Category: Corporate power and influence

THE PLUTOCRATS’ ECONOMIC CON

Since the late 1970s, a concerted effort has been made by right-wing, wealthy elites to promote a new brand of “free market” capitalism, which I refer to as plutocratic economics. [1] Their broad, well-funded initiative was successful in reversing and undermining the progressive, managed capitalism that was put in place in the 1930s and 40s in response to the failure of the largely unregulated markets that led to the Great Depression.

After 40 years of experience with these plutocratic policies, the results are in: they don’t work. Wealthy elites (the plutocrats) have benefited substantially, but the consequences for the economy, workers, and the middle class have been very negative.

The plutocrats’ basic argument is that markets work and government doesn’t. They assert that government is inherently incompetent, in part because it and its regulators have been “captured” by the special interests they were supposed to regulate. [2]

The wealthy individuals and large, often multi-national, corporations pushing plutocratic economics invested in politicians, academicians, think tanks, and advocacy organizations to promote their theories, rationales, and policies. Academicians and think tanks were hired and funded to give a scholarly veneer and rationale to what otherwise would have been seen for what it was – a raw power grab. The resultant public policies greatly benefited the self-interest of the wealthy elites and corporate executives.

On the political front, the plutocrats use multiple strategies to achieve their policy goals. They employ lobbyists who work to convince policy makers to support their policies. They place supporters (often former corporate employees) within the government bureaucracy (a.k.a. the revolving door). They make campaign contributions and “independent” expenditures on behalf of candidates to elect supportive individuals and to buy access to elected officials. They promote trade policies and a type of globalization that undermines American workers. They got U.S. policy makers to choose trade policy options that put the interests of multi-national corporations and investors first and those of workers last. [3]

Proponents of the plutocratic economics promised that markets and businesses would regulate themselves for the good of all, that markets would be more efficient without government regulation, and that social goals could be more effectively achieved by using market forces. They also argued that social programs that supported low income workers and families were inefficient, unnecessary, and provided disincentives to work hard and make positive contributions to our economy.

In concert with their economic and political theories, the plutocrats pushed to reduce progressive taxation, eliminate government regulation and anti-trust enforcement (which had limited the size and marketplace power of corporations), and dramatically weaken public programs that provide support for workers and a safety net (including the minimum wage, unemployment benefits, unions, and welfare payments to the poor). Their trade policies allowed U.S. multi-national corporations to ship five million jobs overseas over the last 20 years. As a result, multi-national corporations now have a smaller portion of their global workforce in the U.S. than the portion of their sales that are in the U.S. [4]

The plutocrats and their hired experts developed rationales for their policies based on economic theories and assumptions about markets that were not supported by actual experience (and have since been disproved by actual experience). For example, they assumed ideal and efficient markets where perfect information was available to buyers and sellers, where prices were set solely by supply and demand, where sellers and buyers were numerous and no one had any marketplace power, and where there were no significant externalities, such as pollution. Supply-side economics is a classic case of an economic theory with no actual evidence for it and with substantial evidence refuting it today. It claims that cutting taxes, particularly on the wealthy and businesses, will 1) stimulate economic growth and 2) do so to such an extent that government tax revenue will actually increase. Despite multiple experiences where tax cuts have been enacted and have not produced the promised effects, the plutocrats still use supply-side theory to justify tax cuts, as they did successfully with the December 2017 $150 billion a year tax cut.

It is important to note, that despite the rhetoric, markets under plutocratic economics are NOT actually free markets. All markets require rules to function, such as rules about ownership of property including patents, copyrights, and other protections for intellectual property; laws governing contracts and courts to enforce them; standards for what constitutes unfair competitive practices; laws and courts to determine liability for accidents and harm from products; and standards for credit, debt, bankruptcy, financial transactions, and investments.

The issue for policy makers is how the markets’ rules balance the power and interests of various parties. The bottom-line questions are who makes the rules and who benefits. For 40 years, plutocratic economic policies have put returns to shareholders (i.e., primarily wealthy investors) and, by implication, corporate executives, ahead of the interests of workers and also of investment in a company’s future. As a result, compensation for workers has been flat while their productivity has continued to grow. Overall, the result of these plutocratic policies has been dramatic growth in income and wealth inequality, leaving the U.S. with the most unequal income distribution of any rich democracy. [5]

Future posts will 1) summarize the evidence that plutocratic economic policy has failed, 2) discuss the politics of plutocratic economics and how the plutocrats have reacted as the failure of their policies has become clear, 3) review the harm that plutocratic economics has done to our democracy, and 4) identify progressive policies that are needed to reverse the harmful effects of plutocracy.

[1]      Technically, among policy wonks and economists, this form of capitalism has been labeled neoliberal economics. This is confusing because liberal in the economic world means something quite different than liberal means in common political usage. Although this is a bit of an oversimplification, liberal in economics refers to individualism – an every person for him or herself approach.

[2]      Kuttner, R., 6/25/19, “Neoliberalism: Political success, economic failure,” The American Prospect (https://prospect.org/article/neoliberalism-political-success-economic-failure)

[3]      Kuttner, R., 6/4/19, “Warren’s astonishing plan for economic patriotism,” The American Prospect (https://prospect.org/article/warrens-astonishing-plan-economic-patriotism)

[4]      Tyler, G., 1/10/19, “The codetermination difference,” The American Prospect (https://prospect.org/article/codetermination-difference)

[5]      Tyler, G., 1/10/19, see above

SHOULD THE U.S. HAVE A WEALTH TAX?

Economic inequality has been growing rapidly in the U.S. over the last 40 years. The wealthiest 10% of households now have roughly 80% of all wealth in the U.S. and 50% of all income. The richest 130,000 households now have almost as much wealth as the poorest 117 million households combined. The top 0.1% of households have seen their share of all wealth nearly triple, from 7% to 20%, in the last 40 years. Changes in tax laws since the 1980s have dramatically reduced taxes on the wealthy, even though they are the ones who receive the greatest benefit from the U.S. economic system and our public infrastructure. Economic disparities in the U.S. are greater than in any of the other 36 countries with advanced economies that make up the Organisation for Economic Co-operation and Development (OECD). [1]

One way to slow the growth of inequality, and perhaps reverse it, would be to tax wealth annually, like income taxation. Income is taxed because it is one way to determine how much someone has benefited from our economic system and public infrastructure, how much they can afford to pay in taxes, and how much it would be fair for them to contribute to the maintenance of our public infrastructure and the smooth functioning of our society – our education system, our transportation systems, our public safety systems, our legal system of laws and courts, etc. As with the income tax, a wealth tax would have a standard deduction or exemption so that low-wealth households would not pay any wealth tax. For example, the current exemption in Switzerland is about $75,000 per person in wealth (i.e., savings), in Spain it’s around $800,000 per person, and Senator Warren has proposed $50 million per household for the U.S. (See below.)

Under our current tax system (including federal, state, and local taxes), wealthy households pay a smaller portion of their financial resources in taxes than poorer households. This is true whether the calculation is done based on income or wealth. For example, the 0.1% wealthiest households are estimated to pay 3.2% of their wealth in all taxes, while the bottom 99% of households are estimated to pay 7.2%. U.S. tax laws no longer reflect the core principle of fairness – that what one pays in taxes reflects his or her ability to pay.

Some current taxes share some characteristics of a wealth tax but are limited in scope or scale. At the state and local levels, the ownership of real estate is typically taxed and in some places some forms of tangible property, such as cars or business assets, are taxed. However, ownership of financial assets (e.g., stocks, bonds, etc.), of boats and planes, of jewelry and art, of collectibles, and of other forms of wealth are generally not taxed. Income from wealth held as financial assets and the profits from the sales of assets are taxed. Transfers of assets through gifts and inheritance are taxed.

For every one of the wealth-related taxes – on property, on income and gains from assets, and on inheritance – the wealthy and well-connected (often due to their campaign spending) have gotten policy makers to change and write loopholes into our tax laws that reduce the taxes wealthy individuals pay. For property ownership, real estate taxes and interest payments on mortgages are deductible when calculating federal income taxes (although the 2017 tax bill has surprisingly put some limits on these deductions). Income from wealth held as financial assets and the profits from the sales of assets are taxed at a lower rate that income earned from working. If assets are transferred to another person, through inheritance, gifts, or other means, the gain or profit on the assets is typically NOT taxed, allowing the wealthy to pass on their wealth tax-free. Furthermore, the inheritance tax has been cut and serious efforts have been made to eliminate it. Currently, it is applied only on assets over $11 million per person. In addition, loopholes in tax laws allow wealthy families and their tax experts to avoid or reduce their payment of inheritance taxes. If an asset is given to a charity, the gain or profit on it is not taxed, even though the donor can deduct the full, current value of the asset to reduce the income tax they would otherwise owe. This is a double tax avoidance scheme that provides huge benefits to the wealthy.

Four European countries have a wealth tax and back in 1990 twelve of them did. The wealth tax has been dropped in eight countries for a variety of reasons, but one was that wealthy individuals in Europe can relatively easily designate a tax-free location as their official residence to avoid the wealth tax. In addition, the wealth taxes were not generating much revenue because the tax rate was low (e.g., 1% to 2%), because exemptions for certain assets or circumstances have been written into the laws, and because of tax avoidance. Furthermore, other wealth-related taxes were viewed as preferable, e.g., taxes on gains or profits when assets are sold, inheritance taxes, property taxes, and taxes on inter-generational gifts. [2]

Senator Elizabeth Warren, as part of her presidential campaign, has proposed a wealth tax for the U.S. that she calls the Ultra-Millionaire Tax. It would apply only to the 0.1% richest households – about 75,000 households – with net wealth (i.e., assets minus debts and other liabilities) of over $50 million. They would pay an annual tax of 2% on net worth over $50 million up to $1 billion and 3% on net worth over $1 billion. This tax is estimated to generate $275 billion per year and, thereby, increase federal government revenue by about 7%. [3]

Warren’s proposed wealth tax would apply to all assets held anywhere in the world by a U.S. citizen. The IRS would be able to grant deferments (i.e., a postponement or delay) in the payment of the tax in extenuating circumstances. To calculate someone’s wealth, Warren notes that the IRS already has rules for valuing most assets for inheritance tax purposes. These rules could be used or they could be improved, and the IRS would be authorized to use cutting-edge valuation techniques for hard-to-value assets. Her proposal includes an increase in the IRS’s enforcement budget to oversee taxpayers subject to the Ultra-Millionaire Tax. A 40% exit tax would be charged on net worth above $50 million for anyone renouncing their U.S. citizenship to avoid the tax. The revenue this proposal would generate is what Senator Warren would use to pay for the programs she has proposed in other policy areas.

Economic inequality in the U.S. is spiraling to unprecedented levels because the wealthy have been using their wealth to skew public policies, such as tax policies, to their benefit. For example, some Republicans in Congress acknowledged that the 2017 tax bill, with its huge tax cuts for the wealthy, was passed to satisfy and reward donors to their campaigns, who were demanding a return on their “investment”. [4]

A wealth tax could be one strategy to address the huge and growing economic inequality in the U.S. It would ask those who have benefited tremendously from the U.S. economic system and our public infrastructure to pay something back to maintain this business environment so that the next generation has the same opportunity to succeed as they did.

[1]      Thornton, A., & Hendricks, G., 6/4/19, “Ending special tax treatment for the very wealthy,” Center for American Progress (https://www.americanprogress.org/issues/economy/reports/2019/06/04/470621/ending-special-tax-treatment-wealthy/)

[2]      Taylor, T., 2/4/19, “Why have other countries been dropping their wealth taxes?” Conversable Economist (http://conversableeconomist.blogspot.com/2019/02/why-have-other-countries-been-dropping.html)

[3]      Warren, E., retrieved 6/12/19, “Ultra-Millionaire Tax,” (https://elizabethwarren.com/ultra-millionaire-tax/)

[4]      Thornton, A., & Hendricks, G., 6/4/19, see above

WHO WAS BAILED OUT AFTER THE 2008 FINANCIAL CRASH?

The 2008 financial crash and resultant bailout have been in the news recently for two reasons: 1) some critiques have been leveled at Sen. Bernie Sanders’ statement on the presidential campaign trail that no Wall St. executives went to jail and that they got a trillion-dollar bailout, and 2) a new book has come out: Crashed: How a decade of financial crises changed the world by Adam Tooze. The book has been described as insightful and telling a story that is both “opaquely complex and dazzlingly simple.” [1] In terms of Sen. Sanders’ statement, it takes a real spin doctor to dispute the truth of it (see below).

In the aftermath of the 2008 implosion of the huge Wall St. corporations, the U.S. government and Federal Reserve Bank came to the rescue. The government quickly made $700 billion available to bailout the Wall St. firms. Otherwise, twelve of the 13 largest ones probably would have gone bankrupt in late September or October of 2008 (as Lehman Brothers did before the rescue was in place and the scale of the disaster was clear). The government also bailed out the auto industry, insurance companies (e.g., AIG), and the quasi-public mortgage-purchasers Fannie Mae and Freddie Mac.

In addition, the Federal Reserve Bank (Fed) made unprecedented purchases of assets from the technically bankrupt financial corporations under the innocuous-sounding banner of “quantitative easing”, to the tune of over $4 trillion. The six largest firms alone (JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley) also borrowed about $500 billion from the Federal Reserve Bank in peak periods of need. [2] Furthermore, the Fed extended what were effectively loans to the central banks of other countries of an also unprecedented $10 trillion. Estimates of the overall contribution of the Fed to the bailout range from $7.7 trillion to $29 trillion.

In addition, the U.S. government supported the big financial corporations in a variety of other ways. For example, short-selling of 799 financial stocks was banned in 2008 to protect these companies from free market speculation, which boosted their stock prices. Emergency bank charters were given to Goldman Sachs and Morgan Stanley on Sept. 21, 2008, so they could borrow from the Fed as only banks can do. In October, the Fed, for the first time in history, paid interest to the banks on required reserve deposits. Shortfalls in required reserves and failed stress tests were effectively ignored. And except for one relatively low-level officer at Credit Suisse, no one and no company was criminally prosecuted or went to jail. The value of all these benefits is truly incalculable.

Therefore, pinning down a single figure for the total bailout is impossible because there were so many different pieces and the amounts in some of them fluctuated daily, given that banks borrow money from the Fed daily to meet their reserve requirements. However, to state that it was a trillion-dollar bailout is definitely true and to say that no Wall St. executives went to jail is also true for all meaningful purposes.

With all this bailout money and support for the financial corporations and the financial system, one might think that some significant money or support would have been made available to bailout out the workers and homeowners caught in the maelstrom of Wall St. malfeasance. However, precious little assistance was made available to the millions of homeowners trying to pay mortgages on homes where the mortgage was now greater than the value of the home, given that many homes had lost half their value. Very little was done for the millions of homeowners who suffered foreclosure. And it was not only individuals who suffered; whole communities – usually minority and low-income communities – were underwater due to predatory and discriminatory mortgage lending by the big financial corporations and their agents. Moreover, millions were unemployed as the economy went into a severe recession due to the malfeasance on Wall St. [3]

Two things make all this truly galling. The first is that despite the massive intervention of the U.S. government and the Fed, the rescued financial corporations were not required to change their basic mode of operation. The instability of speculative financial transactions that is endemic in their model of profitability and the huge financial rewards for employees, especially executives, was left intact, along with public insurance against losses that threaten consumers’ deposits.

The second galling outcome is that no executives of the financial corporations were punished, either through significant loss of compensation or criminal prosecution, let alone jail time. Remember, that in the 1980s Savings and Loan crisis, which was much smaller in scale, nearly 900 executives of Savings and Loan banks went to jail.

“The contrast between the solicitous care shown the culpable financial sector and the negligence shown to the innocent homeowner was startling.” [4] As a result, class-based economic inequality in the U.S. was exacerbated and economic gaps in income and wealth between Whites and Blacks grew dramatically.

The bailed out financial corporations were expected to make loans available to help households and businesses, as well as to avoid foreclosures whenever possible. When foreclosure was unavoidable, it was expected that the financial corporations would promptly resell those homes. These actions would have helped individuals, businesses, and communities recover. However, no requirements were placed on bailed out banks to do these things and, therefore, they did not happen.

The programs that were supposed to assist homeowners typically had draconian rules to prevent “undeserving” homeowners from benefiting. The story line from Wall St. and its backers on Capitol Hill was that home buyers were the ones at fault; they should have known better than to be duped by the predatory practices of the mortgage brokers or that the home buyers were simply trying to live above their means. This concern about benefiting undeserving individuals clearly did not extend to the undeserving bank and financial sector executives responsible for perpetrating fraud in the mortgage business and crashing their companies and the economy.

Similar opposition blocked the expansion of unemployment benefits and job training for workers who had lost their jobs. On the other hand, there were no significant limits put on the pay of executives whose corporations were bankrupt without the bailout, let alone requirements that executives pay back compensation they had received based on profits generated by fraudulent activities.

As the Great Recession lingered on and jobs, homes, and economic security did not return (still true today for many people), the deep anger and discontent that set in was the breeding ground for support for Trump.

The 2008 financial crisis and the bailout of the financial corporations and their executives, but not the homeowners and workers who suffered from the resultant crash, are exhibit one in the indictment of the corporate takeover of U.S. policy making. I urge you to contact your elected officials and ask them to stand up against corporatocracy and demand democracy back. Our government should work for the people, the workers and homeowners of America, not the big corporations.

[1]      Bloom Raskin, S., Winter 2019, “Whose recovery was it?” The American Prospect (This article is a review and commentary on Tooze’s book.)

[2]      Taibbi, M., 3/18/19, “Turns out that trillion-dollar bailout was, in fact, real,” RollingStone

[3]      Bloom Raskin, S., Winter 2019, see above

[4]      Bloom Raskin, S., Winter 2019, see above, page 86

U.S. CAPITALISM KILLS COMPETITION

The theory of capitalism says that free market competition will ensure quality products and services at competitive prices. Unfortunately, that theory is not the reality of U.S. capitalism today.

Deregulation and our business laws and practices, from anti-trust to financing to patent protections, have destroyed competition. Without competition, businesses have no incentives to restrain price increases, to ensure quality, or to provide consumers the choices that free market theories assume. Furthermore, monopolistic employers and business owners have little incentive to fairly compensate workers or even invest in the future of their businesses. Instead, they can and have been keeping profits high and lining their own pockets.

Rather than free markets, the U.S. economy is sea of monopoly or, at least, oligopoly, where a small group of sellers or producers control a market. For example: [1]

  • Four airlines control the bulk of air travel
  • Two corporations produce the bulk of beer
  • Six enormous banks / financial institutions hold over 40% of deposits and 50% of assets
  • Drug companies find ways to extend patents or otherwise restrict competition so they can jack up prices and make huge profits (see previous posts here, here, and here)
  • Two corporations control all on-line travel bookings
  • Two companies make nearly all the intravenous saline solution used in hospitals
  • Two firms control the majority of on-line advertising
  • Three companies control the agricultural markets for seeds and pesticides
  • Four firms make 89% of baby formula
  • Two companies make 76% of coffins
  • The supermarket and media industries are continuing to consolidate so that a handful of corporations control these markets
  • Two companies control the mobile app market

Furthermore, the oligopolists find ways, such as carving up geography or colluding (for example, generic drug makers) to make themselves effectively monopolists and charge exorbitant prices and/or deliver low quality goods and services. For example, there are many Internet service providers (ISPs) in the U.S., but three dominant providers (Comcast, Charter Communications, and AT&T, each with over 15 million subscribers) and six midsize providers (with between 3.5 and 7 million subscribers). Every other provider has under 1.3 million users. The nine dominant and midsized companies have carved up the country so that 76% of households have only one choice of Internet provider making the ISPs effectively monopolies.

The monopolists and oligopolists have used political and market place power to restrict new entrants to their markets. The rate of new business formation today is half of what it was in the late 1970s. When competition does emerge, the big, dominant companies often simply buy up the competition, sometimes to use its technology or innovations, and other times simply to eliminate it as competition.

Our anti-trust laws and regulators have failed to stop anti-competitive acquisitions. In the last ten years, Amazon, Apple, Facebook, Google, and Microsoft have purchase 436 companies and startups without a single challenge from anti-trust regulators. [2] As a result, with almost every purchase consumers make, we are paying a toll, an excessive price, to one or another of the many monopolies or sets of oligopolies.

This trend of business and economic concentration, which allows companies to build high levels of market share and power, began in the 1980s under President Reagan and supposedly “conservative” Republicans. An important symbolic step in this trend was when the Federal Trade Commission stopped collecting data on market concentration in 1981.

Capitalism without real competition is not capitalism; it’s monopoly or oligopoly. The monopolists and oligopolists have very strong incentives to preserve their dominant status. Until the American public responds forcefully, and demands that its elected representatives do so as well, the number and size of monopolies and oligopolies are likely to grow.

Unfortunately, the mass media, which could provide the information to the public on the growing economic concentration, lack of competition, and harm to consumers and our politics, are highly concentrated corporations themselves. Therefore, our mass media have a vested interest in not telling us this story.

In the early 1900s, when the U.S. government fought back against the giant trusts such as Standard Oil and U.S. Steel, anti-trust laws and anti-monopoly regulatory actions were viewed as a check on excessive private power, and competition was seen as necessary to preserve opportunity, as well as human freedom and liberty. We need to fight back against the excessive private power of economic concentration again today.

An important piece of reclaiming our democracy from the plutocrats is reclaiming our economy from the monopolists and oligopolists. Some of the 2020 presidential candidates, especially Senator Elizabeth Warren, are talking about this and presenting policy proposals (e.g., here and here) to do so.

I encourage you to follow the presidential candidates’ proposals and the discussion of America’s Winner-Take-All, anti-competitive, faux free market, monopolistic capitalist economic system.

 

P.S. Sorry for the recent lack of posts to this blog. I was managing a campaign for the local Select Board (i.e., town council). The election was April 2 and we were successful! Over the last 3 years, we’ve replaced 4 of the 5 Select Board members with strong progressives, including two young mothers. A real turnaround!! All politics is local and political change does start at the grassroots.

[1]      Dayen, D., Winter 2019, “The new economic concentration,” The American Prospect

[2]      Dayen, D., Winter 2019, see above

WHY WE NEED EFFECTIVE GOVERNMENT REGULATION

The need for effective government regulation has been highlighted by recent events including the crash of an airliner in Africa and a mass shooting in New Zealand. We rely on federal regulators to keep us safe and to make informed and independent decisions about the safety of consumer products and services. Deregulation and privatization over the past 40 years, which have accelerated in recent years, have weakened federal regulation and increased risks for consumers and the public.

The Federal Aviation Administration’s (FAA) mission is to keep air travel safe. However, after the crash of a Boeing 737 in Africa, the second for that model airplane in four months, the FAA did not order this plane to be grounded, even though virtually every other airplane regulator in the world did. President Trump, of all people, overruled the FAA and ordered the plane to be temporarily grounded.

Because of the weakening of the FAA and privatization of some of its functions, the FAA relies on Boeing employees to certify that Boeing planes are safe. It’s hard to imagine a more obvious conflict of interest or lack of independent decision making, when the public’s safety should be the sole decision-making criterion.

The FAA’s regulatory mission has been compromised, at least in part, because Boeing is very active politically. It spent $15 million on lobbying in 2018. Its political action committee and employees have donated over $8 million to the election campaigns of members of Congress and presidential candidates since 2016. Trump’s decision was somewhat surprising because Boeing’s president and CEO frequently visits with Trump at his Mar-a-Lago resort and at the White House. He also gave $1 million to Trump’s inaugural committee. A former Boeing executive has also been appointed acting Secretary of Defense by Trump. [1] [2] All these activities by Boeing and its executives are meant to increase its influence over policy makers who oversee the FAA and its budget.

On a different front, Facebook allowed a mass shooting by a White supremacist in New Zealand to be live streamed and widely viewed over its platform. YouTube / Google and Twitter were guilty of allowing this shocking video to be broadly shared. Despite safeguards these companies claim to have in place to prevent this, it took them many hours to remove this video from their platforms. And this isn’t the first time violent, disturbing videos have been widely shared on these platforms. Furthermore, Facebook had been used by the shooter and other like-minded individuals to communicate and share ideas and plans. [3] [4]

Facebook has also faced strong criticism for its repeated failures to protect the privacy of individuals’ data – even after it had promised regulators that it would do so, including in a 2011 consent agreement with the Federal Trade Commission. [5] It has also faced criticism for allowing the spread of false information and inflammatory, racist, bigoted, and terrorist messaging by individuals and groups who were able to establish accounts on Facebook often with false identities or to hijack the accounts of legitimate Facebook users. It has also allowed groups that traffic in such mindsets and mis-information to flourish on its platform, exacerbating extremism and societal divisions, tensions, and hatred. [6]

Finally, Facebook blocked an advertisement by presidential candidate Elizabeth Warren that promoted her policy proposal to regulate and break up huge, monopolistic technology corporations, such as Facebook. Facebook relented and let the advertisement run after a firestorm of criticism.

Clearly, Facebook and other social media platforms need better and stronger government regulation. Government regulators need to figure out how to better protect citizens from mis-use of personal information; on-line sharing of violent videos, inflammatory content, and false information; discrimination by platform operators; and hackers, bullies, and trolls. Ultimately, if regulators can’t get these companies to correct these problems, the social media companies should be forced to shutdown services they can’t run responsibly, such as live-stream video sharing.

As a third example, the Consumer Financial Protection Bureau (CFPB) was created in the aftermath of the 2008 financial collapse in which millions of Americans lost their homes, their savings, and/or their jobs. The collapse occurred because Wall St. financial firms were weakly regulated and were able to engage in fraud and speculative investing that lost huge amounts of money. [7] The CFPB is an example of a federal regulator that was created in the wake of a huge scandal but is now being hampered and weakened by elected officials in response to campaign contributions and heavy lobbying from regulated industries. (See previous posts here, here, here, and here for more background.)

Recently, President Trump and many members of Congress, especially Republicans but including some Democrats, have been working to roll back regulation of payday lenders that the CFPB spent five years carefully crafting. These lenders exploit financially stressed individuals who need a short-term loan until their next payday. The lenders charge annual interest rates as high as 400% and make loans they know the individual is unlikely to be able to pay back on time. When the borrower defaults, the lender then renews the loan (often again and again), typically with additional fees each time, capturing the borrower as a perpetual revenue stream. The payday lending industry makes most of its profits from these financially distressed and desperate repeat borrowers. [8] [9]

Clearly, we need the CFPB to protect consumers from abusive, predatory, and fraudulent behavior by financial companies and to protect our economy from the likelihood of another financial collapse like the one in 2008.

We rely on, or perhaps at this point in time I should say that we should be able to rely on, these and other regulators, such as the Consumer Product Safety Commission, the Environmental Protection Agency, and the Department of Education, to protect us. However, due to regulatory failures, we are increasingly experiencing dangerous consumer products from manufacturers and importers, serious pollutants in our air and water, and fraudulent, for-profit colleges. Weakened federal regulators and increased influence of regulated industries over the regulators are to blame.

We, as citizens and voters in a democracy, and our elected representatives need to realize how important strong, independent regulation is to our health and safety. This is important to us individually and to the functioning of our economy. Regulators’ sole focus must be to protect the health and safety of consumers, workers, and the public. They must be truly independent of the industries they regulate and must have the necessary resources to effectively carry out their responsibilities.

[1]      Robinson, M. S., 3/15/19, “We shouldn’t depend on Boeing to tell us whether Boeing planes are safe to fly,” The Boston Globe

[2]      Lardner, R., & Lemire, J., 3/14/19, “Boeing packs massive lobbying arm,” The Boston Globe from the Associated Press

[3]      Editorial, 3/15/19, “New Zealand mosque attack should be a wake up call for big tech,” The Boston Globe

[4]      Pham, S., 3/15/19, “New Zealand shooting video,” CNN Business

[5]      LaForgia, M., & Rosenberg, M., 3/14/19, “US aims probe at Facebook’s data-sharing,” The Boston Globe from The New York Times

[6]      Schiffrin, A., Winter 2019, “The digital destruction of democracy,” The American Prospect

[7]      Warren, E., 9/17/18, “10 years after Lehman collapse, Washington is back to its old tricks,” The Boston Globe

[8]      Sweet, K., 10/27/18, “Federal agency eyes looser payday loan rules,” The Boston Globe from the Associated Press

[9]      Gordon, M., 3/8/19, “Fresh scrutiny for consumer watchdog,” The Boston Globe from t/he Associated Press

PRIVATE WEALTH IS MADE ON PUBLIC INVESTMENTS

Private companies and individuals benefit from public investments in many ways. You may remember Senator Elizabeth Warren saying back in 2014 that “Nobody got rich on their own. Nobody. People worked hard, they built a business, God bless, but they moved their goods on roads the rest of us helped build, they hired employees the rest of us helped educate, they plugged into a power grid the rest of us helped build,” they are protected by police and firefighters that we all pay for, and so forth. [1]

Clearly, successful companies and individuals owe their success in part to public infrastructure and investments. Therefore, they should pay their fair share in taxes to support public spending on both the infrastructure they depend on and also to invest in the future so other individuals and companies can succeed as they did.

Another way that public investment supports and benefits private individuals and companies is that the federal government invests heavily in basic research that is then used by the private sector to develop products and services.

One example of this is that the National Institutes of Health (NIH) spends $30 billion each year on drug research and development (R&D). The pharmaceutical industry routinely justifies the high prices of drugs by citing the high cost of R&D to bring new drugs to market. This rationale is overstated from many perspectives (see my previous blog on drug pricing), but Representative Ocasio-Cortez shed new light on this overblown claim in a hearing in Congress earlier this year.

Rep. Ocasio-Cortez asked Dr. Aaron Kesselheim [2] whether the public was receiving any return on the investments in drug R&D made by the NIH when they led to highly profitable drugs. His answer, “No, … when those products are … handed off to a for-profit company, there aren’t licensing deals that bring money back into the coffers of the NIH.” [3]

Every one of the 210 new drugs approved by the Food and Drug Administration (FDA) between 2010 and 2016 benefited from NIH funded R&D.

The U.S. government is the biggest venture capital investor in the world. Examples outside of pharmaceuticals abound. The Internet grew out of the 1960s ARAPNET program funded by the Defense Department. Touchscreen technology was developed at a publicly-funded university using National Science Foundation grants. GPS technology began as a 1970s Defense Department program. Voice recognition technology came out of a project of the Defense Advanced Research Projects Agency (DARPA). Every one of the 12 key technologies of smart phones grew out of government-funded research projects. The Department of Energy has made over $35 billion in loans to high-risk clean technology projects, including Tesla’s development of electric cars. [4]

Unfortunately, the U.S. public is not getting the return it deserves on these investments. One way to get a public return is to tax the profits of companies using technologies in which the government has invested. Currently however, some of these companies pay very little or nothing in taxes. Furthermore, the 2017 tax cuts reduced corporate taxes to a near-record low. In addition to taxes, in countries such as Germany and Finland, the government obtains partial ownership or royalty payments from companies that benefit from public investments.

Part of the reason the public does not get a return on public investments in the U.S. is that our political system has been skewed to favor the interests of the private sector through our campaign finance system, lobbying, and the revolving door between government and private sector jobs. For example, over the last ten years, the pharmaceutical industry has spent almost $2.5 billion lobbying Congress. This includes hundreds of millions of dollars spent to influence the drug coverage provisions of the Affordable Care Act, which produce about $35 billion in additional profits for the pharmaceutical corporations.

Our elected officials and government regulators need to begin insisting that private companies and individuals provide the public – the taxpayers – with a reasonable return on public investments, including everything from roads, bridges, and air transportation, to our education system, to research and development. Fair taxation is one way to do this, but other avenues, such as partial ownership and royalty payments, should be explored as well.

[1]      Senator Elizabeth Warren, August 2012, campaign event https://www.youtube.com/watch?v=AHFHznu-N-M (30 seconds in)

[2]      Dr. Kesselheim is a doctor and a lawyer. He is an Associate Professor of Medicine at Harvard Medical School. He is an expert on the effects of intellectual property laws and regulatory policies on pharmaceutical development, the drug approval process, the costs, availability, and use of prescription drugs, and bioethics. (https://bioethics.hms.harvard.edu/person/faculty-members/aaron-kesselheim)

[3]      Karma, R., 3/6/19, “Alexandria Ocasio-Cortez and the myth of American innovation,” The American Prospect (https://prospect.org/article/alexandria-ocasio-cortez-and-myth-american-innovation)

[4]      Karma, R., 3/6/19, see above

RAISE THE MINIMUM WAGE? FEDS: NO! VOTERS: YES!

The bad news is that Congress and the President have not raised the federal minimum wage since July 2009 when it was set to $7.25 (about $14,500 per year for a full-time worker). After adjusting for inflation, it is now worth only $6.19. At its peak in 1968, the minimum wage was worth $11.39 in today’s dollars. If it isn’t raised by this July, which seems unlikely, it will have been 10 years that low-income workers governed by the federal minimum wage have gone without a raise; the longest period without an increase since it was first establish in 1938. [1]

Failing to raise the minimum wage as inflation increases prices shifts money from low-income workers’ pockets and the local economies where they spend their earnings to the pockets of their employers’ executives and shareholders. This is borne out by the fact that executive pay and corporate profits are at record levels. The minimum wage does not get increased because employers are greedy and politicians cater to wealthy campaign supporters rather than regular voters and workers. By the way, the best data available show that increasing the minimum wage does NOT reduce overall employment.

The good news is that some states and communities, often driven by grassroots activists, are increasing the minimum wage. On January 1, 2019, the minimum wage in 20 states and 24 communities went up, increasing pay for over 5 million workers. Over the course of the year, workers will earn over $5 billion more as a result. In eight states, the minimum wage is linked to inflation and is automatically adjusted each year. Alaska is one; there the minimum wage will go up, but by just $0.05 per hour, the smallest of the increases. [2]

The minimum wage increases were set by legislative action in six states and by local governing bodies in the communities where the wage increased. In New York City, for example, the minimum wage went up by $2.00 per hour.

In six states, increases in the minimum wage were the result of ballot measures that voters approved. Increasingly, as the federal government and some state governments (Arkansas and Missouri for example) are refusing to increase the minimum wage, grassroots activists are taking matters into their own hands and putting increases on the ballot.

The bad news is that in Michigan and the District of Columbia (D.C.) legislators blocked, reduced, and/or delayed increases in the minimum wage that had been put forth by voters! In D.C., city councilors overturned a law approved by 55% of voters that would have increased the minimum wage of tipped workers so that over time it would be the same as the minimum wage for other workers. [3]

In Michigan, the Republican legislature and Governor went out of their way to deny the will of the voters. Over 300,000 citizens had signed a petition to put a minimum wage increase on the November ballot, where its approval seemed certain. The ballot measure would have increased the minimum wage from $9.25 to $10 on January 1, 2019, to $12 by 2022, and then had it increase automatically based on inflation.

In September, the Michigan legislature and Governor, in an effort to circumvent the proposed minimum wage increase, adopted the language of the ballot initiative. This meant it would not appear on the ballot, thereby denying voters the opportunity to approve it. Then, the legislature voted for (and the Governor signed) a delay in the minimum wage increases with the increase to $12 delayed from 2022 to 2030! They also eliminated the automatic increases based on inflation. This would likely mean that minimum wage workers would see their real wages (after adjusting for inflation) decline over this period.

The good news is that the Michigan law that allows the legislature and Governor to intercept a ballot measure and prevent it from appearing on the ballot by approving it, states that the approved measure cannot be amended in the same legislative session. However, this is exactly what they did. Therefore, a lawsuit to the state’s Supreme Court is likely and would appear to have a good chance of succeeding. [4]

Given the almost 10 years since the federal minimum wage was increased and the 40 years of other policies that have left workers’ wages stagnant, raising the minimum wage at the state or local level is perhaps the most effective way to lift the incomes of our lowest-paid workers. Unfortunately, 21 states still rely on the federal minimum wage of $7.25.

The resistance of our elected officials to increasing the minimum wage reflects the extent to which many Republican and some Democratic elected representatives are more responsive to large employers and their wealthy executives and shareholders than to every day workers. The fact that every minimum wage increase that’s appeared on the ballot has been approved by voters shows the strength of support for a higher minimum wage among the voting public.

[1]      Ingraham, C., 12/27/18, “Here’s how much the federal minimum wage fell this year,” The Washington Post

[2]      Cooper, D., 12/28/18, “Over 5 million workers will have higher pay on January 1 thanks to state minimum wage increases,” Common Dreams (https://www.commondreams.org/views/2018/12/28/over-5-million-workers-will-have-higher-pay-january-1-thanks-state-minimum-wage) or Economic Policy Institute (https://www.epi.org/blog/over-5-million-workers-will-have-higher-pay-on-january-1-thanks-to-state-minimum-wage-increases/)

[3]      Cooper, D., 12/28/18, see above

[4]      Anzilotti, E., 12/6/18, “Michigan Republicans decide that people can live on $9.25 an hour for the next decade,” Fast Company (https://www.fastcompany.com/90277788/michigan-republicans-decide-that-people-can-live-on-925-an-hour-for-the-next-decade)

ELECTION AND ETHICS REFORM

With Democrats taking over control of the U.S. House in January, there’s a wide range of issues they might tackle. Even if many of the bills they propose, and hopefully pass, don’t become law (because they aren’t passed by the Senate or are vetoed by President Trump), they will frame the debate going forward and into the 2020 elections. Furthermore, policies can become law by attaching bills or provisions to must-pass bills such as those funding the government. This is a tactic that has been used for many, many years and has been used frequently by Republicans over the last 12 years. Talking about substantive issues will shift the discussion to ideas from personalities and to meaningful, long-term policies to address important problems rather than short-term, idiosyncratic, one-off deal making.

Two key topics will be the focus of the first bill in the new House in January. They were the first two topics on my previous post’s list of possible issues for House Democrats to address. They are:

  • Elections: stop voter suppression, encourage voting, stop gerrymandering, and reform campaign financing (e.g., limit contributions, provide matching public funds, and require full disclosure of spending and donors)
  • Ethics: address conflicts of interest for Congress and all federal workers; stop the undue influence of special interests obtained through lobbying, the revolving door, and campaign expenditures

Rep. Nancy Pelosi, the current leader of the House Democrats (and likely Speaker of the House come January), has stated that the first bill in the new House in January, known as H.R. 1, will address the restoration of democratic principles and procedures. It will address election and integrity issues where government of, by, and for the people has been undermined by wealthy individuals and corporations. The overall goal of the bill will be to end the ability of special interests to bend public policies to their benefit and against the interests of hard-working Americans and our democracy. This will restore Congress’s and the federal government’s abilities to enact policies that address the problems of average Americans. This is essential to renew the public’s faith in our democracy. [1]

Pelosi’s bill would do many of the things President Trump promised to do during his campaign when he stated he would “drain the swamp” in Washington, D.C. His actions and appointments have done nothing to drain the swamp and have probably made things worse.

This bill will address the huge amounts of money in our elections and the significant portion of that money that is “dark money” – money where the identity and interests of the true donor are hidden. The bill would require all organizations making donations to or expenditures on campaigns to disclose who their donors are. [2]

The proposed legislation would also take steps to increase the impact and number of small-dollar campaign donors. Incentives would be provided for individuals to make small campaign donations and the impact of those donations would be multiplied by matching them with public funds. Candidates who agree to accept these matching funds would have to limit the size of donations they accept and, perhaps, their overall spending.

The Pelosi bill would re-establish the Voting Rights Act’s protections of every citizen’s right to vote and would stop voter suppression. It would make it easier to vote through automatic and on-line voter registration while strengthening election infrastructure to prevent hacking and ensure accurate, auditable, tabulations of votes. To ensure that everyone’s vote has a fair chance of being meaningful, it would end gerrymandering, probably by requiring that an independent redistricting commission in each state draw congressional district boundaries.

The bill would strengthen ethics and conflict of interest laws governing Congress and federal government workers. It would ban members of Congress from serving on the boards of for-profit companies, which presents a clear conflict of interest. It would also enhance disclosure of who’s lobbying the federal government, so these efforts would be publicly known and not hidden in the shadows. And it would require Presidents to disclose their tax returns.

Pelosi’s bill would implement a code of ethics for Supreme Court Justices, who are currently exempt from the code of ethics that applies to other federal judges. [3]

It would close the revolving door of personnel between government positions and private sector jobs, which creates major conflicts of interest and is a major avenue for undue influence by special interests. It would prohibit employers from giving bonuses to reward employees for moving into public sector positions (as Wall St. has done repeatedly in the past). These individuals often go back to the same private sector employers later. The bonuses present the individuals with a significant conflict of interest from day one in their public sector job, particularly if the bonus is being paid out over time and, therefore, is being received when they are in their public sector role.

Tackling elections and ethics reform as a top priority makes sense for several reasons. First, these issues are very much on voters’ minds. Voters passed several ballot measures addressing them at the state and local levels in November, as was summarized in a previous blog post. Publicity about voting and ethical scandals in the Georgia election, as well as in Florida and North Carolina, have heightened the public’s awareness and concern about these issues. [4] In addition, candidates who refused corporate and PAC money fared very well in November. Noting incumbents’ acceptance of special interest money and linking it to specific votes was an effective tactic for beating them. [5]

Second, over the longer-term, addressing elections and ethics issues is critical to restoring democratic decision-making to government by ending the undue influence of wealthy individuals and corporations. This is essential to making progress on every other issue that would advance the public good. A fairer political process, where government is truly of, by, and for the people, is necessary to eliminate the system-rigging power of wealthy individuals and corporations. This will actually drain the Washington swamp. [6] Restoring faith in the fairness and integrity of our elections and policy making is a necessary first step toward restoring trust in our government.

If Democrats are willing to commit to a new code of conduct and to stand up for true democracy, they could reap the benefits of the current backlash against corrupt behavior by elected officials and the overall corruption of our political processes. There’s an opportunity to lead on re-establishing fairness and integrity in our politics. Some Democrats will resist this, fearing the loss of campaign donations and spending by wealthy individuals and corporations, but not doing so will risk losing a tremendous opportunity, both politically and for the good of our democracy.

I encourage you to communicate with your elected officials at the national and state levels about these issues. Nothing is more likely to persuade them than hearing from constituents who care about fair and ethical elections and behavior by government officials. I welcome your comments and feedback on steps you feel are needed to make our elections and policy making fairer and more responsive to regular Americans.

Thank you for your feedback on the list of topics in my previous post. In upcoming posts, I will delve into infrastructure investment and environmental policy issues since these were the two topics that were most frequently identified as priorities.

