NSA, Section 215, And The Endangered 4th Amendment

In light of the continuously-developing NSA spying story, it's important to look at how substantial the government's legal justification is for its overreaching domestic surveillance policy and how said policy can impact the lives of ordinary citizens who supposedly have "nothing to hide".

First, let's look at government's legal argument. Earlier this month, The Guardian released the NSA order which compels Verizon to deliver customers' call information to the agency on an "ongoing, daily basis". Since that time, a plethora of additional information has come to light which demonstrates that the size and scope of federal domestic spying policy goes far beyond the NSA and Verizon. Nevertheless, the NSA Verizon order demonstrates how the government uses Section 215 of the Patriot Act to trounce the Constitution. Indeed, the order references the highly-controversial section in the very first line.

The ACLU has come to the conclusion that Section 215 of the Patriot Act is the specific legal order that authorizes the federal government to surveil the electronic communications of ordinary Americans. This section, according to the organization, enables the government to apply to the Foreign Intelligence Surveillance Court--which NPR's Dina Temple-Raston calls a domestic spying "rubber stamp"--to obtain legal clearance to circumvent 4th Amendment protections. In other words, the feds are granted permission to violate Americans' civil liberties as per the rulings of an autonomous, opaque court system that justified the existence of Section 215 in the first place! The section, according to the ACLU:

...authorizes the government to obtain "any tangible thing" relevant to a terrorism investigation, even if there is no showing that the "thing" pertains to suspected terrorists or terrorist activities. This provision is contrary to traditional notions of search and seizure, which require the government to show reasonable suspicion or probable cause before undertaking an investigation that infringes upon a person's privacy. 

"Any tangible thing" means ANY form of Americans' electronic communication, domestic or international. That should be extremely concerning to everyone, irrespective of ideology and if one has "nothing to hide".

So, why, then, should someone who supposedly has nothing to hide be concerned about Section 215 or federal domestic spying at all?

"Nothing to hide" is a myth that's built on certain false assumptions that are rarely--if ever-- considered when draconian surveillance measures are being pushed. Toby Stevens of Computer Weekly characterizes these assumptions as continuity, context, control, and consistency:

• Continuity: When a large data gathering exercise is started, the lifespan of the system will almost always be greater than that of its instigators. The most benign and caring government, authority or private company is inevitably subject to a change of management, and if the new executive does not share their moral stance, then data can be reused for very dangerous purposes. Those who provided data believing they had nothing to fear may find that data is misused in the future.

So, change of management--continuity--means that draconian laws can be abused by future regimes. I suspect that some enterprising bureaucrats already use sensitive data gathered in the name of the "War on Terror" to further political agendas. While such abuse may be isolated today, it could become widespread in the future.

• Context: Those who use the NTHNTF argument most commonly use it in the context of government collecting information about individuals. In the information age, the idea of a single entity holding that information does not hold true. The massive pressures to share information within and beyond government mean that information is constantly on the move. Sooner or later, information held by the government will be shared across the government and with the private sector.

Sensitive data gathered in the name of the "War on Terror" may remain within the Department of Homeland Security and the FBI today, but, eventually, they might be accessed by other government agencies or leak out to private sector organizations that have the ability to disrupt ordinary citizens' lives: credit bureaus, current or potential employers, etc.

• Control: Whether through a sharing agreement, aggregation of databases or simply leaving a memory stick in a pub car park, information is always shared sooner or later. Information security professionals always assume a system to be insecure, and plan for when - not if - data is lost or corrupted.

Sensitive data gathered in the name of the "War on Terror" could also be accessed by hackers, who could sell it or use it to intimidate or blackmail.

• Consistency: The most important issue is that of consistent use of accurate information across all authorities and all individuals.

The recent IRS scandal demonstrates that some enterprising bureaucrats can--and will--use sensitive data inconsistently based on political agenda. Again, while such abuse may be isolated today, it could become widespread in the future.

The government's legal justification for its overreaching domestic surveillance policy and how said policy can impact the lives of ordinary Americans are two issues of paramount importance in this period of U.S. history. We must demand that our elected officials rethink the existence of the FISA court, revise Section 215 of the Patriot Act, and expunge sensitive information gathered in the name of the "War on Terror".

Seth Mason, Charleston SC

No Recovery For "Breadwinner" Jobs

Former Reagan budget director David Stockman has been quite outspoken about the Federal Reserve's role in collapsing the economy. Much of his new book, The Great Deformation, explains how the Fed led us into this economic depression and how our central bank is now inflating an asset bubble that will eclipse the mid-2000s housing bubble. This new, larger bubble, Stockman says, will eventually burst and crash the economy once more.
 
In The Great Deformation, Stockman frequently notes that the post-Great Recession "recovery" has been nothing but rampant Fed-fueled asset speculation. In Chapter 31, the former budget director explains that, while the speculation has been a windfall for the wealthiest among us, it's done next to nothing to improve the atrocious job market:

After the US economy liquidated excess inventory and labor and hit its natural bottom in June 2009, it embarked upon a halting but wholly unnatural “recovery.” The artificial prolongation of the Bush tax cuts, the 2 percent payroll tax abatement and the spend-out of the Obama stimulus pilfered several trillions from future taxpayers in order to gift America’s present day “consumption units” with the wherewithal to buy more shoes and soda pop.

But there has been no recovery of the Main Street economy where it counts; that is, no revival of breadwinner jobs and earned incomes on the free market.

What we have once again is faux prosperity. In fact, the current Bernanke Bubble is an even sketchier version of the last one and consists essentially of the deliberate and relentless reflation of financial asset prices.

