Let us keep to the path to nowhere

Perhaps the Demonicans would rather have a plutonium coin…

Recommended: Michael Hudson: America’s Deceptive 2012 Fiscal Cliff, Part II

Wage Slavery plus debt peonage — these are the fates awaiting the ‘better off’ members of the 99%, Alan Simpson’s “lesser people.” The ‘worst off’ shall continue to find themselves existing on city streets, squatting in vacant land and buildings, suffering one of the many prisons which pockmark the body politic or dying from untreated illnesses. These fates — wage slavery, debt peonage and social outcaste — should not be considered accidents of history. They have obvious systemic causes. The economist Michael Hudson explains in the second of a four-part series:

Today’s economic warfare is not the kind waged a century ago between labor and its industrial employers. Finance has moved to capture the economy at large, industry and mining, public infrastructure (via privatization) and now even the educational system. (At over $1 trillion, U.S. student loan debt came to exceed credit-card debt in 2012.) The weapon in this financial warfare is no larger military force. The tactic is to load economies (governments, companies and families) with debt, siphon off their income as debt service and then foreclose when debtors lack the means to pay. Indebting government gives creditors a lever to pry away land, public infrastructure and other property in the public domain. Indebting companies enables creditors to seize employee pension savings. And indebting labor means that it no longer is necessary to hire strikebreakers to attack union organizers and strikers.

Workers have become so deeply indebted on their home mortgages, credit cards and other bank debt that they fear to strike or even to complain about working conditions. Losing work means missing payments on their monthly bills, enabling banks to jack up interest rates to levels that used to be deemed usurious. So debt peonage and unemployment loom on top of the wage slavery that was the main focus of class warfare a century ago. And to cap matters, credit-card bank lobbyists have rewritten the bankruptcy laws to curtail debtor rights, and the referees appointed to adjudicate disputes brought by debtors and consumers are subject to veto from the banks and businesses that are mainly responsible for inflicting injury.

The aim of financial warfare is not merely to acquire land, natural resources and key infrastructure rents as in military warfare; it is to centralize creditor control over society. In contrast to the promise of democratic reform nurturing a middle class a century ago, we are witnessing a regression to a world of special privilege in which one must inherit wealth in order to avoid debt and job dependency.

What is truly astonishing about this situation is the nature of contemporary finance capital. In essence, it is functionless. It does not exist to generate capital for investment in the real economy. It does not provide safe storage for pension funds, insurance monies, personal savings, etc. It does not even provide the common investor with rational investment programs. Rather, finance capital today is just a system specific mechanism (or, better, set of mechanisms) which extracts massive quantities of wealth from the world. Profit taking — that is its sole purpose. Moreover, it is omnivorous and perpetually famished. It cannot be satiated. Its appetites thus put everyone at risk. It lacks a home, a national identity. It cares not for people, their cultures, societies and well-being. It is everywhere and nowhere.

It is, in a word, the vampire about which so many Americans fantasize.

Good question

Michael Hudson asks:

This pro-austerity mythology [which animates orthodox economics and economic policy in the United States and elsewhere] aims to distract the public from asking why peacetime governments can’t simply print the money they need. Given the option of printing money instead of levying taxes, why do politicians only create new spending power for the purpose of waging war and destroying property, not to build or repair bridges, roads and other public infrastructure? Why should the government tax employees for future retirement payouts, but not Wall Street for similar user fees and financial insurance to build up a fund to pay for future bank over-lending crises? For that matter, why doesn’t the U.S. Government print the money to pay for Social Security and medical care, just as it created new debt for the $13 trillion post-2008 bank bailout?

The answer to these questions: Banks and other financial institutions want to keep as much of their income as they can. Transaction fees, regulations, oversight, taxes, etc. — these consume profits. America’s banks want to transfer these costs to others, namely, to those individuals who lack the political power to defend their standard of living. This cost transfer project amounts to a hidden and sometimes obvious tax the government levies on the 99%. When coupled to a system of risky and fraudulent financial transactions, elite looting and private debt creation, this cost transfer project amounts to little more than a predatory political economy.

The ridiculous fiscal cliff debate which now dominates America’s public life is but a crude expression of this predatory political economy.

Oh nooooooooo

Hostess Brands, the makers of Wonder Bread, Twinkies and Ding Dongs intends to go out of business because of a recent labor strike.

Hostess expected its Bakery, Confectionery, Tobacco Workers and Grain Millers International Union members to sign a concession-laden contract produced by a bankruptcy court, which its union members refused to do.

