When a home is sold under foreclosure, the lender usually winds up buying it for the mortgage balance. If the value of the home exceeds the debt, the lender can sell it at a profit, but when the housing market is down, the lender must sell at a loss, that is, if it can find a buyer. As every JP reader knows, investors in mortgages and securities based on mortgages have seen their investments lose much of their value in the last six months. Since most of these investors are either very wealthy individuals or institutions with political clout, Congress is struggling to find ways to keep them solvent.
There is also some talk of helping homeowners threatened by foreclosure.
This crisis was predictable long ago. So was the Savings & Loan Crisis, the Dot Com Crisis, the stock market collapse, and the Asian meltdown. The problem each time was that no one who was able was willing to put a damper on what anyone with a grain of sense could see was a bubble — Congress, the Federal Reserve, the Treasury Department, the SEC, or even the mainstream media. Mainstream economists are just now noticing the problem, it appears. Dean Baker, of the Center for Economic and Policy Research, goes beyond sarcasm in criticizing an article in the Washington Post:
The [Washington] Post bizarrely describes a scenario in which Greenspan "puzzled over one piece of data a Fed employee showed him in his final weeks. A trade publication reported that the subprime mortgages had ballooned to 20 percent of all loans, triple the level of a few years earlier."
If this is true, then it implies an incredible level of incompetence on Greenspan's part. The rise in subprime lending was not some obscure fact known only to a privileged few. It was a widely noted development in the housing market over the years 2003-2005. If Greenspan was just made aware of this growth as in the last month of his tenure in January of 2006, then he was incredibly negligent in performing his job.
The growth in housing prices had been the central fuel of the U.S. economy in the recovery following the 2001 recession. Greenspan had been an eager proponent of housing dismissing the concerns of those who warned of a housing bubble. If he did not even know of the surge in subprime lending, then it is difficult to imagine any possible basis on which he could have ruled out the existence of a bubble in the housing market. (The article says that Greenspan "did not recall" whether he mentioned the growth in subprime lending to Bernanke. If Bernanke, did not already know about the growth in subprime, then he is not competent to be chairman of the Fed.)
In short, this article does more to conceal than reveal the developments that led to the current housing crash. There were no deep mysteries that had to be uncovered. House prices had gotten badly out of line with fundamentals by 2002. This was possible for any competent analyst to recognize just as it was possible to recognize the stock bubble by 1998. Unfortunately, the Post and the rest of the media relied almost exclusively on analysts who somehow failed to recognize the housing (and stock) bubbles or worse, had a direct interest in perpetuating these bubbles. Even after the fact, the Post is still choosing to rely almost exclusively on those who failed to see the bubble, rather than the experts who foresaw and warned of the problems ahead.
Dean Baker: The Post Misses the Housing Bubble Yet Again
We have seen all this before. Bubbles and busts have been part of the American experience since the time of Andrew Jackson. Economic systems structured around debt leverage are inherently unstable. A debt doesn't automatically change when the situation of the debtor changes; debt is inflexible, whereas income, equity, and value are at the mercy of the market. Debts are like shoals; inconsequential when the water is high, but deadly when just beneath the surface.
Now that the weaknesses of the mortgage industry are becoming apparent, I would invite readers with imagination to brainstorm in the comments a different system of providing housing to the vast majority of the public. Given the power of the financial sector, it is unlikely that radical restructuring of home financing would have a chance of becoming a reality any time soon, but, given an extended crisis, who knows how many minds might be open to something fundamentally different?
The problem, as conceived by the economists, the media, and government, is how to keep the present system going.
The question we ought to be asking is how we can house people as cheaply and comfortably as possible without pauperizing them, and at the same time giving them the maximum freedom to choose where to live and what to live in.
There has got to be a better way.
Since the '30s, government policy has had a profound effect upon what kind of homes were built, where they were built and how they were paid for. There is no reason why that policy cannot be altered for beneficial results.
For what it's worth, here's a proposal: The government lends you up to, say $150,000, on a house valued at no more than $175,000, interest-free, with equal monthly payments for 20 years. If you sell it at a profit, you have to put it into another house or the government gets to recoup the foregone interest out of the equity. After age 65 you get to keep the equity. You would still have to qualify for the loan, however, and a house whose price exceeds the $175,000 maximum (indexed for inflation) + any equity you might have accumulated in the sale of your previous house, would not qualify. If you want a MacMansion, you would still have to go to the bank and pay the interest on the entire amount financed.
Here's another idea: Finance mortgages the traditional way, but limit annual total payments to a fixed percentage of the homeowner's gross adjusted income for the year (with a reasonable floor to protect the lender), with any shortfall subtracted from interest and automatically forgiven. That way, the lender assumes some of the risk of declining wages and rising unemployment.
Neither of these suggestions may turn out to be practical or even possible, but I am offering them in an effort to stimulate some creative thought about our way of housing Americans.
It would be desirable, in my opinion, to eliminate debt completely from housing transactions, but I'm not sure that is possible. For many years, a home has been the nest egg for the middle class, subsidized by the mortgage interest deduction and capital gains tax break, and fed by the rising value of residential real estate. Now that many nest eggs are vanishing, it behooves us to examine the laying of nest eggs. A speculative nest egg is about as secure as Humpty-Dumpty, and just as likely as Humpty-Dumpty to be put back together again after it goes.
