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About Liz Iacobucci

Liz Iacobucci is the former Public Information Officer for the State Employees’ Association of New Hampshire, SEIU Local 1984. Over the past three decades, she has served in government at the federal, state and municipal levels; and she has worked for both Democratic and Republican politicians.

Nightmare on Wall Street? Are Stock Buybacks Creating Another ‘Financial Bubble?’

An American flag festooned with dollar bills and corporate logos flies in front of the Supreme Court during oral arguments in the case of McCutcheon v. Federal Election Commission. 
Image by JayMallin.com
An American flag festooned with dollar bills and corporate logos flies in front of the Supreme Court during oral arguments in the case of McCutcheon v. Federal Election Commission.  Image by JayMallin.com

Image by JayMallin.com

Some blog posts are easy to forget. But the one I wrote last week is beginning to give me nightmares.

Here’s why: the stock market keeps hitting record highs. But the so-called “economic recovery” – which started in June 2009 – is just beginning to “trickle down” to us average Americans.

And oh, such a sloooooow trickle! “Although the economic recovery officially began in June 2009, the recovery in household income did not begin to emerge until after August 2011. …Median income in February 2014 [was only] 3.8 percent higher than in August 2011.”

And we’re not anywhere near “recovered” from the damage caused by the last two recessions. “The February 2014 median was [still] 6.2 percent lower than the median of $56,586 in January 2000.”

So in last week’s blog post, I took a look at the research UMass Professor Bill Lazonick and his team have done, about how top US corporations have been distributing their net income to shareholders rather than reinvesting money in their business (or workers).

What Professor Lazonick found: since 2004, the surveyed companies have returned 86% of net income to stockholders through dividends and stock buybacks. In 2013, those companies spent an average of $945 million just buying back their own stock. Repeat: $945 million is the average. That’s per company. In one year.

So I took a closer look at that, using a couple of companies as case studies. I keep hoping that I’m completely wrong. I’m not an economist, I’m not an expert. I’m just a blogger who looks at things from my own personal perspective.  And when I looked, here’s what I found:

FedEx:

  • CEO Fred Smith owns more than 15 million shares of FedEx (not counting shares held by his wife, his family holding company or his retirement plan.)
  • Last October, FedEx announced plans to buy back 32 million shares – more than 10% of its stock.
  • FedEx borrowed $2 billion to help pay for that stock repurchasing program. Those bonds run from 10 to 30 years.
  • In the past year, FedEx stock has gained over 44 percent. That translates into a huge increase in net worth for Mr. Smith… somewhere between a half-billion dollars (as of my post last week) and $600 million (the stock price kept going up). Yeah… FedEx borrowed $2 billion… and its CEO personally benefited by a half-billion-plus.
  • But maybe there’s a reason why FedEx stock soared by 44%? Let’s see… according to the International Business Times, its ground shipping business grew by 13% and it is trimming employee benefit costs by 13%; and so the overall corporate profits grew by 24%.
  • Corporate profits grew by 24%… but the stock price grew by 44% (benefiting “company executives who receive stock-based compensation”).
  • But of course there are fewer shares of stock now than there were last year, because of the buyback program. So I looked at the company’s “market cap” – or, the total value of all the outstanding shares. And that also grew: from $39.03 billion when the stock buyback was announced last October… to $50.35 billion as of Friday. So the market cap grew by $11.32 billion – or about 29% – during roughly the same time that profits grew by only 24%.
  • Let me recap: The company grew its business a bit, while at the same time cutting employee costs. It borrowed to buy back stock, enriching its CEO. And Wall Street rewarded this behavior. Stock value grew – at a much faster rate than the company’s profits were rising.

wall_streetThat difference between 24% growth in profits and 29% growth in market value? Isn’t that just a “Wall Street bonus” for taking part in this borrow-and-buyback scheme?  But why is Wall Street is rewarding FedEx for moving toward a “loot the company” model of business behavior?

It’s not just FedEx.

One analysis, from June 2014:

Since the end of 2012, using the DOW (NYSEARCA:DIA) companies as a large cap company market proxy, share buybacks in dollar volume have exceeded the actual level of after tax profits recorded by the 30 companies in the index. What this means is that somewhere in the DOW there must be more than a handful of companies, which are either borrowing money or deferring capital expenditures in a potentially harmful manner for the sole purpose of buying their shares back in the market to boost share price.

From last week’s Wall Street Journal:

Companies are buying their own shares at the briskest clip since the financial crisis, helping fuel a stock rally amid a broad trading slowdown.

Corporations bought back $338.3 billion of stock in the first half of the year, the most for any six-month period since 2007, according to research firm Birinyi Associates. Through August, 740 firms have authorized repurchase programs, the most since 2008.

No, it’s not just FedEx.

Cisco:

Back in February, Cisco announced an $8 billion bond issue “to help finance stock buybacks after the shares lost almost 6 percent over six months.”

  • Cisco CEO John Chambers owns about 2 million shares of Cisco stock.
  • Cisco stock was trading at $22.12 when that bond issue/buyback was announced. Now, it’s trading at $25.20. Do the math: that’s about a 14% increase in per-share price; and more than a $6 million increase in Mr. Chambers’ net worth.
  • Cisco’s market cap was $113.95 billion when the bond issue/buyback was announced.   Now, it’s $128.7 billion. Do the math: that’s about a 13% increase in Wall Street’s assessment of the company’s total value.
  • But what’s going on with the actual company?   Last month, Cisco released an earnings statement “that illustrated its troubles as one of the tech industry’s giants competing in a rapidly changing environment.”  Profits are down, compared to last year. And it is planning to eliminate 6,000 jobs.
  • Let me recap: Profits are down, layoffs are pending. But the company borrowed $billions to buy back stock, enriching its CEO and other executives.   And Wall Street rewarded this behavior.

Want to know what worries me most about Cisco? It looks like Cisco’s CEO is selling his stock. According to the filings, he owns a lot less Cisco stock now than he did when the bond issue/buyback was announced. Doesn’t he have any faith in his corporation’s long-term prospects?

It’s not just Cisco.

Bloomberg News:

American companies have seldom spent more money than they are now buying back shares. The same can’t be said for their executives. … While companies are pouring money into their own stock because they have nothing better to do with it, officers and directors aren’t… Insiders buying stock have dropped 8 percent from a year ago, poised for the fewest in more than a decade.

wall street bullAnd even worse? That perspective that companies “have nothing better to do” with their money than buy back stock.

As of a couple of weeks ago:

In total, US companies have announced USD309bn worth of share repurchases year-to-date, up from USD259bn for the same period a year ago, according to Thomson Reuters data.

Do the math. Nine months of stock buybacks equals about 6 million median-wage American jobs.

Let me rephrase that.

The money that US corporations are spending buying back their own stock “because they have nothing better to do with it” could give a $52,000-a-year job to every single unemployed American.

Instead… Cisco’s cutting 6,000 jobs. FedEx is cutting employee benefits. And who knows what all the other companies in Professor Lazonick’s survey are doing?

Here’s the thing: buying back stock doesn’t add any intrinsic value to a company. It’s not a new product line, it’s not a new factory, it’s not any kind of investment in the company’s future. All it does is concentrate the stock ownership. Same everything else – just fewer shares of stock. (Sort of like ultra-concentrated dish soap… same basic thing, just in a smaller bottle.)

So, aren’t these rising market caps at least somewhat artificial? Why should a company be worth more, just because it has fewer shares of stock?

Cisco may have declining profits… but its market cap is growing. FedEx may be growing, but its market cap is growing faster. Why?

Here’s the other thing: To accomplish this concentration of stock ownership… corporations are bonding untold billions of dollars. (Yes, that’s another thing I couldn’t find tracked anywhere.)

So yeah, they’re borrowing against the future… to improve stock prices today.

soap bubbleAnd Wall Street is encouraging this.

There’s a technical term for those sorts of artificial increases: they’re called “bubbles.”

And that’s why I’m starting to have nightmares.

I’m wondering when this latest Wall Street bubble is going to burst.

Why the Economy Doesn’t Work for the 99%: Massive Payouts to Corporate Stockholders

http://2bgr8stock.deviantart.com/art/Money-Cash6-117258936 By 2bgr8STOCK
We Are the 99 Percent photo by Gawain Jones via Flikr Creative Commons license

Photo by Gawain Jones via Flikr Creative Commons License

Wondering what happened to America’s Middle Class? UMass Lowell professor William Lazonick has some numbers for you.

  • Since 2004, top US corporations have paid 86% of their net income to stockholders through dividends and stock buybacks.

Why that’s important: Money paid out to stockholders is not available for long-term growth investments such as R&D, opening new facilities, updating equipment or hiring new employees. It’s also not being used to give raises to current employees. But I’m digressing. Back to Professor Lazonick:

  • And 86% is just the average return to stockholders. Professor Lazonick names 15 corporations that spent more than their net income on dividends and stock buybacks, including: Time Warner (280%); DirecTV (192%); Hewlett-Packard (168%); Pfizer (137%) and Home Depot (134%).

