After checking out gjohnsit's outstanding diary, currently on the Rec List (SEE: "
Class War is in America's roots"), I'd strongly suggest a read of Bob Herbert's column in Saturday's NY Times. It's fascinating to note how Herbert opens his column, picking up
precisely where gjohnsit leaves off: "
Winning the Class War."
As gjohnsit concluded his post with the following sentence...
...It's only in the last half century that discussing class has been taboo. That doesn't mean that class is no longer an issue. It only means that it isn't discussed.
...and notice how Herbert opens his op-ed, yesterday...
Winning The Class War
By BOB HERBERT
New York Times
November 27, 2010
The class war that no one wants to talk about continues unabated.
Even as millions of out-of-work and otherwise struggling Americans are tightening their belts for the holidays, the nation's elite are lacing up their dancing shoes and partying like royalty as the millions and billions keep rolling in.
Recessions are for the little people, not for the corporate chiefs and the titans of Wall Street who are at the heart of the American aristocracy. They have waged economic warfare against everybody else and are winning big time.
The ranks of the poor may be swelling and families forced out of their foreclosed homes may be enduring a nightmarish holiday season, but American companies have just experienced their most profitable quarter ever. As The Times reported this week, U.S. firms earned profits at an annual rate of $1.659 trillion in the third quarter -- the highest total since the government began keeping track more than six decades ago...
Bold type is diarist's emphasis.
# # #
(Note: Diarist has received written authorization from Naked Capitalism Publisher Yves Smith to reprint her blog's posts in their entirety for the benefit of the DKos community.)
More on the Damaging Implications of Corporate Cash-Hoarding
Yves Smith
Naked Capitalism
November 27, 2010 2:52AM
John Authers of the Financial Times provides an update on corporate cash-hoarding. In brief, it's getting worse due to probably-warranted executive nervousness about business prospects. As Authers puts it:
Corporate chieftains the world over have lots of cash, and want to hold on to it. It is a critical symptom of a new Age of Anxiety, as the corporate world tries and fails to convince itself that the global financial crisis has blown itself out. As Richard Dobbs, head of the McKinsey Global Institute, puts it: "Companies are uncertain about where the world is going to go. Until they are sure, they don't want to pay the money out."
In their drive for efficiency, companies have gone for operating too lean. There are two elements to this tale. One syndrome is well known, the now-infamous big company short-termism, which can easily come at the expense of longer-term results. But there is a second, related, but less well recognized aspect, that of operating with fewer buffers against risk. You see it in all sorts of practices: whittling down supplier networks to fewer companies (so as to gain more bargaining leverage over then) to just-in-time inventory to outsourcing (reliance on a partner reduces flexibility and responsiveness).
And as we wrote some months ago, we've hit the point where capitalists are no longer playing their proper role. The intuitive understanding most people have of how a proper economy works is that households save and businesses invest. But that is not how it has worked for quite some time. The time of onset varies by country, but in most advanced and emerging economies, the business sector has been a net saver too, in many nations for over a decade. And as Authers observes, that pattern has gotten even worse among big companies in the wake of the financial crisis:
According to Credit Suisse, the free cash flows of non-financial companies in the biggest four developed economies now account for 4.3 per cent of gross domestic product. This is double what it was a decade ago, and a record. Yet the share of gross domestic product going to investment is its lowest in decades, at about 16 per cent.
Where did the cash come from, then? Companies moved arguably too aggressively to cut costs in the wake of the Lehman shock. That created unemployment, but left far more cash on their books once the recovery started. Big companies have no problem accessing the cheap financing available from governments and central banks - unlike consumers and smaller companies, which must contend with the tighter standards being imposed by lending officers on the ground.
In China, companies pay less in dividends than their US counterparts, and save even more. But the resurgence of Chinese demand has generated cash elsewhere. Miners and natural resources groups in particular are awash with cash thanks to a resurgence in commodity prices that looks unsustainable.
In the US, small businesses somewhat offset the tight-fistedness of larger companies, but not by enough to make the business sector a net spender after the 2001-2002 recession. And this new pattern, of corporations as savers, has serious implications.
