California Free Press

China and Russia to Get Their Wish for New Reserve Currency

New rules are being written for the International Monetary Fund (IMF). For some time now China and Russia have expressed a desire for a new reserve currency for the world other than the dollar. The dollar has effectively been the world's reserve currency since World War II. This has allowed the US to go tremendously into debt while borrowing huge amounts of money from China, Saudi Arabia and other nations. Because of the global economic crisis which many nations blame on the US, China has complained recently about this reality. They own approximately one trillion dollars of US Treasury bonds and are worried that they won't get their money back.

In an article in the Washington Post today the IMF has essentially set up a world reserve currency:

Yesterday, the IMFC backed plans to dramatically increase the fund's financial war chest to cope with the crisis. At the London summit, world leaders including President Obama called for the IMF, which has the capacity for about $250 billion in lending, to beef up its resources to $1 trillion. That money would be raised in two ways. First, through $500 billion in pledges from major governments. But the IMF also has the ability to effectively print its own money, and has plans to issue about $250 billion in its currency, which has a value based on the dollar, the euro, the yen and the pound. The IMFC said the fund had effectively secured about half the $500 billion from governments, though some critics were less certain of that. Japan, the United States and the European Union, for instance, have all committed to give $100 billion. But to date, only Japan's commitment has actually come in. Obama sent Congress a letter last week urging support for the U.S. pledge. The fund, the IMFC said, may also "consider market borrowing" to increase its resources. That appeared to refer to plans at the IMF to issue bonds similar to, say, U.S. Treasury bills. That would provide new ways for developing giants such as China to invest in the fund; the IMF and China are close to agreeing on a deal in excess of $40 billion.

So the IMF has the ability to print its own money! This is just what China and Russia have asked for. The dollar will no longer be able to dominate the world's currency markets. The US will no longer be able to borrow billions each day and run up its astronomical national debt even further. Furthermore, the IMF will issue bonds which the Chinese can then invest in instead of US Treasury bonds. They will constitute then a "savings account" or a repository of value for excess Chinese profits.

Consider this article from the Wall Street Journal:

BEIJING -- China called for the creation of a new currency to eventually replace the dollar as the world's standard, proposing a sweeping overhaul of global finance that reflects developing nations' growing unhappiness with the U.S. role in the world economy. The unusual proposal, made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing, is part of China's increasingly assertive approach to shaping the global response to the financial crisis. Mr. Zhou's proposal comes amid preparations for a summit of the world's industrial and developing nations, the Group of 20, in London next week. At past such meetings, developed nations have criticized China's economic and currency policies. This time, China is on the offensive, backed by other emerging economies such as Russia in making clear they want a global economic order less dominated by the U.S. and other wealthy nations. However, the technical and political hurdles to implementing China's recommendation are enormous, so even if backed by other nations, the proposal is unlikely to change the dollar's role in the short term. Central banks around the world hold more U.S. dollars and dollar securities than they do assets denominated in any other individual foreign currency. Such reserves can be used to stabilize the value of the central banks' domestic currencies. Monday's proposal follows a similar one Russia made this month during preparations for the G20 meeting. Like China, Russia recommended that the International Monetary Fund might issue the currency, and emphasized the need to update "the obsolescent unipolar world economic order."  Chinese officials are frustrated at their financial dependence on the U.S., with Premier Wen Jiabao this month publicly expressing "worries" over China's significant holdings of U.S. government bonds. The size of those holdings means the value of the national rainy-day fund is mainly driven by factors China has little control over, such as fluctuations in the value of the dollar and changes in U.S. economic policies.

The proposal is unlikely to change the dollar's role in the short term? The WSJ article was written on March 24, 2009, and the Washington Post article, on April 26, 2009. How's little over a month for "a short time"?

The implications for the debt based economy of the US are ominous. With a budget deficit of one trillion dollars, the US must borrow $2.74 billion per day just to keep its economy afloat. The Chinese are not likely to be putting all their excess profits into dollars in the future so what's the US going to do? If it can't borrow money, it will have only one option: to print it. And then the likely result of that is hyperinflation. In short the whole US capitalistic system is likely to come tumbling down. At that point the US will have to invent a whole new economic system not based on the dollar. Probably a new currency will be put into effect with the dollar ending up in the dustbin of history. This is not a pleasant prospect for most Americans who will have their standard of living drastically lowered. The old way of running trade deficits with China and Saudi Arabia among others with dollars piling up in those countries which are then used to buy US debt will be over. US dominance over the world economy will end.

The philosophy of the IMF is also changing. For the last 30 years or more, the IMF has been dominated by the US and its policy of unfettered capitalism. Countries needing help from the IMF have had to agree to draconian policies including privatization of public institutions, "free" trade, lowered taxes and deregulation. When imposed on poorer countries in return for a bail-out, these policies effectively cut the safety net out from under the poor and resulted in widespread suffering. Milton Friedman, Alan Greenspan and the Chicago School of Economics caused IMF policies to undermine the welfare of the poor. Now that's changing as the US loses credibility on the world stage and other countries such as China gain. No longer will austere measures be imposed on countries in need of a bail-out from the World Bank. This will make it easier for socialist countries to maintain their safety nets and not pull the rug out from under the poor.

While China gains ascendency on the world stage, the US is saddled with a military empire including 737 military bases manned with 2.5 million personnel in about 130 countries around the world. The US military budget takes up over half of US government expenditures and is currently over one trillion dollars annually if interest on the national debt and veteran expenditures are taken into account. So if the US could not borrow $1 trillion annually, it would have to drastically cut its military budget which is probably not such a bad thing. The demise of the US world empire would relieve the US of being the world's policeman. Other countries would have to take up the slack and there would probably be far less meddling in other countrys' affairs. Currently, such countries as France and Germany are getting by with letting the US take care of their share of protection at US expense, of course. If they want protection in the future, they will have to shoulder their share of the financial burden.

The US will not be able to have a debt based economy fueled by consumer consumption and cheap imports. This is probably a good thing as well as the US will have to redevelop its own manufacturing base and rely on its own products rather than importing so much from abroad. The change in the current world order will allow the US to start building its house on a rock again instead of the sand castle its been building for the last 50 years.

President Obama's First 100 Days

 

By any standard President Obama has accomplished a lot in the first 100 days. It's clear he's relying on Summers and Geithner to normalize the banking situation. That's still a work in progress, but there are "glimmers of hope."

His next big task is health care. I think Obama is wise enough to realize that the Republicans are in lockstep against him and to fashion his strategy accordingly. Therefore, I expect health care to pass in a resolution bill. The question is what will the health care bill consist of. The lobbyists will try to vitiate, water down and co-opt the bill as they did with Medicare Part D. Of course thay had a willing accomplice with President Bush. Obama's people are no dummies.

As far as reaching across the aisle, I think those days are over. Obama will maintain a patina of bipartisanship, but Rahm Emmanuel will go down in the trenches to insure a strong health care bill gets passed.

From there it is essentially down hill. Unemployment will be the next big hurdle. Where are the jobs today? On a segment on CNN they pointed out that Lockheed Martin, Boeing and General Dynamics were hiring - in other words the defense contractors - just the jobs that need to be cut in order to cut the bloated military-industrial complex budget. They pointed out that Bank of America and some of the other large banks were hiring - in other words the financial sector - just the jobs that need to be cut as we definancialize the economy. They pointed out that big health care was hiring - in other words just the jobs that need to be cut if we are to bring down the spiraling costs of the health care industry. Also government is hiring, hardly a panacea for "small" government.

This economy is entirely too dysfunctional. What jobs there are are in all the wrong places. To paraphrase a song: looking for jobs (love) in all the wrong places. Obama needs to somehow restructure the economy so that the jobs are in the areas that contribute to the kind of economy he wants to create while destroying jobs in the military-industrial complex, the finance industry and in health care. More jobs are needed to be created in infrastructure repair and rebuilding, hardly something private enterprise is interested in or can do unless thery are given large incentives by government. More jobs need to be created in green energy production; this could be done with public-private partnerships. T. Boone Pickens is looking for a government hand-out for his Pickens Plan to harness wind energy. Oil companies are already positioning themselves for government hand-outs to go green. So far they have limited themselves to advertising the hell out of the fact that they are interested in "generalized" energy production, but that's it. The only energy they've put into it is in advertising. Why is Exxon Mobil, Chevron and BP running so many TV ads about how they are interested in green energy rather than trying to get consumers to buy their product? Because they are really advertising to the government to get government grants, subsidies and other incentives before they are willing to put their own money into anything other than their bottom line: oil. Same goes for the "clean coal" industry.

Restructuring the whole economy is a tall order - something way beyond Obama's ambitions. He will try to put some pieces in place and get things back to normal. Unfortunately, the ship of state with Captain Obama at the helm may founder on the shoals of unemployment and lack of Federal money. At some point Federal deficit spending will have to be reined in. There will still be much to be done to restructure the economy, but hopefully, the economy will have been "normalized" by that time whatever sorry state that happens to be.

Also posted as a comment on Robert Reich's blog.

China Flexes Its Economic Muscle

The current economic crisis is mainly a western crisis. China is doing quite well, thank you. The US model of unfettered capitalism, privatization of public institutions, deregulation and free trade has been exposed as virtually a fraud, and China is capitalizing (pardon the pun) on the fact that the US mainly has egg on its face. While the US and other western countries are in recession, China's economy is humming along quite nicely, albeit not as at great a rate as previously, but still outperforming the west.

China is giving financial aid to many western countries such as Jamaica that had previously been aligned with the US which is helpless to come to their aid at the present time. So China has stepped into the breach. China has called for a new world reserve currency to replace the dollar which is under increased scrutiny due to the fact that the Federal Reserve's printing presses are running day and night. The dollar's value is being diluted and China openly expresses reservations of the value of its trillion dollars in dollar denominated reserves. China is practically banker to the US as every day the US must borrow billions of dollars to finance its deficits.

