Monday, December 31, 2007

The nation's richest families have a lot to celebrate tonight!

The nation's richest families have a lot to celebrate tonight.

For the remaining 95% of us there is not a lot of good economic news to celebrate as we enter 2008.

The Congressional Budget Office's (CBO) recently updated its authoritative data series on household incomes (1979-2005). Its latest report reveals a sharp and unprecedented increase in income inequality.

Total household income grew $1.1 trillion in the 2003-05 period. But despite strong productivity growth, these gains have not been shared broadly. Almost two-thirds (63%) of the gain in household income from 2003 to 2005 went to just 5% of the nation’s wealthiest households. those making more than $150,000 annually.

This increase in income inequality (both pre- and post-tax) as measured by the change in the shares of income going to different income classes, was greater from 2003 to 2005 than over any other two-year period covered by the CBO data.

An amazing $400 billion in pre-tax dollars was shifted from the bottom 95% of households to those in the top 5% (all income data in this report are inflation adjusted and in 2005 dollars).

By 2005 the top fifth held a larger share of income (both pre- and post-tax) than everyone else in the bottom 80%.

On a pre-tax basis in 2005, the top 1%, with 18.1% of total income, held a much larger share of income than the bottom 40% of households, which only received 12.5

Had income shares not shifted as they did, the income of each of the 109 million households in the bottom 95% would have been $3,660 higher in 2005.

For more than a decade elite opinion makers, including the Milwaukee Journal Sentinel editorial board, have argued that income inequality was growing because the global economy rewarded education. Stemming the alleged "brain drain" of four year college graduates and increasing their percentage of the workforce has become a centerpiece of Wisconsin's economic development strategy.

If education was the key to increasing incomes, inequality would have declined over the past 30 years as Americans have increased their level of educational achievement. From 1970 to 2004, the percent of college grads nearly doubled in the U.S. to almost 30% of the adult population, while the share of income going to the bottom 90 percent decreased by almost 15 percent!

We have become more unequal as we have become more educated!

Income inequality has grown because the distribution mechanisms that have historically worked to ensure more equitable outcomes, strong unions, progressive taxation, labor market policy, and regulation have largely been dismantled over the past thirty years, a victim of the nation's 30 year romance with"free market" economics. Under the alluring guise of economic liberty, laissez faire policies allow powerful corporations and wealthy individuals to manipulate market outcomes. As a result corporate profits, CEO compensation and income inequality have soared to record heights.

If we are serious about reducing economic inequality, we need to adopt policies that ensure that economic prosperity is shared broadly. These would include making it easier for workers to organize unions (including extending this right to the University of Wisconsin faculty); indexing the minimum wage to the CPI; legislating protection for homeowners facing foreclosures; enacting universal healthcare and progressive tax reform (including closing corporate tax loopholes); insisting that all developments receiving public subsidies pay the prevailing wage and hire locally; and regulating the mortgage and financial sectors whose recklessness has brought the economy to the verge of a recession.

If the Wisconsin's legislative bodies and the United States Congress fail to enact policies that address the nation's growing economic insecurity and income inequality, most of us won't have much more to celebrate in 2008 than we do tonight.

Sunday, December 30, 2007

The free market is a false idol

The New York Times' Peter S. Goodman, in a piece entitled "The Free Market: a False Idol Afterall," notes that America's 30 year romance with deregulation and privatization has led to a host of problems from housing foreclosures to global warming to growing income inequality that demand governmental action:

"For more than a quarter-century, the dominant idea guiding economic policy in the United States and much of the globe has been that the market is unfailingly wise. So wise that the proper role for government is to steer clear and not mess with the gusher of wealth that will flow, trickling down to the every level of society, if only the market is left to do its magic.

That notion has carried the day as industries have been unshackled from regulation, and as taxes have been rolled back, along with the oversight powers of government. Faith in markets has held sway as insurance companies have fended off calls for more government-financed health care, and as banks have engineered webs of finance that have turned houses from mere abodes into assets traded like dot-com stocks.

But lately, a striking unease with market forces has entered the conversation. The world confronts problems of staggering complexity and consequence, from a shortage of credit following the mortgage meltdown, to the threat of
global warming. Regulation — nasty talk in some quarters, synonymous with pointy-headed bureaucrats choking the market — is suddenly being demanded from unexpected places. ..

