Most Read Realitybase Posts in August

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post is now the #1 response to a Google search for "plutonomy memo."

The Dysfunction and Corruption of Our Healthcare System, Its Damage to the National Economy and other Basic Healthcare Matters (Guest Post) Describing a system that is destroying American business global competitiveness, that violates fundamental insurance risk principles, and that has inherent conflicts of interest preventing quality national health care delivery and cost efficiency, and proposing a solution.

Pitchforks before Parties A third party candidate to challenge Obama is doomed unless it is supported by a broad and powerful ideological movement.  Using such a movement to influence the Democratic Party would be more effective and more enduring than a third party.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFE standards, and has fluctuated only slightly with retail price changes.

Our Plutocrats Versus Their Plutocrats Jeffrey Sachs writes that Republicans are for Big Oil and, since Bill Clinton and Robert Rubin, Democrats are for Big Banks. Neither party looks after the interests of middle class and poor Americans.

The American Dream died in February 1973 With graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

We don’t have a Social Security problem; we have an unemployment problem. But for chronic unemployment, there would be no Social Security problem.  We should not raise the SS retirement age because that would increase youth unemployment. The current COLA formula is already unfair to seniors and the proposed change would make it more so.

How would your family cope with 20% pay cuts? What if your customers got 20% pay cuts? Booz is showing its clients how to reduce the wages of their US employees by 15-20%. This is a general 21^st Century trend and is causing a broad downward macroeconomic spiral that only major federal government policy changes could reverse.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

The Recession Is Coming! The Recession Is Coming! December 2007 post with charts showing America's middle class had already been in recession for 7 years and asking if we really care about them.

Understanding Obama--Two Views

The short one.

The long one.

Did money arise out of barter or debt, and what are the current implications?

This interview of anthropologist David Graeber posted at Naked Capitalism is absolutely fascinating. He offers an alternative narrative to Adam Smith's story that money was created to make more convenient the human tendency to "truck and barter." Graeber argues that money was created instead as a unit of account to track debt. The barter theory emphasizes the use of money in "spot" transactions but, says Graeber, futures transactions were more prevalent and more important in early societies--the need to finance agriculture or import-export activities for example. As evidence for his theory, he says there were accounting records long before there was circulating money.

The interview moves from this into a general discussion of debtor and creditor classes and relationships, for example, how debt traps led to indentured servitude, slavery, and eventually write-offs of debt.

This was the great social evil of antiquity – families would have to start pawning off their flocks, fields and before long, their wives and children would be taken off into debt peonage. Often people would start abandoning the cities entirely, joining semi-nomadic bands, threatening to come back in force and overturn the existing order entirely. Rulers would regularly conclude the only way to prevent complete social breakdown was to declare a clean slate or ‘washing of the tablets,’ they’d cancel all consumer debt and just start over. In fact, the first recorded word for ‘freedom’ in any human language is the Sumerian amargi, a word for debt-freedom, and by extension freedom more generally, which literally means ‘return to mother,’ since when they declared a clean slate, all the debt peons would get to go home.

Graeber says that coinage was popularized and perhaps invented as a way to pay soldiers. The government issued coins to soldiers and made them valuable by requiring other persons to pay taxes using those coins.  Taxes, debt, and morality got woven together linguistically and functionally in interesting ways.

Taxes are also key to creating the first markets that operate on cash, since coinage seems to be invented or at least widely popularized to pay soldiers – more or less simultaneously in China, India, and the Mediterranean, where governments find the easiest way to provision the troops is to issue them standard-issue bits of gold or silver and then demand everyone else in the kingdom give them one of those coins back again. Thus we find that the language of debt and the language of morality start to merge.

In Sanskrit, Hebrew, Aramaic, ‘debt,’ ‘guilt,’ and ‘sin’ are actually the same word. Much of the language of the great religious movements – reckoning, redemption, karmic accounting and the like – are drawn from the language of ancient finance. But that language is always found wanting and inadequate and twisted around into something completely different. It’s as if the great prophets and religious teachers had no choice but to start with that kind of language because it’s the language that existed at the time, but they only adopted it so as to turn it into its opposite: as a way of saying debts are not sacred, but forgiveness of debt, or the ability to wipe out debt, or to realize that debts aren’t real – these are the acts that are truly sacred.

How did this happen? Well, remember I said that the big question in the origins of money is how a sense of obligation – an ‘I owe you one’ – turns into something that can be precisely quantified? Well, the answer seems to be: when there is a potential for violence. If you give someone a pig and they give you a few chickens back you might think they’re a cheapskate, and mock them, but you’re unlikely to come up with a mathematical formula for exactly how cheap you think they are. If someone pokes out your eye in a fight, or kills your brother, that’s when you start saying, “traditional compensation is exactly twenty-seven heifers of the finest quality and if they’re not of the finest quality, this means war!”

Money, in the sense of exact equivalents, seems to emerge from situations like that, but also, war and plunder, the disposal of loot, slavery. In early Medieval Ireland, for example, slave-girls were the highest denomination of currency. And you could specify the exact value of everything in a typical house even though very few of those items were available for sale anywhere because they were used to pay fines or damages if someone broke them.

But once you understand that taxes and money largely begin with war it becomes easier to see what really happened. After all, every Mafiosi understands this. If you want to take a relation of violent extortion, sheer power, and turn it into something moral, and most of all, make it seem like the victims are to blame, you turn it into a relation of debt. “You owe me, but I’ll cut you a break for now…” Most human beings in history have probably been told this by their debtors. And the crucial thing is: what possible reply can you make but, “wait a minute, who owes what to who here?” And of course for thousands of years, that’s what the victims have said, but the moment you do, you are using the rulers’ language, you’re admitting that debt and morality really are the same thing. That’s the situation the religious thinkers were stuck with, so they started with the language of debt, and then they tried to turn it around and make it into something else.

How best to think about the role of money changes from era to era depending on the circumstances.

One of my inspirations for ‘Debt: The First 5,000 Years’ was Keith Hart’s essay ‘Two Sides of the Coin’. In that essay Hart points out that not only do different schools of economics have different theories on the nature of money, but there is also reason to believe that both are right. Money has, for most of its history, been a strange hybrid entity that takes on aspects of both commodity (object) and credit (social relation.) What I think I’ve managed to add to that is the historical realization that while money has always been both, it swings back and forth – there are periods where credit is primary, and everyone adopts more or less Chartalist theories of money and others where cash tends to predominate and commodity theories of money instead come to the fore. We tend to forget that in, say, the Middle Ages, from France to China, Chartalism was just common sense: money was just a social convention; in practice, it was whatever the king was willing to accept in taxes.

The interview then explored the modern day indicia and implications for transition between the debt and cash aspects of money.

From an historical perspective, it’s pretty ominous. One could go further than the Clinton era, actually – a case could be made that we are seeing now is the same crisis we were facing in the 70s; it’s just that we managed to fend it off for 30 or 35 years through all these elaborate credit arrangements (and of course, the super-exploitation of the global South, through the ‘Third World Debt Crisis’.)

As I said Eurasian history, taken in its broadest contours, shifts back and forth between periods dominated by virtual credit money and those dominated by actual coin and bullion. The credit systems of the ancient Near East give way to the great slave-holding empires of the Classical world in Europe, India, and China, which used coinage to pay their troops. In the Middle Ages the empires go and so does the coinage – the gold and silver is mostly locked up in temples and monasteries – and the world reverts to credit. Then after 1492 or so you have the return world empires again; and gold and silver currency together with slavery, for that matter.

What’s been happening since Nixon went off the gold standard in 1971 has just been another turn of the wheel – though of course it never happens the same way twice. However, in one sense, I think we’ve been going about things backwards. In the past, periods dominated by virtual credit money have also been periods where there have been social protections for debtors. Once you recognize that money is just a social construct, a credit, an IOU, then first of all what is to stop people from generating it endlessly? And how do you prevent the poor from falling into debt traps and becoming effectively enslaved to the rich? That’s why you had Mesopotamian clean slates, Biblical Jubilees, Medieval laws against usury in both Christianity and Islam and so on and so forth.

