OurFuture.org Blogs: Dave Johnson

The One Thing That Will Help Restore U.S.-China Trade Balance

Dave Johnson — Thu, 19 Nov 2009 15:01:48 -0800

Have you heard of the U.S.-China Economic and Security Review Commission? Their job is to assess the national security implications of the trade and economic relationship between the United States and the People's Republic of China. Actually, that’s a big deal, especially now.

I joined a conference call today as the Commission today released its 2009 report to Congress. Here is a link to the audio of today's conference call.

Eric Lotke summarizes the report, in the post, Obama’s Home And The Report Is Out: China Takes Us To School

The official, bipartisan China commission held hearings, traveled to China and received closed briefings on classified information. They reported back about expansion of the Chinese navy, China’s stepped-up espionage and cyber-warfare capabilities, and the world’s most sophisticated web filtering and Internet control systems.

But the economy is behind it all. China is quite literally eating our lunch. ...

[. . .] The report reads like an indictment of Chinese behavior and American compliance.

Eric continues with a summary of the report and lays out how the imbalances with China contributed to the economic collapse. Go to his post and read the rest.

One thing that came up in the call—featuring Carolyn Bartholomew, the chair of the U.S.-China Economic and Security Review Commission, and Clyde Prestowitz, the president of the Economic Strategy Institute—is that there is always an excuse not to do something about China's protectionism and the resulting trade imbalances. Today the excuse is that they loan us so much money (because of the Reagan/Bush debt and because we don't make things we used to make, and have to borrow money to buy them from China now) and if we make them mad they will stop loaning us money.

“This is sort of the elephant in the living room, the concern that the U.S. can’t do anything because the Chinese will stop buying our debt," said Bartholomew during the call. Before that, the argument was we couldn't upset the Chinese because then they won't help us with North Korea. At other times we couldn't do it because China had nukes. There is always an excuse for China's trade imbalance. But the fact is that China needs to sell into our market and this gives us a lot of leverage to use to improve the balance of trade.

"This fear that we can’t do anything to stick up for our own rights because if we do they will shop buying up our debt is just false. It’s just not going to happen.”

During the call I asked a question along the lines of, "If we can only do one thing, what’s the one thing we can do to get the greatest bang-for-buck?" The answer was:

1) Currency rates. Chinese manipulation of currency brings them an approximately 40 percent price advantage.
2) Industrial policy, which they prefer to call “innovation strategy.” Every other country has a strategic plan to help their own manufacturers and other businesses compete in the world. We don't.

(Yes, I know that's two things. Nothing is easy. "Nuanced" was the word they used.)

It is critical that we do something about Chinese deliberate undervaluation of their currency. It amounts to a 40 percent subsidy of Chinese goods by their government. That is just huge. and so when people look at where to buy something—consumer goods, steel, etc. they start out with a 40 percent price advantage. Changing China's currency to market rates would remove this price advantage and help bring manufacturing—and jobs—back to the U.S.

The idea that we need to develop a national policy or strategy or whatever you want to call it is essential to our future. And this is something that we aren't doing for ourselves, not something that someone else is doing to us. The first part of this is the language problem. If we try to call it an "industrial policy," the idea is immediately attacked as "the government shouldn't be picking winners and losers." This is, of course, just the usual anti-government nonsense, because by doing nothing the government is currently picking China as the winner and the people of the United States as the losers.

Unfortunately, name-calling seems to be an effective tactic for blocking government action. Some have suggested variations on the wording "economic strategy" or "innovation strategy." Whatever you want to call it, we need to do it. need to have some sort of national economic and innovation policy and strategy that helps Americans organize and helps us figure out how to respond to some of these things," Bartholomew said.

Listen to the call and read the report. We are losing manufacturing, and with it we are losing our ability to compete in the future! We are putting our national security at risk. By losing manufacturing we also lose the supply chain that supplies the manufacturers. And of course we lose the ability to make things which we then sell in order to obtain the money with which to buy things. If you don't make things to trade with you have to borrow.

