^ new regulations governing big bank trading almost in place : Treasury Secretary Jacob Lew announcing

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Twice, since Here and Sphere’s inception last May, we have editorialized in favor of raising the legal minimum wage. To those editorials I refer you, if you’re interested : you’ll find them in our Archives section. Today, however, I want to expand upon the economic realities and policy choices that command our support for raising the minimum wage substantially. I understand that economic talk can be boringly statistical. But would you prefer exciting talk that was false or a fantasy ? After all, we’re talkiing the family’s income here; so I hope that you and I can be real for a while ? “Yes,” you tell me ? Good. Now for some facts :

1.Many political economists recently have written about the rapid increase of income inequality in America. Money is flowing ever faster to the top 1 % of earners and away from the bottom FIFTY (50) percent. Today the top 1 % of earners take in ten times greater a pecentage of America’s entire national income than it did fifty years ago. If current increase rates continue, the top 1 % of earners will soon control more income than the bottom SIXTY percent.

2.Incomes for the bottom 60 % of earners has barely grown at all in the past 30 years. That of the top 1 % has increased almost 100-fold. (Former Clinton economic adviser Robert Reich recently opined on this point. His column is well worth reading.)

The trend I have outlined has serious implications not just for the bottom 60 percent of earners bit for the entire economy. People whose incomes aren’t growing much at all can’t grow the economy without taking on more and more debt. The advent of credit cards in the late 1970s began a splurge of plastic money that eventually grew the spending economy by a full 20 percent of GDP. That splurge was the only reason that most Americans were able to grow their spending and thus grow the economy. But that splurge ended abruptly in 2008, and total credit card debt has fallen in almost every month since. Because credit card spending constituted 20 % of America’s 2008 GDP, a fall of merely 10 % in total credit card debt shaved a full 2 % off total GDP. Little wonder that since 2009 our economy has grown a slow 2.7 %; and little wonder that with consumer spending — which totals 2/3 of the ENTIRE economy — not growing at all, job growth has been slower than needed.

So the questions are ; ( 1 ) how are we going to get most family incomes growing again ? ( 2 ) how are we going to grow the economy fast enough so that businesses need to hire more people ? and ( 3 ) how can we assure that these new hires will benefit the economy rather than impede it ?

To these questions the Republican party, ever since the Bush ’43 years at least, has had one answer only : lower taxes for everyone. For most of us, so that we can spend more; for the top 1 %, because they are businesses owners, and the more money that business owners have, the more jobs they will create.

The first part of the GOP policy — lower taxes for most of us — did not work beause the added money in most of our pockets was far outstripped by the rush of income to the top 1 %, by price increases, and by credit card debt payments. The second part of the GOP policy was false to begin with. Businesses do NOT create more jobs because their owners have more money. They increase jobs because there is increased consumer demand for their products and services. If businesses see more money come in, while demand for their offerings barely grows, they put that money in the bank. They don’t invest it in new plant or research. They park it.

Today this huge accumulation of “parked money” — economists estimate it at FOUR TRILLION dollars (!) — overhsngs our economy like a mountain of tumors. And there it will stay, until the factor that totals TWO THIRDS of our entire economy — consumer spending — picks up significantly.

Parked money robs the economy in two ways. First, it does not spend and so generates no hires. second, it attracts money and financiers to its management : and reecently that has meant using parked money to speculate in trading markets, in search of arbitrage, the most useless of economic events. “Arbitrage” is simply the differences in the value of money in one place, or one time — or both — rather than another resulting from inefficiencies in communication. At the time of the Napoleonic wars — 200 years ago — when the Rothschilds first realized that profits could be made in arbitrage by acquiring information more rapidly than their trading rivals, arbitrage forced the world’s money markets to work together : out of which our present, world-wide economy has developed. Today, however, the inefficiencies that profit an arbitrageur are slight, and the huge amounts of money chasing them a damaging diversion from uses of money far better for the people who live in this arbitraged economy.

What is needed now are ( 1 ) to flow money back into the paychecks of consumers and ( 2 ) to tax the advantages of arbitrage so that investment of money now parked becomes more profitable than arbitraging it.

It really is that simple. We do the ( 1 ) by increasing the minimum wage so that full workers don’ need public assistance to make ends meet and can even earn enough to participate in the discretionary spending economy ; by banning so-called “payday loans” and other loan schemes that prey on the survival conditions in which many of us live; and by assuring workers paid sick leave and single-payer health insurance, so that most of us don’t have to stress over life situations that deflect our work vigor and enthusiasm. If we then do ( 2 ) , we make it clear to those with large money that it benefits them to invest it, not park it, and to hire — and pay decently — knowing that everyone who is hired can then become an effective consumer of what invested money produces.

The more of us who are able to consume effectively, the stronger the economy. One reason why this is so is that someone who earns 50 times as much as another doesn’t spend 50 times more money. He or she spends maybe 30 times more. The rest of the money is saved, either out of prudence or because after one has bought one’s luxury stuff there isn’t anything else to buy. For most of us, however, almost every dollar available needs be spent, on necessities and on things useful to a normal life, such as a smarter suit of clothes (so that one looks successful, which is often needed in the businesses world) or a newer car (which won;t need repair down time any time soon)>

The above is, more or less, the economic policy of today’s Democratic Party. Apologists for the GOP policy sometimes call Democratic economic policy “socialism.” It is nothing of the kind. It is simply smart commercial regulation, an application of capitalism to the real deal rather than to what isn’t real at all. Which is why we prefer it.

Not to mention that paying full time workers a decent and useable wage is the right thing to do.

—- Michael Freedberg / Here and Sphere



^ Walt Michalik of Roslindale : a question that went right to the heart of economic matters

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Last night, at Hyde Park Main Streets’s tribute to City Councillor Rob Consalvo — retiring after 12 years service — I ran into an old friend, Walt Michalik, who lives in Roslindale and supported me the one time that I put aside political work for others to become a candidate myself. That was 1986. I had known Walt, and, very early on, as I visited “people of influence” in my “Rozzie” neighborhood seeking support, before I actually made a decision to run, I knocked on his door. (He was, in fact, my first such visit.) Walt was a Democratic activist. He knew that I was a Republican. So he asked me : “what is your opinion of the prevailing wage law ?”

For those who don’t know, the Prevailing Wage law, also known as the Pacheco Law, requires that on all State-funded contracts, the contractor pay his workers, whether they are union members or not, the same hourly amount that prevails in union-labor contracts. It wasn’t a law that I had thought much about and wasn’t something that I had planned to base my candidacy upon. So I didn’t answer Walter right away. But I knew a lot of ironworkers well, and I knew that they spent their big paychecks and thus brought a lot of prosperity to a lot of businesses. So an answer came to me :

“You know what, Walter ? I don’t see how taking money out of the pockets of workers helps the economy.”

Walter shook my hand, a handshake of solidarity.

Well, that was then. A generation has passed; and the answer that I came up with that afternoon opened the door for me to understanding how a democratic economy works — and should work ; it begins with the customer.

1.The less customers a business has, the less it prospers.

2.The less that a person earns (or receives by way of public assistance if that he needs), the less of a customer he can be.

3.An economic policy that impedes worthwhile money from accruing to most people defeats itself.  This axiom is one big reason why I support the welcoming immigration policy that until the past 90 years or so was America’s boon. Every immigrant is a potential customer and this grows the economy. This same axiom is why I support Massachusetts’s impending minimum wage hike. The more that workers earn, the more they can spend.

Quite frankly, the above is my ENTIRE economic policy. All else is commentary and implementation.

