Friday, October 14, 2005

Grieder on the Politics of Poverty

This article can be found on the web at


Squeezing the Have-Nots

[from the October 31, 2005 issue]

The country is overloaded now with explosive political preoccupations, too many to keep straight, but there is one more potential disaster lurking behind the headlines--the economy. Not to worry, say the newspapers. The White House assures us the Bush economy is going great. The Federal Reserve agrees. Notwithstanding the tempest that flattened the Gulf Coast, the Fed is worried that the economy is expanding too strongly--it might provoke price inflation. So, trying to slow things down, chairman Greenspan keeps on raising interest rates. Most economic forecasters say nothing's changed: Growth will slow down in the second half of this year and then pick up again smartly in early 2006, as factories reopen and reconstruction spending stimulates new production and jobs. Democrats have little to add, beyond raging righteously as usual against the President's tax cuts and budget deficits.

Meanwhile, back in the real world, the economic news is not cooperating with the official optimism. Folks in the bottom half of the economy are already squeezed hard. They will be bloodied and bankrupt if economic policy inadvertently induces a recession.

There are ominous signs. Consumer spending plunged dramatically in August (the sharpest one-month decline since 9/11) and so did personal incomes. The storm-driven collapse of New Orleans immediately wiped out nearly 300,000 jobs, a number likely to grow much larger as more people find their way to the unemployment office. Even more worrisome is the negative savings rate that emerged for American households before the big storm but amid already soaring gasoline prices. In July families spent, at an annual rate, $101 billion more than their disposable income. This "dissavings" continued in August: "certainly the worst since the banking crisis of 1933," economic consultant Charles McMillion observed. If consumers now pull back from spending to rebuild savings--many will have no choice--this retrenchment may converge with other negative forces and could "easily develop into a downward cycle leading to recession," McMillion warned.

Given these fragile circumstances, the prevailing currents of official thinking are all pushing the economy in the wrong direction. Economic policy is often decided as an unpleasant choice among various bad outcomes--which consequence would be the worst for the country? Swelling federal deficits can have deleterious effects on the future, but right now America actually needs larger federal deficits to get through this storm--government-injected economic stimulus that will quickly generate higher incomes and more jobs. A bout of price inflation would disrupt planning and profits for business and finance, but that is a small matter compared with the devastation a recession would impose on wage earners and debt-soaked families in the bottom half of the economy.

The Federal Reserve's single-minded obsession with inflation--intended to preserve Greenspan's reputation as he approaches his retirement--is the most wrongheaded and potentially most harmful policy. In the annals of US monetary policy, a reliable sign of recession ahead is the central bank's raising interest rates on short-term borrowing higher than the rates on longer-term credit. The Fed is perilously close to creating that unnatural condition known as the "inverted yield curve." If Greenspan persists with two or three more rate increases, the yellow warning light will be flashing.

Democrats, meanwhile, are still smitten with the Rubinomics they learned in the Clinton years, and they yearn to win respectability in financial circles by preaching fiscal rectitude. Wrong economics and bad politics too. Repealing the Bush tax cuts is a noble (though unlikely) goal. But under the present conditions, moving toward a balanced budget is harmful, especially when the Federal Reserve is tightening credit. The Democrats should concentrate instead on how to spend money--lots of it--in smart, socially useful ways that help struggling wage earners. Rebuilding schools and homes to "green" standards, for instance, could become a progressive multiplier in storm-battered New Orleans--a major employer for local residents, a dramatic reform that cleans up the notorious petrochemical pollution, an economic anchor that raises local property values for working-class and poor neighborhoods. With brave exceptions, though, Democrats no longer think like this. They think like uptight bookkeepers.

George W. Bush's new rhetoric makes him sound like Mr. Born-Again Big Spender, but predictably he intends to give the money to the wrong people--and in ways that lack immediate economic impact. Keeping the economy on track would be easier for the President if Greenspan were cooperating, but Bush must prevent his frothier colleagues from making things worse by reducing federal spending. The GOP's "deficit hawks," who want to whack Medicare and Medicaid to pay for Gulf Coast reconstruction, are--how else to put it?--out of their minds.

In the basic design of American capitalism, recessions always deliver the most pain and severest losses in reverse order--punishing the weak and less affluent first. Thorstein Veblen called it "the slaughter of the innocents," a nasty ritual that sacrifices the lambs for the benefit of the lions. The rest of us may have to pull back a bit, but our lives are not greatly disrupted by recession. If we have wealth, it will be protected from inflation and possibly even enhanced in value. Businesses typically use a recession as an opportunity to reorganize, trimming surplus workers. If they were asked, many citizens would perhaps choose recession as the least-bad risk. Evidently so do our current leaders. The economy is not governed with the bottom half in mind.

