The Economics of War & Peace

1. A History of America's Disappearing Middle Class -- Paul Krugman

 A History of America's Disappearing Middle Class
    By Paul Krugman
    AlterNet.org

    Friday 09 March 2007

Economist and New York Times columnist Paul Krugman explains in simple terms how the American economy went from having the world's most dynamic middle class to being on the verge of a rich-poor state in only 30 years.

The following is excerpted from the keynote speech delivered by Paul Krugman at the Economic Policy Institute's recent conference on The Agenda for Shared Prosperity.

    ... One thing I've been noticing on multiple debates in public policies - climate change is another one - is there seems to be an almost seamless transition from denial to fatalism. That for 15 or 20 years the people would say, "No, what you're saying is not happening." And then almost immediately they'll turn around and say, "Well, yeah, sure it's happening, but there's nothing that can be done about it."

    And that's kind of the way a lot of the discussion now goes on inequality. That there is really nothing you can do to arrest this. That it's all the invisible hand driving this growth in inequality, and there's nothing you can do to really change it - well, maybe better education. But while education is very much a good thing, it's the all-American way of dodging problems. Since everybody approves of it, you say we should have better education but wave away the pretty strong evidence that while it's a good thing, it won't make very much difference. So there's this general sense that you can't do anything.

    And I don't think that that's what the historical record suggests. That in fact when we look at it, there appears to be quite a lot that the political process can do about inequality. Just to say, there's the obvious. Obviously, even if you look at the United States right now, the tax and social insurance system makes an enormous difference.

    But the amount of inequality in the United States is substantially less than it would be if we did not have still at least somewhat progressive taxation, and still a pretty extensive, though not nearly extensive enough, system of social insurance. And that makes a big difference. Certainly if you're looking at say the United States versus Canada, a lot of the difference between the two countries is just that Canada has more of a better safety net financed by somewhat higher taxation.

    And if you're looking for a progressive agenda, certainly from my point of view, a large part of that ought to be straightforward orthodox stuff, which is still very hard to do politically. It would be essentially restoring progressivity of the tax system, and using the revenue to improve social insurance and, above all, health care.

    So, if you say what would I really like if I went into a Rip Van Winkle sleep and woke up ten years from now, I'd like to wake up and discover that we have a national health care in some version with the necessary funding supplied in part by higher taxes on me, or actually, the top two percent of the income distribution. But people a lot richer than me, of course. But it's not the whole story that the only thing you can do is taxes and social insurance. And the arc of history for the United States suggests that there's actually a lot more that can happen.

    If you look back across the past 80 years or so of the United States, what you see is that in the 1920s, we were for practical purposes still in the gilded age. That may not be the way the historians cut it, but in terms of the actual distribution of income, so far as we can measure it in terms of the role of status and general feel of the society, we were still an extremely unequal royalist society.

    By the time World War II was over, we had become the middle-class society that the baby boomers in this audience grew up in. We had become a much more equal society. That high degree of equality began to go away - depending on exactly which numbers you look at - during the late 70's, maybe a little earlier than that. And at this point we're basically back to pre-tax and transfer to the levels of inequality that we had in 1929.

    So there is this great arc to the middle class, away from gilded age to middle-class society and then back to the new gilded age, which is now what we're living in. And there are really two puzzles about that. One of them is a political puzzle, which is why instead of leaning against these trends, politics has actually reinforced them. Why it is that U.S. politics moved left in the age of a relatively middle-class society, and moved right as society got more unequal?

    A naïve view of politics would say that, "Gee, when a few people are winning a lot and most people are lagging behind, people ought to be voting for more social insurance and more progressive taxation, not less." And we have some understanding of why that doesn't happen. It has to do with the role of money, organization and all of these other things that affect politics. That story also helps us understand why politics gets so nasty.

    If you actually look at some of the measures - I'm really into quantitative political science these days - of political positions that political scientists calculate, it does look as if what the main thing that moves actually over time is in fact the Republican party. The Democratic Party has not - at least with northern Democrats - gotten significantly more liberal over the past. They haven't moved much at all over the past 30 years.

    But the Republican Party, which had largely converged on the Democrats in the age of Eisenhower, has moved sharply to the right. And so that one party, in effect, moves with the income of the top 5 percent or 1 percent of the population. So that seems to be the story. I mean, we can think about reasons why that might be true. But the other puzzle, and this comes to the question of the conference, is what drove these changes? How did we become largely middle class?

    Why have we become a much more unequal society once again? And the standard, what economists like to say, is "Well, it's all invisible hand. It's all market forces." The history doesn't seem to look like that, if we ask how did the society we had in 1947, which is when a lot of our data start, come into existence.

    Was it a gradual process whereas the economy developed and we got out of the early days of the American industrial revolution, we gradually moved towards middle classness? Well, no, historically it happened in an eye blink. In this Claudia Golden and Bob Margot classic paper, they call it the great compression. As late as the late 30s, the income distribution appears to be highly unequal.

    By the time you wake up in 1946 or so, it's highly equal. And how did that happen? A lot of it was more or less deliberate compression of wage differentials during World War II. But if you were or had standards, supply and demand for different types of labor, you'd say that should last only as long as the wage controls lasted. It should have sprung back to where it was, but it didn't. It actually stayed quite equal for another 30 years at least. You ask, what buttressed that? Well, partly it's the rise of a powerful union movement, which is at least in large part a change in the political climate, but then remained in place for several decades more.

    Other things we're not sure. But it looks more or less as a leveling of the income distribution. Obviously we want to be careful about the words. No one presumably in this room, and certainly not me, is advocating Cuba. We're not calling for a flat income distribution. But the relative equalization that seems to have taken place was engineered by a combination of top-down politics and grassroots organization that made people want a more equal society in the 30s and the 40s, and they got it.

    And it remained for quite a long time. Now, that started to come apart roughly 30 years ago, and there's been a large increase in inequality since then. As people probably know, I've written about the part that is sort of polite to talk about, which is the rising premium for highly educated workers. But that's only part of it. Even more spectacular is the increase in inequality of the far-right tail of the income distribution.

    The CEOs and high school teachers who got roughly the same number of years of formal education haven't exactly had the same growth in income over the past 30 years. So, there's this vast increase in inequality at the top. What do we think caused that? I actually just had to do a class on that. It was in my international trade class, but we were doing the trade and inequality stuff.

    And the question is what do we think is underlying the rise in inequality in the United States? And searching for metaphor, I actually ended up with the "Murder on the Orient Express." Not for what actually happened but for the way we described it. In "Murder on the Orient Express," somebody is killed and there are 12 suspects. The question is which of them did it and the answer actually is all of them. The official economic story about rising inequality is one in which we have a whole bunch of villains, which all seem to be playing a role.

    So we've got skill bias and technological change, which is shifting demand towards highly educated workers. We've got growing international trade with increased imports of labor-intensive products further reducing demand for less educated workers. We have immigration, possibly similar in its effect to trade. We have the falling real value of the minimum wage contributing at the bottom end. We have some affected unionization driving the change in income distribution.

    Finally, in terms of at least the after-tax distribution, we have changes in taxes which have, in general, reinforced rising inequality. It could be true, but it's kind of funny that all of these different things should be working in the same direction. In "Murder on the Orient Express," there is an elaborate conspiracy that means that all 12 of the potential suspects were actually in collusion. It's a little hard to see how all of these factors and economics are in collusion.

    Okay, I think that what we can say is that the political climate matters more for the distribution of income than the economic models that we know how to work with and would seem to suggest more than our models capture. If you ask me practically what I want done now, I think that the most important agenda thing right now is, in fact, to work on the taxes and social insurance side, because that is concrete and you can get stuff.

    But there is a lot of reason to believe that a change in the political climate in various ways can do a lot more than you would think just from looking at the taxes and social insurance. Let me give you two pieces of evidence that I looked at. One is that there is some really interesting, though intellectually disturbing, work by my colleague, Larry Bartell who is in the Princeton Politics Department and has just looked at what happens to income growth at different points in the income distribution under administrations of the two parties.

    Now there shouldn't be a big difference really because at any given historical period, the visible policies are not all that different. Certainly there is a pretty significant shift from Clinton to Bush and there was, in fact, a pretty significant shift from Bush to Clinton previously. But it's in taxes and it really shouldn't be very obvious at pre-tax distribution of income. And yet what Bartell finds is actually there is a really striking difference. Inequality on average rises under Republicans. At least in the bottom 80 percent of the income distribution, it's stable or falling under Democrats. The top 1 percent just kept on rising right through, but there is at least a surprising, fairly robust correlation.

    The other thing I would say is timing. There's a very clear co-movement over time between income inequality and both the political polarization and the rightward tilt of our politics. It's pretty clear that the rising inequality over the past 30 years has been associated with a rightward shift of the political center of gravity, mainly because of the Republican Party shifting to the right.

    You might say that's the causation running from income distribution to politics. But if you actually then just start to look at it through history, the timing actually seems to be reversed. The rise of an aggressive or rightwing movement and the rise of a really major assault on the New Deal great society legacy both come before the big shift in income distribution takes place.

    The emergence of the modern right is something that obviously dates back to Goldwater, but really becomes a political force in the '70s. You don't really see the big changes in income distribution until the '80s. So it looks almost as if, just in this crude sense, politics is leading the economic changes. How could that operate? I just want to talk about two things. I suspect that there are quite a few channels that we don't really perceive, but there are two that are fairly clear. One of them is unionization.

    Obviously, private sector unions were very important in the U.S. 30 years ago and have very nearly - not completely, but very nearly - collapsed, and they are down to eight percent of private employment. Why did that happen? You will often see people saying - well, that's because of de-industrialization, and because of the decline of manufacturing. But that is actually not right. It's not right in two ways.

    First of all, arithmetically, most of the decline in unionization is a result not of the decline in manufacturing share, but of the decline of the unionization of manufacturing itself. So the big thing that happens is that there is a collapse of unionization within the manufacturing sector and then of course also a smaller share of manufacturing in the economy, but it's much more dramatic on the collapse within the sector.

    The other is that there is no law that says that unionization should be a manufacturing phenomenon. What it really is, to the extent that there is a story, is that large enterprises are more likely to be to be unionized. The reason why the high tend of unionization was also a period when manufacturing was the core of the union movement, is that at that time, large enterprises were largely a manufacturing phenomenon.

    Now we have a service economy in which there are a lot of large service sector enterprises. Not to put too fine a point on it, but why exactly couldn't Wal-Mart be unionized? It doesn't face international competition. There is no obvious reason why it wouldn't be possible to have a strong union in Wal-Mart and in the big box sector and other parts of the economy. And just think of how different the whole political economy would look if the service sector enterprises were unionized.

    Not necessarily all the effects would be positive, but it would certainly be very, very different. What happened? Why did manufacturing unionization collapse? Why didn't the emerging service sector get unionized? And the answer is actually pretty straightforward and pretty brutal. It's politics and aggressive employer behavior enabled by politics.

