California Free Press

The Secret to Funding a Green New Deal

by Ellen Brown from truthdig

MAR 19, 2019,  OPINION|TD ORIGINALS

 

COMMENTS

 

Environmental activists occupy the office of then incoming Democratic majority leader Rep. Steny Hoyer, D-Md. (J. Scott Applewhite / AP)

As alarm bells sound over the advancing destruction of the environment, a variety of Green New Deal proposals have appeared in the U.S. and Europe, along with some interesting academic debates about how to fund them. Monetary policy, normally relegated to obscure academic tomes and bureaucratic meetings behind closed doors, has suddenly taken center stage.

The 14-page proposal for a Green New Deal submitted to the U.S. House of Representatives by Rep. Alexandria Ocasio-Cortez, D-N.Y., does not actually mention Modern Monetary Theory (MMT), but that is the approach currently capturing the attention of the media—and taking most of the heat. The concept is good: Abundance can be ours without worrying about taxes or debt, at least until we hit full productive capacity. But, as with most theories, the devil is in the details.

MMT advocates say the government does not need to collect taxes before it spends. It actually creates new money in the process of spending it; and there is plenty of room in the economy for public spending before demand outstrips supply, driving up prices.

Critics, however, insist this is not true. The government is not allowed to spend before it has the money in its account, and the money must come from tax revenues or bond sales.

In a 2013 treatise called “Modern Monetary Theory 101: A Reply to Critics,” MMT academics concede this point. But they write, “These constraints do not change the end result.” And here the argument gets a bit technical. Their reasoning is that “the Fed is the monopoly supplier of CB currency [central bank reserves], Treasury spends by using CB currency, and since the Treasury obtained CB currency by taxing and issuing treasuries, CB currency must be injected before taxes and bond offerings can occur.”

The counterargument, made by American Monetary Institute (AMI) researchers, among others, is that the central bank is not the monopoly supplier of dollars. The vast majority of the dollars circulating in the United States are created, not by the government, but by private banks when they make loans. The Fed accommodates this process by supplying central bank currency (bank reserves) as needed, and this bank-created money can be taxed or borrowed by the Treasury before a single dollar is spent by Congress. The AMI researchers contend, “All bank reserves are originally created by the Fed for banks. Government expenditure merely transfers (previous) bank reserves back to banks.” As the Federal Reserve Bank of St. Louis puts it, “federal deficits do not require that the Federal Reserve purchase more government securities; therefore, federal deficits, per se, need not lead to increases in bank reserves or the money supply.”

What federal deficits do increase is the federal debt; and while the debt itself can be rolled over from year to year (as it virtually always is), the exponentially growing interest tab is one of those mandatory budget items that taxpayers must pay. Predictions are that in the next decade, interest alone could add $1 trillion to the annual bill, an unsustainable tax burden.

To fund a project as massive as the Green New Deal, we need a mechanism that involves neither raising taxes nor adding to the federal debt; and such a mechanism is proposed in the U.S. Green New Deal itself—a network of public banks. While little discussed in the U.S. media, that alternative is being debated in Europe, where Green New Deal proposals have been on the table since 2008. European economists have had more time to think these initiatives through, and they are less hampered by labels like “socialist” and “capitalist,” which have long been integrated into their multi-party systems.

A Decade of Gestation in Europe

The first Green New Deal proposal was published in 2008 by the New Economics Foundation on behalf of the Green New Deal Group in the U.K. The latest debate is between proponents of the Democracy in Europe Movement 2025 (DiEM25), led by former Greek finance minister Yanis Varoufakis, and French economist Thomas Piketty, author of the best-selling “Capital in the 21st Century.” Piketty recommends funding a European Green New Deal by raising taxes, while Varoufakis favors a system of public green banks.

Varoufakis explains that Europe needs a new source of investment money that does not involve higher taxes or government deficits. For this purpose, DiEM25 proposes “an investment-led recovery, or New Deal, program … to be financed via public bonds issued by Europe’s public investment banks (e.g., the new investment vehicle foreshadowed in countries like Britain, the European Investment Bank and the European Investment Fund in the European Union, etc.).”

To ensure that these bonds do not lose their value, the central banks would stand ready to buy them above a certain yield. “In summary, DiEM25 is proposing a re-calibrated real-green investment version of Quantitative Easing that utilizes the central bank.”

Public development banks already have a successful track record in Europe, and their debts are not considered government debts. They are financed not through taxes but by the borrowers when they repay the loans. Like other banks, development banks are money-making institutions that not only don’t cost the government money but actually generate a profit for it. DiEM25 collaborator Stuart Holland observes:

While Piketty is concerned to highlight differences between his proposals and those for a Green New Deal, the real difference between them is that his—however well-intentioned—are a wish list for a new treaty, a new institution and taxation of wealth and income. A Green New Deal needs neither treaty revisions nor new institutions and would generate both income and direct and indirect taxation from a recovery of employment. It is grounded in the precedent of the success of the bond-funded, Roosevelt New Deal which, from 1933 to 1941, reduced unemployment from over a fifth to less than a tenth, with an average annual fiscal deficit of only 3 percent.

Roosevelt’s New Deal was largely funded through the Reconstruction Finance Corporation (RFC), a public financial institution set up earlier by President Hoover. Its funding source was the sale of bonds, but proceeds from the loans repaid the bonds, leaving the RFC with a net profit. The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms and much more; and it funded all this while generating income for the government.

A System of Public Banks and “Green QE”

The U.S. Green New Deal envisions funding with “a combination of the Federal Reserve [and] a new public bank or system of regional and specialized public banks,” which could include banks owned locally by cities and states. As Sylvia Chi, chair of the legislative committee of the California Public Banking Alliance, explains:

The Green New Deal relies on a network of public banks — like a decentralized version of the RFC — as part of the plan to help finance the contemplated public investments. This approach has worked in Germany, where public banks have been integral in financing renewable energy installations and energy efficiency retrofits.

Local or regional public banks, Chi says, could help pay for the Green New Deal by making “low-interest loans for building and upgrading infrastructure, deploying clean energy resources, transforming our food and transportation systems to be more sustainable and accessible, and other projects. The federal government can help by, for example, capitalizing public banks, setting environmental or social responsibility standards for loan programs, or tying tax incentives to participating in public bank loans.”

U.K. professor Richard Murphy adds another role for the central bank—as the issuer of new money in the form of “Green Infrastructure Quantitative Easing.” Murphy, who was a member of the original 2008 U.K. Green New Deal Group, explains:

All QE works by the [central bank] buying debt issued by the government or other bodies using money that it, quite literally, creates out of thin air. … [T]his money creation process is … what happens every time a bank makes a loan. All that is unusual is that we are suggesting that the funds created by the [central bank] using this process be used to buy back debt that is due by the government in one of its many forms, meaning that it is effectively canceled.

The invariable objection to that solution is that it would act as an inflationary force driving up prices, but as argued in an earlier articleof mine, this need not be the case. There is a chronic gap between debt and the money available to repay it that needs to be filled with new money every year to avoid a “balance sheet recession.” As U.K. professor Mary Mellor formulates the problem in her book “Debt or Democracy” (2016):

A major contradiction of tying money supply to debt is that the creators of the money always want more money back than they have issued. Debt-based money must be continually repaid with interest. As money is continually being repaid, new debt must be being generated if the money supply is to be maintained. … This builds a growth dynamic into the money supply that would frustrate the aims of those who seek to achieve a more socially and ecologically sustainable economy.

In addition to interest, says Mellor, there is the problem that bankers and other rich people generally do not return their profits to local economies. Unlike public banks, which must use their profits for local needs, the wealthy mostly hoard their money, invest it in the speculative markets, hide it in offshore tax havens or send it abroad.

To avoid the cyclical booms and busts that have routinely devastated the U.S. economy, this missing money needs to be replaced; and if the new money is used to pay down debt, it will be extinguished along with the debt, leaving the overall money supply and the inflation rate unchanged. If too much money is added to the economy, it can always be taxed back; but as MMTers note, we are a long way from the full productive capacity that would “overheat” the economy today.

Murphy writes of his Green QE proposal:

The QE program that was put in place between 2009 and 2012 had just one central purpose, which was to refinance the City of London and its banks. … What we are suggesting is a smaller programme … to kickstart the UK economy by investing in all those things that we would wish our children to inherit whilst creating the opportunities for everyone in every city, town, village and hamlet in the UK to undertake meaningful and appropriately paid work.

A network of public banks, including a central bank operated as a public utility, could similarly fund a U.S. Green New Deal—without raising taxes, driving up the federal debt or inflating prices.

Ellen Brown

Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of twelve books including "Web of Debt" and "The Public Bank Solution."

IN THIS ARTICLE:

alexandria ocasio-cortez debt or democracy europe federal reservegreen new deal modern monetary theory thomas picketty united kingdomyanis varoufakis

A Long War of Attrition With China

Published on

Monday, February 18, 2019

 by

TomDispatch

by Michael Klare

 6 Comments

Behind the scenes, however, most senior military and foreign policy officials in Washington view China, not Russia, as the country’s principal adversary. (Photo: Thomas Peter-Pool/Getty Images)

In his highly acclaimed 2017 book, Destined for War, Harvard professor Graham Allison assessed the likelihood that the United States and China would one day find themselves at war. Comparing the U.S.-Chinese relationship to great-power rivalries all the way back to the Peloponnesian War of the fifth century BC, he concluded that the future risk of a conflagration was substantial. Like much current analysis of U.S.-Chinese relations, however, he missed a crucial point: for all intents and purposes, the United States and China are already at war with one another. Even if their present slow-burn conflict may not produce the immediate devastation of a conventional hot war, its long-term consequences could prove no less dire.

To suggest this means reassessing our understanding of what constitutes war. From Allison’s perspective (and that of so many others in Washington and elsewhere), “peace” and “war” stand as polar opposites. One day, our soldiers are in their garrisons being trained and cleaning their weapons; the next, they are called into action and sent onto a battlefield. War, in this model, begins when the first shots are fired.

Well, think again in this new era of growing great-power struggle and competition. Today, war means so much more than military combat and can take place even as the leaders of the warring powers meet to negotiate and share dry-aged steak and whipped potatoes (as Donald Trump and Xi Jinping did at Mar-a-Lago in 2017). That is exactly where we are when it comes to Sino-American relations. Consider it war by another name, or perhaps, to bring back a long-retired term, a burning new version of a cold war.

Even before Donald Trump entered the Oval Office, the U.S. military and other branches of government were already gearing up for a long-term quasi-war, involving both growing economic and diplomatic pressure on China and a buildup of military forces along that country’s periphery. Since his arrival, such initiatives have escalated into Cold War-style combat by another name, with his administration committed to defeating China in a struggle for global economic, technological, and military supremacy.

This includes the president’s much-publicized “trade war” with China, aimed at hobbling that country’s future growth; a techno-war designed to prevent it from overtaking the U.S. in key breakthrough areas of technology; a diplomatic war intended to isolate Beijing and frustrate its grandiose plans for global outreach; a cyber war (largely hidden from public scrutiny); and a range of military measures as well. This may not be war in the traditional sense of the term, but for leaders on both sides, it has the feel of one.

Why China?

The media and many politicians continue to focus on U.S.-Russian relations, in large part because of revelations of Moscow’s meddling in the 2016 American presidential election and the ongoing Mueller investigation. Behind the scenes, however, most senior military and foreign policy officials in Washington view China, not Russia, as the country’s principal adversary. In eastern Ukraine, the Balkans, Syria, cyberspace, and in the area of nuclear weaponry, Russia does indeed pose a variety of threats to Washington’s goals and desires. Still, as an economically hobbled petro-state, it lacks the kind of might that would allow it to truly challenge this country’s status as the world’s dominant power. China is another story altogether. With its vast economy, growing technological prowess, intercontinental “Belt and Road” infrastructure project, and rapidly modernizing military, an emboldened China could someday match or even exceed U.S. power on a global scale, an outcome American elites are determined to prevent at any cost.

Washington’s fears of a rising China were on full display in January with the release of the 2019 Worldwide Threat Assessment of the U.S. Intelligence Community, a synthesis of the views of the Central Intelligence Agency and other members of that “community.” Its conclusion: “We assess that China’s leaders will try to extend the country’s global economic, political, and military reach while using China’s military capabilities and overseas infrastructure and energy investments under the Belt and Road Initiative to diminish U.S. influence.”

To counter such efforts, every branch of government is now expected to mobilize its capabilities to bolster American -- and diminish Chinese -- power. In Pentagon documents, this stance is summed up by the term “overmatch,” which translates asthe eternal preservation of American global superiority vis-à-vis China (and all other potential rivals). “The United States must retain overmatch,” the administration’s National Security Strategy insists, and preserve a “combination of capabilities in sufficient scale to prevent enemy success,” while continuing to “shape the international environment to protect our interests.”

In other words, there can never be parity between the two countries. The only acceptable status for China is as a distinctly lesser power. To ensure such an outcome, administration officials insist, the U.S. must take action on a daily basis to contain or impede its rise.

In previous epochs, as Allison makes clear in his book, this equation -- a prevailing power seeking to retain its dominant status and a rising power seeking to overcome its subordinate one -- has almost always resulted in conventional conflict. In today’s world, however, where great-power armed combat could possibly end in a nuclear exchange and mutual annihilation, direct military conflict is a distinctly unappealing option for all parties. Instead, governing elites have developed other means of warfare -- economic, technological, and covert -- to achieve such strategic objectives. Viewed this way, the United States is already in close to full combat mode with respect to China.

Off the Top of My Head

The US is Attempting to Thwart China's Progress

by John Lawrence, February 19, 2019

To put it bluntly, if China gets ahead, the US will fall behind relative to their progress. The US  is adopting a Beggar Thy Neighbor policy. In other words the US is like a person who, if they can't be successful themself, at least can see to it that no one else can succeed either. While the US has been dropping bombs, destroying real estate, families and businesses in the Middle East and elsewhere, China has been investing all over the world using Chinese workers and capital with its Belt and Road initiative. Putting workers and capital to work building infrastructure is something the US has failed to do either at home or abroad.

This arrangement is keeping China's work force fully employed while at the same time creating friends instead of enemies and making China rich by means of the return on investment from countries to whom China is loaning money. Just like banks get rich by loaning money and gathering in the interest and returns on investment, and thereby growing the economy, China is growing the world economy and making sure that all roads lead to China as they did in the old days of the Silk Road.

The US, however, is having nothing of China's Belt and Road initiative. The US, especially neocons like John Bolton, see all this economic activity fostered by China as a dire threat to the US. Who are the world's countries going to be friends with - a country that drops bombs on them and orders them around or a country that builds infrastructure and strikes up trade deals, a country which is perpetually at war or a country which is trying to build the peace, a country whose offer of friendship is strictly top down or a country which approaches other countries as equals and with respect, a country which orders other countries not to have business relationships with certain other countries or a country which is open to trade relationships all over the world?

In an accompanying article Michael Klare declares:

In his highly acclaimed 2017 book, Destined for War, Harvard professor Graham Allison assessed the likelihood that the United States and China would one day find themselves at war. Comparing the U.S.-Chinese relationship to great-power rivalries all the way back to the Peloponnesian War of the fifth century BC, he concluded that the future risk of a conflagration was substantial. Like much current analysis of U.S.-Chinese relations, however, he missed a crucial point: for all intents and purposes, the United States and China are already at war with one another. Even if their present slow-burn conflict may not produce the immediate devastation of a conventional hot war, its long-term consequences could prove no less dire.

The US is in a struggle for global economic, technological, and military supremacy because it cannot fathom living in a world where the US is not top dog and China is an underdog. The US military mindset cannot think any other way. The 2019 Worldwide Threat Assessment of the U.S. Intelligence Community concluded: “We assess that China’s leaders will try to extend the country’s global economic, political, and military reach while using China’s military capabilities and overseas infrastructure and energy investments under the Belt and Road Initiative to diminish U.S. influence.” Yes, US influence will diminish not only because of China's peace initiatives but also because of the US's ordering its allies not to do business with other countries like Iran and Russia. Through the use of sanctions the US has effectively made colonies out of countries once considered as allies, and those countries don't like it one bit.

The article continues:

To counter such efforts, every branch of government is now expected to mobilize its capabilities to bolster American -- and diminish Chinese -- power. In Pentagon documents, this stance is summed up by the term “overmatch,” which translates as the eternal preservation of American global superiority vis-à-vis China (and all other potential rivals). “The United States must retain overmatch,” the administration’s National Security Strategy insists, and preserve a “combination of capabilities in sufficient scale to prevent enemy success,” while continuing to “shape the international environment to protect our interests.”

In other words, there can never be parity between the two countries. The only acceptable status for China is as a distinctly lesser power. To ensure such an outcome, administration officials insist, the U.S. must take action on a daily basis to contain or impede its rise. ...

Second only to Apple as the world’s supplier of smartphones and a major producer of telecommunications equipment, Huawei has sought to take the lead in the race for 5G adaptation around the world. Fearing that this might give China an enormous advantage in the coming decades, the Trump administration has tried to prevent that. In what is widely described as a “tech Cold War,” it has put enormous pressure on both its Asian and European allies to bar the company from conducting business in their countries, even as it sought the arrest in Canada of Huawei’s chief financial officer, Meng Wanzhou, and her extradition to the U.S. on charges of tricking American banks into aiding Iranian firms (in violation of Washington’s sanctions on that country). Other attacks on Huawei are in the works, including a potential ban on the sales of its products in this country. Such moves are regularly described as focused on boosting the security of both the United States and its allies by preventing the Chinese government from using Huawei’s telecom networks to steal military secrets. The real reason -- barely disguised -- is simply to block China from gaining technological parity with the United States.

The US cannot conceive of any other world than a world in which one country, namely the US, is on top and all other countries are subservient to it. Just as a male chauvinist cannot conceive of any other kind of human relationship than the one in which he is unequivocally the decider and his partner must assume an inferior position with respect to him, the US cannot conceive of any other world order than the one in which it is unequivocally superior. As Nietzsche said: "The family is the smallest unit of domination." Well then, the world must be the largest unit of domination. As marriage vows used to state: the wife shall, love, honor and obey the husband." This is why wars are fought - to see who is best, who is superior, who is the world's leader, who the other countries must bow down to. Until the world's leaders redefine peace in another way, there is little hope for human civilization. As Klare states in his article, "The only way to save civilization is for the U.S. and China to declare peace and focus together on human salvation."

The Financial Secret Behind Germany’s Green Energy Revolution

by Ellen Brown, from truthdig

JAN 24, 2019|TD ORIGINALS

Wind farmer Jan Marrink poses by his wind turbines in Nordhorn, Germany. (Martin Meissner / AP)

The “Green New Deal” endorsed by Rep. Alexandria Ocasio-Cortez, D.-N.Y., and more than 40 other House members has been criticized as imposing a too-heavy burden on the rich and upper-middle-class taxpayers who will have to pay for it. However, taxing the rich is not what the Green New Deal resolution proposes. It says funding would come primarily from certain public agencies, including the U.S. Federal Reserve and “a new public bank or system of regional and specialized public banks.”

Funding through the Federal Reserve may be controversial, but establishing a national public infrastructure and development bank should be a no-brainer. The real question is why we don’t already have one, as do China, Germany and other countries that are running circles around us in infrastructure development. Many European, Asian and Latin American countries have their own national development banks, as well as belong to bilateral or multinational development institutions that are jointly owned by multiple governments. Unlike the U.S. Federal Reserve, which considers itself “independent” of government, national development banks are wholly owned by their governments and carry out public development policies.

China not only has its own China Infrastructure Bank but has established the Asian Infrastructure Investment Bank, which counts many Asian and Middle Eastern countries in its membership, including Australia, New Zealand and Saudi Arabia. Both banks are helping to fund China’s trillion-dollar “One Belt One Road” infrastructure initiative. China is so far ahead of the United States in building infrastructure that Dan Slane, a former adviser on President Donald Trump’s transition team, has warned, “If we don’t get our act together very soon, we should all be brushing up on our Mandarin.”

The leader in renewable energy, however, is Germany, called “the world’s first major renewable energy economy.” Germany has a public sector development bank called KfW (Kreditanstalt für Wiederaufbauor “Reconstruction Credit Institute”), which is even larger than the World Bank. Along with Germany’s nonprofit Sparkassen banks, KfW has largely funded the country’s green energy revolution.

Unlike private commercial banks, KfW does not have to focus on maximizing short-term profits for its shareholders while turning a blind eye to external costs, including those imposed on the environment. The bank has been free to support the energy revolution by funding major investments in renewable energy and energy efficiency. Its fossil fuel investments are close to zero. One of the key features of KfW, as with other development banks, is that much of its lending is driven in a strategic direction determined by the national government. Its key role in the green energy revolution has been played within a public policy framework under Germany’s renewable energy legislation, including policy measures that have made investment in renewables commercially attractive.

KfW is one of the world’s largest development banks, with assetstotaling $566.5 billion as of December 2017. Ironically, the initial funding for its capitalization came from the United States, through the Marshall Plan in 1948. Why didn’t we fund a similar bank for ourselves? Simply because powerful Wall Street interests did not want the competition from a government-owned bank that could make below-market loans for infrastructure and development. Major U.S. investors today prefer funding infrastructure through public-private partnerships, in which private partners can reap the profits while losses are imposed on local governments.

KfW and Germany’s Energy Revolution

Renewable energy in Germany is mainly based on wind, solar and biomass. Renewables generated 41 percent of the country’s electricity in 2017, up from just 6 percent in 2000; and public banks provided over 72 percent of the financing for this transition. In 2007-09, KfW funded all of Germany’s investment in Solar Photovoltaic. After that, Solar PV was introduced nationwide on a major scale. This is the sort of catalytic role that development banks can play—kickstarting a major structural transformation by funding and showcasing new technologies and sectors.

KfW is not only one of the biggest financial institutions but has been ranked one of the two safest banks in the world. (The other, Switzerland’s Zurich Cantonal Bank, is also publicly owned.) KfW sports triple-A ratings from all three major rating agencies—Fitch, Standard and Poor’s, and Moody’s. The bank benefits from these top ratings and the statutory guarantee of the German government, which allow it to issue bonds on very favorable terms and therefore to lend on favorable terms, backing its loans with the bonds.

KfW does not work through public-private partnerships, and it does not trade in derivatives and other complex financial products. It relies on traditional lending and grants. The borrower is responsible for loan repayment. Private investors can participate, but not as shareholders or public-private partners. Rather, they can invest in “Green Bonds,” which are as safe and liquid as other government bonds and are prized for their green earmarking. The first “Green Bond—Made by KfW” was issued in 2014 with a volume of $1.7 billion and a maturity of five years. It was the largest Green Bond ever at the time of issuance and generated so much interest that the order book rapidly grew to $3.02 billion, although the bonds paid an annual coupon of only 0.375 percent. By 2017, the issue volume of KfW Green Bonds reached $4.21 billion.

Investors benefit from the high credit and sustainability ratings of KfW, the liquidity of its bonds, and the opportunity to support climate and environmental protection. For large institutional investors with funds that exceed the government deposit insurance limit, Green Bonds are the equivalent of savings accounts—a safe place to park their money that provides a modest interest. Green Bonds also appeal to “socially responsible” investors, who have the assurance with these simple and transparent bonds that their money is going where they want it to. The bonds are financed by KfW from the proceeds of its loans, which are also in high demand due to their low interest rates, which the bank can offer because its high ratings allow it to cheaply mobilize funds from capital markets and its public policy-oriented loans qualify it for targeted subsidies.

Roosevelt’s Development Bank: The Reconstruction Finance Corporation

KfW’s role in implementing government policy parallels that of the Reconstruction Finance Corporation (RFC) in funding the New Deal in the 1930s. At that time, U.S. banks were bankrupt and incapable of financing the country’s recovery. President Franklin D. Roosevelt attempted to set up a system of 12 public “industrial banks” through the Federal Reserve, but the measure failed. Roosevelt then made an end run around his opponents by using the RFC that had been set up earlier by President Herbert Hoover, expanding it to address the nation’s financing needs.

The RFC Act of 1932 provided the RFC with capital stock of $500 million and the authority to extend credit up to $1.5 billion (subsequently increased several times). With those resources, from 1932 to 1957 the RFC loaned or invested more than $40 billion. As with KfW’s loans, its funding source was the sale of bonds, mostly to the Treasury itself. Proceeds from the loans repaid the bonds, leaving the RFC with a net profit. The RFC financed roads, bridges, dams, post offices, universities, electrical power, mortgages, farms and much more; it funded all of this while generating income for the government.

The RFC was so successful that it became America’s largest corporation and the world’s largest banking organization. Its success, however, may have been its nemesis. Without the emergencies of depression and war, it was a too-powerful competitor of the private banking establishment; and in 1957, it was disbanded under President Dwight D. Eisenhower. That’s how the  United States was left without a development bank at the same time Germany and other countries were hitting the ground running with theirs.

Today some U.S. states have infrastructure and development banks, including California, but their reach is very small. One way they could be expanded to meet state infrastructure needs would be to turn them into depositories for state and municipal revenue. Rather than lending their capital directly in a revolving fund, this would allow them to leverage their capital into 10 times that sum in loans, as all depository banks are able to do, as I’ve previously explained.

The most profitable and efficient way for national and local governments to finance public infrastructure and development is with their own banks, as the impressive track records of KfW and other national development banks have shown. The RFC showed what could be done even by a country that was technically bankrupt, simply by mobilizing its own resources through a publicly owned financial institution. We need to resurrect that public funding engine today, not only to address the national and global crises we are facing now but for the ongoing development the country needs in order to manifest its true potential.

---

Ellen Brown is an attorney, chairman of the Public Banking Institute, and author of twelve books including "Web of Debt" and "The Public Bank Solution." A thirteenth book titled "The Coming Revolution in Banking" is due out soon. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

Off the Top of My Head

Strong on Defense or Strong on Peace?

by John Lawrence, January 2, 2018

Republicans pride themselves on being strong on defense. Even Hillary thought she had to prove her cred by being a hawk on defense. It all backfired in Libya and other places. Instead of being strong on war, let's start out this New Year by being strong on peace. Peace is not just the absence of war. It is much more. It is building bridges, repairing bombed out walls, opting to make the world a better place for those yet born. Peace is diplomatic treaties instead of creating more instruments of war, beating the swords of the future into the plowshares of a better life for all now. Peace is creating as many allies as possible. Peace is creating a good life for everybody instead of letting the majority of the world's population, including in the US, live in poverty.

If peace were just the absence of war, that would be pretty boring. We'd be waiting for the next good war to come along so we could have some excitement. We have to get over the mindset that war and destruction is exciting but peace and peaceful endeavors are not. We should be constructive instead of destructive. There is a lot of building to do to create a better world. We need to leave fossil fuels in the ground and switch to renewables ASAP if we don't want more extreme weather - more ferocious hurricanes, more horrendous wildfires, more thousand years floods that come now every year. Rich enclaves like Miami and Fisher Island will be underwater in a few years as sea levels rise and the arctic ice sheets melt. The $250,000 admission fee to own a house on Fisher Island will make America's richest zip code a worthless undersea Atlantis.

Plastics are polluting our oceans. Sea life is ingesting them and then we eat the fish. Industrialists and corporate agriculture are spraying crops with copious amounts of pesticides and herbicides. They are putting profits ahead of people. GMOs are creating frankenfoods that won't be killed by Monsanto's weedkillers which then kill everything around them getting on the plants that we then eat.

More than 40 million Americans live in poverty according to the US census. Philip Alston, a New York University law and human rights professor, led a UN study traveling across US. The group went to Puerto Rico and Washington, D.C. Alabama, California, Georgia, West Virginia were among the states they visited. "Most Americans don't care about it. They have bought the line peddled by conservative groups that poor people deserve what they are getting," Alston, the UN special rapporteur on extreme poverty and human rights, told CNN. The US, unlike the rest of the developed world, doesn't believe in human rights when it comes to lifting people out of poverty.

The report notes that the US has highest child mortality rate of 20 rich countries (OPEC comparison). It also has among the highest child poverty rates in the developed world, at 21%. It also considered obesity rates, income inequality and incarceration rates. The US is a leading example of all the above.

Off the Top of My Head

We Could Have the Ultimate in Border Security for a Fraction of the Cost of Being the World's Policeman

by John Lawrence, December 29, 2018

Why don't the Dems connect reduction in military bases abroad with increased border security? It's a perfect issue uniting the Left and the Right. The Dems are missing the boat if they don't latch on to this issue.They can co-opt Trump who has said as much. Not being the world's policeman doesn't mean that we don't partner with our allies if trouble arises. It just means that they pay their fail share and we work together. However, diplomacy and efforts towards the peaceful resolution of conflicts can go a long way. If we made friends with our enemies, we wouldn't need a Pentagon, but the Pentagon does the opposite. It creates enemies in order to justify its existence. Now the military is talking about hypersonics, a whole new area to spend money on, a whole new program for the Pentagon to justify larger and larger military budgets.

The US creates enemies by bombing the shit out of people and then letting the wounds fester instead of rebuilding those societies. Is it any wonder that half the world's people hate us? If we helped those in poverty instead of bombing them, maybe they would love us instead. If we helped Central America develop economically instead of aiding and abetting every dictator who ruthlessly suppresses the peasants, maybe they all wouldn't want to come here and live the American lifestyle. The internet has enabled them to see how Americans live and what they are missing. That's why they all want to cross the border.

