Diminishing

Just one item today, in preparation for Labor Day–a nice post from Mark Engler’s blog over at Dissent:

Labor Day: Immigrants Build the U.S. Economy

Mark Engler – September 3, 2010 12:00 pm

Undocumented immigrants streaming into this country from south of the border drive down wages and steal jobs that could otherwise go to out-of-work Americans. Right?

Wrong. As it turns out, immigrant workers play an important role in building our economy and bolstering institutions such as social security. In other words, they’re raising your wages and paying for your retirement. So this Labor Day might be a good opportunity to show a little gratitude.

Just in time for the holiday weekend, the Federal Reserve Bank of San Francisco released a research summary entitled, “The Effect of Immigrants on U.S. Employment and Productivity.” Its conclusion was not what most people (or at least most people who attend Glenn Beck rallies) expect.

The author, Giovanni Peri, writes:

Statistical analysis of state-level data shows that immigrants expand the economy’s productive capacity by stimulating investment and promoting specialization. This produces efficiency gains and boosts income per worker. At the same time, evidence is scant that immigrants diminish the employment opportunities of U.S.-born workers.

The paper compares states in the United States with high immigration to those with lower rates of immigration. It then controls for other factors such as spending on research and technology adoption. In the end, the paper concludes, “there is no evidence that immigrants crowd out U.S.-born workers in either the short or long run.”

What’s more, the effect of immigration on wages has been markedly positive—equivalent to a $5,100 annual raise for workers on average between 1990 and 2007 (as measured in constant 2005 dollars).

Read the rest of the post.

Have you seen this flyer?

(1) 2010 Annual Labor Issue:  This year’s annual labor issue has printed and will ship out today or tomorrow (so subscribers may actually get it just after Labor Day–first time in years!).  Yesterday I posted the table of contents (note the fabulous cover, designed by our intern Lauren Price, with Chinese translation help from our business intern William Cao), plus one of the feature articles, The Assault on Labor in Cananea. We had already posted Alejandro Reuss’s article Same Output + Less Labor = Crisis?. Here’s the editorial note for this issue:

Striking Results

What is it like to be on strike in 2010? It depends on where you live and work.

Workers at the Mott’s applesauce plant in Williamstown, N.Y., are facing down attempted wage cuts and a pension freeze. But as D&S intern Elizabeth Murphy explains (p. 7), the parent company of Mott’s is awash in record profits. With only 300 workers, the strike is the smallest one we report on in this issue, but it is emblematic in the current U.S. economy, in which, as the New York Times reported recently, employers “are squeezing their employees to work the same amount for less money.”

Striking miners in Cananea, Mexico, face not only an adverse economic environment and a hostile employer, but also a neoliberal government that sent in strikebusting armed troops, as Lin Nelson and Anne Fischel report (p. 13). If the strike proves successful, it could be because of cross-border solidarity between the Mexican Mineros union and United Steelworkers in the face of repression.

Workers in China might seem to have it even worse off, judging from the recent string of suicides at the Foxconn factory where iPhones and other electronic devices are assembled. Yet a wave of strikes in the high-tech and auto sectors has led to remarkable concessions from employers, including 20% wage increases in some cases. As John Miller (p. 11) and Chris Tilly and Marie Kennedy (p. 19) discuss, wage increases have been possible not only because of economic conditions favorable to workers–namely, a labor shortage–but also because of sustained worker militancy. Ripple effects are already being felt in lower-skilled sectors. In Bangladesh, considered the low-wage alternative to China’s garment industry, labor activists have stepped up their own campaigns and have faced a government crackdown.

Meanwhile, closer to home, the company that printed Dollars & Sense for many years, Saltus Press–one of the only remaining union print shops in this part of the country–closed its doors just two weeks ago, with no advance notice for the 49 workers who lost their jobs. In our third feature in this issue, an update on Argentina’s recuperated businesses (p. 24), Elissa Dennis discusses a model that we wish the former Saltus workers could follow: workers taking control of production after management has run away, or run a company into the ground.

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(3) Speaking of Bangladesh, A review of D&S book The Economic Crisis Reader in The New Age, out of Dhaka, Bangladesh, by our friend Farooque Chowdhury (you need to scroll down on the linked page to find this review):

Worker resistance on the rise globally

by Farooque Chowdhury

WORKING people are hardly prepared to face the present financial crisis, writes Dan La Botz. But they are now resisting. Their resistance to the assaults by capital is on the rise globally as corporations are using the crisis as a cover for laying off workers and restructuring labour markets through plant relocations and wage cuts.

