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

STOPPING GERRYMANDERING; RESTORING DEMOCRACY

Gerrymandering, the manipulation of the boundaries of electoral districts to predetermine outcomes, has become more blatant, dramatic, and effective in the 21^st century. Please see my previous post for a discussion of how extreme partisan gerrymandering is undermining our democracy. The redrawing of electoral districts is done every ten years after new population data is available from the Census. Typically, state legislatures do the redistricting, and these partisan, elected officials have a built-in incentive to engage in partisan and other types of gerrymandering.

Gerrymandering can be stopped through multiple strategies:

Challenging gerrymandered districts in court,
Establishing standards for districts and the redistricting process, and
Creating non-partisan commissions to do the redistricting.

Districts that appear to be gerrymandered are being challenged in state and federal courts. In Pennsylvania, state courts ruled that the districts drawn after the 2010 Census were illegally gerrymandered and the US Supreme Court upheld this finding. There are currently two other cases before the US Supreme Court, one from Wisconsin challenging Republican gerrymandering and one from Maryland challenging Democratic gerrymandering. Decisions are expected to be announced this month. Unfortunately, these decisions will probably be too late to allow the gerrymandering to be fixed before the 2018 elections. [1]

Another solution to gerrymandering is to write standards into state or federal laws that govern how districts are drawn and the redistricting process used to draw them. There are several statistical tests that can be done of historical election results to identify whether gerrymandering is likely to have played a role in the outcomes. These tests can also be applied to projected results based on party enrollment and past voting patterns in proposed districts. [2] [3] These tests are valuable because they can be used during the redistricting process or by courts afterwards to determine if districts are being drawn fairly.

Perhaps, most promising is the creation by states of truly non-partisan, independent redistricting commissions that remove redistricting from the hands of partisan legislatures. Currently, twenty-one states use some form of redistricting commission for redrawing either or both of state legislative districts and congressional districts. Some are more independent of partisan political influence than others. [4]

The use of and interest in redistricting commissions is growing. In 2017, 29 state legislatures considered bills related to creating redistricting commissions. In the Pennsylvania legislature, a bill to create a redistricting commission is gaining significant support. In other states, citizens are putting measures to create redistricting commissions on the ballot. In Ohio, a badly gerrymandered state, 75% of voters recently approved a proposal on the ballot to extend the role of their independent redistricting commission to include congressional districts, in addition to state legislative districts. This was forced on elected officials by a grassroots campaign that collected nearly 250,000 signatures. Michigan is likely to have a proposal on its November 2018 ballot to create such a commission because of a grassroots organization that collected 425,000 signatures. Redistricting reforms are likely to appear on the ballot this fall in Arkansas, Colorado, Missouri, and Utah. These redistricting reform efforts are backed by strong bipartisan coalitions. [5] [6]

Gerrymandering is a significant threat to representative democracy as it undermines the basic tenet that every voter has an equal voice. It distorts democracy and lets the voices of a small subset of voters, often those with extreme views, dominate elections. The elected representatives, therefore, tend to reflect these minority and often extreme views, leading to extreme partisanship and gridlock in our legislative bodies.

In gerrymandered districts, many voters, with good reason, don’t feel they have a voice and that their elected officials don’t represent their interests and points of view. The broad support for ending extreme partisan gerrymandering is bipartisan: 80% of Democrats, 68% of independents, and 65% of Republicans back efforts to end it.

I urge you to contact your representatives in your state legislature and ask them to ensure fair redistricting after the 2020 Census. If you’re in one of the states mentioned above as likely to have a relevant ballot question in November, I encourage you to find information on the effort to reform redistricting and then get involved if you can. To learn more about the redistricting process in your state, the National Conference of State Legislatures has information here, and if you’re interested in knowing if there was a bill filed in your state legislature relative to the creation of a redistricting commission look here. For more information on ending gerrymandering and other reforms to our voting systems in general, Fair Vote has lots of information on its website.

[1] Wheeler, R., 2/28/18, “The Supreme Court and partisan gerrymandering cases,” The Brookings Institution (https://www.brookings.edu/blog/unpacked/2018/02/28/the-supreme-court-and-partisan-gerrymandering-cases/)

[2] Wang, S., & Remlinger, B., 9/25/17, “Slaying the partisan gerrymander,” The American Prospect (http://prospect.org/article/slaying-partisan-gerrymander)

[3] Royden, L., Li, M., & Rudensky, Y., 3/23/18, “Extreme Gerrymandering & the 2018 midterm,” Brennan Center for Justice (https://www.brennancenter.org/publication/extreme-gerrymandering-2018-midterm)

[4] Wikipedia, Retrieved from the Internet 6/4/18, “Redistricting commission” (https://en.wikipedia.org/wiki/Redistricting_commission)

[5] Rapoport, M., 12/7/17, “Prospects brightening for redistricting reform,” The American Prospect (http://prospect.org/article/prospects-brightening-redistricting-reform)

[6] Daley, D., 6/14/18, “Voters take charge in making elections more fair,” The Boston Globe

THE UNDERMINING OF THE INDEPENDENCE OF OUR JUDICIARY

There is widespread acknowledgement that fair and impartial courts and judges are essential to public trust in our court system and our democracy. A key role of the judiciary is to ensure that the legislative and executive branches of government do not overstep their authority or violate individuals’ rights. This is one of the key checks and balances that is part of the Constitution. Members of the legislative and executive branches should respect judges’ independence even when they disagree with their decisions.

In recent years, the judicial appointment process at the federal and state levels, elections of judges in some states, and court decisions themselves have gotten increasingly politicized. This is not a positive trend for our democracy and the politicization of the judiciary only seems to be accelerating.

President Trump on multiple occasions has criticized judicial decisions and demeaned individual judges. This is unprecedented and unhealthy for our courts and our democracy.

The President’s attacks on the judiciary seem to have emboldened others in their efforts to politicize our judicial system. In 2018, at least 14 states are considering at least 42 legislative proposals that would reduce the independence of judges and court systems. These proposals include giving legislators more control over the selection of judges, putting political or financial pressure on judges to rule the “right” way, and giving legislatures the power to override court decisions, including deciding the constitutionality of laws they themselves wrote. [1]

The attacks on judicial independence are coming from right-wing, wealthy interests in efforts to:

Have unlimited ability to sell guns and ammunition, as well as to carry guns, (Note: This is not really about Second Amendment rights; it’s about the ability of gun manufacturers to sell guns and ammunition to make big profits.)
Limit women’s ability to make decisions about their reproductive health,
Limit the rights of LGBTQ individuals,
Block every citizen’s right to an equal voice in our democracy through 1) restrictions on voting rights, 2) gerrymandered voting districts, and 3) unlimited campaign funding by wealthy special interests,
Expand the use of the death penalty and maintain an inequitable criminal justice system,
Block funding for public schools that ensures that every child receives a free and appropriate education as required by state constitutions,
Block fair taxes and fair employment and business practices necessary to stop spiraling economic inequality, and
Promote policies based on religious beliefs rather than the interests of the public.

For example, in Pennsylvania, legislators unhappy with a state Supreme Court ruling that a Republican gerrymandering of congressional districts was illegal, at first refused to comply with the court’s order and then threatened to remove the judges who had ruled against them. [2]

In Washington state, where judges are elected, legislators have proposed requiring analysis of how much each state Supreme Court decision will cost taxpayers. In decisions about individuals’ rights, cost should not be a factor and using the cost of a judge’s decisions should not be a factor in an election campaign. In North Carolina, legislators have proposed giving themselves more power in the selection of judges and in gerrymandering judicial districts. They have also proposed making judges run for election every two years. In Iowa, legislators unhappy with a judge’s decision to ban guns from courthouses have threatened to cut judges’ salaries and to require the courts to pay rent, using their control of the purse strings to try to affect judges’ rulings.

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. In criminal cases, there is compelling evidence that the pressures of election campaigns and negative campaign ads affect judicial decision-making. (See this previous post for more detail.)

In summary, judges are facing unprecedented challenges to their ability to deliver fair, impartial justice free from partisan pressure. Not only are partisan elected officials trying to put their thumbs on the scales of justice, but in addition the rapid increase in spending on judicial campaigns has exacerbated the challenges to judicial fairness and integrity. (See this previous post for more detail.) We need to oppose efforts to undermine the independence of the judiciary whenever and wherever they arise.

We need to support policies and practices that protect the independence of the judiciary. Two key policies related to the selection of judges are for states to use an effective, non-partisan appointment process or to have effective regulation of judicial elections and spending on them. Partial public financing systems, which match individuals’ small contributions with public money, can legally limit spending and the size of contributions. These are important steps in controlling the influence of campaign money on judicial decisions. (See this previous post for more detail.)

Eroding the checks and balances between our branches of government, and in particular the courts’ independence in making decisions fundamental to our democratic principles, is unpatriotic and antithetical to the Constitution. Increasing politicization of the courts is likely to further increase divisive partisanship. Reduced independence and power in the courts could be extremely difficult to reverse after the fact; this may well be a snowball that will roll uncontrollably downhill. Politicizing the judiciary would make its decisions subject to the whims of the current political environment rather than based on long-term constitutional, legal, and democratic principles.

[1] Brennan Center for Justice, 2/6/18, “Legislative assaults on courts – 2018,” New York University Law School, (https://www.brennancenter.org/analysis/legislative-assaults-state-courts-2018)

[2] Keith, D., 2/21/18, “Democracy unchecked: Trump spurs state lawmakers to curb judges’ powers,” The American Prospect (http://prospect.org/article/democracy-unchecked-trump-spurs-state-lawmakers-curb-judges%E2%80%99-powers)

LOCAL POLICIES SERVING RESIDENTS BLOCKED BY RIGHT WING CONSERVATIVES

Right wing conservatives supposedly, ideologically, support local political control. Their actions, however, are first and foremost, designed to benefit the special interests that provide their financial support. They are using their political power at the state and federal levels to block and preempt progressive policies at the local level. Policies that benefit workers and the public good are blocked if they are opposed by the large corporations and wealthy executives who provide campaign funding. Right wing conservatives loudly proclaim their support and allegiance to the Constitution and democracy, but willingly undermine both when it serves the interests of their plutocratic backers. [1]

Right wing conservatives block the will of the majority using multiple strategies:

Passing laws or taking executive actions that block progressive policies of local communities,
Limiting the ability of judges and the courts to uphold the Constitution and laws that protect political, social, economic, and civil rights, and
Manipulating voting and representation through gerrymandering, voter suppression, and rigging of the Census.

This post will focus on laws and executive actions that block progressive policies. Subsequent posts will cover efforts to limit the independence of judges and the courts, as well as gerrymandering. Previous posts have discussed the rigging of the Census and voter suppression.

The plutocrats (i.e., those who have power due to their wealth) have used their money over a period of 40 years to buy political influence and elections. The resultant political shift to the right in Congress and the White House, and in many state legislatures and governorships, has meant that local communities are more frequently finding themselves at odds with policies established by right wing conservatives at the state and federal levels. In particular, large cities, which are substantially more diverse and politically progressive than the non-urban population, are having their progressive policies blocked by conservative, elected officials in state and federal offices.

One of the more notable conflicts between the Trump administration and local communities is over the treatment of immigrants, particularly undocumented immigrants. Over 150 cities or counties have directed their police forces not to arrest or hold residents based solely on federal immigration law violations. Local law enforcement needs to have positive relationships with all residents, including undocumented immigrants, so it can keep everyone safe and ensure that everyone is comfortable interacting with the police for their own and others’ safety.

The Trump administration uses multiple tactics (e.g., threats to cut off funding and engaging in aggressive actions by federal immigration enforcement forces in those communities) to attempt to discourage and punish local initiatives to maintain good relationships between undocumented immigrants and police. The Trump administration is trying to coerce local communities into undermining local law enforcement and public safety.

At the state level, there are many examples of state governments blocking local policies that serve residents. These have gotten little attention in the mass media. For example, states have passed laws that prohibit municipalities from:

Raising their minimum wage (25 states, including almost every Southern state),
Requiring local employers to provide paid sick time and / or establishing a paid family and medical leave program (at least 17 states),
Providing local Internet service (typically at lower cost or higher speed than available from private providers) (at least 17 states),
Regulating ride-sharing services such as Uber and Lyft (at least 37 states),
Implementing local taxes to meet local needs (at least 42 states),
Regulating consumer and public health safety (e.g., tobacco products, food labeling, plastic bag bans, and fracking and other environmental threats),
Removing or altering Confederate monuments (at least 6 states),
Regulating short-term home rentals such as Airbnb (at least 3 states),
Protecting the rights of gay and lesbian people (at least 3 states), and
Taking steps to reduce gun violence by regulating guns and ammunition. [2] [3] [4] [5]

Nonetheless, local communities are asserting their progressive values. For example, 21 states and 32 localities have raised their minimum wage above the federal level since 2014. In response, the corporate-funded and run American Legislative Exchange Council (ALEC) has drafted and provided to state legislators across the country model legislation called the “Living Wage Preemption Act” designed to block local increases in the minimum wage.

In some cases, states have overridden and reversed policies and programs after they have been established at the local level. For example, in Austin, Texas, the state struck down a local ordinance requiring fingerprinting of Uber and Lyft drivers. And Texas legislators have promised to introduce legislation to repeal Austin’s recently passed paid sick time law. In Ohio, the state retroactively canceled Cleveland’s increase in its minimum wage.

These efforts at preemption of local progressive policies are occurring because right wing conservatives and their wealthy backers know that the successes of these policies and programs represent a powerful refutation of their ideology and political arguments. The right wing also knows it is outnumbered if there is broad participation in elections and political activity. Therefore, one of their goals is to suppress voting and political engagement. Limiting the success of grassroots initiatives is key to preventing the building of a truly powerful, larger and broader progressive movement.

State and federal preemption of local policies usurps communities’ power and right to control their own destinies. Although preemption can play a positive role in setting a floor or minimum standard for policies on safety, environmental standards, human rights, and labor standards, its current use by right wing conservatives is anti-democratic because it is pushing the interests of the plutocracy – wealthy individuals and large corporations – and undermining democratic self-determination.

[1] Doonan, M., 12/14/17, “Opportunistic federalism and a liberal resurgence,” The American Prospect (http://prospect.org/article/opportunistic-federalism-and-liberal-resurgence)

[2] Miller, J., 2/21/18, “In the face of preemption threats, Austin passes paid sick leave,” The American Prospect (http://prospect.org/article/face-preemption-threats-austin-passes-paid-sick-leave)

[3] Miller, J., 8/22/17, “On monuments and minimum wages,” The American Prospect (http://prospect.org/article/monuments-and-minimum-wages)

[4] Von Wilpert, M., 3/13/18, “Preemption laws prevent cities from acting on everything from labor and employment to gun safety,” Economic Policy Institute (https://www.epi.org/blog/preemption-laws-prevent-cities-from-acting-on-everything-from-labor-and-employment-to-gun-safety/)

[5] Hightower, J., May 2017, “GOP state legislatures are attacking local democracy,” The Hightower Lowdown (https://hightowerlowdown.org/article/gop-state-legislatures-are-attacking-local-democracy/)

THE UNDERMINING OF THE 2020 CENSUS

The 2020 Census is coming up soon and preparations for it are underway. You’ve probably heard about the controversy over the Trump administration’s effort to add a question on citizenship to the Census. Unfortunately, the politicization and undermining of the Census runs much deeper than just this question.

The Census is supposed to enumerate every person living in the U.S., regardless of whether they are a citizen or not. This is the Constitutional mandate of the Census. It’s used to determine boundaries for Congressional Districts and state legislative districts, as well as votes in the Electoral College (which, of course, elects the President). It’s also used every year to apportion $675 billion in federal funding for health care, schools, housing, and roads. Essentially every major U.S. institution uses Census data, from businesses analyzing markets to countless researchers analyzing demographics and driving policy decisions.

The 2010 Census was the most accurate one in history, but it over-counted white residents by almost 1% (e.g., people with more than one home) and under-counted Blacks by 2%, Hispanics by 1.5%, and Native Americans by 5% – failing to count 1.5 million residents of color. [1] The fairness and accuracy of the Census, as well as trust in it and its process, are essential elements of the core infrastructure of our democracy.

The undermining of an accurate count in the 2020 Census began in 2012 and has accelerated more recently. In 2012, Congress directed the Census Bureau, over the objections of the Obama White House, to spend less on the 2020 Census than it had on the 2010 Census, despite inflation and a population that was expected to grow by 25 million residents (about 8%). After Trump’s election in 2016, the Bureau’s budget was cut by another 10%, although some of that funding was just restored last month.

The Census Bureau’s Director resigned in June 2017 after Congressional budget cuts. The Deputy Director position was already vacant; however, the Trump administration has not yet nominated anyone to fill either of these posts. A rumored nominee was an academic without any Census experience who had supported racial and partisan gerrymandering of Congressional Districts. Meanwhile, the Trump administration has installed a “special adviser” at the Census Bureau who is from a partisan polling firm and who reports directly to the White House. These personnel issues undermine the Bureau’s ability to effectively run the 2020 Census.

Budget cuts have forced the Census Bureau to cancel crucial testing of the Census process. These tests are particularly important because for the first time the Census will be conducted primarily through on-line responses. Rather than mailing Census forms to every household, a postcard will be sent with instructions on how to fill out the on-line form. As in the past, Census workers, called enumerators, will visit households that don’t respond to the initial Census mailing to ensure the counting of those residents. Even though the initial response rate is likely to fall because of low-income or elders’ households that lack the technological capability to respond on-line, the number of enumerators has been cut by about 200,000, from 500,000 to 300,000. (Roughly a third of low-income households and a third of Black and Hispanic households lack Internet access and a computer.) The enumerators are also charged with finding and obtaining Census responses from residents who did not receive the mailing.

Budget cuts also forced the Census Bureau to cancel trial runs specifically designed to help it figure out how to reach hard-to-count populations. It also canceled two of three “dress rehearsals.” It has half as many field offices as it had in 2010. The development of the Bureau’s technology systems is behind schedule and the launch of its website is not scheduled until April 2020. Cybersecurity for the new on-line Census is a major concern as well. A group of 51 economists from across the country and across the political spectrum have written a letter to Congress supporting “robust funding of the 2020 Census sufficient to ensure a fair and accurate count of the U.S. population.” [2]

The budget cuts mean that the outreach and publicity the Census Bureau will do to encourage responding to the Census have been reduced substantially. Currently, the Bureau has only 40 employees working on outreach, compared with 120 at this point 10 years ago. States, cities, and private foundations are already working to fill this void, but they will be hard pressed to match the 2010 effort where the Census Bureau spent $340 million on promotional advertising.

As if these challenges to accurately counting every resident weren’t enough, the Trump administration recently announced its intention to add a question to the Census that would ask whether the respondent is a citizen. The Census Bureau was already concerned that the Trump administration’s anti-immigrant actions and rhetoric were going to make it harder to get an accurate count of immigrant residents, both documented and undocumented ones. A citizenship question will only exacerbate this challenge. Not only will non-citizens be less likely to respond to the Census, but citizens in the 16 million households with some undocumented members may refuse to respond out of fear of exposing their undocumented family members. [3]

The Trump administration says that getting citizenship data in the Census is necessary to enforce the Voting Rights Act and prevent discrimination against minorities. This claim would be laughable if its implications weren’t so serious. There hasn’t been a question on citizenship on the Census for 70 years. [4] Furthermore, the American Community Survey, which is done annually with a statistically accurate sample that consists of 3.5 million residents, does have a question on citizenship that provides the data needed to analyze issues where citizenship information is needed.

The opposition to adding a question on citizenship has been swift and broad. Six former Census Bureau Directors who served under both Republicans and Democrats wrote a letter in opposition. Two dozen states and cities have announced a lawsuit aimed at blocking the inclusion of this question. [5] Normally, adding a question to the Census is a careful process with testing to determine effects on response rate and other factors. In this case, there is no opportunity to test the effect of adding this question given that very limited field testing is being done and that it is already underway.

An under-count of immigrants and people of color would shift economic and political power to rural, white, conservative populations. These effects would last for at least the next 10 years until the 2030 Census. California estimates that each resident who is not counted will cost the state $1,900 in federal funding each year. It receives about $77 billion annually in federal funding and could lose about $2 billion each year for the next 10 years if its low-income and immigrant populations are significantly under-counted. This could also cost the state one or two seats in the House of Representatives and in the Electoral College.

A significant under-count in the 2020 Census would undermine the commitment of our democracy to treat each resident fairly. The Trump administration and the Republicans in Congress, by significantly under-funding the Census, by adding a question on citizenship, through their anti-immigrant actions and rhetoric, and by refusing to use more accurate statistical techniques, seem to be working hard to under-count hard-to-reach populations. Not surprisingly, these low-income, minority, young, and student populations are the same ones they are trying to keep from voting through ID requirements and other steps that make voting more difficult. They appear to be more than happy to undermine the 2020 Census and our democracy to achieve political goals.

