Archive for the ‘Economy and Business’ Category

The limits of an economy based on debt

March 9, 2015

credit-compensation3-15aSource: Charles Hugh Smith.

Since the 1970s, wages have failed to keep pace with productivity, and Americans have maintained their material standard of living by borrowing.   While this enabled Americans to buy good and services and keep the U.S. economy going, the ability to borrow has reached its limit.

This means a more frugal standard of living and slower economic growth.  And, as I see it, there is no much anybody can do about it.

The chart shows the ratio of the total amount of American debt—individual, business and government—and total wages and salaries of workers employed by private industry.  In 1960, total debt was a little over three times total wages and salaries; now debt is a little over nine times total wages and salaries.

What I think the chart shows is:

  • Healthy growth in wages and salaries in the 1960s, keeping pace with debt.
  • Stagnation in wages and salaries in the 1970s, without much growth in debt.
  • A bubble in the 1980s, with the economy fueled by increased borrowing.
  • Healthy growth in wages and salaries in the 1990s, keeping pace with debt.
  • Another bubble in the 2000s.
  • Maxxing out on debt in the 2010s.  Those who can try to pay down their debts; those who can’t go bankrupt.

The fact that Americans are paying down their debts and trying to save is a good thing, not a bad thing.  But it means that the federal government will be less able than in the past to stimulate the economy by stimulating spending and borrowing.

I think it would be a big mistake to try to start another debt bubble.  Instead we Americans need to think about building up the real economy, and putting people to work doing the many things that need to be done.

LINK

The One Chart You Need to Predict the Future by Charles Hugh Smith.

The U.S. jobless rate is falling [Update: Maybe]

March 7, 2015

MW-DH110_jobs_r_20150306091454_ZHVia MarketWatch.

It’s interesting that the report of gains in jobs and a drop in unemployment was followed by a drop in stock prices.

Conceivably this could be been due to the improvement being less than expected, but analysts quoted in my morning newspaper said investors fear that the apparent recovery will cause the Federal Reserve Board to stop holding down interest rates in order to stimulate the economy.

A certain number of people can be expected take their money out of the stock market and put it in savings accounts in banks, or in bonds, because they would getting actual interest income again.

In other words, stock prices reflect an unsustainable government policy, and not the real health of the economy.

alternativenationalemploymentratesVia TownHall.com.

Still, it’s good news that the unemployment rate is falling, and is falling by every measure.

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Mark Blyth on ending the creditor’s paradise

March 5, 2015

An American economist, Mark Blyth, author of Austerity: the History of a Dangerous Idea, gave a talk to members of the German Social Democratic Party on why so-called austerity is a bad idea.

I write “so-called” because the dictionary meaning of austerity is doing without things you don’t really need.  Food rationing in the UK and USA during World War Two is an example of austerity.  It doesn’t mean prioritizing the requirements of holders of financial assets over the needs of everybody else.

Here’s why Blyth had to say.

Back in the 1970s, a period that now seems quite benign, corporate profits were very low, labor’s share of income was very high, and inflation was rising.  We were told that this was unsustainable, and new institutions and policies were constructed to make sure that this particular mix of outcomes would never happen again.

austerity-depressionIn this regard we were singularly successful.  Today, corporate profits have never been higher, labor’s share of national income has almost never been lower, and inflation has given way to deflation.  So are we happier for this change?

What we have done over the past thirty years is to build a creditor’s paradise of positive real interest rates, low inflation, open markets, beaten-down unions, and a retreating state — all policed by unelected economic officials in central banks and other unelected institutions that have only one target: to keep such a creditor’s paradise going.

In such a world, why would you, the average worker, ever get a pay rise?

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Scott Walker’s Southern economic strategy

February 25, 2015

right-to-work-2Gov. Scott Walker of Wisconsin is pushing through a right-to-work law, which gives workers protected by union contracts the right not to pay union dues.

It is part of an economic strategy copied from Southern states such as Alabama—to attract branch plants of industries headquartered elsewhere by means of low taxes, low wages and no labor unions.

The price of the strategy is low educational levels, low public services and deteriorating infrastructure—all the things that make a state attractive to entrepreneurial, high-tech and high-wage enteprise.

I think the Walker strategy is a bad one because Wisconsin can’t out-impoverish states like Mississippi, and the USA as a whole can’t out-impoverish nations like Bangladesh.  Even if we could, would we want to?

What we Americans as a nation need to think about is how to add value, and how to distribute the benefits among the working people who create value.

Scott Walker has been a highly successful politician, and looks to be a strong presidential candidate, by distracting attention away from these questions.   Instead he encourages people who are floundering economically to focus their resentment on their neighbors who still have union jobs and good wages, and away from the tiny economic elite who benefit from the low wage, high unemployment economy.

