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How States Can Save Billions

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We’ve been reading a lot about fallout lately.  The Fukushima power plant disaster is now providing a lasting legacy all over the world.  This animation from the French national meteorological service, Météo-France, illustrates how the spread of the Fukushima fallout is migrating.

For the past three years, we have been living with the fallout from a financial “meltdown”, which resulted from deregulation, greed and the culture of “pervasive permissiveness” at the Federal Reserve, as discussed in the Financial Crisis Inquiry Report.  The fallout from the financial meltdown has also spread across the entire world.  Different countries have employed different approaches for coping with the situation.  In Ireland, the banks were bailed out at taxpayer expense, crippling that nation’s economy for generations to come.  As a result, the Irish citizens fought back, went to the polls and ousted the perfidious politicians who helped the banks avoid responsibility for their transgressions.   On the other hand, in Portugal, the government refused to impose austerity measures on the citizens, who should not be expected to pay the price for the financial mischief that gave rise to the current economic predicament.  Given the additional fact that Portugal, as a nation, was not a “player” in the risky games that nearly brought down the world economy, the recent decision by the Portuguese parliament is easy to understand.

In our own country, the various states have found it quite difficult to balance their budgets.  High unemployment, which refuses to abate, and depressed real estate valuation have devastated each state’s revenue base.  Because the states cannot print money, as the Federal Reserve does in order to pay the federal government’s bills, it has become necessary for the states to rely on creative gimmicks to reverse their misfortunes.  Most states had previously deployed numerous “economic development projects” over the years.  Such projects are taxpayer-funded subsidies to attract corporations and entice them to establish local operations.  Rex Nutting of MarketWatch recently took a critical look at those programs:

And yet, study after study show that these subsidies create few, if any, net jobs.  For instance, California’s Enterprise Zone program – which is supposed to boost business in 42 economically distressed communities – has cost the taxpayers $3.6 billion over 27 years, but to no avail.  A legislative analyst report in 2005 found that “EZs have little if any impact on the creation of new economic activity or employment.” Read more from the legislative analyst report.

California Gov. Jerry Brown has proposed to kill the EZ program and the even-more expensive redevelopment agency program, but he faces an uphill fight in the Legislature.  Such subsidies are popular with the legislators who receive boatloads of campaign contributions from businesses lucky enough to find a government teat to latch on to.

Nationwide, such giveaways from state and municipal governments amounted to more than $70 billion in 2010, according to Kenneth Thomas, a political scientist at the University of Missouri at St. Louis, who has specialized in studying these subsidies.  That’s more than the states collect in corporate income taxes in a good year.  Read about Thomas’s book: “Investment Incentives and the Global Competition for Capital”

And that $70 billion is twice as much money as would be required to fully fund the pensions owed to state and local government workers, the very same pensions that budget-cutting politicians across the country claim are responsible for the fiscal hole we’re in.

What Rex Nutting has suggested amounts to the elimination of a significant number of corporate welfare programs.  He has also dared to challenge the corporatist mantra that corporate welfare “creates jobs”.  We are supposed to believe that the only way states can balance their budgets is through the imposition of draconian austerity programs, designed to force the “little people” to – once again – pay the tab for Wall Street’s binge.  Because the voters have no lobbyists to protect their own interests, venal state and local politicians have set about slashing public safety expenditures (through mass layoffs of police and firefighters), closing parks and libraries, as well as under-funding public school systems.

Never mind that state and local governments could save $70 billion by cutting just one form of corporate welfare.  They would rather let you watch your house burn down.  You can’t afford that house anyway.

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Jobless Recovery Myth Is Dead

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August 12, 2010

On July 29, I discussed the fact that for over a year, many pundits have been anticipating a “jobless recovery”.  In other words:  don’t be concerned about the fact that so many people can’t find jobs – the economy will recover anyway.  Recent economic reports have exposed how the widespread corporate tactic of cost-cutting by mass layoffs (to gin-up the bottom line in time for earnings reports) has finally taken its toll.  Although this tactic has helped to inflate stock prices and produce the illusion that the broader economy is experiencing a sustained recovery, we are finding out that the opposite is true.  The “jobless recovery” advocates ignore the fact the American economy is 70 percent consumer-driven.  If those consumers don’t have jobs, they aren’t going to be spending money.  Timothy Homan and Alex Tanzi of Bloomberg News gave us the ugly truth on Wednesday:

A lack of jobs will shackle consumer spending and restrain the U.S. recovery more than previously estimated, according to economists polled by Bloomberg News.

*   *   *

“Simply put, job growth in the private sector hasn’t improved as we would’ve expected,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina.  “The consumer continues to contribute to growth but at a subpar pace.”

*   *   *

Purchases, which rose 3 percent on average over the past three decades, dropped 1.2 percent last year, the biggest decrease since 1942.

*   *   *

Joblessness will be slow to fall, signaling it will take years for the economy to recover the more than 8 million jobs lost during the recession that began in December 2007.  Unemployment will average 9.6 percent in 2010 and 9.1 percent next year, according to the survey.

*   *   *

“We need a stronger economy, job creation and better consumer confidence,” Richard Dugas, chief executive officer of Pulte Group Inc., said in an Aug. 4 conference call.  “Our industry continues to face incredibly low demand.”

The August 10 press release from the Federal Open Market Committee (FOMC) began this way:

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months.  Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.  Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls.  Housing starts remain at a depressed level.  Bank lending has continued to contract.