The Census has an extraordinary reputation for counting all residents regardless of income, race, ethnicity, or immigrant status. Undermining confidence in the integrity of the Census by politicizing the process will erode trust that is essential to a functioning democracy. [6]

I urge you to contact your members of Congress and urge them to support adequate funding for the Census, to oppose a question on citizenship, and to strongly advocate for as accurate a count of all residents as is possible. 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] Berman, A., May/June 2018, “Hidden figures: How Donald Trump is rigging the Census,” Mother Jones (https://www.motherjones.com/politics/2018/03/donald-trump-rigging-2020-census-undercounting-minorities-1/#)

[2] Economic Policy Institute, 4/2/18, “An open letter from 51 economists to Congress urging robust funding of the 2020 Census” (https://www.epi.org/publication/an-open-letter-from-51-economists-to-congress-urging-robust-funding-of-the-2020-census/)

[3] Loth, R., 4/9/18, “Turning the apolitical Census into an anti-immigrant tool,” The Boston Globe

[4] Cerbin, C. M., 3/27/18, “Citizenship question to be put back on the 2020 Census for first time in 70 years,” USA Today

[5] Kamp, J., & Adamy, J., 4/13/18, “Citizenship question rankles in trial run of 2020 Census,” Wall Street Journal

[6] Wines, M., 12/9/17, “With 2020 Census looming, worries about fairness and accuracy,” The New York Times

ICE IS ENGAGING IN TERRORISM

Terrorism is defined as the unlawful use or threat of violence or intimidation, especially against civilians, in the pursuit of political aims. The Immigration and Customs Enforcement (ICE) agency is using tactics that fit the definition of terrorism.

ICE agents are making arrests that are designed to create fear among immigrants, including legal immigrants, and to intimidate and traumatize them. For example, ICE agents are arresting immigrants at hearings where they are applying for legal status, at courthouses where immigrants are engaged with our criminal justice system, near schools, and even in hospitals.

ICE’s practice of separating children and parents is designed to instill fear and anxiety in parents. [1] It also traumatizes children, who are likely to have already been traumatized by the experiences that have led their parents to flee their home countries.

For parents seeking asylum, separating children from parents clearly violates US and international laws on the treatment of asylum-seekers. (See my previous post for examples.) For others, suits have been filed to have this practice declared illegal because it fails to provide due process for parents and children, and constitutes cruel and unusual punishment, among other things.

The resultant fear and intimidation are causing immigrant parents to avoid enrolling children in school or preschool programs (such as Head Start) and to avoid public programs that provide access to health care and healthy nutrition, including for pregnant women and infants.

In Massachusetts, ICE’s actions have inhibited immigrants’ participation in our criminal justice system, as victims, witnesses, and defendants. Arrests by ICE at courthouses and ICE’s treatment of immigrants in their custody have intimidated immigrants and prevented them from exercising their constitutional rights. As a result, victims are afraid to appear in court to seek relief or protection, and witnesses are reluctant to testify. [2]

Two lawsuits have been filed asking the Massachusetts Supreme Judicial Court to bar ICE from making arrests in or near courthouses. Such arrests are happening on a weekly basis and have occurred at 24 courthouses around the state.

Furthermore, ICE has refused, even when ordered by a state judge, to bring immigrants in its custody to criminal proceedings where they are a defendant, a clear violation of a defendant’s rights. Because of ICE’s refusal to transport immigrants in its custody to court hearings or to meet court-ordered obligations, these immigrants have been denied access to our justice system, have been put in violation of their terms of probation, and have failed to receive court-ordered drug and mental health treatment.

These actions by ICE fit the definition of terrorism: the unlawful use or threat of violence or intimidation, especially against civilians, in the pursuit of political aims.

ICE’s actions are clearly unlawful,
Its actions and the threat of them clearly intimidate civilians, and
The reason the Trump Administration is engaging in these actions is clearly the pursuit of political aims – to win the political support of a certain segment of the population and to meet campaign promises – because these actions don’t achieve meaningful policy goals in any significant or effective way.

[1] Hing, J., 3/15/18, “For Trump, cruelty is the point,” The Nation (https://www.thenation.com/article/for-trump-cruelty-is-the-point/)

[2] Johnson, A., 3/16/18, “ICE arrests at courts decried,” The Boston Globe

TAX CUTS FOR THE WEALTHY DON’T STIMULATE THE ECONOMY

Tax cuts for wealthy individuals and corporations don’t stimulate the economy, grow jobs and wages, or increase government revenue. The evidence for this comes not only from national experience under Presidents Reagan and G. W. Bush, but also from the recent, dramatic events in Kansas.

In 2012, in an effort led by newly elected Governor Sam Brownback, Kansas passed a tax bill like the one recently enacted by President Trump and the Republicans in Congress. The Kansas law slashed income tax rates (especially for the wealthy) and for privately-held companies, just like the recently enacted federal tax law. It also cut tax credits that helped low and moderate-income families, just like the recent federal tax law.

Governor Brownback and his supporters in the Kansas legislature promised that Kansas’s economy would boom and state tax revenue would grow as a result, just like the promises President Trump and the Republicans in Congress are making. [1]

In the almost six years since Kansas’s tax cuts, it has had one of the worst performing state economies in the country, the state’s tax revenues have been falling by hundreds of millions of dollars each year, and Kansas ranks among the top ten states for the percentage of people moving out-of-state. The big tax cut for privately-held companies appears to have fueled more tax evasion than job creation.

To deal with the dramatic decline in revenue for the state’s $6 billion budget, Governor Brownback and Republican Legislature have:

Cut hundreds of millions of dollars from spending, putting public schools (see more below) and other service providers into crisis
Cut payment rates for health care services, putting many of the state’s hospitals into crisis
Cut state administrative capacity, resulting in residents experience lengthy delays and waitlists when accessing state services (e.g., the delays in approving seniors’ eligibility for Medicaid so they could go into nursing homes became so bad that the federal government charged Kansas with violating federal law)
Increased regressive taxes, such as the sales tax and alcohol and tobacco taxes
Diverted over $100 million from the state’s highway fund and $40 million from the required contribution to the state employees’ retirement fund in 2015 alone
Increased state debt by over $1 billion, which, along with other fiscal issues, led to the downgrading of Kansas’s bond rating

The cuts in public school funding led to a lawsuit where the state’s Supreme Court ruled in 2015 that the state had to spend hundreds of millions of dollars more on K-12 public education. A previous, decades-long dispute between local school districts and the state over the levels and allocation of state funding for public education had been settled in 2006. That settlement required the state to increase funding for public education. However, the Great Recession of 2008 and then Governor Brownback’s tax cutting in 2012 had reduced state revenue so dramatically that, despite the settlement, the state cut funding for public schools by 16.5% (one-sixth) between 2008 and 2013.

In 2015, as state revenue continued its dramatic decline due to the tax cuts, Brownback cut another $28 million from K-12 public education funding. Two school districts were forced to end their school years early because they ran out of money. The cuts in state school funding disproportionately hurt low-income and urban school districts that couldn’t make up for lost state funding with increased local funding.

Some of the school districts sued and in 2015 the state’s Supreme Court ruled that the state had to provide $40 million immediately as a first step in correcting the under-funding of public education. In a further ruling in 2017, the courts required the state to come up with over $700 million for public education over the next several years.

In the 2016 elections, while Trump was winning 57% of the presidential vote in Kansas, Democrats and moderate Republicans were winning state legislative races due to concerns about the public schools and other issues. Facing a nearly $1 billion shortfall in the state’s two-year budget and a court requirement to significantly increase funding for K-12 education, the legislature voted in February 2017 to repeal most of the 2012 income tax cuts for individuals and privately held companies. Governor Brownback vetoed the bill and the legislature came up just short of overriding the veto.

In June 2017, the legislature again passed a repeal of most of the 2012 income tax cuts. Governor Brownback again vetoed the bill. This time the legislature overrode the veto by one vote in the Senate and four votes in the House. Although it will take Kansas many years to recover from the damage that has been done to the state’s schools, health care system, and economy, the state’s bond rating was lifted a step just two days later.

There are striking similarities between Governor Brownback’s tax cuts and those of President Trump and the congressional Republicans. There are also striking similarities in their promises of economic growth and increased government revenue. However, the great majority of economists and other knowledgeable observers believe the results of the federal tax cuts are very likely to be similar to Kansas’s experiences.

The major difference is that the federal government does not have to have a balanced budget. So, along with the recently passed budget bill, the result in the short-term will be federal budget deficits of roughly $1 trillion per year. This is not sustainable, financially or politically. Sooner or later, significant federal spending cuts and/or tax increases are highly likely to be necessary.

The only questions, in both Kansas and nationally, are how much damage will be done by the tax cuts and how long will it take to recover from them. Note that some individuals in Kansas, such as children whose schooling was compromised or people whose health was compromised by lack of access to health care or other services, will never recover all that they have lost. The harm on a national level will certainly be greater in scale – more people will be harmed. Only time will tell how great and long lasting the harm will be for individuals and for our society.

[1] Miller, J., 6/28/17, “Kansas, Sam Brownback, and the trickle-down implosion,” The American Prospect (http://prospect.org/article/kansas-sam-brownback-and-trickle-down-implosion-0)

FIGHTING TAX AVOIDANCE BY THE WEALTHY

A recent Op Ed in the Boston Globe caught my attention and I couldn’t resist sharing it. If you want to understand how wealthy individuals and corporations use off-shore tax havens to avoid paying their fair share of taxes and what we can do about it, this article provides answers. [1]

The best estimate is that 11.5% of personal wealth (i.e., $8.7 trillion), globally, is stashed in off-shore tax havens.
This costs the U.S. government an estimated $32 billion a year in lost tax revenue from individuals. (Other countries’ governments probably lose $140 billion a year in tax revenue.)
In addition, corporations dodge about $70 billion a year in U.S. taxes by using off-shore tax havens. This represents about 20% (one-fifth) of what the U.S. does collect in corporate income taxes each year. (Other countries’ governments probably lose $60 billion a year in tax revenue.)
The roughly $100 billion per year the U.S. is losing to off-shore tax dodging is what the federal government spends on Food Stamps, other nutrition programs (such as school lunches), the Children’s Health Insurance Program (CHIP), Head Start, child care subsidies, and welfare COMBINED.
Taxing corporate income based on what is called formulary apportionment would stop this tax avoidance. Under this approach, a corporation would pay U.S. taxes based on the portion of its sales that are in the U.S., regardless of any accounting gimmicks or other strategies that made it look like the income from those sales was in another country. This tax approach is in wide use today; many states use it to calculate state corporate income taxes. It is a tax approach that has been used since the days of multi-state railroad construction in the 1800s.
Stopping individuals from using offshore accounts to avoid paying taxes would require international cooperation. Today, the IRS has a comprehensive system for tracking earned income. Even if you move from state to state or out of the country, the income you earn is reported to the IRS and you pay income taxes based on your total income. States with income taxes track income that you earn out-of-state and require you to pay state income tax on it. A similar approach should be applied to tracking other kinds of income and ownership of financial securities or assets that produce income. The U.S. passed the Foreign Account Tax Compliance Act in 2010 that requires foreign banks, including the notoriously secretive Swiss and Cayman Island banks, to share information with the IRS on accounts held by American clients. This is a starting point for the international cooperation needed to reduce tax dodging by the wealthy that hurts the U.S. and many other countries.

Tax avoidance by the wealthy contributes to the astronomical and growing inequality of wealth and income. It also means that everyone else must pay more in taxes to make up for the lost taxes when wealthy individuals and corporations don’t pay their fair share.

[1] Scharfenberg, D., 1/21/18, “A world without tax havens,” The Boston Globe

FIGHTING THE OPIOID EPIDEMIC

A recent Op Ed in the Boston Globe caught my attention and I couldn’t resist sharing. If you want to know what we can and should do to truly fight the opioid epidemic, it provides the answers.

Here’s a summary of its recommendations for fighting the opioid epidemic: [1]

To seriously tackle the opioid epidemic, the federal government needs to spend $4 – $5 billion a year on the effort for the next 10 years.
Laws and regulations at the state and federal levels must ensure that health insurance covers addiction treatment, mental health services, and other services that will reduce opioid addiction and successfully treat those who experience addiction.
Medicaid, the Affordable Care Act (aka Obama Care), and perhaps other initiatives need to ensure that as many Americans as possible have health insurance to pay for treatment.
Through oversight and research, addiction treatment must be as effective as possible.
Pharmaceutical corporations must be held accountable, financially and otherwise, for their significant role in creating the opioid addiction crisis. They should be required to make substantial contributions to treatment costs, including making addiction-related medications available and affordable.
Federal laws and regulations should prohibit direct-to-consumer marketing of prescription drugs. Only one other country in the world allows this and it is a relatively recent phenomenon in the U.S. The big pharmaceutical corporations spend over $5 billion a year advertising drugs, increasing sales but leading to inappropriate use and overuse of drugs.
Everyone, in the public sector and in private life, should address addiction as a health and public health problem, not a criminal justice issue, and should work to de-stigmatize it.
The federal government needs to increase the effectiveness of efforts to reduce the smuggling of opioids into the country, including diplomatic efforts with Mexico and China, particularly focused on stopping the flow of Fentanyl into the U.S.

[1] Tamasi, R.V., 1/22/18, “How to fight the opioid epidemic,” The Boston Globe

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

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)

THE ANTI-WORKER AGENDA OF THE TRUMP ADMINISTRATION

Despite Trump’s pro-American worker rhetoric, his administration’s anti-worker actions speak louder than his words. His administration’s rollback of regulations protecting workers’ health, safety, and pay has been called “stunning” and “staggering” by labor policy experts.

One example is the Trump Administration’s decision not to follow through and update the Overtime Rule as proposed by the Obama Administration. The Overtime Rule sets the minimum amount salaried employees can be paid and not be eligible for overtime pay when they work more than 40 hours in a week. The intent of the Overtime Rule was to identify employees who were managers or professionals who could reasonably be expected to work more than 40 hours in a week and not get additional pay for overtime. The current overtime cutoff amount is only $23,660 and has not been updated for over a decade. It’s actually below the poverty line for a family of four. This lets employers pay low-wage workers a salary, rather than on an hourly basis, and thereby avoid having to pay overtime. The failure to update this dollar amount is an important contributor to the stagnation of wages for low- and middle-income workers.

There appeared to be bi-partisan agreement that the dollar amount should be increased when the Obama administration proposed a new rule raising the threshold to $47,476. Over 4.2 million low-wage workers would have seen an increase in pay or possibly a reduction in work hours as a result. The Trump Administration has abandoned the implementation of the proposed rule. [1]

This will cost low- and middle-wage workers an estimated $1 billion a year in pay.

The Trump Administration has stopped collecting data from large corporations on pay by gender, race, and ethnic background. This data would have allowed the Equal Employment Opportunity Commission to examine pay patterns and look for discriminatory practices. The failure to collect this data will make it harder to document and reduce the stubborn inequities in pay in the US. [2]

Data collection on workplace injuries and deaths has been weakened and made less accessible to the public. This will make it harder for the Occupational Safety and Health Administration and others to identify and respond to unsafe working conditions.

The Trump Administration is rolling back regulation of the trucking industry. Driving a truck is one of the most dangerous jobs in the country; truck accidents account for more than a quarter of all workplace deaths. The Obama Administration had begun an effort to study sleep issues among truckers, given that falling asleep at the wheel is a major cause of accidents. The Trump Administration has halted the study.

The Trump Administration and Congress are also considering allowing federal regulations that require a 30-minute break after 8 hours of driving to override stricter state regulations. For example, California, Colorado, and Kentucky require a 30-minute break every 5 hours. [3]

(Please see my blog post, Repealing or delaying regulations harms workers and the public, here for more examples of the Trump Administration’s rollbacks of regulations that protect workers.)

Trump is nominating people who do not have records of protecting workers to key posts in his Administration that are responsible for worker protections. He has nominated Cheryl Stanton to be the administrator of the Department of Labor’s Wage and Hour Division, which is responsible for enforcing wage protection laws. In the past, she has represented corporations accused of under-paying workers. Stanton has also been sued for failing to pay her house cleaners. [4]

Trump has nominated David Zatezalo to be the head of the Mine Safety and Health Administration. Zatezalo is a former coal mining executive whose company was identified as having numerous health and safety violations.

Trump appears to be trying to hide or minimize attention to these nominations and some of his other anti-worker actions by announcing them on Friday afternoons when attention from the media and the public is at its low point for the week.

The Trump Administration’s actions are clearly anti-worker, despite his sometimes contradictory rhetoric. And actions do speak louder than words, even when you announce them at times when you hope people won’t be paying attention.

[1] Block, S., 9/13/17, “The Trump Administration will always side with corporations over labor,” Moyers & Company (http://billmoyers.com/story/trump-corporations-over-labor/)

[2] Olen, H., 9/1/17, “The rollback of pro-worker policies since Trump took office is staggering,” The Nation (https://www.thenation.com/article/the-rollback-of-pro-worker-policies-since-trump-took-office-is-staggering/)

[3] Miller, K., 8/30/17, “Keep on truckin’ – No, seriously, Trump wants you to,” Moyers & Company (http://billmoyers.com/story/keep-truckin-no-seriously-trump-wants/)

[4] McNicholas, C., & Sanders, S., 9/8/17, “Policy watch: Two more foxes nominated to run hen houses in the Trump administration,” Economic Policy Institute (http://www.epi.org/blog/policy-watch-two-more-foxes-nominated-to-run-hen-houses-in-the-trump-administration/)

IS THE DEMOCRATS’ “BETTER DEAL” A GOOD DEAL?

Congressional Democrats recently announced a package of policy proposals they are calling “A Better Deal.” It is apparently their policy platform for the 2018 Congressional elections and it seeks to re-establish Democrats as the party that stands up for working people. There is much in it for workers to like. (See my previous post here for a summary of it.)

However, some important pieces are missing from A Better Deal. [1] For example, it doesn’t clearly address:

Making it easier for workers to unionize and harder for employers to eliminate or prevent unionization. This would strengthen the collective bargaining power of workers so they could better balance the growing power of employers in negotiations over pay and benefits.
Creating a more progressive, fairer tax system to address economic inequality and provide the revenue needed for A Better Deal’s programs.
Reducing the power of the huge Wall Street financial corporations and the threat they represent to our economy. [2]
Reforming the health care system and its out-of-control costs. It doesn’t call for a Medicare-for-All type single-payer insurance system, despite strong evidence that this is the only way to both control costs and improve quality, and despite broad support for Medicare-for-All among the public and from over 100 members of Congress. (See my post here for why single-payer is the only way to address the problems with our health insurance system.)
Increasing the transparency of the process for developing trade agreements and eliminating the trade dispute resolution system that favors multi-national corporations and undermines workers, the public, and even national sovereignty. [3]

A Better Deal is viewed by many as timid and underwhelming. It doesn’t clearly renounce growing economic inequality and the greed of corporate executives. It could, for example, propose penalties and/or taxes on corporations where executive pay is over 20 times that of a corporation’s lowest-paid worker or over 20 times the national median wage. This is what the Labour Party in the United Kingdom has proposed. [4] In the US, this would mean penalties or taxes on corporations where an executive is paid over $290,000 and the corporation has a minimum wage employee, or where any executive is paid was over $605,000 (based on 20 times the national median personal income of $30,240). [5]

A Better Deal is a step toward counteracting the frustration of workers and the middle class and the resultant losses Democrats have sustained in recent state and national elections. However, it is not generating much grassroots enthusiasm. Although it is clearly targeting some of the issues raised by Senator Bernie Sanders in his presidential campaign, it is not generating anywhere near the groundswell of grassroots support that Senator Sanders, or for that matter President Trump’s campaign, stimulated. Part of the lack of excitement about A Better Deal has to do with the shortcomings of its policy content and part of it has to do with its presentation.

Calling the proposal “A Better Deal” is not inspiring or visionary, which is what the Democratic Party needs to be if it wants to win elections. Simply saying that its proposal is better than what the Republicans are proposing or than the current status quo is not saying much. “Better” is not enough to get voters excited and enthusiastic enough to turn out and vote. Hillary Clinton lost the presidency because she did not inspire and excite voters. Turnout in the 2016 presidential election was only 53% of eligible voters! If it wants to win the 2018 or subsequent elections, the Democratic Party needs a strong, inspiring message and a good media strategy that will energize people to get out and vote for its candidates.

I’m surprised the Democratic Party didn’t build A Better Deal and its 2018 election strategy on the People’s Budget that has been developed by its Progressive Caucus in the US House. (See my posts on the People’s Budget here and here.) The People’s Budget includes specific proposals for reforming our tax system to increase fairness and to generate the revenue needed to fund the programs it and A Better Deal recommend. The People’s Budget includes a larger program to build the infrastructure America needs and is specific about increases in domestic spending that are needed to support workers and the middle class, as well as to mend our safety net for people who fall on hard times. It also is specific about the need to strengthen workers’ ability to unionize and negotiate with employers for better pay and benefits.

On the other hand, A Better Deal has more specific proposals than the People’s Budget for rolling back provisions in trade treaties that favor multi-national corporations and undermine workers. It also is more specific about the need to restrict foreign countries’ currency manipulation and monopolistic behavior by large corporations (by strengthening anti-trust laws and their enforcement).

If the Democrats could unify in support of a proposal that combined the best elements of A Better Deal and the People’s Budget, and added an unequivocal call for a Medicare-for-All type, single-payer health insurance system, they would have a policy and election agenda that would be truly visionary and inspiring. The country needs leadership focused on a clear commitment to supporting workers and the middle class. The Democrats have a golden opportunity to provide it, but it isn’t yet clear whether they will seize the opportunity.