In practice, this amounts to a monetary version of “trickle down” economics. By September 2012, personal consumption expenditure (PCE) was up by $1.2 trillion from the prior peak, representing a modest 2.2 percent per year (0.6 percent after inflation) gain from the level of late 2007. Yet half of this gain—more than $600 billion—reflected the massive growth of government transfer payments, and much of the rebound which did occur in private consumption spending was concentrated in the top 10–20 percent of households. In short, the Fed’s financial repression policies enabled Uncle Sam to fund transfer payments for the bottom rungs of society at virtually no carry cost on the debt, while they juiced the top rungs with a wealth effects tonic that boosted spending at Nordstrom’s and Coach.

The Fed’s post-Lehman money printing spree has thus failed to revive Main Street, but it has ignited yet another round of rampant speculation in the risk asset classes. Accordingly, the net worth of the 1 percent is temporarily back to the pre-crisis status quo ante.

Conservatives often scoff at the phrase "1 percent". But it's absolutely true that Fed liquidity pumping has been great for the wealthiest Americans but bad for the rest of us. The reason is simple: 1) inflation--a natural byproduct of liquidity pumping--is good for most investment classes but bad for nearly every other sector of the economy, and 2) the wealthiest among us have the majority of their net worth in investments that benefit most from inflation: equities, commodities, and real estate.

Needless to say, successful speculation in the fast money complex is not a sign of honest economic recovery: it merely marks the prelude to another spectacular meltdown in the canyons of Wall Street next time the music stops.

In the following subsection, Stockman details the sunset of American "breadwinner" jobs:

The precarious foundation of the Bernanke Bubble is starkly evident in the internal composition of the jobs numbers. At the time the US economy peaked in December 2007, there were 71.8 million “breadwinner” jobs in construction, manufacturing, white-collar professions, government, and full-time private services. These jobs accounted for more than half of the nation’s 138 million total payroll and on average paid about $50,000 per year—just enough to support a family.

Breadwinner jobs also generated more than 65 percent of earned wage and salary income and are thus the foundation of the Main Street economy. Yet after a brutal 5.6 million loss of breadwinner jobs during the Great Recession, a startling fact stands out: less than 4 percent of that loss had been recovered after 40 months of so-called recovery.

The 3 million jobs recovered since the recession ended in June 2009, in fact, have been entirely concentrated in the two far more marginal categories that comprise the balance of the national payroll. More than half of the recovery (1.6 million jobs) occurred in what is essentially the “part-time economy.” It presently includes 36.4 million jobs in retail, hotels, restaurants, shoe-shine stands, and temporary help agencies where average annualized compensation was only $19,000. This vast swath of the jobs economy—27 percent of the total—is thus comprised of entry level, second earner, and episodic jobs that enable their holders to barely scrape by.

The April jobs report exemplifies the dearth of good jobs. While April is historically the strongest month for hiring, this April saw a woefully insufficient number of jobs created, more than half of the new jobs in either the hospitality industry (think: bartenders, waitresses, etc.) or temp jobs. Again, that was in the strongest month for hiring 5 years after Lehman.

The balance of the pick-up (1.1 million jobs) was in the HES Complex, which consists of 30.7 million jobs in health, education, and social services. Average compensation is slightly better at about $35,000 annually and this category has grown steadily for years. Its increasingly salient disability, however, is that it is almost entirely dependent on government spending and tax subsidies, and thus faces the headwind of the nation’s growing fiscal insolvency.

When viewed in this three category framework, the nation’s job picture reveals a lopsided aspect that thoroughly belies the headline claims of recovery. A healthy Main Street economy self-evidently depends upon growth in breadwinner jobs, but there has been none, even during the bubble years before the financial crisis. The Bureau of Labor Statistics (BLS) reported 71.8 million breadwinner jobs in January 2000, yet seven years later in December 2007—after the huge boom in housing, real estate, household consumption, and the stock market—the number was still exactly 71.8 million.

Stockman is saying what I've been saying all along: the economy hasn't been "right" since the Fed's tech bubble burst in the early 2000s. He's saying that all we've seen in the new millennium has been cycles of artificial booms and busts built on shaky fundamentals that have never allowed a full recovery of the job market. Stockman elaborates on the shaky fundamentals in the concluding paragraphs of the subsection:

The faux prosperity of the Fed’s bubble finance is thus starkly evident. This is the single most important metric of Main Street economic health, and not only had there been zero new breadwinner jobs on a peak-to-peak basis, but that alarming fact had been completely ignored by the smugly confident monetary politburo.

Alas, the latter was blithely tracking a feedback loop of its own making. Flooding Wall Street with easy money, it saw the stock averages soar and pronounced itself pleased with the resulting “wealth effects.” Turning the nation’s homes into debt-dispensing ATMs, it witnessed a household consumption spree and marveled that the “incoming” macroeconomic data was better than expected. That these deformations were mistaken for prosperity and sustainable economic growth gives witness to the everlasting folly of the monetary doctrines now in vogue in the Eccles Building.

To be sure, nominal GDP did grow by 40 percent, or about $4 trillion, between 2000 and 2007. Yet there should be no mystery as to how it happened. As has been noted, total debt outstanding grew by $20 trillion during that same period. The American economy was thus being pushed forward by a bow wave of debt, not pulled higher by rising productivity and earned income.

Indeed, the modest gain of 7.5 million jobs during those seven years reflected exactly this debt-driven dynamic and explains why none of these job gains were in the breadwinner categories. Instead, about 2.5 million were accounted for by the part-time economy jobs described above. On an income-equivalent basis these were actually “40 percent jobs” because they represented an average of twenty-five hours per week and paid $14 per hour, compared to a standard forty-hour work week and a national average wage rate of $22 per hour. Thus, spending their trillions of MEW windfalls at malls, bars, restaurants, vacation spots, and athletic clubs, homeowners and the prosperous classes, in effect, temporarily hired the renters and the increasing legions of marginal workers left behind.