Of course, it is entirely possible that the bursting of the housing bubble and the "great fall of the offwall entailed at such short notice," is merely another phase of the great campaign to fleece the middle class of its remaining wealth, a campaign that has been effectively waged since Reagan became president.
Put your out-of-the-box ideas for housing in the comments.
The following is a talk Lovins made in 2005.
1. Imposing additional taxes on the U.S. oil and gas industry undermines the goal of providing stable and cost-effective supplies of energy for consumers and discourages the enormous capital investments needed to meet the nation's growing energy demands. The House energy bill would reduce incentives to develop domestic energy resources and would discourage investment in new refinery capacity–thereby increasing our dependence on foreign suppliers.
2. We haven't built a new refinery since 1976, in part because of "not-in-my-backyard" attitudes and costly environmental regulations. As a result, U.S. oil refining capacity is nearly 4 million barrels a day below current consumer demand, a shortfall that must be met by importing petroleum products.
3. The absurd windfall profits tax on oil companies imposed during the Carter administration reduced U.S. oil production, cost thousands of jobs and let to an increase in imports.
The very heart of the argument for Capitalism is that the system rewards those who create wealth, as opposed to systems that merely siphon off wealth from the many for the benefit of the few. There is no other moral argument that justifies the enormous concentration of wealth and power that characterizes the modern capitalistic system.
The record profits reaped by Exxon, BP and the other major oil producers, however, have not come about through their own efforts (other than perhaps backing George W. Bush and his Iraq invasion), but through the increase in the price of oil. Speculative profits amount to a transfer of wealth from someone—in this case, the purchaser of petroleum products—to the speculator, who has created no wealth in return. Translated into simple terms, we pay more at the pump and Exxon makes higher profits without lifting a corporate finger. No capital investments are necessary, no sacrifice required. Just rake in the dough and contribute to friendly politicians who will let you keep that dough.
Keeping this in mind, we first examine points 1 and 3. I happened to work for a small independent oil company during the time that the windfall profits tax was in effect. The tax was an effort to recoup some of the windfall profits of oil producers when OPEC raised the price of oil in the late 1970s. The statute made a distinction between existing production (old oil) and production from newly-drilled wells (new oil). Only the old oil was subject to the windfall profits tax.
The result was an explosion of oil exploration in the U.S.A. During the early '80s the most valuable piece of property you could possibly own was an oil rig, because the demand for oil rigs was astronomical. The oil companies were spending money like drunken sailors and the wealth seemed inexhaustible.
Then it all went away.
Shughart indirectly blames the WFT for the collapse of the domestic oil industry in the early '80s, but that signal honor must go to Ronald Reagan, who cut a deal with the Saudis to increase production and lower the price of oil close to $10/bbl. All the independent oil producers went out of business in short order, including the company I worked for. It was good for the economy overall, but it made domestic exploration unprofitable. Thousands of producing wells were plugged and abandoned in the '80s. Oil at $10/bbl rendered the WFT irrelevant and inoperative. It expired by its own terms shortly thereafter. It had no effect whatever on exploration.
With respect to point 2, the investment argument, stark reality refutes Dr. Schughart. If it had been profitable to construct refineries, then the major oil companies would have been building them all along. They have never lacked the resources to do whatever they needed in that respect. The fact that they have not been building, are not now building, nor are they planning to build new refineries any time soon is a dramatic demonstration that they are satisfied with their capacity as it now stands. The environmental regulations that prevent them from operating unsafe and unhealthy workplaces and poisoning the groundwater and air are neither onerous nor unreasonable. In planning and operating new refineries they would merely have to pay costs that were formerly paid by their employes, their neighbors and the environment.
Most likely, the petroleum industry has not constructed new refineries because world oil production has either peaked or will soon peak, and thus additional refining capacity will never be needed. Considering the 5-10 years it takes to bring a refinery on-line from the planning stage, it would be insane to begin the process now, no matter how much money is available to invest.
Dr. Shugart's curriculum vitae reveals that he is an apologist for powerful corporations, with ties to the right-wing Heartland Institute, George Mason University, and a number of other pro-corporate organizations. The ideological threads that run through all these institutions are the sanctity of private property, corporate profits and the highly-managed and controlled industrial/financial system whose plutocratic nature is concealed by the term "market economy."
Always beware of economists that seek to justify the powerful acquiring more power and the wealthy acquiring more wealth.
This is how the system works. Big players can, and do, put the Federal Reserve over a barrel. The Fed doesn't like it, but what can it do? Not to bail, when the markets implode, isn't an option. Too many innocents would get massacred on the way by.
Sordid necessity thus killed Bernanke's "inflation targeting" approach to monetary policy. And this leaves the true nature of Fed policy plainly exposed. In normal times, a Fed chair can pretend to follow his academic formulae. But once the air-raid sirens sound, policy isn't made on Constitution Avenue at all. It's made on Wall Street, and don't let us forget it.