    I have seen estimates of a fraction of workers who voted for a union and who were fired in the early '80s. They range from a low of one in 20 to a high of one in eight. There is no question that aggressive, often illegal, union busting is the reason the union movement declined. And the change in the political climate that began in the '70s clearly played a role in making that possible.

    Now how important is all of that? You may have seen that there have been a number of estimates of the effects of unions on income distribution. It's funny. People will often say that those estimates are small and actually they typically are roughly comparable in size to typical estimates to the effect of international trade on income distribution. So these are both in secondary and the standard accounting to technological change, but both fairly significant.

    What is more, there are a lot of reasons to think that those estimates are not capturing a lot of the story. As the people who do them will concede, what they basically do is say: What if the workers were paid, unionized and non-unionized workers were paid the same as they are now, and just do a sort of shift share analysis. What that doesn't capture - and they know it, but there is just no way to do it better - is the effect of a strong union movement on the bargaining position of workers who are not unionized, but might be.

    It doesn't capture the effect of a strong union movement and possibly disciplining insider behavior by executives and so on down the line. So it is likely that that is a much more important story than we typically give it credit for being. Let me just give you my other piece of the story, executive compensation. There's a raging debate now of how much of the soaring executive compensation is insider self-dealing, and how much of it is just market forces.

    I went back and was looking at what people said about executive compensation when it was low, just 40 or 50 times the average worker salary. [Here are] some quotes: "Managerial labor contracts are not, in fact, a private matter between employers and employees." "Parties such as employees' labor unions, consumer groups, Congress and the media create forces in the political media that constrain the types of contracts." And so on down the line.

    A lot of discussion was of the role of the political climate that was basically hostile to outrageous paychecks and constrained it. Where are these quotes from? They are actually from [economists] Michael Jensen and Kevin Murphy writing, saying people have complained that there are not enough incentives in executive pay. They are saying that what we really need is to have executives get more stock options and stake in the firm - in other words, all of the stuff that has happened since then.

    So back when executive pay was low, 40 or 50 times average pay, it was actually the defenders of higher executive pay that complained that it was actually non-market forces that were constraining executive pay. Now of course that disclosing of pay has happened, the same side of the debate says it's ridiculous to claim that social norms and political forces have any role in this. But I think it's actually quite clear that it did. We can argue about which is the natural market outcome. But the point is, in fact, that we had a society 25 years ago in which there were some constraints imposed by public opinion, by strong unions, by a general sense that there were things that you don't do.

    And maybe that led firms to make a decision to think of there being a sort of tradeoff between a "let's have a happy high morale" workforce, or let's have a super star CEO and squeeze the workers for all we can. There were some things that tilted the balance in that decision.

    Okay, are we going to do another great compression? Hopefully not. The reason I say hopefully not is even FDR needed World War II to be able to carry out that sort of wholesale social engineering that took place. I am not looking forward to having a replay of that. I think that if we get serious, as some of us hope we do, and we actually do have a swing back in the political pendulum that - in addition to the direct stuff - we can do a lot to change the climate in the many small ways that add up to a lot of impact on the bargaining power of workers.

    The ability of the bottom 80 percent of the population to get a bigger share of the total pie - I think that if we get there, we may be surprised at just how successful we are at moving ourselves back, at least part of the way, to the kind of middle-class society that people like me grew up in.

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2. Bechtel bids good-bye to Baghdad

Subject: [snow-news] SFC, LAT, AP: Bechtel bids good-bye to Baghdad
Date: Fri, 03 Nov 2006 00:52:23 -0800 (PST)
From: jensenmk@plu.edu

NEWS: Bechtel bids good-bye to Baghdad (SFC, LAT, AP)

Intro:
   ’The U.S reconstruction push in Iraq is winding down,’ wrote David Baker in Wednesday´s *San Francisco Chronicle*.
  --  As for Bechtel, the gargantuan but secretive engineering and construction firm, it´s all over, for now at any rate.[1]
  --  “The San Francisco engineering company's last government contract to rebuild power, water, and sewage plants across Iraq expired on Tuesday.’
  --  The *Los Angeles Times* also reported on Bechel´s exit from Iraq.[2]
  --  Neither paper was able to report how much money Bechtel made from the $2.3 billion the U.S. government gave the company, because, both reported, the profit of the privately held company in Iraq was “undisclosed.’
  --  Neither the *S.F. Chronicle* nor the *L.A. Times* bothered to mention that it is only a slight exaggeration to say that Bechtel is a branch of the U.S. national security state.
  --Associated Press´s Michael Liedtke did better in that regard, noting Bechtel´s  “deep political connections, particularly to the Republican Party.’[3]
  --  “Rarely does a big Pentagon construction project surface that doesn't have role set aside especially for Bechtel,’ Jeffrey St. Clair noted in a 2005 piece about Bechtel entitled “Straight to Bechtel’ (http://www.counterpunch.org/stclair05092005.html)
  --  As Steve Bechtel Sr. reportedly said, "We are not in the construction and engineering business.  We are in the business of making money" (Laton McCartney, *Friends in High Places:  The Bechtel Story: The Most Secret Corporation and How it Engineered the World* [Simon & Schuster, 1998], p. 80; quoted here http://www.reachingcriticalwill.org/corporate/dd/bechtel2.html).
 --  Bechtel also made money in Iraq under Saddam Hussein:  Emad Mekay observed (http://www.atimes.com/atimes/Middle_East/FA09Ak01.html) in a Jan. 9, 2004, article on Bechtel in Asia Times Online that the company “has a history of profiteering after wars and of disregarding human rights conditions in Iraq.  Last month, newly declassified official documents from the U.S. State Department showed the company planned in 1988 to continue to build a petrochemical plant for the Saddam Hussein regime despite a U.S. congressional ban to stop American companies from working in Iraq.’
  --Mark

http://www.ufppc.org/content/view/5246/

1.

BECHTEL ENDS IRAQ REBUILDING AFTER A ROUGH 3 YEARS
By David R. Baker

San Francisco Chronicle
November 1, 2006

http://sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/11/01/BECHTEL.TMP

Bechtel Corp. went to Iraq three years ago to help rebuild a nation torn by war.  Since then, 52 of its people have been killed and much of its work sabotaged as Iraq dissolved into insurgency and sectarian violence.

Now Bechtel is leaving.

The San Francisco engineering company's last government contract to rebuild power, water, and sewage plants across Iraq expired on Tuesday. Some employees remain to finish the paperwork, but essentially, the company's job is done.

Bechtel's contracts were part of an enormous U.S. effort to put Iraq back on its feet after decades of wars and sanctions.  That rebuilding campaign, once touted as the Marshall Plan of modern times, was supposed to win the hearts of skeptical Iraqis by giving them clean water, dependable power, telephones that worked and modern sanitation.  President Bush said he wanted the country's infrastructure to be the very best in the Middle East.

But Bechtel -- which charged into Iraq with American "can-do" fervor --found it tough to keep its engineers and workers alive, much less make progress in piecing Iraq back together.

"Did Iraq come out the way you hoped it would?" asked Cliff Mumm, Bechtel's president for infrastructure work.  "I would say, emphatically, no.  And it's heartbreaking."

The violence that has gripped Iraq drove up costs and hamstrung the engineers who poured into the country after the U.S.-led invasion.

Bechtel's first reconstruction contract, awarded shortly after Saddam Hussein's overthrow in April 2003, assured the company that it would have a safe environment for its workers.  But, by the end, dozens of Bechtel's employees and subcontractors had been killed, some of them kidnapped, others marched out of their office and shot.  Forty-nine others were wounded.

Bechtel responded by hiring more guards, driving armored cars, and fortifying its camps.  Those steps ate up money that otherwise would have brought electricity and clean water to Iraqis.

The size of Bechtel's contracts also shrank over time, as U.S. officials diverted money from reconstruction and toward security.  Instead of the nearly $3 billion originally budgeted, Bechtel finally received about $2.3 billion, a figure that includes money the company spent on projects as well as its undisclosed profit.

Mumm directed Bechtel's work from a bare-bones trailer in Baghdad.  He is proud of his people for finding ways to work despite the threat of imminent death.  Of 99 projects that the U.S. government directed Bechtel to complete, the company finished 97, abandoning only two for security reasons, the company says.

But Mumm's pride is mixed with frustration.  Many of those completed projects later fell victim to collapsing security, which made maintenance dangerous and, in some cases, resulting in damage to plants and equipment.

He once hoped the new Iraqi government would turn into a steady Bechtel client, bringing the company lucrative new contracts in a country where virtually every road, power plant and waterworks needs repair.

"Had Iraq been a calmer place while we were there, amazing things could have been done," he said.

The U.S reconstruction push in Iraq is winding down.  About $18 billion in funding that Congress approved three years ago was supposed to be spent or committed to specific projects by the end of September.  Two of the U.S. government agencies that have overseen the work are scheduled to close shop early next year.  The United States and other countries are discussing another round of aid, but if it comes, Iraqi ministries are supposed to take the lead on rebuilding.

"That's really an under-told story -- we've stopped the reconstruction," said Frederick Barton, co-director of the Post-Conflict Reconstruction Project at the Center for Strategic & International Studies think tank. "There are some things we're still finishing up, but we're wrapping up, and we're stepping back. It's really a tragedy."

What exactly did Bechtel accomplish in its three years in Iraq?

-- The company helped repair 14 electrical generation units, built four new ones, and created 25 substations around Baghdad.

-- It restored eight sewage plants and built one.

-- A canal bringing drinking water to Basra, Iraq's second largest city, was dredged and its pumps restored.  Seventy small water treatment plants were installed in rural areas.

-- Airports in Baghdad and Basra were repaired to handle civilian flights. The country's international shipping port -- Umm Qasr -- was dredged and its grain elevator refurbished.

-- Baghdad telephone switching stations knocked out during the war were restored, and the country's phone network was reconnected to the outside world.

-- War-damaged bridges on key highways were rebuilt.

-- Almost 1,240 schools were refurbished with new paint, fans, and in many cases new windows and doors to replace those looters had stolen.

But many of these accomplishments were undone as security evaporated.

For example, Bechtel added 1,280 megawatts to the nation's power grid and improved the reliability of another 480 megawatts.  In the United States, that much energy could light more than 1.3 million homes.

But Iraq's entire power system this summer produced 4,400 megawatts, just 442 megawatts more than before the invasion.  The country needs about 9,000 megawatts to satisfy demand.

In some cases, the power plants have had trouble getting stable fuel supplies.  In others, repaired plants were cut off from the national grid by sabotaged power lines.  A series of coordinated attacks [on] Oct. 20, for example, severed Baghdad from power generated in the rest of the country, leaving the city's 7 million residents with only a few hours of electricity each day.

"Infrastructure is assumed by the terrorists, correctly, to be a target," said Michael Izady, a professor at Pace University who has trained U.S. forces in Iraq.  "They're not stupid.  You just hit the power grid, and you have 120 degrees outside.  Ask any American what they'd do after two days of that.  Tempers run really high."

Making matters worse, Iraqi workers haven't maintained some of the repaired electrical plants.

