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Honduran Dictatorship Is A Threat to Democracy In the Hemisphere

Mark Weisbrot

Mark Weisbrot
Sacramento Bee, November 19, 2009

McClatchy Tribune Information Services, November 19, 2009

A small group of rich people who own most of Honduras and its politicians enlist the military to kidnap the elected president at gunpoint and take him into exile. They then arrest thousands of people opposed to the coup, shut down and intimidate independent media, shoot and kill some demonstrators, torture and beat many others. This goes on for more than four months, including more than two of the three months legally designated for electoral campaigning. Then the dictatorship holds an “election.”

Should other countries recognize the results of such an election, to be held on November 29th? Latin America says absolutely not; the United States is saying, well, “yes we can”– if we can get away with it.

“There has been a sharp rise in police beatings, mass arrests of demonstrators and intimidation of human rights defenders,” since President Zelaya slipped back into Honduras and took refuge in the Brazilian embassy, wrote Amnesty International. Human Rights Watch, the OAS Inter-American Commission on Human Rights, and human rights groups worldwide have also condemned the violence and repression perpetrated by the Honduran dictatorship.

On November 5, the 25 nations of the Rio Group, which includes virtually all of Latin America, declared that they would not recognize the results of the November 29th elections in Honduras if the elected President Manuel Zelaya were not first restored.

Why is it that Latin American governments can recognize this threat to democracy but Washington cannot? One reason is that many of the governments are run by people who have lived under dictatorships. President Lula da Silva of Brazil was imprisoned by the Brazilian dictatorship in the 1980s. President Michele Bachelet of Chile was tortured in prison under the brutal Pinochet dictatorship that was installed with the help of the Nixon administration. The presidents of Bolivia, Argentina, Guatemala, and others have all lived through the repression of right-wing dictatorships.

Nor is this threat merely a thing of the past. Just two weeks ago the President of Paraguay, Fernando Lugo, had to fire most of the military leadership because of credible evidence that they were conspiring with the political opposition. This is one of the consequences of not reversing the Honduran military coup of June 28th.

Here in the United States we have been subjected to a relentless campaign of lies and distortions intended to justify the coup, which have been taken up by Republican supporters of the dictatorship, as well as by hired guns like Lanny Davis, a close associate of Bill and Hillary Clinton. Perhaps the biggest lie, repeated thousands of times in the news reporting and op-eds of the major media, was that Zelaya was overthrown because he was trying to extend his term of office. In fact, the non-binding referendum that Zelaya proposed had nothing to do with term limits. And even if this poll of the electorate had led eventually to a new constitution, any legal changes would have been far too late for Zelaya to stay in office beyond January 29.

Another surreal part of the whole political discussion has been the attempt to portray Zelaya, who was merely delivering on his campaign promises to the Honduran electorate, as a pawn of some foreign power – conveniently chosen to be the much-demonized Hugo Chavez of Venezuela. The anti-communist hysteria of 1950s McCarthyism is still the model for these uncreative political hacks.

What a disgrace it will be to our country if the Obama team follows through on its current strategy and recognizes these “elections!” It’s hard to imagine a stronger statement than that human rights and democracy in this hemisphere count for zero in the political calculations of this administration.

Mark Weisbrot is co-director of the Center for Economic and Policy Research, in Washington, D.C. He received his Ph.D. in economics from the University of Michigan. He is co-author, with Dean Baker, of Social Security: The Phony Crisis (University of Chicago Press, 2000), and has written numerous research papers on economic policy. He is also president of Just Foreign Policy.

The Failures of TARP

Dean Baker

November 19, 2009, Testimony of Dean Baker Before the Congressional Oversight Panel for the Troubled Asset Relief Program

Hearing entitled "Taking Stock: Independent Views on TARP's Effectiveness."

PDF

Bureau of Economic Analysis, National Income and Product Accounts, Table 6.1D, line 15 divided by line 1.
Bureau of Economic Analysis, National Income and Product Accounts, Table 1.14, (line 8 minus line 24) divided by line 8.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.

Falling Rental Prices Continue to Restrain Inflation

Dean Baker

November 18, 2009 (Prices Byte)

By Dean Baker

November 18, 2009

Used car prices rose at a 30.8 percent annual rate over the quarter.

The CPI rose by 0.3 percent in October while the core index increased 0.2 percent. Over the last quarter, the overall CPI has increased at a 3.6 percent annual pace. By comparison, over the last year it has fallen 0.2 percent. The core index has increased at a 1.4 percent annual rate, down slightly from its 1.7 percent rise over the last year.

The glut in housing continues to be a major factor restraining inflation. The index for rent proper fell by 0.1 percent in October, while the index for owners’ equivalent rent (OER) was flat. Over the last quarter, the rent proper index has declined at a 0.7 percent annual rate, while the index for OER has fallen at a 0.3 percent rent. Together these two components account for 30.4 percent of the overall CPI and 39.1 percent of the core index. Excluding these two housing components, the core CPI rose at a 2.5 percent annual rate over the last quarter. Rather than showing a slight deceleration, the core index would be showing a modest acceleration if not for the glut in housing.

One of the items pushing the core CPI higher over the last quarter was the rise in used car prices. With the Cash for Clunkers program pulling hundreds of thousands of trade-ins out of the stock of used cars, it was inevitable that there would be some rise in price. Used car prices rose 3.4 percent in October and have risen at a 30.8 percent annual rate over the last quarter, adding 0.6 percentage points to the core rate of inflation over this period. (It is important to remember that most used car buyers already own a used car and therefore are helped by the rise in price. The only losers are first-time buyers.) New car prices have also risen somewhat more rapidly than the core index, increasing at a 2.8 percent annual rate over this period.

Dean Baker is Co-Director of the Center for Economic and Policy Research in Washington, DC. CEPR's Prices Byte is published each month upon release of the Bureau of Labor Statistics' reports on the consumer price and the producer price indexes. For more information or to subscribe by email, contact CEPR at 202-293-5380 ext. 102 or email warner@cepr.net.

Housing Market Trails Off With Expiration of First Homebuyer Tax Credit

Dean Baker

November 18, 2009 (Housing Market Monitor)

By Dean Baker

November 18, 2009

The 60-day delinquency rate in the 3rd quarter was 58 percent above the year-ago level.

There appeared to be a sharp falloff in the housing market in October, as the November 30th expiration date for the first-time homebuyers tax credit approached. As expected, this credit pulled home purchases forward, leading to a substantial increase in sales in the late summer and early fall. The National Association of Realtors’ Pending Home Sales Index increased 6.1 percent from August to September and stood 21.2 percent above its year-ago level.

Dean Baker is Co-Director of the Center for Economic and Policy Research, in Washington, D.C. CEPR's Housing Market Monitor is published weekly and provides an incisive breakdown of the latest indicators and developments in the housing sector.

New Book Finds that Latin America Guarantees Paid Leave to New Moms, But Dads Have to Keep Working

Dan Beeton

November 17, 2009

Study Examines Work-Related Policies in 190 Countries, Including All of Latin America.

For Immediate Release: November 17, 2009
Contact: Dan Beeton, 202-239-1460

Washington, D.C.- A new book finds that Latin America is doing well, compared to the rest of the world, in providing paid leave for new mothers and paid sick leave, but could do better in providing wage premiums for night work, parental leave for new fathers, and paid leave for providers to care for sick family members. The study includes an analysis of work-related policies in 190 countries, combined with an in-depth examination of the working conditions faced by 55,000 households in seven countries on five continents, and detailed interviews of over 2,000 working adults and employers in fourteen countries around the world.

The book, Raising the Global Floor: Dismantling the Myth that We Can't Afford Good Working Conditions for Everyone (available today from Stanford University Press), by Jody Heymann and Alison Earle, finds that while 61 nations around the world provide a wage premium for night work; many Latin American countries do not, including Mexico, Guatemala, Cuba, Costa Rica, Chile, Argentina, and others. No Latin American nations provide more than two weeks of paid parental leave for new fathers; globally, 54 countries do provide this. While 48 countries provide paid leave to address children's health needs and 33 provide paid leave for adult family members' health needs, only two countries in Latin America do so: El Salvador and Nicaragua.

The authors make the point that Latin American countries can afford to implement these policies; globally, none of these working conditions are linked with lower levels of economic competitiveness or employment. Of the world's 15 most competitive countries, all 15 provide leave to care for children's health needs, 12 provide leave to care for adult family members, 12 provide paid leave for new fathers, and 3 provide a night wage premium.

The book finds that Latin America is comparatively generous in other areas of work-related policies and benefits. All of Latin America guarantees paid leave for new mothers, with most Latin American nations providing at least 14 weeks. All Latin American countries also guarantee paid sick leave, with many Latin American nations providing at least 6 months of leave for serious illnesses (although Bolivia, Chile, and Argentina lag behind this 6-month standard).

The book's findings are based on policy research the authors conducted on the 190 countries profiled, and the statistical evidence is complemented by case studies that underscore the human impact of work-related policies:

Gabriela Saavedra worked seven days a week in a Korean-owned sweatshop in Honduras. Her days typically began at 7 a.m. and ended at 6 p.m. … Employees were given an ultimatum: either they worked mandatory overtime or they lost their jobs. Some days Gabriela had gone without sleep because she had been forced to work until 5 a.m. She had little time to eat or go to the bathroom.

Author Jody Heymann is Founding Director of the Institute for Health and Social Policy. She is the co-author of the CEPR papers "Contagion Nation: A Comparison of Paid Sick Day Policies in 22 Countries" (May 2009), "A Review of Sickness-related Leave in 22 High Human Development Index Countries" (May 2009), and "Paid Sick Days Don't Cause Unemployment," (June 2009).

An Unemployment Solution: Pay People to Work Shorter Hours

Dean Baker

Dean Baker
The Nation, November 17, 2009
See article on original website
This article also appeared in:
New Deal 2.0, November 16, 2009
The Huffington Post, November 17, 2009

The unemployment rate is 10.2 percent and virtually certain to rise even higher in the months ahead. Even with the prospect of extended benefits, unemployment is still a crisis for the families affected, as they struggle to pay their mortgage or rent and cover other essential expenses. Millions will end up falling behind, losing their home — in some cases leading to homelessness and/or family break-ups.

Fortunately, there is an easy and quick way to begin to get these unemployed workers back to work. It involves paying workers to work shorter hours. The mechanism can take the form of a tax credit to employers. The government can give them a tax credit of up to $3,000 to shorten their workers’ hours while leaving their pay unchanged. The reduction in hours can take the form of paid sick days, paid family leave, shorter workweeks or longer vacations. The employer can choose the method that is best for her workers and the workplace.

If take-home pay is left unchanged as a result of the credit, then demand should be left unchanged. If workers are putting in fewer hours and demand is unchanged, then employers will need to hire more workers.

This logic is as simple as it gets. The process is also quick and cheap. In principle, the government can go this route to save jobs at a cost of a bit more than $20,000 per job - far less than the cost per job saved through the stimulus package.

