Sparks

by demosthenes
www.selparis.com

With the release of devastating unemployment data today, economists are once again attempting to talk up a "jobless recovery". The idea is that the recovery has to precede an improvement in the employment situation. Though most readers should already consider such an idea to be absurd, let me give further evidence of its insanity:

1. Businesses will lose money if they produce products no one is willing to buy, but no one is willing to increase the volume of their purchases when their future employment is uncertain or nonexistent.

2. Any increase in consumption during a time when purchasing power is declining must be made on credit. This crisis was called the "credit crunch" for a reason. Even though interest rates are nominally low, everybody is worried about budget shortfalls - from families to bankrupt banks to the state of California to the federal government (or didn't you notice that massive deficit?). Everyone is knee-deep in debt, and no one has any ability to dig their way out of it.

3. Some might argue that if the government cut corporate taxes, that would stimulate the economy better than the Obama stimulus package (of which less than 10% has been fully applied, and will likely boost the economy in the third and fourth quarters of this year). This is nonsense, and we see that fact in the money spent on the banks. Those who have recovered didn't need the money in the first place, and those that needed the money (I'm looking at you, Citigroup) have not recovered, and spent the money on obscene executive compensation. Do we even know what's happening with the $180 billion+ we spent on AIG? And on top of that, the banks are as reluctant to lend as ever, and they are not contributing anything to our recovery. I don't hold out much hope that the auto industry will do much better, since the leaders in that industry are as cluelessly greedy as the rest.

These are all rather technical arguments. Let me put forward the one that probably occurs to every sane person as soon as they here an oxymoron like "jobless recovery": It isn't a recovery until people get their jobs back. You can't call it a recovery until we've got unemployment back down to 5.5%. Anyone who bases the definition of "recovery" on GDP instead of unemployment - on money instead of people - is an inhuman ****.

This gets to the real point about economists talking about a jobless recovery. This is exactly the attitude that led to the decline in the first place. It is the same attitude that led bankers to give loans to people who could not afford to pay it back. Insane executive compensation at a time when real wages were declining and companies were collapsing? Yes, that too. And the contemptuous way the CEOs denied anything was wrong right up to the point when they collapsed or were begging for taxpayer money? Just part of the same pattern. It's all about the money. You can't care about people in business because your ultimate goal it to fire as many of them as possible to cut costs. And the consumer? Those are the people you fool into buying your substandard product (if you can't addict them to it). No love lost there.

We can't blame businessmen and economists for caring more about money than about people - it's in their job descriptions. At the same time, though, it is dangerous to allow them free rein over recovery policy for this same reason - we the people have to stay aware of the situation, and check their propensity for unparalleled greed. To be fair, there are considerate businessmen and economists, and many that would balk at the notion of a jobless recovery. It's the others we need to be concerned with, and keep an eye on. If we don't, they're likely to swindle us out of billions more (by corporate tax cuts, capital gains tax cuts, tax loopholes, subsidies for outsourcing, subsidies for nothing, bailouts, and so on).

We have recently failed to place adequate check on them because the situation has been so dire, and everything has been happening so quickly. Now, though, we need to ask what has happened to the money we gave to Citibank, AIG, Fannie Mae, and all the others. We need to ask why executives who ruin their companies make hundreds of times more than the average worker. We need to ask why anyone makes hundreds of times more than the average worker. Don't tell me they are a hundred times more educated, skilled, or productive. Most importantly, we need to make sure the government finds out exactly what went wrong, and puts in place regulations that make sure it won't happen again. I realize businesspeople and economists hate regulations. Oh well. You mess up, you pay the price.

by demosthenes
www.selparis.com

The terrorist attack on Mumbai this week highlighted the precarious position of Pakistan in world politics today, and the generally negative impact it is having on neighboring countries. It has been forced to claim an inability to control its own territory, as an excuse for why Al Qaida continues to operate with bases on the Pakistan side of the Afghan-Pakistan border. In response to the Mumbai attacks, Pakistani President Zardari blamed "non-state actors" from a banned militant group, pointing to the fact that his own government seems to lack the ability to enforce that ban. Pakistan faces foreign pressure on two fronts primarily due to its inability to govern itself, but this failure is in turn a result of policies set in place over the course of past decades.

