Why Did Michael Moore Invade Those Countries In Film, "Where Do We Invade Next?"

The answer is so simple, and sad.  Mr. Moore’s latest eye-opening documentary, “Where To Invade Next?” visits countries that have learned from, and adopted our laws and policies, policies that no longer exist in the U.S. of A.; such as tuition-free public colleges (Slovenia), prison systems that rehabilitate rather than punish (Norway), where drug use is not a crime (Portugal), and 8 weeks paid vacation is the law (Italy).

His film shows America on the way to becoming a Third World country, somewhat lost in the last century and falling behind other developed countries and many developing countries, in caring for our citizens.

Perhaps the most moving segment was that on women’s rights. We who were not able to pass the Equal Rights Amendment that prevented discrimination against women in the 1970s, were imitated in countries like Iceland with the first democratically elected President in 1980, and where women’s rights are enshrined in their constitution (Tunisia, a Muslim country).

For some reason, beginning in the 1970s, these countries began to give more rights to their citizens, while America, the world’s oldest democracy, took them away.  Germany has enshrined collective bargaining in their corporations, where 50 percent of the governing board has to be made up of its employees, whereas many states in the U.S. have either banned collective bargaining, or the paying of dues to support collective bargaining, in 25 right to work states. 

And Icelandic corporations must have at least 40 percent of each gender on their boards, which was made law after 2008 and the collapse of their banking system.  The 3 largest banks all filed for bankruptcy, and some of their all-male executives went to jail, the result of “excessive, testosterone-driven risk taking” said a commentator on their trials.  The result was a mass revolt by Iceland’s women that demanded a greater role in the running of their own country.

Michael Moore interviewed Iceland’s special prosecutor for financial crimes, Olafur Hauksson, who said he had learned his prosecution techniques from Bill Black, a U.S. special prosecutor who had convicted bank executives resulting from our Savings and Loan scandal.  But no U.S. executive has been prosecuted since, much less convicted, for their excessive risk-taking and disregard of financial regulations during the subprime meltdown and Great Recession.

Why have such more modern democracies passed us by?  Moore hints that maybe they have learned from their horrific past of religious and world wars to care better for their citizens.  But the U.S. hasn’t learned from the biggest stain on our democracy—slavery.  We still enslave mostly African Americans in our prisons, thanks to the war on drugs initiated by President Nixon, after President Johnson had signed the Civil Rights Act that finally gave Blacks the same rights as other American citizens.

While crime rates have gone down, the number of people incarcerated has gone up in U.S. prisons. According to Human Rights Watch, 2.3 million people were incarcerated as of 2007. The United States has the largest incarceration rate in the world with a staggering 762 per 100,000 residents. Compare this to the U.K. whose rate is 152 per 100,000 residents, or Canada whose rate is 102.

Graph: Policy.mic

So many prisoners create a large workforce. According to truth-out and the Left Business Observer, “the federal prison industry produces 100 percent of all military helmets, ammunition belts, bullet-proof vests, ID tags, shirts, pants, tents, bags, and canteens. Along with war supplies, prison workers supply 98 percent of the entire market for equipment assembly services; 93 percent of paints and paintbrushes; 92 percent of stove assembly; 46 percent of body armor; 36 percent of home appliances; 30 percent of headphones/microphones/speakers; and 21 percent of office furniture. Airplane parts, medical supplies, and much more: prisoners are even raising seeing-eye dogs for blind people.”

And why do we no longer have tuition-free public colleges?  It perhaps began when Ronald Reagan was elected Governor of California in 1966, UC Berkeley was a hotbed of protests, and tuition-free for California residents. 

Governor Reagan didn’t believe such an education should be free for rebellious college students.  His most famous action of that time was the firing of the UC Berkeley Chancellor Clark Kerr for not following his orders to ban the student protests. Reagan vowed to “clean up that mess in Berkeley,” warned audiences of “sexual orgies so vile that I cannot describe them to you,” complained that outside agitators were bringing left-wing subversion into the university, and railed against spoiled children of privilege skipping their classes to go to protests, according to Dissent Magazine, describing that time.

            “He cut state funding for higher education, laid the foundations for a shift to a tuition-based funding model, and called in the National Guard to crush student protest, which it did with unprecedented severity. But he was only able to do this because he had already successfully shifted the political debate over the meaning and purpose of public higher education in America.”

California was becoming more conservative, in other words.  Instead of seeing the education of the state’s youth as a patriotic duty and a vital weapon in the Cold War, Reagan cast universities as a problem in and of themselves—“both an expensive welfare program and dangerously close to socialism”. He even argued for the importance of tuition-based funding by suggesting that if students had to pay, they’d value their education too much to protest.

Reagan’s assault against higher education was only the beginning of the neo-cons attack on our educational system.  Their real purpose was an attempt to dumb down the electorate by crippling our public school and university systems.  The fewer that were well educated meant the fewer could challenge the power of those that supported the so-called Reagan Revolution.

So there is a reason our educational system ranks lower than 20 or more countries in the world.  M Moore visited Finland to learn why they are ranked #1 in the world, according to the Programme for International Student Assessment (PISA), “a standardized test given to 15-year-olds in more than 40 global venues.”

