Economic Populist Commentary

Health Care Reform Legislation: A 1,000 Page Complete Disaster

2009-08-10T12:11:00.001-07:00

Health Care Reform Legislation: A 1,000 Page Complete Disaster

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TARIFFS: The Smoot-Hawley Fairy Tale

2008-11-27T12:03:00.000-08:00

TARIFFS: The Smoot-Hawley Tariff Fairy Tale

Once again, it's necessary to debunk the Globalist fairy tales about the "damage" caused by the Smoot-Hawley Tariff. Below is a copy of U.S. GDP from 1929 through 1939. These are official government figures from the US Bureau of Economic Analysis (BEA).

Below is a copy of the chart that has key numbers underlined. The Trade Balance has been underlined in Red. Exports have been underlined in Blue. Imports have been underlined in Orange.

** Note on the above referenced charts: The 1929 Trade balance is listed as +$0.4 billion. This is a MISTAKE. It should be +$0.3 billion. Subtracting the $5.6 billion in imports from the $5.9 billion in exports gives a difference of +$0.3 billion, not +$0.4 billion.

Notice that there is a slight decline in both exports and imports by the end of 1930. The trade balance remained around 0 during the entire time. Exports bottomed in 1932 — 2 years before any revision or modification of Smoot-Hawley occurred.

The Smoot-Hawley Tariff was signed into law on June 17, 1930, and raised U.S. tariffs on over 20,000 imported goods. Legislation was passed in 1934 that weakened the effect of the Smoot-Hawley Tariff. In effect, the 1934 legislation functionally repealed Smoot-Hawley. Thus, the effects of Smoot-Hawley cover only the period between June 17, 1930, and 1934. This is the time frame that should be focused on.

So in reviewing the chart, what evidence is there that the Smoot-Hawley Tariff "hurt" the economy?? Is there any evidence at all?

No, there is practically NO evidence that Smoot-Hawley hurt our economy.

The US was already in a Depression when Smoot-Hawley was enacted. Prior to Smoot-Hawley, the 1929 Trade Surplus was +0.38% of our GDP. In other words, it contributed less than 1/200th to our economy.

What happens if we focus on exports alone? Exports were $5.9 billion in 1929, and had declined to $2.0 billion in 1933, for a -$3.9 billion decline. This $3.9 billion decline was roughly 3.8% of our 1929 GDP, which had already declined by a whopping 46% over the same period of time. Thus, of the -46% GDP decline, only 3.8% of it was due to a fall in exports.

But the effects on trade must also include the reduction in Imports, which ADDS to GDP. (A decline in imports increases GDP). If the import decline is added back to the GDP total (to measure the net trade balance), the "loss" becomes only -$0.2 billion from our GDP — or less than ½ of 1% of the total GDP decline.

In other words, the document-able "loss" from the Smoot-Hawley Tariff — the "net export" loss — contributed less than ½ of 1% of our our -46% GDP decline. Overall, the Smoot Hawley Tariff caused almost 0 damage to our economy during the Depression.

To put this in better perspective, let's compare all the GDP components together:

1929 .......................................................... 1933
GDP $103.6 billion--------------------->$56.4 billion ( decreased -$47.2 billion) Consum. Expend $77.4 bil----------> $45.9 billion ( decreased -$31.5 bill) Private Invest $16.5 bil--------------> $1.7 billion ( decreased -$14.8 billion) *Trade Balance +$0.3 bil------------>+$0.1 billion ( decreased -$0.2 billion) Exports $5.9 billion--------------------> $2.0 billion ( decreased -$3.9 billion) Imports $5.6 billion--------------------> $1.9 billion ( decreased -$3.7 billion)

Again, to re-emphasize, how much difference to US GDP did the export loss make? The Trade Balance worsened by only -$0.2 billion, or about 0.19% of our 1929 GDP ( or less than 1/5th of 1% of 1929 GDP). Meanwhile, our total GDP decreased a whopping -46% (or $47.2 billion).

How much effect did a 1/5th of 1% loss of GDP have on the Great Depression, especially when spread over a 4-year period?

Again, where's all the "damage" that the Smoot-Hawley Tariff caused?? (Was it was all in "off-balance sheet" accounts?)

Based on available statistics, Smoot-Hawley had almost NO effect on the Great Depression. At the very most, caused a -3.8% decline in GDP from loss of exports. But factoring in the GDP increase from a decline in imports, it caused less than 1% of the GDP decline.

The Smoot-Hawley Tariff did not cause the Great Depression, nor did it worsen it or extend it. Claims to the contrary are not only false, but easily refutable. The evidence to disprove those claims is abundant, overwhelming, and freely available to the public.

The Smoot-Hawley myth needs to be put to rest, once and for all. The claim that it worsened the Great Depression is nothing but a fairy tale.

Economic Populist Forum

GDP: Another Fake Increase

2008-05-29T23:10:00.000-07:00

Today's 1st quarter GDP report showed an "increase" in 1st quarter GDP of +0.9%. This was an upward revision of the previous +0.6% estimate from 4/30/08. The upward revision added +$8.8 billion to the earlier estimate.

However, this upward revision was almost entirely the result of a reduction in US purchase of imports. Since imports subtract from GDP, the downward revision of $25.4 billion actually adds +$25.4 billion to GDP growth. To put it another way, the fact that Americans purchases "decreased" resulted in an "increase" in economic growth. This is a typical of the manipulations the government uses to overstate economic growth.

Not only is this a typical distortion of the economy, even the explanation of the reason for the "increase" is deceiving. A perfect example of this deceptive language is provided by Briefing.com, in the following statement:

"The revised rate of 0.9% for Q1 GDP was due to an upward revision to net exports...."
Though the statement is technically true, it is deliberately deceptive. Net imports are the difference between exports and imports, or

Exports - Imports = Net Exports

In fact, actual exports [b]declined[/b] by -$9.7 billion. However, since there was an even larger -$25.4 billion decline in imports, it resulted in
an "upward revision to net exports".

-$9.7 billion - (-$25.4 billion) = +$15.7 billion

Since most Americans are struggling financially, their purchase of imports has declined significantly. These changes are shown in the graphic below from a copy of Briefing.com's GDP report, showing both the current numbers and the numbers prior to revision (labeled 4/30/08).

The numbers for Net Exports (or trade balance), total Exports, and total imports are in red. The changes from the upward revisions are shown in purple with purple arrows showing the direction of change.

The official numbers for 1st quarter GDP from the BEA can be found for the "advanced" report on page 7, Table 3 from 4/30/08 and on page 8, Table 3 for today's "preliminary" report (5/29/08).

Any claims being made by the Financial media that exports are increasing are false. Exports declined -$9.7 billion. The trade deficit improved only because of the huge decline in imports. Again, the import decline is almost the entire reason for the upward revision of 1st Q GDP from 0.6% (from 4/30/08) to 0.9% (on 5/29/08). Another factor contributing to the change is the +$4.7 billion revision of FOOD purchases by Americans, from the previous -$1.6 billion decline up to a +$3.1 billion increase. Thus, the combined addition of decreased import purchases and increased food purchases added a whopping +$30 billion to our 1st quarter GDP. Despite these revisions, the overall upward revision was only +$9.6 billion.

The reason the "increase" was no larger is because nearly every other area declined. Motor vehicle sales fell by -$2.5 billion. Personal Consumption Expenditures were changed less than a fraction of a %. The major reason our GDP "increased" is because our purchase of imports "decreased." Another concocted case of economic "growth" while the economic status of most Americans worsens.

Economic Populist Forum

Market Ticker: Articles of Impeachment? Bear Stearns Buyout Illegal?

2008-03-23T18:56:00.000-07:00

Market Ticker: Articles of Impeachment? Bear Stearns Buyout Illegal?

Democrat Taylor Marsh Broadcasts Live Talk Radio and Blogs Politics

2008-03-04T23:38:00.000-08:00

Democrat Taylor Marsh Broadcasts Live Talk Radio and Blogs Politics

Take it to the Polls: Ten Reasons Why I Do Not Support Barack Obama for President

2008-02-17T16:24:00.000-08:00

Take it to the Polls: Ten Reasons Why I Do Not Support Barack Obama for President

GBPUSD=X: Basic Chart for GBP to USD - Yahoo! Finance

2008-01-09T14:04:00.000-08:00

GBPUSD=X: Basic Chart for GBP to USD - Yahoo! Finance

AAA to CCC and Other Rating Agency Horror Stories

2007-09-02T14:02:00.000-07:00

AAA to CCC and Other Rating Agency Horror Stories

2007-08-07T13:40:00.000-07:00

REPUBLICAN DEBATE POLL RESULTS

(from 8/7/07)

Below is a copy of the latest poll results for the 8/5/07 Republican debate. (Updated 8/7/07)

It looks like Ron Paul by a landslide. A huge one, in fact. Just like every other post-debate poll.

36,893 for Paul, vs.

--4,501 for Romney, vs.
--3,194 for Ghouliani, vs.
--2,659 for Huckabee, vs.
--1,044 for Brownback, vs.
---758 for Tancredo, vs.
---755 for Tommy Thompson, vs.
---731 for McCain, vs.
---421 for Duncan Hunter

Total votes 57,233.

Below is a link to the poll results from the previous Republican debate.
Poll Results

Below is a copy of the previous post-debate results

Ron Paul is winning them all, despite being shunned by the Corporate media plutocracy.

I guess they're afraid that a President Ron Paul would break up their monopolies and reduce their profits.

Behind the Times (subscription wall): Mortgage Mania Didn’t Grip Everyone

2007-08-06T03:13:00.000-07:00

Behind the Times (subscription wall): Mortgage Mania Didn’t Grip Everyone

2007-07-29T14:36:00.000-07:00

GDP Declined in 2nd Quarter, prior to manipulation.

2nd quarter 2007 GDP was actually less than originally posted GDP for the 1st quarter of 2007. (i.e., 2nd quarter GDP growth was negative). Once again, however, the BEA (Bureau of Economic Analysis) manipulated the numbers enough to arrive at a positive 2nd quarter GDP growth. The originally published 1st quarter GDP was downwardly revised by a whopping $137 billion, from the original $11,549 billion down to $11,412 billion.

Again, real GDP growth would have declined for the 2nd quarter, had 1st quarter GDP not been downwardly revised. On the 4/27/07 1st quarter GDP report, the annualized GDP was published as $11,549 billion (in chained 2000 dollars).

On 7/27/07, the GDP report put 2nd quarter annualized GDP $41 billion less than the 1st quarter, at only $11,507.9 billion. This would have made 2nd quarter GDP growth -0.355%. Below is a composite chart from the BEA showing the GDP comparisons. The top 2 charts are from the latest report on 7/27/07. The bottom chart is from 4/27/07. The real GDPs for the 1st quarter are underlined in blue (chained 2000 dollars). The current dollar GDPs for the 1st quarter are underlined in red.

Once again, an after-the-fact revision in previously published numbers has been used to falsely 'create' economic growth.

In this case, it seems pretty clear that 2nd quarter GDP growth should have been negative, and that we are now experiencing recessionary GDP declines.

ADDENDUM:

Also worth noting is that July 27th's GDP was not only lower than the originally posted GDP for the 1st quarter of 2007, it was also less than the previously posted GDP for the 4th quarter of 2006. Thus the cumulative real GDP growth for the 2 quarters ending with the 2nd quarter of 2007 would have been negative, had 4th quarter 2006 and 1st quarter 2007 not been revised downward.

Thus this averages out to 2 consecutive quarters of negative GDP growth-- the textbook definition of a recession.

Economic Populist Forum

2007-06-25T10:54:00.000-07:00

INFLATION CONFABULATION

Once again, the Right-Wing Corporate media, along with the Federal government, have confabulated a low inflation rate. Once again, they've selectively focused on only 1 number, the "core" CPI, while ignoring the overall monthly CPI increase of +0.7%. (which, if annualized, comes out to a yearly rate of increase of +8.4%.)
In fact, the overall Consumer Price Index has increased 3.05% in the 1st 5 months of 2007 alone. The annualized increase during the 1st 5 months of 2007 is +7.4%. The "tame" inflation rate during the last 1/2 of 2006 has been replaced by a rapid rise in 2007.
No doubt some will claim that inflation rises faster during the 1st 5 months of the year. However, the 3.05% rise in inflation during the 1st 5 months of 2007 is faster than during any previous year under Bush. The 1st 5 months of 2006 were the closest, with an increase of +2.9%. However, the January through May increase was only +2.1% in 2005, +2.6% in 2004, +1.44% in 2003, +1.75% in 2002, and +2.1% in 2001.

Below is a graph of the CPI from the Bureau of Labor Statistics. Note the rapid acceleration in recent months.

Inflation is clearly rising faster in 2007 than it has during any other time since 2001. The assessment that inflation is "under control" is not just "spin." It is factually wrong.

Economic Populist Forum

naked capitalism: Foreclosure Stats: Pick a Number, Any Number

2007-05-31T17:15:00.000-07:00

naked capitalism: Foreclosure Stats: Pick a Number, Any Number

2007-04-08T13:45:00.000-07:00

Bush's Brown-Shirts: BLACKWATER

Private contractors have now become one of the biggest threats to American liberty and the rule of law. Private contractors, who are accountable to no one, are essentially Bush's own Brown Shirts. Their shear number makes them of great concern.

Blackwater is the biggest "private contractor" provider of mercenaries in Iraq. According to one source, the Washington Post estimates there are 100,000 private contractors in Iraq. Estimates of how much they are paid vary, from $700/day to $100,000 per year. These numbers would mean a cost to American taxpayers of $10-25 billion/year (or more). Numerous articles have been written on the subject.

Blackwater boasts that it provides "elite" forces for hire. As most have heard, these private soldiers are not subject to normal military laws and regulations, nor to any sovereign nation's laws. Unlike normal U.S. citizens, it is apparently legal for Blackwater to purchase and own automatic weapons. There are now several accounts of these private soldiers being deployed within the United States, the most notable case being in New Orleans following Katrina. Below is a link to an archived post on Democratic Underground by poster Carbondate titled America's Private Army.

Other links to information on Blackwater (and other contractors) can be found at:

Inside America's Private Army

Warriors for Hire

---------------

Economic Populist Forum

2007-04-04T14:47:00.000-07:00

Has the Recession Arrived?

Monthly Factory Orders increased only 1% for the month of February, much less than the +1.8% increase predicted. This follows January's decline of -5.7%. Over the last year, however, Factory Orders are down -1.1%. Ex-transportation orders for February declined -0.4%, following January's -2.5%. This was the 6th month out of the last 7 that ex-transportation orders have declined. February's total factory orders of $386 billion marks a 5% decline since December's seasonally-adjusted $406 billion.

Even some of the previously bullish experts are expressing newly found "concerns." Today's Factory Order report from Briefing.com states "The downward trend in factory orders is tuning in to a real economic concern. The struggling auto and housing sectors add to the softening in business capital investment as business confidence is fading with weak economic growth." They've also expressed a new concern for declining demand, as evidenced by their bolded statement "lack of demand is the heart of the manufacturing concern....." (At long last, some of the market experts are acknowledging that someone has to buy goods if they are going to be produced, and that unpurchased goods don't help the economy. Hallelujah!)

Despite this month's small increase in Factory Orders, the long term trend is clearly downward. This can be seen from the 3 graphs below from Briefing.com.

The Durable Orders decline has been even worse than overall Factory Orders decline. The recently reported Durable Goods Orders increase for February was revised from March 28th's previously stated 2.5% down to a 1.7% increase on April 4th. Comparing the last 3 months total (December, January, & February) for Durable Orders with the same 3 months from the previous year, Durable Goods Orders are down 4.7%, from a 3-month total of $663 billion to $631 billion. This can be seen from the combined, modified charts below from the Census Bureau's April 2007's Factory Orders report and March 2006's Durable Goods report. (April 2007's report is on the top, March 2006 is on the bottom. Durable Goods Orders are underlined in red.)

The American manufacturing sector is clearly in recession. Combined with rapidly declining housing sector, with a subprime meltdown that is metastasizing to other financial sectors, it's difficult to see how this can be called a "strong" economy. It is even more difficult to see how the overall economy won't drift into a recession (if it's not in one already.)

2006-12-22T14:34:00.000-08:00

RECESSION LIKELY

12/1/06

Today's Construction Spending and Manufacturing reports provided still further evidence of a sinking economy. The 2 graphs below from Briefing.com show the overall trend.

Construction Spending declined 1%, leaving an annualized, seasonally-adjusted rate of $1.16 trillion. This was the largest decline since the recession in 2001. Residential Construction fell 1.9% in the last month. Residential Construction spending has also fallen for 7 consecutive months.

Since March, 100,000 housing-related jobs have been lost. Economist Zoltan Pozsar from Moody's Economy.com, in today's Yahoo News estimates that 300,000 more housing-related jobs will be lost in the next year.

Manufacturing also declined in today's report. This is the first contraction in the Manufacturing sector in almost 4 years. Manufacturing employment also declined in November, with the ISM Manufacturing employment index declining to 49.2 in November from 50.8 in October. (Readings under 50 indicate a contraction.)

The dollar has dropped 3% in relation to the Euro in the last week, and 1.4% since Thursday morning (11/30/06). The stock market has declined for the 2nd straight week. All of this follows November 28th's Durable Goods, which was much larger than predicted. The original Durable Goods orders prediction was for a decline of only 6.0%. The actual change was a -8.3%. Though much of this was simply an offset from last months increase "alleged" 8.7% increase, October's total is still 0.3% less than August's, and 0.38% less than July's. The August through October numbers can be seen on the chart below from the U.S. Census Bureau. The Durable Orders totals are underlined in red, as are the "Excluding Transportation" totals.

More importantly, Durable Goods orders have declined compared to October 2005, for a same month change of -1.8%. This can be seen from the composite chart below, made from the superimposition of monthly Durable Orders reports from the previous months, with information on the furthest month back coming from the January 2006 report by the Census Bureau. (October 2005's total was not available, so it was extrapolated from the percentage increase given between October - November 2005 change, shown in the far right column.) Once again, the Total and Ex-Transportation numbers are underlined in red. From the above chart it appears Durable Orders peaked In December 2005, and have been generally declining since that time. Compared to December 2005's peak of $230.754 billion, October of 2006 is down 9% to $209.974 billion.

Meanwhile, the Corporatists and the NeoCon-Artists continue to claim the economy is "the strongest ever" and claim the statistics support them. Of course, they never give those "supporting" statistics. There's a reason for that. There aren't any. The economy is sinking and a recession is very likely within the next year. All the Right-Wing propaganda in the world isn't going to change this.

12-19-06 update

Below is copy of an analysis and prediction of the upcoming recession in 2007. It comes from an article by economist Dean Baker from CEPR. Note that Baker predicts a year-over-year GDP growth of -0.7%, a job loss of 1.2 million, and an unemployment rate of 6.3% by 4th quarter of 2007.

unlawflcombatnt

Economic Populist Forum

The economy needs balance between the "means of production" & "means of consumption."

2006-12-16T15:07:00.000-08:00

ECONOMY: FED MANIPULATING STATISTICS (AGAIN)

Today's Industrial Production "increase" of 0.2% is another example of the Federal Reserve manipulating statistics to make currently published figures appear "good" or "improved." From the Fed's own publication of Industrial Production figures taken from 10/30/06, the "Gross Value of Final Products and Nonindustrial Supplies" has been downwardly revised for every single time period shown. Every quarterly report has been revised downward. August and September's numbers have been downwardly revised. Even the total for 2005 has been downwardly revised by $36 billion, from the previously reported $2.990 trillion down to $2.954 trillion. (This would subtract approximately 0.1% from 2005's reported GDP.)

Even using only the current numbers, there has been a $15 billion net declinein Industrial Production since August. However, using the previously published number for August of $3.1301 trillion, there has been a decline of $64.4 billion to November's $3.0657 trillion. This is a decline in the annual rate of over 2% in 3 months. (Below is a modified copy of both the Federal Reserves report from 12/15/06 on Industrial Production on the top with a copy of the Fed's report from 10-30-06 on the bottom. The changed numbers are underlined in red.)

(Today's Fed Release can be found at Industrial Production

Are these signs of an economy that is "strong, and getting stronger"? At best, much of this so-called "growth" has been a result of statistical manipulation, especially through the downward revision of previously published numbers.

unlawflcombatnt

Economic Populist Forum

The economy needs balance between the "means of production" & "means of consumption."

2006-12-13T11:55:00.000-08:00

OUTSOURCING BONANZA: VIETNAMESE TRADE NORMALIZATION

On Friday, December 8th, the House of Representatives passed H.R. 6406, by a vote of 212-184This bill allows for "normalization" of trade with Vietnam.

This new "permanent normalization of trade relations" (PNTR) with Vietnam is the first step in opening up their labor market to exploitation by Corporate America and to the outsourcing of American jobs to Vietnam.

What are the relative "benefits" to the United States? It allegedly opens up the Vietnamese "consumer" market to American goods. However, the benefit of such market opening is minuscule. The exchange traded value of Vietnam's entire GDP is only $43 billion. (See Vietnam: CIA assessment ) This is approximately 3/100ths of a percent of U.S. GDP. To put it another way, if Vietnam's entire GDP was spent on American imports, it would raise U.S. GDP .03%. So a U.S. GDP growth of 2.20% would rise to 2.23%. Again, this is assuming ALL of Vietnam's GDP was spent on American goods, which is certainly not going to happen. Vietnam's Exchange Rate per capita GDP is only $521/year. {Vietnam's Purchasing Power Parity (PPP) per capita GDP is listed as $2800. By converting this to an exchange rate value this becomes a per capita income of only $521/year. It's the Exchange Rate income that is important here, because this measures the ability to purchase American imports.} Given these numbers it's very unlikely that we can sell significant U.S production to Vietnamese consumers.

