're concerned with employees who use it as an excuse for, say, chronic tardiness," says Michael J. Eastman, director of labor law policy at the U.S. Chamber of Commerce.

Outraged advocacy groups insist that such sweeping changes would all but gut the FMLA. Their biggest fear: a new definition of a serious medical condition, which could slash usage of the law in half, they assert. "We haven't seen evidence of widespread abuse; employers just want to dilute a law used by millions of Americans," charges Debra Ness, president of the National Partnership for Women & Families, a Washington (D.C.) group….

     The first article deals with public pensions, and the second with corporate practices that benefit workers. In both cases, the rich and powerful – taxpayers in the first instance, and investors and top corporate executives in the second – are doing everything they can to enrich themselves on the backs of those who made their wealth possible.

     As you read the following, remember that China is the country that we have literally given our manufacturing industry, and, increasingly, our advanced scientific activities.

     China is now using the production of wealth that used to reside in the U.S. to build up its military, to gain leverage over us in our political relations with other countries, and, in general, becoming the world’s dominant economic and military power.

From The Wall Street Journal, June 15, 2005.

Microsoft's Kowtow

"Where do you want to go today?"

That was Microsoft's slogan in the mid-1990s, one that evoked the unlimited possibilities inherent in the age of the Internet and the software revolution. The answer to that question today would be, "hopefully not where they discuss 'freedom,' 'democracy' and 'human rights,'" at least not if you expect to use Microsoft's new portal in China.

The software giant has just bowed to the Chinese government by banning these words. If you type them on Microsoft's new portal, a message appears telling you to try different ones. If this weren't insulting enough, the message actually says, according to news reports, "this item should not contain forbidden speech such as profanity. Please enter a different word for this item."

To be fair to Microsoft, it is not alone. Yahoo! and Google have also caved in to China. Google chose last year to omit sources the Chinese government does not like from its Google News China edition, saying that it didn't make sense to provide a link to sites that would probably be blank anyway….

     Key statement: “To be fair to Microsoft, it is not alone. Yahoo! and Google have also caved in to China.” And that’s only the beginning. Eventually, relative to China, we’ll be a third world nation.

     Unions are finally wising up. Possibly the biggest mistake they’ve made in the past is that they spent too much time and money increasing their own economic welfare and not enough bringing in more union members in more industries and businesses.

     As a result, they’ve lost the support of workers – and their political influence and support – who are jealous of the high incomes of the best-paid union workers.

From The Wall Street Journal, June 16, 2005.

Five Unions Move
Toward a Break

WASHINGTON – In the latest sign of growing tensions in the labor movement, five of the AFL-CIO's largest unions formed their own coalition to focus on organizing, laying the groundwork for a break from the labor federation next month.

Leaders from the Laborers' International Union of North America, International Brotherhood of Teamsters, UNITE-HERE, United Food and Commercial Workers Union and the Service Employees International Union agreed on an agenda, constitution and bylaws, and said more emphasis must be placed on gaining members.

"The basic principle that brings us here today is that American workers cannot win a better life unless more workers belong to unions, unless those unions have the focus, strategy, and resources to unite workers in their industry and raise standards of pay, health care, pensions and working conditions," the presidents of the five unions said in a joint statement….

     Of course, the first goal of new union membership will be to change the political climate that created globalization, and, in effect, increased the labor supply to unlimited levels. And that increased labor supply includes the most brutalized workers in the world – who will be willing to accept any working conditions, just to have enough to survive.

     Here’s another sign that the world economy is unraveling, just as it did after 1929. The following article, while seemingly a hopeful sign, is really a desperate stab at some semblance of economic security for Mexico – and the U.S.

     There’s no way carmakers, even in low-labor-cost Mexico, can compete with a ruthless China.

From Business Week, June 13, 2005.

Mexico's Carmakers In A Ditch

Mexican auto plants are reeling from disastrous U.S. sales. Can they get rolling again?

Out in the middle of Mexico's searing Sonoran desert, Ford Motor Co.'s (F ) Hermosillo plant is humming. Clipboard-toting supervisors watch as assembly-line workers install final accessories on test-run production of the new Fusion model. On Aug. 1 the facility will start producing Ford Fusion, Mercury Milan, and Lincoln Zephyr midsize passenger cars, building up to a pace of 300,000 annually. It's one of Ford's most important vehicle launches of the year – an effort by the Dearborn (Mich.) auto maker to stem its loss of U.S. passenger-car sales to Asian and European rivals….

It's impressive – until you consider how much the industry has slipped from its peak. Reduced U.S. demand for Ford, General Motors, and VW models means exports of automobiles and light trucks from Mexico have dropped 31% since 2000, to 1.1 million….

What can Mexico do? Marc Scheinman, a Pace University expert on the Latin American auto industry, says the government may have to offer investment incentives to foreign auto makers and slash taxes on domestic car sales to stimulate the industry….

     If you want an example of wishful thinking, consider this: “investment incentives to foreign auto makers and slash taxes on domestic car sales to stimulate the industry” – as a way to compete with China.

Week of June 6

     Globalization’s ultimate goal is finally being realized: American corporations are in total control of working-class wages and working conditions.

     When Republicans and conservative Democrats expanded America’s labor supply to include the worst of the worst-treated workers in the world—American workers totally lost their bargaining power.

From The Wall Street Journal, June 10, 2005.

UAW Is Facing
Biggest Battles
In Two Decades

From the days when founding President Walter Reuther was beaten up by company toughs, to the dark days of the early 1980s, the United Auto Workers union has fought to secure workers at the Big Three auto makers some of the best wages and benefits afforded industrial employees anywhere.

Now, UAW President Ron Gettelfinger and other UAW leaders face the union's worst crisis since the late 1970s and early 1980s, when oil price shocks and a surge of Japanese cars forced thousands of layoffs at Detroit's Big Three, and drove Chrysler Corp. to seek a government bailout….

Despite substantial productivity gains at UAW-represented factories, and big improvements in the assembly quality of GM, Ford Motor Co. and DaimlerChrysler AG's Chrysler Group vehicles, the UAW is again facing management demands to give back some of what it has won, particularly in health benefits, or risk even more job losses….

Workers in China earn an average of $1.96 an hour, compared with $36.55 for the average American auto worker, says automotive consultant John Hoffecker of AlixPartners, Southfield, Mich. Chinese car makers are gearing up for a major export push, he says, as their car-making capacity outstrips that nation's demand….

In 1982, the UAW agreed to concessions with GM. But after the agreement was officially ratified, GM disclosed a new, more-generous bonus plan for the company's top executives. "You can imagine how that played," Mr. Shaiken said. "So, when the UAW says, 'Let's figure out what else we can do,' that doesn't come out of thin air. There's a history behind that."

     So, after “the UAW agreed to concessions with GM…GM disclosed a new, more-generous bonus plan for the company's top executives.” Put that in the “what’s new” category. The U.S. is now officially an aristocracy.

     Of course, the UAW isn’t blameless in this story. Instead of constantly pressing for higher wages and benefits for their members, it should have fought for more union membership in other industries and businesses. They could also have lobbied for higher wages for teachers, nurses and others who are low on America’s financial totem pole.

     As it is, too many members of the public have no sympathy for workers making $36/hour—even though corporate CEOs make incomes in the multiple millions.

     Prediction: It’s only a matter of time. GM will become an investment banking company—and if it’s in manufacturing at all, it will be through contracts with other companies in China or India, where the cheapest labor can be found.

     The only salvation for its investors will be found in GM’s total exit from manufacturing, and using their remaining funds to, in effect, be a new hedge fund—speculating in the world manufacturing, and other, markets.

From The Wall Street Journal, June 8, 2005.

GM Plans to Cut 25,000 Jobs
By '08 in Restructuring

Analysts, Unions Question
Whether Moves Will Work;
A Steady Work-Force Decline

General Motors Corp., struggling with high costs and declining sales, unveiled plans to cut its North American work force by about 25,000 workers by 2008 as part of a broader restructuring, but the plan drew mixed reviews from analysts and investors and skepticism from the company's biggest union….

Reaction from the United Auto Workers, the large union that represents most GM manufacturing workers in North America, came late yesterday in a statement from its vice president and top GM negotiator, Richard Shoemaker. He said the union "is not convinced that GM can simply shrink its way out of its current problems. What's needed is an intense focus on rebuilding GM's U.S. market share, and the way to get there is by offering the right product mix of vehicles with world-class design and quality….

     I’ve always been a union supporter. But the union’s contention that “What's needed is an intense focus on rebuilding GM's U.S. market share, and the way to get there is by offering the right product mix of vehicles with world-class design and quality”—just won’t work.

     Companies in China and elsewhere are already planning the right mix of vehicles with world-class design and quality, and they can get three times the engineers and scientists to do it, for the same wages American engineers and scientists make.

     And after they design their cars, workers making one-tenth as much as American workers will produce them. There is no way GM can compete with these disadvantages.

     Face it. Globalization is a disaster for our country. Right now, it’s just a disaster for those who work for a living, but, eventually, it’s going to get to everyone (social disruption, unsolvable national economic problems, etc.).

     And think of it. Before globalization, GM was the largest employer in the U.S., and its workers were among the highest paid. It was truly a model to emulate.

     Since globalizataion, WalMart has become the biggest employer today and its workers are among the lowest paid—and it’s now the model for how investors and top corporate executives can become wealthy by treating employees as merely expenses to be minimized.

     Globalization is destroying our economy, but that’s only half of our problems. Our horrendous war with Iraq is also contributing to the destruction of our economy, as well as our standing in the world.

From The Wall Street Journal, June 8, 2005.

Congress Seeks Spending Balance

As spending bills advance in Congress, Republicans are struggling to balance high-profile science and environmental demands at home against the mounting costs of U.S. commitments overseas.

President Bush's ambitious foreign-aid budget is certain to be squeezed in coming weeks, and both the House and Senate are trimming at the edges of the Pentagon's 2006 budget request as lawmakers look for more money for domestic programs.

But the cost of the Iraq and Afghanistan wars was dramatized again yesterday, when the House Appropriations Committee approved a revised $408 billion military budget that includes more than $45.2 billion in contingency funds to pay for operations after Oct. 1….

     Forget any attempts to save our environment. Forget trying to solve our country’s most important domestic problems. We’re now imperialists—and that’s a very costly role to maintain.

     For years now, the pharmaceutical industry has been one of the most profitable in our economy. Despite this, the greedy clowns in charge of our drug corporations wanted still more profits, even to the point of violating the law.

     In the example below, their skullduggery involved cheating the American taxpayer—by overcharging public health programs.

From The Wall Street Journal, June 7, 2005.

Cases, Fines Soar
In Fraud Probes
Of Drug Pricing

Drive May Net $1 Billion
From Firms Overcharging
Public Health Programs

Months before a new law kicks in that will dramatically escalate government spending on drugs, state and federal prosecutors are investigating 150 cases that involve alleged pricing fraud by some of the world's largest drug makers and could produce more than $1 billion in criminal fines and civil penalties this year.

The cases are part of an expanding industrywide investigation of drug pricing that has produced scores of lawsuits currently under seal in courts around the country. They are focused on allegations that drug companies cheat state and federal health-care programs by inflating prices, offering undisclosed rebates to distributors or marketing drugs for unapproved uses, according to lawyers and officials involved in these cases.

A half-dozen major drug makers have already paid fines and penalties to settle charges in the past two years. At least three more – Serono Inc., Abbott Laboratories Inc. and King Pharmaceuticals Inc. – are expected to face similar allegations and possible criminal fines or civil penalties this year….

The recent surge in cases reflects increasing scrutiny of drug makers' pricing practices and a sharp rise in federal and state prosecutions of health-care fraud. Prescription drugs represent an ever-larger share of the nation's health bill, and the federal government is preparing for a huge increase in spending when the new Medicare drug benefit goes into effect in January….

Peter Keisler, who oversees the Justice Department's civil-fraud unit, said that "the most frequent defendant in fraud cases today is in health care" and that the industry now accounts for "the lion's share of fraud, both in number of cases and dollar amounts – and those numbers are going up."…

The scope of the investigation and the cooperation involved suggests that what had appeared to be scattered moves in the past few years has coalesced into a broad concerted effort. State and federal fraud cases have already netted $2.4 billion from drug firms – including Bayer Corp., Pfizer Inc. and Schering-Plough Corp. – that were alleged to have overcharged state or federally backed health-care programs, according to an estimate by Taxpayers Against Fraud, a nonprofit advocacy group. James Moorman, the group's director, said the cases publicly acknowledged to date are "just the tip of the iceberg."…

     Note that this is a brief excerpt of a very long article that went into great detail about the nefarious behaviors of our drug corporations. Also note that this is an industry-wide problem, and not limited to just a few fly-by-night corporations.

     No wonder our healthcare delivery system is broken. Those in charge of it have absolutely no moral standards whatsoever, especially the ethical standard of utility.

     For a better understanding the ethical standard of utility, see The Basis of Morality is Crucial to Good Government—Or, Why Our Founders Separated Church & State, and UTILITY: Our Abandoned Moral Standard.

     Chalk up another victory for Republicans and conservative Democrats. The previous upward mobility of poor and working-class Americans is being systematically destroyed—and all to benefit investors and the established wealthy, and their descendants.

     Technology improvements, productivity improvements, and outsourcing were all sold to American voters as positive ways the standards of living for all Americans would be improved.

     That should be true, but it isn’t if the government doesn’t protect the interests of the poor and powerless against the greed of the rich and powerful. It’s especially bad when Republicans go one step further and not only not protect the interests of the poor and powerless—but actually do everything to exacerbate the injustices of society.

From The Wall Street Journal, June 6, 2005.

Promotion Track
Fades for Those
Starting at Bottom

Decline of In-House Training,
Rise of Outsourcing Leave
More Stuck in Menial Jobs

NEW YORK – Unwed, unemployed and saddled with three young sons, Valerie Beatty hit bottom in 1989 when she was 25 years old. The daughter of a middle-class Harlem family, Ms. Beatty recalls she abandoned hope of what she calls "bettering myself."

Too broke to pay tuition at Bronx Community College, she dropped out and scraped by on food stamps, baby-sitting jobs and whatever cash her boys' father gave her to buy school clothes. "I had my kids," she shrugs, "and that was about it."

Then her life began to turn around, thanks to a cleaner's job she landed in 1992 with the Metropolitan Transportation Authority, a state agency that runs New York City's buses and subways. The job paid only $18,000 a year but put her on a track for training and promotions. Within a decade, she advanced from cleaner to subway motor inspector. Today she makes $50,000 a year and lives in a tidy ranch home on Long Island. Now 41, she ticks off her next goals: seeing her sons graduate from college, building a retirement home and opening a restaurant.

But the train that Ms. Beatty and many other black New Yorkers rode into the middle class is slowing down. The MTA was once full of jobs like motor inspector or turnstile repairman –jobs that a person with limited education could jump to with some training.

As in the corporate world, many of those jobs have disappeared, often because technology upgrades mean fewer people are needed….

Outsourcing and aggressive outside hiring have made many enterprises more efficient and profitable. But these trends raise the risk of workers in low-wage jobs getting trapped there. Annette Bernhardt, a sociologist at New York University Law School, studied the salaries of thousands of workers over nearly 40 years.

She found that 12% of workers who started in the labor market in the late 1960s and early 1970s remained stuck in low-wage jobs 10 to 15 years into their careers. But for workers who entered the labor market in the 1980s and early 1990s, that percentage had more than doubled, to 28%….

     The key to understanding this excerpt of a very long article—is the last paragraph. It’s the statement that summarizes the effects of the Republican economic policies.

     It’s a very long and complicated story about how Republicans have created this result, and the explanations of how they have been able to pull it off are to be found throughout this website.

     The following is an excerpt of a very long article and is presented simply as yet another example of why we need government regulation and oversight in the affairs that affect our society.

From The Wall Street Journal, June 6, 2005.

Goldman Faces New Tensions
In Trading, Serving Hedge Funds

Salesmen Both Advised Clients
Of Firm and Influenced
Its Own Bets on Market
Word of a Stock Sale Leaks

LONDON – One day two years ago, as Goldman Sachs Group was readying a sale of millions of shares held by German industrial giant Siemens AG's pension arm, the stock started falling, suggesting that word of the deal had leaked. Early word of it would have given an investor valuable information that the stock was about to face downward pressure.

When Goldman investigated, it found that a managing director in its London office had tipped off an important hedge-fund client of the firm. While it didn't appear the tip had caused the stock's fall, Goldman fired the managing director.

The incident opened a window on new tensions inside investment banks as their business models shift. When stock markets are flush, as in the 1990s, big securities firms like Goldman rake in cash by underwriting numerous new stock offerings for corporate clients and collecting commissions from stock investors. The bursting of the stock-market bubble in 2000 hurt both of those traditional mainstays.

Goldman and its rivals have since looked increasingly to other activities that could still offer rich profits….

     Key statement: “Goldman and its rivals have since looked increasingly to other activities that could still offer rich profits.” That just about says it all. Count on it: if it makes money—and isn’t quiet illegal yet—Goldman and its rivals will do it, no matter what harm is done to American citizens.

     Here’s another in the endless series of articles that illustrates how our federal government deliberately pursues policies to keep wages of workers from going up, no matter how high corporate profits are, or how much the stock market goes up. Also note how the Journal always considers it good news whan "wage inflation remains in check." Meaning: Workers aren't benefiting from the improvements in our economy – yet. And when they do, it'll be time for the Fed to raise the prime interest rate.

From The Wall Street Journal, June 6, 2005.

Jobs Report Is Unlikely to Sway Fed

Weak U.S. Payroll Growth
Isn't Expected to Spell End
Of Interest-Rate Increases

WASHINGTON – Last month's weak jobs growth underscores the fitful nature of the economic expansion but isn't likely to deter the Federal Reserve from continuing to raise interest rates – for now.

While the Fed is likely to press ahead with another in a series of small rate increases on June 30, the weak jobs report provides ammunition to market participants who think the Fed should halt its rate increases after the June meeting until the U.S. economy shows signs of firming….

Jared Bernstein, an economist at Economic Policy Institute, a Washington think tank, said the "pattern suggests that a convincingly strong labor-market recovery has yet to take hold."

Meanwhile, wage inflation remains in check. The slack remaining in the job market continues to hold back the rate of hourly wage growth among blue-collar and nonmanagerial workers. Hourly wages rose 0.2% in May, and 2.6% in the past year, the Labor Department reported….

     For a more extensive discussion of how our conservative government deliberately keeps working-class wages from going up, see: The Class Warfarer’s scapegoat: “Wage Inflation”.

     Remember how we were promised that globalization would benefit our country and our economy because it would open the world market to America’s manufacturers? Just thinking about all those millions of Chinese customers makes the mouths of American corporate executives water.

     Read the following two articles, from two separate publications, to see what a bald-faced lie conservatives have foisted off onto the American public. What is happening to the auto industry will be repeated throughout our entire economy.

From Barron’s, June 6, 2005.

Chinese Auto Makers' Great Leap Forward

"Made in China” may be stamped on the wares of your local auto showroom in not too many months. Leading the way are two eccentric entrepreneurs, Malcolm Bricklin, creator of the ill-fated Yugo, and David Shelburg, a colorful Arizona-based dealer. But more conventional auto makers are likely to follow.

This month, Honda Motor (ticker: HMC) begins exporting the Honda Jazz from China to Germany, and expects to sell some 10,000 in the first year. Honda hasn't said when it plans to export to the U.S., but DaimlerChrysler's China chief created a hullabaloo at April's Shanghai Motor Show by saying he's looking at manufacturing subcompacts in China for export to North America. "We've retracted that statement," snaps a Chrysler spokesman in Auburn Hills, Mich. "I can unequivocally tell you there are no plans to export any Chinese vehicles to the U.S."

Perhaps not immediately. But even as China's auto industry suffers from anemic volume and surging overcapacity, the pressure is on to ramp production. Consider that, according to J.P. Morgan estimates, sales of domestically manufactured cars totaled 2.33 million last year, versus total capacity of 3.8 million….

Chinese-made Corollas and Camrys from Toyota (TM) may not be far behind. Such plans are likely to cause tremors in Detroit's factories, and also in the American plants run by Japanese and Korean manufacturers….

"In three-to-five years, the export issue will be material to the investment case for Chinese auto stocks," says Jack Cheng, auto specialist at Boshi Fund Management in Shenzhen. Cheng believes that valuations have bottomed and earnings are recovering. But for now, it will be tough for profitability to snap back to last year's levels….

Whatever the prospects, some fund managers are finding value in Chinese auto shares….


From Business Week, June 6, 2005.

Here Come Chinese Cars

Detroit isn't looking in its rearview mirror — yet

Audacious, gutsy, and maybe a little nutty – how else to describe the push by New York auto entrepreneur Malcolm Bricklin and China's Chery Automobile Co. President Yin Tongyao to import and sell 250,000 mainland-made sport utilities, sedans, and sports coupes in the U.S. starting in 2007?

After all, Chery produced only 80,000 cars in all of 2004, has near-zero brand recognition outside China, and has been sued by General Motors Corp.'s South Korean unit for allegedly ripping off the design for its best-selling QQ minicars in China — a charge Chery denies….

Big Three execs did take notice, however, when Honda Motor Corp. announced plans to export compact cars from China to Europe starting in June. Honda already sells about 200,000 locally built vehicles in China a year, ranging from Accord sedans to Odyssey SUVs. In April, with local partners, it began production at a new assembly plant in Guangzhou that will eventually build and export 50,000 Fit compacts a year to be sold in Europe as the Jazz. Honda won't say if it plans to send China-built cars to the U.S., but it hasn't ruled out exporting other models from China eventually.

In the global auto industry, Chery and Honda are on opposite ends of the spectrum. But they do share this: Both are betting big that the Chinese auto industry is entering a new phase that will see a shift from manufacturing only for the fast-growing local market to become an export base for the rest of the world, too….

Autos from China could provide more lower-cost competition for the Big Three at a time when GM and Ford Motor Co. are already reeling. That could cost them, along with Chrysler, more market share and prod them to move more of their own production offshore….

The Chinese government is putting its heft behind the export push – subsidizing the export drive of such local players as Chery and giving the likes of Honda big incentives….

Honda says in-house quality tests show that the China-made Accord is actually superior to the one made in the U.S. If those quality gains hold and a far bigger market drives down costs, China could start throwing its heft around the global auto market in a big way. Look out, Detroit.

     We’re in the process of giving our auto industry to other countries like China—and already the Chinese have bought all the cars they can afford, and China is in a state of “surging overcapacity.”

     Not only are the sales of cars made by American corporations slowing to a standstill in China (that "great market"), we’ve taught China how to make cars as well as we do (“the China-made Accord is actually superior to the one made in the U.S.”) —at one-tenth the labor cost—and China will now be exporting cars to the U.S.

     Of course, “General Motors Corp.'s South Korean unit [is suing Chery} for allegedly ripping off the design for its best-selling QQ minicars in China.” Which leads to the question, “What the hell did American corporations expect from China?

     How incredibly, undeniably, unbelievably stupid. And we’re doing it to all our labor-intensive industries.

     How in the world are American workers who don’t inherit fortunes, or don’t have an advanced education, or win a lottery, going to survive in this kind of economy?

     And how will our country be able to effectively deal politically with a powerful China that has taken-over our most significant sources of true wealth creation?

     Our private petroleum corporations have, and are doing, such a horrible job—it’s hard to imagine that government bureaucrats could to as poorly. Isn’t it possible that they should be considered as a regulated utilities?

From Business Week, June 6, 2005.

A Dry Well For Job Seekers

Is America's oil industry jeopardizing its long-term future by cutting jobs amid record profits? Some experts worry that Big Oil won't have the people it needs to ramp up output to meet steadily rising energy demand. In an April report, CEO Arthur Smith of energy research firm John S. Herold says: "Unless oil and gas companies take drastic steps to reverse the brain drain of the energy industry, a severe personnel crunch is preordained." Geologists could become particularly scarce.

A brain drain is well under way. At just under 200,000 jobs, U.S. employment in oil and gas extraction and petroleum refining is half what it was in the early 1980s, according to the Bureau of Labor Statistics….

All told, oil and gas companies cut U.S. jobs by 0.6% and worldwide jobs by 5% in 2004, despite record profits, says Standard & Poor's Compustat unit. Doesn't sound as if they're geared for growth.

     Face it. American corporate executives care only about increasing their own wealth and have absolutely no concern for the welfare of our country. They don’t plan for the future, they price gouge the public, and they lobby Congress to give them endless tax breaks.

     If the major oil corporations don’t demonstrate that they can behave like responsible people with at least minimal moral standards—it’s beyond time to declare the entire industry as regulated utilities.

Week of May 30

     The Republican Congress and the Bush Administration are well on their way to achieving their goal of creating an aristocracy. Here’s the latest analysis of one of their favorite programs to give huge tax advantages to the wealthy—under the guise of “helping workers.”

From The Wall Street Journal, June 2, 2005.

Older Workers Fail to Make Use
Of Catch-Up Retirement Savings

…Since Congress introduced a provision as part of the 2001 tax overhaul allowing individuals age 50 and older to sock away more of their pretax money in their company 401(k) plans, only a fraction of those eligible are taking advantage of that offer, according to a new study to be released today by the Vanguard Group, the Valley Forge, Pa., investment titan….

For the most part, workers with high incomes were more likely to set aside more of their savings. In 2004, those with more than $50,000 in household incomes were 3.5 times as likely to make catch-up contributions as those with incomes of less than $50,000. Those with household incomes of $150,000 or more were more than six times as likely….

     Although every worker whose company allows participation in a 401(k) plan can take advantage of tax protected income—the poor ones making under $50,000 can’t afford to. Of course, this legislation was never intended to benefit the poor. The true beneficiaries are, and were always intended to be, America’s higher paid “workers” (meaning: executives making over $50,000, and, especially, over $150,000).

     Because our real estate laws deliberately favor people with money, at the direct expense of people without money, real estate is one of the greatest creators of wealth—and of poverty.

     Right now, we seem to be at the pinnacle of one of the greediest periods in our nation’s history, and no one seems concerned about its effects on the bottom 40% of Americans who don’t own any real estate, even a home of their own. Not only that, we’re also creating a situation in which even the least sophisticated owners of real estate may shortly find themselves destitute.

     And if you’re looking for the straw that will break the camel’s back (our economy), you just might find it below.

From Fortune, May 30, 2005.


Riding the Boom

They snap up real estate, flip it, then chase the next hot market.They’re the new day traders—and they’re dancing on the edge of a volcano….

[Real estate investor] Tahmassebian begins his inspection. "See this wood?" he says, gesturing to the slatted frame of the unfinished house. "This wood made money for me! I don’t own it—but I own the rights. I put a 10% deposit down, I haven’t even made a mortgage payment yet, and it’s already gone up $45,000. What a country!"…

This summer the Learning Channel will air a show about people flipping real estate in San Diego, hosted by a woman who has bought and sold more than 40 properties in the past seven years.

And the appreciation! Surely you’ve heard, because real estate profits are the kind of thing that no one—your neighbor, your boss, yourself—can seem to shut up about. Since 2000 the median sales price of a single-family home has jumped 77% in New York City, 92% in Miami, and 105% in San Diego. "Nationally, all levels of real estate activity are at all-time highs," says economist Mark Zandi at…

Of all the phenomena that the boom has wrought, perhaps the most telling is the return of speculators like Tahmassebian. Speculators are creatures who emerge every decade or so to exploit the hot business cycle of the moment—those whose aim is to ride the wave to its highest point and then, with miraculous skill and timing, get out before it crashes on all the greater fools beneath….

"It’s like any game. It’s the guys who get in early and in the middle that make money," says John (he declines to give his last name), a chiropractor who is on hand with his girlfriend, a nurse in a white tank top and hot-pink lipstick who’s also in the market. He has bought three other investment condos in the area already this year. "It’s the guys at the end who are left holding the bag."…

     As these speculators buy dozens of homes, they are taken off the market and drive up the prices for everyone else. And those who don’t participate, or are late in joining the madness, are shortly going to find themselves much poorer than they were before.

     For an extended discussion of how real estate creates wealth—and poverty—see Wealth is a Zerosum Game.

     The following two commentaries explain a lot about how Republicans and conservative Democrats choose to remain totally blind to the inequities they have built into our economy. Not only that, they even want to continue to build upon the inequities, and make them worse.

     The first one explains the main reason Social Security is in trouble (and it’s a reason Republicans and conservative Democrats don’t want to face): working-class wages have been stagnating, while those in the higher echelons of our society are becoming incredibly rich.

     The second is an editorial by right-wing crackpot Glenn Hubbard, who was once Chairman of Bush’s Council of Economic Advisers. Naturally, he wants to eliminate taxes on “dividends, capital gains, and interest,” the main sources of income for the very rich. And what’s left to tax: consumption, which hits the poor and those in the middly the hardest.

From Business Week, May 30, 2005.


Why The Greenspan Fix Didn't Work

Slower-than-expected wage growth and soaring inequality have wreaked havoc

By Aaron Bernstein

One of the more puzzling questions about the debate over Social Security is why we're even having it again. After all, everyone thought the problem had been fixed in 1983 by the commission headed by Alan Greenspan, who went on to become chairman of the Federal Reserve Board….

A new study sheds light on what happened since 1983 to bring back the shortfall, which is projected to be $4 trillion over the next 75 years. Two major economic shifts occurred that Greenspan's commission didn't anticipate: The growth of average U.S. wages slowed, and income inequality soared. Together these trends explain 75% of the reemergence of Social Security's long-term deficit, according to a paper by L. Josh Bivens of the Economic Policy Institute in Washington.

The upshot: Democrats and Republicans alike may be trying to solve the wrong problem. Rather than focusing on how many workers will be around to support retired boomers, some experts think the logical response is to recapture the revenue lost as rising inequality lifted a greater share of aggregate U.S. wages out of the reach of the 12.4% Social Security payroll tax….

No one can blame Greenspan for not anticipating the return of inequality to levels not seen since the Great Depression. Still, his commission's fix barely lasted a year. By 1984, Social Security had slipped back into deficit, where it has remained ever since. What happened? The program's cash intake has been caught in a crunch caused by the interaction of slower average wage growth and heightened income inequality, says Bivens….

"No one anticipated this in 1983," says SSA Chief Actuary Stephen C. Goss, who worked with the Greenspan commission as a young staffer in the actuary's office. Goss says that while his office sees the rise in inequality slowing a decade from now, the long-run trend isn't likely to ever reverse….

A look back at the Greenspan commission shows that Social Security's problems are economic, not demographic. From this standpoint, private accounts that cut benefits for middle-class Americans don't address the real issue. In debating how to fix the system, we first need to understand what's broken.



Tax Reform's Key? Stop Hammering Investors

My plan for fundamental change would tax all income only once

By Glenn Hubbard

… Recent studies by Alan Auerbach of the University of California at Berkeley and others suggest that fundamental reform -- changing to a broad-based income or consumption levy that taxes income only once -- could yield annual household income gains of 9%. A panel appointed by the White House is working on fundamental changes. And a host of real-world concerns -- from the alternative minimum tax (AMT) to the complexity and inefficiency of the corporate income tax to looming sunsets of present laws -- is sure to keep reform front and center on the political stage….

Much of the gain from reform comes from reducing the code's bias against saving and investment, which slows capital formation and wage growth. Any plan – whether aiming for a broad tax on income or consumption – should remove taxes on dividends, capital gains, and interest….

     The contention that “No one can blame Greenspan for not anticipating the return of inequality to levels not seen since the Great Depression,” is absurd. Greenspan has always deliberately pursued economic policies to keep “wage inflation” from occurring. (For a more extensive discussion of this subject, see: The Class Warfarer’s scapegoat: “Wage Inflation”.)

     And Hubbard’s contention that taxing “saving and investment, [would slow] capital formation and wage growth,” is simply flat-out wrong. Some of the strongest periods of capital formation and wage growth were in periods of our highest taxes, from 1932 to the 1980s.

      The outsourcing madness continues. Just why do you think that investors are now putting so much of their money in India and China? It’s simple. That’s where the future is, because that’s where the industries and the jobs are.

From Barron’s, May 30, 2005.

India Tech Bulls Snap Up Infosys ADRs

Prospects for India’s information-technology giants suddenly looked brighter last week, as their shares jumped and Infosys Technologies' second issue of American depositary receipts (ticker: INFY) was wildly oversubscribed.

The earlier-than-expected recovery in stock prices indicates that investors believe that the March- quarter softness for the Indian companies was just a blip, and that they'll beat full-year estimates by a wide margin….

Nasscom, India's software services trade association, forecasts 2008 industry revenues at $50 billion, up from $16 billion currently, as more foreigners outsource software writing, accounting and the like….

     Think of it. People used to invest in this country, because we were the country of growth and opportunity—for everyone. No more. We’re a country for investors who use the world to pit workers against each other in the race to the bottom in wages and working conditions.

     It’s déjà vu all over again. Countries around the world are again discovering that there’s a limit to the extent to which they can sacrifice their workers on the alter of a “free trade” based on worker brutalization.

     Just as the greedy and materialistic created the world economic disaster of the 1920s—which led to the depression, and to the resulting protectionism—today’s modern barbarians are doing the same.

     And when the world economy crashes, Republicans will blame the protectionism, not the greed and materialism that caused it, for the resulting miseries.

From Barron’s, May 30, 2005.

Showdown With China

The current game of chicken between the U.S. and China over international trade threatens to make chicken salad of the global economy. This summer the U.S. Senate and House of Representatives will consider bills that would slap huge tariffs on imports from China if the Chinese refuse to allow their currency to "float," or trade freely, as the currencies of member nations of the World Trading Organization must….

China ensures its goods sell here for less, and that American goods fetch more overseas. Moreover, smaller Asian nations peg their currencies to the buck in order to compete with China, which leads U.S. manufacturers to lose out in markets at home and abroad. The currency imbalance is a major reason the U.S. trade deficit with China has nearly doubled to $162 billion since 2001….

