Sunday, October 6, 2019

Week-end Wrap – Political Economy – October 5, 2019

Week-end Wrap – Political Economy – October 5, 2019
by Tony Wikrent
Economics Action Group, North Carolina Democratic Party Progressive Caucus

Strategic Political Economy

How Bill Clinton and American Financiers Armed China
Matt Stoller [BIG, via Naked Capitalism 10-2-19]
A must-read for all the details of the policy follies of the past four decades, and for the quotes from speeches at the time by such elites as Larry Summers.
Chinese power today is a result of a large number of incidents similar to this one, the wholesale transfer of knowhow, technology, and physical stuff from American communities to Chinese ones. And the confused politics of China is a result of the failure of the many policymaking elites who participated in such rancid episodes, and are embarrassed about it. As we peer at an ascendant and dangerous China, it makes sense to look back at how Clinton thought about the world, and why he would engage in such a foolish strategy. 
Broadly speaking, there were two catastrophic decisions Clinton made in 1993 that ended up eroding the long-term American defense posture. The first was to radically break from the post-World War II trading system. This system was organized around free trade of goods and services among democratic nations, along with somewhat restricted financial capital flows. He did this by passing NAFTA, by bailing out Mexico and thus American banks, by creating the World Trade Organization, and by opening up the United States to China as deep commercial partners. 
The Clinton framework gutted the ability of U.S. policymakers to protect industrial power, and empowered Wall Street and foreign officials to force the U.S. to export its industrial base abroad, in particular to China. The radicalism of the choice was in the intertwining of the U.S. industrial base with an autocratic strategic competitor. During the Cold War, we had never relied on the USSR for key inputs, and basically didn’t trade with them. Now, we would deeply integrate our technology and manufacturing with an enemy (and yes, the Chinese leaders saw and currently still see us as enemies). 
The second choice was to reorganize the American defense industrial base, ripping out contracting rules and consolidating power into the hands of a small group of defense giants. In the early 1990s, as part of the ‘reinventing government’ initiative, the Clinton team sought to radically empower private contractors in the government procurement process....  
The empowering of finance friendly giant contractors bent the bureaucracies towards only seeing global capital flows, not the flow of stuff or the ability to produce. This was already how most Clinton administration officials saw the world. They just assumed, wrongly, that stuff moves around the world without friction, and that American corporations operate in a magic fairy tale where practical problems are solved by finance and this thing called ‘the free market.’ In their Goldman, McKinsey and Boston Consulting Group-ified haze of elitist disdain for actually making and doing real things, they didn’t notice or care that the Chinese Communist Party was centralizing production in China. They just assumed that Chinese production was ‘the free market’ at work, instead of a carefully state-sponsored effort by Chinese bureaucrats to build strategic military and economic power.
China: How science made a superpower
[Nature, via Naked Capitalism 10-2-19]

Three Big Things: The Most Important Forces Shaping the World 
[Collaborative Fund, via The Big Picture 10-5-19]
The biggest is World War Two--and it's a very persuasive argument. For example:
Or why Europeans have different views on social safety nets than Americans. John Maynard Keynes predicted countries wrecked by war would go on to have a “craving for social and personal security,” and indeed they did.
The rest of the article's premise: 
The three big ones that stick out are demographics, inequality, and access to information.

The Carnage of Establishment Neoliberal Economics

Stock Buybacks Threaten Economic Growth
[Worth, via Naked Capitalism 10-1-19]
A Naked Capitalism commenter notes: “Notable for where it’s published.”

