Archive for the ‘Economy and Business’ Category

If I voted strategically …

February 3, 2016

If I voted strategically, instead of for the candidate I want to win, I probably would vote for Hillary Clinton in the New York Democrat primary and for the Republican candidate in the general election.

The reason is that whoever is President from 2017 to 2021 is going to be blamed for the next stock market crash — unless it happens later in the current year — and it almost certainly will be worse than the 2008 crash.

It will be worse than the one before because nothing has been done to address the abuses that caused the previous crash—neither punishing accounting control fraud, nor breaking up the “too big to fail” banks, or curbing reckless speculation, nor creating good jobs, nor reducing income inequality.

The main thing that is propping up the financial markets is the Federal Reserve Board’s lid on bank interest rates, which drives investors into the stock and bond market, and this cannot go on forever.

If the Presidency is held by defenders of the status quo, it will be easier in 2020 for progressives to make the case for changing the status quo.

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Quantitative easing didn’t revive the economy

January 18, 2016

nomura-koo

The Federal Reserve System pumped billions of dollars into failing banks by buying up their toxic assets, and pumped up the stock market by holding down interest rates to as near as zero as possible.

This benefited Wall Street and the big banks, but, as the chart above demonstrates, it didn’t help the real economy much.

The top line on the graph shows the amount of money the Fed pumped into the banks.  The next line shows the amount of new money that actually went into circulation.  The third line shows the amount of loans the banks made.  The line in the second chart shows the rate of inflation by the most conservative measure.

A lot of individual savers bought stocks and bonds because their banks wouldn’t give them any interest on their savings accounts.  This would have been a good thing if the money that went into the financial markets had been invested in starting or expanding businesses, but this didn’t happen.

Corporations are sitting on trillions of dollars in cash.  They understand that the speculative boom sparked by qualitative easing is bound to crash.

LINK

The Chart That Explains Everything by Mike Whitney for Counterpunch.

Fed at Fault: What Goes Up Must Come Down on the Deconstructed Globe.

Why Are the Largest Corporations Sitting on Trillions in Cash? by Gaius Publius for Down With Tyranny!

Big Short Genius Says Another Crash Is Coming by Jessica Pressler for New York magazine.

China’s debt threatens its economic miracle

January 11, 2016

asian-debt-has-rocketed-since-the-crisis-while-the-us-has-paid-down-its-debts-as-a-percentage-of-gdp

I read a couple of articles the other day about how China’s amazing economic growth may hit a wall because of overhanging debt.

Countries get in trouble when the overall debt—governmental, individual, business and financial—increases at a faster rate that the output of goods and services (GDP).

What this means in the short run is a transfer of wealth from taxpayers and workers to holders of financial assets.  What this means if it goes on long enough is a financial crisis.

As economic Michael Hudson wrote: Debt that can’t be paid, won’t be.

The point of about debt is that no matter how rich you are, you can pile up more debt that you can pay.  And no matter how large and strong a nation’s economy, the economy can pile up more debt than can be paid.

The United States in the 1920s is an example.  The USA had the world’s strongest manufacturing economy.  It had a large domestic market and strong exports.  Yet it took more than 10 years to fully recover from the financial crash of 1929.

China has many more governmental powers to head off a crash than the U.S. government did back then.  The question is how they will be used.  Propping up failed companies and financial institutions does not solve the underlying problem.

The world as a whole is in the same situation, so it is not as if global economic growth will solve China’s debt problem—or America’s.

LINKS

China’s $28 Trillion Problem: the dark side of China’s debt by Mike Bird and Jim Edwards for Business Insider.

How China Accumulated $28 Trillion in Debt in Such a Short Time by Jim Edwards for Business Insider.

The $26 trillion dollar debt problem that is crushing competitiveness in China by Nick Edwards for the South China Morning Post.

Is the Chinese Economy Really in Trouble? by Eamonn Fingleton for The Unz Review.  The case for not selling China short.

Heed the fears of the financial markets by Lawrence Summers for the Financial Times.

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Les Leopold on runaway inequality

January 2, 2016

I grew up and spent my early working years in the golden age of capitalism, which was from 1945 to 1976.  Almost anybody—as least, any white American man—who was willing to work could get a decent job sufficient to support a family.

Then a lot of things turned bad as once.  Worker pay no longer kept pace with productivity, but the pay of CEOs and wealthy investors grew much faster.   Manufacturing declined and high finance expanded.  Hourly wages declined and debt increased.  What went wrong?

LesLeopoldRunawayInequality51uuYumpldL._SX319_BO1,204,203,200_I recently finished reading a book, RUNAWAY INEQUALITY by Les Leopold (recommended by my e-mail pen pal Bill Harvey) that explains what happened as well as anything I’ve come across.

He blames America’s current woes on the adoption of what he calls the Better Business Climate model of economic policy.

This model is based on the argument that the key to economic prosperity is economic growth, that economic growth depends on investment, and that investment depends on business profitability, and that the way to increase business profitability is lower taxes, lower social spending and fewer regulations.

0.9265We used to call this Reaganomics.  Now we call it neoliberalism.   Many people thought it was a plausible response to the economic stagnation and high inflation of the late 1970s.  I myself thought it was worth a try (more fool I).  I wouldn’t have objected to making rich people richer if everybody else had benefitted in the long run.

But this isn’t how things worked out.  Instead:

  • Wage increases stopped keeping pace with productivity.
  • The CEO-worker wage gap took off.
  • The financial sector grew at the expense of manufacturing.
  • Wall Street profits skyrocketed.
  • The income gap between the super-rich and the rest of us widened.
  • Corporate debt, consumer debt and government debt rose.

What went wrong?

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Economic snapshots of 2015

December 26, 2015

I thank my e-mail pen pal Bill Harvey for pointing me to these charts from the Economic Policy Institute.  Any candidate for national office who ignores the issues raised by these charts isn’t worth listening to.

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Does it matter if Fed raises a key rate 1/4 of 1%?

December 16, 2015

fed funds chart_0Source: Zero Hedge.

The Open Market Committee of the Federal Reserve System has raised a key interest rate from a quarter of a percentage point to half a percentage point.

Many economists and writers fear this may sink the economic recovery.  I say that if such a minute change will sink the recovery, the recovery was leaky to begin with.

The interest rate is the Fed Funds target rate, the interest rate at which banks lend money to each other overnight in order to have the minimum reserve funds required by the Federal Reserve System.

One of the goals of the Federal Reserve System is to strike a balance between unemployment and inflation by regulating interest rates and the supply of money.

The idea is that when interest rates are low, people borrow more money to spend and investment, resulting in more jobs but also inflation and price increases.  When interest rates are high, the reverse supposedly happens.

But key interest rates have been at nearly zero (or below zero according to some measures), and the economy hasn’t responded.  The increase in jobs is much less than in previous economic recoveries, while inflation continues low.

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The case for a global debt writedown

November 18, 2015

Debt that can’t be repaid, won’t be.
==Michael Hudson

Since the 1970s, every economic recovery has been weaker than the one before.  Michael Hudson, in his new book, Killing the Host, said the reason is that, with each recovery, there has been a greater overhang of debt, which drains resources from the real economy of tangible goods and useful services.

The current economic recovery has been a recovery of the financial markets, not a recovery of jobs and wages of ordinary people.   United States and European Union economic priority has been to protect bond-holders and creditors from loss.

HudsonKillingtheHost41Jz7lQkwrLHudson argued that this is unsustainable.   Either there will be a planned write-off or write-down of global debt, or there will be a financial collapse, like the one that began the Great Depression of the 1930s.  Either way, the debt will be wiped out.

His preference is for what he called a Clean Slate, as was done in West Germany in 1947 as part of a currency reform.  Basically, most German debts were canceled, except for employer wage contracts and bank accounts below a certain maximum amount (since wiping out bank debt means wiping out bank savings).

This, together with tax reform, the lifting of wage and price controls and the 1953 forgiveness and restructuring of German public debt, made possible the German economic miracle.

As Hudson admitted, this is pretty strong stuff and unlikely to be accepted.  An alternative is the enforcement of an old New York law, going back to Revolutionary times, against fraudulent conveyance.  This means that a debt is void if the lender knew in advance that it couldn’t be paid back.

If Snidely Whiplash lends money to Mrs. Innocent Goodbody, a poor widow living on Social Security, with her $250,000 house as collateral, with the expectation she won’t be able to keep up the payments and he’ll be able to foreclose on the house—that’s an example of “fraudulent conveyance.”

This applies to the subprime mortgages and “liar’s loans” prior to the 2008 financial crash.  Another concept, “accounting fraud,” applies to the bad loans that were given high debt ratings, securitized and sold to the unwary.  Canceling debt originating in fraudulent conveyance and accounting fraud would have a huge impact.

Hudson said that home mortgages could be scaled back to what is necessary to amortize a property based on its assessed value.  Or mortgages could be scaled back to 25 percent of the borrower’s income, which is what conservative lending practices require in the first place.

Congress in fact authorized a program to do just that as part of the 2008 bank bailout.  But Timothy Geithner, Obama’s Treasury Secretary, declined to implement it.