Molly Ivins: The Pension Shell Game

Leaving Workers Naked and Helpless
By Molly Ivins, AlterNet
Posted on October 14, 2005, Printed on October 14, 2005
The entire political world is agog: Tom DeLay indicted, Scooter Libby in danger, Karl Rove rumors abound, Miers' nomination in doo-doo. So I'm writing about ... pensions. They're just so sexy, I couldn't resist.

Of course, the word pension is a terminal turnoff for anyone under 60 -- so redolent of the blue-rinse perm set. As one whose idea of financial planning consists of playing bingo at the Safeway, I'd prefer to be out listening to reggaeton, myself. Still, when you're getting screwed, you really should know about it.

This column is part of a continuing effort to see if we can keep our eyes on the shell with the pea under it, even while some other shells, mighty flashy and colorful, are whizzing around. Our particular shell bears the fatal rubric, "You are getting screwed again."

Even the most paranoid among us would not suggest that members of the Bush administration are getting themselves into legal trouble just to keep attention away from the effects of their policies. But it is the policies that can mess up our lives. Indictments may provide satisfaction to some, but they do not clean up the messes left by bad policy.

Envision this, oh mod, rad, chic young people: Until 20 years ago, about the time you were born, most geezers approaching retirement had a traditional defined-benefit pension plan. The longer you worked at a company and the more money you made, the more you got at your retirement. Employers kept increasing their contributions to these plans, and whatever risk that came with them was assumed by the employers.

Gone with the wind. For years, companies have been cutting their contributions and moving more and more of the market risk from themselves to their employees. They switched to "defined-contributions" plans, like the 401(k), where the employee chooses the investments and assumes the risk (think of the stock market in recent years).

In 1984, only 19 percent of employers with plans used defined-contribution plans. In 2004, it was up to 93 percent, according to a comprehensive series in the Minneapolis Star Tribune on what the pension changes are doing to people in that state. By contrast, in 1984, 57 percent of companies had defined-benefit plans. By 2004, that number was 15 percent.

The Bush administration has approved a change that makes it legal for companies to modify their pension plans in a way that usually discriminates against older workers who were covered under the earlier plans. But this is the just the beginning.

Making your pension disappear is a new corporate art form. There is, for example, the "wear away." The Star Tribune gives this example: Say you've been working for a company for 20 years, at the end of which you are entitled to a pension of $2,000 a month. BUT, your company decides to "revise" the plan and, lo, suddenly you have to have worked for 40 years to qualify for $2,000 a month.

Technically, the company has not reduced your pension benefit -- it is just holding the benefit in place until time "wears away" the difference between the new terms and the old terms.

Another trick is just underfunding the pension plan. During the last five years, underfunded company pension plans have increased by five times and are short in funds by $340 billion, up from $20 billion.

The latest corporate craze is for companies to declare bankruptcy, dumping pension responsibilities on the federal government and walking away, only to start doing business again without that nasty pension anchor around their necks. Your pension gets dumped to the Pension Benefit Guaranty Corp., a government entity that ensures $2 trillion of pension benefits. The PBGC is funded by employers, who pay it $19 per employee annually.

This worked fine for years, until a bunch of steel companies and airlines declared bankruptcy. The Guaranty Corp. is now responsible for $62.3 billion in pension checks, but it has only $39 billion. Employer contributions have not kept up, so the PBGC now has a $23 billion deficit -- and chances are the taxpayers will wind up bailing it out, as we did the savings and loan industry.

In addition, the PBGC does not cover health benefits. If your company chooses the temporarily-bankrupt-until-we-can-dump-our-pension-plan route, you'll be out that much more. Among the Fortune 1000 companies, the number of pension plans frozen or terminated went from 45 in 2003 to 71 last year, according to Watson Wyatt Worldwide, an employee benefits consultant quoted by the Star Tribune. Another 25 companies closed their pension plans to new hires.

There are several proposals now about what to do rumbling around in Congress. One I particularly like would forbid companies from continuing to fund their special executive retirement plans if their rank-and-file pensions are seriously underfunded.

"The biggest byproduct of these changes is fear," said the Star Tribune in its series. Fear may be a more dangerous emotion than anger. It turns life into an "every man for himself scramble" without unity, community, caring or sharing.

In fact, every one of us comes into this world naked and helpless, and most leave it in the same condition -- and we are dependent on one another every single day in between. The "stand on your own feet and take care of yourself" attitude the right wing keeps pushing is not only cruel, but stupid, too.

Molly Ivins writes about politics, Texas and other bizarre happenings.

© 2005 Independent Media Institute. All rights reserved.
View this story online at: