Economics « Aletho News

How John Kerry Blew it on Trade in 2004

By Ian Fletcher | April 21, 2011

Trade is heating up again as a political issue. But if we’re to have a fighting chance this time of ending America’s free-trade disaster, we need to learn from our past mistakes on the issue.

Case in point: Sen. John Kerry’s 2004 presidential run.

Offshoring first flared as a political controversy in that year. The thing about it that differed from previous trade-induced job losses was, of course, that it threatened the white-collar middle class.

But in the end, the controversy didn’t really go anywhere, in the sense of producing serious political realignments or policy changes. Offshoring was adjudged by the two parties to be a political flashpoint but fundamentally just another political issue, which changed nothing important and should be handled the way most political issues usually are: by jockeying for advantage within the established policy consensus.

Politicians thus set out to win votes on the issue without taking the risks inherent in doing anything substantial.

The Democrats, quintessentially Sen. John Kerry in his 2004 campaign, sought to make the smallest policy proposals sufficient to position themselves as “the good guys” on the issue for voters who cared about it, while signaling to everyone else that they weren’t about to go too far.

The Republicans, meanwhile, defended a status quo that they were no more or less responsible for than the Democrats using the same old Ricardian comparative-advantage (explanation) arguments that have always been used on free trade

Both responses were standard procedure for day-to-day Washington politics—which is precisely why they occurred.

Kerry, handicapped by his vote for NAFTA in 1993, did tack left a bit in the 2004 primaries. Facing vocal NAFTA opponents in the sincere Rep. Dick Gephardt (D-MO) and the opportunistic Sen. John Edwards (D-NC), he began railing against what he called “Benedict Arnold” corporations which were moving jobs overseas.

This rhetoric effectively blunted Edwards’ and Gephardt’s attacks on his NAFTA vote, enabling his wins in Ohio, Wisconsin, Michigan, and other industrial states especially hurt by free trade.

Then, in May, with his nomination secure, Kerry tacked right again. In an interview with The Wall Street Journal, he claimed his Benedict Arnold reference had been misconstrued:

‘Benedict Arnold’ does not refer to somebody who in the normal course of business is going to go overseas and take jobs overseas. That happens. I support that. I understand that. I was referring to the people who take advantage of non-economic transactions purely for tax purposes—sham transactions—and give up American citizenship.

Offshore tax domiciling is, of course, an entirely different issue than offshoring. Kerry had folded his cards.

From that point on, the issue virtually disappeared from the campaign.

Kerry’s refusal to engage George W. Bush on trade reached its nadir during the third presidential debate, when moderator Bob Schieffer of CBS asked Bush what he would say to “someone in this country who has lost his job to someone overseas who’s being paid a fraction of what that job paid here in the United States.

Bush offered the stock Republican responses: he talked about creating the new jobs of the 21st century, improving primary and secondary education, expanding Trade Adjustment Assistance, increasing Pell Grants to college students, and helping displaced workers attend community college.

None of these palliative solutions are, of course, remotely sufficient. Educating people fill jobs that have been moved offshore is pointless, and Trade Adjustment Assistance is just a band-aid program to lessen the pain for the victims of free trade a bit.

Bush’s position gave Kerry a clear opportunity to define himself politically with his response at a critical juncture in the campaign. The strategic window was wide open.

But instead of taking on Bush over trade, Kerry accepted Bush’s basic premise that free trade is best and that his proposed solutions could work, and attacked him for cutting job training funds, Pell Grants and Perkins loans.

Bunt.

Amazingly, Schieffer gave Kerry another chance to exploit the issue minutes later. Kerry squandered it again, with a self-consciously defeatist answer dressed up as political courage:

Outsourcing is going to happen. I’ve acknowledged that in union halls across the country. I’ve had shop stewards stand up and say, ‘Will you promise me you’re going to stop all this outsourcing?’ And I’ve looked them in the eye and I’ve said, ‘No, I can’t do that.’

In other words, trade isn’t really a political issue at all, because there’s nothing the government can do about it. Not only is there no meaningful difference between Republicans and Democrats on the issue, there cannot be one.

Kerry went on to talk about tangential issues—corporate tax loopholes, violations of international trade rules, subsidies by Airbus, Chinese currency manipulation, and fiscal discipline. Bush had won by forfeit.

In retrospect, it is entirely plausible that Kerry’s decision to bunt on trade cost him Ohio and thus the entire 2004 election. By refusing to separate himself from Bush on economics on the single best issue for doing so—where Bush was furthest away from the opinions of swing voters—Kerry allowed social issues summed up as “God, guns and gays” to determine the election for the lower-middle and working-class voters who were his natural constituency.

This problem continues to fester: a 2008 study of the electorate in Ohio by the Center for Working-Class Studies at Youngstown State University suggests that thanks to Bill Clinton’s support for NAFTA in 1993, working-class voters “still do not trust Democrats and they haven’t come back to the Democrats.” As a result, these voters have tended to view Republicans and Democrats as equally unlikely to protect their economic interests and have therefore voted on noneconomic issues.

In the face of economic crisis, this is a recipe for disaster.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor.

April 21, 2011 Posted by aletho | Economics | Leave a comment

Why Is Gaddafi Being Demonized?

By Anonymous African Woman* / Dissident Voice / April 21st, 2011

It was [Mouammar] Gaddafi’s Libya that offered all of Africa its first revolution in modern times – connecting the entire continent by telephone, television, radio broadcasting and several other technological applications such as telemedicine and distance teaching. And thanks to the WMAX radio bridge, a low cost connection was made available across the continent, including in rural areas.

It began in 1992, when 45 African nations established RASCOM (Regional African Satellite Communication Organization) so that Africa would have its own satellite and slash communication costs in the continent. This was a time when phone calls to and from Africa were the most expensive in the world because of the annual US$500 million fee pocketed by Europe for the use of its satellites like Intelsat for phone conversations, including those within the same country.

An African satellite only cost a onetime payment of US$400 million and the continent no longer had to pay a US$500 million annual lease. Which banker wouldn’t finance such a project? But the problem remained – how can slaves, seeking to free themselves from their master’s exploitation ask the master’s help to achieve that freedom? Not surprisingly, the World Bank, the International Monetary Fund, the USA, Europe only made vague promises for 14 years. Gaddafi put an end to these futile pleas to the western ‘benefactors’ with their exorbitant interest rates. The Libyan guide put US$300 million on the table; the African Development Bank added US$50 million more and the West African Development Bank a further US$27 million – and that’s how Africa got its first communications satellite on 26 December 2007.

China and Russia followed suit and shared their technology and helped launch satellites for South Africa, Nigeria, Angola, Algeria and a second African satellite was launched in July 2010. The first totally indigenously built satellite and manufactured on African soil, in Algeria, is set for 2020. This satellite is aimed at competing with the best in the world, but at ten times less the cost, a real challenge.

This is how a symbolic gesture of a mere US$300 million changed the life of an entire continent. Gaddafi’s Libya cost the West, not just depriving it of US$500 million per year but the billions of dollars in debt and interest that the initial loan would generate for years to come and in an exponential manner, thereby helping maintain an occult system in order to plunder the continent.

African Monetary Fund, African Central Bank, African Investment Bank

The US$30 billion frozen by Mr Obama belongs to the Libyan Central Bank and had been earmarked as the Libyan contribution to three key projects which would add the finishing touches to the African federation – the African Investment Bank in Syrte, Libya, the establishment in 2011 of the African Monetary Fund to be based in Yaounde with a US$42 billion capital fund and the Abuja-based African Central Bank in Nigeria which when it starts printing African money will ring the death knell for the CFA franc through which Paris has been able to maintain its hold on some African countries for the last fifty years. It is easy to understand the French wrath against Gaddafi.

The African Monetary Fund is expected to totally supplant the African activities of the International Monetary Fund which, with only US$25 billion, was able to bring an entire continent to its knees and make it swallow questionable privatisation like forcing African countries to move from public to private monopolies. No surprise then that on 16-17 December 2010, the Africans unanimously rejected attempts by Western countries to join the African Monetary Fund, saying it was open only to African nations.

It is increasingly obvious that after Libya, the western coalition will go after Algeria, because apart from its huge energy resources, the country has cash reserves of around €150 billion. This is what lures the countries that are bombing Libya and they all have one thing in common – they are practically bankrupt. The USA alone, has a staggering debt of $US14,000 billion, France, Great Britain and Italy each have a US$2,000 billion public deficit compared to less than US$400 billion in public debt for 46 African countries combined.

Inciting spurious wars in Africa in the hope that this will revitalise their economies which are sinking ever more into the doldrums will ultimately hasten the western decline which actually began in 1884 during the notorious Berlin Conference. As the American economist Adam Smith predicted in 1865 when he publicly backed Abraham Lincoln for the abolition of slavery, ‘the economy of any country which relies on the slavery of blacks is destined to descend into hell the day those countries awaken’.

