Speaking at IBM’s annual meeting in Huntsville, Alabama, yesterday, Rometty said she was “not satisfied” with the first-quarter results. To shape up, IBM is divesting businesses and focusing on more profitable and faster-growing areas, such as data analysis and cloud computing. The company is still on track to meet its five-year plan for profit growth, put in place under her predecessor Sam Palmisano in 2010, Rometty said.
“It is important to understand IBM’s long-term model,” said Rometty, who became CEO of the computer-services giant in January 2012. “We are an innovation company. This means that we pursue continuous transformation.” ...
In a bid to get back on course, IBM will spend $1 billion eliminating jobs in the second quarter and will divest businesses later this year, Loughridge said at the time. Gains in the second half will make up for those expenses, he said, a tipoff that a transaction may be in the works. ...
Rometty said yesterday that the company is relying heavily on incentives to motivate employees. As much as 90 percent of some workers’ pay is dependent on performance, she said.
The Justice Department is investigating whether IBM violated the Foreign Corrupt Practices Act, the company said in an April 30 filing. In Poland, the department is focusing on a transaction that the Polish Central Anti-Corruption Bureau already was studying, the company said. It involves allegations of a former IBM employee selling to the Polish government.
The Justice Department probe adds scrutiny in new territory as IBM tries to settle with the SEC over activity in China and South Korea. The global reach of the investigation indicates that this isn’t an isolated matter, said Charles Elson, corporate-governance professor at the University of Delaware.
“If it happens in one country, you can say it’s an individual,” Elson said. “If it happens in multiple, you have to ask, is it systemic? And how well was the compliance program put in place to prevent it?” ...
In March 2011, the company said it had agreed to pay $10 million to settle with the SEC over allegations that it bribed officials to win at least $54 million in government contracts. U.S. District Judge Richard Leon, who has had the case under review, said he won’t accept the deal without a requirement that IBM report any future law enforcement or administrative probes to the court.
“This is a company that has a history of violating the books and records provision of the FCPA,” the judge said in February.
The inquiry is currently investigating the contractual arrangements between the State of Queensland and IBM, and why the cost of the system blew out over time.
The bungled project is expected to ultimately cost taxpayers $1.25 billion.
Senior IBM executive Bill Doak told the inquiry on Friday he stood by IBM's work on the project, and was proud of what the tech giant had achieved.
News of the negotiations surfaced last month in various publications and were confirmed by Fortune. Bloomberg put the value of the potential deal, which would cover IBM's sale of its so-called x86 server business, at between $2.5 billion and $4.5 billion. Others suggested IBM was seeking as much as $6 billion. Lenovo is said to have balked at the price tag for the business, which generates close to $5 billion in sales, or about a third of IBM's overall server revenue, according to estimates.
We always hear how we need to pay CEOs a very-high salary to attract the best/brightest. Here's an idea. If you find a CEO willing to work for less, they might also be less greedy. And you might have for yourself a leader that can see past the next quarter and their own stock options. A CEO that makes 70 million dollars is more likely to be greedy and run your company into the ground for short-term gain.
Sources told CRN that Superlab employees have not received any indication from IBM that plans have changed since reports that its talks with Lenovo had stalled surfaced on Wednesday.
Many Superlab developers and engineers were told by IBM management in mid-April they'd be transitioning to become Lenovo employees on June 1, several sources with knowledge of the matter told CRN. ...
IBM's previous track record of laying off contractors with short notice is contributing to a pervasive uneasiness in the Superlab employee ranks, one source with knowledge of the situation told CRN. "There is almost a riot of worry in the Superlab," the source said. "People don't know what they're going to be doing, and I'd say 80 percent of them think they're done for."
In IBM's first-quarter earnings call last month, CFO Mark Loughridge referred to coming "divestitures" and "workforce re-balancing" in the current quarter. In a video after the call, CEO Ginni Rometty urged IBM employees to "step up" and move more quickly to new computing models.
Disappointing performance happens at all companies, and is an issue that CEOs often face. The underlying question is how CEOs should react when their organization falls short. In IBM's case, its hardware division's sales fell 17% below prior year results, and that amounted to a key cause for the earnings miss. Rometty also reassigned the top executive leading that division, presumably because of the poor results. ...