Germany has used this policy to keep its unemployment rate at 7.6 percent, about the same as it was before the recession. Imagine if workers in the United States, like workers in Germany, were dealing with the recession by putting in four-day weeks (while getting paid for five) or getting an extra two weeks of paid vacation. This sure beats being unemployed.

Seventeen states already have a “work-share” program in place that allows employers to use unemployment insurance money to cover a reduction in work hours, without a corresponding reduction in pay. More than 100,000 layoffs have been prevented as result of this program.

Senator Jack Reed (D-RI) has a bill that would increase funding for work-share programs and remove some of the bureaucracy. The bill also provides start-up money for the states that don’t have programs.

The Reed bill would be a big step towards following the Germany model, taking advantage of a program that is already in place. It could quickly make a big dent in the unemployment rate, by preserving many of the jobs that are now being lost.

In this respect, it is important to clear up a common confusion about the economy. The monthly job growth number is a net figure. Approximately 4 million people leave their jobs every month, half involuntarily. We have job growth if we either create more than 4 million jobs or reduce the number of jobs lost below 4 million.

If a work share program reduced involuntary job loss by 20 percent, or 400,000 per month, it would have the same effect as adding 400,000 new jobs. Over a full year, this would generate nearly 5 million new jobs. This would be a quick and effective way to reduce unemployment.

The Financial Crisis: A Failure of Regulators, Not Regulations

Dean Baker

Dean Baker
The Guardian Unlimited, November 16, 2009

See article on original website

The administration and Congress are in the middle of an effort to modernize financial regulation. Modernization is much needed, and if done correctly, will create a more transparent and efficient financial system. Unfortunately, much of the debate around reform centers on the idea that somehow the right set of regulations would have prevented the current crisis. That view is wrong in a very big way.

We got into this crisis because of a serious failure of the regulators, and more importantly the economics profession. The failure to come to grips with this reality both means that much of the regulatory reform effort will be misdirected and that we will have done little to prevent the next crisis.

The central problem, which we should force every regulator to say 10,000 times, is that the U.S. had a huge housing bubble. The existence of an $8 trillion bubble guaranteed a severe economic downturn when it burst. This would have been true even if there were no dodgy subprime mortgages, exotic collaterized debt obligations, credit default swaps, or over-leveraged investment banks.

Bubble-inflated house prices generated close to $500 billion a year in excess housing construction. Bubble-created housing equity generated almost $500 billion a year in additional consumption. We don’t know how to quickly replace the $1 trillion in annual demand that disappeared with the collapse of the bubble. This is the reason that the U.S. economy now has 10.2 percent unemployment.

The financial fireworks of last fall and the parade of collapsing banking giants are sideshows. Financial shenanigans drove the bubble, but it is the bubble itself, not the financial shenanigans, that is responsible for the enormous suffering the country is currently experiencing.

This point is crucial. To prevent this crisis, our regulators only needed to recognize the bubble and take steps to burst it before it grew to such a dangerous level. If they knew arithmetic, they had all the tools needed to recognize the bubble. For 100 years, nationwide house prices had tracked the overall rate of inflation. Suddenly, in the mid-90s, house prices began to hugely outpace inflation, eventually rising by more than 70 percent after adjusting for inflation.

There was no remotely plausible explanation for this sudden surge in house prices. What did the regulators think had caused this extraordinary departure from a 100-year long trend in the largest market in the world if not a bubble? There was absolutely no excuse for the failure by the Fed and other regulators to see the housing bubble. What were they doing, playing video games the whole time?

If they saw the bubble, then there is also no excuse for failing to understand that its collapse would devastate the economy. Did they think that some force would magically grow up to replace the $1 trillion in bubble-driven demand?

The argument that they somehow lacked the tools to combat the bubble is absurd. If Greenspan-Bernanke had fully used the resources and the podium of the Fed to document and publicize the existence of the bubble, it probably would have been sufficient to prick it before the bubble grew to such dangerous levels. They also could have curtailed the reckless lending that everyone seemed capable of seeing except them. Finally, they could have threatened to raise interest rates as much as necessary to burst the bubble, and then carried through on the threat if necessary.

Instead, the Fed did nothing to combat the bubble – and it was applauded for doing nothing by the entire economics profession. This point is absolutely fundamental in understanding regulatory reform. Economists might be very smart and they may have prestigious degrees from top universities, but this crisis shows that most are incapable of independent thought. If they were, then they could not have possibly missed an $8 trillion housing bubble.

In a profession where everyone defers to authority, having more regulatory bodies with their own team of economists doesn’t provide a check on the Fed or anyone else. It just means that more taxpayer dollars will be wasted on economists who will all say the same thing.

That is why the most important regulatory reform is to fire the regulators who were out to lunch – starting with Ben Bernanke – thereby allowing this economic disaster. If we don’t fire the people that blew it, then we give the regulators no incentive to get it right next time. This is what basic economics tells us.

In short, we have a case where the fire department showed up at the burning school and then just went home. It may be the case that the equipment was old, but they still could have put out the fire if they had tried. It’s a good idea to get new equipment, but if the firefighters are not prepared to actually put out the fire, this effort will have been pointless. That appears to be the story of financial reform thus far.

Obama's 'Nuclear Option' on China's Yuan

Dean Baker

Dean Baker
Christian Science Monitor, November 16, 2009

See article on original website

As a candidate, Barack Obama said he would "insist that China stop manipulating its currency because it's not fair to American manufacturers." As president, Mr. Obama could have fulfilled that campaign pledge well before his visit to China this week.

But swaying China's yuan is easier said than done.

For years, Bush officials accused China of "manipulating" its currency by keeping the value of the yuan down against the dollar. They made little progress.

A cheap yuan lowers the cost of Chinese goods in the United States, while raising the price of US goods in China. In short, it's a major cause of the huge US trade deficit with China.

China desires to keep the yuan pegged to the US dollar at a low value because it believes this is the best way to boost Chinese manufacturing and create millions of job. Such domestic concerns explain why Beijing largely rebuffed efforts by the Bush administration, and now the Obama administration, to raise the value of its currency.

How could Obama break the impasse?

The first step is to get clarity on the problem.

First, there is no issue of "manipulation" with China's currency. The Chinese government is not sneaking around in the middle of the night trying to influence currency prices. China has an official exchange rate that puts the value of its currency well below the market exchange rate. This official exchange rate is widely publicized. We don't have to catch them acting improperly in the dark; anyone can just look in the paper or call the Chinese embassy to ask what the exchange rate target is.

Second, the US doesn't have to "pressure" China to boost the yuan. Contrary to what you may have read in the paper, Washington is not helpless in this story.

Just as China can set a value of its currency against the dollar, the US government can set a value of the dollar against the yuan. The Chinese government currently supports an exchange rate at which the dollar can buy 6.8 yuan. This high value of the dollar makes US goods uncompetitive relative to China's. To make US goods more competitive, the US could adopt a policy through which it will sell dollars at a much lower price, say 4.5 yuan.

The difference in exchange rates would provide an enormous incentive for Chinese businesses and individuals to exchange their yuan at the Treasury rate rather than the official Chinese rate. While this may violate Chinese law, the enormous potential profits would make the law difficult to enforce. In a relatively short period of time, the US exchange rate is likely to become the effective market exchange rate.

Of course, this situation of warring exchange rates would lead to a period of instability and unnecessary hostility between the two countries. However, it would send an important signal that the US government is in control of its dollar destiny: Washington has the ability any time it chooses to push the dollar down to a more reasonable level against the yuan.

Such a bold move carries a price. Short-term negatives of a lower-valued dollar include higher import prices, which translates to higher inflation and somewhat lower living standards. Politically, it may be difficult for Washington to intentionally overpay for China's currency at a time of high unemployment, even if the goal is to boost jobs at home.

The financial industry might oppose this step since a strong dollar makes it a more important actor in world capital markets. The industry also opposes anything that could lead to more inflation, even if this is a necessary step toward rebuilding America's manufacturing sector.

If the Obama administration was prepared to accept the short-term consequences and confront the financial industry, then it could let the Chinese government know that it was serious in wanting a lower value for the dollar against the yuan. It could even specify a date at which it was prepared to start offering to sell dollars at a lower price than the official Chinese exchange rate.

This would presumably set in motion a process of negotiation whereby China would agree to raise the value of its currency over a period of time against the dollar. Eventually, this would bring our trade deficit down to a manageable level. However, the key to getting to such a point is understanding that the United States is not helpless in determining the value of its own currency.

Issues in Trade and Protectionism

Dean Baker

November 2009, Dean Baker

There is widespread concern that the United States and the rest of the world are descending into a round of protectionism and a trade war reminiscent of what the world experienced in the Great Depression. Such concerns are both overblown and misplaced. In the short term, the main concern in the United States and rest of the world should be to promote an increase in demand through whatever means necessary. For the longer term, there has been an excessive fixation on protection for merchandise trade. Other areas, most notably alternative intellectual property regimes and freer trade in highly paid professional services, offer much larger potential gains than further reductions in barriers to trade in goods.

Report - PDF

Congressional Oversight Panel to Hear from Independent Experts about TARP's Effectiveness

Kris Warner

November 19, 2009

Congressional Oversight Panel to Hear from Independent Experts about TARP's Effectiveness

On Thursday, November 19, the Congressional Oversight Panel will hold a hearing entitled "Taking Stock: Independent Views on TARP's Effectiveness." The Panel will hear from several prominent economists, including CEPR Co-Director Dean Baker, about their perspectives on the performance to date of the Troubled Asset Relief Program (TARP).

Congressional Oversight Panel to Hear from Independent Experts about TARP's Effectiveness

November 19, 2009
9:30 a.m.
138 Dirksen Senate Office Building
Washington, D.C.

On Thursday, November 19, the Congressional Oversight Panel will hold a hearing entitled "Taking Stock: Independent Views on TARP's Effectiveness." The Panel will hear from several prominent economists about their perspectives on the performance to date of the Troubled Asset Relief Program (TARP).

The Panel is currently scheduled to hear from the following witnesses:

Dean Baker, Co-Director, Center for Economic and Policy Research

Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia Business School

Simon Johnson, Professor of Global Economics and Management, MIT Sloan School of Management, and Senior Fellow, Peterson Institute for International Economics

Alex Pollock, Resident Fellow, American Enterprise Institute

Mark Zandi, Chief Economist and Cofounder, Moody's Economy.com

Congress created the Congressional Oversight Panel to oversee the $700 billion Troubled Asset Relief Program. In carrying out its responsibilities under the Emergency Economic Stabilization Act of 2008, the Panel has published 12 monthly reports, two special reports, and held 13 hearings on a wide range of TARP and related financial stabilization initiatives.

This hearing will provide a better understanding of the Administration's financial stabilization efforts, and it will inform the Panel's December report reviewing TARP's performance to date.

The hearing is open to press and public and will be webcast on the Panel's website at www.cop.senate.gov. Individuals with disabilities who require an auxiliary aid or service, including closed captioning service for webcast hearings, should contact the Panel's staff at 202-224-9957 at least two business days in advance of the hearing date.

Hostage Takers in the Senate

Dean Baker

Dean Baker
Truthout, November 16, 2009

See article on original website

As most of us are preparing for the holidays, a small clique in the Senate, with their collaborators in the Washington punditry, are planning for a dramatic hostage-taking event. Their target of opportunity is a bill to increase the nation’s debt limit. The hostage takers propose to obstruct the bill’s passage unless the rest of the country gives into their demands to cut Social Security and Medicare and takes other steps to meet their warped sense of fiscal responsibility.

The debt limit must be increased at regular intervals in order to allow the government to function normally because the government is currently operating at a deficit. If the debt limit is not passed, then at some point the government will not be able to pay workers and contractors. It won’t be able to send out Social Security checks or make payments for Medicaid and unemployment insurance to state governments. And it will not be able to make interest payments on government bonds, effectively defaulting on the national debt.

As a condition of allowing a bill to increase the debt limit to pass the Senate, the hostage takers are demanding that Congress agree to establish a special commission to make recommendations for reducing the long-term budget deficit. This commission would be stacked with people who want to cut Social Security and Medicare.

When the commission makes its report to Congress, which would include huge cuts for these programs along with some tax increases, the report would not be subject to regular congressional procedures. It would be fast-tracked; which means that it could not be amended, debate would be limited, and there would not be the usual 60 votes required to bring the report to a vote in the Senate. In short, the deck would be stacked toward approving large cuts in ways that would not ordinarily be the case.

The hostage takers argue that such a commission is necessary because the current system is broken. This is another way of saying that the hostage takers have been unable to get what they want through the normal democratic process. Rather than trying to organize popular support for their position, like people pushing for health care reform, restrictions on greenhouse gas emissions, or an end to the wars in Iraq and Afghanistan, this group of Senators and their collaborators prefer the route of hostage taking. They hope that by threatening the passage of a vital bill, they can advance measures for which they lack public support.

This adventure in hostage taking is especially infuriating since this gang did so much to push the country into its current economic crisis. At a time when some of us were trying to warn of the housing bubble and the economic disaster that would inevitably follow in the wake of its collapse, this crew was filling the airwaves and newspapers with their scare stories of huge deficits in 2050. Of course these deficits were driven almost entirely by the cost of maintaining a broken health care system, a point that they rarely chose to highlight.

As a result of the bubble and its collapse, we have enormous deficits today, in addition to 15 million unemployed and tens of millions of homeowners underwater in their mortgage. But the hostage takers act as though nothing as changed. They acknowledge no responsibility for this disaster and just press on in their drive to gut Social Security and Medicare, two programs that are now more important than ever as a result of the economic mismanagement of the last decade.

The key here is to refuse to give in to the hostage takers. This is a high stakes game of chicken, but at the end of the day the hostage takers, many of whom are financed by Wall Street money, stand to lose far more than the rest of us. None of us should want to see the government defaulting on its debt, but if this crew wants to press the matter, the Wall Street gang will lose much more than those of us who don’t possess great wealth.

The Wall Street gang may have suckered us with getting the TARP bailout money last year, but we don’t have to let them get away with the same trick again. If they want to threaten to crash the financial system with their irresponsible hostage taking then we should steal a line from a former president; “bring it on!”

U.S. Must Solve Its Own Economic Problems

Mark Weisbrot

Mark Weisbrot
The Guardian Unlimited, November 12, 2009

See article on original website

President Obama will go to Asia next week and has promised to say something about the exchange rate between the Chinese yuan and the U.S. dollar. It would be good if some enterprising journalist asked him why the United States is worried about the Chinese dumping their dollars, and why U.S. Treasury Secretary Tim Geithner recently said that the United States is committed to a “strong dollar.” As a matter of accounting, a “strong dollar” is the same as an “undervalued yuan.” So it makes no sense to be worried about the great “power” that the Chinese are holding over us -- that they can dump a few hundred billion dollars of their reserve holdings and cause the dollar to fall.

A fall in the dollar would be just what Obama and others are asking for when they ask the Chinese to allow their own currency to rise. This would stimulate the U.S. economy by reducing our trade deficit. It is also just what we need to resolve the long-term problem that our trade deficit represents. Although the U.S. trade deficit has been cut in half during the current recession, it will once again swell as the economy recovers unless the dollar is reduced to a more competitive level and stays there.

The manufacturing sector of the United States, including the National Association of Manufacturers and some union leaders, understand this very well. But they have relatively little political clout. The interests that dominate economic policy-making in the United States are mainly in the financial sector, as we can see by the hundreds of billions of dollars of no-strings-attached government subsidies they have gotten in this recession; and the $21 billion in executive compensation that will be paid out by Goldman-Sachs, which is particularly well represented in our government. A strong dollar is good for them because it makes anything they want to buy overseas cheaper, and of course it lowers inflation by keeping imports cheaper. The more than five million manufacturing jobs lost over the last decade are just “collateral damage” for them.

Since this conflict of interest between Wall Street and the rest of the country has been resolved in favor of the guys with the big bonuses, what we end up with is a spectacle of scapegoating. It is cheap and easy to blame the Chinese for the overvalued U.S. dollar (which is official U.S. policy) and the U.S. trade deficit. While it is true that the Chinese could allow their currency to rise against the dollar, it is also true that the United States Treasury has the ability to influence the international value of our own currency – just like China and many other countries do. Although the Chinese currency is not freely convertible, our government could push down the dollar against other major currencies, which would generate more pressure on the Chinese currency. It is also worth noting, as World Bank Chief Economist Lin Yifu pointed out this week, that only about one-third of the U.S. trade deficit for the years 1990-2007 is with China.

With respect to the Chinese holdings of dollar-denominated assets, China is holding a lot of longer-term U.S. government bonds (e.g. U.S. ten-year treasuries). If the Chinese government were to sell off a lot of these, it would drive up long-term interest rates in the U.S. Since our mortgage rates and other long-term lending rates tend to move with long-term Treasuries, this could obviously have a negative impact on the U.S. economy.

But it must be emphasized that this is a different issue from the dollar falling. Is this threat of a Chinese sell-off of longer-term U.S. treasuries something that we should worry about? Not really. First, the Chinese government does not want to hurt the U.S. economy, which still absorbs about 20 percent of Chinese exports. One reason that they have accumulated long-term Treasuries was to help push down long-term rates in the U.S., to support growth and demand for their exports during the 2001-2007 expansion in the U.S. (Some economists have even tried to blame the Chinese for the housing bubble, since these purchases helped push mortgage rates down during the bubble years. But the housing bubble was, even more than the overvalued dollar, a result of deliberate U.S. policy.) Second, the Fed can counter-act unwanted increases in long-term treasury and mortgage rates, as it has already done during this recession.

Deficit hawks and other fear-mongers in the U.S. have also used the Chinese accumulation of U.S. debt as another weapon to try and persuade people that we must sacrifice growth and employment during a deep recession, in order to avoid further debt accumulation. This too, is a dangerous misconception. Unfortunately our economic problems are made in the United States, and it is here in Washington that they will need to be fixed.

Asian Pacific American Workers Among the Fastest Growing Groups in the Union Workforce

Alan Barber

November 12, 2009

Benefits and wage gains from unionization large by any measure.

For Immediate Release: November 12, 2009
Contact: Alan Barber, 202-293-5380 x115

WASHINGTON, D.C. - A new report by the Center for Economic and Policy Research (CEPR) documents a large wage and benefit advantage for Asian Pacific American (APA) workers in unions, relative to their non-union counterparts.

The report, "Unions and Upward Mobility for APA Workers," analyzes data from the Census Bureau's Current Population Survey (CPS) from the period 2003-2007 to reveal a number of advantages of unionization for APA workers.

"As a share of the union workforce, only Latinos are growing at a rate faster than Asian Pacific Americans,” said Nicole Woo, Director of Domestic Policy at CEPR and an author of the report. “While this is reflective of workforce trends in general, the data show that joining a union makes a big difference in the wages and benefits of APA workers."

The report finds that unionization raises the pay of APA workers by about $2.00 per hour. APA workers are 19 percentage points more likely to have employer-provided health insurance and 25 percentage points more likely to have an employer-provided pension plan than their non-union counterparts.

Among the other findings in the study:

about 12.5 percent of Asian Pacific American workers were in a union or represented by a union at their workplace
almost half (48.5 percent) of APA workers in unions were women
in 2003-2007, on average, two-thirds (66.1 percent) of unionized APA workers were immigrants
Nearly half (49.7 percent) of unionized APA workers had a four year college degree or more
more than four-in-ten (43.2 percent) unionized APA workers were in the public sector
unionized APA workers are heavily concentrated in several states, with about six-of-ten (60.0 percent) in the Pacific states and about four-in-ten (40.5 percent) in California alone

The full analysis can be found here.

Unions and Upward Mobility for Asian Pacific American Workers

John Schmitt, Hye Jin Rho, and Nicole Woo

November 2009, John Schmitt, Hye Jin Rho, and Nicole Woo

Asian Pacific American (APA) workers are, with Latinos, the fastest growing group in the U.S. workforce and in organized labor. Since the late 1980s, APA workers have seen their representation in the ranks of U.S. unions almost double, from about 2.5 percent of all union workers in 1989 to about 4.6 percent in 2008.

This report uses national data from the Current Population Survey (CPS) to show that unionization raises the wages of the typical APA worker by 9 percent compared to their non-union peers. The study goes on to show that unionization also increases the likelihood that an APA worker will have health insurance and a pension.

Report - PDF

Breaking up the Banks, Like Renegotiating NAFTA?

Dean Baker

Dean Baker
TPM Café, November 10, 2009

See article on original website

Remember way back in 2008 when the three leading contenders for the Democratic presidential nomination all argued in favor of renegotiating NAFTA? We don't hear much talk about renegotiating NAFTA these days, even though one of the three leading contenders now sits in the White House.

NAFTA is not very popular, so coming out against it sells well with the electorate, especially among people who vote in Democratic primaries. However, the people who vote in Democratic primaries are not deciding trade policy, so it does not look like NAFTA is going to be renegotiated. There is a similar feel to the discussion of new banking rules where everyone is committed to dismantling "too big to fail" institutions.

The basic point is that we have a number of huge banks - Goldman Sachs, J.P. Morgan, Citigroup, Bank of America, Wells Fargo, and Morgan Stanley top everyone's list - that everyone knows cannot fail. If these banks make bad bets and end up effectively bankrupt (as was the case last fall for Citigroup and Bank of America), the government will step in and bail them out.

This means that lenders don't have to worry about whether these banks are good credit risks, because they know that the federal government will guarantee their credit. This is a huge subsidy to these banks since it allows them to borrow at a lower cost than their competitors. I calculated that the value of this subsidy may be as much as $34 billion a year.

While everyone agrees that taxpayers should not be subsidizing these financial behemoths, it is not clear that any of the reform proposals will actually address the problem. Needless to say, Goldman Sachs, J.P. Morgan and the rest are incredibly well connected politically. For this reason, it is hard not to feel like we are hearing promises to renegotiate NAFTA. When this round of financial reform is over and done with, in all probability Goldman Sachs, J.P. Morgan and the rest will likely still be standing there, looking pretty much the same as they do now. And the rest of us will still be waiting for NAFTA to be renegotiated.

Demographics of the Labor Movement Shift Considerably over the Past 25 Years

Alan Barber

November 10, 2009

Almost half of union workers are women; women, Latinos, and Asians biggest gainers; only one-in-ten union jobs in manufacturing.

For Immediate Release: November 10, 2009
Contact: Alan Barber (202) 293-5380 x115

Washington, D.C.- Over the past 25 years, the face of the labor movement has undergone considerable change, according to a new report released today by CEPR.

"The view that the typical union worker is a white male manufacturing worker may have been correct a quarter of a century ago, but it’s not an accurate description of those in today’s labor movement," said John Schmitt, a Senior Economist with CEPR and an author of the report.

The report, “The Changing Face of Labor, 1983-2008,” analyzes trends in the union workforce over the last quarter century and finds that the it is more diverse today than just 25 years ago. These trends in the composition of the unionized workforce, in part, reflect similar shifts in the workforce as a whole.

"The unionized workforce is changing with the country,” Schmitt continued. “The fastest growing groups in the overall economy are also the fastest growing groups in the labor movement."

The findings of the report reveal this and other shifts in union composition. Among them:

Women now make up over 45 percent of unionized workers, up from just 35 percent in 1983. By 2020, women will be the majority of union workers.
Latinos are the fastest growing ethnic group in the labor movement. In 2008, they represented 12.2 percent of the union workforce, up from 5.8 percent in 1983.
Asians have seen considerable gains and made up 4.6 percent of the union workforce in 2008, an increase from 2.5 percent in 1989.
Black workers were about 13 percent of the total unionized workforce, a share that has held fairly steady since 1983, despite a large decline in the representation of whites over the same period.
Over one-third of union workers had a four-year college degree or more, up from only one-in-five in 1983. Almost half of union women had at least a four-year college degree.
Only about one-in-ten unionized workers was in manufacturing, down from almost 30 percent in 1983.
Just under half (48.9 percent) of unionized workers were in the public sector, up from just over one-third (34.4 percent) in 1983. About 61 percent of unionized women are in the public sector.
The typical union worker was 45 years old, or about 7 years older than in 1983. (The typical employee, regardless of union status, was 41 years old, also about 7 years older than in 1983.)
More educated workers were more likely to be unionized than less educated workers, a reversal from 25 years ago.
Immigrants made up 12.6 percent of union workers in 2008, up from 8.4 percent in 1994.
In rough terms, five-in-ten union workers were in the public sector; one of every ten was in manufacturing; and the remaining four of ten were in the private sector outside of manufacturing.

The full study can be found here.

###

New Report Looks at Honduran Economy Before and Since the Coup

Dan Beeton

November 9, 2009

Paper Finds Considerable Challenges to Honduran Economic Recovery Without a Solution to the Political Crisis

For Immediate Release: November 9, 2009
Contact: Dan Beeton, 202-239-1460

Washington, D.C. - The Center for Economic and Policy Research released a new report on the Honduran economy today. The report finds that the economy has become especially vulnerable to the combined impacts of the world recession and the political crisis that has followed the military coup of June 28th.

"The whole region (Central America) has been hit by the U.S. recession," said Mark Weisbrot, Co-Director of CEPR. "But things have worsened in Honduras since the coup in June and it is difficult to see how the economy will recover without a solution to the political crisis."

The paper, "Honduras: Recent Economic Performance," by Senior Economist Jose Antonio Cordero, looks at longer-term trends as well as the pre-crisis years. It finds that poverty and inequality decreased significantly during the administration of President Manuel Zelaya, with rapid growth of more than 6 percent for the first two years. The government also increased school enrollment significantly by abolishing school fees, expanded school lunch programs, and raised the minimum wage by 60 percent, drawing fierce opposition from employers and business groups.

In 2008, the government used expansionary monetary policy to counteract the effects of the global credit crunch and recession.

Since the coup, the Central Bank has lost about 18.4 percent of its international reserves and cannot access the extra reserves that the International Monetary Fund (IMF) has provided to all member countries, because of the coup regime's lack of international legality. The economy is expected to shrink by 2.6 percent this year, and forecasts have been recently revised further downward.

The Honduran economy is also enormously dependent on remittances, which peaked at more than 21 percent of GDP in 2006. The continuing decline in this source of income and foreign exchange will also hurt the Honduran economy.

###

The Changing Face of Labor, 1983-2008

John Schmitt and Kris Warner

November 2009, John Schmitt and Kris Warner

Over the last quarter century, the unionized workforce has changed dramatically, according to this new CEPR report. In 2008, union workers reflected trends in the workforce as a whole toward a greater share of women, Latinos, Asian Pacific Americans, older, more-educated workers, and a shift out of manufacturing toward services.

"The view that the typical union worker is a white male manufacturing worker may have been correct a quarter of a century ago, but it’s not an accurate description of those in today’s labor movement," said John Schmitt, a CEPR Senior Economist and an author of the report.

Report - PDF

Summary

Also see:
The Benefits of Unionization
Unions and Upward Mobility for Asian Pacific American Workers

Massive Defense Spending Leads to Job Loss

Dean Baker

Dean Baker
Truthout, November 10, 2009

See article on original website

There is a major national ad campaign, funded by the oil industry and other usual suspects, to convince the public that measures to reduce greenhouse gas emissions (GHG) and slow global warming will result in massive job loss. This ad campaign warns of slower growth and the loss of hundreds of thousands of jobs, possibly even millions of jobs, if some variation of the current proposals being debated by Congress get passed into law.

In fact, standard economic models do show that measures designed to reduce GHG by raising energy prices will lead to some cost in terms of slower economic growth. And slower economic growth implies fewer jobs, although the impact will almost certainly be less than indicated in these scare stories.

