(Note: To see charts right-click on the image to enlarge in separate tab)
March 16, 2018
(Note: Solution Friday – we focus on solutions to problems we have identified)
Workers Get Cut in Stock Buy Back Action – Senator Booker’s Worker Dividend Act
Senator Cory Booker (D- NJ) has introduced a bill that would require corporations to pay to their workers the lesser of two amounts, 50 % of all stock buy backs or 50 % of all profits beyond $250 million. Senator Booker told Vox, that the bill “is a commonsense move to address a variety of ills” including pay inequality and to help raise stagnant wages.
Source: Real Investment Advice- 3/14/18
For the first two months of 2018 corporations have spent $178 billion on stock buybacks with nothing going to employees. Stock buybacks only compensate corporate executives stock plans by purchasing company shares in the market therefore driving up the price of the stock. These funds are not going into raising employee wages, investing in increases in productivity (which could allow for wage increases) reducing prices or increasing research and development for new products. Most of these stock buybacks were made with funds from overseas which the new Tax Bill cut taxes to an all-time low to encourage transferring the money back from overseas bank havens.
There is next to no probability that Senator Booker’s bill will even get to a committee hearing much less pass in the GOP controlled Senate. However, we applaud Senator Booker for drawing a line in the money rivers of this country on behalf of workers where corporate executives make 300 times the average of a worker’s salary.
March 15, 2018
We Need an Environment Vision for the Next 100 – 500 years, Not the Next Quarter
The Administration continues to pander to expedient corporate interests by opening up pristine desert areas near the Joshua Tree National Park to mining interests. This is a continuing pattern by the GOP leadership in opening up our coasts to oil exploration (which the oil companies did not even ask for), downsizing the Bears Ears national wilderness lands by over 1 million acres (which local tribes and communities did not ask request) and relaxing clean water requirements for streams and rivers in West Virginia (polluting water supplies for some coal mining towns).
The economy around Joshua Tree National Park has shifted to a tourist economy as Americans seem to realize that our lands are important and should be enjoyed and protected. Visits to the park has more than doubled in the last 5 years with spending by tourists around the park estimated at $120 million by the Park Service.
Sources: KPCC, The National Park Service – 3/15/18
Tourist industry jobs in Riverside and San Bernardino Counties have increased by 70 % between 1998 and 2015, while mining related jobs have decreased by 14 % for the same period. It can be argued that the mining jobs decreased by 14 % because of added restrictions during the Obama administration years. The Bureau of Reclamation handling the policy change says it is not opening all 1 million acres around the park to development per se but about 19,000 acres that are suitable for mining.
There is a fundamental question related to land management that this administration is ducking and not making clear to the public – bowing to short term corporate interests on every land management decision is hurting our environment for not just this year but for hundreds of years to come. In the end making our air, water and land unsuitable to even live on. The short sighted thinking by the Administration on fossil fuel development means that deserts like the one a Joshua Tree could have no water all year, drying up the park and killing the economy around the park. These environment decisions are all related and interconnected, for hundreds if not thousands of years in the past and will impact the lives of our decedents for thousands of years more.
First, we need a bi-partisan plan for the next 500 to 1000 years on land use and gain a commitment by both parties, corporate stakeholders, environmental groups and local citizens to uphold and support the plan for the rest of their lives and ensure that their children and grandchildren carry the pledge onward.
Second, the US needs to rejoin and commit to the tenets of the Paris Climate Treaty, and set it as our aspirational goal for all our environmental programs and policies.
Third, we need to extract an environmental pledge from all our congressional representatives and senators that they will adhere to the 500 – 1000 year environmental plan noted above and not take any campaign contributions from resource extraction companies.
March 14, 2018
Toys ‘R’ Us Lays Off 33, 000 Workers, Wall Street and Amazon Bring the Retailer Down
The $11 billion toy retailer, Toys ‘R’ Us announced today that it will be closing down its US operations and laying off 33,000 workers in the US. The retailer filed for bankruptcy in September of last year, hoping by closing 20 % of its least profitable stores and working with vendors it could recover. However, sales dropped almost in half during the holidays, and vendor workouts were unsuccessful so management had no choice but to close down US operations. While, this is a big blow to all the retailer’s workers,, but its woes are also rippling into the sales of toy makers like Hasbro and Mattel.
Source: Bloomberg – 3/14/18
The failure of Toys ‘R’ Us in the retail toy market and the resulting loss of sales of two of its key suppliers indicates a significant shift is happening in the toy marketplace. Analysts observe that the firm had lost sales to major online retailers like Amazon, store retailers like Walmart, and Target who were running toy discounts as loss leaders to increase web or store traffic. Adding to Toys ‘R’ US woes was debt that it incurred in a Wall Street private buyout by private buyout specialists Bain and Company, KKK and Vornado Realty in 2005. The transaction saddled the toy retailer with over $5 billion in debt severely limiting the firm from making investments in online sales, new products, promotions and marketing.
First, we need to go back to the private buyout in 2005, why did regulators allow major Wall Street buyout firms to burden the firm with so much debt? It is clear that with the retail space hotly competitive and Amazon disrupting the entire retail industry that Toys ‘R’ Us would have a difficult if not impossible task of working off the debt. Just as potential home buyers are not allowed to get to over burdened with debt, regulators, SEC and others officials should have stepped in and said no to the deal.
Second, Amazon needs to be broken up already, as a colossus of $178 billion in sales and growing at a 38 % rate the firm is taking over retail markets right and left. Today, Amazon receives 40 % of all US retail online dollars spent. It is not in the interests of a competitive capitalist system to have a huge juggernaut continuing to mow down businesses, markets and jobs to gain more control and make more money. Eventually, we will be buying our kid’s toys online, without seeing them from toy makers overseas. The character of our democracy changes to being dominated by a few huge online stores, who drive prices up, grind vendors on pricing and tell us and our government what they will and will not do for us.
March 13, 2018
United Misses the Point – Employees Don’t Want ‘Motivation’ vs. Good Salaries
United Airlines recently started a game oriented contest for its employees with the grand prize being a lottery for a $100,000 cash prize to replace standard bonuses. This author has worked in companies deploying community management gamification programs – in some cases they work well when in depth planning around employee motivation is identified. We found in several firms that what motivated software engineers was recognition by peers for example versus sales people who were keenly motivated by competition. Motivation projects need to be designed by interviewing the target employee group – not just using Survey Monkey. Listening carefully to what gets them excited and being always careful to not blur the fun components of gamification with salary and bonuses which are expected.
The reality is that corporations continue to not share profits with their employees.
Source: Real Investment Advice – 3/5/18
As we discussed in our IB of March 5th, corporate executives have done an outstanding job of taking care of themselves and their shareholders while leaving employees out in the cold when it comes to handing out the cash. Executives continue to use profits and excess cash to make stock buybacks to juice the price of shares and hit share price targets related to their bonuses.
This United Airlines incident is an example of management just being completely out of touch with their employees and their expectations about compensation. Replacing bonuses with a lottery is not motivating, it is demotivating and shows a devaluing of their work. We outline in the March 5th IB a renewed focus on corporate social responsibility, employee counter balance initiatives, job training and career development, ending stock buy backs to pay for investments in employees and an end to profit havens overseas. Frankly, in this situation and others totally out of sync with their employees, their needs to be some deep questions being asked of the management team, and by bringing in a third party to help get a communication bridge going between the two sides. There is some significant damage done in employee management relations that needs repair.
March 12, 2018
Infrastructure Projects Are Not Just About Bridges and Roads – They Will Rebuild Lives
Erie, Pennsylvania has been caught in the crucible of factories shutting down and jobs moving overseas, leaving neighborhoods without businesses and the city with dwindling tax revenues. In 2005, the city built a new bridge bringing suburbanites into the city core for jobs, while bifurcating the minority neighbor causing property values to decline and fragmenting neighborhoods.
We look at infrastructure projects of $2.0 trillion dollars over ten years as an opportunity to turn around the lives of millions of people in poor neighborhoods in cities and rural regions of the Midwest and South. We highlighted in our IB of February 14th that the GOP Administration was missing the point that infrastructure projects are not for private companies to make big profits – just reasonable business returns. Some projects need to be completed like the bridge in Erie because it will renew the neighborhood and make it inviting for businesses to open and create jobs.
Source: American Society of Civil Engineers – 2017
Last year, Congress has given way over $1.0 trillion in tax cut giveaways to major corporations who are already spending $179 billion of the total during the last two months on stock buy backs making their executives and shareholders even richer.
The question is about national priorities! Are the needs of millions of Americans left out of the economic boom of the past ten years going to continue to be left out? When are we going to make the right decisions, tax those that can afford it in the top 10 % and corporations who are enjoying the lowest corporate tax rate in history while sitting on $1.0 trillion in cash. That is one trillion dollars not invested in raising wages, increasing productivity or innovation.
We need to get our priorities right, and invest in middle class Americans and the infrastructure that supports their communities to renew their lives, create economic opportunities and choices for their future.
Photo: Flint, Michigan – opportunityurbanism.org
March 9, 2018
(Note: Solution Friday – we focus on solutions to problems we have identified)
Silicon Valley Venture Capitalists See Opportunity in Heartland Cities
Last month, about a dozen venture capitalists from the SF Bay Area toured heartland cities to meet with mayors, business leaders in Youngstown and Akron, Ohio; South Bend, Indiana; Detroit and Flint, Michigan via a luxury bus stocked with vegan doughnuts and a special brew of kombucha. The tour, known as “The Comeback Cities Tour”, was organized by Congressman, Tim Ryan, D-OH with Congressman, Ro Khanna, D-CA representing a Silicon Valley district was along for the ride.
The investors were impressed with how ‘investment ready’ many the cities were with eager business leaders, modern city centers, low priced housing and high quality universities. Other investors are taking notice of the heartland opportunity as Steve Case and author J.D. Vance of the book, “Hillbilly Elegy” have been touring the US recruiting blue chip investors for a new investment fund, the Rise of the Rest with major business leaders like; Jeff Bezos, Eric Schmidt, The Waltons, The Kochs and others making combined commitments of $150M.
We applaud these efforts as our national business leaders and innovative congressman take the lead in investing in our heartland that has been left out of the economic growth wave since the Great Recession. In September of 2017, in our blog, The Hallowing Out of America’s Heartland, we called for a major investment partnership of business, non-government organizations, universities, state and local government with leadership at the federal level to rebuild our heartland cities and rural communities. We called for development of, “Heartland Development Centers” which would bring together all key stakeholders to coordinate necessary investments in infrastructure like high speed digital networks, hospitals and medical services, universities and colleges, apprenticeship programs and drug abuse rehabilitation.
The Comeback Cities Tour and The Rise of the Rest fund are excellent steps toward this major investment effort and dedication needed by all sector leaders and government to turnaround years of little investment, and outward migration leaving few economic opportunities.
March 8, 2018
Women Have Not Broken the Startup Glass Ceiling – Why?
On International Women’s Day, we think it appropriate to review how women are doing in the fastest growing sector of the US economy – high tech startups. The results of a Silicon Valley Bank survey for 2017 are not good. There were no women board members in 70 % of Silicon Valley startups, actually up from 2016. Women were poorly represented in 54 % of startups with no executive positions filled by women in 2017.
Source: Silicon Valley Bank – 2017 (2018 figures are estimates)
Why? Having built a career in Silicon Valley for the last 25 years this author has seen a number of reasons – none really acceptable for the trend. It starts first in school, STEM programs to bring along girls in secondary school and then science and technology in college are few and poorly funded considering women represent 51 % of the population. In college, the men often start companies in dorms like CISCO at Stanford, or school buddies as the founders of Google at the Stanford School of Engineering. Universities are key incubators or engineering and high tech startups, with a low percentage of women in engineering programs there were fewer to start with to be founders. In the venture funding world, venture capitalists seek other men that they know of in graduate school departments, or grad students they know for tips on interesting new technologies. There is cultural network for men related to high tech startups that continues to grow and keep men in the mainstream. Plus, most venture capitalists are men, and don’t feel as comfortable giving many women funding, not trusting their judgement or skills is almost an unconscious response.
What do we do about it? Diversity programs are a start, the Silicon Valley Bank survey did find that 41 % of startups up from 25% the previous year had started active women recruitment programs. More funding for STEM programs specifically focused on girls in grade schools with a focus on both the skills as an engineer but also the cultural aspects of a women in engineering. Many engineering environments in startups are hostile to women and keep growing with a ridiculing attitude toward women. One former manager at a $1B company in San Francisco told this author, “working in this place is like being in the boys’ locker room”. From STEM and engineering programs in college women need specific programs in incubators and founder support groups like the Women’s Founders Network. When more women start companies they will change the culture into a more robust, open and adult environment. Women on boards and in executive positions will shift HR policies in startups and small companies to be more family friendly, more flexible time for family issues as they arise and more supportive of women re-joining the workforce from having a baby or taking care of a family for many years.
There is no better day than today for men to realize many times, “The best man for the job is a woman!”
March 7, 2018
Congress Gives Banks a Big Hug!
The commercial banks have spent $542M deploying 430 lobbyists since 2008 pushing Congress to rollback key protections in the Dodd – Frank bank regulation act. The roll back law is now in debate in the Senate. Provisions they seek to roll back include; reducing the number of banks under Federal Reserve regulation from 40 to 15 with assets of at least $250 billion, remove the ability of homeowners to sue banks for wrongful foreclosure, and weaken bank stress test requirements. Some banks have been found since the passing of the bill to be implementing risky practices. They clearly want to have every provision go their way, to operate more freely without oversight. The problem is that big banks and investment houses were primarily responsible for bundling risky mortgages with stable mortgages into securitized bonds that were sold in the open market which contributed to the 2008 failure of the banking system.