Adam Smith used the metaphor of the invisible hand to describe how markets should function: With everyone at liberty to pursue self-interest, the market omnisciently distributes goods and capital to maximize the benefits for all. Since the Reagan administration, that idea has weighed in as a veritable holy commandment, with the economist
Milton Friedman cast as Moses.

But now the invisible hand is being asked to account for what it has wrought. In this country, many economic complaints — from the widening gap between rich and poor to the expense of higher education — are being dusted for its fingerprints.

'Untethered market forces lead to bad things,' said Mr. Bernstein of the Economic Policy Institute. 'You simply can’t run an economy as complicated as ours on ideology alone.'"

Tuesday, December 25, 2007

All I got for X-mas was a stocking full of debt!

One present none of us want to open this X-mas morning is the one left by President George Bush, Grover Norquist and their neocon friends-the growing national debt.

Federal borrowing from the public has mushroomed since 2001, by 53 percent, to $5.1 trillion. The single biggest cause of this spiraling debt has been the President's gifts to the very wealthiest Americans who double as his campaign financiers-high end tax cuts totaling $1.8 trillion.

From 2002 to 2011, forgone revenue from the cuts will account for 37 percent of the federal budget’s descent into the red, according to the Congressional Budget Office. The neocons war of choice in Iraq and defense spending come next, producing 30 percent of the deterioration, followed by domestic spending at 11 percent.

President Bush has been one of this nation's most fiscally irresponsible Presidents.

This holiday season the richest Americans, including hedge fund and private equity managers who pay a lower tax rate on their million and sometimes billion dollar incomes than most working American pay on theirs, have much to celebrate.

But most American taxpayers, their children and grandchildren will be left with little more than a stocking full of debt, $144,434 per family.

We will have to repay this borrowed money with interest, which means fewer federal dollars to spend on everything else for decades to come, including health care, infrastructure repair, emergency response, chemical plant security and alternative energy.

The New York Times recently ran an excellent editorial on President Bush' fiscally reckless tenure and his recent political posturing. It's worth the read.

Friday, December 21, 2007

Ideology of deregulation at root of housing market collapse

Paul Krugman's newest column argues that the libertarian (free market) economic policies of Alan Greenspan and the Bush administration incubated predatory lending practices that have boomeranged into the collapse of the housing market, pushing the nation to the edge of a recession.

Krugman writes: "...during the bubble years, the mortgage industry lured millions of people into borrowing more than they could afford, and simultaneously duped investors into investing vast sums in risky assets wrongly labeled AAA. Reasonable estimates suggest that more than 10 million American families will end up owing more than their homes are worth, and investors will suffer $400 billion or more in losses.

So where were the regulators as one of the greatest financial disasters since the Great Depression unfolded? They were blinded by ideology.

'Fed shrugged as subprime crisis spread,' was the headline on a New York Times report on the failure of regulators to regulate. This may have been a discreet dig at Mr. Greenspan’s history as a disciple of Ayn Rand, the high priestess of unfettered capitalism known for her novel 'Atlas Shrugged.'

In a 1963 essay for Ms. Rand’s newsletter, Mr. Greenspan dismissed as a “collectivist” myth the idea that businessmen, left to their own devices, “would attempt to sell unsafe food and drugs, fraudulent securities, and shoddy buildings.” On the contrary, he declared, “it is in the self-interest of every businessman to have a reputation for honest dealings and a quality product.”

It’s no wonder, then, that he brushed off warnings about deceptive lending practices, including those of Edward M. Gramlich, a member of the Federal Reserve board. In Mr. Greenspan’s world, predatory lending — like attempts to sell consumers poison toys and tainted seafood — just doesn’t happen."

Thursday, December 20, 2007

Mabel Wong's anecdotel evidence

In the Journal Sentinel's Quick Hit (12/20/2008), Mabel Wong warns that: "Anecdotal observations from laymen..." regarding global warming "...don't prove anything."

She, of course, is right about this.

But then Ms Wong provides us with nothing less than anecdotal evidence!

The obvious purpose is to undermine the international scientific community's consensus that global warming is a real threat that demands immediate and decisive action.