Since antiquity the worst-case scenario that everyone felt would lead to total social breakdown was a major debt crisis; ordinary people would become so indebted to the top one or two percent of the population that they would start selling family members into slavery, or eventually, even themselves.

Well, what happened this time around? Instead of creating some sort of overarching institution to protect debtors, they create these grandiose, world-scale institutions like the IMF or S&P to protect creditors. They essentially declare (in defiance of all traditional economic logic) that no debtor should ever be allowed to default. Needless to say the result is catastrophic. We are experiencing something that to me, at least, looks exactly like what the ancients were most afraid of: a population of debtors skating at the edge of disaster.

And, I might add, if Aristotle were around today, I very much doubt he would think that the distinction between renting yourself or members of your family out to work and selling yourself or members of your family to work was more than a legal nicety. He’d probably conclude that most Americans were, for all intents and purposes, slaves.

He shines a harsh light on the current household and sovereign debt and banking crisis, the resulting class tensions, and democracy.

These ‘realities’ are being increasingly revealed to simply be ones of power. Clearly any pretence that markets maintain themselves, that debts always have to be honored, went by the boards in 2008. That’s one of the reasons I think you see the beginnings of a reaction in a remarkably similar form to what we saw during the heyday of the ‘Third World debt crisis’ – what got called, rather weirdly, the ‘anti-globalization movement’. This movement called for genuine democracy and actually tried to practice forms of direct, horizontal democracy. In the face of this there was the insidious alliance between financial elites and global bureaucrats (whether the IMF, World Bank, WTO, now EU, or what-have-you).

When thousands of people begin assembling in squares in Greece and Spain calling for real democracy what they are effectively saying is: “Look, in 2008 you let the cat out of the bag. If money really is just a social construct now, a promise, a set of IOUs and even trillions of debts can be made to vanish if sufficiently powerful players demand it then, if democracy is to mean anything, it means that everyone gets to weigh in on the process of how these promises are made and renegotiated.” I find this extraordinarily hopeful.

Read the whole interview here.

Is the SEC going to make the ratings agencies even more dangerous?

A former senior analyst of sub-prime mortgage bonds at Moody's has filed 80 pages of personal comments with the SEC on its proposed rules to "reform" how rating agencies operate.  I didn't read it all; there was enough in the first few pages to make me sick:

There was pervasive and effective management pressure for committees to issue ratings that were different from (usually higher than) those generated by the technical analysts. This had enormous practical consequences because if senior tranches had been rated Aa1, just one notch below Aaa, they would have been unmarketable.

The proposed SEC rules would confer even more trust in the managements of rating agencies.

The model used to evaluate risk assumed housing prices would rise 4% per year forever, and nobody involved was actually dumb enough to believe that.

H/t Simoleansense.

H-1b, the “Outsourcing Visa”

An email referring to Down with Globalization asks if Kathy's narrative there is accurate. My response:

Kathy seems accurate as far as she goes, but she doesn't describe the whole problem.  There are about 1 million H-1b and L-1 visa holders in the US at any one time, but there are at least 1 million more that have come here on those temporary visas to get trained and then went home taking with them the jobs of the American trainers, many of whom were then fired.  From an EPI report last year:

For several years, Congress has debated revising high-skill immigration policies as part of larger comprehensive immigration reform legislation. An important consideration is what to do about two major high-skill guest worker programs, the H-1B and L-1 visa programs, which account for an estimated 1 million guest workers.

Both of these visa programs need immediate and substantial overhaul. The goals of the H-1B and L visa programs have been to bring in foreign workers who complement the U.S. workforce. Instead, loopholes in both programs have made it too easy to bring in cheaper foreign workers, with ordinary skills, who directly substitute for, rather than complement, workers already in the country. They are clearly displacing and denying opportunities to U.S. workers.

The loopholes also provide an unfair competitive advantage to companies specializing in offshore outsourcing, undercutting companies that hire American workers. For at least the past five years nearly all of the employers receiving the most H-1B and L-1 visas are using them to offshore tens of thousands of high-wage, high-skilled American jobs.

Offshoring through the H-1B program is so common that it has been dubbed the "outsourcing visa" by India's former commerce minister.

Inside, part of the Executive Summary says this:

1. Neither visa requires a labor market test. Employers can and do bypass American workers when recruiting for open positions and even replace outright existing American workers with H-1B and L-1 guest workers.

2. Wage requirements are too low for H-1B visas, and they are non-existent for L-1. The programs are extensively used for wage arbitrage. Employers have told the GAO that they hire H-1Bs because they can legally pay below-market wages. The Department of Labor has certified wages as low as $12.25 per hour for H-1B computer professionals. The arbitrage opportunities for L-1 visas can be even greater because employers pay home-country wages. In the case of workers from India—the largest source country for L-1 visas—this can mean a 90% discount for importing an L-1 guest worker compared to hiring an American.

3. Visas are held by the employer rather than the worker. H-1B and L-1 visa workers can be easily exploited and put into poor working conditions but have little recourse because the working relationship is akin to indentured servitude.

4. Program oversight and enforcement is deficient. Department of Labor review of H-1B applications has been called a "rubber stamp" by its own Inspector General. A DHS IG report found that one in five H-1Bs were granted under false pretenses. The L-1 visa program has not been reviewed for more than four years even though the last DHS IG report found that there were "significant vulnerabilities to abuse."

Manufacturing & Technology News started with the EPI report and did its own reporting: 

There has been no growth in IT employment for a decade, with the total number of U.S. IT workers (including lower skilled workers like computer specialists and call center employees) holding steady at 3.8 million. Wages are stagnant.

That has not been the case for companies that offer IT outsourcing services. Tata was expected to hire up to 50,000 workers in 2010. Infosys is hiring between 7,000 and 8,000 workers per quarter. By comparison, Google's total worldwide employment is 20,000. Foreign outsourcing firms "are growing by Google's number in one year," says Hira. "If you had a company with that kind of growth in the United States, Obama would be all over it. But there is not a single company in the U.S. that is growing like that, certainly not in high-tech services."

Other U.S. technology companies that have embraced the outsourcing model and are actively hiring H-1B workers. Accenture, Cognizant, Larsen & Toubre Infotech and IBM India Private Ltd. are all major users of the H-1B visa program.

IBM now has more people working in India than it has working in the United States, according to data compiled by The Economist magazine. In 2003, IBM's U.S. headcount was 135,155, while it had 6,000 workers in India. By 2009, its U.S. headcount had shrunk to 105,000, while its Indian workforce numbered 100,000. Deloitte has tripled its headcount in India, from 11,000 to 33,000. "None of this gets reported in the United States," says Hira.

India now has 2 million workers employed in the IT offshoring and business process offshoring industries. An estimated 65 percent of those workers directly serve the U.S. market, according to data from the NASSCOM, the Indian IT trade association.

"You are talking about 1.3 million jobs offshored to India," says Hira. "Part of the problem is that because no one is paying attention to what is going on, the industry can make up whatever statistics it wants. So the U.S. Chamber of Commerce is using the mass layoff figures [from the Bureau of Labor Statistics] claiming that only 10,000 jobs have been offshored and they are able to get away with it."

In the meantime, U.S. companies like Accenture, IBM, EDS, HP are reporting record profits. Accenture's headcount in India surpassed its U.S. headcount in 2007. The company has 50,000 workers in India.

The companies that utilize the H-1B and L-I visas have business models that "shift as many American jobs as possible offshore," according to Hira. Eight of the top 10 H-1B employers were offshore outsourcing firms or had significant offshoring operations," according to Hira. The same held true for the top 10 L-I employers.

"The data show that the H-1B and L-I visa programs are being used to speed up the offshoring of high-wage, high tech jobs, contradicting the claims by those who argue that expanding the programs would prevent offshoring," says Hira. The Commerce Minister of India even referred to the H-1B visa program as the "outsourcing visa" in a 2009 interview with the New York Times.

Infosys has stated in its financial reports to the U.S. Securities and Exchange Commission that it is dependent on the H-1B and L-1 visas and that if they were discontinued it "would pose a significant risk to its business model," Hira reports. In its 2010 SEC filing Infosys states: "The vast majority of our employees are Indian nationals." These workers are employed at client locations. "The ability of our technology professionals to work in the United States, Europe and in other countries depends on the ability to obtain the necessary visas and work permits," writes Infosys.

