Time to halt this madness before it’s too late

A small group of people have pulled a fast one. They have manipulated the legislative process to entangle a small group of people in an impossible situation where any decision they make is bound to be disastrous.

Where in the constitution does it empower a small group of people to choose economic suicide for the United States of America? Read more!

Trust in policymaking role of banks and other financial institutions not merited, says UN agency

Given their “irresponsible behavior” in the economic crisis, banks and other private financials institutions do not inspire trust in the role they still have in shaping the recovery. So says an intergovernmental agency, the UN Conference on Trade and Development (UNCTAD), in its report on “Post-Crisis Challenges in the World Economy,” released September 6.

“Little has been learned about placing too much confidence in the judgment of financial market participants, including rating agencies, concerning the macroeconomic situation and the appropriateness of macroeconomic policies,” the annual UNCTAD report states.

“In light of the irresponsible failure of many private market actors in the run-up to the crisis, and costly government intervention to prevent the collapse of the financial system, it is surprising that a large section of public opinion, and many policymakers, are once again putting their trust in those same institutions to judge what constitutes correct macroeconomic management and sound public finance.”

The report emphasizes the importance of wage growth to recovery, since wage income is the main driver of domestic demand in both developed and emergent market economies. “However, in most developed countries, the chances of wage growth…are slim.” Declining wages dampen the private spending needed for recovery.

The thrust of the report is that, in the current crisis, the focus on cutting budgets and debt is counterproductive.

A new Census Bureau report underlines the urgency of the situation. More Americans are now living in poverty than at any time since records began to be kept 50 years ago. As a Financial Times news story put it:

“The aftermath of the recession has been a ‘two-speed’ recovery for Americans, as the wealthiest maintain their spending habits and lifestyles while a record number of their fellow citizens are mired in poverty.”

UPDATE

The Director-General of the International Labour Organization, Mr. Juan Somavia, said the time has come to “place the real economy in the driver’s seat of the global economy, with a financial system at its service”.

“This means putting productive investment in the real economy at the heart of policymaking; an enabling environment for sustainable enterprises; and less availability of unproductive and risky financial products”, Mr. Somavia told members of the European Parliament during an address in Strasbourg. Read more!

The Great Turnaround: Developing Nations Outdoing the Rich Ones

“As rich economies’ prospects dim under their crushing debt burden and political paralysis, the world’s hope for economic dynamism rests with developing nations,” Dani Rodrik of Harvard points out in his weblog, and illustrates with the graph above.

“For the first time ever, developing countries as a group have been growing faster than industrial countries,” he writes. “Not only that, as the figure makes clear, the growth differential between the two groups has been widening in favor of the poor countries.”

In his July 21 posting, titled "The great divergence, the other way around," Rodrik cautions that the growth in Africa and Latin America is fragile, “much of it making up for lost time, rather than real convergence.” He is more optimistic about the durability of growth in Asia. Read more!

Viewing the trade deficit with China as a form of subversion

Entitled “Chinese Water Torture: Subversion Through Development,” the Heritage Foundation in 1992 published a lecture on how open trade would open up the Peoples Republic of China and bring the downfall of its Communist regime.

Because the Heritage paper was so certain about how “subversive” trade can be, I saved it. I found it only the other day.

The author, Andrew B. Brick, then Heritage’s Senior Policy Analyst for Chinese studies, first delivered the lecture at Florida State University on January 22, 1992, He described how his strategy would work – using outside influences such as trade to “open up a Communist society” would create “political grievances that undermine the extant regime.”

Eighteen-plus years seems like enough time to assess the consequence of Brick’s formula, especially because the United States followed it in a bipartisan way supported by people who had never read his lecture.

The biggest clue for an assessment is found in the U.S. Commerce Department data on U.S. merchandise trade. All last year the United States

-- Imported $296,373,900,000,000 in goods from China
-- Exported $ 69,496,700,000,000 in goods to China, a deficit of $226,877,300,000,000, compared to $18,309,000,000,000 the year when Brick was delivering his lecture.

The U.S. trade deficit since 2001, when China joined the World Trade Organization, has caused direct pain especially to American workers. Between 2001 and 2008, according to the Economic Policy Institute, the deficit with China caused a loss of 2,400,000 U.S. jobs.