Consistent high performance comes when CEOs actively manage the performance environment. That requires the CEO to be much more than a cheerleader and morale booster. It requires them to make underperformers feel uncomfortable. To Rometty's credit, she did just that last Wednesday. By shining a light on the sub-par performance of the sales team, she exposed them to their peers and in fact, to the world at large. By reassigning the top executive, she showed that she won't tolerate low performance. You can be sure that every executive at IBM took notice, especially the ones with below average performance. She is increasing the performance pressure, and all investors in IBM should be glad.
The truth is, increasing the pressure correlates well with increasing performance -- so long as the top performers don't head for the exits. Big rewards for success are just as important as consequences for failure, and both increase pressure. Having clear, accepted measures of performance are critical too, because without measures, increasing the pressure will create chaos (since people won't be sure what to do to relieve the pressure). Meaning, there is another way to offset pressure. In IBM's case, Rometty made it clear that one measure -- responding to client needs within 24 hours -- is now a priority.
CDI Corp., a provider of staffing and outsourcing services, told employees working on IBM jobs that they should bill for no more than 36 hours a week in the second quarter, according to the memo. CDI, based in Philadelphia, cited “challenging economic conditions” in explaining the move.
“You should understand that this action is being taken by IBM to retain as many CDI resources as possible for future work,” Eric Gonzalez, a delivery executive, said in the memo. “This action is not a reflection of any dissatisfaction over the services provided by you or CDI but rather an IBM business decision.” ...
IBM told CDI that the change in hours would only be in effect during the second quarter, according to the memo. The employees aren’t allowed to work beyond 36 hours unless approved in writing by IBM management.
Mr. Mickos, who sold MySQL, a relational database management system, to Sun Microsystems for $1 billion in 2008, sees the completion as a three-way competition. “There are the old guys, like IBM, Hewlett-Packard, Intel and Cisco, who are trying to get into new stuff,” he says. “There are the server virtualization companies, like VMware and Citrix, who say the cloud is just more virtualization of your existing equipment. Then there are the pure plays, like A.W.S. and Google.”
On Wednesday, IBM France presented its 'bi-annual business estimates' during a meeting of the central business committee. ZDNet managed to get a look figures included in the estimates, which forecast a total of 1,226 job cuts within two years.
According to the figures, two areas of the business will be hit the hardest: IBM France expects to have to bring down its services workforce to 1192 jobs from 1696, and its local support functions to 929 from 1233 today. The company had a headcount of just over 8,500 in the country at the end of 2012, the estimates said.
Now in the 3rd world there are still plenty of jobs. IBM becomes a company that, once it sheds its hardware business for "higher-margin" business, becomes just some fungible service provider... something that small companies can often do better with fewer (high-paid) managers.
The lie infuriates because the IBMer knew the facts; the less informed saw only the data points used to sell the lie to the population at large.
I mention another lie because I've heard it passed on by the same IBMers, even on this board. This this is not simply another corporate lie, but is one used to disenfranchise the American employee, including IBMers. This is the lie that large corporations cannot afford continued pension and medical benefits to the masses because we are living longer. Think about it just a little. You know the facts of the former lie, better than the average person. You choose to believe the second lie, from the same source. Consider the source.
Think of the logic behind the story, as you know of more and more people dying early of cancers and the various degenerative diseases associated with obesity. Then do the research to understand the facts. We should know that the Indian did not take away the job, nor did the fat guy with CAD. Having several lies keeps the underclass fighting among themselves, each "group" complaining about the lie they understand, and not supporting the one they don't, even when it affects them as well. Conspiracy theorists may be crazy, but...
Cons: It's a financially driven organization and we are absolutely feeling the pain of not growing the top line; They compensate by squeezing more costs out (our salaries) to grow the bottom line; many of my peers have had salary roll backs in the last many years as sales objectives are nearly impossible to make.
Advice to Senior Management: Wake up and smell the social/digital/mobile/ cloud...it wasn't until 2013 you started to even use this terminology in your communications; face it, your business strategy is a fail, and after 7 straight quarters of falling sales, its time to make some admissions...blaming this last quarter on poor sales execution is insulting...you've squeezed so much investment and compensation out of the operating model that we've become transactional focused (surprise!)
