Saturday, December 25, 2010
Former Senator Fritz Hollings writes at Economy In Crisis:
Pundits keep analyzing the President trying to get the economy going and create jobs. It’s not that the President lectures like a professor. It’s not waiting for the recession to end and growth resumes. And it’s not the need for more bi-partisanship. Bi-partisanship is our trouble. The President, Congress, Republicans and Democrats in Washington, all agree on tax cuts, deficit spending, defense spending, wars, and chasing contributions for re-election. Worst of all, there’s a bi-partisan agreement to avoid competing in the trade war.
A business consultant on “Morning Joe” stated the typical political nonsense: “government doesn’t create jobs.” He had just won the Malcolm Baldridge Award. He ought to give it back. In globalization with governments competing in a trade war for production and jobs, the United States retreats. The consultant added “small business creates jobs.” Small business is not a job multiplier. Manufacture is the job multiplier. Manufacture is the creator of jobs. Manufacture is the engine of growth. Manufacture develops the middle class.
In the last ten years we’ve lost a third of the nation’s manufacture in the trade war to off-shoring. Long before the recession, Princeton economist, Alan Blinder, estimated that in ten years the country would lose 30 million to 40 million jobs to off-shoring. President Obama didn’t inherit just a recession. He inherited a financial collapse together with a job collapse from off-shoring.
Stimulation won’t do. President Bush increased the debt and stimulated the economy $5 trillion in eight years. In the same period, household debt increased or stimulated the economy another $7 trillion. The Federal Reserve stimulated the economy a trillion dollars in the remainder of 2008. By January 2009, when Obama was sworn in as President, the economy had been stimulated $13 trillion in eight years, and we were losing exactly 799,000 jobs a month. President Obama in two years has now stimulated the economy another $3 trillion and last month unemployment increased. Stimulation is spent. We’re losing jobs not only from the recession but because we are not competing in the trade war.
The United States was founded in a trade war. The Mother Country forbade manufacture in the colony and required exports from the colony to be carried in English bottoms. The Boston Tea Party that triggered the Revolution framed a Constitution calling for Congress to regulate trade – not freeing trade. In fact, the forefathers agreed to regulate trade four years before they could agree on first amendment rights. The first bill to pass the United States Congress on July 4, 1789, was a protectionist tariff. We didn’t pass the income tax until 1913. We financed and built the United States into an industrial power with protectionism for the first hundred years, causing Teddy Roosevelt to exclaim in a letter: “Thank God I’m not a Free Trader.”
After World War II, Japan started the present trade war by closing its domestic market, subsidizing its manufacture, selling its export at cost, and making up the profit in the closed market. Japan’s thrust for market share put General Motors into bankruptcy with Toyota #1. I worked with business in this trade war to protect its domestic production, passing numerous trade bills, only to be vetoed by presidents of both parties because of the Cold War. But when President Clinton passed NAFTA with Mexico, off-shoring began in earnest. And ten years ago, when China entered the World Trade Organization, off-shoring hemorrhaged. Now, Corporate America, instead of fighting free trade, cries “free trade,” “protectionism,” “don’t start a trade war.”
Globalization is nothing more than a trade war with manufacturers looking for a cheaper country to produce. Wall Street, the big banks, the financial houses, the Business Roundtable, and the United States Chamber of Commerce are a fifth column in this trade war. They’re not interested in creating jobs in the United States. They’re interested in investment off-shore to keep their profits up in the market. The CEOs are not interested in taking on labor worries with domestic production. They want to keep China profits flowing for their golden parachute. Consequently, they oppose getting into the trade war.
If the President enforces trade laws or Congress introduces a trade measure, coming down on their heads will be Tom Donahue of the United States Chamber of Commerce and the Wall Street crowd, contributing to their defeat. So business leadership, the President, the Congress, all join in a charade of “free trade,” “don’t start a trade war.”
Every excuse in the world is given for the lack of jobs except the trade war. Pundits blame the lack of jobs on education and innovation. We need a lot more education in South Carolina, but we have the skills to produce the “ultimate driving machine” for BMW and Boeing’s Dreamliner. And the best of innovation, Intel, has long since left for Ireland, China, and now Vietnam. Persons with graduate degrees can’t find jobs. Silicon Valley suffers 11% unemployment.
The best example of a President sleep-walking through the trade war is his hectoring CEOs to invest in production and jobs in-country. If you were a CEO, would you invest in-country? The first thing the banker asks is: “Can you meet the China price?” If not, even though your investment succeeds, cheaper imports from China of the same article will soon put you out of business and the loan goes bad. The harsh truth is that in globalization it is difficult to produce for a profit in the United States. In globalization only the government can make it profitable to manufacture and protect Corporate America’s investment.