Wonder how corporations can pay more out to stockholders than they receive in net income? Here’s one possible answer: they can borrow the money. From May 20, 2014 Time Warner Inc. Prices $2.0 Billion Debt Offering: “The net proceeds from the issuance of the notes and debentures will be used for general corporate purposes, including share repurchases.” (Remind you of…say, What Mitt Romney Taught Us About America’s Economy?)

But I’m digressing again. Back to Professor Lazonick, again:

  • The top corporations kept paying dividends through the recent recession, with a barely-noticeable drop between 2008 and 2010. “[T]hrough boom and bust, dividends were stable, and on the rise from 2010. In 2004 mean dividends were $349 million; in 2013 double that amount at $685 million.”

Repeating that: an average of $685 million in dividends per company. Paid out to stockholders, not reinvested in the business. Just in 2013.

Wondering what effect that has on America’s economy? Here’s one example, using a company that paid out much less than $685 million in dividends:

http://2bgr8stock.deviantart.com/art/Money-Cash6-117258936 By 2bgr8STOCKLast year, we estimated what FedEx CEO Fred Smith received – personally – in dividend income: “According to SEC filings, he owns about 15 million shares of the company.  Last year, FedEx paid out a total of 55 cents per share in dividends.  Do the math… and it looks like Mr. Smith received about $8.5 million in dividends (not counting dividends to his family holding company, his wife, or his retirement fund).” Also last year, we estimated what that meant in the larger scheme of things: “his 15 million shares in the company represent only a fraction of the outstanding stock. For Mr. Smith to receive $8.5 million in dividends, personally, the company has to pay out well over $100 million in total dividends – money that could have been invested in new hires, or new planes, or new facilities (or improved employee benefits).”

Now, compare that $8.5 million that we calculated he received as dividends with his $13.7 million “compensation package” that was reported about the same time.

Hey, maybe we did the math wrong. Maybe Mr. Smith didn’t actually get two-thirds again as much in dividends as he got in official “compensation.” It’s really, really hard to track dividend payments to corporate CEOs – that information is not reported anywhere that we have been able to find.

But doesn’t it seem possible that Mr. Smith’s decisions about how FedEx treats its workers… could perhaps be influenced by the fact that he gets a substantial share of the dividends paid out to stockholders? Read FedEx And The Real Reason Why There’s No Jobs: Cut Back On Worker Hours And Raise Profits. Also remember that a federal appeals court just ruled that FedEx improperly classified 2,300 California drivers as “independent contractors” rather than “employees”… to the tune of “hundreds of millions of dollars.”

BTW, it’s not just difficult to track dividend payments to CEOs… it’s also hard to track the effect of stock repurchasing programs on CEOs.

Going back to Mr. Smith… Late last year, FedEx announced plans to buy back up to 32 million shares – or, about 10% of outstanding stock. Since then, the market price of its stock has risen by about $35 a share. Multiply $35 per share by the roughly 15 million shares Mr. Smith owns… and you’re talking some serious numbers.

Not to repeat myself (again), but: that type of information isn’t tracked anywhere. At least, not anywhere we could find.

Going back to Professor Lazonick:

  • The corporations in his survey spent 51% of net income on stock buybacks.

Yep, must be lookin’ real rosy up there in the corporate offices. Extrapolating from our FedEx example, can you imagine how much all those different stock buybacks have enriched America’s CEOs?

EGTRRA signingAnd as near as I can tell, it’s going to keep lookin’ rosy in corporate offices as long as our federal tax system encourages this sort of thing. Ever since the Bush tax cuts, investment income has been taxed at a much lower rate than wage income. Are we really surprised that CEOs are taking more compensation in stock options and awards, rather than traditional wages?

 – – – – – – – – – – – -

Meanwhile, yesterday’s New York Times hosted a “Room for Debate” on the policy implications of Professor Lazonick’s research.

Want to know how deeply ingrained the “No New Taxes” ceiling has become, in our public discourse?

Not a single policy expert quoted in that “debate” even suggested that America should return to taxing investment income at the same rate as wages.

 – – – – – – – – – – – -

#dejavu

My “Why the Economy Doesn’t Work for the 99%” post from last year is available here.

What happened in the US Senate yesterday? (Hint: They’re not trying to overturn Citizens United anymore.)

Money Corrputs by Light Brigading via Flikr
Money Corrputs by Light Brigading via Flikr

photo by Light Brigading via flikr

Yesterday, the Senate GOP voted to block any further consideration of a constitutional amendment to overturn Citizens United.

That means the amendment won’t go over to the House of Representatives for a vote.

And it won’t go out to the 50 states for a ratification vote.

The proposed amendment would have explicitly authorized Congress and state legislatures to set campaign finance limits. (Read more about Citizens United and the resulting “unprecedented amounts of outside spending” in the 2010 and 2012 elections here.)

So… those 16 states that have already voted in favor of a constitutional amendment to overturn Citizens United? Sorry, folks.

All those other states – including New Hampshire – whose state Legislatures have shown interest in a constitutional amendment? Sorry, folks.

Those 80% of ordinary Americans – including 72% of ordinary Republicans – who oppose Citizens United? Sorry, folks.

The Senate GOP knows better than you do.

So you don’t get a vote on this.

Who to thank, for taking the states’ vote away? The 42 GOP Senators who voted to block the amendment yesterday.

citizens_united_switched_votesOr, more bizarrely, the 25 Senators who on Monday night voted to let the amendment proceed – but by Thursday afternoon, had changed their votes to block it. (And yes, that would include New Hampshire’s own Senator Kelly Ayotte.)

If those 25 Senators had voted the same way on Thursday as they voted on Monday, the constitutional amendment would be going to the House. And then, maybe, out to the 50 states for ratification votes.

So… what happened during those 68 hours, to make those 25 Senators change their votes?

Can’t tell for sure, from out here in the hinterlands. The news is full of the Oscar Pistorius case… 9/11 remembrances… the Ray Rice case… ISIS and the spectre of terrorism. But there’s relatively little press coverage of this attempt to amend our Constitution.  The 80% of Americans who oppose Citizens United probably don’t even know that the Senate took a vote yesterday.

Here’s my best guess: I think Mitch McConnell happened. I’m guessing that the Senate GOP Leader told them how to vote… and the 25 Senators did. (Even Arizona Sen. John McCain, one of the sponsors of the Bipartisan Campaign Reform Act of 2002, more commonly known as the McCain-Feingold Act.)

That’s just a gut-instinct guess, but there are two things behind it.  First, during Committee consideration of the amendment, the GOP members marched in lockstep to oppose the amendment. Every recorded Subcommittee and Committee vote was strictly along party lines.

Second reason: GOP Leader McConnell has opposed campaign finance limits since… well, it seems like forever.

Take some time and listen to the GOP Leader’s speech at a June “retreat” for billionaires organized by the Koch Brothers.

In his remarks, GOP Leader McConnell tracks the history of campaign finance reform efforts “back to the beginning of the 20th century” … and how they “petered out” during “the great prosperity” of the 1920s. (Do you think he remembers how the 1920s ended?)

He reminisces about his own efforts to block passage of campaign finance reform:

We had filibuster after filibuster, which in my first term in the Senate I was leading. And then it came back again in the first two years of Clinton. The bill would pass the House, the bill would pass the Senate, and then it would go to conference. And I was so determined, I came up with a new filibuster. That’s all I’d ever done before was filibuster and go in, go into conference. We had to do it all night long. Under (inaudible) procedure every senator had an hour, and if you didn’t show up right on time, you were out of luck.

Everybody rallied together. This was about two months before the great fall election of 1994. Everybody rallied together. We went around the clock. Everybody showed up on time. And I thought, well, maybe we’re finally through with this nonsense.

He says “The worst day of my political life was when President George W. Bush signed McCain-Feingold into law.”

He talks about his own lawsuit to overturn McCain-Feingold. (You can read the Supreme Court decision here.)

He talks about what has happened since his lawsuit.

So what really then changed the Court was President Bush’s appointment of John Roberts. The most important was Sam Alito because we lost the McCain-Feingold case five to four because of Sandra Day O’Connor. The majority was all liberal. Then she retired, and Sam Alito replaced her, and we now have the best Supreme Court in anybody’s memory… Now, that’s where we are today. I’m really proud of this Supreme Court and the way they’ve been dealing with the issue of First Amendment political speech. It’s only five to four, and I pray for the health of the five.

And then he talks about some other things of interest to his audience of billionaires: like minimum wage… environmental regulation… regulation of the financial services industry. And he promises to use federal spending bills to “go after” those issues.

And I assure you that in the spending bill, we will be pushing back against this bureaucracy by doing what’s called placing riders in the bill. No money can be spent to do this or to do that. We’re going to go after them on healthcare, on financial services, on the Environmental Protection Agency, across the board (inaudible).

And – in response to a mostly-inaudible question from David Koch about “free speech” and amending the Constitution – GOP Leader McConnell says:

Having, having struck out at the Supreme Court, David, they now want to amend the Constitution. … These people need to be stopped, and believe me, something that I thought to do (inaudible) what is spent (inaudible) independent coordination?
(Laughter.)
(Applause.)

Yeah, read that again: “These people need to be stopped.”

THAT’s why I’m guessing “Mitch McConnell happened” to those 25 Senators who switched their votes between Monday and Thursday.

What can we do about it, now? What can we – the 80% of Americans who oppose Citizens United – do, now that the Senate GOP has blocked the amendment?

We can make it a campaign issue.

Scott Brown in 2010 Image by Wiki Commons

Scott Brown in 2010
Image by Wiki Commons

Starting here in New Hampshire, with Scott Brown… who, as Massachusetts Senator, helped block the DISCLOSE Act back in 2010. Here in New Hampshire, 69% of us want a constitutional amendment to overturn Citizens United. Even among Granite State Republicans, six out of 10 want a constitutional amendment. (Sen. Ayotte: who were you listening to, when you voted yesterday?) How do you think Scott Brown will vote on this, if he is elected in November?

We need to make Citizens United an issue in the 2014 campaigns.

There’s not all that much else we can do, at this point.

—–

If you want to wander through Leader McConnell’s campaign finance disclosure records – including $14.8 million in “large individual contributions” – click here. Remember: that’s just contributions to his official campaign.

“Outside spending” is much harder to track. So far, during this election season, McConnell has also “been boosted by $2.2 million in positive ads, mainly by the [U.S.] Chamber. Outside Republican PACs have already spent $7 million on ads attacking his Democratic challenger, Kentucky Secretary of State Alison Lundergan Grimes.”

A running tally of money that “non-profits” have spent on electioneering so far in the 2014 campaign is available here.

—–

More information about grassroots efforts to support the “Democracy for All” amendment is available here.

Tuesday’s NHLN story about the amendment is here.

Can We Overturn Citizens United? US Senate will vote again later this week.

Cash Bribe Politician Money
(FLICKR LIght Brigading

(FLICKR LIght Brigading)

Last night, the proposed constitutional amendment to overturn Citizens United moved one tiny step forward. By a 79-18 vote, the US Senate invoked cloture to end a GOP filibuster of the measure.

That means the Senate will actually be able to vote on the amendment, probably later this week. But will it pass? One Hill reporter says, “The amendment is almost certain to fail.”

That’s because constitutional amendments require a two-thirds vote in the Senate – and until last night, the Senate GOP had been working in lockstep to defeat (or undermine) the measure. Every recorded Subcommittee and Committee vote was strictly along party lines: with the Democrats in favor of moving the proposal forward; and the Republicans trying to keep it from seeing the light of day.

So even though some GOP Senators (including NH Sen. Kelly Ayotte) voted to end the filibuster last night, it’s quite possible they will be pressured into voting against the amendment when it comes up for a vote.

If the Senate approves the amendment, it will still need to be approved by the House and ratified by two-thirds of the states. (Read more about the process here.)

Cash Bribe Politician MoneyWhat’s at stake: The Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission helped unleash unprecedented amounts of outside spending in the 2010 and 2012 election cycles. (Read more here.)

It has led to billionaires like Sheldon Adelson wielding incredible personal influence.

It led to Senate GOP Leader Mitch McConnell making a pilgrimage to a “secret strategy conference of conservative millionaire and billionaire donors hosted by the Koch brothers” where he promised to block debate on “all these gosh darn proposals” like increasing the minimum wage, extending unemployment benefits, and allowing students to refinance their college loans.

Now, Mitch McConnell may believe – as he told those prospective donors – that “all Citizens United did was to level the playing field for corporate speech…. We now have, I think, the most free and open system we’ve had in modern times. The Supreme Court allowed all of you to participate in the process in a variety of different ways.”

But America is seeing through that spin.  

Sixteen states have already endorsed the idea of a constitutional amendment to overturn Citizens United.

More than 500 local governments have already supported such a change. (Here in the Granite State, the list includes: Alstead; Amherst; Andover; Atkinson; Barnstead; Barrington; Bradford; Bridgewater; Chesterfield; Conway; Deerfield; Eaton; Exeter; Francestown; Henniker; Hampstead; Hudson; Kingston; Lee; Lyme; New Boston; Northwood; Rindge; Tilton; Wakefield; Webster; and Windham)

And the public? America is united on this issue. There is more agreement on overturning Citizens United than on just about anything else. 80% of Americans – and 72% of Republicans – oppose Citizens United. Here in New Hampshire, 69% of Granite Staters support a constitutional amendment like the one the Senate will finally be voting on. (Amendment supporters include six out of every 10 NH Republicans, and almost three-quarters of NH independents.  Senator Kelly Ayotte, are you listening?)

So this past weekend, the GOP tried out some new spins, trying to rationalize why they will be voting against something that eight out of 10 Americans support.

New Spin #1: It’s the Democrats! “‘Senate Democrats have long been funded by a group of billionaires bent on maintaining their power, yet they pretend to be outraged’ by the spending of the Koch brothers and their allies. …In advance of Monday’s floor debate, Senate Republican staffers circulated a chart showing the reach of Democracy Alliance…”

(No, this spin does not explain why Republicans want to maintain the Citizens United status quo. If the Republicans and the Koch Brothers are truly outraged by Democratic big-dollar contributors – why don’t they vote to approve the constitutional amendment?)

New Spin #2: Guns! (Yes, really.)

Here’s how the National Rifle Association described Citizens United: “The court declared unconstitutional the parts of the law that had been enacted for the explicit purpose of silencing the NRA and its members. Of course, the gun-banners in the White House and Congress opposed the decision because it thwarted their plans.”

Here’s how the NRA described the amendment to overturn Citizens United: “As the title of the proposed constitutional amendment suggests, S.J.R. 19 is intended to allow anti-gunners in Congress to silence their critics and to control the gun ‘debate.’”

(The actual title: “Proposing an amendment to the Constitution of the United States relating to contributions and expenditures intended to affect elections.” And: while the NRA may be #5 on the list of non-profits that spend money on electioneering… the proposed amendment isn’t actually about guns. It’s about allowing Congress and the states to “regulate and set reasonable limits on the raising and spending of money by candidates and others to influence elections.” It’s about “protect[ing] the integrity of government and the electoral process.”)

Does the GOP really think either of these spins is going to stick any better than the “Citizens United leveled the playing field” spin?

Why is this such an important issue for those of us in the Labor movement?

Reason 1: “Whatever slice [of political contributions] you look at, business interests dominate, with an overall advantage over organized labor of about 15-to-1. Even among PACs – the favored means of delivering funds by labor unions – business has a more than 3-to-1 fundraising advantage. In soft money, the ratio is nearly 17-to-1.”

Reason 2: Mitch McConnell, shilling for those billionaire donors: “In late April, Senate Republicans, led by McConnell, successfully filibustered a bill to increase the minimum wage to $10.10 an hour, a widely popular measure that would increase wages for at least 16.5 million Americans. Earlier in the year, McConnell also led a filibuster of a three-month extension of unemployment insurance to some 1.7 million Americans.”

Is our government really for sale to the highest bidder?

The 2014 campaigns are breaking fundraising records set in the 2012 and 2010 elections.

Isn’t it time to send this constitutional amendment to the states for a ratification vote?

Think US Manufacturing Is In Trouble Now? Wait Till WALMART Jumps In

photo 0f 2007 Northcross Mall Wal-Mart protest by Kristin Hillery, via flikr
photo of 2007 Northcross Mall Wal-Mart protest by Kristin Hillery, via flikr

Photo by Kristin Hillery, via flikr

Hey, Richard Trumka! You didn’t need to be so darn diplomatic yesterday. My take: Wal-Mart getting into in US manufacturing is pretty much the LAST thing America’s economy needs right now.

Unless, of course, somebody’s had an attack of conscience and they’ve completely changed their business model.

Really quick, let’s look at Walmart’s business model:

The retailer has a clear policy for suppliers: On basic products that don’t change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year.

Yep, it’s that old ratcheting-down thing. Works the same way as chained-CPI for Social Security benefits. Or, what’s been happening to the middle-class for the last 40 years. Death by a thousand cuts (also known as “creeping normality”). They take a little bit this year, and a little bit more next year, and a little bit more the year after that.  Wal-Mart’s business model:

Wal-Mart also clearly does not hesitate to use its power, magnifying the Darwinian forces already at work in modern global capitalism. …The Wal-Mart squeeze means vendors have to be as relentless and as microscopic as Wal-Mart is at managing their own costs. …Wal-Mart has also lulled shoppers into ignoring the difference between the price of something and the cost. Its unending focus on price underscores something that Americans are only starting to realize: Ever-cheaper prices have consequences.

Why would anybody in their right mind want to apply this business model to US manufacturing? (Other than, of course, the Walton family. But maybe having a bigger fortune than the bottom 42% of Americans, combined, isn’t enough for some people…?)

Isn’t it time to start ratcheting things UP again?

Mr. Trumka, please… save the diplomacy for elsewhere. We gotta stop this Race to the Bottom.

—–

made in prison labelAnd, oh yeah… something else about “Made in the USA.”

If you haven’t noticed, we’ve got a lot of prisons here in the US. And inmates work for really cheap wages.

That USA-grown organic produce sold at Walmart? Yep.

Stuff that gets returned to Walmart? Yep.

