TPP Is a Monopoly Protection Scheme, the Exact Opposite of a "Free Trade" Deal

A little confusing, but follow the gray lines. The above figure illustrates how the duration of the copyright that the Walt Disney company claims in Steamboat Willie — marked by the solid gray line — has twice approached expiration — by the dashed gray line. In both instances, federal lawmakers amended the Copyright Act to extend the duration, both of copyrighted works generally and works, such as Steamboat Willie, that predated the amendments (source; click to enlarge). In 2023, expect copyright protection in general to be extended again. This law is colloquially called "The Mouse Protection Act."

by Gaius Publius

Normally when we think of "free trade," us lay people, we think of removing barriers to the exchange of goods and services. Removing barriers is the "free" part of "free trade." Of course, there really is no such thing as a "no barriers" market, since even the simplest of markets always has rules, and those who write the rules are "picking winners and losers" by definition.

Consider, for example, a flea market held in the parking lot of a local fairground on a Saturday. To participate, you have to register for a space with the organizers (the parking lot isn't infinitely long or wide), set up an approved tent or table, and usually, if your goods are sold by weight or volume, have your weights and measuring devices certified by the organizers as honest.

All of the restrictions above place limits on the "market" — put it under control of the organizers — but consider for a minute just the last one, certified weights and measures. How is that not "picking winners and losers"? Winners — Vendors with honest scales. Losers — Vendors who cheat their customers.

Or consider a flea market without that requirement. Winners — Vendors who cheat their customers. Losers — Vendors with honest scales.

A lot has been written, in fact, about the non-existence, by definition, of anything resembling a "free market," including much by the writer Masaccio (main site here).

Monopolies and "Free Trade"

But that point aside, let's consider TPP from another standpoint. Monopolies are the enemies of so-called "free trade" since, by definition, they destroy competition and invert the usual assumptions about pricing power. In a well-supplied market, a market with much available product, pricing power is with the buyers, the customers, since it is they who, in the aggregate, set the limits of "what the market will bear."

But in a market in which the supply of something essential for life — water, food, life-saving medical supplies and care, even apartment housing in an old-style "company town" — is not "well-supplied," but is instead controlled and constrained by a single supplier or a small cartel of non-competing suppliers, that's just the opposite of a "free market." It's in fact the least free a market can get.

Thus it is with TPP. Very little actual trade will be freed up if TPP is passed, since barriers to "trade" among the many of the potential signing nations are nearly non-existent.

On the other hand, one of the most important outcomes of  theTPP will be the destruction of a competitive market, the one for life-saving drugs and other "intellecual property." For these products, the TPP raises barriers as surely as tariffs would do.

Economist Dean Baker calls the TPP a "protectionist" agreement. Baker (my emphasis):

The TPP And Free Trade: Time To Retake The English Language

The proponents of the Trans-Pacific Partnership (TPP) are planning to do a full court press in the lame duck session of Congress following the election. We will be bombarded with speeches and columns from President Obama and other illustrious figures telling us how it is important to approve the TPP for a variety of reasons.

We can be certain that one of the reasons will be the inherent virtues of free trade. They will not be telling the truth.

The TPP is not about free trade. It does little to reduce tariffs and quotas for the simple reason that these barriers are already very low. In fact, the United States already has trade deals with six of the other eleven countries in the TPP. This is why the non-partisan United States International Trade Commission (ITC) estimated that when the full gains from the TPP are realized in 2032, they will come to just 0.23 percent of GDP. This is a bit more than a normal month’s growth.

Again, the full gains from the TPP will come to just 0.23% of GDP — one month's growth. So what is going on with the TPP? Why do people like Barack Obama (and Pfizer, etc.) want it to pass so badly? Among the reasons is this one:

[T]he TPP goes far in the opposite direction, increasing protectionism in the form of stronger and longer patent and copyright protection. These forms of protection for prescription drugs, software, and other products, often raise the price by a factor of a hundred or more above the free market price. This makes them equivalent to tariffs of several thousand percent.

These forms of protection do serve a purpose in promoting innovation and creative work, but we have other more efficient mechanisms to accomplish this goal. Furthermore, the fact that they serve a purpose doesn’t mean they are not protectionist. 

Tilting the playing field toward Money, a scheme that protects the holders of intellectual property ... forever, if they can get away with it. For example, consider this:

Copyright Length And The Life Of Mickey Mouse

Last week, we reported on Rep. Zoe Lofgren's statement that copyright law has become equal to the life of Mickey Mouse. Tom Bell has a couple of recent posts exploring issues related to Mickey Mouse and copyright, that seem worth exploring, given Rep. Lofgren's recognition of this fact. While he notes (as we have) that there's ample evidence to suggest that the earliest Mickey Mouse cartoons really are in the public domain, he first explores how the length of copyright has followed the age of Mickey Mouse:

Bottom line: Until the current, neo-liberal capital-protecting political regime falls or is taken over, Mickey Mouse will never be in the public domain.

What About a "Free Market" for Doctors Too?

Baker finds something else significant about our so-called "free trade" agreements — they're very selective about which markets are "freed." Consider, for example, the market for relatively powerless manufacturing labor and the market for much more powerful (and wealthy) doctors.

Baker:

The other point to be made about free trade and protectionism is that our push for free trade has always been very selective. NAFTA and other trade deals were explicitly designed to make it as easy as possible for U.S. corporations to manufacture goods in the developing world and ship them back to the United States. ...

But [while] manufacturing workers in the developing world are willing to work for much lower pay than manufacturing workers in the United States, so are doctors in the developing world.

Unlike manufacturing workers, doctors are powerful enough to get protection. It is not generally possible for a doctor trained in another country to practice medicine in the United States unless they pass a U.S. residency program — for which there is a strict quota on foreign trained students. As a result of this restriction, doctors in the United States earn on average twice as much as doctors in Canada, Germany, and other wealthy countries. This protectionism costs the United States roughly $100 billion a year (around $700 per family) in higher health care costs.

If our trade negotiators actually were interested in “free trade,” they would have constructed a system whereby foreign trained doctors could be certified as meeting U.S. standards. They would then have the same freedom to practice as any doctor born and trained in the United States.

Again, a straight-up wealth protection scheme. Baker goes on to note that the "market for doctors" really is a trade issue, not an immigration one, since many German, Canadian, French and Indian doctors could most like get into the U.S. and get jobs — as waiters, for example — they just couldn't work as doctors.

Baker's conclusion is exactly right, that calling a deal like the TPP a "free trade agreement" is just propaganda: "When reporters call the TPP a 'free trade' deal, they are acting as advocates, not reporters. The TPP is a protectionist pact for those at the top who are worried that free trade will undermine their income — like it did for those at the middle and bottom."

There's No "Free Market" for Political Parties Either

I think if Democrats think that the Trumpist revolt against "free trade" deals is just an expression of anti-immigrant racism — and that they can pass TPP in the lame duck session without consequences — there may be a surprise in store for them. After all, there's no "free market" for U.S. political parties either — we have a carefully protected two-party monopoly — and there are only two ways to disrupt and revolt against it that I can think of. Neither is pretty, neither is orderly, and neither will be good for Democrats.

