Month: September 2013

WHAT’S UP WITH THE ECONOMIC RECOVERY?

ABSTRACT: According to economists, our economy has been in a recovery for 4 years. However, most people’s income and wealth are down. Inequality of both income and wealth are up. The stock market and corporate profits are up, but unemployment and under-employment are high, and the poverty rate and economic insecurity are up.

Government policy does affect all of these. The policy changes that occurred after the Great Depression reduced income and wealth inequality until the 1970s and addressed many of these economic issues as well. However, the federal government’s actions since the collapse in 2008 have rescued the big financial corporations and the wealthy, but not the economy that all the rest of us live in.

Income insecurity and high levels of inequality are undermining the values of American democracy and belief in the American Dream, equal opportunity, and a merit based society. They are seen as unfair and as fostering a plutocracy instead of a democracy. It seems that the privileges of wealth (including for the children of the wealthy) are closing the door on opportunity in America for many.

FULL POST: According to economists, our economy has been in a recovery for 4 years; the Great Recession officially ended in June 2009. However, most people’s income and wealth are down; they have not recovered to their pre-recession levels. Inequality of both income and wealth are up because the income and wealth of the rich have recovered much more quickly than those of middle and lower income households. The stock market and corporate profits are up – stocks have more than doubled in value and have reached new record highs.

Average household income (adjusted for inflation) is $3,400 below what it was in December 2007, before the Great Recession. It is currently at $52,100, up $1,400 from its low point in August 2011 but recovering very slowly. [1]

Income inequality is up dramatically. The income gap between the richest 1% (incomes above $394,000) and the other 99% is the widest it’s been since 1927. During the 4 years of the recovery, the top 1% have seen their incomes grow by 31% while the 99% have seen their incomes grow by only 0.4%. In other words, the richest 1% of Americans have recovered almost all their income losses from the Great Recession, while all the rest of us have barely started to recover. This is a continuation of the trend of the last 20 years, where the top 1% have gotten two-thirds of all the growth in incomes. [2] A similar picture is seen if one looks at the top 10%, who now have over half of all income, a higher level than at any time since 1917 when record keeping began. (See posts of 9/2/13 and 11/13/11 for more information.)

Government policy does affect income inequality. The policy changes that occurred “after the Great Depression during the New Deal … reduced income concentration until the 1970s [and addressed many other economic issues as well]. … The policy changes [after] the Great Recession … are not negligible but are modest … Therefore, it seems unlikely that US income concentration will fall much in the coming years.” [3] Government policy also affects the recovery more broadly. See posts of 9/13/12, 5/15/12, and 3/31/12 for more information.

The picture is similar when household wealth is studied. In the financial collapse, $16 trillion of household wealth was lost. While $14.7 trillion of that has now been regained – 91% of the loss – the wealthy have regained most if not all of their wealth while the average household has regained only 45% of its wealth. In the 4 years of the recovery, two-thirds of recovered wealth has been in the value of stocks, which are at record highs. However, 80% of stocks are owned by the wealthiest 10% of households. Home values, which are the biggest component of middle and lower-income households’ wealth, are still 30% below their peak values. The average household wealth of $540,000 is roughly $100,000 below its peak. [4][5]

The poverty rate is up – to 15%, meaning 46.5 million people are living at or below the poverty line (yearly income of $23,492 for a family of four). This is 2.5 percentage points or 20% higher than in 2007, before the Great Recession, meaning that 7.8 million people have fallen into poverty in the last 5 years. [6]

Unemployment is high, although it has been declining. Furthermore, many of those who are working are under-employed – working part-time when they would like to be full-time or working at jobs that don’t require the training and experience they have. Many workers who lost a job but have a new one, are earning much less than they were. So far in 2013, 61% of new jobs have been in low-wage industries and 77% have been part-time. [7] (See post of 9/2/13 for more information.)

Many people – over a third of the working age population – have simply dropped out of the job market because jobs, especially good jobs with good wages are hard to find. Only 59% of the working age population is employed. [8] Despite workers’ significant increases in productivity (75% over the last 30 years), workers’ wages have only increased by 5% over those 30 years. The rewards of their increased productivity have instead gone to corporate profits and executives’ pay.

Economic insecurity is up. Four out of five adults in the US will experience economic insecurity in their lifetimes, Economic insecurity is defined as experiencing unemployment, relying on government assistance for at least a year, or having income below one and a half times the poverty line. [9]

The federal government’s actions since the collapse in 2008, which was due to reckless behavior by the big financial corporations, have rescued the big financial corporations and the wealthy, but not the economy that all the rest of us live in. The policies that have contributed to this included bailouts and low interest loans for the financial corporations and tax policies that over 30 years have dramatically reduced the taxes paid by corporations and the wealthy. Meanwhile, the value of the minimum wage has been significantly reduced by inflation. Cuts in government spending have resulted in lost jobs in both the public and private sectors. [10]

Studies have shown that the top personal income tax rate could return to the level it was in 1980 (70% instead of today’s 39.6%) without any negative effects on the overall economy. (See post of 12/29/12 for more information.) History also shows that corporate tax rates, which are at a 60 year low, can also be increased significantly without harmful effects. [11]

In summary, stock prices, corporate profits, poverty, and inequality of income and wealth are up. Income and wealth for the typical American household are still down from what they were before the Great Recession, despite 4 years of “recovery”. Economic insecurity is up, social mobility is down, and unemployment and under-employment are both high.

Income insecurity and high levels of inequality are undermining the values of American democracy and belief in the American Dream, equal opportunity, and a merit based society. [12] This is having a demoralizing effect on Americans and building resentment of what is increasingly seen as unfair domination of economic and political life by the wealthy, in other words as fostering a plutocracy [13] instead of a democracy. It seems that the privileges of wealth (including for the children of the wealthy) are closing the door on opportunity in America for many.

