Reports from the Economic Front

Oregon faces a severe fiscal crisis.  In short, the state is just not taking in enough money to fund all the services needed by people.  In response the 2009 Legislature passed two measures (66 and 67) that will raise $733 million in new revenue in the 2009-11 biennium.  While not a solution to the crisis, this extra money will help reduce cuts in spending on education, health and public safety.  These measures also help produce a more equitable tax structure.

In brief, Measure 66 raises taxes on high income Oregonians—couples earning over $250,000 a year and individuals earning over $125,000 a year.  Measure 67 raises taxes on profitable corporations. (More details on both measures here).

Perhaps not surprisingly, there are those that oppose any tax changes, even ones as important, needed, and justifiable as these.  They succeeded in putting these measures on the January ballot, hoping to get voters to reject them.

One of their arguments is that the tax increases are unfair.  But really what is unfair is the unbalanced nature of our existing tax system (see table below).  For example, as the Oregon Center for Public Policy explains:

Today, low-income Oregonians pay a larger share of their income in state and local taxes than wealthy Oregonians. In fact, the highest-income Oregonians pay the lowest share of their income in state and local taxes. . . . After accounting for the deduction of state income taxes on federal tax returns, the lowest-income Oregonians currently pay 8.7 percent of their income in taxes, the highest share among all income groups. Middle-income Oregonians pay 7.9 percent. The wealthiest 1 percent — households with income in excess of $410,000 and averaging over $1 million — pay only 6.1 percent of their income toward state and local taxes.

The passage of Measure 66 will help move things in a more equitable direction:

The lowest-income Oregonians will still pay the same 8.7 percent of their income in state and local taxes, but the share will increase for those at the highest levels of the income scale. For the wealthiest 1 percent, for example, state and local taxes will increase from 6.1 to 6.6 percent of their income. For the next highest 4 percent of taxpayers, taxes will increase from 7.0 to 7.1 percent of income. These slight changes for those at the top 5 percent of the income scale constitute a small but important step toward making our tax system better based on ability to pay.

Other opponents are calling these measures “job-killer tax increases,” especially Measure 67.  The recently established Oregonians Against Job-Killing Taxes (OAJKT) argues that “Oregon government doesn’t even need the new taxes. They already have the money sitting in bank accounts.”  Their website says that if the measures are defeated “no services have to suffer.”

In a recent Oregonian column, Steve Duin examines those behind the OAJKT effort to overturn Measures 66 and 67.  He concludes as follows:

As Chuck Sheketoff at the Oregon Center for Public Policy noted, these riffs are necessary because only 3 percent of Oregonians will pay higher taxes if Measures 66 and 67 pass. . . .

Tis the season. I’ll end with this. The OAJKT website insists that “the most damaging” tax increase for business would require that a C-corporation with $25 million-$50 million in Oregon sales will now pay a gross sales tax of $30,000.

That’s all? Less than one-tenth of 1 percent? For many companies that, for years, have paid the $10 minimum? Who in the world considers that unreasonable?

A number of economists teaching and working in Oregon have recently published a statement in defense of Measures 66 and 67.   You can read it here.

A new product is about to hit the market—well not really.  Called B’eau Pal water, it is designed to remind us of the Bhopal disaster.  As the Yes Men, promoters of the new product, explain:

The launch of “B’eau-Pal” water came as Bhopal prepares to mark the 25th anniversary of the Bhopal catastrophe, and coincides with the release of an official report by the Sambhavna Trust showing that local groundwater, vegetables, and breast milk are contaminated by toxic quantities of nickel, chromium, mercury, lead, and volatile organic compounds. The report describes how a majority of children in one nearby community are born with serious medical problems traceable to the contamination.

Beyond the tragic humor, the Yes Men’s activities teach an important lesson about capitalism.  As explained by Foreign Policy in Focus:

The bottle looks beautiful. It sports an old-fashioned spring-top stopper. The red, diamond-shaped label features an elegant font. From a distance, the silhouetted landscape on the label looks exotic. It is, like all fine gourmet water, “bottled at source.” Even the French name of the water suggests elegance: B’eau Pal.

But wait: B’eau Pal? That sounds rather familiar. You look at the label more carefully. The top of the label reads: “25 years of pollution.” The picture on the label isn’t an exotic location after all. It’s…the Union Carbide plant in Bhopal, India that poisoned a half a million people and killed thousands back in 1984 when it accidentally released tons of methyl isocyanate.

