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Well, all I have to say is bravo to Amazon. Every little bit helps.
Posted by Ayn R. Key on Mar 14, 2010 at 8:30 PM
What kind of stupid remark is that. Tax avoidance by the rich contributes to deficits and raises local taxes for the middle class when states and localities need to make up the shortfall. Tax dodging has done nothing to help society. Every little bit hurts.
Posted by cabdriverinchicago on Mar 15, 2010 at 8:34 AM
It’s not nearly as stupid as you think. Tax dodging is far more noble than people give it credit for. Even the tax code recognizes this because it gives us deductions if we act in certain ways. Giving to charity and having a mortgage actually reduce the amount of taxes you owe.
Posted by Ayn R. Key on Mar 15, 2010 at 3:22 PM
I have no problem with generous tax deductions for the middle class and working poor. I rely greatly on them myself. But billion dollar corporations completely dodging taxes by hiding their income is costing us all. Our deficit is clear evidence of that.
Posted by cabdriverinchicago on Mar 16, 2010 at 12:24 PM
cabdriver: I agree completely! The main reason we’ve exploded our deficit and budget deficit is due to tax cuts for the wealthy. These are the same people and businesses that outsourced work to other countries leaving the middle class and working class without jobs.
It seems the people that are benefitting most in this country are the ones that are least willing to see it survive. Of course, that makes sense when you realize that they can take their millions and billions and move to another country, once they’ve bankrupted it, while we everyday Americans don’t have that option.
That’s why we have to have laws that establish fair play. I find it odd that people don’t make the connection between collective bargaining and the creation of the middle class. Before FDR there WAS no middle class. There was only the very rich and the very poor and if you were born poor chances were extremely good you would stay that way because there would be no school for you. It was a permanent slave class.
Collective bargaining, and the changes that came with it, enabled the children of the working class to climb out of that station and that’s where the middle class came from. Make no mistake, the middle class began a downward spiral right along with the working class when Reagan dealt a death blow to unions, And until the working class again has a voice in government these kind of shenanigans on the part of big business will run amok. The whole aim of Republicans and their big money supporters for decades has been to return to a permanent slave class. That’s what they mean by “taking back our country.”
Posted by CherisPlace on Apr 17, 2010 at 9:41 PM
Sorry cabdriver…I had a typo there. I meant exploded our national debt and budget deficit. ;)
Posted by CherisPlace on Apr 17, 2010 at 9:42 PM
It is true that Reagan set the very middle class that elected him in 1980 on the road to destruction. George W. Bush clearly finished the job. Reagan’s determination to break the unions, beginning with PATCO, made the biggest constribution to this destruction. Many people thought that the entire US labor movement at the time should have confronted Reagan on behalf of PATCO in order to save unions from annihilation. Unfortunately, this never happened and the dire condsequences for the US middle class are now readily apparent.
It was unions, given the legal right to organize and bargain collectively under FDR, that created the US middle class. Since 1980, wage growth deceleration and ultimately real wage decline has lead to massive debt and a declining standard of living for working people in the United States. This is unfortunate. It will be quite hard to reverse this trend.
Posted by cabdriverinchicago on Apr 18, 2010 at 10:05 AM
Ahhh cabdriver, I would love to sit with you over a pot of coffee and discuss politics. :)
I was one of the ones that said at the time that every union worker in this country should have went on strike and shut the whole country down until Reagan backed up off that. But I had watched my mother come home from a plastics factory where it was so hot one woman had a heat stroke, was in the hospital unconscious for 3 days and they weren’t even sure she’d live. And the owner of that factory had taken their fans to St. Louis to put on his race horses! But back then we also had ethical journalism and stories ran in all the major papers about the plight of the workers. That can’t happen today without major change.
My mother helped organize that factory for the AFL-CIO and not only did they have fans but they had wage protection, fair play rules as well as insurance for their families. That included eye care and dental care and there were no deductibles or co-pays. My mom and dad never had much money but we were able to go to the doctor and go to school because they were able to support their family. We had an old house my grandpa built and I don’t think my dad ever paid more than $300 for a car but we didn’t live in fear of getting sick or whether there would be lights, water and food on the table. And those factories made a ton of money.
It wasn’t just collective bargaining, although the voice and protection it gave the working class was a huge part of it, but the changes that came about because of it. And it was also all of FDR’s policies. He’d seen that big money was always going to take care of itself and didn’t need help.
Those policies included: free public education, including books, worker safety, hourly wage protection, 40 hr work week, the labor relations board, as well as regulating public utilities, creating the CO-OP program so farmers and rural areas could get electricity and phones and a host of other policies. They called him a socialist and unions communist because that’s how they fight change, name-calling. Trust me, those same big money people were losing their minds then, too. I’m sure he would be labeled a liberal today but I don’t see how anybody could honestly see hiim as anything but a progressive. His policies saved this country from destruction, built an infrastructure that is still serving us well, prepared us for the technological age and ushered in decades of the most prosperous time this country has seen before FDR or since Reagan.
The reason unions died such a quiet death was because of propanda and brainwashing. People were told the unions were robbing them although their dues were such a small amount it wouldn’t even cover the insurance they had. I think my mom’s was $14/mo. They created division among the workers and that is the one thing that made and kept unions strong, solidarity.
Then the middle class became the working class and the working class became the unemployed, homeless, starving class…the slave class. Push more and more to the top few, while pushing more and more Americans further down…that’s their plan.
Is it possible to bring unions back? Yes, but the middle class and working class have to realize they’re really the same class and they aren’t rich enough to be Republicans. We also have to do something about our jobs being exported. And they’ll probably have to be willing to fight and die for it. Many people died at the hands of big money’s thugs on picket lines, in mines and fighting scabs.
The only union that hasn’t been broken is the Teamsters and that’s because they’ve shown they’re willing to go to the mattresses and fight to the death for their way of life. That’s what it took before and I suspect that’s what it will take again. It will be even harder now because we no longer have an ethical press to expose the issues. It’s a shame we let die what people had fought and died to create.
Posted by CherisPlace on Apr 18, 2010 at 12:52 PM
It’s always the surface that people notice, and never anything deeper. Everyone talks about Reagan and Bush or Obama and Clinton. Nobody ever talks about the Federal Reserve and Alan Greenspan (and his inferior heir Bernanke).
If you want to know where everything went to hell in a handbasket, do not look to the person sitting on the roof of the engine of the train, claiming to be steering. Look inside the engine where the driver is working the controls.
Unions are not the answer to this particular problem. The answer to this problem is a stable and sound currency, something that we have not had since before Nixon came into office. Unions can help ameliorate some of the symptoms, much like morphine will cause people with broken bones to not feel the pain. What good will annual raises, negotiated by a union, do for a person who sees inflation outstripping the annual raises in the first place? Ask someone in Weinmar Germany.
Some people are so bought into the current system - including the unions - that they don’t see that the current system as a whole - including the unions - is what is destroying the middle class. The instrument of the destruction of all but the elite has been in place since 1914.
Posted by Ayn R. Key on Apr 18, 2010 at 3:50 PM
Well Ayn, people usually judge the state of things by their lives. And frankly, I think that’s a pretty good barometer. I know when things are bad they blame the FED and when they’re good they give the FED the credit. However, we’ve had good and bad under the same FED leadership with different executive and legislative leadership And don’t think for a minute the FED doesn’t take guidance from both the executive branch and congress because they are overseen by both.
In fact there was a woman economist that saw this meltdown coming because of the risky business Wall Street was doing and fought to get the FED to listen to her and do some regulation. They all went before congress to present their viewpoint. However, congress followed Alan Greenspan and the good old boys crowd and refused to listen so she resigned. Now Alan Greenspan admits he was wrong. Of course, everyone else is paying for it. But congress was warned and did have the opportunity and ability to address it, under Republican leadership I might add, and refused to take the problem seriously.
And why did they make that bad choice? Because the Republicans have had the same economic plan for decades even though it keeps failing. Their policy is to turn big business loose to make all the money they can make by any means they can be it fair or foul. Then supposedly they will do so well they’ll just be generous with the employees, it will all roll downhill and everything will be hunky-dory. They’ve called it “supply side economics” and “Trickle down” but I have a much better name for it I can’t post here.
The problem with that plan is that the only thing that rolls downhill is crap and big business has never had a penny in their hand and turned loose of it if they didn’t have to. They proved that with the massive bonuses they gave executives, soaring of interest rates plus the laying off of thousands of workers after the taxpayers bailed them out of their foolshness. This has been going on for decades and I don’t see how anybody can miss seeing it unless they haven’t been around as long as I have. They don’t even want to pay their taxes when they’re obviously doing a lot better than the rest of the country.
When you get into the mechanics of economics you lose the ability to see the big picture. The economy is a big triangle with the wealthy at the top and the working class at the bottom. The more you push to the top and the narrower the bottom gets the harder it is to keep it upright and that;s what caused the meltdown, a top-heavy economy. And that’s what happens when the folks at the bottom, the working class and middle class, have no voice in government.
Posted by CherisPlace on Apr 18, 2010 at 4:39 PM
Lots of economists saw this coming, and saw it coming a long time before it actually happened. Unfortunately nobody in that particular school of economic thought has the ear of politicians.
Cheris, when I wrote about people only looking on the surface, well, your answer satisfies that statement. Yes, we’ve had good and bad times under Greenspan - as he continued to use the power of the Federal Reserve to forestall the necessary corrections until they became a full blown crisis. The dot-com bubble was the first of the big ones, and by flooding the market with cheap money Greenspan helped remedy the symptoms (but not the cause) creating a stock bubble. When that popped he used more cheap money to create a housing bubble. Each bubble was worse than the one before it, and was caused by the effort to cure the one before it instead of letting it run its course.
The perfect analogy is that cheap credit and cheap money is like alcohol, the bubble is like being drunk, and the popping of the bubble is like a hangover. Greenspan gave us as much “hair of he dog” as we could handle, but the problem with that is that eventually you must suffer a terrible hangover or die of alcohol poisoning.
Yes, the Republicans (and the Democrats) have had the same economic plans for decades, and the same plans keep failing. The Republicans have trickle down managed economies, the Democrats have trickle up managed economies. The Republicans have supply side, the Democrats have demand side. The Republicans are right-Keynesians and the Democrats are left-Keynesians. The problem isn’t that the Keynesianism is right or left, the problem is that it is Keynesian.
Unfortunately it is important to study the mechanics of economics. As much as it is claimed that the big picture is lost by doing so, the exact opposite is actually true. What caused the meltdown was much more complex than “the rich have most of the money.” How did we get to THAT point? That’s where you need an economist to answer the questions of how we got to all these symptoms you see. You need to look for the cause of the apparently unrelated symptoms.