Meanwhile, U.S. officials are putting pressure (i.e., getting down on their knees) for China to stop manipulating its currency in a way that bolsters China’s trade advantage and puts a dent in the U.S. GNP. Moreover, Washington has repeatedly declined to name China a currency manipulator out of fear that China would take retaliatory action.

So who is applying Chinese water torture against whom? Who is subverting whom?

Print Page Read more!

We wuz robbed!

A study of how corporate America treated its workers during the 2007-2009 recession concludes that the workers could justifiably say “We wuz robbed!”

In the study, published in July, its two authors charge that the latest recession is really a Great Recession for Workers because corporations pocketed unprecedented profits while slashing employment, working hours, and hourly pay.

“I’ve never seen anything like this before,” Andrew Sum, director of the Center for Labor Market Studies at Northeastern University in Boston, told New York Times columnist Bob Herbert. Sum has published research on labor market trends for at least 20 years.

His latest study, conducted with senior research associate Joseph McLaughlin, is titled “How the U.S. Economic Output Recession of 2007-2009 Led to the Great Recession in Labor Markets.”

“The economic recovery in the U.S. over the past 15 months has seen the most lopsided gains in corporate profits relative to real wages and salaries in our history,” the study says.

Also especially noteworthy: “The greatest deterioration in the U.S. unemployment rate took place among men, largely as a result of the great depression in blue-collar jobs.” The U.S. jobless rate, 10.3 percent in 2009, was the highest of ten leading industrial countries.

Herbert, in his column titled “A Sin and a Shame,” commented:

“It doesn’t have to be this way. Germany and Japan, because of a combination of government and corporate policies, suffered far less worker dislocation than the U.S. Until we begin to value our workers, and understand the crucial importance of employment to a thriving economy, we will continue to see our standards of living decline.”

Print Page Read more!

Economic suicide is not an option

Almost everybody who is anybody seems to be scrambling to figure out how a Nigerian terrorist came so close to blasting a hole in a transatlantic airliner approaching Detroit. The concern is legitimate. But while concentrating on one peril, we are ignoring another – that the United States is blindly on the path to a major economic disaster.

The alarming signs are there aplenty, but policymakers are either not connecting the dots or not telling the public what the signs mean. Either way, it’s way past time to spread an alarm about the danger of national econicide.

Buried in his January 1 New York Times column, Paul Krugman makes this prediction: that China’s policies probably will reduce U.S. employment by 1,400,000 jobs over the next two years. That should be startling, except that it’s nothing new. China has been stealing jobs from American workers for years without causing corrective action by American leaders, Democrat or Republican.

The supposed cure, mindlessly repeated, is to make Americans more “competitive.” But American companies are among the most efficient in the world, Richard McCormack, editor of Manufacturing and Technology News, points out, and in an article published in the January-February issue of The American Prospect adds:

“The nation’s steel industry, for instance, produces one ton of steel using two man-hours. A comparable ton of steel in China is produced with 12 man-hours, and Chinese companies produce three times the amount of carbon emissions per ton of steel. The same kinds of comparisons are true for other industries.”

“China is blatantly protectionist,” Carolyn Bartholomew, chair of the U.S.-China Economic and Security Review, writes in the same magazine. “The Beijing government manipulates its currency, showers subsidies on favored industries, provides low-interest loans from a state-owned banking system, tolerates and even encourages the theft of intellectual property, and ignores WTO rules.”

In his column, Krugman explains that China, now a major financial and trade power, “doesn’t act like other big economies. Instead, it follows a mercantilist policy, keeping its trade surplus artificially high. And in today’s depressed world, that policy is, to put it bluntly, predatory.”

Among the excuses given for why we can’t retaliate against China’s predatory actions is that protectionism is always a Bad Thing, always, even in response to the persistent protectionism of others. “If that’s what you believe, you learned Econ 101 from the wrong people,” Krugman writes, and goes on to explain that the usual rules don’t apply in times of high employment that are not solved by domestic measures.

