The fallout of dirty money
The American banking system’s welcome mat for kleptocrats and their stolen loot has come at a big price at home as well as abroad. Reviewing two new books on the subject – The Wealth Hoarders by Chuck Collins and American Kleptocracy by Casey Michel – Jake Bernstein highlights the impact on real estate markets:
The Patriot Act allowed the treasury secretary to exempt industries from customer due diligence. Six months after its enactment, the Bush-Cheney Treasury Department issued exemptions for the real estate industry, lawyers holding escrow accounts for clients, private equity, and hedge funds. All were subsequently abused by kleptocrats and other malefactors, but US real estate in particular has been a staggeringly attractive destination for dirty money. Global Financial Integrity, a Washington-based think tank, recently tallied more than one hundred publicly reported real estate money laundering cases in the US over the past five years and arrived at the figure of $2.3 billion worth of transactions.
Ironically, what makes real estate in America alluring to the international criminal set is our rule of law. Property rights are generally protected in the United States. Disputes are adjudicated by an independent judiciary. Under this safety blanket, real estate assets appreciate….
In cities like New York and Miami—or London and Vancouver—high-end residential real estate buyers, often cloaked in anonymity, have crowded out locals and compounded inequality, turning metropolises into playgrounds of the global elite.
The blank check department
There’s one US government department that doesn’t have big money worries:
Where are you going to get the money? That question haunts congressional proposals to help the poor, the unhoused, and those struggling to pay the mortgage or rent or medical bills, among so many other critical domestic matters. And yet — big surprise! — there’s always plenty of money for the Pentagon. In fiscal year 2022, in fact, Congress is being especially generous with $778 billion in funding, roughly $25 billion more than the Biden administration initially asked for. Even that staggering sum seriously undercounts government funding for America’s vast national security state, which, since it gobbles up more than half of federal discretionary spending, is truly this country’s primary, if unofficial, fourth branch of government.
Vaccine hesitancy: connect the dots
Inequality + erosion of public services -> mistrust -> vaccine hesitancy -> worse public health outcomes for all:
When people feel supported through social programs, they’re more likely to trust institutions and believe they have a stake in society’s health. Only then do the ideas of social solidarity and mutual obligation begin to make sense.
The types of social programs that best promote this way of thinking are universal ones, like Social Security and universal health care. Universal programs inculcate a sense of a common good because everyone is eligible simply by virtue of belonging to a political community….
If the world is going to beat the pandemic, countries need policies that promote a basic, but increasingly forgotten, idea: that our individual flourishing is bound up in collective well-being.
Read more here.
Climate resilience for whom?
Political economy isn’t only about the allocation of scarce resources among competing ends, but also among competing people and communities. Guess how it’s starting to play out in protection from the impacts of climate change:
The Biden administration has touted the program, called Building Resilient Infrastructure and Communities, or BRIC, as a model that should be expanded. The infrastructure bill provides billions more to the program.
But most of the first round winners were wealthy, predominantly white areas in a handful of coastal states, federal data show.
More than half the money went to California, New Jersey and Washington State. The largest single recipient was a $68 million flood-control project in Menlo Park, Calif., where the median household income is more than $160,000, the typical home costs more than $2 million and only one in five residents are Black or Hispanic. The project is in line to get $50 million from FEMA.
By contrast, FEMA rejected applications from places like Smithland, Ky., a town of just 240 people where the Cumberland and Ohio Rivers meet, halfway between St. Louis and Nashville. The town sought $1.4 million to build a levee along the riverbank, which has crested at flood levels three times in the past 10 years.
Profit-led inflation
Robert Reich connects the dots:
The underlying problem isn’t inflation per se. It’s lack of competition. Corporations are using the excuse of inflation to raise prices and make fatter profits.
In April, Procter & Gamble announced it would start charging more for consumer staples ranging from diapers to toilet paper, citing “rising costs for raw materials, such as resin and pulp, and higher expenses to transport goods”.
But P&G is making huge profits. In the quarter ending 30 September, after some of its price increases went into effect, it reported a whopping 24.7% profit margin. It even spent $3bn during the quarter buying its own stock.
It could raise prices and rake in more money because P&G faces almost no competition. The lion’s share of the market for diapers, to take one example, is controlled by just two companies – P&G and Kimberly-Clark – which roughly coordinate their prices and production. It was hardly a coincidence that Kimberly-Clark announced price increases similar to P&Gs at the same time P&G announced its own price increases….
You can see a similar pattern in energy prices. If energy markets were competitive, producers would have quickly ramped up production to create more supply, once it became clear that demand was growing. But they didn’t.
Why not? Industry experts say oil and gas companies saw bigger money in letting prices run higher before producing more supply. They can get away with this because big oil and gas producers don’t operate in a competitive market. They can manipulate supply by coordinating among themselves.
In sum, inflation isn’t driving most of these price increases. Corporate power is driving them.
Read more here.
How the blues blew it
There’s a huge difference between talking the talk and walking the walk. The record of “blue” states on housing, taxation, and education is, well, enough to make you wanna sing the blues.
Watch this powerful video here.
How Democrats lost the working class
It’s not just a matter of “culture wars,” explains Robert Reich:
Both Clinton and Obama allowed the power of the working class to erode. Both ardently pushed for free trade agreements without providing the millions of blue-collar workers who thereby lost their jobs any means of getting new ones that paid at least as well.
They stood by as corporations hammered trade unions, the backbone of the working class. Both refused to reform labor laws to impose meaningful penalties on companies that violated them or enable workers to form unions with simple up-or-down votes. Union membership sank from 22% of all workers when Clinton was elected to fewer than 11% today, denying the working class the bargaining leverage it needs to get a better deal.
The Obama administration protected Wall Street from the consequences of its gambling addiction through a giant taxpayer-funded bailout but let millions of underwater homeowners drown.
Both Clinton and Obama allowed antitrust to ossify – allowing major industries to become more concentrated and hence more economically and politically powerful.
Finally, they turned their backs on campaign finance reform. In 2008, Obama was the first presidential nominee since Richard Nixon to reject public financing in his primary and general-election campaigns. He never followed up on his re-election campaign promise to pursue a constitutional amendment overturning Citizens United v FEC, the 2010 supreme court opinion that opened the floodgates to big money in politics.
What happens when you combine freer trade, shrinking unions, Wall Street bailouts, growing corporate power and the abandonment of campaign finance reform? You shift political and economic power to the wealthy and you shaft the working class.
Read more here.
Dietrich Boenhoeffer on the pandemic of his time
“The ultimate test of a moral society,” wrote Dietrich Boenhoffer before being executed in a Nazi concentration camp for plotting against Hitler, “is the kind of world that it leaves to its children.” Here’s what he had to say about the “stupidity” pandemic of his time:
Source: Sprouts Schools, https://sproutsschools.com/bonhoeffers-theory-of-stupidity/.
Fed economist questions conventional wisdom
Check out this from senior Federal Reserve economist Jeremy Rudd:
Mainstream economics is replete with ideas that “everyone knows” to be true, but that are actually arrant nonsense. For example, “everyone knows” that:
• Aggregate production functions (and aggregate measures of the capital stock) provide a good way to characterize the economy’s supply side;
• Over a sufficiently long span—specifically, one that allows necessary price adjustments to be made—the economy will return to a state of full market clearing; and,
• The theory of household choice provides a solid justification for downward-sloping market demand curves.
None of these propositions has any sort of empirical foundation; moreover, each one turns out to be seriously deficient on theoretical grounds.