Forewarned? Let's hope so. The lame duck session is just weeks away.

GP
 

Every Arch Villain Like Trump, Needs His Coward... Like Paul Ryan

For well over a decade, we've be warning that Paul Ryan is Washington's most dangerous phony and we've watched with horror as a credulous and naive Beltway media has puffed him up based almost exclusively by judging his book by it's cover. No fangs? He must be cuddly. The Center for Economic and Policy Research never bought in and, in fact, just as Ryan was finishing his convention address Tuesday evening, pointed out that the Congressional Budget Office's analysis of Ryan's latest budget plan would eviscerate the federal budget so thoroughly that it would be able to pay for nothing at all beyond the military. The Center's chief, Dean Baker, wrote that "Ryan has made his career by arguing an extreme position that is far to the right of even most of the Republican party. It is long past time that the media take seriously the position he is advocating." Krugman was one of the first among the mainstream media to get it, making clear to his readers that the emperor had no clothes at all. More recently, almost all the objective scribes in Washington finally do, not that there are many objective scribes in DC.

Yesterday's NY Times editorial board reviewed his performance-- onstage and off-- around the Trump Convention and found him "to be a weak opportunist, far from the ideas man and budget wonk he made himself out to be... Even before the credibility challenge presented by the Trump candidacy, Mr. Ryan’s reputation as a congressional thinker and innovator was subject to increasing doubts, as was his leadership of fractious House Republicans in their failure to agree on basic budget resolutions. Their election year agenda, called “A Better Way,” has been widely criticized for lacking detail in its claims about curtailing poverty. Last month, after years of vowing to come up with a replacement for the Affordable Care Act, Mr. Ryan’s caucus finally offered a proposal. Far from being innovative, the plan was built around Mr. Ryan’s longstanding proposals to shift Medicare to a market-based competitor of health care companies. Under scrutiny, Mr. Ryan’s prescriptions for reforms and savings have proved to be glossy variations on the tired Republican tactic of more tax cuts favoring the rich over the middle class, while his budget-cutting proposals have never added up to his grand promises."

They pointed out that "Ryan has been careful never, ever to criticize Mr. Trump himself" but that unlike Ryan "other Republican leaders have backed away from Mr. Trump as a candidate gone amok... Ryan seems to be trying to look just loyal enough to avoid blame for a Clinton victory while positioning himself to pick up the pieces of the party if Mr. Trump loses. But he cannot have this both ways. He is tying his future to Mr. Trump’s ugly campaign."

But it was Slate writer William Saletan who was unsparing in his critique of Ryan's blatant hypocrisy and manifest unsuitability for political leadership. "In his address to the Republican convention on Tuesday night," wrote Saletan, "Ryan accused Democrats of inciting ethnic resentment. 'Let the other party go on and on with its constant dividing up of people, always playing one group against the other, as if group identity were everything,' Ryan charged. 'In America, aren’t we all supposed to see beyond class, see beyond ethnicity? Are all these lines drawn to set us apart and lock us into groups?' It was a remarkable sermon, delivered on behalf of the most egregious racist nominated to the presidency by a major party in at least half a century. Ryan spoke every word with his usual earnestness, unencumbered by shame. Looking back at history, we tend to focus on villains, men like Donald Trump who use hatred to gain power. We forget the importance of cowards. Every Trump needs his Ryan." For his own purposes, Paul Ryan has been complicit-- a leader, in fact-- in the Republican Party's public campaign to "normalize" Trump and Trumpism and make his monstrousness palatable.

Trump’s nomination confronted Ryan with a terrible dilemma. As the head of the Republican Party, Ryan had to decide whether to reject Trump and lose the election, or embrace Trump and lose the party’s soul, as well as his own. Ryan made the wrong choice. He decided that the Republican Party would criticize race baiters, but it would also tolerate and support them.

Trump has run the most racially incendiary campaign in decades. He has proposed to bar all Muslims from entering the United States. He has explicitly attacked the trustworthiness of Mexican Americans, Cuban Americans, and Seventh-day Adventists. He has libeled Arab Americans, mocked Native Americans, retweeted anti-Semites, and argued that a sportscaster shouldn’t have apologized for anti-black comments. Today, no decent, well-informed person can honestly deny Trump’s penchant for prejudice.

...In an interview with CNN on June 10, Romney outlined three reasons to oppose Trump. First, racism is morally non-negotiable. It’s a deal-killer. “I simply can’t put my name down as someone who voted for principles that suggest racism or xenophobia, misogyny, bigotry,” said Romney. “If there’s someone that was an anti-Semite, for instance, and they had all of the same positions I had, and they were running for president, I simply could not vote for them.”

Second, Romney saw racism as a character issue and Trump’s deployment of it as a deep flaw, not the kind of thing consultants or speechwriters could fix. “He can change his rhetoric. I believe he can hide who he is,” Romney conceded. “But I believe that who he is has been revealed by his lifetime and by the words in the campaign that he has spoken.”

Third, Romney worried about Trump’s cultural effects. “I don’t want to see trickle-down racism,” said Romney. “Presidents have an impact on the nature of our nation. And trickle-down racism, trickle-down bigotry, trickle-down misogyny-- all these things are extraordinarily dangerous to the heart and character of America.” Essentially, Romney was challenging his party to see prejudice in a new way—to treat it as an issue of national moral health, as Republicans have traditionally done with abortion and marriage.

Initially, Ryan, too, withheld his endorsement. On May 5, two days after Trump was anointed, Ryan said he wasn’t ready to support the presumptive nominee. “This is the party of Lincoln, of Reagan, of Jack Kemp,” said Ryan. “What a lot of Republicans want to see is that we have a standard-bearer that bears our standards.” A week later, after meeting with Trump, Ryan drew a distinction between “policy disputes,” on which Republicans could agree to disagree, and “core principles,” which were non-negotiable.

Did race-baiting violate Ryan’s core principles? For two weeks, Ryan kept his silence, and Trump held his tongue. Then, at a rally on May 27, Trump unleashed a 10-minute tirade against Gonzalo Curiel, the judge presiding over a fraud case against Trump University. Trump pronounced the judge’s name for effect, eliciting boos, and informed the crowd that Curiel-- who had been born in Indiana—“happens to be, we believe, Mexican.” Trump’s spokeswoman followed up, asserting in a CNN interview on May 30 that Curiel was “connected” to protesters who brandished “Mexican flags” and were trying “to stop an American president from running for office.”

Trump’s attack on Curiel sparked a national uproar. Ryan couldn’t have missed it. But three days later, on June 2, he endorsed Trump. In an op-ed, Ryan said Trump had earned his blessing by affirming “fundamental principles such as the protection of life” and pledging to work with House Republicans on “the issues that make up our agenda.” Racism wasn’t on the list.

