Class wars—American style

Paul Krugman is correct (which is not something I often have the occasion to write): “that while the election is over, the class war isn’t.”

The same people who bet big on Mr. Romney, and lost, are now trying to win by stealth — in the name of fiscal responsibility — the ground they failed to gain in an open election.

Yes, but. . .

The class wars are not just about fiscal deficits, taxes, and entitlements—although they certainly are about those, to the extent they impinge on how much of the surplus corporations and members of the 1 percent get to keep.

They’re also about what happens long before government taxes and expenditures come into play. As it turns out, U.S. corporate profits reached a record high in the third quarter of this year, even adjusted for inflation, according to a report from the Bureau of Economic Analysis.

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Profits from current production (corporate profits with inventory valuation and capital consumption adjustments) increased $67.3 billion in the third quarter, compared with an increase of $21.8 billion in the second quarter. This is particularly significant since corporate profits from the rest of the world actually declined slightly in the third quarter, which means that all of the increase in corporate profits came from U.S. sources.

Yes, class wars are taking place in the United States but, in typical American fashion, the focus is on the debates over the so-called fiscal cliff in Washington, D.C. (where the winner of the presidential election and his allies have a slight edge)—all the while ignoring what is taking place within corporations in the rest of the country (which we never had a chance to vote on).

Chart of the day

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I’m all for increasing taxation on the richest Americans, who still capture (before taxes) and keep (after taxes) a large share of the nation’s income. But that still doesn’t solve the fundamental problem of inequality (before and after taxes), especially the plight of those at the bottom.

Wall Street hold ‘em

The series continues with the Queen of Spades: Mary Schapiro.

Mary Schapiro is the current chairwoman of the Securities and Exchange Commission, the main federal agency charged with enforcing the federal securities laws and regulating the securities industry. Previously she was a regulator for Presidents Reagan, George H.W. Bush and Clinton, and was one of the voices calling for deregulation of the securities industry. She powerfully advocated for lessening “the burden of regulation” as the chairperson and CEO of the Financial Industry Regulatory Authority (later called the National Association of Securities Dealers) which is a trade organization of those who do not want to be regulated! As chair of the SEC in a time of rampant financial malfeasance, she has not aggressively pursued individuals, organizations and vested interests with the full force of her office.

Schapiro steps down as chairwoman on 14 December, to be replaced by Elisse Walter.

SEC lawyers have scored some victories. In two cases related to subprime mortgages, they won settlements of $550 million from Goldman Sachs Group (GS) and $67.5 million from Angelo Mozilo, co-founder of Countrywide Financial. Still, the agency was attacked by lawmakers, judges, and consumer groups for not going after individual Wall Street bankers. SEC lawyers didn’t take action against anyone at Lehman Brothers orAmerican International Group (AIG), companies at the epicenter of the credit crisis. Lynn Turner, a former SEC chief accountant, says the agency’s enforcement record signals to Wall Street that the tough talk is just rhetoric. Schapiro “has created a culture where it is better to ask for forgiveness than beg for permission,” Turner says. “And the trouble is, she always forgives them.”

Protest of the day

Fast-food restaurant employees, many of whom work for minimum wage, protested in New York City on Thursday demanding higher pay and the right to form a union as part of a movement called “Fast Food Forward.”

Cartoon of the day

Special mention

 

Going up?

Is Mexico “going up in the world”?

It is according to the Economist, which gives scant attention to electoral fraud and to the student movement #YoSoy132 but showers praise on the improving environment for foreign investment.

As Adam David Morton explains,

reading like some sort of advertisement, Mexico is regarded by the Economist to be on “the rise”, especially as it’s labour costs have shifted closer to China. In 2000 it cost just $0.32 an hour to employ a Chinese manufacturing worker, compared to $1.51 in Mexico. By 2011, the cost of Chinese labour had quintupled to $1.63, compared to $2.10 in Mexico. This means that the minimum wage in Shanghai and Qingdao is now higher than in Mexico City and Monterrey with cheaper transportation costs, favourable tariffs, opening financial credit, and a looming oil boom adding to Mexico’s attraction for foreign capital. With plants in Cuernavaca and Aguascalientes, the Japanese car giant Nissan will soon be producing a car nearly every 30 seconds in Mexico. Meanwhile, in nearby Guanajuato, Mazda and Honda are building factories and in Puebla Audi is constructing a $1.3 billion plant. Mexico is the world’s fourth-biggest auto exporter soon to be producing some 4 million vehicles.

Lurking behind this glitzy façade, though, is the approval of radical labour law reforms that enables firms to hire and fire workers more easily, that aims to shorten labour disputes, and converts the minimum wage from an hourly to a daily rate. Productivity and competitiveness might increase but even though a full attack on unions was offset, labour will be exploited to the full in order to fulfil such “modernisation”. As detailed in The New York Times, there is ‘a strong push to “modernise” trade deals, speed up or add new crossings at the border for commerce, court foreign investment to take advantage of vast, newly discovered shale gas fields near the United States border and generate more quality jobs’.

Yet the bigger picture here is linked to the earlier moves by Calderón to privatise the electrical system and energy sectors in Mexico as an extension of neoliberalisation, which gained increased opposition from the Mexican Electricians’ Union (SME) and factions within the General Union of Mexican Electrical Workers (SUTERM). Such labour activism was at the centre of forming the Front Against Privatisation of the petroleum and electric power industries in order to articulate a more significant demonstration of wider democratic struggle in Mexico. This focus became highly significant following Calderón’s decree to coercively liquidate the state-owned Compañía Luz y Fuerza del Centro (LyFC), in October 2009, seize its facilities with federal police, and sacking 44,000 workers of the militant SME in an attempt to weaken the power of organised labour and establish a new round of investor growth in the energy sector, while leading to general strike mobilisations by the SME facing a struggle for its survival. Further energy reform is now on the agenda in Mexico with Pemex, the state-run oil and gas company, targeted for privatisation in order to unleash exploration of the 30 billion barrels of oil under the Gulf of Mexico and compete with Brazil’s Petrobras.

