Tuesday, March 16, 2010

The coming social revolution

Just wanted to recommend this excellent article by Eric Walberg on the Greek / PIGS / EU crisis.

If you haven't been following it, basically Greece is being screwed because they no longer have their own currency, which means they can't take the usual action (currency devaluation) to stave off what promises to be a severe economic depression. Latvia has long been in the same situation, with its stupid government insisting on maintaining a peg to the euro even though it means sinking their people into poverty. This isn't going to fly in the long term (or even the fairly short term). From the article:

Last week saw a succession of strikes and protests throughout Europe: Lufthansa’s pilots, French air traffic controllers and oil refinery workers, protest rallies in Madrid, Barcelona and Valencia against the austerity measures of the Spanish Socialist Workers Party government. Trade unions in the Czech Republic announced that public transport would be halted this week. A one-day general strike of the public sector in Portugal protested measures to cut the deficit to 3 per cent of GDP by 2013. A truly pan-European movement is being born. The Independent's Sean O’Grady predicts such actions “promise to be just the start of the greatest demonstration of public unrest seen on the continent since the revolutionary fervour of 1968.”

Sunday, March 14, 2010

Clinging to the first world

[Photo by the excellent journalistic photographer Harvey Finkle -- check out his site.]

By the standards of developed nations, America has a shocking level of poverty, even while we host a great many of the filthy rich. As was pointed out on Washington's Blog:

A report by University of California, Berkeley economics professor Emmanuel Saez concludes that income inequality in the United States is at an all-time high, surpassing even levels seen during the Great Depression.

The report shows that:

  • Income inequality is worse than it has been since at least 1917
  • "The top 1 percent incomes captured half of the overall economic growth over the period 1993-2007"
  • "In the economic expansion of 2002-2007, the top 1 percent captured two thirds of income growth."
As others have pointed out, the average wage of Americans, adjusting for inflation, is lower than it was in the 1970s. The minimum wage, adjusting for inflation, is lower than it was in the 1950s. See this.

On the other hand, billionaires have never had it better (and see this).

Of the 535 members of Congress, over 44% - 237 to be exact - are millionaires. Fifty have net worths of at least $10 million, and seven are worth more than $100 million. By comparison, around 1% of Americans are millionaires. There is no other minority group that is as overrepresented in Congress. See this.

Impoverished Americans are largely invisible since they are rarely on TV or in the movies, but there are a hell of a lot of poor people in the US. We tend not to be aware of those who are worse off, because Americans are highly segregated by income. Here's a small example of that segregation: on one side of town, there's a grocery store with such astronomically high prices (e.g., $6 for a teeny 1-cup container of fresh-made salsa) that I can't quite believe it's been in business for 2 years. Where I live, that store would go under-- and yet I still live in a fairly well-off area. On the opposite side of town the people are poorer, and there's a grocery store out that way where I never have to return my empties, because there is always someone hanging around by the recycling machines who is grateful to take them as a donation. The first time this happened I was rather stupid about it; I was waiting for an available machine and this very thin man made a comment or two, in a sympathetic vein, about how lousy it was to have to wait, especially when you have kids with you (meaning mine). Eventually he came right out and said he'd been collecting cans and bottles to try to make his room rent, at which point I finally said "Oh! Well, here, take my stuff...."

And really, that store is still not in an impoverished area, just a slowly decaying section of suburbia. That store doesn't sell to the rural poor, nor to the inner city.

To remind us all, some statistics:

  • 1 in 8 Americans is on food stamps (source)
  • Only 2 out of 3 Americans eligible for food stamps receive them (source)
  • As many as 10% of workers are under the table, and will never be eligible for food stamps, regardless of their level of poverty (source)
  • Half of all American children will receive food stamps at some point in childhood (source)
  • 90% of all African-American children will receive food stamps at some point in childhood (source)
  • 7% of all mortgages are more than 2 months behind on payments (source)
  • 1 in 50 American children experiences homelessness in a given year (source)
  • The true unemployment rate is over 21% (source)

Meanwhile, in mainstream news: Green shoots! Recovery! Worst is past! Back from the brink! Losses slowing! Signs of improvement!

Uh-huh. Right. In a way, you have to laugh at the absurd stupidity of the uber-rich. Every brainless parasite knows you don't kill your host if you want to go on collecting free food. But these uber-rich got so damned greedy and took so much for themselves that they have collapsed the Western economies from which they drew their wealth in the first place. The stupid fools! Only such psychopaths (see here) could be so blithely inattentive to the suppliers of their stolen wealth.

