Reports from the Economic Front

a blog by Marty Hart-Landsberg

Monthly Archives: May 2011

Say No To Free Trade Agreements

The president, with the enthusiastic support of our business community, is pushing ratification of free trade agreements with Korea, Colombia, and Panama.  The fact is that these agreements are terrible for working people. 

Those advocating their ratification generally argue that they are simple tariff reduction agreements which promote exports and jobs.  In the case of the Korea agreement, the U.S. trade representative claims that ratification will create 70,000 new jobs for American workers.  The fact is, as argued before, this claim is based on a fradulent methodology that ignores the consequences of the expected growth in imports and trade diversion.  In short, the government is playing fast and loose with the data to manipulate public opinion.  

The government is willing to go to such lengths because these bilateral free trade agreements have become increasingly important to the business sector.  Originally the U.S. and other governments favored multilateral agreements like the WTO.  However, popular resistance has made it almost impossible to expand their reach.  As a result, most governments have settled on a strategy of using bilateral agreements to strengthen corporate power in a step-by-step approach that is less likely generate another “Seattle.”

Two recent WTO rulings based on alleged U.S. violations of the Technical Barriers to Trade agreement (TBT) help to clarify what is at stake.  Among other things, the TBT says:

Members shall ensure that technical regulations are not prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to international trade.  For this purpose, technical regulations shall not be more trade-restrictive than necessary to fulfill a legitimate objective, taking account of the risks non-fulfillment would create.  Such legitimate objectives are, inter alia:  national security requirements;  the prevention of deceptive practices;  protection of human health or safety, animal or plant life or health, or the environment.  In assessing such risks, relevant elements of consideration are, inter alia:  available scientific and technical information, related processing technology or intended end-uses of products.

This may sound pretty harmless but the key is that the TBT requires governments to pursue their policy goals in ways that are least likely to discourage trade.  Even if government regulations apply equally to foreign and domestic firms, if foreign firms can make a case that the regulations disproportionately affect them because of the way they produce, they can use this agreement to force a change in government policy.  That is what happened in the two recent rulings.   

The first WTO ruling declared that the U.S. must stop allowing companies to put labels on cans of tuna to tell their consumers that the tuna was caught using fishing techniques that protect dolphins.  According to the WTO, not only can we not ban tuna caught using nets that also kill dolphins, we cannot even use labels that inform consumers about how the tuna was caught.  The reason: such labels might influence consumer purchases.  The case was filed by Mexico, representing some 15 countries including the European Union.

The second WTO ruling declared that the U.S. must stop using labels on beef sold in supermarkets that reveal the country where it was raised and slaughtered.  Significantly, although this case was brought by cattle interests in Mexico and Canada, the outcome was also endorsed by the largest cattle industry group in the United States.  Class interest usually does trump national interest.  According to a Reuters report, the president of the National Cattlemen’s Beef Association said, “This ruling is unfortunate for the U.S. government but the consequences of a poor decision have been revealed. We fully support WTO’s preliminary ruling.”  The Association supports the ruling because it will allow cattle producers to combine various qualities of meat sourced from different locations thereby cheapening their costs of production without worry about consumer reaction.  

A strengthened TBT is included in each of the three free trade agreements that our government is promoting.  And there are many other destructive chapters in each of these agreements that our government has also conveniently forgotten to tell us about.  No doubt they are afraid that if we really understood what these agreements are about we would realize that they are designed to promote corporate profitability without any regard for the public interest. 

Our response needs to be a clear and loud “no” to the ratification of these and future free trade agreements.

 

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The Challenges Ahead

On May 6, 2011, I spoke at the First Unitarian Church in Portland along with Chuck Collins (from the Institute for Policy Studies) as part of a program sponsored by the church’s Real Wealth of Portland group.  We both addressed the following theme: “Economic Insecurity Continues…and Communities Respond.”   

Chuck talked about a very important initiative: Common Security Clubs.  The First Unitarian Church has sponsored similar clubs for approximately one year.  

What follows is the talk I gave:

The Challenges Ahead

I want to begin by summarizing my three main points—

First, our economic problems are serious and structural, and a long time in the making.  They did not start with the 2007 collapse of the housing bubble, which means that we should not assume that so called “normal market forces” will eventually return us to an acceptable economic state.  In other words, without major structural changes in the way our economy works we face a future of stagnation with ever worsening conditions for growing numbers of people.  