He interviewed teachers, students, and education officials. They all said their students’ welfare came first, and standardized tests should be abandoned.  They had learned from our educational system that once upon a time allowed more free time for social interaction, little or no homework, when music and art were an important part of our educational curriculum from elementary school onward.

            Perhaps that is the saddest revelation of Michael’s film.  How we have come to undervalue the lives of so many American citizens, including our own women and children.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Still Not Enough Jobs!

The economy produced 292,000 jobs in the final month of 2015, the Labor Department said Friday. Pundits had predicted a 200,000 plus increase in nonfarm jobs. And because job creation exceeded their predictions, those pundits and some economists will say the Fed has to continue to raise their rates this year. But in spite of the good jobs numbers over the past 3 months—some 2.7 million jobs were created in 2015—there are still more than 7 million job seekers that can only find part time work or no work.

Employment gains in November and October were also considerably stronger, Labor Department revisions show. Some 252,000 new jobs were created in November instead of 211,000. October’s gain was raised to 307,000 from 298,000, marking the biggest increase of 2015.

Graph: Marketwatch

But continuing to raise interest rates will only hurt economic growth, when real GDP growth is still in the 2 percent range. In fact, annual GDP growth has averaged just 2.21 percent since 2010, and been declining since 2000.

Why the slow growth? A major reason is the decline in household incomes since the 1970s that have barely kept up with inflation. Hourly pay has risen just 2.5 percent in the past 12 months, matching a six-and-a-half-year high—which isn’t very high. And that has hurt personal consumption—i.e., consumer spending—which hasn’t been able to rise enough to offset the other factors holding back growth—such as almost no government investment in R&D, and public infrastructure, seriously hurting economic productivity.

That’s because most jobs were created in the lower-paying service sector, while millions of higher-paying manufacturing jobs have migrated overseas. So most workers aren’t getting big bumps in their paychecks. Hourly pay usually rises at a 3 percent to 4 percent annual pace when the economy is really humming.

And that is the ‘real’ reason we have had almost non-existent inflation. It is the hourly pay of the 80 percent of non-supervisory workers that contribute two-thirds of product costs, and it is the direction of product costs that determine whether prices are rising (or falling).

In fact, the Fed should be signaling it wants inflation to rise to the 3 to 4 percent range, a sign that wages are finally rising beyond inflation.  Because that would raise market interest rates that savers are calling for, without the Fed having to intervene.

Harlan Green © 2016

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Don’t Count On Inflation Moving Federal Reserve

Popular Economics Weekly

The Federal Reserve didn’t raise interest rates today at the close of their FOMC meeting. In fact the 9-1 vote against raising rates wasn’t even close. So don’t count on inflation to save the day for the deficit hawks demanding that the Fed must raise interest rates.

Inflation is not imminent or even possible in today’s low demand, slow growth, and world-wide economies. It ain’t going to happen. Inflation won’t happen, not only because the Asian tigers are overproducing and under pricing everything—hence China’s problem—or that many economists now believe in the so-called ‘new normal’ of slower economic growth model, due to slowing population and labor productivity growth.

Here is the U.S. CPI, or retail inflation rate. It’s basically zero or negative, and has been since January 2015.

Graph: Trading Economics

The eurozone’s inflation rate is no higher, in spite of their Austerians’ (read German) insistence that it’s right around the corner (if only growth would increase). It experienced its second recession in 2011, and growth hasn’t really recovered with an 11 percent plus average unemployment rate throughout the eurozone, except in Germany.

Graph: Trading Economics

Because it’s as much due to misguided government policies by the modern Austerians that have stopped eurozone growth by demanding draconian cuts in government spending and budget deficits that would create growth. But U.S. austerity advocates have damaged our growth, as well, with measures such as our current sequester agreement that caps government spending.

The result is very little investment in the areas that increase future growth, such as modernizing public infrastructure, increasing educational opportunities, and Research & Development that got us to the moon and created the Internet.

Yes, it is those politicians and the economists supporting them that are destroying our seed corn that nurtures future growth. There is no incipient inflation, nor will there be for years to come. The disinflationary spiral world economies are currently experiencing are due as much to misplaced policies and ideologies that don’t create growth as to slower population growth in the developed economies.

How then will those that want to continue the trickle down economic policies that say only the wealthiest are able to create more growth with their $Trillions, to justify transferring so much of the nation’s wealth to those overpaid CEOs and hedge fund managers?

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

What Would Save the Euro?

Popular Economics Weekly

Now that Greece has voted NO on the latest European Commission-European Central Bank-IMF proposal (the so-called troika), will Greece stay in the Eurozone? If so, Greece may save the euro.

Why is this choice even necessary when most economists know the solution to their problems—something that would be a combination of easing the most draconian conditions that have really been imposed on all EU and Eurozone members, and a European version of our Marshall Plan that would reinvest in productive capacity to bring back growth to those countries suffering most from the worst recession since the Great Depression.

And isn’t just Greece. As Paul Krugman’s most recent Op-eds have asserted, countries from Finland to Spain to the Netherlands are also suffering from too much austerity—austerity in the sense of focusing too much on cutting spending and raising taxes to pay down the debt accumulated mostly from the Great Recession, when more spending is needed to speed up economic recovery—which is the only proven way to pay down debts.

Graph: Trading Economics

“The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose.”

It is a dilemma brought on mostly by the EU’s massive bureaucracy that rules almost every facet of EU life. One commentator said the regulations that must be satisfied to join the EU would rise to 5 feet if stacked vertically.