Clear, consistent promotion of A Better Deal is not yet evident. And actions will speak louder than its words. However, no action on its promises is yet evident in Washington. Its impact, both practically and politically, will depend on:

Clearly spelling out the details of its policy proposals and adding missing pieces,
Developing a strong message promoting its goals,
Taking definitive actions to move its agenda forward, and
Generating consistent and enthusiastic support for it from all Democratic members of Congress and the Party leadership.

[1] Reich, R., 7/28/17, “How much better is the Democrats’ ‘Better Deal’?” Yahoo! News (2 min. video) (https://www.yahoo.com/news/robert-reich-democrats-better-deal-211752649.html)

[2] Carney, E.N., 7/27/17, “Is the Democratic Party’s ‘Better Deal’ good enough?” The American Prospect (http://prospect.org/article/democratic-party%E2%80%99s-better-deal-good-enough)

[3] Bernstein, J., & Spielberg, B., 8/17/17, “Democrats’ ‘Better Deal’ on trade is better than what we have now,” The American Prospect (http://prospect.org/article/democrats-better-deal-trade-better-what-we-have-now)

[4] Pizzigati, S., 7/26/17, “Will Democrats in Congress go bolder or backwards?” Inequality.org (https://inequality.org/great-divide/democrats-congress-need-go-bolder-not-backwards/)

[5] Wikipedia, retrieved 9/7/17, “Personal income in the United States” (https://en.wikipedia.org/wiki/Personal_income_in_the_United_States)

THE DEMOCRATS’ “A BETTER DEAL”

Congressional Democrats have announced a package of policy proposals they are calling “A Better Deal.” It’s apparently their policy platform for the 2018 Congressional elections and its focus is on re-establishing Democrats as the party that stands up for working people. It proclaims that too many American families feel that the rules of our economy are rigged against them. It notes that incomes and wages are not keeping up with the cost of living for many workers. It states that large corporations, the rich, and other special interests are avoiding paying taxes and meanwhile are spending huge sums of money to influence our elections. Democrats claim that A Better Deal will grow and strengthen the middle class and reverse the failure of so-called trickle-down economic policies (i.e., tax cuts for the wealthy) to do so.

A Better Deal has three overarching goals: [1]

Raise the wages and incomes of American workers and create millions of good-paying jobs,
Lower the costs of living for families, and
Build an economy that gives working Americans the tools to succeed in the 21^st Century.

A Better Deal calls for raising the national minimum wage to $15 an hour by 2024 and then increasing it automatically so it keeps up with inflation. A Better Deal promises that Democrats will fight the offshoring of Americans’ jobs by penalizing corporations that move jobs overseas and by cracking down on unfair trade policies of other countries, including currency manipulation. It calls for renegotiating the NAFTA trade agreement with Canada and Mexico to increase US exports and jobs, while also improving wages. Federal contractors who move jobs to foreign countries would be penalized and there would be Buy American requirements in government purchasing.

The Democrat’s plan calls for $1 trillion in federal spending on the infrastructure, such as bridges, roads, railroads, airports, and waterways, that is the transportation backbone of our economy. The plan projects that 15 million good-paying jobs would be created by these investments. It would also support job creation by prioritizing support for small businesses and entrepreneurs over benefits for large corporations. It would invest in research and innovation, as well as making high-speed Internet service available to everyone. It pledges to ensure that workers will be able to “retire with dignity,” by protecting pensions, Social Security, and Medicare.

A Better Deal calls for lowering the costs of drugs, post-secondary education, child care, cable TV and Internet service, and credit cards. It promises a crackdown on big price increases by pharmaceutical corporations as well as their practices that drive up drug costs. Medicare would be allowed to negotiate drug prices (which it is currently barred by law from doing!).

A Better Deal would curtail the monopolistic practices of large corporations that lead to higher prices and reduced consumer choice. It notes that concentrated market power leads to great political power, which has been used by big corporations to obtain beneficial policies from government. Strengthening anti-trust laws and their enforcement are identified as key strategies for achieving these goals. A Better Deal calls for eliminating unlimited and/or undisclosed spending by corporations and the wealthy in our elections, as well as reducing the power and influence of lobbyists and special interests.

A Better Deal promises paid leave for workers when they are sick or when a family situation merits taking time off. Paid leave for a new child or a family member’s illness would be covered. It notes that this will keep families healthy, both medically and financially.

In A Better Deal, Democrats commit to expanding government investment in workers’ access to the education, training, and other tools they need to succeed in the 21^st Century. In addition, employers would receive incentives to invest in their workers’ skills and knowledge. Apprenticeships would be expanded and training programs would be better coordinated with businesses’ needs for workers.

There is much in A Better Deal for workers to like. Democrats appear to be recommitting themselves to putting workers first, ahead of monied interests, reversing their mid-1990s decision to cozy up to those with big money to get the funding they needed for their campaigns. Despite its good points, there are notable weaknesses in A Better Deal and its presentation that I will outline in my next post.

[1] Schumer, C., retrieved 8/20/17, “A better deal,” U.S. Senate Democrats (https://democrats.senate.gov/abetterdeal/#.WZydEbpFzIU)

PROTECTING CONSUMERS FROM WALL STREET

The collapse of the financial corporations in 2008 was due in large part to their predatory and illegal practices in pushing unaffordable home mortgages onto gullible home buyers. Congress and President Obama enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (known as Dodd-Frank) to help protect consumers from such abusive behavior.

Dodd-Frank’s most notable consumer protection provision was the creation of the Consumer Financial Protection Bureau (CFPB). The CFPB’s role is to protect consumers from illegal and predatory practices, as well as discrimination, by financial corporations and to work to ensure that consumers receive the information necessary to make good financial decisions and to avoid “unsafe” financial products and services.

Since its creation, the CFPB has been hard at work punishing financial corporations that violate the law, returning almost $12 billion to over 29 million victimized consumers. In less than 8 years, it has helped consumers by responding to over 1.2 million complaints and issuing, for example, new standards for home mortgage documents that are clearer and easier to understand. At CFPB’s website you can find information on understanding your credit score and to help you make a good decision about a car or student loan.

Given that financial products and services (such as bank accounts, credit cards, and car and student loans) are essential for individuals, families, and our economy, appropriate regulation of them is necessary. Before the creation of the CFPB, financial services regulation was spread among 6 federal agencies and state regulators. None of them had consumer protection as its sole or primary role nor had the power to establish a single set of regulations for the whole financial industry. The CFPB has this power and a sole focus on consumer protection, much as the Consumer Product Safety Commission does for non-financial products. [1]

In July, the CFPB finalized a rule prohibiting financial corporations from putting mandatory arbitration clauses in their customer contracts. These clauses, which are in most agreements consumers sign when they open a bank account or get a loan or credit card, prohibit customers from suing the financial corporation in court. (They are also in many contracts or agreements for other consumers products and services, such as cell phones and cable TV, Internet, and phone services.) They require the customer to submit any complaint, even one due to illegal activity, to an arbitrator, who is usually selected by the financial corporation. They eliminate the ability of customers to band together in a class action lawsuit, and require them to pursue any grievances only through individual arbitration cases.

In addition to preventing class action lawsuits, the mandatory arbitration clauses often prohibit customers from sharing their experiences with regulatory or law enforcement agencies and the media. Corporations know that consumers will rarely spend the time and money (the typical cost to file an arbitration claim is $161) to pursue arbitration, given that the amount of money at stake is usually small. The result is that corporations evade accountability and can hide illegal or unethical behavior. [2]

The CFPB rule banning mandatory arbitration clauses was put in place after 5 years of study and development pursuant to a Congressional directive to study mandatory arbitration clauses and restrict or ban them if they harm consumers. The CFPB study found that customers win only 1 out of 11 arbitration cases and when they win they receive an average of $5,389. However, when a financial corporation makes a claim or counterclaim against a customer, it wins 93% of the time and the customer is ordered to pay, on average, $7,725 to the financial corporation! [3]

The CFPB study also found that in an average year 6,800,000 consumers get cash awards due to class action lawsuits while only 16 do so in arbitration cases. Consumers in these lawsuits receive a total of $440,000,000 (after deducting lawyers’ and courts’ fees), while consumers across all arbitration cases receive a total of $86,216.

Three recent examples of practices by Wells Fargo & Company make clear the significance and importance of banning mandatory arbitration clauses and allowing class action lawsuits by customers. (By the way, Wells Fargo is the third largest US bank and a multi-national financial corporation headquartered in San Francisco with $22 billion in annual profits.) It recently paid $185 million to settle with the CFPB and other regulators for having illegally opened and charged customers for over 2 million unauthorized checking and credit card accounts. When customers tried to sue Wells Fargo for this starting back in 2013, it forced them to make their claims in individual arbitration cases. This allowed Wells Fargo to continue its illegal behavior and theft from customers for 3 more years (5 years in total) before its behavior came to the attention of regulators.

In July, another class action lawsuit was filed against Wells Fargo based on illegal behavior on car loans. Apparently, Wells Fargo was requiring customers with car loans to buy car insurance they didn’t need (it was typically redundant with insurance they already had). And Wells Fargo was getting kickbacks from the company selling the insurance. The extra cost of the unneeded insurance pushed 250,000 car loan customers into default on their loan payments and resulted in 25,000 cars being repossessed. If these customers are forced into arbitration and are unable to participate in a class action lawsuit, it’s likely that most of them will not receive any compensation from Wells Fargo for its illegal and harmful behavior.

Finally, Wells Fargo is the defendant in an on-going, 8-year-old case over overdraft fees and practices. It is arguing in court that these customers’ claims must be handled in individual arbitration cases rather than a class action lawsuit, despite complaints from customers in 49 states. [4]

Despite these examples, and the fact that Congress has banned mandatory arbitration in home mortgage agreements, members of Congress have quickly introduced legislation to repeal the Consumer Financial Protection Bureau’s new rule banning mandatory arbitration clauses in financial product and service agreements. [5] Weakening or eliminating the CFPB in general, not just its ban on mandatory arbitration, has been a goal of Wall St. corporations and their friends in Congress ever since its creation by the Dodd-Frank law.

I urge you to contact your US Representative and Senators and ask them to support the Consumer Financial Protection Bureau and its ban on mandatory arbitration clauses in consumer product and service agreements.

[1] Servon, L.J., 7/17/17, “Will Trump kill the CFPB?” The American Prospect (http://prospect.org/article/will-trump-kill-cfpb)

[2] Germanos, A., 7/12/17, “Serving Wall Street predators, GOP launches swift attack on new rule protecting consumers,” Common Dreams (https://www.commondreams.org/news/2017/07/12/serving-wall-street-predators-gop-launches-swift-attack-new-rule-protecting)

[3] Shierholz, H., 8/1/17, “Correcting the record: Consumers fare better under class actions than arbitration,” Economic Policy Institute (http://www.epi.org/publication/correcting-the-record-consumers-fare-better-under-class-actions-than-arbitration/)

[4] Brumback, K., 8/25/17, “Wells Fargo wants customer suits tossed,” The Boston Globe from the Associated Press

[5] Germanos, A., 7/12/17, “Serving Wall Street predators, GOP launches swift attack on new rule protecting consumers,” Common Dreams (https://www.commondreams.org/news/2017/07/12/serving-wall-street-predators-gop-launches-swift-attack-new-rule-protecting)

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 20^th 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 21^st 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

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)

THE RIGHT WAY TO STOP THE OFFSHORING OF US JOBS

The US needs to stop hemorrhaging jobs to other countries. For starters, we need to do three things:

Impose financial disincentives for offshoring jobs,
Change the mindset among corporate executives that offshoring jobs is the right and acceptable thing to do, and
Reverse the resignation among workers and the public who believe that the offshoring of jobs is inevitable.

To create financial disincentives, we should pass laws that place special taxes or restrictions on corporations that have offshored say 100 or more jobs in the last five years. Possible examples include:

Bar such corporations from receiving federal contracts. Or there could be demerits subtracted from the scores of proposals from such corporations in competitive bidding situations. Or there could be financial penalties on existing federal contracts such as the deduction of $10,000 per offshored job or of 1% of a contract’s annual payment per 1,000 offshored jobs, whichever is greater.
A corporation’s taxes could be increased by $10,000 per offshored job or its tax rate could be increased by 1% per 1,000 offshored jobs, whichever is greater – with no offsets to allow a corporation to avoid this tax.
Bar such corporations from receiving government tax breaks, loans, or grants.
Require such corporations to pay a special, unavoidable, and substantial tax on aggregate executive compensation that is over $1 million. [1]

Senator Bernie Sanders has announced that he will introduce a bill in Congress that will include provisions similar to these to discourage the offshoring of jobs. He is calling it the Outsourcing Prevention Act. [2]

To counter the mindset that favors offshoring jobs, we should pass laws or establish executive branch procedures that publicize a corporation’s offshoring of jobs. Possible examples include:

Require such a corporation to hold a public hearing in the community losing the jobs 90 days before the termination of the jobs. If the number of jobs is 500 or more, a hearing in Washington before a congressional committee should be required.
Establish a new anti-offshoring czar in the Office of the President who would visit any such corporation’s CEO to make it clear that offshoring jobs is viewed negatively.

Providing financial rewards to corporations to keep jobs in the US is not an efficient way to stop offshoring. Typically, state or local governments provide tax abatements or other tax benefits to corporations to keep jobs. However, state and local taxes are generally only 2% or so of a corporations’ costs. Labor costs are a far greater portion of operating costs. Therefore, tax abatements are not likely to offset the savings in labor costs provided by offshoring. For example, in the recent United Technologies / Carrier (UT/C) case in Indiana, the state will provide $7 million in tax benefits over 10 years. However, UT/C estimated was that it would save $65 million per year ($650 million over 10 years) for offshoring 2,100 jobs. [3]

Corporations’ demands for financial benefits from state and local governments to keep or create jobs are really just blackmail. To stop this job-based blackmail, which robs states or municipalities of needed tax revenue, the federal government should put a 100% tax on these financial benefits, so there is no overall financial incentive for the corporation. The federal government should also reduce grants to state and local governments that give financial incentives to corporations to keep jobs. For example, awards under the Community Development Block Grant or other economic development programs could be cut for states or municipalities that agree to pay job blackmail to corporations. The federal government has used a similar strategy in other instances to get states to change policies. For example, the federal Transportation Department used cuts in federal transportation grants to get states to raise their alcohol drinking ages to 21. This reduced car accidents and saved thousands of lives. [4]

I encourage you to contact your US Representative and Senators and ask them what they plan to do to reduce the offshoring of US jobs. Request that they support a systematic approach to discouraging offshoring such as that offered by Senator Sanders’ Outsourcing Prevention Act.

[1] Greenhouse, S., 12/8/16, “Beyond Carrier: Can Congress end the green light for outsourcing?” The American Prospect (http://prospect.org/article/beyond-carrier-can-congress-end-green-light-outsourcing)

[2] Sanders, B., 11/26/16, “Sanders statement on Carrier and outsourcing,” Press release from Senator Bernie Sanders (http://www.sanders.senate.gov/newsroom/press-releases/-sanders-statement-on-carrier-and-outsourcing)

[3] Leroy, G., 12/7/16, “Can Trump’s wild one-off at Carrier combat corporate welfare?” The American Prospect (http://prospect.org/article/can-trumps-wild-one-carrier-combat-corporate-welfare)

[4] Leroy, G., 12/7/16, see above

THE WRONG WAY TO STOP THE OFFSHORING OF US JOBS

President-elect Trump received a lot of good publicity for his claim that he saved 1,100 jobs at a United Technologies / Carrier (UT/C) plant in Indiana. Although the focus of his claim and effort – to keep good, middle income jobs in the US – is laudable, the facts of this case and the implications for the larger, systemic policy issue are not very favorable.

In fact, only about 730 jobs that were slated to move to Mexico were kept in the US. The other 350 research and development jobs at the facility were never slated to move to Mexico. Meanwhile, another UT/C plant in Indiana will close and roughly 700 jobs will be lost. [1]

UT/C responded to the President-elects’ strong-arming because it has $56 billion in federal contracts it didn’t want to jeopardize and it received $7 million in taxpayer-funded subsidies from the state of Indiana, where Trump’s vice president, Mike Pence, is Governor. [2]

We do need to change the mindset and incentives that make it not only acceptable but a preferred and successful business strategy to ship American jobs overseas. We need to do this through systemic changes in policies. However, what Trump is doing isn’t policy-making and it doesn’t change the underlying market incentives. Furthermore, it’s a drop in the bucket in terms of jobs. [3]

Many economists have been very critical of Trump’s actions because they undermine the rules, predictability, and consistency on which companies and our economy rely. These economists, including former Treasury Secretary Lawrence Summers, argue that the resultant uncertainty could lead to reduced investment, fewer jobs, and slower economic growth. [4]

Trump’s ad hoc, company-by-company approach reflects the arbitrary and capricious use of the personal power of the President’s bully pulpit. While it can affect individual company’s actions – through effects on stock prices, public opinion, federal government contracts, etc. – it is driven by random, autocratic whims. The result is a bullying style of ad hoc capitalism that reflects a personal agenda and a person who wants corporate America to be beholden and deferential to him. [5]

The likely result is that corporations and their senior executives will work to curry favor with Trump by contributing to his re-election campaign and taking other actions that will please him. This is pay-to-play crony capitalism and plutocracy; it is not how a democracy is supposed to work.

My next post will present some systemic, policy-based approaches that we should be taking to counter incentives for offshoring American jobs.

[1] Nichols, J., 12/8/16, “Chuck Jones is a better president than Donald Trump will ever be,” Common Dreams (http://www.commondreams.org/views/2016/12/08/chuck-jones-better-president-donald-trump-will-ever-be)

[2] Greenhouse, S., 12/8/16, “Beyond Carrier: Can Congress end the green light for outsourcing?” The American Prospect (http://prospect.org/article/beyond-carrier-can-congress-end-green-light-outsourcing)

[3] Reich, R., 12/7/16, “The Art of the Autocrat,” Common Dreams (http://www.commondreams.org/views/2016/12/07/art-autocrat)

[4] Greenhouse, S., 12/8/16, see above

[5] Reich, R., 12/7/16, see above

DRUG PRICE GOUGING CONTINUES

Valeant Pharmaceuticals is price gouging again. Having acquired the rights to the drug used to treat severe lead poisoning in 2013, it has increased the price from $950 to $27,000. There is no reason other than greed for this huge price increase on a decades-old drug. The cost is limiting availability of the drug to children with lead poisoning, including those from Flint, Michigan. [1] Lead poisoning can be life-threatening, but more often causes problems with growth and development, including anemia, neurological damage, and cognitive impairments.

Valeant is the corporation that acquired two heart drugs in 2014 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 (who had recently purchased the rights to the drugs). So, overall their prices have jumped to 10 and 25 times what they were in 2013.

Valeant has been one of the poster children for pharmaceutical greed. It has repeatedly purchased drug companies and then dramatically boosted the prices of their medicines. [2]

My previous post, Drug Prices: A Big Problem in Our Privatized Health Care System, provides more information on the problem of unrestrained drug price increases. It also gives 8 more examples of dramatic drug price increases where the only explanation is greed coupled with a lack of regulation.

Drug prices in the U.S. are not regulated or routinely negotiated as they are in other countries. Therefore, the pharmaceutical corporations, which often have monopolistic power, can increase drug prices more or less at will.

In September 2015, Senator Bernie Sanders filed a bill in the U.S. Senate to address price gouging by pharmaceutical corporations. The Prescription Drug Affordability Act would allow the Medicare prescription drug program to negotiate prices with drug companies, a practice that is currently banned by a 2003 law. It would also require the pharmaceutical corporations to report information about the factors affecting their drug pricing, such as research and development costs.

I encourage you to contact your U.S. Senators and Representative to urge them to support the Prescription Drug Affordability Act and efforts to control drug prices in general.

[1] Prupis, N., 10/14/16, “As Flint suffers, big pharma slammed for lead poisoning drug price hike of 2,700%,” Common Dreams (http://www.commondreams.org/news/2016/10/14/flint-suffers-big-pharma-slammed-lead-poison-drug-price-hike-2700)

[2] Silverman, E., 10/11/16, “Huge Valeant price hike on lead poisoning drug sparks anger,” Stat (https://www.statnews.com/pharmalot/2016/10/11/valeant-drug-prices-lead-poisoning/)

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

PRISON PRIVATIZATION: A FAILED EXPERIMENT

The risks of privatizing government services have been highlighted by the recent bad experience with private prisons. The Bureau of Prisons (BOP) in the federal Department of Justice (DOJ) recently announced that it will end its 20 years of using privately-run, for-profit prisons due to significant, clear cut problems.

A DOJ Inspector General’s report in August 2016 found that private prisons were less safe, less secure, and more costly than the BOP’s own government-run prisons. Among other problems, dozens of deaths linked to substandard medical care were documented. [1] Private prisons also had higher rates of assaults and 9 times more lockdowns (used to quell disturbances and punish prisoners) than government-run facilities.