Posted by Ayn R. Key on Apr 19, 2010 at 8:08 AM
“Unions are not the answer to this particular problem. The answer to this problem is a stable and sound currency…”
This assertion, and most of the entire post from which it is quoted, is the standard Libertarian view. It is completely misleading and untrue. In the first place, stable currencies don’t improve peoples’ incomes and is not the problem in the US anyhow. The US has had the greatest level of price stability over the last 100 years of any of the advanced capitalist economies. After the 1980-81 Reagan/Volcker recession, the double digit inflation of the 1970s was reduced to an annual average of about 3% consistantly since that time up until the present. Since 1979, median real incomes have hardly gone up at all while the income of millions of households below the national median declined significantly. The top 1% of income earners have more than tripled their average real incomes and the wealthiest 400 have increased theirs even more. These wealthy households, those earning an average of $345 million in 2007, paid about 16.5% in federal income taxes, roughly the same effective rate paid by those at the national median level of income.
One thing about the post-1980 epoch is the marked decline of unions. Union density went from about 35% in 1979 to under 12% currently. Unions and collective bargaining definitely are the answer to the problem of declining average real wages for the US middle class. Workers with union contracts have better wages, working conditions, benefits and job security. Unions didn’t harm the middle class; they actually built the middle class!!
“Nobody ever talks about the Federal Reserve and Alan Greenspan…”
Actually, they do and incessantly so. It is a misplaced focus. Yes, the Fed is powerful. But it has lost much of its influence over the economy as capital markets globalized and were able to offset the effects of central bank policies around the world. Private capital markets are deep and liquid and contain more resources than the reserves of any central bank. Most importantly, these markets are highly transnationalized and capital is hyper-mobile across national boundaries. There has been many times when a central bank raised its prime interest rates only to have them reduced in the process of attracting overseas financial investment which then floods the system with money. Central bank control of the money supply is in doubt.
It is also the case that M1 has been stable for two decades or more and, as I pointed out, inflation has been stable if not low. We now face a risk of deflation due to the current recession. Much of the reason for this is that labor productivity has doubled since 1979. Another is that the US has been flooded by cheap imports. Inflation tends to be sectoral and not general. This reflects monopoly control more than currency instability. Friedman’s dogma that “inflation is always and everywhere a monetary phenomenon” is not really true. Much of it is “cost push” due to rising energy and other commodity prices as well as monopoly pricing power.
Posted by cabdriverinchicago on Apr 19, 2010 at 9:47 AM
In the first place, stable currencies don’t improve peoples’ incomes and is not the problem in the US anyhow.
Neither do inflated currencies, after you adjust for inflation.
Since 1979, median real incomes have hardly gone up at all while the income of millions of households below the national median declined significantly.
Thank you for proving my point. You admit that we’ve had about 3% constant inflation since the 1979, which means we have not had a stable and sound currency.
It is also the case that M1 has been stable for two decades or more and, as I pointed out, inflation has been stable if not low. We now face a risk of deflation due to the current recession.
We should be so lucky as to have deflation, but the central bank will never allow it. Deflation is good for lenders and bad for debtors, and the biggest debtor of them all is the federal government. It would be bad policy for deflation to occur, although it would be good for the economy to allow over-inflated prices to fall to a more reasonable level.
Inflation and deflation are largely misunderstood. Inflation is not merely “prices going up”, that is the indicator and result of inflation which is actually an adjustment in price to correct a difference in value between the currency and the good. That definition also applies to deflation. Both inflation and deflation are an adjustment in price to correct a difference in value between currency and goods. If we are experiencing either it is because there is a need to experience them. The way to offset the correction is to change the value of the currency instead and before the price of the good changes.
Friedman was actually right for a change when he called inflation a monetary phenomenon, as those commodity and energy prices are rising for a reason. You are only looking at the outermost layer when you are determining that we have inflation because of energy costs - why is there inflation in energy costs? Why is there inflation in commodity prices? Look beyond the goods on the shelves and look to the rising costs in what put those goods on the shelves.
Posted by Ayn R. Key on Apr 19, 2010 at 10:09 AM
“Thank you for proving my point. You admit that we’ve had about 3% constant inflation since the 1979, which means we have not had a stable and sound currency.”
In the first place 3% average annual inflation is not high and is in fact considered quite normal. In addition, this is a thirty year average which includes some high inflation years in the early 1980s. If we take an annual average over the last twenty years the average annual rate of inflation would be much below 3% which is incredibly low. This nonsense about a generalized inflation in the US economy is a red herring. No economist or policy maker of any note has made inflation out to be an issue because it simply isn’t.
The real issue is inequality. The incomes of the rich have going up many times faster than that of the middle class. This is not because of inflation; it is because of depressed growth of middle class wages and salaries. Peoples’ incomes have simply not kept pace with their productivity.
“Deflation is good for lenders and bad for debtors, and the biggest debtor of them all is the federal government.”
This is just factually inaccurate. The federal government is $14 trillion in debt. Who owes the remaining estimated $42 trillion? Consumers and households owe another $14 trillion while financial and non-financial corporations owe much of the rest. Deflation would have a disasterous effect on the US economy causing a long depression. It would create bankruptcies, a cessation of investment and protracted unemployment.
Commodity price increases have been proven to mostly be the result of speculation. This is especially true of oil.
Posted by cabdriverinchicago on Apr 19, 2010 at 1:55 PM
“Inflation is not merely “prices going up”, that is the indicator and result of inflation which is actually an adjustment in price to correct a difference in value between the currency and the good.”
This is a very narrow definition of inflation. Many things could cause price changes. One factor is cost push inflation which involves increases in production input costs. Another is monopoly pricing. And then there is low productivity. The phenomenon of “too many dollars chasing too few goods” doesn’t necessarily have to be a monetary one. Friedman’s thesis was quite dogmatic.
When capitalists set a price, they base it on total production costs plus a desired rate of profit. This was Keynes’s theory of prices. They were often based on the marginal cost of production plus profit.
Currency values do effect prices but only in unusual circumstances. Currently, we face both a weak dollar and a real danger of deflation. A deflation would be bad for everyone. It would cause bankruptcies, mass unemployment and huge financial losses. A long depression would be the end result of a deflation.
Posted by cabdriverinchicago on Apr 19, 2010 at 2:19 PM
There is a tendency for people to adapt to whatever unusual circumstances and call it normal. There is the normal of prison life for example. And there is the normal of an average of 3% for year of inflation.
Now if you want to tackle the issue of equality and inequality, inflation is bad for the common man. It doesn’t happen all at once. The early receivers of the money, the wealthy and politically connected get the new money at the old value, and by the time it ripples out through the rest of the economy the final receivers have been spending their old money at the new value.
It is not factually incorrect to say that the government is the biggest debtor. First of all you fail to count inter-government holdings, the amount of debt held by various government agencies such as Social Security. Second of all, even if the federal government’s debt isn’t the majority of the debt in the country it is still the single largest lump of debt. There are fifty state debts, many county and city debts, many corporate debts, and many many individual debts. They can add up to more than the government debt, but that doesn’t change that the government is the biggest single debtor in the country.
Deflation would help those who are currently the final receivers of money. Yes, the debts of individuals would be negatively impacted, but unlike the government people are already working to pay off debts. The savings rate is increasing and the borrowing rate is decreasing, right now, thus having a negative impact on the money multiplier effect.
Deflation would lower prices. That would enable people to spend less purchasing the necessities. That will ultimately be good for the individual economies of the individual consumers, even if it is considered bad for the economy as a whole. This ties back into my point about how a recession is actually a correction. It is like how a drunk must suffer a hangover. Sometimes you actually do need to liquidate malinvestments. There is no paradox of thrift, there is instead the laying of the seeds for the eventual recovery. Instead of the long term depression that is coming as a result of trying to use Keynesian management of the economy, you would have a short (but severe) recession that will result in a clean recovery. Yes, a rapid correction will be painful, but it will be brief.
My definition of inflation, and deflation, is quite accurate, although it doesn’t go to the root cause which is increases or decreases in the money supply - the actual root definition of inflation. Inflation isn’t a single commodity occurrence which is why having a single market subject to speculators (as in your energy speculation myth) isn’t inflation. That particular commodity is facing rising prices, true, but when you say the inflation rate is 3% you’re not discussing a single commodity. What you are doing is a pretty crude equivocation between the macro and the micro scales. When the money supply changes, then the prices impact all goods, not just one. Currency values effect prices, in all circumstances.
Posted by Ayn R. Key on Apr 19, 2010 at 9:40 PM
In the first place, energy price increases due to speculation is not a myth. I would refer you to Senator Carl Levin (D-Michigan) who headed the Senate Permanent Subcommittee on Investigations in 2006. He determined that energy prices increased, despite declines in global demand, in conjunction with the increase in speculative trading on the NYMEX. Levin remarked,
“Much of this increase in trading of futures has been due to speculation. Speculators in the oil market do not intend to use crude oil; instead they buy and sell contracts for crude oil just to make a profit from the changing prices. The number of futures and options contracts held by speculators has gone from around 100,000 contracts in 2001, which was 20% of the total number of outstanding contracts, to 1.2 million contracts currently held by speculators, which represents almost 40% of the outstanding futures and options contracts in oil on NYMEX.”
In addition, hedge fund manager Michael Masters made similar testimony to Congress regarding oil futures speculation. Levin has speculated that the weak dollar coincided with the rise in oil prices to $160/barrel. Since the US imported more than half its oil needs at the time, this is a plausible assessment.
My point about inflation was that a 3% annual average is historically low and lower than in most of the advanced capitalist world except for Japan. Everything is relative. Much below 3% for any length of time is not historically very common in modern times. Inflation hasn’t really been a problem for about three decades.
Yes, inflation is bad for everyone. But you seemed to imply that the poor is hurt not by stagnating real wages but by inflation due to a lag time during which money passes from the rich to the poor. This is absurd!! There is no appreciable lag time in the passage of money from one social class to another. Inflation affects all simultaniously. In the second place, the growing wealth of US society has clearly not trickled down given the emense and rapidly growing inequality over the last three decades. From 2001 to 2007, the real median income actually declined by just under 4% while that of the top 1% increased by two thirds. This is not the effects of a general inflation or currency problem but pure social inequality.
Finally, deflation helps no one. And recession is not a “correction.” Both destroy trillions of dollars in output, income, productive capacity and financial wealth. It is good for no one. When a boom phase finally does return, we now find a more concentrated, slower moving economy often with little or no job growth. Recessions are to be avoided.
Posted by cabdriverinchicago on Apr 20, 2010 at 9:22 AM
As for your theories, Ayn, and all this economic tweaking, twisting, flipping and spinning…
This is the way everyday Americans are made to feel like they can’t understand if they don’t have a degree in economics. That in turn causes them to turn into little bobble-headed dogs riding in the back window of the car their enemy is driving, because they no longer recognize their enemy, which is exactly what the double-talking, robber barons want them to do so they can run away with the bank.
You misrepresented the Democrats’ economic plan. It’s not about giveaways and the working class doesn’t expect that. What they expect the government to do is establish a fair playing field so they, and the country, have a hope of survival. The best example of that is the FDR era. Much of what he did was in regulation because he had seen that the wealthy wiould and could take care of themselves and it was the working class that needed protection from them to create some semblance of fair play.
Big business greed is what’s causing what inflation there is because nobody’s got any money to buy anything and nobody’s wages are going up. And since energy is necessary for everything there is no business or person not affected by it’s pricing.