I suspect the Dems want the status quo when it comes to the military and the military-industrial complex. That is they will vote for ever larger defense budgets. We have created more enemies, therefore we need more defense. More defense enables us to bomb more and create more enemies in a never ending cycle. Meanwhile, more and more Americans are homeless. The War on Poverty of the sixties now seems naive. Now it needs to be a War on Homelessness. The US needs to convert its bloated military budget to infrastructure development and helping the American people who need help. Instead it spends more money on the military and helps those who don't need help by giving the rich huge tax cuts.

Let's see how far the Dems get with the Green New Deal, infrastructure development, reducing the number of military bases abroad and beefing up security at the border. It's a whole plateful, but it can be done. All they need to do is to co-opt Trump.

Off the Top of My Head

Is Trump Onto Something?

by John Lawrence, December 28, 2018

Trump has said he doesn't want to defend the borders of every other country in the world. He wants to defend America's borders. That can be done at a fraction of the cost of supporting 1000 military bases in every country of the world. It logically follows that the defense budget can be reduced significantly. The money saved can rebuild infrastructure here at home and in the countries where American bombs have destroyed infrastructure, namely Iraq and Syria.

Take Mosul, for example. Though the city was liberated from ISIS in 2017, millions of tone of rubble are yet to be cleared; 40% of old Mosul remains disconnected from any water netweork; electricity is erratic; in certain neighborhoods, corpses and IEDs remain on the roadside. 65% of the city's housing stock was damaged or destroyed. These facts courtesy of Nick McDonell who wrote "The Bodies in Person: An Account of Civilian Casualties in American Wars." The US policy of bombing cities to smithereens came about because it results in less casualties to American soldiers. But it sure as heck destroys lives and infrastructure on the ground. It's a policy reminiscent of Vietnam where the commanding officer reported, "We had to destroy the village in order to save it." In this case they had to destroy entire cities in order to rid them of ISIS.

The United States Army has approximately 36 military bases in Germany. I think Trump would say, "Germany is capable of defending its own borders." 73 years after the end of WWII, the US is still either protecting the US from Germany or protecting Germany from Russia. It's not clear which. The American military presence in the United Kingdom differs from its installations in other parts of the world. Each of the five U.S. bases in England sits on property leased from the United Kingdom's Ministry of Defense and is subject to UK law. Each is U.S.-operated to serve U.S. interests yet has Royal Air Force status to appear British: RAF Alconbury, RAF Croughton, RAF Lakenheath, RAF Menwith Hill and RAF Mildenhall. All are U.S. Air Force military bases, although the U.S. Navy and the U.S Army have active-duty personnel stationed at one. Together they employ nearly 10,000 U.S. service personnel.

Think of the money that could be saved by pulling the US out of bases in countries that are allies of the US! That money could be used to build infrastructure at home which is crumbling due to lack of money for maintenance. It should also be used to rebuild cities and towns that have been destroyed by American bombs abroad. Finally some of it could be used to enhance the lives of those in dire poverty in Central America so they don't have to cross the border to come here in desperation.

The US could have the finest border security in the world and the finest infrastructure at a fraction of the cost of maintaining US military bases in every country of the world. Shame on the US for bombing cities to oblivion and then not lifting a finger to help rebuild lives in areas that it has destroyed.

I'm just following Trump's logic by suggesting that the US get out of other countries and use that money to put America First. Capiche?

Off the Top of My Head

Should Europe Provide Its Own Military?

by John Lawrence

Trump has said that the US is a sucker to provide military protection for Europe at our own expense. He wants Europe to pay for its own defense. That could mean an European army as French President Macron has suggested. Or that could mean payments to the US to provide protection similar to the way the Pope pays the Swiss guards for protection. So what's wrong with this idea? The US could cut its defense budget by a third at least if Europe provided for its own protection. After all they are the main ones being protected by NATO. You wouldn't need NATO any more. All you would need is an alliance of some sort.

But the US military-industrial complex is not going along with this idea because, first of all, they would be losing a lot of money. Secondly, they would be losing a lot of money. Those huge defense contracts, which keep the US economy humming and provide jobs at all levels, would go away. However, if the money was spent instead for peaceful purposes like building infrastructure, there is no need for the jobs to go away. They would just take a different form. Lockheed Martin would just pivot from being a defense contractor to being a peace contractor. The peace-industrial complex would take the place of the military-industrial complex. Instead of all the folks in the military bearing arms, they would be bearing shovels. It might not be as sexy as firing off rounds, but it would provide for the defense of the country in another way. Instead of a third class infrastructure, the US would regain once again a first class infrastructure.

Off the Top of My Head

US Seeks to Invest in Other Countries to Counteract Chinese

by John Lawrence, October 11, 2018

The Chinese are building infrastructure projects in other countries around the world thus gaining friends and influencing people. The US with its war machine seeks to solve every problem by intimidation or outright war. But now the Trump administration is catching on to the Chinese initiative and is deciding to do a little infrastructure investing itself - in other countries. Meanwhile, infrastructure within the US languishes. Hey Trump, why not do a little infrastructure investing in your own country? Maybe the Democrats should adopt the motto, MAKE AMERICAN INFRASTRUCTURE GREAT AGAIN! Right now it is piss poor and is marginally rebuilt after every hurricane, tornado and wildfire. In the interest of mitigating climate change, all telephone and electrical wires should be undergrounded. Trump says we'll send thousands and thousands of electrical workers to Florida to get the lights back on after the latest Hurricane Michael took them all down again. It's bullshit as usual.

The Wall Street Journal reported:

The U.S. is finalizing plans to double funding for big infrastructure projects around the world, seeking to counter China’s growing influence.

Congress is working to resolve the last barriers to passing a bill that would boost the U.S's role in international development. It would combine several little known government agencies into a new body, with authority to do $60 billion in development financing - more than double the cap of the current agency that performs that function.

I doubt if $60 billion is enough to counter the Chinese. The US spends $1 trillion annually on its military and military-industrial-intelligence complex and looks at every international problem through the lens of war. If all you have is a hammer, you tend to see every problem as solvable by a hammer. Maybe the US should convert some of the money it spends on war to peaceful development projects. But doesn't charity begin at home? What about American infrastructure which is $4 trillion in arrears?

MAKE AMERICAN INFRASTRUCTURE GREAT AGAIN!

Off the Top of My Head

Will the US Attack China for Bringing Peace to the World

by John Lawrence, August 8, 2018

China will be perceived by the US eventually as a threat because they are doing infrastructure development all over the world while all the US has to offer is its military and weapons development, drones, bombs etc. China is winning friends by striking deals to build railroads, ports, bridges, high speed rail. It is using fiat money to spread its influence throughout the Eurasian land mass and beyond including Latin America. The US has only sanctions and threats of war both hot and cold to spread its influence. It has military bases in most countries of the world. This is how the US uses fiat money to control the world. China is using fiat money to build the world. Fiat money is just money printed by the government's central bank - in the US case it's the Federal Reserve, in China's case it's the People's Bank of China.

US fiat money makes banks and bankers richer. It's inserted at the top of the financial system and is used mainly for financial speculation and to line the pockets of the rich. China's fiat money is inserted at the bottom and creates jobs and prosperity. China builds. The US destroys and exacerbates inequality. China also in many subtle ways has the upper hand relative to the US since it is the largest foreign holder of US debt in the form of Treasury bonds. Therefore, it controls how strong or weak the yuan is compared with the dollar which in turn controls the US trade deficit with China and how expensive Chinese products are when imported into the US. Currency manipulation does not enter the picture because the yuan floats freely against the dollar. It is not pegged to the dollar by a fixed exchange rate. Therefore, there can be no currency manipulation by definition. They have a right to buy and sell US Treasuries whenever they so desire. That's one of the pillars of capitalism. They are beating us in our own game.

China is playing the long game to exert its influence all over the world. It is the second leading economy. China is building infrastructure all over the world. The US cannot even build or repair infrastructure in its own country.  It is creating a new Silk Road that will expedite commerce with China and make Chinese products prevalent in world markets. The amazing thing is that China is spreading its influence by peaceful means, not by military threats like the US is doing. The yuan is well on its way to becoming a world reserve currency diminishing the role of the dollar and diminishing the US' use of sanctions to get what it wants. In addition other countries are turning to China for leadership as the US turns inward under Trump and undercuts its own role of leadership in the world.

Off the Top of My Head

Rather Than NATO Allies Increasing Spending Why Doesn't US Decrease Spending to Their Levels?

by John Lawrence, July 26, 2018

President Trump is upset about the disparity between European defense spending and American defense spending. He says NATO allies are getting a free ride. He wants them to increase defense spending to US levels. Here's an idea. Why doesn't the US with its bloated oversize defense budget decrease spending to their levels? The US defense spending, when you add in intelligence spending, spending on nuclear bombs (that's the Energy Department) and Homeland Security is over a trillion dollars. The US spends more on defense than the seven next highest spending countries combined. According to the Stockholm International Peace Research Institute, in 2015 US defense spending outstripped that of China, Russia, UK, France, Japan, Saudi Arabia and India combined.  In 2018 it's even worse.

So why don't the European countries push back towards the US and demand that the US decrease its defense spending? I guess they really don't care that US citizens go without adequate food, shelter and infrastructure as long as their ox isn't being gored. They like the US being the world's policeman and making a big show about talking tough with Russia. Of course when it comes to practical matters, Germany is happy to partner with Russia on the Nord II pipeline which will bring Russian natural gas to Germany at a reasonable rate. Such hypocrisy! And needless waste of defense dollars.

Wouldn't it be better to bring Russia into the fold rather than continuing to make them the outsiders? Of course when you need something from them that's mutually beneficial, then they aren't the enemy any more. The fact is that if the US ceased to be the world's policeman and sanctions imposer, the US economy would collapse. It's based on financial engineering and military spending. Other than that it has shipped off its manufacturing base to countries where the labor input is cheaper. The US is the world's largest debtor nation so it has to keep all those creditor nations in line. Else they might come calling and demanding their money.

The US is so poor and in debt that it can't even keep up with a $4 trillion infrastructure deficit. It is borrowing money just to pay interest on the national debt! Meanwhile, China is building infrastructure not only in China but around the world with its Belt and Road initiative. They have figured out the correct way to use fiat money. The US uses fiat money only to bail out the big banks, not to help Joe Six Pack. His mortgage can go up in flames for all the Federal Reserve, the nation's privately owned central bank, cares. In China the central bank is publicly owned. Maybe that's the difference.

Trump's "Infrastructure" Plan? Weaponized Keynesianism and a Pumped Up War Budget

Published on Monday, July 02, 2018 by TomDispatch

Pentagon spending is the Trump administration’s substitute for a true infrastructure program

by William Hartung

 

3 Comments

"The Trump administration’s decision to blatantly put jobs and economic benefits for U.S. corporations above human rights considerations and strategic concerns is likely to have disastrous consequences." (Photo: David B. Gleason/Flickr/cc)

Other than shouting about building a wall on the U.S.-Mexico border, one of Donald Trump’s most frequently proclaimed promises on the 2016 campaign trail was the launching of a half-trillion-dollar plan to repair America’s crumbling infrastructure (employing large numbers of workers in the process). Eighteen months into his administration, no credible proposal for anything near that scale has been made. To the extent that the Trump administration has a plan at all for public investment, it involves pumping up Pentagon spending, not investing in roads, bridges, transportation, better Internet access, or other pressing needs of the civilian economy.

Not that President Trump hasn’t talked about investing in infrastructure. Last February, he even proposed a scheme that, he claimed, would boost the country’s infrastructure with $1.5 trillion in spending over the next decade. With a typical dose of hyperbole, he described it as “the biggest and boldest infrastructure investment in American history.”

That $6-trillion, 10-year figure represents more than 30 times as much direct spending as the president’s $200 billion infrastructure plan.

 

Analysts from the Wharton School at the University of Pennsylvania -- Trump’s alma mater -- beg to differ. They note that the plan actually involves only $200 billion in direct federal investment, less than one-seventh of the total promised. According to Wharton’s experts, much of the extra spending, supposedly leveraged from the private sector as well as state and local governments, will never materialize. In addition, were such a plan launched, it would, they suggest, fall short of its goal by a cool trillion dollars. In the end, the spending levels Trump is proposing would have “little to no impact” on the nation’s gross domestic product. To add insult to injury, the president has exerted next to no effort to get even this anemic proposal through Congress, where it’s now dead in the water.

There is, however, one area of federal investment on which Trump and the Congress have worked overtime with remarkable unanimity to increase spending: the Pentagon, which is slated to receive more than $6 trillion over the next decade. This year alone increases will bring total spending on the Pentagon and related agencies (like the Department of Energy where work on nuclear warheads takes place) to $716 billion. That $6-trillion, 10-year figure represents more than 30 times as much direct spending as the president’s $200 billion infrastructure plan.

In reality, Pentagon spending is the Trump administration’s substitute for a true infrastructure program and it’s guaranteed to deliver public investments, but neglect just about every area of greatest civilian need from roads to water treatment facilities.

The Pentagon’s Covert Industrial Policy

One reason the Trump administration has chosen to pump money into the Pentagon is that it’s the path of least political resistance in Washington. A combination of fear, ideology, and influence peddling radically skews “debate” there in favor of military outlays above all else. Fear -- whether of terrorism, Russia, China, Iran, or North Korea -- provides one pillar of support for the habitual overfunding of the Pentagon and the rest of the national security state (which in these years has had a combined trillion-dollar annual budget). In addition, it’s generally accepted in Washington that being tagged “soft on defense” is the equivalent of political suicide, particularly for Democrats. Add to that the millions of dollars spent by the weapons industry on lobbying and campaign contributions, its routine practice of hiring former Pentagon and military officials, and the way it strategically places defense-related jobs in key states and districts, and it’s easy to see how the president and Congress might turn to arms spending as the basis for a covert industrial policy.

The Trump plan builds on the Pentagon’s already prominent role in the economy. By now, it’s the largest landowner in the country, the biggest institutional consumer of fossil fuels, the most significant source of funds for advanced government research and development, and a major investor in the manufacturing sector. As it happens, though, expanding the Pentagon’s economic role is the least efficient way to boost jobs, innovation, and economic growth.

Unfortunately, there is no organized lobby or accepted bipartisan rationale for domestic funding that can come close to matching the levers of influence that the Pentagon and the arms industry have at their command. This only increases the difficulty Congress has when it comes to investing in infrastructure, clean energy, education, or other direct paths toward increasing employment and economic growth.

Former congressman Barney Frank once labeled the penchant for using the Pentagon as the government’s main economic tool “weaponized Keynesianism” after economist John Maynard Keynes’s theory that government spending should pick up the slack in investment when private-sector spending is insufficient to support full employment. Currently, of course, the official unemployment rate is low by historical standards. However, key localities and constituencies, including the industrial Midwest, rural areas, and urban ones with significant numbers of black and Hispanic workers, have largely been left behind. In addition, millions of “discouraged workers” who want a job but have given up actively looking for one aren’t even counted in the official unemployment figures, wage growth has been stagnant for years, and the inequality gap between the 1% and the rest of America is already in Gilded Age territory.

Such economic distress was crucial to Donald Trump’s rise to power. In campaign 2016, of course, he endlessly denounced unfair trade agreements, immigrants, and corporate flight as key factors in the plight of what became a significant part of his political base: downwardly mobile and displaced industrial workers (or those who feared that this might be their future fate).

Off the Top of My Head

Dems Should Unify Around a Mainstream Economic Message

by John Lawrence

Trump won because he united the old rust belt states behind his economic message: more jobs. The Dems should unify around the same mainstream economic agenda. Basically that's Bernie Sanders' program - universal health care, free college and trade school education up through the credential if one is needed in certain fields. A BA or BS in itself isn't good enough any more. You need a credential to boot in order to work in certain fields. But even Bernie focuses too much on the poor. The poor are a minority, and they don't vote. In order to get votes a politician needs to focus on the majority like Trump did. As Bill Maher said, Trump noticed that there are still a lot of white people in this country.

Trump had a line in his campaign that he has completely forgotten about now that he's President. He said that our allies should bear a bigger portion of the expense of their own defense. So now he's attacking NAFTA and starting a trade war, but he's not touching NATO or reducing the Defense budget by insisting that our allies pay for their own defense. Instead he increased the defense budget which is now hovering around a trillion dollars a year, an insane and obscene amount of money. So the Dems should take a page out of Trump's book and talk about letting our allies pay for their own defense which would allow us to decrease the defense budget and create good paying jobs building and repairing infrastructure.

So this is where the Dems jobs program should come into play. Not $15 an hour minimum wage jobs, but good paying jobs building infrastructure. Even Bernie focuses too much on helping the poor instead of a mainstream economic message which is where the votes are. Please notice that everything I'm advocating also helps the poor.

So the message should be: 1) jobs rebuilding infrastructure; 2) universal and free health care and 3) free college up through the credential. All this can be paid for by letting our allies pay for their own defense and reducing the defense budget. Taxing the rich instead of giving them tax breaks would also be fiscally prudent. By product: a more peaceful nation. A better educated populace. A healthier citizenry.

Off the Top of My Head

The US Should Transfer Resources From the War Corps to the Peace Corps

by John Lawrence, March 27, 2018

Young folks graduating from high school who don't know what to do with themselves have a pretty good incentive package for joining the military. Free education, free health care, pay, a pension in 20 years after which they can use their training and experience to pursue another career in the civilian sector. Those same advantages and incentives should be given for young people to join the Peace Corps or the AmeriCorps. As many resources should be committed in the effort for peace as are committed for the war effort. This would change the character of the whole nation as well as the character of the world situation.

The defense budget of almost a trillion dollars a year should be divided equally between the military and the Peace Corps. As many resources as are presently being expending on pursuing war should be expended on pursuing peace. This way the economy need not take a huge hit as it would if the war budget was simply eliminated because the US economy depends on war to keep it running. Lockheed Martin could turn from providing weapons of war to turning out peace systems. I'm sure that various military contractors could figure out what a peace system actually is. When there is money involved, the American people and American corporations are very ingenious. There just needs to be a change in attitude from seeing every opportunity for manufacturing war systems to seizing every opportunity for providing a peace system.

 What would a peace system actually consist of? Tools for economic development, renewable energy resources, educational resources, infrastructure, stuff like that. One large nation is actually pursuing something like that. China with its Belt and Road initiative is pursuing infrastructure development around the world. It is really a peace system in disguise. While the US fritters away its resources on war, China is aggressively pursuing peace. Naturally, the US considers this a huge threat to its war machine. If other countries aligned with China in the pursuit of peace and economic development, where would this leave the US which has promulgated war and destruction around the world. More than a million people have been killed in the middle east because of US war policies there. Whole cities have been left in ruins. Billions of dollars of real estate have been destroyed.

Now along comes China with exactly the opposite policy. Where does this leave the US with its huge national debt? As a bystander at best.

5 Reasons Trump's Infrastructure Plan Is One Humongous Con

The president is taking taxpayers for another trillion-dollar ride.

 

By Robert Reich / RobertReich.org

March 16, 2018, 5:10 AM GMT  

 

8 COMMENTS

 

It’s the biggest Trump con since he told Americans the tax cut would help them more than the rich. He’s calling for a $1.5 trillion boost in infrastructure spending—but he’s proposing just $200 billion in federal funding. 

So where does the rest come from? Tax hikes on the middle-class and poor, and from private investors. 

 

1. State and local governments, already starved for cash, would have to raise taxes. 

2. Private investors, for their part, won’t pitch in unless they’re guaranteed a good return on their investment, most likely in the form of tolls and other user fees. Or worse, governments might be forced to transfer ownership of roads and bridges to private corporations.

So the public will end up paying twice: in higher taxes and higher tolls, and won’t even get what’s needed. 

3. Projects that will be most attractive to big investors are where tolls and fees will bring in the biggest bucks: Brand new highways and bridges rather than the thousands of smaller bridges, airports, pipes, and water treatment facilities most in need of repair. 

4. Trump’s infrastructure plan only worsens the racial justice divide in America, by leaving disadvantaged communities behind while giving massive profits to the rich and corporations through new tolls and fees.

5. It’s a double con because now that Trump and the Republicans have enacted a huge tax cut for corporations and the rich, there’s no money left for infrastructure. The White House says the $200 billion of federal spending will be offset by cuts elsewhere in the federal budget, but doesn’t explain how or where. Given what we know of Trump’s and the GOP’s priorities, that means taking money from programs that protect vulnerable Americans, not from the billions in wasted on military spending.

A real infrastructure program—as opposed to Trump’s fake program—would focus on repairing existing infrastructure, doing so based on need rather than financial returns, prioritizing public transportation over private, and clean water and renewable energy over projects that generate more pollution.

And it would be paid for by closing tax loopholes used by big corporations and the rich, not by imposing higher taxes, Trump tolls and user fees on the rest of us. 

To really make America great again we need more and better infrastructure that’s for the public—not for big developers and investors.

 

Funding Infrastructure: Why China Is Running Circles Around America

by Ellen Brown, Web of Debt

Posted on February 27, 2018

“One Belt, One Road,” China’s $1 trillion infrastructure initiative, is a massive undertaking of highways, pipelines, transmission lines, ports, power stations, fiber optics, and railroads connecting China to Central Asia, Europe and Africa. According to Dan Slane, a former advisor in President Trump’s transition team, “It is the largest infrastructure project initiated by one nation in the history of the world and is designed to enable China to become the dominant economic power in the world.” In a January 29^th article titled “Trump’s Plan a Recipe for Failure, Former Infrastructure Advisor Says,” he added, “If we don’t get our act together very soon, we should all be brushing up on our Mandarin.”

On Monday, February 12^th, President Trump’s own infrastructure initiative was finally unveiled. Perhaps to trump China’s $1 trillion mega-project, the Administration has now upped the ante from $1 trillion to $1.5 trillion, or at least so the initiative is billed. But as Donald Cohen observes in The American Prospect, it’s really only $200 billion, the sole sum that is to come from federal funding; and it’s not even that after factoring in the billions in tax cuts in infrastructure-related projects. The rest of the $1.5 trillion is to come from cities, states, and private investors; and since city and state coffers are depleted, that chiefly means private investors. The focus of the Administration’s plan is on public-private partnerships, which as Slane notes are not suitable for many of the most critical infrastructure projects, since they lack the sort of ongoing funding stream such as a toll or fee that would attract private investors. Public-private partnerships also drive up costs compared to financing with municipal bonds.

In any case, as Yves Smith observes, private equity firms are not much interested in public assets; and to the extent that they are, they are more interested in privatizing existing infrastructure than in funding the new development that is at the heart of the president’s plan. Moreover, local officials and local businessmen are now leery of privatization deals. They know the price of quick cash is to be bled dry with user charges and profit guarantees.

The White House says its initiative is not a take-it-or-leave-it proposal but is the start of a negotiation, and that the president is “open to new sources of funding.” But no one in Congress seems to have a viable proposal. Perhaps it is time to look more closely at how China does it . . . .

 

Off the Top of My Head

China Outdoes US on Infrastructure

by John Lawrence, February 23, 2018

Trump's trillion dollar infrastructure plan amounts to the government putting up $200 billion and then getting private investors to put up the rest. Of course these private investors and corporations want to make a profit. How do they make a profit? By charging the public for everything. Think toll roads instead of freeways. Think paying extra fees just for using the airport. Think paying fees whenever you turn around. Meanwhile in China they have the longest high speed rail network in the world, and they're building more at a rapid pace.

From Wikipedia:

High-speed rail (HSR) in China is the country's network of passenger-dedicated railways designed for speeds of 250–350 km/h (155–217 mph). In 2017 HSR extended to 29 of the country's 33 provincial-level administrative divisions and exceeded 25,000 km (16,000 mi) in total length, accounting for about two-thirds of the world's high-speed rail tracks in commercial service. It is the world's longest HSR network and is also the most extensively used, with 1.713 billion trips delivered in 2017 bringing the total cumulative number of trips to 7 billion.

And note that China's HSR is not farmed out to private investors. It's available to the public at no charge. When China wants to do something, they just do it. The US dithers around by the year and never gets much done except for the military. The US capability to kill people is truly amazing.

How much HSR does the US have. Not very much. The Acela Express (reaching 150 mph) and the Northeast Regional (reaching 125 mph) are currently the only services in the country (the Metroliner was discontinued in 2006). Quartz reports: California’s bullet train development hits another snag, while China’s barrels on.

While the US dithers China expands its HSR:

Millions of Chinese cram onto trains to make the annual pilgrimage home for the Lunar New Year holiday. It’s a crowded and often uncomfortable experience that is rapidly being transformed by the country’s push into the world of high-speed rail.

 China already has the globe’s longest bullet-train network, but it’s plowing 3.5 trillion yuan ($556 billion) into expanding its railway system by 18 percent over the next two years, to 150,000 kilometers, or more than 93,000 miles.

 

China also is leading the way on renewable energy. China is the world's leading country in electricity production from renewable energy sources, with over double the generation of the second-ranking country, the United States. Its Belt and Road initiative is building infrastructure all around the Eurasian land mass and Africa. What does the US build in the Americas? A wall.

 

In 2013, China’s president, Xi Jinping, proposed establishing a modern equivalent [to the Silk Road], creating a network of railways, roads, pipelines, and utility grids that would link China and Central Asia, West Asia, and parts of South Asia. This initiative, One Belt and One Road (OBOR), comprises more than physical connections. It aims to create the world’s largest platform for economic cooperation, including policy coordination, trade and financing collaboration, and social and cultural cooperation. Through open discussion, OBOR can create benefits for everyone.

 

While the US dithers at home and destroys the Middle East abroad, China builds.

Off the Top of My Head

Why Didn't Positive Train Control Kick In?

by John Lawrence

The Amtrak train was going 80 mph in a 30 mph zone. It was engineer error (similar to pilot error for planes) that caused the crash. Positive Train Control (PTC) could have prevented the crash just as it could have prevented the crash in Philadelphia that killed eight. In both cases the train was going too fast around a curve. PTC had been mandated by Congress in 2008, but so far it has been little implemented due to cost. It was supposed to be fully implemented by 2015. If it had been, 3 more people would be alive today. It had been built into the stretch of track the train was traveling on but was not yet operational. So far only 24% of passenger tracks have PTC and 41% of locomotives. For freight systems the percentages are even less.

A few hours after the crash, Donald Trump cited it as a reason to support his infrastructure plan, tweeting: “The train accident that just occurred in DuPont, WA shows more than ever why our soon to be submitted infrastructure plan must be approved quickly. Seven trillion dollars spent in the Middle East while our roads, bridges, tunnels, railways (and more) crumble! Not for long!” I don't agree with much of what Trump says, but I couldn't agree more about the money wasted in the Middle East while American infrastructure crumbles. However, there is no money for infrastructure after Congress passed a tax bill running the government another $1.5 trillion in debt. So Trump at some point will probably just declare that, thanks to him, "America has the best infrastructure in the world." Yeah, right.

As long as America wastes a trillion dollars each year on the war machine, there will be no improvement in infrastructure, nor will there be any improvement in the living standards of the average American. The Republicans already have plans to strip money out of every social program they can get their hands on including Social Security, Medicare and Medicaid. Let's hope they're voted out of power next year.

Calvin Coolidge famously said, "The business of America is business." Trump has carried this to a whole new level. As far as he's concerned the business of America is the enrichment of the US President. Everything else will follow or trickle down from that. The political class will get rich. Defense contractors will get rich. Wall Street will get rich. The only ones not getting rich are those Joe Six Pack types whose jobs will soon be replaced by robots.

Off the Top of My Head

2.4 Billion People Lack Adequate Access to Sanitation.

More People Have a Cell Phone Than a Toilet

by John Lawrence

People with no sanitation facilities just go potty in open fields. There's even a name for it: "open defecation." It's just another indication that people don't understand the importance of infrastructure and neither do governments. If sewage facilities were not already built out in the US and other developed countries, do you think Trump would deduct any money from the defense budget to pay for them? No, Republicans that control not only all branches of Federal government but state and local governments as well would rather have a tax break than to pay for infrastructure.

There is a several trillion dollar lack of infrastructure in the US - not sewage facilities, but roads, bridges, stuff like that. The Republican approach to infrastructure: privatize it. Let everyone provide their own private sewage facilities, that is let everyone have their own private septic tank and drainage field. If you don't have the money to pay for it, then go out and openly defecate in a field somewhere. Now there are not only cow patties out there, but human patties which are much more dangerous and disease laden.

Diseases caused by poor sanitation and unsafe water kill more children, some 1.4 million a year, than measles, malaria and AIDS combined. Mat Damon has used his celebrity status to do something useful. He cofounded water.org. From their website: "We are here to bring safe water and sanitation to the world through access to small, affordable loans. There is both a need and demand for these loans, because when people have access to safe water, they get time back to go to school, earn an income and take care of their family. It changes their world."

Why isn't the US government doing more to help children around the world by dedicating funds to this and other causes which lift people out of poverty and disease? Why is it left up to individual charity? Answer: there's too much money involved in the military-industrial-intelligence complex. There's little money involved for private contractors in alleviating a sewage crisis. American dollars go to defense (offense in the Orwellian translation), to the destruction of real estate and infrastructure, not to the creation of better living conditions around the world. It would take only a pittance to solve this problem if the US and other major governments got involved, but then how would Lockheed Martin and Northrop Grumman make a profit? What would happen to US GDP growth?

