Week-end Wrap – Political Economy – May 9, 2021
by Tony Wikrent
Strategic Political Economy
"Economic Warfare: What Can World War One Tell us about 21st Century Conflicts?"
Jonathan Kirshner is a Professor of Political Science and International Studies at Boston College, and the Stephen and Barbara Friedman Professor of International Political Economy Emeritus in the Department of Government, Cornell University. By the late 1920s France had Europe’s most powerful army, much of the world’s gold, and was an active and aggressive practitioner of economic warfare. Within a decade, however, tragically, and even shamefully, France could barely be roused to rise to its own self-defense. The stark difference between 1930 and 1940 is attributable to a radical polarization of French politics and an embrace of “the age of unreason” that paralyzed the country’s foreign policy practice. Kirshner explains how the shocking six week military collapse in autumn 1939 was prefigured by the destruction of French democracy in the six years before the German invasion. After the 1936 political collapse, the French upper classes openly opposed new Socialist Prime Minister Leon Blum with the slogan, “Better Hitler than Blum.” The United States today appears on a similar course of decline.
Capitalism versus Democracy: Sam Seder interviews Prof. Timothy Kuhner
Georgia State University Law Professor Timothy K. Kuhner author of Capitalism v. Democracy: Money in Politics and the Free Market Constitution explains the history of campaign funding scandals, economic power and political exclusion, the choice between Milton Friedman and John Rawls in Buckley Valeo, why the right wing majority on the Supreme Court treats Thomas Paine the same as the Koch brothers, the function of the Supreme Court has been to protect private capital, restricting the scope of campaign finance regulation, bizarre free market ideology has run amok and campaign finance reform and overturning American oligarchy.
Predatory Finance
Financial Speculation Is About More Than GameStop Day Traders
David Dayen, May 4, 2021 [The American Prospect]
The real speculation is happening at the top of the market, through skyrocketing merger transactions and increases in the power of the biggest companies…. There is currently a frenzy of M&A activity, and while the SPAC craze did make this worse by increasing prices for private companies, deal making has continued even as SPACs tailed off. The first four months of 2021 saw $1.77 trillion in global transactions, higher than any other year in history. “It’s the busiest I’ve ever known it,” said one industry veteran to the Financial Times. Deals have surged among tech startups too, which in recent years has been a prelude to more mergers as those founders pursue an exit strategy. The Biden administration has provided little resistance to merger activity, which gives budding monopolists the signal that they will have no problems building their empire. In particular, private equity is thundering, with $1.6 trillion in spare capital to play with. Mega-deals of over $10 billion are rising, and major sales, like Apollo Global Management’s purchase of AOL and Yahoo from Verizon, have consummated in recent days.
We know the dangers of this rampant speculation: more layoffs as mergers create “synergies,” more companies forced to take on debt and inevitably hemorrhage workers in the process, more communities hollowed out with the loss of key services like hospitals, as private equity firms value their own profit extraction over viable businesses. This is a far more insidious form of financial speculation than someone YOLO-trading a couple hundred bucks for fun.
Wall Street margin debt surges to record high
[World Socialist Web Site, via Mike Norman Economics 5-6-2021]
By Pam Martens and Russ Martens, May 7, 2021 [Wall Street on Parade]
The Biden Transition and the Fight for Real Hope and Change This Time
“The American Rescue Plan as Economic Theory”
[J.W. Mason, via Naked Capitalism Water Cooler 5-5-21]
The size and design of ARPA is a more consequential rejection of this [prevailing macroeconomic] catechism. Without being described as such, it’s a decisive recognition of half a dozen points that those of us on the left side of the macroeconomic debate have been making for years. 1. The official unemployment rate is an unreliable guide to the true degree of labor market slack, all the time and especially in downturns. … n… 2. The balance of macroeconomic risks is not symmetrical. We don’t live in an economy that fluctuates around a long-term growth path, but one that periodically falls into recessions or depressions. These downturns are a distinct category of events, not a random “shock” to production or desired spending….. 3. The existence of hysteresis is one important reason that demand shortfalls are much more costly than overshooting…. 4. A full employment or high pressure economy has benefits that go well beyond the direct benefits of higher incomes and output…. 5. Public debt doesn’t matter. Maybe I missed it, but as far as I can tell, in the push for the Rescue Plan neither the administration nor the Congressional leadership made even a gesture toward deficit reduction, not even a pro forma comment that it might be desirable in principle or in the indefinite long run…. 6. Work incentives don’t matter.”