The following is from the Washington Post:

Overseas aid and loans are just one way China is asserting itself in its new role as a world financial leader. While polishing China's own image, Premier Wen Jiabao and other top leaders have blamed the West for the global economic crisis. Chinese officials increasingly are challenging the primacy of the dollar, warning other countries about the danger of keeping reserves in just one or two currencies, such as dollars and euros. And as the global economic crisis has eroded faith in U.S.-style capitalism, there's growing talk that a new "Beijing Consensus" will replace the long-dominant Washington Consensus on how developing countries should manage their economies. Coined by British economist John Williamson 20 years ago, the term "Washington Consensus" refers to a standard set of policies -- including privatization of state enterprises, free trade, deregulation and restraint in public spending -- that the International Monetary Fund, the World Bank and the U.S. Treasury Department have long urged on debt-ridden nations, particularly in Latin America. A fierce debate has broken out among academics and financial policymakers about how to define the Beijing Consensus, or even whether such a thing exists; many say that it is a loose package of political points rather than an economic model, and that there is no formal effort by the Chinese government to promote it. But some experts are already calling it a challenge to the existing order.

Developing countries are losing confidence in the US economic model and US preachings about how developing countries should develop. Instead of seeing themselves as mini USs, developing countries are gravitating towards becoming mini Chinas. The Beijing consensus is replacing the US consensus. The IMF and World Bank, long dominated by the US and its philosophical approach to reality, are starting to change. China is forging allinaces all over the globe. While the US labors on under the delusions of its military might being the predominant factor in world relations, China is exerting its influence on the world stage almost wholly in terms of its seemingly superior economic model, and other countries are hastening to abandon US influence while setting their courses on paths that emulate the Chinese.

Cheng Enfu, an economics researcher at the Chinese Academy of Social Sciences, a government-affiliated think tank, said he defines the Beijing Consensus as promotion of economies in which public ownership remains dominant; gradual reform is preferred to "shock therapy"; the country is open to foreign trade but remains largely self-reliant; and large-scale market reform takes place first, followed later by political and cultural change. The global economic crisis, Cheng said, "displays the advantages of the Chinese model" and has already expanded China's influence. "Some mainstream economists are saying that India should learn from China; Latin American countries are trying to learn from China. When foreign countries send delegations to China, they show interest in the Chinese way of developing," Cheng said. Barry Sautman, a political scientist at Hong Kong University of Science and Technology, said in a research paper that Western academics often deride the Chinese model as "economic growth without the constraints of democratic institutions." But, he argued, the emerging Beijing Consensus "takes seriously some aspirations of developing states often ignored or opposed by the West," such as "a more equitable international distribution of wealth and power." As Beijing grows more assertive in international finance, it is working inside as well as outside existing organizations. In January, it joined the Inter-American Development Bank -- which is active in Latin America and the Caribbean -- as a donor country. It is in talks with the IMF to increase its contribution to the fund in exchange for more of a say in IMF policies. And in Asia, it is leading the push by the Association of Southeast Asian Nations for a regional fund that will compete with the Asian Development Bank. This week, China's allies Kazakhstan and Pakistan -- both of which recently got new loans from China -- threw their support behind calls from China's central bank governor, Zhou Xiaochuan, to create a new world or Asian reserve currency to replace the dollar. Venezuelan President Hugo Chávez, who also signed a credit line with China recently, has backed the proposal. In the past five months, China has signed $95 billion in currency swap agreements with six countries that now hold part of their reserves in yuan. The government has also begun to allow companies in southern China to settle contracts with foreign neighbors in yuan instead of dollars or euros.

While the US via the World Bank has advocated in the past the Shock Doctrine of abrupt privatization causing economic distress for millions of people is South America and elsewhere while at the same time giving advantages to international corporations which proceeded to exploit poor peasants in those countries, China prefers a more gentle approach including the preservation of public institutions, self-sufficiency and social safety nets for the poor. The US model is in disarray. Chicago School of Economics' Milton Friedman has been discredited. Laissez faire capitalism is down the tubes. The Chinese model is winning out over the US model without a shot having been fired. Sun Tzu was right. The best war is one in which weapons need not be resorted to. And China is beating the US at its own game - capitalism - only its Chinese capitalism and not the US variety. How interesting!

And note this sentence above: "This week, China's allies Kazakhstan and Pakistan -- both of which recently got new loans from China -- threw their support behind calls from China's central bank governor, Zhou Xiaochuan, to create a new world or Asian reserve currency to replace the dollar." And I thought Pakistan was our ally!? Don't we support it with gazillions of dollars. And we're fighting there to prevent it getting taken over by the Taliban?! And yet Pakistan supports a new Asian currency to replace the dollar. Some ally!

But wait, there's more. While China beats us at our own game, socialism is well and good in Europe. Here's Senator Bernie Sanders take on that:

And what we learned impressed us. Finland is a country which provides high-quality health care to all of its people with virtually no out-of-pocket expense; where parents and their young children receive free excellent childcare and/or parental leave benefits which dwarf what our nation provides; where college and graduate education is free to students and where children in the public school system often record the highest results in international tests. In Finland, where 80 percent of workers belong to unions, all employees enjoy at least 30 days paid vacation and the gap between the rich and poor is far more equitable than in the United States. One reason there was so much interest in the Finnish model was that even before Wall Street greed drove the world economy into a deep recession, more and more Americans were wondering why the very rich were becoming richer while our economy failed our working families. They wanted to know why the middle class was shrinking, poverty was increasing and the United States was the only major country without a national health care program.

So European socialism is a success. Chinese capitalism is a success. While Europeans get free college educations, American corporations exploit US students with usurous student loans driving them into debt even before they graduate!  The only failure seems to be US capitalism - the capitalism espoused by Milton Friedman, Ayn Rand, Ronald Reagan and others.

Despite all the rhetoric about "family values," workers in the United States now work the longest hours of any people in a major country. Our health care system is disintegrating. At last count, 47 million Americans had no health insurance while we spend twice as much per capita on health care as any other nation.

We have the highest rate of childhood poverty in the industrialized world. Our childcare system is totally inadequate. Too many of our kids drop out of school, and college is increasingly unaffordable. One of the results of how we neglect many of our children is that we end up with more people in jails and prisons than any other country on earth. There is a correlation between the highest rate of childhood poverty and the highest rate of incarceration.

While our friends enjoy socialism, it is decried by right wing pundits and wingnuts in the US. While our "enemies" practice capitalism and have become our default banker, we continue down the road of serfdom and indebtedness. What's wrong with this picture? Calling Sun Tzu!

Obama Should Put Solar Panels That Reagan Took Off Back On Roof Of White House

Jimmy Carter put solar panels on the roof on the White House. As soon as Reagan became the next occupant, in a fit of Republican  hubris, he took them off. Planting an organic garden on the White House lawn was a good first step in restoring some positive values and setting a good example.  Now putting the solar panels back on the roof is the appropriate thing to do. It sends the message that to be green is to be cool, and energy policy is concerned not with oil and gas but with solar and wind energy. Obama not only has to reverse the "progress" of the Bush administration, he has to reverse 30 years of Republicanism starting with Ronald Reagan. It's an almost insurmountable task, but Obama is chipping away at it.

Obama has to pick and choose his battles. He has to avoid the trap Bill Clinton fell into with his spending too much political capital on the Gays in the Military issue. Instead of focusing on major issues like health care, Clinton got all tied up with this minor and ancillary issue. Obama wants health care front and center. That's why he's not proceeding with prosecuting the Bush administration over the torture issue. What would happen is that the media would become consumed with this and health care would be relegated to the back burner, at least in most of the public's minds. While media coverage of the trials of former Bush officials would be ubiquitous and all consuming, vested health care corporations would be running commercials in the gaps running down Obama's plans for health care reform. Get the picture? 24/7 coverage of the torture trials interspersed with commercials running down Obama's health care reforms. It would suck all the oxygen out of health care reform. Want to know the outcome? Look back at the Harry and Louise commercials that ran down the Clinton administrations' health care reforms and the outcome was ... ?

Obama is not dumb. While his supporters want him to do everything at once, his resources are limited especially in view of the fact that the Repub- lican opposition wants to criticize and defeat Obama no matter what he attempts to do unless, of course, he lowers taxes on the rich. They'd slap him on the back for that. Anything which attempts to help the middle class and/or the poor will be thoroughly trashed and put down by the Republicans who don't want him to succeed at anything. Since he's making friends around the world, they throw up their hands in horror. How dare he shake hands with Hugo Chavez, much less accept a book from him? He's our enemy. We have to keep him at arm's length. Well, maybe the best diplomacy is to make friends out of enemies. Bush went out of his way to make enemies out of friends. Then he could arm us to the teeth because the world is a dangerous place. This allows for tidy profits for defense contractors. If Obama makes the world a less dangerous place, we could save a ton of money on defense, and the world would be a better place. Bush antagonized and alienated not only our enemies but our friends as well. He created the need for military solutions and then deliberately chose military solutions over diplomatic ones.

But this is the Republican way. Create a bogeyman. Get the American public scared, and go whole hog with the weapons systems. Ignore the real threats, and focus on only the most expensive ones. Run up the defense budget to astronomical levels. Then complain about Obama's spending being careful not to criticize defense spending. Obama is making progress. He's just not doing everything at once. He can't afford to. What he does attempt, he wants to be successful at. The Republicans will foam at the mouth and threaten as they did with Clinton. They successfully backed him into a corner forcing him to triangulate. Clinton acceded to Republican demands. They did a selling job on him, and Clinton did not help his own prospects with his dalliances with Monica Lewinsky. Obama is not going down the road that Clinton did. He will use his power intelligently and not let the Republicans water down his proposals. It's still not a foregone conclusion that he'll be successful.

Obama has gambled on the financial crisis taking a conventional approach with Tim Geithner and Larry Summers. If it works, he'll be a genius. If it doesn't, he'll have to reckon with his critics, Paul Krugman and Joe Stiglitz. Obama is being attacked from the left for following conventional advice with regard to the banking system rather than nationalizing the banks. We'll see what happens. Later on after the banking system is put on an even keel, reforms can be put in place. Hopefully, there will be a sequence of events each one being more in the way of reform than the last. A more radical reforming of the banks would ultimately be the result if that approach is successful. If this approach doesn't work and that becomes obvious, Obama can then choose to go with the Krugman-Stiglitz approach although the risk is that that approach would be too  little, too late.

What people fail to understand about Obama is that he's playing chess, considering his moves carefully, in order to get at the desired result in a series of moves rather than taking a one shot approach. He has to be careful to confuse and defuse his Republican critics at the same time. While they are fomenting over a straw man, Obama can slip one by them. Trickery in the cause of the right thing is not necessarily bad.

