Wednesday, September 15, 2010

The next new normal

China allowed its currency to appreciate for 5th straight day allowing nearly a one percent strengthening ahead of the Congressional hearings on currency manipulation that started today. The Ways and Means Committee is in a mood to do something about the Yuan and most observers see China’s recent currency re-valuing as just a show for the Committee as well as for the benefit of the up coming G-20 meeting. Japan has taken the unusual step of pushing down the value of the Yen overnight against the Chinese Yuan and everybody is waiting to see what happens.

Under US law, President Obama is required to put tariffs on Chinese goods because of its blatant currency manipulation, something no US President has ever been willing to do. Basically Obama has to choose between allowing the Dragon to continue to eat the villagers or anger the Wall Street barons who profit billions from the Dragon‘s rampage. The villagers get to vote in November and annoying the Dragon will make things drastically worse in the short term and because the barons (that includes the media barons) will make the villagers think that they getting eaten is all Obama’s fault (and not Wall Street’s) means not much is likely to be done.

Meanwhile there is a sort of panic going on among older public sector workers who are rushing to retire from government service before their benefits are cut. At least half of the states are having problems with their pension funds and eight of them have no hope of meeting their obligations. In New Jersey there is an actual line of hopeful pensioners out the door and down the block, hoping in vain to avoid a cat food diet in old age.

Republicans portray this shortfall as the fault of the workers who they claim are lazy, overpaid and greedy. The facts are that college educated public sector workers make far less than their private sector equivalents but have counted on getting the pension they contributed to and in many cases they must depend on it instead of Social Security.

The big problem for state pension plans is their investments tanked along with your 401(k). How many people remember George Bush promising a 20,000 point DOW when he wanted to put Social Security into the stock market? States were planning for pensions based these totally absurd predictions and many states dominated by Republicans simply promised pensions in lieu of wages with no intention of ever making good on them.

Blue and pink collar public employees do make more on average than private sector workers but only because they have been able to maintain cost of living adjustments thanks to public employee unions. At the same time private sector pay that used to be better than government wages has fallen drastically since Reagan declared war on the middle class thirty years ago. Increasingly a government job in many places is not enough to live on but is only better than the worse choice in the private sector.

The reason government is short of money is simple, tax avoidance. The rich have slashed their own taxes and corporations simply don’t pay theirs. By reincorporating offshore most are able through “free trade”, make that “tax free trade” to keep their profits entirely offshore and away from the tax collector. Fully half of imports into the US are purchased by a company from itself overseas so that they can make sure no profit occurs in the US.

Republicans whine about the high US tax rate but the reality is that 2/3 of corporations pay no taxes in the US and some in fact “make” money from the tax system. The effective tax rate paid by US business is by far the lowest in the developed world, a fraction of what European companies pay and even less than they pay in China. That’s right, the only tax burden many US companies have are the taxes they pay in China.

China is building 230 mph trains while our interstate bridges are falling down. China graduates twice as many engineers and scientists each year as we do while our teachers, structural engineers and scientists are jockeying to get out of government while they can still get a pension. That rush to get their pensions is probably a mistake with states likely to slash retirement benefits anyway and use the increased demand as an excuse. Cat food retirement is the new normal; un-inspected cat food, that‘s the next new normal.

 PS I think we should embrace the Republican phrase "new normal" and use it in the most derisive tone. The perfect Progressive campaign would be a new Sarah Peller (Where's the beef?)  An elderly lady could be put in a variety of situations such as with a can of cat food on a plate and her saying "This is the new normal?" Her son in front of a locked factory gate with lunch pail in hand, "This is the new normal?"; Grandson with $100,000 college bill; foreclosure sign on the lawn, etc.


Ted D. said...

"Blue and pink collar public employees do make more on average than private sector workers ..."

I refer you to this:

And this:{22748FDE-C3B8-4E10-83D0-959386E5C1A4}&DE={BD1EB9E6-79DA-42C7-A47E-5D4FA1280C0B}


ickenittle said...

Can you tell me what determines who is considered middle class-I can't get a straight answer with a hard number- just a lot of speculation and different answers.

prairie2 said...

Middle Class: I'm afraid all I have is more speculation and different answers. Middle class like beauty is in the eye of the beholder. It varies as to where you live more than anything. $100,000 in NYC is middle class where as in a small town 40,000 could put you firmly in the middle class. In most contexts you are talking about people who can make a comfortable living but don't have much financial wealth. Some people think of it as status, a school teacher is middle class (anymore most teachers are really working poor) and might not think a truck driver who makes twice as much money as middle class. Most Americans like to think of themselves as middle class and "other" people as not. For most purposes "above the poverty rate" starts the lower middle class going up to professionals who would upper middle class.