Tuesday, November 29, 2011

Breakup of the Eurozone

by Richard Crews
Twelve years ago 17 countries on the European continent embarked on a bold experiment. They agreed that, despite having different languages and cultures, despite having a history of centuries of wars among themselves, despite having emerged only a half-century earlier from World War II--the most devastating conflagration the world had ever known--despite all these things, they would abandon their separate rights to establish individual monetary systems and join together in a single currency, the Euro. The developing global marketplace seemed so vast and powerful that they thought it could heal their cultural rifts forever.

Since then they have discovered that their styles of governance and fiscal management differ significantly. Some (like Germany) have grown strong industrial and marketing economies and well adapted taxation and other government fiscal policies. On the other hand, some (like Greece, Ireland, Italy, Portugal, and Spain) have continued to provide government services (from salaries and pensions to education, health, and safety measures) that they could not afford--they have maintained archaic and inadequate tax structures; and they have borrowed on international bond markets to make up the differences.

Over the past few years it has become clear that these disparities cannot persist--that the economically weaker countries can undermine the Eurozone enterprise as a whole. Specifically, if any of the weaker countries cannot pay back the money they have borrowed, the countries and the European banks that have lent them this money will be in trouble--they, in turn, may not be able to pay their obligations to their creditors, depositors, and other investors.

The first threatened default--Ireland--was handled successfully. The other Eurozone countries guaranteed the debt and Ireland tightened it fiscal belt.

But the next--Greece--was bigger and more complicated. A series of measures seem to be too little and too late.

Now Spain and Portugal seem in jeopardy. Even the huge economy of Italy--definitely too big to fail--seems threatened.

The entire Eurozone financial structure now seems on the brink of cascading into collapse.

What does this mean in terms of the European and world economies? Suppose the Euro is no longer issued or guaranteed by a consortium of countries? In that case each country on the European continent would revert to issuing its own currency--the Dutch guilder, the French franc, the German mark etc. And these currencies would, once again, trade against one another--the stronger ones would be preferred in contracts, business transactions, banking, etc. The weaker would sink in value--they would buy less in the market place. Both of these factors--both the fluctuations and the relative strengths (or weaknesses)--would be problems.

Suppose, for comparison, the U.S. government ceased to issue and guarantee dollars. Suppose your salary or pension began to be paid--if it was still paid at all--in California or New York "dollars" which fluctuated in value on a weekly or even daily basis--one day a head of lettuce cost a dollar and a week later it cost fifty cents or two dollars. Contracts (to roof your house or to buy a car) had to be carefully written to protect both parties--so carefully that they became impractical--in fact, impossible.

Even though this worst-case scenario is very unlikely, businesses, banks, and governments around the world have already begun to hedge against losses that would be incurred in any fiscally volatile times. They have begun to hold larger cash reserves (in stronger currencies such as U.S. bonds and precious metals), to lend more cautiously, and to favor short-term over long-term commitments.

The contraction of business and other fiscal activity around the world has already begun. We stand, with the Eurozone's economic fragility, on the brink of a severe worldwide depression.

Sunday, November 27, 2011

Washington Gridlock--Lest We Forget

by Richard Crews
I was surprised when I looked in on the talking heads on TV this Sunday morning to hear Washington gridlock discussed as if the causes were complex or obscure.

That is ridiculous.

Washington gridlock, the refusal of Congress to do anything, is a calculated strategy of the Republican Party to regain political power.

In 2009 Obama inherited from the Bush administration (1) the worst economic disaster since the Great Depression; (2) two unwinable wars and a worldwide image of high-handed, U.S. Cowboy diplomacy; and (3) an evolving ecological disaster of epic proportions. Although the roots of these go back many years to the deregulation and anti-scientism of Ronald Reagan, they had degenerated to explosive levels under Bush's eight years of incompetence.

In 2009 Obama put a lot of his political weight behind developing some sort of universal health care for the U.S. (The U.S. is the only advanced nation in the world that does not provide its citizens with guaranteed, affordable health care.) In the summer of 2009 the members of Congress headed out to their constituencies to hold town meetings to discuss health-care proposals. The Republicans sent outside agitators to disrupt these meetings and shout down any reasonable discussions. The media delighted in the headlines about raucous town meetings all over the country.

One of the axioms of propaganda is that if you say something often enough and loud enough, it develops an aura of believability no matter how absurd it is.

Flushed with this success, the Republican Party developed a political strategy to regain power. They realized that by obstructing any legislation that might potentially ease the difficulties the nation faced, they could saddle Obama with being seen as a failure.