Steve Goldstein of MarketWatch recently wrote a piece entitled, “The jobless recovery won’t go further without jobs”.   Mr. Goldstein explains that the corporations relying on layoffs to juice their earnings reports are running out of people to sacrifice for their bottom line:

Earnings per share grew 43% for the 450 members of the S&P 500 that have reported second-quarter results, according to FactSet Research data.

So what these productivity figures may be showing is that, as the Great Recession blew into town, companies stretched their employees to the limit.

The data suggest companies won’t be able to job-cut their way to continued profit growth — and, at some point, if companies want to expand, they will need to start offering jobs to the pool of 14.6 million out of work in July.

Business consultant Matthew C. Keegan wrote an essay for the SayEducate website entitled, “Jobless Recovery & Other Illusions”.  He began the piece with this thought:

The economic numbers continue to pour in with very few people believing that they offer a promise of a sustained recovery.  That’s bad news for America, because high unemployment (9.5 percent in July 2010) means that every sector of the economy will remain depressed longer than some imagined it would.

Steve Goldstein’s MarketWatch article raised the possibility that this cloud may have a silver lining:

The productivity report isn’t great news, but at least it shows that the jobless recovery won’t be able to recover much further without employment making a significant contribution.

Another myth bites the dust.

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My Friend Lloyd

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July 30, 2009

If you came to this site hoping to find a favorable article about Lloyd Blankfein, I feel sorry for you.

I just returned from a visit to my old home town, a little place up north called Chicago.  Whenever I go back there, I like to check in with a woman I consider “The First Lady of Chicago Music”:  Lonnie Walker —  musician extraordinaire and owner of The Underground Wonderbar.  If you enjoy blues and jazz, it doesn’t get any better than what you will hear from Lonnie and her band.

Back in the early 1980s, my then favorite “First Lady of Music” in Chicago was a nightclub DJ named Suzanne Shelton.  She recently organized a 30th anniversary reunion party at the club where she worked:  a bar named Neo.  Back during the bar’s early years, Suzanne was cute.  Today she is beautiful.  At the party, she introduced me to her son, who is now just two years younger than my age when I first started hanging out at Neo in June of 1980.  The nightclub eventually got a bit of exposure in a Robert Altman film entitled:  The Company.  The movie was about a dancer in the Joffrey Ballet (portrayed by Neve Campbell), who held a second job serving drinks at Neo.  As the film reveals, one enters Neo by walking down a small alley running west from Clark Street.  During the early years of the club, the alley walls were festooned with graffiti.  One of the spray-painted postings was the statement:  “Neo = Home”.  For many of us, it certainly did.  I met a few girlfriends there during the ten years after my introduction to the place.  The last girlfriend I met there became my companion for five years.  Those of us who returned to Neo last Friday, rekindled long-lost friendships and reminisced over the valuable relationships we had developed with so many people, some of whom no longer walk among us.  I wasn’t the only one who flew in from out of town for the event.  The club’s original manager, Tom Doody, now owns a resort hotel in Playa del Carmen, Mexico with his wife, Pamela.  It’s called The Blue Parrot.

One old friend I enjoyed seeing was a fellow named Lloyd Bachrach.  Lloyd started coming to Neo in the second half of the eighties and was recognized there as “The Guy with the Cane”.  I remember many occasions when Lloyd would approach the DJ booth to chat with his old friend, Jeff Pazen, who spun records there.  (Records were on the verge of becoming obsolete at that point).  As Lloyd would approach the DJ booth, the faces on the kind-hearted people standing around that area revealed a degree of concern and an apparent decision to help convey Lloyd’s music request to the disk jockey.  Before anyone could move, Lloyd placed his cane on the ledge atop the five-foot wall in front of the booth, grabbed the ledge, pulled himself up and quickly maneuvered around, 180 degrees, sitting down in front of Jeff to discuss girlfriend issues or whatever other subject was of interest at the time.  The faces of the would-be Good Samaritans all revealed the same reaction:  “Uhh … I don’t think I could do that.”  For my part, I would stare down at my Cuervo Gold and tell myself:  “I know I can’t do that — despite the assurances to the contrary coming from the stuff in this glass.”  Rather than thinking of himself as disabled, Lloyd always perceived himself as differently-abled.  This attitude eventually led him to become a motivational speaker, operating a business called:  Yes You Can.  Lloyd’s website features a video telling his life story.  Given the current economic situation, I think Lloyd’s story is an important one, providing inspiration to cope with the adversity we are all experiencing, to one degree or another.  His video reinforces the notion that we’re all hard-wired — perhaps by something genetic — to adapt, survive and thrive.  The “survival instinct” is just at the core.  The baby abandoned in the dumpster, who lives for a few days until someone finds her  —  the short kid who gets picked on by bullies but goes on to get a black belt — and the alcoholic on the curb, who sobers up to pull his life together on his own — they all find something within themselves to take control over their lives and succeed.  I’m reminded of the old “nature vs. nurture” debate.  When one lives in an adverse situation, can whatever setbacks he or she encounters ultimately be overcome by something in that individual’s nature?  Lloyd’s approach seems to allow one to reach in and find whatever that is  — to “unlearn” whatever mental processes became obstacles to one’s well-being and success.  This process should be important to us — both as individuals and as a society.

At a time when America’s largest corporations rely on mass layoffs to create the illusion of prosperity for their quarterly earnings reports — it’s nice to know that there are people like Lloyd Bachrach, who help others to cultivate their better instincts.  I’m proud to be his friend.