Trump’s Infrastructure Scam

by Robert Reich

Friday, June 9, 2017

Robert Reich

At a roundtable discussion with state transportation officials on Friday, Donald Trump said America’s aging roads, bridges, railways, and water systems were being “scoffed at and laughed” at. He pledged that they “will once again be the envy of the world.”

This seems to be a core theme for Trump: America’s greatness depends on others envying us rather than scoffing and laughing at us.

He said much the same thing last week when he announced his decision to withdraw from the Paris climate agreement. “At what point does America get demeaned? At what point do they start laughing at us, as a country? We don’t want other leaders and other countries laughing at us anymore. And they won’t be. They won’t be.”

To be sure, America is in dire need of massive investments in infrastructure. The nation suffers from overflowing sewage drains, crumbling bridges, rusting railroad tracks, outworn roads, and public transportation systems rivaling those of third-world nations.  

The American Society of Civil Engineers, giving America’s over-all infrastructure a grade of D-plus, says we would need to spend $3.6 trillion by 2020 to bring it up to par.

The problem isn’t that we’re being laughed at. It’s that we’re spending hours in traffic jams, disrupted flights, and slow-moving trains. And we’re sacrificing billions in lost productivity, avoidable public health problems, and increased carbon emissions. 

But what Donald Trump is proposing won’t help. It’s nothing but a huge and unnecessary tax giveaway to the rich.

His “$1 trillion infrastructure plan,” unveiled last week, doesn’t amount to $1 trillion of new federal investment in infrastructure. It would commit $200 billion of federal dollars over ten years, combined with about $800 billion of assorted tax breaks to get developers to build things instead of the federal government doing it.

And it’s hardly a plan. It’s not much more than a page of talking points.

Worse, its underlying principle is deeply flawed.  It boils down to a giant public subsidy to developers and investors, who would receive tax generous tax credits in return for taking on the job. 

Which means the rest of us would have to pay higher taxes or get fewer services in order to make up for the taxes the developers and investors would no longer pay.

For example (in one version of the plan I’ve come across), for every dollar developers put into a project, they’d actually pay only 18 cents – after tax credits – and taxpayers would contribute the other 82 cents through their tax dollars.

No one should be surprised at this scheme. It’s what Trump knows best. After all, he was a developer who made billions, often off sweeteners like generous tax credits and other subsidies.  

The public would also pay a second time. The developers would own the roads and bridges and other pieces of infrastructure they finance. They’d then charge members of the public tolls and fees to use them.

In place of public roads and bridges, we’d have private roads and bridges. Think of America turning into giant, horizontal-like Trump Tower wherever you looked.   

These tolls and fees won’t come cheap. They’d have to be set high in order to satisfy the profit margins demanded by the developers and the investors who back them.

Worst of all, we’d get the wrong kind of infrastructure. Projects that will be most attractive to developers and investors are those whose tolls and fees bring in the biggest bucks – giant mega-projects like major new throughways and new bridges.

Developers and investors won’t be interested in the thousands of smaller bridges, airports, pipes, and water treatment facilities across the country that are most in need of repair.

They’re not likely to respond to the needs of rural communities and smaller cities and towns that are too small to generate the tolls and other user fees equity developers and investors seek.

They won’t be attracted to the most important first priority for our nation’s infrastructure: Better maintenance of what we already have. With improved maintenance, it wouldn’t be necessary to completely rebuild.

But investors and developers want to build anew. They can’t reap big rewards from maintenance.

Nor will they want to put their efforts and money into projects that don’t yet have proven financial track records, like many clean energy innovations – which, not incidentally, might have enabled us to meet our targets under the Paris climate accords, were we still part of the Paris accords.

We shouldn’t have to pay twice over for the wrong infrastructure.

To really make America great again we need the correct infrastructure in the right places – infrastructure that’s for the public, not for big developers and investors.

Sorry, Donald. The only way we get this is if big corporations and the wealthy pay their fair share of taxes to support it.

China's 'Belt and Road' Plan for Economic Development

by John Lawrence

Under the “One Belt, One Road” plan, China is remaking global trade and nurturing geopolitical ties.

One Belt One Road initiative to connect China to Europe (credit:YouTube)

The plan promises more than $1 trillion in infrastructure investments that span 60-plus countries across Europe, Asia and Africa.

While Trump touts "America First" as his watchword, China is undertaking a massive development program that will expedite trade and benefit China and its partners economically as it gains influence throughout much of the world. The US Trans Pacific Partnership which is now defunct was supposed to counter growing Chinese influence, but now China will become the dominant player in the world economy gaining friends and alliances along the way.

An Up-To-Date Silk Road

The Silk Road was an ancient network of trade routes that were for centuries central to cultural interaction originally through regions of Eurasia connecting the East and West. The Silk Road derives its name from the lucrative trade in silk carried out along its length, beginning during the Han dynasty (207 BCE – 220 CE). Trade along this corridor did much to promote political and economic ties among China, Asia, Africa and Europe. China now seeks to build a modern version of the Silk Road.

Unlike the US which seems to impose its western, capitalist democratic values on the rest of the world, China is out to prove that its model is more viable because it is stimulative of commerce without demanding fealty or allegiance to western values in return. Major countries participating include Russia, India, the Philippines, Iran and Iraq. These countries working together will form a relationship that will counterbalance US influence which will be relegated to its allies in Europe, which is having second thoughts about the US thanks to Trump, and South America much of which is a basket case. Trump's insistence on renegotiating NAFTA is sure to distance both Mexico and Canada. His building a wall between the US and Mexico will further anger south and central American countries.

Trump's withdrawal from the Paris climate change accords signals the moment when the US lost its hegemony over the rest of the world. Now China is positioned to fill the void. The US seems incapable of coming up with the $4.6 trillion needed to repair its own infrastructure according to the American Society of Civil Engineers, much less build infrastructure in the rest of the world like China is doing. It's clear that the contingent landmass of Asia, Russia and Africa will fall under Chinese geopolitical influence.

Credit: Dave Simmonds

The American model of loaning money to other nations via Wall Street banks and then demanding austerity measures and privatization of governmental assets when their payments fall short will soon be a thing of the past in terms of appealing to developing nations. Even Europe, notably Germany, is distancing itself from the US. Angela Merkel said recently, "And that is why I can only say that we Europeans must really take our fate into our own hands - of course in friendship with the United States of America, in friendship with Great Britain and as good neighbors wherever that is possible also with other countries, even with Russia." Germany gets a large percentage - about 40% - of its natural gas from Russia. They might decide to participate in China's Belt and Road program now that they seem to be detaching themselves from Great Britain and the US or rather it's the other way around. Britain and the US have detached themselves from Germany thanks to Brexit and Trump.

If China Can Fund infrastructure with Its Own Credit, So Can We

by Ellen Brown

 

From Web of Debt blog, Posted on May 17, 2017

May 15^th-19^th has been designated “National Infrastructure Week” by the US Chambers of Commerce, the American Society of Civil Engineers (ASCE), and over 150 affiliates. Their message: “It’s time to rebuild.” Ever since ASCE began issuing its “National Infrastructure Report Card” in 1998, the nation has gotten a dismal grade of D or D+. In the meantime, the estimated cost of fixing its infrastructure has gone up from $1.3 trillion to $4.6 trillion.

While American politicians debate endlessly over how to finance the needed fixes and which ones to implement, the Chinese have managed to fund massive infrastructure projects all across their country, including 12,000 miles of high-speed rail built just in the last decade. How have they done it, and why can’t we?

 

A key difference between China and the US is that the Chinese government owns the majority of its banks. About 40% of the funding for its giant railway project comes from bonds issued by the Ministry of Railway, 10-20% comes from provincial and local governments, and the remaining 40-50% is provided by loans from federally-owned banks and financial institutions. Like private banks, state-owned banks simply create money as credit on their books. (More on this below.) The difference is that they return their profits to the government, making the loans interest-free; and the loans can be rolled over indefinitely. In effect, the Chinese government decides what work it wants done, draws on its own national credit card, pays Chinese workers to do it, and repays the loans with the proceeds.

The US government could do that too, without raising taxes, slashing services, cutting pensions, or privatizing industries. How this could be done quickly and cheaply will be considered here, after a look at the funding proposals currently on the table and at why they are not satisfactory solutions to the nation’s growing infrastructure deficit.

The Endless Debate over Funding and the Relentless Push to Privatize

 In a May 15, 2017, report on In the Public Interest, the debate taking shape heading into National Infrastructure Week was summarized like this:

The Trump administration, road privatization industry, and a broad mix of congressional leaders are keen on ramping up a large private financing component (under the marketing rubric of ‘public-private partnerships’), but have not yet reached full agreement on what the proportion should be between tax breaks and new public money—and where that money would come from. Over 500 projects are being pitched to the White House. . . .

Democrats have had a full plan on the table since January, advocating for new federal funding and a program of infrastructure renewal spread through a broad range of sectors and regions. And last week, a coalition of right wing, Koch-backed groups led by Freedom Partners . . .  released a letter encouraging Congress “to prioritize fiscal responsibility” and focus instead on slashing public transportation, splitting up transportation policy into the individual states, and eliminating labor and environmental protections (i.e., gutting the permitting process). They attacked the idea of a national infrastructure bank and . . . targeted the most important proposal of the Trump administration . . . —to finance new infrastructure by tax reform to enable repatriation of overseas corporate revenues . . . .

In a November 2014 editorial titled “How Two Billionaires Are Destroying High Speed Rail in America,” author Julie Doubleday observed that the US push against public mass transit has been led by a think tank called the Reason Foundation, which is funded by the Koch brothers. Their $44 billion fortune comes largely from Koch Industries, an oil and gas conglomerate with a vested interest in mass transit’s competitors, those single-rider vehicles using the roads that are heavily subsidized by the federal government.

Clearly, not all Republicans are opposed to funding infrastructure, since Donald Trump’s $1 trillion infrastructure plan was a centerpiece of his presidential campaign, and his Republican base voted him into office. But “establishment Republicans” have traditionally opposed infrastructure spending. Why? According to a May 15, 2015 article in Daily Kos titled “Why Do Republicans Really Oppose Infrastructure Spending?”:

Republicans – at the behest of their mega-bank/private equity patrons – really, deeply want to privatize the nation’s infrastructure and turn such public resources into privately owned, profit centers.  More than anything else, this privatization fetish explains Republicans’ efforts to gut and discredit public infrastructure  . . . .

If the goal is to privatize and monetize public assets, the last thing Republicans are going to do is fund and maintain public confidence in such assets.  Rather, when private equity wants to acquire something, the typical playbook is to first make sure that such assets are what is known as “distressed assets” (i.e., cheaper to buy).

A similar argument was advanced by Noam Chomsky in a 2011 lecture titled “The State-Corporate Complex: A Threat to Freedom and Survival”. He said:

[T]here is a standard technique of privatization, namely defund what you want to privatize. Like when Thatcher wanted to [privatize] the railroads, first thing to do is defund them, then they don’t work and people get angry and they want a change. You say okay, privatize them . . . .

What’s Wrong with Public-Private Partnerships?

Privatization (or “asset relocation” as it is sometimes euphemistically called) means selling public utilities to private equity investors, who them rent them back to the public, squeezing their profits from high user fees and tolls. Private equity investment now generates an average return of about 11.8 percent annually on a ten-year basis. That puts the cost to the public of financing $1 trillion in infrastructure projects over 10 years at around $1.18 trillion, more than doubling the cost. Moving assets off the government’s balance sheet by privatizing them looks attractive to politicians concerned with this year’s bottom line, but it’s a bad deal for the public. Decades from now, people will still be paying higher tolls for the sake of Wall Street profits on an asset that could have belonged to them all along.

One example is the Dulles Greenway, a toll road outside Washington, D.C., nicknamed the “Champagne Highway” due to its extraordinarily high rates and severe underutilization in a region crippled by chronic traffic problems. Local (mostly Republican) officials have tried in vain for years to either force the private owners to lower the toll rates or have the state take the road into public ownership. In 2014, the private operators of the Indiana Toll Road, one of the best-known public-private partnerships (PPPs), filed for bankruptcy after demand dropped, due at least in part to rising toll rates. Other high-profile PPP bankruptcies have occurred in San Diego, CA; Richmond, VA; and Texas.

Countering the dogma that “private companies can always do it better and cheaper,” studies have found that on average, private contractors charge more than twice as much as the government would have paid federal workers for the same job. A 2011 report by the Brookings Institution found that “in practice [PPPs] have been dogged by contract design problems, waste, and unrealistic expectations.” In their 2015 report “Why Public-Private Partnerships Don’t Work,” Public Services International stated that “[E]xperience over the last 15 years shows that PPPs are an expensive and inefficient way of financing infrastructure and divert government spending away from other public services. They conceal public borrowing, while providing long-term state guarantees for profits to private companies.” They also divert public money away from the neediest infrastructure projects, which may not deliver sizable returns, in favor of those big-ticket items that will deliver hefty profits to investors.

A Better Way to Design an Infrastructure Bank

The Trump team has also reportedly discussed the possibility of an infrastructure bank, but that proposal faces similar hurdles. The details of the proposal are as yet unknown, but past conceptions of an infrastructure bank envision a quasi-bank (not a physical, deposit-taking institution) seeded by the federal government, possibly from taxes on the repatriation of offshore corporate profits. The bank would issue bonds, tax credits, and loan guarantees to state and local governments to leverage private sector investment. As with the private equity proposal, an infrastructure bank would rely on public-private partnerships and investors who would be disinclined to invest in projects that did not generate hefty returns. And those returns would again be paid by the public in the form of tolls, fees, higher rates, and payments from state and local governments.

There is another way to set up a publicly-owned bank. Today’s infrastructure banks are basically revolving funds. A dollar invested is a dollar lent, which must return to the bank (with interest) before it can be lent again. A chartered depository bank, on the other hand, can turn a one-dollar investment into ten dollars in loans. It can do this because depository banks actually create deposits when they make loans. This was acknowledged by economists both at the Bank of England (in a March 2014 paper entitled “Money Creation in the Modern Economy”) and at the Bundesbank (the German central bank) in an April 2017 report.

Contrary to conventional wisdom, money is not fixed and scarce. It is “elastic”: it is created when loans are made and extinguished when they are paid off. The Bank of England report said that private banks create nearly 97 percent of the money supply today. Borrowing from banks (rather than the bond market) expands the circulating money supply. This is something the Federal Reserve tried but failed to do with its quantitative easing (QE) policies: stimulate the economy by expanding the bank lending that expands the money supply.

The stellar (and only) model of a publicly-owned depository bank in the United States is the Bank of North Dakota (BND). It holds all of its home state’s revenues as deposits by law, acting as a sort of “mini-Fed” for North Dakota. According to reports, the BND is more profitable even than Goldman Sachs, has a better credit rating than J.P. Morgan Chase, and has seen solid profit growth for almost 15 years. The BND continued to report record profits after two years of oil bust in the state, suggesting that it is highly profitable on its own merits because of its business model. The BND does not pay bonuses, fees, or commissions; has no high paid executives; does not speculate on risky derivatives; does not have multiple branches; does not need to advertise; and does not have private shareholders seeking short-term profits. The profits return to the bank, which distributes them as dividends to the state.

The federal government could set up a bank on a similar model. It has massive revenues, which it could leverage into credit for its own purposes. Since financing is typically about 50 percent of the cost of infrastructure, the government could cut infrastructure costs in half by borrowing from its own bank. Public-private partnerships are a good deal for investors but a bad deal for the public. The federal government can generate its own credit without private financial middlemen. That is how China does it, and we can too.

For more detail on this and other ways to solve the infrastructure problem without raising taxes, slashing services, or privatizing public assets, see Ellen Brown, “Rebuilding America’s Infrastructure,”a policy brief for the Next System Project, March 2017.

______________________

Ellen Brown is an attorney, founder of the Public Banking Institute, a Senior Fellow of the Democracy Collaborative, and author of twelve books including Web of Debt and The Public Bank Solution. She also co-hosts a radio program on PRN.FM called “It’s Our Money.” Her 300+ blog articles are posted at EllenBrown.com.

US Infrastructure Gets D+ Grade: Trump to the Rescue?

by John Lawrence

Trump Promises a Trillion Dollar Investment in Infrastructure

It will be an investment by private equity and hedge funds which grants them huge tax breaks. Those will have to be made up for by the middle class American taxpayer. In addition freeways will be replaced by toll roads so that not only will Americans pay more taxes while Wall Street benefits, they will pay tolls as well. So while $1 trillion may or may not be invested (over 10 years), most of the investment will be made by corporations that will then have the right to impose tolls on the American public. There will be tolls for everything from roads and bridges to water and electrical. Americans will probably even pay tolls for toilet flushes eventually. Got to pay for those rebuilt sewage systems somehow! Public Private Partnerships (PPPs) will boil down to private ownership of US infrastructure.

Meanwhile, private investment in infrastructure in poorer areas (think Flint, Michigan) will not take place at all because it's not profitable. Infrastructure investment in rural areas will also languish for the same reasons. Workers who build the new infrastructure will work for lower wages since they won't benefit from the same wage levels as Federal workers. Profits will come from reduced wages and benefits for construction workers and the workers who operate and maintain the assets after construction is finished. If the Federal government funded the projects, Davis-Bacon or prevailing wage requirements would be in effect, but the Trump-Ryan-McConnell legislative package could include a repeal of that 1931 law. The permanent workers could become private-sector workers with lower wages and reduced health and pension benefits.

The American Society of Civil Engineers gave the US a D+ rating recently in its infrastructure report which comes out every four years. They say poor infrastructure is costing the economy $3.9 trillion in GDP. They grade infrastructure in 16 different categories. The only category that passes muster is the freight rail system. Everything else - roads, bridges, ports, airports, drinking water, waste water, energy, dams, levees etc - is sub-par. Infrastructure-wise, the US is a third rate nation.

Four in ten of the country's 614,387 bridges are more than 50 years old and near the end of their designed life span. Nearly 59,000 are structurally deficient. There are 240,000 water main breaks each year which waste 2 trillion gallons of water. Traffic backups cost $160 billion in wasted time and fuel in 2014 and 20% of highway pavements are in poor condition.

Trump's plan to privatize infrastructure would also, Republicans might claim, help the environment. As tolls on highways and bridges rise, more people won't be able to afford them and so there will be fewer cars on the road - fewer poor people's cars, that is. The poor and carless will be forced onto public transportation to get where they're going. Or they may take Uber or Lyft which are cheaper than taxis and provide an alternative which many people are using today. Only the rich will be able to afford private automobiles. That's one way to forestall climate change. However, public transportation, having been sold off to private investors might become exorbitantly expensive as well.

The Federal gas tax hasn't been raised since 1993. 19 states have increased the gas tax though to pay for infrastructure. GA governor Nathan Deal wanted to do something about gridlock in Atlanta. In 2015 the gas tax was raised 6 cents a gal. This gave rise to a $10 billion transportation bill over 10 years. Some governors are doing it right. A gas tax may be the best way not to sell off public assets. Now Governor Jerry Brown is proposing raising the gas tax in California.

So how will we fund the necessary improvements in infrastructure? It comes down to a gas tax or a toll road. It's as simple as that.

Are Toll Roads a Bad Idea?

From StreetsblogUSA:

From the beginning, there were plenty of reasons to suspect that Texas 130 — a private toll road between San Antonio and Austin — was a bad idea.

For one thing, the state of Texas looked into extending the highway in 2006 and concluded it wouldn’t generate nearly enough toll revenue to pay for construction.

Nevertheless, when two private firms, Cintra and Zachry Corp., decided to take the project on in 2008, the state of Texas and federal officials were happy to help. Cintra and Zachry put together a deal to build the $1.35 billion freeway. They lined up $430 million in federally-backed TIFIA (Transportation Infrastructure Finance and Innovation Act) loans, and promised to share toll revenues with the state of Texas and pay $25 million upfront.

After shoddy construction the companies involved went bankrupt. Texas 130 is the third private toll road that received TIFIA funding to have declared bankruptcy or been restructured. It remains to be seen how much of the $430 million in TIFIA loans can be recovered.

In another case, Virginia received a $150 million TIFIA loan for the “Pocahontas Parkway”. The full balance of the federal loan was transferred to the new owner, DBi Services, in May 2014, after original owner Transurban surrendered the road in a “defacto bankruptcy” in 2013.

In San Diego, the South Bay Expressway borrowed $172 million backed by TIFIA. The balance of that loan was written down in bankruptcy to $93 million. In return, the federal government was given a 32 ownership stake.

Cities and states are strapped for cash. They are selling off city assets to make ends meet. In southern Virginia a tunnel was privatized. The tolls started low but have risen to $11. The state of Virginia now subsidizes some low income drivers. A toll road in Denver didn't used to cost taxpayers a dime but now costs drivers as much as $18 one way. Americans don't want an increased gas tax, but the alternative is to pay tolls through the nose to private corporations.

Chicago's Privatized Parking Meter Fiasco

Privatization has its bleak underside. Consider Chicago which privatized its parking meters back in 2008. The cost of parking has more than doubled since then and the lease is for 75 years. Former Mayor Richard M. Daley quietly negotiated the meter selloff behind closed doors for $1.15 billion. It was either that, he said, or lay off hundreds of employees. The City Council rubber stamped the Mayor's deal. And then there are the hidden clauses. For instance, if the city blocks off the streets for a street fair or a parade the contract calls for the City to make up what the private company lost in parking revenues.

Chicago Parking Meters' (CPM) income stream last year included $6.5 million in direct payments from the City as penalties for taking meters out of commission. That means taxpayers still have to compensate CPM every time the city needs to shut down a meter for street repairs, festivals, summits, traffic flow, or any other reason. Better hope President Trump doesn't make any appearances there. That will shut down a lot of streets and cost the citizens of Chicago a lot of money.

CPM is a consortium led by Wall Street behemoth Morgan Stanley. Since the deal went through, rates have skyrocketed (downtown areas more than doubled in cost to $6.50 an hour by 2013) and the company has netted $778.6 million in revenue. By 2020, the company will have made back its initial $1.15 billion investment and will continue to profit for 60 years. They have also added new parking meters in outlying areas subject to the same exorbitant rates. The deal also includes revenue from underground parking garages. Morgan Stanley soon offloaded ownership of Chicago's parking meters to Alliance Capital Partners and the Abu Dhabi Investment Authority. Chicago’s parking-meter system took in $121.7 million last year, while four underground city-owned garages reaped another $34.7 million — with not a penny of that money going to the cash-strapped city government.

The public is outraged. Not only do they pay through the nose to a foreign corporation for parking, but their taxes go up to make up the shortfall to the City government caused by lost parking meter and garage revenue. Within two months of selling its parking meters to a coalition of U.S. and Western investors led by Morgan Stanley, Chicago's parking meters came under new, foreign ownership.

Mat Taibbi reported:

[The investment] process involved [Morgan Stanley]'s Infrastructure group going on a road tour to ask people with lots of cash to pony up. It was these guys from Morgan's Infrastructure desk who took their presentation to the Middle East and pitched Chicago's parking meters to a room full of bankers and analysts in Abu Dhabi, the Abu Dhabi Investment Authority, who ultimately agreed to purchase a large stake.

Trump said he wants to finance it with both public and private capital creating millions of new jobs. Billions in tax credits will go to private investors willing to finance public infrastructure projects. The project has to generate revenue for the private investors regardless of what the public has to pay in tolls.

Trump's Infrastructure Plan a Huge Giveaway to Wall Street

Trump's plan to privatize infrastructure development would cede control over public assets to private interests who would have to borrow the money from Wall Street. They would then recoup that money with tax credits. So basically Trump's infrastructure plan is a huge giveaway to Wall Street. Wall Street can borrow money from the Fed at zero interest. Then it would lend it out to private developers at say 5%. Essentially government would be lowering its tax revenues by a huge amount because it doesn't control the Fed which is under private bank ownership. So the US does not own its own central bank. If it did, it could borrow money from the Fed at zero interest instead of having to have the money funneled through Wall Street, which controls the Fed. What it comes down to is that the American public has to pay taxes to support Wall Street.

Paul Krugman says:

First, why involve private investors at all? It’s not as if the federal government is having any trouble raising money — in fact, a large part of the justification for infrastructure investment is precisely that the government can borrow so cheaply. Why do we need private equity at all?

One answer might be that this way you avoid incurring additional public debt. But that’s just accounting confusion. Imagine that you’re building a toll road. If the government builds it, it ends up paying interest but gets the future revenue from the tolls. If it turns the project over to private investors, it avoids the interest cost — but also loses the future toll revenue. The government’s future cash flow is no better than it would have been if it borrowed directly, and worse if it strikes a bad deal, say because the investors have political connections.

But Paul doesn't get it. There is no need for the government to pay interest at all as Paul claims if it owned its central bank instead of it being owned by Wall Street. Governments built toll free highways for years. They're called freeways. If government didn't have to pay interest, it could do so again. Trump's plan would not only make automobile travel a thing of the past for poor people, it would privatize public assets and turn over control to private interests whose sole consideration is the profit motive. That's why it's necessary to create public banks at the Federal, state and municipality level so the nation does not proceed down the road of turning the American public into debtors beholden to Wall Street. They are already in enough debt to Wall Street from student loans, credit cards, car loans and mortgages.

So everything the private equity or hedge fund investors would invest in would have a toll associated with it. Roads and bridges, of course, but also you would be paying higher rates for the water coming into your home if private equity fixed your water mains. You would pay higher rates for your electricity if private hedge funds improved the electrical grid. You could even pay higher rates for sewage disposal. Perhaps a modern toilet would have a meter that exacted a toll every time you flushed.

None of this would apply to rural areas where there is not enough traffic to extract tolls from roads and bridges. Water and sewage disposal are private anyway with wells and septic systems. So rural areas would be left to languish under the Trump infrastructure plan. Instead there would be a lot of Trump tunnels and Trump toll roads, not to mention Trump airports, in urban and suburban parts of the country. You thought he was egotistical when he put his name on all his privately owned properties. You ain't seen nothing yet!

Chicago learned the hard way in the midst of the recession, leasing its parking meters to Wall Street for $1 billion under value. Texas did too when the private investors in a toll road between Austin and San Antonio went bankrupt, leaving taxpayers to clean up the mess.

From The American Prospect:

The need for capital is real and in some cases urgent. It is possible that private capital could meet the need although at lower than their usual rates of return and without shifting operational control for multiple decades. We call this option “P3 without privatization” since the public maintains full control (not just ownership) of the asset.

Unfortunately, investors and infrastructure companies are pushing for the full privatization that relies on private finance, operations, and maintenance to be able to capture decades of stable revenues that come with long-term operation and maintenance of the asset. The promise they offer to policymakers is alluring, at worst false and at best not entirely true—lower costs, faster construction, and new ideas and innovations.

So get prepared to see red light cameras at every intersection with the fines going to a foreign (perhaps) profit making corporation, not to city government. Revenues will skyrocket as the corporation strictly enforces every traffic violation perhaps with its own private police force which will not deal with criminal issues but will deal with any finable infractions. This will increase profits immensely while cities will be cash strapped to deal with hard core criminality. Go a mile over the speed limit and your car will be recorded as such with GPS technology and you will be sent a bill payable to the XXX Corporation.

Privatization of Water System Led to Doubling of Prices

It's already been tried in South America - at least twice! The World Bank foisted water privatization on the people of Bolivia. Poor people ended up with no access to water at all. In 2002 the citizens of El Alto took to the streets to demand that their water system, privatized in 1997, be returned to public hands. Three days later Bolivia's president issued a decree canceling the water concession, led by the French water giant, Suez, and an arm of the World Bank itself. The El Alto water revolt followed, by five years exactly, the now famous revolt against water privatization in Cochabamba, in which a company controlled by the Bechtel Corporation was ousted from the country.

The Nation reported:

Bolivia's experience with bank-forced water privatization is a striking example of the yawning gap between World Bank theory and how things actually work in the real world for the poor families who have to live with the results.

In Cochabamba five years ago, the water contract with Bechtel and the Abengoa Corporation of Spain paved the way for rate increases of double and more for poor water users.Those steep and sudden price hikes, needed in part to finance the 16 percent annual profit demanded by the companies, led to citywide protests and eventually to Bechtel's and Abengoa's ouster.

So now Trump wants to do to Americans what the World Bank, which is controlled by the US and represents US economic orthodoxy, did to Bolivians! The results will likely turn out the same way they did in Bolivia - a revolt against rising prices and shoddy delivery systems. Again only the rich will get a good supply of fresh water. The poor will get the dregs delivered in pipes 100 years old. You think it can't happen here? You didn't think Trump would win either, I bet.

Why Not Start a Public Bank to Pay for Infrastructure

A public bank devoted to infrastructure would solve the problem that governments have of having to borrow money and give Wall Street its cut of everything. The creation of a National Infrastructure Reinvestment Bank was first proposed by Senator Christopher J. Dodd and Senator Chuck Hagel in 2007. Public banks have an excellent track record for helping cities and states finance infrastructure.

