Quantitative Easing for Whom?
Why the European Central Bank’s Trillion Euro Plan will Only Help Keep the Banks Afloat
By MICHAEL HUDSON and SHARMINI PERIES | CounterPunch | March 13, 2015
SHARMINI PERIES: In an effort to relieve some pressure on the struggling European economies, Mario Draghi, president of the European Central Bank, announced a 1 trillion euro quantitative easing package on Monday. Quantitative easing is an unconventional form of monetary policy where a central bank creates new money electronically to buy financial assets like government bonds. And this process aims to directly increase private-sector spending in the economy and return inflation to target.
Well, what does that mean and what might be wrong with it is our next topic with Michael Hudson. Michael Hudson is a distinguished research professor of economics at the University of Missouri-Kansas City. His two newest books are The Bubble and Beyond and Finance Capitalism and Its Discontents. His upcoming book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.
Michael, the Fed and some economists will argue that this is what got the U.S. out of its 2008 financial crisis. In fact, they put several QE measures into place. So what’s wrong with quantitative easing?
MICHAEL HUDSON: Well, the cover story is that it’s supposed to help employment. The pretense is an old model that used to be taught in textbooks a hundred years ago: that banks lend money to companies to invest and build equipment and hire people.
But that’s not what banks do. Banks lend money mainly to transfer ownership of real estate. They also lend money to corporate raiders. They lend money to buy assets. But they don’t lend money for companies to invest in equipment and hire more workers. Just the opposite. When they lend money to corporate raiders to take over companies, the new buyers outsource labor, downsize the work force, and try to squeeze out more work. They also try to grab the pensions.
The Fed was pretty open in what quantitative easing is supposed to do since 2008. It’s supposed to lower the interest rates, which raises bond prices and inflates the stock market. Since 2008 they’ve had the largest monetary inflation history – $4 trillion of quantitative easing by the Fed. But it’s gone via the banks into the stock and bond market.
What has this done for the economy as a whole? For starters, it’s obviously helped stock and bond holders get richer. And who are they? They’re the 1 percent and the 10 percent.
People are wringing their hands and saying, why isn’t the economy getting richer? Why is it that since 2008, economic inequality and the distribution of wealth have worsened instead of gotten closer together? Well, it’s largely because of quantitative easing. It’s because quantitative easing has increased the value of the stocks and the bonds that are held mainly by the 1 percent or the 10 percent hold. This hasn’t helped the economy because the Fed is really concerned with its constituency, which are the banks.
Quantitative easing hasn’t helped one class of investors in particular: pension funds. It’s done just the opposite. Pension funds made the assumption a few years ago that in order to break even with the rate of contributions that corporations, states and municipalities are paying, they have to make eight percent or eight and a half percent a year as a rate of return. But quantitative easing lowers the interest rate.
Today’s lower interest rates have made pension funds desperate. The risk-free rate of return is less than 1 percent on short-term Treasury bills. If you buy longer-term treasuries you can make 2 percent, but then if the interest rates ever go up, you’re going to take a loss as the bond price declines. So pension funds have said, “We’re desperate; what are we going to do?”
They’ve turned their money over to Wall Street money managers and hedge funds. The hedge funds take a huge rake off of fees to begin with. But even worse, when hedge funds and the big banks – Goldman Sachs, Citibank – see a pension fund manager coming through the door, they think, “How can I take what’s in his pocket and put it in mine?” So they rip them off. That is why there are so many big lawsuits against Wall Street for mismanaging pension fund money.
To summarize, the effect of the quantitative easing has been to make pension funds desperate, and to support real estate prices, as if higher costs to obtain housing will help recovery. It doesn’t help recovery, because to the extent that quantitative easing supports a re-inflation of housing prices, new homeowners have to pay even more of their income to the banks as mortgage interest. That means they have less money to pay for goods and services, so markets for goods and services continue to shrink.
What the quantitative easing has not been used for is what was promised in 2008. Before President Obama won the election and took office, Congress said that the TARP bailout and TALF were supposed to go for debt reduction. Some was to write down mortgages, so that people could afford to stay in their homes rather than the millions of home owners that have been foreclosed on and thrown out. But even before Obama came into office, Hank Paulson, the Secretary of the Treasury, told Democrats in Congress, yes, we’re willing to write down debts. But as Barney Frank explained in exasperation, Obama said no, he’s not going to do that. Obama ended up supporting the banks. So almost none of the TARP bailout money has been used for debt write-downs.
The same phenomenon is happening in Europe.
PERIES: So, Michael, what’s wrong with what the ECB has announced in terms of a trillion euros worth of quantitative easing for Europe?
HUDSON: They head of the European Central Bank, Mario Draghi, has said that he’ll do whatever it takes to keep banks afloat. He doesn’t say that he’ll do whatever it takes to help economic recovery, or to help labor more. The ECB’s job is to help banks make more money.
Draghi was vice chairman of Goldman Sachs during 2002 to 2005. His view is that of Wall Street. It’s not a vantage point helping labor or helping economies grow. So it’s not surprising that the trillion euros of new money that the eurozone’s central bank is creating hasn’t gone to help Greece, for instance, survive. It hasn’t gone to help Greece, Spain, Italy, or Portugal get out of depression by fueling government spending. It’s simply been given away to the banks to buy bonds and stocks, including buying American stocks and bonds.