If you look at an economy from an accounting perspective, you can see why this pattern is dangerous. As we noted in July,
What happens when corporations on balance are saving, and households in aggregate try to save too? Families and individuals typically tighten their belts and bolster their bank accounts in bad times; the tendency is even more acute now, since many are trying to pay down borrowings, which is a form of saving,
If households and corporations are both saving, it must be balanced by the other two sectors of the economy, the government sector and the import/expert secto. In other words, the foreign and government sectors must spend more cash than they are taking in. In lay terms, that means running a trade surplus and having the government incur budget deficits.
Therefore, when both domestic households and the corporate sector are saving at the same time, then you need to have a VERY large trade surplus, a very large government deficit, or some combination of the two. There is no other way to square this circle - anyone who tries to tell you otherwise does not understand double entry book keeping, which the West has used for at least the last five centuries with some success.
And what if a government embarks on an austerity program in the face of private sector efforts to deleverage? Income growth will stall, and if the austerity program is large or sustained long enough, falling household wages and business profits can result.
That result might not sound bad, since lower wages and prices would make US goods more competitive abroad. But in economies suffering from a debt hangover, as incomes fall, it becomes even harder to make payments on outstanding loans. Defaults and bankruptcies cascade through the financial system, leading to even more reluctance to borrow and lend. In other words, the result of Austerian fiscal policies, is deflation - falling wages and prices - which can easily snowball into a depression.
This is why deficit spending, particularly on long-term investments, as Martin Wolf stressed, is sound in a deep recession or near depression. The problem is this policy was abused in expansionary periods and has gotten an undeserved bad name. The fact that antibiotics are overprescribed is no reason to refuse them if you have a gunshot wound. Yet the public has been conditioned to make a similar type of rejection in the economic realm. We are seeing the results in Ireland, where strict adherence to an austerity program has resulted in a nearly 20% fall in nominal GDP, making debt/GDP ratios worse, the exact opposite of the goal of this exercise. A far better policy is to write down and restructure bad debt, something creditors routinely do (think the US Chapter 11 process).
But bondholders have somehow gotten themselves in the position where they are refusing to share in collective pain, even though their investments were risk capital and they should be subject to the consequences of poor decisions. Instead, the losses have been shifted to taxpayers and ordinary savers (who are suffering due to negative real interest rates, another salvage operation for bank stock and bondholders). And the public at large has been steamrolled with Austerian logic, which again is the doing of....bond vigilantes!
As general Phyrrus said, "One more such victory shall utterly undo me." But our leaders seem unable, as Phyrrus was, to keep proper stock of the true costs of their successes.
# # #
The MSM and our government want us to ignore the reality that we're facing the greatest degree of income inequality between the haves and have-nots (i.e.: the top few percent of our society [at best the top quintile] vs. the bottom 80%) since the metric was first put in place by our government.
Our leaders talk of our economy "stabilizing," then again, after the Titanic sunk it "stabilized" on the ocean floor, too. The reality is this is NOT sustainable stability. In the U.S....
* The poverty rate soared from 13.2% in 2008 to 15%, in 2009, the largest increase ever since the year 1959 when the US government started calculating poverty figures.
* The number of Americans living in poverty in 2009 was 45 million.
* One out of every seven Americans is living under the official established criteria for below poverty line.
* Child poverty is on a high. One in every five children is living in poverty, struggling to meet basic requirements.
* It has been estimated that nearly 100 million Americans are going through some sort of economic distress.
* The unemployment and underemployment rate in the US has been 17% in the year 2009.
* A poverty rate of 15% was not even experienced in the double digit inflation years of 1980s.
* Metropolis like Detroit, Los Angeles, Las Vegas and Florida have shown the largest increase in poverty rates.
* Number of homeless seeking shelters has increased from 131,000 in 2008 to 170,000 in 2009.
* Detroit has seen a disastrous unemployment rate of 50% due to shutting down of factories and lay offs. News reporters claim this to be a reminiscent of the Great Depression of 1929-1930, when people were in queue to receive food grains and eatables.
* As per OECD, US is 3rd worst in list of poverty in developed nations.
* Food stamp program, that aims to help millions struggling for bread and butter, has seen an unprecedented rise in the last year, with the household participation in such programs increasing to nearly 21%.
* For 19 continuous months till June 2010, the highest number of Americans registered for food stamp programs.
* The health care program Medicaid, that is fundamentally designed to help poor people, saw nearly 50 million Americans registering for it, within a period of one year.