Second, business and political leaders are not committed to making any serious changes in our economic structure.  That is not because they are stupid.  Rather it reflects a real class interest in maintaining the status quo.  It is not that they are unaware of or unconcerned with our current social problems but rather that they view the cost of making necessary changes to our economy as too high.

Third, meaningful solutions will require building a movement that challenges our current reliance on profit driven market outcomes.  This movement has to be built by organizing strong social and community institutions, ones that give people the chance to develop in common a correct understanding of the causes of our problems and the organizational weight and confidence to promote the needed transformation of our economy.

Structural Crisis

The National Bureau of Economic Research, the official designator of recessions and expansions, declared that our economy went into recession in December 2007 and that this recession ended and an expansion began in June 2009.  In other words we have been in an expansion for almost two years.  Normally, the deeper the recession, the stronger the recovery.  However, as I am sure you are aware, the recession was very deep and to this point the recovery has been extremely weak.

The federal government has poured trillions of dollars into the economy to end the recession and boost the recovery.  The government’s great accomplishment has been a strong recovery of profits.  In fact, total domestic corporate profits are now about as high as they were in 2006 before the start of the crisis, and financial profits as a share of total profits are pushing 35%, which is close to the pre-crisis high of 40%.

But beyond this restoration of corporate profitability, and the recovery of finance as our leading economic sector, little has happened to generate sustained and beneficial growth for the great majority of us.  For example, total bank excess reserves averaged around $10 billion a year in the decades prior to the crisis.  Now they are pushing $1.4 trillion.  The banks are just holding this money.  One reason is that since October 2008 the Federal Reserve Board is paying them interest on those reserves.  Similarly non-financial corporations now have the highest ratio of cash to assets in post-war history; they are not using that money to invest in new plant and equipment.

What this means is that our leading financial and non-financial corporations have plenty of money, but see no privately profitable productive investment opportunities.  At the same time, they are in no hurry to pursue policy changes because despite the slow recovery they are doing quite well.  Thus, as things stand, there is little reason to believe that this government supported expansion will be long lasting or beneficial for working people. 

I cannot emphasize enough the fact that we are in an expansion; these are the good times—the period of recovery, when our income is supposed to go up, when unemployment is supposed to significantly decline, when we have money to rebuild our infrastructure, fund our health care and other social programs, and build a solid collective nest egg to cover the hard times which will of course come.  The fact that this is not happening—that we continue to struggle during this period of economic expansion—is indicative of the fact that our economic system as presently structured is not one we can count on; in other words it is a flawed system. 

With this perspective, you can see why the small increases in employment and production that are cheered by policy makers mean little—of course we are going to see some increases.  But for how long and with what effect?  Given the lack of corporate interest in investment or lending I think that there is little reason to be optimistic.  And now, there is even an increasingly strong movement to slash government spending.  Those who support that policy claim that we just have to put the collapse of the bubble economy behind us, tighten our fiscal belts, and let market forces return our economy to normal—but what is normal?

Let us consider the previous economic expansion.  That expansion lasted from 2001 to 2007.  If we compare it to the nine other post-war expansions, it ranks dead last in terms of the growth in GDP, investment, employment, wage and salary income, and compensation.  It ranks highly in only one category—and that was the growth in profits.  In fact, median household income actually fell over this period of economic expansion.  And it is important to recall that this expansion was long lasting only because it was supported by a debt-driven housing bubble.  We no longer have that bubble to support growth.  Therefore, the new normal appears to be ever weaker growth and deteriorating living and working conditions for the great majority of us.  I don’t find that to be acceptable. 

Class Struggle

Significantly, more and more people are arguing that our current problems are caused by government deficits that are too big, taxes that are too high, and unions that are too strong,.  They are therefore pushing for a major reduction and privatization of government social programs, tax cuts for the wealthy and corporations, and a weakening of unions, especially those in the public sector. 

This would be a recipe for disaster.  Where these policies have been implemented, in places like Ireland, Greece, and the UK, the result has been only more problems: lower growth, greater deficits, and of course worsening social conditions.  That is not a surprising outcome.  If you have an economy where there is weak domestic demand because banks will not lend and corporations will not invest, workers are deep in debt, unemployment is high, and exports are limited, and then you cut government spending—it should not surprise anyone that things go from bad to worse.

And, it is not like we haven’t tried similar policies here in the United States.  We have been cutting taxes, government programs, and union strength for more than two decades, and we can see the effects—ever weaker growth, greater inequality, and worsening living and working conditions for the great majority.