Behind this policy is the trickle-down theory that if you can make the financial sector richer, if you can make the one percent and the 10 percent richer, it’s all going to trickle down. This is the view of Paul Krugman, and it’s the view of the advisers that Obama has had. But instead of trickling down, the stock and bond price gains by the 1% and 10% drive a wedge in the economy, by increasing the value of stocks and bonds and real estate and wealth against labor. So quantitative easing is largely behind the fact that the distribution of wealth has become worse rather than better since 2008.
PERIES: One of the things that has happened in Europe that you wrote to me actually in an email was the disappearing central banks’ role in stimulating economies. Why is this an issue?
HUDSON: Central banks originally were designed to monetize government deficits. Governments are supposed to spend money into the economy, because that helps economies grow. But in Europe the Lisbon agreements say governments can’t run a deficit more than 3 percent of national income.
Furthermore, the role of the European Central Bank is not to give a penny to governments. They say that if you give a penny to government, you’ll have hyperinflation like you had in Weimar. So the central bank can only give money to banks – to invest in stocks and bonds. But the ECB won’t buy fresh bonds to finance new government spending. The result of this policy of not funding government deficits is that if the economy is to grow, it has to be entirely dependent on commercial banks for credit.
We had this situation in the United States in the last few years of the Clinton administration when the United States actually ran a budget surplus instead of a deficit. Now, how do you think the United States could grow when there’s a budget surplus sucking money out of the economy?
The answer is that commercial banks and bondholders have to supply the money. But the banks only supplied money in the form of junk mortgages and other forms of an economic bubble, such as takeover loans and a stock market bubble.
The interest of banks is not to help economies grow; it’s to extract interest from the economy. The financial sector uses part of its rising wealth to lobby for privatization sell-offs. The problem with this is that when you privatize a public utility, you give away a monopoly – and if you deregulate the economy, you let the monopoly set up tollbooths over the economy, for toll roads, communications or whatever is being privatized.
The ECB is telling Greece to privatize to raise the money to pay its bondholders, the ECB and IMF. So you have quantitative easing going hand-in-hand with the insistence on privatization. The result is debt deflation as the economy is forced to depend more and more on banks for the money to grow, instead of on government spending into the economy. You’re having the governments not being able to spend on infrastructure, letting it fall apart, as is happening with bridges and tunnels in the United States.
The next step is for the government to say, “I’m sorry, the central bank doesn’t have enough money to help us build new infrastructure. So we’ve got to sell it off to private investors who do have the money.” The next thing you know, you have the economy ending up looking like Chicago. That city sold off its sidewalks and its parking meters to Goldman Sachs and to other Wall Street firms. All of a sudden the prices of parking, driving, and living in Chicago went way, way up instead of lowering the costs as privatization promised.
You have the same phenomenon here that England suffered under Margaret Thatcher: costs for hitherto public services go up. Transportation costs go way up. Road costs go up. Communications, internet costs, telephone costs, everything that is privatized goes way up. Financialization leads to a rent-extractive, almost neo-feudal economy.
In that sense, quantitative easing and the refusal of central banks to fund governments (except to pay bondholders and bail out commercial banks) is a new kind of class war. It’s not the old kind of class war, which was between employers and their workforce over what wages will be. It’s by the financial sector trying to take over the economy, and especially to take over the public sector, to take over the public domain, to take over public utilities and whatever assets a government has. If governments cannot borrow from central banks, they have to begin selling off property.
PERIES: Michael, this is exactly what’s happening in Greece right now. The SYRIZA government is somewhat forced to continue privatization as a part of the agreement of the loans that they have been given by European banks. What could they do in this situation?
HUDSON: This is really a scandal, because most privatizations are corrupt insider dealings. The SYRIZA Party came in and said, wait a minute, the privatizations that have been done are by governmental officials to their own cronies at a giveaway price. How can we balance the budget if we’re giving away the public utilities instead of getting a fair price for them?
The European Central Bank said, no, you have to give away privatization to cronies at pennies on the dollar just like Russia did under Yeltsin, just like the United States did with the railroad giveaways of the 19th century.
Remember, the American privatization to the railroad barons and their financial backers created essentially the ruling class of the 20th century. It created the American stock market. The same thing is happening in Greece. It’s being told to continue the former politicians’ drive to endow a new oligarchy, a new kind of a feudal monopoly lord, by these privatization giveaways. The ECB says that if you don’t do that, we’re going to bankrupt the banking system.
Yanis Varoufakis went back to the party congress in Parliament and asked whether they would approve this. The left wing in Greece has said, no, we won’t approve the giveaways.
The pretense is that privatization is to make money, but the European Central Bank is saying, no, you can’t make money; you have to give it away to our cronies. It’s all one happy financial family. This is escalating financial warfare.