Included in those requirements are economic policies—such as budget deficits cannot exceed three percent. Another condition even more draconian is an inflation target of 2 percent. It is mainly a German condition from their past. It brings back the horror of economic collapse that led to Hitler and the Holocaust. Yet without a higher and more flexible inflation target, sustainable growth cannot happen. The recovery from GW Bush’s first recession only happened with massive deficit spending and a 5 percent inflation rate at one time.

The horror of hyperinflation is really no longer possible in a modern world so interlinked by trade and finance (and modern technology that produces anything required cheaply and quickly). We suffer from oversupply of goods and services, in other words, that makes deflation the most real danger.

In fact, Japanese-style deflation has been more the norm since the 1980s, since then Fed Chairman Volcker’s focus on austerity (in the form of sky-high interest rates) to bring down America’s sky-high inflation of the early 1980s.

Then why isn’t there more discussion among the ‘troika’ of debt relief, which seems to be Greece’s main problem? The austerity policies foisted on Greece by the troika has put Greece into a major depression, with 25 percent unemployment and a 25 percent reduction in its economic growth. And nothing but higher and sustained growth can ever pay down the huge mountain of debt—some $323 billion at last count—owed to its creditors. But to allow that to happen Greece’s debt load must be eased in some way.

Columbia University economist Jeffrey Sachs, a specialist in economic development, has lamented Germany’s insistence on adhering to agreed upon ‘rules’, rather than allowing more flexibility in Greece’s debt repayment terms.

“Sovereign debts have been restructured hundreds, perhaps thousands, of times – including for Germany. In fact, hardline demands by the country’s US government creditors after World War I contributed to deep financial instability in Germany and other parts of Europe, and indirectly to the rise of Adolf Hitler in 1933. After World War II, however, Germany was the recipient of vastly wiser concessions by the US government, culminating in consensual debt relief in 1953, an action that greatly benefitted Germany and the world. Yet Germany has failed to learn the lessons of its own history.”

And we know what happens when history repeats itself. Even Germany has to know. So saving Greece is important for a number of reasons--not just European unity. Foremost is the need to reform an unworkable system, to make it more flexible, with plans that would be already in place to aid countries that have suffered the most from the Great Recession--which lest we forget, was almost a repeat of the Great Depression.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

A Lousy Jobs Report?

Popular Economics Weekly

At first glance it looks like a lousy jobs report. It’s true the labor market has softened in several aspects. Payroll jobs increased just 126,000 in March after increases of 264,000 in February and 201,000 in January. January and February were revised down a net 69,000. Market expectations for March were for a 247,000 increase. And the unemployment rate held steady at 5.5 percent. The labor force participation rate edged down marginally to 62.7 percent from 62.8 percent in February.

Graph: WSJ Marketwatch

It is a 15-month low, say economists, that could be because of a number of factors. Winter is still freezing out the midwest and east, while the oil and mining industries have already lost 30,000 jobs in 2015 due to plunging oil prices. And governments have added back just 128,000 of the 630,000 jobs lost during the recession.  But overall wages are now rising faster than inflation—0.3 percent—and 3.1 million jobs were created in the past 12 months.

So it’s still a hopeful report, given the circumstances. This should mean Janet Yellen’s Federal Reserve will not be so hasty to raise interest rates in June. Not while inflation is still negative in Europe, close to zero in the U.S., and falling in other parts of the world.

There are still too many workers out of work, in other words, and most of the jobs being created are in the service sector, the lowest paying jobs in general. The professional and business services sector was the big jobs winner with 40,000 jobs added in March. This is not surprising, given that the largest businesses are in the computer and software industries—such as Facebook, Microsoft, Apple (now the largest corporation in stock valuation in the world), and so forth.

Actually the professional, scientific, and technical services sector is now our fastest growing business sector, comprising establishments that specialize in performing professional, scientific, and technical activities for others, such as attorneys, accounting, bookkeeping, and payroll services; architectural, engineering, and specialized design services; computer services; consulting services; research services; and other professional, scientific, and technical services, says the U.S. Bureau of Labor Services.

But low inflation is still a problem, particularly in Europe with its ongoing austerity policies that has kept the unemployment rate in the 11 percent range, and Greece still threatening to leave the Eurozone.

Graph: Trading Economics

The Eurozone is suffering from falling prices, and so the expectation of growth. This hurts the 25 percent of U.S. exports that flow to Europe. It is a situation Europeans have brought on themselves, as their policy makers refuse to infuse more economic stimulus spending, while their budget deficits soar. They are still in full-blown austerity mode, in other words, protecting themselves from non-existent inflation that cuts off government revenues and increases budget deficits.

And low wages are still a problem for U.S. workers, but that may be about to change, says Nobelist Paul Krugman in his latest NYTimes Oped: “On Wednesday, McDonald’s — which has been facing demonstrations denouncing its low wages — announced that it would give workers a raise. The pay increase won’t, in itself, be a very big deal... But it’s at least possible that this latest announcement, like Walmart’s much bigger pay-raise announcement a couple of months ago, is a harbinger of an important change in U.S. labor relations.”

