Week-end Wrap – Political Economy – October 13, 2019

Victory in California! Gov. Gavin Newsom’s signature has made AB 857 — the grassroots-generated, people-powered Public Banking Act — the law in California. The California Public Banking Alliance has been tireless in educating legislators, drafting language, and generating massive statewide public support. The strong leadership of the bill’s co-authors, Assemblymembers Miguel Santiago and David Chiu, generated 19 co-sponsors and support from several committee chairs, clearly demonstrating that the will of the people is behind banks that serve the public interest….

California gets it rolling [podcast]
As global climate strikes continue around the world this week, California has passed breakthrough legislation that sanctions municipal public banks to serve as public administration entities, a development with wide repercussions across the country. We talk with a couple of the citizen leaders, Marc Armstrong and Susan Harman, who were pivotal drivers of the effort, and what they think it means for the movement. Then Ellen speaks with an author and former US Treasury economist, Richard C. Cook, about why the extractive domination of private banks over the totality of civic life must be taken down if we wish to have an economy that works for all. Finally, we have another talk with Bank of North Dakota historian Mike Jacobs about why that bank has managed to avoid corruption and remain a robust example of why banks should be owned by the people.

The Carnage of Establishment Neoliberal Economics

The United States has never been richer. In 2018, American households boasted a collective net worth of over $98 trillion. If that wealth were divided evenly across the U.S. population, every human being in our country would have roughly $298,000 to their name — and every family of four would be millionaires.

…. the decline of America’s middle class can be attributed to three distinct (though related) policy failures. Namely, the failures to sustain American labor’s bargaining power; to contain rent-seeking in the housing, health-care, and higher-education sectors; and to update (and expand) the social-welfare state for the 21st-century economy.

Like almost all other pundits commenting on the stagflation of the 1970s, Levitz has not one word to say about the quadrupling of oil prices, thus accepting the anti-worker meme that the problem was organized labor got too greedy. However, Levitz provides a real service by reminding us of this quote from then Federal Reserve chairman Paul Volcker. This thinking was, and is, widely shared by ruling elites: the proles have it too good: 

….as Federal Reserve chairman Paul Volcker put it in 1979, “The standard of living of the average American has to decline.” To that end, Volcker engineered a recession by raising interest rates to unprecedented heights. This policy had its intended effects; many a worker’s will and union were broken. Inflation was licked.

Comment on Davis, Haltiwanger, Handley, Lipsius, Lerner. and Miranda, “The Economic Effects of Private Equity Buyouts”

“In the industrialised countries in the post-war era, providing workers with the resources to allow for ‘food security’ was not considered that big a deal. Hunger was an issue for the jobless. Although I am not an expert on the Soviet system, I believe that even the 1980s Soviet Union managed to feed its workers (a major concern was that they were dipping too much into the vodka rations). Courtesy of the economic policies provided by a highly educated economist class, this is no longer the case. We now have people who are employed, yet need to lean on assistance — either from charities, or governments — to get adequate nutrition. Meanwhile, I am unaware of any collapse in productivity in the agricultural sector that could explain this shift. The question is straightforward: does it matter what the official unemployment numbers are if the people who are working are dependent upon food aid? If we look at the chart at the top of the article…, we can see the explosion of SNAP recipients in response to the Financial Crisis, and the slow rate of decay. (I did not have time to better present the data, but by comparison, the official number of unemployed on the U-3 measure is currently bouncing around 6 million people.)

It seems straightforward that if workers as a class had bargaining power — which is what the monetary policy hawks have been warning against since 2010 — SNAP participation would have fallen a lot faster. As a result. it is no surprise that forecasts of rising inflation based on NAIRU estimates would fail. My concern is that it is unclear that even the underemployment indicators will become misleading in this environment.”

“The Abandonment of Small Cities in the Rust Belt”
[Industry Week, via Naked Capitalism 10-10-19]

“During the 20th century, America built thousands of manufacturing plants in small cities in the Midwest. There were food processing plants, auto manufacturers, textile fabric mills, cut and sew apparel mills, paper mills, foundries, hand tool manufacturers, major appliance manufacturers, machine shops, and many others, according to the Bureau of Labor Statistics data from that era. When these plants were built, whole communities formed around them providing good paying jobs for millions of people without college degrees, as well as jobs for all of their supplier companies and the merchants in the communities….”

