Saturday, December 17, 2016

Natural Weekends - Snow Day










Generic Drug Price Fixing Highlights Issues Of Oligopoly And Common Ownership

Today's installment of corporate crime involves generic drug makers. The case starts in my home state of Connecticut and our Attorney General George Jepsen. His investigation of collusion and price fixing among generic drug makers has led to a civil suit signed on to by 20 states accusing six generic drug makers of a conspiring to fix the prices of an antibiotic and an diabetes drug. In announcing the suit, Jepsen ominously said, "We believe that this is just the tip of the iceberg. I stress that our investigation is continuing, and it goes way beyond the two drugs in this lawsuit, and it involves many more companies than are in this lawsuit." In what is apparently a pattern in the industry, generic drug makers routinely reached out to rivals in order to obtain some kind of deal or assurance that they would be able to maintain market share and avoid a price war when they decided to sell a new drug. All this happened during frequent meetings at industry conferences, social gatherings, and even via email. One of the companies named in the suit is Teva Pharmaceuticals, an industry leader in generic drugs. Another big name in the generic industry that was also named is familiar to all of us - Mylan. You remember Mylan as the company that jacked up the price of EpiPen, the lifesaving device for those with severe allergies, by over 600% in the span of a couple of years. It has now added price fixing to its already legendary price-gouging and tax desertion. Earlier in the week, the Feds arrested two executives at one of the smaller firms also named in the suit for the price fixing that Jepsen also references. It also appears that the executives embezzled millions from that company as well. Sadly, Jepsen's suit is only a civil case meaning that none of the executives face the jail time they deserve. The federal case, however, may actually end up with executives in jail, but I'll believe it when I see it.

Jepsen's implication that the scope of this price fixing is wide ranging has enormous implications considering that 80% of all prescriptions written in the US are for generic drugs. Thinking about that, it makes you wonder how many billions of dollars these companies stole from all of us via these price fixing schemes.

As with most American industries these days, it looks like the generic drug business is another oligopoly. There are two companies that dominate the industry and then a handful of smaller companies that probably have their own special niche. In all these situations where there is undue concentration in an industry, the temptation to divide up the market so that none of these companies actually compete with each other is immense. And in the rare cases where they do compete, the temptation to price fix so that they all make money is also great. This is clearly what has happened with Teva, Mylan, and the rest of the generic drug makers.

I have written about how the lack of real competition in American business is driving higher profits, lower investment, and a rise in inequality. The share of GDP going to profits has risen dramatically while the shares for labor and capital, in other words, investment have fallen. This does not bode well for the long-term future of our economy. Many studies have shown that increasing concentration in various industries is primarily responsible for this trend. A new study from the National Bureau of Economic Research adds to this finding. The study looks at what is called the "Q" ratio developed by Nobel Prize-winning economist (and my former professor) James Tobin. If the ratio is higher than 1, the result implies that the company should increase investment; below 1 implies there is no incentive for capital projects. Tobin's Q has been very predictive since he developed it back in 1969. For most of this century, the Q has been over 1, indicating that capital investment should be increasing. Instead, the reality is that investment has been weak. The authors of the study point to a number of factors for this, including the increase in those mythical "intangible assets". But by far and away the largest factor is "the increasing concentration of companies within industries and increased 'common ownership' of companies by large investment firms. These 'commonly owned' companies not only don’t invest as much as we might expect given their Qs but instead use these their funds to finance share buybacks and other shareholder payouts. The high profitability of these companies isn’t reinvested in these firms but instead flows to predominantly wealthy shareholders."

It is important to understand that the increased concentration in American industry is in many was linked and even driven by the common ownership of the companies in that industry. Common ownership refers to the fact that the same group of Wall Street firms own significant stakes in all the major players within an industry. As an example, Blackrock, Vanguard, and State Street own the largest bloc of shares of Dupont and its competitor, Monsanto. In addition, they own significant blocs of other competitors, such as Bayer. The incentive for these investment firms is to NOT have these companies compete with each other, because, if one firm gains market share or competes on price, it will do so at the expense of the other. The CEOs in these companies understand who their masters are, so the investment firms do not even have to actively restrict competition in order for to happen. However, when necessary, these investment firms can and do act to suppress competition as they have enough power to restrict proxy access and appoint or control members of the board. For example, an investment manager from Berkshire Hathaway has recently been appointed to the JP Morgan Chase board. Berkshire Hathaway is the largest shareholder in Wells Fargo. What do you think the chances are the JP Morgan is going to aggressively compete with Wells Fargo. In addition, this common ownership has also helped drive the enormous rise in CEO pay as individual CEO performance matters much less to these shareholders than the performance of the industry as a whole. It has driven the enormous increase in profits through the lack of actual competition which is then passed on to rich shareholders and has also increased the practice of share buybacks which only serve to reward those existing rich shareholders again. I suggest you read the whole interview with Martin Schmalz that I linked to above as it is enlightening and focuses on an issue that is broadly overlooked.

If we want to address the lack of investment, stagnating wages, and rising inequality in this country, we need to attack the monopoly and oligopoly powers of America's highly concentrated industries, primarily through stronger antitrust enforcement. But that alone will not be enough. We will also need to break up this pattern of common ownership through stronger regulation and enforcement of ownership concentration, not just in individual companies but also across entire industries. Without that additional step, just breaking up the oligopolies may not be enough to address the structural economic problems we have.


Friday, December 16, 2016

GOP Has New Misleading Catchphrase For Taking Away Your Health Insurance

Republicans have developed a new catchphrase for the replace part of their vow to repeal and replace Obamacare. The phrase is "universal access to health care and coverage". Pointedly, that does not mean they will ensure that everyone actually has health insurance. As with most Republican policies, the phrasing sounds nice but the actual policy behind it is an empty promise. As many Republicans have pointed out over the years, Americans already have universal access to health care - it's called the emergency room. The fact that it is the most expensive way to treat health problems does not concern Republicans, The fact that it does a terrible job of managing chronic illnesses does not concern Republicans. The fact that emergency rooms ae not designed to be primary care providers does not concern Republicans. Their pledge for universal access to health care is just an empty promise and means the emergency room will become your primary care physician.

Even before Obamacare, there was always universal access to health insurance, except for those with a pre-existing condition. The problem was that real insurance was not affordable and what was affordable was essentially crap. After repealing Obamacare, Republicans could easily mandate insurance companies offer insurance to those with pre-existing conditions and, voila!, there is universal access to health insurance. Of course, that insurance would be totally unaffordable, as would plans similar to Obamacare for all those who currently receive subsidies. The fact that health insurance would be unaffordable for those with pre-existing conditions and those subsidized under Obamacare does not concern Republicans. The fact that people without health insurance will forgo treatment until the problem becomes an emergency does not concern the Republicans. The fact that people without health insurance or with crap insurance will go bankrupt when the have a serious health issue does not concern Republican. What does concern them is that they have a nice sounding slogan that misleads people into believing they really are concerned. Thank you, Trump voters.

Reality Starting To Sink In Re Difficulty Of Brexit

Britain's ambassador to the European Union delivered some sobering news to Theresa May's government when he suggested that Brexit negotiations could actually take a decade to conclude. The government did not deny the ambassador's comments but spun it to say they reflected the views of European leaders. I'm not sure that makes it much better, since those are the very people Britain will be negotiating with. In an additional embarrassment and a rather pointed maneuver that expressed the current European attitude toward Brexit, May was asked to leave a dinner at a gathering in Brussels so that the remaining Europeans could discuss their own strategy relating to Britain's exit.