Regional Unity as an Obstacle to the Creation of a United States of Africa

To destabilise and destroy the African union which was veering dangerously (for the West) towards a United States of Africa under the guiding hand of Gaddafi, the European Union first tried, unsuccessfully, to create the Union for the Mediterranean (UPM). North Africa somehow had to be cut off from the rest of Africa, using the old tired racist clichés of the 18th and 19th centuries ,which claimed that Africans of Arab origin were more evolved and civilised than the rest of the continent. This failed because Gaddafi refused to buy into it. He soon understood what game was being played when only a handful of African countries were invited to join the Mediterranean grouping without informing the African Union but inviting all 27 members of the European Union.

Without the driving force behind the African Federation, the UPM failed even before it began, still-born with Sarkozy as president and Mubarak as vice president. The French foreign minister, Alain Juppe is now attempting to re-launch the idea, banking no doubt on the fall of Gaddafi.

What African leaders fail to understand is that as long as the European Union continues to finance the African Union, the status quo will remain, because of no real independence. This is why the European Union has encouraged and financed regional groupings in Africa.

It is obvious that the West African Economic Community (ECOWAS), which has an embassy in Brussels and depends for the bulk of its funding on the European Union, is a vociferous opponent to the African federation. That’s why Lincoln fought in the US war of secession because the moment a group of countries come together in a regional political organisation, it weakens the main group. That is what Europe wanted and the Africans have never understood the game plan, creating a plethora of regional groupings, COMESA, UDEAC, SADC, and the Great Maghreb which never saw the light of day thanks to Gaddafi who understood what was happening.

Gaddafi, the African Who Cleansed the Continent from the Humiliation of Apartheid

For most Africans, Gaddafi is a generous man, a humanist, known for his unselfish support for the struggle against the racist regime in South Africa. If he had been an egotist, he wouldn’t have risked the wrath of the West to help the ANC both militarily and financially in the fight against apartheid. This was why Mandela, soon after his release from 27 years in jail, decided to break the UN embargo and travel to Libya on 23 October 1997. For five long years, no plane could touch down in Libya because of the embargo. One needed to take a plane to the Tunisian city of Jerba and continue by road for five hours to reach Ben Gardane, cross the border and continue on a desert road for three hours before reaching Tripoli. The other solution was to go through Malta, and take a night ferry on ill-maintained boats to the Libyan coast. A hellish journey for a whole people, simply to punish one man.

Mandela didn’t mince his words when the former US president Bill Clinton said the visit was an ‘unwelcome’ one – ‘No country can claim to be the policeman of the world and no state can dictate to another what it should do’. He added – ‘Those that yesterday were friends of our enemies have the gall today to tell me not to visit my brother Gaddafi, they are advising us to be ungrateful and forget our friends of the past.’

Indeed, the West still considered the South African racists to be their brothers who needed to be protected. That’s why the members of the ANC, including Nelson Mandela, were considered to be dangerous terrorists. It was only on 2 July 2008, that the US Congress finally voted a law to remove the name of Nelson Mandela and his ANC comrades from their black list, not because they realised how stupid that list was but because they wanted to mark Mandela’s 90th birthday. If the West was truly sorry for its past support for Mandela’s enemies and really sincere when they name streets and places after him, how can they continue to wage war against someone who helped Mandela and his people to be victorious, Gaddafi?

Are Those Who Want to Export Democracy Themselves Democrats?

And what if Gaddafi’s Libya were more democratic than the USA, France, Britain and other countries waging war to export democracy to Libya? On 19 March 2003, President George Bush began bombing Iraq under the pretext of bringing democracy. On 19 March 2011, exactly eight years later to the day, it was the French president’s turn to rain down bombs over Libya, once again claiming it was to bring democracy. Nobel peace prize-winner and US President Obama says unleashing cruise missiles from submarines is to oust the dictator and introduce democracy.

The question that anyone with even minimum intelligence cannot help asking is the following: Are countries like France, England, the USA, Italy, Norway, Denmark, Poland who defend their right to bomb Libya on the strength of their self proclaimed democratic status really democratic? If yes, are they more democratic than Gaddafi’s Libya? The answer in fact is a resounding NO, for the plain and simple reason that democracy doesn’t exist. This isn’t a personal opinion, but a quote from someone whose native town Geneva, hosts the bulk of UN institutions. The quote is from Jean Jacques Rousseau, born in Geneva in 1712 and who writes in chapter four of the third book of the famous Social Contract that ‘there never was a true democracy and there never will be.’

Rousseau sets out the following four conditions for a country to be labelled a democracy and according to these Gaddafi’s Libya is far more democratic than the USA, France and the others claiming to export democracy:

1. The State: The bigger a country, the less democratic it can be. According to Rousseau, the state has to be extremely small so that people can come together and know each other. Before asking people to vote, one must ensure that everybody knows everyone else, otherwise voting will be an act without any democratic basis, a simulacrum of democracy to elect a dictator.

The Libyan state is based on a system of tribal allegiances, which by definition group people together in small entities. The democratic spirit is much more present in a tribe, a village than in a big country, simply because people know each other, share a common life rhythm which involves a kind of self-regulation or even self-censorship in that the reactions and counter reactions of other members impacts on the group.

From this perspective, it would appear that Libya fits Rousseau’s conditions better than the USA, France and Great Britain, all highly urbanised societies where most neighbours don’t even say hello to each other and therefore don’t know each other even if they have lived side by side for twenty years. These countries leapfrogged into the next stage – ‘the vote’ – which has been cleverly sanctified to obfuscate the fact that voting on the future of the country is useless if the voter doesn’t know the other citizens. This has been pushed to ridiculous limits with voting rights being given to people living abroad. Communicating with and amongst each other is a precondition for any democratic debate before an election.

2. Simplicity in customs and behavioural patterns are also essential if one is to avoid spending the bulk of the time debating legal and judicial procedures in order to deal with the multitude of conflicts of interest inevitable in a large and complex society. Western countries define themselves as civilised nations with a more complex social structure whereas Libya is described as a primitive country with a simple set of customs. This aspect too indicates that Libya responds better to Rousseau’s democratic criteria than all those trying to give lessons in democracy. Conflicts in complex societies are most often won by those with more power, which is why the rich manage to avoid prison because they can afford to hire top lawyers and instead arrange for state repression to be directed against someone one who stole a banana in a supermarket rather than a financial criminal who ruined a bank. In the city of New York for example where 75 per cent of the population is white, 80 per cent of management posts are occupied by whites who make up only 20 per cent of incarcerated people.

3. Equality in status and wealth: A look at the Forbes 2010 list shows who the richest people in each of the countries currently bombing Libya are and the difference between them and those who earn the lowest salaries in those nations; a similar exercise on Libya will reveal that in terms of wealth distribution, Libya has much more to teach than those fighting it now, and not the contrary. So here too, using Rousseau’s criteria, Libya is more democratic than the nations pompously pretending to bring democracy. In the USA, 5 per cent of the population owns 60 per cent of the national wealth, making it the most unequal and unbalanced society in the world.

4. No luxuries: according to Rousseau there can’t be any luxury if there is to be democracy. Luxury, he says, makes wealth a necessity which then becomes a virtue in itself, it, and not the welfare of the people becomes the goal to be reached at all cost, ‘Luxury corrupts both the rich and the poor, the one through possession and the other through envy; it makes the nation soft and prey to vanity; it distances people from the State and enslaves them, making them a slave to opinion.’

Is there more luxury in France than in Libya? The reports on employees committing suicide because of stressful working conditions even in public or semi-public companies, all in the name of maximising profit for a minority and keeping them in luxury, happen in the West, not in Libya.

The American sociologist C. Wright Mills wrote in 1956 that American democracy was a ‘dictatorship of the elite’. According to Mills, the USA is not a democracy because it is money that talks during elections and not the people. The results of each election are the expression of the voice of money and not the voice of the people. After Bush senior and Bush junior, they are already talking about a younger Bush for the 2012 Republican primaries. Moreover, as Max Weber pointed out, since political power is dependent on the bureaucracy, the US has 43 million bureaucrats and military personnel who effectively rule the country but without being elected and are not accountable to the people for their actions. One person (a rich one) is elected, but the real power lies with the caste of the wealthy who then get nominated to be ambassadors, generals, etc.

How many people in these self-proclaimed democracies know that Peru’s constitution prohibits an outgoing president from seeking a second consecutive mandate? How many know that in Guatemala, not only can an outgoing president not seek re-election to the same post, no one from that person’s family can aspire to the top job either? Or that Rwanda is the only country in the world that has 56 per cent female parliamentarians? How many people know that in the 2007 CIA index, four of the world’s best-governed countries are African? That the top prize goes to Equatorial Guinea whose public debt represents only 1.14 per cent of GDP?