“Suppose that we were to give workers some bargaining power by raising minimum wages, making it easier for them to organize, and, crucially, aiming for full employment rather than finding reasons to choke off recovery despite low inflation. Given what we now know about labor markets, the results might be surprisingly big — because a moderate push might be all it takes to persuade much of American business to turn away from the low-wage strategy that has dominated our society for so many years.”

For it is such low wage increases, and economic policies that have discouraged collective bargaining in the 29 right to work states (red states with the poorest economies), that have held down economic growth and spawned theories of a ‘new normal’, slower growth, economy.

That doesn’t have to be, if our austerians would only wake up and realize that giving employees the same rights as their employers will create more prosperity for all.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Fed Chair Yellen Still Dovish, Economy Still “Sluggish”

Popular Economics Weekly

Federal Reserve Chairperson Yellen wants to keep interest rates as low as possible for at least the “next couple of FOMC meetings”, even as there are signs that economic growth is accelerating. This is in the face of the newly Republican-dominated Congress threatening to curb its powers, because their deficit hawks want to raise rates sooner, and we know what happened in Europe and Japan when this happened—their 2^nd and 3^rd recessions since 2008.

Why? Because raising rates too soon could stop many consumers from spending, because income growth is poor and consumers are only beginning to feel confident enough to spend. Whereas the deficit hawks see inflation where there is none at the moment, since they are mainly creditors that see any deficit as endangering the value of the debt they hold.

Yellen said inflation measures still show inflation too low to sustain growth, and wage pressures are still not enough to sustain higher household incomes, which is the main driver of inflation. Or, in her words, the Fed doesn’t want to raise rates “until the economy is fully healed”

However, “If economic conditions continue to improve,” said Dr. Yellen, “as the Committee anticipates, the Committee will at some point begin considering an increase in the target range for the federal funds rate on a meeting-by-meeting basis. …However, it is important to emphasize that a modification of the forward guidance should not be read as indicating that the Committee will necessarily increase the target range in a couple of meetings.”

The most recent measures do show accelerating growth. For instance, the Chicago Fed National Activity Index (CFNAI), a proxy for nationwide growth, edged up to +0.13 in January from –0.07 in December. It is one of the broadest measures of economic activity, outside of the Gross Domestic Product quarterly report. Three of its four broad categories of indicators that make up the index increased from December, and only one of the four categories made a negative contribution to the index in January.

Graph: Calculated Risk

Too low inflation still remains a problem, you say? Yes, and is the main reason Yellen wants to keep interest rates at their lowest level. It’s now negative for the first time in the year, and even since 2009. There was another huge drop in energy prices. Overall consumer price inflation fell sharp 0.7 after declining 0.3 percent in December. Energy plunged 9.7 percent after dropping 4.7 percent in December.

Gasoline plummeted 18.7 percent, following a 9.2 percent fall in December. Food prices were unchanged, following a rise of 0.2 percent in the previous month. Core inflation excluding food and energy was just 0.2 percent after a modest 0.1 percent rise December, and is up 1.6 percent in a year.

Graph: Trading Economics

That is the main reason the Fed wants to keep rates low as long as possible. Low interest rates boost both housing prices and sales, lower debt levels, and higher valuations enable more homeowners to sell, refinance, and move, if necessary. So Yellen’s last two days of testimony should encourage those fence sitters, as well as give all consumers more confidence in their future economic well-being.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Enslavement of the Middle Class

Financial FAQs

It is becoming obvious that the American middle class (topic dujour among presidential candidates these days) has been enslaved by an ideology that only benefits the wealthiest among US. It is an ideology of austerity that has prevailed in the U.S. at least since the 1980s, and Paul Krugman says is putting Europe into its Second Great Depression.

It is really an economic ideology of the 18^th century first formulated by Adam Smith—of fewer government services and lower taxes that has made corporations all powerful with the greatest profits in their history, left American workers with little or no control over their livelihoods, and resulted in the greatest income inequality since the 1920s.

Such an insidious ideology has kept the poorest states poorer, caused declining investment in education (our seed corn for future entrepreneurs), is quickly degrading our public infrastructure, and even the ability to protect ourselves. President Obama’s State of the Economy report and latest speeches have made it obvious. The greatest income inequality since the 1920s is here to stay, unless there are major changes in economic policies.

That is why most Americans (at least the 90 percent) have become harried, 24/7 workers with little vacation time, poor health care options (in spite of Obamacare), too expensive educational opportunities, too few well-paying jobs, and little protection from the globalization that stronger labor laws would bring.

Those policies have been called supply-side economics, under the theory that giving more tax breaks to the wealthiest by reducing capital gains and maximum tax rates, while shrinking government investment and oversight, would induce the wealthiest to put their money into productive investments, thus creating more jobs.

But that never happened. When President Reagan cut the maximum income tax rate from 70 percent that prevailed in the 1970s to 50 percent, it and 2 recessions created the largest budget deficit of that era, which is why he instituted 11 tax hikes to bring the budget back into a semblance of balance. This was all catalogued by his budget director, David Stockmen in The Triumph of Politics.

Then we have GW Bush’s further tax cuts on both maximum income tax rates to 35 percent and capital gains to their lowest in modern history that so depleted tax revenues it created the largest budget deficits in history, and ultimately the Great Recession.

It’s no use sugar coating the truth any longer. Since the end of the Great Recession, the top 1 percent of income earners have garnered 96 percent of total income since 2009, after a brief dip. And Americans still have the greatest income inequality of the developed western world.