[1]      Pelosi, N., & Sarbanes, J., 11/25/18, “The Democratic majority’s first order of business: Restore democracy,” The Washington Post

[2]      Wertheimer, F., 10/10/18, “House Democratic challengers demand campaign-finance reforms,” The American Prospect (http://prospect.org/article/house-democratic-challengers-demand-campaign-finance-reforms)

[3]      Mascaro, L., 12/1/18, “House Democrats’ bill seeks reforms,” The Boston Globe from the Associated Press

[4]      Carney, E. N., 11/29/18, “Read it and weep: Georgia lawsuit paints stark portrait of voter suppression,” The American Prospect (http://prospect.org/article/read-it-and-weep-georgia-lawsuit-paints-stark-portrait-voter-suppression)

[5]      Lardner, J., 11/30/18, “What the Democrats must do first,” The American Prospect (http://prospect.org/article/what-democrats-must-do-first)

[6]      Lardner, J., 11/30/18, see above

WHY WE NEED A POLITICAL REVOLUTION

Bill Moyers – one of the most savvy and respected commentators on US politics and society over the last 40+ years – just published an interview with the author of a book Moyers describes as the best political book of the year. [1] The author is Ben Fountain and the book is Beautiful Country Burn Again.

Fountain, an acclaimed novelist, was hired by The Guardian (a respected British daily newspaper with a US edition) to cover the 2016 US presidential race. His reflections on and analysis of the current US political environment are poignant and very relevant to this fall’s election.

Fountain found that millions of Americans are experiencing significant confusion, frustration, and anger. Working and middle-class people are finding it harder and harder to make ends meet and, therefore, are feeling more and more beleaguered. Their financial and psychological security has been undermined by the shredding of the social contract of the 1950s – 1970s, which promised that if they worked hard and played by the rules, they would have a secure middle class life. They are working harder than ever but, nonetheless, are falling further behind in their efforts to have a decent life, provide for their children, and have a secure retirement. Meanwhile, they see the wealthy doing better and better, getting richer and richer.

Fountain states that this is “not a situation that can be sustained long-term in a genuine democracy.” (p. 3 of the interview transcript). The tremendous increase in the inequality in income and wealth over the last 40 years has led many Americans to have a “basic, pervasive sense that the system is not fair.” (p. 4) Given this legitimate sense of grievance among the millions living economically precarious lives, the declaration by candidate Trump, Senators Bernie Sanders and Elizabeth Warren, and others that “The system is rigged” resonated strongly.

These beleaguered, aggrieved Americans are resentful and looking for an explanation for why they are experiencing such hard times. This makes them vulnerable to false narratives and scapegoating from politicians. This resentment is exacerbated by the fact that for many white Americans their position of power and privilege has been (rightfully) challenged over the last 50 years. The uncomfortable truths of the racism of America have presented “a challenge to some people’s identity and sense of personal integrity.” (p. 4)

Trump was a master at playing on this resentment, vulnerability, and discomfort. He gave many white Americans “psychological, emotional affirmation as an antidote for all the anxiety, all the resentment they’d been feeling.” (p. 5) Despite the obvious contradictions of Trump’s wealth, New York background, and anti-worker business practices, he provided easy-to-digest explanations and solutions for beleaguered white, working people (especially men). Fountain describes this as the “classic con man dynamic” that shows “how easily we’re taken in when we’re hearing what we want to hear … [which has] more to do with emotion and raw attraction than anything that might be called rational thought.” (p. 7)

Fountain says that the gullibility of the American public is in part due to what he calls the “Fantasy Industrial Complex.” The public believes in the possibility of the fantasy lifestyle we see in the advertisements and commercial propaganda that bombard us day and night from our screens in movies, TV, celebrity news, and social media. The cumulative effect is that this “numbs us out and dumbs us down.” (p. 8) As a result, “it takes a supreme effort of will on the individual’s part to distinguish advertising and propaganda from facts,” (p. 8) lies from truth, and fantasy from reality.

Fountain states that both of our political parties have lost their way. Trump, with the help and acquiescence of many others, has taken the Republican Party’s “politics of paranoia and racism, cultural resentment, xenophobia, misogyny and all the rest” to new extremes. The Democrats, during the 1990s with leadership from the Clintons, maintained their commitment to civil rights and diversity, including based on sexual orientation, but abandoned their commitment to workers, the poor, and Main Street for financial support from Wall Street and the wealthy. They stopped making the case for the important roles of government in maintaining a safety net and regulating business and the economy. As a result, the economic security of working and middle-class people collapsed, while income and wealth inequality skyrocketed.

The political power of the wealthy has been super-charged by changes in laws governing the financing of our political campaigns. Unlimited amounts of money can now be spent on campaigns and the sources of much of it may be kept secret. Without wealth, everyday citizens are left speechless in our elections and, therefore, underrepresented in the halls of government. The big campaign spenders have unprecedented access to and influence on policy makers, resulting in policy outcomes they favor and that benefit them further.

Democracy is overwhelmed by the hyper-capitalism in the US today with its great concentrations of wealth and power, both in our economy and in our political system and government. This is the result of the deregulation of business and the economy over the last 40 years, which has been supported by both political parties. The big corporations and the capitalists will overreach if they are unregulated and unrestrained. The 2008 crash demonstrated this again, as the savings and loan crash of the 1980s had, along with the dot com bubble crash and the crash that led to the Great Depression. Today, the system is indeed rigged, and the result is plutocracy – where the wealthy elites rule.

The American identity, and the exceptionalism of the US that the right-wing asserts, are based on democracy and the foundational principles of equality and representative government that is responsive to all the people. This is not the America we have today. Citizens can’t be equal with corporate CEOs and wealthy investors if they can’t earn enough to support a family and don’t have time to devote to public civic and political responsibilities, often because they are working multiple jobs or long hours.

Fountain concludes that “corporate power and concentrations of wealth have such a hold over our economic system that for the country to wrest some of that power from them, it can’t be incremental. It will take a political revolution.” (p. 12) The New Deal, responding to the 1929 financial crash and the Great Depression, was, in fact, a bloodless political revolution. It saved capitalism from itself, building the regulatory infrastructure that we relied on with great success for 50 years. It also built the physical infrastructure of sewers and water mains, parks, libraries, public buildings, the power grid, and many of the roads and bridges that we rely on to this day. We take all this largely for granted today, forgetting about the trauma that triggered it and the public sector response that turned the country around and built the foundation for the future.

Fountain notes that the American commitment to and understanding of the importance of public civic, political, and physical infrastructure “has been stunted the last 40 years by a very aggressive sales program on behalf of free-market fundamentalism and hard-core capitalism.” (p. 13) The subtitle of his book, Democracy, Rebellion, and Revolution, highlights his belief that we need a political revolution to save our democracy – and to save capitalism from itself.

You can be part of the political revolution:

  • By being an informed voter in this fall’s election, and
  • By encouraging and helping everyone you know to also be an informed voter this fall.

As I’ve written about previously, voter participation in the US is dismally low and higher voter turnout will produce different election and policy results. This is how the political revolution must happen.

[1]      Moyers, B., 10/12/18, “The bold bravery of ‘Beautiful Country Burn Again’”, Common Dreams (https://www.commondreams.org/views/2018/10/12/bold-bravery-beautiful-country-burn-again)

CORPORATE PROFITS MORE IMPORTANT THAN BABIES’ SURVIVAL

The influence of large corporations on federal policy is nothing new, although the Trump administration seems to be even more unabashedly aligned with corporate interests than previous administrations. Meanwhile, the Trump administration’s callousness and inhumanity on issues having to do with families and children is clear, most notably in its policy of separating immigrant parents and children – despite the First Lady’s “Be Best” campaign that promotes good child outcomes.

Nonetheless, the Trump administration’s efforts to undermine a World Health Organization (WHO) resolution in support of breastfeeding shocked medical professionals, diplomats, and public health officials around the world. In case you haven’t heard, the US delegation to a WHO meeting in May attempted to block and then succeeded in somewhat watering down a resolution that called on governments to “protect, promote and support breastfeeding” and to put limits on misleading and dangerous marketing of breast-milk substitutes, such as infant formula, and other food products harmful to young children.

This effort by US officials promoted the interests of the $70 billion infant formula industry, despite decades of evidence of the benefits of breastfeeding over the use of infant formula. [1] Lobbyists for the industry were present at the meeting to support the Trump administration’s efforts. [2] The American Academy of Pediatrics recommends breastfeeding exclusively for a baby’s first 6 months whenever possible, as well as for the next 6 months or longer as other foods are appropriately introduced. [3]

Some of you may remember the boycott of Nestle in the 1970s when it was aggressively promoting infant formula in developing countries where clean water for preparing infant formula was often not available. Babies died because infant formula was contaminated with bad water and because mothers couldn’t afford to the continue with the formula but couldn’t breast-feed because they had stopped lactating. Abbott Laboratories, based in Chicago, is one of the biggest corporations in the infant formula industry, along with Nestle, which is based in Switzerland but has a significant presence in the US.

Breastfeeding is the cheapest, easiest, and safest form of nutrition for infants in most cases, especially for low-income mothers and where clean, safe water is not reliably available. A 2016 study found that universal breastfeeding would save 800,000 infants’ lives annually around the world, while saving $300 billion as well. Breast milk provides not only nutrition, but hormones and antibodies that protect babies from diseases. Breast-fed infants have significantly fewer respiratory tract, ear, and gastrointestinal infections. Breast-feeding is also associated with lower risks of sudden infant death syndrome, allergies, asthma, eczema, celiac disease, bowel disease, diabetes, obesity, and leukemia. Mothers who breast-feed have lower risks of breast and ovarian cancers, diabetes, arthritis, heart disease, and high blood pressure. [4]

As part of its efforts to block the breastfeeding resolution, the US delegation threatened to cut its funding for the World Health Organization. The US is the biggest funder of the WHO, providing about 15% of its budget or $845 million. The WHO is essential to public health globally and in the US, as it provides, for example, the first response to flu and Ebola epidemics wherever they occur. It also plays a leading role in addressing the rising death toll from diabetes and cardiovascular disease around the world.

Ecuador, the original sponsor of the breastfeeding resolution, withdrew its sponsorship after the US threatened it with trade sanctions and withdrawal of military assistance, which helps it deal with violence spilling over its border with Columbia. Health advocates scrambled to find another sponsor, but at least a dozen other countries refused citing fear of retaliation from the US. Russia finally agreed to sponsor the resolution, and apparently the US did not threaten it. [5]

Nonetheless, the US succeeded in weakening parts of the resolution. It insisted on adding the words “evidence-based” to references to long-standing practices that promote breastfeeding, despite public health experts pointing out that doing random assignment studies (where some children would be denied breast milk) to establish “evidence-based” outcomes would be ethically and morally unacceptable. The US unfortunately succeeded in getting language removed from the resolution that called on the WHO to support governments in their efforts to block the “inappropriate promotion of foods to infants and young children.”

In another part of the resolution, the US succeeded, unfortunately, in removing language that supported taxing sugar-laden soft drinks as a strategy for addressing soaring rates of obesity around the world. Fortunately, however, the US was unsuccessfully in its attempts to block a WHO program that helps poor countries obtain life-saving medicines at an affordable cost; opposition to this program comes, not surprisingly, from the pharmaceutical corporations.

It is appalling to me that the US government is making corporate profits a higher priority than the lives, health, and well-being of children and adults around the world, including in the US. These examples from the WHO meeting are some of the more dramatic and appalling ones, but there are plenty of other ones.

Corporate profits have been prioritized over the well-being of workers and the middle class in the US, in a variety of ways, for almost 40 years now. This is why US voters were so angry with the status quo in the federal government that in 2016 almost half of eligible voters did not vote in the presidential election and why almost half of those that did vote, voted for Trump. (He won in the Electoral College even though he lacked a majority of the actual votes.)

We need to change our policy priorities and put people first and regulate corporations so they serve the public good. The whole point of allowing the creation of corporations and other limited liability organizations was to more efficiently promote the public good and an economy where everyone could pursue life, liberty, and the pursuit of happiness. The purpose for corporations and the priorities of our public policies have gotten turned upside down. Particularly in the US., but elsewhere as well, the priorities of government and the role of corporations in our economy need to be returned to those of the late 1940s through the 1970s when income inequality was much lower and economic security was much higher.

[1]      Khazan, O., 7/10/18, “The epic battle between breast milk and infant-formula companies,” The Atlantic

[2]      Jacobs, A., 7/8/18, “U.S. opposition to breast-feeding resolution stuns world health officials,” The New York Times

[3]      Williams, E., 7/10/18, “Breastfeeding: The benefits,” The Boston Globe

[4]      Rabin, R. C., 7/9/18, “Trump stance on breast-feeding and formula criticized by medical experts,” The New York Times

[5]      Jacobs, A., 7/8/18, see above

CONSUMER FINANCE PROTECTIONS UNDER ATTACK

Many in Congress and the Trump administration are openly working to weaken the Consumer Financial Protection Bureau (CFPB). It was created as part of the Dodd-Frank Law, the major piece of legislation passed to reform the financial industry after the 2008 crash. The CFPB protects consumers from abusive and fraudulent practices of financial corporations, such as mortgage loans that consumers can’t afford (which were a major element of the 2008 crash and the foreclosures that destroyed many families’ savings), abusive and discriminatory practices on student and auto loans, usury by payday lenders, and deceptive marketing. The CFPB also reduces the risk of future financial industry crashes by stopping the marketing of financial products that can create financial bubbles and lead to high rates of loan defaults and bankruptcies. These can threaten the stability of financial corporations, as happened with mortgages in 2008.

The CFPB’s role is to protect consumers from unsafe financial products and practices in the same way that the Consumer Product Safety Commission protects consumers from unsafe physical products – from appliances to toys. The financial industry has opposed the CFPB from when it was first included in drafts of the Dodd-Frank legislation. The financial industry does not want to be held accountable. It wants to be able to make profits with no holds barred. It has been lobbying hard to have the CFPB emasculated.

Despite the valuable roles the CFPB can and has been playing, Congress and the Trump administration, at the urging of the financial industry, have been working to keep the CFPB from being an effective advocate for consumers by:

  • Blocking or repealing its consumer protection regulations
  • Stopping its enforcement actions
  • Weakening its independence and effectiveness

For example, in April Congress passed and the President signed a law repealing a Consumer Financial Protection Bureau (CFPB) regulation that prevented car dealers and corporations making car loans from discriminating based on race. The CFPB had fined several lenders and dealers millions of dollars for charging higher interest rates to Black and Hispanic borrowers, even when they had the same credit scores as White borrowers. Consumer advocacy groups note that this discriminatory behavior is pervasive and repeal of this regulation will allow it to continue. [1]

In October, a law was passed repealing a CFPB regulation that allowed consumers to band together in class action lawsuits against financial corporations and prohibited financial corporations from forcing consumers into arbitration. Many financial institutions include mandatory arbitration clauses in the agreements consumers sign when they open a bank account, take out a loan, or get a credit card. This legal language, buried in the fine print, requires the consumer to pursue any claim against the company only through arbitration and not through the courts or a class action lawsuit. The arbitration process is skewed in favor of the financial institution and a typical consumer doesn’t have the time and resources to pursue their claim on their own. [2]

Forced arbitration language initially protected Wells Fargo and Equifax by preventing large-scale consumer scandals from coming to light. Forcing consumers to pursue claims individually in arbitration hid Wells Fargo’s opening of and charging millions of customers for unauthorized accounts. Only after many months did the authorities and the public become aware of the scandal and its scale, and force Wells Fargo to compensate customers. The same pattern occurred with Wells Fargo’s requirement that auto loan borrowers buy insurance they didn’t need and with Equifax’s huge data breach.

To respond to these problems, the CFPB issued a regulation banning the use of mandatory arbitration clauses by financial corporations in individual consumer agreements. However, at the behest of the financial industry, Republicans in Congress pushed through a bill repealing the regulation; Vice President Pence cast the tie-breaking vote in the Senate.

Separate from Congressional action, Mick Mulvaney, the acting director of the CFPB appointed by President Trump in November 2017, has delayed regulation of payday lenders, who charge usurious interest rates and often trap customers into loans they can never repay, while the lender collects huge amounts of interest and fees.

Mulvaney has also stalled the CFPB’s investigation of the Equifax data breach, which allowed hackers to obtain the personal information, including Social Security numbers and birth dates, of 145 million people. Equifax’s breach was particularly egregious because it was preventable: Equifax did not install a software patch that had been available for months. Equifax failed to disclose the breach for months while people’s identities and accounts were at-risk. And Equifax executives sold $2 million of stock in the months between the breach and its becoming public knowledge. [3]

Not content to just attack the regulations and enforcement actions of the CFPB, Mulvaney, the Trump administration, and members of Congress (mainly Republicans) have worked to weaken the CFPB’s organizational effectiveness and independence. In June, Mulvaney fired the agency’s 25-member advisory board which included consumer advocates, experts, and industry executives. It had played, and was created to play, an influential role in advising CFPB’s leadership on regulations and policies. Two days before their firing, eleven of the 25 members held a press conference to criticize Mulvaney for canceling legally required meetings of the advisory board, ignoring them and their advice, and making unwise changes at the CFPB. [4]

Mulvaney has stripped enforcement powers from the CFPB unit pursuing discrimination cases. He has undermined the consumer complaint system. [5] He has asked Congress to weaken CFPB’s power and independence by giving Congress and the executive branch more control over its budget and regulations. [6]

The reasons we need a strong and independent Consumer Financial Protection Bureau are clear. Its enforcement actions have led to a $1 billion fine on Wells Fargo for a series of misdeeds in consumer banking, lending, compliance with regulations, and overall management, [7] [8] as well as to a $335 million settlement with Citigroup for overcharging 1.75 million credit card customers over eight years. [9]

Since its creation, the CFPB has protected consumers from financial corporations that violate the law. It has gotten compensation of over $12 billion for more than 31 million victimized consumers. In less than 8 years, it has responded to over 1.5 million consumer complaints and issued, for example, new standards that make home mortgage documents clearer and easier to understand. At CFPB’s website, you can find information that will help you understand your credit score and make a good decision about a car or student loan. (See my earlier post about the CFPB here for more information.)

I urge you to contact your U.S. Representative and Senators and to ask them to support the Consumer Financial Protection Bureau and the very valuable work it does. The efforts to weaken the CFPB and regulation of the big financial corporations are putting consumers at-risk and increasing the likelihood of another collapse of the financial sector and our economy. You can find your US Representative’s name and contact information here and your Senators’ information here.

[1]      Merle, R., 4/18/18, “The Senate just voted to kill a policy warning auto lenders about discrimination against minority borrowers,” Washington Post

[2]      Freking, K., 10/25/17, “Senate votes to end consumer credit rule,” The Boston Globe from the Associated Press

[3]      Rucker, P., 2/4/18, “Exclusive: U.S. consumer protection official puts Equifax probe on ice – sources,” Reuters (https://www.reuters.com/article/us-usa-equifax-cfpb/exclusive-u-s-consumer-protection-official-puts-equifax-probe-on-ice-sources-idUSKBN1FP0IZ)

[4]      Merle, R., 6/7/18, “Consumer bureau chief fires advisers,” The Boston Globe from the Washington Post

[5]      Singletary, M., 4/8/18, “Switching from watchdog to lapdog,” The Boston Globe

[6]      Merle, R., 4/3/18, “Trump-appointed head of consumer watchdog asks Congress to hamstring his agency,” Washington Post

[7]      Dreier, P., 2/7/18, “Wells Fargo gets what it deserves – and just in time,” The American Prospect (http://prospect.org/article/wells-fargo-gets-what-it-deserves-and-just-time)

[8]      Flitter, E., & Thrush, G., 4/20/18, “US to slap $1b fine on Wells Fargo,” The Boston Globe from the New York Times

[9]      Hamilton, J., 6/30/18, “Citigroup will repay $335 million to customers,” The Boston Globe from Bloomberg

THE DISMANTLING OF POST-CRASH FINANCIAL INDUSTRY REFORMS

Many in Congress and the Trump administration have either forgotten or don’t care about protecting us from the risky and corrupt behavior of Wall St. financial corporations that caused the 2008 economic collapse and Great Recession. They are repealing, weakening, or failing to implement the policies that were put in place to reduce the likelihood that such behavior and events would happen again. Keep in mind that those policies didn’t go far enough to prevent such as event from happening again – such as breaking up to too-big-too-fail financial corporations or separating risky financial trading activity from federally-insured consumer banking.

The Dodd-Frank Law was the major piece of legislation passed to reform the financial industry and reduce the likelihood of another meltdown. It included the creation of the Consumer Financial Protection Bureau (CFPB) to protect consumers from unsavory practices by financial corporations, such as the making of mortgage loans that were highly likely, if not certain, to be unaffordable for the home owners.

The financial industry has fought the implementation of these new safeguards; industry-friendly regulators have moved so slowly that some of the provisions of the Dodd-Frank Law are just finally getting implemented eight years later. For example, the simple requirement that corporations disclose the ratio of the pay of the corporation’s Chief Executive Officer (CEO) to that of the midpoint of workers’ pay is just now being implemented. Honeywell Corporation just reported that its CEO made 333 times what it’s median employee earns. And it didn’t include the pay of employees in developing countries, which undoubtedly would have increased the ratio. Most measures of the CEO-to-worker pay ratio have found CEO pay to be between 200 and 350 times the pay of the median worker. Fifty years ago, the ratio was roughly 20 and even Harvard Business School gurus felt at the time that this ratio should be a ceiling on CEO pay. [1]

Meanwhile, Congress and the Trump administration, at the urging of Wall St. lobbyists, have been dismantling the Dodd-Frank financial reforms, including:

  • Weakening regulations that reduce the risk of big financial corporations going bankrupt
  • Blocking or repealing consumer protection regulations from the Consumer Financial Protection Bureau (CFPB)
  • Stopping enforcement actions of the CFPB
  • Weakening the CFPB’s independence and effectiveness

Regulations that limit the risks from speculative financial transactions by big financial corporations are being weakened. Industry-friendly regulators plan to weaken the so-called Volcker Rule, thereby giving banks more flexibility to engage in financial trading activity that can be highly profitable but also vulnerable to big losses. Given that these banks also have consumer deposits that are federally insured, big losses could lead to the need for taxpayer bailouts (again). [2] Paul Volcker, the former head of the Federal Reserve banking and oversight system, had recommended this regulation to limit financial corporations from engaging in financial risk-taking when government-funded-insurance would end up covering any big losses. The six largest US financial corporations have spent millions of dollars lobbying for this change. (They are Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase, Morgan Stanley, and Wells Fargo.)

Federal regulators are also proposing to reduce that amount of a financial corporation’s own money that must be available to cover any losses from lending, trading, speculating, and other activities. Currently, financial corporations must have only 6 cents of their own money (reserves) for every dollar of potential financial liability. This would mean that if the corporation sustained losses of just 6% on the tens of trillions of dollars of loans, trades, speculative investments, etc. that it has, that it would be bankrupt and looking for a government (i.e., taxpayer) bailout.

In 2008, the reserve requirement was only 3 cents on every dollar and the big financial corporations had losses of twice that amount. Therefore, the government and taxpayers had to provide trillions of dollars to bail them out and prevent bankruptcies that would have caused a much more severe economic collapse.

Given the experiences of 2008, it seems foolish to be reducing the reserves that financial corporations must hold to cover losses. However, reducing reserves and increasing leverage (as it is referred to) allows the financial corporations to make more and bigger financial transactions, which, if all goes well, can increase their profits. However, it also increases the risk that a bailout will be needed. [3]

The financial corporations claim that a reduction in reserve requirements will allow them to make more loans to spur business growth and the economy. However, there is no evidence of unmet demand for loans and experience indicates that the financial corporations will actually use the reduction in reserves to pay more to shareholders and executives, buyback stock, and engage in speculation and non-banking activities.

Note that the big financial corporations are all reporting record profits even before any of these changes goes into effect. Banks, overall, reported $56 billion in profits during the first quarter of 2018, up 28% from a year earlier. [4]

In May, Congress passed, and the President signed, a law reducing the stringency of the oversight of banks, weakening the oversight that the Dodd-Frank Law put in place to reduce the risk of bankruptcies and government bailouts. The 26 banks with between $50 billion and $250 billion in assets (including American Express and Ally Financial) are now exempt from the strictest oversight. The 12 biggest banks will still be subject to the strictest oversight, although they can probably take advantage of some of the weakening of oversight in the law.

One result of the law is expected to be mergers of small and medium size banks because they can get bigger without triggering stricter oversight. The law also exempts “small” banks (under $10 billion in assets) from the Volcker Rule banning risky financial speculation and from reporting detailed data on borrowers that was targeted at preventing discrimination. [5]

I urge you to contact your U.S. Representative and Senators and to ask them to support strong regulation of the big financial corporations. Encourage them not only to oppose efforts to weaken the regulations and oversight put in place by the post-collapse Dodd-Frank Law, but to strengthen regulations and oversight to prevent, not just reduce the likelihood of, another financial industry collapse and crisis for the economy. The weakening of the regulations and oversight of the big financial corporations is increasing the likelihood of another financial sector collapse that would do serious damage to our economy and require a government, taxpayer-funded bailout.

You can find your US Representative’s name and contact information at: http://www.house.gov/representatives/find/. You can find your US Senators’ names and contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Meyerson, H., 2/22/18, The American Prospect blog (http://prospect.org/blog/on-tap?page=6)

[2]      Flitter, E., & Rappeport, A., 5/30/18, “Big banks to get a break from limits on risky trading,” The New York Times

[3]      Hoenig, T.M., & Bair, S.C., 4/26/18, “Relaxing bank capital requirements would risk another crisis,” Wall Street Journal

[4]      Thomhave, K., 5/25/18, “A Great Deal for Banks, Not So Much for American Jobs,” The American Prospect (http://prospect.org/blog/tapped/great-deal-banks-not-so-much-american-jobs)

[5]      Werner, E., 5/25/18, “Trump signs bill easing banking rules passed after crisis,” The Boston Globe from the Washington Post

THE EFFECTS OF THE FEDERAL TAX CUT

The initial effects of the federal tax cuts enacted in December 2017 by the Tax Cuts and Jobs Act (TCJA) are now visible; they are not what their Republican architects promised.

Although it’s too early to know definitively if the tax cuts will have an effect on the overall economy, growth in the first quarter of 2018 was steady but not noteworthy. There is no evidence of the tax-cut-fueled acceleration of economic growth the Republicans promised. [1] The latest projections, as well as experiences elsewhere, strongly suggest that the effects on economic growth will be small at best.

The effects of the tax cut on the deficit are becoming clearer. The latest projections from the non-partisan Congressional Budget Office (CBO) are that the federal government’s revenue will be reduced by $1.3 trillion over the next 10 years. When the costs of paying interest on the growing debt are included, the CBO projects that the cumulative deficit will increase by $1.9 trillion over the period from 2018 to 2028 due to the tax cuts, despite the Republicans’ promise of no increase in the deficit. [2] Furthermore, the growth in the deficit will be exacerbated by the spending bill that was enacted in early 2018, which increases spending by $300 million over the next two years.

The CBO projects the federal government’s deficit will be $804 billion for fiscal year 2018, up 21% from 2017. Furthermore, it projects the deficit will be over $1 trillion a year by 2020, despite President Trump’s campaign promise to eliminate the deficit. From 2021 to 2028, the CBO estimates the deficits will average 4.9% of Gross Domestic Product (GDP), the total of all economic activity in the U.S. This is higher than at any time since World War II, except during the Great Recession of 2008 – 2009 when tax revenue slumped with the collapsing economy and spending was high to bail out Wall St. and to stimulate the economy.

The growing deficit reflects the gap between what the Republicans who control the federal government want to spend and their unwillingness to enact the taxes necessary to pay for it. This is blatant fiscal irresponsibility. Moreover, growing deficits are of serious concern when the economy is doing well and unemployment is low. In this situation, many economists and responsible officials recommend reducing the deficit and even generating a surplus, as President Clinton did, so that the country has the capacity to weather the next economic downturn.

Analysis of the individual tax cuts finds that the wealthiest households will receive the biggest tax cuts, both in terms of dollars and percentage increase in after-tax income. Households with incomes under $25,000 will receive an average tax cut of $40. Meanwhile, those with incomes from $49,000 to $86,000 will receive an average tax cut of about $800, those with incomes of $308,000 to $733,000 will get about $11,200, and those with incomes over $733,000 will get a tax cut of about $33,000. [3]

As an example of the benefits of the corporate tax cuts, the six biggest, multi-national banking corporations (JPMorgan Chase, Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley, and Bank of America) together paid at least $3.6 billion less in taxes for the first quarter of 2018 than they would have without the 2017 tax cut law. Before the tax cut, these corporations had paid 28% to 31% of their income in taxes; for the first quarter of 2018 they paid between 17.2% and 23.7%. Their tax rate is estimated to be 20% – 22% for the full year, meaning they will receive a tax cut of $19 billion for this year. [4] By the way, the tax cut law also provides benefits, and therefore incentives, to corporations to move jobs and profits overseas to dodge U.S. income taxes. [5]

The Economic Policy Institute projects that roughly 80% of the benefits of the corporate tax cuts will be passed on to shareholders and executives, and not used to pay employees or re-invest in the business. Although some corporations gave small raises or bonuses to their workers – thanks to intense public visibility and pressure – a huge chunk of the tax cut has been used to buy back company stock.

In just the four months since the tax cuts were enacted in December, corporations have announced more than $250 billion in stock buybacks. This rewards stockholders and executives as it pushes up the price of the corporation’s stock. These buyback announcements are an acceleration from an already record-high, $5.1 trillion of buybacks over the previous decade. Virtually all the profits of the country’s 500 largest corporations from 2005 to 2015 went to share buybacks and dividends, and not to workers’ wages or investments that would increase productivity, both of which have stagnated. [6]

Stock buybacks give huge rewards to corporate executives because much of their compensation is paid in shares of stock. For example, the CEO of Wells Fargo bank got a $4.6 million raise for the year due to the increase in the corporation’s stock price from stock buybacks.

Stock buybacks were illegal until 1982, which is roughly (and probably not wholly coincidentally) the same time wages stopped rising for most Americans. Before then, a bigger share of corporate profits was used to increase workers’ wages and re-invest in the business, rather than for less economically productive stock buybacks. [7]

Some corporations have announced bonuses or pay increases for workers. However, so far these announcements have applied to only 4.1% of workers and roughly 80% of them are one-time bonuses not on-going pay increases, even though the corporations’ tax cuts are permanent and on-going. [8] In some cases, the workers have not received (and may never receive) actual increases in pay. For example, some corporations have made the pay increases the subject of negotiations with unions. Corporations have announced spending 42 times as much on stock buybacks as on increases in employees’ pay. [9]

To put all this in some perspective, it is estimated that the Koch brothers, extremely wealthy corporate executives, will see their incomes increase by about $27 million per week or $1.4 billion per year. Not coincidentally, they have pumped hundreds of millions of dollars into Republican election campaigns over the last four years. Meanwhile, the few workers lucky enough to get a pay increase are typically getting, at most, a one-time bonus of a few hundred or maybe a thousand dollars for the year. [10]

I encourage you to contact your U.S. Representative and Senators and to ask them to support the Reward Work Act. This bill would significantly limit stock buybacks, give employees of publicly traded corporations the power to elect one-third of the corporation’s Board of Directors, and force corporations to use their tax cuts to reward their workers, instead of executives and stockholders.

You can find your US Representative’s name and contact information at: http://www.house.gov/representatives/find/. You can find your US Senators’ names and contact information at: http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]      Horowitz, E., 4/28/18, “So far, tax cuts aren’t noticeably driving growth,” The Boston Globe

[2]      Stein, J., 4/9/18, “Deficit to top $1 trillion per year by 2020, CBO says,” The Washington Post

[3]      Sammartino, F., Stallworth, P., & Weiner, D., 3/28/18, “The effect of the Tax Cuts and Jobs Act individual income tax provisions across income groups and across the states,” Tax Policy Center (http://www.taxpolicycenter.org/publications/effect-tcja-individual-income-tax-provisions-across-income-groups-and-across-states/full)

[4]      Sweet, K., 4/20/18, “Big banks saved $3.6 billion in taxes last quarter under new law,” Associated Press

[5]      Thomhave, K., “Even the CBO says the GOP tax reform will incentivize corporate offshoring,” The American Prospect (http://prospect.org/article/even-cbo-says-gop-tax-reform-will-incentivize-corporate-offshoring)

[6]      Heath, T., 4/13/18, “America’s biggest companies are announcing buybacks. But whose cash is it, anyway?” The Washington Post

[7]      Reich, R., 3/21/18, “The buyback boondoggle is beggaring America,” The American Prospect (http://prospect.org/article/buyback-boondoggle-beggaring-america)

[8]      Madrid, M., 4/13/18, “Waiting — and waiting– for corporate tax cuts to deliver those wage hikes,” The American Prospect (http://prospect.org/article/waiting-and-waiting-corporate-tax-cuts-deliver-those-wage-hikes)

[9]      Americans for Tax Fairness, retrieved 4/28/18, “Trump tax cut truths,” (https://americansfortaxfairness.org/trumptaxcuttruths/)

[10]     Hoxie, J., 4/18/18, “Five tax myths debunked,” Institute for Policy Studies (http://otherwords.org/five-tax-myths-debunked/)

GUN VIOLENCE PREVENTION NOW!

In the wake of the latest gun violence tragedy, surviving students from the high school in Florida where the incident occurred have inspired the nation with their commitment to reduce gun violence in the US. Here are four things we can all do to work to achieve that goal:

  • Support the students from Marjory Stoneman Douglas High School in Parkland, FL, and others who join their movement to change laws in states and federally on access to guns, particularly semi-automatic weapons and magazines with dozens of bullets.
  • Support organizations that are fighting to reduce gun violence.
  • Know how to refute the arguments of the National Rifle Association (NRA) and others that are opposing efforts to reduce gun violence.
  • Know what meaningful policy changes should and need to be made to reduce gun violence.

If you’d like some inspiration to act, please watch this short video of the new anthem for gun control written and performed by Stoneman Douglas High School students in response to the shooting at their school: https://www.facebook.com/justicechoir/videos/1677544419005142/.

Ways to support these students and the movement they have inspired are evolving, but here are three actions you can participate in or support in other ways:

  • Women’s March Youth EMPOWER is calling for students, teachers, school administrators, parents, and allies to take part in a #NationalSchoolWalkout for 17 minutes at 10 am on Wednesday, March 14, to protest inaction on gun violence prevention. More information is at: https://www.actionnetwork.org/event_campaigns/enough-national-school-walkout
  • Students from Stoneman Douglas High School are calling for people to join them on Saturday, March 24, in Washington, DC, and cities across the country for the March for Our Lives to demand legislation to stop gun violence. More information is at: https://www.marchforourlives.com/
  • Public rallies will be held nationwide on Friday, April 20, as part of a National Day of Action to Prevent Gun Violence in Schools. More information is at: https://networkforpubliceducation.org/national-day-action/

There are a number of organizations that you can join or support with contributions or volunteer activities that are on the front lines in working to prevent gun violence. Here are three major ones:

The NRA and others who oppose meaningful steps to reduce gun violence have crafted their arguments and media strategy over many years. Here are some responses to their arguments:

  • No civilian needs to have or should be allowed to have a semi-automatic weapon or a magazine with more than 6 bullets. Semi-automatic weapons are military weapons that are designed to kill human beings and to kill as many as possible as quickly as possible. There is absolutely no need for anyone other than law enforcement and military personnel to have one.
  • Some people will kill other people. But guns mean those people will kill many more people. And semi-automatic weapons and magazines that hold dozens of bullets mean they can kill LOTS of people very quickly.
  • Mental illness is NOT the issue; guns are. Every country has individuals with mental illness, but no other country has anywhere near the level of gun violence that we have in the US because no other country allows the level of civilian gun ownership that the US does. The great majority of people who experience mental illness – and there are many who experience some mental illness at some point in their lives – are not violent. Moreover, a violent person without a gun can do very limited harm. (See the bullet above.) By the way, the Republicans in Congress and President Trump in the budget he presented just days ago significantly cut federal spending to address mental illness. Furthermore, by reducing access to health care by cutting Medicaid and the Affordable Care Act, fewer people will have access to mental health services.
  • The Second Amendment to the US Constitution states: “a well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.” Beginning in the 1970s, the gun manufacturers, along with the NRA, undertook an extensive campaign to get activist judges to interpret the Second Amendment as giving civilian individuals the “right” to possess guns. The goal was to allow the gun industry to sell more guns and ammunition and, therefore, to make much bigger profits. Keep in mind that at the time the amendment was written, the arms referred to were muzzle loading weapons that took many seconds to reload, not weapons that fired multiple bullets per second. This individual “right” to have a gun represented a major change in interpretation of the Second Amendment, which for the first 200 years of this country’s existence was understood to apply only to arms for military purposes. Furthermore, until this re-interpretation, the power of state and local governments to regulate gun ownership had NOT been viewed as limited whatsoever by the Second Amendment. [1] The efforts to change the interpretation of the Second Amendment were so successful that by 1991 retired US Supreme Court Chief Justice Warren Burger stated that the Second Amendment “has been the subject of one of the greatest pieces of fraud, I repeat the word ‘fraud,’ on the American public by special interest groups that I have ever seen in my lifetime.”
  • Every serious piece of research on the presence of a gun in a home or elsewhere has found that the presence of a gun increases the chance of death or injury from gun usage. Having a gun does not make you safer, it makes it more likely that you, a family member, or someone else will be injured or killed by gun violence, accidental or intentional. (Some statistics on this are in my earlier blog post here.) (In response to this research, the gun industry and the NRA got a federal law passed that effectively bans federal agencies from doing or funding research on gun violence.)

I urge you to support the emerging movement to reduce gun violence through common-sense guns laws. Please participate in or provide financial or other support to one (or more) of the events and organizations listed above. In my next post, I’ll list some of the common-sense policies that should be enacted and would reduce gun violence.

[1]      Stevens, J.P., 4/11/14, “The five extra words that can fix the Second Amendment,” The Washington Post (The author, John Paul Stevens, was a judge on the US Supreme Court from 1975 to 2010.)

 

CORPORATE MEDIA THREATEN OUR DEMOCRACY Part 2

Senator Bernie Sanders’ book, Our Revolution: A Future to Believe In  [1] includes a chapter titled, Corporate Media and the Threat to Our Democracy. I summarized its information on the six huge media corporations that control 90% of what we see, hear, and read in my previous post.

Senator Sanders experienced firsthand the control and power the six huge media corporations have when he ran for President. Certainly initially, and probably throughout the whole campaign, his candidacy received less coverage than other candidates. Perhaps this was because many of the issues he raised and discussed were ones that made corporate executives uncomfortable. Senator Sanders summarized his experience as follows: “as a general rule of thumb, the more important an issue is to large numbers of working people, the less interesting it is to the corporate media. … Further, issues being pushed by the top 1 percent get a lot of attention.” (page 421)

As an example, Sanders cites the coverage of the assertion that Social Security’s benefits needed to be cut because, supposedly, money to pay them would soon run out. The financial challenges facing Social Security were exaggerated and solutions other than cutting benefits were largely ignored by the corporate media. Sanders and others organized a broad coalition in opposition to Social Security cuts that included AARP and virtually every other seniors’ organization in the country, the American Legion and every major veterans’ group, the AFL-CIO representing 13 million workers, the largest organizations in the country representing people with disabilities, the National Organization of Women (NOW), and others.

A press conference opposing cuts to Social Security benefits was held by this broad coalition, which represented tens of millions of Americans, along with U.S. Senators and Representatives. It received almost no coverage from the corporate media. Similarly, throughout the presidential campaign, many issues that Sanders raised got little to no coverage from the big media corporations, including economic inequality, poverty, Native American issues, the housing crisis, climate change, fracking, and a single-payer health care system. On the other hand, the topics of how much money each candidate had raised, when Sanders was going to formally announce his candidacy, and when he was going to drop out and endorse Clinton received lots of attention from the corporate media.

The corporate media view politics and elections as entertainment and a way to capture attention (and therefore revenue). They do not take responsibility for helping to build an informed American electorate. They are large corporations whose goal is to make as much money as they can for their shareholders and executives.

These media corporations rely on billions of dollars in advertising from the pharmaceutical, auto, financial, health insurance, and fossil fuel industries (among others). This advertising revenue presents conflicts of interest for the media corporations’ executives’ decisions on the reporting of news. Viewers and readers would be naïve to think that news coverage – or lack of coverage – is not influenced by the interests of large advertisers.

The media corporations have a perspective on what is important and worthy of coverage, and what is not. Few of the journalists who work for them cross the boundaries of the corporate perspective. As Senator Sanders writes:

“Over the course of my political life [roughly 45 years] I cannot recall a mainstream journalist coming up to me and asking what I was going to do to end the scourge of poverty in this country, or how I was going to combat the disgraceful level of income and wealth inequality, or what role I would play in ending the influence of big money in politics. Those, and many similar issues, are just not what the corporate media considers important. And my strong guess is that if by mistake, or in some state of confusion, a reporter for the corporate media started asking those types of questions, he or she would not last long with the company.” (page 436)

Concentrated, corporate ownership of the media limits the points of view and the information Americans receive. It limits cross-cultural and cross-class awareness and knowledge. It tends to break us into factions rather than building community in our diverse country. This is not good for democracy.

Furthermore, mergers are in various stages of consideration that could reduce the six corporate media giants to only three. Therefore, media concentration is likely to increase further in the near future, unless we and regulatory government agencies take a stand against it.

Meanwhile, the Federal Communications Commission (FCC) has eliminated net neutrality, which gives more market place power to the big media corporations through their control of Internet access.

I encourage you to take action to stop mergers among the giant media corporations and to work to ensure net neutrality. If you want more information about these issues, including how you can take action on them, go to freepress.net. There, you can join with hundreds of thousands of other engaged Americans to fight to save the free and open internet, curb runaway media consolidation, protect press freedom, and ensure diverse voices are represented in our media.

You can also review my earlier post, Our failing mainstream media, that encourages the support of not-for-profit, public or consumer-funded media as a better model for a democracy than the current giant, for-profit, advertising-funded corporations. It identifies six broadcast, on-line, and print media outlets you can patronize and support as good sources of information and good alternatives to the corporate media.

[1]      Sanders, B., 2016, Our Revolution: A Future to Believe In. St. Martin’s Press, NY, NY.

CORPORATE MEDIA THREATEN OUR DEMOCRACY Part 1

I’ve just finished reading Senator Bernie Sanders’ book, Our Revolution: A Future to Believe In. [1] The first part (6 chapters) is about the campaign and is interesting if you’re a political junkie.

The second part (10 chapters) is the policy platform that was the basis for his run for the presidency. It includes chapters on health care, education, climate change, criminal justice, immigration, the middle class, an economy that works for everyone, and reclaiming our democracy. These chapters are interesting if you’re interested in any of these issues or in knowing how we can get back to a society that is fair and just and provides equal opportunity for all.