Let us not forget: The causes of the legislative gridlock we see in Washington are not complex or obscure.

Sunday, November 20, 2011

Restoring the American Dream

by Richard Crews
The last three decades of the 19th century was our so-called "Gilded Age." U.S. prosperity blossomed. This period brought us not just the rise of the Robber Barons--the super-wealthy titans of finance and industry like Astor, Carnegie, Gould, Harriman, Hopkins, Mellon, Morgan, Rockefeller, and Vanderbilt and their invention of multi-million dollar philanthropy--but the advancement in education, income, and social mobility of tens of millions of "ordinary" Americans: the rise and empowerment of the American Middle Class. As Horatio Alger represented in his many rags-to-riches novels, a kid from a poor family could rise through determination, hard work, courage, and honesty to a life of middle-class security and comfort.

The evolution of this dream continued in the 20th century, although it suffered some severe setbacks--the financial crash of 1897, the Great Depression of the 1930s, etc. But during the third quarter of the 20th century--thanks to FDR's New Deal of the late 1930s, the industrial boom of the Second World War, and a long arc of social legislation and progress--the American Dream came to be firmly embedded in the American psyche and way of life and, in fact, in the image of the U.S. throughout the world.

However, over the past 25 years the American Dream has faded. Wealth has become concentrated in an upper class, governmental power has been usurped by wealthy individuals and huge corporations, and lower- and middle-class upward mobility has been stifled.

This paper presents a set of concepts and programs designed to restore the American Dream. It addresses such problems as--
resolving the wealth disparity,
meeting employment and education needs,
reducing the undo influence of money and corporate power,
handling immigration, and
restoring civil liberties.

Resolving the wealth disparity--Over the past 25 years, a massive distortion of wealth and income has developed in the U.S. The richest few percent now own most of the privately held assets including stocks and bonds, and real estate. Moreover, their income during this period has soared while that of the middle and lower classes has stagnated. This has led to the development of a rich and powerful oligarchy; this represents a serious threat to our democracy and to the future of our country.

Therefore: The income tax code should be cleaned up and simplified; this should include eliminating a multiplicity of exemptions, loopholes, deductions, and subsidies (a system which has been called "institutionalized corruption"); and it should include incorporating a graduated scale from zero percent for those earning under $50,000 a year up to 40% for those earning over one million dollars a year. In addition, the maximum wage for requiring FICA contributions should be raised from the current $109K to at least $200K--in other words, high-income individuals should pay more toward medicare and social security, not less. And because an income tax is intrinsically cumbersome and expensive to administer, the government should add, for much of its income, a value-added tax (VAT), a tax levied at each stage of an industrial production and distribution chain. This is much fairer, easier, and cheaper federal revenue stream to administer than an income tax. The U.S. is the only advanced country in the world that does not have some form of VAT.

There should also be statutory limitations on compensation of corporate and financial executives, some of whom currently "earn" tens of millions of dollars a year in addition to having retirement contracts ("golden parachutes") that pay them additional tens of millions of dollars when they leave a job. Ultra-high income levels also extend to other fields such as sports and media celebrities who also "earn" millions or tens-of-millions of dollars a year. Such absurd incomes should be effectively capped or heavily taxed. Their existence without heartily contributing to the federal coffers is antithetical to the American Dream.

Meeting employment and education needs--For decades institutions of higher education in the U.S. were the envy of the world. All over the world political and business leaders got their educations at U.S. colleges and universities. For one example, in Greece in late 2011, both leaders of the two major, competing political parties had American educations, in fact, they were once roommates at Amherst College in Massachusetts. For another example, when technocrats were selected, in November, 2011 to rescue the foundering Greek and Italian economies, both had graduate degrees in economics they had earned at American institutions.

But this vaunted excellence of American education is no longer true--at least, much less so. Over the past few decades American education, from bottom to top, has declined. U.S. elementary and high school students do not measure up, academically, to their age peers in Japan and many other Asian and European countries. In kindergarten through high-school, teachers are often not trained, supervised, or paid adequately and the facilities in which they work are crowded and in poor repair. Moreover, in college and graduate schools many students drop out because of economic pressures. A student who stays in school typically has incurred tens of thousands of dollars in student loans before graduating into the workforce, and consequently spends years or decades in debt--with lifestyle choices and mobility curtailed--paying these loans off.

In addition much education is not well geared to 21st-century needs. Nowadays, every field--including music, art, philosophy, and literature--requires technological know-how: research, writing, and teaching in any field requires considerable computer literacy. And advanced technological skills are often required.

