Another Decade of Dependence

I was reading the Wall Street Journal Online Edition today and came across an article Sovereign Impunity (subscription may be required). The article points out that the Abu Dhabi fund that just purchased a stake in Citigroup (a convertible preferred that converts to approximately 4.9% of the company’s shares) is funded with oil dollars. This fund now controls an estimated $875 billion according to this article, which is approximately 25% of all of the $2-3 trillion of assets owned by all of the sovereign wealth funds. This is an entity that obtains its funding through the sale of oil which is controlled by the government, not through free market risk taking. The article concludes by stating that it is US monetary policy that is responsible for the growth of these funds:

These funds owe much of their current size from bad U.S. monetary policy. We were nearly as ‘dependent on foreign oil’ in the 1980s and 1990s as we are today. But with a responsible Federal Reserve and strong dollar, there was no boom in petrodollars.

Only in this decade, amid the Fed's dollar abdication, have we again seen the boom in commodity prices that is enriching Russia, the Arab kingdoms, Venezuela (read a related Review & Outlook) and other dubious corners of the globe. Our own monetary mistakes have made these funds richer than they would be under normal market conditions. The response should not be to restrict their investment, but to start protecting the value of the dollar so that the price of oil falls back down to where it reflects supply and demand, not a cheapening U.S. currency.

Now, I may agree that our monetary policy has contributed to the decline in dollar value, but this completely misses the point. Before even considering the real issue, however, I point out that without a declining dollar we never get to a balance of trade that we can sustain over the long term. That said, what is the real issue?

The real issue is energy independence and it has been energy independence since the very first oil shocks in the 1970s. I knew this even as a teenager waiting on line at the gas station to put gas in my car. When we were originally impacted by the oil shocks we learned that we have an issue that must be dealt with in the long term, and that issue is that we are dependent upon foreign resources for our energy needs. As we have supported globalization through our trade policies, we have also increased competition for these foreign supplies from the emerging economies we support, making us even more vulnerable. This is not the 1980s or even the 1990s, and we now have serious global competition for scarce resources. Finally, we are learning that we cannot continue to poor pollutants into our atmosphere without consequence, and burning more fossil fuel is probably a bad idea.

Just how dependent are we on foreign oil? Well, according to the Energy Information Administration, in 2006 we imported on average 12,390,000 barrels of petroleum products per day. Based on a price of $94 per barrel, that’s about $1,164,660,000 ($1.16 billion). So what is today’s value of 4.9% of Citigroup in terms of petroleum imports? It’s about ($7.5/$1.164) 6.5 days of imports. That’s right, 6.5 days of petroleum imports equals 4.9% of Citigroup in today’s market. (I note that prices of different petroleum products differ, and the price changes regularly.)

Is this a result of poor monetary policy? I argue it is not, and the same forces that have driven up the price of oil have driven monetary policy. These factors are primarily related to globalization and our reaction, as a country, to it. For one thing, we have relentlessly pursued the pools of lowest cost labor we can find. This has driven prices of imported goods down at the same time we have made tremendous productivity gains. These forces have placed downward pressure on prices, and even threatened us with deflation in the early part of this decade. (Unfortunately none of this applies to health care or education that, for now, require the actual presence of professionals.) In response, the Federal Reserve lowered interest rates according to its traditional mandate so as to maintain growth and price stability. In this case, price stability meant avoiding deflation so the reaction was to keep interest rates extremely low for a long period of time. The natural result of this action is an increase in the money supply and a decrease in the value of the dollar (as well as pricing bubbles in, say, real estate). Ultimately, then, our pursuit of cheap labor comes back to us in the form of higher import prices due to a falling US dollar and asset bubbles. A side effect of this policy is that with a declining dollar the dollar value of our raw material imports increase. Add to that scenario the fact that we are now competing with countries such as China for the raw materials to be found around the globe, and we see why the prices of oil and other raw materials are rising. To blame monetary policy for this is to say that we should have left interest rates higher in the early part of this decade and likely suffered a recession with a simultaneous deflation, something that could be devastating to any economy. So is monetary policy responsible or is it the overall trading policies of the United States? I don’t believe the monetary policy argument is the critical issue.

(For additional reading on the impact of higher oil prices on monetary policy and the economy, there is a good article here at the Federal Reserve Bank of San Francisco website.)