The chapter that had the biggest effect on me was the one titled, Corporate Media and the Threat to Our Democracy. This chapter identifies the six huge corporations that control 90% of what we see, hear, and read. Combined, they have over $275 billion in revenues and are controlled by 15 billionaires. (In 1983, 50 corporations controlled 90% of our media and that was a high level of concentration.) Today’s 6 media corporations, and some key information about them, are:

  • Comcast (Revenue: $56 billion in 2011) It owns NBC, Telemundo, USA Network, New England Cable News, and a portion of A&E, the History Channel, Lifetime, PBS KIDS Sprout, and Hulu, as well as much, much more. It wants to merge with Time Warner (see below).
  • Disney (Revenue: $40 billion in 2011) It owns ABC; ESPN; Marvel; 277 radio stations; music and book publishers; Touchstone, Miramax, and Pixar production companies; and majority stakes in A&E, the History Channel, and Lifetime; as well as much, much more.
  • News Corp (Revenue: $33 billion in 2011) It owns Fox, National Geographic, Dow Jones (which includes The Wall Street Journal, Barron’s, and Smart Money), the New York Post, TV Guide, the book publisher HarperCollins, Blue Sky Studios, and a portion of ESPN and Hulu, as well as much, much more.
  • Time Warner (Revenue: $29 billion in 2011) It owns CNN, HBO, TMZ, TBS, TNT, Cartoon Network, 22 magazines (including Time, People, Sports Illustrated, Life, Entertainment Weekly, Fortune, etc.), and much, much more. It wants to merge with Comcast (see above).
  • Viacom (Revenue $15 billion) It owns MTV, Nickelodeon, Comedy Central, Spike TV, BET, Paramount Pictures, and over 160 cable networks that reach over 600 million people, as well as much, much more.
  • CBS (Revenue $14 billion) It owns Showtime; Smithsonian; Simon & Schuster, Scribner, and Free Press book publishing; 130 radio stations; and much, much more.

Currently, Comcast and Time Warner, two of these corporate media giants, are proposing to merge, while two others, Disney and News Corp, are discussing a possible merger, and some shareholders are pressing the final two, CBS and Viacom, to merge. Therefore, media concentration is likely to increase further in the near future, unless we and regulatory government agencies take a stand against it.

These media giants play a huge role in shaping public consciousness and knowledge, and, therefore, affect political beliefs, the public’s understanding (or lack thereof) of policy issues, and election outcomes. Note that there are multiple joint ventures among these media giants, which further limit the variety of content available and provide opportunities for collusion.

Realistically, freedom of the press is accessible only to those who own a press, a radio or TV station, or a cable network, or who produce content distributed by these media outlets. Concentrated ownership of our news media means that a very few human beings, who have significant conflicts of interest (e.g., with advertising revenue), make the decisions about what news is presented and how. More importantly, they make decisions about what is NOT covered or reported.

In my next post, I’ll share some examples that Sanders gives of what’s covered and not covered by the corporate media and why. I’ll also identify some opportunities for action on the power of the giant media corporations and their threat to our democracy.

[1]      Sanders, B., 2016, Our Revolution: A Future to Believe In. St. Martin’s Press, NY, NY.

THE GREED OF THE PHARMACEUTICAL INDUSTRY Part 2

The pharmaceutical industry can engage in the unethical and sometimes illegal practices that I’ve highlighted in previous posts [1] because they have:

  • Monopolistic power in the market place due to limited competition,
  • An absence of government regulation, and
  • Political power to block or weaken regulation and oversight due to campaign spending, lobbying, and the revolving door of personnel moving between these corporations and government regulatory positions.

The result is that the greed of the executives of these corporations is unconstrained by market place competition, government regulations, their ethics, or, in some cases, even legality. The examples presented in my previous posts have not been isolated incidents or past bad behavior that has been rectified. This behavior by the pharmaceutical corporations is an on-going pattern.

A 2010 study found that the U.S. prices of prescription drugs were, on average, double what those same drugs cost in Canada, Australia, and the United Kingdom. And things have only gotten worse since then. As a result, one out of five Americans was unable to afford medicines prescribed by their doctors, while the five largest drug corporations had profits of a combined $50 billion in 2015. As Bernie Sanders wrote, “people go to the doctor because they are sick, they get a diagnosis from their doctor, but they can’t afford the treatment. Then they get sicker. Does this make any sense to anyone?” [2]

As part of their price gouging strategies, drug companies will go to great lengths to block competition. For example, Allergan corporation has transferred six drug patents to the St. Regis Mohawk Indian tribe. Because the tribe is a sovereign entity, it is immune from a type of challenge to drug patents that low-cost generic drug makers sometimes use to get the right to produce a generic version of a drug. It is expected that this will become a popular strategy to delay the availability of cheaper, generic versions of drugs, unless Congress intervenes and changes the law. Allergan will pay the tribe only $15 million a year under the deal for the right to continue to sell the drugs, which had $1.4 billion in sales last year.

For a different drug, Allergan tried to avoid competition from a generic version by pulling the drug from the market and forcing patients to buy a new, more expensive version. This move was blocked by a federal appeals court. By the way, Allergan has also moved its headquarters to Ireland to avoid U.S. taxes. [3]

There is no reason to believe that the behavior of pharmaceutical corporations is going to change on its own. Clearly, the free market and competition are not going to stop it. Public outrage, negative publicity, and criticism from elected officials may blunt the worst of the behavior, but it will not stop it.

The behavior of the pharmaceutical industry (which is evident in other industries like the financial industry as well) is not the way the economy should work in a democracy. This behavior is that of a corporatocracy, where large corporations are in control of both our (supposedly free) market place and our (supposedly democratic) government.

Only strong legislation from Congress and strong leadership from regulatory agencies in the executive branch of government will stop these harmful and greedy business practices of the pharmaceutical corporations (and other large corporations). The opioid crisis and the fueling of it by illegal and irresponsible marketing of narcotic prescription drugs has made this absolutely clear.

I urge you to contact your U.S. Representative and Senators and ask them to:

  • Support strong legislation to regulate the pharmaceutical industry,
  • Only confirm executive branch appointees (include the Secretary of Health and Human Services) who have a clear track record of supporting strong regulation of the drug corporations, including their drug pricing and marketing of narcotics, and
  • Pass legislation that not only allows, but requires, Medicare and insurance companies participating in the Affordable Care Act to negotiate drug prices with suppliers to receive the best price based on what other countries pay. A good place to start would be to ask them if they support the Medicare Drug Price Negotiation Act of 2017, which would allow the government to negotiate directly with drug companies to lower drug prices for Medicare beneficiaries, much like the Veterans Health Administration and Medicaid do today.

As we approach the Congressional and state level elections of 2018, I encourage you to scrutinize and ask about candidates’ positions on these issues. Then we can elect candidates who support strong regulation of drug corporations, who will take meaningful steps to control drug prices, and who will seriously tackle the opioid crisis and the pharmaceutical industry practices that have led to it.

 

[1]      You can go to any of the blog posts on my site and click on the categories in the right hand column to find other posts on corporate behavior or corporate power and influence to read more about unethical and illegal practices by large corporations.

[2]      Sanders, B., 2016, “Our revolution: A future to believe in,” St. Martin’s Press, NY, NY. Page 327.

[3]      Silverman, E., 9/19/17, “This CEO’s latest move is raiding eyebrows,” The Boston Globe

THE GREED OF THE PHARMACEUTICAL INDUSTRY Part 1

The unconstrained greed of pharmaceutical corporations is abundantly clear on multiple fronts:

  • Huge price increases on existing drugs with no reasonable justification (See my previous posts on this here and here.)
  • Inhibiting competition however possible (See my previous posts that include this topic here and here.)
  • Blocking regulation and oversight (See my previous post here.)
  • Selling and distributing narcotics that are clearly being diverted to the black market (See my previous posts on this here, here, and here.)

Despite Trump’s campaign rhetoric about bringing down the cost of drugs, his administration has not taken any significant steps to make drugs more affordable. Roughly 45 million Americans don’t buy drugs that are prescribed for them because they can’t afford them.

President Trump has nominated Alex Azar to be Secretary of Health and Human Services. Azar was the CEO of the drug corporation Eli Lilly when it increased the price of an insulin product from $74 to $269. In Sweden, the same medicine is sold for the (still profitable) price of $18.38. Insulin is the life-saving drug needed by the 30 million Americans with diabetes. [1]

The production of insulin is effectively controlled by a cartel of three drug corporations, Eli Lilly, Novo Nordisk, and Sanofi, that produce more than 90% of the insulin products in the world. Because of the inflated prices in the U.S., the typical American with Type 1 diabetes spends about $571 each month on insulin. Many can’t afford the full amount they need, so they risk serious health consequences by stretching their supply and under-medicating their diabetes. Some die as a result. Worldwide, the leading cause of death for a child with Type 1 diabetes is lack of insulin.

The pharmaceutical corporations’ typical response to criticism of drug price increases is that they need the increases to pay for research and development (R&D). However, this is simply not true. [2] Insulin, for example, was developed at a publicly funded lab at the University of Toronto in 1921. Eli Lilly was a small company when it signed an agreement with the University for the right to sell insulin in 1922. Clearly, greed, not R&D costs, is fueling the insulin price increases.

Today, the U.S. National Institute of Health (NIH) annually spends $34 billion to fund university research. When researchers develop new drugs, corporate drug manufacturers typically purchase the rights to them, tweak them, patent them, and then market them to maximize their profits. The U.S. needs to legislate a new, public health-focused drug licensing system that prioritizes access and affordability, along with innovation, instead of profit.

Another example of price gouging by drug corporations comes from the response to the opioid crisis and the increased demand for the drug naloxone, the antidote for a narcotic overdose. With over 60,000 Americans dying of drug overdoses each year, emergency responders, not-for-profit human service organizations, and family members want to have naloxone readily available to save lives. However, the drug manufacturers have responded by jacking up the prices of naloxone and its various delivery systems. Kaleo corporation has raised the price of its easy-to-use, naloxone auto-injector from $690 in 2014 to $4,500 in 2016. Amphastar Pharmaceuticals has raised its wholesale price for naloxone from $20 to $40. Adapt Pharma’s new Narcan nasal spray came on the market in 2015 at $150. These prices and the opioid crisis have increased the drug corporations’ revenue from sales of naloxone from $12 million in 2011 to $274 million in 2016. Economics, specifically economies of scale, would suggest that the price should be going down with increased demand, not up.

As prices for naloxone have risen, first responders and community-based non-profits who provide services to people with drug problems, who are on the front-lines of the opioid crisis, are finding that their tight budgets do not allow them to have the number of naloxone doses they’d like to have. [3] Naloxone has been available since 1985, although new delivery vehicles, such as a nasal spray, have been developed recently. Public funding through the NIH has contributed to the development of and conducting of clinical trials for some of these products. Only five corporations make naloxone and they have been working to block competitors. One of them is Mylan Pharmaceuticals, infamous for its price gouging with its EpiPen product.

Some drug companies are simply investors, buying the rights to drugs, often life-saving ones, that they believe can deliver big profits, usually through dramatic price increases. A recent example is NextSource, a start-up with no research and development costs. In 2013, it bought the rights to a cancer treatment drug with low demand and therefore a single producer. It was priced at $50 per dose. In three years, NextSource has raised the price to $768 per dose.

Soaring cancer drug costs are driving the cost of treatment well over $100,000 a year in many cases. As a result, some patients delay treatment to figure out how they can get the treatments paid for. A study earlier this year found that 24 cancer drugs had, on average, quadrupled in price over the last 8 years. [4]

In an interesting example of how our corporate media sometimes cover increasing drug prices – putting a positive spin on outrageous corporate behavior – The Boston Globe recently had a big headline on the front page of its Business Section that read “Price hikes on top-selling drugs were a lot smaller this year.” The article began with “Average annual price increases have declined at least four years in a row for 20 of America’s top-selling brand-name prescription drugs.” Nowhere in the article does it mention that the 6.9% increase over the last year is three times the rate of inflation or that over the last 5 years the cost of these drugs is up 66%. On a subsequent page the article does note that “these drugs have increased by an average of 213 percent since their launch, well out-pacing inflation.” It also notes that many of these drugs are very expensive with seven having an average, annual cost per patient of between $59,000 and $92,000. [5]

In my next post, I’ll discuss why the pharmaceutical corporations can get away with this price gouging and what we can do about it.

[1]      Zaitchik, A., 11/28/17, “Beyond the planet of the pharma bros,” The American Prospect (http://prospect.org/article/beyond-planet-pharma-bros)

[2]      Kesselheim, A.S., Avorn, J., & Sarparwari, A., 8/23/16, “The high cost of prescription drugs in the United States: Origins and prospects for reform,” The Journal of the American Medical Association

[3]      Denvir, D., 12/15/17, “These pharmaceutical companies are making a killing off the opioid crisis,” The Nation (https://www.thenation.com/article/these-pharmaceutical-companies-are-making-a-killing-off-the-opioid-crisis/)

[4]      Berr, J., 12/26/17, “Price of 40-year-old cancer drug hiked 1,400% by new owners,” CBS News, MoneyWatch (https://www.cbsnews.com/news/cancer-drug-lomustine-price-hiked-1400-percent-by-new-owners/)

[5]      Robbins, R., 12/29/17, “Price hikes on top-selling drugs were a lot smaller this year,” The Boston Globe

U.S. FAILS TO PROSECUTE PRESCRIPTION OPIOID DISTRIBUTOR

After years of work by U.S. Drug Enforcement Agency (DEA) investigators building a case against a major drug distributor for fraudulently shipping millions of prescription opioid pills, high-ranking lawyers at the DEA and the US Department of Justice (DOJ) recently decided to settle the case and not pursue criminal charges. Instead, the lawyers settled for a $150 million fine (from a corporation with roughly $200 billion per year in revenue) and a temporary suspension of shipments of narcotics from four of its 30 distribution centers. The lenient settlement was agreed to despite the corporation having promised in a 2008 settlement to be diligent in preventing fraudulent shipments of controlled substances. However, rather than improving its oversight of narcotics shipments, its fraudulent shipments increased. [1]

The DEA team had compelling evidence that McKesson Corporation, the fifth largest public company in the U.S., had fulfilled and failed to report suspicious orders for millions of highly addictive painkillers from pharmacies, including Internet pharmacies. The nationwide DEA team, working with U.S. attorney’s offices in 11 states, wanted to fine the corporation over $1 billion and pursue criminal charges against the corporation and perhaps some of its executives. A senior DEA official stated that the corporation could have been put out of business through an indictment or a very large fine.

But when the team turned over the evidence to top lawyers at DEA and DOJ, the lawyers negotiated a settlement with the corporation and never even discussed possible criminal charges. They even allowed McKesson to keep its $31 billion federal government contract to supply drugs to the Veterans’ Administration, federal prisons, and the Indian Health Service.

Meanwhile, a pharmacy owner in a small town in Colorado that McKesson supplied was found guilty of drug trafficking and was sentenced to 15 years in prison. From 2008 (when McKesson had settled the first set of charges) to 2011, McKesson’s shipments of oxycodone (the narcotic drug that is OxyContin) to this small-town pharmacy had increased 15-fold.

The DEA team had convincing evidence that McKesson’s activities had fueled the nationwide opioid drug crisis. The $150 million fine was a slap on the wrist for a $200 billion corporation that paid its top executive $100 million last year, has 76,000 employees, and makes $100 million a week in profits. The DEA team felt insulted, undermined, and was demoralized.

This is another example of a powerful corporation, as well as its senior executives, getting off with a slap on the wrist for significant criminal activity that harmed hundreds of thousands of Americans. Purdue Pharma, the major player in the prescription opioid drug scandal, also has (so far) gotten off with a slap or two on the wrist, despite the deaths of over 200,000 Americans. (See my previous posts on Purdue Pharma here and here.) The Wall St. financial corporations and their executives have also gotten off with slaps on the wrist despite a long trail of criminal activity across many years and many business lines.

One must ask why this is happening today when in the late 1980s, during the savings and loan (S&L) bank scandal, 750 S&Ls were forced into bankruptcy and out-of-business and over 1,000 of their executives went to jail.

Since the 1980s, corporations have grown in size and power, while government regulation and oversight have been weakened. As corporations have grown, they have gained power in the economy and in the halls of government. In the economy, their size has led to monopolistic power, a lack of competition, and, therefore, the power to control prices and make huge profits.

In the halls of government, the deregulation of campaign financing now allows wealthy corporations and individuals (often business executives) to spend hundreds of millions of dollars on candidates’ campaigns for legislative, executive, and judicial branch offices. As a result, elected officials – legislators, governors, presidents, and judges – are indebted to wealthy donors. These wealthy special interests further influence government decision making by spending millions of dollars on lobbying and by having individuals move back and forth between government roles and private sector jobs, in what is referred to as the revolving door. An example of this is that one of McKesson’s lawyers negotiating the settlement with the DEA and DOJ was a former top DEA official.

Therefore, government decisions tend to favor the interests of wealthy corporations and individuals. Examples include the lack of meaningful punishment for serious wrong doing, favorable tax policies, a failure to protect the public from rip offs in the market place, and weak regulation of the safety of consumer products and our air and water.

In this environment of market place power and weak regulation, the greed of large corporations and their executives is unconstrained and ethics, morality, and often legality get pushed aside. The public interest is overwhelmed by the power of wealthy special interests. This power imbalance is exacerbated by the growing inequality of income and wealth.

We need to elect officials who will represent the public interest and not wealthy corporations and individuals. We also need to let our elected officials know that we are watching and that we know when they are doing the bidding of the wealthy interests, such as in the recent tax bill. And we need to hold them accountable by being informed and voting. That alone could create dramatic change in our country if more people did so.

Only 53% of eligible voters voted in the last presidential election. Many of them were understandably voting against the tilt in favor of the wealthy in Washington. However, they were hoodwinked by the promises of a con man who, now that he is in office, is tilting the scales even further in favor of the wealthy.

Hopefully, this election woke people up to the fact that democracy is NOT a spectator sport. We need a broad, informed, and engaged electorate for our democracy to deliver on its promise of government of, by, and for the people.

[1]      Bernstein, L., & Higham, S., 12/17/17, “‘We feel like our system was hijacked’: DEA agents say a huge opioid case ended in a whimper,” The Washington Post

PURDUE PHARMA AND OXYCONTIN CAUSED THE OPIOID EPIDEMIC Part 1

Purdue Pharma, a privately-owned corporation, and its narcotic pain-killer, OxyContin, caused the current opioid epidemic. The mainstream media have not provided much coverage of Purdue Pharma’s role in their reporting on the opioid epidemic, which is perhaps the worst health epidemic in US history. The most detailed coverage of the role of Purdue and OxyContin that I am aware of is the article that appeared in the October 30th issue of The New Yorker, “The family that built an empire of pain”. [1] This blog post is largely a summary of that article.

This story is a familiar, but particularly deadly one, of greed, the power of wealthy corporate executives, and the willingness of members of Congress and government to do the bidding of powerful, wealthy interests. Many facets of the story mirror that of the tobacco industry, such as denial of known deadly effects. However, the connection between OxyContin and death is much quicker and clearer.

Purdue Pharma developed OxyContin in 1995. It is oxycodone, a chemical cousin of heroin and twice as powerful a pain-killer as morphine. Purdue’s innovation was a time release formula that allowed a large dose of oxycodone to be taken all at once and whose effect would last for 12 hours (supposedly). This meant that a pill had to be taken only twice a day and that its effect would last through the night, so the patient could get a full night’s sleep. Other narcotic pain-killers come in pills with much smaller doses and must be taken more frequently.

Potent, narcotic pain-killers like OxyContin were, at the time, only used to treat the acute pain of cancer and end-of-life situations. However, Purdue’s marketing worked to broaden the use of OxyContin to less acute pain. It targeted both the public and prescribing doctors. It included hiring doctors, researchers, and other experts to downplay the risks of OxyContin and argue that pain was being under-treated.

Using this strategy, Purdue engaged in one of the most extensive marketing campaigns in the history of the drug industry. It built a salesforce of over 1,000 people who were strongly incentivized through commissions and bonuses to sell lots of OxyContin. Some salespeople made over $100,000 in commissions and in 2001 Purdue paid out over $40 million in bonuses. Within 5 years of its introduction, sales of OxyContin hit $1 billion.

Today, roughly 250 million opioid pain-killer prescriptions are being written each year. In Ohio, a state hard hit by the opioid epidemic, 2.3 million people, about 1 out of every 5 people in the state, received a prescription for an opioid in 2016.

It is estimated that 2.5 million Americans are addicted to opioids and over 300,000 people have died due to the opioid epidemic. An addicted baby is now born every 30 minutes in the US and 10% of newborns in Huntington, West Virginia, are born opioid addicted. According to the American Society of Addiction Medicine, 4 out of every 5 people who use heroin start opioid use with a prescription pain killer.

Purdue has realized about $35 billion in revenue from OxyContin and billions in profits. The Sackler family that owns Purdue is worth an estimated $13 billion.

In my next post, I’ll outline the fraudulent marketing Purdue engaged in to profit from OxyContin and its on-going efforts to block any restrictions on the prescribing of it.

[1]      Keefe, P.R., 10/30/17, The family that built an empire of pain, The New Yorker (https://www.newyorker.com/magazine/2017/10/30/the-family-that-built-an-empire-of-pain)

THE OPIOID CRISIS: SAVING LIVES VS. SAVING PROFITS

President Trump pledged months ago to declare the nationwide opioid crisis a national emergency. He now says he’ll do so this week. The crisis has claimed well over 200,000 lives and the death rate continues to climb.

Declaring opioid deaths a national emergency would be nice, but taking effective action is even more important. So far, the Trump administration and key Republicans in Congress have shown no interest in doing so.

Trump recently nominated Representative Tom Marino, a Pennsylvania Republican, to be his national drug czar. Marino withdrew his name from consideration last week after it was revealed that he had spearheaded a successful effort in Congress to block the Drug Enforcement Agency’s (DEA) efforts to stop fraudulent distribution of prescription opioids. [1]

In April 2016, as the deadliest drug epidemic in US history raged, Congress passed a bill stripping the DEA of its ability to stop the distribution of large quantities of prescription narcotics. Drug industry experts blame the origins of the opioid crisis on the over-prescribing, some of it fraudulent, of narcotic pain killers. [2] The pharmaceutical corporations’ marketing of these drugs has also come in for blame, as they downplayed the potential for addiction to the drugs and promoted the supposed under-treatment of pain.

At the behest of the drug industry, Representative Marino in the House and Senator Hatch in the Senate (a Utah Republican) led the efforts by a handful of members of Congress to undermine DEA enforcement efforts aimed at blocking the supply of narcotic pain killers to corrupt doctors and pharmacists who were selling them on the black market. They passed a law making it impossible for the DEA to freeze suspicious shipments of narcotics by drug distributors who had repeatedly ignored DEA warnings while selling millions of pills for billions of dollars. Marino had spent years working to pass such a law.

The drug industry contributed at least $1.5 million to the campaigns of the 23 members of Congress who sponsored the bill and spent over $100 million lobbying Congress.

Besides the sponsors of the bill and the drug industry, few members of Congress or others outside of Congress knew of the impact the bill would have. It was passed in Congress by “unanimous consent,” an expedited process supposedly reserved for non-controversial bills. Former White House officials say they and President Obama were unaware of the bill’s impact when it was signed into law. Requests for interviews with current and former officials, as well as dozens of Freedom of Information (FOI) Requests, have been submitted to the DEA and the Justice Department by the media to try and find out who knew what when. The interview requests have been declined or ignored, and the FOI requests have been denied or delayed; some have been pending for 18 months. [3]

This is a powerful example of the incredible influence and control our large corporations have over policy making in Washington, D.C. The large pharmaceutical corporations and their distributors have gotten Congress to make their profits from illegally selling narcotic painkillers more important than the 60,000 deaths that are occurring each year from opioid use. These deaths are roughly twice the number that occur due to gun violence or car accidents. The number of deaths last year was roughly 50% more than occurred at the peak of the HIV/AIDS crisis. Drug overdoses have become the leading cause of death among those under 50. [4]

I urge you to contact your US Representative and Senators and ask them to take real action to fight the opioid crisis. This includes spending money on addiction treatment and drug enforcement. And it requires repealing the 2016 legislation that undermined the DEA’s efforts to control the distribution of prescription, narcotic pain killers. We must assert that people’s lives, as well as recovery from and avoidance of addiction, are more important than profits for large pharmaceutical corporations.

[1]      Superville, D., & Daly, M., 10/18/17, “Marino pulls name from US drug czar consideration,” The Boston Globe from the Associated Press

[2]      Higham, S., & Bernstein, L., 10/16/17, “Drug industry quashed effort by DEA to cut opioid supply,” The Boston Globe from The Washington Post

[3]      Higham, S., & Bernstein, L., 10/16/17, see above

[4]      Katz, J., 6/5/17, “Drug deaths in America are rising faster than ever,” The New York Times (https://www.nytimes.com/interactive/2017/06/05/upshot/opioid-epidemic-drug-overdose-deaths-are-rising-faster-than-ever.html)

DEREGULATION AND THE ELECTION OF TRUMP

Thirty years of deregulation have produced a declining standard of living and reduced economic security for the working and middle class. This is causing them significant stress and anxiety. In particular, there is strong evidence of the toll this is taking on the members of the white working and middle class. After decades of increasing life expectancy among all Americans, the life expectancy of middle-aged (35 – 59 years old), non-Hispanic whites without a college education is now actually declining largely due to premature deaths from drug and alcohol abuse and from suicides. [1] These “deaths of despair” as they are being called, are linked to the stress of falling behind one’s own life expectations as well as relative to others. [2] [3] [4]

The loss of economic well-being for the working and middle class generally has produced real anger against the political establishment that has allowed and abetted it. Numerous books have been written on the alienation of this demographic group. [5] It’s no wonder many of them voted for Trump and against the Washington, D.C., establishment in 2016. Many of them felt they had no better way to express their anger or to demand change in our policies than to vote for Trump. The fact that Trump (despite some of his rhetoric) is the embodiment of everything that has driven workers to this brink of despair is the great irony of the election. It is also an indication of the incredibly deep frustration, anxiety, and despair felt by many in the middle and working class.

Both in the U.S. and internationally, democracy – the power of the people to drive policy making including regulation – has only been successful when corporate power is under control. Regulation of big corporations has historically been necessary for workers to have the economic security that allows them to realistically engage in life, liberty, and the pursuit of happiness. In a capitalistic society, a basic level of economic security is essential if individuals are to have the freedom to make important choices in their day-to-day lives (such as where to live and what education to obtain for themselves and their children). [6]

For a capitalistic democracy to work, market place rules and regulations are essential to maintain fair and competitive markets for consumers and workers. They are also necessary to keep large corporations from wielding controlling influence over government and undermining democracy. When President Teddy Roosevelt used anti-trust laws to break up giant corporations in the early 1900s, the focus was “less on the power of giant corporations to dominate markets and more on the power of giant corporations to dominate government.” [7]

The political establishment in Washington, D.C., appears either to have forgotten this lesson of the early 20th century or to have allowed themselves to be bought by the corporate elites. As a result, the anxiety, anger, and frustration of the working and middle class has grown to historic proportions. In the election of 2016, they voted for Trump for President to clearly repudiate the Washington establishment. The Tea Party wing of the Republican Party and the Bernie Sanders wing of the Democratic Party both reflect this same rebellion against the political establishment, albeit from opposite ends of the political spectrum.

How this anxiety, anger, and frustration gets expressed in the future is very much up for grabs. We’re likely to be in for a rocky ride politically as individual candidates and the political parties battle to channel this energy and emotion in elections and policy making.

If we want to have a democracy instead of a corporatocracy and to revitalize our working and middle class, we must restrain corporate power, both in the private market place and in the public sphere of government. Strong regulations that control corporate power; protect the well-being of workers, consumers, and the public; and ensure that political power rests with the people are essential. As Supreme Court Justice Louis Brandeis warned in the 1930s, “We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.” [8] Clearly, Justice Brandeis understood that great wealth also means great political power, which, when concentrated in the hands of a few, is antithetical to democracy.

[1]      Boddy, J., 3/23/17, “The forces driving middle-aged white people’s ‘deaths of despair,” National Public Radio (http://www.npr.org/sections/health-shots/2017/03/23/521083335/the-forces-driving-middle-aged-white-peoples-deaths-of-despair)

[2]      Payne, K., 7/5/17, “Economic inequality goes well beyond the bank account,” The Boston Globe

[3]      Burke, A., 3/23/17, “Working class white Americans are now dying in middle age at faster rates than minority groups,” Brookings (https://www.brookings.edu/blog/brookings-now/2017/03/23/working-class-white-americans-are-now-dying-in-middle-age-at-faster-rates-than-minority-groups/)

[4]      Case, A., & Deaton, A., 5/1/17, “Mortality and morbidity in the 21st century,” Brookings (https://www.brookings.edu/wp-content/uploads/2017/03/casedeaton_sp17_finaldraft.pdf)

[5]      Kuttner, R., 10/3/16, “Hidden injuries of class, race, and culture,” The American Prospect (http://prospect.org/article/hidden-injuries-0) This is an insightful review of nine books on the “decline of the white working class and the rise of the Tea Party and Donald Trump.”

[6]      Kuttner, R., 4/7/17, “Corporate America and Donald Trump,” The American Prospect (http://prospect.org/article/corporate-america-and-donald-trump)

[7]      Warren, E., 2017, “This fight is our fight: The battle to save America’s middle class,” Metropolitan Books, NY, NY. p. 159

[8]      Warren, E., 2017, see above, p. 159

TO REGULATE OR DEREGULATE? THAT IS THE QUESTION

Regulations put in place after the financial collapse of 1929 and the resultant Great Depression served the country well. The current push for deregulation began with the deregulation of the railroad and trucking industries in the late 1970s. The consensus at the time was that regulations in these industries were not serving the public interest. Initial deregulation efforts worked to eliminate regulations that favored existing corporations and prevented competition from start-ups and innovators.

In 1982, anti-trust laws were used to break-up the AT&T monopoly on telephone service and introduce competition into the long-distance phone market. This reflected both strong regulation – the breaking up of a large corporation using anti-trust laws – and a belief that deregulation of the long-distance phone market coupled with the introduction of competition would best serve consumers.

During the late 1980s, the focus shifted to deregulation that benefited corporations rather than the public interest. Deregulation became “a mantra that can be translated to mean: let corporate America do more of whatever corporate America wants to do.” [1]

A telling example of this change in attitude is seen in the Consumer Product Safety Commission’s (CPSC) history. It was created in 1972 to protect consumers from dangerous products. It is responsible for the safety of all consumer goods except vehicles, guns, food, drugs, and cosmetics. Initially, it had 786 employees. However, as the regulatory focus shifted to benefiting corporations, it fell out of favor. In 2016, before Trump’s election, it was down to 567 employees, despite significant growth in the economy and in imports. Many imported products come from low wage countries with minimal safety standards. Therefore, the need for the CPSC to inspect and regulate goods has increased, while its capacity to do so has decreased. [2]

In a glaring example of its failure to live up to its initial promise and goals, in 2007, imported toys for young children that had lead paint (a neurotoxin) were not detected until well after the fact. For example, 1.5 million Thomas the Train components that had been imported and sold had to be recalled. [3] The weakening of the CPSC is occurring even though it reports that deaths, injuries, and property damage from consumer product incidents cost more the $1 trillion each year.

Since the late 1980s, the push for deregulation has reduced product safety standards; relaxed regulation of mergers, acquisitions, and financial practices (including allowing virtual monopolies); reduced on-the-job protections for workers; and weakened enforcement in many areas. Simultaneously, deregulation of the labor market has weakened workers’ bargaining power. The regulations that supported workers’ ability to bargain collectively with employers, largely through unions, have been undermined and weakened repeatedly since the 1980s. The formation of a union is now more difficult, while the ability to eliminate unions by outsourcing jobs overseas or hiring “replacement” workers has been made easier. As a result, union membership for private sector workers has declined from 25% in 1972 to 6% today.

Weak labor market regulation has allowed dramatic growth in the number of part-time, temporary, contracted, and consultant workers. This has undermined the economic security of the middle and working class, which was based on a full-time job with benefits. The explosive growth of the “gig” economy reflects this trend. Corporate employers have used the weak regulation of the labor market to restructure the workforce and reduce workers’ pay and benefits. As a result, fewer and fewer workers have employer provided health insurance, and when they do have it, they are typically paying a greater share of the cost and/or are footing the bill for higher co-payments for seeing doctors or getting prescription drugs. The guaranteed retirement incomes of pensions are largely a thing of the past. Workers are now much more likely to have to self-fund retirement through contributions to retirement savings accounts (sometimes with employer matching contributions). Furthermore, the investment decisions and risk fall on the worker. This decreases economic security for workers and gives financial corporations and advisors opportunities to charge fees and make commissions that often undermine the return on investment for workers, who typically are not sophisticated investors. As a result, workers are much less likely to be able to afford to retire at normal retirement age and are less likely to be financially secure in retirement.

The financial collapse of 2008, which was caused by the deregulation of the financial industry, robbed many in the working and middle class of their living standard and the last vestiges of their economic security. It destroyed many of their middle-class jobs and also their equity in their homes. Over 60% of U.S. households experienced a decline in wealth and many of those who didn’t lose wealth simply didn’t have any savings or assets to lose (e.g., the young and the poor). Although the high unemployment of the Great Recession has now finally declined after 8 years, high under-employment remains. Many workers are now in lower paying jobs for which they are over-qualified or are working part-time or in the “gig” economy instead of in full-time jobs, let alone ones with benefits.

Simultaneously, these workers watched the federal government bailout the Wall Street corporations and allow their executives not only to avoid penalties or jail, but to continue to enjoy huge paydays. There was no bailout for homeowners or laid off workers.

Although Republicans have typically been the politicians leading the charge on deregulation for the benefit of big corporations, many Democrats have not been far behind in their support of the deregulation agenda. Somewhat surprisingly, big corporations themselves have largely escaped the wrath of workers and the public, at least to-date. [4] This is partly because neither of our major political parties or any other powerful group has pointed the finger in their direction. Conversely, there are well-funded media, think tanks, public relations, and other initiatives that have promoted the deregulation and pro-corporate message.

My next post will link deregulation and its effects with the election of President Trump.

[1]      Warren, E., 2017, “This fight is our fight: The battle to save America’s middle class,” Metropolitan Books, NY, NY. p. 79

[2]      Steinzor, R., 4/17/17, “The war on regulation,” The American Prospect (http://prospect.org/article/war-regulation-0)

[3]      Lipton, E., & Barboza, D., 6/19/07, “As More Toys Are Recalled, Trail Ends in China,” The New York Times

[4]      Kuttner, R., 4/7/17, “Corporate America and Donald Trump,” The American Prospect (http://prospect.org/article/corporate-america-and-donald-trump)

MAKING REGULATION WORK

For society to function, regulatory agencies must protect consumers, workers, and the public from self-interested and unscrupulous individuals, employers, and businesses. In a democracy, this requires a concerted effort and leadership from elected officials to put appropriate regulations in place and to ensure that they are enforced.

In a recent speech, Senator Elizabeth Warren (MA) noted that an essential piece of regulating large corporations is to use anti-trust laws to stop mergers that create huge corporations that have the power to distort our economy and policy making. The Justice Department, the Federal Trade Commission, and state attorneys general all have the power to do this. However, the political climate and, to some extent, the judicial climate have left anti-trust regulation withering on the vine in recent decades. [1]

Due to weak anti-trust law enforcement, a few giant corporations now control major U.S. industries including the airline, banking, health care, pharmaceutical, agriculture, telecommunications, and technology industries. Today, two-thirds of the 900 U.S. industries that are tracked by The Economist are more concentrated than they were in 1997, i.e., have fewer and larger corporations making them up. Competition is increasingly choked off. Small businesses and innovators are shut out of the market place, either by being bought up or squashed.

With this reduced competition, consumers pay more and get lower quality, while workers have their pay and benefits cut. A classic example of this is the cost and speed of Internet access. The U.S. has some of the most expensive Internet access among the developed countries of the world. And the speed of access is among the slowest in the world, particularly when comparing major cities. [2] Furthermore, cost and speed of access in the U.S. varies tremendously among urban and rural areas, as well as among wealthier and poorer communities.

The poor Internet service in the U.S. occurs because we have a small number of large, private, lightly regulated telecommunications providers that often have a monopoly or near-monopoly on service in a geographical area. To improve access, cost, and speed, a handful of U.S. cities have chosen to create their own municipal broadband services to compete with private Internet service providers: Chattanooga, Tennessee; Bristol, Virginia; Lafayette, Louisiana; Cedar Falls, Iowa; and Wilson, North Carolina. However, the private providers are working to get states and the federal government to ban the creation or expansion of these municipal providers because they do not want the competition. The private providers are also lobbying hard to weaken regulation, such as the net neutrality rules that the Federal Communications Commission recently put in place.

The argument that corporations and competition in a free market will result in effective self-regulation has been shown to be false time and again. The financial industry is probably the poster child for refuting this argument. The deregulation of the financial industry led, not to effective self-regulation as the proponents promised, but to the savings and loan crisis of the late 1980s and early 1990s, as well as the financial collapse of 2008. The lack of regulation led to risky and abusive business practices that spiraled out of control and eventually collapsed, causing major disruption to the financial industry and the whole economy.

In another example, U.S. industry has not, on its own, kept our air and water clean. Without regulation, it is much easier and cheaper for industry to dump its waste products into our air and water.

Corporations have a knee-jerk reaction against regulation because they want unfettered control of their products, their markets, and their marketing. They highlight the (often exaggerated) costs of regulations and ignore benefits. Unfortunately, this has been a very effective strategy for resisting regulation in our current political climate. It seems that no one is highlighting the benefits of regulation or standing up for consumers, workers, and the public.

Corporations always claim (with little evidence) that regulation will hurt business and reduce the number of jobs. However, as the financial collapse demonstrated, a lack of regulation can lead to a crisis that dramatically hurts businesses and reduces the number of jobs.

In fact, studies have shown that regulation has a neutral or modestly positive effect on the overall number of jobs, although it may cause some shifting of jobs, for example from the coal industry to the wind and solar power industries. [3]

Furthermore, the Office of Management and Budget (OMB) reported to Congress that the cost-benefit analyses of new, major federal regulations from 2009 to 2015 showed that benefits exceeded costs by between $103 billion and $393 billion annually. These findings are corroborated by other reports.

In another report, OMB reviewed major regulations from 2000 to 2010 and found that the average annual benefits of regulations were about 7 times the costs. This finding is especially significant given that almost all costs are included in such analyses and are often over-estimated, while many benefits are not monetized and, therefore, are not included (e.g., the lifetime benefit of better cognitive functioning when children’s exposure to lead and mercury is reduced). In other words, benefits outweigh costs by 7 to 1 even though costs are over-estimated and benefits are under-estimated. [4]

So, what will it take to get good regulations in place that protect workers, consumers, and the public? Senator Warren in a recent speech called for 4 policy changes to reduce corporate power and allow appropriate regulation to occur:

  • Enforce anti-trust laws to limit the size and power of corporations,
  • Reform campaign finance laws, including enhancing the value of small contributions from individuals by matching them with public funds,
  • Close the revolving door of personnel who move between industry and government jobs, creating conflicts of interest and an industry-friendly mindset among regulators, and
  • Reform the process for implementing regulations to limit corporate influence. [5]

We as citizens and voters need to work with our elected officials to make sure that the influence and interests of large corporations are appropriately balanced with the interests of workers, consumers, and the public. This means we need to be active and engaged in our democratic processes – in our elections and in communicating with our elected officials. Senator Warren notes that the concentrated money and power of large corporations and wealthy business people influence nearly every decision made in Washington, D.C. We must ensure that the voices of we the people are heard and have every bit as much influence as those of wealthy individuals and large corporations.

[1]      Marans, D. 5/16/17, “Elizabeth Warren has a real plan to drain the swamp in Washington,” HuffPost (http://www.huffingtonpost.com/entry/elizabeth-warren-clean-up-washington-trump_us_591b6f2ae4b0a7458fa3f3d8)

[2]      Yi, H., 4/26/15, “This is how Internet speed and price in the U.S. compares to the rest of the world,” PBS NewsHour (http://www.pbs.org/newshour/updates/internet-u-s-compare-globally-hint-slower-expensive/)

[3]      Shierholz, H., & McNicholas, C., 4/11/17, “Understanding the anti-regulation agenda,” Economic Policy Institute (http://www.epi.org/publication/understanding-the-anti-regulation-agenda-the-basics/)

[4]      Shierholz, H., & McNicholas, C., 4/11/17, see above

[5]      Marans, D. 5/16/17, see above

SAVING OUR REGULATORS FROM THE WAR ON REGULATION

The war on regulation is a war not only on regulations themselves, but on the regulatory agencies that work to protect consumers, workers, and the public. The federal regulatory agencies that we rely on include the:

  • Consumer Financial Protection Bureau (CFPB) that protects us from deceptive financial products (e.g., loans and credit cards) and abusive financial corporations (e.g., banks, payday lenders, and loan sharks);
  • Consumer Product Safety Commission (CPSC) that protects us from dangerous physical consumer products (e.g., toys, children’s car seats, cribs, power tools, appliances, cigarette lighters, and household chemicals);
  • Environmental Protection Agency (EPA) that protects us from pollution of our air and water;
  • Federal Trade Commission (FTC) that protects us from unfair and deceptive practices in the marketing of consumer goods (e.g., products that promise that your baby can learn to read);
  • Food and Drug Administration (FDA) that protects us from tainted food and unsafe medications;
  • National Labor Relations Board (NLRB) that protects workers from unfair treatment on the job;
  • Occupational Health and Safety Administration (OSHA) that protects workers from unhealthy and unsafe working conditions; and
  • Securities and Exchange Commission (SEC) that protects investors from unfair or deceptive practices in the buying and selling of securities.

The Consumer Financial Protection Bureau (CFPB) is the newest of these agencies. It was created after the financial collapse of 2008 as part of the Dodd-Frank financial reform act. Its creation was spearheaded by Massachusetts Senator Elizabeth Warren. It is stopping the abusive and deceptive mortgage loans that were a major contributor to the financial collapse and to the loss of over 9 million homes by middle and working-class Americans.

The CFPB works to protect consumers from unfair, discriminatory, deceptive, and abusive practices by banks and other financial institutions. It provides consumers with information and tools to make good financial decisions. It receives and responds to consumer complaints. And it takes action against financial corporations that break the law. In its short life, it has handled over 1 million consumer complaints and obtained $12 billion in relief for over 29 million consumers.

Because the CFPB regulates Wall Street firms and holds them accountable, it has been in the crosshairs of the big banks and investment corporations. Since before the CFPB came into existence, Wall Street, through its campaign spending, its lobbyists, and its friends in government offices (both elected and appointed ones), has worked to weaken, delay, and eliminate the CFPB and its regulations. Currently, CFPB’s opponents are working to reduce the power of its director or to get him to resign so Trump can appoint someone who won’t stand up for consumers and take on the big financial corporations. They are also trying to cut its budget and weaken its independence by putting it under the control of the President and Congress. [1] [2]

President Trump and Scott Pruitt, his head of the Environmental Protection Agency (EPA), are working hard to weaken the EPA. They have proposed dramatic budget cuts for it and significant weakening of its regulations promoting clean air and water, as well as its efforts to reduce global warming and climate change. The proposed budget cut, from $8.2 billion to $5.65 billion (31%), is the greatest percentage cut proposed for any federal agency. It would have so many very serious implications that many of them will get very little if any attention from the media.

