Why Is the TPP Such a Big Secret?

by Tim Robertson, Director, California Fair Trade Coalition

http://www.huffingtonpost.com (May 04 2012)

Note: Although nearly a year old, this article is as pertinent today as it was then. Bill Totten

Next week in Dallas, negotiations for what’s likely to be the largest Free Trade Agreement (FTA) in US history will continue in near total secrecy, despite growing demands for an open process. The darkness surrounding the talks isn’t surprising, considering the American public’s increasing disapproval of FTAs and the laundry list of corporate handouts under discussion. What is surprising is United States trade representative Ron Kirk’s growing crackdown on public involvement, despite claims of “unprecedented transparency”.

The Trans-Pacific Partnership Free Trade Agreement (TPP) is being negotiated as a nine country FTA between the US, Australia, Brunei Darussalam, Chile, Malaysia, New Zealand, Peru, Singapore and Vietnam. Canada, Japan and Mexico are all expected to join talks, and many see more Pacific Rim countries including China and Russia eventually signing on. With floundering WTO talks, the TPP could very well establish US trade policy for the next generation, yet all talks are happening behind closed doors and public influence has been increasingly suppressed.

Just this February, during unannounced TPP meetings in Los Angeles, the USTR apparently strong-armed the host hotel into canceling a health group-sponsored luncheon seeking to expose how Big Pharma’s patent rights demands challenge AIDS treatment worldwide. Meanwhile, 20th Century Fox, itself lobbying for severe copyright measures, were permitted to give trade negotiators a multi-hour tour of their film-production facilities.

This lopsided allocation of influence has been standard for the TPP. Corporations and their lobbyists have seen consistent access to the negotiations – about 600 corporate advisors can review and comment on working TPP texts – and trade negotiators from partner countries. The Washington International Trade Association’s “World Trade Reception” for Trans-Pacific FTA negotiators featured the A-Team of corporate lobby groups and some of the most powerful corporations in the US hobnobbing amongst trade ministers, with nary a voice for the public, unions, environmental or public health groups.

So, what exactly is the USTR hiding? Well, there are quite a few damning secrets:

Secret Number One: The TPP is covertly attacking the same internet freedom rights that spurred online protests over ACTA and SOPA.

Secret Number Two: The TPP would make it more enticing for corporations to offshore jobs by opening our market to Vietnamese labor, which has significantly lower average wages than China.

Secret Number Three: The TPP could be a death sentence to patients with AIDS, tuberculosis, and other treatable diseases around the world.

Secret Number Four: The TPP would ban capital controls and impose limits on financial regulation, including post-recession checks on firm size and risky investments.

Secret Number Five: Americans hate FTAs! Recent polls have found more than twice as many Americans think FTAs hurt than help, and 69 percent of Americans think they cost jobs, which they do.

The list goes on, as there are 26 separate negotiating chapters, covering issues as diverse as labor, environmental, and procurement rules, which just drew the ire of 69 Members of Congress.

Congress has also lamented the continued secrecy of the negotiations. After proposing Senate amendments forcing TPP transparency, US Senator Ron Wyden (Democrat, Oregon) told Kirk, “I feel very strongly with respect to TPP about getting the proposals that you’re looking at … online so that the public can have a chance to be heard on it”, during a March Senate Finance Committee hearing.

None of this has dissuaded the USTR from the non-democratic nature of the talks. Starting in Dallas, he’s actually doubling down by eliminating the day-long stakeholder presentation program, leaving civil society just a side tabling session.

The only way the corporate shopping list that is the TPP can get past public scrutiny is if no one ever hears about it. Fortunately, activists are fighting back May 8 to 18 in Dallas, and an online petition has already garnered thousands of signatures calling on Kirk to release TPP proposals.

We’ve learned from past FTAs that exposure to the light of democracy can stop them in their tracks. The TPP is no different. Please help return democracy to trade talks by signing the petition and sharing this article:

Follow Tim Robertson on Twitter: http://www.twitter.com/CalFTC


The original version of this article, at the URL below, contains numerous links to further information not included here.


Free Trade and Unrestricted Capital Flow

How Billionaires Get Rich and Destroy the Rest of Us

Naked Capitalism (March 27 2013)

Yves here. This post highlights an issue that gets far too little attention: how the “free trade” agenda has been used to promote a capital mobility agenda, and why that works to the detriment of ordinary citizens.

As Ken Rogoff and Carmen Reinhart found in their study of 800 years of financial crises, high international capital flows are strongly correlated with more frequent and severe financial crises. A very important BIS paper that has not gotten the attention it deserves, “Global imbalances and the financial crisis: Link or no link?” {1}, by Claudio Borio and Piti Disyatat, discusses how the crisis was the direct result of what they call excess financial elasticity. That means having a banking system that was way too accommodating to the pet wishes of bank customers. From Andrew Dittmer’s translation of the paper from economese to English {2} (the numbers are page references):

The idea of “national savings” or “current account surplus” refers to the total amount of exports sold minus the total amount of imports sold (more or less). The “excess savings” theory holds that this excess had to have been financed somehow, and so presumably by countries in surplus, like China.

However, for the US in 2010, the total amount of financial flows into the US was at least sixty times the current account deficit (9), counting only securities transactions. If this number were correct, then inflows would be 61 times the current account deficit, and outflows would be sixty times the current account deficit. The current account deficit is a drop in the bucket. Why would anyone assume it had anything to do with the picture at all?

Moreover, if the “savings glut” theory was correct, we would expect there to be certain historical correlations between the following variables: (a) current account deficits of the US, (b) US and world long-term interest rates, (c) value of the US dollar, (d) the global savings rate, (e) world GDP. There aren’t (4-6, see graphs).

You would also expect credit crises to occur mainly in countries with current account deficits. They don’t (6).

Suppose we look at a more reasonable variables: gross capital flows (13-14). What do we learn about the causes of the crisis?

Financial flows exploded from 1998 to 2007, expanding by a factor of four RELATIVE to world GDP (13), and then fell by 75% in 2008 (15). The most important source of financial flows was Europe, dwarfing the contributions of Asia and the Middle East (15). The bulk of inflows originated in the private sector (15) …

So what caused the crisis? Clearly, the shadow banking system (mainly based around US and European financial institutions) succeeding in generating huge amounts of leverage and financing all by itself (24, 28). Banks can expand credit independently of their reserve requirements (30) – the central bank’s role is limited to setting short-term interest rates (30). European banks deliberately levered themselves up so they could take advantage of    opportunities to use ABS in strategies (11), many of which were ultimately aimed at looting these same banks for the benefit of bank employees. These activities pushed long-term interest rates down. Short-term rates remained low because the Fed didn’t raise them as long as inflation didn’t appear to be an issue (25, 27).

The post focuses on the real economy side of the free-flowing capital experiment; we’ll discuss next week how the Trans-Pacific Partnership is an alarming advance in this process of grinding down what is left of the middle class to benefit of the rich.


Free trade and unrestricted capital flow

How billionaires get rich and destroy the rest of us

by Gaius Publius

Cross posted from Americablog



Paul Krugman makes a point in this post about Cyprus {3} that I’d like use to make a broader and more important point. His point is that Cyprus is already off the euro and has created its own currency, the Cyprus Euro, which at the moment is pegged to the other euro at 1:1. Why is a euro in a Cyprus bank different from other euros? Because you can’t move it freely, so it has less real value. (Read here {4} to see why he thinks that; also here {5}.)

My point, though, is a little different. My point is about unrestricted free trade and capital flow {6} in general and why understanding both is crucial to understanding:

* The neoliberal free-trade project, and

* Wealth inequality in America

But don’t let your eyes glaze over; this is not hard to understand. It just has a few odd terms in it. Please stick with me.