Hours after the op-ed appeared, Trump went after Curiel again. He said the judge’s “Mexican heritage” created “an inherent conflict of interest” that made him unfit to judge Trump, since Trump was “building a wall” on the Mexican border. Another uproar ensued. Ryan could have withdrawn his endorsement. But he didn’t.

Ryan, unlike Romney, didn’t see racism as a character issue. He treated Trump’s latest slur as a mysterious outburst. It “was out of left field, [to] my mind,” Ryan sputtered in a radio interview on June 3. “It’s reasoning I don’t relate to.” Sometimes, Ryan conceded, Trump “says and does things I don’t agree with.” But Ryan stuck with him, arguing that Trump would sign Republican bills into law.

Over the next two days, Trump repeated his attacks on Curiel’s ethnicity. On June 7, reporters asked Ryan whether he regretted endorsing Trump. Ryan called Trump’s remarks “the textbook definition of a racist comment,” but he refused to disown the presumptive nominee. “I don’t know what’s in his heart,” Ryan pleaded. In a radio interview on June 9, Ryan dismissed Trump’s racial jabs as “antics.”

Trump pressed on. After the Orlando massacre on June 12, he launched a weeklong campaign against “second-generation” Muslim Americans, those who had been born in the United States. He claimed that there was “no real assimilation” of Muslims and that they were “trying to take over our children” by telling kids “how wonderful Islam is.” Trump mocked Sen. Elizabeth Warren, calling her “Pocahontas.” He said sportscaster Jimmy “the Greek” Snyder shouldn’t have apologized for racist remarks about blacks. He tweeted an image of Hillary Clinton—originally circulated by anti-Semites-- that framed her against a background of dollar bills, next to a six-pointed star with the words, “Most Corrupt Candidate Ever!”

Ryan shrugged off these incidents as unhelpful but meaningless and unrelated. He blamed the Star of David incident on a “flunky” and advised Trump to “clean up the way his new media works.” In a CNN town hall on July 12, when a questioner asked about perceptions of Republican bigotry, Ryan urged voters to focus on the party’s “ideas,” not “some of the harsh rhetoric you see here or there.” To Ryan, the racism of the party’s presidential nominee was a sideshow.

Ryan, like Romney, offered three arguments about race-baiting. But Ryan’s arguments weren’t for banishing it. They were for tolerating it. First, Ryan said it was unacceptable to divide the GOP. “If I lead a schism in our party, then I’m guaranteeing that a liberal progressive becomes president,” Ryan warned in a press conference on June 23. Three weeks later, at the CNN town hall, he shot down a questioner who asked about voting libertarian. That’s “basically voting for Hillary Clinton,” Ryan scoffed.

Second, Ryan argued that Republican leaders should yield to the will of Republican voters. In an interview that aired June 19 on Meet the Press, he declared that he had a “responsibility” not to “dis-unify our party and disrespect the voters, the Republican primary voters of America.” In the CNN town hall, Ryan said Trump “won the primary fair and square. And that is why we want to respect the will of these voters.”

Third, Ryan depicted religious bigotry as a negotiable issue and a tolerable point of view. In a June 12 interview on This Week, he emphasized that he and Trump saw eye to eye “on the big issues”: tax reform, welfare reform, and health care. When George Stephanopoulos asked about the Muslim ban, Ryan replied: “We don’t agree on that. That’s fine. Good people can disagree on things.” In the CNN town hall, Ryan again gave Trump a pass on the Muslim ban. “Look, no two people agree on everything,” he said.

These three arguments guarantee that the Republican Party, under Ryan, will accept bigots. They might be criticized or chided, but not excluded, even from the top of the national ticket. To exclude them would divide the party. It would disrespect the Trump-friendly voters who now control the Republican nominating process. It would impose absolutist judgments on a party in which the taboo against ethnic and religious slurs has been set aside as just another form of “political correctness.”

Ryan’s job at the convention, and for the remainder of the election, is to pretend that none of this has happened. So he ended his speech Tuesday night with a plea for love.

“Everyone is equal,” he said. “Everyone has a place. No one is written off, because there is worth and goodness in every life. … That is the Republican ideal. And if we won’t defend it, who will?”

Indeed, who will? Not Paul Ryan. Not the party of Lincoln. Not anymore.

Paul Ryan must never be president.

Eric Holder's Legacy

In a USAToday OpEd yesterday, University of Tennessee law professor Glenn Harlan Reynolds, urged Obama to reach across the aisle for his next Attorney General. He may be a law professor but he's also a deranged crackpot claiming Obama needs to pick a Republican because other crackpots like himself-- particularly in states like Tennessee filled with crackpots-- don't trust Obama because of the GOP-manufactured scandals propagated by Rush Limbaugh, Fox News and other partisan Republican propaganda outlets that apparently are the only sources of Professor Crackpot's vast array of knowledge. He actually cites Darrell Issa's nonsensical fakes scandals, everything from "the IRS's targeting of Tea Party groups, to the Fast and Furious gun-smuggling scandal" and claims Obama is "beset by numerous scandals." Thanks for the garbage dump, USAToday. Another far right kook like Reynolds, also operating on behalf of the GOP, Byron York, was echoing Ted Cruz in demanding to give the obstructionist right-wing nuts veto power over his nomination. Why? Just 'cuz. The racists who control the Republicans in the Senate and House have always been on the warpath against Holder.

When Holder announced he was retiring, we looked at some of what he was able to accomplish even as he had to face the most bitter and vicious, non-stop Republican Party racism any cabinet member has ever had to endure. That's not to imply that Holder is beyond criticism, not by a long shot. He was lacking in so many of the same ways that so many elite Democrats-- like Obama, Clinton, Cuomo, etc-- are lacking. A far more useful OpEd than Reynold's embarrassing derangement was put forward by Joe Nocera in the NY Times yesterday, The Hole In Holder's Legacy.

A few weeks ago, Attorney General Eric Holder Jr. gave a speech at the New York University School of Law on the subject of white-collar prosecutions. In it, he offered a full-throated defense of his department’s efforts in the aftermath of the 2008 financial crisis. With his resignation announcement coming eight days later, one can’t help but view his speech as a kind of valedictory.

The Justice Department, he said, had stood vigilant against financial fraud “wherever it is uncovered”-- and prosecuted “criminal conduct to the fullest extent of the law.” He took credit for negotiating huge fines against financial firms, and for forcing several big banks-- Credit Suisse and BNP Paribas-- to accept guilty pleas.

As for the prosecution of individuals involved in the financial crisis, he claimed that the Justice Department had “taken aggressive action, nearly doubling the number of mortgage fraud indictments and criminal convictions between 2009 and 2010, then increasing them even further the following year.”

Actually, Holder’s Justice Department has been notoriously laggard in prosecuting crimes that stemmed from the financial crisis, and much of what it has done amounts to an exercise in public relations.