I can assure you that neither Varoufakis nor SYRIZA has any interest in this kind of privatization giveaway. It’s trying to figure out some way of perhaps prosecuting the cronies for bribery, for internal connections, or figuring out some way of legally stopping the rotten policies that they’re told to follow by the European Central Bank – which isn’t giving a single euro to help Greece get over the economic depression that debt deflation has brought on. The euros are only given to the financial sector, basically to help declare war on the Greek government, the Spanish government, the Italian government.
This financial warfare is trying to achieve the same thing that military warfare did in the past. It’s aim is to grab the land, to grab control of the public infrastructure, to grab control of governments themselves. But it’s doing it financially rather than militarily.
PERIES: Right. The SYRIZA Party last week did agree to the conditions of privatization, that they would not roll back on the existing agreements that had been made by previous government. They agreed to not roll back on ones that are underway, and that they’re actually not even averse to privatization as a statement by Yanis Varoufakis. What does all this mean for Greece?
HUDSON: The financial gun was put to their head. If they wouldn’t have said that, there would have been a total breakdown, and the European Central Bank would have tried to bankrupt the Greek banks. So he didn’t have much of a choice. Everything that Varoufakis has written, and all that the political leader of SYRIZA has said, has been exactly the opposite. But they had to give lip service to what they were told to do, and any agreement that’s made has to be ratified by Parliament. So, what they’ve said is, okay, we’re going to play good cop, bad cop. We’ll be the good cops with you, and let Parliament and our left wing be the bad cops and say that we’re not going to stand for this.
‘New IMF loan to Ukraine will go down the drain’
RT | March 11, 2015
President Poroshenko’s government is far more corrupt and less efficient than the previous one, according to Martin Sieff, columnist for the Baltimore Post-Examiner. It’s like a black hole, the more money you pour in the less you will have, he added.
The International Monetary Fund (IMF) is to decide Wednesday whether to give a $17.5 billion bailout package to Ukraine. The Ukrainian parliament has already passed a series of austerity reforms to cut pensions and increase taxes in order to meet the creditors’ conditions, but more changes are going to be needed to gain this financial aid.
RT: About $4.6 billion in credit was extended to Ukraine in 2014, but its economic performance has scarcely improved. Does that mean the aid had no effect?
Martin Sieff: Pretty much yes, it does. It had the effect on keeping Ukraine afloat in the short-term. But this is an unconstitutional government in Ukraine which was really established by a violent coup in Kiev last year which has waged an aggressive war of repression against two secessionist provinces of its own country, which doesn’t have any real social contract with its own people. Its efforts to conscript large numbers of forces for the regular army have been met with peaceful but very clear resistance. This is a very weak disorganized government, it’s a black hole. The more money you pour in, the less effect you will have. You can keep it stable for a year or two but no longer than that.
RT: The IMF has agreed on a new $17.5 billion lifeline to Ukraine. Do you think that will be enough to stabilize the country’s economy even if fully implemented?
MS: The aid went at least in theory to what it was supposed to, but no doubt there was a great deal of corruption. It’s ironic that the government of President Yanukovich was accused of corruption and incompetence. This government is far more corrupt than the previous government was and it’s infinitely more incompetent. So simply money leaches away, but the real problem is the lack of credibility of governance. This government is even purging its civil service of anyone remotely accused or suspected of being efficient and loyal to President Yanukovich and his predecessors. You cannot have an efficient and credible government under these circumstances.
RT: The IMF is requesting a package of economic and political reforms to be carried out when providing financial assistance to any country. Are we seeing it carried out in Ukraine at least judging by its economic performance?
MS: No, no way. First of all, there is still unrest and violence in the two eastern provinces and spreading into other parts of the country. The security conflict and the conflict with Russia have to be settled first by this government. And they are not yet ready to settle it on terms that would be acceptable and reassuring to Moscow, but that has to be resolved first. Secondly, we saw even last year President Yanukovich broke off his negotiations with the EU, but he recognized that the terms under which the EU was ready to grant association to Ukraine would be disastrous and ruinous for the Ukrainian economy and the Ukrainian people. A year ago, the EU didn’t have the resources by itself to lift up even a peaceful Ukraine under democratically elected governance. The prospects of doing that now under President Poroshenko and his war-government, his war junta are very much less. So this would be $17 billion down the drain. You know they are all saying from Washington DC, I’m paraphrasing a little “$17 billion here, $17 billion there and soon you are talking about real money”.
RT: When signing the IMF program Ukraine makes certain financial obligations, do you think they could be committed at all in the current state of its economy or is it going to be a black hole of international aid?
MS: There is no question about that. This is very unwise economic policy that has a political motivation. The EU itself and the US government both plunged in recklessly to topple the Yanukovich government last year and to support President Poroshenko. And now we have the dominant mythology, the dominant narrative in Washington, and in Brussels, and in London is that this is “a stable democratic government which is being under threat from evil totalitarian forces to the East.” That is not the truth even remotely, but that is almost universally believed by policymakers in London and Washington and many of them in Brussels and therefore there is a political motivation to try and prop up Ukraine. But you can’t fix what’s already broken. You are pouring good money after bad. Ukraine’s problems first of all have to be solved in the security sphere then they have to be solved in the political sphere restoring the political amity and credibility and the incompetent but nevertheless stable civil service that existed until February 2014 a year ago. It was the EU and the US that broke Ukraine and they cannot fix it now by simply pouring money into a black hole.