There’s a straight line between “free-trade” – a prime tenet of both right-wing Milton Friedman thinking and left-wing Bill Clinton/Robert Rubin neoliberalism – and wealth inequality in America. In fact, if the billionaires didn’t have the one (a global free-trade regime) they couldn’t have the other (your money in their pocket). And the whole global “all your money belongs to us” process has only three moving parts. Read on to see them. Once you “get it”, you’ll get it for a long time.

What does “free trade” mean?

In its simplest terms, “free trade” means one thing only – the ability of people with capital to move that capital freely, anywhere in the world, seeking the highest profit. It’s been said of Bush Two, for example, that “when Bush talks of ‘freedom’, he doesn’t mean human freedom, he means freedom to move money”. (Sorry, can’t find a link.)

At its heart, free trade doesn’t mean the ability to trade freely per se; that’s just a byproduct. It means the ability to invest freely without governmental constraint. Free trade is why factories in China have American investors and partners – because you can’t bring down manufacturing wages in Michigan and Alabama if you can’t set up slave factories somewhere else and get your government to make that capital move cost-free, or even tax-incentivized, out of your supposed home country and into a place ripe for predation.

Can you see why both right-wing kings (Koch Brothers, Walmart-heir dukes and earls, Reagan, Bush One and Two) and left-wing honchos (Bill Clinton, Robert Rubin, Barack Obama) make “free trade” the cornerstone of each of their economic policies? It’s the song of the rich, and they all sing it.

I’ve shown this video before, but it bears repeating. When you think about “free trade”, you probably think of the Walmart heirs (or Apple owners) wallowing in wealth from the world’s slave factories. But it’s a joint project by all of our owners (sorry, major left- and right-wing campaign contributors and job creators).

This is Barack Obama making his case for campaign funding to Robert (Hi “Bob”) Rubin and others in 2006:

Brand-New Senator Barack Obama, 2006
The opening of Robert Rubin’s Hamilton Project Thinktank


At 1:20: “The forces of globalization have changed the rules of the game”, and at 5:52: “Most of us are strong free-traders”. (His “yes-but” to Rubin in that second segment is an appeal to actually do the worthless retraining for non-existent jobs that Clinton earlier supported but never did. See? Pushback. Independence.)

Three things to note:

1. The “forces of globalization” he refers to are not acts of god, whether Yahweh, Juno {7} or Joxer {8}. They were created by the Clinton- and Rubin-crafted CAFTA and NAFTA treaties. If a god did it, that god also caused a certain blue dress to need a dry-cleaning it never got.

2. If Obama doesn’t say what he just said in that room, he doesn’t get a Rubinite dime for his next political campaign. Period. This is his application speech.

3. Never forget that if Oklahoma knuckle-dragger Sam Walton {9} were in that room, or not-America-first Steve Jobs {10}, Obama would say those same words. “Most of us are strong free-traders”. It’s the tie that binds the left and the right. Bind yourself to Obama economically, and you’re tied to the Waltons. Period.

Bonus points for noting that the push to roll back social insurance is part of the NeoLiberal agenda, for example at 1:30 and elsewhere. It’s why we have the Obama Grand Betrayal, the Catfood Snack That Won’t Go Away {11} (do click; there’s a kitty inside).

Finally, listen again to his opening praise of “Bob” Rubin and the others in the first thirty seconds or so. When Obama says that the men he’s praising have “put us on a pathway of prosperity”, what he means is that they’ve put themselves on a path to prosperity. This is wealth inequality in action, wealth inequality on the hoof. Those slave-wage jobs in China (or Indonesia or the Philippines) replace the unionized, high-paying wages you don’t have and will never get back; the men in that room, including Obama, are the reason; and “free trade” is both the cover story and the tool (more on that duality below {12}).

Never forget – “Free trade” is a bipartisan, hands-across-the-aisle screwage of American incomes and wealth. It’s the necessary cornerstone of both left-wing and right-wing economic policy. Period.

The three tools of wealth extraction

Free trade is a primary tool of wealth extraction. What are the others?

Recall that corporations aren’t actors per se, they are machines by which wealth is vacuumed from workers and consumers into the hands and pockets of the corporation’s true owners, the CEO and capital class. As we’ve said before {13}:

(1) Corporations are not people, and they don’t have ideas or will. They are empty vessels. If you took a neutron bomb to the home office of MegaCorp.com and let it rip, the building, filled to the brim with inventory and IP, would be empty of humans and a dead thing. You could wait for weeks for the offices to act; they wouldn’t.

(2) This is especially true today, since the corporation now serves a different function than it was designed for. At first, a corporation served to make its stockholders moderately wealthy – or at least wealthier.

Modern corporations serve one function only – to make the CEO class obscenely rich.

The looting of global wealth into the hands of the capital and CEO class is a simple two-step process: Corporations use free trade to loot the world. CEOs then loot the corporations and live higher and better than the kings and presidents they control.

Yes, “kings and presidents they control”. The only thing needed to make the looting worldwide is government protection. If the capital class doesn’t control government, they can’t institute  …  global free trade regimes. And there you have it. So what are the three tools needed by the capital-controlling class?

* CEO capture of corporations

* Wealth capture of government

* A global free-trade regime

And that’s all it takes. With those three tools in your pocket, you can loot and own the world, literally.

Hmm, we have all three now. “Mission accomplished”, as they say in private jet circles.

Free trade keeps the rest of the world in crisis

And now we come back to Krugman {14}. A direct consequence of a world in which capital flow is completely unrestricted is constant economic crisis. The Professor explains that well in the context of the Cyprus problem (my emphasis and some reparagraphing):

Whatever the final outcome in the Cyprus crisis  …  one thing seems certain: for the time being, and probably for years to come, the island nation will have to maintain fairly draconian controls on the movement of capital in and out of the country.  …

That’s quite a remarkable development. It will mark the end of an era for Cyprus, which has in effect spent the past decade advertising itself as a place where wealthy individuals who want to avoid taxes and scrutiny can safely park their money, no questions asked. But it may also mark at least the beginning of the end for something much bigger: the era when unrestricted movement of capital was taken as a desirable norm around the world.  …

Then he compares the era of capital control to the era of capital freedom:

It wasn’t always thus. In the first couple of decades after World War Two, limits on cross-border money flows {15} were widely considered good policy; they were more or less universal in poorer nations, and present in a majority of richer countries too. Britain {16}, for example, limited overseas investments by its residents until 1979; other advanced countries maintained restrictions into the 1980s. Even the United States briefly limited capital outflows during the 1960s.

But like all good things, that changed:

Over time, however, these restrictions fell out of fashion. To some extent this reflected the fact that capital controls have potential costs: they impose extra burdens of paperwork, they make business operations more difficult, and conventional economic analysis says that they should have a negative impact on growth (although this effect is hard to find in the numbers). But it also reflected the rise of free-market ideology, the assumption that if financial markets want to move money across borders, there must be a good reason, and bureaucrats shouldn’t stand in their way.

What marks the difference between those two eras, the era of capital control and our current free-trade era? Near-constant economic crisis:

[U]unrestricted movement of capital is looking more and more like a failed experiment. It’s hard to imagine now, but for more than three decades after World War Two financial crises of the kind we’ve lately become so familiar with hardly ever happened {17}.

Since 1980, however, the roster has been impressive: Mexico, Brazil, Argentina and Chile in 1982. Sweden and Finland in 1991. Mexico again in 1995. Thailand, Malaysia, Indonesia and Korea in 1998. Argentina again in 2002. And, of course, the more recent run of disasters: Iceland, Ireland, Greece, Portugal, Spain, Italy, Cyprus.