Take, for instance, those guilty pleas extracted from Credit Suisse and BNP Paribas. Last March, Holder said that he feared that prosecuting large financial institutions could hurt the economy. This became known as his “too big to jail” remark-- which he quickly disavowed. No wonder he was eager to have some firms plead guilty! Yet, as Peter Henning notes in a New York Times DealBook article, the Justice Department made sure those guilty pleas didn’t inflict too much pain. In the case of BNP Paribas, prosecutors secured agreements from state banking regulators that they wouldn’t pull the bank’s license to do business.

Or take the claim that the Justice Department has been rigorously rooting out mortgage fraud. In fact, after a grand announcement that the department was putting together a mortgage fraud task force, U.S. attorneys around the country began aiming their fire at easy prey: small-time mortgage brokers, or homeowners who had lied on “liar loans.” None of the top executives from any of the major firms were indicted. Indeed, according to an article in the New York Times Magazine in May, only one executive of any kind-- a mid-level executive with Credit Suisse — has gone to prison as a result of his actions during the financial crisis. The notion that he’s the only one who committed a crime in the mortgage-crazed run-up to the financial crisis is, quite simply, implausible.

As for those big fines against Bank of America, Citigroup and JPMorgan Chase, not only did they come very late, but their terms were such that it was impossible to know for sure the extent of their wrongdoing. And, of course, despite fines that went into the billions, no actual human was prosecuted for any wrongdoing.

…Holder’s legacy is a mixed bag. As The Times’s Matt Apuzzo wrote last week, he “succeeded in reducing lengthy prison sentences, opened civil rights investigations against police departments in record numbers and challenged identification requirements for voters.” On the negative side, he subpoenaed journalists and went after their sources.

No matter how he tries to spin it, Holder’s inability-- or unwillingness-- to prosecute financial crimes is on the negative side of the ledger.

David Dayen, covering the same territory for The Guardian goes straight to the point that refusing to send banksters to prison for their dangerous criminal behavior equates to an outrageous dearth of justice-- as Holder prepares to go back into business defending corporate clients at Covington & Burling, whose clients include mega-banks like JP Morgan Chase, Wells Fargo, Citigroup and Bank of America. Bad enough, but Dayen felt there is worse to look at in evaluating Holder's performance as Attorney General, when it came to the criminal frauds perpetrated on homeowners by the banksters. That got off way, way too easy.

A recent series of securities fraud settlements with JP Morgan, Bank of America and Citigroup, which DoJ said cost the banks $36.65bn, actually cost them about $11.5bn. And shareholders, not executives, truly bear that cost.

Incidentally, the Wall Street Journal found last week that the Justice Department only collects around 25% of the fines they impose. So the banks may have gotten off even easier.

These settlements have actually perverted the notion of justice, turning accountability into a public relations vehicle. And Holder’s Justice Department has been guilty of cooking the books: they admitted last August to overstating the number of criminal financial fraud charges by over 80%.

The DoJ’s Inspector General criticized this in a March report, and also found that DoJ de-prioritized mortgage fraud, making it the “lowest-ranked criminal threat” from 2009-2011.

As for homeowners, the biggest victims of Wall Street misconduct, they received little relief. Victims who already lost their homes got checks in the National Mortgage Settlement for between $1,500-$2,000, compensating people wrongly foreclosed upon with barely enough money for two month’s rent.

Despite claims that 1m borrowers still in their homes would get principal reductions under the settlement, when the final numbers came in this March, just 83,000 families received such a benefit, an under-delivery of over 90%.

Considering that over five million families experienced foreclosures since the end of the crisis, that relief is a drop in the bucket.

…The decision to protect banks instead of homeowners should be laid at the feet of the president and his administration, not one man in the Justice Department. But Holder certainly carried out the policy, even if he didn’t devise it.

We’ll soon find out if Holder merely presided over DoJ in a pause between helping corporate clients at Covington & Burling. But the failure to prosecute during his time in office certainly makes it look like Holder’s sympathies were with those clients even while serving as attorney general.

Economist Dean Baker was even harder on Holder than Dave Dayen and he asked a simple question, why isn't Robert Rubin behind bars? "We can never know," he concludes, "[if] this pattern of prosecution would have nailed big fish like Goldman’s Lloyd Blankfein or Citigroup’s Robert Rubin. We do know that Holder never even tried. As a result the Wall Streeters who profited most from illegal acts in the bubble years got to keep their haul. This is the message that bankers will take away going forward. This virtually guarantees ongoing corruption in finance." And you still wonder why so many voters sneer when naive partisans tell them about the great difference between the two political parties? The "us" and "them" is less about Democrats and Republicans and more about issues that don't come neatly wrapped in red or blue t-shirts.

Dean Baker proposes tools for shining a light on crony corporate board directors who help inflate exec mega-salaries

"Director Watch: Putting an End to Blank Checks for CEOs"

Erskine Bowles

Martin Feldstein


"Friends don't try to save money by cutting their friends' pay. And when [corporate board] directors themselves are pocketing hundreds of thousands of dollars a year for attending 4-10 meetings, there is little incentive to take their jobs seriously."

-- Dean Baker, in "Corportate Cronyism: The Secret to Overpaid CEOs"

by Ken

In "Corportate Cronyism: The Secret to Overpaid CEOs," Dean Baker of the Center for Economic Policy Research (CEPR) tackles the subject of out-of-control executive pay, noting that "CEOs can get paychecks in the tens or hundreds of millions even when they did nothing especially notable."

They may just have been in the right place at the right time, like Lee Raymond, who "retired from Exxon-Mobil in 2005 with $321 million . . . at a time when a quadrupling of oil prices sent profits soaring." They may even have presided over their companies' tanking, like Home Depot's Bob Nardellior the financial-industry CEOs who "took their companies to the edge of bankruptcy or beyond and still walked away with hundreds of millions of dollars in their pockets."

"It's not hard," says Dean, "to write contracts that would ensure that CEO pay bears a closer relationship to the company's performance."

For example, if the value of Raymond's stock incentives at Exxon were tied to the performance of the stock of other oil companies (this can be done) then his going away package probably would not have been one-tenth as large. Also, there can be longer assessment periods so that it's not possible to get rich by bankrupting a company.

If anyone were putting a check on CEO pay, these sorts of practices would be standard, but they aren't for a simple reason. The corporate directors who are supposed to be holding down CEO pay for the benefit of the shareholders are generally buddies of the CEOs.

Corporate CEOs often have considerable input into who sits on their boards. (Some CEOs sit on the boards themselves.) They pick people who will be agreeable and not ask tough questions.

For example, corporate boards probably don't often ask whether they could get a comparably skilled CEO for lower pay, even though top executives of major companies in Europe, Japan, and South Korea earn around one-tenth as much as CEOs in the United States. Of course this is the directors' job. They are supposed to be trying to minimize what the company pays their top executives in the same way that companies try to cut costs by outsourcing production to Mexico, China, and elsewhere.

But friends don't try to save money by cutting their friends' pay. And when the directors themselves are pocketing hundreds of thousands of dollars a year for attending 4-10 meetings, there is little incentive to take their jobs seriously.

Instead we see accomplished people from politics, academia, and other sectors collecting their pay and looking the other way. For example, we have people like Erskine Bowles who had the distinction of sitting on the boards of both Morgan Stanley and General Motors in the years they were bailed out by the government. And we have Martin Feldstein, the country's most prominent conservative economist, who sat on the board of insurance giant AIG when it nearly tanked the world's financial system. Both Bowles and Feldstein were well-compensated for their "work."

Dean asks, why does it matter? And he suggests two reasons:

• "[I]t takes away money that rightfully belongs to shareholders, which include pension funds and individuals with 401(k) retirement accounts."

* "[I]t sets a pattern for pay packages throughout the economy."

When mediocre CEOs of mid-size companies can earn millions or tens of millions a year, it puts upward pressure on the pay of top executives in other sectors."

It is common for top executives of universities and private charities to earn salaries in the millions of dollars because they can point to executives of comparably sized companies who earn several times as much. Those close in line to the boss also can expect comparably bloated salaries. In other words, this is an important part of the story of inequality in the economy.

ENTER "DIRECTOR WATCH" AND "PAY PALS"

CEPR has taken two steps to shine a light on corporate-board cronyism, Dean says.

• To try to impose the checks that don't currently exist . . . CEPR has created Director Watch. This site will highlight directors like Erskine Bowles and Martin Feldstein who stuff their pockets while not performing their jobs.

• And CEPR has worked with Huffington Post "to compile a data set that lists the directors for the Fortune 100 companies, along with their compensation, the CEOs' compensation, and the companies' stock performance. This data set is now available at the Huffington Post as Pay Pals.

"Perhaps," says Dean,

a little public attention will get these directors to actually work for their hefty paychecks. The end result could be to bring a lot of paychecks for those at the top back down to earth.

#

We Are All Slaves To The Multinationals-- No Less Under Obama Than Under The Bushs And Clinton

The U.S. Export-Import Bank, a government entity charged with helping boost exports from domestic businesses, met last week to discuss giving hundreds of millions of dollars in loans to a foreign airline so that it can buy Boeing airplanes.  The airline-- Biman Bangladesh-- is known for its poor safety record and unreliable service.

While this proposed deal is disconcerting, it points to a broader problem: The Ex-Im Bank’s priorities are backwards. Instead of helping domestic small businesses that actually need assistance when it comes to exporting their goods abroad, the Ex-Im Bank is subsidizing multibillion-dollar corporations like Boeing whose bottom lines are doing just fine.

Dick Cheney’s former Big Oil employer Halliburton has received at least a billion in loans from the Ex-Im Bank over the years. Enron, which imploded after its massive fraud scandal, got more than $650 million in loans. And Lockheed Martin, the aerospace and defense behemoth, is benefiting from over $381 million in loans made in 2012 alone.

According to its most recent earnings report, Boeing’s third quarter revenue was $22 billion.  Halliburton’s quarterly revenue was $7.5 billion, and Lockheed Martin had net sales of $11.9 billion. (Enron went bankrupt.)

As Senator Sherrod Brown of Ohio argued in an op-ed this past August, we “need to do a better job in ensuring that small businesses have access to the global market.”  He pointed out that, “Less than one percent of the nation’s nearly 26 million small businesses export their products and these 240,000 businesses account for only 29 percent of the United States’ export volume.”

The administration can help reverse this trend and boost small business exports by reevaluating some of the Ex-Im Bank’s loans that are directly benefiting large corporations. It should start by re-appropriating some of these funds to the little guy-- Main Street businesses that are the foundation of America’s middle class.

As Mike Lux said when he sent me that, "multibillion-dollar corporations don’t need help from the Export-Import Bank." Now let's go back to that not unrelated Bill Moyers video at the top of the page about the newest "free trade" catastrophe the cross-partisan neo-liberal ruling elites are planning to impose on us next, the Trans-Pacific Partnership. This morning's NY Times made a dreadful mistake in backing this monstrosity. Like all these kinds of trade agreements that Clinton, the Bushs and Obama have been shoving down our throats, this one is designed to put the uber-wealthy and their corporation even more firmly in control of… well, everything, ultimately. The end of democracy? You betcha!

As Moyers explained in his introduction, "If you don't know about the TPP… it's because the powerful people behind it, including President Obama, don't want you to know. The negotiations are shrouded in secrecy. And once they're completed, Obama wants to rush the agreement through Congress; fast-tracking, they call it, elected representatives only given the choice of voting it up or down. Last year, over 130 Members of Congress asked the White House for more transparency for what's being negotiated. And were essentially told to go fly a kite."

Those are our representatives and that's what the plutocracy is telling us through the politicians they've bought and paid for. Moyers continued: "You can be sure of this, however: a select group of corporate partners, companies like General Electric, Goldman Sachs, and Pfizer, the pharmaceutical giant, are not likely to be in the dark. Players like these stand to be the real beneficiaries of the agreement. Because, like other so-called "free trade" agreements, TPP actually will reward those at the top, even as it creates rules that will override domestic laws on the environment, workplace safety and investment. Corporate lobbyists are already lining up in Washington to ram the agreement through once the White House hurries it out of the delivery room." Watch the whole 33 minute video.

And, of course, the kinds of candidates Blue America gets behind do not support these kinds of devastating trade agreements. Pat Murphy, running a populist and progressive campaign for the open Iowa-1 seat isn't going to be voting for these kinds of garbage treaties, regardless of which party holds the White House. "Just as NAFTA and CAFTA hurt American workers and unions," he told us this morning, "the Trans-Pacific Partnership will do the same. We need fair trade that is good for workers-- not free trade. I also have huge concerns with the lack of transparency as this agreement is being pushed forward. In Congress, I will fight for policies that strengthen the middle class and help working families." If you'd like to help Pat-- and our other FAIR TRADE candidates get to Congress, you can do that here.

Who Does Wall Street Own In Congress?

The Grayson Takano No Cuts letter is the gold standard

The House doesn't usually stay in sessions Fridays, let alone take serious votes, but this past Friday, as we mentioned yesterday, Boehner and Cantor kept the Members in town to repay a promise they had made to their Wall Street masters to further weaken the Dodd-Frank financial reform bill. A bill Wall Street lobbyists wrote with one of their most pathetic congressional shills, Scott Garrett (R-NJ)-- and co-sponsored by 23 other bankster asswipes (20 of them members of the House Financial Services Committee who brazenly take large legalistic bribes from Wall Street firms they're supposed to oversee on behalf of the American people) came up for a vote. The bill to weaken Dodd-Frank passed 235-161.