U.S. government auditors blame the problem on a lack of funding and the attitudes of Iraqi workers, who in the past rarely did maintenance unless something broke.  Auditors visited one plant where new control systems had been bypassed, the blades of new turbines already had oil residue building up on them, and a fire had broken out -- a problem, since the fire extinguishing system was missing key parts.

Similar problems plagued water and sewage projects.

At Baghdad's Kerkh sewage plant, Bechtel spent $5.7 million repairing equipment that hadn't worked in months, maybe years.  But the plant's location, on the edge of the city, became increasingly dangerous -- turf for Saddam loyalists and criminal gangs.  In November 2004, insurgents issued flyers telling the plant's Iraqi workers to stay home or die, according to Bechtel.  Not long after, a power failure hit the plant, and the staff didn't turn on the backup generator.  The plant stopped working.

"We'd get it completed, and then the Iraqis would all flee, and it'd get mortared," Mumm said.  "It would operate for awhile, then the same thing would happen. . . . As we sit here today, I don't know if Kerkh is running or not."

Some places became too dangerous for Western and Iraqi employees alike. One of the projects Bechtel couldn't complete was a water treatment plant in Baghdad's Sadr City, a poor, crowded neighborhood dominated by Shiite militias.  Bechtel's top project supervisors and the project's subcontractor fled to avoid assassination.

Violent intimidation also stopped another project -- a state-of-the-art children's hospital in which First Lady Laura Bush had taken a personal interest.

The project, in Basra, was supposed to cost $50 million.  The U.S. Agency for International Development assigned Bechtel the job in August 2004, with a completion date of Dec. 31, 2005.  But Bechtel later warned its government supervisors that the hospital would take far more money and time to complete.  The project was suspended this summer.  Bechtel says the hospital now would cost $98 million.  Federal auditors, who blamed USAID for not reporting the project delays and costs to Congress, say the figure is probably higher.

Basra had been quiet immediately after Hussein's fall.  Its Shiite population suffered greatly under Hussein and was happy to be rid of him. But the calm was short-lived, as Shiite militias started to exert more and more control over the city.

Bechtel's hospital site security manager was murdered.  The site manager received death threats and resigned.  Bechtel's senior Iraqi engineer quit after his daughter was kidnapped.  Twelve employees of a subcontractor in charge of the hospital's electricity and plumbing were killed in their offices.  Eleven workers of another company supplying the project's concrete also died.

As the human cost of reconstruction rose, why didn't Bechtel pull out?

Mumm said the company constantly reviewed security and was convinced that it could keep its people safe.

"We didn't stay under duress," he said.  "I think all of our people got in it, got involved in it, and no one wants to leave a job half-done."

He says the work hasn't been for naught.  Even electrical or sewage plants that have broken down after Bechtel left can be revived if the country finds a way to quell the violence.  If Iraq eventually stabilizes, the people Bechtel worked with may provide another opportunity to work in the country.

"Those people will be there, and I think they'll think favorably of us," Mumm said.

2.

BECHTEL CALLS IT QUITS AFTER MORE THAN 3 YEARS IN IRAQ
By David Streitfeld

** Violence has left few of the company's infrastructure projects in the
war-torn country operating as planned. **

Los Angeles Times
November 3, 2006

http://www.latimes.com/business/la-fi-bechtel3nov03,0,1869538.story?coll=la-home-headlines

SAN FRANCISCO -- Bechtel Corp. helped build the Bay Area subway system, Hoover Dam, and a city for 200,000 in the desert of Saudi Arabia.  It likes to boast that it can go anywhere, under any conditions, and build anything.

In Iraq, Bechtel met its match.

A firm that prides itself on its safety record saw dozens of its workers killed.  And a company that celebrates achievement won't know for a long time, if ever, exactly what it accomplished.

The assignment Bechtel won from the U.S. government in early 2003 was unique:  Apply the brick and mortar needed to restart the long-starved and war-damaged Iraqi economy, allowing the country to blossom into a modern and free industrial state.  Rarely had a single corporation been given so much power to affect so many so quickly.

More than three years later, Bechtel says its work on Iraq's water and electrical plants, its bridges, schools and port, is done.

The company said this week at its headquarters here that it had completed 97 of 99 projects for a total of $2.3 billion, a sum that included its undisclosed fee.  Only two Bechtel employees are left in the country.  At its peak, there were 200 people from Bechtel supervising tens of thousands of Iraqis.

If the story for Bechtel is drawing to a close, this isn't anything like the happy ending it once expected.

The company went to Iraq with a good deal of well-earned swagger. Chairman Riley Bechtel told the firm's employees in April 2003 that Bechtel's record was one "that few, if any, companies in the world can match."  The tasks it would undertake in Iraq, he added, were "the kind of work we do best."

The company expected Iraq to develop from an aid recipient to a customer. The biggest U.S. engineering firm would help one of the world's most distressed countries into the 21st century.

That hope receded with each suicide bombing.

"We were told it would be a permissive environment.  But to the horror of everyone, it never stabilized.  It just went down, down, down, and to this day it continues to go down," said Cliff Mumm, who ran Bechtel's Iraq operation.  "I'm proud of what we did, but had law and order prevailed, it would be a different situation."

At one Bechtel project, in the southern city of Basra, the company recorded this toll:  The site security manager was murdered; the site manager resigned after receiving death threats; a senior engineer resigned after his daughter was kidnapped; 12 employees of the electrical-plumbing subcontractor were assassinated in their offices; and 11 employees of the concrete supplier were murdered.

All told, 52 workers associated with Bechtel projects were killed, most of them Iraqi.  Forty-nine others were wounded.

Bechtel says it completed nearly all its assigned projects, but that doesn't mean they are necessarily operating as planned.

"Once projects were complete, the plant operating crews we trained often lacked the leadership, resources or motivation needed to run and maintain their facilities," Mumm said in September testimony to the House committee on government reform.

If Bechtel gives itself high grades under the circumstances, others aren't so generous.

"They thought, 'We're the world's best, and we can go in and make this happen,'" said Rick Barton, a reconstruction specialist at the Center for Strategic and International Studies, a Washington think tank.

"After all the money that's been invested, the Iraqi people should be able to make it on their own.  But we're nowhere near that, let alone creating a shining city on a hill," Barton added.

The looting and vandalism outpaced the rebuilding from the beginning.

In May 2003, the supposed end of open warfare, a survey of Iraq's dilapidated electrical system showed 13 downed transmission towers.  Four months later, the total had grown to 623.

"We were trying to hold the infrastructure together and at the same time build a platform to go forward and at the same time cope with a deteriorating security situation," said Mumm, who recently returned to the U.S.  "There were a lot of moving parts."

The company's critics give it points for remaining free of corruption, unlike some Iraq contractors.  But they say it was too slow in restoring the power grid.

"In the critical years of 2003 and 2004, part of the growing sense in the Iraqi population that Americans were incompetent occupiers rather than effective liberators came because Bechtel hadn't gotten the power grid on in the scorching hot summers," said Charles Tiefer, a professor at the University of Baltimore School of Law and an expert on government contracting.  "American corporate reconstruction efforts like Bechtel's failed worse in Iraq than American arms."

The lack of an infrastructure fed the insurgency, which made it its goal to destroy the infrastructure.  As time went on, Bechtel spent increasing amounts not on rebuilding but on protecting its workers.

Now that the reconstruction funds are running out, the fate of the Iraq infrastructure, like so much else in the country, is uncertain.

"Bechtel is putting a 'Mission Accomplished' banner over their work in Iraq and then coming home," said Steve Ellis of Taxpayers for Common Sense, a watchdog group.  "But the mission has not been accomplished. Iraq still doesn't have enough power, hospitals, clean water."

Most of the bridges and roads and other projects built by Bechtel in the last century are still in use.  Mumm hopes that the work the firm did in Iraq will survive.

"All that stuff is there, and available, should the Iraqis find themselves in a stable enough position to use them and take advantage of them," he said.  "I believe eventually that will happen."

david.streitfeld@latimes.com

3.

BECHTEL ENDS PERILOUS IRAQ WORK
By Michael Liedtke

Associated Press
November 1, 2006

http://www.chron.com/disp/story.mpl/ap/fn/4304135.html

SAN FRANCISCO -- Wrapping up more than three years of work that cost the U.S. government $2.3 billion, Bechtel Corp. is leaving Iraq with a subdued sense of accomplishment after suffering through a spree of violence that killed 52 workers.

The departure of the San Francisco-based engineering firm serves as another sobering reminder of how the carnage in Iraq has scrambled the United States' once-grand ambitions to rebuild the devastated country.

The U.S. government hired Bechtel in April 2003, hoping the company behind manmade marvels like the Hoover Dam would be able to bring Iraq into the 21st century as it repaired much of the damage caused by the invasion that overthrew Saddam Hussein.

The daunting task required rebuilding roads and bridges, expanding the power grid, cleaning up the water supply and adding telephone lines.

Although some progress has been made, the efforts of Bechtel and other government contractors have been repeatedly beset by sabotage, corruption and lawlessness that made it difficult to retain workers frightened for their lives.

Bechtel said it completed all but two of the 99 projects on its Iraq to-do list, but at a horrible cost:  52 dead workers and another 49 wounded.  At peak times, Bechtel employed more than 40,000 workers -- mostly Iraqi subcontractors -- on the various projects.

Most of the Bechtel workers were killed while off duty, said company spokesman Jonathan Marshall.  It's among the greatest losses of life that Bechtel has suffered during any job in the company's 108-year history, possibly exceeded only by the company's Depression-era work on the Hoover Dam, Marshall said.

Bechtel has completed more than 22,000 projects in 140 countries, including perilous jobs like the Channel Tunnel that connects England to France.

Counting bodies was something that Bechtel never envisioned when the company went to Iraq.  Within just a few months of arriving in Iraq, Bechtel had started to evacuate some of its workers from Baghdad to Amman, Jordan, for safety reasons.

Despite the adversity, Bechtel said it finished all its jobs except a water treatment plant in Baghdad and a two-story children's hospital in Basra that had been championed by first lady Laura Bush.

The government suspended work on the hospital last summer amid rising security expenses that drove the project well above its original $50 million cost.  Bechtel estimated it would have taken at least $98 million to finish the hospital.

Before the hospital was abandoned, Bechtel's onsite security manager was murdered, another manager resigned because of death threats and a senior engineer quit after his daughter was kidnapped.  Another 23 workers employed by a subcontractor and a concrete supplier were murdered.

When the government first picked Bechtel for the Iraq work, the decision was blasted by some critics who believed the company benefited from its deep political connections, particularly to the Republican Party.

Bechtel's leadership at various times has included George Shultz, a former cabinet member in the Nixon and Reagan administrations, and Casper Weinberger, the Secretary of Defense in the Reagan administration.  Other employees, including Bechtel CEO Riley Bechtel, have connections to the current Bush administration.

The company maintains it won the Iraq business through a competitive bidding process that recognized its vast expertise.  The Iraq contracts represented a relatively small portion of Bechtel's revenue, which totaled $51.8 billion from 2003 through 2005. The privately held company doesn't disclose its profits.

