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A few well-written words can convey a wealth of information, particularly when there is no lag time between when they are written and when they are read. The IPS blog gives you an opportunity to hear directly from IPS scholars and staff on ideas large and small and for us to hear back from you.

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Entries since January 2012

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The Lineup: Week of Jan. 30-Feb. 5, 2012

January 30, 2012 ·

In this week's campaign finance special edition, OtherWords columnist Donald Kaul unveils his new Super PAC and Jim Hightower gives Newt Gingrich's Super PAC a more accurate name. Peter Hart casts a spotlight on the big-money effort underway to bypass the electoral system altogether, and Timothy Karr says the broadcast media should balance its quadrennial avalanche of election-year ads with solid coverage of the candidates and their issues. Khalil Bendib's cartoon lampoons the role big money is playing in the 2012 elections. Get all this and more in your inbox by subscribing to our weekly newsletter. If you haven't signed up yet, please do.

  1. Immobility Nation / Salvatore Babones
  2. The 1 Percent Candidate / Peter Hart
  3. The Hottest TV Drama in 2012 / Timothy Karr
  4. The Risky Business of Post-War Contracting / Beth Schulman
  5. Destroy Our Future / Donald Kaul
  6. Buying Our Future / Jim Hightower
  7. Overthrow Wall Street / William A. Collins
  8. USS Super PAC / Khalil Bendib

USS Super PAC, an OtherWords cartoon by Khalil Bendib.

Good News and Bad News about GDP Growth

January 27, 2012 ·

The U.S. economy grew at an annualized rate of 2.8 percent in the fourth quarter of 2011, the Bureau of Economic Analysis reported.

With Europe in crisis and the world teetering on the brink of a new global recession, that quarterly growth figure is a welcome ray of sunshine in an otherwise bleak outlook. The nation accounts for 23 percent of total world GDP.

The 2.8 percent headline figure represents the real (adjusted for inflation) growth in gross domestic product (GDP) between the third and fourth quarters of 2011, adjusted to account for ordinary seasonal variability and converted to an annual growth rate.

It compares favorably with both the 1.8 percent figure for the third quarter and the economy's long-term average annual growth rate of 2.5 percent over the past two decades.

Unfortunately for the United States and its trading partners, the news isn't as good as it seems.

Final sales — defined as GDP less change in private inventories — increased at a rate of only 0.8 percent in the fourth quarter.

In other words, only 0.8 percent of the fourth quarter's growth came from actual sales of goods and services. The other 2 percent came from businesses building up their inventories.

What does that mean? Here are two possible interpretations.

The optimistic interpretation is that businesses were accumulating inventory in late 2011 in anticipation of high sales figures in 2012. Seen in this light, inventories can be a leading economic indicator. They suggest stronger economic growth in 2012.

The pessimistic interpretation is that inventories rose in the fourth quarter of 2011 because businesses couldn't sell their goods. With sales slowing, inventories pile up. This view doesn't bode well for 2012.

While either interpretation could be correct, there's strong circumstantial evidence for the pessimistic interpretation.

When measured in actual dollars, without adjusting for inflation, nominal GDP rose at an annual rate of 3.2 percent annual rate in the fourth quarter, compared with a 4.4 percent rate in the third.

The only reason that real GDP (which is adjusted for inflation) rose faster in the fourth quarter was that inflation declined from 2 percent to less than 1 percent.

This means that GDP growth actually slowed in the fourth quarter of 2011, but inflation slowed even more, resulting in a net increase in real GDP growth.

Strong demand causes inflation to rise; weak demand causes inflation to fall. Falling inflation indicates that demand is weak. This suggests that the pessimistic interpretation of rising inventories is probably the right one.

The 27 January fourth quarter GDP figures are only "advance" estimates, not final results. Revised figures will be released on Feb. 29 and final figures on March 29.

GDP figures are often revised downward after the initial estimates have been published. Inventory statistics in particular have been a source of error.

The U.S. economy has shed more than 6 million jobs since the beginning of the recession in December 2007.

Due to a rise in part-time employment, the number of Americans employed in full-time jobs is down more than 8 million.

According to the Bureau of Labor Statistics, the economy is currently creating about 150,000 net new jobs per month. Even accounting for retirees, that barely keeps pace with the rate of new graduates entering the labor market each year.

There is little relief in sight. At the Fed's latest Federal Open Market Committee (FOMC) meeting January 24-25, expectations were muted.

