Posts

The Fed Prepares To Screw Working People Again

/45 Comments/in /by

The Federal Reserve Board has signaled its intention to hike interest rates, citing a fear of an overheated economy. Robert Reich has an opinion piece in The Guardian saying that raising interest rates will hurt working Americans. Reich explains; “They fear that a labor shortage is pushing up wages, which in turn are pushing up prices – and that this wage-price spiral could get out of control.” Reich explains why this is wrong.

The theory behind the Fed’s action is called the Philips Curve, which says roughly that as unemployment rises, inflation goes down, and vice versa, that as unemployment goes down, inflation increases. Here is a technical discussion of the history of the Philips Curve. This one is shorter and may be easier to read. They both say the same thing: there isn’t any obvious relation. The first piece describes some professional criticism of the Philips Curve which sadly has never had any impact on decision-making. The position of the economics profession apparently is that it must be right because they learned in in an advance economics course in College.

When you think about it, it’s utterly absurd: there are many sources of inflation, not the least of which is corporate pricing power. When most industries are highly concentrated in a few market participants they can set prices to maximize their profits. For example, Amazon dominates retailing. They just raised the price of their Prime service by $20 per household. There are about 150 million US subscribers. That’s about a $3 billion increase in revenues. Amazon blames wage increases and inflation for the increase. No, really. It comes on top of stupefying profits of $33.4 bn. So right there you get a huge increase in profits, vastly more than any wage increases or other inflationary costs.

Reich says that the impact of Fed interest rate hikes will fall on working Americans. As he puts it, “Higher interest rates will harm millions of workers who will be involuntarily drafted into the inflation fight by losing jobs or long-overdue pay raises.”

Let’s look at the numbers.


This chart shows the share of GDP going to labor*.

The gray bars are recessions. Almost all of the recessions since 1947 were triggered by interest rate increases. This chart says that when wages start to rise, the Fed raises rates, leading to recessions. Wage share falls. When it starts to rise again, the Fed triggers more rate increases. Before 1960, the labor share rose nearly to its previous highest levels. After 1960 the labor share peaks never reach their previous level.

The Great Crash led to a recession, one not caused by the Fed. In response, the Fed dropped interest rates to zero. But the labor share didn’t return to 2008 levels until 2020, and has fallen back since. Why does the Fed fear wages at this absurdly low share of GDP?

Now let’s look at corporate profits. This chart shows an estimate of corporate profits**.

The chart says that from 2012 to 2020, corporate profits were roughly steady at about $2.2 trillion. Then profits jumped straight up to the current level of $3.1 trillion in just two years. I’d guess the total rise is something like $1.4 trillion. That’s an astonishing increase. When did any media outlet point out that this is a major driver of inflation? Business reporters repeat the claims of corporate PR hacks that it’s all the fault of greedy American workers, or Covid, or supply chains***, and it’s just market forces at work. Talking heads will tell us that gigantic oligopolistic corporations will use those profits to build new factories and increase supplies. Or some other claptrap from Econ 101 textbooks.

Discussion

1. The Fed protects capital at the expense of labor. That’s what we mean when we say that inflation is such a big problem we have to hammer working people with unemployment to guard against inflation. It’s true that inflation affects working people, but why is there no way to solve that problem by penalizing capital? After all, inflation due to corporate actions, as in the case of the supply chain, market power, price-gouging and favorable government treatment is just as dangerous as any inflation driven by wages.

2. Reich points out that there isn’t any evidence of wage push inflation. Quite the contrary. Working people have been pounded by Covid and by aggressive union busting, and by price-gouging, and by surging health care costs and student debt. They haven’t caught up. He doesn’t say it, but the top quartile has done quite well, and the higher up in wealth and income people are, the better they’ve done.

3. Corporations have rigged the market structure so that working people are screwed. Government has done little to help. Can you imagine Congress stepping in to help working people? They can’t even raise the minimum wage. How long will people put up with this mistreatment?

=========
* Here’s the methodology. The number is a ratio, with all wages and salaries and proprietor’s labor compensation in the numerator, and what I take to be Gross Domestic Product as the denominator, all measured in constant dollars.

** Here’s the definition.

Profits from current production, referred to as corporate profits with inventory valuation adjustment (IVA) and capital consumption (CCAdj) adjustment in the National Income and Product Accounts (NIPAs), is a measure of the net income of corporations before deducting income taxes that is consistent with the value of goods and services measured in GDP. The IVA and CCAdj are adjustments that convert inventory withdrawals and depreciation of fixed assets reported on a tax-return, historical-cost basis to the current-cost economic measures used in the national income and product accounts. Profits for domestic industries reflect profits for all corporations located within the geographic borders of the United States. The rest-of-the-world (ROW) component of profits is measured as the difference between profits received from ROW and profits paid to ROW.

*** David Dayen, editor of The American Prospect, has produced a terrific series explaining the breakdown of the supply chain. Hint: it isn’t Biden’s fault.

Explain It To Me: What Does Impeachment Mean Now?

/53 Comments/in , , , /by

[NB: check the byline, thanks! /~Rayne]

Trump was impeached Tuesday evening under two Articles of Impeachment — one for abuse of power, and another for obstruction of Congress.

Got it. This is pretty straightforward.

The House has “the sole Power of Impeachment” according to Article I, Section 2, subsection 5 of the Constitution.

Understood, no problem. That’s what the House exercised under Nancy Pelosi’s leadership.

We’re now to Article I, Section 3, subsection 6 after last night:

The Senate shall have the sole Power to try all Impeachments. When sitting for that Purpose, they shall be on Oath or Affirmation. When the President of the United States is tried, the Chief Justice shall preside: And no Person shall be convicted without the Concurrence of two thirds of the Members present.

Nothing between Article I, Section 2, subsection 5 and Article I, Section 3, subsection 6 says that the House MUST or SHALL forward any impeachment to the Senate for a trial.

I think we’re all of us watching to see how this shakes out. Since Senate Majority Leader Mitch “Sits on 400 Bills” McConnell said last week he is coordinating the handling of the senate trial with the White House — a gross conflict of interest undermining Congress’s separate powers — and senators like Majority Whip Lindsey Graham have already decided to vote to acquit Trump, it doesn’t make much sense to forward the impeachment if already moot.

It makes sense to hang on to the impeachment articles until there is clarification about the Senate acting in good faith, “on Oath or Affirmation” as Article I, Section 3, subsection 6 says.

~ ~ ~

Now we arrive at my first question: is Trump still qualified to run for re-election?

See Article I, Section 3, subsection 7:

Judgment in Cases of impeachment shall not extend further than to removal from Office, and disqualification to hold and enjoy any Office of honor, Trust or Profit under the United States: but the Party convicted shall nevertheless be liable and subject to Indictment, Trial, Judgment and Punishment, according to Law.

Emphasis mine. Does “judgment” refer solely to conviction by the Senate after a trial once the impeachment has been forwarded to them? Or is the “judgment” when the impeachment has been pronounced by the House since the House has the sole power of impeachment? The Constitution says “Indictment, Trial, Judgment and Punishment” in subsection 7 but the wording, “Judgment in Cases of impeachment” may not mean “Judgment in Cases of conviction” — the latter would clearly limit the outcome of the House’s impeachment to a pre-indictment or indictment determination before the Senate’s trial.

This subsection occurs under Section 3 which defines the Senate’s composition and its most fundamental powers — specifically, trying the subject after impeachment — so we might assume this is the Senate’s “judgment.” But the Constitution’s wording is muddy.

We don’t have the benefit of precedent to rely upon for guidance. Andrew Johnson, impeached by the House in 1868 but not removed by the Senate, did not win his party’s nomination that year and left office in 1869 having never been elected to the presidency. In 1998 Bill Clinton was impeached by the House during his second term, though not removed by the Senate; he was ineligible to run for re-election.

~ ~ ~

My second question relates to a point Robert Reich made about a pardon for the impeached president:

… Regardless of whether a sitting president can be indicted and convicted on such criminal charges, Trump will become liable to them at some point. But could he be pardoned, as Gerald Ford pardoned Richard Nixon 45 years ago?

Article II, section 2 of the Constitution gives a president the power to pardon anyone who has been convicted of offenses against the United States, with one exception: “In Cases of Impeachment.”

If Trump is impeached by the House, he can never be pardoned for these crimes. He cannot pardon himself (it’s dubious that a president has this self-pardoning power in any event), and he cannot be pardoned by a future president.

Even if a subsequent president wanted to pardon Trump in the interest of, say, domestic tranquility, she could not. …

Apart from the specific reference to the House’s sole power to impeach, is this why the two Articles of Impeachment do not use the words “bribery” or “extortion” to describe what Trump did with regard to Ukraine — to limit the described crimes against the U.S. for which Trump could be pardoned by an interim successor or the next elected president?

Or if the crime(s) have not been spelled out in an impeachment, identified as a violation of specific U.S. law, can Trump still be pardoned for them, in essence given carte blanche after the fact?

Is this why the Articles were scoped so narrowly, to prevent an over-broad pardon?