This is from the Public Banking Institute:

In the case of nearly every state and town government, it is standard practice to send millions upon millions of dollars a year to banks and investors to pay the interest on bonds that have been issued for state infrastructure. If you add up the money the towns collectively send to banks and investors for the same purposes, it is a lot of money. In the case of California, its long awaited new Bay Bridge span was recently completed at a cost of $6.4 billion - over 400% over its initial projection.  What most Californians don't realize is that the total cost of the bridge will eclipse $13 billion when interest payments are considered over their life.  50% savings is not an aberration - it is pretty much a standard calculation for what municipalities can save by issuing their own loans for critical infrastructure from their own bank.

Meanwhile it is also standard practice to cut programs that benefit low income citizens and students to close “budget gaps” that appear on a regular basis.  There are also many unmet needs for roads, bridges, public transit, energy, housing, education, water, and telecommunications. If the interest payments on infrastructure, housing, economic development, and student loans were going to the public sector instead, we would have lower taxes and more funds available for needed improvements.

Amen to that, brother. There is no reason why governments at any level should have to pay Wall Street an amount equal to the cost of the infrastructure simply to get financing. Start a publicly owned bank instead like the state of North Dakota did.

It's Time for Quantitative Easing for People Instead of Banks

by John Lawrence from the San Diego Free Press

Income Inequality is Getting Worse

Income and wealth inequality is only getting worse. It's not hard to understand why. Certain corporations have a lock on economic activity throughout the world. Mom and Pop operations have been forced out of business or have merged with the Big Guys. Artificial intelligence, automation, robots and computers have taken over many menial but used-to-be-better-than-minimum-wage jobs like check-out clerks, bank tellers and customer service operators. Other jobs have been off shored to cheaper labor jurisdictions.

The rest of us, college graduates included, have been reduced to being expendable appendages of the large corporate machines to be sucked in and spit out at their pleasure. When our skill sets are outmoded, we will be laid off and fresh talent will be acquired. The job pool is shrinking because the number of necessary jobs is shrinking. Today, there are approximately 1.2 million fewer jobs in mid-and higher-wage industries than there were prior to the 2008 recession, while there are 2.3 million more jobs in lower-wage industries. According to the Bureau of Labor Statistics most jobs in the next decade won't even require a college education. They are jobs that can't be done by robots: care givers, nurses, house cleaners, gardeners, retail.

Another reason for income and wealth inequality is that the US Federal Reserve's quantitative easing policy screws savers who get zero interest on their life savings while injecting money into the largest Wall Street banks. This money is siphoned off by wealthy investors and hedge funds. It never enters the real economy. It only encourages the average Joes and Janes to take on more debt. Ninty percent of the money supply is created by private banks who loan money into the economy through their policy of fractional reserve banking. As the money supply increases, so does debt.

Wall Street Banking Giants Create Most of the US Money Supply

Fractional reserve banking is a simple concept that has become more complicated and convoluted as it has evolved over the years. In its simplest terms, if a bank takes in a deposit of $100 from 10 people or $1000 total, it loans out $900 of that keeping $100 back as a reserve in case someone wants their deposit back before the principal and interest on the loans start flowing in. Their premise is that not everyone will demand their deposit back at the same time. If, however, everyone does want their money back at the same time, there could be a run on the bank unless the bank can borrow the money from some other entity like another bank or the Federal Reserve

Thus money is created by the bank with a few keystrokes on a computer and is fed into the economy as debt. The banks are at the top of the food chain since they create the money and loan it out on interest. Thus the US economy is a debt based economy. Bad things happen when people all demand their money back at the same time or collective debt becomes so big and untenable that it can't be paid back. This is what happened in the 2008 financial crisis when mortgages were given to people who couldn't pay them back and hence defaulted. Eventually this whole financial structure, which was a house built upon sand instead of a rock, to use a Biblical metaphor, collapsed.

It is to be noted that when a bank creates money, it is not backed by gold. Nixon took us off the gold standard in 1971. Money not based on anything but the government's say so is called fiat money. Thus all money created by private banks is fiat money, and, although the government says it is all good, it is the private banks that actually create it, not the supposedly democratically elected government.

The Federal Reserve has also been involved in money creation recently with a process called quantitative easing (QE). When the government needs money beyond the revenues it takes in by means of taxes, it goes into debt by issuing bonds. Sometimes those bonds are bought by Joe and Jane Average Investor or sometimes by other countries like Japan. However, much of the time they are bought by Wall Street banks. Then the Federal Reserve turns around and pays cash for those bonds taking them off the hands of the big banks. The result is that the banks end up with more money and the loans disappear on the Federal Reserve's balance sheet which is sort of like a black hole. Effectively, the government never has to pay those loans back.

Quantitative Easing for the People

There is another way that money could be created and injected into the economy. It might be called quantitative easing for the people (PQE) as Britain's Leader of the Labor Party, Jeremy Corbyn has termed it. He proposes to give the Bank of England a new mandate to upgrade the economy to invest in new large scale housing, energy, transport and digital projects. The investments would be made through a National Investment Bank set up to invest in new infrastructure and in the hi-tech innovative industries of the future.

The money creation (or printing if you like) would entail the government issuing a bond that a National Investment Bank would buy. Then the central bank would take that loan on its balance sheet in return for cash that the bank would then use to pay for infrastructure. The end result is that the government would owe the central bank the amount of the loan, but because the central bank is a financial black hole, it would never have to pay.

In Addition to Pocketing the QE, Wall Street Bankrupts Cities

The City of Los Angeles is paying a Wall Street bank $200. million annually in fees just to manage its money. The Huffington Post revealed:

LOS ANGELES, CA- At a lively downtown rally in front of the Bank of NY Mellon in Los Angeles, the Fix LA Coalition unveiled a groundbreaking research report, entitled "No Small Fees: LA Spends More on Wall Street than Our Streets," revealing that Wall Street charges the City of Los Angeles more than $200  million in fees. Coalition members called for action to reduce the high fees and put that money back into neighborhood services. After the rally, Fix LA Coalition members delivered the report to elected officials in City Hall.

In addition LA like a lot of cities that have gone bankrupt (Birmingham, Alabama for instance) has been snookered into interest rate swaps that end up costing much more money than  if they had kept the original loan at the original rate. Then to get out of these toxic deals, they have to pay a substantial "termination fee."

Lisa Cody, SEIU 721 Research Analyst and report co-author stated: "Based on what we know, there are some concrete steps we can take to save LA millions. For example, we can start with Mellon Bank to renegotiate a 'swap' deal that was supposed to save the city money, but is instead costing LA almost $5 million a year. To fix this toxic deal, the bank wants $24 million more in fees. In 2012, NY Mellon charged the city $26 million in termination fees for another swap they had sold us that turned out to be a terrible deal for LA." 

LA is not the first and probably won't be the last to be tricked into engaging in a fancy derivative deal that was way over the heads of the city employees that were talked into it by Wall Street hit men. If they had formed their own Public Bank of Los Angeles, they could not only have avoided being ripped off, but they could have actually made money and then be in a position to fix all those potholes they've been screaming about. And they could have created their own money supply the way Wall Street does it: fractional reserve banking.

In August 2014 the Fix LA coalition released the following statement:

Los Angeles Becomes Largest U.S. City to Take Action on Toxic Bank Deals; Unanimous Vote Requires City to Renegotiate or Terminate Multi-Million Dollar Interest Rate Rip-Off on Behalf of Taxpayers

Unanimous City Council vote sends strong message to Bank of NY Mellon, Wall Street: LA is not your ATM

The Los Angeles City Council voted 14-0 Wednesday to renegotiate or terminate without penalty a toxic swap deal the City entered into with two Wall Street banks, Bank of New York Mellon and Dexia. The measure, advanced by Fix LA, a coalition of clergy, unions and community groups aligned to restore city services and expand middle class jobs in the public sector, could save the City as much as $138 million. The International Business Times, noting the significance, reported that Los Angeles is now the largest city in the nation "to challenge ballooning Wall Street levies that accompany similar interest rate swap deals throughout the nation."

The motion further calls on the banks to return unfair profits and fees paid since 2008, estimated at more than $65 million to date. The deal costs taxpayers $4.9 million annually.

Los Angeles is now spending $290 million a year in financial fees or more than the entire city budget for maintaining its vast array of streets and highways. LA isn't the only sucker to enter into an interest rate swap in 2007 which was essentially a bet that interest rates would not fall below 2%. Then when the Federal Reserve, with its policy of QE, lowered interest rates to zero, LA and many other jurisdictions found themselves on the wrong end of a bet and were forced to shell out much more than they would have if they had kept the interest rate on the original loan.

The next sucker: Puerto Rico.  Puerto Rico ran itself into debt and then tried to make up for it with interest rate swaps. Recent credit downgrades allowed Wall Street to demand hundreds of millions more in short-term lending fees, credit-default-swap termination fees, and higher interest rates. Between 2012 and 2014, Puerto Rico paid nearly $640 billion to terminate swaps in addition to $12 million annual swap payments. As a result Puerto Rico is in the same situation as Greece - borrowing money in order to make debt payments which is the same as borrowing money on one credit card to make the payments on another.

The Chicago Public School Teachers' Pension and Retirement Fund has brought suit against 10 of Wall Street's biggest banks including Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America for colluding to prevent the trading of interest rate swaps with the result that it cost the Fund more money.

I could go on ... about Birmingham, San Bernadino, Stockton and others ... but I won't.

If these jurisdictions - whether they be cities, counties or states - formed public banks as the state of North Dakota did, there would be no outflow of cash to Wall Street. Money would stay at the local level and could be used to support local businesses and create jobs repairing and building infrastructure.

An Infrastructure Bank Would Mean Good Jobs in a Much Needed Enterprise

If the government creates money and puts it in an infrastructure bank, that money would be spent into the economy by creating jobs to build and repair infrastructure. Thus good jobs would be created at the low and middle parts of the economic spectrum. This money would have a multiplier effect as the job holders would spend their paychecks on the necessities and luxuries of life. American GDP is based on 70% consumer spending so that would go up. Thus the democratically elected government - not private banks - would be in charge of creating the money supply and it would be to the advantage of average workers not high end financiers. Since the big banks are the current recipients of the QE largesse, that money goes into the pockets of billionaires in various ways and drives wealth and income inequality.

Or the government, instead of the private Wall Street banks, could create money itself directly and inject it into the economy in a variety of ways as Abraham Lincoln did when he had the American government create and spend greenbacks into the economy. This money, therefore, does not create debt as money created by private banks and loaned into the economy does. It's a bottom up rather than a trickle down method. Problem is that most money created today does not trickle down into the real economy.

Ellen Brown says in Time for the Nuclear Option: Raining Money on Main Street:

Australian blogger Prof. Bill Mitchell agrees that PQE is economically sound. But he says it should not be called “quantitative easing.” QE is just an asset swap – cash for federal securities or mortgage-backed securities on bank balance sheets. What Corbyn is proposing is actually Overt Money Financing (OMF) – injecting money directly into the economy.

Mitchell acknowledges that OMF is a taboo concept in mainstream economics. Allegedly, this is because it would lead to hyperinflation. But the real reasons, he says, are that:

It cuts out the private sector bond traders from their dose of corporate welfare which unlike other forms of welfare like sickness and unemployment benefits etc. has made the recipients rich in the extreme. . . .

It takes away the ‘debt monkey’ that is used to clobber governments that seek to run larger fiscal deficits.

So the government could just create money and inject it into the economy in one of two ways: directly to the people in the form of a basic guaranteed income or through an infrastructure bank that creates jobs. In the first instance money would be transferred directly to people to bolster consumption. In the second case jobs would be created that would get needed work done. Or a combination of both could be used.

A third way of reducing income inequality would be to redistribute money from the 1% to the 99% through the tax code. This is the method that Bernie Sanders advocates. Taxes on wealth and financial transactions would provide additional monies which could be  transferred to the 99% through social programs such as Medicare-For-All, or it could be given directly in terms of a deposit to checking accounts as was done in the Economic Stimulus Act of 2008. Money was deducted from tax liabilities or deposited directly to American citizens.

 

The Concept of a Basic Guaranteed Annual Income

The concept of a Basic Income in the U.S. goes back to Thomas Paine, one of the driving forces for independence and reducing inequality during the American Revolution. More recently, it’s been supported by very non-liberal individuals like Fredrick Hayek, Milton Friedman, and Richard Nixon. This would eliminate poverty in one fell swoop. All the anti-poverty programs could be rolled into one with much fewer administrative costs. Just as Medicare-For-All would simplify and reduce medical costs, a basic guaranteed income would amount to Social-Security-For-All. The state of Alaska already has such a program called the Alaska Permanent Fund which hands out money to each resident on an annual basis. In 2015 each man, woman and child received $2,072.00. For a family of four that was a nice basic income of approximately $8000. Sweet!

In the Netherlands a number of cities are experimenting with a basic income after the city of Utrecht announced that it would give no-strings-attached money to some of its residents. Tilburg, a city of 200,000 inhabitants close to the border with Belgium, will follow Utrecht’s initiative, and the cities of Groningen, Maastricht, Gouda, Enschede, Nijmegen and Wageningen are also considering it. A recent study conducted in 18 European countries concluded that generous welfare benefits make people likely to want to work more, not less.

In Switzerland, the necessary 100,000 signatures have been obtained for holding a referendum on whether Swiss citizens should receive an unconditional basic income of €2,500 per month, independently of whether they are employed or not. Other countries such as Finland and Catalonia are also moving in the direction of a no-strings-attached guaranteed income. This would do more to reduce inequality and poverty than perhaps any other measure.

According to The Dutch “basic income” experiment is expanding across multiple cities:

If Tilburg’s basic income project gets the green light from Netherland’s state secretary of social affairs, the town will provide an extra paycheck to a pilot group of 250 people starting in January 2016, Tillburg officials said. The city has not confirmed the amount of the stipend, but in Utrecht checks will range from around €900 ($1,000) for one adult to €1,300 ($1,450).

Although the classic basic income theory proposes universal payments across the population, the two Dutch experiments will only focus on residents who are already recipients of social assistance. Those in the program will be exempt from the severe job-seeking requirements and penalties in Dutch law.

Authorities aim to test how citizens react without that sword of Damocles over their heads. Will the money encourage them to find a job or will they sit on their couches comfortably?

A guaranteed income could be means tested. Why not? Rich people don't need an extra $1000. a month. It would reduce poverty, increase consumption and bolster GDP. Rich corporations would probably increase the price of staples as people had more money to buy them causing inflation. That's why the behemoth world wide franchise operations need to be broken up so they don't collude to raise prices on staples thus defeating the purpose of the basic income. With fiat money entering the real economy instead of the billionaire economy, inflation could become a concern.

Hyperinflation is always a concern when fiat money is created. When that money is spent by consumers, it will still wind up in the hands of a few major corporations, and that would be a problem. They could just keep raising prices. That's why breaking up those large behemoths by using the Sherman Anti-Trust Act is important. Money can also be pulled back by the government by taxation if inflation threatens to get out of hand.

As Ellen Brown says: "Thus there are many ways to recycle an issue of new money back to the government. The same money could be spent and collected back year after year, without creating price inflation or hyperinflating the money supply."

However, when fiat money ends up in the pockets of billionaires as has been the case with QE, inflation is not a concern because it doesn't enter the real economy and prices don't rise. Income inequality though becomes a major concern as does the influence of big money on the political system. Billionaire money has bought and paid for the political system through lobbying and campaign donations with the result that the US is effectively no longer a democracy but a plutocracy.

Trickle Down Economics Trickles Up Instead

As the article The Case for Universal Basic Income states:

What’s really scary is the general acceptance of a status quo in which most people are getting poorer and poorer, even while recent studies demonstrate that so-called “trickle-down” economics actually means an upwards flow of income until it stagnates as hoarded wealth. This stymies wealth creation in the economy, as the Institute for Policy Studies concluded after using standard economic multiplier models to show that every extra dollar paid to low-wage workers adds about $1.21 to the US economy. If this dollar went to a high-wage worker it would add only 39 cents to GDP. In other words, if the $26.7 billion paid in bonuses to Wall Street punters in 2013 had gone to poor workers, GDP would have risen by some $32.3 billion. ...

One of the main advantages of a universal basic income is that it would free people from the tyranny of the job market in which they are mere commodities by guaranteeing the most basic human right of all, that of material existence.

With inequality increasing some way or ways must be found to redress the balance. The alternative is to wake up and find ourselves in a neo-feudal society controlled by a few behemoth corporations employing only a few high level people at good wages. The rest of the population would be employed in low level service type jobs and live in relative poverty. What money they had would be spent in the troughs of the giant corporations and end up in the pockets of the 1%. Even if the 99% were given money to spend, it would still end up there - in the pockets of a few. An infrastructure bank funded by government created fiat money would provide people with decent jobs in which workers could maintain a sense of dignity and improve the quality of the nation's infrastructure at the same time.

In addition recipients of a basic income should have to give something back in terms of creating a better life for poor people around the world. Instead of armies with guns and weapons which have cost trillions and produced mainly negative results, a Peace Army could help poor people around the globe attain at least a minimally acceptable lifestyle in terms of clean water and sanitation, adequate nutrition, energy and education.

Installing solar around the world will not only provide energy for people who don't have anything but the most primitive kind while cleaning up the environment at the same time. The commitment of rich nations to help poorer nations convert to renewable energy could be manifested by funding unemployed and underemployed Americans to help build such infrastructure around the world.

It's not good for people to be idle. If they have no other job, they should at least be required to perform community service. If they have another job so that the basic income is just a supplement, this would be the ideal situation.

Income inequality will only increase as long as Wall Street banks control the money creation process, and the rest of US citizens keep going into debt whether it be with mortgages, student loans, car loans or credit cards. Local jurisdictions should take back the money creation process from Wall Street by creating their own public banks. Then the people will have the say in who gets the QE.

Water Main Breaks Cause Major Problems in San Diego and Nationwide

by John Lawrence

In the best of all possible worlds water main breaks would not happen. Local government would replace old water mains with new ones on a regular basis. That means that money for this and other infrastructure needs would be allocated systematically and appropriately. If we had our priorities straight, money for infrastructure would take precedence over money for football stadiums and convention centers. But in San Diego and in fact throughout the US this rational approach is to be seen rarely if at all. The Romans gave their citizens bread and circuses to keep them in line. Here in fact only circuses seem to be necessary.

Instead of replacing creaky water mains on a regular basis, water main breaks occur on a regular basis. The most recent one occurred only a few days ago on Shelter Island, home of posh restaurants and yacht clubs. Oh, how the patrons were inconvenienced! Last Friday the rupture left most of Shelter Island without functional plumbing through the late morning and the entire afternoon. The failed 63-year-old concrete pipeline began drenching the roadway in the 2300 block of Shelter Island Drive about 9 a.m., according to the San Diego Water Department. Workers determined that a corroded connector attaching two segments of the 12-inch-diameter main was the problem.

On January 14 a water main break in Little Italy shut down businesses there. Nearly 20 restaurants, six apartments and five other businesses were without water for most of the day. Fox News reported:

Trolley service between the Santa Fe Depot and Middletown Street was temporarily suspended, Metropolitan Transit Services officials said.

Several businesses along India Street were flooded with several inches of water.

“Not much you can do when you have water flowing in everywhere…about six inches up to my leg so I got soggy socks right now,” said Craig Mann, area manager for Burger Lounge restaurant.

Mitigation crews dried the inside of the business and checked for potential water and mold damage.

“None of the water got into the food production areas, it’s only on the ground so on that end it’s only superficial,” Mann said. “The health department has been on the street checking with the businesses … cleaning and sanitizing. We should be back open tomorrow.”

Well, this is par for the course. A lot of inconvenience because there are no adults in charge of repairing and replacing our infrastructure. They only tend to the fantasy land business of new football stadiums and new convention centers which translates into supporting billionaires in tights crashing into each other (giving each other concussions) and supporting the hotel and restaurant industry by guaranteeing a regular flow of tourist dollars. People who actually live in San Diego are given short shrift. Repairing infrastructure is not as romantic, and we live in a fairy land where spectator sports and giving money to billionaires is more important than taking care of the needs of the hoi polloi.

In the US a water main breaks every two minutes. That's a lot of water wasted. Besides, the cost of fixing a problem after it occurs is much more than that of fixing it in advance. We're penny wise and pound foolish. Not too smart. But then hoopla and fol de rol take precedence over rational thinking and orderly planning. We will be entertained at all costs, even the cost of being inconvenienced or perhaps even killed by falling bridges and pot holed roadways.

On September 3, 2014 there was an enormous water main break in San Diego's Birdland community in Serra Mesa when an 18 inch cast iron pipe broke. Roughly 2,600 customers had water service disrupted including four hospitals, among them Sharp Memorial, Sharp Mary Birch and Sharp Mesa Vista.  At Rady Children's Hospital, the outage in water service happened while one surgery was underway. Water was also out at Juvenile Hall. Some cars parked on the road had water up to their bumpers. What a mess, eh?

The biggest and costliest water main break over the past eight years was on Polk Street in North Park on March 1, 2010. An estimated 24 million gallons flooded from a cast iron pipe into the street and surrounding homes. In all, the city paid about $1.4 million to make repairs, house people and settle property claims related to the main break.

Elsewhere in San Diego County a family was flooded out of their home after a water main break in Vista on September 24, 2014. Damage to the house was estimated at $100,000 with another $25,000 for furniture and furnishings. Vista firefighters gave the family a Target gift to help defray expenses.

On October 16, 2014 a massive sinkhole opened when a 30 inch water main broke in Oceanside. All northbound lanes on El Camino Real between Oceanside Blvd and Mesa Drive were shut down. A large storm drain pipe that runs atop the busted 30-inch water main was also damaged. It took about a week to open all lanes. A similar problem with a similar sinkhole happened on North River Road the previous year.

Since 2010, San Diego has paid at least $3.9 million for issues related to water main breaks. In 2013 alone, taxpayers shelled out $33,459 just for the cost of water that spilled into the street as a result of main breaks. The city estimates 6.6 million gallons gushed from ruptured mains in 2013. By comparison, that’s enough water for the average San Diegan for 205 years, according to the city’s estimated average daily use of 88 gallons per day.

As significant delivery lines are nearing the end of their service life across San Diego, mains are breaking at a pace of more than 100 a year, according to an analysis of city data by inewsource. Those breaks plus tens of thousands of leaks have sent an estimated 360 million gallons of water rushing or seeping into streets, homes and businesses between 2004 and 2012. And this at a time when water is getting scarcer and scarcer. We can't afford any more to waste water in this way.

San Diego has paid out at least $10 million to settle claims and pay contractors for repairs to private property that was damaged by water main breaks during the past eight years. More than $350,000 of that was to house people forced from their homes by the breaks.

The city maintains that it is too expensive to do the routine inspections of water lines to see which ones are perilously close to collapse and need replacing. The city has inspected only about 5 1/2 of its 505 miles of large transmission pipelines since 2005, and none of its 2,958-mile network of smaller distribution pipelines. The city doesn’t know exactly where the biggest problems are. So they just throw up their hands and fix them when they break down regardless of the damage, inconvenience and property loss to San Diego citizens. Here's a hint: replace all the 100 year old cast iron pipes first. The city needs to replace rupture prone cast iron pipes with PVC which is not as apt to rupture. Only about 51 miles of the most rupture-prone cast iron pipes have been replaced since 2007. There are 129 miles to go.

Here's an idea - smart pig technology, the kind that is used to inspect oil pipelines to see where the problems are:

Smart Pigs or Pipeline Inspection Gauges are large pieces of machinery pulled together with powerful technology that help with the maintenance of transmission pipelines. These pipeline pigging devices are major components to pipeline safety and accident prevention. These inspection tools provide data on the condition of pipelines which help gauge the health and integrity of the pipes. In a time where environmental protection is key and of global concern, smart pigs are the peacekeepers of the delicate relationship between pipelines and Mother Earth (and regulators). In addition, these smart pipeline pigs make sure that transmission of the product doesn't stop due to pipeline integrity issues, which can be disasterous [sic] to the bottom line.

The same technology used in oil pipelines could be used in water pipelines obviating the necessity of digging up the pipeline in order to inspect it.

There are not many paid lobbyists lobbying for replacing old cast iron pipelines before they rupture like there are lobbying for new football stadiums and additions to convention centers. The wheelers and dealers will lobby the city to get their way first. Somehow there is always money available for such purposes while money for infrastructure is located in the pauper's economy of vanishing funds. Glitz and glamour predominate over levelheaded prudence as befits America's finest city and second happiest place on earth (next to Disneyland). But hey, at least there's no measles.

Why Democrats and Republicans Are Both Wrong About the Economy

by John Lawrence from the San Diego Free Press

The unemployment rate is 7.8%. Both parties agree that this is too high, but they propose totally different solutions to create more jobs. The Republican solution is to give more tax breaks and other advantages to the rich and to corporations because they are the job creators. Really? Then why haven't they created more jobs in the last 30 years. This historical experiment of "trickle down" economics has been tried since the time of Ronald Reagan and it has proven to be an abject failure. Yet Republicans are still pushing it as the solution to all our problems. 

Esteemed Nobel laureate and Princeton professor Paul Krugman wants to take the traditional Keynesian approach and do deficit spending to improve the economy. He says there's no reason to worry about the deficit since the US can borrow money at extremely low rates. Not to worry. He sides with Dick Cheney who famously said, "Deficits don't matter." He and Bush then went on to add trillions to the national debt by fighting two unpaid for wars, tax breaks for the rich and an unpaid for prescription drug benefit for seniors that was in reality a giveaway to the pharmaceutical companies. But now that a Democratic President is in office, Republicans are all worried about deficits. They should have been worried when George W Bush was doing the profligate spending.

However, I disagree with both Cheney and Krugman. Deficits do matter and here's why. Sure the government can borrow a lot of money, as much as it wants to, at extremely low rates. But the government has to pay interest on the national debt and that is a growing part of the budget. Interest on the debt is the fourth largest government expenditure after Defense, Medicare and Medicaid. In 2011 Federal, state and local  governments spent $454,393,280,417.03 on interest. It actually came down dramatically in 2012 to $359,796,008,919.49. That's still a lot of money. The Federal government alone spent around $220 billion in net interest on its debt in 2012, and is predicted to spend over a trillion dollars in interest by 2020. That's $1 trillion we can't spend to educate our kids or to replace our badly worn-out infrastructure.

And there's no guarantee that interest rates will continue to remain at historical lows. They are being held there right now by the Federal Reserve's policy of quantitative easing. The Fed is printing money at the rate of $85 billion a month. This money is being essentially given to the large Wall Street banks. Theoretically it's being loaned, but if someone loans you money at a zero interest rate, why would you ever pay it back? It's foolish to think that interest rates will always remain this low and that foreign nations and individuals will continue to loan us money ad infinitum.

The Fed's policy of printing money and then giving it to the big banks relies on the theory that low interest rates will get the economy moving again. The theory goes that people will be attracted to the low interest rates, borrow money and consume. It assumes that banks will actually loan out the money. Since consumption is 70% of the US economy, GDP will increase and that will create more jobs. In other words the Fed is exercising the same trickle down theory of economic growth made famous by Ronald Reagan and that has been tried for the last 30 years and failed. The Fed is essentially devaluing American currency in the hopes that this will create jobs. And it has been a big failure insofar as job creation is concerned but it has kept the US government's borrowing rates low.

So if both deficit reduction and job creation are important, how do you do both. Put simply the US government has to walk and chew gum at the same time. The Republican emphasis on cutting spending, especially spending on social programs, would lead to austerity and that would contract the economy even more. So that isn't the solution. To be fair President Obama has not been on the side of deficit spending as a way to get the economy out of the doldrums. He has been for a balanced approach of stimulating the economy and paying down the deficit. But Paul Krugman and many Democratic theorists like Robert Reich have.

The trick is to note that government spending does not have to be deficit spending. Government spending can increase without incurring greater deficits by increasing government revenues. And there are different varieties of government spending. Republicans favor just giving government money to private corporations and having them do the job. Their policy is to let the government just be a money conduit from taxpayers to corporations. Alternatively, government can spend money directly on jobs programs like rebuilding infrastructure. Instead of using the indirect approach which amounts to pushing on a string which is what the Fed is doing and which Republicans advocate, the government can actually create jobs directly in the public sector. If you want to create jobs, why not just create jobs directly instead of trying to get the private sector to create jobs. President Obama should just get up and say, "We've tried various policies to get the private sector to create jobs; they haven't worked so now the government, the public sector, is going to create jobs directly."

But here's where Democrats and President Obama have a problem. Instead of calling for more revenue by taxing the rich and corporations and government direct spending instead of spending to fund private corporations to rebuild infrastructure, Obama is reticent because he is afraid of being labeled a socialist. No worries, he's already been labeled a socialist despite his administration's being the most pro-business administration in years. And beware of the public/private partnership which is just another variation of the privatization of functions which the government can do more efficiently. We don't want to replace the military-industrial complex with an infrastructure-industrial complex replete with lobbyists, cost plus contracts and highly paid CEOs. There's no need for Wall Street to get involved.

Well, where is the money going to come from? Senator Bernie Sanders has an answer: End Offshore Tax Havens. One out of four profitable corporations pays nothing in taxes. Tax rates on profits are the lowest since 1972. Last year Facebook paid nothing despite having a billion dollars in profits. Government revenue as a percentage of GDP is lower than at any time in history. Corporate contributions to tax revenue are the lowest of any major country on earth. It is absurd for major corporations to stash huge amounts of money in countries like the Cayman Islands which have a zero tax rate. 