Republican tactics go back at least to Joe McCarthy. They intimidate. They foam at the mouth. They threaten. They try to get everyone worked up whether it's about commmunism, socialism, Obamaism whatever. Now some Republican congressman has a list of 17 Democrats who are socialists just like McCarthy with his list. We are truly in a fight between good and evil with the evil being the tactics of Republicans in doing everything they possibly can do defeat any success Obama might have, turning everything he does into a pile of dung if they possibly can. Whatever he does, they will exploit any imagined or perceived down side. They will perceive the worst in every possible situation. They will demonize everyone and every ism they possible can. They will see the bad in every good.

Obama can give the Republicans and their chief bloviator, Rush Limbaugh, something to foam at the mouth about - put the solar panels back on the roof of the White House.

Wealth and Extreme Inequality in US

This is from Alternet:

In 1955, when the U.S. first instituted tax day, America's top 400 taxpayers paid three times more of their income in taxes than the top 400 of 2006, the most recent year with IRS data available. If these 400 ultra-rich folks had paid 1955 tax rates, the federal treasury would have collected $35.9 billion more in revenue in 2006.

Our report found that the 139,000 U.S. taxpayers who made over $2 million in 2006 averaged $5.9 million in income. They paid an effective tax rate of 23.21 percent, compared to 49 percent effective rate that those of equivalent income paid in 1955.

If these individuals had paid taxes at the same rate as their 1955 counterparts, the federal treasury would have collected, in 2006, an additional $202 billion. That's enough money to send massive aid to the states and make more overdue investments in transforming our economy to be more sustainable.

The main part of our report identifies seven tax proposals to reverse the tax shift and raise $450 billion in revenue from the wealthy and global corporations that are playing games with the tax system.

For instance, we propose that income from wealth (capital gains and dividends) should be taxed the same as income from work and wages. That reform would generate $80 billion in revenue.

When someone asks "where will the money come from," this is our answer.

MK: Can you compare the U.S. tax policy toward the rich to some other nations?

CC: The U.S. has among the lowest tax rates for an advanced industrial economy.

MK: How come so many salaries and bonuses for CEOs have grown to such enormous amounts, regardless -- in many cases -- of their performance on the job?

CC: The problem of runaway CEO pay has been alarming for 20 years. In 1980, the gap between highest and average paid workers in a company was about 42 to 1. Today, it is over 300 to 1.

Excessive pay to top managers promotes a very short-term outlook, encouraging CEOs to do whatever it takes to boost their share price for the next quarter. It provides a disincentive for long-term company health and growth.

Wall Street's culture of greed has wrecked our economy. Most ordinary taxpayers don't know we subsidize excessive pay by allowing corporations to deduct bloated pay packages.

Our group supports legislation to limit the deductibility of excessive CEO pay, such as the Income Equity Act introduced by Rep. Barbara Lee, D-Calif.

MK: How can individual Americans concerned about economic justice take action?

CC: In the next two years, there will be many opportunities to push back against the economic policies that worsened inequality. We have a president who understands the corrosive impact of inequality on people and communities.

Folks should sign up for action alerts at extremeinequality.org. We send out a monthly roundup of timely actions and activities.

MK: Are you optimistic that we will be moving toward economic justice in the coming years?

CC: Yes. There is a growing mobilized sector of society that wants a healthy and fair economy. We've seen the disaster of an economy organized around funneling wealth to the top. We all have a stake in an economy that works for everyone, not just the wealthy.

Some positive signs of the times: Some wealthy folks and business leaders agree that things are out of balance. Business for Shared Prosperity was formed to mobilize business leaders to support increases in the minimum wage.

The newly formed Wealth for the Common Good brings together wealthy individuals and business leaders to support rebalancing the tax system.

Also, please visit Chuck's tremendous site, Extreme Inequality.The truth about economic injustice will set you free from propaganda, bought and paid for by the wealthy, on taxes.

Obama Trys to Build America on a Rock

Frank Thomas commented on Robert Reich's blog:

Problem is that the Dutch see directly returns on their higher taxes in improved state-of-art infrastructure and excellent social-nets that are in general cost and quality effective. If there are defects or inequities, these are immediately flagged in this small, highly dense country and are pro-actively corrected as soon as possible after extensive multi-party discussions and compromise.

The problem is that there is a sizable minority of reactionaries in the US, the followers of Rush Limbaugh, Fox news and right wing talk show hosts who want to return to the glory days of the 1950s when the US was top dog in the world. WE'RE NUMBER ONE is their mantra. They don't want to live in peaceful cooperation with the rest of the world. They want to tell the rest of the world where to get off.

The "We're all in this together" ethic of the Dutch and other countries is replaced by the "Every man for himself" ethic of the US. There is no pragmatism in the US, only wounded pride and venality. Obama is doing his best to turn this country around, but he's fighting 30 years of right wing mind sets. Right wingers even object to Michelle Obama planting a vegetable garden on the lawn of the White House. When Reagan took the solar panels off the roof of the White House, they all cheered.

Sun Tzu in "The Art of War" said that the best way to overtake your enemies is without even firing a shot. This is happening before our eyes as the Chinese have overtaken the US economically, effectively turning the US into a client state. The role of Europe in providing adequate safety nets for its citizens while not investing heavily in weaponry has had somewhat the same effect ironically. The Europeans do not have the same fear of terrorism evidently that the US does. Why else are they not sending a whole lot of troops to Afghanistan? It's as if they're saying "well, if you (the US) want to waste your money on military adventures, go ahead, but we'd rather spend ours on the welfare of our people."

As Eisenhauer said, and I paraphrase, every dollar spent on weapons of war is a dollar not spent on the welfare of our people. The rest of the developed and developing world is essentially killing us without firing a shot just by living prudently and pragmatically, investing in sound economic systems and building societies based on rocks while the US has built a society based on sand as Obama has said.

US politicians are all making over $250,000 a year so they will see a tax increase under Obama's plan. Rush Limbaugh makes more than $250,000 so he will see a tax increase. Is it any wonder that these guys are against raising taxes on the rich? Republican politicians and a lot of Democrats are only in politics or "public service" for the money. They go through the revolving door back and forth between lobbying and "public service." Public service is prologue to lucrative lobbying work. Greed is the driving factor. Little wonder then that "pragmatism and prudence" in watching out for the American people have little if anything to do with politics in America. Lobbying and campaign contributions control the flow and dynamic of what gets done in Washington.

Obama's heart is in the right place, but one man can only do so much when arrayed against the enormity of the swarm of lobbyists and big money interests that are being threatened by his trying to turn around the ship of state. Defense contractors stand to lose billions if Obama and Gates have their way. Is cutting the defense budget prudent and pragmatic? Yes, of course but it threatens the financial and economic interests of defense contractors, and they have tons of money and swarms of lobbyists. Congressmen who were looking forward to enriching themselves by representing wealthy corporate interests are now thwarted by Obama's plans to reduce their influence in Washington. Power and money are chagrined by plans to use money and power to better the lot of average Americans by building a society based on a rock. They stand to lose and would rather see the society built on sand so they can get a private piece of rock for themselves.

Meanwhile, while the rest of the world builds their houses on rocks, the US, despite Obama, continues the process of building a house on sand. Obama is working at the margins, but he is limited by trying to do only what he considers doable and realistic. It's not realistic to slash the defense budget, only to eliminate the most obviously wasteful and useless programs.

While the US spend hundreds of billions on useless military build-ups and rapidly becomes a client state of China without China even firing a shot, Europe plods sensibly ahead. US hubris and longing for the good old days of top dogsmanship is exploited by the Limbaughs, Hannitys and Becks while the American public takes out its frustration by "teabagging"?

Also posted as a comment on Robert Reich's blog.

Debt and Money

An excellent article about Debt and Money by Thom Hartmann:

Debt is Not Money

by Thom Hartmann

"Everything predicted by the enemies of banks, in the beginning, is now coming to pass. We are to be ruined now by the deluge of bank paper. It is cruel that such revolutions in private fortunes should be at the mercy of avaricious adventurers, who, instead of employing their capital, if any they have, in manufactures, commerce, and other useful pursuits, make it an instrument to burden all the interchanges of property with their swindling profits, profits which are the price of no useful industry of theirs."

--Thomas Jefferson letter to Thomas Cooper, 1814.

Are we standing at the edge of a Great Inflation (like Weimer Germany), a second Republican Great Depression, or a return to the middle class prosperity of the Roosevelt/Eisenhower New Deal era? Until Americans understand the difference between "money" and "debt," odds are its going to be one of the first two, at least over the next few years.

Money

"Money" is a convenient replacement for barter in an economy. Instead of my giving you five pounds of carrots, so you wash my car, then you trade the carrots for a new shirt, and the clothing store then trades the carrots to a trucker that brings them their inventory, we all just agree to use a ten-dollar bill. Because a nation's money supply represents that nation's "wealth" - the sum total of goods, services, and resources available in an economy/nation - it needs to have a fixed value relative to the number/amount of goods, services, and resources within the nation.

As an economy grows - more factories, more goods, more services - the money supply grows so one dollar always represents the same number of carrots. (And with a fractional reserve banking system like we have, that growth is created mostly by banks lending money and creating it out of thin air in the process.)

If the money supply contracts, or grows slower than the economy, then we experience deflation - the value of money increases, goods and services become less expensive (fewer dollars to buy the carrots), but because the value of money has increased it becomes harder to get. When this happens quickly, because of its economically destabilizing influence (businesses and people can't get current money - cash - or future money - credit - because money is more valuable), it's called a Depression.

On the other hand, if the money supply expands or grows faster than the economy, there are more dollars than there are goods and services so the number needed to buy a pound of carrots increases. This is inflation, and when it happens suddenly and on a large scale, it's called hyperinflation.

Therefore, one of the most important jobs overseen by Congress and executed by a Central Bank (or the Treasury Department if we were to go with the system envisioned by the Founders and Framers of the Constitution) is to "regulate the value" of our money (to quote Article I, Section 8.5 of our Constitution) by making sure the number of dollars in circulation always steadily tracks the size of the overall economy. If the economy grows 2%, then that year there should be 2% more dollars put into circulation. More than that will create inflation; fewer will create deflation.

