Monday, February 28, 2011

The Recession Is Over For Some People...(Part 3).

     ...But it is going to last a long time for the rest of us. My last two postings listed several reasons why I believe the recession is going to be permanent for the non-rich. (See February 16 and February 21). Today I want to highlight another problem which will hinder the US from returning to the employment position which prevailed prior to the Bush years: Government pension committments.
     According to researchers at the Kellogg School of Management at Northwestern University, state and city governments are committed to paying pensions in the amount of $3.574T for which no funds have been provided. In addition, estimates of unfunded Federal pensions are $600B, for a total of $4.174T. (The number doesn't look so big untill it is written out: $4,174,000,000,000). The New York Post estimates that current payments for all governmental pensions amount to $81,500 per year per household. That money comes out of our taxes and it does not include any provision for chipping away at that unfunded debt.
     Nevertheless, that debt will eventually come due. In order to meet it, governments of all types will have to (a) cut costs, or (b) raise taxes. The current attitude considers tax increases to be an anathema, which leaves major downsizing as the alternative. Government workers - clerks, police, air traffic controllers, teachers, etc. - will lose their jobs en masse, and with the jobs will go their buying power. Additionally, such things as highway maintenance, health care, the environment, education – you name it – will suffer drastic cuts in funding.
     How did we get into this situation? By ignoring a primary rule of common sense: you save when times are good so that you will have resources when times are bad. It is so easy, not only for politicians, to make future committments when the cash is rolling in. Unfortunately, the bill eventually comes due.
     How will this affect our affluent class: the people who are at the top of the economic pecking order? Remember, although jobs are growing by leaps and bounds in China, India and other emerging countries, pension committments and other postponed perks which we have been taking for granted have not been made. A business buys its resources, including labor, where it can get the most for the money.
     And markets exist where people have jobs. With their huge populations, China and India alone can provide an almost unlimited supply of laborers/customers. When a CEO looks at the bank account he cannot tell, nor does he care, where the money came from.
     If the GOP wants to start cutting government costs, perhaps they should be looking at the bonuses being handed to corporations for shipping jobs overseas.
     It gets worse – stay tuned.
     [The first definition of a construct] covers anything from a physical bird nest or beaver dam to a jet plane or a super highway, and carries the connotation that the constructor has some definite use planned, either consciously or instinctively, for the construct.
     Constructs – The Spirit Runs Through It.

The Spirit Runs Through It is available in paperback or on Kindle.

Monday, February 21, 2011

The Recession Is Over For Some People...(Part 2)

     ...But it is going to last a long time for the rest of us. As I wrote on February 15th, “The conservative mantra that 'offering tax incentives and other perks to business will stimulate job recovery' is true, but the jobs will not be in the USA.” The tax incentives being offered today will exacerbate the problem in still another way.
     The major offering to business is allowing the manufacturer to deduct up to $500,000 of new equipment in the current tax year. In the past the cost of such equipment had to be spread over the life of the equipment. (In the interest of being “fair and balanced,” this tax break has been available for several years, although on a smaller scale).
     For example, suppose a manufacturer buys $500K worth of equipment that is estimated to last for 20 years. In the past he could deduct 1/20 of the cost each year for 20 years. If his tax rate was 35%, he would reduce his taxes by $8,750 each year. With accelerated depreciation he would save $175,000 the first year. And he can buy more equipment every year and save big money every year in taxes.
     So if a manufacturer can buy automated equipment— equipment which will replace humans on the production line— and save $166,250 in taxes, he will do so. In other words, the government is giving manufacturers tax incentives to eliminate jobs! Go figure.
     In my last blog I also told about a Massachusetts firm, Evergreen Solar, that received over $43M in state aid to open its new plant. After only three years the company is closing the plant and moving the 800 jobs to China.
     If you think that was an isolated case, check this headline from the January 25th Business Section of the local newspaper: Chinese Sales Drive GM's Comeback. The article goes on to say that “ 2010 GM sold more vehicles in China than in the U.S. for the first time.” That's 2.39M vehicles, roughly 136,000 more than in the U.S.
     It would be wonderful if GM had manufactured those vehicles in the U.S., but according to The Economic Populist, 1.03M of those vehicles were manufactured in China by Chinese owned companies in joint ventures with GM—Chinese companies using their own factories, their own manufacturing techniques and their own workers. Experts estimate that wages and benefits for Chinese workers amount to about 1/10 of their cost in the U.S.
     According to a May 18th, 2009 article in TIME, GM executives are planning to build their own factory in China in the next few years. I can understand that from a business standpoint, but does the government need to subsidize them?
     GM received $49.5B in government bailouts when they were facing bankruptcy. According to Senator Charles Grassley (R-Iowa), they have repaid about $23B, but the government still needs to receive $26.4B in order to recoup its entire investment.
     On February 15th the AP reported that GM plans to pay about $400M in bonuses to its workers. GM is reportedly sitting on $25B in cash. How about using some of that money to make a payment on their loan from the other 300 million citizens of the U.S.?
     The point of all this is to illustrate that government incentives do not necessarily create jobs, at least not in the U.S.
     Even more later.
     About 5 billion years ago, a small star on one of the outlying arms of the Milky Way Galaxy was ignited. We call it the Sun. The solar system, including our beautiful Earth, coalesced out of the surrounding stardust about 4.5+ billion years ago. At least for us, it was the Spirit's crowning achievement. We still get stardust as well as occasional other visitors (meteorites) from outer space.
     Matter Matters – The Spirit Runs Through It.

The book is available in paperback or on Kindle at Amazon.

Wednesday, February 16, 2011

The Recession Is Over For Some People...(Part 1)

     ...But it is going to last a long time for the rest of us. At last the rich have managed not merely to stack the deck in their favor, but to cut the not-so-rich completely out of the game. Not only that, they have managed to get rewarded in the process. It is as if, after having been mugged, we told our attacker to come along home – we have more money there.
     For those who measure prosperity by stock market indexes, the recession is over; people for whom the job market is the basis of measurement strongly disagree. I am going to let you in on a little secret: In today's post-industrial society the two are polar opposites! Unless something drastic is done, the unemployment rate is going to rise and fall in tandem with the equity market indexes.
     During the industrial era, manufacturers had to rely on workers to produce products, and they still do to some extent. But in the information era, production is not necessarily tied to geography. With high-speed transportation and computer networks, factories can be anywhere in the world.
     Suppose you are the CEO of a large corporation. You pay your employees the going rate of thirty dollars per hour, plus pay the lion's share of their medical insurance, and contribute a percentage of their wages to a retirement plan, all according to your union agreement. There is a limit to how high you can set your selling prices, and your personal income fluctuates with the net income of your operation. What do you do?
     According to (05 February 2011), here is what one company did: In 2008 Evergreen Solar received at least $43 million in state aid to open a plant for manufacturing solar panels in Devens, Mass. The factory provided 800 “green jobs“ - jobs which are vital in overcoming our dependence on foreign oil.
     One year later the New York Times reported that company officers were talking to Chinese officials who could offer labor for $300 per month compared to $5,400 per month which the company was paying in Massachusetts. The Chinese also offered low interest loans and other incentives.
     In January of this year the company announced the closing of the plant, leaving 800 employees without jobs. This is not an isolated incident.
     In spite of all the benefits America has received through capitalism, there is one problem which was not apparent during the industrial era: its success is measured by net income, not by the number of jobs it provides.
     What about the currently popular belief that we can retrain our workers in the skills needed in the information age? This immediately brings up more questions: Where will we find all the teachers? How long will it take? People in China, India, Mexico, Chile and others are already getting that training; will our specialists be willing to work for the same wages as their counterparts in those countries?
     And one other question which is, for all practical purposes, dead on arrival in today's political climate: Will the government provide such retraining? If not, who will?
     Ross Perot described the “giant sucking sound” of American jobs going south to Mexico with the passage of NAFTA. If that sound is a whisper, today's sound of American jobs heading all over the globe is a space shuttle liftoff. The conservative mantra that “offering tax incentives and other perks to business will stimulate job recovery” is true, but the jobs will not be in the USA.
     Something needs to be done quickly, or else the only training an American job seeker will need is to memorize the phrase, “Welcome to Walmart.”
     More later.

     At no time is there any hint of what the “product” is becoming; only the materials here and now are available for transcendence and transformation. This eliminates “…the notion of top-down causation [which] is incoherent [in] that it involves spooky forces exerted by wholes upon their components.”1
Eventually an infant is born. 

1 Carl F. Carver and William Bechtel, Philosophy-Neuroscience-Psychology Program, Washington University, St. Louis.
     An In-depth Look At The Spirit's Activity – The Spirit Runs Through It

The book or a free download is available in paperback or on Kindle at Amazon..