     Not only are we losing industries and jobs to China, we’re strengthening its role as a powerful political force in the world. (The Chinese government owns 60% of its industries.)

     My, my, the sanctimonious outrage: Arthur Anderson’s illegal and despicable behaviors—shredding documents and helping major corporations screw the public, among others—wasn’t so bad after all. The court decision against them was flawed because “…jurors used too loose a standard of culpability against the once-venerable accounting firm.”

From The Wall Street Journal, June 1, 2005.

Andersen Decision
Is Bittersweet
For Ex-Workers

When former Arthur Andersen LLP senior manager Bill Strathmann heard that the Supreme Court had overturned Andersen's criminal conviction yesterday, he immediately relayed the news to his wife, father, brother and friends. On an email chain including 17 former Andersen partners and employees from Andersen's old Tysons Corner, Va., office, terms like "three years too late," "vindication" and "unbelievable" were sprinkled throughout….

In chat rooms, Web logs and emails yesterday, many former employees voiced similar opinions about the Supreme Court's unanimous decision to overturn the 2002 criminal conviction of Andersen tied to its botched audits of Enron Corp. The court ruled that jurors used too loose a standard of culpability against the once-venerable accounting firm….

The accounting debacles at Enron and WorldCom Inc., another Andersen client, have permanently etched a negative perception of the firm in many people's minds. Among the most vivid images: Workers in Andersen's Houston office shredding tons of documents connected to long-valuable client Enron; or, months later, the news of WorldCom's collapse into bankruptcy from an $11 billion accounting fraud, the nation's largest….

In some ways, "a stigma has been lifted," said Marc Andersen, a former Andersen partner who organized a 1,000-person rally in Washington in 2002 to protest the Justice Department indictment….

"Clearly the firm failed," said Barry Melancon, president of the American Institute of Certified Public Accountants, which filed a friend-of-the-court brief on behalf of Andersen. The vindication is only that "the firm as a whole is not guilty in this situation."

     Mr. Melancon’s comment was the most accurate: "Clearly the firm failed." And, although not the whole firm was guilty—it was clearly rotten at the top, and that’s what counts.

     Speaking of being rotten at the top, how about one of our most prestigious financial corporations, Citigroup.

From The Wall Street Journal, June 1, 2005.

Citigroup to Pay $208 Million
To Settle Fraud Accusations

Pact Relates to SEC Charge
That Transfer-Agent Moves
Were at Expense of Funds

Citigroup Inc. agreed to pay $208 million to settle Securities and Exchange Commission fraud charges related to its mutual-fund operations, removing an additional regulatory cloud hanging over the company.

The settlement relates to its 1999 decision to set up an internal transfer agent to service its Smith Barney family of mutual funds. The SEC order accused Citigroup of "placing its interest in making a profit ahead of the interests of the mutual funds it serves."

The agreement extends a string of regulatory settlements struck by Citigroup over the past couple of years, as Chief Executive Charles Prince moves to clean up after a variety of scandals….

     When you read reports like this, remember that you’re seeing only the corporate practices that were exposed to the public. What their executives are still doing beyond public scrutiny is largely unknown.

     Here’s another in the endless series of bad news about our healthcare system.

From The Wall Street Journal, May 31, 2005.

Seeking Insurance,
Individuals Face
Many Obstacles

Past Ailments Can Disqualify
People or Raise Prices;

John Craig, a 46-year-old software consultant in Orem, Utah, plays racquetball twice a week, doesn't smoke or drink and isn't overweight. But when he tried to get an individual health-insurance policy three years ago, he was rejected.

The insurance company cited sinus infections and depression, two conditions that Mr. Craig felt were well under control. The sinus infections stopped when he quit eating wheat in 1992, and medication has kept depression at bay for years. Frustrated, he ended up pursuing coverage through various state programs. For people with health problems in the private market, he says, "if you have a job with health coverage, then you get health coverage. If you don't, you're simply out of luck."

Mr. Craig has gotten an unwelcome education in the vagaries of individual insurance—the private option of last resort for many of the roughly 60 million Americans who don't get health insurance from their jobs or the government. About 17 million people, or 10% of Americans under age 65, buy individual policies in a market that even proponents agree has a big problem: Sick people often can't get insurance, or if they can, it's prohibitively expensive….

PacifiCare, based in Cypress, Calif., says it approves individual policies for about 70% of applicants without restrictions and to an additional 10%-20% with restrictions -- such as a refusal to cover an existing health problem for a certain period of time. The rest of the applicants are denied coverage. If too many sick people were insured without restriction, premiums would be higher for everyone and healthy people might stop buying coverage, says Mr. Bowlus. "That's the tradeoff," he says.

     Want to know the real reason our healthcare system is broken? It’s because of the greed of our modern American aristocrats, who have no moral standards when it comes to their relationships with their customers.

     For example, Howard G. Phanstiel, Chairman and CEO of PacifiCare Health Systems Inc. raked in $10,594,156 in total compensation including stock option grants in 2003. He has another $47,080,450 in unexercised stock options from previous years.

     If you look up the incomes of the CEOs throughout the healthcare industry—pharmaceuticals, HMOs, medical practice groups, etc.—you will find the same kinds of compensations. And remember, their own outrageous incomes are merely small indices of the huge amounts of money they are getting for their shareholders. And the sum total (CEO and top executive incomes, investor profits) represents the extent to which they are all royally screwing the public.

     It’s well beyond time to un-privatize our health industry. The greedy “free market” barbarians have destroyed it. Their definition of a free market is one that is ruthlessly controlled by huge corporations and their Republican representatives in Congress and the White House.

     We’re living in an era of exploding profits for corporations, a rising stock market and a skyrocketing real estate market. We’re also seeing record skullduggery among corporate executives, and wages that are still well below inflation over the past 20 years.

     So, who does Bush appoint to head the SEC? Someone who is “business-friendly,” who opposes government regulation of corporate executives’ behaviors, and who opposes class-action suits that are brought by those who are victimized by corporate skullduggery.


From The Wall Street Journal, June 3, 2005.

Cox's Nomination to Run SEC
Signals a Regulatory Shift

Business-Friendly Californian
Fought Class-Action Suits…

In naming Rep. Christopher Cox as the new chairman of the Securities and Exchange Commission, President Bush is picking a business-friendly champion of free enterprise who worked in the Reagan White House. The California Republican has supported legislation making it harder for investors to file securities-fraud suits and opposed stricter rules on expensing stock options and merger accounting.

vHis arrival promises to bring a shift in the SEC's approach to its crucial role in regulating businesses and markets. It comes in the wake of an unprecedented crackdown on corporate fraud over the past 2½ years. The scandals at Enron Corp., WorldCom Inc. and other companies prompted stiffer penalties, stricter accounting rules and a wave of enforcement actions by state and federal regulators.

Now the regulatory terrain could be changing. "He's someone who, if he is confirmed, portends a major shift in the direction of the SEC," said Joel Seligman, dean of Washington University law school and an SEC historian.

Mr. Cox's appointment is a victory for the business lobby, led by institutions like the U.S. Chamber of Commerce, which has been arguing that it needs relief from what it considers to be heavy-handed securities regulation….

     So, what kind of future is this appointment likely to yield? More of the same. More scandals, more inequality in wealth and income between rich and poor, and a delay in facing our country’s most pressing problems.

     It would be hard to pick someone who would be worse for the average working American..

     If you want to know how our government deliberately pursues policies to keep working-class wages from going up, read the Wall Street Journal’s advice for investors. Don’t read their editorials or listen to members of their staff on radio or TV. The following two articles appeared in the same issue of the Journal.

From The Wall Street Journal, June 3, 2005.

Working Theory

…Given the difficulty forecasters have had with gauging employment growth, the jobs report is a bit of a crapshoot. Most economists are huddled around an average estimate of a 185,000 payroll gain…..

Although a weak number might not provoke much reaction in the bond market, it could make for a big move—higher—in the stock market, where investors have lately been far more excited by the prospect of the Fed putting rates on hold than they are worried about the economy weakening.


Labor-Cost Jump Raises
Concerns About Inflation

Labor costs are increasing more rapidly than initial government estimates suggested, raising the specter of increased inflationary pressures….

Labor costs "already had started to drift higher," said Michael Moran, economist at Daiwa Securities America Inc., "but the new figures show considerably more pressure than previously estimated."

He said labor's share of the nation's economic pie has been unusually low lately, and could be returning to normal levels. Although faster wage growth is raising concerns about price increases, it also will give U.S. consumers the wherewithal to keep spending….

Federal Reserve officials keep close tabs on unit labor costs. As the costs of production increase, companies tend to push their prices higher in an effort to protect profit margins. The Fed lately has viewed signs of incipient inflation with a wary eye, and has lifted its federal-funds rate to 3% from a 46-year low of 1% over the past year.

"This is seriously bad news for the Fed—costs appear to be spiraling rapidly—and it strongly argues for substantially higher interest rates," Ian Shepherdson, chief U.S. economist at High Frequency Economics of Valhalla, N.Y., wrote to clients….

     If you don’t understand the implications of these articles, and what these articles are really saying, see: The Class Warfarer’s scapegoat: “Wage Inflation”.

Week of May 23

     The following article neatly summarizes the two opposing economic philosophies of globalization advocates and globalization critics.

     Which side are you on? Mr. Nichols or Mr. Cole?

     Are you a selfish, greedy conservative who believes in aristocracy and has absolutely no concern for the rights and welfare of workers—and their communities?

     Or are you a liberal who believes in the ethical standards of rights, justice and utility?

      (For a better understanding of the ethical standards of rights, justice and utility, check out the file: Utility: Our Abandoned Moral Standard .)

From The Wall Street Journal, May 27, 2005.

Once Close-Knit, Sock Industry
Splits Over Trade Restrictions

As Bush Curbs China Imports,
Mr. Nichols Sees Betrayal;
Mr. Cole's Mill Stays Open
'Head Buried in the Sand'

MOUNT AIRY, N.C. – From an unassuming whitewashed building here, Warren Nichols runs one of the largest sock companies in the world. His Renfro Corp. churns out more than a million pairs a day, with more than 4,500 workers spread from North Carolina to Mexico and Turkey. Later this year, he plans to add China to his production empire.

But the Shanghai operation won't ship as many socks back home as Mr. Nichols had originally planned because of an import curb the Bush administration slapped on Chinese socks. Making him more bitter: A fellow member of the once-clubby American sock-making fraternity, Charles Cole of Alabama Footwear Inc., led the campaign for the restrictions.

"You're either for a global economy or you're an isolationist – take your pick," says Mr. Nichols, who believes the Bush move "betrayed us." Mr. Cole responds that "there needs to be an equalizer" to help Americans compete with China. "I could move to Honduras," he says. "That would give me a job. But how about the 76 people who work here at this mill?"

The rift between Messrs. Nichols and Cole is a microcosm of how trade and globalization can ripple through, and then rip apart, an industry. Several industry associations have split between outsourcing multinationals and the little suppliers whose work is being outsourced.

The socks war pits big businesses against small ones and profit-driven executives against those also focused on preserving their hometowns. It also offers a window into the rise of anti-China sentiment in Washington, where some politicians are calling for trade curbs and pressuring Beijing to let its currency rise against the dollar. Adding to the sock restrictions, the Bush administration has moved in recent days to restrict imports on a range of Chinese-made products from cotton yarn to underwear.

Mr. Nichols, 67 years old, and Mr. Cole, 58, are both native sons of Southern mill towns. But from similar roots, the two have traveled along different paths.

Mr. Nichols, who is partial to dressy business-casual clothes from Brooks Brothers, runs Renfro from one of a long row of neatly appointed offices in the company's executive suite. He traveled to China 20 years ago to study sock-making there, and spent three months at Harvard Business School in a midcareer program.

Renfro started out as a small, family-run firm in 1921. Mr. Nichols joined the company in 1959 and his appointment as chief executive in 1990 signaled the company's move away from family control, although it remains closely held today. Renfro socks are sold under brand names including Fruit of the Loom and Odor-Eaters.

Renfro's headquarters in Mount Airy, the hometown of actor Andy Griffith, has become the nerve center of a global business, but relatively few socks are made here. Last year, Renfro eliminated 280 jobs at its lone Mount Airy plant, a big block building on the banks of the Ararat River. The layoffs resulted in part from expansion in Mexico.

Mr. Nichols describes having "mixed emotions" at the loss. "I have sentiment for the American people," he says, but "essentially, I'm looking out for our business and our shareholders."

Mr. Cole, usually dressed in a golf shirt, khakis and tennis shoes, works out of a cluttered office within earshot of the factory floor. It's decorated with a large, framed print celebrating the 1992 national football championship of his alma mater, the University of Alabama, along with tiny bulldozer models from his days running a strip mine.

He started Alabama Footwear 23 years ago in Fort Payne, Ala., with $250,000, putting up his small house as part of the collateral for a loan. He still owns the company. Unlike some of the bigger companies in North Carolina, the Alabama sock industry chiefly consists of 75 small and midsize mills that effectively work as a kind of cooperative. The mills specialize in white athletic socks, many sold as house brands at retailers such as Wal-Mart Stores Inc., Target Corp. and J.C. Penney Co., Mr. Cole says.

Mr. Cole's company does knitting work, turning yarn into socks. Others act as "finishers," preparing products for retailers by dying, folding and packaging them. If one firm moves to China, it's not only hurting its own employees, it's also hurting the other companies in the network.

Mr. Cole bristles at the suggestion that companies seeking trade limits have failed to adapt to a changing world. He notes that Alabama Footwear has spent more than $4.5 million on equipment upgrades over the past five years. That includes 130 Italian-made machines that automatically turn spools of yarn into knitted socks, untouched by workers. After installing these and other machines, Mr. Cole gradually scaled back his work force to 76 from 105.

For most of its history, the Charlotte, N.C.-based Hosiery Association was able to represent both big companies and small. That was true even through the 1990s, when larger firms steered the group toward an embrace of free trade. Sock makers didn't fight in 1994 when the U.S. and other major trading nations agreed to phase out textile trade quotas over 10 years.

The Hosiery Association's consensus began to fray in 2000 over legislation to allow duty-free entry of textiles from the Caribbean. Renfro, with a plant in Honduras at the time, wanted to make sure the initiative included socks. The Hosiery Association agreed and hired lobbyists to pursue the issue.

At Alabama Footwear, Mr. Cole says he hadn't paid much attention to the association's position on trade until then. He feared Caribbean imports could hurt companies like his that don't have overseas plants. In Fort Payne, which welcomes visitors with signs declaring itself the "Sock Capital of the World," he spread the word among fellow sock makers. At a monthly meeting of the Hosiery Association's Alabama chapter, Mr. Cole stood before his colleagues in a back dining room of the local Western Sizzlin' steakhouse and explained how the national association's free-trade push conflicted with Alabama's interests.

"We intend to get that changed," he remembers telling about 50 sock makers. He organized a campaign to write letters to Congress and had 4,000 envelopes delivered from Fort Payne mill workers to Washington. He personally piloted fellow Alabama sock makers to Washington aboard his six-passenger Cessna to make the case.

Meetings of the full Hosiery Association grew more bitter. Some Fort Payne factory owners politicked to force out veteran association president Sid Smith, who had pushed for free trade, according to one Fort Payne sock maker. In the summer of 2001 Mr. Smith announced plans to retire, though he says it wasn't related to the pressure. His last board meeting as president was in October 2001. At that meeting, the board overturned the association's free-trade positions, deciding not to take any trade stance. The group later formed a committee, headed by Mr. Cole, to lobby on behalf of the smaller firms that focus on U.S. production.

The shift on trade left the association deeply divided. Prior to the meeting, Mr. Nichols had tried to convince other sock makers they couldn't stop trade liberalization. "Look guys, it's coming," he says he told them. Mr. Nichols "just felt like the rest of us had our head buried in the sand if we thought we could do anything about global outsourcing," Mr. Cole says. When the time came to renew Renfro's membership in the Hosiery Association for 2002, Mr. Nichols chose not to.

Congress ended up deciding in late 2002 to give socks from the Caribbean limited duty-free benefits – a victory for Mr. Nichols. But bigger fights loomed. As the old trade controls continued to be phased out and China ramped up production, the U.S. market share for American sock makers fell to 31.4% in 2004 from 64% in 2001, according to Hosiery Association data.

That trend and more efficient machines have caused employment at sock mills in and around Fort Payne to drop to 4,400 from about 7,000 three years ago, according to the local economic development authority.

In 2003, Mr. Cole started lobbying for a new law that would require the packaging of all socks sold in the U.S. to carry a prominent country-of-origin notice. Every label would have to say, for example, "Made in U.S.A." or "Made in China" in lettering as large as the lettering showing the size of the socks. Renfro was upset about the cost of ensuring its world-wide plants complied with the rule.

Mr. Cole also decided to seek outright limits on sock imports from China. While the U.S. had agreed to lift all quotas by the end of 2004, it retained the authority to impose annual "safeguards" for up to three years to protect against a flood of Chinese imports. In early 2003, Mr. Cole began meeting with lobbyists and government officials to get such safeguards put in place. He worked in particular to woo Jim Leonard, the Commerce Department's lead official on textile policy and the head of a government interagency group that rules on safeguard petitions.

In September of that year, Mr. Leonard visited Fort Payne, meeting with mill workers and executives over two days. On his first night in town, Mr. Cole set up a dinner at the old DeKalb Theater, catered by the Western Sizzlin'. Mr. Leonard remembers his name was on the marquee, along with "letters about a foot high" reading SOS. That stood for Save Our Socks. During the dinner, Mr. Leonard spoke of the steps the Bush administration was taking to promote trade.

The next day, Mr. Leonard toured several mills. He was impressed that mill owners were installing new machines and workers were trying to get more productive. "They're doing the right kinds of things," he says. "They're trying to be as competitive as possible, so they can survive." Mr. Leonard says the Bush administration also heard the views of companies on the other side of the trade issue.

In June 2004, a petition was filed on behalf of the Hosiery Association committee Mr. Cole chaired, requesting limits on imports from China of cotton, wool and man-made fiber socks. A few weeks later, the administration agreed to consider the petition. It had up to 90 days to make a final decision – putting the deadline right before the Nov. 2 presidential election.

On Oct. 22, the Bush administration approved the petition for a one-year limit on sock imports from China. Then on Nov. 19 Congress passed a trade bill that included the labeling mandate. Mr. Bush later signed it, and the administration is now getting ready to implement it.

As of May 12, sock imports hit their cap under the limit imposed last October, meaning socks from China will be barred until this October when the limit comes up for renewal. Mr. Nichols is slowing development of the China project. Instead of going "200 miles an hour," he says, "we've put it down to about 50."

But Mr. Nichols thinks the U.S. attempts to curb imports will ultimately prove powerless to stop globalized production. "Hell, there are a lot of places you can make goods cheaply besides China," he says. "Things are fluid. You stop China, things will come in from elsewhere. It's kind of stupid."

Even some of Fort Payne's sock makers seem to agree that they must look overseas. In February of this year, Mr. Cole's brother, Bobby Cole, president of Prewett Associated Mills, the largest of Fort Payne's sock makers, announced the firm would soon begin "sourcing product offshore." In April, Prewett began shutting down one of its finishing plants in stages, costing about 50 workers their jobs.

      “You're either for a global economy or you're an isolationist – take your pick.” That’s the wrong choice. The real choice is: You either believe in the ethical standards of rights, justice and utility—or you don’t.

     Don’t believe Mr. Nichols sanctimonious description of “having ‘mixed emotions’ at the loss of American workers' jobs. ‘I have sentiment for the American people,’ he says, but ‘essentially, I'm looking out for our business and our shareholders.’"

     That’s what all barbarians say when they rape, pillage, and burn in the name of saving their own civilization–and while they're getting incredibly rich. His real attitude is: “I don’t give a tinker's damn about the welfare of my own workers or their communities.”

     For the real reason globalization appeals to our aristocratic conservatives, read the following.

     China’s workers make 90% less than American workers. That’s it. Of course, there is also the factor, stated in previous Journal articles, that the Chinese government owns 60% of China’s industry, and has made huge investments in state-of-the-art textile manufacturing facilities.

     So, we’re not only outsourcing our wealth-producing capabilities to China, we’re also helping China to build up its military and increase its global political influence.

From The Wall Street Journal, May 27, 2005.

Amid Trade Tension,
Buyers Flood China

Clothing Firms Are Seeking
Quick Deals Before Tariffs;
Cost Advantages to Remain

Despite the imminent threat of steep tariffs and other potential trade barriers, John Berg headed to China last week and placed sample orders for bathrobes, sheets, towels and about 15 kinds of bedroom slippers.

Mr. Berg, a partner of Sweden's Bed & Bath Hotel Supplies, which supplies the Hilton and Radisson hotel chains, is part of a group of retail buyers who are currently in China looking to source everything from uniforms to underwear. Representing 87 companies, the group collectively boasts annual sales of more than $13 billion and includes such apparel stalwarts as Britain's Marks & Spencer Group PLC and Paul Smith Ltd.; New York's Warnaco Group Inc.; and the Fruit of the Loom unit of Berkshire Hathaway Inc., Omaha, Neb….

China's advantages are hard to ignore. Its average labor costs are 90% lower than in the U.S. and Italy, and its manufacturers stitch together garments faster than rivals in other low-cost countries such as India and Vietnam. China has significantly increased investment in the textile sector in recent years, importing $3.5 billion of textile equipment last year, a 275% jump over 1998's total….

     It’s the 1920s all over again. America’s aristocracy is getting incredibly rich by pitting the workers of the world against each other. As economic conditions worldwide deteriorate—because most consumers don’t make enough money to buy the products and services they need—countries will start (as they are already doing) scrambling to protect their remaining sources of productive employment.

      “Protectionism” will be blamed for what follows—a recycling of the 1930s—but the real cause will be the greed and materialism of the conservative aristocrats, whose greed caused it all.

     Infuriating! As you read the following, remember that these are the very same greedy, materialistic barbarians who claim that:

  • Our government must cut Social Security benefits—in order to cut future taxes on the rich,

  • Government economic policy must keep workers’ wages from going up—in order to stop any chance of “wage inflation,”

  • Our country can’t afford to enact a truly progressive income tax on our richest citizens—because it isn’t fair,

  • American workers must realize that they are overpriced in the world market—that the rich deliberately created to destroy working-class wages via “globalization,” and

  • On and on, and on.

From The Wall Street Journal, May 25, 2005.

Millionaire Ranks Hit New High

Fueled by Investment Gains, Growth
In Number of Households Is Highest Since 1998

The number of millionaires in the U.S. increased to a record last year, boosted by gains in stocks and global financial markets, according to two new studies.

The number of U.S. households with a net worth of $1 million or more rose 21% in 2004, according to a survey released yesterday by Spectrem Group, a wealth-research firm in Chicago. It is the largest increase since 1998, according to the study, which was based on data from more than 450 qualified respondents. There now are 7.5 million millionaire households in the U.S., breaking the record set in 1999 of 7.1 million. The study excluded the value of primary residences, but included second homes and other real estate.

A separate study, also released yesterday, by Boston Consulting Group found that the U.S. continues to lead the world in creating new millionaires. The number of households in the U.S. with liquid assets of $20 million or more is increasing by 3,000 households a year….

The studies suggest that despite falling wages for nonmanagement employees in 2004, the fortunes of those at the top continued to rise. Unlike many wage earners, the wealthy rely on investments for much of their increasing wealth….

Households with net worth of $3 million or more garnered 34% of their wealth last year from investment gains, according to the Spectrem survey. Only 31% of their wealth last year came from compensation. The remainder came from privately owned businesses, inheritances and other sources….

Europe also showed growth in affluent households and millionaires, according to the Boston Consulting Group study. Europeans with more than the equivalent of $100,000 in investible assets rose 4%. The number of households with more than $20 million in investible assets in Germany rose by 1,000 a year in 2004.

     Note that this fantastic economy is based on the accumulation of money—mostly by not working: “Households with net worth of $3 million or more garnered 34% of their wealth last year from investment gains…. Only 31% of their wealth last year came from compensation. The remainder came from privately owned businesses, inheritances and other sources.

     Republicans have finally accomplished their goals: we’re officially an aristocracy.

     The above investors, and aristocrats who inherited their wealth, have created the incredible real estate inflation we’re seeing today, as well as inflation in the costs of advanced education, health care, and so on. But, of course, they’re now blaming inflation on workers whose incomes are rising substantially for the first time in the past 25 years.

From The Wall Street Journal, May 27, 2005.

Worker Income Rises 6.9%,
Posing Inflation Risk

The income of U.S. workers is growing much faster than previously thought, a positive sign for economic growth – which was revised up yesterday – but a potential inflation threat….

Many economists had expected GDP to be revised upward. However, they were surprised by large upward revisions to estimates of worker income. Wage and salary income, which includes income in the form of stock options and bonuses under the government's accounting, was $92 billion higher in the first quarter than previously estimated. The revisions showed the category grew at an annual rate of 6.9% in the first quarter and 10.4% in the fourth quarter….

David Greenlaw, an economist with Morgan Stanley, said it was … a potential inflation signal, because stronger compensation growth implied unit labor costs were growing more briskly for companies. He said he expected the staff at the Federal Reserve to be "working overtime" in the days ahead to try to determine whether the latest income figures represented "a sustained increase in labor cost pressures."

Yesterday's GDP report also provided the first look at corporate profits nationally for the first quarter. The government's measure of corporate profit rose 13.8% from a year earlier, to a seasonally adjusted annual rate of $1.33 trillion….

     Unbelievable, but believe it. The Wall Street Journal reports that wages went up 6.9%, and corporate profits went up13.8%. Yet, the inflation threat is, as the Journal sees it, wages are going up!

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

     Here’s a classic example of why real estate is one of the most important creators of wealth—for those who buy, hoard, and sell it—and one of the most important creators of poverty—for those who don’t have the means to join in the game and who are forever victims of declining availability.

From The Wall Street Journal, May 27, 2005.

Gold Coast Fever

…For the many, watching the super-rich spend is a source of endless fascination, and there are few ways to spend it faster than on real estate. From "Lifestyles of the Rich and Famous" to Architectural Digest, from the Billionaire Home listings in (where I work) to the Private Properties column of this newspaper, real estate has become a "voyeuristic preoccupation in America," writes Steven Gaines in "The Sky's the Limit" his exposé of high-end Manhattan real estate.

Of course, such an interest is nothing new. The wealthy have been building ostentatious homes for centuries….

Homes have always been built to impress. It works on Mr. Gaines and on most of us. The book chronicles the old-school cooperative apartments, especially on Fifth Avenue, that still serve as bastions of wealth and snobbery….

     The emphasis here is on Manhattan real estate, but the same phenomenon is happening all across America, as those at the middle and bottom of the wealth scale must continually migrate to cheaper and less-desirable living locations.

     It’s a classic example of the zero-sum nature of wealth. (For an extended discussion of the zerosum nature of wealth, see Wealth is a Zerosum Game.)

     The dreamers who were conned into believing that globalization was going to be good for workers and small businesses are now getting realistic. Anyone with an IQ over 80 had to know that globalization was going to be an unmitigated disaster for everyone who actually works for a living, and for those who would actually like to start a business making actual products.

From The Wall Street Journal, May 24, 2005.

Outsourcing Affects Owners' Plans to Sell Firms

Outsourcing pressures are prompting more entrepreneurs to consider selling their businesses.

In an annual survey of closely held companies, 64% of the owners say they expect their businesses to be sold, merged or otherwise acquired within the next three years, according to DAK Group, and Columbia University business school's Lang Center for Entrepreneurship.

And of those who expected to exit their businesses, 69% say that outsourcing pressures are having a moderate to significant impact on their plans, a sharp increase from 47% a year ago. The data show "a growing concern about the trend toward outsourcing and offshore manufacturing," says Murray Low, executive director of the entrepreneurship center….

According to the survey, only 24% of those polled expect to make an acquisition in the next 12 months, and 41% within the next three years -- the lowest numbers in both categories in the past six years.

Of those who intend to make an acquisition, 56% say outsourcing has had a moderate to significant impact on their plans, compared with 34% a year earlier….

     The current wisdom for entrepreneurs: outsource, or sell out now while you can. If you don’t, your competitors will and they’ll drive you out of business in this country.

     This week’s Business Week should shame anyone who believes in fairness—or in the kind of capitalism we had under President Roosevelt.

     What we have in the U.S. today is not capitalism as it is intended to be, but an economic system that is deliberately rigged to benefit America’s new aristocracy. It benefits the rich and powerful, and at the direct expense of workers.

     The first article describes how American corporations are making record profits—by keeping wages from going up. The second indirectly describes how our official government policy, through the Federal Reserve, is to keep wages of workers from interfering with corporate profits.

From Business Week, May 23, 2005.

Big Profits, Even Bigger Margins

BW Scoreboard companies were able to squeeze more from each dollar of sales

The cash keeps rolling into Corporate America's coffers. Against the headwinds of slower economic growth, stubbornly high oil prices, and inflation jitters, first-quarter profits among the 900 companies on BusinessWeek's Corporate Scoreboard still charged forward 16% from a year ago, on a 13% increase in revenues, well ahead of Wall Street's initial expectations….

To be sure, if commodity prices keep spiking, and consumers get spooked, or if labor costs were to grow faster than expected, the margin momentum could slow….

By far the most common ingredient in Corporate America's formula to raise profit margins has been containing employee wages, salaries, and benefits. Companies have leverage over employees because there are plenty of Americans still looking for a job….

In old-line industries, squeezing labor costs is harder. But Peoria-based heavy-machinery producer Caterpillar Inc. has instituted a two-tier wage system that pays entry-level workers substantially less than in the past….

Sounds like Corporate America may need bigger coffers.


U.S.: A Job Market This Strong Comes With Strings

Productivity growth is slowing, and inflation fears may not be misplaced

The April employment report took the "stag" out of stagflation worries. News that the economy had generated a larger-than-expected 274,000 new jobs last month, along with upward revisions to the February and March payroll data, bolster the idea that fears about the expansion weakening are unfounded….

How much inflation ultimately picks up depends, to a great extent, on how successful companies will be in holding down their costs or in passing their higher costs along to customers via price increases….

For now, the labor markets remain too loose for any huge upward push on wages….Among private nonfarm businesses, wages, salaries, and benefits have not sped up in the past year….

In coming months, expect the Fed to keep tightly focused on the labor markets. The sharp rise in April payrolls puts jobs back on a pace, if maintained, to send the unemployment rate below 5% by the end of 2005. If so, wage pressure will intensify, and inflation concerns will remain uppermost in the minds of both policymakers and investors.

     For a more extensive discussion of how the Fed manipulates the prime interest rate to fight any possibility that wages may go up—as well as other means to destroy working-class wages, see: The Class Warfarer’s scapegoat: “Wage Inflation”.

     Barron’s right-wing crackpot in residence, Thomas Donlan, regularly betrays the aristocratic values of today’s modern conservatives. Check out this editorial:

From Barron’s, May 23, 2005.

Next Stop, Oblivion

The United Air Lines pension default points the way to a difficult future.


In a sad and brutal way, the collapse of the United Air Lines pension plans represents a step in the right direction. Last week's bankruptcy court decision permitting UAL to default on its pension promises was widely bemoaned on economic and social grounds, but it was a step toward the end of the private defined-benefit pension system.

The airline employees are victims of a system—we include the government, the managements, the pension consultants and the actuaries—that told them they had a right to count on their benefits.

For more than 30 years pensions have been regulated and guaranteed. It is not surprising that the benefit reductions forced upon them by the regulations of the Pension Benefit Guaranty Corp. came as a shock. But they were warned many times that this would happen and they did not heed or make the changes in pay and work rules that might have allowed UAL to operate its pension plans faithfully….

     Key statement: “The airline employees are victims of a system—we include the government, the managements, the pension consultants and the actuaries—that told them they had a right to count on their benefits.” In other words, investors and corporate executives can become multi-millionaires and retire as aristocrats—but workers simply cannot count on receiving any retirement benefits. That’s not what (plutocratic) capitalism—as defined by Republicans—is supposed to do.

     Here’s another horrible omen for the few American manufacturers who still would like to stay in this country and benefit their communities and loyal workers.

From Forbes, May 23, 2005.

Too Much of a Good Thing?

Highly productive workers are keeping manufacturing jobs in tiny Pella, Iowa. But they're also foiling economic growth….

Productivity at Vermeer, a $500 million (sales) manufacturer of industrial and farm machinery, has risen an average 4% in each of the last seven years, the result of thousands of changes to production methods.

Among them: suggesting how many blueprints an engineer should have on his desk, deciding how far to travel to perform an assembly-line task and reducing the time it takes to hire and orient a new employee from 23 to 7 days. "If you're not doing lean manufacturing," says Zylstra, "someone's gonna put you out of business." He picked up that line working down the road at Pella Corp., the $1 billion (sales) company where over eight years he saw window units roll off the line every 108 seconds; productivity has gained an estimated 2% each year. Such continual, incremental improvements have helped the two largest private employers in Pella keep manufacturing jobs from being exported abroad.

Across Iowa 17 factories shuttered last year, according to Plant Closing News; the state has 28,000 fewer manufacturing positions since 2000. Vermeer and Pella between them offer a combined 5,500 nonunion jobs in a town where 7,500 working-age adults live….

While driving up their efficiency, Pella Corp. and Vermeer have effectively slammed the door on other sizable businesses that have tried to plant a foot. "We've created two great manufacturing companies," says Vollmar. "But I can't find anyone else to come here because they're worried about the tightness of the labor market."…

What you won't find in Pella is a union rep, despite some earnest rounds of knocking on doors by union organizers. The average annual wage growth in Pella puts it 426 out of 573 small towns measured by the Policom Corp., an economic development firm. Vermeer offers free doctor and nurse visits to workers and their families. Both companies foot the tuition bill for its employees to get college and postgraduate degrees….