Here's a list of the House Financial Services Committee members who co-sponsored the bill (+ Boehner and Cantor) with the bribes they took from Wall Street banksters last cycle, strongly pointing to an illegal quid pro quo:

• John Boehner (R-OH)- $1,415,075
• Eric Cantor (R-VA)- $902,400
• Scott Garrett (R-NJ)- $537,020
• Michele Bachmann (R-MN)- $79,024
• Spencer Bachus (R-AL)- $286,677
• Andy Barr (R-KY)- 0
• John Campbell (R-CA)- $79,750
• Tom Cotton (R-AR)- 0
• Stephen Fincher (R-TN)- $55,650
• Michael "Mikey Suits" Grimm (R-Mafia)- $209,732
• Bill Huizenga (R-MI)- $51,800
• Randy Hultgren (R-IL)- $136,500
• Robert Hurt (R-VA)- $127,000
• Peter King (R-NY)- $128,950
• Patrick McHenry (R-NC)- $80,000
• Gary Miller (R-CA)- $32,750
• Mick Mulvaney (R-SC)- $500
• Randy Neugebauer (R-TX)- $125,500
• Stevan Pearce (R-NM)- $19,950
• Robert Pittenger (R-NC)- 0
• Dennis Ross (R-FL)- $18,200
• Marlin Stutzman (R-IN)- $15,250
• Ann Wagner (R-MO)- 0

Don't worry about the 4 Republicans with zero dollars from Wall Street. They're freshmen and weren't doing errands for the banksters in 2012, the way they are now. Next year, each will get thousands of dollars from Wall Street. As economist Dean Baker explained last week in Cutting Social Security and Not Taxing Wall Street, "Wall Street bankers have a lot more political power than old and disabled people who depend on Social Security." Like many of us, Baker is frustrated that Obama isn't fighting the Wall Street/GOP approach... and perhaps even embracing it.

As we move toward the fifth anniversary of the great financial crisis of 2008, people should be outraged that cutting Social Security is now on the national agenda, while taxing Wall Street is not. After all, if we take at face value the claims made back in 2008 by Fed Chairman Ben Bernanke and former Treasury Secretaries Henry Paulson and Timothy Geithner, Wall Street excesses brought the economy to the brink of collapse.

But now the Wall Street behemoths are bigger than ever and President Obama is looking to cut the Social Security benefits of retirees. That will teach the Wall Street boys to be more responsible in the future.

Most people are now familiar with President's Obama's proposal to cut Social Security by reducing the annual cost-of-living adjustment (COLA). While the final formula is somewhat convoluted, the net effect is to reduce benefits by an average of roughly 3.0 percent.

Since Social Security benefits account for more than 70 percent of the income of a typical retiree, this cut is more than a 2.0 percent reduction in income. By comparison, a wealthy couple earning $500,000 a year would see a hit to their after-tax income of just 0.6 percent from the tax increase that President Obama put in place last year.

While President Obama is willing to make seniors pay a price for the economic crisis, his administration is unwilling to impose any burdens on Wall Street. Specifically, it has consistently opposed a Wall Street speculation tax: effectively a sales tax on trades of stock and derivatives. The Obama administration has even used its power to try to block efforts by European countries to impose their own taxes on financial speculation.

If the idea of taxing stock trades sounds strange, it shouldn't. The United States used to impose a tax of 0.04 percent until Wall Street lobbied to eliminate it in the mid-1960s. Many countries, including the United Kingdom, Switzerland, China, and India already impose taxes on stock trades.

The tax in the UK is 0.5 percent on stock trades (0.25 percent for both the buyer and the seller). It dates back more than three centuries. The country raises more than 0.2 percent of GDP ($32 billion in the United States) from the tax each year. The tax has not prevented the London stock exchange from being one of the largest in the world.

There are currently two bills in Congress for a similar tax in the United States. A bill by Minnesota Representative Keith Ellison would impose the same tax as the UK on stock trades and would apply a scaled rate to options, futures, credit default swaps and other derivative instruments. It could raise more than $150 billion annually or more than $2 trillion over the ten year budget window.

A second bill has been put forward by Iowa Senator Tom Harkin and Oregon Representative Peter DeFazio. This bill would apply a 0.03 percent tax to trades of stock and a wide range of other financial assets. According to the Joint Tax Committee, the bill would raise close to $40 billion a year or over $400 billion over a ten-year budget window once it is implemented.

Unfortunately the administration has consistently opposed both bills. It claims that it is concerned about the incidence of these taxes-- that ordinary investors would see large burdens from the tax. It also claims to be worried that the taxes will disrupt financial markets by making trading more costly.

Neither of these stories passes the laugh test. Ordinary investors don't trade much, and therefore are not going to feel much impact from the tax. If someone with $100,000 in a 401(k) (this is much larger than the typical 401(k)) turns it over at the rate of 50 percent annually, they would pay $15.00 each year as a result of the Harkin-DeFazio tax.

Furthermore research shows that investors reduce their trading as costs increase. This means that if the tax increases trading costs by 20 percent, then investors will reduce their trading by roughly the same amount (in this example, turnover would fall to 40 percent annually). That means that the net cost of turnover in a 401(k) will barely change for a typical investor as a result of the tax. Wall Street would just see much less business.

So the Obama administration wants us to believe that it is willing to cut the Social Security benefits of retiree living on $15,000 a year in Social Security by $450 but it opposes a Wall Street speculation tax because it is concerned that investors with $100,000 in a 401(k) may pay a few dollars a year in additional trading costs. Only a reporter with the Washington Post would believe a story like that.

The other part of the Obama administration's story is equally laughable. The cost of financial transactions has plummeted in the last four decades because of computers. Even the Ellison tax rate would just raise costs back to their mid-'80s level. The Harkin-DeFazio tax rate would probably still leave costs lower than they were in 2000.

The country certainly had a vibrant capital market and stock exchange in the 1980s, taking costs part of the way back to this level will not prevent Wall Street from serving its proper role of transferring capital from savers to borrowers. It will just clamp down on speculation.

The basic story is very simple. Wall Street bankers have a lot more political power than old and disabled people who depend on Social Security. That is why President Obama is working to protect the former and cut benefits for the latter.

David Cicilline, a co-signer of the Grayson Takano No Cuts letter to Obama, proposed a congressional resolution that isn't as strong and definitive, and (therefore) has attracted more support in the House:

Expressing the sense of the Congress that the Chained Consumer Price Index should not be used to calculate cost-of-living-adjustments for Social Security Benefits

Whereas the Social Security program was established more than 77 years ago and has provided economic security to generations of Americans through benefits earned based on contributions made over a worker's lifetime;

Whereas the Social Security program continues to provide modest benefits - averaging approximately $14,000 per year-- to more than 53,000,000 individuals, including 37,000,000 retired workers in February 2013;

Whereas the Social Security program has no borrowing authority, has accumulated assets of $2,700,000,000,000, and, therefore, does not contribute to the Federal budget deficit;

Whereas the Board of Trustees of the Federal Old-Age and Survivors Insurance Trust Fund projects that such Trust Fund an pay full benefits through 2032;

Whereas the Social Security program is designed to ensure that benefits keep pace with inflation through cost-of-living adjustments (COLAs) that are based upon the measured changes in prices of goods and services purchased by consumers, currently the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) published by the Bureau of Labor Statistics;

