Extremely disheartening

The Great American Hope looks like it was a fleeting dream. Closing Guantanamo but keeping Baghram's prison (10 time larger, same lack of basic rights, same suspicion of torture) open. What the hell does he take us for? 

It is increasingly obvious that McCain would have been a better choice for the US. Boy, that hurt.

Making a stimulus a snoozer

It's not going to do much, this new stimulus bill. It's tiny, compared to the problem. It's slow, compared to the speed at which economic realities change and take hold in the public psyche. It has too many tax breaks, which are not efficient as stimuli, and are obviously temporary, as we all know that this money isn't a gift, it's a loan. Well, I hope we all still believe that the money will be paid back at some point. If that isn't the case, the foundation of the cheap credit that keeps the US running would be destroyed. 

Which brings us to California. It's not inconceivable that it actually goes bust - it really is in dire straits and it has very few options. What if it goes under, and people extrapolate? Same scenario - vastly increased borrowing costs for the government. That would be bad, with consequences going from simple government paralysis to loss of essential services. 

Pffft. The immediate danger of sudden systemic collapse has passed - probably was over several months ago - but the danger of a slow slide, deflation or permanent stagnation hasn't receded. It has barely diminished. 

Sicko

I'm not a big MM fan, but Sicko was pretty interesting. It's on heavy rotation now on the movie channels here, and I can see why. In general it seems Europeans don't know or perhaps don't believe how the US system actually works - and vice versa. While it certainly is a biased movie, it doesn't seem to actually misrepresent the situation much. The only thing that is just silly is the Cuban stunt at the end. Fine, it hammers down the point, but I don't think it was necessary and its sensationalism damages the movie as a whole. 

So was the french doctor right, is it impossible for the US to get a similar system? Well, I had a brief optimistic spell, thinking that the US was perhaps ripe for real progress. I still think that enough Americans are willing to change, even in very drastic ways. But I think it is clear that Obama is not the man to push them along. Is there ever going to be a better time to push for universal health care than now, as part of the rescue package? Hopefully not. So why isn't it in there? It could have been sold as a way to level the playing field for the auto industry, a way to make unemployment checks go longer and a way to improve worker mobility. Surely it can be sold as a way to streamline healthcare, an industry that is dragging down the country by being preposterously inefficient. 

The sad truth is that universal healthcare seems to come about only in the wake of a devastating national tragedy (think WWII), during the formation of a new country or as part of a communist revolution. Since neither the dissolution of the USA, nor its reformation as a communist country are very likely in the near future, it seems reasonable to assume that UH can only make it in the US if the economy starts to go really downhill - depression style - or if it just refuses to improve in any fashion for a few years. Maybe Obama will be able to push it through in his second term. I guess that will have to pass for optimism for now.

Small US businesses

Ok, it's bad for my health, but I can't stop following the news. So I just watched McCain speak. Pretty good stuff, for a Republican. But eventually he throws out a number (Republicans tend to avoid hard facts), and my analytical mind goes nuts.

He said that more than 80% of Americans are employed by small businesses. It made his speech make a lot of sense. But that number sounds very high. So how many Americans are actually working for small businesses?

Short search throws up the following stat - about 50% of non-government employees work for small businesses. Hmmm. How many work for government, then? Well, state and local governments employed 15.4 million Americans in 2002 (http://factfinder.census.gov/jsp/saff/SAFFInfo.jsp?_pageId=tp16_government)
The federal government employs 1.8 million civilians (http://www.bls.gov/oco/cg/cgs041.htm) plus the 600,000 postal workers and 1.4 million soldiers. That's roughly 3.8 million. In total, we're talking something like 20 million people. This is direct employment only.

Ok, I digress. This is the money shot:
http://www.census.gov/epcd/susb/latest/us/US--.HTM
50 % of Americans work for a business that has 500 employees or more. That's NOT small. More than 60% work for a business with at least 100 employees. That's still at least medium sized.

The census number totals 116 million workers in private business. With a labor force of 153 million (https://www.cia.gov/library/publications/the-world-factbook/geos/us.html), that means 37 million people are working for the government or are unemployed. Assuming the previous estimate for the government workforce - about 20 million - there are about 17 million unemployed.

Ok, so clearly McCain was full of it. Again. Small businesses with less than 20 employees (which surely covers almost all plumbers) employ less than 20% of the non-government workforce - a little over 20 million people. That's not much more than the size of the government workforce, if you take the conservative numbers for the size of the government. If you believe the official unemployment rate, there's only 6.1% unemployment. That would mean that more than 27 million Americans work for the government - many more than work for those revered small businesses.

It's okay for Americans to identify with small businessmen. They represent a part of history and perhaps personify a crucial part of the national spirit, just as French farmers and German Mittelstand do in their countries. But you have to put away this nostalgic image when you discuss real policies. The US economy may be strengthened by small businesses and innovative upstarts. But the overwhelming majority of Americans work for large companies.