Cons: -Messing with benefits constantly; -Salaries are low; -Raises are non-existent; -Ability to move jobs within IBM is meager at best despite what they tell you.
Advice to Senior Management: Be honest and trust your employees, no one trusts you because you've had a history of very bad decisions that are seemingly at odds with IBM's supposed values and traits.
Advice to Senior Management: None—go to eastern Europe or AP if you want growth or a good experience with the IBM brand.
But these offers, known as pension advances, are having devastating financial consequences for a growing number of older Americans, threatening their retirement savings and plunging them further into debt. The advances, federal and state authorities say, are not advances at all, but carefully disguised loans that require borrowers to sign over all or part of their monthly pension checks. They carry interest rates that are often many times higher than those on credit cards. ...
A review by The New York Times of more than two dozen contracts for pension-based loans found that after factoring in various fees, the effective interest rates ranged from 27 percent to 106 percent — information not disclosed in the ads or in the contracts themselves. Furthermore, to qualify for one of the loans, borrowers are sometimes required to take out a life insurance policy that names the lender as the sole beneficiary.
As Jessica Silver-Greenberg reported recently in The Times, “pension advance” companies profit by convincing retirees to sign over all or part of their monthly pension checks in exchange for an upfront payment. These “advances” are disguised loans (though not described as such in the contracts) that can carry interest charges that can reach 100 percent or more. To qualify, borrowers are sometimes required to pay for life insurance policies that name the lender as sole beneficiary. ...
The companies are especially aggressive in their pursuit of military veterans — even though federal law forbids transactions that require enlisted retirees to turn over their pensions to third parties. To get around that rule, the firms encourage veterans to establish separate bank accounts where pension payments are first deposited and then sent to lenders.
Specifically, it failed to highlight that there actually are good 401(k) plans out there, and they can be used to accumulate a significant nest egg.
Regardless of your take on the show, here are some tips to “improve your odds” of a successful retirement.
Companies like Microsoft often claim that America is suffering from an economically hobbling shortage of science, math, and computer talent. The solution, they argue, is to let employers fill their hiring gaps by importing tens of thousands of educated guest workers beyond what the law currently allows. Much as farmers want to bring in field workers from Mexico on short-term visas, software developers desperately want to bring in more coders from India.
The Senate's current immigration bill would grant their wish. As written, it vastly increases the annual limit on H1-B visas, which allow corporations to bring employees with a bachelor's degree to the U.S. from overseas for up to six years. Roughly half the guest workers who currently arrive through the program come for computer-related jobs. When Facebook CEO Mark Zuckerberg announced earlier this month that he was forming a political action group to back the reform effort, it was in part seen as a move to ensure that the H1-B provision would make it to President Obama's desk intact.
There's just one problem. That whole skills shortage? It's a myth, as was amply illustrated (yet again) in a report written by researchers from Rutgers, Georgetown, and American University, and issued by the Economic Policy Institute. It still might be the case that tech companies are having trouble finding specific skill sets in certain niches (think cloud software development, or Android programming), but there simply aren't any signs pointing to a broad dearth of talent.
Colleges, for instance, are already minting far more programmers and engineers than the job market is absorbing. Roughly twice as many American undergraduates earn degrees in science, technology, engineering, and math disciplines than go on to work in those fields. As shown in the EPI graph below, in 2009 less than two thirds of employed computer science grads were working in the IT sector a year after graduation. ...
In industries where talent is scarce, economists generally expect wages to rise, as desperate companies go chasing after what few qualified souls they think can do the job. That's exactly what's happened to oil and gas engineers over the last decade during the energy boom, for instance. But while there have certainly been anecdotal accounts of Silicon Valley firms tossing outrageous sums at elite college students, in the big picture, programmer salaries have been stagnant ever since the dotcom bubble went bust more than a decade ago. The pattern holds whether you look at the national data, or just at traditional tech centers such as Silicon Valley, the Route 128 corridor outside Boston, Dallas, or Austin, where you'd expect competition for talent to be hottest. ...