Wall Street likes volatility. And so we have a system based on credit bubbles, one after the other. The information-technology bubble from the late nineties to 2001 brought us full employment and budget surpluses, but it could not be sustained. The housing bubble has kept us going ever since. It too was bringing us high employment and falling budget deficits. And it too could not be sustained.
I suppose this is one of the reasons that economics is not a required subject, either in high school or college. Most people, even if taught badly, would know that this is a shell game designed to fleece one more time the great unwashed, as well as most of the washed.
These con games will continue until the economy completely collapses or we restructure the financial system. Don't bet on the latter.
...I believe that greed and competition are not a result of immutable human temperament; I have come to the conclusion that greed and fear of scarcity are in fact being continuously created and amplified as a direct result of the kind of money we are using. For example, we can produce more than enough food to feed everybody, and there is definitely enough work for everybody in the world, but there is clearly not enough money to pay for it all. The scarcity is in our national currencies. In fact, the job of central banks is to create and maintain that currency scarcity. The direct consequence is that we have to fight with each other in order to survive.
Lietaer, a former Belgian banker instrumental in the establishment of the Euro and a recognized world authority on money, believes that people should create their own currencies—he calls them "complementary currencies"—as a part of the answer.
The problem with our current system is not hard to define: There is not enough money in circulation to mediate the optimal number of transactions in our society and world. Put more simply, work needs to be done and there are workers needing work, and the only thing keeping them from doing the work is the lack of money. Lietaer believes that people can overcome many of these problems by creating their own currencies that operate alongside the official money system. In his book, The Future of Money, he makes a powerful argument for complementary currencies based on actual human experience, citing historical examples from ancient Egypt to the present time.
Unfortunately, Amazon.com lists the book as "unavailable," but it is available on amazon.co.uk, which will ship to the U.S.
It is time to bring some of the most brilliant minds to bear upon the subject of our monetary/financial system and how it may be changed to reverse its mindless rush towards ecological, political and social disaster for the whole Earth. In order to make our civilization sustainable, people must be rewarded for actions that promote sustainability. The system now rewards people for exactly the opposite behavior. Classical economics, with its one-dimensional conception of humankind as homo acquisitivus, has become no more than an elaborate mathematical justification for even more destructive corporate and national behavior, if such a thing were possible.
Having been immersed all our lives in the world of fiat currencies, it is hard for us to imagine something different. It is even more difficult, if not impossible, to comprehend how the very nature of the money we earn, spend, and think about so much of the time contributes to many, if not most, of the world's major problems. But Lietaer shows that is indeed the case and it doesn't have to be that way. We humans created money a certain way and we can change it. Most professional economists, unfortunately, will be of little help; they have too much stake in existing theory and their paymasters have too much at stake in keeping the present system going as long as possible. Solving the current crisis will require leaders with the openness and breadth of intelligence of an Adam Smith, and they are rare in any age. Let us hope.
When was a kid in the '50s, gated communities were unknown in Jackson and the very idea of building a suburban McMansion 30 or 45 minutes out of town in a walled enclosure was not only unthinkable, but would have been regarded as contemptible. Why would anyone other than a farmer or a hermit choose to isolate himself (or especially herself) from the life of the city, the very word from which the term "civilization" is derived?
The answer stares us in the face. We have convinced ourselves that we are helpless in the face of economic laws that dictate constantly increasing inequality. They cannot be resisted, because, like a Calvinistic deity that foreordained from the beginning of creation who is to be damned and who is to be saved by some unknowable divine decision-making process, we believe that the almighty market has declared there must be winners and losers and the best a person can do is to try to be a winner by whatever means are available, and the devil take the hindmost.
From the time of the New Deal until the conservative counter-revolution in the '70s and '80s, most Americans saw through this market theology as so much plutocratic claptrap. They would not had changed their minds, either, had the right-wing forces, through their bogus think-tanks and their increasing control over a rapidly consolidating mass media, not, in effect, edited reality, so that news that did not support the conservative agenda simply ceased to exist in the public mind. The dominance of television news, to which superficiality comes naturally, made the task far easier than it would have been in print media alone.
Aside from the almost incontrovertible fact that these remote, gated communities will not survive in an energy-scarce world, there are other policy considerations that make these communities highly undesirable:
1. They are energy-intensive in many ways: obviously the long commute, either to work or shop requires a lot of gasoline. Walking anywhere is simply out of the question. In addition, these homes are large, single family dwellings that must be heated and cooled. Sizable lawns must be fertilized and watered. Because they are usually located away from lower-income areas, their "help" must drive to work, often over long distances. I read recently that workers in Aspen, Colorado have to commute 50-60 miles because they cannot afford housing any closer to their jobs. None of this is going to work when oil becomes $150/bbl or $250/bbl. These communities will become foreclosure cites when that happens.
2. It is bad for society when the rich and powerful are able to isolate themselves from even the middle class. In the case of Jackson, it is obvious that the leadership vacuum is harming not only the city itself, but the entire metropolitan area. A large piece of Jackson's leadership has moved into gated communities in Madison and Rankin counties, and even though it continues to conduct business and exert influence over city policy, it is mostly insulated from the effects of those policies upon the citizens of Jackson. When the rich and powerful must live amongst the hoi polloi and rub elbows with one and all, they tend to be more aware of this relationship and consequently more concerned for the general welfare.
