Reports from the Economic Front

Perhaps like me, you are watching the events in Egypt wondering if the popular forces in the streets and squares can develop the organizational force and political clarity needed to push out the existing regime and remake Egyptian society.  Initially, it seemed that their number and determination would be enough.  Now, it is less certain.

The elites within Egypt are showing great staying power and appear to have secured the support of elites in the U.S. and Europe.  Increasingly, it appears that they are willing to sacrifice some of their own, in a civilized manner of course, and implement some reforms, to ensure the survival of the regime.  Will that be enough to demobilize the people?   How should the movement for change respond?

We in the United States faced our own moment of possibilities, although it passed so quickly and so quietly few remember.  We had a huge economic crisis, a crisis brought on by an economic system that generated ever growing profits at ever greater social cost.  People came out into the streets demanding change. There were calls for restructuring the financial system, the tax system, labor markets, trade policies, government spending priorities, foreign policy,  . . . the list goes on. 

But U.S. elites held strong and we never managed to develop the force and clarity necessary to move events in a progressive direction.   The government quickly came to the rescue of the banks and other corporations, bailing them out at a cost of trillions of dollars of public money.  As a consequence, the economy has stabilized (at least for the present), a few reforms have been made, and . . . well, the same economic structure remains in place. 

The government tells us that thanks to its intervention things will soon return to “normal.”  In short, there is no need for major change.  Such a message conveniently overlooks the fact that this normal, marked by the period 2001-2007, was not very good for the great majority of people.  Real income declined, economic insecurity grew, poverty increased, investment stagnated, debt exploded—the only positive was the rapid increase in profits captured by the top 1-5 percent.  Should this really be our standard?

Given how little change has taken place, it should not surprise us that the economy is performing pretty much as it did before the crisis.   The following three charts come from the Michael Roberts Blog.  As the first chart shows, profits have recovered quite nicely since the crisis.  Although the ratio of profits to GDP has not quite reached its pre-crisis peak, it is definitely on the way.  

Unfortunately, much as in the pre-crisis period, this profit recovery has done little to support healthy economic growth.  One indictator: The chart below shows that non-residential private investment remains at relatively depressed levels. 

Another indicator: The chart below shows that labor conditions also remain depressed.  The pink line shows the employment to population ratio.  In many ways it is a better indicator of the employment creation potential of the economy than the unemployment rate.  Despite the so-called economic recovery, this ratio has yet to show any meaningful improvement.  The male participation rate, illustrated by the green line, continues to hit record lows.  

The recent crisis was trigger by the collapse of the debt driven housing bubble.   It was overcome largely because of massive government spending.  Elites are now pressing for cutbacks in this spending.  If they succeed, we will likely face a new downturn–and a new moment of possibilities.

While contemplating the options facing the Egyptian people, we would do well to begin thinking about how best to prepare ourselves for what lies ahead in this country.

The U.S. media continues to promote a very one-sided view of developments on the Korean peninsula.  The danger is that this one-sided view may, intentionally or not, encourage actions likely to lead to a new Korean war, possibly a nuclear one.

The most important thing to say is that since the end of the Soviet Union and the breakup of the Soviet-centered trading system that supported the North Korean economy, the North Korean government has sought to normalize relations with the U.S.  It has called for direct negotiations and the signing of a peace treaty to finally bring an end to the Korean War; at present we have only the armistice which ended the fighting.

The U.S. has largely rejected all overtures, preferring to keep the North isolated and weak.  For example, the U.S. continues to embargo the North and veto its attempts to join the World Bank and IMF. 

The North, for its part, has found that the only way it can get the U.S. to the negotiating table is with military threats, thus its past missile firings and testing of nuclear weapons.  However, the negotiations rarely last long, an outcome that only restarts the cycle in ever more dangerous ways. 

The issue here is not whether one likes the North Korean government.  The issue here is whether the U.S. government is sincerely interested in peace on the Korean peninsula.

The current crisis on the Korean peninsula was touched off by massive South Korean organized war games–involving over 70,000 soldiers, 600 tanks, 500 warplanes, 90 helicopters, and 50 warships–that were explicitly directed at the North.  As part of the war games, the South Korean military engaged in live artillery fire into waters claimed by North Korea.  

