Zero Sum BS

If you follow politics, you've probably seen the argument. You're reading a blog post or a comment thread or a discussion on an online forum and you see words that go something like "capitalism isn't a zero sum game." What this means is that, when we're talking about wealth, there isn't a limited amount and it isn't possible for one person or one group of people to collect it all. Wealth is created all the time -- if it weren't, a growing population would've ruined capitalism with Malthusian cannibalism long before the system of capitalism even had a name. The "zero sum game" argument is generally used defensively when someone's complaining that such-and-such a gazillionaire is making way too much money. Since wealth creation isn't a "zero sum game," we're told, it's ridiculous to say that this gazillionaire is living high on the hog at the expense of all of the non-gazillionaires among us.

But this "zero sum game" argument is only partially true. At this moment in time, there's only X dollars worth of wealth in the world. It's not an unlimited amount. It is, therefore, most definitely a zero sum game. It won't be eventually, but we live in the now. If you buy something, you're generally not going to get that money back -- eat lunch at a restaurant and someone is cash richer because you've become slightly cash poorer. At any given moment, the contents of your wallet is a fixed sum. It's possible for someone else to take it all.

This reality works both ways and a post by Dean Baker at his American Prospect blog demonstrates that. Baker is a media critic who follows economic reporting (we need a lot more of this, by the way) and his response to a Washington Post article about the market and the economy is much more interesting than the article itself.





The WaPo article freaked out about the loss of $6.9 trillion in value in U.S. stock market last year. But, as we need to be reminded more often, Wall St. isn't the economy -- as much as financial reporting makes it seem that way. "While those who own large amounts of stock have reason to shed tears, this may end being good news for the rest of us," Baker tells us.

The loss of stock wealth means that stockholders have less claim to value of the country's output. The U.S. economy can produce just as much in 2009 as it did in 2008 (in fact somewhat more, because of labor force and productivity growth). If stockholders can demand less because of the reduced value of their stock, then this leaves more for the rest of us.

The most visible evidence of how the loss of stockholder wealth can benefit the rest of us was the sharp decline in consumer prices over the last three months. As a result, real wages rose at almost a 15 percent annual rate in the three months from September through November.

Grab an ad insert from your local paper to see this demonstrated. Demand has dropped prices to the consumer's favor. What you have buys more. When Baker says, "The loss of stock wealth means that stockholders have less claim to value of the country's output," he means that the immediate sum total of wealth has shifted in your favor.

But, of course, people are losing jobs. As a result, we aren't taking advantage of this de facto raise in wages. The working are afraid of joining the unemployed, so they're pinching pennies until Lincoln squeals. And it's the working -- i.e., labor -- that creates wealth, not Wall St. All the financial sector does, at its most basic, is trade money. Products and services are supplied by labor and demanded by consumers -- that's the real market and that's the real basis of the economy. It's all about consumption.

But the focus on Wall St. has served us poorly for years. As the market did better and better (even though it was a house of cards), real wages fell. The gap between rich and poor became greater and greater. If the economy wasn't a zero sum game, it was sure looking like one, with people gaining at the expense of others.

"To focus on the performance of the market... is to zero in on an economic indicator that can do well even as the country does poorly," wrote Ezra Klein in September. "In 2006, for instance, the Dow Jones industrial average hit highs. According to the just released census data, however, median earnings fell 1 percent, and millions more Americans entered the ranks of the uninsured. Indeed, from 2000 to 2007, the S&P 500 gained more than 500 points; meanwhile, the median household's income, at least as of 2006, fell by more than $900." While the media and the Bush administration were focused on the stock market, the actual economy was showing cracks. As is now being said so often as to become cliched, the focus was on Wall St., not Main St. And, as isn't being said often enough, the real economy is on Main St.

Therefore, the job isn't to fix Wall St. While important, it's not the be-all and end-all of the economy. And, if we pretend it is, we aren't going to get anywhere but in the same fix we were in -- right before it all went to hell. We need to increase demand and we need to do it where demand is strongest -- through workers.

"[I]f the loss of demand [for labor] from stockholders is effectively replaced by demand from the government or foreign sector, then the vast majority of the country will be made better off by this plunge in stock prices," Baker writes. In other words, if the demand for workers shifts and is made up, then we're going to have money that's worth more -- as we do now -- but that we also feel can be spent safely.

It's often said that the best social program in the world is a job, but it's also true that it's the best economic program. If government can create jobs through investments in our infrastructure, then there really isn't a better and more logical time to do it than now. If we can put the brakes on the constantly increasing unemployment, then people will feel easier about spending money that, as it is, has more value right now.

It's a no-brainer.

-Wisco

Wranglin' Mavericks

Something very interesting is going on out there. About a month before election day, Barack Obama is surging in the polls. Atlantic writer Marc Ambinder puts it this way:

You sort of need a ticker to follow it all.... CNN/ORC Florida: Obama at 54% among registered voters (really)...Obama up by four among likely voters in Nevada...up by double digits in Minnesota...tied in Missouri...nine points ahead among likely voters in Virginia...polls from Time...NBC News/WSJ/MySpace......the AP...

Some of Ambinder's readers are getting way ahead of themselves. "I'm getting lots of e-mails speculating about the 2012 frontrunner for Republicans," he writes. He thinks it'll be Huckabee. At this point, I could care less. Predicting the way the hell and gone future is for fools and psychics -- which may be redundant.

Over at Slate, Timothy Noah wonders, "GOP, RIP?" -- asking whether the Republican party is over, at least for the short term. The ideology of the GOP, as retooled by Reagan, looks like a big fat failure at this moment in history, with the recent market crash (or rather crashes) actually being the other shoe dropping.

"It should be remembered that a fundamentalist belief in untrammeled capitalism is not the first but, rather, the second pillar of Reagan-style Republicanism to fall," Noah tells us. "The first was the belief that the United States should extend military power wherever enemies lurk, regardless of what our allies do." It's not the market that's the Republican problem, but a bullheaded foreign policy combined with the market. The failure of deregulation isn't the beginning of the end, the end began the day the first American boot left a footprint in Iraqi sand in 2003. The failure of laissez faire economics was just the final straw.





But we've been here before. When Clinton won his second term, there were articles asking whether it was over for the Republican party. When Bush won twice and conservatives owned all three branches of federal government, people were shoveling dirt on the Democratic party. When FDR won four terms and Truman followed, it's hard to believe that some didn't wonder if the GOP could ever recover. Every major setback seems to be accompanied by a wave of speculation over whether or not "they" can come back -- regardless of which party "they" are.