One hears the political Right talk about businesses being “job creators.” But businesses CANNOT create ANY jobs unless there are customers for its products or services. The more customers, the more jobs. Angel investors for start-up businesses want to know, first of all, who and how large will be the “market” — i.e., the customers — for that start-up’s offerings. No “angel investor” I have ever presented to requires the business plan to pay workers so little that they need public assistance to make ends met. Just the opposite ; angel investors want the start-up’s workers paid enough that they will stay, not leave, and thus (1) see the venture through to success and (2) avoid the huge costs, in money and time, of hiring and training replacements. I also know no “angel” investor who doesn’t want a start-up’s workers to not have paid sick time. Angel investors know that life is hard enough; a start-up shouldn’t make things harder for its workers than they already are.

Just who, then, does the political right speak for as it pursues “job creator” corporate tax breaks and opposes both workers’ wage hikes and the social safety net ? It doesn’t speak for workers, obviously, and it doesn’t speak for venture capitalists or the management of smart businesses. So who then ?

Speculators figure prominently among those who push this destructive agenda. Stock market funds often push publicly owned companies to cut back everything and anything in search of maximum immediate buy and sell gains. For the sake of purely paper windfalls these money poolers would trouble every other interest in our society. Unhappily, these money pools have drawn to them more and more money that, instead of investing in economic innovation, which bears vast risk and takes long time to accrue, seek sharp-fingered quickie hits; arbitrage — the most economically useless item in the entire money picture.

Even the money-lender has his place in an economy. Yes, he seeks interest on his money and does no work to earn it other than to have it to lend. But the money lender knows that if the borrower doesn’t prosper, he won’t get paid back. Yes, the lender may, if not paid back, claim the borrower’s assets as security; but no money lender wants those assets; he wants his interest and he wants his principal repaid.

For the stock trader, however — the arbitrageur — it;s just the opposoite,. He DOEs wnat that asset. He buys it at current value and dumps it at whatever higher value he can squeeze out of it by whatever means and as soon as possible, even if it means destroying the business and laying off its workers. This is what Bain Capital did, famously, during Mitt Romney’s partnership there and was a major reason why his candidacy for senator in 1994 earned the enmity of a majority of voters.

Not all stock buyers and hedge funders pursue a strategy of profit by desruction. Many investors buy in or the long term — and the huge success of a long term investment, wisely chosen, says all that needs be said : look at Warren Buffett, who has become a multi- billionaire by buying and holding, forever it seems, well chosen businesses whose management he supports and whose growth — in the classic economic manner I have outlined — he encourages. But for every dollar invested with the Warren Buffett sort of investor, 1000 dollars are invested these days with swift destroyers.

It is difficult to conceive legislation that will curb the economics of profit through destruction, that will not also limit the free movement of capital to positive purposes. But we are not helpless as a society to limit the impact of arbitrage money. We can impose a strong societal disapproval upon those who would profit by hurting all who stand in profit’s way. We can continue to angel-fund innovation businesses and support their entrepreneurs — and approve them socially too, social approval being one of a society’s strongest ways of policing good works and bads. At the same time, we can make it quite clear that he who would take money out of the pockets of workers lies beyond the pale of approval.

You don’t have to be a Wal-mart. You can be a Costco. It is an outrage that we allow low-wage employers to leave their staff no choice but to need taxpayer dollars in order to make ends meet. It’s also a no-growth policy, maybe even a recession policy. It is stupid. And immoral.

So how do we fight this stupidity ? Simple. It really does start with the question that Walt Michalik asked of me on a February afternoon 27 years ago.

—- Michael Freedberg / Here and Sphere




^ Chris Christie : a Fiorello LaGuardia for the 21st Century ?

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Folks in today’s GOP think it’s very much alive, indeed is the wave of the future. Observers OUTSIDE the GOP think it’s very much dead, the voice of the past, grim and gone.

They’re both right. Here’s why.

A political party is its people, its rank and file and its big voices. Today’s GOP has major big voices that span almost the entire horizon of American governance :

—- There is Chris Christie, voice of the Northeast, populist, even progressive, Fiorello LaGuardia wing of the GOP, to which this writer belongs (Christie even looks and speaks like LaGuardia).