Why could such inequality be here to stay? In part because so much wealth has flowed to so few, and it is easy to buy influence in this country. The most obvious receivers of such largesse are the conservative members of Congress, mostly Republicans, who continue to block the economic reforms that would better the lives of those that live on Main Street.

Nobelist Paul Krugman said as much in his latest NYTimes Oped: “So what does it say about the current state of the G.O.P. that discussion of economic policy is now monopolized by people who have been wrong about everything, have learned nothing from the experience, and can’t even get their numbers straight?... Clearly, failure has only made them stronger, and now they are political kingmakers. Be very, very afraid.”

Graph: CEA Report

The White House just released their Council of Economic Advisors 2015 Report, chaired by Jason Furman. It said, “The second important factor influencing the dynamics of middle-class incomes is inequality. This, too, is a global issue. In the US, the top 1 percent has garnered a larger share of income than in any other G-7 country in each year since 1987 for which data are available, as shown in the above graph.”

It should be clear what must be done to remove the obstacles that hold back most Americans from a better life. Let us start by jettisoning the 18^th century myth which enslaves all economic classes, a myth that only holds us back in the 21st century. Indiscriminately lowering taxes while minimizing government services and oversight hasn’t improved the lives of anyone except the wealthiest among us.

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Economic Ruination of Greece

Popular Economics Weekly

It is now beyond a reasonable doubt that Germany and its austerity cohorts want to drive Greece out of the Eurozone by insisting that it adhere to its agreement to pass most of its meager budget surplus to service its foreign debt, rather than invest it back into the Greek economy. It is insisting that Greece cut government spending enough so that it carries what is called a huge ‘primary’ budget surplus of 4.5 percent (a surplus before its bills are paid—ie, largely interest to its creditors).

The EU, led by Germany, had crafted several agreements that gave Greece large loans to service that debt, while forcing it to submit to severe austerity and wage cuts.

“The results have been catastrophic, said the Guardian in a 2013 article: “cumulative economic contraction approaching 25 percent, adult unemployment at nearly 30 percent, youth unemployment close to 65 percent, unprecedented poverty, destruction of the welfare state and humanitarian crisis in the urban centres. Greek debt, meanwhile, is currently higher than in 2010, standing at €321bn and, since the economy has collapsed, its ratio to GDP approaches an exorbitant 180 percent. This is the background to the current debate.”

But to do so would in effect drive Greece even further into its depression, since it means lower tax revenues, which means even more debt. The consequence is the layoff of more workers and further reduction of average household incomes. Paul Krugman put up a graph of the cutbacks in spending that in turn have made Greece’s debt burden worse, compared to other countries that agreed to the EU’s austerity terms.

 

Greece has already paid the piper, in other words, while Germany now has the largest budget surplus of all western countries. “Greece has done a lot more austerity than those countries cited as supposed success stories,” says Krugman, “(which is another issue — success being defined as “not total collapse, and slight recovery after years of horror” — but that’s a different story).”

Graph: Trading Economics

So Greece has little choice but to exit the euro currency, unless some last minute compromise with the EU is possible. Its unemployment rate is currently 25.8 percent, the worst in the Eurozone (slightly more than Spain’s 23.7 percent), as it has been in a deflationary spiral, further depressing its economic activity.

Graph: Trading Economics

Although Greece mostly lived up to the terms of the bailout, the promised growth never materialized. As Greek Prime Minister recently said: "We are not negotiating the bailout; it was cancelled by its own failure.” Calculated Risk tabulated the difference between the forecasted results of its austerity cutbacks and the actual result.

Greece: Annual GDP, Forecast and Actual

Year Promised      Actual

· 2009 -2.0            -4.4

· 2010 -4.0            -5.4

· 2011 -2.6             -8.9

· 2012 +1.1             -6.6

· 2013 +2.1             -3.9

The only choices are to allow Greece to run a smaller primary surplus (currently 1.5 percent), leaving more of its revenues to benefit its own citizens, or for Greece to leave the Eurozone and default on all their debt. What will it be?

Harlan Green © 2015

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

The Political Consequences of Inequality

Financial FAQs

Paul Krugman recently highlighted the dangers of Europe’s austerity policies and the growing inequality of the developed world, the worst since the Great Depression. The result then, as now, has been the growing strength of right wing parties in Europe, such as Marine Le Pen’s National Front in France, and Hungary’s Jobbik Party; all rascist, anti-immigration parties calling for some form of independence from the European Union.

“Look at France, where Marine Le Pen, the leader of the anti-immigrant National Front, outpolls mainstream candidates of both right and left. Look at Italy, where about half of voters support radical parties like the Northern League and the Five-Star Movement. Look at Britain, where both anti-immigrant politicians and Scottish separatists are threatening the political order.”

And now we have upcoming Greek elections that threaten to derail the euro as the EU’s currency, or if the favored Syriza party wins, Greece will demand at the very least to renegotiate its austerity agreement with the EU.

“And the devastation in Greece is awesome to behold,” says Krugman. “Some press reports I’ve seen seem to suggest that the country has been a malingerer, balking at the harsh measures its situation demands. In reality, it has made huge adjustments — slashing public employment and compensation, cutting back social programs, raising taxes. If you want a sense of the scale of austerity, it would be as if the United States had introduced spending cuts and tax increases amounting to more than $1 trillion a year. Meanwhile, wages in the private sector have plunged. Yet a quarter of the Greek labor force, and half its young, remain unemployed.”

