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      We need serious public policy, not more printed money – the US economy is in tatters

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      AnalysisWe need serious public policy, not more printed money – the US economy is in tattersDoug HenwoodDecades of bailouts have convinced some that the Fed will always come to the rescue – but this only papers over the fundamental flaws of the US economy With the Federal Reserve leading the world’s central banks in a tightening cycle of interest rate rises, the likes of which we haven’t seen since 2006, commentators across the political spectrum are noting the fondness of the Fed chair, Jerome “Jay” Powell, for his legendary predecessor, Paul Volcker. On the left, the comparison is fearful; on the center and on the right, it’s one of admiration. But circumstances don’t really support the comparison.Fed announces sixth consecutive hike in US interest rates to fight inflationRead moreOn taking office in October 1979, Volcker declared “the standard of living of the average American has to decline” as a consequence of the war against the chronic inflation of the 1970s. He quickly set to work making that happen by driving interest rates up towards 20% and creating the deepest US recession since the 1930s.That squeeze did put an end to high inflation but at a tremendous social cost. Six million people lost their jobs over the next three years, taking the unemployment rate from 6% to almost 11% in late 1982. The cost wasn’t merely short-term. About half of those job losses were categorized as permanent, as opposed to being temporary layoffs, many of them in the manufacturing heartland. The term “rust belt” entered common usage.Volcker was appointed by Jimmy Carter, who seemed to have no idea of what he was getting himself into. His friend and adviser, the Georgia banker Bert Lance, prophetically warned him that he was dooming his prospects in the 1980s election. But Carter listened to the consensus of Wall Street and the political class – Volcker was the man to tame inflation, which was running around 13% at the end of 1979. The US had seen inflation rates that high before, but never outside of major wars or their immediate aftermath. Inflation, which was under 2% in 1965, had been rising relentlessly for 15 years, barely pausing even in the nasty recession of the mid-1970s. Contrary to a belief popular on the left, that inflation was not kind to workers. Wages badly lagged prices, and real average hourly earnings fell 14% between 1973 and 1980.There are some similarities between the present and 40 years ago. Then, as now, food and energy prices were important factors in sparking inflation, but in both cases, even if you strip out those two volatile components, a severe inflation remains. And in both cases, polls have shown inflation to be deeply unpopular.But there are also major differences, notably in the strength of labor. At the end of the 1970s, almost a quarter of all workers were unionized; now only about a tenth are. Then, an average of 22,000 workdays were lost to strikes every year; last year it was just 1,500 – a decline of 93%. The early 1980s recession hammered the bargaining power of the working class. Unions were busted, and we went from a time when Take This Job and Shove It could be a hit song (as it was in 1977) to one where workers were grateful to have any job at all, no matter how tenuous and low-paying. As the recession ended in late 1982, the stock market took off and the employer class began a 40-year celebration of its triumph.That’s not the world Powell finds himself in. Inflation has been a problem for close to 15 months rather than 15 years, and although there are some tentative signs of life in the labor movement – notably at one Amazon site and a few hundred Starbucks outlets (out of 9,000) – the share of the labor force represented by unions fell last year, and strike activity so far in 2022 is about a third lower than in 2021. Unlike the inflation of the 1970s, this is not the wage-push kind (to use the jargon). It’s been driven first by supply chain blockages, thanks to Covid, and extended by embargoes against Russian energy exports, and most workers are just looking on helplessly as their paychecks fail to keep up with price increases.There’s another difference as well: we’re coming off a decade of extremely indulgent monetary policy. Coming out of the Great Recession, the Fed kept short-term interest rates near zero between 2011 and 2021, with the brief exception when they pushed them up to just over 2% in 2017 and 2018 (still quite low by historical standards). On top of that, the central bank pumped over $3tn (£2.7tn) into the financial markets between 2008 and 2015, and almost $5tn between early 2020 and early 2022. The earlier pumping was meant to prevent a financial implosion after the sub-prime crisis, and the latter to counter the threats of the early pandemic months. But the result of both has been to stimulate crazy inflation in asset prices – stocks, crypto, unicorns, housing – a remarkable waste of capital and one that can be very risky to deflate. Decades of bailouts have convinced financial market players that the Fed will always come in to rescue them and reversing that mentality could require a Volckerish austerity for Wall Street – one that’s politically hard to imagine.The Fed’s interest rate hikes are going to hit the most vulnerable | Dean BakerRead moreWhat Powell is up to now bears almost no resemblance to Volcker’s clampdown. The federal funds rate, the interest rate at which banks lend each other money overnight – that is the Fed’s most direct policy target – changed from just above 0% to just under 4% after raising the target rate another 0.75 points this week. That’s almost 15 points below the Volcker peak. In real terms – deducting the rate of inflation – Volcker’s peak was almost 10%, a lot higher. Right now, the real fed funds rate is around -4% (yes, that’s a negative sign). Powell may admire Volcker, but next to him, he’s a piker.The debate over monetary policy overlooks a more important issue. That decade of cheap money papered over a lot of fundamental problems with the US economy: low levels of public and private investment, massive polarization between rich and poor and unstable employment for much of the labor force. These should be addressed with serious public policy, not by printing money. It would be nice if we talked about that, but given the degraded state of American political discourse, I’m not hopeful.
      Doug Henwood is an economic journalist based in Brooklyn. His radio show, Behind the News, airs on KPFA radio in Berkeley, and is available on all the standard podcast outlets
      TopicsFederal ReserveUS economyJerome PowellUS politicsInflationanalysisReuse this content More

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      When McKinsey Comes to Town review: the book to consult on opioids, China and more

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      When McKinsey Comes to Town review: the book to consult on opioids, China and moreWalt Bogdanich and Michael Forsythe of the New York Times have done their homework on the management giant McKinsey & Co is the biggest name in the consulting business. Established in 1926, it employs 30,000 people, maintains offices in more than 130 locations and counts Pete Buttigieg, the US transportation secretary, among its alumni. From vaping to non-profits, insurance to energy, government work to healthcare, the McKinsey thumbprint is there.Newsroom Confidential review: Margaret Sullivan’s timely tale of the Times and the PostRead moreTraditionally, McKinsey possessed the luxury of distance, watching from the sidelines as clients bore the brunt of scrutiny, lawsuits and risk. But the space between field and bleachers has narrowed. McKinsey finds itself under the microscope.When McKinsey Comes to Town is highly informed, a fascinating read. The authors, New York Times investigative reporters Walt Bogdanich and Michael Forsythe, have done their homework. They name names, connect dots and unearth documents. Sources speak in Technicolor.Bogdanich is a three-time Pulitzer winner. Forsythe brings a keen eye to the intersection of money, politics and China. He was previously based in Hong Kong. As it happens, McKinsey has worked for both the US defense department and for Chinese state-owned companies that have aided Beijing’s military buildup.McKinsey says Bogdanich and Forsythe “fundamentally misrepresent our firm and our work”. It issued a similar statement when the Times and ProPublica highlighted its remit on behalf of US Immigration and Customs Enforcement and US Customs and Border Protection. ProPublica said: “McKinsey Called Our Story About Its ICE Contract False. It’s Not.” The contract with Ice was reportedly worth $18m.McKinsey has advised more than 40 US agencies. It played an outsized role in Jared Kushner’s attempts to cope with Covid, which originated in China. At the same time, it maintained a presence in China. The apparent conflict of interest triggered congressional concern. A group of Republicans claimed McKinsey’s work “on behalf of Chinese … firms, is tantamount to work on behalf of the CCP [Chinese Communist Party] and could lead to direct or indirect support for the CCP’s armed wing, the People’s Liberation Army”.Amid rising tension between Washington and Beijing, McKinsey’s connections, contracts and loyalties will probably continue to draw attention.The firm remains in the news. In February 2021, McKinsey entered into nearly $600m of legal settlements with state attorneys general. Why? The platinum-plated powerhouse purportedly helped Perdue Pharma “turbocharge” opioid sales. Plaintiffs alleged that “McKinsey sold its ideas to … Purdue Pharma …from 2004 to 2019, including before and after Purdue’s 2007 guilty plea for felony misbranding.”McKinsey also counts the US Food and Drug Administration as a client. But that’s just the beginning. To quote members of Congress, on at least four occasions the company may “have passed along non-public information based on its relationship with the FDA or discussed its willingness to do so” with Purdue Pharma.Bogdanich asks: “What does that mean when you have an opioid manufacturer who’s pushing opioids in the middle of an epidemic?”Since 1999, opioid-related deaths have risen more than fivefold. In two decades, opioids have killed more than 450,000 in the US. Life expectancy is down and it’s not just because of Covid. Death by despair is rising.In 2020, McKinsey apologized for its involvement with Purdue Pharma, “recogniz[ing] that we did not adequately acknowledge the epidemic unfolding in our communities or the terrible impact of opioid misuse”.McKinsey also counted as a client Juul Labs – the vaping company and scourge of teachers, moms and dads – billing it between $15m and $17m. Its most important work for Juul involved responding to an FDA crackdown on youth vaping.Youthful addiction can be profitable – until it isn’t. In September, Juul and more than 30 state attorneys general reached a $438.5m settlement. The e-cigarette manufacture did not admit culpability. McKinsey was not involved in the settlement. Juul hovers on the cusp of bankruptcy.Bogdanich and Forsythe focus on another “long-standing” McKinsey policy – simultaneously serving competing clients with “conflicting interests” as well as “counter-parties in merger, acquisition and alliance opportunities”. In plain English, McKinsey can find itself on both sides of transactions.Self-policing works – until it doesn’t. Unlike the strictures that govern lawyers, the rules that pertain to consultants, if any, are porous and less rigid. Last month, South African prosecutors indicted McKinsey on unspecified charges related to the alleged looting of Transnet, the state freight rail monopoly.‘A nutso proposition’: Robert Draper on Trump, Republicans and January 6 Read more“We believe the charges filed against our South Africa office are meritless and we will defend against them,” a McKinsey spokesman responded.Regardless of the outcome of the case, McKinsey’s experience in South Africa stands as a study in the perils posed when governments offload government functions to non-state actors.McKinsey will face continued scrutiny. Then again, it is unclear if such work as that of Bogdanich and Forsythe can or will lead to change. McKinsey services remain in demand. Eager college and graduate business school students line up for a shot at snagging the brass ring.Speaking to Bogdanich and Forsythe, one former McKinsey consultant put the reach of the firm into some perspective. Forget secret cabals, “illuminati, lizard people, or globalists” he said. Instead, “there is … McKinsey”.
      When McKinsey Comes to Town: The Hidden Influence of the World’s Most Powerful Consulting Firm is published in the USby Penguin Random House
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      US economy bounces back to growth despite surging inflation

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      US economy bounces back to growth despite surging inflationCommerce department estimates show 2.6% annual growth rate for third quarter, snapping two straight quarters of contraction The US economy grew at a 2.6% annual rate from July through September, snapping two straight quarters of economic contraction and overcoming punishingly high inflation and interest rates.Thursday’s estimate from the commerce department showed that the nation’s gross domestic product – the broadest gauge of economic output – grew in the third quarter after having shrunk in the first half of 2022. Stronger exports and steady consumer spending, backed by a healthy job market, helped restore growth to the world’s biggest economy.Still, the outlook for the economy has darkened. The Federal Reserve has aggressively raised interest rates five times this year to fight chronic inflation and is set to do so again next week and in December.Fed chair Jerome Powell has warned that the Fed’s hikes will bring “pain” in the form of higher unemployment and possibly a recession.The government’s latest GDP report comes as Americans, worried about inflation and the risk of recession, have begun to vote in midterm elections that will determine whether Joe Biden’s Democratic party retains control of Congress. Inflation has become a signature issue for Republican attacks on the Democrats’ stewardship of the economy.With inflation still near a 40-year high, steady price spikes have been pressuring households across the country. At the same time, rising interest rates have derailed the housing market and are likely to inflict broader damage over time. The outlook for the world economy, too, grows bleaker the longer that Russia’s war against Ukraine drags on.Last quarter’s US economic growth reversed annual declines of 1.6% from January through March and 0.6% from April through June. Consecutive quarters of declining economic output are one informal definition of a recession. But most economists have said they believe the economy skirted a recession, noting the still-resilient job market and steady spending by consumers. Most of them have expressed concern, though, that a recession is likely next year as the Fed steadily tightens credit.Preston Caldwell, head of US economics for the financial services firm Morningstar, noted that the economy’s contraction in the first half of the year was caused largely by factors that don’t reflect its underlying health and so “very likely did not constitute a genuine economic slowdown.” He pointed, for example, to a drop in business inventories, a cyclical event that tends to reverse itself over time.Higher borrowing costs have weakened the home market, in particular. The average rate on a 30-year fixed-rate mortgage, just 3.09% a year ago, is approaching 7%. Sales of existing homes have fallen for eight straight months. Construction of new homes is down nearly 8% from a year ago.Still, the economy retains pockets of strength. One is the vitally important job market. Employers have added an average of 420,000 jobs a month this year, putting 2022 on track to be the second-best year for job creation (behind 2021) in labor department records going back to 1940. The unemployment rate was 3.5% last month, matching a half-century low.Hiring has been decelerating, though. In September, the economy added 263,000 jobs – solid but the lowest total since April 2021.International events are causing further concerns. Russia’s invasion of Ukraine has disrupted trade and raised prices of energy and food, creating a crisis for poor countries. The International Monetary Fund, citing the war, this month downgraded its outlook for the world economy in 2023.TopicsUS economyEconomicsBiden administrationUS politicsnewsReuse this content More

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      Republicans want working-class voters — without actually supporting workers

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      AnalysisRepublicans want working-class voters — without actually supporting workersSteven GreenhouseGOP courts blue collar voters but most favor anti-union ‘right to work’ laws and reject laws that would protect right to organize After years of struggle, America’s labor unions enjoy greater public approval than at any time in more than 50 years. Yet even as the Republican party seeks to rebrand itself as the party of the working class, its lawmakers, by and large, remain as hostile as ever toward organized labor. It doesn’t look like that situation is about to change.With the midterm elections approaching, and many polls indicating that the Republicans will win control of the House, nearly all Republican lawmakers in Congress oppose proposals that would make it easier to unionize. One hundred and eleven Republican House members and 21 senators are co-sponsoring a bill that would weaken unions by letting workers in all 50 states opt out of paying any fees to the unions that represent them. And at a time when many young workers – among them, Starbucks workers, Apple store workers, museum workers, grad students – are flocking into unions, Republican lawmakers often deride unions as woke, leftwing and obsolete.Congressional Democrats – seeing the surge in unionization drives along with the aggressive anti-union campaigns by Starbucks, Amazon and other companies – say there is increased urgency to enact the Protecting the Right to Organize Act (Pro Act), which would make it easier for workers to unionize. The Pro Act passed the House last year – with 205 Republicans voting against and five in favor – but it faces an uphill battle in the Senate, largely because of a GOP filibuster, and will almost certainly fail to pass if Republicans gain Senate seats in the midterms.The Pro Act remains the Democrats’ overwhelming legislative priority for helping unions – it would, among other things, ban employers’ captive audience meetings and create substantial penalties for corporations that break the law when fighting unionization. Republicans denounce the legislation, vigorously opposing a provision that would override the right-to-work laws enacted in 27 states, laws that allow workers to opt out of paying union dues. The Senate Republicans’ policy committee has slammed the Pro Act, saying it would undermine worker freedom, “heavily tilt the scales in favor of labor” and “curb workers’ choices, threaten jobs and increase costs on employers”.It wasn’t always this way. Two decades ago, there were 30 union-friendly Republicans in the House, but that number has dwindled to a handful, partly because many of the party’s billionaire and corporate donors frown on pro-union Republicans. These donors see unions as bothersome institutions that favor Democrats and reduce corporate profits. Indeed, many Republican lawmakers treat unions and their leaders as enemies.Virginia Foxx, the senior Republican on the House Education and Labor Committee, scoffed at the idea that there is a union resurgence and said Democrats “are in the pocket of Big Labor”. “Unions are hitting the panic button and praying that Democrats can gin up a PR campaign to cover up the declining numbers and lack of interest in union membership,” Foxx told the Guardian, noting that union membership has sunk to just 6% of the private-sector workforce. Foxx, who often serves as Congress’s chief spokesperson on labor matters, belittled unions’ recent gains, saying that only a tiny percentage of Starbucks and Apple stores have been unionized.Foxx, a nine-term House member from North Carolina, said: “If Democrats genuinely believe that union popularity is soaring and that union campaigns and strikes are resonating with American workers, then they truly have a tortured relationship with both math and reality.”Even as the National Labor Relations Board (NLRB) reported a 53% jump over the past year in the number of workplace petitions for union elections, Foxx and many other Republicans are backing bills that would make it harder to unionize. With corporations prohibiting union organizers from setting foot on company property to speak with workers, unions rely on NLRB rules requiring employers to give them workers’ home addresses, phone numbers and email addresses so they can communicate with them. But the Employee Privacy Protection Act, a Republican-sponsored bill re-introduced last March, shortly after the recent union surge began, would limit unions to obtaining just one of those three ways to contact workers. Foxx said workers should “never have to hand over their personal contact information” to “a union to which they object”.Bill Samuel, legislative director of the AFL-CIO, the nation’s main union federation, said he has seen no sign of Republicans warming up to unions despite their increased popularity – 71% of Americans approve of unions. “I haven’t seen any change” among Republicans, Samuel said. “There’s been no outreach. We haven’t been getting calls from Republicans asking, ‘How can we help workers organize?’”Bobby Scott, a Virginia Democrat who is chairman of the House education and labor committee, agreed, adding: “Republicans are pretty much as hostile as ever toward unions – pretty much down the line.”Scott said Democrats should rush to enact the Pro Act in light of the many daunting obstacles that workers face in seeking to unionize at Starbucks, Amazon and other companies due to intense corporate opposition and a flurry of alleged illegalities by management. In Scott’s view, especially important is a provision that would for the first time allow the NLRB to impose substantial fines against companies that violate the law when battling union drives. “The biggest improvement we need is to have some meaningful sanctions for unfair labor practices,” Scott said. “Right now, there is no meaningful deterrent.”Oren Cass, executive director of American Compass, a thinktank for conservative economics, said that many Republicans have grown more interested in worker issues. Cass acknowledged, however, that most Republican lawmakers remain hostile to organized labor because “unions are predominantly financing mechanisms for the Democratic party.”He said some Republicans are open to the idea of increasing worker power, but only if it’s done largely outside the framework of traditional unions. Nevertheless, whether with or without unions, hardly any Republicans are pushing to expand worker power – an idea that would irk corporate Republicans. Many GOP lawmakers instead emphasize worker choice and worker freedom – part of their decades-long effort to enact state right-to-work laws that allow workers to opt out of paying any dues or fees to the unions that represent them.Senator Rand Paul of Kentucky and Representative Joe Wilson of South Carolina are co-sponsoring the National Right to Work Act, which would let workers in all 50 states opt out of union dues. Wilson told the Guardian that the bill would “eliminate forced-dues clauses” and “allow workers to choose for themselves”. He said Joe Biden and the Democrats were on “a mission to force unionization” on “workers by eliminating employee choice”. Senator Paul said their bill would “put bargaining power where it belongs, in the hands of American workers”. Unions assert, however, that workers have far more bargaining power by bargaining collectively, rather than as individuals.Cass, who worked in Mitt Romney’s 2012 presidential campaign, supports steps to give workers more power and said it’s a good time for Republicans to push to increase worker power. Their “constituents are significantly and increasingly working class”, Cass noted, adding that Republicans might be more willing to distance themselves from corporations now that more business executives “are on the other side”, having endorsed Democrats.For years, most Republicans lawmakers have opposed any increase in the NLRB’s budget; that agency oversees private-sector union elections and cracks down on employers that break the law in fighting unions. The labor board’s budget hasn’t increased since 2014, a budget freeze that has angered union leaders because they say it hampers the board’s ability to move quickly against law-breaking, anti-union employers.“The NLRB has been flat-funded for a long time,” said Scott, chair of the House labor committee. “With the popularity of unions increasing, the work of the NLRB has increased. In order to get their work done, the board needs significant increases in funding.”But Foxx called increasing NLRB funding “an inherently stupid idea”, asserting that the labor board tilts in favor of unions, just as Democrats asserted that President Trump’s labor board was far too anti-union.The AFL-CIO’s Samuel voiced dismay that many Republicans seem implacably opposed to anything that would help unions expand. “All this,” Samuel said, “illustrates their hostility to make it easier for workers to enjoy what is supposed to be their basic right under the law: to come together to form a union.”TopicsUS unionsUS politicsStarbucksAmazonanalysisReuse this content More

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      Biden implores US oil companies to pass on record profits to consumers

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      Biden implores US oil companies to pass on record profits to consumersPresident announces release of 15m barrels of oil from strategic reserve as he fights to keep gas prices in check before midterms Joe Biden has called on oil companies to pass on their massive profits to consumers as he announced the release of 15m barrels of oil from the US strategic petroleum reserve.Biden is fighting to keep gas prices in check ahead of November’s midterms. He blamed Vladimir Putin’s invasion of Ukraine for the global spike in oil prices and said his administration was doing all it could to keep prices in check.“Gas prices have fallen every day in the last week,” said Biden. “That’s progress, but they’re not falling fast enough. Gas prices are felt in almost every family in this country. That’s why I’ve been doing everything in my power to reduce gas prices.”He called on US oil companies to help. In the second quarter of 2022, the six largest US oil companies reported profits of $70bn, said Biden.“So far, American oil companies are using that windfall to buy back their own stock, passing that money on to shareholders, not consumers,” he said. “My message to all companies is this: you’re sitting on record profits. And we’re giving you more certainty. You can act now to increase oil production. You should not be using your profits to buy back stock or for dividends – not while the war is raging.”The announcement of the latest oil release speeds up the sale of the last of the 180m barrels that Biden announced in March would be sold. The announcement comes after the oil-producing Opec+ nations said they would cut oil production, driving up prices, in a move that angered White House officials.Established in 1975 to help mitigate shocks in US oil supply, the strategic petroleum reserve (SPR) is thought to be the largest emergency supply in the world. Stored in underground tanks in Louisiana and Texas, the SPR has capacity for 714m barrels of oil and is currently at its lowest level since 1984.The reserve now contains roughly 400m barrels of oil and Biden said more oil could be released if the situation does not improve. The administration has called the situation a “bridge” until domestic production can be increased and said the US will restock the strategic reserve when oil prices are at or lower than $67 to $72 a barrel.Biden faces political headwinds because of gas prices. AAA reports that gas is averaging $3.87 a gallon, down slightly over the past week, but up from a month ago. The recent increase in prices stalled the momentum that the president and his fellow Democrats had been seeing in the polls ahead of the November elections.An analysis Monday by ClearView Energy Partners, an independent energy research firm in Washington, suggested that two states that could decide control of the evenly split Senate, Nevada and Pennsylvania, are sensitive to energy prices. The analysis noted that gas prices over the past month rose above the national average in 18 states, which are home to 29 potentially “at risk” House seats.The hard math for Biden is that oil production has yet to return to its pre-pandemic level of roughly 13m barrels a day. It’s about a million barrels a day shy of that level. The 15m-barrel release would not cover even one full day’s use of oil in the US, according to the Energy Information Administration.The oil industry would like the administration to open up more federal lands for drilling, approve pipeline construction and reverse its recent changes to raise corporate taxes. The administration counters that the oil industry is sitting on thousands of unused federal leases and says new permits would take years to produce oil with no impact on current gas prices.Environmental groups, meanwhile, have asked Biden to keep a campaign promise to block new drilling on federal lands.Because fossil fuels lead to carbon emissions, Biden has sought to move away from them entirely with a commitment to zero emissions by 2050. When discussing that commitment nearly a year ago after the G20 leading rich and developing nations met in Rome, the president said he still wanted to also lower gas prices because at “$3.35 a gallon, it has a profound impact on working-class families just to get back and forth to work”.The Associated Press contributed to this storyTopicsJoe BidenBiden administrationOilOpecCommoditiesUS midterm elections 2022US politicsnewsReuse this content More

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      How is the pound performing against other currencies?

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      For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails Sign up to our free breaking news emails The British pound has risen slightly against the US dollar in response to Liz Truss’s appointment of Jeremy Hunt as the UK’s new chancellor and the news that […] More