And this party is showing all the signs of a breakdown. There are places in America where George W. Bush wouldn't dare show his face. I came across an example of that last night; Bush has a mere 15% approval rating in Wisconsin. Bush is the ultimate Republican, with "ultimate" meant in the pop culture sense of "most representative" and in it's more correct sense of "final product." As much as they try to distance themselves from him, he is everything they've stood for since Ronald Reagan-- a bullying foreign policy abroad, allowing corporations to exist in a near-anarchy at home, tax cuts for those who don't need money, authoritarianism, and an atmosphere of religious and cultural intolerance. Some Republicans may be able to point to one or two points of disagreement, but no Republican can say that they had nothing to do with any of this. The rare antiwar Republican is a gay-basher. The occasional free-market skeptic is a religious fanatic. The uncommon pro-choice GOPer is a deregulator. If they're not one, they're another. None are clean and, like the bad debt that infects the market at all levels, the Reaganite ideology is everywhere within the party.

As a result, Republicans have become a party of one, with each member standing alone. With only their disagreements with the party to run on (ever wonder why McCain's running as the "maverick"?), Republicans are trying to pad their resumes with disagreements before it's too late. This is why the GOP leadership failed to deliver a bailout bill after reaching an agreement. The House is where all the crazies live.

Washington Post:

...Next in line are the House Republicans, long the ideological outliers in a political party that aspires to majority status. A veteran of a past Republican administration could barely spit out his contempt Monday at the actions of the House Republicans. "They would rather be right in their views -- that ideology counts more, that ideology is crucial in any decision -- rather than making incremental progress," he said.

The vote Monday underscored the political disarray within the party. House Republicans reflect the ideological purity of the conservative movement, but they are not by any means representative of a governing majority in the country.

So, House Republicans throw everything to the wolves rather than admit they were wrong, while at the same time being able to tell voters "I bucked my party." Everyone's a maverick now, completely devaluing the word.

Of course, as long as we're using "ultimate" correctly, we might as well go ahead and clear the air about "maverick." A maverick isn't a horse, it's a calf. A maverick is a calf who's wandered away from the herd and got lost. It's more accurate than these Republicans, wandering the electoral landscape and looking for some sort of new strategy, can possibly know.

That said, the time for Democratic triumphalism is November 5. As impossible as it seems, Republicans could still save something and even take the presidency -- stranger things have happened. The danger for Democrats is quitting while they're ahead and counting on inevitability. Victory is not inevitable.

It just looks really, really likely. But all those mavericks could still form a new herd.

-Wisco

A Campaign Adrift

Yesterday at Politico, Hillary Clinton's former campaign strategist Mark Penn told us all that Barack Obama has the edge over John McCain on the economy. You hope this wasn't the sort of insight Hillary was paying the big bucks for, since you can turn on CNN and get the same information for free. Breaking news this is not.

In fact, Penn's piece isn't exactly correct, since he argues that it's the stock market and its ripples through the economy that have lifted Obama's poll numbers. But the fact is that McCain's numbers began to fall before Wall Street went all to crap. It was the the downward trajectory of a post-convention bounce for McCain and the slow revelation that Sarah Palin could be outsmarted by a baked potato that began Obama's rise, not the ongoing events of last week and now this week. Worries over the economy haven't hurt, but they're not the cause.





With Reaganomics a burning wreck before us, the party of Reagan loses a lot of its appeal. Penn, an old school corporate suit, doesn't acknowledge this. For him, this is all a reaction to a crisis.

Americans — like voters around the world — have a habit of shifting their support in reaction to a crisis. In 2001, Michael Bloomberg was 20 points behind in New York’s mayoral race, until the Sept. 11 attacks transformed voters’ requirements for the job. New Yorkers needed a crisis manager, not a reformer, and they shifted to Bloomberg virtually overnight.

Over the years, I have seen other such crises have a big impact. President Bill Clinton’s strong and empathetic response to the Oklahoma City bombing in April 1995 lifted his presidency from its doldrums after the 1994 Republican congressional sweep. His reaction to the bombing was a building block toward his easy 1996 reelection. And Sept. 11 transformed the Bush administration into a national security presidency, a key part of his 2004 reelection.

The problem with Penn's analysis -- beside the little timing problem I brought up earlier -- is that Obama's poll numbers aren't limited to the economy. As pollster Rasmussen reported yesterday, Obama not only leads on the economy, but on everything.

While the results for the first presidential debate Friday were mixed, voters in surveys this weekend gave a boost in trust to Barack Obama over John McCain on a cross-section of issues.

Obama is now trusted more on all 10 major issues in new Rasmussen Reports national telephone surveys Saturday and Sunday nights. He even has a statistically insignificant one-point lead over McCain in trust on the handling of the war in Iraq. Just two weeks ago, the Republican had an eight-point lead on this issue.

The proper response by the McCain camp to these numbers would probably involve a lot of swearing; maybe some drinking and crying. You could argue a stock dive (yesterday's second dive doesn't figure into Rasmussen's numbers) boosts Obama because he's not a Republican, but how can that explain a lead on the environment (54%-37%), education (53%-36%), and immigration (43%-40%)? How does it explain Obama's lead on the issue of abortion (47%-42%)? The fact is -- and the numbers back it up -- that the reasons for Obama's rise are much broader than just worries about the economy. He's simply coming across as the most capable and competent candidate.

I've written more than once about Obama's unshakeable calm. Contrast that with McCain's campaign since the conventions -- he's been all over the map, a drama queen who pumps up every little thing into a huge national crisis. Remember "lipstick on a pig?" If you believed McCain, you'd believe it was the worst thing that had ever happened in the history of the human race. When the markets went south, it was a big freakin' emergency and everyone had to drop everything and freak out. And they had to do it nownownow!

Meanwhile, Obama was a rock by comparison. McCain's message of "Don't panic, I'll save you!" wasn't all that comforting, since it suggested that there was reason to panic and that you were in deep trouble. McCain's stunt of "suspending" his campaign and rushing off to Washington looked a lot like histrionics. All Obama really has to do to show better leadership is not act like a panicky horse in a barn fire. People trust Obama's leadership more on every issue because he doesn't act like a lunatic.

In fact, throughout this current situation, McCain's been goofy. He promised not to leave Washington until a bailout deal was brokered, then backpedalled to participate in the first debate. He then took premature credit for getting a deal and House Republicans voted it down. McCain is a candidate on ice, unable to find any footing at all.

Without any sort of compass in a crisis other than these wild Hail Marys designed to bump up his poll numbers, McCain drifts from issue to issue, seemingly unable to do anything other than react. This isn't leadership and it doesn't look like it. This is mad scrambling to save a sinking campaign.