Notice the date of change? “Since 1980, however … ” Him again {18}. This is not just a coincidence. The Reagan era didn’t just initiate national looting, but international looting as well. Krugman ties these crises, here and elsewhere, to large and unrestricted inflows of capital, followed by large and unrestricted outflows that create economic bubbles, then leave them thoroughly deflated:

[T]he best predictor of crisis is large inflows of foreign money: in all but a couple of the cases I just mentioned, the foundation for crisis was laid by a rush of foreign investors into a country, followed by a sudden rush out.

The rest of the piece shows that this idea doesn’t originate just with The Professor; it’s widely held by many not paid by Money to represent it in the court of public opinion.

There’s an opportunity in Spain, let’s say, to take advantage of cheap labor and prices. Money flows in, builds huge capacity, then flows out as soon as it finds better opportunity elsewhere. What’s left behind? The Spanish in a crashed economy, and in a world in which the holders of their debt (German bankers et al) are using the EU (remember, capture of government) to make sure that creditors are made whole at the expense of whole populations.

Kind of like how Walmart comes into a town, builds a huge store, drives all the other retailers out of business, then leaves as soon as the low-wage-earners in that town can’t keep the store more profitable than other stores in the state.

What’s left? The wreck of an economy. Where’s the money? In the pockets of the Walton family, naturally. Win-win for someone (but not for you).

Your “economic crisis” is just their “cost of doing business”

Keep in mind, the purpose of unrestricted “free trade” is to advantage the holders of capital over everyone else on the planet. Great wealth insulates these men and women from crises, so even global economic crisis is just the externalized price (that we pay) for their wealth extraction enterprise – just like a burdened health care system is the externalized price (that we pay) for wealth extraction by billionaire owners of tobacco companies from the constant stream of lung cancer patients.

What’s “a world in constant crisis” to them? Just the cost of doing business. Nothing personal. It’s just business.

Is free trade an ideology or a tool?

One last point. Framing free trade as an ideology may be technically correct in a few cases – there are true believers in almost anything (I believe in kittehs {19}) – but if “free trade” weren’t a money machine for the wealthy, you’d never hear of it. Crickets {20}, as the kids say.

Put simply, the reason you heard Barack Obama tout “strong free trade” with Robert Rubin in the room, is that bankers like Robert Rubin grow obscenely wealthy by financing billionaire store-owner Billy-Bob Walton’s slave factories in Asia.

And non-millionaire Barack Obama wants millionaire Bill Clinton’s post-presidential money {21} – $80 million and counting. (Click the link for a stunning connection between public policy – in this case, the repeal of Glass-Steagal – and a post-presidential payday.)

Obama may not say he wants “Clinton money”. He might even know it, in that self-blind sense of “know”. But I’ve met lots of drunks who’ve explained themselves so long, they really do “know” they’re just “prone to be ill in the morning”. Right. Occam’s Switchblade {22}, Upton Sinclair edition {23}:

It is difficult to get a man to understand something, when his salary depends on his not understanding it.

“I’m doing it for the kids”, Obama edition.

Bottom line

The bottom line is simple: A “free trade” system is a regime in which capital always wins, everywhere. It’s the tool by which global wealth is extracted. It’s supported by both parties. The Democratic Party version is called NeoLiberalism {24}. “NeoLiberal” means not-FDR-liberal in the same way that Tony Blair’s “New Labour” means not-Clement Attlee-Labour {25}. Because, framing counts on CNN, and it’s always opposite day there.

And Barack Obama, Bringer and Betrayer {26} of Hope and Change, is the lead NeoLiberal warrior, the point of the spear until 2016, at which point he’ll pass the torch to another testosterone-branded neoliberal {27}, retire into the sunset of global acclaim, create his Foundation for NeoLiberal Love and Global Kittens {28}, and collect his checks {29}. (Or not {30}.)

My suggestion, given the above – don’t help him. You have enough on your conscience, if you’re at all like the rest of us. Unless, of course, you like your economic crises served always on tap. In which case, do sign up.


{1} http://www.bis.org/publ/work346.pdf

{2} http://www.nakedcapitalism.com/2011/09/the-very-important-and-of-course-blacklisted-bis-paper-about-the-crisis.html

{3} http://www.nytimes.com/2013/03/25/opinion/krugman-hot-money-blues.html?partner=rssnyt&emc=rss&_r=0

{4} http://www.nytimes.com/2013/03/25/opinion/krugman-hot-money-blues.html?partner=rssnyt&emc=rss&_r=0

{5} http://krugman.blogs.nytimes.com/2013/03/25/pessimal-currency-area-theory/

{6} http://www.nakedcapitalism.com/2013/03/free-trade-and-unrestricted-capital-flow-how-billionaires-get-rich-and-destroy-the-rest-of-us.html#whatisfreetrade

{7} http://en.wikipedia.org/wiki/File:Carracci_-_Jupiter_et_Junon.jpeg

{8} http://en.wikipedia.org/wiki/Joxer

{9} http://www.nakedcapitalism.com/2013/03/en.wikipedia.org/wiki/Sam_Walton#Legacy

{10} http://www.americablog.com/2012/01/apple-has-created-up-to-700000-jobs-in.html

{11} http://americablog.com/2013/03/amy-klobuchar-social-security-chained-cpi-cuts.html#add-comment

{12} http://www.nakedcapitalism.com/2013/03/free-trade-and-unrestricted-capital-flow-how-billionaires-get-rich-and-destroy-the-rest-of-us.html#freetradetool

{13} http://americablog.com/2013/01/weekend-thoughts-the-corporations-the-ceo-class-and-who-owns-what.html

{14} http://www.nytimes.com/2013/03/25/opinion/krugman-hot-money-blues.html?partner=rssnyt&emc=rss&_r=0

{15} http://www.imf.org/external/pubs/ft/fandd/2004/09/pdf/basics.pdf

{16} http://www.imf.org/external/pubs/nft/op/214/index.htm

{17} http://www.economics.harvard.edu/files/faculty/51_Banking_Crises.pdf

{18} http://en.wikipedia.org/wiki/Presidency_of_Ronald_Reagan

{19} http://classwarkitteh.org/

{20} http://en.wikipedia.org/wiki/Jiminy_Cricket

{21} http://www.nakedcapitalism.com/2012/05/its-not-about-reelection-bill-clintons-80-million-payday.html

{22} http://www.americablog.com/2010/06/occams-switchblade-has-american.html#switchblade

{23} http://www.goodreads.com/author/quotes/23510.Upton_Sinclair

{24} http://en.wikipedia.org/wiki/Neoliberalism

{25} http://en.wikipedia.org/wiki/Clement_Attlee#Domestic_policy

{26} http://americablog.com/2012/05/weekend-thoughts-obama-and-his-image.html#Obamabetrayer

{27} http://25.media.tumblr.com/tumblr_m29ii9oLoz1rt7gleo1_500.jpg

{28} https://www.commondreams.org/view/2011/09/09-13

{29} http://www.nakedcapitalism.com/2012/05/its-not-about-reelection-bill-clintons-80-million-payday.html

{30} http://americablog.com/2011/08/galbraith-on-obama-for-the-rest-of-his-life-the-eyes-of-the-old-the-poor-the-jobless-whose-hopes-he-once-raised-will-follow-him-everywhere.html


Flare-up fabricated by Japan

Fire-control radar row is Tokyo’s attempt to get more overt outside support and push for constitutional change

by Zhang Junshe

China Daily (March 29 2013)

Japanese Prime Minister Shinzo Abe has urged the European Union to maintain its embargo on arms exports to China because of the heightened tensions in the East China Sea. But it is Japan that is guilty of escalating regional tensions. It is busy playing up a “China threat” to mislead international opinion, so that it can achieve its long-standing military ambitions.