[1]       Pear, R., 8/22/13, “Median income up, but below 2009 levels,” The Boston Globe (from The New York Times)

[2]       Saez, E., 9/3/13, “Striking it richer: The evolution of top incomes in the United States,” University of California, Berkeley, Department of Economics (http://elsa.berkeley.edu/~saez/saez-UStopincomes-2012.pdf)

[3]       Saez, E., 9/3/13, see above, p. 1

[4]       Federal Reserve Bank of St. Louis, May 2013, “How Much Household Wealth Has Been Recovered?” Section of 2012 Annual Report, pages 14-15 (http://www.stlouisfed.org/publications/ar/2012/pdfs/ar12_complete.pdf)

[5]       Associated Press, 5/31/13, “Report paints darker picture of US wealth,” The Boston Globe

[6]       US Census Bureau, 9/17/13, “Income, poverty and health insurance coverage in the United States: 2012”

[7]       Wiseman, P., 8/5/13, “Most new jobs in July were low paying, part time,” The Boston Globe (from the Associated Press)

[8]       Hightower, J., June 2013, “How bad is the jobs crisis?” The Hightower Lowdown

[9]       Yen, H., 7/29/13, “Data show widening future struggle for Americans,” The Boston Globe (from the Associated Press)

[10]     Eskow, R., 9/11/13, “Recovery for the Rich, Recession for the Rest,” Campaign for America’s Future, http://ourfuture.org/20130911/recovery-for-the-rich-recession-for-the-rest

[11]     Eskow, R., 9/11/13, see above

[12]     Krugman, P., 9/12/13, “Rich man’s recovery,” The New York Times

[13]     A plutocracy is a society ruled and dominated by the small minority of the wealthiest citizens. Wikipedia (http://en.wikipedia.org/wiki/Plutocracy)

SUPREME COURT UPDATES

ABSTRACT: Here are three quick updates related to the US Supreme Court. First, issues with the conduct and ethics of a couple of the Justices have arisen in part because Supreme Court Justices are not covered by the Code of Conduct that applies to all other US judges. A Supreme Court Ethics Act of 2013 is being proposed in Congress that would require the Court to adopt a code of conduct similar to the one for other judges.

Second, Supreme Court Justice Ginsburg recently articulated what many legal scholars have been saying: that the current Court is “one of the most activist courts in history” based on its “readiness to overturn legislation” and judicial precedents.

Third, the Supreme Court will be considering cases in the upcoming year that will produce major decisions. These will give further indications of how the Court is balancing precedent and deference to legislative intent with ideology and activism. On the campaign financing front, the Court will consider a case that challenges the total, or aggregate, contribution limit of $123,200 on what an individual can give directly to all candidates for federal offices combined over the 2 year election cycle.

FULL POST: First, issues with the conduct and ethics of a couple of the Supreme Court Justices have arisen. The Supreme Court Justices are not covered by the Code of Conduct for United States Judges. A number of situations have occurred with Supreme Court Justices that under the Code would have been prohibited or would have required Justices to refrain from participating in certain cases due to apparent conflicts of interest. For example, Justice Thomas’s wife is a highly paid lobbyist who works on issues (health care for example) that have come before the Supreme Court. Justices Thomas and Scalia have attended and spoken at fundraisers and events for groups that are politically active on issues that have come before the Court. Neither has refrained from participating in any cases despite these apparent conflicts of interest.

Therefore, a Supreme Court Ethics Act of 2013 is being proposed in Congress that would require the Court to adopt a code of conduct similar to the one for other judges. The Justices, including Chief Justice Roberts, are, of course, opposed to the proposed legislation, asserting that they are capable of policing themselves. [1]

Second, Supreme Court Justice Ginsburg recently articulated what many legal scholars have been saying: that the current Court is “one of the most activist courts in history.” Her comment was based on the Court’s “readiness to overturn legislation”. Others have also noted its readiness to overturn judicial precedents, including ones of previous Supreme Court rulings. As examples of activism, Ginsburg highlighted the overturning of the Voting Rights Act and the ruling that the Affordable Care Act (aka Obama Care) was not a constitutionally allowed use of Congress’s power to regulate interstate commerce. [2] Other examples of activism cited by other legal scholars include the Citizens United decision (and others) on campaign financing, decisions on affirmative action, and the decision stopping the recounting of ballots in Florida for the 2000 presidential election. The reasoning given with these decisions is, in many cases, so convoluted that it is hard to view them as anything but ideological activism.

Third, the Supreme Court will be considering cases in the upcoming year that will produce major decisions. These will give further indications of how the Court is balancing precedent and deference to legislative intent with ideology and activism. Front and center among these cases will be ones on campaign financing and affirmative action.

On the campaign financing front, the Court will consider a case known as McCutcheon versus the Federal Election Commission (FEC) that challenges the total, or aggregate, contribution limit of $123,200 on what an individual can give directly to all candidates for federal offices combined over the 2 year election cycle. This amount is well over twice the income of the average American family. (Anyone can give unlimited amounts to Political Action Committees that are, at least theoretically, independent of the candidates themselves.) [3]

If this aggregate limit is thrown out, our campaign financing and our elections will be even further skewed toward wealthy individuals. The Supreme Court has previously upheld these aggregate contribution limits because they address both the reality and appearance that our elected officials are corrupted by the influence of money. In our democracy, every citizens’ vote and voice is supposed to be equally heard and represented. [4][5]

[1]       Mencimer, S., 7/31/13, “Democrats to introduce Supreme Court ethics bill,” Mother Jones

[2]       Liptak, A., 8/25/13, “Ginsburg calls court one of most activist,” The New York Times

[3]       Jones, J., 9/11/13, “Supreme Court Preview: McCutcheon v. Federal Election Commission,” League of Women Voters (http://www.lwv.org/blog/supreme-court-preview-mccutcheon-v-federal-election-commission)

[4]       Kennedy, L., 9/10/13, “Stop the Next Citizens United,” Demos (http://www.demos.org/publication/stop-next-citizens-united)

[5]       Lioz, A., 7/26/13, “Is McCutcheon v. FEC the Next Citizens United?” The American Prospect (http://prospect.org/article/mccutcheon-v-fec-next-citizens-united)

EFFECTS OF THE SEQUESTER Part 2

ABSTRACT: The $85 billion across the board budget cuts that went into effect on March 1, known as the sequester, are significantly affecting individuals, families, children, and public sector functions. The following list of some of the sequester’s effects is a continuation of my post of 9/16/13 and is drawn from the Coalition on Human Needs extensive compilation of reports from on-the-ground, front-line service providers and other sources.

The sequester’s budget cuts are having the following effects (among others): 1) the Center for Medicare and Medicaid Services is cutting its reimbursements to community cancer clinics for cancer treatment drugs below the actual cost of the drugs; 2) civilian medical staff at military medical facilities are losing significant income because of sequestration furloughs and therefore are quitting; 3) many school districts will be increasing class sizes, reducing instructional and non-instructional staff, reducing professional development and academic programs, and/or deferring textbook purchases; 4) 57,000 fewer children will participate in Head Start and Early Head Start, services will be reduced by 1.3 million days, and 18,000 staff will either be laid off or face reduced pay or hours; 5) the federal court system’s budget has been cut by $350 million leading to layoffs of public defenders, delays in trials, and cuts in mental health treatment, drug treatment and testing, and offender monitoring; 6) hundreds of thousands of low income mothers and their young children have lost nutrition benefits; 7) roughly 300,000 students with disabilities will receive reduced services; 8) Meals on Wheels has delivered hundreds of thousands fewer meals for tens of thousands of seniors; and 9) housing assistance has been cut or denied for tens of thousands of families.