Soon, Americans will no longer have the opportunity to purchase unhealthy food with brand names that became pejorative words some used to describe persons they considered insubstantial and ridiculous.

China — a labor cost savings bonanza?

Not really, according to Yves Smith:

For some time, we’ve argued that outsourcing and offshoring were overdone. For manufactured goods, direct factory labor is typically only 10% to 15% of final product costs. Even if you get significant savings there, the offsets are increased shipping, inventory, and managerial/coordination costs (which serves as an excuse to transfer savings on factory workers to the top brass). In addition, extended supply chains also entail higher risks. I’ve had executives and senior managers in various industries tell me that there internal estimates of the savings from outsourcing weren’t compelling, but senior management went ahead on the (typically correct) assumption that investors would approve.

But even in the cases where the outsourcing cost savings were significant, the idea that American wages were way out of line with Chinese wages and the only future for American workers was grinding wages lower and lower to compete with China has been oversold. Various writers, including yours truly, pointed out that China’s wage advantage would not hold indefinitely even if it managed to keep its currency peg (which, separately, it hasn’t; the change to a currency basket has over time resulted in appreciation against the dollar).

The reason? China’s much higher inflation rate would over time reprice labor in nominal terms at home, which with a currency peg (or the current dirty float) would translate into real increases to foreign buyers. To put it more simply, double digit inflation over time would be tantamount to a currency revaluation.

Despite popular (and worse, pundit and media) perceptions otherwise, China no longer enjoys a labor cost advantage in many areas.

In fact, the United States has recently seen an increase in manufacturing investment. Why, then, do we so often hear American pundits attacking off shoring American capital when capital is now flowing back to the United States? The issue also has a political component:

Despite the fact that this trend is well under way, we’re certain to hear a steady diet of haranguing from neoliberal economists about how American workers have to suck it up and accept even lower wages. What’s driving falling real wages is poor domestic economic policies, namely, the mismanagement of the post crisis period. Japan warned the US early on that the biggest mistake it had made was not forcing its banks to recognize losses. But we ignored their lesson and are in the process of suffering what may turn out to be a lost decade. Time to blame the real perps, our bank enablers, rather than the poster bad guy, the Chinese wage slave.

Michał Kalecki expected blunders like this (.pdf) from the capitalists and their foot soldiers. We should never lose sight of the fact that capitalism is not an intrinsically rational economic system. The opposite is true.

The new austerity

Congressional Republicans have been working hard to cut SNAP funding (Food Stamps). As we know, Vice Presidential candidate Paul Ryan has worked very hard on this matter, having made his name nationally with his draconian budget proposal. While the Republican effort to cut Food Stamp funding is unsurprising, their effort remains disturbing nonetheless given the severity and length of the economic crisis which emerged in 2008 and given the looming food crisis. To be sure, the food crisis directly ahead of us will be a consequence of the 2012 drought. The existence of the drought belongs with the other effects produced by global warming, an issue on which the Republicans have an irrational position. As more Americans find themselves jobless or food-deprived and while the morbidity attributable to food-shortages will surely increase because of inflating food prices and food shortages, the Republican Party wants to intensify the deprivation many Americans will suffer by cutting Food Stamp funding.

What the Republican Party wants to impose on America is not a sound fiscal regime but an intense and risk-laden class war.

Reaching out and touching some people

Jesse Russell of the Workers Independent News service asks (h/t Corey Robin): “Is your lunch break your own or does the boss get to tell you what you can and can’t do during it?”

AT&T has an answer which it puts into practice. The corporate giant believes it has the property rights needed to control the actions of its workers even when those workers are on break:

AT&T technicians in Indiana have filed a lawsuit alleging that the company has put “heavy restrictions” on how they can spend their unpaid lunch breaks [emphasis added]. The complaint says that while employees can spend unpaid lunch breaks eating in company vehicles, they aren’t allowed to read newspapers, nap, use personal computers, or listen to portable music players, such as iPods. The company also restricts how far workers can go from a job site during their unpaid lunch breaks to less than one-half mile. The lawsuit alleges that the restrictions violate the Fair Labor Standards Act and create an atmosphere where workers instead feel obligated to work through their lunch break, but don’t get paid for that work. The objective of the lawsuit is to have AT&T’s unpaid lunch breaks ruled illegal.

This is what labor discipline looks like in a low-employment labor market.