Bechtel's exit comes as Kroll, the risk consulting and technology division of Marsh & McLennan Companies Inc., announced it would sell a subsidiary that provides security services in Iraq and Afghanistan.

[ Top of Page ]

3. BushLies Response + Business Leaders for Sensible Priorities 3/04

Subj: [911-disc] US business group slams Bush 'deception' over Iraq war  
Date: 3/26/2004 6:41:10 AM Pacific Standard Time

US business group slams Bush 'deception' over Iraq war

YAHOO News

NEW YORK (AFP) - A US business group that monitors federal spending took out a full-page advert in The New York Times, likening President George W. Bush (news - web sites) to a corrupt chief executive officer who has forfeited public trust.

Timed to coincide with the weekend anniversary of the US-led war against Iraq (news - web sites), the advertisement -- paid for by Business Leaders for Sensible Priorities -- said Bush's case for invasion "was built entirely out of falsehoods."

Highlighting the cost of the war in terms of hundreds of US casualties and tens of billions of dollars, the ad said the "state-sponsored deception" underpinning the conflict dwarfed the damage caused by the series of corporate scandals that recently rocked Wall Street.

"It's past time for finger pointing," it said.

"It's time for someone in this government to step forward and take personal responsibility for the deadly deceptions used to mislead this great nation into war.

"And that someone must be George W. Bush."

Business Leaders for Sensible Priorities was formed in 1996 on concerns that federal government spending priorities were undermining national security.

The group's 500 members include the present or former CEOs of Bell Industries, Eastman Kodak and Goldman Sachs, as well as CNN founder Ted Turner. (follow link)

...
...Sorry! This excited me so much that I forgot to include the link.
 
Link to: US business group slams Bush 'deception' over Iraq war
 
http://www.rmcgcreative.com/comics/nby/notbanned.php
 
Debi

[ Top of Page ]

4. ClassStats: How Rich & Generous We Really Are -- Daniel Vallin

Subj:[snow-news] USA 'a country suffering from self-delusion'
Date:12/30/2005 4:17:23 PM Pacific Standard Time
From:jensenmk@plu.edu

INTRO: COMMENTARY: USA 'a country suffering from self-delusion'

[Every country has, and no doubt needs, a national mythology, and there is, no doubt, always a gap between the social, political, and economic realities of a nation and the nature of that nation as portrayed in its mythology.  --  But in the case of the United States of America, the gap that has opened in the course of recent generations between myth and reality is attaining the dimensions of an immense, yawning abyss.  --  History suggests that when this sort of thing occurs, a national mythology can become a source of delusion and denial rather than a source of inspiration and reaffirmation; a national myth can become a source of danger rather than a source of strength.  --  In recent years, essays and books addressing this problem (Christopher Hedges's *Losing Moses on the Freeway* and Jimmy Carter's *Our Endangered Values* come to mind, among many others) have become a minor genre.  --  This piece, by Daniel Vallin, is the latest contribution to that genre.  --  Thanks to Joe Thompson for sending it.  --Mark]

http://www.ufppc.org/content/view/3855/

WILL THE REAL UNITED STATES PLEASE STAND UP?
By Daniel Vallin

Dissident Voice December 29, 2005

http://dissidentvoice.org/Dec05/Vallin1229.htm

It is amazing the power of mythology over logic -- mythology which people can accept and believe regardless of all facts and evidence to the contrary, mythology about who they are, where they live, what their history is.  It seems to me that no industrial nation suffers more under the weight of its own myths than the United States.  I remember as a child how in school each morning we would have to repeat a pledge to the American flag, and we heard again and again how great, wealthy, and democratic the United States is. These things were told as eternal truths, and never questioned, while we simultaneously learned about the scientific method and the importance of factual assessment and logical analysis.  I would like to expose some of these myths in simple terms.

It seems to me that the general consensus, at least from Americans themselves, is false.  Most Americans I know are of the opinion that the United States is the greatest country in the world, the richest, the most democratic, a great force of good in the world.  It is the world´s leading country in progressive thinking.  It is a generous country that gives so much to poor countries.  All of these statements are false.

While the United States is certainly among the richest nations on earth, in terms of material wealth, the standard of living is not amongst the top.  The richest countries in terms of per capita income are Luxembourg and Norway.  In terms of natural resources, Russia is the undisputed champion.  In terms of the quality of life, we must also consider the following facts about the United States.  Its citizens are the only Western people who are not guaranteed some sort of health coverage.  In fact, more than 45 million Americans have no health insurance, according to the U.S. Census Bureau (see also *Washington Post*, 27 Aug 2004, p. A01).  Not surprisingly, then, the United States has the highest infant mortality rate of any Western country, ranking 28th in the world.  Similarly, it has the lowest life expectancy of any Western country, ranking 24th in the world, according to the World Health Organization.  The United States has the highest percentage of its population living in poverty (of industrialized nations), according to the United Nations Human Development Index.  The U.S. Census Bureau has reported that in 2003, the percentage of Americans living in poverty rose to 13.5%.  That´s 35 million people living in poverty in the country the Americans call the world´s richest!  Low life expectancy, high infant mortality, tens of millions living in poverty and without health insurance.  These are not exactly the hallmarks of a wealthy nation.  Such is the power of myth.

Similarly, in terms of generosity, the United States again misses the mark wildly.  While most Americans would characterize their country as generous, in 1998 it ranked lower than any other industrialized nation in giving development aid to poor countries (as a percentage of GNP), according to the OECD Report.  It should be noted here, that one third of the American foreign aid budget goes to Israel.  A 2002 index shows no improvement:  the United States lands again squarely in last place both in terms of per capita private and government aid to poor countries (Center for Global Development and Carnegie Endowment for International Peace. From “Ranking the Rich,’ *Foreign Policy*, May/June 2004).  So much for the generosity of the world´s “richest’ country.

These facts notwithstanding, every American I talk to seems to insist that this is not representative of the USA.  When I point out slums and ghettos, in nearly every large American city from New York to Los Angeles to Denver or Chicago, my American friends seem to think these people do not really count. They aren´t real Americans.  They instead point out the wealth in the suburbs as a sort of counterpoint.  I get the same response when I point out people living in trailer parks in rural areas.  In September of 2005, the world saw image after image of Americans in New Orleans, desperate, poor, begging for help which their own government was not providing.  It was clear to any observer that this was not only the result of a natural disaster or of the economic choice to fund wars rather than domestic spending on levees, but also very much the result of poverty, plain and simple.  Yet when the world looked on in shock, the Americans themselves seemed unable to accept that something was incorrect with their own self-image of wealth and invulnerability.

This power of myth over logical analysis extends well into the political realm.

Americans generally seem to be convinced of how democratic their system is. Many believe it to be the world´s first democracy, when of course even the word itself goes back to ancient Greece.  Others insist that it is the world´s oldest democracy, when in fact Iceland had democracy centuries before the Europeans had even colonized the North American continent.  More importantly, no one seems to notice that the presidential elections of 2000 and 2004 have cast the entire system into doubt.  Wrought with scandal and widespread reports of fraud, the election of 2000 installed a leader who did not win the vote of the majority of the population, and who was finally put into office not by the result of any election, but by a decision of an appointed court. And yet the attitude seems to be:  “Sure, the last two elections were clearly fraudulent, but other than that we are very democratic.

I point out that, while most industrialized countries have from three to 12 or more political parties which are both politically viable and represent greatly different viewpoints and interests, the United States has only two parties, both of which have the same basic platform (i.e. pro-war, pro-free trade, pro-surveillance of their own citizens in terms of the “Patriotic Act’, etc.), and I get a similar response:  “Sure, but apart from that. . . .’  None of these facts seem to sway the opinions of the American citizens.

Any perusal of the history of American foreign policy reveals endemic, consistent support for dictatorships; from Pinochet in Chile to Batista in Cuba, from Somoza Debayle in Nicaragua to Mobuto Sese Seko in Zaire (and the list goes on and on).  And yet nearly every American, from individual citizens to newspaper editors and political columnists, will insist that the United States is a force for democracy in the world.  They speak repeatedly about exporting democracy, even while their own system lacks credibility and their long history suggests the very opposite.

When I mention that the United States has the largest prison population of any country (see International Centre for Prison Studies at King's College London), that it is the only remaining industrial power where the death penalty is accepted (if not to say celebrated, at least by a certain segment of the population), no American seems to find this evidence that the United States is not a particularly progressive thinking country.

All of these myths add up to a country with serious self-image problems, a country suffering from self-delusion.  There can be no improvement without first the recognition of the real situation, no moving forward without first an honest assessment of the facts of the matter.

It seems to me that Americans have a very selective perception, a self-perception that is harmful to themselves and the rest of the world.  In his eulogy for Rosa Parks, the Reverend Al Sharpton admonished the mourners that it isn´t enough to call it like you see it:  “a mirror isn´t just to reflect what you see, a mirror is to correct what you see!’  In the interest of both reflection and correction, I think it is now time to start debunking the myths.

--Daniel Vallin is a writer who no longer lives in the United States.

[ Top of Page ]

5. Corporate Democracy, Civic Disrespect -- John K. Galbraith

Subj: Texas Observer Article
Date: 1/4/01 11:24:27 AM Pacific Standard Time

CORPORATE DEMOCRACY, CIVIC DISRESPECT

John K. Galbraith

With the events of late in the year 2000, the United States left behind constitutional republicanism, and turned to a different form of government. It is not, however, a new form. It is, rather, a transplant, highly familiar from a different arena of advanced capitalism. This is corporate democracy. It is a system whereby a Board of Directors - read Supreme Court - selects the Chief Executive Officer. The CEO in turn appoints new members of the Board. The shareholders, owners in title only,  are invited to cast their votes in periodic referenda. But their franchise is only symbolic, for management holds a majority of the proxies. On no important issue do the CEO and the Board ever permit themselves to lose.

The Supreme Court clarified this in a way that the Florida courts could not have. The media have accepted it, for it is the form of government to which they are already professionally accustomed. And the shameless attitude of the George W. Bush high command merely illustrates,  in unusually visible fashion, the prevalent ethical system of corporate life. Al Gore's concession speech was justly praised for grace and  humor. It paid due deference to the triumph of corporate political ethics, but did not embrace them. It thus preserved Gore for another political day - the obvious intention. But Gore also sent an unmistakable message to American democrats: Do not forget [DO NOT FORGET].

It was an important warning, for almost immediately forgetting became the media order of the day. Overnight, it became almost un-American not to accept the diktat of the Court. Or to be precise, Gore's own distinction became holy writ: One might disagree with the Court, but not with the legitimacy of its decision. Press references from that moment forward were to President-elect Bush, an unofficial title and something that the Governor from Texas (President-select-President-designate?) manifestly is not.

The key to dealing with the Bush people, however, is precisely not to accept them. Like most Americans, I have nothing personal against Bush, Dick Cheney, nor against Colin Powell and the others now surfacing as members of the new administration. But I will not reconcile myself to them. They lost the election. Then they arranged to obstruct the count of the vote. They don't deserve to be there, and that changes everything. They have earned our civic disrespect, and that is what we, the people, should accord them.

In social terms, civic disrespect means that the illegitimacy of this administration must not be allowed to fade from view. The conventions of politics remain: Bush will be president; Congress must work with him. But those of us outside that process are not bound by those conventions, and to the extent that we have a voice, we should use it.

In political practice, civic disrespect means drawing lines around the freedom of maneuver of the incoming administration. In many areas, including foreign policy, there will be few major changes; in others, such as annual budgets and appropriations, compromises will have to be reached. But Bush should be opposed on actions whose reach will extend beyond his actual term.

First, the new president should be allowed lifetime appointments only by consensus. The public should oppose - and 50 Senate Democrats should freely block - judicial nominations whenever they carry even the slightest ideological taint. That may mean most of them, but no matter. And as for the Supreme Court especially, vacancies need not be filled.

Second, the Democrats should advise Bush not to introduce any legislation to cut or privatize any part of Social Security or Medicare.

Third, Democrats should furiously oppose elimination of the estate tax - a social incentive for recycling wealth to the non-profit sector, to foundations and universities, that has had a uniquely powerful effect on the form of American society. Once gone, this ingenious device will never be reenacted.

Fourth, the people must unite to oppose the global dangers of National Missile Defense - a strategic nightmare on which Bush campaigned - that threatens for all time the security of us all.

Fifth, Congress should enact a New Voting Rights Act, targeted precisely at the Florida abuses. This should stipulate: mandatory adoption of best-practice technology in all federal elections; a 24-hour voting day; a ban on private contractors to aid in purging voter rolls; and mandatory immediate hand count of all under-votes in federal elections.

With those steps taken, Democrats must also recognize and adapt to the new political landscape that emerged from this election. Outside of Florida, Democrats are finished in the South. But they have excellent prospects of consolidating a narrow majority of the Electoral College - so long as, in the next election, there is no Ralph Nader defection.

What can prevent such a thing? Only a move away from the main Clinton compromises that so infuriated the progressive left. Nader's voters were motivated passionately by issues like the drug war, the death penalty, consumer protection and national missile defense - issues where New Democrats took Republican positions in their effort to woo the South. Clinton the Southerner succeeded at this - but against Republicans who were only weakly "Southern" at best.

Gore, on the other hand, was principally a Northern candidate, strongly backed by the core Democrats, who ran against, and defeated so far as ballots were concerned, a wholly Southern Republican. Future Republicans almost surely also will be "Southern"; for that is where the base of the party now lies. And future Democrats, if they are Northern candidates too, can beat them - all the more so if they bring the Greens back into the Democratic fold.

In short, Al Gore's campaign proved that there is an electoral majority in the United States for a government that is truly a progressive coalition, and not merely an assemblage of sympathetic lawyers, professors and investment bankers. Rather, Americans will elect a government that firmly includes and effectively represents labor, women, minorities - and Greens. This is the government we must seek to elect - if we get another chance.

And for that, the first task is to assure that the information ministries of our new corporate republic do not successfully cast a fog of forgetting over the crime that we have all just witnessed, with our own eyes.

[ Top of Page ]

6. Economics of a Global Empire -- Henry C K Liu

Subj: [snow-news] 'The New Rome theory of US economic performance'  
Date: 1/2/2006 11:55:15 AM Pacific Standard Time
From: jensenmk@plu.edu
To: jensenmk@plu.edu
 
INTRO ANALYSIS: 'The New Rome theory of US economic performance'

  --  But according to this 2002 piece by Henry C.K. Liu, the second in a series billed by the *Asia Times Online* web site as "The Complete Henry C.K. Liu," (http://www.atimes.com/atimes/others/Henry.html) "The productivity boom in the U.S. was as much a mirage as the money that drove the apparent boom."  --"While published government figures of the productivity index show a rise of nearly 70 percent since 1974," says Liu, "the actual rise is between zero and 10 percent in many sectors if the effect of imports is removed from the equation."
  --  Henry Liu, a Hong Kong-born and Harvard-educated entrepreneur with interests in international relations and economics as well as in architecture and urban design, has earned a following in online discussions of radical economics by developing a doctrine of "dollar hegemony."
  --  In this piece, titled "The Economics of a Global Empire," Liu argues that "the economic boom that made possible the current U.S. political hegemony was fueled by payments of tribute from vassal states kept perpetually at the level of subsistence poverty by their own addiction to exports.  Call it the New Rome theory of U.S. economic performance."  --Mark">Since the early 1990s, the U.S. economy has been marked by rising productivity, (http://www.j-bradford-delong.net/movable_type/images2/Productivity_2003-08-09.gif) leading commentators to speak of "America's productivity wonder." (http://www.cfo.com/printable/article.cfm/3004636?f=options)  --  Belief in these productiviy gains has fueled the spectacular rise in share prices since the early 1980s. (http://www.stockcharts.com/charts/historical/images2/DJIA1900.gif)
  --  But according to this 2002 piece by Henry C.K. Liu, the second in a series billed by the *Asia Times Online* web site as "The Complete Henry C.K. Liu," (http://www.atimes.com/atimes/others/Henry.html) "The productivity boom in the U.S. was as much a mirage as the money that drove the apparent boom."  --"While published government figures of the productivity index show a rise of nearly 70 percent since 1974," says Liu, "the actual rise is between zero and 10 percent in many sectors if the effect of imports is removed from the equation."
  --  Henry Liu, a Hong Kong-born and Harvard-educated entrepreneur with interests in international relations and economics as well as in architecture and urban design, has earned a following in online discussions of radical economics by developing a doctrine of "dollar hegemony."
  --  In this piece, titled "The Economics of a Global Empire," Liu argues that "the economic boom that made possible the current U.S. political hegemony was fueled by payments of tribute from vassal states kept perpetually at the level of subsistence poverty by their own addiction to exports.  Call it the New Rome theory of U.S. economic performance."  --Mark

http://www.ufppc.org/content/view/3862/

Global Economy

THE ECONOMICS OF A GLOBAL EMPIRE
By Henry C K Liu

Asia Times Online
August 14, 2002

http://www.atimes.com/atimes/Global_Economy/DH14Dj01.html

The productivity boom in the U.S. was as much a mirage as the money that drove the apparent boom.  There was no productivity boom in the U.S. in the last two decades of the 20th century; there was an import boom.  What's more, this boom was driven not by the spectacular growth of the American economy; it was driven by debt borrowed from the low-wage countries producing this wealth. Or, to put it a tad less technically, the economic boom that made possible the current U.S. political hegemony was fueled by payments of tribute from vassal states kept perpetually at the level of subsistence poverty by their own addiction to exports.  Call it the New Rome theory of U.S. economic performance.

True, exports can be beneficial to an economy if they enable that economy to import needed goods and services in return.  Under mercantilism and a gold standard, for example, an economy that incurred recurring trade surpluses was essentially accumulating gold which could reliably be used for paying for imports in the future.

In the current international trade system, however, trade surpluses accumulate dollars, a fiat currency of uncertain value in the future.  Furthermore, these dollar-denominated trade surpluses cannot be converted into the exporter's own currency because they are needed to ward off speculative attacks on the exporter's currency in global financial markets.

Aside from distorting domestic policy, the export sector of the Chinese economy has been exerting disproportionate influence on Chinese foreign policy for more than a decade.  China has been making political concessions on all fronts to the U.S. for fear of losing the U.S. market from whence it earns most of its foreign reserves, which it is compelled to invest in U.S. government debt.  This is ironic because according to trade theory, a perpetual trade surplus accompanied with a perpetual capital account deficit is not in the economic interest of the exporting nation.  China is not unique in this dilemma. Most of the world's export economies face similar problems. This is the economic basis of US unilateralism in foreign affairs.

When Chinese exporters invest China's current account surplus in dollar financial assets, the Chinese economy will see no benefit from exports as more goods leave China than come in to offset the trade imbalance.  True wealth is given away by Chinese exporters for paper, at least until a future trade deficit allows China to import an equivalent amount of goods in the future. But China cannot afford a balanced trade, let alone a trade deficit, because trade surpluses are necessary to keep the export sector growing and for maintaining the long-term value of its currency in relation to the dollar. The bulk of China's trade surpluses, then, must be invested in U.S. securities.  This is the economic reality of U.S.-China trade.

The gap between the perceived value of the accumulated fiat currency (U.S.) of the importing economy (U.S.) and the value of that currency when dollar-denonimated investments are finally cashed in at market price represents the ultimate difference in the quantity of goods and services eventually received between the trading economies.  Since the drivers of trade imbalances are overvalued currencies of the importer or undervalued currencies of exporters, obviously the one-sided trade can only end when the exporter has wasted away all its expandable wealth, or the importer has run deficits to levels that exceed the willingness of the exporter to accept more of the importer's debt.  Interest rate policies of central banks are usually the culprit in this matter as they drive investment flows in the direction of a high interest economy, making necessary the perpetual trade imbalance.  Other forms of waste of wealth, such as pollution, low wages and worker benefits, neglect of domestic development, and rising poverty in both export and non-export sectors, are penalties assumed by the exporter.

China exported 4.07 billion pairs of shoes in 2001, up 2.55 percent from the previous year.  But the value of those exports, US$10.1 billion, was an increase of only 2.48 percent over 2000.  Actual value growth per unit, then, was a negative.  Guangdong province is China's largest shoe-making region, with annual production at around three billion pairs, accounting for almost a third of the world's total.  Assuming the number of Chinese workers making shoes to be constant, Chinese productivity dropped in the shoe industry in 2001.  The only way productivity could have remained the same or improved would have been if the Chinese shoe industry had cut workers, thus contributing to China's growing unemployment problem.

Imports from China are resold in the U.S. at a greater profit margin for U.S. importers than that enjoyed by Chinese exporters in production for export.  In part, this has to do with the inflated distribution costs in the importing country (U.S.) because of overvaluation of its currency, and the higher standard of living in the U.S. made possible partly by Chinese exporter credit.  Thus a $2 toy leaving a Chinese factory is a $3 part of a shipment arriving at San Diego.  By the time a U.S. consumer buys it for $10, the U.S. economy registers $10 in final sales, less $3 in imports, for a $7 addition to gross domestic product (GDP).  The GDP gain to import ratio is greater than two, in this case two-and-a-third.  The GDP gain to export ratio is zero if the $2 export price becomes part of the importer's capital account surplus. If 50 percent of the $2 export price is used for paying return to foreign capital, then the ratio is in fact negative.

The numbers for other product types vary greatly, but the pattern is similar. The $1.25 trillion of imports to the U.S. in 2000 are directly responsible for some $2.5 trillion of U.S. GDP, almost 28 percent of its $9 trillion economy.

The $400 billion of Chinese exports are directly responsible for a loss of $800 billion in Chinese GDP of $1 trillion as compared to a GDP if that export were consumed domestically.  In other words, if it were to not export at all, China would almost double its GDP by redirecting the equivalent productivity toward domestic development.  On a purchasing power parity basis (PPP), the GDP loss to exports would be four times greater.  The higher the trade surplus in China's favor, meaning more goods and services leaving China than entering, the more serious its adverse impact on China's GDP.