Penn does make one good point though:

Neither Obama nor McCain has so far used the values-oriented approach that President Franklin D. Roosevelt invoked in his first inaugural address, when he described how the “money changers” had fled their temples, allowing government to restore the temple to “ancient truths.” He fused populism with restoring the basic values of hard, honest work over “callous and selfish wrongdoing.”

The candidates are a long way from his rhetoric or his positions — neither has expressed the kind of outrage that FDR did at the bankers who caused so much economic misery. The average American homeowner has already lost 25 percent of the home’s value — for most people, that’s 25 percent or more of their savings.

Then again, FDR didn't run as the FDR history remembers. Economic populism probably wouldn't hurt, but good luck getting that message out. I woke up this morning, flipped through cable news, and on every channel there was some Wall Street type ripping their hair out (if they had any) and demanding a bailout. And those were the cable news financial reporters. Go ahead, try and get a people-centric economic restructuring past corporate hacks like CNN's Ali Velshi. Obama's been talking about a more demand-side focused economy, in the first debate saying, "So my attitude is, we've got to grow the economy from the bottom up," but I wouldn't expect him to go any farther than that. Corporate media would drop him faster than Dennis Kucinich. It's hard to criticize Obama for not making a futile effort.

So Penn's partially right, Obama's on the upswing and the economy is a big part of it. But it's not the only part. The bigger contributor is his opponent, a candidate so determined to win an election that he's shaking himself apart.

-Wisco

McCain's Folly

It's a lovely late autumn morning. The birds are singing, the air is wonderfully cool and seems clean as you breathe it in, the coffee gurgles in the coffee maker, Washington Mutual has gone under -- the largest bank failure in history -- and guys in suits are really freaking out on cable news. The financial wonks are climbing the freakin' walls -- "Where's the bailout?" they ask. "Where's the bailout?" And somewhere in Washington, John McCain quietly craps his pants.

By pretending to be the president and to take the reigns of the economy, McCain set himself up to fail. He doesn't serve on the Senate Banking Committee, so he can't actually help draft an agreement, all he can really do is vote or not for the final bill. He has no real input on a draft. Not only did McCain pretend he was going to do something super-important to fix the economy, but he pretended he could.

I don't know which is worse for John McCain, the truth or the perception. The perception is that House Republicans threw out an all but closed deal in order to help McCain, who managed to show up in Washington after the deal was announced. The truth is that House Republicans, swamped with anti-bailout letters and calls and emails, threw the deal out to help themselves. With the exception of those who've announced their retirements, every single GOP House member is up for re-election in about a month. So they did what Republicans do in a crisis; they panicked.





The House GOP offered their own plan -- two, actually, including one that TIME's Justin Fox calls "a joke."

[The plan from] the House Republican Study Committee, seems to be a joke. It calls for a two-year suspension of the capital gains tax to "encourag[e] corporations to sell unwanted assets." But the toxic mortgage securities clogging up bank balance sheets are worth less now than when they were acquired. Meaning that no capital gains tax would be owed on them anyway. If you repealed the tax, banks would have even less incentive to sell them because they wouldn't be able use the losses to offset capital gains elsewhere. Seriously, where do these people come up with this stuff?

Typical GOP. Use the crisis to push for some kind of tax cut. They seem to be especially attracted to those cuts that don't actually do anything constructive. Another plan, from Republican chief deputy whip, is called "more reasonable-sounding if still pretty vague." That's the advantage of vague. That one calls for the feds to insure more mortgages instead of buying them. House Republicans, no doubt seeing the word "socialist" applied to them more often in a week than they have in their entire lives, seem to believe that nationalizing loss a different way isn't really nationalizing loss.

All of which leaves John McCain pretty much screwed. He thought it would be a good idea, a real masterstroke of political genius, to grab onto this cinderblock of a market and swan dive into the pool. Instead, he finds himself royally screwed. McCain, a man who once said "Economics is not something I've understood as well as I should," seemed to believe that there was the possibility of a solution to this that everyone would like. There's not. The average American doesn't want the bailout at all. The investor class who funds his campaign wants it very, very badly. If there is no bailout, he's screwed. If McCain is credited for a bailout, he's screwed. It doesn't matter whether or not it works. And, although some economists say a bailout isn't necessary, being the man who bravely did nothing doesn't look a lot like leadership.

Hovering over all of this is tonight's debate -- which may or may not happen. Some think that skipping this debate was McCain's plan all along, but the subject was foreign policy and national security. In that debate, McCain did have the most to lose, but few believed he'd actually blow it on those subjects. This should be the debate McCain doesn't want to miss -- the one where he has some idea what the hell he's talking about.

On the subject of the debate, McCain sounds optimistic. "I believe that it's very possible that we can get an agreement in time for me to fly to Mississippi," McCain said. "I understand how important this debate is and I'm very hopeful. But I also have to put the country first."

"Country first" is looking more and more like a slogan. SurveyUSA has been polling the subject of the debate since McCain's big ride to the economy's rescue and public opinion is not trending pro-McCain. Originally, 50% thought the debate should go on. Yesterday, it had risen to 75%. 50% now say they have "no confidence" in McCain on the issue of the economy.

This is what happens when you pretend to be able to do something you can't. John McCain, whose stride had been broken by stumbles at the beginning of all of this, is simply trying to build some econ cred. But, being an economic dope, he's managed only to dig himself in deeper with his bumbling cluelessness.

I wish I could think of more to add here. This was a gross miscalculation on McCain's part, a fumble of epic proportions -- you'd think there would be more to say about it. But I guess the most spectacular explosions are easy to describe -- "It went BOOM!" I could add a bunch of useless words to match the grandeur of McCain's mistake, but all I'd really be doing would be pouring gravy over "he blew it."

-Wisco

BREAKING AS I PUBLISH: McCain backpedals on his original position that he wouldn't leave Washington until a deal was reached. The debate is on.

How to Politicize a Crisis

John McCain has put politics aside and suspended his campaign. Four days into the crisis, McCain will beam in from the campaign trail and straighten everything out. Four days of work have gone on and now McCain's going to come in and straighten everything out. Does this seem especially helpful to you? If so, consider history.

Washington Post, via Capitol Hill Blue:

At a bipartisan gathering in an ornate meeting room just off the Senate floor, McCain complained that Cornyn was raising petty objections to a compromise plan being worked out between Senate Republicans and Democrats and the White House. He used a curse word associated with chickens and accused Cornyn of raising the issue just to torpedo a deal.

Things got really heated when Cornyn accused McCain of being too busy campaigning for president to take part in the negotiations, which have gone on for months behind closed doors. "Wait a second here," Cornyn said to McCain. "I've been sitting in here for all of these negotiations and you just parachute in here on the last day. You're out of line."