And that may just be the tip of the iceberg. Thanks to ALEC pushing “prison industries enhancement” laws for the past 20 years, there’s now lots and lots of stuff “Made in the USA” behind prison bars. And no way to tell how much of it ends up for sale on retail store shelves. Apparently, in some states, it’s legal to sell prison-made stuff in local stores… as long as it’s not transported across state lines.

Myself, I’m thinking it’s about time for another nationwide product-labeling campaign. So consumers will know exactly where in the USA these products are made.

H/T to the Teamsters for the really great graphic above… and to Dennis Trainor, Jr. and Acronym TV for the video below.

Proving Once Again That Tax Cuts For The Wealthy “Job Creators” Do Not Work, S&P Lowers Kansas’s Credit Rating

"Kansas Apologizes" by David Shankbone via Wikimedia Commons
"Kansas Apologizes" by David Shankbone via Wikimedia Commons

Photo from October 30, 2010 “Rally to Restore Sanity” – by David Shankbone via Wikimedia Commons

For decades, the right-wing has held fast to its belief that tax cuts can fix the economy and end government deficits.

Nevermind that the idea — cutting taxes would somehow increase government revenues? — never made much sense.

They’ve kept the faith, despite all evidence to the contrary.

Myself, I think it’s long past time for the right wing to give up on this theory. I mean: at some point, shouldn’t people be able to accept the evidence, even if it goes against their beliefs?

I mean, even Republican leaders eventually gave up on it.

CBPP_effects_of_KS_tax_cutsBut two years ago, the Tea Partiers down in Kansas decided to try, try again… and Governor Sam Brownback signed “one of the largest tax cut bills in Kansas history.”

Even though many Republicans in the state legislature opposed it. (Republican Senate President Steve Morris told the press: “It is not good public policy.” He also called the tax plan backed by the tea party “very reckless.”)

Since then, there has been no evidence of any economic boom. “Since the tax cuts took effect at the beginning of 2013, Kansas has added jobs at a pace modestly slower than the country as a whole. The earnings and incomes of Kansans have performed slightly worse than the U.S. as a whole as well.” (Read more here.)

And yesterday, the chickens came home to roost. Standard and Poor’s lowered the state’s credit rating, because of the tax cuts.

“The downgrades reflect our view of a structurally unbalanced budget, following state income tax cuts that have not been matched with offsetting ongoing expenditure cuts in the fiscal 2015 budget,” said Standard & Poor’s credit analyst David Hitchcock in a release.

The rating agency gave the state a “negative” outlook on both ratings and projects that the state will face serious budget woes by the end of fiscal year 2015.

But Brownback still didn’t seem to get the message. “We need jobs and we have proven the way to that is through lower taxes,” he told the press – even after the ratings downgrade.

State Representative Jim Ward: “When presented concrete evidence of a fiscal crisis … he denies it exists. He blames the people who bring the data. You cannot live in a world where you reject all information that doesn’t feed into your ideology.”

Except… it looks like some people can.

Public Pensions: Still Waiting to be ‘Made Whole’

IOU in a piggy bank by Images of Money via Flikr

IOU in a piggy bank by Images of Money via FlikrLooks like the Justice Department is settling cases with banks responsible for the 2008 financial meltdown. Citigroup is next up: and reported to be paying $7 billion to end Justice Department investigations.

But I don’t see any of that money headed back to public pension systems.

…like, say, New Hampshire? In June 2007, the New Hampshire Retirement System Trust Fund held $29.7 million in Citigroup stock. Within two years, that stock had lost 94% of its value. (That’s a lot of retirees’ COLAs, right there.)

…like, maybe, Detroit? In June 2007, the two retirement systems covering Detroit public employees had a total of $343 million invested in mortgages. But after the crash, the systems’ “unfunded pension liability” was one of the main justifications for declaring that Detroit was “bankrupt.” (Read “Detroit’s Pension Systems: not ‘unaffordable’, just battered by Wall Street” here.)

State and local pension funds lost a total of $1 Trillion (yes, with a “T”) in value between 2007 and 2008. NOT a coincidence: those state and local pension funds are now “underfunded” by $1 Trillion.

And now the Justice Department is wrapping up its investigations, with fines to the federal government and assistance to homeowners…

… and nothing, as far as I can tell, in the way of restitution to all those public employees whose retirement dreams were destroyed.

Meanwhile, Wall Street broke more records last week…

…and Governor Chris Christie has decided not to pay New Jersey’s pension system more than $2 billion in employer contributions.

New Hampshire public sector retirees haven’t received a cost-of-living adjustment since 2010.