Source: Open Secrets – 3/7/18
By spending over half a billion dollars in the past 9 years at an increasing rate, the banking industry is pulling the rug out from under many key provisions that protect consumers.
We need to stop the banking industry juggernaut. Senator Elizabeth Warren has a number of progressive amendments she is pushing to have added to the bill including: fixing a loop hole in the in the Bank Lobbyist Act use to challenge the Fed, keep seniors safe from scams, consumer protections for students who take out private loans, protect student borrowers from loan servicers and lenders and holders, a provision to require publicly traded companies to disclosure workplace harassment and discrimination settlements, ban the use of mandatory arbitration clauses in student loan contracts, expand the CARD Act (Credit Card Accountability Responsibility and Disclosure Act of 2009) to keep students from predatory financial products. add a 21st Century version of the Glass – Steagall Act to breakup big banks, ban the use of credit card reports in hiring, impose automatic penalties on credit bureaus for data breaches, allow consumers to freeze their credit files at no charge, prevent banks that benefit from this bill from merging in the next 5 years, prevent banks who benefit from this act from buying banks their own stock for 5 years, prevent rolling back rules on banks that have outsourced more than 50 jobs in the last 5 years. prevent rolling back rules on banks that have been fined more than $10M in the last 10 years, prevent rolling back rules on banks that have been under Justice Department supervision after being busted for breaking the law, and prevent rolling back rules on banks that received over $1 billion in taxpayer bailouts in the 2008 crisis.
Many of these provisions that Sen. Warren proposes are similar to ones we have been focusing on as well, more power to Elizabeth Warren.
March 6, 2018
President Digs in on Tariffs Threatening 6 Million US Jobs
Today, POTUS become ever more strident in moving his trade war ahead moving onto steel and aluminum imports. His chief economic adviser, Gary Cohn, former president of Goldman Sachs saw the huge economic impact and he has resigned. Secretary of Defense Mattis and Secretary of State Tillerson recommended against a trade war with concerns that a trade war would hurt national security by damaging our relationships with allies. POTUS needs to look at the math; to save 139,000 jobs in steel and aluminum producing companies his action threatens over 6 million jobs in industries that use these metals in their products. The US imports 90 % of the aluminum used in downstream products and but only 30 % of the steel used in transportation, manufacturing and goods industry sectors.
Sources: Brookings Institution, Census Bureau, Marketwatch – 3/6/18Products from cars to Coke would all see price increases from the tariffs of 25 % on steel and 10 % on aluminum. His threatened actions back in January of this year caused steel and aluminum imports to soar, causing even dumping a price competition in the markets for these metals. When the government intervenes into high complex tightly integrated industries with simplistic policies market chaos erupts and the losers are consumers. Quite often it is the middle class who can’t afford price increases that are hurt the most.
Interestingly, the states which have voted for the President in the 2016 election are the ones most effected – so why is the policy moving this way? His trade advisors and others have found a weak point in his thinking on trade that moves their disastrous trade war policies ahead. Reports tell of him being tired of being ‘managed’ and to do what his instincts tell him to do. We saw what happened with trade wars in the 1930s as we discussed in our IB of March 1st.
What is even more disturbing about this trade war being launched is that the GOP leaders such as Paul Ryan have been counseling GOP representatives to not take POTUS ‘head on’ so as to cause him to dig in. So, the central question here really isn’t trade policy anymore, who is giving our President an accurate picture of economic reality? He is relying instead on alt – right economists that use distorted data, simplistic thinking on how businesses actually work combined with anti-immigrant scapegoating to create policy. We believe economic facts need to be used first, careful consideration in concert with all those effected and finally reflective policy decision making in concert with our allies. Gary Cohn tried to bring together a meeting of all the CEOs of companies using imported steel and aluminum, instead of listening to all those affected the President did not approve the meeting.
We have more than a trade war problem, we have leader who undermines our democratic institutions now hurting all consumers and the economies of our allies. Saying a trade war is ‘easy to win’ is to be completely out of touch with the reality of integrated global trade which has been a bulwark against global conflict for the past 50 years. Who will step up to confront this spiraling out of control trade action?
Image: Progress Illinois
March 5, 2018
Profits Not Going to Employees – Trend Accelerates
For many years corporate profits have not been going to employees as their share of profits continues to decline. During the 10-year period since the Great Recession the trends has only accelerated to the lowest level in 48 years.
Source: Real Investment Advice – 3/2/18
Most recently as a result of the 2017 Tax Cut Bill corporations in just the first two months have spent $178 billion in stock buybacks. Reducing the number of shares, to drive the price of the stock up giving corporate executives and major shareholders a profit. None of these funds have been invested in employee training, salary or benefit raises or equipment or software to increase productivity. Productivity levels now are at ten year low, without increases in productivity it is hard for companies to give raises.
Corporations have Congress and the President setting the economic rules in their favor. Major corporate reform is necessary to bring the situation even close to equanimity between labor and management. We have identified in our IB of February 19th on Corporate Nation States a number of reforms including: Social Responsibility – for climate change and independent board members, Employee Counter Balance – employee councils, Wages – employee council leader participates in all wage decisions including executives and bring executive pay to a ratio of 150 % of the average of worker pay within 2 years, Job Training and Career Development – companies will be able to deduct the cost of training at 20 %, Hiring – corporations will be able to take a 25 % tax deduction on the salary of a new hire US national (naturalized as well), for green card holders a 10 % tax deduction (to encourage hiring of immigrants too), Stock Buy Backs Ended – just phase them out over a 1 year period, Corporate Lobby and Campaign – donations will be held to the individual level of $2400 (since Citizens United said that corporations are people let’s treat them as a person), and no PACs, End Overseas Profit Havens – no reason to escape US taxes we should just end the practice of overseas bank accounts period for moving US profits.
March 3, 2018
(Solution Friday – Focus on solutions to problems we have identified… today’s blog has comments from Saturday)
When We Discover Our Own Stories Are Similar Then We Can All Move Ahead Together
Last Wednesday, Brandon Stanton, founder of the website, Humans of New York, summed up our connectedness when he observed, “We all want to tell our stories, and find someone to listen to us”, at Rootstech, genealogy conference of 30,000 people in Salt Lake City. Applying his observation to our political challenges – maybe we need to start with us the people of this country not politicians, or corporate executives and ensure that our stories are being told in the halls of power and the board rooms of global commerce.
We find today that Americans are at the lowest level of confidence in institutions for over 20 years that support our democracy and ensure access to our democratic opportunities for all.
Source: Gallup – 2017
The level of confidence in Congress, The Executive and The Supreme Court are the lowest of this group of 14 institutions including religion, higher education and schools, corporations, business groups, and local and state government.
Why the lack of confidence? Interestingly while lack of confidence has grown in government, higher education, corporations, schools and even religious groups – the Internet has connected with artificial links ‘friends’ in huge numbers. Facebook offers a platform to tell our stories and share them to incredible numbers of people, in ways never imagined. Polls suggest that Americans are united on many issues: healthcare for all, safety net for the poor, funding for child healthcare, job training, unemployment insurance, fair trade (win – win partnerships) and other issues. Yet, the translation of this consensus is distorted by a lack of connectedness across news media and websites. Everyone is listening to their own commentators, newscasts, podcasts, and social media.
We have a fundamental problem getting our voices and stories represented to achieve the consensus we need to get legislation that is forward looking solving the economic, social and environment problems of our day.
One place to start is by building bridges of understanding between all political views. One such site is Spaceshpmedia using Facebook to start a conversation on key issues like agriculture, immigration and housing.
Other groups are taking on the political divide head on using marriage counseling techniques like Better Angels. Better Angels takes their name from the inaugural address in 1861 of Abraham Lincoln:
“We are not enemies, but friends. We must not be enemies. Though passion may have strained, it must not break our bonds of affection. The mystic chords of memory…will yet swell the chorus of the Union, when again touched, as surely they will be, by the better angels of our nature.”
Another way to appeal to our better angels is service. Besides college and apprenticeship programs our young people need an opportunity to serve our country besides the armed forces. Universal service for our young adults would provide a cross cultural, regional sharing of ideas, values and beliefs while providing service in our country. They can be building community projects, teaching, care giving and other important roles that offer them the time to think about their lives and what they want to do while providing rewarding service.
Finally, the world of genealogy and ancestor quests has taken on the momentum of a political unifying movement. At Rootstech, conference in Salt Lake City, today, Dr. Henry Louis Gates Jr., brought over 10,000 genealogy enthusiasts to rousing cheers when he called for an end to singling out people by race, while genealogy and DNA threads show us that we are all related to each other and are one world community. His PBS program, Finding Your Roots, follows the ancestral quest of celebrities has been a hit on the public television network with the highest ratings of all regular programs. Gates announced an innovative program founded with Penn State Professor Nina Jablonski, to create both a science and DNA genealogy experience for middle school children. Their summer camp was a great success, helping children to know their ancestors and their place in the great chain of human kind. Gates announced a national program working with school districts across the country to introduce the middle school students to scientific discovery and their place in the world. Research shows that when children know who their ancestors are, learn about them and their stories are more successful in school, enjoy greater self-esteem, feel greater control of their lives and believe their families function better. With greater self-esteem then these children will grow up with a sense of ‘otherness’ listening to other points of view.
We have a challenge to strengthen unifying forces in this country that have been so badly damaged over the past 20 years. We need to be telling our stories to each other, black and white, Christian and Muslim, men and women, rich and poor to build a new understanding from the roots of our country. Our stories are the national narrative that has built this country and will continue to build our institutions that keep it alive and renewing. Our responsibility to each other, to our children and grandchildren is build a unifying national narrative to renew our dedication to provide more choices and opportunities for them to make their dreams come true.
March 1, 2018
POTUS Is Mounting a Disastrous Trade War – Steel & Aluminum Tariffs
The President announced today after a meeting with Steel and Aluminum industry executives tariffs of 25 % on steel and 10 % on aluminum imports beginning next week. Reaction was swift from steel industry association officials in Germany, and the EU calling the move by the Administration a ‘blatant intervention to protect U.S. domestic industry.’ It will be interesting to see if these countries file a complaint with the World Trade Organization, or retaliate with tariffs on US products. We have seen what has already happened in the lumber industry with tariffs on Canadian lumber causing housing prices to soar even further putting home prices way of reach from the 80 %. Existing home sales dropped an unexpected 4.5% last month, along with high prices due to higher mortgage rates and the cap on the mortgage interest deduction from the new Tax Bill.
Has this administration read or bothered to research the fact that one of the major factors causing the Great Depression was protectionism under the Smoot – Hawley Act? It just does not work to unilaterally start putting up economic walls resulting in bi-lateral trade turning into a battlefield with no economy the winner. The most recent trade report shows our trade goods deficit to be the worst in ten years. Often trade wars trigger shooting wars as governments get desperate as the history of World War II teaches us.
Sources: The Wall Street Journal, The Daily Shot – 2/28/18
American companies are beginning to lose sales as a protectionist attitude is kindled in importing countries and US consumers experience higher prices tariff based prices. Consumers are caught in a squeeze between stagnant wages and higher prices on import goods.
First the policy makers in the Administration need to go back to their economic history books and read about how catastrophic protectionist policies were during the 1930s. Their protectionist policies are already hurting the US consumer economy, jeopardizing sales of US exporting companies and leading to added international tension creating a war like atmosphere with foes and friends alike.
Second, the Administration should bring together key trade experts from all political views, consumer representatives, worker groups and corporate teams to forge a policy that is a win-win for all including our trading partners.
Third, trade partnerships are a key strategic tool to prevent wars from starting. This administration needs to get these trade policies right or we face a major conflict emerging from the ‘I’ll get mine attitude’ all over the globe.
February 28, 2018
Corporations Have Yet to Keep Their Promise to Invest With Tax Bill Savings
Tracking the investing of corporations in the US, the Federal Reserve reported yesterday that for the month of January corporations actually reduced investment spending.
Sources: The Federal Reserve of St. Louis, The Wall Street Journal, The Daily Shot – 2/28/18
So what gives here? Corporations increased their spending on stock buybacks in January to $170 billion (please see our IB of February 19th) not going into employee wages, investing in productivity improvements, employee training or funding capital purchases. Instead they spent the money on themselves hyping their stock, keeping the cash or providing some dividend income.
Corporate CEOs promised the American people they would invest in America provide more jobs, and raise wages and none of this has happened. Actually just the opposite has happened as the opposition of the Tax Bill said it would – huge stock buy backs to goose stock prices, holding the cash or declaring dividends. All these billions of dollars are going to the top 1 % in income, not the middle class that so desperately need relief.
Corporations have not started out this year in right way by keeping its promises to the American people with the funds provided them by the new Tax Bill. We ask when are companies going to realize that this country is governed for and by and of the people and not corporations and we will not tolerate being lied to to just increase their profits and stash away their cash. As we have noted, corporations need to get real, end their lobbying activities, be limited to 1 lobbyist per firm (as they have a voice as a ‘person’ the Supreme Court says in Citizens United). We applaud the actions by Blackrock CEO, Larry Fink in bringing corporations to account when they fail in their social responsibilities to our country and the people. Other Wall Street executives need to follow Finks’ lead.
February 27, 2018
Who Lost Mexico? POTUS That’s Who!
The latest report that a weekend phone call between our President and Mexican President Pena Nieto did not go well, shows how poorly our relationship with Mexico is going. The call was to setup the right situation for a visit by President Pena Nieto to the White House. POTUS insisted on Mexico paying for his outrageous idea of a wall across the border. To no one’s surprise President Pena did not agree.
