Tuesday, July 29, 2008

It's the Deficit, Stupid

It's the Deficit, Stupid

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From the WSJ:

Projections suggest the federal budget deficit could exceed $500 billion next year, complicating the debate between Barack Obama and John McCain over how to strengthen the economy while not worsening the nation's finances.

Deficit projections are ballooning because of lower tax receipts and government spending on economic-stimulus programs. The gap increasingly is threatening to play havoc with the two presidential candidates' domestic-policy plans, particularly Sen. McCain's big tax cuts and Sen. Obama's promised health-care expansion, and could force major changes in the winner's agenda.

On Monday, Sen. McCain, the Republican candidate, sought to turn the new deficit numbers to his short-term political advantage, without conceding much to those longer-term realities. Democratic rival Sen. Obama sought to keep the focus on the current shaky economy, economic inequalities and worries over job and retirement security.

The sparring came as the White House budget office boosted its estimate of the federal deficit for fiscal 2009 to $482 billion. With the full costs of the wars in Iraq and Afghanistan added in, the deficit for 2009 likely would exceed $500 billion, analysts said. The deficit projection for 2008 fell somewhat from the last official estimate in February, to $389 billion from $410 billion. Fiscal 2008 ends Sept. 30.

Expect to hear more of these stories come out as the economy worsens.

I wrote an article a few weeks back called "My Conversation With the Next President." In the article I highlighted the basic problem the next president faces. Here is the short version. The Bush administration has mis-managed the federal budget situation to an alarming degree. Although they inherited a budget surplus, they have continually spent more then they have taken in. As a result, the US is issuing debt like its going out of style. Total debt outstanding has increased from $5.8 trillion in 2001 to the current total of $9.5 trillion.

As a result of this problem, the currency markets have sent the dollar lower for six years straight.

If you were wondering why commodities in general and oil specifically have bee rallying for some time, you can thank the cheap dollar as a primary cause. While a stronger dollar alone would not solve the problem of expensive oil, it would definitely help. Consider the dollar chart above. Note it has gone from peak to trough from 130 to its current level of $72.75 -- or a drop of 44%. Also note that most world commodities (like oil) are priced in dollars. As the dollar has dropped in price, so have these commodities. One of the primary reason traders are bidding them up is as an inflation hedge. While that appears to have waned for now, the damage has already been done in the form of higher prices being passed on to the consumer.

And that's not all. The US has been issuing a ton of debt every year during the good economic years. This means that going into the bad years we have a ton of more debt on our books and a culture of not making the tough political decisions (like, for example, raising taxes on the upper-income levels to help pay for a war). As a result, the US is entering a period of economic hardship with both hands tied behind its back.

Theoretically, a government should help to mitigate the effects of a recession with increased spending on programs like unemployment insurance extensions, job retraining, tax credits to start new economic sectors and the like. This goes a whole lot better if the government managed the budget well during the times of growth. However, the US has not done that. Instead, we have loaded up the federal government with a large amount of debt which has helped to devalue our currency which is increasing inflation. Issuing more debt will add further downward pressure on the dollar adding to the current inflationary pressures. In short, doing what the government should do during this time is exactly what the government has been doing for some time and it has led to problems.

It's not a pretty picture, is it?

Unequal America

Unequal America

Causes and consequences of the wide—and growing—gap between rich and poor

by Elizabeth Gudrais

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When Majid Ezzati thinks about declining life expectancy, he says, “I think of an epidemic like HIV, or I think of the collapse of a social system, like in the former Soviet Union.” But such a decline is happening right now in some parts of the United States. Between 1983 and 1999, men’s life expectancy decreased in more than 50 U.S. counties, according to a recent study by Ezzati, associate professor of international health at the Harvard School of Public Health (HSPH), and colleagues. For women, the news was even worse: life expectancy decreased in more than 900 counties—more than a quarter of the total. This means 4 percent of American men and 19 percent of American women can expect their lives to be shorter than or, at best, the same length as those of people in their home counties two decades ago.

The United States no longer boasts anywhere near the world’s longest life expectancy. It doesn’t even make the top 40. In this and many other ways, the richest nation on earth is not the healthiest. Ezzati’s finding is unsettling on its face, but scholars find further cause for concern in the pattern of health disparities. Poor health is not distributed evenly across the population, but concentrated among the disadvantaged.

Disparities in health tend to fall along income lines everywhere: the poor generally get sicker and die sooner than the rich. But in the United States, the gap between the rich and the poor is far wider than in most other developed democracies, and it is getting wider. That is true both before and after taxes: the United States also does less than most other rich democracies to redistribute income from the rich to the poor.

Americans, on average, have a higher tolerance for income inequality than their European counterparts. American attitudes focus on equality of opportunity, while Europeans tend to see fairness in equal outcomes. Among Americans, differences of opinion about inequality can easily degenerate into partisan disputes over whether poor people deserve help and sympathy or should instead pull themselves up by their bootstraps. The study of inequality attempts to test inequality’s effects on society, and it is delivering findings that command both sides’ attention.

Ezzati’s results are one example. There is also evidence that living in a society with wide disparities—in health, in wealth, in education—is worse for all the society’s members, even the well off. Life-expectancy statistics hint at this. People at the top of the U.S. income spectrum “live a very long time,” says Cabot professor of public policy and epidemiology Lisa Berkman, “but people at the top in some other countries live a lot longer.”

Much is still unknown in this dynamic field, where Harvard is home to pioneers who first recognized income inequality as worthy of study and younger scholars at the forefront of its study today. The variety of disciplines featured in presentations of the University’s Multidisciplinary Program on Inequality and Social Policy—economics, sociology, political science, public policy, health, medicine, education, law, and business—highlights the field’s broad importance.

Because of the subject’s complexity and the scarcity of consistent data that would allow comparison between countries and across wide timespans, research findings are often highly specific or framed in the language of interesting coincidences, rather than as definitive conclusions. Even when discernable patterns exist, there tend to be counter-examples; for instance, the United States, with high inequality, has low life expectancy compared to Denmark and Finland, with very low inequality—but in Spain and Italy, with inequality somewhere in between, life expectancy is even longer.

But the coincidences are intrig-uing indeed. Research indicates that high inequality reverberates through societies on multiple levels, correlating with, if not causing, more crime, less happiness, poorer mental and physical health, less racial harmony, and less civic and political participation. Tax policy and social-welfare programs, then, take on importance far beyond determining how much income people hold onto. The level of inequality we allow represents our answer to “a very important question,” says Nancy Krieger, professor of society, human development, and health at HSPH: “What kind of society do we want to live in?”

Keeping Up With The Joneses

The United States is becoming even more unequal as income becomes more concentrated among the most affluent Americans. Income inequality has been rising since the late 1970s, and now rests at a level not seen since the Gilded Age—roughly 1870 to 1900, a period in U.S. history defined by the contrast between the excesses of the super-rich and the squalor of the poor.

Early in the twentieth century, the share of total national income drawn by the top 1 percent of U.S. earners hovered around 18 percent. That share hit an all-time high in 1928—when top earners took home 21.1 percent of all income, including capital gains—then dropped steadily through the next three decades. Amid the post-World War II boom in higher education, and overall economic growth, the American middle class swelled and prospered, and the top 1 percent of earners took home less than 10 percent of all income through the 1960s and 1970s. Since then, the topmost 1 percent have seen their share rise again: it shot past 15 percent in 1996 and crested at 20.3 percent in 2006, the most recent year for which numbers are available.

To describe the distribution of income inequality in the United States, Allison professor of economics Lawrence F. Katz likes to use the analogy of an apartment building. “Over the last 25 years,” he says, “the penthouse has gotten really, really nice. All sorts of new gadgets have been put in. The units just below the penthouse have also improved a lot. The units in the middle have stayed about the same. The basement apartment used to be OK, but now it’s gotten infested with cockroaches and it’s been flooding.” (See graph, page 26.)

The argument that none of this matters as long as the overall economy is growing—that a rising tide lifts all boats, as President John F. Kennedy famously said—is the subject of vigorous academic review, with mixed results, but it may not be the most important question. Picture a buoyant luxury cruise ship surrounded by dilapidated dinghies, full of holes and on the verge of sinking. The fact that the tide has lifted them does not mean they are doing well.

This is a concept social scientists call relative deprivation. The idea is that, even when we have enough money to cover basic needs, it may harm us psychologically to see that other people have more. When British economist Peter Townsend developed his relative deprivation index in 1979, the concept was not new. Seneca wrote that to be poor in the midst of riches is the worst of poverties; Karl Marx wrote, “A house may be large or small; as long as the neighboring houses are likewise small, it satisfies all social requirement for a residence. But let there arise next to the little house a palace, and the little house shrinks to a hut.”

Investigating whether relative deprivation and the negative emotions it engenders help explain why the poor have worse health than the rich in most societies began with epidemiologist Michael Marmot’s study of British civil servants in the 1960s and 1970s. Marmot found that the lower-ranking bureaucrats had elevated levels of stress hormones compared to their high-status coworkers, even though the low-ranking workers still had job security, a living wage, decent hours, and benefits.

Others have found similar links. Examining health outcomes for identical twins raised together—pairs that shared genes and environment—Nancy Krieger found that when the twins became adults, if one was working class and the other professional, the working-class twin’s health was, on average, worse.

There is little question that it is bad for one’s health to be poor. Americans at the 95th income percentile or higher can expect to live nine years longer than those at the 10th percentile or lower. The poor are more likely to develop illnesses such as diabetes, hypertension, heart disease, and cancer, and there is evidence that relative deprivation and the stress it engenders are involved. When high inequality and rising top incomes shift society’s accepted standards of living upward, it seems that people experience deprivation even when they have adequate food, clothing, and shelter. The official U.S. poverty rate—12.3 percent in 2006—is relatively low, but scholars agree that number is essentially meaningless.

The poverty threshold was developed in 1965 based on the cost of a grocery budget “for temporary or emergency use when funds are low,” multiplied by three. It was “arbitrary,” says Wiener professor of social policy Christopher Jencks, “but once it was adopted, it was politically impossible to change it.” That threshold has been adjusted for inflation, but does not take into account the fact that housing prices, energy prices, and certain other costs have grown faster than the consumer price index (CPI). “Going to movies, eating out at restaurants, going on occasional vacations, having Internet access and a cell phone—none of these things are in the federal poverty level,” says Ichiro Kawachi, professor of social epidemiology at HSPH and associate professor of medicine at Harvard Medical School (HMS). “What matters for functioning in society is what the average person is able to do.” During the same period, the Gallup Poll definition of the poverty line—based on asking people how much income they need not to feel deprived—has risen much more steeply than the CPI.

Kawachi, who grew up in Japan, believes a predominant consumption culture in the United States exacerbates relative deprivation. “The Japanese have a very strong culture against conspicuous displays of affluence,” he says. “When I was a child growing up in suburban Tokyo, it was very difficult to distinguish, by dress or anything else, rich kids from poor kids—whereas in America, bring it on!”

As further evidence of a correlation between inequality and consumption culture, he points to national spending on advertising as a percentage of gross domestic product (GDP). The top-ranked countries on this measure, according to United Nations (UN) data, are Colombia, Brazil, and Venezuela—countries with inequality levels among the highest in the world—but also Australia, New Zealand, the United Kingdom (U.K.), and the United States, countries with higher inequality than similarly prosperous peers.

Japan comes second only to Denmark in terms of equal-income distribution among its inhabitants, according to United Nations data. And life expectancy at birth for the Japanese is 82.3 years, compared to Americans’ 77.9 years, even though per-capita GDP in the United States is about $10,000 more than in Japan. “It’s pretty clear that an egalitarian ethos runs along with the idea of having strong safety nets and protecting the health of the most vulnerable,” says Kawachi, who also directs HSPH’s Center for Society and Health. “And that’s reflected in national health statistics.”

The United States ranks twenty-first among the 30 nations in the Organization for Economic Cooperation and Development (OECD) in terms of life expectancy, and twenty-fifth in terms of infant mortality. Kawachi and others have found that the U.S. counties with the most income inequality stack up poorly on health measures, and as mortality rates have fallen nationwide, they have fallen most slowly in states where income inequality increased the most—a cause for concern, whatever the explanation.

American Exception?

One widely used measure of inequality is the Gini coefficient, named for Italian statistician Corrado Gini, who first articulated the concept in 1912. The coefficient measures income distribution on a scale from zero (where income is perfectly equally distributed among all members of a society) to one (where a single person possesses all the income). For the United States, the Gini coefficient has risen from .35 in 1965 to .44 today. On the per-capita GDP scale, our neighbors are Sweden, Switzerland, and the U.K.; on the Gini scale, our neighbors include Sri Lanka, Mali, and Russia. (Even with this basic measure of inequality, it is difficult to get comparable data for all countries, and some other sources find a much wider gap between the United States and Russia. For instance, the Luxembourg Income Study ranks Russia at .43 and the United States at .37, and does not even list Sri Lanka and Mali.)

The Gini coefficient measures the distribution of income on a scale from zero (where income is perfectly equally distributed among all members of a society) to one (where a single person possesses all the income).

Source: United Nations Human Development Report, 2007/08

The recent increase in inequality reflects a migration of money upward as salaries have ballooned at the top. In 1965, the average salary for a CEO of a major U.S. company was 25 times the salary of the average worker. Today, the average CEO’s pay is more than 250 times the average worker’s. At the same time, the government is doing less to redistribute income than it has at times in the past. The current top marginal tax rate—35 percent—is not the lowest it’s been—there was no federal income tax at all until 1913—but it is far lower than the 91-percent tax levied on top earners from 1951 to 1963. Meanwhile, forces such as immigration and trade policy have put pressure on wages at the bottom.

The growth in the Gini coefficient for U.S. family income indicates increasing inequality in recent decades. Trends in family income show those at the top pulling away from those at the middle and the bottom.

Source: The Race between Education and Technology, by Lawrence F. Katz and Claudia Goldin (Harvard University Press, 2008)

Tax policies and employer-pay practices affect income distribution directly. But what governs these pay practices, and why have American voters and politicians chosen the tax policies they have? One answer lies in Americans’ unique attitudes toward inequality. Asked by the International Social Survey Programme whether they agreed or disagreed with the statement that income differences in their home country are “too large,” 62 percent of Americans agreed; the median response for all 43 countries surveyed—some with a much lower degree of inequality—was 85 percent.

Americans and Europeans also tend to disagree about the causes of poverty. In a different survey—the World Values Survey, including 40 countries—American respondents were much more likely than European respondents (71 percent versus 40 percent) to agree with the statement that the poor could escape poverty if they worked hard enough. Conversely, 54 percent of European respondents, but only 30 percent of American respondents, agreed with the statement that luck determines income.

It makes intuitive sense that those who view poverty as a personal failing don’t feel compelled to redistribute money from the rich to the poor. Indeed, Ropes professor of political economy Alberto Alesina and Glimp professor of economics Edward L. Glaeser find a strong link between beliefs and tax policy: they find that a 10-percent increase in the share of the population that believes luck determines income is associated with a 3.5-percent increase in the share of GDP a given nation’s government spends on redistribution (see “Down and Out in Paris and Boston,” January-February 2005, page 14).

These attitudes, in turn, are rooted in U.S. history, says Christopher Jencks, whose 1973 book Inequality examined social mobility in the United States. Jencks has been studying inequality and social class since the 1960s, and has written dozens of journal articles, essays, and book chapters, as well as four more books, on the subject. He looks back to the Constitution’s framers, who enshrined property rights as sacred and checked the government’s ability to control the national economy. “The founding fathers didn’t want the government to do that much,” he says.

The Constitution is structured in such a way that it is harder to change than the constitutions of Europe’s welfare states, where left-leaning groups have succeeded at writing in change. By and large, Alesina and Glaeser write, the U.S. Constitution “is still the same document approved by a minority of wealthy white men in 1776.” And the “vestiges of feudalism” in European society make leftist arguments appealing there, whereas American politicians’ rhetoric has emphasized individual agency since the time of George Washington (who wrote in 1783 that if citizens “should not be completely free and happy, the fault will be intirely their own”). The authors cite a 1980s history curriculum for public schools in California (“hardly the most right-wing of states,” they note) that instructed, “A course should assess the role of optimism and opportunity in a land of work: the belief that energy, initiative, and inventiveness will continue to provide a promising future.”

An alternative, and possibly complementary, explanation points to the United States’s particular place in geography and history. Jencks also finds this persuasive. “The highest levels of inequality are found in the New World and not the Old, for reasons we don’t understand,” he says (see chart above). Societies with higher inequality also tend to have higher crime rates, although it’s not clear which way the causal arrow runs, or if it exists. “These are societies built on conquest, many of them on slavery,” Jencks adds. “A lot of the inequality may just be the legacy of those things.”

Former colonies such as Haiti and Namibia inhabit the top end of the Gini scale, with coefficients of .59 and .74, respectively. But there are exceptions to the pattern: the low end of the scale includes transitional economies that are far from rich (Belarus and Moldova, with coefficients of .30 and .33), and former colonies (Ethiopia and Laos, with coefficients of .30 and .35). For all the scholarly study, consensus on whether the Gini coefficient can, in and of itself, say something good or something bad about a country is still lacking. Still, scholars are using what evidence does exist to ask, and test, whether the United States has things in common with Sri Lanka, Mali, and Russia, as it undoubtedly does with Sweden, Switzerland, and the U.K.

The excesses of the Gilded Age led, in the decades that followed, to a backlash in the form of the minimum wage and other labor laws to protect workers, business and financial-market regulation to protect consumers, social safety-net programs—Social Security, Medicare, Medicaid—and infrastructure investment to benefit all. But as the United States moves from a period of relatively balanced income distribution back into higher inequality, it remains to be seen whether these twentieth-century developments will enable the country to escape the problems that often accompany high inequality.

Left Out At The Bottom

An argument commonly made in inequality’s defense is that it serves to motivate. Here, Kawachi cites evidence from the sports world. A 1990 study of golfers found that they performed best in professional tournaments, where the spread in the size of the prize money is widest. Similarly, a study of professional auto racers found that performance improved as the spread in the size of the various prizes widened.

So inequality may act on the human psyche to elicit hard work and high achievement—but it also may make us more individualistic. In a study of baseball players, teams with wider pay dispersion performed more poorly—and so did individual players within those teams. “In a world in which each individual is looking out for themselves, players will tend to concentrate on improving their own performance to the exclusion of team goals, since their own performance is what matters for moving up the pay scale,” Kawachi and Bruce P. Kennedy (a former HSPH professor who passed away this year) wrote in The Health of Nations: Why Inequality Is Harmful to Your Health. “Concentrating on trying to hit more home runs or improving one’s own hitting average are not necessarily the tactics that lift team performance—as opposed to, say, practicing great defense.”

This gets at the ways inequality may affect the fabric of society. Perhaps motivated by inequality and the prospect of getting ahead, Americans work longer hours than their European counterparts—about 200 more hours per year, on average, than the British, and 400 more hours per year than the Swedes. Again, there are counter-examples (the Japanese work almost as much as Americans do, just 50 hours less a year), but in any case, time spent at work is time not spent with friends or family, and this has its own implications for health.

As an outreach worker in San Francisco in the 1970s, Lisa Berkman noticed that her clients in the North Beach and Chinatown neighborhoods—poor or working-class, but with the strong social connections typical of immigrant communities—had far better health than her clients in the gritty Tenderloin district, who were much more socially isolated and disconnected from one another. The link between social integration and mortality risk became the subject of Berkman’s dissertation at Berkeley, where she earned her Ph.D. in 1977. At the time, the idea that social ties could protect health was radical. Now it is accepted wisdom—and a factor that, Berkman believes, helps to explain the extraordinarily high life expectancy in Spain and Italy.

But the danger of disconnectedness may go beyond being less happy or even less healthy. Kawachi and Kennedy cited a wealth of evidence that increasing income inequality goes hand in hand with a decrease in “social capital,” a concept akin to community involvement that incorporates, among other things, social relationships, trust, reciprocity among friends and neighbors, and civic engagement. (Malkin professor of public policy Robert Putnam made a similar argument in his seminal 2000 book Bowling Alone.) Letting social capital atrophy means a less cohesive populace that, at the extreme, leaves entire classes of people disadvantaged and excluded. “The big worry,” says Lawrence Katz, “is creating something like a caste society.”

As American neighborhoods have become more integrated along racial lines, they have become more segregated along income lines and, some research indicates, with regard to all manner of other factors, including political and religious beliefs. (The Big Sort, a new book by journalist Bill Bishop, examines this evidence.) What’s more, even along racial lines, American society is still far from integrated. Sociologist David R. Williams, Norman professor of public health and professor of African and African American studies, has examined racial discrimination and health in the United States and elsewhere, including South Africa, where in 1991, under apartheid, the “segregation index” was 90, meaning that 90 percent of blacks would have had to move to make the distribution even. “In the year 2000,” says Williams, “in most of America’s larger cities—New York City, Detroit, Chicago, Milwaukee—the segregation index was over 80.” Only slightly lower, that is, than under legally sanctioned apartheid.

When a society is starkly divided along racial or ethnic lines, the affluent are less likely to take care of the poor, Glaeser and Alesina have found. Internationally, welfare systems are least generous in countries that are the most ethnically heterogeneous. Those U.S. states with the largest black populations have the least generous welfare systems. And in a nationwide study of people’s preferences for redistribution, Erzo F.P. Luttmer, associate professor of public policy at the Harvard Kennedy School (HKS), found strong evidence for racial loyalty: people who lived near poor people of the same race were likely to support redistribution, and people who lived near poor people of a different race were less likely to do so. Differences in skin color seem to encourage the wealthy to view the poor as fundamentally different, serving as a visual cue against thinking, “There but for the grace of God go I.”

Alesina’s work investigates this cognitive process as an explanation for the high crime rates in less equal societies. Rather than following the common-sense explanation that the poor see what the rich have and covet it, leading to burglary and violent crime, Alesina argues that as the incomes of the rich and poor diverge, so do their interests. Members of a relatively equal society find it relatively easy to reach agreement about what the purpose and priorities of a legal system should be. But if the rich favor protecting property, while the poor care more about preventing and punishing interpersonal violent crime, the lack of consensus will produce a weak system that fails to meet the desires of either group. In one essay, his colleague Glaeser offers this apocalyptic prediction: “Great gaps between rich and poor may…hurt democracy and rule of law if elites prefer dictators who will protect their interests, or if the disadvantaged turn to a dictator who promises to ignore property rights.”

This doesn’t seem possible in a democracy such as the United States, where each citizen’s vote carries the same weight regardless of income (the electoral-college system notwithstanding). In fact, given the shape of the income distribution, it seems that Americans would elect leaders whose policies favor the poor and middle class. Mean household income in 2004 was $60,528, but median household income was only $43,389. More than half of households make less money than average, so, broadly speaking, more than half of voters should favor policies that redistribute income from the top down. Instead, though, nations—and individual states—with high inequality levels tend to favor policies that allow the affluent to hang onto their money.

Filipe R. Campante, an assistant professor of public policy at HKS and a former student of Alesina’s, thinks he’s discovered why. After investigating what drives candidates’ platforms and policy decisions, Campante has concluded that donations are at least as influential a mode of political participation as votes are.

Previous research has shown that voter turnout is low, particularly at the low end of the income spectrum, in societies with high inequality. Again, this is counterintuitive: in unequal places, poor people unhappy with government policies might be expected to turn out en masse to vote, but instead they stay home. Campaign contributions may provide the missing link.

Candidates, naturally, target voters with money because they need funds for their campaigns. And since the poor gravitate toward parties that favor redistribution and the wealthy align themselves with parties that do not, campaign contributions end up benefiting primarily parties and candidates whose platforms do not include redistribution. By the time the election comes around, the only candidates left in the race are those who’ve shaped their platforms to maximize fundraising; poor voters, says Campante, have already been left out. In a study of campaign contributions in the 2000 U.S. presidential election, he found that higher income inequality at the county level was associated with fewer people contributing to campaigns, but contributing a larger amount on average—so the haves participated, and the have-nots did not.

The solution, he says, is not to scrap the system altogether in favor of full public financing, but to enact contribution limits strict enough to level the playing field. He views contributions not as bribery or buying policy, but as a legitimate form of civic engagement. “The ideal system,” he says, “would be a system where you have a really broad base of contributors that are contributing relatively small amounts.…You want parties to be responsive to voters. Donations are a way in which parties are made responsive to voters.”

Buffers Against Inequality

The effects of relative deprivation can come in a form more tangible than stress or low self-esteem. Krieger uses the example of a job interview. In a society where the average person has a cell phone, it can hurt one’s job chances not to have one. Wearing old clothes to a job interview might be interpreted as a sign of not taking the interview seriously, when in fact the problem is inability to afford a new outfit. Bad teeth, which require money to fix, can trigger disgust in prospective employers and even hold people back from making friends. “Your income,” Krieger says, “can decline to a point where you’re no longer able to participate meaningfully in society.”

Stress can also make people behave in ways they otherwise wouldn’t. David Williams believes that the “hierarchy of needs” framework helps explain why, the poorer people are, the less likely they are to take care of their health. The framework, developed in 1943 by psychologist Abraham Maslow, defines the needs that motivate human behavior and the priority people assign to those needs. Physiological needs (eating, sleeping, breathing) form the foundation; not until those needs are met can people pursue needs in the higher categories (in succession: safety, love/belonging, esteem, and self-actualization). “If people are worried about their basic needs of survival and security and food and shelter,” says Williams, “they cannot worry about the fact that a cigarette, which is providing relief from stress now, is going to cause lung cancer 20 years from now. If you can address the basic needs so people are no longer worried about them, you free them to consider those larger, higher-level needs that have long-term consequences for their well-being.”

Lisa Berkman’s latest project aims to let low-wage workers focus on such higher-order needs. In a study of nursing-home employees, Berkman found that nursing assistants, janitors, and kitchen workers had far less flexibility than higher-status workers in terms of being able to leave work if a family member fell ill, and that this lack of flexibility was related to increased risk of heart disease and chronic sleep problems. Now she is following nursing homes and retail establishments to see what happens when they implement more flexible policies. If workers in high-demand, low-wage jobs can spend more time with their families and stop worrying about getting fired if they need to handle an emergency, she says, “workplace policies may have a profound effect on health.”

Improving living conditions in poor neighborhoods is another way to alleviate poverty’s ill effects even in the absence of income redistribution, says Williams. The poor are more likely to smoke, to eat poorly, and to lead sedentary lives. These are personal choices—but every choice is made in context, and one’s surroundings affect the choices one makes. “When people live in areas where there aren’t supermarkets that sell fresh fruits and vegetables, their intake of fresh fruits and vegetables is dramatically lower,” he says. “If people live in areas where there aren’t sidewalks, where there aren’t safe bike paths and places to walk and playgrounds, or where the rate of crime is so high that it’s not safe to go outside, then their level of exercise is much lower and their rates of obesity are higher.” Building parks and sidewalks and bringing farmers’ markets to poor neighborhoods, then, makes it easier for residents to make healthy choices.

Another category of initiatives aims at improving living conditions for poor people by giving them vouchers to move to better neighborhoods, but the details are important, says Dolores Acevedo-Garcia, an HSPH associate professor of society, human development, and health. She is helping design the public-health component of one such program. Stemming from a landmark 2005 desegregation court case, it has already enabled about 1,300 former tenants of Baltimore public housing to move to suburban communities. “What people are expecting,” she says, “is that if people move to a new neighborhood, they’re automatically going to do better. Well, in fact, a lot of this is about connecting people to resources”: for example, helping them find landlords who will rent to them—not the easiest thing in an unfamiliar neighborhood.

The aid doesn’t stop there. Many doctors in affluent communities don’t accept Medicaid; Acevedo-Garcia’s proposal would have case workers help clients find doctors who do, and in some cases persuade doctors to start. “People may be used to doing their shopping at a convenience store or a liquor store,” she says; case workers will tell them which grocery store has good produce at low prices, and where to catch the bus that will take them there. Something as simple as taking the new residents to a park can make a difference, she says: “They may not be used to the idea of exercising outside if they came from a neighborhood that was not safe.”

Unequal Chances

Adults’ economic status is positively correlated with their parents’ economic status in every society for which we have data,” write Christopher Jencks and Laura Tach, a doctoral student in sociology and social policy, “but no democratic society is entirely comfortable with this fact.” The prospect of upward mobility forms the very bedrock of the American dream, but analyses indicate that intergenerational mobility is no higher in the United States than in other developed democracies. In fact, a recent Brookings Institution report cites findings that intergenerational mobility is actually significantly higher in Norway, Finland, and Denmark—low-inequality countries where birth should be destiny if inequality, as some argue, fuels mobility.

In the United States, the correlation between parents’ income and children’s income is higher than chance: 42 percent of children born to parents in the bottom income quintile were still in the bottom quintile as adults, and 39 percent of children born to parents in the top quintile remained in the top quintile as adults, according to the Brookings analysis. But it is difficult to see whether mobility is increasing or decreasing, because it would require comparing specific individuals’ incomes to their parents’ incomes, against the wider backdrop of income distribution across society at that time. Because data with that level of detail do not exist for earlier periods, scholars can’t say with certainty whether the results represent an increase or a decrease in mobility from other periods in American history.

Americans’ steadfast belief in mobility probably stems from increases in absolute, rather than relative, mobility. As the overall economy mushroomed throughout the nation’s history, the majority of people exceeded their parents’ income. Recall Katz’s apartment building analogy; rather than tenants moving from one floor to another, the entire building was shifting ever higher on a hill. But “if anything,” Alesina and Glaeser write, “the American poor seem to be much more ‘trapped’ than their European counterparts,” in the sense that fewer people who start life in the bottom quintile ever make it out.

This is puzzling given American society’s emphasis on fairness and openness. Lee professor of economics Claudia Goldin and Katz detect an explanation in the increasing cost of college tuition. In 1950, the average tuition price at a private college was roughly 14 percent of the U.S. median family income; public college tuition was even lower (only 4 percent). Percentages for both types of institutions fell further in the ensuing decades, bottoming out around 1980, but then rising steeply ever since. In 2005, the cost of attending the average public college was 11 percent of median family income; for private colleges, the average was 45 percent. There is financial aid, but not enough, and the system “can be harder to crack than Fort Knox,” Katz and Goldin write in their new book, The Race between Education and Technology.

For most of the twentieth century, the average American exceeded his parents’ education level by a significant margin: between 1900 and 1975, the average American’s educational attainment grew by 6.2 years, or about 10 months per decade. Then, between 1975 and 1990, the authors find that there was “almost no increase at all”; from 1990 to 2000, there was a gain of just six months. Although college graduation rates for women are still rising steadily, for men they have barely increased since the days of the Vietnam draft.

At the same time, the “college wage premium” has also increased. In 1975, the average college graduate’s hourly wage was 24 percent higher than the average high-school graduate’s. By 2002, that number had risen to 43 percent. Katz and Goldin say this increase indicates higher demand for workers with college degrees, even as computers have eliminated the type of jobs a high-school-diploma recipient or mediocre college graduate would have done 25 years ago: clerical work, basic accounting, middle management. Technology has exerted downward pressure on those workers’ pay, explaining stagnating wages at the middle and bottom of the income distribution.

The United States once led the world in the rate at which its citizens finished college; it now falls in the middle of the OECD pack. It could lead again if Americans made a decision to fund higher education the way they chose to fund universal public high-school education early in the last century. “If you had made people borrow money to go to high school in the early twentieth century,” says Katz, “you wouldn’t have seen the same sort of expansion.” But as technology continues to advance, if Americans do not break down barriers to higher education, the authors foresee an even more acute shortage of highly trained workers—and, other things being equal, a further increase in inequality.

BP boss warns of more pain for consumers from oil prices

BP boss warns of more pain for consumers from oil prices

By Russell Hotten

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The chief executive of BP, Tony Hayward, has warned that the long term trend for oil and gas prices spells more pain for consumers.

Despite the crude price falling from recent record highs, the boss of Britain's biggest company said that there was "an increasing likelihood that oil and gas prices will be stronger for longer.

Earlier this year, Mr Hayward said that the era of cheap energy was over, at least for the medium term. Today he added: "Events are playing out even faster than any of us expected."

Mr Hayward unveiled another set of bumper profit figures as BP benefited from the soaring oil price. The value of a barrel of crude rose 35pc in the three months between April to June.

In this quarter, BP's replacement cost profit - a widely-followed measure which excludes changes in the value of the company's stockpiles of crude - increased by 6pc to $6.9bn (£3.45bn) compared with a year ago.

For the half year in total, profits rose 23pc to $13.4bn. The second quarter dividend is being lifted by a third but the shares slipped 12¾ to 506¾p..

BP makes most of its money in its upstream business, the division that explores and produces oil. During the quarter, BP produced 3.8m barrels of oil and gas per day, broadly similar to last year.

Mr Hayward said that the giant Thunder Horse field in the Gulf of Mexico was currently producing more than 40,000 barrels of oil per day, and would reach full capacity of 250,000 barrels a day by the end of 2009.

The downside of higher oil prices for BP is that it raises the cost of crude going into its refineries. The Refining & Marketing division, which includes BP's 23,000 petrol stations, saw replacement cost profit collapse to $539m from $2.7bn in the same quarter last year.

Mr Hayward said that margins in the division have "fallen markedly" because of falling petrol consumption, particularly in the US, and "we are sailing into a gale in our refining business."

Oil refining increased 5.2pc to 2.24m barrels a day from last year on higher output from BP's US refineries at Texas City and Whiting.

BP expects to resume full output at Texas City, its largest refinery in the US, by early next year following the 2005 explosion that killed 15 workers. The refinery's processing capacity will be increased to 80pc within days.

BP also dismissed speculation that it might dispose or float its alternative energy division, run by Vivienne Cox.

BP has been carrying out a review of the operation, but Ms Cox said that a sale was not being considered. "The division is an important and fundamental part of the business. It is characterised by extraordinary growth and investment opportunities," she said.

The quarterly dividend, paid on September 14, is 7.039p, up from 5.278p last time.

BP profits soar on record oil price

BP profits soar on record oil price

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Record crude prices and soaring natural gas prices helped BP on Tuesday to report a 28 per cent rise in second-quarter profits to $9.46bn (£4.74bn), from $7.37bn a year ago.

Replacement cost profit, which excludes gains from the value of the company’s crude oil inventories, was up 6 per cent to $6.85bn for the quarter. It rose 23 per cent to $13.44bn for the second half.

BP shares were flat at 519p in afternoon London trading, having earlier risen as much as 2 per cent.

The company has been locked in a bitter battle for control of its Russian joint venture, TNK-BP, which accounts for almost a quarter of BP’s worldwide production.

BP’s Russian partners have demanded the dismissal of Robert Dudley, who heads up TNK-BP, who they say is treating the venture as a subsidiary of BP. Mr Dudley fled Russia last week to run the business from a secret location abroad.

In its results statement, BP warned that while it continued to work to resolve these matters, “currently it is not possible to predict the ultimate outcome if these matters remain unresolved”.

Meanwhile, the company said production for the second quarter was broadly flat compared with the same period in 2007, at 3.83m barrels of oil equivalent per day. BP is counting on the start-up of the long-delayed Thunder Horse field in the Gulf of Mexico to boost output in the coming months.

Profits at the company’s refining division collapsed from $2.7bn to $539m. The company said higher energy costs continued to hit the division’s profits, especially in the US.

BP said it would pay a dividend of 14 cents a share for the quarter, up from 10.825 cents.

Home Price Index Declined in May

Home Price Index Declined in May

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Two trouble spots in the economy showed little sign of improvement in the last few months, as home prices fell again in May and consumer confidence stagnated in July, according to a pair of reports out Tuesday.

Home prices, already falling at the steepest rate in two decades, tumbled again in May, according to the Case-Shiller index, a widely watched survey that measures prices in 20 major metropolitan areas.

Prices were down 15.8 percent from May 2007, including a 0.9 percent one-month drop in May alone. The 10-city price index, which dates to 1988, dropped 16.9 percent, its sharpest decline on record.

All 20 cities measured by the index showed annual declines in home values, and 10 cities have suffered double-digit percentage declines in the last year. Miami and Las Vegas have fared the worst, with prices in each city dropping more than 28 percent since May 2007.

There were some signs that the decline has started to abate. Prices in seven regions, including Boston, Dallas and Charlotte, improved in May, some for the second straight month. Boston, for example, was up 1.05 percent in May, though values are still 6.2 percent below where they were a year prior.

The report “does seem to suggest the rate of decline of existing home prices is slowing,” Ian Shepherdson of High Frequency Economics wrote in a note. “To be sure, prices are still falling very rapidly, and there is no prospect of any rebound this year and probably next, but a slower rate of fall is welcome nonetheless.”

Las Vegas, Miami and Phoenix had the sharpest declines in May, with Miami losing 3.6 percent. The city recorded a 28.3 percent price drop for the last 12 months.

Another month of falling home values may continue to put pressure on investors who are concerned the housing crisis is fueling the credit problems on Wall Street. Last week, a dip in sales of newly built homes helped lead to a sharp decline in the stock market.

In a separate report on Tuesday, the Conference Board, a private research group, said that Americans remained unhappy about the state of their economy in July, though their confidence did not change markedly from a month prior.

The group’s consumer confidence index rose to 51.9 from 51 in June, and a measure of expectations about the economy’s prospects rose to 43 from 41.4. Those figures are historically very low.

“It is not a particularly good sign that consumer confidence and sentiment levels remain as low as they are, even after almost $100 billion of tax rebates have hit consumer’s wallets in the past several months,” Joshua Shapiro, the chief domestic economic at MFR, said in a note.

The Conference Board sends its questionnaire to 5,000 households.

EPA tells its staff: Don't answer watchdogs' queries

EPA tells its staff: Don't answer watchdogs' queries

Renee Schoof

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The Environmental Protection Agency has told its staff not to answer questions from the agency's internal watchdog, news reporters or the nonpartisan investigative arm of Congress, according an internal memo that an environmental group released Monday.

The June 16 memo to the staff of the EPA's enforcement division told them that if they're contacted by the EPA inspector general's office, an independent internal watchdog that monitors the agency, or by the Government Accountability Office, the investigators who work for Congress, they're to forward the call or e-mail to a designated person.

"Please do not respond to questions or make any statements," it adds. The memo sets down the same procedure, with different contact people, for queries from reporters.

EPA spokeswoman Roxanne Smith wouldn't say whether any specific incident triggered the memo, but said it was consistent with existing policies and intended to coordinate responses.

John Walke, a former EPA air pollution attorney, said the inspector general's office ordinarily has unfettered access to agency employees so they can speak candidly and anonymously.

The memo appeared as the Senate Environment and Judiciary committees are trying to get EPA to release information about its global warming policies, and after EPA Administrator Stephen Johnson declined to testify this week before the two committees.

Sen. Patrick Leahy, D-Vt., the chairman of the Judiciary Committee, said last week that he was instructing the EPA inspector general's office to investigate whether there was any wrongdoing in failing to cooperate with Congress.

Public Employees for Environmental Responsibility obtained the memo and released it to reporters.

"The intent was to control any unscripted release of information to an investigator or to a reporter," said Jeff Ruch, the director of the environmental group. "We're not sure what the specific triggering event was, but there's so much chum in the water that they were certainly biting at something."

The EPA's Smith said that Robbi Farrell, the chief of staff of the enforcement division, sent the memo to managers in her office "to ensure consistency and coordination" among staffers who respond to the inspector general and the congressional investigators. It will help with "tracking and record-keeping obligations," Smith said in a statement.

Smith also said the procedure was developed in part as a response to a 2007 inspector general report about follow-ups on audits at EPA. That report, however, didn't critique EPA staff members' contacts with reporters and investigators.

"There is nothing in the procedure that restricts conversation between enforcement staff, the press, GAO and the IG and the procedure is consistent with existing policies," Smith's statement said.

But Walke, who worked for the EPA as an attorney from 1997 to 2000 and now works for the environmental group Natural Resources Defense Council, said, "If the agency has advance notice of who they want to talk to and about what, it allows them to do spin control and manage the damage fallout."

The EPA inspector general's office conducts audits, evaluations and investigations of the EPA and its contractors "to promote economy and efficiency and to prevent and detect fraud, waste and abuse," its Web site says.

Sen. Barbara Boxer, D-Calif., the chairwoman of the Senate Environment and Public Works Committee, has criticized Johnson for not testifying about alleged White House interference with the EPA. Boxer has called on Johnson to release a finding the EPA prepared and sent to the White House in December that found global warming endangers the public welfare.

"Stephen Johnson is turning the EPA into a secretive, dangerous ally of polluters, instead of a leader in the effort to protect the health and safety of the American people," Boxer said in a statement Monday in response to reports about the memo.

A copy of the memo as released by PEER:

Robbi Farrell/DC/USEPA

/US 06/16/2008 11:22 AM


Betsy Smidinger/DC/USEPA/US(at)EPA,

Christopher Knopes/DC/USEPA/US(at)EPA,

David Hindin/DC/USEPA/US(at)EPA,

James Edward/DC/USEPA/US(at)EPA,

Karin Koslow/DC/USEPA/US(at)EPA,

Kenneth Gigliello/DC/USEPA/US(at)EPA,

Linda Flick/DC/USEPA/US(at)EPA,

Lorna Washington/DC/USEPA/US(at)EPA,

Michael Alushin/DC/USEPA/US(at)EPA,

Richard Colbert/DC/USEPA/US(at)EPA,

Robert Mcnally/DC/USEPA/US(at)EPA


Lisa Lund/DC/USEPA/US(at)EPA,

David Hindin/DC/USEPA/US(at)EPA,

David Piantanida/DC/USEPA/US(at)EPA


Please remind your staff at your next staff meeting of the following policies and procedures.

1. If you are contacted by a reporter, please forward the call or email to Laura Gentile and Roxanne Smith, cc Robbi. Please do not respond to questions or make any statements.

2. If you are contacted directly by the IG's office or GAO requesting information of any kind, please forward their call or email to Gwen Spriggs, cc Robbi. Please do not respond to questions or make any statements.

Thanks very much for your continued attention to these important procedures.


Senator Stevens Indicted in Corruption Inquiry

Alaska Senator Is Indicted for Failing to Disclose Gifts

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Senator Ted Stevens of Alaska, the longest-serving Republican senator in United States history and a figure of great influence in Washington as well as in his home state, has been indicted in connection with a federal corruption investigation.

Mr. Stevens, 84, was indicted on seven counts of failing to report income. The charges are related to renovations on his home and to gifts he has received. They arise from an investigation that has been under way for more than a year, in connection with the senator’s relationship with a businessman who oversaw the home-remodeling project.

The indictment will surely reverberate through the November elections. Mr. Stevens, who has been in the Senate for 40 years, is up for re-election this year. Mark Begich, a popular Democratic mayor of Anchorage, hopes to supplant him.

The Justice Department announced the charges at a news conference Tuesday afternoon. The document says that, from the spring of 1999 through the late summer of 2007, Mr. Stevens failed to report “things of value” that he received in connection with his home in the ski resort city of Girdwood, about 40 miles south of Anchorage.

Prosecutors say Mr. Stevens, who referred to his home as “the chalet,” accepted goods and services worth hundreds of thousands of dollars, ranging from an outdoor grill to extensive home remodeling and architectural advice. Not only did Mr. Stevens fail to report the items on his Senate financial disclosure form, as required, but he took active steps to conceal the receipt of the goods and services, the indictment says.

All the charges are felonies. Justice Department officials declined to discuss how long a prison term a conviction on the charges might bring, noting that the maximum sentences allowed by law are rarely imposed. Mr. Stevens was in Washington on Tuesday, and was allowed to turn himself in for paperwork processing.

The business executive at the center of the affair is Bill J. Allen, a longtime friend of the senator’s and the founder of VECO, a company that builds pipelines and does other construction work for oil companies. Mr. Allen pleaded guilty in May 2007 to making $243,000 in illegal payments to a lawmaker, who was later identified as State Senator Ben Stevens, Ted Stevens’s son.

Ben Stevens, who was once president of the Alaska State Senate, is one of a half-dozen lawmakers under scrutiny for their relationships with Mr. Allen and his company.

Republicans on Capitol Hill were already jittery over a lobbying and influence-peddling scandal related to the lobbyist Jack Abramoff, who is now in prison. Mr. Stevens’s troubles are not linked to that affair. Instead, they stem from his ties to an oil executive whose company won millions of dollars in federal contracts with the help of Mr. Stevens, whose home in Alaska was almost doubled in size in the renovation project.

Under Senate Republican party rules, an indictment on felony charges compels a member to temporarily give up his leadership posts, and Republican senators were told at their weekly luncheon on Tuesday that Mr. Stevens would do so. Mr. Stevens has been the ranking minority member on the Commerce, Science and Transportation Committee.

Mr. Stevens is a former chairman of the Senate Appropriations Committee, and he is still on the panel. As chairman, he wielded huge influence, and did not hesitate to use it to steer money and projects to his state.

“No other senator fills so central a place in his state’s public and economic life as Ted Stevens of Alaska,” the Almanac of American Politics says. “Quite possibly, no other senator ever has.”

Mr. Stevens, one of only a handful of World War II veterans left in the Senate, grew up in Indiana and California and moved to Alaska in 1950, before it was a state, according to the political almanac. He first ran for the Senate in 1962, losing to Ernest Gruening, a Democrat. He was appointed to fill a vacant seat in the Senate in 1968 by the governor at the time, Walter Hickel, and has been re-elected six times since then.

Word spread through the Capitol like an electric current, prompting whispers among senators and staff. The Democrats were gathering in a room near the Senate chamber for their weekly conference lunch. Republicans, meanwhile, moved their lunch to the headquarters of the Republican Senatorial Campaign Committee, a common change of venue when the primary topic of discussion is politics.

Mr. Stevens is seen as a legendary, even heroic, figure in Alaska, who played a crucial role in its achievement of statehood, which became official in 1959. According to Senate Republican rules, Mr. Stevens will have to give up his leadership positions, which include some hugely powerful posts, as the senior Republican on the Commerce, Science and Transportation Committee and the defense appropriations subcommittee.

The long-running federal corruption investigation in Alaska has been hanging over Mr. Stevens as he faces his toughest re-election contest in many years. Mr. Begich was expected to mount a strong challenge even before word of the indictment spread.

Alaska, which last elected a Democratic senator in 1974, is one of several seemingly unlikely states where Democrats believe they have a strong chance of pulling off upset victories in the November elections.

The indictment comes nearly a year after federal agents raided Mr. Stevens’s home as part of a continuing investigation into corruption that had already ensnared the senator’s son.

Though lawmakers have been aware of the Justice Department inquiry for some time, the news of an indictment still came as something of a shock this week, as both houses of Congress are trying to wrap up legislative business before the monthlong August recess.

Senator Daniel Inouye, Democrat of Hawaii, who is the chairman of the defense appropriations subcommittee and a friend of Mr. Stevens, said Mr. Stevens should be presumed innocent unless and until he is proven guilty.Mr. Inouye said he did not expect that the indictment would interfere with Senator Stevens’s ability to work in the Senate.

Other lawmakers, including Senator Barbara Boxer, Democrat of California, the chairwoman of the ethics committee, said they needed to know more about the indictment before commenting.

Are We Facing Just Another Market Problem or a System Collapse?

Are We Facing Just Another Market Problem or a System Collapse?

By Danny Schechter

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The question we face in late July, as regulators seize two more banks, is: will we be engulfed by a further collapse in our economy or can the damage be contained, or, even turned around?

We know what goes up must come down but when will what's down go back up?

It isn't looking good -- and, even now, the two presumptive major party presidential candidates are talking about everything but this deepening crisis. They are debating terrorists and Afghanistan and how to meander out of Iraq but not the reality that so many Americans are living with: a squeeze that is leaving so many of us broke, in deeper and deeper debt and disgusted.

Until now, the doom and gloomsters were mostly to be found in the margins, in financial blogs or in the campaigns of Ron Paul, Ralph Nader or the Greens. The mainstream media has been looking the other way and mostly downplaying the unfolding disaster. Even as foreclosures double, and the price of gas and food rises sharply, it's been business as usual on the business pages, and among the liberal political pundits who would rather debate the cover of the New Yorker than the growing desperation of so many Americans.

The Congress finally passed a housing bill a year into the crisis with most of the money allocated to try to shore up two housing agencies with more than a half a trillion in housing assets. The markets are melting down with more major stocks tanking, banks writing off still more billions. and unemployment rising.

People in the know like George Soros are saying this is the worst financial crisis since the depression. Others fear another depression. This pessimism has reached Newsweek, a guardian of conventional wisdom, which now says "It's Worse Than You Think, writing "this downturn is likely to last longer than the eight-month-long recession of 2001. While the U.S. financial system processes popped stock bubbles quickly, it has always taken longer to hack through the overhang of bad debt. The head winds that drove the economy into this dead calm -- a housing and credit crisis, and rising energy and food prices -- have strengthened rather than let up in recent months. To aggravate matters, the twin crises that dominate the financial news -- a credit crunch and the global commodity boom -- are blunting the stimulus efforts."

We have two challenges: understanding the gravity of what is threatening us, and then discussing what could or should be done. We might also want to think about what the press should be reporting and what policy makers should be proposing.

On the foreclosure crisis, for example, I was just in Washington for five days with NACA, the Neighborhood Assistance Corporation of America which took over a major hotel and set up a shop to counsel at risk home owners and advocate for affordable loans.

The Washington Post, based just across the street from the lines of some 20,000 people seeking help, did not cover it until it was over. But, to their credit, when they did they recognized that this effort by a not for profit citizens group was more effective in responding to the crisis than all the government agencies put together.

Writes Post Business columnist Steven Pearlstein:

"They came by plane and train, car and subway, starting before dawn and continuing late into the night, all of them clutching tattered folders and envelopes stuffed with the documentary evidence of their financial hardship and miscalculation.

"It was striking how well-organized and executed it all was. Outside, there were plenty of volunteers and staff -- 350 were flown in from around the country -- doling out information, advice and sympathy to those waiting in line.

"In the space of 30 to 60 minutes, the well-trained, upbeat counselors managed to win the trust of their new clients, wring promises of a more frugal lifestyle and enter into their computers the relevant financial details. At a push of a button, NACA's underwriting system declared how much the client could afford in monthly mortgage payments, and automatically requested the mortgage servicing company to modify the loan accordingly. Depending on the service and the loan, the answer might be available in a matter of days or even hours. In about half the cases, the result is likely to be a below-market, fixed-rate loan with hundreds of dollars cut from their monthly payments."

So here's one example of what can be done by an economic justice organization fusing services and advocacy. This all happened three blocks from the White House. While federal regulators visited, none of the progressive DC think tanks or even unions showed up in solidarity even though AFL-CIO headquarters is a block away.

Individuals need help but we all need change. Are we dealing with just another market mistake, the latest bubble gone bust in a volatile business cycle or a straining system on the verge of breakdown? Can we solve all this with an Alka-Seltzer-like infusion of new taxes or regulations?

Or, is Gerry Gold, economics editor of the UK's A World to Win, right when he argues, "The urgency of building a movement to replace capital, not to rescue it, cannot be overstated. This will mean a major program extending social ownership to all sectors of the economy, ending the distribution of profits to shareholders, and replacing the system of selling labor for wages with collective decision-making about the distribution of an organization's income."

Pie in the sky? Or is the sky really falling, made worse by global warming, wars without end, and resource depletion? If Obama or McCain are to "fix" what's broken, they better start talking about it. And once they inevitably do, will either one of them, once elected, be able to overcome Congressional inertia and the power of corporate/finance industry lobbies?

If the rest of us see what's coming, we better speak up too. Remember, when you see something say something? It's also time to do more than talk.

Danny Schechter writes a blog for MediaChannel.org. He is the author of "Embedded: Weapons of Mass Deception: How the Media Failed to Cover the War on Iraq" (Prometheus).

Bank Failures So Far

Bank Failures So Far

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With the news today that two more US banks have failed, I thought it would be useful to see where we are with the continuing collapse of the global financial system.

Failed Banks So far:

Northern Rock
Bear Stearns
First Integrity Bank
ANB Financial
Hume Bank
Douglas National Bank
First Heritage Bank
First National Bank of Nevada

Forthcoming failures(?):

Barclays (senior execs jumping ship right now!)
Bradford & Bingley
Downey Financial
Corus Bankshares
Doral Financial
FirstFed Financial
Oriental Financial
BankUnited Financial
Washington Mutual

… and many more. Keep you posted.

U.S. biofuel plants go bankrupt on feedstock costs

U.S. biofuel plants go bankrupt on feedstock costs

By Timothy Gardner

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Soaring corn and soy prices on top of rising construction costs and tight credit markets have pushed about a dozen U.S. biofuel plants to file for bankruptcy protection, experts said.

Prices for corn, the feedstock for most U.S. ethanol plants, hit fresh records above $8 per bushel this week as floods this month in the Midwest have caused billions of dollars of crop damage.

"Corn prices are making the feasibility of ethanol plants every day more and more questionable," said Alex Moglia, president of Moglia Advisors in suburban Chicago, which helps biofuel companies restructure.

Meanwhile prices for soy oil, the feedstock for most biodiesel plants, have been high on rising global demand for months, making life miserable for most producers. The miserable profit margins have pushed many makers of the alternative motor fuel to run plants at only about half of their capacity.

Moglia said about 12 small to midsize biodiesel and ethanol plants have declared bankruptcy in recent months. Renova Energy LLC, a company that owns a partially built 20 million-gallons-per year ethanol plant in Idaho, was the latest to declare bankruptcy last week. Kansas-based Ethanex Energy Inc

declared bankruptcy in March.

"There will be more to follow," said Moglia. Some plants are restructuring their debt and taking steps to manage risks, but many others are not, he said.

U.S. ethanol plants are still opening but plans for the opening of plants through 2009 are being increasingly delayed or scrapped. Please click


Besides the high feedstock prices, the fact that prices for the alternative fuel have not kept up with surging gasoline prices also hurts distillers.

The giant oil industry, which is required by renewable- and clean-fuel mandates to mix the blendstock into gasoline, has done its best to buy ethanol at low prices. Ethanol supplies have been glutted in the Midwest as the industry works to ease transportation to the coasts, another factor keeping a lid on ethanol prices.

The discount to gasoline, construction costs and tight credit markets mean "we are likely to see more plant delays and more ethanol producers filing for bankruptcy protection soon," Credit Suisse said in a research note this week.

Large ethanol players such as private company Poet Energy, food and grain company Archer Daniels Midland and VeraSun Energy Corp are somewhat protected because of their diversification, efficient plants, and access to cheap train transportation for distributing ethanol.

"It's those single purpose-type legal entities that gambled everything into a single plant" that are feeling the squeeze the most, said Moglia.

But high corn prices have challenged even the big players, with VeraSun saying this month it will delay the opening of three ethanol plants with a total capacity of 330 million gpy on the high corn costs.

Poet canceled a 65 million to 70 million gpy Minnesota plant in May, but said it would look at other projects.

The outlook was not entirely bad, said Todd Alexander, a partner at Chadbourne & Park LLP in New York specializing in energy finance. Biofuel output from plants that survive the current high feedstock prices should continue to be in demand because the U.S. mandates that require the blending of biofuels into gasoline are set to rise in volume year after year.

Still, "the majority of ethanol plants are not as happy as they once were," he said. The full effect of high corn prices has not been felt yet because most distilleries buy corn on contract, not in the spot market, he added.

U.K. Retail Sales Index Fell to Lowest Level in 25 Years

U.K. CBI Retail Sales Index Declined to 25-Year Low in July

By Brian Swint

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An index of U.K. retail sales dropped in July to the lowest level in a quarter-century as record oil costs forced shoppers to curb spending, the Confederation of British Industry said.

The survey of 82 retailers showed 25 percent sold more goods than a year earlier and 61 percent sold fewer, the nation's biggest business lobby said today. The net rounded balance of minus 36 percentage points is the lowest since the survey began in July 1983 and compares with minus 9 in June.

Retail sales dropped the most since 1986 last month as record fuel prices, falling house prices and job losses prompted Britons to pare spending. The Bank of England predicts that economic growth will be the weakest since the early 1990s and that inflation will accelerate to double its 2 percent target.

‘‘It is turning out to be a very grim summer for many retailers,'' said Andy Clarke, retail director at Wal-Mart Inc.'s Asda chain and chairman the panel overseeing the survey. ‘‘Pressure from higher fuel and food prices is prompting many people to rein in their spending.''

The index for durable household goods such as refrigerators, furniture and booksellers slumped to minus 100. Grocers and footwear stores were the only outlets to report a positive sales balance, the CBI said.

JJB Sports Plc, the U.K.'s second-largest sporting-goods retailer, said July 24 that a sales decline persisted in its second quarter as pressure on consumer incomes hurt spending on running shoes and sports jerseys.

Record Oil Price

The cost of oil reached a record above $147 a barrel earlier this month. In the U.K., the cost of a gallon of unleaded gasoline surged to $9.02 in June, according to data from AA Motoring Trust Trading Ltd.

The inflation rate surged to a decade-high 3.8 percent in June, and Bank of England Governor Mervyn King predicts the rate will breach 4 percent.

With consumer spending set to cool, economic growth will slow to a 1 percent annual pace in the first quarter of 2009, the weakest since 1992, the Bank of England predicted on May 14. King said then that there may be ‘‘an odd quarter or two of negative growth.''

U.K. house values fell by the most in at least seven years in July and the property slump will continue for months, Hometrack Ltd. said yesterday. Banks have raised mortgage rates and limited the supply of credit, reversing a decade-long property boom in which prices tripled.

The CBI survey was conducted between June 25 and July 16. The next interest-rate decision is on Aug. 7.

Special-interest lobbies pour cash into judicial races

Special-interest lobbies pour cash into judicial races

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Sixty-six percent of Americans can name at least one judge on the popular TV show "American Idol," while only 15 percent can identify John Roberts as chief justice of the Supreme Court. That's according to a poll showing Americans are largely clueless when it comes to knowledge of the nation's judicial system.

Yet special-interest lobbies — from business groups to labor unions and trial lawyers — know very well who is running for state Supreme Court seats around the nation because they are pouring unprecedented millions of dollars into these formerly obscure races, with the intent of electing justices who will advance or protect their financial interests.

The recent $6 million campaign for a single seat on the Wisconsin

In many ways the escalation of spending for court seats mirrors the current best-selling potboiler by John Grisham, "The Appeal," in which fictional corporate interests bankroll a candidate for a state Supreme Court seat in hopes of reversing a large damage verdict against the company.

Supreme Court, following a contest a year earlier in which a similar amount was spent, has added to evidence that state courts may be compromised, if not in fact then in appearance, by campaign cash from contributors who have matters pending before those courts, legal experts warn.

"It's an arms race," said Bert Brandenburg, executive director of the Justice at Stake Campaign, a Washington-based, non-profit judicial watchdog. "The spending is almost entirely fueled by trial attorneys and business attorneys slugging it out, just as they would in a courtroom."

Courts are often the final arbiters in big product liability disputes and tax cases, and the races for seats on the bench have become magnets for campaign cash.

In Wisconsin, Judge Michael Gableman and Justice Louis Butler spent a combined $1.2 million for the April 1 election, which Gableman narrowly won. But outside interest groups spent about $4.8 million to influence the race's outcome, according to the Wisconsin Democracy Campaign.

Butler's foes saw an opportunity to tilt the ideological makeup of the court.

"I think many interest groups have grown frustrated with the partisan gridlock with legislatures ... and they've realized they can often accomplish through the courts what they couldn't get through the legislature," said Mike McCabe, executive director of the Wisconsin Democracy Campaign.

National spending up

Nationally, spending for Supreme Court races was $165 million during the 1999-2007 election cycles, up from $62 million over the previous decade, according to the Justice at Stake Campaign.

There has long been discomfort in legal circles about judges seeking election to the bench, given the potential appearance of judges being beholden to campaign contributors with matters before the court. As the number of multimillion-dollar court campaigns grow, those fears are taking shape.

Arguments are pending on a petition to the U.S. Supreme Court that stems from the refusal of a West Virginia Supreme Court of Appeals justice to disqualify himself in a case involving a contributor who supported his election campaign with more than $3 million. The justice repeatedly ruled in favor of the contributor in a $50 million jury verdict against the contributor's company.

Theodore Olson, a former U.S. solicitor general who filed the appeal with the Supreme Court, said a "line needs to be drawn somewhere to prevent a judge from hearing cases involving a person who has made massive campaign contributions to benefit the judge."

One of the justices on the West Virginia court said the relationship between the contributor, a coal company executive, and Justice Brent Benjamin has "created a cancer in the affairs of this court. ... I shudder to think of the cynicism and disgust that lawyers, judges and citizens of this wonderful state will feel about our justice system," said Justice Larry Starcher.

"I believe John Grisham got it right when he said he simply had to read The Charleston Gazette to get an idea for his next novel," Starcher wrote in an opinion.

The behavior of courts that consistently issue narrowly divided opinions can be significantly influenced by a change of one or two seats.

That dynamic was at work in Illinois in 2004 when $9.3 million was spent in the Supreme Court contest between then-Circuit Judge Lloyd Karmeier and then-Appellate Judge Gordon Maag. Karmeier won the most expensive court race in recent U.S. history with the heavy financial assistance of business and insurance interests hoping to obtain a reversal of a $456 million damage verdict against State Farm Insurance. After taking his seat on the bench, Karmeier declined to recuse himself from considering the case and later voted with the court majority to reverse the damage award.

Karmeier said he was not influenced by the more than $2.3 million his campaign received from business interests and those directly affiliated with State Farm.

Contributions, verdicts

Independent studies of state Supreme Court decisions in Ohio and Louisiana suggest a link between campaign contributions and court verdicts. While judges have denied any quid pro quo, at the same time they decry the increasing amounts of interest group campaign money that is used to mount expensive races.

That is why the West Virginia case is being watched closely. James Sample, a lawyer who co-authored a Brennan Center for Justice report on setting recusal standards for judges, said the campaign dollar amounts have gotten too large to ignore. Spending will only increase, Sample said, increasing the need for clear guidelines.

"This could be a tipping point," Sample said. "There has to be a line drawn somewhere."