The sanguine view of the Economist – once dismissed quite nicely by Nikolai Bukharin as ‘the organ of the English financiers’ – is that Mexico is “going up” as its economy grows faster than Brazil’s in both 2011 and 2012.

Meanwhile, the price will be paid by ever more super-exploited Mexican labour backed up by the armour of coercion in terms of vote rigging, authoritarianism, and corruption. Whether the #YoSoy132 democratising movement and wider labour struggles can challenge this and reclaim spaces for anti-capitalist struggle and “unite the contingent” remains to be seen.

And one last note: while Bukharin was certainly correct in his time, the Economist (as Martha Starr has shown) has today become the organ of the U.S. global business elite.

Costs of flexibility

As we all know, both Spain and Greece are currently suffering from very high unemployment rates.

But, according to Thomas Klitgaard and Ayşegül Şahin, there are two major differences between the countries. First, they got their via different paths.

Job losses started earlier in Spain, with the collapse of a housing bubble, while Greece managed to keep employment levels stable, in line with the euro area as a whole, before its sovereign debt crisis caused very steep declines in employment beginning in 2010. In both countries, employment in 2012 is down roughly 15 percent from 2007 levels.

Second, and more important, the employment decline in Spain, in contrast to Greece, is way out of proportion to the decline in GDP.

What explains the difference?

the very high percentage of employees tied to temporary work contracts in Spain. Data from the Organisation for Economic Co-operation and Development show that 32 percent of employees in Spain worked under temporary contracts and 68 percent under permanent contracts in 2007. In Greece, 10 percent were on temporary contracts; the figure for Europe as a whole was 15 percent.

This unusually high reliance of the economy on temporary contracts may well have supported job growth in Spain before the recession. Firms should be more willing to hire workers with temporary contracts during an upturn if they know that hires can be let go at a relatively low cost. In a downturn, this arrangement makes it easier for firms to shed jobs.

Spain’s labor force survey breaks down employment into the self-employed, employees with permanent contracts, and employees with temporary contracts. As expected, the employment losses since 2007 are heavily weighted to temporary workers (-36 percent), followed by the self-employed (-14 percent). At the same time, the number of employees with permanent job contracts fell by a much more modest amount (-6 percent).

Spain’s employment experience relative to the rest of the euro area illustrates the cost to the economy of firms having such a high level of flexibility in how they manage workers.

It is exactly that “flexibility” employers have in dealing with workers that explains the high and persistent joblessness in the U.S. economy after the crisis of 2007-08.

Wall Street hold ‘em

The series continues with the Queen of Hearts: Kathryn Wylde.

Kathryn Wylde is the president of The Partnership For New York City, a business-sponsored group which receives much of its funding from New York banks. Concurrently she is Deputy Chairman of the board of directors of the Federal Reserve Bank of New York. The particular slot she holds on the board of directors is the one reserved for the person who “represents the public” in decisions made by the board. However, she challenged Attorney General Eric Schneiderman’s proposed $8.5 billion settlement between the Bank of America and a group of investors, protecting the interests of the bank which contributes funds to her organization. She claims it is not part of the job of the board to be involved in regulation.

Cartoon of the day

Special mention

 

No time to waste

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I’m late, I’m late, I’m late. . .

So, I’m going to outsource this one to Josh Bivens:

Zachary Goldfarb wrote an interesting piece on President Obama’s commitment to fight rising economic inequality as president. Lots of it rings true—the president has indeed expressed concerns about rising inequality and many of his policy initiatives (particularly the coverage expansion included in health reform) will indeed do much to ensure that rising inequality no longer provides as daunting a barrier to low– and middle-income households’ living standards growth.

What’s consistently depressing in the inequality debate as waged around D.C. politics, however, is the telescoping of the debate into being all about tax rates and educational attainment.

Goldfarb repeats a piece of ossified conventional wisdom in his piece, writing, “The data show that rising inequality is largely the result of a changing economy that handsomely rewards people with better skills or credentials—a college education—and leaves people with a basic education at a disadvantage.”

The real action in inequality is the enormous share of overall economic growth in recent decades claimed by the very top slices of the income distribution—yes, the top 1 percent, who accounted for a larger share of average income growth between 1979 and 2007 than the entire bottom 90 percent of U.S. households (a bottom 90 percent that includes most college graduates).

And what has driven this concentration at the very top? It’s less about education and more about raw economic power and how policy has tilted to shove more of it to the top. For example, as of 2007, about more than half of the income earned by the top 1 percent could be accounted for by corporate executives and jobs in the financial sector. These are, to put it lightly, sectors of the economy where competition has limited reach for putting a brake on pay; in the jargon of economists, they’re sectors with substantial “rent-seeking.”

Yet despite the clear importance of economic power and income concentration at the very top driving trends in overall inequality in recent decades, little has been done to change policy to address this—and this has not really changed during the Obama administration.

I can’t say I’m a big fan of the new “rent-seeking” language used to describe incomes at the top (I prefer “surplus-seeking“) but otherwise Bivens is spot on.

And the United States is running out of time.