—- There’s Jeb Bush, son and brother of Presidents, voice of the expansionist, immigrant-welcoming vision of growth and opportunity — a Teddy Roosevelt without T.R.’s Anglo-Saxon bias.


^ Jeb bush : welcoming immigrants as a boon to our economy and the rescue of Social security

—- In the Senate, there’s Rand Paul (KY), voice of “libertarian” agendas, with one foot in the camp of radical freedom / isolation, and his other in nativism and gun-brandishing kookery


^ Rand Paul : most influential libertarian voice in decades

—- also in the Senate, there’s John McCain : internationalist, reformer — including progressive banking and campaign finance reform — top voice of our war veterans and the avatar of bi-partisan agreements, with his two most effective allies, Lindsey Graham (SC) and Bob Corker (TN).


^ Tennessee’s Bob Corker : shrewd and willing to experiment

—- add yet another Senator, Marco Rubio (FL), who is trying to be all things to all people: a plan that rarely works but which at least acknowledges that all people are entitled to be listened to and responded to

—- and the Tea Party, anti-government to the max, and “Christian” social conservatives, strong in the South and Mississippi valley: think Rick Santorum, Mike Huckabee, Rick Perry, and a bunch of other guv’nors and legislators whose names we seldom hear up Nawth but who are wreaking Armageddon on the social progress of numerous states.


^ Tea Party ; frustration is a dead end politics

Life, there most definitely is, on the GOP side. Unfortunately, there is also death there. The GOP rank and file includes almost no people of color, few who live alternative lifestyles, and not very many Hispanics. Walk through any important American city — state capitols especially — and you will see everybody that the GOP is not. The GOP holds sway in America’s back country, including the most outlying exurbs of big cities — people — almost all White — who see themselves losing ground, economically and culturally, to city people. This is not a misperception. They are losing ground. And the people to whom they are losing ground — the highly educated, the technology whizzes — today live, work, and shop in center cities and have remarkably remade almost all of these.

The GOP is, to a large degree, the party of America’s have-nots and excludeds. Few GOP’ers belong to the underclass or the working poor, but of those whose incomes rank just above the minimum — who work at tasks increasingly unrewarded by the technology economy — the GOP claims a majority. Curiously, the same is true of their bosses. The executives of technology companies overwhelmingly support the Democrats, but the folks who own and manage enterprises staffed by slightly above minimum-wage workers identify just as GOP as their workers do. As for minimum wage enterprises, the more minimum the wages paid to its workers, the more GOP does the management of such companies identify.


^ Chick-a-fil CEO : fast food GOP

This is, economically, a culture of death. No one wants to live as a minimum wage employee subject to termination at any moment, without health insurance or benefits of any kind. No business that engages workers on that basis can ever rest easy that it will not be undercut by a competitor yet more ruthless. Workers in this sort of economy cannot participate in it. They can barely pay the essentials — indeed often require food stamps and other public assistance just to get by. A just-get-by family cannot buy anything discretionary ; and it is the discretionary economy that grows itself, that increases the nation’s prosperity and builds us a future.

This death would not be so dead if it embraced people of color, immigrants, and those of alternative lifestyle living and working in similar conditions. But it does not embrace them. It sees them as the cause of the death culture that has come upon them. Thus to death is added isolation, a kind of cultural solitary confinement.

The GOP needs badly to shake itself free of this culture of death; to deconstruct it entirely and rebuild entirely anew the lives of those now trapped in it. So far, however, the party’s only answer to this death trip is that of Texas’s Ted Cruz and Wisconsin’s Paul Ryan: an “opportunity fantasy.” As Congressman Jim McDermott (D-WA) just recently, in committee hearing, pointed out, this fantasy isn’t real. In it, everybody is on his own — no social safety net of any kind because that breeds laziness, say Cruz and Ryan — pursuing a kind of multi-level marketing scheme in which, if you dream hard enough, you will pyramid your dreams into acres of diamonds. This might work for a lucky, early few; for the future-less millions of us, it’s just another brick in the wall of being lied to.