Efficiency can carry you only so far. In another company town 30 miles to the north a more famous manufacturer put itself through similar cycles of self-improvement. The results at Maytag—300 layoffs in the past 18 months and warnings last month that the flagship laundry machine factory is in deep trouble—have sent town leaders on a desperate scramble to secure a new economic lifeline.

Their answer: a $76 million Nascar racetrack that will be partly subsidized by the state. Iowa legislators are also putting up $100 million in order to attract 300 companies and bring 15,000 jobs to the state….

     Our new corporate morality simply won’t allow entrepreneurs to create decent jobs for American workers. The only way to compete today is to destroy unions—or keep them out—keep wages low and, as a last resort, after all else fails, outsource to another country.

     Any entrepreneur who wants to finance a labor intensive project in this country must cater to the rich and upper-middle-class, like getting the state taxpayers to build a Nascar racetrack—and make a whole new class of rich investors even richer. Simply doing a better job of manufacturing won’t make it.

     If you’re not aware of how horrible Bush’s judicial nominations are, just read a conservative newspaper’s description of some of them. If this doesn’t scare you, you’re not paying attention.

From The Wall Street Journal, May 23, 2005.

Bush Nominees Could Tip Court Balances

WASHINGTON –The Senate fight over President Bush's judicial nominees isn't just about their opinions—it is also about their destinations. The contentious choices would tip the balance in some evenly split appellate courts, or could challenge the prevailing views of other panels on issues such as civil rights or environmental policy.

Janice Rogers Brown, for instance, has made scathing assessments about the reach of the federal government –and she is nominated to the appellate court that handles the majority of appeals of government-agency rulings.

William Myers, who has advocated against environmental groups, is in line to join the appellate court that sorts through land-use battles.

William Pryor, who called a section of the Voting Rights Act "an expensive burden that has far outlived its usefulness" –may be headed for an appellate court with jurisdiction over parts of the old Confederacy.

The White House's pairing of nominees and specific courts helps explain the passion of partisans on both sides in the current battle on the Senate floor….

But California Sen. Dianne Feinstein -- a Democrat who has backed some Bush nominees whom her colleagues didn't -- called opposition to Ms. Brown's nomination "the clearest cut," because of the judge's "enormous hostility toward anything the government would do." The Democrats, who say they have examined each nominee's opinions as well as his or her public remarks, pulled much of their evidence against Ms. Brown from her speeches.

"[We] no longer find slavery abhorrent," Ms. Brown said in one speech. "We embrace it. We demand more. Big government is not just the opiate of the masses. It is ... the drug of choice for multinational corporations and single moms, for regulated industries and rugged Midwestern farmers and militant senior citizens."

In another, she spoke against what she called the "revolution of 1937" when the Supreme Court began upholding New Deal legislation, calling it "the triumph of our socialist revolution."…

The Ninth Circuit Court of Appeals, based in California, is considered one of the nation's most liberal. It covers Alaska, Montana, Nevada, Oregon, Washington, Hawaii, Arizona and Idaho, a terrain rich in natural monuments, parks and conflicts among ranchers, miners and environmentalists.

That is the court that Mr. Myers, a former Interior Department attorney now in private practice, has been nominated to join. Vermont Sen. Patrick Leahy, the ranking Democrat on the Senate Judiciary Committee, opposes Mr. Myers's appointment because of his record on environmental issues.

Mr. Myers has spent much of his career as a lawyer and lobbyist for cattlemen and mining interests. He once compared government land-use regulations with "the tyrannical actions of King George" over the colonies and said in a speech to the Cattlemen's Association that "the biggest disaster now facing ranchers is not nature, but a flood of regulations designed to turn the West into little more than a theme park."

Court balance is also an issue in the nomination of Mr. Pryor to the 11th Circuit Court of Appeals, which covers Alabama, Florida, and Georgia. The court is considered to be nearly evenly divided philosophically. President Bush gave Mr. Pryor a recess appointment that expired last year and then renominated him for a lifetime position.

Abortion and civil-rights groups oppose the confirmation of the former Alabama attorney general, who once called the Roe v. Wade abortion-rights ruling "the worst abomination" in constitutional history. While lauding the importance of the Voting Rights Act, he drew criticism when calling for a repeal of a section of it.

On another front, Mr. Bush's bid to put Henry W. Saad, a Michigan appellate court judge, on the Sixth Circuit revives an old dispute in the Senate. The court—which oversees Michigan, Ohio, Tennessee and Kentucky—is evenly split between Democratic and Republican appointees, and has four vacancies.

The Republican majority declined to advance at least two of President Clinton's nominees to the court, both of whom were backed by Michigan's home-state senators. Democrats responded by filibustering Mr. Bush's first-term nominees, including Mr. Saad.

     Welcome to the dark ages.

Week of May 16

     When The Wall Street Journal reports that deregulation is bad for small customers (most of us), you’d better pay attention. The only thing striking about the following is that anyone should be surprised at the results.

From The Wall Street Journal, May 20, 2005.

Texas Electricity Deregulation Hasn't Aided Small Power Users

A Texas law that largely deregulated the selling of retail electricity and was meant to lower power prices may not be working out so well for small consumers, according to an analysis of electricity prices in the nation's second-most populous state.

The study by Jay Zarnikau, a visiting professor of applied statistics at the University of Texas, finds that former utilities in the state are using a provision of the state's 1999 restructuring law to impose big price increases on residential and small-business customers.

As a result, rates shot up an average of 43% from January 2002 to October 2004, for customers still getting power from their one-time, now-deregulated utilities, versus a 17% jump in prices for customers of utilities still charging traditional cost-based rates. Prices at rural electric cooperatives rose just 9%.

Nationally, states still are debating whether deregulation is the best method for delivering low prices for consumers. The big increases show how difficult it is for states to provide some price stability for small consumers with little bargaining leverage, while still protecting suppliers against rising fuel costs….

Critics say utilities are reaping an undeserved profit. In first-quarter results, TXU said a lower sales volume was "partially offset by $140 million in higher average pricing due to increased price-to-beat rates" that didn't include its most recent price increase, its second biggest ever.

The utilities covered by the deregulation law are allowed two rate adjustments a year and they aren't required to cut rates later if gas prices drop….

      “Hasn’t Aided Small Power Users”? How about, “deregulation has been an unmitigated disasters for small users,” including small business owners who are “small consumers with little bargaining leverage”?

     Oh well, the Journal shouldn’t be blamed for putting the best spin it can on obvious bad news for conservative economists, whose theories simply don’t make sense—unless you’re a rich investor.

     Globalization is beginning to seriously unravel, just as it did after 1929. Finally, countries are beginning to wake up to the fact that globalization’s purpose is to destroy working class wages—to benefit investors and top corporate executives—and it eventually will destroy the economies of countries that have always relied on a vibrant middle class.

     And the economy isn’t the half of it. The U.S. is belatedly realizing that its outsourcing policies have created a China that is using its industrial might to build a stronger military, and to increase its political negotiating power with America’s former trading partners throughout the world.

From The Wall Street Journal, May 16, 2005.

China Rebukes U.S. on Textile Curbs

Beijing Says Restrictions
Set 'Very Bad Precedent,'
Weighs Action Via WTO

The Bush administration's move Friday to blunt surging textile imports from China drew a sharp reaction from Beijing over the weekend, heightening tensions that could spill over into other areas of an already strained economic relationship.

A federal task force said that imports will be curbed in three core categories of Chinese-made apparel, and signaled the so-called safeguards will likely be extended beyond the trousers, knit shirts and underwear subject to Friday's decision. Overall, the value of Chinese imports in the first quarter ran 54% ahead of the same period in 2004.

"The numbers speak for themselves," said U.S. Trade Representative Rob Portman. "Friday's decision was not a particularly difficult one."

In a toughly worded response, China's Ministry of Commerce said the decision may provoke countermeasures. The U.S. restrictions set a "very bad precedent," ministry spokesman Chong Quan said. "The Chinese government reserves the right to take further action within the World Trade Organization framework."

The dispute reverberates through economic and public-policy interests of both countries. Major U.S. retailers have moved en masse to buy clothing from China, but the curbs could slow plans to consolidate sourcing operations and bring lower prices to consumers. Texas and California farmers who sell raw cotton to China also could be hurt if demand for Chinese-made apparel slows sharply.

Meanwhile, China has been counting on the dismantling of a global quota system at the end of 2004 to spur growth in its textile industry, which employs millions of workers and includes many struggling state-owned companies….

     What’s not stated in this article? The lower prices Americans are paying for products come at a much greater cost than their savings: much lower wages.

     It should also be noted that when we give China our textile industry, we are directly contributing to the Chinese government—via their “state-owned companies.”

     The Wall Street Journal inadvertently admits the hypocrisy of those who defend globalization on the basis of benefiting the poor. Their claims of altruistic motives are simply a cover for guilty consciences: ‘the pitch may assuage liberal guilt and make conservatives feel compassionate.”

From The Wall Street Journal, May 16, 2005.

Trade Liberalization
Earns Mixed Marks
As Fighter of Poverty

The newest way to sell trade pacts is to trumpet how much they help poor countries. Thus, a new round of global trade talks is dubbed "the development round." And President Bush promotes a Central American trade deal as a way to bring "good jobs and higher labor standards" to the region.

While the pitch may assuage liberal guilt and make conservatives feel compassionate, trade liberalization has a mixed record as a poverty fighter. China and some Southeast Asian nations have lifted millions out of poverty through jobs created by foreign investment and exports. But Latin America, which has followed the same free-trade model, remains impoverished.

"Trying to sell trade policy as a high-powered way for helping the poor—you can't do it with intellectual honesty," says Gary Hufbauer, an economist at the free-trade Institute for International Economics. Trade aids overall growth, he argues, but the benefits aren't targeted toward lower-income people.

A different policy would help: opening the borders of wealthy nations to more temporary workers. More work visas would equal more wealth for the world's poor. If rich countries allowed in enough temporary workers to increase their overall work force by 3%, that would raise global income by $150 billion annually, with the bulk of the gain going to low-income workers, according to calculations by World Bank economist L. Alan Winters. "Even a relatively small change in labor mobility is worth at least as much as any reduction in quotas and tariffs," he says.

Why? Decades of global trade talks have already slashed trade barriers, so there is less to gain by further liberalization. But bars on migration remain high and are frequently aimed at the poor; easing the restraints would produce big returns.

Migration helps the poor in a number of ways. Even when migrant laborers take dead-end U.S. jobs, they earn far more than they did at home. The North American Free Trade Agreement helped lift average Mexican wages by about 10%, says Gordon Hanson, an economist at the University of California at San Diego. But a Mexican who finds work in the U.S. earns, on average, about 2.5 times as much as he did in Mexico….

A migration surge would also further undermine wages for low-skilled native workers in the U.S. and Europe, who compete for low-end jobs….

The top needed change would be for wealthy countries to better train their own workers for higher-paying jobs, rather than abandon them to fight immigrants for unskilled work. Part of the training's cost could come from taxing new migrants' employers.

     Two observations: First, training our workers for higher-paying jobs simply won’t work, since China, India, etc., are already doing that at one-third to one-fourth of our own costs. The globalization isn’t an issue of skilled vs. unskilled workers—it’s the world’s investors and CEOs vs. the world’s workers, no matter what the skill level.

     Second, the only way globalization helps the poor is to allow them to migrate to countries with higher wages, and that comes at the expense of workers in the developed country. That’s a great deal for investors in the developed country, but a disaster for workers—of any skill level.

      How blind can the American public be to the obvious? Medicare and Medicaid are going bankrupt, and medical expenses are depriving many people of necessary treatments and medications.

      Let’s face it. Republicans and conservative Democrats have totally perverted the concept of the free market. It should mean that ethical persons could dominate the market by providing the best products and services at a the lowest cost.

      To Republicans, a free market is one in which the most ruthless and greediest CEOs are able to artificially drive up prices for the personal financial gain of themselves and their investors.

      Because of the political and economic climate that Republicans have created, Barron’s, our most prestigious conservative financial publication for serious investors, rates the health-care industry as the very best investment area.

      When an entire industry’s ability to rape the American public is guaranteed by Congress—how can it fail to be a great investment?

From Barron’s, May 16, 2005.

Barron's 500

Our measure of corporate performance finds how companies have fared in a tough economy

… Over the years, the track record of the Barron's 500 shows that our dean's list of companies generally shines in good times and bad. The average performance of our top five finishers, for example, has typically beaten the Standard & Poor's 500's return 12, 24 and 36 months out….

The winners were companies that not only saw their stock prices rise significantly but that also generated strong and growing cash flow for a number of years, which helps to generate earnings and dividends in the long term.

As has been the case in previous rankings, the health-care industry is well represented among the 2005 elite, with three managed-care providers and one pharmacy-benefit manager taking the top four spots. The former have benefited mightily as health-insurance-plan premiums have substantially outraced medical-cost increases over the past few years, and the latter from the increasing use of higher-margin generic drugs by Americans. Torrid stock prices helped these firms to finish at the top of the class, too….

Highest honors this year, with a perfect grade of 4.0, went to UnitedHealth Group (ticker: UNH), a national provider of health-benefit services. Our runner-up, Caremark Rx (CMX), with a 3.75, is a Nashville-based pharmacy-benefit manager… Third and fourth place, respectively, went to two more managed-care providers, Coventry Health Care (CVH), and rival WellPoint (WLP)….

Managed-care firms in general have gotten a big boost since 1999 as industry health-care premiums have increased roughly 10%-15% annually, which is faster than the corresponding rise in medical costs, notes Liu-Er Chen, who runs the Evergreen Investments' Health Care Fund. It doesn't own UnitedHealth….

      As you read the following, remember that the incomes of the CEOs are just the tip of the iceberg. Consider their incomes as merely an index of the extent that they have been able to gouge the public in guaranteeing a huge return for their investors.

      In 2003, William W. McGuire, Chairman and CEO of United Health Group Inc. raked in $42,802,127 in total compensation including stock option grants. From previous years' stock option grants, he cashed out $84,176,032 in stock option exercises.

      In 2003, Allen F. Wise, President and CEO of Coventry Health Care Inc., raked in $15,543,401 in total compensation including stock option grants. From previous years' stock option grants, he cashed out $9,965,459 in stock option exercises. He has another $14,783,500 in unexercised stock options from previous years.

      In 2003, Leonard D. Schaeffer, Chairman and CEO of WellPoint Inc., raked in $25,302,808 in total compensation including stock option grants. From previous years' stock option grants, he cashed out $25,166,071 in stock option exercises. He has another $141,182,716 in unexercised stock options from previous years.

      In 2003, Edwin M. Crawford, Chairman and CEO of Caremark Rx, raked in $1,759,763 in total compensation including stock option grants. He has another $170,526,830 in unexercised stock options from previous years.

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

      The public is just now belatedly beginning to wise up to the horrible economy that the Bush Administration has created for most people. The implications for Social Security are obvious.

From Business Week, May 16, 2005.

"I Want My Safety Net"

Why so many Americans aren't buying into Bush's Ownership Society

George Silli, a 66-year-old waiter from suburban Philadelphia, had a brush with President Bush's Ownership Society, and it was an experience he'll not soon forget. Silli's psyche and his wallet still bear the scorch marks of the 2000 market meltdown. He saw the value of his mutual funds drop by 60% and is convinced that opening Social Security to individual investing would produce similar results on a massive scale. ``If people are left to their own devices, we'll become top-heavy with poor people,'' Silli says….

While many members of Safety Net Nation have nothing against investing and choice, they're worried that the country's web of public and private social protections is fraying. They believe in more, not fewer, safeguards against downward mobility in a world that's already pulsing with economic uncertainty. Safety Netters include plenty of card-carrying Republicans and independent swing voters, and the group may represent a broader swath of America than the White House imagines.

A Sept. 2-5, 2004, survey by the Civil Society Institute, a Newton Centre (Mass.) nonprofit group, found 67% of Americans think it's a good idea to guarantee health care for all U.S. citizens, as Canada and Britain do, with just 27% dissenting. Support for a government-directed universal insurance system is strong, despite GOP warnings about socialized medicine….

Safety netters' fear of social unraveling comes amid some disquieting trends. Big swings in family income, according to studies by Yale University political scientist Jacob S. Hacker, have increased markedly over the past two decades as the finances of two-earner households have been stretched thin. Even houses -- most Americans' entrée to the Ownership Society -- are increasingly in hock: In the past 15 years, mortgage and home-equity borrowing has risen from 35.1% of home values to 43.9%….

While federal spending on the safety net for the poor has grown briskly, it hasn't kept pace with society's needs. Medicare is straining to cover seniors' bills, and some states are downsizing Medicaid programs. In 1996, strict time limits were put on welfare dependency, a step that slashed the rolls by half. Meantime, huge holes have been ripped in the private safety net as the cost shift to workers has accelerated….

Among those resisting a Bush move to pare middle-class entitlements are thirtysomethings who feel squeezed between saving for their kids' college education and taking care of retired or soon-to-retire parents. Then there are disillusioned techies who once wanted government to get out of the way and let them get rich by age 30 but who now favor a federal role in shielding them from the excesses of capitalism….

      The people “who now favor a federal role in shielding them from the excesses of capitalism,” should have read our country’s history from the early 1920s to the 1980s. We’re repeating almost exactly the same process: the rich get incredibly rich; the poor and middle-class run out of money to buy even necessities; the world economy tanks; and, we have a depression.

      Only this time, without a liberal Congress, the next depression will have no safety net.

      Speaking of the need for safety nets, check out the depressing item below.

From Fortune, May 16, 2005.

50 and Fired

Getting fired during your peak earning years has always been scary. You’d scramble for a few months, but you’d find something. Today it’s different. Get fired and you can scramble for years—and still find nothing. Welcome to the cold new world of the prematurely, involuntarily retired.

When Zurich Financial let Bob Miller go in February 2003, he wasn’t worried. His résumé was impeccable. He had 20 years of experience under his belt and plenty of references describing him as a high-energy, highly accomplished financial-services marketer. From his home base in Chicago, he’d racked up 100,000-plus frequent-flier miles a year, working a vast network of contacts among insurance agents and financial planners to generate millions of dollars of revenue for financial giants like CNA. Sure, it hurt to be let go. It always did. But he’d been there before—five times, in fact. "And in every situation I ended up in a better place," he says.

Two years later he’s still looking for that better place. Or any place, for that matter….

So Miller, 55, whiles away the days making phone calls, doing a lot of reading, and mulling what the hell happened. He keeps up with fellow members of MENG (Marketing Executives Networking Group), a national organization of 1,300 members who once held top corporate marketing jobs and now, for the most part, don’t. And he sees a lot of people out there like himself, trying desperately to keep up appearances: "You go into upscale suburbs, and what you see is lots of guys with laptops and cellphones, trying to look busy at the Starbucks."

Miller and his peers are members of a flourishing species: the involuntary retiree. When these anxious white-collar exiles aren’t trying to look busy, they’re going to support groups. Or worrying about the bills. Or reading advice columns about the résumé risk of fudging their age or taking a sales job at Home Depot. Or hoping that a recent Supreme Court decision on age discrimination will give them some kind of legal recourse to sue the bastards who fired them….

      The disastrous effects of America’s love affair with conservative economics are working themselves up the social and income ladders. It’s no longer just manufacturing and computer workers who are at risk. Virtually everyone who actually works for a living is at risk.

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

      As you read the following editorial, remember that right-wing crackpots like Colvin appear on PBS’s Wall Street Week.

From Fortune, May 16, 2005.

Our Leading Export?
Nonsense about China

While we're obsessing over girls' knit shirts, we're missing the real issue here.

By Geoffrey Colvin, senior editor at large of FORTUNE

Across Western economies, the 2005 China free-trade freak-out is in full swing. Politicians are saying and doing things they ought to be ashamed of. Certain industry groups and labor unions want us to believe that their own problems are national emergencies….

The proximate cause of so much hooey was the end of global textile and apparel quotas Jan. 1. In a rational world the results wouldn't have surprised anyone….

The productivity of Chinese factories was not exactly a secret, and the deals for importing Chinese textiles under the new regime had been cut months earlier. Nonetheless, the entire Western world seemed astonished when ships actually unloaded the goods….

Though every politician promises to advocate the interests of "the people" over those of "special interests," the latest China bashing is entirely on behalf of special interests, namely the textile and apparel industries and the labor unions representing their workers. Those industries and unions are substantial, and they've suffered a terrible beating by imports in the past few years….

As usual in debates of this kind, no one speaks for the interests of millions of American consumers. If anyone did, think what a case could be made for the end of textile quotas. For example, more than 32 million households (comprising more than 80 million people) get by on an annual income of less than $25,000 each. For them, any savings on one of life's most basic necessities—clothing—is precious. The elimination of quotas is a giant, welcome gift to Americans of every race and sex in every state….

In a global market, how can American workers be worth as much as they cost? We don't hear many public officials proposing answers. If we did, perhaps our towering nonsense surplus would start to come down.

      Colvin’s hypocrisy can best summed up by his statement that: “more than 32 million households (comprising more than 80 million people) get by on an annual income of less than $25,000 each.” Although globalization may reduce the cost of some of the things they can buy, that benefit doesn’t remotely make up for their loss of income that globalization has caused.

     In addition, consider the implications of the question: "how can American workers be worth as much as they cost?" It means that Amerian investors are justified when they totally abandon American workers purely because brutalized workers in other countries cost less.

      If you want to further pursue the issue of globalization vs. true international trade, see Globalization helps no worker, and International free trade; It’s not globalization.

      Finally, Fortune magazine has come up with an intelligent editorial.

From Fortune, May 16, 2005.

You Call This An Energy Policy?

By Cait Murphy

"We haven't had an energy policy in this country," George W. Bush said late last month. He aims to change that with the bill the House passed April 21. Critics deride the legislationas a giveaway to the fossil-fuel industry. They're wrong. It's a giveaway to everyone.

There isn't an interest group left out of this 1,035-page mishmash. For example, why is the federal government helping to finance oil and gas production when energy companies are awash in cash? And when, oh, when, will we stop throwing money at ethanol, which despite 20 years of subsidies has never found a place in the market? Perhaps when pigs fly—one of the few programs that didn't get funded.

      It’s amazing that anything as critical of the Bush Administration as this is—ever made publication.

     Articles like the following should convince the few remaining doubters that the moral standards of corporate America are probably at the lowest level in history.

From The Wall Street Journal, May 18, 2005.

When Pensions Change Hands,
Retirees Can Be Lost in Shuffle

Mergers Shift the Obligation
To Pay, Leaving Oldsters
Baffled if Problems Arise

For 18 years, Charlie Craven, a retired mine supervisor in Tucson, Ariz., received a pension of $348.48 a month.

But in late December, instead of a check, he got a letter saying an audit showed he was receiving the benefit in error.

"You must repay the overpayment of $18,363.44 in one lump sum by January 31, 2005," said the letter from the pension administrator. "If you are unable to make a one time lump sum repayment and wish to set up a repayment plan, your payments are as follows: $1,530.29 per month for (12) months." The letter added: "If you do not comply within the stated timeframe, the plan sponsor may take additional steps," such as reporting the "overpayment" to tax authorities or taking "more formal collection action against you."…

Mr. Craven is one of millions of pensioners whose benefits have been shuffled around in corporate deal-making over the past two decades. And when pensions get lost in the shuffling, retirees can find that the deck is stacked against them. If a company says the pension should be smaller or not paid at all, proving otherwise is up to the recipient—no small burden for an aging retiree who typically has little grasp of either federal benefits law or corporate restructurings.

Retirees often are puzzled to learn their benefits are being paid by a company they never worked for. In fact, obligations to pay retiree benefits frequently are transferred to other companies in mergers and spinoffs, and also handed over to outside administrators. The administrators, in turn, often comb through the plans looking for ineligible beneficiaries or other ways to cut costs….

     Of course, maybe the moral standards of corporate America are as good as they have ever been. It’s just that the combination of a Republican Congress and Republican President has allowed corporations to rape the public at will, without any government oversight or enforcement.

     In their Lessons of History book, Will and Auriel Durant explain how bankers always rise to the top of the economic pyramid in any society. As the following excerpt demonstrates—the Durants’ analysis remains true.

From The Wall Street Journal, May 18, 2005.

As Their Riches Grow,
Hedge-Fund Experts
Put Art in the Deal

…Hedge-fund managers are reinventing the art of the art deal. With their sudden riches, quest for status and big houses in need of adornment, fund managers have become some of the most active buyers and sellers in the art world.

They have been buying up hundreds of millions of dollars of paintings, sculptures and pop-art installations. They have helped turn middling artists into media stars. They compete fiercely against one another for what they call "wall power"—trophy art in the lobbies of their Greenwich, Conn., offices and the living rooms of their Hamptons estates. They've helped drive up prices to record highs, especially for trendy, contemporary works. At last week's auctions in New York, they shelled out several million dollars….….

     We’re living in the age of bankers and investors, and at the direct expense of workers. Those engaged in the markets and finance now can splurge money with abandon—while working-class Americans are finding it harder to pay the rent and afford decent health care.

     And it’s all the result of a America’s conservative turn to the far right.

     If you want an example of the dangers of relying on the free market to solve the world’s problems—to the exclusion of reasonable governmental controls—read the following.

From The Wall Street Journal, May 18, 2005.

Demand, Cost for Avian-Flu Drug
Could Leave Neediest With Least

Amid growing fears that an outbreak of avian flu could spark the next flu pandemic, wealth has become more of a factor than need in determining who will get an essential drug.

Richer countries facing little immediate avian-flu danger have moved in recent months to stockpile large amounts of the drug, called Tamiflu. The poorer Asian nations at the epicenter of the threat—the key staging area for fighting the current outbreak and possibly forestalling the pandemic—have only small-scale donations of the drug at present and scant resources for ordering large amounts….

Think of it! It’s the poorer nations that are the center of the threat of a pandemic, yet the free market has decided that the developed nations will have most of the essential drugs to fight it. And that’s not even good for the citizens of the developed nations.

     The news gets worse every day. As you read the following, note that China is the country that we are now outsourcing most of our industry to.

From The Wall Street Journal, May 18, 2005.

For U.S., Engaging China
Is Delicate Dance

Mindful of Congress, yet Needing
Beijing on North Korea Problem,
White House Picks Fights Carefully

As anti-China sentiment rises in Washington, the Bush administration is caught in a complex balancing act: bashing Beijing enough to appease critics in Congress and stir action—without provoking a trans-Pacific backlash.

The U.S. is exerting pressure on economic issues and criticizing China's human-rights policy and belligerence toward Taiwan, just as it is begging Chinese leaders for more help in curbing nuclear weapons in North Korea and hoping China won't cozy up to anti-American governments in places such as Venezuela.

v"If we push too hard, this could cool China's ardor for helping us" on a number of issues, says David M. Lampton, director of China studies at the Nixon Center in Washington. Mr. Lampton says China also could potentially retaliate, for example, by shifting investments from U.S. dollar-denominated assets.

Complicating the White House calculus is soaring hostility on Capitol Hill, which some administration officials call "off the charts." Congress has largely deferred to President Bush's foreign-policy priorities, especially since Sept. 11, 2001, but China policy is one area where legislators are demanding a change of course, particularly on trade….

     So, the Congressional anger is now "off the charts." Nice, but far too late. Where was their anger when this outsourcing insanity began?

     The downside of globalization is no longer just economic. Now, it has political, and possibly even military threats to our long-term interests.

     Those who regularly follow the conservative financial press know that our present “great” economy is due to the continued buying of the American consumer. Now, it becoming obvious that this economy is dangerously weak, and many (most?) Americans are in serious debt.

From The Wall Street Journal, May 17, 2005.

Lagging Behind the Wealthy,
Many Use Debt to Catch Up

U.S. Borrowing Hits Record;
Soul-Searching in Utah
As Bankruptcies Surge
'Monster' or Sign of Progress?

…More and more Americans are turning to debt to pay for lifestyles their current incomes can't support. They are determined to live better than their parents, seduced by TV shows like "The O.C." and "Desperate Housewives," which take upper-class life for granted, and bombarded with advertisements for expensive automobiles and big-screen TVs.

Financial firms have turned credit for the masses into a huge business, aided by better technology for analyzing credit risks. For Americans who aren't getting a big boost from workplace raises, easy credit offers a way to get ahead, at least for the moment….

Since 1990, income for the median American household has risen only 11% after adjusting for inflation, while median household spending has jumped at 30%, according to an analysis by How could the typical family afford to spend so much? Median household debt outstanding leaped by 80%.

Utah vividly illustrates the changes credit has wrought in the U.S. Last year, 28 of every 1,000 Utah households filed for bankruptcy, twice the national average and nearly triple Utah's rate a decade earlier, according to, a West Chester, Pa., consulting firm. Utahns often get married early and have the largest families in the nation on average. That makes for a lot of young parents with modest incomes looking for big homes and cars….

Americans spent half the money from refinancing their homes in 2001 and early 2002 to pay for home improvements, cars, vacations and other consumer expenses, the Federal Reserve reports. Many other consumers relied on credit cards. U.S. households with at least one credit card owed $9,205 in 2003, a 23% increase from five years earlier after adjusting for inflation, says Inc., which tracks the industry….

Economists Fabrizio Perri of New York University and Dirk Krueger of Goethe University in Frankfurt, Germany, trace the credit surge to the widening income gap between the rich and the rest of U.S. society. The gap between the incomes of those at the top and the bottom widened substantially between 1970 and 2000, but the gap in consumption widened much less as moderate-income Americans turned increasingly to debt. Cornell University economist Robert Frank sees house sizes, which have grown 30% since 1980, as an indication that middle-income Americans are battling to keep pace with the wealthy homeowners who build king-size McMansions….

Economists disagree whether this relatively benign situation can continue. Interest rates are rising—although long-term rates remain low—and wage growth is sluggish. One danger: Housing prices could stall or decline, upending calculations such as Ms. Danese's in Miami….

     Key phrase: “wage growth is sluggish.” And with Republicans in control of Congress and the presidency, that’s not likely to change.

     Here’s just one more in the series of articles describing the disaster that the economic conservatives of the world are in the process of creating.

From The Wall Street Journal, May 17, 2005.

Chinese Juggernaut
Hits Europe Head On

FRANKFURT – To help understand Europe's broadening economic troubles, look to soaring Chinese exports—and not just in textiles.

Last year's European economic recovery has given way to a slowdown amid deteriorating business sentiment, falling industrial output in much of the Continent and a deepening recession in Italy. While high oil prices bear part of the blame, the combination of the high euro and a supercompetitive China even in Europe's higher-skilled industries means the euro zone is hurting more than other industrialized economies.

"There is a really alarming surge here," says Julian Callow, chief European economist at Barclays Capital in London. "It's not just the growing competition with China in export markets; it's more the Chinese import penetration of Europe which is making life tougher for many companies which haven't been exposed to global competition before."

The European Union's trade deficit with China has more than doubled from 2002 to 2004, while the U.S.'s deficit with China has grown by a little over half. America's deficit with China, at $155 billion last year, is still bigger than the EU's $86 billion deficit, but Europe is catching up….

The Chinese import surge goes far beyond textiles and consumer electronics, encompassing furniture, toys, chemicals and automotive parts. Chinese trade statistics even show the country making big inroads in machine tools—usually thought of as an industry where Europe, especially world-leader Germany, is well-placed to win from expanded trade….

"If you had to rank the countries you would think were most exposed to Chinese competition, the order would be Italy, France, Germany," says Mr. Callow of Barclays Capital. "And that's precisely the order in which industrial output and the GDP outlook are worsening."

     So, those “most exposed to Chinese competition, the order would be Italy, France, Germany.” What about the U.S.?

     If you think this sounds like 1929 all over again, you’re right.

     Whether Republican or Democrat, the basis for your position on immigration is whether or not it’s your ox that is being gored.

From The Wall Street Journal, May 17, 2005.

Immigration Emerges as Republican Divider

McCain's Bill on Border Security,
Undocumented Workers Risks
Alienating Key Voting Blocs

While Washington displays partisan divisions over judges and John Bolton, Congress turns this week to immigration, a topic that could split President Bush's governing coalition from within.

Because its implications for the nation's economy, security and its social fabric pit Republican constituencies against one another, the issue could imperil the party more than anything Democrats could do on their own….

Democrats face potentially dangerous internal splits as well. Their dominant bloc of affluent, well-educated liberals embraces immigration as part of cultural diversity. "We are a nation of immigrants, and we always will be," Mr. Kennedy said in offering the bill with Mr. McCain.

But some Democrats, including many African-Americans who look askance at the swelling economic and political clout of Hispanics, view rising immigration negatively. In the Pew survey, 53% of those dubbed "Disadvantaged Democrats" call increasing immigration a threat to "traditional American customs and values."…

     Key words: “affluent, well-educated,” and “poor.” If you’re rich and benefit from the lower wages caused by immigration—you are for it. If you’re poor, and see your wages stagnate or go down because of immigration—you’re against it.

     That is, unless you care about the future of our country, whether Republican or Democrat, rich or poor—then you are against immigration that is deliberately encouraged just so that working-class wages will stagnate.

Week of May 9

      The following two articles belong together. The first describes what people with IQs over 80 already know: the rich always continue to be rich, or richer, while the poor continue to be poor—and even poorer. By the way, this is just a brief excerpt of a very long and well documented article, and those seriously interested in the subject should read the original.

      The second article describes one of the many ways Republicans and conservative Democrat politicians make sure that trend continues. The rich and powerful always seem able to make sure that they and their children remain rich and powerful, even (or, especially) at the expense of the poor and powerless—and at the expense of the children of the poor and powerless.

From The Wall Street Journal, May 13, 2005.

Escalator Ride

As Rich-Poor Gap
Widens in the U.S.,
Class Mobility Stalls

Those in Bottom Rung Enjoy
Better Odds in Europe;
How Parents Confer an Edge…

The notion that the U.S is a special place where any child can grow up to be president, a meritocracy where smarts and ambition matter more than parenthood and class, dates to Benjamin Franklin. The 15th child of a candle-and-soap maker, Franklin started out as a penniless printer's apprentice and rose to wealth so great that he retired to a life of politics and diplomacy at age 42.

The promise that a child born in poverty isn't trapped there remains a staple of America's self-portrait. President Bush, though a riches-to-riches story himself, revels in the humble origins of some in his cabinet….

But the reality of mobility in America is more complicated than the myth. As the gap between rich and poor has widened since 1970, the odds that a child born in poverty will climb to wealth—or a rich child will fall into the middle class—remain stuck. Despite the spread of affirmative action, the expansion of community colleges and the other social change designed to give people of all classes a shot at success, Americans are no more or less likely to rise above, or fall below, their parents' economic class than they were 35 years ago.

Although Americans still think of their land as a place of exceptional opportunity—in contrast to class-bound Europe—the evidence suggests otherwise. And scholars have, over the past decade, come to see America as a less mobile society than they once believed….

A substantial body of research finds that at least 45% of parents' advantage in income is passed along to their children, and perhaps as much as 60%. With the higher estimate, it's not only how much money your parents have that matters—even your great-great grandfather's wealth might give you a noticeable edge today.

Many Americans believe their country remains a land of unbounded opportunity. That perception explains why Americans, much more than Europeans, have tolerated the widening inequality in recent years. It is OK to have ever-greater differences between rich and poor, they seem to believe, as long as their children have a good chance of grasping the brass ring.

This continuing belief shapes American politics and economic policy. Technology, globalization and unfettered markets tend to erode wages at the bottom and lift wages at the top. But Americans have elected politicians who oppose using the muscle of government to restrain the forces of widening inequality. These politicians argue that lifting the minimum wage or requiring employers to offer health insurance would do unacceptably large damage to economic growth.

Despite the widespread belief that the U.S. remains a more mobile society than Europe, economists and sociologists say that in recent decades the typical child starting out in poverty in continental Europe (or in Canada) has had a better chance at prosperity.

Miles Corak, an economist for Canada's national statistical agency who edited a recent Cambridge University Press book on mobility in Europe and North America, tweaked dozens of studies of the U.S., Canada and European countries to make them comparable. "The U.S. and Britain appear to stand out as the least mobile societies among the rich countries studied," he finds. France and Germany are somewhat more mobile than the U.S.; Canada and the Nordic countries are much more so….

Bhashkar Mazumder, a Federal Reserve Bank of Chicago economist, recently combined the government survey with Social Security records for thousands of men born between 1963 and 1968 to see what they were earning when they reached their late 20s or 30s. Only 14% of the men born to fathers on the bottom 10% of the wage ladder made it to the top 30%. Only 17% of the men born to fathers on the top 10% fell to the bottom 30%….

Why aren't the escalators working better? Figuring out how parents pass along economic status, apart from the obvious but limited factor of financial bequests, is tough. But education appears to play an important role. In contrast to the 1970s, a college diploma is increasingly valuable in today's job market. The tendency of college grads to marry other college grads and send their children to better elementary and high schools and on to college gives their children a lasting edge….

The tendency of well-off parents to have healthier children, or children more likely to get treated for health problems, may also play a role. "There is very powerful evidence that low-income kids suffer from more health problems, and childhood health does predict adult health and adult health does predict performance," observes Christopher Jencks, a noted Harvard sociologist….


From The Wall Street Journal, May 9, 2005.

Jobs Data Bolster Greenspan's View

Score one for Alan Greenspan over the bond market.

Last month was dominated by two conflicting worries about the U.S. economy. The bond market was concerned that the economy had hit another soft patch. That drove long-term bond yields lower. The second worry was that inflation pressures were slowly building….

On inflation, Fed officials were a little less ambiguous. "Pressures on inflation have picked up in recent months," they said. And that is now where economists, and bond investors, will be turning their attention.

As job growth picks up, and workers get more leverage in their negotiations over pay and benefits, there is a chance labor costs will build. That, in turn, would give employers added incentive to push prices higher to protect their profit margins.

There are hints this is starting to happen, though still to a mild degree. Unit labor costs—a measure of the cost of workers attached to each widget a company produces—rose 2.5% in the first quarter from a year earlier. That is modest by historical standards. And other measures of compensation are tame. Still, it was the largest 12-month increase in unit labor costs in about four years….

      For those of you who don’t get the connection between these two articles, check out the file: The Class Warfarer’s scapegoat: “Wage Inflation”. It briefly describes how the Fed deliberately manipulates the prime interest rate to keep working-class wages from going up—no matter how profitable corporations are, or how high the stock market is rising.

     Two articles in Business Week give a brief description of how globalization is destroying working-class wages—and American corporations who thought they could compete with other nations' corporations who had no standards in the treatment of workers.

     Of course, GM’s biggest problem is that, instead of fighting and preventing globalization in Congress, it gave in, too late, and joined in the mass abandonment of its own country.

From Business Week, May 9, 2005.

GM And VW: How Not To Succeed In China

The two giants are losing sales to rivals offering cheaper cars with features Chinese buyers love

… all the flash in the world can't hide the challenges the two companies face in China. Both came early to the mainland—GM formed its Shanghai joint venture in 1997, while VW arrived 21 years ago—and quickly dominated the market. But now they're getting trounced by new entrants offering smaller, cheaper cars. Led by the success of its Elantra compact, starting at $13,600, Hyundai Motor Co.'s unit sales in China soared by 156% in the first quarter over the same period last year according to market researcher CSM Worldwide. Guangzhou Honda Motor Co. sold 76% more cars as buyers snapped up its $10,360 Fit….

The reason for the shift is simple. Just a few years ago most auto sales were to state-owned companies that didn't worry much about price. Today most buyers are individuals who want the best deal for their money. And rumors that Beijing is mulling a tax on vehicles with big engines are only accelerating the trend. "Now the common people are buying cars," says Yale Zhang, head of the Shanghai office of CSM. "They want affordable, small [vehicles], of good quality and with a good brand."…

Both GM and VW have outlined ambitious cost-cutting programs in China and are urging more suppliers to start producing in the mainland as well. Competition, though, is sure to increase as ambitious newcomers keep chipping away at the early leaders. China used to be an easy game. Not anymore.


Why GM's Plan Won't Work

...and the ugly road ahead

…Companies with bloated factories and workforces got religion the hard way 20 years ago, in the days of "Neutron Jack" Welch. And with today's more active boards, CEOs who consistently lose ground to the competition usually don't need Donald Trump to tell them they're fired.

But GM, of course, is no ordinary company. With sales of $193 billion, it stands as an icon of fading American industrial might. Size and symbolism dictate that its fate has sweeping implications. After all, GM's payroll pumps $8.7 billion a year into its assembly workers' pockets. Directly or indirectly, it supports nearly 900,000 jobs—everyone from auto-parts workers to advertising writers, car salespeople, and office-supply vendors. When GM shut down for 54 days during a 1998 labor action, it knocked a full percentage point off the U.S. economic growth rate that quarter. So what's bad for General Motors is still, undeniably, bad for America.

And make no mistake, GM is in a horrible bind. That $1.1 billion loss in the first quarter doesn't begin to tell the whole story. The carmaker is saddled with a $1,600-per-vehicle handicap in so-called legacy costs, mostly retiree health and pension benefits….

How bad could it get? BusinessWeek's analysis is that within five years GM must become a much smaller company, with fewer brands, fewer models, and reduced legacy costs….

GM is at the mercy of global forces. It simply cannot compete in a global economy with the enormous burden it now carries in legacy costs….

And things will only get tougher if competitors like DaimlerChrysler (DCX ) follow through on talk of importing cheap, small cars from China….

The union's opposition could soften if GM's fortunes slip dramatically in the next year. But the UAW has almost never agreed to a huge giveback in the middle of a contract. (It did so in 1980, when the federal government demanded concessions as part of its Chrysler bailout, and again for Ford and GM in 1981, when spiking gas prices and a recession slammed sales.)…

Labor experts believe Wagoner is raising a hue and cry now to position the company for bigger concessions when contract talks open. "If you want to get the union to cut medical benefits in September, 2007, you don't start in August. You start now," says Harley Shaiken, a labor professor at the University of California at Berkeley. But if the sales picture deteriorates over the next year, GM probably will have little choice but to force a confrontation sooner and radically reshape its cost structure….

     Key statement: “Companies with bloated factories and workforces got religion the hard way 20 years ago, in the days of "Neutron Jack" Welch.” “Bloated factories and workforces” means that working-class Americans could have decent wages and working conditions, and improving standards of living. The new “religion” is actually a belief in aristocracy—a system in which the elite live like royalty, and those in the middle and bottom struggle to simply survive.

     Business Week’s hero, Jack Welch, is one of the world’s new barbarians. The barbarians of old rode horses and used spears, bows and arrows to rape and pillage. The new barbarians, like Welch and Chainsaw Al Dunlap, live in air-conditioned offices. They pressure Republican and conservative Democrat Congresspersons to pass legislation that allows them to destroy workers’ ability to negotiate for higher wages and better working conditions.

     Of course, their greatest achievement was to get the U.S. to adopt a globalization policy that, in effect, expanded our country’s labor supply to include the most impoverished and brutalized workers in the rest of the world.

     Of course, it’ll eventually backfire, just as it has for GM. Eventually Third World countries will learn all our secrets of production, and, with engineers and scientists who make one-third as much as Americans—and workers who make one-tenth as much—they will eventually take over almost all the world’s production.

     If you want to pursue further the issue of globalization vs. true international trade, see Globalization helps no worker, and International free trade; It’s not globalization.

     Here’s just one more example of the disaster of globalization. Of course, repeating more examples of how our textile industry has been destroyed hardly seems necessary any more.

From Business Week, May 9, 2005.

There's No Holding Back China's Textile Tide

On both sides of the Atlantic, the rhetoric about trade with China is intensifying. In Washington, U.S. Trade Representative nominee Rob Portman promised Congress on Apr. 21 he will take "a tougher approach" with Beijing than his predecessors. European Union Trade Commissioner Peter Mandelson declared on Apr. 24 that Europe is facing "a ruinous surge" of Chinese imports. French President Jacques Chirac called on Apr. 26 for more regulation of trade with China.

The immediate issue: Booming Chinese sales of items such as underwear, trousers, blouses, and shirts in both markets. Since quotas on clothing and textiles were removed worldwide on Jan. 1 after a 10-year phase-out, Chinese textile and apparel exports to the U.S. increased 62.5% overall in the first quarter of 2005, vs. the first quarter of 2004, and in some some categories by 1,500% in a single month.

China now controls 17% of the U.S. clothing market, up from 12% in December. The EU says imports of Chinese textiles in the first quarter rose anywhere from 51% to 534%, depending on the item. The result is an outcry from U.S. and European manufacturers and a rush to reimpose quotas on Chinese textiles and clothing within months. France has asked for emergency curbs sooner.

The irony is that even if new quotas are imposed, they are unlikely to provide relief for the U.S. and European industries. According to rules that China agreed to when it joined the World Trade Organization in 2001, such "safeguard" measures can last only until the beginning of 2008. China would still be allowed to increase its textile exports to the U.S. and Europe during that period by 7.5% a year. Moreover, says Kenneth Chan, spokesman for the Federation of Hong Kong Garment Manufacturers, mainland makers could revert to their practice of skirting quotas by having third countries ship Chinese goods….

Wal-Mart Stores Inc., which buys an estimated $350 million in clothing from India every year, is expected to double its purchases in two years, Indian experts say. "Slapping quotas on China won't make the U.S. [clothing] industry more competitive," says Erik O. Autor, a trade lawyer with the National Retail Federation in Washington. No matter. The outcry over job losses in the U.S. and Europe makes action against China inevitable, however futile a gesture it proves.

     The most pathetic statement above: “The outcry over job losses in the U.S. and Europe makes action against China inevitable, however futile a gesture it proves.”

     And the obvious question, given what’s happening throughout our entire economy: Is it futile to care anymore? By selling-out our middle- and low-income workers, and outsourcing so much of our productive capacity, have we become a third-rate country—and is it too late to turn around?

     How anyone can read articles like the one below and still vote Republican is truly a mystery.

     Of course, if you’re a wealthy investor or business owner—and you don’t give a damn about what’s happening to our country—it makes sense.

From Business Week, May 9, 2005.

Bush's Reluctant Business Allies

Corporate lobbyists are being told to back the Social Security crusade—or else >/h4>

Last Jan. 31, just days before George W. Bush's State of the Union address, 60 top corporate lobbyists trudged through Washington's frozen streets to the headquarters of the Business Roundtable for an Administration briefing on second-term priorities. At the head of a long conference table sat Special Assistant to the President Mike Meece, flanked by officials from the departments of State, Treasury, Labor, Health & Human Services, and Commerce, as well as from the U.S. Trade Representative's Office.

But instead of a friendly give-and-take about legislation of mutual interest, the capital's lobbying elite got a one-topic lecture on the White House's overarching priority: Social Security reform. "What about the energy bill? Is it going to pass?" one impatient oil industry rep interjected, according to a source who was there. "Depends on whether the energy bill helps get Social Security," came a wisecrack from the back of the room….

Weeks later an additional must-get was added to the lobbyists' assignment: congressional passage of the Central America Free Trade Agreement (CAFTA), another in a string of tiny trade pacts that the Administration has used largely to reward friendly allies in the war on terrorism. "We've been told by the White House that we have to put up a full-court press on CAFTA or else they won't do anything for us," says the head of one large trade association. "This is one of the more coercive and controlling Administrations ever."…

On Feb. 24 business lobbyists were called to the White House and given their final marching orders by White House Deputy Chief of Staff Karl Rove. A business umbrella organization made up of trade associations, the Coalition for the Modernization & Protection of America's Social Security (coMPASS), would raise $20 million for a campaign on behalf of personal Social Security accounts….

One lobbyist representing a high-tech company says he has studiously avoided being drawn into the Social Security battle. "At the end of the year," he says, "my boss is not going to judge my performance based on whether the Social Security bill passes." Maybe so, but as the White House has made clear, business will be judged on how well it delivers the vote. And Rove & Co. are definitely taking names.

     Think of it! Much of the paid propaganda for privatizing Social Security you will be exposed to in coming months will be the result of intimidation by the Bush Administration.

     Is this any way to run a country? Even for Republicans?

     As you read the following, remember that this is the industry that Republicans want to be in charge of some of our Social Security trust fund.

From Business Week, May 9, 2005.

Fee-Based Accounts: A Poor Fit For Investors?

Regulators are looking into how firms steer clients into accounts that offer free trading but charge 1% to 2% of assets

Attorney Lawrence L. Klayman makes his living representing investors in arbitrations against their brokers. Over the past couple of years, he has won settlements in more than 400 cases in which brokers put their customers into accounts that carry an annual fee based on a percentage of assets instead of trading commissions.

Many were Microsoft Corp. employees who were urged to exercise options and hold their stock in such accounts. Most didn't make many trades and paid far more than they would have in a traditional account. "These fee-based accounts have been a gold mine for the plaintiffs' bar," says the Boca Raton (Fla.)-based Klayman.

They've been a gold mine for brokerages, too. Since 1999, firms from Merrill Lynch & Co. and UBS to Raymond James & Associates Inc. have promoted the accounts, which offer free stock trading but charge usually between 1% and 1.5% of assets. Plenty of customers have switched. At the end of last year investors had almost $270 billion in fee-based brokerage accounts, up 61% from the end of 2002, according to Boston research firm Cerulli Associates Inc. That makes it one of the fastest growing segments of the $6 trillion full- service brokerage industry….

Regulators have also found cases of double-dipping, in which brokers sell mutual funds that carry steep commission-like sales charges to clients with fee-based accounts. Also, some customers are misled by marketing materials into believing that they'll get investment management or financial planning with these accounts, though those services cost extra. Says the NASD's Glauber: "It's absolutely important that an investor is well informed of the advantages and disadvantages of a fee-based account."…

While regulators study the issue, fee-based accounts may keep both brokers and lawyers digging for gold.

     Note that some of the securities corporations mentioned above are among our most prestigious, and that their actions are typical of the industry. And they obviously have horrible ethical and moral standards. Think of the kinds of things they’ll lobby our Republican Congress to do to enrich themselves, and no matter what the ultimate effects on Social Security retirees will be.

      What a sweet deal for rich, white Republicans and conservative Democrats. They want to raise the retirement age for Social Security to 70. That means that poor black men who only live to 67 will be cut out entirely, and those whose bodies wear out before they are 60 will just have to starve for an extra ten years.

      Of course, the whole point is to make sure the government has enough money to pay the retired rich white guy enough for his golf green fees until he’s 95.

From The Wall Street Journal, May 13, 2005.

Republicans Test Case
For Raising Retirement Age

House and Senate Republicans are weighing whether to raise the age at which Americans qualify for full Social Security benefits as part of a package to shore up the popular program's finances.

"It is clear that some adjustment there should be looked at," said Rep. Bill Thomas, chairman of the House Ways and Means Committee, at a hearing aimed at writing Social Security legislation by midsummer. But the California Republican noted a change could pose both social problems—for workers eager to retire from physically taxing jobs—and political problems for lawmakers who vote for such a potentially unpopular step….

Under a 1983 law, the age of eligibility for full benefits slowly is being raised for workers born after 1938, to 67 years old by 2027 from 65 originally. Given Americans' increasing life spans, many of those advocating a Social Security overhaul support moving up that scheduled increase and even raising the eligibility age to 70….

Mr. Thomas raised the issue at yesterday's hearing to solicit opinions from eight witnesses representing a range of views on Social Security. But he quickly anticipated the sort of objections that organized labor and minority groups typically voice against increasing the full-benefits age, by recalling that his own father—a farmer and a plumber—was "was pretty used up by the time he was 65."…

      Just think! The only reason the Republicans are reluctant to endorse this scurrilous plan is because of the “political problems for lawmakers who vote for such a potentially unpopular step.” Morality never enters into the thinking of Republican Congresspersons.

      For a more extensive analysis of the Social Security debate, check out the files Who bears risk for Social Security reform? and Why Social Security is No Crisis (and the "crisis" is just a ploy by those who want to destroy it).

Week of May 2

     If the stock market goes up 20% on an annual basis—or if the value of real estate goes up 10%—that’s just capitalism working as it should and is considered good news. But conservatives have a conniption fit if working-class wages go up just 2.2% on an annual basis. And the headlines in publications like the WSJ scream “inflationary pressure.”

From The Wall Street Journal, May 6, 2005.

Labor Costs Rise at 2.2% Rate,
Creating Inflationary Pressure

Pickup Marks Turnaround
From 2002, 2003 Restraint;
Grounds for More Tightening

Labor costs are creeping up modestly for U.S. companies, providing a source of some inflationary pressure.

The Labor Department reported that unit labor costs—a measure of the labor cost attached to each widget a company produces—rose at a 2.2% annual rate for nonfarm businesses in the first quarter, a pickup from the 0.4% increase registered in all of 2004. The increase was driven in part by higher compensation costs. While wage growth remains restrained for many workers, high benefit payments are also a source of compensation increases.

The government also reported that the productivity of workers—measured as output per hour worked—grew at a 2.6% rate in the first quarter. That marked a pickup in productivity growth from the two previous quarters, though the pace is no longer at the lofty rates that prevailed shortly after the recovery took hold, when companies were cutting costs aggressively to boost the bottom line….

The growth in unit labor costs marks a turnaround from 2002 and 2003, when companies were able to squeeze labor costs by restraining wages and hiring even as they increased the output of existing workers.

Labor costs are an important component of inflation and one in which Federal Reserve officials take great interest. As labor costs rise, executives have an incentive to push prices higher to protect profit margins. Because wages remain restrained and other measures of compensation are tame, it isn't clear that labor costs will move much higher. But economists said the latest report gives the Fed, which raised its key short-term rate to 3% Tuesday, more reason to keep nudging rates higher….

     For a more extensive discussion about how conservatives deliberately keep working-class wages from going up, see: The Class Warfarer’s scapegoat: “Wage Inflation”.

     This would be funny if it were not so pathetic and disgusting. The greed and materialism of America’s wealthiest are truly of historic significance.

From The Wall Street Journal, May 6, 2005.

Some Visiting CEOs Get Paid
To Stay in Residences They Own

Forget the standard corporate apartment, available to many out-of-town employees. Today, the smart executive traveling frequently between two locales owns or personally rents his out-of-town digs—and gets paid for staying there.

Employers are reimbursing executives for staying in their own second homes at a time when many have deemed company-owned residences too expensive to maintain….

Employers say second-home allowances make sense because they save hotel costs. Critics take a contrary view. "It's ridiculous to pay [executives] to stay in their own beds," says Ann Yerger, executive director of the Council of Institutional Investors, a Washington group representing more than 140 pension funds with over $3 trillion in assets. "How many perks do they need?"

Since January 2002, Time Warner Inc. has given Chief Executive Richard D. Parsons $4,000 a month plus utilities and maintenance costs for the Los Angeles apartment that he rented for business trips. He has pocketed nearly $175,000 so far, collecting the money no matter how rarely he occupies his unit….

     These are the same jerks who claim that workers are overpaid, and who actively support the Republicans who want to cut Social Security benefits to underpaid workers who will retire with few financial resources.

     As you read the following, keep in mind that this is the country that American corporations have given our industries to, and that is becoming the world’s center for manufacturing and technological development.

     And the advocates of globalization have had the gall to claim that one of its goals was to improve the living standards of the world’s poor and powerless.

From The Wall Street Journal, May 3, 2005.

China's Uncivil Society

Another spring, another wave of demonstrations in China….

Indeed, rising levels of social unrest are a hallmark of today's China. Recently, for example, thousands of people rioted in Huaxi village in Zhejiang province to protest against life-threatening levels of pollution from nearby chemical factories. There were no negotiations between villagers, local government and factory owners. Instead, a head-on collision ensued between the villagers and large squads of anti-riot police, exacerbating the situation still further.

Why are such social conflicts proliferating? Because genuine grass-roots representation does not exist in China. Ordinary citizens have no organizations to fight for their rights when their basic interests are under threat, and they are too afraid to negotiate their cases directly with those in power.

A year ago, thousands of workers staged rowdy protests at the Taiwanese-owned Stella shoe factories in Guangdong, in protest against excessive working hours, low pay and poor food. In a several-hour outburst of collective anger, they smashed factory equipment and canteen facilities and overturned cars. They did so because they had no elected trade union to represent them, and so the company had felt under no pressure to negotiate or improve conditions.

In common with most protest incidents in China nowadays, the Stella workers were protesting to defend their own immediate interests and because they and their families are hurting economically—not for the more abstract ideals that were the focus of the 1989 pro-democracy demonstrations. In this sense, the current unrest is much more systemically rooted than that of 15 years ago.

Unless the government begins to allow ordinary Chinese people to have an organized and independent voice of their own in society, such protests are bound to become ever more frequent and dangerous.

Last November, one of China's worst mining disasters also triggered violent demonstrations. Several hundred bereaved family members stormed the offices of the mine and the local government after 166 miners were killed in a gas explosion in Chenjiashan coal mine in Shaanxi province….

The numbers of the excluded and downtrodden in society are multiplying. Across China, peasants are having their land forcefully requisitioned by rural cadres to build economic development zones; many workers suffer from avoidable workplace injuries and occupational diseases; state-owned enterprises, foreign firms and private companies owe their employees huge amounts of back-pay in violation of the Labor Law of the People's Republic of China. All these are conflicts that could easily give rise to major public confrontation….

China is currently a social time bomb, slowly ticking. No one knows when some random incident or crisis might inadvertently serve to trigger the explosion. But once it happens, all thought of "building a harmonious and stable society"—the Communist government's latest slogan—will be too late. China needs civil society urgently.

Workers, peasants, and all other ordinary Chinese need their own representative organizations to defend and look after their basic rights and interests. Only the emergence of a genuine, functioning civil society in China can suffice to avert the looming crisis.

     It’s painfully obvious. The conditions described above were never intended to be improved by globalization. In fact, the opposite is true. China has become the new center for productivity growth precisely because these conditions existed there, and are likely to continue—at least, until there is a revolution, and American investors (the last ones to get out—not the first ones who became millionaires) will lose their shirts.

     The insanity continues. Unbelievable! How can anyone honestly claim that the present form of globalization (which is not the same as true international trade based on real economic efficiencies) is good for our country’s long-term welfare? The news gets worse every day.

From Business Week, May 2, 2005.

No Longer The Lab Of The World

U.S. chemical plants are closing in droves as production heads abroad

In 1958, Hampshire Chemical Corp. opened a plant in Nashua, N.H. Over the next 46 years, the 41-acre complex alchemized hydrocarbon molecules into millions of tons of surfactants, the stuff that gives shampoo its cleansing power.

Last fall, though, the facility's long run ended. Dow Chemical Co., which acquired the property in 1997, shut it down. For Dow, it was another has-been operation. But for the nation, it's more than that. Chemical production itself is becoming a has-been industry.

Only a decade ago the U.S. was the world's top spot for making chemicals. Not only was it the largest market but it also had facilities that boasted the latest technology and the best knowhow.

Most important, U.S. plants had a natural advantage, thanks to an abundant supply of cheap natural gas, a building block for plastics, fertilizers, and even pharmaceuticals.

Today, none of that is true. Bigger, faster-growing markets are overseas. New facilities in the developing world are often as sophisticated and productive as those in America, if not more so. And in a crippling reversal, U.S. natural gas prices are the highest in the world. For the U.S., the likely results are less investment, fewer jobs, and fewer scientific discoveries…

Dow is not alone. Across the industry, capital investment is being herded away from the U.S. toward the Middle East and Asia, where energy is cheaper and growth rates are faster, while U.S. plants are being turned over to salvagers. "We're in probably the most extreme economic environment the chemical industry has seen," says Jeffry N. Quinn, CEO of Solutia Inc. He should know: The St. Louis chemical company was driven into Chapter 11 in 2003 in part because of soaring raw material costs.

The industry's slippage affects more than national pride. Even in today's digital economy, chemical producers are essential to manufacturers, providing key ingredients for everything from hand soap to home insulation to hard drives. But as more and more of these goods are made offshore, the chemical industry is following suit.

Chemical companies closed 70 facilities in the U.S. in 2004 and already have tagged 40 more for shutdown, according to a registry that Chicago-based BuildCentral Inc. posts for demolition outfits. Industry employment is now below 880,000, down from over 1 million as recently as 2002. And these are often well-paying jobs, with equipment operators earning $40,000 a year and chemical engineers averaging more than $75,000.

Meantime, of 120 chemical plants being built around the world with price tags of $1 billion or more, just one—a 1,725-acre polyvinyl chloride plant in Plaquemine, La.—is in the U.S., reports Independent Project Analysis Inc. China, by comparison, has 50. "The U.S. has gone from a privileged position to where it's hard to find a rationale to put anything here," says Edward W. Merrow, president of the Ashburn (Va.) capital-projects consultancy. As a result, the nation's balance of trade in chemicals, a rock-steady surplus for 80 years, has become a deficit….

Innovation may be the nation's next casualty. Production facilities need engineers to run them and scientists to do workaday research. So as capital investment migrates, these tasks will, too. The concern among U.S. scientists is that offshore research and development centers will expand to encompass the deeper, basic research from which new products are born. "Innovations increasingly will be coming from abroad," says Donald B. Anthony, executive director of the Council for Chemical Research, a group of chemists from industry, government, and academia. Indeed, DuPont just opened a lab in Shanghai that will grow into a basic research center with 200 scientists within three years. And the company is mulling R&D facilities in India and Russia….

For each facility U.S. companies build abroad, it seems two at home are shuttered. Dow has cut its North American headcount by 5,135, or 18%, to 23,325, and closed 11 facilities in the U.S. since 2002, including the surfactant plant in Nashua, which is now being razed. Industries must adapt or die. When it comes to chemicals, though, the U.S. industry is adapting abroad while withering at home.

     No comment necessary. But if you want to pursue further the issue of globalization vs. true international trade, see Globalization helps no worker, and International free trade; It’s not globalization.

     Globalization was going to create a world market for U.S. manufacturers, right? And this was supposed to happen even though Americans at all skill levels make one-tenth to one-third of what people in other countries make, right? The brutal realities are continuing to show themselves.

From The Wall Street Journal, May 2, 2005.

U.S. Exporters Face Harsh Climate

Sluggish Growth Abroad
Squeezes Manufacturers;
Canada Hits 'Weak Patch'

Slower economic growth in parts of the world is translating into fewer exports for many U.S. manufacturers, who had counted on strong foreign sales to help fuel expansion.

The problem is linked mainly to Europe's and Japan's sluggish growth, which is curbing the appetite for U.S.-made goods in those regions. But Canada is a concern, too. U.S. exports of goods and services grew 7% in the first quarter, according to the Commerce Department, up from 3.2% the quarter before. However, export growth was stronger in the early part of last year and then moderated sharply. As a result, most economists are predicting export growth for all of 2005 will fall well short of last year's overall performance….

Softer export growth is only one problem facing U.S. manufacturers. Rising energy prices have dragged U.S. economic growth to a two-year low. Since the bulk of what U.S. factories produce is sold domestically, that means fewer sales at home. U.S. gross domestic product, the broadest measure of all goods and services produced, rose at a disappointing 3.1% annual rate in the first quarter, down from 3.8% in the fourth quarter. Durable-goods orders fell 2.8% in March.

Slower export growth will make it that much tougher for the U.S. to rein in its trade deficit, though most economists say surging imports are the crux of that problem. Even rapidly growing exports are unlikely to make a dent in the deficit until the U.S. curbs explosive import growth. U.S. exports grew 8.6% last year.

The U.S. is increasingly an exporter of capital equipment, so weaker growth is hitting many equipment makers…. "World-wide demand for capital goods has decelerated," said Nicholas Pellecchia, the company's vice president of finance. Nordson makes machines that apply adhesives, sealants and coatings in factories, so it is highly sensitive to trends in business investment….

      “The U.S. is increasingly an exporter of capital equipment.” That supposedly good news is actually a horrible sign of the times. About the last thing the U.S. can sell anymore is our technologically advanced products that allow other countries to continue to build factories that will continue to put us out of business.

     And it’s only a matter of time when other countries will be producing capital equipment that is better and cheaper than our own. After all, scientists and engineers in other countries make only one-third of what they make in our own country.

     Want to know why Republicans and conservative Democrats support Mexican immigration, both legal and illegal? Because it destroys the wages of our lowest paid workers, of course.

From The Wall Street Journal, May 2, 2005.

Low-Wage U.S. Job
Get 'Mexicanized,'
But There's a Price

SAN YSIDRO, Calif.—Here at the world's busiest international crossing point, 50,000 Mexicans enter the U.S. economy every day. They are permanent workers with green cards who commute from Tijuana, and stay close to Mexico by toiling, legally, in San Diego County as janitors, landscapers and hospital aides.

The border also attracts thousands of illegal job seekers every day, few of whom work locally. Rather, they merge into the U.S.'s growing underground economy, whose pool of workers includes an estimated five million undocumented Latinos. With each passing year, many other parts of the U.S. far from the border come to mirror the San Diego labor market.

According to a study being released today by the Pew Hispanic Center, a think tank in Washington, Latino workers accounted for 40% of the 2.5 million jobs created last year, despite comprising barely 15% of the U.S. work force. Even more striking, 88% of the one million new jobs filled by Latinos went to recent immigrants, mainly from Mexico. Dozens of U.S. job categories have become "Mexicanized."

Today, nearly half of all plasterers and stucco masons are foreign-born Latinos, while immigrants hold at least 40% of all jobs in such occupations as garment pressers, drywall installers and ceiling-tile installers.

The surge in hiring comes at a price, the Pew report reveals—falling wages. In 2004, Latino workers' median weekly earnings were $400, down from $411 in 2003 and $420 in 2002. "No other major group of workers has suffered a two-year decline in wages," says Rakesh Kochhar, author of the report.

Why are jobs increasing, but wages falling? Mexican immigrants are changing destinations, bypassing high-cost cities on the coasts and flocking to small towns in rural America. There, they manage to find work in low-wage industries, but their greater numbers make it easier for employers to keep salaries low….

The flip side of lower wages for workers, of course, is a boon for employers, who can use the savings to keep prices lower….

Harvard economist George Borjas, who is a Cuban immigrant, warns that the U.S. economy's dependence on imported labor obscures many costs. Besides the expense of assimilating immigrants, businesses may be slower to innovate if they can make do with cheap labor….

     This statement says it all: “lower wages for workers, of course, is a boon for employers, who can use the savings to keep prices lower.” And that, ladies and gentlemen, is why our Congress isn’t really serious about stopping illegal immigration into our country.

     Again, proof that the Republican plan to “save” Social Security is actually a plan to destroy it piece by piece. The latest: cut benefits for the 70% of Americans who make over $25,000.

From The Wall Street Journal, May 2, 2005.

In the Air: Social Security Payout Cuts

Bush Opens a New Phase
Of His Efforts With Plan
To Pare Benefits in Future

WASHINGTON—Five years after he first proposed carving private accounts from Social Security, President Bush opened a new phase in his campaign with a call to reduce future retirees' benefits to keep the program solvent.

Until last week, despite his boasts to the contrary, the president really hadn't touched politics's dangerous "third rail" of Social Security by talking up private accounts. Those accounts won't keep Social Security solvent; benefit reductions can.

The White House didn't provide much detail on the president's proposed "progressive indexing" of initial benefits, except to cite the idea's architect, Robert Pozen, former Fidelity Investments vice chairman and a Democratic member of Mr. Bush's 2001 Social Security commission.

What follows is from Mr. Pozen, and a Social Security Administration analysis of his plan.

Who would be affected? No one born before 1950, Mr. Bush says. For younger Americans, the top 70% of wage-earners—everyone with average career earnings over $25,000 on retirement after 2012—would get lower initial benefits than now promised….

     Instead of a complicated plan to give variable Social Security benefits in the future, why not just make Social Security benefits fully taxable? This would be a much easier way to benefit low-income persons, and would reduce our federal deficit by taxing those who have been benefiting most from our economy. Those who have no income other than Social Security wouldn’t get enough to be taxed anyway, and those in the top brackets would pay much more in straight income tax.

     As you read the following, remember that this is the industry that the Republicans want to put in charge of a portion of our Social Security funds.

From Business Week, May 2, 2005.

Mutual Funds: Why Fees Still Defy Gravity

Investors aren't alone in seeking answers. Now regulators want to know, too

…The annual fees charged by fund companies have barely budged, even though assets have increased elevenfold since 1989, to more than $6 trillion. Although fund fees are down modestly from 2003, retail investors are actually paying more today than they did 15 years ago: a dollar-weighted total expense ratio of 0.96% of assets, vs. 0.94%, according to researcher Morningstar Inc.

In theory, as fund assets zoom up, the costs of running a portfolio shouldn't rise nearly as much, so fees should fall. But that just isn't happening consistently. Says Russel Kinnel, director of mutual-fund research at Morningstar: "The mutual-fund business hasn't done a good job of delivering economies of scale."…

Even though the majority of fund companies and fund boards are actively engaged in discussions about fee cuts, a number of factors are keeping a floor under annual expenses paid by investors—despite the billions pouring into funds that should be creating signficant economies of scale.

For one, the middlemen—the brokers and the fund supermarkets—that sell the funds take a big chunk of the money….

These loads, as they're called, have come down from a high of 8.75% to around 5%. Instead, brokers are taking a piece of the annual expenses, generally from 12(b)-1 fees….

Although they have long been standard in the industry, 12(b)-1 fees and other payments to brokers are currently being scrutinized by the Securities & Exchange Commission. However, the agency is still scratching its head over whether it should do something about them…. The average investor may not get a good deal. But that doesn't mean a savvy one can't.

     Key statement: “The average investor may not get a good deal. But that doesn't mean a savvy one can't.” In other words, if you are a wealthy, knowledgeable investor, you may get a better deal from Wall Street than the average retiree (which describes most people). Which category do most Social Security retirees belong to?

     Let’s face it. Moral and ethical standards have no place in corporate America. It’s all about profit, and any way a corporation can improve its profits, without violating the law, is ok—no matter who is hurt in the process.

From Business Week, May 2, 2005.

Banks: "Protection" Racket?

As overdraft and other fees become huge profit sources for banks, critics see abuses

… more banks turn to service fees to maintain their profits as the mortgage boom subsides. Overall, banks raked in $32 billion in account service fees last year, up from $21 billion in 1999, according to SNL Financial, a Charlottesville (Va.) research firm. At some, fees have become such a powerful source of profits that they exceed earnings from mortgages, credit cards, and all other lending combined. At TCF Financial Corp. in Wayzata, Minn., for example, such fees represented 76% of profits in 2004, up from 52% in 2000.

This fee frenzy may seem paradoxical with so many banks trying to lure new customers with offers of "free" checking. According to Edmund Mierzwinski, U.S. consumer program director for Public Interest Research Group, a Washington consumer-advocacy outfit, nearly 30% of banks offer such accounts, up from 17.5% in 1999. Sure, most don't carry monthly maintenance fees—instead, customers get hit with a myriad of other fees….

Critics … contend that bounce-protection fees, as high as $37 per transaction, are little more than high-priced credit. "If a bank lends you $100 and charges you a $20 fee—and then you pay the money back in two weeks—that’s an annualized interest rate of 520%," notes Jean Ann Fox, director for consumer protection at the Consumer Federation of America in Washington. "It's worse than a payday loan."…

Most troubling to consumer activists is that most of the new fees fall on the poorest consumers. Many banks provide truly free services to wealthier clients in order to hang on to their assets. Mason, for one, thinks the poorest 20% of the country's 135 million checking customers generate 80% of the $12 billion in annual overdraft fees. "[Banks] have turned routine fees into punitive finance charges for individuals who have trouble making ends meet," says the Consumer Federation's Fox….

…some banks don't charge for overdraft protection—and execs at those banks say plans with fees gouge customers. "It's outrageous," says Dennis DiFlorio, president for retail banking at Commerce Bancorp Inc. in Cherry Hill, N.J. "It's not about customer convenience. It's just a way for banks to make money off customers." Commerce and others cover overdrafts automatically from savings or other linked accounts, or even charge customers' credit cards—all without fees….

For now consumers need to remember that at many banks there's no free lunch -- or checking accounts.

     This says it all: . "It's not about customer convenience. It's just a way for banks to make money off customers."

     Without government controls, there is no such thing as a “free market.” According to Republicans, a free market is one in which investors and business owners are free to monopolize the market.

     The only way moral business persons can dominate the market is if governments protect them from the financial predators that are everywhere.

From Business Week, May 2, 2005.

And You Thought Oil Was A Worry

If natural gas producers form a cartel, they could drive world prices even higher

Oil prices are through the roof. OPEC is sitting pretty. Could things get any worse for energy buyers? You bet. There are troubling signs that natural gas producers are moving toward forming their own version of OPEC.

While not an immediate threat, such a move could eventually drive up prices for an indispensable element of the U.S. long-term energy supply: In January, the Energy Dept. predicted that gas imports from outside North America will increase more than 700% and account for a quarter of U.S. consumption by 2025….

     So, “If natural gas producers form a cartel, they could drive world prices even higher.” Count on it, they will if there are no governmental controls to prevent it.

     Alan Abelson, editor of our most prestigious, conservative financial publication, Barron’s, again tells it like it is with regard to Bush’s attack on Social Security—and in an entertaining way no less.

From Barron’s, May 2, 2005.

Up and Down Wall Street

By Alan Abelson

Demonizing Santa Claus

…Even to the economically untutored among us …, Mr. Bush's more frenetic arguments [about Social Security] sounded pretty tinny. The notion, for example, that a possible financial pinch decades down the road represents a pressing crisis, much less impending doom, went over like a lead balloon.

His casual insistence that the system was bankrupt, and not just metaphorically speaking, seemed more than passing strange with his administration shamelessly borrowing hundreds of billions from this supposed bankrupt.

You don't have to be a woebegone Democrat (sorry for the redundancy) to feel the president is indulging the politician's habit, as some wise soul once put it, of being economical with the truth when he implies that Uncle Sam's promissory notes—the surplus accumulating in Social Security's coffers—are not worth the paper they're written on. If so, that would seemingly also describe the value of the trillions—or maybe zillions—of Treasury obligations held by our other creditors, humble and grand, individuals and institutions, the globe over.

And if he really believes those IOUs are just a stack of paper, it seems more than a little paradoxical for Mr. Bush to seek to reassure the legions of doubters among the citizenry about their own investing capabilities, as he did in his prime-time remarks Thursday, by emphasizing that one of the choices for participants in his proposed private accounts would "consist entirely of Treasury bonds." Through some peculiar form of alchemy, what's dross in the figurative vaults of Social Security becomes gilt-edged in the hands of Social Security's beneficiaries….

Working stiffs whose annual paycheck runs to $59,000 or so can look forward to, so reckons the chief Social Security actuary, 30% less when they retire in 2055 than they would under the current system. And if you're lucky enough to be earning $90,000 or more, and after all those years of lifting that bale and toting that barge you decide to smell the flowers and watch the birds, your Social Security check will be 40% less than it would be under the present set-up. In short, that perennially Unlucky Pierre of the economic set, the middle class, would bear the burden of the new, improved Social Security. But hasn't it always been thus?…

We are intrigued, if nothing more, by a theory first voiced, as we recall, by an economist in Harper's that the powers-that-be—whoever they be—have convinced the president that thanks to the yawning deficits in our trade with the world at large and in our domestic budget, among other depressing items, the economy's a total mess and destined to get worse. And the only way out would be another stock market boom like the one that made everyone happy and, for a spell, rich, in the 'Nineties. What's missing is the fuel for such a restorative bull market, and that, so reason the conspiratorially minded theorists, is where the private investment accounts come in.

What appeals to us about this deep, dark plot is it's so gosh darn ingenious. What makes it suspect is that we can't conceive of anyone in Washington being smart enough to have thought it up….

     The real reason the Republicans want to privatize Social Security is to be found in the comment: “the only way out [for our deplorable economy] would be another stock market boom like the one that made everyone happy and, for a spell, rich, in the 'Nineties.”

     Here’s more bad news about the effects of a declining stock market and its effects on retirees.

From Barron’s, May 2, 2005.

Pensions in Peril

Congress aims to shore up a key guarantor

Retirement may not be an option for many if the stock market keeps tanking, even if Congress fixes the rickety Social Security System.

Falling equity prices are straining the books of so many corporate defined-benefit plans that they may never be able to pay out all the money promised to employees. Total underfunding in the pension system is about $450 billion, according to the Treasury Department.

In fact, so many defined-benefit plans have gone bust in recent years that the federally chartered Pension Benefit Guaranty Corp., which insures them, saw its $7.7 billion surplus in 2001 morph into a $23.4 billion deficit at the end of 2004. Plans generally pay $19 per person annually for PBGC insurance….

      “Falling equity prices are straining the books of so many corporate defined-benefit plans that they may never be able to pay out all the money promised to employees.” Just suppose how that would have affected the solvency of our Social Security system if it had also invested in the stock market over the past three years.

     Costa Rica, “the most-developed of the six nations that have signed the Central American Free Trade Agreement with the U.S.,” is one of my favorite countries, and it has come through again. The following explains why.

     Finally, countries with a social conscience are wising up to the real goal, and ultimate effects, of globalization: to enrich the powerful at the direct expense of the middle-class and poor.

From The Wall Street Journal, May 3, 2005.

Costa Rica Balks
At Free-Trade Pact

Misgivings Could Weaken
Support in U.S. Congress
For Central America Deal

SAN JOSE, Costa Rica—With President Bush's plan to bind Central America and the U.S. in a free-trade pact already facing tough opposition in Congress, an obstacle has surfaced that further threatens the pact's chances of passage.

Costa Rica, the most-developed of the six nations that have signed the Central American Free Trade Agreement with the U.S., is balking at ratifying the accord. The country's parliament may not even vote on the pact until after the presidential election next February. The other Cafta nations are Nicaragua, Guatemala, El Salvador, Honduras and the Dominican Republic.

The reluctance of Central America's oldest democracy has surprised the White House and undermines one of its chief arguments for the pact: that Cafta represents an urgently sought benefit for the impoverished region….

Many businesses in Central America are lobbying for the accord, figuring it would promote foreign investment in the region, as Nafta has helped Mexican business. The six Cafta nations signed the accord last year. El Salvador, Honduras and Guatemala were the first to ratify the pact, anxious to win protections that might buttress their apparel makers and other manufacturers against Chinese and Indian rivals.

But the accord has also spawned deep reservations, even in countries where Cafta has been approved…. In Guatemala, anti-Cafta protests have included thousands of demonstrators; at least two of the protesters have been killed. May Day marches in Guatemala, Costa Rica, Honduras and El Salvador featured anti-Cafta signs and slogans….

Costa Rica … is holding out because of mounting opposition by trade unions, some farm groups and even some business leaders who say Cafta's intellectual-property clauses are too invasive.

The country's popular president, Abel Pacheco, is widely seen as trying to avoid ending his four-year presidency amid the strikes and protests that debating the accord might provoke. Although his government signed the pact last year, he now says he won't submit Cafta to Costa Rica's Congress until he is convinced that it doesn't threaten the poor; last week he said he would appoint a committee of leading Costa Ricans to review the accord….

Opponents of the pact have recently focused on provisions requiring the government to allow foreign investment in Costa Rica's state-owned telephone and insurance industries. Although telephone customers can wait a year to get a cellphone, privatization has become equated with corruption throughout Latin America.

Some Costa Ricans worry that Cafta may lead to the privatization of the country's free universal health-care system, which puts the poor country on par with industrialized nations in many important health indexes. Just 38% of Costa Ricans polled in February who had heard of the deal thought it would benefit the country, compared with 56% in January of last year, according to a study by the CID/Gallup polling firm….

Rep. Moran, Republican Rep. Dan Burton of Indiana and other lawmakers last week tried to pressure Costa Rica by warning that Congress would eventually cut off existing trade preferences if Costa Rica's legislature didn't approve the Cafta….

     Three key statements: “Many businesses in Central America are lobbying for the accord,” “Cafta may lead to the privatization of the country's free universal health-care system,” and “mounting opposition by trade unions, some farm groups and even some business leaders.”

     There you have it. It’s gradually becoming obvious to everyone that globalization is intended to benefit some businesses (the rich and powerful), and at the direct expense of workers and some other smaller, less powerful, businesses.

     Want to know how many of the ultra-rich got that way? This excerpt describes one of the ways. Remember, news items like this just describes the ones who got caught, not the multitudes of others who were smarter and didn’t get caught.

From The Wall Street Journal, May 3, 2005.

Merrill Lynch Official
Is Accused of Tampering

NEW YORK—Federal prosecutors Monday accused a senior compliance officer at Merrill Lynch & Co. of tampering with a witness who was involved in an investigation of how confidential information about large stock orders was allegedly shared improperly with outside stock traders….

Mr. [Benjamin D.] Grimaldi, a 47-year-old Long Island resident, is the second person with ties to Merrill to be arrested in connection with the "squawk box" investigation. Last week, former Merrill broker Timothy J. O'Connell was arrested and charged with witness tampering….

Federal prosecutors in Brooklyn and the Securities and Exchange Commission are investigating the improper transmission of confidential client information over brokerage firms' internal communication systems, known as squawk boxes. The client information allegedly was leaked to day-trading firms that used the information to turn quick profits….

     Think of it. Republicans and the Bush Administration have done everything in their power to cut taxes on people like these.

Week of April 25

     We’re in a war with terrorism. We’ve committed ourselves to finance—in money and human lives—the rebuilding of the world in our own Christian, democratic image. We’ve also given our growing industries and businesses to countries like China, India and Mexico, and they’re consuming huge quantities of, and driving up the prices of, the world’s resources—like oil, steel and chemicals.

     Therefore, the Republicans and conservative Democrats in government have decided that it’s a time for sacrifice—if you’re a member of America’s middle- and working-class. If you’re a wealthy investor, or associated with the petroleum or war industries—it’s a time for profit, unparalleled wealth, and a life of luxury.

     The following two items were in this day’s WSJ:

From The Wall Street Journal, April 29, 2005.

Exxon and Shell Profits Surge
Even as Oil Production Declines

Exxon Mobil Corp. and Royal Dutch/Shell Group both reported huge increases in first-quarter income, benefiting from the industrywide bonanza also swelling the coffers of their peers: high prices for the oil they pump and high margins for refining it. Both companies reported that their oil production declined, however.

Feeling pressure to return more of its mounting cash pile to investors, Exxon said it will spend about $3.5 billion in the second quarter on buybacks to reduce shares outstanding, up from $2.5 billion in the first quarter….

For the first period, profit in Exxon's chemical business was particularly buoyant, continuing a trend. Chemical earnings totaled $1.28 billion, excluding the Sinopec gain, more than double the year-earlier figure of $564 million….

Many international oil companies have come under criticism from investors for not spending more of their cash hoards to find and develop new sources of fossil fuel….


Defense Firms Report Hefty Profits

Northrop's Net Soars 73%,
Raytheon Posts 30% Jump
On Strong Pentagon Orders

Northrop Grumman Corp.'s first-quarter profit soared 73% and Raytheon Co.'s rose 30% as the defense contractors benefited from continued strong Pentagon demand and leaner operations.

Los Angeles-based Northrop, which makes everything from warships to unmanned spy planes to anthrax-detection machines, reported a net profit of $409 million, or $1.11 a share, up from $236 million, or 65 cents a share, in the year-earlier quarter. Sales hit $7.45 billion, up 4%….

Goodrich Corp.'s first-quarter net income rose 23%, as strong sales for its commercial aerospace products and services boosted results. Goodrich had net of $57.5 million, or 47 cents a share, up from $46.8 million, or 39 cents a share, a year earlier. Sales rose 10% to $1.28 billion….

     Why is it that when national crises occur—Republicans ask Americans to rally around the flag and make sacrifices in the national interest—but wealthy investors always somehow manage to become richer?

     If you want to know what conservatives really believe about Social Security and privatization—don’t read their editorials, read their investment advice for their well-heeled readers.

     Check out the following for a classic example of the hypocrisy of conservatives who want to cut Social Security benefits and to privatize some of its funds. (Note, those interested in the investment implications of this article should read the original, which was much more extensive.)

From The Wall Street Journal, April 27, 2005.

Burning Through Money in Retirement:
A Tale of Three Withdrawal Strategies

There's no point sugarcoating it: For many retirees, the past five years have been a financial disaster.

How bad has it been—and is there any way retirees could have softened the blow? To find out, I asked Baltimore fund manager T. Rowe Price Group to analyze how a couple, both age 65, would have fared if they had retired at year end 1999 with a $500,000 nest egg.

Sure, if our couple had everything in bonds, the numbers would look dandy. But today, the standard advice is that retirees should keep maybe half their nest egg in stocks, so their income has a shot at keeping pace with inflation over a retirement that might last 30 years.

With that in mind, I assumed our couple's $500,000 was split between 35% intermediate-term bonds, 10% cash investments, 40% U.S. stocks, 10% foreign shares and 5% real-estate securities. T. Rowe Price then took that portfolio and applied three common withdrawal strategies….

Finally, while any of the three strategies above may be a good starting point, don't follow them slavishly. In fact, be prepared to slash your portfolio withdrawals if you get hit with terrible markets, especially if those rotten markets strike early in retirement.

To that end, add up your Social Security and pension income. If that isn't enough to pay your basic living expenses, consider buying an immediate annuity from an insurance company, thereby purchasing additional monthly income that is guaranteed for life. Your goal: to have enough regular income to cover the basics, so you aren't forced to dip into your portfolio when markets turn rough.

     What an example! These “poor” hypothetical retirees have only a $500,000 nest egg. How tough. Especially if they “get hit with terrible markets, especially if those rotten markets strike early in retirement.”

     Think of how this would affect the 20% of retirees whose only income is Social Security. What if they had some of these funds in the stock market in a terrible year?

     Just connect the dots. Both of the following two articles appeared in the same issue of the WSJ. The disaster of globalization is becoming more apparent every day.

From The Wall Street Journal, April 27, 2005.

China's Textile Exports
To U.S. Jumped in March

SHANGHAI – China’s textile exports to the U.S. totaled $360 million in March, up 39.3% from the same month a year earlier.

The China Chamber of Commerce for Imports and Exports of Textiles also said China's exports of apparel to the U.S. rose 48.8% last month to $740 million.

The country's exports of textiles and apparel to the European Union rose 15.5% to $390 million and 8.6% to $690 million, respectively, in March, the chamber said.

The removal of a decades-old global quota system for textiles at the start of the year has raised concerns that low-cost Chinese exports will flood markets world-wide….


China Invests in Ties With Manila

Agreement to Help Revive
Philippine Mining Sector
Develops Supply for Beijing

MANILA, Philippines – Chinese President Hu Jintao is expected to witness the signing of a series of investment agreements today that could help develop the Philippines' moribund mining industry and enable China to secure a wider supply of natural resources for its fast-growing economy….

Traditionally, the Philippines has been a strong U.S. ally in Southeast Asia, but Manila's ties with China have steadily warmed in recent years. Last year, China pledged $1.2 million in military assistance to Manila, the first time Beijing has offered such aid….

Besides underlining China's bid to strengthen ties to resource-rich neighbors in Southeast Asia, Mr. Hu's visit also supports the Philippines' efforts to make itself a more attractive site for foreign investment and to try to benefit from China's vibrant economy….

     The cost of globalization to our country is exploding to a point that it may not be recoverable. We’ve given our industries to China, one of the most brutal regimes in the world. Now they’re using their economic power to strengthen their military power, and to enter into favorable agreements with Third World suppliers of raw materials.

     Especially worrisome is the statement that “Traditionally, the Philippines has been a strong U.S. ally in Southeast Asia, but Manila's ties with China have steadily warmed in recent years.” Think of it. This kind of thing is happening all over the world.

     At a time of exploding costs of raw materials—the U.S. is losing its bargaining position and is becoming a second-rate, and declining, economic power.

     When the Journal makes the following observations about a Republican politician, you’ve got to pay attention. It can hardly be accused of being a member of the “biased liberal news media.”

From The Wall Street Journal, April 27, 2005.

DeLay's Trip Expenses
Far Exceeded the Norm

Majority Leader May Face
A Big Political Battle
Over How Much Was Spent

Tom DeLay's latest ethics troubles center on who paid for some of his overseas travel with lobbyists. But as he fights to survive as House majority leader, the Texas Republican's bigger political problem may be how much was spent.

Mr. DeLay's expenses far exceed the customary per-diem payments calculated by the State Department for most official, taxpayer-financed overseas trips. And for a conservative who has identified more with small business than Wall Street, some of Mr. DeLay's travel contrasts with his populist image and Houston-area congressional district.

House records show that a 10-day trip to London and Scotland that Mr. DeLay and his wife took in 2000 to meet British conservative leaders, for example, cost $28,106. That equals six months' income for a median household in Mr. DeLay's district. Discounting the $20,266 attributed to airfare and transportation, the couple's meals and lodging cost an average of $784 a day, according to reports Mr. DeLay's office filed with the House clerk….

Even when compared with other privately sponsored trips by members of Congress to London, the DeLay outing is at the high end of the scale, especially the $4,000 attributed to meals. Mr. DeLay's office could give no further explanation, saying it depended entirely on information provided by the Center….

     While conservative propagandists accuse Democrats of also using funds and lobbyists donations to finance trips and other expenses—the Journal points out what is really important: the amount of money that is involved. That makes all the difference.

     Is the following an argument for declaring the oil and gas industries as utilities, and putting government in charge?

From The Wall Street Journal, April 26, 2005.

Valero's Texas-Size Refining Bet

In buying rival Premcor Inc. for $6.9 billion in cash and stock, Valero Energy Corp. is betting that the riches enjoyed by the refining industry are here to stay.

For years, excess capacity and paltry returns on investment plagued the industry, long the poor stepchild to exploration and production. Indeed, big oil companies have sold off many of their refineries, focusing on pumping crude instead.

Valero bucked this conventional wisdom and its maverick streak has paid off. Under Chief Executive William E. Greehey, Valero built a company with one refinery in 1997 into a 15-refinery behemoth as limited industrywide capacity and strong demand for gasoline and other refined products pushed profits to their highest levels in years.

The upshot: Valero returned 380% to its shareholders from 2000 to 2004, compared with an 11% loss for the Standard & Poor's 500-stock index over the same period….

With a return on investment in the single digits for much of the past decade, few followed Valero's lead. Instead, oil companies sold or closed refineries. The number of such plants declined to 149 today from 325 in 1981, according to the National Association of Petrochemical Refiners. With no new refineries built since 1976, capacity for refining crude fell 10% to 16.8 million barrels a day from 18.6 million barrels…..

     It’s obvious: a major cause of our skyrocketing oil and gas prices is the greed of industrialists who don’t give a damn about the welfare of the general public. They use shortages as an excuse to unnecessarily raise prices.

     Also, major oil companies wouldn’t invest in refineries because there wasn’t enough profit in it. When their shortsightedness caused shortages, the corporations that guessed right became incredibly profitable. In both cases, the public paid through the nose.

     Sometimes the public interest is so important—as in utilities—the public can’t rely on the greed of corporations to provide necessary, but sometimes unprofitable, services. This becomes an even more important issue as they keep merging into huge monopolies, and have no real competition.

     What’s not in the following WSJ editorial is what’s important. What do you think is missing in this blatant defense of the wealthy and powerful (and incredibly greedy)?

From The Wall Street Journal, April 26, 2005.

Who Pays What

Even the most ardent class warriors have no choice but to concede that the U.S. income tax code is steeply progressive—that is, that it soaks the rich. You know the numbers: The richest 1% of all Americans pay 33.7% of all federal income taxes, even after the Bush tax cuts, while the bottom 50% of earners pay a mere 3.6% share….

All of this is worth keeping in mind as we enter the rough sledding of Social Security (and later tax) reform. AARP and many politicians would love to "solve" Social Security's long-term financing shortfall by raising payroll taxes, especially the $90,000 income limit. But that would be socking it to taxpayers who already bear an outsized share of the American tax burden. The U.S. tax system is already "progressive" enough.

     What’s missing? It’s the fact that these modern barbarians are buying economic advantages from Congress that confer huge wealth on themselves, and force huge sacrifices on everyone else (globalization, anti-labor legislation and judicial appointments, tax breaks, etc.).

     In fact, the tax system isn’t nearly progressive enough to make up for their blatant skullduggery and lack of moral standards—especially the standard of utility.

      (To better understand this issue, check out the files Utility: the forgotten moral standard and Best argument for taxing the rich.)

     The following commentary clearly demonstrates how totally blind our ruling elite is to the pain felt by the majority of Americans, as they see their standard of living dissolving before their eyes.

     While many Americans are thriving in this economy, the real winners in the globalization insanity are people like Mr. Fisher and his entire Federal Reserve Bank. Many, possibly most Americans, find that they can’t afford to both pay the rent and also provide adequate health care for their children.

From The Wall Street Journal, April 25, 2005.


Protect Us From Protectionists

By Richard W. Fisher, president of the Federal Reserve Bank of Dallas.

Once again, political voices are rising to vilify imports as a grave threat to our economy and jobs. While some policy makers sound the alarm, the rest of us are busy buying record quantities of clothes, cars, electronics, toys and other foreign-made products.

The disconnect between rhetoric and reality on imports is nothing new. China menaces as the rapacious exporter of the moment, taking the bogeyman role played in the past by Japan, the East Asian Tigers and Mexico….

Import-bashing preceded the market crash in 1929 and Black Monday in 1987. The market knows the value of imports.

The U.S. followed the domestic deregulation of the early 1980s with deregulation at the border through trade liberalization in the late '80s and into the '90s. Presidents of both parties delivered Nafta, the Uruguay Round, China's entry into the World Trade Organization and free-trade agreements with Singapore, Chile and Australia….

And all the while, our economy has strengthened. Output has grown 3.3% a year since 1994. Despite a recession, we've added nearly 16 million jobs, and unemployment has been low. Productivity has been the best in decades. No other major country matches our economic performance during this period of rapidly rising imports….

To be sure, foreign competition harms some industries. Imports aren't poison to the overall economy, however. In fact, they've played a role in America's success. Bargains from China and other countries directly lower Americans' cost of living. When consumers pay less for clothes, shoes and electronics, they have money to spend elsewhere—to the benefit of local businesses….

     Fisher’s view of our economic history is incredibly flawed, glossing over the true sources of the strength of our economy. The cause of the 1929 depression was not protectionism—which didn’t occur until after 1929—the cause was the selling-out of American workers during the 1920s.

     As a matter of historical fact, it was the protectionism of the 1930s through the 1980s (as well as other New Deal policies of liberal Democrats) that created America’s vibrant middle class—and the best and strongest economy ever. And it’s the removal of those protections and New Deal economic policies that is rapidly destroying our middle class today.

     The “Productivity [that] has been the best in decades” he refers to has been a disaster for workers. It has been accomplished on their backs, and without sharing the benefits with them. Corporations demand that workers work harder and longer for less pay, while corporate profits skyrocket. And globalization has effectively destroyed workers’ ability to negotiate for higher wages—no matter what the unemployment rate is.

     Face it. Everyone benefits from lower prices because of products made by brutalized workers in other countries. But the real winners of globalization are the Fishers of the world—the investors and established wealthy—while workers are making all the sacrifices.

     In evaluating any economic policy, the number of beneficiaries is relatively unimportant. The truly important questions to ask about economic policy are: who are the real winners—and who is required to make all the sacrifices?

     This is a brief abstract of an extensive article about energy and price controls. However, it also betrays the incredible selfishness of investors, and the real motivations for globalization.

From Barron’s, April 25, 2005.

Editorial Commentary

Crisis Management

Let markets handle energy supply and demand


…In general, European and Japanese industrialists moved to the U.S. to take advantage of the world's most productive labor force, while they moved to Central Europe and Asia seeking cheaper workers. American industrialists moved their less productive jobs overseas, in part because the foreigners were bidding up American labor costs, and in part because there weren't enough people to fill all the jobs that existed in the 1980s and all the jobs that were created between 1990 and 2001.

The "giant sucking sound" made famous by Ross Perot was actually the sound of a giant valve operating to relieve the inflationary pressure of too many jobs chasing too few workers….

Energy is traded in markets, and markets will mitigate the economic impact with price increases. There will never be a serious long-term shortage of energy as long as we do not impose price controls or impose a political vision of new fuels and technologies.

There will just be higher prices, and some uses of oil will be priced out of the market. This will be no disaster: All users of energy will be forced to conserve it….

     Key statement: “The "giant sucking sound" made famous by Ross Perot was actually the sound of a giant valve operating to relieve the inflationary pressure of too many jobs chasing too few workers.” Meaning: if we would let normal free market forces work as they are intended to, many jobs chasing too few workers would cause working-class wages to go up.

     Of course, wealthy conservatives discovered a way to ruthlessly control the so-called free market. All they had to do is increase the labor supply by including the entire rest of the impoverished world in the labor pool. As intended, wages haven’t kept up with inflation ever since, while the stock market and executive incomes have been skyrocketing.

     The selfishness and hypocrisy of wealthy conservatives are also exposed in the statement: “There will just be higher prices, and some uses of oil will be priced out of the market. This will be no disaster: All users of energy will be forced to conserve it.” It’s simply not true. Our 341 billionaires and one-out-of-125 millionaires won’t let the high price of gas stop them from filling up their SUVs to their hearts’ content.

     As always, it’ll only be the poor and lower middle class who will have to cut down on their consumption of oil products. And that’s just fine for our Republicans and conservative Democrats.

     Here’s more bad news, and a lesson, for the fans of globalization. Globalization doesn’t solve the perennial problems of so-called free market competition, in which businesses over expand and competition becomes increasingly brutal. This means that, without adequate government controls, the rich and powerful always take advantage of the poor and powerless—cutting their wages, while keeping their own incomes and wealth intact.

     So, in India, as well as in China and elsewhere, our outsourced businesses are benefiting investors—or powerful politicians—in those countries, and the workers aren’t getting paid enough to cushion them from the economic downturns that will inevitably happen.

     Just watch what happens when the future worldwide economic crisis occurs—and, given the unfair distribution of wealth worldwide—it’s surely in the cards. Too much purchasing power in the hands of the wealthy, and not enough in the hands of the middle class and poor, is a prescription for a repeat of 1929.

From Barron’s, April 25, 2005.

India's Outsourcing Companies Hit a Soft Spot

Shares of India’s big information-technology companies swung wildly last week as their results for the fiscal fourth quarter, ended March, raised concern that demand for IT outsourcing may be slowing. The stocks recovered by the week's end, but with an expected spate of additional stock offerings under way, they might tread water for months….

India's two largest IT outsourcers, disappointed investors. TCS dramatically missed earnings for the quarter, owing to higher wage expenses and the rupee's strength….

"Broadly speaking, the offshoring trend is intact," says Shroff of J.P. Morgan. "These are reasonable growth rates for companies" with thousands of employees and billions of dollars in revenue, he says. And if times grow hard, as they often do, corporate America will cut back again and seek to improve returns by using low-cost suppliers. That can only be good news for India's outsourcers.

     Key statement: “And if times grow hard, as they often do, corporate America will cut back again and seek to improve returns by using low-cost suppliers.” When it comes to wages, even in India, it will eventually be a race to the bottom, as the rich and powerful pit workers against each other.

     Here’s another “so, what’s new” excerpt. Again, we find that Republicans deliberately ensure that inadequate regulation allows the greediest and most immoral predators in our society to be free to take ruthless advantage of the public.

From Business Week, April 25, 2005.

Watchdogs With Eyes Wide Shut

As investigators pore over the books of AIG, it's becoming clear that for years regulators failed to detect lapses

Where were the watchdogs? State and federal investigators are examining the accounts of insurance giant American International Group Inc., drawing out super-investor Warren E. Buffett, and sparring over Fifth Amendment rights with ousted AIG Chairman and CEO Maurice R. "Hank" Greenberg. But the feverish enforcement activity obscures the fact that AIG's admitted misstatements—so far worth, by the company's estimate, $1.7 billion to shareholders—and other industry transgressions went undetected by many of the same agencies, in some instances for 14 years or longer.

What's emerging from the probes is a portrait of failed regulation. Unlike banking or Wall Street, which answer to federal regulators, the $1.2 trillion insurance industry is overseen by small, usually obscure state offices. Outgunned by the insurance giants, state commissioners, interested in pleasing voters, usually focus on such consumer issues as setting rates and taking complaints on auto and homeowners' insurance.

Many admit that they're out of their depths on sophisticated financing deals with offshore reinsurers, like those that fogged AIG's books and snarled Berkshire Hathaway Inc.'s General Re Corp. subsidiary in disputes from Memphis to Melbourne. "State regulators are doing the best they can, but they're not equipped to police multistate or international scams," says Jay Aughtman, a Montgomery (Ala.) lawyer who represents insurance regulators in Tennessee and other states….

… critics contend that the fragmented system of state regulation lacks the checks that can expose frauds before they compound. In some states, insurers have the upper hand: They dominate state legislatures, keep commissioners on tight budgets, and maintain a revolving door between the commissioner's office and insurers' headquarters. "The general pattern is that the industry makes sure regulators don't have very much clout," says Joseph M. Belth, professor emeritus of insurance at Indiana University….

The obvious solution: national regulation….Problem is, even if today's Republican White House and Congress created a new regulator—a big if—they would be unlikely to give it tough powers like those the SEC enjoys with brokers and banks. The furthest GOP leaders may go now is the so-called SMART bill drafted by House Financial Services Committee Chairman Michael G. Oxley (R-Ohio), which would create a super-NAIC with federal help to press for uniform, streamlined state regs….