In February, Japan claimed that a Chinese navy ship put a radar lock on a Japanese Maritime Self-Defense Force destroyer in the East China Sea in January. The Japanese media, dancing to the government’s tune, accused China of other such provocations and said it was pushing the two countries to the brink of war.

China’s Defense Ministry has resolutely rejected the Japanese allegations, and anyone with even a basic military knowledge will realize that they are groundless.

Japan claims that its destroyer and the Chinese frigate were about three kilometers apart at the time the Chinese vessel is alleged to have locked its weapon-targeting radar on the Japanese destroyer. This is simply not credible, because at this distance the Chinese vessel would have used its electro-optical target tracker, which would have been more effective at this distance.

What’s more it could not have been a provocation as Japan is suggesting, because the Chinese vessel would never initiate its fire-control radar in such a situation as doing so would tip its hand on the unique characteristics of the radar, including its radio frequency and pulse duration.

Clearly Japan has an ulterior motive for these allegations. By fabricating the incident, Japan is attempting to convince the United States that China is a threat to Japan so that Washington will back Japan in its bitter row with Beijing over the Diaoyu Islands.

Japan is desperate for US backing, but the US has said it will not take sides in the sovereignty dispute and Abe failed to get any explicit words of support when he visited the US in February. By creating this hullabaloo, Tokyo is hoping to finally press Washington to throw its weight fully behind it.

Apart from seeking the US’ sympathy and support in the dispute over the Diaoyu Islands, Japan is also paving the way for a change in its constitutional interpretation of the use of force and trying to get the US to give a nod of approval to the change.

Japan’s pacifist constitution, imposed by the US at the end of World War Two, strictly restricts Japan’s military activities abroad. Japan’s right-wing activists seek a constitutional amendment that would transform the country’s Self-Defense Forces into a fully-fledged military and lift the self-imposed ban on the right to excise collective self-defense.

However, getting the green light from Washington is not proving easy. The US has not forgotten Japan’s sneak attack on Pearl Harbor, and Washington is wary about Japan’s attempted constitutional change and the resurgence of militarism in the country. Tokyo has played up the alleged radar lock incident, claiming that “directing such radar is very abnormal”, in a desperate attempt to get the US to back changes to the constitution.

In fact, Japan has played a similar trick before. During the Cold War, Japan hyped up a “threat” from the Soviet Union, so that the US would ease restrictions on Japan’s military activities.

Japan’s latest attempts to convince the US that it faces a China threat is also driven by its ignoble motive to absolve itself of the blame for heightening tension over the Diaoyu Islands issue. The Japanese government’s bid to “nationalize” the Diaoyu Islands broke the consensus it had with China to shelve the territorial dispute.

Japan’s unilateral move has sparked strong protest from the Chinese government and the Chinese people, as well as the peace-loving people in Japan. China has so far firmly responded to Japanese provocation to defend its territorial integrity, and Chinese maritime surveillance ships’ routine patrols and law-enforcement in waters off the Diaoyu Islands have refuted Japan’s self-proclaimed actual control of the islands.

The alleged radar lock-on incident is simply another political farce staged by Japanese right-wing activists to tarnish China’s image and whitewash Japan’s guilt for flaring up regional tension.


The author is a Beijing-based scholar of international relations.


Second Chance

by Thomas Frank

Harper’s Magazine Easy Chair (January 2013)

Inauguration Day is upon us. And it seems like only yesterday that the colossal, overheating machinery of democracy, which had been running in high gear for almost two years, finally powered down. The resources marshaled on its behalf defy human comprehension. A few ballpark numbers: an estimated $6 billion was flushed down the tubes over the course of the campaign. An estimated 300 million of those dollars were directed to their targets by superconsultant (and Fox News tantrum thrower) Karl Rove. An estimated sixty million of them were ponied up by a single man, casino magnate Sheldon Adelson. An estimated one million TV commercials clogged the nation’s airwaves. And an estimated seventeen months were filled with wall-to-wall rhetoric – beginning on the day in June 2011 when the full complement of Republican presidential hopefuls conducted their first debate in New Hampshire.

Do you even remember their names, reader? Let each roll off your tongue, and savor the receding memories. There was Newt Gingrich – the bitter, familiar one. Michele Bachmann – the confused, panicked one. Rick Perry – hair. Ron Paul – Constitution. Herman Cain – pizza. Rick Santorum – coal-mining grandfather, sweater-vest. Mitt Romney – hair, Olympics. Only after fourteen months did this Combat of the Seven yield a champion to go forth against the Democrats.

The battle now joined, the mighty rivals fought over the same swing states as last time, and the time before that, and the time before that. They rallied the same constituent groups. They slagged one another with the same stereotypes used in every election since 1968. They fielded the customary armies of strategists and fund-raisers and communications directors and doorbell ringers. The advances and retreats of this army were then followed by a second expeditionary force – an International Brigade of journalists who jammed the campaign jets, begged for a comment, clustered around the Hamilton County Board of Elections office in Ohio, and ultimately assumed the starring role themselves, pinching and poking and waving at their touch-activated, data-dredging Magic Walls.

And then it was over. Once the numbers were in, both winner and loser spoke sagely about bipartisan togetherness. Every pundit worth his blue blazer interpreted the results in the same, time-honored manner: as a victory for centrism. Both parties, they declared, had work to do. Republicans needed to move to the center in order to court the Latinos, the young, the single mothers. Democrats needed to move to the center simply to appease their pouting opponents. No, wait: Democrats had already moved to the center, and this election vindicated their wisdom.

In other words, we were back where we had started. Like some kind of electoral Battle of Verdun, this costly triumph had shifted the front lines only slightly. House, Senate, and Oval Office all stayed in the same hands. All those commercials, debates, rallies, speeches, books, profiles, and columns had no more changed the world than a season’s worth of Major League baseball or a feud between American Idol judges.

And now that the smoke has cleared, we are face-to-face with the great overlooked subject of 2012. Namely: What will Barack Obama do with his second term?

The president did tell us his plans, of course. Virtually no one paid any attention to what he said, but he said it nonetheless. For the record, the document was called The New Economic Patriotism: A Plan for Jobs & Middle-Class Security, and it was released during the final, fevered weeks of the campaign. It contained, among other things, a vague promise to encourage American manufacturing, which turned out mainly to be a way of calling attention to the president’s 2009 bailout of the auto industry. Obama also filled its pages with sweet talk about small business, bowing to the political god of the year. He rhapsodized about clean energy, education, and fair taxes, and wrapped the whole thing up with a not-very-reassuring reassurance that “our problems can be solved”.

Even now, Barack Obama’s most enthusiastic supporters are strangely muted on the subject of his second-term plans. Oh, they are excited by his victory. Some think it portends the final destruction of conservatism and the coming of better days – a liberal millennium to match the deferred Rovian dream of a permanent majority. But when you get down to specifics, their vision of Obama Redux is always couched in reactive, even passive terms. Rather than anticipating forceful leadership in the FDR mold, they pray that the president will adroitly handle whatever cards he is dealt and triumph by the simple virtue of remaining in the game. His continued presence in the Oval Office, for example, will be enough to ensure that Obamacare gets implemented as it was planned almost three years ago. Whatever he does to keep the nation from tumbling over the “fiscal cliff” will look heroic, since the alternative – which he can achieve by doing nothing – is acceptable to neither party. Nerviest of all is the expectation, expressed by Andrew Sullivan, that as the economy inevitably recovers, Americans will come to realize at long last that they love Obama, as they did Ronald Reagan. Such audacious hopes!