Dan, who teaches history and Latin American studies at Miami University in Ohio, writes: “The working class does not have independent organizations with which it can fight for itself and for society at large”. Labor unions in most countries have long been subordinated to capital and government, and have become thoroughly bureaucratic and unresponsive to workers’ needs. In some places company and gangster unions dominate the scene, while in other countries the so-called unions are really state institutions created to control workers (“The Global Crisis and the World Labor Movement”, The Economic Crisis Reader, Economic Affairs Bureau, Boston, 2009). But this has failed to eliminate the process of protest. Dan observes: “History suggests that from the onset of a depression to the beginning of a mass movement it may take years for the working class to absorb intellectually and emotionally what has happened to them and then finally assert their righteous indignation and begin to act.”

Capitalism in the twenty-first century has “expanded, and its penetration of peoples, states, and regions of the world has deepened”. [A]lmost everywhere the system has reduced government social welfare budgets and reorganized social welfare programs. In the course of these developments, capital has transformed its relationship to unions in the workplace and to labor parties in society” (ibid). But the transformation of the relationship could not transform the relationship between labour and capital. Capital’s all out effort is to appropriate labour. “The fall of the Soviet Union and Eastern Europe opened up that region to private capitalist investment from the West. The collapse of the Soviet Union, China’s evolution to a capitalist economy, and the opening up of India’s economy have brought about what Thomas L. Friedman called “the great doubling” of the world capitalist labor force, adding 1.3 billion workers.

Read the rest of the review (again–you’ll have to scroll down past Farooque’s two more recent editorials–though those are well worth reading, given the labor unrest and crackdown in Bangladesh).

(3) The “lump of labor” fallacy:  Hat-tip to D&S collective member Bryan Snyder for passing along this piece by New Zealander Bryan Gould, from the New Zealand Herald:

‘Lump of labour’ fallacy hinders effort to create jobs

By Bryan Gould

5:30 AM Tuesday Aug 31, 2010

Popular wisdom and what passes for common sense are not always the best guides to running a successful economy.

That is why businessmen who have a good practical grasp of what it takes to run a business are often wide of the mark when it comes to making policy for a whole economy.

An economy, contrary to what is often asserted, is not like a business.

Particularly in down times, the measures that might be required in the interests of an individual business are the reverse of what is needed by the economy as a whole.

Cutting costs, deferring investment and laying off workers will help to balance a single set of business accounts but are the last thing that a whole economy needs if it is to avoid continued recession.

Good economic management may often seem counter-intuitive. A case in point is what economists call the “lump of labour” fallacy – the belief that there is a fixed amount of work available and that the task is to decide how that is to be shared out fairly.

The fallacy is alive and well in the minds of even experienced policymakers. We saw shades of it in the “nine-day fortnight” that emerged as a counter-recessionary strategy from last year’s job summit.

The idea, which not surprisingly had little practical impact, was based on the notion that if a fixed amount of work could be shared out more jobs would be created, or at least saved.

By diverting attention from what was really required – a policy which would increase the number of jobs – it actually hindered the fight against unemployment.

The fallacy rears its head in other contexts as well. In the perennial debate in developed countries about immigration, one of the main arguments advanced against allowing an inflow of newcomers is that they will “take our jobs”. There is little recognition of the real possibility that a controlled rate of immigration could create jobs and expand the economy.

There are, of course, many considerations in determining what are appropriate levels and kinds of immigration. But we would no doubt reach better decisions on matters such as this if we could free our minds of intuitive fallacies and look at the practical evidence.

The economic success of Hong Kong was helped greatly by the constant inflow over many years of (often illegal) immigration from across the Chinese border.

The “lump of labour” fallacy also underpins an important current debate in our own country. The stubborn refusal of comparatively high unemployment to melt away has again prompted discussion of what the Government could or should do to “create” jobs.

However, the suggestion that something could be done has been greeted – even by experienced commentators – with the objection that “the jobs just aren’t there”. And that means, it is said, that there is nothing the Government can do.

If that were really the case, of course, the Government’s push to get people off benefits and into jobs would be futile. The jobs cannot both be non-existent for the purpose of getting unemployment down, yet there waiting for lazy beneficiaries to take up.

And while it is true that there are strict limits to how far (if at all) governments should go to try to create jobs, that is not the real issue. The reality is that the number of jobs in an economy is not a given but is a function of the level of demand and therefore of economic activity. The number of jobs falls in a recession and rises in better times.