Debt

"Debt" is not money. Instead, it's a charge against future money. But even though it's a charge against future money, it can still be spent as if it was today's money - except that it must be repaid with interest. And therefore debt must have some sort of a balanced relationship to the total size of the economy - albeit the future economy - for it not to be destabilizing.

In other words, if over the next twenty years (the term of a typical and healthy mortgage) the economy is expected to grow by X percent or X number of dollars, then the total amount of twenty-year debts that can be issued should be limited to X. But if it's greater than X, then when the future arrives there won't be enough circulating money to repay the debt, because the economy (and the money supply) won't have grown as great as the debt repayment demand. The only two options are for debt holders to default (bankruptcies, foreclosures, etc. - Depression), or for the government to suddenly increase the supply of money (inflation).

The same is true of one-year debt (credit cards), four- or five-year debt (car loans, typically), and all other forms of debt. In aggregate, if the amount of debt is allowed to grow faster than the economy will grow over the term of the debt, when the debt is due there will be a problem, and if it's grown hugely, a disaster.

This is what we're experiencing right now. Over the past three decades - largely since Reagan - debt (both private and public/government) has expanded much more rapidly than the economy has grown. "Now" was "the future" when the debt was issued, but the economy hasn't grown to the point where there are enough dollars (in reality, enough value - goods and services) to repay that debt. Thus we are experiencing a "wringing out" of that debt - bankruptcies and foreclosures - relative to the current wealth of the economy.

This is the most critical thing to see clearly - without adhering to this simple concept, a government or central bank will always either create boom/bust cycles (depressions/recessions) or inflation. Without regulating debt, a government will be taken hostage and an economy destroyed by for-profit institutions that are able to create debt without regulation (banks).

Panics

Although Thomas Jefferson and Alexander Hamilton - two opposite sides of the national bank debate - both understood this simple concept, it wasn't brought into the realm of law until the mid-1930s with a series of strict regulations on the abilities of banks to create debt (loan money), and strong political limits on the ability of government to go into debt outside of wartime. That's why from the founding of this nation until 1935, we experienced a "banking panic" at least once every 10 to 15 years from 1776 until 1935.

Then Roosevelt took the banks in hand, by creating a series of regulatory agencies and empowering them with strict laws. The result was that for fifty years in the United States - roughly 1937 to Black Monday of 1987 - we didn't experience a single national "panic" or consequential bank failure. The stock market grew steadily (allowing for the blips surrounding WWII).

It was also hard to get a credit card (short term debt), buy a car (medium-term debt), or get a mortgage (long-term debt) without proving that you would be able to repay the amount in the future - in other words, that there would be future expanded-economy dollars that you could lay claim to because of your particular job and skills. Credit was regulated.

Reagan changed the rules of the game, particularly when he brought in the anti-regulation Libertarian Alan Greenspan as Chairman of the Fed. He ran up a massive federal debt - greater than that of every president from George Washington to Jimmy Carter combined - in just eight years, and began the process of loosening the power of bank regulators.

That process was finished by a Republican Congress (particularly Phil Gramm) and President Bill Clinton (with help from Rubin and Summers) and then booted out the door by George W. Bush, who borrowed even more than Reagan. Bush even used an obscure 19th century law to fight states' attorneys general who wanted to regulate or prosecute fraud among banks and mortgage lenders in their states (see the article by Eliot Spitzer in the Washington Post just before his being outed for sleeping with a hooker).

Green Eyeshades

During the "Great Stability" - that period from the 1935 onset of the New Deal and the beginning of its end with Reagan's massive tax cuts of 1981 and 1986, leading directly to the stock market crash of 1987 and the S&L debacle - banking was, as Paul Krugman noted in a recent column, "boring." Credit and currency were considered part of the commons, not something off which a small elite should profit. Like the utilities in the game Monopoly, banks provided a predictable but relatively low profit. Nobody got rich, but nobody lost anything, either.

Bankers were the safe and predictable guys who wore green eyeshades at work and pocket protectors in their shirts. The nation's main products were goods and services; nobody "made money with money" in any big way.

Since the serial deregulations of the financial services sector brought on by Reagan, Bush, Clinton, and Bush, however, bankers became fabulously rich. They called themselves the "Masters of the Universe." They came to dominate contributions to politicians, and facilitated the takeover of most major US newspapers, all the while using debt as their mail tool to make money (burdening those newspapers with such debt that many are now going out of business because they can't repay it).

By 2005, fully 40 percent of all corporate profits in the US came from the financial services sector - a group of people who didn't produce anything at all of value, nothing edible or usable, nothing that would survive into future generations. They invented fancy derivative "products" that they "sold" at high commission rates around the world so others could "make money with money." In fact, they weren't making money - they were taking money. Behavior that would have been criminal during the Roosevelt, Truman, Eisenhower, Kennedy, Johnson, Nixon, Ford, and Carter administrations became "normal" and was even encouraged: more than half of all the graduates from many of America's top colleges and universities went into finance so they could get in on the very lucrative scam.

They created debt. As Ellen Brown notes at www.webofdebt.com, according to the Bank of International Settlements, they created and sold at a profit over 900 trillion dollars worth of debt- and risk-based "instruments." That's a pretty mind-boggling number when you consider that the GDP of the United States is around 14 trillion and the GDP of the entire planet is around 65 trillion.

All of these "products" were made and sold based on the assurance that when "then" became "now" the economy would have grown fast enough for there to be enough dollars to pay it back. But the reality of a debt bubble that exceeds the world's GDP many times over came crashing in on us in 2007 - and still hasn't fully crested - producing the "crisis" we currently face.

Are we there yet?

Are we recovering from it all now? Will things soon be back to normal?

If by "normal" we mean like life during the "Great Stability," the answer is: "Not a chance." Back then we had in place tariffs and trade policies, first initiated in 1791 by Alexander Hamilton, that protected our domestic manufacturing industries. We still made things - in fact, the USA was the world's largest exporter of manufactured goods, and the world's largest creditor. Like today's China, for over 100 years we'd loaned other countries money so they could buy our stuff!

On the other hand, if by "normal" we mean how things were over the past 28 "Reaganomics" years - a stagnating middle class, disintegrating manufacturing sector, and piles of money being made by bets and debts - then maybe. After just the first decade of Reaganomics, we went from being the world's largest exporter of manufactured goods to being the world's largest importer; we went from being the world's largest creditor to being the world's largest debtor.

None of that has changed. We haven't repealed Reagan's disastrous tax cuts, which have exploded our nation's budget deficits. We haven't repudiated NAFTA and the WTO and gone back to an international trade policy that puts American interests over those of transnational corporations. We have not re-regulated the banks, and have not brought back 6000-year-old laws against usury (excessive interest rates on debt).

The bankers, in fact, are fighting it tooth and nail - the financial services industry in whole has spent over $5 billion lobbying Congress over the past ten years - and their acolytes like Lawrence Summers and Tim Geithner play major and consequential roles in the Obama administration.

It appears that the plan today is not to regulate the amount of debt that banks can create, but instead to both print more money and do everything possible to reinflate the debt bubble. (Lacking a return to Hamilton's national manufacturing and trade policy, as a nation we just continue to slip deeper and deeper into Third World status as an importer and debtor - this may be our only choice if we don't wake up soon.)

If followed, the Summers/Geithner policy can have only one of two outcomes: inflation or another, more serious crash. It's possible we could have both. Apparently the bankers and Summers/Geithner's hope is that neither or both don't happen for at least three and a half years...

Thom Hartmann (thom at thomhartmann.com) is a Project Censored Award-winning New York Times best-selling author, and host of a nationally syndicated daily progressive talk program The Thom Hartmann Show. www.thomhartmann.com His most recent books are "The Last Hours of Ancient Sunlight," "Unequal Protection: The Rise of Corporate Dominance and the Theft of Human Rights," "We The People: A Call To Take Back America," "What Would Jefferson Do?," "Screwed: The Undeclared War Against the Middle Class and What We Can Do About It," and "Cracking The Code: The Art and Science of Political Persuasion." His newest book is Threshold: The Crisis of Western Culture.

A Comparison of Dutch and American Social Safety Nets - Part 5

This is a joint effort by Frank Thomas who is an American expat who has lived in the Netherlands for over 30 years and myself.The  previous work can be found here: Part 1, Part 2, Part 3, Part 4. Frank has contributed all the information about the Netherlands which is the greater part of the work. In this section we consider how each society provides for those in poverty, those with little or no income and temporarily or permanently unable to work - in other words "the least among us." The Dutch social assistance system guarantees a minimum income for people who are not able to support themselves – offering sufficient financial resources (limited in amount and managed in duration)  to achieve a “minimum acceptable”  lifestyle. The support takes the form of income support, activation, and specific basic facilities for most people against poverty and exclusion.

The SVB (central Social Security Institution, called the Social Insurance Bank) administers a social assistance program as follows:

1) Poverty

2) Social Assistance

3) Rights and Obligations

4) Decentralized Administration

5) Making Work Rewarding

6) Poverty Trap

7) Productivity Gap

Poverty

Poverty is seen as existing when people are afflicted by several problems simultaneously, including:

   - poor employment
   - inability to make ends meet
   - reduced ability to do things independently
   - poor state of health         

         
Social Assistance

Local Authorities play a very important role in the social assistance, activation, and reintegration measures, since they are responsible for administering social assistance. The Dutch social assistance system is based on the principle that citizens are capable of supporting themselves independently  (the ‘welfare-to-work’ goal). Those who are unable to do so are given income and support in finding work for as long as strictly necessary. In this regard, the Reformed Social Assistance Act puts great emphasis on self-activation with broad freedom and responsibility of the local authorities.

Rights and Obligation

Social assistance in the Netherlands takes the form of a cash benefit at a subsistence level for those who cannot support themselves and is paid to all eligible persons above 18 years of age. A precondition for receiving assistance benefits is that people must actively look for work and accept any reasonable work offer.       

Benefits
         
Single people receive 50% of the minimum wage, single parents receive 70%, and a married couple 100%. Additional allowances (from local sources, for example) are limited to 20% of the minimum wage for a single person and a single parent. Local authorities may deviate from general standards on the basis of individual assessments. The benefit for younger people can be reduced, for example, if a local authority sees that the full benefit makes employment unattractive to the recipient.

Decentralized Administration
    
Local authorities receive two budgets: one budget for benefit payments and one for local active labor market measures, referred to as the reintegration budget. The local authority may keep any budget surplus, but it must also finance any deficit out of its own resources.  This is to stimulate efficiency.

The size of the reintegration budget, for example,  depends on the economic cycle. Currently, local authorities are required to spend most of the budget in the private market (to reintegration service providers). This is to ensure best possible price to quality ratio.

The discretionary budget for local authorities enables the latter to customize their approach to limiting inflow into the social security system and encouraging people to get off benefits (again, the ‘welfare-to-work’ goal).

Making Work Rewarding

The strict focus here is to reduce the Poverty Trap Effect and to tackle the Productivity Gap, i.e., to make it attractive for employers to hire the less educated.

Poverty Trap
  
This exists when it is not financially worthwhile for the unemployed  who receive a benefit to do paid work. This abuse is strictly controlled. For example, any existence of local income-dependent support schemes on top of the central government's basic benefit will result in the loss of the latter, thus reducing income and abuse of system.

Productivity Gap

A productivity gap exists when it is not financially rewarding for employers to take on unskilled workers at the minimum wage because of their low level of productivity. To remove this threshold, local authorities can provide wage subsidies to employers out of their discretionary reintegration budget.

NOTES:

This may all sound very Socialistic but on the contrary it has played a key role in the historically relatively low unemployment rates in the Netherlands - in the 3-4% range … excepting now, of course, when, due to the economic crisis, the current rate is moving towards the 5-6% range. ‘Welfare-to-work’ is working!

Another  positive factor is that the Netherlands has a relatively low National Debt per capita of about $19,000 vs. $37,000  per capita in the US based on a current total National Debt of $11.0 trillion.  They achieve this by a tough balance-budget discipline.

In general the Dutch government and general population can be brutally realistic whenever social safety net programs need adjustments, reductions, and /or refinements to meet new economic conditions and/or inequities. The Dutch are an extremely prudent, hard-working people who have a deep dislike for all forms of debt, including credit cards. The average Dutch person has but 2 credit cards and the approval amounts are strictly controlled by law based on total debt obligations to income.

In contrast, in the US, credit card limits and interest rates and various other charges are totally up to the credit card company which can raise or lower rates and other charges at whim.

In the US there is the Supplemental Security Income (SSI) program which is designed to help aged, blind, and disabled people, who have little or no income. It is paid out of general tax revenues and not out of social security taxes. It provides cash to meet basic needs for food, clothing, and shelter. The program is authorized by Title XVI (Supplemental Security Income for the Aged, Blind, and Disabled) of the Social Security Act. Beginning in January 1974, SSI replaced the Federal/State matching grant program of adult assistance to the aged, blind, and disabled. Under SSI, there is no minimum age limit for establishing eligibility based on blindness or disability.

Although some of your earned income is counted against the SSI income limit, benefit amounts are not reduced dollar-for-dollar as the result of income from work. Thus, you are encouraged to work if you can. Blind and disabled recipients, if they are capable, are referred to the appropriate State vocational rehabilitation agencies for services to help them enter the labor market. In most States, they also permit continued Medicaid coverage after cash payments end.

For 2009 in the US the Federal Full Benefit monthly rate for an individual is $674. For Eligible Couples it's $1011.00. In the Netherlands the minimum wage is $1356. euros or $1784. Therefore, the equivalent of SSI would be 50% of $1784. or $892. or about 1/3 more than in the US for a single person. For a married couple the rate would be $1784. in the Netherlands vs. $1011. in the US or about 76% more. So the "world's richest country" is nowhere near as generous as the Netherlands when it comes to providing for "the least among us." The US does provide a Medicaid benefit of $30. per person.

Eligibility in the US is hard to determine from their website. But SSI is not available to anyone except the aged, blind and disabled according to their literature. Therefore, if one is destitute but able bodied, it appears that it would not apply allowing an untold number of people to "fall through the cracks." The Dutch elegibility requirements are not as strict. In general one only need be destitute.

In general the programs in the US and in Holland are similar although the Dutch benefits are considerably greater than in the US.

Also posted as a comment on Robert Reich's blog.
 

Free Trade Has Become a Roach Motel

From OpEdNews.com an article by Kent Welton:

Free trade has proven to be one more bad, amoral, extremely costly, and irresponsible deregulation.   As a result of this effectively forced trade regime we are well on our way to wiping out our once enviable First World standards of living, wages, benefits, human rights and democracy.   As a result, we in the USA are now begging for money from a totalitarian China and watching the middle-class gains of the twentieth century evaporate and economic independence become a memory.  

        

And they call this progress?  Freedom?  Universal gain?

        

Aside from multinational corporations able to arbitrage and extort first world labor, free trade for the great majority, and particularly for the G7 countries, has been a dependency disaster.  This is due to the fact it is not really free but rather a forced, capital-driven, WTO-GATT-NAFTA scheme unaffected by the wishes of the vast wage-earning majorities in “free” countries around the world.   What we have today is a fascist, top-down, fast-tracked, global gulag.

         

Get real.  To have truly free trade, you have to be free not to trade and/or to revise your tariff systems according to domestic needs and democratic preferences – i.e., meaning a rational and incentivizing scheme appropriate for a still very disparate and undemocratic world.  Otherwise, you are locked into a regime over which you have no control... and so we now find ourselves trapped within a roach motel “economy” without exit.

        

Instead of domestic tariff and trade freedoms serving us well for over a century, we have virtually given away our markets, our leverage, our moral authority, our democracy, and our standard of living... and all for nothing but a surfeit of “cheap” goods serving to create monstrous trade imbalances and lock the world into global oligarchy, oligopoly, and a dispiriting sameness. 

 

Continued here ...

Somali Pirates One Up World's Richest Navy

A bunch of guys from the poorest country in the world seize ships from the richest countries including the US and all the king's horses and all the king's men are helpless to do anything about it. The US is great at spending hundreds of billions of dollars every year to build bigger and better ships, bigger and better airplanes, bigger and better intelligence networks and yet they can't protect shipping lanes from a bunch of pirates from a country that has no defense budget. WTF!!! It's absoulutely ridiculous and humiliating that this should be happening!

From the Washington Post:

NAIROBI, April 9 -- An American warship early Thursday reached the scene of a Somali pirate attack on a U.S.-operated container ship, according to U.S. officials, who said the pirates fled with the captain while the unarmed American crew regained control of its ship. In a statement posted on its Web site at 6 a.m. EDT Thursday, the ship's operator, Maersk Line, said that information it is receiving suggests that the captain is unharmed. "We are working closely with all involved government agencies, particularly the U.S. Navy, which has arrived on the scene and is taking the lead in working toward the captain's release," the statement said. FBI hostage negotiators are assisting, FBI spokesman Richard Kolko told the Associated Press Thursday morning. The small group of pirates holding the captain are in one of the ship's lifeboats in the Indian Ocean. The pirates Wednesday orchestrated the first seizure of a U.S. crew in more than 100 years, but the 20 U.S. crew members later fought them off. "It's still a fluid situation right now, and we're hoping to get it resolved quickly," Kevin Speers, a spokesman for the ship's operator, Maersk Line, which is based in Norfolk, Va., said Wednesday. He added that the crew was safe and that the ship, the Maersk Alabama, which had been hauling food aid to the Kenyan port of Mombasa, remained in the area. It was the sixth such attack this week and one of 66 this year by Somali pirates, a collection of shrewd businessmen and daring opportunists who have pulled off a series of spectacular seizures using high- and low-tech gear, from satellite phones and rocket-propelled grenades to battered wooden skiffs and rickety ladders. In the past year, their booty has included the MV Faina, a Ukrainian ship loaded with tanks and antiaircraft guns, and the MV Sirius Star, a 300,000-ton, 1,000-foot-long Saudi oil tanker that is the largest ship to be seized in history.

What's wrong with this picture? The pirates are using low tech methods to attack sophisticated ships equipped with all kinds of navigation and communications equipment. You might describe them as seagoing insurgents. The US spends all this money on worthless military crap yet can't outwit and outfight people from the poorest countries of the world whether its Somali pirates or Mexican drug runners! They can't whip a bunch of guys holed up in caves in Afghanistan. What's going on? What's going on is that the US military-industrial complex is sucking money out of the American economy because they have lobbyists in Washington and complicit politicians who are in it solely for the money and not to protect American interests. If they wanted to protect American interests they could do it at a fraction of the cost they're now spending.

Obama is on the right track with his outgoing diplomacay which has already saved billions of dollars by making friends out of enemies. Over the years Republicans and some Democrats have created one scare after another, one demon after another in order to justify spending billions on weapons while neglecting real threats to the US. They have failed to protect American borders eight years after 9/11. It's not difficult to figure out that if Mexicans can smuggle drugs out and guns in, what control does the US have over its borders? Virtually none. While it is fiddling elsewhere, the biggest threat to the US is right on its border, and it is doing virtually nothing about it. Meanwhile, hundreds of Mexican criminal cells are operating in American cities. But not to worry. At least they're not Communists or Al-Quaeda. Politicians create scares about psuedo-imaginary enemies that require billions of dollars to protect against while ignoring real threats from real enemies that would require thousands of dollars to protect against. They are only protecting their own pocketbooks.

Defense and administration officials spent much of Wednesday in apparent confusion over what was happening on the ship. The Maersk Alabama crew members were also in touch with their company and journalists who managed to get through to them, leaving military officials initially to get updates of the fast-moving situation from television reports. Pentagon officials began the day saying the incident was over, only to be contradicted later by better-informed Maersk officials. ... Even with that sort of sea power in the region, Campbell noted that at least three shipping companies have fended off pirate attacks recently using relatively low-tech methods. One simply zigzagged, outmaneuvering the pirates, who typically attack in 15-foot skiffs. Another used flares and a water hose. The third used ordinary barbed wire. "These boats are usually armed to the teeth with RPGs [rocket-propelled grenades] and automatic weapons, but the method of boarding is literally tilting a ladder and climbing," she said. "In this case, when they got to the top of the ladder, the barbed wire was there."

Low tech methods, barbed wire can fend off attacks? It doesn't require some super expensive DOD expenditure and a no-bid, cost plus contract with Lockheed Martin or Boeing or Halliburton? Just wait. The lobbyists will be swarming Washington requesting money for some super high tech, sophisticated and expensive solution to the Somali pirate problem in addition to all the other surveillance and weapons systems already in the pipeline.

Here's the solution. Put a military contingent on board all the ships sort of like riding shotgun as it were. Blow the pirates out of the water before they can board. And I like the barbed wire solution also. It should be possible to cheaply retrofit ships in such a way that they can't be boarded. Or maybe pour boiling oil on them as they climb up like they did in the Middle Ages when they laid seige to castles. It's not rocket science, but it seems to beyond the intellectual capabilities of these shipping companies and the US Navy.

Obama Administration to Rein In Private Medicare Advantage Plans

Medicare Advantage is a privatized form of Medicare which is essentially a trojan horse designed to wean seniors off the government provided Medicare and onto plans provided by private health insurance companies. In order to encourage seniors to switch from traditional Medicare, the Bush administration paid doctors and insurance companies more for Advantage patients than it paid for traditional Medicare patients. We have blogged about this insidious program which represents a stealth privatization of Medicare here.

This is an article from today's Wall Street Journal by Vanessa Fuhrmans and Jane Zhang:

The federal government made good on its plan to cut 2010 payments for private Medicare plans, whittling the subsidies to health insurers sooner than the industry originally expected.

The cuts, announced late Monday by the Centers for Medicare and Medicaid Services, are slightly less severe than the 5% reduction the federal agency signaled in February, but still raise concerns about what has been a critical source of profit growth for many health insurers. Reimbursements to private insurers that administer so-called Medicare Advantage plans would fall by as much as 4% to 4.5% next year.

The agency said it would raise the baseline rate for the private plans by 0.81%, slightly more than the 0.5% it proposed in February, though significantly less than the roughly 4% insurers have seen in recent years. But the payment rates also include a 3.41% reduction as a result of a change in how the government uses a reimbursement scale pegged to enrollees' health.

The move makes clear the Obama administration's intent to swiftly rein in the private plans. More than 10 million Medicare beneficiaries get their medical and drug benefits through Medicare Advantage plans. Republicans during the Bush administration pushed the plans' extra benefits for seniors and subsidies to insurers to promote more private-sector involvement in Medicare. But President Barack Obama has argued that insurers are overpaid to administer the plans, and he wants to finance part of his health-care overhaul by paring their subsidies.

Health insurers, though, hadn't expected cuts to begin until 2011 and were caught off guard by the February regulatory announcement. Last month, the administration also set stricter terms for companies bidding to offer such plans in 2010, including a requirement that they can't charge sick, low-income patients more than what they would pay under traditional Medicare.

Humana Inc., Coventry Health Care Inc. and other insurers that have made big bets on Medicare Advantage are expected to feel the rate cuts the most. With more than 1.4 million Medicare Advantage members, Humana is the second-biggest provider of private Medicare plans, and the business comprises roughly half of its overall revenue. UnitedHealth Group Inc. is the biggest provider of such plans with about 1.5 million members.

Medicare Advantage plans wrap physician and hospital services in one, often with vision and drug coverage. Unlike traditional Medicare, the government doesn't pay physicians and hospitals directly but instead pays insurers to manage care. Currently, though, a patient in these plans costs the government an average of 14% more than if he or she stayed in traditional Medicare.

The cuts mean beneficiaries enrolled in the private plans could see higher premiums or cost-sharing amounts next year, depending on the extent to which insurers try to preserve the 3% to 5% profit margins they usually make on the plans. The Blue Cross Blue Shield Association, for instance, said it had calculated average monthly premium increases of $50 to $80 if the 2010 cuts were to go through. That won't be clear until plans submit bids and benefit designs later this year.

Insurers and Republican lawmakers say the administration's cuts go too far, particularly because they assume a prospective 21% cut in Medicare reimbursements to doctors that Congress is all but certain to override later this year. Medicare officials said that if the physician fee cut is reversed, they would work with Congress to incorporate the change into Medicare Advantage payments then.

Humana declined to comment. UnitedHealth said it was still reviewing the Medicare announcement, but that it would continue to offer affordable plans. "We have long-standing experience with addressing the changing rate environment within Medicare Advantage and we will use all our business levers to make the adjustments necessary to manage these changes for 2010."

A Comparison of Dutch and American Social Safety Nets - Part 4

This is a continuation of a series comparing the social safety nets of the US and the Netherlands. For definitions of the various acts, please see Part 1. For other information, please see Parts 2 and 3.

SPECIAL-PURPOSE INSURANCE ACTS

The ANW refers to the General Surviving Relatives Act. Those covered under this optional insurance are entitled to a widow's, widower's  or  ‘independent children’ benefit . The deceased spouse, partner or parent must have been insured with ANW at the date of his or her death. The amount paid out on the basis of the benefit is a percentage of the minimum wage -- however, the actual benefit can be less since the ANW survivor's benefit is income-dependent. There is no similar program in the US except private life insurance.
 
The AKW is the Child Benefit Act. In principle, this benefit is for families with children under the age of 18. The amount of the allowance depends on the age of the children and is paid every month to help with a family’s general costs for children. There is no benefit paid to families with children in the US.
 
All above means that the primary costs for Social Security are the AOW (17.9% of $40,000) plus the Compulsory Pensions obligated to be paid by Employers and Employees to TOP-UP the AOW pension to 70% of last salary/wage or average salary/wage. In the US defined benefit plans have been largely replaced by 401k programs. In some cases employers match employee contributions; in others all contributions are by employees. It's totally at the discretion of the employer. With the 401k, which is mostly invested in the stock market, the risk is totally on the employee and not the employer. If the stock market goes down, the employee's retirement funds go down. With a defined benefit plan, the risk is on the employer who guarantees a specified monthly amount regardless of what the stock market is doing.

Dutch law requires pension funds to maintain an annual Reserve of 105% of the pension benefits that must be paid out. Due to current market conditions, that Reserve requirement has now fallen to 95%. So actions are being taken to make this gap up by either raising the monthly premiums for the compulsory employer-employee pensions or requiring everyone to work longer. AOW pension plans are facing changes including raising the qualification age to 67. In the US full retirement age is going up; at present it's 66.
 
In brief, as you may have noted, the Dutch welfare-state is really a hybrid of public and private elements. It has strong social-democratic elements with respect to income redistribution as reflected in high marginal income tax rates up to 52% and with respect to family support. On the other hand, it has largely private but closely regulated elements with respect to compulsory old-age pension schemes, and, in general, welfare policies have been increasingly inspired by a “welfare-to-work” agenda. All social benefits are carefully controlled/adjusted to minimize abuses and inequities.

Over 91% of employers in the Netherlands participate in Occupational Pensions, of which over 80% are Defined Benefit plans. As mentioned, obligated Occupational Pensions are meant to Top Up the AOW pension (which is expected to be a full (100%) to around 70% of the income from work. Occupational pensions are based on acquiring money through employer/employee contributions and investment. If a pension plan chooses for increased investment risk, more financial Reserves will have to be held to back the funding risk. How big the individual pension payout is depends of course on the years worked, income received, and construction of the pension fund. The combination of the AOW with the Occupational Pension schemes results in more than reasonable future average pension benefits for the all citizens and households.
 
The Netherlands and all the European countries to a great extent are generally highly dense, geographically small, ethnically, historically and harmoniously connected population clusters. This makes Dutch macro and micro public management processes, information gathering and meeting of the minds much easier. An effectively functioning  4 party system gives voice to the diverse public/private requirements of the Collective. A binding strength comes from the inherited Calvinistic virtues/habits of prudence, pragmatism, fairness and a “We are all in this life together” attitude where winning and a sense of triumph over the losers are secondary to quality of life issues, collective knowledge, and understanding of deep societal needs.  In contrast the US has a sink or swim, devil take the hindermost, money talks and shit walks mentality.

You are legally entitled to 4 weeks or 20 work days of  vacation in The Netherlands. Employees must give sufficient advance notice and are encouraged to take 4 continuous weeks or as a minimum two vacations of 2 weeks each. In many cases, Employers often allow 5 extra days paid vacation. Employees receive normal pay during vacation days plus a vacation allowance paid in May to all adults regardless of their participation in the work force. Vacation in Europe is treated like sanctitude. You are considered absolutely foolish if you don´t take your precious vacation time with family. This attitude applies to everyone from top to bottom of the hierarchy.
 
There is no legal entitlement to public holidays. Nevertheless, there are at least 6 paid public holidays, e.g., Queen's Day, Liberation Day, Easter Monday, Christmas, and New Years.
 

A Comparison of Dutch and American Social Safety Nets - Part 3

HEALTH INSURANCE

 

The Dutch health care system is rated the best while the US health care system is rated the worst according to polls:

NEW YORK, July 7 (Reuters Life! ) - Americans are the least satisfied with their health care system, while the Dutch system is rated the best, according to new research. Polls about health care in 10 developed countries by Harris Interactive revealed a range of opinions about what works and what doesn't. In the United States a third of Americans believe their system needs to be completely overhauled, while a further 50 percent feel that fundamental changes need to be made. "Given that all countries other than the U.S. have universal health care systems in place, this may invite questions on why the U.S. remains the only wealthy, industrialized country without such a system," Harris president George Terhanian told Reuters. In the Netherlands, where health care is financed by mandatory health insurance, 42 percent of people think their system works well and needs only minor changes. And only nine percent of the Dutch think a complete overhaul is necessary, compared to 12 percent in Canada and Spain, 15 percent Britain and France, 17 percent in Germany and New Zealand, 18 percent in Australia and 20 percent in Italy, according to the polls of more than 1,000 people in each country. The U.S. model, widely criticized on its combination of private insurance and publicly-funded programs, spends more on health care than any other nation worldwide but ranks low on overall quality of care, according to the World Health Organization (WHO). France's health system, based on compulsory national insurance, was ranked best in the world by the WHO in 2000, while Britain's National Health Service, the world's largest publicly funded system, was in 18th place. The Harris comparison of the national surveys showed that 70 percent of the French and 59 percent of Britons think their health services are "the envy of the world."

A good source of information can is found on the video entitled, "The New Dutch Health Care System." It´s an excellent summary of a class care AND cost-effective health care system.