In the early 20th century, not only Henry Ford but the whole class of industry titans learned that if they wanted to sell things and have a prosperous society, the little people would have to be reasonably well paid. I'm not saying they just woke up one day and realized this like an epiphany out of the blue; it was more like they were forced to understand this by strikes, sit-ins, demonstrations, riots, and so forth. And it looks like it's time for the titans to learn these economic realities all over again. They should consider themselves lucky if they get through it this time without revolution.

Sunday, February 28, 2010

Dumber than a box of rocks

My title refers to unknown persons in my state legislature-- but I'll get to that in a minute.

The kids and I visited our local food bank a couple of days ago, on a field trip. The bank receives food from various sources: surplus produce from wholesalers, goods that grocers know they can't sell before the expiration date, surplus food from restaurants, and donations from the community. They also use cash donations to buy certain items in bulk, and last year they dug up a garden plot and produced 20,000 pounds of their own vegetables. All this food is distributed to about 40 food pantries across the county, which pass it along to those in need. In addition, they've worked out some kind of token system with the farmer's market, where needy families can buy units of veggies with their tokens. People are trying really hard to get healthy protein, fruits, and vegetables to these families, since relying on cheap carbs is a sure path to health problems.

The food bank is most definitely a success story, and I was really glad to visit them and have my kids put our donated food onto their shelves. But they are struggling to keep up with a 138% increase in people asking for assistance over the past three years. That's considerably worse than in the country as a whole, where requests have increased 46% over the past three years. (No surprise here-- I live in Michigan.) On top of the rise in people needing help, food costs are going up. Our local food bank now needs three times the budget that it did in 2006.

While I was reading about food banks, I discovered that there are some people in the Michigan legislature who are so disconnected from reality that apparently only the glare of torches in the window is going to wake them up. Quoting from a report from last August (available here as a Word document):

Despite record levels of need, food banks forced to turn away fresh produce from local farmers

LANSING – Due to pending state cuts to a surplus crop donation program, food banks across the state are left with no choice but to turn away fresh produce as Michigan’s bounty of seasonal crops reach their peak.

. . .

Annually, an average of six million pounds of food are distributed to local pantries, soup kitchens and shelters that would otherwise go to waste or end up in a landfill. MASS [Michigan Agricultural Surplus System] stimulates Michigan’s economy by assisting farmers, extending the growing season and adding agricultural-based jobs, while also providing low-income families with nutritious food. The state Legislature has proposed cutting the program for the 2010 budget.

Michigan food banks are seeing up to a 30 percent increase in food distribution so far this year and it is particularly painful for the food banks to know that there is surplus food that can’t be acquired in this time when so many people are struggling financially. For example, Marshall said Michigan’s tart cherry industry is looking at likely producing 100 million more pounds of fruit this year than last year.

“We normally would have funds to get these cherries canned or processed somehow, but not this year,” she said. “Michigan producers are exceedingly generous. They hate to see food go to waste and offer it to us at a very low cost. We have been blessed with this generosity towards our MASS program for 17 years now and it kills us to have to turn down food, especially when the need is so great.”

MASS normally costs the state $635,000 annually and the funding covers the harvesting, packaging and shipping of the produce. The dollar amount is miniscule and only accounts for .05 percent of the total funding cut.

$635,000???? Seriously, they can't swing $635,000?

Food is one of the most basic needs of the citizens. If government is (ostensibly) by the people and for the people (hello!!!), the legislature would never have cut such a no-brainer food program. For 10 cents a pound, we can pay farmers, preserve food, employ workers, and distribute that food to the poor. All for a fricking dime a pound-- and this is where they imagine they see fat that can be cut? This is where they see unnecessary waste?

Fer chrissake, $635,000 is only 5 or 6 high-level school administrators. Guess what happens if you cut school administrators? Fewer meetings, same education. Cry me a river.

But instead they chose, first of all, to take money from farmers. This is typical of our cultural inability to understand what wealth is (i.e. production, food, tangible assets). The Michigan Legislature has a message for us all: If you produce something tangible, then fuck you. If you push paper all day, come see us in Lansing!

