Nothing Like a Third Forever War to Boost the Confidence of the Military-Industrial Complex

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Digby points to Gallup polling numbers showing that Washington DC is the only place in the country that has improving confidence.

See, David Plouffe was right. People are feeling better about their economic prospects. At least, the people within his little bubble are.

But he might want to think about why people in his bubble are feeling good about their economic prospects.

First, because they–and neighboring states VA and MD, also among the most confident states–have been the recipients of 10 years of stimulus, supporting government-created jobs, the kind of jobs he likes to pretend don’t exist. Stimulus makes jobs which makes people feel good (and it’s worth noting that MI, which has benefited form a disproportionate share of stimulus sent to the midwest, is not among the 10 most grumpy states).

Plus, all these people living well off their Military-Industrial stimulus have reason to celebrate, as we’ve recently added another forever war for them to profit off of.

And then there’s another key industry that DC residents will be profiting off of: the upcoming billion dollar Presidential campaign, now kicking off in grand style. Heck, analyzing who eats fried butter more authentically will even provide job security for DC journos for the next 15 months.

Finally, how much do you think the lobbyist industry will rain down on Congress for having brought the country to the edge of an abyss as a political stunt? How much do you think the lobbyist industry will invest in SuperCongress?

Sure, it’s a great time to be in DC.

I don’t know why the rest of the country just can’t be grateful that at least DC is doing well.

Update: As if on cue, The WaPo describes the confidence fairies that have benefited from federal stimulus, then raises concerns that this gravy train of unlimited stimulus might soon end. (h/t Teddy)

Millions of dollars worth of federal contracts transformed Anita Talwar from a government accounting clerk into a wealthy woman — one who can afford a $2.8 million home with its own elevator, wine cellar and Swarovski crystal chandeliers in the Washington suburbs.

Talwar, a 59-year-old immigrant from India, had no idea that she and her husband would amass a small fortune when she launched a company providing tech support to the federal government in 1987. But she shrewdly took advantage of programs for minority-owned small businesses and rode a boom in federal contracting.

[snip]

Anita Talwar’s success — and that of hundreds of other contractors like her — is a key factor driving the explosion of the region’s wealth over the last two decades. It has also exacerbated the gap between high- and low-wage workers, which is wider in the D.C. area than almost anywhere else in the U.S.

[snip]

The new Washington is a global business hub with thriving technology, biotech and communications industries. Only 12 percent of workers are federal employees. But the federal government remains an engine of job creation, outsourcing its tech support and other services to contracting firms ringing the Capital Beltway, a phenomenon that exploded in the years after 9/11.

More than $80 billion in federal contracting dollars will flow to the region this year, up from $4.2 billion in 1980, according to Stephen Fuller, director of the Center for Regional Analysis at George Mason University. Adjusted for inflation, that’s a seven-fold increase. A third of the region’s gross regional product now comes from federal spending.

But that tide is likely to slow because of a $1 trillion debt-reduction package approved earlier this month by Congress and President Obama. In the coming months, a bipartisan“supercommittee” will be searching for another $1.5 trillion in savings. Defense contractors are already bracing themselves for deep cuts in military spending.

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David Plouffe and Bill Daley Double Down on Rhetoric over Action

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Greg Sargent has a followup to this weekend’s NYT article on the Administration’s debate over how or whether to make the “pivot to jobs” Obama promised throughout the debt limit fight.

It appears that Plouffe and Daley are doubling down on running on rhetoric over real action on jobs.

In Sargent’s piece, an SAO describing what David Plouffe and Bill Daley think says they do favor a “confrontational rhetorical approach” on jobs.

Plouffe and Daley both favor a confrontational rhetorical approach that will blame Republicans for opposing any and all job creation efforts for purely political reasons; both are leading internal boosters of a message that accuses Republicans of putting party before country.

“Plouffe and Daley have been big proponents of the sort of messaging that you saw from the President’s Country before Party speech in Michigan,” the official says.

