Posts Tagged ‘America’s Ten Crises’



Both K-12 and college education systems in America were once the envy of the world. But those systems are now in a state of continuing decline, with a halt to the decline nowhere in sight.

At the college level, the central problem is runaway costs.  College administrators have become intent on acting as corporate CEOs, spending more and more money on providing CEO level pay and benefit packages for themselves and their growing management bureaucracies; expanding physical assets (buildings, facilities, programs); recruiting more and more wealthy foreign ‘customers’ (students) to cover rising costs; and raising the price of higher education services for US students at an annual rate of more than 12% despite four years of economic crisis and absent economic recovery.

The short term solution to accelerating higher education costs by policymakers thus far has been to burden college students with ever-escalating student loans; and for K-12 education, it has been to raise property taxes and to require more out of pocket payments by families of students for what was once fully publicly provided services.

The higher education financing formula based on student loans has served banks and financial institutions well.  Student loan debt as a result now exceeds $900 billion and represents two-thirds of all consumer credit. Student loan debt is growing faster than both credit card and auto debt combined. Moreover, the partial takeover of student loan administration by the Obama government has not resolved the problem.  Government is once again shifting the cost of loans to students in the form of higher interest rates while reducing grants and cutting funding for the future.

The consequence for higher education is that there exist today no programs or policies by government to bring escalating college costs, and student debt, under some semblance of control. Fewer Americans will therefore seek and obtain higher education, while more wealthy foreign students will be recruited to pay the excessive costs, as the quality of education in public colleges and universities correspondingly continues to decline.

The scenario for K-12 education is similarly dismal, both short and long term. In August 2011, the $1 trillion dollar deficit cutting deal attacked public education in particular. And post-November 2012 election deals by politicians will do so further. K-12 public education funding has failed to grow commensurate with the growth of population now for decades. With the recent economic crisis and the continuing slow and faltering economic recovery, even inadequate past levels of funding are now repeatedly reduced. Desperate school districts are forced in turn to cut programs and attack teachers’ jobs, wages, and benefits to make up the shortfall.

Corporate interests meanwhile lead the effort to prevent any tax increases at the state and local level to adequately fund education. Their solution, and objective, is to ‘privatize’ the public education system.

Charter schools was an initial early attempt to break up the public education system, as a first step toward its eventual privatization. But Charter Schools as a form of privatized education operated at the margins of the public education system and never became generalized.  Nor did Charter Schools offer the potential for significant new opportunities for corporate profit. That’s why it was supplemented by Bush’s ‘No Child Left Behind’ (NCLB) program.

Simply destroying public K-12 education via Charter Schools is not enough.  Charter schools represent privatization without profit, and were therefore of little interest to corporate interests. To truly privatize public education, and turn it into a major corporate profit center, it is first necessary to ‘standardize’ public education as a product. Only then can privatization result in a profit center. ‘Standardization’ means turning education everywhere into the same product in terms of content and delivery system.

Before the education system can therefore be fully molded in a corporate image, its product must be standardized.  NCLB failed to achieve that goal of creating a ‘standardized’ education product because it attempted to do so for all of education, all at once, and without funding. Obama’s ‘Race to the Top’ also attempts to create the necessary ‘standardization’ of education as a product, but in a smarter way.  It doesn’t attempt to do so for all of K-12 all at once. Moreover, RTT provides some initial funding. RTT thus represents the realization that the drive to standardize K-12 education is best achieved in stages, establishing a foothold first and providing a degree of financial incentives to encourage participation in the drive toward ‘standardization’ of product—i.e. the key requirement before public education, once a free public good, can be fully transformed into a ‘for profit’, privatized commodity. Both NCLB and RTT are therefore similarly corporate in spirit and plan, both designed to further standardize and centralize K-12 education.

The corporate vision for public education is, once fully standardized, to introduce new hardware and software content and delivery technologies on a massive scale into the classroom. Not just laptops or iPads in the classroom, but a fundamental transformation of how education content is developed and delivered. Privatization need not mean directly run by businesses; it means in essence that what was once a public good is transformed into a profit center for private corporate interests.