Likewise, another 5 million jobs were generated in the HES (health, education, and social services) complex. Here the job count grew by 20 percent, but it was mainly due to the fact that the sector’s paymasters - government budgets and tax-preferred employer health plans - were temporarily flush.

However, these, too, were “debt-push” jobs that paid modest wages. While the steady 2.6 percent annual growth of HES jobs during the second Greenspan Bubble did flatter the monthly employment “print,” it was possible only so long as government and health plans could keep spending at rates far higher than the growth rate of the national economy.

Fed-fueled rampant asset speculation inflated the housing bubble, which burst and crashed the economy, making the prospect of securing a "breadwinner" job but a dream for many intelligent, educated, perfectly employable Americans. Now, the Fed is enabling what notable economist Nouriel Roubini is calling the "mother of all bubbles".

Seth Mason, Charleston SC

Lindsey Graham Is The Defense Industry's Man

South Carolina's senior senator, Lindsey Graham, loves the "War on Terror". He told Fox and Friends this morning that he's "glad" Verizon is turning over to the NSA phone records of average Americans:

I’m glad the NSA is trying to find out what the terrorists are up to overseas and in our country...I’m a Verizon customer. I don’t mind Verizon turning over records to the government if the government is going to make sure that they try to match up a known terrorist phone with somebody in the United States. I don’t think you’re talking to the terrorists. I know you’re not. I know I’m not. So we don’t have anything to worry about.

Senator Graham vehemently defends his favorite war. After learning that Rand Paul called the Verizon/NSA partnership a "an astounding assault on the Constitution", Senator Graham took to attacking libertarians:

Sen. Rand Paul, he's a libertarian, and in Rand Paul's world you have almost no defenses against terrorists...I see the threat to our nation differently.

Indeed he does. Graham continues to support nearly every federal "War on Terror" initiative--no matter how invasive--, even though the erosion of civil liberties has become a "hot topic" among conservatives. Perhaps one can better understand why he's such a strong advocate of controversial defense programs by looking at his top campaign contributors. From OpenSecrets:

4 of Graham's top 5 contributors from 2007 to 2012 have profited greatly from the senator's favorite war. SCANA is a major Department of Defense supplier. Nelson Mullins, et al. is a law firm that specializes in DoD procurement contracts. Motley Rice, LLC is a law firm that specializes in "War on Terror" litigation. And Boeing is one of the nation's largest DoD vendors.

Seth Mason, Charleston SC

Tremendous Opportunity For Libertarian Talk Radio

I previously noted that the demand for libertarian terrestrial talk radio is increasing, and the supply of libertarian hosts on terrestrial talk radio is far lower than demand. Today, I've come across additional data that suggest that libertarian talk radio has great potential.

Terrestrial music radio is hemorrhaging listeners, and many under-performing music stations are switching to the relatively-more popular news/talk format. In other words, the demand for news/talk programming is increasing.

While demand for news/talk programming is increasing, terrestrial news/talk radio as a whole, which is currently dominated by conservative hosts, is losing listeners. According to RadioInsights, more than half of news/talk stations lost market share in each of the last 3 years. News/talk listenership has been flat for years: the format has approximately the same number of listeners today as it had in 2007.

The conservative-dominated terrestrial news/talk format also has a less-than-optimal distribution of listeners by age group. According to Arbitron, listeners of the format are getting older, and the majority already age out of the key 25-54 demographic:

The majority of libertarians, on the other hand, are young--and therefore more valuable--to advertisers.
  
Libertarian talk has great potential in the online format as well as on terrestrial radio. While terrestrial radio is losing listeners, Internet radio is rapidly gaining listeners, and the number of listeners of online radio is expected to equal that of terrestrial radio in the next few years. The online talk radio format is better suited to libertarians than conservatives, as the former tend to be younger and more tech-savvy than the latter.

Seth Mason, Charleston SC

The American Hiring Paradigm Is Broken

Central banking has made a mess of the economy, and increasingly onerous jobs-killing federal legislation has impeded hiring and thus has impeded economic recovery. But the Fed and Washington aren't the only vectors of the nation's continued economic malaise. The American hiring paradigm is also to blame.

With few exceptions, hiring managers at mid to large-sized American organizations offer job seekers but one port-of-entry: buggy, unwieldy applicant tracking systems (AKA "talent management systems"), which pitiable job seekers must wrestle online. Under this paradigm, robots judge applicants based on experiential demands with little regard to the applicants' potential to add value to their organizations' bottom lines. Lou Adler, entrepreneur and best-selling author, summarized this disconnect in an article he recently published on LinkedIn:

"Successful candidate will develop a new approach for reducing water usage by 50%" is a lot better than saying “Must have 5-10 years of environmental engineering background including 3-5 years of wastewater management."

Correct. But ATSes can't judge applicants based on successes. Clearly, organizational leaders should spearhead searches for candidates in their fields of expertise. Tragically, a great many talented candidates are stonewalled before they even get a chance to make their cases to a decision maker. Consider the following anecdote from Yahoo! Finance:

I'm a technical Product Manager. I've launched about ten big products. This is all I do. I work for technology companies. I got laid off in September, and I applied for a job online yesterday afternoon.

Last night at ten p.m. I received an auto-responder message back from the employer. It said that I wasn't chosen to move forward for the product manager job I had applied for. I was surprised, but those things happen. The auto-responder message said that I'd be notified of any other job openings that are a closer fit to my background.

I got another auto-responder message from the same company early this morning. They sent me another job opening. Guess what kind of job it was? It was a food service job in their company lunchroom.