Rousseau maintains that civil wars, revolts and rebellions are the ingredients of the beginning of democracy. Because democracy is not an end, but a permanent process of the reaffirmation of the natural rights of human beings which in countries all over the world (without exception) are trampled upon by a handful of men and women who have hijacked the power of the people to perpetuate their supremacy. There are here and there groups of people who have usurped the term ‘democracy’ – instead of it being an ideal towards which one strives it has become a label to be appropriated or a slogan which is used by people who can shout louder than others. If a country is calm, like France or the USA, that is to say without any rebellions, it only means, from Rousseau’s perspective, that the dictatorial system is sufficiently repressive to pre-empt any revolt.

It wouldn’t be a bad thing if the Libyans revolted. What is bad is to affirm that people stoically accept a system that represses them all over the world without reacting. And Rousseau concludes: ‘Malo periculosam libertatem quam quietum servitium – translation – If gods were people, they would govern themselves democratically. Such a perfect government is not applicable to human beings.’ To claim that one is killing Libyans for their own good is a hoax.

What Lessons for Africa?

After 500 years of a profoundly unequal relationship with the West, it is clear that we don’t have the same criteria of what is good and bad. We have deeply divergent interests. How can one not deplore the ‘yes’ votes from three sub-Saharan countries (Nigeria, South Africa and Gabon) for resolution 1973 that inaugurated the latest form of colonisation baptised ‘the protection of peoples’, which legitimises the racist theories that have informed Europeans since the 18th century and according to which North Africa has nothing to do with sub-Saharan Africa, that North Africa is more evolved, cultivated and civilised than the rest of Africa?

It is as if Tunisia, Egypt, Libya and Algeria were not part of Africa, Even the United Nations seems to ignore the role of the African Union in the affairs of member states. The aim is to isolate sub Saharan African countries to better isolate and control them. Indeed, Algeria (US$16 billion) and Libya (US$10 billion ) together contribute 62 per cent of the US$42 billion which constitute the capital of the African Monetary Fund (AMF). The biggest and most populous country in sub Saharan Africa, Nigeria, followed by South Africa are far behind with only 3 billion dollars each.

It is disconcerting to say the least that for the first time in the history of the United Nations, war has been declared against a people without having explored the slightest possibility of a peaceful solution to the crisis. Does Africa really belong anymore to this organisation? Nigeria and South Africa are prepared to vote ‘Yes’ to everything the West asks because they naively believe the vague promises of a permanent seat at the Security Council with similar veto rights. They both forget that France has no power to offer anything. If it did, Mitterand would have long done the needful for Helmut Kohl’s Germany.

A reform of the United Nations is not on the agenda. The only way to make a point is to use the Chinese method – all 50 African nations should quit the United Nations and only return if their longstanding demand is finally met, a seat for the entire African federation or nothing. This non-violent method is the only weapon of justice available to the poor and weak that we are. We should simply quit the United Nations because this organisation, by its very structure and hierarchy, is at the service of the most powerful.

We should leave the United Nations to register our rejection of a worldview based on the annihilation of those who are weaker. They are free to continue as before but at least we will not be party to it and say we agree when we were never asked for our opinion. And even when we expressed our point of view, like we did on Saturday 19 March in Nouakchott, when we opposed the military action, our opinion was simply ignored and the bombs started falling on the African people.

Today’s events are reminiscent of what happened with China in the past. Today, one recognises the Ouattara government, the rebel government in Libya, like one did at the end of the Second World War with China. The so-called international community chose Taiwan to be the sole representative of the Chinese people instead of Mao’s China. It took 26 years when on 25 October 1971, for the UN to pass resolution 2758 which all Africans should read to put an end to human folly. China was admitted and on its terms – it refused to be a member if it didn’t have a veto right. When the demand was met and the resolution tabled, it still took a year for the Chinese foreign minister to respond in writing to the UN Secretary General on 29 September 1972, a letter which didn’t say yes or thank you but spelt out guarantees required for China’s dignity to be respected.

What does Africa hope to achieve from the United Nations without playing hard ball? We saw how in Cote d’Ivoire a UN bureaucrat considers himself to be above the constitution of the country. We entered this organisation by agreeing to be slaves and to believe that we will be invited to dine at the same table and eat from plates we ourselves washed is not just credulous, it is stupid.

When the African Union endorsed Ouattara’s victory and glossed over contrary reports from its own electoral observers simply to please our former masters, how can we expect to be respected? When South African president Zuma declares that Ouattara hasn’t won the elections and then says the exact opposite during a trip to Paris, one is entitled to question the credibility of these leaders who claim to represent and speak on behalf of a billion Africans.

Africa’s strength and real freedom will only come if it can take properly thought out actions and assume the consequences. Dignity and respect come with a price tag. Are we prepared to pay it? Otherwise, our place is in the kitchen and in the toilets in order to make others comfortable.

* Anonymous African Woman is from East Africa. She is not Libyan.

April 21, 2011 Posted by aletho | Economics, Mainstream Media, Warmongering, Supremacism, Social Darwinism | Leave a comment

BILLIONAIRES, REPUBLICANS, ON “WARPATH” TO PAUPERIZE AMERICAN MIDDLE CLASS

By Sherwood Ross | April 21, 2011

America’s well-to-do are waging war on America’s “shrinking middle class,” Senator Bernie Sanders, the Vermont Independent, says.

“The nation’s billionaires are on the war path. They want more, more, more,” and “their greed has no end and they are apparently unconcerned for the future of this country if it gets in the way of their accumulation of wealth and power.”

Sanders says that, “Right now, the top one percent controls more than 23 percent of all income earned in America,” which is more wealth than “the bottom 50 percent” put together. What’s more, he notes, “In the last 25 years, we have seen 80 percent of all new income going to the top 1 percent.” This comment is supported by data showing that productivity gains created by U.S. workers over the past several decades have not resulted in increased pay for them but have instead gone into profits. Salaries have stagnated.

“All of the progressive legislation that started with FDR is on the chopping block,” Sanders declared. “Despite the fact that Social Security today has a $2.6 trillion dollar surplus, they are targeting Social Security. They are targeting Medicare. In Arizona, people on Medicaid who need transplants are no longer able to get them—-(and) that is a real death panel.”

The Vermont senator’s charges about the Social Security surplus are backed up by the Social Security Administration itself. SSA says from 1937, when the first pay outs were made, through 2009, Social Security spent a total of $11.3-trillion. In the same period, though, it received $13.8 trillion.

Over the years, nearly 454 million Social Security cards have been issued and, presumably, as many people have been beneficiaries of the system. And between five and six million new cards are being issued every year. That’s a lot of help for a lot of people.

Sanders says that since the Citizens United Supreme Court decision “what we are beginning to see in elections is unbelievable. Billionaires are going to flood states with all kinds of negative, dishonest ads in an effort to defeat people defending the middle class.” He added that the Republicans’ “have been pretty honest” about their goal “to bring this country back to where we were in the 1920s.”

Not only are the well-to-do out to demolish the progressive legislation enacted as America struggled out of the Depression of the 1930s but well-to-do individuals and corporations are skirting the tax laws enacted to make them pay their fair share of taxes on their income.

“Right now,” Sanders says, “we are losing about $100 billion every year because corporate America and the very wealthy are stashing their money in tax havens like the Cayman Islands and Bermuda.” He continued, “In 2009 ExxonMobil made $19 billion in profits and not only did the company not pay anything in taxes, it got a $106 million refund from the IRS.”

In an article he wrote for May-June’s Utne Reader, Sanders continued, “We should be aware that since 1997, we have almost tripled funding for the military” and if the nation is serious about reducing the deficit, the Pentagon budget is among the “things we need to look at.”

Sanders called for Americans “to put pressure on a handful of Republicans—-to tell them, ‘Go into your hearts, talk to your constituents and tell me if it is appropriate to hold hostage the future of this country for an agenda that benefits only the very rich.’”

Sanders concluded that if we don’t act, “if they roll over us now—there is no stopping them. It is time we organize.” Maybe seniors will consider organizing into groups with the word “Voters” and “Defenders” of Social Security in their title. Seniors vote in large numbers and the names of their organizations could send Republicans a message.

April 21, 2011 Posted by aletho | Economics, Supremacism, Social Darwinism | Leave a comment

Are Rising Oil and Food Prices a Scam?

By Danny Schechter | Consortium News | April 19, 2011

The global economy and its recovery, and the living standards of millions of plain folks, are now at risk from the sudden rise in oil and commodity prices.

Gas at the pump is up, and going higher. Food prices are following. The consequences are catastrophic for the global poor as their costs go up while their income doesn’t.

It’s menacing American workers too, who in large part have not seen a meaningful raise since the days of Reagan (keeping it this way is clearly behind the current flurry of attacks on unions).

Already, unrest in the Middle East and many African countries is being blamed for these dramatic increases. It seems as if this threat to global stability is being largely ignored in our media, one that treats the oil business as just another mystical world of free market trading.