3. Taxes. It has always been a mystery to me why people who benefit the most from the wealth generated by the community and who are most able to afford paying taxes are the most resistant to giving back their fair share to the community. The entire history of English property law from the Norman conquest until the modern era can largely be explained as the efforts of the nobility to avoid paying feudal land taxes to the Crown. The Republican Party since 1980 often seems to have had no other significant economic policies than cutting taxes for the wealthy and lowering wages for everyone else through union-busting. Gated communities are invariably built in areas with low property taxes. They therefore represent a reduction of the urban tax base and an increase in the suburban (or more likely, exurban) tax base. In order to provide municipal services to a population that cannot afford their own private security guards and to pay for the infrastructure that modern cities must have, cities must raise taxes, which increasingly drives out more of the well-to-do. It's a vicious circle.
Because of a leadership vacuum--especially a vacuum of talented leadership that experiences what it's like to actually live in a Jackson neighborhood--the city is faced with a scarcity from which all other scarcities spring: a scarcity of imagination.
Clearly, there exists a crying need for new ideas about how to make cities work. Increasingly higher energy prices will force most exurbanites and many suburbanites to move closer to their work, thus raising the cost of housing in the city and putting pressure on the poor to find affordable housing in a rapidly-gentrifying city. Will the poor then gravitate to the suburbs, where there is no public transportation worth speaking of and, because of low-density development, where public transportation will be prohibitively expensive? The prospects do not look good.
Committees and blue-ribbon commissions have met and made recommendations world without end, and nothing happens. Societies die when they lose their imagination, when they cannot change because change is blocked by the forces that have grown fat on the status quo and would lose their privileged position if what is needed to be done were done.
Have we reached that point in our society?
We will probably know the answer to that question in the next few years.
Open Democracy: A Tale of Two Towns
Congress at the moment seems to favor low-skill, low-wage immigrants and to disfavor the more intelligent and skilled ones, on the grounds that the high-level ones tend to displace Americans who would otherwise be holding those high-level tech jobs. There is some truth in the latter accusation, as has been discussed previously here and here. Smart, highly trained people, however, create wealth. We ultimately gain and their foresaken homelands ultimately lose. It seems that other nations have learned this lesson and our leaders have forgotten it:
The number of outstanding persons in a multitude of fields who have come to this land is simply staggering. To name some of the 20th Century's greatest merely scratches the surface: Einstein, Stravinsky, Von Neuman, Fermi, Strauss, Arendt, Tillich, Heifetz, Toscanini, Nabokov .... the list is endless.While the United States perversely tries to corner the market in uneducated hotel maids and tomato harvesters, other industrial democracies are reshaping their immigration policies to invite the skilled immigrants that we turn away. Britain is following Australia and Canada in adopting a points system that gives higher scores to skilled immigrants with advanced education and proficiency in English. British, Canadian, German and even French universities are overflowing in undergraduate and graduate enrollment as they absorb the foreign talent that America is repelling.
Even now, the Mississippi Symphony would be almost fatally crippled without its Polish, Russian, Lithuanian, Moldavian, Chinese, and Japanese musicians who have helped it become an orchestra of which the city and state can be proud.
Talented, intelligent people give to society far more than they take. Congress should be mindful of this when it formulates our nation's immigration policies.
Last night Bill Moyers interviewed John MacArthur, author of The Selling of Free Trade and critic of NAFTA and other free trade agreements, who believes that the new free trade agreement in the works is no more or less than an attempt by the Democratic leadership to attract political contributions from Wall Street by offering something that the large manufacturing and retailing corporations want: fewer restraints on employing overseas labor to undercut jobs and wages in the U.S. The bill has not reached Congress, but the big players, such as the National Chamber of Commerce and the National Association of Manufacturers, have already endorsed it, which means that it bodes ill for the American worker.
Expect our Republican senators and representatives to vote for it automatically. Unless pushed, Gene Taylor will vote for it, just as he voted for the corrupt Bankruptcy Bill. Bennie Thompson will probably do the right thing, especially if he knows that Mississippians are watching.
Bill Moyers Journal: Trade Talks
Biofuels are being widely acclaimed as the solution to the energy crisis.
There's one catch, however. Crops grown for fuel require the same land as food crops, and given the increasing demand for fuel and current world population trends, the transformation of crop lands to fuel lands will inevitably collide with the need for food, a development which has ominous implications for the vast majority of the world's peoples who barely have enough to eat even now. The price of corn has already doubled since last year, principally due to the demand for biofuel.
There's even a bigger catch, however: It takes energy to produce biofuels. In the case of ethanol, the cost of fertilization, harvesting, fermentation and distillation require so much energy input that gasohol, for example, a popular blend of gasoline and alcohol, must be subsidized through tax breaks to make its production possible.
So how does Fidel Castro, communist dictator of Cuba, come into the picture?