In that speech, Obama implicitly accused Republicans of opposing an array of job-creation proposals because of their refusal “to put the country ahead of party,” adding that they would “rather see their opponents lose than see America win.”

To which Sargent provides this push-back. Note where he refers to actions (which I’ve labeled with an “A”) and rhetoric (which I’ve labeled with an “R”):

If this speech’s message is what Plouffe and Daley favor, this is a bit at odds with the public picture that’s emerged. The Times story suggested that the Plouffe/Daley camp worries that any ambitious proposals [A] that seem designed only reveal the GOP as obstructionist will be seen as mere “speeches” by independents [R]. The story also suggests Plouffe and Daley think continuing to reach deficit-reduction compromises [A] with Republicans will prove more politically effective than drawing a sharp contrast with the GOP on the economy [R]. But if Plouffe and Daley favor a continued effort to cast the GOP as blocking economic improvements for political reasons [R], that complicates the picture somewhat and suggests that the latter, too, will be central to the reelection campaign.

Sargent’s push-back mixes actual policy measures with rhetoric about policy measures.

In fact, the NYT article itself does the same:

As the economy worsens, President Obama and his senior aides are considering whether to adopt a more combative approach on economic issues, seeking to highlight substantive differences [R] with Republicans in Congress and on the campaign trail rather than continuing to pursue elusive compromises [A], advisers to the president say.

Mr. Obama’s senior adviser, David Plouffe, and his chief of staff, William M. Daley, want him to maintain a pragmatic strategy of appealing to independent voters by advocating ideas that can pass Congress [A], even if they may not have much economic impact. These include free trade agreements and improved patent protections for inventors.

But others, including Gene Sperling, Mr. Obama’s chief economic adviser, say public anger over the debt ceiling debate has weakened Republicans and created an opening for bigger ideas like tax incentives for businesses that hire more workers [A], according to Congressional Democrats who share that view. Democrats are also pushing the White House to help homeowners facing foreclosure.

Even if the ideas cannot pass Congress, they say, the president would gain a campaign issue by pushing for them.[R]

[snip]

So far, most signs point to a continuation of the nonconfrontational approach — better to do something than nothing — that has defined this administration. Mr. Obama and his aides are skeptical that voters will reward bold proposals if those ideas do not pass Congress. It is their judgment that moderate voters want tangible results rather than speeches.

That is, the article portrayed a fight over whether to pursue policies that will pass and therefore rhetorically set Obama up as someone who has achieved results (regardless of whether those results have anything to do with job creation), or whether the Administration should pursue policies that would if they passed do something about jobs, whether or not they actually would pass, because doing so would rhetorically set up Republicans as obstructionists. It was about how policy drives rhetoric.

But the Plouffe-Daley response to Sargent mentioned only rhetoric, referring to “confrontational rhetorical approach,” “message,” “messaging.”

Ultimately Sargent (without noting that the Plouffe-Daley response didn’t purport to make claims about policy, though I didn’t note that either until I wrote this post) ends by just hoping that the policy will follow the rhetoric.

But if the Obama team is serious about drawing a sharp contrast — as the senior official insists is the case — we can at least hope that the policies will follow the rhetoric.

But sitting back and hoping that policies follow the rhetoric ignores that Obama’s speech itself–the one Plouffe-Daley tell us to look at–is an indication of how the Administration will translate policy into rhetoric.

So here’s what Obama had to say about his own policies last Thursday:

  • He gave a very weak nod to the government’s willingness to “invest in the research and technology that holds so much promise for jobs and growth,” but never explicitly notes that the government provided grants that led directly to jobs like those at JCI
  • He boasted about renegotiating CAFE standards (emphasizing he did that without Congress)

That’s it–those are the only policy successes Obama pointed to (which implicitly points out that the debate as portrayed in the NYT leaves aside a third possibility, to run on the policies–the ones that actually relate to jobs–Obama already passed). Significantly, Obama made no mention of saving the auto industry, no mention of health insurance reform, no mention of defending US companies against unfair foreign competitors, all of which could have arguably fit this theme (I don’t think health insurance reform as passed does much for any but health industry jobs, but Obama is supposed to believe that). In his speech today, he apparently called out aid to states, which fits the theme too.