Often, it comes down to a matter of age: Companies frequently save money by hiring a young, less experienced immigrant instead of an older American who would command a higher salary. And because the bureaucratic hurdles make it difficult for H1-B holders to switch jobs -- particularly if they're stuck in line waiting for a green card -- guest workers have notorious difficulty bargaining for promotions or raises. They also can't go off and start their own businesses, as they'd lose their visa. Unlike green card holders, they're professionally chained in place.
The program has also fed the pernicious growth of IT outsourcing firms. These companies use H1-B visas to import low cost tech workers by the thousands, who they hire out to American corporations as substitutes for better-paid, in-house staff. The Boston Globe reports that just 4 of these companies -- New Jersey-based Cognizant Technology Solutions along with India-based Tata Consultancy Services, Wipro, and Infosys -- claimed 20 percent of the 134,780 H1-B visas that were approved in 2012.
And then reality set in. You see, I was originally hired to do one job, but then last minute that was changed. That meant that all of the goals and such that had been set up for me were for a different job, and they didn't get updated. This meant my review was poor and I got a 1% raise. At first I was really disappointed in myself, but then I realized I hadn't failed. IBM had failed. The joke was on them though.
I had been pursued by my former colleague and had already interviewed with another company. Upon learning that I was neither respected nor desired by IBM I happily gave my notice. They had to stop developing the product I was working on because it was too big of a burden for anybody else to do properly, and there was no chance of hiring more people to help. Sadly, the only ones punished were the ones that had to take on all of the extra work. This stuff has been happening for far too long, and I recently turned down another opportunity to join IBM in favor of a small company with a shaky future. Best decision ever. -FormerIBMer-
I've been a voting member of Alliance for 13 years. IBM sold me in 2002, but I continued to keep my membership active with the Alliance. I've watched this comment board since it was created. And just like clock-work; the "Big Blue-dogged" workers come here and comment in droves about what happened to their co-workers at RA time. Before that, it's quiet and only the few stragglers will occasionally comment how they "hope the IBM execs can sleep at night after what they just did a few months before"... That makes no sense to me. While I spend my money and time trying to organize US IBMers where I am; even though I'm no longer an active employee, the "Big Blue-dogged" workers keep dreaming that an RA won't happen to them.... WAKE UP, will you??! Join the Alliance and get busy fighting for your job...or get busy losing your job. Simple as that. -Ready_Yet?-
"Randy has been a treasured asset for three IBM CEOs. I personally have deeply valued his creativity, perspective and judgment," said Ginni Rometty, chairman, president and chief executive officer. "He has continuously pushed us to anticipate major shifts – in the process, stepping up to some of the most important workforce challenges of our time. It is no accident that IBM is now recognized as the gold standard in leadership development – nor that many companies are following our lead in workplace flexibility, employee wellness and the global deployment of talent."
Diane Gherson, vice president, Talent, will succeed Randy and become senior vice president, Human Resources, reporting to Ginni. "Diane is a recognized leader in progressive workforce practices. She is deeply experienced and richly qualified for this important leadership position," Ginni said. -anonymous-
The whole point of buying health insurance coverage is to make care affordable. Millions of Americans pay monthly premiums with the expectation that, should a horrible illness or accident occur, the insurance company will cover the majority of some pretty expensive hospital bills.
Some experts and health advocates have begun to question whether the health-care law can deliver on that promise. Woolhandler wrote an editorial earlier this week, in the Journal of General Internal Medicine, contending that “the new private coverage offered to the near-poor and middle income individuals through insurance exchanges will also leave many underinsured.” ...
Woolhandler, who is the co-founder of Physicians for a National Health Program, has previously conducted research on rates of medical bankruptcy in Massachusetts, before and after the state expanded health insurance access. She found that in 2009, two years after the insurance expansion took effect, just about half the debtors (52 percent) attributed their bankruptcy at least in part to medical bills. In 2007, before the expansion, the number stood at 59 percent.
At his news conference Tuesday, President Barack Obama hailed the simplified forms as an example of how his team listened to criticism from consumer groups and made a fix. The law's full benefits will be available to all next year, he emphasized, even if Republicans in Congress still insist on repeal and many GOP governors won't help put it into place. ...