The RECRUITER who had the product manager opening on her desk told me why I'd been rejected by the company's careers website. She told me that she gets so many unsuitable resumes through the company careers portal that she set the parameters to Reject All Resumes. Every single person who applies through the site the way I did gets a no-thanks message. Because the company's job-posting system asks for a default -- they require the recruiter to direct those rejected applicants somewhere, that is -- she set it up to send every rejected person all the new job openings that are posted for any job in the company. That's why I got the food service job.

Instead of forcing talented applicants to contend with ridiculousness such as this, hiring managers should take the lead in determining which applicants could best add value to their organizations. Robots can never replace the judgement of organizational leaders, no matter how "well-programmed" they are. Not surprisingly, the current ATS-centric American hiring paradigm has a failure rate of up to 50%, according to ERE Recruiting Intelligence, a prominent HR industry analyst.

April Employment Increase: Nothing But Menial Jobs

Readers of this blog know that Washington's employment data should be scrutinized. The Bureau of Labor Statistics is notorious for crushing down the labor force participation rate in order to make it appear that the unemployment rate is falling, and the agency's survey methodology is fundamentally-flawed, according to a former BLS leader. But, even if you take the government's word on unemployment as the "Gospel truth", a 50,000-150,000 monthly net increase in jobs--as Uncle Sam has been reporting for years--is woefully insufficient. At this rate of increase--with the unemployment rate dropping by a tenth of a percent each month--, it would take until 2017 to get back to the lower end of the "full employment" range. And that's IF the economy has no additional difficulties and WITH the help of a crushed-down labor participation rate. And, that's if you consider 5% unemployment and 10% underemployment "full employment".

But the raw jobs numbers don't tell the full story anyway. What does it matter if 50,000 or 150,000 or even 1,000,000 jobs are created each month if the jobs are menial in nature? And make no mistake: we've been seeing for years little but a monthly increase in low-wage, low-skill jobs. The April jobs report showed more of the same.

The overwhelming majority of jobs created last month were in leisure and hospitality (waiters, bartenders, hotel employees, etc.) and temp jobs. Industries that actually produce something, whether it be information or physical goods, actually lost jobs:

There was a net decrease in jobs for Americans of prime working age, i.e. there was a net decrease in "career" jobs. But there was a net increase in jobs for Americans of prime restaurant worker and Walmart greeter ages:

In fact, the number of jobs for Americans of prime working age (i.e. career age) has been flat since the economy collapsed:

Seth Mason, Charleston SC

The New, Bigger Housing Bubble In 4 Charts

Federal Reserve Chairman Ben Bernanke's "solution" to the country's economic woes, a new, even larger asset bubble, is becoming evident in several sectors of the economy, from equities to real estate. The following charts suggest that the bubble the Fed is inflating in the housing market will eclipse the last one, which was big enough to plunge the country into an economic depression when it burst.

First, the year-over-year increase in home prices since 2008 has been steeper than the YoY during the last housing bubble:

Second, the inversely proportional decrease in mortgage standards and increase in demand for mortgages has been starker than it was during the last bubble:

Third, apartment and condo starts have been skyrocketing at a rate far eclipsing that of the last bubble:

Fourth, investors are throwing cheap, Fed-provided money at housing at a rate far exceeding that of the last bubble:

Libertarian Talk Radio: It's A Matter Of Differentiation

I recently wrote about how libertarianism is growing and how conservatives, terrestrial talk radio's bread-and-butter demographic, are becoming more libertarian. In the article, I argued that there's a growing under-served demand for libertarian terrestrial talk radio. Today, I'd like to add to that argument from another perspective, that of differentiation.

Fox News, the only television news provider gearing to those on the right side of the political spectrum, enjoys strong ratings for the simple fact that it's the only conservative news alternative. (Fox Business is a business news--not "news news" network.) As you can see in the following graphic, most television news clusters around the left side of the political spectrum. Fox News, on the other hand, enjoys a monopoly on the right.

The same principal applies to political talk show hosts on terrestrial radio. As you can see in this graphic, most hosts cluster around the social conservative/neoconservative side of the conservative political spectrum. There's only one prominent host on the libertarian side of the spectrum, Dennis Miller, and his show doesn't get particularly good ratings.

The previous 2 graphics, combined with the changing political landscape on the Right, suggest that it's time for program directors to put more libertarians on the air.

Seth Mason, Charleston SC

Libertarian Talk Radio: If You Build It, Ratings Will Come

Terrestrial talk radio's key demographic, conservatives, are becoming more libertarian. However, there are few libertarian hosts in terrestrial talk radio. Program directors would be wise to air more of them.

According to Gallup, an increasing number of Americans describe themselves as "conservative", terrestrial talk radio's bread-and-butter political ideology:

However, a decreasing number of conservatives identify with "traditional values":

On the other hand, also according to Gallup, an increasing number of Americans consider themselves "libertarian":

And, today, nearly 60% of Americans share some libertarian views:

However, there are only a handful of libertarian hosts in terrestrial talk radio. This suggests there's a growing under-served demand.

Fed Liquidity Pumping Good For Wealthy, Bad For Rest

The premise is simple: the wealthy have a disproportionate amount of their net worth in investments, and the Fed has been propping up the stock market and inflating asset bubbles. Therefore, the price inflation-driven economic recovery has been robust for the richest 7% and weak to non-existent for everyone else. And never forget, wealth and exposure to inflation are inversely-proportional. In other words, those with less money spend a greater percentage of their incomes on essentials--food, energy, etc.--whose prices have been rising as a result of the asset bubble. From Pew Research:

During the first two years of the nation’s economic recovery, the mean net worth of households in the upper 7% of the wealth distribution rose by an estimated 28%, while the mean net worth of households in the lower 93% dropped by 4%, according to a Pew Research Center analysis of newly released Census Bureau data.