The North repeatedly demanded that the South halt the firing, and when the South refused, the North fired its own artillery at a South Korean military installation on an island some seven miles off the North Korean coast.  Two soldiers and two civilian military contractors were killed.  The South then fired back, causing unknown causalities in the North.

The U.S. government responded to these developments by sending the nuclear-powered aircraft carrier, the USS George Washington (carrying 75 warplanes and a crew of over 6000), and other warships to conduct additional joint war exercises with the South Korean military. 

Thankfully, it appears that a further escalation has been avoided, at least for the moment.  The North has apologized for the deaths and the South has decided not to renew its coastal live-fire artillery exercise.

The key to understanding what is happening now on the Korean peninsula is the fact that the a state of war continues to exist.  Without direct talks aimed at achieving an end to the Korean War and the normalization of relations between the two Koreas and between the North and the U.S., the region will remain a tinderbox.

This is not an impossible task.  For example, in October 2007, an inter-Korean summit meeting between Roh Moo-Hyun (the previous South Korean president) and Kim Jong Il (the North Korean leader) produced a commitment by both sides to negotiate a joint fishing area and create a “peace and cooperation zone” in the West Sea in order to transform the heavily militarized waters into a maritime region for economic cooperation.  Tragically, a few months later, the newly elected (and current) president of South Korea, Lee Myung-bak, rejected the agreements that were reached at that summit and at the previous one held in 2000.

This decision helped to create the atmosphere that produced the current tragedy and threat of renewed war.  So did South Korean charges that the North was responsible for the March 2010 sinking of the Cheonan, a South Korean navy corvette, which resulted in the loss of 49 lives in the waters near the North Korean coast 

Significantly, while the U.S. quickly endorsed the South Korean charge, there is strong reason to believe that the ship sank because it ran aground, and that the South Korean government sought to blame the North in hopes that it could use the crisis to improve its chances in national assembly elections.  

A South Korean newspaper, the Hankyoreh, did an excellent job of highlighting the problems with the government’s case in a 30 minute TV program (with English subtitles) that can be viewed below. 

[youtube] http://www.youtube.com/watch?v=SDITkTEDVNA [/youtube] 

Perhaps the most compelling evidence casting doubt on the South Korean government’s claim that the Cheonan was torpedoed by a North Korean submarine is the fact that all the Cheonan victims died of drowning, nearly all of the 58 surviving crew members escaped serious injury, and the ship’s internal instruments remained intact.  According to several scientists who have modeled the likely results of a torpedo explosion, the entire crew would have been sent flying, leading to fractured bones and the destruction of instruments.

Unfortunately, the U.S. media never reports that South Korean government claims of North Korean responsibility for the sinking of the Cheonan are widely challenged in the South.  Rather, the incident is viewed as another example of the North’s reckless behavior, a framing that colors popular perceptions in this country of current tensions and encourages increasingly strident calls for military action against the North.

So—what should we do?  As stated above, rather than prepare for war, the U.S. government should be pressed to sit down and negotiate directly with the North.  A growing number of mainstream political leaders are arguing the same, although you would not know it from reading the press.  For example:

“We demonize [Kim Jong Il] as a ‘nut case,’ but I have talked to Russians, Chinese, South Koreans and Americans who have met with him at length, and all say he is extremely intelligent. What Kim wants is sustained, serious talks with the US, leading to a comprehensive peace treaty….Our problem is that every time we elect a new president, we seem to feel that we have to start from scratch with North Korea.” – Donald P. Gregg, US ambassador to South Korea (1989–1993) and National Security Advisor to Vice-President George H.W. Bush

“… One item should be at the top of the agenda, however, in order to remove all unnecessary obstacles to progress, that is the establishment of a peace treaty to replace the truce that has been in place since 1953.  One of the things that have bedeviled all talks until now is the unresolved status of the Korean War. A peace treaty would provide a baseline for relationships, eliminating the question of the other’s legitimacy and its right to exist.” – James Laney, U.S. Ambassador to South Korea (1993-1997) and President Emeritus of Emory University

“Pyongyang has sent a consistent message that during direct talks with the United States, it is ready to conclude an agreement to end its nuclear programs, put them all under IAEA inspection and conclude a permanent peace treaty to replace the ‘temporary’ cease-fire of 1953.” –Jimmy Carter, 39th President of the United States

For more about the current situation, check out the following:

• “North Korea’s Consistent Message to the U.S.” by former President Jimmy Carter in The Washington Post, Nov. 24, 2010

• “Retaliation, Retaliation” by Paul Liem of the Korea Policy Institute, Nov. 25, 2010

• “Crisis in Korea?” by John Feffer, Co-director of Foreign Policy in Focus in The Huffington Post, Nov. 23, 2010

• “Obama’s Only Choice on North Korea” by Tim Shorrock in The Daily Beast, Nov. 24, 2010

• “A Return Trip to North Korea’s Yongbyon Nuclear Complex” by Siegfried S. Hecker, Nov. 22, 2010

• “Review U.S. Policy toward North Korea” by Bob Carlin and John Lewis in The Washington Post, Nov. 22, 2010

Where do our federal taxes go?  A Wall Street Journal blog post recently reported on the results of a study done by a group called Third Way, which was designed to answer this question.

The Wall Street Journal asked Third Way to produce an “itemized receipt” for the federal taxes that would be paid by two different couples.  The first has two children (13 and 17 years of age) and one spouse that earns $150,000 and another that earns $50,000.  The second couple receives $100,000; both individulas are retired and have no dependents.

As I looked at the itemized receipt below, I was struck by the number of military related uses of our tax money. I therefore decided to see how much of our tax money was going to support military related activities.

First, I removed the tax money going to social security and medicare from my calculations.  The reason is that both of these programs have their own specific taxes that can be used only to fund their respective operations. 

I was more interested in considering how our general tax dollars are used.  In other words, we pay lots of taxes that go into the general fund.  These funds can be used anyway our government decides.  It was the distribution of these general tax funds that interested me.

Because my staff of highly trained researchers happened to be working on other important projects, I was forced to do all the work on this post myself.  Therefore, I decided to look only at the figures for the ”working couple.”

I first added up all the itemized tax payments (leaving out social security and medicare for reasons highlighted above).  The total came to $19, 005.82. 

Then I added up all the itemized tax payments that went to activities that were obviously dedicated to military related purposes.   This included operations, personal, weapons purchases, research and testing, veterans health care, and retirement benefits. 

Then I added to that total 50% of the amount spent on the Department of Energy, because that is where our nuclear weapons program costs show up, and 80% of the amount spent on interest on the national debt, because it has been military spending that has generated most of our past deficits.  Both of these adjustments are in line with the practice of other scholars.   Finally, I also included in my military total the tax payments that go to fund the CIA.  

The grand sum of all military items (including the three additions for nuclear weapons, interest, and covert operations) was $11,632.32.

So, divide $11,632.32 by $19,005.82, and it turns out that 61.2% of the general tax payments made by our hard-working couple are going to fund military activities, past, present and future.  Said differently, out of every tax dollar that this couple pays into our general tax fund, Congress is sending approximately 61 cents to support military activities.  

Assuming that this ratio is generalizable to other taxpayers, it is no wonder we have little left over to do other things. 

Military Spending is clearly the “elephant in the living room” in discussions regarding government spending and deficits.  Most of those screaming for deficit reduction seem oddly unconcerned about our military budget.  Even many supporters of active government spending appear reluctant to take on the military.  

Perhaps these people think that with our new foreign policy, military spending will be reigned in so there is no need to take on such a powerful institution.  Well, if that is their thinking, they are in for a big disappointment.  Spending on the military continues to grow and in line with government policy.

If you don’t believe it, I recommend taking the 11 question American Way of War Quiz.  In what follows I list only the first three questions and answers.  I strongly recommend going here and taking the entire quiz.  But make sure you are sitting down while reading the answers.

The American Way of War Quiz
This Was the War Month That Was (Believe It or Not)
By Tom Engelhardt and Nick Turse

Yes, it would be funny if it weren’t so grim.  After all, when it comes to squandering money and resources in strange and distant places (or even here at home), you can count on the practitioners of American-style war to be wildly over the top.

Oh, those madcap Pentagon bureaucrats and the zany horde of generals and admirals who go with them!  Give them credit: no one on Earth knows how to throw a war like they do — and they never go home.

In fact, when it comes to linking “profligate” to “war,” with all the lies, manipulations, and cost overruns that give it that proverbial pizzazz, Americans should stand tall.  We are absolutely #1!