For support, Krugman turns to the master, the late Paul Samuelson, to show how mercantilism (such as practiced by China) changes the situation. Here is his quote from a classic Samuelson paper, interspersed with Krugman’s defintion:

“With employment less than full… all the debunked mercantilistic arguments”—that is, claims that nations who subsidize their exports effectively steal jobs from other countries – “turn out to be valid.”

Krugman calls Chinese mercantilism such a serious problem that “the victims have little to lose from a trade confrontation.”

For detailed insights into what the U.S. government should do (“before it’s too late”), don’t miss the special report in The American Prospect at
http://www.prospect.org/cs/special_report.

Will Congress and the administration stand up to predatory China, or are our leaders paralyzed by what they mislearned in Econ 101?

Print Page Read more!

Both saltwater and freshwater economists got it wrong on free trade -- and still do

“How Did Economists Get It So Wrong?” was the title of a New York Times magazine article on September 6. Good question -- answered at length by Paul Krugman, a Pulitzer prize-winner in economics. Now the question has become: did Krugman get it wrong in a crucial respect – international trade?

In his 7,000-word essay, Krugman targeted mainline economists not only for failing to foresee today’s economic crisis but, more important, for being blind “to the very possibility of catastrophic failures in a market economy.” They blinded themselves by their exuberant faith in an efficient free market, a faith that they successfully spread to others, policymakers included.

In the field of macroeconomics, a significant theoretical difference has long existed quietly between those whom Krugman called “freshwater” economists (mainly at inland schools) and “saltwater economists” (mainly in coastal U.S. universities) over the cause and cure of recessions. That difference did not erupt on the policy level until the unprecedented economic shock hit last year.

What both salt- and freshwater economists ignored

The September 20 Times magazine has now printed nine letters with thoughtful comments on Krugman’s article. One was from Philip K. Verleger Jr., a business professor at the University of Calgary in Alberta, Canada, a former staff economist at the U.S. Council of Economic Advisors and a visiting fellow at the Peterson Institute for International Economics in Washington, D.C.

Verleger praised Krugman’s essay “as far as it goes,” but faulted it for ending “at the edge of salt water.” His three-paragraph critique is worth quoting in full:

“Krugman does not raise the subject of international trade. Yet for years saltwater and freshwater economists have all written and preached of the benefits of free trade. Larry Summers [now director of the National Economic Council], for example, has endorsed the view that trillions of dollars of benefits would accrue by opening international markets. I was part of the chorus for more than 10 years as a fellow at the Peterson Institute for International Economics.

“Here, too, I believe economists got it wrong. The United States’ economic situation has been harmed, not helped, by the push for free trade. America’s skilled workers and middle class are undoubtedly much worse off thanks to the market-opening measures negotiated over the past three decades at the encouragement of almost all economists. The losses have occurred because the theoretical benefits projected by economists are blocked again and again by our trade partners.

“Unfortunately, few economists are willing to offer the same detailed criticism of trade policies that Krugman has offered of macroeconomics.”

The good news is that many policymakers now do understand that the financial markets, and their industry, are not self-regulating. As President Obama said in his weekly address on September 19, Congress must “put in place a series of tough, common-sense rules of the road that will protect consumers from abuse, let markets function fairly and freely, and help prevent a crisis like this from ever happening again.”

But it is not at all clear whether the Obama administration understands that international trade also is not self-regulating, and that it too needs a series of tough, common-sense rules of the road that will protect consumers and workers, let markets function fairly and freely, and help prevent a crisis like this one from ever happening again.

Print Page Read more!

Urgent advice for G20 summiteers: Jobless recovery is no recovery

The world’s top labor leaders are urging the world’s top government leaders to make the global unemployment crisis the No. l priority on their agenda.

It is imperative, the labor leaders insist, that the government leaders turn their G20 summit next week into a jobs summit. “As regards unemployment, the worst is still to come,” says labor’s Pittsburgh Declaration, after the city in which the summit will be held September 24-25.

In releasing the 14-page declaration on September 16, Gus Ryder, general secretary of the International Trade Union Confederation (ITUC), said: “Governments must do much more to arrest the plunge in jobs.”

Although the G20 summit is a meeting of governments, about 50 union leaders from every continent will be in Pittsburgh to lobby their government officials on the urgency of the unemployment crisis.