Why is it happening? Why all the volatility? Is oil getting scarcer, leading to price increases? Is the cost of food, similarly, a reflection of naturally increasing commodity prices?

While it’s true that natural disasters and droughts play some role in this unchecked price inflation, it also seems apparent that something else is attracting increasing attention, even if most of our media fails to explore what is a political time bomb while most political leaders shrug their shoulders and ignore it.

President Obama recently said there is nothing he can do about the hike in oil and food prices. But critics say the problem is that government and media alike refuse to recognize what’s really going on: unchecked speculation!

Not everyone buys into this suspicion. In fact, it is one of the more intense subjects of debate in economics.

Princeton University economist Paul Krugman pooh-poohs the impact of speculation, counter-posing the traditional argument that oil prices are set by supply and demand.

The Economist magazine agrees, summing up its views with a pithy phrase, “Speculation does not drive the oil price. Driving does.”

Others, like oil industry analyst Michael Klare of Hampshire College, see demand outdistancing supply:

“Consider the recent rise in the price of oil just a faint and early tremor heralding the oilquake to come. Oil won’t disappear from international markets, but in the coming decades it will never reach the volumes needed to satisfy projected world demand, which means that, sooner rather than later, scarcity will become the dominant market condition.”

Usually you hear this debate in scholarly circles or read it in political tracts where orthodox views collide with more alarmist projections about the oil supply “peaking.”

But officials in the Third World don’t see the subject as academic. Reserve Bank of India Governor Duvvuri Subbarao charges, “Speculative movements in commodity derivative markets are also causing volatility in prices.”

The World Bank is meeting on this issue this week because it is seen as a matter of “utmost urgency.”

“The price of food is a matter of life and death for the very poorest people in the world,” said Tom Arnold, CEO of Concern Worldwide, the international humanitarian agency, ahead of his participation at The Open Forum on Food at World Bank headquarters.

He adds, “with many families spending up to 80 percent of their income on basic foods to survive, even the slightest increase in price can have devastating effects and become a crises for the poorest.”

Journalist Josh Clark argues on the website “How Stuff Works” that much of the oil speculation is rooted in the financial crisis. He wrote:

“The next time you drive to the gas station, only to find prices are still sky high compared to just a few years ago, take notice of the rows of foreclosed houses you’ll pass along the way. They may seem like two parts of a spell of economic bad luck, but high gas prices and home foreclosures are actually very much interrelated.

“Before most people were even aware there was an economic crisis, investment managers abandoned failing mortgage-backed securities and looked for other lucrative investments. What they settled on was oil futures.”

The debate within the industry is more subdued, perhaps to avoid a public fight between suppliers and distributors who don’t want to rock the boat.

But some officials like Dan Gilligan, president of the Petroleum Marketers Association, representing 8,000 retail and wholesale suppliers has spoken out. He argues:

“Approximately 60 to 70 percent of the oil contracts in the futures markets are now held by speculative entities. Not by companies that need oil, not by the airlines, not by the oil companies. But by investors who profit money from their speculative positions.”

Now, a prominent and popular market analyst is throwing caution to the wind by blowing the whistle on speculators.

Finance expert Phil Davis runs a website and widely read newsletter to monitor stocks and options trades. He’s a professional’s professional, whose grandfather taught him to buy stocks when he was just ten years old.

His website is Phil’s Stock World, and stocks are his world. He’s subtitled the site, “High Finance for Real People.”

He is usually a sober and calm analyst, not known as maverick or dissenter.

When I met Phil the other night, he was on fire, enraged by what he believes is the scam of the century that no one wants to talk about, because so many powerful people armed with legions of lawyers want unquestioning allegiance, and will sue you into silence.

He studies the oil/food issue carefully and has concluded, “It’s a scam folks, it’s nothing but a huge scam and it’s destroying the U.S. economy as well as the entire global economy but no one complains because they are ‘only’ stealing about $1.50 per gallon from each individual person in the industrialized world.”

“It’s the top 0.01 percent robbing the next 39.99 percent – the bottom 60 percent can’t afford cars anyway (they just starve quietly to death, as food prices climb on fuel costs).

“If someone breaks into your car and steals a $500 stereo, you go to the police, but if someone charges you an extra $30 every time you fill up your tank 50 times a year ($1,500) you shut up and pay your bill. Great system, right?”

Phil is just getting started, as he delves into the intricacies of the NYMEX market that handles these trades:

“The great thing about the NYMEX is that the traders don’t have to take delivery on their contracts, they can simply pay to roll them over to the next settlement price, even if no one is actually buying the barrels.

“That’s how we have developed a massive glut of 677 million barrels worth of contracts in the front four months on the NYMEX and, come rollover day – that will be the amount of barrels ‘on order’ for the front 3 months, unless a lot barrels get dumped at market prices fast.

“Keep in mind that the entire United States uses ‘just’ 18M barrels of oil a day, so 677M barrels is a 37-day supply of oil. But, we also make 9M barrels of our own oil and import ‘just’ 9M barrels per day, and 5M barrels of that is from Canada and Mexico who, last I heard, aren’t even having revolutions.

“So, ignoring North Sea oil, Brazil and Venezuela, and lumping Africa in with OPEC, we are importing 3Mbd from unreliable sources and there is a 225-day supply under contract for delivery at the current price or cheaper plus we have a Strategic Petroleum Reserve that holds another 727 million barrels (full) plus 370M barrels of commercial storage in the U.S. (also full) which is another 365.6 days of marginal oil already here in storage in addition to the 225 days under contract for delivery.“

These contracts for oil outnumber their actual delivery, a sign of speculation and market manipulation, as oil companies win government authorizations for wells but then don’t open them for exploration or exploitation.

It’s all a game of manipulating oil supply to keep prices up. And no one seems to be regulating it.

What Phil sees is a giant but intricate game of market manipulation and rigging by a cartel — not just an industry — that actually has loaded tankers criss-crossing the oceans but only landing when the price is right.

“There is nothing that the conga-line of tankers between here and OPEC would like to do more than unload an extra 277 Million barrels of crude at $112.79 per barrel (Friday’s close on open contracts and price).

“But, unfortunately, as I mentioned last week, Cushing, Oklahoma (where oil is stored) is already packed to the gills with oil and can only handle 45M barrels if it started out empty so it is, very simply, physically impossible for those barrels to be delivered.

“This did not, however, stop 287M barrels worth of May contracts from trading on Friday and GAINING $2.49 on the day. “

He asks, “Who is buying 287,494 contracts (1,000 barrels per contract) for May delivery that can’t possibly be delivered for $2.49 more than they were priced the day before? These are the kind of questions that you would think regulators would be asking – if we had any.”

The TV news magazine “60 Minutes” spoke with Dan Gilligan, who noted that investors don’t actually take delivery of the oil: “All they do is buy the paper, and hope that they can sell it for more than they paid for it. Before they have to take delivery.”

He says they make their fortunes “on the volatility that exists in the market. They make it going up and down.”

Payam Sharifi, at the University of Missouri-Kansas City, notes that even as the rise in oil prices threatens the world economy, there is almost total silence on the danger:

“This issue ought to be discussed again with a renewed interest – but the media and much of the populace at large have simply accepted high food and oil prices as an unavoidable fact of life, without any discussion of the causes of these price rises aside from platitudes.”

What can we do about that?

News Dissector Danny Schechter made the film Plunder The Crime of Our Time (Plunderthecrimeofourtime.com) on the financial crisis as a crime story. He wrote an introduction to the recent reissue of a classic two-volume expose of John D. Rockefeller’s The Standard Oil Company, one of the top ten works of investigative reporting in American history. (Cosimo Books) Comments to dissector@mediachannel.org

April 19, 2011 Posted by aletho | Deception, Economics, Malthusian Ideology, Phony Scarcity | Leave a comment

In Libya, Protecting Profits from an Outbreak of Peace

Obama, Cameron and Sarkozy sent a message to the African Union in their jointly written April 14 op-ed: They’ll block any attempt to negotiate peace in Libya that doesn’t include Gaddafi’s ouster and the opening of Libya’s economy.

By Stephen Gowans | What Is Left |April 17, 2011

On April 14 US president Barak Obama, British prime minister David Cameron and French president Nicolas Sarkozy wrote an op-ed titled “Libya’s pathway to peace.” Appearing in the International Herald Tribune and two other newspapers, the op-ed set out US, British and French goals for Libya. One would be peace, but the pathway was to be Gaddafi’s exit, and his replacement by the Benghazi rebels.

While not presented as such, the op-ed was in fact a rejection of an African Union proposal for a negotiated settlement.