Government deems security risks too low to ‘exempt defense from austerity,’ says think tank
RT | March 9, 2015
The government believes strategic threats posed to Britain are not serious enough to merit insulating military spending from budget cuts, according to a report by a top defense think-tank.
The paper by the Royal United Services Institute (RUSI) centers on the economics of defense under austerity.
It concludes: “The government is not yet convinced that strategic security risks are high enough to justify an exemption for defense from austerity.”
The findings jar with recent statements by politicians and leading generals on the dangers faced by the UK.
In February, the top British officer in NATO – General Sir Adrian Bradshaw – referred to Russia as an “obvious existential threat to our whole being,” while Prime Minister David Cameron has called the rise of the Islamic State a “mortal threat.”
The investigation also indicates Britain is unlikely to meet the symbolic spending of 2 percent of GDP on defense, expected by NATO in coming years, and that thousands of soldiers could be cut irrespective of who wins the general election this year.
It warns that up to 30,000 service personnel could be axed. Given the Royal Navy may be largely exempt from redundancies, to ensure it can crew Britain’s aircraft carriers, the army could be forced to handle 80 percent of the intended reductions.
The report comes at a difficult time for David Cameron who this week faces a rebellion by a number of Tory MP’s over defense cuts.
Last week Bob Stewart, an army colonel turned Tory MP, argued defense is in a “parlous state” and that service chiefs should resign over cuts. He suggested he might step down himself, either as an MP or from the influential Defence Select Committee.
UK allies are also worried. General Raymond Odierno, chief of staff of the US Army, recently told the Telegraph he was “very concerned” at the cuts being made to the UK’s armed forces.
He criticized Chancellor George Osborne’s refusal to confirm whether the UK will meet NATO member states’ spending target of 2 percent of respective national GDP.
“What has changed, though, is the level of capability. In the past we would have a British Army division working alongside an American army division,” he added. Cuts mean the US Army now expects Britain to provide only half its previous commitment.
Pharmageddon: America’s bitter pill
RT | December 27, 2011
The United States has a passion for pills, being the world’s biggest users of psychotropic drugs, consuming 60 per cent of them. And pharmaceutical firms are keen to keep cashing in on the multibillion-dollar market, even if it costs people’s health.
America is regarded as a country with a prodigious appetite for consumption. Today, a widespread fondness for pharmaceuticals has turned the US into a nation of pill-poppers.
With over $14 billion in annual sales, antipsychotics remain the top-selling therapeutic class of prescription drugs in the US.
Dr. Harriet Fraad believes Big Pharma has manufactured a climate of insanity by manipulating and even creating illness for capital gain.
“One of the things that drives Big Pharma is to find a diagnosis that is very vague, so that everybody can fall into that,” she told RT. “Everybody is sad sometimes. There are good reasons. The point is to market pharmaceuticals. And the advertising strategy is to have vague diagnosis and then find wiggle room so that they apply to everyone.”
The US is the only Western country that allows direct-to-consumer advertising of prescription drugs. For example, an ad for Attention Deficit Hyperactivity Disorder warns that untreated patients will likely end up divorced. Another commercial promises to make you happier, but side-effects may include dry mouth, insomnia, sexual dysfunction, diarrhea, nausea and sleepiness.”
Critics also say Big Pharma uses its financial muscle to ply doctors with gifts, cash kick-backs and research funding in exchange for endorsing or prescribing the latest and most lucrative drugs.
Harriet Fraad says there is a whole network of doctors hustling these drugs.
“If a patient comes in with a knee injury and says, ‘I’m so sad.’ Oh, are you depressed? Hey write a prescription! They’re given out like M&Ms.”
Last year, prescription drug abuse became the number one cause of accidental death, with more than 30,000 Americans overdosing.
For instance, Seroquel, medication for bi-polar disorder, generated $4.4 billion in sales last year.Listing all its side-effects requires 49 seconds of air-time.
The number of children consuming antipsychotic medication has doubled in the past decade. Millions of American adolescents are taking drugs like Adderall, doled out by doctors to treat hyperactivity.
Author of Surviving America’s Depression Epidemic, psychologist Bruce Levine, told RT that, “All these drugs are very similar to illicit or illegal drugs, except they’re more dangerous. Marijuana is a little safer. But kids have no choice.”
Pfizer, America’s most profitable multinational pharmaceutical company makes anti-depressants not only for people, but also for animals. In 2009, the pharmaceutical giant paid $2.3 billion to settle civil and criminal allegations over illegally marketing one of its drugs. It was the largest healthcare fraud settlement and criminal fine in US history.That being said, the fine amounted to less than three weeks of Pfizer’s drug sales.
“The money is so huge that the fines are immaterial. They’re not thinking about the social effects of what they’re doing. They’re thinking about the profits they accrue,” says psychotherapist Harriet Fraad.
The pharmaceutical industry remains the most profitable business in the US. More success and financial gain for the companies will always remain possible as long as more Americans are encouraged to take drugs.
US ignores Russia’s offers of talks – Duma foreign relations chief
RT | March 3, 2015
There is no contact between the Russian and US parliaments as the Congress has repeatedly ignored all initiatives of negotiators aimed at settling various international crises, a senior Russian MP stated in an interview.