To find someone who sincerely believes that Barack Obama is going to preside over his second term as a strong, determined progressive, you must make your way far to the right. There, the panicked consensus holds that he will remake the nation as dramatically as did Franklin Roosevelt and Lyndon Johnson. There, and only there, will you be told that Obama is preparing to tackle the unemployment problem by establishing a new Works Progress Administration of the kind I called for in this magazine’s pages back in December 2011. Of course, for the true believers who make this assertion – Aaron Klein and Brenda J Elliott, for example, whose new book, Fool Me Twice (2012), follows up on their earlier The Manchurian President and Red Army (2010) – the idea of a resurgent WPA is the ultimate slacker-coddling nightmare.

But as I hacked my way through Fool Me Twice’s terrifying liberal dystopia, whose particulars are backed up by diligent research in the John Birch Society’s flagship magazine, I wanted to cheer. It all sounded great to me.

According to Klein and Elliott, a second Obama term will bring us cuts in military spending, a single-payer system of universal health care, methodical plans to fight global warming, and a mandate that would require all government projects to “buy American” – this last outrage supposedly a result of Obama’s anxious solicitude for organized labor!

As it happens, there is another Obama campaign document that tells us far more about his second-term intentions. I am referring to the now-legendary interview the president gave to the Des Moines Register two weeks before Election Day. At first, Obama campaign officials had insisted that the interview be off-the-record, and only later did they agree to its publication. The president, perhaps assuming that his remarks would remain private, was unusually candid – and what he promised was anything but four years of nationalized banks and sharia law.

Perhaps it will surprise you to learn that his real policy ambition was the same as always: to achieve the Grand Bargain. {*} Which is to say, a fiscal deal between the parties that would enact the centrist dream agenda all at once by cutting spending, increasing tax revenue, and (in at least one version of it) “reforming” entitlements. The Great Conciliator in the White House has longed for such a bargain for years. In pursuit of it, he created the Bowles-Simpson commission, then a special committee chaired by Vice President Joe Biden, then led his own series of meetings and horse-trading sessions. (And that’s not counting the failed congressional “Super Committee” of late 201 1.)

{*} “[W]e can get what is the equivalent of the Grand Bargain”, Obama told the paper. He also spoke of his hopes for “immigration reform”, figuring that Republicans would be eager to placate Latino voters after driving them away for the past few elections.

Each of these efforts saw Democrats offering to permanently shrink the size of government. The Bowles-Simpson proposal even suggested cutting Social Security benefits and raising the retirement age, both utterly unthinkable to a traditional liberal. But with every effort, the push for a Grand Bargain foundered on total Republican resistance to tax increases – and the resulting string of failures finally culminated in the debt-ceiling crisis of 2011.

Ah, but this time, things just might be different. To some degree, Obama won reelection on a promise to increase the taxes paid by the rich. Appearing to recognize this aspect of the president’s victory, House Speaker John Boehner declared on November 7 that the GOP was “willing to accept new revenues” – a mealymouthed formulation that at least leaves the door open to tax hikes, especially if they’re disguised as closed loopholes and quashed deductions. In return, argued Boehner, Democrats needed to acknowledge that Social Security and Medicare were “the root of the problem”. Maybe this time, both men will get what they want. And oh, how awesome that will be.

Another term for the Grand Bargain might be “austerity” – the punitive economic reflex that has driven much of Europe into deep recession. Austerity proceeds from the reasonable-sounding premise that government must cut back spending during hard times, just as everyone else does. However, this practice actually serves to worsen slumps and recessions rather than cure them. That in turn reduces tax revenues, thereby pumping up deficits and making the need for further austerity seem even more urgent. Such a bargain might be grand, but it might also be stupid and self-destructive. Why does the president crave it so?

When the Obama Administration was young and orthodoxy was on the ropes, the president was a dogged foe of austerity: he secured the passage of a large stimulus package, which ballooned the federal deficit even as it cushioned the blow of the recession. And he didn’t wait to enact some sweeping Treaty of Dupont Circle, either. He passed the stimulus over the noisy and nearly unanimous objections of the Republicans and simultaneously flew in the face of the city’s traditional predilections.

Washington’s most prominent residents have always had trouble understanding the economic problems of the country outside the Beltway. Other Americans grasp the symbiotic relationship between the economy at large and the government’s balance sheet. Washingtonians, however, view the government’s own fiscal situation – meaning the federal deficit – as something autonomous and detached from the nation’s sweaty, second-wave struggles. The deficit is thought to be a problem all on its own, a disaster separate from and comparable to the recession itself.

Recall, in this connection, one of the strangest rhetorical thrusts made by Joe Biden during his debate with Paul Ryan. The subject was the high unemployment rate and the lingering economic slump, and Biden began like this:


They talk about this Great Recession [as] if it fell out of the sky, like, “Oh my goodness, where did it come from?”


I was excited to hear this, thinking sarcastic old Joe was about to drop some pungent knowledge about financial deregulation on the naive Young Gun across the table from him. But no:


It came from this man [meaning Ryan and, by extension, the Republican Congress of the Bush years] voting to put two wars on a credit card, to put at the same time a prescription-drug benefit on the credit card, [and] a trillion-dollar tax cut for the very wealthy. I was there. I voted against him. I said, “No, we can’t afford that”. And now all of a sudden these guys are so seized with a concern about the debt that they created.


Had I heard correctly? Yes: Biden had started on a history of the Great Recession and switched in midstream to a history of the federal budget deficit, as though that was what caused the slump. He got the relationship backwards. Of course the deficits of the Bush years were irresponsible, but they didn’t crash the economy – Wall Street did that. And that crash, in turn, is what really drove the deficit through the roof, not the other way around.

Biden’s cognitive fumble didn’t draw the kind of Beltway beatdown his other blunders earned during the campaign. That’s because what he said is not really considered an error in this burg. While the rest of the nation worries about unemployment and bankruptcy and the great corporate rip-off, people in DC worry about the deficit. The last category makes sense to the Washington mind; the other stuff is statistics.

When elite Washingtonians cluck about the federal deficit, moreover, they do so in a highly predictable way. The moral symbolism of the issue is always the same: tackling deficits is supposed to be the highest calling of statesmanship, the “hard decisions” that a real leader must make. And the solution to the deficit challenge is also, always, the same. Washingtonians not only think they know what that solution is but also tend to assume that every responsible, educated person either agrees with them or is some kind of demagogue. You know what I’m talking about: the evil entitlements, which must be reformed before they destroy American civilization. Medicare and Social Security, those sucking chest wounds in our body politic, simply cannot be allowed to continue festering as they have in the past.

I have heard some version of this story line since the day I met my first congressional staffer back in the 1980s. I’ve heard it from Democrats as well as Republicans; from losers as well as winners. Indeed, I read it just yesterday in The Price of Politics (2012), by that consummate Washington insider, Bob Woodward. His book is, naturally, about the search for the Grand Bargain. And in a concluding passage, the author blames Obama for failing to be presidential enough to solve what everyone knows is the True Problem. “Unsustainable entitlement spending on Medicare, Medicaid and Social Security”, laments Woodward, “highlighted by Republican House Budget Chairman Paul Ryan and familiar to all informed politicians and economists, including the president and Boehner, has been left largely unaddressed”.

I added those italics to Woodward’s sentence, reader, and I did it to emphasize the kind of cosmic clubbiness that lurks behind the Washington consensus. There is no amount of evidence or argument that will budge this fixed verdict about social insurance; everyone who is “informed” knows it to be true. Everyone who is “informed” agrees. Knowing it, agreeing on it – these things are the price of admission to Woodward’s smug, happy world.

