Economy

Britain Hesitates

David Cameron's veto of an EU integration plan reveals England's deep skepticism about the union.

AP Photo/Yves Logghe
European leaders went one better this time. Not content with failing to resolve the debt crisis tearing through the eurozone and threatening a global recession, they have now managed to create a new source of instability: the rift between Britain and the rest of the European Union, whose consequences may prove to be momentous indeed. It was a long time coming. The tension between the eurozone “ins” and the ten non-Eurozone “outs” has been building throughout the debt crisis, which has forced the states belonging to the common currency to take extraordinary—and yet woefully insufficient—measures to keep the euro from spectacularly collapsing. In the Brussels summit that ended yesterday, France and Germany, drivers of the push toward an ever closer union, were unable to persuade British Prime Minister David Cameron to back their plan for greater fiscal integration. The deal-breaker was a demand by Cameron for special treatment for Britain’s lucrative financial-services industry. Though...

Elizabeth Warren: Bailout Queen

Karl Rove’s latest ad has to set an all-time record for hypocrisy and factual inversion. The ad actually manages to blame Elizabeth Warren for the bank bailouts. As anyone who hasn’t spent the past three years in a cave must know, Warren has been the nation’s single most effective, relentless, and brave critic of the bailouts. It was that service as chair of the Congressional Oversight Panel that made her one of America’s most admired public leaders. The ad slyly begins with Warren speaking, leading the viewer to imagine that this is a Warren ad. Warren says, “The first thing I’m going to promise is that I’m going to be a voice in the room on behalf of middle-class families.” Then a sneering female voiceover cuts in, and asks, “Really? Congress had Warren oversee how your tax dollars were spent bailing out the same banks that caused the financial meltdown, bailouts that helped pay big bonuses to bank executives while the middle class lost out.” The ad concludes, “Tell Professor Warren...

The Wrong Fix

AP Photo/Bernd Kammerer
Yesterday, both Bob Kuttner, here in the Prospect , and I , in my Washington Post column , noted that the deal that German Chancellor Angela Merkel and French President Nicolas Sarkozy struck to save the Eurozone will inflict years of austerity on European nations that are already mired in depression. Spain, for instance, has an unemployment rate of about 20 percent and a youth unemployment rate that is approaching a mind-boggling 50 percent. It needs a massive Keynesian jolt to its economy, not budgetary constraints that will condemn it to a decade or quarter-century of penury. Both Bob and I also noted that the Merkel-Sarokzy solution was based on a misdiagnosis of Europe’s woes. Some of Europe’s current basket cases were actually running budget surpluses in the years before the Lehman meltdown. Ireland and Spain weren’t overspending at all—but the banks and investors speculating on their housing markets most certainly were. When their banks went under, their economies collapsed,...

Made in America — Again

Leaders discuss returning manufacturing to the U.S. in a Prospect roundtable.

AP Photo/Madalyn Ruggiero
Andy Grove was, successively, the director of engineering, president, CEO, and Chairman of Intel Corporation. In an article last year, Grove proposed levying tariffs on goods produced offshore and dedicating the funds to help companies scale up production in the United States. Andy Grove was, successively, the director of engineering, president, CEO, and Chairman of Intel Corporation. There are three distinct causes for the jobs we’ve lost. First, the declining demand for products. So everybody focused on the stimulus—they assumed that the demand cycle and the employment cycle are related like they used to be. But they’re not. I don’t understand pure Keynesianism at a time of global flows like we have now. If we turn on a spigot to increase demand for consumer products, we need to have some factor that measures the portion that goes to a domestically made product. That portion in the last ten years must have changed in a very major way. You want a measure? How about asking for the...

Europe's Deal: So Who Wins?

The grand bargain between Germany, France, and the European Central Bank (ECB) is being hailed as a diplomatic breakthrough that will save the euro and the European Union (EU). The essence of the deal is this: EU nations commit to an enforceable austerity program, which is ad hoc for now but will eventually become a formal part of the EU treaty. It will take the shape of tight limits on budget deficits, with penalties. That, in turn, gives the ECB the fig leaf it needs to heavily support purchases of bonds from countries like Italy, whose debt has come under speculative attack. All of this reassures markets, and the cost of borrowing comes down. In turn, bank holdings of sovereign bonds retain their value. To make this deal possible, Germany has backed off its absolute opposition to supporting weaker economies and using the ECB to tacitly support sovereign debt. And France has agreed to give up some of its cherished fiscal sovereignty to the EU. Isn’t this wonderful? No, it’s terrible...