I can remember gas wars and buying gas for 17 cents a gallon. But at that time we still had independent gas stations. Then when the claim was made there was a shortage and the only way to get people to conserve was to let the prices go sky high. That is when all of the independent gas stations were forced out of business because they couldn’t get any gas at all which was the end of gas wars.
I have a friend who was a supervisor for Texas Utilites and he told me they could make all the electricity they wanted but were told by the government when to shut down their generators and stop producing. Now who would want to keep California having blackouts to make people think there was a real shortage and drive up prices?
As for the meltdown, it certainly didn’t help matters that Bush and his big oil buddies shot gas prices to $5 a gallon overnight. That affected every business and industry in the country in a negative way.
Then we have the issue of big oil buying up patents to new technologies to keep us from being energy independent. There is no energy crisis we haven’t had the technology to solve for decades. We had hydro-electric dams back in FDR’s day and there’s no reason that hasn’t been expanded except for the stranglehold big oil has on this country.
Contrary to common belief the Middle East doesn’t have all the oil. We have 1/3 of the world’s oil supply and we are only using 1/4 of it right now. So we have plenty of oil and don’t need to import it. If we developed our wind, solar and hydro power sources we’d have more oil than we ever needed for purposes where nothing else will work.
But that would impact supply and demand, prices would drop, and some of those oil speculators would get the reaming that the working class/middle class got when companies started going belly up and they lost all their retirment because it had been given to them in stocks instead of straight retirement plans protected by federal law.
It has to do with greed and how it’s keeping this whole country over a barrel.
Posted by CherisPlace on Apr 20, 2010 at 3:53 PM
“Contrary to common belief the Middle East doesn’t have all the oil. We have 1/3 of the world’s oil supply and we are only using 1/4 of it right now. So we have plenty of oil and don’t need to import it.”
I agree we need to go to renewable energy sources but I can’t really agree with the above statement. According to the US Energy Information Administration there are about 1.28 trillion barrels of known oil reserves in the world but more than 98% of this quantity is outside the United States. Currently, the US has only 21 billion barrels of oil in reserve which accounts for only 1.6% of total world supply. We import about half of our domestic oil consumption which is roughly 24 million barrels/day and we simply don’t have the domestic supply of easily accessible, high quality crude oil that exists elsewhere in the world. Conservation is probably a good policy in addition to developing wind, solar and hydro power. Some analysts have estimated that simply by cutting domestic oil consumption by three million barrels/day or more, the US could bring down the world price of crude oil significantly. One way to do this is to retrofit homes and businesses for energy efficiency and develop both urban and national mass transit such as high speed passenger trains.
I agree that Ayn’s economic theories are not in the best interest of the US middle class and working poor. What she doesn’t acknowledge about deflation, which she argues is a good thing because of its effect on prices, is that most people are debtors, not creditors. A deflation would cause bankruptcies, mass unemployment, financial ruin for most businesses and consumers and a deep depression. Recessions are not the “correcting” mechanisms that many conservatives believe they are and are generally highly destructive.
Posted by cabdriverinchicago on Apr 20, 2010 at 5:33 PM
Ok cabdriver, your figures could be correct. I’ll tell you I found my figures while researching OPEC and trying to figure out why and how much of our oil is exported through OPEC and then bought back at ridiculously inflated prices. If you can enlighten me on that I’d be glad to listen because I’m always willing to learn from someone else. And frankly, as much as we’re lied to consistently about big oil, and by big oil investors, I’m not sure where or how we’d get figures we could rely on to be accurate.
I had an uncle that was heavily involved in oil in Texas and during the phony gas shortage he told me there was no oil shortage. He said they were forced to stop pumping oil and that there were huge stores of oil getting funky because they weren’t even allowed to refine it. He said it was all a scam to drive up prices and he was in it up to his ears so he should have known.
But this is the thing. We have the solution to our “energy crisis” and have had for decades and I don’t think the answer is nuclear power plants. At best we know we have no way to safely dispose of the waste. At worst, we don’t know how safe they are or how long they will be safe because that all depends on contractors not cutting corners to make more money and paying off inspectors. People don’t seem to understand that the winds circle the earth and the Chernobyl disaster didn’t stay in Russia. BTW, that plant has been started back up and they have 4 or 5 more just as old and decrepit.
Why does Canada not have this crisis? When I was working in Canada so much of their energy was produced by hydro-electric they actually called it their hyddro bill instead of their electric bill. And they’ve been doing it for decades plus it’s clean and safe. We have multitudes of powerful water ways and the hydro-electric dams built in FDR’s day are still working safely so the life-span is amazing.
As for sealing up homes and buildings there’s only so far we can go with that. That’s where “sick air” is coming from. Buildings don’t even have enough ventilation to be healthy. When my office building was tested one of the worst pollutants was toner from laser printers and copiers and those are necessary to any business. There just was no ventilation.
We also have the ability to grow endless supplies of corn, probably on land in soil banks, which is easily converted to ethanol. I have the plans for a solar still to make ethanol I got from the state library out of a back copy of Mother Earth News. It’s not any harder than brewing ‘shine and hillbillies have been doing that forever. LOL And Holland has been using windmills for energy since before WWII. It’s not like nobody knows how to do it. This stuff isn’t rocket science.
I think we need to put all of our resources into wind, solar and hyrdo so we’ll have all the oil we need for our own purposes. Building dams we could get the country back to work and make ourselves energy independent at the same time. Then the MIddle East wiould have to stop antagonizing the U. S., Europe and Israel because they can’t eat that oil or the sand and that’s about all they’ve got.
Posted by CherisPlace on Apr 24, 2010 at 2:41 PM
To answer your question, most of the ten to twelve million barrels of oil a day that we import comes from the Middle East. OPEC would also include Venezuala (a founding member of OPEC). According to the Center for American Progress big oil made out well under the Bush Administration, especially in the final two years.
”...the big five companies…made a combined profit of $100 billion for 2008. The sum is the second-highest combined big oil profit on record, exceeded only by the 2007 combined total of $123 billion. The 2008 big oil profits bring the grand total under the two terms of the Bush administration to $656 billion, which is nearly two-thirds of a trillion dollars.”
Much of this is due to the quadrupling of world oil prices in the immediate aftermath of the US/UK invasion of Iraq in 2003. Still, industry sources report that big oil’s prices have been declining since the first quarter of 2009, despite rising world prices, because of high supply and low demand. Free marketeers always claim that prices can’t be high with a fall off in demand. I guess the free market doesn’t work with oil.
I agree that nuclear power is bad and that we need safe, renewable energy. It is also the case that big oil has invested virtually nothing in this field. I would love to see us develop hydro-electric power given our advantage in doing so. This will also create jobs.
I think we can have weatherization and energy efficiency and good ventilation. That shouldn’t be a problem.
I’m not a big fan of biofuels because the consensus on this seems to be that we will just raise food prices without contributing much to overall fuel supplies. These resulting food price hikes will hurt the poor and middle class most.
I agree that there is tremendous pressure to solve the energy problem because of instability in the Middle East. As one US Congressman said during Gulf War I, “if their main export was turnips, we wouldn’t give them a second glance!!”
Posted by cabdriverinchicago on Apr 24, 2010 at 3:31 PM
Okay cabdriver, but this is my question. If we don’t have enough oil and have to import it why are we exporting our own oil and then having to buy it back? I suspect it’s only so more of the big money people can get a chunk of the money in the process, driving up the price, and that’s why I was researching it.
I read that our biggest oil field is actually in Alaska, not Texas, and that it’s owned and operated by an American Company (Exxon-Mobil I believe) in conjunction with a Brittish Company. Maybe I’m being a little thick here but if we don’t have enough to begin with why would we export any?
As for the big oil companies, they’ve proved that free market-supplydemand doesn’t work without regulation. I have no doubt if they were investigated price-fixing could be proved there. The fact the prices haven’t dropped with a drop in demand pretty proves that. And what should be expect when we put an oil man in the White House?
As for ethanol, somebody’s making it and using as a gas additive to improve mileage so it must be worthwhile to produce. And to keep from driving up food prices maybe we could subsidize farmers to actually grow corn and help out family farms instead of paying corporate “farmers” to hold land in soil banks, forcing family farms out so they can buy up more farmland? Ethanol might not work as a total replacement but then we’ve had an electric car ever since GM produced one and put it out on lease. So we do have that technology and if we can produce as much electricty as we need through hydro, wind and solar then that’s solved. It’s just a matter of getting it done.
But I think what it comes down to is what I’ve said for years, that we can’t fix anything sensibly until we deal with campaign finance/lobby reform because the main problem is the hold big money has on government. Is it even possible to do that with our current Supreme Court over-stepping their bounds?
Which brings me to my other point. I think all campaigning should be banned from TV and radio. It makes it too easy for people to be mentally lazy and allow themselves to be brain-washed and drives up the cost of campaigns. I think they should have to get on a bus and go out and face the people face-to-face with what they’ve done. It would cut down on the cost of elections, give the people access and maybe even things up a bit. If we look back at the day of our forefathers if a man could get up on a tree stump, had good ideas and seemed honest he was in. Lincoln could never have been elected under our current system because he was definitely working class.
I do think the internet will make a difference because people do have more information available and can discuss issues and learn from each other. I just don’t know if it will make enough of a difference because so many people would rather just listen to somebody talk and nod their little heads. I’m terrified our democracy is going to go the way of the unions because of people being mentally lazy, apathetic and just not realizing what’s at stake. They don’t seem to understand this isn’t a game and everything we hold dear is at stake.
Posted by CherisPlace on Apr 24, 2010 at 6:36 PM
“If we don’t have enough oil and have to import it why are we exporting our own oil and then having to buy it back?”
Many in the anti-globalization movement call it “redundant trade” and in the case of oil, it is to fetch a higher price for domestically produced oil on the world market given the high production costs in the US. Oil is not the only example of this type of trade. Agricultural products is an even more frequent area of redundant trade.
“Cod caught off Norway is shipped to China to be turned into filets, then shipped back to Norway for sale. Argentine lemons fill supermarket shelves on the Citrus Coast of Spain, as local lemons rot on the ground. Half of Europe’s peas are grown and packaged in Kenya…”
The above is from Public Citizen online which is Ralph Nader’s think tank. Look into it and see if there is anything about the world oil trade there.
Posted by cabdriverinchicago on Apr 25, 2010 at 12:49 PM
So…the companies sell theirs on the world market because they can make more money, probably by denying work to Americans, then the taxpayers end up buying it back (and even more too) at an inflated price. Sounds about right…passing it through as many hands as possible so everybody can get a chunk of the money and we get stuck with the bill just like we do with healthcare and every other commodity essential to our way of life.
Now, I can understand exporting excess supplies of corn, wheat, fruit, anything we have more than we need of. That is only good business. But exporting something we’re going to have to buy back just to save on production costs, which essentially means denying taxpayers work because the cost of shipping it alone has to drive up the price, is insane.
