Monday, August 31, 2009

Toyota Closes Its First Plant in the U.S.

This was a joint GM-Toyota operation that employed around 4,700 in Fremont, California - not too far from where I live. It was also a UAW shop, and its closing further erodes whatever membership the union has left. According to the New York Times, there are now no auto plants in the United States west of San Antonio, Texas.

The car industry, a visible representation of the overall state of the world economy, has been riddled with excess capacity and debt for years. So in a sense, to restore profitability, companies need to liquidate. Within the United States, remaining production will increasingly congregate in non-union and low wage regions.

When one considers the multiplier effect, it is estimated that 40,000 jobs could be lost because of this plant closing.


1 Toyota to Close Union Plant in California - NYT

Saturday, August 29, 2009

"Russia and Ukraine in Intensifying Standoff "

So says the New York Times.

Ukraine is of crucial importance to Russia in many ways, for one, the city of Sevastapol hosts the largest Russian naval base. The lease runs out in 2017, and there is no equivalent secondary option for Russia.

As with many strategic areas of the former USSR, there is considerable Russian influence in Sevastapol, and in the larger autonomous area of Crimea, where they make up a majority of the population. Russia has created a 34 million dollar fund "in the support of compatriots abroad", in what could be a parallel to American funding of color revolutions or Iranian dissident groups. Russian passports have reportedly been distributed throughout the Crimea, much as they were in the former Georgian region of South Ossetia. The encouragement of secessionism is straight from the American destabilization playbook.
1 Medvedev's Message - NYT Opinion
2 Russia's Next Target Could Be Ukraine - WSJ
3 Russian Aid Pours Into South Ossetia - Time

Friday, August 28, 2009

Life Expectancy in Mexico and China : Things Everyone 'Knows'

Everyone 'knows' that China was a desperately poor and backward country until it opened up to the West around 1980.

Everyone 'knows' that Mexico is full of drug cartels and has a dysfunctional government.

But from 1960-1976, life expectancy increased in Maoist China from 36 to 65 years. Given the time span, this nearly 30 year increase is probably unprecedented in human history.

And China's life expectancy increases stalled immediately after opening up to the West, and the introduction of capitalist modes of production. After overtaking Mexico in life expectancy during the 1970's - right at the end of the Cultural Revolution - it starting lagging behind in the 1980's and has yet to completely catch up. It certainly hasn't surged at the dynamic rate one would expect given the growth in GDP.

Alternatively, Mexico's life expectancy has slowly but continually increased over the last forty years, and has consistently been higher than China's since 1980. It is within striking distance of the United States: 75 years as compared to 78.

Thursday, August 27, 2009

American's Views on 'Interracial' Marriage - It's Not 1958

The United States has changed a lot in 50 years. And in fact, even the last decade. The Gallup poll on interracial marriage best sums it up. In 1958, 4 % of Americans approved of interracial marriage, in 1968, 20 %, in 1983, 43 %. The number was at 48 % at the beginning of Clinton's term , but shot up to 64 % from the years of 1994 to 1997, as the Generation X'ers move into young adulthood. As of 2007, the numbers were overwhelmingly in the 'approval' camp - at 77 %.

This is nothing short of a social revolution, yet there are some on what could be called the political left, that don't acknowledge this sea change. One hears arguments that America is a racist nation, even though compared with most historical societies, it is not. Economic differences between ethnics groups exist mostly because of the historical damage of racism, or immigration patterns. The United States is, however, a polarized and deeply class-based society.

Until the left, including liberals, fully accept the notion that it is not 1958, they will continue to paternalize large sections of the American working class as intolerant xenophobes. Paternalization does not lead to effective communication, or in building the common class interests that can unite workers and bring them to power. Which is the point, after all (for leftists - if not liberals). Identity politics, and its inherent divisiveness, is something the ruling class is quite happy to allow debate on. It could be characterized as a domestic form of Divide et Impera.

