Wednesday, April 9, 2008

Fed Auctions Another $50 Billion

Fed Auctions Another $50 Billion

Fed Auctions Another $50 Billion to Cash-Strapped Banks in Battle Against Credit Squeeze

By Martin Crutsinger

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WASHINGTON (AP) -- The Federal Reserve, still working to combat the effects of a severe credit squeeze, said Tuesday it had auctioned another $50 billion to cash-strapped banks. Meanwhile, the International Monetary Fund warned that further actions are needed globally to prevent more wrenching problems.

The Fed auction marked the ninth in a series that began in December that so far have pumped $310 billion in short-term loans into the nation's banking system.

Meanwhile, the 185-nation IMF delivered its most detailed review yet of the global credit crisis that hit last August. It said Tuesday that governments must be prepared to do more to support the global financial system if conditions worsen.

"Markets remain under considerable strain" from a variety of forces such as weakened balance sheets from increased bad loans, the IMF said in a report prepared for meetings this week in Washington of the IMF and its sister lending institution, the World Bank.

The global credit crisis is expected to be a top agenda item at those discussions. The IMF report urged policymakers in the United States and other nations to consider what else needs to be done.

"The critical challenge now facing policymakers is to take immediate steps to mitigate the risks of an even more wrenching adjustment, including by preparing contingency and other remediation plans, while also addressing the seeds of the present turmoil," the IMF said.

Federal Reserve Chairman Ben Bernanke and his colleagues hope that the increased resources being supplied in the Fed auctions will encourage banks to keep lending to consumers and businesses and alleviate the economic drag from a severe credit squeeze that began last August.

In a related move, the European Central Bank, which serves the 15 nations that use the euro as their common currency, announced Tuesday that it had auctioned $15 billion in short-term credit to European banks. It was the sixth auction conducted in tandem with the Fed as the two central banks continue to coordinate their efforts to battle the credit crisis.

Bernanke told Congress last week that it was possible that all the blows the economy has sustained from the credit crisis, a prolonged housing slump and now rising unemployment could push the country into a recession. But he said he still believed that the period of weakness would be short-lived and the economy would resume stronger growth in the second half of this year.

The Fed has been holding its auctions to supply direct loans to commercial banks every two weeks starting in December.

The auctions are only one of a number of emergency procedures the central bank has employed to battle the credit crisis, which claimed its biggest victim last month with the forced sale of Bear Stearns, the nation's fifth largest investment bank, to JP Morgan Chase & Co.

In addition to the auctions which supply loans for 28 days to commercial banks, the Fed announced last month that it was employing Depression-era provisions to allow investment banks to borrow directly from the Fed. Previously, only commercial banks had that privilege.

This week's auction, which was held on Monday with the results announced Tuesday, attracted 79 bids seeking a total of $91.6 billion.

Gas Prices Slip, but Could Hit $4

Gas Prices Slip, but Could Hit $4

Gas Prices Slip From Record, but Could Reach $4 a Gallon This Spring, the Government Said

By John Wilen

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NEW YORK (AP) -- Retail gasoline prices pulled back slightly from record levels Tuesday and gave some consumers a small break, but a new government forecast said gas could reach as high as $4 a gallon during the summer driving season.

Oil futures prices, meanwhile, fell as the dollar stabilized, giving investors an opportunity to lock in profits from crude's recent rally. Limiting the declines were developments in Iran, which announced plans to expand its uranium enrichment program and said it has tested key equipment, a move that raised the market's concerns about political conflict that could affect the country's oil exports.

In its monthly report on petroleum supplies and demand, the Energy Department's Energy Information Administration forecast that monthly average pump prices will peak near $3.60 a gallon in June, but could rise as high as $4 a gallon at times. That's a dime higher than the EIA's previous monthly average projection, and brings government forecasts closer to those of many analysts who expect gas prices to peak close to $4 a gallon.

The government also predicted high prices will cut demand for gasoline at the height of the summer. Gas consumption will fall by about 0.4 percent during the peak summer months, and overall consumption of petroleum products will drop by 90,000 barrels a day this year, the EIA said. The agency previously said petroleum consumption would rise by 40,000 barrels a day.

High prices are already having an impact on demand, which has fallen since January.

On Tuesday, regular unleaded gas prices slipped slightly to a national average of $3.331 a gallon from Monday's record of $3.339, according to AAA and the Oil Price Information Service. Prices are 55 cents higher than a year ago.

Crude oil's rise above $100 earlier this year is the main reason gas prices have been rising. Crude futures rose to a trading record of $111.80 last month, and have since traded in a range between about $100 and $110.

On Tuesday, light, sweet crude for May delivery fell 59 cents to settle at $108.50 a barrel on the New York Mercantile Exchange, but alternated between gains and losses. The dollar stabilized against the euro Tuesday, making oil less effective as a hedge against inflation. That led some investors to take profits from a rally that's added 8 percent to the price of a barrel of crude in a week. Analysts believe the dollar's long decline fed the investment surge that pushed oil above $100 earlier this year.

However, the declines were limited by concerns about Iran's announcement that it has begun installing and testing equipment at a uranium enrichment plant. The U.N. Security Council has already passed sanctions against Iran for expanding its nuclear program, and the market is concerned that an escalation of tensions could affect oil exports from the Middle East.

"The announcement of the (equipment) there I think makes people a little bit nervous," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Amherst, Mass.

Many analysts expect oil prices to rise higher in coming months, possibly above last month's records, as the Federal Reserve cuts interest rates later in the year. Lower rates tend to weaken the dollar. Minutes of the Fed's March meeting, released Tuesday afternoon, showed policymakers were far from unified in their decision to cut the key federal funds rate by three-quarters of a percentage point, but are worried about the severity of the economic slowdown.

High oil prices have also sent diesel prices higher. Diesel's national average price rose 1.3 cents to $4.02 a gallon on Tuesday, AAA said, within 2 cents of last month's record.

"We'll set a new record this week -- probably in the $4.05 to $4.10 a gallon neighborhood," said Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J.

Diesel fuel is used to transport most of the world's food, industrial and consumer products, and is one of the reason food prices have risen so sharply this year.

In other Nymex trading Tuesday, May heating oil futures rose 2.59 cents to settle at $3.1102 a gallon. Analysts said heating oil prices are being pushed higher by strong global demand for diesel, which is closely related to heating oil, and a fire that shuttered a refinery in Finland.

May gasoline futures fell 3.31 cents to settle at $2.7504 a gallon, and May natural gas futures fell 9.4 cents to settle at $9.697 per 1,000 cubic feet.

In London, May Brent crude fell 80 cents to settle at $106.34 a barrel on the ICE Futures exchange.

The Fading American Economy: Government is the largest employer

The Fading American Economy

Government is the largest employer

By Paul Craig Roberts

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According to the Bureau of Labor Statistics, the US economy lost 98,000 private sector jobs in March, half of which were in manufacturing. Today 13,643,000 Americans are employed in manufacturing, of which 9,849,000 are production workers.

Government employs 22,387,000 Americans, 8,744,000 more than manufacturing. Even the category leisure and hospitality employs 13,682,000 Americans, slightly more than manufacturing. There are as many waitresses and bartenders as production workers.

Wholesale and retail trade employ 21,467,000 Americans. Professional and business services employ 18,036,000 Americans of which 8,368,000 are in administrative and waste services. Education and health services employ 18,699,000 Americans.