So often it’s said the president’s pardon power is absolute, but impeachment appears to place the single limit. Where and when is that limit placed?

~ ~ ~

These questions have been chewing at me since Pelosi’s second gavel upon completion of the vote on the second article. I imagine the Republican Party will do as it’s done since 2015: roll over and let Trump run an obnoxious and corrupt re-election campaign, looking every bit as repulsive as he did Tuesday evening during his Battle Creek rally.

It’s also been niggling at me that twice in the text of the Articles of Impeachment it was written, “the President ‘shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors’.”

Shall, not may, be removed, on conviction for Bribery.

I noted also the use of the word “betrayed” in the Articles’ text:

… He has also betrayed the Nation by abusing his high office to enlist a foreign power in corrupting democratic elections. …

It’s not treason as we’ve discussed in comments, but a traitor shouldn’t get a pass for selling out his country’s national security interests for personal gain.

You can bet McConnell and Graham would already have ensured the conviction and removal of a Democratic president who likewise betrayed the nation. If only they moved with the same alacrity on those 400 bills sitting on McConnell’s desk.

TPP and Democratic Self-Delusion

/44 Comments/in , , /by

After months of telling Bernie Sanders to drop out, the political chatterers are finally understanding one reason he did not do so: to maintain leverage over things like the party platform. After the platform was finalized yesterday, Bernie declared victory.

Pressed by supporters of U.S. Sen. Bernie Sanders, Democratic Party platform writers meeting this weekend in Orlando, Florida, adopted a progressive agenda that underscores the need for bold action on climate change, addresses criminal justice reform and calls for doubling the federal minimum wage.

“We have made enormous strides,” Sanders said. “Thanks to the millions of people across the country who got involved in the political process – many for the first time – we now have the most progressive platform in the history of the Democratic Party.”

The Platform Committee also adopted an amendment focused on criminal justice reform which calls for an investigation by the Department of Justice to investigate all shootings involving police officers.

The platform that will be submitted at the Democratic National Convention later this month in Philadelphia also would support Congress putting a price on carbon and methane to discourage continued use of fossil fuels that are causing severe climate change. The platform also says lawmakers must consider the impact on the climate in all federal decisions and invest heavily in wind and solar power rather than natural gas.

Delegates allied with Hillary Clinton’s and Sanders’ campaigns also passed amendments to fight for a $15 federal minimum wage tied to inflation, urged passage of progressive immigration reform and called for legalization of marijuana.

There were three issues, however, where Sanders’ delegates lost: opposition to Israeli settlements, a ban on fracking, and opposition to the Trans-Pacific Partnership.

The first two make sense: after all, those policy positions match Hillary’s stated position (though the US is supposed to be opposed to illegal settlements), so rejecting Sanders’ amendments equated to backing the nominee instead. That’s the way it’s supposed to work.

But Hillary, of course, claimed to oppose the TPP during the primary, even if that claim was always sketchy coming as it did as she worked so hard to negotiate the crappy deal as Secretary of State. So the mealy-mouthed language in the platform about protecting workers — akin to the same language in the Colombia Trade Deal that did squat to protect workers — is more notable.

As is the idiotic opinion expressed by this person, described by Robert Reich as an acquaintance from the Clinton White House.

ACQUAINTANCE: “Don’t you think your blog post from last night was a bit harsh?”

ME: “Not at all. The Democratic Party is shooting itself in the foot by not officially opposing the Trans Pacific Partnership.”

[They talk about how the Democrats are supporting this to back the President.]

ME: “But it’s terrible policy. And it’s awful politics. It gives Trump a battering ram. Obama won’t be president in six months. Why risk it?”

ACQ: “They don’t see much of a risk. Most Americans don’t know or care about the TPP.”

ME: “But they know big corporations are running economic policy. They think the whole system is corrupt. Believe me, Trump will use this against Hillary.”

ACQ: “He can’t. She’s inoculated. She’s come out against the TPP.”

ME: “But it’s her delegates who voted not to oppose it in the Democratic platform. Her fingerprints are all over this thing.”

Trump may not have many articulated policy positions, but his stance against TPP has been consistent and (unsurprisingly loud). Reich is right: to the extent that platforms mean anything at all, this will be used by Trump to pitch Democrats as sell-outs to American workers.

And the notion that voters won’t react against TPP is insulting. Sure, they may not know how specifically bad TPP is, but workers do know that NAFTA sucked. And Trump is certainly capable of equating the two.

Whoever this person is, by nature of being a Hillary advisor, he or she is supposed to be a technocratic elite. But this is idiotic, both from a policy and a political perspective.