The future corporate image for public education is to have technology displace labor (teachers) on a massive scale. Standardization of product means cost cutting opportunities and the biggest cost center for education, since education is a service, is labor costs. With technology-enabled standardization of product, teachers will no longer be allowed to develop the content of education and will be forced to adopt a single delivery system defined by technology. Both education content and education delivery will become standardized. What is taught and how it is taught will no longer be determined by the teacher but by the centralized, standardized formula determined by the corporate developers of the content and delivery systems. Once skilled professionals, teachers in this corporate-preferred system of the future will become, in effect, a form of ‘machine operators’ who will teach to the same standardized product everywhere, delivered by the same hardware and software technology everywhere. Teachers will operate the hardware and software delivery system, the content of which will be predetermined and come imbedded with the technology. They will no longer be skilled professionals, but semi-skilled operators. The technology will do the teaching, with teachers operating and monitoring the process.

In this future scenario, teachers and teaching as we know it today therefore disappears, and with it their unions and current wage and benefits. Contingent employment (part time and temporary) becomes the rule in the K-12 classroom, thus mimicking the current situation in higher education where more than half of instructors are already now ‘contingent’. Contingent labor significantly reduces labor costs, as labor is paid one-half to two-thirds current rates and provided without benefits. Savings on labor costs are used to finance the purchase of the technology, as school districts buy more hardware and software.

Standardization of product via NCLB, and now RTT and, in the future, successor programs to RTT, is the prerequisite toward a vision of a privatized public education system where the content and delivery is determined by corporate America. The drive toward standardization initiated by NCLB is now moving to a new phase with RTT. Once achieved, technology assumes the central role in the classroom, displacing the teacher. And once it does the providers of technology gain further control over the content and delivery of public education, while creating a de facto privatization and new profit center for corporate America.

This is the scenario, and form, of the emerging corporatization of American education on the horizon. It is the vision now being planned by the Bill Gates of the world for public education in America in the decades ahead.  It will mean cost savings for school district managers, big profits for corporate America, and lower wages and benefits for teachers. It will also mean the de-skilling and de-professionalization of the teaching function as we know it today.

Jack Rasmus


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The retirement system established in the U.S. in the late 1940s is today in a state of severe collapse—and with it the incomes of most of the more than 45 million Americans presently retired and the 77 million ‘babyboomers’ that will soon do so over the next decade. That system was built upon three elements: Social Security retirement benefits, defined benefit pensions, and personal savings. Each was supposed to provide one-third of the necessary income for the retired after age 65. Each of the three elements have been consciously weakened and undermined since the 1980s.

The first attack was leveled against defined benefit pensions that guaranteed a given income stream for retirees. 401k personal pension plans were introduced in the early 1980s to replace DBPs, and progressively have done so for the past three decades. 401ks remove all liability from companies to provide guaranteed retirement benefits but retain all the tax advantages to corporations. They also allow financial institutions and stock traders to siphon off the retirement funds and speculate with the funds. In the past decade alone more than $4 trillion in value in 401k and pension funding has been ‘lost’ to financial speculation. After three decades of policies aimed at undermining DBPs and promoting 401ks, the average balance in a 401k pension in America today is roughly $18,000; and for those over 55 only $50,000. Once numbering in the hundreds of thousands, defined benefit plans are now barely 20,000 and the majority of those in a condition of growing financial stress.

Meanwhile, as 401ks were being favored and promoted by government policies and spread throughout industry from the 1980s onward, DBPs were either dropped by companies by the tens of thousands or were raided by management for their surplus funds. From the 1990s on, they were undermined further by management manipulating actuarial assumptions in order to avoid paying required pensions fund contributions by law. After 2000, the corporate drive to eliminate DBPs intensified, adding tactics such as corporations declaring bankruptcy and dumping their pensions on public agencies, converting DBPs to hybrid ‘cash balance plans’, and shifting money from the pension funds to cover employers’ rising health care costs.

A most recent corporate attack on DBPs—public and private—is now underway, designed to eliminate the last vestiges of such plans. The latest corporate tactic is to get government to redefine pension rules, such that pension funds appear to have even greater accounting losses than previously. The outcome is the dismantling of more plans, or the combined slashing of pension benefits and/or raising of employee contributions.