Barack Obama’s Democrats just won a resounding triumph in what was advertised as the great ideological face-off of our times. What we the people chose, according to this viewpoint, was social insurance, universal health care, a strong regulatory state. What this town urges on President Obama, unfortunately, is something quite different: an imaginary armistice between the two parties, purchased at the cost of the very things his supporters think they just voted for. It is a recipe for greatness credible to the soi-disant “informed”, maybe. But to nearly everyone else, it rings with the hollow and obsolete magical thinking of Washington, DC.

These are the childish things Barack Obama must put away in his second inaugural address. The path of destiny leads elsewhere.

Stunning Facts About How the Banking System Really Works

And How It Is Destroying America

by WashingtonsBlog    

http://www.washingtonsblog.com/ (March 27 2013)

To understand the core problem in America today, we have to look back to the very founding of our country.

The Founding Fathers fought for liberty and justice. But they also fought for a sound economy and freedom from the tyranny of big banks:


[It was] the poverty caused by the bad influence of the English bankers on the Parliament which has caused in the colonies hatred of the English andthe Revolutionary War.

– Benjamin Franklin



There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.

– John Adams



All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.

– John Adams



If the American people ever allow the banks to control issuance of their currency, first by inflation and then by deflation, the banks and corporations that grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers occupied.

– Thomas Jefferson




I believe that banking institutions are more dangerous to our liberties than standing armies … The issuing power should be taken from the banks and restored to the Government, to whom it properly belongs.

– Thomas Jefferson



The Founding Fathers of this great land had no difficulty whatsoever understanding the agenda of bankers, and they frequently referred to them and their kind as, quote, ‘friends of paper money’. They hated the Bank of England, in particular, and felt that even were we successful in winning our independence from England and King George, we could never truly be a nation of freemen, unless we had an honest money system.

-Peter Kershaw, author of the 1994 booklet “Economic Solutions”


Indeed, everyone knows that the American colonists revolted largely because of taxation without representation and related forms of oppression by the British. See this and this. But – according to Benjamin Franklin and others in the thick of the action – a little-known factor was actually the main reason for the revolution.

To give some background on the issue, when Benjamin Franklin went to London in 1764, this is what he observed:



When he arrived, he was surprised to find rampant unemployment and poverty among the British working classes …  Franklin was then asked how the American colonies managed to collect enough money to support their poor houses. He reportedly replied:

“We have no poor houses in the Colonies; and if we had some, there would be nobody to put in them, since there is, in the Colonies, not a single unemployed person, neither beggars nor tramps”.

In 1764, the Bank of England used its influence on Parliament to get a Currency Act passed that made it illegal for any of the colonies to print their own money. The colonists were forced to pay all future taxes to Britain in silver or gold. Anyone lacking in those precious metals had to borrow them at interest from the banks.

Only a year later, Franklin said, the streets of the colonies were filled with unemployed beggars, just as they were in England. The money supply had suddenly been reduced by half, leaving insufficient funds to pay for the goods and services these workers could have provided. He maintained that it was “the poverty caused by the bad influence of the English bankers on the Parliament which has caused in the colonies hatred of the English and … the Revolutionary War”. This, he said, was the real reason for the Revolution: “the colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction”. (For more on the Currency Act, see this.)


Alexander Hamilton echoed similar sentiments:


Alexander Hamilton, the nation’s first treasury secretary, said that paper money had composed three-fourths of the total money supply before the American Revolution. When the colonists could not issue their own currency, the money supply had suddenly shrunk, leaving widespread unemployment, hunger and poverty in its wake. Unlike the Great Depression of the 1930s, people in the 1770s were keenly aware of who was responsible for their distress.


As historian Alexander Del Mar wrote in 1895:


[T]he creation and circulation of bills of credit by revolutionary assemblies … coming as they did upon the heels of the strenuous efforts made by the Crown to suppress paper money in America [were] acts of defiance so contemptuous and insulting to the Crown that forgiveness was thereafter impossible … [T]here was but one course for the crown to pursue and that was to suppress and punish these acts of rebellion … Thus the Bills of Credit of this era, which ignorance and prejudice have attempted to belittle into the mere instruments of a reckless financial policy were really the standards of the Revolution. they were more than this: they were the Revolution itself!


And British historian John Twells said the same thing:


The British Parliament took away from America its representative money, forbade any further issue of bills of credit, these bills ceasing to be legal tender, and ordered that all taxes should be paid in coins  …  Ruin took place in these once flourishing Colonies … discontent became desperation, and reached a point … when human nature rises up and asserts itself.


In fact, the Americans ignored the British ban on American currency, and:


Succeeded in financing a war against a major power, with virtually no ‘hard’ currency of their own, without taxing the people.


Indeed, the first act of the New Continental Congress was to issue its own paper scrip, popularly called the Continental.

Franklin and Thomas Paine later praised the local currency as a “corner stone” of the Revolution. And Franklin consistently wrote that the American ability to create its own credit led to prosperity, as it allowed the creation of ample credit, with low interest rates to borrowers, and no interest to pay to private or foreign bankers .

Not Ancient History  …  One of the Most Vital Issues of Today

Is this just ancient history?


The ability for America and the fifty states to create its own credit has largely been lost to private bankers. The lion’s share of new credit creation is done by private banks, so – instead of being able to itself create money without owing interest – the government owes unfathomable trillions in interest to private banks.

Read this background to understand how money is really created in our crazy current banking system. And read this and this to learn why we are paying trillions of dollars to the big banks in unnecessary interest costs.

America may have won the Revolutionary War, but it has since lost one of the main things it fought for: the freedom to create its own credit instead of having to beg for credit from private banks at a usurious cost.

No More Federal than Federal Express

While many Americans assume that the Federal Reserve (“Fed”) is a federal agency, the Fed itself admits that the twelve Federal Reserve banks are private. See this, this, this and this.

Indeed, the money-center banks in New York control the New York Fed, the most powerful Fed bank. Until recently, Jamie Dimon – the head of JP Morgan Chase – was a Director of the New York Fed. Everyone knows that the Fed is riddled with conflicts of interest and corruption.

The long-time Chairman of the House Banking and Currency Committee (Charles McFadden) said on June 10 1932:


Some people think that the Federal Reserve Banks are United States Government institutions. They are private monopolies  …


And congressman Dennis Kucinich said:


The Federal Reserve is no more federal than Federal Express!


The Fed Is Owned by – and is Enabling – the Worst Behavior of the Big Banks

Most people now realize that the big banks have become little more than criminal enterprises.

No wonder a stunning list of economists, financial experts and bankers are calling for them to be broken up.

But the Federal Reserve is enabling the banks. Indeed, the giant banks and the Fed are part of a malignant, symbiotic relationship.


* The corrupt, giant banks would never have gotten so big and powerful on their own. In a free market, the leaner banks with sounder business models would be growing, while the giants who made reckless speculative gambles would have gone bust. See this, this and this.

* It is the Federal Reserve, Treasury and Congress who have repeatedly bailed out the big banks, ensured they make money at taxpayer expense, exempted them from standard accounting practices and the criminal and fraud laws which govern the little guy, encouraged insane amounts of leverage, and enabled the too big to fail banks – through “moral hazard” – to become even more reckless.

* Indeed, the government made them big in the first place. As I noted in 2009:


As MIT economics professor and former IMF chief economist Simon Johnson points out today, the official White House position is that:

(1) The government created the mega-giants, and they are not the product of free market competition

(3) Giant banks are good for the economy


* The [corrupt, captured government “regulators”] and the giant banks are part of a single malignant, symbiotic relationship.