Credit crunch musings

I'm happy to reread some of my long-dormant blog. I was worried I had left little proof that I'ld been warning about the bad credit in the US...

The US started living on credit under Reagan. Things got out of control in the early nineties, because there was a feeling that there was no competition for the US system anymore. By 1996, 1997 the economy was well on its way to the stratosphere, with nothing holding it up but faith. This time it's different....

I think that most of what happened after 1996 was a zero sum game for the US, at best. The internet brought new jobs, and high paying ones, but it removed others. Globalisation increased profits in the US, but moved labour costs (income to others) out of the US.

Because of inflation, I figure that the US is 40% ahead of 1996. That means a GDP in the order of a little over 11 trillion. If that is correct, GDP will have to drop by about 3 trillion to get back to realistic values. A 20% drop in the calculated size of the economy is no longer an abnormal prediction. The DJIA would end up in the mid-8000.

So. Time to buy stocks? Not quite. the irrational exuberance that kicked off in the mid nineties ran more than 10 years. Betting on the economy going back to realistic valuations was a fool's game during that time. There's no reason to assume that the irrational pessimism will dissapate faster.

So I expect the market to be undervalued for years. Unfortunately, that brings us to the point where the boomers start to retire. At that point, increasing numbers of investors will structurally move out of growth stocks, to safer stocks, bonds and even more conservative income instruments. This extended and persistent money reallocation will start to weaken markets. As more boomers retire, it will become another selling pressure that will depress the markets.

Time to move into bonds? Well, if you're anywhere near retirement, duh. If you're not near retirement, it probably isn't worth the trouble. Just start allocating a lot of your new savings (you do save, do you?) to your bond funds...

Negotiating without precondition

North Korea stopped cooperating with the IAEA. It put rockets in place, threatening more long-range testing, or an actual attack.

Are these the preconditions under which Bush is willing to negotiate?

Nah. Under these preconditions, Bush doesn't negotiate. He just gives the North Koreans what they want.

Fortunate son

Some folks are born made to wave the flag,
Ooh, theyre red, white and blue.
And when the band plays hail to the chief,
Ooh, they point the cannon at you, lord,

It aint me, it aint me, I aint no senators son, son.
It aint me, it aint me; I aint no fortunate one, no,

Yeah!
Some folks are born silver spoon in hand,
Lord, dont they help themselves, oh.
But when the taxman comes to the door,
Lord, the house looks like a rummage sale, yes,

It aint me, it aint me, I aint no millionaires son, no.
It aint me, it aint me; I aint no fortunate one, no.

Some folks inherit star spangled eyes,
Ooh, they send you down to war, lord,
And when you ask them, how much should we give?
Ooh, they only answer more! more! more! yoh,

It aint me, it aint me, I aint no military son, son.
It aint me, it aint me; I aint no fortunate one, one.

It aint me, it aint me, I aint no fortunate one, no no no,
It aint me, it aint me, I aint no fortunate son, no no no,
---

Creedence Clearwater Revival, folks. 40 years ago, and still right on the money.

I think it's almost appropriate that Ayers has become an issue in this election - for the right wing nutters at least. When it really gets down to it, the ideals of the sixties were never realized in the US. At least not to the extent they were in most western countries. The loss of the US's lead in social progress was a bitter pill to swallow for many like Bill Ayers, and clearly they went way overboard in their attempt to stop this. Rejecting progress made the seventies so aimless. Embracing deficits and brainless nationalism in the eighties set the stage for a fake rebound. The nineties were an honest, serious and almost succesful attemp to get the nation back on track without a revolution. But it was flawed, and in 2000 whatever hopes were left, burned.

But perhaps.... perhaps. It's scary to even mention it. Perhaps this is the time to revisit the basics. Perhaps this is the time that the US finally joins the rest of the modern western democracies. Maybe there will be real freedom of religion - even for muslims. Maybe everyone will have a shot at greatness - and not just the fortunate ones. Maybe free speech will really exist - or rather, people will be willing to hear speech they don't like.

Honestly, until about a month or two ago, I believed that having McCain as president would be better. He's a deficit hawk, a dare-devil that likes to take risks he doesn't understand, and someone who is desperate to make a mark on history. I figured that, with a thoroughly democratic congress, he'ld be willing to undertake fairly big reforms that would get the US in line with modern society, and get it into a healthier financial situation.

Okay, fine. I wasn't wild about it. But I did think that Obama would overreach and the popular backlash would stop anything real getting done. Think Clinton before Newt.

But now... perhaps now is the time to reengineer the US's economy and society for the twenty-first century. Not along the socialist lines that the Republicans are advocating right now (or at least Bush and McCain), but along progressive, democratic lines that are well-trodden in western Europe.