* Overall, nearly 10 million Americans are receiving unemployment insurance, that is four times more than those mentioned in the statistics of 2007.
* At least one member of nearly 28% US families is searching for a full time job.
* In a year, the percentage of bankruptcy filings have risen to 20% in the US.
Last week, I posted a diary entitled: "Democrats In Denial: On Forsaking Our Feud w/Neofeudalism," where I focused upon the veritable crushing of organized labor that's occurred in this country since Reagan was elected, three decades ago.
Perhaps moreso than anything I've read to date, Louis Uchitelle's article (SEE: "Unions Yield on Pay Scales to Keep Jobs") in Saturday's New York Times provides us with an alarming, firsthand, crystal-clear snapshot of what Elizabeth Warren was referencing when she warned us, last December, of "AMERICA WITHOUT A MIDDLE CLASS--IT'S NOT AS FAR AWAY AS YOU MIGHT THINK..."
--SNIP--
...As Uchitelle reminds us today, we are (indeed, as we blog) witnessing the daily play-by-play of the overwhelming dominance of the corporatist-haves over the soon-to-be and already-lower class have-nots. (Simon Johnson, in August of 2009, called it: "The Two-Track Economy.") It's the ongoing story of the status quo's creation of the greatest economic disparity ever measured between our country's social classes; and here it is in today's NY Times, ironically writ large. Truly, even today's Times' alternate headline for Uchitelle's story supports the narrative of our developing, two-track economy, calling it: a "Two-Tier Wage Scale."
"Unions Yield on Two-Tier Wage Scales to Preserve Jobs"...
Unions Yield on Pay Scales to Keep Jobs
By LOUIS UCHITELLE
New York Times
November 20, 2010
MILWAUKEE -- Organized labor appears to be losing an important battle in the Great Recession.
Even at manufacturing companies that are profitable, union workers are reluctantly agreeing to tiered contracts that create two levels of pay.
In years past, two-tiered systems were used to drive down costs in hard times, but mainly at companies already in trouble. And those arrangements, at the insistence of the unions, were designed, in most cases, to expire in a few years.
Now, the managers of some marquee companies are aiming to make this concession permanent. If they are successful, their contracts could become blueprints for other companies in other cities, extending a wage system that would be a startling retreat for labor.
Though union officials said they could not readily supply data on the practice, managers have been trying to achieve this for 30 years, with limited results. The recent auto crisis brought a two-tier system to General Motors and Chrysler. Delphi, the big parts maker, also has one now. Caterpillar, back in 2006, signed such a contract with the United Automobile Workers...
The story references the reality that this was a "...fairly common means of shrinking labor costs in the recession of the early 1980s. At the end of the contracts, however, wages generally snapped back up to a single tier. At G.M., Chrysler, Delphi and Caterpillar, the wages will not be snapping back."
Uchitelle takes us to three large, successful manufacturers in southeastern Wisconsin: Harley-Davidson, Mercury Marine and Kohler, where management has successfully implemented semi-permanent, "two-tier systems that could last well into a recovery."
"This is absolutely a surrender for labor," said Mike Masik Sr., the union leader at Harley-Davidson, the motorcycle maker, not even trying to paper over the defeat.
Five days later, on Thursday, Uchitelle provided a follow-up piece over at the NY Times' Economix blog: "An Argument Against a Two-Tier Pay System." In that piece, he covered Caterpillar's buyout of Bucyrus International, maker of giant coal mining machinery...
...Should newly hired factory workers spend their working lives at a lower wage scale than the generation they are gradually replacing? Tim Sullivan, chief executive of Bucyrus, says no. In his view, a single, relatively high tier -- one that starts at $22 an hour in the case of Bucyrus and rises to $35 an hour over a worker's career -- lifts morale and raises productivity, thus increasing revenue and paying for itself.
"I don't believe in two-tier systems," Mr. Sullivan said in an interview. "It does not support the teamwork that you are trying to achieve and therefore the efficiencies."
--SNIP--
In a telephone interview after the Caterpillar announcement, Mr. Sullivan noted that the five-year contract at Bacyrus did not expire until 2013. "Cat will take its time to see how we do things," he said, "and then make a decision down the road."
A Caterpillar spokesman, James Dugan, noted that the Bucyrus purchase -- for $8.6 billion -- would not close until the middle of next year. "It is premature for us to discuss such issues now," Mr. Dugan said of the labor agreement.
