Weekly Audit: Banks Get Big Bucks, Consumers Get Bupkis
by Lindsay Beyerstein, Media Consortium blogger
Last week, the Federal Reserve announced a plan to buy an additional $600 billion worth of Treasury bonds in an attempt to stimulate the economy. On Democracy Now!, economist Michael Hudson argues that the $600 billion T-bill buy will help Wall Street at the expense of ordinary Americans.
The guest piece below from my friend Leo Hindery shows why he would be a great chair for the National Economic Council. He has been a consistently strong advocate for a trade and manufacturing policy that puts the interests of American workers ahead of those companies getting rich by outsourcing their factories to China. -Mike
After three decades of double-digit growth, China has just passed Japan to become the world's second-largest economy behind only the United States - and it should surpass us as early as 2030. And when China wins in trade, as it now does every day, it's really only the U.S. which loses. In fact, for the last several years the correlation has been almost dollar for dollar, with America's trade deficit with China in goods and services virtually mirroring China's overall trade surplus.
This should be enough of a clarion call to the administration to demand the integrated all-of-government approach to our trade relations with China that is the only one which is going to address the economic nightmare we find ourselves in with that country. Yet the realities around our trade with China trade continue to worsen - and become a whole lot more foreboding.
Back in May 2009, in a speech I gave in Qatar, I predicted that as an extension of its ever-growing trading and geopolitical status, China would soon accelerate (and relatively soon complete) its deployment of a full-scale "blue water navy." I felt that once China has this force in place and is able to readily project power throughout the Pacific and as far as the Indian Ocean, there will be, into the long term, regional and global tensions of a magnitude not seen since the Cold War. I also felt there would soon be great pressure on Japan to re-militarize, given that a massive 86% of its oil & gas needs are met by Middle East suppliers by way of the Indian Ocean.
This past April 2010, the New York Times also began to write about China's military's initiative that is now called "far sea defense", which China has publicly confirmed is fully intended to project naval power well beyond the Chinese coast. China has been testing long-range ballistic missiles that could be used against our aircraft carriers, it intends to deploy their own aircraft carrier group 'within a few years', and its naval forces already stand at 275 "principal combatants" - i.e., major warships - and more than 60 submarines, including at least two Jin-class submarines with ballistic missile capabilities, with two more under construction, and two Shang-class nuclear-powered attack submarines.
So, what do you do if you suddenly have a 'blue water navy'? Well, you use the bloody thing, which is exactly what China is already doing in the South China Sea, where it's just said it will tolerate no interference in what it now believes to be a "core interest" of its sovereignty, on par with Taiwan and Tibet. And by making the South China Sea sovereignty issue 'non-negotiable', imminent problems now exist between China and each of Vietnam, the Philippines, Indonesia, Malaysia, Singapore and Brunei.
So bipartisanship isn't dead. By a vote of 348-79, Democrats and Republicans alike put aside their acrimonious differences and agreed, at least for a moment, to stop blaming each other for the sad state of American economic life. Instead, they agreed to blame China.
The bill authorizes the president of the United States to impose tariffs on Chinese goods in response to what it considers an illegal subsidy of Chinese exports in the form of an undervalued currency. It helps that the supporters in the House know that this bill has precious little chance of becoming law; it will not pass the Senate and it is unlikely that it would be signed into law by Obama if it ever came to that. As a result, the bill is the perfect campaign gesture, bombastic, angry, self-righteous, and without much real-world consequence.
The office AFL-CIO union leader Richard Trumka issued a statement that encapsulated the thinking behind the bill: "the House of Representatives voted to put an end to the Chinese government's currency manipulation, which has destroyed millions of good American manufacturing jobs. For more than a decade, the Chinese government has deliberately manipulated the value of its currency, ballooning our trade deficit with China and costing American communities good jobs....Working people continue to mobilize to elect candidates who will put America's workers first and are committed to rebuilding an economy that values working people. This November we will send a powerful message that we will support those who vote for an economy that works for everyone."
On July 14th, Green Change announced the campaign for a Green New Deal, a 10-point program to create economic prosperity together with ecological sustainability.
Since then over 100 candidates for elected office at all levels have joined the Green New Deal Coalition.
The Green New Deal Coalition will cut military spending, create millions of green jobs, and revive the economy by protecting the planet we depend on.
Green Change is inviting all candidates, individuals and organizations that support a prosperous, sustainable future for America to endorse the Green New Deal.
To date, 11 candidates for governor, 11 candidates for US Senate, and 33 candidates for US House of Representatives have joined the Green New Deal Coalition.
All agree on the need to cut military spending, fund green public works, ban corporate personhood, pass single-payer health care, restore progressive taxation, ban usury, enact a revenue-neutral carbon tax, legalize marijuana, institute tuition-free public higher education, change trade agreements to improve labor, environmental and safety standards, and pass sweeping electoral, campaign finance and anti-corruption reforms.
These candidates represent a clean break with the failed policies of the past that have led America down the road to economic and ecological disaster.
The Green New Deal promises a brighter tomorrow for America – one that combines the New Deal’s promise of freedom from economic hardship with decisive action to protect our planet.
America needs an economic/industrial policy like other countries have. THAT is how we will pay off our debt -- by earning money.
You may have read about the back-and-forth on Chinese currency this weekend. China said they would let their exchange rate adjust, and then pulled the football away. The deal is that China manipulates its currency to keep undervalued, which makes Chinese good cost less than they otherwise would on the world market. So they end getting the manufacturing business (and jobs and supply chain and R&D and ...) In fact it looks like next year China will replace the US as the #1 manufacturer.
But it is not just cheating on currency that is the problem. Today's news brings a reminder of another reason it costs less to make things in China: 47 killed when explosion rips through China mine,
The blast hit a mine in Pingdingshan city in the province of Henan, the State Administration of Work Safety said. Seventy-five miners were trapped initially but 28 escaped, the central government said on its website.
This is not an uncommon headline. We see headlines like this from China all the time. More than 2,600 miners were killed just last year.
When life is that cheap you can charge less for things.
We all know about the environmental problems in China, another reason things made there cost less. It is so bad that there are "cancer villages" near polluting factories.
Here is a list of the main unfair advantages China uses to its advantage:
1) Currency manipulation. China "pegs" its currency at a very low, or "weak" rate, so goods from China cost up to 40% less than they otherwise should.
2) Labor-rights suppression has lowered manufacturing wages of Chinese workers by 47% to 86%.
3) There is massive direct government subsidization of export production in many key industries.
4) China allows environmental degradation that ends up affecting all of us.
5) Intellectual property theft and piracy mean that American products that could be sold are stolen instead.
6) China has a number of policies that block U.S. firms from market access.
All of these things that China is doing are collectively called a national industrial policy. China has one. We don't. China's share of the world's business has grown exponentially because they have and follow a national industrial policy. Ours has declined dramatically because we don't. I'm trying to drop a hint here, but for those in Washington who aren't following let me spell it out more clearly: America needs to develop and follow a national industrial policy.
This is the first in a two-part series about Nourishing the Planet co-director Danielle Nierenberg's visit with COMACO in Zambia. Cross posted from Worldwatch Institute's Nourishing the Planet.
One of the first things you notice about grocery stores in Zambia is the plethora of processed foods from around the world, from crackers made in Argentina and soy milk from China to popular U.S. breakfast cereals. Complementing these foreign foods, however, are a variety of locally made and processed products, including indigenous varieties of organic rice, all-natural peanut butter, and honey from the It's Wild brand.
It's Wild was started by the Community Markets for Conservation(COMACO), an organization founded over 30 years ago to conserve local wildlife. COMACO helps farmers improve their agricultural practices in ways that can protect the environment-such as through conservation farming-while also creating a reliable market for farm products. It organizes the farmers into producer groups, encouraging them to diversify their skills by raising livestock and bees, growing organic rice, using improved irrigation and fisheries management, and other practices, so that they don't have to resort to poaching elephants or other wildlife.
By targeting hard-to-reach farmers that live near protected areas, "we're trying to turn things around," says Dale Lewis, Executive Director of COMACO. For decades, many farmers in eastern Zambia practiced slash-and-burn agriculture and were involved in widespread elephant poaching. Farmers killed elephants and burned forests not because they were greedy, but because it was their only alternative, Lewis explains. Degraded soils, the lack of effective agricultural inputs, and drought left many farmers in the region desperate, forcing them to turn to poaching and environmentally destructive farming practices.
By training more than 650 "lead" farmers to train other farmers, COMACO hopes to not only protect the environment and local wildlife, but also help farmers increase their incomes by connecting them to the private market.
COMACO supports the creation of regional processing centers and trading depots to make it easier for farmers to process their crops and transport them to market. The group also offers a higher price to farmers who grow rice and other products organically, and for those use the conservation farming techniques they've learned from COMACO trainers and lead farmers. Where farmers "comply with COMACO, they see benefits," Lewis says, including improvements in food security and health.
The resulting products are then sold under the It's Wild brand in major supermarket chains across Zambia, such as ShopRite, Checkers, and Spar. Next year, COMACO plans to export its products to Botswana. The organization is trying to do as much of the product distribution as possible so that the money stays with the farmers and not middlemen.
COMACO has also gotten technical support from multinational food giant General Mills. The company paid for a COMACO food technician to visit its headquarters in early 2009 to learn how different food processing techniques can increase the nutritional and economic value of the foods that the organization is selling.
Lewis hopes that eventually COMACO will be self sufficient-and profitable-without the current heavy dependence on donor funding. But that's not easy for an organization that works with thousands of farmers and has high administrative, transport, and salary costs.
Stay tuned this week for more about Dale Lewis and COMACO's work.
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Yesterday, President Obama spoke in Savannah, GA, on his desire to see the US be a leader in the global economy to the benefit of ordinary workers in this country. He went on to highlight specific programs that would have both job creation and energy savings benefits. Emphasis mine:
... Because I'm convinced that the country that leads in clean energy is also going to be the country that leads in the global economy. And I want America to be that nation. I don't want us to be second place or third place or fourth place when it comes to the new energy technologies; I want us to be in first.
... Here's how it would work. We'd identify the kinds of building supplies and systems that would save folks energy over time. And here's one of the best things about energy efficiency -- it turns out that energy-efficient windows or insulation, those things are products that are almost exclusively manufactured right here in the United States of America. It's very hard to ship windows from China. So a lot of these materials are made right here in America. ...
That sounds good. (Okay, maybe not the other bit in the speech about money-wasting nuclear energy development, but no one's perfect.) Obama wants the US to lead the world in the emerging clean energy sector, and he's looking at a very broad spectrum of possible benefits to the public. Great! Let's win this race! Let this be the case where DC Beltway rhetoric isn't just another cover for snatching defeat from the jaws of victory! Let's ... oh, hell.
In his current Asian trip, President Obama visits Japan, then addresses a forum of leaders in Singapore, and eventually ends up in Seoul to discuss nukes and North Korea. But make no mistake, the axis of this week is the time Obama will spend in China, which has catapulted to the forefront of international affairs and is on its way to joining the United States as the alpha and omega of the global economic system.
That China has emerged is secret to no one, but the consequences haven't been fully integrated - either by the United States or by China. The level of intertwinement between the two economies has reached the point where they have effectively merged, forming what I've called an economic "superfusion." But that fusion hasn't yet altered political and cultural mindsets.
The ministers of the world still beseech the United States to "do something" about a weakening dollar, and U.S representatives on the eve of this trip announced that after the financial morass of the past 15 months, the United States "is back." Yes, the United States remains the world's largest economy - though technically the combined income of the European Union is greater. But size isn't everything - just look at Japan, which is still the world's second largest economy but whose influence and impact are substantially less. China may be poor on a per capita basis (perhaps $5000 per person relative to nearly $50,000 in the United States), but it is changing more rapidly and consuming more hungrily that any other society in the world. It is the change factor in the global system.
The American manufacturing industry and its employees are constantly told that they need to be better competitors in the global market, that they must increase the value they add. How are they doing on that?
Something that jumps out from data about the share of global manufacturing had by the United States, China and five other industrialized nations, is that the US is about even with China. As of 2008 and according to UN figures, China's manufacturing accounts for 17.3 percent of world output in dollars (though this number is slightly inflated), while the US' share is 17.7 percent. All else is rarely equal, so this is about as close as you'll get in the real world.
From a Bureau of Labor Statistics report described here, "By the end of 2006, China's manufacturing employment had increased once again to 112.63 million, nearly eight times the level of manufacturing employment in the United States (14.16 million)." The numbers have surely changed since then, but probably not by an order of magnitude.
Those figures could imply many things, but what they seem immediately to suggest is that American workers are extremely productive. They can produce both a high volume and high value of goods, and they have done so without getting a real raise since 1974.