According to the OECD, the number of jobless people is likely to reach 57,000,000 people this year in its 30 member-countries. Counting the whole world, 200,000,000 may be pushed into extreme poverty this year.

And yet a New York Times headline announced on September 5, “In Unemployment Report, Signs of a Jobless Recovery,” juxtaposing two opposing trends: a continuing decline in employment and a seeming improvement in some sectors of the economy.

“Many experts,” the Times explained, “envision a jobless recovery, in which the economy grows and job losses persist.”

Whatever the future holds, there’s something we should get straight right now. A jobless recovery is a contradiction in terms. It is an oxymoron. Failure to recognize it as such prolongs a dangerous delusion about the economy: that it can work fairly well even when unprecedented millions of men and women are without work.

That delusion reinforces policymaking that concentrates on improving financial markets, to the exclusion of the labor market. How much confidence can we place in an economy whose growth is unconnected with work when so much work is left undone?

‘Inequality’ identified as the root of global crisis

While the Pittsburgh Declaration has a long inventory of specific reforms to be adopted, it also calls on world leaders to “build a new model for a balanced economy,” for this fundamental reason:

“It [the new model] must bring to an end the policies that have generated massive inequality between and within nations over the past two decades and that are the root causes of the current global crisis. A fairer redistribution of wealth is the only sustainable route out of this crisis – and the only way to restore the trust of working people in their economic and financial systems.”

To build a new model requires leaders to “muster the political will to break with the policies of the past so as to ensure that there is no return to ‘business as usual’.”

More specifically, it requires them to “turn away” from a model they embraced at the London G20 summit early this year when they endorsed the current model of “an open world economy based on market principles.”

However, the Declaration adds, workers and unions “have no confidence that this time governments and bankers will get it right.” To get it right, “it is essential that the voices of working people in developed, emerging, and developing countries are heard in the G20’s discussions.”

The G20 does heed the advice of bankers and their organizations. When will the G20 start listening to the voices of workers and their organizations?

Print Page Read more!

Very rich getting very much richer

Robust economic gains were widely shared in the three decades after World War II. The average income for the bottom 90 percent in those years (1946-1976) actually increased more rapidly percentage-wise than the average income of the top 1 percent. Those days are long gone.

In the three decades since 1976, the incomes of the bottom 90 percent of households have risen only slightly, but the incomes of the top 1 percent have soared, as illustrated in the above graphic provided by the Center on Budget and Policy Priorities (CBPP), a Washington think tank.

That is among of the income disparities highlighted in a September 9 CBPP report on newly released Census Bureau/IRS data analyzed by economists Thomas Piketty and Emmanuel Saez

Although economic equality is high in the United States, inequality in wealth is even higher, as noted in Bard College’s Levy Economics Institute 2007 report on inequality, one of the Institute’s series on the Measure of Economic Well-Being.

The CBPP report does not deal with whether the increased concentration of income caused the economic collapse that began in 2008. At least one noted economist does – Thomas Palley in a policy paper for the New America Foundation. See my August 25 Weblog story on it, titled “Rx: a new economic model that would value work and workers.”

Print Page Read more!

Rx: a new economic model that would value work and workers

Stripped down to its basics, the economic model to which we are addicted undervalues work and workers, a failing that is largely responsible for our sick economy. Thank God, some bright minds are working to free us from that addiction. They are shaping the outlines of a model – a paradigm -- that seriously values work and workers.

One of the few economists addressing that enormous challenge is Thomas Palley, with a Yale PhD and varied experience that now includes an assignment at the New America Foundation, a Washington-based think tank. In that role, he has written a policy paper released July 22 under the title “America’s Exhausted Paradigm: Macroeconomic Causes of the Financial Crisis and Great Recession.”

“Macroeconomics” is jargon for the big economic picture, and as Palley emphasizes in an email: “It’s critical that we get the big picture right. Without that, we will be pushed toward small picture reforms that do not solve the fundamental problems.”

Tracing Origins of Today's Flawed System

The big picture is very big indeed, and Palley’s report is itself only an overview. Here I present my highlights of only one part of that overview. I focus on his critique of the neo-liberal economic policies adopted after 1980 under Ronald Reagan as a “flawed growth model” that has continued to infect policies of subsequent administrations, Republican and Democratic alike, including the present one.

