I'm Jim Luke. This is my economics notebook. I teach college principles of economics, along with the occasional Economic History, Comparative Econ Systems, and Econ Geography. The posts here are mostly examples/stories for my students, notes to myself, or rants to air. I try to translate economics into plain English without over-simplifying it. You're welcome to read and I hope you learn something. To comment, please click on the bubble. Please keep comments civil.
Gallup Organization released a study showing Americans, by a large majority, want less corporate influence in the U.S. Unfortunately they aren’t getting it. Corporate influence is at an all time high. See Fox, Hen House, Economic Advisors and Nice to Advise the King for examples. The last Congressional election was the most expensive so far, thanks to the Supreme Court decision allowing corporations to spend freely on electoral campaigns. From Gallup (graphs at the link):
The large majority of Americans (62%) want major corporations to have less influence in the United States. While this is down from a peak of 68% in 2008, it remains well above the 52% recorded in 2001. Relatively few Americans would prefer to see corporations gain influence, but the 12% recorded this year is the highest to date.
2001-2011 Trend: Preferences for Corporate Influence in the U.S.
The new data come from a Jan. 7-9 Gallup poll. The same survey found 67% of Americans dissatisfied with the size and influence of major corporations in the country today, the highest level since Gallup first asked this question in 2001. Of seven aspects of the United States rated in the poll, Americans are the least satisfied with corporate influence.
2001-2011 Trend: Satisfaction With Size and Influence of Major Corporations in America Today
Republicans are often seen as champions of corporate power — favoring lower corporate tax rates, battling efforts to strengthen labor unions, and advocating less government regulation of business. That is borne out to some degree in the finding that Republicans are more than twice as likely as Democrats, 36% vs. 16%, to say major corporations should maintain the same level of influence in the country, while, by 73% to 49%, Democrats are much more likely to favor less corporate influence. However, relatively few Republicans, 13% — little different from the 10% of Democrats — believe major corporations should have more influence in the country.
The groups of Americans most likely to favor expanded corporate influence are, perhaps, those least likely to be associated with corporate America: young adults, adults living in low-income households, and those with no college education. This could reflect the lower levels of attention these groups have paid in recent years to controversies involving corporate America, including the Wall Street financial bailout and, prior to that, Enron and other business scandals.
President Obama, in his never ending desperate quest to be accepted by Congressional Republicans as being just like them, even if it means abandoning the changes he was elected to lead, has changed his lead economic advisors. Simon Johnson in the NY Times observes:
President Obama is embarked on a major charm offensive with the business sector, as seen, for example, in the appointments of William M. Daley (formerly of JPMorgan Chase, now White House chief of staff) and Jeffrey R. Immelt (chairman and chief executive of General Electric and now also the president’s top outside economic adviser).
This should not be an uphill struggle – much of the corporate sector, particularly bigger and more global businesses, is doing well in terms of profits and presumably, at the highest levels, compensation. But when exactly will this approach deliver jobs and reduce unemployment? And does it increase risks for the future?
Republican rhetoric over the last two years was relentless in its assertion that the Obama administration was antibusiness. Supposedly, this White House attitude undermined private sector confidence and limited investment.
Simon also points out that corporate profits, and the financial, banking and multi-nationals in particular, have recovered quite nicely from the recession. Indeed, profits for them not only returned to record levels but recovered from the recession in record time. According to the President, our challenge is create jobs. I would certainly have to agree, as I’ve noted here and here. But these appointments don’t appear to help. These guys have been part of the problem. They’re not part of the solution. Catherine Rampell of the NY Times agrees:
In the wake of Jeffrey Immelt’s ascent to the chairmanship of President Obama’s jobs council, some commentators have questioned whether the leader of General Electric, a company that has sharply reduced its United States payrolls over the years, is the best person to be orchestrating a jobs revival.
Among executives of multinational companies, Mr. Immelt is hardly alone in having presided over a major reduction in domestic jobs amid a major increase in foreign jobs. Witness the following chart, which shows changes in domestic and foreign employment at American multinational companies from 1998 through 2008 (that is, the decade leading up to the financial crisis):
The chart is taken from testimony by Martin Sullivan, an economist and contributing editor with Tax Analysts, in a discussion of how international tax rules favor foreign, rather than domestic, job creation, especially by United States multinationals.
So the CEO of one of the largest multinationals on the planet is now advising the President on jobs creation. The same guy who led that company to move thousands of jobs out of the U.S. and create new ones in other countries.But it’s not enough that Immelt’s the wrong guy to ask about how to create jobs. The President is asking the fox for advise about protecting the hens.