Ever since the Administration has decided to take on Mexico with threats and border wall demands their economy has suffered as GDP has fallen every quarter since January 2017. The most recent quarter GDP was slow and the previous quarter was in recession.
Sources: The Wall Street Journal, The Daily Shot – 2/26/18
The uncertainty the Administration has created around NAFTA, has put the Mexican economy on pause tipping toward a downturn. The NAFTA threats have hurt American farmers too as Mexico is one of our largest importers of US food products. Our farmers are under even more pressure from Brazil we should be looking at how to help our agriculture sector not penalize it or threaten protectionist tariffs.
When our relationship with Mexico was better their border enforcement agency actually captured more immigrants trying to cross the border than America’s ICE. Plus, we know when the Mexican economy is robust immigration into the US slows. When there are jobs, and economic opportunities it makes sense that the prime driver for immigration diminishes.
Sources: Pew Research, FiveThirtyEight, The World Bank – 2/28/17
Let’s start by treating our long time neighbor to the south with dignity, respect and understanding. We need to understand that they are our partner – not the target of xenophobia wrapped policies mixed with falsehoods and scapegoating. We need to treat the NAFTA negotiations with a win-win in mind for their workers and ours, for their companies and ours and their democracy and ours. If we continue to treat Mexico in this paternalistic manner will will push the country toward China and Europe. Drop the crazy Border Wall idea for the waste of money a fixed wall would be and focus on sophisticated counter measures against the smugglers and drug cartels are using in the air, on the sea and underground.
February 26, 2018
We Are Not Going That Way, So Don’t Look Back on Climate Change
The present Administration does not seem to understand that leading the country is about the future with a deep understanding of the trends in social, cultural and global life. Ninety percent of the scientific community agrees that man-made fossil fuels and other pollutants are responsible for greenhouse gases causing a rise in temperatures across the world. Rising temperatures will cause 1 in 100 year floods to happen 5 times in 100 years or a 20 year flood. Droughts experienced across the Western US for the past 6 years are more likely to be common with massive 146 % of normal rain storms in intervening years such as California experienced in the Winter of 2017 and now in a drought for the Winter of 2018. Huge hundred year level hurricanes in Houston and the Puerto Rico demonstrate the severe damage resulting from massive shifts in climate.
Sources: EPA, Statista, The Wall Street Journal, The Daily Shot – 1/30/18
So, what decisions have US utilities made about generating electricity and heat? They are changing over to renewables quickly.
Source: US Energy Information Administration – 2018
The facts are that 94 % of new electricity generation in 2017 was from renewables not coal. These renewable energy investments made in previous years and last year reduced greenhouse gas emissions by 1 % last year in the US.
Utilities have already made their decision, why can’t this administration quit looking backwards to a situation where coal produced 80 % of US generating capacity and has now dropped by 50 % in the past 15 years?
Unchecked global warming will flood low lying areas, causing property damage to coastal areas where 129 million Americans now live. Drought will cause extreme famine in already arid areas like the West and Southwest, with huge storms in the South and East. Allowed to grow unchecked rising temperatures threaten our existence on the planet!
Why are our politicians looking backward for policy ideas? First, they seem to think that climate change is a nefarious scheme put together by the Chinese to sell more solar systems as POTUS has said, or yes, there is climate change but it’s natural so man-made emissions really aren’t a problem. Instead of looking forward toward reality, they are looking back because of politics, where the existing corporate elite buys off of our politicians to protect their dying or inflexible businesses at the cost of our health and existence. So what we get is gobbledygook ideas with half-truths or just plain false information mixed with xenophobia. Oil and Gas companies and industry groups spent over $125 million for lobbying of Congress in 2017, up by nearly 50 % from the amount spent 10 years ago.
Clearly Oil and Gas companies don’t represent the best interests of the public by lobbying and promoting their profit protection policies to Congress.
1. End Corporate Lobbying – Limit each company to one representative per company as we have recommended in the past since companies think they are a person fine they can represent one person. This case holds true to limit campaign funding by companies to the individual limit of $2400 and no funding of PACs.
2. End Oil Depletion Allowances – Tax deductions up to 100 % of the value of the asset in this case the income generated from oil and gas extraction can reduce taxes or in some cases by 65 %. We should not be subsidizing taking a resource that is a community resource from the earth, causing greenhouse gas emissions threatening our health. Oil and gas companies should be limited to depreciation allowances for equipment used during the normal process of conducting business. Under the new 2017 Tax Law depreciation allowances on equipment have been accelerated anyway.
3. Fight To Reduce Environmental Damage – Join and donate funds to groups like the Environment Defense Fund and the Sierra Club are working to reduce damage from oil exploration and extraction practices and promote overall renewable resources.
4. Purchase an Electric or Hybrid Car – while the investment is costly upfront, it will make a huge difference in reducing greenhouse gasses. In California trips via cars have gone up by 1 – 5 % yet greenhouse gas emissions have been reduced by 1 % last year.
5. Elect a Representative Who Will Vote for Renewable Energy – it is time to vote out of office the backward looking politicians owned by corporate interests. Elect at the state and local level representatives who have intelligent ideas on our stewardship responsibility for our earth, air and water. Require that your representative take the No PAC pledge and join the No PAC Caucus in Congress, led by Congressman Ro Khanna.
February 23, 2018
(Solution Friday – we focus on solutions to problems we have identified)
Why We Need People More than Bots to Build the People’s Democracy
For a flight to Dallas a Southwest Airline gate agent gave me his own buddy pass to board, ‘I don’t want to see a fellow employee or family not get on the plane.’ he quietly observed. A computer error prevented my wife and I from boarding the flight. A computer program gate keeper wouldn’t have made the sacrifice of kindness in this exceptional situation; actually it created it! What do we do about bots that error and make high impact decisions? The agent offered his own buddy pass with an idea from a fellow gate agent showing the value of team work in a critical situation. Bots can’t handle an exception like this million in one condition – programmers will never be able to think of every condition. There are limits to AI and computer bots. We should be talking about limits to bot deployment in our society not just what jobs they can take over from people.
The agent’s desire to help another employee and his family stemmed from being a member of an employee community. Unfortunately, we see far too few incidents of employee to employee support as management thinks it is better to pit one employee versus another. Plus, focusing on making the rules and culture of the company around maintaining management control and building their wealth. Yet, companies like Southwest used in business school case studies across the country has is recognized for not just great customer service, low prices, but also reports profits for every quarter over the last 20 years.
How do companies build employee community? Management can start by treating employees as equals and part of the team with good wages, benefits, sacrificing with them in bad times, bringing them in on the key decisions, and sharing of power. Fundamentally, executives need to change their perception and view employees as assets not costs.
Remember the hype around bots replacing people cuts costs, increases profits. Under our present corporate and economic rules increasing profits go to make the rich even more wealthy not employees.
When we as a society recognize the unique skills, mind and connectedness of people as of greater value than machines, it is then we will write the rules of capitalism that support the people’s democracy.
Conversational bots ‘learning’ (actually an update to a computer algorithm) from conversations to assist with a doctor’s appointment – could be helpful for standard situations but people often have exceptions. Giving bots human names implies their character as a ‘being’ in virtual form. Maybe there are limits to computer automation when bots start controlling key entry points like gate agents allowing people onto a plane or allowing people to see doctors.
February 21, 2018
Garment Automation Brings Opportunities and Disruption to World Workers
Countries like Bangladesh came out of abject poverty by taking on garment manufacturing for developing countries. Higher paying jobs in garment factories offered work to people in constant poverty and fear of hunger. At the same time, working conditions were poor in hundreds of plants as the 2013 building collapse in a Dhaka factory that killed 1,100 workers exemplifies. Government reforms since the disaster required better working conditions which triggered the building of more modern factories in the suburbs and the requirement for consistent annual raises. The movement to build new factories presented owners with an opportunity to automate factories, eliminating worker jobs at some sites by 66 %. Owners used automation to push back demands for better pay, threatening to just automate the plant. Garment automation has kept prices down and made textile exports from Bangladesh, Vietnam, India, Turkey, Cambodia and Indonesia competitive. Automation of garments has increased the efficiency of garment manufacturing, reduced costs, and increased safety while throwing many low skilled workers out of jobs.
Sources: Softwear Automation, The Wall Street Journal, The Daily Shot – 2/21/18
The automation of the garment industry is changing the garment making process, distribution and pricing as well. Garments can now be ordered online, or from in home retailers and manufactured to order. Large inventories are not necessary, reducing warehouse requirements and associated jobs. Sewbot sites can be setup near major metropolitan centers for quick delivery. Jobs are upgraded to management of computer software systems, robots and electronic inventory management. Workers with no college education or computer skills will unlikely be able to meet these high computer literacy based job requirements. These high skill computer jobs are going to be created in the US, bringing back some garment manufacturing which Softwear Automation says for example a Chinese based company is planning for Atlanta.
Why should we care about other countries’ workers? If more automated plants are built here in the US then that is all the better for the US labor force. True. but, from a more global perspective, what happens when workers in developing countries are thrown out of work onto the streets? Social unrest and upheaval is a likely result. Plus, if these economies decline who is going to buy American made goods and services? Our world economy is tightly integrated, bringing prosperity to many, in some cases hurting US workers and developing country workers alike.
The automation juggernaut is moving swiftly across the US and the World. We need a labor policy that addresses what is actually happening to workers here and abroad – to create a win-win labor equanimity position with management and owners. The policy needs to take its rightful place serving the needs of all workers to be productive in the national set of priorities.
As we have addressed in our IB discussion of January 31st on Universal Income, succumbing to a cop out of ‘just give people money instead of work’ is not going to create the productive personally fulfilling world we want for our children and their children. Plus, we need to increase our labor force participation rate if we are to grow our economy. Automation cuts costs which increase profits that in our economy goes to the 1 % not the 80 % who we depend upon to the make and purchase goods and services we all use. Corporations and the wealthy are reaping the benefits of automation, they need to own the economic solutions and take social responsibility for the disruption to worker’s lives.
February 20, 2018
No Housing Recovery for the Working Class!
To read recent mainstream media stories the housing market is doing great, prices are going up so all is well – just a tight inventory. The working class is getting squeezed out of the housing market. There is a low inventory of mid to low priced homes note in the following sales report:
Source: Real Investment Advice – 2/19/18
Builders make more margin on higher priced homes, working class families have been squeezed by stagnant wage gains so the builders go where the money is. The sales trend follows the winners of the recovery where 90 % of the income gains in the last 10 years have gone to the upper 10 %. Also hurting working class potential buyers are weaker government housing support programs which have been recovering from the housing bust of the Great Recession and banks tightening lending standards for income and down payments.
Another disturbing trend are speculators taking advantage of the tight housing market to buy and rent housing. This housing speculation is just another form of the wealthy investing in real estate at the cost of the middle class. The percentage of owner occupied homes has actually been going down not up – which is what we would think would happen in a housing recovery.
Source: Real Investment Advice – 2/19/18
Household formations are down, about 25 % of the potential home buying purchasers are still living with parents at home. The lack of middle class owner occupied housing is a result of the recovery never coming to the working class and the overhang of the unemployed never finding a job after the recession.
Pundits for the status quo are feeding us soma (Orwellian drug keeping the people asleep) when they say ‘oh, people really don’t need to own homes’. Wrong, when people own homes they invest in them they; remodel, install landscaping, paint and keep the home maintained. Plus, when they go to sell their home they reap the increase in equity from their investment. There is a certainty in home ownership too, about controlling the future of where the homeowner lives and the quality of shelter they enjoy. The whole neighborhood is improved when homes are owned by those living in them versus landlords.
Wages have to move up, in yesterday’s IB we outlined a combination of carrot and stick approaches to move corporations to give employees a fair share of the wealth generated by the company and their work including requiring a shift to a ratio of 150 % executive pay to average worker pay which was the ratio in the 1950s. Company equanimity programs like profit sharing, stock pooling, bonus sharing and other cash or stock reward programs made available to all employees would count toward the ratio.
Housing programs at the federal level need to restore FHA and related guarantees to first time borrowers. Corporations have over $1 trillion in cash right now, they often offer low interest loans to executives – why not offer corporations a tax deduction on the interest paid for low cost mortgages offered to employees as a benefit. Then, we start moving some of these profits into the economy doing work again, and raising wages.
Speculator buying of homes needs to be discouraged with no federal guarantees to speculators and regulators moving home lenders to doubling the interest rate for speculators who are not planning to live in the home.
Local and state agencies need to make zoning laws flexible enough for more homes to be built in low cost areas and with affordable mortgages from lenders to rebuild many rural and inner city areas of the country. Builders will need incentives to build homes in areas that are in need or a turnaround.
February 19, 2018
Corporate Nation States Need Checks and Balances
Corporate Nation States (CSN) are global mammoth corporations that make decisions in a world of their own telling world governments how to make the rules in their favor. They have few checks and balances with teeth.
As evidence we only need to look to the most recent Tax Bill which gave corporations a huge permanent tax cut to 21 % from 35 % (though the in 2014 the GAO in found that the real effective corporate tax rate was 18 %). CNS entities moved capital offshore that they deposited to escape US corporate taxes, back onshore with reduced rates. Yet, this year they have already spent $170 billion in stock buybacks which only enrich wealthy shareholders!
Source: Birinyi Associates – 2/16/18
Wells Fargo bank with its false sales practices, consumer fraud and other malpractice was allowed to buy back $22.6 billion of shares! Why? Those funds are going to juice up the stock price at the cost of customers, and employees. The Federal Reserve stepped in a recently to require that Wells Fargo bring on 4 new board members and restrict its growth to current asset size. Why didn’t the Federal Reserve restrict stock buyback activity? The bank just poured $22 billion down a hole.