The AU had dispatched a delegation to Tripoli to meet with Gaddafi four days earlier, on April 10. The delegation proposed an immediate cease-fire, delivery of humanitarian aid, and negotiations between the Libyan government and the Benghazi rebels. Gaddafi accepted. But when the delegation arrived in Benghazi the next day, the rebels let it be known that the only peace they were interested in was one that saw Gaddafi, “his sons and his inner circle leave immediately.” (1)

US secretary of state Hilary Clinton quickly echoed the rebels’ position. Nothing could be resolved, she said, without “the departure of Gaddafi from power, and from Libya.” (2)

Peace was impossible in Libya without Gaddafi’s exit, the leaders insisted in their op-ed, because Gaddafi was the main threat to peace. It was “impossible to imagine a future for Libya with Gaddafi in power” they wrote, and added that “so long as Gaddafi is in power, NATO must maintain its operations.” Their case was based on the fiction that the conflict in Libya isn’t a civil war between rebels in the east and loyalists in the west but between the state and the people, as was true in Tunisia and Egypt and is true in Bahrain and Yemen.

As for Gaddafi being an obstacle to peace, that was belied by his acceptance of the AU peace proposal. But the armed uprising has, from the beginning, had nothing to do with peace. It has always been about regime-change.

Gaddafi is wrongly fit by the three leaders, as well as by supporters of the Western military intervention, into the mold of Bahrain’s Khalifa regime, which has used armed force to violently suppress a popular peaceful revolt. The uprising in Libya was armed, not peaceful, and while it may be popular in the east among tribalists, royalists, and radical Islamists led by neo-liberals connected to the United States, it has little popular support elsewhere in the country.

Despite casting the Gaddafi government in the role of the Khalifa regime, the leaders make no reference to the latter, which remains largely invisible in discussions of the “Arab spring” and which provides the Pentagon with a headquarters for its Fifth Fleet and runs a low-tax, no minimum-wage, foreign investment-friendly economy. If the US, British and French leaders were truly interested in protecting civilians they would have long ago imposed a no-fly zone over Bahrain and ordered the Saudi monarchy, surely the most regressive force on the planet, to withdraw its troops from Bahrain. But what they’re really interested in achieving in Libya is what was long ago achieved in Bahrain: a neo-colonial puppet regime that opens its country to Western military bases and unconditional exploitation by foreign corporations and investors.

And so Obama, Cameron, and Sarkozy used their op-ed to declare that there must be “a genuine transition” in Libya “led by a new generation of leaders” and that “in order for that transition to succeed, Gaddafi must go and go for good.” Significantly, the transition would usher in the new Western puppet. There are two indications of this.

The first is the nature of the rebel leadership. Its key members have important connections to the United States. Khalifa Heftir, a former Libyan Army colonel, has spent the last 25 years living seven miles from CIA headquarters in Langley, Virginia with no obvious means of support. (3) Mahmoud Jibril “earned his PhD in 1985 from the University of Pittsburgh under the late Richard Cottam, a former US intelligence official in Iran who became a renowned political scientist specializing on the Middle East.” Jibril “spent years working with Gaddafi’s son Saif on political and economic reforms … (b)ut after hardliners in the regime stifled the reforms, Jibril quit in frustration and left Libya about a year ago.” (4) Jibril has been out of Libya since the uprising began, meeting with foreign leaders. (5) Then there is the rebel government’s finance minister, Ali Tarhouni, who has been in exile for the last 35 years. His latest job was teaching economics at the University of Washington.

The second indication is provided in the three leaders’ op-ed. Libya, they write, must “develop the institutions to underpin a prosperous and open society.” Revealingly, the three leaders tell Libyans what institutions they should develop. But what if Libyans don’t want an open society at this point in their development? What if they want what the United States, Britain and France have had through long parts of their history (and still do have): a society closed to outsiders in strategic areas?

While the institutions of an open society aren’t exclusively economic, an open society is understood to be one whose doors are open to unconditional integration into the global economy. This differs from the Gaddafi government’s strategic integration, based on linkages aimed at increasing real wages in Libya rather than maximizing returns to foreign investors. This isn’t to say that Libya hasn’t welcomed foreign investment where it makes sense for the development of the country, but it is likely that the open society Obama, Cameron and Sarkozy foresee for Libya, has little to do with what makes sense for Libya, and everything to do with what makes sense for US, British and French investors and corporations.

1. Kareem Fahim, “Truce plan for Libya is rejected by rebels”, The New York Times, April 11, 2011.
2. David E. Sanger, “Possible Libya stalemate puts stress on U.S. policy”, The New York Times, April 11, 2011.
3. “Professor: In Libya, a civil war, not uprising”, NPR, April 2, 2011. http://www.npr.org/2011/04/02/135072664/professor-in-libya-a-civil-war-not-uprising
4. Farah Stockman, “Libyan reformer new face of rebellion”, The Boston Globe, March 28, 2011.
5. Kareem Fahim, “Rebel leadership in Libya shows strain”, The New York Times, April 3, 2011.

April 18, 2011 Posted by aletho | Economics, Militarism, Timeless or most popular | Leave a comment

A Simple Alternative to Ethanol

By Yves Engler / Dissident Voice / April 16th, 2011

“Surging food prices fuel ethanol critics,” noted a recent AFP headline. With the commodity food price index (a combined figure of various foodstuffs) up 40% over the past year the danger of feeding cars food has shot back onto the media/political radar.

By using land to feed cars, bio-fuels have unleashed a battle between automobile owners and the world’s two billion poorest people. George Monbiot explains: “the market responds to money, not need. People who own cars by definition have more money than people at risk of starvation: their demand is ‘effective’, while the groans of the starving are not. In a contest between cars and people, the cars would win.” They are already winning. Foreign investors have been buying large tracts of land in Africa to cultivate biofuels while the recent food price spike is one factor in the upheaval in northern Africa and the Middle East.

Ten days ago the Association of American Physicians and Surgeons warned that the push by Western governments to increase biofuel production could cause 200,000 deaths in poorer countries. Recently, the New York Times explained, “each year, an ever larger portion of the world’s crops — cassava and corn, sugar and palm oil — is being diverted for biofuels as developed countries pass laws mandating greater use of nonfossil fuels.” 7-8 per cent of the world’s cereal crop will be used for biofuels this year.

Growing corn to fuel an average U.S. car takes five times more land than what’s needed to feed a person. According to the Earth Policy Institute director Lester Brown, “the grain grown to produce fuel in the U.S. [in 2009] was enough to feed 330 million people for one year at average world consumption levels.”

Between 2005 and 2009 U.S. ethanol production more than tripled. About 10.6 billion gallons of bio-fuel were produced in 2009, which is expected to reach 15 billion gallons next year. By 2022 Washington wants that number to reach 36 billion and they are prepared to subsidize it. In 2010, oil refiners received upwards of $7 billion in federal subsidies for mixing ethanol into gas.

Proponents claim that the next generation of ethanol will depend on large plant matter instead of foodstuff, but there are problems with this plan. Breaking down plant cellulose into fermentable sugars currently requires more energy than it creates. Additionally, tremendous energy is needed to harvest bulky, heavy plant matter and to ship it to ethanol refineries. Over $1 billion in public money has been spent researching more efficient ways of turning plants into cellulose without much success. In October 2010 Grist noted, “for decades, boosters deemed cellulosic ethanol ‘five years way’ from commercial viability. Now its status has been upgraded to ‘within reach.’ Progress!”

Leaving aside the pressure on food prices and resulting malnutrition among the world’s poor, ethanol’s ecological benefits are far from clear. Most studies show that gasoline made from U.S. corn produces about 15 percent less carbon dioxide than conventional gas. Some studies suggest, however, that corn-based ethanol produces more CO2 than oil-based gasoline if all the energy used in the growth phase is properly accounted for. Even if carbon emissions are reduced, ethanol has a variety of drawbacks. It is shipped in energy intensive trucks or trains, takes huge amounts of water to produce and increases air pollutants as well as nitrides and pesticides.

Rather than ecology, the push for ethanol gas in the U.S. was largely driven by economic considerations. In the late 1970s, the New York Times noted that Archer Daniels Midland Co. (ADM) “tried to solve a problem with seasonal overcapacity in its corn syrup plants by producing something else from abundant corn supplies: ethanol. That set off a two-decade-long lobbying and public relations effort by the elder Mr. Andreas [ADM president] to win broader acceptance for ethanol as a fuel.” Among the world’s largest agricultural conglomerates, ADM now does billions of dollars in annual ethanol business.

For their part, U.S. automakers support ethanol because it deflects attention away from improving fuel mileage (or focusing on non-car transport). In fact, under Corporate Average Fuel Economy regulations, making vehicles that can run on ethanol permits carmakers to sell more fuel intensive cars. A vehicle that can run on petroleum gasoline or 85 percent ethanol (E85) receives “a much higher mileage rating than it really gets” even though most of these cars never fill up with E85.

Fortunately, there’s a simple alternative to ethanol. It’s called a bike.

Yves Engler is the author of a number of books. His forthcoming (with Bianca Mugyenyi) Stop Signs: Cars and Capitalism on the road to Economic, Social and Environmental Decay will be released in April. Anyone interested in organizing a talk as part of a North America wide book tour in May and June please e-mail: yvesengler [at] hotmail.com.