In globalization, the task is for the President and Congress to make it profitable to produce in the United States. Congress can make it profitable and jump-start the economy by eliminating the corporate income tax and replacing it with a 5% value added tax. The corporate tax estimate for 2010 is $156.7 billion in revenues. A 5% VAT reaps $600 billion. Exemptions for the low income for food, health and housing still leaves $350 billion to start paying down the debt. Since the VAT is rebated on export, it promotes exports. Cancelling the corporate tax releases $1 trillion in off-shore profits that can be repatriated tax free to invest in creating jobs in the United States.
The United States now has to import the majority of what it consumes – particularly weaponry. The United States cannot be defended today save the favor of some foreign country. A few weeks ago, the Pentagon was begging Russia for helicopters for Afghanistan. The War Production Act of 1950 guarantees that the troops will always have the equipment to defend. President John F. Kennedy enforced this Act in 1961 to save the textile industry. President Obama could create millions of jobs by enforcing the War Production Act of 1950. The President could immediately exact a 10% surcharge on imports as President Nixon did in 1971 when our trade deficits were a miniscule of the trade deficits today. Section 201 of the Trade Act calls on the President to move when a vital industry like automobiles is endangered. President Roosevelt in World War II called on Chrysler to produce the tanks and General Motors to produce the B-29s. But President Bush refused, and now President Obama refuses, to move when GM was endangered and waited for it to go bankrupt and need a bailout.
Last week, The Economist headlined “The dangers of a rising China.” We are not threatened by China’s military but its economy. In 1989, after Tiananmen, we obtained a resolution in the General Assembly of the United Nations to investigate human rights in China. China went to its economic friends in Africa and the Pacific Rim, and there has never been a hearing. Weeks ago, China obtained the return of its ship captain from Japan by cutting off rare earth supplies to Japan. Last week, nineteen nations refused to attend the award of the Nobel Peace Prize to Liu Xiaobo because of China’s objection. China uses our Good Neighbor Policy while we make wars to control. In globalization, “it’s the economy, stupid.”
Osama bin Laden said his crusade was in response to a second Crusade against the Muslim world. We prove bin Laden’s case by invading Kuwait, Iraq, Afghanistan, Pakistan. Our invasion brought al-Qaida to Iraq, and our invasion of Afghanistan turns allies in Charlie Wilson’s war to terrorists. On 9/11, the State Department reported al-Qaida was in forty-five countries – but not in Iraq. After Afghanistan we’ll still have forty-four countries to go, including the United States. Sixty-eight years ago, we liberated Morocco, Algeria and Tunisia, and they have yet to opt for democracy. In the Muslim world more important than freedom and democracy is tribe and religion. We have spent over nine years force feeding democracy, trying to change a culture militarily, in Afghanistan. Now we ask young America to lose its arms, legs, and lives for five more years to force feed democracy and spread terrorism.
From The Spokesman-Review:
Since the 1960s the proportion of the wealth that goes to the rich has risen steadily. The top 1 percent now captures 20 percent of our wealth, while the bottom 50 percent get a measly 13 percent.
It is a deplorable distribution of wealth and it is only getting worse. Is there any limit? We are turning into India in terms of rich and poor.
Republicans respond with tortured logic, that, after all, the rich pay most of the taxes. It is poor people’s own fault. They should have picked richer parents or not be so lazy.
A man who earns $55 million a year, or about $150,000 a day, is worth every dime, but his employee who earns $20,000 a year is a leech and is overpaid because his job can be shifted overseas for much less.
Some hundred years ago, Charles Dickens wrote “A Christmas Carol.” It pointed out the terrible inequities of the distribution of wealth of England in the 1800s. Its main character was Ebenezer Scrooge, and to this day the name is synonymous with cold-hearted misers.
Dickens died in 1870, but Scrooge is still alive and healthy, and he votes a straight Republican ticket.
Tuesday, December 14, 2010
Michael Lind explains how the tax cut compromise will undermine efforts to rebuild America's decaying infrastructure:
One of the little-noticed elements of the deal on taxes agreed upon by the Obama administration and the Republican congressional leadership is the decision of the White House and the GOP not to renew an obscure program known as Build America Bonds. This decision threatens to hurt American economic growth for decades to come, by eliminating one of the most successful methods of modernizing the vital infrastructure on which American businesses and workers depend.