And the legislature chose, secondly, to take 6 million pounds of produce out of the mouths of the poor and to dump it into the landfill. They just couldn't manage to find that last 1/20 of a percent of the budget cut amongst the overpaid anti-producers in administrative positions. (And I mean anti-producers, I do not mean non-producers.)

If you're among those in need, the only way a trip to Lansing can help you, apparently, is if you bring along your pitchforks and your torches.

Wednesday, February 24, 2010

Under the table workers

Something is being left unsaid in reporting about unemployment benefits, Medicaid, food stamps, and other government aid during this burgeoning Depression. Under-the-table workers, who (according to an older article) may make up roughly 10% of the work force, often cannot apply for any of this aid. If you have to bring in official pay stubs and proof of expenses, and your official income can't explain how you pay your bills, then you've just announced to the government that you've been violating tax laws. You might qualify for food stamps even with your undeclared income, but due to the IRS you can't apply. Should you lose your job, you might be desperate to feed your children and avoid homelessness, but there won't be any unemployment benefits available.

People tend to see undeclared workers as strictly an immigrant issue, which isn't right. It's also a poverty issue. I know 7 people who are regularly paid under the table, and none of them is an illegal immigrant. (One of them is an immigrant, but he came to the US many, many years ago.) All of these people are in constant struggle to keep their heads above water.

I'm not saying that everyone working in the black market is poor, but I would venture that the vast majority are in poverty or close to it. A disproportionate number of them would qualify for food stamps or Medicaid, relative to above-board workers. And given that unemployment has hit less educated workers the hardest, I assume that undeclared workers would find themselves out of work disproportionately often.

So when you read statistics like "38 million Americans rely on food stamps" as an indication of poverty in the US, remember that a tenth of all workers (and sometimes their children) are not represented in that calculation, even though they're more likely to be poor enough to qualify. People ask "What are the jobless supposed to do when their emergency benefits run out?" But the other question is, what on earth do the black market workers do when there are no unemployment benefits?

We assume we have safety nets, that there's a government agency or at least a food pantry somewhere that will take care of these unfortunate souls who fall through the holes in the safety net. This is sometimes known as the "bystander effect," when people stand by and watch a tragedy unfolding without thinking to give any help themselves. Partly, people feel disconnected from the emergency, as if they're watching it on TV. And partly, we've all been taught to trust the experts, wait for the experts, leave it to the cops or the social workers or the nurses. And so, even when we're good people, sometimes we see an emergency and do nothing. I hope we can get past that. There are many people the government can't help -- again, maybe a tenth of all workers and some of their dependents -- and they need somebody's help.

One grim thing to keep in mind in the years to come is that nobody dies of poverty, per se. They die because they're 80 and can't afford to run the AC, and die of heart attack. They die because malnutrition leaves them vulnerable to diseases we thought we'd seen the last of after the previous Great Depression. They die because they drink themselves to death or commit suicide. I recently read somewhere (no doubt in something Dmitry Orlov wrote) that in Russia after its collapse, the life expectancy for men fell to 10 years less than for women, largely due to self-destruction and violence. But no institution counts such deaths as being due to poverty, except in some far-distant academic paper which looks back, years later, and estimates the surplus deaths.

The reason I'm being so terribly depressingly (sorry, Mom) is that -- should we go the route Dmitry Orlov imagines -- the little things we can do for each other might actually save lives, when people have come to the end of their rope. Eggs for the kids down the road, poker with the depressed guy across the street, a little help with an electric bill or a heat bill here or there... that stuff might truly make a difference. Read some novels from the 19th century, and you discover that people acted this way all the time. I don't hold myself up as a paragon, I just think that we'll have to make a mental shift toward providing more charity. You know, the strong caring for the least among us. I think some religions used to talk about that, back before charity got replaced by judgment.

Tuesday, February 23, 2010

Reality returns

Some hideous consumer confidence numbers came out today. For one of the confidence measures, economists had predicted a slight fall from 56.5 55.9 (in January) to 55.0. Instead it fell drastically to 46, and one of its components -- how respondents feel about their present situation -- is at a low point not seen since February 1983. The other measure of confidence also fell, to just a hair above its all-time low, set 24 years ago.

A very famous trader and an expert in gold, Jim Sinclair, sums up the world's economic situation this way:

The media can play all the games they wish. Just keep firmly in mind that:

1. Towns are broke.
2. Cities are broke.
3. States are broke.
4. Main Street is in dire pain.
5. The apparent improvement in the financial industry is accounting smoke and mirrors.
6. Most corporate improvements are not sales driven but cost cutting based. You can also call that "firing the help."