The group blamed by Zardari for the Mumbai attacks is Lashkar-e-Taiba, was banned by the Pakistani government in 2002. That statement alone masks the truth of the issue. Pakistan was pressed to ban the group by the United States and Britain, as both countries condemned it as a terrorist organization. Having its hand forced, it is doubtful the Pakistani government ever took steps to eliminate the group. In fact, the AP reports that the group was likely created by Pakistani intelligence as a proxy to fight the war against India in Kashmir, so contrary to Zardari's claim, Lashkar-e-Taiba started out as an arm of the Pakistani government, though the connections were not officially stated.

The case of Lashkar-e-Taiba is merely an example - albeit, a currently pertinent one - of a long-standing trend in the condoning of terrorist tactics by Pakistan against India and Afghanistan (starting in the latter case during the Soviet-Afghan War). In the past two years, however, that implicit sanction has done more direct damage to Pakistan itself than India. With the exception of Iraq, no country has faced more terrorist incidents in the past two years than Pakistan, as militant groups broke a peace agreement with the government after the Siege of Lal Masjid in July of 2007. Many events, including the War in Afghanistan, the War in Iraq, the power vacuum created by opposition to President Musharraf, and the assassination of Benazir Bhutto, added fuel to the fire in the steady buildup of tension and violence.

At the moment, the Pakistani government is besieged on all fronts, and needs to relieve the tension as much as possible. The Mumbai incident may give it the chance to do that. It has no chance to reason with the militants and fanatics, who will eventually seek to undermine Pakistan's secular government in the hope of establishing theocracy. Instead, it has to aim for better relations with India, Afghanistan, and the United States. Due to the dispute over Kashmir, there has been little opportunity for Pakistan to show a gesture of good will to India. Actively striking against Lashkar-e-Taiba, which President Zardari sees as responsible for the terrorism in Mumbai, would be an immense opportunity, and would likely be seen favorably by the incoming Obama administration as well. Failing to do so, of course, would have the opposite effect.

Taking on militants in Kashmir now is not without dire consequences for the Pakistani government. After all, it will certainly face even more tension at home among all those who see the fight for Kashmir as a heroic one, and all those who engage in that fight as heroes. Ministers in the government will likely be personally targeted, but this is true already. It is important to remember how bad the situation in Pakistan is. While not as tumultuous as the turmoil in Iraq and Afghanistan, it is not far behind. Whether any government can adequately deal with such pressure, even if it is due to that government's own missteps, remains to be seen. Pakistan's internal political scene has always been chaotic, including multiple military coups, dictatorships, and assassinations in the midst of a nominally democratic system. This time, though, efforts toward stability and respect for law are called for, and the patterns of the past decades, culminating in this disaster, have to be broken and replaced.

by demosthenes
www.selparis.com

The big three automakers (who, in market capitalization, are no longer very big) are appealing to Congress for aid this week. There is now a push, backed by President-elect Obama, to include them in the TARP - the $700 billion bank bailout that isn't being used with restraint, anyway. The problem with this is simple: unlike the banks, these companies may not have a future, due to decreasing demand for their products. By bailing them out now, we may simply be stalling the inevitable. My solution? If the company can show it has a future, we support them. If it cannot, we don't hand them a dime. The net result? Save GM, let Chrysler fail, and ask Ford to come back when they have something that can beat the Japanese in the works.

First, let me address objections to the use of the word "bailout". While some point out that the form of the aid is a bridge loan, and is therefore not a bailout, this is a semantic game without basis. If the automakers had a credit rating worth dignifying, they wouldn't need to look to the government for a loan in the first place. In other words, there can be no expectation that they will actually pay the money back. Therefore, I will continue to refer to it as a bailout.

The main opposition to the auto bailout comes from the Republicans, and we must ask ourselves, has that party suddenly got religion on fiscal responsibility now that they are out of power? Are they courting economic disaster deliberately so that the blame will be placed on the Democrats in time for 2010? Of course not. To deliberately seek damage to the American economy would be treason. No, if you listen to their explanation of their position, the reason for their stance is clear. They're union busting. They want the automakers to go into bankruptcy, because the result would be a serious hit to UAW, long a thorn in the Republican Party's electoral power. By the same token, Democrats support the bailout primarily to ensure the union remains viable.

Republicans have placed the blame for the current situation in Detroit on the unions - a claim so blatantly dishonest that it should never be aired without the obvious counterpoint. The real reason GM, Ford, and Chrysler failed to compete with the Japanese manufacturers in particular was a blindness to the need for fuel economy. This was a need that should have been brought home to them when they lost market share during the oil crisis of the 70s. Instead, they fought alongside the oil companies against mileage regulations, spending a lot of money to influence Washington to that end. Americans steadily increased their purchase of Japanese vehicles up to this point, when Toyota alone has a market cap ten times that of GM, Ford, and Chrysler combined. Again - Toyota is worth ten times our "big three" combined. This did not happen yesterday, but rather because of over thirty years of intransigence.

I would posit that GM has shown an inkling of a future. During the 90s, it developed a preliminary electric car known as the EV-1, which was the subject of the documentary "Who Killed the Electric Car?" More recently, it has been getting the "Volt" ready for mass production. This is all we need to look for: a wholly electric car in the works. Why? Because only the electric car can get us a chunk of the export market, and compete with the Japanese technology. Toyota was quaking when the EV-1 was introduced, and immediately started trying to catch up with GM. That's right - GM was ahead of the game for once, and let the opportunity slip. We cannot let it happen again.

Ignore the financial statements of the corporations, and any of the dubious smokescreen technologies - fuel cells, hybrids, natural gas, etc. Except for natural gas in large vehicles, the rest is all nonsense. The electric car will sell - possibly even more abroad than domestically, helping us to get our trade deficit back in order. None of the other technologies promises that. Fuel cells are nowhere near ready. The Japanese industry has already gotten to the hybrid market. The United States has massive natural gas reserved, making that resource attractive to us, but the rest of the world will be hesitant to get re-addicted to a resource available to only a few countries, so there is virtually no chance for massive exports of natural gas cars.

While the saving of GM is probably a good idea, Chrysler is the prime example of a company we need to abandon. Even its former owner - Daimler - got rid of it, considering it a dead end. It has nothing visible in its future, and we don't need to spend good money on such an obvious failure. On top of everything else, the company is desperately trying to sell itself, with GM being a possible buyer, so perhaps that will be the best way to avoid turmoil.

Ford is on the cusp. It has more time than the other two companies financially, so if it can put an electric car in the works, I say we should save this American icon. If it can't make the products we need, then it is wedded to obsolete notions and will have to be allowed to fail, since it is intent on going down that road. It may sound harsh to speak so flippantly about the bankruptcy of companies with hundreds of thousands of employees, but they have dug their own hole. They deliberately pushed their SUVs, making such wasteful vehicles into national icons through their advertising. They knew what they were doing, and were determined to continue our oil addiction without care for the welfare of this country. If we help them now, after such blatant malfeasance, then it must be because we want something specific from them. That key item is the mass-produced, affordable electric car.

