David.Corn @ Bloggingheads.TV

I’ve mentioned being madly in love with David Corn. Well, he’s back on Bloggingheads TV! With a fellow by the name of Jim Pinkerton.

To be honest, I usually only watch it when David Corn is one of the two heads, but when he is – pow! Go watch it.

Seriously, though, Bloggingheads.tv is probably what the late, thoroughly non-lamented Crossfire could possibly have been, if only adults were in charge.

They weren’t of course, and we get CNN and Fox News; little bundles of childish, churlish, simple-minded hate and wilfull ignorance. But at least you can watch Bloggingheads TV…

I went out drinking with Thomas Paine/He said that all revolutions are not the same

Back when I was discussing the Australian Workplace Agreements (the neutrality of that Wikipedia entry has been disputed. Imagine) I had the only comment so far, from Gavin of the blog make/shift (which is a bloody great blog – and I say this not merely because of my hippie state-smashing vegan sympathies). He suggested I was a screaming leftie tit (I am) and that I should become a ‘wobbly’ – a reference to the Industrial Workers of the World.

Actually at first I though he suggested I throw one – in Australia a wobbly is a fit – i.e. a temper tantrum. At the time I said I’d discuss them at a later date – I figure now is as good a time as any.

(caveat: none of this should be taken as applying to notions such as income equality – in terms of economic theory they are not related nearly as closely as we tend to think)

From their wikipedia entry:

The Industrial Workers of the World (IWW or the Wobblies) is an international union currently headquartered in Cincinnati, Ohio, USA. At its peak in 1923 the organization claimed some 100,000 members in good standing, and could marshal the support of perhaps 300,000 workers. Its membership declined dramatically after a 1924 split brought on by internal conflict and government repression.

Today it is actively organizing and numbers about 2,000 members worldwide, of whom roughly half (approximately 900) are in good standing (that is, have paid their dues for the past two months). IWW membership does not require that one work in a represented workplace, nor does it exclude membership in another labor union.

Their membership alone is a decent commentary on what has become of the days of Woody Guthrie. The IWW has a couple of interesting features. First from the paragraph above is that the workplace does not need to be unionised – although this clearly limits the ’standard’ powers of the IWW (’standard’ in the sense of what a union usually does in/for a unionised workplace).

The preamble to the IWW constitution is here. They also organise according to industry, rather than trade, which is organised at a higher degree of removal(?). Specifcally:

Nice, eh? The reason, as far as I can discern, is because the IWW’s ultimate, marching-band goal is complete unionisation, organised under one committee. Yes, you’ll find it’s a little communist in the way it presents itself.

I see a point, particularly in this day and age. It makes more sense for an entire industry to be co-ordinated, and to work with built-in solidarity not (just) between dock-workers in Melbourne and Liverpool, for example, but between loaders and welders and forklift drivers all down at the docks.

I say a point: this is not the point. The IWW’s reasons are

(1) a classless union. One Big Union, under which every worker, whatever the trade, whatever the industry, from doctors to dockers, are equally valuable as labour (within that industry), and equally represented and protected.

(2) countering employer consolidation. As firms, industries, etc. end up in fewer and fewer hands, more and more power is falling to the employer. The IWW figures the way to confront that is centralise to a single point union representation.

As a union, they also employ what is called the wobbly shop model of workplace democracy. That is, democractically-elected officials within the union, recallable and under strict term limits – and earning no more than the industry average for IWW members in that industry. It also means workers vote upon policy (a model that would do the US no end of good, I think).

For me, anyone who came in for the sort of beatings the IWW got between the wars is okay in my book. In fact it took the red scare to seriously injure them (although injure them it did).

What I like the most about the IWW about which I read is that is so clearly anachronistic. It hasn’t really changed, but we most certainly have. The ideas they hold most dear, and protect most strongly, go right back to Adam Smith (he too despised, or at least distrusted, the corporation, and pointed out that all his invisible hand stuff only worked when they weren’t around).

