Opinion

The Great Debate

Obama’s small steps won’t fix inequality

President Barack Obama is taking on the challenge of increasing the United States’ all but stagnant economic mobility.

He wants, he said in Tuesday’s State of the Union Address, to both “strengthen the middle class” and “build new ladders of opportunity” into it. His modest plan — modest so that it does not need the congressional approval he’s unlikely to receive — includes raising the minimum wage for federal contract workers and offering workers a new workplace retirement savings account option.

It’s a nice start. But nowhere near enough.

The United States’ sluggish economic mobility is not new. According to a paper recently published by academics at Harvard University and the University of California, Berkeley, it has been mediocre for those born in the 1970s, and it is just as bad for those born 20 years later.

So what’s different now? Two things. First, the fast-growing rate of income inequality has left the rungs on the mobility ladder further apart than ever before. The top 1 percent of earners, as Paul Krugman recently noted, saw their incomes increase by 182 percent between 1979 and 2012. The next 4 percent saw a gain of just under 52 percent.

The ever greater amounts of money earned by the highest tier allows them to buy privileges that all but ensure their children can remain at the top. Upper-income families inhabit a world where private schools charge annual tuition totaling only a few thousand dollars less than the median household income, and pricy tutors, extracurricular activities and private college counselors ensure their children will retain their privileged status. Even the best and most exclusive suburban public high schools can’t offer these advantages.

Bob McDonnell: It depends on the meaning of the word ‘guilty’

The other prosecutorial shoe has finally dropped on Robert McDonnell, Virginia’s just-retired Republican governor. Last week a federal grand jury indicted the former governor and his wife, Maureen, for conspiring to defraud Virginia’s citizens of McDonnell’s “honest services” and to obtain property “under color of official right” — that is, to procure bribes through extortion. He was also charged with making false statements and obstructing an official investigation.

The indictment is replete with details of the many gifts the McDonnells received from Jonnie Williams, a corporate executive who was trying to get state help for his company.

But the governor’s defenders are now describing the whole affair as an unfortunate lapse in the first lady’s judgment. They note that McDonnell rejected a deal proposed by prosecutors, in which the governor would plead guilty to a single felony charge unrelated to official corruption and his wife would escape prosecution altogether. In other words, these defenders suggest, the prosecutors are not so confident of the strength of their case.

In France, where unions rule, a challenge from Hollande

In France, taking a person hostage or sequestering them against their will is a crime punishable by up to 20 years in jail. It also happens to be a very effective weapon in French labor disputes. Since 2009, there have been 15 incidents of “boss-napping” and only one resulted in sanctions: 11 postal workers who were fined $2,000 apiece for locking up their managers during a dispute over a change in how the mail is delivered.

Most of the time, it’s the unions who win. That’s certainly the case in the most recent incident, involving a bitter struggle over job losses at a Goodyear tire plant in Amiens. Earlier this month, union officials occupied the factory and sequestered the production manager and head of human resources for 30 hours. After the government intervened, the battle finally ended last week when the company agreed to triple the severance it had offered. Union leader Mickaël Wamen didn’t hide his triumph. “It was a grand and beautiful struggle,” he wrote in a blog post on Jan. 24, announcing details of the settlement.

This type of labor militancy is the exception in Europe today; union power has taken a battering along with the economy in crisis-ridden nations such as Greece and Spain, which were once bastions of organized labor. But it’s not the only characteristic of the French labor scene that is exceptional. Although only 8 percent of French workers actually belong to a union — a tiny proportion by international standards –  French unions wield enormous political clout over the national economy. Among other things, they run the national systems for unemployment insurance and vocational training, in joint management with employers’ organizations. In fact, they formally play as big a role in setting social and labor policy as organized labor does in Scandinavia, where 80 percent or more of the workers are union members. “The political influence of French unions is abnormal,” says Radu Vranceanu, research director at ESSEC business school in Paris. “It’s not at all in line with their capacity to mobilize people.”

Obama’s address: Borrowing from Bubba and the Gipper

Many presidents don’t have the problem of salvaging their second terms because the voters threw them out of office. Among those who win reelection, the successful communicators, such as Ronald Reagan and Bill Clinton, used many of the techniques that President Barack Obama deployed in his State of the Union Address last night. He is likely to repeat them often this year, which is one that will determine whether his administration is remembered as transformational or transitional.

Giving Americans credit: While most recent presidents began their State of the Union addresses by rattling off positive economic statistics, Obama did it differently. Using archetypal anecdotes — a dedicated teacher, a high-tech entrepreneur, a night-shift worker – Obama gave regular Americans credit for reducing unemployment, adding manufacturing jobs and increasing high school graduation rates. In so doing, Obama emulated Reagan, who declared in his second State of the Union address of his second term: “Today, the American people deserve our thanks.”

By speaking for the American people instead of talking at them, Obama seeks to do what Reagan and Clinton accomplished: appeal to swing voters frustrated with political bickering.

Assad’s terror farce at the Geneva talks

Just days before the most recent Syrian peace talks in Geneva began, a report detailing “industrial-scale” killing in President Bashar al-Assad’s prisons revealed the nature of his government. Despite this setback, the regime continues to claim that it is only fighting terrorists.

While their rhetoric is convenient, the reality is that only one side of the Syrian negotiations is actively fighting al Qaeda – the opposition. Though Assad has the capacity to attack extremists, from the spring of 2011 until today he has chosen to target civilians instead.

During two weeks I just spent interviewing Syrians in the southern border towns of Turkey, I found nearly universal opposition to the Islamic State of Iraq and the Levant (ISIS), the army of foreign jihadists backed by al Qaeda that has now taken over many liberated areas across Northern Syria.

Why ‘anti-European populists’ won’t win big in the European elections

For months EU politicians have been warning us about the upcoming elections for the European Parliament (EP), to be held in May in all 28 member states. European Commission President Jose Barroso recently predicted “a festival of unfounded reproaches against Europe” as a consequence of the EU-wide “rise of extremism from the extreme right and from the extreme left.” The media has mostly followed these political messages, publishing countless articles, editorials and op-eds about the upcoming European apocalypse. Most of these stories refer exclusively to the rise of the right wing French National Front (FN), under new leader Marine Le Pen, arguing that her party’s rising popularity parallels that of other extreme nationalist parties across Europe. In addition, as is often the case in European politics, many articles and op-eds also include references to the Great Depression of the 1930s and a return of fascism.

Most media coverage remains vague on the exact electoral strength of the “anti-European populists”– a political construction by the pro-EU elite that includes far left, far right, populist, and hard Euroskeptic parties. Editorials mainly stress that “rampant right-wing populism” will make significant gains and the anti-Europeans will become important players in the new EP. Most of these commentators believe that the anti-European camp will gain between one-quarter and one-third of all 766 seats in the EP. Whatever the exact number of seats, many fear an American scenario, where the “European Tea Parties” could force a shutdown of the EP and, thereby, the EU.

These predictions, however, are highly unrealistic and seldom substantiated by logic. My own predictions, based largely on the results of the last national elections and adjusted on the basis of recent opinion polls, show rather small gains. Far right parties will probably only gain around 40 seats, which is less than the 44 they won in the 2009 European elections. I exclude some parties that other commentators wrongly include in the far right category, like The Finns and the United Kingdom Independence Party (UKIP), which I include in the amorphous group of “anti-European populists.” All together these latter parties, which often oppose each other even stronger than they oppose the EU, are estimated to win some 125 seats (approximately 16 percent), against the 92 they hold now. That looks like a significant increase, of roughly one-third, but almost 20 seats are gained by just one party, the Italian Five Star Movement (M5S), which is among the least Euroskeptic of this motley crew.

Pennsylvania as the new Wisconsin in union fights

The Wisconsin state capitol was the site of massive protests in 2011 during the fight to pass Republican Governor Scott Walker’s labor reforms. The following year Big Labor staged demonstrations in Michigan against Republican Governor Rick Snyder’s right-to-work bill, which ultimately passed. Now Pennsylvania’s state capitol is set to reach fever pitch, as unions plan to bus in hundreds of protestors this week to fight legislation that, if bad for union bosses, could be a boon to rank-and-file workers.

Pennsylvania is a longtime labor stronghold. Consider that a plaque directly across from the state capitol commemorates the unionization of government workers. But Pennsylvania lawmakers are now poised to pass a law to end automatic deduction of union dues from government employee paychecks.

The “paycheck protection” bills pending in state Senate and House of Representatives committees, propose to prohibit government employers from deducting from a public employee’s salary “any funds which inure to the benefit of a private organization.”

If Geithner didn’t bully S&P, he should have

As part of its defense against a Department of Justice lawsuit alleging $5 billion in fraud, ratings agency Standard & Poor’s has argued that the United States has singled it out for persecution as payback for S&P’s 2011 downgrade of U.S. Treasury debt from “AAA” to “AA-plus.” Harold McGraw, chairman of McGraw Hill Financial, the owner of S&P, says that an angry Treasury Secretary Timothy Geithner called to threaten him after the downgrade, warning ominously that he had earned the government’s ire and scrutiny. A spokesman for Geithner, who now works for a private equity firm, denies the claim.

Well, if it’s not true, it should be. As Treasury Secretary, Geithner represented the financial interests of the American citizens who might have suffered greatly had fixed income and equity markets not ultimately shrugged off the downgrade. The S&P downgrade could have caused U.S. borrowing costs to spike, hurting the government’s ability to refinance its debts at a crucial moment in the economic recovery. It might have made already scarce credit less available to businesses and consumers operating throughout the economy.

Besides, S&P made a mistake in its calculations, overestimating the total debt outstanding by $2 trillion. Even after Treasury pointed this out and S&P agreed, the agency stuck by the downgrade. The report that S&P issued was really more of a “letter to the editor” than financial analysis. S&P downgraded the U.S. largely based on the dysfunctional reality of divided government that led to a near breach of the debt ceiling. S&P is entitled to its opinion, but putting the U.S. on the same credit footing as Lichtenstein over a public political dispute that everybody already knew about seems silly in hindsight and didn’t make much sense even then, as Warren Buffett pointed out.

Why U.S. angst over Chinese buyouts is warranted

For some people, Jim Beam may be more American than apple pie. Yet the U.S. public took it in stride earlier this month when Suntory, a Japanese conglomerate, bought the bourbon distillery for $13.6 billion.

This was a sharp contrast to U.S. reaction when a Chinese meat producer sought to buy the ham producer Smithfield Foods last year. The deal came under heavy attack. Shuanghui International Holdings faced formidable opposition on Capitol Hill last summer. Union workers and consumer advocates voiced well-publicized concerns about food safety and security.

By year end, though, Shuanghui was able to close the deal for $4.7 billion, the biggest takeover of a U.S. company by a Chinese group.

Are banks too big to indict?

The great 19th century English jurist, Sir James Fitzjames Stephens, once wrote that murderers were hung not for reasons of revenge or deterrence — but to underscore what a serious breach of the social compact had been committed.

Federal District Judge Jed S. Rakoff was making a similar point when he recently called attention to the lack of criminal prosecutions in the wake of the 2008 financial crisis. Consider the 1980s Savings and Loan crisis. The losses were minuscule compared to this recent paroxysm, but they still led to hundreds of criminal convictions.

That looks highly unlikely here. The federal statute of limitations for fraud, generally five years, is rapidly running down. There are reportedly a few cases in process. But the odds are that if there are any indictments, they will be in the pattern of the indictment of Goldman Sachs banker Fabrice Tourre, who has been left holding the bag for a complex scheme to load up clients with worthless securities. Email trails leave little doubt that far more senior figures were aware of the purpose of the deal. The firm also executed other similar deals that haven’t been prosecuted.

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