They said union labor drove up the cost of goods. However, when tennis shoes were made here by union labor you could get a pair for $1 and we’re now importing them made by child labor and paying $100-150 a pair. Pretty much disproves that theory, doesn’t it? You know, if all of the labor was in the U. S. again we probably wouldn’t have a budget deficit because more Americans would be making more money and paying more taxes because the working people don’t have tax shelters or lawyers to set them up for them.
But then I have no doubt we’re insane because we keep doing the same thing and expecting different results. :)
Posted by CherisPlace on Apr 29, 2010 at 7:09 PM
My point about inflation was that a 3% annual average is historically low and lower than in most of the advanced capitalist world except for Japan. Everything is relative. Much below 3% for any length of time is not historically very common in modern times. Inflation hasn’t really been a problem for about three decades.
That statement fits in perfectly with my analogy to the “normal” of prison life, and compares perfectly to a prisoner saying that he is getting raped a lot less often than before. Historically we haven’t had fiat currency, and historically we haven’t had inflation even as high as 3%. It is all relative just as the prisoner getting raped only once a week instead of every day feels like he’s having a better time. The 3% you call historically low is actually historically high and only low if you limit the data pool.
Yes, inflation is bad for everyone. But you seemed to imply that the poor is hurt not by stagnating real wages but by inflation due to a lag time during which money passes from the rich to the poor. This is absurd!! There is no appreciable lag time in the passage of money from one social class to another.
You call me absurd while saying there is no lag time in which the effects of new money ripple through the market. That sets a standard for absurdity - if it is real it is absurd and if it is not real it is not absurd. Thank you very much for giving us your standard of measuring absurdity. Meanwhile, the stagnant wages you discuss are a result of the inflation I discuss. Without the historically anomalous 3% annual inflation the issue of stagnant wages due to inflation would be greatly reduced.
Inflation affects all simultaneously. In the second place, the growing wealth of US society has clearly not trickled down given the immense and rapidly growing inequality over the last three decades.
That’s because of the time lag in which the new money spreads itself through the economy. By the time the new money gets to the last receivers all the effects of inflation have already been felt. That’s why ‘trickle down’ doesn’t work - lag time between creation of new money and revaluation of money.
Finally, deflation helps no one. And recession is not a “correction.” Both destroy trillions of dollars in output, income, productive capacity and financial wealth. It is good for no one. When a boom phase finally does return, we now find a more concentrated, slower moving economy often with little or no job growth. Recessions are to be avoided.
Oh boy. Yes, recessions are corrections. Malinvestments during the boom time have to be liquidated, and that happens during the recession. The seeds for the recession are planted during the boom. When the malinvestments are liquidated the resources that fund them can be put to more productive use AND prices that are above market fall to market levels. When something is over-valued, you don’t try to prop up the over-valuation, you let the value fall. When something is over-priced, you don’t try to prop up the price, you let the price fall.
Yes, it is painful. The alternative? Drain resources from more productive enterprises in order to prop up less productive enterprises. The economy has been living high on cheap credit, and you prescribe “hair of the dog” as the cure for the hangover. It doesn’t work.
That’s why when recessions end you find little or no job growth - the end of every modern recession has been a postponement of the necessary corrections. You are in a prison normal instead of normal.
It’s painful like hangover. It is also painful when a doctor manipulates a broken leg in order to properly set it before putting on a cast, but the pain is necessary towards healing. Based on your economic analysis about how recessions must be avoided at all costs, you would tell the person with the hangover to have a drink and the person with the broken leg to take concentrated pain killers.
Posted by Ayn R. Key on Apr 30, 2010 at 11:15 AM
“Meanwhile, the stagnant wages you discuss are a result of the inflation I discuss.”
Absolutely false!! Over the past thirty years, the median national income has flatlined while that of the top 1% has quadrupled in real terms. All this occured as average annual rates of inflation declined markedly from what they were in the 1970s. Between 2001 and 2007, the real national median income actually declined by about 4% while the income of the top 1% increased by about 60%. Inflation was quite low at this time and certainly doesn’t explain such massive disparities between the rich and the middle class. The problem isn’t inflation. It’s inequality.
The lag time theory is, in my opinion, too absurd to even consider seriously. No professional economist, to my knowledge, has ever proposed this as a theory of income inequality. The more likely cause is the collapse of the labor movement and unions. The dollar doesn’t rapidly lose value as it moves from profits to wages.
Deflation hurts most people because most people are debtors, not creditors. My take on “malinvestment” and “correction” is as follows:
“THE FINANCIAL COLLAPSE TRIGGERED a more profound general economic recession, what is in its fundamental features a classic overproduction crisis…[caused by] the decline of the rate of profit in manufacturing.This is not simply a minor cyclical recession, but rather it is…a genuine economic depression that will be severe and long lasting. The fall in the rate of profit in manufacturing led some investors to move into real estate and finance in search of higher profits, resulting in the bubble. With the burst of the bubble, the broader and deeper economic crisis in industry has been revealed. We now appear to be entering a classical depression, likely to be accompanied by deflation, that will last until enough capital has been destroyed through the elimination of outdated plants and equipment, to once again attract investors” Dan La Botz. The Global Crisis and the World Labor Movement. New Politics. (Summer 2009) Vol. XII-3, #47.
This “correction” sees the richest capitalists further concentrating the economy as they buy up productive assets at firesale prices in the midst of a deflation. This skews the nation’s distribution of income further upward and reduces effective consumer demand eventually causing chronic stagnation and unemployment. This is no solution. Fiscal stimulus is much better.
Posted by cabdriverinchicago on Apr 30, 2010 at 3:43 PM
The lag time theory is, in my opinion, too absurd to even consider seriously. No professional economist, to my knowledge, has ever proposed this as a theory of income inequality.
First of all, every mainstream economist is either a devotee of Keynes or a theory derived from Keynes (supply side, demand side). Therefore no mainstream economist has any reference for time lag for any function in the economy at all. Keynes disregarded it, and everyone who comes form him does. And I disregard Keynes.
But time lag is not an explanation of income inequality. Income inequality is the result of differing marginal utility of labor between different skill sets. I was talking about stagnant wages, not income inequality. You have successfully made the leap from the topic we were discussing to something entirely different to avoid addressing the point that was made.
Where the dollar loses value is when the effect of the newly created money starts to circulate through the economy. By the time it has finished circulating then the late receivers notice higher prices and start pressing for higher wages. Their wealth has been redistributed from them to the rich via inflation. It is a neat trick, if one is able to see that those in positions of authority are capable of misusing their power to enrich themselves and their partners.
So, since you are dissing my “malinvestment” explanation, in favor of a decline in manufacturing profits, what then do you credit for the decline in manufacturing profits. Quit skimming the surface.
Meanwhile the richest corporatists (and it is incorrect to call those who use political pull to produce profits as capitalists) are buying up what? Productive assets aren’t the ones that need to be liquidated unless they are part of a larger unproductive enterprise.
It is sad but true that there is a gross preponderance of debtors in this country. And that’s a massive nation-wide malinvestment. Now I know you forgot that I said that we need a short an painful fix instead of a long drawn-out fix, and are thinking that I say my proposals will fix everything. Fortunately for me I never claimed to be able to fix everything, and instead advocated the short hard pain of a severe corrective recession to the long drawn out pain of stimulus packages. Yes, deflation will hurt most people. My point is that the alternative hurts MORE.
Posted by Ayn R. Key on May 3, 2010 at 7:38 PM
”...every mainstream economist is either a devotee of Keynes or a theory derived from Keynes (supply side, demand side). Therefore no mainstream economist has any reference for time lag for any function in the economy at all.”
This is absolutely false. Most economists are neo-classical, not Keynesian. If no mainstream economist has a reference for time lags, there is a good chance that such lags are merely a figment of your imagination.
“Income inequality is the result of differing marginal utility of labor between different skill sets.”
This is also false. Study after study has shown that labor productivity has doubled in the last thirty years while real median wages have moved only modestly and have actually declined in the past ten years. This is not supposed to happen according to neo-classical economic theory which never predicted the current disconnect between labor productivity and real wage growth. And what, pray tell, is the “marginal utility” of the contributing efforts of an AIG executive who sinks his company and the wealth of his shareholders and the society along with it. Something is wrong with the old school theories.
”...what then do you credit for the decline in manufacturing profits?”
Profit rate declines are generally the result of an overproduction crisis. This is generally caused by a decline in effective demand due to an attempt by capitalists to save profit margins by cutting back output and laying off workers.
There is no need for people to endure a long recession as it will resolve nothing. The economy will not soon equilibriate itself, at least not any time soon, and will eventually only do so at rates of high unemployment. Direct job creation for the unemployed helps to counter a downward recessionary spiral and thus prevents another collapse. According to Keynesian economist Robert Pollin of the Political Economy Research Institute at the University of Massachusetts-Amherst, “We can indeed create 18 million jobs and drive the unemployment rate to 4 percent by the end of 2012.”
Posted by cabdriverinchicago on May 4, 2010 at 12:52 PM
Ok, I misspoke in one place. Most government economists are Keynesian. Most academic economists are neo-classical. But it is not the academic economists who set policy.
Saying “time lag must be a figment of my imagination” reminds me of my days back in college studying engineering. You get a problem where you are told to disregard friction. Disregard friction? It exists in the real world, but students are given those problems as they work their way up to problems where they can no longer disregard it. They need to work on the simpler models before they can work on the more advanced models.
And I include time lag because I am a scientist doing economics. Time lag exists even if the students are told to disregard it in the practice problems. Double the money supply and you halve the value of the currency. Since the effect isn’t immediate people think there is no effect. But it is certainly no imaginary figment even if Keynesians aren’t capable of dealing with it.
As a scientist, I see the fancy theoretical models that many economists make, and I ask “what, exactly, is the basis for that model? What, exactly, are you measuring and how are you measuring it?” They say they can measure consumer confidence.
Of the four main schools of economics (and I’m grouping sub-schools in with their parents) only one passes the most crucial of scientific tests. Neither the neo-classicals nor the Keynesians foresaw the current depression that the economy is in.
So, what is the “marginal utility” of the AIG executive? Have you completely ignored every single post I wrote about misleading economic indicators? Actually you have. Why? Why have you ignored it every time I wrote about misleading economic indicators?
You give the textbook analysis for why profits have declined in manufacturing, but you are “disregarding friction.”
You are right that there is no need for people to endure a long depression. Unfortunately the very factors people are looking to in order to remedy the depression are the very factors that caused and are continuing the depression. I advocate “short but severe”, another point you seem determined to ignore.
Posted by Ayn R. Key on May 4, 2010 at 4:48 PM
“But it is not the academic economists who set policy.”
So just where do these government economists come from? Must be academia. And they are far more likely to be neo-classical than Keynesian. Even Obama’s chief economic advisor, Austin Goolsby, is from the University of Chicago (remember Milton Friedman) and is closer to the neo-classical school than the Keynesian school.
Friction is a universally held physics principle. Lag time is not a universally held economics principle. Engineering students might be told to disregard it temporarily to work on other things. “Lag time” is never mentioned, even by monetarist economists, because unlike friction, no one actually believes that it exists.