B’eau Pal is the work of the Yes Men, the dynamic duo of disinformation. Five years ago, one of the pair, Andy Bichlbaum, appeared on BBC as a spokesman for Dow Chemical, which now owns Union Carbide, to announce that his company would provide $12 billion in medical care for the 120,000 victims of the Bhopal calamity and fully clean up the site. Dow lost $2 billion in market value in 20 minutes. That’s how long it took before the hoax was exposed.

“We demonstrated what would happen if Dow did do the right thing in Bhopal,” Bichlbaum told Foreign Policy In Focus (FPIF) senior analyst Mark Engler in Pranksters Fixing the World. “What happened? The stock market punished Dow. And if it had really happened, the stock market would have kept punishing Dow. The guy who made the decision would have lost his job. Or he would have been sued by the shareholders, which happens.”

The Yes Men’s point: The heads of major corporations won’t suddenly do the right thing even if someone - somehow, somewhere, some day - manages to reveal to them the errors of their ways. Now five years later, Dow blathers on about the importance of clean water even as it does nothing for the residents of Bhopal, who are suffering from a drought. To catch the attention of all those who have forgotten about Bhopal - virtually everyone except the people of Bhopal and a handful of dedicated activists - the Yes Men created B’eau Pal, a critique wrapped in a jest and shrouded in faux-corporate hype.

It is often hard to know how our fellow Oregonians are doing — for a good look check out “Survey shows how recession has hit Oregon households” by Richard Read in The Oregonian, September 17, 2009.

The articles makes clear that there is a lot of suffering going on in Oregon, even more than in the nation as a whole.  Some highlights:

• “Almost a third of Oregonians polled recently say they or a family member in their household have been laid off or lost a job in the past year.”

• “Forty-one percent say they or a family member at home have had work hours cut during the recession. Nearly a third have housed a family member or friend because of money.”

• “In other responses, 40 percent of Oregonians interviewed say they worry all or most of the time that their total family income will not be enough to meet expenses. That’s 6 percentage points higher than nationally and 9 points higher than last year, when the question was asked in Oregon during a similar survey.”

• “More than a quarter of Oregonians say they or a household member have had problems paying for necessities such as mortgage, rent, heating or food during the past 12 months. Fifty-six percent say that if they were suddenly unable to pay for necessities, they wouldn’t know where to go for help from the government or a charity.”

The myth of US superiority remains strong.  No need to make structural changes in our system or learn from others.  We enjoy the very best of everything–the envy of the world.  Well, not according to the data in the 2009 edition of the OECD’s Social Indicators.

Doug Henwood, editor of Left Business Observer, sums up the data as follows:

The general picture of the social and physical health of the U.S. isn’t pretty. In a summary table at the beginning of the volume, countries are rated with a red, yellow, or green symbol, depending on whether they fall in the bottom, middle, or top of the rankings on eight crucial indicators. The U.S. scores a yellow on six (among them employment, reading skills, the gender wage gap, and life expectancy), and a red on two (inequality and infant mortality). But we are near the top in income.  Far poorer countries, like Hungary and the Czech Republic, do a lot better than this imperial colossus. Maybe it’s not so bad to have a Commie past.  And not only does the U.S. turn in an awful performance—we’ve been getting worse on six of the eight.

To see a more in-depth examination of some of the indicators, complete with charts highlighting the relative performance of the US visit THIS PAGE.

Who are the uninsured?  According to the results of a June 2009 Gallup survey,  as reported by the New York Times, 16% of the US adult population have no health insurance. More specifically, as the chart below highlights, Hispanics, the poor, and the young are most at risk of being uninsured.

OK class—last time we discussed the need for health care reform.  Now we are going to have a lesson on the politics of health care reform.

Click HERE for a chart that shows (1) how much money every US senator, by state, received from HMOs and the health insurance industry last election cycle and (2) the state by state growing gap between health care premiums and median wages over the period 2000-2007.

There are even review questions to make sure that you are paying attention!

How good is the US health care system?  Here is what the conservative British Economist magazine recently had to say:

America’s health-care system is the costliest in the world, gobbling up about 16% of the country’s economic output. Comparisons with other rich countries and within the United States show that its system is not only growing at an unsustainable pace, but also provides questionable value for money and dubious medical care.

And some people wonder whether we really need major reform?

The market has had its chance, producing high costs and low value for the great majority (although high profits for a powerful minority).  It is time for single payer.

It is getting harder to sell the “recovery right around the corner” story.  I have been stressing the structural nature of current problems because there is a lot riding on our understanding of what is happening.  If we remain passive, hoping that existing policy is sufficient to nurture the alleged “green shoots” of recovery, we are likely to end up with an economy largely unchanged from the past.  That outcome, while attractive to the few with power and wealth, largely guarantees a future of steadily worsening living and working conditions for the great majority.

So, how bad are things?  As the Financial Post describes:

The U.S. economy has lost the equivalent of every job created in the past nine years.  All job growth since the final year of the dot-com bubble, its recovery from the bust, and the ensuing six years of consumer-driven boom is now gone, leading some economists to fear an outright decline in wages will be next. Others believe the United States is on track for a painful “jobless recovery.”

“This is the only recession since the Great Depression to wipe out all jobs growth from the previous business cycle, a testament both to the enormity of the current crisis and to the extreme weakness of jobs growth over the business cycle from 2000 to 2007,” said Heidi Shierholz, an economist at Washington-based think tank The Economic Policy Institute. . . .

Since the recession began in December 2007, the jobs market has shrunk by 6.5 million positions, pushing the unemployment rate up 4.6 percentage points to 9.5% — the highest rate since 1981. Nine million part-time workers are in want of full-time jobs, and a record 29% of unemployed have been jobless for more than six months. . . .

The employment market’s problems do not end at job losses. Earnings are under pressure. Average hourly earnings rose an annualized 0.7% in the past three months — the smallest gain since records began in 1964. The annual change in hourly earnings slipped to a rise of 2.7% from 3% the previous month.  “Wages will soon be falling outright, a classic deflation signal,” said Ian Shepherdson, the chief U.S. economist at High Frequency Economics.

Compounding problems, average hours worked fell further in June to be down 0.8% to a cyclical low of 33 hours a week. The average workweek has shrunk 8.2% since the start of the recession, placing added pressure on household cash flows. It also means employers will be slow to hire because there is ample room to increase work hours.

The administration needs to be pushed to take much stronger action—its modest stimulus program is not enough to reverse downward pressures and, once its effects dissipate, those pressures are likely to intensify—this could be 1937 all over again.

We need real structural change—in how work is organized and compensated, in how social programs are financed and delivered, and in how the economy is organized and directed.

The media is making a determined effort to present the Chrysler bailout as a real boon for UAW members even if it means playing fast and lose with the facts.

For example, we are told that the UAW will own 55% of the new Fiat-Chrysler company stock, suggesting that the workers will really be running the company.  The truth is that this stock will be held by an independent retiree health fund—not the union.  The UAW will have only one of nine seats on the board of directors.

For a reality check, let’s look at things from a worker perspective.

First, thanks to Doug Henwood (editor of Left Business Observer) you can read what Chrysler workers received from the UAW leadership.  The leadership is clearly trying to put the best face on a bad deal.

Then, you can read an assessment of the contract by a retired UAW member.  Some highlights:

• Retirees will lose all dental and vision coverage as of July 1, and perhaps all health coverage in six years

• There will be a wage freeze until 2015.  All new workers hired until that date will be paid $14 an hour (with no raises possible until 2015)

• Work breaks will be reduced from 16 minutes to 13 minutes

• Workers will not be allowed to vote on future contracts until 2015—that should tell you everything you need to know

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According to the New York Times the Chrysler bailout puts the UAW in the “front seat.”  Who is kidding whom?

As illustrated in the above Wall Street Journal graphic, the UAW retiree health fund will own 55% of Chrysler stock.  This sounds impressive until you know the real story.  Several years ago Chrysler, in a cost cutting effort, negotiated an agreement with the UAW to free itself from paying for retiree health care.  It agreed to put tens of billions of dollars into an independent fund which would be responsible for managing retiree health costs going forward.

That was the plan.  But Chrysler hasn’t yet paid the money.  The new arrangement has the firm providing the health plan with stock rather than the promised money.  Retired workers aren’t happy.  It is important to emphasize that it is the independent health fund (which is not managed by the UAW) that will own the stock, not the UAW.

Who is in the drivers seat becomes clear when one looks at the proposed board of directors for the new company.  As the Wall Street Journal explains: “The U.S. government will name four Chrysler board members, Fiat will name three, the UAW one and the Canadian government one.”  The UAW gets only one seat despite the fact that, as the above graphic also shows, it is the UAW that will be contributing the greatest amount of money (from wage, benefit, and pension concessions).  Fiat, which is providing no money, will run the new company.