The second ‘leg of the retirement stool’ is social security. After having produced a surplus for a quarter century in the trillions of dollars, government has borrowed every dollar from the social security trust fund in order to offset general US budget deficits over the same period—the latter caused primarily by rising defense spending and the Bush tax cuts since 2001. Chronic and deep recessions of the last decade have further undermined the contributions to social security retirement benefits. Having failed to privatize social security in 2005 under G.W. Bush, the focus today is to attack it at its weakest point: the social security disability benefits program which provides early retirement benefits to the disabled. The Obama administration in 2011 has also joined in recently in the effort to undermine social security, pledging in the summer of 2011 to reduce social security benefits by $600 billion as part of a ‘grand bargain’ to cut the federal budget deficit, while simultaneously taking what’s left of the annual social security surplus and distributing it back in the form of payroll tax cuts amounting to more than $224 billion in just the past two years.

The third ‘leg of the retirement system’ in the post-1945 period was envisioned to be personal savings. But like defined benefit pensions and social security, it too has been crumbling. After three decades of stagnation in real weekly earnings for the bottom 80% households, the personal savings rate and levels have fallen progressively from the 15%-20% levels in the 1970s to the 3%-4% range today.

In short, all three ‘legs’ of the retirement stool envisioned in the post-1945 period are now virtually broken or shattered. Defined benefit pensions have been eviscerated by 401ks that provide virtually no retirement, and have been undermined by various measures for decades, and are now under the most intensive further attack across the board. Social Security Trust Fund’s surplus meanwhile is being whittled away, as politicians of both parties compete for who can cut benefits the most after the 2012 upcoming national elections. And personal savings simultaneously continue to decline, as job growth lags, wages stagnate, and real income declines.

The collapse of the retirement system in America means not only severe hardship continuing, and coming, for tens of millions, but also the elimination of a critical income growth base necessary to sustain consumption and therefore economic growth. It has meant the bottom 80% households having to turn toward more debt to maintain standards of living, to working longer hours and more part time jobs, to a greater reliance on credit cards, and ever more dis-saving and spending down of past savings to maintain an increasing precarious standard of living.

A basic overhaul of the entire retirement system in America is a precondition for future economic stability and growth. That means not cutting benefits and thus disposable income further. But instead an increase in social security retirement benefits, a return of the trillions of dollars ‘borrowed’ by the federal government from the Social Security Trust Fund, an increase in the payroll tax for social security paid by those not contributing their fair share to the program, a halt to cuts in payroll taxes, a nationalization of all 401k plans under social security, a business value added tax to fund future contributions to a national 401k pool, and policies to restore defined benefit pensions once again.

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COMMENTARY: As fourth in the series of America’s longer run ten crises, the following adds the continuing long term depression in Housing that will remain a fact throughout the rest of the present decade.

The U.S. economy today remains mired in what can only be accurately called a housing depression. Once producing residential housing at 1.5 million units a year and commercial property construction in the trillions of dollars annually, the economy has since 2008 been producing housing units less than 500,000 a year on average. Once consistently more than 1 million a year, new home sales remain in a range of low 300,000—two thirds below pre-2008 levels. Meanwhile, home prices have fallen by a third, experiencing not two, but three, ‘double dips’, and homeowners have lost more than $4 trillion in wealth.

Except for a small sign of growth in apartment construction, residential housing remains virtually flat today after nearly five years. To date there have been more than 12 million foreclosures since 2007 and more than 10 million of the 52 million mortgages in the US are in ‘negative equity’, with home market values less than the mortgage.

It is important to note that in every one of the 11 previous recessions in the US since 1947, housing has led the way in terms of recovery. After three and a half years from the start of recessions in 1970s and 1980s, housing was growing 32%-35%. Today in even the best months, housing sector growth remains stagnant at depressed levels at best.

Little to nothing has been done to effectively revive the housing sector since 2008. Obama administration policies toward housing since 2009 are an example of, at best, token neglect. For the first three years of his administration, Obama policies have targeted subsidizing mortgage lenders and mortgage servicers (e.g. big banks) rather than homeowners. Programs were barely funded, mostly providing incentive payments to banks to lower interest rates (which they resisted) and aimed at getting homeowners out of foreclosed homes and getting new buyers into the properties. Obama’s initial program in 2009-11, called HAMP, allocated $75 billion to housing recovery, but $50 billion of which were incentives to banks and the remainder earmarked for homeowners mortgage relief. But the latter were voluntary, administered by the banks, and bank refinancing of homeowners in foreclosure were limited to temporary interest reductions only, with no principal reductions. And no relief was provided for the 10 million plus homeowners in negative equity.

In 2012, the Obama administration introduced a program called HARP 2.0., as part of a deal to indemnify banks from liability actions by States’ attorneys general and homeowners. In return, the banks paid the States’ $25 billion, a pittance compared to the liability potential. Homeowners who were illegally foreclosed by the banks were to receive on average no more than $1500. The banks, in turn, were required to provide refinancing for homeowners in negative equity for the first time. But what is generally not known about HARP 2.0, is that the federal government’s agencies, Fannie Mae and Freddie Mac, will pay the banks that renegotiate negative equity mortgages a refund of ‘5 points’ on the loans. Congress will then have to reimburse Fannie Mae and Freddie the 5%. In other words, the government will pay the banks tens of thousands of dollars on average to refinance homes in negative equity, a major cash windfall for the banks at eventual taxpayer expense

Apart from the continuing depression level conditions that remain in housing, and the continuing subsidizing of mortgage lenders, mortgage servicers and the banks by the Obama administration and Congress, the longer term crisis in housing is its role as a prime sector for financial speculation. Since the 1980s, to the 2007 housing bust, financial speculators were allowed by Republicans and Democrats alike to exploit the housing sector to realize massive profit gains from speculation. It has resulted in repeated housing ‘busts’ in the US. First, in the early 1980s, followed by an even larger savings & loan sector housing bust in the late 1980s. These housing crash dress rehearsals were followed by the ‘main event’ of the subprime mortgage debacle of 2003-07. The US economic system’s financial elites periodically gorge themselves on property-based speculation. The housing busts are followed by ‘socialism for speculators’, whereby the public and taxpayer are forced to pay the cost of the cleanup. Taxpayers are still paying the bill, as Obama programs from HAMP to HARP 2.0 today continue to illustrate.

The cycle of housing speculative boom-bust will continue long term so long as banks and other financial speculators are allowed to continue preying upon the housing sector. What is needed is a utility banking system based on non-profit, direct lending at the cost of capital by new government agencies to homeowners and prospective homebuyers.

The longer term human consequences of the continuing housing crisis is that fewer Americans will purchase homes and those fewer will do so later in life. Expect incentives for the housing sector, such as mortgage interest deductions, to be significantly scaled back by Congress after the November 2012 elections as part of a major remake of the US tax code. Within a decade they will likely disappear. More younger Americans will have no alternative but to rent, while rent costs—already rising faster than home prices—continue to escalate. Rent costs will become the new focal point for inflation, just as once housing values were. More young Americans, in the 20-34 year range, will live with parents and and for longer periods. The economic consequences of this demographic shift in the longer run are significant. The role of housing in the US economy as a leading sector for growth and for dampening recessions will decline.

The solution to the housing crisis is simply to take from the banks and private financial institutions their key role as intermediaries of credit provision for housing. To prevent the chronic long run speculation in housing, and consequent housing booms and busts—and to return housing to its historic role of recession recovery sector—the government needs to stop subsidizing banks and mortgage companies. The most efficient way to this end is to remove the profit motive and the banker ‘middle men’ from residential housing by creating a utility banking system that will provide loans to homeowners at the cost of long term money based on the 30 year bond rate, today roughly 2.5%.

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The U.S. spends today more than 17%% of its GDP on health care—more than $2.7 trillion and rapidly rising. That is nearly double that paid by other advanced economies that typically pay 10% of their GDP for health care—health care services that are also generally superior in quality than that received by the average American. That $2.7 trillion means the U.S. wastes more than $1 trillion every year on ‘middle men’ in its privately insured system—i.e. an excess $1 trillion that accrues mostly to insurance companies and other ‘paper pushers’ that don’t deliver one iota of patient health care services.

The fundamental causes of runaway health care costs in the U.S.—costs that are undermining economic growth long-term in the U.S.—are not overuse of healthcare services by the vast majority of Americans. The health care cost run-up for two decades now is a direct result of government tax subsidized corporate mergers and acquisitions among health insurance companies, government price-subsidization of drug companies, and tax-encouraged for-profit hospital industry concentration—all three of which today drive health care costs all along the health care services supply chain.

Government policies for decades now have encouraged monopolization in the industry that is the fundamental force driving health care costs. Health insurance companies once earned 5% returns, distributing 95% of every dollar to pay for health services. They now earn 22% returns, distributing only 78%, with much of the difference paid to obtain Wall St. for loans for health insurers and for-profit hospital chains with which to buy up their competitors. Government has aided and abetted health industry concentration, and thus monopolization and runaway prices, since the Clinton administration with its policy of exemption of health insurance companies from anti-trust laws and tax incentives that encourage industry concentration.

As health costs have escalated for more than two decades now, the solution of politicians to the growing cost crisis has been to ‘socialize’ more of the costs of health care while privatizing more of the benefits. Working and middle class Americans have been required to pay more and more of the total cost of private employer health insurance and/or receive less coverage, or have been forced simply to go without coverage. Health care costs for retired Americans with Medicare have been increasingly ‘socialized’ as well: Part B Medicare doctor costs are paid increasingly out of government general budgets and Part D prescription drugs totally out of such budgets. Medicaid costs similarly come out of government budgets. However, this system of perverse ‘socialization of costs’ has reached its limits as health care cost escalation has become unsustainable. Other ways are therefore now being considered to continue the health care cost inflation benefiting companies’ and investors’ profits, while introducing new ways to ‘socialize the costs’. Obamacare is just the latest experiment in such new methods to continue ‘socialization of costs’ on behalf of health care services corporations.

Politicians have cleverly pitted the general taxpayer against the bottom 80% households who are the victims of the system of rising health care costs for declining coverage and quality of care. The Obama administration’s 2010 health care law, the Affordable Care Act, continues this problem by failing to provide any long run solution to runaway health insurance and health care costs, by instead subsidizes health insurers and drug companies at public expense, by encouraging employers to dump their health insurance coverage for their workers, by promoting self-rationing of health care services, and, most importantly, by requiring middle and working class America to subsidize 30 plus million of the currently 50 million without any health insurance coverage. The main beneficiaries of the Obama health care act are the health insurance and drug companies that will get the 30 million plus new paying customers.

Admittedly, the insurance companies will have to cover the cost of coverage for dependents to age 26, won’t be able to refuse coverage to customers with pre-existing conditions, will have to provide coverage with no lifetime limits, and all the other positive provisions of the Affordable Care Act that were necessary to buy votes on the cheap from liberal Congress members to ensure its passage. But in exchange for these benefit improvements, the health insurance companies will get 30 million new customers. The companies will enjoy a revenue windfall yearly of about $300 billion (assuming monthly premiums of about $850 on average and $10,000 a year for 30 million). Given that windfall for insurance corporations, it is not surprising that U.S. Supreme Court Chief Justice Roberts recently voted to uphold the constitutionality of the act. It wasn’t because he suffered from a temporary affliction of liberal angst. Roberts has consistently voted in favor of corporate interests on virtually every Supreme Court decision while on the court bench. His vote should be viewed simply as a pro-corporate interest vote, in this case worth $300 billion a year for health insurance companies.

But massive subsidies to health insurance companies is not the only—or event greatest–legacy of the Obama health care act. Continued escalation of health insurance monthly premiums—now rising at around 13% a year once again—is another. So too will be the forthcoming attacks on Medicaid and Medicare that will immediately follow the November 2012 elections. The retired (Medicare) and the working poor and disabled (Medicaid) will be asked to use less and/or pay much more directly for even lower quality health services.

The greatest negative legacy will be a historic collapse of employer provided health insurance coverage that will commence in 2014. Beginning that year, with the activation of mandated individual health insurance required by the 30 million now uninsured, companies will begin to dismantle their employer-provided health insurance plans—leaving their workers either to be driven into the privately obtained health insurance system created by the recent health care act for the 30 million uninsured, or else forced into the even lower quality/reduced coverage Medicaid system. The Obama health care act will thus set in motion, circa 2014, the rapid unraveling of the employer-provided health insurance system that has been in effect since the late 1940s.

What has been underway since the 1990s, in various forms, has been a drive toward privatization of health care by another name: from Clinton’s ‘managed health care’ system to George Bush’s ‘health savings accounts’ to Obama’s individual health insurance exchanges now coming in 2014.

This new, more individualized and privatized system will not result in health care services absorbing a lesser share of GDP, but a greater share. US households and consumers will thus eventually pay even more than 18% of GDP for health care services, resulting in a still further decline in disposable income with which to purchase other goods and services and support economic growth.

The only solution long term to the broken health services system in the U.S. is a true ‘socialization’ of the crisis—not a socialization on behalf of insurance, drug, and other for-profit companies. A socialization of benefits as well as costs in which everyone pays a fair share, not where wealthy investors and corporations are subsidized at pubic expense for what is a right to health care. A solution based on a system of ‘Medicare for All’ funded by a reasonable tax on all incomes—both earned (wages) as well as all capital incomes alike. An elimination of health insurance companies and other middle men from the US health care system saves a minimum $1 trillion a year. Add a reasonable tax of 3%-5% on all forms of income in addition to the $1 million a year savings, and funding a

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1. Chronic Failure to Create Jobs

The U.S. economy is having increasing difficulty creating jobs. Not just in the short term. Not just jobs lost due the recession that began in 2007 and the jobless recession that has followed. But jobs longer term even in non-recession periods, and especially in the last decade. This longer term problem is sometimes referred to as ‘structural unemployment’, meaning job loss or failure to create jobs apart from recession (cyclical) causes. Full time permanent jobs are being lost, churned, and replaced in the tens of millions by involuntary part time and various forms of temporary employment, sometimes referred to as ‘contingent’ employment. There are easily more than 40 million such ‘contingent’ jobs in the US today, out of a labor force of about 155 million. These are jobs that pay typically 50-70% of normal pay, with virtually no benefits. Another structural problem is the loss of jobs due to offshoring by multinational corporations. A closely related development is the loss of jobs due to free trade agreements. In the last decade alone, recent reports indicate multinationals cut 2.7 million jobs in the U.S. while hiring 2.4 million offshore. Free trade agreements since 1989 have resulted in more than 10 million jobs lost, mostly in high paying manufacturing and business professional services. Simultaneously, multinational tech companies have brought millions of non-citizens to the U.S. on H-1B and L-1 and 2 visas since the late-1990s. These are not unskilled, manual labor, agricultural jobs that Americans don’t want, but high paying technical jobs they do. New technologies are additionally displacing workers in the U.S. where jobs are not yet out- or in-sourced at rates of job loss about equal to that of free trade-offshoring effects. In general, structural forces have wiped out 20 million jobs in less than two decades.

Cyclical trends have impacted jobs no less. Following every recession the last thirty years, it has taken longer and longer to recover jobs lost. In the 1980s and 1990s, it took 25-35 months. After the 2001 recession it took 48 months. After the most recent it will take more than twice that, 96 or more months at best estimate. In recovery from every recession since 1947, hiring by state and local government has led the way, in effect offsetting and dampening private sector job loss and thereby shortening the recession. Not today. State and local governments are the ‘layoff leaders’. Nearly 700,000 such public sector jobs have been lost in just the past 3 years. Millions more workers have simply left the labor force this past decade. While the US population has risen since 2000 by more than 21 million, total private employment has not risen at all. There were 111.3 private sector jobs in May 2000; there are 111.3 million private sector jobs today.

This is not a picture of an economy able to create employment for its citizens. And stagnant job growth—short and long term—means stagnant income growth. Stagnant income means, in turn, increasing problems of maintaining consumption and economic growth in general. What is needed is a broad set of programs and policies to revitalize job markets in the U.S. by reversing the above negative long run job creation trends. In the short run, what is needed is a massive government jobs program funded by a fundamental restructuring of the tax system.

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