Moreover, manufacturing and services organizations become increasingly efficient and productive as they are upgraded by robotics, computerized data processing, artificial intelligence, cloud computing, and the like. With these changes, workers lose their jobs; they must receive retraining to fit themselves back into the modern workforce.

These are not passing phases; they are trends that surely will become magnified in coming decades.

Therefore: The government should assure, by grants and regulations, that every child has access to high quality education from pre-kindergarten through graduate school. And this should be entirely free--based only on the individual child's desire and abilities, that is, on intellectual ability, and social and emotional skills needed to pursue an education. Moreover, re-education and retraining for advanced workforce placement in an increasingly technological civilization should be an expected and accepted part of living a full, productive life. It should be guaranteed by the government--assured by grants and regulations--although paid for largely by employers as they develop increasingly sophisticated workforce needs. The general principle is this: As a business or industry develops or incorporates technological advances to enhance its functioning, it should be required to fund or provide training for workers to manage that technology. This will not replace every job that is lost, but it will build a sophisticated workforce capable of the skills and mobility necessary in a modern economy. And it will help rebuild the image of social and vocational mobility which is an essential part of the American Dream.

Reducing the undo influence of money and corporate power--Lobbying in Washington is a multi-hundred-billion-dollar industry. No significant legislation in any field arises and develops in the halls of Congress without powerful pressure groups bringing their influence to bear. Whether one is talking about pharmaceuticals, mining, farm prices, medical or information services, space technologies, or any of hundreds of other "special interests," members of Congress are bombarded--even, inundated--with helpful guidance from experts in the field (experts who often include their former colleagues--the lobbying industry is a lucrative retirement club for former members of the House and Senate). It is true that this is where active members of Congress get a lot of their information about matters that are too complex and arcane to be easily understood. But this source of information is deeply biased by the goals and preferences of the private industries it represents--by those who pay its bills.

This advice also comes at a hefty price. The lobbying organizations that bombard Congress with biased expertise, are also heavy contributors to the law-makers' reelection campaigns. For a member of the Senate or House of Representatives, being responsive to the lobbyists' requests is essential to being reelected.

Therefore: The decades of campaign finance reform that were thrown out by the Supreme Court in "Citizens United" in 2010 should be reinstated. And much more needs to be done to regulate the lobbying industry, for example, former members of Congress should be prohibited from lobbying for five years after their departure from Congress; the law should require full disclosure of lobbying expenses and activities; and members of Congress should be prohibited from accepting donations from individuals and groups with whom they interact in the legislative process.

Handling immigration--We are a nation of immigrants. The diversity and vitality of the American way of life has been built up over many decades by welcoming foreigners to our shores and permitting them--or, even more, "encouraging" them--to pitch in and work toward the American Dream for themselves and for all of us.

Therefore: Our immigration laws and policies should encourage foreigners to come to the U.S. and make their homes here. No one who is discovered to be here illegally should be deported unless they have been convicted of a felony; they should be guided on paths to citizenship. And foreign students who come to our colleges and universities should not be forced to leave when they graduate (as they are now). They should automatically get "green cards" (which give them the right to work in the U.S.) and visa extensions; they should get every invitation and facilitation to add their contributions to building the American Dream for themselves and for all of us.

Restoring civil liberties--Warrantless wiretaps, secret renditions, torture of criminal suspects, incarceration of a higher proportion of our citizens than any country in the world (including Russia, China, or Iran)--even holding tens of thousands of prison inmates in solitary confinement (which has been defined as "torture" in may parts of the world) and holding them in solitary confinement for "administrative" reasons, not as punishment, so that they have no right to habeas corpus or the protection from "cruel and unusual punishment" guaranteed under the Constitution. And the routing out of peaceful demonstrators by militaristic tactics including the use of rubber bullets, pepper spray, and shock grenades. Where have our civil liberties gone? How have they been so severely eroded?

This represents a severe, insidious, and progressive erosion of the American Dream, not only as a way of life that is supposed to be available to U.S. citizens, but as a beacon--a symbol, even a template--to show the rest of the world the way: to stand as a golden image of what is possible in the evolution of humanitarian civilization. For how we treat one another and how we serve and protect the most disadvantaged and disenfranchised of our citizenry--and of the foreign-born as well--is an important part of the American Dream.

Therefore: The loss of civil liberties must be scrupulously investigated and courageously reversed in every walk--and in every nook and cranny--of American life.