Greece or any state of the United States that goes under must be supported by QE to infinity as a country bankruptcy of the Iceland type will sweep across the Western World faster than Lehman Brothers locked up the credit markets.

QE to infinity means money printing to infinity. Bankers like to call it "Quantitative Easing" so that it's harder for the public to understand what's going on. Destroying the currency also means destroying the debts that are denominated in that currency, so it's like a jubilee, which will wind up being a good thing for some people. On the other hand, it also destroys savings, and much worse than that, the lack of a stable currency means economic activity grinds to a stop. The people who get through it best will be those who "get it" that tangible assets are now far more desirable than paper assets. You don't want more stocks and bonds in your 401k, you want land and non-perishable food and bits of silver.

While all this destruction of currencies is going on, we've still got a decline in economic activity. On the jobs front, this animation about unemployment says it best. Darker colors mean worse unemployment. See the contagion spread over the land....

Sunday, February 21, 2010

Where is your money?

Citigroup has recently notified its customers that it might take 7 days to receive withdrawals from checking accounts at their banks. Specifically:

"Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change."

Apparently this only applies to Texas, but was mistakenly sent out to every Citi bank customer nationwide. I'd call that a heck of an error. And it's a convenient mistake, since at least some of their customers (even outside Texas) will be slightly more likely to accept delays in receiving their cash, since they were warned in advance. As I wrote last month, a dollar in hand is worth 20 in the bank.

Meanwhile, Zero Hedge alerts us to other troubles in getting our hands on our own damned money in Expecting A Tax Refund? If You Live In Hawaii Or North Carolina (And Soon New York) You Will Have To Wait:

Two weeks ago we warned readers who wanted to get 2009 tax refunds to file their taxes asap. It appears we were prescient. The state budget crisis is about to hit home. Again. Last year California delayed tax refunds due to simply not having any money which to refund. This year, the first states to announce a hold in refund processing for just the same reason are Hawaii and North Carolina. New York State is also considering a comparable action. If you have delayed filing your taxes, it is high time to do so now regardless of where you live as the same "money-saving" approach of halting refunds is likely about to become prevalent now that "everyone is doing it."

Meanwhile, Illinois has not been making its mandatory payments to schools, universities, and various other agencies. California is likely to run into similar cash flow problems in 2 or 3 months, and perhaps this time they won't even bother with official IOU's, but will simply take the Illinois route and just not make payments. So far, school districts and state universities have juggled funds in order to keep paying their workers, but you can see where this is headed. One day, in some state or another, certain state-employed workers will simply not be paid. The money they have earned under contract will simply not arrive.

Speaking of employment contracts, pension funds are vastly underfunded, and the government entity that is supposed to guarantee pension funds (the Pension Benefit Guaranty Corporation) is... right, utterly underfunded. Social Security is underfunded, and will go into deficit (meaning we can only make payments using borrowed money or by hiking withdrawals) this year. And our own, private retirement funds are in danger of being stolen over the long term, as I wrote about in Nationalizing our 401k's.

Are you beginning to see a pattern? You might be worth a certain amount on paper, but what do you have in hand? What money or assets do you have in your house, in a safe, squirreled away at a relative's house, or whatever? What have you actually got in hand?

And now for the ultimate question: what have you got in hand that doesn't depend on the value of the dollar? What do you have that is not denominated in Federal Reserve Notes? Because a couple of years from now, the value of all that green cotton/linen blend could be dwindling fast. Or even sooner than a couple of years.

It's time to think 19th century for at least some of your wealth (should you still be so lucky as to have any wealth). You know: Land, tools, wheat and rice, salt and sugar, firewood, silver and gold, the family jewels (in the literal sense), cows, pigs, chickens. More people would see this if they weren't blinded by a knee-jerk disdain of "survivalists," and by the "Everything Is Normal" meta-message of television.

Thursday, January 28, 2010

Potemkin retail

Potemkin village: an impressive facade or show
designed to hide an undesirable fact or condition

In spite of the poor economy, the remaining stores in my area look about the same as they always have. True, there are fewer little shops in the strip malls, but the big chain stores seem unchanged. Until you pick something up, that is.