Simple. Since the fall of the Soviet Union, and thus the cessation of its oil subsidies to Cuba, the latter has been forced to adapt to an energy-poor and petroleum-poor (and thus fertilizer-poor) economy that likely foreshadows our own future here in the U.S. Considering the unremitting hostility of the U.S. to the Castro regime and the resulting long-term economic sanctions imposed by the U. S. government on Cuba, the Cuban people have done admirably well under the circumstances.
Via Stan Goff's Feral Scholar, Casto, who has earned the right to comment upon such matters, has written a thoughtful paper based on the writings of Atilio Borón, a prestigious leftist intellectual who until recently headed the Latin American Council of Social Sciences (CLACSO), on the pitfalls of biofuels. He spares no words:
Read the paper and the comments, many of which are very insightful. Castro may be an odious dictator, but he is no fool and he is now approaching the end of his life, a time when persons are supposed to become mellower and wiser.Transforming food into fuels is a monstrosity.
Capitalism is preparing to perpetrate a massive euthanasia on the poor, and particularly on the poor of the South, since it is there that the greatest reserves of the earth’s biomass required to produce biofuels are found. Regardless of numerous official statements assuring that this is not a choice between food and fuel, reality shows that this, and no other, is exactly the alternative: either the land is used to produce food or to produce biofuels.
We Can’t Have Our Ethanol and Eat It Too — Castro on Biofuels
Update (5/21/2007): The Wall Street Journal is running an article (subscribers only) today on the problems pig farmers are having with the rising cost of corn. Many are feeding their pigs trail mix. Even the pig farmers who grow feed corn are selling their corn to ethanol producers and using discarded trimmings from the food industry. The article points out that the 51-cent tax credit paid to producers that blend ethanol and gasoline has encouraged this trend. Like many other subsidies that indirectly benefit farmers, it seems to me that we would be better off simply paying the money to the farmers.
On the other hand, the entire corn, livestock and gasahol carnival is an economic, agricultural, environmental and public health disaster. Economic, because the market is distorted by unwise subsidies and fuel addiction on the part of the public; agricultural, because corn erodes the topsoil, especially when it is the exclusive crop; environmental because of the wastes from livestock farming and a host of other pollutants introduced into the environment, including carbon; finally, the excessive consumption of meat is a major factor in cardiovascular diseases. This is merely a sample of the hidden costs of our multiple addictions and their enabling by our industrial-financial system.
And you heard it right; any sane economic theory would consider addiction to be a form of market failure.
Palley's analysis make sense. When you raise the average person's income, he will usually spend it to raise his standard of living. Not so in the case of the wealthy, who already have a high standard of living. The wealthy invest their additional income, principally in stock and hard assets that are likely to increase in value. They have little incentive to purchase bonds, since interest rates are so low. The predictable result is the bidding up of asset prices. Thus the recent massive tax cuts for the wealthy have had little positive effect on the lower 90% of the American people, while they have maintained high stock values in the face of an increasingly weak economy. The last time this happened was in the 1920s.
To this amateur economist, Palley's analysis bodes ill for most of the world's peoples, with rising inequality leading to increased hopelessness among the overwhelming majority owning no substantial assets which can be collateralized and thus with no access to capital. The growing gulf between the fabulously wealthy 1% and the rest of us who are experiencing more and more economic stress (or worse), increases the likelihood of political and economic instability, with all the pain and suffering that invariably accompany them.The “supply-side” collateral shortage hypothesis and asset “demand-side” hypothesis have radically different public policy implications. The former views asset price bubbles as largely benevolent, reflecting the market’s attempt to solve collateral shortages. Policy may even wish to encourage bubbles by further lowering interest rates, thereby increasing asset values and collateral.
The latter sees things very differently. The rise in asset prices reflects significant adverse trends regarding rising income inequality and shifts in income distribution to profits. It also reflects the distorting effect of excessive export-led growth and weak global demand that have driven low interest rates. Furthermore, asset price inflation aggravates income inequality since it is tantamount to a terms-of-trade improvement for the wealthy, whose assets are now worth more. Consequently, workers must give over more to acquire retirement assets, and they are also vulnerable to price declines. Lastly, asset price inflation creates a form of economic lock-in since attempts to alter income distribution or taxes can undermine asset prices, potentially causing financial crisis. This is particularly so if asset purchases have been credit financed.
Finally, the collateral shortage hypothesis camouflages a regressive political economy. Nobel laureate Joseph Stiglitz’s work on credit rationing shows how economies can be constrained by lack of collateral that limits access to credit. This is a real problem in developing countries where wealth inequality means that most have no collateral, inhibiting their entrepreneurial possibilities. The asset boom - collateral shortage hypothesis implicitly puts this insight in the service of developing country elites who own most of the wealth, encouraging policies that further raise the value of their assets. Look for this idea to soon show up at the IMF and World Bank.
Not a pretty picture. Look around and see for yourself if Pally is on the wrong track.
World Asset Prices: What’s Really Going on?
The object of elites everywhere is to exploit everyone else as much as possible without stirring up rebellion. Mississippi elites have performed this balancing act for well over a hundred years using techniques of social control that are so familiar as to be almost invisible to its inhabitants, much like water is invisible to fish.