From 2009 to 2011, the mean wealth of the 8 million households in the more affluent group rose to an estimated $3,173,895 from an estimated $2,476,244, while the mean wealth of the 111 million households in the less affluent group fell to an estimated $133,817 from an estimated $139,896.

These wide variances were driven by the fact that the stock and bond market rallied during the 2009 to 2011 period while the housing market remained flat.

Affluent households typically have their assets concentrated in stocks and other financial holdings, while less affluent households typically have their wealth more heavily concentrated in the value of their home.

From the end of the recession in 2009 through 2011 (the last year for which Census Bureau wealth data are available), the 8 million households in the U.S. with a net worth above $836,033 saw their aggregate wealth rise by an estimated $5.6 trillion, while the 111 million households with a net worth at or below that level saw their aggregate wealth decline by an estimated $0.6 trillion.¹

Because of these differences, wealth inequality increased during the first two years of the recovery. The upper 7% of households saw their aggregate share of the nation’s overall household wealth pie rise to 63% in 2011, up from 56% in 2009. On an individual household basis, the mean wealth of households in this more affluent group was almost 24 times that of those in the less affluent group in 2011. At the start of the recovery in 2009, that ratio had been less than 18-to-1.

(The focus in this report on the upper 7% of households rather than some other share of high wealth households reflects the limits of the tabulations published by the Census Bureau. The boundaries of its wealth categories dictated the split of households analyzed in this report.)

Overall, the wealth of America’s households rose by $5 trillion, or 14%, during this period, from $35.2 trillion in 2009 to $40.2 trillion in 2011.² Household wealth is the sum of all assets, such as a home, car, real property, a 401(k), stocks and other financial holdings, minus the sum of all debts, such as a mortgage, car loan, credit card debt and student loans.

During the period under study, the S&P 500 rose by 34% (and has since risen by an additional 26%), while the S&P/Case-Shiller home price index fell by 5%, continuing a steep slide that began with the crash of the housing market in 2006. (Housing prices have slowly started to rebound in the past year but remain 29% below their 2006 peak.)

The different performance of financial asset and housing markets from 2009 to 2011 explains virtually all of the variances in the trajectories of wealth holdings among affluent and less affluent households during this period. Among households with net worth of $500,000 or more, 65% of their wealth comes from financial holdings, such as stocks, bonds and 401(k) accounts, and 17% comes from their home. Among households with net worth of less than $500,000, just 33% of their wealth comes from financial assets and 50% comes from their home.



The Census Bureau data also indicate that among less affluent households, fewer directly owned stocks and mutual fund shares in 2011 (13%) than in 2009 (16%), meaning a smaller share enjoyed the fruits of the stock market rally. Likewise, fewer had individual retirement accounts (IRAs) or Keogh accounts (22% in 2011 versus 24% in 2009) and the same share had 401(k) or Thrift Savings Plan accounts (39% in both years). Among affluent households, there was also a decline in the share directly owning stock and mutual fund shares during this period (59% in 2011 versus 62% in 2009), but a slight increase in the share with IRAs or Keogh accounts (70% versus 68%) and a larger increase in the share with 401(k) or Thrift Savings Plan accounts (65% versus 61%).

Overall, net worth per household in the U.S. in 2011 made up nearly all the ground it had lost since 2005—$338,950 versus $340,252 in 2005, the latest pre-recession data published by the Census Bureau. (Total household wealth doubtless rose for a period after 2005 before falling precipitously during the Great Recession of 2007-2009 and rebounding since then. However, no household wealth data are available from the Census Bureau for the years between 2005 and 2009, so it is not possible to pinpoint when, or at what level, the peak in wealth per household occurred.)

Looking at the period from 2005 to 2009, Census Bureau data show that mean net worth declined by 12% for households as a whole but remained unchanged for households with a net worth of $500,000 and over. Households in that top wealth category had a mean of $1,590,075 in wealth in 2005, $1,585,441 in 2009 and $1,920,956 in 2011.³

Seth Mason, Charleston SC

Big Pharma: The Crony Capitalist Industry

Crony capitalism, often manifested as using the power of government to hinder competition, is the antithesis of free-market capitalism. Crony capitalism hurts the consumer, lowers economic output, and stifles innovation and entrepreneurism.

Lobbying is the primary means by which crony capitalists convince the government to protect their interests. And no industry lobbies the government like Big Pharma, as the next two charts clearly show.

The healthcare industry spent $5.3 billion on lobbying from 1998-2012, approximately half on pharmaceutical lobbying:

Big Pharma's lobbying dollars yield a great return: $77,500 for every dollar spent!

Dylan Ratigan wrote an excellent piece on the ways in which Big Pharma wields its power in Washington. According to Ratigan, pharmaceutical lobbying costs the average American $1,600 per year in the form of artificially-high drug costs. This discounts, of course, the massive human costs in the form of suffering that could be eliminated with the advent of new drugs that don't see the light of day:

When he first ran for president, Barack Obama campaigned against the influence of lobbyists in Washington, exclaiming in one ad in which he excoriated the top lobbyist of the drug industry, "I don't want to learn how to play the game better. I want to put an end to the game playing."

Then, Obama won the White House and sought to pass an ambitious health care agenda. To do so, he made nice with some of Capitol Hill's most notorious influence peddlers.

There are few industries with as much power in Washington as the pharmaceutical sector. Drug companies have spent $2.3 billion on lobbying and $183 million on campaign contributions since 1998, according to the Center for Responsive Politics. The industry also maintains a war chest for advertising and grassroots lobbying aimed at altering public opinion. The ready money serves as a strong deterrent against any legislative proposal that would lower costs for consumers and profits for the drug makers.

"The industry clearly had established a war chest ... to use on advertising on health care reform," said Richard Kirsch, the national campaign manager for Health Care for America Now and the author of the forthcoming book "Fighting for Our Health." "It was very clear that ... if the administration and Congress pushed for negotiating drug prices for Medicare in health care reform, that the industry would vociferously oppose that."

Fearing the drug industry would use its money and lobbyists to torpedo the entire reform package, the Obama White House made a deal to kill at least two major provisions that would have saved consumers money when they filled prescriptions. In exchange, the industry unleashed a $20 million-plus ad campaign to support the bill. Senate Finance Committee Chairman Max Baucus (D-Mont.), a top recipient of campaign contributions from the health care industry, was put in charge of shepherding the bill to passage.
But pharma's influence didn't start with the Affordable Care Act. The industry has been blocking pro-consumer drug policies for years.

In 2003, Congress passed a prescription drug benefit for seniors known as Medicare Part D. However, thanks to industry involvement in writing the bill, the agency in charge of Medicare was barred from negotiating with drug companies to lower prices, as the Department of Veterans Affairs does. The author of that legislation was none other than Rep. Billy Tauzin (R-La.), who barely a year later would retire from Congress and land on K Street as president of Pharmaceutical Research and Manufacturers of America -- in other words, the drug industry's top lobbyist.

When the Obama White House later sought support from the drug industry for health care reform, the administration had to shelve the idea of releasing Medicare from the negotiation ban. Studies indicate that keeping drug prices high for seniors adds $150 billion to $300 billion to drug industry profits over a 10-year period. The increased costs hit the pockets of both seniors and taxpayers.

In Wisconsin, some seniors get a better deal. SeniorCare, a popular state program covering 91,000 Wisconsinites that was created by then-Gov. Tommy Thompson (R), sets much lower drug prices than Medicare's prescription drug benefit. It only costs $522 on average to cover a senior through SeniorCare; it costs $1,690 on average under Medicare Part D. In 2009, SeniorCare saved seniors some $50 million.

When Gov. Scott Walker (R) came into office last year, he proposed gutting SeniorCare. Wisconsin lawmakers from both parties joined together to remove this provision from the
governor's first budget.

Nino Amato, president of the Coalition of Wisconsin Aging Groups, told The Huffington Post that relying on Medicare Part D alone to hold down drug prices forces seniors to "make life decision trade-offs."

"Life decision trade-offs" can mean choosing between drugs or electricity or food. For millions of Americans, this is a real and growing problem.

According to a 2010 Kaiser Family Foundation study, drug prescriptions rose by 39 percent while drug prices nearly doubled over the last decade. More and more individuals, hard pressed to pay for medications, are opting to abandon their prescriptions. In 2009, the number of patients who did not fill or pick up prescriptions increased by 23 percent from the previous year and 68 percent from 2006.

Some Americans have tried to close the budget gap by quietly buying drugs from Canada, where government controls keep prices down. U.S. law, however, prohibits the reimportation of prescription drugs from other countries.

Efforts were made to lift the ban as part of the health care overhaul -- but the drug industry didn't like that, and the Senate Democratic leadership fell in line. Despite having previously won the support of enough senators to become law, an amendment to permit prescription drug reimportation, offered by then-Sen. Byron Dorgan (D-N.D.), was defeated amid mass vote switching.

After his amendment went down, Dorgan told reporters, "I believe seven days ago we had sufficient votes to pass it, but I think what is happening in the intervening period is other things developed. It's a great disappointment because it seems to me very hard to do health care reform without doing something about the escalating prices for prescription drugs."

Sens. Debbie Stabenow (D-Mich.) and Olympia Snowe (R-Maine) are now trying again, co-sponsoring a bill that would legalize reimportation of drugs from certain countries. They argue that the bill would save taxpayers $19.4 billion and let millions of Americans pay drug prices that are 35 to 55 percent less.

Beyond the health care deal, the pharmaceutical sector continues to fight other pro-consumer measures. During the last Congress, a provision attached to an appropriations bill would have banned "pay-for-delay," when brand-name drug makers pay off generic drug makers to keep generics off the market. The Federal Trade Commission estimates that pay-for-delay costs consumers billions of dollars annually.

The provision, which barely made it out of committee, was killed during the lame-duck 2010 Congress. Four Republican senators voiced their opposition to Senate Minority Leader Mitch McConnell (R-Ky.). The appropriations bill containing the provision was shelved, and Congress passed a continuing resolution to fund the government instead.

Again, those supporting a more pro-consumer policy have not given up. Sen. Charles Grassley (R-Iowa) is currently co-sponsor of a bill in Congress that would give the FTC authority to stop pay-for-delay litigation settlements. In a November 2011 press release, Grassley argued, "When people across the country are having a hard time making ends meet, this could be a real boost to their bottom line."

Perhaps ordinary Americans will win the next fight over pharmaceutical policy. In the meantime, drug prices rise while the drug industry thrives, backed by its powerhouse lobbying presence in Washington.

 Seth Mason, Charleston SC

America Remains In A Jobs Depression

In a recent op-ed in the Wall Street Journal, business mogul Mort Zuckerman recently penned an editorial that argues that the United States remains in the depths of a protracted "jobs depression" that's far worse than the mainstream media reports:

Jobs! President Obama has set a record. In his speech to Congress on Tuesday, he uttered the word "jobs" more than in any of his previous four State of the Union addresses. His 45 mentions were more than double the references to any of the other policy ambitions encapsulated in his speech by such words as health, education, immigration, guns, deficit, debt, energy, climate, economy, Afghanistan, wage, spend or tax (the runner-up).
If only the president's record on unemployment were as good.

After four years America remains in a jobs depression as great as the Great Depression. 

Notice that Zuckerman said "as great as the Great Depression". Comparisons of this economic depression to the Great Depression are apt.

But the crisis isn't seen in that light because the country isn't confronted daily by scenes of despair like the 1930s photographs of bread lines and soup kitchens and thousands of men (very few women then) waiting all day outside a factory in a forlorn quest for work.
But the jobless are still in the millions across the land, little changed in their total since the 1930s: 12.3 million today officially fully unemployed compared with 12.8 million in 1933 at the depth of the Depression.

Yes, the U.S. population is much larger now, but 12 million out of work still means 12 million lives devastated. And that number masks the true vastness of the modern disaster.

The jobless today are much less visible than they were in the 1930s because relief is organized differently. Today in the "recovery," the millions are being assisted, out of sight, by government checks, unemployment checks, Social Security disability checks and food stamps.

He's correct: Entitlements are the new soup lines. Not seeing the desperate masses doesn't mean that they don't exist.

More than 48 million Americans are in the food-stamp program—an almost incredible record. That is 15% of the total population compared with the 7.9% participation in food stamps from 1970-2000. Then there are the more than 11 million Americans who are collecting Social Security checks to compensate for disability, also a record. Half have signed on since President Obama came to office. In 1992, there was one person on disability for every 35 workers; today it is one for every 16.

Such an increase is simply impossible to connect to direct disability experienced during employment, for it is inconceivable that work in America has become so dangerous. For many, this disability program has become another form of unemployment compensation, only this time without end.

But the predicament of our times is worse than that, worse in its way than the 1930s figures might suggest. Employers are either shortening the workweek or asking employees to take unpaid leave in unprecedented numbers. Neither those on disability nor those on leave are included in the unemployment numbers.

I've repeated this line a number of times: the government and the MSM discount the fact that there's a quality component to jobs as well as a quantity component. Not only is the aggregate number of unemployed people worse than reported, but the majority of jobs created during this depression have been of the part-time, menial variety.

The U.S. labor market, which peaked in November 2007 when there were 139,143,000 jobs, now encompasses only 132,705,000 workers, a drop of 6.4 million jobs from the peak. The only work that has increased is part-time, and that is because it allows employers to reduce costs through a diminished benefit package or none at all.

The broadest measure of unemployment today is approximately 14.5%, way above the 7.9% headline number. The 14.5% reflects the unemployed and three other categories: the more than eight million people who are employed part-time for economic reasons (because their hours have been cut back or because they are unable to find a full-time job), the 10 million who have stopped looking for work, and those who are "marginally attached" to the workforce.

In its latest report, Gallup, a very reliable source, reported that the underemployment rate is north of 19%:

The labor-force participation rate has dropped to the lowest level since 1981.

It reflects discouraged workers who have dropped out of the labor force. If it were not for the dropouts, the formally announced unemployment rate would be around 9.8%, not the headline 7.9%.

Sometimes the employment numbers that are announced are simply not understood. January was supposed to have seen 157,000 jobs created. The news provoked relief and even enthusiasm in some quarters. But the supposed hiring was based on seasonally adjusted numbers—numbers adjusted to reflect regularly occurring shifts in employment, such as increased hiring of farm workers during crop harvests or retail employees after Thanksgiving. The real, unadjusted figures for January show that nearly 2.8 million jobs disappeared, which happened to be worse than the 2.63 million lost in January 2012. Even though the 157,000 jobs created were fewer than the 311,000 of January 2012, many commentators cheered because they don't understand the effects of seasonal adjustment.

So there is no solace in the statistics. Job seekers are only one-third as likely to find work as they were five years ago, and a record number of households have at least one member looking for a job, which affects everyone. And most of the newly available jobs don't match the pay, the hours or the benefits of the millions of positions that have vanished.

It typically takes 25 months to close the employment gap from the employment peak near the start of the downturn. Yet this time, more than 60 months after employment peaked in January 2006, nonfarm unemployment is still more than three million jobs below where it started.

Sobering stuff.

Eileen Appelbaum, senior economist at the Center for Economic and Policy Research, argues that recovery cannot become self-perpetuated until the unemployed get good jobs and resume contributing to consumer spending at their maximum potential. Unfortunately, many of the long-term unemployed aren't finding jobs; they're falling off of the radar screen.

I can't stress this enough: Those who are unfortunate enough to find themselves among the ranks of the perennially jobless typically face a lifetime of depressed earnings. (One study suggests that long-term unemployment can cut one's lifetime earning potential by as much as 20%.) The longer that the job market remains bleak (remember, it's been 5 years and counting), the more people fall into the category of long-term unemployed, whether or not the government counts them as such. In the short term, that means a drag on the economy. In the long-term, that means the creation of a new underclass.

Seth Mason, Charleston SC

Infographic: America's PhDs On Food Stamps

College, with its skyrocketing tuition costs and high degree inflation, has become a questionable investment in this high-unemployment/low-wage economy. Even doctorate programs have lost their luster. From OnlineColleges.net:

The Definitive Inflation Chart

There are several takeaways from this chart: 1) Inflation was essentially non-existent until the creation of the Federal Reserve in 1913. 2) War, which requires massive government spending, promotes inflation. 3) Inflation has skyrocketed since Nixon took us off the gold standard in 1971, which gave the Fed a carte blanche to print. 4) Bernanke's concern about deflation is unfounded. See that tiny break in the inflation trendline above the "Great Recession arrow"? That's the deflation he's concerned about.