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The changing U.S. economy in four maps

February 22, 2015

The most common job in each state in 1978.

16389997587_0e9959bd23_zThe most common job in each state in 1988.

16574791922_bd081f6292_zThe most common job in each state in 2000.

16574792062_6c7be6e8d6_zThe most common job in each state in 2014

mostcommonjobSource: National Public Radio via Mike the Mad Biologist.

Long story short:  The most common jobs remaining are the ones that haven’t been automated and aren’t being done cheaper overseas.

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Squeezing Greece won’t help German people

February 14, 2015

The Greek debt crisis is not a conflict between Germany and Greece.   It is the European Union acting as a debt collection agency for central bankers.

German working people get no benefit from the demand that the government of Greece impoverish the people of Greece so as to pay interest to the European Central Bank and the International Monetary Fund.

Cartoon by David Simonds. Angela Merkel's hard line on debt threatens the euro project.They in fact will suffer in the long run, because the more wages and living conditions are driven down in other countries, the harder it will be to maintain them in Germany.

Some five years ago, I wrote a post about how Germany was a good role model for the USA, because its leaders were committed to industrial productivity and a high-wage economy.   Unfortunately, the German leaders instead have taken the USA as a role model, and followed our downward path of financialization.

I believe that people who borrow money have a moral obligation to pay it back—if they can.  I believe that there are other moral obligations that take precedence, such as the welfare of those who depend on you.  That’s why the United States and other nations substituted bankruptcy laws for debtors’ prisons.

The Greek debt problem would have solved itself if Greece had its own currency instead of the Euro.  As Greece’s balance of trade worsened, its currency would be devalued and its products and services (including the tourist industry) would become cheaper in terms of dollars and euros.

The great fear of the “troika”–the ECB, IMP and the leaders of the European Union–is that Greece will stop using the euro, and that some of the other 17 countries that use the euro will follow suit.  That might be a problem for bond-holders.  I don’t see it as a problem for ordinary people in Germany, the USA or any other country.

LINKS 

It’s the class conflict, stupid! by David Ruccio on occasional links and commentary.

Europe: Shaking the Temple by Conn Hallinan for Dispatches from the Edge.  (Hat tip to Bill Harvey)

From Minsk to Brussels, it’s all about Germany by Pepe Escobar for RT Op-Edge.

 

Dow Jones firms’ profit is $48,887 per employee

January 31, 2015
Profit-per-employee

Click to enlarge.

The 30 companies that make up the Dow Jones Industrial Averages took in an average profit of $48,887 per employee last year.  It would be interesting to know what those employees’ average incomes were.

LINKS

Five years into recovery, Dow companies squeeze workers as investors thrive by Michael Santoli for Yahoo Finance.

Another image of labor’s broken back: $48,887 in profit per employee! by Daniel Becker for Angry Bear.  (Hat tip to naked capitalism)

What happened to American business start-ups?

January 28, 2015

Screen-shot-2015-01-28-at-3.49.46-AM.

ciavniuad06fxohwao4d3a

We Americans pride ourselves on our entrepreneurial spirit, but the number of new business start-ups is going steadily down.

The U.S. business death rate exceeds the business birth rate.  According to Gallup, the United States ranks 12th in the rate of new business start-ups, behind such nations as Denmark, Finland, Hungary, Israel, Italy, New Zealand and Sweden.

Why?  I can think of several possible reasons.

  • Businesses are often started by employees of large corporations who see a market niche that their employers are unwilling to try to fill.  The increase in non-compete agreements makes it increasingly harder for employees to do this.
  • The stagnation of the U.S. economy is self-perpetuating.  Nobody will start a business unless they think people will buy its products or services.  The lack of good jobs at good wages means there is less of a demand for new products.
  • Because of the uncertain economy, individuals are less willing to risk their savings by investing in startups.
  • The lack of a good social safety net makes entrepreneurialism more risky.  In Sweden, even if your business failed, you still would not have to worry about lack of medical care or your family going hungry.

This is important.  New and small businesses are local.  They employ Americans.  They don’t usually have the option to outsource to India or China.

Big businesses are not immortal.  In the ecology of business, the dying giants are replaced, if they are replaced, by growing small businesses.   Without a stream of new businesses, the economy becomes dependent on old and declining businesses, such as General Motors and Chrysler, while have to be bailed out and propped up.

I don’t think small-business subsidies and set-asides are the key to having start-ups.  The best things for business startups are a high-wage, full-employment economy, an end to abusive non-compete agreements and a breakup of big-business monopolies.

LINKS

How Wall Street Killed Entrepreneurs by Yves Smith for naked capitalism.

American Entrepreneurship: Dead or Alive? by Jim Clifton, chairman and CEO of the Gallup.

Has American Business Lost Its Mojo? by Thomas B. Edsall for the New York Times.  [Added 4/7/20154]

Slow Business Start-ups and the Job Recovery by Liz Laderman and Sylvain Leduc for the Federal Reserve Bank of San Francisco. [Added 4/7/2015]

How Special Interests Undermine Innovation by James Bessen for Foreign Affairs.  [Added 4/7/2015]

Can Russia diversify away from oil and gas?

January 7, 2015

SR-russia-economic-freedom-2014-chart-2-825

Russia is a land rich in natural resources and human talent.  It has been an industrial nation for more than a century.  Why hasn’t it developed a world-class manufacturing industry in anything but armaments?  If it had, Russia would not be jeopardized by falling oil prices.

russianexportschartOne explanation is that Russia has been held back by world trade treaties, which restrict Moscow’s right to subsidize its infant industries—even though that has been the method by which every new industrial nation, except Great Britain, which was the first, has made up the head start of the older industrial nations.

During the Napoleonic Wars, the young United States was cut off from trade with Europe, which New England manufacturers used as an opportunity to develop our domestic manufacturing industry.

RUSSIA_CORRUPTIONAnother is that the Russian economy is controlled by a corrupt financial oligarchy, which is interested only in extracting profit for themselves and not in building for the future.   Probably the truth lies somewhere in between.

I don’t think that having a strong oil industry in itself is a curse that prevents development of  manufacturing.

The United States was a leading oil producer and exporter in the first half of the 20th century, and Americans leveraged that advantage to develop an mass-produced auto industry, a chemical industry and other industries based on cheap and plentiful oil.

To the extent that Russia is shackled by the international economic system, the current crisis represents an opportunity to break free of that system.

To the extent that Russia’s problem is its own dysfunctional political and economic system, it means the country must either reform or become a satellite of China or the West.   Or, in the worst case, Russia could become a Ukraine writ large, a prize for other, more powerful states to fight over.

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Plummeting Oil Prices Could Bring Radical Change to Russia.  What Comes Next? by David M. Kotz for The Nation.  [Hat tip to Bill Harvey]

The passing scene: January 3, 2015

January 3, 2015

Social Programs That Work by Ron Haskins in The New York Times.

Many social welfare programs fail.  The Obama administration has identified some that succeed.   While this does not change my unfavorable opinion of the President’s policies overall, I think he is entitled to credit for having this research done.

This City Eliminated Poverty and Nearly Everybody Forgot About It by Zi-Ann Lum for Huffington Post.

Between 1974 and 1979, the small city of Dauphin, Manitoba, guaranteed all residents a basic income—employed or not, able to work or not.  What was the ultimate outcome of this radical experiment?  Nobody ever bothered to check and find out.

What’s Wrong With Georgia? by Alana Semuels for The Atlantic.

Scott Walker has failed Wisconsin and Minnesota is the proof by Jimmy Anderson for the Milwaukee Journal-Sentinel.

Georgia and Wisconsin are the latest American states to discover that a Third World economic strategy—low wages, low taxes, low services and low regulation—is not a successful formula for creating jobs and promoting economic growth.

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The passing scene: January 1, 2015

January 1, 2015

The Tragedy of the American Military by James Fallows for The Atlantic.

Gun Trouble by Robert H. Scales for The Atlantic.

HighAirfare35e18The U.S. armed forces have greater prestige than at any time in American history, and the nation spends almost as much on its armed forces as the whole rest of the world put together.  Yet the USA doesn’t seem to be able to win wars, or even provide troops with a gun that doesn’t jam.

James Fallows wrote in The Atlantic that the United States has become a “chickenhawk nation.”  The majority of Americans do not wish to serve in the military and have no real desire to understand the military, so we take the easy way out which is to say, “thank you for your service,” and go about our business.

Military procurement has become a business subsidy and job creation program.  If the USA reduced its military force and weapons spending to what is needed to defend the nation, and nothing else was done, a recession would result.

Infrastructure advances in the rest-of-the-world will blow your mind by james321 for Daily Kos.

We Americans used to pride ourselves on our mega-engineering projects, but now the rest of the world is leaving us behind.

China has opened direct rail service from the China Sea to Madrid.  Switzerland is about to open its 35-mile Gotthard Base Tunnel under the Alps.  Italy is soon to start high-speed rail service between Milan and Rome, capable of speeds up to 250 miles per hour.

We Americans don’t even perform maintenance on what we’ve got, and that’s a sign of a society with a fatal loss of concern for its future, just as our military strategy is a sign of a society with a fatal loss of a sense of reality.

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What’s wrong, and what to do about it

December 3, 2014

whatswrongwithuseconomy_a_final1_infographic350w

The AFL-CIO has an excellent series of infographics about what’s wrong with the U.S. economy, which I have put into this post.  For those who have a little time, I link to four articles explaining the infographics.  For those who have more time, I then link to background information on which the articles are based.

My only argument with the AFL-CIO is that they attribute bad economic policies exclusively on Republicans, while ignoring Wall Street Democrats such as Bill and Hillary Clinton, Barack Obama, Joe Biden, Chuck Schumer and Christopher Dodd.

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Corporations that bestride the world

December 2, 2014
Double lick to enlarge.

Double click to enlarge.

Some giant corporations are larger than small countries, but that is not the source of their power.

The source of their power lies in the fact that if a large corporation doesn’t like a government’s policies, it can take its money to a nation more to its liking.

International treaties, as well as organizations such as the World Trade Organization and International Monetary Fund, insist in the right of money to migrate wherever and however its owners wish.

Individual human beings do not enjoy the same right.  Large and sudden shifts of money and population both can be disruptive, but the migration of money is considered a right and the migration of people is considered a problem.

International treaties and agreements such as the World Trade Treaty, North American Free Trade Agreement and the proposed Trans Pacific Partnership Agreement give international corporations a legal status equal to sovereign governments.  If corporate executives think a government’s laws or policies are unjust, they can appeal to a business-friendly tribunal to overturn the law or penalize the government.

The important thing to remember about all this is that none of this is the result of impersonal workings of the laws of economics.

It is the result of decisions made by governments, which could have decided otherwise.

Corporations are created by law.  Any powers they have come from charters by a state or local government which define what the corporate body can and cannot do.

Without legislation allowing such charters, corporations would simply be collections of individuals.  There would be no corporate structure to stand between them and their liability for debts and criminal penalties.

The power of international corporations to shift capital from one country to another exists only because there are laws that allow this to happen.  The power of international corporations to override national sovereignty exists only because nations give up their sovereignty.

It’s possible to imagine a world in which things are different—in which international treaties set standards to require corporations to treat workers decently, sell non-toxic products and refrain from damaging the local environment.

That’s not the world we live in right now.  But it is a world that we the people have the  power to create.

Wall Street is hijacking America’s pension funds

December 2, 2014

Back in 1976 a smart business analyst named Peter Drucker noticed that a steadily increasing amount of stocks in American companies were held by pension funds.

He wrote a book entitled The Unseen Revolution: How Pension Fund Socialism Came to America, which argued that, if things kept going the way they were then, pension funds would own a majority of publicly-traded stocks.

Thus, he argued, the United States was quietly becoming a socialist country, in which workers owned the means of production.

Pension-FundThe flaw in his argument was that, although the pension funds were owned in the name of workers, they did not control the funds, and the funds were not necessarily managed in their interest.

Since 1976, private companies have been dumping defined-benefit plans and switching to plans in which workers take on the burden of saving and the risk of investment.  I left the paid work force in time to get a defined-benefit pension (with no cost-of-living adjustment, however).  If I were young today, I would not be so fortunate.

The exception is government pension plans, but now state and local governments, through a combination of corruption and ignorance, are allowing Wall Street speculators to put employees’ pension money into the kind high-risk speculative investments that caused the latest stock market crash.

My e-mail pen pal Bill Harvey sent me a link to a good article about this, which is copied below.

When the next crash comes, the employees will be out of luck and the fund managers will walk away after pocketing high fees.

This reflects two great weaknesses in American society.

One is a moral weakness, that financiers regard it as ethical to profit at the expense of those who trust them.

The other is an economic weakness, that financial manipulation is more profitable than creating value in the real economy.

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Wall Street Is Taking Over America’s Pension Funds by Murtaza Hussain for The Intercept. (via Bill Harvey)

‘Assembled in the USA,’ but made in China

November 26, 2014

mftg&walmart-v4-1024x839

Walmart is selling TV sets with the label, “Assembled in the USA,” but the Association for American Manufacturing has complained to the Federal Trade Commission that the TV sets are actually made in China.

FTC rules say that a product can’t be labeled as assembled in the USA unless the principal assembly takes part in the USA, and the assembly work is substantial.  Walmart’s supplier, Element Electronics, doesn’t do enough assembly to qualify, the complaint says.

One reason American manufacturers have shifted production overseas is to meet Walmart’s demand for low prices.  Walmart is the USA’s largest importer.  That’s something for American Christman shoppers to think about.

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How Walmart Destroyed U.S. Manufacturing by Molly McGrath and Brad Markell for the Walmart 1 Percent.

Walmart Workers Ramp Up Protests for Black Friday by Diane Krauthamer for Labor Notes.


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