What's the downside? Vietnam has a labor force of 43 million workers. Once Vietnam is opened up to investment by Corporate America, this could become a virtual addition of 43 million workers to America's 152 million participating labor force. If Corporate America replaced 43 million American workers ( averaging $17/hour ) with 43 million Vietnamese workers, it would reduce American labor & consumer income by $1.52 trillion.

(43 million X $17/hr. X 8 hrs./day X 365 days/yr. X 5 days/wk divided by 7 days/week = $1.52 trillion. )

This would also reduce American consumer spending power by $1.52 trillion dollars. A decline in consumer spending by that $1.52 trillion, subtracted directly from our $13 trillion GDP, would amount to a direct decline in our GDP of almost 12%. (Applying any multiplier would drop our GDP far more than 12%) Of course, we could "gain" that whopping 0.03% in GDP from selling our exports to Vietnam.

These are theoretical calculations only, designed to show the magnitude of relative benefits vs. costs to Americans from "normalization" of trade with Vietnam. While Corporate America is not likely to hire all 43 million Vietnamese workers, it's clear that the potential loss to our economy is much greater than the potential gain. We'll gain an almost non-existent consumer market from Vietnam, while adding a virtual 43 million workers to America's labor pool. And the direct loss of jobs is only the measurable effect. The decline in American wages from the supply & demand effect of competition with another 43 million impoverished workers hasn't been calculated. Clearly this would decrease American wages and labor income MUCH more than just $1.52 trillion.

To the majority of Americans, permanent normalization of trade with Vietnam is exclusively negative. Once again, it'll put American workers (and their wages) in direct competition with impoverished 3rd world workers. Clearly the goal here is not to open up the Vietnamese consumer market to American goods. The goal is to open up the Vietnamese labor market to American Multinational Corporations. The true goal is to replace even more American workers with easily exploitable semi-slave laborers of another impoverished country. It'll be another disaster for American workers, and another windfall profit gain for rich Globalist Corporations.

unlawflcombatnt

Economic Populist Forum

2006-11-05T16:02:00.000-08:00

9/11 - SADDAM & bin LADEN
NO CONNECTION - as per Senate Report

Below is an article from Mercury News describing the Senate's latest report about Saddam's alleged connection with bin Laden and Al Qaida. Though the information is not exactly new, it now has an official stamp of "truthfulness" by the Senate.

The Bush Myth-ocracy was completely, and absolutely wrong about any connection between Saddam Hussein and either bin Laden or Al Qaida. Whether the Bush-ites lied, or were honestly misinformed can be debated. But the wrongness of their assertions is cannot. Congress and the American people were completely misinformed about such connection by the Bush administration. Period.

http://www.mercurynews.com/mld/mercurynews/news/world/15474492.htm

"Posted on Fri, Sep. 08, 2006 Senate reports say Saddam rejected cooperating with terrorists

By Warren P. Strobel and Margaret TalevMcClatchy Newspapers
WASHINGTON - Iraqi leader Saddam Hussein rejected pleas for assistance from Osama bin Laden and tried to capture terrorist Abu Musab al Zarqawi when he was in Iraq, a Senate Intelligence Committee report released Friday found, casting further doubt on the Bush administration's rationale for invading Iraq.

President Bush and other administration officials repeatedly cited Saddam's alleged ties to radical Islamic terrorists before the March 2003 invasion as one reason to take military action against Iraq.

The 150-page report said the administration's claims were untrue. "Postwar findings indicate that Saddam Hussein was distrustful of al-Qaida and viewed Islamic extremists as a threat to his regime, refusing all requests from al-Qaida to provide material or operational support," the report said.

The report was released along with a second one that said false information from the exile group Iraqi National Congress, led by Ahmad Chalabi, was widely distributed in prewar intelligence reports and used to support intelligence assessments about Iraq's weapons and links to terrorism. Intelligence officials repeatedly warned that the INC was unreliable, but White House and Pentagon officials ignored the warnings.

The reports are part of a five-report study that the Senate Intelligence Committee has undertaken into the Bush administration's use of intelligence before the invasion of Iraq.
The study has left the committee badly divided. Three reports remain classified, including one comparing prewar statements by Bush administration officials to intelligence available at the time. Democrats have accused Republicans of delaying the reports until after the November congressional elections.

On Friday, Democrats charged that the reports showed that the White House had manipulated intelligence to make the case for war to the American people.

"The administration ignored warnings prior to the war about the veracity of the intelligence it trumpeted publicly to support its case that Iraq was an imminent threat to the security of the United States," said panel Vice Chairman Sen. Jay Rockefeller, D-W.Va.

Republicans rejected that allegation and said the reports added little to what was already known.

"The long-known fact is that the prewar intelligence was wrong. That flawed intelligence was used by policymakers, both in the administration and in Congress, as one of numerous justifications to go to war in Iraq," said committee chairman Sen. Pat Roberts, R-Kan.

In the run-up to the war, Bush and his advisers repeatedly sought to link Saddam and al-Qaida, stopping just short of accusing the Iraqi leader of a role in the Sept. 11, 2001, terrorist attacks.

"You can't distinguish between al-Qaida and Saddam when you talk about the war on terror," Bush said on Sept. 25, 2002.

On the same day, Condoleezza Rice, then the White House national security adviser, said, "High-ranking detainees have said that Iraq provided some training to al-Qaida in chemical weapons development." The detainee Rice referred to was al-Qaida operative Ibn al Shaykh al Libi, who was captured in Pakistan in November 2001 and, U.S. intelligence officials said, tortured by Egyptian authorities after his transfer to that country.

The Senate report says that in February 2002, months before Rice spoke, the Defense Intelligence Agency reported that al Libi "was likely intentionally misleading his briefers."
Postwar information on Saddam's relations with Islamic extremists came from numerous sources, the report suggests, including seized documents and interrogations of Saddam himself, former Deputy Prime Minister Tariq Aziz and a senior Iraqi spy, Faruq Hijazi.

The report, quoting from an FBI debriefing of Hijazi, said that when an Iraqi operative met bin Laden in Sudan in 1995, bin Laden asked that Saddam allow him to open an office in Iraq, give him Chinese-made sea mines and military training, and broadcast his speeches.

"According to Hijazi, Saddam immediately refused," the FBI debriefing said.
Regarding Zarqawi, the Senate report cites information that's surfaced since the war indicating that Saddam "attempted, unsuccessfully, to locate and capture" him and the Iraqi regime "did not have a relationship with, harbor, or turn a blind eye toward Zarqawi."

Zarqawi, who operated from a part of northern Iraq that Saddam didn't control, was a key part of Bush's case for war. After the invasion, he became the head of the group al Qaida in Iraq. U.S. bombs killed him in June.

The second report released Friday confirms that the INC had "an aggressive `publicity campaign' prior to the war to bring defectors to the attention of `anyone who would listen.'"
While many committee Republicans dismissed the INC report's conclusions as unsupported by the facts, two of them, Sens. Olympia Snowe of Maine and Chuck Hagel of Nebraska, voted for harsher language that Democrats proposed.

The report, which ran 211 pages, disclosed that three months after the White House approved continued funding for the INC's intelligence collection in July 2002, the Defense Intelligence Agency warned that the group "was penetrated by hostile intelligence services," including Iran's. It's unclear whether top White House officials were aware of the warning.

The report also confirms a report by McClatchy Newspapers that former CIA director R. James Woolsey helped get an INC defector attention from the U.S. government by referring him to Deputy Assistant Secretary of Defense Linton Wells.

The defector, Adnan Ihsan Saeed al Haideri, suggested that he had knowledge of dozens of sites related to weapons of mass destruction, but none of them were ever found, and Haideri, taken to Iraq in early 2004, couldn't identify the facilities that he claimed he knew about.
McClatchy Newspapers correspondents Matt Stearns and John Walcott contributed to this article.

© 2006 McClatchy Washington Bureau and wire service sources. All Rights Reserved.

http://www.mercurynews.com

EconomicPopulistForum

ECONOMY UPDATES

2006-11-05T01:10:00.000-08:00

ECONOMIC ARMAGEDDON ?

Faith-based economy or
Fate-based Armageddon?

Several well-known economists believe the US will likely experience a sharp economic downturn in the near future. Among these economists are Steven Roach of Morgan Stanley and Paul Krugman of MIT. Add to this list economist Joseph Stiglitz, Nobel prize winner and Columbia University economics professor. Stiglitz describes our situation in his January 1, 2005 article from the Guardian - "This can't go on forever - so it won't." The link is http://www.guardian.co.uk/print/0,3858,5094396-108079,00.html

Several economists believe the cause of the Great Depression in the 1930's was a demand-side failure. Among them again, is MIT economist, Paul Krugman, who also writes for the New York Times. In 1999, Krugman wrote the book Return of Depression Economics. In this book he describes how 8 modern world economies suffered severe declines, most during a period of less than 3 years. Krugman believes these were due mainly to demand-side failure (i.e., due to insufficient consumer spending.) Among the victims were Japan and Korea. Krugman describes their inability to change course until it was too late. Krugman also notes the drift of U.S. economic policy away from the demand side toward the supply side over the last 2 decades. The same shift preceded the Great Depression of the 1930's. Are we heading there again?

Krugman may well be able to predict the future. He's done so in the past. His books reveal an uncanny ability to predict future economic events. Krugman suggested in 1999 that an economic downturn, like those experienced by other world economies, could happen here. In 2001, it did happen here.

Krugman recently suggested that a recurrence of another economic downturn is not a question of "if," it's a question of "when." He was right before. Will he be right again? With a president unable to change course, in spite of obvious policy failures, the chances of Krugman's predictions coming true are even greater. In my opinion, they're almost guaranteed. An economic Armageddon seems more likely by the day.

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BUSH Job Approval Rating

Here's a link to the above poll from MSNBC:
http://www.msnbc.msn.com/id/10562904#survey

In a the most recent January 2006 Zogby poll, 52% thought Bush should be impeached. Below is a copy of the Zogby poll commentary.

BUSH JOB APPROVAL RATING (Standard "Scientific" Polls)

9/24/06 - - - -- 42% Approve - - - - - - - 55% Disapprove
from CNN
http://www.pollingreport.com/BushJob.htm

9/19/06 - - - -- 45% Approve - - - - - - - 52% Disapprove
from L.A. Times/Bloomberg
http://www.pollingreport.com/BushJob.htm

9/19/06 - - - -- 37% Approve - - - - - - - 56% Disapprove
from CBS/New York Times
http://www.pollingreport.com/BushJob.htm

9/13/06 - - - -- 39% Approve - - - - - - - 60% Disapprove
from AP-Ipsos
http://www.pollingreport.com/BushJob.htm

9/11/06 - - - -- 42% Approve - - - - - - - 53% Disapprove
from NBC/Wall Street Journal
http://www.pollingreport.com/BushJob.htm

9/10/06 - - - -- 37% Approve - - - - - - - 53% Disapprove
from Pew
http://www.pollingreport.com/BushJob.htm

8/25/06 - - - -- 36% Approve - - - - - - - 56% Disapprove
from Newsweek
http://www.pollingreport.com/BushJob.htm

8/21/06 - - - -- 36% Approve - - - - - - - 57% Disapprove
from CBS/New York Times
http://www.pollingreport.com/BushJob.htm

8/20/06 - - - -- 42% Approve - - - - - - - 57% Disapprove
from CNN
http://www.pollingreport.com/BushJob.htm

8/13/06 - - - -- 36% Approve - - - - - - - 57% Disapprove
from CBS
http://www.pollingreport.com/BushJob.htm

8/13/06 - - - -- 37% Approve - - - - - - - 54% Disapprove
from Pew
http://www.pollingreport.com/BushJob.htm

8/06/06 - - - -- 40% Approve - - - - - - - 58% Disapprove
from ABC/Washington Post
http://www.pollingreport.com/BushJob.htm

8/03/06 - - - -- 40% Approve - - - - - - - 59% Disapprove
from CNN poll
http://www.pollingreport.com/BushJob.htm

8/01/06 - - - -- 40% Approve - - - - - - - 58% Disapprove
from LA Times/Bloomberg poll
http://www.pollingreport.com/BushJob.htm

7/25/06 - - - -- 36% Approve - - - - - - - 55% Disapprove
from CBS/New York Times poll
http://www.pollingreport.com/BushJob.htm

7/24/06 - - - -- 39% Approve - - - - - - - 56% Disapprove
from AP-Ipsos poll
http://www.pollingreport.com/BushJob.htm

7/12/06 - - - -- 36% Approve - - - - - - - 63% Disapprove
from NBC/Wall Street Journal poll
http://www.pollingreport.com/BushJob.htm

6/29/06 - - - - 35% Approve - - - - - - - 59% Disapprove
from Time magazine poll
http://www.pollingreport.com/BushJob.htm

6/27/06 - - - - 41% Approve - - - - - - - 50% Disapprove
from L.A. Times/Bloomberg poll
http://www.pollingreport.com/BushJob.htm

6/25/06 - - - - 37% Approve - - - - - - - 60% Disapprove
from USA Today/Gallop poll
http://www.pollingreport.com/BushJob.htm

6/25/06 - - - - 38% Approve - - - - - - - 60% Disapprove
from ABC/Washington Post poll
http://www.pollingreport.com/BushJob.htm

6/19/06 - - - - 36% Approve - - - - - - - 54% Disapprove
from Pew poll
http://www.pollingreport.com/BushJob.htm

6/15/06 - - - - 37% Approve - - - - - - - 53% Disapprove
from CNN poll
http://www.pollingreport.com/BushJob.htm

6/12/06 - - - - 37% Approve - - - - - - - 58% Disapprove
from NBC/Wall Street Journal
http://www.pollingreport.com/BushJob.htm

6/11/06 - - - - 33% Approve - - - - - - - 60% Disapprove
from CBS poll
http://www.pollingreport.com/BushJob.htm

6/11/06 - - - - 37% Approve - - - - - - - 58% Disapprove
from USA Today/Gallop
http://www.pollingreport.com/BushJob.htm

6/07/06 - - - - 35% Approve - - - - - - - 63% Disapprove
from AP-Ipsos poll
http://www.pollingreport.com/BushJob.htm

6/04/06 - - - - 36% Approve - - - - - - - 57% Disapprove
from USA Today/Gallop poll
http://www.pollingreport.com/BushJob.htm

5/30/06 - - - - 35% Approve - - - - - - - 58% Disapprove
from Quinnipiac poll
http://www.pollingreport.com/BushJob.htm

5/15/06 - - - - 33% Approve - - - - - - - 65% Disapprove
from ABC/Washington Post poll
http://www.pollingreport.com/BushJob.htm

5/12/06 - - - - 35% Approve - - - - - - - 59% Disapprove
from Newsweek poll
http://www.pollingreport.com/BushJob.htm

5/08/06 - - - - 29% Positive -- - - - - - - 71% Negative
from Wall Steet Journal/Harris poll
http://biz.yahoo.com/prnews/060512/nyf066.html?.v=51

5/08/06 - - - - 31% Approve - - - - - - - 63% Disapprove
from CBS/New York Times poll
http://www.pollingreport.com/BushJob.htm

5/07/06 - - - - 34% Approve - - - - - - - 58% Disapprove
from CNN poll
http://www.pollingreport.com/BushJob.htm

5/07/06 - - - - 31% Approve - - - - - - - 65% Disapprove
from USA Today/Gallop poll
http://www.pollingreport.com/BushJob.htm

4/23/06 - - - - 32% Approve - - - - - - - 60% Disapprove
from CNN poll
http://www.pollingreport.com/BushJob.htm

4/16/06 - - - - 35% Approve - - - - - - - 55% Disapprove
from Pew Research poll
http://www.pollingreport.com/BushJob.htm

4/13/06 - - - - 36% Approve - - - - - - - 59% Disapprove
from Gallop poll
http://www.pollingreport.com/BushJob.htm

3/30/06 - - - -37% Approve - - - - - - - -57% Disapprove
from Time poll
http://www.pollingreport.com/BushJob.htm

3/17/06 - - - - 36% Approve - - - - - - - 58% Disapprove
from Newsweek poll
http://www.pollingreport.com/BushJob.htm

3/13/06 - - - - 34% Approve - - - - - - - 57% Disapprove
from NBC/Wall Street Journal poll
http://www.pollingreport.com/BushJob.htm

3/12/06 - - - - 34% Approve - - - - - - - 57% Disapprove
from CBS poll
http://www.pollingreport.com/BushJob.htm

3/12/06 - - - - 33% Approve - - - - - - - 59% Disapprove
from Pew poll
http://www.pollingreport.com/BushJob.htm

3/08/06 - - - - 37% Approve - - - - - - - 60% Disapprove
from AP-Ipsos poll
http://www.pollingreport.com/BushJob.htm

2/26/06 - - - - 34% Approve - - - - - - - 59% Disapprove
from CBS poll
http://www.pollingreport.com/BushJob.htm

2/21/06 - - - - 38% Approve - - - - - - - 58% Disapprove
from American Research Group poll
http://www.pollingreport.com/BushJob.htm

2/12/06 - - - - 39% Approve - - - - - - - 56% Disapprove
from CNN/USA Today/Gallop poll
http://www.pollingreport.com/BushJob.htm

2/08/06 - - - - 40% Approve - - - - - - - 57% Disapprove
from AP-Ipsos poll
http://www.pollingreport.com/BushJob.htm

2/05/06 - - - - 40% Approve - - - - - - - 52% Disapprove
from Pew Research poll
http://www.pollingreport.com/BushJob.htm

1/29/06 - - - - 39% Approve - - - - - - - 54% Disapprove
from NBC-Wall Street Journal poll
http://www.pollingreport.com/BushJob.htm

1/25/06 - - - - 43% Approve - - - - - - - 54% Disapprove
from CBS/New York Times poll
http://www.pollingreport.com/BushJob.htm

for comparison, here are some of President Clinton's last Job Approval Ratings.

Clinton's Job Approval Ratings:
1/15/01 - - 66% Approve - - - - - - - 31% Disapprove
from NBC/Wall Street Journal Poll
http://www.pollingreport.com/clinton-.htm

1/11/01 - - 64% Approve - - - - - - - 33% Disapprove
from CNN/Time Poll
http://www.pollingreport.com/clinton-.htm

12/11/00 - 68% Approve - - - - - - - 28% Disapprove
from, CBS News Poll
http://www.pollingreport.com/clinton-.htm

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Economy Status: 5/2/05

GDP Changes from Briefing.com
(The blue numbers represent the latest "revisions" as of 11-27-05, as per "Briefing.com.")

....................................2005..........2004.........2004.......2004........2004.......2003
Category.....................Q1............Q4.............Q3..........Q2..........Q1..........Q4
GDP.............................3.8%........3.8%..........4.0..........3.3...........4.5..........4.2
GDP revisions:...........................3.3%.........................................4.2
..Inventories
..(change)...............$80.2B......$45.8B.......$34.5......$61.1......$40.0.......$8.6
..GDP Final Sales.......3.0%........3.4%...........5.0..........2.5..........3.3.........3.7
....PCE..........................3.5%........4.2%...........5.1..........1.6..........4.1.........3.6
......Durables...............0.0%........3.9%..........17.2........-0.3..........2.2.......23.9
......Nondurables .......4.9%........5.9%............4.7..........0.1..........6.7.........5.1
......Services................3.6%........3.4%............3.0..........2.7..........3.3.........2.8
....Nonresidential
....Investment.............4.7%.......14.5%..........13.0.......12.5.........4.2........11.0
......Structures............-2.6%.........2.1%..........-1.1.........6.9........-7.6..........7.9
......Equipmnt
......&Software.............6.9%.......18.4%.........17.5.......14.2.........8.0.......12.0
....Residential Inv.......5.7%.........3.4%............1.6.......16.5.........5.0.........9.6
....Imp/Exp change
....Net Exports.........-$42.0B.....-$37.9B.........-$2.9...-$30.2....-$22.0....-$19.0
......Exports...................7.0%..........3.2%...........6.0.........7.3.........7.3........17.5
......Imports.................14.7%........11.4%...........4.6.......12.6.......10.6........17.1
....Government.............0.6%..........0.9%...........0.7.........2.2.........2.5..........1.6
GDP Price Index..........3.2%..........2.3%...........1.4.........3.2.........2.8..........1.6
After-tax corp
profits...........................na..............na.............-5.3..........1.6-.........1.1........11.2

Information source:
http://www.briefing.com/Silver/Calendars/EconomicReleases/gdp.htm

REAL Unemployment Rate, January 2005: 7.2%

REAL Unemployment Rate, January 2001: 4.2%

The above mentioned unemployment rate manipulation is described further below. Another description of the Bush administration's deliberate underestimation of the unemployment rate can also be found in Scott Lilly's article from the Center for American Progress: http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=403577&printmode=1
___________________

ECONOMY ASSESSMENT:

Definite slowdown in economic growth from 3rd quarter 2004 to 4th quarter, with GDP growth decreasing from 4.0% to 3.1%. Actual GDP growth is much less than 4.5% prediction from late 2004. It's also much less than the 4.0% predicted by market analysts in mid-January of 2005. Worse still, the GDP change understates the actual change. Final GDP sales growth dropped from 5.0% in 3rd quarter 2004, to 2.7% in the 4th quarter. This indicates a smaller increase in actual product sales from the 3rd to 4th quarters. It also implies increasing surplus production. Increasing inventories and decreasing sales will further reduce labor demand, causing further stagnation of wages and new hiring. Increasing trade deficits and interest rate increases will further reduce domestic product sales, which further exacerbate wage decreases and hiring slowdowns. Large-scale loss of jobs to overseas outsourcing is expected to greatly increase.

