by run75441

For Garbage and Labor

"I may not get there with you, but I want you to know tonight that we as a people will get to the Promised Land."

February 1968, 1,300 Sanitation Workers of Memphis went on strike for better working conditions and benefits, doing so with little support from the International AFSCME. Forced to carry poorly contained garbage in 60 gallon leaking and maggot infested containers from the backs of yards, the workers struck for safer working conditions, healthcare, etc. Angered by the deaths of two of their fellow workers and the sending home of 22 black sewer workers while white workers continued working the union led by T. O Jones walked out. Crushed to death when the garbage truck’s faulty controls activated the hydraulic ram, the two workers were seeking shelter from a rain storm inside the back end of the truck as there was nowhere else they were allowed to go. The city paid each of the dead worker's families $500 plus 1 month’s pay. The average wage of the sanitation worker was $.33/hour.

While initially seeking benefits and better working conditions, the strike became racially tense after the city refused to talk to the union representatives, white supervisors acted arbitrarily, and the city’s white populace, led by conservative Mayor Henry Loeb, grew angry with the black union’s strike. The “I Am A Man1 ” slogan came to symbolize the demands of the union workers for dignity, better working conditions, and an answer to the attack on the strikers and prominent black leaders by the Memphis police during a march to the city hall. The city was split into two camps, one black and one white.

Martin Luther King came to Memphis in support the strike as a part to his “Poor People’s Campaign” to Washington DC. On March 18, Martin Luther King’s spoke to 17,000 people about the dignity of labor and America's failed promise to Black Americans and those living in poverty. It drew national attention to the failing strike from the media and other trade unions. Later in March, King returned to Memphis to lead a march through Memphis with the workers. The march degenerated into violence as young blacks fought with police in the rear of the march. King was removed from the march by friends before he could suffer serious injury. When it was all over, Larry Payne youth was killed and sixty other people suffered injuries. The National Guard closed off the city.

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Via Mark Thoma comes this thinking on the nature of our economic system and by John Kay at the Financial Times in Business Leaders of Today are Not Capitalists.

John Kay says that the term "capitalism" is misleading in modern economies:

..So the business leaders of today are not capitalists in the sense in which Arkwright and Rockefeller were capitalists. Modern titans derive their authority and influence from their position in a hierarchy, not their ownership of capital. They have obtained these positions through their skills in organizational politics, in the traditional ways bishops and generals acquired positions in an ecclesiastical or military hierarchy. ...

And Mark comments on the article:

This is an important point, and it relates directly to the claim by many that inequality is needed in capitalist economies as an engine of growth. I think small businesses still operate in something resembling old fashioned capitalism -- owners putting their own resources at risk to open a new business -- but big business is another story (and in some cases, such as the finncial industry, too big too fail considerations reduce risk considerably for high level executives making arguments that this type of risks motivates innovation, etc. hard to swallow).

I had been looking for something more technical on how rating were determined when considering bond ratings for sovereign debt, but Barkley Rosser at Econospeak says it in non technical terms:

The Irrelevance Of Bond Ratings

It was front page news today, top story in WaPo, that S&P downgraded France and Austria from AAA status. Eeeeek! Except that their bond yields fell in the wake of this. The same thing happened after the US downgrade. And Japan has been downgraded 13 times, only to have the world's lowest bond yields. Really.
Posted by Barkley Rosser

by Linda Beale

Italy now backs a financial transactions tax

Germany and France are already on board in support of a financial transactions tax, and one outcome of the meeting of Italy's new leadership with Chancelor Merkel is that Italy is on board. See AP, Italy Backs Financial Transactions Tax, New York Times, Jan 11, 2012.

A financial transaction tax has several advantages especially relevant in this post-financial crisis period. It raises additional revenues in very small increments on financial trades. That is not likely to have a negative impact on trades, but is likely to raise much needed revenues for starving educational systems, transportation systems and other important government programs.