Rampell also points out how one of Immelt’s pet proposal that he’s been pushing for a long time is for a “tax holiday” that allows U.S. based multinationals to repatriate foreign profits to the U.S. without paying tax. In many cases the “foreign profits” of these multinationals are actually U.S.-earned profits that have been laundered through foreign subsidiaries using a variety of tax dodges and artificial internal transfer prices (see Dutch Sandwich for one example of how Google got it’s U.S. tax rate down to 2.4%). So at a time when we are supposedly concerned about the deficit, the President is turning to one of the biggest tax dodgers around: GE.
To add further injury, let’s consider the inherent conflicts of interest. GE, despite it’s recognizable brand name among consumers and it’s heritage as Thomas Edison’s creation, is not a the entreneurial industrial competitor it once was generations ago. GE doesn’t really compete in capitalistic free markets for consumers’ attention to make it’s money. GE works the government. One of GE’s largest subsidiaries is also one of the largest military contractors dependent on the pentagon military budget. Up next is the power generation division is dependent on subsidies for the promotion of clean and renewable energy. Another huge subsidiary is the medical devices unit which sells primarily to hospitals and doctors who in turn bill Medicare and health insurers – and healthcare spending is driving the fed government spending. The NBC subsidiary depends on the FCC for favorable decisions and protection from competition. And finally, the last major subsidiary is the financial services unit which benefitted from the bank bailouts. Let’s face it, GE is a giant that depends primarily on the federal government for support. Yet, not only is Immelt, the GE CEO in a position to have the President’s ear on economic and budget issues, he’s doing it without resigning from GE. Can we all say “conflict of interest” folks?
The other appointee, William M. Daley, is resigning (for now) his position as a senior executive with JPMorgan Chase, the monster bank that the Feds bailed out and then they fought financial reform. Let’s be real. Daley’s job lasts at most 2 years. Then he needs another job. He knows that. He also knows JP Morgan Chase will likely hire him back at a much increased salary – if he gives advice to the President favorable to JP Morgan Chase.
This isn’t representative democracy. This isn’t even rule by some technocratic advisors. This is crony capitalism, rule by an oligarchy.
Students in the U.S. are taught about how the U.S. Constitution establishes three “co-equal” branches of government, Legislative, Executive, and Judicial, with transparency and accountability to voters being essential to each. What we don’t get taught is how a fourth branch has grown and emerged in the 60+ years since World War II and the rise of the military-industrial complex. That complex of which Eisenhower warned, has grown enormously since events of 9/11/01. What now exists is essentially a fourth branch of government that is not only not accountable to the people, but is not even visible to them. We, the people, see only the tips of the complex in the physical pat-downs and naked-body scanners at airports. It is far more extensive than that. Any discussion of modern day political economy or government budget priorities must take this fourth branch into account. Unfortunately, in our political rhetoric it now appears that this top-secret security complex is the new “untouchable third rail” of politics, replacing Social Security.
The Washington Post has created an excellent mix of videos, articles, data, graphs, and maps describing this complex. It is an excellent research resource for students. You can find it here.
Last week marked the 50th anniversary of one of the most quoted, yet completely ignored Presidential addresses ever. I am speaking of President Eisenhower’s farewell address to the nation just prior to the inauguration of John F. Kennedy. Before I get into the speech itself and comment on it, let me set the stage for my younger students and readers for whom 50 years seems incomprehensibly long ago and irrelevant. I can no longer rely on students’ high school history courses to fill in the details.
Eisenhower was one of the greatest military generals in U.S. history – the commander of D-Day and U.S. forces in Europe during World War II. Seven years after the war he was persuaded to leave retirement to run for President in 1952 while we were engaged in another bloody war in Korea, a proxy war with the Soviet Union. Eisenhower proved to be a very popular and successful president as well. With exception of one particularly sharp recession, the nation prospered economically. He quickly achieved peace in Korea.
Yet despite his preferences, politics and public anti-Soviet sentiment during the emerging Cold War era meant that the U.S. pursued a policy that was new in U.S. history. The U.S. supported and provided a war-ready large military during peace time. Before World War II, the U.S. always de-mobilized and shrunk it’s military following the conclusion of any war. Instead, during the ’50s, despite the end of World War II and Korean Wars, the U.S. maintained a very large military machine consisting of both direct military staffing and a large complex of private industry dedicated to production of weapons.
It is in this setting that Eisenhower warns the nation of the long-run costs and risks to the nation of such a constant-military readiness strategy. His speech gives us one of the most-quoted phrases from any modern-era president: the military industrial complex. Yet the essence of his message has clearly been ignored. On this anniversary of the speech, Eisenhower’s grand daughter, Susan Eisenhower has written an excellent piece for the Washington Post here. I quote part here (the bold emphasis is mine):
Of course, the speech will forever be remembered for Eisenhower’s concerns about a rising “military-industrial complex,” which he described as “a permanent armaments industry of vast proportions” with the potential to acquire – whether sought or unsought – “unwarranted influence” in the halls of government.