Just for giggles, let's compare that last chart with a chart of the national debt:

Is it clear enough that the Fed enables deficit spending?

Seth Mason, Charleston SC

U.S. Share Of World GDP Has Fallen 32% Since 2001

Mark McHugh of Across the Street outlines America's economic decline--in both real terms and relative to the rest of the world:

The Cost of Kidding Yourself

In Open Thread on Wednesday, November 28, 2012 at 1:34 pm 

Five years ago, every American would have considered a trillion-dollar budget deficit a national tragedy.  If you believe the CNBC parrot show, NOT having a trillion-dollar deficit is now a sure sign of the Apocalypse.  I speak of course of the cleverly dubbed “Fiscal Cliff,” which panicked CNBC apologists are required to mention no less than 5,000 times a day.  We’re told ad nauseam that going over the cliff will drag the US into recession.  Here’s what we’re not told: The US has been in recession 9 of the last 10 years.  It’s in recession this year, and no matter what CNBC’s financial terrorists say or the idiots on Capital Hill decide, it will most certainly be in recession in 2013.

Creating the illusion of economic growth is easy if you can print money.  It’s a prank you can play on an entire country.  Cut the value of the currency in half and the economy’s size will appear to double.  If it doesn’t, you’re in recession (whether you know it or not).   Cavemen probably understood this concept better than America’s best economic minds.

The only way to accurately measure changes in a nation’s economy is to do so relative to the world (see Notes for non-nerds below before protesting).  According to the World Bank, the U.S. represented 31.8% of the world’s economic activity in 2001. By the end of 2011, that share had dropped to 21.6%, meaning America’s slice of the world economy is 32% smaller than it was a decade ago, and getting smaller every day.  Note that America’s housing bubble did nothing to boost the U.S. on the global stage.

As horrific as these results are, they’re better than Japan’s, whose “lost decade” proved only to be prologue for its “lost-er decade.”  Japan’s share of the world economy fell more than 35% from 2001 to 2011 (literally worse than Zimbabwe) and has now shriveled 54% from its peak.  But Japan’s real collapse did not coincide with the bursting of its stock and real estate bubbles in 1990 and 1991 respectively.  The decline actually began in 1995 when policymakers allowed government debt to exceed 90% of GDP (a milestone the U.S. quietly passed in 2010). 

The more they “fixed” it, the more it broke.  17 years later, the only thing Japan has proved is that smart Japanese economists are about as real as Godzilla.  Time and time again, the country has chosen collapse over admitting failure. On November 19, 2012, Bloomberg reported, “The Japanese government will spend 1 trillion yen ($12.3B) on a second round of fiscal stimulus as it tries to revive an economy at risk of sliding into recession.”  It would be funny if it wasn’t so tragic.

The United Kingdom gets third place in the 2001-2011 major economies’ “Race to Oblivion”, although with a less than 3.5% share of world GDP it’s hard to call this a major economy with a straight face anymore.  While the U.K. printed its way to 24% loss in world GDP, France and Brazil both passed the nation where an actual troy pound of sterling silver now costs about 235 “pounds sterling”.  With government debt expected to reach 88.7% of GDP in 2012, once-Great Britain will soon be seated at the kids’ table at economic summits, if it gets invited at all.

All three of these countries are in death spirals for the same reason:  They believe that they have the ability to avoid recession by simply printing their own money.  As America’s 100-year numbskull (and current Federal Reserve Chairman) Ben Bernanke once mused:

“…the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

True dat, Ben….unless there’s “cost” associated with turning the nation’s currency into the world’s laughing stock….

Oh wait, there is.  So just for fun, let’s project the last ten years growth rates forward another ten years:

And there you have the real New World Order (sorry Freemasons).  In ten years China’s economy will be bigger than those of the U.S., Japan, and the U.K. combined.  What are the chances they will drink the same kool-aid we are presently guzzling?  Will they need, or even tolerate, the opinions spewed by our pundits and politicians?  And more importantly, will the U.S. dollar still be the world’s reserve currency?

Being a war-mongering banana republic isn’t all it’s cracked up to be, and despite what CNBC’s fast-money fuckwits may think, the stock market is not America’s report card.  Wall Street is the white elephant that America can’t afford to feed anymore and China doesn’t have the slightest interest in buying (just take a look at the Shanghai Composite).   Continuing to yield to its tantrums will undoubtedly destroy us.

Fun Facts:  Total U.S. GDP growth in the 20th century was $9.93 Trillion, while the  government accumulated $5.5 Trillion in debt.  In the 21st century, the US has borrowed $10.7T and has a grand total of $5.30T in GDP growth.

***

Notes for nerds: Most of the calculations presented were derived from data compiled by the World Bank which can be viewed or downloaded here.   World GDP was set to 100% and each country’s percentage determined simply by dividing by world GDP.   Japan’s debt as a percentage of GDP from Fred (225% was used for 2011).  Estimate of U.K.’s 2012 Debt/GDP from here.  U.S. GDP stats from USgovernmentspending.com (2012 estimate adjusted for 2% growth).  US debt from Debt to the Penny.

Notes for non-nerds:  How much World GDP changes from one year to the next depends entirely on what is being used to measure it.  For example, World GDP expanded by 109% from 2002 to 2011 in USD terms, but contracted (-59%) in terms of gold.  Using the Euro would produce different results (+59%), as would using barrels of oil (you figure it out).  Looking at countries relative to World GDP is an honest measure of their changes.  To say that Japan is still growing (at least in terms of Yen), but everyone else is growing much, much faster in terms of Yen distorts the reality that  Japan is undeniably shrinking relative to the world (no matter what currency is used).

 Seth Mason, Charleston SC