Speaking practically, their model and their goal is probably the most sensible: bargaining power is ever more falling into the hands of employers. The trouble is, the reason for this is government. In the heyday of the IWW there simply weren’t laws banning emergency workers from striking. There wasn’t the sort of sophistication in legislation that an army of lobbyists bring to the halls of parliament.

I suppose the other difference is us, which is harder to pin down. There wasn’t an FBI, but there were plenty of arrests, and there were plenty of blackshirts kicking the teeth out populist organisers. The Espionage Act in the US during the first World War was practically tailor-made for dealing with anti-capitalist elements. So too the Palmer Raids of a few years later. Nowadays we decry the chilling effect of workplace anti-union propaganda, and of surveillance by the FBI, but that’s nothing compared to the door-kicking brown-shirting that was required in the previous century. Is it, as Carol Pier suggests, that workers are just not learning the benefits of organisation, at the same time as the government looks the other way while any attempts are crushed embrionically?

You will have noticed I’m clearly going to leave this as an open question. Students at my University are trying with a new President to explain the utter sensibility of affiliation with the Workers Rights Consortium. They had no luck with the last President, though I don’t understand why. Certainly ordinary awareness and activism are stumbling-blocks.

I believe it comes down to education. Once unions were smashed, they mostly stayed that way, all over. New terror laws, commercial sensitivity laws, and who knows what other laws, are steadily building walls in front of them ever coming back as they were.

It also comes down to electoral participation. We are in an era where the majority of the country around me right now honestly accepts that you get to elect a president once per 4 years, and anything he does in that period is his perogative. That the electoral college is just the way it works (hell, they probably think everyone elects leaders like this). We talk about people in power, rather than people in government. We talk about leaders in Congress, instead of representatives. Everything is wrong (with apologies to Moby), not just with the dialogue/debate but with the very language itself.

I hardly begrudge the IWW their successes – I celebrate them – but I do think the manner in which the workplace goalposts have been shifted means something quite radical needs to change, in terms of basic citizen awareness, solidarity and electoral power/control, before the principles of Adam Smith can be returned to the Workplace. Meanwhile we’ll continue to buy cheap shit from Wal-Mart, while working there because all the other stores in town closed down.

Peak oil

The Oil Drum is working through the latest from the Energy Information Administration. Also the Environmental Economists are making (light) fun of the Independent.

This, by-the-by, is peak oil (from the Oil Drum):

China vs. the United States Congress

Government won’t cite China on currency:

The Bush administration on Wednesday declined to cite China for manipulating its currency to gain unfair trade advantages and declined lawmakers’ request to pursue a trade case on the issue.

The administration’s actions provoked an outcry from members of Congress. They said soaring U.S. trade deficits with China had cost thousands of U.S. manufacturing jobs and merited a tougher response against the Chinese for their trade practices.

Bear in mind the things that provoke an outcry from the US Congress. Funnily, comparing two stories in the Washington Post and the Guardian, it was the Guardian that mentioned the backing new legislation being planned had from trade groups.

To the credit of US Treasury Secretary Paulson he doesn’t seem to have responded in any form of encouraging fashion to the protectionist thrall in which the US government is held (clear back, I would remind you, to the populism of Kerry and Edwards in 2004). But he is correct that something ought to be done. The yuan has moved very little since being disconnected from the US dollar a couple of years ago (students: we call this a dirty float, when the currency is floated but managed – more or less heavily, depending – by the domestic central bank).

It’s a bit tricky. China’s trade surpluse is phenomenal, and we all remember last year’s news that China’s foreign currency reserves had hit USD1tr in value (increasing around USD18bn per month, to boot). What to do with all of that?

The low value of the yuan keeps exports high. That’s a hell of a lot of wealth flowing into China, and it can’t handle the sort of domestic investment it’s experiencing for ever. The huge pile of money from buying up foreign securities doesn’t help at all.