FULL POST: The $85 billion across the board budget cuts that went into effect on March 1, known as the sequester, are significantly affecting individuals, families, children, and public sector functions. The following list of some of the sequester’s effects is a continuation of my post of 9/16/13. The Coalition on Human Needs has been compiling reports of the sequester’s effects from on-the-ground, front-line service providers, as well as from national reports and sources. Here are some “highlights” from their extensive compilation: [1]

  • The Center for Medicare and Medicaid Services is cutting its reimbursements to community cancer clinics for cancer treatment drugs below the actual cost of the drugs. As a result, the clinics have two choices: they can send Medicare patients to the hospital for treatment or they can continue to serve patients but take a loss on drug costs. Given tight budgets, many clinics are sending their patients to hospitals where taxpayers pay $6,500 more each year for cancer care and seniors pay $650 more in co-pays than they would at community cancer clinics.
  • Civilian medical staff at military medical facilities are losing significant income because of sequestration furloughs and therefore are quitting. The Army and Air Force combined have lost 3,300 doctors, nurses and other medical staff, about 6 percent of their total. Medical facilities’ hours of operation have been reduced and certain non-emergency medical procedures delayed.
  • The sequester’s cuts will affect many school districts this fall. In a survey of 541 school districts in 48 states done by the School Superintendents Association, 86% indicated they would be implementing cuts, including: increasing class sizes (48%), reducing instructional staff (53%), cutting non-instructional staff (47%), reducing professional development (59%), reducing academic programs (33%), and deferring textbook purchases (33%).
  • Due to the sequester’s cuts, 57,000 fewer children will participate in Head Start and Early Head Start this fall, the early education programs designed to close the school readiness gap for disadvantaged children. In addition, services will be reduced by 1.3 million days at Head Start centers and 18,000 staff will either be laid off or face reduced pay or hours. Programs also closed early at the end of the last school year, canceled summer programs, shortened daily hours of operation, and/or reduced services such as transportation. The concentration of Head Start services in poorer states and cities means that very poor communities and their children will be hit hard by these cuts, which will likely have life-long impacts on them and increase the challenges facing their schools.
  • The federal court system’s budget has been cut by $350 million by the sequester. This has resulted in layoffs of public defenders and furloughs of up to twenty days without pay. There have been delays in trials, reductions in lawyer training, and less funding for research, investigation and expert help. Several courts are not holding trials on Fridays to adapt to the reductions. If cases cannot be processed in accordance with the Speedy Trial Act, they may have to be dismissed. The number of federal probation officers has declined 7 percent since 2011, to approximately 6,000, despite an increase in the number of offenders in the probation system. In 2012, 187,000 offenders were supervised by these probation officers, and the number is expected to rise to a record 191,000 by 2014. Probation and pretrial services, including mental health treatment, drug treatment and testing, and offender monitoring, have all been cut.
  • The sequester’s cuts to food programs have meant that hundreds of thousands of low income mothers and their young children have lost nutrition benefits, which could do long-term harm to the health and school readiness of the children.
  • Hundreds of millions of dollars of sequester cuts mean that roughly 300,000 students with disabilities will receive reduced services.
  • Because of sequester cuts, Meals on Wheels has delivered hundreds of thousands fewer meals for tens of thousands of seniors. Transportation and other services for seniors have been cut.
  • Housing assistance has been cut or denied for tens of thousands of families due to the sequester. Some families have lost their housing assistance, some are being asked to pay more, and already long waiting lists and times (measured in years in many places) have grown. Maintenance of public housing and staff at housing agencies have been reduced.

I strongly urge you to call your US Senators and your Representative to tell them that the sequester’s budget cuts are harmful and unwise. Tell them that there are smarter and fairer ways to reduce the federal budget’s deficit.

(You can find out who your Congress people are and get their contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm for your Senators and http://www.house.gov/representatives/find/ for your Representative.)

 

[1]       The Coalition on Human Needs’ extensive compilation of the sequester’s effects is available at: http://www.chn.org/wp-content/uploads/2013/08/completesetofsequesterreports.pdf.

EFFECTS OF THE FEDERAL BUDGET CUTS, AKA THE SEQUESTER

ABSTRACT: The $85 billion in federal budget cuts that went into effect on March 1 have now had time to have measurable effects. Most economists agree that the cuts, known as “the sequester,” have slowed economic growth by at least 1.5 percentage points. Joseph J. Minarik, an economist, cannot remember “when fiscal [i.e., federal budget] policy was so at odds with the needs of the economy.”

Effects of the sequester are having significant impacts on people’s lives, but continue to be ignored by Congress. The budget cuts are having the following effects (among others): In July, 199,000 federal workers had work hours reduced and contractors lost work; Federal court proceedings have been dramatically slowed and the number of federal law enforcement and probation officers has been reduced; The FBI will shut its headquarters and offices on 10 weekdays over the next year; The National Institutes of Health is cutting $4 million from the $9 million core contract for the Framingham Heart Study, one of the most important and unique research projects in medical history; The decline in federal money for scientific research has been exacerbated, leading 18% of scientists to consider taking their research to another country; The Coast Guard has cut patrols, training, and purchases of new equipment; and Efforts to remove unexploded land mines have been canceled or curtailed.

FULL POST: The $85 billion in federal budget cuts that went into effect on March 1 (which were part of the so-called “fiscal cliff”) have now had time to have measurable effects. Most economists agree that the cuts, known as “the sequester,” have hurt economic growth and the creation of jobs. They estimate that the reduced federal expenditures have slowed economic growth by at least 1.5 percentage points, with more harm to the economy and jobs expected if Congress and the President allow the cuts to continue.[1]

According to a recent NBC News/Wall Street Journal survey, 22% of Americans say they have been “significantly affected” by sequestration cuts. Among people earning below $30,000, 31% say they have been affected by the sequester. [2]

Joseph J. Minarik, economist and director of research at the corporate-supported Committee for Economic Development, says he cannot remember “when fiscal policy was so at odds with the needs of the economy.” Similarly, University of Michigan economist Justin Wolfers says, “The disjunction between textbook economics and the choices being made in Washington is larger than any I’ve seen in my lifetime. … At a time of mass unemployment, it’s clear, the economics textbooks tell us, that this is not the right time for fiscal retrenchment.” Given the consensus on this in the often fragmented economics profession, he adds, “To watch it be ignored like this is exasperating, horrifying, disheartening.” Warren Buffett, billionaire investment guru, stated that the sequester “is a stupid way to enact a cut in the budget.” [3]

The economic and jobs situations would be even worse if the Federal Reserve (the Fed) wasn’t taking aggressive actions to stimulate the economy (including holding interest rates extremely low) that offset some of the drag on the economy from federal budget cuts. However, it is likely the Fed will begin reducing one of its stimulus measures soon (the one known as quantitative easing).

As you may remember, the sequester’s cuts to air traffic controllers caused flight delays (that affected members of Congress as well as all the rest of us), so Congress acted with rarely seen speed to provide funding for them (see post of 4/30/13). However, other effects of the sequester, which are having far more significant impacts on people’s lives than having a flight delayed, continue to be ignored by Congress even as the real, measureable impacts are being felt. Given that the cuts were applied across the board, the range of effects have been broad. Here are some examples:

  • In July, 199,000 federal workers had work hours reduced and contractors lost work due to the sequester, thereby curtailing a wide range of services. [4] As workers’ incomes are reduced, some by as much as 30%, the impact ripples through the economy, stifling economic growth and job creation. These workers run the gamut from Internal Revenue Service (IRS) employees to public defenders in the federal court system to civilian employees of the military, many of them scientists, engineers, and medical staff. In Massachusetts alone, these cuts are expected to take $45 million out of the local economy. (Woolhouse, M., 7/22/13, “State feels pinch on federal workers,” The Boston Globe)
  • Federal court proceedings have been dramatically slowed and the number of federal law enforcement and probation officers has been reduced, jeopardizing public safety, according to an unusual letter to Congress signed by the chief judges of the trial courts in 49 states (every state except Nevada). (Sherman, M., 8/15/12, “Judges urge Congress to avoid more sequestration cuts,” The Washington Post)
  • The FBI will shut its headquarters and offices on 10 weekdays over the next year, leaving only a skeleton staff on duty. Off-duty employees will not be paid for these days. Given that personnel costs are roughly 60% of the agency’s budget, this was deemed the most effective way to cope with the sequester’s budget cuts. The FBI also has implemented a hiring freeze that means it has 2,200 vacant positions. Training has been substantially cut and no new vehicles are being purchased. There are concerns that employees will leave for better pay in the private sector, that investigations will be slowed, that domestic intelligence gathering will be harmed, and that the FBI’s capabilities will be degraded over the long-term. (Schmidt, M.S., 9/12/13, “F.B.I. plans to close offices for 10 days to cut costs,” The New York Times)
  • The National Institutes of Health is cutting $4 million from the $9 million core contract for the Framingham Heart Study, one of the most important and unique research projects in medical history. Over the past 65 years, data from the study has been used to develop and test technologies and treatments that have saved millions of lives and hundreds of billions of dollars in health care costs. The study has monitored the health, lifestyles, and medical treatments of 15,000 people and 100 of the original participants are still alive and being followed, as are multiple generations in some families. Thanks in part to the Framingham study, deaths from heart disease have been cut by more than 70 percent over the past four decades. The study was the first to link smoking and stress to heart disease and identify cholesterol and obesity as risk factors for heart problems. In fact, the very term “risk factor” or “factors of risk” was coined by Framingham researchers. The study will continue, but researchers will be laid off and participants will answer health questions by phone instead of having an in-person medical examination by a doctor. The ultimate effect on the study and the costs to our health and health care system in terms of discoveries delayed or never made is unknown. (Gellerman, B., 9/11/13, “Sequester Puts 65-Year-Old Framingham Heart Study In Jeopardy,” WBUR)
  • The decline in federal money for scientific research has been exacerbated and 67% of 3,700 scientists surveyed reported receiving less federal grant funding for their research than 3 years ago. 55% reported they have a colleague who has lost or is about to lose his or her job, and 18% reported they are considering taking their research to another country. (Steinstein, S., 8/30/13, “Nearly 20 percent of scientists contemplate moving overseas due in part to sequestration,” The Huffington Post)
  • The Coast Guard has cut patrols, training, and purchases of new equipment. (Gellerman, B., 8/6/13, “Coast Guard Pilots In Mass. Feel Sequester Pinch,” WBUR)
  • Efforts to remove unexploded land mines left behind in former warzones have been canceled or curtailed. (Bender, B., 8/3/13, “Home front impasse has distant victims,” The Boston Globe)

 My next post will list additional effects of the sequester’s budget cuts.

 

[1]       Calmes, J., & Rampell, C., 8/2/13, “U.S. Cuts Take Increasing Toll on Job Growth,” The New York Times

[2]       O’Brien, M., Chuck, E., & Lamb-Atkinson, G., 7/29/13, “Ahead of budget battle, more Americans say sequester has hurt,” NBC News

[3]       Calmes, J., & Rampell, C., 8/2/13, see above

[4]       Calmes, J., & Rampell, C., 8/2/13, see above

“TRADE” AGREEMENTS & CORPORATE POWER

ABSTRACT: The Trans-Pacific Partnership (TPP) “trade” treaty that is currently being negotiated (see post of 9/10) would give corporations the right to sue governments if their laws, regulations, or actions negatively affect current or expected future profits. Under existing trade agreements, over $380 million has already been paid to corporations by governments. Furthermore, there are 18 pending suits by corporations against governments for $14 billion. Corporations will use or set up foreign subsidiaries to file suits under investor-state dispute resolution provisions of trade treaties (corporations are referred to as “investors”), thereby avoiding a country’s legal system and relying instead on the international tribunals (i.e., courts) created by the treaties.

The TPP would require countries to allow corporations to compete for the delivery of public services. The result could well be that some people cannot afford a corporation’s fees for basic, formerly universal, public services (such as water).

If ratified, the Trans-Pacific Partnership treaty would enhance the power and rights of corporations while weakening US sovereignty. Given its unlimited term and the virtual impossibility of making changes (which require the unanimous consent of the parties), it amounts to a Constitutional change that gives foreign corporations equal (if not greater) legal status and power than the US and other governments. Furthermore, it would foster a race to the bottom for public health, the environment, and workers, especially well-paid blue and white collar workers, as jobs continue to move overseas and compensation and safety are attacked as limiting profits.

The secrecy and potency of the TPP make it feel like a conspiracy among our corporate and political elite to give corporations the ultimate power in our society. I strongly urge you to call your US Senators, and your Representative as well, to ask them to oppose “fast-track” rules for consideration of the Trans-Pacific Partnership “Trade” Treaty and to demand full disclosure and discussion of its provisions in Congress and with the public.