April 16, 2011 Posted by aletho | Economics, Environmentalism, Timeless or most popular | Leave a comment

Iceland’s Message to Portugal

Organizing against the debt

By NICK DEARDEN | CounterPunch | April 15, 2011

This week has witnessed two very different reactions to European debt. At one end of Europe, Iceland’s voters decided once again not to accept the payment terms of their ‘creditors’, the British and Dutch governments, following the collapse of Icelandic banks in 2008. At the other, Portugal is being pushed down the path of shock therapy by the European Union, with the people of that country cut out of a process which will change their lives dramatically.

Neither Iceland nor Portugal will have it easy in the years ahead. But there is a world of difference between the refusal of the people of Iceland “to pay for failed banks” in the words of their President, and the pain being imposed on Portugal from the outside. The European Central Bank’s head Jean-Claude Trichet has made it perfectly clear that the negotiations on Portugal’s future are “certainly not for public” debate.

Iceland’s people have not made a knee-jerk reaction. They are well aware that refusal to pay is the less easy short-term route to take. An impending court case by the UK and the Netherlands, the negative reaction of credit markets and the threatened block to their EU membership will all take a toll.

But for the people of Iceland the orthodoxy as to how countries are supposed to deal with debt is not simply economically flawed, it is deeply unjust, unfairly distributing power and wealth within and between societies. Twenty eight-year-old voter Thorgerdun Ásgeirsdóttir said “I know this will probably hurt us internationally, but it is worth taking a stance.”

If the people of a country which truly bought into free market ideology, deregulated capital markets and cheap lending can refuse to pay for the crimes of the banks, then those that did less well from the decades of financial boom can be expected to feel even more impassioned.

In Greece such anger is starting to turn into a constructive challenge to the power of finance. A debt audit commission has been called for by hundreds of academics, politicians and activists. Such a commission would throw open Greece’s debts for public examination – directly confronting the way that the IMF and European Union work behind closed doors to force their often disastrous medicine on member countries.

As Greek activists have said, “the people who are called upon to bear the costs of EU programmes have a democratic right to receive full information on public debt. An Audit Commission can begin to redress this deficiency.”

Their resolve is currently being bolstered by a website phenomena – a short viral film called debtocracy (government by debt) – sweeping Greece’s online population and convincing them they have been taken for a ride. Early next month activists from across Europe and the developing world will gather in Athens to put together a programme which will challenge the IMF’s policies in Greece.

Portugal’s deal is just beginning to be hammered out. As in Greece and Ireland, a ‘bail-out’ package will primarily benefit Western European banks, with €216 billion of outstanding loans to Portugal, while ordinary people endure a programme of deep spending cuts, reduced workers’ rights and widespread privatisation. The head of Portugal’s Banco Carregosa told the FT: “It’s not an exaggeration to call it shock therapy.”

The comparisons with developing world countries are obvious and the mistakes there are already being repeated. Time and again banks were bailed out and the poorest people in the world were pushed even deeper into poverty. Today countries from Sierra Leone to Jamaica are racking up ever more debts, once again, to weather the banker’s storm.

This is why a line must be drawn in Europe. Pouring more debt on top of Portugal’s woes will do nothing to resuscitate the economy. Portugal’s debt is totally unsustainable – largely the result of reckless private lending over the last decade. Those responsible are being bailed out, those that aren’t are suffering the pain. This is what Iceland has refused to do.

The people of Iceland have stood up for their sovereignty. Their future looks considerably brighter than those of Ireland or Portugal. The people of Greece are just beginning their struggle. The outcomes will have a monumental impact on the fight against poverty and inequality across the world.

Nick Dearden is director of the Jubilee Debt Campaign.

April 15, 2011 Posted by aletho | Economics | Leave a comment

First, Fire the Economists

By DEAN BAKER | CounterPunch | April 14, 2011

Last month, the International Monetary Fund’s Independent Evaluation Office issued a remarkable report. The report quite clearly blamed the IMF for failing to recognize the factors leading up to the worst economic crisis since the Great Depression and to provide warning to its members so that preventive actions could be taken.

The report noted that several prominent economists had clearly warned of the dangers facing the world economy prior to the collapse that began in 2007. One of these economists was Raghuram Rajan, who was actually the chief economist at the IMF when he gave a clear warning of growing financial fragility back in 2005. Yet these warnings were for all practical purposes ignored when it came to the IMF’s official reports and recommendations to member countries.

The IMF deserves credit for allowing an independent evaluation of its performance in the years leading up to the crisis. It would be great if the Fed, the Treasury, the Securities and Exchange Commission and other regulatory bodies allowed for similarly independent evaluations of their own failings. Nonetheless, readers can be very confident that nothing at the IMF will fundamentally change because of this report.

The first reason for confidence in the enduring power of the status quo is that the report never clearly lays out what the basis of the crisis was. This is important because the basic facts show the incredible level of incompetence of the IMF in failing to recognize the dynamics of the crisis.

The housing bubbles that were driving growth in the United States, United Kingdom, Spain, Ireland and several other countries in this period were front and center in the crisis. These bubbles created sharp divergences in house prices both from historic trends and also from rents. There was no plausible story whereby these prices could be sustained. The only question was when the bubbles would burst.

Furthermore, there was no plausible story whereby the bubbles could burst without leading to a serious falloff in demand and a sharp jump in unemployment. In the case of the United States the bubbles in the residential and non-residential real estate had raised construction spending by close to 4 percentage points of GDP and consumption spending by an even larger amount.

The overbuilding from the bubble virtually guaranteed that construction would fall below its trend level following the collapse of the bubble. This means that the collapse of the bubble would leave a gap of 8-10 percentage points of GDP. In the United States this gap in annual demand is between $1.2 trillion and $1.5 trillion.

What mechanisms did the IMF’s economists think existed to fill such a gap? The facts here are really simple, it would have been helpful if they had been spelled out more clearly so that readers could appreciate the incredible incompetence of the IMF’s staff in this instance.

It is worth noting that the financial crisis was a sidebar. It is difficult to see how anything would be different, at least in the United States, if the financial crisis had not occurred. At this point, large firms can directly borrow on capital markets at extraordinarily low interest rates. Surveys of smaller firms show that lack of demand is their biggest complaint. Very few mention the availability of capital.

Featuring the financial crisis so prominently in the story makes it more complex than necessary. Credit default swaps and collaterized debt obligations are complicated. Bubbles are simple.

One of the problems highlighted in the report was the problem of groupthink. This is when people say what they expect their bosses and their peers want them to say, rather than independently evaluating the situation. The report does some serious hand-wringing over the issue and comes up with a set of proposals which are virtually guaranteed to have no effect.

Remarkably, these economists never suggested the remedy that economists usually propose for bad performance: dismissal. There is a vast economics literature on the need for firing as a mechanism to properly motivate workers to perform. This report provides great evidence of the need for such a mechanism.

The proposals to combat groupthink are all very nice, but the bottom line is that the economists at the IMF all know that they will never jeopardize their careers by repeating what their bosses say. If we want economists at the IMF and other institutions who actually think for themselves they have to know that they will endanger their jobs and their careers if they mindlessly follow their boss.

Whenever I have raised this point in conversations with economists they invariably think that I am joking. When I convince them that I am serious, they think the idea of holding economists responsible for the quality of their work to the point of actually jeopardizing their careers is outrageously cruel and unfair.

The reality is that tens of millions of people across the globe have seen their lives wrecked because these economists did not know what they were doing. It is outrageous that ordinary workers who were doing their jobs can end up unemployed, but the economists whose mistakes led to their unemployment can count on job security.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy and False Profits: Recoverying From the Bubble Economy.

April 14, 2011 Posted by aletho | Deception, Economics | Leave a comment

Looting Social Security To Wage War

By Sherwood Ross | April 10, 2011

“As long as the $1.2-trillion annual budget for the military-security complex is off limits (to cutting), nothing can be done about the US budget deficit except to renege on obligations to the elderly, confiscate private assets or print enough money to inflate away all debts,” Paul Craig Roberts, former Assistant Treasury Secretary under President Reagan warns.

In an article titled “Stealing from Social Security to Pay for Wars and Bailouts,” published in the April issue of the “Rock Creek Free Press” of Washington, D.C., Roberts says that Republicans are calling Social Security and Medicare “entitlements”—making them sound like welfare—when, in fact, workers over their lifetimes have contributed 15 percent of all their earnings to the payroll tax that funds these benefits and have every right to them.

And far from Social Security being in the red, between 1984 and 2009, Roberts writes, “the American people contributed $2-trillion…more to Social Security and Medicare in payroll taxes than was paid out in benefits” but “the government stole” that sum to fund wars and pork-barrel projects!