Infosys revenues increased to $4.8 billion in 2010, up from $203 million in 2000. Its workforce has increased from 5,400 to 113,800. It has 10,700 H-1B and LI visa holders on its payroll.

India has transformed the entire American high-tech sector in a way that has demoralized U.S. workers, Hira argues. Companies like Pfizer, Siemens, Wachovia and Bank of America have all reportedly required their U.S. workers to train foreign replacements that have H-1B or L-I visas. "This practice, unfortunately enough, appears to be perfectly legal under the current sets of regulations and laws," writes Hira. "We do not know how widespread it is because employers have threatened workers with lawsuits and conditioned their unemployment insurance and severance packages to guarantee silence. Each new report, however, further reduces the attractiveness of IT to students of American universities."

Corporate CEOs and President Obama constantly implore more Americans to study science, technology, engineering and math, but the top concern of people working in technical fields is the negative impact of offshore outsourcing on their job prospects. A recent survey done by Information Week found that offshoring of technology jobs "is discouraging young Americans from pursuing tech careers and [is] shipping innovation abroad." The survey found that most IT workers, managers and students believe that the practice has led to the United States losing its leadership position in technology, "with 66 percent -- the single highest percentage -- citing offshore jobs movement as one of the top three reasons."

Says Hira: "I give lectures at RIT's Engineering School, and one of the classes is for a masters in product development for working mid-level engineers. They said they voted for Obama not because of health care but because they expected him to do something on offshoring, and they were sorely disappointed."

With gaping holes like this below our waterline, I can't see how it's possible for America to avoid chronic joblessness, real wages for almost everybody converging downward to those in Chindia, declining provision of public goods like education and infrastructure, substantial elimination of our middle class, and rising class barriers. I welcome any comment that explains why that's wrong.

Down with Globalization

In Tripped up by Globalization Jeffrey Sachs describes the devastating effects on the middle class in America and Europe as multinational corporations clean up with globalization. He ends with this indictment: 

The recent swoon in financial markets and the stalled recovery in the US and Europe reflect these fundamental shortcomings. There is no growth strategy, only the hope that scared and debt-burdened consumers will return to buying houses they don’t need and can’t afford. Sadly, these global economic currents will continue to claim jobs and drain capital until there is a revival of bold, concerted leadership. In the meantime, the markets will gyrate in pangs of uncertainty.

True, but I thought the following comment by Kathy a more compelling description of what is really happening to millions of loyal, hardworking, well-educated Americans:  

I live in Silicon Valley, CA home of the Asian competitor, next door. In 1985, when my engineer husband and I moved here we got jobs that paid about $43,000 for him (he has a degree in Math and one in computer science) and I was paid $30,000(for a B.A. economics and M.S industrial psychology). We worked about 75 hours per week on average (most weekends too). My husband got promoted every year and I also moved up from very hard work. We saved about 60% of our income and invested it in houses and stocks. When we started, we had literally nothing --just a Honda hatchback car.

After 11 years, we had saved and invested and lived in a house in a working class neighborhood---that was inhabited by mostly auto mechanics in the 1960's. We bought this house for $415,000 and it was in terrible shape (built in 1952). We fixed it up with our own labor on weekends.

By 2000 we were doing pretty well, but our standard of living was really no better than the middle class existance I had as a kid....prices were so very high in Silicon Valley, you see. Houses were insanely expensive as was just about everything. We both noticed the phenominon inside our companies that more and more people from India, China and South Korea were taking jobs here and moving into our neighborhoods. As liberals, we welcomed this and though it was kind of "nice."

By 2005, it became obvious that this "trend" of shipping more and more people from India, China and South Korea to Silicon Valley was getting way out of hand. I started researching the trend and found out that nearly 1.2 million American engineers had been fired and replaced with foreign H1B and L-1 visa workers from these countries. Main streets all over the Valley were now dominated by Chinese, Korean and Indian-owned small businesses. They moved really fast. Companies like Infosys and Wipro were making bilions off this low cost trade in its own people.

Meanwhile, Americans with B.S.'s Masters and PhD's in Math, Computer Science and Engineering were getting fired left and right and outright replaced by non-citizens. It was alarming. They I found this website called CompeteAmerica.org which showed all the multinational tech giants like Intel, Cisco, Oracle, Microsoft and many others had joined forces to allow an "unlimited" number of H1B visa immigrants to come to the U.S and take our college grad jobs in 25 categories, even beyond engineering and software.

This phenomenon is going on all over the U.S. and is sponsered by the U.S. Chamber of Commerce and many U.S. multinationals. They have been "claiming" for years that there is a shortage of qualified, educated citizens to fill these jobs. That is a total and utter propoganda lie. There are millions of highly qualified engineers, and every category who cannot even get an interview anymore. U.S. universities have been flooded with foreign students who take our places because they are charged 1.5 -2.5 times more tuition than American students. We invented and developed the technologies for PC's, smart phones, the Internet, and the semiconductors. The Asians are now flooding our country and being allowed to take our jobs.

Meanwhile, in my neighborhood including all the towns in the San Francisco Bay area that hire technology professionals, the U.S. census data show a 50% increase in the Asian population between 2000 and 2010.

During this time period, pay for senior management in high tech companies has risen 500% while wages for highly educated engineers, and scientists continue to drop. Indian engineers live 4 people to a small apartment and are "promised" U.S. citizenship in return for cheap labor. Some of them get it. Many do not. I want to say it's not thier fault and they are just taking a good opportunity---and they are---but I resent it. Why should I --the citizen who worked really hard, got the education and did all the hard work get replaced by a low cost alternative non-citizen by the age of 40? This is wrong. Not to mention my education cost $90,000. What is the cost-benifit in that for any engineer?

The Americans have been fired and these companies are breaking the laws for visa holders (which say you can only hire H1B or L1 if you show there is no American who can fill the job) they are firing American's (from Harvard, MIT, and all our great schools) and replacing them with anyone who will take the 1/3 -2/3 pay cut. At least half of these Indian, Chinese and South Korean tech workers went to "junior" colleges or worse--non accredited Goldman Sachs private college mills which have zero requirements to get in. This is not progress.

This is what globalization has meant to me and my neighbors in California. I did not even mention the massive illegal immigration from Mexico and Central America---the census showed they numbered 35 million in 2000 and 50 million in 2010---accounting for almost all the U.S. population growth since 2000.

This is a strategy to make U.S. multinationals rich, and to utterly destroy the middle and lower classes through opening the floodgates of immigration. And I was all warm and fuzzy about "equality." This is not equality----this is the treason of the multinationals. They have destroyed us.

I wanted to give readers a real life picture of what is happening at street level. Some "granularity."

Down with globalization.

Rebuild America

America's infrastructure is largely worn out and in some places was never built. Now, with government borrowing costs at historic lows, is the time to launch a 10-year program to rebuild everything. It should be the largest imaginable program and involve state and local financing as well as federal. It should be comparable in relative size, visibility, and impact to the great water projects of the 1930s, the interstate highway system of the 1950s, and the space program of the 1960s. It would, of course, leave future generations additional debt to service but also with even more valuable benefits—safe and efficient transportation and utility systems that will cost less to maintain than the crumbling mess that will be replaced. Although it would create millions of jobs, it should be sold as an investment in America's public facilities and future. It would be good election-year politics for Obama to spend the next year selling a visionary Rebuild America Investment even if it doesn't get through Congress.

We have thousands of bridges and thousands of miles of roads that are worn out or obsolete. Occasionally one collapses with tragic and humiliating results. Many large urban sewer systems are ancient and inadequate, and we never built much of the legally-required sewage treatment capacity that could clean up our waterways and conserve our water resources. Water supply mains in many areas are worn out and undersized. Our air traffic control system is obsolete and increasingly unsafe, and many airports need expansion, upgrading, or replacement. We need to improve harbors and add parks, public buildings, and other public facilities that are inadequate for our much larger and still growing population. Where mass transit systems and tunnels make sense, now is the time to press forward with those projects. Perhaps there are also "green energy" and other types of infrastructure investments that it would be appropriate for governments to make.

We know we have to do this, but why now? In addition to the obvious need and the availability of cheap money, it would renew the American spirit and jump start and sustain employment, the tax base, and economic growth at a time when we desperately need all of that. Many new construction jobs would go to our most underemployed demographic—men without college degrees. This is not government borrowing to cover a current shortfall between revenues and expenditures. It is not a "stimulus program" or a jobs program to hire people to dig holes and fill them in again just to put purchasing power into the economy, which are bad, or at least unfortunate, reasons to borrow. Borrowing long term for a Rebuild America Investment is a necessary and enduring capital investment in national greatness.

Rebuild America Investment should not be so short-term that only "shovel-ready" projects can get funded. I would think it would take at least a decade, and some projects such as mass transit perhaps 15-20 years to complete. I really don't know how much it would cost, but that can't be an argument against doing this because these are "must-do" investments. I have a feeling, however, that we need to be thinking of numbers in the low trillions of dollars. To put that in perspective, our current, sputtering GDP is $15 trillion per year and employs about 130 million Americans. On that basis, a $3 trillion Rebuild America Investment spent at the rate of $300 billion per year would add 2% to the GDP growth rate and 2.6 million jobs, which is a healthy fraction of the 14 million additional jobs we need to get back to full employment.

If Obama wants to win re-election despite the fact that the economic and employment situation are sure to be still terrible in the fall of 2012, he should make Rebuild America Investment his brand and spend the next year going around the country selling it and trying to jam it through Congress. It will excite voters and draw them too him. If Republicans oppose it (they may not), he can profit greatly from rhetorically contrasting his investment initiative to make America great again—an America we'll proud of—with their insistence on dragging America down to the jerry-build, patched-up level of the former USSR. In any event, it changes the subject from all those things Republicans would prefer to talk about. Remember, Harry Truman won re-election in 1948 by campaigning against the "do-nothing Congress." In order to make this work for him politically, Obama would have to overcome his impulse to compromise, half measures, timidity, and letting his adversaries define the issues. If he tries to go big rhetorically but small in dollar terms, which is what he's been doing, that will be widely understood as a cynical attempt to win votes without actually improving the lives of Americans and their children and as further evidence that he has no vision, can't lead, and should be retired to private life.

Update on Monday, August 15, 2011 at 07:21AM by Skeptic

The American Society of Civil Engineers has done a detailed study of our infrastructure deficiencies and estimated it would cost $2 trillion to fix them.

Update on Tuesday, August 16, 2011 at 10:57AM by Skeptic

Bo Cutter also proposes a decade-long infrastructure renewal progam, which he calls "The Project for American Renewal." He writes persuasively about the hazards to America--and Obama's re-election--of continuing to think small.  For one reason, no matter how small and sensible his little initiatives might be, the GOP will not let him have any of them.  Cutter headed Obama's OMB transition team; let's hope his advice can still get to the oval office.  I don't agree with everything Cutter says; tackling tax reform now is the prime example. With the current makeup of Congress, that can't end well, and it's so complicated that failure to adopt reform will be plausibly blamed on both parties and the President, making it nearly useless as a campaign issue.

Robert Borosage also urges Obama to get behind a bold "Rebuild America" program, but he seems to bury it in a long list of other important policy changes.  I endorse those other changes too, but I think Obama has to pick just one or two signature initiatives in order to avoid diluting his energy and blurring his message. 

Update on Tuesday, August 16, 2011 at 12:48PM by Skeptic

For factual resources on this topic, go to Build America's Future, the website of a non-partisan coalition formed by Michael Bloomberg, Ed Rendell, and Arnold Schwartzeneger in January 2008. Last week it released a report calling for an infrastructure investment program of $200 billion per year for ten years, $2 trillion total. In an interview by Ezra Klein on MSNBC's Martin Bashir show today, Gov. Rendell briefly described the proposal and said it would add 5 million new jobs to our economy.

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Update on Friday, August 26, 2011 at 02:18PM by Skeptic

Center for American Progress released today an issue brief Spurring Job Creation in the Private Sector: Three Elements that any Jobs Plan Should Include. It is not exclusively about infrastructure, and it's presented as a jobs plan instead of a rebuilding plan, but there is much overlap and it contains helpful analysis and detail. But the political positioning of any such program is critical because it will not be enacted--not even a little bit of it will get through the House.  So the dominant consideration in designing and framing the initiative should be how to affect the 2012 elections.

We don’t have a Social Security problem; we have an unemployment problem.

As our political class wrangles about the federal budget deficits and debt, there are persistent wrong-headed proposals to raise the Social Security retirement age and to make annual cost-of-living adjustments ("COLA") smaller. We can restore actuarial balance to Social Security by simply restoring full employment, and if we can't or won't restore full employment we should lower the retirement age and raise the COLA.

The Social Security "Problem"

The current problem with the Social Security retirement system is that in recent years taxes paid into the system have been too small, when supplemented by scheduled drawdowns from the accumulated trust fund, to pay all of the scheduled benefits over all of the next 75 years. At present and projected receipt levels, the trust fund will be exhausted in about 25 years, after which current receipts will be only large enough to fund about 77% of the scheduled benefits out to the planning horizon. This is not occurring because nobody noticed that there were a lot of baby boomers who were going to retire but because the percentage of working-age Americans in employment has been unexpectedly shrinking since 2000. Here, courtesy of the St. Louis Fed, is the employment-to-population ratio for Americans 16+ years old.

If the employment-population ratio had continued at the 2000 level, the trust fund would still be increasing, and current receipts plus trust fund drawdowns would never become insufficient to pay presently scheduled benefits. With full employment there is no Social Security funding problem at all. None. All scheduled benefits can be paid for at least 75 years without any tax or benefit changes. In other words, we don't have a Social Security problem, we have an unemployment problem.

In the political arena, we should insist on solving the immediate and devastating unemployment problem and not be drawn into discussing Social Security changes now to prevent a crisis a quarter century from now. If we are going to discuss Social Security at all, we should be demanding changes that make it better for America instead of giving credence to proposals that will both exacerbate unemployment and shrink the safety net.

The retirement age should go down, not up.

The proposal to raise the retirement age is intended to improve Social Security finances by both reducing total benefits paid and collecting more Social Security taxes from seniors who defer retirement. The unintended* but unavoidable consequence of doing that is that senior citizens who keep working will not be making room in the work force for young people, who must then be supported by their parents or some other government program or left in the streets.** This is not a fanciful or trivial problem or one caused by the Great Recession; it has been happening for at least 10 years.

Those 55 and older have been staying in employment longer each year since 1993 and have hardly given up any jobs in the Great Recession. In stark contrast, the employment ratio for 16-24 year-olds has dropped like a rock since 2000. The employment situation for young adults would be improved by lowering the retirement age to get seniors out of the workforce sooner. If there is going to be chronic unemployment, the least bad option is to have unemployed seniors instead of unemployed youth.

The COLA should be changed to CPI-E which recognizes the spending patterns of seniors.

Another proposal to lower the Social Security expenditure rate is to base annual cost of living adjustments on a new consumer price index, "chained CPI." This differs from the currently applicable CPI-W index in that the chained series adjusts the relative weights in the "basket" of goods and services on which prices are tracked to take into account consumers' changes in buying patterns. For example, when consumers can no longer afford steak, they buy hamburger, and when they can't afford that they move successively to bologna and low-protein staples. Thus, a smaller COLA forces lower spending and then (mis)calculates that a smaller COLA enables the beneficiary to stay even. Although the real reason for wanting to move to chained-CPI is simply to reduce Social Security outlays, proponents argue that it is more accurate than CPI-W and therefore fair to everybody. Not so.

If accuracy and fairness is the goal, we should adjust Social Security benefits by an index, CPI-E, which is based on the unique consumption patterns of seniors and has already been developed by BLS. Seniors spend relatively more on health care and housing and less on transportation and education, for example. Switching from CPI-W (which specifically excludes the spending patterns of retirees) to CPI-E (E for elderly) would generate somewhat larger annual increases in Social Security benefits as health care continues to be one of seniors' fastest increasing costs.