Common Mabel. You can't have it both ways!

Tuesday, December 18, 2007

Commissioner Selig and the steroid era

The Mitchell report, Major League Baseball's $20 million, "independent investigation" into steroid use, was released last Thursday with 20 recommendations from Mitchell — $1 million a recommendation, $1 million a month.

For more than a decade," former Senator George Mitchell reported, "there has been widespread illegal use of anabolic steroids and other performance-enhancing substances by players in major league baseball ..."

For a Polish with special stadium sauce and a mouse I could have come up with the same conclusions and as many names as Senator Mitchell.

This is last years story recycled as breaking news. As the Times' Murray Chase wrote: the "Mitchell Report revealed little original work."

"Everyone in baseball shares responsibility," Mitchell said at a news conference in New York City.


In other words, the players, the clubhouse guys, the trainers, the team physicians, the GMs, the owners and the union are equally responsible?

If so, why is it that it is only the players who are called out by name?

And why is their union, the strongest in professional sports, being blamed for obstructing the righteous owners and Congress from punishing chemically enhanced athletes when all it did was advise its members of their rights?

The sanctimonious owners and their hand picked Commissioner, Bud Selig, who sanctioned the steroid era with their silence, are given a get out of jail free card.

These billionaire owners spent the steroid era lining their pockets and blackmailing cities to build luxury boxed stadiums designed for bulked up home run hitters on the taxpayers dime. It is hard to take their current outrage seriously.

And you know something is very wrong when US Congressmen, three of whom are in jail while twelve are under criminal investigation for far more serious crimes than taking steroids, begin acting like morality police.

Forgive me if I can't buy this story line.

According to press reports, Bud Selig said, "I respect Sen. Mitchell and the work he has done but I'm going to do what I think is right. I meant what I said. I'm serious about player discipline..."

"I consider this a call to action and I will act," said Selig, who promised a swift response. "

Bud, who do you think you are kidding?

Juicing was rampant by the time you became Acting Commissioner in 1992. Your appointment of Senator Mitchell and his response are little more than a public relations response to Congress' demand for action.

Fay Vincent, your predecessor, had tried to crack down on steroids before you took over. In June 1991, he sent every major league club a memorandum saying all illegal drug use was “strictly prohibited” by law, “cannot be condoned or tolerated” and could result in discipline or expulsion. Vincent specifically highlighted steroids in the memo. This letter was sent 16 years ago!

The next year, you, a former owner who benefited financially from increased attendance generated by steroid enhanced performance, became Acting Commissioner. Through the 1990s, even as newspapers reported that as many as one in five baseball players used steroids, you, the father of then Brewer CEO, Wendy Selig Prieb (1998-2004), played down the issue. “If baseball has a problem, I must say candidly that we were not aware of it,” you said in 1995.

But as early as 1987 newspapers were reporting on the use of steroids by players. In 2000, the New York Times reported steroids were rampant in baseball, but a baseball spokesman said they “have never been much of an issue.”

After the 1994 baseball players strike, fans were leaving in droves. You and the owners turned a blind eye to the chemically induced home run seasons of the late 1990's including the home-run fest between Sammy Sosa and Mark Mcguire that brought the fans back and, more importantly, jacked up its revenues after the 1994 baseball strike.

The blog Saberonmics notes: "..MLB has been doing quite well for itself despite the steroid accusations that have been surrounding the game during this time period. Revenue growth had averaged 12.44% a year since 2002. Attendance has grown an average of 3.23%, with MLB breaking attendance records each of the past four know economic times in baseball are good when Bud Selig is admitting it:

“When you look at the final numbers and you see what’s happened, it’s remarkable. There are times, honestly, when I have to pinch myself to make sure all of this is happening. … Growth and revenue, growth and profitability; it’s just been really, really good.”

The record is clear that you, Bud, and the owners who elevated you to Major League Baseball's top post, ignored and denied the problem all the way to the bank.

From er player and manager Billy Martin had it right when he said years before steroid's golden era: "Cheating in baseball is just like hotdogs, French fries and cold cokes." No one cares about it as long as everyone is making money!