Palley, with well documented backup, contrasts the new model to the one that the United States followed in the four decades after World War II. Prior to 1980, the United States benefited from policies that led to what Palley calls a “virtuous circle of growth,” in which wages grew with productivity. “Rising wages meant robust aggregate demand, which contributed to full employment, [which] in turn provided an incentive to invest, which raised productivity, thereby supporting higher wages.”

The rejection of that model after 1980 – and to this very day -- put workers figuratively and literally in a box, a box with anti-worker policy pressures coming from four sides, which Palley designates as small government, labor market flexibility, retreat from full employment, and globalization.

Small government policies, advocated under the cover of liberating people from government interference, fundamentally undermine the legitimacy of government. The policies include deregulation, light-touch regulation, privatization, and outsourcing public services, all to the advantage of corporations and the disadvantage of workers.

Labor market flexibility is the name of a program enabling employers to fight unions, minimum wages, unemployment benefits, and other worker rights. In neo-liberal economic theory, flexibility generates more employment, but in the real world has led to wage stagnation and widening inequality.

Abandonment of full employment means the Federal Reserve’s actions that put a higher priority on low inflation than on the goal of full employment. The switch was facilitated by the economic profession’s embracing the theory of a “natural” rate of unemployment, thus providing political cover for higher actual unemployment, a condition that undermines the bargaining power of workers on wages.

Globalization, with a combination of free trade and the unfettered cross-border movement of capital, puts American workers into competition with a huge foreign labor force, in which workers have markedly lower wages and working conditions. At the same time, intergovernmental agencies, especially the World Bank and the International Monetary Fund, promote global policies that put foreign workers into the same neo-liberal box as American workers. Thereby, the neo-liberal policies not only undermine demand in advanced countries. They also fail to compensate for this by creating adequate demand in developing countries. A prime example is China, with its rising income inequality.

Palley’s critique covers not only the flawed economic growth model but also the United States’ “flawed engagement with the global economy.” That and the concluding sections of his paper deal with critical issues such as the following:

-- Why concentrating on micro tales of villainy (Madoff’s massive Ponzi project, huge banker bonuses paid by taxpayers) can distract from addressing the fundamental economic problems.

-- How NAFTA established the global template that U.S. corporations wanted, to the detriment of the U.S. economy, most visibly to its manufacturing sector and its workers.

-- How the U.S. policy of encouraging and facilitating new investment abroad decreases U.S. jobs while withholding from foreign workers their rightful share of gains in increased productivity.

-- Why the significance of granting Permanent Normal Trade Relations (PNTR) to the People’s Republic of China in 2000 is not about trade.

-- Why economic stagnation is the logical next stage of the prevailing paradigm.

For reasons of space and time, this posting does not deal with those and other issues that Palley analyzes. I intend to do so in coming weeks. There is no way I can avoid them, since they are so intricately woven into current events affecting work and workers.

For a fuller understanding of Palley’s position, read the text of his paper on the New America Foundation Website. Click here.

And watch a You Tube video of Palley’s oral presentation of his critique, also available on New America Foundation Website.

Print Page Read more!

3 MDs, 3 different diagnoses

You’re sick with a bad sore throat. You go to three different doctors. You get three different diagnoses of your illness.

That personalized analogy, as fleshed out in a Salon article, is a good way to understand the different basic approaches that today’s economists take in diagnosing the current economic sickness.

Michael Lind, director of the New America Foundation’s economic growth program, analyzes the parallel diagnoses in his April 7 Salon article titled “Rx for the Economy: Which Doctor Should We Believe?" Here’s my somewhat oversimplified summary of his enlightening MD/PhDecon analysis.

-- The first doctor says you have a sore throat and prescribes an aspirin.
-- The second says your sore throat is a symptom of pneumonia and prescribes antibiotics.
--The third doctor sees your condition as more complex. He prescribes aspirin for the sore throat and antibiotics for your pneumonia, but also a 12-step program for overcoming alcoholism, an addiction that has weakened your immune system and renders it vulnerable to infections like pneumonia.

Those three different diagnoses have their parallels in three different ways that economists see what went wrong to cause the greatest global economic collapse since the Depression of the 1930s.