The FOMC said in its official statement that it "currently anticipates that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014."

In promising to keep interest rates "exceptionally low" the FOMC indicates that it expects the US economy to remain sluggish for at least the next three years.

Officially, the economy entered recession in December 2007 and emerged into recovery in July 2009. The recovery, however, has been slow and relatively jobless.

In the experience of most ordinary Americans, the recession that started at the end of 2007 is not yet over. If the FOMC expects current economic conditions to continue through the end of 2014, that suggests a grand total of seven years of slow going.

This raises the question: when does a recession become a depression? There's no "official" definition of a depression used by U.S. or international authorities, but the current experience must come close.

Full-year 2011 real GDP growth for the United States stood at 1.7 percent. Factoring in population growth, real GDP-per-capita was roughly the same last year as it was in 2005.

It's certainly good news that the U.S. economy is growing again, but if the Federal Reserve forecasts are right it will be a long time before Americans have anything much to cheer about. Depression or no depression, Americans are in for a long, hard slog.

Salvatore Babones is a senior lecturer in sociology and social policy at the University of Sydney and an associate fellow at the Institute for Policy Studies. An earlier version of this post appeared on the inequality.org website. www.ips-dc.org

Cuba: Looking Back and Ahead

January 26, 2012 ·

In 2012, the White House will focus on the most important of international and national issues: the re-election of the President. U.S.-Cuba policy will fall into “Next Year’s” box – or the year after that. The National Security staff reverts to its familiar positions on relations with that troublesome island: ignorance and arrogance.

Few Americans even in the Foreign Service know the Cuban revolution began in the 1860s as a war of independence against Spain.

A Cuban flag flies over Havana Harbor. Photo by Ed Yourdon.Spain prevailed in the 1860s war, as did Cuban slavery until 1886. Unlike the 1776 war for independence, the struggle in Cuba confronted a major social issue, which U.S. Founding Fathers had finessed – until the Civil War in 1861.

In January 1959, after almost 100 years of on-and-off combat, the 26th of July guerrillas marched into Havana as winners of the decisive round. The revolutionaries carried another ancestral platform: social justice and equality.

Cubans knew well how Washington had acted as their destiny blocker. By 1898, Cuban “independentistas” had almost defeated Spain. The United States intervened to thwart that goal. Washington imposed the Platt Amendment on Cuba’s constitution, giving itself the right to intervene in Cuban affairs, and a naval base in Guantanamo – now a prison and torture chamber. The United States intruded several times in the 20th Century to alter the island’s fate, including in events following the 1933 overthrow of the Machado dictatorship: to prevent revolutionaries from acquiring sovereignty.

That political-military exercise led to the Fulgencio Batista era (1934-1958) – in which the new U.S.-trained and bonded military held sway.

In 1958, however, Washington lost confidence in Batista’s ability to stop social revolution, and began plotting unsuccessfully with a clique of high military officials to replace Batista with a junta – a la 1934.

The revolutionaries’ victory in 1959 changed Cuba's destiny. In 1960, after consolidating power, they made “Patria o Muerte” (homeland or death) the national slogan, referring to the long-sought goal. 1930s revolutionaries joined the 1950s rebels in a unity program: build a proud, healthy and literate nation, bound by ideals of social justice, equality and sovereignty.

Cubans were offered the chance to become actors on the stage of their own history. Millions left their homes to teach literacy, or joined militias, and voluntary associations to transform the island from dependency and underdevelopment into healthy development.

Cuba’s revolutionary tradition assumed that a sovereign nation would use its resources to benefit its people. Rich soil and industrious workers would provide everyone with a decent living standard. Poverty, most assumed, derived from foreign or domestic exploitation.

Early laws restricting landlords and large foreign and Cuban property owners allowed the government to distribute resources and services to the population, which won more legitimacy for the revolutionaries. But Cuba’s accumulated wealth would prove superficial compared to its needs.

Over the first decades, children of illiterate Cubans earned PhDs, and became doctors and soldiers who volunteered to go abroad to help change destiny in Africa and Latin America. Others volunteered for arduous tasks of construction and agriculture. By the mid-1970s Cuba had become literate and healthy.

To accomplish the overwhelming tasks of development revolutionary leaders had accepted Soviet help. This uneasy, but convenient marriage from 1972-1985 included adopting the Soviet economic and administrative models.