Theresa May's government seemed to be in chaos over how to approach Brexit. Now, it appears the government has begun backtracking in a number of ways. David Davis, the prime British negotiator for Brexit, proposed that idea of a transitional arrangement if negotiations could not be concluded in the two-year window. He also raised the possibility that Britain could still make budget contributions to the European Union in exchange for other privileges, presumably access to European markets. I'm not sure Brexit hardliners would be too happy about that stance. And they certainly will be furious with Davis' view that Britain might be able to revoke its decision to exit the European Union after it had already invoked Article 50. Davis said he did not anticipate this happening, but it sounds like he is proposing a way for Britain to completely back out of Brexit if negotiations look like they will drag on forever or the European demands are just too harsh. Article 50 has not yet been invoked and already Britain is beginning to back off the more extreme Brexit positions. It's beginning to look like the line in the sand for Britain is control of its own borders. I'm not sure even that will fly with the Europeans. Nor am I sure that monetary contributions to Europe in exchange for certain privileges will fly with British voters.

Trump's Actions Re Israel And Taiwan Have Already Made The World Less Safe

It will be a little over one month from now that Donald Trump will officially become President. But, already, the world has become a more dangerous place. Yesterday, Trump picked David Friedman as his ambassador to Israel. Friedman comes with what Trump would view as solid credentials - he's a bankruptcy lawyer. Perhaps Trump has run across Friedman in the course of his multiple bankruptcies. As a diplomat, however, Friedman has no experience - absolutely zero. More disturbingly, Friedman has equated Jewish supporters of the two-state solution with Nazi collaborators and has said he will not even meet with J-Street, a more liberal Jewish lobbying organization in Washington.  If that wasn't troubling enough, he does not believe in the two-state solution but does believe that Jerusalem should not only be the site of the US Embassy but is also Israel's "eternal capital". To understate the situation, both of these positions are at odds with decades of US policy, will encourage and embolden the settler movement and the apartheid they are creating, and will certainly not be well received by the Palestinians and their Arab supporters. Assuming Friedman's views reflect the intentions of the Trump administration, this will only result in less security for Israel and the United States. Iran has been a supporter of Hezbollah in Lebanon for decades and has been providing a large amount of support to keep Assad in power in Syria. If the US abandons the two-state solution, moves its embassy to Jerusalem, and allows Israel to create even more illegal settlements, the chances for Iranian proxies to attack from Lebanon and Syria are greatly increased. If the Israelis respond to attacks from Syria with air strikes, they run the real risk of encountering Russian air resistance, an escalation that could then require American engagement. And Iranian support in the form of money and weapons for the Palestinians will also increase accordingly.

Meanwhile, China is reacting to Trump's abandonment of the one-China policy with increasing belligerence in South China Sea. Yesterday, satellite images revealed that China has put weapons, anti-missile, and anti-aircraft systems on seven of the artificial islands that it has been building over the last few years. This was hardly unexpected but it certainly seems that China has moved extraordinarily rapidly to militarize these islands since the elections. Today, a Chinese Navy ship literally stole a US unmanned underwater vehicle before a US oceanographic research vessel could retrieve it from the sea. Both these actions indicate that China is asserting its influence over the South China Sea and should indicate to the Trump administration that the Chinese take their claims to Taiwan with utmost seriousness.

Trump's actions with Taiwan and Israel have already made both Asia and the Middle East less safe. And Trump is not yet President. Be afraid.

Update: I thought I was being sarcastic, but Friedman really did represent Trump during his phase of casino bankruptcies. You can't make this up.

Forget Economics Vs. Identity Politics, It Was Comey, Comey, Comey!

John Podesta has an op-ed in the Washington Post today where he lambastes the FBI for its role in the 2016 election. Podesta points out that when the FBI contacted the DNC to tell them that the organization had been hacked, he ended up speaking to essentially the IT help desk at the DNC. The FBI agent specifically spoke about infiltration by the "Dukes", a group that the agency was familiar with because of other intrusions into government systems and has been directly associated with Russia since 2008. Although the agent tried to follow up multiple times afterward, the IT guy had no reason to be sure that he was truly an FBI agent and a credible source. As Podesta points out, it might have been helpful if the agent made a personal visit to DNC headquarters, which is located only a few miles from the FBI in Washington DC. If a personal visit was to much, perhaps he could have spoken to the senior members of the DNC who were actually members of Congress. If not that, perhaps he could have asked to escalate his phone calls up the management chain of the DNC, rather than just speaking to the help desk.

Podesta contrasts this lackadaisical attitude to the overwhelming force that the FBI applied to investigating Hillary's email server which involved dozens of agents and, according to Comey himself, required "thousands of hours of effort". If only the FBI could have put in a couple of hours of effort to accurately inform the DNC.

As we gain more insight into the investigation of Russian hacking, Comey's actions begin to look worse and worse, which is simply hard to imagine at this point. All through the summer, the FBI reported incidents of Russians hacking the election systems in the US. In August, the FBI reported breaches in the voter registration systems in Arizona and Illinois. In congressional testimony at the end of September, Comey also reported that other intrusions had been attempted and scanning activities, which are a prelude to an attack, had also been detected. All during the summer WikiLeaks had been providing timely releases of hacked DNC emails and it did not take a rocket scientist to at least surmise that the Russians had provided that material, considering the FBI was well aware the DNC had been breached. So Comey certainly can not claim that it was unclear whether our election system was being hacked and, since all the damaging material that was being leaked effected Democrats, he had to have some inkling that some group was trying to influence the election. And all the evidence pointed to the Russians.

Comey, along with Jeh Johnson, head of Homeland Security, attended that fateful meeting with congressional leaders where McConnell refused to put out a bipartisan statement about the Russian hacking and threatened to accuse the administration of partisan interference in the election if the administration did so unilaterally. One of the unanswered questions about that meeting is what exactly Comey's input was, if anything. Did he provide cover for McConnell in that meeting? Subsequently, the administration did put out a watered down warning about foreign interference in our elections but, significantly, the FBI refused to even sign on to that, reportedly because Comey felt even that warning would influence the election in a partisan way. That is pretty hard to swallow considering just weeks later he violated DOJ rules and the direct recommendations of his superiors to announce an investigation into the Abedin emails that turned up absolutely nothing. In addition, the New York FBI office was serially leaking damaging accusations against Clinton that all proved to be unfounded. Even to this day, the FBI refuses to sign on to assessment that Russia hacked our electoral system in order to help Trump get elected and it continues to provide cover for Republicans to claim the evidence about Russian hacking is inconclusive. This FBI reluctance allows David Nunes, Republican chairman of the House Intelligence Committee, to obfuscate what has really happened by saying, "I’ll be the first one to come out and point at Russia if there’s clear evidence, but there is no clear evidence – even now. There’s a lot of innuendo, lots of circumstantial evidence, that’s it". Media reports describe the differing assessments of the CIA and the FBI as a difference in the focus of each organization. As an example, CNN says, "Part of the issue is the nature of the CIA and FBI roles in the investigation. The CIA produces raw intelligence, the FBI moves more slowly to reach conclusions based on the intelligence and other investigative work". If it weren't for the damage done, those statements are simply laughable when you think about Comey's letter about Abedin's emails based on no evidence at all and before a warrant to look at the emails had even been prepared, much less, accepted by a judge.

Podesta is correct in stating that the FBI is broken. But he is being kind. This was a coordinated attack by the FBI to manipulate an election. And Comey was a willing participant. Whether the FBI could prove that Russia was directing the hacking or not is irrelevant. Whether the FBI could prove that the hacking was designed to help Trump is irrelevant. The facts are that foreign powers of some sort hacked our election systems. Leaks resulting from that hacking only hurt the Clinton campaign. Knowing those facts, Comey still refused to sign on to the administration's October statement. And even to this day, he refuses to say that it was designed to get Trump elected when all the information shows that it did. Beyond that, his rationale for his letters about the Abedin emails are in direct contradiction to his rationale for not commenting on the Russian hacks and directly contradict the bureau's rationale for not agreeing with the CIA's assessment. He allowed the New York field office to leak inaccurate and incredibly damaging information regarding Clinton just days before the election. As far as I know, there has been no disciplinary action taken against anyone for those leaks. And to this day, his agency still provides cover for Republicans and Trump.