For example, the proposed budget for the EPA would eliminate federal funding for protecting children from poisoning by lead paint. According to a 2014 report from the Centers for Disease control, 243,000 children in the U.S. have lead levels in their blood that exceed the danger threshold for permanent neurological damage. Moreover, there is compelling evidence that significantly lower blood lead levels can cause serious harm.

The Lead Risk Reduction Program at the EPA educates the public and certifies home renovators on the safe removal of lead paint. This program’s $2.5 million and 73 employees would be eliminated in the Trump budget. The supposed rationale for this is that state and local governments can do this better than the federal government. However, the proposed budget also eliminates the $14 million for grants to state and local governments to help them address the risks of lead paint. [3]

I urge you to contact your U.S. Representative and Senators. Ask them to stand up for children and all of us by supporting a strong, well-funded EPA, as well as a strong and independent Consumer Financial Protection Bureau. Strong consumer and worker protections, in general, should be the priority, not kowtowing to large corporations.

[1]      Frank, B., 5/2/17, “The art of the deal: Bait and switch division,” The Boston Globe

[2]      Freking, K., & Gordon, M., 5/5/17, “GOP-led House panel votes to overhaul Dodd-Frank,” The Boston Globe from the Associated Press

[3]      Mooney, C., & Eilperin, J., 4/6/17, “EPA programs to protect kids from lead paint may end,” The Boston Globe from the Washington Post

FIGHTING RESISTANCE TO NEEDED REGULATIONS

We need rules and regulations to protect workers, consumers, and the public. However, opposition to regulations comes from organizations and individuals that have strong self-interests at stake and often lots of resources. Typically, it’s large corporate employers and producers of goods and services that oppose regulation. They use campaign spending and lobbying to persuade public officials to side with them. They use public relations campaigns to try to win support from voters and the public, often using deceptive messages. They claim that the costs of regulation are too high, but they almost never discuss the benefits.

My previous two posts described the war being waged on regulation by the Trump administration and some Members of Congress, particularly Republicans. (You can read them here and here.) My last post highlighted examples of rules and regulations that have been repealed or delayed. Every one benefits corporations at the expense of workers, consumers, or the public.

How does this happen in a democracy? There are several factors, but ultimately it comes down to the concentrated self-interests of large corporations and their political power.

Regulation typically has immediate and sometimes significant costs that are concentrated on a small group of organizations or individuals. The benefits typically are spread over a much broader group of people and often over a longer time period. The costs are typically easy to identify and measure in dollars, while the benefits are often much more difficult to monetize and some are even hard to identify.

As a result, those bearing the costs of regulation have strong self-interests in opposing and stopping or weakening regulation. When they are large corporations, they have tremendous resources to use in their opposition (e.g., money, people [including lobbyists], and the ability to sustain efforts over time).

Those who benefit (i.e., workers, consumers, and the public) have a self-interest in regulation. However, the impact is much smaller at the individual level and often gets lost among the many demands of every-day life. Furthermore, individuals’ resources (e.g., time, energy, and attention span) to use in supporting regulation are generally quite limited. Although the aggregate benefit may be huge, it is often very diffuse – spread over millions of people and across many years.

Therefore, the politics of regulation tend to favor weak or no regulation and even de-regulation. It typically takes political leadership that stands up for the broader public interest to push through (and maintain) strong regulation. With our corporations growing larger and more powerful all the time, the ability to stand up to them has become more difficult.

Let’s look at a specific, current example of regulation that is being considered.

Scientists at the Environmental Protection Agency (EPA) and other agencies, along with advocates for public health and the environment, are urging that certain pesticides need to be regulated. However, to-date, the Trump administration has failed to act on findings that the pesticide chlorpyrifos (for example), a Dow Chemical product, can cause significant harm. (By the way, Dow Chemical contributed $1 million to Trump’s inauguration activities and its chairman heads a White House working group on manufacturing.)

Chlorpyrifos has been widely used on fruit crops since the 1960s. Dow Chemical sold 5 million pounds of it in the US last year. Traces of it are commonly found in drinking water and umbilical cord blood, which is the blood a mother provides to her baby while pregnant. It can harm children’s brain development at very low exposure levels. Scientists have also compiled over 10,000 pages of evidence that chlorpyrifos harms animals, presenting a risk to 1,778 out of the 1,835 animals and plants that were studied, including endangered species of frogs, fish, birds, and mammals. [1]

The costs of the regulation of chlorpyrifos, i.e., a reduction in its use, fall immediately and directly on Dow Chemical, an $8 billion corporation (that is about to merge with DuPont and get even bigger). The benefits of regulating chlorpyrifos are clear but are hard to monetize. They occur over time to a broad range of people and to animals and our ecosystem.

Dow Chemical has strong political connections and lobbying capacity. It has spent about $12 million per year on lobbying in each of the last 5 years. [2] The political resources and clout of the beneficiaries of regulating chlorpyrifos are nowhere near as great as those of Dow Chemical.

Unless there is strong political leadership on behalf of the public and the environment, regulation of chlorpyrifos probably won’t happen or will be very weak. Given the current political environment in Washington, D.C., I’d bet that Dow Chemical corporation’s efforts to block regulation of chlorpyrifos will succeed.

This is a classic example of why democracy won’t succeed if the public and voters treat it as a spectator sport. We need to be informed, sometimes down to the level of detail of this example, and engaged. We must insist that our elected officials – and candidates during elections – are committed to standing up for the public interest despite the power and resources that large corporations can bring to bear on our political system.

We need to join and support advocacy groups that will act on our behalf on issues such as these, and that will let us know when there are opportunities for us to act and have an impact. We need to support the regulatory agencies (more on them in a future post) that are working to protect us. Many of them are under attack by President Trump, corporations, their lobbyists, and some of our other elected officials. And finally, we need to pay attention to and support information sources that will cover these issues.

We certainly can’t do all of these things all the time. But each of us, as a voter and citizen in a democracy, needs to be an active participant in our political system, and to do what we can to ensure that government works for us, not for the big corporations.

[1]      Biesecker, M., 4/21/17, “Dow wants Trump to set aside report on pesticide risks,” Associated Press in The Boston Globe

[2]      OpenSecrets.org, retrieved from the Internet on 5/27/17, “Dow Chemical,” Center for Responsive Politics (https://www.opensecrets.org/lobby/clientsum.php?id=D000000188&year=2016)

REPEALING OR DELAYING REGULATIONS HARMS WORKERS AND THE PUBLIC

The Trump administration and Republicans in Congress are repealing or delaying rules and regulations that protect workers, consumers, and the public. Some of these rules and regulations protect workers from unsafe working conditions, help them save for retirement, or protect their rights and pay. Trump and the Republicans are also delaying rules that would protect investors and the environment.

For example, over a dozen rules that provided important protections for workers have been repealed, including: [1]

  • Repealed the Fair Pay and Safe Workplace Rule that required companies applying for federal contracts to disclose past violations of labor laws. As a result, companies that have violated labor and employment laws will continue to be rewarded with federal contracts and taxpayers’ money. The rule would have required disclosure of violations of laws on:

o   Workers’ pay (including pay for overtime),

o   Workplace health and safety,

o   Collective bargaining rights, and

o   Civil rights.

  • Repealed the Workplace Injury and Illness Recordkeeping Rule that required employers to keep records of injuries and illnesses on the job. As a result, the Occupational Health and Safety Administration (OSHA) will be unable to accurately identify and protect workers from unsafe, and potentially life-threatening, working conditions.
  • Repealed a pair of rules that allowed state and local governments to set up retirement savings accounts for private-sector workers whose employers do not provide a retirement plan. Therefore, 55 million workers without a retirement savings plan will not be afforded this retirement savings opportunity, primarily because Wall Street lobbyists made it clear they did not want this competition from a public-sector sponsored program.
  • Repealed a rule that blocked drug testing (which is probably unconstitutional) of applicants for unemployment insurance (UI). Drug testing is an unnecessary and inappropriate hurdle for laid off workers applying for UI. However, whenever a former employee is denied UI or delayed or discouraged from obtaining it by drug testing, it saves their employer from having to pay for unemployment benefits.

The Trump administration has also delayed the implementation of many regulations that would benefit workers, consumers, and the public. These include: [2]

  • Delayed for at least 2 months, the Fiduciary Rule that would require financial advisors, including retirement planners, to put their clients’ best interests first. This is what most people seeking financial advice assume they are getting, but nothing currently prevents financial advisors from steering clients toward investments that pay the advisor a larger commission even if the client is likely to get a lower return on their investment. It is estimated that such behavior costs investors $17 billion a year and that each week’s delay in implementing the rule will cost retirement savers over $400 million over the 30 years (on average) until they take their money out to support them in retirement.
  • Delayed rules limiting exposure to silica and beryllium in the workplace. Roughly 2.3 million workers are exposed to silica dust at work. It is estimated that the rule’s limits would have prevented 900 new cases of silicosis each year and saved over 600 lives. The net benefits are estimated at $7.7 billion annually. In the case of beryllium, an estimated 62,000 workers are exposed to it at work and this can lead to lung disease and lung cancer.
  • Delayed requiring mine operators to inspect their mines for safety hazards and notify miners of hazardous conditions that have not been corrected. The rule also would have required mine operators to keep a record of safety examinations, hazards found, and corrective action taken. In 2010 – 2015, 122 miners died in 110 workplace accidents.
  • Delayed the implementation of a regulation requiring oil and gas companies to monitor and reduce methane (i.e., natural gas) leaks. This delay is occurring due to lobbying by the American Petroleum Industry and other industry groups. Methane gas is a potent global warming gas that is 100 times more harmful than carbon dioxide (i.e., CO2). This is one example, of many, where Environmental Protection Agency (EPA) head, Pruitt, is working to repeal or delay environmental regulations that benefit the public and the environment, but are opposed by corporate interests. [3]

Repealing and delaying these regulations, and many others, puts large corporations and their profits first and America’s workers and consumers in danger. It demonstrates the continuing influence of big money, corporate special interests, and their lobbyists in Washington. This is not what many voters expected when Trump spoke (and speaks) about putting America (and its workers) first and draining the swamp of special interests in Washington.

[1]      Shierholz, H., & McNicholas, C., 4/11/17, “Understanding the anti-regulation agenda,” Economic Policy Institute (http://www.epi.org/publication/understanding-the-anti-regulation-agenda-the-basics/)

[2]      McNicholas, C., Shierholz, H., Bivens, J., & Costa, D., 4/27/17, “The first 100 days: President Trump’s top priorities include rolling back protections to workers’ wages, health, and safety,” Economic Policy Institute (http://www.epi.org/publication/the-first-100-days-president-trumps-top-priorities-include-rolling-back-protections-to-workers-wages-health-and-safety/)

[3]      Associated Press, 4/21/17, “Trump EPA balks at new emission rule,” in The Boston Globe Talking Points

REGULATORY REFORM PUTS LARGE CORPORATIONS, NOT AMERICA, FIRST

The Trump administration and the Republicans in Congress have declared war on regulations. This puts large corporations and their profits first (not America) and puts America’s workers and consumers in danger.

Regulations and rules are what the Executive Branch of government (i.e., the President and his administration) uses to implement laws passed by the Legislative Branch (i.e., Congress). Rules and regulations are also used to update the implementation of laws over time as things change. For example, new products are brought to market, new medical procedures are developed, new chemicals are formulated, new financial instruments and transactions are invented, and so forth. If rules and regulations can’t be updated to respond to these situations, the implementation of our laws would fairly quickly become outdated and inappropriate. New laws would have to be passed to deal with every significant change in the real world. This would clearly be an inefficient and ineffective way to deal with our changing world, especially given the current dysfunction in Congress.

Rules and regulations protect public health and public goods (e.g., our air and water, our environment). They also protect workers and consumers from unsafe situations and products.

The Trump administration and the Republicans in Congress want to block new regulations and repeal existing ones for two, inter-related ideological reasons:

  • Belief in an unfettered free market that allows corporations to make profits without any constraints, and
  • Belief in a very limited role for government.

I believe there is another, non-ideological reason: our elected officials want to reward and do the bidding of their large campaign donors, both individuals and corporations. (Note that their donations are often given via intermediaries that are used to disguise the actual donors and their interests.) These large campaign donations buy essentially unfettered access to our elected officials so large donors can lobby and communicate their perspective on every rule or regulation. This, along with paid lobbyists, skews rules and regulations to favor the interests of these large donors. For example, the oil and gas industry spends $300 million per year on lobbying and has over 1,600 lobbyists working to communicate and convince officials in the legislative and executive branches to follow the industry’s preferences on rules and regulations.

The current war on regulations is being fought on multiple fronts and with multiple tactics:

  • Repealing the 150 or so regulations implemented by the Obama administration in its last 6 months in office. Currently, there are over 50 resolutions in the House or Senate targeting over 30 regulations for repeal.
  • Passing legislation that would give Congress the power to review and veto new regulations. This would substitute the political judgement of Congress for the judgement of scientists and experts in federal agencies in developing rules and regulations.
  • Passing legislation requiring new regulations to be evaluated with a focus on costs, reducing or ignoring the importance and value of their benefits.
  • Requiring that 2 regulations must be eliminated for every new one issued. This is being applied only in areas where the Trump administration opposes regulation but not for new regulations they favor, such as ones restricting the implementation of the Affordable Care Act.
  • Appointing executive branch personnel who do not support the mission of the agencies they head or are in. As a result, the agencies’ regulations won’t be effectively enforced. This clearly applies to Secretary Pruitt at the Environmental Protection Agency (EPA), as well as to the Securities and Exchange Commission (SEC) (which regulates banks and financial institutions) and the Department of Health and Human Services (which oversees the implementation of the Affordable Care Act).
  • Underfunding agencies so they do not have the capacity to enforce the regulations they oversee. Again, this applies to the EPA and the SEC, among others.
  • Reducing opportunities for public input into the repeal of existing regulations and the development of new ones.

In my next post, I’ll share some specific examples of rules and regulations that are being repealed, delayed, or weakened.

DAMAGE IS BEING DONE BEHIND THE TRUMP SMOKESCREEN

What you don’t know can hurt you. Behind the smokescreen of President Trump’s high profile Executive Orders and public statements, he and Congress are undermining public health and safety, as well as government revenue. By undoing or weakening existing policies, they are allowing, among other things:

  • Underpayment of royalties on fossil fuel extraction,
  • Use of unsafe and inefficient private prisons,
  • Dumping of coal mining wastes into streams, and
  • Weakened background checks for gun purchases by people unable to manage their own affairs.

President Trump rescinded a rule that stopped corporations from paying royalties based on artificially low prices. When a corporation extracts oil, gas, and coal on public lands, it will (if it can) sell them to a subsidiary at an artificially low price that allows it to pay an artificially low royalty to the federal government. Its subsidiary then sells the extracted fossil fuel at a much higher, market price. The result is a windfall for the corporation and a rip-off of taxpayers. [1]

Trump’s Attorney General has rescinded the decision to eliminate the use of unsafe and inefficient private prisons. Last August, a Department of Justice Inspector General’s report found that the private prisons used by the Bureau of Prisons did not provide the same level of safety and security as government owned and operated prisons. Therefore, Obama’s Deputy Attorney General announced a decision to eliminate this use of private prisons. In her announcement, she also noted that the private prisons did not provide the same level of correctional services, programs, and resources to prisoners as government-run prisons, and that they did not substantially reduce costs.

Despite this evidence, the Trump administration has decided that 13 private federal prisons, which hold 22,000 inmates, will continue to be run by private corporations. Thus, hundreds of millions of taxpayers’ dollars will pay three corporations to run unsafe, substandard, inefficient prisons. (See my previous posts here and here for more details.) Perhaps not surprisingly, these three corporations have given significant amounts of money to politicians, including to President Trump. One of them, CoreCivic, formerly the Correction Corporation of America, gave $250,000 to Trump’s inaugural festivities. GEO Group, another one of the three private prison corporations, also gave $250,000 to Trump’s inaugural festivities, on top of the $275,000 it had given to a Super PAC that supported the Trump campaign. [2]

Congress has also taken steps to roll back regulations that are in the public interest. A measure to rescind a rule banning the dumping of coal mining debris into streams has passed the House and Senate. President Trump is expected to sign it. The House and Senate have also voted to rescind a regulation requiring oil and gas corporations to disclose payments to foreign governments for mining and drilling rights. The House has voted to overturn a rule that reduced the harmful atmospheric emissions from burning unused natural gas at drilling operations on federal lands. [3] The House has also passed a resolution weakening background checks for gun purchases by Social Security recipients who have been declared incompetent to manage their personal affairs. [4]

Republicans in Congress are employing a rarely used tool, the Congressional Review Act, to roll back rules issued in the final months of Obama’s presidency. The Act provides a temporary window in which a simple majority of both chambers can rescind a newly promulgated rule. Trump must sign these measures to complete the rescinding of the targeted rule. The Act also prevents the executive branch from enacting a substantially similar rule in the near future. [5]

Furthermore, Congress is considering two new laws that would make it even easier for it to exercise its political judgement and overrule science-based regulations. One of the new laws, dubbed the Midnight Rules Relief Act, is described as the Congressional Review Act on steroids and would, among other things, prohibit federal agencies from re-proposing a rejected regulation indefinitely. The other new law, called the Regulations from the Executive In Need of Scrutiny (REINS) Act, would require any new regulation to be approved by Congress. If Congress failed to approve the regulation, it would not go into effect. Both of these laws are being pushed by corporate lobbyists who want to block the implementation of science-based standards for air and water quality, among other things. [6]

Behind the smokescreen of Trump’s high-profile actions, his administration and Congress are undermining public health and safety. It seems clear that the current Congress and administration are committed to benefiting corporate America and ignoring the well-being of every-day Americans. Furthermore, sweetheart deals for large corporations are providing them a financial windfall at the expense of every-day taxpayers.

I urge you to tell your Representative and Senators in Congress that you believe it is government’s job to protect the health and safety of the public, even if it is an inconvenience for big corporations. And that corporations should pay their fair share of taxes and government fees, because otherwise you and I and all the other individual taxpayers have to make up the difference. Tell your Congress men and women that our democracy is supposed to be of, by, and for the people, not large corporations.

[1]      Sierra Club, 2/14/17, “Trump ends rule blocking corporate polluters from paying themselves,” Common Dreams (http://www.commondreams.org/newswire/2017/02/24/trump-ends-rule-blocking-corporate-polluters-paying-themselves)

[2]      Zapotosky, M., 2/23/17, “Justice Department will again use private prisons,” The Washington Post (https://www.washingtonpost.com/world/national-security/justice-department-will-again-use-private-prisons/2017/02/23/da395d02-fa0e-11e6-be05-1a3817ac21a5_story.html?utm_term=.f631c1be57d2)

[3]      Daly, M., 2/3/17, “House votes to overturn Obama rule on natural gas ‘flaring’,” Associated Press (http://bigstory.ap.org/article/d84e8dd2a74042ed8d9e864fdb59d069/house-poised-overturn-obama-rule-natural-gas-flaring)

[4]      Freking, K., & Daly, M., 2/2/17, “Congress scraps Obama rules on coal mining, guns,” Associated Press (http://bigstory.ap.org/article/bf29ce0c4ba84550b51f503e7618d901/house-gop-aims-scrap-obama-rule-gun-background-checks)

[5]      Freking, K., & Daly, M., 2/2/17, see above

[6]      Kothari, Y., 1/4/17, “Attacking science in week one: How Congress is trying to dismantle public protections,” Union of Concerned Scientists in Common Dreams (http://www.commondreams.org/views/2017/01/04/attacking-science-week-one-how-congress-trying-dismantle-public-protections)

IS TRUMP A POPULIST, A FASCIST, BOTH, NEITHER?

Some in the media and many political pundits have referred to President Trump as a populist or a fascist or both. These terms are not opposites, but they aren’t comfortable bedfellows. I cringe every time I see Trump referred to as a populist because my vision of populism is the inclusive, broad-based populism of Senators Bernie Sanders and Elizabeth Warren.

A populist is someone who supports the concerns of ordinary, working people, as opposed to the elite, upper class. Populist activism is based on the belief that the common people are being exploited by the privileged elite. The underlying ideology of populists can be left, right, or center. Populist activism becomes likely when mainstream political institutions fail to deliver economic and social well-being for ordinary people. [1] The direction that populist activism takes depends heavily on the style of the politician who taps into it.

Populism has a long history in the US. There was a Populist Party in the 1890s and William Jennings Bryan ran as the Democratic presidential candidate on a populist platform in 1896, 1900, and 1908. President Theodore Roosevelt and the Republican Party took over the populist banner in the early 1900s. George Wallace’s campaigns of the 1960s and 1970s had populist themes that some labeled reactionary populism due to their racist underpinnings. Ralph Nader in the 1990s and 2000s ran for president using populist themes.

Trump’s campaign and presidency have a populist element in their appeals to the working class. However, their focus on the white working class evokes memories of the reactionary populism of George Wallace. Trump argues that the working class is being hurt by the actions of political elites in Washington, D.C. He also appeals to the working class by asserting that their well-being is being undermined by immigrants. There is a racist element to Trump’s appeals, as he lays the blame for the struggles of the white working class on (largely Latino) immigrants and Blacks. Historically, this type of reactionary populism has been fertile ground for the development of fascism.

Some view Trump’s populism as faux-populism and demagoguery because his appeals to the working class are based only on rhetoric and unrealistic policy proposals. Trump exhibits attributes of a demagogue, such as exploiting the prejudices and gullibility of some voters, and stirring up anger and resentment while eschewing reasoned debate. Historically, demagogues often overturn established customs of political conduct, assert the presence of a national crisis, and accuse moderate and thoughtful opponents of weakness or disloyalty to their country. A demagogic populist typically claims legitimacy directly from the people and asserts that he alone will do what the people want. He refuses to acknowledge the legitimacy of opposition and attacks institutions, from the courts to the news media, that don’t support him. Trump has exhibited many of these attributes. [2]

Personally, when I think of populism, I think of inclusive populism that is committed to including stigmatized groups (e.g., the poor, minorities, immigrants, and women). They are embraced and supported rather than being targeted for blame and as scapegoats. This is the type of populism that Senator Bernie Sanders promoted during the presidential primaries and for which Senator Elizabeth Warren has been advocating. [3]

Fascism, on the other hand, is an authoritarian and nationalistic approach to governing where the government controls or partners with business and/or labor. Typically, opposition is not tolerated and the government is led by a strong leader who asserts that strong central control is needed to effectively combat economic difficulties and external threats. A principal goal is self-sufficiency and independence through protectionist economic policies. [4]

Trump’s rhetoric echoes many of the themes of fascism. Perhaps most prominently, he promotes ethnic stereotypes and fear of foreigners, which is typical fascist rhetoric. Asserting concern about national decline is another common element of fascist discourse. Trump’s slogan “Make America great again” fits this theme exactly. Even though the US, by most measures, isn’t in serious decline, he’s able to persuade the white working class that the country is in decline, or at least their position in it is. Poorly-educated white males have experienced economic decline over the last 35 years. The Great Recession of 2008 and the weak recovery from it have left many working people economically worse off. [5]

Fascists tend to use threats of violence to intimidate opponents and silence critics. They are skilled at getting their followers to believe them even when the narrative they present is at odds with facts; truth becomes subjective. [6] These are also themes that have been apparent in the Trump campaign and presidency.

Trump’s selections for his Cabinet appear to contradict the populism of his campaign rhetoric. They do, however, fit with fascism’s alignment of business and government. Many of his nominees are from the corporate elite who have played a major role in diverting federal policy from supporting the working class to supporting large corporations. They seem positioned to strengthen the role of the private sector in policy making and undermine the role of the federal government in supporting working people. For example, they have opposed labor unions, workplace regulation, and workers’ rights; they have worked to privatize public education; they have weakened voting and civil rights; they have opposed environmental regulation and action on global warming; and they have supported weakening the social safety net. [7] [8]

There were and are elements of xenophobic, reactionary populism in Trump’s rhetoric and in some of his (to-date largely symbolic) actions. His style, cabinet nominees, and some of his actions exhibit themes of fascism. Although it’s too early to conclusively decide whether he is more of a populist or a fascist, President Trump has never expressed support for the inclusive populism of Senators Sanders and Warren. On the other hand, he has consistently displayed, and his background seems much more aligned with, some of the core themes of fascism.

[1]      Wikipedia, retrieved 2/18/17, “Populism” (https://en.wikipedia.org/wiki/Populism)

[2]      Wilkinson, F., 2/16/17, “Why Donald Trump really is a populist,” BloombergView https://www.bloomberg.com/view/articles/2017-02-16/why-donald-trump-really-is-a-populist

[3]      The Economist, retrieved 2/18/17, “The Economist explains populism,” http://www.economist.com/blogs/economist-explains/2016/12/economist-explains-18

[4]      Wikipedia, retrieved 2/18/17, “Fascism” (https://en.wikipedia.org/wiki/Fascism)

[5]      Chotiner, I., Feb. 2016, “Is Donald Trump a fascist?” Slate (http://www.slate.com/articles/news_and_politics/interrogation/2016/02/is_donald_trump_a_fascist_an_expert_on_fascism_weighs_in.html)

[6]      Kuttner, R., 12/16/16, “The audacity of hope,” The American Prospect (http://prospect.org/article/audacity-hope)

[7]      Vanden Heuvel, K., 12/20/16, “Sham populism, shameless plutocracy,” The Washington Post

[8]      Bonham, L., & Jennings, G., 2/17/17, “Is Trump’s billionaire cabinet actually a closet full of fascists?” Common Dreams (http://www.commondreams.org/views/2017/02/17/trumps-billionaire-cabinet-actually-closet-full-fascists)

STOP COMMERCIALIZATION OF OUR NATIONAL PARKS

Unfortunately, the National Park Service (NPS) has just enacted a policy that allows expanded commercialization of our national parks. Corporations have been pushing for years to commercialize our national parks with their names, logos, and products. The timing of the new policy is particularly inappropriate because this year is the 100th anniversary of our national parks. Their pristine beauty and intergenerational legacy were celebrated in the Ken Burns’ wonderful 2009 PBS special, “The National Parks: America’s Best Idea.” [1]

This new policy has been put in place despite overwhelming public opposition – hundreds of public comments in opposition and over 200,000 signatures on a petition opposing this policy. [2] The new policy will allow corporate sponsorships and partnerships, lift naming rights restrictions, allow advertising in parks (including for alcohol), and allow, if not require, parks to seek donations from corporations.

The new policy allows facilities from auditoriums to benches to have corporate names on them. Buses in national parks can now be plastered with advertising. Bricks or paving stones can have corporate names and logos on them. Educational programs and endowed positions can be branded by corporations. Large banners with corporate logos will now be allowed in the parks.

Even before this policy was in place, Coca-Cola, after donating $13 million to the NPS, blocked a proposed ban on bottled water in Grand Canyon National Park. The ban would have reduced trash in the park by 20%, saving money and employees’ time, while reducing litter and wasteful use of plastic. After public pressure, NPS allowed a park-by-park ban that requires a rigorous cost-benefit analysis and a multi-layered approval process. In another pre-policy example, Budweiser had a joint marketing campaign with NPS that allowed it to use the image of the Statue of Liberty on its labels and to co-sponsor a concert in a national park.

This is happening because our national parks are starved for money. While attendance at the parks has been up for three years in a row and is 20% higher than it was in 2013, Congress and the President have provided flat funding for operating the parks. [3] Despite the increased wear and tear, as well as the need for more parking and greater capacity on trails and roads, due to the increased number of visitors, the parks have received dramatically insufficient funding to maintain, let alone expand, infrastructure. It is estimated that there is an $11 billion backlog in maintenance projects. [4] Park superintendents struggle to meet their goals of preserving their parks for future generations, while providing a safe and enjoyable experience for visitors. They will now be put in the awkward position of needing to be involved in fundraising to support their park while being banned by federal law from directly soliciting donations.

As a poignant example of the problems commercialization can cause, Delaware North Corporation (DNC) is suing the NPS for $51 million for compensation for trademarks on the names of facilities in Yosemite National Park. DNC had been the concessionaire at the park since 1993, but recently lost the contract. Because this suit could take some time to resolve, Yosemite National Park has had to rename facilities in the park. The iconic Ahwahnee Hotel has been renamed, despite having operated under this name since 1927. It was named after the Native Americans who lived in the valley and whose descendants still work in the park. The Badger Pass Ski Area, among other facilities, has also been renamed and the trademark on the name “Yosemite National Park” may also be disputed. [5]

Commercialization is spoiling the pristine beauty of our national parks and detracting from the inspiring experience of visiting them. Conservationist and President Teddy Roosevelt envisioned our national parks as being preserved for future generations “with their majestic beauty all unmarred.” Commercialization of our national parks is antithetical to that vision and to the basic principle for creating national parks – to preserve our natural wonders and beauty for future generations in their natural, awe-inspiring state. We need to do a better job of protecting our national parks and the experience of visiting them.

I encourage you to contact your members of Congress and urge them to adequately fund our national parks and to ban commercialization of them. We must resist the efforts by corporate America and budget cutting politicians to commercialize and privatize these truly unique and irreplaceable public assets.

[1]      Burns, K., & Duncan, D., 2009, “The National Parks: America’s Best Idea,” Public Broadcast System, (http://www.pbs.org/nationalparks/)

[2]      Strader, K., 1/4/17, “Disregarding public concern, the National Park Service finalizes commercialism policy and opens parks to industry influence,” Public Citizen as reported by Common Dreams (http://www.commondreams.org/newswire/2017/01/04/disregarding-public-concern-national-park-service-finalizes-commercialism-policy)

[3]      Associated Press, 1/17/17, “National Parks set yet another attendance mark,” The Boston Globe

[4]      Rein, L., 5/9/16, “Yosemite, sponsored by Starbucks? National Parks to start selling some naming rights,” The Washington Post

[5]      Howard, B.C., 1/15/16, “National park advocates appalled by Yosemite name changes,” National Geographic (http://news.nationalgeographic.com/2016/01/160115-yosemite-names-ahwahnee-hotel-wawona-curry-badger-pass/)

PROBLEMS WITH PRIVATIZED PRISONS

The problems with privatized prisons have come to public attention largely due to the investigative journalism of The Nation and Mother Jones. Their reporting underscores the importance and challenges of investigative journalism. It has become relatively routine for targets of investigative journalism to sue (or at least threaten to sue) the journalists and their publishers. Both corporate and government entities have built an ever stronger set of legal protections including employee non-disclosure agreements and other employer protection laws and legal precedents. The mainstream, corporate media have largely abandoned investigative journalism at least in part due to the threat of litigation and because news and reporting budgets have been slashed to increase profits.

When Mother Jones published its report based on a guard’s experiences at a private prison run by the Corrections Corporation of America (CCA, see overview and link below), it received a threatening letter from a law firm on behalf of CCA. It was the law firm that had represented a billionaire and large political campaign donor who had spent 3 years suing Mother Jones over its reporting of his anti-LGBT activities. Although the billionaire lost his case, the legal costs Mother Jones incurred in defending itself were a very serious financial burden. Furthermore, he pledged $1 million to support others who might want to sue Mother Jones over its reporting. [1] Needless to say, this type of aggressive behavior by the subjects of investigative reporting puts a chill on this valuable kind of journalism.

The Nation’s investigative reporting was based on reviewing a large number of documents from the Bureau of Prisons (BOP) in the US Department of Justice. The documents were obtained only after a lengthy and costly process using the Freedom of Information Act to gain access to these public records.

The records showed that the Bureau of Prisons’ monitors had documented, between January 2007 and June 2015, the deaths of 34 inmates who were provided substandard medical care in the BOP’s private prisons. Fourteen of these deaths occurred in prisons run by the Corrections Corporation of America, while fifteen were in prisons operated by the GEO Group. These two corporations are the largest operators of for-profit prisons. [2]

Despite this and other documentation of serious problems at the for-profit prisons, top BOP officials repeatedly failed to enforce the remediation of dangerous deficiencies and routinely extended contracts for the prisons. This was due, at least in part, to a cozy relationship between BOP leadership and the private-prison operators because of the revolving door of personnel between the BOP and the private providers. In 2011, for example, Harley Lappin, who had served as the Director of the BOP for eight years, left to join CCA as executive vice president. There he earned more than $1.6 million in one year; roughly 10 times his salary at BOP. Two previous BOP Directors, J. Michael Quinlan and Norman Carlson, had gone to work for CCA and the GEO Group, respectively. Five BOP employees recalled the former BOP Directors participating in meetings between the BOP and the contractor for whom they worked. The BOP employees felt this influenced decisions that were made and made taking disciplinary action against the contractors difficult.

Mother Jones magazine’s investigative reporting was done by Shane Bauer, a reporter who spent 4 months as a guard at one of CCA’s private prisons in Louisiana. [3] He found that cost cutting was a focus of both the state and CCA. Employee costs made up 59% of CCA’s operating expenses and therefore were a key target for cost-cutting. Starting guards at Bauer’s CCA facility made only $9 per hour while those at public prisons in the state made $12.50. To further save money and increase profits, the CCA facility was typically under-staffed. The facility’s guard towers were unmanned on a regular basis and staffing inside the facility was typically 10% – 20% below standard. Lockdowns, where prisoners can’t leave their wing of the prison, were supposed to be punishments for major disturbances, but they also occurred over holidays and other times when there simply weren’t enough guards to run the prison. Security checks on prisoners were logged as being done even when they weren’t because of understaffing. However, when the state’s Department of Correction was coming for an inspection, guards were required to work overtime so the facility was fully staffed.

As a result of under-staffing and perhaps under-training (another cost-cutting strategy), the use of force or chemical agents, typically pepper spray, occurred more often at the CCA prison than at comparable facilities: twice as often for force and 7 times as often for chemical agents. With 1,500 inmates, 546 sexual offenses were reported at Bauer’s prison in 2014, 69% higher than at a comparable government-run facility. Between 2010 and 2015, CCA was sued more than 1,000 times nationwide, with approximately 3% of the cases involving a death, 6% sexual harassment or assault, 10% physical violence, 15% injuries, 15% medical care issues, and 16% prison conditions and treatment.

Louisiana’s efforts to cut costs and use contractors to run cheap prisons was reflected in the $34 per inmate per day that it paid CCA, while funding for state-run prisons was about $52. In addition, the inflation-adjusted cost per prisoner at the CCA facility Bauer worked at had dropped by 20% between the late 1990s and 2014.

CCA has an incentive to keep prisoners in its prisons in order to maximize revenue. An inmate can be charged with an infraction of the rules and lose credit for good behavior. This can mean that an inmate stays in prison an extra 30 days and that CCA gets paid an additional $1,000.

In Louisiana, the state also had an incentive to keep the prison full because CCA’s contract with the state required that CCA get paid for a minimum of 96% of full occupancy. Occupancy guarantees are common in private prison contracts and are one aspect of privatization that leads to perverse incentives for the state. The state’s incentive to keep the prison full may mean that prisoners who could be released are kept in prison or that the criminal justice system is pressured to arrest and sentence enough people to ensure that the prison is full.

CCA has been very active politically through lobbying and campaign contributions. Since 1998, CCA has spent $23 million on lobbying the federal government. Since 1990, it and its employees have contributed more than $6 million to candidates and other political activity. It has lobbied for high levels of incarceration. It co-chaired the criminal justice task force of the American Legislative Exchange Council (ALEC), a corporate and conservative think tank that drafts and promotes state-level legislation. Among the pieces of legislation it has promoted are mandatory sentencing laws, punitive immigration reform, and truth-in-sentencing laws, all of which helped fuel the growing prison population of the 1990s.

CCA and other for-profit prison corporations aggressively lobbied Congress in 2009 for a minimum number of undocumented immigrants to be in private detention centers. They succeeded; US taxpayers are required by law to pay for a daily minimum of 34,000 beds in private detention centers. [4] These corporations have also lobbied against bills in Congress that would require private prisons to be subject to public information laws, such as the Freedom of Information Act. Such bills have been introduced at least 8 times in Congress, but have failed to pass each time.

These are examples of the problems and issues with private prisons, and with privatization in general. The problems with the private prisons were severe and intractable enough that the BOP concluded that it had to terminate its use of them. The BOP’s experiences and decision to end privatization should be kept in mind as other privatization efforts are reviewed or proposed.

[1]       Jeffery, C., July/August 2016, “Why we sent a reporter to work as a private prison guard,” Mother Jones (http://www.motherjones.com/politics/2016/06/cca-private-prisons-investigative-journalism-editors-note)

[2]       Wessler, S.F., 6/15/16, “Federal officials ignored years of internal warnings about deaths at private prisons,” The Nation (https://www.thenation.com/article/federal-officials-ignored-years-of-internal-warnings-about-deaths-at-private-prisons/)

[3]       Bauer, S., July / August 2016, “My four months as a private prison guard,” Mother Jones (http://www.motherjones.com/politics/2016/06/cca-private-prisons-corrections-corporation-inmates-investigation-bauer)

[4]       Editorial, 8/27/16, “Dump private prisons – all of them,” The Boston Globe

SOLVING THE PROBLEMS OF OUR PRIVATIZED HEALTH CARE SYSTEM

Clearly, the private market is not working well for health insurance or health care in the U.S. Costs are rapidly escalating in a system that is already the most expensive in the world, but that has mediocre to poor outcomes. Many private health insurance, pharmaceutical, and health care corporations are putting profits before patients.

Increasing premiums for health insurance and high drug prices (see my previous post on drug prices) are undermining efforts to control health care costs. The exorbitant and fast growing costs of U.S. health care are squeezing state and federal governments’ budgets, as well as employers and individuals. In many states’ budgets, increased costs for health care for poor families and seniors through Medicaid, as well as for employees and retirees, are eating up all the increases in revenue from economic growth – and then some. This means that without tax increases or other sources of increased revenue, states and the federal government are having to cut spending in other areas of their budgets.

Increasing costs for employees’ health insurance are hurting employers’ competitiveness with foreign companies and reducing their profitability. Some employers have dropped health insurance as an employee benefit, while others have increased the portion of health insurance premiums employees must pay or are offering insurance plans with less comprehensive coverage as well as higher deductibles and co-pays. As fewer employees get health insurance through their employers, the number of people in subsidized government health programs increases, further increasing costs for governments.

Individuals are not getting the health care they need because insurance is not making it accessible and affordable. Many people are suffering financial hardship and some file for bankruptcy because of the costs of health care.

The clear solution to these problems is to provide everyone access to what’s referred to as a “public option” or a Medicare-for-all type health insurance plan. This would be a government run insurance pool, which is what Medicare is for seniors. When the Affordable Care Act (ACA) was being considered by Congress, a public option was initially included. In other words, a government run insurance plan would have been offered by each of the ACA’s state-level health insurance marketplaces (aka exchanges) where people without health insurance would buy coverage. A public option was vehemently opposed by the private insurers and was eventually dropped from the ACA legislation. They opposed it because they didn’t want the competition from a Medicare-type program that would be likely to expose their inefficiencies – despite, of course, these private corporations’ dedication to free markets and competition whenever any government regulation is proposed.

With problems in our privatized health care system becoming increasingly apparent, including a public option in the ACA exchanges is gaining increased support. [1] With some private health insurers abandoning the exchanges, it is projected that 7 states will have only one private insurer offering coverage. [2] In these state, having a public health insurance plan as an option would mean that there was still competition. This would serve as a check on the sole private insurer, ensuring that its coverage and pricing remained competitive and that it didn’t exploit a monopoly situation.

More broadly, there have been numerous proposals over many years to allow anyone over 50 or 55 years old to “buy into” Medicare. In other words, although they hadn’t yet reached the normal Medicare eligibility age of 65, these individuals would be allowed to pay an appropriate premium to buy health insurance as part of the Medicare insurance pool.

Senator Sanders, in his presidential campaign, highlighted his proposal for Medicare-for-All. This proposal would allow anyone to pay an appropriate premium to buy health insurance as part of a large, Medicare-like, government insurance pool. This proposal received broad and often enthusiastic support. [3]

A public option in the ACA exchanges or a Medicare-for-All option for everyone is the only way to realistically address the shortcomings of our privatized system of health care. By providing real competition for the private insurers, this would ensure the quality and affordability of health insurance. By giving the public option or Medicare-for-All insurance pools the right to negotiate with the pharmaceutical corporations over drug prices, prescription drug costs could be brought under control. (The Medicare drug benefit should also be changed to allow Medicare to negotiate drug prices.)

If we want quality and affordability in our health care system, a public option or Medicare-for-All program is essential as a check on the private corporations that currently dominate our health care system. Currently, a proposal in the U.S. Senate would add a public option to the ACA exchanges. It already has the support of over 30 Senators, including Senators Bernie Sanders (VT), Elizabeth Warren (MA), Jeff Merkley (OR), Charles Schumer (NY), Patty Murray (WA), and Dick Durbin (IL).

I encourage you to contact your U.S. Senators and other elected officials to tell them you support a public option under the Affordable Care Act specifically and a Medicare-for-All program in general. The for-profit health insurance, pharmaceutical, and health care corporations will fight tooth and nail to stop this competition. They will make huge campaign and lobbying expenditures to try to maintain their ability to manipulate our health care system to generate large profits and exorbitant executive compensation. Only a huge outcry and sustained pressure from the grassroots – from we the people – will get our policy makers to enact the significant reforms needed to create a health care system that delivers affordable, high quality care for all.

[1]       Willies, E., 8/28/16, “Recent headlines signal need for single-payer Medicare for All – now,” Daily Kos (http://www.dailykos.com/story/2016/8/28/1563720/-Recent-headlines-signal-need-for-single-payer-Medicare-for-All-now)

[2]       Alonso-Zaldivar, R., 8/29/16, “Challenges mount for health law,” The Boston Globe from the Associated Press

[3]       Nichols, J., 9/16/16, “Make the public option a central focus of the 2016 campaign,” The Nation (https://www.thenation.com/article/make-the-public-option-a-central-focus-of-the-2016-campaign/)

HEALTH INSURANCE: A BIG PROBLEM IN OUR PRIVATIZED HEALTH CARE SYSTEM

The goals of health insurance are to provide affordable access to health care and to protect people from the catastrophic costs of serious health problems. The health insurance system in the US is failing to meet these goals for many Americans.

The most recent and newsworthy issues with private health insurance are occurring in the so-called health insurance exchanges. These are state-level marketplaces created by the Affordable Care Act (ACA, aka Obama Care) where individuals without health insurance can buy coverage.

Many of the private health insurers offering policies through the exchanges are increasing the premiums they charge; some by as much as 62%. This is happening in part because some insurers initially set premiums unrealistically low in order to attract customers and gain market share. In addition, health care costs for those enrolling through the exchanges have been greater than some insurers estimated. [1]

As a result of these increased premiums, customers may switch to less expensive policies with less comprehensive coverage as well as higher deductible and co-payment amounts. This will increase the costs of health care for these customers, leaving some of them under-insured and vulnerable to financial hardship or bankruptcy if a major medical expense occurs.

Some insurers are terminating their participation in the exchanges, ostensibly because they aren’t making money on the policies they are selling there. However, in the case of Aetna, apparently it is planning to withdraw from 11 of the 15 exchanges in which it participates as retaliation for the federal government’s opposition to Aetna’s proposed merger with Humana. Both Aetna and Humana are among the 5 largest health insurers in the country. If this merger and another one (between Anthem and Cigna) that the government is blocking were approved, the top 5 health insurers would become 3 huge corporations. These are exactly the kinds of mergers that are resulting in decreased competition, increased prices, and near monopolistic power. (See my earlier blog post for more details.)