Be competent negotiators for a change.

Tactically, those who want to protect Social Security and solve broader economic and social problems, should be demanding a lower retirement age and a switch to CPI-E because the obvious compromise between that and a higher retirement age and chained CPI is the status quo. On the other hand, if progressives only defend the status quo, a compromise with proponents of a higher retirement age and chained CPI is more unnecessary economic and social distress.

_______

* Of course, there are those who fully intend to weaken Social Security because they want to privatize or eliminate it altogether.

** An additional problem with raising the retirement age is how to support senior citizens who don't keep working those extra years. One cost will be that Social Security disability benefit payments will increase. ADDED 8/21/2011: The disability trust fund will be exhausted in 2017 because of burgeoning applications by people who have lost their jobs and are arguably disabled, according to recent estimates.

Update on Wednesday, August 17, 2011 at 07:35AM by Skeptic

Richard Eskow shows how much a shift to chained CPI would reduce typical benefits after a decade or two and discusses the politics of doing that and/or raising the retirement age.

Update on Tuesday, August 23, 2011 at 10:15AM by Skeptic

Kevin Drum points out that retirees in the top half of the income distribution live about 4 years longer on average than bottom-half earners. Thus, raising the retirement age would cut the benefits of bottom-half earners more than of top-half earners, which goes against the idea of needs testing. In another post Drum links to a 2010 CBO study reporting the projected effect on OASDI of 30 different adjustments that have been proposed. The summary table from the CBO paper evaluates options in terms of their effect on the "actuarial balance," which was then -0.6 percent of GDP. Thus, an option that has a +0.3 change in the actuarial balance fixes half the problem.

Update on Tuesday, July 28, 2015 at 08:50PM by Skeptic

This post says the problem is the failure of wages to keep up with productivity increases, in other words growing inequality, that upsets the Social Security cash flows.

How would your family cope with 20% pay cuts? What if your customers got 20% pay cuts?

Edward Hadas, Martin Hutchinson, and Anthony Currie say, "American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close. . . .  It’s possible to run the numbers to show that American manufacturing workers should take average real wage cuts of as much as 20 percent to get into global balance." Are American businesses trying to reduce their payroll costs to that extent?  You bet.  For example, after restating the management challenge in Retooling Labor Costs, management consultants Booz & Company suggest techniques for getting high-quality workers—the same ones or replacements—to do the same amount of work for 15-20% less money.

Over time, compensation policies have gotten woefully out of whack, such that wages for some workers in some jobs greatly exceed what the market says those jobs are worth.

. . . .

Many managers have chosen to ignore this emotionally charged issue — especially when business is booming. This attitude is no longer tenable, however, given the pressure that established companies feel today to cut costs wisely in order to keep up with intense competition from both upstarts and emerging markets. In this environment, the gap between high wages and market value must be narrowed, if not closed.

. . . .

For many companies, the need to address imbalanced labor costs couldn’t be more urgent: New entrants are hiring people at deeply discounted market rates, taking advantage of today’s steep unemployment numbers, and widening the labor-cost gap with established businesses that have more entrenched workforces. However, any company seeking to meet this challenge must be ready to embark on a lengthy and extremely disciplined campaign — one that will determine the morale, skills, talent levels, recruitment potential, performance, productivity, and costs of its workforce for a very long time.

. . . . With proper execution, net labor savings of 15 to 20 percent are possible, because this approach goes beyond the need for immediate savings and confronts systemic and sometimes dysfunctional wage and salary practices.

Although this is perfectly rational behavior for US companies competing with domestic startups offering much lower wages to our vast numbers of unemployed and with the even-lower employment costs in Chindia, it gives further impetus to the 10-year downward spiral of American families and our economy at large.  Only federal policy changes can reverse this retreat from greatness, but first we have to notice what’s happening and decide to care.

Update on Wednesday, August 10, 2011 at 06:49AM by Skeptic

How would your family cope? Like this perhaps? Economic Uncertainty Leading to Global Unrest  (h/t Christine)

Update on Friday, August 19, 2011 at 01:06PM by Skeptic

Steve Keen uses technical economic analysis to show that, although reduced wage costs is good for one business, when everybody gets lower wage costs, everybody is worse off than with stable or rising wage levels--especially when there is a large debt overhang.  He discusses Keynes, Irving Fisher, and Paul Krugman's ideas on this subject as well as his own.

Deflation makes existing debt harder to service and may induce even more desperate price reductions, creating a downward spiral. Of course, if you're a bank this is good--up to the point where your debtors default and you can't pay your creditors.

Congressional Republicans are still holding hostages. Will Obama deal?

Congress is scheduled to be in recess from next week until September 5.  When they get back, they will have only 25 days to authorize spending for the new fiscal year beginning October 1.  Stan Collender expects Republicans to use the same terrorist tactics they did over the debt ceiling bill: 

Fiscal 2011 ends Sept. 30 and, given the current state of the fiscal 2012 appropriations debate, that almost certainly means a government shutdown will be threatened over the funding level for a continuing resolution.

Yes, the debt ceiling deal includes spending caps that, in theory, should make a CR easier to enact. But, especially in the House, a cap will be taken by some as just an upper limit rather than an agreed-upon amount that doesn’t require any further changes. As a result, the CR debate will be neither quick nor simple, with tea partyers pushing for spending reductions for fiscal 2012 beyond those in the deal.

What could make matters worse is that the CR might not — or probably won’t — be for a full year. Less than 24 hours after the debt ceiling agreement was announced, the GOP leadership apparently was using the prospect of a series of short-term continuing resolutions with additional spending cuts on each as one of the inducements to convince tea partyers to vote for the debt ceiling deal.

Update on Wednesday, August 3, 2011 at 10:38AM by Skeptic

While waiting to go on Larry Kudlow’s show August 1, Jared Bernstein heard Sen Mitch McConnell say:

“What we have done, Larry, also is set a new template. In the future, any president, this one or another one, when they request us to raise the debt ceiling it will not be clean anymore. This is just the first step.  This, we anticipate, will take us into 2013. Whoever the new president is, is probably going to be asking us to raise the debt ceiling again. Then we will go through the process again and see what we can continue to achieve in connection with these debt ceiling requests of presidents to get our financial house in order.”

The question is whether McConnell and his GOP colleagues will see an important difference between a debt ceiling vote and a vote on a continuing resolution to keep government operating while budget negotiations are pending. I doubt it.

Pitchforks before Parties

Disappointed progressives are talking about a third party in the 2012 Presidential election and floating the names of people they might run against Obama. I suggest that puts the cart before the horse. First, progressives need a movement organized to promote some unifying principles or ideology that becomes so big and powerful it can't be ignored by the two major parties. From there they have the potential to become much more influential in the Democratic Party—as the Tea Party has been influential in the Republican Party—which ought to be their preferred outcome. A third party would be a second best outcome because once beaten a third party will, according to historical precedents, fade back into obscurity.

Popular movements have had many successes in American history. Remember these? Abolitionists got rid of slavery. The women's suffrage movement got women the vote. The temperance movement got us Prohibition at a national level and keeps it in place in some States and localities. The labor movement made it legal to strike and to engage in collective bargaining—both of which had been criminal conspiracies. The civil rights movement broke the back of Jim Crow, resulted in landmark federal court decisions and legislation, and contributed greatly to a realignment of the two major parties. The anti-Vietnam-War movement brought down at least one President and also helped cause the major party realignment. The women's liberation movement resulted in Roe v. Wade and much else. The environmental movement got us dramatically cleaner air, water, etc. The anti-tax movement was responsible for Prop. 13, its progeny in other States, and Grover Norquist's anti-tax-pledge straight jacket on the GOP. The LGBT movement is having success changing discriminatory laws that affect them. The NRA and anti-gun-control movement have made it nearly impossible to regulate guns in America. The Tea Party (not really a party but a movement), which didn't exist two years ago, now has 53 members of Congress acting in concert to exercise a virtual veto power over GOP policy in the House of Representatives.

