A mindblowing statistic

In the context of all humanity, one city is not much to care about. However, this statistic made my jaw drop. From a lengthy piece on Hong Kong's "Umbrella Revolution":

Twenty percent of Hong Kong’s population is living under the official poverty line, but the city’s 50 richest people, according to the annual list compiled by Forbes, are worth a total of $236 billion (Hong Kong’s entire G.D.P. in 2013, by comparison, was $274 billion).

Historically, has it generally been the case that the richest inhabitants of a city are worth almost as much (86%, in Hong Kong's case) as that city produces annually? Is this normal, in other words, or is Hong Kong a sign of just how rich the rich are these days?

The phony skills gap

Adam Davidson's 20 November 2012 piece, "Skills Don't Pay the Bills", debunks the myth, promulgated by both major parties in the recent presidential race, of a "skills gap".

“It’s hard not to break out laughing,” says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers. “If there’s a skill shortage, there has to be rises in wages,” he says. “It’s basic economics.” After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.

The problem is that manufacturers, behaving with complete economic rationality, have peered into the near future of their industries, and they don't see higher wages (above $18 an hour, according to the article) allowing them to remain economically competitive.

During the campaign it was good rhetoric to promise job training for displaced manufacturing workers, since we all assumed that if these workers had the new skills required, they'd happily fill the hundreds of thousands of job openings about which we kept hearing. The reality, though, is that even with retraining, most of these workers are not going to rush to take positions that start at $10 an hour, which is in the neighborhood of what some workers make at fast-food outlets.

Last month I wrote about the trouble that part-time retail and hospitality workers have making ends meet. As a practical matter, employers are taking advantage of the fact that they can attract enough workers paying ridiculously low wages. Moreover, if you accept the wisdom of the free market, there's nothing wrong with that. In a free market, the employer has no moral obligation to ensure its workers can sustain body and soul on the wages it pays.

And yet, I spotted a flaw in the grand logic of the free market:

If you look beyond the tip of your nose, though, a bigger question presents itself. Is the U.S. economy able to provide enough jobs that pay livable wages to support a robust consumer sector?

If enough people are working at jobs that don't pay them enough to cover their cost of living, that means these people can't be good consumers, right? What happens to the U.S. economy then? Hell, what happens to the United States as a whole?

(By the way, I'm aware that that's not a moral argument, either. For the sake of this discussion, I'm staying within the parameters of the free market.)

I'm not the only one who has spotted this obvious shortcoming in our economy, of course. From Davidson's 28 November piece:

Manufacturers, who face increasing competition from low-wage countries, feel they can’t afford to pay higher wages. Potential workers choose more promising career paths. “It’s individually rational,” says Howard Wial, an economist at the Brookings Institution who specializes in manufacturing employment. “But it’s not socially optimal.”

Not socially optimal, indeed.

It's worth noting that the oft-cited father of the free market, Adam Smith, did not believe we should surrender ourselves completely to it. I wrote about the modern misunderstanding of Smith's "invisible hand" earlier this month.

You could argue that the confluence of these pieces shows that the New York Times' editors are conspiring to undermine our confidence in the remarkable power of the free market — but you wouldn't convince me. That these articles were published in the last month or two simply means that we're finally coming to understand the limits of the free market, having allowed it to run without significant impediments over parts of our economy.

While it's easy to caricature (or to demonize) market oversight as "socialism", as many Republicans have done over the last decade and especially during the last four years, free-market advocates are going to have to address the socially suboptimal effects of the untrammeled market if they expect to reach people like me. For I don't see some governmental intervention in the market as socialism: I see it as civic and personal self-defense.

The free market has been the best compromise humanity has discovered to permit our society — in which individual liberties are treated as paramount — to flourish. I don't see an attractive competing philosophy on the horizon. However, people need food, clothing, shelter, and rest, too. If the free market's advocates can't figure out how the market can satisfy those needs, people are going to look for alternative solutions, the market be damned.

"The invisible hand" isn't what we think

Perhaps it shouldn't come as a surprise that the well-worn phrase "the invisible hand" doesn't quite have the meaning we all assume. That's John Paul Rollert's contention, anyway.

The "invisible hand" refers to the tendency, in a "free market" (that is, one not regulated by a sovereign), for the players in that market to find its own equilibrium, and for that equilibrium to accrue to the net benefit of society.

... every merchant would pursue the most profitable trade available to him, making the most efficient use of his own time and money. Granted, he would act with an eye only toward his personal “security” and “gain,” but in so doing, he would “render the annual revenue of the society as great as he can.” He would be “led by an invisible hand to promote an end which was not part of his intention,” namely, to benefit society and the broader welfare of its citizens.

So far, so good. What's the catch?

The wealthy, says Smith, spend their days establishing an “economy of greatness,” one founded on “luxury and caprice” and fueled by “the gratification of their own vain and insatiable desires.” Any broader benefit that accrues from their striving is not the consequence of foresight or benevolence, but “in spite of their natural selfishness and rapacity.” They don’t do good, they are led to it.

The moral paradox of the invisible hand often seems lost on those who speak loudest in its favor. Take the stubborn rhetoric of the “jobs creators.” Insofar as it portrays a conspicuous group of people who act with conscious moral purpose, it bears no resemblance to the phenomenon Smith describes. We might as well call this vision of development the “visible hand” of capitalism, for it has the original theory backward.

Worse for "small government" advocates, Smith didn't believe "the invisible hand" could replace many government functions, including those that seem eminently privatizable to those advocates today.

Smith held that the sovereign had a role supporting education, building infrastructure and public institutions, and providing security from foreign and domestic threats — initiatives that should be paid for, in part, by a progressive tax code and duties on luxury goods. He even believed the government had a “duty” to protect citizens from “oppression,” the inevitable tendency of the strong to take advantage of the ignorance and necessity of the weak.

In other words, the invisible hand did not solve the problem of politics by making politics altogether unnecessary.

This is an excellent piece that has more insights than I've quoted here. Check it out.

The cost of profit

The New York Times has a piece about part-time workers by Steven Greenhouse. The picture it paints isn't rosy for the workers. Perhaps the most straightforwardly harrowing anecdote comes from Desmond Anthony, who described his experience working for Express:

At first, he usually worked five days a week, often racking up 30 hours. But after several months, he said, he and many co-workers had their weekly hours cut to 12 or 15 and occasionally none at all.

“I’d go to the managers and say, ‘What is the issue? Am I not pulling my weight?’ ” he said. “And they’d say, ‘We just don’t have enough money.’ ”

“ ‘So how am I supposed to support myself? ’ I asked, and they said that was not their problem.”

Mr. Anthony said it was hard to survive. At $8.25 an hour, 15 hours a week equaled about $500 a month. His share of the monthly rent was $800, with several hundred more for utilities, phone and subway fares. Some days he went hungry, he acknowledged, and he repeatedly turned to his parents for help.

He and his co-workers held out hope that, come the holiday season, their hours would pick up. “But then they hired 15 more workers,” he said.

Perhaps the companies who provide such jobs would retort that their jobs are only intended to provide extra cash, not to provide a living wage.

What's clear is that the companies that have chosen to make so much of their workforce part-time have their eyes on the bottom line. Jamba Juice, for instance, has turned to specialized software to optimize its scheduling of staff at its stores.

Karen Luey, Jamba’s chief financial officer, said the scheduling software “helped us take 400, 500 basis points out of our labor costs,” or 4 to 5 percentage points, a savings of millions of dollars a year.

And:

Mr. Flickinger, the retail consultant, said companies benefited from using many part-timers. “It’s almost like sharecropping — if you have a lot of farmers with small plots of land, they work very hard to produce in that limited amount of land,” he said. “Many part-time workers feel a real competition to work hard during their limited hours because they want to impress managers to give them more hours.”

I can't believe he used "sharecropping" as if it were a praiseworthy idea.

There is a vast, unbridgeable gulf between what these employers want and what these employees want. The employers clearly don't think it's their problem to ensure their employees can earn a living wage. And frankly, in a free-market economy, that's a permissible attitude. It can even be considered a praiseworthy one.

At least some of the employees, though, are looking for a way to make a real living. They can't understand why their hard work doesn't impress their employers enough to make that happen.

The employees and employers have an irreconcilable conflict. Unfortunately for the employees, the employers very much have the upper hand in this economy.

Now, if you're a free-market advocate, that's okay. The fact that retailers are able to cut costs to the bone results in lower prices for consumers. That's a win as far as it goes.

If you look beyond the tip of your nose, though, a bigger question presents itself. Is the U.S. economy able to provide enough jobs that pay livable wages to support a robust consumer sector?

If enough people are working at jobs that don't pay them enough to cover their cost of living, that means these people can't be good consumers, right? What happens to the U.S. economy then? Hell, what happens to the United States as a whole?

All these jobs numbers that economists and politicians keep throwing around: how many of them represent good jobs, the kind needed to support the much-discussed (and, I increasingly fear, mythical) middle class?

Lower costs at restaurants and retailers are a boon to the customers of those establishments. To the extent that these businesses flourish, it's expected that the investors in these businesses will prosper, too. If those companies are publicly held, the investors are shareholders, and potentially could include any of us. Those points are the upside that free-market advocates love to discuss.

What free-market advocates never discuss is what the economy as a whole looks like in their glossy vision. It's an article of faith that if you simply let businesses follow free-market principles of lowering costs and competing furiously with minimal or no interference, something beautiful will result.

But will it?

What happens if the market fails to provide enough jobs for workers to earn a living? What if too many jobs are what an earlier generation called "pin money" jobs? Is there a free-market solution to such a situation?

One immediate consequence would be that some businesses, maybe a lot of them, would fold. But what then?

I can imagine that the businesses that remain open will try to cut their costs even further. That, however, will do nothing to boost the number of people who have any money to spend. In fact, if you follow this line of thinking to its absurd end, the population starves to death.

I'd like to believe that the reductio ad absurdum consequences won't come to pass, but to ensure it doesn't there has to be an alternative. So again I ask: how does the free market fix an economy that doesn't provide enough jobs to support a robust middle class? We may not be at that point yet, but the Times article suggests we're heading in that direction. So what the hell is the answer?

Might we have to rethink our national obsession with the totally free market? Might we have to acknowledge that a free market is all well and good, but that the free market might not be entirely compatible with our overall national well-being?

Speaking of where the jobs are ...

In the previous post, I asserted:

Tech, being concentrated on intellectual property, doesn't need a huge number of people to do anything: it needs a limited number of people to think of things. To the extent that the tech industry makes tangible goods, those goods are made overseas.

... Tech is a high-profile but totally insufficient source of employment.

I had been thinking of the kind of work performed by software companies like Facebook, Google, and Twitter. Companies like these don't have retail arms, nor do biotech firms like Genentech. Even companies that make hardware, like H-P and Dell, don't tend to have their own stores; those that do, like Dell and Gateway (if either still has any), have a vanishingly small number.

The exception to the foregoing, of course, is Apple, which has a robust, growing and high-profile retail operation. In spite of that high profile, I confess I had completely forgotten about these stores until I ran across the New York Times' lengthy piece discussing some former workers' dissatisfaction with their pay and working conditions.

It's worth reading the whole piece, especially if you've always suspected there was something a little, well, off about the Apple fans of your acquaintance — if, in other words, you've wondered if they didn't qualify as "fanatics" rather than mere "fans". However, if you simply can't be bothered to read it, then at least note this telling statement:

The Internet and advances in computing have created untold millionaires, but most of the jobs created by technology giants are service sector positions — sales employees and customer service representatives, repairmen and delivery drivers — that offer little of Silicon Valley’s riches or glamour.

In other words, these service jobs are no more likely to elevate you into the middle class than working at Walmart or Starbucks. And yet, these jobs constitute the majority of those created by high tech. The high-paying jobs are quite few, by comparison, and totally inadequate to creating a middle class.

The Times article simply reinforces what I said in that last post: this country isn't creating things any more, but instead is providing services. Since altogether too many of those services are not worth a great deal of money, the majority of people aren't making a great deal of money — hence, fewer and fewer people can genuinely afford the kind of life that we have convinced ourselves we require. And my guess is that even if you're frugal, you're still having a tough time making ends meet on the salaries offered by most of the service jobs out there today.

To dig ourselves out of the hole we're in, we must do something either to lower our overall costs (so our limited incomes go further), or to increase our overall income. Neither of these is easy to do, and don't believe any politician who tells you otherwise (I'm looking at you, Mitt Romney).