 “Things began to change for these communities in the 1980s, when American corporations began to outsource production and re-engineer their organizations to adapt to globalization. But, at the turn of the 21st century, two things happened that would seal the fate of many of these communities. The Chinese were allowed into the World Trade Organization and the NAFTA Agreement went into effect. These changes led to the devastation of many smaller cities and towns…. But so far, Trump has made little progress in bringing manufacturing jobs back to these suffering communities. It will be interesting to see in the 2020 election if either a Democrat or President Trump will propose policies that will genuinely help the communities and citizens in these Rust Belt towns–because the outcome of the 2020 election may depend on Wisconsin, Michigan, Pennsylvania, Indiana, and Ohio.”

Restoring Balance

No More Half-Measures on Corporate Taxes
Joseph E. Stiglitz [Project Syndicate, via Naked Capitalism 10-11-19]

Starbucks, for example, can continue to expand in the United Kingdom while paying hardly any UK taxes, because it claims that there are minimal profits there. But if that were true, its ongoing expansion would make no sense. Why increase your presence when there are no profits to be had? Obviously, there are profits, but they are being funneled from the UK to lower-tax jurisdictions in the form of royalties, franchise fees, and other charges.

This kind of tax avoidance has become an art form at which the cleverest firms, like Apple, excel. The aggregate costs of such practices are enormous. According to the International Monetary Fund, governments lose at least $500 billion per year as a result of corporate tax shifting. And Gabriel Zucman of the University of California, Berkeley, and his colleagues estimate that some 40% of overseas profits made by US multinationals are transferred to tax havens. In 2018, 60 of the 500 largest companies – including Amazon, Netflix, and General Motors – paid no US tax, despite reporting joint profits (on a global basis) of some $80 billion. These trends are having a devastating impact on national tax revenues and undermining the public’s sense of fairness….

It is telling that US firms are not allowed to use transfer pricing to allocate profits within the US. That would entail pricing goods repeatedly as they cross and re-cross state borders. Instead, US corporate profits are allocated to different states on a formulaic basis, according to factors such as employment, sales, and assets within each state. And, as the Independent Commission for the Reform of International Corporate Taxation (of which I am a member) shows in its latest declaration, this approach is the only one that will work at the global level.

“Certainly, there is much for workers to celebrate in both Warren’s platform and what it says about the state of the American labor movement…. But declaring Warren’s labor plan “the most ambitious” of the 2020 campaign is a step too far. For all her talk of ‘big, structural change,’ Warren’s platform focuses on workers’ legal rights as individuals, rather than their rights as a collective. Sen. Bernie Sanders’ own labor plan, which issues a more fundamental challenge to the very essence of the American workplace by tackling at-will employment. The overwhelming majority of American workers are employed ‘at will,’ which means that they can be fired for basically any reason, regardless of performance on the job…. Sanders’s Workplace Democracy Plan, which he released in August , calls for the passage of ‘just cause’ legislation, which would prohibit employers from firing workers for anything other than their performance on the job. Warren’s plan leaves this fundamental imbalance untouched.”

Reaganism Must Be Defeated Once and for All
[TruthDig, via Naked Capitalism 10-7-19]

For Gandhi, nationalism was based on understanding what was required for people to be free
Prabhat Patnaik [Indian Express, via Naked Capitalism 10-7-19]

Gandhi was also clear that capitalism as we know it, for which he used the term “the English system”, could not serve such a nation. It was incompatible with the people’s freedom. He wanted a different economic system altogether, where the capitalists could at best be the “trustees” of people’s property.

Patnaik’s post is a major disappointment. He mentions that Ghandi opposed “the English system” and then fails to even mention once that the alternative to “the English system” was known in the nineteenth and early 20th centuries as the American school of political economy, centered on Alexander Hamilton, Henry Carey (Lincoln’s economic adviser), Friedrich List (who introduced these ideas into Germany, which then began to industrialize and jeopardize British hegemony in Europe), and E. Peshine Smith (who brought these ideas to Japan, sparking that country’s industrialization.) However, two things must be admitted. 1) It may be that Indians – with their painful history with Britain – associate “the English system” with something other than the “the English system” as the opposing school of capitalist development; and 2) the American school of political economy has been largely written out of history in USA and Britain, allowing the false idea to be spread that the USA economy was built on the ideas of Adam Smith and other apologists for the British empire. As first Treasury Secretary, many of Hamilton’s writings explicitly rejected Smith. It is the American school of political economy which has been practiced by countries which successfully industrialized. The most recent explanation of this historical fact has been provided by South Korean economist Ha-Joon Chang.