The worst thing, though, that we lose is the research and development capability that drives the manufacturing. This is the very thing the right and the free-traders said we would keep if we let the outsourcers have their way. They said outsource what someone else does cheaper, and keep the intellectual property. But as Bartholomew points out, we are losing the research and development, and the high-tech, and the manufacturing processes -- the things that people with enough education and skill would be able to do, which are the drivers of the supposed information economy. Right.

"As China is moving up the value-added chain, it's luring r&d, so the research and development is following the manufacturing, and once you've lost your research and development capacity as well as your manufacturing capacity, you lose your innovation capability, you lose your innovative edge," Bartholomew said. "So I think how we talk about this issue moving forward is going to be very important."

The Problem With A Jobs Bill – And Everything Else

Dave Johnson — Wed, 18 Nov 2009 11:57:55 -0800

The country needs a jobs program and needs it right now. Cash for Caulkers would be a good start. A new Civilian Conservation Corps would be another. But let's not allow a jobs program to cover over the need for real changes in the structure and core principles of our economy.

Yes, an effective jobs program can help people hold out a while longer - until necessary changes are made. It can make the unemployment rate will look better, for a while, and maybe the GDP will climb a little bit. But our low-wage, everything-to-the-top economy is not sustainable and needs to be redesigned and reregulated. The economy has to be changed so that it works for all of us, instead of just a few.

What if the government passes a jobs bill, and these new jobs follow the current American job model of paying too little with no benefits? What if the government uses contractors, as they now do for so many government functions, and the contractors “reduce costs” by paying very low wages and no benefits, sending the rest of the cash to a few at the top? Does it really help the economy and the country to provide a bunch of low-paying jobs with no benefits, and make a few wealthy executives even wealthier? Or suppose the government starts a massive infrastructure modernization project? Does it help the economy if they hire construction firms that pay as little as possible or use Chinese steel?

Even if a government jobs effort provides good-paying jobs with good benefits, this still won’t change the need to restructure the rest of our economy so that it, too, provides good pay and benefits to all of us instead of concentrating all wealth and income at the top.

As long as our economy is structured to pass everything up to a few at the top, stimulus can’t work well, jobs bills can't work well. Either can anything else. In the end things will just revert to the old ways and we'll need more bailouts, stimulus and jobs programs.

The problem is that there are two economies now. There is an economy for the top few and an economy for the rest of us. And this problem is global. The world’s economy is structured to send almost everything to a global top few.

Everything just goes to the top now. Companies are structured that way, jobs are structured that way, taxes are structured that way and now even our government is structured that way. Our economy has been turned into a machine that sends every dollar to an already-wealthy few. So efforts to stimulate economic recovery using traditional methods cannot work. It will just make a few at the top even richer.

We need a jobs bill because the economic system has broken down. We needed a stimulus package because the economic system has broken down. All the bailouts and jobs bills and stimulus are just one more stopgap effort to keep a broken system going, for the continued benfit of the few at the top. Changes must be made.

One barrier to fixing our broken economy problem is the structural corruption of our Congress. Every effort to help the people seems to get hijacked - and never mind working on the needed reregulating and restructuring. The recent extension of unemployment insurance, for example, included only $2.4 billion for the unemployed, but had more than $20 billion tacked on, going directly or indirectly to (owners of) big homebuilding companies. Another example, the health care reform bill is turning into a law ordering people to buy insurance from the big insurance companies. This year’s big stimulus package was watered down with even more tax cuts for the few, like getting rid of the Alternative Minimum Tax.

The biggest example, of course, was last year’s financial sector bailout. Taxpayer dollars saved the asses of the companies that caused the collapse and are now serving up $140 billion for financial-sector bonuses but 10% unemployment for the rest of us!

If we want to get out of this mess we have to restructure and reregulate the whole system. We have to change the structure of our economy so that regular people receive the benefits. It is time. There is no more getting around it.

Next post: some of the structural problems that must be changed.

The Washington Times Was Against Protectionism Before It Was For It

Dave Johnson — Mon, 16 Nov 2009 15:00:48 -0800

President Obama is visiting Asia, and is blasted over and over about America's supposedly "protectionist" policies.

"China on Monday accused the United States of increasing protectionism..."

Think about it, the country with the massive trade surplus accuses the country with the massive trade deficit of being "protectionist." Call it The Audacity Of Projection.