Here's hoping...

Genital mutilation okay in Florida

"A woman who had her 13-year-old daughter's genitalia pierced to make it uncomfortable for her to have sex was acquitted of aggravated child abuse on Thursday.

The girl, now 16, had testified that her mother asked a friend in 2004 to shave the girl's head to make her unattractive to boys and later held her down for the piercing.

A jury deliberated for about three hours before deciding the mother's actions didn't involve punishment or malicious intent, or cause permanent damage or disfigurement.

...

Child welfare officials were called after the girl became infected from the piercing.

Tammy Meredith, 43, who did the piercing in her home, was sentenced to a year in jail for her role. An arrest warrant has been issued for the mother's boyfriend on allegations he had sex with the girl."

Ok, mom freaks because her 13 year old is having sex with her own boyfriend, shaves her head and has her genitalia pierced (by an amateur) with the intent of making sex uncomfortable. But that is just fine by the jury? No wonder the US tortures suspects these days.

Why the US should stop coddling terrorists.

Well, what would you call it? For 4 years the US has sheltered, aided and outfitted an organisation on its own terrorist watchlist. Its highest officials travel to Washington (for sightseeing, no doubt). And now, just in time for thanksgiving, Turkey is really, really just fed up. And Condi has the gall to say that Turkey shouldn't "pre-emptively" attack??? Poppycock.

The new deal on healthcare

The new deal is about throwing off healthcare costs as an ever-expanding liability for large companies (small companies have been terminating their - already much less generous - plans for years). Details of the deals vary, but boil down to the companies offering a fixed amount of money that they employee can use to cover insurance premiums and offer healthcare costs, in stead of bargaining for health insurance (and paying its costs) themselves. Essentially it removes healthcare as a benefit, reducing it to a small salary raise (of up to 2K$).

Financially, this deal benefits companies such as GM, who can remove huge liabilities from their balance sheets. If you believe the financial calculations, the new deal means that GM replaced a 51 billion liability with a 35 billion pay-out, so GM should be worth 16 billion more now. Don't hold your breath, though, in reality it won't make that much of a difference. Of course, it does mean that companies such as GM no longer have to worry about further rises in healthcare, except to the extent that it will reduce the general health and well-being of their employees. While it may make working at these companies somewhat less attractive, their really aren't that many alternatives for working stiffs to find a better deal, as most of US companies are reducing or shedding healthcare benefits. So yes, it will help US companies by limiting their exposure to rising healthcare costs. If enough companies make the changeover, the only effect on them will be indirect (through poorer and unhealthier employees).

Does this help the union? One could imagine the unions stepping up to the plate and starting to offer healthcare insurance to all its members and becoming a huge player in the healthcare market. It could in principle be a catalyst for a re-unionisation of the workforce, and by pooling so many workers, the unions might be able to negotiate better deals from insurance companies and health organisations. The GM trust fund will be managed by the union, so it's a start for the union along this path.

If unions are re-energized this way, and especially if they pool their resources across several industries, they could create a much stabler basis to fund healthcare - able to survive the demise of big companies and downturns in entire industries. Their newfound riches could make them more powerful lobbying agents in Washington as well. So the deal offers a real opportunity to the unions to claw back from oblivion.

Unfortunately unions aren't the most transparent organizations, anti-union sentiment still runs very high in boardrooms and providing healthcare to all union workers falls far short of universal healthcare. So while this deal is certainly good for the union, and perhaps (if things work out) not bad for unionized workers, it is going to make things really difficult for non-union workers.

So does this at least help union workers? Perhaps. They gain mobility, if unions are able to construct a healthcare package that would be independent of the employer. But pending that, little changes until the money runs out. And run out it will, unless the workers start paying more for their healthcare. In the end, the workers' healthcare is now beholden to the union, which should be better than being beholden to the company. But they will likely have to foot more of the healthcare bill, unless the unions are able to change the healthcare equation completely.

Because in the end, healthcare costs are not going to go down because of deals like this. If anything, it will make them go up faster, as people will go from large corporate plans, administered professionally on both sides of the issue, to individual accounts. Not only is there likely to be more overhead, disputes are more likely to end up in court and care is probably going to get worse. Healthcare is one issue where people rarely are able to make the best decision. Not only because it affects individuals so deeply and so emotionally, but also because even professionals have a hard time figuring out which plan is most appropriate. The industry thrives on obfuscation and fear.

So while the UAW deal is only symptomatic of a larger move by companies towards fixed-value benefits, it is still a milestone. And a pretty grim one at that. Unless unions take the opportunity and step into the void left by dwindling company healthcare benefits, power will shift to the insurance providers, leading to higher healthcare costs. We'll have to hope that the unions take this chance and make the most of it. But even if they give it their best shot, their chances are thin.