These austerity policies are keeping Eurozone unemployment still in the double digits, with France’s rate still above 10 percent, (whereas Germany’s is 5 percent), and that is unacceptable to growing nationalist movements in particular that want to break away from the European Union.

The results are a growing income inequality that the World Economic Forum’s Global Agenda Councils name the top threat to global stability in 2015.

“While wealth is rapidly increasing in developing nations, and advanced economies struggle with stagnation, there is great concern about rising economic inequality in all parts of the world, particularly in Asia, according to the Global Agenda survey. The Outlook 2015 report suggests renewed focus on improved education, tax policy and job creation as ways to alleviate the problem.”

It turns out that much of the nationalists’ support is coming from Vladimir Putin’s push to destabilize Europe for its opposition to his annexation of Crimea and parts of Southern Ukraine. But don’t blame it on Putin, who is just taking advantage of European policymakers protecting their own economies, instead of the overall EU economy. Rather than spend more money to stimulate growth, as the U.S. Federal Reserve has done with its QE purchases, they want to balance their budgets and thus favor the creditors, when it is Europe’s debtor nations that need relief, if they want to break out what could become a deflationary spiral.

It’s the old story that Thomas Piketty has retold in his Capital in the Twenty-First Century—the tendency of profits from capital in western, free market economies to rise to the top of the wealth ladder when government policy making is weakened and financial regulations ignored, as happened during the Great Recession.

Europe is now suffering the same fate, with conservative governments in control and the debtor nations such as Greece still being punished, while Germany flourishes as it protects its own interests rather than that of the EU as a whole.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

California’s Budget Surplus Leads to Credit Upgrade

Popular Economics Weekly

A day after voters passed Proposition 2, which creates a “rainy day fund” to cushion the state budget from future economic downturns, major credit-rating house Standard & Poor’s on Wednesday upgraded California’s general obligation bond rating. S&P raised the state’s credit rating from A to A-plus, citing the stability offered by Proposition 2.

But it’s more than that. California’s unemployment rate dropped to 6.8 percent in September, according to the State Unemployment Office and the U.S. Bureau of Labor Statistics. The San Francisco Bay area led the way with San Francisco and the surrounding counties’ jobless rates in the low 4 percent, which in essence means full employment.

Proposition 2, championed by Gov. Jerry Brown and passed by the Legislature on a bipartisan vote, requires the state to set aside funds, especially when revenue from taxes on capital gains is high, to both pay down debt and create a reserve that can be tapped only when the state is in fiscal distress.

What happened to the California economy that several years ago was pronounced dead or dying by its critics, conservatives determined to downsize government with budget and tax cuts to punish everyone, except the wealthiest? Governor Jerry Brown did just the opposite—raised more revenues to stimulate job growth, at a time of record low interest rates, as the S&P upgrade noted.

Californians won the battle of economic ideologies that has blocked so much growth in the rest of the country; such as with Kansas, the poster child for cutting government programs that has set its economy in reverse.

“The upgrades follow voter approval on Nov. 4, 2014, of a strengthened budget stabilization account under Proposition 2,” S&P analyst David Hitchcock said in a statement. “In our view, the new state constitutional provision will partially mitigate California's volatile revenue structure by setting aside windfall revenue for use during periods when state tax revenue could fall materially short of forecast.”

And California now has a very large budget surplus, because of it. State Controller John Chiang in a press release just released his monthly cash report for the month of June, and announced that the state's General Fund -- the primary account from which California funds its day-to-day operations and programs -- ended the fiscal year with a positive cash balance for the first time since June 30, 2007.

A positive cash balance means that the state had funds available to meet all of its payment obligations without needing to borrow from Wall Street or the $23.8 billion available in its more than 700 internal special funds and accounts.

And what about California’s drought could badly hurt future growth? Voters also overwhelming approved Proposition 1 was to address water conservation and climate change problems that could create even more severe water shortages in the future.

"At its core, Proposition 1 advances an all-of-the-above strategy that includes everything from local resources to water storage to safe drinking water," said Timothy Quinn, executive director of the statewide Association of California Water Agencies. "Other states facing similar challenges may learn from that approach."

And that is the point. California, once thought the economic basket case, has instead become the model that both red and blue states should follow.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Don’t Forget the Millennials!

Popular Economics Weekly

In Janet Yellen’s current congressional testimony, the Fed Chair is saying the Fed could keep rates low for a long time to come. Why? Because unemployment is still too high, and economic growth too slow at present.

That’s because the CBO says thanks to the lingering effects of the recession, the aging of the country, the shrinking of the labor force, and various tax and spending policies, the nation now only has the potential to grow about 2.1 percent per year over the next decade, on average.

We believe that is far too pessimistic an outcome. For starters, GDP growth has averaged more than 3 percent over the long term, including the Great Depression. And no one is taking into account the next generation, the Gen Y’ers or Millennials, entering the workforce, which because of their size should kick start growth around 2020, and obviate the worries about soaring budget deficits as the baby boomers retire.