“Currently there are no contacts whatsoever between the State Duma and the US Congress, but this is not our fault,” head of the State Duma Committee for International Relations Aleksey Pushkov told Izvestia daily.
He noted that it all started in 2013 when leaders of the State Duma proposed sending a delegation of MPs to Congress in order to discuss the crisis in Syria and possible ways to overcome it. At first, the US lawmakers agreed to this, but then replied with a refusal, Pushkov said.
Pushkov added that he personally had sent a message to his US colleagues via former US ambassador to Moscow, Michael McFaul, asking for a meeting on neutral ground, such as Vienna or Geneva, but received no answer at all.
“Any dialogue can be built on participation of two parties and we cannot impose it on the US if they think that it is not worth the effort. Since then there have been no relations between us,” he observed in the interview.
Pushkov noted that, in his view, over the past few years the United States were engulfed in anti-Russian sentiments.
“Political scientists who arrive from Washington observe that never before, not even in the height of the Cold War years, not even under President Reagan, have they witnessed such anti-Russian hysteria and so much anti-Russian propaganda,” Pushkov stated. He then suggested that this phenomenon is connected with the change in objectives pursued by the US authorities – if during the Cold War they sought to defeat the USSR in foreign policy, now they want to overthrow Russia’s domestic regime.
“In such circumstances I see no positive signals for inter-parliamentary dialogue with the United States, even though we do not dodge contacts with some of the congressmen,” he said.
When reporters asked Pushkov if he thought the US had already prepared a scenario for a ‘color revolution’ in Russia, the Duma official answered that this was possible, adding that there could be several such scenarios.
“Earlier they had plans of the Russian Maidan set on the Bolotnaya Square,” Pushkov noted. [Bolotnaya Square is a large site near the Kremlin that witnessed violent clashes between protesters and police during a mass rally in 2012 which led to a high-profile trial and about two dozen convictions]. “The US authorities considered the participants of these events as a long-term movement that required political and informational support.”
“Today they maintain close contacts with the radical pro-American opposition represented by Mikhail Khodorkovsky, Garry Kasparov and Mikhail Kasyanov. Of course, these people’s political chances are miniscule, but this is the best the US could get.”
The third scenario, according to Pushkov, is consistent economic pressure on Russia in hope that it would cause a fall in living standards and provoke mass protests that would question Putin’s authority.
“These scenarios exist, but the question remains if they are feasible,” the MP concluded.
Ukraine Conscripts 800 Protesting Coal Miners from Western Region
By Oleg Tyshkevich | Vesti | March 2, 2015
The coal miners of Western Ukraine who threatened a large-scale rebellion due to the three- month delay of salaries are being inducted into the army.
800 rebellious miners received notices directly from military commissars who delivered them to the coal mines.
According to the deputy mayor of Novovolynsk, Eduard Savik, the notices were delivered to coal mines no. 1 and no. 9 in Novovolynsk, which the state is planning to close. That’s where the majority of rebellious miners is employed.
The miners blocked highways several times this winter to protest government policies which does not finance the mines, but instead wants to close them and is not even paying coal miners’ salaries.
Several hundred miners are planning to stage a protest in Kiev on March 3 to force the government to pay them.
“They are taking revenge for strikes—they decided to simply draft the rebels. Many of my comrades who were blocking highways and were preparing to picket the Ministry of Energy and the Cabinet of Ministers, received draft notices,” says Aleksey, a miner from Novovolynsk. “This is even worse than the 1990s. There was hunger, but there was no war. Now it’s total chaos.”
This article was translated by J.Hawk.
Who’s Scarier: Scott Walker or ‘Jihadi John’?
By Shamus Cooke | CounterPunch | March 2, 2015
When Wisconsin Governor Scott Walker compared labor unions to ISIS his audience cheered. At the end of the speech he got a standing ovation. His wealthy audience hated labor unions that much.
In fact, the 1% despises unions much more than they hate ISIS. Islamic extremists in the Syrian desert pose no threat to anyone in the U.S., while labor unions pose a direct threat to the profits of the super rich.
Conversely, the average U.S. worker has much more to fear from Scott Walker than any knife-wielding Jihadist. For example, Scott Walker is subtly campaigning for president among the elite by bragging about his successful butchering of Wisconsin unions, a model that he and his supporters hope to spread nationally.
Walker is idolized by the super rich for having dismembered Wisconsin unions in a way that recalls Ronald Reagan’s smashing of the PATCO air traffic controllers strike in 1981. The rich view Walker as a Reagan-like messiah who will transform labor relations yet again, giving corporations still more power in relation to the U.S. workforce.
For example, Walker’s anti-union laws have reduced union membership in Wisconsin by 50 percent since he defeated the “Wisconsin Uprising” in 2011, a battle victory that the super rich consider more heroic than the campaigns of any current military general.
The deathblow that Walker delivered to Wisconsin public unions devastated the powerful teacher union that has been the target of the 1% nationally, as reflected in Obama’s anti-union Race to the Top education policies that have weakened teacher unions in every state.