To ditch it is risky, for a couple of reasons: first, China holds something like USD500-700bn in US government securities – i.e. dollars. If China sells them, or even looks like selling them, they go down in value. This means that the value of this wealth, for China, deteriorates even as it tries to realise it, but it also has a big impact on the US, sending down its dollar and, alley-oop, the yield on those government securities.

The government needs that borrowing, pretty badly as days go buy, and it will have to raise interest rates to keep getting it, if the dollar is declining on the ForEx market. I’ve mentioned this about 50 times now, and I apologise, but that’s the wrong sort of pressure to have on interest rates, particularly if the US is facing recessionary indicators. The Fed needs the freedom to move interest rates to benefit the domestic economy, not have them locked in by the budget deficit.

Although I poo-pooed the 1.4% increase in spending as low in the OECD, it’s still a lot higher than predicted, and also increases the likelihood of a rate rise. Inflation in the US is running around 3%.

China also doesn’t get much from domestic consumption, but from exports and investments – hence the tight control over its currency – but this means that it has less control of domestic inflation, as well. Currently that’s 3.4%, vs. the usual 3% target. This isn’t unique, in fact inflation is popping up all over – leading to a fair bit of selling of US securities, and falling yields (the US selling a bunch of them to raise money didn’t help). But it might come as good news to Sec. Paulson, since it makes up external pressure on China to slow down the cash coming into their overheating economy. He might just catch a break.

I’ll talk about the ‘bad’ of trade protectionism some other time. I have to go stitch together a paper for a colleague.

They must declare their interests/But not their company cars

Head of private equity lobby group resigns.

Just days after receiving a verbal mauling from MPs, Peter Linthwaite has quit his job as chief executive of the British Venture Capital Association (BVCA).

His departure follows a revolt by BVCA’s powerful private equity members, who are unhappy with his failure to fend off the rising tide of criticism from politicians and trade unions. This reached new levels on Tuesday, when MPs savaged Mr Linthwaite at the Commons’ Treasury committee’s inquiry into the industry.

The meeting to which this refers was indeed one in which the equity bosses got quite a bit of a kicking-around.

Three officials of the British Private Equity and Venture Capital Association engaged in fierce exchanges with MPs over the extent and nature of tax advantages enjoyed private equity executives, and over the involvement or not of workers in takeover deals. They faced an hour-long grilling by MPs asking if there was a need to impose tighter regulation and make changes to the tax rules.

So the head of the BVCA is leaving because he can’t stop Private Equity getting a bad name? For an industry whose execs pull down the word’s highest salaries, they’re a bit bloody thin-skinned – what did they think was going to happen? If they think they can earn salaries and benefits in the billions while paying 10% on it to the treasury and not lose out in the court of public opinion, they’re insane.

Me, I object to private equity on purely welfarist grounds, based upon the model of making money employed: (1) buy firm, (2) cut costs/increase profitability, (3) sell at profit, keeping some for yourself, (4) repeat (1) to (3), become a billionaire.

Step (2), see, like shitty Execs pursuing the magical 7%, typically involves job losses without any long-term gains in efficiency. I.e. innocent workers lose big, but society really doesn’t gain anything overall. We just see a massive transfer of surplus from poor to rich.

What does interest me, though, is what will become of Private Equity. There’s an endgame to this – eventually there’ll be nothing left to buy and nobody else to sell to. Private Equity will start to eat itself, I would expect, but it will all eventually collapse upon itself, leaving nothing but unbelievable wealthy individuals who never know when enough is enough. I wonder what they’ll do.

Context: consumer spending and mortgages in the UK

I little perspective on the post about spending in the US, below.

The Guardian tells us that consumer spending in the UK is up:

The Office for National Statistics said that retail sales last month were 3.9% higher than in May 2006, while over the three months to May 2007 business was up 4.4% on the same period a year ago.

In Australia, by the by, consumer spending is up by around 4.9%. Hence the discussion way back about why we face rate increases for quite different reasons.