The point is, in the speech Plouffe-Daley point to as precisely the tack they want to take, Obama didn’t even claim clear credit for the jobs his policies had the most direct role in creating, which would have created the largest contrast with Republicans (particularly given what Republicans have claimed about this particular factory).

Now, Sargent sees the choice to ignore a number of clear policy successes–including, largely, the one most significant to the speech Obama was making–as nothing more than a conservative policy frame, all the while hoping Obama will embrace some good policies going further. But this entire discussion is about how to use policy successes and strategy to drive electoral rhetoric. And the Obama Administration chose to give freedom the most credit for creating the JCI jobs, not to claim clear credit themselves!

That’s not a frame. That’s a disavowal of a policy choice, one that has been successful in the past, but one that also might disrupt the claims of a top government official who believes that, “It would be political folly to make the argument that government spending equals jobs.” It’s a decision (presumably conscious, particularly given that Obama has claimed credit for this in the past) not to mention how successful the most meaningful job creation policy, government investments, would be.

And put that disavowal in the context of the speech (again, the one Plouffe-Daley point to as the embodiment of their crack reelection strategy). Here’s the entire context of where Obama introduces the “country before party” idea Plouffe-Daley point to as their way to heighten contradictions with Republicans.

Unfortunately, what we’ve seen in Washington the last few months has been the worst kind of partisanship, the worst kind of gridlock –- and that gridlock has undermined public confidence and impeded our efforts to take the steps we need for our economy.

It’s made things worse instead of better. So what I want to say to you, Johnson Controls, is:  There is nothing wrong with our country.  There is something wrong with our politics.  (Applause.)  There’s something wrong with our politics that we need to fix.

We know there are things we can do right now that will help accelerate growth and job creation –- that will support the work going on here at Johnson Controls, here in Michigan, and all across America.  We can do some things right now that will make a difference.  We know there are things we have to do to erase a legacy of debt that hangs over the economy.  But time and again, we’ve seen partisan brinksmanship get in the way -– as if winning the next election is more important than fulfilling our responsibilities to you and to our country.  This downgrade you’ve been reading about could have been entirely avoided if there had been a willingness to compromise in Congress.  (Applause.)  See, it didn’t happen because we don’t have the capacity to pay our bills -– it happened because Washington doesn’t have the capacity to come together and get things done.  It was a self-inflicted wound.  (Applause.)

That’s why people are frustrated.  Maybe you hear it in my voice — that’s why I’m frustrated.  Because you deserve better.  You guys deserve better.  (Applause.)

All of you, from the CEO down, are working hard, taking care of your kids or your parents –- maybe both.  You’re living within your means.  You may be trying to save for your child’s college education or saving for retirement.  You’re donating to the church or the food pantry.  You’re trying to help the community.  You’re doing your part.  You’re living up to your responsibilities.  It’s time for Washington to do the same -– to match your resolve, and to match your decency, and to show the same sense of honor and discipline.  That is not too much to ask.  That’s what the American people are looking for.  (Applause.) [my emphasis]

That is, that “country before party idea” is originally pitched as the solution to the jobs crisis, but then Obama elaborates on what that solution is and it’s … more deficit cutting. And when, later in the speech, they repeat the “country before party” idea in the specific context of jobs, they do so to introduce the policies that won’t really do much about jobs (though I’d be happy for highway investment). After which, Obama returns to deficit cutting again.

Plouffe-Daley told Sargent very clearly where to look for their take, what they mean by “confrontational rhetoric.” And it turns out that rather than boasting of the jobs he did create, it consists of Obama just whining about the deficit some more.

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Warren Buffett: My Super-Rich Brethren Shun Work

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Warren Buffett is making news this morning with a NYT op-ed that comes close to–but misses–an important shift in rhetoric. Arguing that his taxes–and the taxes of the other super-rich–should be raised, he provides some stats. Among those stats, though, he distinguishes between those who work and those who simply invest.

Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

[snip]

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

[snip]

Since 1992, the I.R.S. has compiled data from the returns of the 400 Americans reporting the largest income. In 1992, the top 400 had aggregate taxable income of $16.9 billion and paid federal taxes of 29.2 percent on that sum. In 2008, the aggregate income of the highest 400 had soared to $90.9 billion — a staggering $227.4 million on average — but the rate paid had fallen to 21.5 percent.

The taxes I refer to here include only federal income tax, but you can be sure that any payroll tax for the 400 was inconsequential compared to income. In fact, 88 of the 400 in 2008 reported no wages at all, though every one of them reported capital gains. Some of my brethren may shun work but they all like to invest. [my emphasis]

Of course, what Buffett’s getting at is that the work is taxed at a rate of between 10 to 35%, plus FICA taxes of 7.65 to 15.3% (and the rich get another discount here, too). Whereas “making money from money” is taxed at 15%.

But underlying that argument is an argument about work. 88 of the richest 400 Americans don’t work, Buffett admits. They shun work. And many of the other 312 who “labor” as investment managers get a discount for the taxes they pay on their labor are working for the mere 10 minutes they own stock index futures.

Buffett is making an argument about labor being worth more than “making money from money.” It’s an argument that would go a long way to counter the “job creators” myth that the Republicans invented and now Obama has adopted. And with Republicans like Rick Perry now spewing the line that half of Americans don’t pay taxes (meaning, of course, that many Americans make so little they pay only the regressive FICA taxes), we’d do well to talk about all the deadbeats at the top–the deadbeats Republicans want to reward for shunning work.

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The Administration’s Lame Plan on the Economy? It Gets Worse

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You know that article portraying the White House paralysis in the face of 9.1% unemployment? Should they do nothing and run on the promise of more deficit and entitlement cuts in a second term? Or should they do almost nothing, like renaming the Department of Commerce “The Department of Confidence Fairies”?

It gets still worse:

There’s an article in today’s NYT on the economic debate within the White House.  The print version—not the online one—contains this quote from an admin official:

“It would be political folly to make the argument that government spending equals jobs.”

Really?  I mean, I get the reluctance, and certainly the “spending=jobs” frame, while essentially correct, may not be the right way to frame it.

But in fact, the best way to get people back to work right now, with consumers weakened and investment on the sidelines is through more government spending…it should be targeted and temporary, but jeez, the President himself has been making this point, and correctly pointing out that R’s are blocking him on it. [my emphasis]

The President did an event on Thursday in a shiny new factory that owes its existence to government spending. The jobs at that factory are some of the best jobs created in the last decade, because they’re innovative, they include high end jobs in a new segment, and (if the President doesn’t send them all away with trade deals) they make us competitive internationally.

But rather than actually claim credit for those jobs–which Obama was willing to do a year ago–he now says “freedom” created those jobs, not government spending.

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Still More Deficit Reduction and “Department of Competitiveness”?!?!?

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Calculated Risk says most of what needs to be said about this article describing the debate within the White House over whether or not to “pivot to jobs” after all.

Tax incentives are the “bigger idea“? It sounds like the debate is between doing nothing and doing very little.

But it’s worth looking at two parts of this argument that appear to be new.

The article reports the Administration is considering proposing great economic policies that it would deliver in a second term. And those ideas? More neoliberal policies that won’t actually create jobs.

The issue is being framed by the 2012 election. Administration officials, frustrated by the intransigence of House Republicans, have increasingly concluded that the best thing Mr. Obama can do for the economy may be winning a second term, with a mandate to advance his ideas on deficit reduction, entitlement changes, housing policy and other issues.

So the side currently winning this debate is not only arguing against a pivot to jobs right now, but arguing it should continue its obsessive focus on the deficit and “entitlement” cuts through a second term.

And housing policy?!?!? This Administration wants to run on a promise to implement more housing policy, an area in which it has thus far achieved unmitigated failure?