“Double the money supply and you halve the value of the currency.”
Believe it or not, even Keynesians accept this. But not as an absolute. They do not believe in the neutrality of money, as do monetarists, so they don’t believe that adjustments in the money supply have only monetary (i.e. inflation or deflation) effects. Money is an asset, not just a means of exchange. It affects many decisions. Furthermore, if the money supply increases but productivity and output increase more, inflation will likely not result. How much slack exists in the economy is a highly relevant question to Keynesians.
Then there is the question regarding whether or not the money supply has increased. According to the Fed, M1 has been quite stable over the past ten years.
“short but severe”
This is also unnecessary. And debt and spending did not cause the current crisis. Government and consumer debt have been steadily increasing for the past thirty years. Financial deregulation certainly didn’t help matters. Tax cuts and wage stagnation have driven both government and consumers into debt. Debt is what most of the growth over the past thirty years is based upon. Without it, the “paradox of thrift” would have brought the depression on much sooner. Want a more stable and solid basis for growth? Do what Sarah Palin and Joe the Plumber say we should not do; tax the rich and redistribute income!!
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Reader Comments
Well, all I have to say is bravo to Amazon. Every little bit helps.
What kind of stupid remark is that. Tax avoidance by the rich contributes to deficits and raises local taxes for the middle class when states and localities need to make up the shortfall. Tax dodging has done nothing to help society. Every little bit hurts.
It’s not nearly as stupid as you think. Tax dodging is far more noble than people give it credit for. Even the tax code recognizes this because it gives us deductions if we act in certain ways. Giving to charity and having a mortgage actually reduce the amount of taxes you owe.
I have no problem with generous tax deductions for the middle class and working poor. I rely greatly on them myself. But billion dollar corporations completely dodging taxes by hiding their income is costing us all. Our deficit is clear evidence of that.
cabdriver: I agree completely! The main reason we’ve exploded our deficit and budget deficit is due to tax cuts for the wealthy. These are the same people and businesses that outsourced work to other countries leaving the middle class and working class without jobs.
It seems the people that are benefitting most in this country are the ones that are least willing to see it survive. Of course, that makes sense when you realize that they can take their millions and billions and move to another country, once they’ve bankrupted it, while we everyday Americans don’t have that option.
That’s why we have to have laws that establish fair play. I find it odd that people don’t make the connection between collective bargaining and the creation of the middle class. Before FDR there WAS no middle class. There was only the very rich and the very poor and if you were born poor chances were extremely good you would stay that way because there would be no school for you. It was a permanent slave class.
Collective bargaining, and the changes that came with it, enabled the children of the working class to climb out of that station and that’s where the middle class came from. Make no mistake, the middle class began a downward spiral right along with the working class when Reagan dealt a death blow to unions, And until the working class again has a voice in government these kind of shenanigans on the part of big business will run amok. The whole aim of Republicans and their big money supporters for decades has been to return to a permanent slave class. That’s what they mean by “taking back our country.”
Sorry cabdriver…I had a typo there. I meant exploded our national debt and budget deficit. ;)
It is true that Reagan set the very middle class that elected him in 1980 on the road to destruction. George W. Bush clearly finished the job. Reagan’s determination to break the unions, beginning with PATCO, made the biggest constribution to this destruction. Many people thought that the entire US labor movement at the time should have confronted Reagan on behalf of PATCO in order to save unions from annihilation. Unfortunately, this never happened and the dire condsequences for the US middle class are now readily apparent.
It was unions, given the legal right to organize and bargain collectively under FDR, that created the US middle class. Since 1980, wage growth deceleration and ultimately real wage decline has lead to massive debt and a declining standard of living for working people in the United States. This is unfortunate. It will be quite hard to reverse this trend.
Ahhh cabdriver, I would love to sit with you over a pot of coffee and discuss politics. :)
I was one of the ones that said at the time that every union worker in this country should have went on strike and shut the whole country down until Reagan backed up off that. But I had watched my mother come home from a plastics factory where it was so hot one woman had a heat stroke, was in the hospital unconscious for 3 days and they weren’t even sure she’d live. And the owner of that factory had taken their fans to St. Louis to put on his race horses! But back then we also had ethical journalism and stories ran in all the major papers about the plight of the workers. That can’t happen today without major change.
My mother helped organize that factory for the AFL-CIO and not only did they have fans but they had wage protection, fair play rules as well as insurance for their families. That included eye care and dental care and there were no deductibles or co-pays. My mom and dad never had much money but we were able to go to the doctor and go to school because they were able to support their family. We had an old house my grandpa built and I don’t think my dad ever paid more than $300 for a car but we didn’t live in fear of getting sick or whether there would be lights, water and food on the table. And those factories made a ton of money.
It wasn’t just collective bargaining, although the voice and protection it gave the working class was a huge part of it, but the changes that came about because of it. And it was also all of FDR’s policies. He’d seen that big money was always going to take care of itself and didn’t need help.
Those policies included: free public education, including books, worker safety, hourly wage protection, 40 hr work week, the labor relations board, as well as regulating public utilities, creating the CO-OP program so farmers and rural areas could get electricity and phones and a host of other policies. They called him a socialist and unions communist because that’s how they fight change, name-calling. Trust me, those same big money people were losing their minds then, too. I’m sure he would be labeled a liberal today but I don’t see how anybody could honestly see hiim as anything but a progressive. His policies saved this country from destruction, built an infrastructure that is still serving us well, prepared us for the technological age and ushered in decades of the most prosperous time this country has seen before FDR or since Reagan.
The reason unions died such a quiet death was because of propanda and brainwashing. People were told the unions were robbing them although their dues were such a small amount it wouldn’t even cover the insurance they had. I think my mom’s was $14/mo. They created division among the workers and that is the one thing that made and kept unions strong, solidarity.
Then the middle class became the working class and the working class became the unemployed, homeless, starving class…the slave class. Push more and more to the top few, while pushing more and more Americans further down…that’s their plan.
Is it possible to bring unions back? Yes, but the middle class and working class have to realize they’re really the same class and they aren’t rich enough to be Republicans. We also have to do something about our jobs being exported. And they’ll probably have to be willing to fight and die for it. Many people died at the hands of big money’s thugs on picket lines, in mines and fighting scabs.
The only union that hasn’t been broken is the Teamsters and that’s because they’ve shown they’re willing to go to the mattresses and fight to the death for their way of life. That’s what it took before and I suspect that’s what it will take again. It will be even harder now because we no longer have an ethical press to expose the issues. It’s a shame we let die what people had fought and died to create.
It’s always the surface that people notice, and never anything deeper. Everyone talks about Reagan and Bush or Obama and Clinton. Nobody ever talks about the Federal Reserve and Alan Greenspan (and his inferior heir Bernanke).
If you want to know where everything went to hell in a handbasket, do not look to the person sitting on the roof of the engine of the train, claiming to be steering. Look inside the engine where the driver is working the controls.
Unions are not the answer to this particular problem. The answer to this problem is a stable and sound currency, something that we have not had since before Nixon came into office. Unions can help ameliorate some of the symptoms, much like morphine will cause people with broken bones to not feel the pain. What good will annual raises, negotiated by a union, do for a person who sees inflation outstripping the annual raises in the first place? Ask someone in Weinmar Germany.
Some people are so bought into the current system - including the unions - that they don’t see that the current system as a whole - including the unions - is what is destroying the middle class. The instrument of the destruction of all but the elite has been in place since 1914.
Well Ayn, people usually judge the state of things by their lives. And frankly, I think that’s a pretty good barometer. I know when things are bad they blame the FED and when they’re good they give the FED the credit. However, we’ve had good and bad under the same FED leadership with different executive and legislative leadership And don’t think for a minute the FED doesn’t take guidance from both the executive branch and congress because they are overseen by both.
In fact there was a woman economist that saw this meltdown coming because of the risky business Wall Street was doing and fought to get the FED to listen to her and do some regulation. They all went before congress to present their viewpoint. However, congress followed Alan Greenspan and the good old boys crowd and refused to listen so she resigned. Now Alan Greenspan admits he was wrong. Of course, everyone else is paying for it. But congress was warned and did have the opportunity and ability to address it, under Republican leadership I might add, and refused to take the problem seriously.
And why did they make that bad choice? Because the Republicans have had the same economic plan for decades even though it keeps failing. Their policy is to turn big business loose to make all the money they can make by any means they can be it fair or foul. Then supposedly they will do so well they’ll just be generous with the employees, it will all roll downhill and everything will be hunky-dory. They’ve called it “supply side economics” and “Trickle down” but I have a much better name for it I can’t post here.
The problem with that plan is that the only thing that rolls downhill is crap and big business has never had a penny in their hand and turned loose of it if they didn’t have to. They proved that with the massive bonuses they gave executives, soaring of interest rates plus the laying off of thousands of workers after the taxpayers bailed them out of their foolshness. This has been going on for decades and I don’t see how anybody can miss seeing it unless they haven’t been around as long as I have. They don’t even want to pay their taxes when they’re obviously doing a lot better than the rest of the country.
When you get into the mechanics of economics you lose the ability to see the big picture. The economy is a big triangle with the wealthy at the top and the working class at the bottom. The more you push to the top and the narrower the bottom gets the harder it is to keep it upright and that;s what caused the meltdown, a top-heavy economy. And that’s what happens when the folks at the bottom, the working class and middle class, have no voice in government.
Lots of economists saw this coming, and saw it coming a long time before it actually happened. Unfortunately nobody in that particular school of economic thought has the ear of politicians.
Cheris, when I wrote about people only looking on the surface, well, your answer satisfies that statement. Yes, we’ve had good and bad times under Greenspan - as he continued to use the power of the Federal Reserve to forestall the necessary corrections until they became a full blown crisis. The dot-com bubble was the first of the big ones, and by flooding the market with cheap money Greenspan helped remedy the symptoms (but not the cause) creating a stock bubble. When that popped he used more cheap money to create a housing bubble. Each bubble was worse than the one before it, and was caused by the effort to cure the one before it instead of letting it run its course.
The perfect analogy is that cheap credit and cheap money is like alcohol, the bubble is like being drunk, and the popping of the bubble is like a hangover. Greenspan gave us as much “hair of he dog” as we could handle, but the problem with that is that eventually you must suffer a terrible hangover or die of alcohol poisoning.
Yes, the Republicans (and the Democrats) have had the same economic plans for decades, and the same plans keep failing. The Republicans have trickle down managed economies, the Democrats have trickle up managed economies. The Republicans have supply side, the Democrats have demand side. The Republicans are right-Keynesians and the Democrats are left-Keynesians. The problem isn’t that the Keynesianism is right or left, the problem is that it is Keynesian.
Unfortunately it is important to study the mechanics of economics. As much as it is claimed that the big picture is lost by doing so, the exact opposite is actually true. What caused the meltdown was much more complex than “the rich have most of the money.” How did we get to THAT point? That’s where you need an economist to answer the questions of how we got to all these symptoms you see. You need to look for the cause of the apparently unrelated symptoms.