Now that we can at least question whether it is monetary policy that is responsible for rising prices or some other factors that resulted in our monetary policy, we can move to the true cause of our problem. Despite decades of advance warning, we have not pursued, together as a nation, alternative sources of energy. Surely this is a goal that almost every American supports, barring those whose livelihood flows from the vertical chain of the oil industry. Lets take a look at some estimated numbers.

If we take the daily barrels we import and convert that to an annual amount, we get 148,320,000 barrels per year. Multiplying that by $94 per barrel gives us an annual cost of about $424 billion. How much is $424 billion? To put it in perspective, it is over two times the projected 2007 fiscal budget deficit of The United States, and on a monthly basis over 60% of the $56.5 billion total US trade deficit in September 2007.

Of course, finding alternative sources of energy is not free, and the alternative energy itself will not be free (although some sources may turn out to be just that). What it would be is liberating for the United States and other oil importing countries around the globe, and possibly very profitable and stimulating to our economy. So, rather than pointing fingers at who or what is responsible for the current situation that leads to 6.5 days of oil imports = 4.9% of Citigroup and proposing ways to make oil cheaper (not that I have a problem with that), I believe we are ready for the national challenge similar to the Kennedy era challenge of reaching the moon. We should have been ready for it decades ago, but we were lulled into complicity by low oil prices. Think of the change in policies that could result from energy independence. Would we fight as many wars? Would the world fight as many wars? Would we be wealthier? Would we save the earth from global warming? Could achieving energy independence balance the budget? Provide for Medicare? Decrease our defense spending? Etc.

I am certainly not the only person advancing this issue these days, but I feel strongly that more people need to advance it and be heard. Certainly a goal of energy independence through alternative and environmentally friendly sources is worth our consideration, our investment, and our short-term sacrifice. Should this be left to the free markets or should we look at this like a system of highways – something we need to build together, combining public finance and the free market system in order to foster the ability of free markets to further our advancement in the annals of human history? I believe the latter, and hope that even if oil prices fall substantially, we have learned our lesson and will make the necessary investments. At this point in our national history I crave a positive issue to unite around. This sounds like a timely one to me. Of course, that’s just my opinion.

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The Road To Poverty (Free Trade)

I was reading the WSJ today, as I do most every day, and I found a couple of very interesting articles that really compliment one another. This happens a lot, and when it does it makes for good blog fodder. The articles I am referring to are “Why The US Job Market Is Sagging In The Middle” which can be found here: http://www.careerjournal.com/salaryhiring/hotissues/20071012-wessel.html?cjpos=home_whatsnew_major&referer=sphere_related_content, and “The Burma Connection” which can be found here: http://online.wsj.com/article/SB119222553593857680.html?mod=hps_us_inside_today.

I must say that I found both articles to be very interesting and well done. The first article was in the Career Journal section, and it addresses the loss of good paying middle class jobs. These jobs are being replaced by personal service jobs, the demand for which is growing as those at the top demand more things like nannies, security guards, and so on. These are things that cannot be done anywhere else, so you can’t ship the jobs to another location to take advantage of lower wages or replace them with technology (not yet anyway). A bastion of safety from globalization and technology (unless, of course, you simply import the workers – some food for thought).

David Wessel, the author of this article, points to one possible solution to the widening wage discrepancy – unionize the service jobs to provide better wages thereby replacing the traditional middle-class factory workers with a new middle-class of service providers. I thought that was very interesting, and something the labor unions should grab on to (I’m sure this has not escaped them). They certainly are not winning many battles in their traditional strongholds such as the auto industry. Other possible avenues include further obfuscation of the tax code and trade restrictions, although Mr. Wessel correctly points out that many economists warn taking trade action would be costly to consumers (I assume here that he is referring to the increase in prices that would accompany a more restrictive trade policy). What I want to work through in this post is the globalization/trade restriction issue. This comes up a lot these days, including in the article about Myanmar, f/k/a Burma.

In the Burma article, author Andrew Higgins describes the tragic consequences for many residents of a planned economy, dictatorial regime, and economic sanctions. In particular, he explains the ordeal that many women go through each day crossing the Moei River into Thailand to work in factories for $4.30 per day (these are apparently the fortunate ones). This is the other side of the changing nature of the US work force and an important part, in my view, of the trade issue. These women living in abject poverty are working in textile mills making things such as braziers. The products ultimately end up on the shelves in our stores. Now, regardless of your political leaning, this is one of those facts that just cannot be reconciled with a national conscience grounded in freedom and fairness. OK, these are not people of our country, but so what? Something that results in these working conditions for these people and a product that we use is wrong and there should be a way to make it better, period. I am not claiming to know how.