Indeed, the Fed and their big bank owners form a crony capitalist cartel that is destroying the economy for most Americans. The Fed has been bailing out the giant banks while shafting the little guy.

Fed boss Bernanke falsely stated that the big banks receiving bailout money were healthy, when they were not. They were insolvent. By choosing the big banks over the little guy, the Fed is dooming both.

No wonder many top economists say that we should end – or strip most of the powers from – the Federal Reserve.

Even long-time Fed Chairman Alan Greenspan says that we should end the Fed.

A Better Alternative

Conservative and liberal economists both point out that the big banks are already state-sponsored institutions  …  so the government should create a little competition through public banking.

State-owned public banks – like North Dakota has – would take the power away from the big banks, and give it back to the people  …  as the Founding Fathers intended.

Even a twelve-year old sees the wisdom of public banking.

And see this.


The original version, at the URL below, contains many links to further information not included here.


Half Empty

by Jeff Madrick

The Anti-Economist

Harper’s Magazine (December 2012)

The American dream has never been the rags-to-riches fable of the Horatio Alger stories. But there once was a real American dream, and it went like this: If you work hard, your income will rise consistently and will enable you and your family to have a decent life, a good life – even a secure life.

No more. For at least half of all Americans – those on the bottom rungs of the economic ladder – that dream has been dead for more than thirty years. Their household incomes have hardly risen since the glory decades after World War Two. In many cases, their incomes have actually fallen. The only protection these Americans have had from a complete collapse in their standard of living has been government social programs.

This bears repeating: the only reason incomes for the lower half have risen more than marginally since the 1970s is that such federal programs as Social Security, unemployment insurance, the earned-income tax credit, and food stamps have provided support. “Without America’s net of social programs”, political scientist Lane Kenworthy argues, “income inequality would be much worse than it already is”.

It wasn’t always that way, says Kenworthy, who teaches at the University of Arizona. In the 1950s and 1960s, and through much of the 1970s, the American economy itself produced considerable wage growth for workers up and down the income scale. Since the late 1970s, however, the wages paid to the lower half have fallen far behind the growth of gross domestic product.

For households whose income places them in the bottom 25 percent in America, only twenty cents of every dollar of new income over the past thirty-plus years came from earnings on a job. The remaining eighty cents, as Kenworthy demonstrates, came from the social programs mentioned above. Those in the next quartile up did slightly better, but two thirds of their new income still came directly from the federal government.

This isn’t, of course, a uniquely American problem. The free market is failing the bottom half of the population in Europe as well, where lower-income people also depend on government programs for most of their monetary gains. In their case, however, the damage is lessened by the fact that most European social programs are considerably more generous than those in the United States.

Doesn’t this simply confirm Mitt Romney’s argument that 47 percent of Americans are parasitical loafers, who think of themselves as victims, entitled to help for just about everything? Of course it doesn’t. Maligning these people is particularly offensive given their paltry income gains in the past few decades. These supposed good-for-nothings have jobs in factories, hospitals, malls, restaurants, and supermarkets. Try getting along without them.

More to the point, these people have never stopped working hard. The problem is that wages stopped growing – and that good jobs became harder to find. A lot of attention has been paid to the lack of good jobs created in the recent economic recovery. But economists John Schmitt and Janelle Jones of the Center for Economic and Policy Research in Washington have published striking studies showing that high-quality jobs began to dry up long before the financial crisis of 2008.

Schmitt and Jones wanted to find out whether the economy was producing more bad jobs than it once did. They defined a bad job as one that paid less than $37,000 a year – the 2010 equivalent, in inflation-adjusted dollars, of the median male income in 1979 – and offered neither employer-paid health insurance nor a company retirement plan. (I’d call these really bad jobs.) In 1979, some eighteen percent of jobs fell into this category. By 2010, the proportion had risen to 24 percent.

The current working population is more educated, more experienced, and older than the working population in 1979, and the economy itself has grown since then. Logically speaking, there should be far more good jobs. Instead there are fewer. Here is another demonstration (as if we needed it) that the free market is not working as promised.

There are several conventional explanations for the rise in bad jobs and the general stagnation of low- to mid-level incomes. One is globalization: Americans buy imports from low-wage nations and essentially ship jobs overseas. Another is a lack of adequate education, which makes Americans ill prepared for today’s sophisticated, skill-intensive jobs. Yet as Schmitt and Jones point out, one out of three workers had a four-year college education or better in 2010, compared with only one out of five in 1979. The increase in educational attainment certainly didn’t lead the market to create a glut of high-tech, high-wage positions.

Another factor that is often neglected is pressure from Wall Street, and in particular from private-equity firms like Bain Capital, to restrain wages in order to raise stock prices and pay down the high levels of debt needed for corporate acquisitions. Nor should we overlook the reduced clout of unions – only seven percent of private workers today belong to unions, compared with more than 24 percent in 1973 – and Congress’s failure to raise the minimum wage enough to keep up with inflation. No matter who occupies the White House on January 22 2013, none of these factors is likely to change in any substantial way.

In his callous but calculated talk to wealthy donors back in May, Mitt Romney lodged yet another perennial complaint about the shiftless 47 percent: They pay no income taxes. This was hardly a novel talking point for the candidate. Indeed, it has been a favorite of one Republican presidential hopeful after another – and one Fox News host after another – as far back as 2010. It was as ludicrous then as it is now.

There are two reasons these Americans don’t pay federal income taxes. One is that they don’t make enough money. The other is that their tax loads have been reduced or eliminated by two valuable social programs widely praised by Republicans, the earned-income tax credit (EITC) and the child tax credit (CTC). Ronald Reagan expanded the former, George W Bush expanded both. (One of Reagan’s mentors, the conservative economist Milton Friedman, was a leading proponent of EITC-type plans.)

Of course, the vast majority of Americans do pay federal taxes of one kind or another. Of those Americans not required to pay income taxes, about two thirds still contribute to Social Security and Medicare through their payroll taxes. And let’s keep in mind that these taxes are regressive. All workers pay the same rate up to an income of $110,000, beyond which no further taxes are collected. The rate for the very wealthy, in other words, is low. These taxes, which hit working people pretty hard, were raised under Reagan. Progressive income taxes, which take more from the rich by pegging rates to income level, were sharply lowered by the same administration.

That leaves the relatively small group that pays no federal taxes whatsoever: basically students, the elderly, and the very poor. In many cases, these people have hardly any income to speak of. Yet even they enrich the public till in their modest way by paying state and local sales taxes, which are currently creeping as high as nine percent. One Arizona municipality dings consumers for 13.725 percent, a rate considerably higher than the lowest federal income-tax bracket – and only slightly less than the rate paid on personal income by candidate Romney.

Clearly something is amiss in our faith that free-market economies distribute income fairly. And clearly social programs are the last thing keeping many Americans out of poverty. But do these programs themselves nourish the sort of dependence that Republicans, from Ronald Reagan to Paul Ryan, so love to disparage? To put it another way: Are the programs themselves the cause of reduced earnings for the lower half, because they enable them to work less hard?

A big flaw in this popular right-wing supposition is that to qualify for the earned-income and child tax credits from which such a large portion of government benefits are derived, you have to have a job. In other words, they encourage work rather than dependence.

What about programs like unemployment insurance? No doubt some unemployed workers are less motivated to take a job because they have a weekly check to support them – at least for a while. But those who condemn the “disincentive” aspect of such programs vastly underestimate their long-term effects. By sharply lowering the poverty rate, these payments result in far better opportunities for the children of the poor.