The tried and proven method of the American South has been racism, a con game that sets blacks and whites against each other and causes them to blame each other for their wretched condition. Racism is difficult to deal with rationally, since it contains a strong component of psychological projection coupled with a profound ignorance of how the economic system works, Southern fundamentalist religion facilitates the process of projection by its Manichaean division of humanity into the children of darkness and the children of light and by its hostility towards the intellect. Dispensationalism and creationism have replaced history and science with alternative explanations of reality that are almost impossible to dislodge by evidence and rational argument.
The plantation system has now been spread throughout the United States. Its basic principle, "divide and conquer," has proven to be a flexible, efficient tool of social control far outside the Mason-Dixon line. Rush Limbaugh made a fortune persuading male blue-collar workers that their economic decline was the fault of "liberals." Right-wing politicians have recently demonized Illegal immigrants from Latin America as a danger to the American way of life.
Like a cheap perfume, a subtle racism permeates southern society from top to bottom.
Conservatism, with its emphasis on hierarchies, class, and control of society by the "better sort of people," has frequently encouraged that peculiarly American combination of racism and fundamentalism that keeps the lower classes distracted and docile.
For this reason, it is surprising to see the rabidly right-wing editorial pages of the Wall Street Journal feature a column by Jim Webb, former secretary of the Navy under Reagan and newly-elected Democratic senator from Virginia, warning the nation that if the huge chasm in income and wealth between the elites and the rest of us continues to widen, we risk what he charitably causes "political unrest." Webb has peered into the abyss and doesn't like what he sees.
If it remains unchecked, this bifurcation of opportunities and advantages along class lines has the potential to bring a period of political unrest. Up to now, most American workers have simply been worried about their job prospects. Once they understand that there are (and were) clear alternatives to the policies that have dislocated careers and altered futures, they will demand more accountability from the leaders who have failed to protect their interests. The "Wal-Marting" of cheap consumer products brought in from places like China, and the easy money from low-interest home mortgage refinancing, have softened the blows in recent years. But the balance point is tipping in both cases, away from the consumer and away from our national interest.
In this author's opinion, the ultimate outcome of this process, if it is allowed to continue, is a nation of gated communities surrounded by vast slums policed by soldiers, paramilitaries, and probably organized crime. If you don't believe this, drive around southern Madison County, where one one gated community after another lines the main roads.
Both Democrats and Republicans bear the blame for this, having succumbed to the siren call of free trade, deregulation and reliance on a harsh, punitive criminal justice system that sweeps up the entirely predictable army of the dispossessed produced by those policies and imprisons them at a rate that rivals some of the most vicious and repressive regimes in the world.
So read Webb's column and ponder.
Jim Webb: Class Struggle : American workers have a chance to be heard (Via Daily Kos)
Thomas Paley has a new article on his web site, Why the Trade Deficit Matters. For non-experts on economics, this is a good explanation on how a large, persistent trade deficit can harm an economy. During Reagan's administration the dollar was kept very high and the unhappy result was the "Rust Belt" throughout the northeast and middle west. Factory after factory closed down and moved overseas to compete with other companies that had already made the move. Profits went way up and wages went way down. It was a disaster for those areas.
That same policy is hollowing out the rest of our industrial base. It makes for big profits along with the impoverishment of the non-elite. Read the article. Paley's language lacks the intensity of a crusader, but his message is no less serious.
The tax fairness winner for Mississippi over this period is representative Gene Taylor, who scored 100%. As a Democrat who voted for the odious Bankruptcy "Reform" Act and this year's torture-authorizing legislation, I had just about lost faith in him.
Bennie Thompson, who usually votes in favor of the lower and middles classes, scored only 83%, due to an "F" he earned for his vote in 2004 for the “The American Jobs Creation Act of 2004,” H.R. 4520, appropriately titled The 2004 Corporate Tax Giveaway Bill. Here's a description:
This bill began as an attempt to resolve a trade dispute between the United States and Europe over a $5 billion a year U.S. tax subsidy for American exporters that had been (repeatedly) ruled illegal by the World Trade Organization.It expanded into a huge array of corporate tax giveaways, totaling $214 billion over 10 years.
The true cost of the bill was masked by gimmicks and false assumptions, including: $49 billion in revenue “saved” from complying with our trade treaties; $82 billion in added revenues from what Sen. Max Baucus (D-Mt.), co-sponsor of the Senate bill, accurately called “measures which in themselves should be good public policy and we should pass anyway”; and $79 billion in probably phony “sunsets” on many of the new tax breaks in the bill. So, despite the fact that these supposed offsets fall into the categories of things that Congress had to do, ought to do anyway or probably won’t do, the bill was officially “scored” as cost-free.
The vote on the bill was taken just prior to the 2004 elections. There is little doubt that many members of Congress voted for the bill in an attempt to show a friendly face to business, and thereby gain campaign contributions. As a result, the vote is the most lopsided of any of the votes we surveyed. In the House, the vote was 251–178, and in the Senate, 69–17. Members of Congress who opposed this bill received an “A” grade, while those who voted for it received an “F.”
So kudos to Taylor, qualified kudos to Thompson, and a pox on the rest of them. They have done Mississippi no favor.
Tags: taxes, tax fairness, Lott, Cochran, Wicker, Taylor,Thompson, Pickering
Pally proposes an alternative metaphor—the box:
The box describes how workers are being boxed in and squeezed from all sides by today’s corporate inspired economic order. The box has four sides: globalization, less than full employment, small government, and labor market flexibility. These four sides describe the neo-liberal policy paradigm, which puts workers under continuous economic pressure that none can escape.
The four sides of Palley's box all describe the same thing, only from different angles.
- Globalization creates a worldwide labor market in which workers bid against each other for work. American workers are thus drawn into competition with Chinese workers earning miniscule wages compared to the minimum wage in the U.S.
- Less than full employment creates a game of musical chairs for workers that guarantees insecurity for individual workers and dampens demands for higher wages.
- A truly democratic government would look to the interests of the majority of its citizens, who happen to be the workers. A small government, no matter how democratic, will lack the power to protect those interests, to the benefit of the owners of capital. It also pits public workers against private workers.
- Finally, labor market flexibility is furthered by globalization, in that a worldwide labor market, combined with little or no legal or regulatory protection of jobs, guarantees that capital, in its quest to drive down labor cost, is able to hire and fire with without regard to social cost.
In addition to providing a common frame for labor-oriented communication, Palley points out that this vision of labor's dilemma makes it easy to identify and critique the anti-labor policies that both Republicans and Democrats have implemented over the past two decades, such as NAFTA, the WTO and the massive tax cuts for the most wealthy. Most people nowadays have been conditioned to believe that their economic difficulties are the result of either universal economic laws or their own personal inadequacies, rather that the predictable outcome of deliberate decisions by political elites to shift wealth and income from the bottom two-thirds of the population to the top one percent.
We've seen all these things in Mississippi for years. From antebellum times, the power elite in this state has been unremittingly hostile to labor rights and determined to keep wages as close to subsistence level as possible. The state bases its economic development program on low wages, labor flexibility, underemployment, and weak or nonexistent labor unions. The results are predictable: poverty, ignorance, and the shortest life expectancy and highest infant mortality in the nation.
Tags: Palley, capital, labor, economics, NAFTA, WTO, neoliberal, Mississippi
By way of Feral Scholar, Counterpunch ran an article by historian Gabriel Kolko, "Bankers Fear World Economic Meltdown." Kolko seems to know what he is talking about. Financial derivatives and hedge funds have put literally trillions of dollars at risk, all enabled by low interests rates. Scary.
The Silent Revolution
As I see it, there are three factors that explain Microsoft's problems:
1. Microsoft has been a monopoly since the '80s, which means that its earnings have been based upon monopoly pricing of its operating systems and applications, not a true market price set by many buyers and many sellers. Because Windows and Microsoft Office are on virtually all the desktops of the business world, the file formats and protocols established by Microsoft have locked most businesses into a never-ending process of expensive upgrades that have enriched the management and shareholders of both Intel and Microsoft to an enormous degree.
2. As I mentioned the other day, monopolies have no intrinsic reason to innovate, and Microsoft is no exception. While there might be considerable differences between Windows 95 and Windows XP under the hood (which I doubt), the overall concept, GUI and "feel" have remained unchanged for eleven years and Vista, even after years and years of development, is looking to be more of the same with a few more bells and whistles.
3. Microsoft is now encountering competition from three directions: free software, (licensed under the GNU Public License and other licensing arrangements that limit the ability of developers to privatize code by simply altering it), Apple's OSX, and, perhaps most of all, Microsoft's existing software.
PC owners now have free, user-friendly alternatives to Windows and MS Office that didn't exist a few years ago. Many Linux packages come with word processing, spreadsheet, presentation and email software, all of which are as easy or nearly as easy to use as Windows/Office. It is a trivial task to download, install, and run Ubuntu Linux on either a PC or Macintosh. It comes with OpenOffice (word processing, spreadsheet and presentation software compatible with MS Office files), Firefox (web browser), and Thunderbird (email), all first-class applications that are comparable with their MS equivalents. Although Microsoft may brag that its software is easier to use and comes pre-installed, the difference in convenience is becoming smaller and smaller, and free exerts an attraction that is hard for expensive to beat.
Then there is Apple's OSX, based on the NEXT operating system, which is, in turn, based on BSD Unix, a tried-and-proven OS. Apple's GUI is reliable, relatively bug-free and an order of magnitude more secure out of the box than Windows. While Macintoshes form only a small percentage of computers in use, Apple's share is increasing, as it's easy-to-use software is attracting both businesses and home users. Further, the Macintosh's total cost to own has always been less than that of Window's machines, even though the computers themselves are considerably more expensive. Windows machines have always required an army of network and maintenance gurus to make them work, hence the preference of IT departments and consultants for a platform that justifies their existence. As the business world wakes up to this subtle con game Apple products are becoming more attractive.