McCain, a former Navy pilot, then used language more accustomed to sailors (not to mention the current vice president, who made news a few years back after a verbal encounter with Sen. Patrick Leahy of Vermont).

"F--- you! I know more about this than anyone else in the room," shouted McCain at Cornyn. McCain helped craft a bill in 2006 that passed the Senate but couldn't be compromised with a House bill that was much tougher on illegal immigrants.

Yeah, that ought to go well. Associated Press offers some other examples of what Baghdad Johnny's steady leadership might look like:

"Only an a------ would put together a budget like this," he told the former Budget Committee chairman, Sen. Pete Domenici, in 1999.

"I'm calling you a f------ jerk!" he once retorted to Iowa Sen. Chuck Grassley.

McCain says he won't return to the campaign until there's a deal. With leadership like he's supposedly bringing to Washington, that could be some time next year, when it's signed by President Obama. Of course, there's every chance that he'll do the wisest thing, which would be to shut up, vote with the winners, and take credit for it afterward.





Of course, "suspending" a campaign doesn't involve anything other than saying you're doing it. They won't buy ads or do any fundraising, but I'm guessing if you cut them a check, they won't send it back. How do I know this is what McCain means by "suspend?" Because the McCain campaign typed up talking points to use when campaigners go on talking head shows to discuss how they aren't campaigning. These talking points from a campaign that's campaigning by saying they aren't campaigning were accidentally emailed to the press and the gimmicky nature of the McCain suspension is exposed. That McCain campaign, it's a well-oiled machine.

McCain's suspension includes possibly, maybe skipping tomorrow's presidential debate. Turns out that's not such a good idea. SurveyUSA did a flash poll last night of 1,000 respondents and found that a majority think the debate should go on, three-quartes believe the campaigns should go on, and 46% say postponing the debate would be "bad for America." McCain's impulsive decision, like his impulsive VP pick, may turn out not to be the wisest one. McCain also suggested postponing the vice presidential debate, but that's so transparent that I wouldn't expect to hear that suggestion to go far.

Of course, none of this would have anything to do with the fact that McCain's dropping in the polls. The question is whether voters will see this stunt for what it is; cynically politicizing a crisis to score points. I hate to say it, but those undecided and swing voters seem a little slow on the uptake. It took a while for the shine to wear off Palin, so it may take a while for them to realize that McCain's playing them again. McCain is gambling again and it'll be a day or two before we see if it pays off with some sort of bump. His economic credibility definitely needs a little burnishing. After saying that the fundamentals of the economy are strong, McCain really needs to do something to look less clueless. I have some doubt as to whether this is it.

For his part, Barack Obama is blowing the stunt off and trying to turn it into a negative. "This is exactly the time when the American people need to hear from the person who, in approximately 40 days, will be responsible for dealing with this mess," he said of postponing the debate to a crowd in Florida. "Presidents are going to have to deal with more than one thing at a time. It's not necessary for us to think that we can only do one thing and suspend everything else."

In other words, if you can only keep one ball in the air at a time, don't try out for lead juggler. Of course, John McCain sees it differently; "F--- you! I know more about juggling than anyone else in the room!"

-Wisco

An Adjustment in Strong Fundamentals

Yesterday was not a good day for the economy, the markets, the United States or, for that matter, the rest of the world. As the Dow dropped more than 500 points, we said goodbye to Lehman Brothers. In related news, Merrill Lynch was traded to the Bank of America for a bologna and cheese sandwich, a can of orange Faygo, and a fun-size Snickers bar. The state of the market was not good.

For his part, President Bush handled the crisis as well as he's handled other crises -- poorly, by trying to BS his way through it. Americans, Bush said, "are concerned about the adjustments that are taking place in our financial markets." See, it's an adjustment, a tiny bump in the road, a little minus-500-point tweak.

Associated Press:

...He said that his administration is focusing on the problem and "working to reduce disruptions and minimize the impact of these developments on the broader economy."

Bush also said he was pleased with work done so far by the Treasury Department, Federal Reserve and major financial institutions to "promote stability" in financial markets shaken by the bankruptcy declaration by Lehman Brothers Holdings Inc. and the sale of Merrill Lynch & Co. to Bank of America.

He acknowledged that such convulsive developments can be "painful for people" directly involved. But Bush also said, "In the long run, I am confident that our capital markets are flexible and resilient and can adjust to these developments."

Of course, as economist John Maynard Keynes so famously pointed out, "In the long run, we're all dead." While it's nice to keep an eye on the future, we live in the present and the present presently sucks. The concerns are immediate, not forecasted.





And no one has a better grasp of those immediate concerns than that great economic mind, Republican John Sidney McCain. Speaking at a campaign event in Jacksonville, Florida, McCain told the crowd, "Our economy, I think, still, the fundamentals of our economy are strong." That didn't go over real well, so McCain redefined what he meant by the "fundamentals."

Think Progress:

During a campaign stop today in Orlando, FL, Sen. John McCain (R-AZ) attempted to defend his repeated claims that the “fundamentals of our economy are strong” by redefining those fundamentals as “workers and small businesses.” “The American worker and their innovation and their entrepreneurship, the small business, those are the fundamentals of America and I think they’re strong,” he said...

As Atrios writes, McCain is now arguing that “if you suggest something is wrong with the economy, you’re insulting workers. This follows the Bush strategy of saying that criticizing his Iraq policies is insulting the troops.”

That'd be a huge shift in policy for supply-sider McCain. Throughout his career, he hasn't done a whole lot for workers, so I doubt he really thinks labor -- the demand-side -- is a "fundamental" of our economy. If you take a look at his tax cut scheme, you see it's Bushian in its top-heavy nature. For McCain, the fundament is at the top, not the bottom. The english language be damned. If you're at the top -- $2.87 million or more a year in income -- you get a %4.4 cut. That works out to more than a quarter million annually. If you're at the bottom, you get a 0.2% tax cut. That works out to be less than 20 bucks. Yay for you. Spend it wisely.

In fact, what we're seeing this week are the result of the kind of economic policies McCain proposes. You only have to look at his economic advisers to see that.

David Corn, MoJo Blog:

If McCain wants to hold someone accountable for the failure in transparency and accountability that led to the current calamity, he should turn to his good friend and adviser, Phil Gramm.

As Mother Jones reported in June, eight years ago, Gramm, then a Republican senator chairing the Senate banking committee, slipped a 262-page bill into a gargantuan, must-pass spending measure. Gramm's legislation, written with the help of financial industry lobbyists, essentially removed newfangled financial products called swaps from any regulation. Credit default swaps are basically insurance policies that cover the losses on investments, and they have been at the heart of the subprime meltdown because they have enabled large financial institutions to turn risky loans into risky securities that could be packaged and sold to other institutions.