The notion captured the imagination of scholars, politicians and veterans; the military-industrial complex has been studied, investigated and revisited countless times, including now, at its 50th anniversary. Looking back, it is easy to see the parallels to our era, especially how the complex has expanded since Sept. 11, 2001. In less than 10 years, our military and security expenditures have increased by 119 percent. Even after subtracting the costs of the wars in Iraq and Afghanistan, the budget has grown by 68 percent since 2001. In 2010, the United States is projected to spend at least $700 billion on its defense and security, the most, in real terms, that we’ve spent in any year since World War II.
However, at this time of increased concerns over our fiscal deficit and the national debt, Eisenhower’s farewell words and legacy take on added significance.
Throughout his presidency, Eisenhower continually connected the country’s security to its economic strength, underscoring that our fiscal health and our military might are equal pillars of our national defense. This meant that a responsible government would have to make hard choices. The question Eisenhower continued to pose about defense spending was clear and practical: How much is enough?
Later in the article, Susan quotes from an earlier Eisenhower speech:
“This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children. The cost of one modern heavy bomber is this: a modern brick school in more than 30 cities. It is two electric power plants, each serving a town of 60,000 population. . . . We pay for a single fighter with a half-million bushels of wheat. We pay for a single destroyer with new homes that could have housed more than 8,000 people. . . . This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.”
“There is a reoccurring temptation to feel that some spectacular and costly action could become the miraculous solution to all current difficulties,” he warned in his final speech as president. “. . . But each proposal must be weighed in light of a broader consideration: the need to maintain balance in and among national programs . . . balance between actions of the moment and the national welfare of the future.”
Ten years into the so-called “War on Terror” and the Wars in Afghanistan and Iraq, the U.S. has built an incredible military-industrial-security complex. It is as costly as World War II, but has no defined end point. It is costing literally trillions of dollars. Dollars that could have been used to strengthen our economy, improve our physical infrastructure, and invest our human capital. These opportunity costs do not enter our political debates, yet they should. As Eisenhower asks, How much is enough?
For those who have never seen it, here is Eisenhower’s farewell speech in it’s entirety as broadcast to the nation in 1960:
We hit record territory some time ago. No matter how it’s measured, either absolute #’s or as % of labor force or % of population, we (the U.S.) has a level of long-term unemployment far greater than anything we have seen since the Great Depression. see my post To Some, It’s a Depression for the specifics of just how bad. Most economists are expecting this “recovery” to be another long, slow slog, meaning it will be years before we achieve full employment again.
…The worst effects of pervasive joblessness—on family, politics, society—take time to incubate, and they show themselves only slowly. But ultimately, they leave deep marks that endure long after boom times have returned. Some of these marks are just now becoming visible, and even if the economy magically and fully recovers tomorrow, new ones will continue to appear. The longer our economic slump lasts, the deeper they’ll be.
If it persists much longer, this era of high joblessness will likely change the life course and character of a generation of young adults—and quite possibly those of the children behind them as well. It will leave an indelible imprint on many blue-collar white men—and on white culture. It could change the nature of modern marriage, and also cripple marriage as an institution in many communities. It may already be plunging many inner cities into a kind of despair and dysfunction not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years…
The effect on mortality hazards declines sharply over time, but even 20 years after displacement, we estimate a 10-15% increase in annual death hazards. If such increases were sustained indefinitely, they would imply a loss in life expectancy of 1.0-1.5 years for a worker displaced at age 40.
In other words, long-term unemployment, most of which is not the consequence of individual decisions, is a disease that kills.
My initial thought was that the financial crisis and recession might have a salutary effect because the middle class, faced with serious economic insecurity, might start worrying more about economic security (and identifying more with the poor and working class), instead of thinking that individual initiative alone would make them rich. I still think this is possible. Unfortunately, it seems to be unlikely. Peck cites economic historian Benjamin Friedman, who “argues that both inside and outside the U.S., lengthy periods of economic stagnation or decline have almost always left society more mean-spirited and less inclusive, and have usually stopped or reversed the advance of rights and freedoms.” The mechanism for this is simple: although some people may react to economic insecurity by realizing that their interests lie with labor rather than capital, other people will react by blaming their misfortune on immigrants, or minorities, or Jews, or gays, or — this being America — the government.