The fact is that government spending is one of the main reasons that we still have an economic expansion.  Debt fears are being hyped to scare us. 

So, why are there powerful social forces arguing for these policies?  I think there are two main reasons.  The first is to ensure that our anger is not directed at the corporate sector.  When this crisis broke in 2008 people were angry, and they were angry at our corporations.  There were demands for nationalization of the banks and auto industry and calls for greater government intervention in the economy to save homes, employ people, in short, chart a new economic course for the country. 

What happened was quite different.  The president immediately made clear that he was not going to interfere with market processes—in finance, in auto production, in the housing market, in health care, or in job creation.  Rather he did all he could to bail out those corporations that were in trouble because of their own reckless pursuit of profit.  And his efforts succeeded.  Profits are back up and finance continues to dominate.  Unfortunately for us, those efforts did little to address our needs. 

I think that the corporate sector is getting nervous.  They are fearful that their large profits in the face of our deteriorating social conditions might lead to a renewal of demands for social change.  And lets be clear—any significant social change is going to require a significant change in government policy.  For example, strengthening our economy will require an end to free trade agreements; rebuilding our infrastructure; a new green industrial policy directed at retrofitting our buildings, developing solar and wind power and mass transit; and a shrinking and redirection of finance.  Rebuilding our communities will require new labor laws to support unionization and higher minimum wages; support for education, health care, and transportation rather than military activity; and an increase in taxes on corporations and the wealthy to help pay for many of the needed initiatives. 

This is not what the corporate sector wants.  Therefore, they are trying to steer us in a different direction—to encourage us to believe that the reason our economy is not doing better is that our government deficits are too great and workers have too much power.  It is ironic.  We have government deficits not because of runaway social programs but because the government had to bail out the private sector.  It was this spending that kept us out of depression and enriched our corporations.  And now the leading lights of the private sector are trying to convince us that the main cause of our slow growth is this very same deficit spending.  So, the first reason for this anti-government offensive is to keep us from focusing on corporate behavior and the contradictions of market processes by encouraging us to blame the government and unions for our problems. 

The second reason is that the push for marginalizing government programs will likely open up new private profit making opportunities for our large corporations.  For example, the privatization of our military, our education system, our health care system, our retirement and social insurance systems all mean public dollars flowing into private coffers.  And as a bonus corporations would likely get new tax breaks.

To state the obvious: corporations are defending policies that help them make profits at majority expense.  I think the best way to grasp this reality is to focus on General Electric.  GE is not only one of our nation’s largest corporation, its head, Jeffrey Immelt, was picked by President Obama to head his President’s Council on Jobs and Competitiveness.  President Obama said he picked him because “He understands what it takes for America to compete in the global economy.”

That may be true, but what is GE’s competitiveness strategy? 

First, it is to avoid taxes. GE reported worldwide profits of $14.2 billion in 2010, including $5.1 billion from its operations in the United States.  Yet, it paid no US taxes; in fact it claimed a tax benefit of $3.2 billion.

It accomplished this through a very aggressive working of our tax policy. Here is what the New York Times said:

G.E.’s giant tax department, led by a bow-tied former Treasury official named John Samuels, is often referred to as the world’s best tax law firm. Indeed, the company’s slogan “Imagination at Work” fits this department well. The team includes former officials not just from the Treasury, but also from the I.R.S. and virtually all the tax-writing committees in Congress.

Second, it is to shift operations from production to finance.  According to the New York Times:

General Electric has been a household name for generations, with light bulbs, electric fans, refrigerators and other appliances in millions of American homes. But today the consumer appliance division accounts for less than 6 percent of revenue, while lending accounts for more than 30 percent. . . . Because its lending division, GE Capital, has provided more than half of the company’s profit in some recent years, many Wall Street analysts view G.E. not as a manufacturer but as an unregulated lender that also makes dishwashers and M.R.I. machines.

Third, it is to move its operations and profits outside the US.  Since 2002, the company has eliminated a fifth of its work force in the United States while increasing overseas employment.  Over that same period G.E.’s accumulated offshore profits have risen from $15 billion to $92 billion.

GE is far from unique in employing this strategy.  For example, the Wall Street Journal reports that U.S. MNCs cut their work forces in the United States by 2.9 million during the 2000s while increasing employment overseas by 2.4 million.