Overall, the health insurance corporations are raising premiums and cutting their participation in the exchanges to cut losses or increase profits. Profits are more important to them than meeting the goals of health insurance for customers.

Furthermore, private insurers are much less efficient than Medicare, the public health insurance program for our seniors. This is well documented. Medicare spends over 95% of its budget on actual health care. Private health insurers spends as little as 67% of premiums on actual health care. They use money from premiums to pay for advertising, profits, and executives’ compensation. To ensure a reasonable level of efficiency, the ACA requires health insurance policies offered on its exchanges to spend 80% of their premiums on actual health care – as opposed to administrative and corporate expenses.

Private health insurance simply doesn’t make sense from two key perspectives. First, health insurance and health care are not “markets” as defined by economics. Consumers don’t have perfect and clear information about the competing products. Consumers can’t and don’t effectively shop around for health insurance plans or health care services. When one needs a medical procedure, one doesn’t have the time, information, or capacity to shop around and find the best combination of quality and price.

Second, the whole premise of insurance is that risk is shared among a large, random pool of people. However, the multiple health insurers fragment the pool and, furthermore, each one works to attract healthy people (who are less costly to serve) and avoid those who are sick. With one large, random pool, the unpredictable nature of health care needs and costs is shared. The financial hardship of a serious medical issue does not fall on one individual or family. However, our private health insurance industry fragments the pool and tries to only insure healthy people. They do this through advertising, which therefore becomes a major expense, along with special perks like coverage for membership in a fitness center. They do it by denying payment so sick customers get frustrated and leave. This is clearly documented in Medicare, where the private insurers that provide services under Medicare are clearly successful at attracting the healthier seniors but then dumping them back into the government insurance pool when they get sick.

In addition, the presence of multiple private health insurers also increases costs for doctors, hospitals, and other providers of health care. Each insurer has its own forms and procedures with which the providers have to cope.

Roughly 50 – 60 million adults struggle with health care bills each year and the great majority of them have health insurance. This includes roughly 20% of the adult population under 65, the age of eligibility for automatic health insurance under Medicare. [2] Nearly 2 million Americans will file for bankruptcy this year in cases where unpaid medical bills are a major factor. Overwhelming health care bills are the number one reason for personal bankruptcy filings. [3]

More Americans have health insurance today than ever before thanks to the ACA, which has provided health insurance to 15 million people. However, because of the dysfunction of privatized health insurance, this has not significantly reduced financial hardship due to medical bills. Notably, the easiest way for health insurers to reduce costs and increase profits is to refuse to pay for health care services. Having a health insurer deny authorization or payment for care is something almost all Americans have experienced. In addition, health insurers are increasing premiums while reducing coverage and raising deductibles and co-payments.

Clearly, private health insurance is not meeting the goals of affordability and protection from financial hardship. My next post will present solutions to the problems of our privatized health care system.

[1]       Alonso-Zaldivar, R., 8/29/16, “Challenges mount for health law,” The Boston Globe from the Associated Press

[2]       Sanger-Katz, M., 1/5/16, “Even insured can face crushing medical debt, study finds,” The New York Times

[3]       Mangan, D., 6/25/13, “Medical bills are the biggest cause of US bankruptcies,” CNBC (http://www.cnbc.com/id/100840148)

DRUG PRICES: A BIG PROBLEM IN OUR PRIVATIZED HEALTH CARE SYSTEM

A series of recent events have highlighted the problems with our privatized, for-profit health care system. First, there have been numerous cases of drug prices that have increased dramatically. I’ll discuss this topic in this post.

Second, health insurance corporations have been merging (and continue to try to) to create a few, enormous corporations that have monopolistic power, which leads to increases in health insurance costs. A similar pattern is occurring among health care providers, although this tends to be more regional than national. I’ll discuss these issues in my next post, followed by a post on solutions to the problems of our privatized health care system.

These recent events highlight that per capita health care spending in the U.S. continues to climb more rapidly than overall inflation. And they underscore that our health care spending is already exorbitant compared to every other country, while our health outcomes are worse.

The dramatic increase in the cost of EpiPens has been the most recent and perhaps most prominent of the extraordinary increases in drug prices. Perhaps this is because of its widespread usage and dramatic life-saving potential, especially for allergic reactions in children. The history here is that the EpiPen cost $50 in 2004. It was bought by Mylan in 2007, which began to steadily increase its price. It hit $250 in 2013 and then, in August, Mylan jumped the price to $600 – 12 times what it cost in 2004. By the way, the actual drug in the EpiPen costs about $1. [1]

The pharmaceutical corporations typically argue that their high drug prices are needed to pay for research and development. The validity of this argument is questionable at best and clearly false in many cases, such as the EpiPen case. A recent study found no evidence of a connection between drug research and development costs and prices. It concluded that drug prices are based on what the manufacturer can squeeze out of consumers and their insurance. [2]

For example, in August the price of Daraprim was raised to $750 per pill from $13.50. It had been $1 per pill in 2010. This is a 62-year-old drug that treats a life-threatening parasitic infection in babies and those with compromised immune systems, such as AIDS and cancer patients. In 2010, GlaxoSmithKline sold the drug to CorePharma, which quickly increased the price from $1 to around $10 per pill. In August, the drug was acquired by Turing Pharmaceuticals, a start-up run by a former hedge fund manager, and its price was immediately increased to $750 – 750 times its cost in 2010. [3] Turing is not a pharmaceutical company; it doesn’t do research and development. It is basically a hedge fund that buys the rights to drugs on which it believes it can dramatically increase prices to make a great return on its investment. Why the price increases? Greed coupled with a lack of regulation is the only answer.

Similarly, Rodelis Therapeutics bought Cycloserine, a drug to treat drug-resistant tuberculosis. It quickly increased the price per pill to $360 from about $17. Likewise, Valeant Pharmaceuticals acquired two heart drugs and more than doubled the price of one and quintupled the price of the other. This was on top of a quintupling of their prices in 2013 by the previous owner that had recently purchased them. So, overall their prices have jumped to 10 and 25 times what they were in 2013.

Per capita prescription drug spending in the U.S. is the highest in the world. U.S. drug spending is more than twice as high as the average for 19 other advanced countries and one-third higher than in the next most expensive countries, Canada and Germany.

Medicare, the huge health insurance plan for our seniors, is prohibited from negotiating with pharmaceutical corporations for lower drug prices. [4] This was written into the expansion of Medicare that added coverage of drugs by the George W. Bush administration at the behest of the pharmaceutical corporations. Meanwhile, the Veterans Administration, many health insurers, and health care systems in other countries negotiate far lower prices for drugs than what Medicare ends up paying.

U.S. patent laws and other market protections slow the availability of less expensive, generic versions of drugs, thereby supporting high prices for brand name drugs here in the U.S. Brand name drugs (as opposed to generics) represent 10% of prescriptions but 72% of drug spending.

The pharmaceutical corporations also use multiple business strategies to limit competition so they can maintain high prices for their drugs. One strategy is to use what the pharmaceutical industry calls “controlled distribution.” This means that the drugs are not distributed through drugstores but only directly by the corporation. Therefore, companies that want to make and sell a generic version of the drug, cannot get the samples they need to analyze, replicate, and test a generic version of the drug. Another strategy is to pay generic drug manufacturers not to make a generic version of a drug, even after its patent has expired. A third strategy is to make a minor modification to a drug, one that often has no functional impact, in order to obtain a patent extension based on the modification.

Dramatic increases in the prices of generic drugs (i.e., non-brand-name drugs that are no longer covered by a patent) are a relatively new phenomenon. Prices of generic drugs declined from 2006 to 2013. However, there are numerous examples of dramatic price increases over the past 3 years: [5]

  • Tetracycline (a common antibiotic): $0.06 to $4.60 per pill (77 times as expensive)
  • Amitriptyline (an antidepressant): $0.04 to $1.03 per pill (26 times)
  • Clobetasol (a prescription skin cream): $0.26 to $4.15 per gram (16 times)
  • Captopril (a blood pressure med): $0.11 to $0.91 per pill (8 times)
  • Digoxin (a heart med): $0.12 to $0.98 per pill (8 times)

Drug prices in the U.S. are not regulated or routinely negotiated as they are in other countries. Mergers of pharmaceutical corporations have reduced competition. Increasingly, the remaining large corporations have monopolistic power in the marketplace, and hence can increase prices more or less at will.

In California, the pharmaceutical industry, led by Merck and Pfizer, is spending over $80 million to defeat a ballot question that would limit state health plans to paying the discounted drug prices negotiated by the US Department of Veterans Affairs. Back in 2005, the pharmaceutical industry spent $135 million to defeat a ballot question that would have required it to provide discounted drugs for the poor. [6]

Perhaps not surprisingly, prescription drug costs represent the fastest growing portion of health care costs. Overall spending on prescription drugs has been growing at 10% per year, double the rate of increase of total health care spending, and roughly 5 times the rate of general inflation in the economy. Prescription drugs now account for 17% of all health care spending. [7]

[1]       Rosenthal, E., 9/2/16, “The lesson of EpiPens: Why drug prices spike, again and again,” The New York Times

[2]       Kesselheim, A.S., Avorn, J., & Sarparwari, A., 8/23/16, “The high cost of prescription drugs in the United States: Origins and prospects for reform,” The Journal of the American Medical Association

[3]       Pollack, A., 9/21/16, “Huge hikes in prices of drugs raise protests and questions,” The Boston Globe from The New York Times

[4]       Weisman, R., 8/24/16, “Exclusivity rule seen driving up drug costs,” The Boston Globe

[5]       McCluskey, P. D., 11/7/15, “The not-so-cheap alternative,” The Boston Globe

[6]       Robbins, R., 9/7/16, “A revolt against high drug prices,” The Boston Globe

[7]       Weisman, R., 8/24/16, see above

THE TRUTH ABOUT RAISING THE MINIMUM WAGE

 Whenever a proposal to raise the minimum wage is put forth, especially one for a significant increase such as to $15 per hour (the current federal minimum wage is $7.25), the business community and its allies among elected officials immediately warn that there would be dramatic negative effects on the number of jobs and the growth of the economy.

However, there is no actual evidence that raising the minimum wage to $15 over the course of a few years would reduce the number of jobs or slow economic growth. These assertions by the business sector are pure speculation based on the economic theory of ideal markets (which don’t exist in reality). The warnings are meant to create fear among voters and elected officials, and therefore foster opposition to increasing the minimum wage.

Past increases in the minimum wage have not led to increases in unemployment. In January 1950, the minimum wage was increased 87.5% (from $.40 to $.75). Over the next 15 months, the unemployment rate fell from 7.9% to 3.1%. A similar result occurred after a 33.3% increase in the minimum wage in March 1956. A study by the NY Department of Labor found that after six of eight increases in New York’s minimum wage between 1991 and 2015 employment increased.

When San Jose increased its minimum wage by $2 in 2013, the business community and particularly restaurants and small businesses predicted disaster. However, new business registrations grew and unemployment fell, including in the restaurant and hospitality sector where 4,000 jobs were added over the next year. [1]

Washington State has the highest minimum wage in the country at $9.47, and it applies to tipped workers. (This is four and a half times the federal minimum wage for tipped workers of $2.13.) And yet Seattle has the second highest concentration of restaurants per capita in the country (behind only San Francisco, where the city’s minimum wage is even higher). Washington State also boasts the highest rate of small-business job growth in the country.

In 2014, when Seattle raised its city minimum wage to $15, the restaurant industry and the business sector predictably claimed that disaster would follow. But six months later, Seattle’s restaurant industry was growing faster than ever. And in early 2016, Washington State was first in the country in job and wage growth.

International comparisons demonstrate that a high minimum wage does not reduce the number of low paying jobs or increase the unemployment rate of low-education workers. Among 18 countries with advanced economies, the U.S. has the highest proportion of low-wage jobs (25%) but only an average employment rate for low-education workers (57%). In other words, having lots of low-wage jobs in the U.S. has not led to high employment among workers with low levels of education.

It is the presence of a high minimum wage and collective bargaining for workers that explains the presence of jobs with good wages in other countries. Furthermore, most of the 18 other countries have stronger social supports for workers and families than the U.S. in areas such as health care, housing, education, and especially child care. The lower minimum wage and weaker social supports in the U.S. reflect the lack of political power of ordinary workers in America. [2]

It has been seven years since the federal minimum wage was raised to $7.25. That’s seven years without a raise for many workers, while housing, food, and health care costs have risen. Not since the 1930s has the American workforce experienced such a low-wage and insecure labor market. Relatively high unemployment and very high under-employment, as well as the rise of part-time and contingent jobs with their uncertain incomes, are the symptoms of insecure jobs.

Today’s low wages (which have been declining with inflation) and job insecurity are largely the result of decreased union membership and weakened government regulation of the labor market. As Adam Smith wrote over 200 years ago, if workers negotiate wages and working conditions individually with employers, employers will always have the upper hand.

In competitive markets for goods and services, without government regulation (such as a strong minimum wage law) and collective bargaining for workers, the job market becomes a race to the bottom. Employers will drive down wages, benefits, and working conditions to maximize competitiveness and profits.

This is what has happened in the U.S. since 1968 as government regulation and union membership have declined. Using 1968 as the reference point, today’s current federal minimum wage of $7.25 would be:

  • $9.63 if it had kept up with inflation; (In other words, the minimum wage today has roughly 25% less purchasing power than it had in 1968.)
  • $11.35 if it had kept up with the average wage in the economy; or
  • $18.85 if it had kept up with the improvement in workers’ productivity. [3] (In other words, the value of the increased production of today’s workers over those of 1968 is not getting paid to the workers but is going to managers and investors or shareholders.)

So, the truth about increasing the minimum wage is that it doesn’t increase unemployment and slow economic growth. In fact, the opposite may occur. Furthermore, there are many benefits to increasing the minimum wage (which I’ll discuss in my next post) that outweigh any possible negative effects.

[1]       Hanauer, N., Summer 2016, “Confronting the parasite economy,” The American Prospect

[2]       Howell, D.R., Summer 2016, “Reframing the minimum-wage debate,” The American Prospect

[3]       Cooper, D., 7/25/16, “The federal minimum wage has been eroded by decades of inaction,” The Economic Policy Institute (http://www.epi.org/publication/the-federal-minimum-wage-has-been-eroded-by-decades-of-inaction/)

A LARGE CORPORATION BLACKMAILS OUR GOVERNMENT

The U.S. Department of Justice (DOJ) is blocking two mergers, each of which would combine two of the five largest health insurance corporations in America. Aetna and Humana have plans to merge as do Anthem and Cigna. As a result, the big five health insurers would become three, reducing competition and choice for consumers, and, presumably, increasing the cost of health insurance. As I’ve written about in previous posts (here, here, and here), huge corporations with near monopoly power are bad for our economy and our democracy.

It appears in this case that Aetna is using its marketplace and political power to attempt to blackmail the federal government into approving its merger. On August 15, Aetna announced that it will withdraw from 11 of the 15 state health insurance marketplaces (called exchanges) in which it currently participates. These exchanges were created by the Affordable Care Act (aka Obama Care) and are where people without health insurance go to find and buy insurance.

Aetna claims it is dropping out of the exchanges because it cannot afford the losses it is experiencing on consumers from them. However, this is a dramatic reversal from the corporation’s statements four months ago when its CEO Mark Bertolini said that Aetna planned to stay in the exchanges and was “in a very good place to make this a sustainable program.” It appears the major reason for the shift was the DOJ’s decision to block its merger with Humana. [1]

Back in July, in a letter to the DOJ (obtained by The Huffington Post through a Freedom of Information Act request), Aetna CEO Bertolini stated that Aetna would reduce its participation in the health exchanges if the merger wasn’t approved. [2] Note that Bertolini would personally receive up to $131 million if the merger goes through [3] and that Aetna made a profit of $2.4 billion in 2015 on revenue of $60 billion.

The withdrawal of Aetna from the health insurance exchanges will force consumers to switch plans and will result in fewer choices and perhaps increased costs for Americans obtaining health insurance through the exchanges. Other health insurers, including regional Blue Cross Blue Shield plans, find their participation in the exchanges profitable or plan to continue their participation even if currently there are some losses. Obama Care has brought 20 million new consumers to the health insurers through its exchanges and subsidies.

Many people, including former presidential candidate Bernie Sanders, are pointing to Aetna’s action as an example of the unhealthy amount of power that giant corporations have. More specifically, many health advocates are concerned about corporate power in the health care arena and are citing this as another example of corporations putting profit before people’s health. Senator Elizabeth Warren wrote that “The health of the American people should not be used as bargaining chips to force the government to bend to one giant company’s will.” [4]

The need for a publicly sponsored alternative (sometimes referred to as Medicare-for-All) to the private, generally for-profit, health insurers in the health insurance exchanges, is being put forth as the solution to counter the pitfalls of for-profit health insurance. [5]

Corporations shouldn’t have the power – which largely comes with size and near-monopoly market share – to effectively blackmail our federal, state, and local governments. These large health insurers and other huge corporations have amassed unhealthy amounts of power. Fortunately, the DOJ is blocking the two proposed mergers that would only make the situation worse.

The “laws” of economics (more accurately economic theory) assume that markets have multiple small suppliers of goods and services. Therefore, there would be real competition and consumer choice that could constrain market prices and companies’ behavior. Small is beautiful (to revive an old saying).

However, major, critical sectors of our economy have one or a very few large corporate suppliers. Aetna’s actions provide a poignant example of how corporate power can harm consumers, our economy, and democracy.

[1]       Bryan, B., 8/17/16, “Now we know the real reason Aetna bailed on Obamacare,” Business Insider (http://www.businessinsider.com/aetna-humana-merger-reason-for-leaving-obamacare-2016-8)

[2]       Cohn, J., & Young, J., 8/17/16, “Aetna CEO threatened Obamacare pullout if Feds opposed Humana merger,” The Huffington Post (http://www.huffingtonpost.com/entry/aetna-obamacare-pullout-humana-merger_us_57b3d747e4b04ff883996a13)

[3]       Knight, N., 8/17/16, “Sanders: Aetna’s Obamacare threat shows what ‘corporate control looks like’,” Common Dreams (http://www.commondreams.org/news/2016/08/17/sanders-aetnas-obamacare-threat-shows-what-corporate-control-looks)

[4]       Knight, N., 8/17/16, see above

[5]       McCauley, L., 8/16/16, “Aetna’s greed proves that Medicare-for-All is the best solution,” Common Dreams (http://www.commondreams.org/news/2016/08/16/aetnas-greed-proves-medicare-all-best-solution)

SECRET MONEY IN STATE AND LOCAL ELECTIONS FACILITATES CORRUPTION

The growth of secret money in state and local elections means that voters know less and less about who is working to influence their votes and the outcomes of their elections. Secret money is money spent by organizations that do not have to report their funding sources. Therefore, it is referred to as “dark” money. Most of this money is spent by social welfare non-profits (i.e., 501(c)(4) organizations) and trade or industry associations (e.g., the Chamber of Commerce or the Pharmaceutical Research and Manufacturers of America association, 501(c)(6) organizations). Based on the Supreme Court’s Citizens United decision, these groups can spend unlimited amounts of money on advertising and other campaign activities as long as it is independent of a candidate’s campaign, although the independence of such spending is often very questionable.

As I noted in my previous post, big money may have more impact in state and local elections than in federal ones. For example, a race for school board or a state’s public utilities commission costs much less than a race for federal office and gets much less media coverage. State ballot questions are also frequent targets of dark money spending. In such low-cost, low-information elections, it can be relatively easy to sway voters, particularly in non-partisan elections where party affiliation does not serve as a guidepost for voters.

These elections can have significant financial consequences, often for a narrow but economically significant constituency. A utility commission, for example, makes decisions that can effect energy corporations’ profits and homeowners’ electricity rates. Dark money at the state and local levels frequently comes from corporations and other special interests that have a direct and immediate stake in the outcome of the election, whereas at the federal level the outside spending tends to be more ideologically or party focused.

For less than $100,000, a corporation or wealthy individual can have a significant impact on a state or local election. When there is a significant self-interest at stake, this is a modest business expense. On the other hand, for state or local candidates or community groups, such sums are dauntingly large.

By using dark money for its campaign spending, the corporation or wealthy individual can hide its identity so voters don’t know who is trying to influence their votes or about the self-interested nature of the spending. And a growing portion of the big money in state and local elections is dark money. The ability to significantly affect or even dominate an election with high stakes but without public transparency means significant conflicts of interest can be hidden and outright corruption is facilitated. [1]

The Brennan Center for Justice recently studied outside campaign spending (i.e., spending not by a candidate’s own campaign organization) in six diverse states with almost a fifth of the U.S. population (Alaska, Arizona, California, Colorado, Maine, and Massachusetts). [2] It examined dozens of state and local elections in these states. It found that the amount of dark money spent in 2014 was 38 times what was spent in 2006, a rate of increase greater than that for federal elections. It also found that in 2006 76% of the outside spending was fully transparent – that the true identities of the donors was known to voters as they voted. In 2014, only 29% of outside spending was fully transparent.

In Arizona’s 2014 election for two utility commissioners, $3.2 million was spent by dark money groups. This was more than double what all six candidates’ campaigns combined spent and was almost 50 times the amount of dark money spent in the 2012 election. After the election, it was learned that the source of the money was the state’s largest private utility, Arizona Public Service, which didn’t like the state’s requirement that it buy power from homeowners’ solar panels that the homeowners didn’t need. (This is called net metering.) After the candidates the dark money supported were elected, the Commission shifted its stance from actively encouraging homeowner-generated solar power to making it more costly for homeowners.

In Mountain View, CA, a group calling itself the Neighborhood Empowerment Coalition spent $83,000 in dark money in the 2014 city council election. This was more than half of the combined total of what all nine candidates’ campaigns spent. Land use and housing policy were prominent issues in the election in this community where property values and rents have soared. After the election, the voters learned that the coalition was funded by a PAC linked to the country’s largest property owners association and its goal was to prevent the establishment of rent control. The newly elected councilors did not enact rent control.

In the Utah attorney general’s race in 2012, after the election it was learned that an aide to the winner had arranged for payday lenders to fund $450,000 in dark money advertising in exchange for a promise to shield them from consumer protection laws. The attorney general resigned after less than a year in office due to this and other revelations.

Compounding the problem of dark money is the recent growth of “gray” money. This is money spent by organizations such as Political Action Committees (PACs) that are required to disclose their donors, but where the identities of the true donors are hidden. PACs can receive donations from other PACs or organizations and sometimes these organizations are set up to obscure identification of the original donor. Donations can pass through a succession of multiple organizations to obfuscate the true source. This is political money laundering. Furthermore, some of these donor organizations may be “dark” organizations that do not have to disclose their donors. Donations from dark organizations to PACs have grown from less than $200,000 in 2006 to $9.2 million in 2014 in the six states studied by the Brennan Center. Gray money grew from 15% of all outside spending in 2006 to 59% in 2014. [3]

The impact of big money and dark money in state and local elections is undermining democracy by allowing special interests to impact election outcomes and to do so secretly. The potential for outright corruption is clear.

In my next post, I will share some effective steps that can be taken now to address the problems of big money and dark money in state and local elections; ones that can be taken within the constraints of current Supreme Court decisions (e.g., Citizens United and McCutcheon).

[1]       Lee, C., & Norden, L., 6/25/16, “The secret power behind local elections,” The New York Times

[2]       Lee, C., Valde, K., Brickner, B.T., & Keith, D., 2016, “Secret spending in the states,” The Brennan Center for Justice, New York University School of Law (https://www.brennancenter.org/sites/default/files/analysis/Secret_Spending_in_the_States.pdf)

[3]       Lee, C., Valde, K., Brickner, B.T., & Keith, D., 2016, see above

CRIMINAL JUSTICE REFORM FOR WHOM??

Efforts to reform our criminal justice system were hijacked in Congress at the last minute by an effort to weaken the ability to prosecute corporate and white collar crime.

Our criminal justice system is in need of reform. Incarceration in the U.S. has grown dramatically while the crime rate has fallen. There are over 2.2 million people incarcerated in federal, state, and local prisons today compared with 1 million in the late 1980s and half a million in the 1970s. Our incarceration rate of over 700 people per 100,000 of population is the highest in the world. With 4.4% of the world’s population, we have over 22% of the world’s prisoners. There is also great variation among the states with Louisiana having an incarceration rate (over 1,400 people per 100,000) over three times that of Minnesota and Maine (less than 400 people per 100,000). [1]

The cost of incarceration at the federal, state, and local levels has been growing along with the prison population and is currently roughly $80 billion a year. This rapidly growing cost is unsustainable for many states and is squeezing public spending in other areas.

However, since 1990, the overall crime rate in the U.S. has fallen by 45% (i.e., from roughly 5,900 per 100,000 residents to about 3,250). It is at its lowest rate since the late 1960s after peaking in 1980. [2]

Another key problem with our criminal justice system is its racial bias. In terms of incarceration, 60% of those in prison are racial or ethnic minorities. The incarceration rate for Black adult men (4.7% of their population) is almost seven times that of White men (0.7%) and over 2.5 times that of Hispanic men (1.8%). Over their lifetimes, 1 out of every 3 Black men will spend time in prison, while only 1 in 20 White men will and 1 in 6 Hispanic men.

These were the problems that were ostensibly the focus of a broad, bipartisan coalition that formed in early 2015, although priorities undoubtedly varied. Fiscal conservatives wanted to reduce costs, increase efficiency, and reduce government spending. Human rights and liberal groups wanted to reduce racial inequities, including in sentencing for non-violent drug crimes. Libertarian groups wanted to reduce the prison population in order to reduce the size of government and its control over people’s lives.

The initial targets for reform were elimination of mandatory minimum sentences for non-violent drug offenses and giving judges more discretion in sentencing. The coalition worked closely with members of the U.S. Senate in drafting a bill and had the strong support of the President. [3]

After months of work by the bipartisan coalition and on the eve of a vote on the bill in the Senate Judiciary Committee, Senator Hatch demanded that provisions weakening the ability to prosecute white collar crime be added to the bill. This, apparently, was the hidden agenda of the business conservatives, led by the Koch brothers, who had participated in the coalition. The Senate refused to add these provisions and proceeded to pass the bill.

The bill then went to the House where Judiciary Committee Chairman Goodlatte threatened to kill the bill unless provisions weakening the prosecution of white collar crime were added. As a compromise to move the sentencing reform ahead, these provisions were added along with some other criminal justice reforms, such as easing re-entry into society after completion of a prison sentence. It is unclear when and if this compromise bill will move forward.

The Department of Justice and the White House are strongly opposed to the provisions weakening the prosecution of white collar crime. They maintain their opposition despite four meetings with a senior White House official by Koch Industries’ (the Koch brothers company) Senior Vice President during the time the compromise was being negotiated in the House. This is the kind of access and power the economic elites in our society have to our elected officials.

Basically, the white collar crime provisions would eliminate the longstanding legal principle that ignorance is no defense for breaking the law. They would require prosecutors to prove that defendants knew they were committing a crime, not just that a crime was committed. Moreover, they would institute a much higher standard of proof for what constitutes knowledge of guilt than has been used by judges for decades. [4]

Over-prosecution of white collar crime is not a problem unless you are a corporate executive who pushes the limits of the law. On the contrary, the American public strongly believes that white collar criminal prosecution is too lax. The fact that there were no significant prosecutions after the 2008 Wall Street debacle is exhibit one.

Federal prosecutions of white collar crime are down to 2% of federal criminal cases from 7% in 1980. The proposed provisions would not only reduce prosecutions further, it would give white collar criminal defendants a vehicle for engaging in extensive litigation (e.g., about who knew what when) and likely allow many of them to escape liability for serious crimes. Plausible deniability would clearly become a get out of jail free card, if it isn’t already.

Senator Warren released a report in early 2016 that documents 20 examples of cases where white collar crime prosecution was inexcusably weak. They range from ignition switch problems in GM cars to foreign currency market manipulation by a group of the largest financial corporations. She notes that the differential prosecution of street crime versus white collar crime “has a corrosive effect on the fabric of democracy.” (page 1) In some of her examples it appears that large corporations and their executives have decided that lax enforcement and weak punishment make the penalties for breaking the law an acceptable cost of doing business. Senator Warren promises to provide annual updates on responses to white collar crimes. [5]

The gaping chasm between get tough on crime incarceration for street crime and the lax punishment of white collar crime is an important factor in the cynicism and anger of the American public. The undermining of a bipartisan, thoughtful effort to reform over-incarceration and its racial bias by economic elites trying to weaken prosecution of white collar criminality is symbolic of their power to bend public policy to their benefit. This underscores how difficult the task of reclaiming our democracy will be and the vigilance it will require.

[1]       Wikipedia, retrieved 7/21/16, “United States incarceration rate” (https://en.wikipedia.org/wiki/United_States_incarceration_rate)

[2]       Wikipedia, retrieved 7/21/16, “Crime in the United States” (https://en.wikipedia.org/wiki/Crime_in_the_United_States)

[3]       Steinzor, R., 5/11/16, “Dangerous bedfellows: The stalemate on criminal justice reform,” The American Prospect (http://prospect.org/article/dangerous-bedfellows)

[4]       Steinzor, R., 5/11/16, see above

[5]       Staff of Sen. Elizabeth Warren, Jan. 2016, “Rigged justice: How weak enforcement lets corporate offenders off easy” (http://www.warren.senate.gov/files/documents/Rigged_Justice_2016.pdf)

MONOPOLY POWER AND HOW TO STOP IT

Monopolistic corporate power is a big problem in the US. Ever since the Reagan presidency in the 1980s, our government has effectively given up on enforcement of anti-trust (i.e., anti-monopoly) laws. Our anti-trust regulators have ignored evidence that the monopolistic power of huge corporations results in higher prices, lower wages, job losses, declining entrepreneurship, and increased inequality.

The regulators, the Department of Justice (DOJ) and Federal Trade Commission (FTC), rarely block mergers or acquisitions. Sometimes they require corporations to make changes meant to address the negative consequences of huge size and significant economic (and potentially political) power. However, the changes corporations promise to make are often not fully implemented or are ineffective in ameliorating negative consequences, especially in the long-term. [1]

The DOJ and FTC have been compromised by decades of appointments of officials who came through the revolving door from the corporate sector and don’t believe that corporate power is a problem. A similar situation exists with the Securities and Exchange Commission (SEC). Its lack of effective oversight of Wall Street and the financial industry led to the 2008 economic collapse, as well as a host of other harmful consequences.

When the regulatory agencies are staffed with people from the industries they are supposed to regulate, weak standards and lackadaisical enforcement (including a lack of criminal prosecution) tend to be the result. This aspect of crony capitalism is referred to as the “cognitive capture” of regulatory agencies by the industries they are supposed to regulate. It occurs when the regulators share the mindset of and empathize with those they are supposed to regulate. [2] As Senator Elizabeth has said, “Personnel is policy.”

Crony capitalism has led to concentrated corporate power in our economy, higher corporate profits and CEO pay, increased economic inequality, destruction of the middle class, corruption of our elections, and distortion of public policies. A few months ago, the Senate Judiciary Committee held its first hearing on anti-trust laws and efforts to rein in monopolistic power in more than three years. Recently, the Obama administration has gotten noticeably more aggressive about challenging merger deals, but only after years of inaction. These are baby steps in the right direction, but there is a long, long way to go given how bad the situation has grown over the past 35 years.

Americans strongly agree (83%) that “the rules of the economy matter and the top 1 percent have used their influence to … their advantage.” Two-thirds of the public believe that corporations pay too little in taxes and three-quarters want to close tax loopholes that let speculators pay lower taxes on their profits than working people pay on their earnings. Eighty-six percent believe corporations have too much political power and that increased enforcement of laws and regulations is needed. [3] Our elected officials need to stop favoring corporate interests and start sticking up for working Americans and our democracy.

As voters, we need to demand that our elected officials support vigorous enforcement of anti-trust laws and effective regulation of corporate America. The federal government needs to use its powers under the Sherman Anti-trust Act to stop corporate power from growing, given that it is harming our economy and our democracy. Our President needs to appoint strong, independent regulators. Congress and state legislatures need to pass laws and budgets that reflect the interests, values, and priorities of the people, not the corporations and wealthy elites.

The good news is that the current presidential campaign has brought the issue of corporate power into the spotlight. For the first time since 1988, the Democratic Party platform contains language calling for stronger enforcement of anti-trust laws and more market place competition in our economy. [4] A recent report from the White House calls for promoting competition in our economy through stronger enforcement of anti-trust laws and pro-consumer policies and regulations. [5]

In this election year, I encourage you to examine federal and state candidates’ positions on these issues and to vote for candidates who support:

  • Strengthening enforcement of anti-trust (i.e., anti-monopoly) laws in order to increase market place competition,
  • Improving the effectiveness of regulations, and
  • Reducing the power of corporations in our economy, our elections, and in policy making.

This is essential if our democracy is to be of, by, and for the people, instead of controlled by and run for the benefit of large corporations and their wealthy executives and investors.

[1]       Jamrisko, M., & McLaughlin, D., 7/18/16, “Democrats imitate trust-busting Teddy in own populist appeal,” Bloomberg (http://www.bloomberg.com/politics/articles/2016-07-18/democrats-imitate-trust-busting-teddy-in-own-populist-appeal?cmpid=GP.HP)

[2]       Lehmann, C., May 2016, “In the grip of greed,” In These Times (https://www.highbeam.com/doc/1P3-4034979561.html)

[3]       Weissman, R., 4/11/16, “Americans agree: It’s corporate power that’s in our way,” Common Dreams (http://www.commondreams.org/views/2016/04/11/americans-agree-its-corporate-power-thats-our-way)

[4]       Jamrisko, M., & McLaughlin, D., 7/18/16, see above

[5]       Council of Economic Advisers, April 2016, “Benefits of competition and indicators of market power,” The White House (https://www.whitehouse.gov/sites/default/files/page/files/20160414_cea_competition_issue_brief.pdf)

MORE EFFECTS OF MONOPOLY POWER AND CRONY CAPITALISM

Huge corporations with monopolistic economic power not only affect economic outcomes, but also political and policy outcomes. As my previous post described, economically, corporate power results in higher prices, lower quality service, depressed wages, fewer jobs, increased profits, higher CEO pay, and a redistribution of income upward to big corporations, their executives, and big shareholders.

Politically, the concentration of power in huge corporations distorts public policies. Examples of policies that benefit large corporations and their wealthy CEOs and investors – to the detriment of the rest of us – include:

  • Special tax breaks and loopholes for both big corporations and wealthy individuals;
  • Bankruptcy laws that provide relief for corporations but not for distressed homeowners, student loan recipients, or credit card debtors;
  • Lack of restraints on corporations amassing power but many hurdles for workers trying to assert bargaining power through unions; and
  • Trade deals that protect the profits, intellectual property, and assets of big corporations but not the jobs and incomes of American workers, nor the environment and the safety of our food.

In addition, intellectual property laws here in the U.S. mean that we pay more for drugs than the citizens of any other developed nation. That’s partly because it’s perfectly legal in the U.S. (but not in most other nations) for the maker of a brand-name drug to pay generic drug makers to delay introducing their cheaper equivalents when the patent on the brand-name drug expires. This costs American consumers an estimated $3.5 billion a year – a hidden upward redistribution of our incomes to Pfizer, Merck, and other big pharmaceutical corporations, their executives, and major shareholders. [1]

Wealthy corporations and individuals distort public policies to their benefit through lobbying, the revolving door of personnel, and corruption of our elections through hundreds of millions of dollars of campaign spending. They obtain public policies that support their interests by using state governments to preempt or nullify local laws or initiatives, such as local public internet access or local minimum wage laws. [2] They also use the federal government to preempt state laws as they are trying to do with GMO food labeling. They have passed federal laws that ban federal regulation of fracking, for example, or that ban Medicare from negotiating drug prices with manufacturers (despite the fact that private insurers, the Veterans Administration, and most countries’ health care systems do this). And they use the courts to create corporate “rights” that are used to overturn local, state, and federal laws and regulations, such as limitations on corporate spending on elections.

In terms of campaign spending, the super wealthy account for a growing share of both Republicans’ and Democrats’ campaign funds. In the 1980 presidential election, the richest 0.01% (1 out of every 10,000 Americans or roughly 23,000 people) gave 10% ($10 out of every $100) of total campaign contributions. In 2012, the richest 0.01% of Americans (now 32,000 people due to population growth) accounted for 40% ($40 out of every $100) of all campaign contributions. So, whose voices do you think our elected officials are listening to when they make policy decisions?

If this weren’t bad enough, the exploding outside spending on our elections (i.e., outside of candidates’ campaigns as described in the previous paragraph), which is supposedly independent of candidates’ campaigns, is almost entirely funded by wealthy individuals and big corporations. Furthermore, they can make unlimited “independent expenditures” while their direct contributions to candidates are quite limited. But the candidates know who is paying for the “independent” spending, so these voices are further amplified.

This campaign spending by wealthy individuals and corporations affects who runs for office, shifts the results of elections, and affects the decisions of elected officials. This corrupts the election process and the policy making of our elected officials. The result is not government of, by, and for all the people, but policies favoring the wealthy and their corporations.

Further adding to the influence of big corporations is the revolving door of personnel. Many government regulators, and some members of Congress, come from the industries they oversee in their official, governmental duties. Some Wall Street firms actually pay big bonuses to employees who take jobs in the agencies, such as the Treasury Department and the Securities and Exchange Commission (SEC), that regulate and oversee the banking and financial services industries.

On the other end, when members of Congress or other government employees leave, they often go to work in the industries they oversaw or had contact with when they were in government. A significant number go back to work for the employer they left when they took their government job. Knowing that a well-paying job in the private sector is waiting for you when you leave your government job certainly would seem to present a conflict of interest and might influence decisions made while working in government.

Some members of Congress and other government employees leave, not for jobs in industries they oversaw, but to lobby their previous colleagues on behalf of industries they oversaw or with which they had contact. In the 1970s, only about 3% of departing members of Congress went on to become lobbyists. In recent years, half (50%) of all departing senators and 42% of retiring representatives have done so. This isn’t because recent retirees have fewer qualms about making money off their government contacts. It’s because the financial rewards of lobbying have become much greater as our giant corporations spend more and more money on lobbyists in their efforts to influence public policies. [3]

This is crony capitalism and it has led to huge corporations with significant market and political power. As my previous post described, America only has four big airlines, three big health insurance companies, four big cable and internet conglomerates, and six too-big-to-fail banks that are getting bigger not smaller. Other examples of huge corporations and limited competition are that just two companies sell 70% of the countless toothpaste brands, there are only five big book publishers, and firms like Walmart, Google, and Amazon use their market power to squeeze out competitors and exercise significant power over suppliers. Big technology companies are driving small competitors out of business and massive conglomerates control our food, cosmetics, and drug industries.

Huge corporations with monopolistic power are not healthy for our economy or our democracy. We need to reassert that government policies and the rules of our economy should be of, by, and for the people, not of, by, and for the economic elite. Otherwise, we become a plutocracy, oligarchy, or corporatocracy – they’re pretty interchangeable, take your pick.

[1]       Reich, R., 11/1/15, “The Rigging of the American Market” (http://robertreich.org/post/132363519655)

[2]       Linzey, T., 1/21/16, “Slaves in all but name: Abolishing the corporate state in rural communities,” In These Times (http://inthesetimes.com/rural-america/entry/18792/community-rights-and-corporate-slavery)

[3]       Reich, R., 6/19/16, “A big idea for Hillary,” (http://robertreich.org/post/146169929945)

EFFECTS OF MONOPOLY POWER

My last post described the efforts of the big food and agricultural corporations to block the labeling of food that contains genetically modified ingredients. Here are some other examples of the effects of the monopolistic power of large corporations, which is allowed and abetted by crony capitalism. (See my Crony Capitalism = Monopoly Power post for more information.)

Americans pay more for Internet service than do residents of any other developed country and typically get lower speed service. This is largely because for 80% of us our internet service provider (ISP) has a monopoly, i.e., we have no alternative choice for our ISP. This lack of competition allows ISPs to charge monopoly prices for low quality service.

Internet service in the U.S. costs three-and-a-half times more than it does in France, for example, where the typical customer can choose among seven providers. [1] In the U.S., there are just four giant telecom corporations: AT&T (includes DirecTV and U-verse services), Comcast, Charter Communications (includes Time Warner and Bright House), and Dish. They serve focused geographic areas that limit the competition among them and with the next three providers (Verizon, Cox, and Cablevision) who are roughly a third the size of the smallest of the four giants.

The giant U.S. telecom corporations have succeeded in getting 21 states to pass laws barring municipalities from creating or expanding their own, public Internet access, which typically provides cheaper and higher speed service than the commercial providers. In February, 2015, the Federal Communications Commission (FCC) voted 3 to 2 overrule the state laws that were preventing Chattanooga, Tennessee, and Wilson, North Carolina, from expanding their municipal networks. This occurred soon after the White House’s release of a report on Community-Based Broadband Solutions that explains why escaping from the monopoly power of commercial ISPs is so important. It noted that America’s internet service is too slow, too expensive, and too unreliable to support a 21st century economy, especially in rural areas. [2] Hopefully, the FCC ruling and the White House report will lead to more competition and better service in the ISP business, but you can bet that the big, corporate ISPs will keep fighting in the states, in Congress, at the FCC, and in the courts to maintain their monopolistic power.

Due to limited competition in the airline business, prices are rising despite falling costs. Domestic airfares rose 2.5% over the past year, and are now at their highest levels since the government began tracking them in 1995. Meanwhile fuel prices, the largest single cost for the airlines, have plummeted. This can happen only because there are just four major airlines in the U.S. now (i.e., American, Delta, United, and Southwest) and many airports are served by only one or two. Ten years ago, there were nine major airlines, but the lack of enforcement of anti-trust laws have allowed mergers that have reduced competition. [3]

Similarly, food prices have been rising faster than inflation, while crop prices are now at a six-year low. Here again, the giant corporations that process food have the market power to raise prices due to limited competition. Four food companies control 82% of beef packing, 85% of soybean processing, 63% of pork packing, and 53% of chicken processing.

Because our big banks and financial corporations face limited competition, the interest rates we pay on home mortgages, college loans, and credit cards are higher than they would be if there were more competition. As recently as 2000, America’s six largest banks (JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs, and Morgan Stanley) held just 25% of all U.S. banking assets; they now hold 44%. We need to break up these giant financial corporations to increase competition and to protect our economy from the risks that led to the 2008 financial collapse.

Finally, health insurance is costing us more each year, and co-payments and deductibles are rising, because insurers are consolidating into bigger and bigger corporations. There are now only three major health insurers (i.e., Aetna, Anthem, and UnitedHealth) and due to the lack of competition, they have the power to raise prices. They say that mergers make their companies more efficient, but they really just give them more power to charge more and increase profits. This is borne out by the fact that their stock prices are skyrocketing and Standard & Poor’s index of health insurers’ stock prices recently hit its highest level in more than twenty years.