Bernie Sanders and Jan Schakowsky have introduced the Corporate Tax Fairness Act. The bill will raise $590 billion over the next decade. The bill will also stop giving tax breaks to corporations for shipping jobs overseas. Their bill would prevent oil companies from disguising royalty payments to foreign countries as taxes in order to reduce their taxes in the US among other things. And it has a snowball's chance in hell of passing. A financial transaction tax would bring in as much as $100 billion annually. We used to have one; Europe just recently enacted one. Let's end the "carried interest" loophole for hedge and private equity funds. Wall Street needs to start paying its fair share.

Corporations have been getting away with murder in not paying their fair share of taxes. This is from an article by Bernie Sanders:

"In 2010, Bank of America set up more than 200 subsidiaries in the Cayman Islands (which has a corporate tax rate of 0.0 percent) to avoid paying U.S. taxes. It worked. Not only did Bank of America pay nothing in federal income taxes, but it received a rebate from the IRS worth $1.9 billion that year. They are not alone. In 2010, JP Morgan Chase operated 83 subsidiaries incorporated in offshore tax havens to avoid paying some $4.9 billion in U.S. taxes. That same year Goldman Sachs operated 39 subsidiaries in offshore tax havens to avoid an estimated $3.3 billion in U.S. taxes. Citigroup has paid no federal income taxes for the last four years after receiving a total of $2.5 trillion in financial assistance from the Federal Reserve during the financial crisis."

The sad fact is that the private sector is not in the process of creating jobs but of destroying jobs through automation and robotics. Almost anything a human being might have done in a job is now being done by robots. Some say that this creates jobs for "knowledge workers." Sure if you're among the upper 1% in knowledge talent. Companies like Microsoft, Google, Apple and Facebook are not looking for the average college graduate. They're looking for the upper 1% of college graduates. Together they employ less than 200,000 people in the US. The top talent in every field are making good money. Everyone else is going downhill if they're employed at all. 50% of college graduates are either unemployed or underemployed in terms of their qualifications. In the 2009-2010 recovery, 93% of the gains in income went to the top 1%. 

Why should the private sector create jobs if they can get a robot to do the work 24 hours a day at a cost of less than $5.00 an hour? If the private sector will not create jobs, that leaves the government to create jobs directly.  Instead of pushing on a string with policies that are supposed to create jobs indirectly by encouraging the private sector to do so, government should get more involved. More government revenues plus direct job creation rebuilding infrastructure could result in growing the economy, providing good middle class jobs and paying down the debt.

Chrystia Freeman in her book Plutocracy explains this phenomenon which results in the divergence of jobs and income, creating a well to do upper 1% class and everybody else:

"This is what ecomomists call the "superstar" effect - the tendency of both technological change and globalization to create winner-take-all economic tournaments in many sectors and companies, where being the most successful in your field delivers huge rewards, but coming in second place, and certainly in fifth or tenth, has much less economic value."

We are seeing the effects of a meritocracy where the top 1% of talent merges with the top 1% in terms of income and wealth. This is great for the top 1% of graduates from elite colleges but not so much for the average graduates of average colleges with $100,000. in student loan debt and a job at Starbucks instead of a career type job in their field. In every field the chasm between the superstars and everyone else is getting bigger and bigger. Inequality increases with the acceleration of meritocracy. Meritocracy and plutocracy converge creating a democratic dystopia.

That's why the government has to step in to regulate this runaway dystopia. Taxes on corporations and the rich need to be increased in order to tamp down inequality. This revenue needs to be redistributed to the former middle class in terms of job programs. It could be redistributed in terms of welfare and unemployment insurance, but this creates a class of dependents. It would be much better to create a middle class of workers rebuilding infrastructure. And this is not a trivial job. The American Society of Civil Engineers estimates that there is $2 trillion worth of work that needs to be done just to bring roads, bridges and other basic infrastructure up to par. But there is more to infrastructure than just that. When you consider all that needs to be done to prevent and combat the changes due to global warming, there is enough potential work out there to fully employ US workers for generations. Utilities need to be hardened and undergrounded. Fossil fuel powered electric plants need to be converted to solar and wind. Buildings need to be made less energy consuming. High speed rail needs to be implemented. Housing needs to be moved back from the shorelines.

There is no lack of work that needs to be done, and this is work the private sector not only won't do but in many cases it is work that the private sector is lobbying against doing. They profit from using the atmosphere as a dump. It's crucial that the government prevent runaway wealth maldistribution, create jobs that the private sector has no incentive to create and save the planet from ecological disaster.

Throw Out the NDAA, End the Wars and Start Nation Building at Home

by Dennis Kucinich

“Today, this House will send the National Defense Authorization Act (NDAA) to conference. Contrary to its title, the bill does not provide for the protection of the American people. It expands war. It further indebts our nation. It encroaches on basic rights with regards to indefinite detention. It eliminates the basic tenet that due process rights apply to everyone in this country – not just American citizens.

“The legislation also includes additional sanctions against Iran despite numerous reports that our sanctions are affecting the ability of ordinary Iranians to obtain medicine and offer basic goods. Sanctions have thus far not served to solve the impasse or bring Iran to the negotiating table. More sanctions are not the answer and do not bring us closer to a diplomatic solution.

 

“This legislation also perpetuates the myth that we are ending the war in Afghanistan. We are not leaving Afghanistan. We are deepening our commitment. This bill provides for another staggering $88 billion for the war. The Strategic Partnership Agreement between the U.S. and Afghanistan commits us to the country for at least another decade with a $20 billion price tag.

 “Finally, this legislation continues financing our bloated Pentagon. The United States maintains 1,000 bases worldwide.  Some of these bases are infamous, like Guantanamo Bay. There are small bases to support our drones program. There are fortresses to support our wars. 

 “The cost to maintain these bases is billions of dollars. Included in these costs are the costs to maintain and run 234 golf courses around the world.

“The Pentagon is expanding their spy agency. The CIA has become a paramilitary organization. We are preparing to support intervention in Mali. Our government’s policy in Syria is incoherent. We are expanding our military presence in Asia and in Africa.

“And for what? For millions of Americans to be unemployed? For millions of Americans to go hungry? For millions of Americans not to have adequate access to education or even healthcare? For millions to lose their homes? For millions to lose their retirement security? For roads and bridges to collapse because we have no money for infrastructure?

“I say it’s time we pay attention to the defense of the American people’s pocketbooks - The defense of the dignity of the American people - The defense of the moral authority of the United States. It’s time to end this state of permanent war. We should throw out the NDAA, put an end to interventionism and begin to take care of things back home.” 

ABOUT Dennis Kucinich

Having been elected to Cleveland's City Council at age 23, Dennis J. Kucinich was well-known to Cleveland residents when they chose him as their mayor in 1977 at the age of 31. At the time, Kucinich was the youngest person ever elected to lead a major American city. Since being elected to Congress in 1996, Kucinich has been a tireless advocate for worker rights, civil rights and human rights.

Today’s Job Numbers Show Why Job-Creation Must Take Precedence Over Deficit Reduction

by Robert Reich

Friday, December 7, 2012

 

Today’s jobs report shows an economy that’s still moving in the right direction but way too slowly, which is why Washington’s continuing obsession with the federal budget deficit is insane. Jobs and growth must come first.

The cost of borrowing is so low — the yield on the ten-year Treasury is near historic lows — and the need for more jobs and better wages so high, and our infrastructure so neglected, that a reasonable government would borrow more to put more Americans to work rebuilding the nation.

Yes, unemployment is down slightly and 146,000 new jobs were created in November. That’s some progress. But don’t be overwhelmed by the hype coming out of Wall Street and the White House, both of which would like the public to believe things are going quite well.

The fact is some 350,000 more people stopped looking for jobs in November, and the percent of the working-age population currently employed continues to drop — now at 63.6%, almost the lowest in 30 years. Meanwhile, the average workweek is stuck at 34.4 hours.

The slowness of the jobs recovery isn’t because of Hurricane Sandy, which it turns out had very little impact on November’s job numbers (the hurricane’s negative effects were more than offset by a Thanksgiving earlier than normal, and an early start to the Christmas buying season). And it’s not because of any uncertainty over the looming “fiscal cliff.” Most consumers in November remained oblivious about any pending cliff.

The reason the economy is still under-performing is overall demand is inadequate. Businesses won’t create more jobs without enough customers. But consumers can’t and won’t spend because they don’t have the money. Unless or until the private sector — businesses and consumers — are able to boost the economy, government must be the spender of last resort.

But the nation has bought into the Republican frame of thinking that we have to “get our fiscal house in order” before the economy can get back on track. Although Barack Obama was reelected and Democrats gained seats in the House and Senate, that frame is still dominating debate.

And even though we’re near a fiscal cliff that illustrates how dangerous deficit reduction can be when so many people are still unemployed, the White House and the Democrats seem incapable of changing the frame of debate.

But remember: Jobs must come first. Job creation must be our first priority

 

Want to Keep AC On? Bury Power Lines

By David Frum, CNN Contributor

updated 8:52 AM EDT, Mon July 2, 2012

Editor's note: David Frum is a contributing editor at Newsweek and The Daily Beast and a CNN contributor. He is the author of seven books, including a new novel, "Patriots."

(CNN) -- Congratulations: If you're reading this, you have electricity. Unfortunately, more than 3 million Americans this weekend couldn't join you. The sweltering heat wave that roasted the eastern United States was accompanied by terrible storms that have knocked out power lines up and down the seaboard.

While you enjoy your air conditioning, you might want to take a minute to consider: Why do Americans tolerate such outages?

Outages are not inevitable. The German power grid has outages at an average rate of 21 minutes per year.

The winds may howl. The trees may fall. But in Germany, the lights stay on.

There's no Teutonic engineering magic to this impressive record. It's achieved by a very simple decision: Germany buries almost all of its low-voltage and medium-voltage power lines, the lines that serve individual homes and apartments. Americans could do the same. They have chosen not to.

The choice has been made for reasons of cost. The industry rule of thumb is that it costs about 10 times as much to bury wire as to string wire overhead: up to $1 million per mile, industry representatives claim. Since American cities are much less dense than European ones, there would be a lot more wire to string to serve a U.S. population than a European one.

Cost matters.

But now reflect:

1. There's reason to think that industry estimates of the cost of burying wires are inflated. While the U.S. industry guesstimates costs, a large-scale study of the problem conducted recently in the United Kingdom estimated the cost premium at 4.5 to 5.5 times the cost of overhead wire, not 10.

2. U.S. cost figures are a moving target. American cities are becoming denser as the baby boomers age and opt for central-city living, as I discussed in a previous column. Denser cities require fewer miles of wire to serve their populations.

3. Costs can only be understood in relation to benefits. As the climate warms, storms and power outages are becoming more common. And as the population ages, power failures become more dangerous. In France, where air conditioning is uncommon, a 2003 heat wave left 10,000 people dead, almost all of them elderly. If burying power lines prevented power outages during the hotter summers ahead, the decision could save many lives.

4. As you may have heard, we're suffering very severe unemployment just at present. Joblessness is acute among less educated workers, many of whom used to work in the now severely depressed construction industry. Burying power lines is a project that could put many hundreds of thousands of the unemployed to work at tasks that make use of their skills and experience.

Meanwhile, the federal government is able to borrow vast sums of money at the lowest interest rates since the Great Depression. The Obama stimulus has to date failed to produce many projects of lasting benefit to the country. But here's one that our children and grandchildren would appreciate -- and that might save our parents' lives.

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First World Governments Drowning in Debt

by John Lawrence

 

In her excellent book, "Web of Debt," Ellen Brown questions the whole notion that governments, whether they be the US or the Eurozone, should have to go into debt to private bankers such as Goldman Sachs and Deutsche Bank to get the money they need to finance their operations. Consider the Federal Reserve which is the primary creator of the money supply in the US. It is neither Federal nor is it a reserve. It is a private bank which creates money as an accounting entry on a computer screen. Recently, it loaned over $7 trillion to private banks at a ridiculously low .01% interest rate. That wasn't money it held in reserve; it was money that was "printed" or rather created out of whole cloth. And who do you think sits on the Board of the privately owned Federal Reserve? Jamie Dimon, CEO of JPMorgan Chase! Do you think that the Federal Reserve acts in the interest of anyone other than the large, too big to fail, banks? The banking system prints or creates money all the time, and not only central banks do it. It has been a longstanding practice of banks everywhere to loan out more money than they hold in deposits. This is called "fractional reserve" banking. For example, when a bank takes in $100 in deposits, it will loan out $1000 figuring that that will be sufficient for depositors who wish to redeem their deposits. Unless there's a run on the bank, that usually is sufficient. So money is created by the private banking system all the time and on a daily basis. Many multiples of the banks' deposits are then loaned out at interest.

Individuals, businesses, corporations and governments then borrow money from private banks to meet their needs for expansion and simply to pay their bills. The US government, for example, borrows the money it needs to function essentially from Goldman Sachs and other large banks and then pays interest to those banks. This happens because the US sells Treasury bonds to those large institutions in return for money to fund its wars and pay social security and medicare recipients among other things. The taxpayers are then on the hook for paying the interest on these bonds. Goldman Sachs got the money in the first place from the Federal Reserve so that by means of a little bit of subterfuge (the Federal Reserve cannot by law loan money directly to the US government), money is transferred from the privately owned Federal Reserve bank, which it created out of thin air, to the US government with interest to be paid by the taxpayers to private banking interests.  This begs the question that Ms. Brown makes a central point of her book: if a private central bank can increase the money supply by creating money out of thin air as an accounting entry on a computer screen, why can't the government itself create the money to fund its needs? In particular, if the government created the money instead of the private banking system, taxpayers wouldn't be on the hook for the interest payments which are rapidly eating up an ever increasing share of the Federal budget. Interest on the national debt is projected to be $241.6 billion in FY 2012; it will only increase every year as the national debt goes up. The question is why should US taxpayers pay interest to private bankers on the money loaned to the US government which was created by private bankers when the US government itself could just as well have created the money interest free?

The same line of reasoning holds for the Eurozone which is caught up in a debt crisis in which the private banking system is raising interest rates for countries that it considers weak. The rising interest rates make countries such as Spain and Italy even weaker and all this is being fueled by speculators who are shorting the bonds of these countries. Derivative trading such as shorting drives up interest rates since it makes it seem that investors are selling rather than buying the bonds of those countries.

The process of shorting can be simply explained as follows. Suppose my neighbor buys a lawnmower for $500. I then ask to borrow my neighbor's lawnmower to mow my yard. As I'm mowing, another neighbor drives by and offers to buy the mower for $450. As it happens, I know about a sale at the local Sears where I can buy the same exact lawnmower for $400. So I sell the lawnmower for $450., rush down to Sears and buy another one for $400., return the mower to the neighbor I originally borrowed it from and then pocket the $50. profit. Now in the dark world of derivatives markets it's not even necessary to borrow anything from a preexisting owner in order to short sell. These trades are called "naked shorts." The whole effect will drive up interest rates in Greece and Italy making their borrowing costs to turn over their loans even more expensive and hasten the day when these countries will default. Speculators stand to make big money if and when a Eurozone country does default because they have placed large bets on this outcome. It is to be noted that the European Central Bank (ECB) has the same deal that the US Federal Reserve has in that it can't give money directly to one of its member countries. Monies have to be funneled through banks. This means that they are subject to the machinations of the bond market and speculators. If the ECB created the money directly and then loaned it to member countries, the interest rate could be maintained constant as speculators would be eliminated and it would be lower as the private bankers would not be getting their cut.

If the whole notion of a central government creating the money supply as opposed to a private central bank creating it seems radical to you, please bear in mind that this is exactly what Abraham Lincoln did to fund the Civil War and the economic expansion following it including the transcontinental railroad, the land grant colleges and the Homestead Act which gave away free land to settlers in the west. Greenbacks were government created currency which was spent into the market. Today Federal Reserve notes are created by the privately owned Federal Reserve and are the official US currency. Ellen Brown maintains that any government can create a fiat currency. This simply means that the government created currency is declared to be the legal currency of that government. It doesn't have to be backed by gold or anything else. It is the official currency just because the government says it is. Ellen Brown characterizes the Greenback era as follows:

How was all this accomplished with a Treasury that was completely broke and a Congress that hadn't been paid themselves? ... Lincoln tapped into the same cornerstone that had gotten the impoverished colonists through the American Revolution and a long period of internal development before that: he authorized the government to issue its own paper fiat money. National control was reestablished over banking, and the economy was jump-started with a 600 percent increase in government spending and cheap credit directed at production. A century later, Franklin Roosevelt would use the same techniques to pull the country through the Great Depression; but Roosevelt's New Deal would be financed with borrowed money. Lincoln's government used a system of payment that was closer to the medieval tally. Officially called United States notes, these nineteenth century tallies were popularly called "Greenbacks" because they were printed on the back with green ink (a feature the dollar retains today). They were basically just receipts acknowledging work done or goods delivered, which could be traded in the community for an equivalent value of goods or services. The Greenbacks represented man-hours rather than borrowed gold. Lincoln is quoted as saying, "The wages of men should be recognized as more important than the wages of money." Over 400 million Greenback dollars were printed and used to pay soldiers and government employees, and to buy supplies for the war. The Greenback system was not actually Lincoln's idea. but when pressure grew in Congress for the plan, he was quick to endorse it. The South had seceded from the Union soon after his election in 1860. To fund the War between the States, these Eastern banks had offered a loan package that was little short of extortion - $150 million advanced at interest rates of 24 to 36 percent. Lincoln knew the loan would be impossible to pay off. He took the revolutionary approach because he had no other real choice. The government could either print its own money or succumb to debt slavery to the bankers.

So the war and the economic development following it were financed with goverment created fiat money, the Greenback. This would be perfect today for funding the $2 trillion in infrastructure repair and rebuilding that the IEEE claims is needed - in other words an infrastructure bank. This would solve a lot of the US' unemployment problems as well as bringing the US infrastructure up to par with China and other countries which are modernizing their infrastructure at rates far exceeding the US. The Eurozone ECB could also print or create euros without borrowing or funneling them through private bankers and subjecting the economies of certain countries to the whims of speculators. For the US it would be simple to move the Federal Reserve into the Treasury Department, transfer ownership to the public sector and keep the fact that the chairman would be appointed by the President. To keep its autonomy, Congress should not have the ability to interfere with the newly created Federal Reserve just as the situation exists now. So what would change? Only that the money created would be the equivlent of Greenbacks which would be non-interest bearing notes. Government created money would not be money that the government would have to pay interest on to private sector banks. These Greenbacks could coexist with Federal Reserve notes so that there would be two forms of currency in circulation both of which would be legal tender. Therefore, Federal Reserve notes would not have to be recalled. The new system could be created overnight with a minimum of disruption to commerce.

The Eurozone probably operates the same way. I'm not an expert but I surmise that the large European banks such as Deutsche bank, Societe Generale and ING loan money to Eurozone countries at interest. Even Goldman Sachs, since it is an international bank, probably has its finger in the pie of Eurozone money creation.  Even money created by the ECB needs to be funneled through these banks before it gets into the coffers of the respective Eurozone countries. This means that not only are countries such as Greece and Italy paying interest to the large European and international banks but the interest rates they are paying are subject to market speculation which drives them up even more. If the ECB issued euros directly instead of letting the large banks do it, the interest rate could be carefully controlled, the rates wouldn't be subject to speculation and the interest paid would go into the coffers of the ECB instead of into the coffers of large private banks.

Individuals and families in the US and throughbout the world are increasingly indebted to private banks for mortgage debt, student loan debt and credit card debt. Easy credit and low initial interest rates as well as declining wages have induced much of the population to go into debt in the same way that countries have gone into debt. Ultimately, these levels of debt are unsustainable especially if today's historical low interest rates start to rise. Of course the banks' major goal is to have everyone in debt paying interest money to them as a major part of their expenditures. If everyone is a debt slave, the banks are in the position of owning most of society's assets. Ellen Brown's ideas about taking money creation out of private bankers' hands and putting it into the hands of central governments strikes at the core of capitalist economics which assumes that money creation remains entirely privatized. However, other countries such as China have shown that government owned large banks can be a boon to economic development and growth.

Also in the US state owned banks such as the Bank of North Dakota maintain that state in a healthy economic condition compared to the US as a whole. Interest collected on loans goes back into state coffers defraying taxpayer expenses. So lower taxes are the result of a state owned rather than a privately owned bank. The same could be true for countries as well. Also loans can be more carefully controlled so that they go for socially useful purposes rather than fueling speculative investment. Finally, many countries including China and Norway have sovereign wealth funds which act to make those countries more creditworthy than countries which have no assets and only debts. As any banker knows, an individual's creditworthiness represents the difference between his assets and his debts. The same holds true also for countries. If governments created their own money, it could be loaned directly to families that are being foreclosed on instead of relying on private bankers to work out deals with them which they have been reluctant to do thus exacerbating the foreclosure crisis. Greater leniency could also be granted to student loan debtors than is the case now.

Lincoln saved the US an incredible amount of interest repayments by issuing Greenbacks instead of borrowing the money:

In 1972, the United States Treasury Department was asked to compute the amount of interest that would have been paid if the $400 million in Greenbacks had been borrowed from the banks instead. According to the Treasury Department's calculations, in his short tenure Lincoln saved the government a total of $4 billion in interest, just by avoiding this $400 million loan.

Finally, a quote from Thomas Edison from an interview in the 1921 New York Times:

If the Nation can issue a dollar bond it can issue a dollar bill, The element that makes the bond good makes the bill good also. The difference between the bond and the bill is that the bond lets the money broker collect twice the amount of the bond and an additional 20%. Whereas the currency, the honest sort provided by the Constitution, pays noboldy but those who contribute in some useful way. It  is absurd to say that our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.

Therefore, the "full faith and credit" of the US government and the ECB could apply to currency as well as bonds, and private bankers and speculators could be eliminated from the loop.

Why This is Exactly the Time to Rebuild America’s Infrastructure

by Robert Reich

Monday, September 26, 2011

 

Seems like only yesterday conservative nabobs of negativity predicted America’s ballooning budget deficit would generate soaring inflation and crippling costs of additional federal borrowing. 

Remember Standard & Poor’s downgrade of the United States? Recall the intense worry about investors’ confidence in government bonds — America’s IOUs? 

Hmmm.

Last week ten-year yields on U.S. Treasuries closed at 1.83 percent.

In other words, they were wrong.

In fact, it’s cheaper than ever for the United States to borrow. That’s because global investors desperately want the safety of dollars. Almost everywhere else on the globe is riskier. Europe is in a debt crisis, many developing nations are gripped by fears the contagion will spread to them, Japan remains in critical condition, China’s growth is slowing. 

Put this together with two other facts:

Unemployment in America remains sky-high. 14 million Americans are out of work and 25 million are looking for full-time jobs.

The nation’s infrastructure is crumbling. Our roads, bridges, water and sewer systems, subways, gas pipelines, ports, airports, and school buildings are desperately in need of repair. Deferred maintenance is taking a huge toll.

Now connect the dots. Anyone with half a brain will see this is the ideal time to borrow money from the rest of the world to put Americans to work rebuilding the nation’s infrastructure. 

Problem is, too many in Washington have less than half a brain.

Bridge Comes to San Francisco With a Made-in-China Label

by David Barboza, from the New York Times, June 25, 2011

 

SHANGHAI — Talk about outsourcing.

At a sprawling manufacturing complex here, hundreds of Chinese laborers are now completing work on the San Francisco-Oakland Bay Bridge.

Next month, the last four of more than two dozen giant steel modules — each with a roadbed segment about half the size of a football field — will be loaded onto a huge ship and transported 6,500 miles to Oakland. There, they will be assembled to fit into the eastern span of the new Bay Bridge.

The project is part of China’s continual move up the global economic value chain — from cheap toys to Apple iPads to commercial jetliners — as it aims to become the world’s civil engineer.

The assembly work in California, and the pouring of the concrete road surface, will be done by Americans. But construction of the bridge decks and the materials that went into them are a Made in China affair. California officials say the state saved hundreds of millions of dollars by turning to China.

“They’ve produced a pretty impressive bridge for us,” Tony Anziano, a program manager at the California Department of Transportation, said a few weeks ago. He was touring the 1.2-square-mile manufacturing site that the Chinese company created to do the bridge work. “Four years ago, there were just steel plates here and lots of orange groves.”

On the reputation of showcase projects like Beijing’s Olympic-size airport terminal and the mammoth hydroelectric Three Gorges Dam, Chinese companies have been hired to build copper mines in the Congo, high-speed rail lines in Brazil and huge apartment complexes in Saudi Arabia.

In New York City alone, Chinese companies have won contracts to help renovate the subway system, refurbish the Alexander Hamilton Bridge over the Harlem River and build a new Metro-North train platform near Yankee Stadium. As with the Bay Bridge, American union labor would carry out most of the work done on United States soil.

American steelworker unions have disparaged the Bay Bridge contract by accusing the state of California of sending good jobs overseas and settling for what they deride as poor-quality Chinese steel. Industry groups in the United States and other countries have raised questions about the safety and quality of Chinese workmanship on such projects. Indeed, China has had quality control problems ranging from tainted milk to poorly built schools.

But executives and officials who have awarded the various Chinese contracts say their audits have convinced them of the projects’ engineering integrity. And they note that with the full financial force of the Chinese government behind its infrastructure companies, the monumental scale of the work, and the prices bid, are hard for private industry elsewhere to beat.

The new Bay Bridge, expected to open to traffic in 2013, will replace a structure that has never been quite the same since the 1989 Bay Area earthquake. At $7.2 billion, it will be one of the most expensive structures ever built. But California officials estimate that they will save at least $400 million by having so much of the work done in China. (California issued bonds to finance the project, and will look to recoup the cost through tolls.)

California authorities say they had little choice but to rebuild major sections of the bridge, despite repairs made after the earthquake caused a section of the eastern span to collapse onto the lower deck. Seismic safety testing persuaded the state that much of the bridge needed to be overhauled and made more quake-resistant.

Eventually, the California Department of Transportation decided to revamp the western span of the bridge (which connects San Francisco to Yerba Buena Island) and replace the 2.2-mile eastern span (which links Yerba Buena to Oakland).

On the eastern span, officials decided to build a suspension bridge with a complex design. The span will have a single, 525-foot tower, anchored to bedrock and supported by a single, enormous steel-wire cable that threads through the suspension bridge.

“We wanted something strong and secure, but we also wanted something iconic,” said Bart Ney, a transportation department spokesman.

A joint venture between two American companies, American Bridge and Fluor Enterprises, won the prime contract for the project in early 2006. Their bid specified getting much of the fabricated steel from overseas, to save money.

California decided not to apply for federal funding for the project because the “Buy America” provisos would probably have required purchasing more expensive steel and fabrication from United States manufacturers.

China, the world’s biggest steel maker, was the front-runner, particularly because it has dominated bridge building for the last decade. Several years ago, Shanghai opened a 20-mile sea bridge; the country is now planning a much longer one near Hong Kong.

The selection of the state-owned Shanghai Zhenhua Heavy Industries Company was a surprise, though, because the company made port cranes and had no bridge building experience.

But California officials and executives at American Bridge said Zhenhua’s advantages included its huge steel fabrication facilities, its large low-cost work force and its solid finances. (The company even had its own port and ships.)

“I don’t think the U.S. fabrication industry could put a project like this together,” Brian A. Petersen, project director for the American Bridge/Fluor Enterprises joint venture, said in a telephone interview. “Most U.S. companies don’t have these types of warehouses, equipment or the cash flow. The Chinese load the ships, and it’s their ships that deliver to our piers.”

Despite the American union complaints, former California Gov. Arnold Schwarzenegger, a Republican, strongly backed the project and even visited Zhenhua’s plant last September, praising “the workers that are building our Bay Bridge.”

Zhenhua put 3,000 employees to work on the project: steel-cutters, welders, polishers and engineers. The company built the main bridge tower, which was shipped in mid-2009, and a total of 28 bridge decks — the massive triangular steel structures that will serve as the roadway platform.

Pan Zhongwang, a 55-year-old steel polisher, is a typical Zhenhua worker. He arrives at 7 a.m. and leaves at 11 p.m., often working seven days a week. He lives in a company dorm and earns about $12 a day.

“It used to be $9 a day, now it’s $12,” he said Wednesday morning, while polishing one of the decks for the new Bay Bridge. “Everything is getting more expensive. They should raise our pay.”

To ensure the bridge meets safety standards, 250 employees and consultants working for the state of California and American Bridge/Fluor also took up residence in Shanghai.

Asked about reports that some American labor groups had blocked bridge shipments from arriving in Oakland, Mr. Anziano dismissed those as confused.

“That was not about China,” he said. “It was a disagreement between unions about which had jurisdiction and who had the right to unload a shipment. That was resolved.”

U.S. is Being Outpaced on Dealing with Deficits, Climate

by E. J. Dionne Jr., Washington Post, May 29, 2011

While the United States remains utterly frozen in a debate about budget deficits and all the things that government shouldn’t do, other countries are marrying public and private resources to make themselves stronger and more competitive.

While the United States is not even sure we should have gone halfway toward providing health insurance to all of our citizens, other democratic countries long ago began using government to cover all their citizens — and have health costs far lower than ours.

While Americans pay less in taxes than the citizens of other rich countries — and currently pay the smallest share of their incomes for taxes since 1958 — one house of Congress thinks the only thing that can be done to help the country is to cut taxes even more.

While other countries have jumped ahead of us in green economics, we have backed away from any effort to put a price on carbon to battle climate change and promote new technologies. In the Republican Party, politicians have to apologize for even thinking about global warming.

And while other countries invest in their basic facilities, we are letting our broadband access, roads and bridges, and rail and water systems go to seed. We created the interstate highway system, and now we can’t maintain our sewers.

Oh, yes, and nearly 14 million of our fellow citizens are unemployed.

Okay, now you can go back to the dreary deficit debate if you wish, but this catalogue is offered to suggest the irrelevance of Washington’s conversation to the problems the country faces.

Our imagination deficit is the shortfall we should worry about. We seem incapable of doing what we did in the Truman, Eisenhower, Kennedy, Johnson and, yes, Nixon years: imagining how practical public action could make our citizens’ lives better, our country stronger and our private economy more productive.

Sure, we need long-term fiscal balance, and going back to and then reforming the tax rates we had under Bill Clinton would accomplish much of what’s necessary. The rest could be accomplished with far more modest reductions than the draconian cuts in Rep. Paul Ryan’s plan.

The larger and more important challenge is to figure out how we can plan, invest and compete with countries far more focused than we are on how the new global economy works. And the people most amazed at our country’s inability to do so are not armchair socialists but tough-minded chief executives.

Encouraged by Carl Pope of the Sierra Club, I spent time recently with the Wall Street Journal’s report on its annual ECO:nomics conference, published in March. Right off, the Journal’s account emphasized that China is “grabbing clean-technology market share not because of its cheap labor . . . but through strong mandates and subsidies to build a new export industry.” Ahem, those words “mandates” and “subsidies” don’t come out of the free-market playbook.

The report quoted Mark Pinto, executive vice president of Applied Materials, who said that in solar power, the United States is “neither the largest in manufacturing nor the largest market.” He added: “That’s very unusual.” Do we really want to lose this market?

On his blog, Pope cites another corporate leader who attended the conference, Andrew N. Liveris, the chairman and chief executive of Dow Chemical. “Around the world,” Liveris writes in his book “Make It in America,” “countries are acting more and more like companies: competing aggressively against one another for business and progress and wealth. . . . Meanwhile, in the United States, we operate as if little has changed.”

I won’t pretend to agree with all of the chief executives’ views on tax or regulatory policy. But it is striking that so many of them are pragmatists, not ideologues. They understand that government efforts to promote national prosperity need to go way beyond taxes and deficits.

You might recall an observant politician who noted this year that “South Korean homes now have greater Internet access than we do. Countries in Europe and Russia invest more in their roads and railways than we do. China is building faster trains and newer airports. Meanwhile, when our own engineers graded our nation’s infrastructure, they gave us a ‘D.’ ”

A few months later, the same politician said: “We don’t have to choose between a future of spiraling debt and one where we forfeit investment in our people and our country.”

That would be President Obama, and you wonder: Is there any chance that he can move our national conversation to the task of “winning the future”?

ejdionne@washpost.com

Is the US a Wealthy Nation? Really??

by John Lawrence

We hear all this blather about how the US is such a wealthy nation. Not true. Before Ronald Reagan became President, the US was the world's largest creditor nation. People and countries owed us more money than we owed them. Now some 30 years later the US is the world's largest debtor nation. This is the definition of a poor - not a rich - nation. China on the other hand holds $3 trillion in international reserves including $1 trillion of US debt. Other nations have sovereign wealth funds which contain vast amounts of money. The US has only a huge pile of debt - some $14 trillion worth. The US used to be the world's largest importer of raw materials and exporter of manufactured goods. Now we're the world's largest exporter of raw materials and importer of manufactured goods with a trade deficit of some $600 billion a year. At the present time the US has a deficit of some $2 trillion in needed infrastructure repairs while China is building high speed rail track at such a rate that it will soon have more miles than the rest of the world combined. Meanwhile, the US spends more on its military establishment than the rest of the world combined while cutting safety nets and education for its own citizens.

Americans have pulled the wool over their own eyes. Despite having a national debt of $14 trillion, despite having gone from a net creditor nation to a net debtor nation in little over 30 years, despite having enormous trade deficits month after month, year after year, despite having an infrastructure in need of $2 trillion worth of repairs, Americans think they live in a wealthy nation. The truth of the matter is that the US is a poor nation within which live a lot of wealthy individuals. China on the other hand holds a little over $1 trillion of US debt making it a fairly wealthy nation albeit with a large but diminishing number of poor people. China is building new infrastructure at an astonishing rate. It's a fallacy to think a wealthy nation is a nation comprised of a large number of wealthy individuals. In fact many Banana Republics are comprised of a small class of wealthy individuals surrounded by a sea of poverty. The US is on track to becoming one of those. A recent survey showed that there is a higher level of inequality in the US than exists in Pakistan, Ethiopia and Ivory Coast. 

It is not hard to diagnose why the US is a poor nation which thinks itself rich while China is a rich nation which passes itself off as being poor. All the free trade agreements like NAFTA and CAFTA have resulted in the decimation of the US manufacturing base. US factories are closing in droves:

2010 comes in the midst of a stunning wave of U.S. factory closings that stretches from coast to coast.  Once upon a time America was the greatest manufacturing machine that the world has ever seen, but now it seems as though the only jobs available for working class Americans involve phrases such as “Welcome to Wal-Mart” and “Would you like fries with that?”  Even though the population of the United States has exploded over the last several decades, the number of Americans employed in the manufacturing sector today is smaller than it was in 1950.  America has become a voracious economic black hole that ”consumes” as much as possible and yet actually produces very little.  The United States is becoming deindustrialized at a blinding pace, and it is becoming increasingly difficult for blue collar American workers to find jobs that will actually enable them to support their families.  The sad truth is that American workers don’t have a whole lot to actually celebrate this Labor Day.  14 million U.S. workers are “officially unemployed” and tens of millions of others have been forced to take part-time or temporary jobs that they are overqualified for just so they can survive.   Unfortunately, this is not just a temporary situation for American workers.  As millions of good jobs continue to get outsourced and offshored, Labor Day celebrations in coming years will be even more depressing.

Since 2001, The U.S. Has Lost 42,400 factories. The "giant sucking sound" that Ross Perot predicted has become a point of actual fact. But this doesn't seem to bother America's leaders. They are dedicated to the policy that US consumption drives US GDP and as long as US GDP is the largest in the world, who cares? Sales are up! However China, as the world's second largest economy as measured by GDP, is on track to overtake the US in the near future. American politicians only care about transnational corporations, nominally American, and how they can maintain the US consumer appetite (and their profit margins) for buying their goods even though most of those goods are produced overseas. They coddle these corporations by lowering their taxes, having their lobbyists drill loophioles in the tax code and giving them a "tax holiday" during which they can "repatriate" their overseas capital and bring it "home" without any tax consequences.

The model of trickle down economics, long since discredited, is still being championed by right wing politicians with the result that the fig leaf of prosperity is being shredded to reveal a naked transfer of wealth from the middle class to the upper one per cent. Naked power grabs are becoming the order of the day as the recent vote to extend taxpayer subsidies to the five Big OIl companies, despite their being the most profitable corporations in human history, reveals. At the same time those same right wing policticians are demanding that the budget be balanced on the backs of the poor and middle class. While countries such as Norway fund their safety net with royalties from oil drilling, the US gives away its natural resources to oil corporations including BP which is not even headquartered in the US. The neocon model of privatization and eliminating safety nets, although unsuccessful in Argentina and Brazil, is achieving considerably more success when practiced here at home. Trade unions are being decimated. States are being turned into fiefdoms and dictatorships. Public education is being defunded. There is an all out assault on teachers, police and other public workers. The notion that government doesn't work and can't be trusted is being fostered.

The US is becoming the very definition of a Banana Republic. It is becoming a nation largely bereft of a middle class, a nation in which there exists a small class of extremely wealthy individuals surrounded by a sea of impoverishment, a nation of antiquated infrastructure, a nation in which there is no there there. All that exists is a diminshing probablity of getting rich or even making it into the middle class. Students are being saddled with immense and obscene amounts of student loan debt. Middle classers are losing their homes to foreclosure. Poor people are being shunted aside as food stamp programs are being shut down and home heating oil allowances are drying up. The war on the poor is raging. And the American people continue to vote the guys that are screwing them into office because they pander to them with promises of unlimited rights of gun ownership and promises that they won't allow gays to marry

The US in point of fact is not a wealthy nation despite attempts to brainwash us that it is, and it's becoming poorer by the hour. But instead of implementing a rational health care system, we continue to give away billions to the pharmaceutical companies that we wouldn't have to if the government weren't prevented by law from negotiating with them. We continue to give away billions in subsidies to Big Oil and Big Agriculture. We continue to give away billions in tax breaks to the rich. We continue to pour billions down ratholes in Afghanistan, Pakistan, Iraq, Israel and many other places. .

 

These countries are taking us for a ride, and the Israeli President Netanyahu lectures our President on why he won't cooperate to bring about mideast peace. They are manipulating us out of our money while actually working and fighting against us as revealed by Pakistan's harboring of bin Laden. If Obama had tried to coordinate bin Laden's capture with Pakistan instead of going it alone, bin Laden would probably have been tipped off with the result that the Seals, to Obama's embarassment, would not have found bin Laden at home. What, no bin Laden? Just innocent women and children.

As China eats the US' lunch and the rest of the world rips off Uncle Sucker for billions of US taxpayer dollars, the American people should get used to the fact that we're not number 1 any more. Far from being the world's richest nation we're fast becoming one of the world's poorest nations where some of the world's richest people happen to reside. But don't worry about them. They also own villas in France, Italy and Spain. They only continue to hold US citizenship as a convenience. They could live anywhere. They could headquarter their corporations anywhere. It's still convenient for them to headquarter here so they can use their lobbyists to rip off American taxpayers and sell into the American consumer market. But as time goes on most of their sales will be to emerging consumer markets in China and elsewhere.

 

Dylan Ratigan on the Need for Infrastructure Investment

New Infrastructure in the People's Republic of Portland!

All-American Streetcar Boom Fuels Urban Future

by Ari Shapiro, from npr.org, February 12, 2011

 
President Obama spent the past week talking about his plans to improve America's infrastructure. These speeches sometimes sound like something out of The Jetsons, when the president talks about high-speed rail, futuristic airports and nationwide, broadband Internet.

One growing part of America's infrastructure, however, has a distinctly 19th-century feel. It's the return of the streetcar.

Like so many urban development stories in America, this one begins in Portland, Ore.

Outside the famous Powell's bookstore, a 21st-century streetcar glides to a stop, opens its doors, and lets out a mix of tourists and locals. Modern streetcars have been running in this city for about a decade, and Chandra Brown lives right along their route.

"I love the streetcar," says Brown, who's lived in Portland for 17 years. "They had told me that there were no streetcars built in the United States, and I basically said, 'You're a liar, that can't be, honestly.' So I did some research after that and found out, yes, that was absolutely correct. There was no builder of modern streetcars in the United States."

As it happens, Brown is a vice president of Oregon Iron Works. Her company has been making bridges, boats and other heavy equipment since the 1940s. A few years ago, they created a subsidiary called United Streetcar. Now they are manufacturing the first American-built streetcars in more than 50 years.

The Oregon Iron Works factory is a cavernous space in a Portland suburb, where men with hammers are busy constructing a streetcar base. Seventy to 90 percent of the parts are made in the U.S.; seats from Michigan, upholstery from North Carolina, windshield wipers from Connecticut.

"It was 2009 when we finished the first prototype, made-in-the-USA streetcar," Brown says. "Now this little fledgling company is building 13 cars with $50 million-plus in orders." Those orders are all for cities in the U.S., too.

'Back To The Future'

In fact, the U.S. is in a streetcar boom. More than a dozen cities either have them or are actively planning for their development, Oregon Rep. Earl Blumenauer says.

"You don't have to be a large, metropolitan area to support it," he says. "Little Kenosha, Wis., has a streetcar. Little Rock has a streetcar."

I met Blumenauer in Washington, D.C., at a coffee shop on H Street Northeast. This is a gradually gentrifying neighborhood that is Stage 1 in Washington's planned streetcar route.

"What the skeptics, I think, forget, is that virtually every American city was designed around a streetcar," Blumenauer says. "I mean, the most ambitious plans for Washington, D.C., are approximately one-fifth of what the District had 100 years ago."

Blumenauer was a champion of streetcars years before his state started manufacturing them. He says they're green, they last decades, and businesses are more likely to set up shop along a streetcar route because they know it won't move the way a bus line might.

"So reintroducing the streetcar is actually back to the future," he says, "and this is what this community was about when it was coming together a century ago."

Not Necessarily A Magic Bullet

Critics of the streetcar craze say the mania is part of the problem. Brian Taylor directs UCLA's Institute of Transportation Studies and says governors, mayors and taxpayers all want flashy new projects, but sometimes those are not the best solutions.

"We're painting ourselves into a bizarre corner where we're not able to maintain our streets, we're not able to maintain the buses and the trains that we have out there, and we're focused on cutting ribbons in front of new rail projects," Taylor says.

He's skeptical that streetcars are the urban transit solution they're touted to be. "If the investment is tied in effectively to the rest of the transit system, it can be a very effective investment," he says. "If it's not — and there are cases where it has not been — then it's not."

On Monday, President Obama will unveil his new budget. He has already said it will call for rebuilding American infrastructure. That means more planes, trains, automobiles — and perhaps also streetcars.

Squeezing Ordinary Citizens from NY to California

Published on Tuesday, January 25, 2011 by OtherWords

by Sam Pizzigati

Following World War II, the United States produced something the world had never seen: a mass middle class. For the first time, a majority of a major nation's people had real money left over after paying for basic food and shelter.

New York and California served as geographic bookends to this colossal achievement. They offered ordinary citizens lives unimaginable only a few short years before. Activist government policies made those lives possible. Government-subsidized loans raised new middle-class suburbs from potato fields and sugar beet acres. Tax dollars funded new roads, schools, and parks.

"California's children, swarming on all those new playgrounds, seemed healthier, happier, taller," as Atlantic editor Benjamin Schwarz has noted. "A sweet, vivacious time."

That time may be gone for good. The new governors of New York and California, both Democrats, have essentially declared America's mass middle class ancient history.

Andrew Cuomo in New York and Jerry Brown in California are pushing a fundamental "realignment" that goes beyond the budget cutbacks that have become a grim annual routine in state capitals.

Brown and Cuomo are attacking the foundational core of America's middle class: the notion that public policies can improve ordinary people's lives. Instead, they're squeezing public employees and the public goods and services they provide.

Consider what's happened to higher education in California. Fifty years ago, every California high school grad had access to free community college. High-achievers paid rock-bottom rates to attend some of the world's finest universities. Today, under Jerry Brown's new fiscal game plan, revenue from student fees will exceed the state government’s contribution to higher education for the first time in California history.

Brown says he has no alternative.

"This is the world we live in," Brown has pronounced. "You can't manufacture money."

But governments can raise revenue by taxing their most affluent. Back in America's middle class golden age, that's what happened.

Brown refuses to go down that road. The temporary California tax hikes that he wants to preserve--a 1 percent boost in state sales tax, a 0.25 percent increase across the board on the state income tax, among others--all fall heavier on middle-income Californians.

In New York, Andrew Cuomo isn't willing to raise taxes on the rich at all. His rationale for that refusal?

"The working families of New York," Cuomo says, "cannot afford tax increases."

Cuomo defines "working families" to include the wealthy. "They work, too," he explains. Indeed they do. But under current law New York's wealthy actually spend less of their income in state and local taxes than ordinary New Yorkers.

New Yorkers making between $33,000 and $95,000, analysts Chloe Tribich, Sunshine Ludder, and Ron Deutsch recently pointed out, pay 11 percent of their incomes in state and local tax. New York's richest 1 percent--taxpayers making over $633,000--only pay 7 percent.

In the middle class's heyday, New York's wealthy faced a far heavier tax burden. In fact, since 1980, the top state tax rate on New York's highest incomes has dropped by half.

So has the top federal tax rate, from 70 to 35 percent.

New York and California alone have more taxpayers making over $200,000 than all 22 states that John McCain carried in the 2008 Presidential election combined, according to David Callahan, a senior fellow at the think tank Demos.

Without the recent tax deal Obama brokered with the GOP, Callahan notes, these affluent would be paying federal taxes, this year and next, at a 39.6 percent top rate. So why not, he asks, raise top state income tax rates--from 10.5 to 15 percent in California and from 8.97 percent to 13.5 percent in New York--to take back what the rich are saving at the federal level?

Don't hold your breath. Neither Brown nor Cuomo sees any reason to inconvenience the financially fortunate. We're just "going to have to reduce government spending," Cuomo insists.

For the awesomely affluent, that makes sense. Rich people, after all, don't require public schools and parks and libraries. They feel they don't need government spending. Only the little people do.

© 2011 OtherWords

Sam Pizzigati edits Too Much, the online weekly newsletter on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies, from which this op-ed is adapted. www.ips-dc.org

Obama's Tax Cut Plan: Will it Create Jobs?

by John Lawrence

The recent bill that passed Congress that extended the Bush tax cuts for two years, funded unemployment insurance and did a few other things will undoubtedly create more "economic activity." But will it create jobs? That's the 64 trillion dollar question. Economic activity is not synonymous with job creation although that's the theory Obama is gambling his Presidency on. Economic activity is synonymous with positive GDP growth, but GDP growth has been positive since the third quarter of 2009. GDP growth has been positive for 5 straight quarters and hence by definition the US is officially not in a recession and hasn't been for the entire year of 2010. However, there is still an official unemployment rate of about 10% and an unofficial unemployment rate of 17%. At the same time job growth has been anemic. About a million jobs have been created in 2010 which is more jobs than were created during the entire Bush Presidency, but that isn't even enough to cover new entrants into the work force. About 100,000 new jobs per month are required just to stay even. That's 1.2 million jobs a year. Therefore, taking new entrants into the job force into consideration, there has actually been net negative job growth for the last 10 years including Obama's Presidency!

Something like 8 million jobs were lost during the Great Recession. Currently, there are over 400,000 initial claims for unemployment insurance every week. The statistics are ominous but, what is worse, government officials don't seem to have a clue as to why this is happening. There is no explanatory narrative, and their only theory is that increased economic activity will lead to job creation. Not necessarily so. What is certain is that the Obama tax cut plan will drill another trillion dollar hole in the national debt. And it will likely create jobs not in the US but in China and other Asian countries where labor is much cheaper than in the US. It's called labor arbitrage. When barriers to trade fall as they have with the current free trade penchant, businesses will move jobs to whatever country has the cheapest labor force and in today's world that means China. One is hard put to purchase a product not made in China. Consequently, increased economic activity will mean that GDP will increase as consumers buy more products MADE IN CHINA. That translates into few, if any, jobs created in the US.

The Obama administration is also trying to increase exports to serve the growing consumer markets in the developing countries of the world. That would arguably create jobs in the US. Only problem is that the transnational corporations, which are eager to serve those markets, prefer to locate their production plants not in the US but in those countries next to the emerging consumer markets. That way they get the best of both worlds. They get cheap labor AND they are close to the markets they want to serve. This leaves the US at a huge disadvantage. Corporations are eager to serve the US consumer market which is 70% of US GDP, but they don't want to locate production plants in the US because the cost of labor is too high.

So where does this leave the Obama administration. In a hole, likely, having added greatly to the national debt without having created many jobs, certainly not even enough to accommodate new workers entering the labor force. The Fed's attempts to get people to borrow and spend by lowering interest rates and by quantitative easing have been an abysmal failure when it comes to job creation. The money has been borrowed and invested primarily in emerging markets where profits are greater - not in the US. Government officials and the punditry seem to think that, if only they could get Americans to consume more, all would be well, but all would not be well as consumption is not correlated with job creation as long as everything Americans consume is produced elsewhere.

Automation, computerization and robotization have also decreased the need for much skilled labor. As a result the only jobs left are for those with a minimum of skills and those workers can be acquired cheaply in other countries. Professional jobs are also being outsourced to India and elsewhere as cheap internet connections make it profitable to outsource any jobs whose output is primarily paper which can be transmitted electronically to its final destination. Legal and engineering jobs, therefore, have been essentially outsourced to countries with college educated work forces which can handle professional job tasks. This makes it highly unlikely that the US can educate its way out of this dilemma. There has been much handwringing over the pitiful state of the US educational system which is inferior to those of many other countries of the world. But even improvements in education will not fix the problem that results from the fact that educated professionals in other countries will work for one tenth of the expected salaries in the US.

So what can be done about American jobs? What have other countries done? Germany, for example, has a healthy economy based largely on exports and also on the fact that German consumers buy products mainly produced in Germany. For all intents and purposes Germany has healthy tariffs although they don't call them that. Germany has a VAT tax which must be paid not only by companies producing products in Germany, but also, to be fair, by products entering the country as imports. The imports must pay the entire VAT tax in one fell swoop whereas German producers merely pay at each stage of production which spreads the tax over several companies. So imports are discouraged and German producers are encouraged. Other successful countries have in one way or another encouraged domestic producers. Government subsidies have given certain industries an edge, and, consequently, have sustained jobs in country. The US should learn from the example of other countries.

Obama and others hope that jobs will be created indirectly as a result of tax breaks. But this policy has historically proven to be a failure. It's a continuation of Reaganomics and supply side economics which was practiced by the Bush administration with the result that no net jobs were created in the entire Bush Presidency. The only jobs created by Bush were in the military and with private defense contractors. So Obama is gambling his Presidency on a failed Bush policy. One doesn't need a crystal ball to predict what the outcome will be: anemic job creation and a one term Presidency for Obama.

Other countries have industrial policies in which government works with industry in such a way as to create products both for internal consumption and for a successful export economy. This may involve intelligent subsidies instead of the lobbyist sustained subsidies in the US for malignant industries like oil and agricultural products. Other countries manage to place tariffs on imported products which compete with industries which they are trying to promote. The US penchant for free trade is only shooting itself in the foot. The US government funded itself entirely by by means of tarrifs from its founding up until the First World War - over 100 years. In short, US supply side economic and free trade policies are working to its disadvantage and to the advantage of its competitors. Meanwhile, US workers are being left out in the cold. They are being hung out to dry.

Finally, the one thing that is anathema to Republicans and Tea Partiers is direct job creation by the US government, but that may ultimately be the only alternative left to it after all the monetary and supply side economic policies have been exhausted. Franklin Roosevelt created the Civilian Conservation Corps and the Works Progress Administration which put millions of Americans to work during the 1930s. The US Congress became the country's largest employer. Much needed repairs to infrastructure were carried out as well as other beneficial projects. Today infrastructure is badly in need of repair and there are many useful potential jobs which private enterprise is loathe to undertake because they are not deemed to be profitable. Instead of just giving money to long term unemployed, they could be put to work in ways which would not only benefit the economy but would provide a source of labor for infrastructure improvement and beautification.

China Snookers the West in Pretending Not to be an Economic Powerhouse

by John Lawrence

Recently China overtook Japan to become the world's second largest economy. Yet some western observers notably Steven Hill consider China to be a still developing economy. How can this be possible that at one and the same time China has become an economic powerhouse but yet is still developing? This is the paradox of China. The truth of the matter can be found in China's huge population of about 1.3 billion people. There is a split between the urban rich and the rural poor. The urban areas are relatively wealthy and well developed, but the rural areas are relatively poor. Approximately half of China's population is engaged in subsistence farming. These are the people that are "living" on a couple of dollars a day" while the urban areas boast many millionaires and billionaires. In 2009 China had the world's fastest growing group of millionaires, an elite club that rose 31 percent from 2008 to encompass 477,000 people. This growth led China to overtake Britain as the world's fourth largest home to rich people.

So China is a paradox but not an enigma. There are a lot of poor as defined by their contribution to GDP and a lot of rich as defined by their contribution to the market economy. A lot of China's rural farmers migrate to urban areas during certain times of the year to participate in the market economy. The rest of the year they are subsistence farmers. What subsistence farming means is that they are largely self-sufficient in terms of producing enouch to provide for their needs without participating in the market or cash economy. They are, therefore, only poor in the definition of those who only consider wealth as measured by the exchange of goods and services. To those people self-sufficiency doesn't count. It's not included in GDP. Looked at differently though, China could be considered to have the best of both worlds: a self-sufficient rural population and a wealthy urban population. The world's truly poor are the urbanized, jobless poor who make a living scavenging in garbage dumps. If one can't be a self-sufficient farmer, then one must have a job or be really and truly poor. An urbanized poor person living on a couple of dollars a day is in a vastly different situation than a rural poor person engaged in subsistence agriculture living on a couple of dollars a day. On the one hand, you have the desperately poor who are forced to live in a cash economy in which they are jobless. On the other, you have a population which provides for most of its own needs without participating in the cash economy. For the latter group, whatever cash they do make is a bonus on top of what they can provide for themselves.

So I would argue that far from being an impoversished or underdeveloped nation, China really has the best of both worlds. This is contrasted with the US, for example, where the population is almost entirely urbanized. Only 2% of the population is involved in agriculture. So the rest are "urbanized" in a sense regardless of where they live and are dependent on a job to provide for all their needs. They live almost entirely within a cash economy and are almost completely non-self-sufficient. That's why unemployment is such a big deal in the US. China, on the other hand, is lucky not to have the corporate farms which have taken over the job of food production in the US using a combination of highly productive technology and extremely cheap immigrant labor. From my point of view, China, even though many of the self-subsistent farmers still use the water buffalo, is vastly better off because of the distribution of agriculture over a largely self-sufficient population. And we haven't even considered the wealth of China's government which is an entity above and beyond the Chinese people themselves.

Streven Hill argues the following in his essay, "The China Superpower Hoax":

To understand the “real” China, it is necessary to see it through the double lens of its paradoxical condition as both a major economy and a still-developing country. China is filled with contradictions and serious challenges. When I visited China in August and September of 2008, after the Olympics, the country that I saw, whether in Shanghai, Beijing or the rural areas, was a long, long way from being a global leader in any meaningful sense. Two hundred million people out of a working population of nearly 800 million are migrants, chafing at their lowly status and rotten wages. Inequality is rampant. Returning from the rural areas—where the vast majority of Chinese still live—to cities is like a form of time travel, moving from feudal conditions where plowing is still done by water buffalo to a land of impressively jutting skyscrapers.

It's true that "inequality is rampant," but China would be much worse off if it had an entirely urbanized economy with little subsistence farming and the vast majority of the poor living in garbage dumps which is the way it is in many countries as detailed in Mike Davis' book, "Planet of Slums". Davis is writing precisely about the urban poor as opposed to the self-subsistence farmers who are only poor in the sense of being virtual non-participants in the market economy. And Steven Hill doesn't even stop to consider the autonomous wealth and power of China's government. To start with, the US government is indebted to the Chinese government to the tune of $772 billion as of May 2009. It has only increased since then. The US is running a trade deficit with China of approximatyely $60 billion per month. This represents a structural indebtedness of the US to China. The US as a whole has a national debt of $13.7 trillion. The China Investment Corporation is a sovereign wealth fund which has $332 billion with which to invest around the world. China is buying up natural resources and cutting deals around the world while the US lavishes its money - more than the rest of the world spends on its military establishments combined - on a military establishment that has military bases throughout the world. The notion of a sovereign wealth fund is beyond the pale of debate within the US where the only discussion is around how much debt is acceptable.

And that's just the beginning of Chinese government wealth. The People's Republic of China has US $2.5 trillion in currency reserves. With the US' growing indebtedness to China, China has really become the US' banker. (See "Uncle Sam, Your Banker Will See You Now.") US goading of China regarding revaluing its currency falls on deaf ears because China can argue that it's still a developing country (with all those self-subsistent farmers they can have it both ways), and, besides, China holds the financial power over the US due to the fact that the US is dependent on China for huge sums of money to pay its bills. China is the creditor nation despite having a lot of poor people while the US is the debtor nation with a middle class rapidly becoming poor.

China's huge governmental wealth puts it in a position to make huge investments in infrastructure. In 2008 China put $586 billion into infrastructure development including high speed rail, airport development and broad band infrastructure. According to press reports:

"The statement said the spending would focus on 10 areas. They included picking up the pace of spending on low-cost housing - an urgent need in many parts of the country - as well as increased spending on rural infrastructure.

"Money will also be poured into new railways, roads and airports. Spending on health and education will be increased, as well as on environmental protection and technology."

Despite the American Infrastructure and Reinvestment Act, it has allocated a relative paltry sum to infrastructure development. James Carlini said:

A $700 billion bailout package would have been enough to do many of these large infrastructure initiatives in the U.S. Listening to reports of non-deserving executive bonuses, hunting trips, junkets to resorts, and acquisitions coming out of the bailout money in the U.S., it sounds like the Chinese have a better handle on national initiatives and how to prioritize building lasting infrastructure.

China is stepping up to the plate as it allocates resources to clean up the environment and provide a social safety net for its citizens. It is not there yet, but the trend is for rapid development in many directions simultaneously. They are putting their money into economic development while the US puts its money into the military-industrial complex. Meanwhile, the US dithers, not able to get its act together or agree on anything. With no national industrial policy, immense debt and a political system seemingly invented to create gridlock, the US goes backwards while China goes forward. While the US regresses, China is not standing still. If Republicans take over Congress, we'll see a shredding of what little safety net the US has. What now seems like an almost pathetic attempt to institute a national health care plan is likely to be repealed or gutted. All public services are in jeopardy as states and municipalities struggle with huge budget deficits. Is this what 234 years of democracy has wrought?

 

Crumbling America Has a $2.2 Trillion Repair Bill

Published on Sunday, October 17, 2010 by The Independent/UK

The US needs to update its roads, railways and airports – but recession and a shift to the right have put big infrastructure projects in jeopardy.

by Rupert Cornwell

First, a tale of two rail tunnels. One of them is in Switzerland – the 35-mile Gotthard Base tunnel, the cutting of which was completed on Friday amid great national rejoicing, and which, when it opens for business in 2017, will be the longest of its kind in the world. It will have cost $10bn (£6.2bn), representing $1,300 of taxpayer's money for every citizen in the land of William Tell. But it will bestow huge benefits not only on Switzerland, but on north-south freight and passenger traffic for all Europe.

The other rail tunnel is (or rather was) in New Jersey, and would have linked the Garden State to Manhattan, vastly improving clogged access to New York City, with long-term economic benefits to match. The project, 20 years in the planning, would have cost around $9bn, or roughly $1,000 for each inhabitant of one of the richest states in the US.

Alas, it is not to be. A few days ago, Governor Chris Christie of New Jersey announced his state was pulling out, in effect dooming the tunnel even though digging has started and $500m has already been spent. The cost was simply too high, he declared; in these cash-strapped times, New Jersey had better things to spend its money on. And so you start to understand the silent crisis that is undermining America: the creeping decay of its public infrastructure.

It's happening everywhere, from potholed interstate highways and grimy railways, to congested airports and a creaking air traffic control system that only adds to the increasingly third world experience of flying in the US. And hold your breath when you cross an American bridge: a 2005 study found that fully a quarter of them were structurally inadequate or obsolete.

Every now and then, the defects explode into the national consciousness – when breaches in scandalously neglected levees led to the flooding of New Orleans by Hurricane Katrina, or when the Interstate 35 bridge in Minneapolis collapsed one sunny rush hour afternoon in August 2007, sending 13 people to their deaths as their cars plunged into the Mississippi river.

Another reminder is when friends return from foreign trips marvelling at the high-speed rail networks in Europe, Japan and China, or at other man-made wonders such as the Millau Viaduct in southern France. Why, they ask, can't we have this sort of thing?

To be fair, they can and do. Yesterday saw the opening of the stunning new bridge 890ft above the gorge of the Colorado river, linking Arizona with Nevada and bypassing the congested old road across the top of the Hoover Dam – that earlier Depression-era miracle of infrastructure building, dedicated by President Franklin Roosevelt in 1935.

The new bridge took five years to complete and is said to have the longest single-span concrete arch in the Western hemisphere. As other great achievements of its kind (the Golden Gate bridge in San Francisco, for example) it actually adds to the magnificence of its setting. Sadly such triumphs of design, functionality and economic farsightedness have become the exception these days in the US.

When he won the 2008 election, Barack Obama was being hailed as Roosevelt redux. Just like FDR, he had come to power in miserable economic times, a Democratic president promising to unleash the power of the government on vast public works to revive the economy and generate jobs. Thus far at least, it hasn't happened – for several reasons.

The first of course is Governor Christie's objection. When state and federal budgets are under so much pressure such projects, it is argued, cannot be afforded. Americans like bold infrastructure spending, but not if it expands the deficit even further.

Second, among the presidents separating Obama from FDR is a certain Ronald Reagan, whose hostility to big government shifted the whole spectrum of US politics to the right. Since Reagan, public suspicion of government intervention has taken a quantum leap. Whatever you think of the Tea Party movement, the hottest thing in American politics right now and which holds the Republican party to ransom, one thing is sure. Tea Partiers are not into building bridges and modernising airports out of the public purse, or endowing the US with a state-of-the-art passenger rail system.

Europeans who visit the East Coast are the mirror image of Americans heading in the opposite direction, often astonished that there is no true high-speed rail link between Washington, Philadelphia, New York and Boston. However it's not for want of trying.

Last month Amtrak, the national passenger rail network, unveiled a plan that would put Washington within 96 minutes of New York and barely three hours of Boston. The only problem was, it would take 30 years and cost $117bn. But even that is nothing compared to the $2.2trn which the American Society of Civil Engineers estimates is needed to get the country's infrastructure into good shape. In that context, the $50bn scheme announced by President Obama to improve roads, railways and airports is a drop in the ocean.

But opportunity still beckons. Long-term borrowing rates are rock-bottom; a 9.6 per cent unemployment rate underlines how much spare capacity exists in the economy. As the infrastructure declines, so does the country's international competitiveness. In short, everyone knows something must be done. Indeed, even Governor Christie is said to be open to a rethink over that Manhattan tunnel.

Copyright 2010 Independent Print Limited

--Rupert Cornwell

Report From University of Massachusetts Says Spending on Infrastructure More Likely to Create Jobs Than Tax Breaks

by John Lawrence

A new report, "How Infrastructure Investments Support the U.S. Economy: Employment, Productivity and Growth," by James Heintz, Associate Research Professor & Associate Director, Robert Pollin, Professor of Economics & Co-Director and Heidi Garrett-Peltier, Research Assistant, from the Political Economy Research Institute at U Mass shows that the way out of our economic morass is spending on infrastructure. This would not only create jobs but bring the US up to par with other advanced nations which are puilling ahead of the US.

This is from their summary:

"The United States system of civilian public infrastructure has deteriorated badly over the past generation. The breaching of New Orleans’ water levees in 2005 in the wake of Hurricane Katrina and the collapse of the I-35W bridge in Minneapolis in 2007 offered tragic testimony to this long-acknowledged but still neglected reality.

"After this generation of neglect, the project of rebuilding our infrastructure now needs to be embraced as a first-tier economic policy priority, and not simply to prevent repetitions of the disasters in New Orleans and Minneapolis. The more general point is that infrastructure
investments are essential for the functioning of the U.S. economy. According to the U.S. Bureau of Economic Analysis, total public assets, excluding defense, were valued at $8.2 trillion in 2007. This represents approximately 50 percent of the stock of all non-residential
private assets—a formidable asset base which underpins the national economy.

"Core economic infrastructure—in the areas of energy, transportation, and water and sewerage—is particularly important in maintaining economic performance. However, the rate of public investment in these core areas began falling in the 1970s and has not returned
to its previous levels since then. As an average since 1980, the growth of infrastructure investment has lagged behind overall economic growth. The result has been a worsening infrastructure deficit and mounting investment needs.

"With the rapid deterioration of economic conditions in recent months and rising unemployment, public investment is back on the policy agenda—as a job-creation program linked to the need to revitalize the nation’s crumbling infrastructure. In November 2008,
President-elect Obama announced his intention of creating 2.5 million jobs by introducing a large-scale public investment program during his first two years in office. Since this initial announcement, the proposed size of the stimulus package and the job-creation targets have varied. Nevertheless, public investment remains at the center of thinking about the ‘new New Deal’—the set of policies that are needed to address the ongoing crisis.

"In this report, we examine the employment impacts of an expanded infrastructure investment program and what it would take to create millions of jobs. We develop specific policy scenarios based on an assessment of the nation’s infrastructure needs in four core
areas—transportation, energy, water systems, and public school buildings—and estimate the employment that would be created if the policies were implemented, with a specific focus on manufacturing employment. We also examine what the long-run impacts of such a program would be in terms of productivity and overall economic growth. Finally, we offer some brief observations on both U.S. competitiveness and environmental sustainability that emerge
directly from our main findings."

The report shows that public infrastructure investment and the overall economy rise and fall together. From 1950 to 1979 public infrastructure investment grew at an average annual rate of 4%. GDP also rose at the rate of 4.1% over the same period. In the period of 1980 to 2007 public infrastructure investment fell to an average of 2.3% and GDP growth correspondingly fell to a 2.9% average annual rate. The report states: "The change in the public investment growth rate is a significant contributor to GDP growth."

The report states that spending on infrastructure is a much more effective job creating strategy than tax breaks:

"Three types of job creation: direct, indirect, and induced effects. Direct job creation refers to the jobs directly involved in constructing the new infrastructure projects. Indirect job creation refers to the jobs generated when supplies are purchased for the infrastructure projects. Induced jobs are created when the overall level of spending in the economy rises, due to workers newly receiving incomes when
they are hired to build the infrastructure projects, and to produce supplies for the project.

"All forms of spending will produce jobs. But infrastructure investment is a highly effective engine of job creation. Thus, infrastructure investment spending will create about 18,000 total jobs for every $1 billion in new investment spending, including direct, indirect, and induced jobs. By contrast, a rise in household spending levels generated by a tax cut will create, at most, about 14,000 total jobs per $1 billion in spending, 22 percent less than infrastructure investments."

The report notes that more domestic jobs will be created if the various projects use supplies made in the US rather than imported from abroad. They note that public private partnerships are necessary for many facets of infrastructure development in addition to direct public investment. They focus on transportation (the road system, railroads, aviation, mass transit, inland waterways and levees), public school buildings, water infrastructure (drinking water, wastewater, and dams) and energy (electrical transmission from all sources including renewables, and natural gas pipeline construction).

As for the connection between imports and jobs:

"The job-creation impact of infrastructure projects will be sensitive to the relative proportionof total supplies that are imported from other countries. If imported goods are used to produce the kind of infrastructure we are discussing here, then the U.S. employment impactof increased investment will be lower. Imports represent a leakage from the domestic economy—the greater the leakages are, the less employment will be created for a given level of spending. This is not a serious concern for the construction and service industries. Most
of the activities tied to construction and services are closely linked to the domestic economy and do not rely on imports. Given that about 90 percent of the total amount of economic activity generated by infrastructure investments will either be within the construction or
service sectors, this in turn means that, overall, the level of imports generated by infrastructure investments will be low. At the same time, for the manufacturing sector, leakages from purchases of imported materials represent a more serious concern."

As for the effect on the unemployment situation:

"We estimate that the baseline infrastructure investment program—consisting of a total of $87 billion in additional infrastructure investment each year—would generate a total of 1.6 million jobs each year, including approximately 150,000 manufacturing jobs. Within the
context of the December 2008 labor market situation, this job expansion would be sufficient to bring the unemployment rate down to 6.2 percent—assuming that the economic situation does not deteriorate further. A more ambitious infrastructure program is required to make a
larger impact on unemployment. In our accelerated, high-end scenario, involving an additional $148 billion in infrastructure investment each year, 2.6 million jobs would be created, including about 250,000 manufacturing jobs. Again, within the context of the December 2008 labor market, this level of job creation could reduce the unemployment rate to 5.5 percent. It should be noted that the level of infrastructure investment required for the accelerated program—particularly, public investment—represents a significant increase over current levels. Such a program would constitute a large-scale public investment initiative in many respects more ambitious than the building of the interstate highway system from 1959-80."

The report also offers proof that public investment actually improves the return on investment in the private sector as the private sector is enhanced by the ameliorated infrastructure development. The report concludes with the following:

"Our focus in this study has been to give careful attention to the needs this country faces in terms of improving our infrastructure; and, in meeting those needs, establishing what the benefits will be for employment generation and overall economic growth. We have not
focused in detail on the benefits that would accrue in terms of two additional crucial factors, i.e. U.S. competiveness and environmental protection. But when one does consider these additional benefits, the imperative before us becomes even more clear. This is to rebuild the
country’s infrastructure, and thereby restore what has always been a key pillar of the country’s economic achievements."

 

 

Do You Want Tax Breaks for the Rich or Infrastructure Repair?

A Generation of Termites

Posted on Truthdig Oct 13, 2010

By Joe Conason

When American politicians talk about the legacy we are leaving to the next generation, their usual theme is financial deficits, as if there were no other kind. Figured on a per capita basis, the real and imputed debt that today’s children will assume someday as taxpayers can seem daunting. But what our political leaders rarely even attempt to calculate is the other debt that we are leaving to our heirs—a decayed and inadequate infrastructure that doesn’t deserve to be compared with what earlier generations bequeathed to us.

The best recent estimates by civil engineers and government experts indicate that we would have to spend well over $2 trillion during the next five years on roads, bridges, airports, railways, transit, sewers, waterways, ports, dams, parks and schools simply to maintain them in decent condition. Such estimates do not include the kind of modernizing improvements that the United States requires to remain competitive with other nations or to protect the global environment from disaster. But the political momentum appears to favor politicians who have no will to preserve—let alone better—the national inheritance that we have allowed to fall into sorry disrepair.

The destructive dynamic was illustrated again in recent days, when President Obama offered a very modest $50 billion program that would begin to address America’s infrastructure needs, and not incidentally create jobs in a deflated economy. Although he sought bipartisan agreement, flanked by former transportation officials from Republican administrations, his partisan opponents instantly dismissed his proposals as political. The Senate Republican leader, Mitch McConnell—who has directed millions of federal dollars to his home state for boondoggles named after him—now sees no benefit in federal spending on basic transportation and environmental projects.

Perhaps it is understandable, if still deplorable, that Republicans like McConnell prefer to stop any Democratic or bipartisan initiative that might give hope to voters frustrated by slow growth and high unemployment. More troubling by far is the absence of any plausible suggestion from the Republicans as to how they would address the need to rebuild and restore a country that is literally falling apart.

Listening to them—and looking over their scant policy pronouncements—it is clear that they plan to spend less, not more, on these critical needs. Republican promises to reduce the deficit while cutting taxes are unfulfillable, but the only way they can even pretend to fulfill them is by slashing domestic spending (especially because they consider the defense budget untouchable). So the physical deficit will continue to swell—and the cost of the repairs that will someday become absolutely unavoidable will continue to rise, as well.

The great inheritance left to those of us who grew up in the postwar era was the product of decades and even centuries of planning, construction and maintenance, from the building of the Erie Canal to the Interstate Highway System and the Clean Water Act. Restoring what we inherited to a tolerable level of usefulness would require difficult choices, from cutting wasteful military budgets to raising taxes, which are now lower than at any time in the postwar era.

Yet the Republicans insist that we should not only preserve the George W. Bush tax cuts favoring the wealthiest few, but lavish still more cuts on them—while slashing spending on infrastructure below the cost of crucial maintenance, let alone real renewal. Their ironically named budget “road map” created by Rep. Paul Ryan, a Republican from Wisconsin, would cut in half the taxes for the richest 1 percent of taxpayers, while freezing spending on infrastructure for the next 10 years.

Such schemes are worthy of a generation of termites—but not of Americans who revere our forebears and value our posterity.

Joe Conason writes for The New York Observer.

© 2010 Creators.com

 

There are Two Problems Emanating From Low Tax Rates: Income Inequality Leading to Insufficient Demand and Insufficient Government Revenues Leading to Increasing National Debt

by John Lawrence

Robert Reich and others have pointed out that income inequality was at a maximum both in 1928 just before the Great Depression and again in 2007 just before the Great Recession. In both cases the share of the nayional income going to the top 1% was greater than 23% as the following graph shows.

 
If you superimpose a graph of the top income tax rate, you can see that it is almost the inverse of the graph of the share of income going to the upper 1%. In the 1920s the top tax rate was 25%. In the period which Reich calls the Great Prosperity, roughly from 1945 to 1980 the top tax rate was high, 91% under Eisenhauer, 70% under Nixon and 39.6% under Clinton as the following graph shows. Roughly the peaks in the first graph correspond to valleys in the second and vice versa.

 

We can conclude from these two graphs that income inequality increases as top marginal tax rates decrease. There is almost a direct correlation. But in addition to that government revenues diminish when top tax rates are lowered and increase when they are raised. So lowering taxes produces more income inequality and diminished government revenues. Reagan and the first Bush lowered taxes and quadrupled the national debt from $1 trillion to $4 trillion. The second Bush lowered taxes and doubled the national debt from $5 trillion to $10 trillion. Fiscal responsibility as defined by government revenues exceeding government spending has been achieved by every Democratic President since Johnson and by no Repuiblican President since then as shown by the following graph.

 

Clinton ran budget surpluses four years in a row, a feat not achieved since the 1920s. Even though top tax rates were low in the 1920s, the government still ran surpluses for all those years. This was because the economy was booming so a lower tax rate was sufficient to produce ample revenues. Supply side economics promised the same result but didn't deliver. Instead lowering taxes produced huge government deficits which added huge sums to the national debt. In the 1930s, when the Great Depression hit, the government started running deficits, but it had built up a relative surplus in the 1920s so it could better afford to run deficits than it can today since such huge deficits were run up during the Bush administration.

Keynsian economics says that the government should spend more and run deficits during recessions and save more and run surpluses during expansions. That theory made some sense during the 1920s and 1930s when the surpluses of the 20s were somewhat balanced by the deficits of the 30s although the deficits were about triple the surpluses. Today, however, we have a dual problem: the need for the government to spend money to stimulate the economy and the need not to add more to the national debt. One way the government can do this is to raise income taxes on the wealthy which would solve two problems. It would reduce income inequality and it would decrease government deficits. Since the wealthy don't add greatly to aggregate demand especially after a certain amount of wealth has been accumulated, this will not affect the economy negatively. Also, as has been proved by the Bush administration, increasing the wealth of the already wealthy does not create jobs.

Another way the government can solve the deficit problem is to find other sources of revenue. Up until approximately the First World War most government revenues were derived from excise taxes (mainly on cigarettes and alcohol) and tariffs. By the 1920s these sources had been largely replaced by the income tax. Excise taxes are taxes on particular products produced and sold within the US. They are similar to the VAT tax which is used in Europe. But the VAT tax applies to all products not just certain selected ones. The VAT tax is  basically a national sales tax. Excise taxes could be reinstated and applied to speculative financial products in the form of a Financial Transactions Tax (FTT). This would net hundreds of billions of dollars a year. Hundreds of billions more could be gotten from collecting taxes on profits illegally parked offshore. Tariffs could be applied selectively to certain countries and/or certain products in order to equalize the trade balance which has been running huge deficits. This would mean abandoning free trade in favor of fair trade.

Keynsianism is outmoded today because the government can't afford to go into debt to stimulate the economy. However, the government can raise revenues by instututing increased taxes on the upper 1% and other forms of taxation such as a FTT that won't affect the purchasing power of the middle class. Royalties on oil and minerals extracted from the US by corporations could also be taxed at rates similar to what other countries are taxing their oil. Today the US is practically giving away its natural resources. The problem in today's economy is lack of demand so purchasing power must be increased among those who are in a position to increase demand, namely, the middle class. Government spending that is offset by government revenues is deficit neutral. One of the greatest problems in the currrent economy is lack of job creation. Government spending that directly and indirectly creates jobs will do much to ameliorate the current lack of demand, and if that spending is balanced by increased revenues, the national debt can be paid down at the same time.

How Exactly, Mr. Reich, Do You Create Jobs?

by John Lawrence

Robert Reich writes in his October 1 post that lowering the value of the dollar is not the way to create jobs in the US. Lowering the value of the dollar seems to be the US government's job creation policy at this time. The theory is that that will produce more exports because our products will be cheaper abroad and fewer imports because imported products will be more expensive. Mr. Reich contends that other countries will simply follow suit and lower the value of their currencies. Result: a currency war.

The other way the Obama administration seems to favor for creating jobs is just to wait for the natural dynamics of the US economy to create them. The theory is that the US economy is so resilient that, if we wait long enough, it will just naturally recover and things will go back to normal - normal being 5% unemployment. This might be called the cross-your-fingers-and-wait-and-see approach. This approach is doomed to failure for reasons that have been mentioned on this blog before - outsourcing of jobs and automation, to be succinct. OK, then, what are some other methods by which jobs might be created. Innovation, for one thing. The creation of whole new industries. Technological innovation has fueled capitalism for centuries. Recently, computers and the internet are good examples. Problem is there are no new innovations on the horizon. Especially ones of an exclusively American nature. While the computerization of the world was conceived, developed and capitalized on in the US, current innovative technologies like alternative energy are being pursued more vigorously elsewhere. Automoble technology was developed concurrently in other countries but at a time when outsourcing was impractical so the development of the automobile proceeded independently in a number of countries as if they were on separate planets. In today's world that would not be possible.

Labor arbitrage means that major production facilities will be located wherever the cost of plants, equipment and labor is cheapest. Automation means that most products can be manufactured with a minimum of human labor. So where does this leave Americans who need to work in order to have an income that will let them consume the products and services that they need in order to have at least a decent middle class life? In other words where are the good jobs at good pay going to come from? Of course, one alternative is for Americans to work for starvation wages. There will always be a certain number of low paying service jobs available. But in order to have widespread prosperity among the majority of the population, there are only a few remaining alternatives none of which is being given serious consideration at this time.

Alternative #1: The government sets an industrial policy and subsidizes the development of certain industries which can compete at a world class level. Such is the case with Finland where Nokia has competed successfully at a world level and as a result brought prosperity to Finland. This is also true in Germany which has successfully retained a manufacturing base and has profited from its exports.

Alternative #2: The government sets up public/private partnerships to internally develop the US infrastructure. This in turn will lead to the creation of more private sector jobs following in the wake of infrastructure development just as the development of the railroads or the interstate highway system opened up opportunities for private sector development.

Alternative #3: The US government can create jobs directly in areas that the private sector is not interested in. This was done during the Great Depression when FDR created the Works Project Administration (WPA) and the Civilian Conservation Corps (CCC). There is just as great a need for conservation type projects today and just as much of a lack of interest on the part of the private sector. In fact the private sector ususally is in the business of degrading the environment rather than protecting or enhancing it. This creates an opportunity for government to be in the business of enhancing the environment in such a way that it is not in competition with private enterprise. There may be other areas where government can directly create jobs in ways that do not compete with private enterprise or in ways that are symbiotic with private enterprise. It is possible for government and private enterprise to be involved in a positive sum game, one which is beneficial for both sectors.

Alternative #4: Spread the wealth. Redistribution of wealth. Since income and wealth are becoming more centralized and concentrated (23.5% of income in 2007 went to the upper 1% similar to 1928 just before the Great Depression), the upper income brackets can be taxed heavily and the money used to create jobs ala the WPA and CCC or it can be redistributed by providing unemployment benefits and food and housing subsidies. In other words the social safety net could be greatly expanded. My preference is for the direct and indirect creation of jobs since I think that work is more ennobling than permanently remaining on the dole. Marx was right about the natural tendency of capitalism, particularly unregulated laissez faire capitalism, to centralize and concentrate capital in fewer and fewer hands. Economic inequality in the US has never been greater except just before the Great Depression.

The US is the most laissez faire capitalist country on the planet. At least it has been so for the last 30 years ever since Reagan became President. The lowering of tax rates on the upper income brackets and the deregulation of corporate industry has produced a society in which most of the economic benefits go to a very small number of people at the top. Other countries have prevented this phenomenon by means of their governments being more directly involved in their economies. Whether its the Euro zone, China, Japan or other prosperous nations, they are all - as governments - more directly involved in their economies than the US which has essentially a hands off policy between the government and the economy. Unfortunately for the US, these other nations are becoming more prosperous as the US loses ground. These capitalist hybrid economies especially in China are gaining while the US is losing. Another reason the US is falling further behind is that, while the other capitalist economies have been devoting large amounts of resources with a hands on policy towards their commercial sectors, the US has devoted huge amounts of resources with a hands on policy to its defense sector while maintaining a hands off policy towards its commercial sector.  Unfettered, unregulated capitalism is proving to be not as successful an economic model as is hybrid capitalism.

Government involvement in the economy, what might be called a socialist-capitalist hybrid, seems to be evolving as the successful economic model of the 21st century. Governments that don't have industrial policies such as the US and leave everything to a hands off policy towards the economy seem destined to stagnation. They are heading in the direction of Third World status which is defined as a country with a very small, very wealthy elite surrounded by a very large poverty class. This seems to be what unregulated capitalism produces.

Can Gadgets Save the World?

by John Lawrence

There is no doubt that the developed world is hooked on gadgets. There is the ipad, the ipod, the Kindle, the smart phone and too many others too numerous to mention. The question is is this proliferation of gadgets really going to save the world, the environment, the planet. Or is the proliferation of gadgets as a world changer a pipe dream in the mind of some CEOs? In the August 19, 2010 edition of the San Diego Union, Paul Jacobs, CEO of Qualcomm, says this: "I think the thing that excites most Qualcomm employees is the idea that we can literally change the world with our ideas because we can get those ideas and put them into the hands of 100 million people in a matter of three months." Well exactly how Mr. Jacobs intends to change the world isn't specified. Another app for the iphone perhaps?

I can see how an African wife that has to walk eight miles each day to a water source and then haul water home could be enabled to talk to her family via cell phone during her long and arduous trek. However, what might improve her lot even more would be a source of fresh water in her village so that she wouldn't have to make the trek in the first place. The infrastructure necessary to guarantee each of the 6.7 billion people of the world a supply of clean water close to their home is not high tech. Nor can another gadget bring it about. It's not so exciting to think about the provision of clean water and adequate sanitation facilities to everyone, but that would do more to reduce child mortality and water borne disease throughout the world. On the one hand you have a CEO of a major Fortune 400 corporation proposing that the proliferation of gadgets is exactly what the world needs now. On the other you have the reality that what the world really needs in order to reduce disease and drudgery is basic infrastructure. Which is it?

While Qualcomm stands to make money from the proliferation of cell phones and other smart gadgets, who stands to make money off of the provision of clean water and adequate sanitation? They tried the privatization of water in Bolivia, and the result was that the desperately poor people who really needed it could not afford it. This is what happened when water was privatized:

Etched deeply into the granite walls just inside the entrance of the World Bank headquarters in Washington are the words, "Our dream, a world free of poverty." Earlier this month in Bolivia, the citizens of South America's poorest country sent the bank a message once again that the poor aren't too keen on the part of that dream that involves handing their water over to foreign corporations. On January 10 the citizens of El Alto took to the streets en masse to demand that their water system, privatized in 1997 under World Bank pressure, be returned to public hands. Three days later Bolivia's president issued a decree canceling the water concession, led by the French water giant Suez, and an arm of the World Bank itself. The El Alto water revolt follows, by five years exactly, the now famous revolt against water privatization in Cochabamba, in which a company controlled by the Bechtel Corporation was ousted from the country. Together, these two revolts over water should send an important message to officials at the World Bank, if they are willing to hear it. The people of Bolivia did not choose to privatize their public water systems. That choice was forced on them, as it has been in many poor nations around the world, when the World Bank made privatization an explicit condition of aid in the mid-1990s. Poor countries such as Bolivia, which rely heavily on foreign assistance for survival, are not in much of a position to say no to such pressures. World Bank water officials claim all the best intentions when they make the push for water privatization. The bank has argued that poor governments are often too plagued by local corruption and too ill equipped to run public water systems efficiently. Handing water over to foreign corporations, the bank has said, opens the door to needed investment and skilled management. However, to borrow a phrase, the road to bad public policy is often paved with good intentions. Bolivia's experience with bank-forced water privatization is a striking example of the yawning gap between World Bank theory and how things actually work in the real world for the poor families who have to live with the results. In Cochabamba five years ago, the water contract with Bechtel and the Abengoa Corporation of Spain paved the way for rate increases of double and more for poor water users. Those steep and sudden price hikes, needed in part to finance the 16 percent annual profit demanded by the companies, led to citywide protests and eventually to Bechtel's and Abengoa's ouster.The Bolivian government declared martial law in an effort to save the companies' contra ct, leaving one teenage boy dead and more than 100 people wounded. In El Alto the chief complaint about the Suez/World Bank privatization is that it left tens of thousands of poor families with no access to water whatsoever. Fortunately, no one was killed or wounded in this latest water revolt, a credit to President Carlos Mesa, who agreed that the water contract was inadequate and approved its cancellation.

It's true that gadgets have marginally improved the lives in the developed world for people who already have a considerable amount of wealth and who have adequate supplies of fresh water and adequate sanitation. For such people a new gadget is like another new toy to put under the Christmas tree. But for a CEO like Mr. Jacobs to be so misguided and out of touch with the world situation to state that another gadget will "change the world", shows a lack of understanding and empathy for anyone except the class of people that can afford to buy the gadgets that Qualcomm produces. In the US today 15% of the people live in poverty. I don't think they represent the market for the next "smart" cell phone. And who exactly are the 100 million people that Mr. Jacobs can put Qualcomm's ideas into the hands of? They sure aren't the people that are living on a dollar a day or have to walk miles to get water that may or may not be contaminated.

The problems facing the world today can't be solved by the proliferation of gadgets. And basic infrastructure can be better provided by governments and not private corporate capitalism. It would be less arrogant if Mr. Jacobs had said something like "we can't solve the world's problems with our technology but we can make life marginally better for the world's affluent." That kind of a statement would not only be more accurate, but more in an appropriate spirit of humility.

Passenger Trains: Our Hope for a More Sustainable Future

Published on Sunday, September 19, 2010 by CommonDreams.org

by Olga Bonfiglio

President Obama's proposal to spend $50 billion on transportation infrastructure—including 4,000 miles of rail lines—couldn't be a better expenditure of our federal tax dollars.

After spending two days on the Empire Builder, the long-haul Amtrak line from Chicago to Seattle/Portland, I quickly realized that our investment in trains should be readily and heartily embraced.  And, if more Americans were to take such trips, I’m sure they, too, would choose trains as an alternative mode of travel.

Amtrak staff was courteous and responsive to passengers, a bit quirky as train people can be, but absolutely delightful while we all traveled the miles and hours together across the country. Riding the train, especially on an overnight, was romantic and adventurous and we kept to our schedule despite the numerous times we had to yield to freight trains.

Actually, it’s a miracle that Amtrak has lasted these past 40 years since President Richard Nixon deliberately designed it for failure.  Different administrations—both Democratic and Republican—have either ignored passenger rail or, like President George W. Bush, actively sought to scuttle it.

James McCommons, author of Waiting on a Train: The Embattled Future of Passenger Rail Service tells the story about Amtrak and America’s relationship with trains along with some great travelogues of his year-long train trips around the country.

He points out that most legislators who vote on appropriations for passenger trains have never ridden a train, which severely works against Amtrak. Others have been adamant that Amtrak make a profit.

Truth is, there is no public transportation system in the world that earns a profit.

What is clear is that train networks serve as a means to an end, namely, they contribute to an area’s economic development, an idea that is capturing the attention of more and more mayors across the country, especially in this weak economy.

Actually, highways and airports are not money-makers either and the federal government subsidizes them to the tune of $180 billion per year. Amtrak only gets $1 billion. Unfortunately, many Americans don’t realize that a transportation network is one of the benefits of their taxes.

The reason that Amtrak has been short-sheeted is that passenger rail has simply not been a government priority.

After 100 years of moving people within our cities and around the country, trains lost favor because people were sick of the rapacious and corrupt conduct of the railroad corporations. The vehicles were dirty and staff was rude or mean. Ridership had been steadily declining since 1920. After World War II, the nation made a dramatic switch to invest in highways because our roads were poor and lacked connectivity and, well, people liked driving their cars. It didn’t help that the automobile, oil and tire companies conspired—or at least lobbied—against the public transportation system for their own interests as depicted in the 1996 PBS film, “Taken for a Ride” and its 2008 Part II version. 

Promoted by President Dwight D. Eisenhower, the Federal-Aid Highway Act of 1956 required citizens to finance the Interstates by paying 15 to 20 percent of the price of a gallon of gas. The 46,876-mile Interstate system took 35 years to complete and cost $128.9 billion.  The feds paid 90 percent of the cost or about $114 billion—$425 billion in 2006 dollars— even though the Interstates were under the control of the states.  Governors and mayors signed onto this massive public works plan without hesitation because they saw it as an economic development tool for their cities. They would be proved wrong within a couple decades.

As more and more people needed and bought cars, they found themselves stuck in more traffic jams and having to contend with endless road repair. Operating an automobile amounted to $6,000 to $7,000 per year (outside its purchase) and the accident and death rates related to cars—at least 40,000 deaths per year—were overwhelming.

Building the Interstates in the cities also drastically changed urban life, something Eisenhower never intended and experts never foresaw. Neighborhoods were torn up to make way for the highways. Social stratification and racial discrimination intensified as middle class white people migrated to the suburbs and left poor people and minority groups behind in the cities. Downtowns that were designed for pedestrians became congested places and the influx of cars made them frustrating to navigate. Old buildings were demolished to create surface parking, which then created gaping, ugly holes in the cityscape.  People felt unsafe and increasingly reluctant to go downtown. Retail moved out to the suburbs and the companies eventually followed. Of course, all of this out-migration ended up depleting the tax base and making ghost towns out of our once vibrant and prosperous downtowns.

By the late 1990s transportation engineers and analysts began questioning the Interstate’s “externalities” as they costed out pollution, energy waste, land disruption, accidents, time wasted in traffic jams.  They also learned that spending hundreds of millions of dollars to add highway lanes and interchanges didn’t relieve congestion.

The airlines tried to make up for their operational costs with reduced legroom, poorer air quality and overcrowding. Greater demand for air travel also necessitated building or expanding airports, which all takes up a lot of tax dollars.

With the 1990s came new attitudes toward cities and toward the environment. Young people and empty nesters found cities a “hip” place to live and began moving back. They reduced their car usage and demanded more public transportation options. People started a movement to restore historic buildings and revitalize their downtowns.

Meanwhile, rail advocates were keeping Amtrak alive, albeit by a thread. Among them was Gil Carmichael, a former highway lobbyist, owner of five car dealerships and an airport charter service. He later founded the Intermodal Transportation Institute at the University of Denver where he advocates for what he calls Interstate II.

Interstate II (http://www.texasrailadvocates.org/InterstateII.htm) involves double- or triple-tracking 20,000 to 30,000 miles of mainline freight railroads, establishing corridors for high-speed trains and eventually electrifying the trains to replace diesel engines. Carmichael estimates this could all be done in 20 years for two cents on the motor fuel tax.

“We have this incredible railroad network that goes out all over this land from city center to city center. That's what is so amazing. It's already there,” said Carmichael (in McCommons).

Another idea train advocates promote is the re-establishment of a combined freight and passenger rail system through private-public partnerships that work with state transportation departments.  Dedicated passenger lines have a multiplier effect that can relieve traffic congestion, reduce freight bottlenecks, diminish flight delays, reduce this country's carbon footprint and accommodate people without cars or the means or desire to fly.

When Amtrak was created, politicians, lobbyists and fiscal conservatives really wanted to deep-six passenger rail altogether within two years. It was only through political wrangling and arm-twisting that train advocates were able to save passenger rail by separating it from freight and calling it Amtrak, the National Railroad Passenger Corporation. That did not mean, however, that it would be efficient, well-funded or make a profit despite Nixon’s caveat that the new railroad be off the government dole as soon as possible.

The United States has never had a vision for an integrated railroad network nor has it adequately funded one, says John Gibson, vice president of Operations Research and Planning at CSX (quoted in McCommons).  Instead, passenger rail has been a hit and miss enterprise as Amtrak has tried to put its trains on networks owned and managed by the freight companies.

Could there be a renaissance in trains? Yes, says McCommons, because as the nation’s population increases, as more people decide to lead urban lives and as cities increase in density, it makes sense to use rail—especially with energy costs expected to climb.

“In terms of efficiency—fuel savings, lower carbon outputs, smaller footprint on the landscape—the advantage is really rail,” said Anthony Carbonell of the Lincoln institute of Land Policy in Cambridge (quoted in McCommons). “It has been significantly underinvested in and disadvantaged against the other modes. We once had good train service in this country. We need to recover that capacity.”

The Obama administration clearly sees the possibilities of rail and so it gave Amtrak $8 billion in the stimulus package and another $1.3 billion for car rehabilitation and infrastructure repair on the Northeast Corridor. Vice President Joe Biden, a well-known train buff and consistent passenger during his senatorial days, obviously had a lot to do with this boost for Amtrak. 

This is all a good start but we still have a long way to go.

So, ride the train if you haven’t already, and encourage others to ride also, including your congressional representatives. It's a great way to get this country back on track!

Olga Bonfiglio is a professor at Kalamazoo College in Kalamazoo, Michigan, and author of Heroes of a Different Stripe: How One Town Responded to the War in Iraq. She has written for several national magazines on the subjects of social justice and religion. Her website is www.OlgaBonfiglio.com. Contact her at olgabonfiglio@yahoo.com.

What a Second Stimulus Should - and Shouldn't - Look Like

Published on Tuesday, September 7, 2010 by Open Left

by David Sirota

Recounting the findings of  a new study by the Keystone Research Center, the Denver Business Journal reports that "the unemployment rate would approach 16 percent nationally -- more than 6 percentage points higher than the current jobless rate -- if not for the federal stimulus program." This comports with data released earlier by the Congressional Budget Office and with the opinions of both liberal and ultra-conservative economists.

Such consensus should end the debate about whether or not Congress should pass another stimulus bill. It should - the only debate should be over the shape of that stimulus bill, and even that shouldn't be up for debate, though, unfortunately, it most certainly is.

From both liberal and conservative economists - as well as from history - we know that direct government spending on things like infrastructure and education investment is a good way to prime the economy in the short term and the long term. So is spending on stuff like unemployment benefits and food stamps, which puts money into the hands of those who will spend it immediately on necessities. And, of course, we know from polls that spending on such priorities is far more politically/electorally popular than devoting more money to corporate tax cuts or to deficit reduction.

We also know from the Bush era - and from 20th century history in general - that tax cuts are far less effective at spurring economic development than direct spending. That's why this Washington Post story is so troubling:

Under mounting pressure to intensify his focus on the economy ahead of the midterm elections, President Obama will call for a $100 billion business tax credit this week...The business proposal - what one aide called a key part of a limited economic package - would increase and permanently extend research and development tax credits for businesses...

Sure, it's great that the president today is talking about spending $50 billion on infrastructure. As evidenced by this very diary, I obviously support such new spending. But when the paltry sum of $50 billion is put up against double that amount in corporate tax cuts, it seems like the administration's priorities are all screwed up. If the job-creating weakness of the first stimulus bill was it's willingness to devote roughly 40 percent of its funds to less-effective tax cuts and just 60 percent to employment-boosting spending, then a similar weakness will be even more amplified in new stimulus proposals that, by the administration's initial figures, may end up devoting double to tax cuts what it devotes to infrastructure spending.

After all, there are two fundamental problems with the tax cuts being proposed: 1) In general, tax cuts have not proven to be a very good short- or long-term job creator or economic engine and 2) In specific, as Citizens for Tax Justice has long reported, the R&D tax credit has become something of a corporate boondoggle, especially in light of the far more effective direct government spending on R&D. Even the conservative Wall Street Journal has lambasted this particular tax credit as blatant corporate welfare, noting that, according to the Government Accountability Office, 70 percent of it goes not to small businesses in need, but to already-wealthy multinational firms with receipts of $1 billion or more. Think big drug companies, as just one example.

But maybe that's the unfortunate point. Maybe this is yet another example of the administration looking first at how a policy can satisfy Big Money, and then at the (alleged) residual benefits to average American workers - rather than looking at it in the opposite way. If that's the case, it's tragic - because the success of the first stimulus's spending gives the administration strong ammunition to put forward a far more progressive proposal, one that would be far more politically popular for Democrats in advance of the 2010 election.

© 2010 Open Left

David Sirota is a bestselling author whose newest book is "The Uprising." He is a fellow at the Campaign for America's Future and a board member of the Progressive States Network-both nonpartisan organizations. Sirota was once US Senator Bernie Sanders' spokesperson. His blog is at www.credoaction.com/sirota.

What Do Pot and Solar Panels Have in Common?

by John Lawrence

You might not think that growing pot and installing solar panels would have anything in common. The California ballot this year will contain a provision for the legalization of pot. If this was written in such a way that anyone could grow and sell pot, it would have the consequence of starting up a million small businesses. There is the potential there for spreading the wealth very widely because pot can be grown by almost everyone. You don't need a college degree or any special training. But the provision on the ballot is written in such a way as to give corpoarte control over any legalized pot venture. In other words the writers of the provision took pains to prevent the average Joe from growing and selling pot and to guarantee that pot growing would be a narrowly centralized and corporatized activity.

The solarization of America likewise has the potential to be a widely distributed economic activity which would spread the wealth associated with it to a disparate variety of people. This is the way it was handled in Germany, where, by virtue of the way the incentives were set up, every Tom, Dick and Harry could get into the game and provide solar power for his own home and even generate power to sell back into the grid thereby reaping a profit. On the recent California ballot, on the other hand, a proposition, Prop 16, was included that was written by the electric company that would virtually make certain that any future solar incentives that would allow the average person to profit from generating power on his own roof would be eliminated, and that solar power - as power is now - would be centralized to the corporations giving the consumer only the choice to purchase it from them rather than to generate and sell it as they've done in Germany. Luckily, this ballot initiative was defeated.

Why is this important? Because jobs in the US are being structurally eliminated and wealth is being concentrated among a small percentage of the population. The ability of a widespread portion of the population to either grow and sell pot or to generate and sell solar energy would be a way of distributing the potential wealth that will be generated from these activities to the widest possible portion of the entire population. Instead, corporations are seeking to maintain control over any economic activity that has the potential to be exploited by a wide variety of people. The corporations want to maintain control over these and other economic activities and then package and sell the products to consumers rather than to let the consumers provide those things for themselves and generate wealth for themselves in the process. This is important because both things would be not only a source of income for the average person but a source of wealth as well. The average Joe would own the assets which generate either the power or the pot and would therefore, not be just a consumer but a producer as well. He or she would be able to generate wealth as a business owner and not just generate income as an employee. But the American model is corporate control over every commodity with the average American being simply a consumer of that commodity. That's the American citizen's designated role.

With American jobs being offshored and American employees being downsized the American population is headed for neo-feudalism. Most of the jobs that were created in the last year were low paying service jobs. The unemployed are being asked to take minimum wage jobs rather than holding out to get a well paying job on a par with their skill level, education and experience. Republicans are saying that people would rather stay on unemployment than to get a job. That's really the case if the only jobs avaiilable are ones that pay a fraction of what they used to earn. Computerization and automation are replacing many jobs so those jobs are never coming back. America's "free trade" policy which allows US corporations to seek the cheapest labor market in the world and then reimport the products back into the US is responsible for the loss of many jobs. Free trade turns out to be nothing more than labor arbitrage as over 50% of the products imported from China, for example, are products being imported by American companies selling to themselves and in turn to the American people.

The Wal-Martization of America guarantees that many start-ups will never start up if they have to compete with Wal-Mart which famously has put many Mom and Pop stores out of existence. The problem is that the small start-ups are the businesses that provide most of the new jobs. Those new jobs will go unprovided and instead a few low paying jobs at Wal-Mart will be created instead. But the manufacturing jobs for Wal-Mart products are all in China. Since 70% of US GDP is based on consumption, the government is trying to figure out how to get Americans to consume more. There is insufficient demand to drive business to hire more people. Well, American consumers are tapped out. They are losing jobs and homes to foreclosure at record rates. It doesn't make much sense to encourage them to buy more stuff that they don't need when they can't make their mortgage payment or even pay rent. And as their creditworthiness deteriorates, many are not even able to pass the credit check in order to rent an apartment.

So why doesn't the government get off this kick of trying to get Americans to consume more? Because they are bankrupt when it comes to ideas for how to get Americans back to work. The Republicans say just lower taxes. Yeah, that worked out well, didn't it? The Democrats say just put more money in peoples' hands and they will spend it and this will get the economy moving again. Well, that works temporarily but it also increases the national debt. But it doesn't create permanent jobs. Government investment in infrastructure would create sustainable jobs and provide a basis for future private sector development, but again where would this money come from? In order not to add to the deficit, it would have to come from taxing those sectors of the economy where people and corporations have tons of money and they're just sitting on it. But these guys are well protected because they have the money to hire lobbyists to make sure government never seeks to recycle their money in order to provide jobs.

So as long as the American government is so weak it can't override the wishes of the wealthy sector of the population, the status quo will hold sway. And that status quo is dedicated to a large military machine and a huge financial sector. Virtually everyone else is in the process of becoming serfs. Projects to spread future wealth which pot and solar energy have the potential to be, will be relegated to the back burner until BP, Exxon Mobil and Pacific Gas and Electric can figure out how to maintain control over any emerging technologies so that they are the ones to bottle and sell solar energy and pot rather than the average citizen.

Why the Stimulus Didn't Work

by John Lawrence

The American Recovery and Reinvestment Act of 2009 provided $787 billion in funds to get the economy moving again. The government was focused on getting the economy out of recession which is defined as negative economic growth for two straight quarters as indicated by a decrease in GDP. The present definition of recession has nothing to do with unemployment. It's just defined as a decrease in GDP for two straight quarters. Therefore, GDP could increase but unemployment remain high. Such is the situation we're now in - the so-called jobless recovery.

The theory is that if government primes the pump by pouring money into the economy, which was the effect of the $787 billion, that economic activity would increase, consumers would buy more products and services and this would create more jobs. GDP is made up of private consumption plus investment plus government spending plus exports minus imports. In the US consumption is 70% of GDP and the trade balance (exports minus imports) is negative so it actually detreacts from GDP. When consumer spending drops off, that leaves government spending to make up the difference since private companies are not investing in the US and hence are not creating jobs. So the GDP is overly dependent on consumer spending, and hence Bush's reponse to the 9/11 attacks was "Go out and shop." Consumer spending stimulates economic activity which then means business will invest in order to produce more and this will mean more jobs for American citizens. This was the conventional wisdom a few years ago, but this chain of logic doesn't work any more.

The government dumping dollars into the hands of consumers as Bush did with his stimulus, Bush's so-called "booster shot for the economy," means that consumers will spend more temporarily, but it does not mean that jobs will be created in the US because most US consumer goods are made in China. So the jobs created, if anywhere, will be in China. Therefore, the US government is left with the denouement that it must pour money into the economy on a perpetual basis and this is impossible because it would lead to increasing deficits with no sustainable results in terms of job creation. The nation’s international trade deficit in goods and services increased to $42.3 billion in May from $40.3 billion (revised) in April, as imports increased more than exports. This was taken as a good sign in that this showed an increase in American consumption pointing the way out of recession. Yes, GDP increased, but the trade deficit increasing showed that the jobs created by this increase in consumption were mainly abroad.

The US relies too much on consumption. Temporary government programs such as the "Cash for Clunkers" program and the $8000 tax rebate for new home purchases improve the economy temporarily. They do not create sustainable jobs. So the government is left with the dilemma of pouring money into the economy and increasing the national debt or getting GDP up by encouaging those who do have money to consume more or investing in the economy in a way that will increase jobs directly WPA style rather than just giving money to consumers and hoping that their spending it will create jobs. However, the government response at present seems to be to worry about the deficit and hence to gut government spending. This is rational insofar as pouring money into consumers' hands in the hopes of creating jobs is irrational for the reasons given above. However, it doesn't solve the problem of widespread joblessness.

The stimulus bill was almost equally divided among tax cuts, contracts, grants and loans and entitlements. The tax cuts put money in consumers' hands that increased consumption but did not create jobs (except perhaps in China), the grants and loans merely staved off job losses by bailing out states and municipalities and entitlement spending similarly just put money in consumers' hands without creating jobs. This leaves contracts as the sole source of job creation. If the stimulus had put relatively more money into contracts, then perhaps more jobs would have been created. The result was that only a paltry number of jobs were created. There is plenty of work that needs to get done, but private enterprise does not want to do it. Private enterprise is oriented towards producing individual consumer products. The work that needs to be done is more general in nature such as infrastructure rebuilding.

Right now most government contracts are taken up by defense spending. This creates jobs for defense contractors and in the military. It does not create jobs in the civilian economy except in the FBI and CIA and other defense related jobs. Also defense contractors such as Boeing and General Dynamics create jobs in the civilian economy. Evidently, this spending which is huge is not sufficient to create enough jobs to bring unemployment down to an acceptable level. Therefore, the government has two choices it seems to me. 1) Expand the military even further even though the US spends more money on its military than the rest of the world combined. 2) Create WPA style jobs funded directly or indirectly by the government to rebuild infrastructure.

What most people don't realize is that functionally the military and military-related jobs are identical to WPA style jobs. Both are funded by the government either directly or indirectly through contracting. Both serve the same purpose in the economy of creating and sustaining jobs. Both are public sector jobs. If the government wants to create sustainable private sector jobs, then it has to do something about its trade policies. Right now US trade policy is such as to create non-American jobs. The net result is ongoing trade deficits as far as the eye can see which add to the national debt. Bringing jobs home from overseas would not only spur the American economy in terms of job creation but would help the national debt once the trade balance becomes positive again.

Politically, both Republicans and Democrats seem incapable of creating sustainable WPA style jobs in the civilian economy. The Republican solution would be more defense spending, tax cutting and elimination of social programs. The result of this would be that former teachers, firemen and policemen would be forced to join the military in order to get a paycheck. Republicans could conceivably set up programs to encourage millionaires and billionaires to consume more thus elevating GDP. Democrats have been caught flat-footed and have fallen for the conventional wisdom that stimulating the economy by putting money into consumers' hands will ultimately result in job creation here in America. That hasn't happened, and is not likely to happen. They are left with FDR style WPA solutions which they don't seem to have the heart to even bring up. Therefore, they are and will continue to be tarred with the brush of big spenders as their methods of stimulating the economy don't produce sustainable jobs and hence sustainable increases in government revenues. Taxing the rich and limiting the offshoring of corporate profits would provide immediate relief to government deficit problems, but the poltical will to do it is not there. Republican tax cutting will only exacerbate the deficit as 30 years of Reaganomics has shown. Reagan and Bush tax cutting skyrocketed the national debt. Tax cutting not adding to the deficit is what George H W Bush called "voodoo economics" and he was right.

The result is that both political parties are missing the boat. The Democrats' policies of putting government money into the economy are merely staving off disaster for many middle class families which is a good thing, but they are not creating long term sustainable jobs which would help not only the middle class but government revenues themselves. Republican policies would be a continuation of the Reagan-Bush policies of the last 30 years which produced the economic mess we now find ourselves in. Tax cuts have been directly responsible for adding to the national debt. A resumption of these policies would be a prescription not only for more hardship for the middle class and the poor but for outright disaster. The US would come to resemble a Third World country in which there are a few very rich families while the majority of the people are extremely poor. It would be a country in which 20% unemployment would be the new normal and Great Depression style homelessness would be widespread and acceptable. The US would be forced into an austerity lifestyle (except for the rich) and the government's whole fiunction would be to merely pay interest on the national debt.

The Economic Crunch We're in: Corporations Want Fewer Workers, But They Still Need Everyone to Be Consumers

Consortium News / By Robert Parry

 

From Alternet

 

The recession has been a way for employers to cull payrolls -- and to discover that many jobs don't have to be filled again.

 

July 15, 2010  |  

 

The hard truth about the U.S. economy is that corporations don’t need as many of us as workers but still need us as consumers. That dilemma helps explain why unemployment is stuck near 10 percent and why the economic recovery is stumbling toward a double dip.

 

The Washington Post reported Thursday that nonfinancial companies are sitting on $1.8 trillion - about one-fourth more than at the start of the recession - but won't add personnel in part because they're waiting for consumer demand to pick up, which isn't happening because many Americans don't have jobs or are afraid of losing theirs.

Yet, even if that vicious cycle could be broken, there's another reason for the lack of hiring: companies have found they can make do with a lot fewer American workers. The recession has been a way to cull payrolls - and to discover that many jobs don't have to be filled again, either because of new technologies or because the jobs have been shifted overseas.

Both these trends predated the recession but the rapid shedding of jobs since the Wall Street financial crash in 2008 - some eight million jobs lost - has spotlighted this structural change. Further, corporate determination to remain "lean" has turned the worker-surplus issue from a personal crisis for many American families into a systemic one for the country's economy.

Predictably, the free-marketers at CNBC and the Wall Street Journal have echoed the political message of the Chamber of Commerce and other right-wingers who blame the sluggish rehiring on the Obama administration's health-care reform and the likelihood that President George W. Bush's tax cuts for the rich will lapse.

That view fits with Ronald Reagan's economic orthodoxy which has dominated the United States for the past three decades. It holds that the answer to the nation's economic woes is always to cut taxes especially for the rich, to trust in corporate self-regulation, and to crack down on unions.

Yet, the realistic answer to America's sorry economic state would seem to be the opposite: to raise taxes on the rich so investments can be made in the national infrastructure of education, transportation and technology; to impose reasonable regulations on corporations to prevent dangerous excesses and risks; and to ensure that workers (and consumers) get a fair shake.

Through the federal taxing power, Washington could put Americans to work preparing the nation for the future, building high-speed rail, developing clean energy, improving education for all, advancing medical technologies, repairing the environment, and addressing a host of other national priorities.

The Media Imbalance

But a second hard truth about today's America is that the political/media structure is such that these steps are almost unimaginable. In the power centers of New York and Washington, in particular, Corporate America and its right-wing allies have built a propaganda apparatus that makes any serious discussion of these options political suicide.

This propaganda machinery, which reaches across the United States through right-wing talk radio, Fox News and a variety of other outlets, guarantees that any politician (or media personality) who pushes too hard or too effectively for questioning the Reagan orthodoxy will be demonized.

President Barack Obama is only the latest politician to learn this lesson. Though many on the American Left denounce Obama as a weak-kneed centrist too eager to compromise, he is portrayed to the rest of America as a radical socialist, sometimes even likened to Hitler and Stalin.

It doesn't matter that these comparisons are as absurd as they are offensive. The point about propaganda is that if ugly attacks are repeated enough about some individual, many in the public will be influenced, consciously or subconsciously, to think of the person in a negative light.

And as that trend gains momentum - as the politician's polls sink - the mainstream media will go with the flow, endlessly reprising stories about the person's slipping popularity and thus hastening the political decline.

This pattern is almost inevitable unless there is a counterforce within the media that challenges the lies and distortions. But today's America has almost no Left media to speak of, at least nothing that compares with what the Right has built, and what Left media does exist tends to resent the political compromises that Obama and other Democrats have made.

Thus, the media asymmetry causes Democratic politicians to make more compromises, hoping to limit the Right's ability to demonize them but further alienating and demoralizing the Democratic base.

So, the outcome of Election 2010 seems likely to follow the same course as Election 1994, the last time a new Democratic president was in office and tried to enact some watered-down reforms. Again, Republicans are expected to win - and win big - which would then put them in position to block whatever is left of Obama's agenda and thus turn him into an actual (or virtual) lame duck.

Though Bill Clinton did win reelection in 1996 against a weak Republican opponent (Bob Dole) with the help of a third-party candidate (Ross Perot), Clinton had to confine his second-term ambitions to "micro-programs" and to changes favored by the Republicans, such as the removal of Great Depression-era regulations of the banking system (a "modernization" that set the stage for the 2008 financial collapse).

Investigating Obama

If Republicans gain control of at least one house of Congress, they would surely launch a wave of investigations against Obama, much as the GOP did against Clinton.

Unlike the Democrats who shy away from investigative controversies - turning their backs even on historic scandals such as Iran-Contra, Iraq-gate and contra-cocaine trafficking in the 1980s as well as George W. Bush's torture abuses and illegal wars last decade - the Republicans have no such qualms.

They pounced all over trivial Clinton "scandals" like Whitewater and Travel-gate and impeached Clinton for lying about sex (though they could not muster a super-majority in the Senate for conviction). And Rep. Darrell Issa, R-California, has vowed to be similarly aggressive now if he gains control of the House oversight committee next year. [Washington Post, July 4, 2010]

So, with Obama embattled and the Democratic congressional majorities likely to shrink or disappear, the chances for the United States to confront its structural problems will only worsen.

With unemployment staying high, many middle-class Americans will sink into a growing under-class. The rich will fight to keep as much of their oversized salaries and bonuses as possible, with the Republicans ensuring that the one political sure-thing will be that legislated tax increases won't happen.

Indeed, the simplest way to address the nation's myriad of problems - by restoring the marginal tax rates for the rich back to the historical levels of, say, the Kennedy era (around 60 percent on their top income) - is the one thing that is almost impossible to contemplate.

Since Reagan's presidency, the Republicans have been determined to "starve" the government of resources so it can't address problems like climate change, renewable energy, education, transportation, health care, housing, etc. The only big expenditure that the GOP won't cut is military spending, especially for overseas wars.

Though the Republican vision of the future appears to guarantee a continued decline in the quality of American life, the Right's propaganda machinery makes any suggestion about the need to tax the rich more heavily akin to socialism. The Revolutionary War slogan, "no taxation without representation," has been transformed to something close to "no taxation, period."

Remember the famous encounter between candidate Obama and "Joe the Plumber," who decried Obama's idea about the need to redistribute wealth from the upper-income levels to middle- and working-class Americans so the economy would work better.

That debate remains at the center of America's economic struggles, as it has been since the Great Depression when income inequality and financial speculation were two key factors in the mass unemployment that followed the Crash of 1929. Two lessons learned were that a strong middle class and reasonable government regulations were necessary for a healthy economy.

New Consensus

That New Deal consensus held until 1980 when a new Reagan-era consensus took hold, claiming that tax cuts tilted toward the wealthy and reduced regulation of corporations were the route to prosperity. A corollary was that the wealthy deserved the lion's share because of their intelligence and hard work.

Reagan and the Right sold many Americans, including large numbers of people from the lower economic strata, on the idea that it was unfair for the government to use the tax system to reverse the consolidation of wealth and the political power that went with it.

However, the counter-argument is that virtually every rich person in the United States has benefited from the investment of taxpayers' money in creating the conditions for business success, from public education of workers, to the transportation infrastructure for shipping goods, to the research and development that opened opportunities in computer technology, medicines and the Internet.

Indeed, to ensure that the benefits from these government investments are shared with some equity would require that the excess income at the top be recycled into other improvements of the nation's infrastructure and the quality of life for all Americans.

In other words, by raising taxes on the rich, Washington could help create the jobs needed for addressing national problems and simultaneously break the vicious cycle that has left nearly 10 percent of Americans unemployed, the key fact that has depressed consumer demand.

However, to change the dominant Reagan-era ideology - and thus to change America - would require smart investments from progressives in the information battles for the hearts and minds of the American voters.

Only with the Right's orthodoxy challenged and the American people understanding their real choices might politicians gain the confidence and courage to do what's needed to get the United States back on the path of a healthy economy - and toward a revived democracy.

Robert Parry's new book is Secrecy & Privilege: Rise of the Bush Dynasty from Watergate to Iraq."