Graph: Trading Economics

In the last two decades our growth rate has been steadily decreasing. The 50’s and 60’s average growth rate was above 4 percent, It dropped to around 3 percent in the 70’s and 80’s. In the last ten years, the average rate has been below 2 percent and since the second quarter of 2000 has never reached the 5 percent level.

Yet if government was ever allowed to create jobs again, we could have above average job creation, and so higher GDP growth for decades to come. The New Deal proved that. When New Deal spending kicked in, it boosted growth by literally creating millions of WPA, CCC jobs that resulted in new highways, bridges, dams, and the care of natural resources. Conversely, when government spending was cut back prematurely in 1937 in an attempt to balance the budget, the Great Depression resumed.

Graph: Seeking Alpha

Especially spending on public infrastructure stimulates the U.S. economy in the short-run, given that there is some $2.2 trillion in deferred infrastructure maintenance, according to the US Society of Civil Engineers. Investing in infrastructure goes beyond mere improvements to the quality of roads, highways, sewers, and power plants. These investments also generate “significant economic returns for other portions of the U.S. economy and substantially increase ultimate tax revenue for the government,” according to a 2012 College of William & Mary academic study.

And what about demographics, the assertion that since baby boomers are retiring, the work force will shrink rather than grow, further cutting GDP growth? Ah, but we are speaking of the so-called Millennium generation born between 1981 to 1998, which numbers more than 70 million in the US alone. In fact, one commentator maintains, starting around 2020 (or a few years after 2020), the U.S. should see another robust growth period similar to the period enjoyed by the baby boomer generation.  This is because there will be just as many new workers in the work force from the Gen Y or Millennial generation as there were in the baby boomer generation. 

Barron’s Magazine has been looking at the Millennials’ potential. FOR ONE THING, THE MILLENNIALS -- sometimes called Generation Y, and defined by many demographers as ranging from ages 18 to 37 -- make up the largest population cohort the U.S. has ever seen. Eighty-six million strong, it is 7 percent larger than the baby-boom generation, which came of age in the 1970s and '80s. And the Millennial population could keep growing to 88.5 million people by 2020, owing to immigration, says demographer Peter Francese, an analyst at the MetLife Mature Market Institute.

This echo-boom generation totals 27 percent of the U.S. population, less than the 35 percent the boomers represented at their peak in 1980. When the baby-boom generation drove the economy in the 1990s, growth in gross domestic product averaged 3.4 percent a year. As the Millennials hit their stride, they could help lift GDP growth to 3 percent or more, at least a percentage point higher than current levels.

So there’s no real reason to be so pessimistic about economic growth and a soaring federal deficit for decades to come. If GDP growth is dependent on workforce growth, and 1990’s growth repeats itself—which was the longest uninterrupted economic expansion in our history that also gave us 4 years of budget surpluses—then we may see the next generation already taking charge. And they could turn out to be much more industrious than we know!

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

We Need Some Inflation!

Financial FAQs

How much inflation is too much inflation? Germany thinks any inflation is too much, based on their 1920s inflation experience when burning money for fuel was cheaper than burning wood. It has led to the EU’s draconian austerity policies, such as calling for spending cuts during deflationary times that has kept the EU in and out of recessions since 2008.

Trading Economics

Yet the US deficit hawks—mostly Republicans these days—continue to believe that deficits are evil and the Fed should begin to tighten now, rather than wait for 2015 when economic growth is more sustainable. This is even though the unemployment rate is 12.1 percent when the 3.1 million long term unemployed and part timers are included, and we have too little inflation.

Graph: Tim Duy

So how much is too much inflation? The easy answer is that rising prices become inflationary when supply can no longer meet the demand for goods and services over a prolonged period, thus raising prices. This last happened in the 1970s, when oil embargos were rampant, the rest of the world wasn’t yet industrialized and producing too much of everything, and trade barriers were higher than they are today.

In fact, we are in a world of generally falling prices with the Asian Tigers exporting most of what they produce, hence the huge surpluses. So maybe we should be looking at regional or worldwide prices and production capacities, instead of individual countries’? That seems to be Germany’s mistake, extrapolating its own past history to the EU as a whole.

Budget deficits don’t feed inflation during ‘zero-bound’ episodes (when interest rates are at, or close to 0 percent), such as after Great Recessions when all the Fed can do is try to prevent deflation, as occurred in Japan for two decades.

This is basic Economics 101 that many economists don’t understand, because they have little knowledge of liquidity traps—which is when money is no longer circulating, but being hoarded rather than invested. How could they, since it’s only happened twice in modern times—during the 1930s and now.

Budget deficits in fact prevent said deflationary episodes, which are episodes when wages are stagnant or falling and there is little or no economic growth, if the monies are spent wisely on longer term projects, because government spending puts more money into circulation. This should be easy to understand, but the inflation hawks are squawking again because the Fed now has some $4 trillion in reserves on its books, yet there is no inflation even on the horizon.

Calculated Risk has started an interesting discussion about when inflation might become a problem, using the US example. And it turns out that even US capacity utilization doesn’t give us a good measure. For instance, from 1992 to 2001 during the longest economic expansion in our history, when more than 20 million jobs were created and capacity utilization was as high as 84 percent of capacity, CPI prices averaged less than 3 percent. Maybe the Fed’s inflation target should be 3 rather than 2 percent, which has accompanied mostly weak growth.