All this disrupt the financial markets and the economy generally, but Hudson wrote that it would clear the way for a good economic expansion, based on investment in the real economy, as happened in Germany.

Anyhow, he wrote, the alternative is more foreclosures, more economic hardship, more government bailouts until it becomes absolutely clear that that the debts are unpayable.   In the end, debt that can’t be paid, won’t be.

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History of U.S. Treasury bond interest since 1790

November 16, 2015
treasuries

Double click to enlarge.

Source: Wealth of Common Sense (via Barry Ritholtz)

This chart is an interesting snapshot of American financial history.

It shows the interest rates on U.S. Treasury bonds from 1790, when they were first issued at a rate of 8.7 percent, through the third quarter of 2012, when they were at an all-time low of 1.62 percent.  As of this morning, the 10-year Treasury yield is 2.26 percent.

Why would people lock in their savings at such a low interest rate?  If they are foreigners, it could be because they have more confidence in the value of the U.S. dollar than they do in their own currencies.  Or it could be that they fear another financial crash that would wipe out the value of most stocks and bonds.

A question about economic efficiency

November 16, 2015

The following is from Retrotopia, an on-line utopian science-fiction novel currently being serialized by John Michael Greer on his web log.

“Mr. Carr,” Melanie Berger said then, “Since the end of the embargo we’ve been approached four times by the World Bank and the IMF.  I’ve been involved in the discussions that followed.  Each time, their economists have made long speeches about how the way we do things is hopelessly inefficient, and how we’ve got to follow their advice and become more efficient.  Each time, I’ve asked them to answer a simple question: ‘more efficient for what output in terms of what input?’  Not one of them has ever been able, or willing, to give me a straight answer.”

Source: The Archdruid Report

The assumptions and logic of neoliberalism

November 14, 2015

There is no such thing as society.  There are only individuals, and their families.      ==Margaret Thatcher

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Neoliberalism is the philosophy that economic freedom is the primary freedom, economic growth is society’s primary goal and the for-profit corporation is the ideal form of organization.

It is the justification for privatization, deregulation and the economic austerity being imposed on governments by lending institutions.

What follows is my attempt to understand the thinking behind neoliberalism.  I welcome comments, especially from those who think I am wrong or unfair.

17149339-Abstract-word-cloud-for-Neoliberalism-with-related-tags-and-terms-Stock-PhotoGovernment is by definition coercive.  All governmental authority is ultimately backed by armed force.  The role of government should be limited to protection of life and property and enforcement of contracts.   

Private enterprise is by definition free choice.  Privatization by definition increases freedom.  All income deriving from the private sector, and not involving force or fraud, is earned income.

Most people are good judges of their individual self-interest and bad judges of the common good.   People generally make good decisions as consumers and poor decisions as voters.  Consumer choice is more meaningful than the right to vote.

Free markets, though the law of supply and demand, coordinate individual choices without the direction of any particular people or group of people.  The free market is more impartial and just than any system of planning or regulation could be.

A capitalist dictatorship that protects property rights is better than a socialist democracy that attacks property rights.

Economic growth is the key to increasing economic well-being.  Growth is produced by capital—that is, by investment in machines, factories and other human-made goods that generate new wealth.  

In a free enterprise economy, capital is invested by private individuals based on the law of supply and demand.  Whatever diminishes the ability of individuals to accumulate wealth or respond to the signals of the free market diminishes capital and retards economic growth.

Money spent on welfare and charity may temporarily alleviate distress, but it will not cure poverty.  Only capital investment and economic growth will do that. 

Capital investment and economic growth should take precedence over public education, public health, the environment and other so-called pubic goods, because they are the means of generating the wealth that pays for the public goods.

Banks, investment firms and financial markets are the key institutions of society.  They must be preserved in order to support investment and economic growth.

Monetary obligations are absolute.  Any person, organization or government that borrows money has an absolute obligation to pay it back, no matter what the sacrifice.  People who don’t repay their debts or fulfill their contracts are parasites on the system.

Inequality is a good thing.  To break up accumulations of wealth that have been acquired by legitimate means is not only unjust because it destroys the just reward for achievement.  It destroys the capital by which new jobs and wealth are created.

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Comrade capitalism: Putin and the oligarchs

November 14, 2015

A new hereditary oligarchy of wealth is emerging in Russia.  But it does not consist of the sons and daughters of millionaires and billionaires.  Rather it consists of the sons and daughters of influential officials in the government security apparatus, starting with President Vladimir Putin’s daughter.

2014-03-07-PUTINThey are much like the so-called nomenklatura, the privileged sons and daughters of high-ranking Communist Party officials in the old Soviet Union.

Many of Russia’s millionaires and billionaires got rich by buying up government-owned factories and resources cheap right after the disintegration of the Soviet Union.

Reportedly when Putin took power, he called in Russia’s richest business people and told them he would not inquire into how they got their wealth—provided they did not oppose his policies.

He meant what he said.  Those who did oppose him have been crushed.  But even those who keep their heads down and their mouths shut do not feel secure.  Many wealthy Russians are investing outside Russia because they don’t think their assets are safe at home.

This is what people in Third World dictatorships do.  It doesn’t speak well for Russia’s future.

LINKS

Comrade Capitalism: Putin’s daughter, a young billionaire and the president’s friends by Stephen Grey, Audrey Kuzmin and Elizabeth Piper for Reuters.  (Hat tip to O).

Remote Control: Can an exiled oligarch persuade Russia that Putin must go? by Julia Ioffe for The New Yorker.  Profile of Mikhail Khodorovsky.

Alexandra Tolstoy interview: “Sergei must have planned his escape.  He didn’t tell me so I didn’t have to lie about it” by Kim Wilsher for The Guardian.  (Hat tip to O).

Half of Russia’s Richest People Are Planning to Cash Out by Alexander Sazanov for Bloomberg News.

 

‘Debt that can’t be paid, won’t be’

November 3, 2015

The world’s peoples and governments, including us Americans, collectively owe more money than ever can be repaid.  How we got to this point and what it means are the topics of a book I finished reading last week, KILLING THE HOST: How Financial Parasites and Debt Bondage Destroy the Global Economy by Michael Hudson.

Classical economists distinguished between earned and unearned income, between hard-working laborers and merchants and what they called “rentiers,” people who “got rich in their sleep” by collecting income from land or financial assets.

They condemned what they called “rent-seeking,” which was the attempt to set up as toll-keeper for some part of the economy.

HudsonKillingtheHost41Jz7lQkwrLA great deal of 18th and 19th century economic thought was devoted to how to shift income away from landlords, monopolists and holders of financial assets, and into the hands of those whose efforts created real wealth.

In his book, economist Michael Hudson told how this distinction came to be forgotten in the 20th century, and what followed.

Operations of finance, insurance and real estate sector of the economy came to be regarded as equivalent to the production of actual goods and services, and the bidding up of prices of financial assets came to be regarded as equivalent to increase in real wealth.

All income came to be regarded as “earned” income.  The result is that more and more of the economy consists of the transfer of wealth from the real economy to the financial sector, but our economic blinkers keep us from seeing it.

There are many ways to increase financial wealth without increasing real wealth.  Corporations that use their profits to buy back stock increase the stock price and enrich shareholders, for example.  But unlike investment in machinery, research and development or new products, stock buybacks do not make the corporation itself more valuable or more viable.  Rather they drain the institution of needed resources.

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Five candidates’ economic policies reviewed

October 28, 2015

The Street, an on-line business news site, has published a series of reports on the economic policies of some of the candidates and their possible impact on stock prices and business profits.

I’m more interested in the possible impact on wages, jobs and overall prosperity, but these articles contain good information and fair comment.   The various writers aren’t all that impressed with any of the candidates.

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If Jeb Bush Becomes President, Here’s What Would Happen to the U.S. Economy by Tobias Burns for The Street.

If Ted Cruz Were President, Here’s What Would Happen to the U.S. Economy by Ross Kenneth Urken for The Street.

If Ex-HP Chief Carly Fiorina Was President, Here’s What Would Happen to the U.S. Economy by Carleton English for The Street.

If Socialist Candidate Bernie Sanders Was President, Here’s What Would Happen to the U.S. Economy by Emily Stewart for The Street.

If Donald Trump Was President, Here’s What Would Happen to the U.S. Economy by Emily Stewart for The Street.

The passing scene – links & comments 10/21/2015

October 21, 2015

The Secret to Winning the Nobel Peace Prize: Keep the U.S. military out by Rebecca Gordon for TomDispatch.

Tunisia was the one country where the Arab Spring movement succeeded.  Four Tunisian organizations devoted to human rights deservedly won the latest Nobel Peace Prize.

Tunisia was the one country in which the U.S. government did not interfere, either militarily or politically, and it is the one country where the Arab Spring movement resulted in a stable, democratic government.

Rebecca Gordon, after reviewing U.S. policy in Egypt, Yemen, Libya, Bahrain and Syria, concludes that this is not a coincidence.  There’s a lesson to be learned here.

Obama Just Signed a Blank Check for Endless War in Afghanistan by John Nichols for The Nation.

Rep. Barbara Lee

Rep. Barbara Lee

Rep. Barbara Lee, a California Democrat, says it’s time to repeal the open-ended 2001 Authorization to Use Military Force and have Congress decide whether to continue military intervention in Afghanistan and other countries.

How Credit Scores Treat People Like Numbers by Frank Pasquale for The Atlantic.

I commented on how Chinese credit card companies and maybe the Chinese government are linking all kinds of human behaviors to credit scores, and how this can be a subtle means of suppressing nonconformity.  Well, it seems the same thing is going on in the United States—maybe not with that conscious intent, but with the same result.

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Why U.S. business kowtows to China

October 21, 2015

In the USA, government serves the needs of business.  In China, business serves the strategic aims of government.

No foreign corporation is allowed to operate in China without conceding something of long-term benefit to China.  That can be manufacturing operations in China, transfer of technological knowledge or a Chinese stake in the company’s ownership.  It goes without saying that the CEOs do not criticize Chinese foreign policy.

Cartoon by Xu Jun for EEO

Cartoon by Xu Jun for Economic Observer

Barry C. Lynn, writing in the November issue of Harper’s, said that some American corporate executives have even submitted to Communist-style self-criticism sessions, in which they volunteer confessions of misdeeds without being accused.

As China becomes more powerful, and the United States becomes more dependent on the Chinese for finance and for critical manufactured items, the leverage of Beijing over the United States becomes greater.  Lynn explained the reasons:

First is the fact that so many U.S. companies now depend on China for the products they sell.  For Walmart, it’s barbecue grills and shoes.  For Apple, it’s assembly work.  For Pfizer, it’s chemicals.

And while foreign companies have talked a lot about reducing their reliance on China, they nevertheless keep upping the ante, year after year.  Just last April, General Motors announced plans to pour another $16 billion into China.   In September, Dell pledged a whopping $125 billion over the next five years, with an ominous promise to “closely integrate Dell China strategies with [Chinese] national policies.”

A second reason corporations are so willing to accede to Chinese diktats is the allure of Chinese markets.  For General Motors, China already accounts for roughly a third of the cars it sells.  For Qualcomm, China accounts for roughly half its business.  For Rio Tinto, China accounts for considerably more than half its output of iron ore.

Chinese sales of Apple’s iPhones topped U.S. sales in 2015 — and when global markets were tanking in late August, Tim Cook helped arrest a rout in the company’s stock by publicly assuring investors that the Cupertino giant had “continued to experience strong growth for our business in China through July and August.”

Source: Harper’s Magazine.

Chinese investors own the AMC Theater chain of movie theaters in the United States, and also are major investors in American-made movies.  China also is the world’s largest market for Hollywood movies.

The result: Chinese are never the foreign villains in American movies—Russians, Arabs, Colombians, North Koreans, anybody but Chinese.

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Why is the TPP still a secret?

October 19, 2015

Tom the Dancing BugWhy is the Trans Pacific Partnership agreement still a secret, even though the negotiations are complete?

Why do we the people still depend on WikiLeaks for information on what’s in the agreement?

If opponents of TPP have the wrong idea about what’s in the agreement, why don’t President Obama and the heads of the other 11 governments that negotiated the TPP reveal what’s in it?

The logical answer is that they want to give the public as brief a window of opportunity as possible to examine and discuss the agreement in order to ram it through without adequate public discussion.

President Obama has said that the TPP enables the United States to write the rules of international trade rather than some other country such as China.  What it does is allow international corporations based in the United sttes to write the rules, which is something else.

The American people do not benefit from an agreement that enables American corporations to invest in setting up manufacturing operations in foreign countries, and then importing the products back into the USA.

The Chinese people benefit from being left out of the agreement, because that leaves their government free to pursue the Chinese national interest.

LINK

The Predators Behind the TPP by Karel van Wolferen for The Unz Review.   A good analysis by a distinguished Dutch scholar and journalist.

On the TPP: “We Are Writing the Rules,” says Obama.  Who’s “We?” by Jim Hightower for Buzzflash.

Federal Reserve ponders negative interest rates.

October 12, 2015

The Federal Reserve Board is reportedly thinking about negative interest rates as a means of stimulating the economy.

“Some of the experiences [in Europe] suggest maybe can we use negative interest rates and the costs aren’t as great as you anticipate,” said William Dudley, the president of the New York Fed, in an interview on CNBC on Friday.

Source: MarketWatch

negative-interest-rates1Negative interest rates are just what they sound like.   Depositors would pay banks to keep their money rather than being paid interest.  This is crazy.  Why would the Federal Reserve Board members even consider such a thing?