So, we are in a battle over the nature and direction of our economy.  Successive governments, in response to corporate demands, have worked to promote more mobility for corporations, lower taxes for corporations, and the growing power of finance—all at our expense.  And despite our current economic problems, our government continues to push for more of the same.  In sum, while we might be experiencing a crisis caused by capitalism it is not a crisis for capitalism.

Movement Building 

So, what shall we do?  In fact, we are not short of ideas.  We have all sorts of progressive policy suggestions.  The problem is that those with power are not interested in our suggestions.  This means that we need to organize if we are to succeed in making a real change.  Here are a few of my suggestions about next steps.

First, we need to make sure that people understand the structural nature of the problems we face.  We have to make sure that unions, neighborhood associations, and places of worship become venues where people can talk, learn, develop their understandings and most importantly connections. 

Second, we need to build alliances around critical demands—changes in government priorities, for example, such as cutting military spending in favor of social programs, raising taxes on the wealthy and corporations, and defending Medicare and Social Security.  These alliances shouldn’t be hard to build.

Third, we need to be creative in who and how we organize.  We need organizations where people can produce themselves more fully as actors.  In the 1930s, for example, we had councils of the unemployed.  They fought for greater government spending, unemployment insurance, and in support of unionization for workers with jobs.  Now, we have large numbers of homeless and hungry.  We need to do more that take food to food banks—we need to help the hungry and homeless organize themselves into powerful social movements. 

We also need to help students, for example, see that their likely future of job insecurity, low wages, and lack of health care can be changed if they join with others, including unions, and health care advocates, and perhaps their parents, to demand a change in the direction of the economy.  And we need our unions to recognize that many of our young workers will be moving from job to job, and company to company, in temporary positions, which means that unions will have to develop new forms of organization.   

Fourth, we need to focus our attention on the public sector.  I think that one of our key challenges is to develop new coalitions between public sector unions and those who use public services.  While I believe that we need to fight against spending cuts for important programs I also know that our existing programs are far from perfect.  Moreover, just maintaining the same level of spending is not the same as transforming our economy.  We need more accountable and responsive public programs and I think the key to that, to the democratizing of the state, is a community-public sector worker alliance.

For example, imagine if those that cared about the environment; worker rights; an end to militarization; and gay, lesbian, transgender rights could engage public school teachers who were responsive to these views and collectively develop curriculum that advanced those views, thereby producing young people able and eager to contribute to making a better society.  And also imagine that in return, those in the community committed to working to ensure good funding for schools and political protection and decent salaries for our teachers.  We would not only help to improve the school system but also develop a new and positive understanding of the benefits of public services.  The same process can be encouraged around transportation by finding ways to bring bus riders and bus drivers together.  The same for social workers and their clients.  You get the idea.  Public sector workers could become our defenders—blowing the whistle if our money is not being property spent and helping us find ways to play a meaningful role in determining the actual nature and delivery of the services we want and pay for. 

We really have little choice but to help build resistance to current political tendencies and shape more positive visions.  There are very few of us that can avoid the consequences of failure.

Working In America–Is The New Normal Acceptable?

There is a major (one-sided) ideological battle going on with business and political leaders seeking to convince us that things are basically fine, and if not now, soon will be.   If we buy their argument, I guarantee you that the great majority of us will suffer worsening living and working conditions for the foreseeable future.   

Given rising rates of profit and income for those at the top, it is easy to understand why they are working so hard to convince us.  They are basically fine with things and don’t want change.  But what about us? 

A lot of people are justifiably worried about finding a job.  Andy Kroll, writing for the excellent blog TomDispatch.com, provides one indicator of just how bad the job market is:

On April 19th, McDonald’s launched its first-ever national hiring day, signing up 62,000 new workers at stores throughout the country. For some context, that’s more jobs created by one company in a single day than the net job creation of the entire U.S. economy in 2009. And if that boggles the mind, consider how many workers applied to local McDonald’s franchises that day and left empty-handed: 938,000 of them. With a 6.2% acceptance rate in its spring hiring blitz, McDonald’s was more selective than the Princeton, Stanford, or Yale University admission offices.

It shouldn’t be surprising that a million souls flocked to McDonald’s hoping for a steady paycheck, when nearly 14 million Americans are out of work and nearly a million more are too discouraged even to look for a job.