Predatory Capitalism in the Time of COVID19
GOP governors slash jobless aid to try to force more Americans to return to work
[Washington Post, May 8, 2021]
Arkansas, Montana and South Carolina have acted in recent days to end extra $300 weekly payments to unemployed Americans, even as the Biden administration maintains generous benefits are not deterring people from seeking work
Finding it Hard to Hire? Try Raising Your Wages
Barry Ritholtz, May 6, 2021 [The Big Picture]
If the Demand for workers is there, why hasn’t the supply caught up yet? The short answer is Price. Employers have been reluctant to raise wages. This is classic problem where buyers and sellers get anchored on some past level, failing to keep up with the realities of markets….
After several decades of lagging prices for low wage labor, I believe what we are witnessing is something very similar. THERE IS NO MORE LABOR FOR SALE AT $7/HOUR; so the price moves up. Once it moves up high enough so that supply matches with demand, you get a stabilization at that level.
In this morning’s reads was this Pittsburgh Business Times on a few stores that cracked the code for finding workers: The TL:DR was they doubled their starting wages from $7.25 an hour to $15 an hour. Instead of getting a few applicants per position, half of whom wouldn’t show for the interview, they got 1,000s: “It was instant, overnight. We got thousands of applications that poured in. [And, it led to getting] quality work from people when they know that they are going to make a good paycheck.”
….It has taken a while for this to reach a point where all of these forces have made their way down the economic strata to the minimum wage cohort. That is what is going on right now. $7 an hour is so yesterday; $10 hour seems cheap but its actually expensive once you factor in poor candidates and high turnover rates.
Wages have lagged just about every measure over the past 40 years: CPI Inflation, Health care and education costs, productivity, corporate profits, C Suite compensation, even the number of billionaires seems to be growing faster than wages.
Want to hire qualified candidates who will fill jobs, generate revenue, create profits, and lower your overall cost structure? Perhaps you should consider offering higher starting wages.
Amid labor shortage, these Pittsburgh companies are filling open roles. Here's how.
[Pittsburgh Business Times, via The Big Picture 5-5-2021]
"It was instant, overnight. We got thousands of applications that poured in," Maya Johnson, general manager of Klavon's Ice Cream Parlor in the Strip District, said. Here's how she and other Pittsburgh-area companies are getting workers in the door and onto payrolls.
Is Unemployment Insurance Behind the Fast-Food Labor Shortage?
[The American Prospect, May 5, 2021]
In reality, it’s the low pay and abysmal working conditions.
Benjamin Franklin, 1783:
"....To desire to keep down the rate of wages... is to seek to render the citizens of a state miserable... it is, at most, attempting to enrich a few merchants by impoverishing the body of the nation; it is taking the part of the stronger in that contest, already so unequal, between the man who can pay wages, and him who is under the necessity of receiving them; it is, in one word, to forget, that the object of every political society ought to be the happiness of the largest number.... The low rate of wages, then, is not the real cause of the advantages of commerce between one nation and another; but it is one of the greatest evils of political communities. -- “Reflections on the Augmentation of Wages, Which Will Be Occasioned in Europe by the American Revolution”
[New Wayland 5-8-2021, via Mike Norman Economics]
Here is that well known pinko commie Henry Ford on the nature of wages from his autobiography:
I have learned through the years a good deal about wages. I believe in the first place that, all other considerations aside, our own sales depend in a measure upon the wages we pay. If we can distribute high wages, then that money is going to be spent and it will serve to make storekeepers and distributors and manufacturers and workers in other lines more prosperous and their prosperity will be reflected in our sales. Country-wide high wages spell country-wide prosperity, provided, however, the higher wages are paid for higher production. Paying high wages and lowering production is starting down the incline toward dull business.
There is nothing to running a business by custom—to saying: “I pay the going rate of wages.” The same man would not so easily say: “I have nothing better or cheaper to sell than any one has.” No manufacturer in his right mind would contend that buying only the cheapest materials is the way to make certain of manufacturing the best article. Then why do we hear so much talk about the “liquidation of labour” and the benefits that will flow to the country from cutting wages—which means only the cutting of buying power and the curtailing of the home market? What good is industry if it be so unskillfully managed as not to return a living to everyone concerned? No question is more important than that of wages—most of the people of the country live on wages. The scale of their living—the rate of their wages—determines the prosperity of the country.