“Unions are not the answer to this particular problem. The answer to this problem is a stable and sound currency…”
This assertion, and most of the entire post from which it is quoted, is the standard Libertarian view. It is completely misleading and untrue. In the first place, stable currencies don’t improve peoples’ incomes and is not the problem in the US anyhow. The US has had the greatest level of price stability over the last 100 years of any of the advanced capitalist economies. After the 1980-81 Reagan/Volcker recession, the double digit inflation of the 1970s was reduced to an annual average of about 3% consistantly since that time up until the present. Since 1979, median real incomes have hardly gone up at all while the income of millions of households below the national median declined significantly. The top 1% of income earners have more than tripled their average real incomes and the wealthiest 400 have increased theirs even more. These wealthy households, those earning an average of $345 million in 2007, paid about 16.5% in federal income taxes, roughly the same effective rate paid by those at the national median level of income.
One thing about the post-1980 epoch is the marked decline of unions. Union density went from about 35% in 1979 to under 12% currently. Unions and collective bargaining definitely are the answer to the problem of declining average real wages for the US middle class. Workers with union contracts have better wages, working conditions, benefits and job security. Unions didn’t harm the middle class; they actually built the middle class!!
“Nobody ever talks about the Federal Reserve and Alan Greenspan…”
Actually, they do and incessantly so. It is a misplaced focus. Yes, the Fed is powerful. But it has lost much of its influence over the economy as capital markets globalized and were able to offset the effects of central bank policies around the world. Private capital markets are deep and liquid and contain more resources than the reserves of any central bank. Most importantly, these markets are highly transnationalized and capital is hyper-mobile across national boundaries. There has been many times when a central bank raised its prime interest rates only to have them reduced in the process of attracting overseas financial investment which then floods the system with money. Central bank control of the money supply is in doubt.
It is also the case that M1 has been stable for two decades or more and, as I pointed out, inflation has been stable if not low. We now face a risk of deflation due to the current recession. Much of the reason for this is that labor productivity has doubled since 1979. Another is that the US has been flooded by cheap imports. Inflation tends to be sectoral and not general. This reflects monopoly control more than currency instability. Friedman’s dogma that “inflation is always and everywhere a monetary phenomenon” is not really true. Much of it is “cost push” due to rising energy and other commodity prices as well as monopoly pricing power.
In the first place, stable currencies don’t improve peoples’ incomes and is not the problem in the US anyhow.
Neither do inflated currencies, after you adjust for inflation.
Since 1979, median real incomes have hardly gone up at all while the income of millions of households below the national median declined significantly.
Thank you for proving my point. You admit that we’ve had about 3% constant inflation since the 1979, which means we have not had a stable and sound currency.
It is also the case that M1 has been stable for two decades or more and, as I pointed out, inflation has been stable if not low. We now face a risk of deflation due to the current recession.
We should be so lucky as to have deflation, but the central bank will never allow it. Deflation is good for lenders and bad for debtors, and the biggest debtor of them all is the federal government. It would be bad policy for deflation to occur, although it would be good for the economy to allow over-inflated prices to fall to a more reasonable level.
Inflation and deflation are largely misunderstood. Inflation is not merely “prices going up”, that is the indicator and result of inflation which is actually an adjustment in price to correct a difference in value between the currency and the good. That definition also applies to deflation. Both inflation and deflation are an adjustment in price to correct a difference in value between currency and goods. If we are experiencing either it is because there is a need to experience them. The way to offset the correction is to change the value of the currency instead and before the price of the good changes.
Friedman was actually right for a change when he called inflation a monetary phenomenon, as those commodity and energy prices are rising for a reason. You are only looking at the outermost layer when you are determining that we have inflation because of energy costs - why is there inflation in energy costs? Why is there inflation in commodity prices? Look beyond the goods on the shelves and look to the rising costs in what put those goods on the shelves.
“Thank you for proving my point. You admit that we’ve had about 3% constant inflation since the 1979, which means we have not had a stable and sound currency.”
In the first place 3% average annual inflation is not high and is in fact considered quite normal. In addition, this is a thirty year average which includes some high inflation years in the early 1980s. If we take an annual average over the last twenty years the average annual rate of inflation would be much below 3% which is incredibly low. This nonsense about a generalized inflation in the US economy is a red herring. No economist or policy maker of any note has made inflation out to be an issue because it simply isn’t.
The real issue is inequality. The incomes of the rich have going up many times faster than that of the middle class. This is not because of inflation; it is because of depressed growth of middle class wages and salaries. Peoples’ incomes have simply not kept pace with their productivity.
“Deflation is good for lenders and bad for debtors, and the biggest debtor of them all is the federal government.”
This is just factually inaccurate. The federal government is $14 trillion in debt. Who owes the remaining estimated $42 trillion? Consumers and households owe another $14 trillion while financial and non-financial corporations owe much of the rest. Deflation would have a disasterous effect on the US economy causing a long depression. It would create bankruptcies, a cessation of investment and protracted unemployment.
Commodity price increases have been proven to mostly be the result of speculation. This is especially true of oil.
“Inflation is not merely “prices going up”, that is the indicator and result of inflation which is actually an adjustment in price to correct a difference in value between the currency and the good.”
This is a very narrow definition of inflation. Many things could cause price changes. One factor is cost push inflation which involves increases in production input costs. Another is monopoly pricing. And then there is low productivity. The phenomenon of “too many dollars chasing too few goods” doesn’t necessarily have to be a monetary one. Friedman’s thesis was quite dogmatic.
When capitalists set a price, they base it on total production costs plus a desired rate of profit. This was Keynes’s theory of prices. They were often based on the marginal cost of production plus profit.
Currency values do effect prices but only in unusual circumstances. Currently, we face both a weak dollar and a real danger of deflation. A deflation would be bad for everyone. It would cause bankruptcies, mass unemployment and huge financial losses. A long depression would be the end result of a deflation.
There is a tendency for people to adapt to whatever unusual circumstances and call it normal. There is the normal of prison life for example. And there is the normal of an average of 3% for year of inflation.
Now if you want to tackle the issue of equality and inequality, inflation is bad for the common man. It doesn’t happen all at once. The early receivers of the money, the wealthy and politically connected get the new money at the old value, and by the time it ripples out through the rest of the economy the final receivers have been spending their old money at the new value.
It is not factually incorrect to say that the government is the biggest debtor. First of all you fail to count inter-government holdings, the amount of debt held by various government agencies such as Social Security. Second of all, even if the federal government’s debt isn’t the majority of the debt in the country it is still the single largest lump of debt. There are fifty state debts, many county and city debts, many corporate debts, and many many individual debts. They can add up to more than the government debt, but that doesn’t change that the government is the biggest single debtor in the country.
Deflation would help those who are currently the final receivers of money. Yes, the debts of individuals would be negatively impacted, but unlike the government people are already working to pay off debts. The savings rate is increasing and the borrowing rate is decreasing, right now, thus having a negative impact on the money multiplier effect.
Deflation would lower prices. That would enable people to spend less purchasing the necessities. That will ultimately be good for the individual economies of the individual consumers, even if it is considered bad for the economy as a whole. This ties back into my point about how a recession is actually a correction. It is like how a drunk must suffer a hangover. Sometimes you actually do need to liquidate malinvestments. There is no paradox of thrift, there is instead the laying of the seeds for the eventual recovery. Instead of the long term depression that is coming as a result of trying to use Keynesian management of the economy, you would have a short (but severe) recession that will result in a clean recovery. Yes, a rapid correction will be painful, but it will be brief.
My definition of inflation, and deflation, is quite accurate, although it doesn’t go to the root cause which is increases or decreases in the money supply - the actual root definition of inflation. Inflation isn’t a single commodity occurrence which is why having a single market subject to speculators (as in your energy speculation myth) isn’t inflation. That particular commodity is facing rising prices, true, but when you say the inflation rate is 3% you’re not discussing a single commodity. What you are doing is a pretty crude equivocation between the macro and the micro scales. When the money supply changes, then the prices impact all goods, not just one. Currency values effect prices, in all circumstances.
In the first place, energy price increases due to speculation is not a myth. I would refer you to Senator Carl Levin (D-Michigan) who headed the Senate Permanent Subcommittee on Investigations in 2006. He determined that energy prices increased, despite declines in global demand, in conjunction with the increase in speculative trading on the NYMEX. Levin remarked,
“Much of this increase in trading of futures has been due to speculation. Speculators in the oil market do not intend to use crude oil; instead they buy and sell contracts for crude oil just to make a profit from the changing prices. The number of futures and options contracts held by speculators has gone from around 100,000 contracts in 2001, which was 20% of the total number of outstanding contracts, to 1.2 million contracts currently held by speculators, which represents almost 40% of the outstanding futures and options contracts in oil on NYMEX.”
In addition, hedge fund manager Michael Masters made similar testimony to Congress regarding oil futures speculation. Levin has speculated that the weak dollar coincided with the rise in oil prices to $160/barrel. Since the US imported more than half its oil needs at the time, this is a plausible assessment.
My point about inflation was that a 3% annual average is historically low and lower than in most of the advanced capitalist world except for Japan. Everything is relative. Much below 3% for any length of time is not historically very common in modern times. Inflation hasn’t really been a problem for about three decades.
Yes, inflation is bad for everyone. But you seemed to imply that the poor is hurt not by stagnating real wages but by inflation due to a lag time during which money passes from the rich to the poor. This is absurd!! There is no appreciable lag time in the passage of money from one social class to another. Inflation affects all simultaniously. In the second place, the growing wealth of US society has clearly not trickled down given the emense and rapidly growing inequality over the last three decades. From 2001 to 2007, the real median income actually declined by just under 4% while that of the top 1% increased by two thirds. This is not the effects of a general inflation or currency problem but pure social inequality.
Finally, deflation helps no one. And recession is not a “correction.” Both destroy trillions of dollars in output, income, productive capacity and financial wealth. It is good for no one. When a boom phase finally does return, we now find a more concentrated, slower moving economy often with little or no job growth. Recessions are to be avoided.
As for your theories, Ayn, and all this economic tweaking, twisting, flipping and spinning…
This is the way everyday Americans are made to feel like they can’t understand if they don’t have a degree in economics. That in turn causes them to turn into little bobble-headed dogs riding in the back window of the car their enemy is driving, because they no longer recognize their enemy, which is exactly what the double-talking, robber barons want them to do so they can run away with the bank.
You misrepresented the Democrats’ economic plan. It’s not about giveaways and the working class doesn’t expect that. What they expect the government to do is establish a fair playing field so they, and the country, have a hope of survival. The best example of that is the FDR era. Much of what he did was in regulation because he had seen that the wealthy wiould and could take care of themselves and it was the working class that needed protection from them to create some semblance of fair play.
Big business greed is what’s causing what inflation there is because nobody’s got any money to buy anything and nobody’s wages are going up. And since energy is necessary for everything there is no business or person not affected by it’s pricing.