But way at the end of the article, there is what I believe is a completely new policy, one which betrays just how misguided this Administration’s economic policy has become. The new big idea? Renaming the Department of Commerce.

The administration may also merge the Department of Commerce, the Office of the United States Trade Representative and some economic divisions at the State Department into a new agency, administration officials said. Possible names include the Department of Jobs or the Department of Competitiveness.

As bad as the suggestion that simply rearranging the Titanic’s deck chairs might be a great new idea is, the underlying implications of this proposed policy change are worse. Someone on Obama’s team thinks that by merging the entity that negotiates deals to send our jobs overseas with the Department of Commerce and those parts of the State Department that serve the interests of Monsanto rather than the American people, you’ll end up with more Jobs or better Competitiveness.

Atrios is right. We’re doomed.

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The Village Discovers the “Jihadists” among Them

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Steve Pearlstein is one of those pundits who reliably spouts the Village narrative, often to the point of wankery. Which is why I find his use of the language of terrorism to describe the TeaParty and the corporatists that empower it more significant than Joe Nocera’s use of the same language a few weeks ago.

Want to know who is to blame, Mr. Big Shot Chief Executive? Just look in the mirror because the culprit is staring you in the face.

J’accuse, dude. J’accuse.

You helped create the monsters that are rampaging through the political and economic countryside, wreaking havoc and sucking the lifeblood out of the global economy.

[snip]

My own bill of particulars begins right here in Washington, where over the past decade you financed and supported the growth of a radical right-wing cabal that has now taken over the Republican Party and repeatedly made a hostage of the U.S. government.

When it started out all you really wanted was to push back against a few meddlesome regulators or shave a point or two off your tax rate, but you were concerned it would look like special-interest rent-seeking. So when the Washington lobbyists came up with the clever idea of launching a campaign against over-regulation and over-taxation, you threw in some money, backed some candidates and financed a few lawsuits.

[snip]

What started as a reasonable attempt at political rebalancing turned into a jihad against all regulation, all taxes and all government, waged by right-wing zealots who want to privatize the public schools that educate your workers, cut back on the basic research on which your products are based, shut down the regulatory agencies that protect you from unscrupulous competitors and privatize the public infrastructure that transports your supplies and your finished goods. For them, this isn’t just a tactic to brush back government. It’s a holy war to destroy it — and one that is now out of your control. [my emphasis]

But what’s even more … amusing is the agency described here. Pearlstein suggests the few Big Shot Chief Executives he accuses here have, through organizations like the Chamber of Commerce and some front organizations, provided key funding and sanction for the radical right-wing cabal conducting this Holy War.

The more successful it was, however, the more you put in — hundreds of millions of the shareholders’ dollars, laundered through once-respected organizations such as the Chamber of Commerce and the National Association of Manufacturers, phoney front organizations with innocent-sounding names such as Americans for a Sound Economy, and a burgeoning network of Republican PACs and financing vehicles. And thanks to your clever lawyers and a Supreme Court majority that is intent on removing all checks to corporate power, it’s perfectly legal.

[snip]

It’s not just that you have remained silent as the financial sector has sucked away much of the profit generated by the private sector, stolen away much of the nation’s best talent and transformed the process of capital allocation and formation into a casino. Even worse, through organizations such as the Chamber and the Business Roundtable you reflexively provided them with crucial political support that allowed them to beat back regulators who tried to restrict their growth, curb their risk-taking or put a stop to the kind of fraudulent activity that nearly sank the recovery, and from which it will take years to recover. Given your role in society and in the economy, your silence amounts to complicity.

That is precisely the kind of action Pearlstein denied exists back during the last hostage-crisis–on the Bush tax cuts.

I know there are many Democrats and independents who believe that Republicans get up in the morning determined to do whatever is necessary to help their rich friends and campaign contributors. While that may explain some Republicans’ behavior some of the time, I strongly doubt it’s the primary motivation.

For starters, there is no American Association of Rich Persons out there with a huge political action committee and a formidable grass-roots lobbying effort. Yes, there are cabals of very rich people who fund conservative think tanks and political advertising. But American democracy is not so corrupt or dysfunctional that a tiny portion of the population, driven purely by selfish greed, can capture so many elected officials and bamboozle so many voters.