The job picture is not encouraging. According to the Dept. of Labor, payroll jobs increased 133,000 in December 2004 (revised downward from the original, deliberately overstated 157,000.) January's 146,000 number is not encouraging. It is much less than initial estimate of 215,000 stated by the administration and market spin doctors. Most analysts state labor force growth is 150,000 per month, which means we need to create 150,000 jobs per month to break even. Thus the job deficit over the last 2 months is 21,000 less than necessary to keep up with labor force growth. This will put further downward pressure on wages.

Economic growth is slowing much faster than financial analysts predicted in late 2004. All evidence suggests this decline will continue unabated. The employment situation appears gloomy. The "real" unemployment rate has increased from 4.2% to 7.2%. The number of private sector jobs is less than it was in January of 2001. The US population has increased 12 million in that time. In spite of market and administration hype, the economy is on the decline. There are no positive trends.

The latest unemployment statistics are deliberate, numerical deceptions. Using the workforce participation rate used in January of 2001, the current unemployment rate is actually 7.2%, not 5.2% as deceptively stated by the Bush administration. More on this deliberate miscalculation below.

_____________________

______________________

UNEMPLOYMENT RATE DISTORTION:

Unemployment is calculated through the unreliable household survey. The unemployment rate % has also been deliberately manipulated by reducing the labor force "participation" rate. By doing this, the real unemployment rate is reduced by 2%. Unemployment numbers are calculated by taking the estimated total labor force number, multiplied by labor force participation rate. The percentage of the total "participating" labor force not employed is the unemployment rate. Obviously, these numbers can be easily manipulated by falsely understating the total number of workers in the labor force. More insidiously, however, they can be altered by falsely reducing the labor force participation rate. This has been done since the beginning of the Bush plutocracy. The actual labor force participation rates can be found at the Dept. of Labor site under labor force participation rates at the following link: http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=LNS11300000

Below are the labor force participation rate % from the bls site:

Year---Jan---Feb---Mar--Apr--May--Jun---Jul----Aug---Sep-- Oct---Nov--Dec

1998 -67.1 -67.1- 67.1 -67.0 -67.0 -67.0 -67.0 -67.0 -67.2 -67.2 -67.1 -67.2

1999 -67.2 -67.2 -67.0 -67.1 -67.1 -67.1- 67.1- 67.0- 67.0- 67.0- 67.1 -67.1

2000 -67.3 -67.3 -67.3 -67.3 -67.1 -67.1 -66.9 -66.9 -66.9 -66.8 -66.9 -67.0

2001 -67.2 -67.1 -67.2 -66.9 -66.7 -66.7 -66.8 -66.5 -66.8 -66.7 -66.7 -66.7

2002 -66.4 -66.7 -66.6 -66.7 -66.7 -66.6 -66.5 -66.6 -66.7 -66.6 -66.4 -66.3

2003 -66.4 -66.3 -66.2 -66.4 -66.3 -66.5 -66.2 -66.1 -66.1 -66.1 -66.2 -66.0

2004 -66.1 -65.9 -65.9 -65.9 -65.9 -66.0 -66.2 -66.0 -65.9 -66.0 -66.1 -66.0

2005 -65.8 -65.8 -65.8

(Note the difference in participation rate from January 2001 to March 2005)

Here's how the unemployment rate can be altered by the "participation rate." For example, if the total available labor force is 140,000,000, it would be multiplied by the current participation rate of 65.8%. This would give a participating labor force of 92,120,000 workers. A 5.2% unemployment rate means that 87,330,000 are employed, while 4,790,000 are unemployed. If the same total labor force is multiplied by a 67.2% participation rate (the rate used in January, 2001,) the participating labor force is 94,080,000. If the same number are employed as before, 87,330,000, the number of unemployed is 6,750,000. (Again, this is just an example based on an arbitrary labor force of 140,000,000. The actual number of unemployed workers was 8 million at the end of February, 2005.) Based on these numbers, this gives an unemployment rate of 7.2%, instead of 5.2%. So the current unemployment rate would actually be 7.2%, if the 67.2% labor force participation rate of January of 2001 was used. The Bush administration has lowered the unemployment rate by arbitrarily altering the labor force participation rate. They have greatly increased unemployment. In this example, they have simply removed 2 million unemployed workers from the unemployment roles by numerical chicanery. When Bush took office, the unemployment rate was 4.2% (using a 67.2% participation rate.) Unemployment is currently 7.2%, using the same labor force participation rate used in January, 2001.

_____________________________________

_____________________________________________________

WAGES: (as of May 2006)

Wages, when adusted for inflation, have decreased over the last 2 years. From November 2003 to through May 2006, "real" hourly wages have decreased 1.9%. Since the end of January 2005 through May 2006, inflation-adjusted hourly wages have decreased 1.0% ( from $8.23/hour in January 2005 to $8.15/hour in May 2006) For the year 2006, real hourly wages have decreased 0.6% as of May 2006. Again, these are inflation-adjusted wages calculated by the Bureau of Labor Statistics. Below is a graph and a chart of wage changes in "real" inflation-adjusted 1982 dollars going through November of 2005

UPDATE: 4-8-07

Below are hourly and weekly wages thru February 2007:

Below are links to the BLS charts of hourly and weekly wage changes:

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0500000049

http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=CES0500000051

_______________________________

12/17/05 Update:

The downward trend in real weekly wages has accelerated over the last 2 years. Since January of 2004, real weekly wages have declined 1.4%. Below is a graph from the United States Bureau of Labor Statistics:

Weekly wages are important because they are a better indicator of the amount of wage income consumers have to spend on goods, services, and other expenses.

_________________

RECESSION ALERT!

The Recession Alarm was officiallysounded. It has since been rescinded by altering the initial statistics posted. Another case of "revisionist" history. According to Briefing.com, "The recession alarms go off when the cumulative 6 month decline [in Leading Indicators] exceeds 1.0% amid a string of 3 or more consecutive monthly declines..." "With a 5th consecutive decline and a cumulative 6-month decline exceeding -1.0% the index suggests an economic contraction..." There has actually been a 6 month decline of -1.4%. Note: economic "contraction" = RECESSION. It is of interest to note, however, that Briefing.com initially called this a "false alarm." That's what financial experts always claim, when their own criteria result in a negative finding. (There must be some reason our criteria led to an incorrect conclusion, because we just don't want to accept it. And we don't want the public to accept it, either, because they'll stop spending and investing. Later they simply changed the numbers so that they could claim there never was a recession alarm in the first place. ) It's nice to know our financial "experts" are completely unemcumbered by any sense of truth or honesty. The link for the Leading Indicators is at: http://www.briefing.com/GeneralContent/Active/PrintPage/PrintPage.aspx?PageId=217

Update: 11/27/05
It now appears that the 3rd quarter 2004 GDP has been revised downward to 3.6 % which is what it was initially reported as like it in January of 2005. (By June 2005 it had been upwardly, and incorrectly, revised to 3.8%. Apparently they just "honestly" overestimated in June.)

Below are the graphs of the GDP previously reported, which were posted by "Briefing.com." The 1st is from January 2005, the 2nd is from June 2005, and the 3rd is from 11-27-05. Again, not the difference in the 4th quarter 2004 GDP. It has been revised back down to the previously reported 3.6% number.

1-28-05

6-29-05

11-27-05

Also of interest is that the 4th quarter GDP from 2003 has also been downwardly revised. Up through June of 2005, it had been listed as being over 4%. Now it has also been revised downward to 3.8%.

It's simply amazing how the Bush propagandists continue claiming a GDP growth rate of 4%. There hasn't been a quarterly GDP growth rate of 4% since the 3rd quarter of 2004, and only 2 since the 3rd quarter of 2003. Yet again the Bush-ites maintain that the economy is "strong, and getting stronger," with a GDP growth rate of "around 4%." We truly have a "faith-based" economy that depends on distortions and "faith" , not "facts."

Precious Metal 1-Year Increase:

The "GFMS" index is a composite price index of aluminum, copper, lead, nickel, tin and zinc. Below is the GFMS composite, followed by the individual indexes. 4 of the 5 indexes have increased significantly over the last year, in line with the increases noted in gold, silver, platinum, and palladium.

Non-Precious Metal 1-Year Increase:

For a more interactive format, see the EconomicPopulistForum

2006-08-17T14:13:00.000-07:00

RECESSION LOOMING?

Retail Sales Decline: Harbinger of Recession?

The total nominal increase in July 2006 Retail Sales of $368.405 billion was 3.9% from July 2005's $354.414 billion. However, adjusting for inflation using the Bureau of Labor Statistics Consumer Price Index increase of 4.3%, this reduces the "real" Retail Sales change to -0.4%. However, the figures are even worse if gasoline station sales are subtracted. Subtracting July 2006's $43.918 billion in gasoline sales from the total nominal Retail Sales gives $327 billion. Subtracting July 2005's gasoline station sales from the total nominal Retail Sales (from July 2005) gives $319.53 billion. The difference between the July 2006's retail sales (ex. gasoline station) and July 2005's retail sales is only 2.3% in nominal (non-inflation-adjusted) dollars. Adjusting for inflation using the CPI increase of 4.3% puts the total at a -2.0%. In other words, excluding gasoline station sales, inflation-adjusted Retail Sales declined 2.0% from July of 2005.

This can be seen from the Retail Sales chart copied from the U.S. Bureau of Economic Analysis report on Retail Sales

General Merchandise Sales, which make up the biggest component of Retail Sales, showed a nominal increase in dollar sales of 4.3%. (underlined in blue on the chart above.) Again, this is exactly the same as the increase in the Consumer Price Index of 4.3%. Thus, the real change in General Merchandise Sales since July of 2005 is 0.0%. In other words, there has been NO growth in General Merchandise Sales since July of 2005.

The declining inflation-adjusted Retail Sales numbers are an ominous sign for the economy. They're even more concerning when gasoline station sales figures are not included, which leaves the remaining total for Retail Sales at 2% less than the previous July. Even with increased borrowing, consumers spending is declining. Since consumer spending is 70% of GDP growth, it makes further GDP growth difficult, if not impossible. With consumer borrowing ability expected to fall even further, consumer spending will likely decline further as well. Real wages have continued their steady decline since December 2002. Median real family income has declined every year since 1999. With decreasing consumer spending and decreasing consumer demand, labor demand can be expected to decline even further. The declining labor demand will result in further declines in both wages and employment, reducing consumer spending power even further.

Several noteworthy economists are suggesting a recession is on the way. Paul Krugman has discussed this in his most recent article titled Intimations of Recession. Economist Nouriel Roubini, former member of Clinton's Council of Economic Advisors, has put the likelihood of Recession at 70% by the end of 2006. Another article from the Daily Reckoning has also laid out a strong case for an impending recession. All of these sources have provided a considerable amount of evidence to support their predictions. It appears that our "faith-based" economy is running out of steam. It can no longer be kept afloat by the hot air from the Housing Bubble and the alternate reality creation of the NeoCon-Artist spin machine.

EconomicPopulistForum

2006-08-15T16:14:00.000-07:00

HOUSING BUBBLE UPDATE: WESTERN U.S.

The Housing Bubble is deflating rapidly in most large Western markets. All major markets in Southern California, except for Riverside, have shown significant declines in the last 6 months. (Riverside has had a 0.0% increase in prices over the last 12 months.) Median home prices over the last 12 months have declined 6.2% in Los Angeles County and 5.5% in San Diego County. In Orange County, CA, prices have declined 0.8% over the last 6 months (12-month figures are not available.)

The 2 biggest non-California markets, Phoenix and Las Vegas, have experienced similar declines. Over the last 12 months, Phoenix home prices have declined 10.5% while Las Vegas prices have declined 4.0%. Below is a modified copy of the charts from Housing Tracker.com.

The above information can be found at Housing Tracker

Inventories are rising even faster than prices are dropping. Home inventories have increased 100% in Los Angeles County, 181% in Riverside, California, and a whopping 267% in Phoenix. As inventories continue to rise, prices can be expected to decline even further.

EconomicPopulistForum

2006-08-08T13:42:00.000-07:00

HOUSING BUBBLE UPDATE, 8/3/06

The Housing Bubble deflation continues to gather speed. Both New and Existing Home Sales are declining. Home mortgage applications are declining. Price appreciation has come to a complete stop. In fact, prices are falling in many places. Inventories of unsold New and Existing homes have increased dramatically over the past year. Residential Construction Investment has declined for 3 straight months. There is little doubt that the Housing Boom has ended. The only questions now are how big the crash will be and how badly it will affect the economy.

The recent New Home Sales report showed a much larger decline than was anticipated by the so-called "experts." The decline from the original numbers posted from May was actually -8.3%. However, May's numbers were downwardly revised by the government so that the decline in June home sales would not look as bad. Following this manipulation, June New Home Sales were reported as having declined only 3%, not 8.3% (like they actually did.) Below is a link to a copy of the "before" and "after" New Home Sale numbers. The top half of the graphic shows the current New Home Sale numbers superimposed on the previous month's numbers showing what the actual change WOULD have been, had the previous months' numbers not been downwardly revised. The bottom shows the currently "revised" (manipulated) numbers.

The updated version of the New Home Sale decline can be found at Briefing.com at: Briefing.com

According to the U.S. Census Bureau, 103,000 New Homes were sold in June of 2006. This is 12,000 less New Homes sold than the 115,000 sold in June of 2005. This is a decline of 10.4% from the previous June. Meanwhile, the number of New Homes on the market at the end of June was 570,000. This is 112,000 more homes on the market than June 2005's 458,000. This is an increase in the number of homes for sale of 24%. Thus, while the "demand" for New Homes is declining, the "supply" is increasing. As this trend continues, prices will definitely fall even further. This information can be found at the U.S. Census Bureau's New Home Construction.

Existing Home Sales are also declining. June 2006's annualized Existing Home Sales rate of 6,620,000 was 650,000 less than June 2005's rate of 7,270,000 per year. This is nearly a 9% decrease over the last year. The actual number of Existing Homes sold in June 2006 was 700,000, which is 7% less than June 2005's 753,000. The overall price change since June of 2005 was only +0.9%. This is a significant decline in home appreciation from 2005's 9% annual increase, and 2004's 10% increase. Furthermore, were it not for a year-over-year increase in Existing Home Prices in the Northeast, the nation's existing home prices would have declined. Both the Midwest and South areas showed price declines, while the West area had a 0.0% annual increase in price since June 2005. This information can be found at the National Association of Realtors' Existing Home Sales.

In the West, Existing Home Prices have declined -3.4% since their peak $354,000 in November of 2005 to $342,000 at the end of June 2006. Over the last 7 months, Existing Home prices in the West have declined at an annualized rate of -5.8%. In Los Angeles County, median home prices have declined -5.4% in the last 12 months. The decline in prices has been even larger in the homes at the 75th percentile in price, where prices have declined -11% in the last 12 months. This can be seen from the modified graphic below, showing prices from 8/14/05, as well as current prices. (The 12-month change is indicated in blue, with actual numbers horizontally across from the label.

This information can be found in it's original, unmodified form at Housing Tracker

The Pending Home Sales Index of existing homes has declined -9.6% since June 2005. In the West, the Pending Home Sales Index has declined -14.2 % since June of 2005. This information can be found at Realtor.org

Home loan demand has also declined considerably. The Mortgage Bankers Association's seasonally adjusted index of mortgage application activity (which includes both refinancing and home purchasing loans) decreased 1.2% for the week ending July 28. This is its lowest level since May 2002. In the words of economist Drew Matus of Lehman Brothers, "The data suggest that the housing market is cooling and it's cooling pretty substantially." This information can be found in the Yahoo News Story Home Loan Demand Sinks to Four-Year Low.

The Mortgage Bankers Association's seasonally adjusted purchase index declined for the 3rd straight week, dropping 3.3%. This is the lowest it's been since 2003. The purchase index has dropped -24% over the last year, which is consistent with a major decline in the demand for homes.

Residential construction spending has also declined 1% or more for 3 straight months. The year-over-year change in residential construction spending is -0.1%. Most likely this is a response to a continual decrease in demand for homes, and an continual increase in the supply of homes for sale. This information can be seen from the graphic below from Briefing.com's "Construction Spending" under the sub-heading "Residential."

Construction Spending

This information can be found at Briefing.com's Construction Spending

All evidence indicates the Housing Bubble is deflating. Even now, annualized numbers give a more benign picture than is actually the case. The deflation of the Housing Bubble has greatly accelerated over the last 7 months, and is anticipated to accelerate even further. This is definitely not a good time to buy a house. The days of home price appreciation have ended, and are being replaced by price depreciation.

EconomicPatriotForum

2006-08-08T02:03:00.000-07:00

ILLEGAL IMMIGRATION SUPPRESSES AMERICAN WAGES

The biggest problem created by uncontrolled illegal immigration is wage suppression. According to economics professor George Borjas, immigration reduces the average annual earnings of U.S.-born men by an estimated $1,700, or roughly 4%. (See ABC News article http://abcnews.go.com/Business/wireStory?id=1804778&CMP=OTC-RSSFeeds0312 The actual article by George Borjas can be found at http://ksghome.harvard.edu/~GBorjas/Papers/cis504.pdf ) If that reduction is applied to the roughly 143 million employed Americans, that reduces aggregate annual worker income by $243 billion, or $0.243 trillion. That's roughly 2% of our $12 trillion GDP. That's a loss in consumer spending of $243 billion (less taxes). Given that our entire GDP growth in 2005 was $384 billion, this is a significant amount. Considering that consumer spending is approximately 70% of GDP, that makes the "growth" in consumer spending around $269 billion.

Again, the loss of that $243 billion is no small amount. And it is also $243 billion less money that could have been taxed, costing the Federal government anywhere between $36-61 billion per year. (Increasing the taxable income of a single taxpayer making $42,500/year by $1700 increases Federal income tax by $425. Increasing taxable income of a married taxpayer filing making $42,500/year by $1700 increases Federal income tax by $255. Multiplying these numbers by 143 million amounts to $61 billion and $36 billion, respectively. Thus the income tax revenue lost is somewhere in between.)

Right-wingers will argue that this wage suppression is offset by business profits, and that these profits fuel investment. But investment capital is OVER-abundant at present. Increasing this excess even further will not result in more capital investment. It will result in higher CEO salaries, further overinvestment in the stock market, and further investment in foreign production facilities, the latter of which puts even further downward pressure on American wages.

Furthermore, business profits don't fuel consumer spending. And consumer spending is the engine that drives our economy, not investment. Without consumer spending, there are no returns on investment. And if no returns are anticipated on investment, no investment takes place.

The immigration-fueled reduction in wages does NOT help our economy. It hurts it. It reduces aggregate consumer income and the consumer spending it finances. The reduction in consumer spending reduces consumer production demand, further reducing demand for the labor to provide that production. The reduction in labor demand drives down employment and wages. The resultant labor demand reduction further reduces aggregate consumer income and further reduces consumer purchasing power.

As consumer buying power declines, so do investment opportunities, since those opportunities are created by consumer demand for production. Thus the increased profits resulting from reduction in labor costs create even more excess capital, while reducing investment opportunities still further.

Does anyone really think that wage suppression is "good" for the economy? Doesn't someone have to purchase the goods produced for business to profit? Won't reducing consumer income also reduce consumer goods purchasing? Won't a decline in consumer goods purchasing reduce business revenues and reduce potential profits? Once again, is immigration-fueled reduction in worker/consumer income really "good" for the economy?

----------------------------------

4-30-06

Some are claiming the current GDP report is evidence that "workers" must be doing well, since the economy is doing well. Regardless of the alleged "strength" of the economy, workers' real income continues to decline.

Hourly wages declined 0.24 % in March. Weekly wages declined 0.27%. Below is a copy of hourly and weekly real wages from the U.S. Bureau of Labor Statistics.

Below are links to both weekly and hourly real wages.
BLS-WeeklyWages

BLS-HourlyWages

Below are some recent polls showing the public's sentiment about illegal immigration.

Apparently a lot of people consider illegal immigration a very important issue. And a majority of Democrats want illegal immigration reduced or eliminated.

EconomicPatriotForum

2006-07-13T23:06:00.000-07:00

US-North Korean Free Trade Pact

The Bush dictatorship is apparently working on another "free trade" deal with none other than North Korea. This "deal" was initially described in the Wall Street Journal, and reported by David Sirota at his site. Sirota writes: "The broad strokes are simple: the Bush administration and both parties in Congress are considering signing a "free" trade pact with South Korea that would cover a special project in North Korea that allows Big Money interests to exploit the enslaved people there.

This proposed deal goes beyond the other awful trade deals that we've watched the Bush administration and Congress consider recently - it goes beyond the job-destroying Central American Free Trade Agreement and even beyond the proposed trade pact with Malaysia, a country that prohibits a minimum wage. This trade pact "would be the U.S.'s largest pact since the North American Free Trade Agreement passed Congress more than a decade ago." The Journal story, of course, is filled with hedging. No one wants to come out and say this is what the trade negotiations are all about, or that they really want this North Korea piece - even though its obvious Big Money is salivating for it. What they want is the issue to go back into the background and get quietly passed without anyone noticing. They would rather the public ignore the effort to validate the "joint-venture Kaesong industrial complex in North Korea" that "combines South Korean capital with North Korean labor" (read: combines multinational corporate cash with exploitable slaves). By the time the complex is in full operation in 2012, "it could employ more than 750,000 North Koreans" – again, North Koreans who are literally enslaved and barred from leaving their prison."