Movements are initially subversive and willing to be vilified by the mainstream press and political class. They are organized around moral absolutes and/or emotions with core beliefs that can be expressed on a bumper sticker. They are committed to a relentless struggle over a long haul. They are interested in electoral politics only as a way to achieve their policy goals. Political parties, on the other hand, are organized around candidates coalitions, try to downplay ideological divisions that interfere with coalition building/maintenance, are focused almost entirely on the winning the next election, and are ready to "rise above principle" to win elections. A movement can take over or change a political party, but a political party probably can't take over a movement.

So, I guess what I'm saying is that progressives need some good community organizers long before they'll need another candidate.

Update on Wednesday, November 16, 2011 at 03:18PM by Skeptic

Van Jones, a founder of Take Back the American Dream movement has reached similar conclusions but on a more scholarly and robust basis. After resigning as a White House staffer in September 2009, Jones took a part-time teaching position at Princeton and made himself an expert in the Tea Party. He found that the Tea Party is a "meta-brand," in that all of its many single-issue constituent organizations could comfortably add the Tea Party brand to their own brand and concerns without giving up anything. Jones said it was brilliant and set out to do the same thing for progressives. He emphasizes that an effective meta-brand can't be an individual leader like Obama or a heirarchical organization like a political party. To be successful the meta-brand must be an idea that is patriotic, portable to all parts of the nation, and positive.  An excerpt from Time's story on this:

[Van Jones created] . . . a 70-slide PowerPoint presentation that he began showing to the leaders of just about  every progressive institution on both  coasts. Modern social change, he argued, was driven from the ground up through  “meta-branded” movements organized online through social media. The key, he said, was to construct an identity that  people from different groups could join without abandoning their own priorities.  In the 2008 campaign, the only brand liberals rallied around was Barack Obama.  But his election gave liberals the wrong theory of the presidency, Jones came to believe. “Lyndon Johnson wasn’t out there leading the civil rights movement,” he says. “Abraham Lincoln was not an abolitionist.” If liberals wanted change, in other words, they would need a grassroots movement of their own. It would have to be organized around a set of ideals, not any particular person. “We don’t  want leader-centric movements,” Jones said. “We want leader-full movements.”  Deepak­ Bhargava, the executive director of one of the left’s most active Washington institutions, the Center for Community Change, says Jones’ PowerPoint presentation reminded the liberal establishment that it wasn’t tied to Obama’s struggles. “We were all incredibly taken with the analysis,” he said.

A video of Jones making his pitch (but with only a few of the 70 slides) in the keynote address to the October 2011 Take Back the American Dream Conference is here. 

Update on Monday, February 6, 2012 at 11:20AM by Skeptic

Richard Kirsch, a leader of the fight to enact the Affordable Care Act, writes about the indispensability of organized movements in Organizing Matters: A Lesson from Outside the Beltway. An excerpt:

The final selection from Fighting for Our Health doesn’t need an introduction. The key lesson from our campaign is that change  – at least change that benefits the 99% — won’t come from elites or from Washington. When ordinary people get organized they can still do extraordinary things. But the key here is getting organized. The media likes to lift up singular “heroes” who are “making a difference.” But political change is not made by individuals on their own. Change, whether through organized campaigns like Health Care for America Now or movements with broader energy like the Occupations that broke out across America this fall, happen when masses of people come together to take action in a focused, strategic fashion.

If there is one lesson that I’m hoping will be learned from the campaign that HCAN ran, it is that grassroots organizing is essential to overcome the power that big corporations and wealthy elites wield. As people rose up to overthrow dictatorships in the Middle East, we witnessed that power. At home, when tens of thousands of people rallied in Wisconsin in the winter of 2011, and then translated that energy at the ballot box, we witnessed that power. But we don’t have to wait until a breaking point is reached for strategically organized campaigns that harness the aspirations of ordinary Americans to make significant change. That’s the most important decision we made at Health Care for America Now. We focused our strategy outside the Beltway by organizing a grassroots campaign built on the existing infrastructure of organizations that have a mission of winning economic justice.

Are you as dumb as a bag of hammers?

An online IQ test has determined that the lower your IQ, the more likely you are to be using Microsoft's Internet Explorer as your browser.

Switch to Opera, Camino, or IE with Chrome Frame (whatever those are) and gain 40 IQ points.

Update on Tuesday, August 9, 2011 at 11:46AM by Skeptic

Probably a hoax.

Most Read Realitybase Posts in July

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared. This post is now the #1 response to a Google search for "plutonomy memo."

How the Luckiest Generation lived the American Dream A narrated slide show (in movie format) with graphs showing how Depression Babies surfed through life on a big wave of job creation, upward mobility, and rising real wages not seen before or since.

US health care efficiency did not go off the rails until about 30 years ago. Updates to this post show that the rate of increase in US life expectancy at birth, especially for females, abruptly slowed in 1982 and that this was apparently unrelated to healthcare spending which continued rising at a very steady rate.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

Comparative Advantage—The Unicorn of Free Trade A collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions.

American Youth: Digitally Skilled and Unemployable. A graph shows that Americans under 25, who presumably are the most familiar with digital technology, are losing employment share to those over 55, who presumably are least at home in the digital age. This counterintuitive trend started long before the Great Recession.

The Plan to Reduce Income Inequality by Driving down the Wages of College Graduates Critique of a recent paper by Georgetown University economists who say the college wage premium is too high and estimate how big an oversupply of college graduates we need to turn out to drive that wage premium down from 74% to 46%.

The score is Chindia 98, USA 2, and USA is sticking to its game plan. Only 2% of the additional jobs created in America between 1990 and 2008 were in sectors subject to foreign competition, but there is no evidence America will change the policies that caused this disaster.

Skilled labor shortages in declining industries accelerate the decline. One might think that widespread layoffs in a shrinking industry would create a surplus of willing workers, but in fact there are shortages because skilled workers with options move as fast as they can to growing, better-paying industries.

The Recession Is Coming! The Recession Is Coming! (Republished with corrected chart.) December 2007 post with charts showing America's middle class had already been in recession for 7 years and asking if we really care about them.

The score is Chindia 98, USA 2, and USA is sticking to its game plan.

There were 27.3 million net new jobs created in America between 1990 and 2008, but 98% were in sectors of the economy that are not subject to foreign competition, according to a recent paper by Nobel laureate Michael Spence and Sandile Hlatshwayo. 

Government at all levels is the largest employer in the nontradable sector and accounts for more than 22.5 million jobs in 2008. Health care is a close second, with an end of period total of 16.3 million. In terms of increments, health care’s growth of 6.3 million jobs tops the list and the government’s addition of 4.1 million comes in second. These two increments combined produced almost 40 percent of the total net incremental employment in the economy since 1990.

"Tradable" goods and services are those that can feasibly be provided from afar.  For example, pipe is tradable, but installing pipe in your house is not; x-rays can be read by experts thousands of miles away, but massage therapy is strictly local.  What does it mean that the US has created almost no net jobs in tradable sectors since 1990?  Nothing good for America.  It means we are not increasing our ability to export goods and services, which conventional trade theory assumes--and requires to prove mutual benefit to both trading nations.  There is no economic reason for any company to want to create tradable sector jobs in America so long as US labor rates continue to be higher than in Chindia and there are labor surpluses in both places. Under current policies, we should be expecting continuing stagnation in all tradable sectors of the US economy for a long, long time to come.

What makes this even worse for ordinary Americans is that non-tradable sectors like government and health care services have continued to grow and to outgrow the ability of the population at large and taxpayers to pay for them. The political attack on the revenues of these two sectors is a natural reaction to that growing reality. That is regrettable because we can't shrink our way to greatness. Instead, we should be doing whatever it takes to achieve full domestic employment and balanced trade--even if that means balancing trade at a lower level. Neither the national Dems nor GOP seem even remotely interested in doing that. They are ignoring the ugly facts, sticking with ideology, and vying for the right to lead America's long painful retreat from greatness.