Why the emphasis on the electric car? Is it only because of export value? No. The benefit of such cars is that they will be functional as long as we can perpetuate any semblance of modern life, and they will not depend on a single resource. They will be tied to the lifeblood of our society - electricity. All resources - oil, coal, natural gas, nuclear, wind, solar, geothermal, hydroelectric, and so on - can be fed into systems that provide that electricity. In addition to that benefit, the electric car requires less maintenance and repair than any internal combustion vehicle, whether oil or natural gas fueled, leading to great cost savings to the consumer. In a decade, that factor will likely trump all others. Finally, if American automakers don't do it first, and do it well, then everybody else will eventually do it, dominate the market, and force the absolute end to the American auto industry.

by demosthenes
www.selparis.com

We already knew the hundreds of billions of dollars in the bailout bill would go to nefarious purposes, but this is getting ridiculous. Yesterday, we found out that the Bush administration snuck in a $140 billion tax cut for banks during the chaos in mid-September, in a five-sentence decree from the Treasury Department. That's $28 billion per sentence. The clear purpose was to hide the truth until now.

See the Washington Post article here.

As the article points out, the Treasury Department did not have the authority to do this. The change was basically a repeal of a 22-year old tax law that prevented using mergers as a tax shelter. As the financial sector is in the midst of rapid mergers and consolidation, this law is especially necessary. The banks are all too willing to take the tax money of others while failing to pay their own share.

This latest revelation is another example of the Republican contempt for the middle and lower classes, and absolute devotion to corporate welfare. At the very same time, the Bush Administration is resisting President-elect Obama's proposed $100 billion stimulus package targeted to help the middle class.

It gets worse. Remember AIG? The beneficiaries of over $150 billion of federal aid? Well, you might remember their executives spending $400,000 on a weekend junket in September. They apologized profusely for that, but lo and behold, they're at it again. Yes, they were caught in another lavish escapade, except this time, they specified that no AIG signs should be put up, and that the resort staff serving them should deny that it was an AIG event.

We get the sense that these people continue to feel entitled to the good life while they're borrowing from people who can't even conceive of spending money on a resort trip. Certainly these AIG executives want to hide this from the public that they are so mercilessly robbing, but they have no shame. No, they're proud of their ability to rob us blind, and want to gloat about it while relaxing in Phoenix. By the way, they admit to the trip, and say that it was a completely legitimate and necessary training and education meeting - that cost $400,000 at a Phoenix resort. You see? They don't get that they've done anything wrong. They don't understand why we're upset. As far as they're concerned, if they can take our money with reckless abandon, they can do so. And if we don't know about it when they do, so much the better.

The arrogance is staggering. Just to provide some context - in 1979, Chrysler was bailed out to the tune of $1.5 billion (not more than $5 billion today), and that was considered a travesty and a cause for contempt. Continental Illinois was bailed out for $4.5 billion in 1984, after a run on the bank. AIG is being bailed out for $160 billion, the largest sum, by far, in U.S. history, with the possible exception of the complicated Fannie Mae - Freddie Mac situation.

By all rights, every executive at AIG should be thrown in prison for life (I do not approve of capital punishment, even in such extreme cases) for treason - outright malicious intent toward the people of the United States and the integrity of the union. Given clemency, they should lay low, and definitely avoid resort outings. They should spend their public time assuring the taxpayer, and explaining exactly what's happening with that money. I have yet to see that humility from them. Instead, the only peep we have heard after they spent all the money we gave them, and they had to ask for more from Congress, is this defense of a training meeting at a Phoenix resort. Unbelievable, and definitely criminal.

Will a Democratic administration be able to so more to hold their feet to the fire? We certainly hope so. Until then, we have two more months of absolute lack of accountability and wholesale funneling of hundreds of billions of dollars into hands accustomed to educating themselves at a resort.

by demosthenes
www.selparis.com

Republicans, supposedly supporting a reduction of government and its influence, sure know how to throw a party for their friends. For years they let corporations run roughshod over the economy, cutting back on government regulations, and now we have to pay for the inevitable malfeasance.