Our trade opponents have learned that all they have to do is shout the word “protectionist” and their American enablers will quickly run from doing anything that might help American companies and workers. But what happens later, when the consequences start hitting home? Do the "free trade" shouting, foreign-competition enablers take the blame and accept responsibility when Amercan dollars are spent overseas and American workers lose jobs and American factories close? Who could have known that they would point the finger at the President instead of themselves?

Here is what I am talking about:

On February 8, 2009, during the debate over the stimulus package, the conservative Washington Times joined the "free trade" chorus, denouncing the package's proposed "Buy American" requirements as the same kind of "protectionism" that conservative mythology says caused the Great Depression: EDITORIAL: How to cause a depression,

...Tucked within the economic stimulus bill the House passed last week was a clause requiring state and local public works agencies to buy American iron and steel for their reconstruction projects, and the Senate expanded it to all manufactured goods.

[. . .] The stimulus bill has a way to go before it reaches Mr. Obama's desk, but if strong "buy American" mandates are present at that time, he will have no choice but to veto the bill. Otherwise, he will be forever known as Barack H. (Hoover or Hawley) Obama.

Conservative free-traders got what they demanded. In response to these and other cries of “protectionism!” the Senate backed away from the Buy American clause, changing it to vague language requiring that the money be spent in ways consistent with existing treaties.

Since this wording gives the President some discretion in how the money is spent conservatives started demanding the President spend it ... outside of the country. For example, a Washington Times editorial on March 24, EDITORIAL: The Mexican-American War of 2009, ended by blasting President Obama for wanting American stimulus dollars to stimulate America's economy:

"Wasn't Mr. Obama going to be the "international" president who was going to get the rest of the world to love us? The path to improving relations does not involve destroying jobs in other countries as well as in our own."

So now it turns out that many stimulus dollars are being spent according to the wishes of the "free trade" conservatives, with money to purchase wind turbines creating jobs in Europe and China, and who could have known, the very same free-trade conservatives are JUST OUTRAGED that President Obama is sending American stimulus dollars out of the country! For example, a Washington Times editorial on November 13, EDITORIAL: Stimulus creates jobs in China, begins,

Of the $1 billion in clean-energy stimulus money spent since the beginning of September, $850 million has gone to foreign wind companies. It doesn't take a bunch of experts at a hastily planned "jobs summit" to discover this isn't the way to bolster employment in America.

Indeed, the 11 U.S. wind farms that received stimulus money from the Treasury have imported 695 of the 982 wind turbines to be installed, creating 4,500 jobs overseas. That's far more overseas work than the stimulus money has created in the United States.

Yes, how DARE they not require that American stimulus dollars be spent in America! This from the very same Washington Times editors who earlier in the year demanded exactly that.

Who could have known that conservatives would attack President Obama for the consequences of giving in to conservative demands??!! The Washington Times was against protectionism before they were for it. Call it The Audacity Of Hypocrisy.

The lesson to be learned here is to stop listening to these conservative, "free trade" clowns. They are only interested in making the rich richer at the expense of the rest of us and will say whatever advances that goal. We should start just doing what is right for the country, our workers, our factories, our companies and our jobs.

Back To Our Old Ways On Trade?

Dave Johnson — Fri, 13 Nov 2009 07:47:25 -0800

This just in from Reuters: U.S. trade deficit widened in September.

The U.S. trade deficit widened in September by an unexpectedly large 18.2 percent, the most in more than 10 years, as oil prices rose for the seventh straight month and imports from China bounded higher, a U.S. government report showed on Friday.

The gap in September was $36.4 billion.

In other words, we borrowed more money to buy things made elsewhere. We did that because a few decades ago we started exporting our manufacturing capacity. So now our trade profile looks like this: We export jobs and factories. Then we borrow money to buy more of the things we consume. Borrow, consume, borrow, consume.

How long with this unsustainable situation be able to continue this time? We know what happened last time. So our policy should not be it didn't work so we are doing more of it. We as a country should be capable of learning something.

And look what we exported:

The value of U.S. exports of industrial supplies, such as steelmaking material and gold, rose to $27.13 billion in September.