The idea is that if our economic problem is too much saving and too little spending, you can stimulate spending by penalizing saving.

The idea is that if low interest rates stimulate spending and investment, which produce economic growth, then negative interest rates would be an even better stimulus.

The negative interest rates would apply to funds that individual banks, such as M&T Bank here in upstate New York, deposit with a central bank, such as the Federal Reserve Bank of New York.

The negative rate wouldn’t necessarily apply to individual depositors, although it might.  Central banks in Germany, Switzerland, Denmark and Sweden have imposed negative interest rates, and individual banks have charged depositors for holding their money.

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China overtakes US as world’s biggest economy

October 9, 2015

panda eagleThe World Bank has noted that China has quietly overtaken the United States as the world’s largest economy.

Washington is responding to this in exactly the wrong way—by trying to checkmate China’s power rather than rebuilding the sources of American power.

China already led the United States in a number of important respects.  According to the CIA World Factbook, it exceeds the United States in industrial output, in agricultural output and in electricity production.

While China had a $260 billion trade surplus in 2013, the USA has a $698 billion trade deficit.

It is true that while the Chinese nation is rich, the Chinese people are still poor compared to Americans—not just in the amount of stuff they own, but in terms of infant mortality, life expectancy, literacy and access to public water and sewerage systems.

Inequality and concentration of wealth are just as great in China as they are in the United States.  China is the world’s largest polluter overall, although the USA is the largest on a per-capita basis.  Interestingly China has a lower birth rate and population growth rate than the USA.

But life has been getting better on average for the average Chinese person, while the earning power of the average American has been slipping behind.

The United States has the world’s largest and most expensive military, but the Chinese may be a match for the USA in their own backyard—the South China Sea.

Joseph Stiglitz, former chief economist for the World Bank and former chairman of the President’s Council of Economic Advisers, argued in a recent article that the USA still has great residual strength, but American leaders are letting it slip away by concentrating on military dominance and corporate profits at the expense of everything else.

In a full-fledged Cold War between the USA and China, China is in an economic position to do the USA great damage.  China could stop buying U.S. Treasury bonds, for example.

It’s not in the interest of China to wage economic war against the United States.  Both sides would suffer.  American leaders should not push China into a corner and put its leaders in a position in which they think they have no choice.   Instead American leaders should concentrate in reducing US economic vulnerability.

China does have big problems—inequality, pollution, corruption, unrest among workers and among minorities in Xinjiang, Tibet and elsewhere.

Maybe these problems will be fatal, although I doubt it.  But these are not issues the United States can affect one way or the other, or should try to affect.

And if China should start to collapse, history has many examples of declining empires that try to restore internal unity by going to war.  This is not something we Americans should hope for.  Our problems originate at home, not in China.

LINKS

China Has Overtaken the United States as the World’s Largest Economy by Joseph Stiglitz for Vanity Fair.

China vs. United States from the CIA World Factbook.

G-Zero: US-China Relations in the Age of Xi by Peter Lee for China Matters.

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What’s new (at least to me) about the TPP

October 8, 2015
tpp-trade-graphic

Click to enlarge.

The Obama administration has moved very shrewdly to deflect some of the main criticisms of the proposed Trans Pacific Partnership agreement.

  1.  Fast Track is not as fast as I previously thought It is true that once the TPP is submitted to Congress, there will be only 90 days to debate and decide.  But there will be a longer preliminary phase in which to study and discuss the proposed agreement.  I don’t know whether this was true all along and I (along with many others) didn’t realize it, or whether this is something new.  But in any case, the TPP is not necessarily going to be rushed through Congress as quickly as I had previously thought.
  2.   Evidently there will be amendments to address some of the main criticismsFor example, tobacco companies will not be able to use the Investor State Dispute Settlement mechanism to protest restrictions on cigarette advertising.

But here is the Cato Institute’s timetable for making the agreement public.

Even with the deal “concluded,” the president cannot sign the agreement until 90 days after he officially announces his intention to do so. During that period, there will be intensive consultations between the administration and Congress over the details; the legal text of the agreement will be made available to the public on the internet; the USTR advisory committees will submit their assessments of the deal to Congress; and there will be ample opportunity for informed, robust domestic debate about the deal’s pros and cons.

After the 90-day consultation period, the president can return to the TPP partners with input from Congress, which may or may not warrant modifications to the deal to improve its chances of ratification.

Once the deal is signed, the administration then has a maximum of 60 days to prepare a list of all U.S. laws that will need to be changed on account of TPP; the U.S. International Trade Commission will have a maximum of 105 days to do an analysis of the likely impact of the TPP on the U.S. economy; the congressional trade committees will perform mock markups of the implementing legislation; and, then, the final TPP implementing legislation will be introduced in both chambers.

After the legislation is introduced, the House will have 60 days and the Senate will have 30 days to hold votes. These requirements stem from the Trade Promotion Authority legislation enacted over the summer. If the TPP is going to be ratified by this Congress under this president, the timelines suggest that there isn’t much room for delay.

Source: Cato @ Liberty

Without Fast Track, there would be no deadline at all for voting the TPP up or down, there would be no restriction on amendments, and 60 votes instead of a 51-vote majority would be required for the TPP to clear the Senate.

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The passing scene – October 7, 2015

October 7, 2015

Why Free Markets Make Fools of Us by Cass R. Sunstein for The New York Review of Books.  (Hat tip to my expatriate e-mail pen pal Jack)

The TPP has a provision that many will love to hate: ISDS.  What is it, and why does it matter? by Todd Tucker for the Washington Post.  (Hat tip to naked capitalism)

Hillary Clinton says she does not support Trans Pacific Partnership by the PBS Newshour.

Q: Is the Obama Administration Complicit With Slavery? A: Yes by Eric Loomis for Lawyers, Guns and Money.  Slavery in Malaysia is overlooked for the sake of the TPP.

Houston is a lot more tolerant of immigrants than Copenhagen is on Science Codex.  (Hat tip to Jack)

Science Saves: The Young Iraqis Promoting Evolutionary Theory and Rational Thought to Save Iraq by Marwan Jabbar for Niqash: briefings from inside and across Iraq.  (Hat tip to Informed Comment)

The Amazing Inner Lives of Animals by Tim Flannery for The New York Review of Books.  (Hat tip to Jack)

Is the chilli pepper friend or foe? by William Kremer for BBC World Service.  (Hat tip to Jack)

My economic philosophy in a nutshell

October 6, 2015

When, lo, these many years ago, I studied economics in college, I learned that capital was the most important factor in a prosperous economy.

I still think this is true.  But that doesn’t mean that owners of financial assets are the most valuable members of society.

Standard economics teaches that three  are factors of production—land, labor and capital.  “Land” means all natural resources—everything of value not created by human beings.  “Labor” means all human effort, physical or mental.

 “Capital” is the most important of the three.  It means everything that increases the productivity of land and labor—railroads, machine tools, computers.  It is the force multiplier for land and labor.  It is what makes economic growth possible.

The problem is that “capital” also means also the financial resources available (but not necessarily used) to create these tangible resources.

Landlords who receive rents contribute nothing to the wealth of nations.  Laborers who earn wages contribute a fixed amount.  Capitalists who make profits have—so I was taught—an incentive to direct their capital in a way that created the most value, and thus increase the total wealth of society.

Late in life I have come to read Karl Marx’s rebuttal.  Physical and intellectual capital is not created by capitalists, he noted.  Every railroad, every machine tool, every computer was created not by money, but by the mental and physical effort of human beings.

The increase in human wealth that physical capital generates does not go to those who created it.  It goes to those who own it.

Marx denied that the owners of capital are job creators.  He asserted that workers are capital creators.

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The passing scene – October 4, 2015

October 4, 2015

Roger Millikin: The Man Who Launched the GOP’s Civil War by Jonathan M. Katz for Politico (hat tip to naked capitalism)

Roger Millikin, a right-wing textile magnate, was a driving force in transforming the South from solidly Democratic to solidly Republican, and the Republican Party from the party of Lincoln into the party of Strom Thurmond, Jessie Helms and Trent Lott.

If not for him, or someone like him, Rick Perry might still be a Democrat and Elizabeth Warren might still be a Republican.

The Invisible Poverty of ‘Poor White Trash’ by Rod Dreher for The American Conservative.

I never use expressions such as “redneck” or “white trash.”  The word “redneck” originally to poor white farmers who worked in the hot sun in long-sleeved shirts.  It was a term used by educated people to express their contempt for manual labor and lack of schooling.  The term implies that poor white people are more racist than affluent white people, which in my experience has not been the case.

One Day After Warning Russia of Civilian Casualties, the U.S. Bombs a Hospital in Afghanistan by Glenn Greenwald for The Intercept.  (Hat tip to my expatriate e-mail pen pal Jack).

Bubbles Always Burst: the Education of an Economist by Michael Hudson, author of Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

Debacle Inc.: How Henry Kissinger Helped Create Our “Proliferated” World by Greg Grandin, author of Kissinger’s Shadow: The Long Reach of America’s Most Controversial Statesman.