We had circumstances in this country during the industrialization of our economy that left many workers in poverty. Now, I’m no expert on this point in history, but I have consulted someone who has read quite a bit about it. (I would like for him to do a piece on it, actually, and if I can convince him to there will be many more details to come). The very short upshot is that dreadful labor conditions led to revolt in the form of both violent and non-violent acts against industry and the political structure. Socialists, anarchists, and communists all gained popularity as workers were forced to endure these working conditions or go hungry. Ultimately, we altered the accepted rules of our society that had held labor could not bargain collectively. Originally (and today in many cases) collective bargaining was seen as collusion and inconsistent with a market based economy. Of course, with the deterioration of working conditions to the point of revolt, change was necessary. In this case laws were passed to allow workers the right to organize, thereby reducing the power of the business organization (yes, I use that term intentionally here) over that of the individual worker. If we had not done that, we may not have survived and thrived as we did. In fact, advancing workers’ wages turned out to be a good thing as we developed a strong middle class consumer population with a big appetite for goods and services. How did this happen?

I think it goes right back to basic economics. If the price of an input is dirt cheap, you will use that input over others. If the price of that input goes up, you will substitute another input for it. Now, there may be no absolute substitute for the labor of an individual, but if that labor gets more expensive, business figures out ways to compensate by innovating. This is the same argument for a minimum wage. It lifts people out of abject poverty (into just poverty) and it forces business to innovate. The innovation creates new job opportunities for those who are innovated out of a job, and the cycle continues. But if the cost of labor remains dirt cheap, there is no incentive to innovate around labor. It simply remains the low cost way to operate and workers suffer. This is also the argument for an increase in taxes on fuel.

Now connect the dots. What is happening in the US is certainly connected to what is happening in Myanmar. Business seeks out the lowest cost anywhere on the globe today. Don’t blame business, it is supposed to do that and it is good for us that it does. The issue here is the set of rules that business must play by once they leave the US. There are lots of rules, and we keep hearing these days that those rules are why US businesses are losing competitiveness around the world (too much regulation, too many law suits, etc.).

OK, time for a thought experiment. What if, instead of exporting jobs to places like Thailand, we exported our rules? What if we said to other countries that we will not trade with them unless they protect their workers and pay them at least a living wage (defining “living” as something greater than survival)? Lets throw in a little environmental protection while we’re at it. Well sure, the cost of labor would stay higher, but does that mean that in the long run the prices of everything will go up? I for one am not convinced that this is the only logical long-run result. Didn’t the price of a car in this country steadily decline while labor gained much higher wages during the 20th century? And labor is a large part of automobile manufacturing. Oh, that’s right, it’s less so today. Why? Maybe it has something to do with manufacturers substituting technology for labor due to labor’s high cost.

As long as we export the jobs without exporting the rules, we are in fact importing the rules through the back door in the form of lower wages to the middle class. We begin living by the standards of other nations rather than our own. We may also be losing our advantage in innovation if we simply lower costs by moving from one area of cheap labor to another. Any change will likely cause short term pain making it politically difficult, but in the long run no change could be a lot worse. In the mean time, can we please figure out a way to help people like those women in Myanmar? If we don’t, we may be looking at our future.

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The Rich Get Richer - for now

News out today about growth in income inequality tells us that through 2005, the wealthiest among us got even wealthier. The rich got richer, the poor poorer, the middle closer to the bottom. Actually, that’s not really what the data show. The true message is that a higher percentage of the total of all incomes went to the top 1% of the earners. Whether they kept any of that income is not in the data, so they may or may not be “wealthy.” If you want the details, you can find them all over the wires, including on this blog: http://commonsenseforecaster.blogspot.com/2007/10/rich-keep-getting-richer-this-short.html?referer=sphere_related_content .

The income data explain why the middle class is uneasy about the economic outlook while others feel everything is just fine. The share of the national profits that went to high earners grew (for them, everything is fine), which means the share that went to everyone else fell (things are not so good). Some argue this is because those with high-level skills can gain scale economies from these skills through the globalization of the economy (the argument from the right). Maybe. Or maybe the political machine has been used to benefit high earners more than low earners (the argument from the left). I think some of both, plus some other factors that someone should research (and I am sure someone will).