A big chunk of what we exported was materials for manufacturing things elsewhere!

President Obama is in Asia starting today, visiting Japan, Singapore,South Korea and China. China is the big one, of course, because of our balance of trade problem with that country. One subject of the discussions will be a word that is going to be heard a lot in coming months and years: rebalancing.

Yesterday in his post What Chinese Currency Manipulation Looks Like, Eric Lotke wrote about the problem of China keeping its currency artificially "pegged" to the U.S. dollar,

China’s deliberate policy of pegging the Yuan to the dollar makes American imports of Chinese goods artificially cheap and gives American companies opening factories in China an artificial subsidy. That’s good for China but bad for America, and helps explain our soaring trade imbalance with China. An extraordinary 83 percent of America’s non-oil trade deficit is with China. During the downturn, our trade deficit with other countries has been shrinking — but not with China.

So President Obama should insist that China stop this huge subsidy that is distorting trade across the world.

Here is another reason for China to stop this practice: it is keeping the Chinese people poor. Yes, on the one hand Chinese currency manipulation steals jobs from the rest of the world and brings them to China. But on the other hand, keeping their currency low keeps the people who get those jobs from being able to buy things made elsewhere. It keeps the prices on goods made outside of China much higher than market levels.

If China rebalances its currency to market levels the Chinese people's purchasing power would instantly increase. They would be able to buy the things we make, and this would stimulate manufacturing here. This rebalancing would be good for the Chinese people and for the rest of the world. It would help stimulate internal markets there as well as trade with the rest of the world. It would help us rebalance our debts and start earning the money to start paying backwhat we have borrowed.

So this is something China can do with the stroke of a pen to help rebalance the world economy, rebuild our manufacturing sector—providing good jobs here—and helping their own people to be able to enjoy the benefits of a world economy.

$140 Billion for Bonuses, Zero for America’s Future

Dave Johnson — Wed, 11 Nov 2009 04:00:49 -0800

Here is another story about Wall Street’s war on the real economy.

US Steel was planning to invest $1 billion in building an environmentally-friendly new “coke battery” plant in Clairton, PA. The new battery would dramatically reduce the emissions used in the process, and use the gases to produce electricity. According to the Pittsburgh Post-Gazette,

The strategic investment would build two new coke batteries at Clairton, install top-flight environmental controls and add a cogeneration plant that would make electricity from gas produced by coke-making, which will help power all three U.S. Steel sites.

Another Post-gazette story explains,

Coke is a baked coal that is used to fuel blast furnaces at the company's Edgar Thomson plant in Braddock and U.S. Steel's other North American operations. The Clairton plant can produce 4.7 million tons of coke annually and just under 1 million tons are consumed at the Braddock plant.

U.S. Steel broke ground on the project on October 22, 2008. Along came the financial crisis, and financing for the plant dried up. They had to suspend work in April, 2009. U.S. Steel puts hold on $1B Clairton project.

U.S. Steel is suspending indefinitely the $1 billion modernization of its Clairton coke plant, a massive, multi-year project that was expected to create more than 600 construction jobs.

The Pittsburgh steel producer said it was forced to make the "difficult but necessary decision" because of the economic slowdown that has prompted it to lay off about 7,000 union workers in recent months.

When the financial crisis hit, George W. Bush and Henry Paulson came up with – and Congress approved – the massive bailout scheme that has rewarded Wall Street for the actions that collapsed the economy. We gave the financial sector of the economy – commonly called “Wall Street” – hundreds of billions of direct dollars and trillions in guarantees, supposedly to fix the credit crisis and get the financial sector working again as the sector of the economy that provides financing for projects like the US Steel Clairton Coke Battery.

This is November and US Steel still has not found financing at reasonable rates to get back to work building this plant. They need $1 billion and this project is good for America's industrial capability, workers and environment. But, apparently, Wall Street needs to pay out $140 billion in bonuses this year, speculate on life insurance plans, do “flash trading” on stocks, etc. instead.

What Wall Street Is Supposed To Be Doing

Wall Street and the financial economy are supposed to be to supporting the real economy by playing the role of middleman, connecting sources of money with companies needing that money to allocate capital where it is needed. This is supposed to be a constructive process that helps We, the People fund innovative startup companies, build factories and schools,allocate capital for company expansion and fund other large-scale projects that require a pooling of resources and dilution of risk. That is their essential role in the economy.

But there is a problem with the way Wall Street has been and is operating. Instead of playing a background role supporting the real economy Wall Street has been dominating the economy, influencing the government and running quick-buck schemes, creating bubbles, speculating up prices on commodities and generally running wild. Before the financial meltdown Wall Street was not allocating capital productively, it was allocating capital destructively. In the companies-as-buy/sell-commodities posts I have been exploring how Wall Street's practices has been destroying companies, eliminating jobs and generally wrecking our economy while making a very few vastly wealthy. The company-buyout game turns good companies into debt-ridden, job-shedding shells. The greed-based drive for ever-higher returns tries to destroy companies like Costco because they are “overly generous” to their customers and employees. Wall Street has turned into a machine that grinds up jobs and communities, forcing wage cuts, dehumanization of workplaces, and corruption of our democracy.

When the financial sector broke down as a result of quick-buck risky investments (that didn’t allocate capital), massive leveraging (that didn’t allocate capital), Ponzi-like scams (that didn’t allocate capital), outright but not-yet-prosecuted fraud (that didn’t allocate capital), etc., our government stepped in to rescue the sector. But instead of fixing the system, Wall Street still is not allocating capital where it is needed. They are, however, taking huge profits and giving out huge bonuses.

Let’s make finance the servant of the real economy again, rather than its master. Let's invest our money in our industry, not bailouts and bonuses for a few. There are so many incentives for Wall Street to destroy factories, etc, and so few incentives to build the economy. Let's develop a strategy to build a new, sustainable economy that respects the environment and us as workers, customers and citizens. Let's develop a national economic/industrial strategy/policy -- call it what you want -- so our country has a plan to create jobs, invest in research and development and solve our problems. Other countries do this but our policy and strategy is to not have a policy and strategy and just let things continue in the wrong directions. I'm tired of that. What about you?

Trade and Creating Jobs

Dave Johnson — Mon, 09 Nov 2009 17:10:19 -0800

In the Wall Street Journal today, White House Hopes Trade Can Bolster Labor Market.

By increasing exports to rapidly growing countries like China and India, the U.S. could put a dent in joblessness and foster long-term economic growth without stressing the federal budget. But overhauling export policy is part of a White House approach that is in the early stages of execution.

Yes, there is a lot that can be done to improve our balance of trade and we finally, finally have an administration in charge that is interested in doing that. Under conservative policies we gave up so many of our exports, which cost so many jobs, and has put us in a disadvantaged bargaining position by borrowing so much from countries like China.

In the WSJ story two historical proponents of conservative policies unwittingly demonstrate just what I am talking about,

Some, including the U.S. Chamber of Commerce, complain that as long as a trio of stalled free trade agreements remain unratified, the administration is shunning the most direct way to quickly lift exports. ...

“We need these agreements to make these guys as open to us as we are to them,” said Frank Vargo, vice president of international economic affairs at the National Association of Manufacturers.

"We need to make them as open to use as we are to them." Right. Yes, we have trade policies now with these countries where our borders are open to their products but they are not open to ours. And just how did that happen?

The first part of fixing the jobs and trade deficit problem, while we wait to negotiate fair trade agreements that respect workers and the environment and boost standards of living on both sides of the border, is to send a message that we are not going to just hand our jobs and dollars out anymore. Let's make our borders exactly as open to their products as their are to ours while adjusting for wage and environmental differences. How hard is that to get?

Getting Serious With China -- New Pipe Tariff

Dave Johnson — Thu, 05 Nov 2009 21:03:52 -0800

The Obama administration is taking steps to begin rebalancing trade with China -- and creating JOBS. In this case it looks like China has been "dumping" steel pipes --selling at prices that are below market -- to capture business away from American companies, causing them to close factories and lay off workers. This is illegal, and the Obama administration just imposed a tariff designed to begin correcting this.

Just on the newswire, NY Times with a Bloomberg report,

The United States imposed duties of as much as 99 percent on steel pipes from China after American producers led by the U.S. Steel Corporation complained they were being dumped at below-market prices.

The duties on $2.6 billion in annual imports of the pipes, used in oil and gas wells, will be 36.5 percent for the 37 largest exporters, the Commerce Department said in a preliminary decision. The tariffs will be on top of separate duties announced in September averaging 21 percent to counter subsidies to Chinese producers.

From Financial Times, US slaps anti-dumping duties on steel pipe imports from China,

Anti-dumping duties are used when companies sell their products unfairly cheaply into foreign markets. Imports of the Chinese pipes, which are used in oil-drilling, surged 203 per cent between 2006 and 2008, according to the commerce department.

The duties range from 36.53 per cent for a select group of Chinese companies to 99.14 per cent for the rest. One manufacturer, Jiangsu Changbao Steel Tube Co, was exempted from the ruling.

. . . A final anti-dumping order will be issued if both the commerce department and the International Trade Commission decide that the imports "materially injure" the domestic industry, or at least threaten to do so.

In another sign of its muscular approach, the US this week asked for a World Trade Organisation disputes panel to investigate Chinese restrictions on exports of specialised raw materials used in industry. It was joined by the European Union and Mexico in claiming that China's restraints on some raw materials were driving up the cost of end products.

President Obama travels to China in ten days. It appears he is going there with a message that they are going to have to be a "fair and balanced" trade partner from now on.

We will post more information as it comes in.

P.S. The EU imposed tariffs on Chinese steel pipes in July for this reason.

Wall Street's War Against the Real Economy & We, the People

Dave Johnson — Wed, 04 Nov 2009 03:00:15 -0800

At a meeting with bloggers before last week's Building The New Economy conference, AFL-CIO President Rich Trumka talked about how we have developed two economies, one real and one financial. As he said, originally the financial sector was designed to support the real economy by providing capital as needed for building manufacturing facilities, public infrastructure, etc. But in recent decades the power of Wall Street has twisted that relationship until the real economy now feeds the financial economy.

As I have been writing about, for decades the real economy has been "financialized" by the Wall Street types -- sold off piece by piece providing short term profits for a very few. We lost more than 50,000 manufacturing facilities in just the last decade! If you sell your house you might have some cash in your own pocket for a while but your family doesn't have a place to live and the present state of our economy demonstrates the long term cost of this kind of short-term thinking: a few Wall Street types have a bunch of cash and the rest of us don't have an economy anymore.

As each factory closes and its jobs are eliminated the companies that supplied machines, parts and supplies also go away. The effect on those of us still employed (for now) has been profound as we work longer hours for less pay and fewer benefits with ever-higher stress levels. A few get ever richer, the rest of us have ever-lower standards of living and quality of life. And our country's ability to bounce back becomes ever more compromised.

Along with others at CAF I have been exploring how We, the People became the servants of Wall Street and what to do about it. The post Companies As Buy-And-Sell Commodities - Workers, Customers and Country As Costs laid out the pattern of company buyouts and takeovers since Reagan. Here is the company-buyout pattern that has turned into a machine with no human concerns:

buying up good companies, shedding and outsourcing the workers, cutting their pay and benefits, outsourcing and cheapening the product or service, fleecing and mistreating the customers, closing the offices and factories and running up debt.

The post Caught In A Machine That Grinds Us Up talked about the incentives that created this inhuman machine:

I have described here a destructive, unsustainable system that creates company- and society-breaking machines. These exist because of the economic and social incentives that our government has set up and we allow to stay in place. Breaking unions, stealing pensions, outsourcing jobs and squeezing customers all depend on government not enforcing laws and regulations – especially labor, consumer and environmental rules. …

Certainly there is no incentive at the top to stop this. This system helps a wealthy few get ever wealthier and not feel the consequences. The people who do this are celebrated as "successful." And if they don’t like the resulting devastation to the economy, community, country and world they can just hop into their private jet or yacht to retire to their private island or tax haven.

This is conservative economics and the long-term consequences. Since Reagan supposedly stopped government from "picking winners and losers" our government has indeed been picking winners and losers with Wall Street winning and the rest of us losing. This brought about a concentration of wealth so severe that a very few now control almost all of the wealth of the country.