If we want to recover from recession, we need policies that will stimulate demand and purchasing power so that people will buy what producers make and retailers can boost sales. And so that employers can see that it is worthwhile to take on more staff and more people earning good wages will keep the virtuous circle going – so that the government’s finances benefit as well through a higher tax take.

There is no mystery about this. And the level of demand is largely determined by policy. A government that provides stimulus to the economy through maintaining or increasing its own levels of spending and investment, as the Australians did, can achieve a great deal in avoiding recession and fighting unemployment.

However, if the policy priority is to get the Government’s (perfectly manageable) deficit down, the outcomes are clear. We may comply with good business practice by pleasing our bankers in the short term but our economy will be smaller, unemployment will be higher and the recession longer.

If we want to please our bankers in the longer term, we should be growing the proportion of our resources devoted to production and exports. That will not be achieved by allowing a prolonged recession to close down parts of our productive capacity.

* Bryan Gould is a former vice-chancellor of the University of Waikato and member of the House of Commons.

–Chris Sturr

I first learned of psychedelic compounds in 1966, in a thrilling economic botany course taught by Richard Evans Schultes (1915-2001). I can still recite the Latin names of dozens of useful plants. In the lab, supervised by Schultes’ student, Homer Virgil Pinkley, we extracted caffeine from coffee beans, made soap, paper and perfume and examined specimens in the Harvard Botanical Museum. Schultes himself, now known as the “father of ethnobotany” had spent over twenty years in the 1940’s and ‘50’s living among the natives of the Amazon, studying their use of plants, including hallucinogens. He collected thousands of medicinal plants, some of which were named after him. He published nine books, including Plants of the Gods: Origins of Hallucinogenic Use, 1979, with Alfred Hofmann. I didn’t know it at the time, but Schultes’ research set off the psychedelic revolution of the 1960’s and ‘70’s. Schultes, proper Bostonian that he was, kept his distance. Schultes also first sounded the alarm about the destruction of the Amazon rain forest.

In 1970, I moved to Berkeley with my ex. I grew my hair long and stringy, kept two dogs, four cats, two chameleons from Israel, an African spiny lizard, a gorgeous brown and cream banded Sonoran kingsnake, and a three-foot spectacled caiman. The caiman was a gift from the laboratory of Alan Wilson, where it provided blood samples for research on the DNA clock—until it outgrew its tank. I kept my toothy little pet in the bathtub, and fed it surplus mice from the lab.

I also read Carlos Castaneda’s The Teachings of Don Juan: A Yaqui Way of Knowledge and its sequels. It was an enthralling account of anthropology student Castaneda’s experiences with a Mexican shaman, an account that expanded from a sober report to a poetic vision. I never actually tried any mind-altering substances. Not for lack of opportunity, but more from a sense that if I concentrated, I could find other ways of seeing, just around the next corner.

And I did find a new vision, a vision of social justice. In 1970 my ex and I worked in Ralph Nader’s project on Power and Land in California, studying how large landowners induced government to enhance their land values, notably by building unnecessary water projects. In the process, I encountered Henry George’s Progress and Poverty (1879). Now there was an eminently practical vision: social justice to arise from taxing the unearned income of wealthy property owners and untaxing the wages of the poor. That was the vision that sent me to grad school in economics, inspired my dissertation on inequality, and has kept me active ever since. No mushroom could do that!

(1) The Bureau of Labor Statistics released the July unemployment numbers last Friday (Aug.6) and they do not look pretty.

Unemployment remains exactly where it was at the end of the recession at 9.5%, with 14.6 million unemployed persons. The Center for Economic and Policy Research writes,

“For the second consecutive month, the economy created virtually no jobs, net of temporary Census jobs. The Labor Department reported that the economy lost 131,000 jobs in July, 12,000 less than the 143,000 drop in the number of temporary Census workers. The June numbers were revised down by 100,000 to show a gain of only 4,000 non-Census jobs.”

If anyone is looking for a more in-depth look at the unemployment figures, you should check out the Economic Policy Institute’s Economy Track. They have an interactive map of the U.S. which details unemployment figures for each state. Nevada is still the state with the highest unemployment at 14.2%.

–Elizabeth Murphy

(2) According to some statistics, theses unemployment figures correspond with an ongoing trend in U.S. economic recovery.

Pragmatic Capitalism offers Some Perspective on the High Unemployment Rate:

“Assuming that the recession ended in June 2009, the current unemployment rate is exactly where it was at the end of the recession (9.5%). For some perspective on the current state of the labor market, today’s chart illustrates the amount of time it took for the unemployment rate to ultimately dip below (and stay below) its recession-end level for each recession since the late 1940s. For example, at the end of the recession that ended in November 1982, the unemployment rate stood at 10.8%. As the chart illustrates, it took two months for the unemployment rate to drop below (and stay below) the recession-end level of 10.8%. It is noteworthy that, over the past two decades, it has taken significantly longer (on average) for the unemployment rate to drop below its recession-end level. The reasons for this increased time for the unemployment rate to turn around varies. However, one explanation has it that following World War II, the US found itself in a strong/dominant economic position. It took time, but eventually many of the remaining world economies began to recover and we are currently witnessing increased competition as a result of the rise of the rest.”

The article (by Chart of the Day) includes a great chart showing how long it took after each recession for unemployment levels to drop below recession end levels starting in 1949. It shows that in 2001, it took nearly 36 months!

–Elizabeth Murphy

(3) As worrying as these unemployment figures are, even more worrisome is the lack of action being taken to fix unemployment. Brad Delong vents his frustration at TheWeek.com:

“where is the panic, the sense of urgency? The Obama administration and the Democratic majority in Congress passed a fiscal stimulus plan half the size recommended by Democratic economists fifteen months ago. Since then, they have been unable to assemble a political majority to finish the second half of the job. There seems to be no appetite for addressing ten percent unemployment.

Instead, we have the Obama administration calling for a three-year spending freeze on programs unrelated to national security. We have Democratic Congressional Campaign Committee chairman Chris van Hollen calling for deeper short-term spending cuts. We have an administration experiencing difficulty finding $23 billion to prevent additional teacher layoffs, even though maintaining — no, expanding — investment in education in a recession is the no-brainiest of no-brainers.

Why the enormous disconnect?”

A calm, passive approach to unemployment is not going to help improve these unemployment figure, but panic probably won’t help much either. Delong ends his article with interesting and unnerving questions. And as far as the last question is concerned, I sincerely hope the answer is no:  “Are we passively watching an unrepresented underclass of the long-term unemployed created before our eyes?”

–Elizabeth Murphy

(4) Today’s New York Times has an interesting article, Rates Fall as Market Fears Economic Weakness, suggests that bond traders, far from being “bond vigilantes” pressuring governments toward austerity, may actually be worried that deficit hawks are leading us to a double-dip recession:

The governments are seeking ways to bring down budget deficits, fearing that without austerity they could go so far into debt that they would never be able to borrow again. Investors in the financial markets seem to be much more concerned by the possibility of renewed recession and a general deflation that could send asset values and prices down.

That market reaction is the opposite of what happened in the late 1970s and early 1980s. Then “bond vigilantes” were reluctant to invest in United States Treasury securities because they feared runaway inflation. Their refusal drove up the interest rates the government had to pay on its borrowings and eventually led the Federal Reserve, under Paul A. Volcker, to wage war against inflation even if it meant choking off economic growth.

Now, far from showing a reluctance to finance the American government, investors are seeking safety and evidently believe American government debt is the safest possible investment. They have rushed to send money to the Treasury, thereby reducing borrowing costs for the government.

By late 2009, interest rates had fallen to levels previously thought inconceivable. The annual yield on a two-year Treasury note dipped below 1 percent. But it has since traded barely above one-half percent.

Perhaps investors are nervous because they fear governments will swing too far toward austerity. When economies weakened three years ago, talk immediately turned to economic stimulus. This time, much of the discussion in Washington, as well as in many European capitals, has focused on the need to reduce spending and deficits, rather than on the possibility that additional stimulus might be needed to avert a new worldwide downturn.

And the article concludes:

Economics is a notoriously uncertain discipline. It is possible that a surprisingly strong employment report, or some other unanticipated event, could begin to disperse the fog of economic pessimism that has engulfed investors and sent interest rates to record lows.

But for now, the financial markets seem to fear recession and deflation much more than they fear deficit spending.

Maybe the markets are smarter than we thought, this time around?

–Chris Sturr

In The Buyout of America Josh Kosman introduces us to the private equity or PE firms. They are a major force behind what Barry Lynn called “the economics of destruction.”

The players:

PE firms. You haven’t heard of most of them, and they like to keep it that way. A few better-known ones are the Carlyle Group, Goldman Sachs, Kohlberg Kravis Roberts, and the Blackstone Group. They are the descendants of the notorious leveraged buyout operators of the 1970s.

Target corporations. These are typically midsize to largish corporations, steadily profitable but not exciting. Often, like hospital chains, they are not especially well-managed.

Investors. These are mostly pension funds, desperate for higher returns to compensate for prior underinvestment. They include public pension funds, like the giant California Public Employees Retirement System.

Banks. These are mostly the big banks, like JP Morgan Chase or Citicorp, eager for loans that they can “securitize” and sell off.

Purchasers of securitized loans. These are also mostly pension funds, seeking super-safe passive investments for the bulk of their portfolios.

US federal and state taxpayers.

The game:

Step one. A PE firm lines up investors, who typically commit to supply funds over a period of up to 10 years. The PE firm promises spectacular returns.

Step two. The PE firm bids for a target corporation. It may put up 5% of the bid while its investors supply the rest.  For the balance of the purchase price, some 70% to 80% of the total, it arranges a huge bank loan, which it puts on the target’s books. The target essentially assumes the debt to buy itself out. Under terms of the deal, the target may pay interest only on the loan for five or six years, before the principal becomes due.

Step three. Because interest on the loan is deductible, federal and state taxpayers pick up a big piece of the loan interest, 35% federal, plus whatever state tax piggybacks on the federal.

Step four. The bank securitizes the loan, combining it with other loans to create what are called “collateralized loan obligations,” or CLO’s. CLO’s are equivalent to the “collateralized debt obligations”, or CDO’s, which banks created from mortgages.  As with the CDO’s, the bank divides the CLO’s into “tranches”, gets Standard & Poor’s or Moody’s to rate the top tranches AAA, and sells them to further investors.

Step five. The PE firm installs its own management, which starts raising prices and cutting costs, including laying off employees and scaling back R&D. The PE firm has three objectives here: first, it must enable the target to pay the interest on its debt.  Second, it must make the target look profitable in the short run so it can sell it when the debt principal comes due in a few years. Third, it seeks to liberate cash to reward itself and its investors during the few years it owns the target.

Step six. The PE firm starts extracting money. It charges its investors a 2% annual fee. It charges the target a 15% “management fee.” It may pay itself a huge dividend. Cerberus Capital Management, which bought Mervyn’s department stores, split the company in two: a real estate division and a Mervyn’s store division. The real estate division promptly jacked up the rent on the store division.

Step seven. The PE firm sells the target, now crippled by debt and underinvestment. Or the target goes bankrupt, like Mervyn’s.

Consequences.

Within a few years, fees and dividends have earned the PE firm many times its original small investment. The PE firm’s investors sometimes do well, but often not, especially when the target goes bankrupt. The buyers of CLO’s from the banks also lose when the target goes bankrupt. Employees lose, both during initial cutbacks and eventual bankruptcy. Customers lose vital services, as when PE-owned hospitals cut nursing staff.  The whole economy loses, as once-competitive firms are weakened or destroyed.

But there’s worse to come. The PE firms went on a feeding frenzy during the bubble years leading up to 2008. They now own over 2000 target companies whose loan principal comes due around 2012. If half these go bankrupt, Kosman estimates, some 2 million of the 7.5 million PE firm employees could lose their jobs. And the collapse of CLO’s could wreak further havoc on the banking system.

Reforms?

An end to interest deductibility, or at least deductibility for buyout loans, would stop PE firms in their tracks. So would limits on corporate debt, or requirements that buyers of corporations hold them for at least five years. Eliminating the “carried interest” loophole, which allows financial managers to pay only the 15% capital gains rate, would also weaken PE firm’s tax advantages.

Kosman isn’t optimistic. Four of the past eight Treasury Secretaries now lead PE firms. New York Senator Chuck Schumer, the “senator from Wall Street,” raises buckets of money from PE firms for Democratic candidates. Efforts over the years to modify interest deductibility have gone nowhere. Even President Obama’s barely-controversial proposal to close the carried interest loophole did not make it into the final financial reform bill.

Meanwhile, with bank lending frozen, the PE firms have found new games. They still have $450 billion in committed funds from their investors. They are using these, with government help, to buy failing banks and tap into cheap government credit. They are also buying from one another, enabling them to charge their long-suffering investors new management fees.

It's Going to Get Worse

Which  New York Times article are we to believe?

(2) Bernanke Says Rising Wages Will Lift Spending, from yesterday’s New York Times (check out the goofy pic of Geithner):

Federal Reserve Chairman Ben S. Bernanke said rising wages would probably spur household spending in the next few quarters, even as weak job gains dragged down consumer confidence.

Ben S. Bernanke, the Federal Reserve chief, spoke in South Carolina.

…

While the United States has “a considerable way to go” for a full recovery, “rising demand from households and businesses should help sustain growth,” Mr. Bernanke said on Monday in a speech in Charleston, S.C. “We are maintaining strong monetary policy support for the recovery,” he said in response to an audience question, without discussing any further action the Fed could take to aid growth.

Read the full article.

or (3) More Workers Face Pay Cuts, Not Furloughs, from today’s Times:

The furloughs that popped up during the recession are being replaced by a highly unusual tactic: actual cuts in pay.

Local and state governments, as well as some companies, are squeezing their employees to work the same amount for less money in cost-saving measures that are often described as a last-ditch effort to avoid layoffs.

A new report on Tuesday showed a slight dip in overall wages and salaries in June, caused partly by employees working fewer hours.

Though average hourly pay is still higher than when the recession began, the new wage rollbacks feed worries that the economy has weakened and could even be at risk of deflation. That is when the prices of goods and assets fall and people withhold spending as they wait for prices to drop further, a familiar idea to those following the recent housing market.

The article includes a picture of a worker from the Mott’s (apple juice) plant in Williamson, NY, where workers have gone on strike rather than accept pay cuts.

This article says that there’s a risk of deflation, whereas the other article, from happier, more optimistic times (viz., earlier this week) has the goofy Geithner saying that the economy is “healing,” and that the economy is “in no danger of confronting a deflationary threat like the challenges that have faced the Japanese economy.”

(4) Employers Strike–Because They Can, John Miller’s column from the current issue of Dollars & Sense.  Same reason they cut wages–unless the sisters and brothers at Mott’s have something to say about it.

–Chris Sturr

PS:  Ok, I couldn’t resist Photoshopping today’s Potentially Irrelevant Image with the goofy picture of Geithner:

I hope I’m not violating anyone’s intellectual property rights…

I've Got My Eye on You

(2) Top Secret America: The series of articles by Dana Priest and William M. Arkin in the Washington Post about the growth of the national security sector, and especially of private contractors doing surveillance work for the government, has made a splash. (I like how WashPo has given the series its own dedicated multimedia website–very cool.)

Our feature article by Tom Barry, Synergy in Security, in our March/April 2010 issue, covers some of the same ground, though without the investigative resources.  Both tell about the vast growth of the security sector, overlap between military contractors and security contractors, unaccountability, and how contractors have become so intertwined with the military and government departments that the latter are dependent on the former, and the former end up performing “inherently government functions” (which they aren’t supposed to).  (I don’t like the way that phrase is constructed–shouldn’t it be “inherently governmental functions”? But that’s the phrase they use, according to the series’ second article National Security Inc.)

Here’s an interesting tidbit from the third article in the series, The Secrets Next Door, whose subtitle reads: “In suburbs across the nation, the intelligence community goes about its anonymous business. Its work isn’t seen, but its impact is surely felt.” The counties where security contractors are concentrated are among the wealthiest in the country:

“These are some of the most brilliant people in the world,” said Ken Ulman, executive of Howard County, one of six counties in NSA’s geographic sphere of influence. “They demand good schools and a high quality of life.”

The schools, indeed, are among the best, and some are adopting a curriculum this fall that will teach students as young as 10 what kind of lifestyle it takes to get a security clearance and what kind of behavior would disqualify them.

Outside one school is the jarring sight of yellow school buses lined up across from a building where personnel from the “Five Eye” allies – the United States, Britain, Canada, Australia and New Zealand – share top-secret information about the entire world.

****The buses deliver children to neighborhoods that are among the wealthiest in the country; affluence is another attribute of Top Secret America. Six of the 10 richest counties in the United States, according to Census Bureau data, are in these clusters.****

Loudoun County, ranked as the wealthiest county in the country, helps supply the workforce of the nearby National Reconnaissance Office headquarters, which manages spy satellites. Fairfax County, the second-wealthiest, is home to the NRO, the CIA and the Office of the Director of National Intelligence. Arlington County, ranked ninth, hosts the Pentagon and major intelligence agencies. Montgomery County, ranked 10th, is home to the National Geospatial-Intelligence Agency. And Howard County, ranked third, is home to 8,000 NSA employees.”

Hat tip to our intern Elizabeth Murphy for finding this passage. Read the whole series.  Read our article, Synergy in Security.

(3) Gleen Greenwald on Project Vigilant:  Hat-tip to Aslam K. for pointing us to Glenn Greenwald’s piece at Salon.com about a “highly secretive group called Project Vigilant”;  the group played a role in the discovery of the source of the Wikileaks leaks about Afghanistan:

Forbes‘ technology writer Andy Greenberg reports that at the Defcon Security Conference yesterday, an individual named Chet Uber appeared with revelations about the case of accused WikiLeaks leaker Bradley Manning and government informant Adrian Lamo.  These revelations are both remarkable in their own right and, more important, highlight some extremely significant, under-examined developments unrelated to that case.  This is a somewhat complex story and it raises even more complex issues, but it is extremely worthwhile to examine.

Uber is the Executive Director of a highly secretive group called Project Vigilant, which, as Greenberg writes, “monitors the traffic of 12 regional Internet service providers” and “hands much of that information to federal agencies.” More on that in a minute.  Uber revealed yesterday that Lamo, the hacker who turned in Manning to the federal government for allegedly confessing to being the WikiLeaks leaker, was a “volunteer analyst” for Project Vigilant; that it was Uber who directed Lamo to federal authorities to inform on Manning by using his contacts to put Lamo in touch with the “highest level people in the government” at “three letter agencies”; and, according to a Wired report this morning, it was Uber who strongly pressured Lamo to inform by telling him (falsely) that he’d likely be arrested if he failed to turn over to federal agents everything he received from Manning.

So, while Lamo has repeatedly denied (including in his interview with me) that he ever worked with federal authorities, it turns out that he was a “volunteer analyst” for an entity which collects private Internet data in order to process it and turn it over to the Federal Government.  That makes the whole Manning case all the more strange:  Manning not only abruptly contacted a disreputable hacker out of the blue and confessed to major crimes over the Interent, but the hacker he arbitrarily chose just happened to be an “analyst” for a group that monitors on a massive scale the private Internet activities of American citizens in order to inform on them to U.S. law enforcement agencies (on a side note, if you want to judge what Adrian Lamo is, watch him in this amazing BBC interview; I’ve never seen someone behave quite like him on television before).

(I love that this guy’s name is “Uber.”) Someone should crosscheck to see whether Project Uber, I mean Project Vigilant, is mentioned in the WashPo series. Elizabeth?

Read the whole post.

–Chris Sturr

What? billboard

(2) Judge Blocks Az. Law S.B. 1070. Breaking news–U.S. District Court Judge Susan Bolton blocked key parts of Arizona’s restrictive and invasive immigration law, which was to go into effect in a couple of days. Here’s what the New York Times has to say:

In a ruling on a law that has rocked politics coast to coast and thrown a spotlight on the border state’s fierce debate over immigration, United States District Court Judge Susan Bolton in Phoenix said some aspects of the law can go into effect as scheduled on Thursday.

But Judge Bolton took aim at the parts of the law that have generated the most controversy, issuing a preliminary injunction against sections that called for officers to check a person’s immigration status while enforcing other laws and that required immigrants to carry their papers at all times.

Judge Bolton put those sections on hold while she continues to hear the larger issues in the challenges to the law.

Read the judge’s order. Read the rest of the Times article.

(2) Dean Baker on the CBO and Social Security:  Dean Baker suspects the Congressional Budget Office is joining in the frenzy to target Social Security as a way to deal with deficits (or rather, the frenzy to use deficits as an pretext for targeting Social Security).  At issue is the way the CBO models the effect of deficits on private investment:

CBO changed its modeling of the impact of deficits and
debt on the crowding out of private investment. As a result, the 2010
projections show that deficits in the near future will crowd out far more
investment than the 2009 projections. This leads deficits to have a far more
negative impact on GNP growth.

Read the full issue brief. For more on “crowding out,” see this article by our own Alejandro Reuss.

(3) Financial Reform, Round Two: As we reported yesterday (item two), the banks have already moved on to figuring out how to influence rule-making related to the new financial regulations–by hiring former regulators. Mary Battari of BanksterUSA has pointed out a second sense in which we are in Round Two of financial reform:  the opportunity to push for further changes like a transaction tax.

Are you ready for Round Two? Our friend Paul Wellstone used to say, “sometimes you have to pick a fight to win one.” Bankster has been working with colleagues in the consumer movement, labor movement, Netroots and grassroots to figure out some fights worth picking. In addition to continued work on breaking up the banks, groups are coalescing around two big issues.


Repo the Dough: The Banksters crashed the economy and $14 trillion in wages, college savings, retirement saving and housing wealth disappeared. We want it back. The best way to do this? Nobel Prize-winning economist Joseph Stiglitz, the AFL-CIO, SEIU and many others are calling for a teeny tiny Bankster tax, 0.25 % or less on the sale or purchase of a share of stock, bond or derivatives would allow us to recoup our losses and put the money to work rebuilding America. The idea is called a “financial speculation tax.” It would not affect the average investor, but would throw sand in the wheels of the high-speed, high-volume traders and rake in $100 billion a year to create jobs and help provide essential services.
The Rising Tide: A tsunami of foreclosures is sweeping across America. Millions of homes are underwater and the government hasn’t done a single thing to stop it. Where are the helicopters, the aid brigades, the food drops? Why haven’t President Clinton and President Bush been tapped to raise funds for suffering families? A Rising Tide of mighty pissed off Americans is starting to notice and fight back. We will be working with groups like National People’s Action to end the housing crisis and hold big banks accountable for the damage done to our communities.

More interesting posts by Mary and others at BanksterUSA, including a recent one on efforts to make sure Elizabeth Warren is named head of the Consumer Financial Protection Bureau.

(4) Employers on Strike:  Last but not least, we just posted John Miller’s latest column, Employers Go on Strike–Because They Can, from our current (July/August) issue. Enjoy!

–Chris Sturr

(1) New Blog Feature:  Possibly Irrelevant Images. With this post I inaugurate a new feature for the D&S blog (or at least my posts here): Possibly Irrelevant Images, random images I have come across on the Internets (as I like to call them, in tribute to GWB).  An inspiration for this feature is the “Antidote du jour” feature that is part of the daily links posts at Naked Capitalism. But I’ll be aiming for images that are visually interesting and possibly leftist, vs. cute animal pictures.  As the name of this new feature implies, the images may or may not have anything to do with the posts they introduce or with left economics. If there is a connection, it may be obvious, but it may also be oblique, or downright recondite–it is up to you to decide. Blog readers are encouraged to submit interesting images; if I post yours you’ll get my gratitude and a hat-tip. For now two of my main sources for interesting images will surely be This Isn’t Happiness and Eric Becker’s “Today” over at Design Observer. (I also welcome suggestions for good sources of groovy or weird or beautiful images.) I will include a link to the source where I found it.

Here is today’s Possibly Irrelevant Image:

Boxes on Heads

(2) Bill Black on Frank-Dodd at Real News Network: The New York Times just posted an article, Army of Ex-Regulators Set to Lobby on New Financial Rules, suggesting that the revolving door between the banks and their regulators is in full operation. William K. (“Bill”) Black is one former regulator not going that route.  Regular readers of this blog will know that Bill Black wrote a great article for our Nov/Dec 2007 issue about the then-nascent banking crisis. There’s a nice series of interviews with him over at the Real News Network.  The fourth installment, posted today, is Who Regulates the Regulators?

(3) Nonprofit Compensation:  The Times had an interesting article about how much CEOs and other bigwigs at nonprofits make (Lawmakers Seeking Cuts Look at Nonprofit Salaries). The article has a heart-warming picture of “Roxanne Spillett, the chief executive of Boys & Girls Clubs, [who]was paid $988,591 in 2008,” tending to a boy and a girl at one of the clubs and looking more like a teacher’s aide than a gazillionaire. She actually tears up when she tells the reporter: “I have worked in the organization for 32 years, and I’ve never been motivated by a dime, not for a single minute.” A Boys & Girls Club board member calls the suggestion that Spillett makes too much money “offensive,” citing the growth of the organization under her leadership. “Do they really think we’d waste their money? Or anyone’s money?” Scrutiny of the organization raised other concerns; Senate investigators are now “are now questioning Boys & Girls Clubs investments in private equity and offshore funds and its use of its endowment.”

The funniest bit was from the head of the American Heart Association, M. Cass Wheeler, who is eager to emphasize that his reported compensation of $995,424 is misleading, because it includes supplemental retirement payment. “If you peeled all that back, you’d get to a base salary less than $600,000.” Well, in that case…  How on earth does he get by?

An item from the Dealbook blog at the Times reports on a new study of compensation, according to which corporate boards “use peers to inflate executive pay.” Find that blog post here;  find the abstract for the original study, which appears in the Journal of Financial Economics, here.

(4) Laying off Workers and Squeezing the Ones You Keep Is Good for Profits. According to the New York Times:  Industry Finds Surging Profits in Deeper Cuts. This relates to the article we are likely to post to the D&S website tomorrow, John Miller’s “Employers Go on Strike–Because They Can.” But…

(5) Huge Victory Against Nike for United Students Against Sweatshops. Nike finally agreed to compensate Honduran workers who were fired by Nike subcontractors several years ago.  Here’s the press release from the USAS campaign website. Here’s the Wall Street Journal story;  here’s the Democracy Now! story. Of course $1.5bn is chump change for Nike, but it is a nice precedent, and good for those workers.

–Chris Sturr