For Cuba the deal meant soft loans, technical assistance, secure supply lines and a high-paying market for its products. While most Third World countries transferred capital to developed countries, the Cuba-Soviet agreement reversed the pattern, permitting the island to have sovereignty, social justice and relative equality. Cubans also became world-renowned artists, writers and athletes.

For the Soviets, Cuba became a legitimizing instrument to maintain credibility among third world peoples, playing a broker-like role for Soviet positions at third world meetings.

On July 26, 1989, however, Fidel Castro warned of the impending demise of the Soviet bloc. Cubans had to prepare. The enemy 90 miles away loomed as a constant threat to the revolution's goals.

In 1991, the Soviet Union died. Without Soviet aid and trade, could Cuba's economy survive? The unthinkable alternative, surrender to Washington, led Cuban leaders to design the "special period" – a daily juggling for survival. Euphoria prevailed in Washington. Scholars announced “the end of history,” capitalism had won – well, if one ignored the cyclical disasters. Computers and the Internet would remake the world. China and Vietnam had already abandoned communism – in all but name.  Cuba remained the "Jurassic state."

Without even major trade partners, Cuba’s leaders at first relied on abstractions: national honor, patriotism and shared sacrifice, hardly adequate weapons to fight a 32 percent decline in GDP in one year.

Circumstances dictated that Cuba earn money from foreign tourists, who required a service oriented labor force – including prostitution. Cuba permitted remittances, which created inequality. Working Cubans earned less than non-workers who got rewarded by family members abroad.

Cuba began earning dollars for doctors’ and educators’ services abroad. In turn, this reduced the breadth and quality of education and health care at home.

Living standards fell. Theft, black markets and corruption tied to bureaucracy grew. Those too young to experience the days of subsidized consumption became pessimistic – even cynical – and desperate about their future. Complaining reached theatrical height. As leaders repeated old slogans teenagers passing below signs of Che Guevara reading "Como el Che," would often say "Sí, asmático." (Like Che … yes, asthmatic.) Some opted for rafts to Florida.

Meanwhile, the revolutionaries maintained political power and withstood two decades of counter revolutionary efforts from abroad. By 2001, Cuba’s economy and administrative structures had begun to fall into dysfunction. Corruption levels became intolerable; the once exciting revolutionary script sounded trite.

When Hugo Chavez became president of Venezuela, he provided Cuba with aid and political alliances. Additionally, Latin America accepted Havana as a full partner, ending Cuba’s isolation

Recently, Cuba’s Communist Party reviewed the economy. A new script began to emerge as a series of guidelines (lineamientos). Changes have begun to affect property rights, domestic trade, employment practices, and investments.

In 2012, Cuban leaders could forge a new mission, to remake Cubans as the inspiration – if not saviors – of human life on the planet. Part of Cuba’s population still vibrates with desires to act on the world stage with a script the world’s people need.

Imagine Cuba leading a green revolution for survival! They have the science, experience and organization. Will the leadership pass the torch to those who have the energy and will to carry it out?

Next week: how Fidel Castro laid the groundwork for an environmental mission.

Unconventional Wisdom: The President Talks About Inequality

January 26, 2012 ·

A wordle of President Obama's 2012 State of the Union speech. By Kurtis Garbutt.What a difference a week makes. GOP presidential hopeful Mitt Romney finally disclosed on Tuesday that he paid a measly 13.9 percent of his vast income in taxes in 2010 and will probably pay just 15.4 percent on his 2011 earnings. Those rates are far lower than what the IRS demands of you, or the two of us, or Warren Buffett's secretary.

Thanks to the persistence of the Occupy movement and Romney's tin ear, the anger over inequality, recent college grads who can't pay their student debts, and elderly people being thrown out of their homes is boiling over into outrage.

Thanks to this pressure, President Obama devoted much of his State of the Union address to the damage extreme inequality wreaks on our democracy. IPS experts John Feffer, Phyllis Bennis, Sarah Anderson and John Cavanagh all offer their takes on this important speech.

At IPS, we're spreading the stories, facts, and figures about our nation's 30 year march toward extreme inequality in as many ways as we can. IPSers Chuck Collins and Sam Pizzigati have built the leading inequality website. (Please visit www.inequality.org to see what we mean). Chuck's latest book 99 to 1: How Wealth Inequality Is Wrecking the World and What We Can Do About It will be released shortly before Tax Day, and he's a featured expert in "We're Not Broke," a new documentary that premiered on Sunday at the Sundance Film Festival, which highlights the growing public outrage toward those in the 1 percent who are key drivers of inequality. Too Much, Sam's weekly newsletter, highlights news and views that show how our world would be considerably more caring, prosperous, and democratic if we narrowed the vast gap that divides the wealthy from everyone else.