Finally, Microsoft's biggest competition is Windows 98, Windows ME, Windows 2000, and before long, Windows XP. Windows XP is acceptably stable (finally!) and reasonably secure, provided that the user faithfully updates the software every week. As Moore's Law no longer guarantees the doubling of computer power every 18 months, the marginal advantage of upgrading is rapidly declining, resulting in longer upgrade cycles on the part of governments and businesses. Further, there is little to recommend the latest version of MS Office over Office 97 in terms of usability. Sure, there are enhancements and improvements, but for most businesses and home users the old software does the job just fine.
Seen in this light, Microsoft's predicament becomes obvious. Without an unassailable monopoly on the desktop and regular, significant improvements in the stability and power of its software along with faster microprocessors to run the new software, Microsoft must actually devote resources to innovation in order to stay ahead. Microsoft's tried and proven method of developing new products—buying up innovative companies—no longer seems to work as well as it once did.
Microsoft, one of the richest corporations in the world, has the talent and resources to easily maintain its lead as an operating system and application provider. The only question is whether its corporate culture will allow it to do so.
PETITION FOR: President Bush , Gov. Schwarzenegger and Congressman Dana Rohrbacher
Gentlemen and Mr. President: The petition below is a protest against what the senate voted on recently which was to allow illegals to access our social security! We demand that you and all congressional representative require citizenship for anyone to be eligible for social services in the United States. We further demand that there not be any amnesty given to illegals, and NO free services or funding, or payments to and for illegal immigrants.
We are fed up with the lack of action about this matter and are tired of "paying" for services to illegals! Tell Senor Fox to pay for his own people!
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Agree or Delete: Instructions to sign are at the bottom.
The message was followed by some 247 names of petitioners, the last of which was the acquaintance who sent me the message.
The "illegal immigrant" crisis is a manufactured crisis, pure and simple.
Once again, let's look at some facts:
1. Why now, rather than long ago?
As Thom Hartmann put it so well, "we had an open border with Mexico for several centuries, and "illegal immigration" was never a serious problem. Before Reagan's presidency, an estimated million or so people a year came into the US from Mexico - and the same number, more or less, left the US for Mexico at the end of the agricultural harvest season. Very few stayed, because there weren't jobs for them."
2. Employers given a green light to hire undocumented aliens.
Reagan made it easier for employers to hire undocumented aliens at pay below the minimum wage by simply not enforcing the laws forbidding employers from hiring undocumented aliens. He also did everything in his power to destroy labor unions. By increasing the size of the labor force with workers willing to work for a pittance he weakened organized labor and kept wages down. In other words, he legitimatized scabs.
3. Mexican farmers rendered destitute by the North American Free Trade Agreement.
NAFTA destroyed Mexican agriculture by allowing U.S. agribusiness to dump its subsidized product, mainly corn, on the Mexican market at a price below Mexican farmers' cost to produce. The totally predictable result was mass migration of destitute Mexican farmers into urban areas in search of jobs. The influx of laborers depressed wages in the cities, resulting in the migration of farmers and workers from Mexican cities across the border into the U.S., where employers, always looking for a way to cut labor costs, welcomed them with open arms. NAFTA and other trade agreements ratified during the Clinton years by a Republican-dominated Congress (and an unprincipled president) made it profitable for corporations to outsource manufacturing to low-wage countries and thus destroy our manufacturing sector, thus eliminating the high-paying jobs that historically enabled so many industrial workers to join the middle class.
4. Desperate people will do what is necessary to survive.
No one leaves their home, their community, their friends and their family to work furtively in a foreign land unless they are desperate. No one else would be willing to brave the hazards of crossing the border, walking over miles and miles of desert, and risking being shot by nut jobs who have appointed themselves to patrol the border. You and I would do exactly the same thing under the same circumstances, so there's no point in demonizing people who do what they must.
5. They didn't come here to freeload.
Is it necessary to point out that these undocumented immigrants from Mexico came here to work? That's the entire purpose of making the journey. They are not the ones cheating the IRS out of withholding taxes; it is their criminal employers who are not making payroll deductions and remitting them to the IRS. They pay sales tax, gasoline tax, and all the other ad valorem and excise taxes, directly or indirectly, that local and state governments levy. They give value and in return receive far less than Americans doing the same work. They contribute more than their share, not less.
More than half the citizens of this nation in their foolishness and their ignorance voted twice for Reagan, once for Bush the Elder, and twice for Clinton, all of whom carried out this project as though it were part of one, single bipartisan plan to eliminate the American middle class. (I omit George W. Bush because the evidence is overwhelming that Bush lost the elections of 2000 and 2004 through voter supression, spoliation of ballots, and other more subtle devices like Kathleen Harris's notorious "felon list," not to mention two Supreme Court Justices with clear conflicts of interest that formed part of the 5-4 majority in Bush v. Gore. They should have been impeached and removed from office for gross violations of legal and judicial ethics.)
The human disaster imposed by our government on Mexico has blown back on us. We are reaping here in Mississippi what has been sown by the kleptocrats whom we allowed to control our national government.
What to do? Humpty-Dumpty has fallen off the wall and can't be put back together again. The Mexican farmers cannot return to their farms because one of the requirements of NAFTA was a repeal of Mexico's statutory scheme that prevented foreclosures on farms. Their farms are now owned by people with the money to purchase their land at