1 Most Americans Approve of Interracial Marriages - Gallup

Tuesday, August 25, 2009

Few Green Shoots in Rail Traffic Thus Far

Year over year rail traffic is down 17.8 % over the 4 weeks ending on August 15th, as opposed to 18.7 % for all of 2009. So things improved just a bit recently, mostly in automobiles. This might have been to due to the anticipation of Cash-for-Clunkers.

Year over Year percentages will improve markedly once the bulk of last year's crash passes its anniversary, starting about January.

Monday, August 24, 2009

The Post-World War 2 Order is Tottering

Several key international institutions will have their paths charted over the next few years. The likely outcome is that they will be greatly diminished in importance and power, while possibilities also exist for outright collapse.

The next round of G20 talks will be held in Pittsburgh during late September. One of the more important items on the agenda is the reform of the IMF. Theoretically this would mean greater voting rights, and financial contributions, from the emerging powers and states with large reserves. But serious shifts in voting rights are not yet being proposed by the current Western dominated leadership. Instead, the IMF has decided to raise cash by selling bonds and its gold reserves.

In December, Copenhagen hosts the United Nations climate change conference. The original point of the conference was to adopt a new and more stringent form of the Kyoto agreement. Again, this has bogged down in conflicts between emerging and developed industrial powers, as well as disputes between the E.U. and the United States. It's likely the talks will end in something that makes for a good headline, but produce little in substantial cuts in greenhouse gas emissions. Certainly not enough to prevent a rise in global temperature of over 2 degrees Celsius, based upon current forecasts of how emissions effect climate change.

Lastly are attempts to revive the WTO-supervised Doha trade negotiations. They stalled in 2008 because of arguments around agriculture subsidies in the United States, and the ability of developing nations to enact tariffs if trade resulted in the collapse of a domestic industry. Most especially, India wants to prevent a repeat what happened to Mexican agriculture when it opened trade to the United States after NAFTA.

At the heart of all these arguments is the inability of the United States to impose a system-wide solution. This is due to its significant economic decline over the last decade. Given that this a world of nation states, and political power is driven by domestic concerns, it's unlikely that a group of 'equal' nations can come to agreements on international economic matters. If continuing trajectories of economic growth hold, there will be a reemergence of trade blocs and spheres of influence - similar to those which ended up being so destabilizing to the pre-World War order.

1 Gloomy Negotiators End Bonn Climate Talks - NY Times
2 U.S. warns "imbalance" in Doha talks needs fixing - Reuters
3 IMF Voting Shares; No Plans for Significant Changes - Mark Weisbrot and Jake Johnston
4 IMF Acting on Several Fronts to Ramp Up Its Financing - IMF
5 Reforming the IMF - Blended Purple
6 Pittsburgh G20 Home Page
7 United Nations Climate Change Conference


8 "The World Bank Is Running Low on Cash" - Blended Purple

Saturday, August 22, 2009

An American 'Savings Glut'

Western finance capitalists have gotten so avaricious that they are destabilizing the very system whose legal mechanisms have enabled their power and wealth.

On an international scale, this was most notable during the Asian Financial Crisis of the late 1990's, when IMF imposed austerity laid waste to the governments and public sectors of developing Asia. It ended with riots in the worst hit country of Indonesia, resulting in deaths and a wave of anti-Chinese hostility. The long-term reaction in Asia was the development of reserve arsenals - the stockpiling of dollars and reserves to combat currency collapse and speculative outflows of capital. This 'savings glut' is blamed by some economists as the cause for the current gap between capacity and demand. Yet this 'glut' is a direct response to Western finance avariciousness. In the long run, the IMF's harsh response to the crisis made it weaker. It now appears unable to raise money without either selling bonds, or gold, actions hardly taken from a position of strength.

Within the United States, there are a similar set reactions evolving in response to the banking crisis. Debt-laden banks such as Chase have decided to double the minimum payments, or dramatically increase the interest rates, of their credit cardholders. This, during the longest lasting downturn since the Great Depression. The result will be an insecure and savings oriented American consumer at a time of exceptionally weak private demand. In other words, an American version of the Asian 'savings glut'. This of course will trash the overall economy over a period of years. It will end up hurting profit rates much more than the consumer - once they have either paid their bills or declared bankruptcy and defaulted. The later of which is really the best thing for many, many people with high interest debt loads.

Thursday, August 20, 2009

Homelessness and Ethnicity

I live in an area that is approximately 25 % 'Asian', 30 % 'White', 15 % 'Black', and 30 % "Latino'. Imperfect categories to be sure, but useful enough for the sake of this piece.

It's interesting however that the substantial homeless population - or the visible one - is almost entirely White or Black. This, despite making up only about 50 % of the population in this particular area. I have observed a similar pattern in other areas, as well.

An initial explanation might be simple economics. How do the unemployment rates among the four groups compare ? Well, the short answer is that Asian and White unemployment rates are basically the same, with the Latino rate a couple of points higher, and the rate for Blacks a couple of points higher than that.

Therefore, based on simple economics – i.e., who has the money - one should expect to see a higher rate of Latino homelessness than White, and a similar one for Asians and Whites. But this is not the case.

I base my explanation upon life experience and close contact with various communities as a teacher, as well as a 'mixed' long term partnership.

Simply put - Asian and Latino familial institutions are much stronger, and more extended, than those of Americanized White or Black families. There is greater sense of obligation to each other, so that unemployed, elderly, or decrepit people within the family, receive support and shelter from others.

Rather than framing it as a moral question, it's interesting to think about the roots of this tradition. First of all, in analyzing the situation I have noted that this type of supportive family structure exists with White and Black immigrants from Eastern Europe and Africa. It is strongest within first or second generation immigrant communities, and perhaps reflects rural or pre-capitalist social traditions within the country of origin.

The United States, being the most advanced capitalist country - and the most ruthless - promotes individualism and self-reliance to the extent that it breaks down family structures over a period of generations. This also serves the general framework of capitalism well – a person's productivity becomes their value. People who can't generate profit or consume are worthless in a pure capitalist model. Paying for an mentally ill cousin's apartment, or keeping a less than active relative in the family business, makes sense from the standpoint of family obligation – but not from the standpoint of profit or efficiency.

Wednesday, August 19, 2009

Income and Wealth Inequality

From Emmanuel Saez, a chart representing share of national income that the top .01 % hold.

It's interesting to look at political events that accompany trends within the chart.

In 1979 for instance, Paul Volcker, representing the very definite interests of the ruling class, stated that "The standard of living of the average American has to decline". Thus controlling inflation - not promoting full employment - became the overt goal of the Federal Reserve.

Another rapid rise in inequality occurred after the liquidation of the Soviet Union, and the increasingly capitalist development of China after Tiananmen. The collapse of the Soviet Union meant "the end of history", and removed the political restraints - especially the example and threat of expropriation - that decayed Communism placed on the capitalist world. The opening of China, and the stabilization of its internal politics, meant a vast pool of labor in the formerly non-capitalist world was now available for exploitation.

Tuesday, August 18, 2009

Trends In Foreign Direct Investment

Through the first seven months of 2007, China's Foreign Direct Investment was 5.3 billion per month, in 2008 it was 8.7, and as widely reported - it is has fallen sharply in 2009 - to 6.9 billion. And according to Vice Commerce Minister Chen Jian, it faces "unprecendented difficulties". While many have attributed this to the global recession, and the need of companies to preserve cash and pay debts, it more likely reflects a shift in thinking on the ability to make profit by producing in China.

The Rio Tinto arrests have definitely rattled foreign companies, but even before that, there was consternation about China's new labor laws. The US-China Business Council warned in 2007, "The Draft Law may … reduce employment opportunities for PRC workers and negatively impact PRC's competitiveness and appeal as a destination for foreign investment." Though they are currently less than enforced, the laws reflect the desire to improve long term domestic demand within the country and are unlikely to be scrapped.


Related to this, was a brief note in a piece by Stratfor on Central and Eastern Europe:

"Before the crisis, the region was flying high on foreign direct investment, overtaking East Asia as the main destination for international capital in 2002."

While I have not read this anywhere else, if true or even close to being true, it represents a significant shift in FDI allocation.


Saturday, August 15, 2009

How is Health Care Reform Going to Control Costs ?

Obama has made controlling long-term costs, not universal health care, the central focus in promoting his rather murky reform proposal.(3)

Yet in order to control costs, either benefits, or profits and salaries must be cut.

Despite a pledge of two trillion dollars in savings from the health care industry, the New York Times commented:
"If history is a guide, their commitments may not produce the promised savings. Their proposals are vague — promising, for example, to reduce both 'overuse and underuse of health care'. None of the proposals are enforceable, and none of the savings are guaranteed".(5)

Even if health care industry commitments are fully kept, it means only 1.5 % in health care costs savings per year. (6)

And the 'public option', which would over time undermine private profit and the excessive salaries in the private health care system, is now 'off the table'. (8)

To remain revenue neutral as Obama has promised, it therefore means that either revenues must be increased (taxes), or that benefits must be cut (expenses). And a significant share of health care expense comes during the last month of a person's life.(2,7)

There have been many studies of ways to reduce this cost, and they talk about death in a lobotomized way that is disturbing.

For example:
"Cost-effectiveness analysis considers both the effectiveness of a health care intervention-its ability to do more good than harm when used in the usual circumstances-and the resources required to deliver the intervention. Cost-effectiveness usually is described in terms of the cost of an intervention per unit outcome, such as a year of life gained. A quality-adjusted life year (QALY) is the weighted average of the health-related quality of life during a year of increased survival where optimal health has a value of 1 and death has a value of 0. Measures such as a QALY mean little by themselves and are most useful when the cost-effectiveness of one intervention is compared with that of another. Of course, neither or both interventions may be worth the cost, depending on one's point of view."(7)

The 'end of life' discussions so much in the news are not a small part of the health reform bill, but a key element, because they have been shown to reduce costs.
The study in the March 9 issue of Archives of Internal Medicine suggests a tangible benefit to advance care planning discussions with physicians -- lower costs and reduced utilization of aggressive care, including admission to the Intensive Care Unit.(2)

As John Curran, of Time magazine, writes:
For real cost containment to occur there will likely need to be difficult choices made in areas such as end-of-life care, which currently consumes an outsize share of Medicare's budget. It's not politically palatable, but as companies are discovering, healthcare-cost containment is not a job that wins friends.(4)

Unless profit is taken out of health care, the principle way to control costs for business and government will be by reducing care, and increasing the financial burden on workers - for instance, mandating insurance from for-profit companies.


1The Health Insurers Have Already Won
2Discussions About End-of-Life Care Reduce Healthcare Costs in Last Week of Life
3Bend It Like Obama
4Obama Meets Business Leaders on Healthcare Costs
5Obama Push to Cut Health Costs Faces Tough Odds
6Insurers Offer 2 Trillion in Savings
7Can Health Care Costs Be Reduced by Limiting Intensive Care at the End of Life?
8What Happened to a Public Health Plan?

Friday, August 14, 2009

Cracking China's Banking System

Entering and ultimately controlling China's banking and finance sector has long been the dream of Western finance capital. As part of their admittance into the WTO, China agreed to fully open up their markets to foreign enterprises. Of particular interest to Wall Street were the mammoth 'Big Four' of Chinese banking.

This process has been stalled for many years, and was delayed further by the financial crisis of 2008. Yet it is an underlying dynamic to the geopolitical relationship between the two countries. The United States has become finance capital based economy over the last generation. To an extent, it doesn't matter how much industry is given up to East Asia, as long as U.S. finance capital interests feel they will ultimately control the levers of that region.

With China now experiencing 'The Biggest Bubble of Them All', Andy Xie recently warned that "Property prices could drop like Japan has experienced in the past two decades, which would destroy the banking system."