Everyone must have and is entitled to have the Dutch standard Basic package, without any right of "cherry-picking" or screening out of undesirables by health insurers. Insurance firms are obligated to accept EVERYONE regardless of age, gender, or health.

The system has a standard premium cost for EVERYONE of about €95,00/month ($115. or $1,375. annually). Children up to 18 years of age are covered by this basic premium fee FREE of charge. The €95.00 monthly charge is automatically REDUCED if one's income lies below a certain level.

You can also take out ‘additional’ health insurance if you want to cover more than standard medical care. However, there is no acceptance obligation for insurance companies for this type of insurance. Insurers generally offer an ‘above standard’ package of specific coverages at a reasonable added monthly fee not exceeding 10-15% of the basic monthly premium.

Rates or cost prices billable to insurers for prescription medicines, hospital treatment procedures and operations are fixed by the lobby-free Ministry of Health. Monthly premium costs even including extra coverages are at least ONE-HALF those in the US today! Operations for almost any procedure here are anywhere from 40-60% less than in the States. That’s true for health care systems in most other mature European countries, e.g., Denmark, Sweden, Germany, Belgium, Switzerland, etc.

The employer pays 50% of the cost, the employee, 45% and the government 5%.

According to the Euro Health Consumer Index 2008, the Dutch health care system is rated number one in Europe: "This year Netherlands is the outstanding winner, deserving our congratulations for systems reform that seems to combine consumer influence with excellent outcomes. Denmark, in silver position, shows that a creative national health strategy can bear fruit rapidly. Following in the top ranks there are a number of climbers in different ways making inspiring advancement, to be closely followed during the next few years."

America’s social insurance systems are light years behind Europe. US health care, particularly, is more costly by far, and of lesser quality, compared to Europe. Most countries here are also sharply and constantly focused on preventative health care actions, i.e., diet, exercise, less use of antibiotics, less stress (for example, by insuring prudent but human social safety nets in tough times, etc.).
Frank and I have compared costs for health insurance for a typical family of four in the US and in the Netherlands and found the cost to be 6 times as much in the US as it is in the Netherlands.
The new Health Insurance Act (ZVW) in the Netherlands obligates everyone who legally resides in the country to have health insurance provided by a private insurance company. Insurance companies also have an obligation and that is to accept everyone for the standard package, irregardless of gender, age, or health.

You can choose between two types of insurance policies or a combination of the two:

• Policy in kind:  The insurance company enters into several contracts with health care suppliers  and the insurance company pays its bills directly.
• Restitution policy:  The insured chooses the health care supplier and pays the bills directly, after which the insured is reimbursed by the insurance company.
• You can also take out additional insurance if you want to cover more than the standard medical care package. However, there is no acceptance obligation for an insurance company to take coverage upgrades.

The AWBZ is an optional health insurance Act for exceptional Medical Expenses. It makes a provision for treatment and nursing in recognized institutions and nursing homes. In addition it provides coverage for the supply of artificial appliances. However, it does not generally provide for facilities that are covered by private health insurance. It is hard insurance to qualify for.

A few more points regarding the health care system:

(1)   The General Practioner (GP) is the first clearing house for all ills . He or she decides whether you need further specialist treatment. You can't even get a blood test without GP approval.This sharply cuts down trivial use of expensive procedures and doctors.
(2)   The GP approves all medicines. And for over 50 years now, Doctors here simply will not prescibe antibiotics for a patient unless there is a dire emergency. This no doubt this has also reduced costs over life-cycles as people build up more natural immune strength against disease.
(3)   The Dutch are always bicycling and walking (the distances are not so far as in America) on thousands of kilometers of bicycle and walking paths.
(4)   Also, as I've mentioned before, the Dutch culturally are very careful with their money even when it comes to going to the local GP.
(5)   The prices of medical procedures, hospital rooms, operations and prescription medicine are the same throughout the country. This alone dramatically keeps price gourging in the main entirely out of the basic health care cost equation .

Also posted on Robert Reich's blog as a comment.

Machines Replace Human Labor. Result: Unemployment

Interesting discussion about joblessness and unemployment on Robert Reich's blog today. His post was titled "It's a Depression." The contrast between the European social safety nets and the American lack of sufficient ones is becoming increasingly clear especially in light of Obama's trip to Europe and his mild tussle with French President Sarkozy and German Chancellor Merkel. Obama wants them to increase stimulus. Their point is that they already have an ongoing stimulus due to their generous welfare programs which is undeniably true. Europeans redistribute money from those who have been successful to those who haven't been as successful thus insuring that widespread demand doesn't dry up as it has in the US. What the US does in fits and starts the Europeans do as a matter of course. The French and German students at Obama's Town Hall meeting in Strasbourg, for example, have free university education while American students are drowning in student loan debt.

There was an interesting artcicle from salon.com which I quoted on Reich's blog:

From an article in salon.com, The French Are Right (Again):

To Americans unfamiliar with the “social market” approach to public policy, the specifics of the European programs are stunning. In France, for instance, women are entitled to 16 weeks of paid maternity leave following the birth of their first and second child -- and 26 weeks paid leave following the birth of each subsequent child, at 100-percent of their pre-maternity wages. Men are entitled to 11 days of fully-paid paternity leave, and both mom and dad can take advantage of an additional three years of parental leave with lower benefits. Childcare is subsidized by the state as early as 18 months and by the time children are 30 months old, they are guaranteed a place in France’s free public preschools, which are staffed by well-paid teachers with graduate training in early childhood education. Similar systems and benefits can be found in countries across Western Europe (with the exception of the United Kingdom) -- and the effects on educational performance can be seen in many comparative studies. They’re happier, too, by the way (and evangelicals please note that the divorce rate in Norway has fallen by six percent over the past decade, possibly as a result of reduced pressure on families).

In the Nordic countries, benefits are even more generous in certain respects. Sweden provides parents with 15 months of paid parental leave that can be divided as mom and dad think best, and they also can choose to work six hours per day, at pro-rated pay, until their children reach their eighth birthday. (In other words, one or both parents can be home every day when school gets out.)

Like most of their continental neighbors, the nations of the north provide free or highly subsidized, high-quality child care that begins as soon as new mothers return to work. Nearly every child between the ages of three and six is enrolled in the public child care system, because it is staffed by well-paid and well-trained workers overseen by the national ministry of education. The results include not only better socialization and education of young children, but far lower poverty rates, especially among single mothers. And the security of European families is enhanced as well by the universal provision of decent old-age pensions and health care, which relieves the financial burden of supporting elderly parents while trying to raise children. So does free or low-cost university education.

It is true that globalization, aging and immigration have imposed severe pressure on the budgets of European countries, and the trend of increasing benefits that continued until a decade ago has been reversed. But it is also undeniable that despite those pressures, public and political support for the social market economy remains strong across Europe, and that free-market fundamentalism is a thoroughly discredited alternative. The old argument that the social market is unsustainable and hinders growth was never persuasive on close inspection. And the old expectation that outmoded European systems would eventually collapse into imitating ours has been swept away, along with the rest of the Washington consensus. Now perhaps we can honestly consider what America might learn from them.

Saturday, 04 April, 2009

Linda commented on Robert Reich's blog the following:

I tend to be affected mainly by my surroundings and people that I know personally, like my home and family, my community, and people that I talk to, for example bloggers like you.. So far I have not been personally touched in a very negative way by what is going on with the economy. I have siblings that are worried about what might happen if they lost their jobs, but so far they've been lucky.

I have neighbors who lost their jobs, but somehow found other ways to survive...there have been a number of foreclosures in my neighborhood, but no one I knew personally.

Last weekend I went to a party where I met a number of professional Detroiters, some of whom had lost their job and had their lives devastated.

I talked to an unemployed engineer in his 50s and has been searching for ways to make a living. He has a house he wants to keep but no income. He doesn't want to start a business, he wants a job and he is very, very angry about losing the job he had. He takes it very personally, and somehow feels that God has let him down, that he is somehow to blame for this and being punished. He was searching his soul and raking himself over the coals.

We told him that if things got really bad that we would consider offering room and board in exchange for yard and garden work. He actually seemed heartened by this idea.

And then we read in the news about people going on shooting rampages, and we find out they were recently laid off.

This is the very sad part of what is going on.

Saturday, 04 April, 2009

I commented the following:

Obviousness said:

For the past 200 years, and especially in the last 100 years, machines have been replacing human labor in MANY sectors. We are in the advanced stages of this replacement of human labor by machine labor - machines have replaced the need for human labor in factories, farms, and offices in the most technologically advanced countries on Earth. Thus we have rising unemployment.


Yes, we can turn out cars by the millions (they are sitting on lots unsold) and houses by the millions (one in ten houses is sitting empty), but we have a HUGE problem getting money into the hands of people to buy those houses and cars. Productivity isn't the problem. Money distribution is the problem since there is little need for human labor and that, traditionally, is how money gets distributed. If people don't have money, there is no demand for machine produced products. A monetary policy that provides cheap credit is not the solution if people cannot pay back loans with interest.

Automation, computerization and robotization have made human labor redundant as the English say i.e. when your job is redundant you are laid off. So machines have replaced human labor and returns to capital have replaced returns to labor. The owners of the machines reap the profits that at one time were shared with labor.

So what is the solution? Money has to be gotten into the hands of people despite the fact that they are not in a position to labor for it. Europeans have solved this problem by providing a generous safety net while still having a "welfare-to-work" ethic that mandates that people at least do something other than sit idle like community service or picking up garbage along the freeways - something sorely needed in America but that there's no budget for.

Actually, human labor is needed - just not for the tasks that anybody is willing to pay for. There is a need for entrepreneurs, artists, musicians, writers - there is an endless list of occupations and avocations that would contribute to the quality of life but that there is no budget for. The "welfare-to-work" ethic can pay people to take chances. The alternative is for the velocity of money to diminish to zero while the owners of capital (the machines) sit on their money. And credit at 0% interest goes unused.

Saturday, 04 April, 2009

A Comparison of Dutch and American Social Safety Nets - Part 2

We continue with our comparison of Dutch and American social safety nets. For the previous discussion please see Part 1.