Earlier reports on the BOP’s privatized prisons had found that any cost savings were negated by the costs of oversight and that the quality of services was lacking. These are common problems with privatization. Frequently, the cost of oversight is not factored into the cost-benefit analysis of privatization. Therefore, privatization may appear to save money when in actuality it doesn’t. Furthermore, the oversight that occurs is often unsuccessful in ensuring efficient and high quality performance by the private provider, as occurred with the BOP’s private prisons.

Despite these earlier findings, the use of private prisons grew and by fiscal year 2015 the BOP was paying private prison contractors $1.05 billion a year. [2] Today, the BOP houses about 22,000 of its prisoners in 13 private prisons out of a total of roughly 175,000 prisoners under its jurisdiction. Its announcement stated that it will phase out the use of these private prisons as their contracts expire over the next few years.

The US Department of Homeland Security, on the other hand, has said nothing about its future use of private detention facilities, which house about 25,000 immigrants. These detention centers have also been found to provide substandard medical care linked to deaths. They also have experienced high suicide rates. [3]

Turning over a public service to a private, for-profit corporation often creates perverse and counterproductive incentives. Privatization at the BOP, as in most cases, was focused on reducing public sector costs. The goals of minimizing cost and maximizing profit often conflict with the social mission of a public service. In the case of privatized prisons, the goals of humane treatment and rehabilitation are undermined.

In private prisons, the corporate providers cut costs (and increase profits) by increasing the number of inmates in a facility (resulting in overcrowding); decreasing the services provided to them (including rehabilitation, education, job training, and medical care); providing cheap (and sometimes unhealthy) food; using substandard facilities; and decreasing the number, pay, and training of staff (including guards, supervisors, and medical staff). In addition, to generate revenue, they charge fees to inmates and their families (that are often unaffordable), and also sell inmate labor typically without paying the inmates for it. [4] Another frequent problem with privatization is that private providers bill government for services that were not needed or in some cases were not actually provided in order to increase revenue and profits.

Because the for-profit prison corporations are private entities, they are not subject to public information laws. This lack of transparency is another frequent problem with privatization. Not surprisingly, the for-profit prison corporations tend to be quite secretive, which makes public scrutiny of them and their service delivery difficult.

The private prison business began in the 1980s. The war on drugs was underway; tough on crime and strict sentencing laws were in their political heyday. Between 1980 and 1990, state spending on prisons quadrupled and still many prison were over-crowded. [5]

At the federal level, detention of undocumented immigrants exploded in the 1990s. Until then, border crossing was treated as a civil offense, punishable by deportation. But then, as part of the tough on crime and anti-immigrant politics, Congress changed that. By 1996, crossing the border was a federal crime. Prosecutions for illegal entry rose from fewer than 4,000 in 1992, to 31,000 in 2004 under President George W. Bush, to a high of 91,000 in 2013 under President Obama.

Privatization of public services was a hot topic in the 1980s as it was purported to be more efficient, to reduce costs, improve quality, and reduce government expenditures. It also provided opportunities for private profit.

Therefore, it wasn’t surprising that privatization of prisons blossomed as a way to meet a growing need and, supposedly, reduce governments’ costs. To handle the flood of undocumented immigrants into its prisons, the BOP turned to private corporations to operate a new type of facility: low-security prisons designed to hold only non-citizens. As of June 2015, these facilities — which are distinct from immigration detention centers, where people are held pending deportation — housed nearly 23,000 people. Three private corporations now run 11 immigrant-only prisons for BOP: five are run by the GEO Group, four by the Corrections Corporation of America, and two by the Management & Training Corporation. [6]

The Corrections Corporation of America (CCA) began operation in 1983 and grew from 5 facilities in 1986 to 60 today. It houses 66,000 inmates and in 2015 reported revenue of $1.9 billion with net income of $221 million. Its main competitor is GEO Group, which has 70,000 inmates in its private facilities.

The problems with private prisons have come to public attention largely due to investigative journalism by The Nation and Mother Jones. My next post will provide an overview of their reporting. The failures of the BOP’s 20-year experience with private prisons hold many lessons for efforts to privatize other government services including roads, bridges, and public transportation; schools; water and sewer systems; and trash collection.

[1] Wessler, S.F., 8/18/16, “The Justice Department will end all federal private prisons, following a ‘Nation’ investigation,” The Nation (https://www.thenation.com/article/justice-department-to-end-all-federal-private-prisons-following-nation-investigation/)

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

[4] Vanden Heuvel, K., 8/23/16, “On private federal prisons, a victory for independent journalism,” The Washington Post

[5] 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)

[6] Wessler, S.F., 1/28/16, “ ‘This man will almost certainly die’,” The Nation (https://www.thenation.com/article/privatized-immigrant-prison-deaths/)

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

[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

COUNTERACTING THE LOW-WAGE BUSINESS MODEL OF PARASITIC CORPORATIONS

The low-wage business model of Walmart and McDonald’s, for example, is a choice, both of corporations and of our policy makers. In the restaurant industry, there are restaurants in Seattle and San Francisco that are paying their servers $13 per hour and are doing fine. Costco successfully competes with Walmart and In-N-Out-Burger with McDonald’s even though the former eschew the low-wage business model of their competitor. [1]

Economists have a label for the behavior of corporations that rely on a low-wage business model where employees need public assistance to survive: it’s called “free riding.” It’s a free ride for the employer, as public assistance programs are subsidizing their payrolls. It’s anything but a free ride for taxpayers and the workers.

In the fast food industry, over half of employees are enrolled in at least one public assistance program. The estimated cost to taxpayers is $76 billion per year. Ironically, the taxes paid by high-wage businesses and their employees, including those competing with the likes of McDonald’s and Walmart, help to pay for the public benefits that subsidize the low wages of these parasitic corporations. Until recently, McDonald’s actually assisted its employees in signing up for public benefits – to the tune of $1.2 billion per year. Walmart employees are estimated to receive $6 billion per year in public assistance. By the way, in 2015 McDonald’s profit was $4.53 billion and Walmart’s was $130.2 billion.

Economic theory states that workers get paid what they are worth. Clearly, this is an over simplification given the variations in pay that exist among employers within an industry, such as within the fast food or restaurant industries. It is more accurate to say that workers get paid what they negotiate, and that some employers are friendlier negotiators than others. At the top end of the pay spectrum, some CEOs negotiate to get paid far more than they’re worth, while many ordinary workers get paid far less than they are worth because they don’t have the power to negotiate better pay.

The U.S. labor market has a dramatic imbalance of power. Unless a worker is a member of a union, he or she has little or no power to negotiate with an employer. The rate of union membership has fallen from roughly 1 in 3 private sector workers in 1979 to only about 1 in 10 workers today. Unions negotiate higher wages and benefits for union members and also, indirectly, for nonunion workers. This occurs for several reasons: union contracts set wage standards across whole industries and strong unions prompt employers to keep wages high in order to reduce turnover and discourage unionizing at non-union employers. The decline in union membership has resulted in reduced wages for both union and nonunion workers. It is estimated that this decline is costing non-union workers $133 billion a year in lost wages. [2]

Individual workers lack bargaining power because there are relatively few employers and job openings but lots of workers looking for a job. Furthermore, a worker has an immediate need for income to pay for food and shelter, while most employers can leave a job unfilled for a while without suffering any great hardship. They can take the time to search for someone willing to take the job at whatever pay they offer.

Since 1980, employers have aggressively exploited this imbalance of power, while our federal government has stood aside and, in many ways, supported them in doing so. As a result, $1 trillion per year that used to go to workers now goes to executives and profits. Workers’ rewards for their contributions to our economic output (gross domestic product [GDP]) has dropped from 50% of GDP to 43%.

There is truth to the argument that in very competitive, price-sensitive industries producers have to squeeze workers’ wages to remain in business. However, this is where the role of government and public policy is critical. If every producer in the industry is required to pay a minimum wage, then a floor is set and all producers are on a level playing field, but with workers getting better pay. Without a good minimum wage, the competition drives wages down to the point where workers are suffering and public subsidies are required.

Public policies and laws, as well as collective action (such as unions negotiating on workers’ behalf), regulate the marketplace and affect the balance of power among competing economic interests. A market economy cannot operate effectively without the rules put in place by policies and laws. They are not antithetical to capitalism; rather, they are essential for markets to function.

Rules are necessary to prevent cheating, such as regulation of weights and measures of goods sold, and to protect the health and safety of consumers and workers. Laws and court systems enforce contracts between parties for the exchange of goods and services for money. Rules are needed to prevent companies from gaining an unfair advantage by being a free rider or externalizing costs (i.e., shifting the costs to others such as by polluting public air and water or by paying such low wages that employees need taxpayer-funded support).

Our low-wage, parasite economy is a collective choice, made by corporations but allowed and abetted – and subsidized – by public polices enacted by elected officials. We, as voters, can change this by electing representatives who support:

Increasing the minimum wage,
Enforcing and strengthening laws that allow workers to bargain collectively through unions, and
Stopping the free riding and externalizing of costs by large, profitable corporations.

Increasing the minimum wage and strengthening unions are two key policies that would strengthen our economy and the middle class by reducing the prevalence of the low-wage business model of parasitic corporations. I encourage you to ask candidates where they stand on these issues and to vote for ones who support fair wages and bargaining power for workers.

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

[2] Rosenfeld, J., Denice, P., & Laird, J., 8/30/16, “Union decline lowers wages for nonunion workers,” Economic Policy Institute (http://www.epi.org/publication/union-decline-lowers-wages-of-nonunion-workers-the-overlooked-reason-why-wages-are-stuck-and-inequality-is-growing/)

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/)

LACK OF GOVERNMENT SPENDING LEADS TO WEAK RECOVERY

The current economic recovery from the Great Recession of 2008 has been the weakest recovery since World War II. The average annual growth of our economy since the recession officially ended in June 2009 has been only 2.1%. [1] The other ten recoveries since 1949 have had annual growth rates of 2.8% to 7.6%, with an average of 4.65%. [2]

It’s not a coincidence that every other economic recovery since WWII was supported by increased government spending (federal, state, and local combined), except the one in 1970 – 1973. The current recovery (2009 – 2016) has seen government spending actually decline by 6.1%. It and the one in the 1970s both experienced declines in government spending of about 1% annually. The 1949 – 1953 recovery saw government spending increase at an annual rate of 17.9%, while the other eight recoveries averaged a little over 2%.

In contrast to the 6.1% decline (-0.9% annually) in government spending during the current recovery, government spending during the 2001 – 2007 recovery under President George W. Bush grew by 11.7% (1.9% annually) and during the 1982 – 1990 recovery under President Reagan it grew by 33.5% (3.8% annually).

A recession is defined as a period of time when economic output (i.e., Gross Domestic Product [GDP]), incomes, employment, industrial production, and sales decline. This occurs when the demand for goods and services in our markets – the spending of households, businesses, and governments – is not sufficient to purchase everything the economy is capable of producing.

The remedy for a recession is to boost marketplace demand. There are three ways to do this:

Reduce interest rates to spur borrowing and resultant spending,
Increase government spending, and
Cut taxes to spur spending by consumers, which increases demand for goods and services. (Consumer spending represents two-thirds of our economy.)

At the start of the Great Recession, interest rates were already very low so there was not much interest rate reduction that could be done. Currently, the basic interest rates of the Federal Reserve, the key ones to cut to stimulate the economy, are virtually zero.

Some cutting of taxes was done, but it was small scale because of concerns about increasing the federal deficit or creating unmanageable losses of revenue at the state level. Tax cuts for middle and low income Americans are the most effective stimulus for the economy because this group will quickly spend the increased money that’s in their pockets in the local economy. Tax cuts for wealthy individuals and corporations, which were favored by some politicians, are less effective because larger portions of this money will be saved or spent outside the local economy (e.g., overseas), so they are not as effective in stimulating the local economy.

As noted above, government spending decreased during the current recovery and therefore reduced economic growth. Spending in the economy, including government spending, has what’s referred to as a “multiplier effect” on growth. That’s because each dollar spent supports additional spending by the individual or business that received it (a cycle that is repeated endlessly), meaning that its impact is multiplied. Similarly, cuts in spending have a multiplier effect in reducing growth, reducing economic activity by more than a dollar for each dollar of reduced spending.

One reflection of reduced government spending is that the number of government employees today is roughly 400,000 fewer than it was at the beginning of the recovery in June 2009, after bottoming out in late 2013 at 800,000 less than in 2009. Each person without a job adds to unemployment and reduces consumer demand for goods and services. Prior to President Obama’s term, the total number of government employees had grown under every president since Eisenhower. [3] This loss of jobs has been primarily at the state and local levels, where government revenue was hard hit by the recession, has been slow to recover, and has not been augmented by increased funding from the federal government. Government spending per resident in the U.S. is 3.5% lower today than it was in 2009. [4]

This austerity (i.e., reductions in government spending) are widely viewed as the primary reason the current economic recovery has been so weak and so slow. Government spending cuts have occurred largely because Republican lawmakers at the federal and state levels have insisted on them. [5] If it weren’t for these cuts, economic growth would be stronger and our economy would have lower unemployment and under-employment. [6] To confirm the harm that austerity policies cause, one can look to Europe and especially Greece, where austerity policies even more extreme than the ones in the U.S. have resulted in continuing high unemployment and fiscal crises.

Government spending, even if it increases the federal government’s budget deficit in the short-term, will stimulate economic growth. This growth will lead to increased government revenue that will reduce the deficit.

In particular, spending that represents investments in our physical and human capital has a high rate of return and pays for itself over the long-term. [7] Investments in infrastructure (e.g., roads, bridges, trains, public transportation systems, and school buildings) and education (from birth through higher education) create jobs, support our current and future economies, and address real needs while also stimulating the economy. Especially with the extremely low interest rates at which the federal government can currently borrow money, it is a lost opportunity to fail to make important and needed investments in our future.

[1] Morath, E., & Sparshott, J., 7/29/16, “U.S. GDP grew at a disappointing 1.2% in second quarter,” The Wall Street Journal (http://www.wsj.com/articles/u-s-economy-grew-at-a-disappointing-1-2-in-2nd-quarter-1469795649)

[2] Scott, R.E., 8/2/16, “Worst recovery in postwar era largely explained by cuts in government spending,” Economic Policy Institute, Working Economics Blog (http://www.epi.org/blog/worst-recovery-in-post-war-era-largely-explained-by-cuts-in-government-spending/)

[3] Walsh, B., 8/5/16, “Here’s an Obama-era legacy no one wants to talk about,” The Huffington Post (http://www.huffingtonpost.com/entry/obama-austerity-legacy-jobs_us_57a499ece4b03ba68012032b?)

[4] Bivens, J., 8/11/16, “Why is recovery taking so long – and who’s to blame?” Economic Policy Institute (http://www.epi.org/files/pdf/110211.pdf)

[5] Bivens, J., 8/11/16, see above

[6] Scott, R.E., 8/2/16, see above

[7] Scott, R.E., 8/2/16, see above

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)

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 21^st 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

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/)

AUSTERITY AGENDA RESULTS IN THE POISONING OF FLINT MICHIGAN

You may have heard that the tap water in Flint, Michigan, has been poisoning its residents and particularly its children. What you may not have heard was that this was caused by the austerity agenda of the Michigan Governor and legislature (the same ones that pushed Detroit into bankruptcy). Moreover, as with Detroit, the residents of this depressed city are very poor and largely minorities (56% black).

Based on municipal budget issues, Flint was forced into receivership, control was stripped from local elected officials, and an emergency manager appointed by the Governor. In April 2014, the austerity plan called for a switch to cheaper Flint River water for residential tap water rather than that of the Detroit water system. Residents immediately complained about the color, odor, and taste of the water, as well as the appearance of rashes after using it for bathing. Residents’ concerns were ignored despite the history of contamination of the river from manufacturing plants’ wastes. And the switch was defended as a necessary business decision to address the budget issues.

Within 4 months, the water had tested positive for E-coli bacteria and residents were told to boil it before drinking it. Within 7 months, children’s blood tests began showing elevated levels of lead. By early 2015, after residents had suffered with this water for a year, state and federal officials began acknowledging privately that there were serious issues with the water, including data indicating high levels of lead in the water. [1] However, it wasn’t until October, 2015, that the source of water was shifted back to the Detroit water system after 18 months of contaminated water. And it wasn’t until January, 2016, that a state of emergency was declared. [2]

The harm to Flint residents will be long lasting. Chemicals in the Flint River water corroded water pipes and leached lead out of the pipes and into the water. The result is widespread lead poisoning whose effects cannot be undone. Young children are particularly vulnerable to the toxic effects of lead, which is a neurotoxin that harms their developing brains and nervous systems. [3] Effects can include mental retardation, as well as stunted growth, hearing loss, and cognitive dysfunction. Over 1,700 cases of children with elevated blood lead levels have been found. In adults, high lead levels can cause miscarriages and increases in blood pressure and cardiovascular disease. Some of Flint’s children and adults have undoubtedly suffered permanent harm from which they will never recover.

To add insult to injury, Flint’s emergency manager has been sending out shut off notices to residents who are behind in paying for their contaminated water. Over 1,800 such notices have been sent out and more are on their way. [4]

The potential for the problem of lead leaching into the drinking water was well known in advance. However, the Michigan Department of Environmental Quality did not require Flint to treat the river water to prevent corrosion, belittled the public’s complaints, and did not conduct testing of the water. The agency’s director and other state officials resigned last month. [5] The federal Department of Justice has just announced that it is launching an investigation into the water crisis.

Despite the new water supply, damage to water pipes may mean the high lead levels will persist in tap water. The federal Environmental Protection Agency’s standard is that no amount of lead in drinking water is safe and it requires local water systems to take action if over 10% of samples at the tap contain lead. Unfortunately in Flint, almost a year went by before testing was done and another 6 months passed before action was taken.

This is an example (and there are numerous others at the state and federal levels) of what happens when austerity, budget and tax cutting, and shrinking of the public sector are the goals of elected officials – typically for ideological or political reasons – rather than the health and well-being of citizens.

[1] Bryant, J., 1/15/16, “How much do we hate our children?” Common Dreams (http://www.commondreams.org/views/2016/01/15/how-much-do-we-hate-our-children)

[2] Gilmore, B., 1/13/16, “Flint’s water crisis flows from a much bigger problem,” Common Dreams (http://www.commondreams.org/views/2016/01/13/flints-water-crisis-flows-much-bigger-problem)

[3] Lazare, S. 1/7/16, “Calls for Michigan Gov. Snyder’s arrest as Flint poisoning scandal implicates top staffers,” Common Dreams (http://www.commondreams.org/news/2016/01/07/calls-michigan-gov-snyders-arrest-flint-poisoning-scandal-implicates-top-staffers)

[4] Lazare, S., 1/15/16, “’Ludicrous’ as Flint tells residents: Pay for poisoned water or we’ll cut you off,” Common Dreams (http://www.commondreams.org/news/2016/01/15/ludicrous-flint-tells-residents-pay-poisoned-water-or-well-cut-you)

[5] Schneider, R., & Eggert, D. 1/13/16, “Michigan National Guard, FEMA help Flint amid water crisis,” Associated Press (http://bigstory.ap.org/article/68fbd53623b147b2831296c2bce2f9ff/michigan-national-guard-fema-help-flint-amid-water-crisis)

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)

PRESIDENTIAL CANDIDATE SANDERS ON DEMOCRATIC SOCIALISM

Democratic presidential candidate Bernie Sanders recently gave a speech focused on defining what he means by democratic socialism and why he has identified as a socialist for his entire political career. Our mainstream corporate media can’t seem to cover him or his campaign without labeling him a socialist. The intent seems to be to identify him as outside the mainstream at best or as a dangerous radical. Often the implicit or explicit message is that a socialist is one step away from being a communist – and many Americans do not know what socialism or communism means or the difference between them.

To address this pejorative use of the term socialist, Sanders began by noting that many of the programs and policies that President Franklin Delano Roosevelt (FDR) instituted in the 1930s in response to the Great Depression were called socialist: Social Security for seniors, the minimum wage, unemployment insurance, the 40 hour work week, an end to child labor, collective bargaining for workers, job programs to reduce unemployment, and banking regulations. They were enacted despite the strong opposition of the economic elites and have become part of the fabric of our society and the foundation of the American middle class.

Similarly, when President Johnson provided health insurance through Medicare for seniors and Medicaid for poor children and families, these programs were called socialist and a threat to the American way of life.

Sanders stated that we need to transform our democracy and our country as FDR did in the 1930s. We are facing a political and economic crisis that requires dramatic change. He noted that the US is the wealthiest nation in the history of the world and yet we have high rates of poverty that include over one-quarter of our children. He called for a political movement to take on the ruling, economic elite class, whose greed is destroying our democracy and our economy.

Sanders cited FDR’s inaugural address in 1944 as one of the most important speeches in our nation’s history. In it, FDR proposed an economic bill of rights, noting that true individual freedom cannot exist without economic security. Sanders pointed to this economic bill of rights as reflecting the core of what democratic socialism means to him. It includes:

Decent jobs at decent pay with time off and the ability to retire with dignity;
The ability to have food, clothing, a home, and health care; and
The opportunity for small businesses to operate without domination by large corporations.