However, the oil industry’s scare stories about job loss are never put it in any context. In these models, any government measure that interferes with market outcomes almost by definition reduces efficiency, leading to less economic growth and fewer jobs. Efforts to slow global warming fall in this category, but so does almost everything else and many items in the everything else category have a much larger impact.

For example, defense spending means that the government is pulling away resources from the uses determined by the market and instead using them to buy weapons and supplies and to pay for soldiers and other military personnel. In standard economic models, defense spending is a direct drain on the economy, reducing efficiency, slowing growth and costing jobs.

A few years ago, the Center for Economic and Policy Research commissioned Global Insight, one of the leading economic modeling firms, to project the impact of a sustained increase in defense spending equal to 1.0 percentage point of GDP. This was roughly equal to the cost of the Iraq War.

Global Insight’s model projected that after 20 years the economy would be about 0.6 percentage points smaller as a result of the additional defense spending. Slower growth would imply a loss of almost 700,000 jobs compared to a situation in which defense spending had not been increased. Construction and manufacturing were especially big job losers in the projections, losing 210,000 and 90,000 jobs, respectively.

The scenario we asked Global Insight to model turned out to have vastly underestimated the increase in defense spending associated with current policy. In the most recent quarter, defense spending was equal to 5.6 percent of GDP. By comparison, before the September 11th attacks, the Congressional Budget Office projected that defense spending in 2009 would be equal to just 2.4 percent of GDP. Our post-September 11th build-up was equal to 3.2 percentage points of GDP compared to the pre-attack baseline. This means that the Global Insight projections of job loss are far too low.

The impact of higher spending will not be directly proportionate in these economic models. In fact, it should be somewhat more than proportionate, but if we just multiple the Global Insight projections by 3, we would see that the long-term impact of our increased defense spending will be a reduction in GDP of 1.8 percentage points. This would correspond to roughly $250 billion in the current economy, or about $800 in lost output for every person in the country.

The projected job loss from this increase in defense spending would be close to 2 million. In other words, the standard economic models that project job loss from efforts to stem global warming also project that the increase in defense spending since 2000 will cost the economy close to 2 million jobs in the long run.

For some reason, no one has chosen to highlight the job loss associated with higher defense spending. In fact, the job loss attributable to defense spending has probably never been mentioned in a single news story in the New York Times, Washington Post, National Public Radio, or any other major media outlet. It is difficult to find a good explanation for this omission.

If we want to have a serious discussion of the economic impact of efforts to reduce greenhouse gases then the economic impact must be put in context. We know that the oil industry is interested in preserving its profits, not informing voters. However, if the media discuss projections of job loss from efforts to contain global warming without putting them in any context, then the public would be right to question their motives as well.

Financial Transactions Taxes Must Come Before a National Sales Tax

Dean Baker

Dean Baker
The Guardian Unlimited, November 9, 2009

See article on original website

The deficit hawk crew, famous for missing the $8 trillion housing bubble that wrecked the economy, is now on the warpath pressing the case for a big new national sales tax. They claim that the country badly needs additional revenue to address projected budget shortfalls.

While we may need additional revenue at some point, it makes far more sense to impose a financial transactions tax (FTT), which would primarily hit the Wall Street banks that gave us this disaster, than to tax the consumption of ordinary working families. We can raise large amounts of money by taxing the speculation of the Wall Street high-flyers while barely affecting the sort of financial dealings that most of us do in our daily lives.

The logic of an FTT is simple. It would impose a modest fee on trades of stocks, futures, credit default swaps, and other financial instruments. The United Kingdom currently puts a 0.25 percent tax on the sale or purchase of shares of stock. This has very little impact on people who buy stock with the intent of holding it for a long period of time.

For example, if someone buys $10,000 of stock, they will pay $25 in tax at the time of purchase. If they sell the stock ten years later for $20,000 then they will have to pay $50 in tax. The total tax would be equivalent to an increase of 0.8 percentage points in the capital gains tax.

By contrast, if someone is interested in buying stock at 1:00 to sell at 2:00, this tax is likely to take a bit hit out of their expected profits. The same applies to people who are speculating in futures, credit default swaps, and other financial instruments.

We can raise more than $140 billion a year taxing financial transactions, an amount equal to 1 percent of GDP. Before we look to impose a national sales tax, or value-added tax, as the deficit hawk crew would like, we should insist that we first put in place a set of financial transactions taxes.

A national sales tax will primarily hit the consumption of ordinary workers. People will pay for it in all of their everyday purchases – food, clothing, medicine – everything will cost a bit more as a result of a sales tax. Poor and middle-income people will end up paying a larger share of their income in this tax. This is both because they spend a larger share of their income than the wealthy and also because they spend a larger share in the United States. While the wealthy may have the opportunity to travel extensively in Europe or in countries not affected by the national sales tax, few low or middle-income people will have this option. They live and spend their money in the United States.

Since the financial sector is the source of the country’s current economic and budget problems, it also makes sense to have this sector bear the brunt of any new taxes that may be needed. The economic collapse caused by Wall Street’s irrational exuberance has led to a huge increase in the country's debt burden. It seems only fair that Wall Street bear the brunt of the clean-up costs. An FTT is the way to make sure that this happens.

In short, we have to tell the deficit hawk crew, many of whom earned their fortune on Wall Street, to slow down. The country does face serious budget problems, even if they may not be as bad as this crew claims. However, if we need taxes to address a budget shortfall, then Wall Street is the place to start. After we have put in place a tax on Wall Street speculation, if we still need additional money, we can talk about a tax that will primarily affect the middle class.