This election may have been hacked by the Russians. But it was an American coup. While Democrats fight about whether to blame their economic message or identity politics, they help deflect from the central figure in this election. It's Comey, Comey, Comey!

Thursday, December 15, 2016

Corpus Christi, Like Flint, Is The Harbinger For Trump's America

The water system of Corpus Christi, Texas, a city of over 300,000 on the Gulf Coast has been contaminated by a chemical spill in an industrial district and residents are advised against using tap water to cook or bathe. My sources tell me that the residents have also been instructed not to flush their toilets but that has not been confirmed by the media. According to a press release, somewhere between 3 to 24 gallons of an asphalt emulsifier, Indulin AA-86, has possibly leaked into the city's water system. Although testing has so far indicated no contamination, the city's recommendations were made out of "an abundance of caution'. That caution might be warranted since the chemical is under patent and the city has no idea what the underlying elements are that they should be testing for. In fact, the city has had to sign a non-disclosure agreement with the chemical's patent holder simply to find out the specific makeup of the chemical. Apparently, the city believes that boiling or filtering the water will be ineffective. It would be nice if the city could let its citizens know just exactly who is poisoning them but, so far, the city has refused to identify the source of the contamination. My sources say it is a Valero Energy facility but, again, that has not been confirmed. After Flint, we all know the kind of damage that can happen when water systems become contaminated. If this chemical somehow strips the protective coating off the lead pipes in the system, Corpus could very well end up in a similar situation to Flint.

This is not the first time Corpus Christi has suffered a failure of its water system. Back in May, the city remained under a "boil water" notice for two weeks after low levels of chlorine disinfectant were detected in the system, making the water unsafe. That incident was the third incident with the city's water system in just one year. Texas is the dream example for what the oil-drilling polluters that dominate Trump's cabinet want in government. Environmental regulations in Texas are primarily designed to protect the polluters from any challenges from citizens of environmental groups. Texas ranks as one of the top polluting states in virtually every category - water quality, air quality, chemical contamination, you name it. The Republicans that control the state surely believe that polluters need to enjoy "liberty" from those pesky environmental regulations. Sadly, Texas is where the GOP, Trump, and his cabinet want to take us.


GOP Will Use The Concept Of Liberty To Destroy Democracy

Finally, there is the beginning of a media meme that is just beginning to realize that the Republican party has no concern for our democracy and the norms of governance that goes along with it. There was some initial shock when it was revealed that Mitch McConnell had refused to condemn the Russian hacking operation and threatened to accuse the Obama administration of partisan interference in the election if they went ahead unilaterally. That seems to have dissipated for some unknown reason now that Republicans won the election and McConnell is willing to look into the hacking in a bipartisan fashion, because the media loves anything they can call bipartisan. Some were even more surprised that the Republicans also received hacked information on down-ballot races, including some of the most competitive House races. Although there is no direct indication that Republican candidates used the information, PACs associated with those campaigns certainly did. And while senior Republican leaders were aware of the extent of Russian hacking, not one of them thought to criticize Trump when he actively encouraged the Russians to keep on hacking. Much of this has dropped off the radar as the media obsesses about the extent of the hacking and whether Putin was directly involved in the operation or not. For the media, that has an added benefit of not recognizing their own complicity in the hacking operation, arguably even greater than Republicans. But I do believe the focus will shift back to Republicans and their use of what they knew were stolen documents.

But collaborating with our enemy in order to win power, either through direct coordination or as an accessory after the fact, is just par for the course for Republicans. Electors in the Electoral College who have questioned the fitness of Donald Trump for the office of the President have been verbally threatened if they act "faithlessly", intimating that their future career prospects will be destroyed.

That is peanuts compared to what Republicans are doing in North Carolina. After a close election was won by Democrat Roy Cooper, his GOP opponent Pat McCrory fought to overturn the result for weeks with one fruitless challenge after another. All the while McCrory was encouraged and aided by the Republican legislature. In addition, Democrats also gained control of the State Supreme Court, an important victory considering the legislature has been illegally gerrymandering the state this entire decade. But the Republican legislature is determined to not accept the results of the election and the will of the voters. The GOP leaders called a special session of the legislature in order to pass laws to neuter not only the Governor but also make access to the Supreme Court more difficult. When McCrory won election in 2013, the legislature increased the number of patronage jobs, or what is technically known as "exempt positions", from 500 to 1,500. Now that the Democrat has become governor, the legislature is reducing those jobs to around 300, including eliminating his ability to appoint members to the UNC board of trustees and the state Board of Education. In addition, there is a proposal to end the governor's party's control of the elections boards around the state, something that worked exceedingly well to advantage McCrory during his attempts to contest the election but also to engage in suppression of Democratic votes. The latest proposal would force the boards to be split evenly between Republicans and Democrats, effectively rendering them totally toothless and ineffective. The legislature is also proposing that the Governor's cabinet selections require confirmation by the State Senate, something that is currently not required. Based on the partisan nature of the legislature, this would probably mean no cabinet position would be filled by anyone Cooper would be likely to choose. The final legislative proposal is to no longer allow a direct constitutional challenge to the now Democratic State Supreme Court. Instead, all such cases would have to be heard by the State Court of Appeals which is still controlled by Republicans. This will technically not impede cases from being heard by the Supreme Court but I have no doubt that the Appeals Court will slow-walk as many important decisions as possible, especially those that pertain to voting rights. For these cases, justice delayed may truly be justice denied, especially considering illegally gerrymandered congressional districts in the state have been in place since 2011 and were only struck down this year, meaning two Congressional elections and one presidential election were held using illegal districts. There had been talk that the legislature would expand the number of justices in the Supreme Court and allow McCrory to fill them, essentially packing the court against the voters' wishes. Thankfully, the legislature hasn't gone there, yet.

This is not what the peaceful transition of power looks like and it is just another democratic norm that the GOP has destroyed. And it does not bode well for the time when Donald Trump is scheduled to leave the White House. The list of norms the GOP has already destroyed is long - the government shutdowns, using the country's debt to blackmail a President, the use of torture and illegal surveillance, illegal gerrymandering and voter suppression, the refusal to even give a hearing much less a vote to a Supreme Court nominee, and the threat to not accept the results of the election. The GOP attack on democracy has been building for years. In his interview with the New Yorker, President Obama said, "We've seen this coming. Donald Trump is not an outlier; he is a culmination, a logical conclusion of the rhetoric and tactics of the Republican Party for the past ten, fifteen, twenty years. What surprised me was the degree to which the those tactics and rhetoric completely jumped the rails. There were no governing principles, there was no one to say, 'No, this is going too far, this isn't what stand for'. But we've seen it for eight years, even with reasonable people like John Boehner, who, when push came to shove, wouldn't push back against those currents." Sadly, Obama, of all people, should by now recognize that the Republicans only believe in the furtherance of their own power and taking care of their corporate masters while undoing the safety net for all of us. If the refusal to extend Medicaid, leaving millions to suffer and die for no other reason than opposing the idea of the right to quality healthcare, didn't make that clear, then hopefully this election will.

While Obama rightly sees GOP tactics as the culmination of the last twenty years, I think Zachary Roth has identified their true motivations. Republicans see a demographic tide that they can not stop so their only option is to use virtually any means necessary to maintain power, democracy be damned. Roth says, "Today’s conservatives have no such confidence that the people are on their side. In fact, they are beginning to perceive that they’re in the minority – perhaps more glaringly than ever before. And yet this realization has brought with it another more hopeful one: being outnumbered doesn’t have to mean losing." And, as they set about destroying our democracy, Republicans will constantly be emphasizing liberty over equality as a cover for their actions. For current Republicans, it is now about the primacy of liberty and an individual's freedom from the demands of democracy, or, as they will call it, "mob rule". Liberty is the rubric under which Republicans will allow people to continue to discriminate against the "other", businesses to challenge and ignore regulation, including the minimum wage and paid sick leave, and establish the primacy of economic and property rights over civil rights. As the National Review declared, "It's liberty, not democracy, that is America’s highest ideal." Republicans rejection of democracy could have been made more clear.