Let’s consider first the following components of the Dutch national insurance schemes:

1) General Old-Age Pensions Act,  called  AOW (= Soc. Security)
2) General Surviving Relatives Act,  called  ANW
3) The (New) Health Care Insurance Act,  called  ZVW
4) Exceptional Medical Expenses Act,  called  AWBZ
5) Child Benefit Act,  called  AKW

The contributions payable to the Tax Department for these National schemes are levied on income up to about $40,000 (€32,000). This is in addition to the income tax. The following are the employer/employee contributions:

                                               Employer (%)          Employee (%)

        1)          AOW                            --                        17.9 (a)
        2)          ANW                            --                         1.1
        3)          ZVW                           3.25                      3.25
        4)          AWBZ                           --                        12.2 (b)
        5)          AKW                             --                           --

(a) Includes a once a year paid-in-May Vacation Allowance for everyone amounting to about $800 for single person to about $1,215 for a married couple.

(b) Plus monthly basic health care  insurance premiums  (e.g.,$135/month per individual including dental care but no deductibles).

The AKW is the Child Benefit Act. In principle, this benefit is for families with children under the age of 18. The amount of the allowance depends on the age of the children and is paid every month to help with a  family´s  general costs for children. The Dutch Social Insurance Bank (SVB) pays this benefit quarterly. It is meant for all parents, regardless of income. In other words, income increases or decreases do not change the benefits paid to your bank account. The amount received, which is CPI adjusted each year, depends on how many children you have.

The Dutch Pension system stands on THREE foundations:

1. Government Old-Age Pension (AOW)
2. Occupational Pensions
3. Private Pension Provisions 

AOW  

Now let’s focus only on the AOW (Old-Age) pension scheme. By law, everyone who has been a Legal Resident in The Netherlands between the ages of 15 and 65 (= 50 years) has a right to an AOW pension. No distinction is made between men and women, among civil servants, employees, self-employed, and housewives. A person’s income or assets or  non-income, like for housewives, does NOT affect the rate of the benefit. So unlike in the US one need not to have worked in order to be entitled to receive social security
     
How much AOW one receives depends on the number of years you have been a Legal Resident in The Netherlands – irregardless of  whether you are a Dutch citizen or not. So, during the 50-year  period of pension insurance entitlement, AOW accrues in 2% steps for every year of residence. This leads to a 100% pension entitlement upon reaching 65 (50 years  x 2%),  provided there are no gaps in the period of pension entitlement by living and/or working outside The Netherlands. If you lived 30% of the 50 years or 15 years abroad, your AOW pension would be 70% of the entitled benefit in effect at 65.
Presently, a full 100% AOW pension benefit for  the 65 year-old person is as follows:

(a)    $1,300 per month for someone “living alone” or having a “single-status benefit”
(b)    $1,810 per month for a couple having a “married-status-benefit”, or  “living-together as partners” status benefit
(c)    $2,600 per month for unmarried persons “sharing a household” or for couples “living-apart-together” who meet some concrete conditions.

In short, the Dutch AOW system provides an EQUAL pension income for ALL residents at a level at about 75% of the statutory minimum wage (e.g., minimum wage is now about  $1,725/month for those between  23-65).
 
People not entitled to the full AOW benefit but who have,  together with other sources of income,  a total income below the subsistence  level (i.e., less than 70% of the legal minimum wage of  $1,725/month are entitled to receive Social Assistance. This compares with a minimum wage of $6.55 an hour or $1135. a month in the US. However, in the US your social security benefit is zero if you haven’t worked at all and is not brought up to any subsistence level if you haven't worked enough or if your wages haven't been high enough. It is computed completely based on years worked and the amount of money made which translates to how much money has been paid into the system and nothing else.

OCCUPATIONAL PENSIONS
 
 BUT, the Dutch compulsory pension system doesn’t stop here! In  comparison  to other EU countries, the Dutch AOW is the 1st foundation  of  the total Old-Age pension scheme. The 2nd foundation is the  Occupational Pension schemes. These pension benefits depend on your wage and contributions which are normally made by the employer and employee – except for the self-employed.

The Occupational Pension funds are a legal OBLIGATION for nearly ALL employers. The general aims of these funds is to “Top-Up” your full 100% AOW pension to around 70% of your wage or salary.  For in The Netherlands, employers must make sure that employees receive an  acceptable income when they retire. The Occupational Pension plan involves Employer/Employee  contributions. The contributions of the employer vs. the employee for the Compulsory Pensions vary but are mostly shared about 50-50.
 
Every occupational branch has its own pension fund. Pension contribution  options can take one of following three forms:

1.  Defined Pension :  Here the employer promises you will receive a “Top-Up” pension bringing your total benefit  with AOW to about 70% of your  last salary.
2.  Defined Benefit :  Your pension benefit  will NOT be 70% of your last salary but 70% of your average salary.
3.  Defined Contribution :  Here the employer doesn’t promise anything  other than contributing an agreed amount of money to your pension fund. Still, the money should be enough for you to receive 70% of your average salary.  However, if as result of unfortunate circumstances (e.g., current stock market crash)  this is not achieved, then the risk lies with yourself. The Employer will NOT pay extra money to compensate for heavy inflation, low investment returns, etc.

The employee contributions should decrease as the size of the pension plan decreases and the risk increases. The employer contributions made to Occupational Pension funds are tax-free to employees until benefits are received. Over 91% of employers in the Netherlands participate in Occupational Pensions, of which over 80% are Defined Benefit plans. As mentioned, obligated Occupational Pensions are meant to Top Up the AOW pension to about 70% of a person’s salary from work. Private pension plans can increase retirement earnings even more. Occupational pensions are based on acquiring money through employer/employee contributions and investment. If a pension plan chooses for increased investment risk, more financial reserves will have to be held to back the funding. 

How big the individual pension payout is depends of course on the years worked, income received, and construction of the pension fund. The combination of the AOW with the Occupational Pension schemes results in more than reasonable future average pension benefits for the all citizens and households.
 

PRIVATE PENSION PROVISIONS
 
This 3rd foundation in the overall Dutch pension system consists of private pension schemes such as life annuity. Most occupational pensions also provide annuity options on top of the compulsory pension scheme. So retirement earnings can easily be 100% of a worker’s last salary.
 
CONCLUSIONS

There are about 2 million  Dutch AOW pensioners today. This number is expected to double over the next 3 decades. Thus, serious discussion is  now taking place to adapt the AOW system to this accelerating reality. This can take a number of possible forms such as raising the AOW qualifying age to 67 (most likely decision),  taxing the benefits,  etc. It’s the typical Dutch pro-active,  pragmatism,  and solidarity at work!

As you can see, the compulsory AOW and Occupational pension schemes applicable to the majority of Dutch households provides a reasonable base pension income.  Times now are extroardinary and Dutch pension funds are also affected by the economic  situation, but thanks to tough government rules about reserves for premium payment obligations, the situation is far from desperate. All parties are looking now at the right corrective steps to take here also ….  post haste with intense deliberation. The Dutch are quick to make modifications in their various programs in order to fit prevailing conditions. So nothing is “set in stone.”

In contrast the US social security trust fund has been used to cover expenditures of the general fund in order to decrease the yearly deficits. The money that has been collected form the American people is gone. The US social security system is a Ponzi scheme in which current pensioners are paid out of funds received by current workers. Like all Ponzi schemes this one will come to an end when contributions by current workers are exceeded by payouts  to current pensioners which will happen at some time in the future.

An important point is that the Dutch National Insurance schemes all have a tax contribution that is limited to a maximum income of $40,000 (€32,000). The US social security system taxes the first $106,800. of wages for 2009 at a rate of 7.65% for employees or 15.3% for the self-employed. NOTE: The 7.65% tax rate is the combined rate for Social Security and Medicare.  The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount. The Medicare portion (HI) is 1.45% on all earnings. This contrasts with 21.15% on the first $40,000 of Dutch income for both health care and social security. But this covers all Dutch citizens for health care while Medicare just covers those US citizens over 65. So for a Dutch citizen making $60 K, he or she would pay $8460 to cover health insurance plus old age pension. A US employee would pay $4590., but this would not cover health insurance until the employee was 65. An American citizen still has to pay on the order of tens of thousands of dollars per year for private health insurance while the Dutch citizen has a monthly premium of $135. with no  deductible and this includes dental insurance. A self-employed American, on the other hand, making $60K per year will pay $9180 in 2009 for social security and Medicare taxes which is even more than what a Dutch employee pays! And the Dutch citizen gets a yearly vacation allowance of $800. for a single person or $1215. for a married couple, something unheard of in the US.

The Netherlands and all the European countries to a great extent are generally highly dense, geographically small, ethnically and historically harmoniously connected population clusters. This makes Dutch macro and micro public management processes/information gathering/meeting of the minds much easier. An effectively functioning  4 party system gives voice to the diverse public/private requirements of the Collective. A binding strength comes from the inherited Calvinistic virtues/habits of prudence, pragmatism,  fairness and a  “We are all in this life togerher” attitude where  winning and a sense of triumph over the losers are secondary to quality of life issues, collective knowledge, and understanding of deep societal needs. 

Europeans, especially in mature countries like Holland, have been working for decades in refining their social insurance systems while the US has spent most of its priorities and brains on mastering space, missile technology, medical research, and superior military weaponry. That is why Canada and Holland, for example, are so far ahead on humanized social-net systems that are financially low cost and of high quality. These same social programs, including very strong unemployment support benefits,  act as IMPORTANT ECONOMIC STABILIZERS particularly in downtimes. American economists, including the best, have never understood this underlying dynamic about the European Social/Economic models in effect in the better managed, mature European  countries.

What I'm most impressed about the Dutch is their tremendous blend of Idealism and Pragmatism. They not only show this in their internally BALANCED social-political-economic culture, but also in their reputation as the most generous nation in the world ... giving aid of all sorts to poor countries everywhere (or countries in serious, sudden distress like the US with Katrina) to the tune of 0.8% of their GDP!  There's a natural, immediate, consistent  response to those in dire need. Gives one a good feeling about contributing to this unspoken unselfishness.

Holland comprises 17 million people on a land territory half the size of the State of Maine with its 1.1 million people. Holland not only takes care of its citizens in an open, liberated society and “welfare-to-work” ethic,  but for ages it has also provided a powerfully stimulating business environment giving birth to world recognized companies  like  SHELL, PHILIPPS, UNILIVER, HEINEKEN, ING, ABN Bank (now in government hands), KLM, AHOLD (Albert Hein), DSM, etc.