And while we could think in terms of fixing our services-based economy to work better (again, either by lowering costs or increasing incomes), wouldn't it be nice if we started to restore our self-respect and our national security by restoring our ability to build tangible goods again at the same time? I'm not just talking about making new and modern factories: I'm also talking about not forgetting the hard-won lore and wisdom of the people who spent years observing and understanding what it takes to build things, big and small — tapping these people's brains before they're all dead and we have to relearn what they knew on our own.

What I'm talking about is anathema to free-marketeers because I'm talking about creating and implementing a national strategy, one that places the interests of the entire nation above the interests of shareholders. It's an audacious thought, to defy Adam Smith's invisible hand — and yet, this is what some of the U.S.'s most successful competitors like Germany and China have done. There are probably pitfalls to be avoided along the way (China's in particular is not a model we should emulate), but before you dismiss the idea out of hand, ask yourself this:

Has the last thirty to forty years of free-market sloganeering — in particular, the mad dash to deregulate everything in the name of unfettered capitalism — left this country better off? Has it left you better off?

If you answered "yes" to either of those questions, you're either part of the 1 percent, or you haven't been paying attention. Enron and the toxic-mortgage meltdown are the best-known catastrophes that arose from reckless deregulation in the last decade, but they're merely the tip of a very ugly iceberg. More shoes are waiting to drop (one fell on Jamie Dimon recently), and some of them could be much less abstract than the ones we've seen so far: for instance, I have a bad feeling about the long-term health consequences of hydraulic fracturing, which is not subject to clean-water regulations promulgated by the EPA (thanks to shady dealings between the energy industry, Congress and the George W. Bush administration).

Jobs, deregulation, declining wages, increasing costs: it's such a tangled web we allowed big business to weave. Yet we have to start untangling it, if we're to keep alive at least some of what makes our nation great. And time's a-wasting.

The lie of the free market

"If you work hard, you will succeed. If you don't succeed, it's because you didn't work hard."

That's essentially the credo of free-marketeers everywhere. It's intuitively appealing in part because it's such a simple formulation.

That credo rests on an unspoken assumption that remains unspoken because it seems so obvious: the playing field is level. Everybody has an even chance to climb the ladder.

It's time for us to acknowledge that the playing field isn't level. Not in the United States.

I'm not talking about the well-known phenomenon that wealth begets wealth. That has always been the case, and will always be. I'm talking about the reality that if you want to go from working at Walmart to earning a decent, middle-class living, the odds are stacked hugely against you.

Don't believe me? Then tell me: where are the jobs?

Even if you have a college degree, the jobs are scarce. And if you don't have a college degree, the jobs are not only scarce, they're totally inadequate to supporting a family.

Where are the good-paying jobs of yesteryear? Sent offshore.

Where is the seed crop, so to speak, for creating new good-paying jobs? It's either on Wall Street, figuratively and literally speaking, or in tech. The trouble is, Wall Street today is essentially parasitic and tech industries are all about intellectual property. Being parasitic, Wall Street doesn't create real value, it creates imaginary value by leveraging real assets in irresponsible ways. Tech, being concentrated on intellectual property, doesn't need a huge number of people to do anything: it needs a limited number of people to think of things. To the extent that the tech industry makes tangible goods, those goods are made overseas.

Wall Street, in other words, is a morally bankrupt source of employment. Tech is a high-profile but totally insufficient source of employment.

The U.S. economy today is geared toward providing services, not manufacturing goods. It's an emphasis that is guaranteed to spiral this country downward, both in terms of economic prowess and the difficult to measure capacity of self-respect. Except for food (and not even all of that), we don't make things for one another: we offer services to one another. The trouble with that is, we still need tangible goods.

Kevin Phillips in the 2006 book American Theocracy explains that since the 1980s, the financial-services industry has played an outsized role not only in the economy, but in policymaking. The industry skewed federal legislation and regulation to benefit itself and in the process promoted the transfer of good-paying jobs overseas. With those jobs went the middle-class standard of living.

At one time, this nation might have been the land of opportunity free-marketeers still think it is. But no longer. The playing field stopped being level twenty or even thirty years ago, and it has been tilting away from the 99% ever since. It's time for us to acknowledge that reality — and to stop calling attempts to restore some kind of equilibrium "socialist" or other phony, stupid epithets.

And it's time to call those supposed defenders of the free market who are perpetuating the distorted status quo what they are: self-interested tools who are looking out for nobody but themselves. That's the capitalist way, of course, but it only works when we all have the economic freedom to pursue our own self-interest. We don't have that today.

(This post wouldn't have happened if I hadn't been inspired — or perhaps the word is "outraged" — by tonight's episode of Moyers & Company in which Matt Taibbi and Yves Smith excoriated our too-big-to-fail financial institutions.)

Where capitalism went off the rails

Maybe saying that all of capitalism went off the rails is hyperbole ... or maybe not. You decide: read Steve Denning's article (really, an opinion piece) for Forbes, "The Dumbest Idea in the World: Maximizing Shareholder Value".

Although Jack Welch was seen during his tenure as CEO of GE as the heroic exemplar of maximizing shareholder value, he came to be one of its strongest critics. On March 12, 2009, he gave an interview with Francesco Guerrera of the Financial Times and said, “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products. Managers and investors should not set share price increases as their overarching goal. … Short-term profits should be allied with an increase in the long-term value of a company.”

Shareholder value is a result, not a strategy. (I'd have said "goal" rather than "strategy", but I imagine that's what Jack Welch meant anyway.)

This is such a simple and obvious idea that I actually waded through all the comments looking for the counterargument I must have missed. No one, including the contemptuous and inappropriately rude Forbes staffer Mike Ozanian, has articulated any.

I've read a lot of good stuff in the last year or so, but very little that immediately struck me as being so important to our society, to our very way of life, as Denning's article and the book to which it refers (which for Denning's sake I'll force you to discover by reading his piece).

By the way, here's how ingrained the idea of making good products (and thus satisfying the customer) is, or at least was, in American pop culture: Warner Brothers was asked to make three educational shorts that doubled as "normal" theatrical cartoon releases, with the goal of educating the public about how corporations and investment work. Friz Freleng helmed all three:

• By Word of Mouse
• Heir Conditioned
• Yankee Dood It

(They're not his best work, but let's be grateful it was Freleng and not Bob McKimson who was tapped for the job.)

Getting back to Denning's piece ... hmm, it seems I have no more to say. Just read it.

(Thanks to Daring Fireball for the link.)

"What is the American Dream?", James Gustave Speth

It's almost a cliché now that consumerism, or the mass consumption of consumer goods, is not the key to happiness. The question arises, though, what is? And what did the colonists really mean by "the pursuit of Happiness" in the Declaration of Independence? The latter is the question answered in "What is the American Dream?: Dueling Dualities in the American Tradition", an entry on the Center for a New American Dream's blog.

Speth traces Jefferson's use of the phrase "pursuit of Happiness" back to

... two very different notions: the idea from John Locke and Jeremy Bentham that happiness was the pursuit of personal pleasure and the older Stoic idea that happiness derived from active devotion to the public good and from civic virtue, which have little to do with personal pleasure.

Speth himself thinks a third man, James Truslow Adams, introduced a third facet to the phrase in his 1931 book The Epic of America.

I believe James Truslow Adams' vision of the American Dream is at least as compelling as that of Lincoln. Adams used the phrase, "the American dream," to refer, not to getting rich or even especially to a secure, middle class lifestyle, though that was part of it, but primarily to something finer and more important:

"It is not a dream of motor cars and high wages merely, but a dream of a social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position."

Yet another interpretation of "the pursuit of happiness" comes from what Andrew Carnegie called "the gospel of wealth". Carnegie tied "improved conditions" for all Americans to "material development", which in turn was due (of course) to the unhindered operation of competition and the free market.

As a nation we've given ourselves over to one understanding of "happiness", the understanding promulgated by Carnegie. Speth thinks there's compelling empirical evidence that this deeply libertarian and individualistic pursuit of happiness through "material development" isn't actually making us happier.

I've never thought of myself as a Stoic but I do find myself increasingly repelled by the modern compulsion to consume. I've had to fend off friends and family who urge me to replace my TV, for instance, it being a (seemingly) ancient cathode-ray tube model. My counterargument is, it still works and it's good enough for my (evidently, comparatively simple) needs. More and more, I see ads on the Web for goods and services I just don't need, and I wonder: what am I missing, that so many other people seem to want them?

Clearly, I'm getting older ... but maybe, just maybe, it means I'm getting a little wiser, too. At least I've discovered that for me, "the pursuit of happiness" requires more than buying stuff. What exactly that is, I'm not sure. I'll keep looking, I guess.

For the rest of you, maybe it's time to reconsider whether resurrecting the overheated, consumption-based consumer sector is the best way to return this country to something like its former greatness -- or the best way to seek your own personal happiness, for that matter. Focusing on consumption at the expense of everything else is, after all, how we got ourselves into our current economic tar pit. It also hasn't made a lot of us happy, has it?

Another splint

The prevailing wisdom, such as it is, is that nobody is happy with the recent budget "deal", ergo it must be a real compromise. That, in turn, suggests that it was the best deal that could be reached, but no one is foolish enough to say that out loud. And perhaps no one should, because there's going to be a lot of pain that comes out of this deal. Even if you think the pain is deserved, admit that it won't be pretty. And if you support cutting spending as the only cure to the problem, and the spending cuts knock on your door (or take it away), don't cry about it. You asked for it. Share the fucking pain for the greater good, like you supposedly wanted.

At heart, each of us believes one, and only one, of the following:

• The only way to reduce the national debt is to cut spending. We need to identify where the money is being wasted in Washington and to stop wasting it! Saying there isn't enough money for what government should be doing is simply delusional and lets government expand without limit.
• The national debt cannot be paid off without increasing revenues, i.e., raising somebody's taxes. Spending cuts are fine, but they cannot get us all the way there. We have been unwilling to acknowledge that we want more from government than we are willing to pay for, but we can be blind no longer to this reality.

These views are irreconcilable.

What we got from Washington this week is a new splint on a broken leg that isn't healing.

We've been limping along on this leg for ages because we had a pretty good painkiller in economic growth. But we've never gotten over the nearly century-long dispute over what government should and shouldn't do. Now that spiralling costs (especially of medical care), no or negative economic growth, and fiscal irresponsibility by nearly every president and Congress during the twentieth century (and indefensible fiscal mismanagement on the part of George W. Bush) have left us with an overhanging debt that scares the bejeezus out of us, the debate over government's role is front and center once again.

My feeling is that small-government advocates are loud and have an easily-understood argument, but they bring about as much subtlety and expertise to the national debt as surgeons of the eighteenth century brought to battle wounds. They both have the urge to cut things off because that's the most straightforward approach.

I don't want to go back to the eighteenth century. Small-government advocates by and large refuse to accept the complexity of the twenty-first.

These bones aren't knitting.

The extremists want to burn the house down

Contrary to what you might think from this blog, I'm not ignoring the Congressional impasse on raising the debt ceiling. I just haven't seen any developments that merit comment, or at least merit comment that a million others haven't written.

Even the bipartisan plan proposed by six senators isn't going to go far, if the behavior of the bulk of House Republicans is any indicator. The Senate might approve the plan, and House Speaker Boehner might agree with it, but Tea Party fiscal extremism holds most if not all the rest of House Republicans in its thrall. Boehner, their nominal leader, can't get them to pull in his direction.

I wonder if those representatives genuinely believe that holding a gun to our nation's collective head is the right thing to do, fiscally speaking. I think a lot of them do, especially those newly elected, who have no experience with government.

These ideologues don't care that we got into our current predicament over a long period of time. They don't care that the responsible way to get out of it will require a long time, too. They've got a full head of steam, they're keeping one another's spirits up, they're convinced they're on the side of the angels. No compromise like that proposed by the Senate's Gang of Six is going to satisfy them. They want to impose their drastic and unrealistic form of fiscal discipline, and they won't settle for anything less.

They don't trust what people who know better, including most old Washington hands, are telling them the fallout will be. They don't trust facts and they don't believe the country and its fiscal state are as complex as they have been described.

These fiscal extremists will learn the hard way that they're catastrophically wrong. Unfortunately, they're going to make the rest of us suffer the consequences.

That a lot of those who will suffer also happen to be those who elected these geniuses to the House is some small comfort. I only hope the blinkered masses who fell under the Tea Party's simplistic sway will come to realize that the tea is unpalatably bitter.

An overheated machine

How do you slow down an overheated machine?

I wondered that not long after reading a Mother Jones piece about the still-incompletely understood spate of neurological disorders afflicting workers at a pig-processing plant associated with Hormel in Austin, Minnesota. The affected workers all spent time at or near the station where pigs' brains were flushed from the skull. The process aerosolized the brains and the inhalation of the vapors is suspected to have triggered autoimmune responses in the workers' bodies, since porcine neurological cells are so similar to humans'.

The trend of afflictions came to Minnesota public health officials' notice in the mid-2000s. However, the plant had operated with the brain-flushing equipment, "off and on, for more than a decade," begging the question of why the disorders were only first being seen in 2006 or so. The MJ writer speculates that increased demand for the plant's core product, Spam, led to four changes that greatly increased the risk for workers.

• Increased line speed, from 900 pig heads per hour in 1996 to 1,350 per hour in 2006, increased the hourly exposure.
• The machine actually flushing the brains from the pig skulls was changed, increasing the number of misfires and thus spatter.
• In late 2006, the increased speed of the line led to a pileup of pig skulls that cracked the plexiglass shield protecting some workers from the spatter.
• The plant's hourly wages were rather low, making overtime desirable for workers; meanwhile, overtime helped Hormel keep up with demand. Workers' daily exposure times thus were increased.

There's a lot in this article -- repetitive strain injuries caused by workers having to perform the same physical operation again and again alongside machines, illegal immigrants working under false IDs, backstabbing of labor unions by companies, shell companies shielding Hormel from adverse publicity, threats of retaliation against workers who spoke out -- but the bottom line is, this is how our industrial meat-packing system works today. And why does it work that way? Because we all want more for less.

That's the way our industrialized capitalist system works. It is a system whose perceived benefits have been lionized for a century. We all know the mantra: increased production leads to lower costs, leading to increased purchasing power for the consumer, leading to increased sales for the company, leading to increased profits, leading to more money that can be spent on research to lower production costs, and so the machine spins on. It's supposed to be a virtuous circle for the company.

The consumer is himself a worker during another part of the day, though. Therefore, he is being paid by a company that produces something. At minimum, the worker needs to be paid enough to buy what he needs to survive (and what his kids need, too).

Here's where the mantra breaks down, though. Companies long ago realized that they could ship jobs to nations whose labor costs were much lower. That made a great deal of sense as far as lowering costs were concerned, and in fact the U.S. is often portrayed as a beneficiary of that disparity in costs. However, it broke the implicit and necessary bargain with domestic workers. More and more of those workers no longer make enough money to be good consumers.

Company management has less and less reason to care about this problem since the company is more and more interested and (literally) invested in a global market. If North American sales and profits decline, the company can make it up in Latin America and Asia. What's to happen to the managers' fellow citizens who can't buy the company's goods and services? Legally, it's not their problem, and morally, well, talk to shareholders. Managers are not being paid to worry about anything but the company's financial well-being.

Workers, meanwhile, increasingly fall into two categories: the well-paid and the barely-holding-on. The former are only as numerous as they must be, so their number doesn't increase significantly. More and more workers, then, live on a tight budget. They will search out the lowest price they can for what they need.

Meanwhile, shareholders demand growing profits. (Those who have money to invest need for it to grow or inflation will eat its value away over time.)

In the face of these twin pressures, how does Hormel respond? The way any company does: it tries to lower costs any way it can. Speeding up the processing line is an obvious tactic.

I see a death spiral. Companies in the U.S. can only remain competitive with their overseas rivals if they follow the cost-cutting spiral downward, but in so doing they cut the knees out from under their workers: wages or jobs decrease (often both). These workers are domestic consumers whose buying power has been slashed, so they look for the lowest price for goods and services. These socks made in Vietnam are cheaper than anything produced domestically? Good enough.

U.S. companies are overheated machines that aren't creating viable domestic jobs, just profits. And as others have pointed out, more and more of those profits aren't even reaching these shores except as insane compensation to corporate upper management.

The success of these companies -- in fact, their very survival -- imperils the entire U.S. economy.