Uber Breaks The Law Again, Nearly Killing A Pedestrian, But Worries About Slowing Innovation

Uber just keeps on breaking the law. Will they ever face any consequences? Yesterday, on an initial test run of self-driving cars in San Francisco, an Uber car just blew through a red light. The car did have driver and it appears that he did try to stop the car as he reached the middle of the intersection. Uber immediately blamed the driver and suspended him, although it is unclear how they could make the determination the driver was at fault so quickly, other than the fact that the driver is ultimately responsible for the car. But, if they were relying on the driver to stop the car, it really doesn't say much for the self-driving quality of the Uber vehicle. Take a look a the video:


If this wasn't bad enough, the test run of this car was apparently done illegally. The California Department of Motor Vehicles immediately demanded that Uber cease these tests because the company did not have an autonomous vehicle testing permit. In classic Uber fashion, the company said that the test should not require a permit because the car had a safety driver and "complex rules and requirements could have the unintended consequences of slowing innovation". This is Uber's attitude toward any rule or regulation it encounters and the statement shows the breathtaking arrogance of the company. First of all, it's pretty obvious that the car failed as a self-driving vehicle and having a safety driver was useless. By the time the driver realizes the car is going to plow through the light, there is simply no time to stop. Second, it's pretty obvious that we might want to have rules and regulations to prevent technology that clearly does not work from actually killing people, like a pedestrian crossing the street. Uber's attitude is downright puerile, like saying that requiring me to get a learner's permit may slow my ability to learn how to drive. It may also slow down my ability to kill people, which I would hope Uber thinks is a good thing. But Uber doesn't care whether it's breaking the law or not. It's only interested in trying to create a monopoly in some industry so they can finally make money, having lost over $2 billion last year by subsidizing car rides in a desperate effort to drive the regulated taxi industry out of business. For all our sakes (and our lives), let's just hope Uber doesn't try to get into the medical industry.

Wall Street Still Trying To Avoid Paying For Fraud That Created Great Recession

We are over eight years out from the financial crisis and we are still waiting for Wall Street to be brought to even reasonable account for their actions. And, even to this day, Wall Street firms are fighting tooth and nail to keep from paying for the fraud they committed and the chaos they created. A number of the big financial firms are hoping to deep-six a mortgage backed securities fraud case against them by appealing to the Supreme Court, claiming the government waited too long to file the case against them. Among those litigants is Credit Suisse, the troubled Deutsche Bank, and the most recently revealed serial offender, Wells Fargo.

The case involves the collapse of a bank in Alabama in 2009 and the Wall Street firms are accused of underwriting and/or issuing the over $300 million of mortgage backed securities whose collapse helped drive the bank under. The government alleges that the banks misrepresented the risks of those securities, even providing false information about them. The government filed its case in 2012, which is 5 years after the bank originally purchased the securities and three years after the bank was forced to close. Under the Securities Act of 1933, the first major legislation to actually regulate Wall Street, the statute of limitations to file cases like this was three years. But Congress passed a law in the 1980s, after the savings and loan crash, another financial meltdown fed by massive fraud, which allowed the government an extended period to file cases beyond the original statute of limitations. The banks are contending the original three year limit should still be controlling and therefore the case should be thrown out. The banks originally won in a lower court but that was overturned by a federal circuit court, so they are now taking their case to the Supreme Court. It is interesting to note that the banks are supported by briefs by some the agencies set up to self-regulate the financial industry such as the Securities Industry and Financial Markets Association (SIFMA) and the American Bankers Association (ABA). While pretending to help regulate the industry, these groups are nothing more than mouthpieces for the financial community.

Lastly, one of the banks in this litigation is, as mentioned, Wells Fargo. For years, Wells Fargo was considered one of the best run banks on Wall Street. In fact, they managed to avoid most of the contagion that was set off by the Lehman bankruptcy. They initially refused to take the TARP money that the government gave all the banks to keep them afloat simply because they didn't think they needed it. Bush Treasury Secretary Hank Paulson made them take it because he needed to include all the big banks in order to protect the weaker ones from being specifically targeted. But recent history has shown Wells to be just as bad as all the other banks. The reason they escaped from the financial crash relatively unscathed is because their focus was more on retail banking. But, as we've seen, they were perpetuating a massive fraud against their customers since 2005. Their were signing customers up for life insurance policies without authorization. Even today, after promising to make their customers whole, they are forcing them into arbitration in order to get the money that the bank stole from them back. Earlier this week, the bank once again failed the Too-Big-To-Fail test and now faces sanctions because it does not have an adequate plan to close down business in an orderly manner. It is the first bank to face sanctions for this failure, as its plans have now been rejected twice by regulators. And now Wells is trying to avoid paying for its role in the bank failure in Alabama. The repeated criminality and refusal to accept the consequence is just par for the course for Wall Street. And Wells was considered a "good" bank which shows you just how deep the culture of corruption in the industry runs.

The sickening irony of this Supreme Court case is that it is clear that the banking industry was in such tenuous shape after 2008 that the government was loathe to go after them legally for fear that the very existence of a legal case would bring another bank down, set off the contagion that followed from Lehman Brothers collapse, and threaten the worldwide financial system. Having shown the discretion to allow the banks time to actually survive, the banks are now claiming that the government waited too long to go after them. No senior executive at any of the big financial firms has gone to jail the massive fraud perpetuated, which was especially rampant in the area of mortgage backed securities. In fact, none have even been charged. As Dennis Kelleher says in the article, "Those who were most guilty of causing the financial crash in 2008 have fought tooth and nail to avoid being held responsible — and they have been wildly successful at doing that. One of the reasons we’re seeing political earthquakes in the U.S. is the lack of accountability on Wall Street." I couldn't have said it better myself.

Wednesday, December 14, 2016

Fed Raises Interest Rates 1/4 Point

The Fed raised interest rates one quarter of a point today, to a range of 1/2 to 3/4 percent. So, after a year spent desperately trying to raise rates and consistently being thwarted by political or economic news, the Fed finally got in a 2016 rate hike. The hike was fairly aggressive at 1/4 basis points as the minimal incremental is 1/8. Again, the FOMC members all seem to be prepared for an aggressive series of rate hikes in 2017. And, again, I fear they are likely to be disappointed and thwarted. Interestingly, the GDP forecasts extending out until 2019 show growth maxing out next year at 2.3% before falling again in 2018 and 2019. That hardly seems like an runaway economy. Even the Fed's inflation projections barely climb above their 2% target and that doesn't occur until 2019. Remember that the 2% rate is supposed to be a target, not a hard ceiling. Somehow, however, this leads the Fed to thinking that a consistent, slow-growth economy with below average inflation is going to need round upon round of rate hikes. In any case, the next rate hike will not occur until March at the earliest and probably not even then. The Fed will need time to digest what Trump's proposals will actually look like and what kind of effect they will have on the economy. It is doubtful that Trump and Congress will have provided the details needed by then and, even if they have, whether the Fed will have time to fully analyze their effect. Remember, too, that the GOP and Trump will have no restraint in criticizing the Fed mercilessly if they believe these rate hikes are going to slow down the economy. In fact, I wouldn't doubt that the Fed's sensitivity to that kind of criticism, which they know is coming, accounted for the aggressive 1/4 point hike today.

Trump's Conflicts Of Interest Give GOP Congress Control With Impeachment Threat

It looks like Trump's plan to stay in business even as he is President may run into some serious problems after all. I had written about this earlier, but today it came out that the GSA has demanded that Trump needs to sell his new DC hotel before his inauguration or be in violation of the contract and the law. The GSA had leased the former Post Office to Trump in order to build his luxury hotel there. Unfortunately for Trump, that lease had certain provisions, specifically one that states, "No ... elected official of the Government of the United States ... shall be admitted to any share or part of this Lease, or to any benefit that may arise therefrom". If Trump does not divest the hotel by inauguration day, he will be in clear violation of the lease. Trump has already postponed his announced news conference scheduled for tomorrow where he was going to provide the legal details of how he would separate himself from his company. Those details, and presumably any other press conference, will not occur until some time in January, although the transition team would not confirm whether it would be before or after his inauguration.

In addition, it appears that there may be other legal impediments to Trump maintaining his businesses simply beyond the Emoluments Clause in the Constitution. In 2012, Congress passed the STOCK Act which was originally designed to prevent members of Congress from using non-public information that they might know of through their work in government for their own personal benefit, especially by buying or selling shares in the stock market. For decades, this had been an easy "get rich quick" scheme for Congress, especially those on sensitive committees where testimony was provided behind closed doors. The STOCK Act was designed to put an end to this. But Republicans, in their implacable opposition to anything Obama, made sure the act was extended to the executive branch as well as extending it to any gain, not just limited to actions in the stock market. Specifically, the act says, "no executive branch employee may use nonpublic information derived from [or acquired through] their position as an executive branch employee as a means for making a private profit." The act has been interpreted as also meaning that passing along that information to friends, or in Trump's case, family in order for them to profit would also be a violation of law.

The real problem with the STOCK Act, however, is how it is currently enforced. If the violation did involve activity in the stock market, essentially insider trading, then the SEC is the enforcement agency. Even under Obama, the SEC has shown itself to be almost toothless and it is likely to get worse, if that is possible, under Trump. If it was an other kind of violation, the only remedy is though Congress via impeachment. Now, impeachment is a real possibility for Trump, especially if he stands in the way of the GOP wish to repeal Obamacare, privatize Medicare, cut Social Security, dismantle the safety net, and take those "savings" and provide massive tax breaks to business and the wealthy. I personally do not think that Trump will stand in the way, but Republicans in Congress certainly know that Mike Pence will not. As we have seen with the Republicans unwillingness to defend America from an attack on our electoral system by a foreign government, maintaining their power is all that matters. If Trump were to be impeached over a violation of the STOCK Act, it would only be because of the GOP's desire to move him out of the way in order to enact their agenda, not because of the egregiousness of the underlying violation of law.

In any case, as long as Trump and his family do not divest themselves of their business, the chances of a violation of the law through the Emoluments Clause and especially the STOCK Act are extraordinarily high. Now, there are reasons to believe that, because of certain loan guarantees, it is impossible for Trump to divest his business without going bankrupt, which means he will never do it. And that will mean that the Republican Congress will have even more control of Trump, perhaps more than Putin, as they will easily be able to find violations that will allow them to continually threaten him with impeachment.

Climate Scientists Desperately Try To Preserve Data From Trump's Climate Change Deniers

Climate scientists, already unnerved by the election of Donald Trump, have only had their paranoia about the future increase during the Trump transition. Trump's proposed cabinet is full of climate change-denying big oil plutocrats and his transition team has asked for the names of the people in the Energy Department who had worked on climate science. Now those scientists are apparently feverishly trying to move climate data onto to non-government servers in order to make sure the data is retained. The scientists have reason to be overly sensitive as they have been the target of Republican attacks and even harassment by GOP controlled congressional committees in the past.

We really have reached a new low when scientists are desperately trying to protect their data from the government in the same way that people tried to hide books from Torquemada during the Spanish Inquisition. Welcome to today's America.

Rex Tillerson, Miss World, And The Corporatocracy

Two seemingly unrelated articles today show just how out of proportion corporate power has become not only here in the US but apparently all over the globe. The first article describes how Trump's nominee for Secretary of State and current Exxon Mobil CEO Rex Tillerson undermined the American effort to hold Iraq together in the aftermath of the Bush administration's ill-fated war in that country. US officials were pressing the Iraqi government to pass a law that would require revenue sharing of Iraq's oil wealth among all the regions in the country. The country's main oil fields are in the north of the country, largely controlled by the Kurds, and the south, a largely Shiite area. A revenue sharing agreement would have indicated that the Sunnis in the country would not be excluded from the oil revenue generated by the country. Instead, Tillerson and Exxon, against the expressed wishes of the State Department, signed an agreement for oil development directly with the Kurdish administration in the north, subverting any chance for revenue sharing and further helping to splinter the already fractured country. When confronted by the State Department over his actions, Tillerson reportedly answered, "I had to do what was best for my shareholders". With the Exxon agreement in hand, the Kurds had a stronger case for independence, while the current Iraqi government was led by Shiites, who had control of the southern oil wealth. The Sunnis felt more and more isolated and excluded. In fact, the case can be made that Exxon's deal with the Kurds was one of the elements that led to the creation of ISIS. You can read more about Tillerson's and Exxon's actions in Equatorial Guinea and Chad that also ran counter to US foreign policy here.

The immediate question that comes to mind is why the US Government is continuing to provide a company with probably billions in tax breaks and incentives when that company is actively subverting US foreign policy. Why are we continuing to give economic and even legal protections to a firm that is engaging in traitorous behavior. Is what Exxon did in Iraq significantly different than what Bowe Bergdahl did in Afghanistan. The answer, of course, speaks to the undo power that we have given to large corporations that effectively act as a government in their own right and seem to control most of our own.

The second article describes the unlikely situation of Anastasia Lin at the Miss World beauty pageant, currently being held in the Washington DC area. Ms. Lin, a Canadian beauty contestant, has been an outspoken critic of China's human rights abuses. Last year, she was barred from the event which was held in China, because Chinese authorities would not let her enter the country. This year, as a consolation, she was invited to be a contestant in the event but with certain restrictions, the most important of which is that she is basically not allowed to speak about her views on China. In addition, Ms. Lin was barred from attending the premiere of a movie in which she appeared because that movie is also critical of China's human rights abuses. When the State Department asked to meet with Ms. Lin to discuss the continued harassment of her father who still lives in China, the pageant refused to allow that meeting. Eventually, a meeting was arranged where Ms. Lin was accompanied by a chaperone, (or muzzle), from the pageant and no photos of the meeting were allowed. In case you haven't guessed by now, the Miss World pageant, although nominally owned by a British group, relies heavily on funding from Chinese advertisers and supporters.

There is no reason that people should have to lose their right for free speech simply to get a job or, even worse, enter a beauty pageant. But the use of non-disclosure agreements (NDAs) and other legal maneuvers to essentially muzzle the rights of workers is growing. Originally, NDAs were designed to protect trade secrets and sensitive negotiations. They have been expanded to essentially protect the company from anything negative an employee might be able to say. Donald Trump has used NDAs for decades in his companies and even used them for all those working on his campaign. NDAs are used to make sure whistleblowers stay silent and intimidate them from coming forward. Even more egregious is the use of NDAs in settlement agreements as the details of the original infraction are withheld from the public. Roger Ailes was able to abuse women for decades because he used NDAs in settlement agreements with the women he abused, allowing his behavior to remain unchecked. Despite one recent case where the SEC settled with contracting firm KBR to stop them from using NDAs to muzzle whistleblowers within the company, use of NDAs continues to grow. In that case, the settlement allowed KBR to admit to no wrongdoing and pay a truly pathetic fine of $130,000. For most employees, however, it is not worth the risk to their career and their pocketbooks to engage in a long protracted legal dispute about whether the NDA applies to the illegal activity the company may be engaged in.

At this point, corporations believe they are more powerful than the governments that, in theory, protect them and provide the legal framework for them to thrive. Shareholder value now trumps American foreign policy. A small beauty pageant now feels it can defy a request from the State Department to simply meet with one of its contestants. These are the defining actions of the corporatocracy that we currently live in.