Filling out the application is just the first part of the process, which lets you know if you qualify for financial help. The government asks to see what you're making because Obama's Affordable Care Act is means-tested, with lower-income people getting the most generous help to pay premiums. Consumers who aren't applying for financial help still have to fill out a five-page form. ...
Administration officials expect most people to apply online. The process will route consumers to either private plans or Medicaid. Identification, citizenship and immigration status, as well as income details, are supposed to be verified in close to real time through a federal "data hub" pinging Social Security, the Homeland Security department and the Internal Revenue Service.
Under Obama's overhaul, insurers will no longer be able to turn away the sick or charge them more. The pitfalls of giving the wrong answer to a health care question will be gone, but consumers who underestimate their incomes could be in for an unwelcome surprise later on in the form of smaller tax refunds.
Of the 12 drugs approved by the Food and Drug Administration for various cancer conditions last year, the experts said, 11 were priced above $100,000 a year. They suggested that charging high prices for drugs that are needed to save lives or improve health is a form of profiteering like jacking up the price of necessities after a natural disaster. ...
The experts focused primarily on the cancer they know best, chronic myeloid leukemia, and the drugs used to treat it, whose costs, they said, can rise to $138,000 a year. By all accounts, these drugs, known as tyrosine kinase inhibitors, have been a rousing success in turning a death sentence into a chronic disease whose victims often live close to normal life spans. That does not mean the high prices are justifiable; the companies could settle for lower-but-still-substantial profits. An even stronger case can be made that extremely high prices of other cancer drugs providing minuscule benefits should be lowered.
The cancer experts plan to organize meetings with drug companies, patient groups, insurers and others to discuss why cancer drug prices are so high and what might be done to lower them. Let us hope their effort proves as effective as the Sloan-Kettering revolt, which forced the drugmaker to effectively cut its prices in half.
A word of warning, however: what follows contains political attitudes so petty and out of touch they may disturb younger readers.
Cantor, you’ll recall, has been trying to get his party to embrace some ideas that would show Republicans are not just austerity monomaniacs blind to middle class anxieties. In a speech on “Making Life Work” not long ago, Cantor laid out a handful of initiatives in this vein, like boosting flex time and retraining. One idea was to strengthen the high-risk pool that covers Americans with pre-existing conditions. Obamacare established this program as an interim patch for vulnerable Americans until the law’s community rating kicks in, at which point everyone can buy coverage regardless of health status. But this national high-risk pool is so poorly funded (as has been the case with similar state pools for years) that only a few of the country’s uninsurables have availed themselves of the protection.
Now, to put what happened next in context, you need to understand that Republicans who resist universal coverage but who resent being labeled “heartless” have always been quick to say that they’re as concerned as the next guy about people with predictably high health expenses. The answer, they say, rather than some broad “socialist” risk pooling, is to set up publicly subsidized high risk insurance programs. That way these unlucky souls get help while leaving private health plans to cover the rest of us in ways that don’t force higher premiums on everyone. ...
That was the idea. Then — boom! — conservatives revolted. L. Brent Bozell III cried “Cantorcare.” The Club for Growth warned that a vote for the measure would be tantamount to supporting Obamacare on their coveted conservative score card. “We often say we don’t need this Democrat big-government program [but then say] we need this Republican big-government program,” harrumphed Rep. Trey Radel of Florida. Rep. Tim Huelskamp of Kansas urged the party to skip this sideshow and get back to the real issues: the debt ceiling and spending cuts.
Wow. It almost makes you feel sorry for Cantor. ...
No, in asking his colleagues to do this small thing for the sickest of the sick, Cantor was taking a parody of a baby step. Cantor’s overall agenda was already minimalist. And within this minimalism, to use a painterly analogy, Cantor was pushing something positively pointillist — a few tiny dots meant symbolically to suggest that the GOP “cared” and could “solve a problem.”
But this little spec of an idea proved to be too much for today’s House Republican caucus and the political ecosystem that sustains it. And if that’s the case, how can Republicans ever get remotely serious about big time woes in education, health costs, retirement security, college access and other pressing concerns of the middle class?
"But dependency on government has never been bad for the rich. The pretense of the laissez-faire people is that only the poor are dependent on government, while the rich take care of themselves. This argument manages to ignore all of modern history, which shows a consistent record of laissez-faire for the poor, but enormous government intervention for the rich." From Economic Justice: The American Class System, from the book Declarations of Independence by Howard Zinn.
The similarity ends there. Johnson, 54, got a compensation package worth 1,795 times the average wage and benefits of a U.S. department store worker when he was hired in November 2011, according to data compiled by Bloomberg. Gonzales’s hourly wage was $8.30 that year.
Across the Standard & Poor’s 500 Index of companies, the average multiple of CEO compensation to that of rank-and-file workers is 204, up 20 percent since 2009, the data show. The numbers are based on industry-specific estimates for worker compensation.
Almost three years after Congress ordered public companies to reveal actual CEO-to-worker pay ratios under the Dodd-Frank law, the numbers remain unknown. As the Occupy Wall Street movement and 2012 election made income inequality a social flashpoint, mandatory disclosure of the ratios remained bottled up at the Securities and Exchange Commission, which hasn’t yet drawn up the rules to implement it. Some of America’s biggest companies are lobbying against the requirement.
“It’s a simple piece of information shareholders ought to have,” said Phil Angelides, who led the Financial Crisis Inquiry Commission, which investigated the economic collapse of 2008. “The fact that corporate executives wouldn’t want to display the number speaks volumes.” The lobbying is part of “a street-by-street, block-by-block fight waged by large corporations and their Wall Street colleagues” to obstruct the Dodd-Frank law, he said.
The leading opponent of mandatory pay-ratio disclosure is a Washington-based non-profit called the HR Policy Association, which represents top human resources executives at about 335 large corporations. ...
James Cotton, a retired securities attorney for International Business Machines Corp. (IBM), may have been the first to propose mandatory disclosure of the CEO pay ratio. He said it would have “a significant impact by either lowering the excessive executives’ compensation or raising the average compensation of employees and managers” in a 1997 article in the Northern Illinois University Law Review. He got the idea shortly after joining IBM in 1970, Cotton said in an interview.
The young attorney, an Army captain during the Vietnam War, said he was listening to managers discuss how to handle the company’s cash when he proposed giving out raises.
“They looked at me like there was something wrong with me,” Cotton recounted. “They said, ‘We can’t do that.’” For years after that, he said, he kept an eye on the CEO’s pay and IBM’s cash holdings, both of which increased.
And since last week saw a cross-party celebration of the opening of George W. Bush’s presidential library, I’d add a second mystery: Why is it that conservative Republicans who freely cut taxes while backing two wars in the Bush years began preaching fire on deficits only after a Democrat entered the White House?
Here is a clue that helps unravel this whodunit: Many of the same conservatives who now say we have to cut Social Security to deal with the deficit supported Bush’s plan to privatize Social Security — even though the transition would have added $1 trillion to the deficit. The one thing the two positions have in common is that Bush’s proposal also would have reduced guaranteed Social Security benefits.
In other words, deficits don’t really matter to many of the ideological conservatives shouting so loudly about them now. Their central goal is to hack away at government. ...
It’s outrageous that Congress and the administration are moving quickly to reduce the inconvenience to travelers — people fortunate enough to be able to buy plane tickets — by easing cuts in air traffic control while leaving the rest of the sequester in place. What about the harm being done to the economy as a whole? What about the sequester’s injuries to those who face lower unemployment benefits, who need Meals on Wheels or who attend Head Start programs?
Instead, we should be using this period of low interest rates to invest in our infrastructure. This would help relieve unemployment while laying a foundation for long-term growth. But anti-government slogans trump smart-government policies. For reasons rooted in both ideology and the system’s bias against the less privileged, we hear nothing but “deficits, deficits, deficits” and “cuts, cuts, cuts.”
To paraphrase a French statesman from long ago, this is worse than a crime. This is a mistake. Its costs are being borne by good people who ask only for the chance to do productive work.
Whether you think it deeply unjust, lamentable but inevitable, or obvious and unproblematic, this is hardly news. It is true in most societies and has been true in the United States for at least as long as we have thought to ask the question and had sufficient data to verify the answer.
What is news is that in the United States over the last few decades these differences in educational success between high- and lower-income students have grown substantially.