Whereas the Bureau of Labor Statistics publishes a supplemental measure of inflation, the Chained Consumer Price Index for all Urban Consumers (C-CPI-U), or "Chained CPI," which adjusts for projected changes in consumer behavior resulting from price fluctuations known as the "substitution effect," which occurs when consumers buy more goods and services whose prices are rising slower than average and less of those rising faster than average;

Whereas studies indicate typical Social Security beneficiaries spend significantly greater shares of their budget than consumers generally on health care, prices for which have increased at higher than average rates, and health care may not easily be substituted by consumers such as seniors;

Whereas the Congressional Budget Office has estimated that using the Chained CPI to calculate Social Security COLAs would reduce Social Security benefits by .25 percent per year as compared to current policy, resulting in a reduction in outlays of $112,000,000,000 over the first decade;

Whereas reductions in Social Security benefits from using the Chained CPI to calculate Social Security COLAs would continue to compound over time, and the AARP Public Policy Institute estimates that such reductions would grow to 3 percent after 10 years and 8.5 percent after 30 years;

Whereas Social Security Works estimates that using the Chained CPI to calculate Social Security COLAs would reduce annual Social Security benefits of the average earner - who is making $43,518-- by $658 at age 75, $1,147 at age 85, and $1,622 at age 95; and

Whereas reductions in Social Security benefits would harm some of our most vulnerable populations: Now, therefore, be it

Resolved by the House of Representatives (the Senate concurring), That it is the sense of the Congress that the Chained Consumer Price Index should not be used to calculate cost of living adjustments for Social Security benefits.

So far over 90 Democrats have signed on, spanning the ideological divide inside the congressional caucus from extreme right-wingers like Ron Barber (AZ) and Kirkpatrick (AZ), who are always looking for opportunities to tell their constituents they're against Obama, to normal liberal Democrats like Jan Schakowsky (IL), Judy Chu (CA) and Donna Edwards (MD) who prefer to support Obama. Here's the list of Democrats urging Obama to untangle himself from another Republican assault on American working families:

Ron Barber (New Dem-AZ)
Karen Bass (D-CA)
Joyce Beatty (D-OH)
Suzanne Bonamici (D-OR)
Robert Brady (D-PA)
Bruce Braley (D-IA)
Corrine Brown (D-FL)
Cheri Bustos (D-IL)
Tony Cardenas (D-CA)
Matt Cartwright (D-PA)
Judy Chu (D-CA)
Yvette Clarke (D-NY)
Lacy Clay (D-MO)
John Conyers (D-MI)
Joe Courtney (New Dem-CT)
Elijah Cummings (D-MD)
Danny Davis (D-IL)
Pete DeFazio (D-OR)
Rosa DeLauro (D-CT)
Ted Deutch (D-FL)
Mike Doyle (D-PA)
Donna Edwards (D-MD)
Keith Ellison (D-MN)
Bill Enyart (D-IL)
Lois Frankel (D-FL)
Marcia Fudge (D-OH)
John Garamendi (D-CA)
Alan Grayson (D-FL)
Gene Green (D-TX)
Raul Grijalva (D-AZ)
Luis Gutierrez (D-IL)
Janice Hahn (D-CA)
Colleen Hanabusa (New Dem-HI)
Alcee Hastings (D-FL)
Brian Higgins (D-NY)
Rush Holt (New Dem-NJ)
Mike Honda (D-CA)
Jared Huffman (D-CA)
Shiela Jackson Lee (D-TX)
Eddie Bernice Johnson (D-TX)
Hank Johnson (D-GA)
Marcy Kaptur (D-OH)
Bill Keating (D-MA)
Dan Kildee (D-MI)
Ann Kirpatrick (AZ)
Jim Langevin (D-RI)
Barbara Lee (D-CA)
John Lewis (D-GA)
Dave Loebsack (D-IA)
Alan Lowenthal (D-CA)
Stephen Lynch (D-MA)
Dan Maffei (New Dem-NY)
Ed Markey (D-MA) Doris Matsui (D-CA)
Jim McDermott (D-WA)
Jim McGovern (D-MA)
Mike Michaud (Blue Dog-ME)
Gwen Moore (D-WI)
Jerry Nadler (D-NY)
Grace Napolitano (D-CA)
Richard Nolan (D-MN)
Ed Pastor (D-AZ)
Donald Payne (D-NJ)
Gary Peters (New Dem-MI)
Chellie Pingree (D-ME)
Mark Pocan (D-WI)
Charlie Rangel (D-NY)
Nick Rahall (D-WV)
Lucille Roybal-Allard (D-CA)
Raul Ruiz (D-CA)
Bobby Rush (D-IL)
Tim Ryan (D-OH)
John Sarbanes (D-MD)
Jan Schakowsky (D-IL)
Bobby Scott (D-VA)
José Serrano (D-NY)
Carol Shea Porter (D-NH)
Albio Sires (D-NJ)
Jackie Speier (D-CA)
Mark Takano (D-CA)
BennieThompson (D-MS)
Dina Titus (D-NV)
Paul Tonko (D-NY)
Juan Vargas (New Dem-CA)
Mark Veasey (D-TX)
Filemon Vela (New Dem-TX)
Nydia Velazquez (D-NY)
Maxine Waters (D-CA)
Peter Welch (D-VT)
Frederica Wilson (D-FL)

Re. the jobs numbers: Uh-oh, watch that EPOP, says Dean Baker -- participation in the labor force is dropping

"The unemployment rate fell to 7.7 percent, but this drop was largely attributable to a decline in labor force participation. The employment-to-population ratio (EPOP) was unchanged at 58.6 percent, exactly the same as the rate in February of 2012 and just 0.4 percentage points above the low hit in the summer of 2011. This compares with an EPOP of 63.0 percent in 2007. The 54.8 percent employment-to-population ratio for women is just 0.2 percentage points above the low hit last month."

-- Dean Baker, in "Job Growth Picks Up
Steam in February," on CEPR.net

by Ken

What I heard on the radio this morning was that the Labor Department's just-released February jobs numbers were far better than expected, and that seems to be the general feeling. This must be driving Republicans crazy, since with every fiber of their corrupt carcasses their abiding desire is to see the economy in the toilet. It's what they live for.

Sorry, guyz! The gains are real. But with a lot of qualifications, courtesy of Dean Baker of the Center for Economic and Policy Research. Even the big gains in construction jobs -- up 48,000 after a plus-25,000 January.

Given the uptick in housing we should expect to see more construction employment, but this jump was likely driven in large part by unusually good winter weather. Good weather likely also contributed to the 23,700 jobs added in retail after an increase of 29,000 in January. Manufacturing added 14,000 jobs, its fifth consecutive increase. The direction is good, but the pace is very slow.

The healthcare sector added 32,000 jobs, offsetting a relative weak rise of 13,000 in January. Restaurants added 18,800, roughly their average over the last year. The employment services sector added 21,100 jobs. This could be a sign of increased permanent hires in the future, but may also just be an anomaly. In the latter category, the motion picture industry added 20,800 jobs. This will be reversed in coming months. The government sector continued to shrink, losing another 10,000 jobs in February.