Viewing the greater margins available in the importing country as a result of a currency valuation imbalance and understanding that retailing and distribution are operationally less efficient relative to manufacturing, it can be observed that imports raise apparent productivity because sales per employee increase as one goes from the factory floor towards the final consumer.  Also, the closer in function the factory floor is to the retail space, the higher its apparent productivity.  Through marketing and proximity to customer, a seller can gain advantage in the assembly of imported major parts to order.

Thus a U.S. assembler who out-sources its content parts can win final sales away from the offshore integrated manufacturer who makes the same parts and assembles them abroad.  In the high technology arena, time to market of design innovation is key.  By hiding costs through the use of employee stock options for compensation (an issue of current debate in U.S. corporate governance), a local in the importing country can use the high valuation of his stock, driven by creative accounting and artificially low production costs and interest rates at the exporter country, to raise funds to further subsidize the production costs of the final product, be it software or hardware.  The content of the product will increasingly come from low-wage, low-margin exporting nations, and the out-sourcing assembler's manufacturing involvement may be little beyond snapping out-sourced parts in place, advertised ad nauseum as a U.S. brand.  Dell is a classic example, as is Disney's licensing empire.

To quantify the order of magnitude of the effect of imports on apparent U.S. aggregate productivity, a direct relationship to the trade deficit can be observed.  The productivity gain observed is not as strong as presented by aggregate data.  The 4 percent productivity rise cited in U.S. government statistics can be primarily attributable to sharp import increases.  The gain in net productivity is much smaller, on the order of 1.8 percent, since the technology revolution began affecting the economy a whole decade earlier. Much of the rest of the improvement has to do with normal cyclical behavior of productivity, the result of normal rise in capacity utilization during boom times from a bubble economy.

There is another measure of increases in trade flow volume that stems from the appreciation of the trade-weighted dollar.  The trade-weighted dollar measure shows improvement consistently because of the attempts of European, OPEC, and Japanese holders of U.S. debt to retain value in the dollar by creating dollar-denominated debt in emerging economies that actually produce something, as opposed to the U.S. which gains foreign income primarily through the use of international protections for intellectual property.

For the purpose of this discussion, one need focus only on the broad trade-weighted dollar index being put in an upward trend, as highly indebted emerging market economies attempt to extricate themselves from dollar-denominated debt through the devaluation of their currencies.  The purpose is to subsidize exports, ironically making dollar debts more expensive in local currency terms.  The moderating impact on U.S. price inflation also amplifies the upward trend of the trade-weighted dollar index despite persistent U.S. expansion of monetary aggregates, also known as monetary easing or money printing.

Adjusting for this debt-driven increase in the value of dollars, the import volume into the U.S. can be estimated in relationship to these monetary aggregates.  The annual growth of the volume of goods shipped to the U.S. has remained around 15 percent for most of the 1990s.  The U.S. enjoyed a booming economy when the dollar was gaining ground, and this occurred at a time when interest rates in the U.S. were higher than those in its creditor nations. This led to the odd effect that raising U.S. interest rates actually prolonged the boom in the U.S. rather than threatened it, because it caused massive inflows of liquidity into the U.S. financial system, lowered import price inflation, increased apparent productivity, and prompted further spending by U.S. consumers enriched by the wealth effect despite a slowing of wage increases.

This was precisely what Federal Reserve Board chairman Alan Greenspan did in the 1990s in the name of pre-emptive measures against inflation.  Dollar hegemony enabled the U.S. to print money to fight inflation, causing a debt bubble.  For those who view the U.S. as the New Roman Empire with an unending stream of imports as the spoils of war, this data should come as no surprise. This was what Greenspan meant by U.S. "financial hegemony."

The transition to offshore production is the source of the productivity boom of the "New Economy" in the U.S.  The productivity increase not attributable to the importing of other nation's productivity is much less impressive. While published government figures of the productivity index show a rise of nearly 70 percent since 1974, the actual rise is between zero and 10 percent in many sectors if the effect of imports is removed from the equation.  The lower values are consistent with the real-life experience of members of the blue collar working class and the white collar middle class.

This era of declining reward for manual effort coincides with the Reagan shift to having workers pay for their social benefits, while promoting heavy subsidies of corporations, particularly in the earlier stages of corporate growth, through pro-business tax policies and regulatory indulgence.

Historical timelines for the actual levels of productivity in the U.S. may be traced back to the introduction of computer-assisted accounting by IBM and later EDS in the late 1960s.  This cleared the labor-intensive accounting pools of the large corporations and mammoth government agencies.  Automation of scientific work began even earlier and entered mainstream engineering by the mid 1970s.  By 1980, the ordering-inventory and inter-corporate billing systems were computerized to a great extent, as had occurred in banking and finance in the 1970s.  By the 1990s, computerized trading and market modeling actually transformed market efficiency into systemic risk of unprecedented dimensions.

The current process is one of standardization and inclusion, as well as reintroduction of regulatory restraint.  Inventory management in the current "just in time" manner was not attractive until high U.S. real interest rates made the holding of inventory unattractive.  Prior to this, during periods of real inflation, inventory was a profit center, not a cost problem, thanks to FIFO (first in, first out) accounting where inflation would produce an annual statement of higher ending inventory value, a lower cost of goods sold and a higher gross profit.  Now that the world has organized away the inventory that cushions supply disruptions and price inflation, we are quite defenseless against them.  Never before has Murphy's Law (if something can go wrong, it will) a better chance to demonstrate itself with a cruel spate of price inflation.

The result of this distortion driven by the monetary system is a decline in real living standards of producers in all of the exporting and indebted world, and in the U.S.  Indeed, reward has been divorced from real effort and reassigned to manipulators.  There have been enormous strides in productivity around the globe, but few of them came in the U.S.  It has been the seigniorage of the dollar reserve system granted to the U.S. without economic discipline that allowed the import of productivity from abroad and the superficial appearance of prosperity in the U.S. economy.

World trade has been shrinking.  The conventional wisdom of market fundamentalism is that the global economy is slowing to work off excess debt, causing global trade to shrink temporarily.  The world is waiting for a rebound in the U.S. economy so that other countries can again export themselves out of recession.

Yet a case can be made that global trade is shrinking because it transfers wealth from the have-nots to the have-too-muches, and after two decades, the unsustainable rate of wealth transfer has slowed, leading to slower economic growth worldwide.  Those economies that have been dependent on exports for growth will do well to understand that the recent drop in exports in more than a cyclical phenomenon.  It is a downward spiral unless balanced trade is restored so that trade is a supplement to domestic development rather than a deterrent.  Regions like Asia and Latin America should restructure their export policies to focus on intra-regional trade that aim at development instead of those that transfer wealth out of the region.  Places like Shanghai, Hong Kong, Singapore, and Tokyo should stop looking for predatory competitive advantage and move toward symbiotic trade policies to enhance regional development.

The purpose of the $30 billion IMF loan of Brazil -- an unprecedented figure -- is not so much to help the Brazilian economy escape its debt trap as it is to bail out U.S. transnational banks holding Brazilian debt.  The net result is to force the Brazilian economy to export more wealth to the tune of $30 billion plus interest on top of the mountains of debt it already has and could not service.  Brazil would be better off defaulting as Russia did.  Economist Paul Krugman lamented in his *New York Times* column that he mistakenly bought into the Washington consensus and now his confidence that market fundamentalists had been "giving good advice is way down."

The line between honest mistakes in pushing the regulatory envelope and fraud is now debated regarding corporate finance and governance in the U.S., and many executives and their financial advisors are being charged with criminal liability.  Are economists who knowingly pushed the ideological envelope beyond the limits of reality above the laws of conscience?

--Henry C K Liu is chairman of the New York-based Liu Investment Group.

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7. Economics of Oil, Saudi's -- Marshall Auerbeck

Subj: [snow-news] M. Auerbeck: As House of Saud pulls away, an oil shock looms  
Date: 5/3/2004 12:27:00 AM Pacific Daylight Time
From: jensenmk@plu.edu
To: snow-news@lists.riseup.net
 
INTRO: [An international portfolio strategist reads the tea leaves and concludes that "the House of Saud, which has cultivated a special relationship with successive U.S. administrations since the days of FDR, seems to have effectively decided that politically and economically distancing itself from at least the present American government provides a much better means of ensuring its long-term survival."  Partly as a result, according to Marshall Auerbeck, "debt-saturated" America appears to be headed for an "oil shock potentially endangering U.S. national security and economic interests." --Mark]

http://www.ufppc.org/index.php?option=content&task=view&id=506&Itemid=2

NO "OCTOBER SURPRISE" COURTESY OF THE SAUDIS
By Marshall Auerbeck

PrudentBear.com April 20, 2004

http://www.prudentbear.com/archive_comm_article.asp?category=International+Perspective&content_idx=32051

--"When we first got here, we tried making friends.  We did everything we could to make friends with these people.  Then I started evacuating my friends [who had been killed or injured], and it wasn't cool anymore." -- US Marine Jeremy Heidrick in Iraq, *St. Louis Post-Dispatch*, 19 April 2004

Worried about $40 per barrel oil?  You needn't be, if Bob Woodward is anyone to go by.  According to Woodward, Saudi Arabia's ambassador to the United States, Prince Bandar bin Sultan, promised President Bush the Saudis would cut oil prices before November to ensure the U.S. economy is strong on Election Day.  In an interview with CBS's "60 Minutes "about his new book *Plan of Attack* on the Bush administration's preparations for the Iraq war, Woodward, a senior editor at the *Washington Post*, said Prince Bandar pledged that the Saudis would try to fine-tune oil prices to prime the U.S. economy for the election -- a move they understood would favor Bush's reelection.

It sounds wonderful, but if such a pledge was ever given, Saudi actions in the past year suggest that it has been revoked, largely in response to the growing geopolitical morass that is developing in the Middle East.  In the aftermath of Gulf War II, it was felt that mobilization against Iraq would give the United States a renewed opportunity to expand its power and influence in the region -- this time potentially to use its new Persian Gulf bases to establish even more bases in the ancient territories between the Tigris and Euphrates rivers in Iraq, while remaking a hitherto backward region into a bastion of Anglo-American liberal-democracy.  More importantly, many of the neo-cons who now dominate Administration thinking felt that the oil fields seized as a by-product of this invasion would give the United States a de facto seat in OPEC, and control over a huge cash-generating asset required to fund its massive domestic and overseas debt build-up.  At the same time, it was also hoped that President Bush would use his expanded leverage  to press for a comprehensive settlement of the Palestinian-Israeli conflict.

All of these blithe assumptions look questionable today, to say the least --none more so than the assumptions about oil.