Tuesday, December 13, 2016

Warren Signals Defiance Of Trump's Financial Picks And Media Misses The Point

The NY Times, having done their best to make sure Hillary Clinton did not get elected by focusing on the "clouds" hanging over the Clinton Foundation and EMAILS!! when, in fact, all the illegal and unethical activity was done in the Trump Foundation and campaign, has taken to the front page of the Business section under the byline of Andrew Ross Sorkin to castigate Elizabeth Warren for criticizing a Democratic donor because he is expressing some joy that Trump's picks to monitor the financial industry were not crazy. The donor in question is Whitney Tilson, an admittedly rare hedge fund manager who supports Democrats, including Warren, as well as Dodd-Frank and the CFPB. The statements from Tilson that drew Warren's criticism were, "I worried that he [Trump] was going to do crazy things that would blow the system up. So the fact that he's appointing people within the system is a good thing". Now it is easy to understand where Tilson is coming from. But this is exactly the kind of normalizing behavior and language that we all have been warned to guard against. The idea that we should be happy that Wall Street will be allowed to run amok again simply because that means that Trump hasn't intentionally blown up the system is not the proper response to Trump's picks. And Warren makes that perfectly clear, saying, "Tilson knows that, despite all the stunts and rhetoric, Donald Trump isn't going to change the economic system. The next four years are going to be a bonanza fro the Whiteny Tilsons of the world".

Sorkin even seems to admit he has it in for Warren. After describing all the good things she has accomplished with the CFPB, Dodd-Frank, and her pursuit of Wells Fargo, Sorkin criticizes Warren for her abhorrence of the revolving door between financial firms and financial regulators and says, "This column has covered what I've described as her misguided view". He continues by comparing Warren's view of the revolving door to the idea of going to a psychologist when you need heart surgery. In Sorkin's eyes, only Wall Street insiders are capable of regulating themselves. He continues by point out that Warren called Tilson a billionaire when he is not and engaged in an ad hominem attack. I kept on waiting for the "both sides do this" section in the article but it never came.

At least Sorkin admits that some observers could look at this situation and say it demonstrates that Warren will stand up for what she believes even if it means criticizing an important Democratic donor, showing "she can't be bought". In fact, it is exactly the same type of behavior that got John McCain the "maverick" label and years of unwarranted free and positive press. When Warren does it, it is an ad hominem attack.

But Warren is right to stick by her guns, even, and especially, if it means angering an occasional donor or two. One of the things that Republicans have done successfully for years is signal their voters continually about where they stand. There is a reason that the House voted almost 50 times to repeal Obamacare when they knew it wouldn't go anywhere. Senate Democrats had a chance to do that last week by holding the government hostage to stand up for miners'' benefits but they caved instead and most Americans will never even know about the Democrats' concern. Warren is signaling to Democratic voters and all voters who distrust Wall Street that she refuses to "go along" with Trump's picks simply because they are sane. She is signaling that she is entirely serious about doing everything in her power to rein in the excesses of the financial community. And, if that means she ends up criticizing a Wall Street insider who supports Democrats, that sends an even stronger signal in that it helps distance the Democratic party from Wall Street. In the end, Tilson's feeling are understandably hurt but he readily admits he will still support Warren's efforts to rein in Wall Street. As Republicans have shown for years, these kind of signals work and the donor class will still be there, especially when you win. Warren is showing the rest of her party how that game is played.

Trump Postpones Plans To Prevent His Conflicts Of Interest

With the appointments of Tillerson and Perry and the furor over Russian hacking, the fact that Trump's transition team has cancelled his promised news conference for Thursday, where Trump was supposed to provide the legal details of how he was going to separate himself from his business, just might have passed under the radar, as I'm sure Trump wanted and expected. The news conference has now been postponed to January although there was no guarantee from the transition that it would occur before or after the inauguration. Instead, Trump put out another late-night tweet where he said he would leave his business before the inauguration and that his sons Eric and Don, Jr. would be running the business instead. In addition, Trump claimed that "no new deals would be done" while he was President. Of course, there will be no way to know whether Trump or the sons will follow through on that promise and there is still plenty of time between now and inauguration day for lots of deals to get underway. In any case, this plan does nothing to resolve the existing conflicts of interests that Trump already has. And it does nothing to really keep any new conflicts from arising. Even if Trump holds that news conference in January, which I have doubts will happen, I'm pretty sure that there will be nothing presented legally that will do anything to resolve or prevent Trump and/or his family from benefitting materially from his position as President. The grift will continue.

Perry As Secretary Of Energy Makes A Mockery Of Governance

It is a satire or parody that few would have the courage to write, much less perform in real life. Apparently Trump has selected Rick Perry as the Secretary of Energy. This is the same Rick Perry that could not remember the Energy Department as being the third of three departments he would close if he were to become President way back in 2012.


In addition, the selection of Rex Tillerson, Exxon Mobil CEO, as Secretary of State adds to the insult. Tillerson has never had any other job than working for Exxon and his company stands to make about a billion if the sanctions against Russia are lifted. In the world of the grift-filled Trump presidency to be, that makes Tillerson, with his lack of diplomatic experience and his closeness with Putin, the perfect choice.

Trump is making a habit out of selecting people who either want to shut the very agency they will be in charge of now, or oppose the very principle their agency is supposed to stand for, or have something to gain from their new position of power. Sad to say, but our only hope for the next four years is that they all have as bad and as short a memory as Perry. And it is just one more assault on governance and our democracy.

NY Times Article On GOP Business Tax Plan Leaves Us In La La Land

The headline in the NY Times Arts section today reads "La La Land Leads The Race For The Globes", referencing the current favorite to win the Golden Globes. But "La La Land" might also best describe the article on the front page of the Times' Business section about the destination-based consumption tax. The premise of the tax is that it would only be collected where the product or good was consumed as opposed to where they were produced. In theory, this would mean that exports would not be taxed and imports would only be taxed when they were consumed. The idea is that this would spur exports and that would somehow encourage American businesses to maintain production and jobs in the US. The idea has been incorporated into a corporate tax overhaul proposed by the current Chairman of the House Ways and Means Committee, Kevin Brady. Brady's proposal includes some other important features such as the reduction of the corporate tax rate to 20% from the current 35%, immediate deduction of capital investments as opposed to depreciation, ineligibility of interest costs for deduction, and a provision to allow companies to deduct domestic wages from taxation.

Let's just go through this proposal in detail. First, there is no doubt that a consumption tax like this will raise prices for consumers. Just think of every imported good that you buy having an additional value-added tax tacked on. Incredibly, the article barely even mentions this effect at all, relying on a statement from Koch Industries, of all companies, saying that the plan would lead to less free trade and higher consumer prices. There is a reason that people who go to Europe complain about the higher prices there and that is primarily due to the value added tax. But at least that tax usually goes toward providing a stronger safety net. The National Retail Federation, which represent the heavily import-dependent retail industry, expressed concern about the "practical effect of this on profits, jobs, and operations", making their disdain for the consumer pretty plain by omission. According to Brady and the supporters of this plan, a rise in exports and a fall in imports would raise the value of the dollar, allowing the retailers to "make up in a stronger dollar what they lose in higher tax payments". Again, it is unclear how this would directly help the consumer as opposed to business. They also claim this would remove all incentives "to move jobs, research, and headquarters overseas". Again, the article and perhaps the proposal itself is unclear on just exactly how that might work. I find it hard to believe that Carrier would be paying such a steep tax on imports that it would offset the nearly $20/hour wage differential that moving to Mexico offered, especially considering the tax rate is dropping to 20%. And, even if you admit for the sake of argument that the plan might keep jobs and businesses here in the United States, there would seem to be no incentives for those same businesses to either pass along the additional savings or not pass along the additional costs to consumers. After all, as we keep on hearing incessantly, they are all in the business to make profits, so keeping the savings for themselves or passing the costs onto consumers will just add to their bottom line.