Corn then points us to Blooomberg News, who reports that "The immediate problem" with Lehman's collapse was "the derivative default swaps market." Phil Gramm's fingerprints are all over the smoking gun.

Of course, it was Gramm who McCain finally fired for saying the US was in a "mental recession" and that we were a "nation of whiners." Not because of his crazy economic ideas, mind you, but for putting them so bluntly. After firing Gramm, McCain continues to get the same quality of economic advice from new econ adviser David Luskin. That'd be the same David Luskin who wrote this:

Things today just aren't that bad. Sure, there are trouble spots in the economy, as the government takeover of mortgage giants Fannie Mae and Freddie Mac, and jitters about Wall Street firm Lehman Brothers, amply demonstrate. And unemployment figures are up a bit, too. None of this, however, is cause for depression -- or exaggerated Depression comparisons.

[...]

McCain campaign adviser and former U.S. senator Phil Gramm was right in July when he said that our current state "is a mental recession." Maybe he was out of line when he added that the United States has become "a nation of whiners." But when it comes to the economy, we have surely become a nation of exaggerators.

When was this written? Sometime long in the past, when all of the events of yesterday were totally unforeseeable, right?

Wrong. It was written Sunday -- the day before the floor fell out -- and published in the Washington Post, under the title "A NATION OF EXAGGERATORS: Quit Doling Out That Bad-Economy Line." In his op-ed, Luskin also insists that the housing "crisis" (his quotes) is over. Assumedly, everything was supposed to be back to normal. You've also got to assume that, if he actually believes any of this crap, David Luskin took a bath in the market yesterday.

The Obama campaign is right -- McCain is more of the same. As their economic ideology fails spectacularly before their very eyes, Team McCain insists that the ship isn't sinking and there's no reason to deploy the lifeboats. They are supply-siders and banking deregulation moonies in denial. When it all fails, they don't accept their mistakes and adjust to reality, because cultists never accept the shortcomings of their faith. No, they try to convince you that reality isn't what you're seeing right in front of you. Everything is fine. It's just an "adjustment." Reality must adjust to be in accordance with them.

The question Americans need to ask themselves is whether this is the best they can do. If trying the same thing over and over and over, while failing every time, is really the wisest way to go. If slashing regulations and oversight really worked out all that well. Deregulation moonies like to talk about "the genius of the market," a benevolent force that will lift everyone up if you just snap the regulatory chains. But the genius looks more like a moron today. Cut loose from its chains, it ran straight out into traffic.

Don't ask yourself whether you'd vote for John McCain's economic policies. Ask yourself if you'd vote for this market and this economy.

Because this is what McCain's economic policies are.

-Wisco

Corporate Commies

This is how bad the economy is. Once again, Exxon sets the record for profit this quarter -- $11.7 billion. More than any company has ever earned in history. This is bad news for the oil giant, since they didn't do as well as predicted. So, despite making just giant wheelbarrows full of cash, Exxon closed 3% down on the news. Boy, talk about an undervalued stock -- no one's losing money here.

One reason that Exxon didn't do as well as expected is a decrease in production. And that's why we've got to drill, drill, drill. Got to pump up that production. We need oil... Dear Sweet Jesus, we need oil!

But that urgency isn't really reflected in oil companies' spending practices. While we're told that corporations like Exxon are desperate for oil, they sure as hell aren't acting like it.

Associated Press:

The companies insist they’re trying to find new oil that might help bring down gas prices, but the money they spend on exploration is nothing compared with what they spend on stock buybacks and dividends.

It’s good news for shareholders, including mutual funds and retirement plans for millions of Americans, but no help to drivers already making drastic cutbacks to offset the high cost of fuel.

The five biggest international oil companies plowed about 55 percent of the cash they made from their businesses into stock buybacks and dividends last year, up from 30 percent in 2000 and just 1 percent in 1993, according to Rice University’s James A. Baker III Institute for Public Policy.

The percentage they spend to find new deposits of fossil fuels has remained flat for years, in the mid-single digits.

It strikes me that spending less than 10% on oil exploration doesn't do a lot to increase production.

But that's OK. Oil companies don't need to find oil, they know where some is -- where they're not allowed to drill. The reason they can't find oil anywhere other than offshore and in the Arctic National Wildlife Refuge is because they haven't actually been looking.



So production's down, they aren't exploring -- what the hell are they doing? They're slowly becoming socialized, that's what. But this is a very special form of socialism, a form that's becoming widespread in the US; it's the socialization of risk, loss, and overhead, not profit. When corporations make money, they keep it. But when they lose money, you pay -- with tax dollars. And even the markets that corporations operate in are artificial. To stay with our example of big oil, we pay to make it easier for them to sell. The real price of oil isn't paid at the pump, but at every point along the way from extraction to your tank.

Institute for the Analysis of Global Security (IAGS):

The federal government subsidizes the oil industry with numerous tax breaks and government protection programs worth billions of dollars annually. These benefits are designed to ensure that domestic oil companies can compete with international producers and that gasoline remains cheap for American consumers.

Our dependency on oil from countries that are either politically unstable or at odds with the U.S. subjects the American economy to occasional supply disruptions, price hikes, and loss of wealth, which, according to a study [PDF] commissioned by the U.S. Department of Energy, have cost us more than $7 trillion present value dollars over the last 30 years. That is more than the cumulative cost of all of the wars fought by the U.S. since the Revolutionary War. The transfer of wealth to oil-producing countries -- $1.16 trillion over the past thirty years -- significantly increased our trade deficit. The Department of Energy estimates that each $1 billion of trade deficit costs America 27,000 jobs. Oil imports account for almost one-third of the total U.S. deficit and, hence, are a major contributor to unemployment.

In 2007, the US paid $10 billion in energy-related subsidies through tax credits and deductions. Include that in the price of gas, too. What you pay for gas and what you think you pay for gas are probably two very different numbers. These reverse socialists like to talk about the free market, but they really want protection from it. And they get exactly that.

Some in Washington would continue this reverse socialism.

Center for American Progress:

In 2007, [current presidential candidate John] McCain was the only senator who failed to vote on a motion to invoke cloture (thus limiting debate) on the Energy Independence and Security Act. This vote was about whether to close $13 billion in tax breaks for major oil and gas companies to invest in new clean energy technologies such as wind and solar, and efficiency. Sixty votes were required for passage. The motion was rejected 59-40.

In fact, McCain's tax plan includes more tax subsidies for big oil. "Sen. McCain recently proposed to cut the corporate tax rate from 35 percent to 25 percent," we're told. "This would have reduced ExxonMobil and ConocoPhillips taxes by $1.2 billion each in 2007. It would have saved Chevron $480 million in 2007."

And oil's not the only industry that benefits from this socialization of cost and loss. "...the potential for profit encourages people to take risks. But without the potential for loss, you have reckless risk-taking. You have risk-taking without prudence. Without the potential for loss, irresponsibility goes unpunished," NPR's Russel Roberts reported in March.

"The Federal Reserve and the Treasury Department have orchestrated the rescue of Bear Stearns. The defenders of that maneuver argue that if Bear Stearns had failed it would have created a lot of collateral damage, so much collateral damage, that you and I, normal folk who don't know anything about high-falutin' financial instruments like 'collateralized debt obligations' would have been engulfed as well. If Bear Stearns had gone bankrupt, Lehman Brothers might have been next."

So they take the risk, we pay the loss. When Bear Stearns was bailed out by the taxpayers and rival JP Morgan, the Federal Reserve was forced to print new money just to cover it. As it always seems it is in the US these days, corporations profits' are private, while their losses are public. They win, they collect. They lose, you pay.

And the things that actually benefit you directly go ignored. Our infrastructure isn't so much collapsing, as it is rusting away. Associated Press reports that a "review of repairs on each state's 20 most-traveled bridges with structural deficiencies found just 12 percent have been fixed. In most states, the most common approach was to plan for repairs later rather than fix problems now." This was one year after the bridge collapse in Minnesota -- supposedly the wake up call on the state of our infrastructure.

So we're spending money hand over fist (as well as behind the back) to subsidize oil, while we allow the nation's roads to go to hell. It's hard to think of a more screwed up set of priorities.

When some right wing moron calls a lefty "socialist," remember the bass-ackward socialism that's corporate America -- privatize government, but socialize loss. This is what passes for capitalism and free markets these days -- Karl Marx standing on his head.

-Wisco

Technorati tags: politics; elections; 2008; republican; John McCain; business; financial; oil; energy; socialism; Corporations of the world, unite! You have nothing to lose but your... Well, nothing

One Foot in the Grave

Yesterday, I wrote about a campaign of BS by the right that may rival the propaganda campaign that led us into Iraq. The goal of that campaign is offshore drilling. Almost nothing that's being said by the right has been true -- offshore drilling isn't environmentally safe, China's not already drilling off Cuba, and it won't bring down gas prices.

When I write a post, I often collect more information than I actually need, which means that some examples aren't used in the posts. Usually, these unused stories turn out to be too insane to be representative. It may be tempting to compare some antigay dumbass to Fred Phelps, for example, but it may not be apt. It's kind of like comparing any old right wing zombie to Hitler -- I guess I believe that Godwin's law should be expanded. Similarities are not equations; bad may be bad, but there are degrees of bad, just as there are degrees of BS.

I bring this up to introduce you to a particular group of phonies known as the Congress of Racial Equality (CORE).

Right Wing Watch:

A gathering led by Niger Innis of the Congress of Racial Equality, Bishop Harry Jackson of the High Impact Leadership Coalition, and the new group Americans for American Energy held a press conference yesterday demanding increased “American Energy” production. Their contentions were twofold: that high energy costs disproportionately harm low-income families, and that increased domestic oil drilling would solve the problem. Standing in the way: the “elitist Volvo-driving” environmentalists. Watch:

Although CORE was once a prominent civil rights group, after Niger Innis’s father, Roy, took control in 1968, he led it to the far right, honoring Karl Rove at its Martin Luther King dinner, backing extreme Bush judges, and defending oil companies. According to a Mother Jones article, “Innis has been accused by founder James Farmer and other black leaders of renting out CORE’s historic reputation to corporations like Monsanto and ExxonMobil. (CORE even mounted a counterprotest to environmentalists picketing an ExxonMobil shareholders’ meeting.)”

There's a war on the poor -- by environmentalists. Really? Seems to me that enmity of the poor is a cornerstone of modern Republicanism. After all, it's been the right wing's love of deregulation and hatred of corporate accountability that's screwed the economy. No one's losing their home because some environmentalist is foreclosing on them.

-Continued after the jump-


It was Al Gore's speech on energy yesterday, along with a string of news stories I've been following, that got me thinking about the firebreathing BS vendors above. It turns out that the right wing either doesn't understand the way capitalism works or pretends they don't. We're told that addressing climate change and energy will ruin the economy. It will. In fact, it'll completely destroy it. But capitalism is as destructive as it is progressive. In moving forward, capitalism destroys old industries and markets, replacing them with new ones. It'll destroy the old economic structure while it builds a new one. The structure of the economy in the next ten years won't look anything like it does today. But, of course, that's always been true. The question isn't whether the old structure should be kept alive, but whether the new structure will be as sound. There's no reason to believe it won't be. In fact, since the current energy market relies on crap we have to go find, a new market based on renewables would likely be much more stable in the long run.

Niger Innis and Bishop Jackson aren't representing the poor, they're representing a dying market. They're lobbyists for the buggywhip industry. They're arguing against the steam engine so that sawmills with water wheels won't have to close. They're trying to sell horseshoes in a world that increasingly travels on tires.

They make the mistake that conservatism is almost doomed to make -- they believe that change is bad, unless that change is a reversal. Modern conservatives don't stand for change, unless that change is backward, to the way things used to be.

But, as I said, capitalism is destructive. It destroys old industries and markets, replacing them with new markets and new industries. It sucks for the buggywhip industry, but it's good for everyone else and inevitable regardless. In fact, not only is the world moving away from oil, it's moving away from coal. The fossil fuel industry is, somewhat appropriately, becoming a dinosaur. In fact, it's the fossil fuel industry that's waging a war on workers.

Environmental News Network:

A transition to renewable energy sources promises significant global job gains at a time when the coal industry has been hemorrhaging jobs for years, according to the latest Vital Signs Update released by the Worldwatch Institute.

The coal, oil, and natural gas industries require steadily fewer jobs as high-cost production equipment takes the place of human capital. Many hundreds of thousands of coal mining jobs have been shed in China, the United States, Germany, the United Kingdom, and South Africa during the last two decades, sometimes in the face of expanding production. In the United States alone, coal industry employment has fallen by half in the last 20 years, despite a one-third increase in production.

"Renewables are poised to tackle our energy crisis and create millions of new jobs worldwide," according to Worldwatch Senior Researcher Michael Renner. "Meanwhile, fossil fuel jobs are increasingly becoming fossils themselves, as coal mining communities and others worry about their livelihoods."

The UN Environment Programme (UNEP) agrees. In a recent study, UNEP reported that more than 148 billion dollars had been invested in renewable energy markets worldwide. The report referred to this as a "green energy gold rush."

"Just as thousands were drawn to California and the Klondike in the late 1800s, the green energy gold rush is attracting legions of modern-day prospectors in all parts of the globe," UNEP Executive Director Achim Steiner said.

"What is unfolding is nothing less than a fundamental transformation of the world's energy infrastructure."

And it couldn't come at a better time because -- speaking of a "war on the poor" -- climate change is about to screw us royally. The Environmental Protection Agency (EPA) has released a study that totally undermines the right wing's insistence that change means disaster. To the contrary, not changing means disaster.

"Climate change poses real risk to human health and the human systems that support our way of life in the United States," according to the EPA's Joel Scheraga. The report warns of "a likely increase in food and water-borne germs as the world warms and habitat ranges expand for some disease-causing organisms." This will increase the hardships of which group?

That's right, the poor.

"Many of the expected health effects are likely to fall disproportionately on the poor, the elderly, the disabled and the uninsured," Scheraga warns. Environmentalism isn't waging a war on the poor, it's waging a war on the poor's behalf. Meanwhile, capitalism is doing what it always does -- moving forward and leaving destroyed, obsolete industries and markets in its wake.

What the oil and coal industries -- along with their shills in that video -- want isn't capitalism at all. What they want is protection from capitalism. What they want is to use the power of government to extend the life of their markets artificially. There's no logical reason why they should get it.

"I challenge our nation to commit to producing 100 percent of our electricity from renewable energy and truly clean, carbon-free sources within 10 years," Gore said yesterday.

At the opposite end of the political spectrum, major Bush-backer T. Boone Pickens agrees -- the old generation ways are going the way of the hoop skirt and mustache wax. "For a number of years I’ve watched the wind turbines develop -- and I feel like it’s time for it," Pickens told NPR last month. "I think that oil has peaked at 85 million barrels in the world. We’ve got to develop other forms of energy -- wind, I think solar will be next, and I hope I’m still around to be in the solar deal."

If you're a little lost on the connection between oil and energy production, you could be excused. After all, we don't really burn oil to create electricity. But the future will likely belong to the battery, not the gas tank, and that energy has to come from someplace. Replacing oil with batteries without addressing coal is just switching from oil to coal to get around. Environmentally speaking, this is almost no change.

There is no war on the poor waged by environmentalists. That claim is ridiculous on its face. Chaining people to this creaky and dying market is much more harmful. But, of course, truth isn't the object here. The object is to create an artifical market for a dying industry. These transparent apologist for Exxon represent the last gasp of the buggy whip vendors.

-Wisco

Technorati tags: politics; energy; wind; solar; renewables; Al Gore; T. Boone Pickens; corporations; economy; Capitalism killed the buggywhip industry and it'll kill the oil and coal industries as well

Two Proposals, One Solution

Sometimes, you see two headlines and they sum up an issue nicely. Especially when the subjects of both headlines are two presidential candidates' solutions to roughly the same problem. I had this experience looking through Reuter's headlines yesterday. The two headlines are "McCain calls for $300 million prize for car battery" and "Obama vows to crack down on oil speculation."

The McCain headline deals with McCain's approach to oil prices and energy problems. Like his offshore drilling idea, McCain's non-existent battery might possible pay off within ten years. With gas prices rising as quickly as they are, in ten years it might be cheaper to buy a car that runs on diamonds. Unless an immediate problem can be addressed by sending in more troops, John McCain doesn't seem to have any idea what to do about it.

Republican John McCain said on Monday if elected he would propose awarding a $300 million prize to the auto company that develops a next-generation car battery that weans America off oil.

McCain sought to portray himself as a forward-looking leader on solving the U.S. energy crisis a week after taking heat from Democrats for reversing position and supporting offshore oil drilling.

"Whether it takes a meeting with automakers during my first month in office, or my signature on an act of Congress, we will meet the goal of a swift conversion of American vehicles away from oil," McCain told a town hall meeting in Fresno, in rural central California.

And this addresses oil prices how? McCain is basically saying, "I've got no idea what to do. Here's a buttload of money, can I buy an idea?"

Of course, it's not all bad. He also would offer $5,000 dollar tax credit for zero emissions vehicles and other tax credits based on the carbon emissions of still emitting vehicles. From an environmental standpoint, that's not a bad idea, but how often do you buy a car? We've got to wait until this gets through Congress and then until we need a new car. Of course, the trade-in value of our older polluting vehicle will be pretty much jack, since there won't be any tax credit to knock down the price. This means you'll probably drive it until it dies. But still, it'd get the auto industry off their butts and on the stick.

It's Barack Obama's idea that will have a more immediate impact.

Obama would require U.S. energy futures to trade on regulated exchanges. The campaign also said he backed legislation that would direct the Commodity Futures Trading Commission, the top U.S. futures market regulator, to investigate proposals such as increasing margin requirements in the market.

In addition, the Illinois senator wants to see more transparency and oversight of institutional investors in commodities markets.

John McCain seems to forget he's a Senator -- he's not a powerless man. Let me throw in another headline, this time from MarketWatch -- "Gas could fall to $2 if Congress acts, analysts say."

For the record, John McCain is a member of Congress. It's that speculation that Obama would deal with that's the problem here.

The price of retail gasoline could fall by half, to around $2 a gallon, within 30 days of passage of a law to limit speculation in energy-futures markets, four energy analysts told Congress on Monday.

Testifying to the House Energy and Commerce Committee, Michael Masters of Masters Capital Management said that the price of oil would quickly drop closer to its marginal cost of around $65 to $75 a barrel, about half the current $135.

"[Edward Krapels of Energy Security Analysis] said that it wouldn't even take 30 days to drive prices lower, as fund managers quickly liquidated their positions in futures markets," we're told. What's happening right now is that speculators are foolishly gaming the market.

"From professional fund managers to regular people trying to make a buck, investors with no interest in actually owning oil are pouring billions of dollars into oil markets," Dallas Morning News reported last month. "Those investors are banking on fears that it will become much more difficult and expensive to produce oil, and, eventually, the world might not have enough."

As a result, oil is tremendously over-valued -- in other words, there's a market bubble. Gas prices will fall again, but only after the market collapses and a lot of people buying into funds lose their shirts. Following the collapse of the mortgage and housing markets, this could be disastrous. That's the genius of the unregulated free market -- after a bunch of people on Wall Street jump out of windows, after the economy is hit hard, after that collapse is absorbed by other markets, the price will go down again. Free market capitalism is often a thing of beauty, like a volcano blowing up in your backyard.

I've called advocates of completely unregulated markets "free market moonies" in the past, because their devotion to the concept doesn't have much to do with history or reality -- it's a matter of faith. The reasoning is circular; unregulated markets are good because they're free markets and free markets are good because they're unregulated. Markets don't have genius -- they're mindless. They react to the people in the market and, the more irrational those people are, the more irrational the market becomes. On a rationality scale, the current oil market is somewhere between Britney Spears and the Manson Family.