What is especially stunning about this is that food preparation work is low paid and demanding.  For example, “The median wage for workers in food preparation and serving is $8.89 a hour — a little more than half the $15.95 median hourly wage for all occupations, according to the Bureau of Labor Statistics. The median annual wage in the sector is is $20,800 — less than half the median annual salary of $43,400 for all occupations.”  And, according to Kroll, the average wage for one of these new McDonald’s jobs is likely below the median wage for food preparers and servers.

Moreover, these jobs are hard—physically, emotionally, and intellectually.  Want proof?  Read this story by a Businessweek reporter who spent a day working at a Taco Bell.  Here is a short excerpt:

As a Service Champion, my job is to say my lines, input the order into the proprietary point of sale (POS) system, prepare and make drinks like Limeade Sparklers and Frutista Freezes, collect bills or credit cards, and make change. I input Beefy Crunch Burritos, Volcano Burritos, Chalupas, and Gorditas. My biggest worry is that someone will order a Crunchwrap Supreme, a fast-food marvel made up of two kinds of tortillas, beef, cheese, lettuce, tomatoes, and sauces, all scooped, folded, and assembled into a hand-held, multiple-food-group package, which then gets grilled for 27 seconds. An order for a Crunchwrap Supreme, the most complex item on the menu, sometimes requires the Service Champion to take up position on the food production line to complete it in anything like the 164 seconds that Taco Bell averages for each customer, from driving up to the ordering station to pulling away from the pick-up window.

Drive-thru is the operational heart of the fast-food industry, as central to a brand like Taco Bell as the kitchen itself, maybe more so. According to the National Restaurant Assn., the fast-food industry will do $168 billion in sales for 2011, and about 70 percent of that will come in through drive-thru windows. The technology deployed at order stations and pick-up windows has evolved to meet that demand. Every step is measured, every movement calculated, every word scripted. Taco Bell, with more than 5,600 locations in the U.S., currently operates some of the fastest and most accurate drive-thru windows in the industry, at least according to QSR magazine’s last survey, in 2009, though for years they lagged. The system is the result of a 15-year-plus focus on the window as the core of the business. Taco Bell’s pride in moving from the bottom of the pack to near the top is also part of the reason it allowed a journalist, unsupervised by public relations staff, to work the line.

Above me on the wall, a flat-screen display shows the average time of the last five cars at either the order station or the pick-up window, depending on which is slowest. If the number is red, as it is now, that means one, or both, of the waits is exceeding 50 seconds, the target during peak periods. It now shows 53 seconds, on its way to 60, 70 … and then I stop looking. The high-pitched ding that announces each new customer becomes steady, unrelenting, and dispiriting—85 cars will roll through over the peak lunch rush. And I keep blowing the order script. . . .

Go into the kitchen of a Taco Bell today, and you’ll find a strong counterargument to any notion that the U.S. has lost its manufacturing edge. Every Taco Bell, McDonald’s, Wendy’s, and Burger King is a little factory, with a manager who oversees three dozen workers, devises schedules and shifts, keeps track of inventory and the supply chain, supervises an assembly line churning out a quality-controlled, high-volume product, and takes in revenue of $1 million to $3 million a year, all with customers who show up at the front end of the factory at all hours of the day to buy the product. Taco Bell Chief Executive Officer Greg Creed, a veteran of the detergents and personal products division of Unilever (UL), puts it this way: “I think at Unilever, we had five factories. Well, at Taco Bell today I’ve got 6,000 factories, many of them running 24 hours a day.”

Tragically, the general pay and working conditions found in the food service industry seem likely to become the “new normal” if meaningful structural changes to our economy are not made.  As Kroll explains:

According to a recent analysis by the National Employment Law Project (NELP), the biggest growth in private-sector job creation in the past year occurred in positions in the low-wage retail, administrative, and food service sectors of the economy. While 23% of the jobs lost in the Great Recession that followed the economic meltdown of 2008 were “low-wage” (those paying $9-$13 an hour), 49% of new jobs added in the sluggish “recovery” are in those same low-wage industries. On the other end of the spectrum, 40% of the jobs lost paid high wages ($19-$31 an hour), while a mere 14% of new jobs pay similarly high wages.

As a point of comparison, that’s much worse than in the recession of 2001 after the high-tech bubble burst.  Then, higher wage jobs made up almost a third of all new jobs in the first year after the crisis. . . .

Meanwhile, NELP found that hiring for temporary administrative and waste-management jobs, health-care jobs, and of course those fast-food restaurants has surged.

Indeed in 2010, one in four jobs added by private employers was a temporary job, which usually provides workers with few benefits and even less job security. It’s not surprising that employers would first rely on temporary hires as they regained their footing after a colossal financial crisis. But this time around, companies have taken on temp workers in far greater numbers than after previous downturns.  Where 26% of hires in 2010 were temporary, the figure was 11% after the early-1990s recession and only 7% after the downturn of 2001.

While working people may not know how to respond to these trends, surveys make clear that they are fully aware that expert declarations of economic recovery have little meaning.   The National Bureau of Economic Research, the official designator of recessions and expansions, determined that the U.S. economy moved into expansion starting June 2009.  Yet:

In a recent Gallup poll, a majority of people agreed that the country was still in either a depression (29%) or a recession (26%).  When sorted out by income, however, those making $75,000 or more a year are, not surprisingly, most likely to believe the economy is in neither a recession nor a depression, but growing.  After all, they’re the ones most likely to have benefited from a soaring stock market and the return to profitability of both corporate America and Wall Street. In Gallup’s middle-income group, by contrast, 55% of respondents claim the economy is in trouble. They’re still waiting for their recovery to arrive.

Significantly, even those with so-called good jobs are finding things getting worse.  This reality is perhaps best captured by a Wall Street Journal article entitled “’Superjobs’—why you work more, enjoy it less.”  Unfortunately, there is nothing super about these jobs accept the effort now required to keep them.  As the Wall Street Journal explains:

In this new era of the superjob, everyone does windows, and anyone who gripes about working too hard will hear an even hairier tale from the exec on the next bar stool. Emboldened by an unemployment crisis that’s only now easing up, businesses of all sizes have asked employees to take on extra tasks that have little to do with their primary roles and expertise — with engineers going on sales calls, accountants pitching in on customer service and chief financial officers running a division on the side. And some believe this shift is permanent, as the quickening pace of change demands more flexibility from everyone at the office. . . .

Some workplace experts say the superjob is the logical next step in management’s quest to make the workplace more cost efficient. The latest shift started when businesses redistributed the workload during the recession; last year’s nascent recovery intensified the process. In a recent survey by Spherion Staffing, 53% of workers surveyed said they’ve taken on new roles, most of them without extra pay (just 7% got a raise or a bonus). Now that sales are picking up, there’s even more work to do, but companies are reluctant to hire, say human-resources experts. Some are anxious about what the economic future holds, while others are seeing their profits increase now that their work forces are leaner.

Sounds a bit grim for the workers, but the Wall Street Journal, always keeping the boss’s perspective in mind, encourages us to have the right attitude.  Remember this situation can help us stretch and grow.  And, of course, companies are there to help us.

To their credit, some employers are doing more to help their superstars. And companies that saw a rebound in 2010 are helping executives with time management and delegation.

Another popular tactic: recognition programs that reward employees for taking on extra work. Major companies are turning to software “wizards” that dole out laurels on preset, automated schedules, says Adrian Gostick, a co-author of “The Carrot Principle” and a former vice president at employee-recognition consultancy O.C. Tanner.

Of course, the ultimate responsibility for workload management falls to the employee. Experts say that in many cases, employers have no idea how many tasks they’ve loaded on one person, so workers have to “manage up.”

So, I guess our choice is clear: either “manage up” or start working to transform our economic system.

Where Do Our Ideas About The Economy Come From?

Where do our ideas about the economy come from?  Apparently, they are chosen for us by those with great wealth who want even more. 

As reported by the St. Petersburg Times:

A foundation bankrolled by Libertarian businessman Charles G. Koch has pledged $1.5 million for positions in Florida State University’s economics department. In return, his representatives get to screen and sign off on any hires for a new program promoting “political economy and free enterprise.” . . .

The contract specifies that an advisory committee appointed by Koch decides which candidates should be considered. The foundation can also withdraw its funding if it’s not happy with the faculty’s choice or if the hires don’t meet “objectives” set by Koch during annual evaluations. . . .

During the first round of hiring in 2009, Koch rejected nearly 60 percent of the faculty’s suggestions but ultimately agreed on two candidates. Although the deal was signed in 2008 with little public controversy, the issue revived last week when two FSU professors — one retired, one active — criticized the contract in the Tallahassee Democrat as an affront to academic freedom. . . .

The foundation partnering with FSU is one of several non-profits funded by Charles Koch (pronounced “coke”), 75, and his brother David, 71. The aim: To advance their belief, through think tanks, political organizations and academia, that government taxes and regulations impinge on prosperity. . . .

The Koch brothers own the second biggest private U.S. corporation, maker of such popular products as Brawny paper towels, Dixie cups and Stainmaster carpet. Koch Industries, which had $100 billion in sales last year, also owns thousands of miles of oil pipelines, refineries and Georgia-Pacific lumber. The Koch brothers are each worth $22 billion.

Charles, chairman and CEO of Koch Industries in Wichita, Kan., cofounded the Cato Institute, a policymaking group, in 1977. His brother serves on the board. David, who lives in Manhattan and is Koch Industries’ executive vice president, in 2004 started the Americans for Prosperity Foundation, which has worked closely with the tea party movement.

The Charles G. Koch Charitable Foundation, to which he has given as much as $80 million a year, has focused on “advancing social progress and well-being” through grants to about 150 universities. But in the past, most colleges, including Florida Gulf Coast University in Fort Myers, received just a few thousand dollars.

The big exception has been George Mason University, a public university in Virginia which has received more than $30 million from Koch over the past 20 years. At George Mason, Koch’s foundation has underwritten the Mercatus Center, whose faculty study “how institutions affect the freedom to prosper.”

When President George W. Bush identified 23 regulations he wanted to eliminate, 14 had been initially suggested by Mercatus scholars. In a New Yorker profile of the Koch brothers in August, Rob Stein, a Democratic strategist, called Mercatus “ground zero for deregulation policy in Washington.”

Now, rather than taking over entire academic departments, Koch is funding faculty who promote his agenda at universities where there are a variety of economic views. In addition to FSU, Koch has made similar arrangements at two other state schools, Clemson University in South Carolina and West Virginia University. . . .

In addition to funding two slots, Koch has also donated nearly $500,000 for graduate fellowships. So far only BB&T, the bank holding company, has joined the effort, with its foundation pledging $1.5 million over 10 years. The money is being used to hire an instructor who is not eligible for tenure; BB&T had no control over the hire, Rasmussen [Dean of the College of Arts and Sciences at Florida State University] said.

A separate grant from BB&T funds a course on ethics and economics in which Ayn Rand’s Atlas Shrugged is required reading. The novel, which depicts society’s collapse in the wake of government encroachment on free enterprise, was recently made into a movie marketed to tea party members.

“If somebody says, ‘We’re willing to help support your students and faculty by giving you money, but we’d like you to read this book,’ that doesn’t strike me as a big sin,” said Rasmussen  of the BB&T arrangement, which the bank has with about 60 schools. “What is a big sin is saying that certain ideas cannot be discussed.”

Nor does he fear that the agreements with Koch and BB&T will prompt future donors to demand control over hiring or curriculum.

Said Rasmussen, “I have no objections to people who want to help us fund excellence at our university. I’m happy to do it.”

The View From The Top

What do the rich think about taxes, specifically their own taxes?  The chart below provides a picture of tax rates by income.   The most obvious point is that starting in the 1980s federal tax rates have been converging, with the very richest enjoying significant declines.   Of course, not only have these people benefited from ever lower tax rates, they have also enjoyed ever larger gains in pre-tax income.   

For the record: in 2004, you needed an income of at least $250,995 to make the top 1%, $837,892 to make the top 0.1%, and $3,642,236 to make the top 0.01%.  Of course these are just minimum values; the average income of those in the top 0.01% was $18,113,612.   

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Given this trend in tax rates, you might think that the rich would be relatively content with their declining tax burden.  If you did, you would be wrong. 

A Gallup study asked individuals what they thought about their income taxes.  As the table below shows, those individuals in the richest households were by far the most unhappy with their tax burdens.  In fact, this top income group was the only one with a majority declaring that its tax burden was unfair.  For reference, those households earning $250,000 or more comprised the wealthiest 2% of all households.

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There is certainly a lot of talk about the federal deficit and the need to reduce it.   If we are serious about doing this in a responsible way there is no getting around the fact that we are going to have to make the richest households pay more.   We can generate real money by letting the Bush tax cuts expire on households earning more than $250,000, adding a special millionaire tax bracket, boosting the inheritance tax on the very richest, and — well you get the idea.  For some estimates of revenue gains check out this article.  And then there are the corporations.  

As the table below makes clear, the Gallup study also found that most Americans appear on board with taxing the rich and the corporations: 59% of respondants believe that upper income people are paying too little and 67% believe the same about corporations.  

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There may be hope yet.