     If their divide-and-conquer approach to state regulation doesn’t work, all Republicans have to do to achive their scurrilous goals is make sure the federal regulations are either inadequate, or the regulating agencies are under funded. In a Republican Congress, that’s a cinch to get accomplished.

     Again, the U.S. Chamber of Commerce demonstrates that it is more interested in protecting the rich and powerful than in acting in the interests of the American public.

From Business Week, April 25, 2005.

A Pro-Business Pit Bull Sets Some Teeth On Edge

From AIG CEO Maurice R. "Hank" Greenberg to former Qwest (Q ) chieftain Joseph P. Nacchio, the tidal wave of scandal continues to swamp boardrooms across America. But Thomas J. Donohue, CEO of the U.S. Chamber of Commerce, isn't backing off a campaign against what he views as regulators run amok.

Amid the allegations of corporate wrongdoing, the combative lobbyist continues to lash out against the enforcers, warning of a dire threat to U.S. business. "Government agencies have gone overboard" in implementing the Sarbanes-Oxley corporate governance law, Donohue says. "An accounting error should never be seen as a crime."

Donohue's top target for overzealous regulation and heavy-handed enforcement is Chairman William H. Donaldson's Securities & Exchange Commission. Plenty of business leaders privately support his goals, but some lobbyists cringe at Donohue's take-no-prisoners approach. They fear the Chamber is overreaching in ways that could set back the campaign to convince investors that Corporate America has cleaned up its act….

     What’s notable about this excerpt is the observation that some business leaders fear that “the Chamber is overreaching in ways that could set back the campaign to convince investors that Corporate America has cleaned up its act.” When that happens, you know the Chamber is operating beyond morally acceptable bounds.

     Again, another downside to offshoring. Now we can include the rest of the world as a source of identity theft.

From Business Week, April 25, 2005.

The Soft Underbelly Of Offshoring

A high-tech scam on Citibank accounts is a nightmare for India's call centers

On the steamy morning of Apr. 4 two smartly dressed men walked into a branch of Rupee Co-operative Bank Ltd. in Pune, 150 km from Bombay. The two were among the city's software and back-office workers – a growing, prosperous group coveted by banks and merchants.

But Rupee Bank officials didn't greet them warmly as valued clients. Police had asked the branch managers to keep an eye out for suspicious transactions in the duo's bank accounts, and the pair were soon arrested for stealing money from four U.S. customers of Citibank. Both had worked at Citibank call-center contractor MphasiS BFL Ltd., where, police allege, they had persuaded Citi customers to give them passwords and other account details.

After quitting MphasiS, according to police, the pair logged on to Citi's online system and transferred at least $426,000 to their own accounts. So far, 14 people have been arrested in the crime, and about $230,000 has been recovered. Formal charges are pending, but a lawyer for the two men says they and others implicated in the case will plead not guilty.

A high-tech scam targeting a top U.S. customer is a nightmare for India's call-center industry. The nation has been riding high on demand from multinationals seeking to cut costs by shipping jobs offshore, and industry revenues are expected to double next year, to $12 billion. Yet many had lived in fear of the day when some sort of scam was uncovered….

     Already, Americans are finding out that it is harder to talk to customer representatives in other countries who often don’t speak clear English and often are inadequately trained. Now we can add identity theft to the growing list of problems outsourcing is causing.

     If you ever wondered why you shouldn’t vote for Republican Congress persons, read the following—and think what this means for working Americans, as Republicans appoint more anti-labor judges to the courts.

From Business Week, April 25, 2005.

Inside Bush's Supreme Team

In the fight for the courts, three behind-the-scenes players are uniting the Right

…With a Supreme Court vacancy all but certain this year, true-blue liberals, rabid-red conservatives, and activists of every stripe are amassing millions of dollars and mobilizing thousands of true believers for an air and ground war expected to eclipse every other legislative issue on the congressional agenda—including Social Security and tax reform.

Already the ideological struggle over the high court and the federal appellate bench has squelched scholarly discourse on jurisprudence and replaced it with a partisan free-for-all that feels like a bruising election-year campaign, mudslinging and all….

The three generals leading the Republican rank and file into battle are working informally and have no official titles, but each represents a core constituency of the GOP. While Sekulow, 48, rallies Evangelical America with his daily radio show and Internet appeals, former White House counsel C. Boyden Gray, 62, has the business community jumping into the judges' fray for the first time.

The Committee for Justice, an advocacy group he created in 2002 to rally corporate support for Bush nominees, has amassed a multimillion-dollar lobbying and advertising budget. Gray will air TV ads (if necessary), help the White House coordinate with the Senate, and advise on procedural strategy. He'll draw heavily from his experience under the first President Bush, when he helped Clarence Thomas navigate confirmation hearings and move on to the Supreme Court. "Thomas was confirmed, but we were scrambling like mad," Gray says. "We didn't have a good outside infrastructure, a network of support like we hope to [have]...this time around."

Rounding out the triumvirate is an unassuming, bespectacled wonk, Leonard A. Leo, 39, executive vice-president of The Federalist Society. Credited with transforming the Federalists from a sleepy debate club into a conservative powerhouse that challenges liberal orthodoxy in Washington and on law school campuses, Leo has a deep institutional knowledge of the legal community and its top thinkers….

Their first order of business is to give political backing to Frist as he tries to change Senate rules and make it more difficult for Democrats to block Bush's judicial nominees. To that end, Sekulow is using his radio show to collect petitions supporting the "nuclear option," so named because Dems have threatened a legislative meltdown if Frist follows through on his promises….

Neas and his allies don't underestimate the political clout of Gray & Co. "They have access to tremendous wealth," Neas says. "We have a titanic battle shaping up." Intellectually, however, liberals dismiss the GOP court push as little more than cultural conservatism masquerading as a judicial philosophy. That could be a mistake. If Bush's judge-vetting triumvirate succeeds in persuading the disparate groups on the Right to subordinate their individual concerns to an overarching approach to jurisprudence, the courts could be in for a new era.

     Since Republicans "... have access to tremendous wealth," and can buy politicians with abandon, working class Americans better start supporting those Congress persons who haven't yet sold out to corporate America.

     The following is another example of the Republicans’ utter hypocrisy. In order to justify cutting taxes for corporations that are “already very flush,” they called the legislation “the American Jobs Creation Act.”

From The Wall Street Journal, April 28, 2005.

Many Companies Delay Plans
To Bring Home Foreign Profits

Many U.S. companies are delaying until the second half of the year any repatriation of foreign profits allowed under a special one-year tax break, mainly because of the lack of government guidance on technical issues.

Under the American Jobs Creation Act passed last fall, U.S. companies that this year bring home accumulated profits earned and invested abroad will pay an effective tax rate of 5.25% on them; the standard corporate rate is 35%.

The law was promoted as a way to galvanize job growth by encouraging companies to invest overseas profits domestically. But there are doubts about how much it will boost the domestic labor market….

Some companies have no pressing need for the money. "On the whole, these businesses are already very flush," says Mark Zandi, chief economist at, an economic-forecasting firm in West Chester, Pa. "So cash has not been a constraint on expansion."

Others may not take advantage of the tax break at all, because they see better investment opportunities abroad. General Electric Co., of Fairfield, Conn., recently said it was "unlikely" to use the break, noting that it has deployed the vast bulk of its foreign profits into active business operations in other parts of the world….

     Key statement: “General Electric Co., of Fairfield, Conn., recently said it was "unlikely" to use the break, noting that it has deployed the vast bulk of its foreign profits into active business operations in other parts of the world.” How’s that for a vote of confidence in our American economy by a leading corporation. And it’s been a leader in abandoning American employees and communities—in the name of outrageous profit.

     Wal-Mart, America’s model for today’s corporate moral standard, again reveals its true character.

From The Wall Street Journal, April 28, 2005.

Federal Officials
Asked to Probe
Wal-Mart Firing

Jared Bowen, a former vice president of Wal-Mart Stores Inc., has asked federal prosecutors to investigate whether the company violated a federal mandate protecting corporate whistleblowers when he was fired after reporting questionable payments requested by former Wal-Mart executive Thomas Coughlin….

The retailer said it found as much as $500,000 in questionable payments. Wal-Mart referred the matter to the office of the U.S. attorney for the Western District of Arkansas, which is conducting an investigation.

Mr. Coughlin's lawyers said he "did not seek nor obtain any improper reimbursements from Wal-Mart." People familiar with the matter say Mr. Coughlin has claimed that the questioned transactions, which spanned at least five years, were intended to fund a secret campaign to gather intelligence about union organizing at Wal-Mart. Wal-Mart says it has no evidence Mr. Coughlin was paying for union information….

"Wal-Mart has an obligation to Jared and all employees to create an environment in which people can come forward, report wrongdoing and not worry about retaliation," said Mr. Bowen's attorney, Steve Kardell of Clouse Dunn Hirsch in Dallas. "But in this case, Jared came forward, reported wrongdoing, and the company packed up his things and sent him on his way. Someone will have to explain to me how that's not retaliation."….

     Wal-Mart is so violently opposed to paying workers decent wages—and providing decent working conditions—it apparently may be willing to violate the law to keep unions from getting a foothold.

     Now we know what motivates Republicans to behave according to even minimal moral and ethical standards: the fear of voter revulsion.

From The Wall Street Journal, April 28, 2005.

House Republicans
Ready for Peace
On Ethics Rules

House Republicans, worried that how they handle ethics-rules changes could hurt them at the polls, took a big step toward peace with Democrats on the issue with a move that could clear the way for a probe of Majority Leader Tom DeLay….

Democrats cheered the Republican retreat. House Minority Leader Nancy Pelosi of California said: "Now that we will again have bipartisan rules in place, we can begin to rebuild American's trust in the Ethics Committee."…

The shift represents a new political calculation by House Republicans that the relentless news reports about Mr. DeLay's travels and dealing with lobbyists could hurt the party during next year's elections. Republicans hold a slim 53.3% to 46.4% majority in the House. A shift of just more than a dozen seats in the 2006 elections could move the party back into the minority after a decade-long run in charge….

     A hopeful note: even some Republicans were ashamed of the way some of their members deliberately destroyed the effectiveness of the Ethics Committee—and all to protect one of their most scurrilous members, Tom DeLay.

     Want to know one of the reasons Medicaid is going broke? Or why so many patients can’t afford to both pay their rent and buy their medications? Read the following.

From The Wall Street Journal, April 28, 2005.

Deep Discounts
By Drug Firms
Draw Scrutiny

If a drug company can offer deep discounts on drugs to certain customers, why isn't it doing the same for Medicaid?

That's a question concerning officials and proponents of the federal and state governments' health-care program for the poor and disabled.

Federal law requires drug makers to give Medicaid the best price they offer any customer. But an exception in the 1990 law says that medicines sold at a discount of 90% or more don't have to be disclosed to the government or included in the best-price calculation.

The steep discount was meant to be used for charitable organizations in desperate need of inexpensive medicines. But two lawsuits—one unsealed this week and the other still under seal—allege that Merck & Co. improperly gave the 90%-and-up discounts (a practice called nominal pricing) to any hospital helping it achieve certain market-share goals. The extreme cut rate wasn't offered to Medicaid….

Nominal-pricing programs affect private insurers and cash-paying customers as well. Patients who are started on a particular drug in a hospital would likely continue to take that drug after they are discharged. Patients have no way of knowing whether a particular drug was chosen for them because the hospital got a cut-rate price for the drug—even though it would cost a lot more outside of the hospital.

State Medicaid programs are under enormous pressure as spending is bursting state budgets. Nationwide, the program covers 53 million people, nearly one in six Americans, and costs $300 billion a year in federal and state funds, recently surpassing spending on the federal Medicare program for the elderly….

     Key statement: “Patients have no way of knowing whether a particular drug was chosen for them because the hospital got a cut-rate price for the drug—even though it would cost a lot more outside of the hospital.”

     And, you might add, voters probably have no idea of the extent to which there is a partnership between the pharmaceutical industry and their Republican Congresspersons.

Week of April 18

     The four paragraphs of the excerpt below give a synopsis of a typical globalization cycle:

  • A U.S. industry goes to China to take advantage of its low wages and its huge consumer population.

  • But the Chinese making the cars don’t make much money and will never be significant buyers of cars, since it’s the rich and powerful of China who are receiving most of the economic benefits of the new industry.

  • After the rich and powerful have all bought their cars—and they have learned our automotive technology, and have even become the new world leaders in automotive technology—they then attack our U.S. market. (There isn’t a middle-class market, of any consequence, for cars in China.)

  • Result: the eventual total elimination of the U.S. automotive industry, along with its jobs. It’s the same cycle the U.S. textile market experienced, and the same will happen to virtually every labor-intensive industry that can be outsourced.

From The Wall Street Journal, April 22, 2005.

Cars Made in China
Are Headed to the West

Once seen as a market of vast opportunity, China is becoming a tough place for global auto makers – and that is prompting some of them to ready plans to export China-made cars to America and Europe for the first time.

Sales of cars to Chinese consumers had been soaring the past few years as the country opened up and Western auto makers rushed in to set up joint ventures with local companies to satisfy domestic demand. But now the market is encountering some of the same ills that plague more mature markets, including bitter price competition, excess production capacity and falling profits. China's government intensified the trend by turning off some of the cheap financing that had promoted vehicle sales.

"For the whole of the automotive industry, we can say the gold rush is finished" in China, Bernd Pischetsrieder, chief executive of Volkswagen AG, said yesterday at the company's annual meeting in Hamburg, Germany, where shareholders expressed alarm over the car maker's dramatic reversal of fortune in China.

Now, partly to sop up excess production capacity in China, some carmakers plan to use the nation as a base to make inexpensive cars for developed markets. That could be more bad news for older car plants in the U.S. and Europe and the highly paid, unionized workers who staff them….

     Key statement: “That could be more bad news for older car plants in the U.S. and Europe and the highly paid, unionized workers who staff them.” And that’s the original intent of globalization: the destruction of good-paying jobs for American workers. And the jobs being lost are going up the social and skill-level ladder every day.

     Want a quick description of the ultimate goal of Republicans and the Bush Administration with regard to Social Security? Check out the following:

From The Wall Street Journal, April 22, 2005.

Architect of Social Security Plan Perseveres

Blahous, Who Convinced Bush
Of Need for Benefit Cuts, Works
Behind Scenes to Sway Skeptics

WASHINGTON – For Charles P. "Chuck" Blahous III, the self-described geek behind President Bush's foundering plan to revamp Social Security, not all days have been bad lately. On April Fool's Day, a Friday, he took a day off to get married. He was back at work on Monday.

It was a rare break for the 41-year-old baseball and board-game fanatic who, as the architect of President Bush's top domestic priority, is working behind the scenes on arguments to sway skeptical lawmakers and voters, and formulas to cushion low-income Americans from future benefit cuts….

     Key statement: “…formulas to cushion low-income Americans from future benefit cuts.” All Republican plans for Social Security, in one way or another, lead to significant benefit cuts for retirees.

     Everything else, especially privatization, is just a smoke screen to distract the public from what is happening. Republicans have always opposed Social Security, and now they’re simply taking the first baby-steps to destroy it.

     Republicans and conservative Democrates must be so proud of themselves. China’s economy is continuing “to surge,” (first article below) and American workers’ incomes aren’t even keeping pace with inflation (third article).

     Want to know what kind of country we’ve given our industries to? Check out the second article below.

From The Wall Street Journal, April 21, 2005.

China's Economy
Continues to Surge

HONG KONG – China's economy grew faster than expected in the first three months of the year as its export engine kicked into higher gear, fueled by surging textile sales to the U.S. and Europe….


From The Wall Street Journal, April 21, 2005.

As China Rises, Sinking Stocks
Spark Middle-Class Protests

Investors Accuse Communists
Of Hyping Market Outlook;

BEIJING – As dusk fell one day in late January, a Chinese investor apparently upset at his stock-market losses doused himself with gasoline outside the headquarters of the Chinese securities watchdog and set himself on fire. Regulators responded by placing a gag order on the Chinese media and putting a fire extinguisher near the building's entrance.

Ten days later, 30 wealthy Chinese showed up with a litany of complaints about lax market regulation and cheating companies….

As the market plumbs six-year lows, China's 60 million retail investors are an embittered lot—sounding a jarring note amid the capitalist changes transforming China's economy. The government once touted the nation's two stock exchanges, started in 1990 and 1991, as founts of opportunity. But they have turned out to be full of rotten companies that relied on political connections to get listed. Regulators have had little success fighting rampant insider trading and poor disclosure….

Perhaps the thorniest issue is the state's stake in listed companies. The state owns about two-thirds of all shares, and rules prohibit them from being publicly traded….

"Is the China Securities Regulatory Commission willing to be a tougher regulator?" asks a former senior commission official. "I don't think they are willing to be so tough. ...They don't want to offend interest groups like local governments that are behind many securities firms and listed companies."…


From The Wall Street Journal, April 21, 2005.

Workers' Wages Trail Growth in Economy

The recession in the U.S. has been over for more than three years. The economy has been growing at better than a 4% annual clip for the past two. Profits, at least until recently, have been up. Growth in worker productivity has remained strong. Unemployment has fallen to 5.2%, the lowest since September 2001.

Yet wages for the typical worker aren't even keeping up with inflation. Wages are growing unusually slowly for this point in the economic cycle, especially given persistently strong growth in productivity, the goods and services produced for each hour of work….

Employers don't give raises because they feel generous. They give raises because they can afford to—that is where productivity comes in—and because they have to do so to attract or keep workers. Profits and productivity, up 4% last year, suggest employers have the money, but don't feel pressure to give raises….

Demand … appears strong for low-paid workers—those who bathe the sick or wait on tables and whose jobs can't go offshore or be automated—but there are so many willing low-skill workers that their wages don't rise. Globalization and technology, meanwhile, seem to be eroding demand and wages for many workers in the middle. But despite the headlines, that has been happening for some time, even during the glorious 1990s, so it is hard to believe that explains the whole recent mystery of wages….

     Incredible. The WSJ continues to push the idea that “it is hard to believe that [globalization and technology] explains the whole recent mystery [stagnation] of wages.” Anyone who doubts the disastrous effects of globalization on American wages should review the files on this website that review the publications of the conservative press for the past few years.

     There is absolutely no doubt: the original and present intent of most globalization is the destruction of wages and living standards of working Americans—and all to benefit investors and top corporate executives.

     And now we’re just beginning to realize that our outsourcing of industry to countries like China is beginning to have disastrous effects on our entire economy.

     The U.S. Chamber of Commerce’s utterly blind devotion to the greed and materialism of its egomaniacal corporate members again shows itself.

From The Wall Street Journal, April 21, 2005.

Business World Tells
Government: Back Off

Chamber of Commerce Challenges
Justice Department on Sentences
Sought for Enron-Fraud Figures

In an unusual move, the Chamber of Commerce is challenging the Justice Department's efforts to secure long prison terms for five individuals convicted of conspiracy and fraud in the EnronCorp. scandal.

The Chamber recently filed an amicus brief in the so-called Nigerian barge case, in which four former Merrill Lynch & Co. officials and a former Enron vice president were convicted last fall. The arguments put forth by the Chamber, which describes itself as the nation's largest business federation, with more than three million members, could affect the sentences in the barge case as well as other corporate-fraud trials.

The Chamber's brief is an example, observers say, of a feeling within the business community that the government's crackdown on corporate behavior may have gone too far in the wake of the scandals at Enron and other big companies. With the passage of time, "perhaps the business community feels the climate is a bit better for them to push back" against some of those initiatives, says Robert Litt, a former senior Justice Department official and now a partner at the Washington law firm Arnold & Porter….

     The Chamber’s message to its members: we’re doing everything in our power to protect you—even when you violate the law. So, keep sending us your donations and membership dues. And, incidentally, to hell with the public interest.

     Leave it to the WSJ to avoid the obvious embarrassing issues and distract readers with minor issues. It states “Many U.S. manufacturers and policy makers believe much of China's growing share of the manufacturing pie is the result of the pegging of its currency, the yuan, to the dollar.”

     That’s undoubtedly true, but it pales in comparison to the fact that American workers make 1/10 or less than their Chinese counterparts.

From The Wall Street Journal, April 19, 2005.

Drag on Jobs

Fans of globalization believe the movement toward a more open world marketplace creates more winners than losers. Still, there are losers. Many of them live in the U.S.

The number of workers employed by U.S. manufacturers has fallen sharply. Since the end of 2001, according to the Labor Department, more than two million manufacturing jobs have been shed—a 13% decline. Thanks to freer trade relationships and innovations in supply-chain management, manufacturers can more easily take advantage of low wages outside the U.S.

The major beneficiary of this shift has been China. Alliance Capital Management economist Joseph Carson estimates China gained more than eight million manufacturing jobs in the three years ended 2004. Outside the U.S., the other 18 top economies lost 1.6 million manufacturing jobs during the same period.

It is the sort of dynamic that can lead to political friction, and, of course, it has. Many U.S. manufacturers and policy makers believe much of China's growing share of the manufacturing pie is the result of the pegging of its currency, the yuan, to the dollar. If the yuan floated freely, the feeling goes, its value against the dollar would rise—raising the cost of Chinese labor. It also would make U.S. products more competitive globally, and so reduce the burgeoning U.S. trade deficit….

     When the Journal notes “Still, there are losers,” it doesn’t even come close to describing how many losers there are, or how much they have lost. It’s not just the 10% of workers who lost their jobs who lost, it’s also the rest of the 90% of workers who have seen their wages stagnate because they no longer have any negotiating power.

     For a more extensive discussion of this issue see Outsourcing helps no worker.

     Ruthlessness pays. Read the following to see how much.

From The Wall Street Journal, April 19, 2005.

Two Big Firms Report
Strong Surges in Profit

Bank of America Net Jumps
By 75%, While SunTrust
Records a Gain of 36%

Bank of America Corp. and SunTrust Banks Inc., two of the largest U.S. banks by assets, reported surprisingly strong surges in first-quarter profit, propelled by recent acquisitions, robust loan growth and improved credit quality.

The results added to a string of impressive performances in the latest quarter from major U.S. banks, which remain generally optimistic about the economy. "We think the economy is very strong," Kenneth Lewis, Bank of America chairman and chief executive, said in an interview. The Charlotte, N.C., company predicted that continued growth in loans and deposits should offset the negative impact of rising interest rates.

Bank of America, the third-largest U.S. bank, said its net income rose 75% to $4.7 billion, or $1.14 a share, in the first quarter, from $2.68 billion, or 91 cents a share, a year earlier. Revenue climbed 47% to $14.22 billion from $9.7 billion.

SunTrust, the seventh-largest U.S. bank, saw its latest profit increase 36% to $492.3 million, or $1.36 a share, from $361.8 million, or $1.28 a share, in last year's first quarter. Revenue grew 29% to $1.88 billion from $1.46 billion.

Because of accounting rules, year-earlier results for Bank of America excluded FleetBoston Financial Corp., which was acquired in April 2004 for $47 billion. Bank of America said its latest quarterly profit would have risen nearly 37% if it had absorbed FleetBoston a year earlier.

SunTrust's results for last year's first quarter didn't reflect National Commerce Financial Corp., a Memphis, Tenn., bank purchased in October for about $7 billion. SunTrust said its profit would have been up about 9% if the acquisition had been included….

     So, B of A and SunTrust merge with other corporations, fire thousands of employees, and their investors and top corporate executives become fabulously rich.

     In 2004, Kenneth D. Lewis, Chairman CEO and President of Bank of America Corp. raked in $22,490,496 in total compensation including stock option grants, and has another $58,003,000 in unexercised stock options from previous years.

     In 2004, L. Phillip Humann, Chairman and CEO of SunTrust Banks raked in $3,717,440 in total compensation including stock option grants. From previous years' stock option grants, he cashed out $143,946 in stock option exercises, and has another $7,914,563 in unexercised stock options from previous years.

     To read more about how banks are becoming so incredibly profitable, see Switch to `hard' management is bad for society.

     Slavery is over, and blacks should just get over it, right? If blacks don’t become rich in this great country of ours, it’s their own fault, right? That might be true of individuals, but it certainly isn’t be true of entire classes of individuals.

     It also doesn’t take into account the factor of generational leverage. If your grandfather was rich, it’s more likely your father was rich, and that you also will become rich. Or, if your grandfather was poor, it’s more likely that your father was poor and that you will be poor. Obviously, there are exceptions, but that’s definitely true of classes of people.

     So, where do we stand today, in terms of black vs. white? The following two items in the WSJ give us a clue.

From The Wall Street Journal, April 19, 2005.


It Really Is Black and White . . .The National Urban League has issued its annual report on the state of black America. Sadly, but not surprisingly, the report concluded that economic and societal disparities continue to separate black and white Americans.

Today, the typical black household has a net worth of only $6,100, while a typical white household has $67,000. In recent years, the wealth gap between blacks and whites has been intensifying. Blacks are more likely to be unemployed, living in poverty, and in need of government assistance….

…blacks receive far less in return for their Social Security contributions. One in three will get no benefit at all because he will die before he is eligible to collect benefits. After a lifetime of paying into Social Security, nearly 30% of black seniors are left in poverty, compared to 7% of white seniors.

And while the average black male lives to age 67.8—after collecting less than one year of Social Security—the average white male will collect seven years of benefits. In effect, black workers are subsidizing the retirement of whites. The inevitable results of not reforming Social Security—raising payroll taxes or reducing benefits—would only worsen the situation for blacks.


From The Wall Street Journal, April 19, 2005.

Travel Guides for the Self-Absorbed

Crop of Tourist Books Targets
The Young and Fashionable;
Models' Night in Hong Kong

A new class of guidebooks is starting to advise tourists on the best way to do Europe. On thousands of dollars a day.

Breaking from the time-honored travel-book tradition—advising vacationers on the finer points of penny-pinching and doing things just like the locals do—the new titles take the opposite approach and instead feel more like a high-brow coffee-table book then a dog-eared guide. One new book, "Mr & Mrs Smith," a British guidebook series that will start selling in the U.S. early next year, recommends the high-priced Babington House in Somerset, England, as Britain's best getaway for "spoilt urbanites." Another new line, "A Hedonist's Guide," came out with six guidebooks in October, and will add another six this year, including one on Miami….

The books are mostly aimed at relatively young, style-conscious consumers, who are starting to show a willingness to outspend previous generations on vacations. "Starting in 2003, Generation X began traveling more per capita than baby boomers," says Bjorn Hanson, head of the Hospitality and Leisure practice at PricewaterhouseCoopers Intl. Ltd. Travelers born in 1965 to 1980 (loosely defined as Gen X) now spend more on both leisure and business trips than their elders….

It's also an effort to capitalize on the overall boom in luxury travel in recent years. U.S. hotel-room and occupancy rates are rising, and luxury hotels are reporting strong profit growth…

"Nota Bene" –a series of chic, slim guide booklets launched in 2000 –gives advice on which hotel rooms at the Mandarin Oriental in Miami are the best (the Biscayne Suites, which go for $3,500 a night) as well as guidance about which tables are "coveted" at The Ivy restaurant in Los Angeles. (They are VIP tables 36 or 37, located against the wall of the patio. Wicker table 45 is also a celebrity favorite.)

A Nota Bene subscription costs $450 a year for 10 issues and also sells at a handful of high-end stores world-wide, such as Colette, an upscale boutique in Paris; the Paul Smith store in New York; and the hotel gift shops at The Setai in Miami and The Argyle in Los Angeles. Subscribers get regular updates and can call in for personalized travel advice if they want….

     Undoubtedly, individual blacks and whites could be included in either story above, but for classes of people, you’re going to find that the class of people who dominate the first story are black, and the class of people who dominate the second story are white.

     It’s no accident. It’s the result of slavery (and its generational leverage that operates to this day) and continued discrimination—both political (e.g. Social Security legislation that raises the retirement age) and social (personal business and financial connections still mean a lot).

     And, of course, neither story touches one of our most important political biases today: our total unconcern about the living standards of working-class Americans—that are being destroyed by such policies as globalization.

     Again today, April 18, in the form of five separate articles, from three separate publications, we have a capsulated description of the deliberate hypocrisy of conservative economists and politicians—and the disastrous results of their duplicity. The results of their belief in aristocracy—vs. true democratic capitalism—are continuing to demonstrate themselves.

     The first illustrates the bald-faced dishonesty of conservatives who still pretend that they had no idea that their policies would ultimately be disastrous for American workers. Ian Sheperdson either has an IQ under 80, or is a deliberate liar and hypocrite when he writes that “The softness of wages is one of the big surprises of this economic cycle.” Instead of the obvious, he chooses to distract American voters from the realities of our economy and blames the Iraq War for our problems.

     The second excerpt provides a specific example of how American investors are in the process of giving our pharmaceutical industry to India. First, it was just giving them the ability to reproduce our already-developed drugs. Then it involved outsourcing our research facilities there. Next, it will be a total investment in Indian corporations—with the complete abandonment of American workers at all levels of employment. And this is just one industry among many that are going through the same process.

     The third excerpt describes our present status in the world in relation to China and India, as a result of our globalization policies. China now leads the world in manufacturing, and India is becoming the leader in technology. And they both are utilizing their economic power to become more powerful militarily.

     The fourth excerpt clearly describes in broader terms why corporate profits have been exploding, while wages have been suffering: a ruthless devotion to labor cost reduction, globalization and massive investment overseas instead of in our own country. It’s all there. Serious students of the subject should read the original.

     The fifth is an editorial by the best and most entertaining conservative economic analyst in the country, Alan Abelson, editor of Barron’s, the publication for serious investors. He accurately describes the anemic economic “recovery” we’re having, and obviously endorses the opinions of Paul Volker, who suggests why our ultimate disaster is almost assured. (It was Abelson who said: “In a correction, other people's stocks go down. In a bear market, your stocks go down.”)

     Given Bush’s massive tax breaks for the rich, we should be having the most prosperous economy in the history of the world. Instead—since most of the wealth is increasingly in the hands of the wealthiest, instead of in the hands of consumers, as in 1929—we’re on the brink of economic collapse.

From Barron’s, April 18, 2005.


The Iraq Equation

The war is keeping a lid on wage increases

By Ian Sheperdson

The softness of wages is one of the big surprises of this economic cycle. Even though the unemployment rate declined from its June 2003 peak of 6.3% to 5.2% in March, the year-over-year rate of growth of hourly pay has been stuck at just over 2½% for six months. The last time the jobless rate was at its current level and declining, back in the spring of 1997, wage gains were running at nearly 4% per year.

Moreover, the latest data show inflation at 3%, which means that real hourly incomes are falling outright. Only an increase in the number of hours worked is preventing a drop in the spending power of people paid hourly.

In most developed countries, there's no clear short-term linkage between the degree of slack in the labor market and the rate of wage increases. Regulation, trade-union power and the broad social safety net in countries such as Germany and France make it normal for relatively strong wage gains and extremely high unemployment rates to co-exist. Despite a 10.1% jobless rate in France, wages are rising slightly faster than they are here….

Wages are by far the biggest cost for most companies, so it was only natural that they focused their attention there. They were pushing on an open door: In an environment where the recession was still very fresh in peoples' minds, employers were able to leverage fears of war and terrorism into lower wage increases. Better to have a job with a smaller pay raise than no job at all….

Unfortunately for companies, wage gains will pick up just at the time productivity growth is slowing. This is a normal cyclical event, but it has been delayed. Again, the war is the culprit; it persuaded companies to revisit their operations and squeeze out efficiency gains that in a normal cycle would have been ignored in the rush for expansion….


From Business Week, April 18, 2005.

India: Bigger Pharma

Tougher patent protection laws are spurring rapid growth in new drug research across the country

…Looking for the next area of science and technology where India will challenge the West…? Pharmaceuticals may be it. Nicholas Piramal -- annual revenues, $350 million -- runs one of four pharma research centers that have sprung up in India in recent months. The country now has more than 50 drug research centers, and more are expected this year. The reason: India's new patent protection law, which brings Indian legislation in line with World Trade Organization norms.

The law took effect in late March -- and its passage means Indian companies can no longer ignore the patents of multinational drug companies and produce unlicensed generics, as they have done for 30 years. What Indian pharma companies hope to do instead is develop and sell around the world both licensed generics and their own branded, patented drugs.

Thus the spate of new research facilities. "Indian companies are no longer going to be just copycats," says Dr. Swati A. Piramal, the director of the Piramal center. "We want to take our rightful place at the head table with the developed nations."…

In the fiscal year ended in March, 2004, a total of 855 drug patents were filed by Indian companies, up from virtually zero 10 years ago, according to India's Ministry of Science & Technology. Perhaps most important, India has in pharma what it has in info tech -- thousands of well-trained specialists who bring home wages a third or less of those in the West….

Several Indian drugmakers have already struck outsourcing deals with multinationals to produce generic and patented drugs. Nicholas Piramal, for instance, has $500 million worth of contracts over the next eight years to manufacture compounds for companies including Allergan (AGN ), Advanced Medical Optics (AVO ), and Novartis. "Indian companies are trying everything," says Ajay Sharma, pharma analyst at brokerage CLSA in Bombay. "They are learning and earning."

Once they have learned, the best of the Indian companies will declare their independence. "In the future, we want to be a discovery-led company, an innovator company," says Satish Reddy, CEO of Dr. Reddy's Labs. A pharma juggernaut from India? Not yet. But India will definitely be a player.


From The Wall Street Journal, April 18, 2005.


Sour Turns Sweet


…No doubt, China and India are competitors. China has already become the factory of the world, while India is gradually becoming the world's laboratory and back-office. China is seeking to emulate India's remarkable surge in software and IT-enabled services, while India is aiming to match China's stunning success in manufacturing.

Both China and India are aggressively seeking hydrocarbon concessions in Central and East Asia, West Asia, Russia, Latin America and Africa—in Sudan, they are joint-venture partners. Both countries are modernizing and expanding their military capabilities….