^ Ted Cruz : a male Mary Kay Ash ?

It is hard to be alive when much of you is dead. The GOP has plenty of life in it, at the leader level. Whether those leaders will have more alive followers than they have now depends on their ability to cast off the deadness. By 2016 we will know if any of them has succeeded.

—- Michael Freedberg / Here and Sphere


^ NYC Mayor Fiorello LaGuardia ; when the GOP was the voice of big multitudinous cities



Larry Summers ; age 59; former Treasury Secretary. Ready to lead.

Federal Reserve chairman Ben Bernanke’s second term is done, and he is not willing to do a third. The President therefore has a big decision to make. Whom will he choose as successor ?

Our choice, of the three names mentioned, is Larry Summers. Here’s why he’s our pick.

Summers has held almost every economic position that matters. He is blunt, brilliant, thinks outside the box. He challenges ideas, including his own. He takes no crap from anybody — and this matters. What if in 2016 a Republican were to become President on a mission to implement the deflationary and regressive — deadly — economics voiced by the Tea Party ? Summers could and would almost certainly rebuff any such move. The “Fed” chairman has that level of power. We’re not sure that the other people being vetted have the gall to exercise it.

No Presidential personnel pick matters more than “FED” boss. One can argue that even Supreme Court justice appointments don’t matter as much. Supreme Court rulings can always be modified, even reversed. Economic decisions happen in real time; once taken, they set off consequences that cannot be un-consequence’d. The Federal Reserve Board directs the entire economy. Basic monetary policy — from interest rates to open-market bond purchases to the size of the money supply and its rate of increase. The “Fed’ decides and acts on all.

Not even Congress has the level of power over the American economy that the “Fed” has. Under Ben Bernanke, the “Fed” has invested trillions of dollars to purchase mortgage bonds and maintained radically low interest rates — the rate that it charges banks with access to “fed” dollars — without overworking the money supply. Indeed, the only reason that the Tea Party in Congress has not destroyed the credit rating of America’s debt, wiped out the welfare state, and caused enormous, uncompensated unemployment and home foreclosure is that the “Fed” has performed all the economic stimuli that Congress, paralyzed by the Tea, could not.
Under the leadership of Ben Bernanke, America has seen its economy grow and watched that growth pick up speed and width. Bernanke has saved America. Simple as that.

The next “Fed” boss will have just as much authority. It was accorded the “Fed” in a 1913 law enacted, in Woodrow Wilson’s historic first term, as response to the Panic of 1907, in which the American bank and currency system were rescued from complete collapse only because key private bankers intervened, just in time, and very much in their own interest. We cannot allow our economy to face such ruin, and we should not have to put the economy at the mercy of big banks and their self-interest. The American economy belongs to all of us, all the time, and as the “Fed’ has the power — and the ability — to mitigate such crises, we should be glad that we have it.

We should have — must have — a “Fed” boss who can command, who likes to command, and who fully utilizes all the powers that the “Fed” possesses. The US economy drives the entire world’s economies. Our dollar is the world’s top reserve currency. Every decision made by the “Fed’ affects our dollar and has world-wide implications. Nearly every such decision impacts the world’s interest rates, money supply, exchange values. Making the wrong decision here visits its mistake upon every nation; every nation’s response visits itself back upon us. The “Fed’ boss cannot be intimidated by this. Larry Summers does not intimidate easily.


^ consensus seeker : Fed vice-chair Janet Yellen

It is said that Janet Yellen, currently vice-chairman of the “Fed,” should be the choice because she is a woman — there has never been a female “Fed” boss — and because she works by consensus. These reasons do not move us. Money has no gender; economic decisions have no chromosomes. As for consensus, it muddles the matter — dulls the pencil. The “Fed” boss cannot seek consensus; his or her pencil must be sharp.

Larry Summers is, economically, the sharpest of pencils, and one who knows all the components of a point. He is our choice to lead the “Fed.”

—- Michael Freedberg / Here and Sphere