Sunday, December 16, 2007

Very rich getting richer, much, much faster-leaving the rest behind

The New York Times' David Cay Johnston reported yesterday that income inequality continued to soar to heights not seen since the days of the robber barons, noting that:

"... the total 2005 income of the three million individual Americans at the top was roughly equal to that of the bottom 166 million Americans...."

Johnston also wrote:

The increase in incomes of the top 1 percent of Americans from 2003 to 2005 exceeded the total income of the poorest 20 percent of Americans, data in a new report by the Congressional Budget Office shows.

The poorest fifth of households had total income of $383.4 billion in 2005, while just the increase in income for the top 1 percent came to $524.8 billion, a figure 37 percent higher.

The total income of the top 1.1 million households was $1.8 trillion, or 18.1 percent of the total income of all Americans, up from 14.3 percent of all income in 2003.

The report is the latest to document the growing concentration of income at the top...."

Tuesday, December 11, 2007

Keith Olberman's special comment on Bush and Iran

Keith Olberman, in a special comment, says that President Bush repeatedly argued that Iran was a threat to the US because it had nuclear weapons when he knew it did not:

We have either a president who is too dishonest to restrain himself from invoking World War Three about Iran at least six weeks after he had to have known that the analogy would be fantastic, irresponsible hyperbole - or we have a president too transcendently stupid not to have asked - at what now appears to have been a series of opportunities to do so - whether the fairy tales he either created or was fed, were still even remotely plausible.

A pathological presidential liar, or an idiot-in-chief. It is the nightmare scenario of political science fiction: A critical juncture in our history and, contained in either answer, a president manifestly unfit to serve, and behind him in the vice presidency: an unapologetic war-monger who has long been seeing a world visible only to himself.

Monday, December 10, 2007

Subprime rescue plan forgets American families

Paul Krugman writes that :"... there’s a growing consensus among financial observers that the Paulson (subprime mortagage rescue) plan isn’t mainly intended to achieve real results. The point is, instead, to create the appearance of action, thereby undercutting political support for actual attempts to help families in trouble.

In particular, the Paulson plan is probably an attempt to take the wind out of Barney Frank’s sails. Mr. Frank, the Democratic chairman of the House Financial Services Committee, has sponsored legislation that would give judges in bankruptcy cases the ability to rewrite mortgage loan terms. But “Bankers Hope Bush Subprime Plan Will Scuttle House Bill,” as a headline in CongressDaily put it.

As Elizabeth Warren, the Harvard bankruptcy expert, puts it, “The administration’s subprime mortgage plan is the bank lobby’s dream.”

Read Krugman's entire column to see how this plan fails to protect the millions of American families, victims of predatory lending practices, who will lose their homes.

Thursday, December 6, 2007

UWM breaks promises to east side neighborhoods

For several years east side community residents have been meeting with top UWM officials in an effort to address the escalating student behavior problems associated with the University's rapid and uncontrolled growth. While the University’s administration has repeatedly promised to work with the neighborhoods, its record increases in enrollment have undermined those commitments. As a result, neighborhood problems have intensified and the quality of life in the residential areas has deteriorated:

*The neighborhoods adjacent to the University are the only ones in the city that have experienced an increase in absentee landlords.

*Vandalism and violent student behavior have increased as the number of student party houses has soared.

*As families have been moved out in response to aberrant and unacceptable student behavior, stable residential neighborhoods have become transient and assaults and vandalism have increased.

*Property destruction by students who have no commitment to the neighborhood has increased and in some areas the housing stock has deteriorated.

In meetings with leaders of four neighborhood organizations and state elected officials two years ago, Chancellor Carlos Santiago and Provost Rita Cheng stated unequivocally that UWM recognized the problem of being a landlocked campus with increasing enrollment. Even before its recent record enrollment increases, UWM with 331 students per acre was far denser than any other University of Wisconsin campus. Its closest rival was UW Lacrosse at only 76 students per acre. Santiago and Cheng promised that enrollment increases would be modest and come only from increased retention.

Today’s MJ Sentinel article suggests that the University's top administrators have not kept their promise to the community.

UWM has experienced record enrollment increases in at least the last two years and led the entire UW system this year.

The University has not negotiated with its eastside neighbors in good faith and has ignored the neighborhood’s concerns.

It is apparent that the University's leadership thinks it can pacify east side residents and elected officials with promises and police patrols (which divert anti-crime resources from more problematic areas of Milwaukee), while exacerbating the problem by recruiting more and more students to its landlocked east side campus.

The University's failure to keep its promises to the residents of the east side residential neighborhoods cannot be tolerated.

If UWM wants, as it claims, to be a neighborhood partner, it needs to cap its east side enrollment, abandon plans to purchase Columbia Hospital and convert it to a dorm, and support the community's effort to expand Chapter 17, the University disciplinary code so that it covers off campus behavior.

A failure by the University’s leadership to respond responsibly to these legitimate neighborhood concerns will lead to increased tensions between UWM and the neighborhood residents whose taxes support it.

Sunday, December 2, 2007

It's too late to say your sorry for making poisonous toy beads

I thought I was reading the Onion when I saw the headline: "Chinese company says its sorry for making poisonous toy beads"

But this was a headline in a Business Section article in none other than the New York Times!

A statement, issued by the Hong Kong company that manufactured millions of poisonous toy beads in mainland China, JSSY Ltd., read: “Our apologies to all the children who ate the beads by accident and their parents, and overseas consumers. We apologize for all the negative effect caused by this incident to China manufacturers. We apologize for the negative effect on ‘Made in China.'"

Is this an apology or damage control for China Incorporated?

While expressing regret over producing poisonous beads. most of JSSY's apology focuses on the public relations disaster, "the negative effect," that the production of harmful toys could have on Chinese manufacturing companies.

Carter Keithley, the president of the Toy Industry Association in the United States, confirmed this when he said at a toy industry conference two weeks ago in Guangzhou that the bead recall had made it harder for American toy vendors to promise consumers that China was stepping up its vigilance.

“This latest incident has made it extremely awkward for us to continue that defense,” he said.

As is usually the case, the company's incentive for using beads made of poisonous chemicals was a higher rate of profit.

Mr. Liao, chairman and owner of JSSY, said that his company had chosen a glue ingredient for the beads that cost half as much as the glue ingredient that the beads’ main distributor, Moose Enterprise of Australia, thought JSSY was using.

Liang Shuhe, a deputy director general of China’s ministry of commerce, seemed to be excusing Chinese companies that have been found to use unsafe material in producing a range of toys from beads to Mattel products to the Thomas the Train Engine when he said: "Chinese toy makers faced narrowing profit margins — a result of rising wages and the appreciation of the yuan against the dollar — but should still meet safety standards."

Hand ringing and apologies don't alter the fact that toy manufacturing has relocated to China because it is cheaper-wages are lower and labor and environmental protections are virtually non-existent.

If manufacturers award contracts solely on price, they are creating perverse incentives that lead to abusive labor practices, the use of cheap, unsafe chemicals and materials, and environmental degradation.

The United States has only one full-time employee to test imported toys despite recalls in the last two months of more than 13 million Chinese made toys with lead levels that sometimes reached 200 times the safety limit. Remarkably, the Bush administration is actively opposing efforts to increase the number of inspectors and strengthen the Consumer Protection Agency's enforcement tools.

In ECON 101 we learned that the consumer is sovereign! But unsafe toys are not a rational consumer choice!

Poisonous beads and lead painted toys are the byproduct of an unregulated international economy designed by transnational corporations and their free trade accomplices that places a premium on low cost production and devalues quality. Unfortunately, dangerous toys are lining the shelves of your local big box retailer this holiday season.

The on-line title of the Times article has been sanitized to read:" Producer of Poisonous Toy Beads Issues Apology." Hmmmmmmmmmmmmm!

That begs the real question many consumers are asking this holiday season: can we be sure that the toys we buy for our kids and grand kids won't kill them?

Otherwise as the Kinks' song goes: "It's too late to say your sorry!"

Saturday, December 1, 2007

Governor Doyle: Wisconsin's technical colleges are doors of opportunity

In late October, immediately after signing Wisconsin's budget, Governor Jim Doyle, addressed the state convention of the American Federation of Teachers.

The Governor spoke passionately about the importance of Wisconsin's technical colleges which he called the state's "doors of opportunity."

A portion of the speech can be viewed below.