As I began analyzing this news, my mind went off in so many different directions that I have a scratchpad of notes that could provide blog fodder for a week. Issues include tax policy, executive compensation, national competitiveness, social fairness, immigration, and so on. I decided that I should focus on one discrete issue at a time, and picked the economies of scale argument as a starting point. (Maybe I’ll come back to some of the others in another post.) Here goes.

Truth be told, I kind of like the economies of scale argument. It makes some intuitive sense to me and relates to other issues I have written about lately. If your skills are suddenly in demand from many more customers (the world is flat!) and nobody else has learned to do what you do (or has the required resources at their command), according to the laws of supply and demand your skills should be worth more. If this is the reason for the higher share of income going to the wealthy, then the top earners better watch out! You know what happens in a global free market? Price (the high price of your skills) signals profitable demand and, as a result, people allocate resources to learning to do what you do. Supply goes up, price (the value of your skills) goes down. Right now you may be very valuable, but as those millions of students in China and India learn to do what you do, you may become less valuable.

It seems to me that this trend is already evident. Skills that take less time to learn, such as manufacturing and programming, have already moved to other markets. Just ask the UAW about this. I believe the same trend is happening in some areas of the high-earner industries, although many are in denial. It may just be that it has taken longer for global competition in high earner industries to develop due to lags in education or financial infrastructure.

Lets take Wall Street as an example, where high earners abound. There is concern on Wall Street that the United States is becoming less competitive in the business of underwriting. Our market share is in decline. What could be wrong? Well, Wall Street rallied the politicians who commissioned studies to determine why we are losing market share. They concluded that there are lots of reasons why, but THE FACT THAT WALL STREET CHARGES ABOUT TWICE THE FEES AS CHARGED IN OTHER MARKETS has nothing to do with it (they are in denial). I have written on this before, and if you would like the full commentary you can find it here: http://polecolaw.blogspot.com/2007/10/tale-of-two-cities-new-york-and-detroit.html. I suspect someone who writes full time will fully research this issue at some point, and I look forward to the result.

Wall Street is used to charging high fees because for decades they have had the only game in Globaltown. The global market for financial resources has, however, begun to mature and Wall Street is no longer the bouncer at the only club in town. If you don’t like the cover charge you can go down the street (or across the pond). As capital accumulates in other markets, financial talent follows it. These markets will naturally compete with our markets, and more competition leads to lower prices. Supply and demand - remember that’s why Wall Street salaries are high to begin with. So why is Wall Street losing market share? Because Wall Street charges too much given its loss of the monopoly it has had for so long. Does this sound like Xerox? Yup.

To stay competitive Wall Street will likely need to lower its price and this means less money for the high earners on Wall Street. So it appears to me that Wall Street may just be a few years behind Main Street. For other professionals such as corporate executives who reap huge benefits from running concentrations of shareholder investment, it will probably take longer to suffer any competitive impact. They are, to some extent, insulated from competition for their positions because they have some control over the process (that argument from the other side). Likewise, attorneys (another high earner group) still have barriers to entry as against global competitors because attorneys must be admitted to practice in the United States. But if Wall Street lowers prices, they may put pressure on their lawyers to follow suit. I am beginning to feel some pain.

Since Wall Street makes up a large portion of those top earners, the latest trend in earnings may soon reverse course. The reported data is from 2005, and I wonder what it will look like for 2008.

Back to the scratchpad. Maybe I’ll wait and try to decipher some of the (other) inevitable babble that will follow this news.
(c) Mark Palermo, 2007

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A Tale of Two Cities: New York and Detroit (Wall Street Competitiveness)

A Tale of Two Cities: New York and Detroit (revised)

The other day I wrote about the recent UAW/GM contract negotiations, and some commentary about the outcome. The bottom line of my piece is that US autoworkers are being forced down the standard of living scale by a shift in power from labor to business, and the main argument used to support this shift is competition from the global economy. Whether this is actually the case remains unclear, but it is certainly the reason given by business and the media in general for the decline in US manufacturing job compensation in Detroit. (For more on that see my post.)

I was reading an article in The WSJ Online edition today regarding Sen. Jeff Sessions promotion of a bill favoring financial institutions over accepted intellectual property rights, and I was struck by the way the rules are changed when the “victim” is an industry with very strong ties to the rule makers. (Of course, we all know there was gambling at Rick’s, but at least it was in the back room.)