Economics in the real world

Shipping: “Truckers are pulling back at a time of the year when they should be growing.
[Wall Street Journal, via Naked Capitalism 10-7-19]

Trucking companies reduced payrolls for the third straight month in September…. cutting 4,200 jobs collectively as hiring in the broader U.S. market slows. Truckers have now cut employment by 9,600 jobs since mid-summer, a sign of a broad retrenchment in the sector from last year’s booming market along with apparent pessimism over peak-season demand” “That’s a contrast with logistics operations focused on e-commerce fulfillment. Warehousing and storage businesses added 3,400 workers last month while parcel carriers boosted employment by 3,600 jobs. The difference is that many truckers are more exposed to a faltering American industrial economy even as online retail sales have been growing.”

Shipping: “Railroad Loads Continue to Decline, a Casualty of Manufacturing Slowdown” 
[Industry Week, via Naked Capitalism 10-7-19]

“This year’s railroad slump is getting worse as a slowdown in manufacturing threatens broader weakness in the U.S. economy. There’s no bottom in sight as the decline in carloads for large U.S. railroads widened to 5.5% in the third quarter, the biggest drop in three years, according to weekly reports from the Association of American Railroads. Shipments are down for autos, coal, grain, chemicals and consumer goods, with crude oil the only bright spot. The rail downturn underscores the damage from the U.S.-China trade war, which is making shippers more cautious and crimping freight — validating earlier warnings from railroad executives. Companies that stocked up on inventory last year amid President Donald Trump’s tariff threats are now working it off. Adding to the cargo drop, a brief rise in coal exports has fizzled and bad weather has delayed crop harvests and dragged down grain carloads.”

The War on Workers

 “General Electric Co. took a bold step to cut the debt hampering its turnaround, freezing pension benefits for more than 20,000 U.S. employees…. The company, which closed its pension plan to new entrants in 2012, will offer a lump-sum payment to eligible former employees who haven’t started receiving their monthly pension payments.” Lambert Strether: See on pension freezes here.

“Union Says Talks With GM Have ‘Taken a Turn for the Worse’”
[Bloomberg, via Naked Capitalism 10-7-19]

 “Progress toward a deal broke down over investment in U.S. plants. GM has offered to build its electric trucks in a plant that straddles the line between Detroit and the town of Hamtramck, which is scheduled to be idle in January when the sedans it builds go away. But there is no promise for GM’s idled compact car plant in Lordstown, Ohio. The UAW wants GM to allocate new work for those factories, even if it means moving the assembly of the Chevrolet Equinox and Blazer and GMC Terrain sport utility vehicles from a plant in Mexico, one of the people said. The pressure for a deal has been increasing, on both sides, and the issues are complex. They include corruption investigations of union leaders; the shift from traditional engines to electric powertrains; and the possibility that the economy could flip into recession with damage of a longer strike at a company like GM. The fight won’t be over once an agreement is reached, since the deal must be ratified by all members. After four years of record profits for the company, workers want a share of the spoils, said Kristin Dziczek, vice president of the labor and economics group and the Center for Automotive Research. ‘They will have to sell it,’ she said.”

“Kentucky Coal Miners End Blockade After More Than 8 Weeks, Still Owed Earned Wages” 
[Daily Wire, via Naked Capitalism 10-9-19]

“Kentucky coal miners demanding weeks in back pay have ended a high-profile railroad blockade despite still being owed their earned wages. The demonstration, which lasted eight weeks and three days, concluded on Thursday as the number of participants had significantly dwindled. According to one reporter at the protest site, many of the unpaid miners left ‘to take new jobs, start classes, or move away from their coal-dependent communities.’… The parked coal, once valued at $1 million, will stay put until a federal bankruptcy judge decides its fate. The U.S. Department of Labor (DOL) argues the coal is considered ‘hot goods’ and must be ‘cooled’ – meaning those who mined it are paid their owed wages before the product can be transported in interstate commerce. The court is expected to rule on the DOL’s motion in October. Felicia Cress, the wife of a former Blackjewel miner, told the Ohio Valley ReSource: ‘This happened because we got shafted, which happens all the time,’ she said. ‘You got these rich people that s*** on these poor people, and people just overlook it.’”