Yet US manufacturing workers face higher unemployment rates than the national average, and often have to accept lower paying work when their plants close down, which should be no surprise. At the advice of the finance industry, wages and benefits have been driven down, policy makers were encouraged not to worry about the decline of the industrial base, and the whole thing was papered over with a massive consumer credit bubble.
For years, Americans have been fulminating about China and its policy toward currency. While many of the debates are technical and laden with econo-speak, they boil down to the simple conviction that China is unfairly manipulating its currency to keep it undervalued against the dollar. The result is to give China unfair advantages in trade - flooding the US with cheap goods, hurting labor wages world-wide, and accumulating massive surpluses in the process. That view is again articulated by Paul Krugman in today's New York Times (http://www.nytimes.com/2009/10/23/opinion/23krugman.html?ref=opinion) which ends with the firm statement: "Something must be done about China's currency."
The economic relationship between China and the United States is the defining issue of our day. While debates over health care are vital to American society, and while challenges ranging from Iran to Afghanistan to North Korea are real, nothing will determine the arc of the coming decades - or will shape domestic life and prosperity in the United States - more than the emergence of China as a global economic superpower unrivalled except by America.
The rise of China is hardly a secret, but because it is a complex economic that is constantly evolving, it gets less attention than hot-button issues. Absent a real crisis between the two, the relationship is more about the flow of capital and the nature of global business than it is about heated battles inside the Beltway or on Main Street. And while the rise of China and America's increased dependency on Chinese loans to fund its deficits certainly generates anxiety, it's mostly amorphous barring some specific issue to focus it.
How that relationship came to be is the subject of my new book, Superfusion: How China and America Became One Economy and Why the World's Prosperity Depends On It. While this economic fusion has taken more than two decades to evolve, with the crisis of the past year, it has become both a tighter embrace and one more fraught with tension. It's to the credit of both governments - for now - that those tensions have not boiled over.
While Washington is glued to the drama over health care, over the past few days, Russian Prime Minister Vladimir Putin has been in Beijing meeting with Chinese leaders including Premier Wen Jiabao and President Hu Jintao. In a series of communiqués, they celebrated the "strategic partnership" between the two countries and charted a course of future close relations.
Among others things, Putin - Russia's man behind the curtain who has also been spending considerable time in front of the curtain - signed off on six billion dollars worth of trade deals Chinese counterparts, including moving ahead with a natural gas pipeline to open up the vast Chinese market to Russia's equally vast supply of natural gas. The two sides also discussed policies to contain and manage North Korea. Trade between the two countries is approaching $60 billion a year, and while that is a faction of the more than $300 billion a year between China and the United States, it is hardly negligible.
The New York State Senate and Assembly, too often a model of corruption and dysfunctionality, rose above petty politics last week to pass forward-thinking legislation on climate and energy, setting a precedent for bipartisanship and a sensible cap and trade system. The State Senate passed the groundbreaking Green Job/Green New York Act, with strong support from Republicans, Democrats, and the Working Families Party, which spearheaded the legislation. The bill -- expected to be signed into law this week by Gov. David Patterson leverages $112m in revenue from the Northeasts's Regional Greenhouse Gas Initiative (RGGI) into $5 billion of private investment to finance home weatherization, energy efficiency projects, and green jobs creation.
As the United States and China wrap up their two-day "Strategic and Economic Dialogue," it's more apparent than ever that the two find themselves in a marriage that neither can easily dissolve and that neither fully wants.
The speeches struck all the rights notes - "the United States and China share mutual interests," President Obama announced. "If we advance those interests through cooperation, our people will benefit, and the world will be better off - because our ability to partner with each other is a prerequisite for progress on many of the most pressing global challenges" Those sentiments were echoed by both Hillary Clinton and Timothy Geithner in an op-ed published in the Wall Street Journal. The Chinese delegation spoke of the two nations as traveling in the same ship, a ship which was wracked by the global financial storm of the past year. In general, the rhetoric could not have demonstrated more clearly that both see themselves as locked in a relationship of mutual dependence.
STATE BLOGS
One of the first things you notice about grocery stores in Zambia is the plethora of processed foods from around the world, from crackers made in Argentina and soy milk from China to popular U.S. breakfast cereals. Complementing these foreign foods, however, are a variety of locally made and processed products, including indigenous varieties of organic rice, all-natural peanut butter, and honey from the