I am with Kwak on this one. I am very concerned. I see the Washington consensus and the political-media chattering classes, fully secure in 6+ figure income jobs, shifting their attention to “deficits” and “terrorism” and away from the real economic reform and stimulus needed to generate jobs. This is playing with fire. We need genuine investment (large-scale) in public goods & infrastructure: education, research, high-speed rail, highways, universal broadband. We it now.
A fellow skeptic looks at the recent Supreme Court decision holding that corporations are entitled to full First Amendment rights to free speech, and notes the paradoxes that arise when a corporation is viewed as a “person”.
Inequality matters, and contrary to much “conventional wisdom”, income redistribution can and does work in man countries. In fact, the evidence is that it results in faster growing and more productive economies. (Hat tip to Mark Thoma for this summary. I strongly urge readers to go to Born Poor?, by: Corey Pein: and read the full original profile of Bowles, or his Wikipedia profile.
Born Poor?, by: Corey Pein: …Bowles’ most recent paper … examines how wealth is transferred from parents to children in hunter-gatherer societies versus agricultural societies. That might seem distant… But everyone can relate to his chosen subject: inequality. …
Bowles’ course was set in 1968, when he was an assistant professor at Harvard, and the Rev. Dr. Martin Luther King Jr. came to his department looking for advice on the next stage of his social justice campaign.
“We were just elated that we could use economics, which we had so painstakingly learned, to answer questions that Dr. King thought were important,” Bowles tells SFR. “We were also extremely angry that we were totally unable to answer the questions on the basis of having gotten a PhD at Harvard.”
King’s assassination that year cut short the equality movement. …
Most economists in 1968 thought of inequality as “somebody else’s problem,” Bowles tells SFR. “I actually was denied the right to teach a graduate course in inequality because it was said not to be economics.” It wasn’t always thus.
“The founders of the discipline of economics, almost to a man—and they were only men—thought that the problem of distribution between classes—they used the word classes—was the key to understanding why nations grew or not,” Bowles says. What Bowles sees as the essence of his profession [is] problems of wealth distribution…
The Internal Revenue Service on Friday issued an exception to long-standing tax rules for the benefit of Citigroup and a few other companies partially owned by the government. As a result, Citigroup will be allowed to retain billions of dollars worth of tax breaks that otherwise would decline in value when the government sells its stake to private investors.
While the Obama administration has said taxpayers are likely to profit from the sale of the Citigroup shares, accounting experts said the lost tax revenue could easily outstrip those profits.
Federal tax law lets companies reduce taxable income in a good year by the amount of losses in bad years. But the law limits the transfer of those benefits to new ownership as a way of preventing profitable companies from buying losers to avoid taxes. Under the law, the government’s sale of its 34 percent stake in Citigroup, combined with the company’s recent sales of stock to raise money, qualified as a change in ownership.
The IRS notice issued Friday saves Citigroup from the consequences by stipulating that the government’s share sale does not count toward the definition of an ownership change.
Who benefits? The value of the shares the U.S. owns should increase, but only 34% of the share price increase accrues to U.S. taxpayers The other current shareholders receive the rest. So this doesn’t seem to make sense …
Employment report is out for September 2009. Not good. Granted it’s not the horror show we were seeing early in 2009. The decline of 263,000 in total employment is much better than the 500,000 and 700,000 losses we were seeing earlier this year. But this has been happening a long time now. That’s a lot of accumulated loss. Even if the wound isn’t bleeding profusely, it will still kill you if the bleeding goes on long enough. Graph below is courtesy of Calculated Risk. It shows how this recession (small depression?) has had the largest % loss of jobs since the Great Depression AND it has the makings of the slowest recovery since then also.
But the headline numbers, 273,000 jobs lost and 9.8% unemployment don’t tell the full story.
Total hours worked continues to decline. (see Angry Bear).
The U-6 Unemployment rate, which includes some more discouraged workers not counted in the headline rate and also includes workers “marginally attached to the workforce” is now 17.0%.
Long-term unemployed (more than 26 weeks) is now 3.5% of the workforce, 5.4 million workers.
the labor force declined 571,000 — the only reason that unemployment didn’t exceed 10.0% [last] month–. This means well over half a million people gave up hope of having a job last month. Of course that’s a rational response given that so many workers have been unemployed so long without finding replacement jobs.
Overall, this tells us that the stimulus has not been enough or big enough. Employment has not stabilized. What’s worse, is the length of time people are being unemployed. The economy is simply not creating replacement/new jobs. Not only does this create a serious economic problem (unemployed people don’t spend much money), but it is of course a tremendous human cost. People, families, and children suffer. Eventually, extended long-term unemployment for large numbers poses a huge social cost and social risk.