Climate and environmental crises
Is the $1 Trillion Coastal Housing Market a Future Financial Crisis?
[UCLA Anderson Review, via The Big Picture 5-7-2021]
A decade or two from now — perhaps much sooner — we may be parsing the early signs of the Coastal Housing Crisis, brought on by climate change and its rising seas. If present trends continue, that crisis would also involve soaring home prices and mortgage debt in the most flood-vulnerable zones, and regular, if not catastrophic, flooding that makes once-prized areas undesirable, if not unlivable.
The (Anti)Federalist Society Infestation of the Courts
Federal judge vacates CDC’s nationwide eviction moratorium
[Washington Post, May 5, 2021]
A federal judge in Washington, D.C., on Wednesday ruled that the Centers for Disease Control and Prevention overstepped its legal authority by issuing a nationwide eviction moratorium, a ruling that could affect millions of struggling Americans. In a 20-page order, U.S. District Judge Dabney Friedrich vacated the CDC order, first put in place during the coronavirus pandemic under the Trump administration and now set to expire June 30.
The underlying problem, being totally ignored, is that judges who have been trained in the conservative “Law and Economics” doctrine are deeply hostile to any notion that the community also has rights, such as preserving public health. See Property, Liberty, and the Rights of the Community: Lessons from Munn v. Illinois, by Paul Kens [Buffalo Public Interest Law Journal, Volume 30 (2011).
Stripping the Courts’ Jurisdiction
[The American Prospect, May 5, 2021]
All of which should lead us to ask why nine unelected judges are given the power to make so many important decisions in the first place. Most Americans perceive the Court as an integral part of our democracy. But in reality, the relationship of judges to democracy is more complicated, and at times, antagonistic.
By enforcing constitutional rules, judicial review helps to smooth out democracy’s rough edges. But when they overturn democratically enacted laws, judges also shrink our capacity to make decisions for ourselves. And if judges overdo it, judicial review can preempt necessary democratic development. At the extreme, instead of making democratic life more decent and predictable, interventionist courts can spark long-lasting and intense conflict….
But the deepest threat that judicial review poses for democracy lies ahead of us. Republicans have built their recent political strategy around stocking the federal bench with right-wing partisans. And they’ve done so for a reason: Demographic change is making it increasingly difficult for the GOP to win elections, but a conservative judiciary can stand in the way of much of what Democrats and a majority of Americans hope to accomplish. The conservative Supreme Court would likely intervene, for example, to limit attempts to address global warming, to expand health care, to enforce rational public-health laws, or to tax the very wealthy. In all these cases, the Supreme Court would not be enforcing any clear text in the Constitution. It would be exercising raw power.
For any committed small-d democrat, this sort of politicized judging is unacceptable. And opposition is starting to build: We’ve seen a slew of recent court reform proposals, including judicial term limits, Supreme Court supermajority voting requirements, and, perhaps most prominently, court-packing.
The Dark Side
“Trump Spawned a New Group of Mega-Donors Who Now Hold Sway Over the GOP’s Future”
[ProPublica, via Naked Capitalism Water Cooler 5-6-21]
“ProPublica identified 29 people and couples who increased their political contributions at least tenfold since 2015, based on an analysis of Federal Election Commission records compiled by the Center for Responsive Politics. The donors in the table below gave at least $1 million to Trump and the GOP after previously having spent less than $1 million total. Most of the donations went to super PACs supporting Trump or to the Trump Victory joint fundraising vehicle that spread the money among his campaign and party committees…. several of the biggest new donors — banking scion Timothy Mellon and his wife, Patricia; Marvel Entertainment chairman Ike Perlmutter and his wife, Laura; and Dallas pipeline billionaire Kelcy Warren and his wife, Amy — now rank among such better-known, longer-running donors as Blackstone CEO Stephen Schwarzman, professional wrestling founders Linda and Vince McMahon, and casino mogul Steve Wynn. For some new donors, the sudden increase in their political contributions may have as much to do with newly acquired wealth as with the ascent of Trump and his grip on the Republican Party. But others inherited fortunes or made them long ago, yet never made a splash in campaign finance records until now. Several of the donors have not spoken publicly about their support for Trump or have not been extensively covered before. ProPublica requested interviews with everyone named in this article and included comments from those who responded.” • With table of the 29 (sadly, not easy to excerpt or screenshot). These are, I think, the elephants in the room.
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