FULL POST: The Trans-Pacific Partnership (TPP) “trade” treaty that is currently being negotiated (see post of 9/10) would give corporations the right to sue governments if their laws, regulations, or actions negatively affect current or expected future profits. The North American Free Trade Agreement (NAFTA) between the US, Canada, and Mexico and other treaties that are already in place give corporations similar rights. Under existing trade agreements, over $380 million has already been paid to corporations by governments. Furthermore, there are 18 pending suits by corporations against governments for $14 billion. [1] For example, Chevron is suing Ecuador over its environmental laws, Eli Lilly is suing Canada over its patent laws, and European investment firms are suing Egypt over its minimum wage laws. [2]

Philip Morris is suing Australia over its cigarette labeling laws. However, because the US – Australia trade agreement doesn’t include investor-state dispute resolution provisions (corporations are referred to as “investors”) that allow such suits, Philip Morris is using other trade treaties and its Swiss and Hong Kong subsidiaries to file its suits. [3] Corporations will use or set up foreign subsidiaries to file suits under investor-state dispute resolution provisions of trade treaties, thereby avoiding a country’s legal system and relying instead on the international tribunals created by the treaties.

Other examples of corporations suing governments include:

  • Under NAFTA, a US corporation sued and received $13 million from Canada, which then reversed its ban on a gasoline additive that contains a known human neurotoxin.
  • Another US corporation has filed a $250 million investor-state suit against Canada under NAFTA because of its ban on fracking.
  • A French and a US company have succeeded in separate suits totaling close to $300 million against Argentina because its federal government failed to override 2 provinces’ limits on water rate increases after water systems were privatized in a period of economic distress, even though it would have been an unconstitutional intervention in provincial affairs for the federal government to do so. [4]
  • (There are many more examples and much more information on the TPP at www.citizen.org/TPP.)

The TPP language would require countries to allow corporations to compete for the delivery of public services, such as water and sewer, electricity, education, and transportation services. The result could well be, as has occurred in Argentina and other South American countries, that some people cannot afford a corporation’s fees for basic, formerly universal, public services (such as water), or that a distinctly two-tiered system emerges with high quality services for those who can afford to pay and poorer quality services for those who can’t. [5]

If the TPP is ratified by the US, it would, for example, undermine efforts to make the giant international mining corporation Rio Tinto abide by the Clean Air Act at its massive copper mine west of Salt Lake City. [6] Under the TPP, US and local regulations could be nullified or forced to change in areas such as:

  • Worker safety and the minimum wage
  • Importation of food and food labeling
  • Fracking for and exportation of natural gas
  • The length of patent protection on drugs (which could raise drug prices by delaying availability of generic versions of drugs)
  • The separation of banking from financial speculation that has been proposed as part of the answer to the 2008 financial collapse (i.e., reinstating Glass-Steagall provisions). Furthermore, TPP would prohibit a transaction tax on the buying and selling of securities, derivatives, and other financial instruments (as has been proposed in the US and as is being implemented in Europe).

If ratified, the Trans-Pacific Partnership treaty would enhance the power and rights of corporations while weakening US sovereignty. Given its unlimited term and the virtual impossibility of making changes (which require the unanimous consent of the parties), it amounts to a Constitutional change that gives foreign corporations equal (if not greater) legal status and power than the US and other governments. This is in total contradiction to the design of US democracy where there is a balance of power, checks and balances, elections every two years, and law making that can change policies and the course of the country on a regular basis.

Furthermore, it would foster a race to the bottom for public health and the environment by giving corporations the right to challenge health and environmental laws and regulations in pursuit of ever higher profits. Similarly, it would foster a race to the bottom for workers, especially well-paid blue and white collar workers, as jobs continue to move overseas (as they have done under NAFTA), and compensation and safety are attacked as limiting profits.

I’m not one who generally buys conspiracy theories, but the secrecy and potency of the TPP make it feel like a conspiracy among our corporate and political elite to give corporations, which are totally focused on maximizing profits, the ultimate power in our society. Therefore, corporations, not our governments or other civic organizations, would determine our well-being as individuals, communities, and nations, as well as, ultimately, the well-being of our planet. I strongly urge you to call your US Senators, and your Representative as well, to ask them to oppose “fast-track” rules for consideration of the Trans-Pacific Partnership “Trade” Treaty and to demand full disclosure and discussion of its provisions in Congress and with the public.

(You can find out who your Congress people are and get their contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm for your Senators and http://www.house.gov/representatives/find/ for your Representative.)

[1]       Public Citizen, retrieved 9/9/13, “TPP’s investment rules harm public access to essential services,” www.citizen.org/TPP

[2]       Hightower, J., August 2013, “The Trans-Pacific Partnership is not about free trade. It’s a corporate coup d’état – against us!” The Hightower Lowdown

[3]       Public Citizen, retrieved 9/9/13, “TPP’s investment rules harm public health,” www.citizen.org/TPP

[4]       Public Citizen, retrieved 9/9/13, “TPP’s investment rules harm the environment,” www.citizen.org/TPP

[5]       Hightower, J., August 2013, “The Trans-Pacific Partnership is not about free trade. It’s a corporate coup d’état – against us!” The Hightower Lowdown

[6]       Moench, B., 6/25/12, “America: A fire sale to foreign corporations,” Common Dreams (http://www.commondreams.org/view/2012/06/25-0)

“TRADE” AGREEMENT SUPERSIZES CORPORATE POWER

ABSTRACT: The US is currently negotiating a trade agreement known as the Trans-Pacific Partnership (TPP). The negotiations have been so secretive that most members of Congress have never seen a draft of the treaty and the public is mostly unaware of its existence. The mainstream (corporate) media have hardly mentioned the TPP, despite its target date for completion of December 2013.

Much of the TPP has nothing to do with trade; its focus is largely on providing legal rights to multi-national corporations so they can make profits without interference from government laws, regulations, or sovereignty. Foreign corporations would have the right to sue national or local governments if their laws, regulations, or actions negatively affected current or expected future profits. These suits would be resolved by an Investor-State Dispute Resolution system using an international tribunal (i.e., court).

Interestingly, conservatives have generally objected to the use of international precedents and tribunals that might impinge on US sovereignty and initiatives. However, they are generally supportive of the rights and power given to foreign corporations and international tribunals by the TPP.

The Trans-Pacific Partnership treaty puts corporate interests ahead of American interests. I strongly urge you to call your US Senators to ask them to oppose “fast-track” rules for consideration of the Trans-Pacific Partnership “Trade” Treaty and to demand full disclosure and discussion of its provisions in Congress and with the public.