-- Economic doctor No. 1 blames lax financial regulation for turning the U.S. housing bubble into the current crisis. So the cure is some new financial regulation and tougher enforcement, national and international.

-- That cure is fine, says Economic doctor No.2, but it does not go far enough. It fails to deal with a larger cause – global trade imbalances, created by American (household, corporate, and governmental) overspending and oversaving by China and several other Asian governments to steer more investment into export manufacturing. The cure is not only tougher regulation but also a global economic rebalancing that includes a curb on currency manipulation.

-- Enter Doctor No. 3, whose diagnosis includes but is not limited to the diagnoses of the other two physicians. The bubble-blowing system of unbalanced trade never would have arisen in the first place, had employers on both sides of the Pacific shared more of the gains from productivity growth with their workers.

So the present crisis is caused indirectly by poor regulation, proximately by global trade imbalances, and ultimately by the maldistribution of the gains from economic growth among employers and workers in major industrial countries. The basic idea, as explained in Lind’s own words:

“Rich people have a lower propensity to consume (the term was coined by Keynes) than middle-class and low-income people. It follows that if the gains from productivity growth go to workers, they are more likely to spend the money, stimulating further investment and further growth. But if the gains from productivity growth disproportionately go to the rich, they are less likely to spend the money on mass-produced goods and services than they are to save the money or use it to speculate in assets. The result? Either the economy chokes (too much savings) or explodes (asset bubbles).“

The cure? Lind ends his article without specifying one. No wonder. Even the economists who agree on the overall diagnosis – Robert Reich, James K. Galbraith, and Thomas Palley, among others -- have not reached a consensus on anything like a 12-point recovery program.

Lind’s closing sentences: “We had better hope that the first physician is right: the world economy’s sore throat is nothing more than a sore throat, and an aspirin in the form of more financial regulation will be sufficient as a cure. Otherwise, the patient is a serious trouble.”

(For my analysis of Thomas Palley’s ideas, keep tuned.)

Print Page Read more!

GDP ‘Growth’: a tool to fool

Statistics on economic growth are misleading measures of a nation’s economic health, but they are widely used anyway.

The front page of today’s Washington Post hailed a “modest growth” in France and Germany as the “latest sign of a global comeback, and reported that “improving indicators” are pointing to an end of the recession in the United States, China, and even Japan.

Yet another story in today’s Post, this one on page 11, headlined: “Optimism Bypasses Consumers,” with this subhead “Retail Sales, Foreclosure Data Show Outlook Remains Bleak for Households.”

The difference between the two stories is that the optimistic one builds on a small climb in the Gross Domestic Product, the commonly used measure of how the economy is faring. But GDP is an unreliable indicator. It is one measure of the economy, but by itself “a deeply foolish one,” according to a long analysis in the August 10 New York Times.

The title, “GDP RIP,” overstates the article’s content and reality. GDP is not dead. In fact, the author, Professor Eric Zencey of Empire State College, bemoans “our habit of taking it as a measure of economic welfare,” and recommends that it be renamed “gross domestic transactions.”

Criticism of GDP is not new. The Organization for Economic Cooperation and Development (OECD) has analyzed its weaknesses, without dampening its use. (See “GDP = Grossly Distorted Picture” in the March 1, 2006, issue of my Website, Human Rights for Workers.)

In his analysis, Zencey has numerous examples of GDP’s basic flaw: it adds up all economic activities (for example, rebuilding New Orleans after Hurricane Katrina is a plus in GDP, but the $82,000,000,000 in damages is not an activity and thus not subtracted). Zencey offers this enlightening parallel:

“If you kept your checkbook the way GDP measures the national accounts, you’d record all the money deposited into your account, make entries for every check you write, and then add all the numbers together. The resulting bottom line might tell you something useful about the total cash flow of your household, but it’s not going to tell you whether you’re better off this month than last or, indeed, whether you’re solvent or going broke.”

A much better measure of the economy, to my mind, is the level of employment and unemployment. Using this measure is enlightening, and sobering. Take this U.S. “job picture” painted by the Economic Policy Institute on August 7:

“The 6,700,000 jobs lost since the start of the recession understates the magnitude of the hole in the labor market. To keep up with population growth, the economy needs to add approximately 127,000 jobs every month, or, across the full 19 months of recession, 2,400,000 jobs. This means the labor market is currently 9,100,000 jobs below pre-recession employment levels.”