Sanders noted that Martin Luther King, in 1968, echoed FDR’s call for economic rights and stated that the US provides “socialism for the rich and rugged individualism for the poor.”

Sanders went on to present specific examples of what democratic socialism means to him. He stated that the principle of economic rights for all is not a radical concept and that many countries around the world have done a far better job of providing economic security for their citizens than the US has done. In particular, he noted that almost all countries provide 3 months of paid family leave for new mothers and that all major countries provide health care as a right, not a privilege. The US does neither of these. He addressed climate change, racism, and economic and social justice issues including a fairer tax system and an end to excessive incarceration. He called for a more vibrant democracy with higher voter participation and the removal of barriers to voting.

You can listen to Sanders’ speech at https://www.youtube.com/watch?v=slkQohGDQCI. It’s an hour and 36 minutes long. You can listen to it while you’re doing something else or, if you want to listen to the highlights, listen to minutes 4 – 9 and from minute 24 for 5 – 10 minutes.

WHY GOVERNMENT DOESN’T GET CREDIT FOR ITS SUCCESSES

ABSTRACT: Government rarely gets credit for its successful programs and initiatives in the media or among the public. On the other hand, government failures or shortcomings get lots of attention. One reason is that denigrating government is at the heart of the political strategy of small government proponents and special interests who want large corporations and the wealthy to control our economy. Furthermore, there is no one presenting a forceful argument that government is a necessary part of a functioning society and that government does a lot of good.

Governments are needed, for example, to regulate the economy, protect civil rights, and ensure public safety. There are certain societal functions that only the shared enterprise of government can provide including public education, retirement security, infrastructure such as roads and bridges, a criminal justice system, and a safety net for those who experience life’s misfortunes.

A series of events over the last 50 years has divided the country and created resentment and mistrust of government policies. These experiences have been in sharp contrast to the unifying nature of the recovery from the Great Depression, World War II, and the widespread economic prosperity of the 1950s.

The active and purposeful government-denigrating forces have spent the last 35 years undermining government effectiveness. By under-funding and weakening government programs, the positive effects of government have been lessened and failures made more likely.

Among the public, the benefits of government are often taken for granted, seem to be going to other people, or are invisible or not visibly connected to government. Even direct government benefits are often taken for granted, including unemployment payments, Social Security and Medicare, public education, student loans for higher education, and the income tax deduction for interest on one’s home mortgage. Many people who have received such benefits say they have never benefited from a government program.

The media should cover government success stories with at least the same level of attention they give to stories of government shortcomings and should reject fear mongering and government bashing that is political and unfounded. The American public needs balanced coverage of government, including reporting of all the good government does.

FULL POST: Government rarely gets credit for its successful programs and initiatives in the media or among the public. On the other hand, government failures or shortcomings get lots of attention. [1] There are a range of reasons for this phenomenon. One is that denigrating government is at the heart of the political strategy of small government proponents and special interests who want large corporations and the wealthy to control our economy.

Furthermore, there is no one presenting a forceful argument that government is a necessary part of a functioning society and that government does a lot of good. Governments are needed, for example, to regulate the economy, protect civil rights, and ensure public safety. There are certain societal functions that only the shared enterprise of government can provide including public education, retirement security, infrastructure such as roads and bridges, a criminal justice system, and a safety net for those who experience life’s misfortunes. However, there is no organization or political group with anywhere near the clout of the government bashers that is promoting the good things government does and should do in well-functioning society.

Faith in government has been falling in polls for 50 years. A series of events has divided the country and created resentment and mistrust of government policies, including:

Resurgent racism over the Civil Rights Movement and the War on Poverty of the 1960s;
Disenchantment with the Vietnam War in the 1970s;
Disillusionment over the Watergate political scandal in the 1970s;
The small government, pro-corporation, and anti-labor rhetoric and policies beginning in the 1980s;
The North American Free Trade Treaty of the 1990s;
The Iraq War of the 2000s; and the current
Racial bias evident in law enforcement and incarceration;
Unjustified barriers to voting in some states; and
The slow economic recovery and growing inequality.

These experiences have been in sharp contrast to the unifying nature of the recovery from the Great Depression, World War II, and the widespread economic prosperity of the 1950s.

The active and purposeful government-denigrating forces have spent the last 35 years undermining government effectiveness. They say that taxes – government revenue – can be cut without reducing government services or benefits. Unfortunately, the American public has been willing to believe this promise of a free lunch. Until recently, it hasn’t noticed the deterioration in government services and supports, as well as the decaying of public infrastructure that has inevitably resulted from reducing government revenue. By under-funding and weakening government programs, their positive effects have been lessened and their failures made more likely. And the anti-government crowd is all too happy to point the finger and say, “See, government doesn’t work,” when the then inevitable shortcomings become evident. As a result, the public’s perception of government has been undermined as well.

This makes it hard for those who support the positive role of government because they have to criticize the weak, poorly performing government programs to make their argument for strengthening them. This criticism often just adds to the negativity surrounding government.

Among the public, the benefits of government are often taken for granted, seem to be going to other people, or are invisible or not visibly connected to government. For example, the government’s successful response to the Ebola crisis was taken for granted by many, seemed remote and as benefiting other people to others, and was connected to hospitals and medical personnel not to the government that had funded and supported them. The public isn’t left with a strong, positive impression of government when it acts to avoid a worse outcome, as in the Ebola crisis or the response to the 2008 financial collapse and recession. In particular, with the economic recovery, it is hard to get the public to acknowledge that things are better than they might have been when they are still not great. Let alone to give kudos to government for a job well-done in such a situation.

The Affordable Care Act is an example of where the immediate benefits for most people were hardly noticeable. Most people already had health insurance and for those who didn’t, the benefit of having health insurance is clear only when you are sick and need it. Therefore, requiring everyone to have health insurance, which has a great societal benefit and a long-term personal benefit, can feel, in the short-term, like a burden to those who are healthy. Similarly, the benefit of the ban on denying coverage for a pre-existing condition only becomes evident when one has to change one’s health insurer, which may not happen immediately. Moreover, when it does happen, the ability to get new health insurance is often taken for granted.

Other government benefits that are taken for granted, and only get attention when there is a breakdown or failure, include public safety, roads, and bridges. Even direct government benefits are often taken for granted, including unemployment payments, Social Security and Medicare, public education, student loans for higher education, and the income tax deduction for interest on one’s home mortgage. Surveys indicate that 60% of the people who have taken the home mortgage interest deduction say they have never benefited from a government program. Similarly, many people who have received student loans or unemployment benefits say they have never benefited from a government program. And virtually no one who has attended public schools, driven on our public roads, or felt safe in public recognizes that they have benefited from a government program.

You can contribute to achieving a better balance in the media coverage of government by writing letters or emails to the editors of media outlets with stories of government successes and posting them on social media. You can also write to criticize negative stories and the lack of balance and objectivity in the coverage of government. A democracy requires an accurately informed public and the media today are not doing a good job of providing accurate information about the role government plays.

[1] Cohn, J. Spring 2015. “Why public silence greets government success,” The American Prospect (Much of my post is a summary of this article.)

GOVERNMENT SUCCESSES RARELY GET ATTENTION

ABSTRACT: There are many examples of successful government programs and initiatives but they rarely get much attention in the media or among the public. On the other hand, government failures or shortcomings get lots of attention. The media, and in particular right wing talk radio and Fox, along with “conservative” and libertarian politicians, fan the flames of supposed government failure at every opportunity.

As another example, the largely successful U.S. government’s response to the 2008 financial debacle almost certainly prevented a worldwide depression. It softened the recession here and put the U.S. on a better track toward recovery than has happened in Europe. However, the government got little credit for keeping us out of a depression or a much worse recession.

Under the Affordable Care Act (ACA), tens of millions of people now have health insurance who didn’t before. Many of these families are now avoiding financial distress and bankruptcy due to medical bills because they have health insurance. The ACA has probably contributed to the slowing of the increase in health care costs and it clearly hasn’t generated the runaway inflation in health care costs that its critics predicted. Despite the tangible and significant successes of the ACA, the media coverage of it is largely negative as is a large portion of the public’s perception of it.

FULL POST: There are many examples of successful government programs and initiatives, but they rarely get much attention in the media or among the public. On the other hand, government failures or shortcomings get lots of attention; they are blasted across the headlines and blared out by talk radio and social media. [1] It seems that every member of the public has a story of a government failure on the tip of his or her tongue, but has a hard time identifying something positive to say about government.

The media, and in particular right wing talk radio and Fox, along with “conservative” and libertarian politicians, fan the flames of supposed government failure at every opportunity (including contrived ones). From President Reagan’s statement that government isn’t the solution it’s the problem to today’s Tea Party and the undermine-President-Obama-at-any-cost Republicans, denigrating government is in the forefront of these politicians’ political strategy.

Remember the Ebola crisis of last fall? The right wing media and politicians severely criticized the government for not reacting appropriately, stated that government could not be trusted to handle the situation, and predicted an epidemic here in the U.S. Fear mongering ran rampant. But what happened? There was no epidemic here; every one of the small handful of people who contracted the disease in the U.S. recovered, along with a number of others with the disease who were evacuated to the U.S. from Africa. Patients were treated in facilities funded, designed, and/or supported by our government. However, this success of government policies and facilities got very little attention or acknowledgement. The critics didn’t apologize and admit they were wrong, let alone thank the government for a job well-done. The media didn’t cover this success with anywhere near the attention it gave to the criticism and fear mongering.

As another example, the largely successful U.S. government’s response to the 2008 financial debacle, caused by irresponsible behavior by large Wall Street corporations, almost certainly prevented a worldwide depression. The bailout of the financial corporations prevented a full blown collapse of the financial sector worldwide. The economic stimulus bill, formally the American Recovery and Reinvestment Act, created about 3 million jobs and kept the unemployment rate 2% lower than it would have been according to most economists. (See my blog post of 9/13/12 for more detail.) It accomplished this despite political opposition that limited the dollar amount of the stimulus and, consequently, its beneficial effects. Nonetheless, it softened the recession here and put the U.S. on a better track toward recovery than has happened in Europe. The slow but steady recovery has also been supported by the policies of the Federal Reserve.

However, the government got little credit for keeping us out of a depression or a much worse recession. It is interesting to note that Congress people who vociferously criticized the stimulus in Washington would tout the jobs it had created when they were at home in their districts.

Under the Affordable Care Act (ACA), often called Obama Care in an effort to politicize it, tens of millions of people now have health insurance who didn’t before. (This number would be substantially higher if Republican Governors and legislatures had cooperated with the ACA. See my blog post of 8/13/14 for more detail.) Thanks to the ACA:

Millions of young adults in their early twenties can and do now stay on their parents’ health insurance;
Millions of people with pre-existing health conditions can now change jobs, go back to school to further their education, or start their own businesses because they can’t be denied health insurance if they switch insurance providers; and
Many families are now avoiding financial distress and bankruptcy due to medical bills because they now have health insurance to pay them.

Furthermore, the ACA has probably contributed to the slowing of the increase in health care costs and it clearly hasn’t generated the runaway inflation in them that its critics predicted.

Despite these tangible and significant successes of the ACA, the media coverage of it is largely negative as is a large portion of the public’s perception of it.

Another example is the arrival of tens of thousands of unaccompanied minors at the Mexican border last summer. Right wing media and politicians blamed the Obama administration for causing the problem and failing to respond appropriately. This crisis was a major news story. In reality, the problem was caused by a spike in violence in three Central American countries and weak, disrupted economies in part due to the NAFTA trade treaty and other long-standing issues. The Obama administration responded with an improved and expedited process for handling the immigration of these children, as well as diplomacy and economic support to address the issues in the three countries. Within three months, the arrival of unaccompanied minors dwindled and the crisis was solved. But coverage and acknowledgement of this success was, for the most part, nowhere to been seen or heard.

My next post will go into more detail on why the government rarely gets credit for or acknowledgement of its successes.

[1] Cohn, J. Spring 2015. “Why public silence greets government success,” The American Prospect (Much of my post is a summary of this article.)

RECLAIMING AN ECONOMY THAT WORKS FOR EVERYONE, NOT JUST THE WEALTHY

ABSTRACT: We need to reclaim our economy so it works for everyone, not just the wealthy. With different choices and policies that reflect a different set of values, our economy can once again be one where a rising tide lifts all boats, not just the yachts of the wealthiest.

The policy changes that are needed to support the middle and working class include:

Raise the minimum wage
Strengthen laws on equal pay for equal work
Strengthen labor laws and enforcement, including workers’ right to bargain collectively
Strengthen Social Security while protecting and encouraging pensions
Close corporate and individual income tax loopholes, and raise tax rates on unearned income
Ensure that trade treaties are fair to workers and citizens
Strengthen the Dodd-Frank financial reforms and reinstitute a small financial transaction tax
Create jobs and make needed investments in our infrastructure

We need new policies and programs that reflect values and choices that put the average citizen and worker first, rather than wealthy individuals and corporations. If some of these proposals resonate with you, contact your elected officials and tell them. A grassroots movement is needed to shift our economy from the current one that is working only for the wealthiest 10% to the one we used to have where everyone benefited from economic growth.

FULL POST: In my last post, I summarized policy choices that have undermined the middle and working class, largely based on a great speech Senator Elizabeth Warren gave recently. She states that it doesn’t have to be this way and spells out what we need to do to reclaim our economy so it works for everyone, not just the wealthy. [1] With different choices and policies that reflect a different set of values, our economy can once again be one where a rising tide lifts all boats, not just the yachts of the wealthiest.

The policies that undermined the middle and working class were justified by the theory of “trickle-down” or “supply-side” economics. It was used to justify large tax cuts for wealthy individuals and corporations because the theory said that the country could count on the biggest and richest corporations and the wealthiest individuals to share their growing wealth and create an economy that worked for everyone. The experience of the last 30 years has shown that President George H.W. Bush was right when he called this “voodoo economics.” Nonetheless, there are politicians today who still pledge allegiance to “trickle-down” economics, despite the fact, as Senator Warren states, that it has been shown to be the politics of helping the rich and powerful get more, while cutting off the legs of the middle class.

The set of values that should drive our policies include the following:

A person shouldn’t work full-time and be in poverty.
Women should receive equal pay for equal work.
Labor laws should be strengthened and enforced so that workers are
- paid what they are due,
- able to retire with dignity, and
- able to bargain together as a group with employers for fair pay, benefits, and working conditions.
Our tax system should be fair and require wealthy individuals and corporation to pay their fair share. Workers shouldn’t pay higher income tax rates on their hard-earned income than the wealthy pay on their unearned income from investment gains and dividends.
The burden of student debt should be reduced.
Our trade policies should be fair for workers, creating jobs and raising wages in the U.S.
Big banks and financial corporations should not be too-big-to-fail, allowed to make risky investments with government insured deposits, or bailed out by taxpayers if they get into trouble.
Regulation and oversight should be enhanced, particularly of the big financial corporations, so consumers and our economy are protected from speculation and fraud.

The policy changes that are needed to support the middle and working class based on these values include:

Raise the minimum wage nationally. (Many states and cities are already doing this.)
Strengthen laws requiring and enforcing equal pay for equal work.
Strengthen labor laws and their enforcement, including workers’ right to form unions and bargain collectively so there is a balance of power between the workers and the employer during negotiations.
Strengthen Social Security while protecting and encouraging pensions, as well as personal and employer supported savings, such as 401(k)s.
Close corporate and individual income tax loopholes. For example, stop corporations and individuals from hiding income overseas to avoid paying taxes.
Raise tax rates on unearned income, including capital gains, dividends, and hedge fund mangers’ investment gains.
Allow students to refinance college loans at reduced interest rates and allow relief from student debt in bankruptcy.
Ensure that trade treaties are thoroughly debated in public and are fair to workers and citizens, balancing their interests with those of multi-national corporations.
Strengthen the Dodd-Frank financial reforms, as well as oversight and enforcement. Prevent financial corporations from gambling on risky investments with taxpayer insured deposits. Require too-big-to-fail corporations to split up into smaller entities.
Reinstitute a small financial transaction tax (for example, 0.5%) to discourage speculative trading and generate needed revenue.
Create jobs and make needed investments in our infrastructure by building roads, bridges, and schools; and investing in education and research.

While workers suffered after the 2008 economic collapse caused by out-of-control financial corporations, our politicians bailed out the corporations, often with no or few strings attached. Our politicians have also signed trade treaties and currently are negotiating new ones that are highly beneficial to multi-national corporations. Yet workers harmed by past policy changes and trade treaties, as well as homeowners who lost their homes and workers who lost their jobs in the 2008 collapse, have received little help and certainly have not been bailed out the way Wall Street was.

We need new policies and programs that reflect values and choices that put the average citizen and worker first, rather than wealthy individuals and corporations. I encourage you to listen to Warren’s speech if you haven’t already (just 23 minutes) or to read the press release. If some of these concerns or proposals resonate with you, contact your elected officials and tell them. A grassroots movement is needed to shift our economy from the current one that is working only for the wealthiest 10% to the one we used to have where everyone benefited from economic growth.

[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.

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.)

[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/)

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.)

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/)

POLICY INNOVATION IN OUR CITIES

ABSTRACT: With our federal government gridlocked, many cities around the US are taking the lead in policy innovation. Progressive policies are bubbling up in cities from Seattle and Santa Fe to Cleveland. Minneapolis’s new mayor has championed infant health care, universal pre-kindergarten education, closing racial gaps, and new public transit lines to better connect minority communities to jobs. Pittsburgh’s new mayor is working to establish universal pre-kindergarten, affordable housing with a low carbon footprint, responsible banking, and local hiring and paying of prevailing wages on city-funded projects.

New York’s new mayor is working to institute universal pre-kindergarten, raise the minimum wage, expand paid sick days and affordable housing, reduce greenhouse gas emissions by 80% by 2050, and end the “stop and frisk” tactic of the police, which many view as harassment of minorities. New York City has an innovative campaign finance system and an active, progressive, Working Families Party.

In these and other cities, interesting, innovative, and significant progressive policies are being promoted and enacted.

FULL POST: With our federal government gridlocked, many cities around the US are taking the lead in policy innovation. Progressive policies on everything from campaign financing to early education to housing and banking are bubbling up in cities from Seattle and Santa Fe to Cleveland and Minneapolis to Pittsburgh and New York. [1]

Minneapolis’s new mayor, Betsy Hodges, has championed infant health care and universal pre-kindergarten education. She identified closing the large racial gaps among Minneapolis’s growingly diverse population as a moral and economic imperative. Among other initiatives, she is pushing to route new public transit lines to better connect minority communities to places with jobs.

Pittsburgh’s new mayor, Bill Peduto, is also working to establish universal pre-kindergarten. He is building affordable housing with a low carbon footprint. He worked as a City Council member (before becoming mayor) to require local hiring and paying of prevailing wages on city-funded projects. He authored the city’s responsible-banking law, which directs the city’s funds to banks that have loaned money in poor city neighborhoods.

New York’s new mayor, Bill de Blasio, is working to institute universal pre-kindergarten too. He proposed funding it through an income tax surtax on the city’s wealthiest residents. This was blocked by the state but the pre-K program is moving ahead with other funding sources. His effort to raise the minimum wage was also blocked by the state, but he has expanded paid sick days. He is also working to expand affordable housing and to end the “stop and frisk” tactic of the police, which many view as harassment of minorities. He has committed the city to an 80% reduction in greenhouse gas emissions by 2050. [2]

New York City has an innovative campaign finance system where small contributions are matched with $6 of public money for every $1 contributed. This amplifies the voice of small donors, encourages voters to make small contributions, and, ultimately, to vote, while blunting the influence of large donors. Many analysts believe that de Blasio would not have been elected without this campaign financing system that enables grassroots candidates to run competitive campaigns. New York’s Working Families Party was also key to de Blasio’s election. It has framed election issues and mobilized voters to help elect de Blasio and a near majority of progressive candidates to the city council.

These are examples of efforts to enact progressive policies that are occurring in many cities, including Los Angeles, Phoenix, and Boston. Despite gridlock at the federal level, interesting, innovative, and significant policies are being promoted and enacted in cities around the US.

[1] Meyerson, H., May/June 2014, “The revolt of the cities,” The American Prospect

[2] Eskow, R., 10/3/14, “Progressive champion Bill de Blasio models populist change,” Campaign for America’s Future (http://ourfuture.org/20141003/progressive-champion-bill-de-blasio-models-populist-change)

WHAT IT WILL TAKE TO ADDRESS THE PROBLEMS WE FACE

ABSTRACT: Our country has important problems that need to be addressed. Not only aren’t they being addressed, but serious proposals (let alone efforts) to address them are not even on the table for discussion. These problems include:

Stagnating wages and a stagnating economy;
Corporations doing very well but employees losing ground and unemployment stubbornly high;
Parents working but their families struggling to make ends meet; and
Public infrastructure crumbling and public education suffering cuts.

From 1900 through the 1970s, our national government responded to these kinds of problems and challenges with job and infrastructure programs, support for families and the unemployed, labor laws, corporate regulation, and investments in education. Grassroots movements improved opportunities and justice for minorities and women.

Not everything was perfect and ultimate solutions were often not achieved, but real progress was made. The public had confidence that our country was on a path that would lead to better lives for the next generation.