Jared Bernstein, a former economic adviser to Joe Biden who is now with the Center on Budget and Policy Priorities, explained in recent testimony before Congress how reductions in poverty improve children’s performance in school, ultimately boosting their prospects for better pay and sustainable jobs. One piece of research cited in his testimony: an analysis of ten antipoverty programs has demonstrated that consistently increasing a poor family’s annual income by $1,000 – which is about the equivalent of a single CTC – results in measurably improved test scores for their children. Raising a family’s annual income by $3,000, roughly equal to the amount received from the EITC and a CTC together, leads to a seventeen percent increase in future income for the children once they enter the work force.

Denied their cherished argument about disincentives, many on the right will revive an even older objection to antipoverty programs: they will insist that poverty in America, and in the rich countries of Europe, isn’t all that bad. Even the poor can scrape together enough cash to buy cutting-edge consumer products, from cell phones to flatscreen TVs. And McDonald’s, of course, is always affordable.

Surveys show otherwise. A few years ago, the Pew Research Center gathered information about home heating, mortgage arrears, diet, and access to health care. Pew posed the following question in its survey:


Have there been times during the last year when you did not have enough money (a) to buy food your family needed, (b) to pay for medical and health care your family needed, (c) to buy clothes your family needed?


The study covered seven wealthy nations, and the United States ranked worst among them.

The reason is unambiguous: our nation has the least generous social programs of those surveyed. Yet we are now likely to cut these programs even more significantly. Material deprivation, reduced prospects for children, high levels of inequality, and political polarization will result.

Can we change this? The best antidote to low wages is fast economic growth. In the late 1990s, when the Clinton boom was under way and unemployment crept down to around four percent, incomes rose substantially for all. For the lower half of wage earners, however, the good times lasted only a few years.

The debate about how to achieve that kind of growth again goes on. But the outlook is hardly optimistic. Congress will likely reduce government spending next year, and the pressure to cut the deficit may handicap government policy for years to come. Add to that the weight of global economic pressures, and slow wage growth will likely be with us for a long time.

In that case, a nation truly concerned with social justice will be forced to adopt policies that directly address low wages and the scarcity of jobs. We will need higher minimum wages – and a willingness to enforce them. As the number of involuntary part-time employees grows, we should expand medical coverage for them, and perhaps even require company retirement programs. We may also need to consider government-paid jobs in areas like teaching and construction.

Is there any prospect for a renewed commitment to social programs and job-creating rules and regulations? The nation seems to have too little faith in government to do what will be necessary. And as we enter the fifth year of brutally high unemployment, this failure of imagination and national will is nothing short of tragic.

Money Worries

by James Howard Kunstler

Comment on Current Events by the Author of “The Long Emergency”

Clusterfuck Nation (March 25 2013)

Of course, everybody should have been worried a lot sooner than last week because the basic operating system of global banking is accounting fraud, and has become that stealthily, insidiously, for about fifteen years now. Nothing is what it appears to be anymore. Compound interest has not really been working since 2008 because the world can’t increase its energy production enough to generate the additional surplus wealth needed to cover the aggregate interest due all around the world.

What remains are games of musical chairs, Ponzi schemes, frauds, swindles, stonewalls, ruses, ploys, scams, dodges, bluffs, subterfuges, QE martingales, interventions, rehypothecations, pretenses and other modes of evading or disguising reality. The reality is that there is not enough real wealth to go around, certainly not enough to cover the giant web of obligations that masquerades as “money”. So, now whenever somebody or some company or government or entity is called upon to put up or shut up, the danger arises that the whole web will disintegrate, since all the participants are broke. You want “your” money? Wait three days. Make that four days. Check that, let’s say next week. How about two months from now? Oh, forget about it … No wonder folks are spooked.

This is really getting out of hand. That’s why the ills of the poor, untoward, tiny crypto-nation of Cyprus have got everyone’s knickers in a twist. Cyprus is everybody writ small. Cyprus ran out of pretense. It’s banks are toast. It can’t take care of itself. It is too poor to be a “modern” economy. It failed trying to be a money laundromat for the brigands of Russia and the dope merchants of the Eastern Mediterranean. The tourists and retirees may even have to pack up and leave now because there will be no access to ready cash for day-to-day living.

The terms of the latest bailout announced Sunday night are curious. The New York Times reports that, “the deal would scrap the highly controversial idea of a tax on bank deposits, although it would still require forced losses for depositors and bondholders”. Say, what? In fact, there is no material difference between the so-called “tax” and the “forced losses”. That was just semantics. The word tax had been bandied about two weeks ago when the EU first proposed that the Cyprus government might pass a legislative act skinning its bank depositors. That didn’t go down, of course, so now its just an EU mandated haircut on deposits over 100,000 euros and bank bondholders. As for the deposits under 100,000 euros … you’re welcome to them, the catch being that the banks aren’t open for business … and the EU bailout money will not arrive in Cyprus until May. They are sending it by packet boat from Antwerp and hoping for fair winds.

Cyprus has to become somebody’s ward again. Cyprus was either Turkey’s or Great Britain’s ward for most of the past 400 years. The population is ethnically split about 60 / 40 Greek / Turkish making for chronically uncomfortable governance. The island remains physically divided into two separate and hostile north-south zones. If you look at it on the map, it is nowhere near Greece, but rather tucked right up under Turkey’s bosom. It is strategically a naval hub of the Middle East and is occupied both by NATO troops and by two remaining British military bases – a convenience given the ongoing deterioration in Middle East geopolitics, as nation after nation melts down, and threatens to impinge on much of the world’s oil supply. My guess is that Turkey will eventually recover administration of Cyprus by dint of sheer geographical proximity. It is said to possess considerable offshore gas, but the politics there are so problematic that the stuff may not be logistically recoverable, especially with the rest of the Middle East in flames.

The current bailout deal with its confiscations and haircuts is the first time in the multi-year melodrama of the wobbling EU that big-shot EU officials had voiced the idea that they had any authority to snatch private property (money) of a member’s citizens. So, instantly the notion reverberated around Europe that they could easily do the same thing in Italy, Spain, Portugal, Ireland, Greece – the usual broke suspects – if the EU was pushed too hard. And a few nervous nellies stateside began to wonder out loud when the US government might try some confiscational monkey business, such as the much-blogged-about notion of forcing retirees to put all their money in US Treasury instruments.

More to the point perhaps was the additional notion that the money was not there in the first place. Or anywhere. It was not snatchable. The banks were insolvent. They had pissed their meager reserves away on bad paper – like every other financial enterprise around the world – and the collateral was a joke. Depositors in Cyprus banks might indeed lose their money, but the EU would not collect any theoretical plunder either, so the whole bailout exercise was just another empty bluster. Even more to the point was the additional notion that no money in any bank in any sovereign EU member would be plunderable because there is no money in any of them, and the fiasco in Cyprus was leading to the recognition of the utter bankruptcy of the system.

In other words, this charade is far from over. There will be more bank runs. They may or may not take the form of disgruntled depositors physically standing in line along the pleasant blocks of Europe’s cities as the street trees burst into lovely spring bud and flower. In the first flush of activity post-Cyprus, a lot of hypothetical cash will probably just end up shifting out of Europe altogether and into the clutches of Jamie Dimon and his fellow miracle workers, primed for grand new acts of rehypothication with the inflow.

The chatter around this crisis has not included any consideration of the dark forces roiling in the alternate universe of rackets known as derivatives – which should now be primed to detonate whatever remains of financial legitimacy even while governments and central banks rally with new sets of excuses and “ring-fence” strategies for the floundering banks. All the ruling parties this whole world round won’t face the fact that absolutely nobody can cover his losses, and the losses just keep mounting with every central bank keystroke. Welcome to the age of phantom money.