"But even beyond the geopolitical implications are the implications for American workers – and workers all over the globe. Even considering this atrocious pact lays bare what our government sees our "free" trade as: a vehicle for driving wages, workplace standards, environmental protections and standards of living into the ground in order to pad Big Money's bottom line. Such a deal would force the world’s workers to compete with slave labor. It would rewarding a dictator like Kim Jong Il in that it would create a premium for corporations to exploit his enslaved population. The fact that this is even being talked about as a legitimate consideration inside our governemnt tells you everything you need to know about the hostile takeover of our government by Big Money interests."

Working For Change: U.S.- N. Korea Trade Pact

This is actually hard to believe. But in fact, David Sirota gets this information directly from a Wall Street Journal article. The original article, of course, is chocked full of the spin one would expect from the greed-motivated editors of the Wall Street Journal.

EconomicPatriotForum

2005-10-31T10:29:00.000-08:00

WAGE--PRODUCTIVITY GAP

The most damaging factor to our economy today is the Wage-Productivity Gap. This refers to the increase in the hourly production of workers vs. the increase in hourly wages. This concept is described very well in Chapter 6 of economist Ravi Batra's book, "Greenspan's Fraud." During times of true economic prosperity, wages have kept pace with productivity increases. Workers have shared in the benefits of their increased productivity. The result is that wages remained sufficient to purchase our nation's industrial output. Borrowing, or debt-financed consumer spending, was unnecessary to maintain sufficient consumer spending to purchase our production. More production can be purchased because more wages are paid. In general, demand is created by wages, and supply is created by productivity. In a balanced situation, wages match productivity. This causes demand to match supply. This balance makes massive borrowing unnecessary. Such balance maximizes economic "growth."

This balance has not been maintained, however, during recent years. The wage-productivity gap has increased under the Bush administration. Productivity has increased significantly during the Bush years. In contrast, wages have actually decreased. This trend started before Bush took office, but I'll confine the time frame to December 2001 through March of 2005. These are years for which records are readily available from the U.S. Bureau of Labor Statistics. Below is a link to a graph from the New York Times showing how productivity is outpacing wages.
http://graphics8.nytimes.com/images/2005/07/02/business/03cov1.graphic.gif

Starting in January of 2003, productivity (or output per hour) has increased 11.2% thru the 1st quarter of 2005. In contrast, real hourly wages declined 2.3% over the same time period, from an inflation-adjusted $8.32/hour in January, 2003, to $8.13/hour in June, 2005. Production has exceeded the ability of wage earners to purchase the production by 13.5%. This gap has been filled by consumer borrowing. ($200-300 billion/year of this "borrowing" has come from home equity loans.) In order to keep pace with increasing industrial production, the amount borrowed must steadily increase. If it doesn't, our economy will sink into recession. However, maintaining demand through borrowing is not a sustainable path.
(Statistics on U.S. Productivity can be found at:
http://data.bls.gov/PDQ/servlet/SurveyOutputServlet?data_tool=latest_numbers&series_id=PRS85006092 )

Sometimes the effect of the wage-productivity gap can be seen better from a distance. An example of this effect can be seen with Japan's economy. Again, this was described by economist Ravi Batra in Chapter 6 of his book, "Greenspan's Fraud." Dr. Batra makes a very compelling case that Japan's economic problems resulted from the increasing gap between Japanese wages and productivity. I will paraphrase his explanation here. Japan experienced extremely rapid growth between 1960 and 1975. During that time there was a 168% increase in per capita GDP. Their per capita GDP increased from $2,139 in 1960 to $5,750 in 1975. Real wages increased 217% during that time. Manufacturing productivity increased 264% during these 15 years. Japan prospered and its economy grew during this period because wages, which create demand, kept up with productivity, which creates supply. There was sufficient WAGE-FINANCED demand to stimulate production. And the necessary demand was maintained by consumer income, not consumer borrowing. After 1975, productivity growth began to outpace wage growth. The result was a much slower growth in GDP. Between 1975 and 1990, productivity increased 3% more than wages per year. During that period, wages increased 27%, while productivity increased 86%. The per capita GDP increase was 64% from 1975 to 1990. Less of the wealth produced by Japanese workers was being shared with them. As a result, business profits soared, increasing money available for investment. This caused Japanese investors to over-invest in both the stock market and housing. Japanese stock markets and real estate values soared as a result of this over-investment. Meanwhile, there was insufficient wage-financed demand to keep up with this capital investment.This necessitated increased levels of borrowing to maintain the demand that wages could not maintain.

By 1990 there was a huge Japanese stock market bubble and real estate bubble. And in 1990 this overvaluation all came crashing down. The Japanese economy has still not recovered 15 years later. By 2003, the Japanese stock market was still 80% below its peak in 1990. From 1990 thru 2002, per capita GDP increased 13%. Compare that with the 168% increase between 1960 and 1975. Compare this latter 15-year increase with the 59% increase during the 27 years from 1975 to 2002. Japan's per capita GDP increased 3 times as much during the 15 years prior to 1975, than it did during the 27 years after 1975. The pre-1975 rate of increase was 5 times faster than the post-1975 increase.

What caused this slowdown? The rise in the wage-productivity gap. Worker income that could have been put to good use buying Japanese goods was siphoned off as corporate profits. Since the benefits of investment capital are limited by consumer demand, the result was over-investment of Japanese stock and housing markets, and maintenance of consumer demand by borrowing.

Does this situation describe any other economy you can think of?

unlawflcombatnt

EconomicPatriotForum

2005-10-30T10:43:00.000-08:00

REPUBLICAN TAX CUTS

Many have asked the question: "Why do Republicans cut taxes without cutting expenses?" This is ab excellent question. Republicans claim it will stimulate economic growth. In fact, it's doing the opposite. Cutting taxes on the top 2% is supposed to increase investment. But there's a catch to this "theory." There needs to be something to invest in. It's only benefit is to increase the SIZE of our industrial capacity. But current industrial capacity is under-utilized. Investment to increase the size of an already underutilized industrial capacity makes no sense. There's simply no current benefit to increasing its size. As such, there is no current benefit to increasing investment.

We need to increase the % UTILIZATION. Investment supposedly increases production. When it does, it does so by increasing industrial capacity size. It has no effect on percent utilization. No amount of investment will increase industrial capacity utilization rates. Only consumer DEMAND increases utilization.

In order for production to increase, there must be an increase in production DEMAND. No amount of investment will increase demand for production. As a result, much of this potential investment capital sits idle. It goes into overvaluation of the stock market, overvaluation of real estate, increased business "cash-on-hand" accounts, foreign bank accounts, CEO bonuses & salaries, stockholder dividends, and last, but not least, Republican campaign contributions.

Meanwhile, the inflationary effect of these tax cuts reduces spendable consumer income, reducing consumer spending. This REDUCES the very "production-demand" necessary to stimulate production, and reduces job growth for workers to provide that production. Thus, the top 2% tax cuts are not only unhelpful, they are detrimental. They slow economic growth. Their inflationary effect reduces inflation-adjusted consumer spending, which reduces the demand for production. Financial analysts have stated on many occaisions that investment capital is plentiful at present. Consumer income is not. Consumer income limits consumer spending, and the production demand it creates. High-end tax cuts are not helpful at present, because increasing potential investment capital is of no benefit. It is NOT growing our economy. It's shrinking it, due to the inflationary reduction of "real" wages caused by these cuts.

It's worth mentioning here that CONSUMER SPENDING is 2/3 of economic activity. It's the largest component of the GDP equation, where GDP=ConsSpen+Invstmt+GovSpen+TradeBal. It makes a lot more sense to try to increase consumer spending at present. It is a larger component than "Investment" capital, and it is in far shorter supply. We need to "change-the-course" back to fact-based economic reality, instead of "faith-based" economic mythology. Investment does NOT create jobs. But demand for production DOES create jobs.

EconomicPatriotForum

2005-10-28T22:49:00.000-07:00

OUTSOURCING REDUCES GLOBAL WAGES

Those who advocate pro-free trade often justify their position by stating a desire to uplift the poor in foreign countries. Not only do I oppose that position on nationalistic grounds, I question the benefits to 3rd world countries. Lack of benefit to 3rd-world countries is a point I'd like to make mainly with "liberals."

Outsourcing does NOT raise aggregate global wages. In fact, outsourcing labor to a low-wage country REDUCES global labor wages and income. If a $90/day American laborer is substituted for by $2/day foreign laborer, it reduces aggregate global labor income. Global labor income is what buys production and creates demand. Outsourcing reduces aggregate global labor income, thus reducing total consumer spending world wide. American workers lose income and buying power with outsourcing. That loss is NOT made up for by increase in foreign wages. This is just plain common sense. It's impossible for cost reductions to make up for wage losses.

If American workers can't buy America's production, then foreign workers need to pick up the slack. Does anyone really think that's possible? Can $2/day foreign workers make up for the buying power lost by $90/day American workers? That's $88/day/worker in lost labor income per worker. It would take the labor income of 45 $2/day workers to make up that labor income loss. Does anyone really think that'll happen? Of course not. The only benefit to anyone is the short-term cost reduction to American outsourcers, and a slight price decrease for American consumers. The numbers just don't add up. Global labor competition causes aggregate global labor income to drop. It increases the labor supply available to American corporations, and decreases worker bargaining power. This is simple supply and demand. If the supply of labor increases 100-fold, it will drive the "price" of labor down. Labor "price" reduction means labor wage reduction. Thus, the end result will be a dramatic reduction in American labor income, as well as a lesser reduction in global wages.

Outsourcing and globalization don't "raise" anybody up. They drag all workers down. Jobs will go to the most impoverished workers, and employers won't pay them a penny more than they have to. We cannot enforce minimum wage laws, or other worker protections in foreign countries. Even more important, however, is that Corporate America doesn't want to. Why would they? It would increase the price of their exploited foreign labor. The poorer the worker, the more willingly they accept poverty-level wages. Their impoverishment is Corporate America's gain.

Let's not forget that someone needs to buy the goods produced. Who will buy them if American wages drop to the level of their enslaved foreign counterparts? People can't purchase goods without income. And very low income means very few goods purchased. Demand cannnot be created out of thin air. Consumers must have sufficient income to create that demand. Without demand, there is no need for production, and no need to hire workers.
The entire world economy would collapse without the Demand created by American consumers. That demand is created by American income and borrowing. We're almost maxed out on borrowing at present. In addition, inflation-adjusted American wages are declining. They've declined 1% over the last year, and 0.5% over the last 3 months. The last thing the US and the world need is a further decline in American wages. American wage decline hurts the US, as well as the major exporting countries. If aggregate American labor & consumer income declines, so does our ability to buy foreign imports. Increasing American labor competition with enslaved foreign workers is worsening this wage decline. It's not only in our best interests to keep jobs in the US, it's to the advantage of all countries that export to us. We need income to buy their goods.

"Opening up markets" sounds like a good idea. But it's a smokescreen. It's not the real motivation behind "free" trade agreements. The real motivation is "opening up" the American labor market to competion with slave-labor. Bush and his neocon supporters know this. They hope we won't see it. Many of us do, however. Hopefully we can make others see this as well.

unlawflcombatnt

EconomicPatriotForum

2005-10-12T22:38:00.000-07:00

GDP overstates ECONOMIC GROWTH

Again, it appears that the calculated GDP has overstated actual economic growth. June 29th's published GDP figure of 3.8%, is the same as the last quarter of 2004. However, growth of the 2/3's of economic activity due to consumer spending is slowing. The "final sales" growth, which many consider a better indicator of "growth," has declined for the 2nd straight quarter. In addition, growth of most "investment" parameters are also slowing.
The link to these numbers can be found at Briefing.com's GDP section at:
http://www.briefing.com/Silver/Calendars/EconomicReleases/gdp.htm

The 1st quarter GDP has now been revised upward to 3.8%. Again, this is the same as the 4th quarter of 2004. However, of the multiple factors used to compute this number, only 2 have increased significantly. The 1st of these is INVENTORIES, which increased from $47.2 billion in the 4th quarter of 2004 to $66.8 billion in the 1st quarter in 2005. This is a 42% increase over the previous quarter. The 2nd major increase was in "residential investment." (Housing & Real Estate) Here there was a 338% growth in the 1st quarter of 2005, from 3.4% in Q4, 2004 to 11.5% for Q1 of 2005.

In contrast to the above "increases," GDP final sales growth declined for the 2nd straight quarter. GDP final sales growth decreased to 3.0% from the 4th quarter's 3.4%. This marks a 13% DECREASE. The 4th quarter's GDP final sales also represented a decrease from the 3rd quarter's 5.0%. Thus, GDP final sales are not keeping up with the measured GDP. Ultimately, the GDP must be sold to create profits. The declining GDP "final sales" growth, in relation to the the total GDP, suggests the GDP is overestimating economic growth.

All other measures of consumer spending declined as well. Total personal consumption spending (PCE) growth decreased to 3.6% from the 4th quarter's 4.2%. All 3 components of PCE declined as well. Durable goods sales growth decreased 54%, declining from 3.9% in the 4th quarter to 1.9% for Q1 of 2005. Nondurable goods and services also decreased.

Nonresidential investment growth also decreased 72%, from 14.5% in Q4 of 2004, to 4.1% in the 1st quarter of 2005. Not only did growth in nonresidential investment not increase, it actually decreased in Q1 of 2005. The growth rate was actually -2.4%. Growth in equipment and software investment decreased from 18.4% in Q4, to 6.1% in Q1 of 2005.

Thus, GDP growth was maintained almost exclusively from increased real estate investment and increased unsold inventories. All indexes of consumer spending growth decreased. This comes as no surprise, considering inflation-adjusted wages also decreased during that time. Decreased consumer spending power usually decreases consumer spending.

It appears the calculated GDP has again overstated actual economic growth. Goods are being produced in excess of what consumers are purchasing. Excessive goods production drives down demand for labor to produce goods. This decreases the number of employed workers, as well as wages of those who are still employed. This results in a further decrease in the aggregate consumer income necessary to purchase goods.

Growth of inventories and real estate investment are all that have increased during the 1st quarter of 2005. Does this really represent economic "growth"? Doesn't declining growth in consumer spending imply an economic slowdown? Do isolated increases in unsold goods and real estate investment truly indicate economic growth? Can unsold goods and real estate investment really be substituted for consumer spending? Can profits lost from declining goods sales be replaced by production and investment increases? How does that increase profits? Doesn't someone have to buy products for profits to be made?

Update: 11/27/05
It now appears that the 3rd quarter 2004 GDP has been revised downward to 3.6 % which is what it was initially reported as like it in January of 2005. (By June 2005 it had been upwardly, and incorrectly, revised to 3.8%. Apparently they just "honestly" overestimated in June.)

Below are the graphs of the GDP previously reported, which were posted by "Briefing.com." The 1st is from January 2005, the 2nd is from June 2005, and the 3rd is from 11-27-05. Again, not the difference in the 4th quarter 2004 GDP. It has been revised back down to the previously reported 3.6% number.

1-28-05

6-29-05

11-27-05

Also of interest is that the 4th quarter GDP from 2003 has also been downwardly revised. Up through June of 2005, it had been listed as being over 4%. Now it has also been revised downward to 3.8%.

It's simply amazing how the Bush propagandists continue claiming a GDP growth rate of 4%. There hasn't been a quarterly GDP growth rate of 4% since the 3rd quarter of 2004, and only 2 since the 3rd quarter of 2003. Yet again the Bush-ites maintain that the economy is "strong, and getting stronger," with a GDP growth rate of "around 4%." We truly have a "faith-based" economy that depends on distortions and "faith" , not "facts."

EconomicPatriotForum

2005-09-02T23:07:00.000-07:00

ECONOMIC GROWTH and WEALTH DISTRIBUTION

The benefits of hard work are often stressed in our society. Most agree that hard work and productivity should be rewarded. Those that are more successful usually receive larger rewards than those who are less successful. Successful businesses rightfully expect to be compensated for their success.

At some point, however, these rewards may become excessive, as well as counterproductive. If businesses are rewarded excessively, at the expense of labor & consumers, it will decrease their own ability to sell their products. If workers aren't compensated well enough, their ability to buy production is reduced. This reduces business profits, and reduces economic growth.

LABOR, along with the production tools built by CAPITAL, are the factors that produce wealth. The combination of labor and capital combines to increase the value of raw materials. They do this by creating something more valuable than the original raw materials. You might call this a "labor value-added" effect, or a "capital-labor value added" effect. Though LABOR is absolutely essential, it's wealth-producing capacity is severly reduced without sufficient CAPITAL investment, because of the production enhancers capital provides. But capital, without labor, has NO value. Furthermore, without demand for production, neither capital or labor will be used to create wealth. Capital won't be invested, if there's no potential profit. Workers won't be hired, if the product of their labor cannot be sold. Low consumer income, with low consumer spending, reduces the ability of capital to create profits. It reduces the ability to SELL finished products. Profits are made by SALE of goods, not production of goods. As such, low consumer income not only hurts consumers, it hurts the businesses who sell to consumers. INCREASING CONSUMER INCOME HELPS BUSINESS, as well as consumers.

The major functions of capital are to provide raw materials and to increase industrial CAPACITY. This increases potential ability to produce goods and create wealth. But there's a catch here. The actual production of goods and wealth requires UTILIZATION of this industrial capacity. No wealth is produced by industrial capacity that remains idle. And there is no benefit to increasing industrial capacity size when it is currently under-utilized. In the case of under-utilization, wealth will only be created by increasing current utilization RATE. Economists refer to this as CAPACITY UTILIZATION RATE (or industrial capacity utilization rate.)

Our current industrial capacity is UNDER-utilized. The utilization rate has dropped from 85% during the Clinton years to 79% at present. Increased investment to increase the size of this capacity is not beneficial. In contrast, increasing the utilization RATE would be very beneficial. What would increase the rate? You guessed it. Increased DEMAND for production. Demand that would rise from increased consumer spending, resulting from increased consumer income. I can state this concept in 2 equations: Reduced Capacity Utilization = Reduced Consumer DEMAND. Increased Capacity Utilization = Increased Consumer DEMAND

For maximum economic growth, there needs to be a balance between the "means of production" and the "means of consumption." (This equates to Supply equaling Demand) Shifting the balance in either direction reduces economic growth, wealth production, and GDP. Excess production, when measured in terms of potential dollar-value, cannot be sold. As such, no profits can be made from it. In contrast, insufficient production in terms of quantity can be profitable. Prices can be raised to maximize profit from that limited production. Raising prices reduces the quantity demanded. This allows the supply to meet the demand. The reverse is only true in terms of quantity demand. Demand can be increased by reducing price, but the dollar-value of that demand does NOT change. The dollar-value of demand is limited by spendable consumer wealth. This is where the concepts of Micro Economics end, and Macro Economics take over. This is where AGGREGATE DEMAND comes into play.

Aggregate demand is absolutely limited by aggregate consumer wealth. The best way to increase aggregate consumer wealth is to balance the "means of production" with the "means of consumption." The capital invested needs to be no greater than that needed to meet production demand. In turn, production demand is created by the "means of consumption." If resources are un-balanced in favor of the "means of production," there will be insufficient demand to drive production. As a result, there will be less production, and less wealth produced. In contrast, greater wealth would have been produced if some of the investment capital had been re-directed towards consumer income. It would have increased demand, and driven production. Both consumers and business would have prospered. Economic "growth" would have increased. GDP would have increased.

If investment and consumer income are out of balance, correcting the imbalance increases economic growth, and improves our economy. If investment capital is excessive, diverting that excess into consumer income increases the benefit of the remaining capital. Taxing the affluent more to improve this balance is not "socialistic." It's "capitalistic." Balancing the "means of production" with the "means of consumption" is not a "share-the-wealth" concept. It's an "increase-the-wealth" concept. Such "wealth redistribution" would increase "wealth production." It would increase industrial production and GDP. Again, insufficient consumer spending REDUCES GDP. It reduces wealth creation by labor and capital, by reducing the demand for its creation.

Demand may not be everything. However, it is the biggest single factor affecting our economy. Consumer spending is the "dollar-value" measure of that demand. The consensus among economists is that 2/3 of economic activity is consumer spending. From this one would conclude that the most important factor in economic growth is consumer spending, or the "dollar-value" of consumer demand. Again, it's not the only factor, but it's the biggest factor.

I think the significance of DEMAND is under-emphasized in current economic commentary. That needs to change. This is not only about the subjective concept of "economic justice". It's also about "economic growth." It's my belief that some downward redistribution of wealth will help the economy. It will increase wealth production, because it will help balance the "means of production" with the "means of consumption." We would ALL benefit from a better balance of these factors, rich and poor alike.

The Bush Administration has done its level best to keep investment and consumption out of balance, thus TEMPORARILY allowing business to profit excessively from labor, despite the long term cost to ALL AMERICANS. Bush policies hurt ALL Americans in the long run. The following is a link to a graph from "Briefing.com." It shows the relative levels of personal consumption expenditures and investment capital. See which way you think the "balance" is shifted at present.