Over the past decade, economic growth in India has averaged over 6% per year, making China and India the two fastest growing economies…


From Business Week, April 18, 2005.

U.S.: Why Profits Are Defying Gravity

More pricing power and better foreign earnings will fuel the bottom line

…Since the second quarter of 2003, earnings have consistently surprised analysts on the high side of expectations, and several forces—some old and some new—are in place to keep profits growing at a healthy clip….

True, productivity has slowed, but it hasn't collapsed, as businesses remain intent on managing their costs in highly competitive markets. That's why, as the March employment report showed, job growth is still the slowest of any post-World War II recovery. Also, an increasing percentage of profits is coming from operations abroad, not only due to the favorable effects of the dollar's decline and new tax treatment of foreign earnings but also because of the greater presence of U.S. businesses in foreign countries.

Perhaps most important, demand by consumers and businesses remains much stronger than expected, a factor that has fostered a new trend: greater pricing power. The ability to lift prices will help to offset rising costs and to allow further expansion in profit margins….

In addition, profit margins widened sharply. Profits per unit of output for nonfinancial companies rose to 12.3% in the fourth quarter, the highest in seven years. What this means is that businesses are making more profit from every unit of output sold.

Fatter margins highlight what's new about profits. Although cost-cutting never goes out of fashion, companies are more vigilant about costs than was generally expected for 2005. And on top of that, businesses are enjoying better pricing power than was forecasted.

You don’t have to look any further than the slim rise of 110,000 jobs in March to see that companies remain cautious about the cost of new hires and that they are not about to let productivity growth slip too far….

For the quarter, overall hours worked increased at a 2% annual rate from the fourth quarter. If the economy grew by about 4% last quarter, as is widely anticipated, productivity would appear to have risen at about a 2% clip. That pace is a slowdown from last year, but it's still close to the elevated long-run trend of recent years. For profits, productivity growth at that rate will help to hold labor costs in check….

Corporations are keeping an eagle eye on holding down their labor costs because the prices they're paying for other goods and services are inching up all along the production pipeline. The latest reports from the Institute for Supply Management show service and manufacturing companies are paying more for materials and services….

Another increasingly critical aspect of the U.S. profit outlook is globalization. U.S. multinationals have been racking up a record level of profits from their foreign operations, prompting them to invest even more in their overseas affiliates. That trend should continue in 2005, in part because of the dollar's continued decline and because U.S. multinationals view overseas economies as the best new sources for revenue….

Given the recent surge in overseas direct investment by U.S. companies, it's not surprising that foreign earnings are soaring. Robert J. Barbera, chief economist at consultants Hoenig (ITG ), believes the rise in foreign earnings reflects "the role U.S. multinationals are playing in the boom in Asia." The flip side of this trend is that "the earnings gains are generating strong investment and employment in Asia, not the U.S.," notes Barbera. His observation connects the dots to how a better profits outlook will keep job growth from matching the strong performance of past recoveries….


From Barron’s, April 18, 2005.


By Alan Abelson

…The recovery is still with us—but less so, it seems, with every passing day. For that matter, except for corporate profits, which have grown pleasingly plump, and certain frenzied parts of the economy like housing, where the boom is fast going from the improbable to the implausible, the recovery has never really flexed the kind of muscle with which economic expansions of the latter half of the last century wowed us….

…the poor old recovery, instead of a fresh start, actually began life saddled with widespread and formidable overcapacity. That virtually assured companies would be exceptionally timid in expanding and hiring, the two main spark plugs of a strong rebound. A glaring result has been a lopsided upswing, conspicuously lagging in jobs, wages and innovation. Not surprisingly, as the latest readings confirm, it has not inspired anything extraordinary in the way of manufacturing output or consumer or business confidence.

What it has provoked is a peculiar disquiet among a smattering of economists and any number of civilians as well, a disquiet that was rather eloquently expressed by Paul Volcker, Mr. Greenspan's predecessor as the big cheese at the Fed, in a recent speech at an economic gabfest at Stanford and an even more recent op-ed piece in the Washington Post.

Citing "disturbing trends, huge imbalances, disequilibria, risks" lurking beneath the placid surface of the economy, he confesses they strike him "as dangerous and intractable as any I can remember, and I can remember quite a lot." And what bugs him even more is that no one appears very interested in, let alone capable of, doing anything about it.

Even those sectors of the economy that bespeak strength on closer inspection prove less than encouraging. "We're buying a lot of housing at rising prices," Mr. Volcker concedes, but goes on to echo someone's nifty formulation that houses are now as much an ATM machine as a place to live in.

He points out that as a nation, we're consuming and investing roughly 6% more than we're producing. That's a neat trick, and we're able to pull it off by grace of huge gobs of money imported from abroad, some $2 billion worth a day. In the process, we're absorbing a mind-boggling 80% of the world's net flow of capital.

Central banks in China and Japan and elsewhere in East Asia for the moment are happy to supply the dough, while their countries provide the stuff that crowd our shops and our garages. But, Mr. Volcker cautions, those indulgent foreigners, whether central banks or private institutions, at some point "will have their fill of dollars."

More than likely, he reckons, the cause of such a disruptive change will be "financial crisis rather than policy forecast." More specifically, if the deficits and imbalances continue to grow—and we don't get the impression Mr. Volcker would bet against that prospect—confidence in our capital markets is destined to wither. When and if that happens, the consequences for us and the global economy will be downright awful.

"We're skating on increasingly thin ice," Mr. Volcker declares. And the only way to negotiate this dangerous passage is the old-fashioned way: by getting serious about monetary and fiscal discipline. It's urgent that we do so, he plainly believes. But, just as plainly, he's anything but optimistic that we will….

     For those who have trouble connecting the dots, consider these key statements:

  • “The softness of wages is one of the big surprises of this economic cycle.” Implication: “Gee whillikers, we conservatives should be held blameless for the looming economic disaster—because we had no idea that our efforts to destroy working-class wages would go this far.”

  • “Unfortunately for companies, wage gains will pick up just at the time productivity growth is slowing. This is a normal cyclical event, but it has been delayed." Meaning: the normal (desirable) economic cycle is:

    • growing corporate profits and stagnant wages, and then

    • exploding corporate profits and slowly growing wages, which lead to

    • slowing corporate profits and growing wages, which means it’s time for the Fed to raise interest rates to slow down the economy and again destroy the power of workers to negotiate for decent wages. It’s the immoral, downright unAmerican standard that an economic system should be designed to benefit investors, business persons, and top corporate executives—not mere people who actually work for a living.

  • “Once they have learned, the best of the Indian companies will declare their independence [from the U.S.].” Meaning: after American corporations have given them all the technical sophistication they need, they’ll use their “thousands of well-trained specialists who bring home wages a third or less of those in the West”—to destroy the American pharmaceutical industry, including its research activities.

  • "China and India the two fastest growing economies." The lesson is obvious: the countries that control and develop the production of goods will have a thriving economy. Countries that don't have manufacturing will gradually become subservient to those who are actually producing the new wealth of the world—and, incidentally, who are becoming stronger militarily.

  • “…the March employment report showed, job growth is still the slowest of any post-World War II recovery…In addition, profit margins widened sharply….businesses are making more profit from every unit of output sold.” Meaning: corporations are taking a huge share of the wealth that workers are producing, and, in return, are giving workers as little as possible.

  • “You don’t have to look any further than the slim rise of 110,000 jobs in March to see that companies remain cautious about the cost of new hires.” Meaning: in the name of profit, working conditions for the lowest levels of American corporations will continue to degenerate, as executives demand ever increasing output from a stagnant workforce.

  • “Another increasingly critical aspect of the U.S. profit outlook is globalization. U.S. multinationals have been racking up a record level of profits from their foreign operations, prompting them to invest even more in their overseas affiliates. Given the recent surge in overseas direct investment by U.S. companies, it's not surprising that foreign earnings are soaring.” That just about says it all, and if it needs to be explained to you, you haven’t been paying attention.

  • This economic recovery is “a lopsided upswing, conspicuously lagging in jobs, wages and innovation.” Again, that just about says it all when it comes to who are benefiting from this economic “recovery,” and who are making all the sacrifices.

  • “…indulgent foreigners, whether central banks or private institutions, at some point 'will have their fill of dollars.'" And “…confidence in our capital markets is destined to wither. When and if that happens, the consequences for us and the global economy will be downright awful.” Meaning: eventually, our economic policies will be disastrous, not only for American workers, both skilled and unskilled, but for our less sophisticated investors as well. (Smart, or lucky, investors will get out of the markets in time, and follow their usual practice of buying up bankrupt farms, houses, businesses, etc.)

     Why the American public chose to ignore last point—is truly a mystery that will be analyzed by historians for decades to come.

     And remember, combinations of articles like the five above have been repeating themselves for the past several years. It’s only a matter of time before economic and social realities demand their due.

     By now, American top corporate executives can no longer pretend ignorance about the environmental destruction they are causing by their political and business activities. They read about it daily. Yet, they're still getting anti-environmental Republicans elected to office, and are choosing to remain blind to the obvious destruction their corporations are causing.

From Business Week, April 18, 2005.


As The World Turns – For The Worse

March went out with a roar of warnings, with three separate studies painting a bleak environmental picture. The weightiest was the U.N.'s Millennium Ecosystem Assessment Synthesis Report. The result of four years of work by 1,300 experts in 95 countries, it warns that without radical policy changes by business and government, the world will see fishing grounds turn into "dead zones" and abrupt regional-climate changes.

The Climate Monitoring & Diagnostics Laboratory on Mauna Loa on Hawaii notes that levels of carbon dioxide rose last year for the 47th consecutive year. And new computer modeling by Colorado's National Center for Atmospheric Research predicts the atmosphere will keep warming for decades.

     What will it take to convince top corporate executives that they should behave like mature human beings with at least some semblance of moral responsibility?

     Another chronic conservative is finally seeing the light. And it isn’t pretty.

From Fortune, April 18, 2005.

We're a Nation Helpless to Save Ourselves

Living beyond our means hasn't caught up with us—at least not yet.

By Geoffrey Colvin, senior editor at large of Fortune

Sometimes one of the day's great issues does us the favor of pounding us on the head so hard we can't ignore it, and one of them has done that just lately. The issue is saving vs. consuming, prudence vs. profligacy, later vs. now. It's everywhere:

  • The debate over Social Security reform is turning nasty—witness the vituperative dueling ads from AARP and USA Next—highlighting the bitter reality that most baby-boomers haven't saved enough for their imminent retirement.

  • We've just learned that January earned the dubious distinction of marking not only America's largest ever budget deficit, meaning the federal government spent far more than it took in, but also one of America's largest ever trade deficits, meaning we as a nation bought much more from other nations than they bought from us, so we essentially put the difference on our credit card.

  • Warren Buffett published his annual letter to shareholders, arguing passionately that our stupendous trade deficit—our insistence on giving away claims on our future just so we can continue shopping the world—is turning us into a "sharecropper's society."

  • A new bankruptcy bill is about to become law as personal bankruptcies rocket. Last year more than a million of us were under so much debt that we were willing to give up almost everything we owned just to get that debt canceled.

  • A new book, American Mania: When More is Not Enough, argues that we Americans are uniquely driven to be hyperconsumers, even though it's making us miserable.

That's a striking confluence of indicators. The overwhelming impression is that we're a society living way beyond our means and seemingly helpless to save ourselves. The inescapable big question is whether we're headed for some kind of crisis or maybe just a gradual descent into misery—or whether all the handwringing is merely the latest installment in a long tradition of fretting over American acquisitiveness, which has never proven justified.

I'm afraid I tend toward the gloomy view, though deeply mindful of that view's incredibly poor record….

The result, years from now, could be Americans paying unimagined portions of their income to cover their parents' and their own debts (personal and national) and to pay interest and dividends to the foreigners who financed our long shopping spree.

That experience could even be as traumatic as the Depression was for an earlier generation and lead, as it did then, to a generation of champion savers and investors. That is, America could come out stronger—eventually. I believe it always does. The question is how much pain we'll need to turn us around. Right now it's looking like a lot.

     Of course, what’s missing in Colvin’s assessment of our economy is an admission of the role of Republicans and conservative Democrats in causing our problems. In order to maximize corporate profits and investor wealth, they deliberately pursued economic policies that destroyed the income and living standards of working-class Americans. This has led, ultimately, to the very problems Colvin enumerates.

Week of April 11

     Want to know why having manufacturing and growing industries in your own country is so good for a nation’s economy? Just look at India—and the fact that Republicans and conservative Democrats have given it and so many other countries such a large share of our own.

From The Wall Street Journal, April 15, 2005.

Good Numbers From India
Could Ignite a Market Rally

If Corporations Announce
Strong Profits, Projections,
Flood of Funds May Come

BOMBAY, India –Strong profit growth forecasts could spark a rally on the Indian stock market, many local and international analysts and investment managers say.

During the next two weeks, Indian companies will be announcing results for the quarter ended March 31. Analysts expect many blue-chip concerns to report earnings growth of more than 20% from a year earlier….

"As long as good earnings come, funds will find their way here," he says. "There are a lot of new local funds and foreign funds that are just starting to get a taste of India."

India's economy is among the world's fastest growing as companies expand production facilities, the government spends billions on new roads and power plants, and an expanding middle class of 300 million Indians spends more….

     Just think of the growth of jobs—and improvement in the living standards of working Americans—we would have in the U.S. if we had kept more industry in our own country. We would still be “…among the world's fastest growing as companies expand production facilities, [and] the government [would spend] billions on new roads and power plants.”

     It’s crystal clear: Republicans and conservative Democrats have not only sold our working-class citizens down the river—they’re rapidly destroying the greatest economy the world has ever known.

     It should be no mystery why medical care expenses are going through the roof. Evidence is being published daily.

     As you read the following, remember that UnitedHealth Group’s CEO, William W. McGuire, raked in $42,802,127 in total compensation including stock option grants in 2003. From previous years' stock option grants, he cashed out $84,176,032 in stock option exercises, and now has another $721,831,169 in unexercised stock options from previous years.

From The Wall Street Journal, April 15, 2005.

UnitedHealth's Earnings Jump 41%

UnitedHealth Group Inc. reported a 41% increase in first-quarter net income, but lower-than-expected growth in health-plan enrollment caused concern among investors….

The company, based in Minnetonka, Minn., posted double-digit profit increases across its business units, which include health-care services, data research and insurance for individuals and employers, as well as Medicaid and Medicare plans.

Much of the boost came from leaner operating expenses, which fell to 14.9% of revenue, and higher premiums, which stayed comfortably ahead of moderating medical costs….

The company's chief executive, William McGuire, said he expects medical-cost increases to continue to moderate slightly this year. "It's shaping up to be a very positive year," he said….

     If you think that the huge profits made by corporations, medical or otherwise, or the incomes of CEOs aren’t important to you—check out the file Wealth is a Zerosum Game.

     The Wall Street Journal continues to amaze. This description of the debate about estate taxes is as accurate as you’re likely to find. It’s publication is a credit to a newspaper that has always editorially supported the elimination of the tax.

From The Wall Street Journal, April 14, 2005.

Populist Scythe Aids
'Death Tax' Foes

…The estate tax this year will fall on those who leave assets of more than $1.5 million. That is about 18,800 of the 2.5 million people expected to die this year, according to the Brookings Institution-Urban Institute Tax Policy Center. Only 440—that isn't a typo—will be estates in which half or more of the assets are farms or family-owned businesses, the cases so highly publicized by those who want to kill the tax.

The tax will bring in about $18 billion this year, enough to fund the National Aeronautics and Space Administration, with a few billion dollars left over.

All this has Michael Graetz, a Yale Law School professor and the top Treasury tax official in the first Bush administration, wondering: "How could a tax that applies only to the richest 2% of the American public become anathema to 70% of the population and be repealed by bipartisan votes in both the House and the Senate?"

In a new book, "Death by a Thousand Cuts," that tries to unravel the mystery, Mr. Graetz and Yale political scientist Ian Shapiro show how defenders of the tax underestimated the tenacity and shrewdness of the other side and mistakenly thought reciting facts would keep public opinion on their side.

Advocates of repeal steered the issue away from facts to morality, declaring the estate tax an unfair levy on success. They also put faces on it—U.S. farmers and small-business owners, never rich fellows who wanted to bequeath mansions or portfolios. One of the most prominent belonged to Chester Thigpen, a tree farmer from Mississippi, who testified in favor of repeal at age 83 in 1995. "It turns out," Mr. Graetz reports, "that Thigpen's estate was too small to be affected by the estate tax, but that was just a detail."

Those opposed to repeal never found a way to counter such stories. "The only reason you were given to oppose repeal," Bill Frenzel, a former Republican congressman from Minnesota, said the other day, "was that somebody else whom you don't know...and none of your friends or neighbors know, who lives in a gated community in the Caribbean, is going to pay this tax."

With hindsight, Mr. Graetz says estate-tax defenders (of whom he is one) should have focused on the children who were lucky to be born to wealthy people. "We could have called it the Paris Hilton Benefit Act," he says….

As both sides realize, the stakes in this year's estate-tax debate are larger than the small number of people it hits. It is part of a debate about how much to use the tax code to arrest the widening gap between rich and poor.

     Key statement above: “Advocates of repeal steered the issue away from facts to morality, declaring the estate tax an unfair levy on success.” That’s exactly correct, and that’s why I put the counter-argument on this website at least three years ago. So far, I’ve heard no Democrats who have the courage or character to use it. Is it because too many of them—like the Republicans—are the direct representatives of the rich and powerful of our country?

     Check it out. It’s at Best argument for taxing the rich.

     We’re seeing a trend all over the world: countries are beginning to realize the economic disaster they have created—and, increasingly, are taking steps to reverse economic policies that favor the rich and powerful at the direct expense of the poor and powerless.

From The Wall Street Journal, April 14, 2005.

Germany Moves to Curb
Flow of Foreign Labor

BERLIN—German leaders agreed on measures to curb the flow of inexpensive foreign labor, including a law that would require all nondomestic companies doing business in the country to pay workers full German wages.

The proposals come in response to a growing popular perception that low-cost migrant workers from the European Union's new member states are threatening German workers' jobs….

The worries about nondomestic workers' pay have led Mr. Schroeder to oppose a push to let EU citizens offer their services anywhere in the bloc for home-country wages.

     Think of what would happen if “nondomestic workers' [could] offer their services anywhere in the [U.S.] for home-country wages.” Chinese or Indian workers, even the high-skill ones, could come here and displace American workers making 1/10 or 1/3 as much.

     Again, it would be an economic boon for investors and business owners, but a disaster for those who actually work for a living.

     This one brief article is a snapshot of the effects, and true intent, of globalization.

     The most important point of the following excerpt isn’t even discussed in the article.

     The point? As long as globalization affected the living standards of only working-class Americans, Congress could ignore the horrible implications of its betrayal of them. But now that it’s becoming painfully obvious that outsourcing our industries may affect the viability of our economy itself—and affecting rich investors—they’re getting concerned.

From The Wall Street Journal, April 13, 2005.

Trade Gap Widens, Fuels Calls
For Tougher Stance on China

Deficit Hit Monthly High
With 4.3% Rise in February;
Congress Pushes for Action

The trade deficit pushed to a monthly record in February of $61.04 billion, providing fuel to critics on Capitol Hill urging the administration to more aggressively combat unfair trading practices….

The trade deficit, on a sharp trajectory upward for the better part of two years, raises concern among economists about how long the U.S. will be able to attract the foreign capital needed to finance the gap between what Americans consume and what they produce. So far, demand abroad for U.S. stocks and bonds remains steady, but any pullback could undermine the U.S. economy, spurring sharp interest-rate increases.

In the near term, though, February's deficit suggests the U.S. economy may not have grown as much in the first quarter as expected, since a larger than expected share of consumer spending appears to have been on imports rather than domestically produced goods and services. Charles McMillion, president and chief economist at MBG Information Services in Washington, said he expects the "growth of jobs, wage and tax revenues will likely remain sluggish and could slow far more sharply in the coming months."…

For the first two months of 2005, the U.S. trade deficit with China totaled $29.12 billion, 50% wider than in the year-earlier period. For February alone, the deficit with China was $13.87 billion, narrower than the $15.3 billion gap posted for January. But even with the narrowing, the U.S. deficit with China was the largest of any single country, double the deficit with Japan, the next closest….

Additionally, a wide coalition of senators is backing legislation to impose a 27.5% tariff on all Chinese products entering the U.S. if Beijing doesn't agree to raise the value of its currency.

Supporters say the amount of the tariff is set to offset China's currency advantage, and no more. But currency markets don't intersect in such a simple way with goods markets and, in reality, such a large duty probably would boost prices of Chinese-made goods significantly more than any currency adjustment.

      “[A] wide coalition of senators is backing legislation to impose a 27.5% tariff.” No kidding. We’re relearning the same lessons we learned in the 1920s and ’30s.

     In 1930, the entire world learned that pitting workers of the world against each other in the race to the bottom in wages and working conditions would ultimately prove disastrous. The rich everywhere got richer, and the poor got poorer.

     As social conditions degenerated, they all started protecting their workforces, through tariffs, as Roosevelt and the Democrats did in the U.S. As a result, through tariffs and other social and economic programs, we turned the U.S. economy around, and created the vibrant middle-class that made our country great.

     If prominent corporate executives are willing to willfully violate the law to prevent their workers from forming unions—just think of their willingness to finance even legal methods of destroying unions.

From The Wall Street Journal, April 13, 2005.

Union Files Claim vs. Wal-Mart

A food-workers union said it filed charges of unfair labor practices against Wal-Mart Stores Inc. to pressure the retailer to release documents relating to allegations that Wal-Mart's former No. 2 executive may have financed covert antiunion efforts.

Thomas Couglin, Wal-Mart's former vice chairman, resigned from the board in March after Wal-Mart found what it said was a pattern of expense-account abuses and the use of false invoices to obtain reimbursements. Mr. Coughlin told several associates that the expense payments were really a secret way of repaying him for sums he was spending to get information about labor sympathizers in Wal-Mart stores….

The union initially requested the documents after a page one story on Friday in The Wall Street Journal detailed Mr. Coughlin's alleged attempts to get subordinates to create false invoices that allowed him to charge personal items to Wal-Mart. Mr. Coughlin told several Wal-Mart employees at the time that he needed to be paid back for antiunion work….

Wal-Mart, with more than one million employees, is known for being antiunion. Its stance on unions has roiled wide swaths of the retailing economy, with competing retailers trying to slash wages and benefits to keep up with Wal-Mart's low prices. The United Food and Commercial Workers union has been at the forefront of efforts to try to unionize Wal-Mart.

One former Wal-Mart executive has told investigators that Mr. Coughlin told him that he was paying union members for information about union sympathizers in Wal-Mart stores. If such payments were made, they would constitute a criminal violation of the federal Taft-Hartley Act.

     To better appreciate the disastrous effects that a predatory corporation like Wal-Mart has on the wages of workers, check out the op-ed, Wages, working conditions still deteriorating.

     And, of course, the main reason predatory corporations like Wal-Mart exist is that our pro-business, anti-worker economic political policies—brought to us by Republicans and conservative Democrats—greatly favor them at the expense of everyone else.

     The following, ladies and gentlemen, is just one more in the endless series of articles describing the incredibly low standards and skullduggery of our securities industry. Note that these clowns are “elite” specialists on the stock exchange.

From The Wall Street Journal, April 13, 2005.

Fifteen Indicted in NYSE Case

Elite Specialists Are Charged;
Exchange Also Settles Civil Charge
And Will Videotape Its Traders

Fifteen of the elite traders who oversaw stock auctions on the New York Stock Exchange's floor were indicted on charges that they cheated investors, as the Big Board tried to close one of the most-difficult chapters in its 212-year-old history by settling civil charges that it failed to police the traders. Those facing criminal charges for trading for their firms' own accounts at the expense of customers included several floor traders -- working at what are known as specialist firms -- who had been among the highest ranking in the NYSE's tightly knit community….

The SEC said that unlawful trading by all seven of the exchange's specialist firms cost investors more than $158 million. In some cases, the individual specialist traders showed disdain for the electronic Designated Order Turnaround system over which customer orders are entered at the NYSE, punctuating their improper trading with statements such as "screw the DOTs," according to the SEC….

In an indication of how widespread prosecutors say the alleged wrongdoing was, seven former traders from one firm, Van der Moolen Specialists, were charged with conspiracy to commit securities fraud, as well as the trading violations themselves….

"These specialists took advantage of the very customers they were obliged to serve, and undermined the public's confidence in the market," said Mark Schonfeld, director of the SEC's New York office. He also criticized the NYSE for being too slow or weak in its monitoring, investigating and disciplining of wayward traders….

     Just think. This is the industry that Republicans and the Bush Administration want to entrust with some of your Social Security funds.

     The April 12 issue of The Wall Street Journal is almost a summary with what’s wrong with our government and our economy.

     Our government is broken, being totally controlled by the rich and powerful—through the money (and corruption) of lobbyists—which, in turn, leads to the ability of corporations to take ruthless advantage of everyone else.

     The first two articles describe the disaster of globalization, which was a thinly veiled strategy to destroy the wages of Americans who actually work for a living—and all to benefit investors and the already wealthy. And when the economy crashes (and it will), those who will benefit most will be the early investors in globalization who got out in time. They’ll be even wealthier, and will be able to take advantage of the financial carnage that will follow (just as in the 1930s, when they bought up bankrupt farms, houses, businesses, etc.).

     The third article describes how even ethical and principled business persons must get money or benefits into the hands of politicians, if their interests are to be represented in Congress and the White House. Of course, the poor and powerless have almost no representation in Congress at all.

     The fourth article describes how bankers—who understand markets, and who control the flow of money—always rise to the top of the economic pyramid in a society. This was described quite well in a book everyone should read: Will and Auriel Durants’ Lessons of History. The article also describes how the rich and powerful are always able—in the absence of government leaders who value the moral standard of utility—to take ruthless advantage of the less rich and less powerful.

     For a more extensive discussion of the moral standard of utility, see the file, UTILITY: Our Abandoned Moral Standard.

From The Wall Street Journal, April 12, 2005.

China's Exports Boom,
Boosting Trade Surplus

Textile Sales Fuel Growth,
Which Is Raising Concerns
Of Lawmakers in U.S., EU

A surge in textile exports helped widen China's trade surplus again last month, likely adding to political pressure from the U.S. for an appreciation of the Chinese currency….

For last month alone, China's trade surplus reached $5.73 billion, growing from February's $4.62 billion, and turning around from a deficit of $540 million in March 2004. In the first quarter, China's exports hit $155.89 billion, up 34.9% from a year earlier, while its imports were $139.31 billion, up 12.2%, Xinhua reported….

A flood of Chinese imports began after Dec. 31, when the intricate global system of quotas on textile exports expired….



By Justin Lahart

Fault Lines

Investors tend to think of the growing U.S. trade deficit the same way Californians think of the grinding of tectonic plates far beneath their feet. Occasional tremors set them momentarily aquiver over what might happen, but mostly they get through their day without thinking about it.

But by the end of this year, investors may not find it so easy to push the bad news aside.

Economists on average expect today's report on the U.S. trade position from the Commerce Department to show the February trade deficit widened to $58.8 billion from January's $58.3 billion. It could end up being even wider….

Meantime, thanks in part to the ending of textile quotas this year, imports from China likely continued to rise. In other words, U.S. imports amount to so much more than U.S. exports that, absent a major shift, the trade deficit can't help but widen….

So far, foreign institutions, particularly central banks, have been funding the current-account gap by purchasing U.S. Treasurys and other the securities—essentially accepting IOUs for the things their countries sell to America. Mr. Setser worries that the day is coming when the deficit has become so wide that they no longer will be willing to accept U.S. chits.


Legislative Grind

Cautiously, Starbucks Puts
Lobbying on Corporate Menu

As Coffee Retailer Grows,
It Seeks Place in Capital

SEATTLE—Kris Engskov, head of Starbucks Corp.'s fledgling lobbying effort, won his first real victory last October: a tax break worth millions to the company. His boss had mixed emotions.

Starbucks Chairman Howard Schultz was glad to win the tax break, but he was disturbed by a wave of editorials and news reports labeling his hip and fast-growing company a money-grubbing special interest and referring to the provision in the 2004 tax bill as the "Starbucks footnote." Mr. Schultz recalls promptly tracking down Mr. Engskov at the company's headquarters and, waving some of the articles, pressing him for an explanation. "Tell me about this," he said.

Mr. Schultz's discomfort offers a glimpse at the uneasy transition a group of cutting-edge entrepreneurs of the 1990s face as they take their first steps into Capitol Hill lobbying. They saw explosive growth in recent years but now realize the road to future prosperity runs through Washington. Red Hat Inc., a software company;, a job-search Web company; and Google Inc., the search-engine giant, all hired their first lobbyists within the past few years.

These newcomers to Washington are caught in a bind: They have the same desires as every other company -- tax breaks and trade deals. But they find the horse-trading aspects of lobbying, including political donations and asking for favors, often conflict with their public image as idealists changing the way business is done….

It has fallen to Mr. Engskov, a 33-year-old Arkansas native, to cajole and lead a wary Starbucks into the Byzantine world of Washington.

A former personal aide to President Clinton, Mr. Engskov met Mr. Schultz in 1994 on an East Hampton, N.Y., sidewalk during a presidential trip….


Merchants Balk
At Higher Fees
For Credit Cards

The letter that arrived in late February at 30 Minute Photos Etc. was so nondescript that co-owner Carl Berman nearly tossed it in the trash. But then he read the fine print that infuriated him: As of April 1, merchants like 30 Minute Photos would pay a higher fee when customers used one of several premium Visa and MasterCard credit cards issued by the country's biggest banks.

Merchants swallow the per-transaction "interchange" fees they fork over when customers pay by plastic because they chalk it up to the price of doing business in a credit-card world. But now they are incurring increasingly higher fees for certain trendy cards that give affluent consumers an array of perks—from an early chance to score hot concert tickets to snagging reservations at a popular restaurant….

"This is another one of those opportunities for credit-card companies to enhance their revenue stream on the backs of merchants," says Mitchell Goldstone, co-owner of the Irvine, Calif.-based photo-developing retailer that also operates a national online photo service.

Fee increases aren't limited to premium cards. The National Retail Federation estimates that the latest round of interchange fees will raise rates anywhere from 2.7% for a basic Visa card transaction to 9% or more for a transaction made with a corporate card from MasterCard. All types of credit cards are included in the fee increases—premium cards linked to airlines, for instance. Fees on a few cards will actually drop; Visa recently lowered some debit-card interchange fees.

But the gap between the fee rates for basic and premium cards is widening. On April 1, MasterCard for the first time raised the fees on its premium World card higher than those on its normal card. Visa, which had already been charging more for the use of its high-end Signature card, has raised those prices again….

Big merchants with large numbers of transactions can often negotiate better interchange rates from Visa and MasterCard than smaller businesses. A large gas station chain, for instance, may pay less than the owner of a single restaurant….

Ultimately, consumers may feel the effects of the fee increases if merchants raise prices to cover their costs. The National Retail Federation, for one, calls the fee increases a "hidden tax increase for American consumers."…

     The above articles, and the endless number of ones like them, present an especially sad commentary on America’s most educated and powerful leaders. They read articles like these every day. Yet, they continue behaving the way greedy and powerful people have always behaved throughout the world’s history—regardless of the long-term impact on society, and even on their own descendants.

     It took The Wall Street Journal, no less, to point out what should have been obvious to everyone about Social Security. One of the most important causes of the Social Security “crisis” is that workers’ incomes have been stagnant—relative to inflation—for the past 30 years, while the incomes of rich Americans have been steadily going up.

From The Wall Street Journal, April 11, 2005.

Wage Gap Figures in Social Security's Ills

The debate over Social Security has managed to drown out other longstanding issues in American society, including the widening gap between rich and poor and surging health-care costs. Yet these two phenomena play an important, though little appreciated, role in Social Security's problems. That is because they are eroding the base of taxable wages available to support Social Security benefits….

Social Security payroll taxes are levied on wages up to a certain cap, currently $90,000 a year, which rises annually with the average wage. In the past 25 years, a growing share of income has been paid to people who earn more than the cap.

This increasing concentration of income at the upper strata of society is an important reason why, from 1980 through 2000, taxable payroll fell to 83% of wages of contributing workers from 90%.

Both these trends partially were reversed in 2001, but there are signs inequality is growing again: The Federal Reserve estimates that the pay of managers and supervisors is rising much faster than that of production workers. Meanwhile, Social Security actuaries expect taxable payroll, which rebounded to 86% of total wages in 2002, to return to 83% by 2013….

      “This increasing concentration of income at the upper strata of society is an important reason why, from 1980 through 2000, taxable payroll fell”—is also why working-class wages have stagnated. As higher income people take a bigger share of the increases in our nation’s productivity, less is available for those who do most of the physical work to produce it.

     And then, to compound the injustice, the wealthy refuse to make up for what they’ve done by trying to destroy the system that is specifically designed to help those who need financial assistence the most in retirement.

     Here’s another one in the “so, what’s new?” department.

From The Wall Street Journal, April 11, 2005.

Blacks Are Much More Likely
To Get Subprime Mortgages

Weaker Lender Competition
In Some Low-Income Areas
Is Cited as Part of Problem

African-Americans are more than twice as likely as whites to receive high-cost subprime mortgage loans, according to an analysis of data that U.S. lenders have begun disclosing for the first time.

The disparity reflects a variety of factors, bankers and industry critics say. A major element: Blacks tend to have less wealth and weaker credit records than whites. But critics and some lenders also say that competition between lenders is less intense in some low-income neighborhoods, making it less likely for people there to find better deals, and that banks need to do more to educate consumers about their options.

Another problem is that mortgage brokers and loan officers often have no incentive to tell people they could get better terms by trying another lender or a different type of loan.

"Some customers who end up in subprime loans could qualify for prime loans," says Kenneth D. Wade, chief executive officer of Neighborhood Reinvestment Corp., which is a nonprofit organization created by Congress that trains counselors for low-income borrowers.