Yet, as the EPI points out, without the boost added by the American Recovery and Reinvestment Act, the job picture would be even worse. Thanks to the stimulus, the economy created or saved an estimated 720,000 jobs in the second quarter of this year alone.

Bottom line: effective recovery policies require restoring employment, not saving bankers’ bonusus.

Print Page Read more!

The Failure of the Economy -- and of the Economists

So Wall Street’s Goldman Sachs reports the highest profits in the firm’s 140-year history -- $3,440,000,000 for the second quarter of this year – and earmarks an average of about $770,000 in bonuses for each of its 29,400 employees. Meanwhile, 14,700,000 men and women in the United States are jobless, triggering an unemployment rate of 9.5 percent, the highest level in more than a quarter century.

That’s an example of an imbalance in our economic system – an imbalance that favors workers who manipulate money over those who actually produce something. In a May 29 New York Review of Books article, a leading economist, Benjamin M. Friedman, fills in some of the details of this imbalance.

Friedman does so by using a favorite tool of economists: efficiency. His article, “The Failure of the Economy & the Economists,” tracks performance in several ways, starting with profit-making:

“In recent years the financial industry has accounted for an unusually large share of all profits earned in the US economy. The share of the ‘finance’ sector in total corporate profits rose from 10 percent on average from the 1950s through the 1980s, to 22 percent in the 1990s, and an astonishing 34 percent in the first half of this decade.”

Moreover: “The finance industry’s share of U.S. wages and salaries has likewise been rising from 3 percent in the early 1950s to 7 percent in the current decade. An important question … is what fraction of the economy’s total returns to productively invested capital is absorbed up front by the financial industry as the costs of allocating that capital.”

Friedman, author of “The Moral Consequences of Economic Growth," insists that the question is important, since the total cost of the industry goes up “if this system also exposes the economy at large to episodic losses in production and incomes and to the need for taxpayer subsidies.” And that’s what’s happening now. “Today those losses are mounting, and so are the subsidies.”

Why, Friedman asks, is there so little discussion of this fundamental reality?

One reason, he says, is intellectual: the systematic failure of thinking on the part of economists. He explains that failure at some length, and presents one solution offered by economists George Akerlof and Robert Shiller: “fire the weather forecaster.”

Just to be clear: I don’t support firing economists guilty of intellectual failures. That would be inefficient. We should first give them the opportunity to participate in intensive retraining programs.

Are you laughing? I am not.

Print Page Read more!

It's no time to relax worker rights pressures

The current economic crisis has the potential of exposing and correcting two “fatal flaws” of the corporate social responsibility programs, says Garrett Brown, a health and safety expert and longtime campaigner for worker rights.

In a May 7 article for a professional health and safety publication, Brown identifies those flaws as follows:

1. “The schizophrenic business model that demands the lowest possible production costs at the same time [demanding] full compliance with national laws and corporate ‘codes of conduct,’ and
2. “The lack of any meaningful participation by workers.”

That’s the potentially good news. The bad news, Brown writes, is that the deepening economic crisis “threatens to accelerate to light speed the ‘race to the bottom’ in working conditions that two decades of globalized production has meant for most workers around the world.”

He argues that the economic crisis is all the more reason to pressure governments and companies to develop worker participation, particularly in enforcing occupational safety and health standards in offices and plants.

In the May 7 column he writes: “Even in the best of times, safe workplaces are next to impossible without genuinely empowered workers –and are completely impossible at times of economic crisis when downward pressures intensify.”

As one example of downward pressures, he cites recent actions taken by China’s government to appeal to foreign investors: freezing scheduled increases in minimum wages, reducing or suspending employer payments into the social insurance system, restoring export tax credits, and passing word that the new labor protection laws of 2008 won’t be seriously enforced.

Brown has been the coordinator of a health and safety support network with projects in Central America, China, Mexico, and Indonesia since 1993. His article, titled “Corporate Social Responsibility,” appears in the Industrial Safety and Health News.

Print Page Read more!