I used to buy casual clothes at Target. I got some jeans there last fall, only to discover that the pockets had been sewn shut. They weren't fake pockets-- after I got my little seam-ripper out and undid the damage, the pockets functioned as normal. It was just a goof. A pair of denim shorts bled blue dye for multiple washings and wound up a much different color by the time I would risk wearing them. And the socks seem to last through only 8 or 10 wearings before developing holes in the heels. As for T-shirts, forget it. The material has gotten very thin and chintzy, and half the time there are threads coming out of the seams.

I'm not trying to pick on a particular chain; it's like this at all the big box stores. I tried ordering shirts from Land's End instead, unaware that they too had cut their quality pretty drastically. The shirts that arrived were... well, okay, you couldn't literally read a newspaper through them, but close. Big headlines, maybe.

I bought some Hanes sweatpants for my son, who still crawls around much of the time. On the first day he wore them, they turned out to be not actually woven material but a sort of felt or other fuzzy stuff attached to a gauzy network of threads. The knees didn't exactly wear through, it was more like they rubbed off. Incidentally, I also once bought a blanket that I thought was microfleece but which turned out to be fuzz attached to a plasticky network in the middle. I washed it once and half the fluff came off. They don't even bother weaving cloth anymore, it appears. And yet the blanket had appeared to be of better quality, as seen through its plastic case (un-openable) on the store shelves.

As the story goes, it's all China's fault. They swindle us with their bad products. But actually, the crappy clothes I've unwittingly bought have come from Singapore and Guatemala, El Salvador and Malaysia as well. It's not all China's fault. Something else is going on here.

Food, as we all know, has been declining in quality steadily for decades, but is now also declining in quantity. The 32-oz jars are now 28 oz, the 7-oz tuna cans are down to 5 or 6 ounces, the 16-oz container of ricotta cheese is now 14 ounces. And yet, prices are up.

Loss of quality is happening across the board. I now prefer to spend money on all-stainless kitchen gadgets or to buy them from (say) a Swiss manufacturer like Kuhn-Rikon. It seems like more money, but it actually isn't, because at least that way you don't have to buy it again in 2 years. And quality kitchen items, like my pressure canner or my Squeez-o, can be found used.

I've replaced bathroom fixtures only to wish I'd kept the dated 1960's stuff because at least the old fixtures didn't constantly come unscrewed, rust in unexpected places, or turn out to contain plastic where you'd expected steel. Must everything be made with planned obsolescence?

But it isn't just intentional obsolescence, any more than it's "all China's fault." In truth, this is hidden inflation. American dollars used to buy steel instead of aluminum, glass instead of plastic, wood instead of particle board, goosedown instead of fiber-fill, silk instead of rayon. Today American dollars buy you stuff that looks good in the store, but which falls apart once you begin using it.

Inflation, on paper, has been bad enough. We all just accept that prices go up every year, and that our wages and salaries don't quite keep pace. But meanwhile the things in our houses, and the houses themselves (think toxic drywall or disintegrating faux-wood siding) have gone to hell, quality-wise. That, too, is inflation, but not the sort that shows up on price tags.

Ironically, the government looks at quality, but only when quality is improving. If you spent $1500 on a computer a few years ago, and this year you bought another computer for $1500, they'll claim that you actually got it cheaper. The new computer, you see, has a bigger hard drive and more memory and a faster processor, so you actually got more computer for the money. They adjust for that; it's called a "hedonic adjustment." They're telling us that we're not actually paying the same prices... not if you measure it per gigabyte or per gigahertz.

But -- get this -- they never adjust for declines in quality. If you had to spend $10 for a T-shirt made with 50% fewer threads than the $10 T-shirt you bought last year, tough luck. The government doesn't "adjust" to indicate that you're paying more per thread.

That lets the government hide inflation, as long as almost everything we're buying gets crappier with every passing year. Which it most certainly does.

And again, it isn't wholly China's fault. We can't pay the Chinese good money for good quality, because we haven't got good money... we have slowly failing currency. The price tag may look the same, but the dollars themselves have lost value. As the dollar has fallen, it's squeezed Chinese companies. Wal-Mart has demanded the same stuff for less real money, and naturally the Chinese have cut every corner they could. What we get from them today is largely what our currency is worth.

And thus, America's well-stocked, cheery retail stores are in fact full of junk. It's all just Potemkin retail.