GOP vs. Job Creators

In the ongoing battle over extending the payroll tax cuts that currently save the median American household about $1,000 a year, one salient point is commonly overlooked: The proposal that the Obama administration and congressional Democrats are championing also cuts in half the payroll tax for employers. Currently, employers are subjected to a payroll tax of 6.2 percent on every paycheck they write. The Democratic proposal would reduce that to 3.1 percent on the first $5 million in taxable payroll—that is, it would chiefly benefit small and middle-sized businesses. Yet every Senate Republican but one (Maine’s Susan Collins) voted against this proposal when it came to a vote on Thursday, complaining that it taxed job creators by proposing to off set the tax cut by raising taxes on individuals and couples for that portion of their annual income in excess of $1 million. Never mind that that the Treasury Department has concluded that only 1 percent of those taxpayers are small businesses...

Schooling Capitalism

T his week, both coasts saw student marches on Monday and big-city police raids on Tuesday. As the chancellors of the University of California met by teleconference, students throughout the U.C. system held demonstrations and teach-ins opposing tuition hikes and police violence. At U.C. Davis, they called a student strike. Meanwhile, their counterparts at the City University of New York marched on their own board of trustees as it voted on five years of tuition hikes. Tuesday, Philadelphia police cleared occupiers out of city hall’s Dilworth plaza to make way for a $50 million renovation project. The raid followed multiple ostensible deadlines, and weeks of controversy within the camp and between occupiers and the city over whether they would relocate to a new space (many have). Los Angeles Mayor Antonio Villaraigosa, who earlier in his career was attacked for ACLU ties, drew criticism for restricting most journalists to a “First Amendment zone” as police forced out Occupy LA Tuesday...

Game Plan

With a labor agreement tentatively in place, the NBA's next challenge will be bringing the fans back.

AP Photo/Mike Segar
With its labor dispute nearly behind it, the NBA is facing another mammoth problem: winning fans back. In a time when the unemployment rate remains stubbornly high and the economy won’t grow, many basketball fans viewed the NBA strike as an ugly and petty fight of rich players against wealthy owners over a few more million. “It’s the most ridiculous thing I saw in my life,” one longtime fan ranted to the New York Post. “They make so much money. It’s childish.” Childish or not, as the National Basketball Association welcomes back its players after reaching a tentative deal last Saturday, it has to figure out a way to bring back fans who were stung not only by the lockout, but by years of expensive ticket prices, the LeBron James-decision fiasco, and players throwing tantrums. The five-month labor crisis and resulting lockout, which came after the players’ association and NBA owners’ inability to reach an agreement over a variety of issues from players’ salaries to revenue sharing after...

GOP vs. Job Creators

Republican opposition to extending the payroll tax misses the point.

In the ongoing battle over extending the payroll tax cuts that currently save the median American household about $1,000 a year, one salient point is commonly overlooked: The proposal that the Obama Administration and Congressional Democrats are championing also cuts in half the payroll tax for employers. Currently, employers are subjected to a payroll tax of 6.2 percent on every paycheck they write. The Democratic proposal would reduce that to 3.1 percent on the first $5 million in taxable payroll – that is, it would chiefly benefit small and middle-sized businesses. Yet every Senate Republican but one (Maine’s Susan Collins) voted against this proposal when it came to a vote on Thursday, complaining that it taxed job-creators by proposing to offset the tax cut by raising taxes on individuals and couples for that portion of their annual income in excess of $1 million. Never mind that that the Treasury Department has concluded that only 1 percent of those taxpayers are small...

NBA, Final

A league labor agreement includes a surprising caveat to protect owners from ... themselves.

AP Photo/Hans Deryk
After spending almost half the year in a pitched labor dispute that shutdown league operations, the NBA owners and players union agreed to a new collective bargaining agreement last weekend. The reformed players union—which had disbanded last month to file an antitrust lawsuit against the owners as a negotiating tactic—and league representatives are set to meet again Friday afternoon to come to official terms on the ten-year contract. As long as the final details (such as drug testing and player age restrictions) are worked out over the next week, a shortened 66-game season will kickoff on Christmas Day. The general consensus on the deal is that the owners came out ahead at the players' expense. The old contract had stipulated that 57 percent of basketball-related income go toward players' salaries, while the new deal reduces that number to 51 percent next season, and possibly even lower in years to come. But the fight wasn't just about the overall divide of money, and for the other...

Justice, Deferred

It may be frustrating when federal watchdogs strike toothless deals with Wall Street, but it reflects regulators' alarming lack of resources.

During the early aughts, the financial sector freely gambled with money implicitly or directly guaranteed by taxpayers, selling securities based on worthless subprime mortgages to their customers. We all know how that turned out. Yet those responsible for the worst recession since the Great Depression have for the most part escaped federal prosecution. Given this context, it is easy to understand why United States District Court Judge Jed Rakoff angrily rejected a proposed deal between the Securities and Exchange Commission (SEC) and Citigroup over the company's practice of selling toxic mortgage-backed securities to its customers at the same time it bet against them. His decision to reject the settlement—in which Citigroup would have to pay $285 million but not have to admit any wrongdoing—was praised as a win, at least in spirit, for the Occupy Wall Street crowd, and indeed it may have some positive effects, including letting banks know they can't get off that easy. But it is...

Way Down in the Hole

The big number from today’s labor report is 0.4, the percentage by which unemployment dropped in November. Overall, the economy created 120,000 jobs (compared to 100,000 for the previous month) and the unemployment rate declined to 8.6 percent, a substantial improvement over where the economy was in the previous month. In addition, the employment numbers for September and October were revised upwards by a total of 70,000 jobs, another positive sign. But that’s the extent of the good news in today’s report. Yes, the unemployment rate has fallen to 8.6 percent, but a substantial portion of that was driven by a shrinking labor force—according to the Bureau of Labor Statistics, the civilian labor participation force (the sum of employed and unemployed workers) declined by 0.2 percentage points to 64 percent. In other words, as people give up on finding work, they leave the labor force and place downward pressure on the unemployment measure, despite the fact that they’re still unemployed...

The Cost of Free Trade

Every president asserts that the next trade treaty will turn America into an export powerhouse, but that's just not true.

A ny renaissance of American manufacturing must begin by fundamentally reversing our trade policies—both in general and in particular toward China. Over the past two decades, leading U.S. manufacturers, both the venerable (like General Electric) and the new (like Apple), have offshored millions of jobs—by one recent estimate, 2.9 million—to China to take advantage of the cheap labor, generous state subsidies, and low currency valuation that are linchpins of China’s mercantilist development strategy. Other factors, including increasingly automated production, have also taken a toll on America’s manufacturing workforce, but it’s the mass exodus of American production to China and, more recently, the rise of indigenous, state-subsidized Chinese production that have decimated American industry and reduced the incomes of American workers. The United States government did not have to stand idly by while the nation’s industrial base was disassembled. It could have preserved and promoted key...

Bring Back the Space Race

To remain competitive, the U.S. needs to rebalance its portfolio of talent.

After the Soviets launched Sputnik, the U.S. created NASA and funneled millions of resources into technological and scientific research to shore up U.S. competitiveness. In China today, the government has had the foresight the U.S. once did and has put in place a talent program to support its students in the pursuit of higher education and innovation. Returning to the investment in science education of the Sputnik days and fostering technical talent like the Chinese may at once help reduce U.S. employment and make the country more competitive technologically. As Reuters recently reported, the U.S. has an insufficient supply of qualified skilled workers to fill job vacancies that require technical knowledge—especially in manufacturing, where technicians are in high demand. A manpower survey also reported that 52 percent of U.S. companies had trouble filling essential positions; that study supports statistics from the U.S. Labor Department showing that more three million tech jobs...

Just TELL Me You're Gonna Invade My Privacy

Federal regulators have reached a settlement with Facebook over privacy violations—but it's just a slap on the wrist for an industry that regularly sells user data.

Washington, D.C., and Facebook Inc. took part yesterday in another round of what we might call "working on their relationship." But that we're fixated on specific privacy violations rather than the day-in-day-out use of our personal data lets us know that there's a limit to the conversation in which they're engaged. What happened is this: The Federal Trade Commission (FTC) reached a settlement with Facebook that requires the company to stop engaging in privacy-violating practices and to participate in regular third-party privacy audits for the next 20 years. The agreement, prompted by a complaint by privacy-advocacy groups, is meant to address several places were Facebook was found to have gone astray in recent years—not truly deleting deleted user accounts, sharing friend lists that had been marked private, and changing privacy settings without really telling anyone. The agreement still needs to be approved by FTC commissioners at the end of December, after a period of public comment...

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