Monday, December 24, 2012

NLRB Rules for Labor



The NLRB's Union Bonus

With the election over, the labor board guts the Beck decision on dues (checkoff).

Christmas came early for Big Labor last week when the National Labor Relations Board handed down a pair of decisions that overturned longstanding precedent and will deliver a windfall to union finances.

On Wednesday, the NLRB voted 3-to-1 to gut protections for workers who don't want their money spent on politics. In states without right-to-work laws, employees of unionized companies are coerced into paying dues as a condition of employment. But under the Supreme Court's 1988 Beck decision, workers are allowed to withhold the portion of their dues that unions spend on political activity.
Unions must also maintain independently verified audits of their finances and provide members with proof that their assertions about spending practices are accurate. But the NLRB now says those requirements no longer apply and so-called Beck objectors are no longer entitled to see proof that their money isn't included in union spending on politics. Maybe the Securities and Exchange Commission should waive business audits too.
The board also carved out certain lobbying from the list of political activities from which workers may withhold dues. "Lobbying expenses are chargeable to [Beck] objectors," the board wrote, "to the extent that they are germane to collective bargaining, contract administration, or grievance adjustment." That vague definition could cover nearly any lobbying expense.
Last week, the same 3-1 panel also struck down 50 years of precedent in a case that will force companies to subsidize unions that go on strike against them. While workers march the picket line, businesses will be required to withhold their dues and pass them along to union leaders.
Since the Bethlehem Steel case in 1962, the NLRB has followed the rule that if a union's contract expires and the union goes on strike, the employer can terminate the agreement that requires workers to become union members as a condition of employment as well as each employee's so-called dues "check-off" obligation. The latter obliges the company to withhold dues from paychecks and pass them to the union leadership.
The NLRB panel now claims the check-off obligation is a voluntary contract distinct from compulsory membership. But the two are the same in practice, as employees are told they can protect themselves from going into arrears and risking termination by checking the box to have their dues automatically deducted by the company. Surprise, the vast majority of workers check the box.
The Bethlehem Steel guidelines have held up for good reason, allowing companies to continue bargaining with the union but suspend dues collection when there is no contract in place. Disarming the ability of business to withhold the money stacks the deck in favor of unions. (about time - editor)
That's the entire point of the NLRB ruling, and it's typical of way that President Obama's appointees have become union partisans instead of independent arbiters of labor disputes. Board member Brian Hayes dissented in both cases, citing law and precedent, but the Obama appointees plan to roll right over him. Like the rest of the bureaucracy, the NLRB eased up in 2012 to stay out of the headlines. But now that the election is over, get ready for a raft of pro-union judgments.
HOORAY - editor

Wednesday, December 19, 2012

Obama opposed by Top Dems on Soc. Security


Obama Social Security offer at odds with top Dems
By STEPHEN OHLEMACHER Associated Press The Associated Press
Wednesday, December 19, 2012 3:03 AM EST

 
WASHINGTON (AP) — President Barack Obama's offer to slow the growth of Social Security benefits would force fellow Democrats in Congress to abandon promises to shield the massive retirement and disability program from cuts as part of negotiations to avoid the year-end fiscal cliff.

Both Senate Majority Leader Harry Reid, D-Nev., and House Minority Leader Nancy Pelosi, D-Calif., pledged not to touch Social Security as part of deficit reduction talks. Now that Obama and House Speaker John Boehner, R-Ohio, have agreed to a new measure of inflation that would reduce annual cost-of-living adjustments, or COLAs, for Social Security and other government programs, Democrats are reluctant to call it a deal-breaker.

As Obama and Boehner continued to haggle over how much to raise taxes and cut spending, White House Press Secretary Jay Carney called the new inflation measure a technical adjustment designed to make inflation estimates more accurate, and he emphasized it's Republicans who want it.

"Let's be clear. This is something that the Republicans have asked for, and as part of an effort to find common ground with the Republicans, the president has agreed to put this in his proposal," Carney told reporters Tuesday. "The president has always said, as part of this process when we're talking about the spending cut side of this, that it would require tough choices by both sides."