I can remember gas wars and buying gas for 17 cents a gallon. But at that time we still had independent gas stations. Then when the claim was made there was a shortage and the only way to get people to conserve was to let the prices go sky high. That is when all of the independent gas stations were forced out of business because they couldn’t get any gas at all which was the end of gas wars.
I have a friend who was a supervisor for Texas Utilites and he told me they could make all the electricity they wanted but were told by the government when to shut down their generators and stop producing. Now who would want to keep California having blackouts to make people think there was a real shortage and drive up prices?
As for the meltdown, it certainly didn’t help matters that Bush and his big oil buddies shot gas prices to $5 a gallon overnight. That affected every business and industry in the country in a negative way.
Then we have the issue of big oil buying up patents to new technologies to keep us from being energy independent. There is no energy crisis we haven’t had the technology to solve for decades. We had hydro-electric dams back in FDR’s day and there’s no reason that hasn’t been expanded except for the stranglehold big oil has on this country.
Contrary to common belief the Middle East doesn’t have all the oil. We have 1/3 of the world’s oil supply and we are only using 1/4 of it right now. So we have plenty of oil and don’t need to import it. If we developed our wind, solar and hydro power sources we’d have more oil than we ever needed for purposes where nothing else will work.
But that would impact supply and demand, prices would drop, and some of those oil speculators would get the reaming that the working class/middle class got when companies started going belly up and they lost all their retirment because it had been given to them in stocks instead of straight retirement plans protected by federal law.
It has to do with greed and how it’s keeping this whole country over a barrel.
“Contrary to common belief the Middle East doesn’t have all the oil. We have 1/3 of the world’s oil supply and we are only using 1/4 of it right now. So we have plenty of oil and don’t need to import it.”
I agree we need to go to renewable energy sources but I can’t really agree with the above statement. According to the US Energy Information Administration there are about 1.28 trillion barrels of known oil reserves in the world but more than 98% of this quantity is outside the United States. Currently, the US has only 21 billion barrels of oil in reserve which accounts for only 1.6% of total world supply. We import about half of our domestic oil consumption which is roughly 24 million barrels/day and we simply don’t have the domestic supply of easily accessible, high quality crude oil that exists elsewhere in the world. Conservation is probably a good policy in addition to developing wind, solar and hydro power. Some analysts have estimated that simply by cutting domestic oil consumption by three million barrels/day or more, the US could bring down the world price of crude oil significantly. One way to do this is to retrofit homes and businesses for energy efficiency and develop both urban and national mass transit such as high speed passenger trains.
I agree that Ayn’s economic theories are not in the best interest of the US middle class and working poor. What she doesn’t acknowledge about deflation, which she argues is a good thing because of its effect on prices, is that most people are debtors, not creditors. A deflation would cause bankruptcies, mass unemployment, financial ruin for most businesses and consumers and a deep depression. Recessions are not the “correcting” mechanisms that many conservatives believe they are and are generally highly destructive.
Ok cabdriver, your figures could be correct. I’ll tell you I found my figures while researching OPEC and trying to figure out why and how much of our oil is exported through OPEC and then bought back at ridiculously inflated prices. If you can enlighten me on that I’d be glad to listen because I’m always willing to learn from someone else. And frankly, as much as we’re lied to consistently about big oil, and by big oil investors, I’m not sure where or how we’d get figures we could rely on to be accurate.
I had an uncle that was heavily involved in oil in Texas and during the phony gas shortage he told me there was no oil shortage. He said they were forced to stop pumping oil and that there were huge stores of oil getting funky because they weren’t even allowed to refine it. He said it was all a scam to drive up prices and he was in it up to his ears so he should have known.
But this is the thing. We have the solution to our “energy crisis” and have had for decades and I don’t think the answer is nuclear power plants. At best we know we have no way to safely dispose of the waste. At worst, we don’t know how safe they are or how long they will be safe because that all depends on contractors not cutting corners to make more money and paying off inspectors. People don’t seem to understand that the winds circle the earth and the Chernobyl disaster didn’t stay in Russia. BTW, that plant has been started back up and they have 4 or 5 more just as old and decrepit.
Why does Canada not have this crisis? When I was working in Canada so much of their energy was produced by hydro-electric they actually called it their hyddro bill instead of their electric bill. And they’ve been doing it for decades plus it’s clean and safe. We have multitudes of powerful water ways and the hydro-electric dams built in FDR’s day are still working safely so the life-span is amazing.
As for sealing up homes and buildings there’s only so far we can go with that. That’s where “sick air” is coming from. Buildings don’t even have enough ventilation to be healthy. When my office building was tested one of the worst pollutants was toner from laser printers and copiers and those are necessary to any business. There just was no ventilation.
We also have the ability to grow endless supplies of corn, probably on land in soil banks, which is easily converted to ethanol. I have the plans for a solar still to make ethanol I got from the state library out of a back copy of Mother Earth News. It’s not any harder than brewing ‘shine and hillbillies have been doing that forever. LOL And Holland has been using windmills for energy since before WWII. It’s not like nobody knows how to do it. This stuff isn’t rocket science.
I think we need to put all of our resources into wind, solar and hyrdo so we’ll have all the oil we need for our own purposes. Building dams we could get the country back to work and make ourselves energy independent at the same time. Then the MIddle East wiould have to stop antagonizing the U. S., Europe and Israel because they can’t eat that oil or the sand and that’s about all they’ve got.
To answer your question, most of the ten to twelve million barrels of oil a day that we import comes from the Middle East. OPEC would also include Venezuala (a founding member of OPEC). According to the Center for American Progress big oil made out well under the Bush Administration, especially in the final two years.
”...the big five companies…made a combined profit of $100 billion for 2008. The sum is the second-highest combined big oil profit on record, exceeded only by the 2007 combined total of $123 billion. The 2008 big oil profits bring the grand total under the two terms of the Bush administration to $656 billion, which is nearly two-thirds of a trillion dollars.”
Much of this is due to the quadrupling of world oil prices in the immediate aftermath of the US/UK invasion of Iraq in 2003. Still, industry sources report that big oil’s prices have been declining since the first quarter of 2009, despite rising world prices, because of high supply and low demand. Free marketeers always claim that prices can’t be high with a fall off in demand. I guess the free market doesn’t work with oil.
I agree that nuclear power is bad and that we need safe, renewable energy. It is also the case that big oil has invested virtually nothing in this field. I would love to see us develop hydro-electric power given our advantage in doing so. This will also create jobs.
I think we can have weatherization and energy efficiency and good ventilation. That shouldn’t be a problem.
I’m not a big fan of biofuels because the consensus on this seems to be that we will just raise food prices without contributing much to overall fuel supplies. These resulting food price hikes will hurt the poor and middle class most.
I agree that there is tremendous pressure to solve the energy problem because of instability in the Middle East. As one US Congressman said during Gulf War I, “if their main export was turnips, we wouldn’t give them a second glance!!”
Okay cabdriver, but this is my question. If we don’t have enough oil and have to import it why are we exporting our own oil and then having to buy it back? I suspect it’s only so more of the big money people can get a chunk of the money in the process, driving up the price, and that’s why I was researching it.
I read that our biggest oil field is actually in Alaska, not Texas, and that it’s owned and operated by an American Company (Exxon-Mobil I believe) in conjunction with a Brittish Company. Maybe I’m being a little thick here but if we don’t have enough to begin with why would we export any?
As for the big oil companies, they’ve proved that free market-supplydemand doesn’t work without regulation. I have no doubt if they were investigated price-fixing could be proved there. The fact the prices haven’t dropped with a drop in demand pretty proves that. And what should be expect when we put an oil man in the White House?
As for ethanol, somebody’s making it and using as a gas additive to improve mileage so it must be worthwhile to produce. And to keep from driving up food prices maybe we could subsidize farmers to actually grow corn and help out family farms instead of paying corporate “farmers” to hold land in soil banks, forcing family farms out so they can buy up more farmland? Ethanol might not work as a total replacement but then we’ve had an electric car ever since GM produced one and put it out on lease. So we do have that technology and if we can produce as much electricty as we need through hydro, wind and solar then that’s solved. It’s just a matter of getting it done.
But I think what it comes down to is what I’ve said for years, that we can’t fix anything sensibly until we deal with campaign finance/lobby reform because the main problem is the hold big money has on government. Is it even possible to do that with our current Supreme Court over-stepping their bounds?
Which brings me to my other point. I think all campaigning should be banned from TV and radio. It makes it too easy for people to be mentally lazy and allow themselves to be brain-washed and drives up the cost of campaigns. I think they should have to get on a bus and go out and face the people face-to-face with what they’ve done. It would cut down on the cost of elections, give the people access and maybe even things up a bit. If we look back at the day of our forefathers if a man could get up on a tree stump, had good ideas and seemed honest he was in. Lincoln could never have been elected under our current system because he was definitely working class.
I do think the internet will make a difference because people do have more information available and can discuss issues and learn from each other. I just don’t know if it will make enough of a difference because so many people would rather just listen to somebody talk and nod their little heads. I’m terrified our democracy is going to go the way of the unions because of people being mentally lazy, apathetic and just not realizing what’s at stake. They don’t seem to understand this isn’t a game and everything we hold dear is at stake.
“If we don’t have enough oil and have to import it why are we exporting our own oil and then having to buy it back?”
Many in the anti-globalization movement call it “redundant trade” and in the case of oil, it is to fetch a higher price for domestically produced oil on the world market given the high production costs in the US. Oil is not the only example of this type of trade. Agricultural products is an even more frequent area of redundant trade.
“Cod caught off Norway is shipped to China to be turned into filets, then shipped back to Norway for sale. Argentine lemons fill supermarket shelves on the Citrus Coast of Spain, as local lemons rot on the ground. Half of Europe’s peas are grown and packaged in Kenya…”
The above is from Public Citizen online which is Ralph Nader’s think tank. Look into it and see if there is anything about the world oil trade there.
So…the companies sell theirs on the world market because they can make more money, probably by denying work to Americans, then the taxpayers end up buying it back (and even more too) at an inflated price. Sounds about right…passing it through as many hands as possible so everybody can get a chunk of the money and we get stuck with the bill just like we do with healthcare and every other commodity essential to our way of life.
Now, I can understand exporting excess supplies of corn, wheat, fruit, anything we have more than we need of. That is only good business. But exporting something we’re going to have to buy back just to save on production costs, which essentially means denying taxpayers work because the cost of shipping it alone has to drive up the price, is insane.
They said union labor drove up the cost of goods. However, when tennis shoes were made here by union labor you could get a pair for $1 and we’re now importing them made by child labor and paying $100-150 a pair. Pretty much disproves that theory, doesn’t it? You know, if all of the labor was in the U. S. again we probably wouldn’t have a budget deficit because more Americans would be making more money and paying more taxes because the working people don’t have tax shelters or lawyers to set them up for them.
But then I have no doubt we’re insane because we keep doing the same thing and expecting different results. :)
My point about inflation was that a 3% annual average is historically low and lower than in most of the advanced capitalist world except for Japan. Everything is relative. Much below 3% for any length of time is not historically very common in modern times. Inflation hasn’t really been a problem for about three decades.