A destroyed Chinese banking system could very well be forced into concessions with the West. Whose largest banks, while having tremendous problems with debt and leverage of their own, have been propped back to profitability through government bailout. Alternatively, it could force Beijing to break or alter their relationship with the WTO and the international capitalist system.

Tuesday, August 11, 2009

The Business Cycle and Restoring Profitability

Profitability increased in the U.S. financial sector during the 1st Quarter, indicating a new phase in the Great Recession.

Business cycles are part of the process of eliminating excess capacity, debt, and generally cleansing the system under capitalism. Less profitable, or less connected, businesses go bankrupt or are consumed through takeover - and the survivors increase their profitability by taking the extant market share. This restoration of profitability is part of what creates the conditions for new private investment, and the creation of new private sector jobs. Lehman Brothers, Bear Stearns, Merrill Lynch and Washington Mutual represent just a partial list of major financial institutions who were either consumed, or liquidated, in 2008.

Overall aggregate demand must not collapse as various sectors cleanse themselves of overcapacity. 'Rolling' recessions are therefore more desirable. Systemic collapse means there will be no demand anywhere; to prevent this possibility, government can step in to provide demand Keynesian-style, through stimulus and the like.

The 'liquidationist society' inherent in capitalism is not particularly pleasant, and fairly destabilizing. Attempts to ameliorate it have left excess capacity and mounting public debt throughout the world economy. Public bailouts and guarantees of debt, along with liquidation and consolidation, have helped the U.S. financial sector restore a measure of profitability.

Monday, August 10, 2009

Ballmer : Government Needs to Invest, But No New Taxes (On My Company)

The perspective of Steve Ballmer, CEO of Microsoft, best sums up the disorganized state of the U.S. ruling class today.

From his remarks before Congress on February 7th:
We need to pursue breakthroughs over the coming years in green technology, alternative energy, bioengineering, parallel computing, quantum computing. Without greater government investment in the basic research, there is a danger that important advances will happen in other countries. This is truly I think not only an issue of competitiveness, but also in a sense of national security. Companies like ours and others can do our fair share in terms of funding of basic research, but government needs to take the lead.

For the government to take the lead, it needs money, which takes revenue. Taxes.

But when there is an actual proposal to raise revenue, through taxes, Ballmer leads the protest:
Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.

“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”

This type of greed, and dichotomy of thought in the sphere of private wealth, has led to a vast expansion in public sector borrowing over the last generation. Without the ability to necessarily tax wealth, the government must borrow.

Sunday, August 9, 2009

David Gergen on the Health Care Town Hall Mob Scenes

Gergen, on CNN:
This is -- this is very discouraging for people who want to see the democracy work. We've had two presidents in a row now, George W. Bush and Barack Obama, come to Washington promise to change, make this our discourse, make it more civil. And it just gets worse.

I mean, we saw last night, Erica, in the "200-Day Report Card." There is a tremendous polarization that's now taking place that equals that of what we saw under George W. Bush. And there's anger growing on both ends of the spectrum at the other end.

That makes governing very hard. It makes -- and the real question facing us as people right now, are we a self-governing people or not? Can we face the large challenges we have as a country? And health care is clearly one of them.

And I think this is putting democracy to a real test and leadership on both sides, leaders on both sides need to step up and put an end to these disruptive kind of brawling, physically violent sessions...

Gergen has worked for presidents of both parties for many years, and perhaps more than any voice today, promotes what could be called a Washington consensus.

He is not a wild-eyed radical or a perennial doomsayer. Someone who is at the heart of the political power is speaking of the possibility that bourgeoisie democracy in the United States is failing - i.e. "are we self-governing people or not? "

As with the fall of the Roman Republic, it is unchecked greed amongst the ruling class - both towards the general population and each other - that is rendering political compromise and practical solutions almost impossible.

Is the American Republic on the verge of collapse ? No. But strains are being felt, and there clearly is a trend towards degeneration in the governing institutions that make up the post-World War 2 capitalist order.