Walker’s stunning 2011 victory has been studied across the country by politicians inspired to follow in Walker’s footsteps by striking at the heart of union power, rather than the decades-long practice of chipping around the edges. The Walker copycat craze was described by the New York Times :
“[Governor Walker] has already emboldened other Republican-controlled states to enact measures that weaken unions and cut benefits. Tennessee and Idaho passed laws that cut back bargaining rights for public schoolteachers… Even longtime union strongholds like Michigan and Indiana have enacted right-to-work laws that undercut private-sector unions…”
Now the Illinois Governor, Bruce Rauner, is imitating Walker by signing an executive order that would cripple public sector unions in his state, which includes a direct attack on the very powerful Chicago Teachers Union. The president of the Chicago Teacher’s Union, Karen Lewis, recently called the Illinois governor “Scott Walker on steroids.” All the conditions for a Wisconsin-like clash in Illinois have been set.
Scott Walker himself discussed the national significance of his actions in Wisconsin:
“I’m at the top of the list of people they’d [labor unions] have on a platter. Not just for retribution, but they understand that if they could take me out [electorally], it would send a very powerful message to other governors and other mayors. But if we’re able to win again in a tough, evenly divided battleground state, that would send another message — that you can take on some of these issues and still survive.”
Walker is right. He struck at the heart of union power and won. The unions blinked first. And Walker wants to take the Wisconsin model nationwide. In the same speech that Walker compared unions to ISIS he said:
“If we can do it in Wisconsin, there’s no doubt we can do it across America.” He was talking about crushing unions, and his wealthy audience cheered wildly.
But Walker isn’t resting on his laurels after crushing Wisconsin unions. Now that he’s unofficially running for president he has to maintain his anti-union momentum, to convince the rich that he’ll continue his “bold” anti-worker agenda if elected. Walker has thus voiced support of new Wisconsin legislation that would eviscerate what little power Wisconsin unions have left.
The New York Times acknowledged the political motive for Walker’s new attack on Wisconsin unions:
“As Mr. Walker builds a presidential run on his effort to take on unions four years ago, he is poised to deliver a second walloping blow to labor.”
Scott Walker, however, can’t be blamed for everything. Wisconsin unions are not mere victims, but powerful actors that pursued bad strategy. When the unions were mobilizing hundreds of thousands of supporters alongside an activated rank and file, they backed down from Walker instead of organizing mass civil disobedience or advocating a general strike.
Instead, Wisconsin unions wasted their momentum by collecting signatures for a recall election, where they stupidly backed an anti-union Democrat against Walker. Surviving the re-call election further empowered Walker and weakened the unions.
And the unions were weakened even further recently when Walker won his re-election campaign. Yet again, the Wisconsin unions threw their weight behind an uninspiring corporate Democrat, who completely ignored union issues in her losing campaign that wasted enormous union resources. The Wall Street Journal correctly noted that the recent Wisconsin gubernatorial election signaled “a historic shift in the power of unions,” exposing the weakness of their political strategy.
Scott Walker’s new anti-union attack in Wisconsin has provoked fresh calls for a general strike to stop the legislation. If Wisconsin unions have the organizational power to win a general strike they should immediately begin preparations for it. However, it’s unclear if the rump that remains of the Wisconsin movement is organized enough to win a general strike, and losing one would certainly encourage Walker to napalm what remains of the Wisconsin labor movement.
Scott Walker and his followers have made it clear: they are declaring total war on unions, who can either fight back or accept their fate. The labor movement must engage its rank and file over a national discussion on fighting back and strategy.
Many unions remain suicidally content with burying their heads in the sand and hoping the attackers go away. Other unions, however, are taking powerful, pro-active steps to defend themselves.
SEIU, for example, was one of the Wisconsin unions in 2011 that got their teeth kicked in. Consequently they initiated a national campaign for “$15 and a union,” a masterstroke that has directly led to thundering union victories in Seattle and San Francisco that won a citywide $15 minimum wage. Such a campaign is now being mimicked statewide by Oregon’s labor movement.
The $15 campaign has inspired low wage workers across the country, making the West Coast unions less vulnerable to “right to work” legislation, since an active and strong labor movement is itself a repellent to anti-union attacks. The $15 campaigns have arguably been the biggest victories for unions in decades, especially given the current political climate. These unions have dominated the public political discussion and multiplied the popularity of unions in the broader community.
Also critically important are the actions of unions across the country that are building political programs such as “labor candidate schools,” where union members are being trained and encouraged to run for office. Ohio unions showed the potential of such a strategy by running for and winning several elections against Democrats, prompting calls for the creation of a labor party. This is crucially important given the events in Wisconsin, where unions tied their fate to the Democrats, who dragged the unions underwater in losing campaigns that wasted millions of their members’ money.
The U.S. labor movement has reached a historic crossroads, as labor relations in the United States are undergoing dramatic, sudden shifts. The only way to answer the aggressiveness of Scott Walker and his clones is by aggressively throwing counter punches that mobilize union members and the community. The Steelworkers union is waging its first strike in decades and other unions must re-learn how to effectively organize lest they die without a fight.