This chart can also be found at Briefing.com at
http://www.briefing.com/Common/Images/Content/PageContent/EcData/pce.gif

EconomicPatriotForum

2005-08-05T04:05:00.000-07:00

THE MIS- INTERPRETATION OF KEYNES

Keynesian economics has been criticized for its advocacy of government spending to prop up AGGREGATE DEMAND. But it is a mistake to define Keynesian economic theory simply as advocacy of increased government spending. This was a very limited part of his theory.
Keynes' greatest contribution to economic thinking was his recognition of the importance of AGGREGATE DEMAND. Keynes correctly identified aggregate demand as THE most important factor in economic activity. Keynes explained why aggregate demand was the major driving force of an economy. With no aggregate demand, there is no production or industrial output. Low aggregate demand results in low production and industrial output.

Keynes advocated increasing aggregate demand through increased government spending if it was insufficient to drive industrial output. This could be done through government deficit spending. This was NEVER intended to be anything but a short-term fix. This temporary fix was designed to put labor back to work, thus increasing labor/consumer income, as well as the increased consumer demand that would follow. The desired end result was to put labor and production facilities back to work, returning them to their wealth-creating function.
No production or wealth is created when workers and production facilities sit idle. By temporarily increasing aggregate demand, those facilities would be restored to their wealth-creating function. With the newly increased aggregate labor/consumer income, and the increased consumer demand that resulted, a self-perpetuating cycle would be initiated. The increase in consumer income and production demand would cause FURTHER increases in demand for workers to provide that production. As a result, more workers would be hired and aggregate labor/consumer income would increase still further. Again, this would further increase consumer spending and demand, causing even further hiring of workers to provide the increased demand. Though not specifically stated by Keynes, but of equal importance, the ever increasing demand for labor would increase wages as well. This would even further increase the AGGREGATE DEMAND that Keynes was trying to prop up.

Keynesian government "pump-priming" efforts were less successful initially than would have been predicted. There were 2 general reasons for this. The 1st related to the magnitude of "pump-priming" necessary. The other related to consumer behavior.

The biggest reason for the suboptimal result of Keynesian aggregate demand infusion was that it was not large enough. The pre-World War II government spending increases that Roosevelt put in place were simply not enough to adequately jump-start the economy. Inadvertently, it was the much larger increase in government spending caused by World War II that successfully jump-started the economy. The massive government spending that entailed increased AGGREGATE DEMAND enough to get the economy rolling again, and end the Great Depression. Keynes was proven right about the necessity of aggregate demand, and that increasing it would restore the economy to normal. But no one knew how much was necessary until the onset of World War II.

The 2nd reason Keynes' ideas were not initially successful was due to consumer behavior. The limited increases aggregate consumer income did not have the magnitude of effect on consumer spending that was anticipated. After years of low income and poverty, Americans were less likely to spend their increased income than they would have been today. They held on to much of their increased income, instead of spending it. Consumers were uncertain as to what the future might bring. The less than predicted consumer spending caused a less than predicted increase in consumer production demand, and aggregate demand as a whole. The suboptimal production demand increase caused a suboptimal demand for labor to provide that production.

The Depression had caused consumers to semi-permanently lower their spending habits. Again, the result was consumer spending & demand lagged behind consumer income. One might say there was a pronounced lack of "consumer confidence." This understandable lack of confidence fed back on itself, however, causing aggregate demand to be insufficient to resurrect the economy. Again, it took the massive increase in production demand, employment, and consumer income caused by World War II to break the cycle.

Keynes never envisioned increased government spending as a PERMANENT solution to an aggregate demand deficiency. It was to be a TEMPORARY solution only. Once the economy was doing well the debt was to be paid down. The fact that it wasn't has nothing to do with Keynes, or his theories.

Many who discredit Keynes are fully aware of this point, but claim otherwise. They attempt to dismiss Keynes as simply an advocate of "big government." Again, his critics are being dishonest with this claim. Their true dislike of Keynes has nothing to do with Keynes' alleged advocacy of big government or government spending.

The REAL motivation is Keynes' recognition of the importance of AGGREGATE DEMAND. Acknowledgment of this importance discredits many popular, yet illogical, economic beliefs. It refutes the completely illogical notion that "investment creates jobs." It refutes many tenants of classical economics, as well as monetarism and supply-side theories.

In general, acknowledgment of AGGREGATE DEMAND's significance refutes the beliefs that "trickle-down" economics, or "priming the pump" from the top, is of any benefit. In a more practical sense, it refutes the benefits of high-end tax cuts, corporate tax cuts, and labor cost reduction through outsourcing. In fact, Keynes showed that anything that was bad for the consumer was bad for business, as well as labor and the overall economy in the long run. Keynes demonstrated that reduced aggregate demand would hurt the economy, regardless of how much investment capital was available. He showed clearly that it is DEMAND that creates jobs, not investment. The Great Depression proved him right.

EconomicPatriotForum

2005-07-19T01:03:00.000-07:00

WAGE DECLINE & CORPORATE SELF-DESTRUCTION

Until recently, American corporations had been unable to destroy their own consumer market, because they were forced to maintain wages at a certain level. This was due to the limited supply of workers in their native country. The labor force supply-and-demand effect created upward pressure on wages. This prevented American industry from reducing wages below a certain level. In turn, this maintained aggregate labor/consumer income at a high enough level to purchase American products. With global labor competition, wages can be reduced drastically. With this reduction, however, comes reduction in the consumer income that purchases American products. This drastic reduction in aggregate consumer income will lead to a drastic reduction in consumer demand. If the average American worker is making $4/day, due to glogal labor competition, who will buy American products? CEOs? Congress? Bill Gates? Martians? Can the super rich really buy enough computers and SUVs to maintain American consumer spending and demand? If not, then where will the profits come from with drastically reduced sales? Can profits be made without selling any goods? Can labor costs be reduced enough to make profits without any sales?

Corporate America fails to understand that maintaining worker wages is to their advantage. It's not only to their advantage, it's a necessity. American labor "costs" actually provide the income to buy American products. (Labor costs = consumer income. Labor cost reduction = consumer income reduction. In reality, it's worse than this. Consumer income reduction is > than labor cost reduction.) To restate this, as corporations lower labor costs, they lower consumer income as well. Corporations decrease the size of their own market by reducing aggregate consumer income. If they continue to increase profit margins by reducing labor income, they'll eventually be unable to sell their products. There won't be enough income to purchase America's production. Remember slavery? Slaves never bought any products. They didn't have any income. If we all become slaves, we won't have any income either. And corporate America won't be able to sell their products to anyone. Corporate America will have destroyed itself, due to its own greed.

Henry Ford said that he paid his workers well so they could buy his cars. Corporate America should take heed of this. The most productive economies we've ever had were when worker wages were at their highest inflation-adjusted level. There are 2 economic principles that are being ignored by Corporate America. Consumer spending is 2/3 of economic activity. They also ignore the fact that consumer spending is the biggest part of the GDP equation. (GDP=Consumer_spending+investment+government_spending+trade_balance) In reality, investment spending will be self-limited if consumer spending isn't maintained. Production facilities will not be built if no one buys products. In addition, government spending is financed by taxes on consumer income. Thus, it is also very dependent on consumer income. Exports depend on foreign labor income, which creates foreign consumer markets. Since average foreign worker income is miniscule, this will never be a very large number. Imports will continue to subtract from GDP, as long as slave-labor wages are encouraged by "free" trade/slave labor agreements. Since consumer spending is strongly related to labor/consumer income, a reduction in consumer income will also reduce GDP. We're not "growing" our economy by reducing labor costs. We're shrinking it.

EconomicPatriotForum

2005-07-10T10:03:00.000-07:00

TAX CUTS & THE HOUSING BUBBLE

2005-07-05T16:20:00.000-07:00

TAX CUTS & THE HOUSING BUBBLE

Optimal economic growth needs to play a bigger part in tax cuts and proposed tax changes. Tax changes should be based on economic reality, instead of "alternate reality." Demand-Side economic theory should be stressed, instead of Supply-Side economic mythology. Recent tax cuts have been designed with the latter in mind. These tax cuts were based solely on self-serving, Supply-Side "voodoo" economics.

Since consumption is necessary to drive economic growth, it must be considered when determing tax rates. Put differently, the "means of production" must be balanced with the "means of consumption." All production must ultimately be sold to make maximum profits. Profits are made by SALE of goods, not by production. Consumers must be able to purchase production. If taxation is slanted too much towards investors, consumers will not be able to purchase all of the potential production. They will have insufficient means of consumption. Spendable consumer wealth limits the amount of production that can be purchased. Spendable consumer wealth determines the size and value of the consumer market. It also limits the aggregate value of production. Unpurchased production does not increase profits. Nor does it contribute to economic "growth." Money used for excess production is money that would have been more beneficial if it had gone to consumers.

In addition, undertaxation of the "investor" class results in misuse or non-use of investment capital. This can be seen when industrial capacity utilization is less than optimal. Investment capital is used to increase industrial capacity. (i.e., buy more equipment, build new factories, etc.) If there is excess industrial capacity, there is no benefit to increased investment capital. There is no reason to increase industrial capacity, if it is already underutilized. Tax cuts for the "investor" class simply have no benefit here. As investors look for investment opportunities, 2 detrimental uses are made of this potential "investment" capital. Investors overinvest in the stock market, increasing price to earnings ratio. Stocks become overvalued. Small investors, and those in 401Ks and IRAs, have their retirement funds invested in overvalued stocks. Ultimately, overvalued stocks lose value. The large investors often see the fall coming. In addition, they can immediately sell their stocks and remove their money. The small investors, including the 401K and IRA investors, often don't see the fall coming. Worse still, they can NOT immediately sell their stocks and remove their money. As a result of these factors, many smaller investors suffer large financial losses when the overvaluation corrects itself. Thus, stock market over valuation hurts the 401K and IRA investors much more than the large investors. This stock market overvaluation ultimately results in transfer of wealth from small investors to large investors. Thus tax cuts that encourage over investment in the stock market increases the upward redistribution of wealth in this manner.

Add the above to the effect of increasing after-tax nominal income to the "investor" class more than the "consumer" class. Since unfunded tax cuts decrease "real" (or inflation-adjusted) income, the consumer class loses even more buying power. This loss of consumer buying power reduces consumer spending and demand for production.

The end result of high income tax cuts (for the "investor" class), is an increased ratio of means of production to means of consumption. If this ratio is already too high, these tax cuts REDUCE economic growth, instead of increasing it. There is no benefit to increasing production if consumers can't purchase the production. There is no benefit to increasing industrial capacity when it is already underutilized. We don't need to build new factories when many are unused, or at least underutilized.

Tax rates need to be adjusted to help the part of the economy needing the most help. Is our ability to produce goods limiting our growth, or is our ability to purchase goods limiting our growth? If consumer spending is 115-120% of consumer income, the answer becomes obvious. (15-20% of consumer spending is from borrowed money.) If corporate profits are high, and markets are "glutted with capital," the answer becomes even more obvious. We need to re-direct taxation to enhance the "means of consumption," not the "means of production." Investment capital is abundant at present. Spendable consumer money is not. Consumer income is only sufficient to purchase 80-85% of current production. With rising interest rates, and the consequent decrease in home equity value, the contribution of "borrowed" money will decrease. Since "real" consumer income has been decreasing, consumption will ultimately decrease. This, in turn, will reduce demand for production. Thus, more production will not help our economy. More capital investment will not help our economy. More spendable consumer income WILL help our economy.

The 2nd detrimental effect of these misdirected tax cuts is on the housing market. Since many high income taxpayers are worried about the stock market, they look for alternate investment opportunities. Real Estate is one of them. Over 1/4 of homes being purchased are for investment purposes only. In fact, in a May 5th article from the San Diego Daily Transcript, it was state that this fraction is even larger. California Association of Realtors President, Jim Hamilton, states that "repeat homebuyers...account for three of four home purchases in the state." The link for this article is:

http://news.yahoo.com/news?tmpl=story&u=/sddt/20050505/lo_sddt/majorityofcaliforniansmakelessthanhalftheincomenee

These are 2nd homes purchased by buyers intending to re-sell homes at a higher price. These homes are purchased largely by high income taxpayers, who have benefitted the most from the tax cuts. By purchasing 2nd homes, they greatly increase the price of real estate. They effectively reduce the supply of homes by 25%. By doing this, they raise the selling price of the remainder. (This is basic supply-and-demand theory. Decreasing supply ALWAYS increases price.) These 2nd home purchases make homes unaffordable for many people in this manner. Only 17% of Californians can afford a median-priced home. The unaffordability of homes is multi-factoral. Low mortgage rates and "creative" financing have added to tax-cut enhanced real estate speculation. Low mortgage rates simply allow buyers to purchase homes with higher assesed value, due to the reduced cost of borrowed money. Many buyers borrow off the equity of one home to purchase a 2nd home for investment. This makes it even harder for the average American to purchase a home.

unlawflcombatnt

HOME: http://www.unlawflcombatnt.blogspot.com/

2005-06-28T01:23:00.000-07:00

GDP vs. ECONOMIC GROWTH

The GDP equation is as follows:

GDP=ConsumerSpending+Investmnt+GovtSpending+TradeBalance

Economists state that consumer spending, or consumption, is 2/3 of all economic activity. It's the generally accepted consensus that consumer income is the biggest determinant of consumer spending. Logically, it is essentially the only long-term determinant of consumption. (Consumption financed by borrowing cannot last indefinitely.) Thus, consumer income is the biggest determinant of GDP.

Interestingly enough, debt-financed consumer spending is also included in the GDP equation. So consumer spending includes the sale of goods bought with money that doesn't even exist. Much of consumer spending is financed with money from home equity loans. Does such spending really indicate economic "growth," or is it economic "fantasy"? Does increased debt really indicate economic "growth"? Don't we have to pay that back some day? Does the overvaluation of assets in the real estate market and stock market really indicate economic growth? When money borrowed off these overvalued assets is used to prop up consumer spending, does that really contribute to economic growth? Should this "overvaluation-financed" spending really be added to GDP? The truth is, the GDP equation becomes a less accurate indicator when workers are compensated more poorly.

Investment, and investment capital, only have value if they increase the amount of goods SOLD. (It's SALE of goods that create profits, not production.) If consumer spending is low, obviously less investment capital is needed. In spite of this, the equation allows for investment capital to actually make-up for decreased consumer spending. This is simply illogical. If consumers are NOT spending their money and buying more goods, what benefit is there to building more factories? How can anyone call that economic "growth"? Basically, this allows the government to falsely state that the economy is "growing," while the sale of goods is declining.

Also included in the "investment" category is unsold inventory. So by this equation, the economy can "grow" by building more unused production facilities, and producing more un-sold goods. So if someone produces goods nobody can afford to purchase, the "assumed" value is simply added to the total.

If income is reduced, shouldn't it affect the other factors? If so, how would it affect them? Let's start with investment. Investment will not make any real contribution to GDP if consumer spending declines. Increased investment is supposed to increase production. If income falls, so does demand for production. If demand falls, there is NO benefit to increased investment. There is no need to build more production facilities or provide more services, if there is no demand for them. Excess "investment" would simply go into corporate coffers, in the form of CEO salaries, stock holder dividends, "cash-on-hand" and bank accounts. In actual reality, as opposed to economists' "pseudo-reality," this investment would add absolutely NOTHING to GDP in the long-term. (It's mis-allocated money that would have contributed to GDP, if it had it gone toward consumer spending.)

How about government spending? Government spending is financed exclusively from taxes. Taxes subtract directly from private wealth. Thus, government spending reduces private wealth, dollar-per-dollar. However, the "marginal propensity to consume" concept needs to be considered here. (Which basically states that the more affluent devote a smaller percentage of their wealth towards consumption. The more affluent they are, the smaller the percentage.) Taxes on lower income individuals reduce consumption more than those on higher income individuals. Taxes directed mainly at consumers, such as sales tax, reduce consumption spending dollar-for-dollar. In contrast, taxes on corporations primarily reduce investment spending. Thus, the type of taxation affects how much it subtracts from consumer spending. But it is clear that government spending subtracts significantly from consumer spending. In addition, reduced consumer income reduces the money availabe for taxation. Government spending cannot make up for consumer spending reduction. Not only does it depend on consumer income, it subtracts from consumer spending directly.

In summary, the GDP equation is almost overwhelmingly dependent on consumer income. Labor cost reductions reduce income, and GDP. When $90/day workers are replaced with $2/day foreign workers, consumer income drops. Consumer spending then drops as well, further reducing demand for goods and services. The increased profits made from the labor cost reduction do NOT help the economy. The increased investment capital that results has NO benefit when consumption drops. It merely provides a short-term gain in profits, at the expense of a long-term loss in GDP. Unfortunately, many "experts" have a blindspot to this simple mathematical reality.

unlawflcombatnt

EconomicPopulistCommentary

HOME http://www.unlawflcombatnt.blogspot.com/

2005-06-25T16:51:00.000-07:00

BANKRUPTCY BILL, HOUSING BUBBLE & THE ECONOMY

The new bankruptcy bill will hurt the economy in several different ways. Not only will it reduce consumer spending by reducing credit card expenditures, but it will help burst the housing bubble as well.

The new bankruptcy bill will make consumers less willing to spend money and less willing to use their credit cards to make large purchases. Those who would have otherwise been able to declare bankruptcy, will have to spend more of their money paying off their debts. They'll have less money to spend on consumer goods, especially homes.

Consumer spending and demand in this country are approximately 80-85% from income, and 15-20% from borrowed money. Inflation-adjusted hourly wages have decreased over the last year. They've decreased 1.2% over the last month, and 2.2% from since January of 2005. With consumer income decreasing, the reduced ability of consumers to borrow is going to have a much greater effect. Consumers are going to have much less spendable money.
Less spendable money, in addition to higher mortgage rates, will accelerate the bursting of the housing bubble. The super rich, who buy 30% of the homes sold in this country as investment, are not going to keep buying. They won't be able to profiteer by selling them at their current inflated prices. Still less people will be able to afford them. The market supply of homes will increase from "investors" trying to dump their homes before prices bottom out. When this happens, the Greenspan-created housing bubble will burst. And the real estate speculators are going to wish they'd invested in solid gold, instead of the hot air comprising the housing bubble balloon.

Bush's bankruptcy bill slant is just like his tax-cut slant. Preserve the wealth of the most affluent, at the expense of the less affluent. The alleged theory behind such high-end giveaways is to increase capital and investment. Even if that WERE the real reason for this slant (and it is not), it's illogical with our current economy. The markets are "glutted with capital" according to the Wall Street Journal. Other sources state business is "awash in cash." There is an abundance of investment capital. In contrast, there is NOT an abundance of investment opportunities.

Why aren't there more investment opportunities? Because there is NOT an "abundance" of spendable consumer dollars. Investment opportunities are the result of consumer DEMAND for products. That demand is created by consumer spending. Aggregate spendable consumer dollars limit aggregate consumer spending. As such, aggregate spendable consumer dollars limits investment opportunities. In order to increase investment opportunities, and the utility of investment capital, spendable consumer dollars need to increase. With declining incomes, this had been maintained by credit card spending and borrowing. The new bankruptcy legislation will reduce the addition to consumer spending that comes from credit cards and borrowing. Combined with rising interest rates, this contribution will be further reduced.

The new bankruptcy legislation will amount to a further maldistribution of wealth. Many people clearly see this. At least some people understand that the "means-of-consumption' and the "means-of-production" must be balanced. (Unfortunately, none of them work for the Bush Administration.) Business profits are NOT made by producing goods. They're made by SELLING goods. Someone needs to buy the goods for any profit to be made. Reducing spendable consumer dollars reduces this ability. No amount of increase in investment capital increases that ability. At the current time, economic growth will NOT occur by increasing available investment capital. It would occur from the investment of that capital in productive investment opportunities, but those investment opportunities are scarce. Again, those investment opportunities are created by consumer spending, and the demand it creates. Thus, consumer demand needs to receive more emphasis. Consumer demand is what limits our economic growth at present. Unfortunately, acknowledgment of this reality does not fit into Bush's "No-Corporation-Left-Behind" policies.

Bush policies clearly favor "means-of-production" over "means of consumption." The bankruptcy bill unbalances this even further. In so doing, it further reduces the utility of investment capital, while further increasing the investment capital excess over investment opportunities. We can't "grow" our economy this way. Building new production facilities with this capital has NO benefit whatsoever. Our current industrial capacity is underutilized. Current utilization rate is 79%. It was 85% at the end of Clinton's presidency. Further "growth" will only occur with increased utilization. Increased consumer demand increases that utilization. It will increase the demand for production by those facilities. Increased demand for production also increases demand for workers to create that production. Increased labor demand increases both the numbers of those working, and the wages of those already working. (increased demand ALWAYS increases price. In this case, that price is American wages.) We don't need to assist the rich, and increase their investment capital. We need to help consumers, and increase their purchasing power. This would create more investment OPPORTUNITIES. This helps business, as well as consumers. Some might describe these wealth-redistribution ideas as "share-the-wealth" concepts. But I call them "increase-the-wealth" concepts. I think many would agree.

2005-06-16T16:37:00.000-07:00

FREE TRADE, GLOBALIZATION, & COMPARATIVE ADVANTAGE

Many economists appear to have a blind spot when it comes to free trade. Free trade advocates are like a religious cult. Their advocacy is based on pre-conceived theory with little regard for actual reality. They just keep chanting "free trade is good. Free trade is good. Free trade is good." Some economic theories are based on a carefully selected set of facts and concepts, while completely ignoring others. In addition, the application of some of these theories does not work in reality. This also seems to be ignored. The benefits of unrestricted free trade, along with unrestricted free flow of capital, is one such phantom belief.