Our Plutocrats Versus Their Plutocrats

Economist Jeffrey Sachs says both major political parties are now run by different groups of plutocrats and that the only prospect of having an America that works for ordinary people is a third party movement. (h/t Mark Thoma)

The idea that the Republicans are for the billionaires and the Democrats are for the common man is quaint but outdated. It's more accurate to say that the Republicans are for Big Oil while the Democrats are for Big Banks. That has been the case since the modern Democratic Party was re-created by Bill Clinton and Robert Rubin.

Thus, at every crucial opportunity, Obama has failed to stand up for the poor and middle class. He refused to tax the banks and hedge funds properly on their outlandish profits; he refused to limit in a serious way the bankers' mega-bonuses even when the bonuses were financed by taxpayer bailouts; and he even refused to stand up against extending the Bush tax cuts for the rich last December, though 60 percent of the electorate repeatedly and consistently demanded that the Bush tax cuts at the top should be ended. It's not hard to understand why. Obama and Democratic Party politicians rely on Wall Street and the super-rich for campaign contributions the same way that the Republicans rely on oil and coal. In America today, only the rich have political power.

. . . .

. . . . Now that the resort to mega-deficits has run its course, Obama is on the verge of abandoning the poor and middle class, by agreeing with the plutocrats in Congress to cut spending on Medicaid, Medicare, Social Security, and discretionary civilian spending, while protecting the military and the low tax rates on the rich (if not lowering those top tax rates further according to the secret machinations of the Gang of Six, now endorsed by the president!)

Who runs America today? The rich and the multinational corporations. Who runs the White House? David Plouffe, whose job it is to make sure that ever word, every action of the president is calculated for electoral gain rather than the country's needs. Who runs the Congress, on both sides of the aisle? The lobbyists, who win in every negotiation. And who loses? The American people, who have said repeatedly that they want a budget that sharply cuts the military, ends the wars, raises taxes on the rich, protects the poor and the middle class, and invests in America's future not just in Obama's speeches but in fact.

America needs a third-party movement to break the hammerlock of the financial elites. Until that happens, the political class and the media conglomerates will continue to spew lies, American militarism will continue to destabilize a growing swath of the world, and the country will continue its economic decline.

Update on Saturday, July 23, 2011 at 12:49PM by Skeptic

Are there enough uncommitted plutocrats to fund a third party?

Update on Sunday, July 24, 2011 at 11:35AM by Skeptic

Tom Friedman describes a third party movement funded by some "serious hedge fund money". Americans Elect is launching an on-line nominating process with rules designed to produce a bipartisan ticket.

The recent post on healthcare efficiency has been updated.

I've done some more analysis of the matters raised in US healthcare efficiency did not go off the rails until about 30 years ago and posted a lengthy update with charts there.  It became clear that there was no "going off the rails" of healthcare spending--it increased every year at a near constant rate.  What did go off the rails in 1982 was the rate of increase in life expectancy at birth--the rate of increase slowed abruptly and dramatically. Possibly that's because we suddenly shifted spending away from those kinds of care that most affect life expectancy and started spending instead on care that has less or no effect on that outcome.  Or maybe there is only a tenuous connection between spending and life expectancy, and we need to look to other outcomes to measure healthcare spending efficiency.  Or maybe we need to look at how life expectancies at birth are estimated.

America's spending problem in one picture

From Robert Borosage at Campaign for America's Future:

Also included in "Mandatory Spending" are the "automatic stabilizers" such as unemployment insurance and food stamps which exist to help cushion unemployment and go back down when unemployment decreases.

US health care efficiency did not go off the rails until about 30 years ago.

The US has the lowest life expectancy of any of the 20 richest nations and vastly higher per-capita healthcare costs. Okay, I think we knew that, but we didn't know until Lane Kenworthy did the analysis and posted the following chart on his blog that something(s) happened in the early 1980s that resulted in our going from just being one of the worst performers in this group to being a radical high-cost, short-lives outlier.

(Dollar figures are indexed to 2005. Life expectancies are at birth.)

Looking at the black lines representing the other 19 nations, they all have about the same slope of increasing life expectancy vs. increasing expenditures. Until the early 1980s, the US trend line was on that same slope, but then we alone veered off into a zone of radically increasing costs without achieving any improvement in our near-the-bottom life expectancy ranking in this group of 20. Of course, this graph does not tell us what caused the divergence, but it does point to a time period that should get our attention. What US policy changes, or market changes that affected only the US, were occurring then and continuing?

My top targets for investigation would be out-patient care and administration. Kenworthy's post links to some good sources, especially this September 30, 2009 OECD report to Congress. Chart 8 there compares healthcare spending by category (out-patient, in-patient, drugs, etc.) among the US, Canada, France, Germany, and Japan.

Note that in all seven categories, the US spends more than any of the others, but what stands out the most is that the US spends 2.4 times as much as the second-place nation on out-patient care and 2.1 times as much on administration. If both of these categories had been only at the levels of the second-place nations, US healthcare spending would have been $2,132 per-capita (29%) less than it actually was in 2007. In-patient care costs alone would have been $1,863 lower. Together these two categories were 53% of 2007 US healthcare spending.

One possible explanation for the divergence in the first chart above is that when wages and salaries for middle-income Americans started being limited to the inflation rate in about 1973, incomes of US healthcare providers kept rising faster than inflation. If that happened, it might well be because the US healthcare sector has been very effective, politically and/or otherwise, in protecting its incomes from the general stagnation of real personal incomes. If that's what happened, and if the incomes of the healthcare sector in the other 19 nations only kept pace with inflation, we should expect the above graph to look like it does.

Update on Friday, July 22, 2011 at 05:29PM by Skeptic

I did not expect this:  The abrupt change in the early 1980s was not caused by an accelerating rate of spending increases—those were very smooth—but by an abruptly decreasing rate of improvement in life expectancy.

When I plotted U.S. health care expenditures per capita from 1960 to 2009, the annual increase was very steady with no strong inflection points especially in the early 1980s.  The binomial trend line is an excellent fit with R² = 0.9984.

When I converted these to real dollars using CPI-U (1982-84 = 100), it became a little easier to imagine a steepening of the curve in about 1980, but the binomial trend line is still an excellent fit with R² = 0.997. 

Then I downloaded the CDC life expectancy tables and plotted those.  Aha!  From 1968 to 1978, life expectancy at birth increased by almost 4 years, but from 1982 to 2006 the increase was only 3 additional years—even though spending kept smoothly increasing.

When I put these two data sets together, I got the following chart that looks very much like Kenworthy’s plot for the U.S. except I switched the x- and y-axes and used a different CPI index base year.

A few comments.

The steady rate of per-capita dollar increases throughout the period is remarkable in that HC spending was totally impervious to recessions.  They actually rose during the recessions of 1981, 1990, and 2001.  Interestingly, Austin Frakt has a chart showing that the log of per-capita health care expenditures vs. the log of per-capita GDP (both in nominal dollars) is essentially a straight line since 1935, meaning HCE have grown at the same exponential rate vs. GDP throughout the period. There is a good wide-ranging discussion in comments about why that relationship may be so strong.  Commenter Joe Fox posts data showing that HCE growth in 28 other OECD nations is also closely tied to (and in every case greater than) their respective GDP growth rates, but the specific exponents vary widely from 1.011 (Israel) to 1.388 (U.S.) to 1.595 (Turkey). 

Maybe it was wrong to say in the title to this post that “health care efficiency went off the rails” 30 years ago. Certainly there are other outcomes that can be used to measure “efficiency,” and maybe longevity isn’t the best one.  Perhaps there just isn’t very much causal relationship between overall healthcare spending and increasing life expectancy at birth.  Perhaps it’s the case that spending on pre-natal and neo-natal care, vaccines, and antibiotics have a big impact on infant survival while most expenditures during mid-life and end-of-life interventions have relatively small impacts on the survival rate, but I’m only guessing.

Athough per-capita health care spending is trending upward at an increasing rate in dollar terms, it is trending downward in percentage terms.

But the rate of increase in GDP per capita is, regrettably, also trending downward—but not as fast. (By the way, it can’t be good news that per-capita GDP growth rate trended downward despite the strong and unprecedented increase in the employment-to-population ratio from 1960 to 2000.)