Eventually Dean will sum up:

The 236,000 new jobs reported for February are a good sign and better than generally expected, but there is the risk that this is being driven by unusually good winter weather. This could lead to a situation like we saw last year with very weak job growth in the spring as the result of hiring being pulled forward. This is basically a picture of an economy that is showing modest growth, but has not yet felt the impact of the end of the payroll tax cut and the sequester.

But before we get there, we have to talk EPOP.

Yes, says Dean, the February numbers included a 7.7 percent drop in the official unemployment rate,

but this drop was largely attributable to a decline in labor force participation. The employment-to-population ratio (EPOP) was unchanged at 58.6 percent, exactly the same as the rate in February of 2012 and just 0.4 percentage points above the low hit in the summer of 2011. This compares with an EPOP of 63.0 percent in 2007. The 54.8 percent employment-to-population ratio for women is just 0.2 percentage points above the low hit last month.

"The decline in labor force participation in this cycle has been striking," says Dean.

While the unemployment rate has dropped more than 40 percent of the way back to its pre-recession level, the employment-to-population ratio is still far closer to its trough than its pre-recession peak. While women have fared better than men, this is because they did not see the same sort of steep hit to employment at the start of the downturn. In the last couple of years the gap in performance has been closing with the EPOP for men rising and the EPOP for women drifting lower.

African Americans have fared much worse than whites in the downturn. . . .

All of which would seem to undercut even further the good news Dean reports about February wages.

There was some modest good news on the wage front with the average hourly wage increasing at a 2.85 percent rate in the last three months compared to the prior three. This would indicate some acceleration and actual real wage growth, but it is way too early to assume the pattern will continue.

And of course wages only increased for the EPOPpers.

FOR ANOMALY FANS, HERE'S A BEAUT

"Employment rates of workers without high school degrees are near pre-recession levels."

By education attainment there is the striking anomaly: The EPOP for those with less than a high school degree is almost back to its pre-recession level. It rose by 1.9 percentage points in February to 41.9 percent. This compares with a 43.3 percent average for 2007. Insofar as the aging of the population is a factor depressing EPOPs, the decline should show up most clearly among those with less than a high school degree since these are disproportionately older workers. The fact that EPOPs have not fallen much for this group suggests that the aging of the population is not an important factor behind declining EPOPs.

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Say, Dean Baker, what do we really need to know about the fiscal-cliff deal?

by Ken

When CNN asked economist Dean Baker to sum up in one pithy piece what folks needed to know about the then-merely-proposed (but soon to be enacted) "fiscal-cliff compromise deal," they probably weren't expecting what they got, which would have been more along the line of some swift crunching of numbers (extra credit if the numbers are mostly imaginary) showing that as a result of the "deal" most people will be (a) better off, (b) worse off, or (c) the same.

Something along the lines of, say, the jackassery puked up by WaPo's Robert "No Relation to Paul" Samuelson, better known as the Village Idiot of Economics Reporting, who summed up the deal as "Obama's leadership failure." Hmm, you say, that could be interesting? Come on, be serious. We're talking about "No Relation to Paul" Samuelson, the Dumbest Slug on the Finance Beat. The presidential failure, you see, was his refusal to persuade the country to understand that what's bringing the country to its knees is extravagant Social Security and Medicare payments!

But no, Dean didn't get sucked down that blind alley. Instead he suggested ("Look beyond the fiscal cliff") that the one possibly truly useful thing about the fiscal-cliff deal is that just possibly it may put "the distractions created by the debate over the fiscal cliff behind us." That debate, he says, "has been part of a larger distraction -- the concern over budget deficits at a time when by far the country's most important problem remains the economic downturn caused by the collapse of the housing bubble."

The obsession with budget deficits is especially absurd because the enormous deficits of recent years are entirely the result of the economic downturn. In spite of this, the leadership of both parties has elevated the budget deficit to be the top and virtually only issue in national economic policy. This means ignoring the downturn that continues to cause enormous amount of unnecessary suffering for tens of millions of people.

"Fears of big deficits," Dean says, "are preventing us from giving the same sort of boost to the economy that got us out of the Great Depression." And why is this?

The explanation is simple: profits have returned to prerecession levels. . . . [F]rom the standpoint of the people who own and run American businesses, everything is pretty much fine. Moreover, they see the deficits created by the downturn as providing an opportunity to go after Social Security and Medicare.

Enter the Campaign to Fix the Debt, which DWT readers have heard quite a lot about. It's basically the cocktail-party chatter of high-powered CEOs translated into a "nonpartisan" crusade, bankrolled by those same "Wall Street types and other wealthy interests . . . to push their agenda."

The Campaign to Fix the Debt involves the CEOs themselves directly stepping up to the plate and pushing the case for cutting Social Security and Medicare as well as lowering the corporate income tax rate.

It's clear what's going on here. We don't need any conspiracy theories.

CEOs from both political parties have openly come together to demand cuts in Social Security and Medicare, two programs that enjoy massive political support across the political spectrum. The wealthy are joining hands without regard to political affiliation to cut benefits that enjoy broad bipartisan support among everyone who is not rich.

Dean has one thing in common with "No Relation to Paul" Samuelson: He sees in the present economic crisis an opportunity for the president "to show real leadership." Not surprisingly, though, Dean has a very different idea of what form that leadership would take.

He should explain to the public the basic facts that all budget experts know: We do not have a chronic deficit problem. The big deficits are the result of collapsed economy. The priority of the president and Congress must be to put people back to work and bring the economy back up to speed.

When the housing bubble burst, annual spending on residential construction fell back by more than 4% of GDP, which is $600 billion in today's economy. Similarly, consumption plunged as people drastically curtailed their spending in response to the loss of $8 trillion in housing bubble generated equity.

There is no easy way for the private sector to replace this demand. Businesses don't invest unless they see demand for their products, regardless of how much love we might shower on the "job creators." In fact, if anything, investment is surprisingly strong give the large amount of excess capacity in the economy. Measured as a share of GDP, investment in equipment and software is almost back to its prerecession level. It is hard to envision investment getting much higher, absent a major boost in demand from some other sector.

This is why it is necessary for the government to run large deficits. Ideally, the money would be spent in areas that will make us richer in the future: Education, infrastructure, research and development in clean energy, etc. There is just no way around a large role for the government given the economy's current weakness.

Obama needs to explain this simple story to the country. The rich of both parties will hate him for going down this route. They will use their powers to denounce him. But the American people support Social Security and Medicare, and they support an economy that creates jobs for ordinary workers.

Obama needs the courage to tell the truth.

"Tell the truth," for cripes' sake? Is it any wonder that Dean Baker is regarded as an uncouth ruffian in the polite Village circles, not to mention the drawing rooms of the 1% -- in other words, the very people who make it possible for a pathetic whore like Robert "No Relation to Paul" Samuelson to draw a paycheck for systematically obfuscating and unclarifying fiscal realities for the benefit of readers who say they want the truth but in truth can't handle it.

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