It seems Pearlstein has changed his estimation of the damage this association of rich people have done and the power they wield.

That’s important because something else has empowered these “Jihadists” over the last several years: Village pundits like Pearlstein, who dismissed the concerns of those of us who raised early warnings about them.

Mind you, Pearlstein seems to have little awareness of his own complicity here.

But if the Village wants to finally get around to shaming those who have looted our economy, I guess that’s progress.

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Even as the Costs Become Apparent, Big Business Pushes to Legalize Bribery

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Last night, Jefferson County, AL delayed their decision for a month whether to declare bankruptcy or accept a settlement with their creditors and the state. At issue is $3.2 billion in debt, much of it for a sewer upgrade, that got dragged into the financial crash. The current deal would have creditors forgo a third of the debt in exchange for rate increases and the creation of an independent authotiry to run the sewer. County commissioners balked, though, arguing the deal relied on too many contingencies from the state–none of which are guaranteed–and took away any control at the county level. In short, it’s a mess, one that is costing the people of Jefferson County in increased rates and diminished services as the county struggled to find funding mechanisms to pay for the debt.

Yesterday, Reuters did a report summarizing all the bribery that went into the original sewer deal–and noting that JP Morgan hasn’t paid any reputational damage or loss of business for it, largely because it has blamed the deal on corrupt local officials.

JPMorgan Chase & Co. (JPM)’s Charles LeCroy said the key to landing bond deals in Jefferson County, Alabama, was finding out whom to pay off. In one example, that meant a $2.6 million payment to Bill Blount, a local banker and longtime friend of County Commissioner Larry Langford.

“It’s a lot of money, but in the end it’s worth it on a billion-dollar deal,” LeCroy told a colleague in 2003, according to a complaint filed by the Securities and Exchange Commission.

[snip]

Just 21 months ago, JPMorgan agreed to a $722 million SEC settlement to end a case over secret payments to friends of Jefferson County commissioners. The financings arranged by JPMorgan, a package of floating-rate debt and derivatives, exposed taxpayers to the 2008 credit crisis and dealt a blow that may lead the county to approve the biggest U.S. municipal bankruptcy as soon as today.

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Under Austerity, We Can’t Have Nice Things Like State Fairs Anymore

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Just about every political horserace journalist is at the Iowa State Fair today, covering the Ames straw poll, and eating a seemingly endless supply of fried butter, porkchop on a stick, and meat sundaes. GOP (and a few Democratic) politicians are there too, allowing themselves to be photographed stuffing their mouths with phallic objects in an apparent attempt to appear authentic or folksy. It’s DC’s opportunity, it seems, to experience what (they imagine) life is like in quaint flyover country.

Only, life’s not like that anymore–at least not in two flyover (swing) states. In this day and age, you see, some states can’t afford nice things like state fairs anymore.

Last year, MI shut down its 160-year old fair (it was the second oldest fair in the country). And this year, NV shut down its fair for the first time in 136 years.

Now, I won’t kid you and pretend I was a long-time MI fair-goer. I went for the first time in 2009 (the last one), 14 years after I moved to the state (though my decision to go had as much to do with having a 2 year old friend I knew would love to see the “Cow-Pigs” as it being the last fair). And I think the MI State Fair’s location, in the northwest corner of Detroit, suffered from being far from the agricultural heart of the state (though of course its location made it easily accessible to the bulk of the population). If I had my way they’d reopen the fair in Lansing, still accessible to SE MI’s population base, but much closer to more of the farming in this state.

Nor do I think losing the state fair was the most tragic budget cut of the last several years. I’d support funding education and human services before we reopen the fair. But, particularly given the important role of agriculture in this state, I would like to see them reopen the fair.

State fairs are, to some extent, all about fantasy: games and dreams and shiny lights (and, in IA’s case, fantasies about flyover country). But there’s a reality behind them. And the increasing reality out here in flyover country is that we’re shutting down such fantasies because years of  tax cuts and the generalized decline of the US economy mean we can’t support them anymore.

