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      Why the White House stopped telling the truth about inflation and corporate power | Robert Reich

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      Why the White House stopped telling the truth about inflation and corporate powerRobert ReichStarbucks, McDonald’s, Chipotle, Amazon – all protect profits by making customers pay more. We need the political courage to say they can and should cover rising costs themselves The Biden White House has decided to stop tying inflation to corporate power. That’s a big mistake. I’ll get to the reason for the shift in a moment. First, I want to be clear about the relationship between inflation and corporate power.Share the Profits! Why US business must return to rewarding workers properly | Robert ReichRead moreWhile most of the price increases now affecting the US and global economies have been the result of global supply chain problems, this doesn’t explain why big and hugely profitable corporations are passing these cost increases on to their customers in the form of higher prices.They don’t need to do so. With corporate profits at near record levels, they could easily absorb the cost increases. They’re raising prices because they can – and they can because they don’t face meaningful competition.As the White House National Economic Council put it in a December report: “Businesses that face meaningful competition can’t do that, because they would lose business to a competitor that did not hike its margins.”Starbucks is raising its prices to consumers, blaming the rising costs of supplies. But Starbucks is so profitable it could easily absorb these costs – it just reported a 31% increase in yearly profits. Why didn’t it just swallow the cost increases?Ditto for McDonald’s and Chipotle, whose revenues have soared but who are nonetheless raising prices. And for Procter & Gamble, which continues to rake in record profits but is raising prices. Also for Amazon, Kroger, Costco and Target.All are able to pass cost increases on to consumers in the form of higher prices because they face so little competition. As Chipotle’s chief financial officer said, “Our ultimate goal … is to fully protect our margins.”Worse yet, inflation has given some big corporations cover to increase their prices well above their rising costs.In a recent survey, almost 60% of large retailers say inflation has given them the ability to raise prices beyond what’s required to offset higher costs.Meat prices are soaring because the four giant meat processing corporations that dominate the industry are “using their market power to extract bigger and bigger profit margins for themselves”, according to a recent report from the White House National Economic Council (emphasis added).Not incidentally, that report was dated 10 December. Now, the White House is pulling its punches. Why has the White House stopped explaining this to the public?The Washington Post reports that when the prepared congressional testimony of a senior administration official (Janet Yellen?) was recently circulated inside the White House, it included a passage tying inflation to corporate consolidation and monopoly power. But that language was deleted from the remarks before they were delivered.Apparently, members of the White House Council of Economic Advisers raised objections. I don’t know what their objections were, but some economists argue that since corporations with market power wouldn’t need to wait until the current inflation to raise prices, corporate power can’t be contributing to inflation.This argument ignores the ease by which powerful corporations can pass on their own cost increases to customers in higher prices or use inflation to disguise even higher price increases.It seems likely that the Council of Economic Advisers is being influenced by two Democratic economists from a previous administration. According to the Post, the former Democratic treasury secretary Larry Summers and Jason Furman, a top economist in the Obama administration, have been critical of attempts to link corporate market power to inflation.“Business-bashing is terrible economics and not very good politics in my view,” Summers said in an interview.Wrong. Showing the connections between corporate power and inflation is not “business-bashing”. It’s holding powerful corporations accountable.Whether through antitrust enforcement (or the threat of it), a windfall profits tax or price controls, or all three, it’s important for the administration and Congress to do what they can to prevent hugely profitable monopolistic corporations from raising their prices.Otherwise, responsibility for controlling inflation falls entirely to the Federal Reserve, which has only one weapon at its disposal – higher interest rates. Higher interest rates will slow the economy and likely cause millions of lower-wage workers to lose their jobs and forfeit long-overdue wage increases.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      in World Politics

      Is Sustainable Finance More Hype Than Hope?

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      In recent years, and even more in the wake of the COVID-19 pandemic, it has become evident that finance must contribute to the development of a more sustainable economy. However, the current sustainable finance landscape is characterized by heterogeneous concepts, definitions, and industry and policy standards, which tend to undermine the credibility of this nascent market and open the door to greenwashing.

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      One of the challenges is to decide where to draw the line between sustainable and “normal” investments, and how to subdivide the universe of sustainable finance. The lack of clear rules on what can be labeled “sustainable” opens the door to unscrupulous companies and fund managers trumpeting their environmental, social and governance rating ratings — known as ESG — while simply relabeling existing funds without changing neither the underlying strategies nor the portfolio composition. As a result, some observers are concerned that “the overall prevailing mechanism is based on short-term maximization of financial returns, and [that] ESG is still essentially an idea.”