So the US’ blip in consumer spending isn’t all that hot, relative to some of its OECD friends. Which isn’t necessarily a bad thing, frankly (Eco 1 students?). Higher relative GDP growth for America’s trading partners should mean good news for its Balance of Payments.

Here’s a similarity: fully-leveraged mortgages are on the rise in the UK (or at least, lenders are). This, by the by, sets up the conditions under which Howard won his last election (and is having a shot at swinging this one, too).

According to research from price comparison service MoneyExpert.com, the number of fixed rate mortgages that will lend the entire value of a property more than doubled in May this year from the same month in 2006, boosting the number of deals from 60 to 127.

I don’t consider this a good thing. The Guardian adds,

Further good news for first-timers is that, despite a 1% rise in interest rates over the past year, 100% mortgages have lagged behind in price. The typical initial rate now payable on a mortgage for someone without a deposit is 6.49%, compared with 5.89% a year ago.

However, borrowers requiring a loan for the full value of a property, while also wanting to protect their monthly mortgage repayments, will still have to pay for the privilege.

“It will cost borrowers around 1% more in interest to take a 100% loan compared to a 90% loan,” said Ray Boulger, senior technical director at broker John Charcol. “And the difference in price between the best tracker and the best fixed rate deal is currently around 0.5%.”

So we see parallels, no? with sub-prime lending in the US (currently nearly 16% of sub-prime mortgages in the US are 30 or more days past due).

Why do I not see this as the good news that we are lead to believe it is (even for the people who need them)?

Point 1: Fully-leveraged mortgages aren’t really substantially cheaper, once payment insurance is purchased – and it bloody-well should be, for a 100% loan.

Point 2: It may well not be. These mortgages appeal to first-home buyers struggling to get the deposit together. They will be more tempted than not to leave that 1% extra cost off their mortgage.

Point 3: Related to point 2. Like the subprime lending in the US, the dodgy mortgages are built for poorer potential homeowners (I’ll return to this in a second).

Point 4: At 100% your mortgage is your house, with no spare equity. In a slump, your house will go down in value, but your mortgage won’t. Alternatively an increase in borrowing rates on an adjustable-rate mortgage (say, when consumer spending is around 4% and holding) will also tip you over. That last thing you want is a mortgage worth more than the house it’s on, because if you lose the house you end up with no house, starting over, and saddled with debt from the mortgage.

Point 5: If you have one of these mortgages, the odds that you can easily afford increases in monthly repayments are small – hence the disastrous fallout awaiting the US.

People should never be allowed to borrow to the cliff’s edge, because they’re the least capable of absorbing any sort of shock whatsoever. Increasing interest rates and they can’t make payments, and have to foreclose – but with higher interest rates they may secure a lower price for their house. Come a recession, a layoff and they have the same problem (particularly without payment protection). If it is a recession, they again get lower prices for their house.

I think Jim Kunstler has hit upon this once or twice. The simple, pseudo-Malthusian fact is that some people don’t get to own houses. It is unpleasant, in this age of prosperity. We believe we can have everything (hence the consumer spending surging on the back of unsecured debt), but we cannot.

The subprime lending market is an example. This is a market of people who don’t qualify for properly-structured mortgages, and sustainable paths to home-ownership. The path they take is not sustainable. When the economy does what economies are supposed to do, they go over that cliff’s edge. There’s no reason why the UK will be any different. To my pessimistic mind fully-leveraged and/or subprime borrowers are Potential Big Losers (or Big Victims) and recession accelerators.

I acknowledge, by the by, the rental argument (that rents are so high you cannot save and pay rent, but this doesn’t mean you can’t adequately afford mortgage payments). This argument really only applies to people who can’t afford to make montly mortgage payments comfortably. For the latter group, I would still say it’s a bad move, relative to moving, if necessary, to lower your cost of living and saving the deposit required to buy a house with some equity from the start.