Graph: Calculated Risk

So maybe we should be looking at the world’s production capacity when looking for the ideal inflation rate? Because China, Korea, and the other Asian Tigers continue to produce more than they consume, more ways should be found to boost demand, i.e., which in the majority are from mostly middle class incomes.

Oh wait a minute. That’s what we should be doing in the US as well. Maybe raising the Fed’s inflation target would boost demand, or are we as traumatized by the 1970’s era of stagflation as the German’s were in the 1920’s?

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Opposing the Bully Mentality—Part II

Financial FAQs

How does one stop the bullies? Put simply, find a way to stand up to them. Economic bullies behave no differently than individuals when confronted by a person or organization willing to oppose them. But how are the 80 percent that are wage and salary earners to do that whose incomes has been whittled away since the 1970s by anti-union legislation and outright banning of collective bargaining in many of the right to work states?

Popular culture has enshrined the superhuman heroes who have tamed bullies; from Superman and Wonder Woman, to Batman, and now Captain America taming Nazi bullies. But taming economic bullies doesn’t have a popular precedent other than Robin Hood, it seems.

And Robin Hood was an English legend. America can only come up with its opposite, reverse Robin Hoodism, or taking from the poor and giving to the rich. That is how Nobelist Paul Krugman characterizes Republican attempts to cut taxes further and oppose raising the minimum wage.

“In the past, Republicans would justify tax cuts for the rich either by claiming that they would pay for themselves or by claiming that they could make up for lost revenue by cutting wasteful spending. But what we’re seeing now is open, explicit reverse Robin Hoodism: taking from ordinary families and giving to the rich. That is, even as Republicans look for a way to sound more sympathetic and less extreme, their actual policies are taking another sharp right turn.”

So the cards seem to be politically stacked against those who oppose the economic bullies. “(But) It wasn’t always this way,” says Marketwatch’s Rex Nutting. “In the 1950s, 1960s and into the 1970s, trade barriers, strong unions and discrimination gave workers (white male workers, that is) more bargaining power to get higher pay. It created the middle class.”

The result of such economic bullyism is that American wages haven’t grown since the 1970s, except for a brief period in the 1990s, when the Federal Reserve allowed the unemployment rate to fall to 4 percent, before beginning to raise interest rates. Thank you, President Clinton (and then Fed Chairman Greenspan during his easy money phase).

The share of national income that goes to labor (including the CEO’s salary and his stock options) has plunged from about 63 percent to 57 percent, says Nutting. The 6 percent of national income that’s going to profits instead of wages amounts to nearly $900 billion a year.

Graph: WSJMarketwatch

“For corporate businesses, after-tax profits are at record levels as a share of national income,” says Nutting. “Since the recession ended, profits are up 65 percent to $1.68 trillion last year. Small businesses aren’t doing quite so spectacularly, but their income is up 13 percent and their net worth is up 33 percent to $8.7 trillion since the recession ended. And the workers? Even after a big gain in the first quarter, median wages are down 3 percent since the recession ended.”

Many commentators and sociologists in particular assert 9/11 brought modern economic bullying to a high point. It’s rationale was the US put on a semi-permanent war footing, so that “Allegiance to the old public virtues—respect of the Bill of Rights, the Geneva Conventions and the rule of domestic and international law—was mocked and dismissed as quaint and soft by our new drill sergeants, according to a recent Canadian study. “From then on a state of emergency replaced the rule of law and set itself up as the norm.”

On a personal, workplace level, “If we are in a constant war-like mode societally, it sounds trivial, it sounds child-like, it sounds naively utopian to say, ‘Can’t we all get along?’” says Gary Namie of the Workplace Bullying Institute. “If you call for civility or a suspension of unmitigated, unfettered aggression, they call you a wimp. They think you are a wimp.”

There is another term for economic bullies, used by Professor Krugman, among others, in his most recent NYTimes column. They are sadomonetarists, or bankers and economists who want to tighten credit even during such tough economic times, as now: “At some level it has to reflect an instinctive identification with the interests of wealthy creditors as opposed to usually poorer debtors. But it’s also driven, I believe, by the desire of many monetary officials to pose as serious, tough-minded people — and to demonstrate how tough they are by inflicting pain.”

That, of course, is the most cogent definition of a bully. They want to demonstrate how tough they are, regardless of the consequences. For instance, the NAACP recently posted a report by Devin Burghart, Leonard Zeskind and the Institute for Research & Education on Human Rights called “Tea Party Nationalism,” exposing what it calls links between various Tea Party organizations and racist hate groups in the United States, such as white-supremacist groups, anti-immigrant organizations and militias, who have by definition, the bully mentality.

The bully mentality manifests in many forms, besides politically. The gun lobby via the NRA, ALEC, and other organizations have succeeded in blocking government study of the causes of gun violence, even though 31,000 gun-related death occur per year, the highest by a factor of 10 of any country in the world. Needless to say that inhibits development of policies and laws that might lower gun violence, whether in the schools or our inner cities.

So it turns out the bully mentality is part of human nature, really, and so part of our culture. It is then up to those employees who want to better themselves to find a way to oppose that culture and mentality. That means pushing back against the fear that such bullying engenders in all of us—against the ‘boss’ mentality, as well. Remember, such fear has to also be felt by those economists and politicians that allow it.

Harlan Green © 2014

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen