Notes on Economics - Globalization

Going back to the undeveloped note file, here are a few more, about the economy and globalization:

Former Labor Secretary Robert Reich says the key to countering globalization is to create jobs in which workers add value to products that make them more competitive. He says technology, not necessarily outsourcing, is what is displacing American workers.

Fed Chair Ben Bernacke says American workers can upgrade technological skills to compete and be paid more to keep up with inflation, but he does not mention the role unions could play in helping workers negotiate this.

American workers have been the most productive in the world for decades. Higher productivity means growth without inflation, but that can be overcome in global competition if the worker pays too much tax to support war costs.

Globalization in the financial world has resulted in new speed records for spreading financial meltdown.

Goodbye to the P-I

Yesterday the Seattle Post-Intelligencer published its last paper issue. With a skeleton staff, the Hearst owned paper now will be exclusively on line. Last week I spoke at length with my son Chris, who works for the Associated Press in Bangkok, about the economic problems newspapers face and about the dangers to society from the demise of traditional newspaper journalism. Local NPR station KPLU did a good three part series on the subject. The third part of their story sounds a lot like the conversation Chris and I had.

The news areas that suffer most from these changes are investigative and beat reporting. Investigative stories newspapers used to cover will now have to be handled more by unpaid bloggers with passion or by hired Internet guns funded by special interest groups, and in each case, professional journalistic standards may fall by the wayside. But newspapers were not always professional, and many times investigative reporting was done with a biased vengeance. Friend Joe says when one Seattle paper was on an investigative streak, he looked to the reaction of the other paper to keep things balanced, and now that will be lost. I think the Net and the cable news continuous cycle will fill the investigative void, with varying degrees of professionalism. Lest we give print media too much credit, check the scandal sheet rack next time you check out at the supermarket.

Beat reporting is trickier. These were the people who trudged through the mundane of a specialized environment, cultivating sources and amassing a specialized expertise. There is not much financial incentive to pay for this type of reporting. Public broadcasting, PBS and NPR, provide beat type coverage for national and international news and for some regional stories. Very localized newspapers, supported solely by local advertising, provide the neighborhood news. But the demise of big city newspapers will leave a void of in depth beat reporting. Only specialized blogs can fill the void, but they are a hit or miss proposition.

Underlying this whole matter is technology, and history shows technological advances have always resulted in greater dissemination. But as volume and coverage increase, audiences have more choices, and it can be more work to sort through and find ones that are desirable. Who pays for gathering and disseminating content is something that changes with technology. Radio programming was at first paid for by the sale of radios, then after the sales market was saturated, by advertising. TV was advertising supported from the start, then augmented by cable broadcasts to increase choice and reception quality. Pay satellite radio does not seem to have caught on very well.

Most newspapers gave up charging for Internet news, relying on advertising instead. But many of us use ad blockers, so advertising revenue must be coming from the type of readers who don't know or care about eliminating ads. As long as there are enough of those, the advertising supported model will work. But if ad revenue slips, it is quite a challenge to go back to charging readers who have been getting it for free.

The Associated Press is a news business model that has been around for over 150 years and still seems viable. It works sort of like the Internet, in that it provides content for other providers to use. It is a non-profit co-op, supported by fees paid by its members, who have exclusive legal access to the copyrighted stories. Once the AP news is published, non-members have access to its content and some of them might use it without permission. The AP has right to legal recourse, but probably would not pursue it unless it was extensive and continuous. Consumers of news want new news, not old news, so AP members are the source for the earliest news and the most complete. Maybe the AP model will be one that is successfully used by other networks of bloggers, investigate reporters, beat reporters and local news gatherers to fill the void left by papers like the P-I.

AIG Bonuses?

The prospect of paying multi-million dollar bonuses to the very executives at AIG who were lynch pins in the collapse of the economy is outrageous. Everyone from the President on down to the man on the street seems to agree -with a few exceptions. A New York Times writer yesterday argued that contracts need to be honored and that these bright executives need to be kept around because only they can straighten out the mess and we don't want them to be hired away. Over 400 comments in response were posted by this morning, apparently overwhelmingly outraged.

These bonuses may be a drop in the bucket compared to the sea of economic problems overwhelming the economy, but the principle of who deserves the be rewarded goes to the heart of the American dream and paying bonuses to AIG people seems more like a nightmare.

There are thousands of litigating attorneys in America who would love to show how these contracts can be avoided by hardball tactics. Refuse to pay and force the executives to sue, then counter sue for fraud and damages and bring third parties in, like the board of directors and those who advised AIG on contract matters, such as law firms and consultants, to be on the hook for their negligence and incompetence in allowing these contracts to be approved.

Why should these despicable executives have sacred contracts when unionized autoworkers apparently don't? What kind of a company would be interested in hiring these scoundrels away from AIG? Such a company would be asking to become the next AIG.

Getting these jerks to help untangle their mess with the giant carrot of bonuses is a terrible precedent. Better to use the stick of hardball civil litigation and possible criminal prosecution.

The Bankruptcy Court process has a long track record of accomplishment, which perhaps should have been called upon in the case of AIG. Bonus claims against a bankrupt company would be about as worthless as these executives who are claiming them.

Notes on Economics - Families

From the undeveloped note file, here are a few more, about the economy and families:

From 2001-2004, American house hold net worth was flat; as savings dropped 23%, house equities inflated 22%. The Census Bureau pointed out in 2006 that too many Americans were spending too much of their budget for housing. Nine out of ten house refinances involve taking out extra cash, usually at a higher interest rate. Now that home equities have popped, people are in a hole. Reverse mortgages are now being used six times as often to help fund retirement, depleting estates to the detriment of adult children.

In considering relief for families facing foreclosure, those pushed into sub prime loans who were actually qualified for good loans should now be allowed to refinance with credit given them for the unfair charges they paid. Truly sub prime borrowers should be allowed to refinance if their loan can be adjusted to something feasible. Speculators should lose and not be allowed to skim rent during foreclosure, under threat of seeking personal judgment for any shortfall. Special relief may be needed for VA loans to Veterans.

The top 20% of King County [Seattle and environs] households earn almost half the total income in the County, while the bottom 20% earn less than 4%. The home ownership rate in Seattle is only 48%, compared to 66% nationally.

Instead of looking at average hourly wages for American workers, we should look at the median, and factor in shrinking benefits and reduced hours. After 10 years of "welfare reform", 10 million American women have entered the work force and feel better about being workers, but financially they are not doing well after job related expenses.

Notes on Economics - Education

From the undeveloped note file, here are a few more, about education, with some current thoughts added:

We need smarter managers, smarter workers and a smarter society in general to have a dependably sustainable economy in the future. We have now gone from one of the stupidest Presidents to one of the smartest. As a people, Americans need to follow the example of our new President and make education a true priority.

Raleigh, NC schools allow no more than 40% low income students in any one school, and their test scores for reading and math are up. Disparity between the haves and the have nots has too often been enabled by the school system. My first lawyer job was with an African American attorney in the Seattle Central Area. Many of our African American clients, who were undereducated due to lack of opportunity, displayed a remarkable street savvy, prompting my employer to remark, "If they gave them an education, they would rule the world". Barack Obama, recipient of a world class education, now President of the USA, is about as close as we get to a world ruler.

From 1995 to 2005, in the US, rising tuition and diminishing government aid led to a ten fold increase in student loans. Our financial institutions, abetted by Republican ideology, taught our college students that debt is a good means to economic betterment. It would have been better for our society, using tuition easing measures and financial subsidies, to place inherent value on a college education and enable as many as possible to achieve it without having to become indebted to the financial have class.

Anti-affirmative action laws reduce minority enrollment at public universities, but using test scores and grades in a total context of evaluating the individual can improve the numbers. The best solution to improving minority enrollment numbers at the university level is to improve the eduction minority students receive in earlier years. In fact, improving the quality of education for all students, beginning with Head Start, could one day erase any race based disparities.

Notes on Economics - Economists and Entrepreneurship

From the undeveloped note file, here are a few more, about the supposed experts on this subject and about entrepreneurship:

The inherent nature of economists to be "cautiously optimistic" is lamentable, but perhaps understandable. Too bad the jargon and models they use are so confusing. For one example, it would help if economists could tell us what the rates and balance should be for inflation and unemployment. An ideal might be prices that never increased and full employment, but what is realistically hopeful?

Fed Chair Greenspan, a libertarian, praised "derivatives" and said they should not be regulated, because they freely result in risk being transferred to those best able to handle it, but now says that greed of the people using derivatives is what caused the crisis. Greed will always be with us, and so should regulation of it. Warren Buffet warned about derivatives in 1993, the GAO predicted a derivative led financial crisis in 1994, and the Commodity Futures Trading Commission said more regulation was needed in 1997.

I think the entrepreneurial nature of mankind is it based on desire for financial gain and enhancement of self-esteem, coupled with a desire to benefit others. I think most people have an entrepreneurial inclination, which society should encourage by cushioning the effects of failure and de-emphasizing the financial rewards. Entrepreneurship based on monopolizing, speculating, insuring, brokering and other such "paper" activities should be highly regulated.