(Image by Dave Hogg, used under Creative Commons)

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David Plouffe, Still Believe People Are Feeling Better about Economy?

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David Plouffe was at yesterday’s disappointing “Freedom Rally” at Johnson Controls. Aside from being amazed (as I often am when I see politicos in person) at how short he is, seeing him also made me newly cranky about Plouffe’s comments last month about people feeling better about their own economic situations.

The average American does not view the economy through the prism of GDP or unemployment rates or even monthly jobs numbers.

In fact, those terms very rarely pass their lips. So it’s a very one-dimensional view. They view the economy through their own personal prism. You see, people’s — people’s attitude towards their own personal financial situation has actually improved over time. You know, they’re still concerned about the long-term economic future of the country, but it’s things like “My sister was unemployed for six months and was living in my basement and now she has a job.”

There’s a — a “help wanted” sign. You know, the local diner was a little busier this week. Home Depot was a little busier. These are the ways people talk about the economy. [my emphasis]

As I pointed out then, people actually weren’t feeling better about the economy, which seemed like a point you ought to be cognizant of if you’re trying to get a President re-elected based on improving consumer confidence.

Particularly when consumer confidence is at Jimmy Carter levels of malaise.

Confidence among U.S. consumers plunged in August to the lowest level since May 1980, adding to concern that weak employment gains and volatility in the stock market will prompt households to retrench.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 from 63.7 the prior month. The gauge was projected to decline to 62, according to the median forecast in a Bloomberg News survey.

The biggest one-week slump in stocks since 2008 and the threat of default on the nation’s debt may have exacerbated consumers’ concerns as unemployment hovers above 9 percent and companies are hesitant to hire. Rising pessimism poses a risk household spending will cool further, hindering a recovery that Federal Reserve policy makers said this week was already advancing “considerably slower” than projected.

“The mood is very depressed,” said Chris Christopher, an economist at IHS Global Insight Inc. in Lexington, Massachusetts. “Consumers are very fatigued and very uncertain. In the short term, people are going to pull back on spending.”

Of course, when the President’s team decides that, rather than go and point out that the government can and has done something about jobs (and proposes to do more), it should blame Congress and pretend that freedom creates jobs all by itself, it doesn’t really inspire confidence.

As Paul Krugman says, what we need is someone to go out and staunch the bleeding, not someone to lecture more about getting the deficit in order (as Obama also did yesterday).

For the fact is that right now the economy desperately needs a short-run fix. When you’re bleeding profusely from an open wound, you want a doctor who binds that wound up, not a doctor who lectures you on the importance of maintaining a healthy lifestyle as you get older. When millions of willing and able workers are unemployed, and economic potential is going to waste to the tune of almost $1 trillion a year, you want policy makers who work on a fast recovery, not people who lecture you on the need for long-run fiscal sustainability.

[snip]

What would a real response to our problems involve? First of all, it would involve more, not less, government spending for the time being — with mass unemployment and incredibly low borrowing costs, we should be rebuilding our schools, our roads, our water systems and more. It would involve aggressive moves to reduce household debt via mortgage forgiveness and refinancing. And it would involve an all-out effort by the Federal Reserve to get the economy moving, with the deliberate goal of generating higher inflation to help alleviate debt problems.

Mind you, just from watching last night’s debate via Twitter, I recognize that most of the alternatives would be far, far worse. But to prevent one of those yahoos from having a change, the Obama Administration really ought to be looking at what works–investing in factories like JCI–rather than lecturing more about deficits and freedom.

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Made in China: Ensuring Everyone Gets Paid Less

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The San Francisco Federal Reserve has a report showing that we don’t really import all that much from China (this, in spite of yesterday’s report that our trade deficit rose again last month). It manages to make the claim by tracking not the volume of all the stuff we use, but the percentage of the ultimate amount of money we spend on that stuff. That calculation shows that just 2.7% of what we spend goes to China.

Here’s how that works:

Obviously, if a pair of sneakers made in China costs $70 in the United States, not all of that retail price goes to the Chinese manufacturer. In fact, the bulk of the retail price pays for transportation of the sneakers in the United States, rent for the store where they are sold, profits for shareholders of the U.S. retailer, and the cost of marketing the sneakers. These costs include the salaries, wages, and benefits paid to the U.S. workers and managers who staff these operations.

Table 1 shows that, of the 11.5% of U.S. consumer spending that goes for goods and services produced abroad, 7.3% reflects the cost of imports. The remaining 4.2% goes for U.S. transportation, wholesale, and retail activities. Thus, 36% of the price U.S. consumers pay for imported goods actually goes to U.S. companies and workers.

This U.S. fraction is much higher for imports from China. Whereas goods labeled “Made in China” make up 2.7% of U.S. consumer spending, only 1.2% actually reflects the cost of the imported goods. Thus, on average, of every dollar spent on an item labeled “Made in China,” 55 cents go for services produced in the United States. In other words, the U.S. content of “Made in China” is about 55%. The fact that the U.S. content of Chinese goods is much higher than for imports as a whole is mainly due to higher retail and wholesale margins on consumer electronics and clothing than on most other goods and services.

Now, the whole calculation relies on the fact that most of what we spend money on–the 66.9% of our spending that goes to housing (16.6% of our spending), health care (18.4%), recreation (8.2%), and other services (14.9%)–can’t be outsourced very easily (though some of this money presumably pays for call centers in India). Add in the 8% of our spending that goes to food–most of which is still grown in America (more on that below)–and this calculation doesn’t the include three-quarters of our spending that either can’t be or won’t be outsourced very easily.

There’s another way of thinking of this, though: it basically means we don’t pay the Chinese teenagers who make our sneakers very much.

We knew that–that’s the whole point of producing stuff in China!

That allows the companies importing goods from China to spend money, instead, on marketing and shipping and sales. So rather than make sneakers at a US plant, a working class American is left with a job in a big box store selling sneakers made for pennies by someone in China.

Mind you, that still means this whole process leaves room for jobs for those who design the products Made in China, people like engineers, and for B-School grads who manage the logistics of all this. But much of the jobs left for the unskilled workers are low wage.

Now, the process by which increasing amounts of money are spent on marketing and transportation is not just happening in the areas where we do import from China: clothing, cars, and furniture.

The same process is happening in the one area where we still largely produce for ourselves: food. The USDA recently recalculated how much of our food dollar goes where. And while the results aren’t as stark as the Chinese example–American farmers are still making a bigger chunk of what you spend on food than Chinese workers make from your $70 sneakers–the numbers are still pretty striking.

Farmers make less than $.12 of every dollar Americans spend on food. The bulk of the money go to food processing (more very low wage jobs) and food service (low wage restaurant jobs).

Interestingly, one thing seems to be fairly consistent across these measures. 6.6% of our spending on imported goods go to imported oil.

Imported oil, which makes up a large part of the production costs of the “gasoline, fuel oil, and other energy goods” and “transportation” categories, is the main contributor to this 6.6 percentage point difference.

And 6.8% of the American food dollar goes to energy.

This series indicates that payments from each food dollar going to the energy industry group approached 7 cents in 2008, an increase of 75 percent since 1998.

I compare the food dollar to our “China dollar” not just because it illustrates how much of our spending supports relatively non-productive roles. But also because it provides a way to understand the alternative.

Mr. EW and I spend a lot on eating out (though we frequent restaurants that locally source food). But of what I spend on food directly, the bulk of it goes right to a farmer that lives within 30 miles of me–these women, this family and this family, for example. Of course, that means I have to actually cook to make dinner. But it also means my money stays in my community rather than paying Saudis for oil.

There are some goods it makes sense to outsource. And I don’t begrudge Chinese workers for the pennies they’re making off manufacturing consumer goods for Americans. But at some level the logic of spending all that money on marketing and oil rather than on actually making things defies reason.

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