These over-priced goods and services produce a hidden upward redistribution of income from consumers to large corporations and their executives and big shareholders. These monopolistic corporations dominate our telecommunications, banking, air travel, food, health insurance, and other industries. [4] Crony capitalism has allowed the mergers and acquisitions that have built these giant corporations and produces the weak regulation that allows them to wield extensive power in the market place.

As long as the big corporations, their top executives, and wealthy shareholders have the political power to do so, they’ll keep redistributing as much of the nation’s income as they can upward to themselves. We, the American voters, need to assert our political power and stop monopolistic market practices and collusion, break up the giant corporate monopolies, and put an end to the rigging of the American economy.

In this election year, I encourage you to examine candidates’ positions on these issues and vote for candidates who support strengthening enforcement of anti-trust (i.e., anti-monopoly) laws, increasing market place competition, and reducing the power of corporations in our economy and elections.

I’ll share more examples of how and where corporate power and crony capitalism are rigging our economy in subsequent posts.

[1]       Reich, R., 11/1/15, “The Rigging of the American Market” (http://robertreich.org/post/132363519655)

[2]       Estes, A.C., 1/14/15, “Obama’s plan to loosen Comcast’s stranglehold on your Internet,” Gizmodo (http://gizmodo.com/obamas-plan-to-loosen-comcasts-stranglehold-on-your-int-1679463766)

[3]       Reich, R., 11/1/15, see above

[4]       Reich, R., 11/1/15, see above

ACT NOW: CORPORATE POWER BLOCKING GMO FOOD LABELING

One reason large corporations succeed in influencing policies is that they are relentless. If at first they don’t succeed, they try, try again and again and again. They can do so because they have:

  • Lots of money and other resources, such as top notch lawyers, and
  • As much time as it takes, given they are around forever and policy makers, i.e., elected and appointed public officials, change over time.

Corporations pursue favorable policies in multiple venues and at the federal, state, and local levels. They work to get the policies they want from legislatures and Congress, from regulators in the executive branch, and through court cases. They lobby, they contribute to candidates, they move people back and forth between being their employees and holding positions in government, and they engage in direct spending on campaigns, often through “dark money” groups so they can remain anonymous.

A perfect and current example of this is the battle over labeling food that contains genetically modified (GM) ingredients from genetically modified organisms (GMO) such as corn, wheat, soybeans, or animals.

The U.S. Food and Drug Administration (FDA) requires detailed food labeling that identifies ingredients. However, the big corporations of the food and agriculture industry have blocked any FDA requirement that food labels indicate the use of GMO ingredients. There have been bills on both sides of this issue in Congress, but they have gone nowhere – until now. But first a little background.

Various polls indicate that 70% to 93% of Americans want GMO labels. Proponents argue that consumers have a right to know what’s in their food so they can make informed decisions about what they want to eat – which is the precise reason for the FDA requirement to list ingredients. They do not argue that one should or shouldn’t eat GMO-containing food, but rather that one should have the information to make such a choice. By the way, over 60 other countries have GMO labeling laws.

Given the lack of progress on GMO labeling at the federal level, consumers who want to know if their food contains GMOs have turned their attention to requiring labeling through state laws. Ballot questions on GMO labeling were presented to voters in California in 2012, Washington State in 2013, and Colorado and Oregon in 2014. All were defeated by aggressive, expensive campaigns against them by the big food and agriculture corporations.

In California, opponents spent $46 million while proponents spent $9 million. Monsanto alone spent $8 million while DuPont, PepsiCo, Bayer, Kraft Foods, Coca-Cola, Nestle, ConAgra Foods, and General Mills each contributed over a million dollars. (Monsanto’s stakes in the fight are huge: its GM seeds account for 80% of the corn and 93% of the soybeans grown in the U.S.) Aggressive advertising by the opponents, including the claim that GMO labeling would lead to increased food prices, was successful in undermining support for the ballot questions. Polls showed the ballot question winning by 36% in mid-September and 8% to 9% in early October, but it eventually lost 51% to 49% on Election Day in November. [1]

The Oregon vote was even closer. After polls showed it winning by 65% in June and 5% to 8% in early October, it lost by 837 votes out of 1.5 million cast (0.06%) on Election Day. Twenty-one million dollars was spent in opposition to it and $11 million in support. Opposition spending included $6 million from Monsanto, $4.5 million from DuPont, and over $1 million each from PepsiCo and Coca-Cola. [2]

In addition to ballot questions, roughly 100 bills on GMO labeling have been introduced in state legislatures in at least 29 states. Alaska, Connecticut, Maine, and Vermont have passed labeling laws despite industry efforts to defeat them. As is not unusual in corporations’ relentless efforts to win policy battles, the industry is threatening to file court challenges to these laws. [3]

The Vermont GMO labeling law just went into effect on July 1, so the food and agriculture industry is making a big push to get federal legislation passed to preempt it. Ostensibly, their goal is to have one national standard rather than 50 individual state standards that would be hard to comply with and potentially confusing to consumers. However, the compromise legislation in Congress seems to indicate that they have other goals.

The bipartisan bill that the U.S. Senate Agriculture Committee announced last week would:

  • Ban states from requiring GMO labeling (preempting Vermont’s strong law),
  • Exempt beef, pork, poultry, and eggs from GMO labeling,
  • Exempt foods with meat as the majority ingredient from GMO labeling,
  • Narrowly define genetic engineering to exclude new techniques, and
  • Allow labeling that wouldn’t be clear to consumers, such as a symbol or a link to GMO information (e.g., a phone number, a website, or a QR code for scanning with a smart phone), as opposed to a clear, text label such as “Contains GMO ingredients.” [4]

Tellingly, the bill would not impose any penalties for violating the labeling requirement! The food and agriculture industry is supporting this compromise, of course, including Monsanto, General Mills, Campbell Soup, Kellogg, ConAgra Foods, and Mars corporations, as well as industry groups such as the American Soybean Association, the National Grain and Feed Association, and the Grocery Manufacturers Association.

I urge you to contact your U.S. Senators NOW, as they may vote on this bill the week of July 5. (One of the strategies used by big corporations and their allies to win policy battles is to rush bills through the legislative process so the public and opponents don’t have time to mount opposition.) Let them know what you think of this compromise legislation. Let them know if you’d like your food clearly labeled as to whether it contains GMO ingredients, thereby allowing you to make informed consumer decisions about what you eat.

You can find contact information for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.

[1]       Ballotpedia, “California Proposition 37, Mandatory Labeling of Genetically Engineered Food (2012)” (https://ballotpedia.org/California_Proposition_37,_Mandatory_Labeling_of_Genetically_Engineered_Food_(2012))

[2]       Ballotpedia, “Oregon Mandatory Labeling of GMOs Initiative, Measure 92 (2014)” (https://ballotpedia.org/Oregon_Mandatory_Labeling_of_GMOs_Initiative,_Measure_92_(2014))

[3]       The Atlantic, May 2014, “Want to know if your food is genetically modified?” (http://www.theatlantic.com/politics/archive/2014/05/want-to-know-if-your-food-is-genetically-modified/370812/)

[4]       Wasson, E., 6/26/16, “Bipartisan deal struck on GMO labeling,” The Boston Globe from Bloomberg News

CRONY CAPITALISM = MONOPOLY POWER

The vote in Great Britain to exit from the European Union and the support that Bernie Sanders and Donald Trump received in the U.S. presidential primaries all reflect a strong belief among voters that corporations and the economic elites have rigged our economies and governments to work in their favor. Workers and average citizens struggle to make ends meet while the rich get much richer. Corporate welfare is maintained while the safety net for individuals is shredded. “Trade” treaties expand corporate power while workers see their jobs shipped overseas.

These are examples of how our economy and government regulation of it are rigged in favor of large corporations and wealthy individuals. Close relationships between corporate executives and government officials (both elected and appointed) result in policies that favor large corporations and wealthy individuals. This is “crony capitalism.” There is self-dealing and collusion between the private sector and the public sector that sometimes rises to the level of outright conspiracy and corruption.

In 1964, just 29% of U.S. voters thought government was “run by a few big interests looking out for themselves,” according to the American National Election Studies survey. Today, almost 80% of Americans think so.

A study published in the fall of 2014 by Princeton professor Martin Gilens and Northwestern professor Benjamin Page confirms the reality of this sentiment. They examined 1,799 public policy issues to determine the relative influence on them of economic elites, business groups, and average citizens. They found that the influence of the economic elites and business groups almost entirely overwhelmed that of average American citizens.

Their conclusion was that “The preferences of average Americans appear to have only a minuscule, … non-significant impact upon public policy.” On the other hand, wealthy individuals and big business strongly influence policy. [1]

There are many, many examples of how large corporations and the wealthy influence public policies to their advantage. One is that they have gotten our government officials to essentially stop enforcing anti-monopoly (aka anti-trust) laws. As a result, corporations have gotten bigger and bigger and have much more power, both market power (including over prices) and political power (including over regulations, tax laws, and trade).

Therefore, our democracy looks more and more like a plutocracy, oligarchy, or corporatocracy as the political power and influence of the economic elites grows. Our founders’ vision for our democratic republic was quite different. They wanted economic as well as political power dispersed as widely as possible. Jefferson and Madison, in particular, greatly distrusted concentrated power, both private and public. Furthermore, they envisioned a government that structured markets to promote the common good, not private interests.

The fight against companies exercising monopoly power has a long history in America. The Boston Tea Party was a rebellion against the effective monopoly on tea granted to the British East India Company by the British King. The Populist Movement of the late 1800s and early 1900s revived this anti-monopoly sentiment. It fought against the efforts of large corporations to monopolize commerce and natural resources through the power of concentrated wealth (i.e., capital). President Teddy Roosevelt and later President Woodrow Wilson (guided by future Supreme Court Justice Louis Brandeis) implemented strong anti-trust, anti-monopoly laws. Preventing the development of monopolies was, for them, less about achieving economic efficiency and low prices for consumers than it was about protecting political equality and democratic governance. [2]

The goals of anti-trust laws and their enforcement were both to limit corporations’ political power and to ensure that they were small enough that the competition of the market place would provide effective control of corporate behavior. Thus, the need for government intervention in the economy, which can be complicated and have unintended consequences, could be avoided.

Strong enforcement of anti-trust laws continued into the 1960s. In 1962, for example, the merger of two shoe companies was blocked by anti-trust laws because it would have given a single company 2% of the national market. This is in stark contrast to today’s economy where a few large corporations control many national markets and where effective monopolies exist in some local markets.

By the late 1970s, policy makers from both parties supported greatly relaxed enforcement of anti-trust laws under a revised set of economic goals based on a theory of efficiency through deregulation, free markets, and economies of scale. This has allowed unprecedented corporate growth and with it the growth of corporate power in our markets and political system.

In my next post, I’ll share some examples of how monopolistic corporate power affects some of the goods and services we all use, such as Internet service, banking, air travel, food, and health insurance.

[1]       Reich, R., 6/19/16, “A Big Idea for Hillary,” (http://robertreich.org/post/146169929945)

[2]       Lynn, B.C., & Longman, P., Summer 2016, “Populism with a brain,” Washington Monthly (http://washingtonmonthly.com/magazine/junejulyaug-2016/populism-with-a-brain/)

IS JUSTICE FOR SALE IN STATE COURTS?

There is widespread recognition that a fair and impartial judiciary is essential to the maintenance of public trust and confidence in our court system and our democracy. In 39 states, at least some judges are elected; in aggregate, 87% of state judges nationwide run in elections. (In some states and for the federal judiciary, judges are appointed and not elected.)

The impartiality and integrity of our state courts is critical because they handle the vast majority of criminal and civil cases in the U.S. For example, 94% of felony convictions occur in state courts, including 99% of rape cases and 98% of murder cases.

The rapidly growing spending on judicial campaigns brings with it the potential for money to influence (or appear to influence) judges’ decisions and to create conflicts of interest. Elected judges are routinely raising campaign funds from and benefiting from spending by those who will appear before them in court as lawyers or parties in a case.

Between 2000 and 2009, over $200 million was spent on elections for state supreme court justices in 22 states. This was more than double the $83 million spent in the previous decade. This growth in spending appears to be accelerating and has been exacerbated by the U.S. Supreme Court’s Citizens United and related decisions, which allow unlimited contributions to and spending by supposedly independent groups, including corporations.

As with other elected offices, spending by outside, supposedly independent groups is growing in judicial races. Furthermore, the frequency of very large contributions and high levels of spending by a small number of wealthy individuals and organizations is increasing. For example, in the 29 most expensive judicial elections in the decade from 2000 to 2009, the top five spenders averaged $473,000 while all others averaged $850. [1] As with other races, much of the outside spending is on negative advertising. Negative advertising tends to undermine trust in elected officials and to reduce voter turnout. Outside spending also fuels an arms race with special interests spending more and more to out-spend competing interests.

As a result, there is the appearance, if not the actuality, that campaign money is influencing elected judges’ actions. As retired U.S. Supreme Court Justice Sandra Day O’Connor said, “In too many states, judicial elections are becoming political prize fights where partisans and special interests seek to install judges who will answer to them instead of the law and the Constitution.” [2] For example, in Alabama, the primary sources of campaign funds for supreme court candidates have been businesses and trial lawyers as they battle each other over tort reform. In 2006, candidates for the chief justice position raised $8.2 million. (Tort reform refers to changes in the laws governing the ability of victims to get court-ordered compensation for damages or personal injury.)

My previous post highlighted a case before the Wisconsin Supreme Court where a 4 to 2 decision found that Governor Walker and his campaign had not engaged in illegal coordination with two supposedly independent business groups that spent millions of dollars supporting his campaign. Two justices, who participated and voted with the majority, had been asked to recuse themselves because the two groups whose support of Walker was at issue had also spent millions of dollars on their campaigns. They refused to recuse themselves and this case is now being appealed to the U.S. Supreme Court.

West Virginia is another state where business interests are spending millions of dollars on judges’ elections and where a state supreme court justice refused to recuse himself in a case where he had a conflict of interest. The case is Caperton vs. Massey where a jury verdict that had ordered Massey Energy Co. to pay $50 million was being appealed. Massey’s CEO, Don Blankenship, knowing the case was going to the court, spent $3 million supporting the election of Justice Brent Benjamin in 2004. This was over 60% of the total spending on Benjamin’s campaign. After he won the election, he was one of the majority votes in a 3 to 2 decision that overturned the $50 million award against Massey. He refused to recuse himself. This was appealed to the U.S. Supreme Court and it ruled in June, 2009, that Justice Benjamin had to recuse himself because of the “serious risk of actual bias.” [3]

In May 2016, Justice Benjamin was up for re-election. Outside groups spent $3 million in the election. The biggest spender, at $2 million, was the Washington, D.C., based Republican State Leadership Committee, despite the fact that the election was supposedly non-partisan. It spent its money in support of the eventual winner, Beth Walker, who won with 39.5% of the vote in a five-person election. In addition, various outside business groups spent almost $500,000 supporting her. This $2.5 million in outside spending was many times the $200,000 she raised for her campaign and still many times what she may have spent including $500,000 in loans from her husband. [4]

In summary, judges are facing unprecedented challenges to their ability to deliver fair, impartial justice that is free from the influence of special interests and partisan pressures. A major driver of the threat to judicial integrity is growing campaign spending, including the rapid increase in unlimited spending by outside groups and individuals.

My next post will take a look at the effects of judicial elections on criminal cases. After that, I will present some policy solutions to the problem of elections and campaign financing that can undermine a fair and impartial judiciary.

[1]       Sample, J., Skaggs, A., Blitzer, J., & Casey, L., 2010, “The new politics of judicial elections 2000-2009,” Justice at Stake (http://www.justiceatstake.org/media/cms/JASNPJEDecadeONLINE_8E7FD3FEB83E3.pdf)

[2]       Justice at Stake, 2016, “Money & Elections,” Justice at Stake (http://www.justiceatstake.org/issues/state_court_issues/money-and-elections/)

[3]       Brennan Center for Justice, 6/8/09, “Supreme Court reverses decision in Caperton vs. Massey,” Brennan Center for Justice, New York University School of Law (https://www.brennancenter.org/legal-work/caperton-v-massey)

[4]       Brennan Center for Justice, 5/6/16, “Outside spending in West Virginia Supreme Court race nears $3 million,” Brennan Center for Justice, New York University School of Law (https://www.brennancenter.org/press-release/outside-spending-west-virginia-supreme-court-race-nears-3-million)

FIXING ECONOMIC AND POLITICAL INEQUALITY

Since President Teddy Roosevelt took on the mantle of trust buster at the turn of the 20th century, government regulation through anti-trust laws and other regulatory mechanisms has been recognized as the only way to counterbalance corporate power and individual wealth.

However, since the 1980s, the corporate and financial elite of the country has increasingly exercised influence and control over our federal and state governments and their policy making and regulatory functions. This has undermined government as the counterbalance to the power of the elite. The tools they use to gain influence and control are campaign contributions and spending, lobbying, and the revolving door.

As a result of their economic and political power, the rules of our economy have been shifted to favor wealthy corporations and individuals. This has undermined the middle class and led to growing inequality in incomes, wealth, and opportunity. [1] (See my post Economic Inequality is Due to Shifts in Political and Marketplace Power for more detail.)

A return to the policies of the 1950s and 1960s would go a long way toward stopping runaway inequality and beginning to rebuild the middle class. A return to these policies is clearly not radical, although some may argue that it would be based on the current landscape of politics and power. Key elements of the post-World War II policies that led to broadly beneficial economic growth and decreasing inequality were:

  • A truly progressive tax system;
  • Workers with bargaining power, primarily through unions, who were better able to balance the power and interests of employers;
  • Financial regulation that prevented speculation, manipulation, and international or offshore transactions that hurt or destabilized our economy; and
  • Fair corporate and estate taxes that required payment of a reasonable share of taxes by these entities.

In addition, we need to create new policies to address newly emergent factors that have shifted power in our economy and politics:

  • Full disclosure and stricter regulation of campaign contributions and spending;
  • Trade agreements that actually benefit US workers and our economy; and
  • Strict regulation and disclosure of lobbying and the movement of personnel through the revolving door between private sector jobs and government positions.

Institution of these seven policies would enhance economic equality and bolster the middle class. They would also reverse growing political inequality that is undermining our democracy. This would shift power away from wealthy individuals and corporations and back to average Americans.

I encourage you to contact your representatives in Congress and/or in your state government to let them know what you think needs to be done to address the economic and political inequality in the U.S. today.

[1]       Kuttner, R., 1/14/16, “The new inequality debate,” The American Prospect (http://prospect.org/article/new-inequality-debate-0)

ECONOMIC INEQUALITY IS DUE TO SHIFTS IN POLITICAL AND MARKETPLACE POWER

The debate over the causes of and remedies for growing economic inequality in the US has been in the forefront of the presidential campaign. Economists and most politicians have traditionally argued that economic inequality was the inevitable result of technological change, workers’ education and skill levels, and globalization. However, a stronger and stronger sentiment – maybe even a consensus – is growing that income and wealth inequality is driven by inequalities in political and marketplace power. Even many economists are now acknowledging the important effects of shifts in political and marketplace power. [1]

It is becoming increasingly clear that market outcomes and the rules of the marketplace reflect political and marketplace power, not economic efficiency or inevitability. Marketplace rules are set by government policies. Since 1980, government policies have shifted power from workers to employers through weakened labor laws and lax enforcement of them. Free trade policies have allowed jobs to move overseas, meaning that US workers must compete with low-paid foreign workers. Policies have also shifted power from consumers to corporations through weakened regulations and lax enforcement of consumer protection laws, including of anti-trust laws.

Simultaneously, political power has shifted from average citizens and voters to wealthy elites and their corporations. Spending on election campaigns has grown dramatically. Campaign finance laws now allow wealthy individuals and corporations to spend unlimited amounts of money on campaigns for public offices. As a result, elected officials are more beholden to wealthy individuals and corporations than ever before.

Political power has also been shifted through lobbying, the revolving door, and legal strategies. Corporate lobbying of public officials has grown substantially. This means the voices of the big corporations are much louder and more frequently heard in policy making arenas than before. Their voices are much louder than the voices of average citizens. The revolving doors between regulated industries and government regulators or policy makers has ever greater numbers of people passing through them. Corporations have pursued legal strategies in the courts that have given them increased power, including a right to freedom of speech that was previously reserved for individuals. Their court strategies have also blocked and greatly delayed regulation, including on issues of public health and safety.

Business and environmental regulations have been weakened. Anti-trust laws have effectively ceased to limit market size and concentration. Simultaneously, corporations have developed new ways to exploit market power. Consolidations of pharmaceutical corporations have resulted in unjustifiable skyrocketing drug prices for existing drugs, while changes in patent laws and market manipulations delay the arrival of generic drugs in the marketplace.

These shifts in marketplace and political power are mutually reinforcing. As a result, our markets unjustifiably reward the rich and powerful. For example, Wall Street traders are making millions and sometimes billions of dollars in incomes but are not adding much – if anything – of value to the overall economy. Similarly, the very high pay for corporate CEOs is well above the value they add to the economy.

Taxes have been reduced for wealthy individuals and corporations. The well-off have seen dramatic tax cuts on their high incomes, on unearned income (i.e., gains, dividends, and interest on investments), and on their wealth (primarily through cuts in the estate tax). Many large, profitable corporations, particularly large, multi-national corporations, avoid paying any taxes at all. Meanwhile, the relative tax burden on work and workers has grown.

Leveraged buyouts result in financial manipulators making millions while workers lose jobs or take pay and benefit cuts. Retirees also lose benefits or taxpayers have pay them through the government’s Pension Benefit Guaranty Corporation. Globalization benefits multi-national corporations and the financial industry while hurting workers and national sovereignty.

Economists are now acknowledging that in many cases economic size and power are undermining market efficiency rather than enhancing it as the economies of scale argument traditionally promised. Furthermore, marketplace power starkly contradicts the core assumption of economics, namely that markets are perfectly competitive.

The corporate and financial elite’s agenda of deregulation, tax cuts, and free trade has been promoted as creating jobs and strengthening our economy. The data clearly show that this has not been the case. Economic growth is certainly no greater now than it was in the 1950s and 1960s. Meanwhile, economic volatility, insecurity, and inequality are clearly greater.

My next post will describe what we can and should do to stop runaway economic inequality, which will also contribute to rebuilding the middle class.

[1]       Kuttner, R., 1/14/16, “The new inequality debate,” The American Prospect (http://prospect.org/article/new-inequality-debate-0)

A CONSENSUS ON TRADE TREATIES?

Most of the presidential candidates agree that past trade treaties have had negative effects on US workers and that future trade treaties need to take a different approach. This would appear to be bad news for the Trans-Pacific Partnership (TPP) and other trade agreements that are in various stages of negotiation and ratification. Bernie Sanders has been a long-standing opponent of the TPP, Hillary Clinton has recently converted to opposing it, Donald Trump appears to oppose it but with bluster and little substance, Ted Cruz has not been clear on where he stands, and John Kasich supports the TPP.

Support for the arguments against recent trade treaties has recently come from an unlikely source, Clyde Prestowitz, who served in a senior position in President Reagan’s Department of Commerce and as President Clinton’s vice chairman of the Commission on Trade and Investment in the Asia-Pacific Region. [1]

Prestowitz writes that after the 2001 agreement that let China join the World Trade Organization, our trade deficit with China soared from $80 billion to $370 billion. The best estimates are that imports from China have cost the US about 2.5 million jobs. This occurred despite assurances to Congress and the public that this agreement would dramatically reduce the trade deficit with China and create US jobs. These assurances were given by very senior members of the Bush administration including the Secretary of Commerce and the US Trade Representative.

The results of the US-Korea Free Trade agreement of 2012 are similar. Our trade deficit with Korea increased from $13 billion to $28 billion, costing the US roughly 90,000 jobs. However, the same promises of a reduced trade deficit and US job growth were made in promoting this trade deal.

Prestowitz concludes that “None of the trade agreements have eliminated [the trade deficit], or even reduced it, as promised, and none of them have come close to achieving other promised benefits.”

So, he poses the question of why both political parties and numerous well-educated officials have persisted in making and supporting these trade agreements, as well as using the same old arguments to sell them to Congress and the public. He gives two answers. The first is that the real reason for these trade agreements is to strengthen the US’s geopolitical position, not to improve the economic welfare of its workers. As an example of this, Prestowitz, to this day, defends the North American Free Trade Agreement (NAFTA) with Mexico and Canada as an appropriate step to counter the growing geopolitical influence of China and other Asian countries.

His second answer is that many experts base their analyses on a theoretical and outdated model of trade and globalization. This model assumes full employment, fixed exchange rates, no flow of investments across borders, no transfers of technology, and no costs due to displaced workers losing one job and having to find another one. In reality, the US has rarely, if ever (depending on the standard you use), been at full employment. Exchange rates have been floating and not fixed since the 1970s and some countries, notably China, systematically manipulate the exchange rates for their currencies. The flow of investments, of financial deals and money, across borders is greater today than the flow of goods (traditional trade). China and Japan, among others, have made the transfer of technology to their countries a condition of allowing access to their workforces and markets. And we know how painful the displacement of workers has been. New jobs have been hard to find and, for those lucky enough to get a new job, the pay and working conditions are typically far worse than they were with their previous job.

Another answer, that Prestowitz doesn’t present, is that large, multi-national corporations have great power in Congress and our federal government. They are the main beneficiaries of these trade treaties. Through campaign contributions (largely by their senior executives), lobbying, and the revolving door between them and positions in the federal government (including the executive branch and Congress), they have tremendous influence on trade and other policies.

It is encouraging to see that when the public is paying attention, as it does during a presidential campaign, and when there is at least one candidate who presents a strong position and argument against the TPP and other trade treaties, that other candidates will forego their allegiance to corporate power (and money) and take a position in opposition to the TPP. It will be our job, as voters and constituents, to make sure that the next president follows through on his or her campaign commitment to oppose the TPP and to work to ensure that trade treaties benefit US workers and the US economy.

[1]       Prestowitz, C., 3/22/16, “Trading down and up,” The Boston Globe

THE YEAR-END SPENDING BILL: A BIG WIN FOR SPECIAL INTERESTS, WHILE KEEPING GOVERNMENT OPERATING

The year-end spending bill that Congress passed on December 18 was loaded with riders that had nothing to do with the budget. For example, it lifted the 40-year-old ban on crude oil exports from the US, just as the climate summit in Paris concluded that emissions from burning fossil fuels must be lowered to address climate warming. The bill continued a ban on federal funding for public health studies of the causes of gun violence and continued to allow people on the no-fly list to buy guns. It repealed the 2008 requirement that meat sold in the US has to identify its country of origin.

This spending bill also included two provisions that block the disclosure of the sources of political spending. The Internal Revenue Service is prohibited from requiring the disclosure of political spending by and donors to not-for-profit entities that engage in political activity. And the Securities and Exchange Commission is prohibited from requiring the disclosure of political spending by corporations. [1]

The bill also had pork barrel spending inserted by individual members of Congress. For example, a provision for Senator Cochran of Mississippi directs the Coast Guard to build a $640 million ship in his home state, but the Coast Guard says the ship isn’t need. Similarly, Maine Senator Collins got $1 billion in the budget for a destroyer that will probably be built in Maine, but the Navy says the ship isn’t needed. [2]

The good news is that the year-end spending bill keeps our government open and operating and funds important programs for middle and low-income Americans. Furthermore, many even more odious riders were kept out of the bill. As I noted in my last post, the good news about the separate year-end tax bill is that 40% of its provisions actually benefit regular, working Americans. This percentage is almost double what it has been in the past. Concerted activism by progressive politicians, leaders, and regular Americans made some good things happen in both the year-end spending bill and the year-end tax bill.

The bad news is that, as Moyers and Winship write, “There is an unwritten rule in Congress that before you do even a little for the working class you must do a lot for the donor class.” [3] These bills do a lot for the donor class – wealthy individuals and the corporations they run. As Moyers writes, “Candidates ask citizens for their votes, then go to Washington to do the bidding of their donors,” including cutting their taxes. So, we now have a wealthy donor class that gets high levels of representation and low levels of taxation. [4]

So, keep an eye on and be in touch with your elected officials. Let them know you are watching. Let them know that you want them to serve the interests of regular, working Americans, not those of the donor class of economic elites and the corporations they run. Make this a New Year’s resolution, because your activism as an informed citizen in a democracy can make a difference. Indeed, it has to, or our democracy, of, by, and for the people, will become a plutocracy run by and for the wealthy.

[1]       Moyers, B., & Winship, M., 12/17/15, “Lurking Within That Ominous, Omnibus Spending Bill,” Moyers & Company (http://billmoyers.com/story/lurking-within-that-ominous-omnibus-spending-bill/)

[2]       Moyers, B., 12/22/15, “The Plutocrats Are Winning. Don’t Let Them!” Common Dreams (http://www.commondreams.org/views/2015/12/22/plutocrats-are-winning-dont-let-them)

[3]       Moyers, B., & Winship, M., 12/17/15, see above

[4]       Moyers, B., 12/22/15, see above

THE YEAR-END TAX BILL: A BIG WIN FOR CORPORATIONS AND A LITTLE WIN FOR WORKING AMERICANS

Because of the gridlock in Congress, so few bills pass that those that have to pass get laden with special interest provisions and riders like ornaments on a Christmas tree. The recent year-end spending bill (2,009 pages long) and tax legislation (233 pages long) are the latest two examples. There were literally thousands of riders attached to these two massive and complicated bills. Many special interest provisions are slipped in by powerful legislators, typically on behalf of corporate lobbyists, when there is little time for other legislators (let alone the public) to scrutinize them. Nonetheless, these provisions can produce significant, windfall benefits for the targeted beneficiaries. Not surprisingly, the executives of the corporations that stand to reap the benefits are often large campaign contributors. [1]

The tax legislation Congress passed on December 18 was a $686 billion 10-year package. In it, Congress made permanent two recent expansions of tax credits that support low-income, working families: the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). Over the next 10 years, this will put $118 billion in the pockets of low-income working Americans. This will keep 16 million people from falling into poverty or deeper into poverty and it will help the economy by putting money in the pockets of people who will spend it at local businesses.

Congress also renewed the American Opportunity Tax Credit. It provides a tax credit of up to $2,500 per year for the costs of college. This will give a helping hand to millions of families struggling with the costs of higher education.

Overall, nearly 40% of the tax breaks in this legislation – approximately $250 billion – benefit working Americans who are overwhelmingly low- and middle-income. Typically, when the year-end tax cut package is passed low- and middle-income Americans have gotten just 20% of the tax breaks. So this year, with advocacy by many progressive leaders and activists, the benefits for working families were double what they usually are. [2]

This is the difference that political activism can make. Thank you to all of you who contributed your time, efforts, and voices to this fight.

Nonetheless, corporations got more than $400 billion in tax breaks. For example, heavy lobbying by Wall Street financial institutions made permanent a supposedly temporary, major tax loophole that makes it easier to stash profits offshore and avoid taxation here at home. This $78 billion (over 10 years) tax loophole has helped General Electric go five straight years without paying any federal income tax, and instead getting billions in refunds. Another offshore tax loophole was extended for five years at a cost of $8 billion. A special tax provision on the depreciation of equipment, intended as a temporary measure to fight the 2008 recession, was extended for another six years costing $28 billion in lost corporate tax revenue. Corporate lobbyists helped draft the language of at least some of these tax giveaways.

The hypocrisy of the supposed deficit fighters in Congress was on full display. None of the $400 billion in corporate tax breaks was paid for; their cost was simply added to deficit. Not one loophole was closed or tax subsidy eliminated to pay for this largesse. Yet when a provision to extend benefits for 9/11 first responders came up, the supposed deficit hawks insisted that it had to be paid for with spending cuts and new revenue!

My next post will cover highlights of the year-end spending bill.

[1]       Moyers, B., 12/22/15, “The Plutocrats Are Winning. Don’t Let Them!” Common Dreams (http://www.commondreams.org/views/2015/12/22/plutocrats-are-winning-dont-let-them)

[2]       Clemente, F., 12/22/15, “Families Advance With Recent Tax Bill, But Corporations Got a Lot More,” The Huffington Post (http://www.huffingtonpost.com/frank-clemente/families-advance-with-rec_b_8861986.html)

THE TRANS-PACIFIC PARTNERSHIP: CORPORATE POWER GRAB Part 2

With the full text of the Trans-Pacific Partnership (TPP) treaty now available, groups espousing environmental and workers’ interests state that the actual text is even worse than what they had expected. Environmental groups note that climate change is not even mentioned in the treaty. Workers’ groups note that the TPP will continue the experience under past treaties of US jobs moving overseas to lower wage countries and, therefore, reducing jobs and wages here in the US. This pattern will continue to undermine the middle class. Furthermore, on issues ranging from access to affordable medicines to the open Internet to food safety and labeling (e.g., country of origin and presence of genetically modified organisms [GMOs]), the TPP furthers corporate interests while undermining the interests of the public. [1]

Labor and environmental groups also note that there is no dispute resolution process focused on workers’ rights or environmental protection that parallels the Investor-State Dispute Resolution (ISDS) tribunals for multi-national corporations. If a state or country tries, for example, to ban or limit fracking or stop a coal mine, the fossil fuel corporation can sue the state or national government in the ISDS tribunal to overturn the action or get compensation. There is no similar mechanism for protecting workers or the environment.

The TPP also provides unjustified expansions of intellectual property protections in ways that benefit corporations. It extends and expands patents on drugs so that it will be longer before cheaper, generic versions of drugs are on the market and so that it will be harder for health care insurers to negotiate lower drug prices with the pharmaceutical corporations.

It requires Internet Service Providers (ISPs) to protect copyrights on corporate products such as movies and music. The TPP threatens ISPs with substantial penalties if they fail to shut down or remove protected content from a website that shares copyrighted material. Therefore, ISPs are likely to act in favor corporate copyright holders as soon as a copyright violation is alleged. [2]

The fact that the TPP enshrines corporate power is not a surprise. Corporate executives have been involved in the negotiating process from the beginning while everyone else was locked out. Furthermore, the process of drafting the TPP and now of approving it has been the target of substantial lobbying by multi-national corporations. Over the eight years of negotiations, 487 clients paid lobbyists to meet with or contact lawmakers and administration officials to discuss the TPP. Clients who reported lobbying on the TPP accounted for nearly thirty percent of all reported lobbying expenditures. The TPP has been mentioned 4,875 times in lobbying reports since 2008, when the US began negotiations. Corporations and other groups, such as the US Chamber of Commerce, paid lobbyists $2.6 billion during this period, although that figure includes lobbying expenditures on other issues listed along with the TPP on lobbying reports. The lobbying increased each year as the negotiations continued. Just two organizations mentioned the TPP in their 2008 lobbying reports but that number exploded to 1,317 in 2014. [3]

In a future post, I’ll discuss TPP’s failure to address currency manipulation and its ineffectiveness as a geopolitical response to the growing power of China.

[1]       Fulton, D., 11/5/15, “’Worse than we thought’: TPP a total corporate power grab nightmare,” Common Dreams (http://www.commondreams.org/news/2015/11/05/worse-we-thought-tpp-total-corporate-power-grab-nightmare)

[2]       Popular Resistance Newsletter, 11/8/15, “The secretly negotiated TPP will impact your life in many ways; together we can stop it,” (https://www.popularresistance.org/newsletter-10-shocking-realities-of-the-tpp-join-the-revolt/)

[3]       Tucker, W., 10/6/15, “Millions spent by 487 organizations to influence TPP outcome,” Center for Responsive Politics (http://www.opensecrets.org/news/2015/10/millions-spent-by-487-organizations-to-influence-tpp-outcome/?utm_source=CRP+Mail+List&utm_campaign=3570922ae8-Newsletter_9_24_15&utm_medium=email&utm_term=0_9df8578d78-3570922ae8-210762457)

THE TRANS-PACIFIC PARTNERSHIP: CORPORATE POWER GRAB

The full text of the Trans-Pacific Partnership (TPP) – a trade treaty and much more – was recently released. It was negotiated over 8 years in secret from the public and even Congress, although corporate executives were routinely involved. The treaty includes 12 countries: the US, Japan, Canada, Mexico, Australia, New Zealand, Peru, Chile, Singapore, Brunei, Malaysia, and Vietnam. Although the countries in the TPP represent over 40% of the global economy, the impact on trade per se – trade volume, tariffs, and quotas – will be small because the US already has a trade treaties with most of these countries, including all of the larger ones. [1]

Now that the full text has been released, at least 60 days have to pass before Congress can act on it. The Obama administration asked for and Congress agreed to consider this treaty under Fast Track rules. These rules require Congress to vote yes or no on the treaty with no amendments and in a limited time window. However, in the negotiations over approval of Fast Track rules, due to strong push back against them and against the treaty itself, the Obama administration agreed to release the full text of the treaty to Congress and the public for at least 60 days before a Congressional vote.

President Obama says that the TPP includes the strongest provisions of any trade treaty for protecting workers and the environment. [2] However, this is not saying much as past trade treaties have done almost nothing to protect workers and the environment. In addition, the TPP provisions for enforcing the labor and environmental provisions are quite weak. [3]

On the other hand, there are strong protections and enforcement mechanisms for corporate and investor interests. The “set of regulations governing investor rights, intellectual property, and … key service sectors, including financial services, telecommunications, e-commerce, and pharmaceuticals … enshrine the power of corporate capital above all … including labor and even governments.” [4]

Corporations and investors are allowed to sue governments if they feel their ability to make future profits is harmed by a country’s laws, rules, or regulations. They can take these claims to private Investor-State Dispute Settlement (ISDS) tribunals that make final, binding decisions and that bypass a country’s own courts and legal system. There is significant experience based on similar provisions in previous treaties that the ISDS process can undermine countries’ environmental and public health laws, as well as require governments to pay hundreds of millions of dollars in compensation to multi-national corporations. [5]

Senator Elizabeth Warren has criticized the TPP for giving multinational corporations too much power, in particular by allowing them to settle disputes through the ISDS tribunals and by expanding the ability of the large Wall St. financial corporations to challenge country’s financial rules and regulations. She has also stated that the TPP doesn’t go far enough in enforcing labor, public health, and environmental standards. [6]

Some conservatives are joining Senator Warren and others in expressing concern about the ISDS tribunals because they undermine US sovereignty by giving foreign corporations the right to challenge US laws and regulations. In addition to laws on safety, public health, and environmental standards, any US government law or regulation giving preference to the use of US companies in fulfilling government contracts would be subject to challenge by a foreign corporation under the TPP.

I’ll share more concerns about the TPP in subsequent posts.

My previous posts on the TPP and related matters include:

STOP “TRADE” TREATIES THAT FAVOR BIG MULTINATIONAL CORPORATIONS, 3/9/15, https://lippittpolicyandpolitics.org/2015/03/09/stop-trade-treaties-that-favor-big-multinational-corporations/

HISTORY AND LEAKS MAKE CASE AGAINST “TRADE” TREATIES, 1/20/14, https://lippittpolicyandpolitics.org/2014/01/20/history-and-leaks-make-case-against-trade-treaties/

STOP FAST TRACK FOR CORPORATE POWER GRAB, 1/13/14, https://lippittpolicyandpolitics.org/2014/01/13/stop-fast-track-for-corporate-power-grab/

TRADE TREATIES NEED OPEN DEBATE, NOT FAST TRACK, 1/8/14, https://lippittpolicyandpolitics.org/2014/01/08/trade-treaties-need-open-debate-not-fast-track/

“TRADE” AGREEMENTS & CORPORATE POWER, 9/13/13, https://lippittpolicyandpolitics.org/2013/09/13/trade-agreements-corporate-power/

“TRADE” AGREEMENT SUPERSIZES CORPORATE POWER, 9/10/13, https://lippittpolicyandpolitics.org/2013/09/10/trade-agreement-supersizes-corporate-power/

CORPORATE RIGHTS IN TRADE TREATIES, 7/22/12, https://lippittpolicyandpolitics.org/2012/07/22/corporate-rights-in-trade-treaties/

TRADE AGREEMENTS PAST AND PRESENT, 7/17/12, https://lippittpolicyandpolitics.org/2012/07/17/trade-agreements-past-and-present/

[1]       For more details and background on the TPP and related issues see previous posts that are listed at the end of this post.

[2]       Nakamura, D., 11/6 /15, “Release of text of Pacific trade pact does not quiet critics,” The Boston Globe from The Washington Post

[3]       Sachs, J.D., 11/10/15, “TPP is too flawed for a simple ‘yes’ vote,” The Boston Globe

[4]       Sachs, J.D., 11/1015, see above

[5]       Sachs, J.D., 11/1015, see above

[6]       Jan, T., 11/6/15, “Warren steps up criticism of the deal,” The Boston Globe

BIG CORPORATIONS BEHAVING BADLY PART 2

In my previous post, I focused on the big Wall St. corporations’ efforts to weaken financial regulations and consumer protections. In this post, I’ll share two much less visible examples of the power of big corporations to tilt the playing field in their favor:

  • H-1B visas
  • Consumer agreements and employee contracts

First, large corporations are dominating and gaming the H-1B visa program set up to help US companies hire foreign workers with special skills needed for their businesses that they are unable to find among US citizens. Only 85,000 of these visas are issued each year and many small companies with such needs are being shut out by large corporations requesting tens of thousands of the visas. It used to be that companies could apply and get one of these visas at any point during the year when the need arose. Now, immediately after the application process starts on April 1 each year, big corporations request thousands of visas so that a week later applications have already exceeded the year’s supply. [1]

Just twenty corporations took nearly 40% of the visas last year, about 32,000 of them, with one company applying for over 14,000. Thirteen of these 20 corporations are global outsourcing operations that typically bring in their employees from India to fulfill large contracts with US corporations that are outsourcing customer contact, marketing, or other functions. Their dominance and gaming of the system mean that many of the 10,000 other companies, many of them small businesses, that want and need these visas can’t get them.

These large corporations’ claims that they can’t find US citizens to perform these jobs is somewhat suspect. It seems likely that in some cases they simply want to pay the foreign workers less than they would have to pay Americans to do these jobs. Furthermore, a number of these corporations aren’t actually US corporations; they have their headquarters in India or Ireland, for example.

On a different front, many of the agreements that consumers must sign or agree to to shop online, rent a car, put a relative in a nursing home, or to get a credit card, cell phone, or many other products and services, contain a clause that goes something like this: “the company may elect to resolve any claim by individual arbitration.” Increasingly, this language is also showing up in contracts individuals must sign to get a job. This means that the corporate employer or provider of the product or service can force employees and consumers to resolve any complaint, problem, or claim, including ones that may involve fraud, illegality, or serious risk to the individual, through a corporate-controlled arbitration process and as an individual (i.e., not through any group action such as a class-action lawsuit).