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Donald Trump in the 1980s

September 28, 2015

Hat tip to KeldBach’s Journal.

This informative 1991 documentary film about Donald Trump traces the history of his business up until the bankruptcy of Trump Taj Mahal, the first of four Trump businesses to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code.

Donald is the son of Fred Trump, a successful developer in Brooklyn.  Part of his success, as the documentary shows, is due to the Trump family money.  Part is due to Donald Trump’s use of his father’s name to obtain political influence and to get use of other people’s money.

The documentary shows Trump was a talented and successful deal-maker.  It shows he was an even more successful salesman and promoter, and how that trumped (so to speak) his failure to provide good service to his tenants or to achieve sustainable financial results.

The makers of the documentary write Trump off as a failure, and yet, as we now know, he bounced back and survived even more setbacks, by using his celebrity to promote the Trump brand.

Is this what we Americans want in a President of the United States?  It would not be a change for the better, but a doubling down on everything that has been wrong in Washington for the past 10 or 15 years—how repeated failures are hidden behind a smokescreen of denital and bluff.

Romney, Fiorina, Trump: who did the most harm?

September 22, 2015

Last week a friend of mine wondered out loud who ruined more lives—Donald Trump, Carly Fiorina or Mitt Romney?

After doing a little Internet research, I would say—probably Mitt Romney, possibly Carly Fiorina, but not Donald Trump.

romney-record-620x1024Mitt Romney was CEO of an investment firm called Bain Capital.  It started out in 1984 as a venture capital firm; its most successful investment was the Staples chain of office supply stores.

But from 1989 to 1999, it adopted a new strategy—borrowing money to buy existing companies, saddling the companies themselves with the debt while meanwhile giving Bain big consulting fees.

Some of the companies collapsed under the burden of debt, some survived.  Having to service a big debt obligation probably tipped many into failure.  Nobody would argue that it helped.  But Romney and the other Bain partners did well whether the companies succeeded or not.

Carly Fiorina became head of Hewlett-Packard in 1999.   Her most notable accomplishment was aquisition of Compaq Computer, which by most accounts didn’t pay off.  The H-P board of directors fired her in 2005.

The Boston Globe estimated that 30,000 employees were laid off during her tenure.  On the other hand total jobs at H-P when she left were roughly equal to the combined H-P and Compaq employment in 2009.

Donald Trump took his companies into bankruptcy—that is, reorganization under Chapter 11 of the U.S. Bankruptcy Code—four times.  These were Trump Taj Mahal in 1991, Trump Plaza Hotel in 1992, Trump Hotels and Casino Resorts in 2004 and Trump Entertainment Resorts in 2009.

In each of these reorganizations, Trump took a loss and gave up control.   The businesses continued, and evidently there weren’t any big layoffs at the time.   Trump Taj Mahal filed again for bankruptcy last year, but Trump no longer controls it.

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An ‘economic hit man’ tells his story

September 22, 2015

I read CONFESSIONS OF AN ECONOMIC HIT MAN by John Perkins on the recommendation of a fellow blogger known as Holden.

Perkins wrote this memoir in 2004 about his work as an international economics consultant in the 1970s.  He said his job was to intentionally make bogus projections of economic growth for Third World countries such as Indonesia, Ecuador and Iran.

The idea was to encourage developing countries to borrow heavily to finance economic development projects using U.S.-based contractors.  The countries’ leaders were promised that these projects would bring about rapid economic growth, and make their countries prosperous and modern.

14273_johnperkins_nWhen the countries became unable to finance their debt, this created opportunities for American and international companies to buy up their national assets at bargain prices.

And even when the economic development plans worked, they only benefited tiny elites while leaving the majority of the people just as badly off or even worse off.

To stay in power, the elite accepted U.S. military aid in return for supporting U.S. foreign policy or hosting U.S. military bases or both.

Perkins said he was in on U.S. negotiations with Saudi Arabia following the 1973 oil embargo, which led to the U.S.-Saudi alliance which endures to this day.

The Saudi royal family agreed to manipulate oil production in order to protect the U.S. economy from big fluctuations in world oil prices.  The Saudis further agreed to invest their revenues in U.S. Treasury bonds

In return, the U.S. Treasury Department invested the income from those bonds in infrastructure projects, all carried out by U.S. contractors, to give Saudi Arabia the appearance of being a modern country.  The U.S. Defense Department provided a military shield for this weak, thinly-populated country against enemies such as Iraq and Iran.

The problem, as I see it, is that it has made the United States hostage to Saudi ambitions to dominate the Middle East.

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