The data also show that people identified as Hispanic or Latino are slightly more likely than whites to pay high rates, according to an analysis by The Wall Street Journal of disclosures from 11 of the nation's biggest mortgage lenders….

"It's not about prejudice," says Jack M. Guttentag, professor of finance emeritus at the Wharton School of the University of Pennsylvania in Philadelphia. "It's about rapacious loan providers who are able to get away with more with black borrowers than with white borrowers." Because they tend to have less experience with home buying and the intricacies of mortgage-loan pricing, many blacks may be less prepared than whites to shop around effectively for the best terms.

One problem, says Mr. Guttentag, lies in the incentives given to loan officers and mortgage brokers, independent operators who match up lenders with customers. They often are paid more for producing loans on which the interest rate is above the minimum that a lender would accept. Thus, loan officers and brokers don't always have an incentive to offer the best terms available….

     It’s truly refreshing to learn that the above injustices are “not about prejudice.” It’s merely the usual matter of the rich and powerful taking ruthless advantage of the poor and powerless. What fine Christian values our country has!

     Every single day recently, new articles give us more bad news about what a disaster globalization has been, and will be, for our once-great country. Our textile industry, for all practical purposes, is history, and virtually all our labor-intensive industries are joining them.

     What’s just as bad, or worse, the trend is extending up the technology ladder. Check out the following two items that appeared in the same issue of the WSJ.

From The Wall Street Journal, April 11, 2005.

'Woven in China'

U.S. Textile Companies Start
Production in Chinese Locales;

…While many U.S. textile producers are fighting to keep jobs on American soil, some are setting up manufacturing facilities in China, the country likely to dominate garment production now that global garment quotas have ended.

Those either starting or expanding their presence in China include some of the biggest names in U.S. textiles: spandex giant Invista; Malden Mills Industries Inc., maker of popular Polartec fleeces; and W.L. Gore & Associates, inventor of the Gore-Tex fabric….

While makers of everything from toys to Toyotas were flocking to China throughout the 1990s, American textile makers stayed close to home. This was partly because making textiles, unlike making clothes, is a highly automated process that requires large amounts of electricity and abundant clean water -- things not easily found in developing countries.

There was also little incentive for U.S. textile makers to venture out as long as they were sheltered by decades-old quotas that limited developing nations' access to the lucrative American market. To some extent, the quotas insulated the $32 billion-a-year U.S. industry from the shocks of globalization….

Labor costs are a main attraction. Standard's weavers are paid about $200 per month, about 40% less than what Shanghai weavers might make, and one-tenth of weavers' pay at Standard's Thomaston, Ga., plant….

The U.S. textile and garment industry is expected to lose one-third of its 420,000 jobs in the next five years….


Chinese Premier Seeks
Closer Ties With India
To Lead in Technology

BOMBAY—On a tour of India's technology hub, Chinese Premier Wen Jiabao called for more collaboration between China and India to put the two countries at the forefront of global technology industries.

Specifically, he called on more Indian information-technology companies to set up operations in China. "I strongly believe that if we join hands together we will certainly be able to set a new trail in the IT business world. Combined, we can take the leadership position," Mr. Wen said in an address to information-technology professionals in Bangalore, a city that has become a showpiece for India's economic revival and home to many top Indian and foreign technology companies….

China is already the main force behind booming global oil demand, and India's galloping economy will soon put it in the same league. Indian officials cite a pressing need to cooperate with China on securing enough oil and gas, as the current global competition for leases bids up the price….

     We’ve outsourced our textile industry and most of our other hardware industries. Now we’re outsourcing our technologically advanced industries as well. And the countries that are receiving most of them—China and India—are combining forces to become the dominant countries of the future.

     Almost every day a new report from our conservative financial press gives the lie to those who say globalization is good because it brings about greater economic efficiencies.

     China isn’t getting our industries and our research projects because it is more efficient. It’s getting them simply because it destroys American workers’ ability to negotiate for higher wages—and that’s the only reason.

     Globalization is the conservative economist’s most powerful tool for destroying unions, decreasing wages, and giving corporations the power to ruthlessly control labor markets.


From Business Week, April 11, 2005.

China's Wasteful Ways

Colossally inefficient use of energy penalizes China twice: With high costs and the ravages of pollution

…Chinese steelmakers on average use about twice as much energy as Japanese or Korean rivals per ton of output. Only 5% of the country's office and residential towers meet China's own minimal energy-conservation standards.

China's waste has big implications for global oil prices: In 2004, China imported 2.4 million barrels per day. By 2030, the U.S. Energy Dept. estimates China will have to import 8.4 million bbl….

…it will take years to make a difference. China has many wasteful steel, paper, chemical, and power plants relying on decades-old coal-fired turbines. Some steelmakers, such as Shanghai Baosteel Group Corp., boast modern facilities. But China is still dotted with the blast furnaces and smelters of many minor players. "There are instances of steel plants set up just to meet local needs," notes Jonathan E. Sinton, a China energy expert at Lawrence Berkeley National Laboratory. "These are terribly inefficient." Partly as a result, fuel consumption in China grew 1.5 times as fast as its economy in 2004. In most developed nations, the ratio is one-to-one or lower….

Meanwhile, China is paying an onerous price for its profligacy. The World Bank figures inefficient fuel use is costing China upwards of $120 billion in lost industrial output annually and health costs related to pollution. Not even fast-growing China can afford the long-term bills that will come due from the way it burns through energy.

     So, not only are we making China the future’s most powerful nation, we’re contributing to the destruction of the world’s environment and the exploding cost of oil and gas.

     What a great world Republicans and conservative Democrats are giving us.

     It’s nice to know that not everyone is suffering in this economy. Investors are making out just fine, thank you.

From Barron’s, April 11, 2005.

Torrid Payout Pace In First Quarter

Companies are boosting dividends at a pace not seen in years. April's 155 hikes were the highest number recorded by Standard & Poor's for any April since 1999, when 168 increases were logged. What's more, the latest showing was 29.2% better than April 2004's 120 payout enhancements and a 7.6% improvement over the April average for the past decade….

     As you read the above, realize that these increases in dividends are directly related to corporations’ ability to keep wages from going up, and to even reduce them.

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

     Evidences of bias in favor of the rich and powerful (R&Ps) vs. the poor—or even middle-class, and powerless—are published regularly.

     The R&Ps don’t have to read Business Week to understand that your average broker is more interested in his own paycheck than in doing what’s in your best interest. Every serious and significant investor already knows that.

From Business Week, April 11, 2005.

Broker Or Adviser?

Be forewarned: If yours is employed by a brokerage, your interests come second

Nowadays stockbrokers bill themselves as financial consultants, financial advisers, or even investment advisers. Are they any different than investment advisers who don't work for brokerage firms?

You bet. Broker "advisers" and independent advisers, though both may charge a percentage of your assets for their services, operate under different regulatory regimes. Independent advisers must act as fiduciaries, which means they must put their clients' best interests ahead of their own. So an adviser recommending a Standard & Poor's 500-stock index fund must put your money in a no-load fund with the lowest annual expenses.

A broker might recommend an S&P 500 fund, too, but can choose a load fund with higher expenses. A broker has an obligation to serve the client, but the broker's first duty is to the firm.

Organizations such as the Financial Planning Assn. and the Consumer Federation of America want broker-advisers to meet the same fiduciary standards as independent advisers. But this month the Securities & Exchange Commission will likely make a permanent rule that exempts fee-based brokers from advisers' fiduciary obligations. Industry insiders say the SEC figures brokerage oversight and the arbitration system, which is currently handling a record number of complaints against brokers, offer sufficient protection to clients.

Regardless of how the SEC rules, investors should quiz their brokers and advisers to better understand their obligations, compensation, and conflicts….

     Key statement: "But this month the Securities & Exchange Commission will likely make a permanent rule that exempts fee-based brokers from advisers' fiduciary obligations." The SEC, which consists of R&Ps, certainly doesn’t want to protect the general public from greedy brokers and securities firms. After all, most of them are members of the poor, middle-class, and powerless.


     From another source: China is becoming the future’s superpower—with its excellent reputation for having impeccable moral standards in relating with the rest of the world.

From Forbes, April 11, 2005.

Cause for Concern

By Peter Brookes, Heritage Foundation

With all the recent drama in the Middle East, it's easy to lose sight of the most important strategic issue in American foreign-policy today: China's rise as a world power. With a white-hot economy, a burgeoning defense buildup, a permanent seat on the UN Security Council and a growing nuclear arsenal, China is fast becoming an Asian—and global—superpower.

Increasingly confident of its political and economic clout, Beijing is dead center of many of the day's most volatile international security issues, including North Korea, Iran and stability across the Taiwan Strait. American relations with Beijing are arguably more stable than at any time in the recent past. But the potential for political, even military, confrontation with the U.S. and its allies over critical security issues is ever present—and growing.

     Key statement: “the potential for political, even military, confrontation with the U.S. and its allies over critical security issues is ever present—and growing.”

     Unstated: this is the country that our government’s official economic policies are making the next superpower—and at our own expense. And it’s all designed to enrich America’s investors, while destroying the ability of workers to make decent incomes.

Week of April 4

     The world is going crazy. Many Democrats now want to reduce the estate tax, and some have even voted to eliminate it. It’s obvious: money talks—and buys politicians, even Democrats.


From The Wall Street Journal, April 8, 2005.

Senators Discuss
Compromise Bill
For the Estate Tax

WASHINGTON – Influential Senate Republicans, acknowledging that outright repeal of the estate tax may be politically impossible, are inching toward a compromise that would keep the tax, but only for the very wealthiest of Americans.

Sen. Jon Kyl (R., Ariz.), the Republican point man on the issue, has opened discussions with Sen. Charles Schumer (D., N.Y.) about a compromise bill that could be considered this year….

Repealing the estate tax, which is levied on the assets of fewer than 2% of Americans who die each year, has been a staple of the Republican agenda, particularly with its small-business constituency. The 2001 Bush tax cut reduced the tax gradually from its 55% rate and eliminated it entirely as of 2010, but under current law it will reappear at the old rate in 2011.

Many Republicans, including President Bush, still prefer to kill what they call "the death tax," saying it penalizes work, thrift and success….

Facing mounting federal budget deficits and resistance from most Senate Democrats, Republicans and several business lobbies now concede a full repeal may be impossible. Instead, they are beginning to rally around a plan that would exempt most small and family-owned businesses—perhaps exempting $10 million a person and $20 million a couple in all estates—and impose a 15% rate on those estates covered by the tax….

About 66,000 estate-tax returns were filed in 2003, the last year for which data are available; less than half owed any tax. Most were related to deaths in 2002, when the estate-tax exemption was $1 million. In that year, fewer than 1.5% of deaths resulted in payment of any estate tax….

Before Mr. Bush's 2001 tax bill, the estate tax was as high as 55% on the largest estates; the first $675,000 of assets was exempt, a threshold that was being lifted to $1 million.

Many Democrats oppose raising the exemption above $4 million or setting the rate at 15%. Some want to keep the 55% rate, but exclude broad classes of family-owned businesses. Democrats say repeal would add significantly to the budget deficit. "I think the time is right to get it done, but the obvious cloud hanging over us is the deficit," Mr. Schumer said.

A critical test will come next week, when the House takes up legislation to eliminate the tax. When the House last considered the issue, in 2003, 41 Democrats joined nearly all Republicans in an outright repeal.

     Think of it. Only our richest 1.5% pay any estate taxes. These aren’t taxes on dead people, as the Republicans claim. They are taxes on the income that people receive simply because they were born.

     So, while you may pay taxes on all the income you received through working, the descendants of the very rich will pay no tax on the income they receive for doing absolutely nothing—except living luxuriously.

     That’s the definition of an aristocracy—a system in which wealth is inherited, rather than earned.

     And in the meantime, our federal government is going bankrupt.

     Bad economic news. Even Wal-Mart is finding it increasingly difficult to make a profit, even though it leads the nation in treating workers the most brutally, in treating its suppliers the worst, in taking advantage of the most impoverished workers in the world—and so on.

     The chronically low pay that the world’s workers are receiving is finally catching up with us. We’re repeating the same conditions we had in 1929 when the wealthy had all the money and the rest of the world could no longer afford to buy the mass-market products that were being produced.

From The Wall Street Journal, April 8, 2005.

Alcoa Climbs on Strong Profit,
But Wal-Mart Falls on Estimate

…Wal-Mart Stores dropped 60 cents, or 1.2%, to 48.90. The retailer expects to report first-quarter earnings at the low end of its estimates, raising concerns about slower consumer spending….

     And while all this is going on, the businesses that cater to the very rich are seeing increasing prosperity.

     The price of gas is going up. Because of consumer demand and the shortage of oil, right?

     Two articles in the same issue of the Journal demonstrate the real reason why oil prices are outrageous: investor and corporate greed.

From The Wall Street Journal, April 8, 2005.

Mighty Profit Maker

Under CEO Lee Raymond,
Exxon Mobil Gushes Money;
Secret: Operational Efficiency

Exxon Mobil Corp. is gushing money. Amid soaring crude-oil prices, it recently reported a fourth-quarter profit that amounted to the fattest quarterly take for a publicly traded U.S. company ever: $8.4 billion. That translated into $3.8 million an hour.

So why isn't Lee Raymond, Exxon's chairman and chief executive, beating his chest about the boom? That wouldn't be the Exxon way.

Exxon has been so profitable for so long that it is boring. Which is exactly the way Exxon likes it….

Today, the oil industry is abuzz with speculation about whether global supply will continue to meet growing demand—and about whether the current tightness in the oil market suggests prices will rise even higher. Price bulls predict consolidation in the industry, as the giants swallow up smaller players. ChevronTexaco Corp.'s announcement this week that it will acquire Unocal Corp. is one early sign of this trend, the theory goes….

WSJ: What is Exxon planning to do with all its cash?

Mr. Raymond: …Let me go back to the last time we went through something like this, which started when the shah of Iran was around. [The shah went into exile in 1979.]

A lot of people don't remember, but we went through a period of relatively high oil prices, which by today's standard would be very high oil prices, that lasted for almost five years. It was at that time that we got into our first stock-buyback program.

As today, we had very strong cash flows….


Gasoline Prices
Are Forecast
To Keep Rising

WASHINGTON—Gasoline prices will keep rising in coming weeks and will average $2.28 a gallon for the summer, a 20% increase over a year ago, according to the latest government forecast.

A big reason for higher prices is persistent strong demand despite the rising costs of filling up. "The main factor behind the rise in gasoline prices is the increasing domestic consumption over the global increase in crude-oil prices," said Guy Caruso, administrator of the Energy Information Administration, which released the report yesterday….

     There you have it. Oil corporations become fabulously profitable when national disasters hit (like the shah/Iran and the Iraq war situations), and the oil supply is interrupted.

     By why should that make oil companies so profitable? Surely, they wouldn’t deliberately take ruthless advantage of the public and capitalize on a national emergency? Surely, already-wealthy persons wouldn’t deliberately gouge the public just to get richer?

     Or would they?


     The news on globalization gets worse every day. Anyone who can’t see the “giant sucking sound” of jobs leaving the U.S., as Ross Perot predicted, has to be either a deliberate liar and hypocrite, or has an IQ under 80.

From The Wall Street Journal, April 7, 2005.

GM Is Pushing
Its U.S. Suppliers
To Reduce Prices

General Motors Corp., under pressure to cut costs in its money-losing North American auto business, is pushing its U.S. suppliers to offer lower prices in line with levels charged by overseas suppliers.

Bo Andersson, GM's top purchasing executive, told a supplier group in a closed meeting yesterday, that GM will be allocating significant resources to global markets in the next few years, including China, South Korea and Europe, according to individuals who attended the meeting.

Some in attendance and management consultants working with GM said they expect GM to push suppliers in the near-term to build facilities in China, preferably near GM's joint-venture facilities in Shanghai….

     We’ve long been beyond the point at which even corporate executives with high ethical standards are forced to abandon their workers and communities—if they are to remain in business.

     It’s 1929 all over again. As workers worldwide run out of money to buy the products they are making, demand dries up, factories close—even in low-wage countries—and the stock markets crash.

From The Wall Street Journal, April 7, 2005.

World Bank Warns
Global Recovery
Has Peaked

The World Bank warned the global economic recovery has peaked and said the severity of the coming slowdown will depend on how skittish foreign investors are about buying U.S.-dollar-denominated assets.

Meanwhile, the Asian Development Bank said that Asia's developing economies will sustain robust growth into 2007 as strong domestic demand, regional trade and a steady inflow of investment offset soaring oil prices and moderating growth in the U.S. and China.

In an annual report on the risks confronting developing economies, the World Bank said the global recovery of the past three years has masked cracks that can't be left unattended much longer. The fragility, it said, was highlighted by "brisk selloffs" of the dollar last month after some Asian central banks said they might diversify their currency portfolios….

     So what happens after the markets crash? The rich (and their descendants)—who caused and profited from it all—take their cash home and live in luxury for the rest of their existence. Their future financial welfare is guaranteed, since they’ll never again have to pay decent wages to those who actually work for a living.

     There are some belated hopes that some Republicans are beginning to realize the horrible damage they’re causing to our country.

From The Wall Street Journal, April 7, 2005.

Republicans Splinter
On Bush Agenda

Poll Finds Rifts Opening Over Social Security,
Judicial Filibusters, Schiavo Case

Almost three months into President Bush's second term, a raft of economic and social issues -- Social Security, immigration, gay marriage and the recent national debate over Terri Schiavo -- is splintering the Republican base….

One-third of Republicans say Democrats in Congress should prevent Mr. Bush and party leaders from "going too far in pushing their agenda," and 41% oppose eliminating filibusters against Mr. Bush's judicial nominees -- the "nuclear option" that Senate Republican leaders are considering….

The 2004 Bush supporters who now are balking at the president's agenda include Harold Heth, a 50-year-old retired Army enlisted man in Shumway, Ill. Mr. Heth, a Republican, says Mr. Bush and his party's congressional leaders "had no business entering into" the Schiavo case; he also frets that the president's policy initiatives are too geared toward corporate interests. Mr. Heth favors preservation of the right to filibuster judicial nominees so that Democrats can provide "checks and balances."…

Different elements of the party, however, are balking at specific items on the president's agenda. On his centerpiece initiative of Social Security, for instance, 32% of Republicans call it "a bad idea" to let workers invest payroll taxes in the stock markets….

On judicial nominations -- a cause of contention between the White House and Democratic leaders -- resistance among rank-and-file Republicans is even higher. Four in 10 say the option of filibusters should be preserved.

On Mr. Bush's proposal to grant legal status to some illegal immigrants already in the U.S., Republicans are opposed by 50%-48% -- almost matching the 54%-42% opposition among Democrats. About 55% of independents oppose Mr. Bush's plan, while 38% favor it….

Even on tax cuts, Mr. Bush's signature first-term economic initiative, one in four Republicans now says tax cuts have "not been worth it" because they have increased the federal budget deficit and have led to reductions in government programs….

     We may have finally reached the point at which even Republicans see their own self-interest being sacrificed—because of our country’s social and economic degeneration that their selfish policies have caused.

     Why the supporters of globalization couldn’t have seen the following coming—has to be one of the mysteries of the century.

     As the three following articles indicate, China now can bully us, not only on economic issues, but also on cultural issues.

From The Wall Street Journal, April 6, 2005.

China Bristles
At U.S. Inquiry
On Textiles Trade

Response to Imports Probe
May Be a Sign That Beijing
Intends to Toughen Its Stance

China said it has no intention of taking additional steps to contain garment exports, even as the U.S. launched an investigation that could lead to measures to curb surging American imports of Chinese textiles.

Chinese Foreign Ministry spokesman Qin Gang described the U.S. move, announced Monday, as "over-protectionist, irrational and unreasonable."…

The expiration of a decades-old global quota system at the end of last year has spawned a flood of low-priced Chinese socks, shirts and other garments into the U.S. and Europe, raising fears that the soaring imports could devastate their own apparel industries. The European Commission, the European Union's executive body, discussed today whether to apply emergency restrictions on European textile imports from China….


From The Wall Street Journal, April 5, 2005.

The Pope and China

There is perhaps no greater testament to the power of John Paul II's life and ideas than the message being sent by communist China. As the Pope lay dying, Chinese authorities relegated information about the state of his health to the back pages of the state-run media and the bottom items on television news. Fostering discussion of this champion of freedom was too dangerous, it seems….

But China's actions betray the government's fear of religion, and the persecution of Catholics continues as usual. An arrest spree of Chinese priests and bishops, on as yet undisclosed charges, coincided with the Pope's final days. The bishop of Wenzhou, James Lin Xili, was detained on Palm Sunday; Father Thomas Zhao Kexun was picked up a few days later in Hebei province, as was lay worker Gao Xinyou in the diocese of Wenzhou. Other Catholics had been arrested earlier….


From The Wall Street Journal, April 5, 2005.

Chinese Companies Vie for a Role
In U.S. IT Outsourcing

It is part of Lisa Pointe's role at Shanghai Wicresoft Co. to stop her Chinese colleagues from writing "I'm deeply sorry for your inconvenience" three times in a two-paragraph e-mail to an American. For the Chinese, she explains, apologizing repeatedly means they really feel for the other side's pain and trouble, but it can sound very insincere to Americans.

That is just one of the many lessons that Ms. Pointe, who hails from Traverse City, Mich., tries to impart in her role as an adviser at Wicresoft, a 400-employee joint venture between Microsoft Corp. and Shanghai Municipal Government.

Microsoft has outsourced part of its Web-based technical support to the concern, and Ms. Point is one of 10 people whose native language is English and who are teaching the Chinese techies how to best provide that support for users of Microsoft products in North America.

Forget about cheap labor and factories churning out shoes and toys. Some Chinese companies now want to become known for developing software programs and providing back-office services for U.S. companies -- just like their counterparts in Bangalore, India. Simon Bell of A.T. Kearney, a Chicago management-consulting firm, believes it will take five to 10 years before China rises as an equal to India in providing information technology and outsourcing services, at least in the English language.

But if multinational companies look for alternatives to India, he says, China often tops the list….

     It’s China, ladies and gentlemen, that our American economic conservatives have almost unilaterally decided made the world’s future manufacturer. And China is rapidly developing the resources to become the world’s leader in technology and innovation.

     The following is just another in the endless series of examples of the kind of countries that we’ve turned our futures over to.

From The Wall Street Journal, April 5, 2005.

In Indonesia, Tangle of Bribes
Creates Trouble for Monsanto

Lobbying Effort for Permits
Included $50,000 in Cash;
The SEC Brings Charges
Love Blossoms on Reality TV

JAKARTA, Indonesia—In early January, U.S. government prosecutors nabbed a big company in an unusual corruption case. Agricultural and biotechnology giant Monsanto Co. agreed to pay $1.5 million to settle charges of bribing Indonesian government officials. In seeking permission to sell genetically modified seed, Monsanto made $750,000 in payoffs to officials during a six-year period, according to a January complaint filed by the U.S. Securities and Exchange Commission….

The story behind the $50,000 bribe sheds light on the tangled world of Indonesian business and politics. Indonesia has long been known for its venality, a problem compounded by the 1998 fall of President Suharto and the unstable political environment that followed….

     The single, biggest advantage of keeping industry in our own country: we can regulate the economic environment to ensure adherence to the moral standards that we value in our own country.

     We simply can’t control the moral standards of countries like China or Indonesia.

     The following is not presented as an example of the hypocrisy of Republicans—their switch from believing in states’ rights, to believing in a strong central government—since liberals do the same thing.

     It’s presented simply to demonstrate the obvious: Republicans always do the bidding of the wealthy and powerful, and it’s only Democrats who try to defend the interests of the poor and middle-class, as well as the affluent.

From The Wall Street Journal, April 4, 2005.

Big Government's Changing Face

Republicans' Moves to Expand
Federal Role Cheer More Than
Just Social Conservatives

WASHINGTON—Republicans in the capital are reviving Big Government—and social conservatives aren't the only ones happy about it….

Republicans are moving to expand Washington's role on other fronts. In banking, insurance and telecommunications, the Bush administration and Congress are pushing federal regulation instead of state oversight -- to the applause of business constituents who now consider that more efficient and less onerous than in the days of Democratic rule.

For Democrats in Washington, such moves represent hypocrisy from a party that once touted the principles of federalism in the Constitution's 10th amendment, which reserves for the states and the people those powers not explicitly granted to the federal government.

Whatever the result, the trend is a consequence of the consolidation of Republican control of the capital. In the decades after President Franklin D. Roosevelt launched the New Deal and an era of Democratic dominance, Republicans were steady critics of their adversaries' use of federal power on economic and social issues alike. Yet their tune has changed now that Republicans hold the White House and both chambers of Congress -- and aim to keep them.

On regulation, some Republicans are working to please many business constituents who are important ideological and financial allies. The inaugural edition of the National Conference of State Legislatures' "Pre-emption Monitor" counts the ways, citing business-regulation issues such as congressional overhaul of class actions and pending legislation on medical malpractice and insurance regulation….

But the changing philosophy of those holding power in Washington also has contributed to businesses' different tone. During the 1960s and 1970s, when an activist federal government was asserting control, businesses preferred state regulation. Businesses "used to talk about state rights when they thought it served their economic interest," says Michael Peevey, president of the California Public Utilities Commission. "Now they're talking about pre-emption when they think it serves their interest."…

      “…Republicans are working to please many business constituents who are important ideological and financial allies.” That about says it all.

     Just another of the many examples of how the Fed deliberately pursues policies that keep wages from going up. For those who have not studied the issue: Whenever the unemployment rate changes significantly, it affects the securities markets. And when that happens, conservatives pressure the Fed to manipulate the prime interest rate to keep unemployment at the “just right” level.

From The Wall Street Journal, April 4, 2005.

Weak Jobs Growth Puzzles Market
Seeking to Gauge Inflation Risk

NEW YORK—The nonfarm payrolls data, dubbed the graveyard of economists because of the difficulty in forecasting them, struck Treasurys again in March.

Heading into last week's inflation and labor data, the bond market had adopted bearish positions that were evident in holdings of the 10-year Treasury-note futures contract and the portfolios of primary dealers, elite banks that deal directly with the Fed….

"Treasury bears have been looking for strong payroll growth and evidence of rising inflation and that's simply not happening," said Ralph Axel, fixed-income strategist at HSBC in New York.

The Labor Department reported that nonfarm payrolls grew by a meager 110,000 in March, the weakest performance since June 2004. The department also said employers created 27,000 fewer nonfarm jobs in January and February than it previously estimated….

"Unless this payroll number is an aberration, the economy is not generating the kind of jobs it should be at this stage of the recovery," said Michael Kastner, head of taxable fixed income at Deutsche Bank Private Wealth Management, with $10 billion of fixed assets under management. "Frankly the data are disappointing and a cause for concern." Last week's inflation and labor data also appear to have changed his outlook for Fed policy in the months ahead….

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

     The following two articles indirectly describe what’s wrong with our economy. The first describes how those at the top are getting incredibly rich—which is a major reason that those in the middle and at the bottom are losing their incomes and standards of living.

     The second describes, in effect, what has been wrong with our executive compensation system over the past thirty years: Boards of Directors and top executives have been feathering each others’ nests with wild abandon. And now, it’s only fear of legal prosecution that is forcing some remedial change.

From Business Week, April 4, 2005.

Fatter Envelopes

Executive pay is on the rise—again. Compensation consultants say 2004 will be one of the best in recent memory, with CEO pay likely to rise as much as 20%. Strong profits boosted bonuses, while surging stocks increased option values. And a shift from options to restricted stock—to reduce the impact of options expensing set to start in June—resulted in some large stock grants. Says New York pay consultant James Reda: "It's another year of big increases."…


From Fortune, April 4, 2005.

CEO Knockdown

Fear and loathing are rife among corporate board members—and that’s why so many CEOs are losing their jobs.

What on earth has gotten into boards? During a brief stretch in March, high-profile chiefs were dropping like bowling pins: Michael Eisner from Disney (a year early), Nobuyuki Idei from Sony, Harry Stonecipher from Boeing, Hank Greenberg from AIG.

You don’t have to look back much further to note Carly Fiorina getting booted from Hewlett-Packard, Franklin Raines from Fannie Mae, Christopher Milliken from OfficeMax, and Scott Livengood from Krispy Kreme. There hasn’t been this much sacking since the Goths dropped in on Rome. So what does it all mean?

Talk to corporate directors and those who work with them, and the answer is apparent: What’s gotten into boards is fear. Certain developments have scared the living daylights out of them, leading them to dispatch CEOs far more readily than before—and the trend will likely accelerate before it slows.

The most potent fear now affecting directors is the most personal. It’s the fear of losing all their money. A couple of recent lawsuit settlements were boardroom earthquakes. Large institutional shareholders sued the directors of Enron and WorldCom over their roles in the collapse of those firms, and both settlements called for the directors to pay large sums from their own pockets….

     Key statement: “settlements called for the directors to pay large sums from their own pockets.” As long as the money was only going into their pockets, Boards of Directors couldn’t care less about the actions of top corporate executives.

     If your IQ is under 80, or you’ve been living in a cave for the past 20 years, the following two items in BW will update you on the absolute disaster globalization is becoming for the U.S., especially for working-class Americans.

From Business Week, April 4, 2005.

Your Next TV

It will be flat, ultra high-tech, and made in Asia. Now, Americans want a piece of the action

...Over time, companies that dominate the new TV market could take home unimaginable wealth. Last year flat-panel makers earned a combined $8 billion in profits, estimates DisplaySearch President Ross Young….

Can Sony, Sharp, Samsung, and the rest withstand the price pressures, shifts in TV viewing patterns, and disruptive challenges from the likes of Dell? Some of the Asian champions will surely lose their shirts in cyclical downturns, and American interlopers will skim off part of the profits. But over time, Asia's flat-panel survivors will wind up with revenues, manufacturing expertise, jobs, technical insights, and an edge in innovation. The rewards may well justify the risks.


High-Tech TVs: Here Comes China

It's still a bit player in the industry's major shift to flat panels. It won't be for long

… Already, the Chinese are moving into the more lucrative thin-screen market. "Everyone is getting into this business," says Henry Lau, the former CEO of Chinese TV maker Skyworth Multimedia. Skyworth had just 15 LCD TV models in 2003 but several dozen last year. "Flat screens are now not very big for us, but we won't give up," says Zhao Zhongyao, the CEO of TTE, the joint venture between TCL and France's Thomson that controls the RCA brand in the U.S.

TTE has a joint laboratory in the Southern Chinese city of Shenzhen with Texas Instruments to work on DLP technology. It's also working with Trident Microsystems to develop chipsets and has plans to start producing its own displays.

Another factor that will keep China front and center in the new TV era is its role in the outsourcing food chain. Just as PC companies have been able to outsource production of their computers to manufacturers in Asia, the companies that sell brand-name TVs are finding that they can rely on others to do the manufacturing and design for them. That means the barriers to entry are falling….

And if the parallels with the PC industry hold, as more companies outsource to the Taiwanese, more of the actual manufacturing will be shifting to low-wage locations across the Taiwan Strait in China. So a few years from now, when you buy your next TV, chances are good that it's going to be made in China….

"No matter what you do, the panel has to come out of Asia," says Frans van Houten, CEO of the consumer-electronics division at Philips. "More products will come out of Asia. That is definitely the case." So one way or another, the Chinese are going to emerge as high-tech TV winners.

     So, “the Chinese are going to emerge as high-tech TV winners.” And who are the losers? Not American investors, because they are currently investing in China.

     So, who are the real losers? American workers, of course, just as was always intended.

     Hypocrisy, thy name is Republican. The traditional champions of states’ rights have always been the Republicans—except when it would profit corporations, at the direct expense of consumers.

     Now they want to overturn states’ protections of consumers in favor of weaker protections that the Republican Congress favors.

From Business Week, April 4, 2005.

Congress Draws A Bead On Predatory Lending

Another turf fight is brewing between the states and Washington over who should set the rules to protect consumers from rapacious financial interests. This time, it's mortgage lenders in the middle. Since 1990, high-priced loans for home buyers with spotty credit have exploded, leading states to put "subprime" lending under a microscope. So the mortgage bankers are lobbying hard in the nation's capital to blunt the crackdown.

The bankers are hailing a House bill that would preempt state regulations and set national standards for predatory lending. The catch: The federal rules would be weaker than laws now on the books in some states. A bill to curb "predatory lending" -- high-priced loans loaded with fat fees, prepayment penalties, and other abusive practices -- has been kicking around for three years….

Responding to escalating complaints of predatory lending, 31 states have passed laws since 1999 restricting subprime loans. State attorneys general have leaped in to police abuses. Last year, AGs of 25 states launched an investigation of Ameriquest Mortgage, the nation's biggest subprime lender….

Democrats are starting to back the GOP's push for a national standard. On Mar. 15, Representative Paul E. Kanjorski (D-Pa.), the No. 2 Democrat on the House Financial Services Committee, broke ranks to team up with Representative Bob Ney (R-Ohio) on a bill to preempt the states. Eight other House Democrats are co-sponsors. The price of their support: provisions to reform mortgage services and appraisals, plus minimum standards for licensing mortgage brokers.

But state officials are opposed. "I'd like to see a good federal standard -- as long as it doesn't preempt the states," says North Carolina Attorney General Roy Cooper, a Democrat. AGs contend that states can respond more quickly to abuses. And many don't trust GOP-led Washington to pass a stringent rule. Consumer advocates back a bill championed by Representative Barney Frank (D-Mass.) that would not preempt the states….

But the heat on predatory lending could rise in August, when the Federal Reserve is to report on loan terms and demographic trends in subprime lending. The report is widely expected to show that minorities tend to be saddled with higher-priced loans….

      “The federal rules would be weaker than laws now on the books in some states.” That statement says it all. Republicans always come down on the side of corporate profits—no matter what harm is caused to consumers as a result.



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