IMHO, based upon previous actions of Caterpillar's senior management, where they were "a pioneer among profitable companies in negotiating a two-tier wage system for its factory workers," Uchitelle points out that they were one of the first to do so with the United Auto Workers back in 2005.
What this all boils down to, IMHO, is the blatant institutionalization and domination of corporatism, and its ongoing kleptocracy, over the working class.
We applaud G.M. arising out of the ashes, but don't look too closely at those UAW new-hires now earning $14 per hour, as opposed to the norm of two of more times that amount, just 17 months ago.
We talk about "stability" in an economy brought to its knees wherein fraudulent investor marketing, ratings agency fraud, appraisal fraud, blatant accounting fraud, mortgage origination fraud, document creation fraud and, now, foreclosure fraud have all been thoroughly documented to have occurred and--in many instances--which still runs rampant throughout our society to this day.
So, what is at the REAL root of this problem, folks?
Frank Rich, in Sunday's NY Times tells us, again: IT'S THE RAMPANT, BIPARTISAN GRAFT AND CORRUPT NATURE OF OUR POLITICAL SYSTEM, STUPID!
From Frank Rich in today's NYT, "Still the Best Congress Money Can Buy."
Still the Best Congress Money Can Buy
Frank Rich
New York Times
November 28, 2010
...everyone is aggrieved about the hijacking of the political system by anonymous special interests. The most recent Times-CBS News poll found that an extraordinary 92 percent of Americans want full disclosure of campaign contributors -- far many more than, say, believe in evolution. But they will not get their wish anytime soon. "I don't think we can put the genie back in the bottle," said David Axelrod as the Democrats prepared to play catch-up to the G.O.P.'s 2010 mastery of outside groups and clandestine corporate corporations.
The story of recent corporate political donations -- which we may never learn in its entirety -- is just beginning to be told. Bloomberg News reported after Election Day that the United States Chamber of Commerce's anti-Democratic war chest included a mind-boggling $86 million contribution from the insurance lobby to fight the health care bill. The Times has identified other big chamber donors as Prudential Financial, Goldman Sachs and Chevron. These are hardly the small businesses that the chamber's G.O.P. allies claim to be championing.
Since the election, the Obama White House has sent signals that it will make nice to these interests. While the president returns to photo ops at factories, Timothy Geithner has already met with the chamber's board out of camera range...
...Such is the ethos in his own party that Senator Jim Webb, Democrat of Virginia, complained this month that he "couldn't even get a vote" for his proposal for a one-time windfall profits tax on Wall Street bonuses. Republicans "obviously weren't going to vote for it," he told Real Clear Politics, but Democrats also demurred, "saying that any vote like that was going to screw up fund-raising."
--SNIP--
America needs a rally -- or, better still, a leader or two or three -- to restore not just honor or sanity to its citizens but governance that's not auctioned off to the highest bidder. When it was reported just days before our election that Iran was protecting its political interests in Afghanistan's presidential palace by giving bags of money to Hamid Karzai's closest aide, Americans could hardly bring themselves to be outraged. At least with Karzai's government, unlike our own, we could know for certain whose cash was in the bag.
IMHO, it's really quite simple. "The banks [and the corporations] own the place." And, until such time as something's done about THAT, the haves will continue to trample upon the lives of the have-nots, and they will continue to eviscerate Main Street just as they have for the past three decades.
As Herbert closed out his column on Saturday...
...What's really needed is for working Americans to form alliances and try, in a spirit of good will, to work out equitable solutions to the myriad problems facing so many ordinary individuals and families. Strong leaders are needed to develop such alliances and fight back against the forces that nearly destroyed the economy and have left working Americans in the lurch.
Again, IMHO, it really IS quite simple. As a party, Democrats can continue to applaud the policies that have brought us to where we are, today, or "we can be the change that we've been waiting for." Because on November 28, 2010, if there's one thing that's become crystal clear to this diarist it's the reality that if we expect our nation's and or party's leaders to do it for us, it will never happen.
gjohnsit pointed out in his diary, on Saturday, that this is our past history. Yesterday, Bob Herbert reminded us that it's our present reality, too.
As Markos reminded us, just a little over 24 hours ago, there really is no middle ground here.