I don’t know how to square these last two graphs with the implications of Austin Frakt’s log-log plot.

Update on Saturday, July 23, 2011 at 04:45PM by Skeptic

The abrupt adverse shift in the rate of increase of life expectancy starting in about 1980 was largely a female phenomenon, according to the following Figure 24 from Health, United States, 2006.  Since it seems unlikely that this health shift could have resulted from a sudden and permanent spending differential between males and females, improvement in longevity must be at least partly independent of general health care spending levels. 

Update on Monday, July 25, 2011 at 09:29AM by Skeptic

Did US health care spending increase at a rate faster than was justified or affordable? According to CDC’s Health, United States, 2010, between 1990 and 2008 health care costs increased at an average annual rate of 4.8% more than would be expected from population growth and general inflation. Table 124.  One-third of that increase is attributed to inflation in the health care sector that was greater than inflation in the economy as a whole.  The other 2/3 is attributed to a residual the report calls "intensity."  Intensity could include a higher proportion of the population getting services, the same population getting additional products and services such as preventive care, hip replacements, cosmetic surgery or specialist referrals, more diagnostic tests for the same clinical problems, etc. At an average annual rate of increase of 4.8%, real per-capita health care expenditures would double every 15 years (Rule of 72).

Skilled labor shortages in declining industries accelerate the decline.

There are numerous reports recently that manufacturers are having trouble finding enough skilled workers to fill domestic job openings. That seems counterintuitive because the shrinking of American manufacturing should leave, one would think, a surplus of skilled labor eager to fill those jobs and even take lower pay. Researchers at the Chicago Fed have looked into this and suggest some reasons why shortages of skilled labor are to be expected in declining industries. Shortages are not due to some deficiency in the educational system but to rational choices of people to go into growth industries instead. Since people with the most skills probably have more choices about where they work, declining industries should expect shortages of high-skill workers—even as they have gluts of low-skill workers.

In Why are manufacturers struggling to hire high-skilled workers? Lombardi and Testa compared education levels and wages between manufacturing and non-manufacturing from 1990 to 2007. They found that wage premiums in manufacturing did not rise to attract more and better high-skill workers—instead, manufacturing wage premiums shrank.  They note that US manufacturers are under such great price pressure that they can't afford to pay more even for skilled workers.  They conclude by saying—

"One possibility is that declining manufacturing job prospects may be self-reinforcing, leading to a negative image among prospective employees.  If so, the pool of available workers at any given educational attainment may be inferior to that in previous times."  

That suggestion would be consistent with other reports that new Ivy League graduates are going overwhelmingly into financial services and avoiding manufacturing like the plague, that physics Ph.D.s from top schools are still going to Wall Street to develop trading algorithms instead of doing manufacturing or even physics, and that students studying computer sciences are increasingly from abroad as Americans pursue other majors. 

There are, of course, many factors that can influence individuals in their career choices. One that seems to show up here is that many people intuitively understand how different it is to work in a growing business from working in a shrinking business, and they try to avoid the latter. In a growth business, wages and benefits tend to rise as employers staff up by hiring workers away from the good jobs they already hold, the threat of layoffs seems remote, learning opportunities and promotions come quickly with staff growth, the workplace is happier and full of achievers, and the American Dream of increasing prosperity seems at hand. In a shrinking business, there is downward pressure on compensation, there is job insecurity, learning and promotion opportunities are rare to non-existent, and work places are apt to be populated by unhappy hangers-on who know the American Dream is unrealistic for them. I think these differences may be sufficient to explain career choices that result in skilled labor shortages for declining industries, but the matter of compensation deserves emphasis.

Declining industries generally have shrinking profits and enormous pressure to minimize costs. So, if they have a skilled labor shortage, the normal management response of increasing compensation to attract and hold workers is unavailable. To some extent, US companies are solving the problem with immigrant workers on H-1B visas because the US wage level is still higher than in their native lands. However, as global wage convergence proceeds, the wage premiums US companies are able to pay to attract foreign workers will decline and they will tend to stay/return home. Instead of saving US industries by reducing pressures on margins, global wage convergence may accelerate their decline by drying up their last remaining source of skilled labor.

Update on Thursday, August 11, 2011 at 11:26AM by Skeptic

Here's what this looks like from the inside to gs_runsthiscountry in a comment posted on Naked Capitalism:

I worked for a German owned firm for the better part of my working career. . . .

Glad I am putting that career behind me. Which is also interesting, all the talk about not being able to find qualified talent or engineers. We are still here, full of experience and wisdom. However, anyone with any sense that has spent at least 10 years in industry does not trust the lip service; the lip service that this country going back to being a leading manufacturer. Hence, many, many, people I have countered, like myself, are changing careers and not going back. Tragic actually…pound the s*it out of the manufacturing industry for 30 years and CEO’s now complain they can not find qualified talent….I ask you, what the hell did you expect??

Update on Saturday, August 20, 2011 at 01:03PM by Skeptic

That young Americans actually are avoiding STEM education because they view it as offering poor employment prospects is reported by Manufacturing & Technology News here:

Corporate CEOs and President Obama constantly implore more Americans to study science, technology, engineering and math, but the top concern of people working in technical fields is the negative impact of offshore outsourcing on their job prospects. A recent survey done by Information Week found that offshoring of technology jobs "is discouraging young Americans from pursuing tech careers and [is] shipping innovation abroad." The survey found that most IT workers, managers and students believe that the practice has led to the United States losing its leadership position in technology, "with 66 percent -- the single highest percentage -- citing offshore jobs movement as one of the top three reasons."

Update on Monday, November 28, 2011 at 08:02AM by Skeptic

Kevin Drum comments on a WSJ report about the hiring process for one category of skilled labor at Union Pacific. After 10 hiring sessions they filled their 24 openings, despite the fact that other employers were offering 50% more at the same job fair and that UP required applicants to pay for their own aptitude tests. That doesn't sound at all difficult to me compared to the difficulties I had hiring in the 1970s and late 1990s.

Update on Sunday, November 25, 2012 at 11:03AM by Skeptic

Adam Davidson interviewed manufacturers, consultants, and academics and reports in todays NYT Magazine that the so-called skills gap is fake because, while manufacturers want more skilled workers, they are unwilling to pay more than a new McDonalds shift manager earns. 

Most Read Realitybase Posts in June

The Citigroup Plutonomy Memos With key quotations from documents that are being disappeared.

Is this what ended the American Dream? The Democratic Party lost its focus on economic security and prosperity and became more concerned with a range of other liberal values. Without control of the Democratic Party, labor and consumers lost a long and continuing series of tactical political battles.

American Youth: Digitally Skilled and Unemployable. A graph shows that Americans under 25, who presumably are the most familiar with digital technology, are losing employment share to those over 55, who presumably are least at home in the digital age. This counterintuitive trend started long before the Great Recession.

Canada has lousy health care. In a ranking of seven advanced nations, Canada's health care quality exceeds only the USA's, but Canada's costs are half as much per person.

The American Dream died in February 1973 With graphs from multiple sources showing stagnation of inflation-adjusted middle class incomes since the 1970s after strong and steady post-WWII growth

Comparative Advantage—The Unicorn of Free Trade A collection of sources and analyses demonstrating that the assumptions of classic Ricardian theory rarely if ever align with real-world conditions. Views of this 2009 post tend to spike every exam season.

US job creation has been declining since April 2000 and is now in freefall. Discussion around a dramatic graph showing our employment-to-population ratio strongly increasing until 2000 followed by a devastating loss in 10 years of all the gains made in the previous 20 years.

The history of US per-capita petroleum consumption will surprise you.  A graph and other data show US per-capita consumption of petroleum is down substantially from the 1970s, has been very stable since 1983 because of CAFÉ standards, and has fluctuated only slightly with retail price changes.

How the Luckiest Generation lived the American Dream A narrated slide show (in movie format) with graphs showing how Depression Babies surfed through life on a big wave of job creation, upward mobility, and rising real wages not seen before or since.

We probably need better college graduates, but we certainly don't need more. With charts showing young grads are massively unemployed and mal-employed and which majors are the best and worst.