Saturday, August 8, 2009

How the Unemployment Rate is Determined

There are many myths and misconceptions, and Krugman does a nice job summing it all up.

The U-3 unemployment rate does not measure the number of people receiving unemployment benefits. The rate is determined by a household survey. The main problem with the survey, as far as I can tell, is that it is based upon receiving answers to a sensitive and personal question. Cultural and gender differences in talking about, and admitting to, being unemployed may be shifting data in ways we don't fully understand.

The payrolls report is separate of the unemployment report, and based upon a survey of businesses.

Friday, August 7, 2009

Steel Industry Under Stress

The steel industry remains a ground zero in determining the effects of the current recession, in all their economic and political forms. The industry is simply too huge, employs too many people, and is too vital to military and infrastructure concerns, for governments not to take a strong stand in protecting their domestic interests.

On the back of its government's domestic spending, China's 2009 steel production has increased 6 % against a worldwide decline of 21 % . This, despite chronic profitability problems in China, where there is an estimated capacity utilization rate of 75 % within the industry. In China, as with many of its industries, steel is about employing people.

Rival steel companies in the developed world are losing money and warning that demand will not recover for years. ArcelorMittal recently estimated that in 2009, apart from China, demand will fall by around 20 % worldwide, and not recover to pre-recession levels until 2011. And for China, the preferential treatment of domestic companies has led to the recent WTO disputes flaring up over steel 'dumping' , and the threat of tariffs by the E.U.

Related :1,2,3

Monday, August 3, 2009

23 Trillion Dollars

A series of bailouts, bank rescues and other economic lifelines could end up costing the federal government as much as $23 trillion, the U.S. government’s watchdog over the effort says – a staggering amount that is nearly double the nation’s entire economic output for a year.

If the feds end up spending that amount, it could be more than the federal government has spent on any single effort in American history.

This 23 trillion dollar bailout, or guarantee of loans, is poised to be paid for with cuts in domestic social programs - those which primarily benefit working class people. Publicly, these cuts will be triggered by 'worries over the deficit', and market threats from bond holders, most of whom are domestic - and the vast majority, wealthy.

The great financial crisis of 2008 will end up being one of the greatest transfers of wealth in recent history, if politics as usual is not challenged or even fundamentally threatened.

Sunday, August 2, 2009

Cybersecurity Talent Shortage

Feds suffer from 'serious' IT security talent shortage:

The United States government faces a serious shortage of skilled cybersecurity specialists, according to a new report, which estimates the country may need an 8-fold increase in the number nationally sponsored graduates with security degrees.

I suspect this type of issue is the primary reason for the sudden focus on math and science in the public school system. Businesses have no problems with simply importing skilled labor if there is none to be found domestically. But from a government perspective, this would create security and espionage issues.

If one goes into the field of hard sciences, there is a high likelihood that one’s labor will be used – directly or indirectly – in supporting the military apparatus. And if not that, then in fields dominated by monopoly profit – such as the pharmaceutical industry.

The association of science and math in the United States with militarization, and private profit, is one that is deeply demoralizing, and behind the generational decline in interest for these fields in the domestically educated population. The public push towards ‘green research’ (even as private companies such as BP abandon it) can be seen as an attempt to introduce an aspect of utopianism, or idealism, back into these fields.


Related: Why Young Americans Have Been Avoiding Math and Science

Saturday, August 1, 2009

Workers in Jilin Province, China, Riot and Kill Boss Over Layoffs

The Chinese working class is the great "Invisible" to the West, whose contact with Chinese people mostly comes through its professional class. Given that the world's production lies in the hands of this "Invisible" working class, it has a tremendous amount of unrealized power. My guess is that they are quite a bit more militant then imagined by most Western commentators.

Some 30,000 angry Chinese workers staged a riot at a steel factory in China that resulted in its boss getting beaten to death, underscoring just how quickly economic problems can stoke social unrest. The workers were protesting the sale of state-owned Tonghua Iron & Steel in Jilin province to a private group which they feared would lead to the loss of jobs.

Note: Jilin Province borders North Korea.