After the end of the Iraq invasion, the oil price fell sharply to $26 (WTI), although little of this can be ascribed to the Saudis, who have been producing at roughly the same capacity of between 8.5 and 9.4mmbd of crude oil, natural gas, and gas liquids for the past ten years, according to figures collated by independent oil analysts, Groppe, Long & Littell (GLL).  These price forecasts, made by a number of prominent Wall Street banks such as Citicorp, were based on two assumptions:  precautionary inventories built prior to the Middle East hostilities would be liquidated and, under the U.S. occupation, Iraqi oil would flow soon and copiously.  In turn, that Iraqi oil would at least pay for the occupation and reconstruction of Iraq -- so believed neoconservative planners in Washington and in the new Coalition Provisional Authority set up by the Bush administration in Baghdad.

Since the U.S. occupation of Iraq began, the pipelines north of Haditha have been the targets of repeated sabotage.  The result, according to GLL, is a shortage of natural gas and the inability to use all of the capacity of Iraq's refineries.  Consequently, the country is still producing well below its current estimated capacity of 2.5mmbd of crude oil production.  Equally problematic from the Americans' perspective is the increasingly unaccommodating policy stance of the Saudis, who had hitherto been relied upon to offset looming oil shortages.  As it now stands, the Israel-Palestine conflict has no direct impact on Middle Eastern oil supplies.  However, it has led to a movement of solidarity among Middle Eastern states against the Bush administration's perceived one-sided support of Israel and in addition has led the Saudis, fearing their "special relationship" with America to be under threat, to play the oil card in a manner highly inimical to American economic interests.

It is not as if the Bush Administration wasn't warned:  Before his visit to Bush's ranch near Crawford, Texas, Crown Prince Abdullah (through his interpreter) told the press that allowing the Israeli-Palestinian conflict "to spiral out of control will have grave consequences for the United States and its interests."  On June 10th last year, the Saudi oil minister, sent letters to the companies negotiating contracts for participation in the natural gas industry of the Kingdom.  Subsequent to those letters, the following has occurred:

*July, 2003 -- The Saudi government announces gas agreements with Shell (Anglo-Dutch) and Total (French)

*August -- State visit to Moscow by Crown Prince ‘Abd' Allah-al-Saud

*September -- OPEC ministers adopt Saudi Arabia's proposals to reduce production quotas, despite of expectations in advance of the meeting that the status quo would be maintained.

*January, 2004 -- Saudi Arabia announces gas agreements with Lukoil (Russian), Sinopec (Chinese), Agip (Italian), and Repsol (Spanish)

*February -- OPEC Ministers adopt another Saudi proposal to reduce production quotas.

Note the complete exclusion of U.S. energy companies in all prominent new Saudi energy ventures; this is hardly consistent with an ostensible pledge to flood the market with oil around October to guarantee the election of a President viewed to be fundamentally hostile to Islamic interests by the vast majority of OPEC nations.  It is equally salient that the officially stated OPEC price range of $22-$28 per barrel has largely been ignored by virtually all OPEC members (judging from the extent to which they are producing above agreed quota numbers) -- not only because higher prices can be sustained in spite of this widespread "cheating" on quotas, but also because of growing opposition among its members to American policies in the Middle East.

The new, largely unarticulated high oil price strategy should be viewed in the context of Saudi promises to invest billions in the development of the Russian energy industry, and suggestions of an emerging Russo-Saudi oil alliance. Last December, the Russian government announced that its policy for production is to stay under 9.0mmbd for the next five years.  Five years is also the term of the oil and gas co-operation agreement signed with Saudi Arabia on September 2, 2003, at the end of the state visit by Crown Prince Abdullah.

The significance of this alliance for the oil market lies in the fact that, in 1998, the value of Russian oil exports was a mere $16bn.  In 2003, their value was over $63bn -- second only to the $80bn worth of exports by Saudi Arabia. This increasing cohesion of Russian and Saudi energy policies is occurring against a backdrop in which the oil supply/demand balance is tighter than usual and long-term depletion rates are much higher than is generally recognized.  Although Saudi Aramco (the state oil company) has historically done what is required to offset declines in existing oil fields and maintain an estimated capacity of approximately 10mmbd through new projects, the higher production required to generate a sharp fall in oil prices cannot be achieved without more personnel and investment, according to both GLL and Houston-based oil analyst Matt Simmons of Simmons & Co, who has recently undertaken an extensive study of the Saudi oil fields.

In fact, given that most OPEC members are already producing close to full capacity (and well in excess of official quota figures), without significant new discoveries in Russia, the effects of more rapid depletion dynamics will manifest themselves much earlier than currently envisaged by the market.  From a peak of 11.06mmbd in 1988, Russia's actual crude oil production in 2003 had fallen to a little less than 8.0mmbd, according to GLL.  Much of the new technology introduced to develop Russia's energy fields will only accelerate rates of depletion in existing fields, leaving remote areas of Siberia as the key variable in determining whether the Putin administration can achieve its publicly stated goal of 9.0mmbd production, let alone get anywhere near the peaks sustained during the late 1980s.

Given that the Saudis and the Russians are two of the world's largest oil suppliers, the effects of their de facto alliance cannot be overestimated.  In early 2003, Saudi Arabia facilitated the invasion of Iraq by temporarily increasing oil production, but all actions subsequent to a June 10th Saudi decision to end negotiations with U.S. companies on the development of the Saudi natural gas fields have been consistent with a broader Saudi reassessment of its respective relations with both the U.S. and Russia.

In 2002, the OPEC oil ministers met 4 times.  In 2003, they met 7 times.  Thus far in 2004, they have already met twice.  The significance of the increased frequency of these meetings over the past 18 months (at least in contrast to the comparative paucity of meetings from the early 1990s through 2002) is that it has allowed OPEC member states to better minimize the risks of overproduction relative to quota allowances.  The monitoring of overproduction can be more accurately calibrated with more frequent meetings, note Groppe, Long, & Littell.  In fact, GLL argues that OPEC has in effect moved closer to the old model of the Texas Railroad Commission, which still sets monthly allowances for production in Texas.  As GLL notes: "The genius of the monthly meetings of the Railroad Commission is that the commissioners did not have to depend on their ability to forecast accurately.  Any mistakes made -- and some were -- could be corrected at the next meeting."

The goal here appears clear: limit overproduction and keep oil prices high, not flood the market with cheap oil.  And with the Saudis clearly not playing ball on oil, one can only surmise that their hitherto almost reflexive move to recycle petrodollar surpluses back into the dollar has likely dissipated as well, removing an important marginal bid in the bond market, at a time when inflationary pressures are intensifying and 10-year bond yields have headed north of 5%.  The broader economic and geopolitical implications are enormous: the House of Saud, which has cultivated a special relationship with successive U.S. administrations since the days of FDR, seems to have effectively decided that politically and economically distancing itself from at least the present American government provides a much better means of ensuring its long-term survival.

All of this implies an increasingly precarious backdrop for U.S. financial assets and the dollar, the rallies in which do not fully reflect today's deteriorating geopolitical and economic variables.  Consumers have reached debt saturation with short-term rates at 1%.  What happens as rates rise and the oil price explodes?  A further price spike in energy could well exacerbate a growing inflationary psychology now predominant in the credit markets, which in turn could undermine the Fed's recent efforts to "talk down" yields on long-term interest rates.

An oil shock potentially endangering U.S. national security and economic interests is the last thing a debt-saturated America, embarking on expensive overseas ventures, needs right now.  Yet that appears to be where we are headed today, the consequences of which are not yet fully reflected in the markets.

--Marshall Auerback is an international portfolio strategist for David W. Tice & Associates, a US money management firm with approximately $1 billion in assets. His weekly "International Perspective" can be seen at PrudentBear.com

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8. Economics Of Pentagon Budget & Global Domination -- Amitabh Pal

Subj: Pentagon budget ensures global domination  
Date: 2/11/2006 10:48:23 PM Pacific Standard Time

'Pentagon budget ensures global domination'
Amitabh Pal, The Progressive

The Pentagon's hunger for money seems to be insatiable. The Bush Administration has requested a whopping $439.3 billion to feed its appetite the next fiscal year, an increase of seven percent.

This is just the regular military budget. There will be an estimated $50 billion in supplemental spending for Iraq and Afghanistan. And then there's the money proposed to be spent on nuclear weapons, $16 billion, which is separately tallied in the Department of Energy budget. This brings the total to at least $506 billion or so, provided the "supplemental" demand does not reach higher.

What is the reason for this unrestrained expenditure? To maintain U.S. global supremacy in the years to come. Don't take my word for it. Read the primary military strategy document of the Bush Administration, made public in September 2002. "Our forces will be strong enough to dissuade potential adversaries for pursuing a military buildup in hopes of surpassing, or equaling the power of the United States," states the National Security Strategy. No wonder The Washington Post said that the doctrine "gives the United States a nearly messianic role."

It is determined to play this role, which provides an easy cover for advancing U.S. corporate interests.

Amazingly, U.S. military spending is now almost equal to that of the rest of the world combined!

"The major determinant of the world trend in military expenditure is the change in the USA, which makes up 47 per cent of the world total," states the Stockholm International Peace Research Institute, a group that does invaluable work in tracking global military expenditures.

“US military expenditure has increased rapidly during the period 2002–2004 as a result of massive budgetary allocations for the ‘global war on terrorism´, primarily for military operations in Afghanistan and Iraq.’

As the group points out, much of U.S. spending has been not as part of the regular military budget, but as supplemental spending requests.

"The supplementary appropriations for this purpose allocated to the Department of Defense for financial years 2003-2005 amounted to approximately $238 billion and exceeded the combined military spending of Africa, Latin America, Asia (except Japan but including China) and the Middle East in 2004 ($193 billion in current dollars), that is, of the entire developing world," states SIPRI. "Thus, while regular military spending has also increased in the USA as well as in several other countries and regions, the main explanation for the current level of and trend in world military spending is the spending on military operations abroad by the USA, and to a lesser extent by its coalition partners."

And Donald Rumsfeld had the gall last October to question China's defense expenditure!

"I think it's interesting that other countries wonder why they China would be increasing their defense effort at the pace they are and yet not acknowledging it," Rumsfeld said. "It is almost as interesting as the fact that it is increasing at the pace it is."

But the Pentagon's own estimate shows that Chinese military spending to be $90 billion, a fraction of the U.S. budget. The Pentagon's analysts seem as unfazed by this fact as Rumsfeld.

“Over the long term, says the Pentagon, if current trends persist, the Chinese military could pose a credible threat to other modern militaries operating in the region,’ the BBC reports. “According to the BBC's Pentagon correspondent Adam Brookes, this is code for American forces in Asia.’

What will be the economic impact of this uncontrolled Pentagon spending? Certainly, there will be winners and losers. Defense companies are salivating at the prospect of fatter contracts, and defense stocks have moved up after the budget announcement.

But since all this spending has to come from budgetary resources made scarce from Bush´s tax cuts, there will, of course, be losers, too. A lot of them, actually—ranging from the needy abroad to Medicare recipients at home, as Jim Lobe documents in a piece for the Inter Press Service.

But, hey, what's a bit of deprivation when the goal is global domination?