      Thus, the first step to improve the situation, according to Domingo Sugranyes of the Pablo VI Foundation, is to create “an accepted framework of definitions and metrics” at regional or global levels to identify high-level standards and align the actions undertaken by political authorities around the world. But it is also important to act on the other side of ESG, which is direct financing as opposed to the stock market. For example, the European Commission has adopted several regulations to support and improve the flow of money toward sustainable activities.

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      In addition, Archana Sinha of the Indian Social Institute suggests that broader structural reforms may be necessary “to fully integrate climate-aligned structural change with economic recovery.” Not only should the legal framework be changed so “that emissions generate costs,” says economist Ladislau Dowbor, but “international financial transactions must be taxed, so that they leave a trail, shedding light on tax havens while generating resources for sustainable practices.” Other measures, Etienne Perrot says, may include “central bank rediscount policy favoring sectors that do not use fossil fuels; active and pugnacious mobilization of the shareholders most aware of the ecological crisis; [and] monitoring of speculative drifts.”

      If sustainable finance is to become real hope instead of hype, then we will also need governments to step in to fix the rules, with a view to make any financial activity “sustainable by default,” says Eelco Fiole, an investment governance expert. Otherwise, Perrot warns, “the present enthusiasm around sustainable finance may well be short-lived.”

      By Virgile Perret and Paul Dembinski

      Note: From Virus to Vitamin invites experts to comment on issues relevant to finance and the economy in relation to society, ethics and the environment. Below, you will find views from a variety of perspectives, practical experiences and academic disciplines. The topic of this discussion is: What needs to be put in place in order to leverage the present enthusiasm around sustainable finance?

      “…the ‘present enthusiasm around sustainable finance’ may be short-lived… ”

      “Finance is only one of the means: directing public and institutional financial flows toward investments that exclude — or fight against — the carbon economy; central bank rediscount policy favoring sectors that do not use fossil fuels; active and pugnacious mobilization of the shareholders most aware of the ecological crisis; [and] monitoring of speculative drifts. However, whatever financial modalities are adopted, these ecological costs will necessarily weigh on financial profitability. Which leaves me to fear that the ‘present enthusiasm around sustainable finance’ is short-lived.”

      Etienne Perrot — Jesuit, economist and editorial board member of the Choisir magazine (Geneva) and adviser to the journal Etudes (Paris)

      “…labels should apply only to project financing related to clean energy… ”

      “All sustainable finance labels should apply only to project financing related to clean energy. Investment houses should not finance fossil fuel firms in any way to declare themselves deserving of a sustainable finance seal of approval. This also goes for green financing.”

      Oscar Ugarteche — visiting professor of economics at various universities

      “…ESG is still essentially an idea…”

      “The world produces an amount of goods and services amply sufficient to ensure everyone has a dignified life. We have the necessary technologies to produce in a sustainable way. And we presently have detailed understanding of the slow-motion catastrophe climate change represents. While the Paris conference presented the goals, the Addis Ababa conference on how to fund them reached no agreement. The overall prevailing mechanism is based on short-term maximization of financial returns, and ESG is still essentially an idea. The legal framework has to change, so that emissions generate costs. International financial transactions must be taxed, so that they leave a trail, shedding light on tax havens while generating resources for sustainable practices. The key issue is corporate governance.”

      Ladislau Dowbor — economist, professor at the Catholic University of Sao Paulo, consultant to many international agencies

      “…it is not clear that substantial public intervention is needed… ”

      “Sustainable finance is a broad umbrella, but nonetheless has a clear meaning as investment strategies and products that aim at fostering activities that promote environmental, social and governance improvements. The private sector has rapidly developed, having realized that there is a clear appetite by investors for investment with such priorities. Specific products have been created, as well as rigorous metrics and certifications. It is therefore not clear that substantial public intervention is needed (in fostering sustainable finance, by contrast to ensuring proper pricing of, for instance, CO2 where taxes are needed). Public intervention could focus on requiring disclosure of the sustainability dimension of investment by financial intermediaries to facilitate transparency.”

      Cedric Tille — professor of macroeconomics at the Graduate Institute of International and Development Studies in Geneva

      “…every financial decision should take climate risk into account… ”

      “Globally, the private sector needs altering processes, such that their investments do not worsen climate change. The Indian government needs to introduce guidelines to standardize climate-related revelations in all financial statements and push private companies to manage their exposure to climate risks in their tasks and processes. A lack of clarity about true exposures to specific climate risks for physical and financial assets, coupled with uncertainty about the size and timing of these risks, creates major vulnerabilities. It is suggested that the only way forward is to fully integrate climate-aligned structural change with economic recovery needing a fundamental shift in the entire finance system. Meaning that every financial decision should take climate risk into account and climate finance is integral to the transformation process.”