What’s more, under one realistic estimate, far from crashing into the red, “Social Security(OASDI) will have produced surplus revenues of $31.6-trillion by 2085, Roberts says.

Americans, apparently, are unaware of how the federal government’s illegal, foreign wars sap the economy and rob every household. The Iraq war cost alone is 20 percent of the size of last year’s entire U.S. economy. Instead of investing that sum at home, “which would have produced income and jobs growth and solvency for state and local governments, the US government wasted the equivalent of 20% of the economy in 2010 in blowing up infrastructure and people in foreign lands,” Roberts says.

“The US government spent a huge sum of money committing war crimes, while millions of Americans were thrown out of their jobs and foreclosed out of their homes,” he added. Viewed another way, the Pentagon continues to expand and put people to work to modernize its 700-800 bases abroad in order to dominate every corner of the globe while public works and public employment in America are going into the toilet.

“When short-term and long-term discouraged workers are added …the US has an unemployment rate of 22%,” Robert says. A country with that large a percentage out of work “has a shrunken tax base and feeble consumer purchasing power.”

The U.S. media, he claims, is only reporting one-third of the real cost of the wars, leaving out the sums needed for “lifelong care for the wounded and maimed, the cost of lifelong military pensions of those who fought in the wars, the replacement costs of the destroyed equipment, the opportunity cost of the resources wasted in war, and other costs.”

President Obama’s budget, if passed, doesn’t reduce the deficit over the next 10 years by enough to cover the projected deficit in the fiscal year 2012 budget alone, the financial authority writes. “Indeed, the deficits are likely to be substantially larger than forecast,” as the military-industrial complex “is more powerful than ever and shows no inclination to halt the wars for US hegemony,” Roberts says.

Sherwood Ross heads a public relations firm “for good causes” and also runs the Anti-War News Service. Reach him at sherwoodross10@gmail.com

April 10, 2011 Posted by aletho | Economics, Militarism, Timeless or most popular | Social Security, United States | Leave a comment

Iceland rejects debt repayment plan

Press TV – April 10, 2011

Voters in Iceland have rejected the latest plan to repay EUR 3.9 billion (USD 5.6 billion) worth of deposits in a failed online bank to The Netherlands and UK.

Partial results of a national poll show that 57 percent of Icelanders voted against the plan on Sunday. British and Dutch governments had compensated some 400,000 citizens who lost their savings when Iceland’s Landsbanki (Icesave) collapsed in 2008, AFP reported.

The Netherlands and Britain expressed dissatisfaction, and said they are prepared to bring the dispute to the European Free Trade Association court.

Icelandic lawmakers in February backed a repayment plan they had worked on for more than two years. It had been agreed upon by creditors, but the president refused to sign the bill, leading to the referendum.

The agreement would have allowed Iceland to gradually repay its debt at a 3.0 percent interest rate for the EUR 1.3 billion it owes to The Netherlands and the remainder at a 3.3 percent interest rate to Britain until the year 2046.

The amount to be repaid by the Icelandic citizens was calculated to be around EUR 12,000 per person before interest, for a nation with a population of 320,000.

Iceland’s Finance Minister Steingrimur Sigfusson said the voters’ decision would not affect the country’s existing debt repayments nor would it derail its efforts for membership in the European Union.

A previous repayment deal was also rejected by a 93 percent majority in another referendum last year.

April 10, 2011 Posted by aletho | Economics, Timeless or most popular | Leave a comment

Trials of Globalization: And We All Melt Down

This Can’t Be Happening* – 04/09/2011

We are now on the brink of the mother of all meltdowns in more ways than one.

Last weekend, The Times quoted Alan Hansen, a nuclear engineer and executive vice president of Areva NC, a unit of Areva, a French group that supplied reactor fuel to the Fukushima Daiichi nuclear power plan, who spoke before a private gathering at Stanford University. “Clearly,” he summarized, “we’re witnessing one of the greatest disasters in modern time.” What the on-going release of cancer-causing radioactive fragments means in terms of human health and the environment is only beginning to come to light.

It’s certainly not my expertise. What I do know is that, on top of the terrible calamities brought on by the tsunami and the scary portents of the radiation spewing into the air, the ocean, and into the ground surrounding Fukushima and beyond, we are facing an economic juggernaut that is likely to shatter the world’s fragile recovery. You don’t take out the world’s third biggest economy – until recently, the second — with no impact, despite the recent assurance by that reliable sage Timothy Geithner that the crisis in Japan would not hinder the U.S. recovery. (Meanwhile, Tim’s banking buddies are busy reviewing their clients’ exposure.)

Up until the last few days, media and stock market pundits continue to drool over the prospect of some $310 billion worth of new business anticipated to rebuild earthquake and tsunami-ravaged Japan. Newsweek featured an article by Bill Emmott, a former editor of The Economist, stating:

“Typically, if economic effects are measured simply by gross domestic product, natural disasters cause a short-term loss in output, thanks to the destruction of offices and factories and the disruption to transport links, but after just a few months they actually act like an economic stimulus package.”

Needless to say, these are far from typical times, and this is no typical disaster. Faced with the loss of a critical supply partner, many companies around the world are confronting a quite different reality. Japan is suffering huge shortages as production capacity shrivels and logistical issues mount–particularly in the are of transportation. The Financial Times reports that Japanese manufacturing activity plummeted to a two-year low in March, according to the Markit/JMMA purchasing managers’ index, which hit its worst low since its inception in 2001.

We’re not just talking about the now infamous Japan-made five components that go into the iPad 2 or the wafer material needed to manufacture semiconductor chips or the metallic paint needed to produce shiny red and black cars. I can attest that companies of all sizes find themselves in the same pickle, with normally efficient Japanese production and transportation chains hobbled by power interruptions, radiation fears, earthquake damage, and severe after-shocks. These days, many global shipping lines won’t even dock at Japan’s busiest ports, Tokyo and Yokohama, for fear of radioactive contamination. And that’s not just being paranoid. If their hulls pick up any radioactivity, they could be barred later from other ports, for example in the U.S.

Meanwhile, we’re scrambling here in the US. I can tell you first-hand, it’s not so easy to just trip over to Europe or China, and duplicate parts and processes proprietary to the secretive and justifiably possessive Japanese. It will take at least some months or more for global factories, big and small, that rely on their goods and expertise for even a small fraction of their processes to retool.

March’s U.S. employment numbers may look good to some, but wait until the impact of this economic tsunami starts to hit. Already, automakers as far afield as Louisiana, Mexico and Belgium are facing temporary shutdowns due to lack of parts. What happens when government treasuries already drained by the global banking industry have only empty hands to show the long-term and newly unemployed?

Worse, we face the specter of growing inflation as goods grow scarcer and the costs of developing alternative supply chains start to kick in. Semiconductor chip prices, which affect the price of everything from cars to iPods, already rose in March as a direct result of earthquake-induced scarcities, according to iSuppli Market Research. Compounding the problem, China is already resorting to price controls in a futile bid to quell its soaring inflation and, equally contrived, the U.S. Fed continues to pump cash and dump it into our non-performing banks.

Oh, and what about that big payday when we all get to rebuild the land of the rising sun? This goes way beyond scorched earth, people. Even if that private gathering of nuclear wonks at Stanford was wrong, and the environmental and health impacts in northern Japan prove to be negligible, there is still the question of how they are going to muster the moohlah for a vast reconstruction project. That’s on top of sharing the insurance burden of Fukushima with Tepco, the utility that owns the plant.

Newsweek’s Emmott is sanguine on this score: “Insurance pays for some of it, government spending and private investment the rest.” Already, the Japanese central bank offered a loan program worth $11.7 billion to financial institutions in the disaster area. But, bear in mind that the Japanese government has the highest debt of any developed country, running 200% of GDP.

Of course, Emmott has an answer for this too, suggesting the Japanese simply “borrow more” (sure ‘nuff) and impose a “special reconstruction tax”, assuming that the “Japanese people will be entirely prepared to make sacrifices and share the burdens”. Go tell that to the angry hoards gathering daily outside Tepco headquarters.

It’s possible the government will have to start cashing out their U.S. T-bills, which is a whole other story, since Japan and China have financed our government’s profligate ways for the past decade or so. One thing for sure is that foreign governments are not likely to rush into Japan with huge coffers of cash any time soon. The U.S. and European taxpayers are in no mood to spring for someone else’s Marshall Plan. And given their wretched history, China would be an unlikely savior for Japan, although strange things do happen.

To be fair, Emmott did get one thing right when he asserted, “The first, and most fundamental, lesson from other natural disasters is that the economy is the least important thing to worry about.” Under the circumstances, it’s not all that comforting a thought.

*The anonymous author is a journalist and businesswoman who lives in the Philadelphia area, who contributes occasionally to This Can’t Be Happening.

April 9, 2011 Posted by aletho | Economics, Nuclear Power | Leave a comment

The Theory That’s Killing America’s Economy—and Why It’s Wrong

By Ian Fletcher | April 8, 2011

I wrote in a previous article how America’s disastrous embrace of free trade is ultimately based on a false theory of how the global economy works: the so-called Theory of Comparative Advantage. This is what economists, from the government on down, believe in. This matters.

But I didn’t explain why the theory is wrong—which it is. Understanding its flaws is the price of admission to serious criticism of free trade, so it’s well worth getting a grasp on them. Economic theory can be a tough chew, but it’s worth the effort, if only to gain the intellectual confidence not to be intimidated by the so-called experts. So… let’s take a look at some of that machinery behind the wizard’s curtain, shall we?

The theory’s flaws, which are fairly well known to economists but mostly ignored, consist of a number of dubious assumptions upon which the theory depends. To wit:

Dubious Assumption #1: Trade is sustainable.

The problem here is that the theory of comparative advantage pays no attention to the long term. So it can quite easily recommend a trade policy that gives us the highest possible living standard in the short run—but by way of selling off our country out from under us.
This is what happens when a nation runs a trade deficit, which necessarily means that it’s either sinking into debt to foreigners or selling off its existing assets to them.

The theory of comparative advantage is blind to this problem because it treats people’s time horizons as a given. So if a nation wants a short-term consumption binge followed by long-term decline, the theory says “OK, no problem. You wanted it, you got it, what’s not to like?”

A saner theory of trade (and of economics generally) would advise people that it’s not a good idea to engage in decadent binges, regardless of how good it feels right now. It would recommend protectionist restraints on imports to force trade into balance, not free trade.

–Dubious Assumption #2: There are no externalities.

An externality is a missing price tag. More precisely, it is the economists’ term for when the price of a product does not reflect its true economic cost or value.

The classic negative externality is environmental damage, which reduces the value of natural resources without raising the price of the product that harmed them. The classic positive externality is technological spillover, where one company’s inventing a product enables others to copy or build upon it, generating wealth that the original company can’t capture.

If prices are wrong due to positive or negative externalities, free trade will produce suboptimal results.

For example, goods from a nation with lax pollution standards will be too cheap. So its trading partners will import too much of them. And the exporting nation will export too much of them, overconcentrating its economy in industries that are not really as profitable as they seem, due to ignoring pollution damage.

Positive externalities are also a problem. If an industry generates technological spillovers for the rest of the economy, then free trade can let that industry be wiped out by foreign competition because the economy ignored its hidden value. Some industries spawn new technologies, fertilize improvements in other industries, and drive economy-wide technological advance; losing these industries means losing all the industries that would have flowed from them in the future.

Dubious Assumption #3: Productive resources move easily between industries.

As noted in my original article, the theory of comparative advantage is about switching productive resources from less-valuable to more-valuable uses. It’s about putting our economy to its own best use.

But this assumes that the productive resources used to produce one product can switch to producing another. Because if they can’t, then imports won’t push our economy into industries better suited to its comparative advantage. Imports will just kill off our existing industries and leave nothing in their place.

When workers, for example, can’t move between industries—usually because they don’t have the right skills or don’t live in the right place—shifts in an economy’s comparative advantage won’t move them into a more appropriate industry, but into unemployment.

In the United States, because of our relatively low minimum wage and hire-and-fire labor laws, this problem tends to take the form of underemployment, rather than unemployment per se. So $28 an hour ex-autoworkers go work at the video rental store for eight dollars an hour.

The same goes for other inflexible factors of production, like real estate. That’s why the shuttered factory rivals the unemployment line as a visual image of trade problems.

Dubious Assumption #4: Trade does not raise income inequality.

Even if free trade expands the economy overall (dubious), it can tilt the distribution of income so much that ordinary people see little or none of the gains.

For example, suppose that opening up a nation to freer trade means that it starts exporting more airplanes and importing more clothes than before. Because the nation gets to expand an industry better suited to its comparative advantage and contract one less suited, it becomes more productive and its GDP goes up.

So far, so good.

Here’s the rub: suppose that a million dollars’ worth of clothes production requires one white-collar worker and nine blue-collar workers, while a million dollars of airplane production requires three white-collar workers and seven blue-collar workers. So for every million dollars’ change in what gets produced, there is a demand for two more white-collar workers and two fewer blue-collar workers. Because demand for white-collar workers goes up and demand for blue-collar workers goes down, the wages of white-collar workers go up and those of blue-collar workers go down.

But most workers are blue-collar workers—so free trade has lowered wages for most workers in the economy!

This is not a trivial problem: Dani Rodrik of Harvard estimates that freeing up trade reshuffles five dollars of income between different groups of people domestically for every one dollar of net gain it brings to the economy as a whole.

Dubious Assumption #5: Capital is not internationally mobile.

The theory of comparative advantage is about the best uses to which America can put its productive resources, what economists call “factors of production.” We have certain cards in hand, so to speak, the other players have certain cards, and the theory tells us the best way to play the hand we’ve been dealt. Or more precisely, it tells us to let the free market play our hand for us, so market forces can drive all our factors to their best uses in our economy.

Unfortunately, this relies upon the impossibility of these same market forces driving these factors right out of our economy. If that happens, all bets are off about driving these factors to their most productive use in our economy. Their most productive use may well be in another country, and if they are internationally mobile, then free trade will cause them to migrate there.

This will benefit the world economy as a whole, and the nation they migrate to, but it will not necessarily benefit us.

This problem applies to all factors of production, but the crux of the problem is capital. Capital mobility replaces comparative advantage, which applies when capital is forced to choose between alternative uses within a single national economy, with absolute advantage. And absolute advantage contains no guarantees whatsoever about the results being good for both trading partners.

Capital immobility doesn’t have to be absolute, but it has to be significant and as it melts away, trade shifts from a guarantee of win-win relations to a possibility of win-lose relations.

David Ricardo, the British economist who invented the theory of comparative advantage in 1817, actually knew about this problem perfectly well, and wrote about it in his book on the subject. So there’s no excuse for modern economists to ignore it.

Dubious Assumption #6: Short-term efficiency causes long-term growth.

The theory of comparative advantage is what economists call “static” analysis. That is, it looks at the facts of a single instant in time and determines the best response to those facts at that instant. But it says nothing about how today’s facts may change tomorrow. More importantly, it says nothing about how one might cause them to change in one’s favor.

So even if the theory of comparative advantage tells us our best move today, given our productivities in various industries, it doesn’t tell us the best way to raise those productivities tomorrow. That, however, is the essence of economic growth, and in the long run much more important than squeezing every last drop of advantage from the productivities we have today. Economic growth is ultimately less about using one’s factors of production than about transforming them—into more productive factors tomorrow.

The theory of comparative advantage is not so much wrong about long-term growth as simply silent.

Analogously, it is a valid application of personal comparative advantage for someone with secretarial skills to work as a secretary and someone with banking skills to work as a banker. In the short run, it is efficient for them both, as it results in both being better paid than if they tried to swap roles. (They would both be fired for inability to do their jobs and earn zero.) But the path to personal success doesn’t consist in being the best possible secretary forever; it consists in upgrading one’s skills to better-paid occupations, like banker. And there is very little about being the best possible secretary that tells one how to do this.

Dubious Assumption #7: Trade does not induce adverse productivity growth abroad.

When we trade with a foreign nation, this will generally build up that nation’s industries, i.e. raise its productivity in them. Now it would be nice to assume that this productivity growth in our trading partners can only make them ever more efficient at supplying the things we want, and we will just get ever cheaper foreign goods in exchange for our own exports, right?

Wrong. Consider our present trade with China. Despite all the problems this trade causes us, we do get compensation in the form of some very cheap goods, thanks mainly to China’s very cheap labor. The same goes for other poor countries we import from. But labor is cheap in poor countries because it has poor alternative employment opportunities. What if these opportunities improve? Then this labor may cease to be so cheap, and our supply of cheap goods may dry up.

This is actually what happened in Japan from the 1960s to the 1980s, as Japan’s economy transitioned from primitive to sophisticated manufacturing and the cheap merchandise readers over 40 will remember (the same things stamped “Made in China” today) disappeared from America’s stores. Did this reduce the pressure of cheap Japanese labor on American workers? It did. But it also deprived us of some very cheap goods we used to get.

And it’s not like Japan stopped pressing us, either, as it moved upmarket and started competing in more sophisticated industries.

Oops!

When Nobel laureate Paul Samuelson— author of the best-selling economics textbook in history—reminded economists of this problem in a (quite accessible) 2004 article, he drew scandalized gasps from one end of the discipline to the other. But nobody was able to explain why he was wrong.

They still haven’t.

I don’t expect most readers to get all the above analysis the first time through. But I do hope that everyone who’s read this far now understands that there is no good reason—regardless of what most economists say—to assume that free trade is necessarily best. The economic logic of those who say it is, is riddled with enough holes to sink a container ship.

April 8, 2011 Posted by aletho | Economics | Leave a comment

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