The other proposals on capital investment and deducting wages are probably total non-starters. Eliminating the interest deduction will hurt highly leveraged businesses like Wall Street and real estate investors. Taking a look at the President-elect and his proposed cabinet, it just doesn't seem likely that this part of the proposal will fly. The deduction of wages probably violates WTO rules, which means it's going nowhere unless Trump really does want to start a global trade war. So, the package that looks like it could emerge from Congress would essentially be an enormous tax cut for businesses which will flow primarily to the rich investor class while increasing prices for consumers. It sounds like a perfect Republican policy.

Despite all that we hear about how difficult things are for business, the reality is that American businesses are now more profitable than ever. As a percentage of GDP, corporate profits are at an all time high while the tax contributions of corporate profits are at an all time low.  If profits dropped to their historical norm, it is estimated that consumers prices could drop by about 2%. Even worse, through various schemes of tax avoidance, much of these profits do not get taxed. For multinational companies, much of the profits gets stashed offshore, waiting to get repatriated when the corporate tax rate gets reduced, as Brady is proposing. In fact, part of the drive to reduce the corporate income tax is to facilitate the repatriation of these profits, which is a unique way to solve the problem. Most people, especially a great deal-maker like Trump, would not take 60 cents on the dollar to get what they're owed. (Instead, that sounds more like what Trump does to the people he owes.) Rather they would focus on collecting every penny. But when it comes to corporate profits, we seem to believe that actually collecting on what we are owed is not a valid strategy.

American businesses, in addition to being remarkably profitable these days, also seem to be immune from competition. It is estimated that there has been serious consolidation in two thirds of America's myriad of industries in the last 20 years. And the financial crisis added to that trend with a $10 trillion worth of mergers since 2008. These days, a profitable firm has an 80% chance of still being profitable ten years later. That percentage was around 50% in the 1990s. The primary reason for this is that most of our industries have become oligopolies where the barriers to entry are enormous and the handful of companies that dominate have little incentive to actually compete or even invest. Economists have been decrying the declining share of labor in the US economy for years. The assumption was that the share that labor was losing was going to capital. But a recent study from the University of Chicago surprisingly shows that the capital's share of the economy is also declining at an even faster rate then labor's. And what labor and capital are losing is going instead to, you guessed it, profits. Nick Bunker summarizes the report as follows. "From 1984 to 2014, the labor share of income in the United States declined 6.7 percentage points and the capital share declined by 7.2 points. Because the capital share is smaller than the labor share, the percentage decline is much larger for capital (30 percent) than for labor (10 percent). The result is an increasing share of income going to profits. Over the 30-year period studied, the profit share of income increased by 13.54 percentage points. The proposed culprit behind this increasing profit share is higher markups on goods and services over the cost of production...This increase in markups from firms facing less competition in the marketplace has empirical support from other research." In essence, then, the rich, in the form of corporate CEOs and the investor class, are not only taking from workers but also from needed capital investments and lining their already full pockets.

Of course, if you simply just read the Times article, you would still be in "La La Land", as it mentions none of these salient points. The fact of the matter is that corporations are already making too much profit and they certainly do not need a tax cut or another method to pass on costs to consumers. If we are truly interested in boosting wages and jobs, then we need to break up the monopolies and oligopolies, introduce real competition for American business, and prevent the offshoring of jobs through penalties. Providing yet another tax cut for business just doesn't cut it.





Monday, December 12, 2016

US Elections Need To Come Into The 21st Century

The US elections system has become one of the most dysfunctional and backward systems in the modern world. Although we are living in the 21st century, our elections process reflects a system out the 19th or early 20th century. We are now one month out from the election and the votes at still being counted. At present, Hillary Clinton is approaching a popular vote lead of nearly three million votes and her current lead has now grown to over 2%. I'm guessing that people and pundits might have had a slightly different attitude about Trump's election, the effect of James Comey, and the failure of the Electoral College if they had know about the true extent of Clinton's popular vote victory on the night of the election.

At present, each individual state is responsible for many of the details surrounding elections. This has created a hodgepodge of differing rules and standards across the nation. Some states allow felons to vote, while other do not. Some states require voter ID, others do not. Registration requirement differ from one state to another. Some states allow highly aggressive partisan gerrymandering, others have non-partisan commissions creating legislative districts. Some states have many days of early voting and a generous number of voting locations, others do not. And, as we are seeing with the recount demanded by Jill Stein, the legal framework within which to contest elections also differs widely from state to state. All of this ends up meaning that, as far as voting goes, there really is no equal protection under the law (unless, of course, the Supreme Court invokes that legal precedent for just one case only in order to get George W. Bush elected).

Even worse, certain states have been notoriously lacking in investing in the very machinery necessary to even hold elections that can withstand scrutiny. The most classic case of this was the "hanging chad" in Florida in 2000. And we see it again this year in the recently aborted recount in Michigan. Because of Michigan law, one third of the machines in heavily Democratic Wayne County would not have been eligible for a recount and a shocking 60% of the machines in even more heavily Democratic Detroit were similarly ineligible. That is because Michigan law forbids the recount where the poll book, that is the number of people that were signed in to vote, does not match the vote totals from the machines in that polling location. In rare cases, this differential is due to human error by poll workers but it becomes even more likely when the machines recording the vote break down or get jammed and the vote needs to be resubmitted. In those cases, poll workers must manually adjust the vote counter on the machine. This does not effect the vote actually registered. In most cases the differential between the poll book and the machines was just one. According to Detroit's elections director, 87 machines broke down on election day which accounted for much of the precinct vote differentials. But even just that differential of one can invalidate a recount in that precinct under Michigan law, which, of course, seems totally counterintuitive, since a discrepancy actually signals that something is wrong.

As much as we revere the Founding Fathers and the flexibility and prescience of the Constitution, it seems pretty clear that the entire American electoral system needs a complete overhaul. With the failure of the Electoral College for the second time in 15 years and a Republican party that believes its own electoral prospects rely on limiting the right for certain groups to vote, Americans will continue to lose faith in democracy unless serious electoral reform takes place.

Developing A Regional Economic Development Strategy

There is no denying that the anger of white working class was a real factor in the rise of Donald Trump and Hillary Clinton's defeat. Real wages have not budged in three decades while globalization and technology have decimated employment in areas all around the country. Many areas have actually seen a declining standard of living. Part of Donald Trump's appeal was his promise to protect American workers from the competition of globalization and bring the jobs that have been lost back. The white working class responded to that message, though doing so with a healthy degree of skepticism. But Trump's promises are empty promises. The fact of the matter is that neither party has any real plan that has a chance to restore jobs and a rising standard of living to those communities already decimated. They haven't been able to do so in over three decades.

Cities like Bakersfield, California, Youngstown, Ohio, and Bridgeport, Connecticut have been failing for decades. And there is really no sign that they will be getting any better in the near future. Smaller towns that long relied on an anchor manufacturer have seen their companies move away, often abroad, or fail, leaving a trail of depression, suicide, and drug addiction. And the poster child for this kind of long-term economic stagnation has been Appalachia. Paul Krugman had a recent post where he discussed the options to revive these economically depressed areas. Unfortunately, he came up with no good solutions and outlined the failure of regional economic development projects to create any significant long-term changes. He points not only to Appalachia but also to East Germany which has seen a massive economic investment but still faces a declining population.

But it is important to remember that Appalachia was, in fact, helped tremendously by a specific regional economic policy during the New Deal. As Erik Loomis notes, the Tennessee Valley Authority dramatically improved the lives of the people in the Tennessee Valley and neighboring regions. And it was not just the introduction of cheap electricity that brought lights and modern appliances to the community and helped attract new industries that created job opportunities. The TVA itself was also a large local employer. In addition, the TVA helped farmers increase crop yields and helped with ecological conservation by replanting forests and creating improved habitats for fish and wildlife. Similar large government investments improved the lives of rural Americans living other large river basins around the country. Loomis also adds that World War II also created a real industrial policy that improved port capacity and shifted important industrial facilities into different areas of the country in the name of efficiency and security. There was a real regional industrial policy. But by the 1960s, all pretense of that kind of thinking fell away and today it is largely left to the businesses themselves to figure out where they will locate. Today, because of globalization, certain areas like the West Coast and to some degree the South have benefitted greatly, largely at the expense of those Rust Belt states.