Boehner proposed the change earlier this month in talks with Obama, and the president included it in a counteroffer this week.

Carney said Obama's plan "would protect vulnerable communities, including the very elderly, when it comes to Social Security recipients."

The White House has not released details on how Obama's plan would do this. But the president's 2010 deficit commission recommended an enhanced minimum benefit for low-wage workers and an automatic increase in benefits once a person has been receiving Social Security for 20 years.

The inflation measure under consideration is called the Chained Consumer Price Index. On average, the measure shows a lower level of inflation than the more widely used Consumer Price Index because it assumes that as prices rise, consumers turn to lower-cost alternatives, reducing the amount of inflation they experience.

If adopted across the government, the change would have far-reaching effects because so many programs are adjusted each year based on year-to-year changes in consumer prices.

On average, annual increases in Social Security payments, government pensions and veterans' benefits would be about 0.3 percentage points smaller each year. Next year's COLA is 1.7 percent. Under the new measure of inflation, it would be about 1.4 percent.

Taxes would slowly increase because annual adjustments to income tax brackets would be smaller, pushing more people into higher tax brackets. Over time, fewer people would be eligible for anti-poverty programs like Medicaid, Head Start, food stamps and school lunches because annual adjustments to the poverty level would be smaller, leaving fewer people under the official poverty line.

If enacted for 2014, the change would reduce government borrowing by $223 billion over the next decade — $158 billion in spending cuts and $65 billion in tax increases, according to the nonpartisan Congressional Budget Office. The biggest savings — $102 billion — would come from Social Security.

"I just don't think that's fair," Rep. James McGovern, D-Mass., said. "We've got to get serious about balancing the budget. But asking Donald Trump to pay a dollar more is not the same as taking something away from a lower income community that's just squeaking by."

Advocates for older Americans have been fighting against chained CPI for years, and they have stepped up their efforts since Boehner raised the issue earlier this month.

"Too many Washington politicians clearly hope middle-class Americans simply won't notice billions of dollars in Social Security benefit cuts," said Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare. "I promise you. Seniors and their families will notice."

Reid has been adamant that Social Security should not be included in deficit-reduction talks, but he sidestepped a question about it Tuesday.

"This isn't going to be a situation where we're going to vote on a particular provision in the bill," Reid said. "It's going to be a framework to do something about the long-term security of this country."

Other Democratic senators were more direct.

"It doesn't warm my heart, I'll tell you that," Sen. Jay Rockefeller, D-W.Va., said of the proposal. "The whole understanding has been that we wouldn't do Social Security. That was for later."

Sen. Ben Cardin, D-Md., said, "I'm going to fight hard to keep Social Security out of this. I'm going to fight to protect our federal workforce because they've already made sacrifices. There's a lot of priorities I have. But I think we have to wait and see how the negotiations go."

———

Associated Press writers Jim Abrams, Henry C. Jackson, Ken Thomas and Matthew Daly contributed to this report.

CWA President: Reform Senate Now


Cohen: We Need Senate Rules Reform

Illustration by DonkeyHotey/Flickr
This post originally appeared at The Huffington Post.
For several years now, the Communications Workers of America has been working with Fix the Senate Now, a broad coalition of democracy, community, women, faith-based and civil rights groups that are fed up with a Senate that functions more like Cicero's Senate of ancient Rome than a 21st century democracy. Despite being considered the world's model deliberative body, in reality it's a place where little gets done because of the abuse of the Senate rules. This isn't news.
 
But there is a one-day opportunity on the first day of a new Congress when senators can adopt new rules by a majority vote, as provided by the Constitution. It's called the "constitutional option."
Two years ago, our coalition hit the airwaves, spawned 40,000 supportive calls to Senate offices and gathered more than 100,000 signatures on a petition in favor of such a change. Unfortunately, the resulting "gentlemen's agreement" of reforms did nothing to curb the rampant obstructionism in the Senate.
But Fix the Senate Now hasn't stopped fighting to end the gridlock.
 
On Dec. 19, the coalition is launching a nationwide call-in to Senate offices to tell our lawmakers we need real change. In particular, we are demanding that the minority must talk if they want to block a vote, instead of putting the burden on the majority to find 60 supporters just to start debate. Furthermore, executive and judicial nominations must be put to a vote following limited debate. It is absurd that after a two-year, $3 billion presidential election, presidential appointments can simply be blocked in the cloak room with no discussion.
Pick up the phone right now and urge your Senator to support Senate Rules Reform. Call 1-888-966-9836 or text RULESREFORM to 69866. 
 
Filibustering by the minority will still be possible, but those senators should be required to rustle up 40 supportive colleagues, so that lawmakers holding up the debate actually prove they have the votes. Our coalition also believes filibustering senators should actually hold the floor and speak on the subject. The American people are entitled to a debate, especially on issues that have majority support.
 
Without reform, we've witnessed 386 silent filibusters during Sen. Harry Reid's six years as majority leader. Lyndon B. Johnson served six years as Senate majority leader with one filibuster.
In the past six years, a number of critical bills suffered silent deaths. Lacking 60 votes, the DISCLOSE Act, which would have increased transparency for independent groups' campaign spending, died without discussion. Senate Republicans blocked the Bring Jobs Home Act, an insourcing bill that would have ended tax breaks for companies that ship jobs overseas. A minority of senators also prevented debate on the Veterans Jobs Corp Act, which would have created new job-training programs in targeted fields like conservation and firefighting. The DREAM Act was blocked despite overwhelming popular and Senate support for the children of immigrants. The Employee Free Choice Act and climate change legislation both came very close to 60 votes, but fell short. These and too many other critical issues couldn't get even a minute of debate on the Senate floor.
 
The constitutional option isn't unusual. It's not radical or even partisan. In fact, each time the filibuster rule has been amended—most recently in 1975—reformers used the constitutional option at the start of a new session to compel the Senate to act. Both Richard Nixon and Robert Byrd have argued in favor of using this parliamentary procedure.
 
On Jan. 3, that small window of opportunity to exercise the constitutional option will again open. Our democracy can't afford to wait another two years. We have by far the most expensive Senate campaigns ever, with the 2012 election spending approaching $743 million. Yet only weeks later we again could be facing a Senate that does practically nothing that Americans voted for and debates few issues of the day. Our democracy is in real trouble unless we act now to force the issue into the open and mobilize millions to demand change.

























Wednesday, December 12, 2012

DOJ Fines to Small for Corrupt Banks


JPMorgan chief not worried by energy trading ban

Jamie Dimon says ban on selling electricity at competitive market rates is 'not that big a deal'
  • The Guardian
JPMorgan's chief executive, Jamie Dimon
JPMorgan's chief executive, Jamie Dimon: 'My experience in life is that regulators always win anyway.' Photograph: Bloomberg/Bloomberg via Getty Images
A six-month electricity trading ban imposed on JPMorgan Chase & Co by federal energy regulators is "not that big a deal", chief executive Jamie Dimon said on Wednesday.
The ban, which will prevent the bank from selling electricity at competitive market rates, is one of the most serious punishments that can be levied by the Federal Energy Regulatory Commission. "I'm not worried about it," Dimon said, adding that it would not have an economic impact on the bank.
Dimon said JPMorgan would continue to fight the ban. "We think we're entitled to, when they're wrong, to fight it, you know, legitimately. That's what courts are for," he said.
But Dimon, who recently estimated the bank's annual regulation tab at more than $1bn, seemed resigned to eventually losing the fight. "My experience in life is that regulators always win anyway," he said.
Besides JPMorgan, FERC has also charged Barclays Bank Plc and Deutsche Bank AG with alleged power market manipulation in the United States. It has proposed a record $470 million fine for Barclays and is seeking $1.5 million from Deutsche Bank.


Banks Exempt, Poor Sent to Prison for Life


HSBC, too big to jail, is the new poster child for US two-tiered justice system

DOJ officials unblinkingly insist that the banking giant is too powerful and important to subject to the rule of law
Lanny Breuer, HSBC
Assistant attorney general Lanny Breuer said taking away HSBC's US banking licence could have cost thousands of jobs. Photograph: Richard Drew/AP
(updated below)
The US is the world's largest prison state, imprisoning more of its citizens than any nation on earth, both in absolute numbers and proportionally. It imprisons people for longer periods of time, more mercilessly, and for more trivial transgressions than any nation in the west. This sprawling penal state has been constructed over decades, by both political parties, and it punishes the poor and racial minorities at overwhelmingly disproportionate rates.
But not everyone is subjected to that system of penal harshness. It all changes radically when the nation's most powerful actors are caught breaking the law. With few exceptions, they are gifted not merely with leniency, but full-scale immunity from criminal punishment. Thus have the most egregious crimes of the last decade been fully shielded from prosecution when committed by those with the greatest political and economic power: the construction of a worldwide torture regime, spying on Americans' communications without the warrants required by criminal law by government agencies and the telecom industry, an aggressive war launched on false pretenses, and massive, systemic financial fraud in the banking and credit industry that triggered the 2008 financial crisis.
This two-tiered justice system was the subject of my last book, "With Liberty and Justice for Some", and what was most striking to me as I traced the recent history of this phenomenon is how explicit it has become. Obviously, those with money and power always enjoyed substantial advantages in the US justice system, but lip service was at least always paid to the core precept of the rule of law: that - regardless of power, position and prestige - all stand equal before the blindness of Lady Justice.
It really is the case that this principle is now not only routinely violated, as was always true, but explicitly repudiated, right out in the open. It is commonplace to hear US elites unblinkingly insisting that those who become sufficiently important and influential are - and should be - immunized from the system of criminal punishment to which everyone else is subjected.
Worse, we are constantly told that immunizing those with the greatest power is not for their good, but for our good, for our collective good: because it's better for all of us if society is free of the disruptions that come from trying to punish the most powerful, if we're free of the deprivations that we would collectively experience if we lose their extraordinary value and contributions by prosecuting them.
This rationale was popularized in 1974 when Gerald Ford explained why Richard Nixon - who built his career as a "law-and-order" politician demanding harsh punishments and unforgiving prosecutions for ordinary criminals - would never see the inside of a courtroom after being caught committing multiple felonies; his pardon was for the good not of Nixon, but of all of us. That was the same reasoning hauled out to justify immunity for officials of the National Security State who tortured and telecom giants who illegally spied on Americans (we need them to keep us safe and can't disrupt them with prosecutions), as well as the refusal to prosecute any Wall Street criminals for their fraud (prosecutions for these financial crimes would disrupt our collective economic recovery).
A new episode unveiled on Tuesday is one of the most vivid examples yet of this mentality. Over the last year, federal investigators found that one of the world's largest banks, HSBCspent years committing serious crimes, involving money laundering for terrorists; "facilitat[ing] money laundering by Mexican drug cartels"; and "mov[ing] tainted money for Saudi banks tied to terrorist groups". Those investigations uncovered substantial evidence "that senior bank officials were complicit in the illegal activity." As but one example, "an HSBC executive at one point argued that the bank should continue working with the Saudi Al Rajhi bank, which has supported Al Qaeda."
Needless to say, these are the kinds of crimes for which ordinary and powerless people are prosecuted and imprisoned with the greatest aggression possible. If you're Muslim and your conduct gets anywhere near helping a terrorist group, even by accident, you're going to prison for a long, long time. In fact, powerless, obscure, low-level employees are routinely sentenced to long prison terms for engaging in relatively petty money laundering schemes, unrelated to terrorism, and on a scale that is a tiny fraction of what HSBC and its senior officials are alleged to have done.
But not HSBC. On Tuesday, not only did the US Justice Department announce that HSBC would not be criminally prosecuted, but outright claimed that the reason is that they are too important, too instrumental to subject them to such disruptions. In other words, shielding them from the system of criminal sanction to which the rest of us are subject is not for their good, but for our common good. We should not be angry, but grateful, for the extraordinary gift bestowed on the global banking giant:

"US authorities defended their decision not to prosecute HSBC for accepting the tainted money of rogue states and drug lords on Tuesday, insisting that a $1.9bn fine for a litany of offences was preferable to the 'collateral consequences' of taking the bank to court. . . .
"Announcing the record fine at a press conference in New York, assistant attorney general Lanny Breuer said that despite HSBC"s 'blatant failure' to implement anti-money laundering controls and its wilful flouting of US sanctions, the consequences of a criminal prosecution would have been dire.
"Had the US authorities decided to press criminal charges, HSBC would almost certainly have lost its banking licence in the US, the future of the institution would have been under threat and the entire banking system would have been destabilised.
"HSBC, Britain's biggest bank, said it was 'profoundly sorry' for what it called 'past mistakes' that allowed terrorists and narcotics traffickers to move billions around the financial system and circumvent US banking laws. . . .
"As part of the deal, HSBC has undertaken a five-year agreement with the US department of justice under which it will install an independent monitor to assess reformed internal controls. The bank's top executives will defer part of their bonuses for the whole of the five-year period, while bonuses have been clawed back from a number of former and current executives, including those in the US directly involved at the time.
"John Coffee, a professor of law at Columbia Law School in New York, said the fine was consistent with how US regulators have been treating bank infractions in recent years. 'These days they rarely sue individuals in any meaningful way when the entity will settle. This is largely a function of resource constraints, but also risk aversion, and a willingness to take the course of least resistance,' he said."
DOJ officials touted the $1.9 billion fine HSBC would pay, the largest ever for such a case. As the Guardian's Nils Pratley noted, "the sum represents about four weeks' earnings given the bank's pre-tax profits of $21.9bn last year." Unsurprisingly, "the steady upward progress of HSBC's share price since the scandal exploded in July was unaffected on Tuesday morning."
The New York Times Editors this morning announced: "It is a dark day for the rule of law." There is, said the NYT editors, "no doubt that the wrongdoing at HSBC was serious and pervasive." But the bank is simply too big, too powerful, too important to prosecute.
That's not merely a dark day for the rule of law. It's a wholesale repudiation of it. The US government is expressly saying that banking giants reside outside of - above - the rule of law, that they will not be punished when they get caught red-handed committing criminal offenses for which ordinary people are imprisoned for decades. Aside from the grotesque injustice, the signal it sends is as clear as it is destructive: you are free to commit whatever crimes you want without fear of prosecution. And obviously, if the US government would not prosecute these banks on the ground that they're too big and important, it would - yet again, or rather still - never let them fail.
But this case is the opposite of an anomaly. That the most powerful actors should be immunized from the rule of law - not merely treated better, but fully immunized - is a constant, widely affirmed precept in US justice. It's applied to powerful political and private sector actors alike. Over the past four years, the CIA and NSA have received the same gift, as have top Executive Branch officials, as has the telecom industry, as has most of the banking industry. This is how I described it in "With Liberty and Justice for Some":
"To hear our politicians and our press tell it, the conclusion is inescapable: we're far better off when political and financial elites - and they alone - are shielded from criminal accountability.
"It has become a virtual consensus among the elites that their members are so indispensable to the running of American society that vesting them with immunity from prosecution - even for the most egregious crimes - is not only in their interest but in our interest, too. Prosecutions, courtrooms, and prisons, it's hinted - and sometimes even explicitly stated - are for the rabble, like the street-side drug peddlers we occasionally glimpse from our car windows, not for the political and financial leaders who manage our nation and fuel our prosperity.
"It is simply too disruptive, distracting, and unjust, we are told, to subject them to the burden of legal consequences."
That is precisely the rationale explicitly invoked by DOJ officials to justify their decision to protect HSBC from criminal accountability. These are the same officials who previously immunized Bush-era torturers and warrantless eavesdroppers, telecom giants, and Wall Street executives, even as they continue to persecute whistleblowers at record rates and prosecute ordinary citizens - particularly poor and minorities - with extreme harshness even for trivial offenses. The administration that now offers the excuse that HSBC is too big to prosecute is the same one that quite consciously refused to attempt to break up these banks in the aftermath of the "too-big-to-fail" crisis of 2008, asformer TARP overseer Neil Barofsky, among others, has spent years arguing.
And, of course, these HSBC-protectors in the Obama DOJ are the same officials responsible for maintaining and expanding what NYT Editorial Page editor Andrew Rosenthal has accurately described as "essentially a separate justice system for Muslims," one in which "the principle of due process is twisted and selectively applied, if it is applied at all." What has been created is not so much a "two-tiered justice system" as a multi-tiered one, entirely dependent on the identity of the alleged offender rather than the crimes of which they are accused.
Having different "justice systems" for citizens based on their status, wealth, power and prestige is exactly what the US founders argued most strenuously had to be avoided (even as they themselves maintained exactly such a system). But here we have in undeniable clarity not merely proof of exactly how this system functions, but also the rotted and fundamentally corrupt precept on which it's based: that some actors are simply too important and too powerful to punish criminally. As the Nobel Prize-winning economist Joseph Stiglitz warned in 2010, exempting the largest banks from criminal prosecution has meant that lawlessness and "venality" is now "at a higher level" in the US even than that which prevailed in the pervasively corrupt and lawless privatizing era in Russia.
Having the US government act specially to protect the most powerful factions, particularly banks, was a major impetus that sent people into the streets protesting both as part of the early Tea Party movement as well as the Occupy movement. As well as it should: it is truly difficult to imagine corruption and lawlessness more extreme than having the government explicitly place the most powerful factions above the rule of law even as it continues to subject everyone else to disgracefully harsh "justice". If this HSBC gift makes more manifest this radical corruption, then it will at least have achieved some good.