Organized Amazon Warehouse Workers Just Got Two Fired Co-Workers Rehired
[Vice, via Naked Capitalism 10-10-19]

“Uber and Lyft Drivers Talk About Getting Ripped Off” 

Disrupting mainstream economics – Modern Monetary Theory

Climate and environmental crises

Report Shows ‘Stunning and Dramatic’ Scenes of Thawing Permafrost in Siberia That ‘Leaves Millions on Unstable Ground’

[Common Dreams, via Naked Capitalism 10-6-19]Russian scientists find ‘most powerful’ ever methane seep in Arctic Ocean” 

“A research expedition from the Tomsk polytechnic university found the seep, as methane leaks are known, east of Bennett Island in the East Siberian Sea, where its violent bubbles seemed to make the water “boil” over an area of 50 square feet…. ‘This is the most powerful seep I have ever been able to observe,’ lead scientist Igor Semiletov, who has participated in 45 Arctic expeditions, said in a statement this week. ‘No one has ever recorded anything similar.’ Mr Semiletov warned last month that the sudden release of gases from underwater permafrost could harm oil and gas infrastructure. ‘If we don’t take into account research results about the condition of underwater permafrost, geological catastrophes similar to the (Deepwater Horizon) accident in the Gulf of Mexico could occur during exploratory and commercial activities, which would cause irreparable damage,’ he said.”

Recycling rates improve when people know what items will become
[TreeHugger, via Naked Capitalism 10-7-19]

Predatory Finance

I Worked at Capital One for Five Years. This Is How We Justified Piling Debt on Poor Customers. [New Republic, via The Big Picture 10-6-19]

Better data on modern finance reveals uncomfortable truths
Gillian Tett [Financial Times, via Naked Capitalism 10-11-19]

Last month the Bank for International Settlements also started publishing data on cross-border financial flows between banks and non-banks — even for opaque offshore centres.

This is very good news, since the two data sets shed a little light on the reality of 21st-century finance. The FSB research, for example, shows that the non-banking world has grown in recent years, as activity has moved out of regulated entities. “Non-bank intermediaries’ share of total financial system assets increased from 31 per cent to 36 per cent” between 2007 and 2017, observes a report from the IESE Business School, using this FSB data.

Cross-border lending by banks to non-bank financial institutions, such as hedge funds, has also jumped, from $4.8tn in 2016 to $6.6tn in 2019. More striking, those non-bank institutions have quietly “become important sources of cross-border funding for banks, particularly in international currencies,” the BIS notes.

Yet again, those offshore financial centres feature: almost 20 per cent of banks’ cross-border dollar funding is now supplied by entities based in the Cayman Islands, a ratio only topped by those in the US, while entities based in Luxembourg and the Caymans are crucial in the euro markets. Or as the BIS concludes, “Banks’ positions with [non-banks] are concentrated in few countries, particularly financial centres.”

Health Care Crisis

Health Insurance That Doesn’t Cover the Bills Has Flooded the Market Under Trump

[The Hill, via Naked Capitalism 10-9-19]Remember the FBI’s promise it wasn’t abusing the NSA’s data on US citizens? Well, guess what… 

[The Register, via Naked Capitalism 10-9-19]Twitter Took Phone Numbers for Security and Used Them for Advertising

“For all the dramatic language about prisons and panopticons, the sorts of data collection we describe here are, in democratic countries, still theoretically voluntary. But the costs of refusal are high and getting higher: A life lived in social isolation means living far from centers of business and commerce, without access to many forms of credit, insurance, or other significant financial instruments, not to mention the minor inconveniences and disadvantages — long waits at road toll cash lines, higher prices at grocery stores, inferior seating on airline flights.”

When social media stops being social: How Twitter and Facebook have rendered Americans uncivil, insecure & addicted
[RT, via Naked Capitalism 10-10-19]

[CNBC, via Naked Capitalism 10-11-19]The biggest lie tech people tell themselves — and the rest of us
[Vox, via Naked Capitalism 10-11-19]

As a reporter who covers technology and the future, I constantly hear variations of this line as technologists attempt to apply the theory Charles Darwin made famous in biology to their own work. I’m told that there is a progression of technology, a movement that is bigger than any individual inventor or CEO. They say they are simply caught in a tide, swept along in a current they cannot fight. They say it inevitably leads them to facial recognition (now even being deployed on children), smart speakers that record your intimate conversations, and doorbells that narc on your neighbors. They say we can’t blame these companies for the erosion of privacy or democracy or trust in public institutions — that was all going to happen sooner or later.