As Democrats look to find a way to revive these Rust Belt economies, Matthew Yglesias has a great idea that takes advantage of the pre-existing legacy infrastructure. He proposes moving many federal agencies that currently reside in the Washington, DC area to Midwestern cities. He notes that some agencies have already moved out to the more distant DC suburbs. There is no reason that these agencies couldn't relocated even further away to the Midwest. He also proposes that agencies that are by statute supposed to be independent from our elected government, agencies like the SEC, FEC, FAA and others could also move far from DC without a serious impact. All of these agencies will not only bring just their employees but also lots of ancillary jobs associated with each of these government agencies. And, for Democrats, it has the added benefit of making it a little bit harder to hate "Washington" and the federal government when the positive effects of federal employment are so close and tangible.

My pet project for regional development would be a national project to insure high-speed broadband access for all Americans at a minimal cost. One of the great advantages that post-war America had was a world class infrastructure and much of that was largely due to the development of the interstate highway system under Eisenhower. This allowed goods to move around the country more freely and at higher speed than ever before, helping our economy to thrive and providing greater access for rural areas. Technology and technological innovation are one of the keys to our economic future. And just as with the Eisenhower highway system, we need to allow all Americans cheap and easy access to the information superhighway. And just as with the Eisenhower highway system, we can create jobs in areas that need employment in order to build this internet access that will benefit us all in the long run. Countries like South Korea and Japan have already done this. It's time America caught up.

The US has not really had an industrial policy in decades while much of the rest of the world actually does. It is time for government to design specific regional policies that will not only bring jobs to economically depressed areas of the country but also help reduce the income inequality that is threatening the fabric of our democracy. Krugman may be right that these policies will not stem the economic tide. The TVA did not solve the problems that Appalachia still encounters. But it did improve the lives of millions. And a sane regional economic development policy could do the same thing. It may not solve the problem entirely but it will make things better for a whole lot of people. That may be the best we can do right now. It is certainly worth trying.

American Democracy Under Threat

I have written a number of posts detailing, some might say ranting and raving, about how Republicans in particular have been destroying many of our governing norms and subverting the very concept of democracy. But democracy has also been failing on its own for a variety of reasons.

The immediate threats to democracy are easy to see. The failure of the Electoral College has allowed the loser of the popular vote to win the Presidency twice in the last decade and a half. The war on drugs and the increasing incentive for prosecutors to turn certain crimes into felonies has created over 6 million citizens who have been denied the right to vote, including 1 out of every 13 African Americans in this country. In 2012, nearly one quarter of the African American citizens in Florida could not vote due to felony disenfranchisement. Further voting restrictions such as voter ID, more stringent requirements to register, and reductions in the number of polling places and times of early voting also add to the erosion of democracy. Aggressive gerrymandering that packs like voters into one district again devalues certain voters. And the vast discrepancies of rules and regulations covering elections from state to state also erodes the equality of every voter and a resulting loss of faith in democracy. Finally, the sense of almost permanent gridlock in our legislative bodies fuels impatience with the current system as does the fact that bad actors with the right connections, (think Wall Street or companies that serially pollute), continually get away with what everyone sees as criminal behavior.

Unfortunately, faith in democracy also seems to be collapsing around the world and the preference for authoritarian regimes seems to be rising. We can see this phenomenon in Poland and Hungary in Europe, and in Venezuela in South America. The reasons for this are myriad but at least part of the issue is the difficulties that governments have had in dealing with globalization and the financial crisis. As in the US, perpetual governing gridlock is also a serious issue as special interests are continually able to block virtually any legislation. In addition, many of these countries have long had a history of authoritarian rule and the advent of democracy was a more recent phenomenon and, accordingly, strong democratic institutions had not taken full root.

Two political scientists have put together a "test" to see whether a democracy in a particular country is under threat. There are three factors that go into what they call "democratic deconsolidation". According to the theory, "[t]he first factor was public support: How important do citizens think it is for their country to remain democratic? The second was public openness to nondemocratic forms of government, such as military rule. And the third factor was whether 'antisystem parties and movements' — political parties and other major players whose core message is that the current system is illegitimate — were gaining support." According to these metrics, many liberal Western democracies may be in serious danger. But the most shocking results of their study is how much younger people have already lost faith in democracy:


In the United States, only about 30% of those people born in the 1980s believe that is essential to live in a democracy. Even more shocking was that under 20% of that group believed it would be illegitimate for the military to take control if the government was clearly incompetent and failing. With the election of Donald Trump, a true antisystem candidate, and the Republicans' continual challenge to the legitimacy of Obama's presidency, abandonment of the norms of governance, and, in this last election, the revelation that the party clearly put party over country, combined with a large segment of the population's lack of belief in democracy, it is pretty clear that the "democratic deconstruction" of American democracy is well under way. And that should scare us all.



Media Finally Awakens To How Anti-Democratic The GOP Has Become

It's nice to finally see the mainstream media finally realize how anti-democratic the Republican party has become and that it cares for nothing except maintaining its grip on power through whatever means possible, now even at the expense of the defense of our country. Finally confronted by McConnell's unwillingness to defend against Russian interference in our elections and even turning that around and calling the simple act of asking election officials to be aware of potential security issues an act of partisanship, the media is finally taking notice. New York Magazine says, "Even the most cynical observer of McConnell — a cynical man to his bones — would have been shocked at his raw partisanship. Presented with an attack on the sanctity of his own country’s democracy by a hostile foreign power, his overriding concern was party over country." But the reluctance to actually state what the reality of what is right in front of our noses continues. Even Paul Krugman is seemingly unable to make the direct charge that the GOP has become an anti-democratic, or as political scientists Mounk and Foa call it, an antisystem party. Krugman says, "Democratic norms have been and continue to be violated, and anyone who refuses to acknowledge this reality is, in effect, complicit in the degradation of our republic." But he links this primarily to Donald Trump without specifically calling out the Republican party as well.

It would have been nice if the media had perhaps called the destruction of governing norms exactly what it is, a threat to democracy, before the election, rather than waking up and realizing it after. McConnell's refusal to allow even a hearing on Merrick Garland was treated by the media as a political ploy and the analysis invariably focused on whether this strategy would be an issue in the campaign. The reality is, of course, that it was a clear subversion of democracy and attack on the very foundations of our government. You can hide behind the fact that there is no constitutional requirement for the Senate to hold a hearing; there is, however, a certain governing and societal norm that we all agree to live under. Having broken that norm, is there anything really stopping the Senate from never giving a President's Supreme Court nominee a hearing. Ted Cruz and others certainly offered that idea before Trump's surprise election. Donald Trump simply refused to release his taxes, again breaking no law but shattering another tradition that comes with governing. Tell me what incentive any candidate from here on out would have to release their taxes. I'm betting Mitt Romney wishes he hadn't, but the difference is that Mitt refused to go where Trump did. And the rot extends all through the Republican party. There were apparently GOP legislators who were very concerned about the Russian hacking and were on board with a bipartisan statement of vigilance. When McConnell refused to go along, those so far unnamed Senators remained silent.

I could go on and on regarding this issue and I have, for months now. It is nice to see some in the calling GOP behavior out for what it is. The question is whether it is too late to save our democracy as we know it.

Astronomy Adventure - Moon Shots


The three craters touching each other in the middle of the photo are Theophilus (with the distinct mountain peak in its middle), Cyrillus, and Catherina respectively as you move from left to right. The large crater in the lower right if Maurolycus. If you move left and down from the three craters to just beyond the area that juts out into the Sea of Tranquility, that is the area where Apollo 11 landed and Neal Armstrong became the first man to walk on the moon.



Photos Details:

Scope: Starblast 4.5
Camera: iPhone 6 using NightCapPro;
Magnification: 100x; 10mm eyepiece with 2x Barlow