Today, at a national level and in many states, our growing problems and the lack of serious discussion of solutions (let alone action) has left many of us skeptical about the future and cynical about government. To turn this around, we need strong, bold, and uncommon leaders, and an energized citizenry that is politically informed and engaged.

I encourage you to find a way to contribute to this effort. It will take small contributions from everyone and big contributions from some of us to get our country back on track.

FULL POST: Our country has important problems that need to be addressed. Not only aren’t they being addressed, but serious proposals (let alone efforts) to address them are not even on the table for discussion. [1]

Wages have been stagnant for the middle and working class for 30 years, yet even an increase in the minimum wage to reflect inflation is blocked in Congress. Corporations have record profits and stock prices, yet employees’ pay and benefits are falling. Corporations continue to move jobs overseas and hire increasing numbers of part-time employees or consultants to whom they give few benefits and no job security. Nonetheless, efforts to reign in corporations’ and executives’ power are rare. And strengthening workers’ and shareholders’ voices through unions and greater corporate democracy is barely mentioned.

Most parents, even those with young children, are in the workforce now; a dramatic change from the 1950s when most mothers stayed home with children. Yet our supports for working parent are limited and have not improved since 2000, despite declining economic security and stability for families.

Our public infrastructure – our roads, bridges, and public buildings including schools and courthouses – is crumbling but there’s no serious discussion, let alone effort, to address this problem. We face catastrophic effects from global climate change, from more severe storms and weather patterns to rising sea level, yet our only response is disaster relief.

Our public education system (including K-12, higher education, and early childhood education) is suffering from funding cuts. Tremendous inequities are present in educational opportunity and outcomes. Gaps based on race, ethnicity, and native language have shrunk a bit but remain wide; gaps based on class are growing. Students partaking of higher education are taking on unprecedented and crushing debt to do so. And afterward they face a job market with high unemployment and limited opportunities. Our efforts to reduce unemployment and provide assistance to those who are unemployed are inadequate and are major contributors to a stagnant economy.

In the period from 1900 through the 1970s, including the Great Depression, our national government responded to these kinds of problems and challenges. The New Deal, large-scale jobs programs, and the World War II mobilization provided jobs, supported families and the unemployed, and built infrastructure. Labor laws were passed that addressed pay, work hours, and safety issues and supported workers in organizing to balance employers’ power and obtain fair wages and working conditions. Corporations were regulated through anti-monopoly laws and safety regulations. In the 1930s and 1940s, new laws reformed the financial system and prevented another financial and economic crash until after their repeal in the 1980s and 1990s. In the 1960s, we engaged in a War on Poverty.

Investments in education from kindergarten through college produced a better educated and more productive workforce. Public higher education was practically free up until the 1980s. The civil rights movement and the women’s movement led to substantial national legislation and action that improved rights and opportunities for minorities and women.

Today, at a national level and in many states, our growing problems and the lack of serious discussion of solutions (let alone action) has left many of us skeptical about the future and cynical about government. To restore the optimism of the public, to realize the promise of democracy, and to address the problems we face, we will need two things: strong, bold, and uncommon leaders, and an energized citizenry that is politically informed and engaged. We see these key elements of change in the history of the labor movement, the Progressive Era, the civil rights movement, the War on Poverty, and the women’s movement. We need such activism and energy again today to get our great country back on track. I encourage you to find a way to contribute to this effort. It will take small contributions from everyone and big contributions from some of us to get our country back on track.

In my next post, I will share examples of leadership and citizen activism from the local level that are addressing important problems. Given the current level of dysfunction in the federal government, near-term efforts to tackle these issues will probably have to occur at the local and state levels.

[1] Kuttner, R., 9/30/14, “In political system disconnected from society’s ills, remedies pushed to fringes of public debate,” The American Prospect (Much of this post is a summary of Kuttner’s article.)

OBAMACARE IS WORKING!!

ABSTRACT: Obamacare, or more formally the Affordable Care Act (ACA), is working: more people have health insurance. Nationwide, over 20 million people now have health insurance who didn’t before the ACA went into effect. With this and other good news about the ACA, the American public is growing more positive about it, despite continued efforts by Republicans to trash it and the failure of Democrats, including the President, to effectively get the message out about its successes and benefits.

The increase in health coverage is particularly evident in states that have fully adopted the provisions of the ACA for expanding Medicaid and establishing the clearinghouses (known as “exchanges”) where people can buy health insurance. In these states, the percentage of residents without health insurance has dropped by 4 percentage points in the last year. In states that have adopted neither or just one of these ACA provisions, the decline in the uninsured was roughly half that.

In the 24 states that have not adopted the ACA Medicaid expansion, up to 12 million of their residents will not have access to free health insurance. It is estimated that 45,000 people die each year because of lack of health insurance. The refusal of states to adopt the Medicaid expansion of the Affordable Care Act is basically for political purposes – so legislators and Governors can proclaim their opposition to Obama and Obamacare.

This refusal to provide Medicaid health coverage to low income residents is unconscionable and will be an issue in the 2014 campaigns. I encourage you to support candidates and officials who favor Medicaid expansion (and the ACA in general) and oppose those who don’t. The benefits for the millions of Americans who now have or will get health insurance due to the ACA is truly immeasurable.

FULL POST: Obamacare, or more formally the Affordable Care Act (ACA), is working: more people have health insurance. Nationwide, over 20 million people now have health insurance who didn’t before the ACA went into effect: roughly 10 million have purchased insurance through the exchanges, 7 million have been covered by the expansion of Medicaid, and 2 million children up to age 26 have been able to stay on their parents’ insurance. [1]

Another indication that the ACA is working is that the number of insurers participating in the ACA exchanges is growing, giving consumers more choices and very likely lowering premiums. The concern that many people would sign-up for health insurance but not follow through and pay for it has not been the case. With all the good news about the ACA, the American public is growing more positive about it, despite continued efforts by Republicans to trash it and the failure of Democrats, including the President, to effectively get the message out about its successes and benefits. [2]

The increase in health coverage is particularly evident in states that fully adopted the provisions of the ACA for expanding Medicaid coverage for low income individuals and establishing the clearinghouses (known as “exchanges”) where people can buy health insurance.

In these states, the percentage of residents without health insurance has dropped by 4 percentage points in the last year. Leading the way was Arkansas where the uninsured dropped from 22.5% in 2013 to 12.4% by the middle of 2014 – a 10 percentage point drop. In Kentucky, the uninsured dropped from 20.4% to 11.9% – an 8.5 percentage point decline. [3]

In states that have adopted neither or just one of these ACA provisions, the percentage of uninsured residents fell, but by only 2.2 percentage points. In other words, the decline in the uninsured was roughly half that of the states that fully adopted the ACA.

In the 24 states that have not adopted the ACA Medicaid expansion, up to 12 million of their residents will not have access to free health insurance. [4] Not having health insurance is hazardous to your health. It is estimated that 45,000 people die each year because of lack of health insurance. [5] A specific example is that women with no health insurance are 4 times more likely to die in childbirth or during pregnancy than women who have health insurance. In the US, 18.5 women die in childbirth or pregnancy for every 100,000 births. In countries with universal health coverage, the rates are much lower: in Canada the rate is 8.2, in Britain 6.1, and in Iceland 2.4. [6]

The refusal of states to adopt the Medicaid expansion of the Affordable Care Act (aka Obamacare) is harming millions of people’s health and killing some of them. The refusal is basically for political purposes – so legislators and Governors can proclaim their opposition to Obama and Obamacare. Although they will come up with other reasons for their failure to expand Medicaid, none of them really hold water. In particular, the Medicaid expansion will cost the states nothing for the first 3 years; it will be fully federally paid for. After the first 3 years, states will be asked to pick up part of the cost, but it will be less than 10%. And the benefit to the covered individuals and the state’s health care providers will far exceed the cost.

This refusal to provide Medicaid health coverage to low income residents in 24 states is unconscionable and will be an issue in the 2014 campaigns for federal and state offices. If you are in a state that hasn’t expanded Medicaid (see the Families USA reference to find out), I encourage you to ask your elected officials and candidates if they support the refusal to expand Medicaid and, if so, why. I encourage you to support candidates and officials who favor Medicaid expansion (and the ACA in general) and oppose those who don’t. The benefits for the millions of Americans who now have or will get health insurance due to the ACA is truly immeasurable.

[1] Gaba, C., (aka Brainwrap), 5/4/14, “ACA signups: The final graph for the 2014 open enrollment period,” Daily Kos (http://www.dailykos.com/story/2014/05/04/1296851/-ACA-Signups-The-Final-Graph-of-the-2014-Open-Enrollment-Period)

[2] McCarter, J., 6/13/14, “Obamacare’s very good week,” Daily Kos (http://www.dailykos.com/story/2014/06/13/1306811/-Obamacare-s-very-good-week)

[3] Alonso-Zaldivar, R., 8/6/14, “Health care law paying off for states that embraced it,” The Boston Globe

[4] Families USA, 5/30/14, “A 50-state look at Medicaid expansion: 2014,” (http://familiesusa.org/product/50-state-look-medicaid-expansion-2014)

[5] Cecere, D., 9/17/09, “New study finds 45,000 deaths annually linked to lack of health coverage,” Harvard Gazette (http://news.harvard.edu/gazette/story/2009/09/new-study-finds-45000-deaths-annually-linked-to-lack-of-health-coverage/)

[6] Reich, R., 5/13/14, “How the right wing is killing women,” RobertReich.org (http://robertreich.org/post/85556159055)

INEQUALITY IS NOT INEVITABLE

ABSTRACT: “Inequality is not inevitable” is the title of a recent piece in the New York Times by Joseph Stiglitz. Our current levels of inequality – and the undermining of the middle class – are the result of policies and politics, not a fundamental feature of capitalism. One example is the recent bailout of the large bank and financial corporations with hundreds of billions of taxpayers’ dollars while only a pittance went to homeowners and other victims of these corporations’ predatory lending.

True economic success is measured by how well the typical citizen is doing, especially in America, which claims to be the bastion of equal opportunity. But here in the US, the typical worker’s income is lower today than it was 25 years ago.

There are policy solutions that will simultaneously strengthen our economy, address the federal government’s budget deficit and debt issues, tackle our infrastructure needs, and reduce inequality. Tax reform is a core ingredient of these policy changes. (See details below.) It and other policies that can and should be changed will reduce inequality, improve our economy, and address other important issues.

FULL POST: “Inequality is not inevitable” is the title of a recent piece in the New York Times by Joseph Stiglitz, [1] a Nobel prize-winning economist. It is the final piece of a New York Times series on inequality entitled “The Great Divide.” [2] The series presents a wide range of examples that demonstrate that our current levels of inequality – and the undermining of the middle class – are the result of policies and politics, not a fundamental feature of capitalism. Other countries’ economies are performing as well or better than ours with far greater equality.

Policies that have increased inequality and weakened the middle class include the recent bailout of the large bank and financial corporations with hundreds of billions of taxpayers’ dollars while only a pittance went to homeowners and other victims of these corporations’ predatory lending. More help for homeowners and the unemployed would have helped the economy recover more quickly and vigorously. We also allow corporate monopolies and near monopolies to exist and make huge profits while they ship jobs and profits overseas, avoiding paying US taxes.

Our campaign finance laws allow economic inequality to lead to political inequality by letting the wealthy buy political influence. And political inequality increases economic inequality in a vicious cycle: politicians increase corporate welfare and give the rich tax cuts while cutting support for middle class workers and the poor. The wealthy corporations and individuals increase their wealth, not by working harder or being smarter, but by manipulating the rules of our economic and political systems. As a result, for example, corporate income taxes have declined as a portion of the federal government’s revenue from 39.8% in 1943 to 9.9% in 2012. Furthermore, Wall St. corporations and executives were not brought to justice for their criminal behavior that led to the economic collapse, or even for their abuse of our legal system in foreclosing on and evicting homeowners, inappropriately, fraudulently, and sometimes in total error.

True economic success is measured by how well the typical citizen is doing, especially in America, which claims to be the bastion of equal opportunity. But here in the US, the typical worker’s income is lower today than it was 25 years ago. And the life prospects of our children are determined more by the income and education of their parents than they used to be, and more than they are in other advanced countries. The tremendous growth in income and wealth of the top 1% in the US has not trickled down, it has evaporated, often in Caribbean and other tax havens. [3] There is compelling evidence that the current level of inequality in the US is weakening our economy and our social cohesion.

There are policy solutions that will simultaneously strengthen our economy, address the federal government’s budget deficit and debt issues, tackle our infrastructure needs, and reduce inequality. We can improve economic growth, promote economic efficiency, and reduce unemployment through changes in our tax system. Tax reform is a core ingredient of the policy changes needed to reduce inequality. Such tax reform includes: [4]

Reducing incentives and opportunities for corporations and wealthy individuals to avoid paying taxes
Increasing the top marginal income tax rates and reducing preferential treatment of unearned income, such as capital gains and dividends
Reforming corporate taxation to incentivize investing in the US (rather than overseas) and to close loopholes that are essentially corporate welfare
Taxing too-big-too-fail financial institutions to create a rescue fund (for future, probably inevitable bailouts) and to provide a disincentive for unlimited corporate growth and for speculative, highly leveraged financial activities that increase the likelihood of a bailout
Implementing a financial transaction tax to provide a disincentive for unproductive and sometimes harmful financial speculation and activity, such as high volume, high speed, computer-driven trading
Reforming the estate and inheritance tax to improve economic efficiency and fairness
Taxing pollution and other negative environmental effects
Ensuring the government gets full value when it sells public assets, such as natural resources like oil and gas

Tax reform is not an end in itself. The objective is to create a more efficient tax system, while simultaneously producing higher employment and economic growth, reducing inequality and environmental harm, and enhancing the efficiency of our economy.

Inequality is the result of tax and other policies that can and should be changed. Moreover, well-designed changes that address inequality will simultaneously improve our economy and address other important issues.

[1] Stiglitz, J., 6/29/14, “Inequality is not inevitable,” The New York Times

[2] See a listing and abstracts of The Great Divide series at http://opinionator.blogs.nytimes.com/category/the-great-divide/?module=BlogCategory&version=Blog Post&action=Click&contentCollection=Opinion&pgtype=Blogs&region=Header

[3] Stiglitz, J. 6/29/14, see above

[4] Stiglitz, J., 5/28/14, “Reforming taxation to promote growth and equity,” The Roosevelt Institute, http://rooseveltinstitute.org/sites/all/files/Stiglitz_Reforming_Taxation_White_Paper_Roosevelt_Institute.pdf

CAUSE FAILURE, BLAME GOVERNMENT

ABSTRACT: Government agencies perform many necessary and important functions. However, inadequate funding results in ineffective agencies. But the fault doesn’t lie with the government agencies; it lies with those who make the funding decisions. A classic strategy of the small government ideologues is to cause government agencies to be ineffective by underfunding them and then to point to their failures and say, “See government doesn’t work.” This strategy has produced the current crisis at the Veterans Administration (VA).

A similar crisis is brewing at the Social Security Administration (SSA).As millions of baby boomers are retiring, budget cuts are forcing reductions in access to SSA services. Since 2010, the SSA has closed 64 field offices, 533 temporary mobile offices, and reduced hours at the 1,245 field offices that remain open. Meanwhile, enrollment in Social Security retirement benefits has increased 27% over the last 6 years. In 2013, 43 million Americans visited SSA offices and 43% had to wait more than 3 weeks for an appointment.

Similarly, regulatory agencies that oversee public safety often suffer from insufficient funding to effectively perform their jobs. A classic example is the Federal Motor Carrier Safety Administration, which oversees the 525,000 bus and truck operators in the US. Inadequate funding cripples enforcement. While the number of buses and miles traveled have increased significantly since 2006, the agency’s under $600 million budget and 350 investigators have remained essentially unchanged. 546 interstate carriers are operating with violations above acceptable levels but 29% of them haven’t had a federal safety review in over 2 years and an additional 11% have never been reviewed. Buses receive far less scrutiny than the airlines despite 7,518 crashes in the last 4 years resulting in 171 fatalities and 9,414 injuries, while US airlines have had no fatal crashes.

Buses are but one example among many of where a regulatory agency doesn’t have the funding necessary to effectively do its job of keeping the public safe. Such agencies, as well as the VA and SSA, are classic examples of the “shrink [government] down to the size where we can drown it in the bath tub” radical right wing, libertarian strategy.

All too often the underfunding of government agencies is intentional – aimed at undermining both the effectiveness of the agencies and the public’s perception of government.

FULL POST: Government agencies perform many necessary and important functions. However, inadequate funding results in ineffective agencies. But the fault doesn’t lie with the government agencies; it lies with those who make the funding decisions.

A classic strategy of the small government ideologues is to cause government agencies to be ineffective by underfunding them and then to point to their failures and say, “See government doesn’t work.” This strategy has produced the current crisis at the Veterans Administration (VA). Responsible estimates are that the VA’s budget will need to double to effectively serve the growing number of veterans from the Iraq and Afghanistan wars. (See my post of 6/5/14 for more details on the VA crisis. https://lippittpolicyandpolitics.org/2014/06/05/find-a-crisis-demand-privatization/.)

A similar crisis is brewing at the Social Security Administration (SSA). As millions of baby boomers are retiring and requesting help from the SSA to make decisions about enrolling in Social Security, budget cuts are forcing reductions in access to SSA services. Congress has cut 14 of the last 16 budget requests from the SSA, despite the fact that its budget comes out of the Social Security Trust Fund and, therefore, has no impact on the federal budget or deficit.

Since 2010, these budget cuts have forced the SSA to close 64 field offices, 533 temporary mobile offices that serve remote areas, and reduce hours at the 1,245 field offices that remain open. [1] And its full-time workforce has been cut by about 4,000 (14%) to 25,420. [2]

Meanwhile, enrollment in Social Security retirement benefits has increased 27% over the last 6 years from 2.6 million to 3.3 million. As a result of this growing demand and declining capacity, seniors seeking information and help are experiencing increasingly long waits. In 2013, 43 million Americans visited SSA offices and 43% had to wait more than 3 weeks for an appointment, up from 10% the previous year.

Similarly, regulatory agencies that oversee public safety often suffer from insufficient funding to effectively perform their jobs. Here, the efforts of the small government, “free market,” right wing libertarians are aligned with those of the regulated corporations who push for weak regulations and enforcement.

A classic example is the Federal Motor Carrier Safety Administration, which oversees the 525,000 bus and truck operators in the US. Inadequate funding cripples enforcement. While the number of buses and miles traveled have increased significantly since 2006, the agency’s under $600 million budget and 350 investigators have remained essentially unchanged. More than 200 operators with serious violations identified by local police and other authorities have not received a full federal safety review in the last 2 years, if ever. And 546 interstate carriers are operating with violations above acceptable levels but 29% of them haven’t had a federal safety review in over 2 years and an additional 11% have never been reviewed. Buses receive far less scrutiny than the airlines despite 7,518 crashes in the last 4 years resulting in 171 fatalities and 9,414 injuries, while US airlines have had no fatal crashes. [3]

Buses are but one example among many of where a regulatory agency doesn’t have the funding necessary to effectively do its job of keeping the public safe. Others that have been in the news recently include distribution of tainted dialysis fluid, selling of contaminated drugs by a compounding pharmacy, and the chemical explosion in Texas that killed 14 and injured over 200. The responsible public safety agencies, as well as the VA and SSA, are classic examples of the “shrink [government] down to the size where we can drown it in the bathtub” radical right wing, libertarian strategy. [4]

Government is the solution to many of the challenges that face us – from providing a base level of economic security in retirement to promoting safety in our everyday lives. All too often the underfunding of government agencies is intentional – aimed at undermining both the effectiveness of the agencies and the public’s perception of government.

[1] Ohlemacher, S., 6/19/14, “Social Security closes offices as demand is on upswing,” The Boston Globe from the Associated Press

[2] Pear, R., 6/17/14, “Social Security agency cuts services as demand grows, Senate report says,” The New York Times

[3] Johnston, K., & Wallack, T., 6/9/14, “Bus lapses mount, but scrutiny lags,” The Boston Globe

[4] Quote is from Grover Norquist in 2004. He is the founder and president of Americans for Tax Reform. (http://en.wikipedia.org/wiki/Grover_Norquist)

REASONS FOR LACK OF PROSECUTIONS AFTER 2008 COLLAPSE

ABSTRACT: In Judge Rakoff’s article entitled “The Financial Crisis: Why have no high-level executives been prosecuted?” [1] he discusses the reasons given by officials of the Department of Justice (DOJ) for the failure to criminally prosecute either individuals or corporations.

Finding the publicly presented explanations for the failure to prosecute unconvincing, Rakoff then proposes some other reasons. First, he suggests that law enforcement agencies had other priorities and limited resources. Another possible explanation is the government’s own involvement in setting the stage for the 2008 financial crisis. The de-regulation of banks and the financial industry was a contributing factor. The federal government also had for years encouraged the growth of home ownership and the availability of mortgages, including to low income home buyers. It had also supported less stringent documentation and underwriting standards for obtaining a mortgage.

Finally, Rakoff notes a 30-year trend toward prosecuting corporations rather than prosecuting individuals. He states that the traditional approach was based on the fact that organizations do not commit crimes, only their human agents do. Rakoff believes that prosecuting individuals has a much stronger deterrence value than prosecuting corporations. He also believes that prosecuting just the corporation and not any individual is both legally and morally wrong.