Shamus Cooke can be reached at shamuscooke@gmail.com
Rich get richer from fewer labor unions, study says
RT | February 28, 2015
A study by the International Monetary Fund tracked three decades of income and found that as unionization declined, the wealth of the richest 10 percent in advanced countries showed a continuous increase.
More specifically, the study’s authors found that when researching income levels during the period of 1980-2010, the decline in unionization explained about half of the rise in incomes for the richest 10 percent, and half of the increase in the Gini coefficient (a measure of income inequality).
“While some inequality can increase efficiency by strengthening incentives to work and invest, recent research suggests that higher inequality is associated with lower and less sustainable growth in the medium run, even in advanced economies,” argued the paper’s authors, Florence Jaumotte and Carolina Osorio Buitron.
The authors said traditional research has argued that the rise of inequality in advanced economies can be attributed to skill-based technology changes – such as new technology displacing workers – and globalization. They found that these developments led to some inequality changes at different rates and magnitudes, but not enough to account for the consistent increase in inequality that was being measured.
Researchers looked for answers in recent studies that made the claim that financial deregulation and lower taxes were another factor – but again, that wasn’t showing the steady increases that researchers were charting.
“…A rising concentration of income at the top of the distribution can reduce a population’s welfare if it allows top earners to manipulate the economic political system in their favor,” they wrote, referring to things such as lower taxes and business subsidies.
They then considered what effect the decline in unionization and a flat-lining minimum wage could have on wealth disparity. Previous research said such things were unlikely to have a direct impact, but that is not what Jaumotte and Buitron found. They took samples of advanced economies between 1980 and 2010 and considered gross income, labor market institutions and controls for globalization, financial liberalization, and common global trends.
“Our results confirm that the decline in unionization is strongly associated with the rise of income shares at the top…about half the increase…in net income is driven by deunionization,” said Jaumotte and Buitron.
Economists argue that stronger unions and higher minimum wages increase unemployment, but there isn’t strong evidence to support the claim. The Organization for Economic Co-operation and Development only found three studies out of 17 that showed an association between unions and unemployment.
What it did find was that union rules lead to equal pay for workers, and that unionization didn’t maintain wages above “market-clearing” levels and cause unemployment. And unions, by mobilizing workers, encourage policymakers to engage in income redistribution and support for social and labor rights.
In the US, there were 14.5 million union members in 2013, or 11.3 percent of the working population, compared with 17.7 million in 1983. Union members in the private sector have fallen under seven percent, levels not seen since 1932. Internationally, Germany has 18.4 percent of its population in unions, Canada 27.5 percent, and Finland 70 percent.
Israel’s New Asian Allies
By Jonathan Cook | Dissident Voice | February 24, 2015
It was another difficult week for Israel.
In Britain, 700 artists, including many household names, pledged a cultural boycott of Israel, and a leader of the Board of Deputies, the representative body of UK Jews, quit, saying he could no longer abide by its ban on criticising Israel.
Across the Atlantic, the student body of one of the most prestigious US universities, Stanford, voted to withdraw investments from companies implicated in Israel’s occupation, giving a significant boost to the growing international boycott (BDS) movement.
Meanwhile, a CNN poll found that two-thirds of Americans, and three-quarters of those under 50, believed the US foreign policy should be neutral between Israel and Palestine.
This drip-drip of bad news, as American and European popular opinion shifts against Israel, is gradually changing the west’s political culture and forcing Israel to rethink its historic alliances.
The deterioration in relations between Israel and the White House is now impossible to dismiss, as Israeli prime minister Benjamin Netanyahu and President Barack Obama lock horns, this time over negotiations with Iran.
The US was reported last week to be refusing to share with Israel sensitive information on the talks, fearful it will be misused. A senior Israeli official described it as like being evicted from the “deluxe guest suite” in Washington. “Astonishing doesn’t begin to describe it,” he said.
The fall-out is spreading to the US Congress, where for the first time Israel is becoming a partisan issue. A growing number of Democrats have declared they will boycott Netanyahu’s address to the Congress next month, when he is expected to try to undermine the Iran talks.
Things are more precarious still in Europe. Several leading parliaments have called on their governments to recognise Palestinian statehood, and France rocked Israel by backing just such a resolution recently in the UN Security Council.
Europe has also begun punishing Israel for its intransigence towards the Palestinians. It is labelling settlement products and is expected to start demanding compensation for its projects in the occupied territories the Israeli army destroys.
This month 63 members of the European Parliament went further, urging the European Union to suspend its “association agreement”, which allows Israel unrestricted trade and access to special funding.
None of this has gone unnoticed in Israel. A classified report by the foreign ministry leaked last month paints a dark future. It concludes that western support for the Palestinians will increase, the threat of European sanctions will grow, and the US might even refuse to “protect Israel with its veto” at the UN.
Israel is particularly concerned about the economic impact, given that Europe is its largest trading partner. Serious sanctions could ravage the economy.
One might assume that, faced with these drastic calculations, Israel would reconsider its obstructive approach to peace negotiations and Palestinian statehood. Not a bit of it.
Netanyahu’s officials blame the crisis with Washington on Obama, implying that they will wait out his presidency for better times to return.
As for Europe, Netanyahu blames the shift there on what he calls “Islamisation”, suggesting that Europe’s growing Muslim population is holding the region’s politicians to ransom. On this view, the price paid for the recent terror attacks in Paris and Copenhagen is Europe’s support for Israel.
Instead, Netanyahu has begun looking elsewhere for economic – and ultimately political – patrons.
In doing so, he is returning to an early Israeli tradition. The state’s founders were inspired by the collectivist ideals of the Soviet Union, not US individualism. And in return for attacking Egypt in 1956, Israel was secretly helped by Britain and France to build nuclear weapons over stiff US opposition.
In response to recent developments, Netanyahu announced last month that he was courting trade with China, India and Japan – comprising nearly 40 per cent of the planet’s population.
Last year, for the first time, Israel did more trade with these Asian giants than with the US. Much of it focused on the burgeoning arms market, with Israel supplying nearly $4 billion worth of weapons in 2013. A region once implacably hostile to Israel is throwing open its doors.
India, plagued by border tensions with Pakistan and China, is now Israel’s largest arms purchaser – and such trade is expected to expand further following the election last year of Narendra Modi, known for his anti-Muslim views.
He has lifted the veil off India’s growing defence cooperation with Israel, one reason why Moshe Yaalon last week became the first Israeli defence minister to make an official visit.
Ties between Israel and China are deepening rapidly too. Beijing has become Israel’s third largest trading partner, while Israel is China’s second biggest supplier of military technology after Russia.
Last month the two signed a three-year cooperation plan, with China keen to exploit – in addition to Israel’s military hardware – its innovations on solar energy, irrigation and desalination.
Emmanuel Navon, an international relations expert at Tel Aviv University, claims that, despite its poor public image, Israel now enjoys a “global clout” unprecedented in its history.
Israel’s immediate goal is to future-proof itself economically against mounting popular pressure in Europe and the US to act in favour of the Palestinian cause.
But, longer term, Israel hopes to convert Chinese and Indian dependency on Israeli armaments – based on technology it tests and refines on a captive Palestinian population – into diplomatic cover. One day Israel may be relying on a Chinese veto at the UN, not a US one.
Some Governors want to Cut Taxes for the Rich and Increase Taxes for the Poor
By Noel Brinkerhoff and Danny Biederman | AllGov | February 24, 2015
Call it the reverse Robin Hood tax strategy: Republican governors in several states want to rob from the poor through higher taxes and give to the rich by cutting their taxes.
GOP Governors Paul LePage of Maine, John Kasich of Ohio, Nikki Haley of South Carolina and several others are considering raising so-called consumption taxes, such as those imposed on sales of cigarettes, gasoline, even haircuts and movie tickets, to generate more revenue for their state budgets.
At the same time, they want to slash income taxes, which would benefit wealthy taxpayers the most.
This strategy would, they argue, stimulate business creation and job growth.
But increasing sales taxes usually hurts lower income earners more than the wealthy because the former has to spend more of their earnings on food and necessities.
A new report from the Keystone Research Center and Good Jobs First says this taxation approach by the GOP could create financial problems in the future.
The report cites two national studies to support its claim. One is from the Economic
Policy Institute, which revealed that “one percent of people at the top now claim at least one sixth of all personal income in 38 states, while incomes for the middle class have remained flat,” according to the Keystone report. The second study cited is from The Institute on Taxation and Economic Policy, which found that “in 20 states, the top one percent pay less than half the tax rate of the middle class,” noted Keystone. “On average across the 50 states, the top one percent pay only 60 percent as much in taxes as the middle fifth.”
The report’s warnings may have come too late for several states that have already put the controversial tax juggle into practice.
“The strategy of shifting from income taxes to consumption taxes has caused huge budget shortfalls in Kansas and, more recently, North Carolina, which announced a budget shortfall of nearly half a billion dollars,” Shaila Dewan wrote at The New York Times.
To Learn More:
States Consider Increasing Taxes for the Poor and Cutting Them for the Affluent (by Shaila Dewan, New York Times )
Tax Fairness: An Answer to State Budget Problems (Keystone Research Center and Good Jobs First) (pdf)
Under the Radar, Payroll Tax Increase Hits the Working Poor (by Noel Brinkerhoff, AllGov )
Louisiana Gov. Jindal Proposes Raising Taxes for 80% of State’s Citizens(by Matt Bewig, AllGov )
Kansas Tax Committee Approves Bill to Raise Taxes for Poor and Lower Taxes for Rich (by Matt Bewig, AllGov )
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From the Archives
World War II Didn’t End The Great Depression
Stark Realities with Brian McGlinchey | April 4, 2024
A principal goal of Stark Realities is to “expose fundamental myths across the political spectrum” — and few myths are as universally embraced as the notion that US participation in World War II (1941-1945) lifted the American economy out of the Great Depression.
This myth is dangerous not only because it leads citizens and politicians to see a bright side of war that doesn’t really exist, but also because it helps foster a belief that government spending is essential to countering economic downturns. That belief, in turn, has helped propel us to a point where the national debt now exceeds $34.6 trillion, with interest payments alone on pace to reach $1 trillion a year in 2026, inviting financial catastrophe. … continue
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