FULL POST: The US is currently negotiating a trade agreement known as the Trans-Pacific Partnership (TPP). The negotiations have been so secretive that most members of Congress have never seen a draft of the treaty and the public is mostly unaware of its existence. Yet, Congress is going to be asked soon to vote on considering the treaty under “fast-track” rules that mean it would get a yes or no vote in Congress with limited debate and no amendments allowed. And once the treaty is approved, it has no expiration date and changes can only be made with the unanimous agreement of the participating countries. [1]

The mainstream (corporate) media have hardly mentioned the TPP, despite the fact that it includes 40% of the global economy, involves 12 (and potentially more) countries [2], has had 18 negotiating sessions, and has a target date for completion of December 2013.

Given that the tariffs among the participating countries are already low and that the US already has trade agreements with many of them (Canada, Mexico, Chile, Peru, Australia, and Singapore), there would seem to be little need for the TPP. However, much of the TPP has nothing to do with trade – only 5 of its 29 sections actually deal with trade. Its focus is largely on providing legal rights to multi-national corporations so they can make profits without interference from government laws, regulations, or sovereignty. It has been described as the most business-friendly “trade” agreement in history and as NAFTA (the North American Free Trade Agreement between the US, Canada, and Mexico) on steroids. (Most people view NAFTA as having been good for US corporations but as not having lived up to the promise that it would create jobs in the US, let alone good jobs with good wages.)

The only people with access to the negotiations and draft treaty language have been members of the US Trade Representative’s official Trade Advisory Committees. These individuals are sworn to secrecy, as are the negotiators for the other countries. Of the roughly 700 US advisory committee members, about 600 represent the business community, about 20 represent workers, and none represent citizens’ or civic groups.

The TPP benefits corporations, particularly foreign corporations, by

  • Strengthening patent, copyright, and intellectual property rights
  • Banning government contracting rules that favor domestic businesses (e.g., Buy America incentives)
  • Allowing government regulations to be challenged and overridden if they reduce a foreign corporation’s profits, including, for example, regulations of food safety, environmental impact, the financial system, public utilities and services, and working conditions (including minimum wage, overtime, safety, and child labor laws)
  • Giving special international tribunals (i.e., courts) the ability to overrule domestic laws and regulations if they would hurt foreign corporations profits
  • Creating a special visa program for highly-paid, white-collar professionals that bypasses all other immigration regulations and processes. [3]

Corporations would have a legal status equal to or superseding that of countries. Foreign corporations would have the right to sue national or local governments if their laws, regulations, or actions negatively affected current or expected future profits. [4] These suits would be resolved by an Investor-State Dispute Resolution system using an international tribunal (i.e., court). (Corporations are referred to as “investors.”) Basically, this is an alternative legal system that supersedes US courts and laws. The three person tribunals would operate behind closed doors and be made up of private lawyers. The same lawyers who serve as judges in one case might represent corporations in other cases. There is no appeal process and when a corporation wins, the losing government must pay the corporation for its “lost” profits and legal costs. (My next post will provide examples of how corporations are using similar rights under existing treaties and of the effects TPP is likely to have.)

Interestingly, conservatives have generally objected to the use of international precedents in making court decisions and writing US laws, and to the United Nations, treaties, and international human rights tribunals that might impinge on US sovereignty and initiatives. However, they are generally supportive of the rights and power given to foreign corporations and international tribunals by the TPP, despite the fact that they would clearly limit US sovereignty. The TPP would give foreign corporations greater rights than domestic firms and would expand incentives for US corporations to move investments and jobs overseas. [5]

The Trans-Pacific Partnership treaty puts corporate interests ahead of American interests. And it is widely viewed as benefitting large, international corporations, while hurting small businesses, small farmers, and workers, especially well paid blue and white collar workers. I strongly urge you to call your US Senators, and your Representative as well, to ask them to oppose “fast-track” rules for consideration of the Trans-Pacific Partnership “Trade” Treaty and to demand full disclosure and discussion of its provisions in Congress and with the public.

(You can find out who your Congress people are and get their contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm for your Senators and http://www.house.gov/representatives/find/ for your Representative.)

[1]       Hightower, J., August 2013, “The Trans-Pacific Partnership is not about free trade. It’s a corporate coup d’état – against us!” The Hightower Lowdown

[2]       The negotiations currently include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. Other countries are allowed to join in the future and China, Indonesia, and Russia are likely to join at some point.

[3]       Stangler, C., 9/2013, “MBAs without borders,” In These Times

[4]       Hauter, W., 8/22/13, “The un-American way: The Anti-democratic Trans-Pacific Partnership threatens food safety and public health,” OtherWords (www.commondreams.org/view/2013/08/22-3)

[5]       Moench, B., 6/25/12, “America: A fire sale to foreign corporations,” Common Dreams (http://www.commondreams.org/view/2012/06/25-0)

UPDATES ON POSTS ON LOW PAY FOR FAST-FOOD WORKERS, PESTICIDES AND BEES, & DETROIT

PAY FOR WORKERS IN THE FAST-FOOD INDUSTRY (A follow-up to my 9/2/13 post)

As the portion of the jobs in our economy that are in the retail sector grows, it is important to the well-being of individuals and families, as well as the health of the economy, that these jobs provide better pay. But could the fast-food industry, for example, afford to pay higher wages?

Franchisees in the fast-food industry, in other words your local outlets, have profit margins of only 4% to 6% – 4 to 6 cents on every dollar they take in. Their parent companies, the 5 big, publicly-traded fast-food companies, have profit margins of 16% – 16 cents on every dollar they take in. That is 73% higher than the average big US company’s profit margin. In other words, they are VERY profitable. Last year, McDonald’s reported a profit of $5.5 billion on sales of $27.6 billion – a 20% profit margin. And its CEO got $13.8 million. McDonald’s, and the others, could cut the fees they charge their franchisees so the franchisees could increase pay for their workers. (Choi, C., & Fahey, J., 9/2/13, “Fast-food workers face a big problem: Who’ll fund raises?” The Boston Globe (from the Associated Press))

 

PESTICIDES AND BEES (A follow-up to my 8/10/13 post)

The good news is that the Environmental Protection Agency (EPA) has released new rules and requirements for labels for pesticides containing neonicotinoids, which are linked to mass killing of bees. These labels feature a special warning and prohibit use of these products where bees are present. (Boyd, V., 8/21/13, “EPA issues new label rules for neonicotinoids to protect bees,” The Grower) (Aren’t bees present everywhere?)