That statement fits in perfectly with my analogy to the “normal” of prison life, and compares perfectly to a prisoner saying that he is getting raped a lot less often than before. Historically we haven’t had fiat currency, and historically we haven’t had inflation even as high as 3%. It is all relative just as the prisoner getting raped only once a week instead of every day feels like he’s having a better time. The 3% you call historically low is actually historically high and only low if you limit the data pool.
Yes, inflation is bad for everyone. But you seemed to imply that the poor is hurt not by stagnating real wages but by inflation due to a lag time during which money passes from the rich to the poor. This is absurd!! There is no appreciable lag time in the passage of money from one social class to another.
You call me absurd while saying there is no lag time in which the effects of new money ripple through the market. That sets a standard for absurdity - if it is real it is absurd and if it is not real it is not absurd. Thank you very much for giving us your standard of measuring absurdity. Meanwhile, the stagnant wages you discuss are a result of the inflation I discuss. Without the historically anomalous 3% annual inflation the issue of stagnant wages due to inflation would be greatly reduced.
Inflation affects all simultaneously. In the second place, the growing wealth of US society has clearly not trickled down given the immense and rapidly growing inequality over the last three decades.
That’s because of the time lag in which the new money spreads itself through the economy. By the time the new money gets to the last receivers all the effects of inflation have already been felt. That’s why ‘trickle down’ doesn’t work - lag time between creation of new money and revaluation of money.
Finally, deflation helps no one. And recession is not a “correction.” Both destroy trillions of dollars in output, income, productive capacity and financial wealth. It is good for no one. When a boom phase finally does return, we now find a more concentrated, slower moving economy often with little or no job growth. Recessions are to be avoided.
Oh boy. Yes, recessions are corrections. Malinvestments during the boom time have to be liquidated, and that happens during the recession. The seeds for the recession are planted during the boom. When the malinvestments are liquidated the resources that fund them can be put to more productive use AND prices that are above market fall to market levels. When something is over-valued, you don’t try to prop up the over-valuation, you let the value fall. When something is over-priced, you don’t try to prop up the price, you let the price fall.
Yes, it is painful. The alternative? Drain resources from more productive enterprises in order to prop up less productive enterprises. The economy has been living high on cheap credit, and you prescribe “hair of the dog” as the cure for the hangover. It doesn’t work.
That’s why when recessions end you find little or no job growth - the end of every modern recession has been a postponement of the necessary corrections. You are in a prison normal instead of normal.
It’s painful like hangover. It is also painful when a doctor manipulates a broken leg in order to properly set it before putting on a cast, but the pain is necessary towards healing. Based on your economic analysis about how recessions must be avoided at all costs, you would tell the person with the hangover to have a drink and the person with the broken leg to take concentrated pain killers.
“Meanwhile, the stagnant wages you discuss are a result of the inflation I discuss.”
Absolutely false!! Over the past thirty years, the median national income has flatlined while that of the top 1% has quadrupled in real terms. All this occured as average annual rates of inflation declined markedly from what they were in the 1970s. Between 2001 and 2007, the real national median income actually declined by about 4% while the income of the top 1% increased by about 60%. Inflation was quite low at this time and certainly doesn’t explain such massive disparities between the rich and the middle class. The problem isn’t inflation. It’s inequality.
The lag time theory is, in my opinion, too absurd to even consider seriously. No professional economist, to my knowledge, has ever proposed this as a theory of income inequality. The more likely cause is the collapse of the labor movement and unions. The dollar doesn’t rapidly lose value as it moves from profits to wages.
Deflation hurts most people because most people are debtors, not creditors. My take on “malinvestment” and “correction” is as follows:
“THE FINANCIAL COLLAPSE TRIGGERED a more profound general economic recession, what is in its fundamental features a classic overproduction crisis…[caused by] the decline of the rate of profit in manufacturing.This is not simply a minor cyclical recession, but rather it is…a genuine economic depression that will be severe and long lasting. The fall in the rate of profit in manufacturing led some investors to move into real estate and finance in search of higher profits, resulting in the bubble. With the burst of the bubble, the broader and deeper economic crisis in industry has been revealed. We now appear to be entering a classical depression, likely to be accompanied by deflation, that will last until enough capital has been destroyed through the elimination of outdated plants and equipment, to once again attract investors” Dan La Botz. The Global Crisis and the World Labor Movement. New Politics. (Summer 2009) Vol. XII-3, #47.
This “correction” sees the richest capitalists further concentrating the economy as they buy up productive assets at firesale prices in the midst of a deflation. This skews the nation’s distribution of income further upward and reduces effective consumer demand eventually causing chronic stagnation and unemployment. This is no solution. Fiscal stimulus is much better.
The lag time theory is, in my opinion, too absurd to even consider seriously. No professional economist, to my knowledge, has ever proposed this as a theory of income inequality.
First of all, every mainstream economist is either a devotee of Keynes or a theory derived from Keynes (supply side, demand side). Therefore no mainstream economist has any reference for time lag for any function in the economy at all. Keynes disregarded it, and everyone who comes form him does. And I disregard Keynes.
But time lag is not an explanation of income inequality. Income inequality is the result of differing marginal utility of labor between different skill sets. I was talking about stagnant wages, not income inequality. You have successfully made the leap from the topic we were discussing to something entirely different to avoid addressing the point that was made.
Where the dollar loses value is when the effect of the newly created money starts to circulate through the economy. By the time it has finished circulating then the late receivers notice higher prices and start pressing for higher wages. Their wealth has been redistributed from them to the rich via inflation. It is a neat trick, if one is able to see that those in positions of authority are capable of misusing their power to enrich themselves and their partners.
So, since you are dissing my “malinvestment” explanation, in favor of a decline in manufacturing profits, what then do you credit for the decline in manufacturing profits. Quit skimming the surface.
Meanwhile the richest corporatists (and it is incorrect to call those who use political pull to produce profits as capitalists) are buying up what? Productive assets aren’t the ones that need to be liquidated unless they are part of a larger unproductive enterprise.
It is sad but true that there is a gross preponderance of debtors in this country. And that’s a massive nation-wide malinvestment. Now I know you forgot that I said that we need a short an painful fix instead of a long drawn-out fix, and are thinking that I say my proposals will fix everything. Fortunately for me I never claimed to be able to fix everything, and instead advocated the short hard pain of a severe corrective recession to the long drawn out pain of stimulus packages. Yes, deflation will hurt most people. My point is that the alternative hurts MORE.
”...every mainstream economist is either a devotee of Keynes or a theory derived from Keynes (supply side, demand side). Therefore no mainstream economist has any reference for time lag for any function in the economy at all.”
This is absolutely false. Most economists are neo-classical, not Keynesian. If no mainstream economist has a reference for time lags, there is a good chance that such lags are merely a figment of your imagination.
“Income inequality is the result of differing marginal utility of labor between different skill sets.”
This is also false. Study after study has shown that labor productivity has doubled in the last thirty years while real median wages have moved only modestly and have actually declined in the past ten years. This is not supposed to happen according to neo-classical economic theory which never predicted the current disconnect between labor productivity and real wage growth. And what, pray tell, is the “marginal utility” of the contributing efforts of an AIG executive who sinks his company and the wealth of his shareholders and the society along with it. Something is wrong with the old school theories.
”...what then do you credit for the decline in manufacturing profits?”
Profit rate declines are generally the result of an overproduction crisis. This is generally caused by a decline in effective demand due to an attempt by capitalists to save profit margins by cutting back output and laying off workers.
There is no need for people to endure a long recession as it will resolve nothing. The economy will not soon equilibriate itself, at least not any time soon, and will eventually only do so at rates of high unemployment. Direct job creation for the unemployed helps to counter a downward recessionary spiral and thus prevents another collapse. According to Keynesian economist Robert Pollin of the Political Economy Research Institute at the University of Massachusetts-Amherst, “We can indeed create 18 million jobs and drive the unemployment rate to 4 percent by the end of 2012.”
Ok, I misspoke in one place. Most government economists are Keynesian. Most academic economists are neo-classical. But it is not the academic economists who set policy.
Saying “time lag must be a figment of my imagination” reminds me of my days back in college studying engineering. You get a problem where you are told to disregard friction. Disregard friction? It exists in the real world, but students are given those problems as they work their way up to problems where they can no longer disregard it. They need to work on the simpler models before they can work on the more advanced models.
And I include time lag because I am a scientist doing economics. Time lag exists even if the students are told to disregard it in the practice problems. Double the money supply and you halve the value of the currency. Since the effect isn’t immediate people think there is no effect. But it is certainly no imaginary figment even if Keynesians aren’t capable of dealing with it.
As a scientist, I see the fancy theoretical models that many economists make, and I ask “what, exactly, is the basis for that model? What, exactly, are you measuring and how are you measuring it?” They say they can measure consumer confidence.
Of the four main schools of economics (and I’m grouping sub-schools in with their parents) only one passes the most crucial of scientific tests. Neither the neo-classicals nor the Keynesians foresaw the current depression that the economy is in.
So, what is the “marginal utility” of the AIG executive? Have you completely ignored every single post I wrote about misleading economic indicators? Actually you have. Why? Why have you ignored it every time I wrote about misleading economic indicators?
You give the textbook analysis for why profits have declined in manufacturing, but you are “disregarding friction.”
You are right that there is no need for people to endure a long depression. Unfortunately the very factors people are looking to in order to remedy the depression are the very factors that caused and are continuing the depression. I advocate “short but severe”, another point you seem determined to ignore.
“But it is not the academic economists who set policy.”
So just where do these government economists come from? Must be academia. And they are far more likely to be neo-classical than Keynesian. Even Obama’s chief economic advisor, Austin Goolsby, is from the University of Chicago (remember Milton Friedman) and is closer to the neo-classical school than the Keynesian school.
Friction is a universally held physics principle. Lag time is not a universally held economics principle. Engineering students might be told to disregard it temporarily to work on other things. “Lag time” is never mentioned, even by monetarist economists, because unlike friction, no one actually believes that it exists.
“Double the money supply and you halve the value of the currency.”
Believe it or not, even Keynesians accept this. But not as an absolute. They do not believe in the neutrality of money, as do monetarists, so they don’t believe that adjustments in the money supply have only monetary (i.e. inflation or deflation) effects. Money is an asset, not just a means of exchange. It affects many decisions. Furthermore, if the money supply increases but productivity and output increase more, inflation will likely not result. How much slack exists in the economy is a highly relevant question to Keynesians.
Then there is the question regarding whether or not the money supply has increased. According to the Fed, M1 has been quite stable over the past ten years.
“short but severe”
This is also unnecessary. And debt and spending did not cause the current crisis. Government and consumer debt have been steadily increasing for the past thirty years. Financial deregulation certainly didn’t help matters. Tax cuts and wage stagnation have driven both government and consumers into debt. Debt is what most of the growth over the past thirty years is based upon. Without it, the “paradox of thrift” would have brought the depression on much sooner. Want a more stable and solid basis for growth? Do what Sarah Palin and Joe the Plumber say we should not do; tax the rich and redistribute income!!
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