      Archana Sinha — head of the Department of Women’s Studies at the Indian Social Institute in New Delhi, India

      “…green rating for business firms…”

      “Rendering sustainable finance an effective, practical concept depends, inter alia, on (1) measures regarding definitions, sustainability reporting and regulation; (2) genuine commitment to mitigation of climate change; and (3) honest and sound assessment of outcomes. Under 1, [it] can be singled out the extension of the definitions and accounting essential to regulation, with special attention to the concepts of natural capital and of contingent assets and liabilities. Under 2, there is the need for senior bankers and other key decision-makers to evaluate and explain the charting and navigation of the new business routes required for mitigation. Under 3, there are roles for many different parties — governments, central banks, research institutions and NGOs. The roles could include development and application of green ratings for business firms and other relevant institutions, which draw on historical experience with credit ratings.”

      Andrew Cornford — counselor at Observatoire de la Finance, former staff member of the United Nations Conference on Trade and Development (UNCTAD), with special responsibility for financial regulation and international trade in financial services

      “…an accepted framework of definitions and metrics…”

      “The movement toward ecological sustainability is still in its infancy in the world economy. It is real and probably here to stay, but companies and governments will meet many economic, physical and human hurdles on the way, including raw materials bottlenecks and lack of specialized talent. ESG investment can be seen as an expression of demand for sustainability in society, pressing in the right direction. But to confirm their effectiveness and credibility, ESG-motivated investors will need an accepted framework of definitions and metrics (the ‘taxonomy’ being discussed at the EU level). Ideally, one would imagine a worldwide, self-regulated consensus about environmental cost, similar to the one which led to the international acceptance of the International Financial Reporting Standards (IFRS).”

      Domingo Sugranyes — director of a seminar on ethics and technology at Pablo VI Foundation, former executive vice-chairman of MAPFRE international insurance group

      “…a point of reference in public debate…”

      “A transition from enthusiasm to reality requires 3 steps:

      1: From the experts’ room to the public sphere. Sustainable finance cannot flourish without being a point of reference in public debate and a ‘visible’ concern in everyday life. Such a paradigm shift can only be initiated through a participatory, sociopolitical justification.

      2: Toward a glocal perspective. As it happens with every declaration, the 17 sustainable development goals (SDGs) and the Agenda 2030 provisions need to be part of the national and local development strategy both as aims and evaluation measures.

      3: From wishes to accountability. Various actions — mirrored in national and international law — are required to empower accountability: legislation initiatives that forbid hazardous products, give motives for ‘clean production’ and favor a circular economy, annual monitoring on sustainable practices, reduction of waste/emission and a regulatory framework for investment plans.”

      Christos Tsironis — associate professor of social theory at the Aristotle University of Thessaloniki in Greece

      “…any finance activity needs to be sustainable by default…”

      “Given that rational justice requires the current generation to have a fiduciary duty to the future generation, any finance activity needs to be sustainable by default. In that sense, we need to distinguish between finance and unsustainable finance, and [we] need to focus on diminishing unsustainable finance to the benefit of finance. This means finance needs to be defined as purposeful and needs to account for all interests at stake. This then needs to be coded into law and into incentive systems. While ESG data is important, assessing and certifying impact on a case-by-case basis gives true input for governance and direction toward social and environmental sustainability, all things considered. This requires a new moral psychology for leadership.”

      Eelco Fiole — investment governance expert, board director and adjunct professor of finance ethics in Lausanne and Neuchatel

      *[An earlier version of this article was published by From Virus to Vitamin.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      The Fed is about to raise interest rates and shaft American workers – again | Robert Reich

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      The Fed is about to raise interest rates and shaft American workers – againRobert ReichPolicymakers fear a labor shortage is pushing up wages and prices. Wrong. Real wages are down and workers are struggling The January jobs report from the US labor department is heightening fears that a so-called “tight” labor market is fueling inflation, and therefore the Fed must put on the brakes by raising interest rates.This line of reasoning is totally wrong.Trump and his enablers unwittingly offer Democrats the best hope in the midterms | Robert ReichRead moreAmong the biggest job gains in January were workers who are normally temporary and paid low wages: leisure and hospitality, retail, transport and warehousing. In January, employers cut fewer of these workers than in most years because of rising customer demand combined with Omicron’s negative effect on the supply of workers. Due to the Bureau of Labor Statistics’ “seasonal adjustment”, cutting fewer workers than usual for this time of year appears as “adding lots of jobs”.Fed policymakers are poised to raise interest rates at their March meeting and then continue raising them, in order to slow the economy. They fear that a labor shortage is pushing up wages, which in turn are pushing up prices – and that this wage-price spiral could get out of control.It’s a huge mistake. Higher interest rates will harm millions of workers who will be involuntarily drafted into the inflation fight by losing jobs or long-overdue pay raises. There’s no “labor shortage” pushing up wages. There’s a shortage of good jobs paying adequate wages to support working families. Raising interest rates will worsen this shortage.There’s no “wage-price spiral” either, even though Fed chief Jerome Powell has expressed concern about wage hikes pushing up prices. To the contrary, workers’ real wages have dropped because of inflation. Even though overall wages have climbed, they’ve failed to keep up with price increases – making most workers worse off in terms of the purchasing power of their dollars.Wage-price spirals used to be a problem. Remember when John F Kennedy “jawboned” steel executives and the United Steel Workers to keep a lid on wages and prices? But such spirals are no longer a problem. That’s because the typical worker today has little or no bargaining power.Only 6% of private-sector workers are unionized. A half-century ago, more than a third were. Today, corporations can increase output by outsourcing just about anything anywhere because capital is global. A half-century ago, corporations needing more output had to bargain with their own workers to get it.These changes have shifted power from labor to capital – increasing the share of the economic pie going to profits and shrinking the share going to wages. This power shift ended wage-price spirals.Slowing the economy won’t remedy either of the two real causes of today’s inflation – continuing worldwide bottlenecks in the supply of goods and the ease with which big corporations (with record profits) pass these costs to customers in higher prices.Supply bottlenecks are all around us. Just take a look at all the ships with billions of dollars of cargo idling outside the Ports of Los Angeles and Long Beach, through which 40% of all US seaborne imports flow.Big corporations have no incentive to absorb the rising costs of such supplies – even with profit margins at their highest level in 70 years. They have enough market power to pass these costs on to consumers, sometimes using inflation to justify even bigger price hikes.“A little bit of inflation is always good in our business,” the chief executive of Kroger said last June.“What we are very good at is pricing,” the chief executive of Colgate-Palmolive said in October.In fact, the Fed’s plan to slow the economy is the opposite of what’s needed now or in the foreseeable future. Covid is still with us. Even in its wake, we’ll be dealing with its damaging consequences for years: everything from long-term Covid to school children months or years behind.Friday’s jobs report shows that the economy is still 2.9m jobs below what it had in February 2020. Given the growth of the US population, it’s 4.5m short of what it would have by now had there been no pandemic.Consumers are almost tapped out. Not only are real (inflation-adjusted) incomes down but pandemic assistance has ended. Extra jobless benefits are gone. Child tax credits have expired. Rent moratoriums are over. Small wonder consumer spending fell 0.6% in December, the first decrease since last February.Many people are understandably gloomy about the future. The University of Michigan consumer sentiment survey plummeted in January to its lowest level since late 2011, back when the economy was trying to recover from the global financial crisis. The Conference Board’s index of confidence also dropped in January.Given all this, the last thing average working people need is for the Fed to raise interest rates and slow the economy further. The problem most people face isn’t inflation. It’s a lack of good jobs.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      in World Politics

      Britain’s Still Got It

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      Since Brexit in 2016, the United Kingdom’s growth rate has been poor. Inflation is at its highest rate in 30 years. In December 2021, it had risen to 5.4%. Wages have failed to keep up and, when we factor in housing or childcare costs, the cost of living has been rising relentlessly.

      COVID-19 has not been kind to the economy. Rising energy prices are putting further pressure on stretched household budgets. To stave off inflation, the Bank of England is finally raising interest rates, bringing an end to the era of cheap money. Payroll taxes are supposed to go up in April to repair public finances.

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      The Resolution Foundation is predicting that “spiralling energy prices will turn the UK’s cost-of-living crisis into a catastrophe” by spring. The UK’s 2022 budget deficit will be larger than all its G-7 peers except the US. The beleaguered Boris Johnson government finds itself in a bind. At a time of global inflation, it has to limit both public borrowing and taxes. Unsurprisingly, there is much doom and gloom in the air.

      We Have Seen This Movie Before

      Since the end of World War II, the UK has experienced many crises of confidence. One of the authors move to the country in 1977. Back then, the Labour Party was in power. James Callaghan was prime minister, having succeeded Harold Wilson a year earlier. The British economy was the fifth-largest in the world but was buffeted by crises. In 1976, the government had approached the International Monetary Fund (IMF) when, in the words of Richard Roberts, “Britain went bust.”

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      From 1964 to 1967, the United Kingdom experienced “a continuous sterling crisis.” In fact, the UK was “the heaviest user of IMF resources” from the mid-1940s to the mid-1970s. The 1973 oil crisis spiked energy costs worldwide and pushed the UK into a balance of payments crisis. Ironically, it was not the Conservatives led by Margaret Thatcher but Labour led by Callaghan that declared an end to the postwar interpretation of Keynesian economics.

      In his first speech as prime minister and party leader at the Labour Party conference at Blackpool, Callaghan declared: “We used to think you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour, that option no longer exists.” After this speech, the Callaghan government started imposing austerity measures.

      Workers and unions protested, demanding pay rises. From November 1978 to February 1979, strikes broke out across the UK even as the country experienced its coldest winter in 16 years. This period has come to be known as the Winter of Discontent, a time “when the dead lay unburied” as per popular myth because even gravediggers went on strike.

      In 1979, Thatcher won a historic election and soon instituted economic policies inspired by Friedrich von Hayek, the Austrian rival of the legendary John Maynard Keynes. Thatcher’s victory did not immediately bring a dramatic economic turnaround. One major industry after another continued to collapse. Coal mines closed despite a historic strike in 1984-85. Coal, which gave work to nearly 1.2 million miners in 1920 employed just 1,000 a century later.

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      Throughout the 1970s, the UK was dubbed “the sick man of Europe.” People forget now that a key reason the UK joined the European Economic Community (EEC) in 1973 was to make the economy more competitive. Between 1939 and the early 1990s, London lost a quarter of its population. Yet London and indeed the UK recovered from a period of crisis to emerge as a dynamic economy. Some credit Thatcher but there were larger forces at play.

      There Is Life in the Old Dog Yet

      Last week, one of the authors met an upcoming politician of India’s ruling Bharatiya Janata Party (BJP). A strong nationalist, he spoke about the importance of Hindi, improving India’s defense and boosting industrial production. When the conversation turned to his daughter, he said that he was sending her to London to do her A-levels at a top British school.

      This BJP leader is not atypical. Thousands of students from around the world flock to the UK’s schools and universities. British universities are world-class and train their students for a wide variety of roles. Note that the University of Oxford and AstraZeneca were able to develop a COVID-19 vaccine with impressive speed. This vaccine has since been released to more than 170 countries. This is hardly surprising: Britain has four of the top 20 universities in the world — only the US has a better record.

      Not only students but also capital flocks to the UK. As a stable democracy with strong rule of law, the United Kingdom is a safe haven for those seeking stability. It is not just the likes of Indian billionaires, Middle Eastern sheikhs and Russian oligarchs who put their wealth into the country. Numerous middle-class professionals choose the UK as a place to live, work and do business in. Entrepreneurs with a good idea don’t have to look far to get funding. Despite residual racism and discrimination, Britain’s cities have become accustomed to and comfortable with their ethnic minorities.

      Alumni from top universities and skilled immigrants have skills that allow the UK to lead in many sectors. Despite Brexit, the City of London still rivals Wall Street as a financial center. Companies in aerospace, chemical and high-end cars still make the UK their home. British theater, comedy, television, news media and, above all, football continue to attract global attention.

      Embed from Getty Images

      Napoleon Bonaparte once purportedly called the UK “a nation of shopkeepers.” There is an element of truth to this stereotype. The British are a commercially savvy, entrepreneurial and business-friendly bunch. One author knows a dealer who trades exclusively in antique fans and a friend who specializes in drinks that you can have after a heavy night. The other has a friend who sells rare Scotch whiskey around the world and an acquaintance who is running a multibillion insurance company in India. Many such businesses in numerous niches give the British economy a dynamism and resilience that is often underrated. Everything from video gaming (a £7-billion-a-year industry) to something as esoteric as antique fan dealing continues to thrive.

      The UK also has the lingering advantage of both the Industrial Revolution and the British Empire. Infrastructure and assets from over 200 years ago limit the need for massive capital investment that countries like Vietnam or Poland need. Furthermore, the UK has built up managerial experience over multiple generations. Thanks to the empire, English is the global lingua franca and enables the University of Cambridge to make money through its International English Language Testing System. Barristers and solicitors continue to do well thanks to the empire’s export of common law. Even more significantly, British judges have a reputation for impartiality and independence: they cannot be bribed or coerced. As a result, the UK is the premier location for settling international commercial disputes.

      In 1977, the UK was the world’s fifth-largest economy. In 2022, 45 years later, it is still fifth, although India is projected to overtake it soon. The doom and gloom of the 1970s proved premature. The same may prove true in the 2020s. The economy faces a crisis, but it has the strength and track record to bounce back. The UK still remains a jolly good place to study, work, invest and live in.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      Share the Profits! Why US business must return to rewarding workers properly | Robert Reich

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      Share the profits! Why US businesses must return to rewarding workers properlyRobert ReichThe economy is booming and corporate profits are huge, but American wages still stagnate. History provides the answer According to this week’s release from the commerce department, the US economy has been growing at its fastest pace in almost 40 years. Corporate profits are their highest in 70 years. And the stock market, although gyrating wildly of late, is still scoring record gains.Where egos dare: Manchin and Sinema show how Senate spotlight corrupts | Robert ReichRead moreSo why do most Americans remain gloomy about the economy? Mainly because their real (inflation-adjusted) wages continue to go nowhere.Steeply-rising profits, economic growth and stock market highs – coupled with near-stagnant wages – has been the story of the American economy for decades. Most economic gains have gone to the top.So why not share the profits?Profit-sharing was tried with great success in the early decades of the 20th century but is now all but forgotten. In 1916, Sears, Roebuck & Co, then one of America’s largest corporations with more than 30,000 employees, announced it would begin to share profits with its employees, giving workers shares of stock and thereby making them part-owners.The idea caught on. Other companies that joined the profit-sharing bandwagon included Procter & Gamble, Pillsbury, Kodak and US Steel.The Bureau of Labor Statistics suggested profit-sharing as a means of reducing “frequent and often violent disputes” between employers and workers. Profit-sharing gave workers an incentive to be more productive, since the success of the company meant higher profits would be shared. It also reduced the need for layoffs during recessions because payroll costs dropped as profits did.By the 1950s, Sears workers had accumulated enough stock that they owned a quarter of the company. And by 1968, the typical Sears salesperson could retire with a nest egg worth well over $1m, in today’s dollars.The downside was that when profits went down, workers’ paychecks would shrink. And if a company went bankrupt, workers would lose all their investments in it. The best profit-sharing plans took the form of cash bonuses that employees could invest however they wish, on top of predictable wages.But profit-sharing with regular employees all but disappeared in large US corporations. Ever since the early 1980s when corporate “raiders” (now private-equity managers) began demanding high returns, corporations stopped granting employees shares of stock, presumably because they didn’t want to dilute share prices. Sears phased out its profit-sharing plan in the 1970s.Yet, just as profit-sharing with regular employees disappeared, profit-sharing with top executives took off, as big Wall Street banks, hedge funds, private equity funds and high-tech companies began doling out huge wads of stock and stock options to their MVPs.The result? Share prices and chief executive pay (composed increasingly of shares of stock and options to buy stock) have gone into the stratosphere, while the wages of the typical worker have barely risen.Researchers have found that before the 1980s, almost all the increases in share prices on the US stock market could be accounted for by overall economic growth. But since then, a large portion of the increases have come out of what used to go into wages.Jeff Bezos, who now owns around 10% of Amazon’s shares, is worth $170.4bn. Other top Amazon executives hold hundreds of millions of dollars of shares. But most of Amazon’s employees, such as warehouse workers, haven’t shared in the bounty.Amazon used to give out stock to hundreds of thousands of its employees. But in 2018 it stopped the practice and instead raised its minimum hourly wage to $15. The wage raise got headlines and was good PR – Amazon is still touting it – but the decision to end stock awards was more significant. It hurt employees far more than the increased minimum helped them.Corporate sedition is more damaging to America than the Capitol attack | Robert ReichRead moreIf Amazon’s 1.2 million employees together owned the same proportion of Amazon’s stock as Sears workers did in the 1950s – a quarter of the company – each Amazon worker would now own shares worth an average of more than $350,000.America’s trend toward higher profits, higher share prices, mounting executive pay but near stagnant wages is unsustainable, economically and politically.Profit-sharing is one answer. But how can it be encouraged? Reduce corporate taxes on companies that share profits with all their workers, and increase taxes on those that do not.Sharing profits with all workers is a logical and necessary step to making the system work for the many, not the few.
      Robert Reich, a former US secretary of labor, is professor of public policy at the University of California at Berkeley and the author of Saving Capitalism: For the Many, Not the Few and The Common Good. His new book, The System: Who Rigged It, How We Fix It, is out now. He is a Guardian US columnist. His newsletter is at robertreich.substack.com
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      West Virginians scramble to get by after Manchin kills child tax credits

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      West Virginians scramble to get by after Manchin kills child tax credits Without those monthly checks 50,000 children in the state the centrist senator represents could sink into deep povertyLast fall, Krista Greene missed a week of work after her sons were exposed to Covid and could not return to school. Greene, who manages a tutoring center and yoga studio in Charleston, West Virginia, does not receive any paid time off. Normally, she would have been worried about this loss of income. But the Greene family’s budget had recently become a little more flexible, thanks to the monthly child tax credit payments that began in July 2021.“The first thing I said to my husband was, ‘The Biden bucks are coming next week, so I won’t miss any bills,’” Greene said.It was nice while it lasted.Families probably received their final monthly payments in December after Congress failed to pass the Build Back Better Act. The legislation, the cornerstone of the Biden administration’s domestic policy, would have made the payments permanent. But one Democrat stood in the way – Greene’s senator, Joe Manchin.A week before Christmas, Manchin appeared on Fox & Friends and announced he would not vote for the Build Back Better Act, effectively poleaxing Biden’s plans in a Senate evenly divided between Democrats and Republicans.“I have always said, ‘If I can’t go back home and explain it, I can’t vote for it,’” Manchin said in a press release after the television appearance. “Despite my best efforts, I cannot explain the sweeping Build Back Better Act in West Virginia and I cannot vote to move forward on this mammoth piece of legislation.”The announcement came after months of negotiations between Manchin and the White House, some of which involved the child tax credit. Manchin wanted to limit the credit to families making $60,000 or less annually. He has also said he will not support a permanent credit unless it includes a work requirement.The child tax credit was one of a number of Biden proposals that were surprisingly popular in the deeply Republican state of West Virginia – not least because Manchin’s constituents have benefited from it more than most.Ninety-three per cent of West Virginia children – about 346,000 in all – qualified for the credit payments. That extra $250 to $300 per child a month lifted about 50,000 of those children above the poverty line, according to the West Virginia Center for Budget and Policy (WVCBP).Now that the credits have vanished, so will those advancements. The timing could not be worse. Like the rest of the country, West Virginia is suffering a surge in inflation unseen in decades, a surge that disproportionately affects the poor.“The checks aren’t coming on,” said the WVCBP executive director, Kelly Allen. “Fifty thousand kids in West Virginia are at risk are dropping into deep poverty.”America got more expensive in 2021. Who is really paying the price? – a visual explainerRead moreQueentia Ellis is a single mother with three daughters, ages seven, three and two. For a while, she supported her family with a minimum wage job but found she was always coming up short. “It’s impossible to take care of three kids on a minimum wage job,” Ellis said.She decided to get a college education. The monthly child tax credit payments, along with child support and Temporary Assistance for Needy Families (TANF), allowed her to stay home with her kids while taking classes full-time.“It helped me pay my bills and buy things for my kids that they needed,” said Ellis, who hopes to someday start her own business.With the monthly payments ended, Ellis said she will probably have to return to a minimum-wage job, which means it will take longer to complete her college degree. She will also have to find childcare for her daughters, which will cost up to $100 a month for each child, even with help from a state childcare assistance program.“That takes a toll on the income, especially if you’re working an hourly minimum wage job,” Ellis said. “I have to figure out what and how I’m going to go about making things possible. But where there’s a will there’s a way.”After announcing he would not support the Build Back Better Act, reports surfaced that Manchin was concerned parents were using the child tax credit to buy drugs.Bar chart showing most Child Tax Credit recipients spent their money on food, rent/mortgage and utilities.But the evidence shows that in West Virginia and across the country the money was spent on necessities – 91% of low-income families used the money for basic needs like rent, groceries, school supplies and medicine, according to the Center on Budget and Policy Priorities’ analysis of US census data.“Families know what they need. In some cases, that’s putting food on the tables. In some cases, that’s paying rent. In some cases, it’s allowing mom to stay home for a few months, or paying for childcare because mom needs to go to work,” Allen of the West Virginia Center for Budget and Policy said.Hunter Starks is a single parent with a four-year-old daughter. Theypreviously worked as a social worker, while also working part-time as a political organizer, often logging more than 50 hours in a week.But things changed in 2021.“I’ve worked since I was 15, usually multiple jobs. And I’ve never had a hard time finding work like I did this year,” they said.Starks had difficulty finding employment because they could only take jobs with hours that aligned with their child’s daycare hours.“Service jobs and fast food don’t need folks during those hours,” they said.Starks said the $300 child tax credit payments were “the difference between getting by or not”.“And I still had to ask multiple folks for help,” Starks said.Starks said January’s budget will be tight without the tax credit payment, “but it’s been tight”.They will soon start a new full-time job as a paralegal, in addition to their part-time organizing work. While that will help their bank account, Starks said it will mean less time with their daughter.“I kind of hate the fact that I’m going to go back to working multiple jobs and spending less time with my daughter,” they said. “Even though I’ve struggled financially, I’ve appreciated having that time with her.”While Manchin has balked at the child tax credit’s price tag – about $100bn a year – the credits pumped $470m into West Virginia between July and December 2021 alone. Allen said that money was probably immediately reinvested in the state’s economy, since low- and middle-income families typically spend tax refunds as soon as they receive them.Yoga studio manager Krista Greene said that’s why it was so important the payments arrived monthly instead of once a year, at tax time.“It became part of your monthly income,” she said. “If a hospital bill comes around, I can’t say, ‘Can you wait four or five months until I get my income tax?’”Allen also said the money would have long-term positive effects on the state’s economy as well. Living in poverty has a deleterious impact on children’s health, education and future earnings.“If kids are lifted out of poverty and have access to more economic security, it pays for itself in the long term,” Allen said.Manchin’s office declined the Guardian’s request for comment.TopicsWest VirginiaJoe ManchinChildcareChildrenEconomicsUS politicsfeaturesReuse this content More

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      What Does the Future Success of the Euro Depend On?

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      The first euro banknotes and coins came into circulation 20 years ago. Although the exchange rates of almost all participating countries had already been fixed two years earlier, only the introduction of the euro marked Europe’s irreversible economic integration. For after the creation of the single monetary policy and the introduction of hundreds of tons of euro cash, a return to national currencies would have ended in disaster for the European Union and its member states.

      The global financial crisis and the euro crisis have shown that the single market would not function without the common currency, the euro — one reason being exchange rate differences. Even though the euro has not displaced the dollar from first place in the global monetary system, it protects the European economies from external shocks, that is, negative impacts from the global economy.

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      Moreover, monetary integration has shown its advantages during the COVID-19 pandemic. Without the euro, some member states would not only face a demand and supply crisis, but also a sharp weakening of their currency, which could even lead to a currency crisis. This would make it extremely difficult to fight the pandemic and support jobs with public money.

      The citizens of the EU seem to appreciate the stabilizing effect of the common currency. According to the May 2021 Eurobarometer survey, 80% of respondents believe that the euro is good for the EU; 70% believe that the euro is good for their own country.

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      Moreover, joining the euro area is seen as attractive: Croatia will most likely join the euro area in 2023. Bulgaria also aspires to join. Due to dwindling confidence in the currencies of Poland and Hungary, the introduction of the euro could become a realistic scenario in the event of a change of governments in these countries.

      A Long List of Reforms

      Despite these developments, many of the euro area’s problems remain unresolved 20 years after the currency changeover. The fundamental dilemma is between risk-sharing versus risk elimination. It is a question of how many more structural reforms individual member states need to undertake before deeper integration of the euro area, which implies greater risk-sharing among member states, can take place. In the banking sector, for example, the issue is to improve the financial health of banks — that is, among other measures to increase their capitalization and reduce the level of non-performing loans before a common deposit insurance scheme can be created.

      A second problem is the relationship between monetary and fiscal policy. Currently, the European Central Bank is the main stabilizer of the euro area public debt, which increased significantly as a result of the pandemic, and it will remain so by reinvesting its holdings of government bonds at least until 2024. However, an alternative solution is needed to stabilize the euro area debt market.

      Joint debt guarantees, as recently proposed by France and Italy, must be combined with incentives to modernize the economies, especially of the southern euro are countries. In this context, it is important to keep in mind the limits of fiscal policy, which is currently too often seen as the magic cure for all economic policy problems. Linked to fiscal policy are the questions of how many rules and how much flexibility are needed in the euro area.

      Heated discussions are to be expected this year on the corresponding changes to the fiscal rules. This is because there is a great deal of mistrust between the countries in the north and south of the euro area, which is mainly due to the different performance levels of the economies and the different views on economic policy. The persistent inflation and the problems with the implementation of the NextGenerationEU stimulus package, which is supposed to cushion coronavirus-related damage to the economy and society, could exacerbate the disparities in economic performance and thus also the disagreements within the euro area.

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      The euro crisis has shown that turbulence in one member state can have fatal consequences for the entire currency area. In the coming years, however, the biggest challenge for the euro area will not be the situation in small member states such as Greece, but in the largest of them. The economies of Italy, France, and Germany, which account for almost 65% of the eurozone’s gross domestic product, are difficult to reform with their complex territorial structures and increasing political fragmentation. At the same time, these economies lack real convergence.

      A decisive factor for the further development of the euro currency project will be whether the transformation of their economic models succeeds under the influence of the digital revolution, the climate crisis, and demographic change.

      *[This article was originally published by the German Institute for International and Security Affairs (SWP), which advises the German government and Bundestag on all questions relating to foreign and security policy.]

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More