The only end result I can imagine is a standard of living reduced to the lowest sustainable level, which at this point can probably be found in southeast Asia or sub-Saharan Africa. That's where globalization will take us before we can ever hope to dig ourselves out (as a species, not merely a nation).

Eventually, a truly global economy might achieve equilibrium between wages and production costs. I don't see even the possibility of that happening in the next fifty years, though.

You advocate stopping global trade? Okay. How are the advanced industrialized economies to get some of the raw materials they need to sustain domestic production? As well-endowed as the U.S. is with raw materials, not everything is available here.

As scary as the meat-processors' neurological disorders are, I see them as a symptom of a systemic ailment that is grinding all of us down.

Pistachios

I've never eaten pistachios. Nothing against them, they just haven't figured largely in my life.

In the last few days, though, they've crossed my path (so to speak) a couple of times. The other night, I was looking at the menu of a restaurant that served Turkish Delight. Plain TD was 50 cents; TD with pistachios was $3.50. I was surprised, but shrugged the disparity off as either my own myopia or a glitch on the wall-mounted menu.

Then I ran across a post about pistachios on the Web site for Toscanini's, a Boston-based ice cream store.

Pistachio nuts are another product that saw a huge price increase. The explanation is that suddenly richer countries like China and India are buying enough pistachios to raise prices. In fact there are reports of hijackings of agricultural commodities including nuts and tomatoes.

I guess the Turkish Delight with pistachios really is that much more expensive.

[UPDATE: Link to the Toscanini's blog courtesy of Kottke.]

The deficit in chart form

James Fallows in The Atlantic headlined his piece, "The Chart That Should Accompany Every Discussion of Deficits,", and indeed, that chart would cut through a lot of nonsense coming from unrepentant trickle-down proponents. The chart elegantly captures the amount of the U.S. deficit projected from 2009-2019, in trillions of dollars, due to each of five factors:

• the wars in Afghanistan and Iraq
• the George W. Bush tax cuts
• the recovery measures
• the costs associated with TARP and bailing out Fannie Mae and Freddie Mac
• the economic downturn

The economic downturn is a large and persistent factor, as you'd expect. The TARP and Fannie/Freddie costs were significant in the last couple of years but practically vanish going forward; the recovery measures, too, loom large in the shorter term (until 2013) but drop to a relatively small amount after that.

The cost of the wars is a persistent burden over the decade, like a layer of fat over everything else, accounting for hundreds of billions in spending every year.

However, by far the biggest contributor to the deficit over the decade are the Bush tax cuts. Right now their impact rivals that attributed to the economic downturn; by 2014 they outstrip the downturn's effects, until by 2019 they dwarf the latter.

I have never been tempted to include a graphic in this blog -- until now. However, by way of compensation, let me point you to the source for this chart, the Center on Budget and Policy Priorities article "Economic Downturn and Bush Policies Continue to Drive Large Projected Deficits." The CBPP article provides important context for the chart.

A cautious voice on the Chinese economy

The Browser has an interview with political economist Victor Shih as part of its "Five Books" series. Shih's recommended books all delve into the Chinese economy more deeply and insightfully (in my opinion) than most mainstream U.S. news coverage, and they all sound a cautionary note about how well the PRC's economy is really doing. Shih himself drops a juicy tidbit about the Chinese government's actions that should raise newly debt-aware Americans' eyebrows:

Instead of using budgetary allocation to finance local infrastructure, the central government instructed local governments to form companies and borrow money from the banks, thus hiding the deficits....

There has been so much waste, a lot of it financed by debt in the financial system instead of government debt. This means that either these wasteful projects will have to generate cash flow to pay back the banks or the banks will become insolvent. The Chinese government is grappling with this major issue.

This insight, too, should sound familiar to us:

That was the goal and continues to be the goal of policymakers in China: prop up the banks and make sure non-performing loans don’t appear on the books. We don’t actually know the amount of non-performing loans that exist on the ledgers of China’s banks. Whenever a loan becomes problematic, especially when the borrower is a major SOE [state-owned enterprise], it’s restructured – i.e. rolled over or extended.

Does that remind anyone of a certain mortgage mess that is still making its way through our financial and legal systems?

Most of us don't have as good an understanding of China and its economy as we should. Shih's recommended books and commentary are great places to start remedying that shortfall.