The argument frequently used is that of "comparative advantage." Modern economists often ignore one important aspect of this theory. It requires that CAPITAL AND LABOR CANNOT BE INTERNATIONALLY MOBILE.
Let me repeat this. In order for the "Comparative Advantage" theory to work, CAPITAL AND LABOR CANNOT BE INTERNATIONALLY MOBILE.

Here is the quote from Paul Craig Roberts article regarding David Ricardo's original Comparative Advantage theory:

"For comparative advantage to reign, two conditions are necessary:
One is that capital and labor must be mobile within each country so that the capital and labor employed in England in the production of wine can flow into the production of cloth, where England’s trade advantage lies. In Portugal capital and labor must be able to flow from cloth to wine where Portugal’s advantage is greatest.

The other necessary condition is that capital and labor (factors of production) cannot be internationally mobile. If the factors of production are internationally mobile, capital and labor would move from England to Portugal, where both commodities can be produced the cheapest. Both wine and cloth would be produced in Portugal. Portugal would gain and England would lose.
Ricardo makes it clear that for trade to make both countries better off, trade must be based on comparative advantage. Ricardo gives reasons why, in his time, factors of production are internationally immobile.

Since the time of Ricardo, the key assumption of trade theory remains, in the recent words of trade theorist Roy J. Ruffin, "the inability of factors to move from a country where productivity is low to another where productivity is higher." In a recent article in History of Political Economy (34:4, 2002, pp. 727-748), Ruffin shows that Ricardo’s claim over Robert Torrens as the discoverer of the principle of comparative advantage lies in Ricardo’s realization that comparative advantage, the basis of the case for free trade, lies in "factor immobility between countries." Ruffin notes that "of the 973 words Ricardo devoted to explaining the law of comparative advantage, 485 emphasized the importance of factor immobility."

If factors of production are as mobile as traded goods, the case for free trade--that it benefits all countries--collapses. There is no known case for free trade if factors of production are as mobile as traded goods.

For some time I have been pointing out that the collapse of world socialism and the advent of the Internet have made factors of production as mobile as traded goods. Indeed, factors of production are more mobile. Capital, technology, and ideas can move today with the speed of light, whereas goods have to be shipped.

The collapse of world socialism has made Asian countries, such as China and India, receptive to foreign capital, and it has made first world capital willing to migrate beyond first world countries. The Internet makes it possible for a country to hire knowledge workers anywhere on the globe.

The Internet and the international mobility of capital and technology have, in effect, made labor internationally mobile, especially labor that is paid less than the value of its marginal product or its contribution to output. The huge excess supplies of labor in countries such as China and India ensure that it will be many years before labor in those countries, both skilled and unskilled, will be paid the value of its marginal product.

The international mobility of factors of production is a new phenomenon. It permits first world businesses, seeking lower costs, greater profits, and a stronger competitive position, to substitute cheap foreign labor for the entire range of domestic labor involved in the creation of tradable goods and services. Only labor involved in non-traded goods and services is safe from foreign substitution. It is not yet possible to package hair cuts, surgical operations, dentistry or home repairs as internationally tradable services.

Many people confuse the workings of capitalism that lead to lower costs and greater profits with free trade. They overlook the necessary conditions for free trade to be mutually beneficial. The same people tend to confuse the free flow of factors of production with free trade. I have been amazed at the number of fierce adherents of free trade, even among economists, who have no idea of the necessary conditions on which the case for free trade rests..."

The following is the link to the article:http://www.mises.org/fullstory.aspx?control=1420&id=64

It truly is amazing that economists constantly regurgitate the free trade mantra, and attempt to support it by misapplying the "comparative advantage" theory.

A big problem with some economists is that they "miss the forest for the trees." They often develop complicated mathematical equations to explain theories that don't make any sense. It's almost as if they try to prove mathematically that the sky is red, instead of blue. Then they ignore the fact that most non-economists agree that the sky is actually blue.

I'm going to take a stab at disproving the benefits of unrestricted "free" trade, using a simple equation -- the GDP equation. I think economists will agree that it goes as follows:
GDP=Consumption+Invstmt+GovSpending+TradeBalance

If applied globally, "trade balance" should be zero (unless Martians are buying some of our goods.) Therefore, this should be the "global" GDP equation:
GlobalGDP=GlobalConsumption.+GlobaInvestmnt+GlobalGovtSpending

Economists state that consumer spending, or consumption, is 2/3 of all economic activity. Thus, global consumption is 2/3 of all global economic activity. It's the generally accepted consensus that consumer income is the biggest determinant of consumer spending. Logically, it is essentially the only long-term determinant of consumption. (Consumption financed by borrowing cannot last indefinitely) Thus, global income is the biggest determinant of global GDP. If the aggregate loss of American wages is not compensated for by aggregate foreign wage increase, global income goes down. So does global GDP.

How does global income decrease affect the remaining factors? Let's start with global investment. Global investment will not make any real contribution to GDP if global consumer spending declines. Increased investment is supposed to increase production. If global income falls, so does global demand for production. If global demand falls, there is NO benefit to increased investment. There is no need to build more production facilities or provide more services, if there is no demand for them. Excess "investment" would simply go into corporate coffers, in the form of CEO salaries, stock holder dividends, "cash-on-hand" and bank accounts. In actual reality, as opposed to economists' "pseudo-reality," this investment would add absolutely 0 to global GDP in the long-term. (It's mis-allocated money that would have contributed to global GDP, if it had it gone toward global consumer spending.)

How about government spending? Government spending is financed exclusively from taxes. Taxes subtract directly from private wealth. Thus, government spending reduces private wealth, dollar-per-dollar. However, the "marginal propensity to consume" concept needs to be considered here. ( Which basically states that the more affluent devote a smaller percentage of their wealth towards consumption. The more affluent they are, the smaller the percentage.) Taxes on lower income individuals reduce consumption more than those on higher income individuals. Taxes directed mainly at consumers, such as sales tax, reduce consumption spending dollar-for-dollar. In contrast, taxes on corporations primarily reduce investment spending. Thus, the type of taxation affects how much it subtracts from consumer spending. But it is clear that government spending subtracts significantly from consumer spending. In addition, reduced consumer income reduces the money availabe for taxation. Government spending cannot make up for consumer spending reduction. Not only does it depend on consumer income, it subtracts from consumer spending.

In summary, the global GDP equation is almost overwhelmingly dependent on global consumer income. Labor cost reductions reduce global income, and global GDP. When $90/day workers are replaced with $2/day workers, global consumer income drops. Global consumer spending then drops as well, further reducing global demand for goods and services. The increased profits made from the labor cost reduction do NOT help the world economy. The increased investment capital that results has NO benefit when global consumption drops. It merely provides a short-term gain in profits, at the expense of a long-term loss in global GDP. Unfortunately, many economists DO have a blindspot to this simple mathematical reality.

unlawflcombatnt

HOME: http://www.unlawflcombatnt.blogspot.com/

2005-06-16T13:16:00.000-07:00

THE HOUSING BUBBLE, CHEAP LABOR LOBBY , & PSEUDO-RECOVERY

The consumer income and demand that provided the "recovery" from the recession came from increased consumer borrowing, not increased income. This was the direct product of the Greenspan-induced housing bubble. By decreasing the prime rate, he increased the dollar-value of a home that could be purchased with the same amount of money. More money could be spent on the actual selling price of the home, if less was spent on financing charges. Again, this increased the price of homes that buyers could purchase, as well as the number of buyers who could purchase homes. In turn, this increased the DEMAND for homes, which further increased the overall price of homes. This demand increase also increased assessed home values, increasing home equity value. Thus, there was an overall increase in aggregate, nationwide home equity value. This increased the amount of money available for home equity loans. This increase in money available for loans also increased money available to spend. Thus, consumers were able to increase spending, while incomes decreased.

This increase in spendable consumer wealth provided the demand necessary to keep American industry from completely collapsing. Consumers were able to spend more, in spite of declining wages. Had more attention been paid to increasing wages, and less to stimulating unnecessary investment, consumer income might have recovered. It might have recovered enough to offset the huge reduction in demand that will occur when the housing bubble bursts. Unfortunately, corporate profits and inflated equity values were the emphasis of the Bush administration, not consumer income. The inflation-adjusted wage decline has continued unabated under Bush.

Bush's labor-cost reduction policies have actually worsened the consumer income loss.The "cheap labor lobby" has succeeded in greatly reducing aggregate consumer income. They have taken advantage of simple supply-and-demand laws regarding labor. By increasing labor supply, they reduce the price of labor. By reducing labor demand, they further reduce the price of labor. Reduced "price" of labor means reduction in wages for American workers.
The "cheap labor lobby" has reduced American wages by increasing the supply of available workers and reducing the creation of jobs. This has been done by 2 general methods. The 1st method is the encouragement of unrestricted inflow of impoverished workers into the U.S. This increases the labor supply, decreasing labor cost. (There are simply more workers competing for the same number of jobs, driving wages downward.) This decreases average individual wages, as well as aggregate labor and consumer income.

The 2nd method has been OUTSOURCING. The effect of outsourcing is to open up the American labor market to competition with impoverished 3rd-world workers. American workers must now compete globally for wages with semi-slave labor in impoverished foreign countries. American labor has already lost many jobs to foreign competition. Thus, the DEMAND for American labor has also been reduced, due to the shipment of jobs out of the country. (Decreased demand for labor decreases the "price" of labor, which means American wages.) The effect of outsourcing is to decrease the number of jobs, as well as the average wage of those who have jobs. This results in decreased aggregate consumer income, causing decreased demand for American goods, and decreased demand for workers to produce goods.

The "cheap labor lobby" has thus decreased aggregate consumer income by increasing immigration and outsourcing. They have reduced labor demand, and increased labor supply. They have opened up the American labor market to competition with foreign workers. There is NO long-term benefit to anyone from such policy. It does not help American industry in the long-run, nor does it help American workers. It does not help foreign workers in the long-run, either. Their minuscule wage gains do not make up for the massive American wage losses. This trade-off results in an aggregate reduction in global consumer income, and global demand for production. This, in turn, results in a global reduction in labor demand. The end result is a REDUCTION in global wages, not an increase.

American labor income is not only essential to American domestic consumer demand, it is essential to global consumer demand. Many foreign economies will be hurt if their ability to export to the US declines. And this ability WILL decline if American income is insufficient to purchase their products.

The American consumer market is THE major consumer market of the world. Declining aggregate American income will reduce this market. It will reduce both the American consumer market, and the global consumer market. Bush's "cheap labor" policies are accelerating this reduction. When the "borrowing" bubble collapses, so will the consumer market. It's only a matter of time.

unlawflcombatnt

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2005-06-15T13:46:00.000-07:00

HOW I BECAME AN ex-CONSERVATIVE

For 20+ years, I was a Republican. Back then, I didn't like the "share-the-wealth" thinking the Democrats seemed to embrace. I voted for Ronald Reagan twice.
Then I saw an interesting graph regarding the National Debt. It showed how well Bill Clinton had done, and how poorly the Republican presidents on both sides of him had done. Bush had done MUCH worse. Considering I voted AGAINST Bill Clinton, this gave me pause. I began researching economic statistics, and economic principles.
Then a light suddenly came on. My previous views of the benefits of increasing investment capital by reducing taxes on corporations came into question. When I began reviewing economic principles and statistics, I realized financial commentators were omitting something. In fact, they ignored the most important aspect of economics. They ignored consumer DEMAND. It was as if that concept didn't even exist. And yet, many commentators were also stating that consumer spending is 2/3 of all economic activity. Since consumer spending creates DEMAND, this seemed like a serious ommission. It made me question everything I was hearing.
In fact, the importance of DEMAND should have overshadowed all other commentary, such as "investment creates jobs," the "onerous regulatory burden," etc. No attention whatsoever was paid to consumer buying power. I thought that was strange, considering profits are made by SELLING goods, not producing them.
I began to realize that my previous "right-leaning" economic beliefs were wrong. VERY WRONG. Worse still, I realized they didn't even make sense. When I started doing some serious thinking, I independly re-discovered 2 Keynesian concepts. The 1st was that of AGGREGATE DEMAND. The 2nd was that of "Marginal Propensity to Consume." It wasn't until later I realized Keynes had already described these concepts. To me these were just common sense concepts. And yet, many of the financial talking heads act is if they had never heard of these principles.
This is when I crossed over to the so-called "left" side of the road. From that point on, my view on economics was changed forever. Though Democratic and Liberal economic policy is sometimes described as "share-the-wealth" policy, they are also "increase-the-wealth" policies. Increasing investment is of no benefit unless demand also increases. Increasing production without increasing consumers' ability to buy production makes no sense. It's even worse when the increase in capital (to increase production) is at the expense of consumer buying power. That's what's happening today. That's why I'm now an "ex-Conservative." Current Neocon economic policy is illogical. It defies even common sense.

unlawflcombatnt

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2005-05-17T02:16:00.000-07:00

OUTSOURCING, SLAVE LABOR, & CAFTA

CAFTA is the latest anti-worker, pro-slavery, "free" trade bill being considered in Congress. l urge everyone to write Congress and tell them to vote against CAFTA. This is another bill designed exclusively to facilitate outsourcing of American jobs. The bill is much worse than any of the previous "free" trade bills. The flaws are even more obvious. It is a dishonest attempt by the Bush administration to portray an outsourcing bill as an attempt at "opening up markets." Central American workers are so poor they will NEVER create a market for American goods. Impoverished Central American workers, however, will provide an excellent source of cheap semi-slave labor. This new source of slave-labor will be in direct competition with American labor. The only way American workers will be able to compete is to accept the same slave-labor conditions as their Central American counterparts.

CAFTA is nothing but an extension of the disastrous NAFTA scam. American workers will lose jobs, wages will decline, and 0 new jobs will be created. CAFTA's advocates are 100% aware of this. They are simply lying when they talk about "opening up markets to American goods." In reality, what they really want is to "open up" the American labor market to competition with foreign slave-labor. Don't let Benedict Arnold corporations extend their economic treason any further. Americans must continue to stress Economic Patriotism, and oppose this new outsourcing extension.

George Bush, and his fellow "economic terrorists," continue to espouse outsourcing as being "good for America." It is not. And they know it. It helps a selected few at the expense of the many. This bill is a typical product of today's inhuman corporate greed, and its influence on the legislative process. And outsourcing is the epitome of this corporate greed.
Again, outsourcing is done exclusively so American corporations can use cheap foreign labor. The underlying motivation behind ALL free trade agreements is to enable American corporations to use the unskilled, impoverished, semi-slave labor of other countries. There has never been any real concern about "opening up markets." That is more than just a mistaken concept. It is an outright lie from Bush and the economists that espouse "opening up markets." The minuscule income of these 3rd world countries makes it impossible for them to buy American products. Bush knows this. Mankiw knows this. Snow knows this. The man on the moon knows this. Markets are created by aggregate consumer income, not people. Countries with little aggregate consumer income have minuscule-sized markets. Exporting countries that pay their 11-year old slave laborers $2/day will never, ever buy US products. Those wages don't provide enough consumer income to do so.

Chinese and Indian industries would collapse if they had to depend on their own populations to purchase the bulk of goods and services they produce. Wages and consumer income are too low for them to survive on domestic sales. They depend on the American consumer market, which is created by American wages (and borrowing).

When American industry outsources jobs, it outsources consumer income as well. This is the same income that purchases their products. Loss of jobs also places downward pressure on employed workers' wages. If labor demand decreases, so do wages. If this trend continues, America will be unable to purchase 80% of its own goods, as it currently does. Demand for goods, and the labor to produce them, will decrease further. This will further reduce consumer income and buying power. This is a self-perpetuating cycle, which will result in a continued decrease in DEMAND for American production.

The price reduction on foreign-produced goods does not make up for the income lost. It is simply illogical to think so. If it did compensate, there would be no benefit to outsourcing. Wal-Mart statistics, provided by Wal-Mart, provide some insight. A Wal-Mart spokesperson recently stated that consumers save $600/year purchasing goods from Wal-Mart. He also admitted, however, that Wal-Mart wages were $2/hour lower than those of the average retail sales worker. Here's the math: $2/hr x 40hr/week x 52weeks = $4160 per year less income for a Wal-Mart employee. However, the $4160 is only a small part of the labor income actually lost, because it is confined to retail sales employees only. Nearly 100% of the labor income from production workers is lost, since Wal-Mart buys most of its products from production facilities ouside the U.S. The loss of income by American production workers is even greater. Does $600/year in consumer savings make up for income lost by retail employees and production workers? Of course not. Aggregate consumer income decreases FAR more than prices decrease. The price savings are MUCH less than the amount of labor income lost. The only income increase is in CEO salaries and corporate profits. And that increase is entirely at the expense of the American worker. Increased corporate profits are EXCLUSIVELY from reduction in labor costs. In other words, this profit comes directly out of the pockets of American workers.

American workers are the most highly educated, highly skilled, productive workers on the planet. They produce more goods per hour than any of the workers they are losing their jobs to. But they are not as productive measured in goods per dollar. American workers lack the "skills" to survive on $2/day. We need to begin retraining them to acquire this skill. Our educational system has completely failed us here. And the ability to survive on $2/day is THE most essential job skill in today's market. We definiely need to increase federal funding to teach this "skill."

In reality, the "re-training" mantra is just a cop-out. The solution to outsourcing is not increased worker training. Nor is it increased funding to job-displacement programs. It is not extension of unemployment benefits. The solution to the outsourcing problem is to stop outsourcing. Period. Repeal ALL "free" trade agreements. We have absolutely no need for any "free" trade agreements. We already had free trade before any of these agreements were ever created. NAFTA, FTAA, CAFTA and the others have only one real goal -- to reduce the labor costs by using the slave labor of impoverished countries. This makes American workers compete with the exploited labor of poor countries. American workers then become no more than slaves themselves. Is this the job retraining Bush has in mind?

Economists speak of "comparative advantage" with outsourcing. This outdated concept is nothing but economic fantasy. It's what Right-Wing, "alternate reality" economists hide behind when defending outsourcing. They should lose their economic degrees for even mentioning this in public. It's a long, twisted, completely non-applicable concoction, which is designed to disguise the real reasons for outsourcing. Mankiw and Snow know better than to hide behind the "comparative advantage" fairy tale. Bush may be too stupid to be held completely accountable for his policies. But Mankiw and Snow are nothing but taxpayer-paid liars. The Bush/Mankiw/Snow/Greenspan "economic axis-of-evil" may destroy our economy.

unlawflcombatnt
_________________________

Investment does NOT create jobs. It only "allows" for their creation. Increased Demand for goods creates jobs, because it necessitates hiring of workers to produce more goods. Investment "permits" job growth. Demand necessitates it.

Building a factory does NOT create jobs. Demand for production DOES create jobs. Goods are not produced if there is no demand for them. Without demand for goods, there is no demand for workers to produce them. Without demand, no amount of investment creates jobs.

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2005-05-07T20:18:00.000-07:00

NEOCON ECONOMY

Bush supply-side pseudo-economic policies are destroying our economy. His policies are actively worsening life for the lower 98% at present. And they will make 100% of us poorer in the future.

Tax cuts for the affluent, and other "supply-side" giveaways make no economic sense. Many people aren't aware of this, because it does take a little time to explain. But not very much. So I'm going to try here.

Our country became the world's most powerful economy under administrations that practiced "Demand-Side" economic policies. In general, demand-side economics centers on consumer spending and demand. Profits are made when goods are sold, not when produced. Industrial production is driven by DEMAND for goods made from that production. Consumer spending creates the demand for that production. Without demand, there is no production. That's because there's no benefit to that production. No profits can be made from unsold production.
Consumer demand is the ONLY factor that increases job and wage growth. Demand for goods also creates demand for labor to produce goods. Increased demand for anything increases the price. Thus, increased demand for labor increases the price of that labor. In other words, it increases wages. It also increases hiring. Demand increases the number of people working, as well as the wages of those people working.

If more workers are working and average wages are higher, it increases the aggregate (or total) demand for goods in our country. Aggregate Demand, when measured in dollars, is the ultimate limiting factor of industrial production. Aggregate Demand in dollars is total spendable dollars available to consumers. (Republicans hate the concept of Aggregate Demand. It conflicts with their "alternate reality" economic theories.)

Again, aggregate demand for goods is the engine that drives our economy. It drives production, hiring, and wage increases. The demand cycle has a self-perpetuating effect. As labor/consumer income increases, so does the demand for goods. That's because consumers have more money to spend. This increased demand further increases labor demand. Which further increases wages and hiring.

Supply-side concepts have never been accepted by a large number of economists. What I mean here is that they are not even accepted as a valid economic theory. Many economists refuse to call supply-side policies a theory. Some refer to them as "voodoo economics." Supply-side policies are essentially economic mythology. They are a completely illogical set of ideas that were concocted to justify tax cuts for the rich. The major proponents were not even economists. Most were actually journalists, such as Robert Bartley, the late editor of the Wall Street Journal.
Let me try to show the error of some supply-side propaganda. A major point is about tax cuts for the rich. This is supposed to stimulate investment. That investment is supposed to go into building production facilities and increasing production (supply). There is an obvious problem here. What if consumer spending doesn't necessitate increased production? If consumer spending doesn't keep up with supply, that investment money is completely wasted. Profits are made by SELLING products, not producing them. Un-sold goods do not "grow" our economy. (Neither do increased CEO salaries.)

Another less important, but even more illogical assumption, is that if you tax people less, they will produce more. It may be true that high-end taxpayers would have more money to invest. However, that's where the truth ends, and the fantasy begins. Even acknowledging that smidgeon of truth, the benefit of that money is questionable. The extra investment money is supposed to lead to increased goods production(supply). Again, there is no benefit to producing more goods than consumers can pay for. This increased investment money is useless unless demand necessitates increased production.