As the outrage grows, change that seemed impossible not long ago becomes possible. IPS is working with the National Nurses United union and a wide range of groups in this country and around the world to build support for a tax on speculative Wall Street trades, which could raise hundreds of billions of dollars for urgent needs, such as jobs and climate programs. The Institute is working with other allies to lay out the shift from a Wall Street casino to a green Main Street economy.

Remember, Wall Street banks and global corporations have driven down wages, working conditions, and environmental standards both in the United States and everywhere else. We need solutions that cross borders. That's why IPS is working with allies around the world — from Occupy Nigeria to groups fighting the U.S. drug war.

A movement for the 99 percent is growing like wildfire, and each and every one of you is part of it.

This post was originally sent out to IPS supportes in our biweekly Unconventional Wisdom Newsletter. Sign up for UW and other IPS newsletters here.

Tax-Haven Abuse Film Hits the Fast Lane

January 26, 2012 ·

(Park City, Utah) — "We're Not Broke," a lively documentary about the ways that wealthy individuals and global corporations dodge taxes, had its world premiere on Sunday at the Sundance Film Festival.

We Are Not Broke film stillThe timing couldn't have been more extraordinary. Just two days earlier, the Associated Press reported that Republican presidential candidate Mitt Romney has up to $32 million in offshore bank accounts, mostly in the Cayman Islands. Two days after the film's debut, Romney bowed to mounting pressure and released his damning 2010 and 2011 tax returns, and President Barack Obama called for a new mandatory 30 percent tax rate on Americans earning $1 million or more each year.

Directed by Karin Hayes and Victoria Bruce, "We're Not Broke" visually and expertly explains how "offshore "banking enables the richest 1 percent and several thousand transnational corporations to avoid regulation, taxes, and accountability.  

Unlike other documentaries about corporate abuses, "We’re Not Broke" inspires viewers to see themselves as agents of change. The film stands out in is its portrayal of ordinary people learning about the offshore system and taking action. It profiles the emergence of US Uncut, and follows how its activists engage in direct action at Bank of America, Verizon, Apple, and other tax dodgers.

There are an estimated 60 tax havens — formally called "secrecy jurisdictions" — around the globe. The countries have loose incorporation rules, bank reporting standards, and financial transparency requirements. People in the U.S. are more aware of Caribbean tax havens such the Cayman Islands, Bermuda, and the Bahamas. But technology and pharmacy companies often create subsidiaries in countries like Ireland and the Netherlands to hold patents and intellectual property to reduce their U.S. tax bills.

The offshore system has spawned a gigantic tax avoidance industry, with teams of lawyers and accountants who add nothing to the efficiency of markets or products. In 2011, reports about General Electric's storied tax dodging dramatized the ways that modern multinationals view their tax accounting departments as profit centers.

At a time when federal and state lawmakers are grappling with huge budget deficits, the impact of corporate tax dodging is getting new attention. Tax havens are costing us more than an estimated $100 billion of lost revenue each year. And a coalition of over 20 U.S. companies have launched their "WIN America" campaign to lobby for a "tax holiday" on $1.2 trillion in overseas profits they want to bring back to the U.S. without paying the back taxes they owe.

"We're Not Broke" portrays the "business case" for closing down the off shore system with profiles of several small business people who are at a competitive disadvantage with global corporate tax dodgers.

The documentary will probably figure into the election debate, given how Obama used his State of the Union address to highlight the tax system's deep inequities in the. If Mitt Romney nails the GOP nomination, the abuses of the offshore system will draw plenty of attention.

Romney's spokespeople argued the candidate was pursuing normal tax reduction schemes. But the offshore system is a rigged game, benefiting a small handful in the 1 percent of wealth holders and a few thousand global corporations. "It may be legal, but these are loopholes that show problems in our tax code," said Nicole Tichon, executive director of Tax Justice Network USA, an organization that promotes tax transparency. "The bottom line is, they're taking advantage of a system that's flawed."

Stay tuned for more information about how you can see, "We're Not Broke." In the meantime, visit the documentary's web site. werenotbrokemovie.com

Chuck Collins, co-author of the Institute for Policy Studies report, America Loses: Corporations that Take Tax Holidays Slash Jobs, is a featured expert in "We're Not Broke." www.ips-dc.org

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