This morning brought news that even more money was being handed over to the troubled firm AIG. So far, the bailout of AIG has cost taxpayers more than $160 billion (yes, that's right - about 1.5% of GDP and around 8% of the federal budget going to one company). As of October 30, AIG has already spent $90 billion of that money, and it's not entirely clear where that money went. AIG is not the only company that keeps on taking, though. Last week, the big three automakers asked Congress for another $25 billion - an amount that would be shocking to previous generations but now pales in comparison to other examples of government largess.

The travesty is not solely in the fact that taxpayers are being squeezed to save irresponsible corporations in a manner without accountability and uncoupled to regulation. No, the real issue is the fact that the Republican administration that is overseeing this, and the Republican Congress of 1994-2006, simultaneously opposed basic services to average Americans. Saving Social Security without privatizing it would be possible at a fraction of the $1.7 trillion of bailouts made in the past few months ($800 billion for Fannie and Freddie; $700 billion for banking as a hole; $160 billion for AIG; $50 billion for the auto industry). For the price of the AIG bailout, we could have started universal health insurance (not national medicine mind you - doctors would still work for private industry). And what about all that welfare scapegoating that happened in the 1990s? Welfare cost Americans $75 billion a year at its height.

The point is that Republicans demanded the end of social programs that benefited the middle and lower classes, and have now funneled that money wholesale to banks that profited from a lack of regulation, and now profit from government handouts. This is welfare for the rich, pure and simple. Except for the auto industry's $50 billion, the rest of the $1.7 trillion is going to corporations that don't actually produce anything. They got themselves in trouble because they were making money exchanging financial contrivances so obscure that even economic specialists expressed frustration at having to explain them. The financial sector makes money by shifting money around, and that dubious method reached its limit.

The rhetoric now is that the Republicans have to return to their core ideology of fiscal responsibility, and that this recent episode simply represents the party losing its way. That's nonsense. What has happened is exactly in line with Republican ideology - deregulation and, in times of crisis, finding ways to funnel money to the wealthy. This is Republican Party basics. Remember trickle-down economics? Right, this is it. Everything from the tax cuts for the wealthy, the elimination of the estate tax, the change to the alternative minimum tax (which was instituted to prevent the super-rich from escaping taxes), and now the bailouts. This is a massive (we're talking trillions here) redistribution of wealth to the upper 0.1% of the population.

During the presidential campaign, McCain used Joe the Plumber to take issue with Obama's desire to share the wealth. It is vital to realize why. The wealth over the past eight years has been increasingly unshared - concentrated in ever fewer hands - and the Republicans intend not only to keep it that way, but also to increase the trend. Indeed, with all the destruction the Republicans have wrought to our economy over the past eight years, and their inevitable resistance to any attempt to heal the wounds, it will take a shrewd Democratic President to clean up the mess. And, of course, we will need to make sure that wealth does get shared again - not by redistribution, but simply by ensuring proper distribution.

It is futile to seek cooperation from the current Republican Party in the restoration of the economy. Fifty years ago, during the Eisenhower administration, there were no illusions about taxation or social programs. President Eisenhower considered those who wanted to get rid of Social Security and Medicare to be crazy fringe elements not worth dealing with. The maximum tax rate during his administration, paid only by the unbelievably obscenely rich, was 90% (compared to 35% today). The effect of this was simply to discourage people from doing . . . well, exactly what they are doing now. No one would consider Eisenhower to be a liberal, but he had a keen sense of what ought to be done and doubtless courage to do it. He thus maintained that taxation did serve a constructive purpose in limiting the potential impact of irrational greed. Not coincidentally, the 1950s and 1960s represented an unprecedented boom in the American economy not seen before nor since.

The current Republican party is completely alien to the one that existed fifty years ago, and is no longer interested in doing what is right or good for the American people. The party lacks a sense of shame, even in the wake of its recent electoral defeat, and there are no signs that it is reconsidering its bankrupt policy of favoring the rich over the middle class. Instead, it is poised to play its disruptor role until 2012, when it hopes new strategies instead of a revamped ideology will help it win.