There is also a definite negative to these supply-side fantasies. Increasing the deficit to fund these cuts increases inflation, as well as devaluing the dollar. That means consumer dollars are worth less. So consumers will buy less. And provide less demand for goods, causing less demand for labor. Which starts us on another self-perpetuating downward spiral.

The big picture is this. In order for production to increase, demand for production must increase. Consumers need to have enough spendable wealth to purchase increased production. Increasing production without increasing consumer spending is putting the cart ahead of the horse. The cart isn't going to "push" the horse forward. And manufacturers aren't going to "push" consumer spending forward. Only consumers can drive our economy. They provide the demand that "pulls" production forward. Remember the old adage: "Necessity is the mother of invention." So it is that "Demand is the mother of production." Demand for goods leads to increased production of those goods. However, supply of goods does not increase demand. Unsold goods are worth absolutely $0.

Demand-Side Economics were almost universally accepted until the mid-1970's. However, sometime in the 70's, supply-side mythology was born. (Under a rock, in a dark cave.)
Today we're seeing the fruits of supply-side mythology. Consumer income has decreased during Bush's "economic reign-of-terror." Tax cuts for the top 2% favor investment, not consumer spending. Though consumer income was obviously declining, Bush decided his rich friends needed more money to "grow" the economy. According to Bush, they would produce more goods and increase production capacity. Also, as Bush dishonestly claimed, they would hire more workers.

Does this make any sense? Will a company hire more workers just because they have more money? Do they hire more just because they can afford to? No, absolutely not. They only hire workers when they NEED them. No amount of corporate giveaways will increase hiring, unless demand for production increases, which increases demand for labor to provide that production.

Let me give an example. Let's say I'm a doctor who sees 6 patients per day. I need one nurse. What if my new friend, George Bush, gives me $1 million because he likes me. (for some unknown reason.) Will I hire more nurses? Of course not. I don't NEED more nurses. They won't increase my profits any, and they will cost me money. So I'm not going to hire them.
Let me change the example. Let's say I'm the same doctor, and my ex-friend, George Bush, takes back the $1 million. He then gives it to the potential patients who live around my office. Now more people can afford medical care. Now I have 30 patients per day. Am I going to hire more nurses? Yes, indeed. Because now I NEED more nurses. The DEMAND for nurses has increased. Hiring more nurses will increase my profits.

In the above example I hired more nurses only when I NEEDED them. I hired none when I didn't need them, even though I could afford them. Being able to afford hiring of nurses had no effect on hiring. Demand for their services did. This increased demand was due to increased consumer income. Increased consumer income ALWAYS increases aggregate demand. (It may effect demand for individual products differently. But is still increases the sum total of demand for goods and services produced.)

In the above example, nurses spendable income increased because of demand increase. In turn, their income increased aggregate consumer income. This increases demand for the goods they buy, and the labor that produces those goods. It helped the entire economy as a result.
Again, increased consumer income increases demand for production. But how does consumer spending increase, if consumer income decreases? It increases through credit and borrowing. Current consumer spending has been maintained through increased borrowing and credit card spending. To phrase this differently, it has been maintained by consumer "deficit" spending. And this is becoming an increasingly larger portion of consumer spending. A lot of this deficit spending has been financed by the artificially increased value of homes, and the resulting increase in home equity loans. Interest rates have almost a direct effect on the market value of homes. The higher the fraction of buyer's cost going to financing, the less the market value of the home. This is because the seller receives a smaller fraction of the total payment. If interest rates are low, the seller receives a higher fraction of the buyer's payment.

Let me give a brief illustration. Let's say I want to buy a home. Let's say I am a perfect example of all potential buyers in my area. I'm willing to pay $300,000 total for a home. This includes all finance charges, as well as principal payment. Let's say the total financing costs $150, 000. That means the seller will get the other $150,000. That means the market value of his home is $150,000, because that's what he actually gets.

Let's change the finance charges. I'm still only willing to pay $300,000 total for the home, including all finance charges. But the finance charges are only $50,000 now, because of a lower interest rate. The seller now gets $250,000, instead of $150,000. The market value of his home is now $250,000. The market value of his home has increased $100,000 because of a reduced interest rate. The reduced interest rate accounts for 100% of the increase in market value. This increases the equity, and increases the amount he can borrow off this equity.

Lowered interest rates have greatly increased home equity values. They have also greatly increased the amount of money that can be borrowed off this equity. This money has made a significant contribution to consumer spending during the last 4 years. Current estimates are that it contributes $200-300 billion per year to our $12 trillion GDP. This is 1.5 to 2.5% of our GDP. Borrowed money has prevented consumer spending from sinking. As interest rates rise, home equity values will decrease. Money borrowed from this reduced home equity will also decrease. The contribution to consumer spending from this money will also decrease.

From this, it becomes obvious that consumer demand cannot be maintained by this consumer deficit spending. We are nearing the limit now. We are going to reach this limit in the near future. The home-refinancing loan bubble, and its contribution to consumer spending, is about to burst. When it does, consumer spending and demand will drop. And they will continue to drop, because this is also a self-perpetuating cycle. As consumer demand for production decreases, so will the demand for labor to provide that production. As a result, hiring will decrease and layoffs will increase. This will further decrease consumer income, and the spending that comes from that income. We need to change our economic course. We can't let Republicans distract us from major issues. We can't let them waste our time with discussion right-wing planted distractions. Subjects such as steroids in baseball, the Robert Blake trial, Michael Jackson, and Terry Shiavo provide cover for what the Republicans are really up to. Corporatization of social security and extension of tax cuts for the rich affect all of us. Job loss to the cheap slave labor of foreign countries affects all of us. Let's not help provide cover for the Bush/Snow/Greenspan "economic axis-of-evil."

Clinton was right. It is "the economy stupid." Let's not let the Republicans convince us otherwise.

2005-04-29T17:25:00.000-07:00

HEALTH CARE CRISIS & SOLUTION

We definitely have a health care problem in this country. It is certainly much closer to a "crisis" than Social Security solvency. People are dying right now as a result. I have my own solution to the problem. However, I will withhold it until later in this letter. It will make more sense after my description of the current state of health care. I agree with those that believe nationalized health care will be a mess. However, so is our current system of corporatized medicine. Many have not thought of this, but HMO-dominated medicine behaves like socialized medicine in most respects.

My opinion is that we need more "real" free market effect in medicine. The 3rd party-payor system has eliminated most free market dynamics in medicine. Doctors' pay is almost exclusively determined by what Medicare pays. Private insurance companies use Medicare rates to determine physician payments. Physician reimbursement is essentially fixed as a result. If you charge more than Medicare or an insurance company allows, you won't get paid more. Furthermore, the additional amount you can charge is also determined by Medicare or the insurance company. If you don't accept the payor's rate, they will pay you less. However, that's a relatively small problem.

The bigger problem is how you get paid if you don't accept Medicare rates. Instead of the payment being sent directly to the doctor's office, IT'S SENT DIRECTLY TO THE PATIENT.

Let me elaborate. Medicare determines an allowable payment amount for every type of physician visit and procedure. They pay 80% of the allowed amount. The physician can then bill the patient for the remaining 20%. The physician cannot bill for more than that if he wants to get the full 80% of the allowable amount from Medicare. If you don't accept Medicare's payment rate as your full payment, Medicare sends the check directly to the patient. Then the physician has to try to obtain payment from the patient, which is often a disaster. So most doctors accept Medicare and insurance company payment rates. That way payment is sent directly to the doctor's office, instead of to the patient. All private insurance companies base their physician payments on Medicare's allowable amount. Thus, the federal government essentially sets fees for private insurance, as well as for Medicare. This amounts to price controls on physicians. It's essentially impossible for a doctor to survive in California without taking insurance, unless he's doing cosmetic procedures on the rich. Increased physician fees are not driving up the cost of medicine, because the federal government essentially controls physician fees.

In contrast, insurance companies and HMOs can charge as much as they like. They can also merge, so that they eliminate as much competition as possible. So patients have little choice on insurance. There are a limited number of insurance companies. Employers usually offer few choices. Doctors have little choice but to accept all insurance company demands, including their reimbursement.

The largest part of health care spending goes toward administrative costs. Only 9-19% of the healthcare dollar actually goes to paying doctors. The rest is siphoned off by HMOs and insurance companies. A recent article by New York Times columist Paul Krugman describes where the lion's share of the health care dollar actually goes. Here is a quotation from Krugman's April 29th column: "The most striking inefficiency of our health system is our huge medical bureaucracy, which is mainly occupied in trying to get someone else to pay the bills. A good guess is that two million to three million Americans are employed by insurers and health care providers not to deliver health care, but to pass the buck to other people." (The article can be found at the following link: http://www.nytimes.com/2005/04/29/opinion/29krugman.html?) I would paraphrase this slightly and say that 2-3 million Americans are employed by the health care industry to determine how to deny payment for medical care.

Physicians cannot collectively bargain. In fact, if physicians even discuss rates among themselves, IT'S AGAINST THE LAW. It's an antitrust violation. Health insurance companies can merge until they completely control the market, and it's legal. But if 10 physicians (who are not in the same group) get together to discuss reimbursement rates, THEY ARE BREAKING THE LAW.

We have a healthcare market that is privately owned. However, it behaves like socialized medicine. Patients have little choice, as well as having little monetary incentive not to overuse services. Doctors have little monetary incentive to provide better service. They won't be reimbursed any more. In fact, they may actually make less. A surgeon who performs more surgery will be removed from most HMO provider lists. He costs the HMO more money. HMOs pick providers based on cost consideration alone. Surgical outcomes have little effect. More surgery means more physician and hospital payments. More payouts mean less profit for the HMO. If the 1st surgery went poorly, HMOs can simply delay or deny further treatment. Eventually the patient just gives up.

I know this, because I was a staff physician at an HMO, as well as one of their patients. When I ruptured a vertebral disc in my back, they referred me to their limited group of spine surgeons. They also knew that none of them would operate, so they'd never have to pay for it. I ultimately bought a 2nd type of insurance and it was eventually paid by them. Interestingly enough, the surgeon who finally performed my spinal fusion had previously been one of the HMO's providers. He was de-selected because he did too much surgery. He was costing the HMO too much money. He was providing too much necessary medical care.

HMOs receive their payment at the beginning of the month. The less of this they spend on patient care, the more they have left. Less medical care increases their profits. HMO's monetary incentive is to provide as little care as possible.

You might think providing bad medical care would cost more money in the long run. It does not. There are several reasons for this. Most HMO physicians receive fixed compensation from the HMO. Most are paid salary, or they receive a capitated monthly payment from the HMO. They are paid the same amount regardless of how many patients they see. It doesn't cost the HMO any more money for the doctor to see the patient. In addition, hospitals are often paid a capitated rate as well. So it doesn't cost much more to re-hospitalize a patient because of bad medical care. So there is little incentive to hire good doctors, only cheap ones.

If a salaried HMO physician spends too much HMO money on medications or lab tests, they fire him. (I was one such physician.) If a specialist does too many procedures, he's deselected. If a patient requires an expensive treatment, the HMO delays treatment as long as possible. The patient may disenroll if the delay is long enough. The patient may also DIE! When an extremely ill patient dies, the HMO SAVES money. They don't have to continue paying for expensive treatment when a patient dies. It's in their best financial interest to let sick patients die. Their "authorization request" protocol was designed exclusively to delay treatment, which saves them money. I had one such patient. Her treatment was delayed through the HMO's "authorization request" protocol. It worked here. The patient died before she cost the HMO much money. They did, however, get her Medi-Cal premiums for a short time.

You might think an HMO would be concerned about medical liabilty for providing poor medical care. You would be wrong. Only doctors can be sued, even if an HMO vetoes their medical decisions. HMOs CANNOT BE SUED FOR MEDICAL MALPRACTICE. They have been excluded by law, first by ERISA, then by Clarence Thomas and the Supreme Court. (The HMO party line is "HMOs don't practice medicine.")

This brings me to my "solution" to the health care crisis. It's goal is simply a return to a level playing field, and a return to a REAL free market. I have posted this letter elsewhere, so I may be repeating myself. Here's my letter:

I DO have a simple solution to the healthcare crisis. But I'd leave it out of the debate because it will not be put through in the near future. Few people would accept my idea as THE solution because it is too simple. It is to repeal one piece of legislation passed in 1974. It is part of the ERISA legislation. It's simple.

REPEAL MALPRACTICE EXCLUSION FOR HMOs. Let me repeat that. REPEAL MALPRACTICE EXCLUSION FOR HMOs.

This was part of the patient's rights legislation proposed in Congress, but opposed by Republicans and healthcare insurers when the Bush plutocracy first came to power. The only part of that legislation that worried HMOs was the part about ending HMO exclusion from malpractice and allowing litigation against them. The same litigation M.D.s face when they are told what medical care they can provide by HMOs that claim they don't practice medicine.

Ending HMO exclusion from medical malpractice would end HMOs. Doctors would control medicine, not CEOs. We would have a medical system that profited from providing care, rather than withholding care. Doctors might err in the direction of overtreatment. But HMOs profit by withholding treatment. Would you rather be in a system that encourages treatment of disease, or one that discourages treatment?

If we reduce the control health insurers have in medicine, we will reduce the amount of money they siphon off. Patients with more freedom of choice can make decisions based on cost vs. benefit, instead of having that choice made for them.

Having the government give money to health insurance companies to pay their CEOs higher salaries is not the answer. Insurance companies make money by taking your premiums. They lose money paying for medical services. What kind of incentive do you suppose they have? The profit motive of insurance companies is in complete conflict with providing healthcare.

Additionally, we have more than just a problem with the high cost of healthcare. We have a problem with receiving medical care when we pay the high cost. I see THAT as a bigger problem. What good is low-cost health insurance if it denies essential medical care? What good is an insurance card if it provides no real coverage?

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ECONOMIC COMMENTARY: BASIC THEORIES

2005-03-25T15:14:00.000-08:00

ECONOMIC COMMENTARY: BASIC THEORIES

My economic beliefs are based on 4 simple concepts. The 1st is supply and demand theory. The 2nd is that profits are made by selling goods, not simply producing them The 3rd is that consumer spending is 2/3 of economic activity. The 4th is that aggregate demand has significant differences compared to individual demand. My deductions follow from these concepts. Most deductions are consistent with Keynesian economic theory, especially that of aggregate demand . Aggregate, or total demand is critical for understanding the American economy. It is rarely mentioned mentioned by financial news analysts, despite its importance. For that reason, I will stress "aggregate demand" in my postings.

The first deduction is that consumer spending creates demand for goods and services. It follows that aggregate (total) consumer spending creates aggregate consumer demand. Consumer demand drives our economy. Aggregate consumer spending is limited by total consumer wealth. Income is the most important component of consumer wealth. Spendable dollars from consumer income can be supplemented through borrowing and savings expenditure. However, spendable consumer dollars have a definite limit. This limit is the sum total of income, borrowing, and savings expenditure. Everything else being equal, decreased consumer income decreases spendable consumer dollars. Overall, consumer income is the major limiting factor for consumer spending.

Another important Keynesian concept is the Marginal Propensity to Consume. This refers to the change in consumption spending relative to change in income. As individual income increases, the percentage spent on consumer goods decreases. Let me give an example. If an individual making $10,000 per year is given an extra $1,000, it will go mostly towards consumer spending. If an individual making $10 million per year is given an extra $1,000, it will go mostly towards investment and savings. Economic policy implications can be seen from this. Increasing money to the non- affluent favors consumer spending. Increasing money to the more affluent favors investment and savings. Along the same lines, tax cuts for the affluent increase investment. Tax cuts for the non-affluent increase consumer spending.

An interesting point should be made here. I initially arrived at the Keynesian "Aggregate Demand" and "Marginal Propensity to Consume" concepts without knowledge of Keynesian principles or formal economics background. This implies these principles are products of logic and common sense. Formal economics training is not necessary to understand them. But common sense is.

It's my opinion that many current economic theories are derived to prove a particular economist's desired conclusion, not to explain reality. Many complicated economic theories attempt to justify policy that favors a special interest. Some appear to be derived in reverse - by starting with a conclusion and then concocting a "theory" to explain it. To put this another way, some economists start with a belief in an illogical theory, that has no real world evidence to support it. Then they assemble a mass of selected data with complicated equations to prove themselves right. This contrasts sharply with the methods we use in natural science. We try to gather all the facts and evidence we can, then we connect the dots to find truth and reality. Scientists don't try to "prove" reality, they try to discover it. Some economists seem to start by "creating reality," then gather selected data and invent formulas to prove this new, illogical "alternate reality." The convoluted nature of such theories often makes them difficult to understand, much less refute. However, they often defy logic when taken as a whole. (Tax cuts for the wealthy are a perfect example of theory developed to justify illogical policy. More on this later.) Many times the validity of the theory is based solely on the so-called " expert's " background. (Because few people actually understand the theory.) It may indeed take a Ph.D in economics to prove an illogical theory. But common sense is often enough to explain logical ones. I'll stick to logical ones in this blog.

Furthermore, one should remember the adage "don't miss the forest for the trees." It appears some economic "experts" actually do miss the forest. Sometimes the trees do blind them to the forest. And sometimes one who can't see the "trees" well gets a better view of the "forest." The value of my statements come from this. I see the forest better, because I'm not blinded by the trees. I may not be able to explain some complex theories, but I can fully explain aggregate demand. That's because it's a big part of the forest, not an isolated tree.

unlawflcombatnt

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2005-03-23T11:54:00.000-08:00

CAPITALISM & WEALTH DISTRIBUTION

It's important to understand America's uneven distribution of wealth. It is a requirement for capitalism. But in excess it is counterproductive. Though capitalism has been very successful, it can be hampered by its excesses. These excesses reduce the benefits. They can actually reduce the total wealth produced. An excessively uneven distribution of wealth is one of the drawbacks. The key word is "excessively." This applies to economic "growth" as well as social and economic justice. The "justice" issue is highly subjective. The economic issue is more objective.

The degree of uneven wealth distribution is crucial for the economy. Too little, as well as too much, can worsen the economy. There must be balanced "unevenness." Balance is necessary between the means of production and the means of consumption. There needs to be sufficient money for the means of production, as well as the means of consumption. (If balanced, consumption = production.) A shift in the balance in either direction hurts the economy.

Uneven distribution of wealth is necessary to create capital. Some members of society must have sufficient money left over from consumption spending to invest in the means of production. This 'extra' money is necessary to pay for the means of production-- factories, raw materials, labor, etc. More unevenness allows for more potential capital. However, benefits of this unevenness disappear if too large. Excessively uneven wealth distribution actually reduces the growth of the economy, because it reduces the means of consumption.

The "means of consumption" appear to be ignored by current financial analysts. But they are essential for a capitalist society. Money needs to be available to purchase the goods produced. Capitalists make money from the SALE of goods, not from the production. The value (or price) of the goods is determined by what consumers will pay for goods. The less spendable money consumers possess, the less the market value of the goods. If the total spendable money of all consumers decreases, the total market value of all goods decreases. Success of capitalistic society depends greatly on spendable consumer money. Too little consumer money decreases the total value of all goods produced, regardless of the quantity of goods produced.

When the sum total of money available to consumers decreases, there is no benefit to further "capital" investment. Further wealth will not be produced from more capital, because total dollar value of sales cannot increase. Total market value of goods decreases if total money to buy goods decreases. More goods production will not increase total value. Spendable consumer wealth limits total consumer good value. In the current U.S. economic situation, capital is plentiful. It is consumer wealth that is limiting our growth.

The Wall Street Journal states that the markets are "glutted with capital." Which means there is more capital available than necessary. Many investors are not investing this extra capital in the "means of production." This seems reasonable, given the limited ability to increase sale of products. Much of this extra money, or capital, is put elsewhere. Savings is one such place. Savings money does little to help economic growth. It may facilitate investment loans somewhat, but there is little benefit to further investment. Again, the benefits to that investment are limited by consumer ability to buy the products of that investment.

In our current situation, more "progressive" tax policies and economic agenda will increase economic growth. A more progressive tax policy would increase consumer take-home wages. A more progressive agenda would actually benefit capitalism. Any policy that reduced the current uneven distribution would result in production of more wealth and increase overall prosperity. Reducing the current "degree" of uneven wealth distribution would put more money in to consumer spending. It would increase demand for goods and services. It would increase the aggregate market value of all goods and services. It would benefit business, as well as consumers. It would increase the production and profits of corporations. It would increase the hiring and wages of workers. Thus, an initial increase in take home wages could initiate a self-perpetuating cycle of economic growth.

This would return us to a more "demand-side" economy. A return to more demand-side principles is not socialistic. It is not a move in the direction of socialism. It is a move towards capitalism. It would benefit capitalism, not hurt it. It is a move toward real economic growth, not fictitious economic growth. It would make our capitalistic economy thrive, instead of stagnate.