We see in the public interest and necessity for a robust democracy equanimity with corporations and the electorate. Here’s our list the key reform changes we think make sense:
- Social Responsibility – Larry Fink, CEO, of Blackrock has sent a letter all their invested company CEOs outlining that from now on their investment criteria will include social responsibility criteria including: impact of climate change, accountability for their use of automation, increasing fair wages and fully engage shareholders in the process. We go further; requiring corporations place at least 2 independent directors on the board, 1 employee representative on the board and a complete audit of women and minorities in the company and their career paths.
- Employee Counter Balance – we like the German system of employee councils which are not necessarily unions but represent the interests of employees in all management decisions. Employees need to be represented on the Governing Executive Board by an elected leader, as well as a Board Member. All employee impact decisions need to be approved by the Employee Council leader with agreement not unduly withheld.
- Wages – corporations should be required to make available to the Employee Council leader all wage ranges, wage plans and information related to executive salaries, bonuses and stock plans. The Corporate management team will be required to bring the ratio of average executive pay to average worker pay to 150 % (it was at this ratio in the 1950s when GDP was growing 4 – 6 % a yr.) within 2 years. This will be done without layoffs or outsourcing of the working staff. A corporation can show with a combination of stock pooling, profit sharing and other employee equanimity programs besides employee salary that they meet the ratio criteria.
- Job Training and Career Development – corporations will be able to deduct at a rate of $1.00 on taxes per $5.00 spent on employee training from their income taxes.
- Hiring – corporations will be able to take a 25 % tax deduction on the salary paid an employee during that year for each US national hired. For foreign employees holding a green card residing in the US the company would receive a 10 % tax deduction for each employee hired that year.
- Stock Buybacks Ended. This practice is a completely misleading as to the price of a company’s stock with the benefits going to executives and wealthy shareholders with no investment in employee wages, benefits, training or productivity investments.
- End Overseas Profit Havens. There is no reason for corporations to be able to do a ‘Dutch Sandwich’ (IB January 4, 2018), inversions or other schemes to avoid taxes in the US. All funds in the US and overseas that are made overseas should be taxed a corporation rates – no loopholes. Corporations enjoy the protection of the US armed forces overseas they need to pay to support these forces ensuring their business interests are protected and safe.
- Corporate Lobbying and Campaign Finance. Since corporations won the right to be treated as a ‘person’ in the Citizens United ruling by the US Supreme Court. Let’s treat them that way, they can have one lobbyist in Washington (after all they are a person) and they can donate the personal limit of $2400 to any candidate. They cannot create PACs or other schemes to get preferential treatment by candidates. Lobbyist and corporate executive meetings with Congressman, POTUS or White House staff and Supreme Justices would be made public on a website within 24 hours after the meeting with names, corporate titles, and topic for public review.
February 16, 2018
(Solution Friday – we focus on solutions to problems we have identified)
Cancel Student Debt to Boost the Economy – Maybe in Stages
Much student debt is due to the 50 % reduction in funding by states and the federal government in public higher education over the past 15 years. Community college used to be free in many states including California in the 1960s and 1970s, and universities were 70 % funded by states.
Today, we have saddled our young students with debt that they carry most of their life due to near sighted moves by political leaders missing the point that investing in students is key to investing in our future.
According to a report by the Levy School of Economics at Bard College – a cancellation of student debt could boost the GDP by $86 billion to $108 billion an average for 10 years. Home purchases would increase dramatically to borrowers left out of the home purchasing market.
Source: National Association of Realtors – 3/6/17
Over 1.2 million jobs could be created according to the researchers.
We feel that students were placed in an untenable position going to school when government was renouncing and reducing its historic role in higher education. They are stuck with the bill – now how to work out of it.
A wholesale cancellation of student debt maybe a quick fix, yet it saddles the federal government with 90 % of the $1.3 trillion debt. We don’t need to add to the federal debt level without a return in a boost to the economy.
So, maybe stages of debt reduction make sense based on student responsibility:
1. Reduce Interest Rates – why should students pay rates that banks charge (though the government subsidizes), cut the rate of interest to the federal funds rate. Keep the present loan in place. The write down can be amortized over 30 year government bonds.
2. Cancel Debt for Heartland Service – this approach has been used with teachers teaching in rural or underserved inner city neighborhoods. Let’s expand this concept to include service in rural and heartland regions in need of workers to build Internet infrastructure, teach computer programming and high tech skills, health clinic and services providers. Or if they dedicate themselves to building startups in heartland regions where we need development.
3. Cancel Debt for Universal Service – students can enlist in the armed forces, or join the domestic AmeriCorps program for 2 years of per diem service, and leave the service debt free by providing security or service in America’s impoverished communities.
4. Corporate Sponsorship – students would do an internship at a corporation who would pay a per diem salary in return for paying off the student’s debt. Students win by paying off their debt and gaining valuable experience and corporations win by employing eager, dedicated students and investing in building future consumers or customers for their products.
We need our young people to not be in debt for myopia by policy makers beginning their careers and economic life in high levels of debt will act as a ball and chain on them and our economy for many years to come. Let’s fix the mistake as well and make community college education free to all Americans, and Apprenticeship Programs funded by corporations who benefit the most.
February 15, 2018
Diesel Corporation Drives Trucks Through Loophole at EPA
The Obama administration had an EPA policy in place to close a loophole in air pollution laws that allowed existing diesel trucks to continue to be sold. Yet, these older diesel trucks spew out between 40 to 55 times more pollutants into the air then new trucks fitted with proper emissions equipment.
Fitzgerald rebuilds trucks and resells them in Tennessee where a candidate for the Tennessee governorship, Diane Black, a long-time Republican, asked EPA director Scott Pruitt to overrule the Obama policy. Fitzgerald contributed $225, 000 to Black’s campaign for governor. The firm gave funds to Tennessee Tech University for air pollution research which showed – you guessed it that the pollution from diesel trucks was not so bad. Air pollution from diesel trucks has been found by EPA researchers and others to be a major causative factor in lung cancer, asthma and other ailments.
A chorus of condemnation has come from across the political landscape: truck manufacturers – Volvo and Navistar, fleet owners owner – United Parcel Service, lobbying groups like the National Association Manufacturers, and consumer groups the American Lung Association and the Consumer Federation of America.
California’s approach to car pollution is to require that all vehicles which are older be submitted to smog station testing every other year. Another approach the state implemented to get clunkers off the road was a program called ‘cash for clunkers’ to get older polluting vehicles off the road. Oregon has a forward looking program using VW diesel suit settlement funds to provide incentives to diesel fleet owners to replace older engine vehicles with new ones, and they work with a Portland State University researcher to monitor their progress on air pollution in the region. Air pollution is estimated to cause at least 400 pre mature deaths of Oregon citizens and about $3 billion in additional health costs, and the pollution levels were found to be worse in minority communities. Readers of the magazine, The Engineer thought an incentive based approach worked based (as Oregon has implemented) in a poll:
Source: The Engineer, 4/11/2017
So, lets end the backward, health damaging costs of this EPA loophole and ensure the health of all US citizens by closing this air pollution loophole not representing citizens, but instead corporations and paid off politicians.
February 14, 2018
Infrastructure Program Focuses On Corporate Profits Not Public Needs
The infrastructure plan presented by the Administration as part of a budget package to Congress outlines a program of using $200 billion of federal money to seed another $1.3 billion in spending by local, state government and private investors. Special emphasis is placed on projects with ‘return’ to governments who fund the project or private investors. Only 5% of the criteria for project awards is based on public need. The priorities are 180 degrees from what we need today. The Defense Research Agency – DARPA was the prime funder of the Internet in the 1960s, the Highway Administration funded our huge interstate system of roads during the Eisenhower administration, the Bureau of Reclamation funded our vast network of dams and water systems many built in the 1930s. The ‘return’ on these projects was often not evident until ten, twenty or thirty years later. Sometimes these public projects need to be done because they make for a better quality of life, safety or to protect our environment for generations to come. Here is a chart on underspending in water projects:
Sources: CBO, OMB, and Census Bureau – 2015
Under the Administration criteria projects like the Flint water recovery effort, or providing high speed Internet access to rural regions would not be built. To serve the public, not corporations is why they are called public projects not corporate projects.
The American Society of Civil Engineers calls for a ten year $2.0 trillion-dollar investment to bring our nation’s infrastructure up to a level to support a robust economy. The ASCE grades the infrastructure condition at a D+ today (graphic above). The ASCE calls for a rededicated effort to support our highway trust funds and other set aside funds for infrastructure development to make long term investments not disrupted by short term political expediency. We have called for implementation of a Heartland Development program to invest in our heartland communities; startup incubators, high speed Internet services, new health facilities, jobs apprenticeship programs, and corporate partnerships in hard hit Midwest and Southern regions.
We need our political leaders to focus on the real problems that need solving in this country like the job needs of our working class, water, transportation and Internet services, not the dictates of what corporations need to make more money. Corporations have enough money, they have $1 trillion in cash stashed away in corporate accounts the highest level in ten years – most of the money in offshore tax havens.
February 13, 2018
Labor Department Rewrites Tip Regulation Resulting in Wage Cuts
The Labor Department proposed for comment a new set of regulations that allows an employer to take all tips from customer facing workers and distribute them to other workers or take the tips themselves. There was one limit placed on taking the tips – the employer could not take tips and salary together less than the $7.25 federal minimum wage.
The Economic Policy Institute estimates that up to $5.8 billion in wages could lost to tip dependent workers like waitresses and waiters. The department is required by law to provide a cost benefit analysis on any policy change that would cause a $100 million impact or more. The agency has failed to produce such a report. Sales in the West and East coast are doing well, though in 2017 reports indicate sales falling by 2.3 % on the East Coast. Note the growing regions of the economy are doing well in terms of increasing food service business versus the Midwest.
Source: The National Restaurant Association – 2016
One restaurant owner said this new policy would allow him to provide raises to back kitchen workers as they were receiving 2 to 4 times less then customer engagement workers. How about raising the wages of the back office kitchen staff, instead of cutting the wages of the waitresses and waiters?
The hospitality industry pays the lowest wages on for the average worker of almost all industries except agriculture. The industry has a 100 % turnover rate as well, largely due to lack of career path, non-compete contracts, limited training and poor wages. TDn2K, a restaurant industry research company reports that when just one hourly non-supervisory leaves it costs the owner $2000 to replace the lost worker on average. Along with high turnover and competition the chain casual dining segment of the industry has tight margins.
The Labor Department proposal essentially gives employers the right to cut income to tip dependent workers back to the $7.25 federal minimum wage. Why? Because they are interested once again in making the rules of business work for corporations not workers. Yet if these companies thought a little further than next quarter, they would realize that these workers that they are slighting are the key to their success.
While, it is true that the restaurant industry has been losing sales to at home dining (workers cutting costs) and packaged foods in grocery stores, they still can take another look at their business model. One industry expert, Matthew Griffith observes, “Engagement of customers — maintaining the quality of food, service, and atmosphere, as well as directly responding to customer concern in real time — is driving a lot of the long term independent restaurant success we’ve seen and expect to continue in 2018.” Who directly engages with customers? Waitresses and waiters right? We’d like to see management think this issue through.
Government policy should recognize good business practice and support worker’s rights to a fair income, not pander to near sighted corporate executives and restaurant owners.
February 12, 2018
POTUS Moves to Cap Drug Prices for Seniors – Really?
Last week, Alex Alzar, newly appointed Secretary of Health and Human Services announced various proposals for the cutting the prices of drugs. One proposal was to cut the out of-pocket-expenses for seniors by instituting a cap on prices. Specific cap dollar amounts were not outlined. Another proposal would make generic drugs free to seniors on Medicaid. The program called for use of Medicaid drug formulary prices to be used in a five state pilot program. The Wall Street Journal analyzed costs of drugs for seniors on Medicare between 2011 – 2015 and found sharp increases in out-of-pocket expenses for the top 100 drugs, up 32 % from 2011.
Sources: Center to Medicare and Medicaid Services, The Wall Street Journal, The Daily Shot – 5/28/17
Many of the policies the Administration is proposing require the approval of Congress. It is not clear to us how the issue of drug costs turned into a top priority for POTUS since drug companies spend millions of dollars in lobbying Congress to keep cost reduction proposals from making it to the floor of Congress. Generally, the President while looking for votes by cutting drug costs often switches positions when corporate interests are threatened. Proposals with teeth like giving the HHS administration power to negotiate prices on drugs has never been seriously taken up by Congress. Drug company costs need to be carefully examined. For example, drug company direct-to-consumer advertising on prescription drugs cost $6.4 billion spent in 2016 should be banned as in all countries of the world except the US and New Zealand. Drug corporations spend billions of dollars on stock buybacks to drive up share prices and enrich executives and shareholders. Some of the top buyback firms are drug companies in 2016: Gilead Sciences spent $8 billion, Mylan bought $1 billion of shares (known for the Epipen price increase of 524 %) and Pfizer $5 billion in outlays. These expenditures are not bringing down costs of drugs for patients, instead the dollars are going to executives and shareholders while patients face soaring prices.
We applaud efforts to reduce the costs of medications for all patients, we would like to see the details on these proposals, and understand how these policies would be implemented considering the history of this administration taking the corporate side of most policy issues.
February 9, 2018
(Solution Friday – we focus on solutions to problems we have identified)
AI in Healthcare to Drive Healthcare Costs Down & Increase Quality
Doctors have long dreamed of being able to tap into a database of all the patient and treatment data for a specific disease to see if a profile of their patient is in the system and which treatments worked most effectively.
On January 29th, Google, Stanford, University of California and University of Chicago Medicine researchers announced good results in predictive analysis of patient treatments. The investigation team evaluated 216,000 adult patient records from two medical centers for admissions of at least 24 hours. Their software showed good predictive results for patient mortality, probability of readmission within 30 days, and final diagnosis. The insight into these patient conditions and outcomes offers doctors in clinics and hospitals critical information on most effective treatment regimens or in the case of possible mortality the urgency at which to administer a treatment. The use of this software could both reduce costs and increase the quality of care across many medical centers.
Yet, are patients ready for AI (artificial intelligence) assisted treatments, programs or interventions? A Price Waterhouse Coopers survey found that most people were willing to be treated with AI based systems:
Sources: Price Waterhouse Coopers, NextinTech – 2016
There is a range of AI enabled healthcare solutions from predictive analysis speeding diagnosis to AI assisted monitoring of patient symptoms and health status. It is likely that younger patients who have been using Internet technology and software assisted solutions for years will be more comfortable with AI technology being used in their healthcare.
It is exciting to consider how AI technology can provide answers to issues around stepping up the quality, speed and accuracy of healthcare. The opportunities made possible by these systems need to be part of the emerging debate on how to reduce the growing costs of healthcare and making better quality care available to all Americans. The implementation of AI technology could change how health insurance is administered and drive costs down as well for more details about health insurance please see our blog – Health Insurers Your Free Ride Is Over.
February 8, 2018
Working Class Loses Retirement Funds When Stocks Fall, Not the 10 %
Eighty percent of stocks are owned by the top 10% in income who are most likely to stash funds offshore. They have armies of analysts, portfolio managers and lawyers to protect their funds in a stock market meltdown – making money from puts (options that pay on a stock price fall) and shorts (borrowing shares to sell at a lower price profit). So, while some super wealthy people lose money in big bets most don’t lose money and many make money while the working class loses their retirement savings.
Sources: Edward Wolff, NYU, The Wall Street Journal, The Daily Shot – 2/8/18
As of September 2017 there was $5.3 trillion dollars in 401 k accounts which 54 million workers invest for retirement. There is another $7.8 trillion held in IRAs which are usually rollovers from corporate 401k plans as a worker leaves the company. These funds are self-managed by workers without the assistance of paid portfolio managers, though they can receive simple guidance from phone in advisors at firms like Fidelity or Schwab. In the Great Recession many retirees lost as much as 40 % of their funds, many made a mistake and sold at the bottom of the market forcing them to delay retirement plans.
Offshore accounts for the super wealthy need to end period, they need to be visible to the IRS and pay their fair share of taxes which they escape with these accounts. Next, our pension retirement framework needs to start with a worker as they begin work and gain a Social Security card. All company contributions come into this account that stays with the worker for his entire career – with professional portfolio management available to all. Many people are uncomfortable managing retirement accounts and need professional management we need to protect the financial future for workers. Please see our blog – Golden Years in Financial Jeopardy for more details, and ideas on solving this crisis.
February 7, 2018
Medical and Education Services Are Squeezing American Budgets
Overall inflation over the past 20 years is up 55 %, yet the cost of hospital care is up 225 %, college tuition increased by 190 % and child care soared 125 % with medical care not far behind at 120 %. On top of all these increases beyond inflation, wages have barely kept up for the bottom 80 % in income (please see our IB – February 5, 2018 below).
Sources: Bureau of Labor Statistics, AEI, The Wall Street Journal, The Daily Shot – 2/6/18
Note the explosive cost of services in medicine, higher education, and child care, while goods generally which are imported like cars, clothing, furnishings, and toys are even lower in cost over the 20-year period.
Obamacare has reduced the increases in medical services to about 4 – 5.8 % down from 6 – 7.9 % though medical services are still are a major cost for most people. In our IB of January 30, 2018 we noted that there is still work to be done. Much of the cost has come from insurance costs being shifted to employees by requiring employees to pick up increasing costs with higher premiums and deductibles rising by 229 % from 2005 – 2015. Plus, we have a duplicate insurance system – we have Medicare and Medicaid for millions of senior and those at the poverty level while we let private insurers manage insurance programs for the working age group primarily 25 – 55 years old. Drug companies continue to raise prices way above the cost of inflation, so high that 130 hospitals lead by InterMountain Healthcare (please see our IB for January 18, 2018) are joining together to setup their own drug company.
In higher education states have reduced their support of public universities by 100 % since the 1988 and have reduced higher education funding by $9 Billion since the Great Recession. Students now pay close to 50 % of all higher education costs in tuition and fees. This shortfall in funding has squeezed students leading to the highest level of student loan debt in history at $1.3 trillion.
Obamacare needs to be fully implemented – the bipartisan funding bill for helping out those without health insurance sponsored by Sen. Susan Collins (R – ME) and Sen. Lamar Alexander (TN), Sen. Bill Nelson (D-FL) and Sen. Patty Murray (D-WA) would stabilized health costs and offer insurance to those who would lose insurance by the enacted Affordable Health Care mandate repeal. Sen. Mitch McConnell, Majority Leader of the Senator had promised Sen. Collins’s a vote on the Tax Bill to bring this bill to the floor, the vote has not happened.
A way to hold drug pricing down is to pass the legislation the allow the Health and Human Services department to negotiate price on behalf of all Medicare and Medicaid patients which has been blocked in Congress. To provide low cost insurance for all Americans – we need to pass the Medicare for All bill by Sen. Bernie Sanders (I-Vermont), and the end the duplication of insurance services private and public.
In higher education, we need to require from our state governments that they return to funding colleges and universities at 1988 levels at least and bring the cost to students down by 50%. Eventually, all state with federal assistance need to fund a major apprenticeship program to provide a dual career track on the level of Germany’s commitment and a free community college program.
Finally, corporations will need to be incentivized to offer catch up wage increases possibly by lower taxes for the corporations that raise wages, or some equalizer at a ratio of executive pay to worker pay. Automation keeps wages down, it means that corporations need to be taxed for laid off employee for government job training, provide a job at equal pay or pay for employee job training. Corporate mergers need to be stopped and some monopoly companies need to be broken up to provide more choices for consumers, competitive prices and jobs for workers. Wall Street can help by not investing in companies that are not taking their society responsibility serious as the Larry Fink, CEO, of Blackrock declared in a letter to all their invested company CEOs. For more ideas on increasing wages please see our blog on Why Wages are Stuck.
February 6, 2018
Leaving NAFTA Projected to Cost 1.8 million US Jobs
The GOP Administration continues to create uncertainty about NAFTA agreement, threatening to leave if it does not get its US biased policies written into the document. If the US were to leave the agreement a recent projection shows 1.8 million US jobs could be lost.
Sources: Ian Bremmer – NYU, Trade Partnership, The Wall Street Journal, The Daily Shot – 2/6/18
Note that many inland states as well as the southwest would likely lose the most jobs, particularly in automotive and energy industries (Mexico is one the largest importers of US gasoline).
The present uncertainty has caused Mexico’s economy to stall and last month had a contraction in business activity. When their economy slows they buy less US goods and services and many US companies are hurt, as this projection demonstrates. We need to negotiate a fair deal for all workers: US, Canadian, and Mexican but the approach the Administration is taking with constant threats and tantrums has no place in serious good faith discussions. Let’s bring all key stakeholders from these countries together, businesses, workers, academics, economists and other experts to negotiate a better agreement to build a continuing partnership.
February 5, 2018
Wages for the Bottom 80 % Continue to Fall
Average wages for all workers was reported last week to increase by 2.9 %, yet for the bottom 80 % their wages continue to fall. The mainstream media focus on the average figure which is misleading because when wages continue to grow for the top 20 % it brings the average up and it appears that wages are increasing. But for non-supervisor workers they are still not getting their fair share of recovery dollars.
Sources: Bureau of Labor Statistics, Real Investment Advice – 2/4/18
The working class continues to not see meaningful increases in wages since 2014 and the trend has been down since the Great Recession. The recovery has passed the working class by.
In our blog, Why Wages Are Stuck, Here’s Why and What to Do About It, we identify many of the causes including: automation, corporate pay inequality (no incentives for management to raise wages they see as a cost), lack of competition (Internet recruiting), gig economy, corporate mergers (reduce the number of jobs available), corporate services outsourcing and fewer companies with unions. Worker bargaining power is at an historic low, political action is desperately needed for the bottom 80 % in income. Political force needs to be focused to increase worker bargaining power with initiatives like these: placing workers on corporate boards, limit outsourcing, eliminate low wage H-1B visas, offer incentives for corporations to invest in productivity improvements, end stock buybacks, breakup oligopolies, balance the job market process, balance workers and executive pay, fund worker training and increase wages related to robot deployment.
February 2, 2018
(Solution Friday – we focus on solutions to problems we have identified)
New York Takes the Initiative to Protect the Environment
New York State announced last Monday that a master plan has been developed to power over 1.2 million homes from a wind energy installation offshore. The planned site is off Long Island and New Jersey shore far enough offshore to not be seen from the beach. The state envisions creating about 5,000 jobs bringing New York into the forefront of offshore wind energy. Planners expect a $6 billion industry driving the installation of hundreds of wind turbines by 2028. A state official noted that the idea was to create wind energy development regions where wind farm developers could quickly install wind systems while the state invested in job training, manufacturing and electric infrastructure. Statoil is already planning an Empire Wind project on a 79,000 area just north of the state planned region offshore to be online by 2024.
Targeting electricity and heat production makes sense considering these two energy sources are the leading cause of greenhouse gas emissions:
Sources: Environmental Protection Agency, Statista, The Wall Street Journal, The Daily Shot – 2017
It is good to see the states of New York and California take the lead from the federal government as the present administration focuses on the past and denies scientific proof of climate change. The Administration announced this week a 72 % cut in the clean energy research budget for 2019. Climate change and the stewardship of our environment is critical to all people. Yet, often it is the poor and working class that live in some of the most environmental hazardous zones and high water areas in the US. Government is here to protect them, when it is not possible for them to protect themselves, they don’t have the high powered lawyers that corporations can employ to get their way on an environmental decision. As John Muir once observed: “When we try to pick anything out by itself, we find it hitched to everything else in the Universe.”
February 1, 2018
Media Concentration Threatens Our Ability to Make Informed Decisions
The recent announcements by Disney planning to buy 21st Century Fox and AT & T to purchase Time – Warner are two more huge steps in reducing our media choices, constraining multiple viewpoints, and hurting our ability to make wise decisions. A strong Fourth Estate is what our founders saw as the fourth pillar of our democracy along with Congress, The President, The Supreme Court. They knew that a free press, with many points of view informing citizens would ultimately lead to better citizen decisions and a stronger democracy.
Here is a chart of planned mergers and acquisitions in entertainment:
Sources: Leichtman Research Group, The Wall Street Journal, The Daily Shot – 1/31/18
Another imposing trend is the shift to social media for news, polls show that a majority of people turn to Facebook for their news. Yet, Facebook has just begun to grapple with the fact they are a news organization and need to follow professional journalist practices to provide factual information to the public. Facebook is a $528 billion company in market capitalization with over 1 billion users. Amazon, Google and Apple all have huge user bases and are moving quickly into content, producing shows and in some cases news and information programs. Are the Internet based companies going to take over entertainment, media and news markets? For example, Amazon owns The Washington Post. Amazon and Google have the majority of advertising dollars once spent on TV, radio and print publications – driving newspapers out of business. The chaos in the media space leaves a vacuum for theses giant corporations to pick up the pieces vertically integrate them into 2 or 3 mega media giants.
As television, radio and newspapers evolved prior to the Internet, Congress and the FCC wanted to ensure that media, content and distribution were always separated to create a fair and competitive set of markets strengthening our democracy. Recent administrations and the present one via the decision to end Net Neutrality have thrown this guiding principle away while allowing corporations to set the rules for information and news control via corporate concentration. We need to require a breakup of the present oligopolies along media, content and distribution lines and enforce this principle when the Internet players start making their plays for control of entertainment and news.
(Editor Note: Please see our IB for December 18, 2017 for more details on the Disney – 21st Century Fox merger. )
January 31, 2018
Corporations Need to Own the Job Displacement Problem from Automation
People derive a sense of self-esteem, self-reliance and purpose from their work. Plus, they become upwardly mobile by working. Receiving a check from the government (Universal Basic Income) puts them in a position of just receiving and not contributing to our economy. From 1980 t0 2012 for more manual or lower order skill jobs were automated than higher order jobs, though higher order jobs are targeted by artificial intelligence programs in the future.
Source: David Deming, Harvard University – 2/23/17
Elon Musk, CEO of Tesla, proposes replacing truck drivers with self-driving trucks. He suggests that some of the replaced drivers become fleet operators. This may work for a few people, but the skills to run a fleet require skills in operations management, parallel thinking and people management. There are probably few truck drivers that have these management skills or want to learn them. This is the whole problem with the automation creates jobs theory – the jobs replaced by automation are not the jobs that get created, so what really happens is that people in the lower end of the wage scale don’t get the new jobs that are created by the automation. Plus, Musk proposed that ‘the government needs to offer Universal Basic Income (send them a check)” which moves the job loss and worker economic reduction to the government. Corporations need to own the automation job transformation problem.
It seems the technology intelligentsia wants to promote automation and robots by telling folks, ‘its ok because the government will send you a check every month’. Just paying people off with a check is not a substitute for work. Providing them an opportunity for a career where they can increase their income and gain self-reliance is what the American dream is about. As a society we lose the innovation, creativity and hard work that comes with work that is paid for and brings new skills or businesses into our economy.
The same inequity in job creation happens in global trade. A car plant moves to Mexico where assembly workers lose their jobs and jobs are created back in the States for managers of international car product lines. The assembly workers lose their job in the work shifting process, even though new jobs are created.
From a macroeconomic perspective the Universal Basic Income plan places a huge burden on the federal government when our labor force participation rate is falling, the federal deficit is at an all-time high, and our population is aging. The ratio of workers to retirees is at the lowest in history and is forecast to go even lower. We need everyone who is able to work! Congress, corporations and university organizations need to come together on high level education programs that are more affordable, job training for those displaced by automation, and parallel track careers through apprenticeships. Corporations need to pay for the displacement they create as a societal cost, by paying for retraining of the worker displaced or find an equivalent job within the company.
January 30, 2018
Amazon, Chase and Berkshire Hathaway Go After Health Costs
A big threesome – Amazon, Chase and Berkshire Hathaway announced today, they are creating a company, ‘not seeking a profit’ to reduce the rising costs of healthcare for 1 million company employees. Amazon is beginning to make inroads into health care by setting up pharmacies and setting up a disruptive healthcare innovation group called 1492. Berkshire Hathaway has a large insurance firms in their portfolio including GEICO and Gen Re. Chase is one of the top five US banks and investment firms in terms of assets under management.
While rising costs of health care have ranged from 4.0 – 5.8 % under Obamacare over the past 5 years, down from the 6 – 7.9 % averages per year the previous five – there is still work to be done. Employees and individuals have felt the impact of these cost increases as employers shift costs to their employees in by increasing deductibles, hospitals charging those without insurance more and drug companies raising prices for some standard medications by 500 % (ie Epipen).
The Kaiser Family Foundation found in a recent report that employee deductibles rose by 229 % from 2005 – 2015. Copayments (standard payments) actually were reduced while all other health insurance categories increased dramatically:
Source Kaiser Family Foundation – 2016
It is good to see these three firms take on a societal problem like increasing health insurance costs for ‘non-profit’ reasons. Yet, we are not so sure that three profit making entities – one known for disrupting markets with no holds barred, a giant insurance holding company and an investment bank are not going to be using their employee base as an incubator for a healthcare for profit making entity. Will the new venture be focused on the needs of the average worker to reduce healthcare costs while providing access to high quality care? Time will tell. We will monitor this enterprise and see.
(Editor Note: Please read our IB for January 18th about how hospitals are banning together to form a drug company to reduce drug costs.)
January 29, 2018
Americans Strapped as Savings Rate Lowest in Ten Years
Consumers are really stretched as we noted in our January 9th noting that consumer debt is a the highest level in 16 years and are borrowing to make ends meet. Consumers are saving at a 10 year low rate of 2.4 % of disposable income, was just reported last Friday.
Sources: Thomson Reuters, The Wall Street Journal, The Daily Shot – 1/28/18
Wage gains have been stagnant, credit card, student loan and car debt is mounting, and delinquencies are beginning to turn up. While consumers are feeling the ‘wealth effect’ with household net worth in 2008 at $56 trillion rising to $97 trillion in 2017, they still are perched on a cliff of debt. This situation is a red flag that consumers that drive 70 % of our Gross Domestic Product and when they are stretched borrowing to keep their standard of living up is not sustainable.
Surveys of corporation intentions with their new funds from the Tax Bill show they are not planning on investment in equipment, increases in productivity (the Apple announcement is a PR release), or wage increases (survey by Goldman Sachs).
Sources: Thomson Reuters, The Wall Street Journal, The Daily Shot – 1/28/18
We need to focus corporate executives on providing good wages for employees, investing in productivity programs to raise the standard of living and ending stock buy backs which just juice the price of stocks increasing the wealth of the 1%.
January 26, 2018
(Solution Friday – we focus on solutions to problems we have identified)
Canadians Welcome Immigrants – Invest in Long Term Economic Growth
Canada supports ‘economic immigration’ offering permanent residency status to 170,000 people with key work skills coming into the country in 2015. The Minister of Immigration Ahmed Hussen (a Somalian refugee) announced last November that immigration would be increased next year for economic workers to 179,000 and 310,000 permanent residents next year and by the end of the decade to 340,000 permanent status or 1% of the country’s population.
Sources: NBF Economics and Strategy, OECD, The Wall Street Journal, The Daily Shot – 11/30/17
The US would need to allow 10 times the number of Canadian immigrants to have the same impact on the economy that Canada forecasts based on population size. The country faces similar problems as the US: an aging population, need for higher technology labor skills, falling worker to retiree ratio and a reduction in the number of workers in the key 25 to 50 years old labor force segment. The Canadian government reports immigrants are more likely than native born people to start new businesses creating new jobs and innovation for future economic growth. Plus, with immigrants from 190 countries the country is establishing, building and strengthening global economic links.
It is time for Americans to remember that 99 % of our population is made up of immigrants since the 1600s (only exception Native Americans), we need to recognize our economic challenges with a key part of the solution mix, by welcoming immigrants to our country to build a better economic future for all.
January 25, 2018
GOP Mortgages Future of Infrastructure, and Social Development with Tax Cuts to Rich
The Congressional Budget Office has completed an analysis of the Tax Cut Bill and found that by 2022 – just 4 years from now the federal government will be paying more in interest on government debt than on discretionary non–defense programs.
Sources: The Congressional Budget Office, The Office of Management and Budget, The Wall Street Journal – 1/25/18
Social Security, Medicare and Medicaid are mandatory spending programs. Discretionary programs account for 30 % of all federal spending. The non-defense discretionary budget is for science, education, training, department budgets and foreign aid. Non-defense discretionary spending was $600 billion in 2016, or about 51 % of total discretionary spending the balance is spent by the Department of Defense.
Essentially by giving a big tax cuts to the wealthy 1 % they have mortgaged our children’s future and future generations from increases in investments that will really move our country ahead: higher education, jobs training, research and development, and support of certain social programs. The GOP leadership is targeting cuts in Social Security, Medicare and Medicaid mandatory programs already. Republicans are targeting supplemental mandatory programs too, USDA Secretary of Agriculture Perdue announced that a work requirement will be added to receive food stamps. The US has the weakest safety net for our people of all developed countries – yet we are the richest country in the world. Have these GOP leaders ever experienced what happens to our poor, and how much harder government policies make it for them to pull out of poverty?
Increasing the federal budget deficit does matter, as the above chart demonstrates. When interest payments on the budget is equal to the size of discretionary spending on key government programs, we are setting up an impossible task for future generations to pay off the debt and make the investments necessary for a robust economy and humane social support programs. Yet, at the same time as we contemplate Medicare for All as a solution to the health insurance crisis serious funding programs such as an increase taxes must be considered.
Source: WTO Center Vietnam
January 24, 2018
Tariffs on Washing Machines Kickoff Trade War and Inflation
The Trump Administration announced tariffs on washing machine imports with a 20 % penalty on the first 1.2 million machines imported and a 50 % rate for any imports above that level. A 50 % tariff was awarded on all washing machine parts imported – all penalties are for a three year period. The administration is protecting Whirlpools’s market share of 43 %. LG responded by announcing price increases up to $50 per machine or more.
Source: Bloomberg – 1/23/18
These tariff actions will hurt consumers by first raising prices on imported machines then Whirlpool will raise prices by virtue of increased market strength with competitors losing share.
Our congressional leaders need to hear from us that without carefully considering the impact on consumers, this tariff should be suspended. We don’t need to be protecting corporations with dominant market share at the expense of consumers. As we noted in our IB of January 3rd, this administration does not look at the consequential impacts of its policies on world trade and the long term negative impact on US companies and consumers.
January 23, 2018
President Slaps Tariffs On Offshore Solar Panel Manufactures, Hurting US Economy
Yesterday the White House announced tariffs of 30 % for the first year tapering to 15 % on offshore manufacturers of solar panels. For the solar installation sector of the renewable energy market they face a major increase in costs of between 10 to 30 % if the tariff penalties are directly passed through to installers. Residential customers will be most directly affected with major price increases. All this is to protect the businesses of US companies that make up only 10 % of this solar panel market. Over 90 % of the panels are imported.
Sources: International Trade Commission, Bloomberg – 1/23/18
South Korea immediately announced possible retaliatory tariffs against American companies. The Solar Energy Industry Association estimates that 23,000 US jobs will be lost as a result of the tariffs. As we noted in our January 3rd IB, when tariffs are put in place prices rise for consumers as they did for lumber used in US housing based on the tariffs slapped on Canadian imported lumber.
Protectionism by provoking a trade war is not going to solve employment or competitive problems for US companies as noted by Nobel Economist Joseph Stiglitz. The Administration is taking a myopic view of US jobs without the full benefit of understanding a complex interconnected global economy. Plus, the real winners in protecting US companies is to raise their value so Wall Street can do M & A deals.
Democrats and moderate GOP leaders need to take these protectionist policies straight on, by showing the administration that to continue on this path will lead to trade wars, a depressed economy and possible conflict – we only need to look at the record of the 1930s to see the results. The Dow Jones Industrial Average dropped 60 % from 1929 to 1932.
Source: The Wall Street Journal, The Daily Shot – 1/23/18
Instead of looking backwards to fossil fuels, we should be investing in the renewable energy industry with major renewable power infrastructure projects, the electric grid and research.
January 22, 2018
POTUS Immigration Policies Take Toll on US Tourism
The US Travel Association reports that long haul tourism to the US dropped by 6 % in the last two years. While the higher dollar has contributed to the loss of some tourist visits experts argue that the main factor was US immigration policies in the last year.
Source: The US Travel Association, Bloomberg – 1/17/18
Hanging out the “Un Welcome” mat does not help. The administration started 2017 by announcing a ban travel from 7 predominately Muslim countries which set off a firestorm of overseas anger and frustration at the US. Many potential visitors changed their trip plans to other countries in protest. The US Department of Commerce reported that there were 700,000 fewer tourists coming to the US the first quarter of 2017. Succeeding policies like pulling out of the Paris Climate Agreement, additional travel bans, ICE raids on businesses, not offering ‘Dreamers’ a path to citizenship and protectionist trade policies have not helped.
Congress and the President need to understand that immigrants are the foundation of the cultural, societal, and economic fabric of this country. We need new policies reversing the xenophobic policies presently in place. Outright travel bans, breaking trade agreements like NAFTA, ICE sweeps and not providing a path to citizenship for ‘Dreamers’ demonstrates the true values of the power elite based on scapegoating, hate and greed. These broken values need to be replaced by the American values of respect, diversity, tolerance , and economic opportunity for all. We are all immigrants!
January 19, 2018
Oligarchy Consolidates Power in First Year of POTUS’s Reign
Tomorrow is the first anniversary of the most cruel, vindictive, divisive administration our country has ever seen. We hope to never experience a year like this one again. Today, wealth concentrated in the top 1 % is at the highest level of inequality since 1929! Yet, the elite craves more power, control and money.
We must wake up to what is happening to us: the elite uses the media, politicians (that they buy off) and self-serving half-truths like the ‘tax bill is for the middle class’ to loll us asleep to what they are doing. Let’s look at the beginning of the administration’s juggernaut dismantling of our participatory democracy into a government ruled by the wealthy elite. Their plan to install the power elite was the first step.
The president himself, a billionaire installed a wealthy elite after promising to ‘drain the swamp’ in Washington with 5 billionaires in his cabinet. If we add Carl Icahn – regulatory advisor that makes 6 billionaires and Steve Mnuchin with only $500 million in the administration team that makes at least 7 power brokers in his team. Are these people who are in touch with the needs of the working class daily? No.
From his early administration travel ban policy to on again off again support for ‘Dreamers’. This administration has demonstrated a total lack of care for the working class, immigrants and and their families. Yet, they take care of their elite friends. The tax bill made permanent tax cuts that corporations and their wealthy shareholders don’t need since they are are the lowest level of tax payments as a share of GDP in the last twenty years! If this was really for workers then why was consumer tax cuts made temporary? That tells us the administration wants to consolidate gains for its wealthy 1 % elite that now have 20 % share of national income.
Sources: OECD, The Wall Street Journal, The Daily Shot – 11/30/17
This need to consolidate gains for the elite shows in other ways – like rolling back the fiduciary rule, making the financial services industry accountable to its clients. Now, they can get off the hook for selling financial products that are not in the interests of clients but the products where they make large commissions. Is this policy in the interest of consumers? No. Or doing the bidding of payday companies that are really legal loan sharks charging customers as much as 400 % interest. By letting them off the hook on accountability to customers by rolling back a Consumer Financial Protection Bureau regulation developed by the Obama administration to ensure that payday firms made sure that customers could in fact pay back the loans.
This administration has inflected pain in other ways, by not making the charitable deduction universal prior to at standard $24,000 deduction. Charities that depend on middle income donors expect to lose 62 % of their revenue from the middle class. Charitable organizations do the work that governments can’t do, won’t do or just plain don’t fund. They are a major provider of social services that in other developed countries governments provide – but this administration didn’t care. They wanted to make sure that they got enough revenue under the $1.5 trillion ceiling to make big tax cuts for corporations, their wealthy executives and the power broker elite.
The fact that the GOP leadership did not bring to a vote the DACA and CHIP bipartisan agreements before the Democrats and a few statesman Republicans finally took a stand causing a federal government shutdown says they don’t care about working class people. GOP leaders only care about increasing their political power.
More disturbing than the oligarchy taking over the controls of our government and consolidating their power is the combination of the arrogance, cruelty, and vindictiveness with power. This combination of dark traits is dangerous to our democracy, our people in their daily lives and our allies supporting the American experiment.
In 2018 we must reverse the tide of elitist power and return the democracy to people from all countries who want to make the American dream a reality for themselves and their families. We must stand for everyone here and those who want to come here so we all can enjoy economic opportunities for our children, grandchildren and forever more.