“When have we ever been able to keep the genie in the bottle?” they ask. Besides, they argue, people buy this stuff so they must want it. Companies are simply responding to “natural selection” by consumers. There is nobody to blame for this, they say. It’s as natural as gravity.

Creating new economic potential – science and technology

3D Printing with a Plane of Laser Light
[Machine Design Today, 10-11-19]

Engineers at the Georgia Institute of Technology have developed a nanoscale 3D printing technique that fabricates small structures a thousand times faster than two-photon lithography (TPL) techniques, the conventional method of making nanoscale components. The new parallelized technique, known as femtosecond projection TPL (FP-TPL), can make parts with depth resolutions of 175 nanometers, which is better than established methods,  and can fabricate structures with 90-deg. overhangs that can’t currently be made.

The technique could lead to manufacturing-scale production of bioscaffolds, flexible electronics, electrochemical interfaces, micro-optics, mechanical and optical metamaterials, and other functional micro- and nanostructures.

Nanoparts that Change Shape and Hold It
[Machine Design Today, 10-10-19]

Architected materials are comprised of micron and nanoscale structures such as crossbeams, arches, domes, and spirals, much like the elements of a building’s architecture. Researchers from the California Institute of Technology, the Georgia Institute of Technology, and ETH Zurich have concocted one that can be commanded to changes its shape. When a small current is applied, nanoscale beams thicken and bend into arches that increasingly bow as the current is boosted. The material maintains the new shape even when the current is off, and the shape can be changed back by reversing the current—two characteristics unique to this material.

China to build high-speed maglev test line
[Railway Age 10-10-19]

China plans to start construction next year of a 200km maglev line in Hubei province to test operation of a prototype maglev train at speeds in excess of 600km/h.

According to a report in the Wuhan Evening News, the project is part of China’s Building Outline for the Construction of a Powerful Country initiative and could form the first section of a maglev line linking Wuhan with Guangzhou. Maglev technology would cut the time for the 968km trip from a current fastest journey time of 3h 43min by rail to around 2 hours.

CRRC Qingdao Sifang completed a 600km/h test maglev train in May following three years of research and an engineering prototype maglev train will roll off the production line next year.

CRRC Qingdao Sifang’s test maglev train was unveiled in May.

Boeing Links With Virgin Galactic On Space, High-speed Flight Plans
Guy Norris [Aerospace Daily & Defense Report, Aviation Week and Space Technology 10-8-19]

Boeing and Virgin Galactic will work together to develop commercial space access and high-speed exo-atmospheric transport systems under a strategic alliance announced on Oct. 8….

Under the deal, Boeing’s HorizonX capital investment arm will inject $20 million into Virgin Galactic in exchange for new shares. The move comes as the UK-based spaceline readies for final flight tests of its Mach 3 sub-orbital commercial spaceplane prior to making its long-anticipated expected service debut in 2020.

“A food to farm as climate changes: elderberries”
[Bulletin of the Atomic Scientists, via Naked Capitalism 10-11-19]

“Ancient plant species might hold important clues about which crops will survive in a harsher climate. With that in mind, [Katie Fyhrie, a grower at Cloverleaf Farm] and her team have started growing elderberries. An indigo pearl-sized fruit that grows on a big bushy plant, the elderberry is relatively unknown in the United States; the majority of the commercial market comes from an imported European variety. But Native American communities have been using a Western elderberry subspecies for centuries. The elderberry that’s native to California grows remarkably well in drought conditions. After a couple of years, you can completely remove irrigation and the plant will keep producing. This last season, Cloverleaf harvested 130 pounds of berries from each of its most mature trees, none of which are irrigated. ‘That is a huge deal that we’re getting berries that are good for you, really versatile for a lot of products, and that require no additional fertilizer or water,’ Fyhrie says. Elderberries are just one of ‘many hardy ancient foods and crops that may be a poised to make a twenty-first century comeback,’ as Amanda Little puts it in her recent book The Fate of Food: What We’ll Eat in a Bigger, Hotter, Smarter World.”

Disrupting mainstream politics