Being interested in this example of the imbalance of power, I began to poke around a little, and came upon a recent report published by The Senate Republican Policy Committee which can be found at http://rpc.senate.gov/_files/061907competitivenessDK.pdf . The report (the “Senate Report”) is entitled Excesses Threaten U.S. Competitiveness, When Excess Damages Success: Have Litigation, Taxation, and Regulation Gone Too Far? This report, dated June 19, 2007 explains that US banks (Wall Street) are losing competitiveness to foreign markets. The conclusion of this report is:

"The declining competitiveness of the United States’ capital markets may be a canary in the coal mine of a much deeper problem. The trends of excessive regulation, litigation, and taxation in our capital markets are being replicated in other parts of our economy. Unless Congress, the Administration, and the business community create a clear and unified blueprint for maintaining our nation’s competitiveness, capital and jobs will continue to move overseas."

One of the major resources relied on for this finding is a report (the “McKinsey Report”) generated by McKinsey & Company for Mayor Blumburg of New York and United States Senator Charles Schumer entitled Sustaining New York’s and the US’ Global Financial Services Leadership which can be found at http://www.senate.gov/~schumer/SchumerWebsite/pressroom/special_reports/2007/NY_REPORT%20_FINAL.pdf . Citing this report, the Senate Report states that

“Regulatory and litigation burdens are two major drivers of declining
competitiveness for capital markets.

In a large survey of industry leaders, McKinsey & Company, a premier management consulting firm, found that about two-fifths of CEOs surveyed expected that New York City—and by extension the United States—would become less attractive as a place to do business. McKinsey found that what clearly dominated these views were fears that two factors would not be present: 1) a fair and predictable legal environment and 2) a strong but responsive regulatory environment.”

In other words, the problems causing New York banks to lose market share are taxes, the lawyers bringing too many frivolous lawsuits against companies in the US, and over-regulation of US companies. This is causing companies to go overseas and sell their stock in foreign markets. Now, to be fair, there is some merit to these claims, and I am all for rationalizing our regulatory systems. There is a price to be paid, however, for transparency and safety and I do not believe we should go too far. (This is the stuff of a future blog piece.) All of this got me thinking about the competitiveness issue for investment banks. Being a former analyst and having just written a piece regarding global competition, the first question that came to mind was how much of this competitive loss is being caused by these factors as compared to good old competition from lower cost global competitors?

Well, I reviewed the McKinsey Report (though I will admit I did not read all 142 pages of it in its entirety), and was startled at what I did not find. What I did not find in all of the 142 pages of the McKinsey Report was a material discussion of the impact of lower fees charged by banks in other countries having an impact on the competitiveness of New York banks. Not to digress, but how can one of the premier consulting firms on the face of the Earth, engaged by The City of New York and the United States Congress, produce a report that purports to study why US Banks are losing competitiveness to banks overseas not consider the prices being charged by overseas competitors? Either the researchers were instructed to report only on select issues, or the research is completely flawed. You be the judge. Here is what they had to say about the fees:

“Another explanation put forward by some commentators as to why international issuers are staying away from US equity markets is the fact that the underwriting fees charged by investment banks are significantly higher for US listings than in competing markets. One study reveals that underwriting fees for non-domestic listings were 5.6 percent and 7.0 percent on the NYSE and NASDAQ, respectively, compared with just 3.5 percent on London’s man market. But while such figures may seem significant when looked at in isolation, their importance relative to the overall value of an IPO s fairly low, and easily outweighed by the benefits of a more liquid market and superior execution. Surveys conducted for this report corroborate this thesis: when asked to rate the importance of underwriting fees in the overall process of listing a company on the public equity markets, survey respondents ranked underwriting fees last among seven factors, with just 4 percent judging the issue ‘very important.’” (See pg 49 of the McKinsey Report.) (Note that they did not site the LSE Report discussed below here, as that would show a larger fee discrepancy.) Who are these respondents who deem it not important that the fees charged are almost double? “… a McKinsey team personally interviewed more than 50 financial services industry CEOs and business leaders. The team also captured the views of more than 30 other leading financial services CEOs through a survey and those of more than 75 additional global financial services senior executives through a separate on-line survey.” (See McKinsey Report pg 8.) So the people who say the vast differential in the fee is not important are the very people running these businesses and charging these fees. Sounds conclusive to me.

As it turns out there has been a study that identifies the fee differentials between international markets for investment banking services. I found it in a footnote to the McKinsey Report (so they looked at this report). You can find the report (the “LSE Report”), published by The London Stock Exchange, here http://www.londonstockexchange.com/NR/rdonlyres/B032122B-B1DA-4E4A-B1C8-42D2FAE8EB01/0/Costofcapital_full.pdf .

The LSE Report finds "Gross spreads of IPOs on the US exchanges are found to be highest, averaging 6.5% for the NYSE sample and 7% for Nasdaq IPOs. In comparison, median spreads of IPOs on the LSE’s Main Market are 3.25% and those on AIM somewhat higher at 4%. Thus, there is a cost saving of three percentage points for a UK transaction compared with a US transaction." (See pg 18 of the LSE Report.) How much is 3%? Well, for the over $4 billion Blackstone initial public offering, that would be at least (.03X4,000,000,000) $120 million! That's just the excess of US over other markets. How does this compare to the first year’s cost of compliance with Sarbanes-Oxley? That cost is estimated at $4.4 million according to a 2005 survey cited in the LSE Report (LSE Report pg. 33).

So let’s review. The fee charged is by far the largest component of the cost of issuance in the US, and fees in the US are by far the largest among international competitors. This fee differential is not, however, why US banks are losing competitiveness. The reason is the cost of these darn law suits and regulations that companies in the US must put up with. That’s the New York tale. The Detroit tale? US workers at GM, Ford, and Chrysler must reduce their standard of living because we cannot compete with lower cost labor from foreign competitors. My conclusion? Perhaps Wall Street should lower the standard of living of its employees so that it can better compete with the foreign competition just like those on main street in Detroit are doing. Otherwise, stop spending my tax dollars on stupid reports that ignore the most obvious issues. Now don’t get me wrong. I am all for US competitiveness. We need to continue to study our competitiveness and actions we should take to ensure our future. I, however, would prefer to do so with full information applied across all of the US constituents rather than targeted reports used to influence the rule making process for the benefit of those in power (which is my interpretation of the McKinsey Report).

PS – if you think the higher fees charged by the New York banks has to do with the cost of living in New York, forget it. The studies show that is not the case.

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UAW/GM (Free Trade)

An opinion comment on the UAW/GM deal posted here for discussion. Criticism is welcome, however kindly refrain from labels such as “communist”, “socialist”, and “protectionist”. Rather, please post thoughtful comments that address the issues raised.

“The UAW’s Awakening”, an article that appeared in the WSJ Online and can be found here - http://online.wsj.com/article/SB119103039313343439.html (subscription required) [and here in print - September 29, 2007; Page A8] - discusses the recent deal struck between GM and the UAW. The deal includes some major givebacks by the Union, and the article in essence makes the claim that this was inevitable given global competition. US workers cannot maintain their hold over business when business is competing with global producers or the inevitable result is bankruptcy. I have several issues with this basic assumption.

My first point is that GM is not suffering just at the hands of global competition. It is largely domestic foreign manufacturers cleaning its clock. This is not globalization, but rather opening our vast consumer market to foreign competitors without restriction. I would like the writer of the WSJ article to compare the openness of the US consumer market for autos to other markets around the globe. Will we begin to see there is a large political element to the destruction of UAW power? In addition, if GM management had focused on managing its product line to better meet the needs of its customers rather than on building gas hog SUVs would GM be in its current situation? (Remember that tax incentive to purchase vehicles over 5,000 pounds congress passed after 9/11? Did GM have a hand in that? Was that an example of the free market at work? For those of you who react to this article by worshipping free markets, please address how this incentive, which naturally skewed the allocation of consumption resources in GM's favor, is a free market phenomenon.)

My second point is an even if. Even if we assume it is globalization that is undermining GM's ability to compete given its current labor contracts, what if anything is being done to protect the US workforce from the impact of poor labor conditions around the globe? Apparently it is better to allow labor to be exploited so long as it is “over there.” Unfortunately, the impact over here is seen in the reduced standard of living domestic autoworkers will now be forced to accept.

Finally, if globalization is causing a reduction in the ability of the US to profit from its economic endeavors, why are the stock market, corporate profits, and corporate officer compensation at all time highs? It seems painfully obvious that what is occurring is a shift from labor to capital masked by terms like “globalization” and “free market economy.” In reality, we gave up on completely free markets long ago when labor was at the door with sticks and rocks. Our democratic form of government was able to react and to reverse the imbalance of power of business over labor by passing laws to protect workers. By opening our borders to imports from overseas where labor has limited rights, we are bypassing those laws. Who benefits most from this? Follow the money….

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