However, there are three pieces of bad news. First, a recent study found that some home garden plants sold at Home Depot, Lowe’s and other garden centers have been pre-treated with the neonicotinoids. (Friends of the Earth, 8/14/13) Second, one of Florida’s biggest citrus growers, Ben Hill Griffin, Inc., has been fined only $1,500 after illegally spraying pesticides multiple times that killed millions of bees. (Salisbury, S., 8/28/13, “Ben Hill Griffin Inc. accused of killing honeybees, faces fine,” Palm Beach Post) Third, the chemical corporations Syngenta and Bayer have submitted legal challenges to the European Union’s 2 year suspension of the use of several neonicotinoid pesticides, which is scheduled to begin in December. (Boyd, V., 8/28/13, “Syngenta, Bayer challenge EU’s ban on neonicotinoids,” The Grower)

 

MORE ON DETROIT’S BANKRUPTCY (A follow-up to my 9/1/13 post)

The factors contributing to Detroit’s bankruptcy include suburban sprawl, the lack of regional planning or coordination, Michigan’s declining economy, and the state’s reneging on revenue sharing (to the tune of $700 million). In addition, people have moved out of the city – since 2000 the city’s population has declined by about 200,000 to 687,000 – eroding the tax base. Residents in blighted neighborhoods have sold homes for $5,000 that were once worth $100,000; others have simply abandoned their houses.

Since 2007, Detroit’s median income has fallen from $30,000 to $25,000; less than half of the national figure. 40% of those remaining in Detroit are in poverty. Almost 20% of Detroit households have no access to a car.

As public services have been cut over many years, living conditions have declined, including increased crime in part due to a police force reduced by roughly 35% (4,000 officers to 2,600). The murder rate is the 2nd highest of any city in the country (Flint, MI is 1st).

The 9,700 city employees are taking unpaid furloughs and wage cuts, some as much as 20%. And the 21,000 retirees know their pensions are at risk. Meanwhile, Detroit’s bankruptcy process is expected to cost the city $100 million in legal fees and costs.

While the downtown is thriving with business activity and gentrification (and a new sports arena on its way), the neighborhoods, as little as a half mile away, are eviscerated. The neighborhoods are 80% black and the homes of thousands of current and retired city employees.

The city’s receiver proposes privatizing trash, electricity, and water and sewer services. Although that will save the city money, it is unclear how many of the residents would be able to afford the fees private providers would charge, and lower quality services are likely, one way or the other. The state has taken over running 15 low performing schools, but the initial results have not been promising. (Felton, R., 9/2013, “Is there Detroit after bankruptcy?” In These Times)

LABOR DAY AND THE MIDDLE CLASS

ABSTRACT: Labor Day is a time to celebrate the contributions working people make to our country. But with unemployment still high, inequality on the uptick, and the middle class shrinking and under serious financial strain, many working families just don’t have much to celebrate. For 30 years, wages for the middle and lower income workers have barely kept up with inflation and have not kept up with their significant productivity increases. This means that they aren’t being paid fairly for what they produce. From 1979 to 2012, a typical worker’s wages grew only 5.0% despite a 74.5% increase in productivity.

Efforts are building at the federal level and in a number of states to raise the minimum wage, which has not kept pace with inflation or productivity growth. Low wage workers at fast food chains, big box retailers, and elsewhere have been organizing rallies and strikes to protest low wages and poor working conditions.

President Bill Clinton’s Labor Secretary, Robert Reich, has put together a short video (under 3 minutes) that explains how we can turn things around. (http://front.moveon.org/how-workers-can-get-a-fair-shake-a-labor-day-message-from-robert-reich/#.UiSXAknD_IU)

Jobs with wages that support a middle class life are essential to the well-being of individuals, families, our economy, and our country. Such jobs have been disappearing for 30 years. We need to reverse this trend. And we can, through our actions as citizens and through the policies of our government.

FULL POST: Labor Day is a time to celebrate the contributions working people make to our country. They power our economy both through what they produce and what they consume. (Consumer spending is about two-thirds of economic activity.)

But with unemployment still high, inequality on the uptick, and the middle class shrinking and under serious financial strain, many working families just don’t have much to celebrate. The recovery is weak and the jobs that are being created are largely low wage jobs. So far in 2013, 61% of new jobs have been in low-wage industries and 77% have been part-time. [1] Many of the laid off workers who are getting jobs are earning much less than they used to and many are only working part-time; many of them, especially older workers, are experiencing long-term unemployment with unemployment benefits running out and the loss of health insurance. [2]

For 30 years, wages for the middle and lower income workers have barely kept up with inflation and have not kept up with their significant productivity increases. This means that they aren’t being paid fairly for what they produce. Their increases in productivity are not rewarding them, but instead are going to corporate profits, executive pay, and shareholders. Between 2007 and 2012, wages fell for the 70% of workers at the bottom of the income distribution, despite productivity growth of 7.7%. From 1979 to 2012, a typical worker’s wages grew only 5.0% despite a 74.5% increase in productivity. [3] If the minimum wage had kept pace with productivity growth since the 1960s, it would be $16.54 instead of $7.25. [4]

Since 2008, corporate profits are up 25% – 30% while wages have fallen to their lowest portion of corporate revenue since the 1940s. Part of this is due to the continuing trend of employers changing full-time jobs with benefits into part-time or contracted jobs, typically without benefits. [5]

Efforts are building at the federal level and in a number of states to raise the minimum wage, which has not kept pace with inflation or productivity growth. More than 7 million children live in homes whose income would increase if we raised the minimum wage and more than 10 million Americans, including 4% of full-time workers, qualify as the “working poor.” That means they spent at least half the year working yet still live below the poverty line ($19,530 for a family of three, which might be a single parent and two children). [6]

Low wage workers at fast food chains, big box retailers, and elsewhere have been organizing rallies and strikes to protest low wages and poor working conditions.[7] If you didn’t see The Daily Show’s piece on fast food workers and the minimum wage (with John Oliver subbing for Jon Stewart) it’s, as usual, both informative and entertaining. It’s at: http://www.thedailyshow.com/watch/thu-august-1-2013/can-t-you-at-least-wait-until-jon-stewart-gets-back. (It’s 10 minutes long with short ads at the beginning and in two breaks.)

President Bill Clinton’s Labor Secretary, Robert Reich, has put together a short video (under 3 minutes) that explains how we can turn things around. It lists 6 policies that are needed to make sure workers’ get a fair return for their labor and that would support the middle class. It’s at: http://front.moveon.org/how-workers-can-get-a-fair-shake-a-labor-day-message-from-robert-reich/#.UiSXAknD_IU.

As an initial step, the site includes a petition you can sign that calls on two very profitable companies – McDonald’s and Walmart – to pay their workers fair wages. Walmart, for example, pays its typical employee less than $9 an hour and many of its jobs are part-time, while its profits in 2013 were $28 billion. Most people who work for big-box retailers like Walmart, as well as those who work in the fast-food industry, are adults, not teenagers. They are responsible for bringing home a significant share of their family’s income and they should be paid enough to lift them and their families out of poverty.

When Martin Luther King, Jr., led the March to Washington for Jobs and Justice fifty years ago, one of the objectives was to raise the minimum wage to $2 an hour. $2 an hour in 1963, adjusted for inflation, comes to over $15 an hour today. (You can read more on this and many other topics at Bob Reich’s excellent blog at: http://robertreich.org.)

Jobs with wages that support a middle class life are essential to the well-being of individuals, families, our economy, and our country. Such jobs have been disappearing for 30 years. We need to reverse this trend. Increasing the minimum wage is one step. Increasing investments in human capital are another, including high quality, affordable early care and education, good schools, and affordable, quality post-secondary education. Universal access to good health care and steps to increase compensation and conditions for workers here in the U.S., as well as around the globalized world (for example, through trade treaties), are essential. We can affect these matters through our actions as citizens and through the policies of our government.

[1]       Wiseman, P., 8/5/13, “Most new jobs in July were low paying, part time,” The Boston Globe (from the Associated Press)

[2]       Winerip, M., 8/26/13, “Set back by recession, shut out of rebound,” The New York Times

[3]       Mishel, L., & Shierholz, H., 8/21/13, “A decade of flat wages: The key barrier to shared prosperity and a rising middle class,” Economic Policy Institute

[5]       Garson, B., 8/20/13, “How corporate America used the Great Recession to turn good jobs into bad ones,” TomDispatch

[6]       Eskow, R.J., 8/26/13, see above

[7]       Johnston, K., 8/27/13, “Local rally part of nationwide call,” The Boston Globe

DETROIT’S BANKRUPTCY

ABSTRACT: Detroit’s bankruptcy is the result of a long term decline with many contributing factors. Detroit’s bankruptcy proceeding will favor the big financial corporations because of federal bankruptcy laws, which give priority to paying off financial firms’ interest rate swaps before paying pensions or bond holders. If Detroit ends up cutting workers’ pensions and defaulting on its municipal bonds, it will create dangerous precedents. Other financially ailing cities and municipalities may consider filing for bankruptcy, too, to relieve pension and debt costs.

It will be interesting to watch how the state and federal governments respond. Many precedents will be set. We will learn whether our big corporations and their executives and employees are more important from the federal government’s perspective than our cities, their residents and municipal workers, and their municipal bond holders.

FULL POST: Detroit’s bankruptcy is the result of a long term decline with many contributing factors. Since the financial system collapse of 2008, the federal government has done little to help municipalities that took a double hit from the loss of tax revenue due to the recession itself, as well as from the decline of property tax revenue due to falling property values and homeowners in distress. Certainly, state and federal policies for urban America and trade agreements that let manufacturing jobs, especially in the auto industry, move out of the country played a role. Mismanagement by and corruption of Detroit’s elected leadership played a role as well.

Detroit’s bankruptcy proceeding will favor the big financial corporations because of the 2005 changes in federal bankruptcy laws. Those changes, lobbied for heavily by Wall Street, give priority to paying off financial firms’ interest rate swaps before paying pensions or bond holders. (These interest rate swaps are sold by the big financial firms to cities as insurance to protect them from increases in interest rates. However, unlike insurance, they are really interest rate speculation because they require the cities to pay the financial corporations if interest rates fall. And they have fallen dramatically in the wake of the 2008 financial collapse, which was caused by the big financial corporations.) So the financial firms that speculated on interest rates with Detroit will get paid first and its bondholders and employees’ pensions will get whatever is left over. [1]

If Detroit defaults on its municipal bonds, in other words pays less than it owes, it would set a dangerous precedent for the municipal bond market. Other financially ailing cities and municipalities may consider filing for bankruptcy too, to reduce what they owe bondholders. And it is likely to make borrowing more expensive for states, municipalities, and school districts as municipal bonds will no longer be viewed as virtually risk-free. [2]

Similarly, if Detroit ends up cutting workers’ pensions, it will create a scary precedent for other municipal and government employees. (The average pension owed to Detroit municipal workers, incidentally, is less than $23,000 per year. [3]) Other cities, municipalities, or even states could declare bankruptcy as a way to reduce pension costs. [4] In the private sector, declaring bankruptcy has become a standard tactic for cutting pensions and other benefits for retirees. The airline industry has done this and it has been a standard tactic in leveraged buyouts of private companies. (This was a tactic used by Bain Capital, Mitt Romney’s firm, and became an issue when he ran for President.) In many cases, when a corporation declares bankruptcy, the pensions of its workers become the responsibility of the federal government’s Pension Benefit Guaranty Corporation (PBGC). In 2012, PBGC paid for monthly retirement benefits for nearly 887,000 retirees in 4,500 pension plans that could not pay promised benefits. However, it does not cover state or municipal pension plans. [5] (This is another example, along with bailouts, of how the federal government picks up the pieces when corporations fail to meet their commitments.)

It will be interesting to watch how the state and federal governments respond. Here are two interesting tidbits:

  • While the Michigan state government is doing little to help the city itself, it has approved $450 million in bonds to build a new arena for the Red Wings hockey team and its billionaire owners (who also own Little Caesars Pizza and the Tigers baseball team). Decades of studies have shown that sports facilities’ subsidies are massive wastes of taxpayer money. There is no evidence of a return to the public (as opposed to the private owners of the teams) and they are not an efficient way to create jobs. [6]
  • The federal government has been providing about $100 million a year to Detroit under a variety of federal programs. By way of comparison, US aid to Columbia (the South American country) is about $323 million a year to combat drug trafficking and violence. However, Detroit’s homicide rate is 81% higher than Columbia’s. [7]

Many precedents will be set as Detroit moves through the bankruptcy process. It will be interesting to see who the big winners and losers are, as well as whether the federal government steps in to help out the city as it did the big financial corporations and the big auto companies. We will learn whether our big corporations and their executives and employees are more important from the federal government’s perspective than our cities, their residents and municipal workers, and their municipal bond holders.

[2]       Brown, E., 8/6/13, see above

[3]       Kuttner, R., 8/11/13, “We are all Detroit,” The Huffington Post, (http://www.huffingtonpost.com/robert-kuttner/we-are-all-detroit_b_3741418.html?utm_hp_ref=email_share)

[4]       Brown, E., 8/6/13, see above

[5]       The Pension Benefit Guaranty Corporation, A U.S. Government Agency, http://www.pbgc.gov/home.html

[6]       Jackson, D. Z., 7/31/13, “Motor City hustle,” The Boston Globe

[7]       Christoff, C., & McCormick, J., 8/1/13, “US aid to Colombia tops help for Detroit, but more is unlikely,” The Boston Globe (from Bloomberg News)