Detroit’s retirees are voting on whether to accept benefit cuts.

And so far, only one banker has gone to jail (compared to 839 people who were convicted for crimes during the savings-and-loan scandals of the 1980s)…

…and as far as I can tell, nothing whatsoever in the way of restitution to public pension funds.

Does that $7 billion settlement sound like a lot to you? Here’s some context:

  • That’s just slightly higher than the $6.4 billion Citigroup had originally planned to spend next year to buy back corporate stock. (Why would a company buy its own stock? “To counteract the dilution of bank shares when executives are awarded stock as incentives.”)
  • It’s roughly equal to six-months’ profit for the corporation.
  • It’s less than 2% of what Citigroup received in the federal bailout.
  • It’s less than one percent of what public pension funds lost in the meltdown.

Mad, yet?

Read the Rolling Stone’s “Looting the Pension Funds” here.

Read “The Plot Against Pensions” here.

 

Hey, Supreme Court: What about States’ Rights? (Harris Vs Quinn)

CC DBKING

10thAmendmentIt seems to me that today’s Supreme Court decision was driven more by ideology than by an understanding of how labor unions work in practice.

It seems to me that the Court gave very little consideration to states’ rights, particularly:

  • whether the State of Illinois should have the right to determine which categories of employees it considers to be “state employees” and
  • whether states – as employers – should have the right to decide whether they want to include “agency fee” provisions in their union contracts.

And I’m wondering whether the next SCOTUS decision will strike down states’ rights to decide – for themselves – whether or not to even have public employees’ unions. (Some states have chosen NOT to have public-sector unions. New Hampshire didn’t have public-sector collective bargaining until 1975, when it was established by Republican Governor Mel Thomson.)

Shouldn’t Illinois have the right to decide – for itself – whether the home-based caregivers that it pays with Medicaid money should be considered its “employees” for purposes of collective bargaining?

Shouldn’t Illinois have the right to decide – for itself – whether or not to include an “agency fee” provision in its union contracts?

Maybe I missed it…? But when I read through the decision, I didn’t see a whole lot of respect or deference given to the rights of the Illinois Legislature to set the employment conditions of the people it views as its “employees.”

Every time the New Hampshire Legislature considers a so-called “Right to Work” bill, we hear from private employers that it would infringe on their rights to set working conditions for their employees.

Shouldn’t state governments have that same right?

 

Because those who don’t know history are doomed to repeat it…

May_2_1933

… a reminder of what happened 81 years ago in Germany:

Politifact:
On May 2, 1933, unions were dissolved, their assets were confiscated, their offices were occupied and their leaders were arrested. Hitler then outlawed strikes, abolished collective bargaining and established the German Labor Front, a corrupt party organization.

The United Kingdom’s National Union of Teachers:
The German trade union movement was one of the largest and most powerful in the world… but independent trade unions had no place in Hitler’s vision for Germany.  Attempts to destroy the unions were assisted by the attitudes of some German business leaders and conservative politicians, many of whom shared the Nazi fear of a socialist revolution. More generally, many of these people felt that the unions had become too powerful in the 1920s and looked for restrictions on or even complete abolition of union rights.

On 2nd May 1933, stormtroopers violently occupied offices of the Free Trade Unions across Germany.

In the city of Duisburg, four officials were beaten to death by Nazi thugs in the cellar of the trade union headquarters. Many more union leaders were arrested and held in prison or concentration camps…

May_2_1933

3 Things You Need to Know about Today’s Minimum Wage Vote

profits vs minimum wage

Here’s the first thing:
Today, the Senate did not vote on raising the minimum wage.  (If they had voted, the bill would almost certainly have passed.)
Rather: today’s vote was on whether to end a filibuster.  The filibuster is a parliamentary maneuver that allows a minority of Senators to prevent the full Senate from voting on a measure.  Since President Obama was elected, the GOP has used the filibuster to drive Congress into gridlock.  (Read more about the filibuster and Scott Brown here.)
The Senate can still vote again (and again) in the future on whether to end the filibuster.

Here’s the second thing:
The Federal Reserve Bank of St. Louis has been keeping track of corporate profits since 1947.  For the first 40 years after that, there was an almost perfect relationship between total corporate profits and the minimum wage: total corporate profits were almost exactly 55 billion times the minimum wage.  But once the 1986 corporate tax cut started impacting the economy, that changed. (It changed even more after the 2001 and 2003 Bush tax cuts.)

profits vs minimum wage


And here’s the third thing:

Today’s vote to end the filibuster failed by only six votes.  New Hampshire’s Sen. Kelly Ayotte was one of them.

4-30-14 Minimum Wage Filibuster Vote

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