UPDATE

By coincidence, on the very same day that the DOJ announced that HSBC would not be indicted for its multiple money-laundering felonies, the New York Times published a story featuring the harrowing story of an African-American single mother of three who was sentenced to life imprisonment at the age of 27 for a minor drug offense:

"Stephanie George and Judge Roger Vinson had quite different opinions about the lockbox seized by the police from her home in Pensacola. She insisted she had no idea that a former boyfriend had hidden it in her attic. Judge Vinson considered the lockbox, containing a half-kilogram of cocaine, to be evidence of her guilt.
"But the defendant and the judge fully agreed about the fairness of the sentence he imposed in federal court.
"'Even though you have been involved in drugs and drug dealing,' Judge Vinson told Ms. George, 'your role has basically been as a girlfriend and bag holder and money holder but not actively involved in the drug dealing, so certainly in my judgment it does not warrant a life sentence.'
"Yet the judge had no other option on that morning 15 years ago. As her stunned family watched, Ms. George, then 27, who had never been accused of violence, was led from the courtroom to serve a sentence of life without parole.
"'I remember my mom crying out and asking the Lord why,' said Ms. George, now 42, in an interview at the Federal Correctional Institution in Tallahassee. 'Sometimes I still can't believe myself it could happen in America.'"
As the NYT notes - and read her whole story to get the full flavor of it - this is commonplace for the poor and for minorities in the US justice system. Contrast that deeply oppressive, merciless punishment system with the full-scale immunity bestowed on HSBC - along with virtually every powerful and rich lawbreaking faction in America over the last decade - and that is the living, breathing two-tiered US justice system. How this glaringly disparate, and explicitly status-based, treatment under the criminal law does not produce serious social unrest is mystifying.

Tuesday, December 11, 2012


The Budget Thugs: What Do They Know About the Economy?