This prevents the individual from going to court, from suing, and from joining with others in a class-action lawsuit. Class-action lawsuits, where a group of individuals who have been similarly harmed by a corporation’s actions band together to bring a lawsuit, are often the only realistic way to fight the power and deep pockets of a large corporation. Many attempts to bring class-action lawsuits have been rejected by the courts due to such arbitration clauses, including ones against Time Warner Cable for unauthorized charges on customers’ bills, AT&T for excessive cancellation fees, a travel booking website for price fixing, and ones for predatory lending, wage theft, and multiple cases of race and sex discrimination. The evidence indicates that once a class-action suit is blocked, most individuals simply drop their claims because they aren’t worth pursuing on an individual basis given the time and effort required and the small likelihood of winning any significant compensation.

“This is among the most profound shifts in our legal history. Ominously, business has a good chance of opting out of the legal system altogether and misbehaving without reproach,” according to US District Judge William Young, a Reagan appointee. The effort to prevent class-action lawsuits was led by a coalition of credit card companies and retailers; it has been underway for 10 years. The Attorneys General of 16 states have written to the Consumer Financial Protection Bureau (CFPB) warning that “unlawful business practices” could flourish with the growing inability to use class-action lawsuits to seek compensation for victims. [2]

In October, the Consumer Financial Protection Bureau outlined rules to prevent financial corporations from banning class-action lawsuits in consumer agreements. Wall St. and the US Chamber of Commerce immediately mobilized to block the CFPB’s effort.

Large corporations are continuously working to gain benefits for themselves at a cost to consumers, workers, and small businesses. I urge you to contact your elected officials and tell them that big corporations don’t need or deserve a playing field that’s tipped in their favor. If anything, the field should be tipped in favor of the little guy – individuals and small companies.

[1]       Preston, J., 11/11/15, “Top companies ‘game’ visa system, leaving smaller firms out of luck,” The Boston Globe from The New York Times

[2]       Silver-Greenberg, J., & Gebeloff, R., 11/1/15, “Hidden in fine print, clause stacks deck against consumers,” The Boston Globe from The New York Times

BIG CORPORATIONS BEHAVING BADLY

FULL POST: One of the themes that runs through many of my blog posts is the prevalence of corporate power in our politics, policies, economy, and lives. The power of large, often multi-national, corporations is evident in:

as well as in consumer protection laws, workplace and labor law, and the topics that our corporate media cover and don’t cover.

In this post, I’ll focus on efforts to weaken financial regulations and consumer protections, including some that are likely to come up in Congress in the near future. In my next post, I’ll share some other examples of the power of big corporations to tilt the playing field in their favor.

The large Wall St. financial corporations are wielding their power in opposing regulations and oversight intended to prevent another financial sector collapse and bailout like the one in 2008. Much of the fighting is over provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, including the Consumer Financial Protection Bureau that it created. Wall St. has been working hard to delay, water down, and repeal regulations under the Dodd-Frank law, in spite of their success in weakening the original law.

One of their tactics is to slip provisions weakening regulations and oversight into unrelated legislation that must pass, hoping their provisions will pass with little or no attention in Congress or among the public. Last December, when a must-pass year-end budget bill was being considered, they slipped in a provision repealing the requirement that their trading of risky investments called swaps (a kind of derivative) had to be conducted by entities separate from those that held insured deposits from individuals. The budget bill passed as did the repeal of the swap regulation. This means that $10 trillion of risky trades are held by banks that have federal deposit insurance. If these risky trades turn sour and produce big losses, the Federal Deposit Insurance Corporation and perhaps other government agencies will have to bailout the banks to make sure depositors don’t lose their insured deposits.

More recently, in October, Wall St. lobbied hard as bank regulators set the amount of money banks have to keep in reserve to cover potential losses on these risky trades. They were able to reduce the amount of these reserves, called the “margin requirement,” which increases the likelihood of a bailout at taxpayers’ expense.

With two pieces of must-pass legislation coming up Congress, the expectation is that Wall St. will again try to slip additional provisions into these bills to weaken regulation and oversight. The two bills are the year-end budget bill and the bill funding highway construction and maintenance. [1] One target appears to be the Consumer Financial Protection Bureau, which was the target of a recent $500,000 advertising campaign that falsely accuses the CFPB of denying people loans. (The CFPB doesn’t make loans; it regulates lenders to prevent them from making predatory and fraudulent loans.)

We have a Consumer Product Safety Commission to regulate and protect us from dangerous consumer products and a National Highway Traffic Safety Administration to protect us from dangerous automobiles (e.g., ones with faulty air bags or ignition switches). However, until Dodd-Frank passed, we did not have an agency to protect consumers from unsafe or predatory financial products. In Canada, where they did have such an agency, the incidence of predatory lending and mortgages was a tiny fraction of what it was in the US in the years leading up to the financial crash. This is a key reason the impact of the crash on homeowners and consumers in Canada was minor compared to the trillions of dollars of losses suffered by Americans.

I urge you to keep an eye out for efforts by our large corporations to bend policies – laws and regulations – to benefit themselves at a cost to consumers, workers, citizens, and small businesses. Contact your Members of Congress and tell them you’re tired of big corporations making out like bandits (sometimes literally) and getting away with it at your expense.

[1]       Hopkins, C., & Brush, S., 11/11/15, “Lawmakers urge regulators to hold the line on risky trades,” The Boston Globe from Bloomberg News

GOOD NEWS FOR US WORKERS

ABSTRACT: This Labor Day workers were able to celebrate falling unemployment, increased hiring, improved access to health insurance, and increases in the minimum wage. Expanded eligibility for overtime pay is also in the works. And the US Labor Department has proposed a new regulation that would cover home care workers under minimum wage and overtime rules. (They are currently exempted.) Policies could also be changed that would require more contingent or gig workers to be treated as employees under some or all of our labor laws and/or to require part-time employees to get pro-rated benefits.

Laws that support the right to unionize and bargain collectively could be strengthened, as could the enforcement of existing laws. Higher unionization correlates with lower inequality and a greater portion of national income going to the middle class.

Our public policies need to change, both to reinstitute workers’ bargaining power and to better serve workers in the gig economy. Workers in the US have been getting the short end of the stick for 40 years. Changes in public policies to address these issues are long overdue.

FULL POST: This Labor Day workers were able to celebrate falling unemployment and increased hiring. They could also celebrate improved access to health insurance through the Affordable Care Act (aka Obama Care). Increases in the minimum wage in a number of states and cities are more good news, along with the growing momentum behind the Fight for 15, which is pushing for a $15 minimum wage. Grassroots activism in support of workers specifically, and the middle and working class in general, is on the rise. [1] A number of political leaders have taken on this fight as well, including Senators Bernie Sanders (who is running for President), Elizabeth Warren, Jeff Merkley, Al Franken, Tammy Baldwin, Brian Schatz, Mazie Hirono, and Sherrod Brown. Pope Francis is also advocating for fairer treatment of workers and a reduction in economic inequality.

The momentum for increases in the minimum wage is supported by examples like San Jose, CA, which are refuting the scare-tactic claims of the business community and its political supporters in opposing any increases in the minimum wage. In San Jose, the minimum wage has gone from $8.00 per hour to $10.15. As a result, 70,000 of the city’s 370,000 workers directly or indirectly got a raise. But rather than costing jobs as opponents always assert minimum wage increases will do, unemployment has fallen to 5.4% from 7.4% in March 2013. The hardest hit industry – the restaurant business – has seen a 20% increase in the number of restaurants in the last 18 months. Although restaurants raised prices by an average of 1.75%, business is good and most customers don’t seem to notice that prices went up by a bit. [2]

Expanded eligibility for overtime pay is also in the works. Currently, most hourly workers are required to be paid time and a half for overtime work, i.e., work beyond 40 hours per week. However, employers are not required to pay overtime to salaried workers who are classified as managers or supervisors and are paid over $23,660 per year. (This is below the federal poverty line for a family of 4 people.) This $23,660 cutoff was established in 1975 and has not been updated since. In 1975, 60% of salaried workers qualified for overtime pay; today, less than 10% do. The US Department of Labor is proposing to raise the cutoff to $50,440, which is roughly adjusting it for the inflation of the last 40 years. If implemented, this change in regulations would mean that over 10 million additional US workers would qualify for overtime pay when they work over 40 hours per week. [3]

When the Fair Labor Standards Act was passed in 1938, it excluded domestic services workers and farm labor from its standards, such as the minimum wage and overtime pay. Many believe this happened because these workers were largely black and/or female. Amazingly, this exclusion remains in place today. Partly because of sub-minimum wages for their domestic services workers, the publicly-traded, national home-care corporations are very profitable – gross profits range from 30% to 40%. Furthermore, their CEOs’ compensation has risen 150% since 2004 (after adjusting for inflation), while their workers’ pay has declined 6%. [4]

In 2013, the US Labor Department proposed a new regulation that would cover home care workers under minimum wage and overtime rules. The coverage was supposed to take effect in January 2015, however the home care industry has been vehement in its opposition and has delayed the change by challenging the new regulation in court.

Policies could also be changed that would require more contingent or gig workers to be treated as employees under some or all of our labor laws, such as minimum wage, overtime pay, Social Security, workers’ compensation, and unemployment insurance laws. Rules could be changed to require part-time employees to get pro-rated benefits under many of these laws. Or employers could be required to make contributions to “individual security accounts” for gig workers to help them pay for benefits. [5] [6] Workers would also benefit from laws that regulate their schedules so they have more predictable hours and incomes. (See my post Supporting families is an investment in human capital Part 2 for more detail.)

Laws that support the right to unionize and bargain collectively could be strengthened, as could the enforcement of existing laws. For example, laws could be changed to make it easier for workers in franchised businesses and gig work to form unions and bargain collectively. [7] Enhanced workers’ bargaining power and workplace precedents based on union contracts would benefit all workers and support the revitalization of the middle class. Data over the last 100 years document a strong correlation between higher unionization and lower income inequality. Data from the last 50 years show a strong correlation between higher union membership and a greater portion of national income going to the middle class. [8]

Our public policies need to change, both to reinstitute workers’ bargaining power and to better serve workers in the gig economy. Our policies need to reflect the change from an industrial to a knowledge-based economy. Many current labor market standards, regulations, and economic security provisions were put in place around the Great Depression and responded to the transition from an agrarian economy to an industrial one. They need to be updated and adjusted to better align with current economic realities. [9]

Workers in the US have been getting the short end of the stick for 40 years. The results are stagnant wages, growing economic insecurity for most workers and families, a dramatic increase in economic inequality, and a declining middle class that lacks the purchasing power to keep our consumer-based economy humming. Changes in public policies to address these issues are long overdue.

[1]       Hightower, J., Sept. 2015, “The rebellious spirit of Matthew Maguire’s first Labor Day is spreading again across our country. Join the parade,” The Hightower Lowdown

[2]       Clawson, L., 6/16/14, “In San Jose, a minimum wage increase and falling unemployment,” Daily Kos (https://www.dailykos.com/story/2014/06/16/1307351/-In-San-Jose-a-minimum-wage-increase-and-falling-unemployment?detail=emailclassic)

[3]       Wise, K., 9/3/15, “Labor Day 2015: Important gains, many challenges for MA workers,” Massachusetts Budget and Policy Center (http://www.massbudget.org/report_window.php?loc=Labor_Day_2015.html)

[4]       Rogers, H., Summer 2015, “A decent living for home caregivers – and their clients,” The American Prospect (http://prospect.org/article/decent-living-home-caregivers%E2%80%94and-their-clients)

[5]       Ramos, D., 9/6/15, “The sharing revolution and the uncertain future of work,” The Boston Globe

[6]       Chen, M., 9/14/15, “This is how bad the sharing economy is for workers,” The Nation (http://www.thenation.com/article/this-is-how-bad-the-sharing-economy-is-for-workers/)

[7]       Johnston, K., 9/6/15, “Work’s dark future,” The Boston Globe

[8]       Clawson, L., 5/26/14, “The tight link between unions, the middle class and inequality in two charts,” Daily Kos (https://www.dailykos.com/story/2014/05/27/1301209/-The-tight-link-between-unions-the-middle-class-and-inequality-in-two-charts?detail=emailclassic)

[9]       Goodman, M.D., 9/6/15, “Public policies fail to keep pace with changing economy,” The Boston Globe

WORKING HARD, GAINING LITTLE

FULL POST: We recently celebrated the Labor Day holiday and workers in the US do have some things to celebrate, but in general the outlook is bleak. First, the bad news, and then in my next post the good news.

Wages (adjusted for inflation) fell 4% between 2009 (when the recovery officially started) and 2014. The fall was the greatest for low income workers – even in industries where hiring was strong – such as restaurant cooks (down 8.9%), home health aides (down 6.2%), and retail workers. Many workers are worse off than they were 20 years ago. [1]

Hourly wages for the typical worker have been basically stagnant since 1970, despite significant increases in worker productivity. From 2000 to 2014, for example, productivity grew by 21.6% while hourly compensation grew by just 1.8%. The value of the increased productivity has primarily gone to highly paid managers, business owners, and shareholders. Workers are not getting the fruits of their increased productivity because the rules of our economy have changed over the last 40 years to the benefit of employers. Workers’ power, through collective bargaining and other means, has been intentionally eroded by policy decisions by federal and state governments at the behest of powerful corporations. [2]

An important factor in these stagnant and falling wages is the growth of the number of workers who are not full-time employees; those who are temporary, part-time, or contract workers. This reflects the growth of what is called the gig economy. Roughly 40% of US workers were contingent or gig workers in 2010, up from 35% in 2006. [3] Roughly 27 million Americans are working as independent contractors or temporary workers, while another 24 million work at a mix of traditional and freelance work. These workers not only suffer from low wages, they also typically do not receive benefits and are not protected by labor laws covering health, safety, and working conditions, such as minimum wage and overtime pay laws. Furthermore, much of the safety net for workers in the US depends on being a regular, full-time employee: health insurance, retirement benefits, unemployment insurance, and workers’ compensation and disability insurance (for being unable to work due to an injury or a health issue). [4]

Our current employee-focused policies provide perverse incentives for employers because costs and administrative burdens are lower with non-employees than employees. As a result, employers actively work to maximize the use of contingent workers and minimize the number of full-time employees. They also misclassify workers as contractors to avoid paying payroll and unemployment taxes.

The gig economy means less economic security for workers now and in the future. Their jobs can disappear at any moment with no unemployment benefits to tide them over to the next job. Their weekly hours and income fluctuate. And typically they have no retirement benefits and no health insurance. If they buy health insurance on their own, they may have caps and high deductibles that could leave them in a financial crisis if a serious accident or illness were to occur. The risk of economic changes and recessions now falls primarily on employees, with little support from employers or our public safety net.

My next post will review good news for workers, including policy changes that would recapture workers’ bargaining power and better serve workers in the gig economy.

[1]       Schwartz, N.D., 9/3/15, “Pay has fallen for many, study says,” The Boston Globe from The New York Times

[2]       Economic Policy Institute, 9/2/15, “Gap between productivity and typical workers’ pay continues to widen,” Economic Policy Institute (http://www.epi.org/press/gap-between-productivity-and-typical-workers-pay-continues-to-widen/)

[3]       Johnston, K., 9/6/15, “Work’s dark future,” The Boston Globe

[4]       Ramos, D., 9/6/15, “The sharing revolution and the uncertain future of work,” The Boston Globe

A VOICE FOR WORKERS

Workers need to have a strong voice in the workplace and in our democracy to maintain an equitable balance of power with large, corporate employers. As the voice of labor has weakened over the last 35 years, workers’ pay has barely kept up with the cost of living and has fallen far behind workers’ growing productivity. In addition, the minimum wage has fallen substantially relative to the cost of living and workers’ benefits have been cut – many fewer workers have pensions and workers are paying more and more for their health insurance, if they have it.

Without a strong voice and bargaining power, workers do not get their fair share of economic growth and prosperity. (See my previous post, The Undermining of the Middle Class, for more detail.) For example, as workers’ pay and benefits have fallen in recent years, corporate profits and executives’ pay and benefits have risen dramatically.

The primary vehicle for providing a voice and bargaining power to workers is a labor union. Over the last 35 years, large corporations and their allies in government have engaged in a concerted campaign to weaken unions and workers’ bargaining power. Corporate employers have voided union contracts by declaring bankruptcy (e.g., many airlines), employers have been allowed to hire replacement workers when unionized workers engage in a strike (e.g., the air traffic controllers), employers have closed factories and moved jobs overseas, it has been made harder to organize workers and form a union, labor laws have been only weakly enforced, and penalties on employers who break labor laws are minimal.

This campaign to weaken unions has succeeded in reducing union membership among corporate employees from over 1 in 3 workers in the 1950s to 1 in 14 workers today. It has also undermined all workers’ bargaining power and throughout our economy has caused wages to stagnate and benefits to decline. The result has been a decline in the middle class’s share of national income.

Three key policy changes are needed to strengthen unions and the voices of workers:

  • Make it easier to form a union. Eliminate the ability of employers to delay and put up procedural hurdles to workers organizing a union.
  • Implement meaningful penalties for labor law violations. For example, the current penalty for firing a worker who is working to form a union (which is illegal), is simply to give him or her a job back, possibly with back pay. There is no fine or other penalty for having broken the law. Often these cases take so long to resolve (often it’s over a year) that the worker has had to find employment elsewhere.
  • Overturn, through federal law, states’ “right to work” laws. These laws allow employees in a unionized workplace to benefit from union-negotiated pay and benefits without having to pay union dues. This is a backdoor way to weaken and destroy unions by reducing their membership and revenue.

Wages and benefits are better in states (and countries) with higher levels of union membership. For example, in states with “right to work” laws, wages are $6,000 per year lower than in states without such laws and workers have weaker health and pension benefits as well. This applies not just to unionized workers but to all workers; all workers’ wages and benefits are better when unions are stronger.

Workers deserve fair pay and benefits for a hard day’s work. Unions provide the voice and bargaining power for workers; they establish a countervailing power to that of large, corporate employers. They improve pay and benefits, as well as working conditions, such as limiting the standard work week to 40 hours. Strong unions lead to a strong and fair economy, as well as a strong middle class. We need to strengthen labor unions to bring back a thriving middle class, as well as the fairness and shared prosperity that our economy produced in the 1950s through 1970s.

Strengthening labor unions is the seventh of Ten Ideas to Save the Economy: The Big Picture presented by Robert Reich and MoveOn.org. (You can watch the 3 minute video at: https://www.facebook.com/moveon/videos/vb.7292655492/10152780314000493/?type=1&theater.)

CORPORATE WELFARE IS MAKING US POOR

When we hear the term welfare, we think of public programs to help poor people. However, there are numerous public programs that provide welfare to corporations, most of whom are not poor at all. Corporate welfare occurs through so many subsidies and tax breaks that it is hard to keep track of them all. And it’s even harder to determine how much they are costing the federal and state governments.

Corporate welfare costs tens of billions of dollars – maybe $100 billion – per year. This means the federal and state governments have billions of dollars less to spend on education, public safety and defense, roads and bridges, and so forth. And it means that other taxpayers – you and me – have to pay more to make up the difference.

The corporate welfare goes mainly to large, often multi-national, corporations. They have the clout to bend government policies to serve their interests rather than the public interest. There are tax breaks and subsidies for the oil, coal, and gas industries ($37.5 billion per year [1]); for agribusiness; for the pharmaceutical industry; for the big Wall Street banks and financial corporations; for hedge fund managers; for international investors and multi-national corporations; etc.

This is crony capitalism: the private capitalists get their cronies in government to do them favors. They do this through campaign contributions and spending, through lobbying, and through the revolving door for personnel, which includes well-paying jobs in the private sector for public officials and employees when they leave their government positions.

For example, 288 of the Fortune magazine’s list of the 500 largest US corporations were profitable in every year from 2008 to 2012. But because of corporate welfare tax breaks, 26 of these large, profitable corporations paid no federal income taxes over those 5 years, including Boeing, General Electric, and Verizon. Furthermore, 93 of the 288 paid taxes at an effective rate of less than 10% over those 5 years – far less than the stated tax rate of 35%. [2]

Corporate welfare and crony capitalism need to end. Although the capitalists like to extol and advocate for the “free market,” our economy is anything but a free market. The large corporations have used their political clout to tip the scales in their favor. This is bad for the economy, for small businesses, for workers and the middle class, for governments and the public sector, and for democracy. Corporate welfare is unfair, inefficient, and wasteful; it needs to stop.

Ending corporate welfare is the sixth of the Ten Big Ideas to Save the Economy presented by Robert Reich and MoveOn.org. [3]

[1]       Aronoff, K., July 2015, “The death of climate denialism,” In These Times

[2]       Citizens for Tax Justice, 2/25/14, “The sorry state of corporate taxes,” http://ctj.org/ctjreports/2014/02/the_sorry_state_of_corporate_taxes.php

[3]       You can watch the 3 minute video at: https://www.facebook.com/moveon/videos/vb.7292655492/10152770639760493/?type=1&theater

PROTECTING OUR ECONOMY AND DEMOCRACY FROM WALL STREET

We need to protect our economy from the risky behavior of the big Wall Street banks and financial corporations. This is the fourth of the Ten Big Ideas to Save the Economy, presented by Robert Reich and MoveOn.org. [1] We need to prevent these Wall St. giants from crashing the financial system and sending our economy into a severe recession again – as they did in 2008. Millions of Americans lost their jobs, their homes, and their savings in the Great Recession of 2008. The Wall Street corporations and their senior managers got bailed out, but the rest of us got sold out.

The giant Wall St. banking corporations are bigger than ever and are up to their old tricks. Given their increased size, they are even more potent economically and politically than before the 2008 crash. They continue to engage in speculative trading and other risky financial activities that could bring them and our economy crashing down again. They are pushing to repeal even the very modest financial regulations that were put in place to better protect us after the 2008 crash (by the Dodd-Frank law). They have friends in Congress (from both parties), as well as in the administration, who are supporting their efforts. They press their case by spending tens of millions of dollars on campaign contributions and lobbying.

Three actions need to be taken:

  • Reinstate the requirement that banking activities involving government-insured deposits be kept separate from risky financial activities. The Glass-Steagall Act that used to do this – and kept our banking system safe for 70 years – was repealed in the late 1990s. This led to the 2008 collapse and bailout.
  • Re-institute a small transaction tax, a sales tax, on the purchase of financial assets. This would discourage speculative activity that has no value beyond self-enrichment (especially high-volume, computer-driven trading) and would produce significant revenue that could be put to good use. A 0.5% sales tax on the purchase of financial assets ($5 on every $1,000) would generate roughly $500 billion per year. (See my posts of 10/8/12 and 9/29/12 for more details.)
  • Split the big banks into multiple, smaller entities. Currently, they are too big to fail, which should mean that they are too big to exist. Their size gives them too much clout, both economically and politically. This makes them dangerous to our economy and our democracy. In the past, the country used its anti-trust laws to break up the big oil companies and the telephone monopoly ATT. Similarly, we should break up the giant Wall St. financial corporations of today. They are so big that a speculative trade that goes sour and puts them into bankruptcy threatens our whole financial system and economy, and, therefore, requires a public bailout. And they are so big that through spending on campaigns and lobbying, coupled with the revolving door that puts former employees in key government positions, they are able to bend the rules of our financial system and economy to their benefit.

[1]       You can watch the 3 minute video at: http://civic.moveon.org/tamewallstreet/share.html?id=116548-5637721-c7x9Tcx.

WHY ECONOMIC INEQUALITY CONTINUES TO GROW AND WHAT YOU CAN DO ABOUT IT

ABSTRACT: Despite many indicators that our economy is strong, most Americans are experiencing economic insecurity. Over half of US households have less than one month’s income in regular savings and median household income continues to decline. Low-wage workers at Walmart, McDonalds, and elsewhere are so poor they are receiving $45 billion in public assistance. This translates into the average US household paying $400 a year in taxes to support these workers.

So why are the majority of Americans falling behind economically? And why were things so different in the post-World War II period? The US job market has changed dramatically. Many full-time jobs have been replaced part-time jobs, contract work, and temporary work. Many large employers and some politicians have engaged in a conscious effort to undermine the bargaining power of workers and weaken the enforcement of labor laws. Policies that allow outsourcing of jobs overseas and high unemployment further undermine the availability of good jobs at good wages.

The ability of the public and voters to demand policies that support the middle class and workers has also been undermined. Wealthy individuals and corporations are now allowed to make huge contributions and expenditures in our elections, drowning out the voices of average voters. This means that economic inequality translates into political inequality and policies that favor the well-off. Furthermore, new barriers to voting and a strategy of paralyzing and denigrating government has fostered voter cynicism, which leads to “a downward spiral [of] depressed expectations and diminished participation.”

A genuine mass movement is needed to restore economic security and opportunity for the typical American worker. An opportunity to participate in building such a movement is available right now in the election of the Mayor of Chicago. Jesus “Chuy” Garcia is unexpectedly giving incumbent Mayor Rahm Emanuel, a crony of wealthy business interests, a run for his money. You can learn more about Garcia and contribute to his campaign at http://www.chicagoforchuy.com/index.html. The success of candidates like Garcia is critical to turning around the direction of our politics and policies, and to re-establishing government of, by, and for the people.

FULL POST: As the stock market sets record highs, as unemployment falls, and as the economy grows, most Americans are experiencing economic insecurity. Since 2007, US wealth as grown by over $30 trillion, but the number of children in families receiving public assistance to buy food has grown by 6.5 million to 16 million children (20% of all kids). Over half of public school students are poor enough to qualify for lunch subsidies and over half of US households have less than one month’s income in regular savings (as opposed to retirement accounts or home equity). Median household income has continued to decline in the 5 years since the official recession ended; 95% of income growth since 2009 has gone to the richest 1%. The jobs that are being created pay, on average, 23% less than the jobs that were lost. [1]

Low-wage workers (those earning less than $10.10 per hour) at Walmart, McDonalds, and elsewhere are so poor they are receiving $45 billion in public assistance. This translates into the average US household paying $400 a year in taxes to support these workers. Walmart’s highly publicized $1 raise for its lowest paid workers will cost the company about $1 billion per year. Its profits last year were $25 billion and it spent about $6.5 billion to buy back its own stock, enriching its investors. It’s estimated that taxpayers spent about $6 billion providing public assistance to Walmart employees last year. [2]

So why are the majority of Americans falling behind economically when many measures indicate that our economy is doing well and when the wealthy are doing very well? And why were things so different in the post-World War II period when our economy was doing well and the majority of Americans were getting ahead? Bob Kuttner offers seven reasons, which I summarize below. [3]

The US job market has changed dramatically. Many full-time jobs with career opportunities have been replaced part-time jobs, contract work, temporary work, and so forth. Many large employers and some politicians have engaged in a conscious effort to undermine the bargaining power of workers and weaken the enforcement of labor laws. Policies that allow outsourcing of jobs overseas and high unemployment (while limiting unemployment benefits) further undermine market forces that would provide good jobs at good wages – and with benefits.

Pro-business Republicans and Democrats have supported these policies. Furthermore, the ability of the public and voters to demand policies that support the middle class and workers has been undermined. Laws and court decisions have allowed wealthy individuals and corporations to make huge contributions and expenditures in our elections, drowning out the voices of average voters. This means that economic inequality translates into political inequality, and wealthy special interests can promote their own good at the expense of the public.

Similarly, laws and court decisions have made it more difficult for many voters to vote. And finally, a strategy of paralyzing and denigrating government, particularly at the national level, has fostered voter cynicism. This leads to passivity and lack of involvement in political activity including voting – “a downward spiral [of] depressed expectations and diminished participation.”

Kuttner says a genuine mass movement is needed to restore economic security and opportunity for the typical American worker, as well as democracy to our political process. He notes that the Roosevelt Revolution and New Deal of the 1930s accomplished this. The Civil Rights Movement of the 1960s also made major changes in economic justice and democratic processes. So it’s time again to throw off cynicism and apathy, and to activate and organize.

An opportunity to do so is available right now in the election of the Mayor of Chicago. Jesus “Chuy” Garcia is polling within 4 percentage points of incumbent Mayor, Rahm Emanuel, a crony of wealthy business interests (and former Chief of Staff for President Obama and former US Representative). As Mayor, Emanuel closed 50 public schools, attacked teachers, and engaged in privatizing schools, parking meters, transit fare collection, and other public sector functions and jobs. He has focused on downtown development while ignoring the neighborhoods. He has raised taxes and fees on working people while providing sweetheart deals for business people, many of whom have contributed to his election campaign. Emanuel has raised over $13 million, ten times what Garcia has raised, and has a super PAC backing him as well. He is receiving substantial support from wealthy business people who are active Republicans. [4]

Garcia shocked everyone in the primary by keeping Emanuel from getting a majority of the vote, thereby forcing the run-off election on April 7. If you would like to contribute to the movement to restore democracy, reduce inequality, and support workers and the middle class, supporting Garcia is a good opportunity. You can learn more about him and contribute to his campaign at http://www.chicagoforchuy.com/index.html. Even if you contribute just a few dollars, the number of donors is an important indication of the breadth of support. You can sign-up to make calls from your home encouraging Chicago residents to get out and vote for him here: http://pol.moveon.org/2015/garcia_calls.html?rc=kos.

The success of candidates like Garcia is critical to turning around the direction of our politics and policies, and to re-establishing government of, by, and for the people. Even if they don’t ultimately win, they change the issues and policies that are discussed, and help build the movement for change.

P.S. I think it’s noteworthy that there hasn’t been much coverage by the mainstream (corporate) media of this unexpectedly contested mayoral race in our 3rd largest city.

[1]       Buchheit, P., 2/9/15, “New evidence that half of America is broke,” Common Dreams

[2]       Buchheit, P., 3/16/15, “Four numbers that show the beating down of middle America,” Common Dreams

[3]       Kuttner, R., 3/23/15, “Why the 99 percent keeps losing,” Huffington Post

[4]       Perlstein, R., Feb. 2015, “How to sell off a city,” In These Times (http://inthesetimes.com/article/17533/how_to_sell_off_a_city)

STOP “TRADE” TREATIES THAT FAVOR BIG MULTINATIONAL CORPORATIONS

ABSTRACT: The Obama administration is in the final stages of negotiating two major “trade” treaties. It is pushing for Fast Track approval, which requires Congress to ratify them quickly (only 20 hours of debate on the thousands of pages in each treaty) with no amendments. These “trade” treaties primarily serve to enhance the power and profits of large multi-national corporations.

The Congressional Progressive Caucus (CPC) has released a set of principles for trade including:

  • Trade treaties should promote balanced trade and reduction of the current US trade deficit;
  • Workers’ rights should be protected and assistance provided to those who are displaced;
  • Currency manipulation to gain unfair advantage in trade should be banned;
  • The environment should be protected and environmental laws should not be undermined;
  • Trade treaties must not supersede countries’ consumer protections;
  • Private court systems that bypass and supersede a countries’ court system must not be allowed;
  • Trade treaties must safeguard affordable access to essential medicine; and
  • Trade treaties should support the United Nations Universal Declaration of Human Rights.

I encourage you to contact your U.S. Representative and Senators to urge them to support the Congressional Progressive Caucus’s principles for trade, and to oppose these “trade” treaties and Fast Track approval of them.

FULL POST: The Obama administration is in the final stages of negotiating two major “trade” treaties, [1] the Trans-Pacific Partnership (TTP) and the Trans-Atlantic Trade and Investment Partnership (TTIP). It is pushing for Fast Track approval, which requires Congress to ratify them quickly (only 20 hours of debate on the thousands of pages in each treaty) with no amendments to or filibustering of the language to which the administration has agreed. Despite the fact that a vote on the Fast Track approval process was delayed last week in Congress, it and these treaties will be back soon.

These “trade” treaties primarily serve to enhance the power and profits of large multi-national corporations. U.S. sovereignty and workers will be undermined, along with protections for our health, consumer and worker safety, the environment, and the stability of the financial system. Laws and regulations to protect public well-being are treated as illegal barriers to trade, although in reality it’s because they might be barriers to corporate profits. Multi-national corporations would be able to return to practices that were prohibited by the Clean Air and Clean Water Acts of the early 1970s and to the financial schemes that caused the 2008 Great Recession. [2] (See my posts of 1/13/14, 1/8/14, 9/13/13, 9/10/13, and 7/22/12 for more details.)

US Senator Elizabeth Warren has focused her opposition to the TPP on a provision called Investor-State Dispute Settlement (ISDS). It gives foreign corporations special rights to challenge U.S. laws, rules, and regulations in international tribunals, instead of the normal process of going through the U.S. courts. They could win large financial awards for alleged loss of potential profits. Such awards would have to be paid by U.S. taxpayers without ever going to a U.S. court. This significantly undermines U.S. sovereignty. [3]

This ISDS provision is already in the North American Free Trade Agreement (NAFTA) and some other existing trade treaties. As a result, governments have paid hundreds of millions of dollars to multi-national corporations under decisions by international tribunals where high-priced corporate lawyers serve as the judges. The number of cases brought to these tribunals is growing and there were 58 cases in 2012 alone. For example, a French corporation sued Egypt because it raised its minimum wage, a Swedish corporation sued Germany because it is phasing out nuclear power after the Japanese Fukushima disaster, and Philip Morris is suing Uruguay to stop new tobacco regulations. Eli Lilly is suing Canada to overturn a decision by its Supreme Court that limits drug prices. [4]

As a candidate for President, Obama criticized ISDS provisions in NAFTA. He promised to oppose foreign corporations’ rights to sue governments over laws or regulations that protect public safety or promote the public interest. He has done an about face on this issue.

Robert Reich, Bill Clinton’s Secretary of Labor, has a great, 2 ½ minute video explaining why we should oppose Fast Track and the TPP. [5] He notes that although it is the largest trade treaty in history, involving almost 800 million people and 40% of the world’s economy, it is being negotiated in secret. The public, the media, and even Congress have been shut out from the process and denied access to draft documents. However, corporate leaders have been extensively involved. The leaked information that has come out indicates that the TPP will exacerbate inequality and the undermining of the middle class by facilitating the outsourcing of jobs. It will also undermine rules and regulations that protect people (but might reduce profits) and make drugs more costly by lengthening patent protections.

The TPP and TTIP will provide few if any benefits to the economy, jobs, wages, or our balance of trade. Past trade treaties, such as NAFTA, have resulted in documented job losses, declining wages for middle class workers, increased trade deficits, and increasing inequality. [6] (See my posts of 1/20/14 and 7/17/12 for more information.)

The Congressional Progressive Caucus (CPC) has released a set of principles for trade. [7] Those principles include the following:

  • Trade treaties must allow open debate with full disclosure of their provisions, sufficient time to discuss them, and the opportunity to amend them;
  • Trade treaties should promote balanced trade and reduction of the current US trade deficit;
  • Workers’ rights should be protected and assistance provided to those who are displaced;
  • Currency manipulation to gain unfair advantage in trade should be banned;
  • Trade treaties must not limit the United States government’s ability to set contract guidelines, including giving a preference to domestic producers when making purchasing decisions;
  • The environment should be protected and countries’ environmental laws should not be undermined;
  • Trade treaties must not supersede countries’ food and safety standards, financial regulations, or other consumer protections;
  • Private court systems, such as Investor State Dispute Settlement tribunals, that bypass and supersede a countries’ court system must not be allowed;
  • Trade treaties must safeguard affordable access to essential medicine and not establish unfair drug patent protections that delay access to affordable generic drugs; and
  • Trade treaties should require signatory countries to implement and enforce domestic laws consistent with the United Nations Universal Declaration of Human Rights and should not prevent the U.S. or other nations from using trade benefits to promote human rights.

I encourage you to contact your U.S. Representative and Senators to urge them to support the Congressional Progressive Caucus’s principles for trade. In addition, I encourage you to urge your elected representatives to oppose these “trade” treaties and the Fast Track approval process for them.

[1]       I put trade in quotes because these and other recent “trade” treaties, such as the North American Free Trade Agreement (NAFTA), actually do little to reduce trade barriers (which are already quite low) or increase trade (which is already quite extensive). They primarily address a broad range of legal and regulatory issues.

[2]       Stiglitz, J., 3/15/14, “On the Wrong Side of Globalization,” The New York Times

[3]       Warren, E., 2/25/15, “The Trans-Pacific Partnership clause everyone should oppose,” The Washington Post

[4]       Gallagher, K.P., 3/4/15, “Saving Obama from a bad trade deal,” The American Prospect

[5]       Reich, R., 1/29/15, “Robert Reich takes on the Trans-Pacific Partnership,” https://www.youtube.com/watch?v=3O_Sbbeqfdw

[6]       Meyerson, H., 1/14/14, “Free trade and the loss of U.S. jobs,” The Washington Post

[7]       Congressional Progressive Caucus, 3/6/15, “Principles for trade: A model for global progress,” http://cpc.grijalva.house.gov/uploads/Final%20Principles%20for%20Trade%203-4-151.pdf

OUR ELECTIONS ARE ALL ABOUT THE MONEY

ABSTRACT: Although the next presidential election is over 20 months away, there is already media attention focused on who can and who is raising the most money. The top lobbyists / bundlers raise over $1 million for candidates’ campaigns. If this isn’t a blatant way of buying influence, I don’t know what is. A Washington, D.C., lawyer and political activist formed a super PAC that raised $145 million for Romney’s campaign in 2012. Presidential candidate Jeb Bush is holding $100,000 per person fundraisers. He plans to hold 60 fundraisers before April 1, an average of nearly one per day.

The money race is the real race; the actual courting of voters and voting is secondary. The savvy, hard-working, profit-driven individuals making large campaign contributions are looking for a return on their investment. And they get it through government actions that benefit their interests. This, in a nutshell, is the legalized corruption of the political system of our supposed democracy.

We must reform our system of financing election campaigns. Two essential elements are:

  • Reversing the Supreme Court’s Citizens United and related decisions, and
  • Establishing campaign financing systems where small contributions to viable candidates are matched by public funds so candidates can be competitive based on support from every day citizens and voters instead of being dependent on wealthy individuals and interest groups.

 

FULL POST: Although the next presidential election is over 20 months away, it is already getting quite a bit of media attention. Little of that attention is focused on the policies that the possible candidates support. Much of the attention is focused on who can and who is raising the most money.

On the Republican side, Romney’s decision not to run has set off a scramble among other possible candidates to win over his financial backers. Romney’s top five lobbyists / bundlers each raised over $1 million for his campaign. These lobbyists for powerful corporate interests solicited campaign contributions from multiple individuals and political action committees (PACs) and presented them in aggregate (i.e., a bundle) to Romney’s campaign. If this isn’t a blatant way of buying influence, I don’t know what is. The top lobbyist / bundler was Bill Graves, president of the American Truckers Association and former Governor of Kansas.

Announced presidential candidate Jeb Bush has been aggressively wooing the Romney fundraisers and others. He began active fundraising last November, two years before the election. In a recent week, he held a $100,000 per person fundraiser in New York, two fundraisers in Washington, D.C., and two in Chicago. He told his audience of lobbyists, CEOs, and corporate industry group representatives that he plans to hold 60 fundraisers before April 1, an average of nearly one per day. Charlie Spies, a Washington, D.C., lawyer and political activist, who formed a super PAC that raised $145 million for Romney’s campaign is now working with a newly formed super PAC supporting Bush. [1]

The money race is the real race; the actual courting of voters and voting is secondary. Is this really the way we want to be selecting candidates for President (or any office) in a democracy? Is this really how we want our candidates to be spending their time? Is this really what we want the media to be reporting about the candidates – how many fundraisers they are having, how much money they are raising, and who is providing them with huge amounts of money? Do we really want our candidates courting and being indebted to these wealthy individuals and interest groups?

The savvy, hard-working, profit-driven individuals making large campaign contributions are looking for a return on their investment. And they get it through government actions that benefit their interests. As one example of such a return, the Koch brothers spent in excess of $100 million in the 2014 federal election, primarily, if not exclusively, in support of Republican candidates. The new Republican-controlled Congress just happened to fast-track a vote on a bill mandating the construction of the Keystone XL Pipeline. The Koch brothers and their corporations lease oil rights on more than a million acres of land in the Alberta tar sands region from which the pipeline would transport oil. The construction of the pipeline would increase the value of their leases by an estimated $100 million! [2] This is just one example of the kind of payback wealthy campaign donors get. And the Koch brothers have just announced their intention to spend close to a billion dollars in the 2016 elections.

This, in a nutshell, is the legalized corruption of the political system of our supposed democracy. We are well down the road to a plutocracy (where the wealth elites rule) or a corporatocracy (where the corporations rule). I’m not sure there’s much difference, actually. (See my post on 7/21/14 for more detail.)

We must reform our system of financing election campaigns or we will lose our democracy – government of, by, and for the people. Reforming campaign financing will not be easy or quick. Two essential elements are:

  • Reversing the Supreme Court’s Citizens United and related decisions that equate money with speech and give corporations the free speech rights of the Bill of Rights (see my post on 1/11/15 for more detail), and
  • Establishing campaign financing systems, such as those in Arizona, Maine, and New York City, where small contributions to viable candidates are matched by public funds so candidates can be competitive based on support from every day citizens and voters instead of being dependent on wealthy individuals and interest groups (see my post on 7/25/14 for more detail).

[1]       Viser, M, 2/14/15, “Bush pressing to lock in Romney’s donors,” The Boston Globe

[2]       Hightower, J., 12/14, “Koch Kongress: The best money can buy,” The Hightower Lowdown (http://www.hightowerlowdown.org/)

THE UNDERMINING OF THE MIDDLE CLASS

ABSTRACT: Senator Elizabeth Warren gave a great speech recently in which she laid out how actions taken by corporations and related policy changes have undermined the middle and working class. She also spelled out what we need to do to change the rules of our economy so it works for everyone, not just the wealthiest. Up until the 1980s, our economy and the wages of the middle and working class grew together. But since the 1980s, all the growth of the economy has gone to the wealthiest 10%. Wages for the 90% of us with the lowest incomes have been flat, while our living expenses for housing, health care, and college have grown significantly.

This change in our economy, where all the benefits of growth go to the wealthiest 10%, represents a huge structural economic shift. It occurred because of cutting taxes; trade treaties; financial manipulation via leveraged buyouts and bankruptcies; minimum wage erosion with inflation; reductions in health care, unemployment, sick time, and overtime benefits; cutting of pensions and retiree benefits; and restrictions on employees’ rights to negotiate pay and working conditions as a group. Furthermore, corporations have been allowed to turn full-time employees into independent contractors or part-time workers who get no benefits and no job security.

These changes affect all workers, those in the private and public sectors, as well as both union and non-union employees. The changes were promoted by corporations and their lobbyists. Senator Warren states that it doesn’t have to be this way. We can make different choices and enact different policies that reflect different values. More on that next time.

FULL POST: Senator Elizabeth Warren gave a great speech recently in which she laid out how actions taken by corporations and related policy changes have undermined the middle and working class. She also spelled out what we need to do to change the rules of our economy so it works for everyone, not just the wealthiest. [1] She notes that up until the 1980s our economy and the wages of the middle and working class grew together. The rising tide of our growing economy did lift all boats. While the wealthiest 10% got more than their share of the growth (about 30%) in those years, the other 90% of us got 70% of the money generated by the growing economy.