Over and over again we see the consequences of conservative economics and Wall Street domination: Short-term profits for a very few with devastating long-term consequences for the rest of us.

We see these consequences now as the economy supposedly enters “recovery” – Wall Street is reaping vast profits and paying astonishing bonuses – enabled by taxpayer dollars – while the taxpayers themselves face loss of houses, raises or jobs, pensions, health care, etc. Gains for a few at the expense of the rest of us.

Wall Street vs Costco

Just as with the private equity game, Wall Street and market ideology has been at war with any part of our economy that benefits customers or workers. For example, in 2005 the NY Times took a look at Wall Street’s war against Costco, How Costco Became the Anti-Wal-Mart. The complaint? Costco treats its customers and workers well. The article quotes one after another Wall Street “analyst” complaining that Costco is “altruistic” or “overly generous.” One makes it clear, saying the company “could force employees to pick up a little more of the burden.” In their eyes a business serving customers or employees is wrong. From the article,

Some Wall Street analysts assert that Mr. Sinegal is overly generous not only to Costco's customers but to its workers as well.

Costco's average pay, for example, is $17 an hour, 42 percent higher than its fiercest rival, Sam's Club. And Costco's health plan makes those at many other retailers look Scroogish. One analyst, Bill Dreher of Deutsche Bank, complained last year that at Costco "it's better to be an employee or a customer than a shareholder."

The head of Costco explained that they take a longer-term view:

Mr. Sinegal, whose father was a coal miner and steelworker, gave a simple explanation. "On Wall Street, they're in the business of making money between now and next Thursday," he said. "I don't say that with any bitterness, but we can't take that view. We want to build a company that will still be here 50 and 60 years from now."

And how does he do for himself?

Despite Costco's impressive record, Mr. Sinegal's salary is just $350,000, although he also received a $200,000 bonus last year. That puts him at less than 10 percent of many other chief executives, though Costco ranks 29th in revenue among all American companies.

"I've been very well rewarded," said Mr. Sinegal, who is worth more than $150 million thanks to his Costco stock holdings.

So in 2005 Wall Street’s short-term view of how Costco should operate was to squeeze the workers, cheapen the products, fleece the customers and grossly overpay the CEO. Costco did none of that, and now it is 2009 – the long term. How is Costco doing? I looked over their annual report and they are going just fine. According to The Motley Fool,

The retailer of pianos, coffins, and, yes, 30-pound jars of mayonnaise -- along with hundreds of other goods in bulk -- has managed to continue growing during the recession, impressively avoiding any layoffs in the process.

By the way, last year Sinegal’s salary was still $350,000. And a week ago US News and World Report wrote about Sinegal that he still “has a habit, which sometimes irks stockholders and almost certainly annoys his competitors, of taking excellent care of his employees.”

So Costco, a real company, was under attack from Wall Street for providing actual service to customers and actual pay and benefits to employees who were actually in the United States. And Costco came out OK through the 2008 financial crisis and aftermath.

But then, what we call Wall Street came out of this OK as well. Thanks to their stranglehold on our political and economic systems Wall Street came out of all this enriched and emboldened, using taxpayer dollars to pay bonuses and increase their lobbying. Many of the individuals who might have looted and destroyed companies and communities are rich and gone, others are still collecting bonuses. As far as the public sees, few of them have faced negative consequences for what they did -- virtually guaranteeing that such activities will continue.

Lessons

What lesson should we take away from this? Costco is a rare exception to the new rules. How many companies can get away with ignoring the demands of Wall Street that they cheapen the products, squeeze the employees and drain their surrounding communities? Why do we allow a system that enriches a very few in the short term while harming the rest of us, and how do we change this? Why do we tolerate IBG-YBG, the "I'll be gone - you'll be gone" take-the-money-and-run attitude that understands that there are no consequences when you take as much as you can from everyone else?