Financial activities employ 8,228,000 Americans. The information sector employs 3,010,000. Transportation and warehousing employ 4,532,000. Construction employs 7,338,000, and natural resources, mining and logging employ 751,000. Other services such as repair, laundry, and membership associations employ 5,516,000 Americans.

This is the portrait of the US economy according to the Bureau of Labor Statistics. It is an economy in which government is the largest employer. Manufacturing employment comprises just under 10% of total employment and about 12% of private sector employment. Everything else is services, and not particularly high level services.

Is this a portrait of a super economy?

To help answer the question, consider that US imports in 2007 were 17% of US GDP, according to the National Income and Product Account tables provided by the Bureau of Economic Affairs. In contrast, the BEA industry tables show that in 2006 (2007 data not yet available) US manufacturing comprised only 11.7% of US GDP.

If US imports actually exceed total US manufacturing output by 5% of GDP, it does not seem possible that the US can close its massive trade deficit. Even if every item manufactured in the US was exported, the US would still have a large trade deficit.

The NIPA and industry tables from which the percentages come are not calculated identically, and I do not know to what extent differences might exaggerate the differences between the percentages. However, it seems unlikely that mere calculation differences would account for US imports exceeding US manufacturing output.

If the US cannot close its trade deficit, it is unlikely that the US dollar can remain the world reserve currency. If the dollar were to lose the reserve currency role, the US government would not be able to finance its annual red ink budget by borrowing from foreigners, as the US saving rate is about zero, and the US would not be able to pay its import bill in its own currency. The rest of the world continues to hold depreciating US currency, because the dollar is the world reserve currency. The dollar is certainly not a good investment having declined dramatically against other traded currencies.

From March 2007 to March 2008 the US economy created 1.5 million new jobs (in services). Legal and illegal immigration and work visas for foreigners exceed US job creation.

During the current school year, 3.3 million high school students are expected to graduate. If we assume that half will go on to college, that leaves 1.6 million entering the work force. College enrollment in 2007 totaled 18 million. If we assume 20% graduate, that makes another 3.6 million job seekers for a total of 5.2 million. Clearly, immigration, work visas, and high school and college graduates exceed the 1.5 million jobs created by the economy. Unless retirements opened up enough jobs for graduates, the unemployment rate has to rise.

The US unemployment rate is creeping up, and according to John Williams, the official unemployment rate greatly understates the real rate of unemployment. Williams has followed the changes that government has made to the official indices over the years in order to spin a more politically palatable picture. Williams uses the original methodology prior to the decades of spin. The original way of measuring unemployment indicates the current rate of unemployment in the US to be 13%, much higher than the 5.1% official number. http://www.shadowstats.com/alternate_data

Williams also calculates the CPI according to the same way it was officially calculated prior to the recent decades of spin. Williams estimates the current CPI at 12%, three times higher than the official 4% figure.

Williams reports that upward growth biases built into GDP modeling since the early 1980s “have rendered this important series nearly worthless as an indicator of economic activity.” http://www.shadowstats.com/article/57 Williams estimates that US GDP growth has been in negative territory during almost all of the 21st century. The notion that the US is just now entering a recession is nonsense if we have in fact been in recession for most of the 21st century.

America’s post-World War II economic dominance was based on the destruction of other economies by war and socialism. It is a different world now, and Americans have given little thought to the economic challenges of the 21st century.

IMF Sells 440.3 Tons Of Gold

IMF Sells 440.3 Tons Of Gold

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Washington (AHN) - The executive board of the International Monetary Fund has approved the sale of some 440.3 tons of its gold supplies in a wide-ranging financial overhaul and to replenish its depleting coffers.

Dominique Strauss-Kahn, IMF managing director, welcomed the board’s move on Monday, the action seen as a buffer to the expected $400 million budget deficit the Washington-based lending institution could experience in the next few years.

The board is projecting to generate at least $11 billion from the sale of at least 12 percent of its gold reserve. The money to be generated from the sales would fund the reorganization of the IMF and finance lending to needing countries.

Strauss-Kahn said it will also shore up diverse investments to generate income.

However, the IMF still needs congressional approval and legislative action of the 184 member-nations of the IMF.

The IMF is facing the challenge of cutting costs and trimming its bureaucracy, after a downturn in lending as some countries refuse to borrow money due to IMF’s strict conditions.

The lending firm has a projected budget deficit of at least $140 million for the fiscal year 2008 which will end on April 30.

However, the IMF said the sale of the gold will be carried out in several transactions over several years so as not to affect the international gold market.

Global price of gold reached an all-time high of over $1,000 an ounce.

’Trillion Dollar Meltdown’ paints scary economic picture

’Trillion Dollar Meltdown’ paints scary economic picture

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Charles Morris, author of The Trillion Dollar Meltdown, isn’t one for sugarcoating. His analysis is dour and grim, but certainly not dull. And when read against a backdrop of an ever-weaker economy, increasingly anxious economists and a stream of gloomy predictions, it can be downright scary.

Morris, a lawyer and former banker who has written 10 books, argues that the subprime mortgage crisis is only a taste of the mayhem that will play out across an array of financial assets.

He lays out the likely course of write-downs and defaults on a whole gamut of assets — residential mortgages, commercial mortgages, high-yield bonds, leveraged loans, credit cards and the complex bond structures that sit atop them. It comes to about $1 trillion, according to Morris. "The sad truth, however, is that subprime (losses he estimates as high as $500 billion) is just the first big boulder in an avalanche of asset write-downs that will rattle on through much of 2008," he predicts.

He doubts it will be an orderly deleveraging. "There will inevitably be margin calls, panicked selling, clamors from shareholders, and the flight from all risky assets that could double or triple the damage."

The subject is complex. But for the most part, Morris serves up a sharp, thought-provoking historical wrap-up of the U.S. economy and its markets, along with clear scrutiny of today’s economic woes.

His account runs from the 1950s to the great inflation of the 1970s and traces the financial boom through three critical developments of the 1980s and 1990s — the birth of "structured finance," the expansion of derivatives markets and the mathematization of trading. All of them flowed together to create the great credit bubble that is now imploding around us, according to Morris.

How did we get to such a place? "The current conservative, free-market cycle that commenced with the Reagan presidency, with all its achievements, seems to have long since foundered in the oily seas of gross excess," he writes.

But a few years ago, it lurked beneath the surface. "The early 2000s were a nervous, quarrelsome time — terrorism, airport check-in lines, a discouraging war, energy disruption, nasty politics. But to be a banker, or a high-rolling investor was very heaven," he writes.

He compares the popping of the Japanese asset bubble of the 1980s to events in the USA today. "In proportional scale and market mechanics, it is quite similar to the crisis we are facing now. But the tight network of Japanese government and finance executives chose instead to deny and to conceal, and almost 20 years later Japan still has not recovered," Morris asserts.

To restore credibility, he declares, "American officials and financial leaders must forthrightly admit the scale of the problem and proceed to purge the absurd valuations, the phony triple-A ratings, the inflated balance sheets, and the hidden liabilities that are marbled through financial balance sheets."

The cost of not doing so? "The loss of faith in American markets will be far greater than a one-time trillion-dollar asset write-down."

The sad fact is there isn’t much the Federal Reserve can do now, he contends. He lays blame on former Fed chairman Alan Greenspan. He describes the term "Greenspan put" as commonplace on Wall Street in the early 2000s. "A ’put’ is an option that allows the owner to sell an asset to some third party at a fixed price, no matter what." In this case, "no matter what goes wrong, the Fed will rescue you by creating enough cheap money to buy you out of your troubles."

It’s not a pretty picture. "The ’wall of money’ that has kept American markets afloat also created a global dollar tsunami that has left a waterlogged world in its wake," Morris writes.

From his vantage point, those days are kaput. The Fed will have to keep interest rates higher than we would like to avert a currency rout. And with America heading into a recession and a continued collapse in the dollar, that will inevitably trigger price increases in imported goods, much as it is doing in oil, he writes. The credit crunch will have to march its way though the financial markets over the next year or so without "soothing fountains of new dollars coming out of Washington," he contends.

Morris believes that the 1980s change from a "government-centric style of economic management toward a more markets-driven one" was vital in the American economic upturn of the 1980s and 1990s. But the "breadth of the current financial crash suggests that we’ve reached the point where it is market dogmatism that has become the problem, rather than the solution. And after a quarter-century run, it’s time for the pendulum to swing in the other direction."

His fundamental solution: After we’ve dug out of our financial markets debacle, "The very first priority will be to restore effective oversight over the finance industry." Bankers and high rollers take note.

Food additives could be as damaging as lead

Food additives could be as damaging as lead

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Artificial food colours are set to be removed from hundreds of products after a team of university researchers warned they were doing as much damage to children's brains as lead in petrol.

Academics at Southampton University, who carried out an official study into seven additives for the Food Standards Agency (FSA), said children's intelligence was being significantly damaged by E-numbers. After receiving the advice last month, officials at the FSA have advised their directors to call for the food industry to remove six additives named in the study by the end of next year.

The advice, which will be put before the FSA board next week, would be voluntary. However, manufacturers would be expected by the regulator to remove the additives, replacing them with natural alternatives if possible. Some sweetmakers have unilaterally agreed to remove the suspect colours following the latest scientific evidence.

Researchers have linked E-numbers to behavioural problems since the 1970s but the debate has intensified after the Southampton study, published last September, found that seven additives such as sunset yellow (E110) and tartrazine (E102) were causing temper tantrums among normal children.

The FSA, which funded the £750,000 study, was criticised by health groups for failing to ban the additives after taking the advice of the Committee on Toxicology, which said they had only a moderate effect on some children.

Instead, the FSA said it would work with manufacturers to see if they would remove the additives and awaited an assessment of its research by the European Food Safety Agency (Efsa).

While conceding there was "limited" evidence that the additives caused the children problems, Efsa decided the study was not a good enough reason to change the safe limits of the E-numbers.

Apparently stung by the failure to act, Professor Jim Stevenson, who led the Southampton study, wrote to the FSA demanding immediate action.

His letter dated 20 March is included in the bundle of documents forwarded to the board, which were published yesterday.

In an 18-page rebuttal of criticism of his study, Professor Stevenson and three colleagues wrote: "The position in relation to AFCs [Artificial Food Colours] is analogous to the state of knowledge about lead and IQ that was being evaluated in the early 1980s ... Needleman [a researcher] found the difference in IQ between high and low lead groups was 5.5 IQ points ... This is very close to the sizes obtained in our study of food additives."

Politicians finally phased out leaded petrol from all petrol stations in 2000, almost two decades after researchers warned that the toxin was stunting the development of young brains.

Professor Stevenson's team warned: "We would argue that the findings from our own study and the previous research overviewed by the Efsa would lead to the same conclusion as was reached by Professor Sir Michael Rutter in relation to lead in 1983. Namely that for food colours there is 'justification for action now'."

They advised that there be more research on a seventh additive they studied, the preservative sodium benzoate, which stops mould growing in fizzy drinks such as Diet Coke.

The FSA's board, which meets on Thursday, will make a recommendation to ministers on what to do about additives.

Officials have warned that some products such as mushy peas, tinned strawberries and Battenberg cake might not be able to be reformulated in time and might have to be withdrawn from the shelves.

* A list of more than 900 products containing the additives is published on the Food Commission's website actiononadditives.com.

FBI Has Spy Program Tracking IM, Emails, and Cell Phones

FBI Has Spy Program Tracking IM, Emails, and Cell Phones

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FBI also spies on home soil for military, documents show; Much information acquired without court order

The Federal Bureau of Investigation has been routinely monitoring the e-mails, instant messages and cell phone calls of suspects across the United States — and has done so, in many cases, without the approval of a court.

Documents released under the Freedom of Information Act and given to the Washington Post — which stuck the story on page three — show that the FBI’s massive dragnet, connected to the backends of telecommunications carriers, "allows authorized FBI agents and analysts, with point-and-click ease, to receive e-mails, instant messages, cellphone calls and other communications that tell them not only what a suspect is saying, but where he is and where he has been, depending on the wording of a court order or a government directive," the Post says.

But agents don’t need a court order to track to track the senders and recipients names, or how long calls or email exchanges lasted. These can be obtained simply by showing it’s "relevant" to a probe.

RAW STORY has placed a request to the Electronic Frontier Foundation for the new documents, and will post them upon receipt.

Some transactional data is obtained using National Security Letters. The Justice Department says use of these letters has risen from 8,500 in 2000 to 47,000 in 2005, according to the Post.

Last week, the American Civil Liberties Union released letters showing that the Pentagon is using the FBI to skirt legal restrictions on domestic surveillance.

Documents show the FBI has obtained the private records of Americans’ Internet service providers, financial institutions and telephone companies, for the military, according to more than 1,000 Pentagon documents reviewed by the ACLU — also using National Security Letters, without a court order.

The new revelations show definitively that telecommunications companies can transfer "with the click of a mouse, instantly transfer key data along a computer circuit to an FBI technology office in Quantico" upon request.

A telecom whistleblower, in an affidavit, has said he help maintain a high-speed DS-3 digital line referred to in house as the "Quantico circuit," which allowed an outside organization "unfettered" access to the the carrier’s wireless network.

The network he’s speaking of? Verizon.

Verizon denies the allegations vaguely, saying "no government agency has open access to the company’s networks through electronic circuits."

The Justice Department downplayed the new documents.

A spokesman told the Post that the US is asking only for "information at the beginning and end of a communication, and for information "reasonably available" by the network.

The FBI’s budget for says the collection system increased from $30 million in 2007 to $40 million in 2008, the paper said.

California teachers protest budget cuts

California teachers protest budget cuts

By Kevin Martinez and Kim Saito

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Some 200 teachers, parents and children marched outside Trabuco Hills High School in Mission Viejo, California—in southern Orange County, between Los Angeles and San Diego—on March 31, to protest a proposed $19.3 million in cuts to the Saddleback Valley Unified School District.

A number of small children, accompanied by their parents, held up handmade signs that read “S.O.S. (Save Our Schools)” and “Leave No Teacher Behind!” The response from passing cars and trucks was overwhelmingly positive as many honked their horns in support of the teachers who wore pink, indicating that they were being given pink slips.

The cuts in the Saddleback Valley represent a 7.4 percent reduction in the school district’s total budget and would eliminate 228 tenured and temporary teachers. In addition, class sizes in grades 1 through 3 would be increased to a ratio of 30 students for every teacher; half of the day the ratio would still be 20:1 when a second teacher is brought in during reading and math instruction.

California may be facing the biggest public education crisis in its history. The steep cuts in the state’s school districts are the direct result of Governor Arnold Schwarzenegger’s attempts to balance the state budget at the expense of working people. At least $4.8 billion is to be cut from the state’s education budget, and more than 20,000 teachers, principals and school supervisors have received layoff notices since March 15. It is estimated that another 87,000 teachers will face job termination, out of a total of 350,000, if the governor’s budget request is passed.

From 1980 to 2000, California went from number 1, in terms of per-pupil spending, test scores and teachers’ salaries, to below 47 in the nation. Twenty-five percent of students in the state are “English learners,” who need help in special classes, and the number of schools teaching low-income students is well above the national average.

In San Diego County, school districts are slashing up to $360 million by expanding classroom sizes at the elementary school level, and sharing nurses and librarians between schools. Los Angeles Unified, the second-largest district in the US, is also expected to cut $460 million by eliminating elective courses and some sport programs and firing art teachers, counselors and faculty from cafeterias to gymnasiums.

In Mission Viejo, the budget cuts have hit students and faculty particularly. The high school International Baccalaureate program will be discontinued, as well as elementary school music classes. The district also notified 53 temporary teachers that their one-year employment contracts would not be renewed.

As many as 27 percent of all administrators will be laid off, in addition to 9 percent of teachers, 6 percent of classified staff, and 2 percent of Pupil Services staff, who work with children with special needs.

At the rally in Mission Viejo, reporters from the WSWS spoke to several teachers and parents who were protesting the school district’s cuts and the suspension of Proposition 98, which ensures a minimum funding of state schools.

Joining the rally was a delegation of teachers from nearby Capistrano Unified School District. Lelia West, a third grade teacher at Tijeras Creek in Capistrano, has four years’ seniority. She received a pink slip. “In Capistrano, there will be 365 layoffs. It’s a very diverse student population. Our school was the model of a new program when it opened in 2000. We teach in a differentiated style to reach GATE [gifted and talented] kids as well as English Language Learners. Now the professional learning community is going to be gone.”

Diana Morgan, named Teacher of the Year at Tijeras Creek, is getting laid off. “It’s kind of ironic that you’re Teacher of the Year and are getting laid off. Parents are shocked, ‘How can someone like you be laid off?’ It doesn’t make sense. Capo is laying off teachers hired after 2000. That’s eight years’ seniority. We’re getting lots of support from parents, who are upset because they get very attached to their teachers and want to have these same teachers for their younger children.”

Joy Kemmerle, a first grade teacher at Trabuco Mesa Elementary in Saddleback Valley Unified, said, “I’ve only been teaching four years and am getting laid off. Five other teachers at my site also got pink slips. It’s based on seniority, going back 10 years to 1998. Right now they’re proposing cutting 200 teachers, music, high school sports, and honors programs.

“So far it’s a little subdued at our school, mainly because people don’t know what’s happening. We will have a lot more kids in our classrooms with less time for individual time with the teacher. This hurts the kids in the long run. There’s a teacher with 10 years seniority who’s losing her job.

“They say the money’s not really there. But we have the wealth in our state. We need to spread it around more. Our school is not Title I [free breakfast/lunch program], but our student population is a lot more diverse than it used to be These kids deserve the best.”

Many parents were pushing strollers and showing their support for their children’s teachers. Sue Schwartz, a hair stylist, brought her three children to the rally. She’s active in the PTA at Foothill Ranch Elementary in Saddleback. “I have my twin boys in fourth grade, and my daughter’s in kindergarten. We’re losing a lot of upper grade teachers, the ones who teach fourth through sixth. We don’t know what’s going to happen. Right now we have 20:1 in first through third grades. But we lost [the 20:1 ratio] in kindergarten five years ago. Now there are 30 to 32 children in the kindergarten classes.

“We have these restrictive laws pertaining to No Child Left Behind. When you don’t have small classes, the kids get left behind, especially when the district is also taking away programs like LAAP [Learning Anywhere Anytime Program], which is a place for kids to go and get help with reading.

“A lot of problems in SVUSD [Saddleback Valley Unified School District] go back to 1972. I just learned about this history recently at a PTA meeting at our school. Back then, they assessed districts based on high-wealth and low-wealth criteria. The low-wealth districts were Saddleback Valley, Irvine Unified and Capistrano, because back in 1972, these were all farming communities. Now, we’ve grown. Now, these communities have also wealthier families, like those who live in Foothill Ranch, Portola Hills, Coto de Caza, Ladera Ranch, Shady Canon and Northwood in Irvine. All these South County areas have grown a lot. These are just a few that didn’t exist back in 1972.

“So the formula for divvying up these funds is based on that old formula. There is only one pool of money for the school districts to share from. The ‘high-wealth’ districts, of course, don’t want to give up their funding. They would need to give a little for us to get a little. Back then, these included Newport-Mesa, Anaheim and Huntington Beach schools. They were the older and well-established communities with more population and income I think it’s time to reassess our districts.”

The rally concluded in order to gather inside for a presentation given by school officials concerning the budget cuts. Many of the protestors were applauded inside.

The California Teachers’ Association (CTA) has not been an organizing force behind many of the protests happening in school districts around the state. As one of the parents involved in coordinating the protests at the Saddleback Valley Unified School District explained, “The unions didn’t organize this rally. They’re working at the state level.”

The CTA’s response to one of the most massive attacks on public education in the last several decades has been pathetic. Thus far, the CTA’s campaign has only consisted of a PR strategy, including a television spot, and letters targeting state legislators. Its entire effort is based on appeals to Democratic state Assembly members in Sacramento, who have worked hand-in-hand with Schwarzenegger over the last several years to impose continual cutbacks in social programs and funding for public infrastructure.

The CTA’s campaign to write letters to the legislature is a diversion. The unions are incapable of organizing the growing opposition and anger in the working class against the school closures and layoffs because they are tied to the Democratic Party and the profit system. In the end, the bureaucracy agrees with Schwarzenegger and the establishment that decent public education is unaffordable, in a state that is home to some 10 percent of the world’s billionaires.

In the context of a deteriorating economic situation, with rising fuel and food prices, and record foreclosures, the working class must unite and mobilize across the state against Schwarzenegger’s budget cuts. Public education is a basic democratic right that can only be defended through the independent mobilization of the working class against the two-party system that defends big business.

American Axle workers denounce UAW concessions offer

American Axle workers denounce UAW concessions offer

By Joe Kay

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Full talks are set to resume between American Axle & Manufacturing and the United Auto Workers on Wednesday. Despite determined resistance from AAM workers, the UAW leadership is preparing to accept substantial concessions in the form of wage and benefit cuts. Over 3,600 workers have been on strike at plants in Michigan and western New York for more than six weeks.

UAW President Ron Gettelfinger met privately with AAM CEO Richard Dauch on Monday in an effort to stitch together a deal behind the backs of the striking workers. Top-level meetings were underway on Tuesday, and this will pave the way for the first full negotiations in weeks beginning Wednesday.

In a column published on Friday, Gettelfinger made clear that the union was prepared to accommodate the “legitimate concerns” of the company and accept a contract that “will mean real sacrifices by our members and real savings for the company.” This can only mean that the UAW is willing to substantially agree to the company’s demand to cut wages by more than one half and gut pension and health care benefits.

The strike is beginning to have a major impact on General Motors and has attracted the support of workers beyond American Axle. It is precisely at this point that the UAW will be most determined to cut the strike off and push through concessions.

More than anything else, the union bureaucracy wants to avoid a broader mobilization of auto workers. The union has sought to convince workers that concessions are inevitable, while wearing them down financially with a meager $200 a week strike pay.

The company has responded favorably to the initial talks between Gettelfinger and Dauch, with company spokeswoman Renee Rogers calling them “productive.”

Union officials have also responded favorably. Dana Edwards, shop chairman at UAW Local 235 and a member of the bargaining committee, told the Detroit News, “Hopefully, [Gettelfinger and Dauch] see that it’s time to put things to a close as we get into the second month of this strike.”

American Axle has begun placing advertisements for strikebreakers, and Dauch has threatened to move all production to other plants in the US or in other countries if the company does not get major concessions. In recent days, AAM has agreed to a few token gestures, including turning over some financial information to the union and restoring payments and benefits to workers on sick leave, which were cancelled when the strike began.

At the same time, General Motors has announced that it will restart shifts at some assembly plants that had been shut down because of the strike, likely by using parts produced at AAM plants in Mexico.

The greatest danger to the strike is the treachery of the UAW bureaucracy, which is planning another agreement modeled after the concessions contracts it has agreed to again and again throughout the industry.

The Socialist Equality Party has called for the formation of rank-and-file committees, independent of the union, to take the conduct of the strike and the negotiations out of the hands of the UAW. A new political movement of the working class must be built to fight for a socialist alternative to the profit system, including putting the auto industry under public ownership and the democratic control of the working class.

On Monday and Tuesday, the World Socialist Web Site spoke to striking workers in Detroit. Many workers reacted sharply against the statements made by Gettelfinger pledging “real sacrifices by our members.”

Lydell said, “He is probably going to do some sellout deal like at Delphi and Dana. I don’t agree with all the concessions that the UAW gave up at Delphi and Dana, but those companies were losing money, so I understand to some extent. But they now want to pattern us after them. This company is not in bankruptcy; we should not give up a thing. If anything, [Dauch] owes us something for the millions he has made off our blood, sweat and tears.”

Brenda, a worker with 13 years told the WSWS, “I can’t believe what Gettelfinger said. I can’t afford to take a buyout or retire; you have to have your health insurance and they’ve moved the retirement age up.

“They claimed they released the financial figures, but they won’t let us see them. They’ve probably doctored the books; I think [Dauch] is a crook. He and all of his sons are in this.”

Eric reacted to Gettelfinger statement. “To me it sounds like a sell-out. Dauch stated he could make a profit paying union wages. Now he gets a raise and we lose money? They give millions to the executives, but what about the workers? Why are you paying these executives millions when workers are making nothing?”

“Its greed—take from the workers to get more. That is how corporate America works. It’s going to be rich and working poor.”

“It sounds like [Gettelfinger] is for the company,” said Darren, a worker with 14 years at American Axle. “We already gave enough concessions in 2004 and 2006. We want to go in the other direction now.” Darren said that more concessions would severely impact the living conditions of workers.

John, a worker with 10 years seniority, said, “I think [Gettelfinger’s] comments are unacceptable, a disgrace, and an insult to the workers. American Axle is a profitable company that is taking its profits to undermine our union. We won’t accept any concessions.” John said he is in skilled trades, but if there is a contract that preserves his pay while cutting the pay of production workers, he will still oppose it.

Dan said that he did not think Gettelfinger should have met with Dauch. “We should not make any sacrifices when Dauch is not making sacrifices,” he said. Dauch was paid $10.2 million in salary, bonuses and benefits in 2007.

Hinnie, a worker with 13 years experience, said he did not think workers would accept a contract with pay cuts. “We are not willing to accept anything less than what we are getting,” he said. “I already got a pay cut of 50 percent last year because of reduction in overtime.”

A worker of 14 years at American Axle complained that the workers were not being told anything about the negotiations. “There are too many confidentiality agreements,” he said. “Why is the membership denied information? Aren’t we the union? What happened to ‘power to the people’?

“They are giving up something we don’t want to give up. Then they’ll shove it down our throats,” he said. “Why is the union giving up things? Everything else is going up. The price of gas is going up; food is going up. If everything else is going up, why are we going down?”

Charles, a young worker with nine years, said, “I’m not giving up what my grandfather fought for. We have given up so much and the company is making money hand over fist. Someone has to stand up. We’d rather see him shut down and move to Mexico than to work for slave wages.

“It’s not the workers in other countries who are stealing our jobs. I can’t blame anyone who is trying to earn a living. It’s these big companies that ship the jobs for cheaper labor. It doesn’t matter what nationality, race or sex you are, as long as we all stand united.

“They are trying to make it just the poor and the rich in this country. How much are these CEOs going to make? People can’t afford the food and the gas prices now. In the olden days you could have a good life with the paycheck brought home by the husband—now you can hardly feed your family on two.

“What do these executives care? If the company folds they still get millions of dollars—they’re still living comfortably. And the government, they answer to the billionaires. Their paychecks are guaranteed, they get jobs for life—they’re not worried.

“We have no idea why the UAW International is not calling out all the auto workers to stop what is happening here. As far as the financial information the company released to the union, we all know that these companies keep double books in order to justify more and more wage cuts.”

Another worker said, “Year after year American Axle was topping the list of auto companies where workers were killed on the job. We’ve given everything to this company.”

Referring to the dismantling of the auto industry by private equity firms like Cerberus—which owns Chrysler LLC, he continued, “I’ve worked for three auto companies that have been owned by the private equity firm Blackstone, including here at American Axle. These investors like buying up manufacturing firms because if they go belly up they can always sell the equipment.

“The union has stopped us from blocking the company from shipping axles out of the plant. The UAW used to fight big business, now they are big business. With control of the VEBA [the multi-billion dollar retiree health care trust fund], they are going to be making loads of money. But the fund is going to run out of money like it did at Caterpillar and Detroit Diesel. Then the union is going to cut the benefits from the retirees.”

Another worker said, “Look how the government has bailed out Bear Stearns. They’ve got plenty of money for Wall Street, but how am I going to tell my daughter I can’t afford to send her to college because they’ve cut my pay?”

Doug said, “I’d love to see a political movement of workers. My aunt teaches history and she told me we are going to see a workers revolution in this country. It’s going to be more than just another Boston Tea Party.

“For years the companies and the unions conditioned workers to believe we have to reopen our contracts and give back what we earned. It’s got to stop.”

Iraq war vet: We’ve heard enough from the generals and the politicians

Iraq war vet: We’ve heard enough from the generals and the politicians

By Bill Van Auken

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Among the several hundred spectators who joined hundreds of members of the media and the Democratic and Republican Senators on the Armed Services and Foreign Relations committees was a fairly small, but particularly skeptical audience—a group of veterans returned from Iraq.

“I would have rather not heard from General Petraeus at all,” said Geoff Millard, who served with the Army’s 42nd Infantry in Tikrit in 2004 and 2005. “I think we are at capacity of hearing from politicians, pundits and generals.”

Millard, who joined the Army in Buffalo, New York and is now with the Iraqi Veterans Against the War, said that it was time that the voices of the enlisted men and women who have participated in the Iraq war and occupation were heard.

“I want to start hearing from E-5s and E-4s; I want to start hearing from boots-on-the-ground soldiers about their experiences,” he said. “I think that every experience in Iraq, no matter what the political views of that veteran, the stories themselves inherently expose this war. Take a story of a guy grabbing his buddy out of a burning Humvee, and that’s a story that tells you what this war is really about. These experiences have been completely left out of the debate.”

The former soldier said that if he had been asked to testify he would have spoken about experiences that opened his own eyes to the real character of the war.

“I would talk about hearing generals, up to and including Gen. George Casey, use the word ‘haji’ to talk about the Iraqis. I would talk about upper-echelon officers and their racist attitudes towards the people of Iraq, to whom we are supposed to be bringing ‘freedom.’”

Millard said that while he believes the war remains today as bad as it was when he was there three and a half years ago, the mood of the soldiers themselves has undergone a change.

“Most soldiers when I was there were against the war, but they couldn’t admit it,” he said. “And now, it’s like, after doing two or three tours, those who still support the war are in the minority.”

Millard said that he and other veterans hope to soon have the opportunity to give their own testimony on Capitol Hill, reprising the “Winter Soldier” hearings that they themselves organized recently in Maryland in which soldiers and Marines returned from Iraq spoke of their experiences and the brutality of the war against the Iraqi people.

General Petraeus gives Senate a blueprint for an unending occupation of Iraq

General Petraeus gives Senate a blueprint for an unending occupation of Iraq

By Bill Van Auken in Washington

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Gen. David Petraeus and Ambassador Ryan Crocker testified before two packed hearings on Capitol Hill Monday, serving up the predetermined recommendation that the US occupation of Iraq continue indefinitely, with troop levels remaining at more than 140,000. That figure is higher than the number deployed in Iraq before the so-called “surge,” as the Bush administration terms its escalation begun over a year ago.

There were few surprises in the testimony by the US commander and US ambassador to Iraq when they appeared before the Senate Armed Services and Foreign Relations committees. There was even less in the way of probing questions—not to mention sharp political challenges—from the members of the Democratic-led panels.

The core of Petraeus’s statement was a set of recommendations that was laughable in terms of its vagueness. After the last of the “surge” combat brigades are withdrawn in July—a troop reduction that is imposed by the unavailability of units to replace them—Petraeus said the Iraqi commanders would use the next 45 days for “consolidation and evaluation.” After that period, they would commence in mid-September “a process of assessment to examine the conditions on the ground” to determine if further troop cuts were possible.

The general acknowledged that “this approach does not allow establishment of a set withdrawal timetable; however, it does provide the flexibility” that he said was needed to maintain “still fragile security gains” supposedly achieved through the surge.

Defying attempts to pin him down on how long it would take to make an “assessment”—or, for that matter, how this process differed from the previous 45 days of “evaluation”—Petraeus insisted that the entire process would be determined by the “geometry of the battlefield” and the “calculus” of diplomacy and politics.

For his part, Ambassador Crocker reiterated the administration’s position that the bilateral agreement being negotiated with the Iraqi regime headed by Prime Minister Nouri al-Maliki for the long-term deployment of US troops in Iraq will not be submitted to the Senate for approval, but will instead be imposed by executive fiat.

On the day of the testimony, the British Guardian newspaper published an account of what it called a “secret” draft of the agreement, reporting that it “shows that provision is being made for an open-ended military presence in the country.”

Crocker even attempted to suggest that the failed US-backed offensive in the southern port of Basra was a sign of the political maturing of Iraq’s government. It showed, he said, that Washington’s puppets in Baghdad were willing to “take on criminals and extremists, regardless of their ethnic identity.”

That the Maliki government launched the assault in a bid to cut off the legs of the one movement in the country that poses a serious challenge to the governing parties in elections scheduled for October—something that is universally recognized in Iraq—was not even hinted at by the ambassador.

He allowed, however, that the Sadrist movement, with its base among the most impoverished sections of the Shia working class, remained the “wild card” in Iraq. On the same day, Muqtada al-Sadr issued a statement in Iraq suggesting that he might abrogate the eight-month-old truce observed by his Mahdi Army, a key factor in the partial reduction of violence attributed to the surge.

Both the ambassador and the general argued that the surge was working. Petraeus claimed it had brought “progress in the security arena,” while cautioning that these gains were “fragile and reversible.” For his part, Crocker pointed to a smattering of legislation pushed through the Iraqi parliament, such as a bill that is supposed to allow former members of the deposed Baathist regime to collect their pensions.

To the extent that the Democrats—and in some cases Republicans—expressed disagreement with the Iraq policy, it was mostly a matter of nibbling around its edges and venting frustration with its progress, rather than any direct challenge to the strategic aims and interests that gave rise to the war in the first place.

There is an obvious reason for their reticence, as the Democrats are fully complicit in the evolution of the war. Moreover, since gaining the leadership of both houses of Congress in the 2006 elections, they have failed to enact any legislation to end the war and have continued to fund it.

They are likewise incapable of directly indicting Petraeus for carrying political water for the Bush administration—which he obviously is—as they themselves voted unanimously to endorse him as the supreme commander of US forces in occupied Iraq.

Thus, Senator Carl Levin, the Democratic chairman of the Senate Armed Services Committee, spent much of his opening remarks decrying the fact that Iraq was not shouldering the costs of its occupation by the US with its “windfall” oil revenues. Iraq, he said, “has $30 billion in US banks, but Iraqi leaders and bureaucrats are not spending these funds,” leaving it to the US government to pay for infrastructure projects and the training and equipping of Iraqi security forces.

“To add insult to injury,” Levin continued, “Americans are paying $3 to $4 on gas at the pump here at home, much of which originates in the Middle East, including Iraq.”

This was a theme repeated over and over again by Democrats and Republicans alike: that the debacle created by the unprovoked US war of aggression against Iraq is actually the fault not of Washington, but of the Iraqis themselves.

Levin concluded his remarks by calling for a “reasonable timetable for the withdrawal of most of our troops,” a formulation reiterated in one form or another throughout the day by leading Democrats—including the party’s presidential candidates, Hillary Clinton and Barack Obama. The words are carefully chosen to exclude an immediate and complete withdrawal of US forces, providing for the continued occupation of Iraq by tens of thousands of American troops for many years to come.

The Republican presidential candidate and the party’s ranking member on the Senate Armed Services Committee, John McCain, sought to have it both ways, supporting a continuation of the Bush administration’s current policy in Iraq, while disassociating himself from what led up to it.

He praised the surge for making it “possible to talk about Iraq with real hope and optimism,” while declaring that the previous “four years of mismanaged war had almost brought us to a point of no return.”

In the question-and-answer period, Petraeus repeated the version of the Basra events that had previously been reported in the media, claiming that the US command in Iraq was given virtually no notice of Maliki’s supposedly unilateral decision to send Iraqi troops and police to attack the southern city. He claimed that the plan was first raised in a Friday night meeting, followed by a Saturday session in which a battle plan was put forward, and that Maliki was in Basra directing operations by Monday.

In one of the few more pointed questions posed in the hearings, Senator Edward Kennedy (Democrat of Massachusetts) asked both Petraeus and Crocker: “Were you in any meeting with Vice President Cheney in which a discussion of the issue of the Basra invasion took place?”

Crocker responded, “No, sir.” Petraeus quickly added, “Same answer, Senator.”

Kennedy’s line of inquiry clearly suggested that within official Washington it is widely suspected that Cheney’s surprise visit to Baghdad barely a week before the assault on Basra was a catalyst for the ill-fated offensive. The American vice president reportedly discussed both the upcoming provincial elections and the prospects for legislation opening up Iraqi oil reserves to exploitation by US energy conglomerates. The Sadrist movement could defeat the ruling parties, particularly in Iraq’s south, in these elections, and it has opposed the planned oil legislation.

The Massachusetts senator made no attempt to pursue this line of inquiry.

Senator John Warner, Republican of Virginia, repeated the same question that he posed when Petraeus and Crocker appeared before the armed services panel six months ago: whether all of the bloodshed in Iraq had made the US any more secure.

Last September, Petraeus made news by replying that he really did not know. This time around, he had obviously thought better of his answer. While replying that the question “ultimately can only be answered by history,” he stressed that he viewed the ongoing operation from the standpoint of “how best to achieve our interests in Iraq,” which he defined from the standpoint of defeating Iranian influence and securing US objectives in the global economy.

Asked by Warner if it troubled him that “up to 80 percent of Americans don’t think it’s worth it,” Petraeus merely reiterated that he thought it was.

Senator Joseph Lieberman, the so-called independent Democrat, used his questioning to promote aggression against Iran.

“Are Iranians still training and equipping extremists who are going back into Iraq and killing American soldiers?” he asked.

Petraeus answered in the affirmative, but provided no evidence to back his claim. He merely asserted that so-called “special groups,” an American-invented term meant to designate Iranian-directed militias in Iraq, were the only ones who would have the capability to target American forces with sophisticated rockets and explosively formed projectiles.

Lieberman continued, “Is it fair to say that Iran was responsible for killing “thousands... or rather hundreds of American soldiers” in Iraq. Petraeus responded: “I do believe that is correct.”

Finally, Lieberman praised Maliki’s ordering of the offensive against Basra, declaring that it showed that he would “not tolerate the Iranian-backed militias essentially running wild and controlling the south of the country.”

Crocker responded that this was “exactly the signal the operation has sent within Iraq and hopefully throughout the region.”

That this is patent nonsense seemed to bother no one. Sadr’s followers in Basra and elsewhere have less support from and relations with Iran than the Shia parties supporting Maliki, including the Islamic Supreme Council of Iraq, whose own Iranian-trained militias fought alongside government troops against the Sadrist Mahdi Army.

The same theme was repeated over and over again in the testimony, with Crocker warning repeatedly about Teheran’s “malign influence” within Iraq and its pursuit of a supposed “Lebanonization strategy” aimed at turning elements of the Shia community into an Iranian proxy force.

It was clear that new lies are being fashioned to justify yet another war, as Washington fears its objectives of subordinating Iraq and its oil wealth to US strategic interests could be lost because of the influence of a regional rival.

Neither of the two Democratic presidential candidates—upon whom the glare of the media was fixated—made any significant impression. Like virtually all of the senators, they made a point of praising the “magnificent” performance of the US troops.

In the armed services hearing, Clinton provided an exceedingly meek defense against an open attack from McCain on her proposal for a partial withdrawal of US troops as “irresponsible.”

“I think it could be fair to say that it might well be irresponsible to continue the policy that has not produced the results that have been promised time and time again,” she said.

She then cited previous testimony from Joint Chiefs of Staff Chairman Admiral Mike Mullen to the effect that the continued elevated troop levels in Iraq did not allow for deploying sufficient numbers of soldiers in the ongoing war in Afghanistan.

Obama sounded a similar note in the foreign relations hearing, making no direct challenge to either Petraeus or Crocker, but lamenting that the tying down of 140,000 troops in Iraq had created an “inability to send our soldiers to the real front line of the war against Al Qaeda, which lies somewhere between Afghanistan and Pakistan.” He insisted that Washington had to make “logical choices” and pointed out that the US had spent “less in six years in Afghanistan than it has in three weeks in Iraq.”

The Democratic presidential front-runner assured the general that “no one is asking for a precipitous withdrawal,” while stressing that “our resources are finite.”

There was a peculiar and decidedly undemocratic atmosphere surrounding the entire proceedings. The delicacy and outright obsequiousness with which the Democratic and Republican politicians addressed the four-star general called to mind the corrupt senate of Rome meeting with the returning commander of the legions.

Within the rows reserved for spectators, a substantial section of the audience was there because of their passionate opposition to the war. One man was dragged out after screaming repeatedly, “Bring them home.” Armed members of the Capitol police lined each aisle threatening those carrying signs opposing the continued occupation of Iraq with ejection.

Petraeus himself was escorted through the halls of the Dirksen Senate office building by a phalanx of Secret Service agents and Capitol police, who barred anyone from following him.

As the Senate went through this sham of democratic oversight, the killing continued in Iraq. Fighting raged between US and Iraqi puppet forces and residents in Baghdad’s Sadr City slums for a third straight day, as Petraeus and Crocker testified on the success of the surge. Mortar shells again struck the US-controlled Green Zone, while a roadside bomb hit an American patrol near Sadr City, injuring a number of soldiers.

Why American Families' Incomes Rise When Dems are in Office and Fall with the GOP

Why American Families' Incomes Rise When Dems are in Office and Fall with the GOP

By Kathy G

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Last week I posted Larry Bartels' instantly famous graph -- you know, the one that showed when Democrat presidents are in power, people on the bottom of the income scale experience larger real income gains than those on the top, while when Republicans are in power, the situation is reversed. It also showed that Democrat presidents are associated with higher income gains for all income groups.

Several observers questioned what causal mechanism could be behind these results. Today at Dani Rodrik's place, Bartels himself elaborates on what factors are driving these outcomes. The short answer? The parties' different approaches to macroeconomic policy, tax policy, social spending, business regulation, and the minimum wage:

Douglas Hibbs did important work along these lines in the 1980s, documenting significant partisan differences in post-war macroeconomic policies. He found that Democrats favored expansionary policies producing substantially higher employment and growth rates, while Republicans endured and sometimes prolonged recessions in order to keep inflation in check. (Not coincidentally, unemployment mostly affects income growth among relatively poor people, while inflation mostly affects income growth among relatively affluent people.) In recent decades taxes and transfers have probably been more important. Social spending. Business regulation or lack thereof. And don't forget the minimum wage. Over the past 60 years, the real value of the minimum wage has increased by 16 cents per year under Democratic presidents and declined by 6 cents per year under Republican presidents; that's a 3% difference in average income growth for minimum wage workers, with ramifications for many more workers higher up the wage scale.

This sounds right to me.

I've neglected to mention the impact of macroeconomic policies, mostly because I'm not as familiar with the research on that topic as I am with the research on unions, the minimum wage, and the like. But it is important and it's something I'll look at more closely.

Over at Marginal Revolution, Tyler Cowen attributes most of the effect to macroeconomic policies, since the impact is concentrated in the second year, and, he argues, that's where you'd see the effect of monetary policy but not the other policies.. He warns that that macro policies such as the ones Democrats favor come with a cost:

Inflation is good for the poor in the short run, since many poor are debtors. But inflation is bad for the poor in the long run. Just ask anyone who lived through the New Zealand inflation of the 1970s.

So Bartels could have entitled his key graph: "Democratic Presidents live for the short run and we need a Republican President every now and then."

He has a point, but I think there's room for the Fed to set interest rates that are considerably lower than they have been recently, without setting them so low as to stimulate intolerably high inflation rates.

Dems Miss Opportunity to Challenge Surge

Dems Miss Opportunity to Challenge Surge

By David Corn

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As General David Petraeus and U.S. Ambassador to Iraq Ryan Crocker testified to the Senate Armed Services Committee on Tuesday and pitched a story of success in Iraq, a news update flashed on the television screen: Sadr threatens to end cease-fire. Meaning that civil war between the Shiite-dominated government of Baghdad and the Shiite movement led by cleric Moqtada al-Sadr could erupt. But Senator John McCain, the senior Republican member at the hearing, seemed unaware of this development. He asked Petraeus, "What do you make of Sadr's declaration of a cease-fire?"

This brief moment underscored a point that war supporters and war critics on the committee kept making throughout the hearing: The ground reality in Iraq is starkly different from how the war is depicted in the United States. Senator Joe Lieberman scoffed at war skeptics for embracing what he called a see-no-progress, hear-no-progress, speak-no-progress view of the war. On the other side, Senator Edward Kennedy (D-Mass.) remarked that the testimony from Petraeus and Crocker -- who each claimed there has been significant though fragile progress in Iraq -- "describes one Iraq while we see another."

The main news of the morning -- news that had already leaked -- was that Petraeus has recommended that once the level of the U.S. troops in Iraq is brought down to presurge levels, which is scheduled for July, there be "a 45-day period of consolidation and evaluation" and then "a process of assessment" before any further troop reductions are considered. In other words, 19 months after the so-called surge -- and after all the supposed success of the surge -- U.S. military involvement in Iraq is expected to be what it was at the start of the surge. Under questioning from Senator Carl Levin (D-Mich.), the committee chairman, Petraeus noted that this process of assessment could take months and that additional reductions would only occur as conditions permit, indicating that the pause in the drawdown could be open-ended.

This was hardly a shocker. Petraeus, in keeping with Bush administration policy, refused to say anything concrete about reducing troops (at any time) to presurge levels. Instead, he and Crocker did what they could to keep alive the White House's favorite meme, that the surge is swell. They cited various indicators of what they consider success. "Weekly security incidents" are down to 2005 levels -- at least until last week. Civilian deaths, according to U.S. military figures, have fallen to early 2006 levels. Bombings are down to mid-2006 levels. The number of Iraqi battalions taking the lead in operations is up 20 percent since January 2007. The Sunni opposition to Al Qaeda in Iraq within Anbar province remains strong. Several pieces of legislation important to national political reconciliation have moved forward in the Iraqi parliament. A budget was passed with record amounts of capital expenditures. And, as Crocker noted, Iraq's Council of Representatives approved a redesign of the Iraqi flag. Their message: We must stay the course.

The Democrats on the committee took shots at the the-surge-is-working narrative, but with their 10-minute-long bursts of disjointed questions they were not able to redefine the debate. In his opening remarks, Levin noted that the main purpose of the surge -- to provide Iraqi leaders breathing room to hammer out a political settlement -- "has not been achieved," and he argued that "our current open-ended commitment is an invitation to continuing [Iraqi] dependency." He blasted the "incompetence and excessively sectarian leadership" of Prime Minister Nouri al-Maliki and noted Iraq was not spending the billions of dollars in surplus it has obtained thanks to rising oil prices, leaving the American taxpayers (who are forced to pay up to $4.00 a gallon for gas) paying for tens of billions of reconstruction within Iraq. He cited a State Department report that noted that "the intransigence of Iraq's Shiite-dominated government [is] the key threat facing the U.S. effort in Iraq, rather than al-Qaida terrorists, Sunni insurgents or Iranian-backed militias." And he said that he was recently informed that of 110 joint U.S.-Iraqi operations of company size or greater in Iraq in the first three months of 2008, Iraqi forces assumed the lead in only 10 of those missions. Kennedy wondered when Iraqi forces -- the recipient of billions of dollars in U.S. assistance -- are "ready to fight on their own." Senator Jim Webb (D-Va.) noted that the "awakening" in Anbar started before the escalation of U.S. troops in Iraq, and he shared his concern that the war was producing serious "strain" for the military.

When most of the Republicans questioned (so to speak) Petraeus and Crocker, they praised the pair and hailed recent developments in Iraq. Senator Lindsey Graham (R-S.C.) said he would award Petraeus, a four-star general, a fifth star if that were possible. McCain maintained, "It is possible to talk with real hope and optimism" about Iraq, adding, "success is within reach." The only thing to worry about, McCain suggested, was a lack of spine at home: "Congress must not choose to lose in Iraq." (While questioning Petraeus, McCain once again demonstrated he does not understand that Al Qaeda is a Sunni outfit.)

Republican Senator John Warner (R-Va.) did try to reprise a question he posed to Petraeus when the general testified before the committee last September. At that hearing, Warner asked Petraeus if the Iraq War had made "America safer." And Petraeus had replied, "I don't know, actually. I have not sat down and sorted in my own mind." This time around, Petraeus was obviously prepared for the question. But he did not have much better of a reply. "Is all this sacrifice [in Iraq] bringing about a more secured America?" Warner asked. Petraeus noted he had "thought a bit about it since September." He pointed out that Iraq is now free of a ruthless dictator and that the "seeds of a nascent democracy has been planted." He paused once or twice while answering the query. "The overall weighing of the scales is difficult." He added that only history will be able to judge. Pressed further by Warner -- "it's a fairly simple question," the senator said -- Petraeus remarked, "I do believe [the war] is worth it." Later on, Petraeus, quoting Tom Brokaw, praised the soldiers serving in Iraq as the "new greatest generation."

Free of fireworks -- except for a few outbursts from protesters in the audience -- the hearing was no game changer. Senator Hillary Clinton criticized the Bush administration's "same failed policies" in Iraq. But she did not forcefully challenge Petraeus and Crocker. In a low-key manner, she nudged Petraeus to state under what conditions he would "recommend to the president that the current strategy is not working." The general sidestepped the question. Clinton did not pound him for that.

The committee Democrats missed an opportunity to confront vigorously the front men for Bush's war in Iraq. It was not as if they hoisted a white flag. They did cite facts and figures that undermine the overall thrust of Petraeus' and Crocker's presentations. They raised pointed criticisms. They griped about the costs of the war. But it did not add up to much of an assault on Bush's policies. Given that congressional opposition to the war has lost much steam in the past year, perhaps this was to be expected. After all, Democrats in Congress appear to have given up on passing any legislation that would alter U.S. policies in Iraq. They know the public agrees with them on the war. (Warner noted that up to 80 percent of Americans don't believe the war was worth it.) But the Democrats have been stymied by a president who refuses to pull back in Iraq.

With Petraeus and Crocker spending two high-profile days on Capitol Hill to appear before four committees, the Democrats have a chance to undercut the White House story -- which has gained traction within the media (if not within the public) -- that the surge has been a success. In the opening round, they did not do much to inconvenience Petraeus and Crocker. It was not an entirely triumphant appearance for the pair, but it was good enough for anyone who favors a continuation of the current course in Iraq, and that includes their boss in the White House.