Build America Bonds (BABs), a variety of municipal bonds that receive favorable tax treatment, were created in the American Recovery and Reinvestment Act of 2009. Unlike traditional tax-exempt municipal bonds, BABs are taxable and attractive to investors like pension funds that do not benefit from tax-exempt bonds. States, counties and cities issue the bonds for infrastructure projects, and the federal government pays 35 percent of the interest. The federal subsidy greatly reduces the borrowing costs for state and local governments.
Even before the recession, the American Society of Civil Engineers calculated that the U.S. needed to spend $2.2 trillion over five years not only for new freight and passenger infrastructure but also for maintenance and repair of crumbling bridges, highways, railroads, inland waterways and ports. Infrastructure spending, which would be necessary in any event, is all the more urgent during a near-depression like the Great Recession. Unlike short-term tax cuts intended to boost consumer spending, infrastructure investment can create permanent public assets and lower the costs of transportation and communications for American businesses, while mobilizing capital and labor that otherwise would remain idle.
One would think there would be a bipartisan consensus on the need to help American business by investing in infrastructure, even among conservatives and liberals who disagree on other elements of American public policy like Social Security and Medicare. A modern, efficient infrastructure is the "seed corn" of a modern, efficient economy. Because future prosperity depends on it, infrastructure investment should be the last to be sacrificed. And the Build America Bonds program is the most successful infrastructure program in years, mobilizing $170 billion in new investment since the program's inception.
And yet, according to Reuters, the Republican Party is determined to kill an infrastructure investment program that in the past enjoyed bipartisan support:
Congressional Republicans will block any inclusion of Build America Bonds, a taxable bond program popular with states, cities and other muni issuers, in the tax deal they clinched with President Barack Obama, a Republican aide said on Tuesday.
"We have a very firm line on BABs -- we are not going to allow them to be included," a congressional Republican aide said.
Although more populous states that account for a greater share of the U.S. economy naturally receive more infrastructure funding, it is not the case that BABs are some kind of blue-state or blue-city boondoggle. As the Center on Law and Public Finance points out, conservative Republican Utah accounts for the greatest amount of BABs as a percentage of GDP of any state.
In rural areas of states including Ohio, South Dakota and Michigan, state or county governments have been so strapped for cash that they are converting asphalt roads to gravel or allowing them to crumble. That's right: While our Asian and European economic rivals are building new, smart infrastructure, the United States of America is allowing its existing roads to crumble into gravel and dirt as the Roman roads did during the Dark Ages.
Read full article at
Sunday, December 12, 2010
From The Charleston Gazette:
When Republicans take partial control of Congress next month, hope for reforms such as worker safety laws presumably will vanish. Meanwhile, a last-hour attempt to prevent coal mine deaths -- a rush vote before the GOP takeover -- likewise failed.
The Robert C. Byrd Mine Safety Protection Act was drafted in the wake of West Virginia's Big Branch tragedy that killed 29 miners. It would toughen enforcement, for example by preventing coal corporations from endlessly appealing violation citations, thus stalling federal actions against dangerous mines.
House Labor Chairman George Miller, D-Calif., sought to suspend House rules and pass the Byrd Act, a tactic requiring two-thirds approval. He succeeded in gaining a 214-193 majority, with 26 members not voting, but fell short of two-thirds.
Every Republican except one opposed the safety effort. Rep. Shelley Capito, R-W.Va., denounced the attempt, calling it "partisan games" to bring up the bill "in the dead of night." She said the Byrd Act "imposes severe penalties on businesses, introduces dramatic regulatory changes and promotes unnecessary litigation."
Rep. Nick Rahall, D-W.Va., supported the bill. Lame-duck Rep. Alan Mollohan, D-W.Va., soon to leave Congress, was absent.
Chairman Miller said the Byrd bill would save miners. He explained:
"Current law on 'patterns of violations' has so many loopholes that it invites delays and allows some coal mine operators to game the system. Massey Energy's Upper Big Branch Mine was a perfect example of an operator repeatedly skirting the law and putting workers' lives in the crosshairs.
"The Upper Big Branch Mine was subject to 515 violations and 54 withdrawal orders in 2009, more than any other mine in the country. Red flags were waving about this mine's repeated unwarrantable failures. And yet, because Massey indiscriminately appealed many of these violations, it evaded stronger sanctions that would have improved conditions and saved lives."
Also, the Byrd Act would protect miners who report safety problems, give U.S. investigators more power to demand information after accidents, require weekend and night-shift inspections, and toughen criminal penalties for violations.
It's a shame that Democrats couldn't pass this lifesaving law while they still dominate Congress. We wish that party leaders would keep members in session straight through the holidays to approve many reforms while there's still time. After Republicans take power next month, it will be too late.