Further, to the extent it does act as a disincentive to financial transactions, that, too, accomplishes a public good. The financial transaction tax is really a variety of the so-called 'sin taxes' that provide revenue when the purchase behavior continues and a social benefit when it ceases. Finance has become too large a part of the economy, and much of what passes as financial activity, as we saw in the 2007-08 financial crisis, was really 'phantom' activity--trading at several times removed from the productive economy that gives people (other than bankers).

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Imagine that over the next week (in a closed American economy — the rest of the world has never existed) everyone sold all their financial assets, paid off all their debts, and deposited the remaining money (and any currency they have) in their checking accounts. No money-market funds, even. Just banks with reserve accounts at the Fed, holding everybody’s money in “cash.”

All those other financial asset prices would dive to zero. Late sellers would sell for nothing.

Would the remaining money in all the bank accounts equal U.S. government debt? That seems to be the implication of MMT thinking, because the remaining money only exists because it got spent into existence by the government deficit spending — crediting bank accounts with that fiat, ex nihilo money in the first place.

Net financial assets = gross financial assets = government debt

(If the government had always just deficit-spent instead of borrowing to cover its deficits, “government debt” would be replaced by “cumulative to-date government deficit spending.”)

I ask not just for clarity, but because (as always), I’m struggling with the relationship between fixed assets and financial assets, between saving and investment.

It’s said that the true wealth of the nation — the “national savings” — consists of its real assets: stuff that can be consumed in the future through use and time/natural decay. The NIPAs only count “fixed assets” — hardware (equipment), software, and structures, so let’s pretend that those constitute all real assets (which they don’t in actuality — not by a long shot). Net investment — purchases/creation minus consumption of fixed assets — increases the stock of fixed assets/”savings.”

In theory, financial assets are just financialized, monetized representatives, proxies, for the real, fixed assets that underly them. And indeed over the (very?) long term, the quantity of fixed assets and net financial assets rise together. Both are much larger today in the U.S. than they are in Thailand, or the U.S. in 1910. Financial-asset values wander all over — even over decades — based on “animal spirits,” but again in the long term…

If that’s so, then in our thought experiment:

Net financial assets = gross financial assets = government debt = fixed assets

The quantity of fixed assets increases over time through net investment. But by MMT thinking, net financial assets can only increase through government deficit spending (or trade surpluses). What is the mechanism whereby government deficit spending is translated into more net financial assets that embody the increased stock of fixed assets?

I imagine a necessarily political mechanism something like the following:

1. People and businesses buy/create fixed assets, resulting in more economic activity — creating/consuming, buying/selling, spending/income.

2. Those increased quantities (both stocks and flows) create more demand for government services. Both individuals and businesses would be decidedly unhappy, I’m thinking, if today’s government were the same size it was, at least in absolute terms, in 1870. (Conservatives and libertarians may say otherwise, but they’re talking through their hats.)

3. Legislators and executives who don’t provide those increased services don’t get re-elected.

4. Taxation lags behind spending — resulting in deficits — because A) people hate taxes and vote against politicians who raise them, and B) if deficit spending is not sufficient to match the increases in fixed assets, depressions result, and the “fiscally responsible” leaders get voted out.

5. The new money from government deficit spending is used to purchase financial assets, driving their prices up to (roughly) match the value of fixed assets.

This is thinking of government and the Fed as one consolidated entity. If you think of them as separate, you can imagine a different mechanism, in which the Fed and the congress/president are engaged in a constant chicken game over inflation, unemployment, and GDP growth, to determine how and when to increase the amount of money/net financial assets (ultimately through deficit spending) to match the stock of fixed assets.

These mechanics would also explain how buying/creating a bunch of drill presses will — through a long, tangled, and messy political process, and in the long but not the short run — result in more “loanable funds.”

Cr0ss-posted at Asymptosis.

Andrew Sullivan writes something interesting.* No not that Andrew Sullivan, this Andrew Sullivan at Reuters. Fairly excerpted, I think.

in October 1993, Bain Capital, co-founded by Mitt Romney, became majority shareholder in a steel mill that had been operating since 1888.

It was a gamble. The old mill, renamed GS Technologies,
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a federal government insurance agency had to pony up $44 million to bail out the company's underfunded pension plan. Nevertheless, Bain profited on the deal, receiving $12 million on its $8 million initial investment and at least $4.5 million in consulting fees.
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Nevertheless, Bain and its partners decided to buy the mill for $75 million. Bain put up about $8 million to gain majority control of the company, renamed GS Technologies Inc. GE Capital, former Armco executives and Leggett & Platt, a major customer for the mill's wire rods, chipped in the rest of the equity.

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Bain got its money back quickly. The new company issued $125 million in bonds and paid Bain a $36.1 million dividend in 1994.

"What ?!$" you ask. Bain put in $ 8 million and took out $ 36.1 million one year later ? If that isn't looting what is ?

Bain managed to lose $16.5 million of the money buying another steel mil,l hence the safe calculation of "at least $12 million" which means the 8 million back plus $12 million more plus the $4.5 million in fees. Note the similarity between the amount of money Bain made and the $44 million bailout.

And think of the fools who allowed Bain to control the firm after putting up 11.67% of the money ? I sure would like to play poker with them.


** with co author Greg Roumeliotis

We are taking a little side trip in this series of defining rich based on the prior tax rate schedules but, this post is keeping with the process of looking at history for markers as to the definition of rich. For any new readers, I believe as a society we knew and had definite boundaries as to what defined rich. I believe we knew how to say the word “when” as the income and wealth was pouring into one's glass These boundaries produced specific public policy that resulted in a more equal and just society.

In our local city there is another textile mill going to the grave. We have lost a couple of huge mills to fire in the last decade.  The local paper did an article on this mill known as the French Worsted Mill. It was built in two stages, 1906 and then 1906. It was part of the revival of the mill industry via specific targeting of French industrialists, post water power for the city. A local person who was eventually governor of the state is credited with bring $6,000,000 of foreign investment into the city early turn of the century. At one point they had a Uniroyal rubber plant that made soles for shoes The last pair of Keds (sneakers) went out the door in 1970. Nine hundred and fifty people out of work do to "FarEaster Producers".  (See the article: Pressure grows rapidly for Congress to to clamp tariffs on foreign goods, 5/19/1970)  This was a city as industrial as anything Detroit or Pittsburgh were. This was a cultural center for the region with 6 theaters and I don't mean just movies. We are talking blue collar all the way. We're talking jobs that we consider throw away jobs to the far east today. We're talking jobs that are not considered “good” jobs anymore.

So, now that you have the picture, here is what this mill and the jobs within it were able to do for the workers. I think this bit of history also adds to my position that we have continually pushed the cost of the American Dream up the income line such that the middle class can not afford it...even with 2 college educated people in one house. This is the sub-context to the discussion regarding the decline of the middle class or the loss of the middle class. When people say the middle class does not exist, what is being stated is that the American Dream is no longer financially possible for this groups of citizens. The Dream is not dead or gone, it is over priced relative to the income of the middle class. It is just as we are not drowning in debt, we are dehydrating from lack of income.

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For some reason I am trying to discover Photobucket has declared us out of band width and tells us by blasting us with upgrade bars and ads and messing with blogger widgets. This is nonsense...I am working on it and will apprise people about the interference. (The upgrade is $2.99 a month...a drastic method they have and pisses me off event hough we don't need it. Even if we did it is ridiculous). I am sorry for the inconvenience.

Update:     Well, I tracked this down... we have one photo at photobucket - our logo of the little green bear. Overtime the use adds up as it spreads over the net. I paid the ransom demand and will also change the arrangement when we go to wordpress. Thanks to Investing Channel..Brad in particular.. for the hat tip to photobucket to save me time. I wasn't receiving the ads or notice so had no idea.