For his part, McCain is not embracing the solution to oil prices, but is bearhugging part of the problem. I've brought up McCain financial adviser Phil Gramm before and it pays to revisit him. Gramm was an architect of deregulating the energy market, which later resulted in the collapse of Enron. Gramm created the "Enron loophole" -- which basically exempted energy traders from regulatory oversight -- effectively deregulating the market. There were still regulations, but no one making sure the regulations were followed. The energy market became a city with laws, but no police. It turns out that gazillionaires are gazillionaires because they're ruthless -- putting them on the honor system was later proven to be the real bad idea that anyone with half a functioning brain should've known it was. You don't hand pirates a near-anarchy and expect them to play nice.

In summing this all up, let's throw in one more headline -- a Baltimore Chronicle headline from May; "McCain Defends 'Enron Loophole'."

Of course, that was May. Things are different now. "The truth is Barack Obama is following John McCain's lead to close a Wall Street loophole that was signed into law by President Bill Clinton," says McCain spokesman Tucker Bounds. But the Chronicle piece tells us that "[An] aide, who spoke on condition of anonymity," told the paper that McCain opposed a farm bill (later passed) because "Gramm advised McCain that he should resist its regulatory language on the energy futures market." Gramm hasn't learned a damned thing from Enron and McCain's still listening to him.

I know I wrote a post yesterday on politicians changing their mind. For the record, I'm all for it; given that they were wrong on the issue and later realized it. But if McCain's changed his mind on deregulation, why's he still paying Gramm?

Of the two original headlines I brought up, the first was (mostly) a gimmick and the second's a solution. McCain really needs to come up with more solutions. He also needs to dump the bad idea factory that's former Senator Phil Gramm.

-Wisco

Technorati tags: politics; oil; energy; Enron; elections; 2008; Barack Obama has a plan to deal with gas prices -- John McCain has Phil Gramm

Wal-Mart's High, High Prices

First there was poisoned dog food, then lead paint on toys, toothpaste with antifreeze in it, on and on. It's easy to blame China for these things and we should, but the US shares part of the blame. Asked about the safety crisis with chinese imports by Chris Matthews on Harball, CNBC's Erin Burnett did a little truthtelling.

A lot of people like to say, uh, scaremonger about China, right? A lot of politicians, and I know you talk about that issue all the time. I think people should be careful what they wish for on China. Ya know, if China were to revalue it's currency or China is to start making say, toys that don't have lead in them or food that isn't poisonous, their costs of production are going to go up and that means prices at Wal-Mart here in the United States are going to go up too. So, I would say China is our greatest friend right now, they're keeping prices low and they're keeping the prices for mortgages low, too.

Of course, the way she put it suggests that Erin has the priorities of a pre-ghost Ebenezer Scrooge and the value system of a serial killer. I mean, how low can you really say these prices are when they're accompanied by a casualty count? Who's out there brushing their teeth with antifreeze and thinking, "At least it's cheap?"

The truth is that those low prices come with hidden costs. They're artificially low, because of pressure from US retailers. And those hidden costs are environmental, as well. Writes Dave Zweufel, Editor for The Capital Times, "A recent Wall Street Journalstory, for instance, told of a surprise inspection Chinese investigators pulled on a textile plant in southern China, a plant that makes textile material for the likes of American icons Wal-Mart, Nike and Lands' End."

"Villagers near the plant complained that the factory was turning their nearby river water a dark red," he writes. "The inspectors found a pipe buried underneath the factory floor that was daily dumping 22,000 tons of waste water contaminated with dye from its shirt-making operation."

There's really no such thing as "chinese water," any more than there is chinese air. Eventually, that polluted air and water is distributed around the globe. If you don't wind up with poisoned food, you'll wind up with polluted water eventually. And China's water is incredibly polluted. Believe it or not, these multicolored liquids in these bottles are water samples from lakes and streams.



"Decontaminating the water would have cost big money -- hundreds of thousands a year -- and undoubtedly jeopardized the contracts with the Americans," Zweifel writes. "Dumping the dye into the river was much cheaper." Is drinking whatever the hell that red stuff is worth a couple bucks off on a Barbie doll?

The chinese government admits it has a problem, saying that more than 70% of China's rivers and lakes were polluted in 2005. According to a BBC story at the time, "The China Daily newspaper said that about two million people had suffered diseases caused by drinking water with high arsenic content, including cancer."

Speaking to Stefan Stern of the Financial Times, Mary Teagarden, a professor at the Thunderbird school of global management in Phoenix, Arizona, explained things this way, "Wal-Mart squeezes Mattel [the toy maker], Mattel squeezes its supplier, that supplier squeezes its supplier, and at the end of the chain you have a remote business far out in the countryside that takes a different approach. They don't put lead in paint because they are wicked, it's just what works for them. China is so large, and industrialisation has been so rapid, that maintaining any control over multiple sites is extremely difficult." Everyone puts the squeeze on the guy down the line and, eventually, you wind up with a supplier with no one to squeeze -- so they cut costs in other ways or lose the business.

If you keep cutting corners to cut prices, eventually you'll be forced to cut too deep. And that means environtmental disaster, sweat shops, or lax consumer safety concerns --in many cases, in combination.

Luckily, US consumers understand this. A recent AP-Ipsos poll shows that most americans understand that US companies share some og the blame. According to the report, "[T]here was widespread consensus that plenty of blame can be spread on both sides of the Pacific. Eighty-four percent said Chinese manufacturers and the U.S. businesses which sell Chinese products in this country deserve some or a lot of culpability for the problem."

For its part, mega-marketer Wal-Mart has promised to make changes to its toy safety program. They promise that toys will be tested for safety. But Nu Wexler of Wal-Mart Watch says these promises don't go far enough. "Wal-Mart's not addressing the larger problem of why Chinese toy suppliers are cutting corners with lead paint and melamine," he told the Washington Post. "It's because they're under enormous pressure from buyers like Wal-Mart, and they're sacrificing child safety to keep costs low."

And adult safety, pet safety, worker safety, and the environment. As long as american marketers have the same attitude toward consumer safety and China as Erin Burnett -- putting artificially low prices above every other concern -- these problems will continue.

There's an old saying, "You get what you pay for." If you pay crap for something, you get crap -- like antifreeze in toothpaste and water in lovely pastel shades.

--Wisco

Technorati tags: politics; melamine; toys; consumer safety; free trade; environment; Marketers like Wal-Mart force China to cut costs, then pass the savings on to you -- and not in a good way