January 18, 2018
Hospitals Ban Together To Bring Down Drug Prices
Led by InterMountain Healthcare of Salt Lake City is leading a group of 300 hospitals and care providers to setup a non profit drug company. The group will focus on providing key drugs that often are in short supply or at exorbitant prices. Dr. Marc Harrison, CEO of InterMountain Healthcare says this is a “shot across the bow of the bad guys” (drug manufacturers). They did not announce the drugs they will manufacture and distribute, but common drugs like morphine and Nitropress heart medicine maybe targets as they maybe in short supply or have extreme price increases.
Chart: AARP Public Policy Institute, 2016
An average basket of consumer products and services increased in price by 21.5 % from 2005 to 2015, while drug prices increased by 172 %. Drug pricing continues to be driven by profit driven corporations lacking in a social responsibility and accountability.
Drug companies are in the top 20 of corporations buying back their stock to goose the price for executives who are compensated on stock price and shareholders in the top 1 % in income. Stock buybacks totaling billions of dollars could go to reducing the price of drugs to patients and hospitals. Plus, the US and New Zealand are the only countries in the world that allow drug companies to advertise prescription medications on television at a cost of $6 billion in 2016. The American Medical Association called for a complete ban on direct-to-consumer advertising two years ago.
January 17, 2018
Blackrock CEO To Corporations: Focus on Social Responsibility Too, Are They Listening?
Laurence Fink, CEO of Blackrock with 6.3 trillion of assets under management sent a letter to one thousand CEOs outlining that in the future they will be evaluating companies on their societal impact not just profits. Blackrock manages major index funds which require that they invest in firms included in the index even when they don’t like the direction management is taking the company or take actions that are detrimental to their employees or community. Fink tells executives that a new age has arrived where shareholders and company management need to be more actively engaged. Plus, companies need to take the long term view related to rising automation, slow wage growth and climate change and explain their plans to shareholders.
We applaud Fink’s focus on social responsibility by corporations. As he notes governments maybe way behind in the seeing the needs of society and solving those problems. Corporations can even add value, as Deloitte observes in five ways: creating new market opportunities, taking regulatory relationships from reactive to proactive, retaining top talent, enhancing brand value, and building sustainable supply chains. Now, let’s make this a priority on Wall Street. Fink in an interview on NPR’s Marketplace today, clarifying that Blackrock was not Wall Street. We have a ways to go with Wall Street expectations for quarterly results – we can hope that Wall Street was listening to a major investor like Blackrock.
January 16, 2018
Tax Bill Damages our Democracy as Charities Suffer Contribution Hit
The new tax bill creates a new high bar for middle income taxpayers with the $24,000 standard deduction. In the $75,000 to $100,000 income range just 10.2 % of taxpayers will benefit from the charitable deduction according to the non- profit Tax Policy Center down from 27.1 %. From $100,000 to $200,000 their contributions are forecasted to drop to 19.6 % from 50.7 %. These reductions total 62 % in lost giving by the middle class to our communities.
Charitable organizations depend on middle class donations for consistent flow of income and to broaden their donor base from the wealthy. They suffer another hit with the limit on state and local tax deductions at $10,000, forcing many taxpayers to either increase their donations to reduce taxes or just forego the increase in giving.
Often non-profit groups fill in the gap where government support falls off for the homeless, poor, elderly, sick and people out of work.
Source: Infoquality.org – 2016, Oregon example
Nationally, non profit groups received $390 billion in donations at a rate of 2.1 % of GDP. This rate was a 2.7 % increase from 2015. Individuals contributed 72 % of these funds, with corporations providing only 3.5 %. Yet the tax bill gave billions of dollars in tax cuts to corporations not individuals who only received a temporary tax cut anyway.
A universal charitable contribution, available to all taxpayers prior to the standard deduction has been proposed by the Independent Sector, a non profit advocacy group. This proposal offers everyone an opportunity to support their local community services groups, without the bias to the rich.
January 12, 2018
GOP Administration Announces Work Requirement for Medicaid To Reduce Rolls
The White House announced approval of a work requirement for Medicaid recipients, yet most already work. Why? The Kaiser Family Family found in 2016 that 59 % of Medicaid patients already work:
Source: The Kaiser Family Foundation – 2016
So of the 41 % not working who is going to work? The Administration said those that are disabled, ill, in school or caregiving will not be required to work or provide community service. Does that mean that those that are retired will be required to find work? Only 8 % said they could not find work. We view this as the beginning of an effort to cut down the rolls and thus the costs of Medicaid. Instead of being viewed as a welfare program, Medicaid should be viewed as medical insurance. We don’t ask Medicare enrollees to work, and private insurers don’t ask for patients to work.
Enroll US citizens into healthcare insurance at the time of birth (our blog in depth), establishing a healthcare account with Medicare for all. The idea of insurance is that we establish a large pool of 360 million people, to spread the costs of the sick along with the well, so that when the well get sick they will have services that don’t cost an unreasonable amount. The health insurers have somehow talked the American public into the idea that they get to cream off the well pool from the sick one (which is more expensive) and then sock it to people that are sick. That is just plan wrong.
January 11, 2018
Deportation of Immigrants Leads to Economic Losses
Contrary to assumptions by the GOP Administration deporting immigrants causes higher unemployment and economic losses in regions where there were high levels of deportation. Researchers reviewing unemployment levels and economic activity of cities in the 1930s found that Mexican immigrants provided an economic foundation to these regions.
Source: Washington Post – 1/10/18
Native born workers did not fill in the jobs left open. Actually, researchers found that immigrants provided key jobs that when subtracted from the local economy caused losses in multiple related businesses.
The Administration needs to rethink its policy on Temporary Protected Status immigrants who have been in this country for years making economic contributions which can not be replaced with native born workers. Contact your Congressman or Senator to express your concern about sending TPS immigrants back to home countries who make a major contribution to our economy.
Photo: The Washington Post
January 10, 2018
Lower Wage Workers Making Less at Large Corporations
Professor, Nicholas Bloom, Stanford University released a report showing that workers overall are receiving less of a premium by moving to large corporations. In the 1908s workers received a 50 % premium by changing to a a large corporation. Today workers receive only a 20 % premium. Workers in the bottom 50 % of wages had no premium since 2013, less if inflation is considered.
Sources: Nicholas Bloom, Stanford University, The Wall Street Journal – 1/10/18
Professor Bloom attributes the reduction in premium to outsourcing to offshore firms, and pressure on management to reduce operational costs. Managers receive bonuses for increasing profits, not for the quality of staff or wage compensation. As we note in our blog Why Wages Are Stuck, corporations have dramatically reduced the number of jobs available, there are 50 % fewer public corporations today than in 1997. Most industry sectors are dominated by 3 or 4 companies that most of the profits. Plus, automation of lower wage jobs is a major factor in reducing the number of jobs and the wage bargaining power of workers.
When corporations outsource a job, they should be required to provide adequate pay to find a new job, and guaranteed training for work at the company or another firm. Employees should not be required to train workers taking their job, if the company wants training to be performed they should double the worker compensation for those hours of transfer training (if an outsource firm is used).
January 9, 2018
Consumer Debt Increased To Highest Level in 16 Years
Consumer debt soared last November month over month to a record $23 billion for the largest increase in 16 years. This is total debt except for mortgage loans for car loans, student loans and credit cards. The revolving credit card debt skyrocketed for November by 13.3 % over the previous month to $11.2 billion.
Sources: Federal Reserve Bank of St. Louis, Bloomberg – 1/8/18 Ec
Consumers are caught in a squeeze between stagnant wages and rising costs as there is an ever widening gap between income and expenses.
Sources: Bureau of Economic Analysis, Piper Jaffray – 1-9-18
Student debt is a major component of consumer debt at $1.5 trillion. We need a program to help students pay their loans at lower rates, work off longer term for payback and forgive the loans for service to our country. Plus, we must lower the cost of tuition for public colleges with further state and federal funding while making community college education free to high school graduates.
Photo: Crowd outside the NYSE 1929 – Wikipedia.org
January 8, 2018
Too Much Complacency in Markets, Business Leads To Crash
The stock markets are a good indicator of the complacency level of investors, traders and the business community when it gets to an extreme as it has now 3 standard deviations from its long term 2 year moving average. Note the S & P 500 or SPX stock index is (black line) is way above the 50 month moving average (blue line) this is unprecedented as the market is at the most overbought level in 20 years. Why is this important? Because, many American households have stock investments for retirement in their 401k plans or pensions, so if the market rubber band snaps back to the median or lower there will be significant losses. Losses are likely to be greater than 10 – 15 % because economists estimate that about 20 % of market value is artificially inflated by companies buying back their own stock to juice up their stock price. Plus, wealth is at it’s highest concentration in the top 1 % since 1929 (note chart in our banner).
Chart: Real Investment Advice – 1/7/18
The Federal Reserve has kept interest rates extremely low to jumpstart the economy since the Great Recession and added trillions of dollars to the national debt in the process. The federal government did not add any major infrastructure investments after 2012 which would have spread the income produced to workers. Since 2008 90 % of all the income produced from the growing economy has gone to the top 10 %. Workers wages have been stagnant since 2008 as corporations automate factories, acquire competitors (laying off workers), use temporary workers, outsource non core department jobs in HR, IT and Finance and use highly effective Internet recruiting systems. All these actions keep wages down, even with low unemployment as we discuss in our blog on why wages are stuck. There is a fundamental shift in our economy where labor is a its lowest level of wage bargaining power since 1980. The financial markets are an indicator of the financial party that the 1 % is enjoying while the rest of the working class is stuck just trying to make ends meet.
We need to require that corporations end stock buybacks to increase transparency on true stock values. The Federal Reserve needs to quit coming to the rescue of the stock markets by pumping in trillions of dollars. Corporations should be given incentives to raise wages, and invest in employee training. The federal government needs to deploy at least a $1 trillion infrastructure investment program paid for by increasing corporate taxes to their fair share level.
Photo: Patrick Hill
January 5, 2018
Will Congress Do the Right Thing and Renew the Dreamers Program?
Congressional negotiators from both parties are now discussing how to renew the program initiated by President Obama in 2012 to shield 800,000 young people from deportation. They must meet certain requirements including staying in school, and obtaining a high school diploma or GED. The GOP Administration has used the DACA (Deferred Action for Childhood Arrivals) program to please its base, though at times POTUS has shown support for maintaining the program – but threw it back to Congress threatening to cancel it in March, 2018.
Young immigrants are crucial to growing our economy, as almost one third of new entrepreneurs are not native born:
Source: The Kaufman Foundation, The Wall Street Journal, The Daily Shot – 11/29/17
Canada has taken a different approach actually welcoming immigrants to build their workforce, as their population ages.
Source: OECD, The Wall Street Journal, The Daily Shot – 11/30/17
Congress and the President need to do the right and just thing by approving the DACA program without all the immigration hysteria attachments to an agreement like spending $18 billion on a 700 mile long wall. Immigrants have been the life blood of this country, it’s pulse and heart. Now, as our population ages immigrants are the key to growing our economy as we outline in an in-depth blog.
January 4, 2018
Google Escapes Taxes With $19.2 B ‘Dutch Sandwich’ Financial Scheme
Google’s Alphabet company diverted $19.2 billion in 2016 to Bermuda shell company using two financial dodges known as a ‘Double Irish’ via Ireland and a ‘Dutch Sandwich’ in the Netherlands. The financial maneuver is performed by shifting revenue from an Irish subsidiary to a Dutch firm with no employees, then transferring the money to a Bermuda mailbox owned by a different Irish registered company. In 2015 the Irish government closed the ‘Double Irish’ sandwich tax structure but corporations are allowed to keep using it until 2020. Google held $60.7 billion overseas which it had not paid any US or foreign withholding taxes according to a filing with the SEC. This financial wizardry allows the firm to escape fair US taxes considering the firm has global rate of 19%. The new Tax Bill permits corporations to pay 10.5 % on all funds brought back to the US, except Google does not qualify with an effective global rate of 19 % 6 points over the global qualified rate of 13.125 %. Are they going to invest in innovation, increasing wages or reducing costs, no. A recent survey by Bank of America shows firms plan to do is pay down debt (used mostly to do stock buybacks), share repurchases and mergers and acquisitions.
Sources: Bank of America, The Wall Street Journal, The Daily Shot – 10/4/17
Corporations need to pay their fair share of US taxes on foreign profits because they benefit broadly by the protection of the US worldwide military umbrella which cost the federal government $598 billion in 2016. Corporations should be required to pay their fair share of taxes at the real 21% rate (new Tax Bill rate) without tax loopholes and to use the majority of the repatriated funds for employee wage – benefit increases, employee training, and 401 k matching.
January 3, 2018
Under Trump Administration Trade Disputes Hurt US Consumers
There have been 29 disputes initiated by this administration for all of 2017 more than any other year back to 2001. Early in the year the administration threatened to pull out of NAFTA which has hurt the Mexican economy creating uncertainty for foreign investors and suppliers driving the country into a recession, Now, appliance, lumber and solar industries are running to the Federal government for cover. Offshore appliance manufacturers like Samsung and LG are increasing shipments in anticipation of a decision in favor of Whirlpool expected by Feb 2nd. The threatened tariff hikes distort markets. Foreign stockpiled appliances will go out the door at steep discounts so by the time Whirlpool gets to the market where its prices will be higher many consumers will have already made their purchases. The lumber industry experienced extreme inflation after the administration decided to slap Canada with a tariffs ranging from 3 to 24 percent last April lumber prices in the US have soared.
Sources: The Daily Shot, The Wall Street Journal – 11/13/17
The cost of lumber is a crucial factor in home building costs where home prices rocketed up 6.7 % this year compared to inflation of less then 2.0 %. Protectionism is raising the price of housing at a time when fewer and fewer Americans can afford a home with the Affordability Index at a nine-year low.
The GOP Administration needs to look at the actual causes for the economic disadvantage to US companies and understand how complex trade really is. Cars assembled in the US may have parts manufactured in other countries, and often shipped again for further production work or testing then returned to the US. Using myopic nationalism and protectionism policies was tried in the 1930s with disastrous results, which many economists think was a major factor in causing the Great Depression. Protecting the rights and jobs of American workers is crucial to building the US labor force with good incomes, yet we need to figure out how to be good at building win-win trade agreements and programs. Plus, trade ties world economies together forming a more lasting peace. We discuss the stress on the Mexican economy and issues for US workers in our blog, Threatening Mexico Will Lead to Loss of American Jobs – Let’s Build Bridges Not Walls. Many of trade economic benefits have gone to the top 10 % in income while workers jobs are lost, the debate continues between leaders from the political right and left – we need to find good frameworks to ensure the economic success of all workers.
Image: Emmanuel Saez, UC Berkeley – 2016
January 2, 2018
Income Inequality in US is Much Worse Than Europe
An examination of the latest analysis of the bottom 50 % of income shares of the US versus Europe reveals the root of much civil conflict in our country.
Sources: World Inequality Lab, Wonkblog, The Washington Post – 12/21/17
While the GOP Administration touts as a major objective of the Tax Bill is ‘trickle down economics’ to raise the wages and standard of living of the middle class the data just does not support that theory. The opposite is true, since the Reagan years incomes have been stagnant (when inflation is taken into account) and the bottom 50 % in income are losing income share.
Pass legislation at the federal level, to induce corporations to increase wages, training and make investments in innovation and productivity. Reduce interest rates on student loans, and invest in higher education by reducing tuition fees and make community colleges free as California did in the 1970s. Finally, invest in our heartland communities as we have noted to bring the rural regions their fair share of US GDP growth.
December 22, 2017
Congress Creates Economic Headwinds for the Working Class, Spending Would Help More
Analysts forecast minimal increases in GDP and possible modest tax cuts on income for the working class (though zeroed out by increases in health premiums), then taxes actually rise according to the Joint Committee on Taxation . The Congressional Budget Office in 2015 completed an analysis of the multiplier effects of spending vs tax cuts.
Source: Congressional Budget Office – 2015
They found that spending on infrastructure and transfer payments to individuals to be far more beneficial in jumpstarting the economy. We saw the results when the Obama administration moved the economy out of the Great Recession with major spending programs of $831 billion over ten years beginning in 2009.
Elect political leaders who are interested in passing initiatives that really help the working class, understand spending in infrastructure and jobs training. When we invest in our long term infrastructure and our people with good paying jobs all will benefit in a growing economy not just the 1 %.
Image: CNN – JAMA – 2014 – Life Expectancy in US (red lowest by 20 yrs)
December 21, 2017
Life Expectancy Drops For 2nd Year in Row, First Time in 50 Years
The Center for Disease Control announced that due to the opioid epidemic and stalled progress on heart disease that the life expectancy rate dropped for the 2nd year in a row in 2016.
Source: CDC – 12/20/17
This trend should be a wake up call to our government to make a major investment in opioid addiction treatment and prevention. Yet, the GOP Administration declared a health emergency in October, but did not request major funding to move effectively to combat the crisis which took 59,000 lives in 2016. Plus, the epidemic is causing so many deaths of our young people, that it is a major constraint on the growth of our labor force in the important 25 – 54 year old group. This age group needs to grow in size if our economy is to grow and support our aging population.
Drug companies are not helping either. Purdue Pharma marketed OxyContin in 1996 as a non abusive drug for pain relief – when it fact it was a addictive. The company spared with the Drug Enforcement Agency in a directive, forcing the agency to relax enforcement. Opioid experts think this marketing was the catalyst for the epidemic we face today. McKesson, a major drug distribution company, did not monitor a major illegal supply to drug dealers the DEA found after a 2 year investigation. The firm has slipped off the hook by the Department of Justice by not enforcing a major judgement that DEA investigators recommended – instead the firm even after being negligent twice faced no criminal penalties and a relatively minor financial violation.
First, the GOP Administration needs to get serious and fund the recommendations of the crisis commission report of November 1st to in the billions of dollars. The DOJ needs to focus on making violating companies hurt to change their behavior with stiff penalties and criminal indictments (they added and abetted an illegal drug trade). Our focus needs to be on mostly rural counties that are facing major opioid problems, joblessness and poor healthcare – where there is a 20 year gap compared to high life expectancy counties. We need to go to the root cause of the states feeling the pinch of the crisis, in our heartland regions by investing in education, jobs, training, healthcare and Internet infrastructure as we have recommended in our recent blog, The Hallowing Out of America’s Heartland Requires a Major Investment Now.
December 20, 2017
Consumers Get Squeezed by Tax Bill, Housing Market Likely to Spiral Down
Corporations have capped their decades long shift of Federal taxes over to consumers. Corporations paid about 35 % of GDP in 1955 in federal taxes now pay about 10 % before the Tax Bill just passed today by Congress.
Source: General Accounting Office – 5/2013
The General Accounting Office estimates that the effective tax rate for US corporations is actually more like 14 % not the 35% statutory rate. This is due to the fact in their study from 2006 to 2012 66 % of all corporations paid no federal tax at all! So, the Tax Bill has cut the statutory tax rate for corporations to 21 % or about a third from 35 %. Thus, the effective tax rate is now reduced by a third (because loopholes and deductions were kept in place) to 9.24 %.
Who is paying for this corporate gravy train in tax cuts? The individual consumer is. Consumers in blue states and metro red state regions with high state, local, and property taxes will be severely squeezed. Congress has placed a $10,000 limit for state, local, and property taxes. This means in an area like the SF Bay Area where homes average $1.2M to $1.5M deductions will squeeze consumers. For example, for a $1.5M dollar home, with $500k down (from previous home equity) a 30 year fixed rate mortgage will have about $17,500 in interest costs deductible in 2017. Now under the bill only $13,000 in interest charges will be deductible on $750k (the 2017 limit was $1M for couples, $500k single filers) of a new home purchase. Add the limit of $10,000 for state and local income taxes and property taxes which on this home would be about $13,000, and state income taxes of $16,000 for a couple making $200k. Because the doubling of the standard deduction is capped while itemized state and local deductions in 2017 are variable, budgets will be squeezed in 2018. Its evident that the couple would be unable to afford to buy the house. Plus, with a limit on local and state deductions their California taxes will go up because their adjusted gross income used on the state returns like California will be higher. Now, interest rates are soaring, jacking up mortgage costs where home purchase affordability is falling to a 9 year low.
Source: GAO – 5/2013
The burst of month over month existing home sales in November a 5.6 % was likely due to accelerated home purchases before the Tax Bill takes effect in 2018.We are likely headed into a housing recession dragging the economy with it.
Reverse the consumer consequences of Tax Bill, it will be a long time before Congress changes its mind.
December 19, 2017
Donors to GOP, “Get it Done, or Don’t Ever Call Me Again!”
Rep Chris Collins’ (R) tweet of November says it all, about who is driving the present Tax Bill before Congress. The GOP did not repeal Obamacare, so GOP donors are upset, now they are looking for tax cuts for themselves and the corporations they control and own. The wealthy win in two ways – their taxes directly go down, and their stock in corporations goes up by virtue of corporate tax cuts and stock buybacks designed to juice the price of the stock they own.
Was this bill a priority of the people? No. The people said in a Kaiser Family Foundation poll, that for American voters tax cuts were the 8th priority for Congress (please see our Insight Byte of December 15 for chart) way behind healthcare.
Are the people in favor of the present Tax Bill? No. A Monmouth University poll shows that only 26 % of voters approve the bill. Over 50 % are opposed to the bill and see it mainly as a tax cut for the wealthy.
The Tax Bill shows the power of the wealthy 1% over our Congressional and national priorities which only go to increase their wealth and control. This legislative action is the grossest miscarriage of democracy the oligarchy has pushed onto the American people yet. They don’t want the people to get in the way of their tax cuts – no hearings were held on this bill, it has been rushed through committees and yet it affects everyone in our country and their economic welfare. Congress should use its process of ‘due order’ as Senator McCain remarked when he voted against the Obamacare repeal law last summer.
Call your congressman and senators to tell them you oppose this tax scam for the wealthy. You can support groups working in opposition to the bill: MoveOn.org, The Democratic Congressional Campaign Committee , and non-partisan, The Committee for A Responsible Federal Budget.
Photo: Apple Insider
December 18, 2017
Disney Creates A Mega Dominant Media Company Damaging to Our Democracy
Last week, Disney announced that it had reached an agreement to purchase 21st Century Fox in a $52.4 billion deal. In 1993 there were over 50 companies with 90 % of the media market. Today, there are 6 behemoths controlling 90 % of all media markets. These six – Disney, Comcast, Time-Warner, 21st Century Fox, Viacom and CBS hold majority interests in film, broadcasting, cable, distribution and park resorts.
Source: The Media Literacy Clearing House, The Wall Street Journal – 2014
The concentration of media power gives these media executives inordinate power to silence voices they want to muzzle. For example, Disney last November did not like the way the Los Angeles Times was reviewing some of its films so the firm banned the LA Times from any movie reviews. Other media players boycotted Disney until they lifted the ban. In addition, we need to provide opportunities for more media startups, entrepreneurs and independent film studios to offer us a variety of perspectives and entertainment. More jobs were be created as well, with multiple media houses competing for creative talent and creation of more journalist positions.
To keep our democracy strong we need a multitude of different voices, ideas, creativity and perspectives. Media concentration opens up too many opportunities for corporate censorship, control and manipulation. Write your congressmen and senators to tell the Department of Justice to block the merger on anti-trust grounds. Activist groups like the Free Press has been waging a constant battle to break up media conglomerates.
December 15, 2017
Common Sense Does Not Prevail in the Senate – Children’s Health Insurance Program Still Not Funded
The Children’s Health Insurance Program (CHIP) has had bi-partisan support since passing the law during the Clinton Administration. The program covers over 9 million children of which 2 million have chronic diseases like asthma, attention-deficit/hyperactivity disorder, diabetes, epilepsy, mood disorders and developmental disorders such as autism. They depend on this program for the continuing health care needs, making appointments, tests and procedures. Yet, Congress has automatically funded the program with out a miss 1997 except when President George W. Bush vetoed it twice, and Congress responded with short term funding. In October, the House passed a reauthorization for CHIP but used this opportunity to fund it with an offset from the Affordable Care Act – which Democrats voted against who saw it as another attack on the ACA.
States are in a tough squeeze, Colorado has already sent out possible expiration notices as the state is running out of it own funds. Here is a chart of the over 1 million children affected by January 31:
Source: Kaiser Family Foundation, The Wall Street Journal, The Daily Shot – 12/15/17
California, Texas, Florida, Washington, Oregon, Massachusetts and Pennsylvania would be hit hard by under funding.
Why can’t Congress get a program with bipartisan support funded in the appropriate timing to keep children and their parents from suffering both physically and emotionally with uncertainty?
The corporations’ Congress clearly doesn’t represent our needs. Sixty-two percent of Americans see the reauthorization of the CHIP program as the highest priority for Congress versus 28 % for a tax cut for the wealthy and corporations driven by threats from GOP donors (more on this issue next week).
Sources: The Kaiser Family Foundation, The Wall Street Journal, The Daily Shot – 12/14/15
When the CHIP program was first authorized it was funded with dollars from tobacco taxes. Bruce Lesley of First Focus (a child advocacy group), who participated in drafting the legislation recommends that a trust fund of tobacco taxes be authorized to prevent the suspension of funding from ever happening again.
Photo: Maria Merkulova/Free Press
December 14, 2017
FCC Dismantles Key Column of Democracy Ending Net Neutrality Policy
Today, the FCC voted along party lines 3-2, to end the long standing policy confirmed by the Obama administration in 2015 to require all content be provided equally in bandwidth and speed priority.
The Internet is owned by taxpayers, developed in the 1960s by DARPA (a Department of Defense research agency that worked closely with university researchers) to enhance peer to peer communication, linking of content, and messaging. The Federal government begin making the Internet available to corporations and consumers in the early 1970s as a new medium as a foundation for e-commerce, messaging, entrepreneurship, peer – to peer citizen participation in government, and global access to new markets.
Pew Research reports that Facebook has over 1.8 billion users in 2016, where 44 % of all Americans get their news! Our media and content need to be separated to provide for a multiplicity of voices and views to foster a more robust democracy. Comcast, AT & T and Verizon are major players in Internet distribution where they own major content players. Do we really believe that these companies are not going to put together packages that favor their content, and begin to slow down other content? No, we are not stupid.
Source: Statista, Lechtman Research Group – 2016
By allowing major corporations to choose winners and losers on the Internet, they will be able to charge prices that only people of means will be able to afford – this just increases the cost of services including online education for the working class. We need more bandwidth and speed in our hard hit Heartland areas of the country, not less.
It is as if our national road system paid for by taxpayers was turned over to GM and Ford, where they could offer fast-express lane access to their cars, while regulating Nissan, Toyota, BMW and VW cars to slow lanes.
Litigation will be brought to support the Internet in the public interest approach of the Obama administration versus corporate rules to ensure making more profits from a public utility. New York Attorney General, Eric Schneiderman says he will file a suit on behalf of many states against the FCC action. Plus, Washington and California state lawmakers have announced plans to pass legislation to thwart the FCC action – though the FCC saw that states may try to intervene and specifically overruled an action they may take. Groups that are advocating an open peer-to-peer Internet include: The Free Press, The Electronic Frontier Foundation, and Verizon Protests.
(Updated: December 15, 2017)