One way to see this is to look at the scores of rich and poor students on standardized math and reading tests over the last 50 years. When I did this using information from a dozen large national studies conducted between 1960 and 2010, I found that the rich-poor gap in test scores is about 40 percent larger now than it was 30 years ago.
Yet two big questions remain. First, how did austerity doctrine become so influential in the first place? Second, will policy change at all now that crucial austerian claims have become fodder for late-night comics? ...
Yet austerity maintained and even strengthened its grip on elite opinion. Why?
Part of the answer surely lies in the widespread desire to see economics as a morality play, to make it a tale of excess and its consequences. We lived beyond our means, the story goes, and now we’re paying the inevitable price. Economists can explain ad nauseam that this is wrong, that the reason we have mass unemployment isn’t that we spent too much in the past but that we’re spending too little now, and that this problem can and should be solved. No matter; many people have a visceral sense that we sinned and must seek redemption through suffering — and neither economic argument nor the observation that the people now suffering aren’t at all the same people who sinned during the bubble years makes much of a dent.
But it’s not just a matter of emotion versus logic. You can’t understand the influence of austerity doctrine without talking about class and inequality.
What, after all, do people want from economic policy? The answer, it turns out, is that it depends on which people you ask — a point documented in a recent research paper by the political scientists Benjamin Page, Larry Bartels and Jason Seawright. The paper compares the policy preferences of ordinary Americans with those of the very wealthy, and the results are eye-opening.
Thus, the average American is somewhat worried about budget deficits, which is no surprise given the constant barrage of deficit scare stories in the news media, but the wealthy, by a large majority, regard deficits as the most important problem we face. And how should the budget deficit be brought down? The wealthy favor cutting federal spending on health care and Social Security — that is, “entitlements” — while the public at large actually wants to see spending on those programs rise.
You get the idea: The austerity agenda looks a lot like a simple expression of upper-class preferences, wrapped in a facade of academic rigor. What the top 1 percent wants becomes what economic science says we must do.
Does a continuing depression actually serve the interests of the wealthy? That’s doubtful, since a booming economy is generally good for almost everyone. What is true, however, is that the years since we turned to austerity have been dismal for workers but not at all bad for the wealthy, who have benefited from surging profits and stock prices even as long-term unemployment festers. The 1 percent may not actually want a weak economy, but they’re doing well enough to indulge their prejudices.
And this makes one wonder how much difference the intellectual collapse of the austerian position will actually make. To the extent that we have policy of the 1 percent, by the 1 percent, for the 1 percent, won’t we just see new justifications for the same old policies?
Dodd-Frank is forcing the oligarchs to disclose the income disparity, now let’s start working to correct it. Let’s implement a Wall Street transaction tax, set limits on executive pay, and start taxing those who are obsessed with hoarding money.
Thus, in 2009, the influential conservative monetary economist Allan Meltzer warned that we would soon become “inflation nation.” In 2010, the Paris-based Organization for Economic Cooperation and Development urged the Fed to raise interest rates to head off inflation risks (even though its own models showed no such risk). In 2011, Representative Paul Ryan, then the newly installed chairman of the House Budget Committee, raked Ben Bernanke, the Fed chairman, over the coals, warning of looming inflation and intoning solemnly that it was a terrible thing to “debase” the dollar.
And now, sure enough, the Fed really is worried about inflation. You see, it’s getting too low.
Before I get to the trouble with low inflation, however, let’s talk about what we should have learned so far. ...
So why is inflation falling? The answer is the economy’s persistent weakness, which keeps workers from bargaining for higher wages and forces many businesses to cut prices. And if you think about it for a minute, you realize that this is a vicious circle, in which a weak economy leads to too-low inflation, which perpetuates the economy’s weakness.
And this brings us to a broader point: the utter folly of not acting to boost the economy, now.
Whenever anyone talks about the need for more stimulus, monetary and fiscal, to reduce unemployment, the response from people who imagine themselves wise is always that we should focus on the long run, not on short-run fixes. The truth, however, is that by failing to deal with our short-run mess, we’re turning it into a long-run, chronic economic malaise.
I wrote recently about how, by allowing long-term unemployment to persist, we’re creating a permanent class of unemployed Americans. The problem of too-low inflation is very different in detail, but similar in its implications: here, too, by letting short-run economic problems fester we’re setting ourselves up for a long-run, perhaps permanent, pattern of economic failure.