But since the 1980s, all the growth of the economy has gone to the wealthiest 10%. The pay for Chief Executive Officers (CEOs) of corporations was 30 times that of average workers in the 1980s; today it is 296 times that of workers. And in the last 25 years, corporate profits have doubled as a portion of our economy, while the portion going to workers has declined. [2]

Wages for the 90% of us with the lowest incomes have been flat, while our living expenses for housing, health care, and college have grown significantly. Mothers have gone to work and parents are working more hours but this has not been enough to maintain a middle class standard of living. It certainly looks like today’s young people will be the first generation in America to be worse off than their parents.

Since 1980, the wages of the wealthiest 1% have grown by 138% (adjusted for inflation) while wages for the 90% with the lowest wages have received only a 15% increase (less than half of one percent per year). Workers have not received the benefit of their increased productivity, as was the case up until 1980. Since 1980, productivity has increased 8 times faster than workers’ compensation. If the federal minimum wage had kept up with productivity, it would be $18.42 instead of $7.25. And if it had kept up with inflation since 1968, it would be $19.58. [3]

This change in our economy, where all the benefits of growth go to the wealthiest 10%, represents a huge structural economic shift. So how did the economy get rigged so the top 10% get all the rewards of economic growth?

In the 1980s, government was vilified by politicians who were supported by corporate money. The supposed evils of big government were used to argue for deregulation and cutting taxes. This turned Wall Street’s financial corporations and other large multi-national corporations loose to maximize profits with no holds barred. Furthermore, trade treaties allowed corporations to manufacture goods overseas and bring them back into the U.S. with low or no tariffs, few U.S. regulations, and no regulations on how foreign labor was paid or treated. In addition, the U.S. corporations were allowed to cut benefits and pay for U.S. employees, including by undermining workers’ bargaining power in multiple ways, and through financial manipulation via leveraged buyouts and bankruptcies, as well as changes in tax laws.

Middle class workers have been undermined by corporations moving (or threatening to move) their jobs overseas and by changes in state and federal laws. The minimum wage has been eroded by inflation; workplace safety and legal protections have been weakened; health care, unemployment, sick time, and overtime benefits have been reduced; restrictions on child labor have been lifted; and it has become harder to sue an employer for discrimination. Pensions and retiree health benefits have been cut or eliminated. Just 34 of the Fortune 500 list of the largest corporations offered traditional pensions to new workers in 2013, down from 251 in 1998. [4] And wage theft through failure to pay the minimum wage or overtime wages, or through manipulation of time cards and other means, has spread. Meanwhile, enforcement of labor laws has been weak.

Employees’ rights to negotiate pay and working conditions as a group have been restricted. In addition, the middle class has been hammered by labor laws that allow corporations to turn full-time employees into independent contractors or part-time workers who get no benefits and no job security.

These changes affect all workers, those in the private and public sectors, as well as union and non-union employees. The changes were promoted by corporations and their lobbyists, along with corporate-funded think tanks, the Chamber of Commerce, the National Federation of Independent Business, the National Restaurant Association, the National Association of Manufactures, and other business groups. These efforts were also advanced by corporate-funded advocacy organizations such as the American Legislative Exchange Council (ALEC), Americans for Tax Reform, and Americans for Prosperity. [5]

Senator Warren states that it doesn’t have to be this way. We can make different choices and enact different policies that reflect different values. My next post will discuss those values and policies. In the meantime, I encourage you to listen to Warren’s speech (just 23 minutes while you’re doing something else) or to read the press release. (See footnote 1 for links to them.)

[1]     You can listen to and watch Warren’s 23 minute speech at: https://www.youtube.com/watch?v=mY4uJJoQHEQ&noredirect=1. Or you can read the text in the press release her office put out at: http://www.warren.senate.gov/?p=press_release&id=696.

[2]       Tankersley, J., 12/25/14, “Amid gain, middle class wages get no lift,” The Boston Globe from the Washington Post

[3]       Economic Policy Institute, 12/24/14, “The 10 most important econ charts of 2014 show ongoing looting by the top 1 percent,” The American Prospect

[4]       McFarland, B., 9/3/14, “Retirement in transition for the Fortune 500: 1998 to 2013,” Towers Watson (http://www.towerswatson.com/en/Insights/Newsletters/Americas/Insider/2014/retirement-in-transition-for-the-fortune-500-1998-to-2013)

[5]       Lafer, G., 10/31/13, “The legislative attack on American wages and labor standards, 2011-2012,” Economic Policy Institute (http://www.epi.org/publication/attack-on-american-labor-standards/)

GOVERNMENT BY THE BIG WALL ST. CORPORATIONS

ABSTRACT: The big Wall St. financial corporations just got another big gift. The Federal Reserve announced that it will give Wall St. a year’s delay (to mid-2017) on the implementation of the Volcker Rule, which would ban Wall St. from engaging in risky investments with federally-insured deposits. Many observers believe that this delay will simply give the financial corporations time to kill the Volcker Rule before it ever goes into effect through their lobbying and campaign contributions. The financial corporations’ incessant lobbying and cumulative campaign contributions weakened the Dodd-Frank bill to begin with, and now are delaying, weakening, and repealing its pieces during implementation. Citigroup spent $5.6 million on lobbying in 2013 and its political action committee and employees gave $2.1 million to candidates for federal office in the 2014 election cycle. JPMorgan Chase spent and gave similar amounts.

In addition to huge, risky investments with taxpayer-insured deposits, other risks in the banking and financial system are growing. The bottom line is that the huge financial corporations, which were too-big-to-fail in 2008 and therefore got trillions of dollars in a public bailout, are now bigger than ever and getting riskier by the day. Another bailout and crash of our economy are one financial mistake or economic surprise away.

We need to push back and tell our elected officials that:

  • The Dodd-Frank law’s financial reforms need to be strengthened,
  • Financial corporations should not be allowed to gamble with taxpayer-insured deposits, and
  • Too-big-to-fail financial corporations should be broken up.

FULL POST: The big Wall St. financial corporations just got another big gift. First, the ban on derivatives trading with federally-insured deposits was repealed in the year-end budget bill. (See blog post on 12/14/14.) Then, the Federal Reserve announced that it will give Wall St. a year’s delay (to mid-2017) on the implementation of the Volcker Rule. This Rule, which is a key part of the Dodd-Frank post-2008 crash financial reform legislation, would ban Wall St. from engaging in other types of risky investments with federally-insured deposits. The Volcker Rule is a partial re-implementation of the Glass-Steagall Act, which was enacted after the Great Depression and prohibited banks with federally insured deposits from engaging in investment banking activities. (It kept our banking system safe for 70 years until its repeal in 1999.) The prohibited investment activities include participation in private equity funds and hedge funds, which are basically unregulated investment activities and can be very risky. Goldman Sachs has $11 billion in such investments, while Morgan Stanley has $5 billion. [1]

Many observers believe that this delay will simply give the financial corporations time to kill the Volcker Rule before it ever goes into effect through their lobbying and campaign contributions. This is exactly what happened to the ban on derivatives: it was delayed from 2013 to mid-2015 and has now been repealed so it never went into effect. Citigroup, whose lobbyists wrote the repeal of the derivative ban, held over $60 trillion of derivatives (that’s right, trillion not billion) at the end of 2013 and this huge, risky investment will now continue to be protected by federal deposit insurance. [2]

The financial corporations’ incessant lobbying and cumulative campaign contributions weakened the Dodd-Frank bill to begin with, and now are delaying, weakening, and repealing its pieces during implementation. Citigroup spent $5.6 million on lobbying in 2013 and its political action committee (PAC) and employees gave $2.1 million to candidates for federal office in the 2014 election cycle. JPMorgan Chase spent $5.5 million on lobbying in 2013 and its PAC and employees gave $2.6 million to federal candidates for the 2014 election. Most of the members of Congress who voted for the budget bill that contained the repeal of the derivatives ban had received campaign contributions from one or both of these huge financial corporations. [3]

In addition to huge, risky investments with taxpayer-insured deposits, other risks in the banking and financial system are growing. The requirement for down payments on mortgages was recently decreased to 3%. The number of subprime auto loans has grown to $21 billion; some of them give borrowers 6 or 7 years to pay off the loan. This weakening of credit standards is the same pattern that triggered the 2008 collapse. The large financial corporations are also engaging in a growing amount of lending and trading in investments, some quite risky, that are beyond the scrutiny of regulators. This is all very reminiscent of the situation that led to the 2008 crash. [4]

The bottom line is that the huge financial corporations, which were too-big-to-fail in 2008 and therefore got trillions of dollars in a public bailout, are now bigger than ever and getting riskier by the day. Another bailout and crash of our economy are one financial mistake or economic surprise away. Nothing substantial has changed from the 2008 scenario.

To avoid another collapse and bailout, we need to push back and tell our elected officials that:

  • The Dodd-Frank law’s financial reforms and their implementation need to be strengthened, not weakened or delayed,
  • Financial corporations should not be allowed to gamble on risky investments with taxpayer-insured deposits, and

 

  • Too-big-to-fail financial corporations should be broken up to reduce the risks they present to our financial system and economy.

[1]       Queally, J. 12/19/14, “Just in time for the holidays, another Wall Street giveaway,” Common Dreams (http://www.commondreams.org/news/2014/12/19/just-time-holidays-another-wall-street-giveaway)

[2]       Eskow, R., 12/26/14, “Wall Street had a merry Christmas. The New Year’s still up for grabs.” Campaign for America’s Future (http://www.commondreams.org/views/2014/12/26/wall-street-had-merry-christmas-new-years-still-grabs)

[3]       Choma, R., 12/12/14, “Wall Street’s omnibus triumph, and others,” Open Secrets (http://www.opensecrets.org/news/2014/12/wall-streets-omnibus-triumph-and-others/)

[4]       Wiseman, P., 12/16/14, “Memories of financial crisis fading as risks rise,” Associated Press (http://hosted2.ap.org/APDEFAULT/f70471f764144b2fab526d39972d37b3/Article_2014-12-15-US–Financial%20Crisis-Forgotten%20Lessons/id-1422b6cbcd4d4b06a93fca295eaf1b7e)

CORPORATIONS ARE NOT PEOPLE AND MONEY IS NOT SPEECH

ABSTRACT: Many millions of dollars are being spent by special interest groups on our political campaigns. This level of spending makes it clear that wealthy special interests – individuals, corporations, unions, and non-profit organizations – are taking over our elections.

The only way to stop this undemocratic spending is through an amendment to the U.S. Constitution – because of the Supreme Court’s rulings in Citizens United and other cases. Overturning the 2010 Citizens United decision has broad support across all demographic and political groups, including 85% of Democrats, 76% of Republicans, and 81% of independents. And two-thirds of small business owners view the Citizens United decision as bad for small businesses.

Move to Amend, Wolf PAC, and other organizations are working to enact a corrective Constitutional amendment by introducing bills in state legislatures that call on Congress to enact such an amendment or, if Congress fails to act, calling for a Constitutional Convention to propose such an amendment. This legislation has passed in California, Vermont, and Illinois, and is pending in 13 other states.

If you’d like to participate in the effort to overturn Citizens United, contact Move to Amend or Wolf PAC via their websites. Both have local and national activities in which you can participate.

FULL POST: Many millions of dollars are being spent by special interest groups on our political campaigns, both for candidates’ elections and on ballot questions. Nationally, hundreds of millions of dollars were spent in 2014 by outside groups (i.e., not a candidate’s own campaign). (See previous post on 11/17/14 for details.) However, this is not just an issue for national elections. For example, here in Massachusetts recent outside spending included:

  • Governor’s race in 2014:                over $17 million
  • Two ballot questions in 2014:       over $23 million
  • Boston Mayor’s race in 2013:        over $  4 million

This level of spending makes it clear that wealthy special interests – individuals, corporations, unions, and non-profit organizations – are taking over our elections. The basic democratic principle of one person, one vote, is being overwhelmed by money. This money serves as a megaphone so that the voices and wishes of these wealthy special interests drown out the voices of average voters and citizens.

Making this situation even worse is that a growing portion of these huge sums is given by anonymous donors. (See previous post on 11/17/14.) This money is called “dark money” because its source is unknown. Anonymous donors means there is no accountability for the messages delivered. Furthermore, voters can’t effectively evaluate the credibility of the message because they don’t know who is paying for it.

The only way to stop this undemocratic spending in our elections is through an amendment to the U.S. Constitution – because of the Supreme Court’s rulings in Citizens United and other cases. (These rulings said that corporations and other organizations are people and have all the same rights as actual human beings under the Bill of Rights and the U.S. Constitution. The rulings also said that spending money in elections [and elsewhere] is speech and is protected by freedom of speech rights.)

The American public broadly supports overturning the Supreme Court’s 2010 Citizens United decision, which was the key to the avalanche of political spending by outside groups. Polling finds that 80% of the American people oppose the Citizens United decision with remarkably strong agreement across all demographic and political groups, including 85% of Democrats, 76% of Republicans, and 81% of independents. Similarly, 88% of small business owners view the current role of money in politics negatively and two-thirds view the Citizens United decision as bad for small businesses.

To address this situation, Move to Amend (https://movetoamend.org/), Wolf PAC (http://www.wolf-pac.com/), and other organizations are working to enact a corrective Constitutional amendment. They are introducing bills in state legislatures that take a two-step approach to advancing the Constitutional amendment necessary to reverse these rulings.

  • First, these bills call on Congress to pass a Constitutional amendment stating two things:
    • The rights protected by the Bill of Rights and the U.S. Constitution are the rights of human beings only and not of corporations or other organizations.
    • Congress and the states may place limits on political contributions and spending to ensure that our elections are fair and that all citizens can participate and have their voices heard in a reasonably equitable manner.
  • Second, if Congress fails to act within six months, the bills call for a Constitutional Convention to propose this amendment.

Such legislation has passed in California, Vermont, and Illinois, and is pending in 13 other states. You can check at the Move to Amend and Wolf PAC websites to see if there is an initiative in your state. A call for a Convention to amend the Constitution needs to be part of the legislation because our current Congress is so indebted to and dependent on wealthy campaign contributors that it is unlikely to pass an amendment staunching the flow of campaign money on its own.

Four of the last 11 amendments to the Constitution began this way – with state resolutions pressuring Congress to act. Notably, the 17th amendment, which established direct election of US Senators in 1913, was passed by Congress only after many states had passed a call for a Constitutional Convention. Although such a Convention has never occurred, if one did occur, any amendment it proposed would have to be ratified by ¾ of the states in order to go into effect.

If you’d like to participate in the effort to overturn Citizens United, first, go to the Move to Amend website and sign their petition (if you haven’t already). Second, I encourage you to contact Move to Amend or Wolf PAC via their websites. Both have local and national activities in which you can participate.

SECRETS OF THE FY15 FEDERAL SPENDING BILL

ABSTRACT: Congress recently rushed to pass a 1,700 page, $1.1 trillion spending bill. Such last minute, have-to-pass pieces of legislation are ideal vehicles for enacting laws that wouldn’t withstand the scrutiny of the regular legislative process. In my 12/14/14 post, I wrote about 2 such provisions: the repeal of the ban on banks investing in derivatives with taxpayer insured funds and the dramatic increase in the amount an individual can contribute to political party committees. This post highlights some of the other items that were slipped into this budget bill.

The Environmental Protection Agency had its budget cut by $60 million, which will result in its lowest staffing level since 1989. Multiple other provisions affecting the environment and the EPA were included. The Internal Revenue Service had its budget cut by $346 million. This will reduce federal government revenue and increase the deficit because the IRS collects $7 for every $1 it spends on audits. Some of the other provisions are listed below in the Full Post.

To help shed light on the passage of special interest legislation, Open Secrets (www.opensecrets.org) tracks campaign contributions and lobbying expenditures. It then reports on connections between them and the votes and actions of elected officials.

In summary, the budget bill and its various provisions were bad for low-income, middle class, and working families; for the environment; for educational outcomes and good nutrition in schools; and for fair tax collection. They were good for Wall Street, other large corporations, and wealthy individuals. If there are issues here that you care about, contact your Members of Congress and the President now to express your views and ask them where they stand.

FULL POST: As you probably know, Congress recently rushed to pass a 1,700 page, $1.1 trillion spending bill that keeps the federal government operating. Such last minute, have-to-pass pieces of legislation are ideal vehicles for enacting laws that wouldn’t withstand the scrutiny of the regular legislative process. In my 12/14/14 post, I wrote about 2 such provisions: the repeal of the ban on banks investing in derivatives with taxpayer insured funds and the dramatic increase in the amount an individual can contribute to political party committees. This post highlights some of the other budgetary and non-budgetary details that were slipped into this budget bill. [1] [2] [3]

The Environmental Protection Agency’s (EPA) budget was cut by $60 million, which will result in its lowest staffing level since 1989. Multiple other provisions affecting the environment and the EPA were included:

  • Block the EPA from applying the Clean Water Act to certain farms
  • Require the EPA to allow “mountain top removal” coal mining
  • Prevent the EPA from protecting 2 types of sage grouse under the Endangered Species Act (a benefit for the oil and mining industries)
  • Bar funding to help developing countries cut carbon emissions

The Internal Revenue Service (IRS) had its budget cut by $346 million. This will reduce federal government revenue and increase the deficit because the IRS collects $7 for every $1 it spends on audits. Most IRS enforcement targets high income tax cheaters because that’s where the significant losses in tax revenue occur. This might explain why its enforcement capacity is being cut.

Other provisions include:

  • Provided record funding to airlines that serve rural airports, $5.4 billion to fight Ebola, $5 billion to fight Islamic militants, and $3 billion for weapons systems the Pentagon doesn’t want.
  • Eliminated funding for President Obama’s Race to the Top initiative, which works to improve educational outcomes for children of all ages.
  • Repealed some nutrition requirements for school lunches (a Michelle Obama initiative).
  • Cut the Women, Infants, and Children (WIC) program, which provides vouchers for nutritious food to low income pregnant women and mothers and their young children. In addition, white potatoes must be included as an approved food. (Guess which industry pushed for this latter provision?)
  • Cut funding for Pell higher education grants to low income students. The money will be diverted to for-profit companies that serve as collection agents on student loans.
  • Allowed corporations to cut pensions for current retirees in certain situations.
  • Repealed rules regulating the hours truck drivers can drive. (A benefit for the trucking industry.)
  • Blocked Washington, D.C.’s marijuana legalization.

To help shed light on the passage of special interest legislation, Open Secrets (www.opensecrets.org) tracks campaign contributions and lobbying expenditures. It then reports which elected officials received how much in contributions from special interests and how the office holders voted on or otherwise affected policy making favoring the source of their campaign contributions. Open Secrets also reports on the lobbying expenditures of special interests that benefited from legislation or other policy making. For example, it recently reported on campaign contributions and lobbying by Wall Street corporations and the voting to repeal the ban on federally-insured banking corporations engaging in derivatives trading. The report also covered mining interests and the blocking of endangered species protection that would affect them, as well as the trucking industry and changes in driver safety regulations that benefit it. [4] (I’ll provide some of the detail from this report in my next post.)

In summary, the budget bill and its various provisions were bad for low-income, middle class, and working families; for the environment; for educational outcomes and good nutrition in schools; and for fair tax collection. They were good for Wall Street, other large corporations, and wealthy individuals.

The issues included in the year end budget bill are precursors of the issues, budgetary and others, that will be on the table when Congress reconvenes. If there are issues in the items above that you care about, keep tuned and be ready to act when they come up. Better yet, contact your Members of Congress and the President now to express your views and ask them where they stand. And don’t think that based on party affiliation you know where a politician stands; 57 Democrats in the House voted for this budget bill; only 6 Democrats in the Senate voted to stop it from going to a final vote; and President Obama supported it and signed it.

[1]       Waldman, P., 12/12/14, “Did Democrats get hosed on the Budget Bill?” The American Prospect (http://prospect.org/article/did-democrats-get-hosed-budget-bill)

[2]       Kuttner, R., 12/16/14, “The great budget sellout of 2014: Do we even have a second party?” The American Prospect (http://prospect.org/article/great-budget-sellout-2014-do-we-even-have-second-party)

[3]       Taylor, A., 12/16/14, “Defense, tourism among winners in spending bill,” Associated Press (http://bigstory.ap.org/article/418395cf20be4a409cfd85bb93020077/defense-tourism-among-winners-spending-bill)

[4]       Choma, R., 12/12/14, “Wall Street’s omnibus triumph, and others,” Open Secrets (http://www.opensecrets.org/news/2014/12/wall-streets-omnibus-triumph-and-others/)

WALL STREET BAILOUT REVIVED

ABSTRACT: As you probably know, Congress just rushed to pass a $1.1 trillion spending bill that keeps the federal government operating. Such last minute, have-to-pass pieces of legislation are ideal vehicles for enacting laws on unrelated matters that wouldn’t withstand the scrutiny of the regular legislative process.

One such provision in this bill repeals a piece of the Dodd-Frank financial industry regulation law entitled “Prohibition against federal government bailouts of swap entities.” The Dodd-Frank law does not prohibit banks from owning these derivatives, but requires them to do so in a separate entity that is not insured by the federal government. Derivatives were a major contributor to the 2008 financial collapse. Repealing this piece of the Dodd-Frank law benefits a very few, very large, very profitable, financial corporations. The actual language of the repeal provision was written by a lobbyist for Citicorp, one of those large financial corporations. Senator Elizabeth Warren (D MA) took the lead in fighting this provision because it raises the risk of another financial collapse and another taxpayer-funded bailout.

Wall Street held the whole federal government’s budget hostage. It, in effect, demanded federal insurance for its gambling with derivatives or the federal government would shut down for lack of a budget. Teddy Roosevelt broke up the trusts in the early 1900s because they had too much political power and this undermined democracy. We’re at that point again.

Another unrelated provision in the budget bill allows an individual to give almost $800,000 per year to a political party. This would exacerbate the already disproportionate influence these very few, very wealthy individuals have over our elected officials and our government. These individuals are investing and looking forward to a nice return on their investment from the politicians whose elections they supported.

I encourage you to contact your US Representative, your Senators, and the President. Tell them you are outraged by these provisions in the budget bill that undermine our democracy and increase the risk of another financial collapse and another bailout of private, Wall Street corporations with the public’s money.

FULL POST: As you probably know, Congress, having procrastinated until the last hour, just rushed to pass a $1.1 trillion spending bill that keeps most of the federal government operating through next September. At least partly by design, such last minute, have-to-pass pieces of legislation are ideal vehicles for enacting laws on unrelated matters that wouldn’t withstand the scrutiny of the regular legislative process. In some cases, these tacked on provisions are passed and become law despite the public, and many members of Congress, being unaware of their existence. There are quite a few of them buried in this over 1,000 page budget bill.

One such provision repeals a piece of the Dodd-Frank financial industry regulation law, which was passed after the 2008 financial meltdown and bailout, in an effort to prevent them from happening again. [1] [2] This provision repeals a section of the Dodd-Frank law entitled “Prohibition against federal government bailouts of swap entities,” which prohibits federally insured banks from owning highly speculative financial instruments known as “swaps.” These are one kind of what are called derivatives, which are bets (i.e., gambling) on how certain other financial securities or factors, such as interest rates, will change over time.

The Dodd-Frank law does not prohibit banks from owning these derivatives, but requires them to do so in a separate entity that is not insured by the federal government, which ultimately means insured by the taxpayers. Derivatives were a major contributor to the 2008 financial collapse and to the need for what was ultimately a multi-trillion dollar bailout of large Wall Street corporations.

Repealing this piece of the Dodd-Frank law benefits a very few, very large, very profitable, financial corporations. The actual language of the repeal provision, which was slipped into the bill at the last minute, was written by a lobbyist for Citicorp, one of those large financial corporations.

Senator Elizabeth Warren (Democrat from Massachusetts) took the lead in fighting this provision because it raises the risk of another financial collapse and another taxpayer-funded bailout. [3] Somehow this provision made it into this crucial piece of legislation despite apparent, strong bipartisan support for ensuring that we never have to bail out Wall Street again. For example, opposition to the 2008 bailout was a central issue in the rise of the Tea Party movement.

As Senator Warren states, this is all about power and money. There were no public hearings, no debate, and no transparency. This was all inside, backroom, backdoor politics by Wall Street. Warren highlights the extraordinary influence of one of the large, Wall Street financial corporations, Citicorp. She notes that 3 of the last 4 Secretaries of the Treasury have come from Citicorp, along with the Vice-chairman of the Federal Reserve. She identifies at least 5 other senior officials in the executive branch who have worked for Citicorp. She notes that Citicorp has spent tens of millions of dollars on lobbying and campaign contributions, as well as additional, unknown amounts on think tanks and PR campaigns.

These expenditures and the movement of people through the revolving door from Wall Street to government (and often back to Wall Street) has proven to be an investment with a big payoff. Citicorp alone got roughly $500 billion from the bailout and then went right back to making huge profits and paying huge amounts to senior executives. During the development of the Dodd-Frank legislation, there was a proposal to break up Citicorp and the other huge financial corporations because they were too big to fail, and therefore a danger to the economy and likely to receive a bailout with public money if they got in trouble. This proposal was killed by those on Wall Street and their friends at the Treasury Department. Now, these huge financial corporations are even bigger than they were before.

Wall Street held the whole federal government’s budget hostage. It, in effect, demanded federal insurance for its gambling with derivatives or the federal government would shut down for lack of a budget. This is the power that Wall Street has, and it is far too much power. It means we do not have a democracy; we have a corporatocracy.

When Teddy Roosevelt broke up the trusts in the early 1900s, he did it not primarily because their power was distorting the economy and markets, but because they had too much political power. He stated that this undermined democracy. Well, we’re at that point again, without a doubt.

Underscoring this point, another unrelated provision in the budget bill allows an individual to give almost $800,000 per year to a political party (up from the current limit of just under $100,000). A few hundred people – out of the 300 million in this country – give that kind of money to political campaigns. This would exacerbate the already disproportionate influence these very few, very wealthy individuals have over our elected officials and our government. And these individuals aren’t throwing their money to the wind; they are investing and looking forward to a nice return on their investment from the politicians whose elections they supported.

US Although the budget bill passed Congress on Saturday and will presumably be signed by the President, I encourage you to contact your Representative, your Senators, and the President. Tell them you are outraged by these provisions in the budget bill that undermine our democracy and increase the risk of another financial collapse and another bailout of private, Wall Street corporations with the public’s money.

(You can contact your Representative and Senators by calling the Congressional switchboard at 202-224-3121. You can find contact information for your US Representative at http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm. You can email the President at http://www.whitehouse.gov/contact/submit-questions-and-comments. You can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414).

[1]       Bierman, N., & Meyers, J., 12/12/14, “A late rush to fund government,” The Boston Globe

[2]       Taylor, A., 12/10/14, “Massive $1.1 trillion spending bill unveiled,” Daily Times Chronicle from the Associated Press

[3]       I encourage you to watch 2 speeches (each less than 10 minutes) that Senator Warren gave in Congress in the past week. They’re on YouTube at: https://www.youtube.com/watch?v=LgsN7ilcWL4 and https://www.youtube.com/watch?v=DJpTxONxvoo. She very powerfully makes the case that the repeal of this piece of the Dodd-Frank law is unjustifiable, undemocratic, and dangerous special interest law making.

DANGER AHEAD IN DC: CORPORATIONS AND THE WEALTHY POISED TO TAKE ADVANTAGE

ABSTRACT: Some people in Washington, D.C., are taking the election results as an indication that Republican policy priorities are in favor with the public. Furthermore, the Republicans in Congress and the President may want to show that they can work together, get things done, and pass new laws. Senator Elizabeth Warren (Democrat from Massachusetts) warns us that big corporations and their lobbyists will try to take advantage of this situation. (As my previous post (11/25/14) documented, the conclusion that Republican policy priorities are in favor with the public is not an accurate interpretation of the election results.)

Given Warren’s warning, it’s little surprise that the House this week passed a massive package extending tax breaks primarily for banks, investment firms, and other wealthy interests. The more than 50 tax breaks included in the bill would add nearly $42 billion to the budget deficit over the next decade. Surprisingly, there seems to be little concern over this cost. Previously, less expensive initiatives (that benefited the unemployed, low income families, and families with child care expenses) were defeated, supposedly because they were unaffordable.

I encourage you to contact your Senators and the President to let them know that these tax breaks for big corporations and wealthy individuals, if warranted, should be paid for by closing loopholes benefiting these same groups. Furthermore, I’d encourage you to note that the focus of any tax breaks and other legislation should be on helping low and middle income families and individuals, not wealthy corporations and individuals.

FULL POST: Some people in Washington, D.C., are taking the election results as an indication that Republican policy priorities are in favor with the public. This may include President Obama, who may feel that he has to reach out and accommodate the new Republican majorities in the Senate and House. Furthermore, the Republicans in Congress and the President may want to show that they can work together, get things done, and pass new laws. Senator Elizabeth Warren (Democrat from Massachusetts) warns us that big corporations and their lobbyists will try to take advantage of this situation. [1]

As my previous post (11/25/14) documented, the conclusion that Republican policy priorities are in favor with the public is not an accurate interpretation of the election results. Truly progressive candidates won in the US Senate and elsewhere. Progressive ballot initiatives won across the country, including in states that were electing Republicans. The public supports, among other things, improved pay and paid sick leave for low income workers, as well as stronger regulation of campaign spending and the ethics of elected officials.

As Warren writes, “The stock market and gross domestic product keep going up, while families are getting squeezed hard by an economy that isn’t working for them. … they see a government that bows and scrapes for big corporations, big banks, big oil companies and big political donors — and they know this government does not work for them.” She states that we the people should look carefully at any new laws that surface in Congress or get to the President’s desk to be signed and examine whose interests they serve. The big corporations, their lobbyists, and the elected officials whose campaigns they and their wealthy allies funded will try to take advantage of the situation to push their agendas and benefit their interests. [2]

She warns us to be on the lookout for “trade deals negotiated in secret, with chief executives invited into the room while the workers whose jobs are on the line are locked outside. … tax deals that carefully protect … billionaires and big oil and other big political donors, while working families just get hammered.” She also is concerned that the big Wall Street financial corporations will try to weaken regulation despite their billions in profits and huge executive pay packages, which they are reaping only because of huge public bailouts after they crashed our economy in 2008.

Given Warren’s warning, it’s little surprise that the House this week passed a massive package extending tax breaks primarily for banks, investment firms, and other wealthy interests, such as NASCAR race track owners, filmmakers, racehorse owners, and rum producers. However, the bill fails to extend tax breaks for low income families and for child care expenses. There are some benefits for teachers, commuters, individuals in states without an income tax, and small businesses, but the bulk of the benefits go to wealthy corporations and individuals. [3]

The more than 50 tax breaks included in the bill would add nearly $42 billion to the budget deficit over the next decade. Surprisingly, there seems to be little concern over this cost. Previously, less expensive initiatives (that benefited the unemployed, low income families, and families with child care expenses) were defeated, supposedly because they were unaffordable.

The President has threatened to veto the bill, saying it favors large corporations over families and the middle class. The Senate’s leaders have not yet indicated what they plan to do with this legislation from the House.

I encourage you to contact your Senators and the President to let them know that these tax breaks for big corporations and wealthy individuals, if warranted, should be paid for by closing loopholes benefiting these same groups. Furthermore, I’d encourage you to note that the focus of any tax breaks and other legislation should be on helping low and middle income families and individuals, not wealthy corporations and individuals. Let’s help those who need it the most, not those who already have the most.

[1]       Warren, E., 11/11/14, “It’s time to work on America’s agenda,” The Washington Post

[2]       Warren, E., 11/11/14, see above

[3]       Ohlemacher, S., 12/4/14, “House votes to extend tax breaks through December,” The Boston Globe from the Associated Press

HOLDER’S FAILURE AT JUSTICE

ABSTRACT: As Attorney General Eric Holder leaves office, one of his legacies will be his Department of Justice’s (DOJ) treatment of the major banks and financial corporations. Of particular note is the failure to prosecute any of the senior officers at the banks and financial corporations that caused the 2008 financial collapse. Bill Black calls this “the greatest strategic failure in the history of the Department of Justice.” This lack of prosecution leaves the management in place at these huge corporations. When dishonest people and their illegal activity produce success, they and their organizations have a competitive advantage. As a result, their bad ethics drive good ethics out of the market place.

In the Savings and Loan Crisis of the 1980s and 1990s, over 1,000 bankers were convicted of criminal activity, even though this crisis was less than one-tenth the size of the 2008 crisis. The civil fines and penalties that the financial corporations have paid for their fraudulent activities that caused the 2008 crash were not sufficiently large to put a real dent in their multi-billion dollar revenues and profitability. Furthermore, the costs of these fines and penalties were not borne by the senior executives, but by the shareholders and the taxpayers (given that they typically were deducted from revenue as a cost of doing business and therefore reduced profits and taxes on them). The executives got to keep all their compensation and bonuses, despite their being based on profits generated from illegal activity.

The lack of criminal prosecutions is even more astounding when one looks at the repeated engagement in illegal activity that was widespread among this handful of very large financial corporations and the collusion among them.

The relationship between Wall St. and our federal government, including regulators and legislators, is built on campaign contributions, lobbyists, and the revolving door. This cozy relationship serves Wall Street’s interests rather than the public interest and will be hard to break. Bill Black says to Bill Moyers, “there’s never going to be a decisive victory against power and money and finance. We have to fight. Every generation has to engage in this struggle.”

FULL POST: As Attorney General Eric Holder leaves office, one of his legacies will be his Department of Justice’s (DOJ) treatment of the major banks and financial corporations. Of particular note is the failure to prosecute any of the senior officers at the banks and financial corporations that caused the 2008 financial collapse. In addition, the fines and penalties paid by these huge corporations, although large in dollar amounts, were not large enough to have any meaningful effect.

Bill Black calls this “the greatest strategic failure in the history of the Department of Justice.” He should know. He is the author of The Best Way to Rob a Bank is to Own One and was a bank regulator intimately involved with the Savings and Loan crisis of the 1980s and 1990s. [1] He recently appeared on Bill Moyers’ TV show and this post summarizes their conversation. [2]

The lack of prosecution of the financial corporations’ senior officers leaves them in charge of these huge corporations. Furthermore, they now know that there are no bad consequences for them for massive fraud and repeated illegal behavior. When dishonest people and their illegal activity produce success, they and their organizations have a competitive advantage. As a result, their bad ethics drive good ethics out of the market place. Enforcement of the rule of law is essential to protecting not just consumers, but also to incentivizing honest and ethical people and behavior. Prosecuting the executives of banks and financial institutions that engaged in massive fraud and illegal activity would have important, positive effects on accountability and deterrence.

In the Savings and Loan Crisis of the 1980s and 1990s, President George H.W. Bush and his administration were committed to cleaning up the mess they inherited. As a result, over 1,000 bankers were convicted of criminal activity, even though this crisis was less than one-tenth the size of the 2008 crisis. Among other things, this ensured that these individuals would never lead a financial institution again because of their criminal records.

President Obama and his administration focused instead on ensuring the stability of the huge financial corporations. They avoided prosecutions of individuals even though it is unlikely that such prosecutions would have had much impact on the corporations. Many members of the Obama administration, including Holder and Treasury Secretary Geithner, had come to the administration through the revolving door from the industry or roles where they had close relationships with the industry. In addition, President Obama received very large amounts in campaign contributions from Wall Street, with JP Morgan Chase CEO Jamie Dimon as a leading contributor and fundraiser. Many people believe that without this big money from Wall Street Obama would have lost the primary to Hillary Clinton or that he might have lost the final election to John McCain.

The civil fines and penalties that the financial corporations have paid for their fraudulent activities that caused the 2008 crash were not sufficiently large to put a real dent in their multi-billion dollar revenues and profitability. This is consistent with the Obama administration’s overall approach of putting the stability of these corporations first. Furthermore, the costs of these fines and penalties were not borne by the senior executives, but by the shareholders and the taxpayers (given that they typically were deducted from revenue as a cost of doing business and therefore reduced profits and taxes on them). The executives got to keep all their compensation and bonuses, despite their being based on profits generated from illegal activity. Moreover, the civil settlements did not prohibit these financial corporations from continuing to engage in the lines of business where they had engaged in fraudulent and illegal activity. The settlements either explicitly or implicitly granted all the senior executives immunity from prosecution, ensuring that lower level executives’ testimony against senior executives could not be leveraged through individual offers of immunity or leniency for cooperation with prosecutors (as was done in the Enron case, for example).

The lack of criminal prosecutions is even more astounding when one looks at the repeated engagement in illegal activity that was widespread among this handful of very large financial corporations, and the fact that the illegal activities often required collusion among them. Over the last 10 years, these illegal activities have included:

  • Encouraging home owners to take on fraudulently underwritten and financially unviable mortgages
  • Knowingly selling those toxic mortgages to investors (including Fannie Mae and Freddie Mac) while fraudulently vouching for their quality
  • Fraudulently foreclosing on hundreds of thousands of home owners
  • Rigging the Libor interest rate that is used to price trillions of dollars of securities
  • Rigging bond prices and the underwriting of the issuing of bonds, and
  • Laundering money for viciously violent drug cartels, terrorist groups, and countries that had been officially banned from financial transactions as state sponsors of terrorism

The relationship between Wall St. and our federal government, including regulators and legislators, is built on campaign contributions, lobbyists, and the revolving door. This cozy relationship serves Wall Street’s interests rather than the public interest and will be hard to break, especially given the Supreme Court’s Citizens United and other decisions that allow huge amounts of money from corporations and their wealthy senior executives to flow into our political campaigns. Bill Black says to Bill Moyers, “there’s never going to be a decisive victory against power and money and finance. We have to fight. Every generation has to engage in this struggle.” The corporations live forever and their thirst for profits will never stop. Therefore, they will continually work to subvert our democracy and its laws to serve their interests unless we and our elected representatives are continually vigilant and fight back.

[1]       William K. Black was formerly the litigation director of the Federal Home Loan Bank Board from 1984 to 1986, deputy director of the Federal Savings and Loan Insurance Corporation (FSLIC) in 1987, senior vice president and general counsel of the Federal Home Loan Bank of San Francisco from 1987 to 1989, and senior deputy chief counsel of the Office of Thrift Supervision.

[2]       Moyers, B., with Black, W.K., 10/3/14, “Too Big to Jail?” Moyers and Company (http://billmoyers.com/episode/full-show-big-jail/)

THE CORPORATE EDUCATION INVASION Part 2

ABSTRACT: The most recent embodiment of the corporate efforts to capture (i.e., privatize) funding from public K-12 education is the new Common Core national curriculum standards and the testing that accompanies it. Common Core’s implementation will require public school systems to spend billions of dollars on new curriculum materials and on new testing, including software, hardware, and technology infrastructure as the testing is computer and Internet based. This comes at a time when school budgets are being cut, teachers and other staff are being laid off, and music, art, and extracurricular activities are being eliminated.

All the focus on privatization, on charter schools, on testing, and on the Common Core standards as the solutions to our supposedly failing public schools has diverted attention from the real failure of our public schools and our society. The failure of our public schools is their inability to close the gap in educational outcomes between well-off white children without special needs and everyone else. Low-income and minority students, along with those with special needs and English as a second language, typically arrive at school already well behind their better-off peers. Catching up is difficult and we don’t give our school systems the resources to have a realistic chance of closing the gap.

Expecting our schools to fix the pervasive impacts of poverty and inequality is a prescription for failure. To use that failure as an excuse to privatize schools and force public schools to spend billions on new curricula and testing is misguided (assuming the best of intentions) and only exacerbates the problem. It would be far more effective and efficient to use those billions of dollars to provide high quality early care and education (i.e., child care) and other supports to low income families with children under school age.

FULL POST: The most recent embodiment of the corporate efforts to capture (i.e., privatize) funding from public K-12 education is the new Common Core national curriculum standards and the testing that accompanies it. The corporations and their allies have convinced the public and policy makers that our public schools are failing through an extensive and inaccurate PR campaign. Their solutions are new education standards and accountability through testing.

The new Common Core standards have been widely adopted, in large part due to federal grants that effectively required their adoption. However, the pushback against Common Core is now taking hold with a broad and surprisingly varied set of opponents. The opposition includes working and upper class suburbanites, right wing Tea Partiers, and teachers. [1]

Common Core’s implementation will require public school systems to spend billions of dollars on new curriculum materials and on new testing, including software, hardware, and technology infrastructure as the testing is computer and Internet based. This comes at a time when school budgets are being cut, teachers and other staff are being laid off, and music, art, and extracurricular activities are being eliminated. [2]

It’s worth noting that the Gates Foundation spent over $200 million, given to a wide range of over 30 organizations (e.g., colleges and universities, for-profit and not-for-profit education corporations, states and local school systems, think tanks and advocacy groups, and teachers’ unions) developing and building support for the Common Core. [3] The Common Core standards were NOT developed and adopted through a democratic process that engaged the public and a broad set of stakeholders. The writers of the standards included no experienced classroom teachers, no educators of children with special needs, and no early childhood educators. The single largest group on the drafting committee was from the testing industry. Furthermore, the standards were not pilot tested in the real world and there is no process for challenging or revising them. [4]

While the stated goals of the Common Core are to improve student outcomes and produce a better prepared workforce, it’s hard to overlook the billions of dollars of immediate business for corporations. Therefore, it is not surprising that the Chamber of Commerce spent more than a million dollars promoting the adoption of the Common Core. [5]

All the focus on privatization, on charter schools, on testing, and on the Common Core standards as the solutions to our supposedly failing public schools has diverted attention from the real failure of our public schools and our society. The failure of our public schools is their inability to close the gap in educational outcomes between well-off white children without special needs and everyone else. However, this failure goes well beyond the school system. Low-income and minority students, along with those with special needs and English as a second language, typically arrive at school already well behind their better-off peers. Catching up is difficult and we don’t give our school systems the resources to have a realistic chance of closing the gap.

It would be much more cost effective and the likelihood of success would be higher if we addressed the root causes of the school readiness gap. This means supporting families and children in the years from birth until they enter school, and during pregnancy. However, our political leaders haven’t mustered the political will to seriously address these issues. And corporations haven’t figured out how to profit of off these services.

Expecting our schools to fix the pervasive impacts of poverty and inequality is a prescription for failure. To use that failure as an excuse to privatize schools and force public schools to spend billions on new curricula and testing is misguided (assuming the best of intentions) and only exacerbates the problem. It would be far more effective and efficient to use those billions of dollars to provide high quality early care and education (i.e., child care) and other supports to low income families with children under school age.

[1]       Murphy, T., Sept./Oct. 2014, “Tragedy of the Common Core,” Mother Jones

[2]       Ravitch, D., 6/9/14, “Time for Congress to investigate Bill Gates’ role in Common Core,” Common Dreams (http://www.commondreams.org/views/2014/06/09/time-congress-investigate-bill-gates-role-common-core)

[3]       Murphy, T., Sept./Oct. 2014, “Tragedy of the Common Core,” Mother Jones

[4]       Ravitch, D., 6/9/14, “Time for Congress to investigate Bill Gates’ role in Common Core,” Common Dreams (http://www.commondreams.org/views/2014/06/09/time-congress-investigate-bill-gates-role-common-core)

[5]       Murphy, T., Sept./Oct. 2014, “Tragedy of the Common Core,” Mother Jones