Source: The Progressive
http://progressive.org/mag_apb020806
    

[ Top of Page ]

9. Insurance Horror Stories -- Paul Krugman

September 22, 2006
Op-Ed Columnist, New York Times
Insurance Horror Stories
By PAUL KRUGMAN

“When Steve and Leslie Shaeffer´s daughter, Selah, was diagnosed at age 4 with a potentially fatal tumor in her jaw, they figured their health insurance would cover the bulk of her treatment costs.’ But “shortly after Selah´s medical bills hit $20,000, Blue Cross stopped covering them and eventually canceled her coverage retroactively.’

So begins a recent report in The Los Angeles Times titled “Sick but Insured? Think Again,’ which offers a series of similar horror stories, and suggests that these stories represent a growing trend: more and more health insurers are finding ways to yank your insurance when you get sick.

This trend helps explain something that has been puzzling me: why is the health insurance industry growing rapidly, even as it covers fewer Americans?

Between 2000 and 2005, the number of Americans with private health insurance coverage fell by 1 percent. But over the same period, employment at health insurance companies rose a remarkable 32 percent. What are all those extra employees doing?

Now we know at least part of the answer: they´re working harder than ever at identifying people who really need medical care, and ensuring that they don´t get it. In the past, they mainly concentrated on screening out applicants likely to get sick. Now, it seems, they´re also devoting a lot of effort to finding pretexts for revoking insurance after they´ve already granted it. They typically do this by claiming that they weren´t notified about some pre-existing condition, even if the insured wasn´t aware of that condition when he or she bought the policy.

Welcome to the ugly world of American health care economics.

Health care is poised to become America´s largest industry. Employment in manufacturing, which once dominated the economy, has fallen 18 percent since 2000, to 14.2 million. Meanwhile, employment in the private health services industry has risen 16 percent, to 12.6 million. Another 1.3 million people are employed at government hospitals. So we´re quickly approaching the point at which more Americans will be employed delivering health care than are employed producing manufactured goods.

Yet even as health care becomes the core of the American economy, our system of paying for health care remains sick, and is getting sicker.

Because everyone faces some risk of incurring huge medical costs, only the superrich can afford to be without health insurance. Yet private insurers try to refuse coverage to those most likely to need it, and deny payment whenever they can get away with it.

The point isn´t that they´re evil or greedy (although you do wonder how the people who cut off the Schaeffers can look themselves in the mirror). The fact is that cruelty and injustice are the inevitable result of the current rules of the game. Blue Shield of California is a nonprofit insurance provider, yet as a spokesman put it, if his organization doesn´t follow the for-profit practice of selectively covering only the healthiest people, “we will end up with all the high-risk people.’

Now, before you panic about the state of your own coverage, you should know that the horror stories in The Los Angeles Times article all involve individual insurance; if your coverage comes via your employer, you´re reasonably secure against sudden cancellation.

But employment-based insurance is in rapid decline, as employers balk at the cost and more and more companies adopt Wal-Mart-style minimal-benefit policies. That´s why many people are turning to individual insurance — only to find out, in some cases, that they didn´t get what they thought they paid for.

And here´s the thing: it´s all unnecessary.

Every other wealthy nation manages to provide almost all its citizens with guaranteed health insurance, while spending less on health care than we do. And there´s no mystery why: we´re paying the price for pointless, destructive reliance on private insurers. Medicare, which is a universal health insurance program for older Americans, spends less than 2 cents of every dollar on administrative costs, leaving 98 cents to pay for medical care. By contrast, private insurance companies spend only around 80 cents of each dollar in premiums on medical care; much of the remaining 20 cents is spent denying insurance to those who need it.

If we had a universal system — Medicare for everyone — there would be no more horror stories like those reported by The Los Angeles Times. And we´d almost certainly spend less on health care than we do now.

[ Top of Page ]

10. Iraqis ...Distribution Of Oil Revenues -- Edward Wong

INTRO: NEWS & ANALYSIS: Iraqi oil: hiding the crime

[On Saturday, the *New York Times* devoted its lead story to Iraqi oil, saying that "Iraqi officials are near agreement on a national oil law."[1] --  The *Times* portrayed both the U.S. administration and the Iraq Study Group as devoted to "an equitable distribution of revenues" from Iraq's petroleum, a catchphrase twice repeated in the article.  --  But the *New York Times* failed to report that the law in question would "reverse the 1972 nationalization of the [Iraqi oil] industry," as the *Financial Times* of London noted in an article posted on the subscribers-only part of its web site (but reproduced on UFPPC's web site http://www.ufppc.org/content/view/5381/).  --  Both the *New York Times* and the *Financial Times* turned a blind eye to the question of production sharing agreements (PSAs).  --  The *New York Times* ignores, and the *Financial Times* mentions PSAs only in passing.  --  The PSAs that are being imposed on Iraq were characterized by author Richard W. Behan, in an article posted Wednesday on the CounterPunch web site, as "a euphemism for legalized theft."[2]  --  PSAs have been analyzed in detail in a November 2005 report (http://www.ufppc.org/content/view/3705/) issued by the London group PLATFORM.  --  While arguably appropriate for oil exploration when costs are high and results uncertain, PSAs are impossible to justify in Iraq, where petroleum reserves are among the largest and the most easily accessible in the world.  --  Better not to mention them at all, then.  --Better to focus on how the U.S. is amicably trying to persuade selected Iraqi elites to accept their cut in in an eminently "equitable distribution of revenues."  --  As Richard Behan explained on Wednesday: "It is true our country depends on oil and gas, but it is not the American people who need to corner Mideast oil and gas by force.  Dozens of oil companies around the world . . . can supply us with Iraqi oil or Caspian Basin gas, and would be pleased to do so.  There is no reason not to rely on them:  we are buying more and more Toyotas and Volvos, and fewer Chevrolets and Fords, with no apparent damage to our national security. Why not do the same with gasoline, diesel, and LNG, and avoid armed conflict?  Why not?  Because the bottom lines of Exxon-Mobil, Unocal and other domestic oil companies, in the eyes of the Bush Administration, are sacrosanct.  It is not the American consumers, then, but only the American oil companies who benefit from George Bush's premeditated wars."  --(Behan forgets, or loses sight of, the fact that these are no longer American but rather multinational oil companies.  --  The multinational corporation more than a generation ago broke free of the bonds of the nation-state; Richard Barnet, http://en.wikipedia.org/wiki/Richard_Barnet author of *Global Reach: The Power of the Multinational Corporations* (1974) and co-founder of the Institute for Policy Studies, http://en.wikipedia.org/wiki/Institute_for_Policy_Studies, was among the first to analyze what has come to be known as globalization.)  --Mark]

http://www.ufppc.org/content/view/5387/

1.

World

Middle East

IRAQIS NEAR DEAL ON DISTRIBUTION OF OIL REVENUES
By Edward Wong

New York Times
December 9, 2006
Page A1

http://www.nytimes.com/2006/12/09/world/middleeast/09oil.html

PHOTO (http://graphics8.nytimes.com/images/2006/12/08/world/600_oil.jpg) CAPTION:  An oil pipeline running from Kirkuk to the southwest after an attack last year. The Kurds have dropped a demand to ensure that regional governments have the power to collect and distribute revenues from future fields.

BAGHDAD -- Iraqi officials are near agreement on a national oil law that would give the central government the power to distribute current and future oil revenues to the provinces or regions, based on their population, Iraqi and American officials say.

If enacted, the measure, drafted by a committee of politicians and ministers, could help resolve a highly divisive issue that has consistently blocked efforts to reconcile the country´s feuding ethnic and sectarian factions.  Sunni Arabs, who lead the insurgency, have opposed the idea of regional autonomy for fear that they would be deprived of a fair share of the country´s oil wealth, which is concentrated in the Shiite south and Kurdish north.

The Iraq Study Group report stressed that an oil law guaranteeing an equitable distribution of revenues was crucial to the process of national reconciliation, and thus to ending the war.

Without such a law, it would also be impossible for Iraq to attract the foreign investment it desperately needs to bolster its oil industry.

Officials cautioned that this was only a draft agreement, and that it could still be undermined by the ethnic and sectarian squabbling that has jeopardized other political talks.  The Iraqi Constitution, for example, was stalled for weeks over small wording conflicts, and its measures are often meaningless in the chaos and violence in Iraq today.

But a deal on the oil law could be reached within days, according to officials involved in the drafting.  It would then go to the cabinet and Parliament for approval.

The major remaining stumbling block, officials said, concerns the issuing of contracts for developing future oil fields.  The Kurds are insisting that the regions reserve final approval over such contracts, fearing that if that power were given to a Shiite-dominated central government, it could ignore proposed contracts in the Kurdish north while permitting them in the Shiite south, American and Iraqi officials said.

The national oil law lies at the heart of debates about the future of Iraq, particularly the issue of a strong central government versus robust regional governments.  The oil question has also inflamed ethnic and sectarian tensions.  Sunni Arabs, who preside over areas of the country that apparently have little or no oil, are adamant about the equitable distribution of oil revenues by the central government.

On the drafting committee, Sunni Arabs have allied with the Shiites against the Kurds, who have sought to maintain as much regional control as possible over the oil industry in their autonomous northern enclave. Iraqi Kurdistan has enjoyed de facto independence since 1991, when the American military established a no-flight zone above the mountainous region to prevent raids by Saddam Hussein.

Gen. George W. Casey Jr., the senior American commander here, and Zalmay Khalilzad, the American ambassador, have urged Iraqi politicians to put the oil law at the top of their agendas, saying it must be passed before the year´s end.

The drafting committee is made up of ministers and politicians from the main Shiite, Sunni Arab, and Kurdish blocs in government.  They began talks months ago, but the pace picked up recently, said an American official tracking the negotiations, who spoke on condition of anonymity because he did not want to give the appearance of Western interference in sovereign Iraqi matters.

At the start of the talks, the Kurds fought to ensure that regional governments have the power to collect and distribute revenues from future fields, Iraqi, and American officials said.  They also proposed that revenues be shared among the regions based on both population and crimes committed against the people under Mr. Hussein´s rule.  That would have given the Kurds and Shiites a share of the oil wealth larger than the proportions of their populations.

But the Kurds dropped those demands, said Barham Salih, a deputy prime minister who is a Kurd and the chairman of the committee.

“Revenue sharing is an accepted principle by all the constituent elements of the Iraqi government, including the Kurds, and that is the unifying element that we´re all hoping for in the oil law,’ Mr. Salih said in an interview.

The American official said the Kurds were willing to make concessions because a national oil law could attract more foreign oil companies to exploration and development in Kurdistan.  A large foreign oil company would have more confidence in signing a contract with the Kurds if it were to operate under the law of a sovereign country rather than just the law of an autonomous region.

Some Kurdish leaders also believe that the concessions are a worthwhile price to pay for having a stake in the much larger revenue pool of the country´s oil industry, the American official said.  The southern fields accounted for 85 percent of total Iraqi crude production last year, partly because northern production was hampered by insurgent sabotage.  The south has an estimated 65 percent of the country´s 115 billion barrels of proven reserves.

But the Kurds are still holding out on the issue of oil contracts, arguing that the Constitution guarantees the regions absolute rights in th