FULL POST: In Judge Rakoff’s * article entitled “The Financial Crisis: Why have no high-level executives been prosecuted?” [2] (See previous post of 2/9/14 for more details: https://lippittpolicyandpolitics.org/2014/02/09/too-little-punishment-for-misbehavior-in-the-financial-sector/), he discusses the reasons given by officials of the Department of Justice (DOJ) for the failure to criminally prosecute either individuals or corporations that were involved in causing the 2008 crisis. First, they argue that proving fraudulent intent is difficult. However, Rakoff points out that with clear evidence of mortgage fraud (e.g., numerous reports of suspected mortgage fraud from within the financial institutions themselves), executives couldn’t escape prosecution by claiming they didn’t know what was going on. Furthermore, convictions, despite claims ignorance, are well established in criminal law based on the doctrine that “willful blindness” or “conscious disregard” does not exonerate a defendant.

Second, Department of Justice (DOJ) officials sometimes argue that fraud couldn’t be proved because the buyers of the mortgage-backed securities were sophisticated investors who knew enough not to rely on any misrepresentations and deception by the sellers. Rakoff states that this “totally misstates the law.” The law says that if society or the market is harmed by the lies of a seller, criminal fraud has occurred.

Third, Attorney General Holder himself said in testimony to Congress that in considering a criminal prosecution the impact on the US and world economies had to be taken into consideration. This is called the “too big to jail” excuse. Holder has said that his comment was misconstrued. Rakoff notes that this rationale is irrelevant in terms of prosecuting individuals because no one believes that a large financial corporation would collapse if one or more of its high level executives was prosecuted.

Finding the publicly presented explanations for the failure to prosecute unconvincing, Rakoff then proposes some other reasons. First, he suggests that law enforcement agencies had other priorities and limited resources. He notes that in 2001 the FBI had over 1,000 agents assigned to investigating financial fraud. In 2007, there were only 120 agents working on financial fraud and they had more than 50,000 reports of possible mortgage fraud to review. The shift of agents to anti-terrorism after 9/11 and budget limitations are the two causes he cites for this reduced capacity to respond to financial fraud.

The Securities and Exchange Commission (SEC) has been focused on Ponzi schemes and misuse of customers’ funds. It too is experiencing significant budget limitations. The DOJ has been focused on insider trading cases. When the 2008 financial collapse occurred, it spread the investigation of financial fraud among numerous US Attorney’s Offices in various states, many of which had little or no previous experience with sophisticated financial fraud.

Another possible explanation of the failure to prosecute, according to Rakoff, is the government’s own involvement in setting the stage for the 2008 financial crisis. The de-regulation of banks and the financial industry, including the repeal of Glass-Steagall, was a contributing factor. Both the SEC and the Treasury Department had had their power and oversight weakened by de-regulation. The federal government also had for years encouraged the growth of home ownership and the availability of mortgages, including to low income (and therefore higher risk) home buyers. It had also supported less stringent documentation and underwriting standards for obtaining a mortgage. Hence, the federal government helped create the conditions that led to mortgage fraud and a corporate executive could, with some justification, claim in his defense that he believed he was only trying to further the government’s goals.

In addition, after the 2008 collapse, the government made little effort to hold the financial corporations accountable when it bailed them out.

Finally, Rakoff notes a 30-year trend toward prosecuting corporations rather than prosecuting individuals. He states that the traditional approach was based on the fact that organizations do not commit crimes, only their human agents do. In addition, prosecuting an organization inevitably punishes totally innocent employees and shareholders. However, in recent years “deferred prosecution agreements” and even “non-prosecution agreements” with corporations have become the standard fare. Under these, a corporation and its employees avoid prosecution by agreeing to take internal, preventive measures to protect against future wrongdoing, often while paying a fine.

Rakoff believes that prosecuting individuals has a much stronger deterrence value than the internal preventive measures of “deferred prosecution agreements” that are often little more than window dressing. He also believes that prosecuting just the corporation and not any individual is both legally and morally wrong. Under the law, a corporation should only be prosecuted if one can prove a managerial agent of the corporation committed the alleged crime. If so, why not prosecute that manager? Morally, punishing a corporation and many innocent employees and shareholders for crimes committed by an unprosecuted individual(s) seems unjust.

* Jed Rakoff is a United States District Judge on senior status for the Southern District of New York. A full-time judge from 1996 to 2010, he moved to senior status in 2010. Senior status is a form of semi-retirement for judges over 65 where they continue to work part-time. Judge Rakoff is a leading authority on securities laws and the law of white collar crime, and has authored many articles on those topics. He is a former prosecutor with the U.S. Attorney’s office in New York. [3]

[1] Rakoff, J.S., 1/9/14, “The Financial Crisis: Why have no high-level executives been prosecuted?” The New York Review of Books

[2] Rakoff, J.S., 1/9/14, see above

[3] Wikipedia, retrieved 2/5/14, “Jed S. Rakoff,” http://en.wikipedia.org/wiki/Jed_S._Rakoff

TOO LITTLE PUNISHMENT FOR MISBEHAVIOR IN THE FINANCIAL SECTOR

ABSTRACT: One person who has both spoken out and acted when he felt the punishment for misbehavior in the financial sector was too lenient or lacking is federal District Court Judge Jed Rakoff.* In 2011, he refused to approve a proposed settlement with Citigroup related to the 2008 financial crisis because he thought that it was too lenient. Currently, he is withholding approval of settlement of an insider trading case. The proposed settlement would allow two men to settle the case for $4.8 million without admitting guilt.

SAC Capital, a huge, $15 billion hedge fund, has been charged in what probably is the biggest insider trading scandal ever. Five employees of SAC have already pleaded guilty to insider trading and the company itself has agreed to a record $616 million settlement. However, it is unlikely that anyone will go to jail and the head of SAC, despite any fines and restitution he may be required to pay, is likely to remain a billionaire.

Judge Rakoff recently wrote an article entitled “The Financial Crisis: Why have no high-level executives been prosecuted?” [1] Multiple authorities, including enforcement agencies, have describe what occurred in the run up to the 2008 financial crisis as fraud. Rakoff states that if the financial crisis was the result of intentional fraud, then “the failure to [criminally] prosecute those responsible must be judged one of the most egregious failures of the criminal justice system in many years.”

Rakoff notes that in previous financial crises individual perpetrators were successfully prosecuted. In the 1980s savings and loan crisis, which has strong parallels to the 2008 crisis but at a much smaller scale, over 800 individuals were successfully, criminally prosecuted.

Rakoff concludes by writing, “if it was [fraudulent misconduct] – as various governmental authorities have asserted it was – then the failure of the government to bring to justice those responsible … bespeaks weaknesses in our prosecutorial system that need to be addressed.”

FULL POST: One person who has both spoken out and acted when he felt the punishment for misbehavior in the financial sector was too lenient or lacking is federal District Court Judge Jed Rakoff.* For example, in 2011, he refused to approve a proposed settlement by the Securities and Exchange Commission (SEC) with Citigroup related to the 2008 financial crisis because he thought that it was too lenient.

Currently, he is withholding approval of settlement of an insider trading case where two men, acting on an illegal insider’s tip, bought $90,000 worth of securities a day before the announcement of the buyout of H.J. Heinz (the ketchup maker). The next day, when the buyout was announced, the securities became worth $1.8 million. The SEC’s proposed settlement would allow the two men to settle the case for $4.8 million without either admitting or denying guilt. Such settlement language had been standard practice for insider trading cases until a public debate erupted, prompted in large part by Judge Rakoff. In June 2013, the new chair of the SEC, Mary Jo White, announced a new SEC policy that would require some defendants to admit guilt. [2]

There have been a number of insider trading cases in the news lately. These are cases where an individual buying or selling securities benefited from illegally obtained, confidential information that gave him or her an unfair opportunity to profit from securities transactions. For example, SAC Capital, a huge, $15 billion hedge fund, responsible for about 1% of all US securities exchanges’ average daily trading, has been charged in what probably is the biggest insider trading scandal ever. Five employees of SAC have already pleaded guilty to insider trading and the company itself has agreed to a record $616 million settlement for more than 10 years of trading based on illegal tips from corporate insiders. More legal action is still to come, but it is unlikely that anyone will go to jail and the head of SAC, Steven A. Cohen, despite any fines and restitution he may be required to pay, is likely to remain a billionaire. [3][4]

However, Judge Rakoff’s primary focus has not been on insider trading but on the financial industry’s misbehavior that led to the 2008 financial crisis and the Great Recession. He recently wrote an article entitled “The Financial Crisis: Why have no high-level executives been prosecuted?” [5] In it, he explores why there have been no criminal prosecutions when multiple authorities, including enforcement agencies, have describe what occurred in the run up to the 2008 financial crisis as fraud (i.e., intentional deception for financial or personal gain). Rakoff states that if the financial crisis was the result of intentional fraud (and he makes clear that he has no personal knowledge of whether that was the case or not), “the failure to [criminally] prosecute those responsible must be judged one of the most egregious failures of the criminal justice system in many years.”

Rakoff notes that in previous financial crises – the junk bond scandal of the 1970s, the savings and loan (S&L) crisis of the 1980s, and the accounting frauds of the 1990s (e.g., Enron and WorldCom) – individual perpetrators were successfully prosecuted. Specifically, in the S&L crisis, which has strong parallels to the 2008 crisis but at a much smaller scale, over 800 individuals were successfully, criminally prosecuted.

There is strong evidence of criminal fraud in the events leading to the 2008 crisis. The federal government’s Financial Crisis Inquiry Commission uses the word “fraud” 157 times in its report describing what led to the crisis. Furthermore, indications that fraud was occurring emerged well before the 2008 collapse. There were 20 times as many reports of suspected mortgage fraud in 2005 as in 1996, and the number kept growing. In 2008, the number of fraud reports was double that of 2005. As early as 2004, the FBI was publicly warning of the “pervasive problem” of mortgage fraud. In the years before the 2008 crisis, sub-prime mortgages, in other words mortgages with more risk of default than normal mortgages, increasingly provided the underpinnings for mortgage-backed securities that continued to be sold with AAA ratings. This rating is supposed to identify securities of very low risk. It seems impossible that this could have occurred without fraud taking place.

Rakoff discusses reasons given by officials of the Department of Justice (DOJ) for the failure to criminally prosecute either individuals or corporations and finds them unconvincing. He then proposes some reasons that he finds more believable. I’ll summarize all of this in my next post.

Rakoff concludes by writing, “if it was [fraudulent misconduct] – as various governmental authorities have asserted it was – then the failure of the government to bring to justice those responsible for such colossal fraud bespeaks weaknesses in our prosecutorial system that need to be addressed.”

[1] Rakoff, J.S., 1/9/14, “The Financial Crisis: Why have no high-level executives been prosecuted?” The New York Review of Books (http://www.nybooks.com/articles/archives/2014/jan/09/financial-crisis-why-no-executive-prosecutions/?pagination=false)

[2] Raymond, N., 1/30/14, “U.S. judge takes on SEC again, questions Heinz insider trading pact,” Reuters

[3] Editorial, 7/27/13, “Pursuit of SAC Capital sends needed message to Wall St.,” The Boston Globe

[4] Lattman, P., 7/31/13, “Ex-analyst charged in insider-trading crackdown,” The Boston Globe (from The New York Times)

[5] Rakoff, J.S., 1/9/14, see above

[6] Wikipedia, retrieved 2/5/14, “Jed S. Rakoff,” http://en.wikipedia.org/wiki/Jed_S._Rakoff

WEAK PENALTIES FOR FINANCIAL CORPORATIONS’ MISBEHAVIOR

ABSTRACT: If you follow the financial news, you regularly hear about financial corporations paying penalties as they reach settlements with regulators for their misbehavior. Although the amounts of some of the recent penalties have been noteworthy, keep in mind that to these large corporations they barely put a dent in their annual profits. Furthermore, in many cases the penalties are tax deductible as a business expense. This means that, in effect, the government and we as taxpayers are subsidizing the penalty by allowing the corporations to reduce their taxes by deducting the amount of the penalty from their income. In other cases, the corporations are allowed to take credit for having paid all or part of the settlement based on other actions they have taken.

In most cases, the corporations are agreeing to the settlements without having to admit wrongdoing. There have been very few criminal charges against the corporations and none against any executive of any of the large financial corporations. Furthermore, the executives have continued to be lavishly rewarded despite behavior that plunged the world into a financial crisis and a recession.

If we are going to prevent another financial collapse and resulting recession, we must prevent serious misbehavior by our large financial corporations. Stronger laws, oversight, and enforcement, with stronger penalties for executives and corporations, including criminal prosecutions, are needed. These would provide the strong incentives necessary to ensure legal, ethical, and prudent behavior by executives and, hence, the corporations they run.

FULL POST: If you follow the financial news, you regularly hear about financial corporations paying penalties as they reach settlements with regulators for their misbehavior. Many of these settlements are for misbehavior that contributed to the 2008 financial collapse where enforcement actions are finally being concluded. Some are for more recent misbehavior. (See posts of 8/14/13, Large Financial Corporations Continue Illegal Activity [https://lippittpolicyandpolitics.org/2013/08/14/large-financial-corporations-continue-illegal-activity/] and 8/29/12, Big Financial Corporation Scandals Continue [https://lippittpolicyandpolitics.org/2012/08/29/big-financial-corporation-scandals-continue/] for more detail on financial corporations’ misbehavior.)

Although the amounts of some of the recent penalties – in the billions of dollars – have been noteworthy, keep in mind that to these large corporations this barely puts a dent in their annual profits. Their stocks have been performing well, despite the penalties. In many cases the penalties are tax deductible as a business expense, which means that the impact on the corporation is typically only two-thirds of the stated amount. As a result, in effect, the government and we as taxpayers are subsidizing the penalty by allowing the corporations to reduce their taxes by deducting the amount of the penalty from their income. In other cases, the corporations are allowed to take credit for having paid all or part of the settlement based on other actions they have taken. For example, in a 2013 settlement with 13 mortgage service providers for illegal foreclosures, over 60% of the announced $8.5 billion settlement could be paid through credits for modifications to existing mortgages.

This has led Senators Elizabeth Warren (MA Democrat) and Tom Coburn (OK Republican) to propose a Truth in Settlements bill in Congress that would require government regulators to disclose whether they are allowing all or part of the settlement amount to be deducted from income or paid with credits. The regulators would generally have to make settlement agreements public and for any that were kept confidential, they would have disclose that fact and their rationale for doing so. [1] Bills have also been filed to prohibit the deduction of penalties as a business expense.

In most cases, the corporations are agreeing to the settlements without having to admit wrongdoing. There have been very few criminal charges against the corporations. Most of the enforcement actions have been civil actions, which seriously limits the consequences, even if the corporation misbehaves again, even in a similar manner.

Also noteworthy, is that no executive of any of the large financial corporations has been charged with criminal activity. (My next post will explore this issue.) Furthermore, the executives have continued to be lavishly rewarded despite behavior that plunged the world into a financial crisis and a recession. A corporate culture of immunity for senior executives from the consequences of their actions appears to persist despite public outrage. [2]

For example, JPMorgan’s CEO, Jamie Dimon, will be paid $20 million for 2013. This is up substantially from the $11.5 million he was paid last year, despite the $20 billion in fines and penalties JPMorgan paid in 2013 (due to a variety of corporate misbehavior) and the very large related legal expenses. Apparently, JPMorgan’s Board of Directors feels Dimon did a great job of handling these matters with the regulators and that pay cuts in 2008 and 2012 had already punished him for having gotten the corporation into trouble in the first place. [3] The corporation’s stock did have a good year. It was up 37%, out pacing both its peers and the overall market. (Note: If JPMorgan’s Directors and shareholders feel the settlement agreements were so positive, maybe the regulators have let Dimon and JPMorgan off too lightly!) In 2008, Dimon received a $1 million salary and no bonus, presumably because of the problems that led to the financial crisis and the need for the government to bail out JPMorgan (among other financial industry corporations). However, by 2011 his compensation was up to $23 million. It was cut to $11.5 million for 2012, which was viewed as a strong rebuke by the corporation’s Board for the $6 billion loss on speculative trading that occurred in 2012.

Final figures for 2013 CEO compensation at two smaller financial corporations, Goldman Sachs and Morgan Stanley, were not available yet, but are expected to be above the 2012 levels that were $21 million and $9.75 million, respectively.

[1] Associated Press, 1/9/14, “Mass. Democrat: Settlements need more transparency,” in the Daily Times Chronicle

[2] Stewart, J.B., 2/1/14, “Accounting for Dimon’s big jump in pay,” The New York Times

[3] Silver-Greenberg, J., & Craig, S., 1/24/14, “Despite scandals, JPMorgan awards CEO raise,” The Boston Globe from The New York Times

THE IGNORED DEFICIT IN PUBLIC GOODS

ABSTRACT: The federal government’s budget deficit is getting more attention than it deserves. It is half of what it was in 2009 and is at what economists consider a manageable level. Meanwhile, our deficit in investments in public goods is being almost totally ignored. Public goods are things of value to society but in which individuals, businesses, and other private organizations don’t and won’t invest.

These public goods are essential to a prosperous society. However, the US has been under-investing in public goods for decades. The paradox of public goods is that they are forgotten, unacknowledged, and in effect invisible when they are readily available.

Government spending on public goods has been in a relatively steep decline since the 2008 economic crash. And for the 30 years before that the investment in public goods had been in a slow decline.

Those opposed to a robust government, ideologically or due to self-interest, have engaged in an active campaign to get the public to forget the personal and societal benefits they receive from government. A discussion about public goods is largely missing from our media and society.

We need to correct this omission in our discourse and our investment in order to have a prosperous society. Without necessary public goods, we cannot maintain our health and productivity as individuals; nor will we be able to maintain the health and productivity of our businesses and ultimately those of our economy and society.

FULL POST: The federal government’s budget deficit is getting more attention than it deserves. It is half of what it was in 2009 and is at what economists consider a manageable level. (See post of 4/6/13. [1]) Meanwhile, our deficit in investments in public goods is being almost totally ignored.

Public goods are things of value to society but in which individuals, businesses, and other private organizations don’t and won’t invest. Public goods provide public benefits and require collective efforts and responsibility. Therefore, the public sector, namely government, must take responsibility for them. Children’s education, from birth through high school and beyond, is a classic example. Transportation infrastructure is another, including roads, railroads, bridges, airports, and ports. Other examples include parks, libraries, scientific research, public and individual health (including healthy air and water), and public safety (including safe communities, workplaces, homes, food, and medicine). A large, thriving, economically solid middle class may be the ultimate public good.

These public goods are essential to a prosperous society. [2] However, the US has been under-investing in public goods for decades. Part of the reason for this is that when they are present and functioning effectively, we forget about them – they are out of sight and out of mind. This is the paradox of public goods: they are unacknowledged and in effect invisible when they are readily available. We forget that there was a need or problem that has been addressed. Or we don’t realize that a problem, such as polluted drinking water, could occur if we don’t invest in protective and preventive measures. We forget that public expenditures by government were what met the need, maintain the solution, and prevent problems. [3]

However, here in the US, we are beginning to notice our public goods deficit. We’ve had bridges collapse or be closed because they are unsafe. Many of our school buildings are old, out-of-date, and in some cases unsafe. Students are leaving college with huge debts. Local governments are cutting police, fire, and school personnel. Our middle class and its economic security is dwindling. And so on.

Government spending on public goods has been in a relatively steep decline since the 2008 economic crash. And for the 30 years before that the investment in public goods had been in a slow decline. Economist John Kenneth Galbraith warned us way back in the 1950s that improper government budget priorities could lead to “private opulence and public squalor.”

In addition to the invisibility of public goods, those opposed to a robust government, ideologically or due to self-interest, have engaged in an active campaign to get the public to forget the personal and societal benefits they receive from government spending and actions. They have explicitly labeled government as the problem not a solution to problems. In fact, a survey of the public found that 94% of those who reported never receiving a benefit from a government program had indeed received benefits from one or more government programs and on average from four programs. [4]

A discussion about public goods is largely missing from our media and society. The notion of air, water, parks, and so forth, as shared public goods that require and deserve public investment is mostly missing from public consciousness. Our discussion of the production of wealth and goods by the private sector is robust, but the discussion is atrophied in terms of the role of the public sector and of the public goods that it produces, maintains, and protects.

We need to correct this omission in our discourse and our public spending in order to have a prosperous society. Without necessary public goods, we cannot maintain our health and productivity as individuals; nor will we be able to maintain the health and productivity of our businesses and ultimately those of our economy and society.

[1] The shrinking deficit at https://lippittpolicyandpolitics.org/2013/04/06/the-shrinking-deficit/.