The point is that we are failing miserably in responding to our economic challenge — and we will be paying for that failure for many years to come.
You may have heard of the Libor scandal, in which at least three – and perhaps as many as 16 – of the name-brand too-big-to-fail banks have been manipulating global interest rates, in the process messing around with the prices of upward of $500 trillion (that's trillion, with a "t") worth of financial instruments. When that sprawling con burst into public view last year, it was easily the biggest financial scandal in history – MIT professor Andrew Lo even said it "dwarfs by orders of magnitude any financial scam in the history of markets."
That was bad enough, but now Libor may have a twin brother. Word has leaked out that the London-based firm ICAP, the world's largest broker of interest-rate swaps, is being investigated by American authorities for behavior that sounds eerily reminiscent of the Libor mess. Regulators are looking into whether or not a small group of brokers at ICAP may have worked with up to 15 of the world's largest banks to manipulate ISDAfix, a benchmark number used around the world to calculate the prices of interest-rate swaps.
Interest-rate swaps are a tool used by big cities, major corporations and sovereign governments to manage their debt, and the scale of their use is almost unimaginably massive. It's about a $379 trillion market, meaning that any manipulation would affect a pile of assets about 100 times the size of the United States federal budget. ...
But the biggest shock came out of a federal courtroom at the end of March – though if you follow these matters closely, it may not have been so shocking at all – when a landmark class-action civil lawsuit against the banks for Libor-related offenses was dismissed. In that case, a federal judge accepted the banker-defendants' incredible argument: If cities and towns and other investors lost money because of Libor manipulation, that was their own fault for ever thinking the banks were competing in the first place. "A farce," was one antitrust lawyer's response to the eyebrow-raising dismissal. "Incredible," says Sylvia Sokol, an attorney for Constantine Cannon, a firm that specializes in antitrust cases.
Or that, in the aggregate, Democrats got 1.4 million more votes for all House positions in 2012 but Republicans still won control with a cushion of 33 seats. ...
But just look at how different this Republican House is from the country they are supposed to represent. It’s almost like a parallel government, sitting in for some fantasy nation created in talk-radio land.
As a whole, Congress has never been more diverse, except the House majority. There are 41 black members of the House, but all of them are Democrats. There are 10 Asian-Americans, but all of them are Democrats. There are 34 Latinos, a record — and all but 7 are Democrats. There are 7 openly gay, lesbian or bisexual members, all of them Democrats.
Only 63 percent of the United States population is white. But in the House Republican majority, it’s 96 percent white. Women are 51 percent of the nation, but among the ruling members of the House, they make up just 8 percent. (It’s 30 percent on the Democratic side.) ...
It’s a stretch, by any means, to call the current House an example of representative democracy. Now let’s look at how the members govern:
To date, seven bills have been enacted. Let’s see, there was the Responsible Helium Administration and Stewardship act — “ensuring the stability of the helium market.” The Violence Against Women Act was renewed, but only after a majority of Republicans voted against it, a rare instance of letting the full House decide on something that the public favors. Just recently, they rushed through a change to help frequent air travelers — i.e., themselves — by fixing a small part of the blunt budget cuts that are the result of their inability to compromise. Meal assistance to the elderly, Head Start for kids and other programs will continue to fall under the knife of sequestration. ...
The Beltway chorus of the moment blames President Obama for his inability to move his proposals through a dunderheaded Congress. They wonder how Republicans would be treating a silken-tongued charmer like Bill Clinton if he were still in the White House. We already know: not a single Republican voted for Clinton’s tax-raising budget, the one that led to our last federal surplus. Plus, they impeached him; his presidency was saved only in the Senate.
Obama may be doomed to be a reactive president in his second term, with even the most common-sense proposals swatted down because, well — if he’s for it, Republicans will have to be against it. What could be a signature achievement, immigration reform, faces quicksand in the House. But a gerrymander is good for only a decade or so. Eventually, demography and destiny will catch up with a Congress that refuses to do the people’s bidding.
It's as if the entire economic recovery is going into the pockets of the rich. And that's no accident. Here's why.
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