Monday, 10 December 2012 11:06By Dean BakerTruthout | News Analysis
RheeWhat would Michelle Rhee (pictured center), the hero of the "school reform" movement, do to a public school teacher if all of that teacher's students had huge drops in scores from the prior year? The economic experts among the Debt Fixers all fit this failed-teacher description, says Dean Baker. (Photo: Brendan Smialowski / The New York Times )Ed Haislmaier, a senior scholar at theHeritage Foundation, made himself famous in this video where he appears to be assaulting people protesting a conference organized by Fix the Debt. While this act of bad temper may be uncharacteristic of the public behavior of this corporate-sponsored crusade to cut Social Security and Medicare, it does reflect the way in which they hope to bully their agenda through the political process.
The line from Fix the Debt, an organization that includes the CEOs of many of the country's largest corporations, and allies like The Washington Post is that we better have cuts to Social Security and Medicare because they say so. Note that they did not try to push this line in the elections. Everyone knows that cuts to these programs are hugely unpopular across the political spectrum.
The Fix the Debt strategy was explicitly to wait until after the election. They would then go into high gear pushing their agenda of cutting Social Security and Medicare regardless of who won the elections. Remember, we need these cuts because they say so.
It is worth repeating the "they say so" part, because this is the only way we could know that cuts to Social Security and Medicare are necessary. It is possible to tell stories about countries where a meltdown in financial markets forced sharp budget cuts, but there is zero evidence of that for the United States. Investors are willing to lend the U.S. government vast amounts of money at extremely low interest rates. The only reason that we have for believing that financial markets will panic if we don't make the Social Security and Medicare cuts that the Debt Fixers want to make is because they say so.
For this reason, it is worth considering what the Debt Fixers know or don't know about the economy. This means bringing up a still fresh wound: why did none of these people see the housing bubble whose collapse wrecked the economy?
It is important to understand the bubble was not hard to see, nor did it require much knowledge of economics to realize that its collapse would devastate the economy.
The bubble was an unprecedented nationwide run-up in house prices. For the 100 years from 1896 to 1996, nationwide house prices had, on average, just tracked the overall rate of inflation. In the decade from 1996 to 2006, house prices rose by more than 70 percentage points in excess of the rate of inflation.
How could anyone following the economy miss this? There are reports on house prices released every month; did none of the Debt Fixers ever look at them during the bubble years?
And there was no explanation for this extraordinary run up of prices in the fundamentals of the housing market. Population and income growth in the last decade were slow, not fast. And there was no corresponding increase in rents. If fundamentals were driving the explosion in house prices, then there should have been some pressure on rents, as well. And vacancy rates were hitting all-time highs. How does that fit with a supply-and-demand story driving up house prices?
The fact that the housing bubble was driving the economy was also not hard to see. Typically, housing construction is less than 4 percent of gross domestic product (GDP). It peaked at more than 6 percent of GDP in 2005. Couldn't the Debt Fixers find the GDP data released every month by the Commerce Department?
Housing wealth was also driving a consumption boom as the saving rate fell to nearly zero in the years from 2004-2007. Did the Debt Fixers think that people would keep borrowing against their homes when the equity in their homes disappeared?
The bursting of the bubble meant a loss in annual demand of more than $1 trillion when the construction and consumption boom both collapsed. What exactly did the Debt Fixers think would replace this demand?
Did they think that firms would suddenly double their investment as they saw their markets collapse? Did they think that consumers would just spend like crazy even as their housing wealth vanished? If they have a theory as to how the economy could quickly replace the demand generated by the housing bubble without large government budget deficits, it would be great if they would share.
The reality is that the Debt Fixers and their allied economists and policy wonks saw none of the above. They were completely out to lunch in their understanding of the economy.
The Debt Fixers and their allies will have to explain for themselves how they managed to miss something as huge and important to the economy as the housing bubble. However, missing an $8 trillion housing bubble is not a small mistake. It is the sort of thing that, in other lines of work, gets you fired and sent looking for a new career.
What would Michelle Rhee, the hero of the "school reform" movement, do to a public school teacher if all of that teacher's students had huge drops in scores from the prior year? The economic experts among the Debt Fixers all fit this failed-teacher description.
This means that when we get a whole bunch of seemingly important and knowledgeable people telling us that we must cut Social Security and Medicare because the markets demand it, we have to remember that these are people who were just recently shown to be completely out to lunch in their economic judgment. If the Debt Fixers expect the country to take their pronouncements seriously, they should be forced to answer one simple question: when did you stop being wrong about the economy?
Copyright, Truthout. May not be reprinted without permission of the author.