Now that Wall Street and short-term, unsustainable profit-taking have brought us to inevitable collapse, where do we go from here? Well obviously too-big-to-fail is just too big and that is a starting point. We were forced by their size to bail out these institutions, actually making them even bigger, and now they use our money to lobby against taxpayer interests, lobby for more bailout dollars, lobby against compensation curbs and taxes, lobby against politicians who want to change things, against rules to protect consumers, and anything that might change the short-term destructive approach. Using our dollars to do this - did I mention? We should break them up, like England is doing. But our government is, for whatever reasons, not doing so.

The recent Building The New Economy conference provided some guidelines that we can follow as we look for paths out of this. Take a look at the blog posts from conference participants that try to tackle these questions. (There is also a highlights video and should be more video when available.) The themes from the conference included the need for the Obama administration to develop a national industrial/economic policy, a rebalancing of trade, increasing the manufacturing that we do IN the U.S., a new emphasis on increasing research and development, modernizing and maintaining our infrastructure, an infrastructure bank to finance public projects, improving education and access to education including vocational education, and passing the financial reforms currently before Congress.

And how about using taxpayer stimulus dollars to actually stimulate OUR economy?

So how do we reign in Wall Street? Leave a comment.

Corporate Money In Elections -- What To Expect

Dave Johnson — Mon, 02 Nov 2009 07:50:05 -0800

The Supreme Court may decide as soon as tomorrow on the Citizens United v. Federal Election Commission case involving a corporate-funded anti-Hillary smear ad. It is likely the conservative-dominated activist court will overturn precedent and rule in favor of removing restrictions on corporate spending in elections, with terrible consequences. The 5-4 ruling will say that large companies injecting vast sums to sway election results is “free speech.” Imagine, vocal cords on a Cayman Islands post office box!

Common Cause has a report out, titled, Corporate Democracy: Potential fallout from a Supreme Court decision on Citizens United. "Lifting the ban on corporate political spending could unleash a flood of money into the political system and further diminish the public’s voice," the report says.

Really, imagine regular people trying to run for office while competing with the massive aggregated financial power of the biggest corporations. And imagine what will happen to anyone who dares to try to go up against their interests when they are able to openly spend any amount needed to get their way. I have come up with some examples of what to expect:

- The cost of running for office – any office – will increase exponentially. Even local campaigns will cost millions of dollars, as big corporations install their chosen representatives. Even locally powerful businesses will join the game, with car dealers paying to get local ordinances passed prohibiting new competitors, etc.

- A member of Congress considers voting against a special tax break for a certain very large corporation – or a law outlawing their competitors – which would bring the company $30 billion. The company lets that representative know they are prepared to spend a measly $200 million on a challenger in the next election, or for them if they vote the right way. How do you think that representative will vote -- and if they do the right thing how long do you expenct them to keep their seat?

- A huge oil company will certainly spend a measly $100 million to install a hand-picked board of county supervisors that will let them put a refinery in the middle of an organic farming or sensitive environmental region.

- Why wouldn't agribusiness spend a mere $1 billion installing legislators who vote to rescind food labeling requirements and food safety regulations?

- How long will it take before laws against monopolies, polluting the environment, etc. are repealed? Each election cycle will see corporate-backed candidates further consolidating the power and financial resources of a very few largest companies.

- Health insurance companies will pay Congress to pass a law ordering everyone to buy their product. Oh wait …

This is about the biggest corporations remaining dominant, using government power to channel tax dollars their way, while hampering competition -- especially from smaller, less powerful companies. The conservatives on the Court are there thanks to decades of spending by the biggest corporations that swayed public opinion in favor of big-corporation-supporting policies and politicians. We are seeing the results of these so-called “conservative” policies all around us as we lose our houses, raises, jobs and pensions while a select few grow ever richer.

If the Supreme Court rules in favor of this tomorrow it will be the big payoff, forever consolidating big-corporate control of the country and economy and effectively ending what was left of American democracy.

Wall Street Pukes On Our Shoes

Dave Johnson — Thu, 29 Oct 2009 12:26:05 -0700

At the New Economy Conference, Leo Gerard of the United Steelworkers just said that deregulating Wall Street was like leaving a 3 year old in a candy store unsupervised for a day. When you come back the kid is stuffed full of candy, candy falling out of the pockets -- but when you are driving home the kid pukes on your shoes. It's time to stop Wall Street from puking on our shoes.