Hence, the very first TomDispatch American Way of War Quiz.  Admittedly, it covers only the last four weeks of war news you wouldn’t believe if it weren’t in the papers, but we could have done this for any month since October 2001.

Now’s your chance to pit your wits (and your ability to suspend disbelief) against the best the Pentagon has to offer — and we’re talking about all seventeen-and-a-half miles of corridors in that five-sided, five-story edifice that has triple the square footage of the Empire State Building.  To weigh your skills on the TomDispatch Scales of War™, take the 11-question pop quiz below, checking your answers against ours (with accompanying explanations), and see if you deserve to be a four-star general, a gun-totin’ mercenary, or a mere private.

1. With President Obama’s Afghan surge of 30,000 U.S. troops complete, an administration review of war policy due in December, and fears rising that new war commander General David Petraeus might then ask for more troops, what did the general do last week?

a. He informed the White House that he now had too many troops for reasonable operations in Afghanistan and proposed that a drawdown begin immediately.

b. He assured the White House that he was satisfied with the massive surge in troops (civilian employees, contractors, and CIA personnel) and would proceed as planned.

c. He asked for more troops now.

Correct answer: c.  General Petraeus has already reportedly requested an extra mini-surge of 2,000 more troops from NATO, and probably from U.S. reserves as well, including more trainers for the Afghan military.  In interviews as August ended, he was still insisting that he had “the structures, people, concepts, and resources required to carry out a comprehensive civil-military counterinsurgency campaign.” But that was the summer silly season.  This is September, a time for cooler heads and larger demands.

2. With President Obama’s announced July 2011 drawdown of U.S. troops in Afghanistan in mind, the Pentagon has already:

a. Begun organizing an orderly early 2011 withdrawal of troops from combat outposts and forward operating bases to larger facilities to facilitate the president’s plan.

b. Launched a new U.S. base-building binge in Afghanistan, including contracts for three $100 million facilities not to be completed, no less completely occupied, until late 2011.

c. Announced plans to shut down Kandahar Air Base’s covered boardwalk, including a TGI Friday’s, a Kentucky Fried Chicken, and a Mamma Mia’s Pizzeria, and cancelled the opening of a Nathan’s Famous Hot Dogs as part of its preparations for an American drawdown.

Correct answer: b.  According to Walter Pincus of the Washington Post, construction is slated to begin on at least three $100 million air base projects — “a $100 million area at Shindand Air Base for Special Operations helicopters and unmanned intelligence and surveillance aircraft”; another $100 million to expand the airfield at Camp Dwyer, a Marine base in Helmand Province, also to support Special Operations forces; and a final $100 million for expanded air facilities at Mazar-e Sharif in northern Afghanistan.  None of these projects are to be completed until well after July 2011. “[R]equests for $1.3 billion in additional fiscal 2011 funds for multiyear construction of military facilities in Afghanistan are pending before Congress.”   And fear not, there are no indications that the fast-food joints at Kandahar are going anywhere.

3. The U.S. military has more generals and admirals than:

a. Al-Qaeda members in Yemen.

b. Al-Qaeda members in Afghanistan.

c. Al-Qaeda members in Pakistan.

d. Al-Qaeda members in all three countries.

Correct answer: a, b, c, and d.  According to CIA Director Leon Panetta, there are 50 to 100 al-Qaeda operatives in Afghanistan, possibly less.  Best estimates suggest that there are perhaps “several hundred” al-Qaeda members in poverty-stricken, desertifying, strife-torn Yemen.  There are also an estimated “several hundred” members and leaders of the original al-Qaeda in the Pakistani borderlands.  The high-end total for al-Qaeda members in the three countries, then, would be 800, though the actual figure could be significantly smaller. According to Ginger Thompson and Thom Shanker of the New York Times, the U.S. military has 963 generals and admirals, approximately 100 more than on September 11, 2001.  (The average salary for a general, by the way, is $180,000, which means that the cost of these “stars,” not including pensions, health-care plans, and perks, is approximately $170 million a year.)  The U.S. military has 40 four-star generals and admirals at the moment, which may represent more star-power than there are al-Qaeda operatives in Afghanistan.  Secretary of Defense Robert Gates has suggested that, as a belt-tightening measure, he might cut the top-heavy U.S. military by 50 positions — that is, by half the increase since 9/11.