[2] Hacker, J.S., & Loewentheil, N., 2012, “Prosperity economics: Building an economy for all,” Prosperity for All (http://www.prosperityforamerica.org/wp-content/uploads/2012/09/prosperity-for-all.pdf)

[3] Derber, C., & Sekera, J., 1/22/14, “An invisible crisis: We are suffering from a mushrooming public goods deficit,” The Boston Globe

[4] Mettler, S., 9/19/11, “Our hidden government benefits,” The New York Times

SHORT TAKES ON CURRENT EVENTS

ABSTRACT:

CONFIRMING PRESIDENTIAL NOMINEES: The US Senate voted on 11/21 to change its rules and eliminate the use of the filibuster to block presidential nominees other than Supreme Court Justices, given that Republicans had returned to full-scale obstructionism since the deal to approve 7 nominees in July. Under the new rules, the Senate has confirmed 11 nominees and Senate Democrats are pursuing at least 10 more confirmations before the holiday recess. Roughly 70 nominees remain pending.

FINING DRUG CORPORATIONS FOR COLLUSION: The European Union has fined two giant drug corporations, Johnson & Johnson and Novartis, $22 million for colluding to delay the availability of a cheaper generic drug.

FDA REDUCING ANTIBIOTIC OVERUSE AND DRUG-RESISTANT INFECTIONS: The Food and Drug Administration (FDA) is taking steps to reduce the unnecessary use of antibiotics in meat production. This overuse of antibiotics used for treating infections in humans is linked to the development of antibiotic-resistant infections in humans. 23,000 people are dying each year from such infections. The FDA is asking drug corporations to voluntarily stop labeling drugs used to treat human infections as acceptable for growth promotion in animals. The FDA is using this voluntary approach and giving the drug corporations 3 years to comply because it believes the complex regulatory process a mandatory rule would require would take many years and might not be successful.

FULL POST:

CONFIRMING PRESIDENTIAL NOMINEES

The US Senate voted on 11/21 to change its rules and eliminate the use of the filibuster to block presidential nominees other than Supreme Court Justices. Democrats in the Senate exercised this option, the so-called “nuclear option”, because after a deal in July that allowed the approval of 7 nominees for executive branch positions, Republicans had returned to full-scale obstructionism. With roughly 90 judicial vacancies and some key executive branch openings, the Democrats threatened again to change the filibuster rule and proceeded to do so when the Republicans refused to relent from their obstructionism.

Since then, the Senate has confirmed 11 nominees including the Secretary of Homeland Security, an Assistant Secretary of State, the Secretary of the Air Force, and 2 judges, despite continuing Republican use of delaying tactics. Interestingly, once the Republican blockade of the first two of these was overcome, they were confirmed by 78-16 votes.

Senate Democrats are pursuing at least 10 more confirmations before the holiday recess, including the Chair of the Federal Reserve and the head of the Internal Revenue Service. Roughly 70 nominees remain pending and some of them may have to be re-nominated and start the process all over again in the new year. (1. Alman, A., 12/16/13, “Jeh Johnson confirmed by Senate as Secretary of Homeland Security, The Huffington Post. 2. Reuters, 12/13/13, “U.S. Senate confirmation marathon approves two more Obama nominees,” Reuters) (See my post A Respite from Obstructionism on 7/25/13 at https://lippittpolicyandpolitics.org/2013/07/25/a-respite-from-obstructionism/, as well as those of 7/21/13 and 7/16/13, for more details on the July deal and obstruction of nominees’ confirmations.)

FINING DRUG CORPORATIONS FOR COLLUSION

The European Union has fined two giant drug corporations, Johnson & Johnson (J&J) and Novartis, $22 million for colluding to delay the availability of a cheaper generic drug. A patent on a J&J pain killer expired in 2005 but J&J paid Novartis to delay for 17 months production of a cheaper generic version of the drug. Both corporations were more profitable as a result. (Daily Briefing, 12/11/13, “EU fines drug firms over delay,” The Boston Globe)

FDA REDUCING ANTIBIOTIC OVERUSE AND DRUG-RESISTANT INFECTIONS

The Food and Drug Administration (FDA) is taking steps to reduce the unnecessary use of antibiotics in meat production. Many producers of cattle, hogs, and poultry give their animals antibiotics to make them grow faster. This overuse of antibiotics used for treating infections in humans is linked to the development of antibiotic-resistant infections in humans, which are much more difficult and expensive to treat, and can be fatal: 23,000 people are dying each year from such infections. The FDA is asking drug corporations to voluntarily stop labeling drugs used to treat human infections as acceptable for growth promotion in animals. This would make such use illegal without a prescription for use in a sick animal. The FDA is using this voluntary approach and giving the drug corporations 3 years to comply because it believes the complex regulatory process a mandatory rule would require would take many years and might not be successful. (Jalonick, M.C., 12/12/13, “FDA working to phase out some antibiotics in meat,” The Boston Globe from the Associated Press)

NOTE: There are so many issues and events that I think those of us trying to be well informed citizens and voters should know about that I can’t write full posts on all of them. And I’m sure you don’t have time to read full posts about them. Therefore, I’ll use this format to complement the full posts: Short Takes on current events. Please let me know if you find these valuable by commenting on them. I will provide references or links to more information for the topics, so you can pursue them in more depth if you have the interest and time.

REPUBLICANS OBSTRUCTING NOMINEES AGAIN

ABSTRACT: The Republicans are back to blocking the President’s nominees for judgeships and executive branch positions by filibustering. Currently, there are roughly 90 vacancies for judgeships. In terms of Executive Branch nominees, the Chair of the Federal Reserve and the Secretary of Homeland Security are among those waiting for Senate confirmation.

Senate Democrats are again talking about changing the filibuster rule. One Senator called this obstructionism “a government shutdown by another tactic.” I encourage you to contact your Senators and let them know that this obstructionism should stop because we need our judicial and executive branches of government to function and perform the work that we have charged them to do.

FULL POST: The Republicans are back to blocking the President’s nominees for judgeships and executive branch positions by filibustering. [1] In July, Senate Republicans agreed to approve 7 Presidential nominations, but only after Senate Democrats threatened to change the Senate’s filibuster rule to stop the on-going and pervasive obstruction of nominees. (See post of 7/25/13 for more detail.) But on Thursday, the Republicans were back to filibustering nominees, blocking a judicial nominee who had 56 votes in favor and an appointee for a housing regulatory agency who had 57 votes in favor. [2]

Furthermore, Republican Senator Graham has threatened to hold up all nominations until further hearings are held on the attack on the diplomatic post in Benghazi, Libya, a year ago. Linking approval of nominees to a totally unrelated issue is certainly unusual, if not unprecedented. Furthermore, 13 Congressional hearings and 40 staff briefings on this issue have already occurred along with the delivery to Congress of 25,000 pages of related documents. [3]

Currently, there are roughly 90 vacancies for judgeships, many of which are considered judicial emergencies. These vacancies are having a negative impact on the functioning of the federal courts and their ability to deliver justice for the American people in a timely manner. (See post of 7/21/13 for more detail.) Several nominees have been approved by the lengthy and detailed vetting of the Judiciary Committee but have not been confirmed by the full Senate.

In terms of Executive Branch nominees, the Chair of the Federal Reserve and the Secretary of Homeland Security are among those waiting for Senate confirmation. (See post of 7/16/13 for more on the blocking of executive branch nominees).

As a result of this resurgence of Republican obstructionism of nominees by filibustering, Senate Democrats are again talking about changing the filibuster rule. One Senator called this obstructionism “a government shutdown by another tactic.” [4]

I encourage you to contact your Senators and let them know that this obstructionism should stop because we need our judicial and executive branches of government to function and perform the work that we have charged them to do.

[1] A filibuster occurs when one or more Senators refuse to end debate on a piece of legislation or other matter. It then requires a super-majority of 60 votes from the 100 Senators to close off debate (cloture) and allow a vote on the bill or other matter.

[2] Fram, A., 11/1/13, “GOP blocks Obama picks for US court, housing agency,” The Boston Globe (from the Associated Press)

[3] Associated Press, 11/2/13, “GOP Senator vows to block nominees,” The Boston Globe

[4] Fram, A., 11/1/13, see above

LACK OF GOOD JOBS IS OUR MOST URGENT PROBLEM

ABSTRACT: The most urgent problem facing the US right now is a lack of jobs, especially jobs that pay middle class wages and provide benefits. Unemployment is high and long-term. The jobs being created during our 4 year old economic recovery are disproportionately low-wage, low skill jobs.

Fast food workers are emblematic of the low wage, low skill jobs being created. The typical fast food worker makes $8.69 per hour. As a result, over half of fast food workers rely on public, taxpayer funded benefits to make ends meet. The cost to taxpayers is estimated to be $7 billion per year. Meanwhile, the fast food corporations make billions of dollars in profits and pay tens of millions of dollars to their senior executives. Workers at Walmart, the largest employer in the US, are in a similar situation. These very profitable corporations can afford to raise their workers’ wages to $15 an hour – a wage they could live on without public assistance. In the meantime, taxpayers are subsidizing these corporations.

It used to be that unions and government provided workers with a voice and the power to balance that of the large employers. Today, that voice and power are largely gone. Therefore, wages, benefits, and job security have been eroding. Starting in the late 1970s, the historic link between growth in the economy and productivity on the one hand, and growth in workers’ wages on the other hand, was severed. We undid or failed to adopt rules for our economy that ensure the gains of economic and productivity growth are widely and fairly distributed.

The failure of our policy makers in Washington to focus on creating jobs, let alone good jobs, and on spurring economic growth is the clear and tragic result of the ascendancy of politics over rational policy making.

FULL POST: The most urgent problem facing the US right now is a lack of jobs, especially jobs that pay middle class wages and provide benefits. Unemployment is high and long-term – since 2010 roughly 40% of those unemployed and actively looking for work have been unemployed for more than 6 months. This is triple the rate of long-term unemployment in the period from 2000 – 2007. [1]

The official unemployment rate is 7.2% based on those who are actively looking for a job. It would be significantly higher, well over 10%, if those who have given up looking were included. And higher still if the under-employed were included – those working part-time who would like to be working full-time and those who are working at jobs for which they are over-qualified.

The jobs being created during our 4 year old economic recovery are disproportionately low-wage, low skill jobs. (See post of 9/27/13 for more detail.) High unemployment and low wage jobs are key factors in our slow economic recovery (consumers’ lack purchasing power), in the government’s budget deficit (reduced tax revenues), and in growing inequality (95% of the economic gains during the recovery have gone to the richest 1%). As a result, income and wealth inequality have increased to levels not seen since the 1920s.

Fast food workers are emblematic of the low wage, low skill jobs being created. The typical fast food worker makes $8.69 per hour. Two-thirds of them are adults, most of them bring home at least half of the family’s income, and a quarter of them have children. Only 13% get health insurance through their employers.

As a result, over half of fast food workers rely on public, taxpayer funded benefits to make ends meet. The cost to taxpayers is estimated to be $7 billion per year; much of it is for health care, but also food assistance and other economic supports. [2] You can watch a 2 minute video about this, which includes a recording of the McDonald’s help line telling a 10-year employee with 2 children to access food stamps and Medicaid, at
http://lowpayisnotok.org/mcvideo/?utm_campaign=LowPay&utm_medium=email&utm_source=mcvideo-r.

Meanwhile, the fast food corporations make billions of dollars in profits and pay tens of millions of dollars to their senior executives. For example, McDonald’s has 700,000 employees. They are estimated to get $1.2 billion a year in taxpayer funded benefits. McDonald’s is very profitable, making $5.5 billion a year and paying its CEO $13.8 million. It has just purchased a $35 million luxury jet for its executives, which costs at least $2,400 an hour to operate.

Workers at Walmart, the largest employer in the US, are in a similar situation. They make an average of $8.80 an hour. When General Motors was the largest employer in the 1950s, it paid its workers about $50 to $60 an hour (adjusted for inflation). As with the fast food workers, we taxpayers are supporting Walmart workers with multiple types of public assistance. [3]

These big, profitable corporations operate with a business model that uses low paid and part-time workers, typically without benefits, who are, therefore, unable to afford the necessities of life. This leaves taxpayers to pick up the tab for the public benefits they need. These very profitable corporations can afford to raise their workers’ wages to $15 an hour (see post of 9/8/13 for more detail) – a wage they could live on without public assistance. In the meantime, taxpayers are subsidizing these corporations.

Nationally, the typical workers’ wages, adjusted for inflation, have barely increased over the last 30 years. (See post of 9/2/13 for more detail.) The typical male worker in 1978 was making around $48,000 (adjusted for inflation), while the average person in the top 1% earned $390,000. By 2010, the typical male workers’ pay had gone down, while the person in the 1% had their pay more than double. Today, the richest 400 Americans have more wealth than the bottom half of the country, 150 million people, combined.

It used to be that unions and government provided workers with a voice and the power to balance that of the large employers. Today, that voice and power are largely gone. Therefore, wages, benefits, and job security have been eroding. Workers are not even receiving the benefits of their increased productivity. As a result, we are losing the middle class, equal opportunity, and upward mobility. This is undermining our economy and our democracy.

In the first 4 years of the current recovery, the richest 1% of Americans took home 95% of the income gains. In stark contrast, between 1946 and 1978, as the economy doubled in size, everyone’s income doubled as well.

Starting in the late 1970s, the historic link between growth in the economy and productivity on the one hand, and growth in workers’ wages on the other hand, was severed. Income gains started going to the richest Americans and people in the middle, the typical worker, saw their wages stagnate. Part of the problem is that we didn’t adapt to globalization and technological change. We didn’t change public policies. We didn’t change the rules of our economy to continue to provide opportunity, upward mobility, and ensure that economic and productivity growth were broadly shared. We could have done so, but we didn’t. [4]

Among other things, we let the minimum wage fall behind inflation. If it had kept up with inflation, the national minimum wage would be $10.40 today instead of $7.25. If productivity improvement was included, it would be at least $15 an hour. We deregulated the financial system, both domestically and internationally, favoring investors and corporations over workers. And we didn’t include labor standards in trade treaties. Meanwhile, we cut tax rates on high incomes and wealth substantially.

If we had a democracy that was working for the people, the average citizen and worker would have the voice and power to see that their interests and the greater good were served. Instead, we undid or failed to adopt rules for our economy that ensure the gains of economic and productivity growth are widely and fairly distributed – without sacrificing efficiency or innovation. The failure of our policy makers in Washington to focus on creating jobs, let alone good jobs, and on spurring economic growth is the clear and tragic result of the ascendancy of politics over rational policy making. This failure may put their political careers at risk because every poll shows that the public is much more concerned about jobs and the economy than any other issue, including the deficit.

[1] Woolhouse, M., 10/22/13, “Long search finally ends,” The Boston Globe

[2] Johnston, K., 10/16/13, “Public aid crucial to fastfood workers,” The Boston Globe

[3] Moyers, B. with Reich, R., 9/20/13, “Inequality for all,” http://billmoyers.com/episode/full-show-inequality-for-all/

[4] Moyers, B. with Reich, R., 9/20/13, see above

WHY IS THE GOVERNMENT SHUTDOWN?

ABSTRACT: The federal government’s shutdown for lack of a budget has nothing to do with the deficit or democracy; rather, it has everything to do with politics, ideology, and the tyranny of a minority. The extreme wing of the Republican Party, without the support in Congress to pass legislation and having lost the last election, is trying to impose its ideology on the country by taking the government’s budget hostage.

The federal government’s budget deficit is at its lowest level in 5 years and roughly half of what it was in 2009. The Republicans’ primary policy target is the Affordable Health Care law, also known as Obama Care. They ideologically oppose this expansion of the government’s role in health care, even though it is built on conservative principles and will provide health insurance to tens of millions of Americans who don’t have it now.

There’s a bill sitting in the House that funds the government for a few weeks – a so-called Continuing Resolution (CR). With a simple yes or no vote, it would pass. But because it doesn’t have the support of the majority of Republicans, Speaker Boehner won’t allow a vote on it.

800,000 federal employees will lose their paychecks and millions of Americans will lose services funded by the government. Nonetheless, members of Congress will continue to get their paychecks and their good, taxpayer-subsidized health insurance.

As recent history has shown, if the extremists in Congress get what they want, or any part of it, they’ll just be back at the next opportunity, creating another crisis, and asking for more. Therefore, negotiation with this extortion, blackmail, hostage taking, or bullying, whatever you want to call it, should not and cannot be undertaken.

FULL POST: The federal government’s shutdown for lack of a budget has nothing to do with the deficit or democracy; rather, it has everything to do with politics, ideology, and the tyranny of a minority. The extreme wing of the Republican Party, without the support in Congress to pass legislation and having lost the last election, including the presidency and seats in both houses of Congress, is trying to impose its ideology on the country by taking the government’s budget hostage.

This extreme faction is not willing to abide by the last election, by legislation previously passed (such as the Affordable Care Act), or by the will of the American public. And they are not willing to engage in meaningful negotiations because they believe they know what is best for the country and for all of us. They are willing, however, to disrupt the lives of millions of Americans and to harm our weak economic recovery by shutting down the federal government.

And this is not about the deficit. The federal government’s budget deficit is at its lowest level in 5 years and roughly half of what it was in 2009. [1] The deficit is projected to continue to fall as the economy recovers, which increases government revenue and reduces expenses. Many economists expect that in 2 years it will have decreased to a sustainable level. [2]

The Republicans’ primary policy target is the Affordable Health Care law, also known as Obama Care. They ideologically oppose this expansion of the government’s role in health care, even though it is built on conservative principles: 1) it uses private health insurers and providers, and 2) it requires personal responsibility through the mandate that individuals purchase health insurance (an idea born in a conservative think tank). They oppose it despite the fact that it will provide health insurance to tens of millions of Americans who don’t have it now, and the fact that the more the public knows about Obama Care’s specific provisions, the more they like it. (See my posts of 8/21/13 and 8/19/13 for more information.)

Various budget proposals from the Republicans identify their other policy targets. They have included cuts to other social programs that their extreme wing opposes, including cuts to Social Security, the Medicare and Medicaid health programs, and food and nutrition assistance, among others. On the other hand, most of them would increase military spending on top of its significant increases in recent years, which already mean that we are spending more on the military (adjusted for inflation) than at any time since World War II. [3]

The Republicans in the House of Representatives, who are the roadblock to passage of a budget, are refusing to bring to a vote any budget that does not have the support of a majority of Republicans. Therefore, the most extreme 117 Republicans in the House, 27% of its overall membership, can and are blocking progress and forcing this shutdown. (See post of 7/27/13 for more information on obstructionism in the House.)

There’s a bill sitting in the House that funds the government for a few weeks – a so-called Continuing Resolution (CR). It’s simple and straightforward; it simply funds the government at current levels without making any policy changes. If the Republican leadership in the House would allow a simple yes or no vote on this bill, it would pass with support from members of both parties – as it did in the Senate. But because it doesn’t have the support of the majority of House Republicans, Speaker Boehner won’t allow a vote on it.

800,000 federal employees will lose their paychecks and millions of Americans will lose services funded by the government, including meals for seniors, Head Start classes for preschoolers, and access to national parks for all of us. Nonetheless, members of Congress will continue to get their paychecks and their good, taxpayer-subsidized health insurance.

This is the second time in 20 years that an extreme Republican agenda has forced a government shutdown. Democrats have never done this when they were in the minority or did not hold the presidency.

As recent history has shown, if the extremists in Congress get what they want, or any part of it, they’ll just be back at the next opportunity, creating another crisis, and asking for more. Therefore, negotiation with these extortionists, blackmailers, hostage takers, or bullies, whatever you want to call them, should not and cannot be undertaken. [4]

Long before blocking Obama Care was linked to a government shutdown, Norm Ornstein, the political scientist at the conservative America Enterprise Institute, wrote that “What is going on now to sabotage Obamacare is not treasonous – just sharply beneath any reasonable standards of elected officials with the fiduciary responsibility of governing.” [5] I wonder what he would say now about those in Congress whose behavior has led to this government shutdown.

[1] Klimasinska, K., 9/12/13, “U.S. budget gap narrows as stronger growth boosts revenues,” Bloomberg

[2] Lowrey, A., 4/22/13, “The incredible shrinking budget deficit,” The New York Times

[3] Bilmes, L., 7/31/13, “Pentagon a ripe target for cuts,” The Boston Globe

[4] Reich, R., 9/30/13, “Why Obama and the Democrats shouldn’t negotiate with extortionists,” The Huffington Post

[5] Light, J., 7/25/13, “Obstructionism for the recordbooks,” Moyers & company (billmoyers.com/2013/07/25/obstructionism-for-the-recordbooks)

“TRADE” AGREEMENTS & CORPORATE POWER

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

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

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

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

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

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

Other examples of corporations suing governments include:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

“TRADE” AGREEMENT SUPERSIZES CORPORATE POWER

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

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

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

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

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

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

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

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

The TPP benefits corporations, particularly foreign corporations, by

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LABOR DAY AND THE MIDDLE CLASS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[4] Eskow, R.J., 8/26/13, “A Dream Deferred: The Minimum Wage Was Higher in 1963 Than It Is Today,” The Huffington Post (http://www.huffingtonpost.com/rj-eskow/a-dream-deferred-the-mini_b_3820416.html?utm_hp_ref=email_share)

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

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

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

DETROIT’S BANKRUPTCY

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

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

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

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

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

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

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

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

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

[1] Brown, E., 8/6/13, “Fleecing pensioners to save the banks,” CounterPunch (http://www.counterpunch.org/2013/08/06/fleecing-pensioners-to-save-the-banks/print)

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

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

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

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

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

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