America’s Perilous Path Of Wealth Distribution
[Global Macro Monitor, via Naked Capitalism 10-1-19]
  • The top 1% of households now hold more wealth than the bottom 90%
  • The aggregate nominal wealth of the bottom 50% of households has fallen by almost 10 percent since 2000, from 3.4 percent of total household wealth to just 1.3 percent
  • The share of the top 1% is now over 31 percent and has grown by over 165 percent since Q1 2000
  • The average wealth per household of the bottom 50% has declined 25 percent in nominal terms and 50 percent in real purchasing power compared to the 1%’s increase of 118 percent and 50 percent, respectively
  • The widening wealth gap is a major factor in the rise of populism in the U.S. and the debate over a wealth tax will be a central focus of the 2020 presidential election
  • Asset inflation resulting from quantitative easing (QE) has contributed to the widening wealth gap
  • Long pitchforks and water cannons
The Puzzling Lure of Financial Globalization
Arvind Subramanian, Dani Rodrik, September 25, 2019 [Project Syndicate, via Naked Capitalism 9-30-19]
Although most of the intellectual consensus behind neoliberalism has collapsed, the idea that emerging markets should throw their borders open to foreign financial flows is still taken for granted in policymaking circles. Until that changes, the developing world will suffer from unnecessary volatility, periodic crises, and lost dynamism. 
The preponderance of evidence suggests that financial globalization – especially unrestricted hot money – aggravates macroeconomic instability, creates the conditions for financial crises, and dampens long-run growth by making the tradable sector less competitive.
Book Review: The Code of Capital: How the Law Creates Wealth and Inequality by Katharina Pistor
[LSE Review of Books, via Naked Capitalism 9-30-19] 

Republican fail: 40 years of tax cuts, record debt and inequality gap
[USA Today, via Naked Capitalism 10-4-19] 
Useful recounting of basic statistics everyone should know to refute Republican / conservative talking points on taxes and the economy.
The American economy since 1950 offers a chance to consider the impact of these tax cuts. From 1950 to 1980, the top federal marginal tax rates (the rates on income above certain levels) were as high as 92% and never below 70%. Republicans have been slashing the top tax bracket for annual earned income since the early 1980s, and it is now 37% on income above $612,350....

But it turns out U.S. economic growth was substantially higher during the period of high taxes. From 1950 to 1980, average annual growth in real (inflation-adjusted gross domestic product) was 3.9%, while from 1981 to 2018 the comparable number was 2.7%.

Similarly, during the high tax period, median household incomes increased on average (in real terms) by a bit over 2.5% per year. During the low income tax period, average real growth in household income declined to 0.7% per year.
Global Asset Capitalizations
Barry Ritholtz [The Big Picture 10-2-19]
Note how small the role of equity in USA corporate financing: $221.2 billion, one tenth the $2.2 trillion of debt. In other words, how small the role of actual ownership compared to indebtedness. Another political economic marker of oligarchy and rentier finance. Yet we still call it "capitalism." 

[Wall Street Journal, via The Big Picture 10-3-19]
A third of auto loans in first half of 2019 were for longer than six years, According to credit reproting form Experian, that number was less than ten percent a decade ago.

AAR: “Fundamental Long-Term Structural Changes” Hindering U.S. Rail Traffic
[Railway Age 10-3-19]
Dwindling coal markets; domestic intermodal and chemical sector growth; and disruptions to manufacturing, agricultural and international intermodal markets have led to the eighth consecutive month of U.S. rail traffic declines, according to the Association of American Railroads (AAR).

Predatory Finance

Everything Is Private Equity Now: Spurred by cheap loans and investors desperate to boost returns, buyout firms roam every corner of the corporate world. 
[Businessweek, via The Big Picture 10-4-19]
Private equity managers won the financial crisis. A decade since the world economy almost came apart, big banks are more heavily regulated and scrutinized. Hedge funds, which live on the volatility central banks have worked so hard to quash, have mostly lost their flair. But the firms once known as leveraged buyout shops are thriving. Almost everything that’s happened since 2008 has tilted in their favor.

Low interest rates to finance deals? Check. A friendly political climate? Check. A long line of clients? Check.

The PE industry, which runs funds that can invest outside public markets, has trillions of dollars in assets under management. In a world where bonds are paying next to nothing—and some have negative yields—many big investors are desperate for the higher returns PE managers seem to be able to squeeze from the markets.
Just one example of the carnage inflicted on the economy by private equity:

“PE-backed truckload carrier files bankruptcy. 339 trucks impacted”
[Freight Waves, via Naked Capitalism 9-30-19]
“In a November 2018 article, private equity firm KJM was described as being ‘unlike the others’ and ‘having daily involvement in the support functions of the business, allowing the company to implement growth initiatives and improve the customer experience.’ Unfortunately, for the 450 employees and stakeholders of Cold Carriers, a truckload roll-up assembled from four of KJMs acquisitions, the PE firm was not successful in running an asset-based truckload portfolio and filed Chapter 11 bankruptcy on Friday… KJM is a buyout shop, using a leveraged buyout model of acquisitions… In many of these models, the operating companies will be loaded up with debt and required to service it on behalf of the private equity group. It works in businesses that throw off significant amounts of cash flow, but rarely works in trucking due to the cash-flow cycles of the business. Private equity firms have a spotty track record in buying asset-based truckload carriers and making a profit.”
Dozens more examples are detailed by Josh Kosman is his 2012 book, The Buyout of America: How Private Equity Is Destroying Jobs and Killing the American Economy. Earlier this year, there were a number of stories of newspapers that had been destroyed by private equity. This week, it's a magazine: 

[The Nation, via Naked Capitalism 10-4-19] 
“Now Sports Illustrated is being taken from all of us in an ugly and ruthless manner. The organs of the magazine are being harvested by a private equity firm that is out for blood and taking no prisoners. Half the staff has been laid off by the new owners, a consortium of of vampiric thugs called The Maven Group. TheMaven cut a deal to license SI in June after Meredith Corporation, the magazine’s previous owner, sold the brand to Authentic Brands Group for about $110 million. According to Jacob Bogage of The Washington Post, ‘Close to 40 percent of the publication’s editorial staff is set to be replaced by an army of low-wage freelancers. The CEO of the SI’s ownership group calls it ‘awesome.” As Pulitzer Prize–winning writer David Maraniss put it, ‘The corporate dismemberment of Sports Illustrated is more than an unfortunate sports story; it’s an unforgivable crime against a living legacy of literate writing.’ After a chaotic Thursday morning during which the layoffs were expected and then delayed, followed by a plea from three-fourths of the staff to call this deal off, the ax came in the afternoon.”

Climate and environmental crises

[Vox EU, via The Big Picture 9-29-19]
...the Quarterly Journal of Economics, which is currently the most-cited journal in the field of economics, has never published an article on climate change.
The reason, of course, is that the economics profession is mostly financed by institutions and people who have profited richly from the status quo of an economy based on burning fossil fuels. 

[Scalawag, via Naked Capitalism 10-4-19]
“For 30 years, Georgia and Florida have been entangled in legal battles over water rights in the Apalachicola Chattahoochee Flint (ACF) river basin. The Chattahoochee River winds through Georgia before joining the Flint River near the Florida state line, and Florida argues its seafood industry — a critical part of its economy — has been crippled by the lack of water coming through the river basin to the coast, largely because of Georgia farmers’ irrigation practices. Florida sued Georgia in order to get it to cap its water use, but Georgia argues such limits would destroy its agricultural economy.”

GND - An opportunity too big to miss

Decarbonizing the US Economy: Pathways Towards a Green New Deal
[Roosevelt Institute, June 2019] (80 page pdf)
This is a war of ideologies over the role and purpose of government and its relationship to the economy. Human survival will be decided by the outcome. Neoliberals, conservatives, and libertarians are the problem to be overcome. Everything else is merely a question of scaling up to the industrial mobilization needed to produce and build a new world economy. From the Executive Summary:
The global community must achieve carbon neutrality by 2050 to avoid the most catastrophic consequences of a warming world. Action on this issue in the US, however, has been stunted by a lack of political will: For half of a century, American politics and policymaking have been guided by a set of economic assumptions that effectively rule out vigorous action by the public sector in response to problems such as climate change. Economists and policymakers have assumed that addressing the climate crisis must involve further sacrifices by those already falling behind—that the only way to reduce carbon emissions is through policies that would drastically lower living standards and economic growth. If taxes and regulation are effective at lowering carbon emissions, in this view, it is only at the cost of reducing the economy’s ability to meet other vital needs. A massive expansion of government spending in response to climate change, says this consensus view, is simply unaffordable; if seriously attempted, it would bankrupt the country. So climate change has remained, in our political discourse, one problem among others: Small, low-cost steps are taken, but a more comprehensive solution is dismissed as not worth the cost. 
In this report, we argue that this framing is wrong.
Understanding Why the Green New Deal Won’t Really Work
Gail Tverberg [Our Finite World, via Naked Capitalism 10-3-19]
Tverberg points out that to overcome the problems of weather and season not always being optimal for production of renewable energies, massive overcapacity needs to be built. (For example, look at the seasonal variation in the chart below.)  Her argument is correct only in the context of the present arrangements of capitalism driven by predatory finance. The obvious question when confronted with a physical problem such as this: How do we change the laws, incentives, and thinking of economic actors so as to solve it? Obviously, building overcapacity of wind and solar energy is not going to be profitable. So, perhaps a profit-driven model of free market capitalism is an obstacle to solving these particular problems? And if these particular problems are not solved....? 

The War on Working People

Who is squelching the rights of Uber drivers? Uber drivers are not independent contractors
[Economic Policy Institute, 9-29-19]
In a new EPI report, Lawrence Mishel and Celine McNicholas warn that Uber drivers and similar gig workers are effectively being robbed of the right to engage in collective action by a federal agency’s advice memo. The memo, by the National Labor Relations Board (NLRB) General Counsel’s office, misclassifies Uber drivers as independent contractors, claiming that drivers’ control over their work and their “entrepreneurial freedom” means they are not employees with labor rights. Mishel and McNicholas articulate the many ways that the memo misstates the realities of Uber driving. As just one example, Uber drivers have no opportunities to increase revenues by controlling prices or expanding their customer base.
60 Amazon Workers Walked Out Over Warehouse Working Conditions 
[Vice, via Naked Capitalism 10-5-19]
“GM Shutters All but Three NA Plants in Face of Sustained UAW Strike”
[Industry Week, via Naked Capitalism 10-3-19]
“The longest U.S.-wide strike in almost half a century at the automaker has lasted 16 days and cost GM $1 billion so far, according to JPMorgan analyst Ryan Brinkman. By the second week of the strike, most of GM’s North American plants were shut down. One important factory that remained operational, a truck plant in Silao, Mexico, stopped work Tuesday due to parts shortages, and its 6,000 employees are being temporarily laid off. The facility builds the Chevrolet Silverado and GMC Sierra pickups, which are all-new and just ramping up to full production.”
Baltimore to Maryland governor: Give us our transit funding back
[Railway Age 10-1-19]
Maryland Gov. Larry Hogan [Republican] is cutting transit spending in the state. Check that, he is moving transit funding in the state, and the city of Baltimore is not happy 

Information Age Dystopia

A Broken System Helped the FCC Kill Net Neutrality. It Afflicts the Whole Government. 
[Slate, via Naked Capitalism 10-4-19]
By the end of May, Vice found that comments in favor of the FCC repeal were being posted under the names of dead people. Further investigations found that comments in favor of repealing net neutrality were also coming from stolen identities, including those of lawmakers, like Oregon Sen. Jeff Merkley and Arizona Rep. Ruben Gallego, who had fake comments posted on their behalf advocating against net neutrality. Bots were posting comments. Hundreds of thousands of comments were coming in from Russian email addresses. Still, despite these improprieties, more than 99 percent of the organic comments—meaning the evidence points to them being from actual people and not prewritten—were found to be in favor of preserving net neutrality. 
Now, according to the new investigation from BuzzFeed, it appears that more than a million of the suspicious comments filed to the FCC were the product of a shady outside firm hired by political campaigns using people’s information stolen from a data breach... Pai has even refused to delete fraudulent comments on the net neutrality docket when asked by victims of identity theft to do so....

This isn’t only a problem at the FCC. The Department of Labor has had fraudulent comments filed, as have the Consumer Financial Protection Bureau, Federal Energy Regulatory Commission, and others. A Wall Street Journal investigation found thousands of fraudulent comments on agency websites. This problem is endemic, and it’s not being addressed.
Political Operatives Are Faking Voter Outrage With Millions Of Made-Up Comments To Benefit The Rich And Powerful [buzzfeednews, , via The Big Picture 10-5-19]
A fierce battle over the regulation of the internet was riddled with millions of fake comments in the most prolific known instance of political impersonation in US history.
Study: FCC’s Core Justification for Killing Net Neutrality Was False 
[Vice, via The Big Picture 10-2-19]
[ars technica, via Naked Capitalism 10-4-19]
A Consumer Reports analysis of cable bills found that companies add $37.11 per month in fees to the average bill, raising consumers' actual costs way above the advertised prices. The $37.11 "in fees created by the cable industry" add 24% to the average base price of $156.71 a month, Consumer Reports said. That doesn't include another $13.28 in government-related taxes and fees, which raise prices even higher. 
"With the proliferation of add-on fees, it's nearly impossible for consumers to find out the full cost of a cable package before they get locked into a contract—and cable companies count on this," Consumer Reports Senior Policy Counsel Jonathan Schwantes said. 
Consumer Reports analyzed 787 cable bills from 13 companies for a report released today.
France Set to Roll Out Nationwide Facial Recognition ID Program 
[Bloomberg, via Naked Capitalism 10-3-19]

How to Set Your Google Data to Self-Destruct 
[New York Times, via Naked Capitalism 10-4-19]

“America’s Electronic Voting System is Corrupted to the Core”
[Jennifer Cohn, via Naked Capitalism 9-30-19]
“Just two vendors — Election Systems & Software, LLC (ES&S) and Dominion Voting — account for eighty percent of US election equipment. Thus, corrupt insiders or foreign hackers could wreak havoc on elections throughout the United States by infiltrating either of these vendors.” • And it goes on from their, horrid detail after horrid detail. A must-read.

Health Care Crisis

The Backroom Deal That Could’ve Given Us Single-Payer 
[Portside, via Naked Capitalism 9-30-19]
From 2013, but still an extremely useful punch in the gut.

Trump’s Executive Order is a Backdoor Privatization of Medicare
Yves Smith [Originally published at Angry Bear, via Naked Capitalism 10-4-19]
The following is a statement from Nancy Altman, President of Social Security Works, on the Medicare executive order Donald Trump is signed today: 
“Medicare Advantage is a hustle designed to allow for-profit corporations to suck up public dollars. For years, Republicans have shoveled money into Medicare Advantage plans and allowed them to offer benefits that traditional Medicare is forbidden from covering. This is a ploy to push seniors into Medicare Advantage plans instead of traditional Medicare. Medicare Advantage is stealth privatization intended to undermine traditional Medicare, which is an effective, popular government program and therefore loathed by Republican ideologues. 
Under the Trump Administration, the thumb on the scale has turned into an entire arm. They’ve been flooding seniors’ inboxes with advertisements for Medicare Advantage. What these emails don’t mention is that Medicare Advantage plans often have narrow networks, restricting which doctors and hospitals patients are allowed to use. Worse, a recent government report found tt Medicare Advantage plans improperly deny care “in an attempt to increase their profits.” It’s no surprise that older, seniors are more likely to drop Medicare Advantage plans. 
Medicare Advantage plans are also a terrible waste of public dollars. They have overcharged Medicare by $30 billion in the past three years alone.
David Sirota [Bern Notice, via Naked Capitalism 10-2-19]  
“An October 2018 study published in Health Affairs found that stents — which are very common — cost up to six times more in the United States than in other industrialized countries with government-sponsored health care systems. The study found that one set of stents cost $670 in the United States “but only $120 and $130 in Germany and the U.K., respectively.” Another form of stent ‘remained about $1,000 more expensive in the U.S. than Germany.’ Why the price differential? In part, because America’s dysfunctional health care system involves a complex web of payers — rather than a single-payer Medicare for All system that can negotiate better prices.”

Restoring balance to the economy

“GEO Group Runs Out of Banks as 100% of Banking Partners Say ‘No’ to the Private Prison Sector”
[Forbes, via Naked Capitalism 10-2-19]
“All of the existing banking partners to private prison leader GEO Group have now officially committed to ending ties with the private prison and immigrant detention industry. These banks are JPMorgan Chase, Wells Fargo, Bank of America, SunTrust, BNP Paribas, Fifth Third Bancorp, Barclays, and PNC. This exodus comes in the wake of demands by grassroots activists — many under the banner of the #FamiliesBelongTogether coalition — shareholders, policymakers, and investors…. This shift represents an estimated shortfall of 87.4% of all future funding to the industry, which depends on these bank credit lines and loans to finance their day to day operations. Together, these banks commitments — alongside a federal judge’s block on the Trump administration’s plans to expand family detention this weekend, new policy initiatives such as California ending all contracts with private prisons, and Democratic primary candidates publicly raising the idea of a federal ban on for-profit incarceration — lead many to speculate a threat to the survival of the private prison industry all together. ”
NRA Was 'Foreign Asset' To Russia Ahead of 2016, New Senate Report Reveals
[NPR, via The Big Picture 9-30-19]

Creating new economic potential - science and technology

Opinion: Offshore wind is perfect for N.C.
[Coastland Times (Dare County, N.C.), via American Wind Energy Association 10-3-19]
North Carolina should pursue offshore wind because it can stimulate the economy and protect the environment while providing affordable and reliable power, writes Katharine Kollins, president of the Southeastern Wind Coalition. "A proactive approach involves exploring a regional collaboration with neighboring states to effectively compete with more aggressive states in the Northeast whose additional years of experience with the offshore wind industry currently gives them an edge," she writes.
[Bloomberg, via The Big Picture 10-1-19, and Naked Capitalism 10-3-19]
Great Ideas Are Growing Scarce. That’s Not So Great. Technological innovation is slowing, threatening not just growth but even our survival....  
Economists Nicholas Bloom, John Van Reenen and Heidi Williams have a new paper outlining possible ways to make that happen. They conclude that there are three policies that are fairly effective at spurring economically beneficial innovation: government funding, tax credits and skilled immigration.... 
During Ronald Reagan’s presidency, the federal government spent about 1.2% of the country’s gross domestic product on research; by Barack Obama’s second term that had fallen to about 0.8%. As Bloom et al. document, private research spending has risen to plug this gap. But private spending may be more product-focused and therefore less generally applicable, and it also probably spreads to the rest of the economy more slowly thanks to patent law and corporate protection of trade secrets. The U.S. also spends less of its total economy on research and development than German, Japan and South Korea:
In December 1791, Secretary of the Treasury Alexander Hamilton submitted to Congress a Report on Manufactures in which he noted that since most people are hesitant to adopt new ways of doing things, there must be strong government support for new ideas. This, of course, is the exact opposite of the laissez faire "free market" economics we've been (wrongly) taught is bedrock of the USA economy. Mariana Mazzucato , in her book The Entrepreneurial State, has rediscovered part of the actual history of the Hamiltonian methods that created an industrial superpower, though she fails to discuss Hamilton at length. Republican and conservatives attacks on "big government" have, in effect, been suicidal. This is a life and death struggle over the philosophy of government.

The Dark Side

This poll number proves how powerful Trump’s misinformation machine really is 
[CNN, via Naked Capitalism 10-3-19]
In a new national Monmouth University poll just four in 10 self-identified Republicans believe that Trump mentioned Biden in his call with Zelensky. 
Are. You. Kidding. Me. 
It is right there in the transcript that the WHITE HOUSE released of the call! 
....When you consider that the American President actually told people that "what you're seeing and what you're reading is not what's happening," this poll finding doesn't seem so unbelievable. The primary work of Trump's candidacy -- and his presidency -- has been to erode the idea that objective truth exists. This is an administration that said the words "alternative facts" with a straight face. And a President who has misled or lied more than 12,000 times in his tenure in the White House.
Trump is not the origin of this problem. The Republican Party and conservatives in general have been conditioning Americans not to believe truth for nearly half a century now. For example: "these tax cuts will pay for themselves by increasing economic growth and jobs."

The Americans who think a monarchy would solve their political problems 
[Guardian, via Naked Capitalism 10-3-19]

[Slate, via Naked Capitalism 10-3-19]


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