Remember the adage: "necessity is the mother of invention." And so it is that "demand is the mother of supply." Demand will increase supply. But supply will not increase demand. If society demands round wheels for cars, someone will produce them. But if someone produces square wheels, no one will buy them. And no matter how many square wheels are produced, no money will ever be made from them. Supply of square wheels will never create a demand for them.

unlawflcombatnt

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2005-03-21T16:32:00.000-08:00

LEFTWARD TO CAPITALISM

I am an adamant supporter of capitalism. I am an equally adamant opponent of socialism. I believe current administration policies are markedly anti-capitalistic. The current right-ward shift of our government is a move away from capitalism, and toward corporate plutocracy. The current administration is moving away from free enterprise. It is moving towards a government controlled by a small group of wealthy special interests. It is anti-free enterprise. As such, a progressive shift in current economic policy would be pro-capitalist, not anti-capitalist. A progressive shift would increase growth and prosperity. Current supply-side economic policies are not increasing economic growth. They're reducing it. Further economic growth will only be stimulated by growth in consumer income. The Bush corporatocracy ignores this. The importance of the American consumer market is ignored. And yet, this market is essential to our economy. Capitalism cannot exist without a consumer market. This market is created by consumer spending, which comes from consumer income. Spendable consumer wealth determines the size of this market. The market is actually reduced by savings and investment. Savings and investment divert money away from consumer spending. The theoretical, economic benefits of savings and investment are to increase supply. However, if supply exceeds demand, those benefits disappear. If supply exceeds demand, then demand needs to be increased. Increased investment, with non-increasing consumer demand, provides no economic growth. As such, there is little current benefit to increased overall investment. American industry is overinvested now. Our industrial capacity usage is at 79%, which is far below the 85% it was during the 90's. We don't need to increase the size of an under-utilized industrial capacity through increased investment. We need to increase the utilization rate. We need increased demand to increase the utilization rate. Current consumer demand is not sufficient for full utilization. Policy focused on increasing consumer demand would alleviate this problem. (Excess Industrial Capacity = Insufficient Demand. Increased Demand = Increased Utilization.)

Consumer demand is created by consumer spending. Consumer spending will increase if consumer income increases. Increased corporate profits and reduced corporate taxes will not increase consumer demand. Nor will deregulation or reduced "frivolous" litigation. None of these corporate concessions will stimulate economic growth with our current economy. Reducing corporate costs will do nothing except increase CEO salaries. Investment is plentiful at present. Consumer spending is not. Increased consumer income is needed. That will stimulate economic growth. It will help corporate America, as well as working America. These "left-leaning" , yet pro-capitalist concepts need to be emphasized.

We need to stop defining economic "growth" as increased corporate profits, increased CEO salaries. They don't necessarily indicate a healthy economy, or economic growth.

Some important points are worth discussion. Consumer spending drives a capitalistic economy, not capital investment. Demand from consumer spending is the engine that drives economic growth. Capital investment is only "permissive" for economic growth. In contrast, increased consumer demand "forces" economic growth. Increased consumer spending, and the increased profits that result, will provide necessary capital for further investment. In contrast, further investment cannot "create" more consumer spending, or consumer demand. It must be there to begin with. No amount of investment will create economic growth, unless demand necessitates it.

Demand creates economic growth by itself -- by increasing either prices, quantity of sales, or both. Investment can only increase production. Profits are only increased by increased dollar-value of sales, not production. Thus, the benefit of increased investment is limited by consumer demand.

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2005-03-19T15:06:00.000-08:00

GEORGE BUSH: ECONOMIC TERRORIST

Bush economic policy is unsound. Careful review of US Labor Dept. statistics and US Commerce Dept. statistics reveal the true source of our economic problems. The biggest problem is flat or decreasing CONSUMER SPENDING. Consumer spending accounts for 2/3 of US economic activity. Consumer spending = Aggregate consumer demand [in dollars]. (The concept of aggregate consumer demand shows that limits are placed on demand when considering all consumers as a whole. This is in contrast to the less-limiting concept of individual demand.)

Without an increase in consumer spending/demand, our economy will decline. Aggregate consumer spending is largely dependent on aggregate consumer income. Median weekly wages have decreased over the last year. Department of Labor statistics show that inflation-adjusted average weekly wages have decreased 2.0% during the 12-month period from February 2004 through February 2005. This aggregate decrease in wages will ultimately reduce consumer spending. Lower consumer spending will not support job growth.

Additional tax cuts for the wealthy do little to stimulate consumer spending. The wealthy are generally consuming as much as they desire. They have little ability to increase their consumption. In fact, the rationale behind tax cuts for the wealthy is entirely different. These tax cuts are supposed to stimulate INVESTMENT (or savings). So what is the potential benefit of increased investment? It increases money available for the production of goods. In economic terms, increased investment is supposed to increase the SUPPLY of goods and services. This is a classic "supply-side" benefit. The intended result is an increased supply of goods available for purchase by consumers. What benefit will an increased supply of goods have on our economy, given decreasing consumer demand? Can consumers spend MORE money to buy this increased supply when they have LESS money to spend?

Consumer spending won't increase until there is an increase in aggregate consumer income. Tax cuts designed to increase the SUPPLY of goods and services provide NO benefit for our current economic situation. None whatsoever. Companies do not make money by producing goods and services. They make money by SELLING goods and services. Sales determine profits, not production. If they can't sell more product, they won't make more money. In addition, companies will NOT invest in the hiring of more workers to produce goods and services they can't sell. If they've already made too much product, they'll lay off workers. This further decreases aggregate consumer income, and further decrease demand for goods and services.

Tax cuts for lower and middle income taxpayers increase take home pay for CONSUMERS. It would increase consumer spending. This would also increase demand for goods and services. In turn, this would increase hiring of workers to produce those goods and services. The resulting increase in demand for workers would increase the average wage of those workers. This would further increases consumer spending. And our economy would improve. Most economists agree that lower and middle income tax cuts would have provided much more of an economic stimulus.

Bush economic policy is counterproductive for the above reasons. The Bush administration appears to ignore publicly available information from the US Bureau of Labor Statistics. Continuation of current economic policy will result in continuing deterioration of the U.S. economy. Without a complete change in course, the economy WILL worsen. And probably soon.

unlawflcombatnt

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US Labor Dept. Stats

2004-12-26T13:06:00.000-08:00

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US LABOR DEPT. STATS

AVERAGE WEEKLY EARNINGS (from US Dept of Labor)

-------------------------------------------------------------------------------------------Percent
------------------------------------- Feb. --------- Jan. ------------ Feb.---------change:
------------------------------------- 2004 --------- 2005 ----------- 2005 ------- Feb 04- Feb 05
Current dollars--------------- $526.94------ $537.94-------- $532.06----- 1.0
Constant (1982) dollars---- $280.70------ $279.12-------- $275.25---- -2.0

For Feb 2005 thru March 2005 the figures are as follows (There is slight upward revision of Feb 05 wages)

----------------------------------- Mar 04 ------- Feb 05 ----- Mar 05 ----- % change:

Current dollars ------------- $520.59 ---- $534.33 ----- $534.33 ------ 2.6

Constant(1982 dollars ---- $275.74 ---- $276.43 ----- $274.58 ----- -0.4

Also note that inflation-adjusted (or "real" wages) have decreased 1.6 % from Jan 05 thru March 05.

At this rate, real wages will have decreased almost 10% by the end of the year!

Since February of 2004, inflation-adjusted wages have decreased 2%.

This information can be found at::

http://stats.bls.gov/news.release/realer.t02.htm

The message here is that inflation-adjusted weekly earnings have decreased 2.3 % in the last year. That means consumers will have less money to spend. This will decrease demand for goods and services and demand for labor to produce them.

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2004-12-25T01:56:00.000-08:00

JOB CREATION
Labor produces goods and services

Jobs:
--created by Demand for labor ONLY
-----not by corporate tax cuts
-----not by deregulation
-----not by increased corporate profits
-----not by increased productivity

Demand for Labor:
-----created by demand for goods and services (produced by that labor)

Consumer Spending creates DEMAND for goods and services

--*Therefore, Consumer Spending creates DEMAND for labor

--*Therefore, Consumer Spending creates JOBS
-----Increased Consumer Spending increases JOB CREATION

Consumer Spending limited by $ available to spend.

Consumer Spending = Income + Borrowing + Asset Liquidation - Saving - Investment
---since Asset Liquidation is usually negligible, it will be omitted. Thus,

Consumer Spending = Income + Borrowing - Saving - Investment

Most consumer spending is from Income.

The higher the individual's Income, the more that goes in to Savings and Investment.
----(because ability to continue to increase consumption diminishes with increasing income)

The lower the individual's Income, the less that goes in to Savings and Investment.

The lower the individual's Income, the higher the % is that goes in to Consumer Spending.

The higher the individual's Income, the lower the % is that goes in to Consumer Spending.

From this, certain deductions can be made.
-----Increased income for higher income individuals favors Savings and Investment.
-----Increased income for lower income individuals favors Consumer Spending.

From this latter, further deductions can be made.
-----Increased income for lower income individuals increases job creation.
-----Decreased income for lower income individuals decreases job creation.
-----Increased % of nat'l income going to lower income individuals increases job creation.
-----Increased % of nat'l income going to higher income individuals decreases job creation.

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2004-12-24T01:45:00.000-08:00

SUPPLY-SIDE OVEREMPHASIS

Democrats need become more vocal advocates of DEMAND-based economics. John Kerry's policies were definitely demand-side favorable. But Democrats would have fared much better if this had been stressed. And how much more favorable these policies would have been to almost all Americans, including American business. The basics realities of economics were much more in favor of Democratic Party positions. Most of these positions should be very popular with most Americans. These positions should be emphasized. The supply-side voodoo of the Republicans should be attacked at every opportunity. Public financial analysts are more concerned with selling stocks than they are with giving honest assessments of the American economy. Their analysis is usually confined to supply-side factors. In the financial news media, it seems most economic, market, and production changes are described in terms of their supply-side effects. For example, increased labor costs are only considered as a drag on business profits. No mention is made of the benefits provided by increased worker income, with its potential to increase consumer spending. Again, these economic "experts" behave as if there is no limit on DEMAND. They behave as if demand is an insignificant factor. They assume demand failure is an impossibility. However, most of these same experts begrudgingly acknowledge that consumer spending is 2/3 of economic activity. Since this is generally agreed upon by economists, why does it receive so little attention? Shouldn't economic policy be centered around consumer demand? Why is DEMAND rarely mentioned? I think I know the answer.

It would amount to "talking down" the economy. Stock prices might drop if the truth were known. It would also conflict with the Bush administration policies of cutting taxes on the wealthy. It would conflict with the "benefits" of reducing labor costs by exporting jobs and importing cheap labor. All of Bush economic policies work against the DEMAND-side of the economy. Acknowledgement of this would eliminate ALL arguments in favor of Bush economic policy. Most financial "experts" prefer to espouse the benefits of more investment and high-end tax cuts. They prefer to espouse the benefits of the increase in corporate profits from using cheap foreign and immigrant labor. They deceive Americans in to believing that this is good for America. And that the benefits of cheaper goods outweighs the harm caused by loss of American wage income. Bush and his neocon cohorts don't want Americans to realize that only a small fraction of their decreased production costs go towards lowering prices to American consumers. They don't want Americans to understand that the majority of the labor savings from foreign and immigrant labor is NOT passed on to the consumer. Instead, most of the savings go in to the pockets of the CEOs and investors.

Bush and his neocon economic advisors don't want the public to know that their policies are eroding American consumer income. This further erodes American demand for goods and services. Which, in turn, reduces demand for the labor that produces those goods and services. This puts even more American workers out of a job and further reduces wages and aggregate consumer income.

The Bush administration wants the public to believe that economic growth results simply from more goods being produced. They don't want the public to know that economic growth results only from SELLING those goods, not by just producing them. Goods have no value whatsoever if no one buys them. And such purchase of goods is GUARANTEED to go down if American wages go down. Unless consumer SPENDING grows, our economy will not grow. Decreases in production costs will NOT increase consumer spending. Most decreases in production costs are from reduction in labor costs. Which means reduction in consumer income. This will decrease consumer spending. It will SHRINK our economy, not "grow" it.
http://www.unlawflcombatnt.blogspot.com/
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COMMENTS posted by others:

Your rant against supply-side economics seems sound, but you fail to make one key logical connection. By cutting taxes on the rich, middle class, and small businesses (as well as everyone else, we must be honest as to who the tax cuts have had an effect on) and stimulating investment you do, as you say, increase the supply of goods and services. In order to increase the supply of goods and services, it is necessary to increase the labor required to create those goods and services. This in turn means the demand side for labor increases, driving up the cost of labor. Increased labor costs mean more money in consumers pockets, and more money to spend on consumer goods and services. John Email Homepage 12.17.04 - 10:45 am #

Increased investment has more than one benefit, as well. Not only does it increase aggregate supply, it also increases productivity through technological advance and innovation. Increased productivity can initially be a drag on the demand for labor (as witnessed in 2002-2003), but this is a short term effect, and eventually it leads to a labor market boom.John Email Homepage 12.17.04 - 10:45 am #

___________
John,
Thank you for you response. I understand the point you are making. However, you are missing one important point. Tax cuts for the wealthy are supposed to stimulate investment. If the investment in capital and labor is not anticipated to provide increased sale, the investment won't be made. Before an employer hires more labor, there needs to be an increase in demand for the products of that labor. Simply providing high-end tax cuts to increase available investment capital has no benefit when there is no demand for the product. Wise investors will not squander their capital if there is no benefit in increased production. And if there is no increase in demand, then there is no benefit to increased production. The whole cycle is driven by an increased demand for goods and services, not by increased production. The increased demand needs to be present before workers are hired to increase production. The supply-side argument essentially puts the cart before the horse. Goods and services are not produced if there is no demand for them. It doesn't matter how much investment capital is present, the supply will not be increased unless demand necessitates it. And if it were increased, it would produce no extra profit. Workers will not be hired until there is a need for them. They will not be hired just because an employer can afford them. The demand for labor only increases when demand for product increases. No amount of investment capital will increase the hiring of unneeded labor.

unlawflcombatnt (unlawflcombatnt@comcast.net)

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2004-12-23T15:22:00.000-08:00

KERRY ECONOMIC ADVANTAGE

This letter was posted at another site in response to criticism of John Kerry. It was agreed that some of his programs were expensive. In his defense, however, Senator Kerry did state he would cut back on some programs if they were too expensive. However, the benefits of John Kerry's economic proposals were numerous.

John Kerry backed pay-as-you-go plans. He was also one of the initial co-signers of the Balanced Budget Amendment in the late 1980's. Unlike Bush, he stressed that federal programs and legislation need to be matched by spending cuts or tax increases.

Many other components of Kerry's economic plans would be better for the economy. Most of Kerry's taxation, anti-outsourcing proposals, and other policies would have increased the demand for goods and services. Most were non-"supply-side" benefits. They could be referred to as "demand-side" benefits. This would have been much more beneficial than Bush's "supply-side" emphasis.

"Demand-side" benefits are easily explained. Consensus among economists is that domestic consumer spending accounts for 2/3 of all economic activity. This accounts for most of the demand. Our economy is driven by demand. Goods and services will not be produced if there is no demand for them. (At least, not for very long). Think of the old adage: "Necessity is the mother of invention". A parallel statement is "Demand stimulates production." But it does not follow that "Production stimulates demand". Increased production of a product will not increase demand. The message here is that increasing demand is the key to stimulating our economy. Companies do not make money by producing goods and services. They make make money by selling goods and services. It doesn't matter how much product they produce. Profits are only made by product sales.

Aggregate consumer spending is limited by how much money consumers actually have to spend. Consumer spending comes mainly from consumer income/wages. (More specifically, from "take-home" wages). Consumers can increase spending above their income by borrowing or spending their savings. In order to increase aggregate demand, consumers will need to spend more money. Current consumer spending is 123% of yearly income. So it's not likely that consumers can increase spending much through more borrowing. Current savings are 0.2% of annual income, leaving little room for increased savings expenditure. Further spending increase can only come through increased wages.

US Labor Department statistics show median weekly wages, after adjustment for inflation, have fallen over the last year. Median wages have been falling since 2001. Consumer spending has been maintained largely through increased borrowing. However, aggregate consumer debt is now at record levels. Current consumer spending levels cannot be maintained indefinitely through borrowing. When consumer spending ultimately falters, so will demand for goods and services.

The ensuing drop in sale of goods will cause a drop in demand for workers to produce goods. Which will further decrease consumer income and spending. Which, again, further decreases demand for goods and hiring of workers. Companies are never going to hire more workers than they need. And they'll never need more workers if they can't sell more goods. An increase in total consumer income is the only thing that will increase consumer spending and demand. It is the only thing that will increase the hiring of workers.

Bush's tax cuts and economic policies are "supply-side" benefits. They favor increased "supply." Tax cuts for the affluent are designed to increase investment and savings. Increased investment favors increased supply. Consumer spending changes little with tax cuts for the affluent. These tax benefits favor an increase in supply of goods, even though the demand is not increasing. Does this make any sense? Will production of an increased supply of goods help the economy? Can this increased supply be sold while consumer income is decreasing?

John Kerry's tax plans and anti-outsourcing policies would have increased consumer spending by increasing consumer income. Take-home pay would have increased mainly for people who would spend the money, the lower 98% of the income tax range. Keeping jobs in the United States would have increased employment and aggregate consumer income. Both would have increased demand for goods and services. Both would have necessitated hiring of more workers. This would have further increased consumer income, causing still further increases in consumer spending and demand.

Would this increase in consumer spending help American business? Would increased demand for goods and services help American business? Wouldn't the sale of more goods and services increase profits for American business?

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Outsourcing and Free Trade

2004-12-23T15:19:00.000-08:00

Trade agreements have been detrimental to our economy. In addition to permitting the U.S. market to be flooded with cheap foreign goods, they have helped facilitate outsourcing of American jobs to foreign countries.Outsourcing may well be our ultimate demise. Many people (including myself until recently) weren't aware of the REAL "benefits" of NAFTA, the WTO, and international trade organizations. The "benefit" is that they allow US companies to shop globally for the cheapest labor. Which obviously reduces the overall wages of American workers. Companies don't move overseas or outsource for tax benefits. And they don't do it because of lack of skilled US labor. They do it for the cheap labor. So that allows them to make their products cheaper. And make much bigger profits. So they sell their foreign made goods for a little less. But their costs are a lot less. Does anyone really think the US benefits from this?The largest market for US goods is the good old USA. And if US workers have to compete globally for wages, their wages will fall. And the previously huge US consumer market for goods and services will decrease. Because those US wages are what finance the US consumer market and consumer spending. And this spending will continue to decrease. Because American workers, who provide the consumer spending that drives our economy, will have progressively less income to spend. The benefits that US outsourcers achieve by using cheap foreign labor will be short-lived. Those benfits will eventually be overwhelmed by a long-term drop in US demand. Because when they outsourced those jobs, they also outsourced consumer income. They may have saved money on production, but they still have to sell their products to someone. And that is currently our biggest economic problem. Flat consumer spending. Lack of increase in DEMAND. And it will continue to get worse, unless this administration changes its supply-side economic agenda.
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OUTSOURCING - job tracker (added 12/26/04)

This site lists American companies that are sending jobs overseas. Provided by WorkingAmerica.org. The following is a quote from Working America's job tracker site:

"Corporations increasingly are shipping U.S. jobs overseas, with America's middle-class hardest hit. Since January 2001, the nation has lost 2.7 million manufacturing jobs, and some studies say 14 million white-collar jobs could be sent overseas in the years ahead. Unfair trade deals and large tax breaks often encourage corporations to export jobs overseas. To find out which jobs in your community have been exported or lost due to trade..."
The site listed below can be used to find which companies in your area are shipping jobs overseas. The source of the information is also given at the site.

http://www.workingamerica.org/jobtracker/index.cfm
Email Homepage 12.26.04 - 6:58 pm #
Name: Email: URL: Comment: ?

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Tax Cuts

2004-12-22T19:12:00.000-08:00

Tax cuts for the affluent are more than just ineffective at stimulating the economy. They are detrimental. If these tax cuts are not offset by spending cuts, they worsen inflation. The adage 'too many dollars chasing too few goods' applies here. Inflation reduces consumer buying power. This further decreases demand for goods and services. In other words, there will be less inflation-adjusted consumer income as a result of these high-end tax cuts. This, in turn, further reduces demand for labor. Which further decreases aggregate labor income. Which will result in still further decreases in consumer spending. More high-end tax cuts will further perpetuate this downward spiral of consumer spending. And our economy will follow in the same downward spiral.

Tax cuts for those making over $100,000 per year made up 69% of the total tax cuts for 2004. Those making over $1,000,000/year received 15% of the total tax cut. Nearly all of this 15% will go towards investment. The bulk of the 69% will also go towards investment. Again , the inflationary effect of these unfunded tax cuts will reduce consumer buying power for a majority of consumers. The following site shows a breakdown of Bush's reverse Robin Hood tax policies.
http://www.faireconomy.org/press/2005/ResponsibleTaxPledgepr.htm

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Topic Suggestions

2004-12-20T15:08:00.000-08:00

Submit any topics you'd like to discuss or hear about in the "comments" section here.

Mike

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Miscellaneous

2004-12-19T16:41:00.000-08:00

http://profiles.yahoo.com/unlawflcombatnt

HELP KEEP AMERICAN JOBS IN AMERICA
STOP the FTAA!
http://www.stoptheftaa.org/

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2004-11-30T06:59:00.000-08:00

JOB WATCH

Pro-Globalization Democratic Party Groups

2004-11-10T03:11:00.000-08:00

The following Democratic Party Groups support anti-American, unrestricted Free Trade. They encourage American corporations send jobs overseas to take advantage of cheap foreign labor. They have no concern whatsoever for American workers. They are mainly concerned with satisfying their rich corporate donors. These groups should not be allowed to determine the direction of the Democratic Party. There are numerous Democratic organizations that support this treasonous action. Two of them are as follows:

DLC-Democratic Leadership Council www.ndol.org/cobrand/contact

New Democratics Online www.ndol.org./index.cfm